E NET INC
10QSB, 1999-02-16
COMPUTER PROGRAMMING SERVICES
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<PAGE>

                                  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 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: 000-20865

                                   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 February 5, 1999 Was 8,284,717.

           Transitional Small Business Disclosure Format (check one):
                                  Yes ____ No X

           The Exhibit Index Appears in Sequentially Numbered Page 18




<PAGE>


                                TABLE OF CONTENTS

                          PART I. FINANCIAL INFORMATION

<TABLE>
<CAPTION>

                                                                                                                 Page
<S>                                                                                                             <C>

Item 1. Financial Statements (Unaudited)

        Accountants' Review Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

        Balance Sheets as of December 31 and March 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . .4

        Statements of Operations for the three months ended December 31, 1998 and 1997. . . . . . . . . . . . . .5

        Statements of Operations for the nine months ended December 31, 1998 and 1997. . . . . . . . . . . . .  .6

        Statements of Cash Flows for the nine months ended December 31, 1998 and 1997. . . . . . . . . . . . . . 7

        Statements of Stockholders' Equity as of December 31, 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 4. Submission Of Matters To A Vote Of Security Holders. . . . . . . . . . . . . . . . . . . . . . . . . . .15

Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</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 December 31, 1998, and the related statements of operations,
stockholders' equity and cash flows for the nine-month periods ended December
31, 1998 and 1997, and the statements of operations for the three month periods
ended December 31, 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
January 29, 1999




                                      - 3 -


<PAGE>


                                   E-NET, INC.
                                 BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>

                                                         DECEMBER 31, 1998        MARCH 31, 1998
                                                      -----------------------   -------------------
                                                            (UNAUDITED)              (AUDITED)

<S>                                              <C>                         <C>            
 Current Assets
    Cash and cash equivalents                    $          2,897,960        $       855,743
    Short-term investments                                  5,516,821                960,248
    Accounts receivable                                       682,826                334,602
    Inventory                                               1,160,942                202,917
    Prepaid expenses                                          219,206                176,264
                                                   ------------------          ------------------

TOTAL CURRENT ASSETS                                       10,477,755                2,529,774

DEPOSITS AND OTHER ASSETS                                      14,821                   14,821

PROPERTY, PLANT AND EQUIPMENT, NET                            539,690                  372,403

SOFTWARE DEVELOPMENT COSTS, NET                               668,113                  805,188
                                                   ------------------          ------------------

                                                 $         11,700,379        $       3,722,186
                                                   ------------------          ------------------
                                                   ------------------          ------------------

                                             LIABILITIES AND STOCKHOLDERS' EQUITY

 CURRENT LIABILITIES
    Accounts payable--trade                                 237,282                    314,010
    Accrued liabilities                                     461,787                    561,093
                                                   ------------------          ------------------

TOTAL CURRENT LIABILITIES                                   699,069                    875,103

LONG TERM DEBT                                                 -                          -
                                                   ------------------          ------------------

TOTAL LIABILITIES                                           699,069                   875,103

STOCKHOLDERS' EQUITY
  Common stock, $.01 par value, 50,000,000 shares
   authorized, 8,284,717 and 5,750,000 shares outstanding
   at December 31, and March 31, 1998, respectively          82,847                    57,500
 Stock subscriptions                                            (23)                      (46)
 Additional paid-in capital                              28,474,004                14,163,090
 Retained deficit                                       (17,555,518)              (11,373,461)
                                                   -------------------         ------------------

TOTAL STOCKHOLDERS' EQUITY                               11,001,310                 2,847,083
                                                   -------------------         ------------------

                                                 $       11,700,379        $        3,722,186
                                                   -------------------         ------------------
                                                   -------------------         ------------------
</TABLE>



The accompanying notes are an integral part of these statements.


                                      - 4 -


<PAGE>


                                   E-NET, INC.
                            STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                         THREE MONTHS ENDED DECEMBER 31,

<TABLE>
<CAPTION>

                                                                                    1998                   1997
                                                                                ---------------      ---------------

<S>                                                                             <C>                   <C>          
SALES
    Products                                                                    $      242,946        $      99,235
    Services                                                                           124,394               65,505
                                                                                --------------        -------------
Total sales                                                                            367,340              164,740

COST OF PRODUCT SOLD AND SERVICE PROVIDED
    Products                                                                           182,828               32,412
    Services                                                                            43,531               65,003
                                                                                --------------        -------------
Total cost of product sold and service provided                                        226,359               97,415

GROSS PROFIT                                                                           140,981               67,325

OPERATING EXPENSES
    Selling, general and administrative                                              1,632,680              818,544
    Research and development                                                           833,229              310,470
                                                                                --------------        -------------

LOSS FROM OPERATIONS                                                                (2,324,928)          (1,061,689)

 OTHER INCOME (EXPENSE)
    Other expenses                                                                     (52,936)             (20,404)
    Interest income                                                                    109,138               48,128
                                                                                --------------        -------------

LOSS BEFORE INCOME TAXES                                                            (2,268,726)          (1,033,965)

INCOME TAX PROVISION                                                                      -                    - 
                                                                                --------------        -------------

NET LOSS                                                                        $   (2,268,726)       $  (1,033,965)
                                                                                --------------        -------------
                                                                                --------------        -------------

LOSS PER SHARE                                                                  $         (.27)       $        (.18)
                                                                                --------------        -------------
                                                                                --------------        -------------

WEIGHTED AVERAGE SHARES OUTSTANDING                                                  8,256,828            5,750,000
</TABLE>


The accompanying notes are an integral part of these statements.


                                      - 5 -


<PAGE>



                                   E-NET, INC.
                            STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                         NINE MONTHS ENDED DECEMBER 31,

<TABLE>
<CAPTION>

                                                                                       1998            1997
                                                                                   -------------  -------------
<S>                                                                             <C>               <C>        
SALES
    Products                                                                    $      678,739    $   128,176
    Services                                                                           439,082        250,079
                                                                                   -------------  -------------
Total sales                                                                          1,117,821        378,255

COST OF PRODUCT SOLD AND SERVICE PROVIDED
    Products                                                                           456,477         48,017
    Services                                                                           133,268        160,045
                                                                                   -------------  -------------
Total cost of product sold and service provided                                        589,745        208,062

GROSS PROFIT                                                                           528,076        170,193

OPERATING EXPENSES
    Selling, general and administrative                                              4,774,615      1,990,798
    Research and development                                                         2,106,880        573,651
                                                                                   -------------  -------------

LOSS FROM OPERATIONS                                                                (6,353,419)    (2,394,256)

 OTHER INCOME (EXPENSE)
    Interest and financing expense                                                        -            (5,158)
    Other expenses                                                                    (165,048)      (101,082)
    Interest income                                                                    336,410        178,092
                                                                                   -------------  -------------

LOSS BEFORE INCOME TAXES                                                            (6,182,057)    (2,322,404)

INCOME TAX PROVISION                                                                      -              - 
                                                                                   -------------  -------------

NET LOSS                                                                        $   (6,182,057)   $(2,322,404)
                                                                                   -------------  -------------
                                                                                   -------------  -------------

LOSS PER SHARE                                                                  $         (.79)   $      (.41)
                                                                                   -------------  -------------
                                                                                   -------------  -------------

WEIGHTED AVERAGE SHARES OUTSTANDING                                                  7,777,597      5,695,455
</TABLE>


The accompanying notes are an integral part of these statements.


                                      - 6 -


<PAGE>



                                   E-NET, INC.
                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                         NINE MONTHS ENDED DECEMBER 31,

<TABLE>
<CAPTION>

                                                                                        1998            1997
                                                                                   -------------  -------------

<S>                                                                                <C>            <C>          
 INCREASE (DECREASE) IN CASH AND
    CASH EQUIVALENTS

 CASH FLOWS FROM OPERATING ACTIVITIES
    Net loss                                                                       $ (6,182,057)  $ (2,322,404)
    Adjustments to reconcile net loss to net cash from
      operating activities
        Depreciation and amortization                                                   393,165        128,976
        Stock-Based Compensation                                                           -            62,244
        Changes in operating assets and liabilities
          (Increase) Decrease in accounts receivable                                   (348,223)        17,452
          (Increase) in inventory                                                      (958,025)      (233,144)
          (Increase) in prepaid expenses, deposits and other assets                     (42,943)      (117,987)
          (Decrease) Increase in accounts payable
              and accrued liabilities                                                  (176,034)        23,972
                                                                                   -------------  -------------

NET CASH USED IN OPERATING ACTIVITIES                                                (7,314,117)    (2,440,891)
                                                                                   -------------  -------------

CASH FLOWS FROM INVESTING ACTIVITIES
    Capital expenditures                                                               (393,377)     (290,353)
    Capitalized software development costs                                              (30,000)     (379,969)
    Investment in short term securities                                              (4,556,573)   (2,254,180)
                                                                                   -------------  -------------

NET CASH USED IN INVESTING ACTIVITIES                                                (4,979,950)   (2,924,502)
                                                                                   -------------  -------------

 CASH FLOWS FROM FINANCING ACTIVITIES
    Net proceeds from initial public offering of common stock                              -        5,870,082
    Issuance of common stock                                                             25,347        15,000
    Net proceeds from issuance of stock in private placement, warrant redemption,
        and options exercised                                                        14,310,914          - 
    Payments of common stock subscriptions                                                   23          - 
    Payments on capital leases                                                             -           (4,480)
                                                                                   -------------  -------------

NET CASH PROVIDED BY FINANCING ACTIVITIES                                             14,336,284    5,880,602
                                                                                   -------------  -------------

NET INCREASE IN CASH AND CASH EQUIVALENTS                                              2,042,217      515,209

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                         855,743      379,441
                                                                                   -------------  -------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                         $   2,897,960  $   894,650
                                                                                   -------------  -------------
                                                                                   -------------  -------------

 SUPPLEMENTAL DISCLOSURES:
    Income Taxes Paid                                                              $        -     $      -  
                                                                                   -------------  -------------
                                                                                   -------------  -------------

    Interest Paid                                                                  $        -     $       158
                                                                                   -------------  ------------- 
                                                                                   -------------  -------------
</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                 63,793            638           --           222,899            --           223,537

Stock-subscriptions received               --             --             23              --              --                23

Net loss                                   --             --             --              --        (6,182,057)     (6,182,057)
                                   ------------   ------------   ------------    ------------    ------------    ------------

BALANCE, DECEMBER 31, 1998            8,284,717   $     82,847   $     (23)      $ 28,474,004    $(17,555,518)   $ 11,001,310
                                   ------------   ------------   ------------    ------------    ------------    ------------
                                   ------------   ------------   ------------    ------------    ------------    ------------
</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 nine months ended December 31, 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
restricted shares of the Company's common stock, par value $.01 per share
("Common Stock"), 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 the 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 December 31, 1998, the
Company has capitalized $668,113, 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 nine-month periods ended December 31, 1998 and 1997 were $167,075 and
$-0-, respectively.

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 December 31, 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 has been recognized. All options granted to
employees are without compensation expense for financial statement purposes.

                                      - 9 -


<PAGE>




NOTE G--INCOME TAXES

     The Company has generated net operating losses since its inception. At
December 31, 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 71% of the Company's accounts receivable balance at December
31, 1998 was from four customers, and approximately 74% of the Company's sales
for the nine months ended December 31, 1998, were from four customers.

NOTE I--CONTINGENCIES

     The Company is the defendant in civil litigation brought by the holders of
300,000 warrants issued in connection with the underwriting of the Company's
initial public offering (the "Holders"). The Holders allege that the Company did
not register the reoffer and resale of those warrants when required by the
Underwriting Agreement and Representative's Warrant Agreement between the
Company and Barron Chase securities, Inc., the underwriter of the Company's
initial public offering (the "Underwriter" ). The Holders, to whom the
Underwriter assigned its rights to receive those warrants and who include Robert
Kirk, the President of the Underwriter (as holder of 240,000 of the 300,000
total warrants), seek to recover between $2,562,000 and $2,862,000 in alleged
losses. The Company removed the case to the United States District Court for the
Southern District of Florida, and the plaintiffs have moved to remand the case
to state court. Prior to completion of the removal process, the state court
entered a default, which was entered without notice to the Company's counsel as
required by Florida law. The plaintiffs have not sought to have judgement ended
on the default and the Company would vigorously oppose any such effort. The
Company has moved in federal court to vacate the default.

     The Company disputes the Holders' interpretation of the Underwriting
Agreement and Representative's Warrant Agreement and believes that it has
complied with its obligations under the Underwriting Agreement and
Representative's Warrant Agreement. While management intends to vigorously
defend this case, management believes it is too early to form an opinion as to
its ultimate impact on the Company's financial condition or results of
operations and can give no assurance in that regard.

     The Company is a co-defendant in civil litigation brought by Prudential
Securities, Inc. ('Prudential"), 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., the transfer agent for the Company's Common Stock (the "Transfer
Agent"), 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 Transfer Agent has filed a cross-claim against the Company for indemnity and
other theories to recover from the Company any amounts it pays Prudential or
expends in defending the suit.

     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 any related
countersuits or counterclaims 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

THIRD QUARTER ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997

SALES

     Sales for the third quarter ended December 31, 1998 were approximately
$367,300, an increase of 123% over the approximately $164,700 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 December 31, 1998 were primarily from two customers.

GROSS PROFIT

     Gross profits for the third quarter ended December 31, 1998 were
approximately $141,000 or 38% of sales, compared to the approximately $67,300 or
41% of sales for the corresponding quarter of 1997. The gross profit for product
sales for the third quarter ended December 31, 1998 was approximately 25% of
sales, compared to approximately 67% 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 third quarter ended
December 31, 1998 were approximately $1,632,700, an increase of 99% over the
approximately $818,500 recorded for the corresponding quarter of 1997. The
dollar increase in these expenses over the prior year primarily reflected
additional spending for personnel and programs consistent with the Company's
emphasis on the T2000 product line. The increased spending level in the third
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 third quarter ended December 31,
1998 were approximately $833,200, a 168% increase over the approximately
$310,500 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 third quarter ended December 31, 1998 was
approximately $56,200, an increase over the approximately $27,700 recorded for
the corresponding quarter of 1997. In the third quarter ended December 31, 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.


NINE MONTHS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997

SALES

     Sales for the nine months ended December 31, 1998 were approximately
$1,117,800, an increase of 196% from the approximately $378,300 recorded for the
corresponding nine months of 1997. The revenue increase was due primarily to the
availability of the Company's T2000 product line. The services sales for the
nine months ended December 31, 1998, were primarily from two customers.

GROSS PROFIT

     Gross profits for the nine months ended December 31, 1998 were
approximately $528,100 or 47% of sales, compared to the approximately $170,200
or 45% of sales for the corresponding quarter of 1997. The gross profit for
product sales for the nine months ended December 31, 1998 was approximately 33%
of sales, compared to approximately 63% of sales for the corresponding nine
months of 1997.


                                     - 11 -

<PAGE>


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 nine months ended
December 31, 1998 were approximately $4,774,600, an increase of 140% over the
approximately $1,990,800 recorded for the corresponding nine months of 1997. The
dollar increase in these expenses over the prior year primarily reflected
additional spending for personnel and programs consistent with the Company's
emphasis on the T2000 product line. The increased spending level in the nine
months ended December 31, 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 nine months ended December 31, 1998
were approximately $2,106,900, a 267% increase over the approximately $573,700
recorded for the corresponding nine 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 nine months ended December 31, 1998 was
approximately $171,400, an increase over the approximately $71,900 recorded for
the corresponding period of 1997. In the nine months ended December 31, 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

     To date, seasonality has not had a material impact on the Company's results
of operations.


LIQUIDITY AND CAPITAL RESOURCES

     In the nine months ended December 31, 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 $(5,788,900) in cash flows from operating
activities, excluding changes in assets and liabilities, during the first nine
months ended December 31, 1998, compared to approximately $(2,131,200) 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 $(7,314,100) for the nine months ended December 31,
1998, compared to approximately $(2,440,900) for the corresponding quarter of
1997.

     Cash used by investing activities totalled approximately $(4,980,000) for
the nine months ended December 31, 1998 as compared to approximately
$(2,924,500) for the corresponding period of 1997. The main component of that
investing activity was the investment in short-term securities of approximately
$(4,556,600), as well as continued expenditures for property and equipment of
approximately $(393,400).

     Cash provided by financing activities totalled approximately $14,336,000
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 third quarter ended September 30, 1998.


                                     - 12 -

<PAGE>


     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 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 third quarter of fiscal 1998 and the Company believes that
revenues will continue to grow as contracts are finalized and products are
delivered over fiscal 2000. 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 2000. 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 


                                     - 13 -

<PAGE>


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, 1999. The costs of any such
remediation effort are unknown at this time; however, the Company anticipates
that this testing activity and associated costs will 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 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.

                                     - 14 -


<PAGE>




PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

     On November 30, 1998, the Holders filed a civil suit against the Company in
the Circuit Court in the 15th Judicial Circuit in and for Palm Beach County,
Florida. The Holders allege that the Company did not register the reoffer and
resale of those warrants when required by the Underwriting Agreement and
Representative's Warrant Agreement between the Company and the Underwriter. The
Holders, to whom the Underwriter assigned its rights to receive those warrants
and who include Robert Kirk, the President of the Underwriter (as holder of
240,000 of the 300,000 total warrants), seek to recover between $2,562,000 and
$2,862,000 in alleged losses. The Company removed the case to the United States
District Court for the Southern District of Florida, and the plaintiffs have
moved to remand the case to state court. Prior to completion of the removal
process, the state court entered a default, which was entered without notice to
the Company's counsel as required by Florida law. The plaintiffs have not sought
to have judgement ended on the default and the Company would vigorously oppose
any such effort. The Company has moved in federal court to vacate the default.

     The Company disputes the Holders' interpretation of the Underwriting
Agreement and Representative's Warrant Agreement and believes that it has
complied with its obligations under the Underwriting Agreement and
Representative's Warrant Agreement. While management intends to vigorously
defend this case, management believes it is too early to form an opinion as to
its ultimate impact on the Company's financial condition or results of
operations and can give no assurance in that regard.

     The Company first reported that it is co-defendant in civil litigation
brought by Prudential in its Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1998. Since that time, the Transfer Agent has filed a
cross-claim against the Company for indemnity and other theories to recover from
the Company any amounts it pays Prudential or expends in defending the suit.
However, the Company continues to believe 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 still
vigorously prosecuting the matter and continues that believe that the outcome of
the suit and any related countersuits and counterclaims will not have a material
adverse impact on the Company's financial position or results of operations.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     On December 18, 1998, at the Company's 1998 Annual Meeting of Shareholders,
the shareholders of the Company voted on the following matters:

Concerning the election of directors:
<TABLE>
<CAPTION>

Nominees for Director                                    Votes Cast For                        Votes Withheld
- ---------------------                                    --------------                        --------------

<S>                                                      <C>                                   <C>   
Gen. Alonzo E. Short, Jr.                                7,256,395                             60,265
Robert A. Veschi                                         7,256,395                             60,265
William W. Rogers, Jr.                                   7,256,395                             60,265
William L. Hooton                                        7,256,395                             60,265
Clive G. Whittenbury, Ph.D.                              7,256,395                             60,265


Concerning approval of the Restated Certificate of Incorporation:

Votes Cast For:                                          4,838,017
Votes Cast Against:                                      230,898
Abstentions:                                             23,340
Broker Non-Votes                                         2,224,405


Concerning approval of the 1998 Stock Compensation Plan:

Votes Cast For:                                          4,599,636
Votes Cast Against:                                      377,820
Abstentions:                                             20,150
Broker Non-Votes                                         2,319,054


                                     - 15 -


<PAGE>




Concerning ratification of independent auditors for fiscal year 1999:

Votes Cast For:                                          7,283,285
Votes Cast Against:                                      16,470
Abstentions:                                             16,905
Broker Non-Votes                                         not applicable
</TABLE>



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.


(a)  Exhibit     Description
     Number

     3.1           Restated Certificate of Incorporation, filed December 18, 
                   1998 (incorporated by reference from Post-Effective Amendment
                   No. 2 to the Company's Registration Statement on Form S-1, 
                   as filed with the SEC on January 6, 1998, as further amended
                   and declared effective on January 27, 1999 ("Post-Effective 
                   Amendment No. 2"))

     3.2           Restated Bylaws of the Company (incorporated by reference 
                   from Post-Effective Amendment No. 2)

    10.1           Attachments D, effective June 23, 1998, and E, effective 
                   November 23, 1998, to COM21 Software Development Agreement

    10.2           1998 Stock Compensation Plan effective June 30, 1998, as 
                   approved by the shareholders on December 18, 1998


(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>
<CAPTION>

         Date of Report             Item Reported
<S>      <C>                        <C>

         April 16, 1998             Item 5 - Other Events
         October 26, 1998           Item 5 - Other Events
         January 29, 1999           Item 5 - Other Events
</TABLE>

                                     - 16 -


<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)





DATE:  February 12, 1999   /s/ Donald J. Shoff
                           -------------------

                           Donald J. Shoff
                           Vice President and Chief Financial Officer
                           (Principal Financial Officer)


                                     - 17 -


<PAGE>


                                  EXHIBIT INDEX

<TABLE>
<CAPTION>

                                                                                Sequentially
Exhibit                                                                           Numbered
Number                        Description                                           Page
<S>                                                                                  <C>

3.1    Restated Certificate of Incorporation, filed December 18, 1998 
       (incorporated by reference from Post-Effective Amendment No. 2 to the
       Company's Registration Statement on Form S-1, as filed with the SEC on
       January 6, 1998, as further amended and declared effective on January 27,
       1999 ("Post-Effective Amendment No. 2"))

3.2    Restated Bylaws of the Company (incorporated by reference from
       Post-Effective Amendment No. 2)

10.1   Attachments D, effective June 23, 1998, and E, effective November 23, 1998,
       to COM21 Software Development Agreement

10.2   1998 Stock Compensation Plan effective June 30, 1998, as approved by the
       shareholders on December 18, 1998
</TABLE>


<PAGE>





EXHIBIT 10.1

                                  ATTACHMENT D
                       FAR END ECHO CANCELLATION SOFTWARE



1. BACKGROUND AND PURPOSE OF EXHIBIT

This exhibit describes the Far End Echo Cancellation Software deliverable and
presents milestones for deliverable, payment and testing.

2. FAR END ECHO CANCELLATION SOFTWARE DESCRIPTION

e-Net will provide:

1. TMS320C203 Assembly source and object code that supports an 8 ms Echo Window
with a real time configurable delay parameter from 10 to 127 ms in 1 ms
increments. This code gives Com21 the capability to cancel Far End Echo.

2. Delay parameter function call which has an argument of port and returns the
delay parameter for the specified port. The Delay parameter function requires
that a call be made to a remote station which is answered and muted and then the
function called.

With the Far End Echo software development, the AIM unit will be able cancel
both near end echo (which is covered under prior contract) and far end echo when
the configurable delay parameter is tuned.

e-Net will provide the following  test setup:

1. Use a two port AIM card, and communicating between the two ports.

2.   Add delay to the call up to 120 ms in less than 6 ms increments and
     configurable on a per call basis; and

3. Be able to enable/disable near end echo cancellation software (which is
covered under prior contract) and far end echo cancellation software on either
port

4. The above allows e-Net to demonstrate that Far End echo cancellation is
operational. A configurable delay parameter will be added in a Telephone Port 1
to Port 2 AAL1 local loopback as defined in Attachment C of the prior contract.

3. RESPONSIBILITIES OF E-NET AND COM21
<TABLE>
<CAPTION>

- --------------------------------------------------------------------------------------------------------
Description                                                               e-Net             Com21
- --------------------------------------------------------------------------------------------------------
<S>     <C>                                                               <C>                   <C>

       Clock Synchronization                                                                    X
- --------------------------------------------------------------------------------------------------------
           Setting  Delay Parameter                                                             X
- --------------------------------------------------------------------------------------------------------
           Far End Echo integration into existing code                    X           
- --------------------------------------------------------------------------------------------------------
           Far End test setup                                             X           
- --------------------------------------------------------------------------------------------------------
           Enable/Disable of near end echo cancellation 
           software and/or  far end  echo software                                              X
- --------------------------------------------------------------------------------------------------------
           Delay Parameter Function that returns delay value per port     X
- --------------------------------------------------------------------------------------------------------
           Calling of Delay Parameter Function                                                  X
- --------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>





           4.  MILESTONE/PAYMENT

<TABLE>
<CAPTION>

                                           TIMEFRAME                    DESCRIPTION                  PAYMENT

           <S>                             <C>                          <C>                          <C>     
           MILESTONE 1                     Within 2 week                e-Net delivers               $ 20,000
                                           of Contract                  source, object
                                           signing                      and test code

           MILESTONE 2                     2 weeks from                 e-Net delivers               $ 5,000
                                           Milestone 1                  Delay Parameter
                                                                        function
           MILESTONE 3                     4 weeks from                 Com21 verifies               $ 15,000
                                           Milestone 2                  functionality
</TABLE>

     ADDITIONAL TECHNICAL, CONTRACTUAL, AND PRICE NOTES

          a. Far End Echo Cancellation requires Clock Synchronization. If Clock
     Synchronization is not provided, there may be Quality Issues. e-Net is not
     providing Clock Synchronization hereunder.

          b. Local/Near End Echo Tail may be reduced to 4 ms from 6 ms as stated
     in the contract in Attachment C.

          c. Processor Utilization may increase to 80 % for both channels with
     Far End Echo Cancellation activated versus 65% stated in the contract in
     Attachment C.

          d. Enable/Disable of Near End Echo Cancellation Software and/or Far
     End Echo Cancellation software must be configurable in real time and per
     port.






                                       [GRAPHIC]




                                      -2-



<PAGE>


     All other existing contract provisions remain as currently stated and are
     unchanged hereby. IN WITNESS WHEREOF, the parties hereto have executed this
     Attachment D to be added to the Software Development Agreement between
     e-Net and Com21.


     Com21, Inc                                          e-Net, Inc

     By: /S/ DAVID L. ROBERTSON                          By: /S/ DONALD J. SHOFF
       ------------------------                            ---------------------

     Name:  DAVID L. ROBERTSON                           Name:  DONALD J. SHOFF
       ------------------------                            ---------------------

     Title:  V.P. FINANCE                                Title:  V.P. FINANCE
       ------------------------                            ---------------------

                                      -3-

<PAGE>



                                  ATTACHMENT E
     VOICE OVER INTERNET PROTOCOL (VOIP) SOFTWARE, AND CALLER ID GENERATION,

     1.   BACKGROUND AND PURPOSE OF EXHIBIT

     This exhibit describes the Voice Over Internet Protocol (VOIP) Software,
     Caller ID Generation Software and AIM AMD Hardware Modifications
     deliverables and presents milestones for deliverables, payments and
     testing.

     2.   VOICE OVER INTERNET PROTOCOL (VOIP) SOFTWARE DESCRIPTION

     VOIP LOAD

     e-Net will provide a VOIP specific code base with:

     1.   TMS320C203 C and Assembly source and object code and documentation
          that supports: 

     - IP Stack
          -    UDP process with length verification on received packets 
          -    UDP process for transmit packets
          -    ARP and ICMP(Redirects and Echo responses)
          -    Basic Default route routing table
     - Ethernet and AAL5 Header Generation and Parsing 
     - RTP/RTCP with Jitter and Buffer algorithms and silent insertion for lost
       cells. 
     - DTMF Detection for digits `0-9, #, *,A,B,C,D' 
     - Software structure to Support configurable Ring Cadences 
     - Code base will remove Far End Echo Cancellation code 
     - Simple Gateway Control Protocol (SGCP) implementation based on CableLabs 
       PacketCableTM SGCP 1.1 Profile for Embedded Client Signaling limited to: 
          -    Digit collection based Digit Map as defined in SGCP 1.1 for
               Embedded Client Signaling. 
          -    User tone signaling as defined in PacketCable Service
               Requirements Draft Version 0.2 and a software structure to
               configure tone characteristics for Internationalization. 
          -    Tone generator function so that Com21 can generate/create single
               and dual tones 
          -    Basic State Machine for Incoming and Outgoing calls per SGCP 1.1
               for Embedded Client Signaling 
     - Specific documentation covering the Call Flows and State Machine of
       the AIM Client Software

           Com21 will provide:

     - Software at the Headend to process ARP and IP packets to the specific
          AIM 
     - Software at the Headend or a remote agent to process SGCP messages for
          call setup and control 
     - Any enhancement over basic Incoming and Outgoing Calls supported by
          e-Net

CALLER ID GENERATION SPECIFICS

     1.   TMS320C203 C and Assembly source and object code that supports Caller
          ID Generation for the US market which will meet the Bellcore Document
          TR-NWT-000030 and TR-NWT-000031.
     2.   TMS320C203 C and Assembly source and object code that supports Caller
          ID Generation for the Europe market which will meet European
          Telecommunication Standard ETS 300 659-1 and ETS 300 659-2
     3.   Documentation of the functions for generating Caller ID and the
          selection of type (US or Europe) and documented source code on the
          generation.

           The Caller ID Generation provided will work as described below:

     1.   A VOIP Gateway will receive Caller ID information from either the PSTN
          or PBX .

     2.   The VOIP Gateway will send this information to the call agent at
          either the Headend or remote agent in a H.323 or SGCP message.

     3.   The call agent will send the Caller ID information in Data Message
          Format as described in Bellcore Document TR-NWT-000031 to AIM via SGCP
          message or other mutually agreeable message.


                                      -4-


<PAGE>

4.   The AIM VOIP Card will ring the line called and outpulse the Caller ID
     information per either the US or European Specification.

3.   RESPONSIBILITIES OF E-NET AND COM21


<TABLE>
<CAPTION>

           <S>                                                          <C>              <C>
           DESCRIPTION                                                  E-NET            COM21

           SGCP on AIM                                                    X

           SGCP on Headend or external Call Agent                                          X

           DTMF Detection on AIM                                          X
           (0-9 and `#' and `*')
           RTP/RTCP on AIM                                                X

           IP Stack for UDP, with ARP and ICMP(Redirect and               X
           echo)

           ARP and IP Processing at Headend                                                X

           Caller ID Generation (US and Europe
           Implementations)                                               X

           Provide IP and DNS information to AIM                                           X

           Jitter Management and Silent Interpolation on AIM
                                                                          X

           Ethernet and AAL5 Header generation and parsing
                                                                          X

           Software structure to support various Ring Cadences
                                                                          X

           Caller ID in Data Message Format  in an SGCP                                    X
           Message

           Internationalization of Tones
                                                                          X

           Transmit and Receive of ATM Cells                                               X

</TABLE>

NOTES:

1.       Conferencing is outside VOIP AIM scope and must be resolved by Com21
         using an external MCU

2.       ASDI display is outside VOIP AIM scope but Caller ID functionality is
         supported as described above
           

3.       The AIM implementation will not process or generate CRCs on the
         Ethernet packet or AAL5

4.   MILESTONE/PAYMENT

     VOIP LOAD

<TABLE>
<CAPTION>

DELIVERABLE         TIMEFRAME         DESCRIPTION                                                           PAYMENT
<S>                 <C>               <C>                                                                   <C>       
MILESTONE 1         Contract signing                                                                        $ 10,000

MILESTONE 2         6 weeks from      1.   E-Net deliverable of basic IP stack functionality with           $ 10,000
                    Milestone 1            ARP, ICMP Echo and UDP Processing, DTMF Detection, an IP voice
                                           encapsulation, and SGCP signaling.  The deliverable will
                                           include documentation, source and object code
                                      2.   Com21 to be able to receive an IP
                                           Ping packet and route to specific AIM
                                           card with the assigned IP address
                                           from a PC outside the 100 Mbps
                                           Ethernet interface on Headend.
                                      3.   Com21 to have SGCP signaling Call Agent that can
                                           communicate with the AIM implementation


MILESTONE 3         4 weeks from      1.   IP Stack with ICMP Redirect                                      $ 10,000
                    Milestone 2       2.   RTP/RTCP Support


MILESTONE 4         4 weeks from      Com21 performs tests that e-Net ran to verify functionality or        $ 16,000
                    Milestone 3       Com21 witnesses tests performed by e-Net

MILESTONE 5         10 weeks from     Com21 verifies functionality in Integration testing                   $ 16,500
                    Milestone 4

</TABLE>

         PLUS

     Note: In addition to the payment described above, the contract will be
     modified to change the existing 30 months of Royalty payments of $5 (for
     each unit of Company Product sold or otherwise distributed by the Company,
     excluding Company Products distributed in connection with beta testing or
     demonstration purposes, returns, products repurchased from inventory and
     replacement) to 42 months Royalty payments of $5 for any Com21 product so
     sold or distributed which is derived from e-Net's development effort under
     the contract including contract modifications.

          SGCP signaling software provided as part of the VOIP Load can be used
         on other Com21 products without payment of royalty as stated above as
         long as Com21 has met the milestone payments per the above VOIP Load
         Schedule.

                                      -5-

<PAGE>


         CALLER IDENTIFICATION SOFTWARE

<TABLE>
<CAPTION>

DELIVERABLE         TIMEFRAME         DESCRIPTION                                                           PAYMENT
<S>                 <C>               <C>                                                                  <C>
MILESTONE 1         Milestone 3 of    1. Caller ID Generation (Bellcore and EU versions)                   $ 20,000
                    VOIP Load         2. SGCP signaling message for Caller ID
                                      3. Deliverable will include documentation, source and object
                                         code
MILESTONE 2         Milestone 4 of    Com21 verifies functionality                                          $ 20,000
                    VOIP Load
</TABLE>


Note: Caller Identification Software is not subject to royalty payments as long
as Com21 has met the milestone payments per the above Caller Identification
Software schedule

     5.   STANDARDS IMPLEMENTATION CLARIFICATIONS

          1.   e-Net will support CABLELABS PACKETCABLETM SGCP 1.1 PROFILE FOR
               EMBEDDED CLIENT SIGNALING with the following clarification:

               -    Com21 to provide IP Address and Endpoint names 
               -    E-Net will support Digit Map with a "one-digit" digit map
                    approach supported and the full digit map approach. 
               -    E-Net will support a minimum of four audio connections per
                    endpoint (2 calls with 2 connections each) but will not
                    support any mixing of input or output based on jitter buffer
                    size not to exceed 1K bytes. 
               -    E-Net will support G.711 u-law and a-law encoding 
               -    E-Net will provide a long duration connection event setable
                    to disconnect calls with minimum value of 1 hour and a
                    maximum value of 24 hours. 
               -    Com21 to provided Caller ID Data Message Format as defined
                    in Bellcore Document TR-NWT-000031 in a mutually agreeable
                    packet format between the Head End and AIM. 
               -    Com21 to finalize SGCP signaling messages between Call Agent
                    and AIM with an e-Net review to verify that the signaling is
                    in the SGCP implementation scope. 
               -    e-Net will not implement any IP security.

     6.   VOIP LOAD TESTING

          MILESTONE 2 ACCEPTANCE TESTING

          Milestone 2 Acceptance Testing by e-Net will include:

          1.   Basic Load compiles and runs 
          2.   DTMF Detection 
          3.   Tones specified in PacketCable Service Requirements Draft Version
               0.2 verified such as Busy, Dialtone, etc 
          4.   Hook and Flash Detection 
          5.   IP Stack verification with ARP and ICMP Echo using a Telset Card
          6.   Simulate Call Agent to test SGCP Gateway control functions
               between 2 ports on an AIM

          MILESTONE 3 ACCEPTANCE TESTING

          Milestone 3 Acceptance Testing by e-Net will consist of:

          1.   ICMP Redirect using a Telset Card
          2.   RTP/RTCP working between 2 ports on an AIM
          3.   RTP/RTCP dropped packet test between 2 ports on an AIM

          Note: Com21 will perform integration testing at their facility for end
          to end functionality. Due to possible Com21 and e-Net development
          schedule differences, Com21 is to verify e-Net deliverables in
          Milestone 2 and 3 using basic tests that e-Net was able to perform at
          their facility on a single AIM card to meet payment deliverables. The
          Milestone 5 deliverable is positioned to allow Com21 to complete full
          integration testing and proceed to Alpha Test.

          7.   CALLER ID TESTING

                                      -6-

<PAGE>


          Milestone 1 Acceptance Testing by e-Net will consist of:



          1.   Generate messages to EU Caller ID display device and US Caller ID
               display device

          Milestone 3 accomplished by Com21 will consist of:

          1.   Using the AIM provided code from e-Net, verify AIM to Call Agent
               Interworking which involves - SGCP Message to AIM generates
               message on both EU and US Caller ID displays


          8.   PRODUCT SUPPORT AND ACCEPTANCE TESTING

          The Product Support for the VOIP Software, and Caller ID Generation
          will as described in section 7 in the current contract


          All other existing contract provisions remain as currently stated and
          are unchanged hereby. IN WITNESS WHEREOF, the parties hereto have
          executed this Attachment E to be added to the Software Development
          Agreement between e-Net and Com21.

           Com21, Inc                                  e-Net, Inc

           By: /s/ DAVID L. ROBERTSON                  By:  /s/ DONALD J. SHOFF
             ------------------------                     ----------------------
           Name:  DAVID L. ROBERTSON                   Name:  DONALD J. SHOFF
               ----------------------                      ---------------------
           Title:  V.P. FINANCE                        Title:  V.P. FINANCE
                ---------------------                       --------------------


<PAGE>




EXHIBIT 10.2








                                   E-NET, INC.

                          1998 STOCK COMPENSATION PLAN



                          EFFECTIVE AS OF JUNE 30, 1998
                                   E-NET, INC.
                          1998 STOCK COMPENSATION PLAN


I.       THE PLAN

         1.1 PURPOSE. The purpose of the e-Net, Inc. 1998 Stock Compensation
Plan is to promote the success of the Corporation and its Subsidiaries by
providing an additional means through the grant of Awards to provide officers
and employees with stock compensation that is comparable with compensation for
employment with other similar companies in order to attract, motivate, retain
and reward officers and employees; to provide incentives for high levels of
individual performance and improved financial performance; to attract, motivate
and retain experienced and knowledgeable independent directors; to attract,
motivate and retain experienced and knowledgeable independent contractors; and
to promote a close identity of interests between directors, officers, employees,
independent contractors and stockholders.

          1.2  DEFINITIONS.

          The  following terms shall have the meanings set forth below:

               (1) "AWARD" shall mean an award of any Option authorized under
          Section 1.6, that is authorized by and granted under this plan.

               (2) "AWARD DATE" shall mean the date upon which the Outside Board
          or the Board, as applicable as determined pursuant to Section 1.3,
          takes the action granting an Award or such later date as the Outside
          Board or the Board designates as the Award Date at the time of
          granting the Award.

               (3) "AWARD DOCUMENT" shall mean any writing, which may be an
          agreement, setting forth the terms of an Award that has been granted
          by the Outside Board or the Board.

               (4) "AWARD PERIOD" shall mean the period beginning on an Award
          Date and ending on the expiration date of such Award.

               (5) "BENEFICIARY" shall mean the person or persons designated by
          a Participant in writing to the Board to receive the benefits
          specified in an Award Document and under this Plan in the event of the
          Participant's death, or, if the Participant has not designated such
          person or persons, or such person or persons shall all have
          predeceased the Participant, the executor or administrator of the
          Participant's estate.

               (6) "BOARD" shall mean the Board of Directors of the Corporation.

               (7) "CODE" shall mean the Internal Revenue Code of 1986, as
          amended from time to time. Any reference herein to a section of the
          Code shall include any corresponding future provision of federal tax
          law.

               (8) "COMMON STOCK" shall mean the common stock of the Corporation
          and, in the event such common stock is converted to another security
          or property pursuant to Section 3.2, such other security or property.


                                      -1-

<PAGE>

               (9) "CORPORATION" shall mean e-Net, Inc. and its successors, and,
          where the context requires, its Subsidiaries.

               (10) "EMPLOYEE" shall mean any employee of the Corporation or a
          Subsidiary, including a director who is also an employee.

               (11) "ELIGIBLE PARTICIPANT" shall mean any Employee or
          Independent Contractor.

               (12) "ERISA" shall mean the Employee Retirement Income Security
          Act of 1947, as amended.

               (13) "EXCHANGE ACT" shall mean the Securities Exchange Act of
          1934, as amended from time to time, and any successor provision.

               (14) "FAIR MARKET VALUE" shall have such meaning as determined by
          the Outside Board from time to time based upon its reasonable
          judgement as indicated by its written approval.

               (15) "INDEPENDENT CONTRACTOR" shall mean any individual who
          engages in service for hire for the Corporation or a Subsidiary under
          a written contract approved by the Board.

               (16) "INSIDER" shall mean an officer of the Corporation, a
          director of the Corporation, or a beneficial owner of ten percent
          (10%) or more of the Corporation's issued and outstanding Common Stock
          or other equity security registered pursuant to Section 12 of the
          Exchange Act, as defined pursuant to Section 16 of the Exchange Act
          and the rules and regulations thereunder.

               (17) "NONMANAGEMENT DIRECTOR" shall mean a member of the Board
          who is not an officer or employee of the Corporation or a Subsidiary.

               (18) "OPTION" shall mean an option to purchase Common Stock
          pursuant to an Award.

               (19) "OUTSIDE BOARD" shall mean the Outside Directors, as a
          group.

               (20) "OUTSIDE DIRECTOR" shall mean a member of the Board who is a
          Non-management Director and who otherwise falls under the definition
          of "Non-Employee Director" in Rule 16b-3.

               (21) "PARTICIPANT" shall mean a Nonmanagement Director or an
          Eligible Participant who has been granted an Award under this Plan.

               (22) "PERSONAL REPRESENTATIVE" shall mean to person or persons
          who, upon the incompetence of a Participant, shall have acquired on
          behalf of the Participant, by legal proceeding, pursuant to a durable
          power of attorney or otherwise, the power to exercise the rights or
          receive benefits under this Plan and who shall have become the legal
          representative of the Participant.

               (23) "PLAN" shall mean this e-Net, Inc. 1998 Stock Compensation
          Plan.

               (24) "PLAN TERMINATION DATE" shall mean the tenth anniversary of
          the effective date of the Plan, as determined pursuant to Section 3.7.

               (25) "QDRO" shall mean a qualified domestic relations order as
          defined in Section 414(p) of the Code or Section 206(d)(3) of ERISA
          (to the same extent as if this Plan were subject thereto), or the
          applicable rules thereunder.

               (26) "RETIREMENT" shall mean, in the case of an Employee,
          retirement as defined in the Corporation's Retirement Pension Plan, as
          amended from time to time.

               (27) "RULE 16B-3" shall mean Rule 16b-3 as promulgated by the
          Securities and Exchange Commission pursuant to the Exchange Act.

               (28) "SUBSIDIARY" shall mean any subsidiary of the Corporation
          which meets the definition of a "subsidiary corporation" set forth in
          Section 424(f) of the Code.

               (29) "TOTAL DISABILITY" shall mean complete and permanent
          inability by reason of illness or accident to perform the duties of
          the occupation at which the Participant was employed when the illness
          commenced or accident occurred, as determined by 

                                      -2-

<PAGE>


          the Corporation's independent medical consultant, and, in the case of
          Eligible Participants who are Insiders, ratified by the Outside Board.

          1.3 ADMINISTRATION AND AUTHORIZATION; POWER AND PROCEDURE.

     (a) THE OUTSIDE BOARD AND THE BOARD. This Plan shall be administered by,
and all Awards to Eligible Participants shall be authorized by, the Outside
Board in the cases of Eligible Participants who are Insiders and of
Nonmanagement Directors, and the Board in the case of Eligible Participants who
are not Insiders. Action of the Outside Board or the Board with respect to the
administration of this Plan shall be taken pursuant to a majority vote or by
unanimous written consent of the respective members, PROVIDED, HOWEVER, that no
director may participate in a decision to grant an Award to himself or herself.
All references in this Plan to actions or determinations in respect of Awards by
the Outside Board shall be references to Awards granted to Eligible Participants
who are Insiders and to Nonmanagement Directors. All references in this Plan to
action or determinations in respect of Awards by the Board shall be references
to Awards granted to Eligible Participants who are not Insiders. The Outside
Board shall administer this Plan with respect to all Awards held by Eligible
Participants who are Insiders and by Nonmanagement Directors, including Awards
granted prior to the time that any such Eligible Participant becomes an Insider.

     (b) PLAN AWARDS; INTERPRETATION; POWERS. Subject to the express provisions
of this Plan, the Outside Board or the Board shall have the authority:

               (i) to determine the Eligible Participants and Nonmanagement
          Directors who will receive Awards; PROVIDED, HOWEVER, that no director
          may participate in a decision to grant an Award to himself or herself;

               (ii) to grant Awards to such Eligible Participants and
          Nonmanagement Directors, to determine the amount of and the price at
          which Common Stock will be offered or awarded thereto, to determine
          the other specific terms and conditions of such Awards consistent with
          the express limits of this Plan, to establish the installments (if
          any) in which such Awards shall become exercisable or shall vest, and
          to establish the expiration date and the events of termination of such
          Awards; PROVIDED, HOWEVER, no director may participate in a decision
          to grant an Award to himself of herself;

               (iii) to construe and interpret this Plan and any Award
          Documents, to further define the terms used in this Plan, and to
          prescribe, amend and rescind rules and regulations relating to the
          administration of this Plan;

               (iv) to cancel, modify, or waive the Corporation's rights with
          respect to, or modify, discontinue, suspend, or terminate any or all
          outstanding Awards held by Eligible Participants and Nonmanagement
          Directors, subject to any required consents under Section 3.5;

               (v) to accelerate or extend the ability to exercise or extend the
          term of any or all outstanding Awards (subject to the maximum term of
          Awards under Section 1.7); and

               (vi) to make all other determinations and take such other actions
          as contemplated by this Plan or as may be necessary or advisable for
          the administration of this Plan and effectuation of its purposes.

     (c) BINDING DETERMINATIONS. Any action taken by, or inaction of, the
Corporation, any Subsidiary, the Board or the Outside Board, relating or
pursuant to this Plan shall be within the absolute discretion of that entity or
body and shall be conclusive and binding upon all persons. Subject only to
compliance with the express provisions hereof, the Board and the Outside Board
may act in their absolute discretion in matters within their authority related
to this Plan.

     (d) RELIANCE ON EXPERTS. In making any determination or in taking or not
taking any action under this Plan, the Board and the Outside Board may obtain
and may rely upon the advice of experts, including professional advisors to the
Corporation.

     (e) DELEGATION. The Board may delegate some or all of its authority under
the Plan to one or more members of the Board. The Outside Board and the Board
may delegate ministerial, non-discretionary functions to individuals who are
officers or employees of the Corporation.

     (f) NO LIABILITY. No member of the Board, or director, officer or employee
of the Corporation or any Subsidiary, shall be liable, responsible or
accountable in damages or otherwise for any determination made or other action
taken or any failure to act by such person so long as such person is not
determined to be guilty by a final adjudication of willful misconduct with
respect to such determination, action or failure to act.

     (g) INDEMNIFICATION. To the extent permitted by law, each of the members of
the Board, and each of the directors, officers and employees of the Corporation
and any Subsidiary, shall be held harmless and be indemnified by the Corporation
for any liability, loss 

                                      -3-

<PAGE>

(including amounts paid in settlement), damages or expenses (including
reasonable attorneys' fees) suffered by virtue of any determinations, acts or
failures to act, or alleged acts or failures to act, in connection with the
administration of this Plan so long as such person is not determined by a final
adjudication to be guilty of willful misconduct with respect to such
determination, action or failure to act.

     1.4 PARTICIPATION. Awards may be granted by the Outside Board or the Board
only to Eligible Participants or to Nonmanagement Directors; PROVIDED HOWEVER,
that no director may participate in a decision to grant an Award to himself or
herself. An Eligible Participant or Nonmanagement Director who has been granted
an Award may, if otherwise eligible, be granted additional Awards if the Outside
Board or the Board shall so determine.

     1.5 SHARES AVAILABLE FOR AWARDS.

     (a) COMMON STOCK. Subject to the provisions of Section 3.2, the Common
Stock that may be delivered under this Plan shall be shares of the Corporation's
authorized but unissued Common Stock, any shares of Common Stock held as
treasury shares, and shares of Common Stock purchased by the Corporation on the
open market.

     (b) NUMBER OF SHARES. Subject to adjustments in accordance with Section
3.2, the maximum number of shares of Common Stock that may be delivered pursuant
to Awards granted to Eligible Participants and Nonmanagement Directors under
this Plan shall not exceed one million (1,000,000) shares.

     (c) CALCULATION OF AVAILABLE SHARES AND REPLENISHMENT. A good faith
estimate of the number of shares of Common Stock subject to outstanding Awards
that will be satisfied by delivery of shares of Common Stock, plus the number of
shares of Common Stock referenced for purposes of determining other Awards,
shall be reserved from the number of shares of Common Stock available for Awards
under this Plan. The aggregate number of shares of Common Stock delivered under
this Plan plus the number of shares referenced with respect to Awards paid in
cash shall reduce the number of shares of Common Stock remaining available. If
any Award shall expire or be canceled or terminated without having been
exercised in full, or any Common Stock subject to an Award shall not vest or be
delivered, the unpurchased, nonvested or undelivered shares of Common Stock
subject thereto or the shares of Common Stock referenced with respect thereto
shall again be available under this Plan; PROVIDED, HOWEVER, that no such
unpurchased, nonvested or undelivered shares shall again be available if the
holder received dividends with respect to such shares or any other benefits of
ownership of such shares, other than voting rights or the accumulation of
dividends that are never paid to the holder. If the Corporation withholds shares
of Common Stock pursuant to Section 3.4, the number of shares that would have
been deliverable with respect to an Award but that are withheld pursuant to the
provisions of Section 3.4 shall be treated as issued and the aggregate number of
shares issuable with respect to the applicable Award and under this Plan shall
be reduced by the number of shares so withheld and such shares shall not be
available for additional Awards.

     1.6 GRANT OF AWARDS. Subject to the express provisions of this Plan, the
Outside Board or the Board shall determine the number of shares of Common Stock
subject to each Award, the price (if any) to be paid for the shares or the Award
and other terms and conditions of the Award. Each Award to an Eligible
Participant or a Nonmanagement Director shall be evidenced by an Award Document
signed by the Corporation and, if required by the Outside Board or the Board, by
the Eligible Participant or Nonmanagement Director.

     1.7 AWARD PERIOD. Each Award and all executory rights or obligations under
the related Award Document shall expire on such date (if any) as shall be
determined by the Outside Board or the Board, but in the case of Options or
other rights to acquire Common Stock, not later than ten (10) years after the
Award Date.

     1.8 LIMITATIONS ON EXERCISE AND VESTING OF AWARDS.

     (a) PROVISIONS FOR EXERCISE. An Award shall be exercisable or shall vest as
determined by the Outside Board or the Board.

     (b) PROCEDURE. Any exercisable Award shall be exercised when the person
appointed by the Outside Board or the Board receives written notice of such
exercise from the Participant, together with satisfactory arrangements for any
required payment to be made in accordance with Sections 2.2. or 3.4 or the terms
of the Award Document, as the case may be.

     (c) FRACTIONAL SHARES/MINIMUM ISSUE. Fractional share interests shall be
disregarded, but may be accumulated. However, the Outside Board or the Board may
determine that cash will be paid or transferred in lieu of any fractional share
interests.

     (d) HOLDING PERIOD. Notwithstanding any provision of this Plan to the
contrary, except in the case of sales by an executor or administrator of the
estate of a deceased Participant, shares of Common Stock acquired by an Insider
through the exercise of an Award granted hereunder may not be sold until a date
six (6) months after the date of the grant of such Award as specified in the
Award Document.

     1.9 ACCEPTANCE OF NOTES TO FINANCE EXERCISE. Where the Outside Board or the
Board deems it appropriate under the circumstances as indicated by its written
approval, the Corporation may accept one or more notes from any Participant in
connection with the exercise or 

                                      -4-
<PAGE>


receipt of any outstanding Award or the payment of the amount of any taxes that
the Corporation may be required to withhold with respect to such exercise or
receipt; PROVIDED, HOWEVER, that any such note shall be subject to the following
terms and conditions:

                  (1) The principal of the note shall not exceed the amount
         required to be paid to the Corporation upon the exercise or receipt of
         one or more Awards under the Plan, including the amount of any taxes
         required to be withheld, and the note shall be delivered directly to
         the Corporation in consideration of such exercise or receipt.

                  (2) The initial term of the note shall be determined by the
         Outside Board or the Board; PROVIDED, HOWEVER, that the term of the
         note, including extensions, shall not exceed ten (10) years.

                  (3) The note shall provide for full recourse of the
         Participant, including a right of set-off against amounts otherwise
         payable by the Corporation to the Participant, and shall bear interest
         at a rate determined by the Outside Board or the Board, but not less
         than the applicable federal rate determined under Section 1274.

                  (4) If the employment of the Participant terminates, the
         unpaid principal balance of the note shall become due and payable on
         the tenth business day after such termination.

                  (5) If required by the Outside Board or the Board or by
         applicable law, the note shall be secured by a pledge of any shares or
         rights financed thereby in compliance with applicable law.

                  (6) The terms, repayment provisions, and collateral release
         provisions of the note and the pledge securing the note shall conform
         with applicable rules and regulations of the Federal Reserve Board as
         then in effect.

         1.10 NO TRANSFERABILITY. Awards may be exercised only by the
Participant or the Participant's Personal Representative, if any, or, if the
Participant has died, the Participant's Beneficiary. Amounts payable or shares
of Common Stock issuable pursuant to an Award shall be paid to (or registered in
the name of) such person or persons as specified by the person exercising the
Award. Other than by will or the laws of descent and distribution or pursuant to
a QDRO or other exception to transfer restrictions under Rule 16b-3, no right or
benefit under this Plan or any Award, including, without limitation, any Option
that has not vested, shall be transferable by the Participant or shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge (other than to the Corporation), and any such
attempted action shall be void. The Corporation shall disregard any attempt at
transfer, assignment or other alienation prohibited by the preceding sentences
and shall pay or deliver such cash or shares of Common Stock in accordance with
the provisions of this Plan. The designation of a Beneficiary hereunder shall
not constitute a transfer for these purposes.

         1.11 SECTION 83(B) ELECTIONS. If a Participant shall file an election
with the Internal Revenue Service to include the value of any Award in the
Participant's gross income while such Award remains subject to restrictions, the
Participant shall promptly furnish the Corporation with a copy of such election.

II.      OPTIONS

     2.1 GRANTS. One or more Options may be granted under this Article to any
Eligible Participant or Nonmanagement Director.

     2.2  OPTION PRICE.

         (a) PRICING LIMITS. The exercise price for shares of Common Stock
covered by Options shall be determined by the Outside Board or the Board at the
time of the Award.

         (b) PAYMENT PROVISIONS. The exercise price for any shares of Common
Stock purchased on exercise of an Option granted under this Article shall be
paid in full at the time of each purchase in one or a combination of the
following methods: (i) in cash or by electronic funds transfer; (ii) by good
check payable to the order of the Corporation; (iii) by the delivery of shares
of Common Stock already owned by the Participant; or (iv) if authorized by the
Outside Board or the Board or specified in the applicable Award Document, by a
promissory note of the Participant consistent with the requirements of Section
1.9; PROVIDED, HOWEVER, that the Outside Board or the Board may, in its absolute
discretion, limit the Participant's ability to exercise an Option by delivering
shares of Common Stock, including by imposing a requirement that the Participant
satisfy a minimum holding period with respect to the shares so delivered. Shares
of Common Stock used to satisfy the exercise price of an Option shall be valued
at their Fair Market Value on the date of exercise.

         2.3 NOT INCENTIVE STOCK OPTIONS. It is not intended that any Option
granted under this Plan shall constitute an incentive stock option as defined in
Section 422 of the Code.



                                      -5-
<PAGE>

         2.4.     OPTION PERIOD.

         (a) AWARD PERIOD. Each Option shall specify the Award Period for which
the Option is granted and shall provide that the Option shall expire at the end
of such Award Period. The Outside Board or the Board may extend the Award Period
by amendment of an Option. Notwithstanding the foregoing, the Award Period with
respect to an Option, including all extensions, shall not exceed ten (10) years.

         (b) EFFECT OF TERMINATION OF EMPLOYMENT OR SERVICE. Notwithstanding the
provisions of Section 2.4(a), unless otherwise provided by the Outside Board or
the Board, an Option shall expire on the earliest to occur of (i) the end of the
Award Period, (ii) if the Participant is an Employee or Nonmanagement Director,
the date three (3) months following the Participant's termination of employment
or service for the Corporation for any reason other than Retirement, Total
Disability or death, (iii) if the Participant is an Employee or Nonmanagement
Director, the date twelve (12) months following the Participant's termination of
employment or service for the Corporation by reason of Retirement, Total
Disability or death, (iv) if the Participant is an Independent Contractor, the
date three (3) months following the termination of the Participant's contract
with the Corporation, and (v) the date of termination of the Option pursuant to
Section 3.14.

         2.5.     VESTING; FORFEITURE.

         (a) An Option shall be exercisable or shall vest upon such terms and
conditions or pursuant to such schedule as the Outside Board or the Board shall
determine at the time of the Award. Notwithstanding the foregoing, unless
otherwise specified by the Outside Board or the Board, an Option shall become
immediately exercisable and fully vested upon the termination of the
Participant's employment by, service for or contract with the Corporation by
reason of Retirement, Total Disability or death. Unless otherwise specified by
the Outside Board or the Board, an Option that is not vested upon the
termination of the Participant's employment by, service for or contract with the
Corporation shall be forfeited.

         (b) Notwithstanding the provisions of Section 2.5(a), an Option shall
become immediately exercisable and fully vested in the event of (i) a merger,
consolidation or reorganization to which the Corporation is a party other than
as the surviving entity, unless the surviving entity shall elect to continue the
Plan in its existing form and abide by the terms of all Awards granted
thereunder, (ii) a merger, consolidation or reorganization to which the
Corporation is a party as the surviving entity, other than any such merger,
consolidation or reorganization resulting in a change of ownership of less than
fifty percent (50%) of the then outstanding Common Stock; (iii) any transaction
or series of related transactions resulting in the acquisition of a majority of
the outstanding shares of Common Stock; (iv) any transfer of all or
substantially all of the assets of the Corporation; or (v) the liquidation or
dissolution of the Corporation. In such event, the Corporation may, but shall
not be required to, give the Participant prior written notice of the
effectiveness of any such event, and the Participant may exercise the Option (to
the extent it is still in effect) on or prior to the last day specified by the
Corporation; to the extent that the Option has not been exercised, it will
expire at 5:00 P.M.
on the last day specified in such notice by the Corporation.

         2.6 OPTION REPRICING, CANCELLATION, SUBSTITUTION OR WAIVER OF
RESTRICTIONS. Subject to Sections 1.5 and 3.5 and the specific limitations on
Awards contained in this Plan, the Outside Board or the Board from time to time
may authorize, generally or in specific cases only, for the benefit of any
Participant who is an Employee or an Independent Contractor, any adjustment in
the exercise or purchase price, the vesting schedule, the number of shares
subject to, the restrictions upon or the term of, an Award granted under this
Article by cancellation of an outstanding Award and a subsequent granting of an
Award, by amendment, by substitution of an outstanding Award, by waiver or by
other legally valid means. Such amendment or other action may result, among
other changes, in an exercise or purchase price that is higher or lower than the
exercise or purchase price of the original or prior Award, provide for a greater
or lesser number of shares subject to the Award, or provide for a longer or
shorter vesting or exercise period.

III.     OTHER PROVISIONS

     3.1 RIGHTS OF ELIGIBLE PARTICIPANTS, PARTICIPANTS AND BENEFICIARIES.

         (a) EMPLOYMENT STATUS. Status of an Eligible Participant or a
Nonmanagement Director shall not be construed as a commitment that any Award
will be made under this Plan to an Eligible Participant or a Nonmanagement
Director or to Eligible Participants or Nonmanagement Directors generally.

         (b) NO EMPLOYMENT CONTRACT. Nothing contained in this Plan (or in any
other documents related to this Plan or to any Award) shall confer upon any
Participant any right to continue in the employ or other service of the
Corporation or constitute any contract or agreement of employment or other
service, nor shall this Plan interfere in any way with the right of the
Corporation to change such person's compensation or other benefits or to
terminate the employment of such person, with or without cause; PROVIDED,
HOWEVER, that nothing contained in this Plan or any document related hereto
shall adversely affect any independent contractual right of any Participant
without his or her consent.

         (c) PLAN NOT FUNDED. Awards payable under this Plan shall be payable in
shares of Common Stock or from the general assets of the Corporation, and
(except as provided in Section 1.5(c)) no special or separate reserve, fund or
deposit shall be made to assure payment of such 


                                      -6-
<PAGE>

Awards. No Participant, beneficiary or other person shall have any right, title
or interest in any fund or in any specific asset (including share of Common
Stock, except as expressly otherwise provided) of the corporation by reason of
any Award hereunder. Neither the provisions of this Plan (or of any related
documents), nor the creation or adoption of this Plan, nor any action taken
pursuant to the provisions of this Plan shall create, or be construed to create,
a trust of any kind or a fiduciary relationship between the Corporation and any
Participant, Beneficiary or other person. To the extent that a Participant,
Beneficiary or other person acquires right to receive payment pursuant to any
Award hereunder, such right shall be no greater than the right of any unsecured
general creditor of the Corporation.

          3.2 ADJUSTMENTS.

         (a) EVENTS REQUIRING ADJUSTMENTS. If any of the following events occur,
the Outside Board or the Board shall make the adjustments described in Section
3.2(b): (i) any extraordinary dividend or other extraordinary distribution in
respect of the Common Stock (whether in the form of cash, Common Stock, other
securities, or other property), (ii) any recapitalization, stock split
(including a stock split in the form of a stock dividend), reverse stock split,
reorganization, merger, combination, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Common Stock or other securities of the
Corporation, (iii) any issuance of warrants or other rights to purchase shares
of Common Stock or other securities of the Corporation (other than to employees)
at less than eighty percent (80%) of fair value on the date of such issuance, or
(iv) any other like corporate transaction or event in respect of the Common
Stock or a sale of substantially all the assets of the Corporation.

         (b) ADJUSTMENTS TO AWARDS. If any of the events described in Section
3.2(a) occurs, then the Outside Board or the Board shall, in such manner and to
such extent (if any) as it deems appropriate and equitable, (i) proportionately
adjust any or all of (1) the number and type of shares of Common Stock that
thereafter may be made the subject of Awards (including the specific maximum set
forth in Section 1.5), (2) the number, amount and type of shares of Common Stock
subject to any or all outstanding Awards, (3) the grant, purchase, or exercise
price of any or all outstanding Awards, (4) the Common Stock or cash deliverable
upon exercise of any or all outstanding Awards, or (5) the performance standards
appropriate to any or all outstanding Awards; or (ii) make provision for a cash
payment or for the substitution or exchange of any or all outstanding Awards
based upon the distribution or consideration payable to holders of Common Stock
upon or in respect of the event.

     3.3 COMPLIANCE WITH LAWS. This Plan, the granting and vesting of Awards
under this Plan and the issuance and delivery of shares of Common Stock and the
payment of money under this Plan or under Awards granted hereunder are subject
to compliance with all applicable federal and state laws, rules and regulations
(including but not limited to state and federal securities law and federal
margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Corporation, be
necessary or advisable in connection therewith. Any securities delivered under
this Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Corporation, provide such assurances and
representations to the Corporation as the Corporation may deem necessary or
desirable to assure compliance with all applicable legal requirements.

     3.4 TAX WITHHOLDING. Upon any exercise, vesting, or payment of any Award,
the Outside Board or the Board may make such provisions and take such steps as
it may deem necessary or appropriate for the withholding by the Corporation of
all federal, state, local and other taxes required by law to be withheld,
including without limitation, the right, at its option, (i) to require the
Participant (or Personal Representative or Beneficiary, as the case may be) to
pay or provide for payment of the amount of any taxes that the Corporation may
be required to withhold with respect to such transaction as a condition to the
release of Common Stock or the making of any payment or distribution, (ii) to
deduct from any amount payable in cash, (iii) to reduce the number of shares of
Common Stock otherwise deliverable (or otherwise reacquire such shares), based
upon their Fair Market Value on the date of delivery, or to grant the
Participant the right to elect such reduction in the number of shares upon such
terms and conditions as it may establish, or (iv) to permit the Corporation to
accept a note for the amount of any taxes that the Corporation may be required
to withhold with respect to such transaction in accordance with Section 1.9.

     3.5 PLAN AMENDMENT, TERMINATION AND SUSPENSION.

         (a) BOARD AUTHORIZATION. Subject to this Section 3.5, the Board may, at
any time, terminate or, from time to time, amend, modify or suspend this Plan,
in whole or in part. No Awards may be granted during any suspension of this Plan
or after termination of this Plan, but the Outside Board or the Board shall
retain jurisdiction as to Awards then outstanding in accordance with the terms
of this Plan.

         (b) STOCKHOLDER APPROVAL. If any amendment would (i) materially
increase the benefits accruing under this Plan, (ii) materially increase the
aggregate number of shares of Common Stock that may be issued under this Plan
(except as provided in Section 3.2), or (iii) materially modify the requirements
as to eligibility for participation in the Plan, such amendment shall be subject
to stockholder approval.

         (c) AMENDMENTS TO AWARDS. Without limiting any other express authority
granted under this Plan, but subject to its express limits, the Outside Board or
the Board by agreement or resolution may waive conditions of or limitations on
Awards to Eligible Participants or Nonmanagement Directors that the Outside
Board or the Board in the prior exercise of its discretion has imposed, without
the consent of the Participant, and may make other changes to the terms and
conditions of Awards that do not affect the Participant's rights and benefits
under an Award in any materially adverse manner.



                                      -7-
<PAGE>

         (d) LIMITATIONS ON AMENDMENTS TO PLAN AND AWARDS. No amendment,
suspension or termination of the Plan or any change affecting any outstanding
Award shall, without the written consent of the Participant, Beneficiary or
Personal Representative, as applicable, affect in any manner materially adverse
to such person any rights or benefits of any such person or any obligations of
the Corporation under any Award granted under this Plan prior to the effective
date of such change; however, any changes made pursuant to Section 3.2 shall not
be deemed to constitute changes or amendments for purposes of this Section 3.5.

         3.6 PRIVILEGES OF STOCK OWNERSHIP. Except as otherwise expressly
authorized by the Outside Board or the Board or this Plan and expressly stated
in an Award Document, a Participant shall not be entitled to any privilege of
stock ownership as to any shares of Common Stock not actually delivered to and
held of record by the Participant. No adjustment shall be made for dividends or
other stockholder rights for which a record date is prior to the date of
delivery of such shares.


         3.7 EFFECTIVE DATE OF THE PLAN. This Plan shall be effective as of the
date the Plan is approved by the Board, subject to approval by a vote of the
holders of a majority of the outstanding shares of Common Stock at a meeting of
stockholders of the Corporation held within twelve (12) months before or after
the date the Plan is approved by the Board. Awards may be granted hereunder on
or after the effective date and prior to the termination of the Plan.

         3.8 TERM OF THE PLAN. No Award shall be granted after the Plan
Termination Date. Unless otherwise expressly provided in this Plan or in an
applicable Award Document, any Award may extend beyond such date, and all
authority of the Outside Board or the Board with respect to Awards hereunder
shall continue during any suspension of this Plan and in respect of Awards
outstanding on the Plan Termination Date.

         3.9 GOVERNING LAW/SEVERABILITY.

         (a) CHOICE OF LAW. This Plan, the Awards, all documents evidencing
Awards, and all other related documents shall be governed by, and construed in
accordance with the laws of the State of Delaware, without reference to any
otherwise applicable principles of conflicts of law.

         (b) SEVERABILITY. If any provision shall be held by a court of
competent jurisdiction to be valid and unenforceable, the remaining provisions
of this Plan shall continue in effect.

         3.10 CAPTIONS. Captions and headings are given to the sections and
subsections of this Plan solely as a convenience to facilitate reference. Such
headings shall not be deemed in any way material or relevant to the construction
or interpretation of the Plan or any provision thereof.

         3.11 EFFECT OF CHANGE OF SUBSIDIARY STATUS. For purposes of this Plan
and any Award hereunder, if any entity ceases to be a Subsidiary, the
employment, service or contract of all Participants who are employed by, in the
service of or under contract with such entity shall be deemed to have
terminated, except any such Participant who continues as an employee, servant or
contractor of the Corporation or another Subsidiary.

         3.12 NONEXCLUSIVITY OF PLAN. Nothing in this Plan shall limit or be
deemed to limit the authority of the Board to grant awards or authorize any
other compensation, with or without reference to the Common Stock, under any
other plan or authority.

         3.13 PLAN BINDING ON SUCCESSORS. The obligations of the corporation
under the Plan shall be binding upon any successor corporation or organization
resulting from the merger, consolidation or other reorganization of the
corporation, or upon any successor corporation or organization succeeding to
substantially all of the assets and business of the Corporation. The Corporation
agrees that it will make appropriate provisions for the preservation of all
Participants' rights under the Plan in any agreement or plan that it may enter
into or adopt to effect any such merger, consolidation, reorganization or
transfer of assets.

         3.14 COMPETITION BY PARTICIPANTS.

         (a) In the event that the Outside Board or the Board determines that a
Participant, within such period of time as shall be specified in the related
Award Document, directly or indirectly, individually or as an employee, partner,
officer, director, or stockholder or in any other capacity whatsoever of any
person, firm, partnership or corporation: (i) recruits, hires, assists others in
recruiting or hiring, discusses employment with or refers to others any person
who is, or within the preceding twelve (12) months was, an employee of the
Corporation or any Subsidiary or any prospective or former Subsidiary; (ii)
competes with the Corporation or any Subsidiary in such segments of the business
of the Corporation and within such territory as shall be specified in such
related Award Documents; (iii) uses in competition with the Corporation or any
Subsidiary, customer, prospective customer or former customer, within such
segments and specified territory, any of the 


                                      -8-
<PAGE>

methods, information or systems developed by the Corporation or any Subsidiary
for its customers, prospective customers or former customers where the
Corporation or Subsidiary or such customer, prospective customer or former
customer does business; or (iv) calls upon, solicits, accepts employment with,
sells or endeavors to sell to, within such segments and specified territory, any
customer, prospective customer or former customer of the Corporations or any
Subsidiary; the following provision shall apply with respect to any shares of
Common Stock received and Awards granted under this Plans as of the date of the
first occurrence prohibited under this provision:

                  (i) Such Participant: (x) shall immediately sell and deliver
         to the Corporation, upon demand, all shares of Common Stock sold or
         awarded to the Participant under the Plan as to which the Participant
         is still the direct or indirect beneficial owner at the cash price per
         share, if any, paid by the Participant; and (y) shall pay to the
         Corporation an amount in cash with respect to each share of Common
         Stock not still so held equal to the Fair Market Value of each such
         share on the first date on which such share is no longer held less the
         price paid by the Participant for such share.

                  (ii) Any Award outstanding under the Plan shall automatically
         terminate and shall no longer be exercisable and all Shares of
         Restricted Stock then held shall automatically terminate.

         (b) The provisions of this Section 3.14 shall not limit or restrict in
any manner any rights or remedies which the Corporation and its Subsidiaries may
have under any separate employment agreement with a Participant and or otherwise
with respect to competition by a Participant.

         (c) If any provisions of this Section 3.14 should be found by any court
of competent jurisdiction to be unreasonable by reason of being too broad as to
the period of time, territory, aspects of business or customers covered or
otherwise, then and in that event, such provision shall nevertheless remain
valid and fully effective, but shall be considered to be amended so that the
period of time, territory, aspects of business or customers covered or otherwise
set forth shall be changed to be the maximum period of time, the largest
territory, the most aspects of business and customers covered and/or the
broadest other limitations, as the case may be, which would be found reasonable
and enforceable by such court, and similarly, if any remedy is so found to be
unenforceable in whole or in part, or to any extent, such provision shall remain
in effect only to the extent the remedies would be enforceable by such court.



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