UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(MARK ONE)
[ ] 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
[ X ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from July 1, 1998 to September 30, 1998
------------ ------------------
Commission file number 000-21659
EDnet, INC.
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Colorado 84-1273795
- ---------------------------------- ---------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Union Street, San Francisco, California 94111
------------------------------------------- --------
Address of principal executive offices (Zip Code)
(415) 274-8800
----------------------------------------------
Issuer's telephone number, including area code
Whether the issuer (1) filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period 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 ( ).
Number of shares outstanding of the issuer's common stock as of
September 30, 1998: 16,761,836
Transitional Small Business Disclosure Format (Check one): Yes ( ) No ( )
1
<PAGE>
Part I. FINANCIAL INFORMATION
EDnet, Inc.
CONSOLIDATED BALANCE SHEETS
As of September 30, 1998 and June 30, 1998
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
9/30/98 6/30/98
( Unaudited ) ( Audited )
----------------------------------
CURRENT ASSETS
Cash $ 52,089 $ 32,911
Accounts Receivable, net of alloance for doubtful
accounts of 610,720 488,843
$14,500 and $17,502 in September 30, 1998 and
June 30, 1998 (8,582) (17,502)
Note Receivable - related party 62,354 -
Inventories 119,770 87,157
Prepaid expenses 8,601 58,823
Other Current Assets - 16,665
----------------------------------
TOTAL CURRENT ASSETS 844,952 666,897
NOTE RECEIVABLE - RELATED PARTY 226,997 283,746
PROPERTY AND EQUIPMENT, NET 1,201,238 1,159,414
(820,821) (767,933)
OTHER ASSETS 7,281 13,711
----------------------------------
TOTAL ASSETS $ 1,459,647 $ 1,355,835
==================================
LIABILTIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 261,348 $ 388,325
Accrued expenses 229,765 294,980
Deferred revenue 33,421 21,286
Line of credit 7,986 8,872
Notes payable 257,122 40,500
Current portion of capital lease obligations 17,147 9,288
----------------------------------
TOTAL CURRENT LIABILITIES 806,789 763,251
Capital Lease obligations 15,058 11,470
----------------------------------
TOTAL LIABILITIES 821,847 774,721
STOCKHOLDERS' EQUITY
Common stock; par value $0.001 per share Authorized
50,000,000 shares, 16,761,836 issued and outstanding
as of September 30, 1998 and June 30,1998 respectively 16,761 16,761
Capital paid in excess of par value of common stock 6,755,443 6,755,443
Accumulated Deficit (6,134,404) (6,191,090)
----------------------------------
TOTAL STOCKHOLDERS' EQUITY 637,800 581,114
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,459,647 $ 1,355,835
==================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
EDnet, Inc.
CONSOLIDATED STATEMENTS OF INCOME
For the Three ended September 30, 1998 & 1997
Three Months
Ended September 30
( Unaudited )
-------------------------------
1998 1997
-------------------------------
Revenues:
Equipment sales $ 281,673 $ 137,720
Installation and monthly fees 153,440 152,508
Web design and consulting 255,850 191,817
Usage and hosting fees 428,449 396,571
Other fees 27,633 24,755
-------------------------------
1,147,045 903,371
Cost of sales 680,540 553,101
-------------------------------
Gross Profit 466,505 350,270
Sales and Marketing expenses
General and Administrative expenses 129,139 172,638
308,895 722,356
-------------------------------
Income (loss) before other income (expenses) 438,034 894,994
and provision for income taxes
28,471 (544,724)
-------------------------------
Other income (expense):
Interest income (expense)
Sales tax write-off 843 (4,524)
Other income (expense) 30,000
(2,628) -
-------------------------------
Total other income (expense), net
28,215 (4,524)
-------------------------------
Income (loss) before provision
for income taxes
56,686 (549,248)
Income taxes
- -
-------------------------------
Net income (loss)
$ 56,686 $ (549,248)
===============================
Net Income (Loss) Per Common Share $ 0.003 $ (0.08)
===============================
Weighted Average Number of Shares Outstanding 16,761,836 6,670,226
===============================
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
EDnet, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Three Month ended September 30, 1998 and 1997
9/30/98 9/30/97
( Unaudited ) ( Unaudited )
------------------------------
Cash flows from operating activities:
Net income (loss) $ 56,686 $ (549,258)
Adjustments to reconcile net loss to
cash used in operating activities: .
Depreciation and amortization 52,888 52,672
Provision for doubtful accounts (8,920) 3,389
Noncash compensation expenses - 400,000
Gain on write-off of accrued sales tax (30,000) -
Decrease (increase) in other current assets 67,711 (9,011)
Decrease (increase) in accounts receivable (121,877) (32,717)
Decrease (increase) in inventory (32,613) (9,607)
Increase (decrease) in accounts payable
and accrued expenses (128,079) 2,467
Increase (decrease) in deferred revenue 12,135 27,252
------------------------------
Net cash used in operating activities (132,069) (114,813)
------------------------------
Cash flows from investing activities:
Purchase of property and equipment (41,824) (5,065)
Net cash used in investing activities (41,824) (5,065)
------------------------------
Cash flows from financing activities:
Repayment on borrowings (886) (31,719)
Proceeds from borrowings 200,000 131,755
Repayments on capital leases (6,043) (10,049)
------------------------------
Net cash provided by financing activities 193,071 89,987
------------------------------
Net increase (decrease) in cash 19,178 (29,891)
==============================
Cash at beginning of period 32,911 31,067
------------------------------
Cash at end of period $ 52,089 $ 1,176
==============================
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The opinion of management, the unaudited consolidated condensed financial
statements included herein have been prepared on a consistent basis with
the June 30, 1997 and June 30, 1998 audited consolidated financial
statements and include all material adjustments, consisting of normal
recurring adjustments, necessary to fairly present the information set
forth therein. As reported in the audited financial statements of June 30,
1998, the Company was burdened by substantial credit restrictions from many
of its major suppliers, and the Company also faced substantial outstanding
debts to financial consultants and investors. However, with the proceeds
received from the VDC transaction at the end of fiscal year ended June 30,
1998, the Company paid off or restructured its past due accounts payables,
notes payables and liens and thereby corrected many of these problems. The
majority of the Company's suppliers have now eased their credit
restrictions and are allowing the Company to resume purchasing equipment on
credit. Similarly, the Company has settled all of the substantial
outstanding claims of third parties based on services performed for the
Company and based on various promissory notes previously issued by the
Company. As a result of the restructuring, the Company has greater access
to vendors and is able to negotiate better terms. These advantages are
expected to contribute to enhanced profitability and increased revenues
during the next fiscal year.
2. Consolidation
Consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries Entertainment Digital Network, Inc. (EDN) and
Internet Worldwide Business Solutions, Inc. (IBS). Material inter-company
transactions and balances have been eliminated.
3. Gain (Loss) per Share
Gain (loss) per share has been computed using the weighted average number
of common shares outstanding totaling 16,761,836 shares as of September 30,
1998 and 6,670,226 shares as of September 30, 1997. Due to the Companyloss
position in September 30, 1997, common equivalent shares have been excluded
because they are anti-dilutive.
4. Research and Development
The Company incurred no research and development expense during the three
months ended September 30, 1998.
5
<PAGE>
5. Consulting Agreements
July 1, 1998, the Company entered into a Consulting Agreement with B.K.
Service International Business Consultancy "BKS", pursuant to which BKS
agreed to serve the Company in advising, investor relation, SEC filing,
managing and directing all corporate governance activities, and cash
management. The Company agreed to compensate BKS in an amount of $6,000 per
month. The agreements will expire on June 30, 1999.
6. Sales Tax Payable
An accrual of sales and use tax liability in the amount of $30,000 recorded
on the financial statements for the year ended in June 30, 1998 and 1997.
The State Board of Equalization completed an audit of the Companyliability
for the period from July 1, 1994 through June 30, 1997. No sales and use
tax liability was due for the period and the accrual was reversed at
September 22, 1998.
7. Notes Payable
August 4, 1998, a Promissory Note ("Note") in the amount of $200,000 was
executed between the Company and Eric Jacobs ("Jacobs") a member of the
Company's Board of Directors. The Company transferred the principal to a
Equipment Purchase Repo Account ("Account") an interest bearing account.
This Account was restricted to use solely for the purchase of equipment to
fulfill existing customer orders. The principal amount of $200,000 has been
utilized in full for the purchase of equipment as of October 30, 1998. The
interest will be at the rate of twelve (12%) per annum, with the principal
balance and all accrued interest being due and payable on August 3, 1999.
Interest payments are to be paid quarterly. After ninety (90) days from
date of execution of the Note, at Jacob's discretion, Jacob may review
principal amount outstanding, and upon five (5) days written notice such
amount shall be reduced if deemed appropriate.
8. Subsequent Events
Resignations and New Appointment in Board Member:
October 29, 1998 David Goodman resigned as a member of the Board of
Directors of EDnet, Inc. and was replaced by Eric Jacobs ("Jacobs") on
October 30, 1998. Jacobs is presently a member of the Board of Visual Data
Corporation and Vice President and General Manager of Visual Data's wholly
owned subsidiary, ResortView Corporation.
Sales of Subsidiary
In the months of October and November, the Company initiated preliminary
discussion with a potential acquirer of the Company's wholly owned
subsidiary, Internet Business Solutions. As of the date of this filing, no
definitive agreement has been reached.
Lines of Credit
During the past 30 days, the Company has been negotiating with various
lending institutions to establish a Line of Credit. As of this date, no
agreement has been reached.
6
<PAGE>
EDNET, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
For the three months ended September 30, 1998, the Companyrevenues were
$1,147,045, an increase of 21% compared to revenues of $903,371 in the
comparable period last year. Increases in revenue are primarily due to increases
in the sales of equipment (51%) and web development (25%) sales.
Gross Profit increased to $466,505 or 41% of sales, in the three months
ended September 30, 1998 compared to $350,270 or 39% of sales, in the equivalent
period last year. Increase in grossprofit as a percentage of sales is
attributable to growth in the higher profit margin sales, network usage and web
site development. In addition, a new contract with MCI was executed in February,
1998, becoming effective with our usage billing between March 15 and April 15,
1998, which has resulted in lower costs for our ISDN usage.
Operating expenses (including Sales & Marketing, and General &
Administrative) decreased to $438,034 in the three months ended September 30,
1998 compared to $894,994 in the equivalent period last year. The Company did
not incur any non-cash compensation expense during the three months ended
September 30, 1998. Operating expenses for the three months ended September 30,
1997, includes the amortization of $400,000 for the S-8 shares that were issued
for the consulting agreement with Charles Clark. Compared to the current period,
after removing this non-recurring expense of $400,000, the operating expense for
the prior period would be $494,994, resulting in a slight decrease of 12% for
the current period.
Other income increased to $28,215 in the three months ended September 30,
1998 compared to other expenses of $4,524 in the equivalent period last year.
The increase in other income was primarily due to the $30,000 accrued sales tax
write-off in September 1998 (Note 5).
For the three months ended September 30, 1998, the Company incurred a net
profit of $56,686 or $0.003 per share based on a weighted average of 16,761,836
shares outstanding, compared with a net loss of $549,248, or ($0.08) per share
based on a weighted average of 6,670,226 shares outstanding in the prior year.
Financial Condition, Liquidity, and Capital Resources
At September 30, 1998, the Companyaccumulated deficit was $6,134,404 and
the Company had a positive net working capital of $38,163. The Company's
accumulated deficit was reduced due to the net profit achieved during the three
months ended September 30, 1998. The Company's working capital improved from a
negative $96,354 on June 30, 1998 to a positive net working capital of $38,163
at the end of the current period. This increase was due primarily to the shift
of the first payment of the note due from Visual Data of $62,354 from long term
to short term assets, and the write-off of the accrued sales tax $30,000 with
the completion of the audit.
7
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Submission of Matters to a Vote of Security Holders
None
Item 3. Other Information
None
Item 4. Exhibits and Reports on Form 8-K
(a) (27) Financial Data Schedule, filed electronically.
(b) Form 8-K filed November 18, 1998 to report change the fiscal
year from one ending June 30 of each year to a fiscal year
ending each September 30. Thus the fiscal year of the
registrant will begin on October 1, 1998 and will end
September 30, 1999.
8
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EDNET, INC.
------------------------------
November 19, 1998 By: /s/Tom Kobayashi
------------------------------
Tom Kobayashi
Chief Executive Officer
By: /s/David Gustafson
------------------------------
David Gustafson
Secretary
9
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 52,089
<SECURITIES> 0
<RECEIVABLES> 602,138
<ALLOWANCES> 0
<INVENTORY> 119,770
<CURRENT-ASSETS> 70,955
<PP&E> 1,201,238
<DEPRECIATION> 820,820
<TOTAL-ASSETS> 1,459,647
<CURRENT-LIABILITIES> 806,789
<BONDS> 0
0
0
<COMMON> 16,761
<OTHER-SE> 621,039
<TOTAL-LIABILITY-AND-EQUITY> 1,459,647
<SALES> 0
<TOTAL-REVENUES> 1,147,045
<CGS> 680,540
<TOTAL-COSTS> 438,034
<OTHER-EXPENSES> 27372
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 843
<INCOME-PRETAX> 56,686
<INCOME-TAX> 0
<INCOME-CONTINUING> 56,686
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,686
<EPS-PRIMARY> 0.003
<EPS-DILUTED> 0
</TABLE>
