U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005
OR
[ ] 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: 0-30448
5G WIRELESS COMMUNICATIONS, INC.
--------------------------------
(Exact Name of Company as Specified in Its Charter)
Nevada 20-0420885
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4136 Del Rey Avenue, Marina del Rey, California 90292
-----------------------------------------------------
(Address of Principal Executive Offices)
(310) 448-8022
----------------------------
(Company's Telephone Number)
______________________________________________________________
(Former Name, Former Address, and Former Fiscal Year, if Changed Since
Last Report)
Indicate by check mark whether the Company (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 Company
was required to file such reports), and (2) been subject to such filing
requirements for the past 90 days: Yes [X] No [ ].
Indicate by check mark whether the Company is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act): Yes [ ] No [X].
Indicate by check mark whether the Company is a shell company (as
defined in Rule 12b-2 of the Exchange Act): Yes [ ] No [X].
As of November 11, 2005, the Company had 1,168,583,966 shares of common
stock issued and outstanding.
1
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS AS OF
SEPTEMBER 30, 2005 (UNAUDITED) AND DECEMBER 31, 2004....................3
SCHEDULE OF INVESTMENTS (UNAUDITED).....................................4
CONDENSED STATEMENTS OF OPERATIONS FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2005
AND SEPTEMBER 30, 2004 (UNAUDITED)......................................5
CONDENSED STATEMENTS OF OPERATIONS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2005
AND SEPTEMBER 30, 2004 (UNAUDITED)......................................6
CONDENSED STATEMENTS OF CASH FLOWS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2005
AND SEPTEMBER 30, 2004 (UNAUDITED)......................................7
NOTES TO CONDENSED FINANCIAL STATEMENTS.................................9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........................21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK......................................................33
ITEM 4. CONTROLS AND PROCEDURES................................................33
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS......................................................34
ITEM 2. UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS.........................................34
ITEM 3. DEFAULTS UPON SENIOR SECURITIES........................................35
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS....................................................35
ITEM 5. OTHER INFORMATION......................................................36
ITEM 6. EXHIBITS...............................................................36
SIGNATURES..................................................................................36
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCAL STATEMENTS.
5G WIRELESS COMMUNICATIONS, INC.
CONDENSED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2005 2004
(UNAUDITED)
------------ ------------
ASSETS
Investment in portfolio company, at fair value $ 1,303,574 $ 302,230
Cash 384 636,904
Prepaid expenses -- 2,520
------------ ------------
Total assets $ 1,303,958 $ 941,654
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities:
Accounts payable and accrued liabilities $ 517,383 $ 325,716
Notes payable 17,500 57,648
Accrued interest on convertible notes and notes payable 140,505 --
Convertible notes, net of discount 1,505,858 1,191,916
------------ ------------
Total liabilities 2,181,246 1,575,280
------------ ------------
Stockholders' deficit:
Preferred Series A convertible stock, $0.001 par value;
10,000,000 shares authorized; 3,000,000 shares issued
and outstanding 3,000 3,000
Common stock, $0.001 par value; 5,000,000,000 shares
authorized; 1,084,067,932 and 871,037,368 shares
issued and outstanding at September 30, 2005 and
December 31, 2004, respectively 1,084,068 871,037
Additional paid-in capital 19,544,494 17,757,548
Common stock held in escrow (355,556) (355,556)
Restricted preferred stock (133,333) (150,000)
Accumulated deficit (21,019,961) (18,759,655)
------------ ------------
Total stockholders' deficit (877,288) (633,626)
------------ ------------
Total liabilities and stockholders' deficit $ 1,303,958 $ 941,654
============ ============
The accompanying notes are an integral part of these condensed financial statements
3
5G WIRELESS COMMUNICATIONS, INC.
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2005
(UNAUDITED)
Date of Investment
Shares Acquisition Name Industry Cost Fair Value
- ------------- ------------------- ------------------ ------------------------ --------------- ---------------
302,230 December 31, 2004 5G Wireless Telecommunications $1,303,574 $1,303,574(1)
Solutions, Inc.
(1) Fair value was determined by the Company's board of directors - refer to Note 2 for further explanation
of the Company's methods of determining fair values.
The accompanying notes are an integral part of these condensed financial statements
4
5G WIRELESS COMMUNICATIONS, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(UNAUDITED)
2005 2004
------------- -------------
Revenues $ -- $ 213,444
Cost of revenues -- 45,820
------------- -------------
Gross profit -- 167,624
------------- -------------
Operating expenses:
General and administrative 34,320 176,543
Salaries and related 34,064 1,214,806
Professional/consulting services 22,811 285,664
Depreciation -- 22,530
------------- -------------
Total operating expenses 91,195 1,699,543
------------- -------------
Operating loss (91,195) (1,531,919)
------------- -------------
Interest expense (including amortization of
financing costs and debt discount) (245,343) (84,324)
Preferred stock compensation amortization (16,670) --
------------- -------------
Net loss $ (353,208) $ (1,616,243)
============= =============
Loss per common share:
Basic and diluted $ (0.000) $ (0.003)
============= =============
Basic and diluted weighted average common shares outstanding 992,654,258 534,596,339
============= =============
The accompanying notes are an integral part of these condensed financial statements
5
5G WIRELESS COMMUNICATIONS, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(UNAUDITED)
2005 2004
------------- -------------
Revenues $ -- $ 397,239
Cost of revenues -- 100,549
------------- -------------
Gross profit -- 296,690
------------- -------------
Operating expenses:
General and administrative 165,775 437,870
Salaries and related 354,447 2,080,613
Professional/consulting services 586,685 1,051,454
Depreciation -- 64,720
------------- -------------
Total operating expenses 1,106,907 3,634,657
------------- -------------
Operating Loss (1,106,907) (3,337,967)
------------- -------------
Interest expense (including amortization of
financing costs and debt discount) (1,136,729) (162,634)
Preferred stock compensation amortization (16,670) --
------------- -------------
Net loss $ (2,260,306) $ (3,500,601)
============= =============
Loss per common share:
Basic and diluted $ (0.002) $ (0.009)
============= =============
Basic and diluted weighted average common shares outstanding 940,379,054 384,624,567
============= =============
The accompanying notes are an integral part of these condensed financial statements
6
5G WIRELESS COMMUNICATIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(UNAUDITED)
2005 2004
----------- -----------
Cash flows from operating activities:
Net loss $(2,260,306) $(3,500,601)
Adjustments to reconcile net loss to net cash used
in operating activities:
Amortization of discount on convertible notes 948,433 77,600
Amortization of preferred share compensation 16,667 --
Depreciation -- 64,720
Issuance of common stock for services -- 2,324,002
Changes in operating assets and liabilities:
Accounts receivable -- (12,887)
Inventory -- (36,030)
Other assets 2,520 19,656
Accounts payable and accrued liabilities 397,658 (583,112)
----------- -----------
Net cash flows used in operating activities (895,028) (1,646,652)
----------- -----------
Cash flows from investing activities:
Transfer of cash to portfolio company (1,001,344) --
Purchases of property and equipment -- (32,356)
----------- -----------
Net cash flows used in investing activities (1,001,344) (32,356)
----------- -----------
Net cash flows from financing activities:
Principal repayments on notes payables (40,148) (9,779)
Net proceeds from issuance of convertible notes payable 1,300,000 2,192,716
----------- -----------
Net cash flows provided by financing activities 1,259,852 2,182,937
----------- -----------
Net decrease in cash (636,520) 503,929
Cash, beginning of period 636,904 211,670
----------- -----------
Cash, end of period $ 384 $ 715,599
=========== ===========
7
5G WIRELESS COMMUNICATIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(UNAUDITED)
(CONTINUED)
Supplemental cash flow information:
Cash Paid For:
Interest $ 800 $ -
=========== ===========
Supplemental disclosure of non-cash investing
and financing activities:
Conversion of convertible notes and interest into common stock $ 777,977 $ 213,000
=========== ===========
Conversion of accounts payable to common stock $ - $ 40,194
=========== ===========
Beneficial conversion feature on convertible notes $ 1,300,000 $ 1,176,000
=========== ===========
The accompanying notes are an integral part of these condensed financial statements
8
5G WIRELESS COMMUNICATIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
5G Wireless Communications, Inc. ("Company") was incorporated as Tesmark, Inc.
in September 1979. In November 1998, the Company changed its state of
incorporation from Idaho to Nevada; in January 2001, it changed its name to 5G
Wireless Communications, Inc. In March 2001, the Company acquired 5G Partners, a
Canadian partnership, and changed its business to provide wireless technology
systems through high speed Internet access and data transport systems. In April
2002, it acquired Wireless ThinkTank, Inc., a developer of high-speed long
distance wireless technologies and in July 2003, it shifted its strategy from
that of a service provider to an equipment manufacturer, or original equipment
manufacturer ("OEM").
In October 2004, the Company elected to be treated as a business development
company ("BDC") under the Investment Company Act of 1940 ("1940 Act"). As a BDC,
it was the intent of the Company to seek out investment candidates in areas
related to its prior operating business that can benefit from the management
expertise and technology already inherent in its operations. In addition, it
intended to assemble a diverse portfolio of companies with strategic information
and communications technologies or applications, leveraging the combined talents
of its experienced management team to incubate these companies and seeking to
enhance shareholder value.
On December 31, 2004, the Company transferred certain of its OEM assets and
liabilities into 5G Wireless Solutions, Inc., a portfolio company ("Portfolio
Company"), in exchange for 302,230 shares of the Portfolio Company's common
stock. Consequently, the Company's statements of operations for 2004 reflect the
revenues and expenses of its OEM business prior to the transfer. The transfer of
the OEM assets and liabilities to the Portfolio Company was recorded based on
the Company's historical carrying amounts, which management and the board of
directors also believe approximated fair value at December 31, 2004. Additional
cash investments in the Portfolio Company were made in the first nine months of
2005 that are carried at the investment value.
On June 3, 2005, the Company's board of directors unanimously determined that it
would be in the best interests of the Company and its shareholders to seek
shareholder approval, at the annual meeting of shareholders, for the Company to
de-elect as a BDC and to file a Form N-54C (Notification of Withdrawal of
Election to be Subject to Sections 55-65 of the 1940 Act) with the Securities
Exchange Commission ("SEC") (See Note 5). On October 20, 2005, the shareholders
of the Company approved the de-election as a BDC (See Note 7).
BASIS OF PRESENTATION.
9
In accordance with SEC rules and regulations for BDC's, the Company does not
consolidate or use the equity method to account for its controlling investment
in the Portfolio Company. Rather, the Company's investment in such entity is
reported at fair value. Fluctuations in such fair value are to be reflected as
an unrealized gain or loss on investment in the statements of operations. The
Company's accompanying unaudited condensed financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP") for interim financial information of
registered investment companies and the instructions to Form 10-Q and Regulation
S-X of the SEC. Accordingly, these unaudited condensed financial statements do
not include all of the footnotes required by GAAP. In management's opinion, all
adjustments (consisting only of normal and recurring adjustments) considered
necessary for a fair presentation have been included. Operating results for the
interim periods presented are not necessarily indicative of the results that may
be expected for the year ending December 31, 2005. The accompanying condensed
financial statements and the notes thereto should be read in conjunction with
the Company's annual report on Form 10-KSB for the year ended December 31, 2004.
Pursuant to the de-election as a BDC, the Company's future financial statements
for periods subsequent to September 30, 2005 will consolidate the assets and
liabilities of the Portfolio Company together with its results of operations in
accordance with GAAP.
GOING CONCERN BASIS.
For the nine months ended September 30, 2005, the Company incurred net losses
totaling $2,260,306 and had net cash used in operating activities totaling
$895,028; it had an accumulated deficit of $21,019,961 as of September 30, 2005.
These factors raise substantial doubt as to the Company's ability to continue as
a going concern. If the Company is unable to generate sufficient cash flow from
operations and/or continue to obtain financing to meet its working capital
requirements, it may have to curtail its business sharply or cease business
altogether.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern that contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
However, the ability of the Company to continue as a going concern on a
longer-term basis will be dependent upon its ability to generate sufficient cash
flow from operations to meet its obligations on a timely basis, to retain its
current financing, to obtain additional financing, and ultimately, attain
profitability.
Management plans to continue raising additional capital through a variety of
fund raising methods during 2005 and to pursue all available fund raising
alternatives in this regard. Management may also consider a variety of potential
partnership or strategic alliances to strengthen its financial position. While
the Company has been successful in the past in raising capital, no assurance can
be given that these sources of financing will continue to be available to the
Company and/or that demand for the Company's equity and debt instruments will be
sufficient to meet its capital needs. The financial statements do not include
any adjustments relating to the recoverability and classification of liabilities
that might be necessary should the Company be unable to continue as a going
concern.
10
USE OF ESTIMATES.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Significant estimates include the
valuation of the Portfolio Company investment. Actual results could differ from
those estimates.
INVESTMENTS IN PORTFOLIO COMPANIES.
At September 30, 2005, the Company's investment in portfolio companies consists
solely of the Portfolio Company.
Pursuant to the requirements of the 1940 Act, the Company's board of directors
is responsible for determining, in good faith, the fair value of our securities
and assets for which market quotations are not readily available. Fair value is
determined pursuant to a valuation methodology adopted by the board of directors
(See Note 2).
REVENUE RECOGNITION.
During 2005, as a BDC, the Company recognizes revenues from its portfolio
companies based on investment income, the appreciation or impairment associated
with its investment in such companies. The Company has not recorded any such
gain or loss through September 30, 2005.
Revenues in 2004 result principally from the Company's operations prior to its
election as a BDC. Such revenues resulted from the sale and installation of
wireless radio systems to customers. Equipment sales are recognized when
products are delivered without any further services required. Revenues in 2004
were recognized in accordance with Staff Accounting Bulletin ("SAB") No. 104,
"Revenue Recognition," which outlines the basic criteria that must be met to
recognize revenue and provides guidance for presentation of revenue and for
disclosure related to revenue recognition policies in financial statements filed
with the SEC.
BASIC AND DILUTED LOSS PER COMMON SHARE.
Under Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share," basic earnings per common share is computed by dividing net loss by
the weighted-average number of common shares outstanding during the period of
computation. Diluted earnings per share is computed similar to basic earnings
per share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive.
Because the Company has incurred net losses, basic and diluted loss per share
are the same since additional potential common shares would be anti-dilutive.
11
Therefore, the calculated diluted loss per share does not take into account the
effect of 2,400,000,000 potential common shares associated with the potential
conversion of preferred shares, and other convertible securities and warrants
totaling an additional 412,083,333, all of which are considered anti-dilutive.
2. INVESTMENT IN PORTFOLIO COMPANY
On December 31, 2004, the Company transferred certain of its OEM assets and
liabilities into the Portfolio Company in exchange for 302,230 shares of the
Portfolio Company's common stock.
The transfer of the OEM assets and liabilities to the Portfolio Company was
recorded based on the Company's historical carrying amounts. During the nine
months ended September 30, 2005, the Company invested an additional $1,001,344
in the Portfolio Company. During the three months ended September 30, 2005, the
Company invested an additional $186,594 in cash in the Portfolio Company in
order to support the ongoing working capital and general and administrative
needs of the Portfolio Company. The total investment in the Portfolio Company at
September 30, 2005 was $1,303,574. The Company's board of directors determined
that the fair value of such investment approximates its cost at September 30,
2005.
The Company's board of directors determines the value of each investment in its
portfolio on a quarterly basis, and changes in value result in unrealized
appreciation or depreciation being recognized. At September 30, 2005,
approximately 100% of the Company's net assets represented investments recorded
at fair value. Value, as defined in Section 2(a)(41) of the 1940 Act, is (i) the
market price for those securities for which a market quotation is readily
available and (ii) for all other securities and assets, fair value is as
determined in good faith by the board of directors. The Company's board of
directors is required to fair value price such securities if the validity of the
market quotations appears to be questionable, or if the number of quotations is
such as to indicate that there is a thin market in the security. Since there is
no readily available market value for the investments in the Company's
portfolio, the Company values all of its investments at fair value as determined
in good faith by the board of directors. In making its determination, the
Company's board of directors may consider valuation appraisals provided by
independent valuation service providers. Because of the inherent uncertainty of
determining the fair value of investments that do not have a readily available
market value, the fair value of our investments determined in good faith by the
board of directors may differ significantly from the values that would have been
used had a ready market existed for the investments, and the differences could
be material.
3. NOTES PAYABLE AND CONVERTIBLE NOTES
Notes payable consist of the following at September 30, 2005:
Note payable, interest bearing at 10% per annum with principal and
interest payment of $2,500 monthly,
maturing in July 2006. $ 17,500
-----------
Total notes payable 17,500
-----------
12
$135,000 convertible notes, bearing interest at 8%
per annum, due through July 2005 50,000
$250,000 convertible notes, bearing interest at 9%
per annum, net of discount of $13,472 and $150,000 of
principal converted, maturing in March 2006 86,528
$805,000 convertible notes, bearing interest at 9%
per annum, net of discount of $18,623 and $254,400
of principal converted, due through April 2006 531,977
$2,000,000 convertible notes, bearing interest at 5%,
net of discount of $1,065,061 and $384,460 of
principal converted, maturing in September 2007 550,479
$1,000,000 convertible notes, bearing interest at 5%,
net of discount of $729,253 and $13,040 of
principal converted maturing in March 2008 257,707
$300,000 convertible notes, bearing interest at Prime Rate
plus 4%, net of discount of $270,833 maturing
in March 2007 29,167
-----------
Total convertible notes payable 1,505,858
-----------
Total $ 1,523,358
===========
4. STOCKHOLDERS' EQUITY (DEFICIT)
PREFERRED STOCK.
The Company has 10,000,000 authorized preferred shares. On October 6, 2004, the
Company's Compensation Committee granted, and the Company issued, Series A
convertible preferred stock ("Convertible Preferred Stock") to Jerry Dix and Don
Boudewyn, the Company's chief executive officer and executive vice
president/secretary/treasurer, respectively, totaling 3,000,000 shares. Each
share of Convertible Preferred Stock is convertible at the rate of 800 shares of
common stock for each full share of Convertible Preferred Stock. Each share of
outstanding Convertible Preferred Stock entitles the holder thereof to vote on
each matter submitted to a vote of the stockholders of the Company and to have
the number of votes equal to the number (including any fraction) of shares of
common stock into which such share of Convertible Preferred Stock is then
convertible pursuant to the provisions hereof at the record date for the
determination of shareholders entitled to vote on such matters or, if no such
record date is established, at the date such vote is taken or any written
consent of stockholders becomes effective. The preferred shares, which are
restricted, are convertible after three years from issuance.
13
A third party conducted an evaluation prior to the issuance and concluded that
the value of the preferred shares was $200,000. For accounting purposes, the
value of the preferred shares is deferred compensation and is being amortized
over three years. Through September 30, 2005, $66,667 has been expensed and the
balance of $133,333 is carried as restricted preferred stock as part of the
stockholders' deficit.
COMMON STOCK
The Company has authorized 5,000,000,000 shares of common stock. Of these,
1,084,067,932 have been issued and are outstanding as of September 30, 2005.
During the three months ended September 30, 2005, in accordance with the terms
of the applicable convertible notes payable agreements, the Company issued
129,128,516 shares of common stock in connection with the conversion of
convertible notes payable totaling approximately $336,000 of principal and
interest.
During the nine months ended September 30, 2005, in accordance with the terms of
the applicable convertible notes payable agreements, the Company issued
220,115,818 shares of common stock in connection with the conversion of notes
payable and accrued interest totaling approximately $778,000.
5. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS.
The Company leases its office and research and development space of
approximately 10,560 square feet in Marina Del Rey, California, under a
five-year term operating lease agreement expiring in 2008.
Rent expense approximated $7,600 and $37,000 for the three months ended
September 30, 2005 and 2004, respectively, and $13,780 and $74,000 for the nine
months then ended, respectively.
LITIGATION.
The Company is not party to any material pending legal proceedings, claims or
assessments and, to the best of its knowledge, no such action by or against the
Company has been threatened.
On June 15, 2005, the Company received a summons from third parties seeking
damages against a former employee of the Company for breach of a residential
lease and damage to a residential property in 2001. The claim against the
Company filed in New York Supreme Court (Chenango County) alleges that the
former employee was a principal in Wireless ThinkTank (a wholly owned subsidiary
of 5G Wireless Communications, Inc.) and conducted business from such residence.
The Company has made a full and final settlement offer in the amount of $2,500
which has been provisionally accepted by the plaintiff.
14
DE-ELECTION AS BDC AND RELATED MATTERS.
On June 3, 2005, the Company's board of directors unanimously determined that it
would be in the best interests of the Company and its stockholders to seek
stockholder approval on certain matters. Pursuant to a definitive Schedule 14A
proxy statement filed with the SEC on September 19, 2005, the Company will be
seeking approval from the stockholders, at the annual shareholder's meeting
scheduled for October 20, 2005, for the following (among other things): (a) to
terminate the Company's status as a business development company under the 1940
Act and the file a Form N-54C with the SEC to terminate this status, and (b) to
file a new registration statement with the SEC.
It is the opinion of the board of directors that the costs of continuing as a
BDC outweigh the advantages for the current plan of business of the Company.
The Company has operated as a BDC since the BDC Election Date. The Company has
recently conducted a review of its compliance with the 1940 Act and the
following are areas that the Company believes it may not be in compliance with
the 1940 Act at this time or recently:
o The Company currently does not maintain the proper ratio of assets
to "senior securities"; Section 61 of the 1940 Act requires that a
BDC maintain a ratio of assets to senior securities of at least
200%. The company is trying to correct this by reducing the senior
securities.
o Prior to the election to become a BDC, the Company entered certain
convertible notes and warrants agreements, dated September 22,
2004. These agreements and those signed on March 22, 2005 which
increased the convertible note by $1,000,000 and on July 19, 2005
by an additional $300,000 contained provisions for conversion into
common stock of the Company based on the average of the five
lowest closing bid prices of the common stock as reported by
Bloomberg L.P. for the principal market for the 90 trading days
preceding a conversion date. The Company believes that the
existence of the convertible notes on the BDC Election Date is not
in compliance with the capital structure rules set forth in
Section 61(a) of the 1940 Act since the shares were sold at below
market prices. The Company also believes that the convertible
notes entered into after the BDC Election Date are not in
compliance with Section 61(a) for the same reason.
The Company has filed a Form 1-E with the SEC for the shares
issuable to the Longview funds pursuant to the conversion rights
under debt agreements. In this Form 1-E, it is estimated that
legal costs in connection with the offering will be $30,000. As
disclosed in a Form 2-E filed with the SEC, the Company has
incurred legal and other expenses of approximately $625,000 in
cash in connection with this offering, of which a total of
15
$145,000 was direct legal cost associated with the offering and
approximately $480,000 in associated legal cost relating to the
organizational costs associated with becoming a BDC. Since the
Company may not have been in compliance with certain provisions
of the 1940 Act from the BDC Election Date to the present, then
the shares issued to the Longview funds under the Form 1-E may
not have been issued pursuant to a valid exemption from the
registration requirements of Section 5 of the Securities Act of
1933.
o It is a requirement of Section 56 of the 1940 Act to have a
majority of board members be non-interested persons. From the BDC
Election Date until June 27, 2005 (when two of the Company's
directors relinquished their interest in Redwood Grove Management
(the management company for the Longview funds)), the Company may
not have had the requisite majority of non-interested persons as
directors and therefore the Company may not have complied with
this section. Therefore, the actions taken by the board of
directors for such period may not be valid under the 1940 Act.
o The Company believes that as of the BDC Election Date, the Series
A preferred stock issued on October 6, 2004 may not have been in
compliance with Section 61(a) of the 1940 Act. In addition, the
Company believes that it may not be in compliance with Section 63
of the 1940 Act since it was issued for services.
o On December 31, 2004, the Company moved the assets, employees, and
all related contracts and agreements from the Company to 5G
Wireless Solutions, Inc., the Portfolio Company. As part of its
obligations, the Company issued restricted common shares for the
accrued portion of salaries for the fourth quarter of fiscal 2004.
The Company has since requested the return of the shares issued so
as to comply with the requirements of Section 63 of the 1940 Act.
The Company has since received the shares, totaling 7,085,254,
issued to Jerry Dix and Don Boudewyn, the Company's chief
executive officer and executive vice
president/secretary/treasurer, respectively, which have been
cancelled (the value of the shares has been reflected as a
liability so as to comply with the 1940 Act).
There is a risk that the SEC could take enforcement action against the Company
if the SEC determines that the Company has not been in compliance with the 1940
Act.
On October 20, 2005 the Company's shareholders approved the de-election as a BDC
(See Note 7).
6. RECENT ACCOUNTING PRONOUNCEMENTS
On December 16, 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123(R) (revised 2004), "Share-Based Payment", which is a revision of
SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123(R)
supersedes APB No. 25, "Accounting for Stock Issued to Employees", and amends
SFAS No. 95, "Statement of Cash Flows." Generally the approach in SFAS No.
123(R) is similar to the approach described in SFAS No. 123. However, SFAS No.
123(R) requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the income statement based on their
fair values.
16
Public companies may adopt SFAS No. 123(R) requirements using one of two
methods:
(a) A "modified prospective" method in which compensation cost is
recognized beginning with the effective date (a) based on the
requirements of SFAS No. 123(R) for all share-based payments granted
after the effective date and (b) based on the requirements of SFAS No.
123 for all awards granted to employees prior to the effective date of
SFAS No. 123(R) that remain unvested on the effective date.
(b) A "modified retrospective" method which includes the requirements
of the modified prospective method described above, but also permits
entities to restate based on the amounts previously recognized under
SFAS No. 123 for purposes of pro forma disclosures either (a) all prior
periods presented or (b) prior interim periods of the year of adoption.
The Company has not issued share-based payments to employees, nor grants of
employee stock options. There is no potential impact to the Company at this
time.
In March 2005, the SEC issued SAB No. 107, which expresses views of the SEC
staff regarding the interaction between SFAS No. 123(R) and certain SEC rules
and regulations. Additionally, SAB No. 107 provides the staff's view regarding
the valuation of share-based payment arrangements for public companies and
interpretive guidance in implementation of SFAS No. 123(R) and disclosures in
the MD&A subsequent to adoption of SFAS No. 123(R). SAB No. 107 does not change
the accounting required by SFAS No. 123(R). The FASB required SFAS No. 123(R) be
adopted in the first interim or annual period beginning after June 15, 2005. On
April 14, 2005, the SEC issued a final rule amending compliance dates for SFAS
No. 123(R). Under the SEC's new rule, SFAS No. 123(R) will become effective for
the Company beginning in fiscal year 2007.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets", which eliminates the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. SFAS No. 153 will be
effective for nonmonetary asset exchanges occurring in fiscal periods beginning
after June 15, 2005. The Company believes the adoption of SFAS No. 153 will not
have a material impact on our results of operations or financial condition.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections." SFAS No. 154 requires retrospective application to prior periods'
financial statements of a voluntary change in accounting principle and that a
change in method of depreciation, amortization, or depletion for long-lived,
nonfinancial assets be accounted for as a change in accounting estimate that is
affected by a change in accounting principle. SFAS No. 154 is effective for
accounting changes and corrections or errors made in fiscal years beginning
after December 15, 2005. The Company believes the adoption of SFAS No. 154 will
not have a material impact on the Company's results of operations or financial
condition.
17
7. SUBSEQUENT EVENTS
On various dates subsequent to the nine months ended September 30, 2005, the
Company received conversion notices related to debentures which were outstanding
as of that date. Pursuant to these conversions, which totaled approximately
$250,000 in principal and interest, the Company issued approximately 84,500,000
additional shares of common stock.
On October 20, 2005, the Company's shareholders approved (a) the termination of
the Company's status as a business development company under the 1940 Act and
the filing of a Form N-54C with the SEC, and (b) the filing of a new
registration statement. Based on this approval, on October 21, 2005, the Company
filed a Form N-54C with the SEC. Pursuant to the terms of the convertible
debentures entered into between the Company and Longview Funds, the shares which
serve as collateral for the debentures must be registered. The filing of the
Form N-54C terminated the 1-E registration statement which covered the shares
serving as collateral for the debentures. Pursuant to the terms of the
debentures, the Company is in technical default on the debentures. The Company
is in active negotiations with Longview Funds and has obtained verbal
commitments from the lenders that it will not be declared in default. The
Company is liable for liquidated damages of 2% for each thirty days or part
thereof of the Purchase Price of the notes remaining unconverted which are
subject to such Non-Registration event. As of September 30, 2005, the remaining
unconverted debentures aggregated to $2,901,840. It is the Company's intention
to file a Form SB-2 registration statement no later than December 15, 2005. This
registration statement will provide such coverage for the securities in
question. Until such time as the registration statement has been made effective,
the Company will incur $58,037 in liquidated damage penalties per month.
In conjunction with the filing of the form N-54C notifying the SEC of the
de-election as a BDC, the Company's future financial statement for periods
subsequent to September 30, 2005 will consolidate the assets and liabilities of
the Portfolio Company (5G Wireless Solutions, Inc.). together with its results
of operations in accordance with accounting principles generally accepted in the
United States of America for commercial companies. The pro forma condensed
consolidated balance sheet presented below reflects the de-election as if it has
occurred on September 30, 2005. The pro forma consolidated condensed statement
of operations for the nine months ended September 30, 2005 reflects the
de-election as if it has occurred at the beginning of the fiscal year.
18
5G WIRELESS COMMUNICATIONS, INC.
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
SEPTEMBER 30, 2005
Historical Pro Forma
September 30, September 30,
2005 (Unaudited) Adjustment 2005 (Unaudited)
------------ ------------ ------------
(a)
Assets
Cash $ 384 $ 84,564 $ 84,948
Investments in portfolio company, fair value 1,303,574 (1,303,574) --
Accounts receivable -- 983,364 983,364
Inventory -- 82,019 82,019
Property and equipment, net -- 139,410 139,410
Deposits -- 2,000 2,000
Prepaid expenses -- -- --
------------ ------------ ------------
Total assets $ 1,303,958 $ (12,217) $ 1,291,741
============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities:
Accounts payable and accrued liabilities $ 517,383 $ 144,734 $ 662,117
Notes payable 17,500 -- 17,500
Accrued interest on notes payable 140,505 -- 140,505
Convertible notes, net of discount 1,505,858 -- 1,505,858
------------ ------------ ------------
Total liabilities 2,181,246 144,734 2,325,980
------------ ------------ ------------
Stockholders' deficit:
Preferred Series A convertible stock 3,000 -- 3,000
Common stock 1,084,068 -- 1,084,068
Additional paid-in capital 19,544,494 -- 19,544,494
Common stock held in escrow (355,556) -- (355,556)
Restricted preferred stock (133,333) -- (133,333)
Accumulated deficit (21,019,961) (156,951) (21,176,912)
------------ ------------ ------------
Total stockholders' deficit (877,288) (156,951) (1,034,239)
------------ ------------ ------------
Total liabilities and stockholders' deficit $ 1,303,958 $ (12,217) $ 1,291,741
============ ============ ============
19
5G WIRELESS COMMUNICATIONS, INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005
(UNAUDITED)
Historical Pro Forma
September 30, September 30,
2005 (Unaudited) Adjustment 2005 (Unaudited)
----------- ----------- -----------
(b)
Revenues $ -- 1,634,094 1,634,094
Cost of revenues -- 615,178 615,178
----------- ----------- -----------
Gross profit -- 1,018,916 1,018,916
----------- ----------- -----------
Operating expenses:
General and administrative 165,775 756,939 922,714
Salaries and related 354,447 81,799 436,246
Professional/consulting services 586,685 -- 586,685
Research and development -- 178,814 178,814
Other operating expense -- 110,134 110,134
Depreciation -- 48,181 48,181
----------- ----------- -----------
Total operating expenses 1,106,907 1,175,867 2,282,774
----------- ----------- -----------
Operating Loss (1,106,907) (156,951) (1,263,858)
Preferred stock compensation amortization (16,670) -- (16,670)
Interest expense (including amortization
of financing cost and debt discount) (1,136,729) -- (1,136,729)
----------- ----------- -----------
Net loss $(2,260,306) (156,951) (2,417,257)
=========== =========== ===========
20
Pro forma adjustments:
(a) Represent the effect on the Company's historical balance sheet at September
30, 2005 as if the de-election had taken place on that date and consist of the
assets and liabilities of 5G Wireless Solutions, Inc. that will be consolidated
with the Company as a result of the de-election as a BDC. The additions to the
Company's accumulated deficit, on a pro forma basis, result from adopting the
consolidation method to report this wholly owned entity and adding its
historical losses incurred during the nine months ended September 30, 2005 to
those of the Company; and (b) Represent the effect on the Company's historical
statement of operations resulting from the de-election as if the event had
occurred as of the beginning of 2005 and consist of the actual revenues and
expenses of 5G Wireless Solutions, Inc. for the nine months ended September 30,
2005.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis of the Company's financial
condition and results of operations is based upon, and should be read in
conjunction with, its unaudited condensed financial statements and related notes
included elsewhere in this Form 10-Q, which have been prepared in accordance
with accounting principles generally accepted in the United States of America
("GAAP").
OVERVIEW.
In October 2004, the Company elected, by the filing of a Form N-54A
with the Securities and Exchange Commission ("SEC"), to be regulated as a
business development company ("BDC") under the Investment Company Act of 1940
("1940 Act"). On December 31, 2004, we transferred certain assets and certain
liabilities of the Company into 5G Wireless Solutions, Inc. ("Portfolio
Company") in exchange for 100% of the outstanding shares of the Portfolio
Company's common stock. The Portfolio Company has focused on the marketing and
sales of its innovative wireless solutions to large campus & enterprise
wide-area-networks ("WAN") and citywide WAN. In addition to manufacturing the
existing product line, the Portfolio Company has focused on developing new
solutions that create larger and more efficient wireless networks.
STATUS AS A BDC.
On June 3, 2005, the Company's board of directors unanimously
determined that it would be in the best interests of the Company and its
stockholders to seek stockholder approval on certain matters. Pursuant to a
definitive Schedule 14A proxy statement filed with the SEC on September 19,
2005, the Company will be seeking approval from the stockholders, at the annual
shareholder's meeting scheduled for October 20, 2005, for the following (among
other things): (a) to terminate the Company's status as a business development
company under the 1940 Act and the file a Form N-54C with the SEC to terminate
this status, and (b) to file a new registration statement with the SEC.
21
On October 20, 2005, the Company's shareholders approved (a) the
termination of the Company's status as a business development company under the
1940 Act and the filing of a Form N-54C with the SEC, and (b) the filing of a
new registration statement. Based on this approval, on October 21, 2005, the
Company filed a Form N-54C with the SEC.
RESULTS OF OPERATIONS.
The results of operations reflected in this discussion include
historical operations of the Company prior to becoming a BDC.
(a) REVENUES.
As a BDC (since October 19, 2004), we record revenue from the
appreciation and dividends in the portfolio company. There has been no such
revenue in 2005.
(b) OPERATING EXPENSES.
Operating expenses decreased by $1,608,348, 95%, from $1,699,543 for
the three months ended September 30, 2004 to $91,195 for the three months ended
September 30, 2005.
Operating expenses decreased $2,527,750 (70%), from $3,634,657 for the
nine months ended September 30, 2004 to $1,106,907 for the nine months ended
September 30, 2005.
The decreases for the three and nine months ended September 30 were
primarily attributable to a large portion of these expenses being incurred
directly by our Portfolio Company totaling $1,127,686, including: $756,939 for
general and administrative; $81,799 for salaries and benefits; $178,814 for
research and development. Since January 1, 2005, management has trimmed
employees, terminated most consulting arrangements which were not
revenue-related, cut the number of legal firms from five to one and reduced all
other general and administrative expenses through the implementation of rigorous
cost controls. We believe this trend of reduction in general and administrative
expenses will continue due to a heightened awareness of the need for cost
controls, and our ability to do more with less.
(c) OTHER EXPENSES.
For the three months ended September 30, 2005 interest expense
(including amortization of financing costs, debt discount amortization and
beneficial conversion feature amortization) increased by $161,019, 191%, from
$84,324 to $245,343 for the three months ended September 30, 2005.
For the nine months ended September 30, 2005 interest expense
(including amortization of financing costs, debt discount amortization and
beneficial conversion feature amortization) increased by $974,095, 600%, from
$162,634 for the nine months ended September 30, 2004 to $1,136,729 for the nine
months ended September 30, 2005.
22
The increases were due to the amortization of the beneficial conversion
feature ("BCF") associated with the issuance of convertible debentures during
the September 2004, November 2004, March 2005 and July 2005. Pursuant to
Emerging Issues Task Force ("EITF") Issue No. 98-5, "Accounting For Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratio" and EITF Issue No. 00-27, "Application of EITF Issue No. 98-5
To Certain Convertible Instruments," the Company has estimated the fair value of
the BCF for each debt instrument and recorded an amount as a debt discount. The
BCF, or debt discount, is amortized over the term of the notes.
(d) NET LOSS
For the three months ended September 30, 2005, net loss decreased by
$1,263,035, 78%, from a net loss of $1,616,243 for the three months ended
September 30, 2004 to a net loss of $353,208 for the three months ended
September 30, 2005.
For the nine months ended September 30, 2005 net loss decreased by
$1,240,296, 35%, from a net loss of $3,500,601 for the nine months ended
September 30, 2004 to a net loss of $2,260,306 for the nine months ended
September 30, 2005.
The decreases for the three and nine months ended September 30 were
primarily attributable to a large portion of these expenses being incurred
directly by our Portfolio Company. Additionally, the decreases can be attributed
to the ongoing focus by management on reining in the use of outside consultants,
attorneys and other non-employee assets, terminating the issuance of stock for
services and reducing headcount and related personnel administration expenses.
FACTORS THAT MAY AFFECT OPERATING RESULTS.
The operating results of the Company can vary significantly depending
upon a number of factors, many of which are outside its control. General factors
that may affect the Company's operating results include:
o market acceptance of and changes in demand for products and services;
o a small number of customers account for, and may in future periods
account for, substantial portions of our revenue, our revenue could
decline because of delays of customer orders or the failure to retain
customers;
o gain or loss of clients or strategic relationships;
o announcement or introduction of new services and products by the
Company or by its competitors;
o the ability to build brand recognition;
23
o price competition;
o the ability to upgrade and develop systems and infrastructure to
accommodate growth;
o the ability to attract and integrate new personnel in a timely and
effective manner;
o the ability to introduce and market products and services in accordance
with market demand;
o changes in governmental regulation;
o reduction in or delay of capital spending by clients due to the effects
of terrorism, war and political instability; and
o general economic conditions.
The Company believes that its planned growth and profitability will
depend in large part on the ability to promote its services, gain clients and
expand its relationship with current clients. Accordingly, we intend to invest
in marketing, strategic partnerships, and development of our customer base. If
the Company is not successful in promoting its services and expanding its
customer base, this may have a material adverse effect on its financial
condition and its ability to continue to operate its business.
The Company is also subject to the following specific factors that may
affect its operating results:
(a) COMPETITION.
The market for wireless products and services is highly competitive.
The Company's future success will depend on its ability to adapt to rapidly
changing technologies, evolving industry standards, product offerings and
evolving demands of the marketplace.
Some of our competitors have:
o longer operating histories;
o larger customer bases;
o greater name recognition and longer relationships with clients; and
o significantly greater financial, technical, marketing, public relations
and managerial resources than the Company.
24
The Company's competitors may also be better positioned to address
technological and market developments or may react more favorably to
technological changes. The Company competes on the basis of a number of factors,
including:
o range
o non-line of sight capabilities
o data rate
o security scheme
o simultaneous users
o implementation cost
Competitors may develop or offer services that provide significant
(technological, creative, performance, price) or other advantages over the
services offered by the Company. If the Company fails to gain market share or
loses existing market share, our financial condition, operating results and
business could be adversely affected and the value of the investment in the
Company could be reduced significantly. The Company may not have the financial
resources, technical expertise, marketing, distribution or support capabilities
to compete successfully.
(b) PROTECTION OF PROPRIETARY RIGHTS.
The Company's success and ability to compete will be dependent in part
on the protection of its potential patents, trademarks, trade names, service
marks and other proprietary rights. The Company intends to rely on trade secret
and copyright laws to protect the intellectual property that it plans to
develop, but there can be no assurance that such laws will provide sufficient
protection to us, that others will not develop services that are similar or
superior to ours, or that third parties will not copy or otherwise obtain and
use our proprietary information without authorization. In addition, certain of
the Company's know-how and proprietary technology may not be patentable.
The Company may rely on certain intellectual property licensed from
third parties, and may be required to license additional products or services in
the future, for use in the general operations of its business plan. There can be
no assurance that these third party licenses will be available or will continue
to be available to us on acceptable terms or at all. The inability to enter into
and maintain any of these licenses could have a material adverse effect on our
business, financial condition or operating results.
There is a risk that some of the Company's products may infringe the
proprietary rights of third parties. In addition, whether or not the Company's
products infringe on proprietary rights of third parties, infringement or
invalidity claims may be asserted or prosecuted against it and it could incur
significant expense in defending them. If any claims or actions are asserted
25
against the Company, it may be required to modify its products or seek licenses
for these intellectual property rights. The Company may not be able to modify
its products or obtain licenses on commercially reasonable terms, in a timely
manner or at all. The Company's failure to do so could have a negative affect on
its business and revenues.
(c) DEPENDENCE ON SUPPLIERS.
The Company depends upon a number of suppliers for components of its
products. There is an inherent risk that certain components of our products will
be unavailable for prompt delivery or, in some cases, discontinued. The Company
only has limited control over any third-party manufacturer as to quality
controls, timeliness of production, deliveries and various other factors. Should
the availability of certain components be compromised, it could force the us to
develop alternative designs using other components, which could add to the cost
of goods sold and compromise delivery commitments. If the Company is unable to
obtain components in a timely manner, at an acceptable cost, or at all, we may
need to select new suppliers, redesign or reconstruct processes used to build
its devices. In such an instance, the Company would not be able to manufacture
any devices for a period of time, which could materially adversely affect its
business, results from operations, and financial condition.
(d) TECHNOLOGICAL AND MARKET CHANGES.
The markets in which the Company competes are characterized by new
service introductions, evolving industry standards, and changing needs of
customers. There can be no assurance that our existing services will continue to
be properly positioned in the market or that it will be able to introduce new or
enhanced products into the market on a timely basis, or at all. Currently, the
Company is focusing on upgrading and introducing new services. There can be no
assurance that enhancements to existing products or new products will receive
customer acceptance.
There is a risk to the Company that there may be delays in initial
implementation of new services. Further risks inherent in new service
introductions include the uncertainty of price-performance relative to services
of competitors, competitors' responses to its new service introductions, and the
desire by customers to evaluate new services for longer periods of time. Also,
the Company does not have any control over the pace of technology development.
There is a significant risk that rights to a technology could be acquired or be
developed that is currently or is subsequently made obsolete by other
technological developments. There can be no assurance that any new technology
will be successfully acquired, developed, or transferred.
(e) GOVERNMENT REGULATION.
The Company's technology is deployed in license-free frequency bands
and is not subject to any wireless or transmission licensing in most
jurisdictions, including the United States. Continued license-free operation is
dependent upon the continuation of existing government policy. While we are not
aware of any policy changes planned or expected, there can be no assurances that
government policy will not change. License-free operation of the Company's
26
products in the 2.4 GHz bands are subordinate to certain licensed and unlicensed
uses of the bands and its products must not cause harmful interference to other
equipment operating in the bands and must accept interference from any of them.
If we are unable to eliminate any such harmful interference, or should its
products be unable to accept interference caused by others, the Company and its
customers could be required to cease operations in the bands in the locations
affected by the harmful interference. Additionally, in the event the 2.4 GHz
band becomes unacceptably crowded, and no additional frequencies are allocated,
our business could be adversely affected.
(f) KEY PERSONNEL.
The Company's success is largely dependent on the personal efforts
and abilities of its senior management. The loss of certain members of the
Company's senior management, including our chief executive officer and chief
financial officer could have a material adverse effect on our business and
prospects.
The Company intends to recruit in fiscal year 2005 employees who are
skilled in its industry. The failure to recruit these key personnel could have a
material adverse effect on our business. As a result, we may experience
increased compensation costs that may not be offset through either improved
productivity or higher revenue. There can be no assurances that we will be
successful in retaining existing personnel or in attracting and recruiting
experienced qualified personnel.
(g) LIMITATIONS ON LIABILITY AND INDEMNIFICATION.
The Company's bylaws include provisions to the effect that we may
indemnify any director, officer, or employee. In addition, provisions of Nevada
law provide for such indemnification, as well as for a limitation of liability
of our directors and officers for monetary damages arising from a breach of
their fiduciary duties. Any limitation on the liability of any director or
officer, or indemnification of any director, officer, or employee, could result
in substantial expenditures being made by the Company in covering any liability
of such persons or in indemnifying them.
OPERATING ACTIVITIES.
For the nine months ended September 30, 2005 net cash used in operating
activities decreased by $751,624, 45%, from $1,646,652 for the nine months ended
September 30, 2004 to $895,028 for the nine months ended September 30, 2005. The
decrease is primarily attributable to a transfer of operating expenses to the
Portfolio Company, and terminating the issuance of stock for services, these
savings were partially offset by an expansion in accounts payable and acrrued
liabilities of approximately $398,000.
27
INVESTING ACTIVITIES.
For the nine months ended September 30, 2005 net cash used in investing
activities increased by $968,988, 2,995%, from $32,356 for the nine months ended
September 30, 2004 to $1,001,344 for the nine months ended September 30, 2005.
The large increase is a result of the ongoing investments made in the Portfolio
Company in 2005.
LIQUIDITY AND CAPITAL RESOURCES.
As of September 30, 2005, the Company had cash of $384. In addition to
the net loss of $353,208 for the three months ended September 30, 2005 and a net
loss of $2,260,306 for the nine months ended September 30, 2005, the Company
incurred losses of $4,989,200 for the year ended December 31, 2004. As of
September 30, 2005, we had an accumulated deficit of $21,019,961. These factors
raise substantial doubt as to our ability to continue as a going concern. In
fact, the Company's independent accountants' audit report included in the Form
10-KSB for the year ended December 31, 2004 includes a substantial doubt
paragraph regarding the Company's ability to continue as a going concern.
The accompanying financial statements have been prepared assuming that
the Company continues as a going concern that contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business
assuming the Company will continue as a going concern. However, the ability of
the Company to continue as a going concern will be dependent upon its ability to
generate sufficient cash flow from operations to meet its obligations on a
timely basis, to retain its current financing, to obtain additional financing,
and ultimately attain profitability.
The Company has been successful in obtaining the required cash
resources through private placements, convertible debentures and notes payable
to service the Company's operations to date. Financing activities provided cash
of $1,259,852 for the nine months ended September 30, 2005 through the issuance
of convertible debentures. Management plans to continue raising additional
capital through a variety of fund raising methods during the remainder of 2005
and to pursue all available financing alternatives in this regard. Management
may also consider a variety of potential partnership or strategic alliances to
strengthen its financial position. Whereas the Company has been successful in
the past in raising capital, no assurance can be given that these sources of
financing will continue to be available to us and/or that demand for our
equity/debt instruments will be sufficient to meet our capital needs, or that
financing will be available on terms favorable to the Company. The financial
statements do not include any adjustments relating to the recoverability and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
If funding is insufficient at any time in the future, the Company may
not be able to take advantage of business opportunities or respond to
competitive pressures, or may be required to reduce the scope of its planned
product development and marketing efforts, any of which could have a negative
impact on its business and operating results. In addition, insufficient funding
may have a material adverse effect on the Company's financial condition, which
could require the Company to:
o curtail operations significantly;
28
o sell significant assets;
o seek arrangements with strategic partners or other parties that may
require the Company to relinquish significant rights to products,
technologies or markets; or
o explore other strategic alternatives including a merger or sale of the
Company.
To the extent that the Company raises additional capital through the
sale of equity or convertible debt securities, the issuance of such securities
may result in dilution to existing stockholders. If additional funds are raised
through the issuance of debt securities, these securities may have rights,
preferences and privileges senior to holders of common stock and the terms of
such debt could impose restrictions on the Company's operations. Regardless of
whether the Company's cash assets prove to be inadequate to meet the Company's
operational needs, the Company may seek to compensate providers of services by
issuing stock in lieu of cash, which may also result in dilution to existing
shareholders.
On July 20, 2005, the Company entered into a subscription agreement
with Longview Fund, LP, Longview Equity Fund, LP, and Longview International
Equity Fund, LP whereby these investors are purchasing up to $300,000 in
convertible notes, with Class A Warrants to purchase one additional share of
common stock for each one share issued on the Closing Date (as defined in the
subscription agreement) assuming the complete conversion of the notes issued on
the Closing Date. The exercise price of the warrant is $0.01 per share. The
Class A Warrants are exercisable until five years after the Closing Date. The
$300,000 investment was received by the Company on July 20, 2005.
Under the convertible note, the holders may convert into shares of
common stock of the Company at a price per share equal to the lower of (i)
$0.01, or (ii) 75% of the average of the five lowest closing bid prices of the
common stock as reported by Bloomberg L.P. for the principal market for the
ninety trading days preceding a conversion date. The maximum conversion price is
$0.01 per share.
As part of this funding arrangement, Jerry Dix and Don Boudewyn, the
Company's chief executive officer and executive vice president, respectively,
have agreed that from the Closing Date until one year after the Actual Effective
Date (as defined in the subscription agreement) they will not sell or otherwise
dispose of any shares of common stock or any options, warrants or other rights
to purchase shares of common stock or any other security of the Company which
they own or have a right to acquire, other than in connection with an offer made
to all shareholders of the Company or any merger, consolidation or similar
transaction involving the Company.
On October 20, 2005, the Company's shareholders approved (a) the
termination of the Company's status as a business development company under the
1940 Act and the filing of a Form N-54C with the SEC, and (b) the filing of a
new registration statement. Based on this approval, on October 21, 2005, the
Company filed a Form N-54C with the SEC. Pursuant to the terms of the
convertible debentures entered into between the Company and Longview Funds, the
29
shares which serve as collateral for the debentures must be registered. The
filing of the Form N-54C terminated the 1-E registration statement which covered
the shares serving as collateral for the debentures. Pursuant to the terms of
the debentures, the Company is in technical default on the debentures. The
Company is in active negotiations with Longview Funds and has obtained verbal
commitments from the lenders that it will not be declared in default. The
Company is liable for liquidated damages of 2% for each thirty days or part
thereof of the Purchase Price of the notes remaining unconverted which are
subject to such Non-Registration event. As of September 30, 2005, the remaining
unconverted notes aggregated to $2,901,840. It is the Company's intention to
file a Form SB-2 registration statement not later than December 15, 2005. This
registration statement will provide such coverage for the securities in
question. Until such time as the registration statement has been made effective,
the Company will incur $58,037 in liquidated damage penalties per month.
30
INFLATION.
The impact of inflation on our costs and the ability to pass on cost
increases to its customers over time is dependent upon market conditions. We are
not aware of any inflationary pressures that have had any significant impact on
our operations over the past quarter, and the company does not anticipate that
inflationary factors will have a significant impact on future operations.
OFF BALANCE SHEET ARRANGEMENTS.
The Company does not engage in any off balance sheet arrangements that
are reasonably likely to have a current or future effect on our financial
condition, revenues, results of operations, liquidity or capital expenditures.
CONTRACTUAL OBLIGATIONS.
The Company has contractual obligations to repay our notes payable and
to make payments under our operating lease agreement. See Notes 3 and 5 to our
accompanying financial statements.
The Company leases its office and research and development space of
approximately 10,560 square feet in Marina del Rey, California, under a
five-year term operating lease agreement expiring in 2008. Rent expense
approximated $7,578 and $37,000 for the three months ended September 30, 2005
and 2004, respectively, and $13,780 and $74,000 for the nine months then ended,
respectively.
CRITICAL ACCOUNTING POLICIES.
The SEC has issued Financial Reporting Release No. 60, "Cautionary
Advice Regarding Disclosure About Critical Accounting Policies" ("FRR 60");
suggesting companies provide additional disclosure and commentary on their most
critical accounting policies. In FRR 60, the SEC defined the most critical
accounting policies as the ones that are most important to the portrayal of a
company's financial condition and operating results, and require management to
make its most difficult and subjective judgments, often as a result of the need
to make estimates of matters that are inherently uncertain. Based on this
definition, the Company's most critical accounting policies include: (a) the use
of estimates; (b) valuation of investments; and (c) concentrations of credit
risk. The methods, estimates and judgments the Company uses in applying these
most critical accounting policies have a significant impact on the results
reported in its financial statements.
(a) USE OF ESTIMATES.
The preparation of these financial statements requires the Company to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate these estimates, including
those related to revenue recognition and concentration of credit risk. We base
31
our estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
(b) VALUATION OF INVESTMENTS.
We determine the value of each investment in our portfolio on a quarterly
basis, and changes in value result in unrealized appreciation or depreciation
being recognized. At September 30, 2005, approximately 100% of our net assets
represented investments recorded at fair value. Value, as defined in Section
2(a)(41) of the 1940 Act, is (i) the market price for those securities for which
a market quotation is readily available and (ii) for all other securities and
assets, fair value is as determined in good faith by the board of directors. Our
board of directors is required to fair value price such securities if the
validity of the market quotations appears to be questionable, or if the number
of quotations is such as to indicate that there is a thin market in the
security. Since there is no readily available market value for the investments
in our portfolio, we value all of our investments at fair value as determined in
good faith by the board of directors. In making its determination, our board of
directors may consider valuation appraisals provided by independent valuation
service providers. Because of the inherent uncertainty of determining the fair
value of investments that do not have a readily available market value, the fair
value of our investments determined in good faith by the Board of Directors may
differ significantly from the values that would have been used had a ready
market existed for the investments, and the differences could be material.
(c) CONCENTRATIONS OF CREDIT RISK.
Financial instruments that potentially subject the Company to
concentrations of credit risk include cash and accounts receivable. The Company
maintains its cash funds in bank certificates of deposit or as bank deposits in
highly rated credit institutions. At times, such investments may be in excess of
the Federal Deposit Insurance Corporation insurance limit. At September 30,
2005, there are no funds that are uninsured.
The Company's customers are located in the United States. The Company
provides an allowance for losses on trade receivables based on a review of the
current status of existing receivables and management's evaluation of periodic
aging of accounts. The Company charges off accounts receivable against the
allowance for losses when an account is deemed to be uncollectible. It is not
the Company's policy to accrue interest on past due receivables.
FORWARD LOOKING STATEMENTS.
Information in this Form 10-Q contains "forward looking statements"
within the meaning of Rule 175 of the Securities Act of 1933, as amended, and
Rule 3b-6 of the Securities Act of 1934, as amended. When used in this Form
10-Q, the words "expects," "anticipates," "believes," "plans," "will" and
similar expressions are intended to identify forward-looking statements. These
are statements that relate to future periods and include, but are not limited
to, statements regarding the Company's adequacy of cash, expectations regarding
net losses and cash flow, statements regarding our growth, our need for future
financing, our dependence on personnel, and our operating expenses.
32
Forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
projected. These risks and uncertainties include, but are not limited to, those
discussed above, and the risks set forth under "Factors That May Affect
Operating Results." These forward-looking statements speak only as of the date
hereof. The Company expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements contained
herein to reflect any change in its expectations with regard thereto or any
change in events, conditions or circumstances on which any such statement is
based.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 4. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
The Company maintains disclosure controls and procedures (as defined in
Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as
amended) that are designed to ensure that information required to be disclosed
in our periodic reports filed under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms, and that such information is accumulated and communicated to our
management, including our principal executive/financial officer, to allow timely
decisions regarding required disclosure.
As of the end of the period covered by this report, our management
carried out an evaluation, under the supervision and with the participation of
our principal executive/financial officer, of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange
Act). Based upon the evaluation, our principal executive/financial officer
concluded that our disclosure controls and procedures were effective at a
reasonable assurance level to ensure that information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
SEC's rules and forms. In addition, he concluded that the Company's disclosure
controls and procedures were effective at a reasonable assurance level to ensure
that information required to be disclosed in the reports that the Company files
or submits under the Exchange Act is accumulated and communicated to the
Company's management, including its principal executive/financial officer, to
allow timely decisions regarding required disclosure.
33
Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, will be or have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, and/or by management override of
the control. The design of any system of controls also is based in part upon
certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions; over time, controls may become inadequate because
of changes in conditions, and/or the degree of compliance with the policies and
procedures may deteriorate. Because of the inherent limitations in a
cost-effective internal control system, misstatements due to error or fraud may
occur and not be detected.
CHANGES IN CONTROLS AND PROCEDURES.
On August 19, 2005, the Company hired a full time chief financial
officer. During the quarter ended September 30, 2005, there was no other changes
in our disclosure controls and procedures, or our internal controls over
financial reporting (as defined in Rule 13a-15(f) of the Exchange act), or in
other factors that could affect these controls during our last fiscal quarter
that has materially affected, or is reasonably likely to materially affect,
these controls.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is not party to any material pending legal proceedings,
claims or assessments and, to the best of its knowledge, no such action by or
against the Company has been threatened.
On June 15, 2005, the Company received a summons from third parties
seeking damages against a former employee of the Company for breach of a
residential lease and damage to a residential property in 2001. The claim
against the Company filed in New York Supreme Court (Chenango County) alleges
that the former employee was a principal in Wireless ThinkTank (a wholly owned
subsidiary of 5G Wireless Communications, Inc.) and conducted business from such
residence.
Management believes the Company has meritorious claims and defenses to
the plaintiffs' claims and ultimately will prevail on the merits. However, this
matter remains in the early stages of litigation and there can be no assurance
as to the outcome of the lawsuit. Litigation is subject to inherent
uncertainties, and unfavorable rulings could occur. Were unfavorable rulings to
occur, there exists the possibility of a material adverse impact of money
damages on the Company's financial condition, results of operations, or
liquidity of the period in which the ruling occurs, or future periods. The
Company has made a full and final settlement offer in the amount of $2,500 which
has been provisionally accepted by the plaintiff.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the quarter ended on September 30, 2005, all sales of
unregistered (restricted) securities have previously been reported in a Form
8-K. There have been no purchases of common stock of the Company by the Company
or its affiliates during the three months ended September 30, 2005.
34
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On October 20, 2005, the annual shareholders meeting of the Company was
held at its executive offices in Marina del Rey, California. At that meeting, at
which a quorum was present in person or by proxy, the following items were
submitted for approval:
ELECTION OF THE BOARD OF DIRECTORS.
The following individuals were elected to serve as directors of the
Company:
(a) Jerry Dix: 505,155,989 votes in favor and 0 votes withheld.
(b) Don Boudewyn: 505,455,989 votes in favor and 0 votes withheld.
(c) Phil E. Pearce: 505,165,989 votes in favor and 0 votes withheld.
(d) Stanley A. Hirschman: 505,165,989 votes in favor and 0 votes
withheld.
(e) Murray H. Williams: 505,165,689 votes in favor and 0 votes
withheld.
(f) Kirk Haney: 505,161,089 votes in favor and 0 votes withheld.
APPOINTMENT OF AUDITORS.
The decision by the Company's Audit Committee to retain Squar, Milner,
Reehl & Williamson, LLP as the Company's independent registered accounting firm
for the fiscal year that commenced on January 1, 2005 was approved: 436,403,237
votes in favor, 408,000 votes against, and 827,800 votes abstaining.
TERMINATION OF STATUS AS A BDC AND FILING OF FORM N-54C.
The termination of the Company's status as a BDC under the 1940 Act,
and the filing of a Form N-54C with the SEC, was approved: 505,532,839 votes in
favor, 330,850 votes against, and 512,100 votes abstaining.
FILING OF A NEW REGISTRATION STATEMENT.
The filing by the Company with the SEC of a new registration statement
was approved: 505,695,689 votes in favor, 308,000 votes against, and 272,100
votes abstaining.
35
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
Exhibits included or incorporated by reference herein are set forth in
the attached Exhibit Index.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
5G WIRELESS COMMUNICATIONS, INC.
Dated: November 14, 2005 By: /s/ Jerry Dix
----------------------
Jerry Dix
Chief Executive Officer
Dated: November 14, 2005 By: /s/ Lawrence C. Early
----------------------
Lawrence C. Early,
Chief Financial Officer
36
EXHIBIT INDEX
Number Description
- ------ -----------
1 Agency Agreement between the Company and May Davis Group, Inc.,
dated April 1, 2003 (incorporated by reference to Exhibit 1 of the
Form 10-QSB/A filed on November 17, 2003).
2.1 Agreement and Plan of Reorganization and Merger between Tesmark,
Inc., an Idaho corporation, and the Company (formerly know as
Tesmark, Inc.), a Nevada corporation, dated November 14, 1998
(incorporated by reference to Exhibit 2 of the Form 10-SB filed on
December 15, 1999).
2.2 Acquisition Agreement between the Company, and Richard Lejeunesse,
Curtis Mearns, and Don Boudewyn, a partnership (known as 5G
Partners), dated December 15, 2000, as amended (incorporated by
reference to Exhibit 10 of the Form 8-K filed on February 14,
2001).
2.3 Share Purchase Agreement between the Company, and Sea Union
Industries Pte. Ltd., Richard Lajeunesse, Rita Chou, Peter Chen,
Yeo Lai Ann, Tan Lam Im, Choa So Chin, Tan Ching Khoon, Tan Sek
Toh, and 5G Wireless Communication Pte. Inc. (formerly known as
Peteson Investment Pte Ltd.), dated May 5, 2001 (incorporated by
reference to Exhibit 2 of the Form 8-K filed on June 5, 2001).
2.4 Purchase Agreement between the Company and Skyhub Asia Holdings
Limited, eVision USA.com, and eBanker USA.com, dated May 19, 2001
(incorporated by reference to Exhibit 2.4 of the Form 10-KSB filed
on April 18, 2002).
2.5 Definitive Acquisition Agreement between the Company and Wireless
Think Tank, dated April 30, 2002 (incorporated by reference to
Exhibit 2 of the Form 8-K filed on August 13, 2002).
3.1 Articles of Incorporation, dated September 24, 1998 (incorporated
by reference to Exhibit 3 of the Form 10-SB filed on December 15,
1999).
3.2 Certificate of Amendment to Articles of Incorporation, dated May
5, 2000 (incorporated by reference to Exhibit 3.3 of the Form SB-2
filed on January 10, 2002).
3.3 Certificate of Amendment to Articles of Incorporation, dated
January 19, 2001 (incorporated by reference to Exhibit 3.1 of the
Form 8-K filed on February 14, 2001).
37
3.4 Certificate of Amendment to Articles of Incorporation, dated
January 21, 2003 (incorporated by reference to Exhibit 3.4 of the
Form 10-KSB filed on May 8, 2003).
3.5 Certificate of Amendment to Articles of Incorporation, dated
September 16, 2004 (incorporated by reference to Exhibit 3.1 of
the Form 8-K filed on September 22, 2004).
3.6 Certificate of Correction, dated September 20, 2004 (incorporated
by reference to Exhibit 3.2 of the Form 8-K filed on September 22,
2004).
3.7 Bylaws, dated September 25, 2002 (incorporated by reference to
Exhibit 3.5 of the Form 10-KSB filed on May 8, 2003).
4.1 2001 Stock Incentive Plan, dated November 1, 2001 (incorporated by
reference to Exhibit 10 of the Form S-8 filed on December 14,
2001).
4.2 Non-Employee Directors and Consultants Retainer Stock Plan, dated
January 30, 2002 (incorporated by reference to Exhibit 4.1 of the
Form S-8 filed on January 31, 2002).
4.3 Amended and Restated Stock Incentive Plan, dated January 30, 2002
(incorporated by reference to Exhibit 4.2 of the Form S-8 filed on
January 31, 2002).
4.4 Form of Subscription Agreement Between the Company and investors,
dated February 12, 2002 (including the following exhibits: Exhibit
A: Form of Notice of Conversion; Exhibit B: Form of Registration
Rights Agreement; Exhibit C: Form of Debenture; and Exhibit D:
Form of Opinion of Company's Counsel) (the following to this
agreement have been omitted: Exhibit E: Board Resolution; Schedule
3(A): Subsidiaries; Schedule 3(C): Capitalization; Schedule 3(E):
Conflicts; Schedule 3(G): Material Changes; Schedule 3(H):
Litigation; Schedule 3(L): Intellectual Property; Schedule 3(N):
Liens; and Schedule 3(T): Certain Transactions) (incorporated by
reference to Exhibit 4.4 of the Form 10-QSB filed on May 20,
2002).
4.5 Escrow Agreement between the Company, First Union Bank, and May
Davis Group, Inc., dated February 12, 2002 (incorporated by
reference to Exhibit 4.5 of the Form 10-QSB filed on May 20,
2002).
4.6 Form of Escrow Agreement between the Company, Joseph B. LaRocco,
Esq., and investors, dated February 12, 2002 (incorporated by
reference to Exhibit 4.6 of the Form 10-QSB filed on May 20,
2002).
38
4.7 Security Agreement (Stock Pledge) between the Company and
investors, dated February 12, 2002 (incorporated by reference to
Exhibit 4.7 of the Form 10-QSB filed on May 20, 2002).
4.8 Amended and Restated Non-Employee Directors and Consultants
Retainer Stock Plan, dated June 1, 2003 (incorporated by reference
to Exhibit 4 of the Form S-8 POS filed on June 26, 2003).
4.9 Form of Subscription Agreement Between the Company and investors
(including the following exhibits: Exhibit A: Form of Debenture ;
Exhibit B: Form of Notice of Conversion; Exhibit C: Form of
Opinion; and Exhibit D: Subscription Procedures) (the following
schedules have been omitted: Schedule 3(a): Subsidiaries; Schedule
3(c): Capitalization; Schedule 3(e): Conflicts; Schedule 3(g):
Material Changes; Schedule 3(h): Litigation; Schedule 3(l):
Intellectual Property; Schedule 3(n): Liens; and Schedule 3(t):
Certain Transactions) (incorporated by reference to Exhibit 4.9 of
the Form 10-QSB/A filed on November 17, 2003).
4.10 Form of Subordinated, Convertible Note and Warrants Agreement
between the Company and investors (including the following
exhibits: Exhibit A: Form of Convertible Subordinated Promissory
Note; and Exhibit B: Form of Warrant Agreement) (incorporated by
reference to Exhibit 4.10 of the Form 10-QSB filed on November 24,
2003)
4.11 Form of Promissory Note issued by the Company to investors, dated
March 4, 2004 (incorporated by reference to Exhibit 4.1 of the
Form 10-QSB/A filed on May 28, 2004).
4.12 Form of Note Purchase Agreement between the Company and investors,
dated March 4, 2004 (incorporated by reference to Exhibit 4.2 of
the Form 10-QSB/A filed on May 28, 2004).
4.13 Form of Warrant issued by the Company to investors, dated March 4,
2004 (incorporated by reference to Exhibit 4.3 of the Form
10-QSB/A filed on May 28, 2004).
4.14 2004 Non-Employee Directors and Consultants Retainer Stock Plan,
dated June 8, 2004 (incorporated by reference to Exhibit 4 of the
Form S-8 filed on June 21, 2004).
4.15 Subscription Agreement between the Company, on the one hand, and
Longview Fund, LP, Longview Equity Fund, LP, and Longview
International Equity Fund, LP, on the other hand, dated September
22, 2004, and Form of Convertible Note (including the following
items: Exhibit A1: Form of Class A Warrant; Exhibit A2: Form of
39
Class B Warrant; Exhibit B: Funds Escrow Agreement; Exhibit E:
Shares Escrow Agreement; Exhibit F: Form of Limited Standstill
Agreement; Exhibit G: Security Agreement; and Exhibit H:
Collateral Agent Agreement) (not including the following items:
Attachment 1: Disclosure Schedule; Exhibit C: Form of Legal
Opinion; Exhibit D: Form of Public Announcement on Form 8-K;
Schedule 5(d): Additional Issuances; Schedule 5(q): Undisclosed
Liabilities; Schedule 5(s): Capitalization; Schedule 9(e) Use of
Proceeds; Schedule 9(q): Limited Standstill Providers; and
Schedule 11.1: Other Securities to be Registered) (incorporated by
reference to Exhibit 4 of the Form 8-K filed on September 30,
2004).
4.16 Form of Common Stock Purchase Warrant issued by the Company in
favor of Pole Star Communications, Inc., dated November 1, 2004
(incorporated by reference to Exhibit 4 of the Form 8-K filed on
November 12, 2004).
4.17 Certificate of Designation of Series A Convertible Preferred
Stock, dated October 5, 2004 (incorporated by reference to Exhibit
4.17 of the Form 10-KSB filed on March 31, 2005).
4.18 Subscription Agreement between 5G Wireless Communications, Inc.,
on the one hand, and Longview Fund, LP, Longview Equity Fund, LP,
and Longview International Equity Fund, LP, on the other hand,
dated March 22, 2005 (including the following items: Exhibit A:
Form of Class A Warrant; Exhibit B: Funds Escrow Agreement;
Exhibit C: Security Agreement; Exhibit D: Collateral Agent
Agreement; and Exhibit G: Form of Limited Standstill Agreement)
(not including the following items: Attachment 1: Disclosure
Schedule; Exhibit E: Legal Opinion; Exhibit F: Form of Public
Announcement or Form 8-K; Schedule 5(d): Additional
Issuances/Capitalization; Schedule 5(q): Undisclosed Liabilities;
Schedule 5(x): Subsidiaries; Schedule 9(e) Use of Proceeds; and
Schedule 9(p): Limited Standstill Providers) (incorporated by
reference to Exhibit 4.1 of the Form 8-K filed on March 31, 2005).
4.19 Form of Secured Convertible Note between 5G Wireless
Communications, Inc., on the one hand, and Holders on the other
hand, dated March 22, 2005 (incorporated by reference to Exhibit
4.3 of the Form 8-K filed on March 31, 2005).
4.20 Subscription Agreement between 5G Wireless Communications, Inc.,
on the one hand, and Longview Fund, LP, Longview Equity Fund, LP,
and Longview International Equity Fund, LP, on the other hand,
dated July 20, 2005 (including the following items: Exhibit A1:
Form of Note; Exhibit A2: Form of Class A Warrant; Exhibit B:
Funds Escrow Agreement; Exhibit D: Transfer Agent Instructions;
40
Exhibit F: Form of Limited Standstill Agreement) (not including
the following items: Exhibit C: Form of Legal Opinion; Exhibit E
Form of Public Announcement; Schedule 4(a): Subsidiaries; Schedule
4(d): Additional Issuances/Capitalization; Schedule 4(q):
Undisclosed Liabilities; Schedule 4(u): Disagreements of
Accountants and Lawyers; Schedule 8(e) Use of Proceeds; and
Schedule 8(q): Providers of Limited Standstill Agreements)
(incorporated by reference to Exhibit 4 of the Form 8-K filed on
July 25, 2005).
4.21 Modification and Amendment Agreement, dated July 26, 2005
(incorporated by reference to Exhibit 4.2 of the Form 8-K/A filed
on August 3, 2005).
10.1 Employment Agreement between the Company and Jerry Dix, dated
February 1, 2002 (incorporated by reference to Exhibit 10.12 of
the Form 10-KSB filed on April 18, 2002).
10.2 Employment Agreement between the Company and Don Boudewyn, dated
February 1, 2002 (incorporated by reference to Exhibit 10.13 of
the Form 10-KSB filed on April 18, 2002).
10.3 Employment Agreement Amendment between the Company and Don
Boudewyn, dated April 1, 2002 (incorporated by reference to
Exhibit 10.17 of the Form 10-KSB filed on April 18, 2002).
10.4 Executive Employment Agreement between the Company and Peter
Trepp, dated July 4, 2003 (including Exhibit A: Employee
Proprietary Information and Inventions Agreement) (the following
exhibits have been omitted: Exhibit A - Schedule A: Employee's
Disclosure; and Exhibit A - Schedule B: Termination Certificate
Concerning 5G Wireless Communications, Inc. Proprietary
Information (incorporated by reference to Exhibit 10 of the Form
10-QSB filed on November 24, 2003).
10.5 Independent Consulting Agreement between the Company and Ghillie
Finaz, AG, dated September 22, 2004 (incorporated by reference to
Exhibit 10 of the Form 8-K filed on September 30, 2004).
10.6 Form of agreement between the Company and its independent
directors (incorporated by reference to Exhibit 10.2 of the Form
10-QSB filed on November 17, 2004).
10.7 Contribution Agreement between the Company and 5G Wireless
Solutions, Inc. (the following to this agreement have been
omitted: Schedule 1: List of Assets; and Schedule 2: List of
Liabilities), dated December 31, 2004 (incorporated by reference
to Exhibit 10 of the Form 8-K filed on January 7, 2005).
14 Code of Ethics, dated October 5, 2004 (incorporated by reference
to Exhibit 14 of the Form 10-KSB filed on March 31, 2005).
16.1 Letter on Change in Certifying Accountant (incorporated by
reference to Exhibit 16 of the Form 8-K/A filed on August 28,
2003).
41
16.2 Letter on Change in Certifying Accountant (incorporated by
reference to Exhibit 16 of the Form 8-K/A filed on September 30,
2004).
21 Subsidiaries of the Company (incorporated by reference to Exhibit
21 of the Form 10-QSB filed on August 27, 2002).
31.1 Rule 13a-14(a)/15d-14(a) Certification of Jerry Dix (filed
herewith).
31.2 Rule 13a-14(a)/15d-14(a) Certification of Lawrence C. Early (filed
herewith).
32 Section 1350 Certification of Jerry Dix and Lawrence C. Early
(filed herewith).
99.1 Patent Application, dated March 28, 2002 (incorporated by
reference to Exhibit 99.2 of the Form 10-KSB filed on May 8,
2003).
99.2 Text of Press Release Issued by the Company, dated September 29,
2004 (incorporated by reference to Exhibit 99.1 of the Form 8-K
filed on September 30, 2004).
99.3 Text of Press Release Issued by the Company, dated September 30,
2004 (incorporated by reference to Exhibit 99.2 of the Form 8-K
filed on September 30, 2004).
99.4 Text of Press Release Issued by the Company, dated October 5, 2004
(incorporated by reference to Exhibit 99 of the Form 8-K filed on
October 8, 2004).
99.5 Text of Press Release Issued by the Company dated October 28, 2004
(incorporated by reference to Exhibit 99 of the Form 8-K filed on
November 3, 2004).
42