<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-QSB
/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)
<TABLE>
<S> <C>
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)
</TABLE>
(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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<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
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PAGE
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Item 1. Financial Statements (Unaudited)
Accountants' Review Report............................................................................... 3
Balance Sheets as of September 30 and March 31, 1998..................................................... 4
Statements of Operations for the three months ended September 30, 1998 and 1997.......................... 5
Statements of Operations for the six months ended September 30, 1998 and 1997............................ 6
Statements of Cash Flows for the six months ended September 30, 1998 and 1997............................ 7
Statements of Stockholders' Equity as of September 30, 1998.............................................. 8
Notes to Financial Statements............................................................................ 9
Item 2. Management's Discussion and Analysis or Plan of Operation.......................................... 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................................................. 15
Item 6. Exhibits and Reports on Form 8-K................................................................... 15
Signatures................................................................................................. 16
</TABLE>
2
<PAGE>
Board of Directors
e-Net, Inc.
We have reviewed the accompanying balance sheet of e-Net, Inc. (a Delaware
Corporation), as of September 30, 1998, and the related statements of
operations, stockholders' equity and cash flows for the six-month periods ended
September 30, 1998 and 1997, and the statements of operations for the three
month periods ended September 30, 1998 and 1997. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet as of March 31, 1998, and the related statements of
operations, stockholders' equity and cash flows for the year then ended (not
presented herein), and in our report dated May 27, 1998, we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying condensed balance sheet as of March
31, 1998, is fairly stated, in all material respects, in relation to the balance
sheet from which it has been derived.
Grant Thornton LLP
Vienna, Virginia
October 28, 1998
3
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E-NET, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 MARCH 31, 1998
------------------ --------------
<S> <C> <C>
(UNAUDITED) (AUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................................... $ 7,592,669 $ 855,743
Short-term investments...................................................... 3,954,597 960,248
Accounts receivable......................................................... 489,468 334,602
Inventory................................................................... 548,831 202,917
Prepaid expenses............................................................ 393,426 176,264
------------------ --------------
TOTAL CURRENT ASSETS.......................................................... 12,978,991 2,529,774
DEPOSITS AND OTHER ASSETS..................................................... 14,821 14,821
PROPERTY, PLANT AND EQUIPMENT, NET............................................ 512,950 372,403
SOFTWARE DEVELOPMENT COSTS, NET............................................... 750,693 805,188
------------------ --------------
$ 14,257,455 $ 3,722,186
------------------ --------------
------------------ --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable--trade..................................................... 555,406 314,010
Accrued liabilities......................................................... 452,713 561,093
------------------ --------------
TOTAL CURRENT LIABILITIES..................................................... 1,008,119 875,103
LONG TERM DEBT................................................................ -- --
------------------ --------------
TOTAL LIABILITIES............................................................. 1,008,119 875,103
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 50,000,000 shares authorized, 8,269,924 and
5,750,000 shares outstanding at September 30, and March 31, 1997,
respectively.............................................................. 82,699 57,500
Stock subscriptions......................................................... (23) (46)
Additional paid-in capital.................................................. 28,453,452 14,163,090
Retained deficit............................................................ (15,286,792) (11,373,461)
------------------ --------------
TOTAL STOCKHOLDERS' EQUITY.................................................... 13,249,336 2,847,083
------------------ --------------
$ 14,257,455 $ 3,722,186
------------------ --------------
------------------ --------------
</TABLE>
The accompanying notes are an integral part of these statements.
4
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E-NET, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
SALES
Products........................................................................... $ 131,898 $ 27,771
Services........................................................................... 185,313 97,740
------------- ------------
Total sales.......................................................................... 317,211 125,511
COST OF PRODUCT SOLD AND SERVICE PROVIDED
Products........................................................................... 83,326 14,975
Services........................................................................... 46,489 57,099
------------- ------------
Total cost of product sold and service provided...................................... 129,815 72,074
GROSS PROFIT......................................................................... 187,396 53,437
OPERATING EXPENSES
Selling, general and administrative................................................ 1,609,051 533,705
Research and development........................................................... 718,914 240,189
------------- ------------
LOSS FROM OPERATIONS................................................................. (2,140,569) (720,457)
OTHER INCOME (EXPENSE)
Interest and financing expense..................................................... -- 4,945
Other expenses..................................................................... (43,323) (48,465)
Interest income.................................................................... 149,739 62,855
------------- ------------
LOSS BEFORE INCOME TAXES............................................................. (2,034,153) (701,122)
INCOME TAX PROVISION................................................................. -- --
------------- ------------
NET LOSS............................................................................. $ (2,034,153) $ (701,122)
------------- ------------
------------- ------------
LOSS PER SHARE....................................................................... $ (.25) $ (.12)
------------- ------------
------------- ------------
WEIGHTED AVERAGE SHARES OUTSTANDING.................................................. 8,247,565 5,750,000
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
E-NET, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
SALES
Products.......................................................................... $ 435,793 $ 28,941
Services.......................................................................... 314,688 184,574
------------- -------------
Total sales..................................................................... 750,481 213,515
COST OF PRODUCT SOLD AND SERVICE PROVIDED
Products.......................................................................... 273,649 15,605
Services.......................................................................... 89,737 95,042
------------- -------------
Total cost of product sold and service provided................................. 363,386 110,647
Gross profit........................................................................ 387,095 102,868
OPERATING EXPENSES
Selling, general and administrative............................................... 3,141,935 1,172,254
Research and development.......................................................... 1,273,651 263,181
------------- -------------
LOSS FROM OPERATIONS................................................................ (4,028,491) (1,332,567)
Other Income (Expense)
Interest and financing expense.................................................... -- (5,158)
Other expenses.................................................................... (112,112) (80,678)
Interest income................................................................... 227,272 129,964
------------- -------------
LOSS BEFORE INCOME TAXES............................................................ (3,913,331) (1,288,439)
INCOME TAX PROVISION................................................................ -- --
------------- -------------
NET LOSS............................................................................ $ (3,913,331) $ (1,288,439)
------------- -------------
------------- -------------
LOSS PER SHARE...................................................................... $ (.52) $ (.23)
------------- -------------
------------- -------------
WEIGHTED AVERAGE SHARES OUTSTANDING................................................. 7,525,431 5,668,033
</TABLE>
The accompanying notes are an integral part of these statements.
6
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E-NET, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.......................................................................... $ (3,913,331) $ (1,288,439)
Adjustments to reconcile net loss to net cash from operating activities
Depreciation and amortization................................................... 206,682 68,110
Stock-Based Compensation........................................................ -- 62,244
Changes in operating assets and liabilities
(Increase) in accounts receivable............................................. (154,865) (1,332)
(Increase) in inventory....................................................... (345,914) (256,674)
(Increase) in prepaid expenses, deposits and other assets..................... (217,163) (124,372)
(Decrease) Increase in accounts payable and accrued liabilities............... 133,016 (51,612)
------------- -------------
NET CASH USED IN OPERATING ACTIVITIES............................................... (4,291,575) (1,592,075)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.............................................................. (262,734) (205,403)
Capitalized software development costs............................................ (30,000) (260,993)
Investment in short term securities............................................... (2,994,349) (2,890,389)
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES............................................... (3,287,083) (3,356,785)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from initial public offering of common stock......................... -- 5,870,082
Issuance of common stock.......................................................... 25,199 15,000
Net proceeds from issuance of stock in private placement, warrant redemption, and
options exercised............................................................... 14,290,362 --
Payments of common stock subscriptions............................................ 23 --
Payments on capital leases........................................................ -- (4,480)
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES........................................... 14,315,584 5,880,602
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS........................................... 6,736,926 931,742
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................................... 855,743 379,441
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.......................................... $ 7,592,669 $ 1,311,183
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURES:
Income Taxes Paid................................................................. $ -- $ --
------------- -------------
------------- -------------
Interest Paid..................................................................... $ -- $ 158
------------- -------------
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</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
E-NET, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK STOCK
--------------------- SUBSCRIPTIONS ADDITIONAL TOTAL
NO. OF AND NOTES PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT RECEIVABLE CAPITAL DEFICIT EQUITY
---------- --------- --------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1998............... 5,750,000 $ 57,500 $ (46) $ 14,163,090 $ (11,373,461) $ 2,847,083
Sale of common stock in private
placement.......................... 750,000 7,500 -- 5,114,188 -- 5,121,688
Stock-warrants redeemed.............. -- $ -- $ -- $ (195) $ -- $ (195)
Common stock issued in lieu of
warrant redemption................. 1,720,924 17,209 -- 8,974,022 -- 8,991,231
Common stock issued for exercised
options............................ 49,000 490 -- 202,347 -- 202,837
Stock-subscriptions received......... -- $ -- $ 23 $ -- $ -- $ 23
Net loss............................. -- -- -- -- (3,913,331) (3,913,331)
---------- --------- --- ------------- -------------- -------------
Balance, September 30, 1998.......... 8,269,924 $ 82,699 $ (23) $ 28,453,452 $ (15,286,792) $ 13,249,336
---------- --------- --- ------------- -------------- -------------
---------- --------- --- ------------- -------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE>
E-NET, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements include the accounts of
e-Net, Inc. (the "Company"). Such statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and pursuant to the regulations of the Securities and Exchange Commission;
accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments considered necessary for a fair
presentation (consisting of normal recurring accruals) have been included. The
results of operations for the quarter and six months ended September 30, 1998
are not necessarily indicative of the results for the fiscal year ending March
31, 1999. The accompanying unaudited financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1998.
NOTE B--SIGNIFICANT TRANSACTIONS
PRIVATE PLACEMENT TRANSACTION
In April 1998, the Company offered for sale to accredited investors 750,000
shares of the Company's restricted common stock, par value $.01 per share, at
$7.50 per share. The share price was based upon the average of the last reported
sales prices for the Common Stock for the five (5) business days immediately
preceding the date upon which the Offering Price is determined, which was April
3, 1998. The transaction was completed in April 1998, and resulted in proceeds,
net of transaction costs, to the Company of approximately $5,100,000.
WARRANT REDEMPTION
In May 1998, the Company authorized the redemption of its publicly traded
Redeemable Common Stock Purchase Warrants (Warrants). The Company had issued
1,725,000 warrants in its initial public offering, effective April 7, 1997.
Under the terms governing these Warrants, the Company was entitled to redeem,
for $.05 per Warrant, the Warrants that had not already been exercised and
converted to a share of common stock at an exercise price of $5.25, if the
Company's common stock closing bid price equaled or exceeded $10.00 per share
for a thirty consecutive trading day period. Such a period ended on May 14,
1998. The redemption occurred on June 19, 1998 and the exercise of Warrants
prior to this date resulted in proceeds, net of transaction costs, to the
Company of approximately $9,000,000.
NOTE C--INVENTORY
Inventory is stated at the lower of cost or market value. Cost is determined
by the first-in, first-out method. The elements of cost include subcontracted
costs and materials handling charges.
NOTE D--SOFTWARE DEVELOPMENT COSTS
The Company has capitalized certain software development costs incurred
after establishing technological feasibility. Software costs will be amortized
over the estimated useful life of the software once the product is available for
general release to customers. The useful life of capitalized software
development costs is estimated to be three years. At September 30, 1998, the
Company has capitalized $750,693, net of accumulated amortization. Should
sufficient product sales fail to materialize, the carrying amount of capitalized
software costs may be reduced accordingly in the future. Amortization expense
for the the six-month periods ended September 30, 1998 and 1997 were $84,495 and
$-0-, respectively.
9
<PAGE>
E-NET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE E--LINE OF CREDIT FACILITY
On May 31, 1998, the Company signed a one (1) year promissory note for a
$1,000,000 line of credit facility which is secured by investments, receivables
and inventory of the Company.
NOTE F--NON-QUALIFIED STOCK OPTION PLAN
At September 30, 1998, the Company had two stock-based compensation plans.
As permitted under generally accepted accounting principles, grants under those
plans are accounted for following APB Opinion No. 25 and related
interpretations. The compensation cost associated with grants to non-employees
or non-directors of the Company have been recognized. All options granted to
employees are without compensation expense for financial statement purposes.
NOTE G--INCOME TAXES
The Company has generated net operating losses since its inception. At
September 30, 1998, the Company recorded a valuation allowance in an amount
equal to the deferred tax asset due to the uncertainty of generating future
taxable income.
NOTE H--CONCENTRATION
Approximately 63% of the Company's accounts receivable balance at September
30, 1998 were from four customers, and approximately 75% of the Company's sales
for the six months ended September 30, 1998, were from five customers.
NOTE I--CONTINGENCY
The Company is co-defendant in civil litigation brought by Prudential
Securities, Inc. which seeks damages in excess of $3 million associated with a
margin loan made to a non-affiliated shareholder of the Company. The action
alleges that either the Company or American Stock Transfer & Trust Co.
improperly removed a restrictive legend from the stock certificate underlying
the shares used to collateralize the margin loan. The Company has moved to have
the Prudential suit dismissed and has filed a countersuit against Prudential and
a cross-claim against American Stock Transfer seeking indemnity.
The company believes the claims against it are without merit and that its
actions will cause the matter to be either entirely dismissed or will otherwise
eliminate the company from any liability. The company is vigorously prosecuting
the matter and does not believe the outcome of the suit or the company's
countersuit will have a material adverse impact on the company's financial
position or results of operations.
10
<PAGE>
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.
11
<PAGE>
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.
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.
12
<PAGE>
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 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
13
<PAGE>
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.
14
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is co-defendant in civil litigation brought by Prudential
Securities, Inc. which seeks damages in excess of $3 million associated with a
margin loan made to a non-affiliated shareholder of the Company. The action
alleges that either the Company or American Stock Transfer & Trust Co.
improperly removed a restrictive legend from the stock certificate underlying
the shares used to collateralize the margin loan. The Company has moved to have
the Prudential suit dismissed and has filed a countersuit against Prudential and
a cross-claim against American Stock Transfer seeking indemnity.
The company believes the claims against it are without merit and that its
actions will cause the matter to be either entirely dismissed or will otherwise
eliminate the company from any liability. The company is vigorously prosecuting
the matter and does not believe the outcome of the suit or the company's
countersuit will have a material adverse impact on the company's financial
position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit Description
None.
(b) Since the end of its most recent fiscal year on March 31, 1998, e-Net, Inc.
has filed the following reports on Form 8-K:
<TABLE>
<S> <C>
Date of Report Item Reported
April 16, 1998 Press Release re: Completion of Private Placement sale of Common Stock
October 26, Press Release re: Legal Actions Against Prudential Securities and
1998 American Stock Transfer & Trust Co.
</TABLE>
15
<PAGE>
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)
<TABLE>
<S> <C>
DATE: November 9, 1998 /s/ DONALD J. SHOFF
---------------------------------------------
Donald J. Shoff
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
</TABLE>
16
<TABLE> <S> <C>
<PAGE>
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<S> <C>
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<PERIOD-END> SEP-30-1998
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0
0
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