UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB/A
Amendment No. 1
to
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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 000-21659
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)
Issuer's telephone number, including area code (415) 274-8800
--------------
Check 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 December 31,
1998: 16,761,836
Transitional Small Business Disclosure Format (Check one): Yes ( ) No (X)
<PAGE>
The Registrant hereby amends the items of its Quarterly Report on Form
10-QSB for the quarter ended December 31, 1998 as set forth below:
Part I
Consolidated Statements of Cash Flows.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
<PAGE>
EDnet, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months ended December 31, 1998 and 1997
12/31/98 12/31/97
(Unaudited) (Unaudited)
----------- -----------
Cash flows from operating activities:
Net income (loss) $565,135 $(202,992)
Adjustments to reconcile net loss
to cash used in operating activities:
Depreciation and amortization 53,195 97,808
Provision for doubtful accounts 1,848 275
Noncash compensation expenses - 400,000
Gain from sale of assets - IBS (663,530) -
Decrease (increase) in other current assets (67,479) (14,425)
Decrease (increase) in accounts receivable 47,570 (147,655)
Decrease (increase) in inventory (26,763) 50,879
Increase (decrease) in accounts payable
and accrued expenses (196,593) (646,483)
Increase (decrease) in deferred revenue (25,965) (3,919)
----------- -----------
Net cash used in operating activities (312,582) (466,512)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (4,220) -
Sale of property and equipment - 10,354
Proceeds from sale of assets - IBS &
Breakthrough Software investment 1,000,000 307,495
----------- -----------
Net cash provided by investing activities 995,780 317,849
----------- -----------
Cash flows from financing activities:
Repayment on borrowings (308,214) (73,392)
Proceeds from borrowings 150,000 222,600
Payment on Settlement of Claim in Equity (50,000) -
Repayments on capital leases (3,981) (20,343)
----------- -----------
Net cash (used in) provided by
financing activities (212,195) 128,865
----------- -----------
Net increase (decrease) in cash 471,003 (19,798)
Cash at beginning of period 88,470 31,067
----------- -----------
Cash at end of period $559,473 $11,269
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
EDNET, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
For the three months ended December 31, 1998, the Company's revenues were
$1,027,558, a slight increase compared to revenues of $1,008,657 in the
comparable period last year. This quarter is affected by the holidays, where
production and post-production of media for the entertainment and advertising
sector is usually completed prior to December or postponed to the new year.
Gross Profit decreased to $322,676 or 31% of sales, in the three months ended
December 31, 1998 compared to $330,553 or 33% of sales, in the equivalent period
last year. This slight change was due to the profit margins sales mix difference
between the two quarters.
Operating expenses (including Sales & Marketing, and General & Administrative)
increased to $415,941 in the three months ended December 31, 1998 from $301,414
in the equivalent period last year.
Interest expense decreased dramatically from $17,269 in the prior equivalent
quarter to $498 in the quarter ending December 31, 1998. This was attributed to
the re-organization of the Senior Notes Payable in June, 1998. In the three
months ended December 31, 1997 other income included the gain on the sale of
Preferred Shares of Breakthrough Software, Inc., of $248,334.
For the three months ended December 31, 1998, the Company incurred a net profit
of $565,135 or $0.02 per share based on a weighted average of 28,648,714 shares
outstanding, compared with a net profit of 346,255, or $0.05 per share based on
a weighted average of 7,264,345 shares outstanding in the prior year.
Following the investment in the company by Visual Data Corporation it had become
apparent that the web development resources at IBS duplicated existing
facilities at Visual Data. The Company completed the sale of all the assets and
certain liabilities of its wholly owned subsidiary, Internet Business Solutions
("IBS") for $1,000,000 in cash on December 11, 1998.
With the sale of the assets of IBS, the Company anticipates the loss of 20% of
its annual projected sales for fiscal 1999 and a corresponding reduction of
expenses. The company intends to offset this loss with the continued growth of
its core audio networking business and the aggressive introduction of its video
networking services in Spring, 1999. In addition the Company's revenues will
benefit from the support of Visual Data's Internet business through expanded
hosting and broadcasting capabilities over the Internet.
The Company has executed a OEM Agreement with a new supplier of a video codec
and will be one of their major beta users during the months of March and April.
Over 50% of the Company's current audio network clients will have the need to
send or receive video material for their work. In addition, Visual Data and its
partnership with PRNewswire will provide expanded short form video transmission
opportunities during the approval process.
<PAGE>
Financial Condition, Liquidity, and Capital Resources
At December 31, 1998, the Company's accumulated deficit was $5,569,271 and the
Company had a positive net working capital of $721,022. The Company's
accumulated deficit was reduced due to the net profit achieved primarily from
the sale of the assets of its subsidiary Internet Business Solution (IBS) during
the three months ended December 31, 1998. The Company's working capital improved
from a negative $17,695 on September 30, 1998 to a positive net working capital
of $721,022 at the end of the current period. This increase was due primarily
to sale of the assets of its subsidiary, IBS.
The Company believes that it has sufficient working capital to fund its current
plan of operation. In the event that the introduction of our new video
networking and webcasting services accelerate at a greater pace than
anticipated, the Company has available its Line of Credit with Union Bank of
California and several leasing lines that are presently in place.
Readiness for Year 2000
The Company continues to assess the nature and extent of the Year 2000 ("Y2K")
issues that it must address, and is confident that it has already taken or will
be able to complete the work required to make its systems, products and
infrastructure Y2K ready. The Company has determined that the primary impact, if
any, of Y2K problems would be relegated to certain management information
systems, not to any operating revenue generating systems or services that it
provides. The Company has ordered the upgrades to be installed by the end of
March 31, 1999, that are necessary for the accounting system to handle year end
issues. There may be certain computer hardware and software replacements that
are necessary to handle Y2K issues as well. These have also been ordered and
will also be in place by March 31, 1999.. There are no technological issues in
the hardware or software that the Company sells or rents to its clients that
will be affected by Y2K issues.
The Company plans is evaluating the Y2K readiness of its consultants, vendors
and suppliers. Where the Company determines that critical suppliers are not Y2K
ready, the Company will monitor their progress and take appropriate actions. In
particular, the telephone companies that supply the Company with services, must
be Y2K ready in order to avoid major billing errors. Though the Company may
experience some temporary delay in its ability to accurately rebill its
customers, it does not foresee any permanent liability, should some error occur
on the part of these suppliers. The Company believes that the Y2K date change
will not significantly affect the Company's ability to deliver products and
services to its customers on a timely basis; however, given the uncertain
consequences of failure to resolve significant Y2K issues, there can be no
assurance that any one or more such failures would not have a material adverse
effect on the Company.
Disclosure Pursuant to the Private Securities Litigation Reform Act of 1995
When used in this Management's Discussion and Analysis, the words "anticipate,"
"estimate," "expect," and similar expressions are intended to identify
forward-looking statements. These statements are subject to certain risks and
uncertainties, including, but not limited to, the following: risks associated
with fundraising and the company's ability to secure resources necessary to
fully develop business products; risks associated with mergers and acquisitions,
the nature of any transaction consummated, and the ability to successfully
<PAGE>
operate a merged entity; business conditions in the telecommunications,
entertainment, advertising and Internet-related industries, and the general
economy; competitive factors such as rival networking technology, competing
products, and competitive pricing; risks associated with development,
introduction, and acceptance of new products; the company's ability to manage
its rapid growth and attract and retain key employees; and other risk factors.
Actual results may differ materially from management expectations as discussed
here.
<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.
February 25, 1999 By: /s/Tom Kobayashi
-----------------------
Tom Kobayashi
Chief Executive Officer
By: /s/David Gustafson
-----------------------
David Gustafson
Secretary
14
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<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
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