1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2001
[ ] 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: 0-27249
ENCORE WIRELESS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 87-0284731
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2900 Townsgate Road, Suite 200, Westlake Village, CA 91361
- ---------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(805) 557-9946
----------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- ------------------------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), Yes [X] No [ ] and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of common
stock, was 5,760,383 shares of common stock, par value $0.001, as of August
20, 2001.
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with the instructions to Form 10-QSB pursuant
to the rules and regulations of the Securities and Exchange Commission and,
therefore, do not include all information and footnotes necessary for a
complete presentation of the financial position, results of operations, cash
flows, and stockholders' equity in conformity with accounting principles
generally accepted in the United States of America. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation of the results of operations,
financial position, and cash flows have been included.
These consolidated condensed financial statements and the related notes
thereto should be read in conjunction with the audited financial statements
and the notes thereto included in the Company's annual report on Form 10-KSB
for the year ended December 31, 2000.
Operating results for the three and six month periods ended June 30, 2001
are not necessarily indicative of the results that can be expected for the
year ending December 31, 2001.
3 ENCORE WIRELESS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
ASSETS
June 30, December 31,
2001 2000
------------ ------------
Current assets
Cash $ 114,056 $ 76,806
Restricted cash (Note G) 100,000 100,000
Accounts receivable, net of allowance for
doubtful accounts of $300,000 and $150,000 at
June 30, 2001 and December 31, 2000,
respectively 582,726 710,727
Prepaid expenses 87,105 32,347
------------ ------------
Total current assets 883,887 919,880
EQUIPMENT, at cost
Less accumulated depreciation of $17,261
and $11,291 at June 30, 2001 and December 31,
2000, respectively 32,788 37,761
GOODWILL, net of amortization of $1,732,783
and $86,639 at June 30,2001 and December 31,
2000, respectively - 1,646,144
------------ ------------
$ 916,675 $ 2,603,785
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Trade accounts payable $ 1,121,075 $ 744,078
Accrued liabilities 444,970 411,595
Notes payable to stockholders 205,000 135,000
------------ ------------
Total current liabilities 1,771,045 1,290,673
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY (DEFICIT)
Series A Convertible
preferred stock, $0.001 par value; 3,000,000
shares authorized, 785,875 shares issued and
outstanding 786 786
Common stock, $0.001 par value; 45,000,000
shares authorized, 5,760,383 and 4,404,384
shares issued and outstanding at June 30, 2001
and December 31, 2000, respectively 5,760 4,404
Additional paid-in capital 8,442,133 7,083,489
Accumulated deficit (9,303,049) (5,775,567)
------------ ------------
Total stockholders' equity (deficit) (854,370) 1,313,112
------------ ------------
$ 916,675 $ 2,603,785
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
4
ENCORE WIRELESS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2001 2000 2001 2000
------------ ------------ ------------- ------------
Net sales $ 588,276 $ - $ 1,367,769 $ -
Cost of sales 564,066 - 1,185,698 -
------------ ------------ ------------- ------------
Gross profit 24,210 - 182,071 -
Expenses
Selling and shipping expenses 67,683 - 304,590 -
General and administrative expenses 394,201 509,989 969,896 790,787
Research and development - - -
Stock in lieu of consulting compensation - 45,048 10,000 32,600
Compensation expense for stock options(Note E) - 29,250 706,667 573,527
Goodwill impairment (Note D) - - 1,646,144 -
------------ ------------ ------------ ------------
Total operating expenses 461,884 584,287 3,637,297 1,396,914
------------ ------------ ------------ ------------
Loss from operations ( 437,674) (584,287) (3,455,226) (1,396,914)
Other income (expense)
Interest and other income - 1,136 - 84
Interest expense (32,063) (898) (47,118) (14,484)
Interest expense on beneficial conversion
feature - (353,594) (25,138) (640,108)
Interest expense for stock options - - - (46,200)
------------ ------------ ------------ -------------
(32,063) (353,356) (72,256) (700,708)
------------ ------------ ------------ -------------
Loss before income taxes ( 469,737) ( 937,643) (3,527,482) (2,097,622)
Income taxes - - - -
------------ ------------ ------------ -------------
NET LOSS $ ( 469,737) $ ( 937,643) $ (3,527,482) $ (2,097,622)
============ ============ ============ =============
LOSS PER SHARE - BASIC AND DILUTED $ (0.08) $ (0.11) $ (0.63) $ (0.24)
============ ============ ============ =============
WEIGHTED AVERAGE NUMBER OF SHARES (NOTE H) 5,760,383 8,660,657 5,570,961 8,660,424
============ ============ ============ =============
The accompanying notes are an integral part of these consolidated financial
statements.
5
ENCORE WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the period December 31, 2000 through June 30, 2001
(Unaudited)
Preferred stock Common stock Additional
-------------------- -------------------- paid-in Accumulated
Shares Amount Shares Amount capital deficit Total
--------- --------- --------- --------- ---------- ---------- ----------
Balance at January 1, 2001 785,875 $ 786 4,404,384 $ 4,404 $7,083,489 $(5,775,567) $1,313,112
Interest expense recognized from
offer to convert note payable at
beneficial rates (Note F) - - - - 25,138 - 25,138
Issuance of common stock upon
conversion of a shareholder
note payable and related
accrued interest (Note F) - - 133,333 133 58,062 - 58,195
Issuance of common stock for
services (Note F) - - 176,000 176 109,824 - 110,000
Issuance of common stock for
services (Note F) - - 13,333 13 9,987 - 10,000
Issuance of common stock options
below market (Note E) - - - - 706,667 - 706,667
Issuance of common stock per
subscription agreement (Note E) - - 1,033,333 1,034 448,966 - 450,000
Net loss - - - - - (3,527,482) (3,527,482)
--------- --------- --------- --------- ---------- ---------- ----------
Balance at June 30, 2001 785,875 $ 786 5,760,383 $ 5,760 $8,442,133 $(9,303,049) $ (854,370)
========= ========= ========= ========= ========== ========== ==========
The accompanying notes are an integral part of this consolidated financial
statement.
6 ENCORE WIRELESS, Inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
---------------------------
2001 2000
------------ ------------
Increase (decrease) in cash
Cash flows from operating activities
Net loss $ (3,527,482) $ (2,097,622)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 7,222 4,105
Impairment of goodwill 1,646,144 -
Provision for allowance for
doubtful accounts 150,000 -
Issuance of stock options below market 706,667 573,527
Issuance of stock for services 10,000 32,600
Beneficial interest on conversion of note
payables 25,138 640,108
Issuance of stock for interest - 46,200
Changes in assets and liabilities
Accounts receivable (21,999) -
Prepaid expenses and other assets (54,758) 5,182
Trade accounts payable 486,997 88,966
Accrued liabilities 41,570 126,973
----------- -----------
Total adjustments 2,996,981 1,507,297
----------- -----------
Net cash used in operating activities (530,501) (590,325)
----------- -----------
Cash flows from investing activities
Purchase of property and equipment (2,249) (1,063)
----------- -----------
Net cash used in investing activities (2,249) (1,063)
Cash flows from financing activities
Stock options converted with cash 450,000 -
Proceeds from draws on line of credit - 535,530
Proceeds from notes payable to stockholders 120,000 135,000
Principal payments on stockholder notes - (35,000)
----------- -----------
Net cash provided by financing
activities 570,000 635,530
----------- -----------
Net increase in cash 37,250 44,142
Cash at beginning of period 176,806 8,992
----------- -----------
Cash at end of period $ 214,056 $ 53,134
=========== ===========
[Continued]
7 ENCORE WIRELESS, Inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Non-cash investing and financing activities:
In January 2001, a $50,000 note payable plus $8,195 in accrued interest was
converted into 133,333 new common shares. Because the conversion was completed
at below market price of for the stock, an additional $25,138 of beneficial
interest upon conversion was recorded.
Options issued at market value in the prior year were converted into 176,000
common shares and funded in January 2001 with $110,000 in accrued professional
services rendered and recorded in 2000.
During the six-month period ended June 30, 2001, asset disposition and
accumulated depreciation totaled $1,252.
The accompanying notes are an integral part of these consolidated financial
statements.
8
ENCORE WIRELESS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company, without audit, has prepared the accompanying condensed
consolidated financial statements. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the consolidated financial position, results of operation and
cash flows at June 30, 2001 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted. It
is suggested that these condensed consolidated financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's audited financial statements included in its Form 10-KSB for the
period ended December 31, 2000. The results of operations for the three and
six month periods ended June 30, 2001 are not necessarily indicative of the
operating results that may be expected for the year ending December 31, 2001.
NOTE B - GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has generated
substantial net losses and has limited operating capital, with current
liabilities exceeding current assets by $887,158 at June 30, 2001. In
addition, effective August 18,2001, Sprint PCS notified the Company of its
intent to terminate its contract to provide wireless (Note G). The Company's
continuation as a going concern is dependent on its ability to meet its
obligations and obtain additional financing required until it attains
profitability. The Company's ability to develop profitable operations is
dependent on negotiating alternative arrangements as a wireless provider,
building a subscriber base or equivalent revenue source, and obtaining
sufficient funds or financing for the acquisition of subscriber equipment and
the required infrastructure, all at rates favorable to the Company.
The Company has taken the following steps to revise its operating and
financial requirements in an effort to enable the Company to continue in
existence:
+ The Company is presently pursuing alternatives to the Sprint PCS
arrangement.
+ The Company has reduced administrative expenses by consolidating
management responsibilities and reducing labor costs.
+ The Company is seeking additional debt and equity funding from
principal and other interested parties.
+ The Company will provide for the conversion of selected loans and
other debt to equity.
9
ENCORE WIRELESS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C - MERGERS AND ACQUISITIONS
On October 17, 2000, EZConnect, Inc. acquired Encore Wireless, Inc. The
acquisition was recorded as a purchase with Encore continuing as a wholly-
owned subsidiary of EZConnect, Inc. Subsequent to the acquisition, the name of
EZConnect, Inc. was changed to Encore Wireless, Inc.
The comparative results of operations for the three and six month periods
ended June 30, 2000 included in the accompanying financial statements are
those of EZConnect, Inc. and its subsidiary. The table below reflects
unaudited pro-forma combined results of EZConnect, Inc. and Encore Wireless,
Inc. as if the acquisition had taken place at the beginning of the periods
presented below:
Three Months Six Months
ended ended
June 30, June 30,
2000 2000
------------ -------------
Net sales $ 293,830 $ 293,830
Net loss ( 979,336) (2,339,439)
Net loss per common share-
basic and diluted $ (0.11) $ (0.27)
In management's opinion, these unaudited pro-forma amounts are not necessarily
indicative of what the actual combined results of operations might have been
if the acquisition had been effective at the beginning of the periods
presented.
NOTE D GOODWILL IMPAIRMENT
In conjunction with the October 17,2000 acquisition of Encore Wireless, Inc.
by EZConnect, Inc., $1.7 million in goodwill was assigned to the value of the
assets of Encore, primarily associated with the favorable terms of the Sprint
reseller contract and the potential business opportunities it provided. Given
the notification by Sprint of its intention to terminate this agreement
effective August 18, 2001, management believes that the value assigned to
goodwill is unlikely to be realized. Hence, the value has been written down to
zero.
NOTE E - OPTION GRANTS
In January 2001, the Company entered into a financing agreement to sell up to
$1 million in shares of restricted common stock to Philip Lacerte and Robert
Proznik, two of the Company's directors, at prices per share that may
represent discounts from the market price. The agreement provided for the
Company to sell 666,667 shares of common stock for $250,000 ($0.375 per share)
on January 2, 2001 and additional shares in increments of $250,000 in March,
May, and July of 2001 for the lower of $0.50 per share or 50% of the closing
bid price per share on the date of purchase. The Company issued 1,033,333
shares of common stock pursuant to collecting $450,000 through this agreement
in the period ended June 30, 2001. Additional compensation expense
10
ENCORE WIRELESS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE E - OPTION
GRANTS(CONTINUED)
for stock options of $706,667 was recorded in conjunction with the issuance of
this financing agreement. Because of Sprint's intention to cancel its
agreement with the Company, the balance of the financing agreement was
terminated.
In May, 2001 a stockholder loaned the Company $100,000 in working capital to
continue operations. The note is due in one year at an interest rate of 12%
per annum.
In May, 2001 a group of stockholders loaned the Company $20,000 in working
capital to satisfy certain professional services fees. The note includes an
interest rate of 12% per annum and it is convertible into common stock of the
Company at market on the date of conversion.
The Company accounts for stock options granted to consultants in accordance
with Statement of Financial Accounting Standards 123 and related
interpretations. The value of such services is based on the fair value at the
date of grant calculated using the Black-Scholes option pricing model or the
value of the services rendered, whichever is more readily determinable.
During January 2001, the Company granted 625,000 options to employees and one
consultant at prices ranging from $0.65 to $0.88 per share, which represented
the market price for the common stock on the date of such grants.
NOTE F EQUITY TRANSACTIONS
The Company's board of directors approved the conversion of a $50,000 note and
accrued interest payable in the amount of $8,195 to Inter-Pro Property
Corporation (USA), an entity controlled by Mr. Proznik, into restricted common
stock at a conversion rate of $0.375 per share. Effective January 1, 2001,
this note was converted and 133,333 common shares were issued. The market
price for the Company's common stock on the date of conversion was $0.625 per
share. The Company recognized $25,138, the difference between the market price
and the conversion price as additional interest expense.
The Company's board of directors approved the conversion of 176,000 options
for $110,000 of accounts payable accumulated for consulting expenses, rendered
through 2000. The options had a conversion rate of $0.625 per share, the
market price on the date of grant. Effective January 1, 2001, these options
were converted and 176,000 new common shares were issued, in lieu of payment
for the outstanding liability.
On March 30, 2001, certain stockholder relation's services were rendered at a
cost of $10,000. The Board approved the issuance of 13,333 shares of new
common stock at a conversion price $0.75 per share (the market price for the
shares), in lieu of payment for these services.
NOTE G SUBSEQUENT EVENTS
In July 2001, the Company was informed of Sprint PCS' intent to terminate its
contract to provide wireless services to the Company effective August 18,
2001.
11
ENCORE WIRELESS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In July 2001, Sprint also cashed in a standby letter of credit issued by the
Company in Sprint PCS' favor, to satisfy unpaid balances. The letter of credit
was secured and ultimately funded by the restricted cash balance of $100,000
represented on the balance sheet at June 30, 2001.
NOTE H - LOSS PER COMMON SHARE
The following data show the weighted average number of shares outstanding used
in computing net loss per common share:
Three Months Ended June 30,
2001 2000
-------------- -------------
Common shares outstanding entire period 5,760,961 8,660,577
Net weighted average common shares issued
during period - -
-------------- -------------
Weighted average number of common
shares used in basic and diluted EPS 5,570,961 8,660,424
============== =============
Six Months Ended June 30,
2001 2000
-------------- -------------
Common shares outstanding entire period 4,404,384 8,660,424
Weighted average common shares issued
during period 1,166,577 -
-------------- -------------
Weighted average number of common
shares used in basic and diluted EPS 5,570,961 8,660,424
============== =============
For the three and six-month periods ended June 30, 2001 and 2000 all of the
options and convertible debt that were outstanding were not included in the
computation of diluted EPS because to do so would have been anti-dilutive.
For the six-month periods ended June 30, 2001 and 2000, there was $20,000 in
convertible debt and 4,055,000 options outstanding and $283,329 in convertible
debt and 980,000 options outstanding, respectively.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-looking Statements
- ---------------------------------------------------------
This report may contain "forward-looking" statements. The Company is
including this cautionary statement for the express purpose of availing itself
of the protections of the safe harbor provided by the Private Securities
Litigation Reform Act of 1995 with respect to all such forward-looking
statements. Examples of forward-looking statements include, but are not
limited to: (a) projections of revenues, capital expenditures, growth,
prospects, dividends, capital structure and other financial matters; (b)
statements of plans and objectives of the Company or its management or Board
of Directors; (c) statements of future economic performance; (d) statements of
assumptions underlying other statements and statements about the Company and
its business relating to the future; and (e) any statements using the words
"anticipate," "expect," "may," "project," "intend" or similar expressions.
Discussion and Analysis of Financial Condition and Results of Operations
- ------------------------------------------------------------------------
Results of operations for the three and six-month periods ended June 30, 2001
represented losses of $469,737 and $3.5 million, respectively.
Comparison with the same periods in the prior year is not considered
meaningful, since no operations were represented in the prior year, and the
intended business model at that time, which has since been abandoned, was not
inclusive of Encore Wireless, Inc. Therefore, this discussion will focus
solely on results in the three and six month periods ended June 30, 2001.
The six month period loss included a $1,646,144 provision to record impairment
of goodwill reflecting the announcement by Sprint of its intention to cancel
its agreement with Encore Wireless, Inc., $706,667 to record expenses
associated with below market options issued to an officer of the Company, and
$25,138 to record beneficial interest expense associated with the conversion
of a note payable into common stock at below market. Excluding these three
expenses, the loss from operations was $1.1 million.
Revenues were $588,276 and $1,367,769 during the three and six month periods
ended June 30, 2001, reflecting a declining wireless subscriber base in the
latter part of the period. The net number of subscribers increased by slightly
less than 1,200 during the first 3 months of the reported period, then tailed
off dramatically in the latter half of the period as the Company was compelled
to discontinue marketing to new subscribers and began the process of winding
down the business. Management believes that limited capital resources severely
hampered the Company's ability to market its services in the first 3 months of
the period reported, contributing to lower net subscriber adds than earlier
expectations. Sprint's cancellation notice contributed to the decline in the
base in the latter half of the three-month period.
Cost of sales during the three and six month periods ended June 30, 2001,
including the cost for new handsets, were $564,066, or 96% of revenues, and
$1,185,698, or 87% of revenues, respectively, contributing to respective
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
gross profit margins of 24,210, or 4%, and $182,071, or 13%. Handset sales are
subsidized to entice new subscribers. Sales of new handsets are recorded
at cost, net of subsidies that are charged to marketing expense. Handset sales
were essentially non-existent and heavy discounting occurred in the latter
part of the six-month period to encourage payment as marketing was
discontinued and Sprint's decision to discontinue service began surfacing in
the distribution channels. Recurring revenues declined as expected and profit
margins declined, accordingly.
Selling and shipping expenses were $304,590 for the six months ended June 30,
2001, yet were less than $68,000 for the latter three months during the
period, reflecting the curtailment of new marketing efforts. Selling and
shipping expenses were primarily comprised of handset subsidies, $153,360
occurring in first three months of the period. These expenses were essentially
non-existent during the latter half of the six-month period reflecting the
decline in marketing efforts. The balance in expenses included channel
marketing commissions, shipping and postage, and marketing materials.
General and administrative expenses were $969,896 for the six-month period
ended June 30, 2001, $394,201 of which occurred in the latter three-months of
the six-month period. That represented a decline of $181,494, or 32%, in
expenses incurred in the three-month period ended June 30, 2001,from the
$575,695 in expenses incurred in the first three-months of the year. The
reduction in expenses reflected management's efforts to scale back staff and
curtail discretionary expenses in light of Sprint's intention to cancel
service to it's subscriber base. The Company terminated 6 of 9 employees in
April and reduced outside consulting expenses. General and administrative
expenses includes salaries and wages, ordinary travel and entertainment,
consulting and legal, communications, office lease and supplies expenses.
Liquidity and Capital Resources
- -------------------------------
During the six month period ended June 30, 2001, the Company supplemented and
financed operations through the issuance of common stock for cash and
services, new shareholder loans, and the conversion of options for accounts
payable. It is anticipated that the Company will require substantial
additional working capital to continue its business operations over the
balance of the fiscal year. As a result of the termination by Sprint PCS of
its resale agreement with the Company effective August 18, 2001, the Company's
ability to obtain additional financing is not considered likely, unless the
Company can negotiate an economically feasible alternative for a wireless
network service provider.
At June 30, 2001, the Company had current assets of $883,887 and current
liabilities of $1,771,045, for a working capital deficit of $887,158. The
Company had cash of $114,056 restricted cash of $100,000, which was used to
fund a letter of credit commitment in July 2001, accounts receivable net of
allowance for doubtful accounts of $582,726, and prepaid expenses of $87,105.
Net cash used in operating activities was $530,501 during the six-months ended
June 30, 2001, was funded primarily by the sale of stock for cash, new short-
term notes and the issuance of stock for services. At June 30, 2001, the
Company had net property and equipment of $32,788, after deduction of $17,261
in accumulated depreciation. The Company's property and equipment
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
consists mainly of office and computer equipment. In addition, as a result of
the termination by Sprint PCS of its resale agreement, the Company has
recorded a goodwill impairment of $1,646,144. Because at December 31, 2000,
the Company had an accumulated deficit of $5,775,567, a working capital
deficit, limited external financial resources, and has recently been notified
of Sprint PCS's intention to terminate its resale agreement with Encore, the
report of the Company's auditor contained a modification as to the ability of
the Company to continue as a going concern.
Through June 30, 2001, the Company has incurred a cumulative net deficit of
$9,303,049 since inception. The Company expects to continue operating at a
loss until such time as it begins to receive sufficient revenues from
operations. The Company is unable at this time to predict whether actual
revenues received from operations will be sufficient to offset the costs and
expenses of operations for the corresponding periods. This condition will
likely worsen with the impending loss of the Sprint PCS agreement.
The Company continues to operate with limited capital resources. Until such
time as alternative operations can be secured, the Company will likely
continue to face difficulties in securing additional financing. Consequently,
it is uncertain whether working capital will be sufficient to maintain ongoing
operations through the remainder of the year ending December 31, 2001.
15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In January 2001, the Company entered into an agreement to sell shares of
restricted common stock to Philip Lacerte and Robert Proznik, two of the
Company's directors, at a price per share that represented a discount to the
market price. The agreement provided for the Company to sell 666,667 shares of
common stock for $250,000 ($0.375 per share) on January 2, 2001 and additional
shares in increments of $250,000 in March, May, and July for the lower of
$0.50 per share or 50% of the closing bid price per share on the date of
purchase. As of June 20, 2001, the Company issued 1,033,333 shares of common
stock pursuant to collecting $450,000 through this agreement.
In January 2001, the Company's board of directors approved the conversion of a
$50,000 note and accrued interest payable to Inter-Pro Property Corporation
(USA), an entity controlled by Mr. Proznik, into 133,333 shares of restricted
common stock at a conversion rate of $0.375 per share.
On December 29, 2000, the Company's board of directors approved the conversion
of 176,000 options for $110,000 of accounts payable accumulated for consulting
expenses, rendered through 2000. The options had a conversion rate of $0.625
per share, the market price on the date of grant. In January 2001, these
options were converted and 176,000 common shares were issued, in lieu of
payment for the outstanding liability.
On March 30, 2001, certain stockholder relation's services were rendered at a
cost of $10,000. The Board approved the issuance of 13,333 shares of common
stock at a conversion price $0.75 per share (the market price for the shares),
in lieu of payment for these services.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
Exhibit No. SEC Ref. No. Title of Document
- ----------- ------------ -----------------
None.
(b) REPORTS ON FORM 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:
ENCORE WIRELESS, INC.
Date: August 20, 2001 By /S/ Kevin Hamilton., President
[Principal Operating/Accounting
Officer]