UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB/A
(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)
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
September 30, 1998: 16,761,836
Transitional Small Business Disclosure Format (Check one): Yes ( ) No ( X )
<PAGE>
Part I. FINANCIAL INFORMATION
EDnet, Inc.
CONSOLIDATED BALANCE SHEETS
As of September 30, 1998 and June 30, 1998
ASSETS 9/30/98 6/30/98
(Audited) ( Audited )
----------- -----------
CURRENT ASSETS
Cash $ 88,470 $ 32,911
Accounts Receivable, net of allowance for
doubtful accounts of $8,500 and $17,502 in
September 30, 1998 and June 30, 1998 574,800 471,341
Account and interest receiveabl - related party 33,008 -
Inventories 122,986 87,157
Prepaid expenses 4,601 58,823
Other Current Assets 826 16,665
----------- -----------
TOTAL CURRENT ASSETS 824,691 666,897
PROPERTY AND EQUIPMENT, NET 380,416 391,481
OTHER ASSETS 6,455 13,711
----------- -----------
TOTAL ASSETS $ 1,211,562 $ 1,072,089
=========== ===========
LIABILTIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 303,628 $ 388,325
Accrued expenses 239,476 294,980
Deferred revenue 33,421 21,286
Line of credit 8,214 8,872
Notes payable - related party 240,500 40,500
Current portion of capital lease obligations 17,147 9,288
----------- -----------
TOTAL CURRENT LIABILITIES 842,386 763,251
Capital Lease obligations 15,058 11,470
----------- -----------
TOTAL LIABILITIES 857,444 774,721
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
Secured note receivable (283,746) (283,746)
Accumulated Deficit (6,134,340) (6,191,090)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 354,118 297,368
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,211,562 $ 1,072,089
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
EDnet, Inc.
CONSOLIDATED STATEMENTS OF INCOME
For the Three ended September 30, 1998 & 1997
Three Months
Ended September 30
1998 1997
--------- --------
(Audited) (Unaudited)
--------- --------
Revenues:
Equipment sales $ 283,573 $ 137,720
Installation and monthly fees 153,423 152,508
Web design and consulting 255,850 191,817
Usage and hosting fees 431,632 396,571
Other fees 22,550 24,755
--------- --------
1,147,028 903,371
Cost of sales 680,078 553,101
--------- --------
Gross Profit 466,950 350,270
Sales and Marketing expenses 129,052 172,638
General and Administrative expenses 281,990 722,356
--------- --------
Income (loss) before other income (expenses)
and provision for income taxes 55,908 (544,724)
--------- --------
Other income (expense):
Interest income (expense) 842 (4,524)
Other income (expense) - -
--------- --------
Total other income (expense), net 842 (4,524)
--------- --------
Income (loss) before provision
for income taxes 56,750 (549,248)
Income taxes - -
--------- --------
Net income (loss) $ 56,750 $(549,248)
========= ========
Basic income (loss) per share :
Income (loss) before extraordinary item Nil $ (0.08)
Net income (loss) Nil $ (0.08)
Diluted income (loss) per share:
Income (loss) before extraordinary item Nil $ (0.08)
Net income (loss) Nil $ (0.08)
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
EDnet, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Three Month ended September 30, 1998 and 1997
9/30/98 9/30/97
(Audited) (Unaudited)
-------- --------
Cash flows from operating activities:
Net income (loss) $ 56,750 $(549,258)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation and amortization 52,888 52,672
Noncash compensation expenses - 400,000
Decrease (increase) in other
current assets 77,317 (9,011)
Decrease (increase) in accounts receivable (179,608) (29,328)
Decrease (increase) in inventory (35,829) (9,607)
Increase (decrease) in accounts payable
and accrued expenses (84,697) 2,467
Increase (decrease) in deferred revenue - 27,252
-------- --------
Net cash used in operating activities (113,179) (114,813)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (25,849) (5,065)
-------- --------
Net cash used in investing activities (25,849) (5,065)
-------- --------
Cash flows from financing activities:
Change in line of credit (886) (31,719)
Proceeds from borrowings 200,000 131,755
Repayments on capital leases (4,527) (10,049)
-------- --------
Net cash provided by financing
activities 194,587 89,987
-------- --------
Net increase (decrease) in cash 55,559 (29,891)
======== ========
Cash at beginning of period 32,911 31,067
-------- --------
Cash at end of period $ 88,470 $ 1,176
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
In the opinion of management, the audited 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
The 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
Basic earnings (loss) per share is computed using the weighted average
number of shares of common stock outstanding during the periods. Diluted
earnings per share is computed using the weighted average number of
common shares and common share equivalents outstanding during the year.
The computation of net income (loss) per share was as follows:
Income
(Loss) Shares Per Share
(Numerator) (Denominator) Amount
---------- ---------- ------
Three months ended September 30, 1998:
Basic earnings per share $ 56,750 16,761,836 Nil
Effect of dilutive stock
options and warrants - 5,344,156
---------- ---------- ------
Diluted earnings per share $ 56,750 22,105,992 Nil
========== ========== ======
<PAGE>
At September 30, 1998 options and warrants, for the purchase of 1,391,643
common shares at prices ranging from $.375 to $2.50 per share, for which
the exercise price was greater than the average market price of common
shares were not included in the computation of diluted earnings per share.
Loss per share as of September 30, 1997 has been computed using the
weighted average number of common shares outstanding totaling 6,670,226
shares. Due to the Company's loss 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. Consulting Agreements
On 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 Company's
liability 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
On 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 and VDC'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.
<PAGE>
Notes payable-related party consist of the following
September 30, June 30,
1998 1998
----------- --------
Note payable to Eric Jacobs, a director of
VDC, with original principal of $200,000 at
12% interest. The principal balance and
accrued interest is due on August 3, 1999.
Accrued interest payable as of September 30,
1998 is $3,814. $200,000 -
Notes payable to an officer and employees,
interest at 6% per annum, uncollateralized.
Accrued interest payable as of September 30,
1998 is $15,127. The notes are subordinated
to the $250,000 credit line credit line
discussed below for a period of six months.
Notes are due on demand thereafter. $ 40,500 $40,500
----------- --------
Total notes payable-related party $240,500 $40,500
=========== ========
8. Secured Note Receivable - Related Party
A note receivable, at the face value of $283,746, due from VDC is part of
the payment resulting from VDC's purchase of 8,563,419 shares of the
Company's common stock. The note is secured by the acquired common stock
and a second mortgage. Principal payment of $56,749 plus interest is due
annually commencing July 1, 1999 until July 1, 2003; the note bears a fixed
interest rate of 7% per annum.
At September 30, 1998 VDC owed the Company $27,403 for the purchase of
equipment and $5,605 of accrued interest on the note receivable.
<PAGE>
9. Subsequent Events
Resignations and New Appointment in Board Member:
On 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
On December 4, 1998, the Company entered into a binding letter of intent
for the sale of asset of its subsidiary, IBS. The buyer paid the Company
cash consideration of 1 million dollars on December 18, 1998, the closing
date of the transaction, and assumed certain outstanding liabilities of
IBS.
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.
<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 Company's revenues 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 gross profit 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
<PAGE>
At September 30, 1998, the Company's accumulated 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.
Readiness for Year 2000
The Company's is still assessing 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 plans for upgrades 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 will also be in place by March 31, 1999. The costs for
these will not be material, and they are easily obtained. 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
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>
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.
<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.
By:/s/Tom Kobayashi
-----------------------
January 15, 1999 Tom Kobayashi
Chief Executive Officer
By: /s/David Gustafson
-----------------------
David Gustafson
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 88,470
<SECURITIES> 0
<RECEIVABLES> 574,800
<ALLOWANCES> 0
<INVENTORY> 122,986
<CURRENT-ASSETS> 824,691
<PP&E> 380,416
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,211,562
<CURRENT-LIABILITIES> 842,386
<BONDS> 0
0
0
<COMMON> 16,761
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,211,562
<SALES> 0
<TOTAL-REVENUES> 1,147,028
<CGS> 680,078
<TOTAL-COSTS> 1,091,120
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 56,750
<INCOME-TAX> 0
<INCOME-CONTINUING> 56,750
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,750
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
