Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-QSB

 


 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2005.

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

Commission File Number: 000-26399

 


 

eOn Communications Corporation

(Exact name of registrant as specified in its charter)

 


 

Delaware   62-1482176

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

4105 Royal Drive NW, Suite 100,

Kennesaw, Georgia

  30144
(Address of principal executive offices)   (Zip code)

 

(770) 423-2200

(Registrant’s telephone number, including area code)

 


 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 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  ¨

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

 

13,402,669 shares of common stock, $0.01 par value, were outstanding as of November 30, 2005.

 



Table of Contents

EON COMMUNICATIONS CORPORATION

FORM 10-Q

QUARTER ENDED OCTOBER 31, 2005

 

TABLE OF CONTENTS

 

PART I

   FINANCIAL INFORMATION     

Item 1.

   Financial Statements    3
     Condensed Consolidated Balance Sheets at October 31, 2005 (unaudited) and July 31, 2005    3
     Condensed Consolidated Statements of Operations for the Three Months Ended October 31, 2005 and 2004 (unaudited)    4
     Condensed Consolidated Statements of Cash Flows for the Three Months ended October 31, 2005 and 2004 (unaudited)    5
     Notes to Condensed Consolidated Financial Statements (unaudited)    6

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations.    12

Item 3.

   Controls and Procedures    18

PART II

   OTHER INFORMATION     

Item 1.

   Legal Proceedings    19

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds    19

Item 3.

   Defaults Upon Senior Securities    19

Item 4.

   Submission of Matters to a Vote of Security Holders    19

Item 5.

   Other Information    19

Item 6.

   Exhibits    19

 

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Table of Contents

PART I - FINANCIAL INFORMATION

 

Item 1. – Financial Statements

 

EON COMMUNICATIONS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and per share information)

 

    

October 31,

2005


    July 31,
2005


 
     (unaudited)        

ASSETS

                

Current assets:

                

Cash and cash equivalents

   $ 749     $ 870  

Marketable securities

     3,600       3,600  

Trade accounts receivable, net of allowance of $1,176 and $1,106, respectively

     2,601       2,145  

Trade accounts receivable - related party

     16       19  

Notes receivable - related party

             —    

Inventories

     2,132       2,155  

Prepaid and other current assets

     195       206  

Current assets of discontinued operations

     7,598       7,408  
    


 


Total current assets

     16,891       16,403  

Property and equipment, net

     368       434  

Goodwill

     21       21  

Non-current assets of discontinued operations

     53       271  
    


 


Total assets

   $ 17,333     $ 17,129  
    


 


LIABILITIES AND STOCKHOLDERS’ EQUITY

                

Current liabilities:

                

Trade accounts payable

   $ 653     $ 703  

Trade accounts payable - related party

     160       157  

Deferred acquisition payment

     —         914  

Accrued expenses and other

     1,508       1,603  

Current liabilities of discontinued operations

     5,093       4,952  
    


 


Total current liabilities

     7,414       8,329  

Minority interest of discontinued operations

     1,236       1,145  

Commitments and contingencies

     —         —    

Stockholders’ equity:

                

Preferred stock, $0.001 par value, (10,000,000 shares authorized, no shares issued and outstanding)

     —         —    

Common stock, $0.001 par value (50,000,000 shares authorized, 14,075,151 and 13,579,957 shares issued, respectively)

     14       13  

Additional paid-in capital

     54,969       54,455  

Treasury stock, at cost (676,900 shares)

     (1,502 )     (1,502 )

Accumulated deficit

     (44,867 )     (45,372 )

Accumulated other comprehensive income

     69       61  
    


 


Total stockholders’ equity

     8,683       7,655  
    


 


Total liabilities and stockholders’ equity

   $ 17,333     $ 17,129  
    


 


 

See accompanying notes to the condensed consolidated financial statements.

 

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EON COMMUNICATIONS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share information)

(Unaudited)

 

     Three Months Ended
October 31,


 
     2005

    2004

 

REVENUE

                

Net revenue

   $ 3,172     $ 4,571  

COST OF REVENUE

                

Cost of revenue

     1,060       2,067  
    


 


Gross profit

     2,112       2,504  
    


 


OPERATING EXPENSE

                

Selling, general and administrative

     1,355       1,568  

Research and development

     586       866  
    


 


Total operating expense

     1,941       2,434  
    


 


Income from continuing operations

     171       70  

Interest income

     34       21  

Other expense, net

     (24 )     (9 )
    


 


Income from continuing operations before income taxes

     181       82  

Income tax expense

     —         —    
    


 


Income from continuing operations after income taxes

     181       82  

DISCONTINUED OPERATIONS

                

Income from discontinued operations, net of tax of $36 and $4, respectively and minority interest of $91 and $13, respectively

     107       16  
    


 


Income before extraordinary item

     288       98  

EXTRAORDINARY ITEM

                

Extraordinary gain, net of income taxes of $0

     217       —    
    


 


Net income

   $ 505     $ 98  
    


 


COMPREHENSIVE INCOME

                

Net income

   $ 505     $ 98  

Foreign currency translation adjustment

     8       —    
    


 


Comprehensive income

   $ 513     $ 98  
    


 


Weighted average shares outstanding:

                

Basic

     12,961       12,821  

Diluted

     13,039       12,918  

Basic income per share:

                

From continuing operations after income taxes

   $ 0.01     $ 0.01  

From discontinued operations, net of tax and minority interest

     0.01       —    

From extraordinary gain, net of income taxes

     0.02       —    
    


 


Net income

   $ 0.04     $ 0.01  
    


 


Diluted income per share:

                

From from continuing operations after income taxes

   $ 0.01     $ 0.01  

From discontinued operations, net of tax and minority interest

     0.01       —    

From extraordinary gain, net of income taxes

     0.02       —    
    


 


Net income

   $ 0.04     $ 0.01  
    


 


 

See accompanying notes to the condensed consolidated financial statements.

 

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EON COMMUNICATIONS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

 

     Three Months Ended
October 31,


 
     2005

    2004

 

CASH FLOWS FROM OPERATING ACTIVITIES:

                

Net income

   $ 505     $ 98  

Net change in operating assets and liabilities of discontinued operations

     169       (31 )

Minority interest of discontinued operations

     91       15  

Extraordinary gain

     (217 )     —    

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

                

Depreciation and amortization

     90       122  

Provision of allowance for doubtful accounts

     111       —    

Changes in net assets and liabilities

                

Trade accounts receivable

     (567 )     (1,007 )

Inventories

     23       117  

Prepaid and other current assets

     11       (7 )

Trade accounts payable

     (50 )     355  

Trade accounts receivable/payable - related party

     6       27  

Accrued expenses and other

     (301 )     (267 )
    


 


Net cash used in operating activities

     (129 )     (578 )

CASH FLOWS FROM INVESTING ACTIVITIES:

                

Purchases of property and equipment

     (24 )     (56 )

Disposal of property and equipment

     —         3  
    


 


Net cash used in investing activities

     (24 )     (53 )

CASH FLOWS FROM FINANCING ACTIVITIES:

                

Proceeds from employee stock purchase plan and stock option exercises

     24       19  
    


 


Net cash provided by financing activities

     24       19  

Effect of exchange rates on cash

     8       —    
    


 


Net decrease in cash and cash equivalents

     (121 )     (612 )

Cash and cash equivalents, beginning of period

     870       1,772  
    


 


Cash and cash equivalents, end of period

   $ 749     $ 1,160  
    


 


 

See accompanying notes to the condensed consolidated financial statements.

 

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Table of Contents

EON COMMUNICATIONS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three Months Ended October 31, 2005 and 2004

 

1. Basis of Presentation

 

The accompanying unaudited consolidated condensed financial statements have been prepared by eOn Communications Corporation (“eOn” or the “Company”). It is management’s opinion that these statements include all adjustments, consisting of only normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows as of October 31, 2005 and for all periods presented.

 

Principles of Consolidation – The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, and include the accounts of the Company’s majority owned subsidiary Cortelco Shanghai Telecom Equipment Company (“Cortelco Shanghai”) and Aelix Systems Incorporated (“Aelix”). All significant inter-company balances and transactions have been eliminated in consolidation.

 

On June 1, 2004, eOn acquired a controlling interest (54.14%) in Cortelco Shanghai, a provider of fiber optic transmission equipment, data communications systems, and network management software in China. During the quarter ended October 31, 2005, the Company committed to a plan to sell its 54.14% interest in Cortelco Shanghai. Accordingly, the Company’s consolidated financial statements reflect the results of Cortelco Shanghai as discontinued operations.

 

Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto as of July 31, 2005 and 2004 and for each of the three years in the period ended July 31, 2005, which are included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission.

 

2. Stock Compensation Plans

 

At October 31, 2005, the Company had three stock-based compensation plans for employees and an Employee Stock Purchase Plan (ESPP), which are more fully described in the Company’s Annual Report on Form 10-K for the year ended July 31, 2005. The Company accounts for those plans under the intrinsic value method, which follows the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under the stock compensation plans had an exercise price equal to or greater than the market value of the underlying common stock on the grant date. Further, the ESPP is a non-compensatory plan under APB Opinion No. 25, and, as such, no compensation cost was recognized with respect to the ESPP.

 

The following table illustrates the effect on net loss and net loss per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation:

 

     Three Months Ended
October 31,


 
     2005

    2004

 

Net income, as reported

   $ 505     $ 98  

Deduct: Total stock-based compensation determined under fair value based method for all awards, net of tax

     (60 )     (92 )
    


 


Net income, pro forma

   $ 445     $ 6  
    


 


Net income per share , basic

                

As reported

   $ 0.04     $ 0.01  

Pro forma

   $ 0.03     $ —    

Net income per share , diluted

                

As reported

   $ 0.04     $ 0.01  

Pro forma

   $ 0.03     $ —    

 

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Table of Contents

The fair value of shares and options issued pursuant to our stock-based compensation plans at the grant date were calculated using the Black-Scholes option pricing model as prescribed by SFAS No. 123 generally using the following weighted average assumptions; dividend yield 0.0%, expected volatility 100%, average risk free interest rate approximately 4.50%, and expected life in years 7.

 

3. Revenue Recognition

 

Revenues from our products are recognized only when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price to the customer is fixed or determinable, and collectibility is reasonably assured. Generally, revenue is recognized (1) upon shipment for equipment and software, (2) as work is performed for professional services, and (3) in equal periodic amounts over the term of the contract for software and hardware maintenance. The Company believes that its revenue recognition policies are compliant with Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements,” and Statement of Position No. 97-2, “Software Revenue Recognition.”

 

4. Cortelco Shanghai, Extraordinary Gain and Discontinued Operations

 

On June 1, 2004, eOn acquired a controlling interest in Cortelco Shanghai Telecom Equipment Company (“Cortelco Shanghai”), a provider of fiber optic transmission equipment, data communications systems, and network management software in China.

 

Under the terms of the agreement, eOn acquired all of the stock of Cortelco China Corp, a California corporation that owns a 54.14% ownership interest in Cortelco Shanghai, from Cortelco Systems Holding Corporation (“CSHC”). At closing, CSHC received 157,167 shares of eOn common stock valued at $321,250. On October 21, 2005, the Company issued 471,501 shares valued at $490,361, being the final amount of common stock required, pursuant to the original Cortelco Shanghai purchase agreement. The value of the assets acquired exceeded the value of the stock issued, therefore the Company realized an extraordinary gain pursuant to SFAS No. 141 of $217,000 during the quarter ended October 31, 2005.

 

During the quarter ended October 31, 2005, the Company committed to a plan to sell its 54.14% interest in Cortelco Shanghai. Accordingly, we have presented Cortelco Shanghai as a discontinued operation pursuant to Statement of Financial Accounting Standards (“SAFS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

 

On October 24, 2005 eOn signed a Memorandum of Understanding (“MOU”) to sell its interest in Cortelco Shanghai to the 46% minority holder, Shanghai Fortune Telecommunication Technology Development Co. Ltd. (“Shanghai Fortune”) and members of management of Cortelco Shanghai. The MOU has been approved by the Boards of Directors of eOn and Shanghai Fortune and is similar to a binding letter of intent.

 

The MOU is subject to negotiation of a definitive agreement, approval of China government authorities and various other conditions. eOn and Shanghai Fortune have tentatively agreed to a purchase price based on the book value at July 31, 2005. This would result in an estimated purchase price of approximately $1.8 million. Payment of 85% would be paid in cash within 30 days of closing; the remaining 15% (sold to management) would have extended payment terms to be negotiated.

 

As of October 31, 2005, the investment in Cortelco Shanghai has a carrying value of approximately $1,282,000.

 

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Table of Contents

Assets and liabilities classified as held for sale as of October 31, 2005 and July 31, 2005 are as follows (in thousands):

 

     October 31,
2005


  

July 31,

2005


Assets Held for Sale

             

Cash and cash equivalents

   $ 4,146    $ 3,010

Trade accounts receivable

     1,090      1,421

Trade accounts receivable - related parties

     600      883

Notes receivable

     447      281

Notes receivable - related party

     543      1,040

Inventories

     562      654

Prepaid and other current assets

     210      119
    

  

Current assets held for sale

     7,598      7,408

Property and equipment, net

     53      271
    

  

Current and non-cuurent assets held for sale

   $ 7,651    $ 7,679
    

  

Liabilities Held for Sale

             

Accounts payable

   $ 2,638    $ 2,409

Accounts payable - related party

     1,877      2,021

Accrued expenses and other

     578      522

Current liabilities held for sale

     —        —  
    

  

Current liabilities held for sale

     5,093      4,952

Minority interest in net assets held for sale

     1,236      1,145
    

  

Current and non-current liabilities held for sale

   $ 6,329    $ 6,097
    

  

Net assets held for sale

   $ 1,322    $ 1,582
    

  

 

Results of discontinued operations for the quarters ended October 31, 2005 and 2004 are as follows (in thousands):

 

     2005

    2004

 

REVENUE

                

Net third party revenue

   $ 2,136     $ 1,632  

Net related party revenue

     335       264  
    


 


Total revenue

     2,471       1,896  
    


 


COST OF REVENUE

                

Third party cost of revenue

     1,861       1,396  

Related party cost of revenue

     70       205  
    


 


Total cost of revenue

     1,931       1,601  
    


 


Gross profit

     540       295  

OPERATING EXPENSE

                

Selling, general and administrative

     315       277  
    


 


Total Operating Expenses Total operating expense

     315       277  
    


 


Operating income

     225       18  

Interest income

     9       15  
    


 


Income before income taxes and minority interest

     234       33  

Income taxes

     (36 )     (4 )
    


 


Income before minority interest

     198       29  

Minority interest

     (91 )     (13 )
    


 


Income from discontinued operations

   $ 107     $ 16  
    


 


 

5. Related Parties

 

The Company is affiliated with the following entities through common stockholder ownership:

 

    Cortelco Systems Holding Corporation (“CSHC”);

 

    Cortelco International, Inc. (“CII”, subsidiary of CSHC);

 

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    Cortelco Canada (“CC”, subsidiary of CSHC) and

 

    Spark Technologies, Inc.

 

The following represents related party transactions (in thousands):

 

     Three Months Ended
October 31,


     2005

   2004

Purchases from CSHC and subsidiaries

   $ 145    $ 152

 

The following represents related party balances (in thousands):

 

     October 31,
2005


   July 31,
2005


Trade receivables from Spark Technologies, Inc.

   $ 16    $ 19
    

  

Trade accounts receivable - related parties

   $ 16    $ 19
    

  

Payable to CII

   $ 143    $ 51

Payable to Spark Technologies, Inc.

     17      106
    

  

     $ 160    $ 157
    

  

 

Cortelco International, Inc. and Cortelco Systems Holding Corporation

 

Cortelco International, Inc. (“CII”) is a subsidiary of Cortelco Systems Holding Corporation (“CSHC”) and a supplier of Millenium and eQueue peripheral hardware. Accounts payable are paid on thirty to sixty day terms. The Company has had no significant transactions with CSHC.

 

Spark Technologies, Inc.

 

Aelix performs engineering development projects for Spark Technologies, Inc (“Spark”), a California company that is wholly owned by David Lee, the Chief Executive Officer and majority shareholder of eOn. Aelix has incurred approximately $89,000 of expenses on behalf of Spark during the three months ended October 31, 2005 (net of approximately $18,000 incurred by Spark engineers on behalf of eOn). Included in Accounts Receivable – Related Party is $16,000 owed eOn and Aelix by Spark on October 31, 2005.

 

Cortelco Shanghai also performs engineering development projects for Spark. Cortelco Shanghai has incurred expenses of approximately $91,000 on behalf of Spark during the three months ended October 31, 2005, respectively. At October 31, 2005, Spark owed Cortelco Shanghai $12,000, which is included in assets of discontinued operations.

 

Spark deposited $211,000 with the Company in China to pay for Spark expenses. As of October 31, 2005, the balance of this deposit/prepayment is $17,000. This balance is included in the Company’s balance sheet as Cash and offset in Trade Accounts Payable – Related Party.

 

6. Inventories

 

Inventories consist of the following (in thousands):

 

     October 31,
2005


   July 31,
2005


Raw materials and purchased components

   $ 576    $ 743

Finished goods

     1,556      1,412
    

  

Total inventories

   $ 2,132    $ 2,155
    

  

 

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7. Product Warranties

 

The Company generally provides customers a one year product warranty from the date of purchase. The Company estimates the costs of satisfying warranty claims based on analysis of past claims experience and provides for these future claims in the period that revenues are recognized. The cost of satisfying warranty claims, which approximates 2% of revenue, has historically been comprised of materials and direct labor costs. We perform quarterly evaluations of these estimates, and any changes in estimates, which could potentially be significant, are included in earnings in the period in which the evaluations are completed.

 

Information regarding the changes in the Company’s aggregate product warranty accrual included in accrued expenses and other, for the three months ended October 31, 2005 and 2004 were as follows (in thousands):

 

     For the Three Months Ended
October 31,


 
     2005

    2004

 

Beginning balance

   $ 228     $ 300  

Warranty cost incurred

     (36 )     (64 )

Accrued warranty cost

     1       98  
    


 


Ending balance

   $ 193     $ 334  
    


 


 

8. Changes in Stockholders’ Equity

 

The following represents the changes in stockholders’ equity for the three months ended October 31, 2005 (in thousands, excluding share data):

 

     Common Stock

  

Additional
Paid-In

Capital


   Treasury Stock

   

Accumulated

Deficit


   

Accumulated
Other
Comprehensive

Income


  

Total
Stockholders’

Equity


     Shares

   Amount

      Shares

    Amount

        

Balance at July 31, 2005

   13,579,957    $ 13    $ 54,455    (676,900 )   $ (1,502 )   $ (45,372 )   $ 61    $ 7,655

Net income

   —        —        —      —         —         505       —        505

Translation adjustment

   —        —        —      —         —         —         8      8
                                                    

Comprehensive income

   —        —        —      —         —         —         —        513

Issuance of common stock under employee stock purchase plan

   23,693      —        24    —         —         —         —        24

Issuance of stock for deferred acquisition payment

   471,501      1      490    —         —         —         —        491
    
  

  

  

 


 


 

  

Balance at October 31, 2005

   14,075,151    $ 14    $ 54,969    (676,900 )   $ (1,502 )   $ (44,867 )   $ 69    $ 8,683
    
  

  

  

 


 


 

  

 

9. Commitments and Contingencies

 

At October 31, 2005, the Company had outstanding commitments for inventory purchases under open purchase orders of approximately $752,000.

 

The Company is involved in various matters of litigation, claims, and assessments arising in the ordinary course of business. In the opinion of management, the eventual disposition of these matters will not have a material adverse effect on the financial statements.

 

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10. Equity Incentive Plans

 

The status of the Company’s stock option plans since July 31, 2005 is as follows:

 

     Number of
Shares


   Weighted
Average
Exercise
Price


Options outstanding, July 31, 2005

     1,572,844    $ 4.27

Granted

     —        —  

Exercised

     —        —  

Cancelled

     —        —  
    

  

Options outstanding, October 31, 2005

     1,572,844    $ 4.27
    

  

Options exercisable October 31, 2005

     1,261,975    $ 4.70

Exercise price range

   $ 0.28 - $24.25       

Options available for grant, October 31, 2005

     524,365       

 

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Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This report contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are those that express management’s views of future events, developments, and trends. In some cases, these statements may be identified by terminology such as “may,” “will,” “should,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of such terms and other comparable expressions. Forward-looking statements include statements regarding our anticipated or projected operating performance, financial results, liquidity and capital resources. These statements are based on management’s beliefs, assumptions, and expectations, which in turn are based on the information currently available to management. Information contained in these forward-looking statements is inherently uncertain, and our actual operating performance, financial results, liquidity, and capital resources may differ materially due to a number of factors, most of which are beyond our ability to predict or control. Factors that may cause or contribute to such differences include, but are not limited to, eOn’s ability to compete successfully in its industry and to continue to develop products for new and rapidly changing markets. We also direct your attention to the risk factors affecting our business that are discussed below. eOn disclaims any obligation to update any of the forward-looking statements contained in this report to reflect any future events or developments. The following discussions should be read in conjunction with our condensed financial statements and the notes included thereto.

 

Overview

 

We design, develop and market next-generation communications servers which integrate and manage voice, email and Internet communications for customer contact centers and other applications. We also offer a traditional voice-switching platform for small and medium-sized installations.

 

On June 1, 2004, eOn acquired a controlling interest in Cortelco Shanghai Telecom Equipment Company (“Cortelco Shanghai”), a provider of fiber optic transmission equipment, data communications systems, and network management software in China.

 

Under the terms of the agreement, eOn acquired all of the stock of Cortelco China Corp, a California corporation that owns a 54.14% ownership interest in Cortelco Shanghai, from Cortelco Systems Holding Corporation (“CSHC”). At closing, CSHC received 157,167 shares of eOn common stock valued at $321,250. On October 21, 2005, the Company issued 471,501 shares valued at $490,361, being the final amount of common stock required to be made pursuant to the original Cortelco Shanghai purchase agreement. The value of the assets acquired exceeded the value of the stock issued, therefore the Company realized an extraordinary gain pursuant to SFAS No. 141 of $217,000 during the quarter ended October 31, 2005.

 

During the quarter ended October 31, 2005, the Company committed to a plan to sell its 54.14% interest in Cortelco Shanghai. Accordingly, we have presented Cortelco Shanghai as a discontinued operation pursuant to Statement of Financial Accounting Standards (“SAFS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

 

On October 24, 2005 eOn signed a Memorandum of Understanding (“MOU”) to sell its interest in Cortelco Shanghai to the 46% minority holder, Shanghai Fortune Telecommunication Technology Development Co. Ltd. (“Shanghai Fortune”) and members of management of Cortelco Shanghai. The MOU has been approved by the Boards of Directors of eOn and Shanghai Fortune and is similar to a binding letter of intent.

 

The MOU is subject to negotiation of a definitive agreement, approval of China government authorities and various other conditions. eOn and Shanghai Fortune have tentatively agreed to a purchase price based on the book value at July 31, 2005. This would result in an estimated purchase price of approximately $1.8 million. Payment of 85% would be paid in cash within 30 days of closing; the remaining 15% (sold to management) would have extended payment terms to be negotiated.

 

As of October 31, 2005, the investment in Cortelco Shanghai has a carrying value of approximately $1,282,000.

 

Critical Accounting Policies and Estimates

 

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and that could potentially result in materially different results under different assumptions and conditions. We believe that our critical accounting policies are limited to those described below. For a detailed description of our accounting policies, see Note 3, “Summary of Significant Accounting Policies,” in Part II, Item 8, “Consolidated Financial Statements and Supplementary Data,” of our Annual Report on Form 10-K for the year ended July 31, 2005.

 

Revenue Recognition

 

Revenues from our products are recognized only when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price to the customer is fixed or determinable, and collectibility is reasonably assured.

 

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Generally, revenue is recognized (1) upon shipment for equipment and software, (2) as work is performed for professional services, and (3) in equal periodic amounts over the term of the contract for software and hardware maintenance. The Company believes that its revenue recognition policies are compliant with Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements,” and Statement of Position No. 97-2, “Software Revenue Recognition.”

 

Product Warranties

 

We generally provide customers a one year product warranty from the date of purchase. We estimate the costs of satisfying warranty claims based on analysis of past claims experience and provide for these future claims in the period that revenue is recognized. The cost of satisfying warranty claims, which approximates 2% of revenue, has historically been comprised of materials and direct labor costs. We perform quarterly evaluations of these estimates and any changes in estimate which could potentially be significant, are included in earnings in the period in which the evaluations are completed.

 

Inventory Obsolescence

 

We carry inventories at the lower of cost or market. This policy depends on the timely identification of those items included in inventory whose market price may have declined below carrying value, such as slow-moving or obsolete items, and we record any necessary valuation reserves. We perform an analysis of slow-moving or obsolete inventory on a quarterly basis, and any necessary valuation reserves, which could potentially be significant, are included in earnings in the period in which the evaluations are completed.

 

Allowance for Uncollectible Accounts Receivable

 

We typically grant standard credit terms to customers in good credit standing. As a result, we must estimate the portion of our accounts receivable that are uncollectible and record any necessary valuation reserves. We generally reserve for estimated uncollectible accounts on a customer-by-customer basis, which requires us to make judgments about each individual customer’s ability and intention to fully pay balances payable to us. We make these judgments based on our knowledge of and relationships with our customers, and we update our estimates on a monthly basis. Any changes in estimate, which can be significant, are included in earnings in the period in which the change in estimate occurs.

 

Stock Compensation

 

The Company has elected to follow Accounting Principles Board Opinion No. 25 (“APB 25”), Accounting for Stock issued to Employees and related interpretations in accounting for stock options. Under “fixed plan” accounting in APB 25, because the exercise price of the Company’s options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. The Company has adopted pro forma disclosures of SFAS 123.

 

In December 2004, the FASB issued SFAS No. 123(R) Share Based Payment, which addresses the accounting for share-based payment transactions. SFAS No. 123(R) eliminates the ability to account for share-based compensation transactions using APB 25, and generally requires instead that such transactions be accounted for and recognized in the statement of operations based on their fair value. SFAS No. 123(R) will be effective for public companies that file as small business issuers as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. Management is evaluating the provisions of this standard. Depending upon the number and terms of options that may be granted in future periods, the implementation of this standard could have a material impact on the Company’s financial position and results of operations.

 

Deferred Taxes

 

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. Because of losses during the years 2000 through 2005, the Company has available net operating loss (“NOL”) carry forwards of $20.1 million.

 

Accounting principles generally accepted in the United States require the recording of a valuation allowance against the net deferred tax asset associated with this NOL and other timing differences if it is “more likely than not” that the Company will not be able to utilize the NOL to offset future taxes. Due to the size of the NOL carry forward in relation to the Company’s taxable income in recent years and to the continuing uncertainties surrounding future earnings, management has not recognized any of its net deferred tax asset. Because this asset has been offset by a valuation allowance, the Company currently provides for income taxes only to the extent of expected cash payments of taxes, primarily state income taxes, for current income.

 

Should the Company’s earnings trend cause management to conclude that it is more likely than not the Company will realize all or a material portion of the NOL carry forward, management would record the estimated net realizable value of its deferred tax asset at that time. The Company would then provide for income taxes at a rate equal to its combined federal and state effective rates, which would approximate 39% under current tax rates. Subsequent revisions to the estimated net realizable value of the deferred tax asset could cause the provision for income taxes to vary significantly from period to period, although the Company’s cash tax payments would remain unaffected until the benefit of the NOL is utilized.

 

Results of Operations

 

For the Three Months Ended October 31, 2005 compared to the Three Months Ended October 31, 2004

 

Net Revenue

 

Net revenue decreased approximately 30% to $3.2 million for the three months October 31, 2005 compared to $4.6 million for the same period of the previous year. The decrease reflects a decrease in Millennium revenue of $1.2 million and a decrease of eQueue revenue of $0.2 million over the same period of the previous year. Millennium revenue decreased as a result of lower national account sales and lower governmental sales.

 

Cost of Revenue and Gross Profit

 

Cost of revenue is primarily comprised of purchases from our contract manufacturers and other suppliers and costs incurred for final assembly of our systems. Gross profit decreased approximately 16% to $2.1 million for the three months ended

 

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October 31, 2005 from $2.5 million for the same period of the previous year, as a result of lower revenue. Millennium gross profit decreased $0.3 million and eQueue gross profit decreased $0.1 million over the same period last year. Gross margin increased to approximately 67% for the three months ended October 31, 2005 compared with gross margin of approximately 55% for the same period of the previous year. This increase was primarily due to sales mix, lower margin Millennium products represented a smaller portion of the total gross profit.

 

Selling, General and Administrative

 

Selling, general and administrative expense consists primarily of salaries and benefit costs, advertising and trade show related costs, and facilities and other overhead expenses incurred to support our business. Selling, general and administrative expenses decreased approximately 13% to $1.4 million for the three months ended October 31, 2005, from $1.6 million for the same period of the previous year. The improvement reflects lower employee compensation (resulting from reductions in workforce) and travel costs of $0.2 million and lower marketing expenses of $0.1 million, partially offset by higher bad debt expense of $0.1 million.

 

Research and Development

 

Research and development expense consists primarily of personnel and related facility costs for our engineering staff. Research and development expenses decreased approximately 32% to $0.6 million for the three months ended October 31, 2005 from $0.9 million for the same period of the previous year. The reduction primarily reflects reduced employee compensation and travel resulting from shifting some of our engineering workforce from the United States to India.

 

Interest and other income and expense

 

Interest income was $34,000 for the three months ended October 31, 2005 compared to $21,000 for the same period of the previous year. Other expense was $24,000 for the quarter ended October 31, 2005 compared to other expense of $9,000 for the same period of the previous year.

 

Liquidity and Capital Resources

 

As of October 31, 2005, we had cash and cash equivalents of $0.7 million, $3.6 million in short term investments, and working capital of $9.5 million. Our short term investments are primarily invested in taxable auction rate securities with frequent rate resets.

 

Our operating activities resulted in a net cash outflow of $0.1 million for the three months ended October 31, 2005 compared to net cash outflow of $0.6 million for the same period of the previous year. The net operating cash outflow for the current period was primarily the result of an increase in accounts receivable and a decrease in accounts payable and accrued expenses. The net operating cash outflow for the prior year period was primarily the result of an increase in accounts receivable and a reduction in accrued expenses, partially offset by a reduction in accounts payable.

 

Our investing activities resulted in a net cash outflow of $24,000 for the three months ended October 31, 2005 compared to a net cash outflow of $53,000 for the same period of the previous year. Cash used by investing activities for the three months ended October 31, 2005 and for the same period of the previous year were a result of net capital expenditures.

 

Our financing activities resulted in a cash inflow of $24,000 for the three months ended October 31, 2005 compared to a cash inflow of $19,000 for the same period of the previous year. Cash provided by financing activities in the current period and prior period were due to purchases under the Employee Stock Purchase Plan.

 

Liquidity

 

Since inception, the Company has financed its operations through debt financing and proceeds generated from public offerings of its common stock. The proceeds from these transactions have been used primarily to fund research and development costs, and selling, general and administrative expenses. Additionally, since inception, the Company has invested $4.5 million in capital expenditures.

 

The Company has incurred substantial net operating losses since inception and negative cash flows from operating activities through July 31, 2005; resulting in an accumulated deficit of $45.4 million. During fiscal year 2005, cash and cash equivalents and short term investments decreased from $6.0 million to $4.5 million, primarily reflecting the operating loss incurred for fiscal year 2005.

 

The Company had income from continuing operations of $0.2 million for the three months ended October 31, 2005 versus income from operations of $0.1 million for the same period in the prior year. As of October 31, 2005, the Company had $4.3 million in cash and cash equivalents and short term investments in the United States available to fund operations.

 

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The Company is dependent on available cash, short-term investments and operating cash flow to finance operations and meet its other capital needs. If such sources are not sufficient, alternative funding sources may not be available. The Company believes that cash on hand and short-term marketable securities plus the additional liquidity that it expects to generate from operations will be sufficient to cover its working capital and fund expected capital expenditures over at least the next twelve months.

 

Capital Resources

 

We have principally relied on the proceeds from equity and cash provided from operations as our primary sources of capital. While we do not currently anticipate the need to raise additional capital to meet our operating and capital expenditure requirements in the foreseeable future, our funding status is dependent on a number of factors influencing projections of operating cash flows, including those related to profit margins, controlling selling, general and administrative costs and research and development costs. Further, we believe that the cash and short-term investment securities on hand plus the additional liquidity that we expect to generate from operations will be sufficient to meet the cash requirements of the business including capital expenditures, cash interest payments and working capital needs for at least the next twelve months. Should actual results differ significantly from our current assumptions, our liquidity position could be adversely affected and we could be in a position that would require us to raise additional capital, which may not be available to us or may not be available on acceptable terms.

 

Commitments and Contingencies

 

At October 31, 2005, the Company has outstanding commitments for inventory purchases under open purchase orders of approximately $752,000.

 

During fiscal year 2002, the Company entered into a lease termination agreement for its former facility in Memphis, Tennessee. A $1,400,000 declining balance letter of credit was issued to secure payments under the termination agreement. The balance on the letter of credit was paid off during the quarter ended October 31, 2004.

 

The Company is involved in various matters of litigation, claims, and assessments arising in the ordinary course of business. In the opinion of management, the eventual disposition of these matters will not have a material adverse effect on the financial statements.

 

Additional Risk Factors That May Affect Future Results of Operations

 

The following risk factors and other information contained in this report should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that are not currently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occurs, our business, financial condition, and operating results could be materially adversely affected.

 

In addition to the other information included in this report, the following factors should be considered in evaluating our business and future prospects.

 

Fluctuations in our quarterly operating results could cause our stock price to decline.

 

Future operating results are likely to fluctuate significantly from quarter to quarter. Factors that could affect our quarterly operating results include:

 

  delays or difficulties in introducing new products;

 

  increasing expenses without commensurate revenue increases;

 

  variations in the mix of products sold;

 

  variations in the timing or size of orders from our customers;

 

  declining market for traditional private branch exchange (PBX) equipment;

 

  delayed deliveries from suppliers; and

 

  price decreases and other actions by our competitors.

 

Our quarterly operating results are also likely to fluctuate due to seasonal factors. Some of our vertical markets, such as the U.S. government, educational and retail buyers, follow seasonal buying patterns and do not make substantial purchases during the quarters ending January 31. Thus, revenues in the quarters ending January 31 are often lower than in the previous quarters. Because of these and other factors, our operating results may not meet expectations in some future quarters, which could cause our stock price to decline.

 

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Our communications servers face intense competition from many companies that have targeted our markets.

 

The competitive arena for our products is changing very rapidly and we face intense competition in our markets. Well-established companies and many emerging companies are scrambling to develop products to improve customer service in e-commerce. While the industry remains fragmented, it is rapidly moving toward consolidation, driven by both emerging companies’ desires to expand product offerings and resources and established companies’ attempts to acquire new technology and reach new market segments. A number of emerging companies have completed initial public offerings, while many more remain private. More established competitors, as well as those emerging companies that have completed initial public offerings, currently have greater resources and market presence than we do. Additionally, a number of our current and potential competitors have recently been acquired by larger companies who seek to enter our markets.

 

We expect competition to intensify as competitors develop new products, new competitors enter the market, and companies with complementary products enter into strategic alliances.

 

Our current and potential competitors can be grouped into the following categories:

 

  Contact center vendors, such as Avaya, Nortel Networks, Aspect Communications, and Rockwell;

 

  Data communication equipment suppliers, such as Cisco Systems and 3COM;

 

  Email management and web center software suppliers, such as eGain, Kana Communications, and Live Person; and

 

  Voice communications equipment suppliers, such as Nortel Networks, Avaya, Mitel, NEC, Toshiba, and Siemens.

 

Many of our current and potential competitors have significantly greater financial, technical, marketing, customer service and other resources, greater name and brand recognition and a larger installed customer base than we do. Therefore, our competitors may be able to respond to new or emerging technologies and changes faster than we can. They may also be able to devote greater resources to the development, promotion and sale of their products.

 

Actions by our competitors could result in price reductions, reduced margins and loss of market share, any of which would damage our business. We cannot assure you that we will be able to compete successfully against these competitors.

 

If we cannot expand our indirect sales channel to sell our eQueue products, our ability to generate revenue would be harmed.

 

We sell our eQueue communications servers both directly and indirectly through dealers and value added resellers that have experience in data as well as voice communications. We may not be able to expand this indirect sales channel. In addition, new distribution partners may devote fewer resources to marketing and supporting our products than to our competitors’ products and could discontinue selling our products at any time in favor of our competitors’ products or for any other reason.

 

The lengthy sales cycles of some of our products and the difficulty in predicting the timing of our sales may cause fluctuations in our quarterly operating results.

 

The uncertainty of our sales cycle makes the timing of sales difficult to predict and may cause fluctuations in our quarterly operating results. Our sales cycles generally vary from four to twelve months for our eQueue products and from one to six months for our Millennium voice switching platform. The purchase of our products may involve a significant commitment of our customers’ time, personnel, and financial and other resources. Also, it is difficult to predict the timing of indirect sales because we have little control over the selling activities of our dealers and value added resellers.

 

We incur substantial sales and marketing expenses and spend significant management time before customers place orders with us, if at all. Revenues from a specific customer may not be recognized in the quarter in which we incur related sales and marketing expense, which may cause us to miss our revenues or earnings expectations.

 

We face many risks from expanding into foreign markets.

 

The Company expects to increase sales to customers outside of the United States and establish additional distribution channels in Asia. However, foreign markets for our products may develop more slowly than currently anticipated. eOn may not be able to successfully establish international distribution channels, or may not be able to hire the additional personnel necessary to support such distribution channels.

 

Our future results could be harmed by economic, political, regulatory and other risks associated with international sales and operations.

 

Because our growth initiatives include expansion into foreign markets, we are subject to the risks of conducting business outside of the United States, including:

 

  changes in a specific country’s or region’s political or economic conditions;

 

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  trade protection measures and import or export licensing requirements;

 

  potentially negative consequences from changes in tax laws;

 

  difficulty in managing widespread sales and customer service operations; and

 

  less effective protection of intellectual property.

 

Our products must respond to rapidly changing market needs and integrate with changing protocols to remain competitive.

 

The markets for our products are characterized by rapid technological change, frequent new product introductions, uncertain product life cycles and changing customer requirements. If we are not able to rapidly and efficiently develop new products and improve existing products to meet the changing needs of our customers and to adopt changing communications standards, our business, operating results and financial condition would be harmed.

 

Key features of our products include integration with standard protocols, computer telephony integration and automatic call distribution applications and protocols, operating systems and databases. If our products cannot be integrated with third-party technologies or if they do not respond to changing market needs, we could be required to redesign our products. Redesigning any of our products may require significant resources and could harm our business, operating results and financial condition.

 

If we are not able to sustain our Millennium voice switching platform revenues, our business, operating results and financial condition could be harmed.

 

We may not be able to sustain our Millennium revenues because the traditional private branch exchange (PBX) market, which accounts for a substantial portion of our Millennium revenues, is declining. One reason for the decline of the traditional PBX market is the emergence of voice switching platforms based on standard PCs. If we are not able to grow or sustain our Millennium voice switching platform revenues, our business, operating results and financial condition could be harmed.

 

In addition, a significant portion of Millennium revenues are derived from dealers and value added resellers who have no obligation to sell our products. Therefore, dealers and value added resellers could discontinue selling our products at any time in favor of our competitors’ products or for any other reason. A reduction or loss of orders from our dealers and value added resellers could harm our business, operating results and financial condition.

 

Delayed deliveries of components from our single source suppliers or third-party manufacturers could reduce our revenues or increase our costs.

 

We depend on sole source suppliers for certain components, digital signal processors and chip sets, and voice processor boards. Interruptions in the availability of components from our key suppliers could result in delays or reductions in product shipments, which could damage our customer relationships and harm our operating results. Finding alternate suppliers or modifying product designs to use alternative components may cause delays and expenses. Further, a significant increase in the price of one or more third-party components or subassemblies could reduce our gross profit.

 

We depend upon our primary contract manufacturers ACT Electronics, Innovative Circuits, and Clover Electronics. We may not be able to deliver our products on a timely basis if any of these manufacturers fail to manufacture our products and deliver them to us on time. In addition, it could be difficult to engage other manufacturers to build our products. Our business, results of operations and financial condition could be harmed by any delivery delays.

 

We may be unable to hire and retain engineering and sales and marketing personnel necessary to execute our business strategy.

 

Competition for highly qualified personnel is intense due to the limited number of people available with the necessary technical skills, and we may not be able to attract, assimilate or retain such personnel. If we cannot attract, hire and retain sufficient qualified personnel, we may not be able to successfully develop, market and sell new products.

 

Our business could be harmed if we lose principal members of our management team.

 

We are highly dependent on the continued service of our management team. The loss of any key member of our management team may substantially disrupt our business and could harm our business, results of operations and financial condition. In addition, replacing management personnel could be costly and time consuming.

 

We are effectively controlled by our principal stockholders and management, which may limit your ability to influence stockholder matters.

 

As of October 31, our executive officers, directors and principal stockholders and their affiliates beneficially owned 4,258,114 common shares, or 31.0% of the outstanding shares of common stock. Thus, they effectively control us and direct

 

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our affairs, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying, deferring or preventing a change in control of our company and some transactions may be more difficult or impossible without the support of these stockholders. The interests of these stockholders may conflict with those of other stockholders. We also conduct transactions with businesses in which our principal stockholders maintain interests. We believe that these transactions have been conducted on an arm’s length basis, but we cannot assure you that these transactions would have the same terms if conducted with unrelated third parties.

 

We may not be able to protect our intellectual property, and any intellectual property litigation could be expensive and time consuming.

 

Our business and competitive position could be harmed if we fail to adequately protect our intellectual property. Although we have filed patent applications, we are not certain that our patent applications will result in the issuance of patents, or that any patents issued will provide commercially significant protection to our technology. In addition, as we grow and gain brand recognition, our products are more likely to be subjected to infringement litigation. We could incur substantial costs and may have to divert management and technical resources in order to respond to, defend against, or bring claims related to our intellectual property rights. In addition, we rely on a combination of patent, trademark, copyright and trade secret laws and contractual restrictions to establish and protect our proprietary rights. These statutory and contractual arrangements may not provide sufficient protection to prevent misappropriation of our technology or to deter independent third-party development of similar technologies. Any litigation could result in our expenditure of funds, management time and resources.

 

Our products may have undetected faults leading to liability claims, which could harm our business.

 

Our products may contain undetected faults or failures. Any failures of our products could result in significant losses to our customers, particularly in mission-critical applications. A failure could also result in product returns and the loss of, or delay in, market acceptance of our products. In addition, any failure of our products could result in claims against us. Our purchase agreements with our customers typically contain provisions designed to limit our exposure to potential product liability claims. However, the limitation of liability provisions contained in our purchase agreements may not be effective as a result of federal, state or local laws or ordinances or unfavorable judicial decisions in the United States or other countries. We maintain insurance to protect against certain claims associated with the use of our products, but our insurance coverage may not adequately cover all possible claims asserted against us. In addition, even claims that ultimately are unsuccessful could be expensive to defend and consume management time and resources.

 

Our charter contains certain anti-takeover provisions that may discourage take-over attempts and may reduce our stock price.

 

Our board of directors has the authority to issue up to 10,000,000 shares of preferred stock and to determine the preferences, rights and privileges of those shares without any further vote or action by the stockholders. The rights of the holders of common stock may be harmed by the rights of the holders of any preferred stock that may be issued in the future. Certain provisions of our certificate of incorporation and bylaws may make it more difficult for a third party to acquire control of us without the consent of our board of directors, even if such changes were favored by a majority of the stockholders. These include provisions that provide for a staggered board of directors, prohibit stockholders from taking action by written consent and restrict the ability of stockholders to call special meetings.

 

Future sales of shares may decrease our stock price.

 

Sales of substantial amounts of our common stock in the public market, including shares issued upon the exercise of outstanding options, or the perception that such sales could occur, could reduce the market price of our common stock. These sales also might make it more difficult for us to raise funds through future offerings of common stock.

 

Item 3. – Disclosure Controls and Procedures

 

Evaluation of disclosure controls and procedures.

 

Based on our management’s evaluation (with the participation of our principal executive officer and principal financial officer), as of the end of the period covered by this report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)) were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

 

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Changes in internal control over financial reporting.

 

There were no changes in internal control over financial reporting that occurred during the 3 month period ending October 31, 2005.

 

PART II - OTHER INFORMATION

 

Item 1. – Legal Proceedings

 

None.

 

Item 2. – Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. – Defaults Upon Senior Securities

 

None.

 

Item 4. – Submission of Matters to a Vote of Security Holders

 

None.

 

Item 5. – Other Information

 

None.

 

Item 6. – Exhibits

 

(A) Exhibits

 

Exhibit No.

 

Description


31.1   Officers’ Certification of Periodic Report pursuant to Section 302 of Sarbanes-Oxley Act of 2002
32.1   Officers’ Certification of Periodic Report pursuant to Section 906 of Sarbanes-Oxley Act of 2002

 

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SIGNATURE

 

Pursuant to the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto authorized.

 

EON COMMUNICATIONS CORPORATION

 

Dated: December 15, 2005  

/s/ Stephen R. Bowling


    Stephen R. Bowling
    Vice President, Chief Financial Officer
    (Duly Authorized Officer, Principal Financial and Accounting Officer)

 

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