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To our shareholders:
It has been a quarter of real progress, although that progress has yet to be reflected in the kind of revenue announcement that we have all been working so hard to achieve. We are making good progress in the continuing roll-out to the Inacom and Data General channels, and have seen a heightened level of interest from potential technology partners in the computer and communications products area. We have also been making important strides in the development organization on future Be There! variants.
Be There!
We are seeing increased levels of activity from Inacom Communications. Over the past several months we expanded the roll-out of Be There! to Inacom's dealer network and quadrupled the number of Be There! trained representatives. Not long ago, Inacom purchased and installed an internal demonstration facility for their branch offices, which gives them the ability to use and demonstrate Be There! to their dealers and customers. Inacom also initiated a "Dealer Demo Program", offering special pricing for the purchase of a small Be There! server for the dealer's internal use and for customer demonstrations, along with technical certification training. Purchasers of this package become eligible for sales incentives. In the third quarter, Inacom placed an initial stocking order for a half dozen small Be There! systems, and we understand that most of these systems have already been sold.
During the quarter, we continued training additional DG sales reps, and are pleased to see the results in the form of increased quarterly revenue from DG. I am particularly gratified by the progress that DG has made in the financial services arena in the Northeast, both with their existing customers and with new opportunities for which Be There! has helped them open doors. I am looking forward to some resultant announcements.
George Bennett has played a major role in achieving this progress, and in adding discipline to our sales processes. As George has increased the Company's focus on the indirect channel, the number of trial systems that we have had to fund has declined. At the same time, George has brought closure to most of the early trials that we had had in the field for many months, terminating those with prospects that had not been adequately qualified. George has also made great strides in recruiting, having recently brought on board new DATA RACE sales representatives in New York City, San Francisco, and Atlanta, in addition to an individual focused on the service provider market segment. These are impressive individuals, and we are pleased with their early indications of success. George is currently recruiting for the Chicago and Washington, D.C. areas.
I am also delighted with the progress that Kathrine Tims' marketing organization has made during the quarter, including new end-user and reseller sales and technical certification training curriculum. They have also produced new sales collateral material; including product sheets, pamphlets oriented toward each of the road warrior, telecommuter, and call center markets; and a CD (available shortly) which allows a user to see what the product does without actually installing the hardware and software.
Paul Demko and the development team have been making good progress toward a Be There! client that can run on installed-base hardware. They have also devised approaches for the Voice over IP market and to move us toward greater compatibility with existing communications servers. We have been notified by the U.S. Patent and Trademark Office that all of the claims on our first Be There! patent application, filed two and a half years ago, have been allowed. We expect the patent to issue in the fall. We look forward to patent office action on the ensuing applications that we have filed in the interim, though I must again caution that patents have seldom been of great strategic value in the high technology industry.
Historical Business
During the quarter, we shipped a small quantity of modems as a follow-on to an old contract. In April, we received payment for the major portion of the potential royalties under a modem design contract. We are continuing research and development on a possible low-power modem product. We continue to believe that our future business in modems will derive more from custom design and royalties than from volume manufacturing.
The network multiplexer business has continued along historical lines. We are optimistic that the introduction of the new T1 frame relay capability, anticipated in the current quarter, will reverse the historical revenue decline.
Other Items
On March 31, the Order Preliminarily Approving Settlement was signed by the presiding judge. This document is the formal settlement of last June's mediation of the shareholder lawsuit, and the court's final approval is expected in May.
An agreement was reached on the 14th of April to defer the second round of the Series C Convertible Preferred Stock private placement between the company and its investors from April 15th until June 1st, 1998. The Company has determined that an immediate funding may not be in the best interests of the shareholders because of the dilution caused by the current stock price.
I am heartened by the progress we have made in the past quarter towards our goal of becoming a leader in the multi-billion-dollar remote access market by emphasizing our unique ability to deliver business-quality telephony simultaneously with data over a single normal telephone line. I appreciate your continued support.
W. B. Barker
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