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EXCEL - IDEA: XBRL DOCUMENT - Inventergy Global, Inc.	Financial_Report.xls
EX-31.1 - EXHIBIT 31.1 - Inventergy Global, Inc.	v362095_ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - Inventergy Global, Inc.	v362095_ex32-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
	ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2013.

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	(I.R.S. Employer
incorporation or organization)	Identification Number)

1703 Sawyer Road
Corinth, MS	38834
(Address of principal executive offices)	(Zip code)

(800) 955-5321

(Registrant's telephone number, including area code)

Check whether the issuer: (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 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. x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filler, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer”, “accelerated filer" and “small reporting company” in Rule 12b-2 of the Exchange Act.

	Large accelerated filer	o	Accelerated filer	o
	Non-accelerated filer	o	Small reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes x No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

2,891,613 shares of common stock, $0.005 par value, were outstanding as of December 1, 2013.

EON COMMUNICATIONS CORPORATION

FORM 10-Q

QUARTER ENDED OCTOBER 31, 2013

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets at October 31, 2013 (Unaudited) and July 31, 2013	3

	Condensed Consolidated Statements of Operations for the Three Months Ended October 31, 2013 and 2012 (Unaudited)	4

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended October 31, 2013 and 2012 (Unaudited)	5

	Notes to Condensed Consolidated Financial Statements (Unaudited)	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	11

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15

Item 4.	Controls and Procedures	15

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	16

Item 1A.	Risk Factors	16

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16

Item 3.	Defaults Upon Senior Securities	16

Item 4.	Mine Safety Disclosures	16

Item 5.	Other Information	16

Item 6.	Exhibits	16

	2

PART I - FINANCIAL INFORMATION

Item 1. – Financial Statements.

EON COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share amounts)

(Unaudited)

	October 31,		July 31,
	2013		2013
	(unaudited)		(Note 1)
ASSETS
Current assets:
Cash and cash equivalents	$	1,672	$	1,778
Trade and other accounts receivable, net of allowance of $286 and $285, respectively		4,996		4,521
Inventories		4,069		5,026
Prepaid and other current assets		331		257
Total current assets		11,068		11,582

Property and equipment, net		522		503
Other non-current assets		23		40
Investments		596		990
Total assets	$	12,209	$	13,115

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable	$	1,655	$	2,297
Current maturities of notes payable		65		37
Current maturities of notes payable - related parties		332		330
Accrued expenses and other		1,242		1,182
Total current liabilities		3,294		3,846
Notes payable - net of current maturities		-		37
Notes payable - related parties, net of current maturities		2,929		2,859
Total liabilities		6,223		6,742

Commitments and contingencies

Stockholders' equity:
Preferred stock, $0.001 par value, (10,000,000 shares authorized,
no shares issued and outstanding)		-		-
Common stock, $0.005 par value (10,000,000 shares authorized, 3,030,697
and 3,016,758 shares issued, respectively)		15		15
Additional paid-in capital		56,318		56,305
Treasury stock, at cost (139,084 shares)		(1,497)		(1,497)
Accumulated deficit		(49,652)		(49,237)
Total eOn Communications Corp. stockholders' equity		5,184		5,586
Noncontrolling interest		802		787
Total stockholders' equity		5,986		6,373
Total liabilities and stockholders' equity	$	12,209	$	13,115

See accompanying notes to the condensed consolidated financial statements.

	3

EON COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share amounts)

(Unaudited)

	Three Months Ended
	October 31,
	2013		2012
REVENUE
Products	$	4,486	$	4,584
Services		795		802
Net revenue		5,281		5,386
COST OF REVENUE
Products		3,450		3,609
Services		586		472
Cost of revenue		4,036		4,081
Gross profit		1,245		1,305
OPERATING EXPENSE
Selling, general and administrative		1,227		1,273
Other operating expense		3		14
Total operating expense		1,230		1,287
Income from operations		15		18
OTHER INCOME (EXPENSE)
Interest income (expense), net		(72)		42
Impairment of investment		(394)		-
Total other income (expense)		(466)		42
Income (loss) from continuing operations before income taxes		(451)		60
Income tax expense from continuing operations		7		7
Net income (loss) from continuing operations		(458)		53
DISCONTINUED OPERATIONS
Income from discontinued operations		58		82
Net income (loss)		(400)		135
Less: Net income attributable to noncontrolling interest		15		47
Net income (loss) attributable to common shareholders	$	(415)	$	88
Weighted average shares outstanding
Basic		2,889		2,877
Diluted		2,889		2,877
Basic and diluted income (loss) per share
Continuing operations	$	(0.16)	$	0.00
Discontinued operations		0.02		0.03
Total	$	(0.14)	$	0.03

See accompanying notes to the condensed consolidated financial statements.

	4

EON COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	Three Months Ended
	October 31,
	2013		2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(400)	$	135
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization		41		26
Provision for doubtful trade accounts receivable		-		3
Imputed interest expense (benefit) on notes payable		72		(42)
Impairment of investment		394		-
Changes in net assets and liabilities:
Trade accounts receivable		(406)		60
Inventories		957		138
Prepaid and other assets		(126)		117
Trade accounts payable		(642)		(340)
Accrued expenses and other		60		(50)
Net cash provided by (used in) operating activities		(50)		47
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(60)		(148)
Net cash used in investing activities		(60)		(148)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable		(9)		(182)
Proceeds from employee stock purchase plan		13		-
Net cash provided by (used in) financing activities		4		(182)
Net decrease in cash and cash equivalents		(106)		(283)
Cash and cash equivalents, beginning of period		1,778		2,162
Cash and cash equivalents, end of period	$	1,672	$	1,879

See accompanying notes to the condensed consolidated financial statements.

	5

EON COMMUNICATIONS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three Months Ended October 31, 2013 and 2012

Basis of Presentation

The accompanying unaudited condensed consolidated 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, 2013, and for all periods presented.

Description of Business

eOn Communications Corporation and subsidiaries (“eOn” or the “Company”) is a provider of communications solutions. Backed with over 20 years of telecommunications expertise, the Company’s solutions enable customers to use its technologies in order to communicate more effectively. Through its wholly-owned subsidiary, Cortelco Systems Holding Corp, (“Cortelco”), the Company provides commercial grade telephone products primarily for use in businesses, government agencies, colleges and universities, telephone companies, and utilities. Cortelco sells primarily through large national distributors with whom it has long-term relationships. Through its majority-owned subsidiary, Cortelco Systems Puerto Rico (“CSPR”), the Company provides sales and service of integrated communications systems, data equipment, security products, and telephony billing services.

Interim Condensed Consolidated Financial Statements

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, and include the accounts of eOn Communications Corporation, Cortelco acquired on April 1, 2009 and CSPR, control of which was acquired on June 9, 2010. All significant inter-company balances and transactions have been eliminated in consolidation.

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 consolidated financial statements be read in conjunction with the financial statements and notes thereto as of July 31, 2013 and 2012 and for each of the two years in the period ended July 31, 2013, which are included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value Measurements

Accounting standards define fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact, and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of non performance.

Accounting standards have established a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Accounting standards have established three levels of inputs that may be used to measure fair value:

·	Level 1: Quoted prices in active markets for identical assets and liabilities.

Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

·	Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

The Company’s cash equivalent instruments, primarily money market securities and U.S. Treasury Securities, are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices.

As of October 31, 2013, the Company owns approximately four percent of Symbio Investment Corporation. Symbio Investment Corporation is a holding company whose primary asset is an approximate twenty percent investment in Symbio S.A. Symbio S.A.’s principal business is to provide outsourced information technology and research and development services globally at sites located in the United States, Finland, Sweden, China and Taiwan. The Company believes, based on stock issuances by Symbio S.A. subsequent to quarter-end, that the fair value of the Company’s investment in Symbio Investment Corporation is less than the Company’s cost of $990,000. The Company estimated the fair value of the investment in Symbio Investment Corporation based on the stock issuances noted above and the put option described in Note 4. The estimated fair value resulted in an other-than-temporary impairment charge of $394,000 recognized in the quarter ended October 31, 2013. This impairment resulted in a remaining book value of the investment in Symbio Investment Corporation, including the estimated value of the put option, totaling $596,000 as of October 31, 2013.

The note payable to the former Cortelco shareholders (Note 6) is valued each period end using a discounted cash flow analysis of the projected future payments of Cortelco using a discount rate of 15.22%. The note is classified within Level 3 of the fair value hierarchy. Projected future payments are evaluated at each reporting period and are significantly impacted by seasonal changes in inventory and vendor and customer payments. The following represents transactions related to the note payable for the three months ended October 31, 2013 (in thousands):

Beginning fair value - August 1, 2013	$	3,004
Imputed interest		115
Change in estimates		(43)
Interest expense		72
Payments		-
Ending fair value - October 31, 2013	$	3,076

Income Taxes

Due to uncertainties surrounding the timing of realizing the benefits of its net deferred tax assets in future returns, to the extent that it is more likely than not that deferred tax assets may not be realized, the Company continues to record a valuation allowance against all of its deferred tax assets at October 31, 2013.

Reclassification

Certain amounts in the prior period condensed consolidated financial statements have been reclassified to conform to the October 31, 2013 condensed consolidated financial statement presentation.

Stock Based Compensation

Equity Incentive Plans

The Company's Equity Incentive Plans, adopted in fiscal years 1997, 1999 and 2001, authorize the granting of incentive stock options, supplemental stock options, stock bonuses, and restricted stock purchase agreements to officers, directors, and employees of the Company and to non-employee consultants. The board of directors has declared that no future grants will be made under the plan adopted in 1997. Incentive stock options are granted only to employees and are issued at prices not less than the fair market value of the stock at the date of grant. The options generally vest over a four-year period and the term of any option cannot be greater than ten years from the date of grant. Restricted stock purchase agreements are issued at prices not less than 85% of the fair market value of the stock at the date of grant. During the three months ended October 31, 2013, there were no options to purchase shares of common stock and no restricted stock granted by the Company.

Employee Stock Purchase Plan

The Employee Stock Purchase Plan permits employees to purchase up to 200,000 shares of the Company's common stock. The purchase price under this plan is 85% of the fair market value of the common stock at the beginning of an offering period or on a purchase date, whichever is less. Offering periods generally last one year with purchase dates six and twelve months from the beginning of an offering period. During the three months ended October 31, 2013, there were 13,939 shares purchased by employees under the plan, at an exercise price of $0.80 per share.

	6

Stock-based compensation of $341 and $0 was recognized for the three months ended October 31, 2013 and 2012, respectively. As of October 31, 2013, the Company has no unrecognized compensation costs related to unvested stock options under the plans. The aggregate intrinsic value of both options outstanding and options exercisable as of October 31, 2013 was $0. All options outstanding were fully vested as of October 31, 2013. During the three months ended October 31, 2013, no options to purchase stock were exercised.

General Stock Option Information

Activity in the Company’s stock option plans since July 31, 2013 is as follows:

			Weighted
	Shares		Average
	Available	Options	Exercise
	for Grant	Outstanding	Price

Options at August 1, 2013	315,944	60,333	$ 11.78
Granted	-	-	-
Exercised	-	-	-
Cancelled	-	-	-
Options at October 31, 2013	315,944	60,333	$ 11.78

3. Revenue Recognition

The Company’s revenues from its three product lines are the result of separate, individual deliverables:

	Type of Revenues Earned
		Professional	Maintenance
Product Line	Equipment/Software	Services	Contracts
Cortelco Products and Services	Individual sale	Individual sale	-
CSPR Products	Individual sale	Individual sale	Individual sale
CSPR Telephony Billing	-	Individual sale	-

Cortelco sells corded and cordless analog and digital telephones capable of operating in the multiple PBX, Key System and Centrex environments primarily through stocking distributors.

Telephony billing revenues from the resale of Puerto Rico Telephone services are recognized monthly as services are provided to customers.

The Company records shipping and handling fees billed to customers as revenue, and shipping and handling costs incurred with the delivery of products as cost of sales.

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 collectability is reasonably assured. Generally, revenue is recognized (i) upon shipment for equipment and software, (ii) as work is performed for professional services, and (iii) in equal periodic amounts over the term of the contract for software and hardware maintenance.

4. Related Parties

Symbio Investment Corp.

On August 1, 2007 and August 27, 2007, the Company made strategic investments in Symbio Investment Corporation of $500,000 and $400,000 for 250,000 and 200,000 shares, respectively, or a total of approximately 4% of Symbio Investment Corporation. Symbio Investment Corporation is a holding company whose primary asset is an approximate twenty percent investment in Symbio S.A. Symbio S.A.'s principal business is to provide outsourced Information technology and research and development services globally at sites located in the United States, Finland, Sweden, China and Taiwan. Symbio Investment Corporation is a privately held entity and the Company accounts for its investment by the cost method.

	7

At the time of the second investment in Symbio Investment Corporation, the Company received a put option from David Lee, Chairman of the Company, effective beginning January 1, 2008 and expiring on January 1, 2011. In December 2010, the expiration of the put option was extended until January 1, 2013. In December 2012, the expiration of the put option was extended until January 1, 2015. The put option allows the Company to sell to David Lee a maximum aggregate of 200,000 shares of its investment in Symbio Investment Corporation for a per share price of $2.00.

In consideration of the put option, in the event that the 200,000 shares are sold without exercise of the put option before January 1, 2015, the Company has agreed to pay David Lee 50% of the proceeds in excess of $1,000,000.

In conjunction with the purchase of these shares in 2007, David Lee was appointed to the board of directors of Symbio S.A. and has been elected Chairman. The Company was granted a total of 45,000 shares of Symbio Investment Corporation stock as compensation for Mr. Lee's services. These shares have been valued at $90,000, the Company and have been recorded as an increase in investments and a capital contribution by David Lee, in 2009.

During the first quarter of 2014, the Company recognized an other-than-temporary impairment charge of $394,000 against the investment in Symbio Investment Corporation. This impairment resulted in a remaining book value of the investment in Symbio Investment Corporation, including the value of the put option, totaling $596,000 as of October 31, 2013.

Inventories

Inventories consist of the following (in thousands):

	October 31,		July 31,
	2013		2013
Raw materials and purchased components	$	665	$	791
Work in process		282		749
Finished goods		3,616		4,029
Total		4,563		5,569
Obsolescence reserve		(494)		(543)
Inventories	$	4,069	$	5,026

Notes Payable, Related Parties

On April 1, 2009, the Company executed a note payable to Cortelco’s former shareholders for $10,500,000 (the “Cortelco Note”) in connection with the acquisition of Cortelco. The Cortelco Note is non-interest bearing and is to be repaid based primarily upon the level of Cortelco earnings after closing and all Cortelco shareholders are eligible to receive quarterly payments thereunder in cash until the full consideration has been paid.

The fair value of the Cortelco Note payable obligation was approximately $3,076,000 at October 31, 2013 using a discounted cash flow analysis of the projected future payments and a discount rate of 15.22%. The Cortelco Note balance includes $72,000 of imputed interest expense during the three months ended October 31, 2013 imputed at the 15.22% discount rate using the effective interest method.

Actual payments under the Cortelco Note, which are to be based on future earnings of Cortelco, may differ significantly from the projected payments estimated at the Cortelco Note’s inception. These differences may result in significant fluctuations in periodic interest expense in order to properly reflect interest expense over the actual life of the Cortelco Note.

On June 9, 2010 pursuant to a Stock Purchase Agreement, the Company recorded a note payable to David S. Lee, eOn’s Chairman, for the principal amount of $185,511 payable in three annual installments beginning June 9, 2011. Mr. Lee requested deferral of the payment due on June 9, 2011, 2012 and 2013; therefore, the total obligation is included in current maturities of notes payable-related parties. The present value of the note payable at October 31, 2013 is approximately $185,511.

Product Warranties

Warranties for the Cortelco and CSPR product lines range from one to five years based upon the product purchased. 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 revenue is recognized. The cost of satisfying warranty claims, which approximates 0.5% - 1.0% of product revenues, has historically been comprised of materials and direct labor costs. The Company performs 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. The following table summarizes the activity related to the product warranty liability during the three months ended October 31, 2013 and 2012 (in thousands):

	8

	2013		2012

Beginning balance	$	156	$	166
Warranty cost incurred		(35)		(27)
Accrued warranty cost		17		40
Ending balance	$	138	$	179

8.	Concentrations, Commitments and Contingencies

(a)

Customer Concentrations

At October 31, 2013, five customers accounted for approximately 39% of total accounts receivable and individually 10%, 10%, 7%, 7% and 5% of the total accounts receivable. At October 31, 2012, five customers accounted for approximately 52% of total accounts receivable and individually 22%, 10%, 7%, 7% and 6% of the total accounts receivable. For the three months ended October 31, 2013, four customers accounted for approximately 40% of total revenue and individually 12%, 11%, 9%, and 8% of total revenue. For the three months ended October 31, 2012, four customers accounted for approximately 44% of total revenue and individually 19%, 14%, 7%, and 4% of total revenue.

(b)

Commitments

At October 31, 2013, the Company had outstanding commitments for inventory purchases under open purchase orders of approximately $1,603,000.

Cortelco has a line of credit with available borrowings based on an asset formula involving accounts receivable and inventories up to a maximum of $1,000,000, none of which was drawn on in the current or prior fiscal year. The line of credit is secured by substantially all of Cortelco’s assets and expires December 15, 2013. The loan’s interest rate, with a floor of 4%, is floating based on LIBOR.

CSPR has a $800,000 revolving line of credit, none of which was drawn on as of October 31, 2013, secured by trade accounts receivable and inventories which bears interest at 2% over Citibank’s base rate. The agreement has certain covenant requirements and expires January 31, 2014.

(c)

Litigation

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.

The Municipal Revenue Collection Center of Puerto Rico (“CRIM”) conducted a personal property tax audit for the years 1999 and 2000, which resulted in assessments of approximately $320,000 (approximately $551,000 as of August 21, 2013, including interest and penalties). The assessments arose from CRIM’s disallowances of certain credits for overpayments from 1999 and 2000, claimed in the 2001 through 2003 personal property tax returns. During the audit process, CRIM alleged that some components of the inventory reported as exempt should be taxable. The parties met several times and an informal administrative hearing was held on September 27, 2006. CSPR submitted its position in writing within the time period provided by CRIM. CSPR believes it has strong arguments to support its position that the components of inventory qualify as raw material. Management believes a settlement may be reached for an amount less than the assessment. Accordingly, the Company has recorded a liability of $96,000 as of July 31, 2013 and October 31, 2013.

	9

Discontinued Operations

On July 31, 2013, the Company sold the rights for the purchase, sale and licensing of its Millennium, eQueue and eConn product lines and related inventories to PiOn, Incorporated (“PiOn”) located in Manchester, New Hampshire. The divestiture is consistent with the Company’s plan to discontinue marketing efforts in the PBX and call center telecommunications systems segment and focus on IP voice and security endpoints within its Cortelco business segment. Under terms of the sale, the Company received cash proceeds of approximately $48,000 (received in August 2013), assigned approximately $52,000 in deferred revenue liabilities to the buyer and will receive up to three years of royalty payments based on future sales of products included in the Millennium, eQueue, and eConn product lines. Royalty payments over the contractual period are to be received 30 days after each calendar quarter with royalty revenue recognized when earned.

The Company will continue to fulfill product orders and provide repair and refurbishment services for PiOn as part of an orderly transition from the Company’s Corinth, Mississippi warehouse to PiOn’s warehouse in Manchester, New Hampshire. The transition period will be no less than six months and can be extended indefinitely. The net cash flows expected to be received and paid by the Company related to the fulfillment, repair and refurbishment services during the transition period are not expected to be significant.

In accordance with the Company’s decision to exit the communications systems and services business segment, the results of operations from these businesses have been classified as discontinued operations for all periods presented. Further, assets and liabilities related to the discontinued operations in the accompanying consolidated balance sheets are as follows (in thousands):

	October 31,		July 31,
	2013		2013
Assets of Discontinued Operations
Trade and other accounts receivable	$	79	$	106
Prepaid and other current assets		13		26
Property and equipment, net		19		20
	$	111	$	152
Liabilities of Discontinued Operations
Accounts payable		11		4
Accrued expenses and other		66		62
	$	77	$	66

Condensed results of operations for the discontinued operations for the three months ended October 31, 2013 and 2012 are as follows (in thousands):

	Three Months Ended
	October 31,
	2013		2012
Revenues	$	27	$	348
Royalties earned from sale of business		69		-
Income from discontinued operations	$	58	$	82

10.

Segments

The Company’s reportable segments are Telephony Products and Puerto Rico, each of which offers different products and services or services in different geographic areas. The Telephony Products segment provides telephone products, service and support to businesses and organizations. The Puerto Rico segment provides the sales and service of integrated communications systems, data equipment, security products and telephony billing services to Puerto Rico and the Virgin Islands. Performance of each segment is assessed independently. During fiscal 2013, the Company disposed of its Communications Systems and Services segment and has reclassified its condensed consolidated statements of operations for the three months ended October 31, 2013 and 2012 to reflect operations of this segment as discontinued. Income from discontinued operations for the three months ended October 31, 2012 totaled $82,000, which excludes approximately $229,000 of ongoing operating costs and expenses which were allocated to the Communications Systems and Services three months ended October 31, 2012 segment information disclosed below. For the three months ended October 31, 2013, such ongoing operating costs and expenses are included in the Telephony Products operating segment.

Segment reporting for activity as of and for the three months ended October 31, 2013 follows (in thousands):

	10

	Telephony Products		Puerto Rico		Total
Revenue	$	2,974	$	2,307	$	5,281
Net income (loss) from operations		(16)		31		15
Total assets		8,783		3,820		12,603
Capital expenditures		49		11		60
Allowance for doubtful accounts		123		163		286
Depreciation and amortization		17		24		41

Segment reporting for activity as of and for the three months ended October 31, 2012 follows (in thousands):

	Communications
	Systems and Services		Telephony Products		Puerto Rico		Total
Revenue	$	348	$	2,981	$	2,405	$	5,734
Net (loss) income from operations		(147)		150		97		100
Total assets		1,960		7,439		3,728		13,127
Capital expenditures		-		107		41		148
Allowance for doubtful accounts		85		15		180		280
Depreciation and amortization		1		10		15		26

Substantially all of the Company’s revenues are earned in the United States and the Commonwealth of Puerto Rico. Substantially all of the Company’s assets are located in the United States and the Commonwealth of Puerto Rico.

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 in the Company’s most recently filed 10-K. 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

eOn Communications Corporation (“eOn” or the “Company”) is a provider of communications solutions. Backed with over 20 years of telecommunications engineering expertise, the Company’s solutions enable its customers to use technologies to communicate more effectively.

On April 1, 2009, the Company acquired Cortelco Systems Holding Corp. (“Cortelco”). David Lee, Chairman of eOn, was the Chairman and controlling shareholder of Cortelco. Cortelco, Inc. is a wholly owned subsidiary of Cortelco.

On June 9, 2010, the Company executed a Stock Purchase Agreement to purchase 501,832 shares of common stock of Cortelco Systems Puerto Rico, Inc. (“CSPR”) from David Lee, eOn’s Chairman. The acquisition of CSPR stock was completed on June 9, 2010. The purchase, combined with shares already owned by the Company, establishes eOn as the majority shareholder of CSPR.

On July 31, 2013, the Company sold the rights for the purchase, sale and licensing of its Millennium, eQueue and eConn product lines and related inventories to PiOn, Incorporated (“PiOn”) located in Manchester, New Hampshire. PiOn is a subsidiary of Professional Inbound, Inc., d/b/a Professional Teledata, Inc. The divestiture is consistent with the Company’s plan to discontinue marketing efforts in the PBX and call center telecommunications systems segment and focus on IP voice and security endpoints within its Cortelco business segment. In accordance with the sale, all revenues and expenses of this operating segment are included in discontinued operations for all periods presented.

Cortelco is committed to fulfilling the communication needs of business and organizations worldwide. Cortelco’s mission is to provide our valued customers with telephone products together with service and support. Cortelco has formed partnerships with distributors and provides the support needed to supply customers with sales, marketing, customer service, technical support and training. The Company’s Cortelco product line provides customer premise equipment (CPE) commercial grade telephone products primarily for use in businesses, government agencies, colleges and universities, telephone companies, and utilities.

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CSPR’s core business includes the design, implementation and maintenance of solutions in the area of voice, data center and security. CSPR’s other lines of business include the reselling of telephone lines, internet access, disaster recovery, business continuity and private cloud computing solutions. CSPR has partnered with strategic suppliers and utilizes a direct sales force to sell its services and products, most of which are installed by CSPR technicians.

Critical Accounting Policies and Estimates

There were no material changes during the three months ended October 31, 2013 to the critical accounting policies reported in our Annual Report on Form 10-K for the fiscal year ended July 31, 2013.

Results of Operations

For the Three Months Ended October 31, 2013 compared to the Three Months Ended October 31, 2012

Net Revenue

Net revenue decreased by approximately 2% to $5,281,000 for the three months ended October 31, 2013 compared to $5,386,000 for the same period of the previous year. The decrease was attributable to decreased revenues of approximately $98,000 in the Company’s Puerto Rico product lines and approximately $7,000 in the Company’s other product lines.

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 products. Gross profit decreased approximately 1% to $1,245,000 for the three months ended October 31, 2013 from $1,305,000 for the same period of the previous year. The decrease was primarily attributable to decreased CSPR gross profit when compared to the same period of the previous year. Gross profit percent remained consistant at approximately 24% for the three months ended October 31, 2013 compared with gross profit percent of approximately 24% for the same period of the previous year.

Selling, General and Administrative

Selling, general and administrative expense consists primarily of salaries and benefit costs, marketing costs, and facilities and other overhead expenses incurred to support our business. Selling, general and administrative expenses decreased approximately 4% to $1,227,000 for the three months ended October 31, 2013, from $1,273,000 for the same period of the previous year.

Other Operating Expense

Other expense is primarily comprised of bank service charges, stock compensation expense, franchise taxes, currency differences, proceeds from scrap sales, and gains or losses from disposal of fixed assets. Other expense was $3,000 for the three months ended October 31, 2013 compared to expense of $14,000 for the same period of the previous year.

Interest Income (Expense), net

Interest expense was $72,000 for the three months ended October 31, 2013 compared to interest income of $42,000 for the same period of the previous year. Interest expense in the current period includes $72,000 of imputed interest expense on the Cortelco Note. Interest income in the prior period includes $43,000 of imputed interest benefit on the Corteleo Note, of which approximately $172,000 in interest benefit is a result of changes in the estimated timing of future principal payments.

Impairment of investment

Impairment of investment is comprised of an other-than-temporary impairment charge against the Company’s investment in Symbio Investment Corporation. Impairment of investment was $394,000 for the three months ended October 31, 2013 based on a fair value determination performed in the period. No impairment charge was recognized for the three months ended October 31, 2012 based on no indicators of other-than-temporary impairment identified at period end.

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Income Tax Expense

Income tax expense for the three months ended October 31, 2013 was $7,000 compared to income tax expense of $7,000 for the same period of the previous year. Income tax expense in the current period consists of current state income tax expense in states in which net operating loss carry forwards were not available to offset taxable income. Due to uncertainties surrounding the timing of realizing the benefits of its net favorable tax attributes in future returns, to the extent that it is more likely than not that deferred tax assets may not be realized, the Company continues to record a valuation allowance against substantially all of its deferred tax assets at October 31, 2013.

Discontinued Operations

Income from discontinued operations consists of revenues and operating expenses from our communications systems and services segment, which was sold in July of 2013. In accordance with the sale, the Company will receive up to three years of royalty payments based on future sales of products included in the Millennium, eQueue and eConn product lines.

Income from discontinued operations for the three months ended October 31, 2013 was $58,000 compared to income from discontinued operations of $82,000 for the same period of the previous year. Income from discontinued operations for the three months ended October 31, 2013 consists of revenues of approximately $96,000, including $69,000 of royalty revenue, and operating expenses of approximately $38,000. Income from discontinued operations for the three months ended October 31, 2012 consists of revenues of approximately $348,000 and operating expenses of approximately $266,000. The remaining assets and liabilities of the discontinued operations consist primarily of trade and other receivables and accrued expenses that will be collected and paid in the ordinary course of business.

Net Income (Loss)

Net loss was $415,000 for the three months ended October 31, 2013 compared to net income of $88,000 for the three months period in the previous year. Reported net income (loss) has been materially impacted by the imputed interest income (expense) due to the amortization of the difference between the face value of the contingent obligation to the former Cortelco shareholders and the discounted present value of the note payable recorded on the balance sheet. Net income (loss) for the current period was also materially impacted by the other-than-temporary impairment charge recognized against the Company’s investment in Symbio Investment Corporation.

Liquidity and Capital Resources

As of October 31, 2013, the Company had cash and cash equivalents of $1,672,000 and working capital of $7,774,000.

Our operating activities resulted in a net cash outflow of $50,000 for the three months ended October 31, 2013 compared to a net cash inflow of $47,000 for the same period of the previous year. The net operating cash outflow for the current period primarily reflects net loss, increased accounts receivable, and lower trade accounts payable partially offset by lower inventories. The net operating cash inflow for the prior year period primarily reflects net income, lower accounts receivable, inventories, and prepaid assets partially offset by lower trade accounts payable and accrued expenses.

Our investing activities resulted in a net cash outflow of $60,000 for the three months ended October 31, 2013 compared to a net cash outflow of $148,000 for the same period of the previous year. Cash used in investing activities for the three months ended October 31, 2013 and 2012 was a result of net cash used for purchases of property and equipment.

Our financing activities resulted in a cash inflow of $4,000 for the three months ended October 31, 2013 compared to a cash outflow of $182,000 for the same period of the previous year. Cash provided by financing activities in the current period reflects payments on notes payable partially offset by purchases under the Employee Stock Purchase Plan. Cash used in financing activities in the prior period reflects payments on notes payable.

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.

The Company has incurred substantial net operating losses since inception and has had negative cash flows from operating activities resulting in an accumulated deficit of $49,258,000. As of October 31, 2013 the Company had $1,672,000 in cash and cash equivalents to fund operations.

The Company is largely dependent on available cash, cash equivalents, and operating cash flow to finance operations and meet its other capital needs. Cortelco has a line of credit with available borrowings based on an asset formula involving accounts receivable and inventories up to a maximum of $1,000,000, none of which was drawn on in the current or prior fiscal year. The line of credit is secured by substantially all of Cortelco’s assets and expires December 15, 2013. The loan’s interest rate, with a floor of 4%, is floating based on LIBOR. CSPR has a $800,000 revolving line of credit, none of which was drawn on as of October 31, 2013, secured by trade accounts receivable and inventories which bears interest at 2% over Citibank’s base rate. The agreement has certain covenant requirements and expires January 31, 2014. If such sources are not sufficient alternative funding sources may not be available. The Company believes that cash on hand 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 believe that cash and cash equivalents 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 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.

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Concentrations, Commitments and Contingencies

(a) Customer Concentrations

At October 31, 2013, five customers accounted for approximately 39% of total accounts receivable and individually 10%, 10%, 7%, 7% and 5% of the total accounts receivable. At October 31, 2012, five customers accounted for approximately 52% of total accounts receivable and individually 22%, 10%, 7%, 7%, and 6% of the total accounts receivable. For the three months ended October 31, 2013, four customers accounted for approximately 40% of total revenue and individually 12%, 11%, 9%, and 8% of total revenue. For the three months ended October 31, 2012, four customers accounted for approximately 44% of total revenue and individually 19%, 14%, 7%, and 4% of total revenue.

(b) Commitments

At October 31, 2013, the Company had outstanding commitments for inventory purchases under open purchase orders of approximately $1,603,000.

The Municipal Revenue Collection Center of Puerto Rico (“CRIM”) conducted a personal property tax audit for the years 1999 and 2000 which resulted in assessments of approximately $320,000 (approximately $551,000 as of August 21, 2013, including interest and penalties). The assessments arose from CRIM’s disallowances of certain credits for overpayments from 1999 and 2000, claimed in the 2001 through 2003 personal property tax returns. During the audit process, CRIM alleged that some components of the inventory reported as exempt should be taxable. The parties met several times and an informal administrative hearing was held on September 27, 2006. CSPR submitted its position in writing within the time period provided by CRIM. CSPR believes it has strong arguments to support its position that the components of inventory qualify as raw material. However, management believes a settlement may be reached for an amount less than the assessment. Accordingly, the Company has recorded a liability of $96,000 as of July 31, 2013 and October 31, 2013.

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Item 3. – Quantitative and Qualitative Disclosures About Market Risk.

The Company is subject to market rate risk from exposure to changes in interest rates based on its financing, investing and cash management activities, but the Company does not believe such exposure is material.

Item 4. – 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.

Changes in internal control over financial reporting.

There were no changes in the Company’s internal control over financial reporting that occurred during the three-month period ended October 31, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. – Legal Proceedings.

None.

Item 1A. – Risk Factors.

There have been no material changes in the Company’s risk factors from those reported on the Company’s most recently filed 10-K.

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

None.

Item 3. – Defaults Upon Senior Securities.

None.

Item 4. – Mine Safety Disclosures.

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
101		The following materials from our Quarterly Report on Form 10-Q for the quarter ended April 30, 2013 are furnished herewith, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text

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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 13, 2013	/s/Lee M. Bowling
	Lee M. Bowling
	Chief Financial Officer
	(Duly Authorized Officer, Principal Financial and Accounting Officer)

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Attached files

WASHINGTON, D.C. 20549

OR

(Registrant's telephone number, including area code)

PART I

FINANCIAL INFORMATION

PART II

Item 1. – Financial Statements.

Item 1. – Legal Proceedings.

Item 1A. – Risk Factors.

Item 4. – Mine Safety Disclosures.

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Inventergy Global, Inc. - FORM 10-Q - December 13, 2013

Attached files

WASHINGTON, D.C. 20549

OR

(Registrant's telephone number, including area code)

PART I

FINANCIAL INFORMATION

PART II

Item 1. – Financial Statements.

Item 1. – Legal Proceedings.

Item 1A. – Risk Factors.

Item 4. – Mine Safety Disclosures.

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