SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
-----------------
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------- ---------
Commission file number 1-13587
QUERYOBJECT SYSTEMS CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 94-3087939
------------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization Number)
60 Charles Lindbergh Boulevard, Uniondale, New York 11553
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (516) 228-8500
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
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
--- ----
<PAGE>
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained in this form, and no disclosure
will be contained, to the best of the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. X
State the issuer's revenues for its most recent fiscal year:
The issuer's revenues for the fiscal year ended December 31, 1998 were $928,505.
The aggregate market value of the voting stock held by
non-affiliates of the Registrant computed by reference to the price at which the
stock was sold on March 28, 1999 was approximately: $5,670,000. Solely for the
purposes of this calculation, shares held by directors and officers of the
Registrant have been excluded. Such exclusion should not be deemed a
determination or an admission by the Registrant that such individuals are, in
fact, affiliates of the Registrant.
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date: At March
15, 1999, there were outstanding 6,068,485 shares of the Registrant's Common
Stock, $.001 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's definitive proxy
statement to be filed not later than April 30, 1999 pursuant to Regulation 14A
are incorporated by reference in Items 9 through 12 of Part III of this Annual
Report on Form 10-KSB.
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -----
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
Exhibit
Number Exhibits
------ --------
3.1 Certificate of Incorporation of the Company
(Incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form SB-2, No.
333-34667).
3.2 By-laws of the Registrant, as amended (Incorporated
by reference to Exhibit 3.2 to the Registration
Statement on Form SB-2, No. 333-34667).
4.1 Specimen Certificate of the Registrant's Common
Stock (Incorporated by reference to Exhibit 4.1 to
the Registration Statement on Form SB-2, No. 333-
34667).
4.2 Form of Representative's Purchase Option granted to
GKN Securities Corp. (Incorporated by reference to
Exhibit 4.2 to the Registration Statement on Form
SB-2, No. 333-34667).
4.3 Form of Warrant issued in connection with the July
1997 Private Placement (Incorporated by reference
to Exhibit 4.3 to the Registration Statement on
Form SB-2, No. 333-34667).
4.4 Certificate of Designations, Preferences and Other
Rights and Qualifications of Series A Convertible
Preferred Stock (Incorporated by reference to
Exhibit 99(A) of the Form 10-QSB for the quarterly
period ended September 30, 1998)
4.5 Certificate of Correction to the Certificate of
Designations, Preferences and Other Rights and
Qualifications of Series A Convertible Preferred
Stock (Incorporated by reference to Exhibit 99(B)
to the Form 10-QSB for the quarterly period ended
September 30, 1998).
4.6 Certificate of Designations, Preferences and Other
Rights and Qualifications of Series B Convertible
Preferred Stock (Incorporated by reference to
Exhibit 99(C) to the Form 10-QSB for the quarterly
period ended September 30, 1998).
4.7 Form of Warrant Issued in Private Placement
(Incorporated by reference to Exhibit 99(D) to the
Form 10-QSB for the quarterly period ended
September 30, 1998).
10.1 1991 Incentive Stock Option Plan (Incorporated by
reference to Exhibit 10.1 to the Registration
Statement on Form SB-2, No. 333-34667).
10.2 Form of Stock Option Agreement for Non-Qualified
Options granted to Advisors (Incorporated by
reference to Exhibit 10.2 to the Registration
Statement on Form SB-2, No. 333-34667).
10.3 Employment Agreement, dated as of May 1, 1997, by
and among, the Company and Daniel M. Pess
(Incorporated by reference to Exhibit 10.5 to the
Registration Statement on Form SB-2, No.
333-34667).
10.4 Employment Agreement, dated as of May 8, 1996, by
and among, the Company and Andre Szykier
(Incorporated by reference to Exhibit 10.6 to the
Registration Statement on Form SB-2, No.
333-34667).
*10.5 Amendment to Employment Agreement, dated as of
December 16, 1998, by and among, the Company and
Andre Szykier.
<PAGE>
Exhibit
Number Exhibits
------- --------
10.6 Employment Agreement, dated as of September 1,
1997, by and among, the Company and Robert A.
Thompson (Incorporated by reference to Exhibit 10.7
to the Registration Statement on Form SB-2, No.
333-34667).
10.7 Employment Agreement, dated as of October 14, 1997,
by and among, the Company and Alan W. Kaufman
(Incorporated by reference to Exhibit 10.9(a) to
the Registration Statement on Form SB-2, No.
333-34667).
*10.8 Amendment to Employment Agreement, dated as of
January 9, 1999, by and among, the Company and Alan
W. Kaufman.
**11.1 Computation of Net Loss Per Share.
*23 Consent of PricewaterhouseCoopers LLP
*27 Financial Data Schedule
- ---------------------------
* Previously filed with the initial filing of the Form 10-KSB for Fiscal
year ended December 31, 1998.
** Filed herewith.
(b) Reports on Form 8-K
None.
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to
Form 10-KSB report to be signed on its behalf by the undersigned, thereunto duly
authorized.
QUERYOBJECT SYSTEMS CORPORATION
Dated: May 7, 1999 By: /s/ Robert Thompson
-------------------------------------
Robert Thompson
President and Chief Executive Officer
<PAGE>
QUERYOBJECT SYSTEMS
CORPORATION CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Accountants...........................................F-2
Consolidated Balance Sheet as of December 31, 1998..........................F-3
Consolidated Statement of Operations for the years
ended December 31, 1998 and 1997.......................................F-4
Consolidated Statement of Changes in Stockholders' Equity
(Deficit) for the years ended
December 31, 1998 and 1997.............................................F-5
Consolidated Statement of Cash Flows for the years ended
December 31, 1998 and 1997.............................................F-6
Notes to the Consolidated Financial Statements..............................F-7
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
QueryObject Systems Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of Query Object Systems Corporation (the "Company") at
December 31, 1998, and the results of its operations and its cash flows for the
two years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered recurring losses
from operations, has deficiencies in working capital and stockholders' equity
and has incurred negative cash flows from operating activities that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
PricewaterhouseCoopers LLP
Melville, New York
March 19, 1999
F-2
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
December 31,
1998
------------
ASSETS
Current assets
Cash and cash equivalents $ 854,018
Accounts receivable, net of allowance for doubtful
accounts of $21,900 276,527
Prepaid expenses and other current assets 37,751
------------
TOTAL CURRENT ASSETS 1,168,296
Property and equipment, net 960,236
Deposits and other assets 146,031
------------
TOTAL ASSETS $ 2,274,563
------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 491,442
Accrued expenses 795,333
Capital lease obligations due within one year 175,809
Deferred revenue 84,791
Deferred rent 12,016
------------
TOTAL CURRENT LIABILITIES 1,559,391
Stockholder notes payable 300,000
Capital lease obligations 171,486
Deferred rent 257,812
------------
TOTAL LIABILITIES 2,288,689
------------
Stockholders' Deficit
Preferred stock, $.001 par value: 2,000,000 shares
authorized; 1,731,125 and 100,000
shares of Series A and B, respectively,
issued and outstanding 1,831
Common stock, $.001 par value: 30,000,000 shares
authorized; 5,122,985 shares issued and outstanding 5,123
Additional paid-in-capital 36,910,576
Accumulated deficit (35,412,456)
Stock subscriptions receivable (1,519,200)
------------
TOTAL STOCKHOLDERS' DEFICIT (14,126)
------------
Commitments and contingencies (Notes 2 and 13)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,274,563
------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
----------------------------
<S> <C> <C>
Revenues
Software licenses $ 517,350 $ 596,345
Services and maintenance 111,155 415,814
Other 300,000 --
------------ ------------
TOTAL REVENUES 928,505 1,012,159
Cost of revenues
Software licenses 5,668 74,605
Services and maintenance 88,756 131,190
------------ ------------
TOTAL COST OF REVENUES 94,424 205,795
------------ ------------
GROSS PROFIT 834,081 806,364
------------ ------------
Operating expenses
Sales and marketing 4,321,359 4,575,735
Research and development 2,305,678 2,523,127
General and administrative 1,500,506 1,914,252
------------ ------------
TOTAL OPERATING EXPENSES 8,127,543 9,013,114
------------ ------------
LOSS FROM OPERATIONS (7,293,462) (8,206,750)
Interest income 118,423 77,979
Interest expense (135,498) (805,761)
Other income, net 16,505 542
------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (7,294,032) (8,933,990)
Extraordinary loss from early extinguishment of debt -- (1,629,494)
------------ ------------
NET LOSS $ (7,294,032) $(10,563,484)
------------ ------------
CALCULATION OF NET LOSS AVAILABLE TO COMMON STOCKHOLDERS
Net loss (7,294,032) (10,563,484)
Effect of beneficial conversion feature of convertible preferred stock (2,251,438) --
------------ ------------
Net loss available to common stockholders $ (9,545,470) $(10,563,484)
Net loss per share before extraordinary item $ (1.86) $ (6.61)
Extraordinary item -- (1.21)
------------ ------------
Basic and diluted net loss per common share $ (1.86) $ (7.82)
Weighted average shares used in per share computation (Note 1) 5,120,205 1,351,074
------------ ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE SERIES B CONVERTIBLE SERIES C CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
---------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 32,582 $ 33 17,737 $ 18 230,498 $ 230
Issuance of common stock warrants in
connection with bridge financing
Accretion of excess of redemption value of
Series D preferred stock over fair value
at issuance date
Issuance of options on Series D
preferred stock
Conversion of preferred stock to
common stock upon initial public offering (32,582) (33) (17,737) (18) (230,498) (230)
Conversion of Series D preferred stock to
common stock upon initial public offering
Issuance of common stock upon initial public
offering, net of issuance cost of $2,530,426
Repurchase of common stock
Issuance of common stock options for
consulting services
Common stock options and warrants exercised
Net loss
----------- ------------ ---------- -------------- ------------ -----------
Balance at December 31, 1997 - - - - - -
Issuance of Series A & B preferred stock:
For cash and notes, net of issuance costs 1,721,125 1,721 100,000 100
In settlement of bridge notes payable 10,000 10
Beneficial conversion feature of convertible
Series A and B preferred stock
Issuance of common stock options for
consulting services
Receipt of receivable from stockholder
Common stock options exercised
Net loss
----------- ------------ ---------- -------------- ------------ -----------
Balance at December 31, 1998 1,731,125 $ 1,731 100,000 $ 100 - -
---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL STOCK STOCKHOLDERS'
------------------- PAID-IN ACCUMULATED SUBSCRIPTIONS EQUITY
SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE (DEFICIT)
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 863,590 $ 864 $ 4,035,258 $ (14,343,938) $ (12,300) $(10,319,835)
Issuance of common stock warrants in
connection with bridge financing 1,512,397 1,512,397
Accretion of excess of redemption value of
Series D preferred stock over fair value
at issuance date (917,571) (917,571)
Issuance of options on Series D
preferred stock 363,800 363,800
Conversion of preferred stock to
common stock upon initial public offering 331,523 331 (50) -
Conversion of Series D preferred stock to
common stock upon initial public offering 1,365,790 1,366 11,583,231 11,584,597
Issuance of common stock upon initial public
offering, net of issuance cost of $2,530,426 2,500,000 2,500 12,467,074 12,469,574
Repurchase of common stock (7,368) (7) (41,993) (42,000)
Issuance of common stock options for
consulting services 321,470 321,470
Common stock options and warrants exercised 57,070 57 101,526 101,583
Net loss (10,563,484) (10,563,484)
---------- --------- --------------- --------------- ------------ -------------
Balance at December 31, 1997 5,110,605 5,111 30,384,706 (25,866,986) (12,300) 4,510,531
Issuance of Series A & B preferred stock:
For cash and notes, net of issuance costs 4,096,777 (1,519,200) 2,579,398
In settlement of bridge notes payable 19,990 20,000
Beneficial conversion feature of convertible
Series A and B preferred stock 2,251,438 (2,251,438) -
Issuance of common stock options for
consulting services 145,792 145,792
Receipt of receivable from stockholder 12,300 12,300
Common stock options exercised 12,380 12 11,873 11,885
Net loss (7,294,032) (7,294,032)
---------- --------- --------------- --------------- ------------ -------------
Balance at December 31, 1998 5,122,985 $ 5,123 $ 36,910,576 $ (35,412,456) $(1,519,200) $ (14,126)
---------------------------------------------------------------------------------
</TABLE>
F-5
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOW
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
-----------------------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (7,294,032) $(10,563,484)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 420,820 373,434
Write off of leasehold improvements -- 5,825
Amortization of debt discount -- 318,705
Amortization of debt issuance costs -- 100,432
Extraordinary loss on extinguishment of debt -- 1,629,494
Options issued for consulting services 145,792 685,270
Changes in assets and liabilities
Accounts receivable, net 223,240 320,540
Prepaid expenses and other current assets 10,503 (17,735)
Deposits and other assets 4,243 (53,318)
Accounts payable and accrued expenses (355,338) (166,078)
Deferred rent 896 13,293
Deferred revenue 54,756 (102,264)
Customer advance (300,000) --
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (7,089,120) (7,455,886)
------------ ------------
Cash flows from investing activities
Acquisitions of property and equipment (132,795) (590,608)
Note receivable from stockholder (65,000) (42,000)
Purchase of restricted certificate of deposit (23,201) (37,785)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (220,996) (670,393)
------------ ------------
Cash flows from financing activities
Proceeds from issuance of Series A and B preferred stock, net 2,579,398 --
Proceeds from issuance of common stock, net 11,885 12,571,157
Proceeds from Notes and Bridge financings payable, net 490,000 5,313,766
Repayment of Notes and Bridge financings payable (170,000) (5,850,000)
Repayment of notes payable -- (25,000)
Proceeds from loan payable to stockholders (891,335) (120,000)
Proceeds from loan receivable from stockholder 12,300 --
Payments of capital lease obligations (235,706) (254,979)
Proceeds from sale-leaseback transaction 29,202 561,119
Release of restricted certificate of deposit 901,040 --
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,726,784 12,196,063
------------ ------------
Net (decrease) increase in cash and cash equivalents (4,583,332) 4,069,784
Cash and cash equivalents at beginning of year 5,437,350 1,367,566
------------ ------------
Cash and cash equivalents at end of year $ 854,018 $ 5,437,350
------------ ------------
</TABLE>
F-6
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
QueryObject Systems Corporation (formerly CrossZ Software) was
originally incorporated in California in February 1989. In May 1998,
and pursuant to a plan of corporate reorganization, the Company merged
with its wholly owned Delaware subsidiary. The Company develops,
markets and supports proprietary business intelligence software
solutions that enable business managers to make strategic decisions
based on their corporate data.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
QueryObject Systems Corporation and its wholly owned subsidiary. All
significant intercompany transactions have been eliminated in
consolidation.
BASIC AND DILUTED NET LOSS PER SHARE
The presentation of basic and diluted net loss per share has been
revised to give effect to the conversion of the Convertible Preferred
Stock from the date of conversion, which occurred simultaneous with the
closing of the Company's initial public offering on November 20, 1997.
Basic net loss per share is computed by dividing the net loss by the
sum of the weighted average number of shares of common stock
outstanding, including the number of common shares issued upon the
conversion of Convertible Preferred Stock, as of the date of
conversion.
Diluted earnings per share is based on the potential dilution that
would occur on exercise or conversion of securities into common stock.
At December 31, 1998 and 1997, outstanding options and warrants to
purchase 12,033,604 and 2,532,177 shares of common stock, respectively,
that could potentially dilute basic earnings per share in the future
were not included in the computation of diluted net loss per share
because to do so would have had an antidilutive effect for the periods
presented. The computation of diluted net loss per share for 1997
excludes the effect of shares issuable upon the conversion of the
Convertible Preferred Stock prior to the date of conversion since their
inclusion would have had an antidilutive effect. In addition, the
common shares issuable upon the conversion of the Series A and B
Convertible Preferred Stock issued in 1998 have been excluded from the
computation of diluted net loss per share due to the antidilutive
effect. As a result, the basic and diluted per share amounts are
identical for all periods presented.
The 1997 quarterly information previously reported has been revised on
the same basis described above. The following are the revised quarterly
basic and diluted net loss per common share and the weighted average
shares used in the basic and diluted net loss per share computation.
<TABLE>
<CAPTION>
Three Months Ended
March 31 June 30, September 30,
1997 1997 1997
<S> <C> <C> <C>
Weighted average shares used in basic and diluted
net loss per share computation, as revised 870,855 879,036 899,607
-------- ------- -------
Basic and diluted net loss per share, as revised $ 2.19 $ (1.82) $ (2.75)
-------- ------- -------
</TABLE>
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with the American
Institute of Certified Public Accountants ("AICPA") Statement of
Position 97-2 on Software Revenue Recognition. Revenue from product
licensing is generally recognized after execution of a licensing
agreement and shipment of the product, provided that no significant
vendor obligations remain and the resulting receivable is deemed
collectable by management. Service revenues consists of data analysis
using the Company's proprietary software performed for customers on a
project or contract basis and are recognized over the term of the
respective agreements. Maintenance revenues consist of ongoing support
and product updates and are recognized ratably over the term of the
contract, generally twelve months.
F-7
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are computed using the straight line
method over the estimated useful lives of the assets, generally three
to five years. Assets acquired under capital leases and leasehold
improvements are amortized using the straight-line method over the
shorter of the estimated useful lives of the assets or the terms of the
related leases.
SOFTWARE DEVELOPMENT COSTS
Statement of Financial Accounting Standards No. 86 "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed"
("SFAS 86") requires the capitalization of certain software development
costs once technological feasibility is established, which the Company
defines as the completion of a working model. To date, the period
between achieving technological feasibility and the general
availability of such software has been short and software development
costs qualifying for capitalization have been insignificant.
Accordingly, the Company has expensed all software development costs as
incurred.
ADVERTISING
Advertising costs are included in sales and marketing expenses and are
expensed as incurred. To date advertising costs have not been
significant.
INCOME TAXES
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). Income taxes are computed using the asset and liability
method. Under the asset and liability method specified by SFAS 109,
deferred income tax assets and liabilities are determined based on the
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the currently enacted tax rates and
laws.
USE OF ESTIMATES
These consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which require
management to make reasonable estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingencies at the date of the consolidated financial statements.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximates fair value due to
the relatively short term nature of these instruments.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
significant concentrations of credit risk consist principally of cash,
cash equivalents and accounts receivable. The Company places its cash
with high quality financial institutions. The Company performs ongoing
credit evaluations of its customers and generally requires no
collateral. The Company maintains reserves for potential credit losses
and historically such losses have not been significant.
ACCOUNTING FOR STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). SFAS 123 established a fair
value based method of accounting for stock-based compensation plans.
The
F-8
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
Company has chosen to adopt the disclosure requirements of SFAS 123,
and continue to record stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"). Under APB 25, the Company has not
recognized compensation expense with respect to such awards because the
exercise price of options granted to employees has approximated the
fair market value of the common stock at the respective grant dates.
2. LIQUIDITY AND BUSINESS RISKS
The Company has incurred operating losses since inception, has incurred
negative cash flows from operating activities, has negative working
capital and had an accumulated deficit of $35,412,456 and $25,866,986
as of December 31, 1998 and 1997, respectively. The Company has had a
limited operating history as a software product company and has not
made significant sales of its products, therefore, revenues are
difficult to predict. The Company anticipates that its cash and cash
equivalent balances at December 31, 1998 and anticipated cash flows
from existing financing arrangements (Note 7) will be insufficient to
satisfy its operating cash flow requirements in the foreseeable future.
Accordingly, the Company will seek to sell additional equity or
convertible debt securities, however, there can be no assurances that
the Company will be successful in raising additional funds. The sale of
additional equity or convertible debt securities will result in
additional dilution to the Company's stockholders.
3. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Year Ended
December 31,
1998 1997
----------------------
<S> <C> <C>
Interest paid during the period $ 154,065 $ 374,691
Schedule of non cash investing and financing activities:
Capital lease obligations entered into during the period 29,202 561,119
Series D Preferred Stock, issued for:
Dividends - 917,571
Series D Preferred options issued for consulting services - 321,470
Series A Preferred Stock, issued for:
Bridge Financing 20,000 -
Common stock warrants issued in connection with
Bridge Financing - 1,512,397
Common stock options issued for consulting services 145,792 363,800
Beneficial conversion feature of Series A and B
Convertible Preferred Stock 2,251,438 -
</TABLE>
F-9
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT INCLUDED THE FOLLOWING:
December 31,
1998
------------
Computer equipment and software $ 1,779,772
Furniture and fixtures 195,799
Office equipment 96,602
Leasehold improvements 22,348
---------------
2,094,521
Less: accumulated depreciation and amortization 1,134,285
---------------
$ 960,236
---------------
5. ACCRUED EXPENSES
ACCRUED EXPENSES INCLUDED IN THE FOLLOWING:
December 31,
1998
------------
Executive compensation $ 171,955
Compensation and related benefits 247,632
Consulting and professional fees 168,075
Interest 12,086
Commissions 9,250
Other 186,335
---------------
$ 795,333
---------------
6. BORROWING ARRANGEMENTS
LOAN PAYABLE TO STOCKHOLDER
In May 1992, the Company entered into a borrowing arrangement whereby a
stockholder agreed to advance the Company funds at an interest rate of
18% per annum. Such borrowings were collateralized by the Company's
accounts receivable. In May 1996, the Company was in default of certain
provisions of the agreement, at which time the stockholder and the
Company amended the agreement to reduce the interest rate to the
greater of prime plus 3% or 12% per annum and delay the time that the
stockholder could demand repayment until March 1998. The revised
agreement required the Company to set aside funds in a restricted
account to the extent that the outstanding borrowings exceeded 80% of
the Company's accounts receivable and to make monthly payments of
$10,000, plus interest, until March 1998. The Company paid the
obligation in full during 1998 with funds in the restricted account.
Interest expense related to this agreement was $64,067 and $114,634 for
1998 and 1997, respectively.
F-10
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
LOAN RECEIVABLE FROM STOCKHOLDER
In January 1998, the Company loaned $65,000 to an officer and director
of the Company. This promissory note has a term of 24 months and bears
interest at 8% per annum.
INTERIM FINANCING
In September and October 1998, the Company borrowed a total of $490,000
from stockholders of the Company in exchange for unsecured promissory
notes (the "Notes Payable"). The Notes Payable bear interest at 12% per
annum and are due at the earlier of March 2000 or the successful
consummation of the Series A and Series B Private Placement. Upon the
initial closing of the Series A Private Placement in October 1998,
$20,000 of such Notes were converted into Series A Units and $170,000
of such Notes were repaid through December 1998. The balance of
$300,000, outstanding at December 31, 1998, was repaid in full in
January 1999.
In May 1997, the Company received a $500,000 loan with interest at 10%
per annum, from existing stockholders. The loan was repaid out of the
proceeds of the Bridge Financing, as described below.
In June 1997, the Company received additional loans from two
stockholders each consisting of a $100,000 promissory note bearing
interest of 10% per annum through September 30, 1997 and 13% annually
thereafter and attached warrants to purchase up to 23,850 shares of
common stock at $8.56 per share. These notes were paid out of the
proceeds of the IPO.
In July 1997, the Company borrowed $250,000 which was repaid out of the
proceeds from the Bridge Financing.
BRIDGE FINANCING
On July 30, 1997, the Company completed a $4,300,000 Bridge Financing
(the "Bridge Financing"). The gross proceeds to the Company from such
financing were approximately $3,764,000, net of approximately $536,000
of issuance costs.
In connection with the Bridge Financing, the Company issued 43 units,
each consisting of a $100,000 promissory note (the "Bridge Note") and a
warrant (the "Bridge Warrant") allowing the holder to purchase up to
25,000 shares of the Company's common stock at a price of $8.56 per
share. The Bridge Warrants are exercisable on or after July 30, 1998
and expire on July 30, 2003. The Bridge Notes accrued interest at a
rate of 10% per annum from July 30, 1997 through September 30, 1997,
and at a rate of 13% per annum thereafter, and were paid out of the
proceeds of the IPO. As an incentive for early participation, the
Company issued to certain investors, warrants to purchase up to 6,309
shares of common stock at a price of $8.56, in addition to the Bridge
Warrants that were included in the bridge units. A portion of the gross
proceeds from the Bridge Financing was allocated to the Bridge Warrants
based on their estimated fair market value and resulted in $1,512,397
of original issue discount and a corresponding amount of additional
paid in capital.
In October 1997, the Company issued $600,000 of principal amount of
unsecured promissory notes to stockholders of the Company. The notes
bore interest at 15% per annum and were paid out of the proceeds of the
IPO.
On November 25, 1997, the Company repaid the holders of the Bridge
Notes, out of the proceeds of
F-11
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
the Company's IPO. Accordingly, the Company recorded an extraordinary
loss of $1,629,494 related to the early extinguishment of debt. The
extraordinary loss was comprised of $1,193,692 related to unamortized
deferred debt discount and $435,802 of unamortized deferred debt
issuance costs related to the Bridge Notes.
7. STOCKHOLDERS' EQUITY
COMMON STOCK
On November 20, 1997, the Company's IPO of 2,500,000 shares of its
common stock was declared effective, which resulted in net proceeds to
the Company of $12,469,574 before repayment of the Bridge Financing. As
of the closing date of the offering, all of the Company's Convertible
Preferred Stock and Mandatorily Redeemable Convertible Preferred Stock
outstanding was converted into 331,523 and 1,365,790 shares of common
stock, respectively.
At December 31, 1996, warrants to purchase 56,563 shares of common
stock were outstanding, with exercise prices ranging from $2.40 to
$22.00 per share, and were immediately exercisable. During 1997,
warrants to purchase a total of 30,000 shares were exercised, resulting
in net proceeds to the Company of $72,000. The remainder of the
warrants expired upon completion of the Company's IPO.
During December 1997, the Company granted an option to a member of its
Advisory Committee to purchase up to 200,000 shares of common stock.
The option had an initial exercise price of $6.00 per share and was
immediately exercisable. In conjunction with the stock option repricing
discussed in Note 8,the Board of Directors approved the repricing of
this option in November 1998 to $.94. The Company has recognized
consulting expense in its results of operations of $272,000 for the
year ended December 31, 1997 related to this option. No additional
consulting expense was recognized in 1998 based on the Company's common
stock.
During 1997, a member of the Board of Directors surrendered 7,386
shares of the Company's common stock as repayment of a note receivable
due to the Company in the amount of $42,000. Such shares were retired
in December 1997.
PREFERRED STOCK
In October and November 1998, the Company had the initial closing of
two private placements. The Series A Private Placement consisted of
1,750,000 Units (the "Series A Units") with a gross sales price of
$3,500,000. The Series B Private Placement consisted of 10 Units (the
"Series B Units") with a gross sales price of $1,000,000. Each Series A
Unit consisted of one share of Series A Convertible Preferred Stock and
a warrant to purchase 2.5 shares of Common Stock at a per share
exercise price equal to $.50. Each Series B Unit consisted of ten
thousand shares of Series B Convertible Preferred Stock and warrants to
purchase an aggregate of 125,000 shares of Common Stock at a per share
exercise price equal to $.50. The Series A Units were sold at a
purchase price of $2.00 per Unit and each Series A share is convertible
into four shares of Common Stock. The Series B Units were sold at a
purchase price of $100,000 per Unit and each Series B share is
convertible into twenty shares of Common Stock. The effective purchase
price, on a common stock equivalent basis was $.50 per common share,
which represented a discount from the fair market value of the
Company's common stock on the various dates of issuance. As of December
31, 1998, 1,731,125 and 100,000 shares of Series A and Series B,
respectively, were issued. All subscriptions receivable as of December
31, 1998 were received by the Company in January and February 1999.
F-12
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
In connection with the Series A and Series B Private Placements the
placement agent was granted an option to purchase additional Series A
and Series B Units equal to 10% of the Series A and Series B Units sold
and received a commission and non-accountable expense allowance equal
to 5.6% and 9.3%, respectively, of the gross proceeds received by the
Company.
The following is a description of the securities issued in the Series A
and Series B Private Placements:
STATED VALUE
Each share of Series A Preferred Stock has a stated value equal to
$2.00 and each share of Series B Preferred Stock has a stated value
equal to $10.00.
LIQUIDATION PREFERENCE
Upon a liquidation, merger or consolidation of the Company, where the
Company is not the surviving entity, the assets of the Company will be
available for distribution to the stockholders, after payment or
provision for liabilities of the Company, in the following order of
priority: (i) the holders of the Series A and Series B Preferred Stock
shall rank pari passu with respect to distributions, (ii) the holders
of the Series A and Series B Preferred Stock shall be entitled to
receive preference to any distribution to the holders of any Junior
Securities of the Company, an amount equal to the Series A and Series B
Stated Value , respectively, for each share of the Series A and Series
B Preferred Stock then outstanding and (iii) the remaining assets of
the Company available for distribution, if any, shall be distributed
pro rata to the holders of issued and outstanding shares of Common
Stock.
DIVIDENDS
The holders of the Series A and Series B Preferred Stock shall not be
entitled to receive any stated dividend payment.
CONVERSION
The holders of the Series A and Series B Preferred Stock have the
right, at the holder's option, to convert each share of Series A and
Series B Preferred Stock into four shares and twenty shares,
respectively, of Common Stock.
The Series A and Series B convertible Preferred Stock were issued with
a conversion ratio that represented a discount from the market value at
the time of issuance. Accordingly, the discount amount is considered
incremental yield (the "beneficial conversion feature"), to the
preferred stockholders and has been accounted for as an embedded
dividend to preferred stockholders. Based on the conversion terms of
the Series A and Series B convertible Preferred Stock, an embedded
dividend of $2,251,438 or $0.44 per share, was added to net loss in the
calculation of net loss per share in 1998.
VOTING
The holders of the Series A and Series B Preferred Stock are entitled
to vote on all matters submitted for a vote to the stockholders of the
Company. The holders of a share of Series A and Series B shares are
entitled to vote with holders of common stock, on an as-converted
basis.
WARRANTS
Each Series A and Series B Warrant entitles the registered holder to
purchase 2.5 shares of Common Stock, subject to adjustment to protect
against dilution, at a per share exercise price equal to $.50,
F-13
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
commencing on the date of the initial closing of the Series A and
Series B shares Private Placements, respectively, and ending on the
third anniversary of such closings. The Series A and Series B Warrants
may be called for redemption by the Company at a redemption price of
$.01 per warrant upon not less than 30 days prior written notice if the
closing price of the Common Stock shall have been at least $1.60 per
share on 20 trading days during any 30-consecutive day trading period
ending not more than three days prior to the date such notice is given.
8. EMPLOYEE STOCK OPTIONS
In 1991, the Board of Directors approved the 1991 Incentive Stock Plan
(the "Plan") which was subsequently amended and allows the Board to
grant either incentive or non-qualified stock options to the Company's
employees or consultants. The options generally expire five years from
the date of grant. Individuals owning more than 10% of the total
combined voting power of all classes of stock of the Company are not
eligible to participate in the Plan unless the option price is at least
110% of the fair market value of the common stock at the date of grant.
A summary of the activity under the stock option plan is as follows:
<TABLE>
<CAPTION>
OPTIONS EXERCISE
AVAILABLE FOR SHARES UNDER PRICE
GRANT OPTION PER SHARE
-------------------------------------------
<S> <C> <C> <C>
Options outstanding at January 1, 1997 136,694 151,800 $ .96
Additional shares authorized 1,512,500 -- --
Granted (791,999) 791,999 .96-6.00
Exercised -- (27,070) .96
Canceled 54,305 (54,305) .96-6.00
---------- --------- ---------
Options outstanding at December 31, 1997 911,500 862,424 .96-6.00
Additional shares authorized 3,856,000 --
Granted (3,836,113) 3,836,113 .94-6.00
Exercised -- (12,380) 0.96
Canceled 300,121 (300,121) .96-6.00
---------- --------- ---------
Options outstanding at December 31, 1998 1,231,508 4,386,036 $.94-6.00
---------- --------- ---------
Options exercisable at December 31, 1998 $447,073 $.94-6.00
---------- --------- ---------
</TABLE>
The Company granted 959,800 and 23,750 non-qualified stock options to
consultants and recognized consulting expense of $145,792 and $49,470
related to these options in 1998 and 1997 respectively.
The Company accounts for stock options granted to employees under APB
25 and has adopted SFAS 123 for disclosure purposes. Because options
granted to employees in 1998 and 1997 had exercise prices equal to or
greater than the fair market value of the underlying common stock at
the respective grant dates, as determined by the Company's management,
compensation expense has not been recognized in results of
F-14
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
operations. The pro forma impact of SFAS 123 on the Company's results
of operations related to options granted during 1998 and 1997 was
immaterial to the Company's actual results of operations.
In October 1997, the Company's Board of Directors and stockholders
authorized an increase in the number of shares reserved for issuance to
1,950,000 pursuant to the Plan. In November 1998, the Company's Board
of Directors approved an additional increase in the number of shares
reserved for issuance to 5,806,000. This increase is pending
stockholder approval. The Board of Directors also approved a repricing
of 1,168,186 options previously granted pursuant to the Plan to a per
share exercise price of $.94, the fair market value on the date of the
repricing. The repriced options, which had original exercise prices of
between $.96 and $6.00 per share, will have the same vesting terms as
the original option grants. All options issued during November 1998 and
thereafter will have a term of seven years from the date of grant.
Options issued to employees will vest over a three-year period and
options issued to non-employees will vest over two years.
9. MAJOR CUSTOMERS
Sales to major customers, as a percentage of revenues, are as follows:
Year Ended Year Ended
December 31, December 31,
1998 1997
------------ ------------
A 32% -
B 24% -
C 10% -
D 14% 65%
At December 31, 1998, customers C and D represented 33% and 40% of
total accounts receivable, respectively.
International sales for the year ended December 31, 1998 were $157,500,
or 17% of total revenues. International sales were not material during
1997.
10. EMPLOYEE BENEFITS PLANS
The Company has a 401(k) savings plan (the "Savings Plan") covering all
full-time employees and qualifying part time employees. As allowed
under Section 401(k) of the Internal Revenue Code, the Savings Plan
provides tax-deferred salary reductions for eligible employees.
Employees are eligible to participate after a ninety-day service
requirement. Participants may make voluntary contributions to the
Savings Plan up to 20% of their compensation, subject to annual limits.
The Savings Plan permits company contributions, however, none were made
during the years ended December 31, 1998 and 1997.
F-15
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
11. OBLIGATIONS UNDER CAPITAL AND OPERATING LEASES
The Company is obligated under capital leases for computers and office
equipment through the year 2001. All assets leased under these
agreements have been capitalized and the related obligations are
reflected in the accompanying consolidated financial statements based
upon the present value of future minimum lease payments. In addition,
the Company leases its office facilities and certain furniture and
equipment. These operating leases are noncancellable and expire on
various dates through 2004.
The future minimum lease payments under capital and operating leases at
December 31, 1998 and the present value of the net minimum lease
payments are as follows:
Operating Capital
Year Ending December 31, Leases Leases
--------------------------
1999 $ 461,563 $ 207,303
2000 355,191 170,842
2001 363,534 10,001
2002 389,905 --
2003 and thereafter 378,950 --
---------- ----------
Total minimum lease payments $1,949,143 388,146
---------- ----------
Less: amounts related to interest 40,851
----------
Present value of net minimum lease payments 347,295
Less: obligation due within one year 175,809
----------
Long-term obligation under capital leases $ 171,486
----------
During 1997 and 1998, the Company refinanced certain equipment
purchased during 1997 and 1996, under a sale/leaseback agreement. These
transactions were accounted for as financings, wherein the property
remained on the books and continues to be depreciated. Financing
obligations representing the proceeds were recorded and are reduced
based upon payments under the lease over a 42 month period.
In November 1996, the Company entered into a $500,000 equipment lease
line of credit. In December 1997, this agreement was amended to provide
the Company with an additional $250,000 line of credit under this
facility, with a three year repayment term. As of December 31, 1998
this line of credit had expired.
Rental expense under operating leases was $445,755 and $453,794 for the
years ended December 31, 1998 and 1997, respectively.
F-16
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
12. INCOME TAXES
The tax effect of temporary differences and carryforwards that give
rise to significant portions of the deferred tax assets and liabilities
at December 31, 1998 was:
1998
------------
Deferred rent $ 107,932
Accounts payable 196,577
Accrued expenses 318,133
Deferred revenues 33,916
Software cost expense 268,804
Net operating loss carryforward 11,862,015
Research and experimental credit carryforwards 207,515
Other payable 120,000
Other deferred tax assets 450,184
------------
Deferred tax assets 13,565,076
Depreciation (245,080)
Accounts receivable (110,611)
Prepaid expenses (15,100)
------------
Deferred tax liabilities (370,791)
Net deferred tax assets 13,194,285
Less: valuation allowance (13,194,285)
------------
Net deferred tax assets $ --
------------
The Company has recorded a full valuation allowance against its net
deferred tax assets since management believes that based upon the
available objective evidence it is more likely than not that these
assets will not be realized. The difference between the statutory
federal tax rate and the Company's effective tax rate is primarily due
to the valuation allowance.
As of December 31, 1998, the Company has net operating loss and
research and experimental tax credit carryforwards of approximately
$29,660,000 and $207,000, respectively, available to offset future
federal taxable income and tax. These carryforwards will expire at
various dates beginning in 2007 through 2018. Under Section 382 of the
Internal Revenue Code of 1986, as amended, utilization of prior net
operating losses ("NOLs") is limited after an ownership change, as
defined in such Section 382. As a result of previous transactions which
involved an ownership change as defined by Section 382, the Company
will be subject to limitation on the use of its NOLs. Accordingly,
there can be no assurance that a significant amount of the existing
NOLs will be available to the Company.
F-17
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
13. COMMITMENTS
EMPLOYMENT AGREEMENTS
The Company has entered into long-term employment agreements with
certain key members of management. The agreements provide each employee
with base annual compensation and incentive compensation payable upon
attaining certain corporate targets as determined by the Board of
Directors. The agreements provide that in the event of the termination,
other than for cause, the executives will be entitled to between six
and twelve months of severance. The aggregate annual commitments under
these employment agreements are $262,292 and $0 for 1999 and 2000,
respectively.
In March 1998, the former Chairman of the Board and officer of the
Company tendered his resignation effective May 26, 1998. In conjunction
with the resignation the Company agreed to provide twelve months
severance which will be paid over the period of one year.
QUERYOBJECT SYSTEMS CORPORATION EXHIBIT 11.1
COMPUTATION OF NET LOSS PER SHARE-REVISED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common Stock 5,110,605 01/01/98 12/31/98 364 5,110,605
Option Exercise 1,875 01/14/98 12/31/98 351 1,803
" 2,118 01/15/98 12/31/98 350 2,031
" 4,584 02/12/98 12/31/98 322 4,044
" 625 02/27/98 12/31/98 307 526
" 365 03/18/98 12/31/98 288 288
" 1,250 06/05/98 12/31/98 209 716
" 1,563 11/16/98 12/31/98 45 192
--------- ----------
At December 31, 1998 5,122,985 5,120,205
--------- ----------
Net loss before effect of beneficial conversion feature
of convertible preferred stock $(7,294,032)
Effect of beneficial conversion feature of convertible preferred stock (2,251,438)
------------
Net loss available to common stockholders $(9,545,470)
============
NET LOSS PER SHARE BEFORE EXTRAORDINARY ITEM $ (1.86)
EXTRAORDINARY ITEM -
------------
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (1.86)
============
</TABLE>
<TABLE>
YEAR ENDED DECEMBER 31, 1997
- ----------------------------
<S> <C> <C> <C> <C> <C>
Common Stock 863,589 01/01/97 12/31/97 364 863,589
Conversion of
A, B, C & D Preferred
Stock & Accreted Dividends 1,697,313 11/21/97 12/31/97 40 186,518
Option and Warrant Exercises 1,250 01/24/97 12/31/97 341 1,171
" 8,007 02/03/97 12/31/97 331 7,281
" 313 02/03/97 12/31/97 331 285
" 2,778 02/21/97 12/31/97 313 2,389
" 6,267 05/16/97 12/31/97 229 3,943
" 13,282 06/30/97 12/31/97 184 6,714
" 6,250 08/01/97 12/31/97 152 2,610
" 521 10/15/97 12/31/97 77 110
IPO & Warrant exercise 2,517,500 11/21/97 12/31/97 40 276,648
Option Exercise 903 12/15/97 12/31/97 16 40
Retirement (7,368) 12/20/97 12/31/97 11 (223)
--------- ---------
At December 31, 1997 5,110,605 1,351,074
--------- ---------
Net loss per share before extraordinary item $(8,933,990)
Extraordinary loss from early extinguishment of debt (1,629,494)
------------
Net loss available to common stockholders $(10,563,484)
=============
NET LOSS PER SHARE BEFORE EXTRAORDINARY ITEM $ (6.61)
EXTRAORDINARY ITEM (1.21)
--------------
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (7.82)
==============
</TABLE>
