The unfortunate events of last year have taken their toll on Starnet Communications International's bottom-line. The company reported financial results for three-month and nine-month periods ending January 31, 2000 that reveal some dismal numbers.
Operating expenses, including $3.8 million in one-time expense adjustments and provisions, increased to $7.4 million, resulting in a net loss from operations for the quarter of $4.7 million.
On the bright side, the company recorded a 157 percent increase in third quarter revenues to $4.4 million, compared to $1.7 million in the quarter ended January 31, 1999. Net sales for the nine months ended January 31, 2000 increased 267 percent to $12.4 million from the same period last year.
The one-time adjustments stem from a serious of legal and licensing problems, including:
- A bad debt provision of about $1.4 million, mainly from 14 licensees indirectly affected by the Canadian authorities' investigation into Starnet's operations. Starnet initially recognized this revenue when it entered into contracts with the licensees, customized their websites and delivered the software. Several licensees, however, failed to generate sufficient website revenues to pay Starnet the royalty and license fees
stipulated by their contracts.
- A reduction of $806,000 in royalty revenues from an overestimate of royalty revenues from a major licensee and an increase of $160,000 in operating expenses due to an understatement of fees payable to the same licensee for periods prior to November 1, 1999. (Starnet officials did not name the licensee in question.)
- Legal expenses of $412,000 for the nine months ending January 31, 2000, stemming from corporate restructuring and litigation.
- A provision of $1.5 million to cover the anticipated future legal costs to defend the company against the investigation and various legal actions and to finalize the corporate restructuring.
- An expense of the remaining $473,000 in deferred software development costs to recognize the diminished value of this asset due to the planned release of Starnet Systems 2000.
"Starnet had a solid third quarter," said Meldon Ellis, Starnet president and CEO. "We continue to experience strong demand and growth in our core business, and once again saw ongoing royalties from operating licensees increase by over 30 percent from the previous quarter."
Ellis added, "We recognize, however, that our expenses have grown disproportio9nately, in part from considerable costs associated with develop of our new software products, Starnet Systems 2000. In future quarters, we expect to return to net income margins previously obtained."