U.S. SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
EAGLE WIRELESS INTERNATIONAL, INC.
(Exact name of small business issuer in its charter)
COMMISSION FILE NUMBER:
TEXAS 3669 76-0494995
----- ---- ----------
(State or jurisdiction of (Primary Standard Industrial (IRS Employer
Incorporation or Organization) Classification Code Number) Identification No.)
101 Courageous Drive
League City, TX 77573-3925
(281) 538-6000
(Address and telephone number of principal executive offices)
101 Courageous Drive
League City, TX 77573-3925
(Address of principal place of business
or intended principal place of business)
H. Dean Cubley, President
Eagle Wireless International, Inc.
101 Courageous Drive
League City, TX 77573
Telephone (281) 538-6000
Facsimile (281) 334-5302
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent for Service)
Copy to:
Richard O. Weed
Weed & Co. L.P.
4695 MacArthur Court, Suite 530
Newport Beach, CA 92660
Telephone (949) 475-9086
Facsimile (949) 475-9087
Approximate date of proposed sale to public: As soon as practicable after the
effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
REGISTERED REGISTERED OFFERING PRICE PER UNIT AGGREGATE OFFERING PRICE REGISTRATION FEE
----------------------------------------- -------------- ----------------------- --------------------------- ----------------------
<S> <C> <C> <C> <C>
$.001 par value common stock underlying
stock options 350,000 $1.50 $525,000 $145.95
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$.001 par value common stock underlying
stock options 75,000 $1.92 $144,000 $40.03
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$.001 par value common stock underlying
stock options 50,000 $3.00 $150,000 $41.70
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$.001 par value common stock underlying
stock options 50,000 $1.55 $77,500 $21.55
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$.001 par value common stock underlying
stock options 50,000 $9.56 $478,000 $132.88
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$.001 par value common stock underlying
stock options 25,000 $1.92 $48,000 $13.34
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$.001 par value common stock underlying
stock options 25,000 $10.00 $250,000 $69.50
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$.001 par value common stock underlying
stock options 25,000 $7.625 $190,625 $52.99
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$.001 par value common stock underlying
stock options 20,000 $2.01 $40,200 $11.18
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$.001 par value common stock underlying
stock options 250,000 $12.00 $3,00,000 $834
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$.001 par value common stock underlying
stock options 250,000 $18.00 $4,500,000 $1,251
----------------------------------------- -------------- ----------------------- --------------------------- ----------------------
$.001 par value common stock 100,000 $7.75 $775,000 $215.46
----------------------------------------- -------------- ----------------------- --------------------------- ----------------------
$.001 par value common stock 100,000 $7.63 $762,500 $211.98
----------------------------------------- -------------- ----------------------- --------------------------- ----------------------
$.001 par value common stock 30,000 $7.63 $146,400 $63.59
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$.001 par value common stock 19,339 $7.63 $94,374 $40.99
----------------------------------------- -------------- ----------------------- --------------------------- ----------------------
$.001 par value common stock 3,345 $7.63 $14,484 $7.09
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$.001 par value common stock 1,083 $7.63 $2,902 $2.30
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$.001 par value common stock 913 $7.63 $5,651 $1.94
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$.001 par value common stock 480 $7.63 $600 $1.02
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$.001 par value common stock 244 $7.63 $320 $0.52
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$.001 par value common stock 163 $7.63 $918 $0.35
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Total 1,425,567 $8,206,974 $3,159.36
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The registration fee was calculated pursuant to Rule 457(c) and (g) under the
Securities Act of 1933.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said section 8(a),
may determine.
The Registrant may amend this registration statement. A registration statement
relating to these securities has been filed with the Securities and Exchange
Commission. Eagle Wireless International Inc. may not sell these securities
until the registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
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PROSPECTUS
1,425,567 Shares 255,567 Shares of Common Stock and 1,170,000 Shares of Common
Stock underlying Stock Options and Warrants
EAGLE WIRELESS INTERNATIONAL, INC.
This prospectus relates to the public offering, which is not being underwritten,
of 1,425,567 shares of common stock of Eagle Wireless International, Inc., a
Texas corporation ("Eagle"). 1,170,000 of the shares offered are shares
underlying stock options or warrants exercisable at prices ranging from $1.55 to
$18.00. The selling stockholders may offer their shares of common stock through
public or private transactions, on or off the American Stock Exchange ("AMEX"),
at prevailing market prices, or at privately negotiated prices. Eagle will not
receive any of the proceeds from the sale of the shares of the common stock by
the selling stockholders, but will receive the exercise price of the stock
options and warrants.
Eagle's common stock is traded on AMEX, under symbol "EAG." On June 30, 2000,
the last reported sale price for the common stock was $7.625 per share.
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 6 OF THIS
PROSPECTUS BEFORE PURCHASING ANY OF THE COMMON STOCK OFFERED BY THIS PROSPECTUS.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is July 3, 2000.
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TABLE OF CONTENTS
PAGE
Prospectus Summary.......................................................... 3
Risk Factors................................................................ 5
Use of Proceeds............................................................. 8
Determination of Offering Price............................................. 8
Dilution.................................................................... 8
Selling Security Holders.................................................... 8
Plan of Distribution........................................................ 9
Legal Proceedings........................................................... 10
Directors, Executive Officers, Promoters and Control Persons................ 10
Security Ownership of Certain Beneficial Owners and Management.............. 11
Description of Securities................................................... 12
Experts..................................................................... 13
Disclosure of Commission Position of Indemnification for Securities
Act Liabilities........................................................... 13
Organization Within Last Five Years......................................... 13
Description of Business..................................................... 13
Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................... 20
Description of Property..................................................... 22
Executive Compensation...................................................... 23
Financial Statements........................................................ 24
Changes and disagreements with accountants on accounting and
financial disclosure...................................................... 55
PROSPECTUS SUMMARY
Eagle Wireless International, Inc.
Eagle Wireless International, Inc. ("Eagle") is a worldwide supplier of
telecommunications equipment and related software used by service providers in
the paging and other wireless personal communications markets. In addition,
radio remote control products have been added to the product line. Recently,
Eagle introduced a multi-media home entertainment product to the
telecommunications industry. Eagle 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. Eagle
recently incorporated Broadbandmagic.com, Inc., a wholly owned subsidiary, which
will focus on the development, marketing and sale of Eagle's new multi-media
set-top-box products.
Eagle is located at 101 Courageous Drive, League City, Texas 77573 and its
telephone number is (281) 538-6000.
The Offering
Common stock outstanding as
of June 30, 2000 24,214,736
Common stock offered by the
selling stockholders, including
shares underlying stock options
and warrants 1,425,567 shares
Market for Eagle common stock Eagle common stock and class B warrants
are listed on the American Stock
Exchange under the symbols EAG and
EAG-tb, respectively. The market for
common stock and class B warrants is
limited, sporadic and highly volatile.
Eagle Wireless can provide no assurance
that there will be a market for its
stock in the future.
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RISK FACTORS
Before purchasing the shares offered by this prospectus, you should
carefully consider the risks described below, in addition to the other
information presented in this prospectus or incorporated by reference into this
prospectus. If any of the following risks actually occur, they could adversely
affect Eagle's business, financial condition or results of operations. In such
case, the trading price of Eagle common stock could decline and you may lose all
or part of your investment.
EAGLE HAS A LIMITED OPERATING HISTORY AND EXPECTS TO ENCOUNTER RISKS FREQUENTLY
FACED BY SUCH COMPANIES
Eagle has a limited operating history and, accordingly, is subject to all
the substantial risks inherent in the commencement of a new business enterprise.
Additionally, Eagle has a limited business history that investors can analyze to
aid them in making an informed judgment as to the merits of an investment in
Eagle. Any investment in Eagle should be considered a high risk investment
because the investor will be placing funds at risk in a start-up company with
unforeseen costs, expenses, competition and other problems to which start-up
ventures are often subject. Eagle's prospects must be considered in light of the
risks, expenses and difficulties encountered in establishing a new business in a
highly competitive industry characterized by rapid technological development.
ALTHOUGH EAGLE HAS HAD A HISTORY OF EARNINGS, EAGLE HAS HAD A DECREASE IN
EARNINGS AND REVENUES IN FISCAL 1999 AND FOR THE FIRST SIX MONTHS OF FISCAL
2000. THEREFORE, EAGLE MAY INCUR LOSSES IN THE FUTURE AND THERE CAN BE NO
ASSURANCE WHEN OR IF IT WILL SUSTAIN LONG-TERM PROFITABILITY
Eagle had net sales of $4,827,434 and net earnings of $770,968 for the
year ended August 31, 1998 and net sales of $2,217,275 and net earnings of
$168,271 for the year ended August 31, 1999. The decreases in Eagle's earnings
and revenues are primarily attributed to completion of contracts for its paging
and personal communication systems and increases in research and development
expenses for its convergent set-top device. However, net sales of $1,658,000 and
net earnings of $149,000 for the six months ended February 28, 1999 compared to
net sales of $1,903,000 and net earnings of $223,000 for the six-month period
ended February 29, 2000 show slight increases. However, Eagle may incur losses
in the future, and there can be no assurance when or if it will sustain
long-term profitability.
EAGLE MAY NOT BE ABLE TO MEET ITS CAPITAL REQUIREMENTS AND MAY ENCOUNTER LIMITED
SOURCES OF LIQUIDITY, WHICH MAY LIMIT ITS ABILITY TO FULLY EXECUTE ITS BUSINESS
STRATEGY
Eagle requires substantial capital to pursue its operating strategy and
implement its business plan. Eagle's current level of operations is consuming
cash at a rate of $200,000 per month and is expected to continue at this rate
through the end of the fiscal year. Eagle currently has approximately $1.1
million available for use from its credit facility. For the next six months,
Eagle's primary financing activities will be from its credit facility, and the
exercise of various classes of warrants which it believes will provide the
necessary working capital for operations. Currently, Eagle is in negotiations
for a term loan to provide additional working capital to fund the development
for Eagle's expanded development line. For its long term financing needs, Eagle
has an additional $3 million available for use from its credit facility, subject
to certain terms and conditions. Eagle may need additional debt or equity
capital in order to continue to fund its business operations and finance its
growth. There can be no assurance that Eagle 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 Eagle'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
Eagle's capital requirements.
EAGLE'S PRODUCTS ARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE AND AN INABILITY ON
ITS PART TO ADAPT OR ADJUST ITS TECHNOLOGY TO SUCH DEVELOPMENTS MAY HAVE A
MATERIAL ADVERSE EFFECT ON ITS BUSINESS
The design, development, and manufacturing of personal communication
systems, specialized mobile radio products and multimedia entertainment products
are highly competitive and characterized by rapid technology changes. Eagle will
compete with other existing products and may compete against other development
technology. Development by others of new or improved products or technologies
may make Eagle's products obsolete or less competitive. While management
believes that Eagle's products are based on established state-of-the-art
technology, there can be no assurance that they will not be obsolete in the near
future or that Eagle will be able to develop a commercial market for its
products in response to future technology advances and developments.
EAGLE'S CONVERGENT SET-TOP BOXES ARE IN THE INITIAL STAGES OF DEVELOPMENT, AND
EAGLE MAY NOT BE ABLE TO EFFECTIVELY MASS PRODUCE OR MASS MARKET THESE NEW
PRODUCTS
Eagle has developed several prototypes of its convergent set-top box
product line, and is currently in negotiations to obtain the necessary financing
to produce and market these devices. Eagle may not be able to obtain such
financing, and even if it does may not be able to effectively mass produce or
mass market these products. Additionally, Eagle currently does not have any
contracts with customers for the purchase of these products.
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EAGLE IS DEPENDENT ON CERTAIN MEMBERS OF ITS KEY PERSONNEL AND LOSS OF THESE
PERSONNEL MAY HAVE AN ADVERSE EFFECT ON ITS BUSINESS
The success of Eagle is dependent upon, among other things, the services
of H. Dean Cubley, president and chief executive officer and James Futer,
executive vice-president and chief operating officer. The loss of the services
of Dr. Cubley or Mr. Futer, for any reason, could have a material adverse effect
on the prospects of Eagle. Eagle has not entered into employment agreements with
Dr. Cubley and Mr. Futer but does maintain $ 5 million of key-man life insurance
on Dr. Cubley. Eagle has enlisted experienced personnel in several key
positions; however, there can be no assurance that Eagle will be able to
continue to attract and retain qualified employees to implement its business
plan.
EAGLE'S SUCCESS DEPENDS UPON ITS ABILITY TO PROTECT ITS PROPRIETARY TECHNOLOGIES
Eagle relies on certain non-disclosure agreements with employees, and
common law remedies with respect to certain of its proprietary technology. Eagle
has not completed filing for or obtained patents on its key technology, and
there can be no assurance that the patents will be issued if applied for in the
future. There can be no assurance that others will not misappropriate Eagle's
proprietary technologies or develop competitive technologies or products that
could adversely affect Eagle. In addition, although Eagle is not aware of any
infringement claims against it or any circumstances that could lead to such
claims, there can be no assurance that such a claim could not be made which
could adversely affect its business.
Eagle's efforts to protect its intellectual property may cause it to
become involved in costly and lengthy litigation which could seriously harm its
business. In recent years, there has been significant litigation in the United
States involving patents and other intellectual property rights. Although it has
not become involved in intellectual property litigation, it may become involved
in litigation in the future to protect its intellectual property or defend
allegations of infringement asserted by others. Legal proceedings could subject
it to significant liability for damages and subject it to significant liability
for damages or invalidate Eagle's proprietary rights. Any litigation, regardless
of its outcome, would likely be time consuming and expensive to resolve and
would divert management's time and attention. Any potential intellectual
property litigation also could force Eagle to take specific actions, including:
o Cease selling its products that use the challenged intellectual
property;
o Obtain from the owner of the infringed intellectual property a right a
license to sell or use the relevant technology, which license may not
be available on reasonable terms, or at all; or
o Redesign those products that use infringing intellectual property.
THE PAGING AND PERSONAL COMMUNICATIONS INDUSTRY IS HEAVILY REGULATED AND
COMPLIANCE WITH FEDERAL LAWS MAY BE OVERLY BURDENSOME AND COSTLY FOR EAGLE
The paging and personal communications industry is heavily regulated.
Although compliance with such laws and regulations historically has not had a
material adverse effect on Eagle's competitive position, operations or financial
condition or required material capital expenditures, there is no assurance that
the implementation of new or amended laws or regulations in the future would not
have such an effect or require such expenditures.
EAGLE FACES SUBSTANTIAL COMPETITION FROM COMPETITORS WITH SIGNIFICANTLY GREATER
RESOURCES
The wireless personal communications industry includes equipment
manufacturers that serve many of the same customers served by Eagle.
Substantially all of Eagle's competitors have significantly greater resources,
including financial, technical and marketing, than Eagle, and there can be no
assurance that Eagle will be able to compete successfully in the future.
Eagle faces competition from many entities with significantly greater
financial resources, well-established brand names and larger customer bases. The
numerous companies that may seek to enter its industry may expose Eagle to
severe price competition for its products and services. Eagle expects
competition to intensify in the future and expects significant competition from
traditional and new telecommunications companies including, local, long
distance, cable modem, Internet, digital subscriber line, microwave, mobile and
satellite data providers.
A SYSTEM FAILURE COULD DELAY OR INTERRUPT EAGLE'S ABILITY TO PROVIDE PRODUCTS OR
SERVICES AND HAVE A MATERIALLY ADVERSE EFFECT ON EAGLE'S BUSINESS
Eagle's operations are dependant upon its ability to support its highly
complex network infrastructure. Many of its customers are particularly dependent
on an uninterrupted supply of services. Any damage or failure that causes
interruptions in its operations could result in loss of these customers and
condition. Because of the nature of the services Eagle supplies and the
complexity of Eagle's network, it is not feasible to maintain backup systems,
and the occurrence of a natural disaster, operational disruption or other
unanticipated problem
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could cause interruptions in the services it provides. Additionally, the failure
of a major supplier to provide the components and parts necessary for its
products and services, or of a major customer to continue buying its goods and
services, as a result of a natural disaster, operational disruption or any other
reason, could cause interruptions in the service Eagle provides and adversely
affect its business prospects, financial condition and results of operations.
SHAREHOLDERS FACE POSSIBLE VOLATILITY OF STOCK PRICE FOR EAGLE STOCK
The market price of the common stock may experience fluctuations that are
unrelated to the operating performance of, or announcement concerning, Eagle.
Securities of issuers having relatively limited capitalization or securities
recently issued in a public offering, such as Eagle, are particularly
susceptible to change based on short-term trading strategies of certain
investors. Eagle recently experienced an increase in the market price of its
common stock. Eagle can provide no assurance that the current price will be
maintained. Securities of issuers having relatively limited capitalization or
securities recently issued in a public offering, such as Eagle, are particularly
susceptible to change based on short-term trading strategies of some investors.
As of June 30, 2000 a total of 24,214,736 shares of common stock were
outstanding. The resale of the shares of common stock offered hereby, along with
the resale of the shares of common stock issuable upon the exercise of the stock
options may have a negative impact on Eagle's stock price.
THE BOARD OF DIRECTORS HAVE UNLIMITED DISCRETION TO ISSUE EAGLE PREFERRED STOCK
THAT COULD DELAY OR PREVENT AN ACQUISITION AND COULD ADVERSELY AFFECT THE PRICE
OF ITS COMMON STOCK
The Board of Directors of Eagle has the authority to issue up to 5,000,000
shares of $.001 par value preferred stock with such designations, rights and
preferences as they may determined. Accordingly, the Board of Directors is
empowered, without further shareholder approval, to issue preferred stock with
dividend, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of the holders of Eagle common stock.
Certain companies have used the issuance of preferred stock as an anti-takeover
device and the Board of Directors could, without further shareholder approval,
issue preferred stock with certain rights that could discourage an attempt to
obtain control of Eagle in a transaction not approved by the Board of Directors.
CONTINUED GROWTH OF EAGLE'S BUSINESS DEPENDS ON ITS ABILITY TO MANAGE EXPANSION
AND DEVELOPMENT EFFECTIVELY
Eagle's ability to manage expansion effectively will require it to
continue to implement and improve its operating, financial and accounting
systems and to hire train and manage new employees. Among other things, the
continued expansion and development of Eagle's business will also depend on its
ability to continue to grow as a supplier of telecommunications equipment and
related software used by service providers in the paging and other wireless
personal communications market. In addition, it must perform these tasks in a
timely manner, at a reasonable cost and on satisfactory terms and conditions.
Failure to effectively manage Eagle's planned expansion could have a material
adverse effect on its business, growth, financial condition, results of
operations and the market price of Eagle common stock. Eagle's expansion may
involve acquiring other companies and assets. These acquisitions could divert
its resources and management attention and require integration with its existing
operations. Eagle cannot assure you that these acquisitions will be successful.
Eagle further cannot assure you that it will be successful or timely in
developing and marketing service enhancements or new services that respond to
technological change, changes in customer requirements and emerging industry
standards. Even if Eagle is successful, it cannot assure you that its lack of
significant experience with respect to a new service or market will not hinder
its ability to successfully capitalize on any such opportunity.
FAILURE TO EXPAND EAGLE'S DISTRIBUTION CHANNELS AND MANAGE EAGLE'S DISTRIBUTION
RELATIONSHIPS MAY ADVERSELY EFFECT ITS OPERATIONS
The future growth of Eagle's business will depend in part on its ability
to expand its existing relationships with distributors and resellers, develop
additional channels for the distribution and sale of Eagle products and manage
these relationships. As part of Eagle's growth strategy, Eagle intends to expand
its relationships with distributors and resellers. The inability to successfully
execute this strategy could impede its future growth.
THE LOSS OF EAGLE'S CONTRACT SUPPLIERS, OR FAILURE TO FORECAST DEMAND ACCURATELY
FOR ITS PRODUCTS OR TO MANAGE ITS RELATIONSHIP WITH ITS CONTRACT SUPPLIERS
SUCCESSFULLY, WOULD NEGATIVELY IMPACT EAGLE'S ABILITY TO MANUFACTURE AND SELL
ITS PRODUCTS
To date Eagle relies on third party suppliers for component and assemblies
used in Eagle's products. If its relationship with these suppliers was harmed
for any reason or its demand for products was higher than these suppliers could
produce, Eagle may have to locate alternative suppliers. Although Eagle believes
that other suppliers of the components and assemblies it requires exist, it may
be difficult
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to contract with these suppliers in time to avoid a negative impact on its
operations. Further, there can be no assurance that such contracts, if Eagle
were able to enter into such contract, would be favorable to it.
USE OF PROCEEDS
The selling stockholders are offering all of the shares of common stock
covered by this prospectus. Eagle will not receive any proceeds from the sales
of these shares of common stock, except Eagle will receive the exercise price of
the stock options and warrants. Eagle will use the proceeds for working capital
and has broad discretion in the application of such proceeds. As there are no
commitments from the holders of the stock options or warrants to exercise such
securities, there can be no assurance that any of the subject warrants will be
exercised.
DETERMINATION OF OFFERING PRICE
Not applicable.
DILUTION
Not applicable.
SELLING SECURITY HOLDERS AND PLAN OF DISTRIBUTION
The following table sets forth the number of shares owned by each of the
selling stockholders. All information contained in the table below is based upon
their beneficial ownership as of June 30, 2000. Eagle is not able to estimate
the amount of shares that will be held by the selling stockholders after the
completion of this offering because those selling stockholders may offer all or
some of the shares and because there currently are no agreements, arrangements
or understandings with respect to the sale of any of their shares other than
those agreements and arrangements listed below. The following table assumes that
all of the shares being registered will be sold. The selling stockholders are
not making any representation that any shares covered by the prospectus will be
offered for sale. The selling stockholders reserve the right to accept or
reject, in whole or in part, any proposed sale of the shares.
Of the shares offered hereby, all are being offered by certain purchasers
of Eagle's common stock who may acquire such securities in connection with the
exercise of certain outstanding stock options and warrants. The stock options
and warrants were granted by Eagle to encourage its outside consultants to
increase their proprietary interest in the success of Eagle and to thereby
encourage each consultant to maintain their relationship with Eagle.
<TABLE>
<CAPTION>
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PERCENT OF CLASS OF SHARES
NUMBER OF SHARES BENEFICIALLY BENEFICIALLY OWNED PRIOR TO NUMBER OF SHARES
NAME AND ADDRESS OF SELLING STOCKHOLDER OWNED PRIOR TO THE OFFERING THE OFFERING OFFERED HEREBY
------------------------------------------------ ------------------------------- --------------------------- ----------------
<S> <C> <C> <C>
Paladin Associates 350,000 shares of common <1% 350,000
3010 East NASA Road One, Suite 801 stock underlying stock options
Seabrook, TX 77586
------------------------------------------------ ------------------------------- --------------------------- ----------------
National Financial Communications Corporation 75,000 shares of common stock < 1% 75,000
1040 Great Plain Avenue underlying stock options
Needham, MA 02492
------------------------------------------------ ------------------------------- --------------------------- ----------------
Richard O. Weed 150,000 shares of common < 1% 150,000
4695 MacArthur Court, Suite 530 stock underlying stock options
Newport Beach, CA 92660
------------------------------------------------ ------------------------------- --------------------------- ----------------
Mario Iacoviello 25,000 shares of common stock < 1% 25,000
1040 Great Plain Avenue underlying stock options
Needham, MA 02492
------------------------------------------------ ------------------------------- --------------------------- ----------------
Synchton Incorporated 50,000 shares of common stock <1% 50,000
P.O. Box 890721 underlying stock options
Houston, TX 77289-0721
------------------------------------------------ ------------------------------- --------------------------- ----------------
Kason, Inc. 913 shares of common stock < 1% 20,913
972 Miramonte Drive, Suite 4 and 20,000 shares of common
Santa Barbara, CA 93109 stock underlying stock options
------------------------------------------------ ------------------------------- --------------------------- ----------------
</TABLE>
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<TABLE>
<CAPTION>
------------------------------------------------ ------------------------------- --------------------------- ----------------
<S> <C> <C> <C>
Hampton-Porter Investment Bankers LLC 100,000 shares of common <1% 600,000
600 W. Broadway, 14th Floor stock and 500,000 shares of
San Diego, CA 92101 common stock underlying stock
options
------------------------------------------------ ------------------------------- --------------------------- ----------------
Carson Trust 100,000 shares of common stock 3% 100,000
1331 Lamar, Suite #1375
Houston, TX 77010
------------------------------------------------ ------------------------------- --------------------------- ----------------
Royall & Fleschler, Inc. 30,000 shares of common stock < 1% 30,000
1331 Lamar, Suite #1375
Houston, TX 77010
------------------------------------------------ ------------------------------- --------------------------- ----------------
Clayton Braizer 19,339 shares of common stock < 1% 19,339
1416 North Sam Houston Pkwy, Suite #160
Houston, TX 77032
------------------------------------------------ ------------------------------- --------------------------- ----------------
B&B Marketing Communications, Inc. 3,345 shares of common stock < 1% 3,345
9708 Fondren, Suite #221
Houston, TX 77096
------------------------------------------------ ------------------------------- --------------------------- ----------------
Lion Dance Creative 1,083 shares of common stock < 1% 1,083
P.O. Box 2964
Spring, TX 77383
------------------------------------------------ ------------------------------- --------------------------- ----------------
Hargrove Design Group 480 shares of common stock < 1% 480
2600 South Gessner, Suite #518
Houston, TX 77063
------------------------------------------------ ------------------------------- --------------------------- ----------------
Joe Robbins Photography 244 shares of common stock < 1% 244
7700 Renwick, Suite 5A
Houston, TX 77081
------------------------------------------------ ------------------------------- --------------------------- ----------------
Boss Design 163 shares of common stock < 1% 163
106 Medalist
Austin, TX 78734
------------------------------------------------ ------------------------------- --------------------------- ----------------
</TABLE>
PLAN OF DISTRIBUTION
Eagle is registering the common stock on behalf of the selling
stockholders. As used in this prospectus, the term "selling stockholders"
includes pledgees, transferees or other successors-in-interest selling shares
received from the selling stockholder, as a pledgor, a borrower or in connection
with other non-sale-related transfers after the date of this prospectus. This
prospectus may also be used by transferees of the selling stockholders,
including broker-dealers or other transferees who borrow or purchase the shares
to settle or close out short sales of shares of common stock. The selling
stockholders will act independently of Eagle in making decisions with respect to
the timing, manner, and size of each sale or non-sale related transfer. Eagle
will not receive any of the proceeds of this offering.
The selling stockholders may sell their shares of common stock directly to
purchasers from time to time. Alternatively, they may from time to time offer
the common stock to or through underwriters, broker/dealers or agents, who may
receive compensation in the form of underwriting discounts, concessions or
commissions from the selling stockholders or the purchasers of such securities
for whom they may act as agents. The selling stockholders and any underwriters,
broker/dealers or agents that participate in the distribution of common stock
may be deemed to be "underwriters" within the meaning of the Securities Act and
any profit on the sale of such securities and any discounts, commissions,
concessions or other compensation received by any such underwriter,
broker/dealer or agent may be deemed to be underwriting discounts and
commissions under the Securities Act.
The common stock may be sold from time to time in one or more transactions
at fixed prices, at prevailing market prices at the time of sale, at varying
prices determined at the time of sale or at negotiated prices. The sale of the
common stock may be effected by means of one or more of the following
transactions (which may involve block transactions): in the over-the-counter
market or in transactions otherwise than on such exchanges or services,
including transactions pursuant to Rule 144 or another exemption from
registration.
In connection with sales of the common stock or otherwise, the selling
stockholders may enter into hedging transactions with broker/dealers, who in
turn may engage in short sales of the common stock in the course of hedging the
positions they assume. The selling stockholders may also sell common stock short
and deliver common stock to close out such short positions, or loan or pledge
common stock to broker/dealers who in turn may sell such securities.
At the time a particular offering of the common stock is made, a
prospectus supplement, if required, will be distributed which will set forth the
aggregate amount common stock being offered and the terms of the offering,
including the name or names of any underwriters,
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broker/dealers or agents, any discounts, commissions and other terms
constituting compensation from the selling stockholders and any discounts, and
commissions or concessions allowed or re-allowed or paid to broker/dealers.
To comply with the securities laws of certain jurisdictions, if
applicable, the common stock will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers.
The selling stockholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of sales of the common stock by the selling stockholders. The
foregoing may affect the marketability of such securities.
LEGAL PROCEEDINGS
In September 1999, Eagle was named as a defendant in a lawsuit, involving
its former landlord regarding an alleged breach of a lease and a claim for
approximately $25,000 filed in the County Civil Court at Law No. 1 in Harris
County, Texas. Eagle is currently in discovery and it intends to vigorously
defend against this lawsuit. Eagle has filed a countersuit against its former
landlord claiming breach of the lease in an attempt to recover deposits, and
collect damages in connection with the dispute regarding its former rental
space.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Eagle's directors and executive officers are:
NAME AGE POSITION
---- --- --------
H. Dean Cubley 59 Chairman of the board of directors,
president and chief executive officer
Christopher W. "James" Futer 60 Director, executive vice president and
chief operating officer
A. L. Clifford 55 Director
Dr. Glenn Allan Goerke 69 Director
Richard Royall 54 Chief financial officer
DR. H. DEAN CUBLEY has served as chairman of the board, president and
chief executive officer of Eagle since March 1996. Before that, Dr. Cubley
served as vice-president of Eagle Telecom, Inc. from 1993 to March 1996. Dr.
Cubley is also a member of the Oversight Committee for the University of Houston
Epitaxy Center which managed the Wake Shield Flight aboard the Shuttle in
September 1995. Dr. Cubley has over 35 years of extensive experience in the
field of telecommunications. From 1965 to 1984, Dr. Cubley worked for the NASA
Manned Spacecraft Center in the Electromagnetic Systems Branch of the
Engineering and Development Directorate. For a five-year portion of that period,
Dr. Cubley was the Antenna Subsystems Manager for all spacecraft antennas for
the Shuttle Program. Dr. Cubley's duties included overall responsibility for the
design, development, costs schedules and testing of the antennas and hardware
for all Shuttle flights. Throughout his career, Dr. Cubley has authored or
co-authored over fifty publications. In addition, he has a total of eight
patents and patents-pending registered in his name. Dr. Cubley received a
bachelor of science degree in electrical engineering from the University of
Texas in 1964 and a masters degree in electrical engineering from the University
of Texas in 1965. In 1970, Dr. Cubley received his Ph.D. in electrical
engineering from the University of Houston.
CHRISTOPHER W. "JAMES" FUTER has served as a director, chief operating
officer and vice president of Eagle since March 1996. Before that, Mr. Futer
served as sales manager of Eagle Aerospace, Inc. Telecom Division from November
1994 until February 1996. From May 1993 to November 1994, Mr. Futer was employed
as a vice president of operations with Starcom, Inc. Before May 1993, he was
employed with Paging Products International. Mr. Futer was a manager of
Universal Cellular, Inc., a California corporation ("UCI"), from October 1990
until February 1991. Mr. Futer resigned from UCI in February 1991 due to his
disagreement with UCI management over its business policy and practices. In June
1993, UCI filed for protection under the federal bankruptcy laws. Mr. Futer's
spectrum of experience has included work in the fields of hi-tech flight
simulation and display technologies (especially those of light emitting diodes
and liquid crystal displays), and in consumer electronics, i.e. electronic
watches, pocket calculators, and electronic games. Most recently, he has been
involved in pager design, manufacture and marketing, as well as the wider field
of paging equipment. His international background includes work with Hatfield
Instrument (in England, where he was born), Canadian Aviation Electronics,
located in Montreal, Canada, General Instruments (in Canada and the United
States), Litronix (in California) and Siemens (living in California and England
and commuting to the head office in Munich, as well as Berlin, Paris and Milan).
In 1975, he was instrumental in implementing a major "turn-key" technology
transfer from Canada to the (then) Soviet Union for the manufacture of hand-held
electronic calculators, an operation which
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the Soviets then improved from the consumer level and adapted to suit their
particular requirements. Since 1975, Mr. Futer has had extensive in-depth
experience of interfacing with Pacific Rim countries. In 1992 and 1993, he spent
time in the People's Republic of China coordinating a successful technology
transfer for one of the first pager manufacturing facilities.
A. L. CLIFFORD has served as a director since December 1996. Mr. Clifford
has served as president of Clifford & Associates for over five years, a company
involved in the distribution of electrical and electronic products throughout
the Midwest since 1920. Mr. Clifford is a graduate of the University of Miami,
where he studied business and attended law school.
DR. GLENN ALLAN GOERKE has served as a director since March 2000. Dr.
Goerke is president emeritus of the University of Houston and currently serves a
director of The Institute for the Future of Higher Education. The institute's
mission is to provide research and policy analysis on higher education issues
within state, national, and international contexts. Prior to his current
position, Dr. Goerke served as president of the University of Houston from June
1995 to September 1997, and president of the University of Houston - Clear Lake
from August 1991 to June 1995 and has been associated with the University of
Houston system since 1986. While at the University of Houston, Dr. Goerke
initiated significant international program development with particular focus on
Mexico and Taiwan and received the "Breaking the Mold" award given by the Texas
Comptroller's Office for responsible fiscal planning efforts. Dr. Goerke was
named "Manager of the Year" by the Texas Gulf Coast Council of the National
Management Association in 1992. Dr. Goerke received his Ph.D. in Adult and
Higher Education from Michigan State University in 1962. Dr. Goerke received his
M.A. and B.A. degrees from Eastern Michigan University in 1955 and 1952,
respectively.
RICHARD R. ROYALL has served as chief financial officer since March 1996.
Mr. Royall has been a certified public accountant since 1971. From 1971 to 1976,
Mr. Royall was employed with Haskins & Sells, Laventhol & Horwath (a partner
from 1976 to 1986), and Bracken, Krutilek & Royall (1986). In 1986, Mr. Royall
practiced accounting as a sole proprietor. Since 1987, Mr. Royall has been a
partner in Royall & Fleschler, certified public accountants. In addition, Mr.
Royall serves as financial officer and director of companies operating in the
finance and chemical industries, none of which are affiliated with Eagle.
Eagle's directors hold office until the next annual meeting of the
stockholders and until their successors are duly elected and qualified.
Directors are reimbursed for out-of-pocket expenses to attend meetings. Eagle
has not established and does not maintain any compensation, audit, executive or
nominating committees. There are no family relationships among any of the
directors and executive officers of Eagle.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 30, 2000, the number and
percentage of outstanding shares of Eagle; common stock owned by (i) each person
known to beneficially own more than 5% of Eagle's outstanding common stock, (ii)
each director, (iii) each named executive officer, and (iv) all officers and
directors as a group.
SHARES OF COMMON STOCK
NAME AND ADDRESS BENEFICIALLY OWNED % OF VOTING POWER
---------------- ------------------ -----------------
Hou-Tex Trust
1331 Lamar, Suite 1375
Houston, TX 77010 2,569,300 11%
H. Dean Cubley
101 Courageous Drive
League City, TX 77573 3,333 less than 1%
Futer Family Trust
1331 Lamar, Suite 1375
Houston, TX 77010 1,296,500 5%
Christopher W. Futer
101 Courageous Drive
League City, TX 77573 5,000 less than 1%
A.L. Clifford
101 Courageous Drive
League City, TX 77573 632,667 3%
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Glenn Allan Goerke
911 Live Oak Lane 25,000 less than 1%
Seabrook, TX 77586
Richard Royall
1331 Lamar, Suite 1375
Houston, TX 77010 15,000 less than 1%
All officers and directors
as a group(5 persons) 672,667 3%
It is assumed for the purposes of this table that no trading will occur
within 60 days of the date of this document.
The shares held by Hou-Tex Trust include warrants to purchase 310,000
shares of Eagle common stock at $6.00 per share which expire on August 31, 2000,
and are redeemable by Eagle at $.05 per share if at any time the closing bid
price of the common stock shall have equaled or exceeded $7.50 per share for a
period of 20 consecutive trading days (the class B warrants). Dr. Cubley
disclaims beneficial ownership, as well as voting and disposition power, of the
shares of common stock and warrants owned by the Hou-Tex Trust. Dr. Cubley's
ownership consists of options to purchase 3,333 shares of common stock issued
under Eagle's employee stock option program at $1.50 per share and which will
expire on December 15, 2004.
The shares held by the Futer Family Trust include 110,000 shares of common
stock underlying class A warrants, and 110,000 shares of common stock underlying
class B warrants. Mr. Futer disclaims beneficial ownership, as well as voting
and disposition power of the shares of common stock and warrants owned by the
Futer Family Trust. Mr. Futer's ownership consists of options to purchase 5,000
shares of common stock at $1.25 per share which will expire on August 3, 2003,
issued under Eagle's employee stock option program.
Mr. Clifford has voting and disposition power of the 105,000 shares held
in his name, 141,000 shares which are held in the name of The Clifford Family
Trust, and 61,667 held by his wife. Mr. Clifford owns 110,000 shares of common
stock underlying class A warrants and 110,000 shares of common stock underlying
class B warrants.
Dr. Glenn Goerke holds options to purchase 25,000 shares of Eagle common
stock at $2.00 per share. These options expire April 10, 2002 and have piggyback
registration rights after March 10, 2001.
The total number of shares held by officers and directors include options
and warrants to purchase 275,000 shares of common stock that are currently
exercisable.
DESCRIPTION OF SECURITIES
COMMON STOCK
Eagle is authorized to issue up to 100,000,000 shares of common stock.
There are 24,214,736 shares of common stock issued and outstanding.
The holders of shares of common stock are entitled to one vote per share
on each matter submitted to a vote of stockholders. In the event of liquidation,
holders of common stock are entitled to share ratably in the distribution of
assets remaining after payment of liabilities and liquidation preferences on the
preferred stock, if any. Holders of common stock have no cumulative voting
rights, and, accordingly, the holders of a majority of the outstanding shares
have the ability to elect all of the directors. Holders of common stock have no
preemptive or other rights to subscribe for shares. Subject to the prior rights
of any series of preferred stock which may from time to time be outstanding, if
any, holders of common stock are entitled to such dividends as may be declared
by the board of directors out of funds legally available therefor. The
outstanding common stock is, and the common stock to be outstanding upon
completion of this offering will be, validly issued, fully paid and
non-assessable.
PREFERRED STOCK
Eagle is authorized to issue up to 5,000,000 shares of preferred stock,
$.001 par value per share. The preferred stock may be issued in one or more
series, the terms of which may be determined at the time of issuance by the
Board of Directors, without further action by stockholders, and may include (a)
voting rights including the right to vote as a series on particular matters, (b)
preferences as to dividends and liquidation, (c) conversion, (d) redemption
rights and (e) sinking fund provisions.
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No shares of preferred stock will be outstanding as of the closing of this
offering, and Eagle has no present plans for the issuance thereof. The issuance
of any such preferred stock could have the effect of delaying or preventing a
change in control of Eagle. The issuance of such preferred stock could also
adversely affect the rights of the holders of common stock and, therefore,
reduce the value of the common stock.
TRANSFER AGENT
Registrar & Transfer Company serves as the transfer agent for the shares
of common stock.
EXPERTS
McManus & Co., P.C., independent auditors, have audited Eagle's financial
statements included in Eagle's Annual Report on Form 10-KSB for the year ended
August 31, 1999, which is incorporated by reference in this prospectus and
elsewhere in the registration statement. Eagle's financial statements are
incorporated by reference in reliance on McManus & Co., P.C.'s report, given on
their authority as experts in accounting and auditing.
Richard O. Weed, legal counsel to Eagle, has expressed an opinion
concerning the validity of the securities being registered. Mr. Weed holds an
option to purchase up to 150,000 shares of common stock at exercise prices
between $1.55 and $9.56 per share.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
ORGANIZATION WITHIN LAST FIVE YEARS
Some of Eagle's principal stockholders, or affiliates thereof, including
Messrs. Futer and Clifford are also principal stockholders of Link-Two
Communications, Inc. ("Link-Two"), which is one of Eagle's principal customers.
Mr. Clifford is also the chairman, and chief executive officer of Link-Two and
Dr. Cubley is a director of Link-Two. Eagle has entered into an agreement with
Link-Two which provides that it may receive up to an eight percent equity
interest in Link-Two in lieu of accruing finance charges on the outstanding
balance owed to Eagle by Link-Two. Under the agreement, equity in Link-Two was
earned at a rate of 0.2% per month per $100,000 payable and outstanding for more
than thirty days. In addition, because of the size of this receivable, Link-Two
has provided Eagle with an UCC filing on all of its assets included all its
wireless license holdings. At August 31, 1999 and 1999, Eagle earned a 5.0% and
5.0%, respectively, minority equity interest in Link-Two. This is evidenced by
the issuance of 240,000 shares of Link-Two common stock to Eagle. On October 1,
1999, Link II refinanced its existing accounts payable to Eagle through the
issuance of a $733,571 ten percent note secured by all lease station licenses
and a $6,000,000 ten percent note secured by all assets excluding licenses.
These notes are due September 1, 2000. During October 1999, Eagle pledged as
collateral on the $4,500,000 convertible note, the $6,000,000 note receivable
and its underlying collateral.
In September 1996, Richard Royall was issued $.05 warrants to purchase
12,500 shares of common stock, and $5.00 warrants to purchase 12,500 shares of
common stock. In July 1999, Mr. Royall exchanged these warrants for 12,500
shares of common stock. In July 1999, Mr. Futer exchanged 110,000 $.05 warrants,
110,000 $0.50 warrants, and $147,000 for 220,000 shares of common stock. In
December 1997, Senator Gary Hart was issued class C $2.00 warrants to purchase
50,000 shares of common stock as compensation for serving on Eagle's board of
directors. The class C warrants expire August 31, 2000 and are callable by Eagle
at a price of $.05 per class C warrant when 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.
EAGLE WIRELESS INTERNATIONAL, INC.
GENERAL
Eagle Wireless International, Inc. ("Eagle ") is a worldwide supplier of
telecommunications equipment and related software used by service providers in
the paging and other wireless personal communications market. Eagle 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 and radio and telephone
systems. Most of Eagle's broad line of products, covering the paging spectrum
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as well as specific personal communication systems ("PCS"), and specialized
mobile radio ("SMR") products, have been tested and approved by the Federal
Communications Commission. Eagle provides service and support for its products,
as well as consulting and research development on a contract basis. In addition,
Eagle has recently introduced a completely new line of multi-media and Internet
products to the telecommunications industry, including a family of Convergence
Set-Top-Box Products and markets these products under the name of
BroadbandMagic.com. BroadbandMagic.com is a wholly owned subsidiary of Eagle
International, Inc.
Eagle was incorporated in May 1993, but did not conduct any substantive
business operations until April 1996. During April 1996, Eagle 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, Eagle entered into an
asset purchase agreement with a company to acquire certain other production
equipment, inventories and furniture and equipment. In August 1997, Eagle
amended its articles of incorporation and changed its name to its current name.
Unless otherwise indicated, all information in this Form SB-2 has been adjusted
to reflect the amended articles of incorporation. Eagle's principal place of
business is located at 101 Courageous Drive, League City, Texas 77573 and its
telephone number is (281) 538-6000.
PRODUCT CATEGORIES
WIRELESS MESSAGING PRODUCTS
For the fiscal years ended August 31, 1998 and 1999, infrastructure
equipment, which includes License Starter, transmitters, base stations, power
amplifiers, link products, multi-terminal arbitrator, Extend-a-Page, Hot Switch
Panel, and consulting services accounted for substantially all of Eagle's net
sales.
Paging is a method of wireless telecommunication, which uses an assigned
radio frequency to contact a paging subscriber anywhere within a service area. A
paging system is generally operated by a service provider that incurs the cost
of building and operating the system. Each service provider in the United States
licenses spectrum from the FCC and elsewhere from the authorized government body
to operate a paging frequency within either a local, regional, or national
geographical area. Each paging subscriber is assigned a distinct telephone
number that a caller dials to activate the subscriber's pager, a pocket-sized
radio receiver carried by the subscriber. A paging switch receives telephone
calls by the subscriber. A network of transmitters, that broadcast a signal over
a specific geographical area, then receives the information from the paging
switch through the controller, and a radio signal is sent by the transmitters
via antennae to the subscriber's pager. The transmitters manufactured by Eagle
are specifically designed to simulcast, which is the transmission of the same
signal over two or more transmitters on the same channel at the same time in an
overlap area, resulting in superior voice and data quality and coverage area.
The radio signal causes the pager to emit a beep or to vibrate, and to provide
the subscriber with information from the caller in the form of a voice, tone,
numeric or alphanumeric message.
A pager has an advantage over a landline telephone in that the pager's
reception is not restricted to a single location, and has an advantage over a
cellular portable telephone in that a pager is smaller, has a much longer
battery life, has excellent coverage, and is less expensive to use.
Historically, the principal disadvantage of traditional paging service in
comparison to landline telephones or cellular portable telephones has been that
paging provided only one-way communication capabilities.
However, this limitation may have been overcome in the United States as a
result of the auction in 1994 by the FCC of nationwide and regional licenses for
designated narrowband personal communication services ("NPCS"), radio
frequencies or spectrum to service providers. Many of the nationwide license
holders and many of the regional license holders are current Eagle customers,
directly or indirectly. The cost of the licenses to the NPCS auction winners in
1994 was approximately $1 billion. The FCC anticipates that these NPCS licenses
will be used to provide such new services as pager location, two-way
acknowledgment paging, advanced voice paging and data services.
The NPCS radio frequencies or spectrum are located at three separate
points within the total radio spectrum, at 902-928 MHz, 930-931 MHz and 940-941
MHz. Initially, the radio frequencies located at 930-931 MHz and 940-941 MHz
have been designated for outbound message transmission, to the pager, and the
902-928 MHz have been designated response channels, from the pager. This
application is similar to traditional paging except that these license holders
have been granted wider frequency bandwidth permitting the user to transmit
substantially more information. In addition, Eagle manufactures other paging
infrastructure products that cater to the VHF and UHF paging frequencies in the
United States and other areas of the world as well as supporting most
international paging brands.
The NPCS nationwide licenses cover all fifty states, the District of
Columbia, American Samoa, Guam, the Northern Marianas Islands, Puerto Rico and
the United States Virgin Islands. These licenses are divided into 50 kHz paired
and unpaired channel categories. Paired channels permit both outbound and
inbound signals while unpaired channels are limited to only outbound signals.
The FCC has imposed infrastructure construction or build-out requirements on all
NPCS license holders. Each NPCS license holder must establish a minimum service
availability for at least 37.5% of the population in its geographic region
within five years after receiving the license. After ten years, each NPCS
license holder must make the service available to at least 75% of the area's
population. If a NPCS license holder fails to achieve these build-out
requirements, it risks cancellation by the FCC of its NPCS license and a
forfeiture of any auction monies paid.
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Eagle manufactures products that will enable paging license holders to
legally put their systems into operation at a low cost, a strategy adopted by
Eagle to create a "captive" customer in terms of future build-out.
Eagle offers its customers an end-to-end solution for NPCS applications.
Eagle has developed new technology based products with enhanced architecture and
technology from its existing paging systems to accommodate the advanced services
available through paging and PCS. This system approach includes full product
lines of radio frequency network controllers, transmitters, receivers, and a
special satellite receiver system, to receive the response message from the
end-user. Eagle is currently shipping its NPCS products to various beta test
sites, based on product development schedules and the build-out requirements of
the NPCS license holders.
The design of a paging system is customer specific and depends on (i) the
number of paging subscribers the service provider desires to accommodate, (ii)
the operating radio frequency, (iii) the geography of the service area, (iv) the
expected system growth, and (v) specific features desired by the customer.
Paging equipment hardware and software developed by Eagle may be used with all
types of paging service, including voice, tone numeric (telephone number
display) or alphanumeric messaging (words and numbers display).
SWITCHES
Eagle is involved at an early stage in the development of industry wide
technology standards and is familiar with developments in paging protocol
standards throughout the world. Eagle works closely with its customers in the
design of large, complex paging networks. Eagle believes that its customers'
purchasing decisions are based, in large part, on the quality and technological
capabilities of such networks. Eagle believes that the advanced hardware and
software features of its switches ensure high reliability and high volume call
processing.
RADIO FREQUENCY EQUIPMENT, TRANSMITTERS AND RECEIVERS
Transmitters are available in frequency ranges of 70 MHz to 960 MHz and in
power levels of 2 watts to 500 watts. Radio link receivers are available in
frequency ranges of 70 MHz to 960 MHz. Satellite link receivers are available
for integration directly with the transmitters at both Ku- and C- band
frequencies.
Eagle's range of receivers detects the responses back from the two-way
NPCS subscriber devices. The receivers take advantage of DSP demodulation
techniques that maximize receiver performance. Depending upon frequency, antenna
height, topography and power, Eagle transmitter systems are designed to cover
broadcast cells with a diameter from 3 to 100 miles. Typical simulcast systems
have broadcast cells that vary from 3 to 15 miles in diameter. Eagle
transmitters are designed specifically for the high performance and reliability
required for high speed simulcast networks.
MULTIMEDIA DEVICES
Eagle recently developed WebFlyer, an Internet Set-Top-Box designed to
access the Internet and e-mail through a television set for individual or
commercial use. The WebFlyer is the latest product to be introduced into the
multimedia home entertainment arena. It uses a standard TV set as a monitor,
allowing the user to connect to their chosen ISP on the Internet. The multimedia
entertainment device can at a minimum:
o Receive, write and send e-mail;
o Write a letter, work on a spreadsheet;
o Play games, use learning tools;
o Watch movies from CDs, DVDs, or even downloaded from the Internet; and
o Record on the hard drive direct from the TV, providing better quality
picture than through a VCR.
CONTROLLERS
Eagle currently offers products for transmitter control known as Eagle's
L20X transmitter control system, which is a medium-feature transmitter control
system used in domestic and international markets.
CURRENT PRODUCTS AND SERVICES
The principal products and enhancements currently being manufactured and
sold by Eagle relate to its wireless messaging products and include the
following:
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LICENSE STARTER
This product provides new paging license holders a method to install a
system that will keep them in compliance with FCC regulations. The product is
expandable, giving the license holder the ability to fund the expansion from
revenues. Installation of this product requires 110-Volt AC power and a standard
telephone line.
BASE STATIONS AND TRANSMITTERS
Transmitters and full-featured transmitters called Base Stations are used
by paging carriers to broadcast radio-frequency messages to subscribers carrying
mobile receivers commonly known as pagers. Eagle offers a slimline Stealth and a
larger Quantum transmitter that is available in the 72MHz, VHF, UHF, and 900MHz
broadcast frequency ranges. Each unit can be equipped to provide an output power
ranging from 15 Watts up to 500 Watts on almost any domestic or international
paging frequency.
RADIO FREQUENCY POWER AMPLIFIERS
Radio-frequency power amplifiers are a sub-component of both paging and
SMR transmitters and base stations. The high, medium and low power base station
and link transmitter power amplifiers are designed to operate with any FCC type
accepted exciter or may be combined with an Eagle optional plug-in base station
in the same space as the power amplifier. All Eagle power amplifiers above 100
watts are equipped with Eagle "Heat Trap"(TM) design to provide the user with
long life and high reliability performance.
EXTEND-A-PAGE
Extend-a-Page is a compact lower-power transmitter and receiver set
designed to provide fill-in coverage in fringe locations where normal paging
service from a wide-area paging system is not adequate. The Extend-a-Page
receives the paging data on either a radio frequency ("RF") control link or
wireline link and converts this information into low power simulcast compatible
paging transmissions on any of the common paging frequencies. The Extend-a-Page
transmits the paging information at a one to two Watt level directly into hard
to reach locations such as hospitals, underground structures, large industrial
plants, and many locations near the outer coverage contour of paging systems.
LINK PRODUCTS
Radio frequency and wireline communication links are needed to connect
multiple transmitters within a paging network. Eagle provides both Link
equipment (the Link 20TX, 20RX, 20GX and 20PX) and the Link 20 software to
facilitate this interconnection. Major competitors have licensed the Eagle Link
20 software and have incorporated it as an industry standard into their
radio-paging terminals. Customers may also purchase the same software directly
from Eagle as part of an Eagle system at a lesser cost. Management believes that
its software allows the user to mix and match the products of different vendors
on a common radio-paging system.
MICROBEEP
The MicroBeep paging terminal is a small paging terminal that can be
plugged into the expansion slot of an IBM compatible computer. This
fully-contained paging terminal includes a low-power transmitter and subscriber
software. This system is used for local paging applications within factories,
offices, restaurants and campuses.
MULTI-TERMINAL ARBITRATOR
The Multi-Terminal Arbitrator is a programmable communications switch that
facilitates the sharing of a single radio-frequency transmitter by a maximum of
eight different paging terminals. A target market for this product is in private
carrier paging ("PCP") where multiple companies share the same radio frequency
and are required to coordinate the sharing activities.
TWO-WAY MESSAGING DEVICES
Eagle is a licensed distributor of spread-spectrum wireless messaging
receivers that, when used in conjunction with Eagle's one-way paging
transmitters, provide a two-way messaging system for both consumer and
industrial applications. In addition to the receivers, Eagle currently sells and
distributes a wireless water meter, a wireless power meter, a wireless home
security alarm, a wireless vehicle tracking system and a multi-purpose wireless
module that can be combined with a wide variety of switch-type applications.
CONSULTING SERVICES
Eagle routinely provides consulting services on a contract basis to
support the sale of its main product lines. Examples of these consulting
services include the design and installation of radio paging systems. Eagle also
performs research and development on a contract basis.
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<PAGE>
NEW BROADBAND MULTIMEDIA AND INTERNET PRODUCTS
Eagle recently developed a complete new line of broadband multimedia
Set-Top-Box products during 1999 and is beginning to test market these products
under the name of BroadbandMagic.com. BroadbandMagic.com is a wholly owned
subsidiary of Eagle International, Inc. These new products are multimedia-based
products that provide a user with the ability to interface their Internet
connection, their broadcast video source, their cable or DSL source, or their
satellite video source directly to their television receiver. Eagle markets the
new multimedia and Internet products as Convergence Set-Top-Boxes or CSTB
products. One version of the CSTB includes a DVD player and full high
performance computer functionality as well as all of the other CSTB
capabilities. The marketing plan of Eagle through BroadbandMagic.com is to
initially focus on the large internet service providers or ISP's who typically
bundle Set-Top-Boxes with their service as their own marketing strategy. In
addition, the CSTB will be marketed to large retail distributors, through the
company representative network, to large OEM clients, as well as through a new
BroadbandMagic.com e-commerce web site and other e-commerce sites. Eagle is
currently negotiating to obtain the necessary financing to produce and market
these devices.
SERVICE AND SUPPORT
Eagle provides service to customers on a regular basis including
installation, project management of turnkey systems, training, service or
extended warranty contracts with Eagle. Eagle believes that it is essential to
provide reliable service to customers in order to solidify customer
relationships and to be the vendor of choice when a customer seeks new services
or system expansions. This relationship is further developed as customers come
to depend upon Eagle for installation, system optimization, warranty and
post-warranty services.
Eagle has a warranty and maintenance program for both its hardware and
software products and maintains a customer service network in its operating
locations. Eagle's standard warranty provides its customers with repair or
replacement of any defective Eagle manufactured equipment. The warranty is valid
on all products for the period of one year from the later of the date of
shipment or the installation by an Eagle qualified technician.
CUSTOMERS
Eagle sells to a broad range of customers worldwide. In the United States,
customers include the regional Bell operating companies, medical paging
operators, and public and private radio common carriers. Internationally,
customers include public telephone and telegraph companies, as well as private
telecommunication service providers. Eagle's customers include Motorola,
Pac-Tel, Scientific Atlanta, Bell Atlantic, Metrocall, ProNet, Pacific Bell,
SkyTel, Link-Two Communications (Link II) and the U.S. Department of Defense.
Eagle's largest customer, Link II, accounted for approximately 43% of
Eagle's sales for the fiscal year ended August 31, 1999. Link II is a common
carrier of exclusively wholesale one-way paging and two-way messaging network
services. Its customers purchase paging network services as an aggregator and
resell Link II's network services to individual subscribers and other
communications providers. Link II has been classified as an incumbent carrier by
the FCC and has secured the rights to use or options to purchase spectrum in all
of the major metropolitan U.S. cities on five PCP frequencies. Link II has also
secured several exclusive RCC frequencies providing regional coverage in two of
the top ten markets. Link II is currently operational in Houston and Dallas,
Texas.
MARKETING AND SALES
Eagle markets its products and services in the United States through
representative organizations and internationally through agents. As Eagle's
business is highly technical, a majority of sales are complete systems with
technical support. A large percentage of Eagle's marketing comes from direct
sales by the employees. Eagle also utilizes distributors and agents to sell its
products in certain countries and geographic regions to market outside of
Eagle's core markets.
Eagle currently has non-exclusive arrangements with eight distributors and
agents to service selected regions within the United States. A non-exclusive
arrangement is also in effect with one distributor on a worldwide basis and
Eagle has one exclusive arrangement with a distributor to service Australia.
Terms of these arrangements provide for payments to the distributors on either a
fixed percentage commission or discount from list price basis. Eagle has an
agreement with Motorola whereby certain products offered by Eagle are listed in
Motorola's product catalog under the Eagle name. In addition, Eagle has been
granted the status of a Value Added Reseller or VAR by Lucent Technologies, Inc.
for all of Lucent's wireless networking or Internet product lines. Eagle has
recently developed a manufacturer's representative for the new multimedia and
Internet product lines. Currently this program consists of fourteen
manufacturers representatives on a worldwide basis.
Eagle maintains and Internet website at http://www.eglw.com where
information can be found on Eagle's products and services. The website provides
customers with a mechanism to request additional information on products and
allows the customer to quickly identify and obtain contact information for their
regional sales representative.
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<PAGE>
INTERNATIONAL BUSINESS RISK
Eagle generated net sales in markets outside the United States, which
amounted to 1% and 2% of total Eagle net sales at February 29, 2000 and 1999,
respectively. Sales are subject to the customary risks associated with
international transactions, including political risks, local laws and taxes, the
potential imposition of trade or currency exchange restrictions, tariff
increases, transportation delays, difficulties or delays in collecting accounts
receivable, and, to a lesser extent, exchange rate fluctuations. Pre-payments
and letters of credit drawn on American or limited foreign corresponding banks
are required from international customers to reduce the risk of non-payment.
RESEARCH AND DEVELOPMENT
Eagle believes that a strong commitment to research and development is
essential to the continued growth of its business. One of the key components of
Eagle's development strategy is the promotion of a close relationship between
its development staff, internally with Eagle manufacturing and marketing
personnel, and externally with Eagle customers. This strategy has allowed Eagle
to develop and bring to market customer-driven products.
Eagle has focused a large portion of its new development resources during
1999 and 2000 on the development of the new broadband multimedia and Internet
product line. In addition, Eagle has formed a number of strategic relationships
with other large suppliers and manufacturers that will allow the latest in
technology and techniques to be utilized in the CTSB product line. Eagle will
continue to incur research and development expenses with respect to the CTSB
product line during the current fiscal year.
Eagle has extensive expertise in the technologies required to develop
wireless communications systems and products including high power, high
frequency RF design digital signal processing, real-time software, high-speed
digital logic, radio frequency and data network design. Eagle believes that by
having a research and development staff with expertise in these key areas, it is
well positioned to develop enhancements for its existing products as well as the
next generation of personal communication products. Investment in advanced
computer-aided design tools for simulation and analysis has allowed Eagle to
reduce the time for bringing new products to market. Research and development
expenditures incurred by Eagle for the fiscal years ended August 31, 1999, and
August 31, 1998 were $438,693, and $236,869 respectively.
MANUFACTURING
Eagle currently manufactures its products at its facilities in League
City, Texas. Certain subassemblies are manufactured for Eagle by subcontractors
at various locations throughout the world. Eagle's manufacturing expertise
resides in assembling subassemblies and final systems that are configured to its
customers' specifications. The components and assemblies used in Eagle's
products include electronic components such as resistors, capacitors,
transistors, and semiconductors such as field programmable gate arrays, digital
signal processors and microprocessors, and mechanical materials such as cabinets
in which the systems are built. Substantially all of the components and parts
used in Eagle's products are available from multiple sources. In those instances
where components are purchased from a single source, the supplier is reviewed
frequently for stability and performance. Additionally, as necessary, Eagle
purchases sufficient quantities of certain components that have long-lead
requirements in the world market. Eagle ensures that all products are tested,
tuned and verified prior to shipment to the customer.
Eagle has determined that the most cost effective manufacturing method for
its high volume multimedia and internet product line will be to utilize offshore
contract production facilities supplemented with high volume U.S. based contract
facilities. The high volume requirements of CSTB product line are well beyond
the capabilities of the current facilities and would be cost prohibitive to
construct. However, in the selection of a high volume international
manufacturer, Eagle has selected SCI, an U.S. owned company with manufacturing
facilities in over twenty countries around the world. The initial manufacturing
location for the CSTB is the SCI facility in Singapore.
COMPETITION
Eagle supplies transmitters, receivers, controllers and software used in
paging, voice messaging and message management systems. While the services from
the foregoing products represent a significant portion of the wireless personal
communications industry today, the industry is expanding to include new services
and new markets. The wireless personal communications industry includes
equipment manufacturers that serve many of the same PCS markets served by Eagle.
Certain Eagle competitors, and all competitors that have publicly tradable
securities, have significantly greater resources than Eagle, and there can be no
assurance that Eagle will be able to compete successfully in the future. In
addition, manufacturers of wireless telecommunications equipment, including
those in the cellular telephone industry, certain of which are larger and have
significantly greater resources than Eagle, could elect to enter into Eagle's
markets and compete with Eagle's products. There can be no assurance that Eagle
will be able to increase its market share in the future.
Eagle competes with many established companies in the Set-Top-Box business
including Microsoft, Scientific Atlanta, General Instrument, and many smaller
companies. Most of these companies have greater resources available than Eagle
does. The markets that are
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<PAGE>
currently developing for multimedia and other Internet related products are
extremely large and growing daily. Eagle has conducted extensive study of these
markets and is of the belief based on this research that it can effectively
compete in these markets with its new CSTB product line. However, there can be
no assurance that these conclusions are correct and that the multimedia and
Internet markets will continue to expand at their current rates and that Eagle
can gain significant market share in the future.
PROPRIETARY INFORMATION
Eagle attempts to protect its proprietary technology through a combination
of trade secrets, non-disclosure agreements, technical measures, and common law
remedies with respect to certain proprietary technology. Such protection may not
preclude competitors from developing products with features similar to Eagle's
products. The laws of some foreign countries in which Eagle sells or may sell
its products do not protect Eagle's proprietary rights in the products to the
same extent as do the laws of the United States. Although Eagle believes that
its products and technology do not infringe on the proprietary rights of others,
there can be no assurance that third parties will not assert infringement claims
against Eagle in the future. If such litigation resulted in Eagle's inability to
use technology, Eagle might be required to expend substantial resources to
develop alternative technology. There can be no assurance that Eagle could
successfully develop alternative technology on commercially reasonable terms.
More recently, Eagle has registered and trademarked the name of
BroadbandMagic.com for its new wholly owned subsidiary. This name is thought by
Eagle to be a very valuable addition to the intellectual property rights of
Eagle.
REGULATION
Many of Eagle's products operate on radio frequencies. Radio frequency
transmissions and emissions, and certain equipment used in connection therewith,
are regulated in the United States and internationally. Regulatory approvals
generally must be obtained by Eagle in connection with the manufacture and sale
of its products, and by customers to operate Eagle's products. There can be no
assurance that appropriate regulatory approvals will continue to be obtained, or
that approvals required with respect to products being developed for the
personal communications services market will be obtained. The enactment by
federal, state, local or international governments of new laws or regulations or
a change in the interpretation of existing regulations could affect the market
for Eagle's products. Although recent deregulation of international
telecommunications industries along with recent radio frequency spectrum
allocations made by the FCC have increased the demand for Eagle's products by
providing users of those products with opportunities to establish new paging and
other wireless personal communications services, there can be no assurance that
the trend toward deregulation and current regulatory developments favorable to
the promotion of new and expanded personal communications services will continue
or that future regulatory changes will have a positive impact on Eagle.
EMPLOYEES
At June 30, 2000, Eagle employed approximately 40 persons and retained
three independent contractors. Eagle believes its employee relations to be good.
Eagle enters into independent contractual relationships with various
individuals, from time to time, as needed.
Eagle intends to hire new personnel to support the growth of Eagle. The
key positions that will emerge from this growth include all areas of management
from administration through marketing, sales, financial controller, and
personnel director to quality director.
AVAILABLE INFORMATION
Eagle files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any document Eagle files with the Commission at the Commission's Public
Reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the Commission at 1-800-SEC-0330 for further information on the public reference
room. Eagle's Commission filings are also available to the public at the
Commission's web site at http://www.sec.gov.
You may request a copy of these filings, at no cost, by writing or
telephoning as follows:
Eagle International, Inc.
Attention: Investor Relations
101 Courageous Drive
League City, TX 77573
Telephone (281) 538-6000
This prospectus is part of a registration statement on Form SB-2 Eagle
filed with the SEC under the Securities Act. You should rely only on the
information or representations provided in this prospectus. Eagle has authorized
no one to provide you with different
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<PAGE>
information. Eagle is not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front of the
document.
FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, the matters discussed
in this prospectus are forward-looking statements that are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those set forth in such forward looking statements. Such risks and
uncertainties include, without limitation, Eagle's dependence on the timely
development, introduction, and customer acceptance of products; the impact of
competition and downward pricing pressures; the ability of Eagle to generate
revenues and raise any needed capital; the effect of changing economic
conditions; and risks in technology development.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with Eagle's
financial statements and accompanying notes to the financial statements.
During the year ended August 31, 1999, the majority of Eagle's revenues
originated from shipments for a two- way messaging system that Eagle was
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 Eagle's broader customer base and were comprised principally of paging
infrastructure products. This sales mix is consistent with the pattern of sales
Eagle realized during the year ended August 31, 1998. The expansion of Eagle's
manufacturers' representative organization during the year did not significantly
contribute to an increase in the sales of its paging infrastructure products. A
major restructuring within the paging equipment industry by both Motorola and
Glenayre Electronics and the implementation of cost reduction campaigns by
paging carriers have created uncertainty in the paging equipment industry that
has caused many customers to delay paging infrastructure equipment purchases.
During the six months ended February 29, 2000, Eagle'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. Eagle
expects to commence selling these products in the fourth quarter ending August
31, 2000. Additionally, Eagle commenced the sale of fiber optic cabling and
other custom wiring products and services on a national basis through its new
subsidiary Atlanticpacific Communications. Eagle intends to continue to expand
its operations into the cabling industries through additional acquisitions of
companies located throughout the United States.
RESULTS OF OPERATIONS
YEAR ENDED AUGUST 31, 1999 COMPARED TO THE YEAR ENDED AUGUST 31, 1998
NET SALES. For the year ended August 31, 1999, net sales on products sold
decreased to $2,217,275 from $4,827,434 during the year ended August 31, 1998.
The decrease of $2,610,159, or 54%, was attributable to the shifting focus to
the research, development and sale of the set-top devices, and away from Eagle's
traditional products.
COST OF GOODS SOLD. For the year ended August 31, 1999, cost of goods sold on
Eagle's product sales decreased to $1,336,502 from $1,964,954 during the year
ended August 31, 1998. The decrease of $628,452, or 32%, was primarily
attributable to fewer products sold and costs associated with production. The
decrease in cost of sales reduced Eagle's gross profit percentage for products
sold and increased costs associated with production.
OPERATING EXPENSES. For the year ended August 31, 1999, operating expenses
decreased to $1,318,981 from $2,107,058 during the year ended August 31, 1998, a
decrease of $788,077 or 37%. The primary portions of the decrease are discussed
below:
o A $677,854 decrease in salaries, or 92%.
o A $117,356 decrease in advertising and promotion, or 61%.
o A $130,789 decrease in other support costs, or 16%.
However, Eagle's research and development costs increased approximately
$202,000 due to existing officers and employees being utilized in the
development of the wireless set-top devices.
NET EARNINGS. For the year ended August 31, 1999, Eagle's net earnings decreased
to $168,271 from $770,968 during the year ended August 31, 1998.
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CHANGES IN CASH FLOW. Eagle's operating activities used net cash of $405,953 in
fiscal 1999 and $1,498,393 in fiscal 1998. The decrease in net cash used by
operating activities in fiscal 1999 was primarily attributable to a change in
Eagle's business activities. Eagle's investing activities used net cash of
$1,528,262 in fiscal 1999 and $344,519 in fiscal 1998. Such increase was due
primarily to an increase in its investment in Link-Two Communications in 1999.
Eagle's financing activities provided cash of $1,024,935, in fiscal 1999 and
$45,596 in fiscal 1998, and such increase was primarily the result of financing
activities consisted primarily of the sale of common stock, which was partially
offset by the repayment of shareholder advances.
SIX MONTH PERIOD ENDED FEBRUARY 29, 2000 COMPARED TO THE SIX MONTH PERIOD ENDED
FEBRUARY 28, 1999
NET SALES. 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 to an 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, Eagle's marketing resources were
directed to identifying product demand for the set top devices and development
of new wireless application customers. Eagle 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, Eagle is currently negotiating with
domestic and international manufacturing concerns to support significant
production activity for the multi-media set top devices.
COST OF GOODS SOLD. For the six months ended February 29, 2000 and 1999, cost of
goods sold on Eagle products decreased to $770,000 from $826,000.
OPERATING EXPENSES. 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. Eagle's research and development costs will
continue to increase as new multi-media products are being developed to meet the
overall international marketing plan.
CHANGES IN CASH FLOW. 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.
LIQUIDITY AND CAPITAL RESOURCES.
A substantial portion of Eagle'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. Eagle 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 Eagle.
Eagle entered into a $4,500,000 convertible note credit facility, of which
Eagle has drawn down and repaid $1,500,000. The balance is available subject to
certain terms and conditions. Eagle believes that its current cash position will
provide sufficient working capital through August 2001. Additionally, Eagle is
negotiating with lenders to obtain acquisition and production financing,
although there is no assurance that such financing can be obtained.
IMPACT OF YEAR 2000
Even though the date is now past January 1, 2000, and Eagle has not
experienced any immediate adverse impact from the transition to the year 2000,
it cannot provide any assurance that its 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, Eagle will continue to monitor its year 2000
compliance and the year 2000 compliance of its 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, Eagle 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 is below.
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INTERNAL INFRASTRUCTURE. - During the fiscal year 1999, Eagle undertook and
completed a project to replace its accounting and manufacturing information
systems that it found to not be Year 2000 compliant. Eagle presently believes
that, with modifications to existing software and conversions to new software,
the Year 2000 issue will not pose significant operational problems for its
business, products or installed systems. As of May 31, 2000, Eagle has not
suffered any problems or interruptions due to the Year 2000 problem.
SUPPLIERS/THIRD-PARTY RELATIONSHIPS. Eagle relies on outside vendors for water,
electrical, and telecommunications services as well as climate control, and
other infrastructure services. Eagle did independently evaluate the year 2000
compliance of the systems utilized to supply these services. Eagle has 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 Eagle's business.
CONTINGENCY PLANS. Based on the above actions, Eagle has not developed a formal
contingency plan to be implemented as part of Eagle's efforts to identify and
correct year 2000 problems affecting its internal systems. However, if Eagle
believes it is necessary, Eagle may take the following actions:
o Short to medium-term use of backup equipment and software;
o Increased work hours for Eagle's personnel; and
o Other similar approaches.
If Eagle is required to implement any of these contingency plans, such
plans could have a material adverse effect on its business. Based on the actions
taken to date, and the lack of any problems to date, Eagle is reasonably certain
that it has identified and resolved all year 2000 problems that could hurt its
business.
DESCRIPTION OF PROPERTY
Eagle's headquarters are located in League City, Texas and include
approximately 23,000 square feet of leased office and production space. The
lease is at market rate and expires in 2001. Eagle has insured its facilities in
an amount that it believes is adequate and customary in the industry. Eagle
believes that its existing facilities are adequate to meet its current
requirements but anticipates the need to acquire additional space within the
next two years. Eagle believes that suitable additional space in close proximity
to its existing headquarters will be available as needed to accommodate such
growth of its operations through the foreseeable future.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
Eagle's common stock has traded under the symbol "EAG" on the American
Stock Exchange since February16, 2000. Prior to this time, Eagle's common stock
traded on the OTC Bulletin Board under the symbol "EGLW." The market for Eagle
common stock is limited, sporadic and highly volatile. As June 30, 2000, there
were approximately 10,952 holders of record of Eagle common stock. On June 30,
2000, the closing price of Eagle common stock was $7.88 per share. The following
table provides the range of high and low bid information of Eagle common stock
for the last two fiscal years as reflected by the OTC Electronic Bulletin Board
and American Stock Exchange. Such quotations reflect inter-dealer prices,
without retail mark up, mark down or commission, and may not represent actual
transactions.
FISCAL 2000 HIGH LOW
---------------- ---
1st Quarter $2.00 $1.00
2nd Quarter $18.00 $1.13
FISCAL 1999 HIGH LOW
---------------- ---
1st Quarter $2.00 $1.09
2nd Quarter $3.06 $1.53
3rd Quarter $2.81 $1.66
4th Quarter $2.75 $1.03
FISCAL 1998 HIGH LOW
---------------- ---
1st Quarter $4.75 $2.75 (commencing 10/27/97)
2nd Quarter $3.56 $0.88
3rd Quarter $1.69 $1.12
4th Quarter $2.16 $0.88
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DIVIDEND POLICY
It is Eagle's present policy not to pay cash dividends and to retain
future earnings to support its growth. Any payment of cash dividends in the
future will be dependent upon the amount of funds legally available therefor,
Eagle's earnings, financial condition, capital requirements and other factors
that the board of directors believe relevant. Eagle does not anticipate paying
any cash dividends in the foreseeable future.
CAPITALIZATION
The following table sets forth the capitalization of Eagle as of August
31, 1999 and February 29, 2000. This table should be read in conjunction with
Eagle's financial statements and notes that are included elsewhere in this
prospectus.
AUGUST 31, FEBRUARY 29
1999 2000
AUDITED UNAUDITED
------------- ------------
Long-term debt, net $ 11,622 $ 39,000
Stockholder's Equity:
Preferred Stock, par value $.001
per share; 5,000,000 shares
authorized, 0 shares outstanding $ -- $ --
Common Stock, par value $.001
per share; 100,000,000 shares
authorized, 13,479,833 and
17,409,020 respectively, shares
issued and outstanding $ 13,480 $ 17,409
Additional Paid-In Capital $ 7,180,900 $ 20,151,000
Retained Earnings $ 1,699,937 $ 1,923,000
Total Stockholders' Equity $ 8,894,317 $ 22,091,409
EXECUTIVE COMPENSATION
The following table provides information regarding compensation paid to
Eagle's chief executive officer. No other executive officer received in excess
of $100,000 in compensation during the fiscal year ended August 31, 1999.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ------------------------------ --------
YEAR SALARY BONUS OTHER OPTIONS OTHER
-------- -------- -------- -------- -------- --------
H. Dean Cubley 1999 $100,000 $ -- $ -- $ -- $ --
Chief Executive
Officer 1998 $ 91,923 $ -- $ -- $ -- $ --
1997 $ 65,407 $ -- $ -- $ -- $ --
Eagle has not entered into employment agreements with any of its executive
officers.
STOCK OPTIONS
In July 1996, the Board of Directors and majority stockholders adopted a
stock option plan under which 400,000 shares of common stock have been reserved
for issuance. As of May 31, 2000, options to purchase 220,607 shares have been
granted under the plan.
RETIREMENT PLANS
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In October 1997, Eagle initiated a 401(k) plan for its employees which is
funded through the contributions of its participants. The plan maintains that
Eagle will match up to 3% of each participant's contribution. For the years
ended August 31, 1999 and 1998, employee contributions were approximately
$103,000 and $56,500, respectively, whereas Eagle's matching contribution was
$33,500 and $17,000, respectively for those same periods.
FINANCIAL STATEMENTS
EAGLE WIRELESS INTERNATIONAL, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents (Note 1) ...................................................... $ 187,965 $ 1,097,245
Accounts Receivable (Note 2) ............................................................ 286,269 245,889
Inventories (Note 1) .................................................................... 2,355,861 1,273,281
Prepaid Expenses ........................................................................ 242,551 69,490
--------------- ---------------
Total Current Assets ................................................................. 3,072,646 2,685,905
PROPERTY AND EQUIPMENT (NOTE 1):
Operating Equipment ..................................................................... 922,204 933,050
Less: Accumulated Depreciation .......................................................... (333,474) (223,645)
--------------- ---------------
Total Property and Equipment ......................................................... 588,730 709,405
OTHER ASSETS:
Security Deposits ....................................................................... 17,014 8,944
Investment In Affiliate (Note 9) ........................................................ 6,641,892 5,146,189
--------------- ---------------
Total Other Assets ................................................................... 6,658,906 5,155,133
TOTAL ASSETS ............................................................................ $ 10,320,282 $ 8,550,443
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable ........................................................................ $ 207,949 $ 336,782
Accrued Expenses ........................................................................ 106,355 117,915
Shareholders' Advances (Note 11) ........................................................ 0 24,519
Notes Payable (Note 3) .................................................................. 16,643 12,731
Capital Lease Obligations (Note 4) ...................................................... 14,962 11,125
Deferred Revenues ....................................................................... 532,772 56,504
Federal Income Taxes Payable (Notes 1 & 5) .............................................. 468,064 375,171
Franchise Taxes Payable ................................................................. 13,108 41,854
Sales Taxes Payable ..................................................................... 48,348 37,983
Deferred Taxes (Note 5) ................................................................. 6,142 4,888
--------------- ---------------
Total Current Liabilities ............................................................ 1,414,343 1,019,472
LONG - TERM LIABILITIES:
Capital Lease Obligations
(net of current maturities) (Note 4) ................................................. 3,939 8,621
Deferred Taxes (Note 5) ................................................................. 7,683 6,182
--------------- ---------------
Total Long - Term Liabilities ........................................................ 11,622 14,803
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 13)
SHAREHOLDERS' EQUITY:
Preferred Stock - $.001 par value, Authorized 5,000,000 shares, 0 issued ................ 0 0
Common Stock - $.001 par value, Authorized 100,000,000 shares
Issued and Outstanding at 1999 and 1998
13,479,833 and 11,670,154, respectively .............................................. 13,480 11,670
Paid in Capital ......................................................................... 7,180,900 5,972,832
Retained Earnings ....................................................................... 1,699,937 1,531,666
--------------- ---------------
Total Shareholders' Equity ........................................................... 8,894,317 7,516,168
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .............................................. $ 10,320,282 $ 8,550,443
=============== ===============
</TABLE>
See accompanying notes to financial statements
24
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC.
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED AUGUST 31,
-----------------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES ........................................................... $ 2,217,275 $ 4,827,434 $ 3,971,369
COST OF GOODS SOLD
Materials and Supplies ........................................... 542,515 1,181,776 920,375
Direct Labor and Related Costs ................................... 219,285 355,644 260,776
Depreciation and Amortization .................................... 80,069 17,542 21,400
Other Manufacturing Costs ........................................ 494,633 409,992 346,453
----------- ----------- -----------
Total Cost of Goods Sold ...................................... 1,336,502 1,964,954 1,549,004
----------- ----------- -----------
GROSS PROFIT ........................................................ 880,773 2,862,480 2,422,365
----------- ----------- -----------
OPERATING EXPENSES
Selling, General and Administrative
Salaries and Related Costs .................................... 58,880 736,734 607,160
Advertising and Promotion ..................................... 75,816 193,172 176,131
Depreciation and Amortization ................................. 65,095 128,997 58,135
Research & Development ........................................ 438,693 236,869 333,200
Other Support Costs ........................................... 680,497 811,286 430,413
----------- ----------- -----------
Total Operating Expenses ...................................... 1,318,981 2,107,058 1,605,039
----------- ----------- -----------
EARNINGS/(LOSS) FROM OPERATIONS BEFORE OTHER
REVENUES/(EXPENSES), INCOME TAXES, AND
LOSS FROM MINORITY INTEREST IN AFFILIATE ............................ (438,208) 755,422 817,326
OTHER REVENUES/(EXPENSES)
Interest Income .................................................. 799,098 427,144 328,760
Interest Expense ................................................. (10,081) (5,451) (6,533)
----------- ----------- -----------
Total Other Revenues .......................................... 789,017 421,693 322,227
----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES & LOSS FROM
MINORITY INTEREST IN AFFILIATE ...................................... 350,809 1,177,115 1,139,553
Gain/(Loss) From Minority Interest in Affiliate .................. (91,678) (28,663) (71,337)
----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES ........................................ 259,131 1,148,452 1,068,216
Provision For Income Taxes ....................................... 90,860 377,484 339,722
=========== =========== ===========
NET EARNINGS ........................................................ 168,271 770,968 728,494
RETAINED EARNINGS - BEGINNING OF YEAR ............................... 1,531,666 760,698 32,204
----------- ----------- -----------
RETAINED EARNINGS - END OF YEAR .................................... $ 1,699,937 $ 1,531,666 $ 760,698
=========== =========== ===========
Net Earnings Per Common Share:
Primary (Note 1) .............................................. $ 0.01 $ 0.07 $ 0.07
Fully Diluted (Note 1) ....................................... $ 0.01 $ 0.05 $ 0.04
</TABLE>
See accompanying notes to financial statements
25
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON ADD'
SEPTEMBER 1, 1996 STOCK PREF PAID IN RET TOTAL SH
TO AUGUST 31, 1999 SHARES VALUE STOCK CAPITAL EARN EQUITY
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shareholders' Equity
As Of September 1, 1996 ................ 6,946,145 $ 6,946 $ 0 $ 2,037,856 $ 32,204 $ 2,077,006
----------- ----------- ----------- ----------- ----------- -----------
Net Earnings 1997 ...................... 728,494
Private Placement ...................... 1,587,189 1,587 0 4,117,759 0 4,119,346
Conversion of Notes Payable
and Adv to Common Stock ............. 2,277,000 2,277 0 487,092 0 489,369
Exercise of $.01 Warrants:
B & F Trust ......................... 490,000 490 0 4,410 0 4,900
Futer Family Trust .................. 154,000 154 0 1,386 0 1,540
John Nagel .......................... 28,000 28 0 252 0 280
Bailey Trust ........................ 28,000 28 0 252 0 280
Issuance of Warrants for
Fundraising Activities ............. 0 0 0 192,000 0 192,000
Syndication Costs ..................... 0 0 0 (1,020,827) 0 (1,020,827)
----------- ----------- ----------- ----------- ----------- -----------
Total Shareholders' Equity
As Of August 31, 1997 .................. 11,510,334 11,510 0 5,820,180 760,698 6,592,388
Net Earnings 1998 ...................... 770,968 770,968
New Stock Issued to Shareholders
J. Hamilton (Nov. 1997) ............ 39,820 40 0 59,960 0 60,000
D. Walker (Nov. 1997) .............. 55,000 55 0 82,445 0 82,500
D. Walker (Aug. 1998) .............. 65,000 65 0 95,564 0 95,629
Syndication Costs ..................... 0 0 0 (85,317) 0 (85,317)
----------- ----------- ----------- ----------- ----------- -----------
Total Shareholders' Equity
As Of August 31, 1998 .................. 11,670,154 11,670 0 5,972,832 1,531,666 7,516,168
----------- ----------- ----------- ----------- ----------- -----------
Net Earnings 1999 ...................... 168,271
New Stock Issued to Shareholders
Issuance of Common Stock
For Services Rendered ............. 34,470 34 0 163,457 0 163,491
For Exercise of Warrants .......... 1,775,209 1,776 0 1,044,611 0 1,046,387
----------- ----------- ----------- ----------- ----------- -----------
Total Shareholders' Equity
As Of August 31, 1999 .................. 13,479,833 $ 13,480 $ 0 $ 7,180,900 $ 1,699,937 $ 8,894,317
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
26
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED AUGUST 31,
----------- ----------- -----------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings ......................................... $ 168,271 $ 770,968 $ 728,494
Adjustments To Reconcile Net Earnings To Net Cash
Used By Operating Activities:
Depreciation and Amortization ..................... 145,164 146,539 79,535
Stock Issued for Services Rendered ................ 163,491 0 0
(Increase)/Decrease in Accounts Receivable ........ (40,380) (2,496,797) (2,536,348)
(Increase)/Decrease in Inventories ................ (1,082,580) (261,063) (486,907)
(Increase)/Decrease in Prepaid Expenses ........... (173,061) (12,021) (40,846)
Increase/(Decrease) in Accounts Payable ........... (128,833) 19,613 9,868
Increase/(Decrease) in Accrued Payroll Taxes ...... 0 0 16,635
Increase/(Decrease) in Accrued Expenses ........... (11,560) 117,915 (53,374)
Increase/(Decrease) in Deferred Taxes ............. 2,755 (14,147) 19,534
Increase/(Decrease) in Customer Deposits .......... 0 0 (209,283)
Increase/(Decrease) in Deferred Revenues .......... 476,268 56,504 0
Increase/(Decrease) in Sales Tax Payable .......... 10,365 37,983 0
Increase/(Decrease) in Federal Income Taxes Payable 92,893 114,259 260,912
Increase/(Decrease) in Franchise Taxes Payable .... (28,746) 21,854 20,000
----------- ----------- -----------
Total Adjustments ................................. (574,224) (2,269,361) (2,920,274)
----------- ----------- -----------
Net Cash Used By Operating Activities ................ (405,953) (1,498,393) (2,191,780)
CASH FLOWS FROM INVESTING ACTIVITIES
(Purchase)/Disposal of Property and Equipment ..... (24,489) (377,247) (164,937)
(Increase)/Decrease in Other Assets ............... (8,070) 4,065 35,769
(Increase)/Decrease in Investment in Affiliate .... (1,495,703) 28,663 (28,663)
----------- ----------- -----------
Net Cash Used By Investing Activities ................ (1,528,262) (344,519) (157,831)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase/(Decrease) in Notes Payable (Long-Term) .. 0 0 (375,000)
Increase/(Decrease) in Notes Payable (Short-Term) . 3,912 12,731 (11,082)
Increase/(Decrease) in Capital Leases ............. (845) (15,094) (2,558)
Increase/(Decrease) in Shareholders' Advances ..... (24,519) (104,853) (160,628)
Increase/(Decrease) in Subscriptions Payable ...... 0 0 (97,500)
Proceeds From Sale of Common Stock, Net ......... 1,046,387 152,812 3,786,888
----------- ----------- -----------
Net Cash Provided By Financing Activities ............ 1,024,935 45,596 3,140,120
Net Increase/(Decrease) in Cash ...................... (909,280) (1,797,316) 790,509
CASH AT THE BEGINNING OF THE YEAR ....................... 1,097,245 2,894,561 2,104,052
----------- ----------- -----------
CASH AT THE END OF THE YEAR ............................. $ 187,965 $ 1,097,245 $ 2,894,561
=========== =========== ===========
Supplemental Disclosures of Cash Flow Information:
Net cash paid during the year for:
Interest ....................................... $ 10,081 $ 5,451 $ 6,533
Income Taxes ................................... 75,051 338,688 306,254
</TABLE>
See accompanying notes to financial statements
27
<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 $29,059 and $1,088,555 invested in interest bearing accounts at
August 31, 1999 and 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:
Raw Materials $ 1,215,003 $ 719,157
Work in Process 1,119,672 554,124
Finished Goods 21,186 0
============ ==============
$ 2,355,861 $ 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. As a result
of SOP 98-5, unamortized organization costs of $2,328 have been expensed through
amortization expense for the year ended August 31, 1998.
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 $438,693 and $236,869
were expensed for the periods ended August 31, 1999 and 1998, respectively.
Contract revenues earned for the periods ended August 31, 1999 and 1998 were
approximately $755,771 and $656,512, respectively.
28
<PAGE>
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.
G) 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:
AUGUST 31, 1999 AUGUST 31, 1998
--------------- ---------------
Weighted Average Number of Common
Shares Outstanding Including:
Primary Common Stock Equivalents 11,980,911 11,594,902
Fully Dilutive Common Stock Equivalents 12,049,911 14,019,902
H) 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 August 31, 1999 and 1998, no impairment existed.
I) Warrants for Funding Activities
To date, the Company has issued the following warrants: 5,033,334 Class A;
5,033,334 Class B; 1,050,000 Class C; 1,050,000 $.05; 1,375,000 $.50; 425,000
$5.00;150,000 $1.50; 150,000 $2.00; 200,000 $3.00; 200,000 $5.00; 200,000 $7.00;
200,000 $9.00; 200,000 $11.00; and 50,000 $2.00. Certain of these warrants were
issued to individuals and trusts for their assistance in the fundraising
activities. The Company has assigned a value of $280,343 as compensation for
these fund raising activities.
J) Advertising and Promotion
All advertising related costs are expensed as incurred. The Company does not
incur any cost for direct-response advertising.
K) 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.
L) Comprehensive Income
There were no items of other comprehensive income in 1999 and 1998, and, thus,
net income is equal to comprehensive income for each of those years.
M) Reclassification
29
<PAGE>
The Company has reclassified certain costs and expenses for the year ended
August 31, 1998 to facilitate comparison to the year ended August 31, 1999.
NOTE 2 - ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
1999 1998
-------- --------
Accounts Receivable ...................................... $286,269 $245,889
Allowance for Doubtful Account ........................... 0 0
-------- --------
Net Accounts Receivable .................................. $286,269 $245,889
======== ========
NOTE 3 - NOTES PAYABLE:
1999 1998
-------- --------
Unsecured note to Imperial Premium
Finance bearing interest at 14.9%,
due $1,795 monthly until February 2000 .................. $ 5,386 $ 0
Unsecured note to Central Insurance
bearing no interest, due $1,031
monthly until March 2000 ................................ 5,220 0
Unsecured note to Paula Insurance
bearing no interest, due $373 monthly
until March 2000 ........................................ 1,124 0
Unsecured note to West Coast Life
Insurance bearing no interest, due
$2,457 quarterly until May 2000 ......................... 4,913 0
Unsecured note to Canawill Insurance
bearing interest at 9.6%, due $2,122
monthly until January 1999 .............................. 0 12,731
-------- --------
Total .................... 16,643 12,731
Less Current Portion of
Long - Term Debt ...... 16,643 12,731
-------- --------
Total Long - Term Debt ... $ 0 $ 0
======== ========
30
<PAGE>
NOTE 4 - CAPITAL LEASE OBLIGATIONS:
1999 1998
------- -------
Equipment lease with Konica bearing
interest at 8.9%, payable in monthly
installments of $445; due Aug. 2001 ................. 9,720 0
Equipment lease with Associates
Capital bearing interest at 7%,
payable in monthly installments
of $1,177; due Sept. 1998 ........................... 0 2,272
Equipment lease with IKON Office
Solutions bearing interest at 18% payable in
monthly installments of
$105; due March 2000 ................................ 695 1,746
Software lease with Manifest Group bearing
interest at 14%, payable in monthly
installments of $751; due
August 2000 ......................................... $ 8,487 $15,728
------- -------
Total Obligations ...................... 18,902 19,746
Less Current Portion of
Lease Obligations ................... 15,047 11,125
------- -------
Total Long - Term Capital
Lease Obligations ....................... $ 3,855 $ 8,621
======= =======
The capitalized lease obligations are collateralized by the related equipment
acquired with a net book value of approximately $ 29,600 and $ 45,000 at August
31, 1999 and 1998, respectively. The future minimum lease payments under the
capital leases and the net present value of the future lease payments at August
31, 1999 and 1998 are as follows:
1999 1998
------- -------
Total minimum lease payments ............................... $20,405 $22,319
Less: Amount representing interest ........................ 1,503 2,573
------- -------
Present value of net minimum
lease payments: ........................................... $18,902 $19,746
Future obligations under the lease terms are:
PERIOD ENDING
AUGUST 31, AMOUNT
--------- -------
2000 $14,522
2001 4,380
-------
Total $18,902
31
<PAGE>
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:
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%
B) Items giving rise to deferred tax assets/liabilities are as follows:
AUGUST 31,
----------------------
1999 1998
------- -------
Deferred Tax Assets:
Tax Loss Carry-forward ........................... $ 0 $ 0
Deferred Tax Liability:
Depreciation ..................................... 13,852 11,070
Valuation Allowance .............................. 0 0
------- -------
Net Deferred Tax Asset/Liability ............... $13,852 $11,070
======= =======
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 August 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 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 August 31, 1999, 146,375
options have been granted pursuant to such plan with 29,000 being 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. In conjunction with the issuance of such indebtedness, the Company
has issued such investors $.50 Warrants to purchase 375,000 shares of common
stock, and $5.00 Warrants to purchase up to 375,000 shares of common stock.
The Company has issued the following warrants 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
32
<PAGE>
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.
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.
The Company has issued and outstanding the following warrants which have not yet
been exercised at August 31, 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. 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.
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
33
<PAGE>
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.
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. 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.
These warrants trade under the symbol "EGLWZ".
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.
NOTE 7 - RELATED PARTY TRANSACTIONS:
For the year ended August 31, 1999, the Company has repaid certain advances to
shareholders. (See Note 11)
NOTE 8 - SEGMENT INFORMATION:
The Company had gross revenues of $2,359,184 and $4,827,434 for the years ended
August 31, 1999 and 1998, respectively. The following parties individually
represent a greater than ten percent of these revenues.
AUGUST 31, 1999 AUGUST 31, 1998
--------------------- ---------------------
CUSTOMER AMOUNT PERCENTAGE AMOUNT PERCENTAGE
---------- ---------- ---------- ----------
Link-Two Communications, Inc. .. $ 991,692 42.83% $2,892,769 59.92%
RFTL ........................... $ 755,771 32.64% 656,512 11.71%
NOTE 9 - 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 August 31, 1999 and 1998, 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. 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.
34
<PAGE>
NOTE 10 - RISK FACTORS:
For the years ended August 31, 1999 and 1998, substantially all of the Company s
business activities have remained within the United States and have been
extended to the wireless infrastructure industry. Approximately eighty-four
percent of the Company s revenues and receivables have been created solely in
the state of Texas, one-half percent have been created in the international
market, and the approximate fifteen and one-half percent remainder has been
created relatively evenly over the rest of the nation during the year ended
August 31, 1999 whereas approximately seventy-four percent of the Company s
revenues and receivables have been created solely in the state of Texas, one and
one-half percent have been created in the international market, and the
approximate twenty-four and one-half percent remainder has been created
relatively evenly over the rest of the nation for the year ended August 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 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 during the years ended August 31, 1999 and 1998, it is management s
belief that the Company faces little credit or economic risk due to the
continuous growth the market is experiencing.
NOTE 11 - SHAREHOLDERS ADVANCES:
Certain officers and an employee advanced the Company $290,000. At August 31,
1999 and 1998, the Company owes $ -0- and $24,519, respectively. The shareholder
advances are non-interest bearing and payable upon demand.
NOTE 12 - FOREIGN OPERATIONS:
Although the Company is based in the United States, its product is sold on the
international market. Presently, international sales total approximately 0.5 %
and 1.4% at August 31, 1999 and 1998, respectively.
NOTE 13 - 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 August
31, 1999 and 1998, rental expenses of $120,906 and $93,510, respectively, were
incurred.
Future obligations under the non-cancelable lease terms are:
Period Ending
AUGUST 31, AMOUNT
------------- ----------
2000 $ 217,140
2001 $ 126,665
35
<PAGE>
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.
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 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. 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.
During September 1998, the Company has filed a petition with the District Court
in Harris County, Texas against a California corporation that sells
manufacturing and accounting software, alleging deceptive trade practices,
fraud, misrepresentation, negligence, and breach of implied warranty. At August
31, 1999, the Company had received full compensation and the case has been
terminated.
NOTE 14 - EARNINGS PER SHARE:
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST, 1999
-----------------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
--------------- --------------- ---------------
<S> <C> <C> <C>
Net Income ................................................................ $ 168,272
Basic EPS:
Income available to common stockholders ................................. 168,272 11,980,911 $ 0.01
===============
Effect of Dilutive Securities:
Warrants ................................................................ 0 69,000
--------------- ---------------
Diluted EPS:
Income available to common stockholders
and assumed conversions ............................................... $ 168,272 12,049,911 $ 0.01
=============== =============== ===============
FOR THE YEAR ENDED AUGUST, 1998
-----------------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
--------------- --------------- ---------------
Net Income ................................................................ $ 770,968
Basic EPS:
Income available to common stockholders ................................. 770,968 11,594,902 $ 0.07
===============
Effect of Dilutive Securities:
Warrants ................................................................ 0 2,425,000
--------------- ---------------
Diluted EPS:
Income available to common stockholders
and assumed conversions ............................................... $ 770,968 14,019,902 $ 0.06
=============== =============== ===============
</TABLE>
36
<PAGE>
For the years ended August 31, 1999 and 1998, anti-dilutive securities existed.
(see Note 6)
For the period September 1, 1999 to December 13, 1999, there were no
transactions that would have materially changed the number of common shares or
potential common shares outstanding.
NOTE 15 - 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 August 31, 1999 and 1998, 146,375
and 82,875 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.
NOTE 16 - RETIREMENT PLANS:
During October 1997, the Company initiated a 401(k) plan for its employees which
is funded through the contributions of its participants. For the years ended
August 31, 1999 and 1998, employee contributions were approximately $103,000 and
$56,500, respectively. The Company matched approximately $33,500 and $17,000,
respectively for those same periods.
NOTE 17 - MAJOR CUSTOMER:
As of August 31, 1998, the Company had a receivable due from Link Two
Communications (Link II) in the amount of $5,142,950. 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.
Based upon the aforementioned, management believes the risks involved with this
receivable are minimal.
NOTE 18 - SUBSEQUENT EVENTS:
The Company entered into a convertible debenture arrangement with Global Capital
Advisors, LTD to fund up to $4,500,000 over a two-year period. The three-year
convertible debenture bears interest at seven percent (7%) and can be redeemed
in the Company's common stock or cash. Additionally, the Company is committed to
issue up to 280,000 warrants with a strike price of $1.54 per warrant. These
convertible debentures are secured by a note receivable from Link Two
Communications, Inc. of $6,000,000.
Subsequent to August 31, 1999, the Company has signed a letter of intent with
Atlantic Pacific Communications, Inc. to start negotiations with regard to
entering into a merger, acquisition, or joint venture.
Subsequent to August 31, 1999, the Company has signed a letter of intent with a
Florida Company to start negotiations with regard to entering into a merger,
acquisition, or joint venture.
Subsequent to August 31, 1999, the Company has formed BroadbandMagic.com, Inc.,
a wholly owned subsidiary. This subsidiary has been created primarily to market
and sell the Company's products.
37
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
FEBRUARY 29, 2000 AUGUST 31, 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.
38
<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.
39
<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> <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
40
<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.
41
<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.
42
<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:
FEBRUARY 29, 2000 FEBRUARY 28, 1999
----------------- -----------------
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
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.
43
<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:
FEBRUARY 29, AUGUST 31,
2000 1999
---------- -----------
Accounts Receivable $2,006,844 $ 286,269
Allowance for Doubtful Accounts - 0 - - 0 -
---------- -----------
Net Accounts Receivable $2,006,844 $ 286,269
========== ===========
NOTE 3 - NOTES PAYABLE:
FEBRUARY 29, AUGUST 31,
2000 1999
---------- -----------
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 --
44
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2000
NOTE 3 - NOTES PAYABLE: (continued)
-------------
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 -
========== ===========
NOTE 4 - CAPITAL LEASE OBLIGATIONS:
FEBRUARY 29, AUGUST 31,
2000 1999
---------- -----------
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 --
45
<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:
FEBRUARY 29, AUGUST 31,
2000 1999
---------- -----------
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
========== ===========
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
===== =====
46
<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.
47
<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.
48
<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.
49
<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
FEBRUARY 29, FEBRUARY 29, ---------------------------- FEBRUARY 29,
CLASS OF ------------------------------ ----------------------------- NON NON ---------------------------
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.
50
<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.
51
<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.
52
<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
=============== =============== ===============
<CAPTION>
FOR THE YEAR ENDED AUGUST , 1999
---------------------------------------------------
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)
53
<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.
54
<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):
1999 PRO FORMA INFORMATION
(In Thousands)
<TABLE>
<CAPTION>
EAG APC CCT ADJ. COMBINED TOTAL
--------------- --------------- --------------- --------------- ---------------
<S> <C> <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.
CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There have been no disagreements concerning matters of accounting
principals or financial statement disclosure between Eagle and McManus & Company
of the type requiring disclosure hereunder.
55
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Texas law, a corporation may indemnify its officers, directors,
employees and agents under certain circumstances, including indemnification of
such person against liability under the Securities Act of 1933. True and correct
copies of Articles 2.02 and 2.02.1 of the Texas Business Corporations Act that
address indemnification of officers, directors, employees and agents is attached
hereto as Exhibit 99.1.
In addition, Article 2.02-1(B) of the Texas Business Corporation Act and
Eagle's Articles of Incorporation and Bylaws provide that a director of this
corporation shall not be personally liable to the corporation or its
stockholders for monetary damages due to breach of fiduciary duty as a director
except for liability in circumstances which (1) the person is found liable on
the basis that personal benefit was improperly received by him, whether or not
the benefit resulted from an action taken in the person's official capacity; or
(2) the person is found liable to the corporation.
The effect of these provisions may be to eliminate the rights of Eagle and
its stockholders (through stockholders' derivative suit on behalf of Eagle) to
recover monetary damages against a director for breach of fiduciary duty as a
director (including breaches resulting from negligent or grossly negligent
behavior) except in the situations described in clauses (1) - (2) of the
preceding paragraph.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth the expenses in connection with the issuance and
distribution of the securities being registered, other than underwriting
discounts and commissions. Eagle shall bear all such expenses. All amounts set
forth below are estimates, other than the SEC registration fee.
SEC Registration Fee $ 3,159.36
Accounting Fees and Expenses $25,000.00
Miscellaneous $ 5,000.00
----------
TOTAL $33,159.36
----------
RECENT SALES OF UNREGISTERED SECURITIES
In September 1999, Eagle issued 61,667 shares of common stock to two
individuals for $36,317. Eagle believes that this transaction was exempt from
registration pursuant to Section 4(2) of the Act as transactions by an issuer
not involving any public offering.
In October 1999, Eagle issued a convertible note in the amount of
$1,500,000. Eagle that this transaction was exempt from registration pursuant to
Section 4(2) of the Act as a transaction by an issuer not involving any public
offering.
In February 2000, Eagle issued 518,919 shares of common stock to the
selling stockholders of Atlantic Pacific Communications, Inc. Eagle believes
that this transaction was exempt from registration pursuant to Section 4(2) of
the Act as transactions by an issuer not involving any public offering.
In February 2000, Eagle issued 300,000 shares of common stock to Comtel
Communications, Inc. for the net assets of Comtel Communications, Inc. Eagle
believes that this transaction was exempt from registration pursuant to Section
4(2) of the Act as transactions by an issuer not involving any public offering.
In April 2000, Eagle issued 50,000 shares of common stock to the selling
stockholders of eToolz, Inc. Eagle believes that this transaction was exempt
from registration pursuant to Section 4(2) of the Act as transactions by an
issuer not involving any public offering.
In April 2000, Eagle issued 50,000 shares of common stock to Kason, Inc.
in exchange for services rendered. Eagle believes that this transaction was
exempt from registration pursuant to Section 4(2) of the Act as transactions by
an issuer not involving any public offering.
In March 2000, Eagle issued 40,000 shares of common stock to Charterbridge
Financial Communications, Inc. in connection with a consulting agreement between
Eagle and Charterbridge. Eagle believes that this transaction was exempt from
registration pursuant to Section 4(2) of the Act as transactions by an issuer
not involving any public offering.
56
<PAGE>
In May 2000, Eagle issued 600,000 shares of common stock to Paladin
Associates in connection with the Consulting and Financial Placement Agreement
between Eagle and Paladin. Eagle believes that this transaction was exempt from
registration pursuant to Section 4(2) of the Act as transactions by an issuer
not involving any public offering.
In June 2000, Eagle issued at total of 9,468 shares of common stock to
five persons in exchange for services rendered by each person for the benefit of
Eagle. Eagle believes that this transaction was exempt from registration
pursuant to Section 4(2) of the Act as transactions by an issuer not involving
any public offering.
In June 2000, Eagle issued at total of 100,000 shares of common stock to
Hampton-Porter, Investment Bankers, LLC for services rendered under an
Investment Banking Agreement. Eagle believes that this transaction was exempt
from registration pursuant to Section 4(2) of the Act as transactions by an
issuer not involving any public offering.
57
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
# DESCRIPTION
-------- -----------
<S> <C> <C>
3.1 Eagle Wireless International, Inc. Incorporated by reference to the Form SB-2 registration
Articles of Incorporation, as amended statement (SEC File No. 333-20011)
3.1(a) Amendment to the Articles of Incorporated by reference to the Form SB-2 registration
Incorporation statement (SEC File No. 333-20011)
3.2 By-laws Incorporated by reference to the Form SB-2 registration
statement (SEC File No. 333-20011)
4.1 Form of Common Stock Certificate Incorporated by reference to the Form SB-2 registration
statement (SEC File No. 333-20011)
5.1 Legal Opinion of Richard O. Weed Filed electronically herewith
10.1 Consulting Agreement with OTC Communications Corp. Incorporated by reference to the Form S-8 registration
statement filed March 19, 1999, (SEC File No. 333-74729)
10.2 Fee Agreement for Professional Services Filed electronically herewith
(Richard O. Weed)
23.1 Consent of McManus & Co., P.C. Filed electronically herewith
23.2 Consent of Richard O. Weed Filed electronically herewith
99.1 Texas Business Corporations Act Filed electronically herewith
Articles 2.02 and 2.02.1
</TABLE>
UNDERTAKINGS
1. The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
(iii) include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement provided, however, that paragraphs
(1)(i) and (1)(ii) do not apply if the information required to
be included in a post- effective amendment by those paragraphs
is contained in periodic reports filed by Eagle pursuant to
Section 13 or Section 5(d) of the Exchange Act that are
incorporated by reference in the registration statement.
(b) That, for the purpose of determining liability under the Securities
Act, each post-effective amendment shall be deemed to be a new
registration statement of the securities offered, and the offering
of the securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the termination of the
offering.
2. The registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of a post-effective amendment any of the
securities being registered that remain unsold at the termination of the
offering.
58
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements of filing on Form SB-2 and has duly caused this registrations
statement to be signed on its behalf by the undersigned, thereon duly authorized
in the City of League City, Texas on July 3, 2000.
Eagle Wireless International, Inc.
a Texas corporation
By: /S/ DEAN CUBLEY
Name: H. Dean Cubley
Title: Chief Executive Officer
Pursuant to the requirement of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities
indicated on July 3, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ H. DEAN CUBLEY President, Chief Executive Officer, and July 3, 2000
-------------------------------------------- Director
H. Dean Cubley
July 3, 2000
/S/ RICHARD ROYALL Chief Financial Officer
--------------------------------------------
Richard Royall
July 3, 2000
/S/ CHRISTOPHER W. FUTER Vice President, Director
--------------------------------------------
Christopher W. Futer
July 3, 2000
/S/ A.L. CLIFFORD Director
--------------------------------------------
A.L. Clifford
July 3, 2000
/S/ GLENN A. GOERKE Director
--------------------------------------------
Glenn A. Goerke
</TABLE>
59
