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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT FOR THE
TRANSITION PERIOD FROM _________________ TO _________________
0-7349
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Commission file number
ENOTE.COM INC.
--------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 59-345315
-------- ---------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
185 ALLEN BROOK LANE, WILLISTON, VT 05495
-----------------------------------------
(Address of principal executive offices)
(802) 288-9000
---------------------------
(Issuer's telephone number)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of May 8, 2000, the Issuer had 11,024,765 shares of Common Stock, $.01 par
value, outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ X ]
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
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<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at March 31, 2000 and
December 31, 1999 3
Consolidated Statements of Operations for the
three months ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 15
</TABLE>
2
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
eNote.com Inc.
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999
Unaudited
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,527,903 $ 324,392
Inventories 1,277,845 814,773
Prepaid expenses and other current assets 153,647 36,206
----------- -----------
Total current assets 2,959,395 1,175,371
Property and equipment, net 726,566 615,541
Intangibles, net 365,146 375,914
Security deposits 96,723 124,242
----------- -----------
Total assets $ 4,147,830 $ 2,291,068
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 398,563 $ 660,937
Notes payable-stockholder 7,045 7,045
Convertible debentures 580,000 80,000
Other current liabilities 23,515 50,000
----------- -----------
Total current liabilities 1,009,123 797,982
----------- -----------
Stockholders' Equity
Convertible Preferred Stock, $1.00 par value, 5,000,000 shares authorized,
issued and outstanding on March 31,
2000 and December 31, 1999, respectively 5,000,000 5,000,000
Common stock, $0.01 par value, 25,000,000 shares
authorized, 10,786,990 and 10,049,491 issued and
outstanding, in 2000 and 1999, respectively 107,870 100,495
Common stock warrants 740,000 740,000
Due from related party (150,000) (150,000)
Unearned compensation (61,367) (109,263)
Additional paid-in capital 3,442,857 497,776
Accumulated deficit (5,940,653) (4,585,922)
----------- -----------
Total stockholders' equity 3,138,707 1,493,086
----------- -----------
Total liabilities and stockholders' equity $ 4,147,830 $ 2,291,068
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
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eNote.com Inc
Consolidated Statements of Operations
For the quarters ended March 31, 2000 and 1999
Unaudited
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Net revenue $ -- $ --
------------ ------------
Operating expenses:
Sales and marketing 362,533 52,730
Product development 323,727 --
General and administrative (including $47,896 of stock based
compensation in 2000 and none in 1999) 581,475 66,277
Depreciation and amortization 91,098 2,364
------------ ------------
Total operating expenses 1,358,833 121,371
------------ ------------
Loss from operations (1,358,833) (121,371)
Interest and other income, net 6,713 64
Interest expense (2,611) (16,602)
------------ ------------
Net loss $ (1,354,731) $ (137,909)
============ ============
Basic and diluted net loss per common share $ (0.13) $ (0.02)
============ ============
Weighted average common shares outstanding 10,189,491 7,600,000
============ ============
</TABLE>
See notes to consolidated financial statements.
4
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eNote.com Inc
Consolidated Statements of Cash Flows
For the quarters ended March 31, 2000 and 1999
Unaudited
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,354,731) $ (137,909)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 91,097 2,364
Stock-based compensation 47,896 --
Changes in assets and liabilities:
Increase in inventory (463,072)
Increase in prepaid expenses and other current assets (117,440) (5,000)
Decrease in accounts payable and accrued expenses (262,375) (7,508)
Decrease in security deposits 27,519 --
Decrease in other current liabilities (26,485) --
------------ ------------
Net cash used in operating activities (2,057,591) (148,053)
Cash flows from investing activities:
Purchases of property and equipment (191,354) (435)
------------ ------------
Net cash used in investing activities (191,354) (435)
Cash flows from financing activities:
Proceeds from issuance of convertible debentures 500,000 100,000
Proceeds from note payable-stockholder -- 57,000
Proceeds from issuance of common stock and warrants 2,952,456 --
------------ ------------
Net cash provided by financing activities 3,452,456 157,000
Net Increase in cash and cash equivalents 1,203,511 8,512
Cash and cash equivalents at beginning of the period 324,392 --
------------ ------------
Cash and cash equivalents at end of period $ 1,527,903 $ 8,512
============ ============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) BASIS OF QUARTERLY PRESENTATION:
The accompanying quarterly financial statements have been prepared in conformity
with generally accepted accounting principles.
The financial statements of the Registrant included herein have been prepared by
the Registrant pursuant to the rules and regulations of the Securities and
Exchange Commission and, in the opinion of management, reflect all adjustments
which are necessary to present fairly the results for the period ended March 31,
2000.
Certain financial information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations: however,
management believes that the disclosures are adequate to make the information
presented not misleading. This report should be read in conjunction with the
audited financial statements and footnotes therein included in the report on
Form 10-KSB for the year ended December 31, 1999.
2) PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated financial statements include accounts of
eNote.com Inc. (the "Company") and its wholly-owned subsidiaries. Upon
consolidation, all significant intercompany accounts are eliminated.
3) NET LOSS PER COMMON SHARE:
Net loss per common share for the quarters ended March 31, 2000 and 1999 is
based on the weighted average number of shares of Common Stock outstanding
during the periods. Potentially dilutive securities include options, warrants
and convertible preferred stock; however, such securities have not been included
in the calculations of loss per common share as their effect would be
antidilutive. Therefore, there is no difference between basic and diluted loss
per share of Common Stock for the periods presented.
4) RECLASSIFICATIONS:
Certain reclassifications have been made to the financial statements for the
three months ended March 31, 1999 to conform with classifications used in 2000.
5) EQUITY FINANCING:
On March 13, 2000 the Company completed a private placement of $500,000 of a one
year 10% Subordinated Convertible Debenture. The debenture is convertible into
shares of Common Stock of the Company at the rate of $7.00 per share and may be
redeemed at any time by the Company by the payment of all outstanding principal
and accrued
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interest. The proceeds will be used for general corporate purposes and funding
ongoing product development.
In addition, the Company completed a private placement of its Common Stock to
unrelated investors. The Company received and accepted subscriptions to
purchase an aggregate of approximately 825,000 shares of its Common Stock at
$6.00 per share (the "Shares"), with warrants attached which allowed for the
purchase of approximately 412,500 additional shares at an exercise price of
$0.01 per share (the "Warrants"). The Warrants are immediately exercisable.
For the quarter ended March 31, 2000 the Company had received an aggregate of
$2,952,456 in connection with such placement as payment in full for 491,666
of the Shares and the exercise price for 245,833 of the Warrants which were
exercised at $0.01 per share upon issuance. As of May 8, 2000, the Company
had received an additional $1,000,829 in connection with the offering as
payment in full for 166,666 of the Shares and the exercise price for 83,333
of the Warrants which were exercised at $0.01 per share upon issuance.
On March 24, 2000 the Company entered into a joint venture agreement with an
investor to create an Australian corporation to distribute, market and sell a
localized version of TVemail in Australia and New Zealand. The Company will
have a 50% equity interest but will hold a majority representing voting
control. The terms of the agreement require a $250,000 investment in such
entity by the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FORWARD-LOOKING STATEMENTS
When used in this Report, press releases or elsewhere by eNote.com Inc.
(the "Company") and its management, the words "believes," "anticipates,"
"intends" and "expects" and similar expressions are intended to identify
forward-looking statements that involve a number of risks and uncertainties.
Additionally, statements contained in this discussion that are not historical
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Exchange Act,
including statements regarding expectations, beliefs, intentions or strategies
regarding the future. The Company intends that all forward-looking statements be
subject to the safe-harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements reflect the Company's views
as of the date they are made with respect to future events and financial
performance, but are subject to many risks and uncertainties, which could cause
the actual results of the Company to differ materially from any future results
expressed or implied by such forward-looking statements. Factors that could
cause actual results to differ materially or adversely include, without
limitation, any inability or delay in the development or manufacture of the
Company's TVemail-TM-System, including the in-home TVemail-TM- terminals (the
"Client Hardware"), the Company's proprietary back-end server systems (the
"Server Systems") and the graphical user interface ("GUI"), as well as the other
risks described under the caption "Management's Discussion and Analysis or Plan
of Operation--Certain Trends and Uncertainties" contained in the Company's
Report on Form 10-KSB for the
7
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year ended December 31, 1999 which is filed as an Exhibit to this Report. The
Company does not undertake to update forward-looking statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
We are a Delaware corporation that was formerly known as Webcor
Electronics, Inc. ("Webcor"). As a result of a bankruptcy proceeding, as of
March 31, 1999, Webcor had no assets, liabilities, or ongoing operations and
had not engaged in any business activities since February 1990. Webcor had no
operations during its fiscal year ended March 31, 1999.
Webcor acquired Navis Technologies, Ltd., a Vermont corporation
("Navis"), in a business combination transaction on April 5, 1999, whereby Navis
became a wholly-owned subsidiary of the Company (the "Navis Transaction"). The
Navis Transaction was structured as a reverse takeover, or "RTO." In connection
with the Navis Transaction, the stockholders of Navis exchanged their Navis
stock for newly issued stock of Webcor. Before the Navis Transaction, Webcor had
no assets, liabilities or business operations and as of January 1, 1999, Navis
was exclusively dedicated to the development of the TVemail-TM- System. No
relationship existed between Webcor and Navis prior to the Navis Transaction and
no funds of Webcor were spent to acquire the stock of Navis. Navis had no
revenues in 1999 prior to the Navis Transaction and the Company had no revenue
generating operations in 1999 or in the quarter ended March 31, 2000. Since the
Navis Transaction, the Company has been solely engaged in the development of the
TVemail-TM- System, including the Client Hardware and the Server Systems,
establishing strategic alliances and preparing for the anticipated commercial
deployment of the TVemail-TM- starting in the second quarter of 2000.
To initially fund development activities for the TVemail-TM-System and
provide initial working capital, the Company raised $5 million as of April 6,
1999 from Friedlander International Limited (the "Friedlander Transaction"). The
Company has used this capital to continue its development of the Client
Hardware, to install Server Systems to run the TVemail-TM- network, to complete
the GUI, to perform marketing studies, to produce the preliminary test Client
Hardware units, to identify and develop potential strategic relationships and
distribution opportunities and to fund legal and other administrative expenses
related to the Navis Transaction and the Friedlander Transaction.
Our financial condition and results from operations were
dramatically different between the first quarter of 2000 and 1999. 1999
reflects the operations of Navis, prior to the Navis Transaction and the
Friedlander Transaction. In the first quarter of 1999, Navis had no revenues.
Operating expenses were $121,371, consisting of sales and marketing expenses
of $52,730, general and administrative expenses of $66,277 and depreciation
and amortization of $2,364. Interest expense was $16,602 resulting in a net
loss of $137,909 or $.02 per share. The Company had no revenues in the first
quarter of 2000. Operating expenses increased to $1,358,833 a 1020% increase
over the comparable 1999 period. Operating expenses consisted of sales and
marketing expenses of $362,533, a 588% increase, product development of
$323,727, compared to no expenses in this
8
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category in 1999, and general and administrative expenses of $581,475, a 777%
increase. Interest expense decreased to $2,611, a 84% decrease, resulting in a
net loss of $1,354,731, a 882% increase. The significant increase in operating
expenses reflects the Company's continuing utilization of the capital provided
by the Friedlander Transaction in the development of the TVemail-TM- System and
to identify and develop potential strategic relationships and distribution
opportunities.
We currently plan to commence full-scale commercial deployment of
the TVemail-TM- System in the United States in the third quarter of 2000. This
schedule is subject to many risks and uncertainties, including those set forth
below under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations -"Certain Trends and Uncertainties" in the
Company's Form 10-KSB for the year ended December 31, 1999 which is filed as an
Exhibit to this Report and the Company's progress towards commercial deployment
of the TVemail-TM- system may be made at a significantly slower rate, through
different avenues, or not at all.
During the year ending December 31, 2000, we expect our research
and development efforts to be focused on the final development and production of
the TVemail-TM- device and further research and development for subsequent
versions of the TVemail-TM-System and other ancillary products. We expect to
spend a significant amount of capital on research and development in 2000,
however, there can be no assurance that unanticipated technical obstacles, lack
of funds, changes in strategy or other factors will not cause actual research
and development expenses to differ materially from our expectations.
As of March 31, 2000, we employed 41 full time employees and 2
part time employees. We anticipate hiring a significant number of additional
employees during 2000, which is likely to significantly increase our operating
expenses. However, there can be no assurance that lack of qualified applicants,
changes in strategy or lack of funds will prevent us from hiring additional
employees.
We do not anticipate generating any revenue until the TVemail-TM-
System is successfully launched in the United States or internationally through
a joint venture or a partially-owned subsidiary. On March 24, 2000, we entered
into a Joint Venture Agreement with Seafont Pty. Ltd., an Australian
corporation, to create and jointly own an Australian corporation (the
"Australian Subsidiary") to market and distribute a TVemail-TM- System in
Australia and New Zealand. The Company has committed to contributing capital up
to $250,000 to the Australian Subsidiary in consideration for the Company's
fifty percent ownership interest. We plan on pursuing additional international
opportunities and strategic relationships to bring localized versions of the
TVemail-TM- System to market throughout the world's industrialized countries. We
may invest additional capital in other partially or wholly owned foreign
operating entities. These plans are subject to many risks and uncertainties,
including those set forth in the Company's Form 10-KSB for the year ended
December 31, 1999 which is filed as an Exhibit to this Report under the caption
"Certain Trends and Uncertainties" and the Company's successful launch in the
United States or internationally may be delayed or not occur at all.
9
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The Company plans to purchase approximately $500,000 in computer
equipment, lab equipment and development tools in 2000. In the quarter ended
March 31, 2000, we spent $191,354 on property and equipment. These capital
outlays could be substantially greater, if the Company decides to handle certain
functions, such as manufacturing, marketing or customer service in-house as
opposed to contracting them out.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our business through the issuance of debt and
equity. We raised $5,000,000 through the Friedlander Transaction. On March 13,
2000, we raised an additional $500,000 through the issuance of a one year ten
percent subordinated convertible debenture in an offshore transaction to
Seafont, Pty. Ltd., an Australian corporation. This debenture is convertible
into shares of Common Stock at an initial conversion rate equal to one share for
each $7 of principal converted.
Also, during the first and start of the second quarter of 2000, we
have received and accepted subscriptions from various European entities to
purchase in offshore transactions an aggregate of approximately 825,000
shares of the Company's Common Stock (the "Shares") and approximately 412,500
Common Stock Purchase Warrants with an exercise price of $0.01 per share (the
"Warrants"). The Warrants are immediately exercisable. For the quarter ended
March 31, 2000 the Company had received an aggregate of $2,952,456 in
connection with such placement as payment in full for 491,666 of the Shares
and the exercise price for 245,833 of the Warrants which were exercised at
$0.01 per share upon issuance. As of May 8, 2000, the Company had received an
additional $1,000,829 in connection with the offering as payment in full for
166,666 of the Shares and the exercise price for 83,333 of the Warrants which
were exercised at $0.01 per share upon issuance. The Company anticipates
receiving the remaining purchase price of approximately $1,000,000 for the
remainder of the subscribed Shares and the exercise for remaining subscribed
to Warrants. The Company anticipates that it will need to raise significant
capital during 2000 to carry out its plan through additional issuances of
debt and equity. However, there can be no assurance that the Company will
raise any additional capital.
As of March 31, 2000, the Company's balance of cash and cash
equivalents was $1,527, 903. The Company believes that its current capital
resources are sufficient to complete the development and finalization of the
TVemail-TM- System and launch the TVemail-TM-System in the United States on a
limited basis, which the Company expects to occur during the third quarter of
2000. However, in order for the Company to begin ongoing mass production of
the Client Hardware or to initiate sales and marketing efforts relating to
the TVemail-TM- service, the Company will have to raise substantial
additional funding through public or private debt or equity financing. There
can be no assurance that the Company will be able to raise such funds, and,
if it cannot, its business may be materially and adversely affected.
While the Company currently plans to begin to commence limited
commercial deployment of its TVemail-TM- device and its TVemail-TM-System in the
third quarter of
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2000, there can be no assurance that difficulties in research and development,
network development, manufacturing or financing, or other factors will not delay
the launch date or prevent such launch altogether.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
On March 13, 2000 we sold a $500,000 One Year 10% Subordinated Convertible
Debenture to Seafont, Pty. Ltd, an Australian corporation. This debenture is
convertible into shares of Common Stock at an initial conversion rate equal
to one share for each $7 of principal converted.
During the quarter ended March 31, 2000 and continuing into the quarter ended
June 30, 2000, we have received and accepted subscriptions for approximately
825,000 shares of Common Stock at a purchase price of $6.00 per share and
approximately 412,500 Common Stock Purchase Warrants with an exercise price
of $0.01 per share.
The Debenture, Common Stock and Common Stock Purchase Warrants
were issued in transactions exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933, as amended, and Regulation S promulgated thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
EXHIBIT TABLE
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
3(a) Amended and Restated Certificate of Incorporation**
3(b) Amended By-laws**
4.1 Certificate of Powers, Designations, Preferences and
Rights of the Convertible Preferred Stock, par value
$.01 per share, of the Company.*
4.2 Common Stock Purchase Warrant dated April 6, 1999 between the Company and
Friedlander International Limited.*
4.3 1-Year 18 Percent Convertible Debenture due May 3, 2000 of Navis in principal
amount of $200,000.**
4.4 1-Year 18 Percent Convertible Debenture due May 3, 2000 of Navis in principal
amount of $250,000.**
4.5 $50,000 Convertible promissory note of Navis, issued January 8, 1999.**
4.6 1-Year 12 Percent Convertible Debenture due March 23, 2000 of Navis in principal
amount of $100,000.**
4.7 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames, dated April
7, 1998 in principal amount of $50,000, payable on demand.**
4.8 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames, dated April
28, 1998 in principal amount of $18,000, payable on demand.**
4.9 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames, dated May
4, 1998 in principal amount of $7,500, payable on demand.**
4.10 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames, dated May
14, 1998 in principal amount of $28,000, payable on demand.**
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4.11 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames, dated May
28, 1998 in principal amount of $5,199.40200, payable on demand.**
4.12 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames, dated June
11, 1998 in principal amount of $10,000, payable on demand.**
4.13 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames, dated June
25, 1998 in principal amount of $500, payable on demand.**
4.14 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames, dated
January 27, 1999 in principal amount of $6,000, payable on demand.**
4.15 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames, dated
January 31, 1999 in principal amount of $56,948, payable on demand.**
4.16 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames, dated
February 2, 1999 in principal amount of $5,000, payable on demand.**
4.17 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames, dated
February 5, 1999 in principal amount of $5,000, payable on demand.**
4.18 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames, dated
February 23, 1999 in principal amount of $5,000, payable on demand.**
4.19 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames, dated March
4, 1999 in principal amount of $20,000, payable on demand.**
4.20 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames, dated March
5, 1999 in principal amount of $1,000, payable on demand.**
4.21 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames, dated March
23, 1999 in principal amount of $5,500, payable on demand.**
4.22 12% Convertible Debenture to Lance Murdock due May 3, 2000 in principal amount
of $30,000.***
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4.23 12% Convertible Debenture to Robert Francis Corvino due May 3, 2000 in principal
amount of $50,000.***
4.24 10% Subordinated Convertible Debenture to Seafont Pty. Ltd., due March 13, 2001
in principal amount of $500,000.***
4.25 Form of Common Stock Purchase Warrant for March/April 2000 European Stock
Placement.***
10.13 Agreement dated December 30, 1999 between Navinet and the Company.***
10.14 1999 Non-Employee Directors' Stock Option Plan.***
10.15 Note (Debenture) Purchase Agreement dated March 13, 2000 by and between Seafont
Pty. Ltd. and the Company.***
10.16 Form of Common Stock Purchase Agreement for March/April 2000 European Stock
Placement.***
10.17 2000 Stock Incentive Plan.***
10.18 Joint Venture Agreement dated as of March 24, 2000 between Seafont Pty. Ltd and
the Company.***
10.19 Service and Private Label Agreement dated as of March 20, 2000 between the
Company and CoolEmail.com, Inc.***
10.20 Memorandum of Understanding dated as of March 24, 2000 between the Company and
Cesky Telecom a.s.***
27 Financial Data Schedule
99 "Certain Trends and Uncertainties" excerpt from the Company's Report on Form
10-KSB for the year ended December 31, 1999.
</TABLE>
* Previously filed with, and incorporated by reference to, the Company's
Current Report on Form 8-K filed April 20, 1999.
** Previously filed with, and incorporated by reference to, the Company's Form
10-KSB filed September 22, 1999.
*** Previously filed with, and incorporated by reference to, the Company's Form
10-KSB filed April 28, 2000.
(b) Reports on Form 8-K.
Not applicable.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
eNote.com Inc.
------------------------------------------------
(Registrant)
May 15, 2000 /s/ John R. Varsames
------------------------------------------------
John R. Varsames,
President and Chief Executive Officer
(Principal Executive Officer)
May 15, 2000 /s/ Michael T. Grennan
------------------------------------------------
Michael T. Grennan,
Treasurer, Secretary and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
15
<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM OUR BALANCE
SHEET AT MARCH 31, 2000 AND OUR CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,527,903
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,277,845
<CURRENT-ASSETS> 2,959,395
<PP&E> 726,566<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,147,830
<CURRENT-LIABILITIES> 1,009,123
<BONDS> 0
0
5,000,000
<COMMON> 107,870
<OTHER-SE> (1,969,163)
<TOTAL-LIABILITY-AND-EQUITY> 4,147,830
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,358,833
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,611
<INCOME-PRETAX> (1,354,731)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,354,731)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,354,731)
<EPS-BASIC> (.13)
<EPS-DILUTED> (.13)
<FN>
<F1>NET AFTER DEDUCTING ACCUMULATED DEPRECIATION.
</FN>
</TABLE>
<PAGE>
Exhibit 99
Excerpt from the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1999.
CERTAIN TRENDS AND UNCERTAINTIES
In addition to the other information contained in this Report on Form
10-KSB, the following factors should be considered carefully.
RISKS RELATING TO THE COMPANY'S NEED FOR ADDITIONAL
FINANCIAL RESOURCES
NEED FOR ADDITIONAL FUNDS
We believe our existing capital is sufficient to finalize the development
of the Client Hardware, to complete installation of the Server Systems to run
the TVemail-TM- network, to complete the GUI, to complete pilot testing and
initially launch the TVemail-TM- System in the United States. We expect to
complete such endeavors by the second quarter of 2000. However, in order for us
to begin continued mass production of the Client Hardware or to initiate
widespread sales and marketing efforts relating to the TVemail-TM- service, we
anticipate that we will have to raise substantial additional funds. We currently
intend to seek additional funding through public or private financings, which
may include debt or equity financings. Adequate funds for these purposes,
whether obtained through financial markets or collaborative or other
arrangements with corporate partners or from other sources, may not be available
when needed or on terms acceptable to the Company. Insufficient funds may
require us to: delay, scale back or eliminate some or all of our research and
product development programs; license to third parties our technology to
commercialize products or technologies that the Company would otherwise seek to
develop itself; to sell ourselves to a third party; to cease operations; or to
declare bankruptcy.
If we raise additional funds through the issuance of debt securities, the
holders of the debt securities will have a claim to the Company's assets that
will be prior to any claim of the stockholders. Interest on any debt securities
could increase our costs and negatively impact our operating results. If we
raise additional funds through the issuance of preferred stock, the terms of
such preferred stock may provide that the holders of such preferred stock are
entitled to receive dividends and/or distributions upon liquidation prior to the
holders of Common Stock. Furthermore, any such preferred stock may have class
voting rights, conversion features and/or antidilution protections of which the
Common Stock does not have the benefit. If we raise additional funds through the
issuance of Common Stock or securities convertible into or exchangeable for
Common Stock, the percentage ownership of the Company's then-existing
stockholders will decrease. In addition, any such convertible or exchangeable
securities may have rights, preferences and privileges more favorable to the
holders than those of the Common Stock.
SUBORDINATION OF COMMON STOCK TO PREFERRED STOCK; RISK OF DILUTION;
ANTI-DILUTION ADJUSTMENTS.
In the event of the liquidation, dissolution or winding up of the Company,
the Common Stock is expressly subordinate to the $5 million preference of the 5
million outstanding shares of Preferred Stock. The conversion rate of the
Preferred Stock is subject to adjustment, among other things, upon issuances of
Common Stock or securities
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<PAGE>
convertible into Common Stock or rights to purchase Common Stock that have not
been expressly approved in writing by a majority in interest of the holders of
Preferred Stock or their elected representatives. As of December 31, 1999, each
share of Preferred Stock was convertible into 1 share of Common Stock.
NEED FOR AND DEPENDENCE ON QUALIFIED PERSONNEL.
Our success is highly dependent on the hiring and retention of key
personnel and technical staff. The loss of key personnel or the failure to
recruit necessary additional personnel or both could impede the achievement of
development objectives. There is intense competition for qualified personnel in
the areas of the Company's activities, and there can be no assurance that the we
will be able to attract and retain the qualified personnel necessary for the
development of our business. Many of our competitors have significantly greater
financial and other resources than we do and may be able to offer more lucrative
compensation packages which include stock options and other stock-based
compensation and higher-profile employment opportunities.
RISKS RELATING TO THE COMPANY'S OPERATIONS AND TECHNOLOGIES
LIMITED OPERATING HISTORY; RECENT SHIFT IN BUSINESS STRATEGY.
Immediately prior to the acquisition of Navis on April 5, 1999, the Company
had no business operations. Navis itself was founded in June 1996 and until the
fourth quarter of 1998 supplied infrared protocol and advanced input devices to
NC manufacturers and provided contract engineering and consulting services.
However, Navis' revenues from operations never exceeded $703,000 in any given
year. During 1998, Navis shifted its business emphasis to focus entirely on the
development of the TVemail-TM- service. We have yet to launch the TVemail-TM-
service commercially or to receive any revenue from such service. As a result,
we have only a limited operating history and there is little historical
information on which to evaluate our business and prospects. Our revenue, if
any, for the foreseeable future is almost entirely dependent on successfully
bringing the TVemail-TM- service to market and on the number of customers, if
any, who subscribe to the TVemail-TM- service after the launch of the service.
There can be no assurance that we will be successful in implementing any of our
business strategies.
Once the basic TVemail-TM- service is marketed, if ever, we intend to
expand our operations by developing and marketing new or complementary services
or systems. However, there can be no assurance that we will be able to do so
effectively. Although we believe that, in the future, we will be able to use the
TVemail-TM- service as a platform to provide e-mail related and other services,
there can be no assurances that we will be able to do so.
THE COMPANY DEPENDS ON ITS INTELLECTUAL PROPERTY, WHICH MAY BE DIFFICULT AND
COSTLY TO PROTECT.
Our intellectual property includes proprietary and confidential information
that is not currently subject to patent, trademark or similar protection. The
Company has filed federal trademark applications to register the trademarks
"TVemail," "eNote.com," "PCemail," "WebATM," "Browserless Internet," "BuyMail,"
"TVewriter," "EZ Color," "eNote International.com," "Get Connected.. Simply,"
"Simply Communicate," and "TVemail.. The Answering Machine for the Internet,"
however, the Company may not be able to secure significant protection for these
trademarks. If our competitors or others adopt product or service names similar
to the names listed above that we anticipate using, it may impede our ability to
build brand identity and customer loyalty. We rely primarily on secrecy to
protect technology, especially where patent protection is not believed to be
appropriate or obtainable. No assurance can be given that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain
14
<PAGE>
access to the our trade secrets, or that the we can effectively protect its
rights to its unpatented trade secrets.
The validity, enforceability and scope of protection of certain proprietary
rights in Internet-related businesses are uncertain and still evolving. If
unauthorized third parties are able to copy our service or our business model or
to use our confidential information to develop competing services, we could lose
customers and our business could be negatively impacted. We may not be able to
effectively police unauthorized use of our technology because such policing is
difficult and expensive. In particular, the global nature of the Internet makes
it difficult to control the ultimate destination or security of software or
other data transmitted. Furthermore, the laws of other countries may not
adequately protect our intellectual property.
Our business activities and the TVemail-TM- service may infringe upon the
proprietary rights of others. In addition, other parties may assert infringement
claims against the Company. Any such claims and any resulting litigation could
subject us to significant liability for damages and could also result in
invalidation of our proprietary rights. We could be required to enter into
costly and burdensome royalty and licensing agreements. These agreements may not
be available on acceptable terms, or may not be available at all. We may also
need to file lawsuits to defend the validity of our intellectual property rights
and trade secrets, or to determine the validity and scope of the proprietary
rights of others. Litigation is expensive and time-consuming and could divert
management's attention away from our business.
TECHNOLOGY LICENSED FROM THIRD PARTIES.
We have entered into agreements with, and have licensed certain technology
from, third parties. The Company has relied on scientific, technical, commercial
and other data supplied and disclosed by others in entering into these
agreements and will rely on such data in support of development of certain
products. Furthermore, we believe that we will license additional technologies
from third parties in the future. Although we have no reason to believe that
this information contains errors of omission or fact, there can be no assurance
that there are no errors of omission or fact that would materially affect the
commercial viability of these products.
RAPID TECHNOLOGICAL CHANGE, CUSTOMER DEMANDS AND INTENSE COMPETITION.
The e-mail service market is characterized by rapidly changing technology,
customer demands and intense competition. If we cannot keep pace with these
changes, our TVemail-TM- service could become uncompetitive and its business
could suffer. If we are not successful in developing and marketing enhancements
to the TVemail-TM- service or new services that respond to technological change
or customer demands, our business may be materially and adversely effected.
The competitive market for e-mail and online service access may limit
demand or pricing for the TVemail-TM-system. We expect to experience intense
competition from established online service providers such as America Online,
Inc., Prodigy Communications Corporation and Microsoft Corporation's WebTV-TM-
as well as competition from Internet appliance manufactures such as Sony and
Netpliance. Many companies provide e-mail and online service access and other
services, which provide functionality superior to those included in the
TVemail-TM- system. As a result of this competition, demand for the TVemail-TM-
system may suffer, we may be restricted in the service rates we can charge for
the TVemail-TM- system and our business, financial condition and results of
operations may be adversely affected. Many of our competitors have significantly
greater financial, technical, marketing, distribution, customer support and
other resources than we does. Furthermore, many of our competitors have
significantly greater experience, better name recognition, more compelling
content and easier access to consumers, advertisers and online service providers
than do.
15
<PAGE>
MANAGEMENT OF GROWTH.
Our ability to implement our business plan successfully in a new and
rapidly-evolving market will require effective planning and growth management.
If we cannot manage our anticipated growth effectively, our business and
financial results may suffer. We plan on expanding our existing operations
substantially. Although we anticipate out sourcing manufacturing and procurement
and limited components of marketing and technical services, we may be forced to
expand our manufacturing, sales and marketing and technical support. We expect
that we will need to manage and broaden multiple relationships with customers,
on line providers and other third parties. We also expect that we will need to
expand our financial systems, procedures and controls and will need to augment,
train and manage our workforce, particularly our information technology staff.
As a result, our management and operating systems may be strained by any growth
and the Company may be unable to timely complete necessary improvements to its
operating systems, procedures and controls to support future operations.
CAPACITY CONSTRAINTS MAY IMPEDE REVENUE GROWTH AND PROFITABILITY.
We believe that satisfactory performance, reliability and availability of
our TVemail-TM- appliances and Server Systems infrastructure will be critical to
the Company's reputation and ability to attract customers and maintain adequate
customer service levels. Any significant or prolonged capacity constraints could
delay or prevent customers from sending or gaining access to their documents or
other data or services. Such constraints could decrease our ability to acquire
and retain customers and prevent us from achieving the necessary growth in
revenue to achieve profitability. If the amount of traffic increases
substantially and we experience capacity constraints, we may need to spend
significant amounts to expand and upgrade our technology and network
infrastructure. Furthermore, we may be unable to predict the rate or timing of
any increases in the use of its services in order to respond in a timely manner.
SYSTEMS FAILURES AND BUSINESS INTERRUPTIONS WHICH WOULD HARM OUR BUSINESS.
Our success will depend in part on the efficient and reliable operation of
TVemail-TM- service sufficient to accommodate a large number of subscribers. We
intend to locate our Server Systems at multiple sites with redundant functions
in order to reduce the risks of system failure, however, the Server Systems are
vulnerable to damage from fire, power loss, telecommunications failures,
break-ins and other events, which could lead to: interruptions or delays in our
service; loss of data; or the inability to accept, transmit and confirm customer
documents and data. Our business may be materially adversely effected if its
service is interrupted. Although we intend to implement network security
measures, our systems may be vulnerable to computer viruses, electronic
break-ins, attempts by third parties deliberately to exceed the capacity of the
systems and similar disruptions, any of which could have a material adverse
effect on our business.
RISKS RELATING TO THE INTERNET AND ONLINE COMMERCE
PRIVACY CONCERNS MAY DISCOURAGE CUSTOMERS FROM USING THE COMPANY'S SERVICES.
Concerns over the security of online transactions and the privacy of users
may inhibit the growth of the Internet as a means of delivering documents and
data. We may need to incur significant expenses and use significant resources to
protect against the threat of security breaches or to alleviate problems caused
by such breaches. We plan to rely on encryption and authentication technology to
provide secure transmission of confidential information. If our security
measures do not prevent security breaches, we could suffer operating losses,
damage to its reputation, litigation and possible liability. Advances in
computer capabilities, new discoveries in the field of cryptography or other
developments may result in a compromise or breach of our encryption and
authentication technology and could enable an outside party to steal proprietary
information or interrupt its operations.
16
<PAGE>
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES RELATING TO THE INTERNET COULD
HARM OUR BUSINESS.
Changes in the regulatory environment could negatively impact our ability
to generate revenues and increase our expenses. The Internet is largely
unregulated and the laws governing the Internet remain unsettled, even in areas
where there has been some legislative action. It may take years to determine
whether and how existing laws such as those governing intellectual property,
privacy and taxation apply to the Internet. In addition, because of increasing
popularity and use of the internet, any number of laws and regulations may be
adopted with respect to the internet or other online services covering issues
such as: user privacy; security; pricing; content; copyrights; distribution;
taxation; and characteristics and quality of services. Such regulations could
impose additional costs or interdicts on our activities, which could have a
material adverse effect.
IF THE INTERNET INFRASTRUCTURE FAILS, OUR BUSINESS MAY SUFFER.
We cannot be certain that the infrastructure or complementary services
necessary to maintain the Internet as a useful, convenient or secure means of
transferring documents and data will continue to develop. The Internet
infrastructure may not support the demands that growth may place on it, and the
performance and reliability of the Internet may decline, which could have a
material adverse effect on our business.
THE COMPANY DEPENDS ON THIRD-PARTY PROVIDERS OF INTERNET AND TELECOMMUNICATIONS
SERVICE.
Our operations depend on third parties for Internet access and
telecommunications. Frequent or prolonged interruptions of these services could
result in significant losses of revenues. These types of occurrences could also
cause users to perceive our products as not functioning properly and therefore
encourage them to use other methods to deliver and receive information. We have
limited control over these third parties and there can be no assurance that we
will be able to maintain relationships with them on acceptable commercial terms.
Nor can there be any assurance that the quality of services that they provide
will remain at the levels needed to enable us to conduct our business
effectively. Each of these third parties has likely experienced outages in the
past, and could experience outages, delays and other difficulties due to system
failures unrelated to the Company's systems.
COSTS OF TRANSMITTING DOCUMENTS AND DATA COULD INCREASE.
The cost of transmitting documents and data over the Internet could
increase, and the Company may not be able to increase its prices to cover such
rising costs. Several telecommunications companies have petitioned the Federal
Communications Commission to regulate Internet and on-line service providers in
a manner similar to long distance telephone carriers and to impose access fees
on such providers. Also, foreign laws and state tax laws and regulations
relating to the provision of services over the Internet are still developing. If
individual states impose taxes on services provided over the Internet, our cost
of providing TVemail-TM- and other services may increase.
17
