UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under section 13 15(d) of the Securities Exchange Act of
1934 for the quarterly period ended December 31, 2001
[ ] Transition report under Section 13 OR 15(d) of the Securities Exchange Act
of 1934 for the transition period from __________ to _________
Commission file Number: 0-29275
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EAGLETECH COMMUNICATIONS, INC.
(Name of Small Business Issuer in its charter)
Nevada 13-4020694
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
305 South Andrews Avenue, Fort Lauderdale, Florida 33301
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(Address of principal executive offices) (Zip code)
Issuer's telephone number: (954) 462-1494
Check whether the registrant: (1) filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days Yes [X] No[ ]
The number of outstanding shares of the registrant's common stock, $0.001 par
value (the only class of voting stock), as of February 14, 2002 was: 18,033,807
1
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS...........................................
ITEM 2. MANAGEMENTS DISCUSSION AND ANAYSIS OR PLAN OF OPERATION........
PART II
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
As used herein, the term "Company" refers to Eagletech Communications, Inc., a
Nevada corporation, and its subsidiaries and predecessors unless otherwise
indicated. Condensed and unaudited, interim financial statements including a
balance sheet for the Company as of the quarter ended December 31, 2001, and
statements of operations, and statements of cash flows for the interim period up
to the date of such balance sheet and the comparable period of the preceding
year are attached hereto as Pages F-1 through F-6 and are incorporated herein by
this reference.
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY]
3
"EAGLETECH COMMUNICATIONS, INC."
(a development stage company)
BALANCE SHEET
"December 31, 2001"
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $1,322
Total current assets 1,322
Property and equipment 686,971
Less accumulated deprecation (408,116)
278,855
"Patents, net" 19,216
Other assets 9,216
$308,609
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $1,058,762
Payable to related party 172,920
Note payable with convertible option 353,021
Convertible note payable 245,000
Stock dividend payable 336,682
Current portion of prepaid interest income 12,000
Judgments payable 24,638
Total current liabilities 2,203,023
Stockholders' deficit:
Series A convertible preferred stock,
$.01 par value, 1,000,000 shares authorized;
289,119 shares issued and outstanding 2,891
Preferred stock, $.01 par value, 9,000,000
shares authorized no shares issued and outstanding -
Common stock, $.0001 par value,
100,000,000 shares authorized; 17,067,383
shares issued and outstanding" 1,707
Additional paid-in capital 16,763,676
Preferred stock receivable (400,000)
Deficit accumulated during the development stage (18,262,688)
Stockholders' deficit (1,894,414)
$308,609
The accompanying notes are an integral part of these financial statements.
F-2
"EAGLETECH COMMUNICATIONS, INC."
(a development stage company)
STATEMENTS OF OPERATIONS
(unaudited)
December 20, 1996 (inception)
Nine months ended December 31, to December\
2001 2000 2001
Sales $ 960 $1,357 $3,009 "
Operating expenses:
" Selling, general and administrative:" - - -
Non-cash compensation 945,570 554,004 11,037,150
" Other selling, general and administrative" 1,619,171 1,228,718 4,539,732
Impairment of fixed assets 141,562 141,562
Research and development 10,515 87,775 313,174
Total operating expenses 2,716,818 1,870,497 16,031,618
Loss from operations (2,715,858) (1,869,140) (16,028,609)
Other income (expense):
Interest expense (27,402) - (79,277)
Interest income 24,000 (1,232) 96,844
Gain on settlement of judgments - 49,172 32,476
Loss on disposal of property and equipment - - (22,962)
Total other income (expense) (3,402) 47,940 27,081
Net loss (2,719,260) (1,821,200) (16,001,528)
Preferred stock dividends and related charges (150,771) (1,379,351) (2,261,160)
Net loss available to common stockholders $(2,870,031) $(3,200,551) $(18,262,688)"
"Loss per share, basic and diluted" $(0.25) $(0.31)
Weighted averages shares outstanding 11,441,768 10,345,464
The accompanying notes are an integral part of these financial statements.
F-3
"EAGLETECH COMMUNICATIONS, INC."
(a development stage company)
STATEMENTS OF OPERATIONS
(unaudited)
Three months ended December 31,
2001 2000
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Sales $ 429 $ 1,357
Operating expenses:
Selling, general and administrative:"
Non-cash compensation 945,570 69,253
Other selling, general and
administrative 676,227 247,143
Research and development - 30,918
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Total operating expenses 1,621,797 347,314
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Loss from operations (1,621,368) (345,957)
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Other income (expense):
Interest expense (10,743) -
Interest income 8,000 13,759
Gain on settlement of judgments - -
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Total other income (expense) (2,743) 13,759
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Net loss (1,624,111) (332,198)
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Preferred stock dividends and related charges (48,426) (53,847)
------------ --------------
Net loss available to common stockholders $ (1,672,537) $ (386,045)
============ ==============
"Loss per share, basic and diluted" $ (0.13) $ (0.04)
============ ==============
Weighted average shares outstanding 12,702,921 10,346,575 "
============ ==============
The accompanying notes are an integral part of these financial statements.
F-4
"EAGLETECH COMMUNICATIONS, INC.,"
(a development stage company)
STATEMENTS OF CASH FLOWS
(unaudited)
"December 20, 1996"
(inception) to
"Nine months ended December 31," December 31,"
2001 2000 2001
Cash flows from operating activities:
Net loss $(2,719,260) $(1,821,200) $(16,001,528)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 109,845 97,312 275,079
Impairment of fixed assets 141,662 - 141,662
Amortization of prepaid interest (24,000) - (52,000)
Amortization of deferred compensation - 554,004 554,004
Issuance of stock for services and compensation 898,591 30,938 9,827,672
Issuance of stock for payment of note payable 46,979 - 46,979
Issuance of stock options to purchase common
stock - - 608,496
Start up expense - - 20,160
Loss on disposal of property and
equipment - - 22,962
Gain on settlement of judgements - - -
Changes in operating assets and liabilities:
(Increase) decrease in prepaid 18,332 (29,463) -
Increase (decrease) in accounts payable - - -
and accrued expenses 1,123,066 (31,295) 1,410,670
Increase in other assets - (1,494) (9,216)
Increase (decrease) in judgements payable - - 24,638
Net cash used in operating activities $(404,785)" $(1,201,198) $(3,130,422)"
Cash flows from investing activities:
Patents - (5,649) (21,190)
Purchases of property and equipment - (440,245) (716,584)
Net cash used in investing activities - (445,894) (737,774)
Cash flows from financing activities:
Issuance of convertible note payable 400,000 - 645,000
Proceeds from debt - - 176,330
Proceeds from sale of preferred stock - 1,566,315 1,566,315
Prepaid interest income - 44,000 64,000
Proceeds from sale of stock - - 1,506,000
Payments on related party notes - - (88,127)
Net cash provided by financing activities 400,000 1,610,315 3,869,518
Net increase in cash and cash
equivalents $(4,785) $(36,777) $1,322
"Cash and cash equivalents, beginning of period" $6,107 238,994 -
"Cash and cash equivalents, end of period" 1,322 202,217 1,322
Supplemental disclosure of cash flow information:
Cash paid for interest during the period - - -
Cash paid for income taxes during the period - - -
Schedule of non-cash investing and financing activities:
Interest on convertible and related party notes
contributed to additional paid-in capital - - $ 25,091
Issuance of common stock to settle liabilities $153,900 $30,938 $50,938
The accompanying notes are an integral part of these financial statements.
F-5
EAGLETECH COMMUNICATIONS, INC.,
(a development stage company)
SELECTED NOTES TO FINANCIAL STATEMENTS
1. UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying financial statements of the Company for the three and nine
months ended December 31, 2001 and 2000, and for the period from December 20,
1996 (inception) to December 31, 2001, are unaudited, but, in the opinion of
management, reflect the adjustments, all of which are of a normal recurring
nature, necessary for a fair presentation of these financial statements in
accordance with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amount of revenue and expense during the
reporting period. Actual results could differ from those estimates.
The results of operations for an interim period are not necessarily indicative
of the results for a full year.
The interim unaudited financial statements should be read in conjunction with
the financials statements and notes for the year ended March 31, 2001, filed as
part of the Company's Form 10-KSB.
2. UNCERTAINTY - GOING CONCERN
The Company experienced losses of $16,001,528 since inception, and had a net
working capital deficiency of $2,201,701 as of December 31, 2001. The Company is
also delinquent in its accounts payable, convertible notes payable and salaries
to personnel. These factors raise substantial doubt about the Company's ability
to continue as a going concern. The Company's continued existence is dependent
upon its ability to resolve its liquidity problems, principally by obtaining
equity funding, commencing sales and achieving profitable operations.
Management's plans in regards to this matter are to change its sales concept and
wholesale its product to telephone companies that will bundle it with its
products and services. The Company has also instituted cost reductions, cut
personnel and deferred expenses. The Company believes these efforts, in
conjunction with raising equity and obtaining loans from related parties, will
improve liquidity and sustain continuing operations.
The Company's prospects are subject to the risks, expenses and uncertainties
frequently encountered by companies in the rapidly evolving telecommunications
markets. These risks include the failure to develop the Company's services, the
rejection of the Company's services by consumers and the inability of the
Company to increase revenues to generate positive cash flow.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
3. IMPAIRMENT
In October 2001, as a result of continuing and increasing operating losses, the
Company closed its service bureau locations operating in Atlanta, Georgia and
Charlotte, North Carolina. The Company reviewed the expected future cash flows
for each operating location and determined that certain assets of continuing
operations were impaired. As a result, the Company recorded an impairment charge
of $141,662 related to fixed assets.
EAGLETECH COMMUNICATIONS, INC.,
(a development stage company)
SELECTED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. ISSUANCE OF COMMON STOCK
On December 7, 2001, in connection with the service agreement and convertible
note payable described in Note 5, the Company issued 1,425,000 shares of free
trading common stock to an attorney. The shares were valued at market of $.34
and a non-cash legal expense was recorded in the amount of $484,500. On the same
date the Company issued an additional 22,500 shares of free trading stock to two
attorneys for legal services rendered. The shares were valued at market of $.33
and a non-cash legal expense was recorded in the amount of $7,083.
On December 5, 2001 the Company executed a business consulting agreement with an
individual and on December 11, 2001, issued 1,000,000 free trading shares of
common stock to this individual as payment for his services for a year. The
shares were valued at market of $.34 per share and a non-cash expense of
$340,000 was recorded.
On December 11, 2001 the Company issued a total of 30,354 restricted shares of
144 common stock in payment of bookkeeping services. The shares were valued at
market of $.34 and an non-cash expense of $10,624 was recorded.
On December 12, 2001, the Company issued 500,000 shares of 144 restricted common
stock to an individual in payment for investor relations consulting. The shares
were valued at market of $.30 and a non-cash consulting expense of $150,000 was
recorded.
On December 14, 2001, the Company issued 2,565,534 shares of 144 restricted
common stock to the president, a member of the board of directors and an
employee in payment for cash and expenses in the amount of $153,900 loaned to
the Company by these individuals.
5. CONVERTIBLE NOTE PAYABLE
On August 7, 2001, the Company signed a service agreement with a Texas
corporation to provide legal services in connection with the lawsuit described
in Note 6. In addition, the Company executed a power of attorney and attorney
contingent fee contract on September 13, 2001 which stipulates the Company pay
fifty percent (50%) of any recovery from the suits described in Note 6. In
addition, this agreement included the issuance of 83,333 shares of free trading
common stock in payment of litigation support and 1,000,000 shares of free
trading common stock for services to be performed by the lead counsel and
litigation expenses. See Note 4 for further particulars.
On September 27, 2001, the Company entered into a convertible note payable with
an attorney for legal services rendered in the amount of $400,000, bearing
interest at the rate of six percent (6%) per annum. The Company has the right to
convert, at its option, the amount of the note in whole or in part into fully
paid and non-assessable shares of the common stock of the Company. $250,000 of
the principal and any unpaid interest is due on or before 180 days after the
date of the note and $150,000 in principal is due 360 days from the date of the
5
EAGLETECH COMMUNICATIONS, INC.,
(a development stage company)
SELECTED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
note. As of December 31, 2001, the Company issued 341,667 shares of common stock
in payment of $46,979 of this note.
6. CONTINGENCY
On November 2, 2001, the Company filed a lawsuit in the circuit courts of
Florida against forty defendants, for common law fraud, civil conspiracy,
conversion and violation of the RICO act to recover damages and compensation
and/or shares of stock it issued pertaining to a financing transaction entered
into with the defendants.
The President of the Company has been sued individually in the United States
District Court - Northern District of Illinois alleging tortuous interference
with a contract and breach of fiduciary duty.
6
Item 2. Managements Discussion and Analysis or Plan of Operation.
PLAN OF OPERATIONS
The Company was founded to manufacture, market and distribute unique
communications products. As technologies mature and new innovations come to
market, the Company has incorporated these new technologies into its products
and is now a leader in the Unified Communications ASP services market.
The Company's Unified Communications platform uses its proprietary patented
technology to process calls seven times more efficiently than any of its
competitors methods. This efficiency allows us to achieve subscriber density of
approximately 2,000 per T-1 circuit compared to approximately 300 with the
competitors' methods. The Company's platforms have been deployed in three major
markets to date, South Florida, Atlanta, GA, and Charlotte, NC. In October 2001,
the company closed the service bureaus in Atlanta and Charlotte and is in the
process of scaling back the service area of the South Florida to conserve cash.
In June 2001, the Company introduced it's second generation Unified
Communications platform. Building on the equipment currently deployed, the
Company has created a hybrid technology system that uses the SS7 network for
signaling, a guaranteed level of service (LOS) direct backbone connection to the
Internet for relaying prompts, messages and digit presses using VoIP, and the
release link trunk (RLT) feature of carrier central office switches to deploy
service in remote cities using a fraction of the equipment deployed in its hub
cities.
The Company's patented method of releasing its equipment from the transaction
while leaving the caller and the subscriber connected on a local toll free call
in a remote city is a feat not duplicated in any competitors' pure play VoIP
Unified Communications platform which use the Internet or a parallel IP network
as a voice path. While the Company's method releases its equipment from a call
to handle others, the competitor's equipment must bond the caller and the
subscriber together for the duration of the call. The Company's platform can
typically handle seven business telephone calls for every one on a competitor's
platform.
The Company's plan of operation over the next twelve months is to continue
servicing its first generation Eagle1call(TM) South Florida service bureau,
serving Beta customers in Broward County, Florida as a demonstration and
development platform for it's second-generation product. Due to current
financial constraints, the Company anticipates turning off the circuits that
currently serve Dade and Palm Beach counties to further reduce expenses.
The Company does not intend on pursuing any new marketing efforts for it's
first-generation system, but expects to focus on research and development
efforts to commercialize its second-generation platform. The Company currently
has two employees and operates the South Florida service bureau. The Company
does not expect to hire any new employees until such time as the Uniform
Communications platform can be put to commercial use.
The second-generation product is an OEM private brand for carriers who do not
own network resources, but recombine with an incumbent carrier's unbundled
networks for resale to the public. The cornerstone of the product is its real
time find-me/follow-me component, proactive voice mail delivery, and unified
7
inbox for e- mail, voice mail, and fax mail. It also includes an enterprise
auto-attendant with extensions, departments, directories and mail forwarding,
making individual users accessible from the main corporate phone number as well.
This creates a Virtual PBX or Business Phone System that requires no expensive
customer premises equipment.
The Company must raise additional capital resources in order to complete the
development of its second- generation system. Further, the Company cannot meet
its current cash requirements and will require a cash infusion, either through
debt or equity financing in order to continue with its plan of operation. The
Company does not expect revenue from its second-generation system until the
completion of development. Revenue from the Company's first generation beta
customers is not sufficient to meet cash requirements.
The Company is in negotiations with sources of additional financing, but the
Company can give no assurances that it will be successful in obtaining such
financing. Should the Company be unable to find additional sources of financing,
it will be forced to curtail drastically its plan of operation.
Losses
For the period September 30, 2001 to December 31, 2001, the Company recorded an
operating loss of $1,621,368. Our inability to recognize a profit is due in part
to the developmental nature of the second- generation product and reduced
revenue from our first generation beta customers. We expect to continue to
operate at a loss through fiscal year end 2003.
Capital Expenditures
We expended no amounts on capital expenditures for the quarterly period ended
December 31, 2001.
Capital Resources and Liquidity
The Company has significant capital needs, which to date have been met through
private sales of its equity and loans. The Company will continue to need
substantial infusions of capital, which it expects will come primarily from
private sales of its equity and loans, or by a public offering of its equity or
debt securities.
The Company had current assets of $1,322 and total assets of $308,609 as of the
quarterly period ended December 31, 2001. These assets consisted of $278,855 in
property, plant, and equipment as well as $28,432 in other assets and patents in
addition to the current assets listed above. Net stock holders deficit in the
Company was $1,894,414 as of December 31, 2001.
During the period covered by this report, the Company has subsisted on cash
loaned by the Company's principals, Mr. Young, Mr. James Payne and key employee
Howard Barsky. During the period these individuals have elected to convert a
portion of the debt to additional stock in the Company.
At the end of the quarter ended December 31, 2001, the Company has accrued
$336,682 in dividends payable on its Series A Preferred Stock, which is payable
annually. The cash on hand represents the cash loaned to the Company by its
principals. Management has reduced the Company's operating expenses
substantially; however, the Company must raise additional capital to continue
operations until revenues from operations exceed those expenses. Cash flow
provided from financing activities was $400,000 for the quarterly period ended
December 31, 2001.
8
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
On November 2, 2001, the company filed a lawsuit in the Florida 11th judicial
Circuit (Case Number 01- 26217CA32) against 40 defendants, for common law fraud,
civil conspiracy, conversion, and violation of the RICO act. See Form 8-K filed
with the SEC dated 11-15-01 for details. As of the date of this filing: 27 of
the 40 defendants have been served. One defendant has been dropped from the case
because of a previously filed personal bankruptcy. One defendant, a financial
firm has ceased doing business. Another defendant, also a financial firm has
ceased doing business and merged with a larger firm. Nearly all of the served
defendants have filed motions to dismiss. Of those motions that have been heard,
none have been granted. No answers have been received. No counter suits have
been filed against the corporation.
Rodney Young has been sued individually in US District Court - Northern District
of Illinois alleging Tortuous Interference with a Contract and Breach of
Fiduciary Duty. Within the next few weeks the discovery phase of the lawsuit
will begin. The Company's attorneys in this action will begin subpoenaing
market/maker broker/dealer firms for trading records which will be incorporated
into a master database that the Company believes will demonstrate the fraud
conspiracy and conversion, as well as subpoenaing of anonymous bashers who post
on financial bulletin boards and chat rooms, and the bulletin boards themselves
as potential additional defendants.
Item 2. Changes in Securities.
On December 5, 2001, the company filed Form S-8 which registered 5,000,000
shares of common stock to be used for employee compensation and consultants and
advisors who provide legitimate services to the issuer (for further explanation
of S-8 rules see: www.sec.gov/divisions/enforce/microcap.htm).
As of this filing date the company has issued common stock to employees,
consultants and advisors bringing the current capital structure of the company
to a total of 18,033.807 shares issued. Of that total 10,413,381 are free
trading and 7,620,426 are restricted.
Stock Issuance Summary
Stock Issued To 144 S-8 Total
- ----------------------------------- ----------------- --------------- -----------------
Issued through 12-31-01
Consultants & advisors 630,158 2,422,525 3,052,683
Officers & employees 2,465,204 - 2,465,204
Total through 12-31-01 3,095,362 2,422,525 5,517,887
- ----------------------------------- ----------------- --------------- -----------------
Subsequent issuances through 2-19-02
Consultants & advisors - 572,193 572,193
Officers & employees - 394,231 394,231
Total through 2-19-02 - 966,424 966,424
- ----------------------------------- ----------------- --------------- -----------------
9
Item 6. Exhibits and Reports on Form 8-K.
Exhibit
No
(3) Articles of Incorporation and Bylaws
3.1 Articles of Incorporation
3.1(a) Amendment to Articles of Incorporation #
3.2 Bylaws +
(4) Instruments Defining Rights of Holders
4.1 Form of Warrant#
(10) Material Contracts
10.1 Consulting Agreement with LBC Capital, Inc. +
10.2 Services Agreement with BellSouth Telecommunications, Inc. +
10.3 Employment Agreement with Rodney Young +
10.4 Form of Securities Purchase Agreement #
10.5 Form of Registration Rights Agreement #
Subsidiaries of the Registrant
21.1 Subsidiaries of the Registrant +
- --------
+ Filed with the Company's initial filing on Form 10-SB filed February 1, 2000.
++ Filed herewith
# Filed with the Company's Form 8-K on June 2, 2000.
10
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf of the undersigned, thereunto duly
authorized.
EAGLETECH COMMUNICATIONS, INC.
------------------------------
(Registrant)
Date: February 19, 2002 /s/ Rodney Young
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Rodney Young, President