U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-QSB
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER: 000-23163
EAGLE WIRELESS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
TEXAS 76-0494995
(State or other jurisdiction) (IRS Employer
of incorporation or organization Identification No.)
910 GEMINI AVENUE
HOUSTON, TEXAS 77058-2704
(Address of principal executive offices, including zip code)
(281) 280-0488
(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (I) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (ii) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
AS OF DECEMBER 31, 1998 THERE WERE 11,670,155 SHARES OF COMMON STOCK
OUTSTANDING
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC.
INDEX
PART 1 - FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements (Unaudited)
Balance Sheets at November 30, 1998 and August 31, 1998 3
Statements of Income for the three
months ended November 30, 1998 and 1997 4
Statements of Changes In Shareholders' Equity for the
three months ended November 30, 1998 and 1997 5
Statements of Cash Flows for the three months ended
November 30, 1998 and 1997 6
Notes to the financial statements 7-16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16-17
SIGNATURES 17
-2-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC.
BALANCE SHEETS
(IN THOUSANDS)
ASSETS
NOVEMBER 30, AUGUST 31,
1998 1998
(UNAUDITED) (AUDITED)
CURRENT ASSETS:
Cash and Cash Equivalents (Note 1) .......... $ 539 $ 1,097
Accounts Receivable ......................... 6,084 5,392
Inventories (Note 1) ........................ 1,305 1,273
Prepaid Expenses ............................ 15 70
------- -------
Total Current Assets ..................... 7,943 7,832
PROPERTY AND EQUIPMENT (NOTE 1):
Operating Equipment ......................... 957 933
Less: Accumulated Depreciation .............. (251) (224)
------- -------
Total Property and Equipment ............. 706 709
OTHER ASSETS:
Security Deposits ........................... 11 9
------- -------
Total Other Assets ....................... 11 9
TOTAL ASSETS ................................ $ 8,660 $ 8,550
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable ........................... $ 313 $ 337
Accrued Expenses ............................ 109 118
Shareholders' Advances (Note 10) ............ -- 24
Notes Payable (Note 2) ...................... 9 13
Capital Lease Obligations (Note 3) .......... 13 11
Deferred Revenues ........................... 53 56
Federal Income Taxes Payable (Notes 1 & 4) .. 431 375
Franchise Taxes Payable ..................... 49 42
Sales Taxes Payable ......................... 44 38
Deferred Taxes (Note 4) ..................... 5 5
------- -------
Total Current Liabilities ................ 1,026 1,019
LONG - TERM LIABILITIES:
Capital Lease Obligations (net of current
maturities) (Note 3) ...................... 16 9
Deferred Taxes (Note 4) ..................... 6 6
------- -------
Total Long - Term Liabilities ............ 22 15
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 12)
SHAREHOLDERS' EQUITY:
Preferred Stock - $.001 par value,
Authorized 5,000,000 shares
Issued -0- shares ......................... -- --
Common Stock - $.001 par value,
Authorized 100,000,000 shares
Issued and Outstanding at November 30
and August 31, 1988 11,670,155 shares ..... 12 12
Paid in Capital ............................. 5,973 5,973
Retained Earnings ........................... 1,627 1,531
------- -------
Total Shareholders' Equity ............... 7,612 7,516
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .. $ 8,660 $ 8,550
======= =======
See accompanying notes to the financial statements.
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<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC.
STATEMENTS OF EARNINGS
(IN THOUSANDS)
THREE MONTHS THREE MONTHS
ENDED ENDED
NOVEMBER 30, NOVEMBER 30,
1998 1997
(UNAUDITED) (UNAUDITED)
NET SALES ................................. $ 931 $ 558
COST OF GOODS SOLD
Materials and Supplies ................. 184 35
Direct Labor and Related Costs ......... 163 84
Depreciation and Amortization .......... 18 6
Other Manufacturing Costs .............. 55 91
------------ ------------
Total Cost of Goods Sold ............ 420 216
------------ ------------
GROSS PROFIT ............................. 511 342
OPERATING EXPENSES
Selling, General and Administrative
Salaries and Related Costs .......... 131 113
Advertising and Promotion ........... 68 215
Depreciation and Amortization ....... 9 17
Research & Development .............. 154 33
Other Support Costs ................. 173 33
------------ ------------
Total Operating Expenses ......... 535 411
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EARNINGS FROM OPERATIONS BEFORE OTHER
REVENUES/ (EXPENSES) AND INCOME TAXES ..... (24) (69)
OTHER REVENUES/ (EXPENSES)
Interest Income (net) .................. 176 95
------------ ------------
Total Other Revenues ................ 176 95
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EARNINGS BEFORE INCOME TAXES .............. 152 26
Provision For Income Taxes ............. 56 9
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NET EARNINGS .............................. $ 96 $ 17
============ ============
Net Earnings Per Common Share:
Primary ............................. $ .01 $ .001
Diluted ............................. $ .01 $ .001
Weighted Average Common Shares Outstanding:
Primary ............................. 11,670,155 11,542,001
Diluted ............................. 11,750,530 11,549,876
See accompanying notes to the financial statements.
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<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additional Total
August 31, 1997 Common Preferred Paid In Retained Shareholders'
To November 30, 1998 Stock Stock Capital Earnings Equity
- ---------------------- -------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Total As of August 31, 1997 ..... 12 -- 5,820 760 6,592
Net Earnings 1998 ............... 771 771
New Stock Issued to Shareholders
J. Hamilton (Nov. 1997) ...... -- -- 60 0 60
D. Walker (Nov. 1997) ........ -- -- 82 0 82
D. Walker (Aug. 1998) ........ -- -- 96 0 96
Syndication Costs ............... -- -- (85) 0 (85)
------ ------ ------ ------ ------
Total As Of August 31, 1998 ..... 12 -- 5,973 1,531 7,516
Net Earnings For The Three Months
Ended November 30, 1998 ...... 96 96
------ ------ ------ ------ ------
Total As Of November 30, 1998 ... 12 -- 5,973 1,627 7,612
</TABLE>
See accompanying notes to the financial statements.
-5-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS THREE MONTHS
ENDED ENDED
NOVEMBER 30, NOVEMBER 30,
1998 1997
(UNAUDITED) (UNAUDITED)
Cash Flows From Operating Activities
Net Earnings ................................... $ 96 $ 17
Adjustments To Reconcile Net Earnings To
Net Cash
Used By Operating Activities:
Depreciation and Amortization ................ 27 23
(Increase)/Decrease in Accounts
Receivable ................................. (692) 194
(Increase)/Decrease in Inventories ........... (32) (303)
(Increase)/Decrease in Prepaid Expenses ...... 55 5
Increase/(Decrease) in Accounts Payable
and Accrued Exp ............................ (33) (141)
Increase/(Decrease) in Deferred Taxes ........ -- 4
Increase/(Decrease) in Deferred Revenues ..... (3) --
Increase/(Decrease) in Sales Tax Payable ..... 6 --
Increase/(Decrease) in Fed Inc Taxes Payable . 56 --
Increase/(Decrease) in Franchise Taxes Payable 7 --
Total Adjustments ............................ (609) (217)
Net Cash Used By Operating Activities ........... (513) (200)
Cash Flows From Investing Activities
Purchase of Property and Equipment .............. (24) (84)
(Increase)/Decrease in Other Assets ............. (2) (51)
Net Cash Used By Investing Activities .............. (26) (135)
Cash Flows From Financing Activities
Increase/(Decrease) in Notes Payable and
Capital Leases ................................ 5 (9)
Increase/(Decrease) in Shareholders' Advances ... (24) (4)
Increase/(Decrease) in Syndication Costs ........ -- (50)
Proceeds From Sale of Common Stock, Net ......... -- 143
Net Cash Provided/(Used) By Financing Activities ... (19) 80
Net Decrease in Cash ............................... (558) (255)
Cash at the Beginning of the Year .................. 1,097 2,895
Cash at the End of the Year ........................ $ 539 $ 2,640
See accompanying notes to the financial statements.
-6-
<PAGE>
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
Eagle Wireless International, Inc., (the Company), incorporated as a Texas
corporation on May 24, 1993 and commenced business in April of 1996. The Company
is a worldwide supplier of telecommunications equipment and related software
used by service providers in the paging and other wireless personal
communications markets. The Company designs, manufactures, markets and services
its products under the Eagle name. These products include transmitters,
receivers, controllers, software and other equipment used in personal
communications systems (including paging, voice messaging, cellular and message
management and mobile data systems) and radio and telephone systems.
Prior to April, 1996, the Company was inactive. During April, 1996, the Company
commenced operations by the issuance of stock for cash, certain inventories,
test equipment, other assets, and the assumption of certain liabilities to its
principal shareholder. Concurrent with this transaction, the Company entered
into an asset purchase agreement with a company to acquire certain other
production equipment, inventories and furniture and equipment.
A) Cash and Cash Equivalents
The Company has $498,559 and $1,088,555 invested in interest bearing accounts at
November 30 and August 31, 1998, respectively.
B) Property and Equipment
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is calculated by using the straight-line method for financial
reporting and accelerated methods for income tax purposes. The recovery
classifications for these assets are listed as follows:
YEARS
-------
Machinery and equipment 7
Furniture and Fixtures 7
Expenditures for maintenance and repairs are charged against income as incurred
and major improvements are capitalized.
C) Inventories
Inventories are valued at the lower of cost or market. The cost is determined by
using the FIFO method. Inventories consist of the following items:
November 30, 1988 August 31, 1988
Raw Materials $ 719,202 $ 719,157
Work in Process 585,278 554,124
Finished Goods - 0 - -0-
------------- --------------
$ 1,304,480 $ 1,273,281
============= ==============
D) Organizational Costs
For the year ended August 31, 1998, the Company has adopted the provisions of
the AICPA's Statement of Position (SOP) No. 98-5 "Reporting on the Costs of
Start-Up Activities", which requires that all costs related to a companies
start-up activities should now be expensed during the period incurred rather
than capitalized and amortized over a period of time. Prior to the year ended
August 31, 1998, organizational costs had been amortized using the straight line
method over a period of sixty (60) months. Accumulated amortization was $997 for
the year ended August 31, 1997. As a result of "SOP" 98-5, the remaining
unamortized organization costs of $2,328 were expensed through amortization
expense as of the year ended August 31, 1998.
-7-
<PAGE>
NOTE 1 -BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
E) Research and Development Costs
The Company's research and development costs include obligations to perform
contractual services for outside parties. These costs are expensed as contract
revenues are earned. Research and development costs of $153,529 and $33,306 were
expensed for the periods ended November 30, 1998 and 1997, respectively.
Contract revenues earned for the periods ended November 30, 1998 and 1997 were
approximately $ 225,000 and $150,000, respectively.
F) Income Taxes
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes", which requires a change
from the deferral method to assets and liability method of accounting for income
taxes. Timing differences exist between book income and tax income which relate
primarily to depreciation methods.
G) Net Earnings Per Common Share
Net earnings per common share is shown as both primary and fully diluted.
Primary earnings per common share are computed by dividing net income less any
preferred stock dividends (if applicable) by the weighted average number of
shares of common stock outstanding. Fully diluted earnings per common share are
computed by dividing net income less any preferred stock dividends (if
applicable) by the weighted average number of shares of common stock outstanding
plus any dilutive common stock equivalents. The components used for the
computations are shown as follows:
NOVEMBER 30, 1998 NOVEMBER 30, 1997
----------------- -----------------
Weighted Average Number of Common
Shares Outstanding Including:
Primary Common Stock Equivalents 11,670,155 11,542,001
Fully Dilutive Common Stock Equivalents 11,750,530 11,549,876
H) Warrants for Funding Activities
To date, the Company has issued the following warrants: 5,033,334 Class A;
5,033,334 Class B; 1,050,000 Class C; 1,050,000 $.05; 1,375,000 $.50; 425,000
$5.00;150,000 $1.50; 150,000 $2.00; 200,000 $3.00; 200,000 $5.00; 200,000 $7.00;
200,000 $9.00; 200,000 $11.00; and 50,000 $2.00. Certain of these warrants were
issued to individuals and trusts for their assistance in the fundraising
activities. The Company has assigned a value of $280,343 as compensation for
these fund raising activities.
I) Advertising and Promotion
All advertising related costs are expensed as incurred. The Company does not
incur any cost for direct-response advertising. For the periods ended November
30, 1998 and 1997, the Company had expensed $67,836 and $214,956, respectively.
J) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent asset and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
K) Reclassification
The Company has reclassified certain costs and expenses for the three months
ended November 30, 1997 to facilitate comparison to the three months ended
November 30, 1998.
-8-
<PAGE>
NOTE 2 - NOTES PAYABLE:
NOVEMBER 30, 1988 AUGUST 31, 1988
----------------- ---------------
Unsecured note to insurance
company bearing interest at 8%,
due $2,122 monthly until December 1998 ... $ 2,122 $12,731
Unsecured note to insurance
company, non-interest bearing,
due $2,457 quarterly until February 1999 . $ 4,913 $ --
Unsecured note to insurance
company, non-interest bearing,
due $1,074 monthly until January 1999 .... $ 2,149 --
------- -------
Total ................................ 9,184 12,731
Less Current Portion of
Long - Term Debt .................. 9,184 12,731
------- -------
Total Long - Term Debt ............... $ -0- $ -0-
======= =======
NOTE 3 - CAPITAL LEASE OBLIGATIONS:
NOVEMBER 30, 1988 AUGUST 31, 1988
----------------- ---------------
Equipment lease with Associates
Capital bearing interest at 7%,
payable in monthly installments
of $1,177; due September 1998 ........... $ -- $ 2,272
Equipment lease with IKON
Office Solutions bearing
interest at 18% payable in
monthly installments of
$105; due March, 2000 .................... $ 1,482 $ 1,746
Software lease with Manifest
Group bearing interest at
11%, payable in monthly
installments of $751; due
August, 2000 ............................. 14,260 15,728
Equipment lease with IKON
Office Solutions bearing
interest at 9%, payable
in monthly installments of
$445; due September, 2001 ................ $13,272 $ --
------- -------
Total Obligations .................... 29,014 19,746
Less Current Portion of
Lease Obligations ................. 13,176 11,125
------- -------
Total Long - Term Capital
Lease Obligations ................. $15,838 $ 8,621
======= =======
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<PAGE>
NOTE 3 - CAPITAL LEASE OBLIGATIONS: (CONTINUED)
The capitalized lease obligations are collateralized by the related equipment
acquired with a net book value of approximately $ 32,925 and $ 45,000 at
November 30 and August 31, 1998, respectively. The future minimum lease payments
under the capital leases and the net present value of the future lease payments
at November 30 and August 31, 1998 are as follows:
NOVEMBER 30, 1998 AUGUST 31, 1998
----------------- ---------------
Total minimum lease payments ............. $ 32,576 $ 22,319
Less: Amount representing interest ...... 3,563 2,573
--------- ---------
Present value of net minimum
lease payments ....................... $ 29,014 $ 19,746
Future obligations under the lease terms are:
Period Ending
August 31, AMOUNT
---------
1999 ................................... $ 12,017
2000 ................................... 14,774
2001 ................................... 5,340
2002 ................................... 445
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Total .................................. $ 32,576
NOTE 4 - INCOME TAXES:
As discussed in note 1, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".
Implementation of SFAS 109 did not have a material cumulative effect on prior
periods nor did it result in a change to the current year's provision. The
Company's effective Federal Tax Rate for the years ended August 31, 1988 and
1987 was 33% and 32%, respectively. Deferred income taxes are provided for
differences between financial statement and income tax reporting. Principal
differences are in the manner in which depreciation is computed for financial
and income tax reporting purposes.
NOTE 5 - PREFERRED STOCK, STOCK OPTIONS AND WARRANTS:
In July, 1996, the Board of Directors and majority shareholders authorized
5,000,000 shares of Preferred Stock with a par value of $.001. As of November
30, 1988, no Preferred Stock has been issued.
In July, 1996, the Board of Directors and majority shareholders adopted a stock
option plan under which 400,000 shares of Common Stock have been reserved for
issuance. As of November 30, 1988, 85,375 options have been granted under the
plan.
In May of 1996, the Company received an aggregate of $375,000 in bridge
financing in the form of interest-free convertible notes from unaffiliated
individuals. Holders of $369,000 of these notes converted into 369,000 shares of
Company common stock, and the balance of $6,000 was retired in November of 1996.
In conjunction with the issuance of such indebtedness, the Company has issued
such investors $.50 Warrants to purchase 375,000 shares of common stock, and
$5.00 Warrants to purchase up to 375,000 shares of common stock.
The Company has issued the following warrants which have since been exercised:
700,000 stock purchase warrants which expire July, 2000. The
warrants are to purchase fully paid and non- assessable shares of the
common stock, par value $.001 per share at a purchase price of $.01 per
share. These warrants were exercised as of August 31, 1997.
-10-
<PAGE>
NOTE 5 - PREFERRED STOCK, STOCK OPTIONS AND WARRANTS: (CONTINUED)
The Company has issued and outstanding the following warrants which have not yet
been exercised as of November 30, 1988:
1,050,000 stock purchase warrants which expire May, 1999. The warrants are
to purchase fully paid and non-assessable shares of the common stock, par
value $.001 per share at a purchase price of $.05 per share. These
warrants, however, are not exercisable until and unless the shares of
Common Stock trade at a minimum of $5.50 per share for twenty consecutive
trading days, yet still expire May, 1999 if not exercised.
1,375,000 stock purchase warrants which expire May, 1999. The warrants are
to purchase fully paid and non-assessable shares of the common stock, par
value $.001 per share at a purchase price of $.50 per share. These
warrants, however, are not exercisable until and unless the shares of
Common Stock trade at a minimum of $5.50 per share for twenty consecutive
trading days, yet still expire May, 1999 if not exercised.
150,000 stock purchase warrants. The warrants are to purchase fully paid
and non-assessable shares of the common stock, par value $.001 per share
at a purchase price of $1.50 per share. These warrants, however, are not
exercisable until and unless the shares of Common Stock trade at a minimum
of $4.00 per share for sixty-one consecutive trading days. These warrants
will expire one year from the date of effective registration of the
underlying shares of common stock. As of November 30, 1988, the underlying
shares of common stock have not yet been registered for resale under the
Securities Act of 1933 and thus have no set expiration date.
150,000 stock purchase warrants. The warrants are to purchase fully paid
and non-assessable shares of the common stock, par value $.001 per share
at a purchase price of $2.00 per share. These warrants, however, are not
exercisable until and unless the shares of Common Stock trade at a minimum
of $5.50 per share for sixty-one consecutive trading days. These warrants
will expire one year from the date of effective registration of the
underlying shares of common stock. As of November 30, 1988, the underlying
shares of common stock have not yet been registered for resale under the
Securities Act of 1933 and thus have no set expiration date.
50,000 stock purchase warrants which expire August 31, 2000. The warrants
are to purchase fully paid and non-assessable shares of the common stock,
par value $.001 per share, at a purchase price of $2.00 per share. If,
however, the closing bid price of the Common Stock shall have equaled or
exceeded $5.50 per share for a period of twenty consecutive trading days
at any time, the Company may redeem the warrants by paying holders $.05
per warrant. As of November 30, 1988, the underlying shares of common
stock have not yet been registered for resale under the Securities Act of
1933.
200,000 stock purchase warrants. The warrants are to purchase fully paid
and non-assessable shares of the common stock, par value $.001 per share
at a purchase price of $3.00 per share. These warrants, however, are not
exercisable until and unless the shares of Common Stock trade at a minimum
of $7.50 per share for sixty-one consecutive trading days. These warrants
will expire two years from the date of effective registration of the
underlying shares of common stock. As of November 30, 1988, the underlying
shares of common stock have not yet been registered for resale under the
Securities Act of 1933 and thus have no set expiration date.
200,000 stock purchase warrants. The warrants are to purchase fully paid
and non-assessable shares of the common stock, par value $.001 per share
at a purchase price of $5.00 per share. These warrants, however, are not
exercisable until and unless the shares of Common Stock trade at a minimum
of $10.00 per share for thirty-one consecutive trading days. These
warrants will expire three years from the date of effective registration
of the underlying shares of common stock. As of November 30, 1988, the
underlying shares of common stock have not yet been registered for resale
under the Securities Act of 1933 and thus have no set expiration date.
425,000 stock purchases warrants which expire May, 1999. The warrants are
to purchase fully paid and non-assessable shares of the common stock, par
value $.001 per share at a purchase price of $5.00 per share. These
warrants are subject to restrictions regarding the timing of exercise. The
underlying shares of common stock were registered for resale on September
4, 1997 under the Securities Act of 1933.
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<PAGE>
NOTE 5 - PREFERRED STOCK, STOCK OPTIONS, AND WARRANTS: (CONTINUED)
200,000 stock purchase warrants. The warrants are to purchase fully paid
and non-assessable shares of the common stock, par value $.001 per share
at a purchase price of $7.00 per share. These warrants, however, are not
exercisable until and unless the shares of Common Stock trade at a minimum
of $12.00 per share for thirty-one consecutive trading days. These
warrants will expire three years from the date of effective registration
of the underlying shares of common stock. As of November 30, 1988, the
underlying shares of common stock have not yet been registered for resale
under the Securities Act of 1933 and thus have no set expiration date.
200,000 stock purchase warrants. The warrants are to purchase fully paid
and non-assessable shares of the common stock, par value $.001 per share
at a purchase price of $9.00 per share. These warrants, however, are not
exercisable until and unless the shares of Common Stock trade at a minimum
of $14.00 per share for thirty-one consecutive trading days. These
warrants will expire five years from the date of effective registration of
the underlying shares of common stock. As of November 30, 1988, the
underlying shares of common stock have not yet been registered for resale
under the Securities Act of 1933 and thus have no set expiration date.
200,000 stock purchase warrants. The warrants are to purchase fully paid
and non-assessable shares of the common stock, par value $.001 per share
at a purchase price of $11.00 per share. These warrants, however, are not
exercisable until and unless the shares of Common Stock trade at a minimum
of $16.00 per share for thirty-one consecutive trading days. These
warrants will expire five years from the date of effective registration of
the underlying shares of common stock. As of November 30, 1988, the
underlying shares of common stock have not yet been registered for resale
under the Securities Act of 1933 and thus have no set expiration date.
5,033,334 Class A stock purchase warrants which expire August 31, 2000.
The warrants are to purchase fully paid and non-assessable shares of the
common stock, par value $.001 per share at a purchase price of $4.00 per
share. If, however, the closing bid price of the Common Stock shall have
equaled or exceeded $5.50 per share for a period of twenty consecutive
trading days at any time, the Company may redeem the Class A Warrants by
paying holders $.05 per Class A Warrant. The underlying shares of common
stock were registered for resale on September 4, 1997 under the Securities
Act of 1933.
5,033,334 Class B stock purchase warrants which expire August 31, 2000.
The warrants are to purchase fully paid and non-assessable shares of the
common stock, par value $.001 per share, at a purchase price of $6.00 per
share. If, however, the closing bid price of the Common Stock shall have
equaled or exceeded $7.50 per share for a period of twenty consecutive
trading days at any time, the Company may redeem the Class B Warrants by
paying holders $.05 per Class B Warrant. The underlying shares of common
stock and Class B Warrants were registered for resale on September 4, 1997
under the Securities Act of 1933.
1,050,000 Class C stock purchase warrants which expire August 31, 2000.
The warrants are to purchase fully paid and non-assessable shares of the
common stock, par value $.001 per share, at a purchase price of $2.00 per
share. If, however, the closing bid price of the Common Stock shall have
equaled or exceeded $5.50 per share for a period of twenty consecutive
trading days at any time, the Company may redeem the Class C Warrants by
paying holders $.05 per Class C Warrant. The underlying shares of common
stock were registered for resale on September 4, 1997 under the Securities
Act of 1933.
400,000 stock purchase warrants. The warrants are to purchase fully paid
and non-assessable shares of the common stock, par value $.001 per share
at various purchase prices. These warrants have been reserved to be issued
through an employee stock option plan where the exercise price is equal to
the market price at the date of issuance. These stock purchase warrants
may be redeemed after six months of issuance and expire five years after
the date of issuance. The underlying shares of common stock have been
registered for resale under the Securities Act of 1933.
-12-
<PAGE>
NOTE 5 - PREFERRED STOCK, STOCK OPTIONS, AND WARRANTS: (CONTINUED)
The warrants outstanding are segregated into three categories
(exercisable, non-exercisable, and non- registered). They are summarized as
follows:
<TABLE>
<CAPTION>
Warrants Issued Warrants Exercisable Warrants
Class of November 30, November 30, Non Non Exercise
Warrants 1998 1997 1998 1997 Exercised Registered Price
- -------- ----- ------ ------ ------ --------- ---------- --------
<S> <C> <C> <C> <C> <C>
0.01 Exercised Exercised 0.00 0.00 0 0 0.01
0.05 1,050,000 1,050,000 0.00 0.00 1,050,000 1,050,000 0.05
0.50 1,375,000 1,375,000 0.00 0.00 1,375,000 1,375,000 0.50
5.00 425,000 * 425,000 425,000 425,000 0 0 5.00
4.00 5,033,334 * 5,033,334 5,033,334 5,033,334 0 0 4.00
6.00 5,033,334 * 5,033,334 5,033,334 5,033,334 0 0 6.00
2.00 1,050,000 * 1,050,000 1,050,000 1,050,000 0 0 2.00
1.50 150,000 0 0.00 0.00 0 150,000 1.50
2.00 150,000 0 0.00 0.00 0 150,000 2.00
3.00 200,000 0 0.00 0.00 0 200,000 3.00
5.00 200,000 0 0.00 0.00 0 200,000 5.00
7.00 200,000 0 0.00 0.00 0 200,000 7.00
9.00 200,000 0 0.00 0.00 0 200,000 9.00
11.00 200,000 0 0.00 0.00 0 200,000 11.00
2.00 50,000 * 0 50,000 0 0 0 2.00
ESOP 319,625 * 0 332,000 0 0 0 > $1.63
ESOP 80,375 0 68,000 0 0 0 < $1.63
---------- ---------- ---------- ---------- --------- ---------
15,716,668 13,966,668 11,991,668 11,541,668 2,425,000 1,300,000
</TABLE>
An asterisk (*) denotes warrants which would have an anti-dilutive effect if
currently used to calculate earnings per share for the three months ended
November 30, 1998.
NOTE 6 - RELATED PARTY TRANSACTIONS:
In April 1996, the Company entered into a number of non-cash transactions.
Inventories and property in the amounts of $200,000 and $300,000, respectively,
were contributed to the Company by the Hou-Tex Trust, Bailey Trust, Futer Family
Trust, and John Nagel and recorded at each individuals' respective historical
cost. The Company also received inventory, accounts receivable, and furniture
and fixtures in the amounts of $96,333, $88,789, $70,000, respectively, in
exchange for the assumption of liabilities totaling $255,122. Additionally, the
Company issued a note payable to an affiliate in the amount of $155,000 and
concurrently issued 4,500,000 shares of common stock for $345,395. For the
period ended August 31, 1997, 1,908,000 shares had been issued to the Vonn, Ltd.
and Messrs. Clifford and Barton for cash advances of $120,000.
NOTE 7 - SEGMENT INFORMATION:
The Company had gross revenues of $930,897 and 557,898 for the three months
ended November 30, 1998 and 1997, respectively. The following parties
individually represent a greater than ten percent of these revenues.
November 30,1988 November 30, 1997
Customer Amount Percentage Amount Percentage
- -------- ----------- ---------- ----------- ----------
Company A $ -- -- % $ 195,115 34 %
Company B $ 249,616 27 % 113,186 20 %
Company C $ 550,937 59 % 75,268 13 %
-13-
<PAGE>
NOTE 8 - INVESTMENT IN LINK - TWO COMMUNICATIONS, INC.:
The Company and Link - Two Communications, Inc. (Link II) have executed an
agreement, whereby the Company would receive up to an eight percent equity
interest in Link II in lieu of accruing finance charges on the outstanding
balance owed by Link II to the Company. Under the agreement, equity in Link II
was earned at a rate of 0.2% per month per $100,000 payable and outstanding for
more than thirty days. At November 30, 1998 and 1997, the Company had earned a
5.0% and 6.8%, respectively, minority equity interest in Link II. This is
evidenced by the issuance of 240,000 shares of Link II common stock to the
Company. As of August 31, 1998 and 1997, the Company has recorded it share of
losses in this unconsolidated affiliate. The loss as a minority shareholder
totaled $28,663 and $71,337, respectively.
Certain principal stockholders (or affiliates thereof) of the Company, including
James Futer, executive vice president, director, and chief operating officer,
and A.L. Clifford, a director of the Company, are also principal stockholders of
Link II. Mr. Clifford is also the chairman and chief executive officer of Link
II and Dr. Cubley is a director of Link II.
NOTE 9 - RISK FACTORS:
For the three months ended November 30, 1998 and 1997, substantially all of the
Company's business activities have remained within the United States.
Approximately 87% of the Company's revenues and receivables have been created
solely in the state of Texas, and approximately 1% have been created in the
international market, and the approximate 12% remainder has been created
relatively evenly over the rest of the nation during the three months ended
November 30, 1998 whereas approximately 35% of the Company's revenues and
receivables have been created solely in the state of Texas 2% have been created
in the international market, and the approximate 63% remainder has been created
relatively evenly over the rest of the nation for the three months ended
November 30, 1997.
Through the normal course of business, the Company generally does not require
its customers to post any collateral. However, because Link II constitutes 59%
and 13% of the Company's gross revenues and 96% and 83% of the its accounts
receivable for the three months ended November 30, 1998 and 1997, respectively,
the two companies have reached an agreement whereby the Company has received a
minority interest in Link II based upon accounts receivable.
(See Note 8)
Although the Company has concentrated its efforts in the wireless infrastructure
industry during the three months ended November 30, 1998 and 1997, it is
management's belief that the Company faces little credit or economic risk due to
the continuous growth the market is experiencing.
NOTE 10 - SHAREHOLDERS' ADVANCES:
Certain officers and an employee advanced the Company $290,000. At November 30,
1998, the advances had been paid-in-full by the Company. At August 31, 1998, the
Company owed $24,519. Shareholder advances are non-interest bearing and payable
upon demand.
NOTE 11 - FOREIGN OPERATIONS:
Although the Company is based in the United States, its product is sold on the
international market. Presently, international sales total 1% and 2% at November
30, 1998 and 1997, respectively.
NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES:
The Company now leases its primary office space for $7,931 per month under a
non-cancelable lease expiring on March 31, 1999. For the periods ending November
30, 1998 and 1997, rental expenses of $23,793 and $23,793, respectively, were
incurred. Future obligations under the non-cancelable lease terms for the period
ending November 30, 1999 are $31,724.
-14-
<PAGE>
NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES: (CONTINUED)
The Company has entered into an agreement with a public relations consultant
whereby the consultant will develop, implement, and maintain an ongoing program
to increase the investment community's awareness of the Company's activities and
to stimulate the investment community's interest in the Company. As compensation
for these services, the consultant will be paid $5,000 per month. Additionally,
the consultant will receive options to purchase 100,000 shares of the Company's
common stock for $1.00 per share. The delivery of the options to purchase the
100,000 shares of common stock is contingent upon the attainment of certain
objective criteria as outlined in the July 16, 1998 agreement between the
Company and the public relations consulting firm.
The Company has provided a finance company a limited manufacturer's guarantee
for an amount not to exceed $910,845 for equipment and services sold to a
customer of the Company. In the event of default by the customer, after a
minimum period of ninety days from the date default is declared and after having
exhausted all available remedies against the customer, the finance company may
seek payment directly from the Company. Under this guarantee, the Company may
elect to assume the lease from the finance company under the original terms and
conditions or may elect to pay all amounts due in arrears under the original
agreement and pay-off the lease through a one-time payment of the unamortized
balance.
The Company has been named as a defendant in a lawsuit involving a vendor of the
Company. Although the potential liability totals $19,940, an accrual of $10,000
had been formed during the fiscal year ended August 31, 1997. On October 19,
1998, the plaintiff agreed to a settlement of $9,970 which was remitted by the
Company on December 11, 1998. Management expects the suit to be settled for the
amount remitted and subsequently dismissed.
During September 1998, the Company has filed a petition with the District Court
in Harris County, Texas against Micro-MRP, Inc., a California corporation that
sells manufacturing and accounting software, alleging deceptive trade practices,
fraud, misrepresentation, negligence, and breach of implied warranty. The
Company is seeking the payment of $28,301 in expenses plus unspecified damages
in connection with its October 1996 purchase of manufacturing and accounting
software from Micro-MRP.
NOTE 13 - EMPLOYEE STOCK OPTION PLAN:
In July 1996, the Board of Directors and majority stockholders adopted a stock
option plan under which 400,000 shares of the Company's common stock have been
reserved for issuance. Under this plan, as of November 30, 1998, 85,375 warrants
have been issued to various employees. None of these outstanding warrants have
been exercised to date.
NOTE 14 - RETIREMENT PLANS:
During October 1997, the Company initiated a 401(k) plan for its employees which
is funded through the contributions of its participants. This plan maintains
that the Company will match up to 3% of each participant's contribution. As of
November 30, 1998, total employee contributions were approximately $74,654
whereas the total amount matched by the employer was approximately $22,765.
NOTE 15 - MAJOR CUSTOMER:
As of November 30, 1998, the Company has a receivable due from Link-Two
Communications (Link II) in the amount of $5,811,172. As of November 30, 1998,
Link II is continuing to sell equity securities, assets, and products which are
being used to retire this receivable. Link II is currently negotiating with
Nikko Co., Ltd. and affiliates to fund twenty million dollars in equity and
loans to complete the building out of its nationwide two-way messaging system.
This receivable is secured by substantially all assets of Link II including
radio frequency licenses which have been valued by outside appraisal firms to be
in excess of twenty-million dollars. In August 1998, Link II commenced
operations of its nationwide two-way messaging system. Based upon the
aforementioned, management believes the risk involved with this receivable are
minimal.
-15-
<PAGE>
NOTE 16 - SUBSEQUENT EVENTS
Subsequent to November 30, 1998, the Company signed a letter of intent with
Nikko Co., Ltd. to form an exclusive joint venture to collaborate in the
development of communication messaging devices for the North, Central and South
American markets.
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
During the three months ended November 30, 1998, the majority of the company's
revenues originated from shipments for a two-way messaging system that the
Company is installing for Link-Two Communications in the Houston and Dallas
metroplexes and from contract research and development services. Other sales
during this period were to the Company's broader customer base and were
comprised principally of paging infrastructure products. This sales mix is
consistent with the pattern of sales realized by the Company during the year
ended August 31, 1997 and is expected to continue through 1999. The expansion of
the Company's manufacturers' representative organization during the past year
did not significantly contribute to an increase in the sales of the Company's
paging infrastructure products. A major restructuring within the paging
equipment industry by both Motorola and Glenayre Electronics and the
implementation of cost reduction campaigns by paging carriers have created
uncertainty in the paging equipment industry that has caused many customers to
delay paging infrastructure equipment purchases.
The Company is taking steps to diversify its product and service offerings
beyond the paging infrastructure market. Examples of new products either in
development or in production are wireless utility meters, vehicle tracking
systems and wireless backups for residential security monitoring systems. The
Company has entered into agreements with two multi-national sales,
manufacturing, and distribution corporations for the sale of non-paging
infrastructure products. The initial sales resulting from these agreements are
expected to commence in 1999. The Company has also taken steps to expand
revenues from consulting and contract research and development services. Support
and administrative expenses have been reduced through the use of contract labor
in lieu of full-time personnel.
The Company's sales for the three months ended November 30, 1998 were $930,897
as compared to the sales for the three months ended November 30, 1997 of
$557,898. For the three months ended November 30, 1998, net income was $95,756
as compared to $16,688 for the three months ended November 30, 1997. The
increase in sales and net income in the three months ended November 30, 1998 is
attributable to timing constraints on major project shipments and is deemed
normal and is expected to be ongoing.
Current assets for the three months ended November 30, 1998 totaled $7,942,488
as compared to $7,342,649 reported in the three months ended November 30, 1997.
The Company's shareholders' equity for the three months ended November 30, 1998
totaled $7,611,924 as compared to $6,701,826 reported in three months ended
November 30, 1997. Cash flows invested in operations totaled $609,000, cash
flows consumed by investing activities were $26,000 and financing activities
used cash flows of $19,000 during the three months ended November 30, 1998. For
the comparable period ended November 30, 1997, cash flows invested in operations
totaled $199,904, cash flows consumed by investing activities were $135,165 and
financing activities provided cash flows of $80,325.
A substantial portion of the Company's current assets are concentrated within a
receivable due from Link-Two Communications, Inc.. The collection of this amount
is contingent upon the successful sale of equity by Link-Two and the generation
of operating revenues from their two-way messaging system which commenced
operations in August 1998, in Houston, Texas. The Company has established a
credit committee to assist Link-Two in its securing of financing and ultimate
repayment of the receivable due the Company. Additionally, Link-Two's receivable
is secured by substantially all assets of Link-Two including radio frequency
licenses which have been valued in excess of the amounts due the Company.
-16-
<PAGE>
The Company believes that, through the implementation of a stringent cost
reduction program, its working capital should be sufficient to fund operations
through the end of the current fiscal year. Though negotiations are underway to
obtain a line of credit for working capital and term financing for potential
acquisitions, the Company has not established a line of credit or other similar
financing arrangements with any lenders. There can be no assurance that the
Company will be able to obtain any funding from any external sources on suitable
terms, if at all. A decrease in expected revenues resulting from adverse
economic conditions or otherwise, unforeseen costs, insufficient market
penetration, inability to collect the Company's receivable from Link-Two
Communications and any new product introductions could shorten the period during
which the current working capital may be expected to satisfy the Company's
capital requirements. As of November 30, 1998, the Company had no material
capital commitments other than its federal income, state franchise and state
sales tax liabilities.
The Company is conducting a review of its computer systems and products to
identify those that could be affected by the Year 2000 Issue. The Year 2000
Issue is the result of computer programs being written using two digits rather
than four to define the applicable year. Any of the Company's programs or
products that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. During the past year, the Company
undertook and completed a project to replace its accounting and manufacturing
information system that was found to not be Year 2000 compliant. The Company has
instigated litigation to recover approximately $30,000 in costs associated with
this replacement. The Company presently believes that, with modifications to
existing software and conversions to new software, the Year 2000 Issue will not
pose significant operational problems for the Company, its products or installed
systems.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE WIRELESS INTERNATIONAL, INC.
Date: January 10, 1999 By: /s/ H. DEAN CUBLEY
Dr. H. Dean Cubley
President
/s/ RICHARD R. ROYALL
Richard R. Royall
Chief Financial Officer
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EAGLE
WIRELESS INTERNATIONAL, INC.'S BALANCE SHEET AND STATEMENT OF INCOME FOR THE
PERIOD ENDED NOVEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS AND ACCOMPANYING NOTES.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> NOV-30-1998
<CASH> 539
<SECURITIES> 0
<RECEIVABLES> 6,084
<ALLOWANCES> 0
<INVENTORY> 1,305
<CURRENT-ASSETS> 7,943
<PP&E> 957
<DEPRECIATION> 251
<TOTAL-ASSETS> 8,660
<CURRENT-LIABILITIES> 1,026
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 7,600
<TOTAL-LIABILITY-AND-EQUITY> 8,660
<SALES> 931
<TOTAL-REVENUES> 1,108
<CGS> 420
<TOTAL-COSTS> 420
<OTHER-EXPENSES> 535
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 152
<INCOME-TAX> 56
<INCOME-CONTINUING> 96
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 96
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
