As we have not generated positive cash flow from operations for the past three
fiscal years, our ability to continue operations is dependent on our ability to
either begin to generate positive cash flow from operations or our ability to
raise capital from outside sources.
We have not generated positive cash flow from operations during the last
three fiscal years and we currently rely on external sources of capital to fund
operations. At August 31, 2004, we had approximately $2,602,000 in cash, cash
equivalents and securities available for sale, and a working capital deficit of
approximately $15,272,000. Our net cash used by operations for the year ended
August 31, 2004, was approximately $3,493,000.
We believe our current cash position and expected cash flow from operations
will be sufficient to fund operations during the current fiscal year.
Thereafter, we will need to raise additional funding unless our operations
generate sufficient cash flows to fund operations. Historically, we have relied
upon best efforts third-party funding from individual accredited investors.
Though we have been successful at raising additional capital on a best efforts
basis in the past, we may not be successful in any future best efforts financing
efforts. We do not have any significant credit facilities or firm financial
commitments established as of the date hereof. If we are unable to either obtain
financing from external sources or generate internal liquidity from operations,
we may need to curtail operations or sell assets.
We have been named a defendant in several lawsuits, which if determined
adversely, could harm our ability to fund operations.
Eagle Broadband and its subsidiaries have been named defendants in several
lawsuits in which plaintiffs are seeking substantial damages, which may include
any of the following lawsuits:
o Enron Corp. vs. United Computing Group, Inc. In September 2003, Enron
sued United Computing Group seeking to avoid and recover a transfer in
the amount of approximately $1,500,000 under Section 547 and 550 of
the Bankruptcy Code.
o Cornell Capital Partners, LP. vs. Eagle Broadband. In July 2003,
Cornell Capital sued Eagle Broadband alleging breach of contract,
fraud and negligent misrepresentation. As of November 30, 2003, the
principal balance of the debenture was approximately $1.2 million and
was repaid, although the suit remains outstanding. We have filed a
counter-claim against Cornell Capital seeking in excess of $2 million.
o The Tail Wind Fund, Ltd. v. Eagle Broadband and Link Two
Communications. In June 2004, the Tail Wind Fund sued Eagle asserting
a breach of contract claim in the amount of approximately $25 million.
o Palisades Master Fund L.P. vs. Eagle Broadband, Inc. In November 2004,
Palisades sued Eagle claiming in excess of $3,100,000 in damages.
We intend to vigorously defend these and other lawsuits and claims against
us. However, we cannot predict the outcome of these lawsuits, as well as other
legal proceedings and claims with certainty. An adverse resolution of any one
pending lawsuit could substantially harm our ability to fund operations.
Our revenues may decrease if recurring-revenue contracts and security monitoring
contracts are cancelled.
For the twelve months ended August 31, 2004 and 2003, approximately 44% and
24%, respectively, of our revenue was generated by recurring-revenue contracts
with Eagle Broadband Services and our security monitoring contracts with DSS
Security. Although to date we have not experienced any significant interruptions
or problems in our broadband or security services, any defects or errors in our
services or any failure to meet customers' expectations could result in the
cancellation of services, the refund of customers' money, or the requirement
that we provide additional services to a client at no charge. Any of these
events, could reduce the revenues or the margins associated with this revenue
segment.
3
We rely heavily on third-party suppliers for the material components for our
products and supply shortages could cause delays in manufacturing and delivering
products which could reduce our revenues.
We rely upon unaffiliated suppliers for the material components and parts
used to assemble our products. Most parts and components purchased from
suppliers are available from multiple sources. We have not experienced
significant supply shortages in the past and we believe that we will be able to
continue to obtain most required components and parts from a number of different
suppliers. However, the lack of availability of certain components could require
a major redesign of our products and could result in production and delivery
delays, which could reduce our revenues and impair our ability to operate
profitably.
I'm out.