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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-27470
-------------------------------
CYBERCASH, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 54-1725021
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
2100 RESTON PARKWAY, RESTON, VA 20191
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 620-4200
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 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 the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT JUNE 30, 1999
----- ----------------------------
<S> <C>
Common Stock, $0.001 par value 20,204,484 Shares
</TABLE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
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<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements
Consolidated Statements of Operations for the three and six
months ended June 30, 1999 and 1998......................... 3
Consolidated Balance Sheets as of June 30, 1999 and December
31, 1998.................................................... 4
Consolidated Statements of Cash Flows for the six months
ended June 30, 1999 and 1998................................ 5
Notes to Consolidated Financial Statements.................. 6
Item 2 Management's Discussion and Analysis of Financial Conditions
and Results of Operations................................... 8
Item 3 Qualitative and Quantitative Market Risk Disclosure......... 11
PART II OTHER INFORMATION
Item 1 Legal Proceedings........................................... 12
Item 2 Changes in Securities....................................... 12
Item 3 Defaults upon Senior Securities............................. 12
Item 4 Submission of Matters to a Vote of Security-Holders......... 12
Item 5 Other Information........................................... 12
Item 6 Exhibits and Reports on Form 8-K............................ 12
SIGNATURES.................................................................. 14
</TABLE>
2
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PART I -- FINANCIAL INFORMATION
ITEM I. CONSOLIDATED FINANCIAL STATEMENTS
CYBERCASH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ---------------------------
1999 1998 1999 1998
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues............................... $ 4,329,002 $ 2,505,706 $ 8,892,121 $ 3,647,336
Less: returns and allowances........... 110,389 62,643 268,079 62,643
------------ ----------- ------------ ------------
Net revenues................. 4,218,613 2,443,063 8,624,042 3,584,693
Cost of revenues....................... 3,299,736 1,583,544 5,903,954 2,489,374
------------ ----------- ------------ ------------
Gross profit................. 918,877 859,519 2,720,088 1,095,319
Costs and expenses:
Research and development............. 2,395,514 2,140,189 4,942,715 4,013,687
Sales and marketing.................. 4,460,042 4,655,423 8,169,360 7,604,001
General and administrative........... 2,139,245 1,879,503 3,853,407 3,574,711
Amortization of intangibles.......... 1,936,521 1,291,014 3,873,042 1,291,014
Restructuring Charge................. -- 608,755 -- 608,755
------------ ----------- ------------ ------------
Loss from operations......... (10,012,445) (9,715,365) (18,118,436) (15,996,849)
Interest and other income.............. 51,019 135,087 263,277 830,817
Other expense.......................... -- (21,248) (67) (109,053)
Loss from investments.................. (1,000,000) -- (1,000,000) --
------------ ----------- ------------ ------------
Net loss..................... $(10,961,426) $(9,601,526) $(18,855,226) $(15,275,085)
============ =========== ============ ============
Net loss per share..................... $ (0.54) $ (0.68) $ (0.94) $ (1.21)
============ =========== ============ ============
</TABLE>
See accompanying notes.
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CYBERCASH, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 14,184,594 $ 10,902,532
Restricted cash........................................... 354,936 347,733
Accounts receivable, net.................................. 2,912,054 4,661,574
Prepaid expenses and other current assets................. 783,095 600,024
------------- ------------
Total current assets.............................. 18,234,679 16,511,863
Property and equipment, net................................. 9,054,485 9,050,162
Investment in affiliates.................................... 242,947 242,947
Other long-term assets...................................... 1,278,523 2,346,184
Intangibles, net............................................ 61,300,273 65,173,315
------------- ------------
TOTAL ASSETS................................................ $ 90,110,907 $ 93,324,471
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... 946,037 2,474,155
Accrued employee benefits and bonus....................... 677,968 1,432,060
Other accrued expenses.................................... 1,459,921 853,268
Deferred revenue.......................................... 983,067 970,783
------------- ------------
Total current liabilities......................... 4,066,993 5,730,266
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; 40,000,000 shares
authorized; 20,204,484 shares issued and 20,184,484
outstanding as of June 30, 1999 and 19,129,722 shares
issued and 19,109,722 outstanding as of December 31,
1998................................................... 20,205 19,130
Additional paid-in capital................................ 200,625,156 183,265,162
Accumulated deficit....................................... (113,736,013) (94,880,788)
Treasury stock, at cost, 20,000 shares.................... (120,000) (120,000)
Accumulated other comprehensive income.................... (484,315) (420,750)
Receivable from sale of Common Stock...................... (261,119) (267,724)
Unearned compensatory stock options....................... -- (825)
------------- ------------
Total stockholders' equity........................ 86,043,914 87,594,205
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $ 90,110,907 $ 93,324,471
============= ============
</TABLE>
See accompanying notes.
4
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CYBERCASH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(18,855,226) $(15,275,085)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.............................................. 1,850,589 1,451,449
Amortization.............................................. 3,873,042 1,291,014
Loss from write-off of investment......................... 1,000,000 --
Expense recognized in association with issuance of stock,
stock options and warrants............................. 735,352 63,443
Loss on disposal of assets................................ 158,731 31,901
Accrued interest on receivable from sale of Common
Stock.................................................. (7,565) (19,499)
Changes in operating assets and liabilities:
Restricted cash........................................ (7,203) --
Accounts receivable.................................... 1,749,520 601,634
Prepaid expenses and other current assets.............. (183,071) (1,272,663)
Other long-term assets................................. 47,220 (697,929)
Accounts payable and accrued expenses.................. (1,501,266) 1,899,898
Deferred revenue....................................... 12,284 104,063
------------ ------------
Net cash used in operating activities....................... (11,127,593) (11,821,774)
INVESTING ACTIVITIES
Sales of short-term investments............................. -- 8,779,773
Acquisition of ICVerify, net of cash received............... -- (15,690,500)
Investment in affiliates.................................... 20,441 (1,001,972)
Purchases of property and equipment......................... (2,013,643) (2,692,725)
------------ ------------
Net cash used in investing activities....................... (1,993,202) (10,605,424)
FINANCING ACTIVITIES
Proceeds from issuance of Preferred Stock................... -- 14,409,171
Proceeds from issuance of Common Stock...................... 14,920,954 --
Proceeds from receivable from sale of Common Stock.......... 14,170 151,356
Proceeds from the issuance of Common Stock through the
Employee
Stock Purchase Plan......................................... 238,840 163,152
Proceeds from the issuance of Common Stock through the
Employee Stock Option Plan................................ 1,292,458 336,760
------------ ------------
Net cash provided by financing activities................... 16,466,422 15,060,439
------------ ------------
Effect of exchange rates changes on cash and cash
equivalents............................................... (63,565) (92,085)
------------ ------------
Net Increase (Decrease) In Cash And Cash Equivalents........ 3,282,062 (7,458,844)
Cash And Cash Equivalents, at beginning of period........... 10,902,532 13,222,234
------------ ------------
Cash And Cash Equivalents, at end of period................. $ 14,184,594 $ 5,763,390
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of Common Stock grants to employees................ $ 174,290 $ --
============ ============
Conversion of Preferred Stock to Common Stock............... $ -- $ 21,699,835
============ ============
Accretion of Stated Value of Preferred Stock................ $ -- $ 344,756
============ ============
</TABLE>
See accompanying notes.
5
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CYBERCASH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS
CyberCash, Inc. ("CyberCash" or the "Company") was incorporated on August
29, 1994 in the state of Delaware. CyberCash is the world leader in secure,
convenient payment technologies and services, enabling e-commerce across the
entire market spectrum from electronic retailing environments to the Internet.
CyberCash provides a complete line of software products and services allowing
merchants, billers, financial institutions and consumers to conduct secure
transactions using the broadest array of popular payment forms.
The accompanying condensed consolidated financial statements and notes
thereto have been prepared in accordance with generally accepted accounting
principles for interim financial information and should be read in conjunction
with the Company's consolidated financial statements found in the Company's Form
10-K. In the opinion of management, all adjustments (consisting only of normal,
recurring adjustments) considered necessary to reflect fairly the Company's
consolidated financial position and consolidated results of operations have been
included. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses June 30, 1999 and 1998 are not necessarily indicative of the results
for the full year.
2. PRIVATE PLACEMENT
On January 6, 1999 and March 28, 1999, the Company issued 609,719 and
309,859 Units, respectively, in a private placement for net proceeds of
approximately $14,921,000. Each Unit of which consists of one share of the
Company's Common Stock and a Warrant to purchase 0.75 shares of the Company's
Common Stock for $16.40 per Unit. The Warrants are initially exercisable for
689,683 shares of Common Stock. The exercise price for each Warrant contained in
a Unit is initially set at $20.00. If the average closing bid price of the
Company's Common Stock over the 10 trading days preceding January 6, 2000,
January 6, 2001 and January 6, 2002 is less than the $20.00 exercise price
("Reset Price"), the exercise price may be reset on these dates to the Reset
Price. If an adjustment of the exercise price occurs, the number of shares of
Common Stock that can be issued upon exercise of the Warrants would
proportionately increase. The Warrants will expire on January 6, 2004.
3. ACQUISITION OF TELLAN SOFTWARE, INC.
On July 23, 1999, CyberCash acquired all the outstanding shares of the
capital stock of Tellan Software, Inc. ("Tellan"). The cost of the acquisition
was approximately $13.1 million, including fees and expenses. The purchase price
included $1 million in cash and 1,105,024 shares of CyberCash's Common Stock. In
addition, Tellan shareholders may be entitled to additional cash payments based
upon the achievement of specific milestones estimated at approximately $1.1
million over the next three years. The acquisition will be accounted for as a
purchase.
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CYBERCASH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net
loss per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ---------------------------
1999 1998 1999 1998
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Numerator:
Net loss............................... $(10,961,426) $(9,601,526) $(18,855,226) $(15,275,085)
Accrued dividends to Preferred
Stockholders......................... -- (165,840) -- (344,756)
------------ ----------- ------------ ------------
Net loss available to Common
Stockholders......................... $(10,961,426) $(9,767,366) $(18,855,226) $(15,619,841)
============ =========== ============ ============
Denominator:
Weighted average shares outstanding.... 20,179,852 14,303,615 19,955,973 12,860,256
Basic earnings per share............... $ (0.54) $ (0.68) $ (0.94) $ (1.21)
============ =========== ============ ============
Diluted earnings per share............. $ (0.54) $ (0.68) $ (0.94) $ (1.21)
============ =========== ============ ============
</TABLE>
5. COMPREHENSIVE INCOME
The components of comprehensive income for the six months ended June 30,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ---------------------------
1999 1998 1999 1998
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net loss............................... $(10,961,426) $(9,601,526) $(18,855,226) $(15,275,085)
Foreign currency translation
adjustments.......................... (55,448) (210,121) (63,565) (92,085)
------------ ----------- ------------ ------------
Comprehensive income................... $(11,016,874) $(9,811,647) $(18,918,792) $(15,367,170)
============ =========== ============ ============
</TABLE>
6. SEGMENT INFORMATION
The Company has three reportable segments: Payments, Agile Wallet and
International. The Company's revenues in the three and six months ended June 30,
1999 from each of these segments were $4,154,000 (96%) and $7,753,000 (87%) from
Payments, $12,000 (<1%) and $786,000 (9%) from Agile Wallet and $164,000 (4%)
and $353,000 (4%) from International, respectively. The Company's revenues in
the three and six months ended June 30, 1998 from each of these segments were
$2,085,000 (98%) and $2,544,000 (78%) from Payments and $35,000 (2%) and
$717,000 (22%) from International, respectively.
7. LOSS FROM INVESTMENTS
Loss from investments consists of the adjustment to the carrying value of
an investment in a technology company. During the second quarter of 1999 this
asset was determined to be impaired and was written off based on the criteria
established in Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets Disposed of."
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
Investors should read the following discussion in conjunction with the
accompanying consolidated financial statements and the notes thereto. Our
reported results for the second quarter of 1999, and the relationship between
those results and the results for prior periods, are not necessarily indicative
of our results in the future. This discussion contains, in addition to
historical information, forward-looking statements that involve risks and
uncertainties. All statements other than statements of historical fact made in
this discussion and throughout this Quarterly Report on Form 10-Q are forward
looking. Our actual results could differ significantly from the results
discussed in these forward-looking statements.
In particular, the statements regarding industry prospects and future
results of operations or financial position are forward-looking statements.
Forward-looking statements reflect management's current expectations and are
inherently uncertain. Our actual results may differ significantly from
management's expectations. The following discussion and the section entitled
"Risk Factors" in Item 1 of our Annual Report on Form 10-K for 1998 describe
some, but not all, of the factors that could cause these differences.
OVERVIEW
Our future operating performance will depend in large part on:
- the rate of growth of electronic commerce
- our success in broadening our offerings by adding new products and
services to assist merchants in growing their businesses
- our ability to identify, develop, and deliver products and services that
meet market demands,
- our ability to maintain and expand our distribution channels
- our ability to form additional alliances with financial institutions and
with significant Internet merchants and portals
- strategic decisions by major participants in the industry
- competitive pricing pressures
- legal and regulatory developments
- the successful integration of Tellan
- general economic conditions.
The market for electronic payment services is still new and changing
rapidly. It is not certain that our product and service offerings will find the
widespread market acceptance required to support the level of investment made in
these offerings. Most of the Company's efforts before 1998 were devoted to
business development and marketing in preparation for, and anticipation of, the
growth in electronic commerce. Largely, as a result of the expenses associated
with these efforts, operating expenses increased each quarter through the end of
1996, but they remained constant at approximately $7.5 million for the five
quarters ended March 31, 1998. Operating expenses increased to approximately
$12.5 million for the last three quarters of 1998 and the first two quarters of
1999, largely as a result of consolidating the operating results of ICVerify,
which we acquired in the second quarter of 1998. During the first two quarters
of 1999, we made significant investments and/or commitments to expand our
technological infrastructure and offerings to support the growth of our Payments
and Agile Wallet businesses. Marketing and sales expenditures also increased, as
we focused on increasing our installed base of Internet merchants and on
deploying our InstaBuy service on the Agile Wallet platform. We expect our
operating expenses to increase significantly in the third and fourth quarters of
1999 due largely to a sharp increase in marketing expenses, including a major
advertising campaign and expenses related to the distribution of our Agile
Wallet platform. We will also experience some increases in operating expenses
due to the acquisition of Tellan.
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Electronic commerce appears to have become established, and promises to
continue to grow rapidly. In this environment, our success will depend largely
on our ability to continue to compete successfully, to further establish the
Payments and the Agile Wallet businesses, to develop new products and services
and to market them successfully in a market that is becoming increasingly
competitive.
RESULTS OF OPERATIONS
Revenues. For the three and six months ended June 30, 1998, the majority
of our revenues were derived from licensing our technology and from fees for
development work associated with licensing activities. The principal sources of
revenues were substantially different for the corresponding periods in 1999.
Most of our revenues during three-month and six-month periods of 1999 came from
our Payments business, which includes both payments services and software. This
business was responsible for approximately 96% of revenues in the three-month
period and 87% in the six-month period. Its growth between the 1998 and 1999
periods resulted in part from an increase in our base of merchant customers by
approximately 185% from June 30, 1998, in part from implementing a new fee
structure during 1998, under which we charge merchants a set-up and a monthly
service fee in addition to transaction fees, and in part from the acquisition of
ICVerify, Inc. Revenues from our International operations, represented 4% of
total revenues for both the three-month and the six-month periods. During the
six months ended June 30, 1999, approximately 9% of our revenues came from our
Agile Wallet business, but all of that was in the first quarter. In the three
months ended June 30, 1999, changes in the rapidly-evolving market for
electronic wallets caused delays in anticipated revenues from licensing the
Agile Wallet, and we recognized no revenue from that activity. The market for
electronic wallet services continues to change rapidly and unpredictably. Thus
revenues from our Agile Wallet business are likely to fluctuate significantly
over the next twelve to eighteen months, and this could cause substantial
fluctuations in quarterly operating results during that time.
Cost of Revenues. Cost of revenues consist primarily of cost of operations
to provide transaction processing and customer support, labor costs for
providing development work associated with licensing activities, and the
manufacturing and distribution costs of the ICVerify software products. Cost of
revenues increased $1,716,000 from $1,584,000 for the three months ended June
30, 1998 to $3,300,000 for the three months ended June 30, 1999 and increased
$3,415,000 from $2,489,000 for the six months ended June 30, 1998 to $5,904,000
for the six months ended June 30, 1999. The increases are primarily a result of
costs incurred to produce and distribute ICVerify software products and
enlarging and enhancing the our customer support operations, including adding
customer support personnel during 1999.
Research and Development. Research and development expenses consist
primarily of compensation expense and consulting fees to support the development
of our services and technologies. Research and development expenses increased
$256,000 from $2,140,000 for the three months ended June 30, 1998 to $2,396,000
for the three months ended June 30, 1999 and increased $929,000 from $4,014,000
for the six months ended June 30, 1998 to $4,943,000 for the six months ended
June 30, 1999. This increase was due in part to the continued focus on
developing new technology, including the Agile Wallet technology and in part to
the acquisition of ICVerify, Inc. We plan to continue to make significant
investments in research and development. We have expensed all software
development costs as incurred, and we will continue to do so until it can be
demonstrated that future benefits may be realized from costs incurred to develop
our software.
Sales and Marketing. Sales and marketing expenses consist primarily of
compensation expense and advertising and marketing costs. Sales and marketing
expenses decreased $195,000 from $4,655,000 for the three months ended June 30,
1998 to $4,460,000 for the three months ended June 30, 1999 and increased
$565,000 from $7,604,000 for the six months ended June 30, 1998 to $8,169,000
for the six months ended June 30, 1999. A large portion of 1999 sales and
marketing expense was related to promoting our new InstaBuy service on the Agile
Wallet platform through a multi-media campaign. We anticipate that sales and
marketing expenses will continue to be significant and will rise sharply in the
remaining part of 1999 due to a major multi-media corporate branding campaign
launched in July 1999.
General and Administrative. General and administrative expenses consist
primarily of compensation expense for management and support personnel and fees
for professional services and other expenses not
9
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attributable to a particular source of revenue, or type of expense. General and
administrative expenses increased $259,000 from $1,880,000 for the three months
ended June 30, 1998 to $2,139,000 for the three months ended June 30, 1999 and
increased $278,000 from $3,575,000 for the six months ended June 30, 1998 to
$3,853,000 for the six months ended June 30, 1999. We anticipate that general
and administrative expenses will continue to be significant as our operations
continue to develop and expand, however we do not anticipate that they will
increase significantly.
Amortization of Intangibles. The acquisition of ICVerify in the second
quarter of 1998 was accounted for as a purchase. Accordingly, the purchase price
was allocated to the assets and liabilities acquired at their estimated fair
value as of the date of acquisition. Of the purchase price, $400,000 was
allocated to ICVerify's net assets, and the remainder to intangible assets.
Intangible assets are being amortized using the straight-line method over their
estimated useful lives. We anticipate that amortization of intangibles will
increase as a result of our acquisition of Tellon Software, Inc. in July 1999.
Restructuring Charge. Restructuring charges consist of severance and other
expenses related to a reduction-in-force of the Company's employee base. In June
1998, the Company reduced the size of its employee base by approximately 20%,
which resulted in costs of $609,000.
Interest Income. Interest income decreased $84,000 from $135,000 for the
three months ended June 30, 1998 to $51,000 for the three months ended June 30,
1999. CyberCash funded operating activities out of cash generated from private
placements in 1999.
Loss From Investments. Loss from investments consists of the adjustment to
the carrying value of an investment in a technology company. During the second
quarter of 1999 this asset was determined to be impaired and was written off
based on the criteria established in Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets Disposed of."
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, we had cash and cash equivalents of $14,185,000 compared
to $10,903,000 at December 31, 1998. The increase of $3,282,000 resulted from a
net loss of $18,855,000, offset by net cash proceeds of $16,466,000 from the
private placement and exercise of stock options and stock purchase through the
employee stock purchase plan, by non-cash expenses of $6,610,000 for
depreciation, amortization, expenses related to the issuance of stock, warrants
and options, provision for doubtful accounts and disposal of property and
equipment and operating activities and the effect of exchange rates of
$1,054,000. In addition, we had cash outflows for capital expenditures and
investment in affiliates of $1,993,000.
We have registered for future sale, on an as needed basis, $60 million in
securities pursuant to an unallocated shelf registration. In order to finance
our planned marketing campaign, an investment in a strategic partnership, losses
from operations, and possible strategic acquisitions, we anticipate raising up
to that amount in one or more financings over the next twelve months. We have
conducted preliminary discussions with several institutional investors, and we
believe that we should be able to raise the necessary funds most likely through
the sale of common stock or debt securities or preferred stock that is
convertible into common stock.
If we do raise additional funds through the issuance of equity securities,
the percentage ownership of the stockholders will be reduced, stockholders may
experience additional dilution, or equity securities issued may have rights,
preferences or privileges senior to those of common stockholders. We cannot give
any assurance that we will, in fact, be able to raise additional funds on
desirable terms, or at all. If adequate funds are not available, or are not
available on acceptable terms, we may be unable to develop or enhance its
services, take advantage of future opportunities, or respond to competitive
pressures. This would be likely to have a material adverse effect on our
business.
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YEAR 2000 COMPLIANCE
We are actively engaged in examining and taking corrective action to ensure
our readiness for, and to mitigate risks associated with, the year 2000. The
systematic assessment and remediation of year 2000-related issues, measured
against rigorous, consistent and objective standards is one of our top
objectives in 1999.
We are following an approach adopted by many public reporting companies,
both within and outside the financial service and software industries, for
conducting our year 2000 readiness efforts. The approach identifies
approximately five phases to achieving readiness: awareness, inventory,
assessment, action and contingency planning. Our goal is for all internally
developed software contained in active releases of our products and services,
and all third party systems and services, to meet our definition of year 2000
compliance by September 30, 1999. We currently believe we are on target to meet
that goal.
Our efforts are organized and managed by a formal, enterprise-wide project
team, which has executive sponsorship and representation from each of our
principal lines of business and our development, finance, operations, legal and
information technology teams. These efforts are in addition to less formal
efforts we conducted before the formal establishment of this project team in
November 1998. We continue to make satisfactory progress on our planned work
toward addressing year-2000 issues; and we have no reason to believe that we
will not complete that work on schedule. We currently estimate that our direct
labor costs for addressing year 2000 issues will be approximately $500,000.
Our CashRegister 3.x payment service meets our definition of year 2000
compliance. In January 1999, we announced that we would be discontinuing support
of earlier versions of the CashRegister payment service (including the Secure
Transport Payment Service) during the fourth calendar quarter of 1999, and that
we would be providing migration tools to assist merchants in the free upgrade to
the CashRegister 3.x payment service. In February 1999, we announced that active
releases of ICVERIFY and PCVERIFY for Windows are year 2000 compliant, and we
began offering free upgrades to current users of our discontinued Windows
versions of these products. As we complete testing of our other products and
services, we plan to provide current users of our discontinued versions with
copies of year 2000-compliant versions for the same underlying operating system.
We maintain up-to-date information on our website (located at
http://www.cybercash.com) so that our customers and partners can stay informed
about the status of our internal testing, the products and services we recommend
they not use after December 31, 1999, and our definition of year 2000
compliance.
We believe we are managing the risk of revenue and customer service
interruption due to the year 2000 threat to immaterial levels. However, existing
industry standards in year 2000 compliance efforts cannot guarantee 100%
accuracy, and there may be issues of which we are not yet aware. Accordingly, we
may experience future uncertainties regarding year 2000 compliance of our
services and products. We cannot assure you that all of our products and
services will be year 2000 compliant before all relevant change-over dates,
including January 1, 2000, January 3, 2000 (the first business day of the year
2000) and February 29, 2000. Nor can we assure you that our currently compliant
products will not contain undetected problems associated with year 2000
compliance. Such problems may result in litigation and/or increased expenses
negatively affecting our future operating results.
ITEM 3. QUALITATIVE AND QUANTITATIVE MARKET RISK DISCLOSURE
Not Applicable.
11
<PAGE> 12
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
At the Annual Meeting of Stockholders of CyberCash, Inc. on June 26, 1999
at 10:00 am, (EST), in Reston, Virginia, the following matters were submitted to
a vote of the stockholders:
1) Reelection of Michael Rothschild as a director of the Company. The
following directors' terms of office continued after the Annual Meeting
of Stockholders: William N. Melton, Daniel Lynch, Garen Staglin, and
Charles Russell.
2) Approval of an amendment to the Company's 1995 Stock Option Plan, which
will increase by 4 million shares the number of shares of Common Stock
the Company is authorized to issue pursuant to stock options under the
plan.
3) Approval of an amendment to the Company's Non-Employee Directors' 1995
Stock Option Plan, which will increase by 500,000 shares the number of
shares of Common Stock the Company is authorized to issue pursuant to
stock options under that plan; and
4) Ratification of appointment of independent auditors. The appointment of
Ernst & Young LLP for the year ending December 31, 1999 was ratified by
the stockholders.
TABULATION OF VOTES
<TABLE>
<CAPTION>
WITHHELD/ BROKER
MATTER IN FAVOR AGAINST ABSTENTIONS NONVOTES
------ ---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Director Election:
Michael Rothschild.............................. 16,342,873 106,171 -- --
Amendment of the 1995 Stock Option Plan........... 6,157,024 662,902 61,714 9,567,404
Amendment of the Non-Employee Directors' 1995
Stock Option Plan............................... 6,111,011 700,757 69,872 9,567,404
Appointment of Independent Auditors............... 16,286,650 109,957 52,437 --
</TABLE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
10.1 Amendment [No. 3] to Lease between Gateway Virginia
Properties, Inc. and Cybercash, Inc.
</TABLE>
12
<PAGE> 13
(b) Reports on Form 8-K
On July 6, 1999, the Company filed a Form 8-K announcing that it had
entered into a definitive agreement to acquire Tellan Software, Inc.
On July 29, 1999, the Company filed a Form 8-K announcing that it had
completed the acquisition of Tellan Software, Inc. on July 23, 1999.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CyberCash, Inc.
--------------------------------------
(Registrant)
Date: August 16, 1999 /s/ WILLIAM N. MELTON
--------------------------------------
William N. Melton
Chairman and Chief Executive Officer
Date: August 16, 1999 /s/ JAMES J. CONDON
--------------------------------------
James J. Condon
President and Chief Operating Officer
14
<PAGE> 1
THIRD AMENDMENT TO LEASE
THIS THIRD AMENDMENT TO LEASE ("Third Amendment") is made and entered
into this 21 day of June, 1999, by and between GATEWAY VIRGINIA PROPERTIES,
INC., a California corporation ("Landlord") and CYBERCASH, INC., a Delaware
corporation ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord and Tenant entered into that certain Office Lease
dated November 30, 1994 (the "Original Lease"), as amended by that certain First
Amendment to Lease dated November 7, 1995 (the "First Amendment"), and as
further amended by that certain Second Amendment to Lease dated April 29, 1996
(the "Second Amendment") (the Original Lease, as amended by the First Amendment
and the Second Amendment is collectively referred to as the "Lease"), pursuant
to which Tenant leased that certain premises located on the fourth (4th) floor
and known as Suite Number 430 (the "Original Premises") and on the third (3rd)
floor and known as Suite Number 300 (the "Additional Premises") and on the first
(1st) floor and known as Suite Number 100 (the "Expansion Premises") of the
building located at 2100 Reston Parkway, Reston, Virginia (the "Building"), said
Original Premises, Additional Premises and Expansion Premises containing in the
aggregate approximately 39,344 rentable square feet (collectively, the "Demised
Premises");
WHEREAS, Landlord and Tenant desire to amend the Lease (i) to
increase the size of the Demised Premises; and (ii) to amend certain terms and
conditions of the Lease as otherwise set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual
covenants and agreements herein contained and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree to the following:
1. RECITALS. The recitals set forth above are incorporated herein by
this reference with the same force and effect as if fully set forth hereinafter.
2. CAPITALIZED TERMS. Capitalized terms not otherwise defined herein
shall have the meaning ascribed to them in the Lease.
1
<PAGE> 2
3. PREMISES.
(a) Effective on the date that Landlord substantially completes the
work described in Paragraph 9 hereof (the "New Expansion Premises Commencement
Date"), the Demised Premises shall be increased by approximately One Thousand
Five Hundred Seventy (1,570) rentable square feet of space on the first (1st)
floor of the Building and designated as Suite 103, as shown on Exhibit A-3
attached hereto and made a part hereof (the "New Expansion Premises") to
approximately Forty Thousand Nine Hundred Fourteen (40,914) square feet.
(b) As of the New Expansion Premises Commencement Date, Section 1.2
of the Lease, as amended by Paragraph 3.b. of the First Amendment, and by
Paragraph 3.b. of the Second Amendment, is amended to read;
"1.2 PREMISES: Suite Number 103, as shown on Exhibit A-3 of the
Third Amendment, Suite Number 100, as shown on Exhibit A-2 of the
Second Amendment, Suite Number 300, as shown on Exhibit A-1 of the
First Amendment, and Suite Number 430, as shown on Exhibit A of the
Lease."
(c) As of the New Expansion Premises Commencement Date, Section 1.3
of the Lease, as amended by Paragraph 3.c. of the First Amendment, and by
Paragraph 3.c. of the Second Amendment, is amended to read:
"1.3 RENTABLE AREA OF PREMISES: 40,914 rentable square feet,
comprised of the following: Suite 103, containing 1,570 rentable
square feet ("New Expansion Premises"), Suite 100 containing 5,642
rentable square feet ("Expansion Premises"), Suite 300 containing
25,962 rentable square feet ("Additional Premises"), and Suite 430,
containing 7,740 rentable square feet ("Original Premises")."
(d) As of the New Expansion Premises Commencement Date, all
references in the Lease to "Premises" or "Demised Premises" shall, unless
specifically stated otherwise herein, collectively refer to the Original
Premises, the Additional Premises, the Expansion Premises and the New Expansion
Premises.
4. TERM. The Term of the Lease with respect to the New Expansion
Premises shall be from the New Expansion Premises Commencement Date through
March 31, 2003, unless sooner terminated pursuant to any provision of the Lease
or hereof, it being the intention of the parties that the Term of the Lease with
respect to the New Expansion Premises and the Additional Premises shall be
coterminous.
5. RENT.
(a) As of the New Expansion Premises Commencement Date, Section 1.8
of the Lease, as amended by Paragraph 5.a. of the First Amendment and as further
2
<PAGE> 3
amended by Paragraph 5.a. of the Second Amendment, shall be deleted in its
entirety and the following Section 1.8 substituted in lieu thereof:
"1.8 Base Rent: Original Premises: $11,732.55 per month
Additional Premises: $41,128.14 per month
Expansion Premises: $9,534.98 per month
New Expansion
Premises: $3,925.00 per month"
(b) As of the New Expansion Premises Commencement Date, Paragraph 1
of the Addendum attached to the Lease and made a part thereof, as amended by
Paragraph 5.b. of the First Amendment and as further amended by Paragraph 5.b.
of the Second Amendment, shall be further amended by adding the following at the
end of Paragraph 1 of the Addendum"
"NEW EXPANSION PREMISES:
Annual
Lease Period (Months) Base Rent Monthly Base Rent
- --------------------- --------- -----------------
New Expansion Premises
Commencement Date --
end of 1st 12 months $47,100.00 $3,925.00
13 - 24 $48,513.00 $4,042.75
25 - 36 $49,968.36 $4,164.03
37 -- 3/31/03 $51,467.40 (to be pro-rated) $4,288.95
6. BASE RENT PAID UPON EXECUTION. Upon the execution of this Third
Amendment, Tenant shall pay to Landlord the sum of $3,925.00 for payment of the
first full calendar month's Base Rent due under the Lease with respect to the
New Expansion Premises on or after the New Expansion Premises Commencement Date,
in accordance with the terms and conditions set forth in Section 4.1 of the
Lease.
7. TENANT'S SHARE. As of the New Expansion Premises Commencement
Date, Tenant's Share as set forth in Section 1.11 of the Lease, as amended by
Paragraph 7 of the First Amendment and as further amended by Paragraph 7 of the
Second Amendment, shall be deleted in its entirety and the following substituted
in lieu thereof:
"1.11 TENANT'S SHARE: Original Premises: 4.92%.
Additional Premises 16.52%
Expansion Premises 3.59%
New Expansion Premises 0.99%"
3
<PAGE> 4
8. PARKING. As of the New Expansion Premises Commencement Date,
Section 1.13 of the Lease, as amended by Paragraph 8 of the First Amendment, and
as further amended by Paragraph 8 of the Second Amendment, shall be deleted in
its entirety and the following Section 1.13 substituted in lieu thereof:
"1.13 NUMBER OF PARKING SPACES:
Original Premises: Reserved: None; Unreserved: 28
Additional Premises:Reserved: None; Unreserved: 93
Expansion Premises: Reserved: None; Unreserved: 20
New Expansion
Premises: Reserved: None; Unreserved: 5"
9. OPERATING EXPENSES INCREASES. Effective on the New Expansion
Premises Commencement Date, in addition to the payment of Operating Expense
increases for the Original Premises, the Additional Premises and the Expansion
Premises as set forth in Section 4.2 of the Lease, as amended by Paragraph 9 of
the First Amendment and Paragraph 9 of the Second Amendment, Tenant shall pay
Landlord for increases in Operating Expenses with respect to the New Expansion
Premises. The Base Year on which the increases in Operating Expenses is
calculated with respect to the New Expansion Premises shall be the calendar year
1999. The Base Year on which the increases in Operating Expenses is calculated
with respect to the Original Premises, the Additional Premises and the Expansion
Premises shall be 1995.
10. TENANT IMPROVEMENTS.
(a) Tenant acknowledges that all obligations of Landlord pursuant to
Paragraph 10 of the Second Amendment pertaining to the Original Premises and the
Additional Premises have been met.
(b) Landlord, at Landlord's sole cost and expense, shall install
new building standard carpeting throughout the New Expansion Premises. Except as
provided in this Paragraph 11, Landlord shall have no further obligation to make
any improvements to the Premises for Tenant.
11. NOTICES. Landlord and Tenant's addresses for notices set forth
in Section 1.17 of the Lease are hereby amended as follows:
"Landlord: Gateway Virginia Properties, Inc.
c/o Insignia/ESG, Inc.
1015 Fifteenth Street, N.W., Suite 1000
Washington, DC 20005
Attention: Mr. D. Eric Forshee
4
<PAGE> 5
With a copy to: TA Associates Realty
28 State Street
Boston, MA 02109
Attention: Mr. Henry G. Brauer"
12. BROKERS. Tenant represents and warrants to Landlord that Tenant
has not had any dealings or entered into any agreements with any person, entity,
realtor, broker, agent or finder in connection with the negotiation of this
Third Amendment other than Staubach Company and Insignia/ESG, Inc.
(collectively, the "Brokers"). Landlord shall pay a commission to the Brokers in
accordance with the terms of a separate agreement between Landlord and the
Brokers. Tenant shall indemnify and hold Landlord harmless from and against any
loss, claim, damage, expense (including costs of suit and reasonable attorneys'
fees) or liability for any compensation, commission or charges claimed by any
other realtor, broker, agent or finder claiming to have dealt with Tenant in
connection with this Third Amendment.
13. REAFFIRMATION OF TERMS. Except as expressly modified hereby, all
of the terms, covenants and provisions of the Lease are hereby confirmed and
ratified and shall remain unchanged and in full force and effect.
14. REPRESENTATIONS. Tenant hereby represents and warrants to
Landlord that to the best of Tenant's knowledge Tenant: (i) is not in default of
any of its obligations under the Lease and that such Lease is valid, binding and
enforceable in accordance with its terms, (ii) has full power and authority to
execute and perform this Third Amendment, and (iii) has taken all action
necessary to authorize the execution and performance of this Third Amendment.
15. COUNTERPART COPIES. This Third Amendment may be executed in two
or more counterpart copies, each of which shall be deemed to be an original and
all of which counterparts shall have the same force and effect as if the parties
hereto had executed a single copy of this Third Amendment.
[signatures on following page]
5
<PAGE> 6
IN WITNESS WHEREOF, Landlord and Tenant have executed this Third
Amendment as of the day and year first above written.
LANDLORD:
GATEWAY VIRGINIA PROPERTIES, INC., a
California corporation
T A Realty Corp. as Agent
By: /s/ HENRY G. BRAUER
----------------------------------
Its: Henry G. Brauer
----------------------------------
Regional Director
----------------------------------
TENANT:
CYBERCASH, INC.,
a Delaware corporation
By: /s/ MARIA C. IZURIETA
----------------------------------
Its: VP Finance & Administration
----------------------------------
6
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 14,184,594
<SECURITIES> 0
<RECEIVABLES> 3,829,945
<ALLOWANCES> 917,891
<INVENTORY> 0
<CURRENT-ASSETS> 18,234,679
<PP&E> 17,473,848
<DEPRECIATION> 8,419,363
<TOTAL-ASSETS> 90,110,907
<CURRENT-LIABILITIES> 4,066,993
<BONDS> 0
0
0
<COMMON> 20,205
<OTHER-SE> 86,023,709
<TOTAL-LIABILITY-AND-EQUITY> 90,110,907
<SALES> 4,329,002
<TOTAL-REVENUES> 4,218,613
<CGS> 3,299,736
<TOTAL-COSTS> 3,299,736
<OTHER-EXPENSES> 10,931,322
<LOSS-PROVISION> (1,000,000)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (10,961,426)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,961,426)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,961,426)
<EPS-BASIC> (0.54)
<EPS-DILUTED> (0.54)
</TABLE>
