U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1998
Commission file number: 33-37751-D
SOFTLOCK.COM, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 84-1130229
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization )
399 Alexander Street Rochester, NY 14607
(Address of principal executive offices)
(716) 546-1970
(Issuer's telephone number)
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 ---
As of November 2, 1998, 7,895,579 shares of common stock, par value
$0.01 per share, were outstanding.
Transitional Small Business Disclosure Format (check one):
Yes --- No -X-
<PAGE>
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet, (Unaudited) September 30, 1998 2
Statements of Operations (Unaudited) for the
three and nine month periods ended
September 30, 1998 and 1997 and the period
from inception (May 11, 1992) to September 30, 1998 3
Statements of Cash Flows (Unaudited) for the nine
months ended September 30, 1998 and 1997 and for
the period from inception (May 11, 1992) to
September 30, 1998 4
Notes to financial statements 5
Item 2. Management's Discussion and Analysis of
Financial Position and Results of Operations 6-8
PART II. OTHER INFORMATION 9-10
Signatures 11
Item 1.
SoftLock.com, Inc.
(A Development Stage Company)
BALANCE SHEET
September 30, 1998
(unaudited)
ASSETS
CURRENT ASSETS:
Cash $319,228
Accounts Receivable and other 5,306
Other current assets 24,720
-------
Total current assets 349,254
PROPERTY AND EQUIPMENT:
Office furniture and equipment 35,941
Less- Accumulated depreciation 24,935
------
11,006
-------
$360,260
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $123,930
Accrued compensation and related liabilities 72,254
-------
Total current liabilities 196,184
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 25,000,000 shares
authorized, 7,895,579 shares issued and outstanding 78,956
Additional paid-in capital 2,116,339
Deficit accumulated during the development stage (1,762,339)
Less- Note receivable-exercise of options (268,880)
----------
164,076
---------
$360,260
=========
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
SoftLock.com, Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
For the Three and Nine Months ended September 30, 1998 and 1997, and for
the Period from Inception (May 11, 1992) through September 30, 1998
(unaudited)
Period
From
Inception
Three Months Ended Nine Months Ended Through
September 30, September 30, September 30,
1998 1997 1998 1997 1998
------ ------ ------- ------ --------
REVENUES $27,114 $76,797 $88,733 $96,476 $293,574
COST OF REVENUES: 6,431 3,622 18,481 16,250 131,323
------ ------ ------ ------ -------
Gross profit 20,683 73,175 70,252 80,226 162,251
OPERATING EXPENSES: 144,904 279,647 476,966 631,079 1,970,614
------- ------- ------- ------- ---------
Loss from operations (124,221) (206,472) (406,714) (550,853) (1,808,363)
OTHER INCOME: 7,980 4,824 27,505 15,170 48,394
------- ------- ------- ------- ---------
Loss before income
taxes (116,241) (201,648) (379,209) (535,683) (1,759,969)
INCOME TAX EXPENSE - - 513 793 2,370
------- ------- ------- ------- ---------
NET LOSS $(116,241) $(201,648) $(379,722) $(536,476) $(1,762,339)
======= ======= ======= ======= =========
NET LOSS PER SHARE:
Basic $(0.02) $(0.03) $(0.05) $(0.08) $(0.25)
==== ==== ==== ==== ====
Wtd. average shares
Outstanding 7,661,170 7,097,266 7,285,234 7,097,266 7,119,020
========= ========= ========= ========= =========
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
SoftLock.com, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Nine Months ended September 30, 1998 and 1997, and for the Period from
Inception (May 11, 1992) through September 30, 1998
(unaudited)
Period From
Inception
Through
September 30,
1998 1997 1998
CASH FLOWS FROM OPERATING
ACTIVITIES: $(297,304) $(351,032) $(1,571,246)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment - (8,570) (35,941)
------- ------- ----------
- (8,570) (35,941)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 499,999 196,199 1,750,815
Cash effect of Fieldcrest transaction (3,030) - (3,030)
Options issued in exchange for services - - 178,630
------- ------- ---------
496,969 196,199 1,926,415
------- ------- ---------
NET (DECREASE) INCREASE IN CASH 199,665 (163,403) 319,228
CASH, beginning of period 119,563 215,949 -
------- ------- --------
CASH, end of period $319,228 $52,546 $319,228
======= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year for-
Income taxes $513 $793 $2,370
==== ==== ======
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Note received for exercise of options $- $- $268,880
==== === ========
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
SoftLock.com, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
1. Management's Representation of Interim Financial Information
The accompanying financial statements have been prepared by SoftLock.com, Inc.
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted as allowed by such rules and
regulations, and management believes that the disclosures are adequate to make
the information presented not misleading. These financial statements include
all of the adjustments which, in the opinion of management, are necessary to a
fair presentation of financial position and results of operations. All such
adjustments are of a normal and recurring nature. These financial statements
should be read in conjunction with the audited financial statements at
December 31, 1997 filed as part of the Company's Form 8-K dated July 28, 1998.
2. Reverse Acquisition and Change in Fiscal Year
Effective August 10, 1998, the Company, as a result of the reverse acquisition
by SoftLock Services, Inc., changed its fiscal year from March 31 to December
31, the fiscal year end of the accounting acquirer. Reported results in this
and future filings with the Commission will be on the basis of a December 31
fiscal year end and include the reported operations of the accounting acquirer.
3. Loss Per Share
Loss per share has been calculated using the weighted average number of shares
outstanding during the period. Shares issued in the reverse acquisition noted
above have been treated as outstanding since inception (May 11, 1992).
4. Issuance of Stock for Debt
During the third quarter of 1998, a total of 9,733 shares of common stock were
issued upon conversion of debt totaling $7,300.
5
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF
OPERATIONS
Certain statements contained in this report, including statements concerning
the Company's future cash and financing requirements, and other statements
contained herein regarding matters that are not historical facts, are forward
looking statements. Forward looking statements involve known and unknown
risks and uncertainties, which may cause the actual results in future periods
to differ materially from what is anticipated.
Background
SoftLock.com, Inc. is a developer and marketer of software tools and password
vending services to allow for the secure distribution and sale of software or
content over digital media or networks, including the internet. Since the
formation of SoftLock Services, Inc. in May, 1992, the company has been in the
development stage, with its activities geared primarily toward product research
and development, raising capital, and marketing of its products.
Corporate Structure
The Company currently consists of SoftLock.com, Inc. and its wholly owned,
operating subsidiary, SoftLock Services, Inc. ("SSI") During the quarter, the
Company underwent a stock transfer and exchange of 7,097,266 shares of
restricted common stock for all of the issued and outstanding shares of SSI,
wherein the owners of SSI became the majority owners of the Company. Previous
to this transaction, the Company operated as a shell company organized to
locate and acquire an operating company. All operations presented herein are
those of the acquired, operating company. This transaction also resulted in a
change in reporting year from March 31 to December 31, the fiscal year end of
SSI.
Results of Operations
Total revenues for the nine month period ending September 30, 1998 were
$88,733, an 8% decrease compared to $96,476 earned during the same period in
1997. The overall decline can be attributed primarily to the decrease in
license and custom software design fees, which totaled $68,600 in 1997 vs.
$35,600 in 1998. Revenue from SoftLock's primary product, the sale of
passwords, increased from $23,600 in 1997 to $43,800 in 1998, reflecting an
increase in both the number and value of passwords sold.
Gross profit was $70,252, or 79% of revenue in 1998, as compared with
$80,226, or 83% of revenue in 1997. The decline is due to a decrease from
1997 to 1998 in licensing and custom software design fees as a percentage
of sales, offset in part by an increased gross profit contribution from
password sales.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF
OPERATIONS (continued)
Selling, general and administrative expenses totaled $476,966 for the first
nine months of 1998 as compared with $631,079 for the same period of the
preceding year, a decrease of 24%. Included in the additional expenses for
1997 are costs of outside consultants engaged by the company to advise on
corporate structuring and financial strategies. These costs include a 1997
non-cash compensation charge of approximately $114,000. Savings from the
reduction in the use of these outside consultants are partially offset by the
cost of regulatory compliance as a result of the Company becoming an SEC
reporting company in July of 1998.
Other income increased from $15,170 in 1997 to $27,505 in 1998. This increase
relates to increased interest income during the period on notes owed to the
Company.
Liquidity and Capital Resources
The Company's primary source of liquidity has been proceeds from the sale of
securities in private placements, from which $500,000 was raised during the
first 9 months of 1998 and $660,000 during the year 1997. Cash used in
operations totaled $297,000 for the nine months ended September 30, 1998 as
compared with $351,000 for the comparable period of 1997. At September 30,
1998, working capital (current assets minus current liabilities) totaled
$153,000.
The Company's future operating results will depend to a considerable extent
on its ability to rapidly and continuously develop, introduce, and deliver
existing and planned service products. From inception to September 30, 1998,
the Company has incurred cumulative net losses of approximately $1.8 million
and expects to continue incurring net losses through 1999 as it continues to
develop products and expand its marketing strategy. The Company intends to
raise additional funds through the sale of restricted stock to accredited
investors in the fourth quarter of 1998 and the first quarter of 1999. These
funds will be used to finance continued operations, product development and
marketing. Management believes that this additional financing will provide
sufficient resources to implement its business plan, and ultimately, to
achieve profitability. Without additional financing in the fourth quarter of
1998, the Company projects that it will be necessary to substantially reduce
or eliminate current and planned software development programs and other
operating expenses.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF
OPERATIONS (continued)
Year 2000 Impact
Many installed computer systems and software products are coded to accept only
two digit entries in the date code field. As the year 2000 approaches, these
code fields will need to accept four digit entries to distinguish years
beginning with "19" from those beginning with "20" dates. As a result, in
less than two years, computer systems and/or software products used by many
companies may need to be upgraded to comply with such year 2000 requirements.
The Company is currently expending resources to review its products and
services, as well as its internal management information systems in order to
identify and modify those products, services and systems that are not year
2000 compliant. The Company expects such modifications will be made on a
timely basis and does not believe that the cost of such modifications will
have a material effect on the Company's operating results. In addition, the
Company faces risks to the extent that suppliers of products, services and
systems purchased by the Company and others with whom the Company transacts
business on a worldwide basis do not have business systems or products that
comply with the year 2000 requirements. In the event any such third parties
cannot timely provide the Company with products, services or systems that
meet the year 2000 requirements, the Company's operating results could be
materially adversely affected.
8
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities.
(c) On July 28, 1998, SoftLock.com, Inc. ("the Company") and SoftLock
Services, Inc. ("SSI"), a Delaware corporation, consummated an Agreement
and Plan of Reorganization (the "Agreement') whereby the Company acquired
all of the issued and outstanding shares of common stock of SSI in
exchange for 7,097,266 shares of the Company's "restricted" Common Stock.
The Company claims the exemption provided by Section 4(2) of the
Securities Act of 1933, as amended (the "Act"), and Rule 506 adopted
thereunder, from the registration provisions of the Act. All of the
certificates evidencing the shares of the Company's Common Stock received
as a result of the Agreement were impressed with the form of restrictive
legend utilized by the Company, and stop transfer instructions have been
noted against the transfer of such certificates.
No underwriters or brokers were involved in the Agreement.
Further information concerning the Agreement and SSI, including SSI's
financial statements, may be found in the Company's Current Report on
Form 8-K, dated July 28, 1998, and filed with the Commission on August
12, 1998.
Item 3. Defaults upon Senior Securities
None
9
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders of the Company was held by consent, in lieu
of a meeting, in accordance with Section 228 of the Delaware Corporation Law
which permits actions to be taken by the consent of a majority of outstanding
common shares of the company without calling a meeting of all of the Company's
shareholders. A total of 4,327,922 shares of common stock, which is 54.88% of
the shares outstanding on July 28, 1998, were represented by signatures on the
Consent.
In this Joint Consent of the Directors and Stockholders of the Company, a new
certificate of incorporation was approved. This new certificate of
incorporation (i) changed the Company's name from Fieldcrest Corp. to
SoftLock.com, Inc.; (ii) effected a 1:50 reverse split of the Company's
outstanding common stock and warrants; (iii) changed the number of
authorized shares of preferred stock from 20,000,000 at a par value of
$0.00001 to 2,000,000 with a par value of $0.01; and (iv) changed the number
of authorized shares of common stock from 500,000,000 with a par value of
$0.0001 to 25,000,000 with a par value of $0.01.
In the Joint Consent, the Stock Option Plan of 1998 was adopted.
Item 5. Other Information
On October 2, 1998, Martin Presberg resigned as a Director of the Corporation.
Mr. Presberg continues to serve as Secretary and Vice President of Operations.
Keith Loris, CEO, was elected to fill the vacancy and was also elected as
Chairman of the Board.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule, filed herewith electronically
Exhibit 99 - Financial Statements of Businesses to be Acquired and
Proforma financial information - incorporated by reference
to the Current Report on Form 8-K dated July 28, 1998.
(b) Reports on Form 8-K:
A Current Report on Form 8-K was filed on August 12, 1998, to report the
consummation of the July 28, 1998, Agreement and Plan of Reorganization
between the Registrant and Softlock Services, Inc. under Items 1 and 2 of
the Report.
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: November 5, 1998 SoftLock.com, Inc.
BY: /S/ Martin Presberg
Martin Presberg
Secretary, Principal Financial
Officer
11
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