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 FEBRUARY 29, 2000
[ ] 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)
-------------
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 MARCH 17, 2000 THERE WERE 18,430,321 SHARES OF COMMON STOCK OUTSTANDING
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
PART 1 - FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements (Unaudited)
Balance Sheets at February 29, 2000 and August 31, 1999 3
Statements of Income for the three and six
months ended February 29, 2000 and 1999 4
Statements of Changes In Shareholders' Equity for the
six months ended February 29, 2000 and 1999 5
Statements of Cash Flows for the six months ended
February 29, 2000 and 1999 6
Notes to the financial statements 7-18
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
PART 2 - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 19
Item 6. Exhibits of Report on Form 8-K 20
SIGNATURES 21
-2-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
FEBRUARY 29, AUGUST 31,
2000 1999
(UNAUDITED) (AUDITED)
-------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents (Note 1) ................................. $ 7,685 $ 188
Accounts Receivable (Note 2) ....................................... 2,006 286
Inventories (Note 1) ............................................... 3,537 2,356
Prepaid Expenses ................................................... 202 242
-------- --------
Total Current Assets .......................................... 13,430 3,072
PROPERTY AND EQUIPMENT (NOTE 1):
Operating Equipment ................................................ 1,586 922
Less: Accumulated Depreciation ..................................... (677) (333)
-------- --------
Total Property and Equipment .................................. 909 589
OTHER ASSETS:
Security Deposits .................................................. 20 17
Goodwill ........................................................... 4,079 --
Other .............................................................. 266
Investment In Affiliate (Note 9) ................................... 6,605 6,642
-------- --------
Total Other Assets ............................................ 10,970 6,659
TOTAL ASSETS ....................................................... $ 25,309 $ 10,320
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable ................................................... $ 2,350 $ 208
Accrued Expenses ................................................... 135 106
Notes Payable (Note 3) ............................................. 456 17
Capital Lease Obligations (Note 4) ................................. 6 15
Deferred Revenues .................................................. 53 533
Federal Income Taxes Payable (Notes 1 & 5) ......................... 100 468
Franchise Taxes Payable ............................................ 17 13
Sales Taxes Payable ................................................ 48 48
Deferred Taxes (Note 5) ............................................ 14 6
-------- --------
Total Current Liabilities ..................................... 3,179 1,414
LONG - TERM LIABILITIES:
Capital Lease Obligations (net of current maturities) (Note 4) ..... 17 4
Long Term Debt, net of maturities ................................. 14 --
Deferred Taxes (Note 5) ............................................ 8 8
-------- --------
Total Long - Term Liabilities ................................. 39 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 February 29, 2000 and August 31,
1999, 17,409,020 shares and 13,479,833, respectfully ........ 17 13
Paid in Capital .................................................... 20,151 7,181
Retained Earnings .................................................. 1,923 1,700
-------- --------
Total Shareholders' Equity .................................... 22,091 8,894
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ......................... $ 25,309 $ 10,320
======== ========
</TABLE>
See accompanying notes to the financial statements.
-3-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
STATEMENTS OF EARNINGS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales ............................................. $ 1,247 $ 727 $ 1,903 $ 1,658
Costs of goods sold:
Materials and supplies ............................ 225 159 332 344
Direct labor and related costs .................... 235 174 353 336
Depreciation and amortization ..................... 17 18 34 36
Other manufacturing costs ......................... 42 55 49 110
-----------------------------------------------------------------
Total costs of goods sold ............................. 519 406 770 826
-----------------------------------------------------------------
Gross profit .......................................... 728 321 1,133 832
-----------------------------------------------------------------
Operating expenses
Selling, general and administrative:
Salaries and related costs .................... 210 117 342 248
Advertising and promotion ..................... 29 27 32 95
Depreciation and amortization ................. 39 16 55 26
Other support costs ........................... 279 155 532 328
Research and Development ...................... 125 116 256 270
-----------------------------------------------------------------
Total operating expenses ...................... 682 431 1,216 967
-----------------------------------------------------------------
Income from operations ................................ 46 (110) (83) (135)
Other income
Interest income (net) ............................. 192 188 437 364
Other Income ...................................... -- -- 6 --
-----------------------------------------------------------------
Total other income ............................ 192 188 443 364
-----------------------------------------------------------------
Earnings Before Income Taxes & Loss From
Minority Interest in Affiliate ........................ 238 78 361 229
-----------------------------------------------------------------
Gain/(Loss) From Minority Interest in Affiliate ....... -- -- (37) --
Income before income taxes ............................ 238 78 323 229
Provisions for income taxes ........................... 83 24 100 80
-----------------------------------------------------------------
Net income ............................................ $ 155 $ 54 $ 223 $ 149
=================================================================
Net earnings per common share:
Basic ................................................. $ 0.011 $ 0.005 $ 0.016 $ 0.013
Diluted ............................................... $ 0.011 $ 0.004 $ 0.016 $ 0.011
=================================================================
Weighted average basic common shares outstanding ...... 15,106,460 11,685,157 14,255,200 11,677,656
Weighted average diluted common shares outstanding .... 15,200,710 13,320,532 14,349,450 13,313,031
</TABLE>
See accompanying notes to the financial statements.
-4-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
AUGUST 31, 1998 COMMON PREFERRED PAID IN RETAINED SHAREHOLDERS'
TO FEBRUARY 29, 2000 STOCK STOCK CAPITAL EARNINGS EQUITY
- --------------------------------------- ----------- ----------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
Total As of August 31, 1998 ..................... 12 -- 5,973 1,532 7,516
Net Earnings 1999 ............................... 168 168
New Stock Issued to Shareholders
For Services Rendered ..................... -- 163 -- 163
For Exercise of Warrants .................. 2 1,045 -- 1,047
------ ------ ------ ------ ------
Total As Of August 31, 1999 ..................... 14 -- 7,181 1,700 8,894
Net Earnings For The Six Months
Ended February 29, 2000 ................... 223 223
New Stock Issued to Shareholders
J. Nagel (Sept. 1999) ..................... -- -- 22 -- 22
P. Barton (Sept. 1999) .................... -- -- 14 -- 14
For Exercise of $2.00 Warrants ............ -- -- 290 -- 290
For Exercise of $4.00 Warrants ............ 2 -- 6,196 -- 6,198
For Exercise of $6.00 Warrants ............ -- -- 1,540 -- 1,540
For Exercise of $1.75 Warrants ............ -- -- 76 -- 76
For Exercise of $1.54 Warrants ............ -- -- 154 -- 154
For Exercise of ESOP ...................... -- -- 3 -- 3
For Convertible Note ...................... -- -- 1,535 -- 1,536
For Acquisitions and Other ................ 1 -- 3,140 -- 3,141
------ ------ ------ ------ ------
Total As Of February 29, 2000 ................... 17 -- 20,151 1,923 22,091
</TABLE>
See accompanying notes to the financial statements
-5-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 29, 2000 FEBRUARY 28, 1998
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash Flows From Operating Activities
Net Earnings ........................................................... $ 223 $ 121
Adjustments To Reconcile Net Earnings To Net Cash
Used By Operating Activities:
Depreciation and Amortization ..................................... 344 47
(Increase) / Decrease in Accounts Receivable ...................... (1,720) (606)
(Increase) / Decrease in Inventories .............................. (1,181) (83)
(Increase) / Decrease in Prepaid Expenses ......................... 40 (11)
Increase / (Decrease) in Accounts Payable and Accrued Exp ......... 2,171 (16)
Increase / (Decrease) in Deferred Taxes ........................... 8 6
Increase / (Decrease) in Deferred Revenues ........................ (480) --
Increase / (Decrease) in Sales Tax Payable ........................ -- --
Increase / (Decrease) in Fed Inc Taxes Payable .................... (368) (125)
Increase / (Decrease) in Franchise Taxes Payable .................. 4 --
------- -------
Total Adjustments ................................................. (1,182) (788)
------- -------
Net Cash Used By Operating Activities .................................. (959) (667)
Cash Flows From Investing Activities
Purchase of Property and Equipment ..................................... (664) (319)
(Increase) / Decrease in Other Assets .................................. (232) (28)
------- -------
Net Cash Used By Investing Activities ........................................ (896) (347)
Cash Flows From Financing Activities
Increase / (Decrease) in Notes Payable and Capital Leases .............. 461 (18)
Increase / (Decrease) in Shareholders' Advances ........................ -- (52)
Increase / (Decrease) in Syndication Costs ............................. -- 75
Proceeds From Sale of Common Stock, Net ................................ 8,891
------- -------
Net Cash Provided / (Used) By Financing Activities ........................... 9,352 5
Net Increase / (Decrease) in Cash ............................................ 7,497 (1,009)
Cash at the Beginning of the Year ............................................ 188 2,895
------- -------
Cash at the End of the Year .................................................. $ 7,685 $ 1,886
======= =======
</TABLE>
See accompanying notes to the financial statements.
-6-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2000
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
Eagle Wireless International, Inc., and Subsidiaries (the Company), was
incorporated as a Texas corporation on May 24, 1993 and commenced business
in April of 1996. The Company and its subsidiaries, BroadbandMagic.com,
Atlanticpacific Communications, Inc. and Comtel Communications are
suppliers of cabling, multi-media set top devices, telecommunications
equipment and related software used by service providers in the computer,
paging and other wireless personal communications markets. The Company
designs, manufactures, markets and services its products under the Eagle,
BroadbandMagic.com and Atlanticpacific Communications, Inc. names. These
products include cabling, multi-media set top devices, transmitters,
receivers, controllers, software and other equipment used in personal
communications systems (including paging, voice messaging and mobile data
systems) and radio telephone systems.
A) Cash and Cash Equivalents
The Company had $5,185,398 and $29,059 invested in interest bearing
accounts at February 29, 2000 and August 31, 1999, 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:
February 29, 2000 August 31, 1999
Raw Materials .......... $2,784,271 $1,215,003
Work in Process ........ 752,235 1,119,672
Finished Goods ......... -0- 21,186
---------- ----------
$3,536,506 $2,355,861
========== ==========
D) 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
$124,510 and $269,980 were expensed for the periods ended February 29,
2000 and 1999, respectively. Contract revenues earned for the periods
ended February 29, 2000 and 1999 were approximately $-0- and $450,000
respectively.
E) 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.
-7-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2000
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES: (continued)
F) Net Earnings Per Common Share
Net earnings per common share is shown as both basic and diluted. Basic
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. 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:
<TABLE>
<CAPTION>
FEBRUARY 29, 2000 FEBRUARY 28, 1999
----------------- -----------------
<S> <C> <C>
Weighted Average Number of Common
Shares Outstanding Including:
Primary Common Stock Equivalents ......... 14,255,200 11,677,656
Fully Dilutive Common Stock Equivalents .. 14,349,450 13,313,031
</TABLE>
G) Impairment of Long Lived and Identifiable Intangible Assets
The Company evaluates the carrying value of long-lived assets and
identifiable intangible assets for potential impairment on an ongoing
basis. An impairment loss would be deemed necessary when the estimated
non-discounted future cash flows are less than the carrying net amount of
the asset. If an asset were deemed to be impaired, the asset's recorded
value would be reduced to fair market value. In determining the amount of
the charge to be recorded, the following methods would be utilized to
determine fair market value:
1) Quoted market prices in active markets.
2) Estimate based on prices of similar assets
3) Estimate based on valuation techniques
As of February 29, 2000 and August 31, 1999, no impairment existed.
H) 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
February 29, 2000 and 1999, the Company had expensed $29,100 and $95,344,
respectively.
I) 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.
-8-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2000
NOTE 1 -BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES: (continued)
J) Comprehensive Income
There were no items of other comprehensive income in 2000 and 1999, and,
thus, net income is equal to comprehensive income for each of those years.
K) Reclassification
The Company has reclassified certain costs and expenses for the six months
ended February 29, 2000 to facilitate comparison to the six months ended
February 28, 1999.
NOTE 2 - ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 29, 2000 AUGUST 31, 1999
------------------- -----------------
<S> <C> <C>
Accounts Receivable ...................... $2,006,844 $ 286,269
Allowance for Doubtful Accounts .......... - 0 - - 0 -
---------- ----------
Net Accounts Receivable .................. $2,006,844 $ 286,269
========== ==========
</TABLE>
NOTE 3 - NOTES PAYABLE:
<TABLE>
<CAPTION>
FEBRUARY 29, 2000 AUGUST 31, 1999
------------------- -----------------
<S> <C> <C>
Unsecured note to Imperial Premium
Finance bearing interest at 15.9%,
due $1,690 monthly until February 2001 .. $ 15,211 $ 5,386
Unsecured note to Central Insurance
bearing no interest, due $1,031
monthly until March 2000 ................ -- 5,220
Unsecured note to Paula Insurance
bearing no interest, due $373 monthly
until March 2000 ........................ -- 1,124
Unsecured note to West Coast Life
Insurance bearing no interest, due
$2,457 quarterly until May 2000 ......... -- 4,913
Unsecured note to Imperial Premium
Finance bearing interest at 6.5%, due
$5,786 monthly until April 2000 ......... 11,571 --
$50,000 Line-of-Credit,
secured by accounts receivable
Atlanticpacific Communications bearing
interest at 9.5%, interest
payable monthly, principal due on demand,
or if no demand made, due August 2000 .... 43,621 --
</TABLE>
-9-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2000
NOTE 3 - NOTES PAYABLE: (continued)
<TABLE>
<CAPTION>
<S> <C> <C>
Note to Compass Bank, secured by
accounts receivable of Atlanticpacific Communications,
bearing interest at 9.5%, interest payable monthly,
principal due April 2001 ............................. 13,709 --
Note to Southwest Bank secured by accounts
receivable of Atlanticpacific Communications,
interest at 2% over prime ............................ 125,022 --
Note payable, secured by inventory
And assignment of life insurance
Policies, principal payable in monthly
Installments of $2,984, including
interest At prime plus 2%, due on demand or,
If no demand made, due January 2001
Security is accounts receivable ...................... 32,822 --
$250,000 Line-of-Credit, secured by
accounts receivable of Comtel Communications,
inventory and assignment of life insurance policies,
bearing interest at prime plus 1%, interest
payable monthly, principal due on demand,
or if no demand made, due August 2000 ................ 228,000 --
-------- --------
Total .......................................... $469,957 16,643
Less Current Portion of
Long - Term Debt ............................ 456,218 16,643
-------- --------
Total Long - Term Debt ......................... $ 13,709 $ -0-
======== ========
</TABLE>
NOTE 4 - CAPITAL LEASE OBLIGATIONS:
<TABLE>
<CAPTION>
FEBRUARY 29, 2000 AUGUST 31, 1999
------------------- ----------------
<S> <C> <C>
Equipment lease with Konica bearing
interest at 8.9%, payable in monthly
installments of $445; due Aug. 2001 ................. $ 7,840 $ 9,720
Equipment lease with IKON Office
Solutions bearing interest at 18% payable
in monthly installments of
$105; due March 2000 ................................ 108 695
Software lease with Manifest Group
bearing interest at 14%, payable in
monthly installments of $751; due
August 2000 ......................................... 4,366 8,487
Vehicle lease with GE Capital
Bearing interest, payable in monthly
Installments of $465; due June 2002 .................. 6,560 --
Equipment lease with GE Capital
Bearing interest at 10%, payable in monthly
Installments of $572; due March, 2000 ................ 598 --
</TABLE>
-10-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2000
NOTE 4 - CAPITAL LEASE OBLIGATIONS: (continued)
Equipment lease with GE Capital
Bearing interest, payable in monthly
Installments ............................... 4,190 --
------- -------
Total Obligations ......................... 23,662 18,902
Less Current Portion of
Lease Obligations ............... 6,136 15,047
------- -------
Total Long - Term Capital
Lease Obligations ................... $17,486 $ 3,855
======= =======
The capitalized lease obligations are collateralized by the related
equipment acquired with a net book value of approximately $26,604 and
$29,600 at February 29, 2000 and August 31, 1999, respectively. The future
minimum lease payments under the capital leases and the net present value
of the future lease payments at February 29, 2000 and August 31, 1999 are
as follows:
<TABLE>
<CAPTION>
FEBRUARY 29, 2000 AUGUST 31, 1999
----------------- ---------------
<S> <C> <C>
Total minimum lease payments ............... $31,148 $20,405
Less: Amount representing interest ......... 7,486 1,503
------- -------
Present value of net minimum
lease payments ......................... $31,148 $18,902
======= =======
</TABLE>
Future obligations under the lease terms are:
PERIOD ENDING
FEBRUARY 29, AMOUNT
--------------- ----------
2001 ............................ $ 20,337
2002 8,602
2003 2,209
--------
Total $ 31,148
========
NOTE 5 - 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.
A) The effective tax rate for the Company is reconcilable to statutory tax
rates as follows:
AUGUST 31,
------------------
1999 1998
------ -------
% %
U.S. Federal Statutory Tax Rate ............. 34 34
U.S. Valuation Difference ................... 1 (1)
--- ---
Effective U.S. Tax Rate ..................... 35 33
Foreign Tax Valuation ....................... - 0 - - 0 -
--- ---
Effective Tax Rate .......................... 35 33
=== ===
-11-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2000
NOTE 6 - 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 $0.001. As of
February 29, 2000, 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 for 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 cash-less exercise feature. The underlying shares of common
stock were registered for resale under the Securities Act of 1933 on
February 19, 1999. As of February 29, 2000, 192,407 options have been
granted pursuant to such plan with 41,875 being exercised and 10,250
expired.
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. As of February 29, 2000, all such warrants had
been exercised or had expired.
The Company has issued the following warrants that have since been
exercised or expired:
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.
1,050,000 stock purchase warrants which expire July 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 July
1999 if not exercised. During April 1999, the Company's Board of
Directors removed the requirement that the Company's common stock
trade at a price of no less than $5.50 per share for twenty
consecutive trading days provided that the holders of the warrants
exercise the warrants prior to the expiration date and remit to the
Company a fee of $.70 per underlying share upon exercise of the
warrants. Prior to expiration, 1,037,500 warrants had been exercised
whereas 12,500 warrants expired.
1,375,000 stock purchase warrants which expire July 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 July
1999 if not exercised. During April 1999, the Company's Board of
Directors removed the requirement that the Company's common stock
trade at a price of no less than $5.50 per share for twenty
consecutive trading days provided that the holders of the warrants
exercise the warrants prior to the expiration date and remit to the
Company a fee of $.25 per underlying share upon exercise of the
warrants. Prior to expiration, 1,325,000 warrants had been exercised
whereas 50,000 warrants expired.
-12-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2000
NOTE 6 - PREFERRED STOCK, STOCK OPTIONS AND WARRANTS: (continued)
425,000 stock purchases warrants that expire July 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. Prior to expiration, no warrants had been exercised whereas
425,000 warrants expired.
43,641 stock purchase warrants which expire October 7, 2002. 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
$1.75 per share. These warrants were exercised as of February 29,
2000.
100,000 stock purchase warrants which expire October 7, 2002. 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
$1.54 per share. These warrants were exercised as of February 29,
2000.
The Company has issued 450,000 shares of common stock in exchange
for the cancellation of the following warrants as of February 29,
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 will 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 will 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 August 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 will expire on March 19, 2000.
-13-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2000
NOTE 6 - 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 August 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 $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 August 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 August 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 August 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.
-14-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2000
NOTE 6 - PREFERRED STOCK, STOCK OPTIONS AND WARRANTS: (continued)
The Company has issued and outstanding the following warrants which
have not yet been fully exercised at February 29, 2000:
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. As of
February 29, 2000, 1,556,900 warrants had been exercised.
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. As of February 29, 2000, 245,000 warrants had been
exercised.
These warrant trade under the symbol "EAG/WS/B".
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. As of
February 29, 2000, 145,000 warrants had been exercised.
The warrants outstanding are segregated into four categories (exercisable,
non-exercisable, non-registered, and expired). They are summarized as
follows:
<TABLE>
<CAPTION>
WARRANTS ISSUED WARRANTS EXERCISABLE WARRANTS WARRANTS EXPIRED
CLASS OF FEBRUARY 29, FEBRUARY 29, NON NON FEBRUARY 29,
WARRANTS 2000 1999 2000 1998 EXERCISED REGISTERED 2000 1998
- ---------- ----------- ----------- --------- --------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
4.00 5,033,334 5,033,334 3,468,934 5,033,334 -- -- -- --
6.00 5,033,334 5,033,334 4,788,334 5,033,334 -- -- -- --
2.00 1,050,000 1,050,000 905,000 1,050,000 -- -- -- --
ESOP -- * 5000 -- -- -- -- --
ESOP 192,407 80,375 82,250 9,875 128,282 -- 41,875 --
</TABLE>
An asterisk (*) denotes warrants which would have an anti-dilutive effect
if currently used to calculate earnings per share for the year ended
August 31, 1999.
-15-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2000
NOTE 7 - SEGMENT INFORMATION:
The Company had gross revenues of $1,247,158 and $727,087 for the six
months ended February 29, 2000 and 1999, respectively. The following
parties individually represent a greater than ten percent of these
revenues.
FEBRUARY 29, 2000 FEBRUARY 29, 1999
CUSTOMER AMOUNT PERCENTAGE AMOUNT PERCENTAGE
---------- ------------ ------------ ---------- ------------
Link - Two $ 39,215 .05 % 246,192 34 %
RFTL $ -- -- % 356,534 49 %
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 February 29, 2000 and 1999, the
Company had earned a 5.0% and 5.0%, 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, 1999 and 1998, the Company
has recorded it share of losses in this unconsolidated affiliate. The loss
as a minority shareholder totaled $91,678 and $28,663, respectively. The
Company has reclassified its balances due from Link II as additional
advances to affiliates.
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,
president, and chief executive officer of Link II and Dr. Cubley is a
director of Link II. Subsequent to August 31, 1999, Link II has entered
into negotiations to acquire existing paging operations in Dallas, San
Antonio and Houston. Additionally the company is currently negotiating
with a utility company to install wireless meter reading equipment which
will utilize the Link II radio frequency licenses and equipment.
On October 1, 1999, Link II refinanced its existing accounts payable to
Eagle Wireless International through the issuance of a $733,571 ten
percent (10%) note secured by all lease station licenses and a $6,000,000
ten percent (10%) note secured by all assets (excluding licenses). These
notes are due September 1, 2000. During October 1999, the Company pledged
as collateral on a $4,500,000 convertible note, the $6,000,000 note
receivable and its underlying collateral.
NOTE 9 - RISK FACTORS:
For the months ended February 2000 and 1999, substantially all of the
Company's business activities have remained within the United States and
have been extended to the wireless infrastructure industry. Approximately
fifty-three percent of the Company's revenues and receivables have been
created solely in the state of Texas, one percent have been created in the
international market, and the approximate forty-six remainder has been
created relatively evenly over the rest of the nation during the three
months ended February 29, 2000. Approximately eighty-seven percent of the
Company's revenues and receivables have been created solely in the state
of Texas, one percent have been created in the international market, and
the approximate twelve percent remainder has been created relatively
evenly over the rest of the nation during the three months ended February
29, 1999.
-16-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2000
NOTE 9 - RISK FACTORS: (continued)
Through the normal course of business, the Company generally does not
require its customers to post any collateral. However, because Link II
constitutes 43% and 60% of the Company's gross revenues and 64% and 60% of
its gross assets for the years ended August 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 and has fully collateralized the debt.
(See Note 9)
Although the Company has concentrated its efforts in the wireless
infrastructure industry and convergent set top market during the years
ended August 31, 1999 and for the six months ended February 29, 2000 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 - FOREIGN OPERATIONS:
Although the Company is based in the United States, its product is sold on
the international market. Presently, international sales total
approximately 1% and 2% at February 29, 2000 and 1999, respectfully.
NOTE 11 - COMMITMENTS AND CONTINGENT LIABILITIES:
The Company leases its primary office space for $10,000 per month with
Space Industries, Inc. ("Space"). This non-cancelable lease commenced on
July 1, 1999 and expires on March 29, 2001. In addition to the monthly
rental, the Company will issue 100,000 shares of its common stock to
Space. Space will have the right to sell no more than 10,000 shares per
month until all shares have been sold. Additionally, Space will have the
right to put to the Company all unsold shares held by Space in exchange
for a payment calculated using the following formula:
$173,000 - (gross proceeds from stock sales above $1.70 per share)
minus ($1.73 x quantity of shares sold below $1.70 per share)
It is understood and agreed, and it is the intention of both parties, that
this put right will provide Space with a guarantee that, so long as (a)
Space does not sell or otherwise dispose of the common stock for less than
$1.70 per share, and (b) Space exercises its put right between August 15,
2000 and August 31, 2000, Space will receive a minimum economic benefit of
at least $170,000 from the common stock issued by the Company to Space.
For the periods ending February 29, 2000 and 1999, rental expenses of
$119,097 and $23,793 respectively, were incurred.
Future obligations under the non-cancelable lease terms are:
PERIOD ENDING
NOVEMBER 30, AMOUNT
--------------- ------------
2000 $ 109,428
2001 $ 127,666
During the year ended August 31, 1998, the Company 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. At August 31, 1999, these options have been
issued and exercised.
17-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2000
NOTE 11 - COMMITMENTS AND CONTINGENT LIABILITIES: (continued)
The Company has been named as defendant in a lawsuit involving the
Company's previous landlord with regard to breach of the lease. The
Company has counter-claimed, also alleging breach of the lease. The
Company intends to vigorously defend this matter as well as prosecute its
counter-claim.
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 is currently negotiating with the lease company to purchase these
certain assets.
NOTE 12 - EARNINGS PER SHARE:
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
FOR THE 6 MONTHS ENDED FEBRUARY, 2000
------------------------------------------------
(IN THOUSANDS)
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------- --------------- ------------
<S> <C> <C> <C>
Net Income ........................................... $ 223
Basic EPS:
Income available to common stockholder ............. $ 223 14,255 $0.016
Effect of Dilutive Securities:
Warrants ........................................... - 0 - - 0 -
------ ------
Diluted EPS:
Income available to common stockholders
and assumed conversions .......................... $ 223 14,255 $0.016
====== ====== ======
FOR THE YEAR ENDED AUGUST , 1999
------------------------------------------------
(IN THOUSANDS)
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------- --------------- ------------
Net Income ........................................... $ 168
Basic EPS:
Income available to common stockholder ............. $ 168 12,000 $ 0.01
Effect of Dilutive Securities:
Warrants ........................................... - 0 - -0-
------ ------
Diluted EPS:
Income available to common stockholders
and assumed conversions .......................... $ 168 12,000 $ 0.01
====== ====== ======
</TABLE>
For the November 30, 1999 and August 31, 1999, anti-dilutive securities
existed. (see Note 6)
-18-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2000
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 February 29, 2000
and 1999, 192,407 and 85,375 warrants have been issued to various
employees. Of these outstanding warrants, 29,000 were exercised for the
year ended August 31, 1999 and none for the year ended August 31, 1998.
Additionally, 10,250 warrants have expired as of August 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. For the months ended February 29, 2000 and
1999, employee contributions were approximately $134,717 and $44,802,
respectively. The Company matched approximately $39,385 and $28,634
respectively for those same periods.
NOTE 15 - MAJOR CUSTOMER:
As of February 29, 2000, the Company had a receivable due from Link - Two
Communications (Link II) in the amount of $6,641,892. This account
receivable has been converted to a note receivable (see Note 9). As of
August 31, 1999, Link II is continuing to sell equity securities, assets,
and products that are being used to retire this note receivable. This
receivable is secured by substantially all assets of Link II including
radio frequency licenses that have been valued by outside appraisal firms
to in excess of twenty million dollars. In August 1999, Link II commenced
operations of its nationwide two-way messaging system. Based upon the
aforementioned, management believes the risks involved with this
receivable are minimal.
NOTE 16 - BUSINESS COMBINATIONS
Effective January 1, 2000, the Company acquired Atlanticpacific
Communications, Inc. in a business combination accounted for as purchase.
Atlanticpacific Communications, Inc. is primarily in the business of
nationwide sales and installation of fiber optic and Internet wiringto
commercial customers. The results of operations are included in the
accompanying financial statements since the date of acquisition. The
Company issued 518,919 shares in restricted stock and assumed certain
notes and accounts payable. Additionally, the principal shareholders of
Atlanticpacific Communications, Inc. can earn an additional 3,000,000
shares of the Company's common stock based on accumulated sales goals.
Under the terms of this agreement, the Company will issue an additional
500,000 shares at $10,000,000 in accumulated sales, 1,000,000 shares at
$30,000,000 in accumulated sales and 1,500,000 shares at $60,000,000 in
accumulated sales. The total cost of the acquisition exceeded the fair
value of the assets by $2,568,210. This excess is being amortized over
fifteen years.
Effective January 1, 2000, the Company acquired Comtel Communications,
Inc. in a business combination accounted for as purchase. Comtel
Communications, Inc. is primarily in the business of nationwide sales and
installation of fiber optic and Internet wiringto commercial customers.
The results of operations are included in the accompanying financial
statements since the date of acquisition. The Company issued 300,000
shares in restricted stock for the net assets of Comtel Communications,
Inc. The total cost of the acquisition exceeded the fair value of the
assets by $1,455,362. This excess is being amortized over fifteen years.
-19-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2000
NOTE 16 - BUSINESS COMBINATIONS(CONTINUED)
The following summarized pro forma (unaudited) information assumes the
transactions related to Eagle Wireless International, Inc., (EAG)
Atlanticpacific Communications, Inc., (APC) and Comtel Communications,
Inc., (CTC):
<TABLE>
<CAPTION>
1999 PRO FORMA INFORMATION
(In Thousands)
EAG APC CCT ADJ. COMBINED TOTAL
<S> <C> <C> <C> <C>
Net Sales ........................ $ 2,217 $ 1,567 $ 4,135 $ 7,919
Cost of Goods Sold ................ 1,337 1,207 3,249 5,793
----------------------------------------------------------------------
Gross Profit ...................... 880 360 886 2,126
Operating Expenses ................ 1,319 853 850 3,022
----------------------------------------------------------------------
Income (loss) from operations ..... (439) (493) 36 (896)
Other, net ........................ 697 (11) 686
----------------------------------------------------------------------
Income before income taxes ........ 258 (504) 36 (210)
Income taxes ...................... 91 -- 15 (106) --
----------------------------------------------------------------------
Net income ........................ $ 167 $ (504) $ 21 $ 106 $ (210)
======================================================================
</TABLE>
NOTE 16 - SUBSEQUENT EVENTS:
Through March 17, 2000, the Company has received an additional $4,745,964
from the exercise of all warrants.
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
During the six months ended February 29, 2000, the Company's primary
operations were concentrated in the on-going development, marketing and
beta testing of multi-media set top devices and the acquisitions of two
companies in the structured wiring industries. The new products are
currently being tested by multinational distribution companies, Internet
service providers, national retail distribution companies and multiple
international hotel companies. The Company expects to complete most beta
testing during the second quarter ending February 29, 2000 and commence
selling these products in the third quarter ending May, 2000.
Additionally, the company commenced the sale of fiber optic cabling and
other custom wiring products and services on a national basis through its
new subsidiaries Atlanticpacific Communications and Comtel Communications.
The Company intends to continue to expand its operations into the cabling
and industries through additional acquisitions of companies located
throughout the United States..
Revenues for the six months ended February 29, 2000 and 1999 totaled
$1,903,000 and $1,658,000, respectively. The increase in revenues is
principally due a increase in sales to commercial customers which require
structured fiber optic and Internet wiring and cabling for computers and
communications equipment. During this current quarter, the Company's
marketing resources were directed to identifying product demand for the
set top devices and development of new wireless application customers. The
Company anticipates that these sales efforts will provide new customers in
the wireless, Internet and convergent set top device markets and
constitute the majority of sales in the ensuing fiscal year. Concurrent
with this marketing effort, the Company is currently negotiating with
domestic and international manufacturing concerns to support significant
production activity for the multi-media set top devices.
-20-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2000
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Operating expenses for the six months ended February 29, 2000 and 1999
totaled $1,216,000 and $967,000, respectively. This increase is
attributable to new personnel employed to support the development
necessary to market the multi-media set top devices and cost incurred in
the acquisitions of the structured wiring companies. The Companies
research and development costs will continue to increase as new
multi-media products are being developed to meet the overall international
marketing plan.
Current assets as of February 29, 2000 and August 31, 1999 totaled
$13,430,000 and $3,072,000, respectively. The principal increase in
working capital was due to the increase in cash from the exercise of
warrants. Current liabilities as of February 29, 2000 and August 31, 1999
totaled $3,179,000 and $1,414,000, respectively. This increase is
attributable to the increase in accounts payable which were assumed in the
acquisitions.
The Company's shareholders' equity as of February 29, 2000 and August 31,
1999 totaled $22,091,000 and $8,894,000, respectively. This increase is
attributable to the significant exercise of the various categories of
warrants. As disclosed, the Company is continuing to receive substantial
sums of cash from additional warrant exercises. The Company expects this
warrant exercise trend to continue. Cash flows used by operating
activities for the six months ended February 29, 2000 and 1999 totaled
$1,182,000 and $788,000, respectively. Cash flows used by investing
activities for the six months ended February 29, 2000 and 1999 totaled
$896,000 and $347,000, respectively. Cash flows provided by financing
activities for the six months ended February 29, 2000 and 1999 totaled
$9,352,000 and $5,000 respectively.
A substantial portion of the Company's other assets is concentrated in
notes 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 The Company has established a credit committee to assist Link-Two
in its securing of financing. 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.
We entered into a $4,500,000 convertible note credit facility, of which we
have drawn down and repaid $1,500,000. The balance is available subject to
certain terms and conditions. We believe that our current cash position
will provide sufficient working capital through August 2001. Additionally,
the Company is negotiating with lenders to obtain acquisition and
production financing, although there is no assurance that such financing
can be obtained.
-21-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2000
IMPACT OF YEAR 2000
Even though the date is now past January 1, 2000, and we have not
experienced any immediate adverse impact from the transition to the year
2000, we cannot provide any assurance that our suppliers and customers
have not been affected in a manner that is not yet apparent. In addition,
some computer programs, which were date sensitive to the year 2000, may
not have been programmed to process the year 2000 as a leap year, and any
negative consequential effects remain unknown. As a result, we will
continue to monitor our year 2000 compliance and the year 2000 compliance
of our suppliers and customers.
The year 2000 posed issues for business and consumer computing,
particularly the functionality of software for two-digit storage of dates
and special meanings for dates such as 9/9/99. The problem exists for many
kinds of software, including software for mainframes, PCs, and embedded
systems.
In assessing the effect of the Year 2000 problem, we determined
that there existed two general areas that needed to be evaluated:
o Internal infrastructure; and
o Supplier/third-party relationships.
A discussion of the various activities related to assessment and
actions resulting from those evaluations are below.
INTERNAL INFRASTRUCTURE. - During the fiscal year 1999, we
undertook and completed a project to replace our accounting and
manufacturing information systems that we found to not be Year 2000
compliant. We presently believe that, with modifications to existing
software and conversions to new software, the Year 2000 issue will not
pose significant operational problems for our business, our products or
installed systems. As of January 14, we have not suffered any problems or
interruptions due to the Year 2000 problem.
SUPPLIERS/THIRD-PARTY RELATIONSHIPS. - We rely on outside
vendors for water, electrical, and telecommunications services as well as
climate control, and other infrastructure services. We did independently
evaluate the year 2000 compliance of the systems utilized to supply these
services. We have not received any assurance of compliance from the
providers of these services. Any failure of these third-parties to resolve
year 2000 problems with their systems could have a material adverse effect
on our business.
CONTINGENCY PLANS. - Based on the above actions, we have not
developed a formal contingency plan to be implemented as part of our
efforts to identify and correct year 2000 problems affecting our internal
systems. However, if we believe it is necessary, we may take the following
actions:
o Short to medium-term use of backup equipment and software;
o Increased work hours for our personnel; and
o Other similar approaches.
If we are required to implement any of these contingency plans,
such plans could have a material adverse effect on our business. Based on
the actions taken to date, and the lack of
-22-
<PAGE>
any problems to date, we are reasonably certain that we have identified
and resolved all year 2000 problems that could hurt our business.
PART 2. - OTHER INFORMATION
ITEM 2 - RECENT SALES OF UNREGISTERED SECURITIES
In September 1999, the company issued 61,667 shares of common stock to two
individuals for $36,317. The company believes that these issuances were
exempt from registration pursuant to Section 4(2) of the Act as
transactions by an issuer not involving any public offering.
In October 1999, the company issued a convertible note in the amount of
$1,500,000. The company believes that this issuance was exempt from
registration pursuant to Section 4(2) of the Act as a transaction by an
issuer not involving any public offering.
ITEM 6 - EXHIBITS OF REPORT ON FORM 8-K
(a) Exhibit
exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
none
-23-
<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: March 17, 2000 By: /s/ H. Dean Cubley
Dr. H. Dean Cubley
President
/s/ Richard R. Royall
Richard R. Royall
Chief Financial Officer
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<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 FEBRUARY 29, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS AND ACCOMPANYING NOTES.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> FEB-29-2000
<CASH> 7,685
<SECURITIES> 0
<RECEIVABLES> 2,006
<ALLOWANCES> 0
<INVENTORY> 3,537
<CURRENT-ASSETS> 13,430
<PP&E> 1,586
<DEPRECIATION> 677
<TOTAL-ASSETS> 25,309
<CURRENT-LIABILITIES> 3,210
<BONDS> 0
0
0
<COMMON> 17
<OTHER-SE> 22,091
<TOTAL-LIABILITY-AND-EQUITY> 25,309
<SALES> 1,903
<TOTAL-REVENUES> 2,346
<CGS> 770
<TOTAL-COSTS> 770
<OTHER-EXPENSES> 1,216
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 323
<INCOME-TAX> 100
<INCOME-CONTINUING> 223
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0.016
<EPS-DILUTED> 0.016
</TABLE>
