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 MAY 31, 1999
[ ] 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.)
101 COURAGEOUS DRIVE
LEAGUE CITY, TEXAS 77573-3925
(Address of principal executive offices, including zip code)
(281) 538-6000
(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 MAY 31, 1999, THERE WERE 12,140,160 SHARES OF COMMON STOCK OUTSTANDING
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC.
INDEX
PART 1 - FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements (Unaudited)
Balance Sheets at May 31, 1999 and August 31, 1998 3
Statements of Income for the three and nine months
ended May 31, 1999 and 1998 4
Statements of Changes in Shareholders' Equity
for the nine months ended May 31, 1999 and 1998 5
Statements of Cash Flows for the nine months ended
May 31, 1999 and 1998 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
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<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
MAY 31, AUGUST 31,
1999 1998
(UNAUDITED) (AUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents (Note 1) ................................. $ 282 $ 1,097
Accounts Receivable ................................................ 6,683 5,392
Inventories (Note 1) ............................................... 1,483 1,273
Prepaid Expenses ................................................... 39 70
------- ------
Total Current Assets ......................................... 8,487 7,832
PROPERTY AND EQUIPMENT (NOTE 1):
Operating Equipment ................................................ 930 933
Less: Accumulated Depreciation ..................................... (308) (224)
------- ------
Total Property and Equipment ................................. 622 709
OTHER ASSETS:
Security Deposits .................................................. 13 9
------- ------
Total Other Assets ........................................... 13 9
TOTAL ASSETS ....................................................... $ 9,122 $ 8,550
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable ................................................... $ 242 $ 337
Accrued Expenses ................................................... 86 118
Shareholders' Advances (Note 10) ................................... -- 24
Notes Payable (Note 2) ............................................. 29 13
Capital Lease Obligations (Note 3) ................................. 15 11
Deferred Revenues .................................................. 54 56
Federal Income Taxes Payable (Notes 1 & 4) ......................... 464 375
Franchise Taxes Payable ............................................ 55 42
Sales Taxes Payable ................................................ 49 38
Deferred Taxes (Note 4) ............................................ 5 5
------- ------
Total Current Liabilities .................................... 999 1,019
LONG - TERM LIABILITIES:
Capital Lease Obligations (net of current maturities) (Note 3) ..... 8 9
Deferred Taxes (Note 4) ............................................ 6 6
------- ------
Total Long - Term Liabilities ................................ 14 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 May 31, 1999 and
August 31, 1998, 12,140,160 and 11,670,155 shares respectfully 12 12
Paid in Capital .................................................... 6,396 5,973
Retained Earnings .................................................. 1,701 1,531
------- ------
Total Shareholders' Equity ................................... 8,109 7,516
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ......................... $ 9,122 $ 8,550
======= =======
</TABLE>
See accompanying notes to the financial statements.
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<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC.
STATEMENTS OF EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
May 31, May 31, May 31, May 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales ............................................... $ 395 $ 1,246 $ 2,053 $ 2,867
Costs of goods sold:
Materials and supplies .............................. 111 375 455 613
Direct labor and related costs ...................... 84 61 421 227
Depreciation and amortization ....................... 18 18 54 53
Other manufacturing costs ........................... 43 106 152 315
------------ ------------ ------------ ------------
Total costs of goods sold ............................... 256 560 1,082 1,208
------------ ------------ ------------ ------------
Gross profit ............................................ 139 686 971 1,659
------------ ------------ ------------ ------------
Operating expenses
Selling, general and administrative:
Salaries and related costs ...................... 90 173 338 563
Advertising and promotion ....................... 1 58 96 173
Depreciation and amortization ................... 16 15 42 27
Other support costs ............................. 194 227 520 508
Research and Development ........................ 42 115 312 273
------------ ------------ ------------ ------------
Total operating expenses ........................ 343 588 1,308 1,544
------------ ------------ ------------ ------------
Income from operations .................................. (204) 98 (337) 115
Other income
Interest income (net) ............................... 209 105 573 298
Gain/Loss on affiliate investments .................. 13 -- 13 (10)
------------ ------------ ------------ ------------
Total other income .............................. 222 105 586 288
------------ ------------ ------------ ------------
Income before income taxes .............................. 18 203 249 403
Provisions for income taxes ............................. 4 80 85 160
------------ ------------ ------------ ------------
Net income .............................................. $ 14 $ 123 $ 164 $ 243
============ ============ ============ ============
Net earnings per common share:
Basic ................................................... $ 0.002 $ 0.011 $ 0.014 $ 0.021
Diluted ................................................. $ 0.001 $ 0.005 $ 0.007 $ 0.009
============ ============ ============ ============
Weighted average basic common shares outstanding ........ 11,929,698 11,605,334 11,762,236 11,573,667
Weighted average diluted common shares outstanding ...... 26,522,241 25,972,002 26,354,779 25,940,335
</TABLE>
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 May 31, 1999 Stock Stock Capital Earnings Equity
- ------------------------------------------- ---------- ----------- --------- ------------- ---------------
<S> <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 Nine Months
Beginning September 1, 1998 ......... -- -- 6 6
to May 31, 1999 ..................... 164 164
New Stock Issued to Shareholders
D. Walker (Feb. 1999) ............... -- -- 68 -- 68
ESOP Stock Options Exercised ........ -- -- -- -- --
OTC Financial (April 1999) .......... -- -- 193 -- 193
R. Sanderman (April 1999) ........... -- -- 12.5 -- 12.5
R. Mount (April 1999) ............... -- -- 12.5 -- 12.5
C. Sulak (April 1999) ............... -- -- 6 -- 6
R. Kolb (April 1999) ................ -- -- 12.5 -- 12.5
J. Nicksa (April 1999) .............. -- -- 12.5 -- 12.5
G. Fulgestke (April 1999) ........... -- -- 3 -- 3
G. Hart (May 1999) .................. -- -- 12.5 -- 12.5
S. Topp (May 1999) .................. -- -- 3 -- 3
D. Francis (May 1999) ............... -- -- 6 -- 6
H. Siwecki (May 1999) ............... -- -- 12.5 -- 12.5
C. Zaremba (May 1999) .............. -- -- 69 -- 69
------- ------- ------- ------- -------
Total As Of May 31, 1999 .................. $ 12 $ -- $ 6,396 $ 1,701 $ 8,109
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to the financial statements.
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<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
1999 1998
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash Flows From Operating Activities
Net Earnings .................................................... $ 164 $ 243
Adjustments To Reconcile Net Earnings To Net Cash
Used By Operating Activities:
(Loss) / Gain on Sale of Asset ............................ 13 (3)
Depreciation and Amortization ........................... 84 80
(Increase) / Decrease in Accounts Receivable .............. (1,291) (1,433)
(Increase) / Decrease in Inventories ...................... (210) (67)
(Increase) / Decrease in Prepaid Expenses ................ 31 (10)
Increase / (Decrease) in Accounts Payable and Accrued Exp (127) 2
Increase / (Decrease) in Deferred Taxes ................... -- --
Increase / (Decrease) in Deferred Revenues ............... (2) (46)
Increase / (Decrease) in Sales Tax Payable .............. 11 --
Increase / (Decrease) in Fed Inc Taxes Payable .......... 89 6
Increase / (Decrease) in Franchise Taxes Payable ......... 13 --
------- -------
Total Adjustments ......................................... (1,389) (1,471)
------- -------
Net Cash Used By Operating Activities ........................... (1,225) (1,228)
Cash Flows From Investing Activities
Purchase of Property and Equipment .............................. (3) (322)
(Increase) / Decrease in Other Assets ........................... (4) (10)
------- -------
Net Cash Used By Investing Activities ................................. (7) (332)
------- -------
Cash Flows From Financing Activities
Increase / (Decrease) in Notes Payable and Capital Leases ....... 18 (26)
Increase / (Decrease) in Shareholders' Advances ................. (24) --
Increase / (Decrease) in Syndication Costs ...................... (57)
Proceeds From Sale of Common Stock, Net ......................... 423 79
------- -------
Net Cash Provided / (Used) By Financing Activities .................... 417 (4)
------- -------
Net Decrease in Cash .................................................. (815) (1,564)
Cash at the Beginning of the Year ..................................... 1,097 2,895
------- -------
Cash at the End of the Year ........................................... $ 282 $ 1,331
======= =======
</TABLE>
See accompanying notes to the financial statements.
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<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 $165,594 and $1,088,555 invested in interest bearing accounts at
May 31, 1999 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:
May 31, 1999 August 31, 1998
Raw Materials $ 725,189 $ 719,157
Work in Process 757,839 554,124
Finished Goods - 0 - -0-
------------- --------------
$ 1,483,027 $ 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 $312,269 and $273,219
were expensed for the nine months ended May 31, 1999 and 1998, respectively.
Contract revenues earned for the periods ended May 31, 1999 and 1998 were
approximately $690,000 and $460,000, 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:
MAY 31, 1999 MAY 31, 1998
------------ ------------
Weighted Average Number of Common
Shares Outstanding Including:
Primary Common Stock Equivalents 11,929,698 11,605,334
Fully Dilutive Common Stock Equivalents 26,522,241 25,972,002
H) Warrants for Funding Activities
To date, the Company has issued the following warrants for funding activities:
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.
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 nine month periods ended
May 31, 1999 and 1998, the Company had expensed $96,498 and $172,431,
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 nine months
ended May 31, 1998 to facilitate comparison to the nine months ended May 31,
1999.
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<PAGE>
NOTE 2 - NOTES PAYABLE:
<TABLE>
<CAPTION>
MAY 31, 1999 AUGUST 31, 1998
-------------- -----------------
<S> <C> <C>
Unsecured note to insurance
company bearing interest at 15%,
due $1,795 monthly until November 1999 $ 10,773 $ 12,731
Unsecured note to insurance
company, non-interest bearing,
due $2,457 quarterly until February 2000 $ 7,370 $ --
Unsecured note to insurance
company, non-interest bearing,
due $1,031 monthly until February 2000 $ 8,248 --
Unsecured note to insurance
company, non-interest bearing,
due $373 monthly until November 1999 $ 2,243 --
-------- --------
Total 28,634 12,731
Less Current Portion of
Long - Term Debt 28,634 12,731
-------- --------
Total Long - Term Debt $ - 0 - $ - 0 -
======== ========
</TABLE>
NOTE 3 - CAPITAL LEASE OBLIGATIONS:
<TABLE>
<CAPTION>
MAY 31, 1999 AUGUST 31, 1998
-------------- -----------------
<S> <C> <C>
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. $ 969 $ 1,746
Software lease with Manifest Group
bearing interest at 11%, payable
in monthly installments of $751; due
August 2000. $ 10,466 $ 15,728
Equipment lease with IKON Office
Solutions bearing interest at 9%,
payable in monthly installments of $445; due
September 2001. $ 10,819 $ --
-------- --------
Total Obligations 22,254 19,746
Less Current Portion of
Lease Obligations 14,787 11,125
-------- --------
Total Long - Term Capital
Lease Obligations $ 7,467 $ 8,621
======== ========
</TABLE>
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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 $ 27,485 and $ 45,000 at May 31,
1999 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 May
31, 1999 and August 31, 1998 are as follows:
MAY 31, 1999 AUGUST 31, 1998
------------ ---------------
Total minimum lease payments $ 23,885 $ 22,319
Less: Amount representing interest 1,631 2,573
---------- ---------
Present value of net minimum
lease payments $ 22,254 $ 19,746
Future obligations under the lease terms are:
Period Ending
May 31, 1999 Amount
1999 $ 3,012
2000 15,088
2001 5,340
2002 445
----------
Total $ 23,885
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 nine months ended May 31, 1999 and
for the year ended August 31, 1998 was 34% and 33%, 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 May 31,
1999, no Preferred Stock has been issued.
In July, 1996, the Board of Directors and majority shareholders adopted an
employee stock option plan under which 400,000 shares of Common Stock have been
reserved for issuance. The options granted under this plan are to purchase fully
paid and non-assessable shares of the Common Stock, par value $.001 per share at
a price equal to the underlying common stock's market price at the date of
issuance. These options may be redeemed six months after issuance, expire five
years from the date of issuance and contain a cashless exercise feature. The
underlying shares of common stock were registered for resale under the
Securities Act of 1933 on February 19, 1999. As of May 31, 1999, 93,875 options
had been granted and 17,500 has been exercised.
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 fully paid and non-assessable shares of
common stock, par value $.001 per share. As of May 1999, 325,000 of the $ .50
Warrants had been exercised to purchase 325,000 shares of common stock. The
remaining 50,000 $.50 Warrants expired. As of May 1999, all of the 375.000 $5.00
Warrants expired.
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<PAGE>
NOTE 5 - PREFERRED STOCK, STOCK OPTIONS AND WARRANTS: (CONTINUED)
In July of 1998 the Company issued to a consultant of the Company Options to
purchase 100,000 fully paid and non-assessable shares of the Company's Common
Stock, par value $.001 per share at a price of $1.00 per share. The Options are
exercisable during the period commencing July 1999 and expire three years
subsequent to the termination of the agreement with the Consultant. The
agreement with the Consultant will terminate in July of 1999. The shares of
common stock underlying the 100,000 Options were registered for resale on March
19, 1999 under the Securities Act of 1933. As of April 1999, all of these
Options had been exercised..
Additionally, 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.
Additionally, the Company has issued and outstanding the following warrants
which have not yet been exercised as of May 31, 1999:
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 have been amended to raise the exercise price to $.75 and will
expire July 1999.
1,000,000 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 have been amended to raise the exercise price to $.75 and will
expire July 1999
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. The underlying
shares of common stock were registered for resale under the Securities Act
of 1933 on March 19, 1999. These warrants expire on March 19, 2000.
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. The underlying
shares of common stock were registered for resale under the Securities Act
of 1933 on March 19, 1999. These warrants expire on March 19, 2000.
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 May 31, 1999, 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. The underlying
shares of common stock were registered for resale under the Securities Act
of 1933 on March 19, 1999. These warrants expire on March 19, 2000.
-11-
<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 $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 May 31, 1999, 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 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. These warrants have all expired
as of May 1999.
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 May 31, 1999, 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 May 31, 1999, 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 May 31, 1999, 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.
-12-
<PAGE>
NOTE 5 - PREFERRED STOCK, STOCK OPTIONS, AND WARRANTS: (CONTINUED)
The warrants and options outstanding are segregated into three categories
(exercisable, non-exercisable, and non- registered).
They are summarized as follows:
<TABLE>
<CAPTION>
May 31, 1999
Exercise Issued as of May 31, Exercisable as of May 31, Non Non
Price 1999 1998 1999 1998 Exercised Registered
-------- --------- --------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
0.01 Exercised Exercised 0 0 0 0
0.05 1,050,000 1,050,000 1,050,000 0 1,050,000 1,050,000
0.50 1,000,000 1,000,000 1,000,000 0 1,000,000 1,000,000
0.50 Exercised 375,000 0 375,000 0 0
5.00 Exercised 425,000 0 425,000 0 0
4.00 5,033,334 * 5,033,334 5,033,334 5,033,334 5,033,334 0
6.00 5,033,334 * 5,033,334 5,033,334 5,033,334 5,033,334 0
2.00 1,050,000 1,050,000 1,050,000 1,050,000 1,050,000 0
1.00 Exercised 0 0 0 0 0
1.50 150,000 150,000 0 0 150,000 0
2.00 150,000 150,000 0 0 150,000 0
3.00 200,000 150,000 0 0 200,000 0
5.00 200,000 150,000 0 0 200,000 200,000
7.00 200,000 200,000 0 0 200,000 200,000
9.00 200,000 200,000 0 0 200,000 200,000
11.00 200,000 200,000 0 0 200,000 200,000
2.00 50,000 50,000 50,000 50,000 50,000 50,000
ESOP 5,000 * 5,000 5,000 5,000 0
ESOP 88,375 15,875 62,875 9,875 70,875 0
------------- ------------ ------------- ------------ ------------- ------------
14,610,043 15,237,543 13,284,543 11,976,543 14,592,543 2,900,000
</TABLE>
An asterisk (*) denotes warrants which would have an anti-dilutive effect if
currently used to calculate earnings per share for the nine months ended May 31,
1999.
NOTE 6 - RELATED PARTY TRANSACTIONS:
For the period ended August 31, 1998, 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 $395,045 and $2,866,860 for the three months
ended May 31, 1999 and 1998, respectively. The following parties individually
represent a greater than ten percent of these revenues.
May 31, 1999 May 31, 1998
Customer Amount Percentage Amount Percentage
- -------- ---------- ---------- ---------- -----------
Company A $ -- --% $ 741,807 60%
Company B $ 213,075 54% 225,233 18%
Company C $ 69,900 18% 162,205 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 May 31, 1999 and 1998, the Company had earned
approximately a 5.0% and 7.0%, 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 nine months ended May 31, 1999, and 1998, substantially all of the
Company's business activities have remained within the United States.
Approximately 75% of the Company's revenues and receivables have been created
solely in the state of Texas, and the approximate 25% remainder has been created
relatively evenly over the rest of the nation during the three months ended May
31, 1999, whereas approximately 90% of the Company's revenues and receivables
have been created solely in the state of Texas, and the approximate 10%
remainder has been created relatively evenly over the rest of the nation for the
nine months ended May 31, 1998.
Through the normal course of business, the Company generally does not require
its customers to post any collateral. However, because Link II constitutes 18%
and 13% of the Company's gross revenues and 98% and 79% of its accounts
receivable for the three months ended May 31, 1999 and 1998, respectively, the
two companies have reached an agreement whereby the Company has received a
minority interest in Link II based upon accounts receivable. In addition,
because of the size of this receiveable Link II has provided Eagle Wireless with
a UCC on all of its assets including all its wireless license holdings.
The Company focused its sales and marketing efforts in the wireless
infrastructure industry during the nine months ended May 31, 1999, while
continuing to invest in R&D for the development of non wireless infrastructure
products and services. In particular, the company has focused a large part of
its efforts on the development of a new internet interface family of products
known as the Set-Top-Box. Management believes that this new product introduction
will contribute heavily to the company revenue starting with the first quarter
of 2000. It is management's belief that the Company faces minimal credit or
economic risk due to the growth within the wireless communications market.
NOTE 10 - SHAREHOLDERS' ADVANCES:
Certain officers and an employee advanced the Company $290,000. At May 31, 1999,
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 approximately 0% and
2% at May 31, 1999 and 1998, respectively. This drop in international sales is
attributed mostly to the refocus of Eagle's marketing efforts as well as the
Asian financial crisis.
-14-
<PAGE>
NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES:
The Company has been leasing its primary office space for $7,931 per month under
a non-cancelable lease that expired March 31, 1999. For the periods ending May
31, 1999 and 1998, rental expenses of $74,272 and $63,448 respectively, were
incurred. There are no future obligations under the non-cancelable lease terms
for the period ending May 31, 1999. Subsequent to May 31, 1999, the company
entered into a new lease for its operating facility. The future minimum rents
under this non-cancelable lease are:
Period Ending
August 31, AMOUNT
----------
1999 $ 52,566
2000 210,264
2001 140,176
----------
$ 403,000
==========
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 under an
agreement that will terminate in July of 1999. Additionally, the consultant has
received options to purchase 100,000 shares of the Company's common stock for
$1.00 per share. These options were exercised in March 1999.
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.
A September 1998 lawsuit filed by the Company has been resolved.
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 May 31, 1999, 88,875 warrants have
been issued to various employees. 17,500 of these outstanding warrants have been
exercised as of May 31, 1999.
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 May 31, 1999, total employee contributions were
approximately $123,189 whereas the total amount matched by the employer was
approximately $38,636.
-15-
<PAGE>
NOTE 15 - MAJOR CUSTOMER:
As of May 31, 1999, the Company has a receivable due from Link-Two
Communications (Link II) in the amount of $6,560,285. As of May 31, 1999, Link
II is continuing to sell equity securities, assets, and services, which are
being used to retire this receivable. Link II is currently negotiating various
investors 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. Recently, Link II has entered into a letter of intent to
be acquired by a public company, Clearworks Net, Inc. [CLWK]. Although, the
definite terms of this agreement are not public it will require Eagle Wireless
to be fully paid for its receivable in the form of a combination of cash and
stock. In addition, Eagle would remain the exclusive provider of all of the
wireless infrastructure equipment for the new company. In August 1998, Link II
commenced operations of its nationwide two-way messaging system.
NOTE 16 - SUBSEQUENT EVENTS
Subsequent to May 31, 1999, the Company entered into an agreement to continue
leasing its primary office space for 120% of its base lease rate of $7,931 per
month for a period not to extend past September 30, 1999. The Company has
subsequently leased alternate office space and has relocated its operations as
of July 1, 1999.
In July of 1998 the Company issued to a Consultant of the Company Options to
purchase 100,000 fully paid and non-assessable shares of the Company's Common
Stock, par value $.001 per share at a price of $1.00 per share. The Options are
exercisable during the period commencing July 1999 and expire three years
subsequent to the termination of the agreement with the Consultant. The
agreement with the Consultant will terminate in July of 1999. The shares of
common stock underlying the 100,000 Options were registered for resale on March
19, 1999 under the Securities Act of 1933. The consultant exercised all of these
options in March 1999.
In January of 1998 the Company issued to a consultant of the Company Options to
purchase 500,000 fully paid and non-assessable shares of the Company's Common
Stock, par value $0.01 per share at various prices ranging from $1.50 to $3.00
after certain average stock price conditions are met. The Options are
exercisable during the period commencing March 1999 and expire either after a
period of either one or two years. The shares of common stock underlying the
500,000 Options were registered for resale on March 19, 1999 under the
Securities Act of 1933.
Item 2 -- Management's Discussion and Analysis of Financial Condition
and Results of Operations
During the nine months ended May 31, 1999, 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 sale mix is
consistent with the pattern of sales realized by the Company during the year
ended August 31, 1998, and is expected to continue through 1999. 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 also invested substantial resources in the development of a
multi-media Internet appliance product line known as a Set-Top-Box. The Company
has entered into agreements with two multi-national sales, manufacturing, and
distribution corporations for the sale of these non-paging infrastructure
products. The initial sales resulting from these agreements are expected to
commence late in 1999. The Company has also taken steps to expand revenues from
consulting and contract research and development services.
-16-
<PAGE>
The Company's sales for the three months ended May 31, 1999 were $395,045 as
compared to the sales for the three months ended May 31, 1998 of $1.3 million.
For the three months ended May 31, 1999, net income was $13,912 as compared to
$203,000 for the three months ended May 31, 1998. The reduction in sales and net
income in the quarter ended May 31, 1999 is attributable to a slow-down in the
construction of the Link-Two system and increased investment in the Company's
new Set-Top-Box product line. While the reduction in sales volume is not desired
it is managements belief that it is necessary to prepare the company for the new
era of wireless consumer products and multimedia internet related products.
Current assets as of May 31, 1999 totaled $8,486,870 as compared to $7,832,094
reported on August 31, 1998. The Company's shareholders' equity as of May 31,
1999 totaled $8,108,911 as compared to $7,516,168 on August 31, 1998. Cash flows
invested in operations totaled $1,225,000 cash flows consumed by investing
activities were $7,000 and financing activities provided cash flows of $417,000
during the nine months ended May 31, 1999. For the comparable period ended May
31, 1998, cash flows invested in operations totaled $1,228,000 cash flows used
by investing activities were $332,000 and financing activities used cash flows
of $4,000.
A substantial portion of the Company's current assets is 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 management believes to be valued in excess of the amounts due the
Company. As of May 31, 1999, Link II had entered into a letter of intent to be
acquired by a public company, Clearworks Net, Inc. [CLWK]. The terms of the sale
require the total Eagle receivable to be paid at closing.
The Company requires substantial capital to pursue its operating strategy and
maintain its current level of operations. The Company's current level of
operations is consuming cash at a rate of $150,000 per month and is expected to
continue at this rate through the end of the fiscal year. Though negotiations
are underway to obtain short-term working capital financing, 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
funding from any external source 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. Contingencies
that are being evaluated by management include the sale of convertible
debentures, liquidation of certain assets, the disposal of certain product
lines, and a reduction in expenditures for research and development. As of May
31, 1999, the Company instituted stringent cash management procedures to
mitigate the Company's negative cash flow. The Company's primary financing
activity will be the exercise of various classes of warrants which should
provide the necessary funds to complete near-term projects for the immediate
fulfillment of contingent sales contracts. These funds will be applied to
currently due payables and on-going operations. Currently the company is
completing negotiations regarding a term loan to provide additional working
capital during this product development period.
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 upgrade its accounting and manufacturing
information system as part of its Year 2000 self certification project. 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.
-17-
<PAGE>
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: July 20, 1999 By: /s/ DR. H. DEAN CUBLEY
------------------
Dr. H. Dean Cubley
President
/s/ RICHARD R. ROYALL
-----------------
Richard R. Royall
Chief Financial Officer
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> MAY-31-1999
<CASH> 281,922
<SECURITIES> 0
<RECEIVABLES> 6,682,843
<ALLOWANCES> 0
<INVENTORY> 1,483,027
<CURRENT-ASSETS> 8,486,870
<PP&E> 930,107
<DEPRECIATION> 308,519
<TOTAL-ASSETS> 9,121,670
<CURRENT-LIABILITIES> 999,110
<BONDS> 0
0
0
<COMMON> 12,140
<OTHER-SE> 6,395,539
<TOTAL-LIABILITY-AND-EQUITY> 9,121,670
<SALES> 2,053,030
<TOTAL-REVENUES> 2,639,072
<CGS> 1,081,907
<TOTAL-COSTS> 2,390,413
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,292
<INCOME-PRETAX> 248,659
<INCOME-TAX> 84,544
<INCOME-CONTINUING> 164,115
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 164,115
<EPS-BASIC> 0.014
<EPS-DILUTED> 0.007
</TABLE>
