U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended June 30, 1998.
__ Transition report under Section 13 or 15(d) of the Exchange Act for the
transition period from __ to __
Commission file number: 00-21219
CASDIM INTERNATIONAL SYSTEMS, INC.
----------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 83-0288100
-------- ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
150 East 58th Street
New York, New York 10155
------------------------
(Address of Principal Executive Offices)
(212) 829-1700
Fax: (212) 829-1705
-------------------
(Issuer's Telephone Number, Including Area Code)
__________________________________________________
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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 X No
APPLICABLE ONLY TO CORPORATE ISSUERS
As of July 31, 1998, the Issuer had 1,931,742 shares of Common Stock, par value
$.01, outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
<PAGE>
CASDIM INTERNATIONAL SYSTEMS, INC.
INDEX
Page
----
Part I - Financial Information:
Item 1. Financial Statements...............................................3
Consolidated balance sheets at June 30, 1998 and December 31, 1997........3-4
Consolidated statements of income for the three months and six months
ended June 30, 1998 and 1997.......................................5
Consolidated statements of cash flows for the six months
ended June 30, 1998 and 1997.......................................6
Notes to unaudited consolidated financial statements.....................7-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................15
Part II - Other Information:
Item 4. Submission of Matters to a Vote of Shareholders...................19
Item 6. Exhibits and Reports on Form 8-K..................................19
Signatures....................................................................21
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<PAGE>
CASDIM INTERNATIONAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash................................................. $63,209 $216,337
Accounts receivable
Officers and employees........................... 261,284 247,696
Investments.......................................... 93,200 90,000
--------- -------
Total............................................ 417,693 554,033
PROPERTY AND EQUIPMENT - Note 3
Property and equipment............................... 101,564 95,977
Less accumulated depreciation........................ (22,681) (15,159)
--------- --------
Net............................................... 78,883 80,818
OTHER ASSETS
Deposits.............................................. 55,893 55,893
Start-up and organization
costs, net......................................... 43,153 44,870
Product development costs - Note 4.................... 1,898,529 1,872,421
--------- ---------
TOTAL $2,494,151 $2,608,035
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
CASDIM INTERNATIONAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, trade.............................. $286,179 $ 249,335
Short-term bank debt................................. 374,202 --
Current maturities of long-term debt................. 400,800 574,602
------- -------
Total.............................................. 1,061,181 823,937
LONG-TERM DEBT
Long-term bank debt - Note 8........................... 499,650 700,050
Notes payable - Note 9................................. 450,000 250,000
-------- -------
949,650 950,050
TOTAL...................................... 2,010,831 1,773,987
STOCKHOLDER'S EQUITY - Note 5.............................
Common stock, $.01 par value, 30,000,000
shares authorized, 15,394,001 shares issued and
outstanding, 285,000 shares held in treasury
stock............................................ 169,590 169,590
Additional paid in capital................................ 4,873,057 4,873,057
Less treasury stock (cost)................................ (1,425) (1,425)
Gain (loss) from foreign currency translation............. - (51,860)
Retained earnings (deficit)............................... (4,557,902) (4,155,315)
----------- -----------
Total shareholders' equity............................. 483,320 834,047
---------- -----------
Total liabilities and shareholders' equity............. $2,494,151 $2,608,074
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
CASDIM INTERNATIONAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended June 30, Ended June 30, Ended June 30, Ended June 30,
1998 1997 1998 1997
------ ------ ------ -----
<S> <C> <C> <C> <C>
Sales...................................... $ -- $ 24,460 $ -- $ 31,455
Cost of sales.............................. -- 32,251 -- 32,251
---------- ---------- ----------- -----------
Gross profit............................... -- (7,791) -- (806)
Selling, general and administrative
expenses................................. 101,955 1,477,051 350,727 1,962,543
--------- ---------- --------- -----------
(Loss) from operations (101,955) (1,484,842) (350,727) (1,963,349)
Other income (expense)
Interest income....................... -- 11,708 -- 17,536
Interest expense...................... -- (20,173) -- (42,389)
Gain from sale of
investments....................... -- -- -- 145,402
----------- ---------- ---------- ----------
Total..................... -- (9,005) -- 120,549
----------- ---------- ---------- ----------
(Loss) from operations
before taxes........................... (101,955) (1,493,847) (350,727) (1,842,800)
--------- ---------- -------- ----------
Net (loss)................................. $(101,955) $(1,493,847) $(350,727) $(1,842,800)
========= =========== ========= ===========
Net (loss) per share of
common stock........................... $ (.0066) $ (.0974) $ (.0228) $ (.1202)
======== ========= ========= =========
Net (loss) per share of
common stock on a fully
diluted basis.......................... $ (.0066) $ (.0932) $ (.0228) $ (.1149)
======== ========= ========= =========
Weighted average number of
outstanding shares..................... 15,344,001 14,635,099 15,394,001 14,334,497
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
CASDIM INTERNATIONAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)................................................... $(350,727) $(1,842,800)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization....................... 9,239 64,779
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable - trade......................... -- 129,147
Accounts receivable - other......................... (13,589) (180,810)
(Decrease) increase in:
Accounts payable - trade............................ 36,844 135,700
Accounts payable - other............................ -- (39,264)
------- --------
Net cash provided (used) by
operating activities................................ (318,233) (1,733,248)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................... (8,787) (45,907)
Sale of investments, net..................................... -- 83,596
Payment of security deposit.................................. -- (45,693)
Payment for product development costs........................ (26,108) (475,892)
-------- ---------
Net cash used in investing activities............... (34,895) (483,896)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on short term debt................................... -- 401,452
Additional short term borrowing.............................. 200,000 --
Proceeds from issuance of stock.............................. -- 1,896,395
------- ---------
Net cash provided (used) by
financing activities................................ 200,000 2,297,847
------- ---------
NET INCREASE (DECREASE) IN CASH....................................... (153,128) 80,703
CASH:
Beginning of period.......................................... 216,337 913,527
------- -------
End of period................................................ $63,209 $ 996,230
======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
<PAGE>
CASDIM INTERNATIONAL SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying financial information is unaudited, but, in the opinion of
management, reflects all adjustments (which include only normally recurring
adjustments) necessary to present fairly the Company's financial position,
operating results and cash flows for the periods presented. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The financial
information should be read in conjunction with the audited financial
statements and notes thereto for the year ended December 31, 1997 included
in the Company's Annual Report on Form 10-KSB filed with the Securities and
Exchange Commission. The results of operations for the six-month period
ended June 30, 1998 are not necessarily indicative of the results to be
expected for the full year.
2. Summary of Significant Accounting Policies:
This summary of significant accounting policies of the Company and its
subsidiaries, CASDIM INTERACTIVE SYSTEMS USA, INC. ("Casdim USA") and
CASDIM INTERACTIVE SYSTEMS, LTD., (ISRAEL) ("CISL"), is presented to assist
in understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management, which
is responsible for their integrity and objectivity.
a. Principles of consolidation - In 1995, the Company issued 8,500,000
shares of stock after a 50:1 reverse stock split to acquire 100% of
Casdim USA, which owns 100% of CISL. The business combination has been
accounted for using the pooling method of accounting. The consolidated
financial statements include the accounts of the Company and its
subsidiaries.
b. Foreign operations - CISL maintains its accounts in nominal New
Israeli Shekels ("NIS"). Certain of the dollar amounts in the
financial statements may represent the dollar equivalent of other
currencies, including the NIS, which may not be exchangeable for
dollars.
Transactions and balances denominated in dollars are presented at
their dollar amounts. Non-dollar transactions and balances are
remeasured into dollars in accordance with the principles set forth in
the Statement of Financial Accounting Standards ("FAS") No. 52,
"Foreign Currency Translation," of the Financial Accounting Standards
Board of the United States ("FASB").
-7-
<PAGE>
CASDIM INTERNATIONAL SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Accordingly, items have been remeasured as follows:
Monetary items-at the current exchange rate at each balance sheet
date;
Nonmonetary items-at historical exchange rates;
Income and expense items-at exchange rates current as of the date of
recognition of those items (excluding depreciation and other items
deriving from nonmonetary items);
Exchange gains and losses from aforementioned remeasurement (which are
immaterial for each year) are reflected in the statements of income.
Linkage Basis - Balances which are linked to the Israeli Consumer
Price Index (the "CPI") are presented on the basis of the index at the
balance sheet date, which index is published subsequently. Balances
denominated in, or linked to, currencies other than the dollar are
presented according to the exchange rates prevailing at the balance
sheet date.
The Israeli CPI increased by 7.0% in the year ended December 31, 1997.
The effects of the inflationary erosion of monetary items and interest
is included in financial income or expenses, as appropriate.
c. Fixed Assets - Fixed assets are stated at cost. Depreciation has been
calculated by the straight-line method over the estimated useful lives
of the assets.
-8-
<PAGE>
CASDIM INTERNATIONAL SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years
-----
Leasehold improvements 10
Motor vehicles 7
Office furniture and equipment 5-20
(mainly computers and peripheral
equipment)
Leasehold improvements are depreciated using the straightline method
over the period of each lease, not to exceed the estimated useful life
of the improvements.
d. Cash and Cash Equivalents - For purposes of the statement of cash
flows, the Company considers cash and cash equivalents to consist of
all cash, either on hand or in banks including time deposits, and any
highly liquid debt instruments purchased with a maturity of three
months or less.
e. Bad Debts - Uncollectible accounts receivables are charged directly
against earnings when they are determined to be uncollectible. Use of
this method does not result in a material difference from the
valuation method required by generally accepted accounting principles.
f. Estimates - 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 and disclosure 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.
g. Recognition of Income - Income deriving from long term contracts are
recognized upon percentage completion basis.
h. Deferred income taxes - Deferred income taxes are provided for
temporary differences between the assets and liabilities, as measured
in the financial statements, and for tax purposes at the tax rate
expected to be in force when these differences reverse, in accordance
with Statement No. 109 of the FASB (Accounting for Income Taxes).
Deferred income taxes are not material to the financial statements.
-9-
<PAGE>
CASDIM INTERNATIONAL SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
i. Net Income per share - Net income per share is computed on the
weighted shares adjusted for the issuance of shares and consolidation.
3. Fixed Assets
Cost (Unaudited) (Audited)
June 30, December 31,
1998 1997
-------- --------
Leasehold improvement $10,168 $10,168
Furniture & equipment 58,922 53,335
Motor vehicles 32,474 32,474
------- -------
101,564 95,977
Accumulated depreciation 22,861 15,159
------- -------
Total $78,703 $80,818
======= =======
4. Product Development Costs
Based on the Company's product development process, technological
feasibility is established upon completion of a working model. Costs
incurred by the Company between completion of the working model and the
point at which the product is ready for general release have been
capitalized. Total costs incurred to June 30, 1998 were $1,898,529. The
costs were principally incurred in the development of the Company's IOD
information on demand project.
Capitalized software costs are amortized by the greater of: (i) ratio of
current gross revenues from sales of the software to the total of current
and anticipated future gross revenues from sales of that software or (ii)
the straight-line method over the remaining estimated useful life of the
product (not greater than three years). The Company assesses the
recoverability of this intangible asset by determining whether the
amortization of the asset over its remaining life can be recovered through
undiscounted future operating cash flows from the specific product.
5. Capital Stock
On May 22, 1997, the Company completed a private placement of its
securities in which 1,200,000 shares of Common Stock were issued for
$1,500,000.
-10-
<PAGE>
CASDIM INTERNATIONAL SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6. Stock Warrants and Stock Options
Stock Compensation Plan
Under the Company's 1996 Stock Option Plan (the "Plan"), the Company may
grant options for up to 500,000 shares of Common Stock to its employees,
directors and consultants. No options have been granted to date.
Under the Plan, the exercise price of incentive stock options ("ISOs") may
not be less than 100% (or 110%, if at the time of grant the optionee owns
more than 10% of the voting stock of the Company) of the fair market value
of the shares of Common Stock at the date of grant. The purchase price of
each share subject to an option, or any portion thereof, which is not
designated as an ISO, may not be less than 75% of the fair market of such
shares on the date of grant. The term of each option under the Plan may be
for a period of up to ten years (five years if the recipient is a 10% or
more shareholder).
Under a public relations retainer agreement (the "Agreement") with Sunrise
Financial Group Inc. ("Sunrise"), the Company agreed to issue Sunrise
options to purchase up to 700,000 shares of its Common Stock as
consideration for its public relations services. Of such options, 460,000
options vested as of April 24, 1996 and options to purchase 10,000 shares
of Common Stock were to vest monthly for a 24-month period, subject to the
continued provision of services by Sunrise. Under the Agreement, the
purchase price of each share subject to an option is $1.00. Options to
purchase 540,000 shares of Common Stock had vested as of December 31, 1996.
In March 1997, the Agreement was terminated and the parties agreed that
Sunrise would retain options to purchase up to 300,000 shares of the
Company's Common Stock. The options will expire in April 2001.
In April 1997, the Company entered into an agreement with Pelican
Consultants U.S.A., Inc. ("Pelican") to provide financial consulting and
financial relations services to the Company. The Company agreed to issue
Pelican options to purchase up to 200,000 shares of the Company's Common
Stock, at a purchase price of $1.00 per share. Of such options, 100,000
options vested as of April 11, 1997 and options to purchase the remaining
shares vested ratably over the next 12-month period from May 11, 1997 until
May 11, 1998.
The Company has accounted for the fair value of the grant of options to
Sunrise and Pelican in accordance with FASB Statement 123. The compensation
costs that have been charged against income for the options granted to
Sunrise and Pelican was $164,063.
-11-
<PAGE>
CASDIM INTERNATIONAL SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Warrants
The Company issued warrants exercisable into 1,150,000 shares of Common
Stock in connection with its May 1996 private placement. As of June 30,
1998, 500,000 of such warrants were exercised and 850,000 warrants remain
available to be exercised. The Company issued additional warrants
exercisable into 200,000 shares of Common Stock in connection with its May
1997 private placement. All of such warrants, which are exercisable at
$1.00 per share, have been included in the computation of fully diluted
earnings per share. In addition, the Company issued warrants exercisable
into 50,000 shares of Common Stock, at an exercise price of $0.50 per
share, in connection with the sale of a convertible note in December 1997
and warrants exercisable into 200,000 shares of Common Stock at an exercise
price equal to 80% of the average of the closing bid and asked price of the
Company's Common Stock as reported by Nasdaq Bulletin Board (and if not
quoted on the Nasdaq Bulletin Board as reported by National Quotation
Bureau) on September 17, 1998.
7. Accounts Receivable
In March 1997, CISL was informed by Kupat Holim Leumit, of its continued
postponement of payment of a trade account receivable owed to the Company
in the amount of approximately $300,000. The Company has determined this
account to be uncollectible. The Company has included a loss from this
account in the financial statements at December 31, 1997.
8. Long Term Bank Debt
On March 3, 1997, CISL converted $900,450 of short-term debt into long-term
debt. The terms of the refinancing call for payments of principal and
interest at a 7.75% annual interest rate. See also Note 12.
The following is a schedule of principal payments:
1998 $ 200,400
1999 200,400
2000 200,400
2001 98,850
---------
$ 900,450
Current Maturities (400,800)
----------
Long-term debt $ 499,650
==========
-12-
<PAGE>
9. Convertible Secured Note
In December 1997 the Company entered into an interim Note financing in the
amount of $250,000. The Note bears interest at the rate of ten percent
(10%) per annum and is due and payable January 5, 1999. At the option of
the Holder, the unpaid principal is convertible into fully paid
nonassessable shares of the Company's Common Stock at a conversion price of
20% below the price per share. The conversion option is available after the
90th day from the date of issuance of the Note in increments of $25,000.
On March 17, 1998, the Company sold $200,000 principal amount of 10%
convertible secured note due on January 8, 1999 (the "March Note"). The
March Note is convertible into shares of Common Stock for six months and
twenty four days beginning June 15, 1998 and ending January 8, 1999, at a
20% discount to the average closing bid price per share of the Common Stock
on the Nasdaq Bulletin Board for the five trading days prior to the
conversion day (the "Market Price"). After the 180th day, the conversion
price is convertible at a 30% discount to the Market Price. In the event
the Market Price will be less than $0.50, the March Note will be
convertible at a 50% discount to the bid price for the Common Stock for the
five trading days before the conversion date. Yehuda Shimshon, Chief
Executive Officer and principal stockholder of the Company, guaranteed the
payment of the principal and interest of the March Note and also secured it
by pledging 800,000 of his shares of Common Stock to the note holders.
10. Discontinued Operations
In December 1997, the Company entered into a formal arrangement to
discontinue operations of CISL.
11. Income Taxes
The Company has a net operating loss carry forward in the amount of
$2,673,437 which will begin to expire in the year 2002.
12. Contingencies
An action was initiated against the Company by three investors who have
alleged that they are owed a penalty fee in connection with their
investment in the Company. The investors claimed that the Company failed to
promptly file a registration statement with the Securities and Exchange
Commission with respect to their shares. Such investors
-13-
<PAGE>
CASDIM INTERNATIONAL SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
have claimed that they are owed $210,000 by the Company. The Company
defended itself against the action brought by the investors.
An action was initiated in the Tel Aviv District Court against CISL, the
Company and Yehuda Shimshon, Chief Executive Officer and the principal
stockholder of the Company, by Bank Hapoalim B.M. (the "Bank") in the
amount of NIS 2,500,000 (approximately $666,666). The Bank has claimed that
CISL defaulted on its NIS and U.S. dollar loans and credit line payments of
principal and interest and that it is owed such amount by the three
Defendants, since the loan payments of CISL to the Bank have been
guaranteed by the Company up to $1,000,000 (with the addition of interest
and linkage) and Mr. Shimshon guaranteed the debt of CISL to the Bank in a
guarantee which was unlimited in amount. The Defendants have been granted
an extension to defend themselves until September 17, 1998.
13. Subsequent Events
In July and August 1998, the Company obtained two short-term loans
aggregating $60,000 and bearing 10% annual interest (the "Loans") from
K.I.D. International ("K.I.D.") to finance its operation. Yehuda Shimshon,
Chief Executive Officer and principal stockholder of the Company, secured
the payment of the notes to K.I.D. by pledging 100,000 of his shares of
Common Stock. On August 18, 1998, the parties agreed that the Company will
issue to K.I.D. 110,770 restricted shares of Common Stock of the Company in
full payment for the Loans.
-14-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The discussion and analysis which follows in this Quarterly Report and in
other reports and documents of the Company and oral statements made on behalf of
the Company by its management and others may contain trend analysis and other
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934 which reflect the Company's current views with respect to
future events and financial results. These include statements regarding the
Company's earnings, growth and expansion plans, forecasts and similar matters
which are not historical facts. The Company reminds stockholders that
forward-looking statements are merely predictions and therefore are inherently
subject to uncertainties and other factors which could cause the actual future
events or results to differ materially from those described in the forward
looking statements. These uncertainties and other factors include, among other
things, the Company's ability to generate increased sales; competitive factors;
the Company's ability to obtain additional financing; the Company's ability to
complete and subsequently obtain revenues from its new projects; and
technological difficulties and resource constraints encountered in developing
new products. The forward-looking statements contained in this Quarterly Report
should be considered in light of these factors. The forward-looking statements
contained in this Quarterly Report and made elsewhere by or on behalf of the
Company should be considered in light of these factors.
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial position and
operating results during the periods included in the accompanying condensed
financial statements.
Overview
Pursuant to an agreement dated March 20, 1997 entered into between the
Company and Ramada Franchise Systems, Inc. ("RFS"), a wholly-owned subsidiary of
HFS Incorporated, the Company developed its IOD System. The IOD System was
designed to incorporate interactive television, Internet, video-on-demand,
e-mail, and a club member facility and is designed to utilize a WAN to link
video and data servers via the Internet. During the development of the IOD
System additional capabilities were added to those provided for in the agreement
with RFS. The Company built a demo hotel room with the IOD System in its N.Y.
offices and is presently demonstrating the operation of the IOD System to hotel
managers and owners. The Company subsequently determined that the proposed
business plan for the Company's IOD System would not be profitable to the
Company and the Company subsequently prepared a new business model based on
utilization of the IOD System in more upscale lodging facilities. No assurance
can be given that the Company will be able to enter into agreement for its IOD
System or that it will be able to raise sufficient funds to install its IOD
System at new sites.
-15-
<PAGE>
The Company has determined to conserve its working capital and not to
pursue its joint venture with Dick Clark International Cable Ventures Ltd. to
exploit certain satellite transmission licenses held by an affiliate of said
company in Mexico.
Results of Operations
Quarter Ended June 30, 1998 Compared to Quarter Ended June 30, 1997.
The Company had no product sales during the quarter ended June 30, 1998 as
compared to $24,460 in the comparable 1997 quarter. The Company did not record
any sales as a result of the discontinuance of operation of the Company's
Israeli subsidiary in the fourth quarter of 1997.
Selling, general and administrative expenses, which principally consist of
general and administrative expenses decreased to $101,955 in the 1998 second
quarter from $1,477,051 in the 1997 second quarter, due primarily to the
Company's efforts to reduce its operating costs and the discontinuance of
operation of the Company's Israeli subsidiary in the fourth quarter of 1997.
In the second quarter of 1998, the Company did not capitalize any product
development costs, as compared to $213,000 in the second quarter of 1997,
principally relating to the IOD System.
For the quarter ended June 30, 1998, the Company reduced its loss from
operations to $101,955 as compared to a loss from operations of $1,493,847 for
the 1997 comparable quarter as a result of its cost-cutting efforts and the
discontinuance of operation of its Israeli subsidiary. The Company expects to
continue to operate at a loss until such time as sales of its IOD System
commence. The Company will require financing of approximately $1.0 million in
1998 to fund the installation of the IOD System and to start the full marketing
and sales activities for the IOD System.
As a result of the foregoing, the Company's net loss was $101,955 or $.0066
per share for the quarter ended June 30, 1998 as compared to a net loss of
$1,493,847 or $0.974 per share for the quarter ended June 30, 1997.
Six Months Ended June 30, 1998 Compared with Six Months Ended June 30, 1997
The Company had no product sales during the six-month period ended June 30,
1998 as compared to $31,455 during the comparable period in 1997. The Company
did not record any sales as a result of the discontinuance of operation of the
Company's Israeli subsidiary in the fourth quarter of 1997.
-16
<PAGE>
The Company did not record any cost of sales in the 1998 period as compared
to $32,251 in the 1997 six-month period, principally as a result of the fact the
Company did not have any sales. As a result of the foregoing, the Company did
not record any gross profit for the six-month period ended June 30, 1998 as
compared to a negative $806 in gross profit in the 1997 period.
Selling, general and administrative expenses decreased in the 1998
six-month period to $350,727 from $1,962,543 in the 1997 comparable period, due
primarily to the Company's efforts to reduce its operating costs and the
discontinuance of operation of the Company's Israeli subsidiary in the fourth
quarter of 1997.
During the six months ended June 30,1998, the Company did not have other
income as compared to other income of $120,549 in the 1997 period. In the 1997
period the Company recorded a gain of $145,400 on the sale of an investment.
For the six-month period ended June 30, 1998, the Company had an operating
loss of $350,727 as compared to an operating loss of $1,842,800 for the
comparable period in 1997, as a result of its cost-cutting efforts and the
discontinuance of operation of its Israeli subsidiary.
As a result of the foregoing, the Company had a net loss of $350,727 for
the 1998 six month period as compared to a net loss of $1,842,800 in the
comparable 1997 period.
Liquidity and Capital Resources
At June 30, 1998, the Company had $63,209 in cash and $213,643 in working
capital as compared to $216,337 in cash and $332,498 in working capital at
December 31, 1997.
To provide working capital the Company sold on March 17, 1998 a $200,000
principal amount 10% convertible secured note due on January 8, 1999 (the "March
Note"). The March Note is convertible into shares of Common Stock for six months
and twenty-four days beginning June 15, 1998 and ending January 8, 1999, at a
20% discount to the average closing bid price per share of the Common Stock on
the Nasdaq Bulletin Board for the five trading days prior to the conversion day
(the "Market Price"). After the 180th day, the conversion price is convertible
at a 30% discount to the Market Price. In the event that the Market Price will
be less than $0.50, the March Note will be convertible at a 50% discount to the
bid price for the Common Stock for the five trading days before the conversion
date. In addition, the Company issued to the investors two-year warrants to
purchase 200,000 shares of Common Stock, at an exercise price equal to 80% of
the average closing bid and asked price of the Company's Common Stock as
reported by the Nasdaq Bulletin Board (and if not quoted on the Nasdaq Bulletin
Board as reported by National Quotation Bureau) on September 17, 1998.
-17-
<PAGE>
In July and August 1998, the Company obtained two short-term loans
aggregating $60,000 and bearing 10% annual interest (the "Loans") from K.I.D.
International ("K.I.D.") to finance its operation. On August 18, 1998, the
parties agreed that the Company will issue 110,770 restricted shares of Common
Stock of the Company to K.I.D. in full consideration for the Loans and that such
issuance of shares will constitute full payment for the Loans.
Management believes that the Company will require $350,000 in order to have
sufficient working capital for its operation for the remainder of the year. In
addition, the Company will require financing of approximately $1.0 million in
1998 to fund the installation of the IOD System at various Ramada Inn sites, if
a new agreement will be signed between the parties, and to start the full
marketing and sales activities for the IOD System. Although the Company is
currently investigating several sources of financing, no assurance can be given
that the Company will be able to raise sufficient financing on either an equity
or debt basis to permit it to continue operations and implement its IOD System.
Among the factors that will affect the Company's working capital in the
future will be the amount and timing of the expenditures required to complete
the development, installation and testing of the IOD System.
The Year 2000 Issue
The Company had conducted a review of its computer systems to identify the
systems that could be affected by the "Year 2000" issue and believes that its
systems are Year 2000 compliant.
Other Matters
In June 1997, the Financial Accounting Standards Board released Statement
131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS 131"). This statement became effective for the Company beginning January
1, 1998 and requires disclosure of certain information about operating segments
and geographic areas of operation. The adoption of SFAS 131 does not require
interim reporting in the year of adoption. The Company is completing its
evaluation of the disclosure requirements of SFAS 131 and will begin such
disclosure in its Form 10-KSB for the year ended December 31, 1998. This
statement does not have any effect on the results of operations or financial
position of the Company.
-18-
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Shareholders
The Company held a Special Meeting of Shareholders on June 22, 1998. At the
meeting, the Company's shareholders voted for the approval of the amendment of
the Company's Certificate of Incorporation to (A) effect a reverse stock split
of the outstanding shares of the Company's Common Stock, par value $.01 per
share, in which each eight shares of outstanding Common Stock combined into one
share of new Common Stock, par value $.01 per share, and (B) reduce the number
of authorized shares of Common Stock from 30,000,000 to 15,000,000 shares.
For Against Abstain
--- ------- -------
8,983,530 0 1 ,000
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Certificate of Incorporation as amended on December 6, 1995.(1)
3.2 By-laws.(1)
3.3 Certificate of Amendment to Certificate of Incorporation filed July 1,
1998.
4.1 Stock Option Agreement with Sunrise Financial Group Inc.(2)
4.2 Stock Option Agreement between the Company and Pelican Consultants U.S.A.,
Inc.(3)
4.3 Warrant Agreement dated May 22, 1997 between the Company and Lydford
Ltd.(3)
4.4 Form of Registration Rights Agreement between the Company and Brayford
Ltd., Lydford Ltd. and Stolin Ltd.(3)
4.5 10% Convertible Secured Note dated December 23, 1997 between the Company
and Frank K. Brosens.(4)
4.6 Warrant Agreement dated December 23, 1997 between the Company and Frank K.
Brosens.(4)
4.7 10% Convertible Secured Note dated March 17, 1998 between the Company and
Frank K. Brosens.(4)
4.8 Form of Warrant Agreement dated March 17, 1998 and Form of Warrant
Certificate.(4)
10.1 Software Adaptation Services Agreement dated January 10, 1995 between the
Company and CSS Ltd.(5)
10.2 Short-term Loan Agreement dated February 10, 1995 between the Company and
CSS Ltd.(1)
10.3 Patent Assignment Agreement dated January 10, 1995 between the Company and
CSS Ltd.(4)
10.4 Alpha/Beta Test Agreement between the Company and Ramada Franchise Systems,
Inc.(6)
10.5 Form of Note from July 1998 and letter of agreement dated August 18, 1998.
27 Financial Data Schedule.
_______________________
-19-
<PAGE>
(1) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1995.
(2) Incorporated by reference to the Company's Report on Form 10-QSB for the
quarter ended September 30, 1996.
(3) Incorporated by reference to the Company's Registration Statement on Form
SB-2, File Number 333-10287.
(4) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1997.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
(6) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1996.
-20-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CASDIM INTERNATIONAL SYSTEMS, INC.
/s/Yehuda Shimshon
------------------
Yehuda Shimshon
Chairman of the Board, President & CEO
Date: August 24, 1998
-21-
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
--- -----------
3.1 Certificate of Incorporation as amended on December 6, 1995.(1)
3.2 By-laws.(1)
3.3 Certificate of Amendment to Certificate of Incorporation filed July 1,
1998.
4.1 Stock Option Agreement with Sunrise Financial Group Inc.(2)
4.2 Stock Option Agreement between the Company and Pelican Consultants U.S.A.,
Inc.(3)
4.3 Warrant Agreement dated May 22, 1997 between the Company and Lydford
Ltd.(3)
4.4 Form of Registration Rights Agreement between the Company and Brayford
Ltd., Lydford Ltd. and Stolin Ltd.(3)
4.5 10% Convertible Secured Note dated December 23, 1997 between the Company
and Frank K. Brosens.(4)
4.6 Warrant Agreement dated December 23, 1997 between the Company and Frank K.
Brosens.(4)
4.7 10% Convertible Secured Note dated March 17, 1998 between the Company and
Frank K. Brosens.(4)
4.8 Form of Warrant Agreement dated March 17, 1998 and Form of Warrant
Certificate.(4)
10.1 Software Adaptation Services Agreement dated January 10, 1995 between the
Company and CSS Ltd.(5)
10.2 Short-term Loan Agreement dated February 10, 1995 between the Company and
CSS Ltd.(1)
10.3 Patent Assignment Agreement dated January 10, 1995 between the Company and
CSS Ltd.(4)
10.4 Alpha/Beta Test Agreement between the Company and Ramada Franchise Systems,
Inc.(6)
10.5 Form of Note from July 1998 and letter of agreement dated August 18, 1998.
27 Financial Data Schedule.
_______________________
(1) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1995.
(2) Incorporated by reference to the Company's Report on Form 10-QSB for the
quarter ended September 30, 1996.
(3) Incorporated by reference to the Company's Registration Statement on Form
SB-2, File Number 333-10287.
(4) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1997.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
(6) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1996.
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "CASDIM INTERNATIONAL SYSTEMS, INC.", FILED IN THIS OFFICE ON THE FIRST DAY
OF JULY, A.D., AT 9 O'CLOCK A.M.
/s/Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
2660359 8100
AUTHENTICATION: 9176240
981258506
DATE: 07-02-98
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
CASDIM INTERNATIONAL SYSTEMS, INC.
Adopted in accordance with the provisions
of Section 242 of the General Corporation
Law of the State of Delaware
Casdim International Systems, Inc. (the "Corporation"), a corporation
organized and existing by virtue of the General Corporation Law of the State of
Delaware (the "Delaware GCL"), by its duly authorized officers, hereby certifies
as follows:
FIRST: That the Board of Directors of the Corporation, acting pursuant to
Section 141(f) of the Delaware GCL, has duly adopted a resolution authorizing
the Corporation to reclassify, change and convert each eight (8) outstanding
shares of the Corporation's Common Stock, par value $.01 per share, into one (1)
share of Common Stock, par value $.01 per share.
SECOND: That the Board of Directors of the Corporation, acting pursuant to
Section 141(f) of the Delaware GCL, has duly adopted a resolution authorizing
the Corporation to reduce the number of common shares the Corporation is
authorized to issue from thirty million (30,000,000) shares of Common Stock, par
value $.01 per share, to fifteen million (15,000,000) shares of Common Stock,
par value $.01 per share.
THIRD: That, pursuant to authorization by the affirmative vote, in
accordance with the provisions of the Delaware GCL, of the holders of a majority
of the outstanding Common Stock of the Corporation entitled to vote thereon at a
special meeting of stockholders of the Corporation held on June 22, 1998, the
Certificate of Incorporation of the Corporation be amended as follows:
1. By striking out Section 4 and inserting a new Section 4 to read as
follows:
"Section 4 - Stock. The aggregate number of shares of stock which the
Corporation shall have the authority to issue is 15,000,000 shares,
constituting one class of Common Stock, with a par value of $.01 per
share."
<PAGE>
2. By adding new paragraph (d) to Section 4 to read as follows:
"(d) Each eight (8) shares of the Common Stock, par value $.01 per
share, of the Corporation issued and outstanding or held in treasury as of
5:00 p.m. New York time on the date on which this Certificate of Amendment
is filed by the Secretary of State of the State of Delaware (the "Effective
Time") shall be reclassified as and changed into one (1) share of Common
Stock, par value $.01 per share, of the Corporation, without any action by
the holders thereof. Each stockholder who, immediately prior to the
Effective Time, owns a number of shares of Common Stock which is not evenly
divisible by eight (8) shall, with respect to such fractional interest, be
entitled to receive from the Corporation cash in an amount equal to such
fractional interest multiplied by the average of the closing bid and
closing asked prices of the Common Stock as reported on the Nasdaq Bulletin
Board at the Effective Time."
FOURTH: That the amendments to the Corporation's Certificate of
Incorporation set forth herein have been duly adopted in accordance with the
provisions of Section 242 of the Delaware GCL.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
executed on its behalf by Yehuda Shimshon, its President, on June 26, 1998,
hereby declaring and certifying that this is the act and deed of the Corporation
and that the facts herein stated are true.
/s/Yehuda Shimshon
------------------
Name: Yehuda Shimshon
Title: President
2
TERM NOTE
---------
$25,000.00 Date: July , 1998
The undersigned, Casdim International Systems Inc. (the "Borrower"), hereby
promises to pay to the order of ______________________ (the "Holder") or its
assigns, at its office at ______________________, or at such other place as the
holder may direct, in lawful money of the United States of America, the
principal sum of Twenty-Five Thousand dollars ($25,000.00) (the "Loan"):
The Borrower also promises to pay simple interest on the principal balance
of the Loan outstanding from time to time at the rate per annum set forth below,
from the date hereof, to but excluding the business day on which the Loan is
paid in full. The interest will be computed on the basis of a year of 360 days.
Interest on the Loan shall be payable when the principal amount of the Loan
is paid in full.
The rate of interest payable on the Loan is:
10% per annum;
Interest on overdue amounts (whether of principal, interest or otherwise)
under this Term Note is payable on demand at 1% per annum above the Bank's
prime rate.
Any agreements and documents guaranteeing or securing this Term Note
including the pledge by Mr. Yehuda Shimshon of 50,000 shares of Common Stock of
Casdim International Systems Inc. are referred to in this Term Note as the
"Collateral Agreements" and the Holder is entitled to all of the benefits
thereof.
Upon the occurrence of any "Event of Default" as hereinafter defined, the
amounts then remaining unpaid on this Note shall become immediately due and
payable without the Holder giving any notice or making any demand for payment
and without presentment, demand, protest or other notice of any kind, all of
which are hereby waived by the Borrower. The Borrower agrees to pay all
reasonable out-of-pocket expenses (including but not limited to reasonable fees
and disbursements of counsel) incurred by the Bank in enforcing or attempting to
enforce (whether by suit or otherwise) this Term Note.
The term "Events of Default" shall mean any of the following events:
(i) failure of the Borrower to punctually pay any sum payable under
this Term Note or while the Loan is unpaid (the "Obligations");
(ii) the entry of a decree or order for relief in respect of the
Borrower in an involuntary case under the federal bankruptcy laws or any
other applicable federal or state bankruptcy, insolvency or other similar
law, or appointing a receiver, liquidator, assignee,
<PAGE>
custodian, trustee, sequestrator (or similar official) of the Borrower for
any substantial part of the Borrower's property, or ordering the winding-up
or liquidation of the Borrower's affairs;
(iii) the commencement by the Borrower of a voluntary case under the
federal bankruptcy laws, or any other applicable federal or state
bankruptcy, insolvency or other similar laws, or the consent of the
Borrower to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other similar
official) of the Borrower or for any substantial part of the Borrower's
property, or the making by the Borrower of any assignment for the benefit
of creditors, or the Borrower's failure generally to pay the Borrower's
debts as such debts become due, or the taking of action by the Borrower in
furtherance of any of the foregoing;
(iv) the disposition by the Borrower of any material part of the
Borrower's assets, or the suspension, dissolution or liquidation of any
material aspect of the business conducted by the Borrower;
(v) the occurrence of any event or circumstance which, under any
agreement or evidence of indebtedness relating to any obligation of the
Borrower for borrowed money other than this Term Note, assuming that any
required notice had been given or lapse of time had occurred, would give
the holder thereof or any other person the right to declare such obligation
due and payable;
(vi) the breach or invalidity of any term of this Term Note or of any
of the Collateral Agreements or the assertion by the Borrower or any other
person or entity obligated hereunder or thereunder that any such term is
not binding on such person or entity;
No act, delay or omission by the Holder in enforcing its rights shall be
deemed to be a waiver of those rights; no waiver by the Bank shall be valid
unless contained in a writing signed by the Holder. This Term Note may not be
changed or terminated orally. All rights and remedies of the Holder shall be
cumulative and may be exercised singly or concurrently.
The Borrower's obligations under this Term Note shall be binding upon the
Borrower's successors, assigns, heirs, executors and legal representatives. The
Holder may transfer this Term Note and any party to whom it is transferred will
have all the rights of the Holder hereunder (including the right to transfer it
again).
This Term Note and the rights and obligations of the Borrower and the
Holder hereunder shall be governed by and construed in accordance with the laws
of the State of New York. The Borrower hereby waives, and the Holder, by its
acceptance of this Note, shall be deemed to have waived, any right to trial by
jury in any legal proceeding related in any way to this Term Note. The Borrower
agrees that any such proceeding shall, if the holder hereof so elects, be
brought and enforced in the Supreme Court of the State of New York for New York
County or the United States District Court for the Southern District of New York
and the Borrower hereby waives any objection to jurisdiction or venue in any
such proceeding commenced in said courts. The Borrower further waives personal
service of any summons, complaint or other process required to be served on the
Borrower in any such proceeding and agrees that
-2-
<PAGE>
the same may be served, with the same effect as personal service on the Borrower
within the State of New York, by certified or registered mail addressed to the
Borrower at the Borrower's address set forth below or at such other address, if
any, as the Borrower shall have notified the Holder of in writing for such
purpose.
Casdim International Systems Inc.
150 East 58th Street
New York, New York 10155
By:/s/Yehuda Shimshon
---------------------
Yehuda Shimshon, President
-3-
<PAGE>
[CASDIM INTERNATIONAL SYSTEMS INC. LETTERHEAD]
August 18, 1998
Mr. Rocky Stefansky
K.I.D. International
845 Towbin Avenue
Lakewood, NJ 08701
Re:Issuance of Stock of Casdim International Systems, Inc.
Dear Mr. Stefansky:
Casdim International Systems, Inc. (the "Company") will issue to K.I.D.
International ("K.I.D.") 110,770 restricted shares of Common Stock of the
Company (the "Shares") in full consideration for the two loans aggregating
$60,000 (the "Loans") provided by K.I.D. to the Company in July and August 1998.
The issuance of the Shares will constitute full payment for the demand notes
issued by the Company for the Loans and upon their issuance K.I.D. will not have
any claims or demands from the Company regarding the Loans.
The Shares will bear a standard "1933 Act" restrictive legend and will
reflect that you are acquiring the Shares for investment purposes only and not
with a view to distribute the Shares.
Very truly yours,
/s/Yehuda Shimshon
We consent to the above.
K.I.D. INTERNATIONAL
By: /s/Rocky Stefansky
----------------------
Rocky Stefansky
President
Date: August 18, 1998
---------------
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 63,209
<SECURITIES> 0
<RECEIVABLES> 261,284
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 417,693
<PP&E> 101,564
<DEPRECIATION> (22,681)
<TOTAL-ASSETS> 2,494,151
<CURRENT-LIABILITIES> 1,061,181
<BONDS> 0
0
0
<COMMON> 169,590
<OTHER-SE> 4,871,632
<TOTAL-LIABILITY-AND-EQUITY> 2,494,151
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 350,727
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (350,727)
<INCOME-TAX> 0
<INCOME-CONTINUING> (350,727)
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> (350,727)
<EPS-PRIMARY> (.023)
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