SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT FILED UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Commission File Number
November 30, 1996 0-21649
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WEBSECURE, INC.
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(Exact Name of Small Business
Issuer As Specified In Its Charter)
Delaware 04-3296069
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1711 Broadway, Saugus, Massachusetts 01906
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(Address of Principal Executive Offices)
(617) 867-2300
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(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes No X
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As of January 17, 1997, the Company had outstanding 5,605,000 shares of
Common Stock, $.01 par value per share.
<PAGE>
WEBSECURE, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
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ITEM 1. FINANCIAL STATEMENTS
<S> <C>
Balance Sheets
as of November 30, 1996 (Unaudited) and August 31, 1996 (Audited)............................ 1
Statements of Operations
for the Three Month Periods ended November 30, 1996 and 1995 (Unaudited)
and Cumulative from Inception (July 19, 1995) to November 30, 1996 .......................... 2
Statement of Cash Flows
for the Three Month Periods ended November 30, 1996 and 1995 (Unaudited)
and Cumulative from Inception (July 19, 1995) to November 30, 1996 .......................... 3-4
Notes to Financial Statements (Unaudited)........................................................ 5
ITEM 2. PLAN OF OPERATIONS................................................................. 6-9
PART II. OTHER INFORMATION.................................................................. 10
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ITEM 1. LEGAL PROCEEDINGS.................................................................. 10
ITEM 2. CHANGES IN SECURITIES.............................................................. 10
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.................................................... 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS................................ 10
ITEM 5. OTHER INFORMATION ................................................................. 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................... 10
SIGNATURES....................................................................................... 11
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</TABLE>
WEBSECURE, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
November 30, August 31,
1996 1996
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ASSETS (Unaudited) (Audited)
<S> <C> <C>
CURRENT:
Cash $ 7,974 $ 12,832
Accounts receivable, net 855,678 21,797
Inventories 9,106 5,971
Due from related parties 32,439 59,776
Prepaid expenses and other 28,394 6,600
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Total current 933,591 106,976
PROPERTY AND EQUIPMENT, NET 1,279,725 1,173,397
DEFERRED REGISTRATION COSTS 641,260 424,060
OTHER ASSETS 81,142 41,515
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$ 2,935,718 $ 1,745,948
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,135,342 $ 679,435
Due to related parties -- 125,635
Note payable to related party 699,083 672,000
Current portion of capital lease obligations 254,094 71,763
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Total current liabilities 2,088,519 1,548,833
CAPITAL LEASE OBLIGATION, LESS CURRENT MATURITIES 826,837 300,430
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Total liabilities 2,915,356 1,849,263
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STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.01 par value; 1,000,000 shares
authorized; no shares issued and outstanding -- --
Common stock, $.01 par value; 20,000,000 shares
authorized; 2,105,000 shares issued and outstanding 21,050 21,050
Class B common stock, $.01 par value; 2,000,000
shares authorized; 625,000 shares issued and
outstanding 6,250 6,250
Additional paid-in capital 7,827,025 7,827,025
Deficit accumulated during the development stage (7,833,963) (7,957,640)
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Total stockholders' equity (deficit) 20,362 ( 103,315)
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$ 2,935,718 $ 1,745,948
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See accompanying notes to financial statements
</TABLE>
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WEBSECURE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
from Inception
Three Months Ended (July 19, 1995) to
November 30, November 30,
1996 1995 1996
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<S> <C> <C> <C>
Revenues $ 887,041 $ 6,963 $ 984,296
Cost of revenues 188,012 25,274 381,452
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Gross margin 699,029 ( 18,311) 602,844
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Operating expenses:
General and administrative 301,096 112,656 1,477,467
Selling and marketing 195,774 6,297 496,400
Research and development 45,148 32,114 623,396
Charge for acquired
research and development -- -- 5,760,000
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Total operating expenses 542,018 151,067 8,357,263
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Income (loss) from operations 157,011 ( 169,378) ( 7,754,419)
Interest expense, net of interest income ( 33,334) ( 0) ( 79,544)
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Income (loss) before income taxes 123,677 ( 169,378) ( 7,833,963)
Income taxes -- -- --
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Net income (loss) $ 123,677 $ (169,378) $( 7,833,963)
=========== =========== ==============
Net income (loss) per common and
common equivalent shares $ .03 $ ( .04) $( 1.63)
=========== =========== ==============
Shares used in computing net income (loss)
per common and common
equivalent shares 4,805,050 4,805,050 4,805,050
=========== =========== ==============
See accompanying notes to financial statements
</TABLE>
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WEBSECURE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
from Inception
Three Months Ended (July 19, 1995) to
November 30, November 30,
1996 1995 1996
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<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 123,677 $(169,378) $ ( 7,833,963)
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operating activities:
Charge for acquired research and
development -- -- 5,760,000
Issuance of common stock for
professional services -- -- 79,800
Depreciation and amortization 100,300 18,077 297,766
Changes in operating assets and
liabilities
Accounts receivable (833,881) ( 1,719) ( 855,678)
Inventories ( 3,135) ( 16,714) ( 9,106)
Prepaid expenses and other ( 21,794) 8,639 ( 28,394)
Accounts payable and accrued
expenses 455,907 790,985 1,135,342
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Net cash provided (used) by
operating activities (178,926) 629,890 ( 1,454,233)
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Cash flows from investing activities:
Acquisition of property and equipment (205,380) (647,571) ( 1,576,243)
Deferred registration costs (217,200) ( 79,924) ( 641,260)
Increase in other assets ( 40,875) ( 4,836) ( 82,390)
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Net cash used in investing activities (463,455) (732,331) ( 2,299,893)
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Cash flows from financing activities:
Borrowings under capital leases 735,431 -- 1,124,487
Principal payments on capital lease ( 26,693) -- ( 43,556)
(Increase) decrease in due
from related parties 27,337 (268,454) ( 32,439)
Decrease in due to related parties (125,635) ( 17,343) --
</TABLE>
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WEBSECURE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Cumulative
from Inception
Three Months Ended (July 19, 1995) to
November 30, November 30,
1996 1995 1996
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<S> <C> <C> <C>
Cash flows from financing activities (continued):
Proceeds from issuance of common stock -- 254,310 2,0l4,525
Proceeds from notes payable to related
party 27,083 133,928 1,522,083
Payments of notes payable to related
party -- -- ( 823,000)
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Net cash provided by financing activities 637,523 102,441 3,762,100
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Net increase (decrease) in cash ( 4,858) -- 7,974
Cash, beginning of period 12,832 -- --
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Cash, end of period $ 7,974 $ -- $ 7,974
========== ========== ==============
Supplemental disclosure of financing information:
Cash paid for interest $ 5,997 $ -- $ 46,733
See accompanying notes to financial statements
</TABLE>
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WEBSECURE, INC.
NOTES TO FINANCIAL STATEMENTS
GENERAL
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WebSecure, Inc. (the "Registrant") is in the development stage, and as such,
success of future operations is subject to a number of risks similar to those of
other companies in the same stage of development. Principal among these risks
are the Company's limited operating history, history of operating losses, early
stage of market development, competition from substitute products, larger, more
established competitors and rapid technological change.
The accompanying unaudited condensed financial statements have been prepared in
accordance with the instructions for Form 10-QSB and therefore do not include
all information and footnotes necessary for a fair presentation of financial
position, results of operations and changes in cash flows in conformity with
generally accepted accounting principles. The unaudited condensed financial
statements should be read in conjunction with the financial statements and
related notes included in the Registrant's Form SB-2 Registration Statement as
filed with the Securities and Exchange Commission (the "SEC") on December 4,
1996. In the opinion of management, the unaudited condensed financial statements
contain all adjustments necessary for a fair presentation of the Registrant's
financial condition and results of operations for the interim periods presented
and all such adjustments are of a normal and recurring nature. The results of
operations for the three months ended November 30, 1996 are not necessarily
indicative of the results which may be expected for the entire fiscal year.
COMPUTATION OF NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARES
The net income (loss) per common and common equivalent shares are computed by
dividing the net income (loss) by the weighted average number of shares
outstanding during each period presented, as adjusted for the effects of
application of SEC Staff Accounting Bulletin No. 83 ("SAB No. 83"). Pursuant to
SAB No. 83, all common stock and common stock equivalents issued within twelve
months prior to the initial filing of the registration statement relating to the
Company's initial public offering (the "IPO") at a price less than the IPO price
have been treated as outstanding for all reported periods. The number of shares
used in the computation also assumes that each share of outstanding Class B
Common Stock has been converted into four shares of Common Stock, which occurred
on the date of filing of the Registrant's Form SB-2 Registration Statement with
the SEC.
DEFERRED REGISTRATION COSTS
As of November 30, 1996, the Company has incurred registration costs of
$641,260 in connection with the IPO. These costs have been deferred and were
charged against equity on December 10, 1996 at the completion of its IPO.
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ITEM 2. PLAN OF OPERATIONS
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OVERVIEW
The Registrant, a development stage company, offers Internet access and
support services for secure communications and commercial transactions over the
Internet. The Company provides general Internet services, such as connectivity
and communications services. The Company also resells software licensed from
third parties.
The financial results for the period from inception (July 19, 1995) to
November 30, 1996 primarily relate to the Company's initial organization and
establishment of infrastructure. The Company has had limited revenues since
inception and had a working capital deficiency at November 30, 1996. The results
for the quarter ended November 30, 1996 are not necessarily indicative of the
results of the Company's operations that may be expected for the fiscal year
ending August 31, 1997.
The Company completed its IPO on December 10, 1996. The Company sold
1,000,000 shares of common stock and 1,150,000 redeemable warrants, and received
net proceeds of approximately $6,493,000.
The Company's plan of operations for the next twelve months will
principally involve the sale of connectivity and the provision of Internet
access services. The Company intends to use a portion of the IPO proceeds to
hire additional personnel, including marketing, sales and customer service
personnel, as well as to continue to upgrade its Internet access infrastructure.
RESULTS OF OPERATIONS
Revenues. The Company has generated $984,296 in revenues from its inception
(July 19, 1995) through November 30, 1996. The Company had revenues of $887,041
during the three month period ended November 30, 1996, compared to $6,963 during
the three months ended November 30, 1995, an increase of $880,078. Revenues
since inception have been primarily comprised of software licenses, connectivity
and communications services. Due to the development stage of the Company's
operations, the Company cannot predict whether software sales, which constituted
substantially all of the Company's revenues during the three months ended
November 30, 1996, will continue in future periods. The Company anticipates it
will derive revenues primarily from connectivity charges, hosting services,
software licenses and intranet networking.
Cost of revenues. The Company's cost of revenues, which consists primarily of
Internet access costs, was $381,452 during the period from inception to November
30, 1996, $188,012 for the three month period ended November 30, 1996 and
$25,274 for the three month period ended November 30, 1995. The Company's costs
of revenues have increased each quarter since the Company's inception.
-6-
General and Administrative. General and administrative expenses consist
primarily of compensation expenses and fees for professional services. General
and administrative expenses were $1,477,467 for the period from inception to
November 30, 1996. General and administrative expenses were $301,096 for the
three months ended November 30, 1996 compared to $112,656 for the three month
period ended November 30, 1995. From inception through November 30, 1996,
approximately $1,113,000 of the general and administrative expenses were paid to
Employee Resource, Inc. ("ERI"), an employee leasing company owned by the
Company's President and Chief Executive Officer. ERI leases to the Company all
of its employees, including the officers of the Company.
Selling and Marketing. Selling and marketing expenses consist primarily of
salaries, commissions, trade show expenses, and advertising and marketing costs.
The Company has incurred $496,400 in expenses for selling and marketing during
the period from inception to November 30, 1996. Selling and marketing expenses
were $195,774 for the three month period ended November 30, 1996 compared to
$6,297 for the three month period ended November 30, 1995. The increase is
primarily attributable to the start-up of the Company's marketing activities and
the expansion of its service options. The Company intends to use a direct
selling force that will target certain industries and sell across vertical
markets, as well as independent sales agents and distributors.
Research and Development. The Company's research and development efforts are
focused on development of the Company's co-hosting capabilities. The Company is
also developing intranet models for intraorganization communications that can be
used by multi-site organizations. The Company's engineers are also developing
the Company's communications infrastructure to allow for daily information
transfer to the Company for periodic back-up of customer files and disaster
control purposes. Research and development expenses totaled $623,396 from
inception to November 30, 1996. Research and development expenses totaled
$45,148 for the three month period ended November 30, 1996, compared to $32,114
for the three month period ended November 30, 1995. The increase in research and
development expenses is due primarily to infrastructure development.
Operating Income (Loss). Operating loss for the period from inception to
November 30, 1996 was $7,754,419. Operating income was $157,011 for the three
months ended November 30, 1996 compared to an operating loss of $169,378 for the
three months ended November 30, 1995. The operating loss from inception resulted
primarily from a non-cash charge in connection with the acquisition of software.
Net Interest Expense. Net interest expense for the period from inception to
November 30, 1996 was $79,544 and $33,334 for the three months ending November
30, 1996. There was no interest income or expense for the three months ended
November 30, 1995. This increase in interest expense was due to an increase in
borrowing and capital lease obligations.
Income Taxes. Since inception, the Company has generated tax benefits related to
its operating loss carry-forwards and amortization of research and development
costs. The deferred asset related to such benefits was fully reserved as of
November 30, 1996 due to the significant doubt about the realization of the
deferred tax asset. Taxes on income for the three months ended November 30, 1996
was offset in full by the utilization of the deferred tax benefits. Accordingly,
there has been
-7-
no income tax expense or benefit reflected on the accompanying statements of
operations since inception.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its activities primarily
by notes payable from a stockholder and the sale of its Common Stock to private
investors. Working capital deficiency at November 30, 1996 was $1,154,928. The
Company has three capital lease agreements which are secured by fixed assets.
The outstanding balance as of November 30, 1996 for one of these agreements was
approximately $355,000, and matures in December 2000. In September 1996, the
Company entered into two additional capital lease agreements under which it may
borrow up to an aggregate of $1,000,000, of which approximately $726,000 was
outstanding at November 30, 1996. These obligations mature in October 2001. On
December 10, 1996, the Company deposited, as collateral, a portion of the
proceeds from the IPO equal to the amount outstanding under these agreements.
For the three months ended November 30, 1996, cash of approximately
$178,900 was used by operating activities compared to cash provided by operating
activities of approximately $630,000 for the three months ended November 30,
1995. During the period from inception to November 30, 1996, the Company
recorded a non-cash charge of $5,760,000 against earnings for acquired research
and development, which was a substantial component of the Company's overall net
loss for the period of approximately $7,834,000.
Cash used in investing activities was approximately $464,000 for the
three months ended through November 30, 1996, as compared to approximately
$732,000 for the three month period ended November 30, 1995. The increase in
cash used in investing activities is due primarily to the acquisition of
property and equipment and deferred registration costs.
In December 1995, the Company raised approximately $2,014,500 from the
sale of Common Stock to third party investors. The Company has borrowed
approximately $1,522,000 from related parties since inception, all of which has
been repaid as of January 17, 1997.
Management believes that the net proceeds from the IPO will be
sufficient to meet the Company's anticipated cash needs and finance its plans
for expansion for at least the next twelve months. Thereafter, the Company
anticipates that it may require additional financing to meet its current plans
for expansion. No assurance can be given of the Company's ability to obtain such
financing on favorable terms, if at all. If the Company is unable to obtain
additional financing, its ability to meet its current plans for expansion could
be materially adversely affected.
-8-
IMPACT OF INFLATION
Inflation has not had a material adverse effect on the Company's
business.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," issued by the Financial Accounting Standards Board ("FASB"), is
effective for financial statements for fiscal years beginning after December 15,
1995. The new standard establishes new guidelines regarding when impairment
losses on long-lived assets, which include plant and equipment and certain
identifiable intangible assets and goodwill, should be recognized and how
impairment losses should be measured. The Company does not expect the adoption
of this standard to have a material effect on its financial position or results
of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." The Company has determined that it will continue to
account for stock-based compensation for employees under Accounting Principles
Board Opinion No. 25 and elect the disclosure-only alternative under SFAS No.
123. The Company will be required to disclose the pro forma net income or loss
and per share amounts in the notes to the financial statements using the
fair-value-based method beginning in the year ending August 31, 1997, with
comparable disclosures for the year ended August 31, 1996. The Company has not
determined the impact of these pro forma adjustments.
-9-
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. None.
ITEM 2. CHANGES IN SECURITIES. 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 AND REPORTS ON FORM 8-K.
(A) EXHIBITS. None.
(B) REPORTS ON FORM 8-K. No reports on Form 8-K were
filed during the quarter for which this report is
filed.
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SIGNATURES
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In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WEBSECURE, INC.
Date: January 20, 1997 By: /s/ Robert M. Kuzara
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Robert M. Kuzara
President
Date: January 20, 1997 /s/ Carole Ouellette
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Carole Ouellette
Chief Financial Officer
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