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: March 31, 1999
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 )
5 Clock Tower Place Suite 440 Maynard, MA 01754
(Address of principal executive offices)
(978) 461-5944
(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 Company 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 April 30, 1999, 10,607,541 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) March 31, 1999 2
Statements of Operations (Unaudited) for the
three months ended March 31, 1999 and 1998 3
Statements of Cash Flows (Unaudited) for the
three months ended March 31, 1999 and 1998 4
Notes to financial statements 5
Item 2. Management's Discussion and Analysis of
Financial Position and Results of Operations 6-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
<PAGE>
Item 1.
SoftLock.com, Inc.
BALANCE SHEET
March 31, 1999
(unaudited)
ASSETS
CURRENT ASSETS:
Cash $1,677,627
Accounts receivable and other 7,750
Other current assets 4,732
---------
Total current assets 1,690,109
PROPERTY AND EQUIPMENT, NET 20,603
OTHER ASSETS 1,058
---------
TOTAL ASSETS $1,711,770
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $80,672
Accrued compensation and related liabilities 74,463
---------
Total current liabilities 155,135
OTHER LIABILITIES 1,586
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 25,000,000 shares
authorized, 10,607,541 shares issued and
outstanding 106,075
Additional paid-in capital 4,045,192
Retained earnings deficit (2,327,338)
Less- Note receivable-exercise of options (268,880)
---------
Total stockholders' equity 1,555,049
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,711,770
=========
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
SoftLock.com, Inc.
STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 1999 and 1998
(unaudited)
1999 1998
REVENUES $48,097 $12,009
COST OF REVENUES: 6,537 4,475
------- -------
Gross profit 41,560 7,534
OPERATING EXPENSES: 390,585 130,486
------- -------
Loss from operations (349,025) (122,952)
OTHER INCOME: 13,535 4,659
------- -------
Loss before income taxes (335,490) (118,293)
INCOME TAX EXPENSE - -
------- -------
NET LOSS $(335,490) $(118,293)
======= =======
NET LOSS PER SHARE:
Basic $(0.04) $(0.02)
======= =======
Wtd. average shares outstanding 9,004,760 6,455,168
========= =========
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
SoftLock.com, Inc.
STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1999 and 1998
(unaudited)
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES: $(354,791) $(76,817)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (7,294) -
------- -------
(7,294) -
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,882,210 -
Payments on capital leases (3,339) (712)
--------- -------
1,878,871 (712)
--------- -------
NET (DECREASE) INCREASE IN CASH 1,516,786 (77,529)
CASH, beginning of period 160,841 119,563
--------- -------
CASH, end of period $1,677,627 $42,034
========= =======
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year for-
Interest $92 $91
Income taxes $- $-
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Capital lease $- $4,735
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
SoftLock.com, Inc.
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
(Unaudited)
1. Management's Representation of Interim Financial Information
The accompanying financial statements have been prepared by SoftLock.com,
Inc. (the "Company") 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.
The accompanying consolidated financial statements as of March 31, 1999
reflect the financial condition of the Company and its wholly owned
operating subsidiary, SoftLock Services, Inc.
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, 1998 filed as part of the Company's
Annual Report on Form 10-KSB.
The Company has reviewed the status of its legal contingencies and believes
that there are no material changes from that disclosed in Form 10-KSB for the
year ended December 31, 1998. The results for the three month period ended
March 31, 1999 are not necessarily indicative of the results for the entire
year 1999.
2. Private Placement of Equity Securities
In January and February 1999, the Company issued a total of 1,540,000 shares
of common stock for net cash proceeds of $1,882,210 in a private placement of
its common stock under Section 4(2) of the Securities Act of 1933, as amended
(the "Act") and Regulation D promulgated thereunder.
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's patented system (US #5,509,070) for information commerce
allows commercial web sites to sell their electronic information simply and
securely. Publishers of digital products, including research reports,
newsletters, electronic books and software, use the Company's software to
"SoftLock-enable" their products. These products may then be freely
distributed on the Internet. SoftLock-enabled content can be instantly
purchased and re-distributed, but not pirated.
When a prospective end-user receives a SoftLock-enabled product, the prospect
can view a portion of the final product (i.e. "demo" the product). The
prospect can then instantly purchase access to the complete product via the
World Wide Web. The end-user then has permanent access to the product for the
user's own use. The end-user is also encouraged to copy the product and
redistribute it to friends or colleagues because SoftLock-enabled products
automatically return to "demo" mode and invite another purchase when copied
from one context to another.
Corporate Structure
Prior to July, 1998, the Company was a public shell company organized to
locate and acquire an operating company. In July, 1998, pursuant to a Plan
and Agreement of Reorganization, the Company exchanged 7,097,266 shares of
its restricted common stock for all of the issued and outstanding shares of
SoftLock Services, Inc. ("SSI"), and the owners of SSI became the majority
owners of the Company. The Company's only asset consists of shares of
capital stock of SSI, its wholly owned, operating subsidiary. All operations
presented herein are the consolidated operations of the Company and SSI,
including results of operations for the comparative, pre-acquisition quarter
ended March 31, 1998.
Results of Operations
Total revenues for the three month period ending March 31, 1999 were $48,097,
a 300% increase as compared with $12,009 earned during the same period in 1998.
Password sales contributed $7,700 to the total increase, with the remainder
attributable to revenues from licensing, custom tools, and consulting fees.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF
OPERATIONS (continued)
Cost of sales increased to $6,537 in 1999 from $4,475 in 1998, primarily as
a result of the increased number of passwords sold. Gross profit was $41,560,
or 86% of revenue in 1999, as compared with $7,534 (62% of revenue) in 1998,
due to higher recognized margins on non-password related revenues.
Selling, general and administrative expenses totaled $390,585 for the March
1999 quarter, versus $130,486 for the first quarter of 1998, an increase of
$260,099. The increase relates to additional costs in 1999, primarily
salaries ($107,000), fees to outside consultants ($127,000), and
miscellaneous administrative costs. Management anticipates that the trend
toward increased quarterly operating expenses will continue as additional
personnel are recruited.
Other income increased to $13,535 in 1999 from $4,659 in 1998. The change
relates to investment earnings on the Company's cash reserves, which
increased as a result of the Company's $2,000,000 private placement completed
in the first quarter.
Liquidity and Capital Resources
The following is a summary of the Company's first quarter cash flows:
1999 1998
Operations $ (354,791) $ (76,817)
Investing (7,294) -
Financing 1,878,871 (712)
The Company's primary source of liquidity continues to be proceeds from the
sale of securities in private placements, from which $1,882,210, after
commissions and expenses of the offering, was raised in the first quarter of
1999 through the issuance of 1,540,000 common shares. These funds will be
used to finance continued operations, product development and marketing.
Cash used in operations totaled $355,000 for the first quarter of 1999 as
compared with $77,000 for the first quarter of 1998. The increase in cash
used relates to the net loss sustained during the quarter, plus working
capital changes. At March 31, 1999, working capital (current assets minus
current liabilities) totaled $1,535,000.
On April 30, 1999, the Company entered into a Master Agreement of Terms and
Conditions for Lease with TLP Leasing Programs, Inc. (the "Master Agreement").
The Master Agreement provides the Company with a source of financing with
which to obtain certain equipment.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF
OPERATIONS (continued)
Year 2000 Readiness Disclosure
Based on the Company's assessment to date, the Company believes that the
versions of its software products and services due to be released in the
third quarter of 1999 will be "Year 2000 compliant" that is, they will be
capable of adequately distinguishing twenty-first century dates from
twentieth century dates. Although the Company's products have undergone, or
will undergo, the Company's normal quality testing procedures, there can,
however, be no assurance that the Company's products will contain all
necessary date code changes. Furthermore, use of the Company's products in
connection with other products which are not Year 2000 compliant, including
non-compliant hardware and software may result in the inaccurate exchange of
dates and result in performance problems or system failure. Any failure of
the Company's products to perform, including system malfunctions associated
with the onset of year 2000, could result in claims against the Company.
However, success of the Company's Year 2000 compliance efforts may depend on
the success of its customers in dealing with the Year 2000 issue.
Although the Company has not been a party to any litigation or arbitration
proceeding to date that involves Year 2000 compliance issues with its
products or services, there can be no assurance that the Company will not
in the future be required to defend its products or services in such
proceedings, or to negotiate resolutions of claims based on Year 2000
issues. The costs of defending and resolving Year 2000-related disputes,
regardless of the merits of such disputes, and any liability of the Company
for Year 2000-related damages, including consequential damages, could have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Company's business depends on numerous systems that could potentially be
impacted by Year 2000 related problems. Those systems include, among others:
hardware and software systems used by the Company to deliver products and
services to its customers (including software supplied by third parties);
communications networks such as the world wide web upon which the Company
depends to generate product orders; the internal systems of the Company's
customers and suppliers; software products sold to customers; the hardware
and software systems used internally by the Company in the management of its
business; and non-information technology systems and services used by the
Company in the management of its business, such as power, telephone systems
and building systems.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF
OPERATIONS (continued)
The Company is currently in the process of evaluating its information
technology infrastructure in order to identify and modify any products,
services or systems that are not Year 2000 compliant. Based on its initial
analysis of the systems potentially impacted by conducting business in the
twenty-first century, the Company is applying a phased approach to making
such systems, and accordingly, the Company's operations, ready for the year
2000. Beyond awareness of the issues and scope of systems involved, the
phases of activities in process include: an assessment of specific underlying
computer systems, programs and hardware; renovation or replacement of Year
2000 non-compliant technology; validation and testing of critical systems
certified by third-party suppliers to be Year 2000 compliant; and
implementation of Year 2000 compliant systems. The table below describes
the status and timing of such phased activities.
IMPACTED SYSTEMS STATUS TARGETED COMPLETION
Software products
delivered to customers Design and implementation Third Quarter 1999
Hardware and software Testing and remediation Third Quarter 1999
systems used to deliver
products and services
Communication networks Assessment in process Fourth Quarter 1999
used to carry products
and provide services
Hardware and software Completed
systems used to manage
the Company's business
Non-information technology Systems upgraded or Fourth Quarter 1999
systems and services replaced, as appropriate,
testing and implementation
In the event that any of the Company's significant suppliers or customers
does not successfully and timely achieve Year 2000 compliance, the Company's
business or operations could be adversely affected. This could result in
system failures or generation of erroneous information and could cause
significant disruption to business activities. The Company is reviewing
what further actions are required to make all software systems used
internally Year 2000 compliant as well as actions needed to mitigate
vulnerability to problems with suppliers and other third parties' systems.
Such actions include a review of vendor contracts and formal communication
with suppliers to request certification that products are Year 2000 compliant.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF
OPERATIONS (continued)
COSTS TO ADDRESS YEAR 2000 ISSUES
The total incremental cost of these Year 2000 compliance activities on system
design and implementation that is in process for other reasons has not been,
and is not anticipated to be, material to the Company's business, results of
operations and financial condition. These costs and the timing in which the
Company plans to complete its Year 2000 modification and testing processes
are based on management's estimates. However, there can be no assurance that
the Company will timely identify and remedy all significant Year 2000
problems, that remediation efforts will not involve significant time and
expense, or that such problems will not have a material adverse effect on
the Company's business, results of operations and financial condition.
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Other than as set forth below, the Company is not a party to any legal
proceedings which management believes to be material, and there are no
such proceedings which are known to be contemplated for which the Company
anticipates a material risk of loss.
SoftLock Services, Inc. ("SSI") is one of approximately 18 defendants named
in an action in the United States District Court for the Southern District
of New York entitled E-Data Corp. v. CompuServe Inc. et al, filed August 23,
1995 and dismissed by a final judgment entered March 12, 1999 in favor of
SSI and the other defendants.
The action alleged infringement of the so-called Freeny patent, U.S. Patent
No. 4,528,643. The plaintiff sought judgment declaring the validity of its
patent and further declaring that each of the defendants had infringed the
plaintiff's patent; enjoining further infringement; and seeking treble
damages plus attorneys fees, costs and disbursements. SSI answered the
plaintiff's complaint and counterclaimed for a declaratory judgment that
the plaintiff's patent is invalid, unenforceable and is not infringed by
SSI.
On May 13, 1998, Judge Barbara S. Jones signed a 44-page Opinion & Order in
the action. The Opinion and Order provides the Court's determination of the
claim scope under Markham v. Westview Instruments, Inc. On March 12, 1999,
the Court entered a Stipulated Order and Judgment that, based on the
interpretation of the claims of the Freeny patent as determined by the
Court, SSI has not in the past infringed, nor is it now infringing, any
claim of the Freeny patent because no method, system, or apparatus of SSI
includes any of five specific limitations set forth in the Court's May 13,
1998 Order. Judgment has been entered in the Company's favor and the
patent owner's claims have been dismissed on the merits.
The patent owner has filed a Notice of Appeal to the Court of Appeals for
the Federal Circuit. The outcome of an appeal cannot be predicted with
certainty, and if there were a remand to the District Court the results of
the remand could not presently be predicted with certainty. It is expected,
however, that the defendants will vigorously oppose the appeal. The terms
of the stipulated order and judgment are such that the patent owner appellant
would have to prevail on several distinct issues on appeal to disturb the
judgment in favor of the defendants including SSI.
11
<PAGE>
Item 2. Changes in Securities.
Beginning in November, 1998, the Company commenced a private placement
offering of up to 1,600,000 shares of its common stock at an offering price
of $1.25 per share, pursuant to Section 4(2) of the Act and Regulation D
promulgated under the Act. From January 4, 1999 to February 22, 1999,
the Company sold 1,540,000 shares of its common stock resulting in net
proceeds of $1,882,210.
The Company offered the shares on a "best efforts" basis through officers
and directors of the Company and through selected members of the National
Association of Securities Dealers, Inc. ("NASD"). A total of $40,520 in
commissions were paid to NASD members in connection with the offering.
The shares were principally offered for sale to accredited investors,
pursuant to the exemptions from registration contained in Sections 4(2)
and 4(6) of the Act and Regulation D promulgated under 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.
In addition to the issuance of common stock described above, during
the quarter ended March 31, 1999, the Company issued a total of
1,111,962 shares of its common stock pursuant to exemptions from
registration. These shares were issued in transactions exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933,
as amended.
On March 15, 1999, 192,629 shares were issued to Fletcher Spaght, Inc.
pursuant to an option previously issued for services rendered. The total
amount paid on exercise of the option was $15,000.
On March 30, 1999, 919,333 shares were issued to Maurice LaFlamme pursuant
to an option purchased by Mr. LaFlamme in 1996. The total amount paid on
exercise of the option was 91,974 shares of common stock withheld from the
exercise and valued at $183,000.
12
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
Exhibit (3)(i) Articles of Incorporation - filed as
Exhibit 3.1 to the annual report filed on Form 10-KSB, filed with
the SEC on March 29, 1999, and incorporated herein by reference.
Exhibit (3)(ii) By-Laws - filed as Exhibit 3.3 to the
annual report filed on Form 10-KSB filed with the SEC on March 29,
1999 and incorporated herein by reference.
Exhibit (4) Instruments defining the rights of shareholders -
Subscription Agreement between the Company and certain investors pursuant
to a Private Placement Memorandum dated November 20, 1998.
Exhibit (27) - Financial Data Schedule, filed herewith electronically
(b) Reports on Form 8-K:
None
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Company caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: May 3, 1999 SoftLock.com, Inc.
BY: /s/ Martin Presberg
Martin Presberg
Principal Financial Officer
and Duly Authorized Officer
14
<PAGE>
EXHIBIT 4 - INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
EXHIBIT A
SOFTLOCK.COM, INC.
SUBSCRIPTION AGREEMENT
Name of Subscriber: ____________________________
THE SECURITIES OF SOFTLOCK.COM, INC. BEING SOLD PURSUANT TO THIS MEMORANDUM
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE "BLUE SKY" OR SECURITIES LAWS. THE SHARES CANNOT BE SOLD,
TRANSFERRED, ASSIGNED, OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH
APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
To be fully completed by Subscriber
SoftLock.com, Inc., a Delaware corporation ("the Company"), is conducting a
private offering on a "best efforts" basis, of up to 1,600,000 shares of
Common Stock (the "Shares") pursuant to exemptions from registration under
Sections 4(2) and 4(6) of the Securities Act of 1933, as amended (the "1933
Act"), and Rule 506 of Regulation D adopted thereunder, as described in this
Agreement and the Company's Confidential Offering Memorandum dated November
20, 1998, attached hereto (the "Memorandum").
If and when accepted by the Company, this Subscription Agreement, when
executed below, shall constitute a contract to purchase Shares in the amount
set forth on the signature page of this Agreement.
Each part of this Subscription Agreement must be completed by the Investor
and by his or her execution below, the Investor acknowledges that he or she
understands that the Company is relying upon the accuracy and completeness
hereof in complying with its obligations under applicable securities laws.
One of the purposes of this Subscription Agreement is to assure the Company
that each prospective Investor is an Accredited Investor as that term is
defined in Rule 501 of Regulation D.
PLEASE READ AND COMPLETE EACH RESPONSE:
1. I have received and read the Memorandum and the Exhibits thereto, and
am familiar with the terms and provisions thereof. I acknowledge that I have
not relied upon any information which is not set forth in the Memorandum or
any document included as an Exhibit thereto or provided to me by the Company
in response to a request for such documents. Other than the Memorandum and
Exhibits thereto, I have relied upon the following documents requested
<PAGE>
from the Company and provided to me for purposes of making my decision to
invest in the Shares:
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________.
_________
(Initial)
2. I have such knowledge and experience in business and financial matters
that I am capable of evaluating the Company and the proposed activities
thereof, and the risks and merits of this prospective investment.
_________
(Initial)
3. (a) My net worth, either individually or jointly with my spouse, is:
(Please initial the appropriate box below)
Below $50,000 _____
$50,000 to $75,000 _____
$75,000 to $149,999 _____
$150,000 to $224,999 _____
$225,000 to $499,999 _____
$500,000 to $999,999 _____
$1,000,000 or more _____
(b) During each of the last 2 years, I have had and reasonably expect in
the current year to have, an income in excess of $200,000 (not including
any income attributable to my spouse).
_____YES _____ NO
(i) During 1996, I had annual gross income of:
(Please initial the appropriate box below)
Below $50,000 _____
$50,000 to $99,999 _____
$100,000 to $200,000 _____
$200,000 or more _____
-2-
<PAGE>
(ii) During 1997, I had annual gross income of:
(Please initial the appropriate box below)
Below $50,000 _____
$50,000 to $99,999 _____
$100,000 to $200,000 _____
$200,000 or more _____
(iii) During 1998, I expect to have annual gross income of:
(Please initial the appropriate box below)
Below $50,000 _____
$50,000 to $99,999 _____
$100,000 to $200,000 _____
$200,000 or more _____
(c) During each of the last 2 years, my spouse and I together have had and
reasonably expect in the current year to have, annual gross income in excess
of $300,000.
_____YES _____ NO
(i) During 1996, we had annual gross income of:
(Please initial the appropriate box below)
Below $50,000 _____
$50,000 to $149,999 _____
$150,000 to $299,999 _____
$300,000 or more _____
(ii) During 1997, we had annual gross income of:
(Please initial the appropriate box below)
Below $50,000 _____
$50,000 to $149,999 _____
$150,000 to $299,999 _____
$300,000 or more _____
(iii) During 1998, we expect to have annual gross income of:
(Please initial the appropriate box below)
Below $50,000 _____
$50,000 to $149,999 _____
$150,000 to $299,999 _____
$300,000 or more _____
-3-
<PAGE>
4. I have a pre-existing personal or business relationship with the
Company or one or more of the Officers, Directors, or controlling persons
of the Company, and as a result of such relationship, I am capable of
protecting my own interests in connection with my proposed investment.
_____YES _____ NO
If yes, please explain this relationship.
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
4. I have previously been advised that I would have an opportunity to
review all the pertinent facts concerning the Company and to obtain any
additional information which I might request, to the extent possessed or
obtainable without unreasonable effort and expense, in order to verify the
accuracy of information contained in the Memorandum.
_________
(Initial)
6. (a) I would like the Company to contact me in person or by telephone
before accepting my subscription so that I may further avail myself of the
opportunity for additional information and the opportunity to ask additional
questions of the Company (If "Yes", the Company will contact you).
_____YES _____ NO
(b) If "Yes", please attach your written statement hereto setting further
the general nature of the information desired and then state Business Phone
No. (____) _________, and Residence Phone No. (____) __________, where the
Company can contact you immediately.
7. I understand that the Shares have not been registered under the
Securities Act of 1933, as amended (the "Act"), in reliance upon the
exemptions from the registration requirements under the Act pursuant to
Sections 4(2) and 4(6) of the Act, and Rule 506 of Regulation D adopted
thereunder, and that the Shares have not been registered under any blue
sky or state securities laws; and, therefore, that I must bear the economic
risk of the investment for an indefinite period
-4-
<PAGE>
of time since the Shares cannot be sold, transferred or assigned to any
person or entity without compliance with the provisions of the Act and
applicable state blue sky or securities laws.
_________
(Initial)
8. I have adequate means of providing for my current needs and personal
contingencies and have no need for liquidity in this investment in order
to meet such needs.
_________
(Initial)
9. I represent that:
(Initialing below (h) of this Section is an acknowledgment of all
representations contained in this Section (9).)
(a) I understand that the Shares being purchased hereunder have not been
registered under the Act or any state securities laws.
(b) I understand that I cannot sell or otherwise transfer the Shares
being purchased hereunder unless they are registered under the Act and
applicable state securities laws, or exemptions from such registration
are available at the time of the sale.
(c) I understand that I must bear the economic risk of the investment
in the Shares for an indefinite period of time because, as described in
Paragraph 9(a) above, the Shares have not been registered under the Act
or any state securities laws.
(d) I understand that the Company has a limited operating history and
that an investment in the Shares is speculative in nature and involves a
substantial degree of risk. I understand that I may lose my entire
investment.
(e) I will not sell the Shares being purchased hereunder without
registration under the Act and applicable state securities laws or unless
an exemption from such registration requirements is available. I
understand that the burden will be upon me to prove the availability of
such an exemption.
(f) I understand that the Company will restrict the transfer of the
Shares in accordance with the foregoing representations.
(g) I agree that all certificates representing the Shares of the
Company will contain or be endorsed with the following (or a
substantially equivalent) legends:
-5-
<PAGE>
The securities represented by this Certificate have not been
registered under the Securities Act of 1933 (the "Act") and are
"restricted securities" as that term is defined in Rule 144 under
the Act. The securities may not be offered for sale, sold or
otherwise transferred except pursuant to an effective registration
statement under the Act or pursuant to an exemption from registration
under the Act, the availability of which is to be established to the
satisfaction of the Company.
(h) I understand that there is presently only a limited public market for
the shares of Common Stock, and there is no assurance that such public
market for the shares will continue.
_________
(Initial)
10. I represent that I am the sole party in interest as to my subscription
and am acquiring the Shares solely for investment for my own account and have
no present agreement, understanding, arrangement, or intent to subdivide,
sell, assign, transfer or otherwise dispose of all or any part of my Shares
to any other person.
_________
(Initial)
11. I represent that I have not distributed the Memorandum (or any
other documents provided to me by the Company) to anyone other than my
personal advisors (e.g., investment advisors, attorney and/or accountant),
and that I have not allowed any other person to review the Memorandum.
_________
(Initial)
12. If an individual, I am over 21 years of age and I am a resident of
the United States.
_________
(Initial)
13. If the prospective investor is a partnership, joint venture,
corporation, trust, or other entity not a natural person, I represent
and warrant that such entity was not formed for purposes of investing in
the Shares.
_________
(Initial)
-6-
<PAGE>
14. I am not affiliated with an NASD member broker/dealer firm as an
employee, partner or shareholder or as a relative or member of the same
household of any employee, partner or shareholder of an NASD member
broker/dealer firm, except as described below:
I am not affiliated with an NASD member. _________ (Initial)
or
I have the following affiliations to NASD member(s):
(describe, including name and address of firm, individual members and
nature of affiliation(s)):
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
15. I recognize that the sale of the Shares to me will be based upon
my representations and warranties set forth hereinabove and the statements
made by me herein and I hereby agree to indemnify the Company and each of
its Officers, Directors, controlling persons, attorneys and agents, and to
hold each of them harmless from and against any and all loss, damage,
liability or expense, including costs and reasonable attorney's fees, to
which they may be put or which they may incur by reason of, or in connection
with, any misrepresentation made by me in this Subscription Agreement, any
breach by me of my warranties and/or failure by me to fulfill any of my
covenants or agreements set forth herein or arising out of the sale or
distribution of any Shares by me in violation of the Act, or any other
applicable securities or "blue sky" laws.
_________
(Initial)
IN WITNESS WHEREOF, subject to acceptance by the Company, the undersigned has
completed this Subscription Agreement to evidence his or her subscription to
Shares of SoftLock.com, Inc. as offered by the Confidential Offering
Memorandum dated November ___, 1998, as of this ____ day of ______________,
199__.
Amount of Commitment
(Minimum Purchase: 20,000 Shares ($25,000))
$
for Shares
-7-
<PAGE>
Checks should be made payable to SoftLock.com, Inc.
__________________________________
Name (Please Print)
__________________________________
(Signature)
Residence Address: Telephone Numbers:
(include Zip Code) (include Area Codes)
___________________________ Business: (___) ______________
___________________________ Residence: (___) _____________
Mailing Address: S.S. Number: ________________
(if different)
____________________________ Date of Birth: _______________
____________________________
Citizenship: _______________
ACCEPTED FOR __________ Shares
this ____ day of _____________,199_.
SOFTLOCK.COM, INC.
By__________________________
Keith Loris
Chief Executive Officer
-9-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements included in SoftLock.com, Inc.'s form 10QSB for the quarter
ended March 31, 1999, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1677627
<SECURITIES> 0
<RECEIVABLES> 7750
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1690109
<PP&E> 20603
<DEPRECIATION> 0
<TOTAL-ASSETS> 1711770
<CURRENT-LIABILITIES> 155135
<BONDS> 0
0
0
<COMMON> 106075
<OTHER-SE> 1448974
<TOTAL-LIABILITY-AND-EQUITY> 1711770
<SALES> 48097
<TOTAL-REVENUES> 48097
<CGS> 6537
<TOTAL-COSTS> 390585
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (335490)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (335490)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
