U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------
FORM 10-Q
-----------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____
Commission File Number: 000-23163
EAGLE BROADBAND, INC.
(Exact name of registrant as specified in its charter)
TEXAS 76-0494995
(State or other jurisdiction) (IRS Employer
of incorporation or organization Identification No.)
101 COURAGEOUS DRIVE
LEAGUE CITY TEXAS 77573-3925
(Address of principal executive offices, including zip code)
(281) 538-6000
(Registrant's telephone number, including area code)
-------------
Indicate by check mark whether the registrant (i) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (ii) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of January 15, 2003, there were 78,844,678 shares of common stock
outstanding.
EAGLE BROADBAND, INC. AND SUBSIDIARIES
INDEX
PART 1 -- FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets at November 30, 2002, and August 31, 2002 3
Consolidated Statements of Earnings for the Three
Months Ended November 30, 2002 and 2001 4
Consolidated Statements of Changes In Shareholders' Equity for the
Three Months Ended November 30, 2002, and Twelve Months Ended
August 31, 2001 5
Consolidated Statements of Cash Flows for the Three Months Ended
November 30, 2002 and 2001 6
Notes to the Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 26
Item 3. Quantitative and Qualitative Disclosures about Market Risk 29
Item 4. Controls and Procedures
PART 2 -- OTHER INFORMATION
Item 1. Legal Proceedings 30
Item 2. Recent Sales of Unregistered Securities or Changes
in Securities and Use of Proceeds. 30
Item 3. Defaults Upon Senior Securities 30
Item 4. Submission of Matters to a Vote of Security Holders 30
Item 5. Other Information 30
Item 6. Exhibits and Reports on Form 8-K 30
SIGNATURES 30
EAGLE BROADBAND, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
November 30, August 31,
2002 2002
---- ----
(Unaudited) (Audited)
CURRENT ASSETS:
Cash and Cash Equivalents $ 2,795 $ 3,421
Accounts Receivable 4,412 5,028
Inventories 6,545 6,059
Prepaid Expenses 371 358
------------- ---------------
TOTAL CURRENT ASSETS 14,123 14,866
PROPERTY AND EQUIPMENT:
Operating Equipment 35,980 34,509
Less: Accumulated Depreciation (3,927) (3,661)
------------- --------------
TOTAL PROPERTY AND EQUIPMENT 32,053 30,848
OTHER ASSETS:
Deferred Costs 334 334
Goodwill 7,916 7,916
Other Intangible Assets 80,109 79,900
Less: Accumulated Amortization (4,278) (4,278)
Other Assets 385 397
------------- --------------
TOTAL OTHER ASSETS 84,466 84,269
------------- --------------
TOTAL ASSETS $ 130,642 $ 129,983
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 4,208 $ 4,757
Accrued Expenses 2,059 2,873
Notes Payable 3,251 3,653
Capital Lease Obligations 32 48
------------- --------------
TOTAL CURRENT LIABILITIES 9,550 11,331
LONG-TERM LIABILITIES:
Capital Lease Obligations
(net of current maturities) 70 70
Long-Term Debt 1,199 1,202
------------- --------------
TOTAL LONG-TERM LIABILITIES 1,269 1,272
COMMITMENTS AND CONTINGENT LIABILITIES
SHAREHOLDERS' EQUITY:
Preferred Stock - $.001 par value
Authorized 5,000,000 shares
Issued -0- shares --- ---
Common Stock - $.001 par value
Authorized 200,000,000 shares
Issued and Outstanding at November 30, 2002, and
August 31, 2002, 77,666,000 and 73,051,000, respectively 78 73
Paid in Capital 161,987 158,731
Retained Earnings (42,242) (41,424)
------------- --------------
TOTAL SHAREHOLDERS' EQUITY 119,823 117,380
------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 130,642 $ 129,983
============= ==============
See accompanying notes to consolidated financial statements.
3
EAGLE BROADBAND, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands)
For the Three Months ended November 30,
(Unaudited)
2002 2001
---- ----
NET SALES:
Structured wiring 1,560 1,700
Broadband services 674 263
Products 2,044 6,467
Other 340 331
------------------ -----------------
TOTAL SALES 4,618 8,761
------------------ -----------------
COSTS OF GOODS SOLD:
Materials other than Cable and Wire --- 1
Direct Labor and Related Costs 346 735
Products and Integration Service 1,537 5,742
Structured Wiring Labor and Materials 229 321
Broadband Services Costs 276 171
Depreciation and Amortization 114 71
Other Manufacturing Costs 124 20
------------------ -----------------
TOTAL COSTS OF GOODS SOLD 2,626 7,061
------------------ -----------------
GROSS PROFIT 1,992 1,700
------------------ -----------------
OPERATING EXPENSES:
Selling, General and Administrative:
Salaries and Related Costs 1,508 2,157
Advertising and Promotion 37 155
Depreciation and Amortization 153 1,247
Other Support Costs 1,097 1,552
Research and Development 32 172
------------------ -----------------
TOTAL OPERATING EXPENSES 2,827 5,283
------------------ -----------------
EARNINGS/(LOSS) FROM OPERATIONS BEFORE OTHER REVENUES/(EXPENSES),
INCOME TAXES AND OTHER COMPREHENSIVE INCOME (835) (3,583)
OTHER REVENUES/(EXPENSES):
Interest Income - net 4 212
Other Income --- ---
------------------ -----------------
TOTAL OTHER REVENUES 4 212
EARNINGS/(LOSS) BEFORE MINORITY INTEREST IN
AFFILIATE, INCOME TAXES & OTHER COMPREHENSIVE INCOME (831) (3,371)
------------------ -----------------
Provisions For Income Taxes --- ---
------------------ -----------------
NET EARNINGS/(LOSS) (831) (3,371)
------------------ -----------------
OTHER COMPREHENSIVE INCOME, NET OF TAX
Unrealized Holding Gain/(Loss) 13 (188)
------------------ -----------------
OTHER COMPREHENSIVE INCOME/(LOSS) $ (818) $ (3,559)
================== =================
NET EARNINGS/(LOSS) PER COMMON SHARE:
Basic $ (0.01) $ (0.06)
Diluted $ (0.01) $ (0.06)
Comprehensive Income/(Loss) $ (0.01) $ (0.06)
See accompanying notes to consolidated financial statements.
4
EAGLE BROADBAND, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)
ADDITIONAL TOTAL
COMMON STOCK PREFERRED PAID IN RETAINED SHAREHOLDERS'
SHARES VALUE STOCK CAPITAL EARNINGS EQUITY
TOTAL SHAREHOLDERS' EQUITY
AS OF AUGUST 31, 2001 60,264 60 --- 153,426 (4,358) 149,128
------- --------- --------- ----------- ----------- ---------
Net Loss for Twelve Months
Ended August 31, 2002 --- --- --- --- (36,787) (36,787)
New Stock Issued to Shareholders:
For Services and Compensation 1,648 2 --- 880 --- 882
For Property and Other Assets 2,867 2 --- 591 --- 593
For Retirement of Debt and Liabilities 7,846 9 --- 3,577 --- 3,586
For Warrants Conversion --- --- --- --- --- ---
For Employee Stock Option Plan --- --- --- --- --- ---
For Acquisitions 2,002 2 --- 1,079 --- 1,081
For Licenses and Investments --- --- --- 100 --- 100
Syndication Costs --- --- --- --- --- ---
Treasury Stock (1,576) (2) --- (922) --- (924)
Unrealized Holding Gain --- --- --- --- (279) (279)
------- --------- --------- ----------- ----------- ---------
TOTAL SHAREHOLDERS' EQUITY
AS OF AUGUST 31, 2002 73,051 $ 73 $ --- $ 158,731 $ (41,424) $ 117,380
======= ========= ========= =========== =========== =========
Net Loss for Three Months
Ended November 30, 2002 --- --- --- --- (831) (831)
New Stock Issued to Shareholders:
For Services and Compensation 163 --- --- 145 --- 145
For Property and Other Assets 600 1 --- 243 --- 243
For Retirement of Debt and Liabilities 3,852 4 --- 2,868 --- 2,868
For Warrants Conversion --- --- --- --- --- ---
For Employee Stock Option Plan --- --- --- --- --- ---
For Licenses and Investments --- --- --- --- --- ---
Syndication Costs --- --- --- --- --- ---
Treasury Stock --- --- --- --- --- ---
Unrealized Holding Gain --- --- --- --- 13 13
------- --------- --------- ----------- ----------- ---------
TOTAL SHAREHOLDERS' EQUITY
AS OF NOVEMBER 30, 2002 77,666 $ 78 $ --- $ 161,987 $ (42,242) $ 119,823
======= ========= ========= =========== =========== =========
See accompanying notes to consolidated financial statements.
5
EAGLE BROADBAND, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Three Months ended November 30,
2002 2001
---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earning/(Loss) $(818) $ (3,371)
Adjustments To Reconcile Net Earnings to Net Cash
Used By Operating Activities:
Interest for Conversion Value 91 ---
Depreciation and Amortization 266 1,318
Stock Issued for Interest Expense --- 12
Allowance for Doubtful Accounts --- 138
Stock Issued for Services Rendered 54 38
Unrealized Holding Gain/(Loss) on Marketable Securities --- (188)
(Increase)/Decrease in Accounts Receivable 619 1,103
(Increase)/Decrease in Inventories (428) (1,397)
(Increase)/Decrease in Prepaid Expenses (13) 32
Increase/(Decrease) in Accounts Payable (345) 415
Increase/(Decrease) in Accrued Expenses (146) (1,079)
Increase/(Decrease) in Federal Income Taxes Payables --- ---
Increase/(Decrease) in Franchise Taxes Payables --- ---
----------------
Total Adjustment 98 392
Net Cash Used by Operating Activities (720) (2,979)
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase)/Disposal of Property and Equipment (1,471) (2,384)
(Increase)/Decrease in Notes Receivable Clearworks.net --- ---
(Increase)/Decrease in Security Deposits --- (31)
(Increase)/Decrease in Deferred Advertising Costs --- ---
(Increase)/Decrease in Deferred Costs (12) ---
(Increase)/Decrease in Other Intangible Assets --- 2
(Increase)/Decrease in Other Assets --- (331)
------------------
Net Cash Used by Investing Activities (1,483) (2,744)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase/(Decrease) in Notes Payable & Long-Term Debt 1,577 (274)
Increase/(Decrease) in Capital Leases --- (13)
Increase/(Decrease) in Line of Credit --- (1,077)
Proceeds From Sale of Common Stock, Net --- ---
Treasury Stock --- (476)
-----------------
Net Cash Provided By Financing Activities 1,577 (1,840)
----------------
Net Increase/(Decrease) in Cash (626) (7,563)
CASH AT THE BEGINNING OF PERIOD 3,421 23,843
---------------
CASH AT THE END OF PERIOD $ 2,795 $16,280
Supplemental Disclosure of Cash Flow Information:
Net Cash Paid During the Year for
Interest $ 72 $ 54
Income Taxes --- ---
Supplemental non-cash investing activities (See Note 4) and changes in shareholder's equity:
See accompanying notes to consolidated financial statements.
6
EAGLE BROADBAND, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2002
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
Eagle Broadband, Inc., (the Company or Eagle) incorporated as a Texas
corporation on May 24, 1993, and commenced business in April of 1996.
The Company is a worldwide supplier of broadband products and services,
providing telecommunications equipment with related software, broadband
products, and fiber and cable as used by service providers in the
paging and other personal communications markets. The Company designs,
manufactures, markets and services its products under the Eagle
Broadband, Inc., and BroadbandMagic names. These products include
transmitters, receivers, controllers, software, convergent set-top
boxes, fiber, cable, and other equipment used in commercial and
personal communications systems and radio and telephone systems.
Additionally, the Company provides cable television, telephone,
security, Internet connectivity, and related services under a bundled
digital services package, commonly known as "BDS," through single
source billing. Also provided is last mile cable and fiber installation
services as well as comprehensive IT products and services.
A) Consolidation
At November 30, 2002, the Company's subsidiaries are: Atlantic Pacific
Communications, Inc. (APC); Etoolz, Inc. (ETI); Eagle Wireless
International, Inc. (EWI); Eagle Broadband Services, Inc.;
ClearWorks.net, Inc. (.NET); ClearWorks Communications, Inc. (COMM);
ClearWorks Home Systems, Inc. (HSI); Contact Wireless, Inc. (CWI); DSS
Security, Inc. (DSS); United Computing Group, Inc. (UCG); and Link Two
Communications, Inc. (LINK II). The consolidated financial statements
include the accounts of the Company and its subsidiaries. All
significant inter-company transactions and balances have been
eliminated in consolidation.
B) Cash and Cash Equivalents
The Company has $2,795,000 and $3,421,000 invested in interest bearing
accounts and marketable securities (Note 9) at November 30, 2002, and
August 31, 2002, respectively.
C) Property and Equipment
Property and equipment are carried at cost less accumulated
depreciation. Depreciation is calculated by using the straight-line
method for financial reporting and accelerated methods for income tax
purposes. The recovery classifications for these assets are listed as
follows:
Years
-----
Head-End Facility and Fiber Infrastructure 20
Manufacturing Equipment 3-7
Furniture and Fixtures 2-7
Office Equipment 5
Leasehold Improvements Life of Lease
Property and Equipment 5
Vehicles 5
Expenditures for maintenance and repairs are charged against income as
incurred whereas major improvements are capitalized.
D) Inventories
Inventories are valued at the lower of cost or market. The cost is
determined by using the FIFO method. Inventories consist of the
following items, in thousands:
November 30, August 31,
2002 2002
------------ ------------
Raw Materials $ 4,721 $ 4,515
Work in Process 1,596 1,262
Finished Goods 228 282
------------ ------------
$ 6,545 $ 6,059
============ ============
7
EAGLE BROADBAND, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2002
E) Revenue Recognition
The Company designs, manufactures, markets and services its products
and services under the Eagle Broadband, Inc.; Eagle Broadband Services,
Inc.; BroadbandMagic,; ClearWorks Communications, Inc.; ClearWorks Home
Systems, Inc.; Eagle Wireless International, Inc., Atlantic Pacific
Communications, Inc.; Link Two Communications, Inc.; United Computing
Group, Inc.; Contact Wireless, Inc.; and DSS Security, Inc., names.
Eagle Wireless International, Inc.
Eagle designs, manufactures and markets transmitters, receivers,
controllers and software, along with other equipment used in commercial
and personal communication systems, radio and telephone systems.
Revenues from these products are recognized when the product is
shipped.
BroadbandMagic
BroadbandMagic designs, manufactures and markets the convergent set-top
boxes. Products are sent principally to commercial customers for a
pre-sale test period of ninety days. Upon the end of the pre-sale test
period, the customer either returns the product or accepts the product,
at which time the Company recognizes the revenue.
Eagle Broadband, Inc.
Eagle Broadband engages independent agents for sales principally in
foreign countries and certain geographic regions in the United States.
Under the terms of these one-year agreements the distributor or sales
agents provide the companies with manufacturing business sales leads.
The transactions from these distributors and agents are subject to the
Company's approval prior to sale. The distributorship or sales agent
receives commissions based on the amount of the sales invoice from the
companies to the customer. The sale is recognized at the time of
shipment to the customer. These sales agents and distributors are not a
significant portion of total sales in any of the periods presented.
ClearWorks Communications, Inc.
ClearWorks Communications, Inc., provides Bundled Digital Services to
business and residential customers, primarily in the Texas market.
Revenue is derived from fees charged for the delivery of Bundled
Digital Services, which includes telephone, long distance, internet,
security monitoring and cable services. This subsidiary recognizes
revenue and the related costs at the time the services are rendered.
Eagle Broadband Services, Inc.
Eagle Broadband Services, Inc. assumed the operations of ClearWorks
Communications, Inc. as of September 1, 2002, and provides Bundled
Digital Services to business and residential customers, primarily in
the Texas market. Revenue is derived from fees charged for the delivery
of Bundled Digital Services, which includes telephone, long distance,
internet, security monitoring and cable services. This subsidiary
recognizes revenue and the related costs at the time the services are
rendered.
ClearWorks Home Systems, Inc.
ClearWorks Home Systems, Inc., sells and installs structured wiring,
audio and visual components to homes. This subsidiary recognizes
revenue and the related costs at the time the services are performed.
Revenue is derived from the billing of structured wiring to homes and
the sale of audio and visual components to the homebuyers.
Atlantic Pacific Communications, Inc.
Atlantic Pacific Communications, Inc., provides project planning,
installation, project management, testing and documentation of fiber
and cable to commercial and industrial clients throughout the United
States. The revenue from the fiber and cable installation and services
is recognized upon percentage of completion of the project. Most
projects are completed in less than one month, therefore, matching
revenue and expense in the period incurred. Service, training and
extended warranty contract revenues are recognized as earned.
Etoolz, Inc.
Etoolz, Inc., provides research and development support for all Eagle
companies and does not currently provide billable services to
independent third parties.
Link Two Communications, Inc.
Link Two Communications, Inc., provides customers with one- and two-way
messaging systems. The revenue from these services is recognized as it
is earned from the customer.
Contact Wireless, Inc.
Contact Wireless, Inc., provides customers with paging and mobile
telephone products and related monthly services. Revenue from product
sales is recorded at the time of shipment. Revenue for the mobile phone
and paging service is billed monthly as the service is provided.
8
EAGLE BROADBAND, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2002
DSS Security, Inc.
DSS Security, Inc., provides monthly security monitoring services to
residential customers. The customers are billed three months in advance
of service usage. The revenues are deferred at the time of billing and
ratably recognized over the prepayment period as service is provided.
United Computing Group, Inc.
United Computing Group, Inc., provides business-to-business hardware
and software network solutions and network monitoring services. The
revenue from the hardware and software sales is recognized at the time
of shipment. The monitoring services recognition policy is to record
revenue as earned.
F) Research and Development Costs
For the three months ended November 30, 2002, and 2001, the Company
performed research and development activities for internal projects
related to its convergent set-top boxes as well as its multi-media
entertainment centers. Research and development costs of $32,000 and
$172,000 were expensed for the three months ended November 30, 2002 and
2001, respectively.
No research and development services were performed for outside parties
for the three months ended November 30, 2002 and 2001.
G) Income Taxes
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes," which requires
a change from the deferral method to assets and liability method of
accounting for income taxes. Timing differences exist between book
income and tax income, which relate primarily to depreciation methods.
H) Net Earnings Per Common Share
Net earnings per common share are shown as both basic and diluted.
Basic earnings per common share are computed by dividing net income
less any preferred stock dividends (if applicable) by the weighted
average number of shares of common stock outstanding. Diluted earnings
per common share are computed by dividing net income less any preferred
stock dividends (if applicable) by the weighted average number of
shares of common stock outstanding plus any dilutive common stock
equivalents. The components used for the computations are shown as
follows, in thousands:
November 30, August 31,
2002 2002
------------ ------------
Weighted Average Number of Common
Shares Outstanding Including
Primary Common Stock Equivalents 74,493 64,004
Fully Dilutive Common Stock Equivalents 74,647 64,158
I) Impairment of Long Lived and Identifiable Intangible Assets
The Company evaluates the carrying value of long-lived assets and
identifiable intangible assets for potential impairment on an ongoing
basis. An impairment loss would be deemed necessary when the estimated
non-discounted future cash flows are less than the carrying net amount
of the asset. If an asset were deemed to be impaired, the asset's
recorded value would be reduced to fair market value. In determining
the amount of the charge to be recorded, the following methods would be
utilized to determine fair market value:
1) Quoted market prices in active markets.
2) Estimate based on prices of similar assets.
3) Estimate based on valuation techniques.
As of November 30, 2002, no impairment existed.
9
EAGLE BROADBAND, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2002
J) Intangible Assets
Goodwill represents the excess of the cost of companies acquired over
the fair value of their net assets at the dates of acquisition and is
being amortized using the straight-line method over twenty (20) years
for Atlantic Pacific Communications, Inc. and twenty-five (25) years
for Bundled Digital Services contract rights. Other intangible assets
consist of patents and licenses, which are being amortized using the
straight-line method over ten (10) years and twenty (20) years,
respectively.
K) Advertising Costs
Advertising costs have been capitalized and amortized on the basis of
contractual agreements entered into by the Company. These contracts are
amortized over the life of the individual contracts or expensed in the
period incurred. For the three months ended November 30, 2002, the
Company has expensed $37,000 where $0 in costs has been deferred.
For the three months ended, November 30, 2001, the Company has expensed
$155,000 whereas $0 in costs has been deferred.
L) Deferred Syndication Costs
Deferred syndication costs consist of those expenditures incurred that
are directly attributable to fundraising and the collection thereto.
Upon successful collection of the funds, all expenses incurred will be
reclassified to additional paid in capital and treated as syndication
costs; netted against the funds raised.
M) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent asset and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
N) Marketable Securities
In May 1993, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," effective for fiscal years
beginning after December 15, 1993. This statement considers debt
securities that the Company has both the positive intent and ability to
hold to maturity are carried at amortized cost. Debt securities that
the company does not have the positive intent and ability to hold to
maturity and all marketable equity securities are classified as
available-for-sale or trading securities and are carried at fair market
value. Unrealized holding gains and losses on securities classified as
trading are reported in earnings. Unrealized holding gains and losses
on securities classified as available-for-sale were previously carried
as a separate component of stockholders' equity. SFAS No. 115 as
amended by Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Other Comprehensive Income."
Management determines the appropriate classification of marketable
equity and debt securities at the time of purchase and re-evaluates
such designation as of each balance sheet date.
O) Other Comprehensive Income
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Other Comprehensive Income,"
effective for fiscal years beginning after December 15, 1997. This
statement considers the presentation of unrealized holding gains and
losses attributable to debt and equity securities classified as
available-for-sale. As stated, any unrealized holding gains or losses
affiliated to these securities are carried below net income under the
caption "Other Comprehensive Income." For the three months ended
November 30, 2002 and 2001, the Company recorded a comprehensive gain
of $12,000 and a loss of $188,000, respectively.
P) Reclassification
The Company has reclassified certain assets costs and expenses for the
three months ended November 30, 2001 to facilitate comparison to the
three months ended November 30, 2002.
Q) Supporting Costs in Selling, General and Administrative Expenses
Other support cost for the three months ending November 30, 2002 and
2001, are as follows, in thousands:
10
EAGLE BROADBAND, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2002
2002 2001
--------- ---------
Auto Related 11 53
Bad Debt --- 138
Contract Labor 24 130
Delivery/Postage 61 26
Fees 108 43
Insurance 5 10
Interest 163 291
Office Supplies 63 38
Other 18 35
Professional 84 218
Rent 228 305
Repairs & Maintenance 11 30
Travel 75 ---
Taxes 17 31
Utilities 229 204
--------- ---------
Total $ 1,097 $ 1,552
========= =========
R) Recent Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and
Other Intangible Assets, which is effective for the Company in the
first quarter of fiscal year 2003 and for purchase business
combinations consummated after June 30, 2001. These standards change
the accounting for business combinations by, among other things,
eliminating pooling-of-interests accounting and requiring a change in
the method of expensing goodwill and certain intangible assets with an
indefinite useful life. Goodwill and intangible assets deemed to have
an indefinite useful life will be subject to an annual review for
impairment rather than periodic amortization. Finite lived intangibles
will continue to be amortized over their useful lives.
At November 30, 2002, the Company evaluated its existing goodwill and
intangible assets acquired in purchase business combinations completed
prior to July 1, 2001. The carrying amount of recognized intangible
assets that meet the criteria for recognition apart from goodwill or
any identifiable intangible assets that are presented with goodwill and
other intangible assets for financial reporting purposes have been
reclassified and reported separately from goodwill. The unamortized
balance of any negative goodwill will be recognized as the cumulative
effect of a change in accounting principle. The Company has also tested
goodwill for impairment at November 30, 2002, using the two-step
process prescribed in SFAS No. 142. The first step is a screen for
potential impairment, while the second step measures the amount of
impairment, if any.
In October 2001, the FASB issued SFAS No. 144, Impairment of Long-Lived
Assets, SFAS No. 144 supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of. SFAS No. 144 retains the requirements of SFAS No. 121 to
(a) recognize an impairment loss only if the carrying amount of a
long-lived asset is not recoverable from its undiscounted cash flow and
(b) measure an impairment loss as the difference between the carrying
amount and the fair value of the asset. SFAS No. 144 removes goodwill
from its scope. SFAS No. 144 is applicable to financial statements
issued for fiscal years beginning after December 15, 2001. The adoption
of SFAS No. 144 had a material impact on the financial position of the
Company.
Amortization expense related to goodwill and intangibles was
approximately $0 and $1,008,000 for the three months ended November 30,
2002, and November 30, 2001.
NOTE 2 - ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following, in thousands:
November 30, August 31,
2002 2002
----------- -----------
Accounts Receivable $ 4,654 $ 5,270
Allowance for Doubtful Accounts (242) (242)
----------- -----------
Net Accounts Receivable $ 4,412 $ 5,028
=========== ===========
11
EAGLE BROADBAND, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2002
NOTE 3 - PROPERTY, PLANT & EQUIPMENT AND INTANGIBLE ASSETS:
Components of property, plant & equipment are as follows, in thousands:
November 30, August 31,
2002 2002
------------ ------------
Automobile $ 392 $ 392
Head-End Facility and Fiber Infrastructure 28,573 27,164
Furniture & Fixtures 636 634
Leasehold Improvements 217 216
Office Equipment 1,023 1,015
Property, Manufacturing & Equipment 5,139 5,088
------------ ------------
Total Property, Plant & Equipment $ 35,980 $ 34,509
Less: Accumulated Depreciation (3,927) (3,661)
------------ ------------
Net Property, Plant & Equipment $ 32,053 $ 30,848
============ ============
Components of intangible assets are as follows, in thousands:
November 30, August 31,
2002 2002
------------ ------------
Goodwill $ 7,916 $ 7,916
Contract Rights 74,513 74,513
Licenses & Permits 6,315 6,118
------------ ------------
Total Intangible Assets $ 88,744 $ 88,547
Less: Accumulated Amortization (4,278) (4,278)
------------ ------------
Net Intangible Assets $ 84,466 $ 84,269
============ ============
NOTE 4 - BUSINESS COMBINATIONS:
On February 1, 2001, the Company completed the purchase of
ClearWorks.net, Inc., and its subsidiaries, ClearWorks Communication,
Inc., ClearWorks Structured Wiring Services, Inc., ClearWorks
Integration Services, Inc., United Computing Group, Link Two
Communications, Inc., and LD Connect, Inc., (collectively, ClearWorks)
by acquiring all the outstanding common stock for a total purchase
price of approximately $99.8 million. The acquisition was accounted for
using the purchase method of accounting. ClearWorks is a communications
carrier providing broadband data, video and voice communication
services to residential and commercial customers, currently within
Houston, Texas. These services are provided over fiber-optic networks
("Fiber-To-The-Home" or "FTTH"), which the Company designs, constructs,
owns and operates inside large residential master-planned communities
and office complexes. ClearWorks also provides information technology
staffing personnel, network engineering, vendor evaluation of network
hardware, implementation of network hardware and support of private and
enterprise networks, as well as, developing residential, commercial and
education accounts for deployment of structured wiring solutions. The
results of operation for ClearWorks are included in the accompanying
financial statements since the date of acquisition. The Company
acquired the net assets of ClearWorks for $99,797,000 through the
issuance of 29,410,000 shares of its common stock valued at $91,172,000
and a cash total of $8,625,000. Prior to the acquisition, the Company
provided to ClearWorks, working capital and materials totaling
$8,625,000. During February 2001, ClearWorks repaid these advances
through the issuance of 7,346,000 shares of its common stock, which
converted into 5,877,000 Eagle Wireless International, Inc., common
stock shares. These shares were converted to Treasury shares at this
date. The Company allocated (in thousands) the acquisition costs to
current assets of $11,708, property, plant and equipment of $6,570,
intangible assets of $96,920 (which consist of $74,513 in contract
rights and $22,407 in licenses), other assets of $79 and assumed
liabilities of accounts payable and accrued expenses of $10,784, banks
lines of credit and notes of $4,696 for a total acquisition of $99,797.
The allocation of the purchase price is based on the fair value of
assets and liabilities assumed as determined either by independent
third parties or management's estimates, based on existing contracts,
recent purchases of assets and underlying loan documents.
Effective January 1, 2002, the Company acquired the assets of DSS
Security, Inc., and Contact Wireless in a business combination
accounted for as a purchase. DSS Security, Inc., provides security
monitoring to business and residential customers. Contact Wireless
sells and services mobile phones and one- and two-way messaging
devices. The Company paid cash of $450,000 and issued a short-term note
payable of $130,000 for the assets of Contact Wireless for a total
purchase price of $580,000. Additionally, the Company acquired DSS
Security, Inc., for $2,002,147. In this transaction, the Company issued
2,002,147 shares of its common stock with a guaranteed value of $1 per
share. The Company allocated $51,595 to the fair value of the property
and equipment and $1,950,552 to intangible assets. The intangible
assets include, among other things, approximately 4,000 current
customers being billed monthly for wireless messaging services. The
allocation of the purchase price is based on the fair value of the
assets acquired based on management's estimates and existing contracts.
At
12
EAGLE BROADBAND, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2002
November 30, 2002, the Company has an accrual for $921,000 for the
portion of the purchase that represents the difference between purchase
price and market value of the Company's common stock on the date of
purchase.
NOTE 5 - NOTES PAYABLE:
The following table lists the Company's note obligations as of November
30, 2002, and August 31, 2002, in thousands:
Annual
Interest November 30, August 31,
Rate Due Date 2002 2002
------------------------------------------------------------
Vehicles Various Various $ 17 $ 27
6% Convertible Debenture (Note 8) 6.0% Demand 1,725 2,000
Tail Wind Convertible Debenture 2.0% May 2003 2,005 2,000
Other Various Various 908 828
--------- --------
Total notes payable $ 4,450 $ 4,855
Less current portion 3,251 3,653
--------- --------
Total long-term debt $ 1,199 $ 1,202
========= ========
NOTE 6 - CAPITAL LEASE OBLIGATIONS:
The Company leases equipment from various companies under capital
leases with varying expiration dates. The assets and liabilities under
the capital lease are recorded at the lower of the present value of the
minimum lease payments or the fair value of the asset. The assets are
depreciated over the estimated useful life with the value and
depreciation being included as a component of Property and Equipment
under operating equipment.
Minimum future lease payment under capital lease as of November 30,
2002, and August 31, 2002, for each of the next five years and in the
aggregate are (in thousands):
November 30, 2002 August 31, 2002
----------------- ---------------
Total minimum lease payments $ 111 $ 128
Less : Amount representing interest 9 10
----------------- ---------------
Present value of net minimum lease payments 102 118
Less: Current maturity capital lease obligation 32 48
----------------- ---------------
Long-term capital lease obligation 70 70
================= ===============
Future obligations under the lease terms are as follows (in thousands):
Period Ended Amount
-----------------
2004 41
2005 29
-----------------
Total $ 70
=================
NOTE 7 - LINE OF CREDIT:
During the Company's first fiscal quarter ended November 30, 2002, APC
entered into a new credit facility with SWBT to provide working capital
and fund ongoing operations. The new credit facility is a purchase and
sale agreement against accounts receivable, provides for borrowings up
to $1,000,000 based on eligible accounts receivable and is secured by
APC accounts receivable and guaranteed by Eagle Broadband, Inc.
The Company, through its subsidiary United Computing Group, Inc. (UCG),
entered into a credit facility in July 2002 with Southwest Bank of
Texas (SWBT) to provide working capital, repay the prior credit line
and fund ongoing operations. The new credit facility is a purchase and
sale agreement against accounts receivable, provides for borrowings up
to $3,000,000 based on eligible accounts receivable and is secured by
UCG accounts receivable and guaranteed by Eagle Broadband, Inc. As of
November 30, 2002, UCG reduced its accounts receivable by $245,562 to
reflect the gross sale of $288,896 to SWBT less $43,334 of reserves
held by SWBT against such purchases.
13
EAGLE BROADBAND, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2002
NOTE 8 - CONVERTIBLE DEBENTURES:
During October 2002, the Company entered into a $3,000,000 convertible
debenture agreement with Cornell Capital Partners, LP (CCP). At the
Company's option, the entire principal amount and all accrued interest
shall be either (a) paid to CCP on the third year anniversary from the
date of the debenture or (b) converted. The three-year debenture bears
interest at 5% and is repayable in stock or cash. The method of
repayment is determined by the Company. The significant conversion
terms are that CCP is entitled, at its option, to convert, and sell on
the same day, at any time and from time to time subject to the terms of
the agreement, until payment in full of the debenture, all or any part
of the principal amount of the debenture, plus accrued interest, into
shares of the Company's common stock at the price per share equal to
either (a) $1.00 or (b) 90% of the average of the four lowest closing
trade prices of the common stock, for the five trading days immediately
preceding the conversion date. CCP shall not be entitled to convert the
debenture for a period of 180 days from the date of the debenture.
After 180 days, if the conversion price is below $1.00, CCP shall be
entitled, at its option, to convert, and sell on the same day up to
$50,000 every five business days. After 12 months from the date of the
debenture, if the conversion price is below $1.00, CCP shall be
entitled, at its option, to convert and sell on the same day up to
$75,000 every five business days. Notwithstanding the foregoing, after
180 days from the date of the debenture, CCP shall be entitled, at its
option, to convert and sell on the same day without restriction if the
conversion price is above $1.00. At November 30, 2002, the Company had
received $1,725,000 for the issuance of the debenture. Additionally,
the Company recorded a $91,000 charge to interest expense and paid in
capital the value assigned to the conversion feature through November
30, 2002.
At August 31, 2002, $2,000,000 in principal plus $600,000 of accrued
interest and fees was outstanding to Candlelight Investors, LLC. In
November 2002, the Company issued 3,000,000 shares of stock to settle
this debt.
During 2001, the Company acquired ClearWorks.net, Inc., and as a
result, ClearWorks is a wholly owned subsidiary of Eagle. Link Two
Communications, Inc., is a subsidiary of ClearWorks, and as a result of
the merger, is now a secondary subsidiary of Eagle. Link Two entered an
agreement with The Tail Wind Fund Ltd., under which Tail Wind purchased
from Link Two a 2% convertible note in the initial amount of $5,000,000
(the "First Note"), and Link Two has the ability to require Tail Wind
to purchase additional convertible notes in the amount of $4,000,000
(the "Second Note") and $3,000,000 (the "Third Note"). The conversion
terms of the convertible debentures become effective after ninety days
of the initial closing date. The note balance will be due in fiscal
2003. Link Two may require Tail Wind to purchase the Second Note if:
(a) the price of Eagle's common stock is above $5.00 per share for 20
consecutive trading days during calendar 2001, and other various terms
are met. Link Two may require Tail Wind to purchase the Third Note if
the price of Eagle's common stock is above $8.00 per share for 20
consecutive trading days during calendar 2001, and the agreed upon
covenants are met. In conjunction with the issuance of the First Note,
Link Two issued Tail Wind a warrant, and if Link Two chooses to issue
the Second and Third Notes, it will issue Tail Wind additional
warrants.
As a result of the acquisition, Eagle the parent of Link Two, has
guaranteed the Link Two notes issued to Tail Wind and allowed Tail Wind
to convert the above mentioned debt into Eagle common stock at a rate
of $1.79 per share. The agreement also permits Tail Wind to convert the
Link Two warrant into Eagle warrants to purchase shares of our common
stock. Tail Wind would have a warrant to purchase 1,396,648 shares of
our common stock at an exercise price of $1.83 per share, exercisable
between August 2002 and September 2006. If Link Two requires Tail Wind
to purchase the Second and Third Note, the additional warrants it
issues will also be convertible into shares of our common stock. The
number of shares that the additional warrants may be converted into
will depend on the price of our common stock, and cannot be determined
at this time. However, the exercise price of the additional warrants
may not be less than $1.83 per share.
The Company has agreed to pre-pay the notes at the rate of a minimum of
$250,000 per month and a maximum of $500,000 per month. The pre-payment
may be in cash or in shares of our common stock at the rate of 90% of
the average of the two lowest market prices of our common stock for the
applicable month. However, the Company may not issue shares of our
common stock for pre-payment purposes if the total number of shares
exceeds the aggregate trading volume of our common stock for the twelve
trading days preceding the date of payment, in which case we must pay
the difference in cash. As the number of shares to be issued for
pre-payment purposes is dependent on the price and trading volume of
our common stock, there is no way to determine the number of shares
that may be issued at this time. Eagle has filed a registration
statement for the potential conversion shares for the note and warrants
exercise. As of May 31, 2002, the Company has paid to Tail Wind
$2,000,000 towards the reduction of debt. The current financial
statements have recorded as current maturity for this debt, $2,000,000.
As part of the above agreements, the Company entered into a
registration rights agreement with Tail Wind, and the Company filed a
registration statement, in order to permit Tail Wind to resell to the
public the shares of common stock that it may acquire upon any
conversion of the First Note and exercise of the warrant associated
with the First Note. The Company have registered for resale 5,000,000
shares of common stock, which represents 122% of the shares to be
issued upon conversion of the First Note at $1.79 per share and 100% of
the exercise of the warrant associated with the First Note at $1.83 per
share. The additional shares registered is to account for the shares
that may be issued for pre-payment as described in the above paragraph,
or upon the exercise of the anti-dilution rights provided for in the
following paragraph. If Link Two chooses to
14
EAGLE BROADBAND, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2002
require Tail Wind to purchase the Second and Third Notes, we will file
another registration statement covering the resale of the shares that
may be issued on conversion of the Second and Third Notes and upon the
exercise of the warrants associated with the Second and Third Notes.
In our agreement with Tail Wind, the Company granted Tail Wind
anti-dilution rights. If the Company sells common stock or securities
exercisable for or convertible into shares of our common stock for less
than $1.79 per share, the Company must reduce the conversion price of
the notes and the exercise price of the warrants to the price the
Company sold the common stock or the exercise or conversion price the
Company issued the convertible securities. The Company has agreed to
register for resale any additional shares that will be issued pursuant
to these anti-dilution rights on a future registration statement,
unless such additional shares are available in the current registration
statement. In addition, under the terms of the agreement, without Tail
Wind's approval, the Company may not issue Tail Wind shares of common
stock such that Tail Wind would ever be considered to beneficially own
greater than 4.99% of the outstanding common stock. In connection with
this transaction, Link Two Communications, Inc., has paid Ladenburg
Thalman and Co. a fee of 5% of the purchase price of the notes.
Additionally, the Company has valued the conversion feature of the
convertible debenture and warrants at $1,648,045 and $1,270,995,
respectively; the amounts were determined by using the Black-Scholes
calculation. These amounts have been capitalized as part of the cost of
developing the wireless infrastructure. At August 31, 2002, Eagle and
Tail Wind were renegotiating the terms of this note. During the
renegotiation period, the Company has agreed to pay interest until all
new terms and conditions have been resolved.
NOTE 9 - MARKETABLE SECURITIES:
As discussed in Note 1, the Company adopted the provisions of SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities"
and SFAS No. 130, "Accounting for Other Comprehensive Income." At
August 31, 2001, all of the Company's marketable equity securities are
classified as available-for-sale; they were acquired with the intent to
dispose of them within the next year.
At November 30, 2002, the securities had an original basis of $6,980
determined by multiplying the number of shares acquired by the fair
market value of those shares. At the November 30, 2002 balance sheet
date, the fair market value of these securities was $7,566; determined
by multiplying the number of shares held by the fair market value of
those shares at the balance sheet date. The difference between the cost
and fair market value represents an unrealized holding gain (loss) and
is included below current earnings in "Other Comprehensive Income."
Security Name Shares Cost Basis Current
FMV
---------- -----------
FHLMC 48 4,684 4,878
FNMA 27 2,296 2,688
---------- -----------
Totals $ 6,980 $ 7,566
========== ===========
Other marketable securities, Urbana and Burst.com, with an adjusted
cost basis of $750,000 and fair market value of $1,270,000 are included
in cash and cash equivalents category and are held for resale.
NOTE 10 - INCOME TAXES:
As discussed in note 1, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Implementation of SFAS 109 did not have a material
cumulative effect on prior periods, nor did it result in a change to
the current year's provision.
A) The effective tax rate for the Company is reconcilable to statutory
tax rates as follows:
November 30, August 31,
2002 2002
---- ----
% %
U.S. Federal Statutory Tax Rate 34 34
U.S. Valuation Difference (34) (34)
---- ----
Effective U.S. Tax Rate 0 0
Foreign Tax Valuation 0 0
- -
Effective Tax Rate 0 0
15
EAGLE BROADBAND, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2002
Income tax expense (benefit) attributable to income from continuing
operations differed from the amounts computed by apply the U.S. Federal
income tax rate of 34% to pretax income from continuing operations as a
result of the following: (in thousands)
November 30, August 31,
2002 2002
------------ -------------
Computed expected tax benefit $ (283) $ (12,508)
Increase in valuation allowance 283 12,508
------------ -------------
$ --- $ ---
============ =============
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
November 30, 2002, and August 31, 2002, are presented below, in
thousands, and include the balances of the acquired company
ClearWorks.Net.
November 30, August 31,
2002 2002
------------ -------------
DEFERRED TAX ASSETS:
Accounts receivable, principally due $ --- $ ---
to allowance for doubtful accounts
Net operating loss carry-forwards 24,330 24,047
Less valuation allowance (24,330) (24,047)
------------ -------------
Net deferred tax assets --- ---
DEFERRED TAX LIABILITIES:
Differences in depreciation --- ---
------------ -------------
Net deferred tax liabilities $ --- $ ---
============ =============
The valuation allowance for deferred tax assets of November 31, 2002,
and August 31, 2002, was $24,330,000 and $24,047,000, respectively. At
November 30, 2002, the Company has net operating loss carry-forwards of
$36,070,000, which are available to offset future federal taxable
income, if any, with expirations from 2020 to 2021.
NOTE 11 - ISSUANCE OF COMMON STOCK:
For the three months ended November 30, 2002, the Company issued shares
of common stock. The following table summarizes the shares of common
stock issued, in thousands.
SHARES OUTSTANDING AUGUST 31, 2002 73,051
------------
Shares issued for Retirement of Debt and Liabilities 3,852
Shares issued for Services, Compensation, Property and 763
Other Assets
------------
SHARES OUTSTANDING NOVEMBER 30, 2002 77,666
============
NOTE 12 - PREFERRED STOCK, STOCK OPTIONS AND WARRANTS:
In July 1996, the Board of Directors and majority shareholders adopted
an employee stock option plan under which 400,000 shares of Common
Stock have been reserved for issuance. Since that time, the Board of
Directors have amended the July 1996, employee stock option plan under
which 1,000,000 shares of Common Stock have been reserved for issuance.
As of November 30, 2002, options to purchase 355,170 are outstanding
and 602,331 are available to be issued.
The Company has issued (or has acquired through its acquisitions) and
has outstanding the following warrants which have not yet been
exercised at November 30, 2002:
50,000 stock purchase options issued to L.A. Delmonico
Consulting, Inc. The warrants are to purchase fully paid and
non-assessable shares of the common stock, par value $.001 per
share at a purchase price of $1.04 per share. The shares of
common stock underlying these warrants were registered for
resale on August 9, 2002, under the Securities Act of 1933. As
of November 30, 2002, none of these options have been
exercised
50,000 stock purchase warrants issued to Weed & Co. L.P.
expiring December 10, 2002. The warrants are to purchase fully
paid and non-assessable shares of the common stock, par value
$.001 per share at a purchase price of
16
EAGLE BROADBAND, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2002
$1.55 per share. The shares of common stock underlying the
warrants were registered for resale on August 3, 2000, under
the Securities Act of 1933. As of November 30, 2002, 25,000
warrants have been exercised resulting in cash proceeds of
$38,750 and the balance of the warrants expired unexercised.
20,000 stock purchase warrants issued to Kason, Inc., expiring
October 7, 2002. The warrants are to purchase fully paid and
non-assessable shares of the common stock, par value $.001 per
share at a purchase price of $1.75 per share. The shares of
common stock underlying these warrants were registered for
resale on November 30, 2000, under the Securities Act of 1933.
As of November 30, 2002, 6,234 warrants have been exercised
resulting cash proceeds of $10,910.
25,000 stock purchase warrants issued to Synchton, Inc.,
expiring January 1, 2004. The warrants are to purchase fully
paid and non-assessable shares of the common stock, par value
$.001 per share at a purchase price of $2.00 per share. The
shares of common stock underlying these have not been
registered as of November 30, 2002, under the Securities Act
of 1933. As of November 30, 2002, none of these warrants have
been exercised.
41,667 stock purchase warrants issued to Peter Miles expiring
July 20, 2004. The warrants are to purchase fully paid and
non-assessable shares of the common stock, par value $.001 per
share at a purchase price of $2.00 per share. The shares of
common stock underlying these have not been registered as of
November 30, 2002, under the Securities Act of 1933. As of
November 30, 2002, none of these warrants have been exercised.
41,667 stock purchase warrants issued to Peter Miles expiring
July 20, 2004. The warrants are to purchase fully paid and
non-assessable shares of the common stock, par value $.001 per
share at a purchase price of $2.25 per share. The shares of
common stock underlying these warrants have not been
registered or issued, under the Securities Act of 1933. As of
November 30, 2002, none of these warrants have been exercised.
58,333 stock purchase warrants issued to Peter Miles expiring
July 20, 2004. The warrants are to purchase fully paid and
non-assessable shares of the common stock, par value $.001 per
share at a purchase price of $3.00 per share. The shares of
common stock underlying these warrants have not been
registered or issued, under the Securities Act of 1933. As of
November 30, 2002, none of these warrants have been exercised.
50,000 stock purchase warrants issued to Weed & Co. L.P.
expiring June 10, 2002. The warrants are to purchase fully
paid and non-assessable shares of the common stock, par value
$.001 per share at a purchase price of $3.00 per share. The
shares of common stock underlying these warrants were
registered for resale on August 3, 2000, under the Securities
Act of 1933. As November 30, 2002, none of these warrants have
been exercised.
40,000 stock purchase warrants issued to Rachel McClere 1998
Trust expiring April 24, 2003. The warrants are to purchase
fully paid and non-assessable shares of the common stock, par
value $.001 per share at a purchase price of $3.75 per share.
The shares of common stock underlying these warrants have not
been registered or issued, under the Securities Act of 1933.
As of November 30, 2002, none of these warrants have been
registered, issued or exercised.
160,000 stock purchase warrants issued to McClere Family Trust
expiring April 24, 2003. The warrants are to purchase fully
paid and non-assessable shares of the common stock, par value
$.001 per share at a purchase price of $3.75 per share. The
shares of common stock underlying these warrants have not been
registered or issued, under the Securities Act of 1933. As
November 30, 2002, none of these warrants have been
registered, issued or exercised.
232,000 stock purchase warrants issued to Shannon D. McLeroy
expiring April 24, 2003. The warrants are to purchase fully
paid and non-assessable shares of the common stock, par value
$.001 per share at a purchase price of $3.75 per share. The
shares of common stock underlying these warrants have not been
registered or issued, under the Securities Act of 1933. As
November 30, 2002, none of these warrants have been
registered, issued or exercised.
176,000 stock purchase warrants issued to Tech Technologies
Services, LLC expiring April 24, 2003. The warrants are to
purchase fully paid and non-assessable shares of the common
stock, par value $.001 per share at a purchase price of $3.75
per share. The shares of common stock underlying these
warrants have not been registered or issued, under the
Securities Act of 1933. As of November 30, 2002, none of these
warrants have been registered, issued or exercised.
328,000 stock purchase warrants issued to Candlelight
Investors, LLC. Expiration of warrants is as follows: 104,000
on December 31, 2002, 112,000 on February 15, 2003 and the
remaining 112,000 on April 19, 2003. The warrants are to
purchase fully paid and non-assessable shares of the common
stock, par value $.001 per share at a
17
EAGLE BROADBAND, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2002
purchase price of $3.95 per share. The shares of common stock
underlying these warrants have not been registered or issued,
under the Securities Act of 1933. As of November 30, 2002,
none of these warrants have been registered, issued or
exercised.
25,000 stock purchase warrants issued to Synchton, Inc.,
expiring October 1, 2003. The warrants are to purchase fully
paid and non-assessable shares of the common stock, par value
$.001 per share at a purchase price of $4.50 per share. The
shares of common stock underlying these warrants were
registered for resale on August 3, 2000, under the Securities
Act of 1933. As of November 30, 2002, none of these warrants
have been exercised.
100,000 stock purchase warrants issued to National Financial
Communications Corp. expiring June 2003. The warrants are to
purchase fully paid and non-assessable shares of the common
stock, par value $.001 per share at a purchase price of $7.00
per share. As of November 30, 2002, the underlying shares of
common stock have not yet been registered for resale under the
Securities Act of 1933.
250,000 stock purchase warrants issued to Sands Brothers &
Co., LTD. expiring July 13, 2003. The warrants are to purchase
fully paid and non-assessable shares of the common stock, par
value $.001 per share at a purchase price of $7.49 per share.
As of November 30, 2002, the underlying shares of common stock
have not yet been registered for resale under the Securities
Act of 1933.
25,000 stock purchase warrants issued to Synchton, Inc.,
expiring July 1, 2003. The warrants are to purchase fully paid
and non-assessable shares of the common stock, par value $.001
per share at a purchase price of $7.50 per share. The shares
of common stock underlying these warrants were registered for
resale on August 3, 2000, under the Securities Act of 1933. As
November 30, 2002, none of these warrants have been exercised.
192,000 stock purchase warrants issued to Tech Technologies
Services, LLC, expiring April 24, 2008. The warrants are to
purchase fully paid and non-assessable shares of the common
stock, par value $.001 per share at a purchase price of $7.50
per share. The shares of common stock underlying these
warrants have not been registered or issued, under the
Securities Act of 1933. As of November 30, 2002, none of these
warrants have been registered, issued or exercised.
240,000 stock purchase warrants issued to Shannon D. McLeroy
expiring April 24, 2008. The warrants are to purchase fully
paid and non-assessable shares of the common stock, par value
$.001 per share at a purchase price of $7.50 per share. The
shares of common stock underlying these warrants have not been
registered or issued, under the Securities Act of 1933. As
November 30, 2002, none of these warrants have been
registered, issued or exercised.
168,000 stock purchase warrants issued to Michael T. McClere
expiring April 24, 2008. The warrants are to purchase fully
paid and non-assessable shares of the common stock, par value
$.001 per share at a purchase price of $7.50 per share. The
shares of common stock underlying these warrants have not been
registered or issued, under the Securities Act of 1933. As
November 30, 2002, none of these warrants have been
registered, issued or exercised.
40,000 stock purchase warrants issued to Rachel McClere 1998
Trust expiring April 24, 2008. The warrants are to purchase
fully paid and non-assessable shares of the common stock, par
value $.001 per share at a purchase price of $7.50 per share.
The shares of common stock underlying these warrants have not
been registered or issued, under the Securities Act of 1933.
As of November 30, 2002, none of these warrants have been
registered, issued or exercised.
160,000 stock purchase warrants issued to McClere Family Trust
expiring April 24, 2008. The warrants are to purchase fully
paid and non-assessable shares of the common stock, par value
$.001 per share at a purchase price of $7.50 per share. The
shares of common stock underlying these warrants have not been
registered or issued, under the Securities Act of 1933. As
November 30, 2002, none of these warrants have been
registered, issued or exercised.
50,000 stock purchase warrants issued to Weed & Co. L.P.
expiring June 10, 2003. The warrants are to purchase fully
paid and non-assessable shares of the common stock, par value
$.001 per share at a purchase price of $9.68 per share. The
shares of common stock underlying these warrants were
registered for resale on August 3, 2000, under the Securities
Act of 1933. As of November 30, 2002, none of these warrants
have been exercised.
25,000 stock purchase warrants issued to Synchton, Inc.,
expiring April 1, 2003. The warrants are to purchase fully
paid and non-assessable shares of the common stock, par value
$.001 per share at a purchase price of $10.00 per
18
EAGLE BROADBAND, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2002
share. The shares of common stock underlying these warrants
were registered for resale on August 3, 2000, under the
Securities Act of 1933. As of November 30, 2002, none of these
warrants have been exercised.
250,000 stock purchase warrants issued to Sands Brothers &
Co., LTD. expiring July 13, 2003. The warrants are to purchase
fully paid and non-assessable shares of the common stock, par
value $.001 per share at a purchase price of $10.00 per share.
These warrants are not exercisable until and unless the
closing price of Common Stock at any time during the exercise
period reaches $10.00 per share. As of November 30, 2002, the
underlying shares of common stock have not yet been registered
for resale under the Securities Act of 1933. As of November
30, 2002, none of these warrants have been exercised.
250,000 stock purchase warrants issued to Hampton-Porter
Investment Bankers LLC expiring June 27, 2003. The warrants
are to purchase fully paid and non-assessable shares of the
common stock, par value $.001 per share at a purchase price of
$12.00 per share. The shares of common stock underlying these
warrants were registered for resale on August 3, 2000, under
the Securities Act of 1933. As of November 30, 2002, none of
these warrants have been exercised.
350,000 stock purchase warrants issued to Sands Brothers &
Co., LTD. expiring July 13, 2003. The warrants are to purchase
fully paid and non-assessable shares of the common stock, par
value $.001 per share at a purchase price of $14.00 per share.
These warrants, however, are not exercisable until and unless
the closing price of the Common Stock at any time during the
exercise period reaches $14.00 per share. As of November 30,
2002, the underlying shares of common stock have not yet been
registered for resale under the Securities Act of 1933. As of
November 30, 2002, none of these warrants have been exercised.
250,000 stock purchase warrants issued to Hampton-Porter
Investment Bankers LLC expiring June 27, 2003. The warrants
are to purchase fully paid and non-assessable shares of the
common stock, par value $.001 per share at a purchase price of
$18.00 per share. The shares of common stock underlying these
warrants were registered for resale on August 3, 2000, under
the Securities Act of 1933. As of November 30, 2002, none of
these warrants have been exercised.
150,000 stock purchase warrants issued to Sands Brothers &
Co., LTD. expiring July 13, 2003. The warrants are to purchase
fully paid and non-assessable shares of the common stock, par
value $.001 per share at a purchase price of $25.00 per share.
These warrants, however, are not exercisable until and unless
the closing price of the Common Stock at any time during the
exercise period reaches $25.00 per share. As of November 30,
2002, the underlying shares of common stock have not yet been
registered for resale under the Securities Act of 1933. . As
of November 30, 2002, none of these warrants have been
exercised.
The warrants outstanding are segregated into four categories
(exercisable, non-exercisable, non-registered, and expired).
19
Eagle Broadband, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
November 30, 2002
Warrants Issued Warrants Exercisable Warrants
Class of November 30, November 30, Non- Non-
Warrants 2002 2001 2002 2001 Exercisable Registered
- -------- -------------------- ----------------- ------------------------
1.04 - 50,000 50,000 - 50,000 50,000
1.50 - 600,000 - - - -
1.55 - 50,000 25,000 25,000 - -
1.75 - 20,000 13,766 13,766 - -
2.00 - 25,000 25,000 25,000 - -
2.00 - 41,667 41,667 41,667 - -
2.25 - 41,667 41,667 41,667
3.00 - 50,000 50,000 50,000 - -
3.00 - 58,333 58,333 58,333 - -
3.75 - 40,000 40,000 40,000 - 40,000
3.75 - 160,000 160,000 160,000 - 160,000
3.75 - 232,000 232,000 232,000 - 232,000
3.75 - 176,000 176,000 176,000 - 176,000
3.95 - 328,000 328,000 328,000 - 328,000
4.50 - 25,000 25,000 - - -
7.00 - 100,000 100,000 - - 100,000
7.49 - 250,000 250,000 - - 250,000
7.50 - 25,000 25,000 25,000 - -
7.50 - 192,000 192,000 192,000 - 192,000
7.50 - 240,000 240,000 240,000 - 240,000
7.50 - 168,000 168,000 168,000 - 168,000
7.50 - 40,000 40,000 40,000 - 40,000
7.50 - 160,000 160,000 160,000 - 160,000
9.68 - 50,000 50,000 50,000 - -
10.00 - 25,000 25,000 25,000 - -
10.00 - 250,000 250,000 - - 250,000
12.00 - 250,000 250,000 250,000 - -
14.00 - 350,000 350,000 - - 350,000
18.00 - 250,000 250,000 250,000 - -
25.00 - 150,000 150,000 250,000 - 150,000
2.00 - Expired * - - - -
ESOP - * 416,474 * 355,170 322,125 - -
ESOP - - - - - -
--------------------- ----------------------- ------------------------
- 4,814,141 4,121,603 3,163,558 50,000 2,886,000
===================== ======================= ========================
An asterisk (*) denotes warrants which would have an anti-dilutive effect if
currently used to calculate earnings per share for the months ended November 30,
2002 and 2001, respectively.
NOTE 13 - CAPITALIZATION ACTIVITIES:
On July 10, 2000, Atlantic Pacific Communications, Inc., (a wholly
owned subsidiary) initiated a stock offering in accordance with
Regulation D promulgated under the Securities Act of 1933. Atlantic
Pacific is offering units at $25,000 per unit. Each unit consists of
10,000 shares of common stock and 10,000 Class A warrants to purchase
Atlantic Pacific common stock at a price of $6.00 per share with one
warrant being issued as a unit with each common share sold. Atlantic
Pacific will sell up to 4,000,000 shares of common stock and up to
4,000,000 Class A warrants; 400 units. As of August 31, 2001, 13.25
units were sold totaling 132,500 shares and resulting in proceeds of
$331,250
NOTE 14 - RISK FACTORS:
For the three months ended November 30, 2002 and 2001, substantially
all of the Company's business activities have remained within the
United States and have been extended to the wireless infrastructure,
fiber, cabling computer services and broadband industry. Approximately,
eighty percent of the Company's revenues and receivables have been
created solely in the state of Texas, zero percent have been created in
the international market, and the approximate twenty percent remainder
have been created relatively evenly over the rest of the nation during
the three months ended November 30, 2002. Whereas approximately
seventy-two percent of the Company's revenues and receivables have been
created solely in the state of Texas, two percent have been created in
the international market, and the approximate twenty-six percent
remainder has been created relatively evenly over the rest of the
nation for the three months ended November 30, 2001. Through the normal
course of business, the Company generally does not require its
customers to post any collateral.
20
Eagle Broadband, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
November 30, 2002
Although the Company had previously concentrated its efforts in the
wireless infrastructure industry and has since expanded into the fiber,
cable and broadband markets for the three months ended November 30,
2002 and 2001, it is management's belief that the Company's
diversification into other products and services reduces its credit and
economic risk exposures in the technology and manufacturing sectors.
NOTE 15 - FOREIGN OPERATIONS:
Although the Company is based in the United States, its product is sold
on the international market. Presently, international sales total
approximately 0% and 2% at November 30, 2002 and 2001, respectively.
NOTE 16 - COMMITMENTS AND CONTINGENT LIABILITIES:
Leases
The Company leases its primary office space in League City, Texas, for
$36,352 per month with Gateway Park Joint Venture. This non-cancelable
lease commenced on January 1, 2002, and expires on May 31, 2004.
For the quarters ending November 30, 2002 and 2001, rental expenses of
approximately $228,000 and $305,000 respectively, were incurred.
The Company also leases office space in Oxnard, California with Tiger
Ventura County, L.P. This three-year non-cancelable lease commenced
August 1, 2000,and expires July 31, 2004. Under the terms of the lease,
monthly payments will be $2,130 for the first twelve months whereas the
monthly payments will increase by 3.5% at the beginning of both the
second and third years.
The Company's wholly owned subsidiary, Atlantic Pacific, leases office
space in Houston, Texas, with Houston Industrial Partners, Ltd. This
non-cancelable lease expires December 2005. The monthly payments are
$6,345 per month.
Atlantic Pacific also leases office space in Chicago, Illinois with
Lasalle Bank National Association. This twenty-nine month lease
commenced on October 1, 2000,and expires February 28, 2003. Under the
terms of the lease, monthly payments will be $2,220 for the first
twelve months whereas they will increase by 3.2% at the thirteenth and
twenty-fifth months.
Atlantic Pacific also leased office space in Houston, Texas, with WL
and Deborah Miller in the amount of $4,500 per month. This
non-cancelable lease expired September 2002 and maintained a five-year
renewal option. The renewal option was waived in September 2002.
The Company's subsidiary, ClearWorks.net, Inc., leases office space in
Houston, Texas, with 2000 North Loop. This non-cancelable lease expires
on April 30, 2003. The monthly payments will increase from $7,306 to
$11,091 on April 30, 2000,and again on May 1, 2002, to $11,217 for the
remaining twelve months.
Also, ClearWorks.net, Inc., leases office space in Phoenix, Arizona
with Airpark Holdings. This non-cancelable lease expires on July 31,
2003. The monthly payments are variable.
Also, ClearWorks.net, Inc., leases office space in San Antonio, Texas,
with Wade Holdings. This is a month-to-month lease. The monthly
payments are $3,300.
The Company's subsidiary, United Computing Group, leases office space
in Houston, Texas, with Eastgroup Properties, L.P. This non-cancelable
lease expires on August 31, 2003. The current monthly payments are
$8,570. UCG previously leased office space with Techdyne, Inc., that
expired August 31, 2002.
The Company's subsidiary, ClearWorks Home Systems, leases office space
in Austin, Texas, with Ditto Communications Technologies, Inc. This
non-cancelable lease commenced on September 1, 2002, and expires
January 31, 2005. The monthly payments are $5,876.
The Company's subsidiary, United Computing Group, leases office space
in Dallas, Texas, with AMB Property II, LP. This non-cancelable lease
commenced on June 19, 2000, expired on June 30, 2002, and was extended
to expire on June 30, 2003. The monthly payments are $2,794.
21
Eagle Broadband, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
November 30, 2002
Future obligations under the non-cancelable lease terms are:
Period Ending
August 31, Amount
2003 $ 980,454
2004 570,888
2005 146,021
2006 36,000
-------------
Total $ 1,733,363
Legal Proceedings
ClearWorks is a defendant in State Of Florida Department Of
Environmental Protection Vs. Reco Tricote, Inc. And Southeast Tire
Recycling, Inc., A/K/A ClearWorks.net, Inc.; In The Circuit Court Of
The Tenth Judicial Circuit In And For Polk County, Florida. On December
13, 2000, Florida EPA sued the Company presenting claims for recovery
costs and penalties for a waste tire processing facility. The suit
seeks recovery of costs and penalties in a sum in excess of $1,000,000,
attorneys' fees and cost of court. The Company immediately filed a
Motion to Strike Portions of the Complaint/or for a More Definite
Statement and a Motion to Dismiss. The Florida EPA has amended the
petition. ClearWorks denies the claims and intends to vigorously
contest all claims in this case and to enforce its indemnification
rights against the principals of Southeast Tire Recycling. No discovery
has been conducted in this lawsuit.
ClearWorks was a defendant in Candlelight Investors LLC v.
ClearWorks.net, Inc., Eagle Wireless International, Inc., and H. Dean
Cubley. Subsequent to August 31, 2002, Eagle settled the lawsuit with
Candlelight Investors LLC for $2,600,000.
ClearWorks is a defendant in Kaufman Bros., LLP v. ClearWorks.net,
Inc., and Eagle Wireless, Inc., (Index No. 600939/01), which is pending
in the Supreme Court of the State of New York, County of New York. In
this action, plaintiff alleges that defendants have breached an
agreement with ClearWorks to pay plaintiff a fee for financial advice
and services allegedly rendered by plaintiff. The complaint seeks
compensatory damages of $4,000,000, plus attorneys' fees and costs.
This suit is currently in the discovery phase. The defendants deny the
allegations of the complaint.
On December 17, 2001, Kevan Casey and Tommy Allen sued ClearWorks.net,
Inc., ClearWorks Integration, Inc., and Eagle Wireless International,
Inc., (the petition was later amended to include the following
defendants: Michael T. McClere, H. Dean Cubley, Link Two
Communications, Inc., A. L. Clifford, Jim Futer and McManus & Company,
P.C. d/b/a E. McManus & Co., P.L.L.C.) for breach of contract and other
related matters in Cause No. 2001-64056; In the 281st Judicial District
Court of Harris County, Texas. The suit seeks recovery of damages in
excess of $10,000,000 plus attorney's fees and court costs. The court
granted ClearWorks a temporary restraining order, wherein the Court
enforced a covenant against competition provision found in the
individual's employment contracts with the Company. Such order
restrains these individuals from competing against ClearWorks for a
period of six months. This lawsuit is currently in the discovery phase.
The defendants deny the allegations of the complaint.
The Company is subject to legal proceedings and claims that arise in
the ordinary course of business. The Company's management does not
expect that the results in any of these legal proceedings will have
adverse affect on the Company's financial condition or results of
operations.
Other Commitments
On July 13, 2000, the Company entered into an agreement with Sands
Brothers & Co., LTD. (Sands) whereby Sands will perform financial
advisory services and assist the Company with mergers and acquisitions,
corporate finances and other related matters for a period of two years.
As compensation for these services, the Company will immediately pay
Sands $50,000 and issue them 10,000 shares of the Company's common
stock. As an additional inducement, the Company has issued Sands
1,000,000 stock purchase warrants to be exercisable for a three-year
period expiring July 13, 2003. These warrants shall vest and be
exercisable as follows: 25% of such warrants shall vest upon execution
of this agreement and shall have an exercise price per share of $7.49;
an additional 25% shall vest when and if the closing price of the
common stock at any time during the exercise period reaches $10.00 per
share and shall be exercisable at $10.00 per share; an additional 35%
shall vest when and if the closing price of the common stock at any
time during the exercise period reaches $14.00 per share and shall be
exercisable at $14.00 per share; an additional 15% shall vest at any
time during the exercise period when the closing price of the common
stock at any time reaches $25.00 per share and shall be exercisable at
$25.00 per share. Additionally, Sands shall receive further
compensation for other activities such as fund raising based upon a
percent of all monies raised.
22
Eagle Broadband, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
November 30, 2002
NOTE 17 - EARNINGS PER SHARE:
The following table sets forth the computation of basic and diluted
earnings per share, in thousands except Per-Share Amount:
For the three months ended November 30, 2002
--------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- -------------
Net Loss $(831)
Basic EPS:
Income available to
common stockholders $(831) 74,493 $(0.01)
Effect of Dilutive Securities
Warrants 154
----------- -------------
Diluted EPS:
Income available to
common stockholders
and assumed conversions. $(831) 74,647 $(0.01)
=========== ============= =============
For the three months ended November 30, 2001
--------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- -------------
Net Income $ (3,371)
Basic EPS:
Income available to
common stockholders (3,371) 61,093 $(0.06)
Effect of Dilutive Securities
Warrants 154
----------- -------------
Diluted EPS:
Income available to
common stockholders
and assumed conversions. $ (3,371) 61,247 $(0.06)
=========== ============= =============
For the three months ended November 30, 2002 and 2001, anti-dilutive
securities existed (see Note 12).
NOTE 18 - EMPLOYEE STOCK OPTION PLAN:
In July 1996, the Board of Directors and majority stockholders adopted
a stock option plan under which 400,000 shares of the Company's common
stock have been reserved for issuance. Since that time, the Board of
Directors have amended the July 1996, employee stock option plan under
which 1,000,000 shares of Common Stock have been reserved for issuance.
Under this plan, as of November 30, 2002 and 2001, 416,474 and 416,474
warrants have been issued to various employees. Of these outstanding
warrants, 0 and 0 were exercised for the months ended November 30, 2002
and 2001, respectively. Additionally, 10,350 warrants have expired as
of November 30, 2002.
The Company has elected to follow APB 25, "Accounting for Stock Issued
to Employees." Accordingly, since employee stock options are granted at
market price on the date of grant, no compensation expense is
recognized. However, SFAS 123 requires presentation of pro forma net
income and earnings per share as if the Company had accounted for its
employee stock options granted under the fair value method of that
statement. The weighted average fair value of the individual options
granted during 2000 is estimated as $0.58 on the date of grant. A
meaningful weighted average fair value of the individual options
granted during 2000 using the method prescribed by SFAS 123 could not
be determined due to the volatility of the share price during the
measurement period. Management estimates the average fair value for
options granted during 2001 to be comparable to those granted in 2000.
The impact on net income is minimal; therefore, the pro forma
disclosure requirements prescribed by SFAS 123 are not significant to
the Company. The fair values were determined using a Black-Scholes
option-pricing model with the following assumptions:
23
Eagle Broadband, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
November 30, 2002
2002 2001
-------- --------
Dividend Yield 0.00% 0.00%
Volatility 0.91 0.91
Risk-free Interest Rate 7.00% 7.00%
Expected Life 5 5
NOTE 19 - RETIREMENT PLANS:
During October 1997, the Company initiated a 401(k) plan for its
employees, which is funded through the contributions of its
participants. This plan maintains that the Company will match up to 3%
of each participant's contribution. For the three months ended November
30, 2002 and 2001, employee contributions were approximately $71,351
and $34,505, respectively. The Company matched approximately $25,858
and $12,038, respectively for those same periods.
NOTE 20 - MAJOR CUSTOMER:
The Company had gross revenues of $8,761,000 and $8,761,000 for the
three months ended November 30, 2002 and 2001, respectively. The
following parties individually represent a greater than ten percent of
these revenues.
November 30, 2002 November 30, 2001
Customer Amount Percentage Amount Percentage
-------- ------ ---------- ------ ----------
Customer A $ $0.00% $1,463,000 16.70%
Customer B $ $0.00% $ --- 0.00
Customer C $ $0.00% $ --- 0.00
Subsequent to the three months ended November 30, 2001, the Company had
outstanding accounts receivable with Enron Corporation and many of its'
subsidiaries. The exposure from the bankruptcy totals approximately
$205,000, which has been accounted for through allowance of doubtful
accounts in these financials.
NOTE 21 - INDUSTRY SEGMENTS:
The Company has adopted the provisions of SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information". At August 31,
2001, the Company's seven business units have separate management teams
and infrastructures that offer different products and services. The
business units have been aggregated into two reportable segments (as
described below) since the long-term financial performance of these
reportable segments is affected by similar economic conditions.
Eagle Broadband, Inc., (Eagle) is a worldwide supplier of broadband and
telecommunications equipment with related software and broadband
products. (Including Eagle Wireless International, Inc., BroadbandMagic
and Etoolz, Inc., for this summary).
Atlantic Pacific Communications, Inc., (APC) specializes in providing
professional data and voice cable and fiber optic installations through
project management services on a nationwide basis for multiple
site-cabling installations for end users and re-sellers. As of
September 1, 2002, Atlantic Pacific Communications, Inc. has assumed
the operations of ClearWorks Home Systems, Inc. and for purposes of
segment reporting previously reported segment HSI has been combined
with APC for comparative purposes.
ClearWorks Communications, Inc., (COMM) provides solutions to consumers
by implementing technology both within the residential community and
home. This is accomplished through the installation of fiber optic
backbones to deliver voice, video and data solutions directly to
consumers.
Eagle Broadband Services, Inc.
Eagle Broadband Services, Inc., initiated its delivery of Bundled
Digital Services to business and residential customers as of September
1, 2002. Revenue is derived from fees charged for the delivery of
Bundled Digital Services, which includes telephone, long distance,
internet, security monitoring and cable services. This subsidiary
recognizes revenue and the related costs at the time the services are
rendered.
ClearWorks Home Systems, Inc., (HSI) specializes in providing fiber
optic and copper based structured wiring solutions and audio and visual
equipment to single family and multi-family dwelling units. As of
September 1, 2002, Atlantic Pacific Communications, Inc. has assumed
the operations of ClearWorks Home Systems, Inc. and for purposes of
segment reporting previously reported segment HSI has been combined
with APC for comparative purposes.
24
Eagle Broadband, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
November 30, 2002
United Computing Group, Inc., (UCG) is an accelerator company and
computer hardware and software reseller. UCG / INT maintains a national
market presence.
Link Two Communications, Inc., (Link II) is in the development and
delivery of one and two way messaging systems.
DSS Security, Inc., is a security monitoring company.
ClearWorks.net, Inc., (.NET) is inactive with exception of debt related
expenses.
Contact Wireless, Inc., is a paging, cellular, and mobile services
provider and reseller.
FOR THE YEAR ENDING NOVEMBER 30, 2002
(in thousands) Eagle APC EBS UCG Link II .Net Contact DSS Elim. Consol.
-------------------------------------------------------------------------------------------------------
Revenue 768 1,652 426 1,395 --- --- 129 248 --- 4,618
Segment Profit/(Loss) (589) 320 (232) (344) (79) --- (24) 130 --- (818)
Total Assets 157,230 12,319 31,240 886 4,311 64,950 875 595 (141,764) 130,642
Capital Expenditures 42 8 1,419 2 --- --- --- --- --- 1,471
Dep. And Amort. 3 56 144 31 --- --- 20 12 --- 266
FOR THE THREE MONTHS ENDING NOVEMBER 30, 2001
(in thousands) Eagle APC EBS UCG Link II .Net Elim. Consol.
-------------------------------------------------------------------------------------
Revenue 101 1,780 514 6,360 6 --- --- 8,761
Segment Profit / (Loss) (2,296) (248) (140) (268) (577) (30) --- (3,559)
Total Assets 154,096 4,552 15,788 4,287 30,125 1,257 (45,451) 164,654
Capital Expenditures 106 9 2,267 2 --- --- --- 2,384
Dep. And Amort. 818 55 127 6 312 --- --- 1,318
The accounting policies of the reportable segments are the same as
those described in Note 1. The Company evaluates the performance of its
operating segments based on income before net interest expense, income
taxes, depreciation and amortization expense, accounting changes and
non-recurring items.
NOTE 22 -- SUBSEQUENT EVENTS.
During the first fiscal quarter ended November 30, 2002, UCG entered
into an Exclusive Strategic Alliance Agreement with a major competitor
and designated them as its Exclusive Product Fulfillment Partner. The
agreement, among other things, entitles UCG to a fee structure on all
product fulfillment referrals and further designates UCG as the
exclusive Service Provider and designee with respect to Services
including but not limited to configuration solutions, network services,
network application services, repair and warranty services and
professional support services including Client Help Desk, Deskside
Support, Professional and Managed Services for all customer
relationships provided by UCG. The agreement further designates UCG as
a Service Partner within the competitors' customer base and exclusively
appoints UCG as its Service Partner within the competitor's customer
base for all of UCG's RemoteManage247 offerings.
During the first fiscal quarter of 2003, Eagle entered into a debt
funding arrangement with an investment bank to provide up to $3,000,000
in working capital. This debt is unsecured and bears interest at 5% per
annum maturing in one year from the initial funding and is repayable in
common stock. Eagle received $1,500,000 in cash during the quarter
ended November 30, 2002, against this funding arrangement.
25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.
The following discussion and analysis should be read in conjunction
with the Financial Statements and Notes thereto appearing elsewhere in
this Form 10-Q. Information included herein relating to projected
growth and future results and events constitutes forward-looking
statements. Actual results in future periods may differ materially from
the forward-looking statements due to a number of risks and
uncertainties, including but not limited to fluctuations in the
construction, technology, communication and industrial sectors; the
success of the Company's restructuring and cost reduction plans; the
success of the Company's competitive pricing; the Company's
relationship with its suppliers; relations with the Company's
employees; the Company's ability to manage its operating costs; the
continued availability of financing; governmental regulations; risks
associated with regional, national, and world economies; and
consummation of the merger and asset purchase transactions. Any
forward-looking statements should be considered in light of these
factors.
Overview
For the quarter ended November 30, 2002, Eagle's business operations
reflected further expansion into the broadband products and services
that generate recurring revenues while migration away from the lower
gross margin product fulfillment line of business previously conducted
through its subsidiary United Computing Group, Inc. In addition, during
fiscal 2002 and continuing into the first quarter of fiscal 2003, the
Company conducted extensive cost reduction activities. We believe that
the effects of these cost reduction measures will significantly reduce
our fiscal 2003 ongoing expenses as evidenced by a $2,456,000 or 46%
decline in operating expenses in the quarter ended November 30, 2002,
as compared to the same quarter in 2001. The Company's consolidated
operations generated revenues of $4,618,000 with a corresponding gross
profit of $1,992,000 or 43% for the first fiscal quarter ended November
30, 2002. The decline in revenues in the first fiscal quarter of 2003
is a result of decreased sales of low-margin computer products in the
Company's subsidiary United Computing Group, Inc. consistent with their
previously announced strategy of partnering with a major competitor for
provisioning of lower margin product fulfillment to its clients while
concentrating UCG's going-forward efforts as a Service Provider
including but not limited to configuration solutions, network services,
network application services, repair and warranty services and
professional support services including Client Help Desk, Deskside
Support, and Professional and Managed Services.
During the quarter ended November 30, 2002, we continued the
implementation of cost reductions in various operating segments that
were not expected to provide significant long-term revenues and
profitability. These reductions will impact the expense categories of
salaries and benefits, rents, travel, research and development and
other support expenses on a run-rate basis. We anticipate that
additional cost reduction efforts will continue into the second fiscal
quarter of 2003. Also, the company is continuing the development of the
"technology center" for distribution on a nationwide basis of voice,
video and data content; increased sales efforts in the telephone,
cable, internet, security services and wireless segments; and securing
of long-term relationships for content for the bundled digital services
activities; and marketing/sales agreements with other companies for the
sale of broadband products and services. On a nationwide basis, we are
negotiating and preparing to enter into business relationships with
financial and technology companies to provide bundled digital services
(digital content) to cities and municipalities that currently have
constructed their own fiber infrastructure to the home. We believe that
our companies have the technology, products and capabilities to provide
these fiber-ready cities with digital content set-top boxes and
structured wiring services.
During the quarter ended November 30, 2002, we have begun shipments of
our set-top box product line for installation in hospitality properties
under our ongoing relationship with General Dynamics. We expect these
shipments to continue throughout the remaining quarters of 2003.
Revenue Recognition
The Company designs, manufactures, markets and services its products
and services under the Eagle Broadband, Inc.; BroadbandMagic; Atlantic
Pacific Communications, Inc.; United Computing Group, Inc.; Contact
Wireless, Inc.; and DSS Security, Inc., names.
Eagle Wireless International, Inc.
Eagle designs, manufactures and markets transmitters, receivers,
controllers and software, along with other equipment used in commercial
and personal communication systems, radio and telephone systems.
Revenues from these products are recognized when the product is
shipped.
BroadbandMagic
BroadbandMagic designs, manufactures and markets the convergent set-top
boxes. Products are sent principally to commercial customers for a
pre-sale test period of ninety days. Upon the end of the pre-sale test
period, the customer either returns the product or accepts the product,
at which time the Company recognizes the revenue.
26
Eagle Broadband, Inc.
Eagle Broadband, Inc., engages independent agents for sales principally
in foreign countries and certain geographic regions in the United
States. Under the terms of these one-year agreements the distributor or
sales agents provide the companies with manufacturing business sales
leads. The transactions from these distributors and agents are subject
to the Company's approval prior to sale. The distributorship or sales
agent receives commissions based on the amount of the sales invoice
from the companies to the customer. The sale is recognized at the time
of shipment to the customer. These sales agents and distributors are
not a significant portion of total sales in any of the periods
presented.
ClearWorks Communications, Inc.
ClearWorks Communications, Inc., provides Bundled Digital Services to
business and residential customers, primarily in the Texas market.
Revenue is derived from fees charged for the delivery of Bundled
Digital Services, which includes telephone, long distance, internet,
security monitoring and cable services. This subsidiary recognizes
revenue and the related costs at the time the services are rendered.
Eagle Broadband Services, Inc.
Eagle Broadband Services, Inc. assumed the operations of ClearWorks
Communications, Inc. as of September 1, 2002, and provides Bundled
Digital Services to business and residential customers, primarily in
the Texas market. Revenue is derived from fees charged for the delivery
of Bundled Digital Services, which includes telephone, long distance,
internet, security monitoring and cable services. This subsidiary
recognizes revenue and the related costs at the time the services are
rendered.
ClearWorks Home Systems, Inc.
ClearWorks Home Systems, Inc., sells and installs structured wiring,
audio and visual components to homes. This subsidiary recognizes
revenue and the related costs at the time the services are performed.
Revenue is derived from the billing of structured wiring to homes and
the sale of audio and visual components to the homebuyers.
Atlantic Pacific Communications, Inc.
Atlantic Pacific Communications, Inc., provides project planning,
installation, project management, testing and documentation of fiber
and cable to commercial and industrial clients throughout the United
States. The revenue from the fiber and cable installation and services
is recognized upon percentage of completion of the project. Most
projects are completed in less than one month, therefore, matching
revenue and expense in the period incurred. Service, training and
extended warranty contract revenues are recognized as earned.
Etoolz, Inc.
Etoolz, Inc., provides research and development support for all Eagle
companies and does not currently provide billable services to
independent third parties.
Link Two Communications, Inc.
Link Two Communications, Inc., provides customers with one- and two-way
messaging systems. The revenue from these services is recognized as it
is earned from the customer.
Contact Wireless, Inc.
Contact Wireless, Inc., provides customers with paging and mobile
telephone products and related monthly services. Revenue from product
sales is recorded at the time of shipment. Revenue for the mobile phone
and paging service is billed monthly as the service is provided.
DSS Security, Inc.
DSS Security, Inc., provides monthly security monitoring services to
residential customers. The customers are billed three months in advance
of service usage. The revenues are deferred at the time of billing and
ratably recognized over the prepayment period as service is provided.
United Computing Group, Inc.
United Computing Group, Inc., provides business-to-business hardware
and software network solutions and network monitoring services. The
revenue from the hardware and software sales is recognized at the time
of shipment. The monitoring services recognition policy is to record
revenue as earned.
Earnings are charged with a provision for doubtful accounts based on
collection experience and current review of the collectability of
accounts receivable. Accounts receivable deemed uncollectable are
charged against the allowance for doubtful accounts.
27
Receivables
For the three months ended November 30, 2002, Eagle accounts
receivables decreased to $4,412,000 from $5,028,000 at August 31, 2002.
The majority of this decrease is due to the corresponding revenue
decrease of lower margin product fulfillment sales and the shift to
more "recurring revenue" type of business.
Marketable Securities
Eagle has adopted the provisions of SFA No. 115, as amended by SFAS No.
130, which provides that all marketable equity securities be classified
as available-for-sale or trading securities, and be carried on the
balance sheet at fair market value. Any unrealized holding gains or
losses affiliated to these securities are carried below net income
under the caption "Other Comprehensive Income," net of tax.
Inventory
Inventories are valued at the lower of cost or market. The cost is
determined by using the first-in first-out method. At November 30,
2002, Eagle's inventory total of $6,545,000 as compared to $6,059,000
at August 31, 2002. The additional inventory is primarily attributable
to the purchase of components for increased demand of the Company's
digital set-top boxes.
RESULTS OF OPERATIONS
THREE MONTHS ENDED NOVEMBER 30, 2002, COMPARED TO THREE MONTHS ENDED NOVEMBER
30, 2001
NET SALES. For the three months ended November 30, 2002, net sales
decreased to $4,618,000 from $8,761,000 during the three months ended
November 30, 2001. The decline in revenues is a result of decreased
sales of computer products in the Company's subsidiary United Computing
Group, Inc. consistent with their previously announced strategy of
partnering with a major competitor for provisioning of lower margin
product fulfillment to its clients while concentrating UCG's
going-forward efforts as a Service Provider including but not limited
to configuration solutions, network services, network application
services, repair and warranty services and professional support
services including Client Help Desk, Deskside Support, and Professional
and Managed Services.
COST OF GOODS SOLD. For the three months ended November 30, 2002, cost
of goods sold decreased to $2,626,000 from $7,061,000 during the three
months ended November 30, 2001. This decline was primarily associated
with the decrease in lower gross margin product fulfillment sales. As a
result of the Company's shift in strategy away from such lower margin
product fulfillment, the Company's gross profit percentage increased to
43% for the three months ended November 30, 2002, from 19% during the
three months ended November 30, 2001.
OPERATING EXPENSES. For the three months ended November 30, 2002,
operating expenses decreased to $2,826,000 from $5,283,000 during the
three months ended November 30, 2001. The primary portions of the
increase are discussed below:
A $649,000 decrease in salaries, as a result of the personnel
reductions completed as a component of the extensive cost reduction
activities.
A $118,000 decrease in advertising and promotion, due primarily to
decreases in product introductions during the fist fiscal quarter of
2003 as compared to the same period last year.
A $1,094,000 decrease in depreciation and amortization, due to the
non-cash impairment charge against FCC licenses and equipment taken in
the fourth fiscal quarter of fiscal 2002.
A $455,000 decrease in other support costs, due to decreases in
contract labor, interest, professional fees, rents and bad debt costs.
A $140,000 decrease in research and development expenses due to timing
of previously released products.
NET EARNINGS. For the three months ended November 30, 2002, Eagle's net
loss was $831,000, compared to net loss of $3,371,000 during the three
months ended November 30,2001.
CHANGES IN CASH FLOW. Eagle's operating activities used net cash of
$720,000 in the three months ended November 30, 2002, compared to
$2,979,000 in the three months ended November 30, 2001. The decrease in
net cash used by operating activities was primarily attributable to a
significant decline in net loss, an increase in inventory, offset by
reductions in account receivable, depreciation and amortization and
accounts payable. Eagle's investing activities used net cash of
$1,483,000 in the three months ended November 30, 2002, compared to
$2,744,000 in the three months ended November 30, 2001. The decrease
was due primarily attributable to decreases of purchase of equipment
for building out the bundled digital services infrastructure. Eagle's
financing activities provided cash of $1,577,000, in the three months
ended November 30,
28
2002, compared to cash used of $1,840,000 in the three months ended
November 30, 2001. The increase at November 30, 2002, is attributable
to cash raised from funding agreements with an investment bank for
general working capital purposes as compared to a pay off of the
Atlantic Pacific's line of credit, pay down on United Computing Group's
line of credit and continued repurchase of shares in the open market
for retirement in the quarter ended November 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES.
Current assets for the period ended November 30, 2002, totaled
$14,123,000 (includes cash and cash equivalents of $2,795,000) as
compared to $14,866,000 reported for the year ended August 31, 2002.
During the first fiscal quarter of 2003, Eagle entered into a debt
funding arrangement with an investment bank to provide up to $3,000,000
in working capital. This debt is unsecured and bears interest at 5% per
annum maturing in one year from the initial funding and is fully
repayable in stock at Eagle's option. Eagle has received $1,500,000 in
cash during the quarter ended November 30, 2002, against this funding
arrangement. In addition, Eagle engaged an investment-banking firm to
provide a $20,000,000 equity line of credit. This line of credit will
be activated upon Eagle filing a registration statement that complies
with the terms and conditions of the agreement. In addition, Eagle has
entered into negotiations with a financial institution to provide 10
million in conventional debt financing.
Eagle believes that its working capital of $4,573,000 as of November
30, 2002, plus the additional funds raised and committed during the
first fiscal quarter of 2003 should be sufficient to fund operations
through the end of August 31, 2003. Historically, Eagle has financed
its operations through the sale of debt and equity securities. As of
November 30, 2002, Eagle has a limited amount of cash and cash
equivalents. As such, if its current cash is insufficient to fund its
operating and long-term capital needs, Eagle will rely on future
bests-efforts financing for capital. The Company will need to raise
additional capital to fund ongoing operations and long-term capital
needs. If the company is not successful in raising additional capital,
it may have to curtail or suspend or sell certain operations. As more
fully described in Note 7 to the financial statements, Eagle's
subsidiaries Atlantic Pacific and United Computing Group maintain an
aggregate of up to $4,000,000 in credit facilities with a bank to
provide working capital based on eligible accounts receivable. Refer to
Note 7 for descriptions of lines of credit and other immediate forms of
funding the Company has available
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
INTEREST RATE AND EQUITY MARKET RISKS
The Company is exposed both to market risk from changes in interest
rates on funded debt and changes in equity values on common stock
investments it holds in publicly traded companies. The Company also has
exposure that relates to the Company's revolving credit facility.
Borrowings under the credit facility bear interest at variable rates
based on the bank prime rate. The extent of this risk with respect to
interest rates on funded debt is not quantifiable or predictable due to
the variability of future interest rates; however, the Company does not
believe a change in these rates would have a material adverse effect on
the Company's operating results, financial condition, and cash flows.
The Company's cash and cash equivalents are invested in mortgage and
asset backed securities, mutual funds, money market accounts and common
stock. Accordingly, the Company is subject to both changes in market
interest rates and the equity market fluctuations and risk. There is an
inherent roll over risk on these funds as they accrue interest at
current market rates. The extent of this risk is not quantifiable or
predictable due to the variability of future interest rates. The
Company does not believe a change in these rates would have a material
adverse effect on the Company's operating results, financial condition,
and cash flows with respect to invested funds in mortgage and asset
backed securities, mutual funds and money market accounts, however; the
company does have both cash and liquidity risks associated with its
common stock investments aggregating $1,270,200 in market value as of
November 30, 2002.
CREDIT RISKS
The Company monitors its exposure for credit losses and maintains
allowances for anticipated losses, but does not require collateral from
these parties. The company did not have any customers that represented
greater than 10% of its revenues during the first fiscal quarter of
2003 and, as such, does not believe that the credit risk posed by any
specific customer would have a material adverse affect on its financial
condition.
ITEM 4. CONTROLS AND PROCEDURES
Based on the Company's most recent evaluation, which was completed
within 90 days of the filing of the Company's Form 10-K, the Company's
Chief Executive Officer and Chief Financial Officer have concluded that
the Company's disclosure controls and procedures (as defined in Rules
13a-14 and 15d-14 under the Securities Exchange Act of 1934, as
amended) are effective. There have been no significant changes in
internal controls or in other factors that could significantly affect
these controls, including any corrective actions with regard to
significant deficiencies and material weaknesses.
29
PART 2. -- OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims that arise in
the ordinary course of business. The Company's management does not
expect that the results in any of these legal proceedings will have a
material adverse effect on the Company's financial condition or results
of operations (Note 16).
ITEM 2 - RECENT SALES OF UNREGISTERED SECURITIES OR CHANGES IN SECURITIES AND
USE OF PROCEEDS
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit
99.1 CEO Certification
99.2 CFO Certification
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
EAGLE WIRELESS INTERNATIONAL, INC.
Date: January 17, 2003 By: /s/ H. Dean Cubley
-----------------------
Dr. H. Dean Cubley
Chief Executive Officer
/s/ Richard R. Royall
-----------------------
Richard R. Royall
Chief Financial Officer
CERTIFICATIONS
I, H. Dean Cubley, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Eagle Broadband, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of the annual
report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: January 16, 2003
/S/ H. DEAN CUBLEY
- --------------------------
H. Dean Cubley,
Chief Executive Officer
31
CERTIFICATIONS
I, Richard R. Royall, Chief Financial Officer, certify that:
1. I have reviewed this annual report on Form 10-Q of Eagle Broadband, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of the annual
report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: January 16, 2003
/S/ RICHARD R. ROYALL
- --------------------------
Richard R. Royall,
Chief Financial Officer
32
EXHIBIT INDEX
Exhibit Description
- ------- -----------
99.1 CEO Certification
99.2 CEO Certification
30