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REGISTRATION NO. 333-50869
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SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
WIRELESS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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TEXAS 5065 75-1893779
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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11545 PAGEMILL ROAD
DALLAS, TEXAS 75243
(214) 340-8876
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
JOHN P. WATSON
CHAIRMAN
11545 PAGEMILL ROAD
DALLAS, TEXAS 75243
(214) 340-8876
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
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LAWRENCE B. GOLDSTEIN JEFFREY A. CHAPMAN
GARDERE & WYNNE, L.L.P. VINSON & ELKINS L.L.P.
1601 ELM STREET, SUITE 3000 2001 ROSS AVENUE, SUITE 3700
DALLAS, TEXAS 75201-4761 DALLAS, TEXAS 75201-2975
(214) 999-3000 (214) 220-7700
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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 effective 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 effective 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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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.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED , 1998
PROSPECTUS
, 1998
SHARES
WIRELESS INTERNATIONAL, INC.
COMMON STOCK
Of the shares of Common Stock offered hereby (the "Offering"),
shares are being offered by Wireless International, Inc. ("Wireless
International" or the "Company") and shares are being offered by
certain shareholders (the "Selling Shareholders"). See "Principal and Selling
Shareholders." The Company will not receive any proceeds from the sale of the
shares of Common Stock by the Selling Shareholders.
Prior to the Offering, there has been no public market for the Common
Stock. It is currently anticipated that the initial public offering price will
be between $ and $ per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price.
Application has been made for the Common Stock to be approved for quotation
on the Nasdaq National Market ("Nasdaq") under the trading symbol "WIIN."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
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Per Share............................ $ $ $ $
Total(3)............................. $ $ $ $
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the Underwriters an over-allotment option,
exercisable for 30 days from the date of this Prospectus, to purchase up to
additional shares of Common Stock, on the same terms as set forth above
solely to cover over-allotments, if any. If such option is exercised in
full, the total Price to the Public, Underwriting Discounts and Commissions
and Proceeds to the Company will be $ , $ and $ ,
respectively. See "Underwriting."
The shares of Common Stock are being offered by the several Underwriters
subject to prior sale, when, as and if delivered to and accepted by them,
subject to certain prior conditions. The Underwriters reserve the right to
reject any order in whole or in part. It is expected that delivery of the shares
of Common Stock will be made in New York, New York on or about ,
1998.
DONALDSON, LUFKIN & JENRETTE CIBC OPPENHEIMER
SECURITIES CORPORATION
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[INSERT GRAPHICS OR PICTURES]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND
MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto contained elsewhere in
this Prospectus. Unless otherwise indicated, the information in this Prospectus
assumes the Underwriters' over-allotment option is not exercised and gives
retroactive effect to a 643-for-1 stock dividend effected in , 1998.
All references to fiscal years, unless otherwise noted, refer to the Company's
fiscal year which ends on April 30 of each year. The Company was incorporated in
Texas in 1983 under the name "Page-Com, Inc." ("Page-Com") and was thereafter
renamed "Wireless International, Inc." In December 1995, a subsidiary of the
Company merged (the "Merger") with Bear Communications, Inc. ("Bear
Communications"). Unless the context otherwise requires, all references to
"BearCom" shall include the operations of the Company's direct and indirect
wholly owned subsidiaries, Bear Communications, BearCom Operating, L.P. and
their subsidiaries. On March 31, 1998, a wholly owned subsidiary of the Company,
Condor Holdings, Inc. ("Condor Holdings"), acquired substantially all of the
assets of Condor Communications, Inc. ("Condor Communications," and together
with Condor Holdings, "Condor"). The foregoing transaction is referred to herein
as the "Condor Acquisition." Unless the context otherwise requires, all
references to "Condor" shall include Condor and Condor's fifty percent interest
in Condor Telecommunicationes, C.A., a corporation incorporated under the laws
of Venezuela, which operates Condor's Caracas, Venezuela distribution sales
office. As of the date hereof, the Company is awaiting regulatory approval in
the Czech Republic with respect to the acquisition of the entity that operates
Condor's Prague, Czech Republic distribution sales office. Based on the advice
of foreign counsel, the Company believes regulatory approval will be obtained.
All references herein to "Wireless International" or the "Company" shall include
the combined operations of Wireless International, Inc. and its subsidiaries,
including BearCom and Condor.
THE COMPANY
The Company is the largest independent distributor of two-way radios in the
world with leading positions in the field sales, catalog sales, export sales and
rental segments of the market. The Company sells, services and rents a broad
line of two-way radios manufactured by industry leaders including Motorola,
Maxon, Icom and Tekk, which are used to communicate within a limited geographic
area without incurring airtime or subscriber charges. In the United States, the
Company's diverse customer base consists primarily of businesses and
organizations across a wide variety of industries, whereas internationally the
Company's customers generally are dealers which, in turn, sell to similar end
users. In addition to its two-way radio product line, the Company sells
complementary wireless communication and related products and services,
including Orbacom console systems, Motorola messaging systems, Nextel handsets
and services and PageMart pagers and services.
Through BearCom, the Company markets its products and services through 34
field offices in the United States and two in Australia and through its catalog
operations throughout the United States. In addition, through Condor, the
Company exports its products and services through its distribution offices in
Miami, Florida, Caracas, Venezuela and Prague, Czech Republic. The Company
believes that it is the only significant distributor of two-way radios
leveraging the strengths of these multiple channels of distribution. Through its
field offices, BearCom provides technical assistance for customers requiring
on-site evaluation of their communications needs. For customers not requiring
this consultative approach (usually when system needs are relatively
uncomplicated or purchases are add-on or replacement units to an existing
system), the catalog marketing channel provides an efficient and convenient
method of purchasing products. During fiscal 1997, BearCom mailed more than 4.4
million catalogs and marketing pieces and processed in excess of 150,000
customer orders. Most orders are processed and shipped on the same day they are
received. The Company uses sophisticated information systems and proprietary
software to monitor and refine its customer database, catalog mailings and
inventory levels. In addition, the Company has a fleet of over 15,000 two-way
radios for rent, which are used in connection with sporting events, conventions,
disaster recovery projects, motion picture productions and other events. The
Company believes that it is the largest renter of two-way radios in the United
States.
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While the Company is not aware of any definitive industry data, the Company
believes that the market for the sale, rental and service of two-way radios and
related products is in excess of $5 billion per year in the United States and an
additional $5 billion per year outside the United States. The independent
distribution of two-way radios is a highly fragmented industry, with thousands
of local and regional independent dealers. The manufacturing of two-way radios,
however, is dominated by a small number of companies, each of which has
developed a network of authorized dealers to augment their internal direct sales
forces. These authorized dealer networks typically comprise several local
dealerships within a given metropolitan area each generating less than $5
million in sales. Over the past ten years, manufacturers have strategically
reduced the size of their direct sales forces, increasingly relying on
independent authorized dealers. The Company believes that an increasing
percentage of two-way radio products will continue to be sold through
independent dealers as manufacturers continue to outsource distribution and
other non-core functions. At the same time, the Company believes manufacturers
are limiting their authorized dealer relationships to fewer, but larger
organizations. The Company believes that these industry fundamentals and
outsourcing trends will lead to a consolidation of independent dealers and that
as the largest independent dealer worldwide it is well positioned to continue to
acquire local authorized dealers and expand its international presence and
market share.
From fiscal 1993 to fiscal 1997, the Company's revenues grew, primarily as
a result of internal growth and the opening of nine new sales offices, from
$37.9 million to $69.6 million, representing a compound annual growth rate of
approximately 16%. Since August 1996, the Company has accelerated its growth
through the acquisition of the operations of 12 independent dealers, a majority
of the assets of Motorola's Radio Products Group rentals business and
substantially all of the assets of Condor. As a result, revenues for the nine
months ended January 31, 1998 were $67.1 million, a 31% increase from revenues
generated during the equivalent period of the prior fiscal year. On a pro forma
basis, giving effect to the Condor Acquisition and the Other Acquisitions (as
defined below under "Unaudited Pro Forma Condensed Consolidated Financial
Statements"), the Company's revenues were $130.0 million and $112.6 million
during fiscal 1997 and the nine months ended January 31, 1998, respectively. The
Company intends to make additional acquisitions to establish a presence in new
geographic areas and to enhance its presence in existing markets. In pursuing
such acquisitions, the Company typically seeks to gain access to the acquired
dealer's skills, experience and customer relationships, while consolidating its
fulfillment operations into existing facilities.
The Company's objective is to expand its position as the largest
independent distributor of two-way radios and related products in the world and
be the leading independent distributor in each market in which it serves. The
Company's strategy is to further develop its network of field offices by opening
and acquiring local operations, expand and enhance its catalog and export
operations, leverage its complementary distribution channels by expanding its
product and service offerings, and support such operations with rapid order
fulfillment and superior customer service and technical support. The Company
seeks to capitalize on its experience and reputation derived from more than 15
years of selling and marketing two-way radio products in executing its strategy
and addressing its market opportunity.
RECENT DEVELOPMENTS
On March 31, 1998, the Company completed the Condor Acquisition. Condor
reported revenues of $51.3 million during its fiscal year ended December 31,
1997. The Condor Acquisition was accounted for using the purchase method of
accounting.
Based in Miami, Florida, Condor is a leading exporter of two-way radio
communication equipment and communication systems primarily to Latin America,
Eastern Europe, Africa and the Middle East. In addition to its Miami office,
Condor maintains distribution sales offices in Caracas, Venezuela and Prague,
Czech Republic. Condor exports primarily Motorola two-way radio products.
Virtually all of Condor's sales are denominated in U.S. dollars. The Condor
Acquisition provides the Company an operational platform from which it can
expand its international operations. The Company's strategy is to expand its
international operations by establishing additional sales offices within
licensed regions and offering additional products and services within those
regions. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Condor Communications, Inc.," "Unaudited Pro Forma
Condensed Consolidated Financial Statements" and the historical consolidated
financial statements of Condor included elsewhere herein.
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THE OFFERING
Common Stock Offered:
By the Company..................... share
By the Selling Shareholders........ share
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Total...................... share
Common Stock to be Outstanding after
the Offering........................ shares(1)
Use of Proceeds..................... To repay certain indebtedness and for
general corporate purposes, including
possible future acquisitions
Proposed Nasdaq Trading Symbol...... WIIN
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(1) Excludes shares of Common Stock issuable upon the exercise of
outstanding options, and shares available for future grants of
options under the Company's 1998 Stock Option Plan. See "Management -- Stock
Option Plan."
RISK FACTORS
Prospective purchasers of the Common Stock should consider carefully all of
the information set forth in this Prospectus and, in particular, should evaluate
the specific factors set forth under the caption "Risk Factors" beginning on
page 7, which provide a discussion of certain risks involved in an investment in
the Common Stock.
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary historical and pro forma financial
and other data for the Company as of the dates and for the periods indicated.
The information set forth below should be read in conjunction with
"Capitalization," "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the historical
and pro forma financial statements of the Company and the historical financial
statements of Condor and the related notes thereto included elsewhere in this
Prospectus.
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FISCAL YEARS ENDED APRIL 30, NINE MONTHS ENDED JANUARY 31,
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PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED
1995 1996 1997 1997(1) 1997 1998 1998(1)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF INCOME DATA:
Revenues............................... $56,554 $63,278 $69,642 $129,984 $51,354 $67,064 $112,625
Gross profit........................... 17,183 20,294 23,367 35,362 17,060 22,655 29,311
Operating income....................... 3,560 3,597 3,609 6,819 2,975 3,825 6,294
Net income............................. $ 1,013 $ 1,847 $ 1,902 $ 4,211 $ 1,602 $ 1,958 $ 3,886
Net income per share................... $ .17 $ .30 $ .29 $ $ .24 $ .29 $
Pro forma net income(2)................ $ 1,679
Pro forma net income per share(2)...... $ .28
OTHER DATA:
Number of field offices at period
end.................................. 20 22 25 34 25 34 34
EBITDA(3).............................. 4,417 4,734 5,326 9,174 4,080 5,444 8,456
Capital expenditures(4)................ 1,054 1,555 2,127 n/a 1,889 891 n/a
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JANUARY 31, 1998
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PRO FORMA
ACTUAL AS ADJUSTED(5)
(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash...................................................... $ 59 $
Working capital........................................... 15,749
Total assets.............................................. 41,219
Total long-term debt, including current maturities........ 19,395
Shareholders' equity...................................... 12,841
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(1) Pro forma information for the year ended April 30, 1997 and the nine months
ended January 31, 1998 gives effect to (i) the Condor Acquisition, (ii) the
Other Acquisitions and (iii) the Offering and the application of the net
proceeds therefrom, including the repayment of shareholder notes, as if
these transactions had occurred on May 1, 1996. See "Unaudited Pro Forma
Condensed Consolidated Financial Statements."
(2) For periods prior to January 1, 1995, Bear Communications was subject to
taxation under Subchapter S of the Internal Revenue Code of 1986, as
amended, for federal income tax purposes. Accordingly, no provision was made
for federal income taxes as the liability for such taxes was the
responsibility of the shareholders of Bear Communications. Pro forma net
income and pro forma net income per share are determined after computing
federal income taxes as if Bear Communications had been directly responsible
for federal income taxes for the periods presented. See Notes 1(h) and 2 to
the Company's Consolidated Financial Statements.
(3) "EBITDA" is earnings before interest, taxes, depreciation and amortization.
EBITDA is not intended to represent cash flow or any other measure of
financial performance in accordance with generally accepted accounting
principles.
(4) Excludes payments for business acquisitions.
(5) Adjusted to give effect to (i) the Condor Acquisition and (ii) the Offering
and the application of the net proceeds therefrom, including the repayment
of shareholder notes, as if these transactions had occurred on January 31,
1998.
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RISK FACTORS
This Prospectus contains forward looking statements. The words
"anticipate," "believe," "expect," "plan," "intend," "estimate," "project,"
"will," "could," "may" and similar expressions are intended to identify forward
looking statements. Such statements reflect the Company's current views with
respect to future events and financial performance and involve risks and
uncertainties, including, without limitation, the risks described in this
section. Should one or more of these risks or uncertainties occur, or should
underlying assumptions prove incorrect, actual results may vary materially and
adversely from those anticipated, believed, expected, planned, intended,
estimated, projected or otherwise indicated. In addition to the other
information contained in this Prospectus, prospective investors should carefully
consider the following risk factors before making an investment in the Common
Stock offered hereby.
NO ASSURANCE OF GROWTH
In recent years, the Company has rapidly expanded its operations, growing
from total revenues of $37.9 million in fiscal 1993 to $69.6 million in fiscal
1997. The Company plans to seek continued growth of its business by increasing
sales in its existing offices and catalog operations, through strategic
acquisitions and by opening new offices. There can be no assurance, however,
that the Company will continue to grow or will be able to successfully implement
any of these growth strategies.
To successfully implement its growth strategies, the Company must
continually evaluate the adequacy of its existing systems and procedures,
including, among others, its data processing, financial and internal control
systems and management structure. There can be no assurance that the Company
will adequately anticipate all of the changing demands that growth will impose
on the Company's systems, procedures and structure. Any failure to adequately
anticipate and respond to such changing demands is likely to have a material
adverse effect on the Company. In addition, the Company anticipates that
acquiring or opening offices will involve a number of possible risks and
challenges, including the diffusion of managements attention, the dependence on
hiring, training and retaining key personnel, and unanticipated problems or
liabilities, some or all of which could have a material adverse effect on the
Company. See "Business -- Growth Strategy."
ACQUISITION RISKS; BUSINESS INTEGRATION RISKS
Since August 1996, the Company has acquired the stock or assets of 12
independent dealers of two-way radios and other wireless communication products,
a majority of the assets of Motorola's Radio Products Group rentals business and
substantially all of the assets of Condor Communications, Inc. The Company
intends to seek continued growth of its business through future strategic
acquisitions. The Company is currently evaluating certain strategic
acquisitions; however, the Company has no binding commitment to acquire any
business or other material assets. There can be no assurance that the Company
will be able to identify future attractive acquisition candidates or complete
the acquisition of any candidates on terms favorable to the Company. Growth
through strategic acquisitions involves numerous risks, including difficulties
in the integration of the operations, systems and personnel, including key
management, of acquired businesses and the diversion of management's attention
from other business concerns. In the event that the Company acquires businesses,
the employees of which are parties to collective bargaining agreements, the
Company would be subject to risks inherent in such arrangements, including
strikes or work stoppages. There can be no assurance that any acquired
businesses, including Condor, can be successfully integrated into the Company's
business. A substantial portion of the Company's capital resources, including a
portion of the proceeds of the Offering, could be used for acquisitions. The
Company may require additional debt or equity financing for future acquisitions,
which additional financing may not be available on terms favorable to the
Company, if at all. See "Business -- Growth Strategy."
DEPENDENCE ON VENDOR
The sale of products by BearCom that were purchased from the Company's
largest vendor, Motorola, Inc. ("Motorola"), constituted approximately 73% of
the Company's equipment revenues during fiscal 1997 and approximately 67% of the
Company's equipment revenues during the nine-month period ended
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January 31, 1998. In addition, BearCom's rental radio inventory consists
primarily of products manufactured by Motorola and a very high percentage of
Condor's equipment revenues were generated by the sale of products purchased
from Motorola. As is customary in the industry, the Company does not have
long-term contracts with any of its vendors, including Motorola. Although the
Company and its suppliers enter into written vendor agreements to effect
purchases, such agreements generally can be canceled by either party at will.
While the Company does have access to similar products from competing vendors,
the inability to obtain products from certain vendors, particularly Motorola,
would have a material adverse effect upon the Company. If Motorola experiences a
business interruption or other business problems, the Company could be
materially adversely affected. There can be no assurance that Motorola will
continue to grant the Company the right to distribute its products in its
current areas of operation or that Motorola will grant the Company the right to
distribute its products in areas served by offices that the Company may acquire
or open in the future. Also, the Company's status as a Motorola dealer in some
or all of its offices could be unilaterally terminated by Motorola. Termination
of the Company's status as a Motorola dealer would have a material adverse
effect on the Company. See "Business -- Growth Strategy" and
"Business -- Products and Services."
Prior to 1987, a very high percentage of two-way radios were distributed
directly by their manufacturers. Since then, Motorola and other manufacturers
have increasingly distributed two-way radios via independent dealers, with the
exception of large accounts. There can be no assurance that this trend will
continue. Manufacturers could change their distribution strategy and begin to
distribute more or all two-way radios themselves or through distribution means
other than independent dealers. Such change would have a material adverse effect
on the Company. See "Business -- Industry Overview."
Motorola offers a cooperative advertising program pursuant to which the
Company is permitted to claim reimbursements for certain expenses of up to a
percentage of the cost of certain inventory purchased, subject to certain
conditions. This program could be canceled, or the benefits available to the
Company thereunder could be significantly reduced, without the consent of the
Company. Any such cancellation or reduction could have a material adverse effect
on the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
INTERNATIONAL OPERATIONS
In August 1995, the Company opened a field office in Sydney, Australia, and
in July 1997 the Company acquired a dealer in Brisbane, Australia. Revenues from
the Australia offices were less than 2% of the Company's net revenues in fiscal
1997 and the nine-month period ended January 31, 1998. Thus, the Company
historically has had limited experience with international operations. In March
1998, the Company completed the acquisition of Condor, which has distribution
sales offices in Caracas, Venezuela and Prague, Czech Republic. On a pro forma
basis, giving effect to the Condor Acquisition and the Other Acquisitions, the
Company's revenues in its 1997 fiscal year and for the nine-month period ended
January 31, 1998 that were derived from sales to customers outside of the United
States, or to other exporters who then sell such products to customers outside
of the United States, were 36.1% and 37.5%, respectively, with approximately
3.2% and 4.8% of the Company's revenues for such periods being derived from
sales to customers in Venezuela. The Company may open field offices in other
international markets or may acquire dealers with international operations. The
Company's success and plans for future growth in international markets will be
dependent on its ability to attract and retain qualified management personnel
for its international operations.
Foreign operations and sales are subject to political and economic risks,
including political instability, currency controls, exchange rate fluctuations,
increased credit risks, foreign tax laws, changes in import/export regulations
and tariff and freight rates. Political and other factors beyond the control of
the Company, including trade disputes among nations or internal instability in
any nation where the Company conducts business, could have a material adverse
effect on the Company. There can be no assurance that the Company will be able
to successfully manage the risks presented by significant international
operations.
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COMPETITION
The two-way radio distribution industry is highly competitive and is
currently comprised of several regional and numerous local dealers. The
principal bases of competition in the industry are price and service. The sale
of two-way radios is a low-margin, high-volume business. Because awareness of
two-way wireless communication products is growing and the cost barriers to
entry into this market are relatively low, the risk of new competitors entering
this market is high. The Company believes that the industry will become more
competitive as the number of competitors increases and as new technologies
emerge. These factors, coupled with the growing industry emphasis on containing
costs, could place significant pressure on the Company to reduce prices, which
could significantly reduce the gross margins realized by the Company on sales of
its products.
In addition, several manufacturers of two-way radio products, including
Motorola, also compete with independent distributors in selling, servicing and
renting two-way wireless communication products. There can be no assurance that
manufacturers of two-way radio products will continue to utilize independent
distributors in the future. In addition, there are several significantly large
global distributors of wireless communication products other than two-way
radios. These companies to date have not entered the two-way radio distribution
market in any significant way, but there can be no assurance that these
companies will not enter this industry in the future. These manufacturers and
distributors are much larger than the Company, and have substantially greater
capital resources, sales experience and distribution capabilities than the
Company. In response to competitive pressure from any of its current or future
competitors, the Company may be required to lower selling prices, which would
lower the Company's gross margins, which could have a material adverse effect on
the Company. See "Business -- Growth Strategy" and "Business -- Competition."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company has experienced material variations in quarterly revenues and
net income as a result of many factors including, among others, customer
relationships, catalog response rates, product blend, the level of selling,
general and administrative expense, weather conditions and the condition of the
wireless communication industry in general. For example, BearCom's net sales and
profits historically have been lower in the three months ended January 31 due to
lower levels of business activity during the winter months. In addition,
quarterly results may be materially affected by the timing of significant rental
activity, the timing of large system sales, seasonality in the ordering patterns
of users of the Company's products, seasonal buying patterns of dealers that
purchase products from Condor, the timing of new enhancements or product
offerings made available by suppliers, economic conditions in the geographical
areas in which the Company operates and the timing and magnitude of acquisitions
and related assimilation costs. Therefore, the operating results for any fiscal
quarter are not necessarily indicative of the results that may be achieved for
any subsequent fiscal quarter or for a full fiscal year. It is likely that the
Company will experience such fluctuations in the future. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON SYSTEMS
The Company's success depends on the accuracy and proper utilization of its
management information systems. The Company's ability to manage its inventory
and accounts receivable collection; to purchase, sell and ship its products
efficiently and on a timely basis; and to maintain a cost efficient operation is
dependent upon the quality and utilization of the information generated by its
management information systems. The Company believes that its management
information system, coupled with planned enhancements, is sufficient to sustain
its present operations and its anticipated growth for the foreseeable future,
although no assurance can be given to that effect. The Company has adopted
procedures to protect its computer system and to provide for recovery in the
event of equipment failure. All system data is backed up to tape daily with
backup tapes stored off-site. Although the Company has not experienced a
significant failure in its computer system to date, there can be no assurance
that the Company will not experience such a failure in the future or that such
failure would not have a material adverse effect on the Company. In addition,
there can be no assurance that the Company's competitors will not develop
software applications similar to the proprietary software
9
<PAGE> 11
developed by the Company or that such development would not have a material
adverse effect on the Company. See "Business -- Management Information System."
The Company is in the process of modifying the software in its management
information system so that all of such software will be Year 2000 compliant.
There can be no assurance that the Company will timely complete such
modifications. Failure of the Company, its vendors or its customers to have in
place Year 2000 compliant systems could have a material adverse effect on the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000 Compliant Information Systems."
TECHNOLOGICAL CHANGE AND INVENTORY OBSOLESCENCE
Management expects that much of the future growth in the wireless
communications industry will be based upon the introduction of new technologies,
such as digital transmission, and new services, such as satellite-based systems,
Personal Communication Services ("PCS") and Enhanced Specialized Mobile Radio
("ESMR"). The scope and technical attributes of many of these new technologies
and services have not been completely determined, and conflicting technologies
may be developed. In addition, technological advances could reduce the need for
continual product purchases by industry customers. To the extent that the
implementation of new technologies and services is delayed, or that new
technologies and services or reductions in airtime charges for new or existing
technologies and services reduce the need for the products offered by the
Company, the Company could be adversely affected. The Company maintains a
significant investment in its product inventory and, therefore, is subject to
the risk of inventory obsolescence. If a material amount of inventory is
rendered obsolete, the Company could be required to write-down the value of such
inventory and take a charge against earnings, which could have a material
adverse effect on the Company. In addition, if the Company is unable for any
reason to take advantage of marketing programs offered by vendors, it could be
materially and adversely affected.
RELIANCE ON MANAGEMENT
The Company's success will depend to a significant extent upon the efforts
and abilities of certain key management personnel. The loss of the services of
the Company's key management personnel could have a material adverse effect on
the Company. The Company's success and plans for future growth will also be
dependent on its ability to attract and retain qualified employees in all areas
of its business. See "Management."
DISTRIBUTION COSTS; RELIABILITY RISKS
Postage and shipping are significant expenses in the operation of the
Company's business. The Company ships its products to customers primarily by
United Parcel Service, as well as other overnight delivery and ground delivery
services, and mails its catalogs through the U.S. Postal Service. Any increases
in postal or shipping rates in the future could have a material adverse effect
on the Company. The cost of paper is also a significant expense of the Company
in printing its catalogs. Historically, paper prices have fluctuated from time
to time. Any future increases in the cost of paper could have a material adverse
effect on the Company.
In August 1997, United Parcel Service experienced a labor strike that
adversely affected the Company both in terms of the service the Company was able
to provide as well as in terms of increased costs. A longer strike in the future
would likely have an even more significant adverse effect on the Company.
STATE SALES AND USE TAX
Various states have sought to impose on direct marketers the burden of
collecting state use taxes on the sale of products shipped to those states'
residents. The United States Supreme Court has ruled that the various states,
absent Congressional legislation, may not impose tax collection obligations on
an out-of-state mail order company whose only contacts with the taxing state are
the distribution of catalogs and other advertisement materials through the mail
and whose subsequent delivery of purchased goods is by U.S. mail or interstate
common carriers. From time to time, legislation has been introduced in Congress
which, if passed, would impose state use tax collection obligations on
out-of-state mail order companies such as the Company.
10
<PAGE> 12
If such legislation were to be enacted, the imposition of a tax collection
obligation on the Company may result in additional administrative expenses to
the Company and price increases to the customer that could adversely affect the
Company. Currently, the Company does not collect sales tax from customers in
states in which the Company does not maintain a sales office.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Upon completion of the Offering, the Company will have outstanding
shares of Common Stock. Of these shares, the shares of
Common Stock sold in the Offering ( shares if the Underwriters'
over-allotment option is exercised in full) will be freely transferable without
restriction under the Securities Act of 1933 (the "Securities Act"), by persons
other than "affiliates" of the Company within the meaning of Rule 144
promulgated under the Securities Act ("Rule 144"). The remaining
shares of Common Stock were issued in reliance on exemptions from the
registration requirements of the Securities Act, and those shares are
"restricted" securities under Rule 144. For purposes of Rule 144, approximately
shares held for more than two years will be eligible for sale immediately
following consummation of the Offering, based on current Securities and Exchange
Commission ("Commission") rules.
The Company has granted registration rights to its existing shareholders.
After the Offering, such shareholders will each have the right to require the
Company, subject to certain limitations, to include shares held by them in one
of the first four registrations of Common Stock by the Company. All shareholders
holding registration rights have waived their rights to participate as selling
shareholders in the Offering, except the Selling Shareholders in this Offering.
See "Principal and Selling Shareholders."
Each of the Company, its officers and directors, and certain other
shareholders of the Company, including the Selling Shareholders, has agreed that
it will not (i) offer, pledge, sell, solicit an offer to buy, contract to sell,
grant any option, right or warrant to purchase, or otherwise transfer or dispose
of, directly or indirectly, or file with the Commission a registration statement
under the Securities Act relating to, any shares of Common Stock, or any
securities that are convertible into or exercisable or exchangeable for Common
Stock or (ii) enter into any swap or other arrangement that transfers all or a
portion of the economic consequences associated with ownership of any Common
Stock, for a period of 180 days after the date of this Prospectus without the
prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"), except pursuant to certain limited exceptions. See "Shares Eligible for
Future Sale" and "Underwriting."
Future sales of substantial amounts of Common Stock, or the perception that
such sales could occur, may affect the market price of the Common Stock
prevailing from time to time.
NO PRIOR PUBLIC MARKET; OFFER PRICE; STOCK PRICE VOLATILITY
Prior to this Offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that following this Offering an
active trading market will develop or be maintained. The initial public offering
price will be determined by negotiations between the Company and the
representatives of the Underwriters and may not be indicative of prices that
will prevail in the trading market following this Offering. For a description of
the factors considered in determining the initial public offering price, see
"Underwriting." After the Offering, the market price of the Common Stock may be
influenced by many factors including, among others, the operating results of the
Company, investors' perceptions of the Company and its prospects, and general
economic and market conditions. In addition, the stock market has historically
experienced volatility which has particularly affected the market prices of
securities of many technology-related companies and which sometimes has been
unrelated to the operating performances of such companies. Furthermore, any
adverse changes in the market price of the common stock of other wireless
communication distribution or related companies or announcements of
technological developments may adversely affect the market price of the
Company's Common Stock, irrespective of whether there has been any deterioration
of the Company's business or financial results.
11
<PAGE> 13
CONTROL BY EXISTING SHAREHOLDERS
Upon completion of this offering, the Company's officers and directors will
beneficially own approximately % of the outstanding Common Stock. As a
result, these shareholders, acting together, may be able to control the outcome
of certain actions requiring shareholder approval, such as election of
directors, amendments to the Company's charter and mergers or other changes in
control. See "Principal and Selling Shareholders."
ANTI-TAKEOVER PROVISIONS
The Texas Business Corporation Act and the Company's Articles of
Incorporation and Bylaws contain various provisions, including, without
limitation, certain provisions authorizing the Company to issue preferred stock
and dividing the Company's Board of Directors into three classes serving
staggered three-year terms, that may make it more difficult for a third party to
acquire, or may discourage acquisition bids for, the Company and could limit the
price that certain investors might be willing to pay in the future for shares of
the Company's Common Stock. The ownership after this Offering by the Company's
officers, directors and their affiliates of substantial shares of Common Stock
could also discourage such bids. In addition, the rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights of
any holders of preferred stock that may be issued in the future and that may be
senior to the rights of the holders of Common Stock. The issuance of preferred
stock may have the effect of delaying, deterring or preventing a change in
control of the Company. See "Description of Capital Stock."
POSSIBLE HEALTH RISKS
Recently, lawsuits have been filed alleging a link between the non-thermal
electromagnetic field emitted by cellular telephones and two-way radios and the
development of cancer. To date, there have been relatively few medical studies
relating to the effects of non-thermal electromagnetic fields on health, and
there are not any widely accepted theories regarding how exposure to a
non-thermal electromagnetic field could threaten health. Future medical studies
may produce findings that could have a material adverse effect upon the wireless
communications industry and the Company.
GOVERNMENT REGULATION
From time to time, the Federal Communications Commission ("FCC") amends its
regulations governing the licensing or sale of the communication equipment
distributed by the Company, the frequencies that such equipment uses, and the
requirements for operating such equipment. The FCC has from time to time
submitted proposals relating to licensing, use and regulation of frequency bands
that could affect operation on certain of the frequency bands where equipment
marketed by the Company operates. It is uncertain what impact, if any, these or
future proposals may have on the Company's operations.
DILUTION; NO EXPECTATION OF DIVIDENDS
This Offering will result in an immediate and substantial dilution to
purchasers of the Common Stock offered hereby because the net tangible book
value per share of the Common Stock after this Offering will be substantially
less than the initial public offering price per share. See "Dilution." For the
foreseeable future, it is anticipated that any earnings will be retained for
operations and expansion of the Company's business and that cash dividends will
not be paid to holders of the Common Stock. See "Prior S Corporation Status and
Dividend Policy."
12
<PAGE> 14
THE COMPANY
In December 1995, the Company (then named Page-Com, Inc.) consummated the
Merger with Bear Communications. Bear Communications was a leading independent
distributor of wireless communication products in the United States through the
field office channel and Page-Com was a leading independent distributor of
wireless communication products in the United States through catalog operations.
The Merger was accounted for as a pooling of interests. From August 1996 through
February 1998, the Company acquired the operations of 12 independent dealers of
wireless communication products and a majority of the assets of Motorola's Radio
Products Group rentals business. All such acquisitions were accounted for as
purchases for financial reporting purposes.
On March 31, 1998, the Company completed the Condor Acquisition. Condor
reported revenues of $51.3 million during its fiscal year ended December 31,
1997. The Condor Acquisition was accounted for using the purchase method of
accounting. Based in Miami, Florida, Condor is a leading exporter of two-way
radio communication equipment and communication systems primarily to Latin
America, Eastern Europe, Africa and the Middle East. In addition to its Miami
office, Condor operates a distribution sales office in Prague, Czech Republic.
Condor owns a fifty percent interest in an entity that operates a distribution
sales office in Caracas, Venezuela. Condor exports primarily Motorola two-way
radio products. Virtually all of Condor's sales are denominated in U.S. dollars.
The Condor Acquisition provides the Company an operational platform from which
it can expand its international operations. The Company's strategy is to expand
its international operations by establishing additional sales offices within
licensed regions and offering additional products and services within those
regions.
The Company's principal executive offices are located at 11545 Pagemill
Road, Dallas, Texas 75243 and its telephone number is (214) 340-8876.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the shares
of Common Stock offered by the Company hereby (after deducting underwriting
discounts and commissions and estimated offering expenses) are estimated to be
approximately $ , assuming an initial public offering price of $ . A
portion of the net proceeds will be used to repay all of the Company's
borrowings under its $25 million revolving line of credit and its $5 million
term note (the "Senior Bank Facility"), approximately $23.6 million at March 31,
1998. The Company is required to repay the amount of all principal outstanding
under the term note, approximately $4.6 million at March 31, 1998, in equal
monthly installments through November 5, 2001. The Company may re-borrow funds
under the revolving line of credit from time to time. All outstanding amounts
under the revolving line of credit are due and payable on November 5, 1999. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." The revolving line of credit and
the term note each bear interest at a floating rate (6.86% and 6.98%,
respectively, at March 31, 1998). The balance of the net proceeds will be used
for general corporate purposes, including working capital, and would be
available to finance, among other things, potential strategic acquisitions and
upgrades to the Company's management information systems. The Company is
currently evaluating certain strategic acquisitions; however, the Company has no
binding commitment to acquire any business or other material assets. Pending
such uses, the net proceeds of the Offering will be invested in short-term,
interest-bearing securities. Other than as a result of the anticipated repayment
to the Company of a promissory note from a Selling Shareholder with the proceeds
from shares of Common Stock to be sold by him in the Offering, the Company will
not receive any proceeds from the sale of shares by the Selling Shareholders.
See "Management -- Certain Transactions."
13
<PAGE> 15
PRIOR S CORPORATION STATUS AND DIVIDEND POLICY
For all taxable periods prior to January 1, 1995, Bear Communications was a
corporation subject to taxation under Subchapter S of the Internal Revenue Code
of 1986, as amended (the "Code"). On January 1, 1995, Bear Communications
terminated its "S" corporation status. In connection with this termination, Bear
Communications made distributions aggregating approximately $423,000 to its
shareholders. Other than these distributions, the Company has not paid dividends
on its Common Stock during the last two fiscal years. The Company expects that
in the foreseeable future it will retain all available earnings, if any, for the
development and growth of its businesses and does not anticipate paying any cash
dividends on the Common Stock. The Senior Bank Facility prohibits paying
dividends while any amounts are outstanding thereunder. Subject to this
restriction, the payment of cash dividends in the future will be at the
discretion of the Board of Directors and will depend upon such factors as the
Company's future earnings, capital requirements, financial condition and
business prospects and other factors the Board of Directors deems relevant.
14
<PAGE> 16
DILUTION
At January 31, 1998, the net tangible book value of the Company was
approximately $5.2 million or $0.77 per share of Common Stock. Net tangible book
value per share is determined by dividing the tangible net worth of the Company
(total tangible assets less total liabilities) by the number of shares of Common
Stock outstanding. After giving effect to the sale by the Company of the shares
of Common Stock offered hereby at an assumed initial public offering price of
$ per share and the deduction of the estimated underwriting discounts
and commissions and Offering expenses payable by the Company in connection
therewith, but without taking into account any other changes in such net
tangible book value, the net tangible book value of the Company at January 31,
1998 would have been approximately $ million or $ per share. This
represents an immediate increase in net tangible book value of $ per
share to existing shareholders and an immediate dilution in net tangible book
value of $ per share to purchasers of shares in this Offering. The
following table illustrates this dilution:
<TABLE>
<S> <C>
Initial public offering price per share..................... $
Net tangible book value per share before this Offering.... $ 0.77
Increase per share attributable to new shareholders.......
-------
Pro forma net tangible book value per share after this
Offering..................................................
--------
Dilution per share to new shareholders...................... $
========
</TABLE>
The following table sets forth the difference between the existing
shareholders and the purchasers of shares in this Offering with respect to the
number of shares purchased from the Company, the total cash consideration paid
to the Company for such shares and the average price per share paid.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)...................... 6,669,517 % $ % $
New investors................................. % %
------- ------ ------- ------
Total............................... 100.0% $ 100.0%
======= ====== ======= ======
</TABLE>
- ------------------------------
(1) Sales by the Selling Shareholders in this Offering will reduce the number of
shares held by existing shareholders of the Company to , or %
of the total number of shares outstanding after this Offering, and will
increase the number of shares held by new investors to shares, or
% of the total number of shares outstanding after this Offering. See
"Principal and Selling Shareholders."
The computations in the table set forth above assume no exercise of
outstanding stock options. On the date of this Prospectus, there were
outstanding options to purchase shares of Common Stock at the Offering
price.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the cash position and the capitalization of
the Company as of January 31, 1998, and as adjusted to give effect to (i) the
Condor Acquisition and (ii) the Offering (assuming an initial public offering
price of $ per share) and the application of the net proceeds
therefrom, including the repayment of certain notes payable to the Company, as
if those transactions had occurred on January 31, 1998. See "Use of Proceeds"
and "Management -- Certain Transactions." This table should be read in
conjunction with the historical and pro forma financial statements of the
Company and related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JANUARY 31, 1998
------------------------
PRO FORMA
ACTUAL AS ADJUSTED(L)
(IN THOUSANDS)
<S> <C> <C>
Cash........................................................ $ 59 $
======= =======
Long-term debt(2):
Borrowings under Senior Bank Facility..................... 19,003
Capital lease obligations................................. 120
Other..................................................... 272
------- -------
Total long-term debt.............................. 19,395
------- -------
Shareholders' equity:
Preferred Stock, $0.01 par value; 1,000,000 shares
authorized and no shares issued and outstanding........ -- --
Common Stock, $0.01 par value; shares
authorized, shares issued and outstanding;
shares issued and outstanding as adjusted(3)........... 67
Additional paid-in capital................................ 3,757
Cumulative translation adjustment......................... (9)
Note receivable from shareholder(4)....................... (933)
Retained earnings......................................... 9,959
-------
Total shareholders' equity........................ 12,841
------- -------
Total capitalization.............................. $32,236 $
======= =======
</TABLE>
- ---------------
(1) On March 31, 1998, the Company borrowed an additional $7 million under the
Senior Bank Facility to fund the Condor Acquisition. Such borrowings will be
repaid with the net proceeds of the Offering.
(2) Includes current maturities of long-term debt.
(3) Excludes shares of Common Stock issuable upon the exercise of
outstanding options and shares available for future grants of options
under the Company's 1998 Stock Option Plan.
(4) See "Management -- Certain Transactions."
16
<PAGE> 18
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated financial statements are
included in order to illustrate the effect on the Company's financial statements
of the transactions described below.
The unaudited pro forma condensed consolidated balance sheet at January 31,
1998 gives effect to (i) the Condor Acquisition (based on the audited balance
sheet of Condor as of December 31, 1997) and (ii) the Offering and the
application of the net proceeds therefrom (and related repayment of shareholder
notes) as if these transactions had occurred on January 31, 1998. All
acquisitions by the Company, other than the Condor Acquisition, were completed
by January 31, 1998 and are reflected in the unaudited pro forma condensed
consolidated balance sheet at January 31, 1998.
The unaudited pro forma condensed consolidated statements of income for the
year ended April 30, 1997 and the nine months ended January 31, 1998 give effect
to (i) the Condor Acquisition and Other Acquisitions and (ii) the Offering and
the application of the net proceeds therefrom (and repayment of shareholder
notes) as if these transactions had occurred on May 1, 1996. As used herein,
"Other Acquisitions" reflects the activity for the period from May 1, 1996 to
the respective closing dates of the acquisitions of seven acquired businesses.
Activity of the remaining five acquisitions are not included due to the
immateriality of four of the acquired businesses and the impracticability of
obtaining information relating to the acquisition of a majority of the assets of
Motorola's Radio Products Group rentals business. The unaudited pro forma
condensed consolidated income statement for the year ended April 30, 1997
includes the results of Condor for the twelve-month period ended March 31, 1997.
The unaudited pro forma condensed consolidated income statement for the nine
months ended January 31, 1998 includes the results of Condor for the nine-month
period ended December 31, 1997.
The unaudited pro forma adjustments are based upon available information
and certain assumptions that the Company believes are reasonable, and in the
opinion of management, include all adjustments necessary to present fairly the
pro forma financial information. The pro forma financial statements and
accompanying notes should be read in conjunction with the historical
consolidated financial statements of the Company and Condor, and other financial
information pertaining to the Company, including the information set forth under
the captions "The Company," "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
herein. The unaudited pro forma condensed consolidated statements of income are
not indicative of either future results of operations or the results that might
have occurred if the foregoing transactions had been consummated on the
indicated dates.
17
<PAGE> 19
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JANUARY 31, 1998
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL
------------------------------
WIRELESS CONDOR PRO FORMA ADJUSTMENTS PRO FORMA
INTERNATIONAL ACQUISITION(1) ADJUSTMENTS PRO FORMA FOR OFFERING AS ADJUSTED
<S> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash............................ $ 59 $ 90 $ -- $ 149 $ (c) $
Receivables..................... 13,990 5,268 -- 19,258
Inventory....................... 10,283 2,186 -- 12,469
Prepaid expenses and other...... 1,645 315 -- 1,960
------- ------- -------- ------- ----- -----
Total current assets...... 25,977 7,859 -- 33,836
Notes and interest receivable from
employee........................ 875 -- -- 875 (d)
Fixed assets, net................. 6,396 960 -- 7,356
Costs in excess of tangible net
assets acquired, net............ 7,681 -- 1,080(a) 8,761
Other assets...................... 290 236 -- 526
------- ------- -------- ------- ----- -----
$41,219 $ 9,055 $ 1,080 $51,354 $ $
======= ======= ======== ======= ===== =====
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................ $ 4,535 $ 2,546 $ -- $ 7,081 $ $
Accrued expenses................ 2,963 -- 200(a) 3,163
Revolving line of credit........ -- 285 (285)(b) --
Current maturities of long-term
debt.......................... 1,357 -- -- 1,357
Current maturities of
obligations under capital
leases........................ 71 17 -- 88
Federal income taxes payable.... 1,243 -- -- 1,243
Deferred income taxes........... 58 -- -- 58
------- ------- -------- ------- ----- -----
10,227 2,848 (85) 12,990
Long-term debt, less current
maturities...................... 17,918 -- 7,285(b) 25,203 (c)
Obligations under capital leases,
less current maturities......... 49 87 -- 136
Deferred income taxes............. 184 -- -- 184
Shareholders' equity:
Preferred stock................. -- -- -- --
Common stock.................... 67 10 (10)(a) 67
Additional paid-in capital...... 3,757 329 (329)(a) 3,757
Cumulative currency translation
adjustment.................... (9) -- -- (9)
Note receivable from
shareholder................... (933) -- -- (933) (d)
Retained earnings............... 9,959 5,781 (5,781)(a) 9,959
------- ------- -------- ------- ----- -----
Total shareholders'
equity.................. 12,841 6,120 (6,120) 12,841
------- ------- -------- ------- ----- -----
$41,219 $ 9,055 $ 1,080 $51,354 $ $
======= ======= ======== ======= ===== =====
</TABLE>
- ------------------------------
(1) Reflects the audited balance sheet of Condor at December 31, 1997.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(a) Represents adjustments to allocate the purchase price for the Condor
Acquisition to tangible assets, accrue transaction costs with respect to
that acquisition and eliminate Condor's equity. The purchase price
allocation is based on management's preliminary estimates, which are subject
to adjustments, and does not include the effect of additional consideration
that Condor could be obligated to pay pursuant to an earn-out arrangement
entered into in connection with the Condor Acquisition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation."
The acquisition will be accounted for using the purchase method of
accounting.
(b) Represents borrowings used to complete the Condor Acquisition and retirement
of amounts outstanding under Condor's revolving line of credit.
(c) Represents anticipated proceeds from sale of shares of Common Stock in the
Offering and use of those proceeds to repay borrowings outstanding under the
Senior Bank Facility.
(d) Reflects the repayment of shareholder notes with proceeds from the sale of
shares of Common Stock in the Offering.
18
<PAGE> 20
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED APRIL 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------
WIRELESS CONDOR OTHER PRO FORMA ADJUSTMENTS PRO FORMA
INTERNATIONAL(1) ACQUISITION(2) ACQUISITIONS(1) ADJUSTMENTS PRO FORMA FOR OFFERING AS ADJUSTED
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $69,642 $44,705 $15,637 $ -- $129,984 $ $129,984
Cost of revenues..... 46,275 38,723 9,624 -- 94,622 94,622
------- ------- ------- ------- -------- ------- --------
Gross profit......... 23,367 5,982 6,013 -- 35,362 -- 35,362
Operating
expenses........... 19,758 3,842 4,579 214(a) 28,543 28,543
150(c)
------- ------- ------- ------- -------- ------- --------
Operating
income............. 3,609 2,140 1,434 (364) 6,819 -- 6,819
Interest expense..... 595 4 239 1,085(b) 1,923 (1,883)(f) 40
Other, net........... (73) (72) (46) -- (191) 97(g) (94)
------- ------- ------- ------- -------- ------- --------
Income before income
taxes.............. $ 3,087 $ 2,208 $ 1,241 (1,449) 5,087 1,786 6,873
Income taxes......... 1,185 -- 31 (565)(d) 1,965 697(d) 2,662
1,314(e)
------- ------- ------- ------- -------- ------- --------
Net income........... $ 1,902 $ 2,208 $ 1,210 $(2,198) $ 3,122 $ 1,089 $ 4,211
======= ======= ======= ======= ======== ======= ========
Earnings per share:
Basic.............. $ .29 $ .47
Diluted............ .29 .47
</TABLE>
- ------------------------------
(1) Represents the historical operating results of the Company and seven
businesses acquired from May 1, 1996 through the earlier of the respective
dates of acquisition or April 30, 1997.
(2) Represents the historical operating results of Condor for the year ended
March 31, 1997.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME
(a) Adjustments to amortization expense relating to goodwill of $6,834
resulting from purchase accounting.
(b) Increase in interest expense related to borrowings used and notes issued in
the aggregate amount of $14,492 to complete the Condor Acquisition and the
Other Acquisitions.
(c) Increase in salary expense of Condor president in connection with
employment contract entered into simultaneous to the closing of the Condor
Acquisition.
(d) Income tax expense on pro forma adjustments calculated using a combined
federal and state statutory rate of 39%.
(e) Pro forma tax effect of the historical results for the Condor Acquisition
and Other Acquisitions, based on a combined federal and state statutory tax
rate of 39%.
(f) Reduction of interest expense resulting from repayment of all borrowings
outstanding, except for amounts related to capital leases and vehicle
loans, using the proceeds from sale of shares of Common Stock in the
Offering.
(g) Reduction of interest income resulting from repayment of $1,386 principal
amount of shareholder notes with the proceeds from the sale of shares of
Common Stock in the Offering.
19
<PAGE> 21
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
NINE MONTHS ENDED JANUARY 31, 1998
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------
WIRELESS CONDOR OTHER PRO FORMA ADJUSTMENTS PRO FORMA
INTERNATIONAL(1) ACQUISITION(2) ACQUISITIONS(1) ADJUSTMENTS PRO FORMA FOR OFFERING AS ADJUSTED
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............... $67,064 $41,178 $4,383 $ $112,625 $ $112,625
Cost of revenues....... 44,409 36,231 2,674 83,314 83,314
------- ------- ------ ------- -------- ------- --------
Gross profit........... 22,655 4,947 1,709 -- 29,311 -- 29,311
Operating expenses..... 18,830 2,857 1,156 61(a) 23,017 23,017
113(c)
------- ------- ------ ------- -------- ------- --------
Operating income....... 3,825 2,090 553 (174) 6,294 -- 6,294
Interest expense....... 847 28 134 529(b) 1,538 (1,471)(f) 67
Other, net............. (95) 15 -- (80) 73(g) (7)
------- ------- ------ ------- -------- ------- --------
Income before income
taxes................ $ 3,073 $ 2,047 419 (703) 4,836 1,398 6,234
Income taxes........... 1,115 -- (11) (274)(d) 1,803 545(d) 2,348
973(e)
------- ------- ------ ------- -------- ------- --------
Net income............. $ 1,958 $ 2,047 $ 430 $(1,402) $ 3,033 $ 853 $ 3,886
======= ======= ====== ======= ======== ======= ========
Earnings per share:
Basic................ $ .29 $ .45
Diluted.............. $ .29 $ .45
</TABLE>
- ------------------------------
(1) Represents the historical results of the Company and seven businesses
acquired from May 1, 1997 through the earlier of the respective dates of
acquisition or January 31, 1998.
(2) Represents the historical operating results of Condor for the nine months
ended December 31, 1997.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME
(a) Adjustments to amortization expense relating to goodwill of $5,614
resulting from purchase accounting.
(b) Increase in interest expense related to borrowings of $13,117 used to
complete the Condor Acquisition and the Other Acquisitions.
(c) Increase in salary expense of Condor president in connection with
employment contract entered into simultaneous to the closing of the Condor
Acquisition.
(d) Income tax expense on pro forma adjustments calculated using a combined
federal and state statutory rate of 39%.
(e) Pro forma tax effect of the historical results for the Condor Acquisition
and Other Acquisitions, based on a combined federal and state statutory tax
rate of 39%.
(f) Reduction of interest expense resulting from repayment of all borrowings
outstanding, except for amounts related to capital leases and vehicle
loans, using the proceeds from sale of shares of Common Stock in the
Offering.
(g) Reduction of interest income resulting from repayment of $1,386 principal
amount of shareholder notes with the proceeds from the sale of shares of
Common Stock in the Offering.
20
<PAGE> 22
SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Company as
of the dates and for the periods indicated. The statement of income and balance
sheet data for each of the five years ended April 30, 1997 and the nine months
ended January 31, 1998 are derived from the audited financial statements of the
Company. The selected statement of income data for the nine months ended January
31, 1997 and the selected balance sheet data at January 31, 1997 are derived
from unaudited financial information of the Company which, in the opinion of
management, includes all adjustments necessary for a fair presentation of
financial information. The results of operations for the nine months ended
January 31, 1998 are not necessarily indicative of results of operations for the
entire fiscal year. The information below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FISCAL YEARS ENDED APRIL 30, JANUARY 31,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues....................................... $37,852 $49,285 $56,554 $63,278 $69,642 $51,354 $67,064
Cost of revenues............................... 25,483 35,648 39,371 42,984 46,275 34,294 44,409
------- ------- ------- ------- ------- ------- -------
Gross profit................................... 12,369 13,637 17,183 20,294 23,367 17,060 22,655
Operating expenses............................. 10,102 12,498 13,623 16,697 19,758 14,085 18,830
------- ------- ------- ------- ------- ------- -------
Operating income............................... 2,267 1,139 3,560 3,597 3,609 2,975 3,825
Interest expense............................... 440 386 519 544 595 432 847
Other net...................................... (10) (1) 302 33 (73) (57) (95)
------- ------- ------- ------- ------- ------- -------
Income before income taxes..................... 1,837 754 2,739 3,020 3,087 2,600 3,073
Income taxes................................... 328 320 1,726 1,173 1,185 998 1,115
------- ------- ------- ------- ------- ------- -------
Net income..................................... $ 1,509 $ 434 $ 1,013 $ 1,847 $ 1,902 $ 1,602 $ 1,958
======= ======= ======= ======= ======= ======= =======
Net income per share........................... $ .25 $ .07 $ .17 $ .30 $ .29 $ .24 $ .29
======= ======= ======= ======= ======= ======= =======
Pro forma net income(1)........................ $ 1,138 $ 515 $ 1,679
======= ======= =======
Pro forma net income per share(1).............. $ .19 $ .09 $ .28
======= ======= =======
OTHER DATA:
Number of field offices at period end.......... 12 16 20 22 25 25 34
EBITDA(2)...................................... 3,013 1,846 4,417 4,734 5,326 4,080 5,444
Capital expenditures(3)........................ 1,163 1,919 1,054 1,555 2,127 1,889 891
BALANCE SHEET DATA (AT PERIOD END):
Working capital................................ $ 3,215 $ 2,088 $ 3,069 $ 4,326 $13,225 $13,622 $15,749
Total assets................................... 15,326 18,840 19,726 20,047 26,445 28,329 41,219
Total long-term debt, including current
maturities................................... 6,229 7,801 7,042 5,888 9,687 9,311 19,395
Shareholders' equity........................... 6,118 6,552 7,565 9,005 10,888 10,631 12,841
</TABLE>
- ------------------------------
(1) For periods prior to January 1, 1995, Bear Communications was subject to
taxation under Subchapter S of the Code for federal income tax purposes.
Accordingly, no provision was made for federal income taxes as the liability
for such taxes was the responsibility of the shareholders of Bear
Communications. Pro forma net income and pro forma net income per share are
determined after computing federal income taxes as if Bear Communications
had been directly responsible for federal income taxes for the periods
presented. See Notes 1(h) and 2 to the Company's Consolidated Financial
Statements. Pro forma net income was greater than net income for the year
ended April 30, 1994 as a result of a pro forma tax benefit of $86 related
to losses incurred by Bear Communications.
(2) "EBITDA" is earnings before interest, taxes, depreciation and amortization.
EBITDA is not intended to represent cash flow or any other measure of
financial performance in accordance with generally accepted accounting
principles.
(3) Excludes payments for business acquisitions.
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following provides an analysis of the Company's financial condition and
results of operations, and should be read in conjunction with "Selected
Financial Data" and the Consolidated Financial Statements and the notes thereto
included elsewhere in this Prospectus. Except for the historical information
contained herein, the discussion in this Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual
performance or results could differ materially from those discussed herein.
Factors that could contribute to such differences include those discussed below
and in the section entitled "Risk Factors," as well as those discussed elsewhere
in this Prospectus.
OVERVIEW
The Company is principally engaged in the business of selling, renting and
servicing site-based two-way communication equipment and accessories. In
December 1995, the Company (then named Page-Com, Inc.) consummated the Merger
with Bear Communications. Prior to the Merger, the Company believes that Bear
Communications was the largest independent distributor of two-way radios in the
United States through the field office channel and Page-Com was the largest
independent distributor of two-way radios in the United States through the
catalog marketing channel. As a result of the Merger, which was accounted for as
a pooling of interests, the Company's Consolidated Financial Statements have
been restated to include the accounts and operations of Page-Com and Bear
Communications for all periods presented. From August 1996 through February
1998, the Company acquired the operations of 12 independent dealers of wireless
communication products and a majority of the assets of Motorola's Radio Products
Group rentals business. On March 31, 1998, the Company consummated the Condor
Acquisition. All such acquisitions were accounted for as purchases for financial
reporting purposes. Accordingly, the results of operations of such acquired
businesses are included in the Company's results of operations from the dates of
acquisition.
The Company's acquisitions have enabled it to enter new domestic and
international markets and increase penetration of existing markets, resulting in
significant sales growth since commencing its acquisition program in August
1996. Acquisitions generally have been financed through the use of the Senior
Bank Facility. During the initial integration phase following an acquisition,
the Company typically has incurred integration-related operating expenses for
training personnel, for the conversion of information systems and other
transition-related costs. Depending on the size and location of an acquired
business, integration costs have been incurred primarily during the first six
months following an acquisition.
The Company's revenues are derived from sales to end-users in a wide
variety of industries, other wireless communication dealers and rental
customers. For the fiscal years ended April 30, 1996 and 1997 and the nine
months ended January 31, 1998, revenues derived from sales to other wholesale
wireless communication dealers accounted for less than 10% of the Company's
revenues. However, as a result of the Condor Acquisition, the Company expects
that revenues from sales to other wholesale wireless communication dealers will
account for a significantly higher percentage of the Company's revenues for
periods subsequent to such acquisition. Additionally, for the last two fiscal
years, no single customer accounted for more than 5% of the Company's revenues.
From May 1, 1996 through January 31, 1998, 81% of the Company's revenues
was derived from the sale of equipment, while 12% was attributable to rental
revenues, 5% to repair revenues and 2% to other revenues. Other revenues
includes revenues from sales of paging services and Nextel activation fees.
Gross profit margins related to rental and repair revenues historically have
been significantly higher than that of revenues derived from the sale of
equipment and accessories.
22
<PAGE> 24
RESULTS OF OPERATIONS
The following table sets forth the statement of income data of the Company
expressed in dollars and as a percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30, NINE MONTHS ENDED JANUARY 31,
--------------------------------------------------- ---------------------------------
1995 1996 1997 1997 1998
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Equipment................... $48,686 86.1% $54,131 85.5% $57,864 83.1% $42,621 83.0% $52,672 78.5%
Rental...................... 5,743 10.2 6,375 10.1 8,511 12.2 6,433 12.5 8,400 12.5
Repair...................... 1,584 2.8 2,072 3.3 2,474 3.6 1,648 3.2 4,062 6.1
Other....................... 541 0.9 700 1.1 793 1.1 652 1.3 1,930 2.9
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total revenues........ 56,554 100.0 63,278 100.0 69,642 100.0 51,354 100.0 67,064 100.0
Cost of revenues.............. 39,371 69.6 42,984 67.9 46,275 66.4 34,294 66.8 44,409 66.2
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Gross profit.................. 17,183 30.4 20,294 32.1 23,367 33.6 17,060 33.2 22,655 33.8
Operating expenses............ 13,623 24.1 16,697 26.4 19,758 28.4 14,085 27.4 18,830 28.1
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Operating income.............. 3,560 6.3 3,597 5.7 3,609 5.2 2,975 5.8 3,825 5.7
Interest expense.............. 519 0.9 544 0.8 595 0.9 432 0.8 847 1.3
Other, net.................... 302 0.5 33 0.1 (73) (0.1) (57) (0.1) (95) (0.2)
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income before income taxes.... 2,739 4.9 3,020 4.8 3,087 4.4 2,600 5.1 3,073 4.6
Income taxes.................. 1,726 3.1 1,173 1.9 1,185 1.7 998 2.0 1,115 1.7
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Net income.................... 1,013 1.8 1,847 2.9 1,902 2.7 1,602 3.1 1,958 2.9
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Pro forma net income.......... $ 1,679 3.0%
======= =====
</TABLE>
NINE MONTHS ENDED JANUARY 31, 1998 COMPARED TO NINE MONTHS ENDED JANUARY 31,
1997
Revenues. Revenues increased $15.7 million, or 30.6%, to $67.1 million for
the nine months ended January 31, 1999 compared to $51.4 million for the nine
months ended January 31, 1997. Of the overall revenue increase, approximately
$10.4 million was related to revenues included from ten businesses acquired
subsequent to January 31, 1997. The remaining $5.3 million increase related to
internal revenue growth from the Company's sales offices existing as of January
31, 1997 and catalog operations. Overall, revenues were not impacted by any
significant price changes. Increases by revenue components were as follows:
equipment revenues increased $10.1 million, or 23.6%; rental revenues increased
$2.0 million, or 30.6%; repair revenues increased $2.4 million; and other
revenues increased $1.3 million. Excluding approximately $800,000 of rental
revenue generated from the 1996 Summer Olympic Games, rental revenues increased
$2.8 million, or 49.1%, during the nine months ended January 31, 1998. This
increase was primarily related to the Company's acquisition of a majority of the
assets of Motorola's Radio Products Group rentals business in June 1997 as well
as rental revenues attributable to other acquired businesses. Of the $2.4
million increase in repair revenues, approximately $1.4 million is attributable
to acquired businesses with the remaining $1.0 million increase attributable to
existing repair services. Additionally, the increase in other revenues is
attributable to increased activation income earned from the sale of Nextel
equipment.
Gross profit. Gross profit increased $5.6 million, or 32.8%, to $22.7
million for the nine months ended January 31, 1998 compared to $17.1 million for
the nine months ended January 31, 1997. Of the overall gross profit increase,
$3.6 million was attributable to acquired businesses. Gross profit margin
increased from 33.2% for the nine months ended January 31, 1997 to 33.8% for the
nine months ended January 31, 1998, primarily as a result of a higher percentage
of revenues being derived from repair and other revenues. The increase in gross
profit margin was partially offset by a decrease in gross profit margins related
to revenues derived from equipment sales, primarily due to the elimination
during 1997 of a special rebate program from a manufacturer.
Operating expenses. Operating expenses increased by $4.7 million, or 33.7%,
to $18.8 million for the nine months ended January 31, 1998 compared to $14.1
million for the nine months ended January 31, 1997. As a percentage of revenues,
operating expenses were 28.1% and 27.4% for the nine months ended January 31,
1998 and 1997, respectively. Of the increase in operating expenses,
approximately $3.0 million was attributable to
23
<PAGE> 25
acquired businesses. Other increases related to administrative costs to
facilitate the Company's growth, as well as printing and postage costs
associated with an increase in the number of catalogs mailed during the nine
months ended January 31, 1998 compared to the same period in 1997.
Interest expense. For the nine months ended January 31, 1998, interest
expense increased $415,000 to $847,000, from $432,000 for the nine months ended
January 31, 1997. The increase was primarily attributable to increased
borrowings to finance the Company's acquisition activity during the year. The
increase was offset in part by lower interest rates as a result of the Company
amending its revolving credit facility at November 1, 1996.
Other, net. For the nine months ended January 31, 1998, other, net remained
relatively constant compared to the nine months ended January 31, 1997.
Income tax expense. The effective income tax rate for the nine months ended
January 31, 1998 was 36.3%, compared to 38.4% for the nine months ended January
31, 1997. The Company's effective income tax rate differs from the statutory
rate primarily as a result of provisions made for state income taxes.
YEAR ENDED APRIL 30, 1997 COMPARED TO YEAR ENDED APRIL 30, 1996
Revenues. Revenues increased $6.3 million, or 10.0%, to $69.6 million for
the year ended April 30, 1997 compared to $63.3 million for the year ended April
30, 1996. Of the overall revenue increase, approximately $2.6 million was
related to revenues included from three businesses acquired subsequent to April
30, 1996. The remaining $3.7 million increase related to internal revenue growth
from the Company's existing sales offices and catalog operations. Overall,
revenues were not impacted by any significant price changes. Increases by
revenue components were as follows: equipment revenues increased $3.7 million,
or 6.9%; rental revenues increased $2.1 million, or 33.5%; repair revenues
increased $402,000, or 19.4%; and other revenues increased $93,000, or 13.3%.
During September 1995, the Company discontinued selling to a customer that
accounted for approximately $2.1 million of its equipment revenues for the year
ended April 30, 1996. That customer was a chain of discount warehouse clubs that
ceased selling two-way radios and instead allowed a third party to sell two-way
radios in kiosks located in those warehouse clubs. Excluding this revenue,
overall revenues and equipment revenues for the year ended April 30, 1997 would
have increased 13.9% and 11.3%, respectively. Additionally, excluding
approximately $0.8 million of rental revenues generated from the 1996 Summer
Olympic Games, rental revenues increased $1.3 million, or 21.0%, during the year
ended April 30, 1997 compared to the year ended April 30, 1996.
Gross profit. Gross profit increased by $3.1 million, or 15.1%, to $23.4
million for the year ended April 30, 1997 compared to $20.3 million for the year
ended April 30, 1996. Of the overall gross profit increase, $1.1 million was
attributable to the three businesses acquired subsequent to April 30, 1996.
Gross profit margin increased from 32.1% for the year ended April 30, 1996 to
33.6% for the year ended April 30, 1997, primarily as a result of the loss of
sales to a significant customer, which sales resulted in below-average gross
profit margins. Additionally, overall gross profit margins increased primarily
as a result of a higher percentage of revenues being derived from rental and
repair revenues, which have historically provided the Company significantly
higher gross profit margins.
Operating expenses. Operating expenses increased by $3.1 million, or 18.3%,
to $19.8 million for the year ended April 30, 1997 compared to $16.7 million for
the year ended April 30, 1996. As a percentage of revenues, operating expenses
were 28.4% and 26.4% for the years ended April 30, 1997 and 1996, respectively.
Of the increase in operating expenses, approximately $0.9 million was
attributable to acquired businesses. Additionally, operating expenses increased
as a result of increased administrative costs for a full year associated with
the Merger in December 1995 and an increase in freight costs resulting from a
change in the Company's freight program, which increase was not passed on to its
customers.
Interest expense. For the year ended April 30, 1997, interest expense
increased $51,000 to $595,000 from $544,000 for the year ended April 30, 1996.
The net increase was primarily attributable to increased borrowings to finance
the Company's acquisitions during the year, which increase was partially offset
by lower interest rates as a result of the Company amending its revolving credit
facility on November 1, 1996.
24
<PAGE> 26
Other, net. Other income for the year ended April 30, 1997 was $73,000
compared to other expense of $33,000 for the year ended April 30, 1996. For the
year ended April 30, 1997, other income was primarily related to interest income
from notes receivable from an officer of the Company. For the year ended April
30, 1996, other expense is primary attributable to legal and professional fees
that were incurred in connection with the Merger.
Income tax expense. The effective income tax rate for the year ended April
30, 1997 was 38.4%, compared to 38.8% for the year ended April 30, 1996. The
Company's effective income tax rate differs from the statutory rate primarily as
a result of provisions made for state income taxes.
YEAR ENDED APRIL 30, 1996 COMPARED TO YEAR ENDED APRIL 30, 1995
Revenues. Revenues increased $6.7 million, or 11.9%, to $63.3 million for
the year ended April 30, 1996 compared to $56.6 million for the year ended April
30, 1995. Of the overall revenue increase, approximately $1.9 million was
related to revenues included from four new sales offices opened during the
second half of fiscal 1995. The remaining $4.8 million increase related to
internal revenue growth from the Company's existing sales offices and catalog
operations. Overall, revenues were not impacted by any significant price
changes. Increases by revenue components were as follows: equipment revenues
increased $5.4 million, or 11.2%; rental revenues increased $632,000, or 11.0%;
repair revenues increased $488,000, or 30.8%; and other revenues increased
$159,000, or 29.4%. During September 1995, the Company discontinued selling to a
customer that accounted for approximately $2.1 million and $4.6 million of
revenues for the years ended April 30, 1996 and 1995, respectively. Excluding
these revenues from both fiscal years, overall revenues and equipment revenues
increased 17.7% and 18.0%, respectively, for fiscal 1996 compared to fiscal
1995.
Gross profit. Gross profit increased $3.1 million, or 18.1%, to $20.3
million for the year ended April 30, 1996 compared to $17.2 million for the year
ended April 30, 1995. Of the overall gross profit increase, $833,000 was
attributable to four new sales offices opened during the second half of fiscal
1995. Gross profit margin increased from 30.4% for the year ended April 30, 1995
to 32.1% for the year ended April 30, 1996. The increase in gross profit margin
was primarily due to the loss of sales to a significant customer in September
1995, which sales resulted in below average gross profit margins. Excluding
sales to the customer discontinued in September 1995, gross profit margins
related to overall revenues increased to 35.8% for the year ended April 30, 1996
compared to 34.6% for the year ended April 30, 1995. This increase was primarily
attributable to the Company taking advantage of purchase incentives offered by a
significant vendor. Gross profit margins were not affected by the Company's
revenue blend because the percentage of revenues related to equipment, rental,
repair labor and other remained relatively constant between fiscal years.
Operating expenses. Operating expenses increased by $3.1 million, or 22.6%,
to $16.7 million for the year ended April 30, 1996 compared to $13.6 million for
the year ended April 30, 1995. As a percentage of revenues, operating expenses
were 26.4% and 24.1% for the years ended April 30, 1996 and 1995, respectively.
The increase in operating expenses as a percentage of revenue was affected by
approximately $571,000 of expenses incurred at sales offices opened during
fiscal 1996. Additionally, operating expenses increased as a result of increased
administrative costs associated with the Merger in December 1995 and changes
made to the Company's commission program for its field sales representatives,
which changes had the effect of increasing commission expense during fiscal
1996, both in dollars and as a percentage of revenues.
Interest expense. For the year ended April 30, 1996, interest expense
remained relatively constant and increased $25,000 to $544,000.
Other, net. Other expense for the year ended April 30, 1996 was $33,000
compared to $302,000 for the year ended April 30, 1995. Other expense for the
year ended April 30, 1995 included a loss of approximately $180,000 related to
the sale of the Company's former corporate office in Dallas, Texas.
Income tax expense. The effective income tax rate for the year ended April
30, 1996 was 38.8%, compared to 63.0% for the year ended April 30, 1995. For
periods prior to January 1, 1995, Bear Communications was subject to taxation
under Subchapter S of the Code. Effective January 1, 1995, Bear Communications
elected to terminate its "S" corporation status and also changed its method of
accounting for
25
<PAGE> 27
income tax purposes from the cash basis to the accrual basis. The change in tax
status resulted in a charge to income tax expense of $693,000 for the year ended
April 30, 1995. On a pro forma basis, the effective income tax rate for the year
ended April 30, 1995 was 38.7%. The Company's effective income tax rate differs
from the statutory rate primarily as a result of provisions made for state
income taxes.
QUARTERLY RESULTS OF OPERATIONS
The following table presents selected unaudited quarterly results of
operations for the periods indicated. The information has been prepared by the
Company on a basis consistent with the Company's audited financial statements
and includes all adjustments that management considers necessary for fair
presentation of the information for the periods presented. Results of operations
for any fiscal quarter are not necessarily indicative of results for any future
period.
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------
JULY 31, OCTOBER 31, JANUARY 31, APRIL 30,
1995 1995 1996 1996
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues......................................... $17,216 $17,137 $13,381 $15,544
Gross profit..................................... 5,264 5,280 4,429 5,321
Operating income................................. 1,370 833 111 1,283
Net income....................................... 742 480 10 615
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------
JULY 31, OCTOBER 31, JANUARY 31, APRIL 30,
1996 1996 1997 1997
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues......................................... $15,679 $19,063 $16,612 $18,288
Gross profit..................................... 5,080 6,513 5,467 6,307
Operating income................................. 855 1,689 431 634
Net income....................................... 461 963 177 301
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------
JULY 31, OCTOBER 31, JANUARY 31,
1997 1997 1998
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues......................................... $20,557 $24,816 $21,691
Gross profit..................................... 7,108 8,414 7,133
Operating income................................. 1,106 2,009 710
Net income....................................... 583 1,115 260
</TABLE>
The Company's business is subject to seasonal influences and accordingly,
its revenues and operating results are typically lower during the fiscal quarter
ending January 31 due to lower levels of business activity during the winter
months. The Company's revenues and operating results may be subject to further
fluctuation in future periods. Significant quarterly fluctuations in the
Company's revenue and operating results may be caused by, among other factors,
the timing of significant rental activity, seasonality in the ordering patterns
of users of the Company's products, the timing of new enhancements or product
offerings made available by suppliers, economic conditions in the geographical
areas in which the Company operates and acquisitions and related assimilation
costs. See "Risk Factors -- Fluctuations in Quarterly Operating Results."
CONDOR COMMUNICATIONS, INC.
On March 31, 1998, the Company acquired substantially all of the assets of
Condor Communications, Inc., a leading exporter of two-way communication
equipment and communication systems to dealers primarily in Latin America and
Eastern Europe. The acquisition was accounted for using the purchase method of
accounting. Condor is based in Miami, Florida and has distribution offices in
Caracas, Venezuela and Prague, Czech Republic.
26
<PAGE> 28
Condor reported revenues of $51.3 million during the twelve months ended
December 31, 1997, an increase of 13.7% from revenues of $45.1 million in 1996.
This increase was due to increased shipments of two-way equipment to dealers.
Condor's gross profit decreased to $6.1 million in 1997 from $6.6 million in
1996. Condor's gross margin decreased to 11.9% in 1997 from 14.7% in 1996.
Condor's decreased gross profit and gross margin in 1997 was primarily due to a
reduction in selling prices to attract new customers in Latin America, and a
reduction of sales in Eastern Europe, which historically have resulted in higher
gross margins than sales in other regions. Condor's selling, general and
administrative expenses decreased to $3.5 million in 1997 from $3.7 million in
1996, primarily due to a reduction in bad debt expense for 1997 compared to
1996. As a percentage of revenue, Condor's selling, general and administrative
expenses decreased to 6.8% in 1997 from 8.1% in 1996. Condor's operating income
decreased to $2.6 million, or 5.0% of revenue in 1997 from $3.1 million or 6.8%
of revenue in 1996.
The Company's historical financial information included in this Prospectus
does not include the operations of Condor in any periods presented. As a result
of the Condor Acquisition, the Company expects that its consolidated gross
profit margin will decline in future periods due to the inclusion of Condor's
export operations, which have had significantly lower gross profit margins than
the Company's domestic operations. However, because Condor's operating expenses
as a percentage of revenues historically have been lower than that of BearCom,
Condor historically has experienced higher operating income margins than
BearCom. Condor's business is subject to seasonal influences and, accordingly,
its quarterly revenues and operating results may be materially affected by the
timing of large system sales, seasonal buying patterns of dealers, the timing of
new enhancements or product offerings made available by suppliers and economic
conditions in the geographical areas in which it operates.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has generated positive cash flows from operations.
In fiscal years 1995 and 1996, the Company generated $2.1 million and $3.1
million of cash flows from operations, respectively. During fiscal 1997 and the
nine months ended January 31, 1998, the Company used approximately $152,000 and
$58,000, respectively of cash in its operating activities. Additionally, capital
expenditures for property and equipment totaled approximately $1.1 million, $1.6
million, $2.1 million and $0.9 million for the years ended April 30, 1995, 1996
and 1997 and the nine months ended January 31, 1998, respectively. Significant
capital expenditures in each period were made primarily to purchase equipment to
update the Company's rental radio fleet. Since August 1996, the Company has
acquired the operations of 12 independent dealers of wireless communication
products, and a majority of the assets of Motorola's Radio Products Group
rentals business and Condor for aggregate consideration of $17.2 million in
cash, notes payable in the amount of $300,000 and amounts to be paid pursuant to
certain earn-out arrangements. As part of the Condor Acquisition, the Company
entered into an earn-out arrangement pursuant to which the Company is obligated
to pay Condor Communications, for each of the first two twelve-month periods
following the consummation of the Condor Acquisition, an amount equal to fifty
percent of the first $3.0 million of EBITDA attributable to Condor Business Unit
Operations (as defined in the agreement governing the Condor Acquisition),
provided that EBITDA for such twelve-month period shall be $2.0 million or
greater, and twenty-five percent of EBITDA in excess of $3.0 million.
In addition to cash flows from operations, the Company's principal source
of liquidity is borrowings under the Senior Bank Facility. The Senior Bank
Facility is comprised of (i) a $25 million revolving line of credit maturing
November 5, 1999 that may be used for working capital, general corporate
purposes and strategic acquisitions and (ii) a $5 million term loan requiring
monthly payments of $104,167 plus accrued interest through November 5, 2001. At
the Company's option (subject to certain terms and conditions), borrowings under
the Senior Bank Facility bear interest at either an adjusted LIBOR rate plus a
margin (1.25% in the case of the revolving line of credit and 1.35% in the case
of the term loan) or at the lender's prime commercial rate. Borrowings under the
Senior Bank Facility are secured by substantially all of the assets of the
Company. Additionally, the Company is entitled to prepay amounts from time to
time, in whole or part, without notice or penalty.
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<PAGE> 29
The maximum amount of borrowings under the revolving line of credit is the
lesser of $25 million or a multiple of "free cash flow" of the Company, as
defined under the Senior Bank Facility. As of March 31, 1998, the Company had
approximately $19.0 million of borrowings outstanding under the revolving line
of credit and approximately $6.0 million available for further advances
thereunder. The Senior Bank Facility requires, among other things, that the
Company maintain certain amounts of tangible working capital, not less than
$1,000 of quarterly net income and certain ratios with regard to debt and
tangible net worth.
As of January 31, 1998, the Company had working capital of approximately
$15.7 million and a current ratio of 2.5:1, compared to working capital of
approximately $13.2 million and a current ratio of 3.3:1 as of April 30, 1997.
The Company's trade accounts receivable balances at April 30, 1996 and 1997 and
January 31, 1998 were $6.7 million, $8.8 million and $13.8 million,
respectively. The increase in accounts receivable is primarily related to the
Company's increase in revenues resulting from acquisitions and internal growth.
The average days sales outstanding for accounts receivable was approximately 42
days at April 30, 1997 and approximately 47 days at January 31, 1998.
The Company is offered discounts from several of its principal suppliers
for certain inventory purchases, with discounts ranging from 2% to 4% if the
Company pays within fifteen days. The Company historically has taken advantage
of these discounts. For the years ended April 30, 1996 and 1997 and the nine
months ended January 31, 1998, discounts totaling $0.9 million, $1.7 million and
$0.9 million, respectively, were taken by the Company. Additionally, the
Company's principal supplier offers a cooperative advertising program pursuant
to which the Company is permitted to claim reimbursements for certain expenses
of up to 3% of certain inventory purchased. Reimbursements are contingent upon
the Company supporting specific advertising expenses incurred in accordance with
policies and procedures established by the supplier. For the years ended April
30, 1996 and 1997 and the nine months ended January 31, 1998, the Company offset
operating expenses by $447,000, $608,000 and $440,000, respectively, relating to
this reimbursement program. Although there can be no assurance that such
programs will be continued, they have been common in the Company's industry for
many years and have routinely been offered by several of its principal
suppliers. If, however, these programs were changed or terminated, the Company's
liquidity requirements could increase materially and results of operations could
be adversely affected.
The Company believes its cash flow from operations, the net proceeds of the
offering made hereby and utilization of available amounts under the Senior Bank
Facility will be adequate to provide for its working capital needs, future
expansion, including opening new sales offices or acquiring additional wireless
communication businesses, and planned capital expenditures in the next fiscal
year.
YEAR 2000 COMPLIANT INFORMATION SYSTEMS
The Company uses software and related technologies throughout its business
that will be affected by the Year 2000 problem, which is common to most
businesses, and concerns the inability of information systems, primarily
computer software programs, to properly recognize and process date sensitive
information as the year 2000 approaches. The Company is in the process of
modifying the software in its management information system so that all of such
software will be Year 2000 compliant. The Company believes that it will be able
to modify all such software in time to minimize any detrimental effects on
operations. There can be no assurance that the Company will timely complete such
modifications. While it is not possible, at this time, to give an accurate
estimate of the cost of this work, the Company expects that such costs will not
be material to the Company's results of operations. Failure of the Company, its
vendors or its customers to have in place Year 2000 compliant systems could have
a material adverse effect on the Company.
AUTHORITATIVE PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statements of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income" and No. 131
"Disclosures about Segments of an Enterprise and Related Information," which are
required to be adopted in fiscal 1999. Statement 130 will require the Company to
report comprehensive income and its components with the same prominence as other
financial statements. Statement 131 is not expected to significantly change the
Company's current disclosures.
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<PAGE> 30
BUSINESS
GENERAL
The Company is the largest independent distributor of two-way radios in the
world with leading positions in the field sales, catalog sales, export sales and
rental segments of the market. The Company sells, services and rents a broad
line of two-way radios manufactured by industry leaders including Motorola,
Maxon, Icom and Tekk, which are used to communicate within a limited geographic
area without incurring airtime or subscriber charges. In the United States, the
Company's diverse customer base consists primarily of businesses and
organizations across a wide variety of industries, whereas internationally the
Company's customers generally are dealers which, in turn, sell to similar end
users. In addition to its two-way radio product line, the Company sells
complementary wireless communication and related products and services,
including Orbacom console systems, Motorola messaging systems, Nextel handsets
and services and PageMart pagers and services.
Through BearCom, the Company markets its products and services through 34
field offices in the United States and two in Australia and through its catalog
operations throughout the United States. In addition, through Condor, the
Company exports its products and services through its distribution offices in
Miami, Florida, Caracas, Venezuela and Prague, Czech Republic. The Company
believes that it is the only significant distributor of two-way radios
leveraging the strengths of these multiple channels of distribution. Through its
field offices, BearCom provides technical assistance for customers requiring
on-site evaluation of their communications needs. For customers not requiring
this consultative approach (usually when system needs are relatively
uncomplicated or purchases are add-on or replacement units to an existing
system), the catalog marketing channel provides an efficient and convenient
method of purchasing products. During fiscal 1997, BearCom mailed more than 4.4
million catalogs and marketing pieces and processed in excess of 150,000
customer orders. Most orders are processed and shipped on the same day they are
received. The Company uses sophisticated information systems and proprietary
software to monitor and refine its customer database, catalog mailings and
inventory levels. In addition, the Company has a fleet of over 15,000 two-way
radios for rent, which are used in connection with sporting events, conventions,
disaster recovery projects, motion picture productions and other events. The
Company believes that it is the largest renter of two-way radios in the United
States.
From fiscal 1993 to fiscal 1997, the Company's revenues grew, primarily as
a result of internal growth and the opening of nine new sales offices, from
$37.9 million to $69.6 million, representing a compound annual growth rate of
approximately 16%. Since August 1996, the Company has accelerated its growth
through the acquisition of the operations of 12 independent dealers, a majority
of the assets of Motorola's Radio Products Group rentals business and
substantially all of the assets of Condor. As a result, revenues for the nine
months ended January 31, 1998 were $67.1 million, a 31% increase from revenues
generated during the equivalent period of the prior fiscal year. On a pro forma
basis, giving effect to the Condor Acquisition and the Other Acquisitions, the
Company's revenues were $130.0 million and $112.6 million during fiscal 1997 and
the nine months ended January 31, 1998, respectively. The Company intends to
make additional acquisitions to establish a presence in new geographic areas and
to enhance its presence in existing markets. In pursuing such acquisitions, the
Company typically seeks to gain access to the acquired dealer's skills,
experience and customer relationships, while consolidating its fulfillment
operations into existing facilities.
The Company's objective is to expand its position as the largest
independent distributor of two-way radios and related products in the world and
be the leading independent distributor in each market in which it serves. The
Company's strategy is to further develop its network of field offices by opening
and acquiring local operations, expand and enhance its catalog and export
operations, leverage its complementary distribution channels by expanding its
product and service offerings, and support such operations with rapid order
fulfillment and superior customer service and technical support. The Company
seeks to capitalize on its experience and reputation derived from more than 15
years of selling and marketing two-way radio products in executing its strategy
and addressing its market opportunity.
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<PAGE> 31
INDUSTRY OVERVIEW
The Company's principal focus is selling, servicing and renting site-based
wireless communication products. While the Company is not aware of any
definitive industry data, the Company believes that the market for the sale,
rental and service of two-way radios and related products is in excess of $5
billion per year in the United States and an additional $5 billion per year
outside the United States. Site-based wireless communication products allow
teams of workers to have immediate voice communication over distances generally
ranging from a few hundred feet to up to three to five miles. The Company
believes that such communication can substantially enhance business
productivity. Unlike most other forms of wireless communication products,
site-based two-way radios require no air-time or subscriber charges and are
utilized almost exclusively in business applications. Individual radios
generally range in price from $200 to $1,000 based upon the size and features of
the unit. Depending on the application, users typically require from as a few as
two radios to as many as several hundred. Applications for site-based two way
radios span many industries. Common examples include:
The plant manager of a manufacturing facility coordinates the activities of
15 maintenance and repair employees across several buildings in a 150,000
square foot industrial complex.
The three-person staff of a law firm's MIS department communicates with one
another across multiple floors of an office building to respond rapidly to
service requests.
The coordinators of a major sporting event require five independent systems
(security, parking, parade, concession and press personnel) each requiring
more than 100 radios communicating across a three-mile radius. The
coordinators rent the equipment for the two-day event.
The golf course superintendent of a top-of-the-line golf course and country
club coordinates the activities of each of his greenskeepers. In addition,
the pro shop coordinates its course marshals, each of whom carry a two-way
radio.
An airline's station chief manages ground operations personnel as well as
customer service representatives throughout its terminal with two-way
radios.
The manager of a petrochemical complex manages engineering, maintenance and
security personnel throughout the 100-acre facility.
Growth in this segment of the wireless communications market has been
driven by several factors. The Company believes that the rapid emergence of
wireless communications technologies, including cellular and paging, has
increased the market acceptance and awareness of the benefits of two-way radios.
This, in turn, has resulted in the development of many new applications for
these products. In addition, as manufacturers of two-way radios have introduced
lower-priced two-way radio units with additional features and have significantly
expanded the marketing and distribution of these products, they have expanded
their appeal to a larger base of potential users who desire to communicate
within a limited geographic area without incurring airtime or subscriber
charges. Finally, as the result of abuse in their day-to-day usage, two-way
radios have a significant replacement demand. As the number of site-based radios
has increased, replacement demand has increased accordingly.
The manufacturing of two-way radios is dominated by a small number of
companies including Motorola, Kenwood, Icom, Yaesu, Maxon, EF Johnson and
Standard each of which has developed a network of authorized dealers to augment
their internal direct sales forces. Over the past ten years, manufacturers have
strategically reduced the size of their direct sales forces, increasingly
relying on independent authorized dealers. The Company believes that an
increasing percentage of two-way radio products will continue to be sold through
independent dealers as manufacturers continue to outsource distribution and
other non-core functions. The Company believes that its worldwide distribution
capability enhances its relationships with suppliers which seek to support
fewer, but larger, dealer organizations and allows it to more effectively
compete for certain customers that have multiple locations around the country.
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<PAGE> 32
The Company believes that Motorola has manufactured a majority of the
two-way radios currently in use in the world. For many years Motorola sold
virtually all its two-way products through a direct sales force and a small
number of full-line dealers. In calendar 1987, Motorola introduced its Radius
line of products to expand its share of the growing market for lower priced
two-way radio products. To market, sell and service these products, Motorola
developed an indirect distribution channel made up of hundreds of local dealers
across the United States, as well as export dealers that serve the rest of the
world. As the quality and size of the indirect distribution channel expanded,
Motorola substantially reduced the size of its direct sales force. Motorola
continues to have a sizable direct sales force which generally focuses on large
scale projects requiring a high level of engineering and significant investment
in equipment and infrastructure. Management estimates that approximately half of
Motorola's sales of site-based radios and equipment are made through its direct
sales force with the remainder being sold through dealers. The Company is the
largest independent distributor of Motorola two-way radios and believes that
Motorola's utilization of dealers will increase. In addition, the Company
believes that the growth in the number of Motorola's full-line dealers has
slowed significantly in recent years as Motorola has begun to limit the
availability of new dealer agreements in markets with an established group of
dealers.
While manufacturing is highly concentrated, the distribution of two-way
radio products is highly fragmented. Dealers sell two-way radios to business
users principally through field offices and to a lesser extent through catalog
marketing. In any given metropolitan area there are generally several authorized
dealers serving local customers. A typical dealer has one or a few locations
covering a local or regional area and has revenues of under $5 million. In
addition, a small number of mail order companies market two-way radio products.
Like local dealers, these companies tend to be relatively small, with revenues
of less than $5 million. The Company's strategy is to capitalize on the
combination of its leadership position in both the field office and catalog
marketing channels and the highly fragmented nature of the two-way radio
distribution business by acquiring local dealerships and otherwise increasing
its market share in the two-way radio market. To the Company's knowledge, no
other distributor of two-way radios has a significant presence in each of the
Company's distribution channels.
Other segments of the wireless communications industry include specialized
mobile radio, enhanced specialized mobile radio, satellite-based wireless
communications, paging, cellular telephone, PCS and wireless data products. The
Company believes that these segments of the wireless communication industry will
experience significant growth in the future. While the principal focus of the
Company historically has been on the sale and rental of two-way radios, the
Company's strategy is to increase its market share in these segments as and if
its channels of distribution allow it to efficiently distribute these products
to customers. In addition, the Company intends to capitalize on its position as
a leading distributor of products manufactured by Nextel Communications, Inc.
("Nextel"). See "-- Products and Services."
BUSINESS STRENGTHS
The Company believes that the following factors have been of principal
importance in the success that it has achieved to date:
MARKET LEADERSHIP IN MULTIPLE DISTRIBUTION CHANNELS
Wireless International is the largest independent distributor of
two-way radios in the world, with leading positions in each of the field
office, catalog marketing and export channels. The Company believes that it
is the only significant distributor of two-way radios leveraging the
strengths of these multiple channels of distribution. The Company believes
that the combined strength of these channels provides it with broader
access to its market than most of its competitors.
Field Offices. The Company believes that field offices are essential
to developing and maintaining customer relationships in local markets. The
Company currently operates 34 field offices in the United States and two in
Australia. These field offices employ approximately 170 sales and rental
representatives who establish local customer relationships by providing
on-site evaluation and technical assistance in selecting appropriate
equipment for specific applications. Field sales representatives target
local opportu-
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<PAGE> 33
nities to both sell or rent the Company's products. The Company provides
most administrative, order fulfillment and repair functions on a
centralized basis to enhance the productivity of its field sales
representatives by providing them with more time to focus on revenue
generating activities.
Catalog Operations. The Company markets directly to its existing and
prospective domestic customers through frequent targeted mailings of
product catalogs, brochures and other direct marketing pieces. In its 1997
fiscal year, the Company mailed over 4.4 million direct marketing pieces.
BearCom uses proprietary information systems to analyze the results of each
mailing and to refine and segment its customer database and mailing lists.
In addition, the Company has developed internal catalog production and
mailing capabilities that facilitate flexible production runs and rapid
cycle times. These capabilities enable the Company to target future
mailings in a manner designed to enhance profitability and customer
response.
Export Operations. The Company markets internationally through Condor
from its Miami, Florida office, as well as offices in Caracas, Venezuela
and Prague, Czech Republic. Condor's customer base consists of dealers in
over 75 countries, concentrated in Latin America, Eastern Europe, Africa
and the Middle East. Since its founding in 1980, Condor has become the
largest exporter of two-way radios from the United States.
RENTAL MARKET EXPERTISE
In the United States, the Company also rents two-way radios for use at
sporting events, fairs, parades, conventions and other events, as well as
in disaster recovery projects, motion picture productions and other
projects. With a fleet of over 15,000 two-way radios for rent, BearCom
believes it is the largest renter of two-way radios in the United States.
In June 1997, the Company acquired a majority of the assets of Motorola's
Radio Products Group rentals business, including certain inventory, its
customer list and its toll-free telephone number. The Company generally
achieves higher profit margins from rental units than from sales of
comparable two-way radios. In addition, the Company believes that the
rental market stimulates follow-on purchases of equipment as rental
customers discover the value to their business of the various uses of these
products. See "-- Customers."
BREADTH OF PRODUCTS AND CUSTOMER SERVICES
The Company attempts to satisfy its customers' two-way radio needs by
offering products with a wide range of features from multiple manufacturers
and a full range of technical support and repair capabilities. In its 1997
fiscal year, the Company sold over 100 different models of two-way radios
that were manufactured by more than ten different companies. These products
span a wide array of functionality and price points. Unlike many of its
smaller competitors, the Company maintains a substantial inventory of
products to allow prompt order fulfillment in most cases. Prior to shipment
to end users, the Company typically programs and adjusts frequencies in
order to provide compatibility among the components of the customer's
two-way system. The Company's service technicians test units prior to
shipment and thus are able to discover and reduce product malfunctions
before shipment. Nevertheless, most orders are processed and shipped on the
same day they are received. The Company's service technicians also provide
repair services for virtually all of the products the Company sells and in
most cases perform repairs in less than 48 hours of receipt of the
equipment. The Company's rapid order fulfillment and repair service
capability differentiates it from many of its competitors. See "-- Products
and Services."
ECONOMIES OF SCALE, OPERATIONAL EFFICIENCIES
As the largest independent distributor of two-way radio products, the
Company believes that it enjoys numerous advantages over its smaller
competitors. The Company performs most of its administrative and
distribution activities for its domestic activities at its headquarters
facility in Dallas and, for its export activities, in Miami. These
activities include purchasing, credit and collections, catalog production,
order entry and fulfillment, and management information systems development
and operations. The
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<PAGE> 34
Company spreads these costs over a greater volume of business than its
smaller local and regional competitors and believes that in many cases it
provides its customers with more consistent and higher levels of service.
Finally, the Company believes that its global distribution capability
enhances its relationships with suppliers which seek to support fewer, but
larger, dealer organizations and allows it to more effectively compete for
certain customers that have multiple locations.
GROWTH STRATEGY
The Company's objective is to increase its market share in both the field
sales, catalog marketing and exporting of two-way radios and related products
and be the leading independent distributor in each market it serves. The
Company's strategy is to further develop its global network of field offices by
opening and acquiring field offices in new markets, expand and enhance its
catalog operations, leverage these complementary distribution channels by
broadening its product and service offerings, and support its operations by
providing consistent administrative, distribution, customer service and
technical support functions on a centralized basis. The key elements of its
strategy are as follows:
ACQUIRE AND OPEN OFFICES IN NEW MARKETS
The Company seeks to continue to develop a global network of field
offices to provide the local service that is essential to developing and
maintaining customer relationships. Currently, the Company has 34 field
offices, 29 of which are located in the 50 largest metropolitan statistical
areas in the United States. The Company intends to pursue opportunities to
add field offices in additional top 100 metropolitan statistical areas in
the United States. In addition, the Company currently has two field offices
in Australia and one each in Venezuela and Czech Republic, and may
selectively pursue expansion into other international markets. The Company
plans to enter new markets primarily by acquiring existing operations of
local and regional dealers, but also by opening new field offices. From
fiscal 1993 to fiscal 1997, the Company grew primarily as a result of
internal growth and the opening of nine new sales offices. Since August
1996, the Company has accelerated its growth through the acquisition of the
operations of 12 independent dealers, a majority of the assets of
Motorola's Radio Products Group rentals business and substantially all of
the assets of Condor. The Company believes that industry fundamentals and
outsourcing trends by manufacturers will lead to a consolidation of
independent dealers, and that its position as the largest independent
dealer will allow it to continue to acquire local authorized dealers and
expand its national presence. In pursuing acquisitions, the Company
typically seeks to gain immediate access to the acquired dealer's customer
base, while consolidating its order fulfillment operations into existing
facilities.
EXPAND AND ENHANCE CATALOG OPERATIONS
Management believes that its catalog operations represent an efficient
and complementary distribution channel to its growing network of field
offices. During fiscal 1997, BearCom mailed over 4.4 million catalogs and
marketing pieces and processed over 300,000 inbound calls. BearCom uses
proprietary software to analyze the results of each mailing and enhance
customer response. In addition, BearCom has developed internal catalog
production and mailing capabilities that facilitate flexible production
runs and rapid cycle times. BearCom has made significant investments to
establish its leading position in the catalog marketing of two-way radios
and believes that its existing catalog operations can support higher sales
volumes without incurring significantly higher fixed costs.
EXPAND PRODUCT AND SERVICE OFFERINGS
The Company strives to expand its product offering to include
complementary products and services that meet the needs of its customers.
In addition to its broad offering of two-way radios, the Company currently
sells closed circuit television systems ("CCTV"), aviation transceivers,
Orbacom console systems, and products and services based on other wireless
technologies, such as Nextel handsets and services, PageMart pagers and
services, and Motorola messaging systems. The Company began selling Nextel
equipment and service in fiscal 1998 and believes it has become a leading
independent activator of
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<PAGE> 35
this service. In January 1998, the Company entered into a three year
agreement with Iridium U.S., L.P. ("Iridium") to nationally market its
satellite-based communications products and services in selected sales
channels beginning in fiscal 1999. The Company intends to continue to
broaden its product offering and may also explore acquiring companies with
complementary product lines that the Company believes could be efficiently
distributed to its customers.
EXPAND RENTAL AND REPAIR ACTIVITIES
The Company believes that its ability to offer responsive two-way
radio rental and repair services enhances its customer relationships. The
Company currently maintains a rental fleet of over 15,000 two-way radios
and staffs each office with employees dedicated to local rental
opportunities. In addition, the Company repairs two-way radios from all of
its significant suppliers. Most repair services are performed in the
Company's Dallas and Houston facilities and are typically completed within
48 hours of receipt. Revenues from rental and repair activities have
increased as a percentage of total revenues from approximately 13.0% in
fiscal 1995 to 18.6% for the nine months ended January 31, 1998. The
Company generally achieves higher profit margins from these activities than
from the sale of its products. To date, most rentals have been to customers
in the United States. The Company intends to expand its rental and repair
activities in international markets.
INCREASE PENETRATION IN EXISTING MARKETS
The Company believes that there are significant opportunities to
further penetrate existing markets. By centralizing administrative,
fulfillment and other support functions and by encouraging customers to
order replacement parts and other routine items directly through the
Company's toll-free number, management seeks to enhance the productivity of
its field sales force by providing them with time to focus on more
significant revenue-generating activities. In addition, the Company uses
its catalog database to identify quality sales leads that could benefit
from higher-end or more sophisticated systems. Finally, as certain of its
existing markets mature, the Company intends to add sales representatives
and/or acquire other dealers in existing markets to gain new customers and
better service existing accounts.
PRODUCTS AND SERVICES
The Company believes that its ability to offer a broad line of products and
services is instrumental to its success. The Company seeks to offer products
with a wide range of features and price points from multiple manufacturers,
along with a full range of technical support and repair services. In its 1997
fiscal year, the Company sold over 100 different models of two-way radios that
were manufactured by more than ten different companies. The Company also sells
other wireless communication products, including two-way radio accessories,
pagers and accessories, cellular phone accessories and aviation transceivers, as
well as related products like CCTV and Orbacom console systems. In fiscal 1997,
equipment sales accounted for 83% of the Company's revenues.
On September 1, 1997, the Company began marketing wireless equipment and
services of Nextel, and believes that it has become one of the largest
independent activators of such services. Under its marketing agreement, the
Company sells Nextel handsets at the Company's cost and receives an activation
fee for each handset sold, as well as a percentage of the monthly service charge
per handset for a defined period. The terms and fees of the agreement can be
altered without the consent of the Company.
On January 26, 1998, the Company entered into an agreement with Iridium to
become a dealer of Iridium handsets and service within the land mobile radio
market in the United States. Iridium has publicly announced September 1998 as
its anticipated date for commencing service. However, there can be no assurance
as to the eventual timing and impact of this agreement on the Company's
operating results.
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<PAGE> 36
Set forth below is a description of and certain information related to the
more significant products and services distributed by the Company.
<TABLE>
<CAPTION>
SELECTED
PRODUCT MANUFACTURERS DESCRIPTION
<S> <C> <C>
PORTABLE RADIO Motorola Small, light-weight, battery-operated radio that allows
Maxon users to communicate between selected groups and individuals
Icom over ranges of up to five miles; coverage can be expanded to
Tekk much broader areas when used with additional transmitting
equipment.
MOBILE RADIO Motorola Vehicle-mounted radio under dash or in vehicle's trunk;
Maxon utilized primarily by users who spend time primarily in
Icom vehicles or who have greater power requirements; frequently
used by transportation fleets, police and fire authorities
and waste-disposal companies.
BASE STATION Motorola Radio installed in a fixed location within an office;
Maxon external antenna provides greater transmission coverage,
Icom designed to communicate to portable and mobile radios;
handsfree headsets, microphones and noise reduction
equipment are interfaced with base stations to accommodate
office environments.
CONSOLES Orbacom Console enclosed in customized furniture to create a fully
Motorola integrated communications center; electronics permit users
Zetron to communicate with telephones, radios, CCTV and cellular
equipment, both separately and simultaneously; installed
into operation centers that have substantial quantities of
radio, telephone and other forms of communication equipment
to allow increased efficiencies in multi-task operations.
SPECIALIZED Nextel Handheld radio that fully integrates wide-area two-way radio
MOBILE RADIO communications, cellular phone and paging; monthly charges
for cellular and radio uses are additional.
</TABLE>
BearCom rents two-way radios and other wireless communication products,
primarily through its field offices. In fiscal 1997, rentals accounted for
approximately 12% of the Company's revenues. The Company maintains a fleet of
over 15,000 rental units, which are used in connection with sporting events,
conventions, disaster recovery projects, motion picture productions and other
events where wireless communication equipment is needed for a period of time
that would not justify the cost of purchasing such products. The rental market
for wireless communication products is seasonal, with rental demand being
greatest during the summer months, or at other peak times of the year in warm
weather climates. The Company believes that the rental market stimulates sales
of these products as rental customers discover the value to their businesses of
the various uses of these products.
The Company repairs two-way radios of leading manufacturers. In fiscal
1997, repair revenue accounted for approximately 4% of the Company's revenues.
In October 1997, the Company acquired a dealer in Houston, Texas which is an
authorized service provider of Motorola two-way radios, including warranty and
non-warranty repair services. In the case of units under warranty, the Company
collects predetermined repair fees directly from the manufacturer. For
non-warranty repairs, the Company bills the customer for repair charges. Such
repair charges are billed on a time and materials basis or, in certain
instances, on a flat rate schedule agreed to in advance. The Company typically
completes and ships repaired units within 48 hours of their receipt. The
Company's primary service and repair operations are located at its facilities in
Dallas and Houston, with limited repairs being performed at 14 of the Company's
field offices. The Company's technicians repair products sold both by the
Company and by others. The Company believes that its ability to repair products
is important to its customers.
PURCHASING
The Company purchases its products directly from manufacturers of wireless
communication products. Brand names sold by the Company include, among others,
Motorola, Maxon, Icom, Tekk and Orbacom.
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<PAGE> 37
Equipment revenues generated by the sale of products purchased from the
Company's two largest vendors, Motorola and Maxon, constituted approximately 73%
and 12%, respectively, of the Company's revenues during fiscal 1997, and 67% and
8%, respectively, of the Company's equipment revenues during the nine-month
period ended January 31, 1998. As is customary in the industry, the Company does
not have long-term contracts with any of its vendors, including Motorola and
Maxon. Although the Company and its suppliers enter into written vendor
agreements to effect purchases, such agreements generally can be canceled by
either party at will. Termination of the Company's relationship with Motorola or
any other significant manufacturers would have a material adverse effect on the
Company. See "Risk Factors -- Dependence on Vendors."
CUSTOMERS
BearCom's customers range from small businesses to large organizations and
governmental agencies, while Condor's customers generally are dealers, which in
turn sell to similar end users. In fiscal 1997, BearCom sold products to
approximately 80% of the Fortune 100 companies and Condor sold products to
dealers in approximately 75 countries. In fiscal 1997, over 80% of the Company's
revenues were from repeat customers. No customer of the Company accounted for
more than 2% of the Company's revenues in fiscal 1997. Set forth below are
selected customers that have purchased or rented products from the Company since
the beginning of fiscal 1997.
MANUFACTURING RETAILERS SCHOOLS AND UNIVERSITIES
Nike Inc. The Gap University of California, Irvine
Unocal Corp. J. C. Penney Chicago Public Schools
Microsoft Nordstrom University of Washington
Abbot
Laboratories Target Stores San Diego Unified School
District
SPORTING
HOTELS EVENTS* FOOD & BEVERAGES
1998
Sheraton Superbowl Kraft Foods
Marriott ESPN X Games Coca-Cola
1996 Olympic
Motel 6 Games Kellogg USA
Los Angeles
Doubletree Marathon Tyson Foods
SHOPPING
HEALTHCARE CENTERS/MALLS GOVERNMENT
Medical City Mall of
Dallas America United States Navy
Kaiser South Coast
Permanente Plaza U.S. Department of Parks and
Sharp Dallas Market
Healthcare Center Recreation
General
St. Vincent Growth
Medical Properties City of Chicago, IL
County of Orange, CA
ENTERTAINMENT CONSTRUCTION AIRLINES/AVIATION
Walt Disney Kiewit
Studios Pacific Northwest Airlines
Turner
NBC Construction Southwest Airlines
SONY Bechtel Corp. United Airlines
Disneyland Fluor-Daniel American Airlines
CONVENTIONS* TRANSPORTATION
Consumer
Electronics Federal
Show Express
National
Manufacturing Viking
Week Freight
Billy Graham United Parcel
Crusades Service
Softbank Maintenance
Comdex 1997 Dynamics
- ------------------------------
* Includes various organizations affiliated with the indicated sporting event or
convention.
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<PAGE> 38
SALES AND MARKETING
Overview. Wireless International markets its products and services through
both its field offices, catalog operations and export operations. The Company
believes that the combined strength of these channels provides it with broader
access to its market than most of its competitors. The Company also rents
two-way radios and other wireless communication products. Through its
approximately 170 person field sales and rental force, the Company services
customers requiring on-site evaluation of their needs and provides the technical
assistance to help them select the appropriate equipment for their specific
applications. For customers not requiring this consultative approach (usually
when system needs are relatively uncomplicated or purchases are add-on or
replacement units to an existing system), the catalog marketing channel provides
customers an efficient and cost-effective method of purchasing products.
The Company attempts to use the combination of its distribution channels to
attract new customers and stimulate additional purchases by previous customers.
The Company seeks to attract new customers by expanding the reach of its sales
representatives, selectively mailing catalogs to prospective customers,
advertising in the Yellow Pages and trade publications, and exhibiting at
industry trade shows. The Company seeks to stimulate purchases by previous
customers by both personal contact and direct mail. The Company provides product
and sales training to its field sales, rentals, catalog marketing and export
sales forces in an effort to employ a knowledgeable workforce.
Field Offices. The Company currently maintains 34 field offices in the
United States and two in Australia, primarily in major metropolitan areas.
Typically, the Company's field office staff is comprised of a branch manager,
three to seven sales representatives and a rental coordinator. Sales
representatives are compensated by salary as well as commission and incentive
bonuses based on predetermined sales quotas. BearCom emphasizes
"need-satisfaction selling," training its sales representatives to identify the
specific communications needs of the customer and to sell products that will
satisfy those needs. The Company encourages its field sales customers to utilize
the Company's toll-free number to purchase replacement parts and other routine
items so that sales representatives may devote their efforts to selling products
to new customers and more sophisticated products to existing customers. The
Company monitors and adjusts its field sales compensation plan periodically to
insure its competitiveness and continuously seeks to improve its support
functions so that field sales representatives can maximize the results of their
marketing efforts.
BearCom also maintains a dedicated rental representative at each field
office. The Company has a fleet of over 15,000 rental units throughout the
United States to satisfy its customers' short-term two-way radio needs. The
Company maintains a constant inventory of rental units at each of its sales
offices to meet its customers' immediate rental needs. The remainder of the
Company's rental fleet is maintained at the Company's Dallas headquarters
facilities. Because the Company has sales offices throughout the United States,
the Company is able to efficiently transfer rental units among its sales offices
in order to meet anticipated rental demand. Prior to a rental order being
filled, the Company programs and tests each unit and ensures that it is equipped
with a fresh battery. For large rental orders, the Company provides on-site
technical personnel. The Company maintains a 24-hour emergency telephone number
for use by all rental customers to remedy operational problems if they occur.
All rental units are checked and serviced upon return to the Company prior to
being returned to the rental inventory.
Catalog Marketing. BearCom also markets its products through the direct
mailing of catalogs, brochures and other direct marketing pieces. The Company
mailed over 4.4 million catalogs and brochures during fiscal 1997 and received
over 300,000 inbound calls, resulting in sales to customers in all 50 states.
BearCom augments its own proprietary mailing lists by selectively renting and
purchasing third-party mailing lists from time to time. BearCom uses proprietary
information systems to refine and segment its customer database and mailing
lists. These procedures enable the Company to target future mailings in a manner
designed to enhance profitability and customer response.
BearCom produces its own catalogs and marketing brochures through its art
department, using desktop publishing systems. These catalogs and brochures are
printed by a small number of national printers and shipped to the Company's
Dallas facility. BearCom has its own mail production department. The mail
production process is managed by BearCom's IBM AS-400 computer so that the mail
is processed to take
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<PAGE> 39
advantage of the lowest postal rates available. See "-- Management Information
System." By having its own mail facility, BearCom has the capability to process
runs as small as a few thousand pieces or as large as several million pieces
with rapid cycle times and still maintain a cost-effective direct marketing
program.
The Company employs catalog sales representatives who staff the Company's
toll-free telephone line, process orders and answer technical questions from
7:30 a.m. to 6:30 p.m. Central Time. The catalog operations rely almost
exclusively on inbound sales. While processing orders, sales representatives
have access, through BearCom's management information system, to technical
information, alternate and complementary product selections, product
availability and pricing information and customer purchasing and credit
histories. The sales representatives are experienced in the sale of wireless
communication products, are knowledgeable of the Company's products and strive
to assist customers in fulfilling their wireless communication needs.
Export Operations. The Company markets internationally through Condor from
its Miami, Florida office, as well as offices in Caracas, Venezuela and Prague,
Czech Republic. Condor's customer base consists of dealers in over 75 countries,
concentrated in Latin America, Eastern Europe, Africa and the Middle East. Since
its founding in 1980, Condor has become the largest exporter of two-way radios
from the United States.
OPERATIONS
Order Fulfillment. The Company keeps a sufficient inventory of products
available in its Dallas headquarters and Miami facilities so that, it typically
can ship orders directly to customers on the same day the order is received.
Once a purchase order is accepted by the Company and the products are retrieved
from inventory, the products normally require some technical service before
being delivered to the customer. For example, radio frequencies may need to be
coordinated or ancillary equipment may need to be added to a system. All
products are tested prior to shipment. After testing, BearCom's delivery
department packs the products and ships them to the customer via United Parcel
Service, Federal Express or other common carriers from BearCom's distribution
facility in Dallas. During fiscal 1997, the Company shipped an average of over
15,000 transactions per month. With respect to sales by Condor, products
generally are drop-shipped by the manufacturer directly to customers in Eastern
Europe, while customers in Latin American generally take title to products at
Condor's Miami facility.
Inventory Management. The Company believes that effective purchasing and
inventory control are key elements to its ability to fill customer orders. The
Company maintains an inventory management system which analyzes historical sales
results, sales projections and information regarding vendor lead times in order
to determine appropriate inventory levels. Historically, the Company has not
written-down significant portions of its inventories due to shrinkage or
obsolescence, nor has it relied on its ability to return slow-moving inventory
to the vendor. There can be no assurance that material write-downs of the
Company's inventory will not occur in the future. See "Risk
Factors -- Technological Change."
Credit and Collection Management; Product Returns. BearCom attempts to
minimize losses on credit sales by closely monitoring its customers'
creditworthiness, using both internal credit histories as well as CD-ROM and
on-line services from Dun & Bradstreet. Collection activities are conducted by
using outbound phone calls from the Company's Dallas and Miami facilities.
BearCom's bad debt expense as a percentage of total revenues for fiscal 1996,
fiscal 1997 and the nine-month period ended January 31, 1998 was 0.3%, 0.5% and
1.1%, respectively. Condor's bad debt expense as a percentage of total revenues
for calender 1995, 1996 and 1997 was 1.89%, 1.39% and 0.25%, respectively.
Condor's follows the industry practice of allowing customers to return products
within 30 days, so long as the products have not been damaged.
MANAGEMENT INFORMATION SYSTEM
The use of BearCom's IBM AS-400 computer system is pervasive in the
operation of its business. The Company has invested substantial resources to
develop proprietary software applications enabling BearCom to compile and
maintain its marketing database, track customer repair histories, manage its
inventory, maintain its accounting records and track credit and collection
activities. BearCom believes that these applications enable it to deliver
superior customer service and achieve cost savings. Each of BearCom's sales
offices has a continuous on-line connection to BearCom's computer system to
support the sales efforts of its field sales
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<PAGE> 40
representatives. Condor utilizes a PC-based management information system. The
Company has no immediate plans to integrate this system with BearCom's. The
Company has adopted procedures to protect its computer systems and to provide
for recovery in the event of equipment failure. All system data is backed up to
tape daily with backup tapes stored off-site.
COMPETITION
The two-way radio distribution industry is highly competitive and is
currently comprised of several regional and numerous local dealers. The
principal bases of competition in the industry are price and service. The sale
of two-way radios is a low-margin, high-volume business. Because awareness of
two-way wireless communication products is growing and the cost barriers to
entry into this market are relatively low, the risk of new competitors entering
this market is high. The Company believes that the industry will become more
competitive as the number of competitors increases and as new technologies
emerge. These factors, coupled with the growing industry emphasis on containing
costs, could place significant pressure on the Company to reduce prices, which
could significantly reduce the gross margins realized by the Company on sales of
its products.
In addition, several manufacturers of two-way radio products, including
Motorola, also compete with independent distributors in selling, servicing and
renting two-way wireless communication products. There can be no assurance that
manufacturers of two-way radio products will continue to utilize independent
distributors in the future. In addition, there are several significantly large
global distributors of wireless communication products other than two-way
radios. These companies to date have not entered the two-way radio distribution
market in any significant way, but there can be no assurance that these
companies will not enter this industry in the future. These manufacturers and
distributors are much larger than the Company, and have substantially greater
capital resources, sales experience and distribution capabilities than the
Company. In response to competitive pressure from any of its current or future
competitors, the Company may be required to lower selling prices, which would
lower the Company's gross margins, which could have a material adverse effect on
the Company. See "Risk Factors -- Competition."
EMPLOYEES
As of April 1, 1998, BearCom had 467 employees, of whom 51 were corporate
employees, 172 were sales or rental managers or sales or rental representatives,
45 were shipping and distribution personnel, 25 were catalog distribution
employees, 104 were service technicians and 70 were in various other positions.
As of April 1, 1998, Condor employed 60 employees in various capacities. The
Company's success is dependent on its ability to attract and retain good
employees. The Company believes that its employee relations are good. The
Company's employees are not covered by any collective bargaining agreements.
PROPERTIES
The Company leases its approximately 37,000 square foot headquarters
facility (which includes its warehousing facility, product distribution center
and a field office) and its approximately 10,000 square foot mail distribution
center, each of which is located in Dallas, Texas. The terms of these leases
expire in January 1999 and the Company has options to extend each lease for an
additional one year period. In addition, the Company leases 35 locations as
field offices and owns one sales office in Houston, Texas. As a result of the
Condor Acquisition, the Company owns its approximately 15,000 square foot Miami,
Florida office and distribution facility, as well as its offices in Caracas,
Venezuela and Prague, Czech Republic. See "Management -- Certain Transactions."
LEGAL MATTERS
From time to time, the Company is involved in lawsuits that it considers to
be in the normal course of its business, which have not resulted in any material
losses to date.
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<PAGE> 41
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the executive
officers and directors of the Company, including their respective ages.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
John P. Watson(l).................. 54 Chairman and Director
Jerry Denham....................... 41 President and Director
Kenneth H. Doll.................... 45 Executive Vice President -- National Sales, Secretary and
Director
Brent A. Bisnar.................... 40 Vice President -- National Rentals and Director
Gary Weber......................... 51 Vice President -- Marketing
Michael L. Kovar................... 36 Vice President, Chief Financial Officer and Assistant
Secretary
Rogelio R. Betancourt.............. 58 President, Condor Holdings, Inc.
Edward W. Rose III(l)(2)........... 57 Director
Morton L. Topfer(l)(2)............. 61 Director
</TABLE>
- ------------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
JOHN P. WATSON has served as Chairman of the Board of the Company since
April 1992. Prior to that he served as President of the Company from March 1991
until April 1992. Subsequent to his graduation from the University of Texas in
1969 with both J.D. and B.B.A. degrees until March 1988, Mr. Watson was involved
in real estate investment and development, and was a leading commercial real
estate developer in the Austin, Texas area. In 1988, as a result of the economic
downturn in the Austin, Texas area and other factors, Mr. Watson filed for
personal bankruptcy. From 1988 until he joined the Company in March 1991, Mr.
Watson led an investment group exploring various acquisition opportunities.
JERRY DENHAM has served as President and director of the Company since
consummation of the Merger. Mr. Denham served as the Chairman of the Board and
President of Bear Communications from 1987 until the Merger. Mr. Denham
co-founded Bear Communications in 1981.
KENNETH H. DOLL has served as Executive Vice President -- National Sales,
Secretary and director of the Company since consummation of the Merger. Mr. Doll
served as Executive Vice President of Bear Communications from 1990 until the
Merger. From 1986 to 1990, Mr. Doll served in various capacities with Bear
Communications, including Vice President and Manager of the San Francisco field
sales office. Prior to joining Bear Communications in 1986, Mr. Doll served as
Regional Sales Manager for Motorola, Inc. Mr. Doll currently serves as a
director for the Industrial Telecommunications Association.
BRENT A. BISNAR has served as Vice President -- National Rentals and
director of the Company since the Merger. From April 1993 until the Merger, Mr.
Bisnar served as Vice President and National Rental Manager for Bear
Communications. From January 1990 until that time he served as Vice President
and Manager of Bear Communications' Fort Lauderdale, Florida field sales office.
GARY WEBER has served as Vice President -- Marketing of the Company since
the Merger. Mr. Weber founded Page-Com in 1980 and served as its President from
its incorporation (except for the period from March 1991 until April 1992 when
Mr. Watson served as President and Mr. Weber served as a senior executive) until
consummation of the Merger.
MICHAEL L. KOVAR has served as Vice President and Chief Financial Officer
of the Company since November 1997. From July 1996 through October 1997, he
served as Controller of the Company. From May 1993 through July 1996, Mr. Kovar
served as Director of Finance/Operations for the Golf Division of Sport Supply
Group, Inc. ("SSG"), a New York Stock Exchange listed company. Prior to that,
Mr. Kovar served as
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<PAGE> 42
Controller of BSN Corp., an American Stock Exchange listed company and SSG's
former parent, from March 1989 through April 1993. From August 1984 through
February 1989, Mr. Kovar was a Senior Auditor for Ernst & Young L.L.P. (formerly
Arthur Young).
ROGELIO R. BETANCOURT has served as President of Condor Holdings, Inc., a
wholly owned subsidiary of the Company, since the acquisition of Condor
Communications. Prior to that time, Mr. Betancourt served as President of Condor
Communications since it was founded in 1980. Mr. Betancourt and his spouse are
the sole shareholders of Condor Communications.
EDWARD W. ROSE III has served as director of the Company since April 1992.
He is the President and sole shareholder of Cardinal Investment Company, Inc.,
an investment firm, and founded that firm in 1974. Mr. Rose serves as Chairman
of the Board of Drew Industries Inc., a supplier to the manufactured housing and
recreational vehicle industries, and Leslie Building Products, Inc., a
manufacturer of building products; Managing General Partner of the partnership
that owns the Texas Rangers Baseball Team; a trustee of Liberte Investors,
formerly a real estate investment trust; and a director of Ace Cash Express,
Inc., a provider of retail financial services.
MORTON L. TOPFER has served as director of the Company since December 1995.
Since May 1994, Mr. Topfer has served as Vice Chairman of Dell Computer
Corporation, and shares the office of Chief Executive Officer. From 1971 until
that time, Mr. Topfer served in various capacities with Motorola, including
Executive Vice President and President of Motorola's Land Mobile Products
Sector. Mr. Topfer also is a member of the Board of Directors of Autodesk, Inc.,
a software company, and Alliance Gaming Corporation, a diversified gaming
company.
The Board of Directors is divided into three classes, with one class of
directors elected on a rotating basis at each annual meeting of shareholders for
a three-year term. Directors are not compensated for serving in such capacity,
but are reimbursed for expenses incurred in attending meetings of the Board of
Directors. The Board of Directors of the Company consists of six directors
elected for terms to expire as follows: at the next annual meeting of
shareholders -- Brent A. Bisnar and Morton L. Topfer; at the second annual
meeting of shareholders after the date of this Prospectus -- Kenneth H. Doll and
Edward W. Rose III; and at the third annual meeting of shareholders after the
date of this Prospectus -- John P. Watson and Jerry Denham. The Company's
directors and officers serve until their successors have been duly elected and
qualified in accordance with the Articles of Incorporation and Bylaws of the
Company.
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid during the last fiscal year to the Company's Chief Executive Officer and
its four other most-highly compensated executive officers (the "Named Executive
Officers") during the fiscal year ended April 30, 1997:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------
OTHER ANNUAL ALL OTHER
SALARY BONUS COMPENSATION(1) COMPENSATION
NAME AND PRINCIPAL POSITION ($) ($) ($) ($)
<S> <C> <C> <C> <C>
John P. Watson......................... 227,000 -- -- --
Chairman of the Board
Jerry Denham........................... 227,370 -- 25,642(3)
President
Gary Weber............................. 275,000 -- 94,250(2) --
Vice President
Kenneth H. Doll........................ 226,584 -- 26,516(4)
Vice President and Secretary
Brent A. Bisnar........................ 164,480 -- 12,167(5)
Vice President
</TABLE>
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- ------------------------------
(1) Certain of the Company's executive officers receive personal benefits in
addition to salary and cash bonuses. The aggregate amount of the personal
benefits, however, does not exceed the lesser of $50,000 or 10% of the total
of the annual salary and bonus reported for the named executive officer.
(2) Payment for reduction of the outstanding balance of a note receivable, and
related accrued interest, for Mr. Weber's employment with the Company. See
"Certain Transactions."
(3) Includes $17,452 of life insurance premiums paid by the Company, and $8,190
of employer matching contributions paid by the Company pursuant to the
Company's 401(k) Plan.
(4) Includes $19,330 of life insurance premiums paid by the Company, and $7,186
of employer matching contributions paid by the Company pursuant to the
Company's 401(k) Plan.
(5) Includes $3,977 of life insurance premiums paid by the Company, and $8,190
of employer matching contributions paid by the Company pursuant to the
Company's 401(k) Plan.
STOCK OPTION PLAN
Pursuant to the Wireless International Inc. 1998 Stock Option Plan (the
"Stock Option Plan"), options may be granted to eligible employees of the
Company or its subsidiaries and directors of the Company for the purchase of an
aggregate of shares of Common Stock of the Company. Employees eligible
under the Stock Option Plan are those employees whose performance and
responsibilities are determined by the Board or a committee selected by the
Board in accordance with the terms of the Stock Option Plan (the "Committee") to
be influential to the Company's success. The Stock Option Plan is administered
by the Board or the Committee which determines, in its discretion, the terms of
each option in accordance with the provisions of the Stock Option Plan,
including the number of shares subject to each option granted, the related
exercise price, the vesting period and vesting conditions, and option period.
The Board or the Committee may grant either nonqualified stock options or
incentive stock options ("ISOs"), as defined by the Code; provided, however,
that ISOs may be granted only to employees.
The Stock Option Plan requires that the exercise price of each option that
is intended to constitute an ISO must not be less than 100% of the fair market
value of the Common Stock at the time of the grant of the option. The option
period may not be more than ten years from the date the option is granted. No
ISO, however, may be granted to an employee who owns more than 10% of the total
combined voting power of all classes of outstanding stock of the Company or its
subsidiaries unless the option price is at least 110% of the fair market value
of the Common Stock at the date of the grant and the option period does not
exceed five years. Options may be exercised in annual installments as specified
by the Board or the Committee, and all installments that become exercisable are
cumulative and may be exercised at any time after they become exercisable until
expiration of the option. Options are not assignable except by will or by the
laws of descent and distribution.
There is no limit on the fair market value of options that may be granted
to an employee in any calendar year, but no employee may be granted ISOs that
first become exercisable during a calendar year for the purchase of stock with
an aggregate fair market value (determined as of the date of grant of each
option) in excess of $100,000. An ISO (or an installment thereof) counts against
the annual limitations only in the year it first becomes exercisable.
Full payment for shares purchased upon exercise of an option must be made
at the time of exercise, and no shares may be issued until full payment is made.
The Stock Option Plan provides that an option agreement may include a provision
permitting an optionee the right to tender previously owned shares of Common
Stock in partial or full payment for shares to be purchased on exercise of an
option. Unless sooner terminated by action of the Board, the Stock Option Plan
will terminate in , 2008 and no options may thereafter be granted
under the Stock Option Plan. The Stock Option Plan may be discontinued, altered
or amended in certain respects by the Board without the approval of the
shareholders. However, the Stock Option Plan may not be amended without the
approval of the shareholders (i) to materially increase benefits, (ii) to
materially increase the number of shares of Common Stock that may be issued
under the Stock Option Plan, or (iii) to materially modify the requirements for
participation in the Stock Option Plan.
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<PAGE> 44
As of 1998, options to purchase shares had been granted
at the Offering price to certain directors, key employees and officers of the
Company.
EXCULPATORY CHARTER PROVISION; LIABILITY AND INDEMNIFICATION OF OFFICERS AND
DIRECTORS
Texas law permits Texas corporations to include in their articles of
incorporation a provision eliminating or limiting director liability to a
corporation or its shareholders for monetary damages arising from acts or
omissions in the director's capacity as a director. The only limitations imposed
under the statute are that the provision may not eliminate or limit a director's
liability to the extent the director is found liable for (a) a breach of the
director's duty of loyalty to the corporation or its shareholders, (b) an act or
omission not in good faith that constitutes a breach of duty of the director to
the corporation or an act or omission that involves intentional misconduct or a
knowing violation of the law, (c) a transaction from which the director received
an improper benefit, whether or not the benefit resulted from an action taken
within the scope of the director's office, or (d) an act or omission for which
the liability of a director is expressly provided by an applicable statute. The
Company's Restated Articles of Incorporation contain a provision eliminating the
liability of the Company's directors to the fullest extent permitted by Texas
statutory or decisional law, as the same exists or as it may be amended or
interpreted from time to time.
In addition, the Company's Amended and Restated Bylaws require it to
indemnify its directors and officers against any and all liability and
reasonable expense that may be incurred by them in connection with or resulting
from (a) any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, arbitrative or investigative, (b) an
appeal on such an action, suit or proceeding, or (c) an inquiry or investigation
that could lead to such an action, suit or proceeding, all to the fullest extent
permitted by Texas law.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the Company's last completed fiscal year, the Board did not have a
compensation committee or other committee performing equivalent functions. As a
result, during the Company's last completed fiscal year, the entire Board was
responsible for establishing executive officer compensation.
CERTAIN TRANSACTIONS
On December 1, 1995, the Company lent to John P. Watson, the Chairman of
the Board of the Company, $933,300, the proceeds of which Mr. Watson used to
exercise a stock option that the Company had granted in April 1992. The loan is
evidenced by a promissory note bearing interest at 7%. In addition, during
fiscal years 1993, 1995 and 1996, the Company made cash advances to Mr. Watson
aggregating $452,200. These advances are evidenced by four separate promissory
notes, each bearing interest at 7%. The greatest aggregate amount of principal
and interest outstanding under these five promissory notes during fiscal years
1995, 1996 and 1997 was $449,896, $1,492,596 and $1,589,581, respectively.
Amounts outstanding under all five notes are secured by 142,746 shares of Common
Stock held by Mr. Watson. At January 31, 1998, the aggregate amount of principal
and interest outstanding under these five promissory notes was approximately
$1,662,320. Mr. Watson has indicated that he intends to repay all amounts
outstanding under these five promissory notes with the proceeds from the sale of
shares of Common Stock to be sold by him in the Offering.
On April 28, 1995, the Company sold land and a building to Gary Weber, Vice
President of the Company, in exchange for a note receivable of $325,000 bearing
interest at 9%. The note and accrued interest are due on April 28, 2000 and are
secured by a first lien on the property. At that time, the Company agreed to
reduce the outstanding balance of the note, and related accrued interest, by 20%
per year as long as Mr. Weber stays in the employment of the Company. As a
result, the note receivable and related interest are being charged to
compensation expense over a five-year period.
The Company rents its Costa Mesa, California, office from a partnership
controlled by Jerry Denham, Kenneth H. Doll and Brent A. Bisnar, executive
officers of the Company. Total rental payments to this partnership were
$104,777, $112,816 and $94,740 for the years ended April 30, 1995, 1996 and
1997,
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<PAGE> 45
respectively. Bear Communications guaranteed payment of two promissory notes
that are secured by this property and were issued in connection with the
partnership's purchase of this property. It is anticipated that this partnership
will pay all amounts outstanding under these notes with the proceeds from shares
of Common Stock to be sold in the Offering by certain partners.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information concerning the
beneficial ownership of Common Stock, as of January 31, 1998, by (a) each person
known by the Company to own beneficially more than 5% of the outstanding Common
Stock, (b) each director of the Company, (c) each Named Executive Officer and
(d) all executive officer and directors as a group. The Company believes that
each such shareholder has the sole voting and dispositive power over the shares
held by such shareholder except as otherwise indicated. See "Risk
Factors -- Control by Existing Shareholders."
<TABLE>
<CAPTION>
SHARES SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED BEING OWNED AFTER THE
BEFORE THE OFFERING(1) OFFERED OFFERING(L)
-------------------------- ------- -------------------
BENEFICIAL OWNER NUMBER PERCENTAGE NUMBER NUMBER PERCENTAGE
<S> <C> <C> <C> <C> <C>
John P. Watson............................... 880,910 13.2%
Jerry Denham................................. 1,860,795 27.9%
Kenneth H. Doll.............................. 1,660,710 24.9%
Edward W. Rose III........................... 539,477 8.1%
Brent A. Bisnar.............................. 360,154 5.4%
Morton L. Topfer(2).......................... -- --
All directors and executive officers as a
group (9 persons).......................... 5,302,046 79.5%
</TABLE>
- ------------------------------
* less than one percent
(1) Shares beneficially owned and percentage of ownership are based on 6,669,517
shares of Common Stock outstanding before the Offering and shares of
Common Stock outstanding after the Offering. Shares outstanding after the
Offering assumes no exercise of the Underwriters over-allotment option.
Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes shares with respect to which a person has
voting or disposition power.
(2) Immediately prior to the closing of the offering, it is anticipated that
certain Selling Shareholders will sell approximately shares of Common
Stock to Mr. Topfer for consideration equal to the initial public offering
price, less underwriting discounts and commissions.
44
<PAGE> 46
DESCRIPTION OF CAPITAL STOCK
The Company has authorized capital stock consisting of shares of
Common Stock, $0.01 par value, and 1,000,000 shares of preferred stock, $0.01
par value. At December 31, 1997, there were 6,669,517 shares of Common Stock
outstanding, owned by 21 holders of record, and there were no shares of
preferred stock outstanding. A total of shares of Common Stock are
reserved for future issuance under, and for issuance upon the exercise of
options granted or which may be granted under, the Stock Option Plan. See
"Management -- Stock Option Plan."
COMMON STOCK
The rights of the holder of each share of Common Stock are identical in all
respects. All outstanding shares of Common Stock are, and the shares of Common
Stock offered hereby when issued and paid for will be validly issued, fully paid
and nonassessable. All holders of Common Stock have full voting rights and are
entitled to one vote for each share held of record on all matters submitted to a
vote of the shareholders. Votes may not be cumulated in the election of
directors. Shareholders have no preemptive or subscription rights. The Common
Stock is neither redeemable nor convertible, and there are no sinking fund
provisions. Holders of Common Stock are entitled to dividends when, as and if
declared by the Board of Directors from funds legally available therefor and are
entitled, upon liquidation, to share ratably in all assets remaining after
payment of liabilities. The rights of holders of Common Stock will be subject to
any preferential rights of any preferred stock which may be issued in the
future.
PREFERRED STOCK
The Board of Directors of the Company is authorized (without any further
action by the shareholders) to issue preferred stock in one or more series and
to fix the voting rights, liquidation preferences, dividend rates, conversion
rights, redemption rights and terms, including sinking fund provisions, and
certain other rights and preferences. Satisfaction of any dividend preferences
of outstanding preferred stock would reduce the amount of funds available for
the payment of dividends on Common Stock. Also, holders of preferred stock would
normally be entitled to receive a preference payment in the event of any
liquidation, dissolution or winding-up of the Company before any payment is made
to the holders of Common Stock. In addition, under certain circumstances, the
issuance of preferred stock may render more difficult or tend to discourage a
merger, tender offer or proxy contest, the assumption of control by a holder of
a large block of the Company's securities or the removal of incumbent
management. The Board of Directors of the Company, without shareholder approval,
may issue preferred stock with voting and conversion rights which could
adversely affect the holders of Common Stock. The Company has no present
intention to issue any shares of preferred stock.
SPECIAL PROVISIONS OF THE AMENDED AND RESTATED ARTICLES OF INCORPORATION AND
AMENDED AND RESTATED BYLAWS
The provisions of the Company's Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws summarized in the succeeding
paragraphs may be deemed to have an anti-takeover effect and may delay, defer or
prevent a tender offer or takeover attempt that a shareholder might consider in
such shareholder's best interest, including attempts that might result in a
premium over the market price for the shares held by shareholders.
Pursuant to the Company's Amended and Restated Articles of Incorporation,
the Company's Board of Directors by resolution may establish one or more series
of preferred stock having such number of shares, designations, relative voting
rights, dividend rates, liquidation and other rights, preferences and
limitations as may be fixed by the Board of Directors without any further
shareholder approval. Such rights, preferences, powers and limitations as may be
established could have the effect of impending or discouraging the acquisition
of control of the Company.
The Company's Amended and Restated Bylaws provides that (a) the Board of
Directors is divided into three classes that are elected for staggered
three-year terms; (b) shareholders may only remove a director for cause, and
only by the affirmative vote of holders of not less than two-thirds of the
outstanding voting stock of
45
<PAGE> 47
the Company; and (c) meetings of shareholders can be called only by the Chairman
of the Board, President, a majority of the Board of Directors or holders of not
less than 25% of the shares entitled to vote at such meeting. To be amended,
these provisions require the affirmative vote of a majority of the Board of
Directors or the holders of not less than two-thirds of the outstanding voting
stock of the Company.
REGISTRATION RIGHTS
The Company has granted to all of its shareholders the right to register
shares of Common Stock owned by them in connection with the registration by the
Company of shares of Common Stock. The Company would bear the expenses of
registration of any such shareholder. See "Risk Factors -- Shares Eligible for
Future Sale; Registration Rights."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the current shareholders of the Company
will own approximately % of the outstanding Common Stock ( % if the
Underwriters' over-allotment option is exercised in full). Officers, directors
and certain shareholders of the Company, who will own % of the outstanding
shares following this offering ( % if the Underwriters' over-allotment
option is exercised in full), have agreed with the Underwriters not to sell,
grant any option to sell, transfer or otherwise dispose of, directly or
indirectly, any shares of Common Stock (other than those being sold pursuant to
this offering) for a period of 180 days following the date of this Prospectus
without the prior written consent of the Representatives. See "Underwriting."
Upon completion of this offering, the Company will have shares of
Common Stock outstanding ( shares if the Underwriters' over-allotment
option is exercised in full). Of these shares, the shares sold in this
offering ( shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable in the public market without
restriction by persons other than affiliates of the Company. All of the
remaining shares are "restricted securities" within the meaning of Rule 144
under the Securities Act. Approximately shares held for more than two
years may be sold immediately following consummation of the Offering. Following
the expiration or release from the 180-day lock-up agreements with the
representatives of the Underwriters, approximately additional shares
of Common Stock will be eligible for sale in accordance with the requirements of
Rule 144, subject to compliance with certain volume limitations. See
"Underwriting."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned, for at
least one year, shares of Common Stock that have not been registered under the
Securities Act or that were acquired from an "affiliate" of the Company, is
entitled to sell within any three month period a number of shares of Common
Stock that does not exceed the greater of 1% of the then-outstanding shares of
Common Stock ( shares upon completion of this offering) and the average
weekly reported trading volume in the Common Stock during the four calendar
weeks preceding such sale. Sales under Rule 144 also are subject to certain
notice and manner-of-sale requirements and the availability of current public
information about the Company. A person (or persons whose shares are aggregated)
who is not an affiliate of the Company (in general, a person who is not a
director, officer or principal shareholder of the Company) during the three
months prior to resale and who has beneficially owned such shares for at least
two years is entitled to sell such restricted stock under Rule 144 without
regard to the requirements discussed above, other than the manner-of-sale
provisions.
The Company is unable to estimate the number of shares that may be sold in
the future by its shareholders since this will depend on the market price for
the Common Stock, the personal circumstances of the shareholders and other
factors. Any sale of substantial amounts of shares in the open market may
significantly reduce the market price of the Common Stock offered hereby.
46
<PAGE> 48
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 under the Securities Act may be
relied upon with respect to the resale of shares of Common Stock originally
purchased from the Company by its employees, directors and officers prior to the
date the Company becomes subject to the reporting requirements of the Exchange
Act pursuant to written compensatory benefit plans or written contracts relating
to the compensation of such persons. Shares of Common Stock issued in reliance
on Rule 701 are "restricted shares" and, beginning 90 days after the Company
becomes subject to the reporting requirements of the Exchange Act, may be sold
by persons other than affiliates, subject to the provisions regarding
manner-of-sale under Rule 144, and by affiliates under Rule 144 without
compliance with its one-year minimum holding period requirements.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register all of the shares of Common Stock issued or reserved
for future issuance under the Stock Option Plan. After the effective date of
that registration statement, shares purchased upon exercise of options granted
pursuant to the Plan will be available for resale in the public market without
restriction by persons who are not affiliates of the Company, and to the extent
they are held by affiliates, pursuant to Rule 144, without observance of the
holding period requirements. As of , 1998, there were options
outstanding to purchase a total of shares of Common Stock, of which
options to purchase shares are presently exercisable.
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement
dated , 1998 (the "Underwriting Agreement"), the underwriters named
below (the "Underwriters"), who are represented by Donaldson, Lufkin & Jenrette
Securities Corporation and CIBC Oppenheimer Corp. (the "Representatives"), have
severally agreed to purchase from the Company and the Selling Shareholders the
respective number of shares of Common Stock set forth opposite their names
below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
CIBC Oppenheimer Corp. .....................................
-------
Total.............................................
=======
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered are subject to approval by their counsel of certain legal matters and to
certain other conditions. The Underwriters are obligated to purchase and accept
delivery of all shares of Common Stock offered hereby (other than shares covered
by the over-allotment option described below) if any are purchased.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
47
<PAGE> 49
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock in part directly to the public at
the initial public offering price set forth on the cover page of this Prospectus
and in part to certain dealers (including the Underwriters) at such price less a
concession not in excess of $ per share. The Underwriters may allow,
and such dealers may reallow, to certain other dealers a concession not in
excess of $ per share. After the initial offering of the Common Stock,
the public offering price and other selling terms may be changed by the
Representatives at any time without notice. The Underwriters do not intend to
confirm sales to any accounts over which they exercise discretionary authority.
The Company has granted an option to the Underwriters, exercisable within
30 days after the date of this Prospectus, to purchase, from time to time, in
whole or in part, up to an aggregate of additional shares of Common Stock
at the initial public offering price, less underwriting discounts and
commissions. The Underwriters may exercise such option solely to cover
overallotments, if any, made in connection with the Offering. To the extent that
the Underwriters exercise such option, each Underwriter will become obligated,
subject to certain conditions, to purchase its pro rata share of such additional
shares based on such Underwriter's percentage underwriting commitment as
indicated in the preceding table.
Each of the Company, its executive officers and directors and certain
shareholders of the Company (including the Selling Shareholders) has agreed,
subject to certain exceptions, not to (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangement that transfers all or a portion of the
economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise) for a period of 180 days after the date of this Prospectus
without the prior written consent of DLJ. In addition, during such period, the
Company has also agreed not to file any registration statement with respect to,
and each of its executive officers, directors and certain shareholders of the
Company (including the Selling Shareholders) has agreed not to make any demand
for, or exercise any right with respect to, the registration of any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock without DLJ's prior written consent.
Prior to the Offering, there has been no established trading market for the
Common Stock. The initial public offering price for the shares offered hereby
will be determined by negotiation among the Company representatives of the
Selling Shareholders and the Representatives. The factors to be considered in
determining the initial public offering price include the history of and the
prospects for the industry in which the Company competes, the past and present
operations of the Company, the historical results of operations of the Company,
the prospects for future earnings of the Company, the recent market prices of
securities of generally comparable companies and the general condition of the
securities markets at the time of the Offering.
Application has been made for the Common Stock to be approved for quotation
on Nasdaq under the trading symbol "WIIN."
Other than in the United States, no action has been taken by the Company,
the Selling Shareholders or the Underwriters that would permit a public offering
of the shares of Common Stock offered hereby in any jurisdiction where action
for that purpose is required. The shares of Common Stock offered hereby may not
be offered or sold, directly or indirectly, nor may this Prospectus or any other
offering material or advertisements in connection with the offer and sale of any
such shares of Common Stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
rules and regulations of such jurisdiction. Persons into whose possession this
Prospectus comes are advised to inform themselves about and to observe any
restrictions relating to the Offering of the Common Stock and the distribution
of this Prospectus. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any shares of Common Stock offered hereby in any
jurisdiction in which such an offer or a solicitation is unlawful.
48
<PAGE> 50
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the Offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover such syndicate short position
or to stabilize the price of the Common Stock. In addition, the underwriting
syndicate may reclaim selling concessions from syndicate members and selected
dealers if they repurchase previously distributed Common Stock in syndicate
covering transactions, in stabilizing transactions or otherwise. These
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock covered by this
Prospectus will be passed upon for the Company by Gardere & Wynne, L.L.P.,
Dallas, Texas. Certain legal matters pertaining to the Common Stock will be
passed upon for the Underwriters by Vinson & Elkins L.L.P., Dallas, Texas. A
partner of Gardere & Wynne, L.L.P. owns 36,008 shares of Common Stock of the
Company.
EXPERTS
The consolidated financial statements of Wireless International, Inc. and
subsidiaries as of April 30, 1996 and 1997 and January 31, 1998, and for each of
the years in the three-year period ended April 30, 1997 and the nine months
ended January 31, 1998, have been included herein and in the registration
statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
The financial statements of Condor Communications, Inc. as of December 31,
1996 and 1997, and for each of the years in the three-year period ended December
31, 1997, have been included herein and in the registration statement in
reliance upon the report of Saenz, Robledo, Sax & Company, P.A., independent
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus, which is part of
the Registration Statement, does not contain all of the information set forth in
the Registration Statement and the exhibits thereto. For further information
concerning the Company and the Common Stock, reference is made to the
Registration Statement and to the exhibits and schedules filed therewith, copies
of which may be inspected at the Commission's public reference facilities at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, at the Northeast
Regional Office located at 7 World Trade Center, New York, New York 10048 and at
the Midwest Regional Office located at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, or copies of which may be obtained from the Commission
at such office upon payment of the fees prescribed by the Commission. The
summaries in this Prospectus of additional information included in the
Registration Statement or any exhibit thereto are qualified in their entirety by
reference to such information or exhibit filed with the Commission. The
Commission maintains a World Wide Web site on the Internet at http://www.sec.gov
that contains information concerning the Company.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and quarterly reports for each of the
first three quarters of each fiscal year containing interim unaudited financial
information.
49
<PAGE> 51
WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Wireless International, Inc.
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of April 30, 1996 and 1997
and January 31, 1998................................... F-3
Consolidated Statements of Income for the years ended
April 30, 1995, 1996 and 1997 and the nine months ended
January 31, 1997 (unaudited) and 1998.................. F-4
Consolidated Statements of Shareholders' Equity for the
years ended April 30, 1995, 1996 and 1997 and the nine
months ended January 31, 1998.......................... F-5
Consolidated Statements of Cash Flows for the years ended
April 30, 1995, 1996 and 1997 and the nine months ended
January 31, 1997 (unaudited) and 1998.................. F-6
Notes to Consolidated Financial Statements................ F-7
Schedule II -- Valuation and Qualifying Accounts.......... F-16
Condor Communications, Inc.
Independent Auditors' Report.............................. F-17
Combined Balance Sheets as of December 31, 1996 and
1997................................................... F-18
Combined Statements of Operations for the years ended
December 31, 1995, 1996 and 1997....................... F-19
Combined Statements of Stockholders' Equity for the years
ended December 31, 1995, 1996 and 1997................. F-20
Combined Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997....................... F-21
Notes to Combined Financial Statements.................... F-22
</TABLE>
F-1
<PAGE> 52
When the stock split referred to in Note 13 of the Notes to Consolidated
Financial Statements has been effected, we will be in a position to render the
following report.
KPMG PEAT MARWICK LLP
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Wireless International, Inc.:
We have audited the consolidated financial statements of Wireless
International, Inc. and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Wireless
International, Inc. and subsidiaries as of April 30, 1996 and 1997 and January
31, 1998, and the results of their operations and their cash flows for each of
the years in the three-year period ended April 30, 1997 and the nine months
ended January 31, 1998, in conformity with generally accepted accounting
principles.
Dallas, Texas
March 27, 1998, except as to note 13,
which is as of , 1998
F-2
<PAGE> 53
WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS (Note 8)
<TABLE>
<CAPTION>
APRIL 30,
------------------------- JANUARY 31,
1996 1997 1998
<S> <C> <C> <C>
Current Assets:
Cash................................................ $ 93,310 $ 185,309 $ 58,632
Receivables (notes 4, 6 and 11)..................... 6,905,730 8,854,035 13,989,964
Inventory........................................... 6,610,377 8,229,486 10,282,578
Prepaid expenses and other.......................... 1,171,877 1,812,502 1,645,391
----------- ----------- -----------
Total current assets........................ 14,781,294 19,081,332 25,976,565
----------- ----------- -----------
Notes and interest receivable from employees (note
6).................................................. 819,296 851,281 875,270
Fixed assets, net (notes 5 and 9)..................... 3,667,246 4,285,702 6,395,995
Costs in excess of tangible net assets acquired, net
(note 3)............................................ 467,830 1,916,567 7,680,424
Other assets.......................................... 311,494 310,282 290,379
----------- ----------- -----------
$20,047,160 $26,445,164 $41,218,633
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Note payable to bank (note 7)....................... $ 5,554,749 $ -- $ --
Accounts payable.................................... 1,710,159 3,106,712 4,534,891
Accrued expenses.................................... 1,239,117 2,061,837 2,962,571
Current maturities of long-term debt (note 8)....... 67,936 105,773 1,357,115
Current maturities of obligations under capital
leases (note 9).................................. 78,609 84,658 70,812
Federal income taxes payable........................ 883,720 -- 1,243,359
Deferred income taxes (note 10)..................... 920,524 497,735 58,626
----------- ----------- -----------
Total current liabilities................... 10,454,814 5,856,715 10,227,374
----------- ----------- -----------
Long-term debt, less current maturities (note 8)...... -- 9,398,739 17,917,506
Obligations under capital leases, less current
maturities (note 9)................................. 186,300 98,135 49,324
Deferred income taxes (note 10)....................... 400,558 203,206 183,870
Shareholders' equity (notes 6 and 8):
Preferred stock, $.01 par value; authorized
1,000,000 shares, none issued.................... -- -- --
Common stock, $.01 par value; authorized 10,000,000
shares, 6,669,517 shares issued and
outstanding...................................... 66,695 66,695 66,695
Additional paid-in capital.......................... 3,756,971 3,756,971 3,756,971
Cumulative currency translation adjustment.......... 16,536 (2,886) (8,916)
Note receivable from shareholder.................... (933,300) (933,300) (933,300)
Retained earnings................................... 6,098,586 8,000,889 9,959,109
----------- ----------- -----------
Total shareholders' equity.................. 9,005,488 10,888,369 12,840,559
Commitments (notes 6 and 9)
----------- ----------- -----------
$20,047,160 $26,445,164 $41,218,633
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 54
WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED APRIL 30, JANUARY 31,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Product sales.................... $48,686,333 $54,131,117 $57,863,686 $42,621,138 $52,672,374
Rental income.................... 7,867,820 9,146,929 11,777,819 8,732,842 14,391,705
----------- ----------- ----------- ----------- -----------
56,554,153 63,278,046 69,641,505 51,353,980 67,064,079
----------- ----------- ----------- ----------- -----------
Cost of sales of products........ 37,920,912 41,007,241 43,007,604 32,737,991 42,533,720
Rental operating expenses........ 1,449,758 1,976,587 3,267,282 1,556,115 1,875,672
----------- ----------- ----------- ----------- -----------
39,370,670 42,983,828 46,274,886 34,294,106 44,409,392
----------- ----------- ----------- ----------- -----------
Gross profit........... 17,183,483 20,294,218 23,366,619 17,059,874 22,654,687
Selling, general and
administrative expenses........ 13,623,153 16,697,029 19,757,789 14,085,273 18,829,735
----------- ----------- ----------- ----------- -----------
Operating income....... 3,560,330 3,597,189 3,608,830 2,974,601 3,824,952
Interest expense................. 518,574 544,054 594,872 431,544 846,985
Other (income) expense, net...... 70,283 31,050 (68,078) (56,558) (94,730)
Loss (gain) on disposal of assets
(note 6)....................... 232,095 2,003 (5,313) (650) --
----------- ----------- ----------- ----------- -----------
Income before income
taxes................ 2,739,378 3,020,082 3,087,349 2,600,265 3,072,697
Income taxes (note 10)........... 1,726,395 1,173,335 1,185,046 998,083 1,114,477
----------- ----------- ----------- ----------- -----------
Net income............. $ 1,012,983 $ 1,846,747 $ 1,902,303 $ 1,602,182 $ 1,958,220
=========== =========== =========== =========== ===========
Pro forma income data (unaudited)
(note 1(h)):
Net income as reported......... 1,012,983 $ 1,846,747 $ 1,902,303 $ 1,602,182 $ 1,958,220
=========== =========== =========== ===========
Pro forma adjustment for
income tax................ 666,363
-----------
Pro forma net income........ $ 1,679,346
===========
Earnings per share:
Basic.......................... $ .17 $ .30 $ .29 $ .24 $ .29
=========== =========== =========== =========== ===========
Diluted........................ $ .17 $ .30 $ .29 $ .24 $ .29
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 55
WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED APRIL 30, 1995, 1996 AND 1997
AND NINE MONTHS ENDED JANUARY 31, 1998
<TABLE>
<CAPTION>
CUMULATIVE NOTE
COMMON STOCK ADDITIONAL CURRENCY RECEIVABLE TOTAL
------------------- PAID-IN TRANSLATION FROM RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL ADJUSTMENT SHAREHOLDER EARNINGS EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1994..... 6,002,726 $60,027 $2,830,339 $ -- $ -- $3,661,772 $ 6,552,138
Net income.................... -- -- -- -- -- 1,012,983 1,012,983
--------- ------- ---------- -------- --------- ---------- -----------
Balance at April 30, 1995..... 6,002,726 60,027 2,830,339 -- -- 4,674,755 7,565,121
Net income.................... -- -- -- -- -- 1,846,747 1,846,747
Issuance of common stock
(note 6).................... 666,791 6,668 926,632 -- (933,300) -- --
Currency translation gain..... -- -- -- 16,536 -- -- 16,536
Distributions to shareholders
(note 1(h))................. -- -- -- -- -- (422,916) (422,916)
--------- ------- ---------- -------- --------- ---------- -----------
Balance at April 30, 1996..... 6,669,517 66,695 3,756,971 16,536 (933,300) 6,098,586 9,005,488
Net income.................... -- -- -- -- -- 1,902,303 1,902,303
Currency translation loss..... -- -- -- (19,422) -- -- (19,422)
--------- ------- ---------- -------- --------- ---------- -----------
Balance at April 30, 1997..... 6,669,517 66,695 3,756,971 (2,886) (933,300) 8,000,889 10,888,369
Net income.................... -- -- -- -- -- 1,958,220 1,958,220
Currency translation loss..... -- -- -- (6,030) -- -- (6,030)
--------- ------- ---------- -------- --------- ---------- -----------
Balance at January 31, 1998... 6,669,517 $66,695 $3,756,971 $ (8,916) $(933,300) $9,959,109 $12,840,559
========= ======= ========== ======== ========= ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 56
WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED APRIL 30, JANUARY 31,
--------------------------------------- -------------------------
1995 1996 1997 1997
(UNAUDITED) 1998
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income......................... $ 1,012,983 $ 1,846,747 $ 1,902,303 $ 1,602,182 $ 1,958,220
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization
expense....................... 1,158,803 1,169,918 1,643,732 1,048,572 1,524,679
Loss (gain) on disposal of
assets........................ 232,095 2,003 (5,313) -- --
Deferred income taxes............ 1,313,669 (488,222) (620,141) 17,688 (458,445)
Changes in operating assets and
liabilities, exclusive of
effects of acquisitions:
Receivables................... (69,480) (1,204,415) (1,673,922) (1,218,977) (4,255,599)
Inventory..................... (1,034,006) 1,355,884 (1,486,281) (3,328,952) (1,706,760)
Prepaid expenses and other.... (280,234) (162,610) (662,825) (770,097) 181,411
Notes and interest receivable
from employees.............. (19,930) 7,800 (31,985) (23,989) (23,989)
Accounts payable.............. (500,839) (871,536) 1,031,059 1,782,015 1,274,035
Accrued expenses.............. 53,211 824,683 931,675 1,095,250 208,201
Federal income taxes
payable..................... 197,631 571,302 (1,180,216) (263,625) 1,240,299
----------- ----------- ----------- ----------- -----------
Net cash provided by (used
in) operating
activities................ 2,063,903 3,051,554 (151,914) (59,933) (57,948)
----------- ----------- ----------- ----------- -----------
Cash flows used in investing
activities:
Additions to fixed assets.......... (1,053,542) (1,555,018) (2,127,139) (1,888,844) (891,262)
Increase in notes receivable from
employees........................ (175,000) (52,200) -- -- --
Net cash paid as a result of
acquisitions..................... -- -- (1,073,664) (1,073,664) (8,811,010)
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities................ (1,228,542) (1,607,218) (3,200,803) (2,962,508) (9,702,272)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Decrease in notes payable to
bank............................. (845,146) (1,127,433) -- -- --
Increase in long-term debt......... -- -- 3,589,261 3,237,073 9,768,767
Repayment of long-term debt........ (231,434) (107,556) (62,429) (69,606) (59,710)
Distributions to shareholders...... -- (422,916) -- -- --
Increase (decrease) in obligations
under capital leases............. (64,237) 80,636 (82,116) (66,040) (75,514)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used
in) financing
activities................ (1,140,817) (1,577,269) 3,444,716 3,101,427 9,633,543
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash...... (305,456) (132,933) 91,999 78,986 (126,677)
Cash at beginning of period.......... 531,699 226,243 93,310 93,310 185,309
----------- ----------- ----------- ----------- -----------
Cash at end of period................ $ 226,243 $ 93,310 $ 185,309 $ 172,296 $ 58,632
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 57
WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1995, 1996 AND 1997 AND JANUARY 31, 1998
(1) GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) General
Wireless International, Inc. (formerly BearCom, Inc.), and subsidiaries
(the "Company"), is the surviving company resulting from the merger of Page-Com,
Inc. ("Page-Com") and Bear Communications, Inc. ("Bear Communications") on
December 27, 1995 (see note 2). The Company is principally in the business of
selling and renting site-based two-way radios, pagers and other wireless
communication equipment to customers throughout the United States, as well as a
number of foreign countries.
The consolidated financial statements include Wireless International, Inc.
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
(b) Inventory
Inventory consists primarily of two-way radios and accessories and is
stated at the lower of average cost or market. Inventory is stated net of
reserves for obsolete items of $279,978 and $196,413 at April 30, 1996 and 1997,
respectively, and $374,565 at January 31, 1998.
(c) Fixed Assets
Fixed assets are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the related assets,
which range from 3 to 7 years for equipment and fixtures and 20 years for the
building. Rental equipment is depreciated over five years. Leasehold
improvements are amortized on a straight-line basis over the shorter of their
useful life or the related lease term. Renewals and improvements that
significantly add to the productive capacity or extend the useful life of an
asset are capitalized. Repairs and maintenance are charged to expense as
incurred.
(d) Costs in Excess of Tangible Net Assets Acquired
Costs in excess of tangible net assets acquired are being amortized using
the straight-line method over an estimated useful life of thirty years. The
Company assesses the recoverability of costs in excess of tangible net assets
acquired by determining whether the amortization of the balance over its
remaining life can be recovered through undiscounted future operating cash flows
of the acquired operation. The amount of impairment, if any, is measured based
on projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. The assessment of recoverability
will be impacted if estimated future operating cash flows are not achieved.
Costs in excess of tangible net assets acquired are stated net of accumulated
amortization of $65,840 and $98,889 at April 30, 1996 and 1997, respectively,
and $271,538 at January 31, 1998.
(e) Revenue
The Company records revenue from product sales at the time the related
products are shipped. Sales are recorded net of returns and allowances. Rental
income is recognized when earned.
(f) Advertising Costs
The Company expenses the costs of advertising as incurred, except for
direct-response advertising and catalog costs which are capitalized and
amortized over their expected period of future benefit (generally one year).
Direct-response advertising costs consist primarily of the cost of mailing lists
and printing, postage and contract services related to catalogs used to market
the Company's products. Total advertising costs reported as assets included in
"prepaid expenses and other" were $706,926 and $1,413,898 at April 30, 1996
F-7
<PAGE> 58
WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and 1997, respectively, and $1,295,453 at January 31, 1998. Advertising expense
was $1,668,599, $1,654,995 and $1,459,592 for the years ended April 30, 1995,
1996 and 1997, respectively, and $1,568,036 for the nine months ended January
31, 1998.
(g) Foreign Currency Translation
Financial statements of the Company's Australian subsidiary are translated
into U.S. dollars using the exchange rate at each balance sheet date for assets
and liabilities and the average exchange rate for each period for revenues,
expenses and gains and losses. Translation adjustments are reflected as a
component of stockholders' equity. Gains or losses from foreign currency
transactions are included in net income.
(h) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
For periods prior to January 1, 1995, Bear Communications was subject to
taxation under Subchapter S of the Internal Revenue Code for federal income tax
purposes. Accordingly, no provision was made for federal income taxes as the
liability for such taxes was the responsibility of the stockholders of Bear
Communications. Effective January 1, 1995, Bear Communications terminated its
Subchapter S election. In connection with this change, Bear Communications also
changed its method of accounting for income tax purposes from the cash basis to
the accrual basis. For periods subsequent to January 1, 1995, income taxes have
been provided for Bear Communications using the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Statement
109) and are included in the consolidated financial statements. The effect of
initial implementation of Statement 109 for Bear Communications at January 1,
1995 due to the change in tax status was a charge to income tax expense of
$693,225.
The unaudited pro forma income tax data included in the consolidated
statement of income for the year ended April 30, 1995 has been determined after
computing federal income taxes as if Bear Communications had been directly
responsible for federal income taxes for all periods presented using the asset
and liability method of accounting for income taxes as prescribed in Statement
109. In connection with the change in tax status, Bear Communications made
distributions to its shareholders in a tax-free distribution of $422,916
representing previously taxed but undistributed earnings.
(i) Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding. Diluted earnings per share is
computed by dividing net income by the weighted average number of common shares
plus the number of additional shares that would have resulted from potentially
dilutive securities.
The weighted average number of shares outstanding for the years ended April
30, 1995 and 1996 were 6,002,726 and 6,095,850, respectively. The weighted
average number of shares outstanding for the year ended April 30, 1997, and the
nine months ended January 1997 and 1998 were 6,669,517. Potentially dilutive
securities were not considered to be dilutive for the years ended April 30,
1995, 1996 or 1997, or the nine months ended January 31, 1997 and 1998.
F-8
<PAGE> 59
WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(j) Statement of Cash Flows Information
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less to be
cash equivalents. There were no cash equivalents at April 30, 1996 or 1997 or
January 31, 1998.
Supplemental cash flow information related to interest and income taxes
paid follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED APRIL 30, JANUARY 31,
---------------------------------- ----------------------
1995 1996 1997 1997 1998
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest paid................... $529,922 $ 547,790 $ 595,592 $ 414,020 $774,350
======== ========== ========== ========== ========
Income taxes paid............... $206,776 $1,186,517 $2,798,863 $2,225,160 $ --
======== ========== ========== ========== ========
</TABLE>
Noncash transactions consist of the sale of land and a building to an
officer of the Company in fiscal 1995 in exchange for a note and the sale of
common stock to an officer of the Company in fiscal 1996 in exchange for a full
recourse note (see note 6).
(k) Use of Management 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 assets 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) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
(2) MERGER
On December 27, 1995, Page-Com issued 4,001,710 shares of its common stock
in exchange for all of the outstanding common stock of Bear Communications in a
transaction accounted for as a pooling-of-interests. Accordingly, the
consolidated financial statements for periods prior to the combination have been
restated to combine the accounts and results of operations of Page-Com and Bear
Communications. There were no significant transactions between Page-Com and Bear
Communications prior to the combination.
F-9
<PAGE> 60
WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The results of operations previously reported by the separate companies and
the combined amounts presented in the accompanying consolidated financial
statements are summarized below for the year ended April 30, 1995:
<TABLE>
<S> <C>
Net sales:
Page-Com...................................... $33,688,000
Bear Communications........................... 22,866,000
-----------
Combined...................................... $56,554,000
===========
Net income:
Page-Com...................................... $ 579,000
Bear Communications........................... 434,000
-----------
Combined...................................... $ 1,013,000
===========
</TABLE>
Pro forma net income data giving effect to income tax adjustments necessary
to present Bear Communication's net income as if it were subject to federal
income taxes for the year ended April 30, 1995 follows (unaudited, see note
1(h)):
<TABLE>
<S> <C>
Page-Com......................................... $ 579,000
Bear Communications.............................. 1,100,000
----------
Combined......................................... $1,679,000
==========
</TABLE>
Prior to the combination, Bear Communication's fiscal year end was December
31. In recording the pooling-of-interests combination, Bear Communication's
financial statements were adjusted to reflect an April 30 year-end for all prior
years presented, consistent with Page-Com. Accordingly, the Bear Communication's
financial statements were combined with the Page-Com financial statements for
the same periods.
(3) ACQUISITIONS
During the year ended April 30, 1997 and the nine months ended January 31,
1998, the Company acquired several communication equipment businesses. The
Company used the purchase method to account for these acquisitions. The results
of the acquired operations have been included in the Company's consolidated
statements of income from the acquisition dates.
The fair values assigned to assets acquired and liabilities assumed, net of
cash acquired, are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
APRIL 30, JANUARY 31,
1997 1998
<S> <C> <C>
Net working capital (deficit)............................... $ (74,000) $ 336,683
Property and equipment...................................... 86,000 2,554,487
Costs in excess of tangible net assets acquired............. 1,482,000 5,919,840
---------- ----------
$1,494,000 $8,811,010
========== ==========
</TABLE>
The acquisitions during the year ended April 30, 1997 were funded by
approximately $1,074,000 in cash, $120,000 in credit for future purchases and
$300,000 in long-term debt. The acquisitions during the nine months ended
January 31, 1998 were funded in cash.
F-10
<PAGE> 61
WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Unaudited pro forma financial information for the years ended April 30,
1996 and 1997 as though the acquisitions had taken place on May 1, 1995 follows:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30
--------------------------
1996 1997
<S> <C> <C>
Net sales and rental income............................... $78,916,000 $85,279,000
Net income................................................ 1,768,000 2,222,000
Earnings per share:
Basic................................................... 186.49 214.22
Diluted................................................. 186.49 214.22
</TABLE>
The pro forma financial information is for informational purposes only and
may not necessarily reflect the results of operations of the combined entity had
the acquired businesses operated as a whole for the periods presented.
(4) RECEIVABLES
<TABLE>
<CAPTION>
APRIL 30,
------------------------ JANUARY 31,
1996 1997 1998
<S> <C> <C> <C>
Trade......................................... $6,671,926 $8,810,525 $13,814,333
Federal income taxes.......................... -- 57,975 --
State income taxes............................ 96,260 117,184 --
Other......................................... 287,544 229,787 970,922
---------- ---------- -----------
7,055,730 9,215,471 14,785,255
Less allowance for doubtful accounts.......... 150,000 361,436 795,291
---------- ---------- -----------
$6,905,730 $8,854,035 $13,989,964
========== ========== ===========
</TABLE>
(5) FIXED ASSETS
<TABLE>
<CAPTION>
APRIL 30,
------------------------ JANUARY 31,
1996 1997 1998
<S> <C> <C> <C>
Land and building............................. $ -- $ -- $ 350,000
Equipment and fixtures........................ 3,085,553 3,472,650 4,358,470
Rental equipment.............................. 3,926,679 5,181,432 7,386,381
Leasehold improvements........................ 290,628 304,376 304,376
---------- ---------- -----------
7,302,860 8,958,458 12,399,227
Less accumulated depreciation................. 3,635,614 4,672,756 6,003,232
---------- ---------- -----------
$3,667,246 $4,285,702 $ 6,395,995
========== ========== ===========
</TABLE>
(6) RELATED PARTY TRANSACTIONS
The Company has notes and interest receivable from a shareholder/officer
related to cash advances of $559,296 and $656,281 at April 30, 1996 and 1997,
respectively, and $729,020 at January 31, 1998. The notes bear interest at 7%
with all unpaid interest and principal due in May 1999. The notes are secured by
142,746 shares of the Company's common stock. In a separate transaction, this
officer exercised options in December 1995 to acquire 666,791 shares of
Page-Com's common stock at a price of $1.40 per share. The options were granted
in April 1992. The exercise of the options was funded by a full recourse loan
from the Company of $933,300 bearing interest at 7% and due in April 1999. The
Company has no other options outstanding.
F-11
<PAGE> 62
WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
\On April 28, 1995, the Company sold land and a building to an employee who was
the former owner of Page-Com in exchange for a note receivable of $325,000
bearing interest at 9%. The note and accrued interest are due on April 28, 2000
and are secured by a first lien on the property. The Company recognized a loss
on disposal of the property of approximately $180,000 which is included in the
consolidated statement of income for the year ended April 30, 1995. The Company
has agreed to reduce the outstanding balance of the note, and related accrued
interest, by 20% per year as long as this employee stays in the employment of
the Company. As a result, the note receivable and related interest are being
charged to compensation expense over a five-year period. Compensation expense of
$94,250 was recognized pursuant to this transaction for each of the years ended
April 30, 1996 and 1997 and $70,688 for the nine months ended January 31, 1998.
The Company rents its Costa Mesa, California office from an affiliated
partnership pursuant to a verbal arrangement. Total rent paid to the partnership
was $104,777, $112,816 and $94,740 for the years ended April 30, 1995, 1996 and
1997, respectively and $71,055 for the nine months ended January 31, 1998.
At April 30, 1995, Bear had outstanding advances to officers of $167,000
which were repaid in the year ended April 30, 1996. At April 30, 1997, the
Company had outstanding advances to a shareholder/officer of $33,000 (none at
January 31, 1998).
(7) NOTE PAYABLE TO BANK
The Company had a short-term line of credit with a bank for borrowings of
up to $9,000,000 at April 30, 1996. Borrowings were secured by substantially all
the assets of the Company. The line of credit was due on October 2, 1996, and
amended on November 1, 1996. The amendment, in addition to other changes,
extended the due date of the note, resulting in a reclassification of borrowings
under the line of credit from short-term to long-term (see note 8).
(8) LONG-TERM DEBT
Long-term debt at April 30, 1996 and 1997 and January 31, 1998 consists of
the following:
<TABLE>
<CAPTION>
APRIL 30
--------------------- JANUARY 31,
1996 1997 1998
<S> <C> <C> <C>
Revolving line of credit........................ $ -- $7,964,010 $14,210,838
Acquisition line of credit...................... -- 1,180,000 --
Term note....................................... -- -- 4,791,666
Note payable, interest at 8.5%, due in annual
installments through June 2000................ -- 300,000 239,713
Automobile loans, interest ranging 8.5% to 14%,
due in monthly installments through December
2000.......................................... -- 60,502 32,404
Note payable, interest at 7%, due in monthly
installments through March 1997............... 67,936 -- --
------- ---------- -----------
67,936 9,504,512 19,274,621
Less current maturities......................... 67,936 105,773 1,357,115
------- ---------- -----------
$ -- $9,398,739 $17,917,506
======= ========== ===========
</TABLE>
The Company has a credit agreement with a bank (the "Senior Bank
Facility"), as amended on August 29, 1997, which provides for borrowings of up
to $20,000,000 in the form of a $15,000,000 working capital line of credit
("revolving line of credit") and a $5,000,000 acquisition line of credit. The
revolving line of credit bears interest at either an adjusted LIBOR rate (5.6%
at January 31, 1998) plus 1.25% or at the bank's prime rate (8.5% at January 31,
1998). At the request of the Company, the bank may issue letters of
F-12
<PAGE> 63
WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
credit to the Company's vendors for the acquisition of inventory. The aggregate
outstanding amount of any letters of credit constitute a portion of the
revolving line of credit and shall not exceed $2,000,000. The revolving line of
credit is due on November 5, 1999. The agreement was amended on March 27, 1998
to increase the amount available under the revolving line of credit to
$25,000,000. The actual amount available to the Company on a daily basis under
its revolving line of credit is based on the "free cash flow" of the Company as
defined by the agreement. Borrowings under the Senior Credit Facility are
secured by substantially all the assets of the Company.
The acquisition line of credit bears interest at either an adjusted LIBOR
rate plus 1.35% or at the bank's prime rate. The acquisition line of credit
converted to a term note on November 5, 1997, at which time the Company became
required to repay the amount of all principal outstanding in equal monthly
installments through November 5, 2001.
The Senior Bank Facility agreement restricts the Company's ability to issue
or redeem capital stock, incur additional debt and pay dividends. It also
requires the Company to maintain certain financial ratios. At January 31, 1998,
the Company was not in compliance with one of the financial covenants. In the
March 27, 1998 amendment, the bank waived the requirement to meet certain
financial covenants through May 31, 1998 and agreed to reset those covenants as
a result of the Condor acquisition (see note 13). The fair market value of the
note payable to bank is estimated to approximate the related book value based on
current market rates.
(9) LEASES
The Company leases certain of its operating facilities and equipment under
both capital and operating leases. At January 31, 1998, minimum rental payments
under these leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 CAPITAL OPERATING
<S> <C> <C>
1999...................................................... $ 79,444 $1,008,433
2000...................................................... 41,820 579,026
2001...................................................... 11,070 300,693
2002...................................................... -- 76,335
2003...................................................... -- --
-------- ----------
Total minimum payments due........................ 132,334 $1,964,487
==========
Less amount representing interest......................... 12,198
--------
Present value of minimum lease payments........... 120,136
Less current maturities of obligations under capital
leases................................................. 70,812
--------
Obligations under capital leases, less current
maturities............................................. $ 49,324
========
</TABLE>
At April 30, 1996 and 1997 and January 31, 1998, equipment and fixtures and
related accumulated amortization recorded under capital leases were as follows:
<TABLE>
<CAPTION>
APRIL 30,
-------------------- JANUARY 31,
1996 1997 1998
<S> <C> <C> <C>
Equipment and fixtures............................. $296,514 $372,282 $372,282
Less accumulated amortization...................... 123,721 198,206 272,662
-------- -------- --------
$172,793 $174,076 $ 99,620
======== ======== ========
</TABLE>
Rental expense under operating leases was $393,616, $500,525 and $594,329
for the years ended April 30, 1995, 1996 and 1997, respectively, and $606,921
for the nine months ended January 31, 1998.
F-13
<PAGE> 64
WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) INCOME TAXES
Income tax expense for the years ended April 30, 1995, 1996 and 1997 and
for the nine months ended January 31, 1997 and 1998 consists of:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
APRIL 30, JANUARY 31,
------------------------------------ ------------------------
1995 1996 1997 1997
(UNAUDITED) 1998
<S> <C> <C> <C> <C> <C>
Current:
Federal............. $ 367,606 $1,511,129 $1,627,956 $1,371,117 $1,301,532
Foreign............. -- -- -- -- 56,261
State............... 45,120 150,428 177,231 149,269 215,129
---------- ---------- ---------- ---------- ----------
412,726 1,661,557 1,805,187 1,520,386 1,572,922
Deferred................. 1,313,669 (488,222) (620,141) (522,303) (458,445)
---------- ---------- ---------- ---------- ----------
$1,726,395 $1,173,335 $1,185,046 $ 998,083 $1,114,477
========== ========== ========== ========== ==========
</TABLE>
Actual income tax expense differs from "expected" income tax expense
computed by applying the U.S. federal corporate tax rate of 34% to income before
income taxes as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
APRIL 30, JANUARY 31,
------------------------------------ ------------------------
1995 1996 1997 1997
(UNAUDITED) 1998
<S> <C> <C> <C> <C> <C>
Expected tax expense..... $ 931,389 $1,026,828 $1,049,699 $884,090 $1,044,717
Termination of Bear
Communications
Subchapter S
election............... 693,225 -- -- -- --
State income taxes, net
of federal benefit..... 29,779 99,282 116,972 98,518 141,985
Other.................... 72,002 47,225 18,375 15,475 (72,225)
---------- ---------- ---------- -------- ----------
Actual tax expense....... $1,726,395 $1,173,335 $1,185,046 $998,083 $1,114,477
========== ========== ========== ======== ==========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at April 30, 1996 and 1997 and
January 31, 1998 are as follows:
<TABLE>
<CAPTION>
APRIL 30,
---------------------- JANUARY 31,
1996 1997 1998
<S> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts................ $ 58,500 $140,960 $310,163
Inventory obsolescence reserve................. 109,191 76,601 146,080
Other.......................................... 112,922 24,319 44,875
---------- -------- --------
Total gross deferred tax assets........ 280,613 241,880 501,118
---------- -------- --------
Deferred tax liabilities:
Fixed assets................................... 400,558 203,206 185,930
Prepaid expenses and other..................... 306,819 582,537 534,284
Unapplied receipts............................. 239,176 157,078 23,400
Use of cash method by Bear Communications (note
1(h))....................................... 655,142 -- --
---------- -------- --------
Total gross deferred tax liabilities... 1,601,695 942,821 743,614
---------- -------- --------
Net deferred tax liability............. $1,321,082 $700,941 $242,496
========== ======== ========
</TABLE>
F-14
<PAGE> 65
WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
No valuation allowances were considered necessary at April 30, 1996 or 1997
or January 31, 1998 as management believes it is more likely than not that the
existing deductible temporary differences will be offset by future reversals of
differences generating taxable income.
(11) BUSINESS AND CREDIT CONCENTRATIONS
The Company's customers are located primarily throughout the United States.
The Company had no customers who accounted for more than 10% of consolidated
sales in 1995, 1996 or 1997 or for the nine months ended January 31, 1998.
Substantially all of the Company's sales are made on credit. The Company
evaluates credit risks on an individual basis before extending credit to its
customers, and it believes the allowance for doubtful accounts adequately
provides for loss or uncollectible accounts.
(12) EMPLOYEE BENEFITS PLAN
The Company maintains a 401(k) profit sharing plan for substantially all
employees. Effective February 1, 1996, the Company matches 75% of employee
contributions up to 5% of their compensation. Prior to February 1, 1996,
Page-Com matched 100% and Bear Communications matched 50% of employee
contributions up to 5% of their compensation. Company contributions of $152,630,
$198,599 and $240,977 for the years ended April 30, 1995, 1996 and 1997,
respectively, and $220,214 for the nine months ended January 31, 1998 were
charged to expense.
(13) SUBSEQUENT EVENTS
In March 1998, the Company entered into a transaction to purchase certain
assets of three related entities which sell communication equipment. The
purchase price of $7,000,000 was financed through borrowings under the long-term
debt arrangement. The agreement also requires additional consideration of
$3,000,000 to be paid over the next two years should the income of the acquired
entities reach certain targets. The acquisition will be accounted for using the
purchase method of accounting. Accordingly, the purchase price will be allocated
to the net assets acquired based on their estimated fair values.
The Company effected a 643-for-1 stock split on , 1998. All
share and per share information has been retroactively restated to give effect
to the stock split.
F-15
<PAGE> 66
SCHEDULE II
WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING OF CHARGED TO OTHER (PRIMARILY END OF
DESCRIPTION PERIOD EARNINGS ACCOUNTS WRITE-OFFS) YEAR
<S> <C> <C> <C> <C> <C>
Year ended April 30, 1995:
Allowance for doubtful accounts.......... $ 19,403 $ 50,071 $ -- $ 11,474 $ 58,000
======== ======== ==== ======== ========
Reserve for inventory obsolescence....... 180,000 270,000 -- 220,000 230,000
======== ======== ==== ======== ========
Accumulated amortization................. 36,275 16,810 -- -- 53,085
======== ======== ==== ======== ========
Year ended April 30, 1996:
Allowance for doubtful accounts.......... $ 58,000 $234,216 $ -- $142,216 $150,000
======== ======== ==== ======== ========
Reserve for inventory obsolescence....... 230,000 422,016 -- 372,038 279,978
======== ======== ==== ======== ========
Accumulated amortization................. 53,085 12,755 -- -- 65,840
======== ======== ==== ======== ========
Year ended April 30, 1997:
Allowance for doubtful accounts.......... $150,000 $404,590 $ -- $193,154 $361,436
======== ======== ==== ======== ========
Reserve for inventory obsolescence....... 279,978 -- -- 83,565 196,413
======== ======== ==== ======== ========
Accumulated amortization................. 65,840 33,049 -- -- 98,889
======== ======== ==== ======== ========
Nine months ended January 31, 1998:
Allowance for doubtful accounts.......... $361,436 $725,161 $ -- $291,306 $795,291
======== ======== ==== ======== ========
Reserve for inventory obsolescence....... 196,413 235,000 -- 56,848 374,565
======== ======== ==== ======== ========
Accumulated amortization................. 98,889 172,649 -- -- 271,538
======== ======== ==== ======== ========
</TABLE>
F-16
<PAGE> 67
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Condor Communications, Inc. and Affiliates
Miami, Florida
We have audited the accompanying combined balance sheets of Condor
Communications, Inc., and affiliates as of December 31, 1996 and 1997 and the
related combined statements of operations, stockholders' equity, and cash flows
for the years ended December 31, 1995, 1996 and 1997. The combined financial
statements include the financial statements of Condor Communications, Inc.,
Condor Communications, Ltd., Condor East, Spol, s.r.o., and Condor Prague,
s.r.o., which are related through common ownership and management. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Condor
Communications, Inc., Condor Communications, Ltd., Condor East, Spol, s.r.o. and
Condor Prague, s.r.o. as of December 31, 1996 and 1997, and the combined results
of their operations and their cash flows for the three-year period ended
December 31, 1997, in conformity with generally accepted accounting principles.
SAENZ, ROBLEDO, SAX & COMPANY, P.A.
Miami, Florida
May 8, 1998
F-17
<PAGE> 68
CONDOR COMMUNICATIONS, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
DECEMBER 31, 1996, AND 1997
ASSETS
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Current Assets:
Cash...................................................... $ 174,757 $ 90,119
Receivables, net of allowance of $387,197 and $137,831 at
December 31, 1996 and 1997, respectively............... 4,591,794 5,268,033
Advances to suppliers..................................... 365,081 309,497
Inventory................................................. 2,210,193 2,186,510
Prepaid expenses.......................................... 8,473 5,295
----------- ----------
Total current assets.............................. 7,350,298 7,859,454
----------- ----------
Fixed assets, net......................................... 852,282 959,637
Investment in subsidiary.................................. 211,108 231,212
Other assets.............................................. 4,800 4,800
----------- ----------
$ 8,418,488 $9,055,103
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 1,935,714 $1,643,129
Revolving line of credit.................................. -- 285,000
Current maturities of obligations under capital leases.... -- 16,853
Customer deposits......................................... 359,931 903,078
----------- ----------
Total current liabilities......................... 2,295,645 2,848,060
----------- ----------
Obligations under capital leases, less current maturities... -- 86,728
Stockholders' equity:
Common stock, $1 par value; authorized 10,700 shares;
9,600 and 9,700 shares issued and outstanding at
December 31, 1996 and 1997, respectively............... 9,600 9,700
Additional paid in capital................................ 159,071 328,971
Retained earnings......................................... 5,954,172 5,781,644
----------- ----------
Total stockholders' equity........................ 6,122,843 6,120,315
----------- ----------
$ 8,418,488 $9,055,103
=========== ==========
</TABLE>
See accompanying notes to financial statements
F-18
<PAGE> 69
CONDOR COMMUNICATIONS, INC. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Sales............................................... $43,780,483 $45,064,445 $51,331,690
Cost of sales....................................... 38,363,213 38,443,624 45,211,113
----------- ----------- -----------
Gross profit...................................... 5,417,270 6,620,821 6,120,577
Selling, general and administrative expenses........ 4,226,273 3,666,324 3,483,439
----------- ----------- -----------
Operating income.................................. 1,190,997 2,954,497 2,637,138
Interest expense.................................... 1,679 4,872 31,049
Other (income) expense, net......................... 8,450 (118,151) 24,985
----------- ----------- -----------
Net income........................................ $ 1,180,868 $ 3,067,776 $ 2,581,104
=========== =========== ===========
Earnings per share:
Basic and diluted................................. $ 123.00 $ 319.56 $ 266.09
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE> 70
CONDOR COMMUNICATIONS, INC. AND AFFILIATES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL PAID RETAINED STOCKHOLDERS'
COMMON STOCK IN CAPITAL EARNINGS EQUITY
<S> <C> <C> <C> <C>
Balance at December 31, 1994.......... $9,600 $159,071 $ 4,829,786 $ 4,998,457
Net income............................ -- -- 1,180,868 1,180,868
Distributions......................... -- -- (1,232,293) (1,232,293)
------ -------- ----------- -----------
Balance at December 31, 1995.......... 9,600 159,071 4,778,361 4,947,032
Net income............................ -- -- 3,067,776 3,067,776
Distributions......................... -- -- (1,891,965) (1,891,965)
------ -------- ----------- -----------
Balance at December 31, 1996.......... 9,600 159,071 5,954,172 6,122,843
Net income............................ -- -- 2,581,104 2,581,104
Issuance of common stock.............. 100 169,900 -- 170,000
Distributions......................... -- -- (2,753,632) (2,753,632)
------ -------- ----------- -----------
Balance at December 31, 1997.......... $9,700 $328,971 $ 5,781,644 $ 6,120,315
====== ======== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE> 71
CONDOR COMMUNICATIONS, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 1,180,868 $ 3,067,776 $ 2,581,104
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense............... 136,722 161,026 202,859
Changes in operating assets and liabilities:
Receivables...................................... 232,580 (736,179) (676,239)
Advances to suppliers............................ 258,482 (360,317) 55,584
Inventory........................................ (1,572,095) 1,001,272 23,683
Prepaid expenses................................. (4,822) (244) 3,178
Accounts payable................................. 575,344 (659,412) (292,585)
Customer deposits................................ 178,829 (126,398) 543,147
----------- ----------- -----------
Net cash provided by operating activities... 985,908 2,347,524 2,440,731
Cash flows from investing activities:
Additions to fixed assets........................ (173,834) (232,420) (206,633)
Investment in subsidiary......................... -- (211,108) (20,104)
Increase in other assets......................... (300) (2,000) --
----------- ----------- -----------
Net cash (used in) investing activities..... (174,134) (445,528) (226,737)
Cash flows from financing activities:
Borrowings on line of credit.......................... 200,000 -- 574,763
Repayments on line of credit.......................... (30,000) (170,000) (289,763)
Issuance of common stock.............................. -- -- 170,000
Distributions to stockholders.................... (1,232,293) (1,891,965) (2,753,632)
----------- ----------- -----------
Net cash (used in) financing activities..... (1,062,293) (2,061,965) (2,298,632)
Net decrease in cash.................................. (250,519) (159,969) (84,638)
Cash at beginning of period........................... 585,245 334,726 174,757
----------- ----------- -----------
Cash at end of period................................. $ 334,726 $ 174,757 $ 90,119
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE> 72
CONDOR COMMUNICATIONS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Condor Communications,
Inc. and affiliated companies (the "Group") is presented to assist in
understanding the Group's financial statements. The financial statements and
notes are representations of the Group's management who is responsible for their
integrity and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the financial statements.
BUSINESS ACTIVITY
The Group is principally engaged in the sale of site-based two way radios
and other wireless communication equipment.
BASIS OF COMBINATION
The combined financial statements include the accounts of Condor
Communications, Inc., Condor Communications, Ltd., Condor East, Spol, s.r.o.,
and Condor Prague, s.r.o., which are related through common ownership and
management. All significant intercompany accounts and transactions have been
eliminated in combination.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
CASH EQUIVALENTS
Securities with maturities of three months or less when purchased are
treated as cash equivalents in presenting the statement of cash flows. There
were no cash equivalents at December 31, 1996 and 1997.
INVENTORY
Inventory is stated at the lower of cost or market. Cost is determined by
using the first in first out method and is stated net of writedowns for
obsolescence.
FIXED ASSETS
Property and equipment are stated at cost, and depreciation is provided
principally using accelerated methods over the useful lives of the respective
assets. Maintenance and repairs are charged to expense as incurred, and major
improvements are capitalized. Upon retirement, sale or other disposition of
property and equipment, the cost and accumulated depreciation are removed from
the accounts and any gain or loss is included in the results of operations.
The estimated useful lives of major asset classes are as under:
<TABLE>
<S> <C>
Furniture and Fixtures...................................... 7 years
Computer Equipment.......................................... 5 years
Machinery and Equipment..................................... 5 years
Transportation Equipment.................................... 5 years
Buildings................................................... 31.5 years
Building Improvements....................................... 31.5 years
</TABLE>
F-22
<PAGE> 73
CONDOR COMMUNICATIONS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation and amortization expense was $136,722, $161,026 and $202,859
in 1995, 1996 and 1997, respectively.
REVENUE
The Group records revenue from product sales at the time the related
products are shipped. Sales are recorded net of returns and allowances.
ADVERTISING COSTS
The Group expenses all costs of advertising as incurred, substantially most
of which are for non direct-response advertising.
FOREIGN CURRENCY TRANSLATION
Financial statements of the combined entities for Condor East, Spol, s.r.o.
and Condor Prague, s.r.o. are translated into U.S. dollars using the exchange
rate at each balance sheet date. Gains or losses from foreign currency
transactions are immaterial and have been included in net income.
EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding. Diluted earnings per share is
computed by dividing net income by the weighted average number of shares plus
the number of additional shares that would have resulted from potentially
dilutive securities.
The weighted average number of shares outstanding for the years ended
December 31, 1995, 1996 and 1997 were 9,600, 9,600 and 9,700, respectively.
There were no potentially dilutive securities for the years ended December 31,
1995, 1996 and 1997.
IMPAIRMENT OF LONG LIVED ASSETS AND LONG LIVED ASSETS TO BE DISPOSED OF
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.
F-23
<PAGE> 74
CONDOR COMMUNICATIONS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2: FIXED ASSETS
Fixed assets at December 31, 1996 and 1997 are comprised of the following:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Land........................................................ 137,374 137,374
Buildings................................................... 265,006 435,006
Building Improvements....................................... 144,719 144,719
Furniture and Fixtures...................................... 160,761 162,064
Office and Computer Equipment............................... 217,090 241,614
Transportation Equipment.................................... 60,008 60,008
Machinery and Equipment..................................... 474,781 589,168
--------- ---------
1,459,739 1,769,953
Accumulated Depreciation.................................... (607,457) (810,316)
--------- ---------
852,282 959,637
========= =========
</TABLE>
NOTE 3: INVESTMENT IN SUBSIDIARY
In 1996, Condor Communications, Ltd. invested in a 50% equity interest in
Condor Telecommunications, C.A., a corporation incorporated under the laws of
Venezuela. This investment is accounted for using the equity method of
accounting, and the Group's income from this subsidiary was not material for the
years ended December 31, 1996 and 1997.
NOTE 4: INCOME TAXES
Condor Communications, Inc., the principal operating company within the
Group, has elected to be taxed under the Internal Revenue Code to be an S
Corporation. In lieu of corporate income taxes, the shareholders of an S
Corporation are taxed on their proportionate share of the company's taxable
income. Accordingly, provisions for income taxes have not been made on its
earnings. The affiliated companies in the Group serve as distribution channels
and either do not have material net earnings over the three year period ended
December 31, 1997 or operate out of a tax haven with no corporate income taxes.
As a consequence, no provision for income taxes has been made in the combined
financial statements.
NOTE 5: REVOLVING LINE OF CREDIT
Revolving line of credit at December 31, 1995, 1996 and 1997 consists of
the following:
<TABLE>
<CAPTION>
1995 1996 1997
-------- ---- --------
<S> <C> <C> <C>
8.50% demand note payable................................ $170,000 $ -- $285,000
======== ==== ========
</TABLE>
Condor Communications, Inc. has a revolving line of credit facility with a
bank funded with a demand note payable that provides for borrowing in the amount
of $2,000,000 of which $1,715,000 was unused at December 31, 1997. Bank advances
on the credit line bear interest at the bank's base (prime) rate. The revolving
line of credit is due May 31, 1998, is annually renewable, and is collateralized
by substantially all corporate assets and a personal guarantee from Condor
Communications, Inc.'s stockholders.
Condor East, s.r.o. has a short-term line of credit in the amount of
$289,000 to back letters of guarantee issued to the Czech customs authorities.
There have been no drawings on the facility to date, and it is secured with a
guarantee of repayment by Condor Communications, Inc. to the issuing bank.
F-24
<PAGE> 75
CONDOR COMMUNICATIONS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6: LEASES
The Group leases certain machinery and equipment under a capital lease. The
economic substance of the lease is that the Group is financing the acquisition
of the assets through the lease, and accordingly it is recorded in the Group's
assets and liabilities. At December 31, 1997, minimum rental payments required
under the lease together with their present value are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
<S> <C>
1998........................................................ $ 37,044
1999........................................................ 37,044
2000........................................................ 37,044
2001........................................................ 37,044
2002........................................................ 9,261
--------
Total minimum payments due........................ 157,437
Less amount representing interest........................... 53,856
--------
Present value of minimum lease payments........... 103,581
Less current maturities of obligations under capital
leases.................................................... 16,853
--------
Obligations under capital leases, less current maturities... $ 86,728
--------
</TABLE>
At December 31, 1997, $114,108 in machinery and equipment and related
accumulated amortization (over a five year life) of $38,036 are included in
property and equipment.
The Group also leases certain of its office equipment under operating
leases with non-cancelable terms of under one year. Rental expense under
operating leases was $13,982, $21,045 and $57,504 for the years ended December
31, 1995, 1996 and 1997, respectively.
NOTE 7: CONTINGENCIES
The Group carries insurance to cover its property and equipment, and
inventory with coverage limits which are well below the fair value of these
assets at December 31, 1997.
Condor East, s.r.o. is contingently liable for customs import duties
(assessed at 100% of importation value) or fines thereon relating to inventory
on hand in excess of a $588,000 customs guarantee bond. At December 31, 1997
inventory on hand exceeded the guarantee by approximately $240,000.
NOTE 8: BUSINESS AND CREDIT CONCENTRATIONS
The Group purchases substantially all of its inventory from Motorola, Inc.
and is economically dependent on that vendor for favorable trade terms as well
as products for sale.
The Group transacts most of its business with customers located in Latin
American and Eastern Europe. Accordingly, the Group's business may be affected
by political and economic changes in the regions. The Group had no customers who
accounted for more than 10% of consolidated sales in 1995, 1996 or 1997.
The Group maintains substantially all cash balances at one bank. Cash
balances in excess of federal insurance limits were $391,690 at December 31,
1997.
NOTE 9: SUBSEQUENT EVENTS
In March 1998, all assets and operations of the continued entity were sold
to an unrelated party. The Group also settled certain claims that arose from
agency agreements for a total of $420,000.
F-25
<PAGE> 76
======================================================
NO DEALER, SALES PERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDERS OR THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR
TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN
THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 7
The Company................................ 13
Use of Proceeds............................ 13
Prior S Corporation Status and Dividend
Policy................................... 14
Dilution................................... 15
Capitalization............................. 16
Unaudited Pro Forma Condensed Consolidated
Financial Statements..................... 17
Selected Financial Data.................... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 22
Business................................... 29
Management................................. 40
Principal and Selling Shareholders......... 44
Description of Capital Stock............... 45
Shares Eligible for Future Sale............ 46
Underwriting............................... 47
Legal Matters.............................. 49
Experts.................................... 49
Additional Information..................... 49
Index to Financial Statements.............. F-1
</TABLE>
---------------------
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
SHARES
WIRELESS INTERNATIONAL INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CIBC OPPENHEIMER
, 1998
======================================================
<PAGE> 77
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance Distribution
The Registrant estimates that expenses in connection with the offering
described in this Registration Statement will be as follows. All of the amounts
except the SEC registration fee and the Nasdaq National Market listing fee are
estimates.
<TABLE>
<CAPTION>
Item Amount
- ---- ------
<S> <C>
SEC registration fee ................................... $18,996.30
National Association of Securities
Dealers, Inc. filing fee ............................ 6,939.00
Nasdaq National Market application fee ................. 1,000.00
Legal fees and expenses ................................
Accounting fees and expenses ...........................
Printing expenses ......................................
Fees and expenses for qualification under
state securities laws (including legal fees) ........
Transfer agent's and registrar's fees and expenses .....
Miscellaneous ..........................................
--------
Total ............................................... *
</TABLE>
- ---------
* None of this amount is to be borne by the Selling Shareholders.
Item 14. Indemnification of Directors and Officers.
As permitted by the Texas Business Corporation Act, the Registrant's
Restated Articles of Incorporation and Amended and Restated Bylaws provide that
the directors and officers of the Registrant shall be indemnified by the
Registrant against certain liabilities that those persons may incur in their
capacities as directors or officers. Furthermore, the Registrant's Articles of
Incorporation eliminate the liability of directors of the Registrant to the
maximum extent permitted by the Texas Business Corporation Act. See
"Management -- Exculpatory Charter Provision; Liability and Indemnification of
Officers and Directors" in the Prospectus.
The Underwriting Agreement to be filed as Exhibit 1.1 hereto contains
reciprocal agreements of indemnity between the Registrant and the underwriters
as to certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"), and in certain circumstances provides
for indemnification of the Registrant's directors and officers.
Item 15. Recent Sales of Unregistered Securities.
During the previous three years, the Registrant has issued and sold the
following securities (all such amounts having been adjusted to reflect the
643-for-1 stock split effected in _____, 1998) without registration under the
Securities Act (none of which sales were underwritten):
In connection with the Merger, in December 1995 the Company issued an
aggregate of 4,001,710 shares of Common Stock to shareholders of Bear
Communications. The Registrant believes that these transactions were exempt from
the registration requirements of the Securities Act pursuant to Section 4(2)
thereof.
In December 1995, Mr. Watson exercised options to acquire 666,791 shares of
Common Stock at an exercise price of approximately 1.40 per share. The options
were granted in April 1992. The exercise of such options was funded by a full
recourse loan from the Company to Mr. Watson in the amount of $933,000, bearing
interest at 7% and is due in April 1999. The Registrant believes that this
transaction was exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof.
II - 1
<PAGE> 78
Item 16. Exhibits and FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
Exhibit No. Description
- ----------- -----------
1.1* - Form of Underwriting Agreement
3.1* - Restated Articles of Incorporation of the Registrant
3.2** - Amended and Restated Bylaws of the Registrant
4.1* - Form of certificate representing shares of the Registrant's
Common Stock
5.1* - Legal Opinion of Gardere & Wynne, L.L.P., regarding legality
of securities being registered
10.1** - Employment Agreement, effective as of March 1, 1998, by and
between BearCom, Inc. and Michael L. Kovar
10.2** - Employment Agreement, effective as of March 31, 1998, by and
between BearCom, Inc., Condor Holdings, Inc. and Rogelio
Betancourt
10.3* - Wireless International, Inc. 1998 Stock Option Plan, including
form of Nonqualified Stock Option Agreement and Incentive
Stock Option Agreement
10.4* - Wireless International, Inc. Employee Stock Purchase Plan
10.5** - Fourth Amended and Restated Loan Agreement, dated as of
August 29, 1997, by and between BearCom Operating, L.P. and
Wells Fargo Bank
10.6** - First Amendment to Fourth Amended and Restated Loan Agreement
dated as of March 27, 1998 by and between BearCom Operating,
L.P. and Wells Fargo Bank
10.7** - Amended and Restated Commercial Security Agreement, dated as
of March 1, 1996, executed by BearCom, Inc. for the benefit
of First Interstate Bank of Texas, N.A.
10.8** - Amended and Restated Commercial Security Agreement, dated as
of March 1, 1996, executed by Bear Communications, Inc. for
the benefit of First Interstate Bank of Texas, N.A.
10.9** - Amended and Restated Commercial Security Agreement, dated as
of March 1, 1996, executed by BearCom Operating, L.P. for the
benefit of First Interstate Bank of Texas, N.A.
10.10** - Commercial Security Agreement, dated as of March 27, 1998,
executed by Condor Holdings, Inc. for the benefit of Wells
Fargo Bank (Texas) National Association
10.11* - Lease Agreement for facilities in Dallas, Texas
10.12** - Purchase Agreement, dated as of January 27, 1997, between Bear
Communications, Inc., Cleary Communications Company, Francis
A. Cleary, Michael F. Cleary, Jean Cleary and Edward Milano
10.13** - Purchase Agreement, dated as of May 29, 1997, between BearCom
Operating, L.P., Mobitel Communications and Electronics, Inc.,
Network Communications, Inc., Royce A. Witte and James D. Reed
10.14** - Asset Purchase Agreement, dated as of June 6, 1997, between
Bear Communications, Inc. and Motorola, Inc.
10.15** - Purchase Agreement, dated as of September 25, 1997, between
Bear Communications, Inc., Alfred Fasano, Tedco, Inc., David
J. Broser, Susan Broser Guttentag, Mindy Brosser Cepelewicz
and Lori Broser Furnari
10.16** - Purchase Agreement, dated as of October 15, 1997, between
BearCom Operating L.P., Tomba Communications, L.L.C., Joseph
J. Tomba and Thomas C. Tomba
10.17** - Asset Purchase Agreement, dated as of March 31, 1998, between
Bear Communications, Inc., Condor Communications, Inc.,
Rogelio Betancourt and Condor Holdings, Inc.
10.18** - Motorola Authorized Two-Way Radio Dealer Agreement, dated as
of June 12, 1996, between Motorola, Inc. and BearCom
Operating, L.P.
10.19** - Per Unit Administrative Processing Charge Amendment to
Motorola Authorized Two-Way Radio Dealer Agreement, dated as
of September 20, 1996, between Motorola, Inc. and BearCom
Operating, L.P.
10.20** - Amendment to Motorola Authorized Two-Way Radio Dealer
Agreement, dated as of September 20, 1996, between Motorola,
Inc. and BearCom Operating, L.P.
10.21** - Multiple Dealer Sales Location(s) Amendment to Motorola
Authorized Two-Way Radio Dealer Agreement, dated as of
September 20, 1996, between Motorola, Inc. and BearCom
Operating, L.P.
II - 2
<PAGE> 79
10.22** - Motorola Inc. Radius Communication Products Reseller Agreement,
dated as of September 20, 1996, between Motorola, Inc. and
BearCom Operating, L.P.
10.23** - Master Amendment No. 1 to Motorola, Inc. Radius Communication
Products Reseller Agreement, dated as of September 20, 1996,
between Motorola, Inc. and BearCom Operating, L.P.
10.24** - Radius Reseller Sales Location Amendment to Motorola, Inc.
Radius Communication Products Reseller Agreement, dated as of
September 20, 1996, between Motorola, Inc. and BearCom
Operating, L.P.
21.1** - List of Subsidiaries
27.1** - Financial Data Schedule
23.1 - Consent of KPMG Peat Marwick LLP
23.2 - Consent of Saenz, Robledo, Sax & Company, P.A.
23.3* - Consent of Gardere & Wynne, L.L.P. (included in Exhibit 5.1)
24.1** - Power of attorney
- ----------
* To be filed by amendment.
** Previously filed.
(b) Financial Statement Schedules
The following financial statement schedules are included in Part II of the
Registration Statement.
II - Wireless International, Inc. and Subsidiaries - Valuation and
Qualifying Accounts
All other schedules are omitted because they are inapplicable or the requested
information is shown in the financial statements or noted therein.
Item 17. Undertakings.
(a) 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. If 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.
(b) The undersigned Registrant hereby undertakes to provide to the
representatives of the underwriters at the closing specified in the Underwriting
Agreement certificates in such denominations and registered in such names as
required by the representatives of the underwriters to permit prompt delivery to
each purchaser.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and this offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II - 3
<PAGE> 80
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas on
the 12th day of May, 1998.
WIRELESS INTERNATIONAL, INC.
By: /s/ John P. Watson
------------------------------
John P. Watson
Chairman of the Board
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on the 12th day of May, 1998.
NAME TITLE
/s/ John P. Watson Chairman of the Board and Director
- ------------------------------ (Principal Executive Officer)
John P. Watson
/s/ Michael L. Kovar Chief Financial Officer
- ------------------------------ (Principal Financial and Accounting Officer)
Michael L. Kovar
/s/ Brent A. Bisnar* Director
- ------------------------------
Brent A. Bisnar
/s/ Jerry Denham* Director
- ------------------------------
Jerry Denham
/s/ Kenneth H. Doll* Director
- ------------------------------
Kenneth H. Doll
/s/ Edward W. Rose III* Director
- ------------------------------
Edward W. Rose III
/s/ Morton L. Topfer* Director
- ------------------------------
Morton L. Topfer
* By: /s/ John P. Watson
-----------------------
John P. Watson
As Attorney-in-Fact
II - 4
<PAGE> 81
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
1.1* - Form of Underwriting Agreement
3.1* - Restated Articles of Incorporation of the Registrant
3.2** - Amended and Restated Bylaws of the Registrant
4.1* - Form of certificate representing shares of the Registrant's
Common Stock
5.1* - Legal Opinion of Gardere & Wynne, L.L.P., regarding legality
of securities being registered
10.1** - Employment Agreement, effective as of March 1, 1998, by and
between BearCom, Inc. and Michael L. Kovar
10.2** - Employment Agreement, effective as of March 31, 1998, by and
between BearCom, Inc., Condor Holdings, Inc. and Rogelio
Betancourt
10.3* - Wireless International, Inc. 1998 Stock Option Plan, including
form of Nonqualified Stock Option Agreement and Incentive
Stock Option Agreement
10.4* - Wireless International, Inc. Employee Stock Purchase Plan
10.5** - Fourth Amended and Restated Loan Agreement, dated as of
August 29, 1997, by and between BearCom Operating, L.P. and
Wells Fargo Bank
10.6** - First Amendment to Fourth Amended and Restated Loan Agreement
dated as of March 27, 1998 by and between BearCom Operating,
L.P. and Wells Fargo Bank
10.7** - Amended and Restated Commercial Security Agreement, dated as
of March 1, 1996, executed by BearCom, Inc. for the benefit
of First Interstate Bank of Texas, N.A.
10.8** - Amended and Restated Commercial Security Agreement, dated as
of March 1, 1996, executed by Bear Communications, Inc. for
the benefit of First Interstate Bank of Texas, N.A.
10.9** - Amended and Restated Commercial Security Agreement, dated as
of March 1, 1996, executed by BearCom Operating, L.P. for the
benefit of First Interstate Bank of Texas, N.A.
10.10** - Commercial Security Agreement, dated as of March 27, 1998,
executed by Condor Holdings, Inc. for the benefit of Wells
Fargo Bank (Texas) National Association
10.11* - Lease Agreement for facilities in Dallas, Texas
10.12** - Purchase Agreement, dated as of January 27, 1997, between Bear
Communications, Inc., Cleary Communications Company, Francis
A. Cleary, Michael F. Cleary, Jean Cleary and Edward Milano
10.13** - Purchase Agreement, dated as of May 29, 1997, between BearCom
Operating, L.P., Mobitel Communications and Electronics, Inc.,
Network Communications, Inc., Royce A. Witte and James D. Reed
10.14** - Asset Purchase Agreement, dated as of June 6, 1997, between
Bear Communications, Inc. and Motorola, Inc.
10.15** - Purchase Agreement, dated as of September 25, 1997, between
Bear Communications, Inc., Alfred Fasano, Tedco, Inc., David
J. Broser, Susan Broser Guttentag, Mindy Brosser Cepelewicz
and Lori Broser Furnari
10.16** - Purchase Agreement, dated as of October 15, 1997, between
BearCom Operating L.P., Tomba Communications, L.L.C., Joseph
J. Tomba and Thomas C. Tomba
10.17** - Asset Purchase Agreement, dated as of March 31, 1998, between
Bear Communications, Inc., Condor Communications, Inc.,
Rogelio Betancourt and Condor Holdings, Inc.
10.18** - Motorola Authorized Two-Way Radio Dealer Agreement, dated as
of June 12, 1996, between Motorola, Inc. and BearCom
Operating, L.P.
10.19** - Per Unit Administrative Processing Charge Amendment to
Motorola Authorized Two-Way Radio Dealer Agreement, dated as
of September 20, 1996, between Motorola, Inc. and BearCom
Operating, L.P.
10.20** - Amendment to Motorola Authorized Two-Way Radio Dealer
Agreement, dated as of September 20, 1996, between Motorola,
Inc. and BearCom Operating, L.P.
10.21** - Multiple Dealer Sales Location(s) Amendment to Motorola
Authorized Two-Way Radio Dealer Agreement, dated as of
September 20, 1996, between Motorola, Inc. and BearCom
Operating, L.P.
</TABLE>
<PAGE> 82
<TABLE>
<S> <C>
10.22** - Motorola Inc. Radius Communication Products Reseller Agreement,
dated as of September 20, 1996, between Motorola, Inc. and
BearCom Operating, L.P.
10.23** - Master Amendment No. 1 to Motorola, Inc. Radius Communication
Products Reseller Agreement, dated as of September 20, 1996,
between Motorola, Inc. and BearCom Operating, L.P.
10.24** - Radius Reseller Sales Location Amendment to Motorola, Inc.
Radius Communication Products Reseller Agreement, dated as of
September 20, 1996, between Motorola, Inc. and BearCom.
Operating, L.P.
21.1 ** - List of Subsidiaries
27.1 ** - Financial Data Schedule
23.1 - Consent of KPMG Peat Marwick LLP
23.2 - Consent of Saenz, Robledo, Sax & Company, P.A.
23.3* - Consent of Gardere & Wynne, L.L.P. (included in Exhibit 5.1)
24.1** - Power of attorney
</TABLE>
- ----------
* To be filed by amendment.
** Previously filed.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Wireless International, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the registration statement.
KPMG Peat Marwick LLP
Dallas, Texas
May 12, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Wireless International, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the registration statement.
/s/ SAENZ, ROBLEDO SAX & COMPANY
Miami, Florida
May 12, 1998
