UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A
(Amendment 1)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 30, 1998
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: 000-20865
e-Net, Inc.
(Exact name of registrant as specified in its charter)
Delaware 52-1929282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12800 Middlebrook Road, Suite 200, Germantown, MD 20874
(Address of principal executive offices) (Zip Code)
(301) 601-8700
(Issuer's telephone number, including area code)
Not Applicable
(Former name, former address and former
fiscal year, if changed since
last report.)
Check whether the issuer (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
periods that the registrant was required to file such
reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES __X___ NO ______
The Number Of Shares Of The Regristrant's Common Stock,
$.01 Par Value Per Share, Outstanding As Of
October 26, 1998 Was 8,269,924.
Transitional Small Business Disclosure Format (check one):
Yes ____ No __X___
The Exhibit Index Appears in Sequentially Numbered Page N/A
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ITEM 2. MANAGEMENT'S DISCUSSION OR PLAN OF OPERATION.
This information should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
consolidated financial statements and notes thereto contained in the Company's
Annual Report on Form 10-KSB for the fiscal year ended March 31, 1998.
RESULTS OF OPERATIONS
SECOND QUARTER ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
SALES
Sales for the second quarter ended September 30, 1998 were
approximately $317,200, an increase of 153% over the approximately $125,500
recorded for the corresponding quarter of 1997. The revenue increase was due
primarily to the availability of the Company's T2000 product line. The services
sales for the quarter ended September 30, 1998, were primarily from two
customers.
GROSS PROFIT
Gross profits for the second quarter ended September 30, 1998 were
approximately $187,400 or 59% of sales, compared to the approximately $53,400 or
43% of sales for the corresponding quarter of 1997. The gross profit percentage
increase was primarily due to the completion of several milestones associated
with development services contracts. The gross profit for product sales for the
second quarter ended September 30, 1998 was approximately 37% of sales, compared
to the approximately 46% of sales for the corresponding quarter of 1997. The
gross profit percentage decrease for product sales was due primarily to an
increase of the amortization of capitalized software costs in the quarter.
OPERATING EXPENSES
Selling, general & administrative expenses for the second quarter ended
September 30, 1998, were approximately $1,609,100, an increase of 201% over the
approximately $533,700 recorded for the corresponding quarter of 1997. The
dollar increase in these expenses over the prior year reflected additional
spending for personnel and programs consistent with the Company's emphasis on
the T2000 product line. The increased spending level in the second quarter of
1998 also reflected higher spending for programs and promotions needed to
generate and support product roll-out of, as well as substantial marketing
expenditures made in connection with the general availability of, the Company's
T2000 product line.
Research & development expenses for the second quarter ended September
30, 1998, were approximately $718,900, a 199% increase over the approximately
$240,200 recorded for the corresponding quarter of 1997. The increased
expenditures for research and development are due to the increase in number of
employees and other expenditures devoted to the general development of the
Company's technology products.
OTHER INCOME (EXPENSE)
Other income (expense) for the second quarter ended September 30, 1998,
was approximately $106,400, an increase over the approximately $19,300 recorded
for the corresponding quarter of 1997. In the second quarter ended September 30,
1998, the Company's other income and expenses included interest income earned on
investments in marketable securities, which were significantly larger than the
investments in the corresponding quarter in 1997.
SIX MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
SALES
Sales for the six months ended September 30, 1998 were approximately
$750,500, an increase of 251% from the approximately $213,500 recorded for the
corresponding six months of 1997. The revenue increase was due primarily to the
availability of the Company's T2000 product line. The services sales for the six
months ended September 30, 1998, were primarily from two customers.
GROSS PROFIT
Gross profits for the six months ended September 30, 1998 were
approximately $387,100 or 52% of sales, compared to the approximately $102,900
or 48% of sales for the corresponding quarter of 1997. The gross profit
percentage increase was primarily due to the completion of several milestones
associated with development services contracts. The gross profit for product
sales for the six months ended September 30, 1998 were approximately 37% of
sales, compared to the approximately 46% of sales for the corresponding six
months of 1997. The gross profit percentage decrease for product sales was due
primarily to an increase of the amortization of capitalized software costs in
the period.
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OPERATING EXPENSES
Selling, general & administrative expenses for the six months ended
September 30, 1998, were approximately $3,141,900, an increase of 168% over the
approximately $1,172,300 recorded for the corresponding six months of 1997. The
dollar increase in these expenses over the prior year reflected additional
spending for personnel and programs consistent with the Company's emphasis on
the T2000 product line. The increased spending level in the six months of 1998
also reflected higher spending for programs and promotions needed to generate
and support product roll-out of, as well as substantial marketing expenditures
made in connection with the general availability of, the Company's T2000 product
line.
Research & development expenses for the six months ended September 30,
1998, were approximately $1,273,700, a 384% increase over the approximately
$263,200 recorded for the corresponding six months of 1997. The increased
expenditures for research and development are due to the increase in number of
employees and other expenditures devoted to the general development of the
Company's technology products.
OTHER INCOME (EXPENSE)
Other income (expense) for the six months ended September 30, 1998, was
approximately $115,200, an increase over the approximately $44,100 recorded for
the corresponding period of 1997. In the six months ended September 30, 1998,
the Company's other income and expenses included interest income earned on
investments in marketable securities, which were significantly larger than the
investments in the corresponding period in 1997.
OTHER
IMPACT OF INFLATION
The Company does not believe that inflation has had a material adverse
effect on sales or income during the past several years. Increases in supplies
or other operating costs may adversely affect the Company's operations; however,
the Company believes it may increase prices of its products and systems to
offset increases in costs of goods sold or other operating costs.
SEASONALITY
Based on its experience to date, the Company believes that its future
operating results may be subject to quarterly variations based on a variety of
factors, including seasonal changes in the weather. Such effects may not be
apparent in the Company's operating results during a period of expansion.
However, the Company can make no assurances that its business can be
significantly expanded under any circumstances.
LIQUIDITY AND CAPITAL RESOURCES
In the six months ended September 30, 1998, the Company received net
proceeds of approximately $5,100,000 from a private placement of the Company's
common stock and net proceeds of approximately $9,000,000 from the exercise of
the Company's common stock warrants. The Company also renewed a $1,000,000 one
year credit facility that is secured by investments, receivables and inventory.
The Company used approximately $(3,707,000) in cash flows from operating
activities, excluding changes in assets and liabilities, during the first six
months ended September 30, 1998, compared to approximately $(1,220,000) for the
corresponding quarter of 1997. The increase in cash flows used in operating
activities excluding changes in assets and liabilities was mainly due to the
increase in selling, general and administrative expenses and research and
development expenses discussed above. The total net cash used by operating
activities was approximately $(4,292,000) for the six months ended September 30,
1998, compared to approximately $(1,592,000) for the corresponding quarter of
1997.
Cash used by investing activities totalled approximately $3,287,000 for
the six months ended September 30, 1998 as compared to approximately $3,357,000
for the corresponding period of 1997. The main component of that investing
activity was the investment in short-term securities of approximately
$2,994,000, as well as continued expenditures for property and equipment of
approximately $263,000.
Cash provided by financing activities totalled approximately
$14,316,000 compared to approximately $5,881,000 for the corresponding period of
1997. The Company successfully completed a private placement in April 1998 that
yielded net proceeds of approximately $5,100,000, and exercises of the Company's
common stock warrants prior to their redemption in June 1998 yielded net
proceeds of approximately $9,000,000. The Company has access to a $1,000,000
credit line secured by investments, inventory and receivables, but did not
borrow against that line of credit during the first quarter ended June 30, 1998.
The Company expects to continue to make significant investments in the
future to support its overall growth. Currently, it is anticipated that ongoing
operations will be financed primarily from net proceeds of the private
placement, warrant exercise, the line of credit facility, and from internally
generated funds. The Company presently has a line of credit, investments, and
cash and cash equivalents on hand
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and believes that these will be sufficient to meet cash requirements as needed.
However, as indicated in the Company's most recent Annual Report on Form 10-KSB,
as amended, while operating activities may provide cash in certain periods, to
the extent the Company experiences growth in the future, the Company anticipates
that its operating and product development activities may use cash and
consequently, such growth may require the Company to obtain additional sources
of financing. There can be no assurances that unforeseen events may not require
more working capital than the Company currently has at its disposal.
FUTURE OPERATING RESULTS
The preceding paragraphs and the following discussion include
forward-looking statements regarding the Company's future financial position and
results of operations. Actual financial position and results of operations may
differ materially from these statements. All such statements are qualified by
the cautionary statements set forth in Part I, Item 1 of the Company's most
recent Annual Report on form 10-KSB, as amended, under "Forward Looking and
Cautionary Statements," as well as the following statements.
The Company has invested significant amounts in the research and
development and the initial product roll-out marketing and selling for the
Telecom 2000 product line. The emphasis, attention, and dedication of Company's
limited resources for the Telecom 2000 product line have caused and, in
management's view, will continue to cause negative operating results. However,
the Company believes that the value and sales potential of the Telecom 2000
product line outweighs the risk of continued operating losses.
The first products of the Telecom 2000 product line became generally
available during the second quarter of fiscal 1998 and the Company believes that
revenues will continue to grow as contracts are finalized and products are
delivered over fiscal 1999. The protracted process of obtaining governmental
regulatory approval of products (i.e. Federal Communications Commission product
certification) and the hiring of senior telecommunications sales and technical
staff in the current low-unemployment-rate economy have caused, and may continue
to cause, an effect on the delivery of the Company's products to market. To date
the Company has received all regulatory approvals that it has sought, and has
been able to hire senior telecommunications sales and technical staff, although
no assurance can be given to such results in the future.
The Company does not expect revenue growth to occur ratably over the
1999 and 2000 fiscal years; instead, the Company expects that the major impact
of the Telecom 2000 product introduction on revenues and earnings will occur
during fiscal 1999. Revenue growth in fiscal 1999 will depend to a large extent
on the timing of the Company's rollout for products in the Telecom 2000 product
line.
Because of the foregoing uncertainties affecting the Company's future
operating results, past performance should not be considered to be a reliable
indicator of future performance. The use of historical trends to anticipate
results or trends in future periods may be inappropriate. In addition, the
Company's participation in a highly dynamic industry may result in significant
volatility in the price of the Company's common stock.
YEAR 2000 MATTERS
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year, consequently,
in the year 2000 those systems may be unable to accurately process certain
date-based information. The Company potentially could be affected by this issue
through the internal computer applications on which it relies, as well as the
software that it develops and sells. The Company is in process of reviewing all
of its significant third party applications and obtaining documentation from the
manufacturers that certify Year 2000 compliance or provide appropriate
assurances of future compliance. The Company also is in process of examining the
architecture of its products, as well as documentation on the third party
components that are integrated into the Company's software products. The Company
believes, although at this stage no assurance can be given, that its products
already are Year 2000 compliant. The Company also is implementing a test plan,
both for third party-supplied internal applications and for its developed or
integrated program products, to validate the results of its initial review.
The Company's testing plan for the computer programs acquired from
third parties and used internally for the Company's infrastructure (financial,
administration, internal data communications, and the like) was completed by
December 31, 1998. The results of this testing and internal systems review
indicate that either (1) no program-based outages or significant system
degradation arising from Year 2000 is expected regarding the programs, or any
such issues are covered by suppliers' warranties; or (2) the programs are
supplied by major manufacturers (Microsoft Corporation, Intel Corporation, and
the like) for whom no viable alternative suppliers exist. For programs without
viable alternatives, there is no contingency plan available to the Company;
however, the Company's Year 2000 performance issues under these programs will
not be significantly different from problems which users of those programs
generally experience, and users of those programs represent a significant number
of all business computer program users. The costs of testing and reviewing third
party-supplied internal applications has been relatively nominal, and
principally related to the Company's on-staff Operations organization reviewing
third party documentation, examining program performance under test scenarios,
and querying third party vendor technical points of contact about Year 2000
compliance.
The Company's testing plan for its own products, both those developed
by the Company and those that integrate third party products, is still underway
and is due to be completed by June 30, 1999. Should the Company find any items
that are not Year 2000 compliant in the course of its testing, the Company will
endeavor to take the necessary actions to correct the matter, and will endeavor
to develop a contingency plan by June 30. The costs of any such remediation
effort are unknown at this time; however, the Company anticipates that this
testing activity and associated costs will
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be borne internally within the Company's Quality Assurance organization, and
that this remediation activity and associated costs will be borne internally
within the Company's Product Development organization.
At this time, the Company does not anticipate that Year 2000 compliance
activities will have a material effect on the its business, product development,
financial position or results of operations. However, there can be no assurance
that the Company's systems and products are Year 2000 compliant until the
successful completion of its testing procedures. Additionally, despite the
testing and review undertaken by the Company, there can be no assurance that the
systems of other companies on which the Company relies will be Year 2000
compliant. Either of these unfavorable results could result in a material
adverse effect on the Company's business, financial condition and results of
operations.
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SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
e-Net, Inc.
(Registrant)
DATE: January 29, 1998 /s/ Donald J. Shoff
----------------------------------
Donald J. Shoff
Vice President and Chief Financial Officer
(Principal Financial Officer)
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