<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
FORM 10-QSB
[X] Quarterly Report under Section 13 or 15d of the Securities Exchange Act
of 1934 for the quarterly period ended: September 30, 1999
[ ] Transition report pursuant to Section 13 or 15d of the Securities
Exchange Act of 1934 For the Transition period from __________________
to_______________________
Commission file number: 1-12966
INSCI Corp
(Exact name of registrant as specified in its charter)
Delaware 06-1302773
----------------------- ------------------------------------
(State of incorporation) (IRS employer identification number)
Two Westborough Business Park
Westborough, MA 01581
(Address of principal executive offices)
Issuer's telephone number, including area code: (508) 870-4000
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
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Title of Each Class Outstanding September 30, 1999
- ------------------- ------------------------------
Common stock, par value $.01 9,493,968
Transitional Small Business Disclosure Format (check one)
Yes No X
--- ---
<PAGE>
INSCI Corp
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of September 30, 1999 3
Statements of Operations for the Three Months and
Six Months Ended September 30, 1999 and 1998 4
Statements of Cash Flows for the Six Months
Ended September 30, 1999 and 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Change in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 14
<PAGE>
PART I FINANCIAL INFORMATION:
INSCI Corp
BALANCE SHEET
(in thousands)
(unaudited)
SEPTEMBER 30,
ASSETS 1999
Current assets:
Cash and cash equivalents $ 1,265
Accounts receivable, net 4,276
Inventory 29
Prepaid expenses and other 253
-------
Total current assets 5,823
Property & equipment, net 690
Capitalized software development costs,
net of accumulated amortization of $756 1,035
Purchased software, net of accumulated amortization of $1005 1,727
Other assets 825
-------
Total assets $10,100
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 761
Accrued expenses:
Compensation 433
Vacation 253
Commissions 268
Other 795
Deferred maintenance revenue 1,330
-------
Total current liabilities 3,840
-------
Stockholders' equity :
Common stock 96
Preferred stock 14
Additional paid-in capital 29,312
Accumulated deficit (23,162)
-------
Total stockholders' equity 6,260
-------
Total liabilities and stockholders' equity $10,100
=======
See accompanying notes
<PAGE>
INSCI Corp
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
---- ---- ---- ----
Revenue
Product $ 2,013 $ 755 $2,923 $ 2,520
Services 1,811 1,541 3,321 2,989
------- ------- ------ -------
Total revenue 3,824 2,296 6,244 5,509
------- ------- ------ -------
Cost of revenue
Product 637 314 990 668
Services 641 842 1,358 1,598
------- ------- ------ -------
Total cost of revenue 1,278 1,156 2,348 2,266
------- ------- ------ -------
Gross margin 2,546 1,140 3,896 3,243
------- ------- ------ -------
Expenses
Sales and marketing 1,091 950 1,941 2,003
Product development 580 618 1,213 1,089
General and administrative 650 475 1,297 860
------- ------- ------ -------
Total expenses 2,321 2,043 4,451 3,952
------- ------- ------ -------
Income (loss) from operations 225 (903) (555) (709)
------- ------- ------ -------
Other income (expense)
Interest income 10 20 21 45
Interest expense (2) (2)
Other -- 2
------- ------- ------ -------
Total other income (expense) 8 20 21 45
------- ------- ------ -------
Net income (loss) 233 (883) (534) (664)
======= ======= ====== =======
Preferred stock dividends (143) (135) (302) (298)
Net income (loss) applicable
to common shares $ 90 $(1,018) $ (836) $ (962)
======= ======= ====== =======
Basic earnings (loss) per
common share $ 0.01 $ (0.14) $(0.10) $ (0.14)
======= ======= ====== =======
Diluted earnings (loss) per
common share $ 0.01 $ (0.14) $(0.10) $ (0.14)
======= ======= ====== =======
Weighted average common
shares outstanding, basic 9,204 7,143 8,130 6,956
======= ======= ====== =======
Weighted average common shares
outstanding, fully diluted 12,813 7,143 8,130 6,956
======= ======= ====== =======
See accompanying notes
<PAGE>
INSCI Corp
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
SIX MONTHS ENDED
SEPTEMBER 30,
1999 1998
---- ----
Cash flows from operating activities:
Net income (loss) $ (534) $ (664)
Reconciliation of net income (loss) to net cash
used in operating activities:
Depreciation and amortization 239 199
Amortization of deferred software costs 597 445
Stock options granted for services 73 40
Changes in assets and liabilities:
Accounts receivable (1,288) 378
Prepaid expenses and other current assets (65) (30)
Accounts payable (385) (185)
Accrued and other liabilities 325 (542)
Deferred maintenance revenue 78 139
Other assets 69 (46)
------- -------
Net cash used in operating activities (891) (266)
------- -------
Cash flows from investing activities:
Additions to capitalized software
development costs (339) (234)
Additions to purchased software costs (428) (209)
Capital expenditures (251) (296)
------- -------
Net cash used in investing activities (1,018) (739)
------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,306 2
------- -------
Net cash provided by financing activities 1,306 2
------- -------
Net change in cash and cash equivalents (603) (1,003)
Cash and cash equivalents at beginning of period 1,867 2,596
------- -------
Cash and cash equivalents at end of period $ 1,264 $ 1,593
======= =======
SUPPLEMENTAL DISCLOSURE OF NON CASH FINANCING AND INVESTING ACTIVITIES:
During the first six months ended September 30, 1999, the Company
issued 125,000 shares of its Common Stock in exchange for software
program rights. These shares had a fair market value of $609,000.
SUPPLEMENTAL DISCLOSURE OF NON CASH FINANCING AND INVESTING ACTIVITIES
During the six months ended September 30, 1999, 125,000 shares of common stock
were issued in exchange for software program rights with a fair market value of
$609,000.
See accompanying notes
<PAGE>
INSCI Corp
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The financial statements included in this report have been prepared by
INSCI (the "Company" or "INSCI"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the "Commission").
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. However,
we believe that the disclosures contained herein are adequate to make the
information presented not misleading. The financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's annual report on Form 10-KSB, filed on June 28, 1999, for the fiscal
year ended March 31, 1999, and with the Company's amended definitive proxy
statement for its 1999 Annual Meeting of Stockholders filed with the Commission
on September 22, 1999.
In the opinion of the management of the Company, the accompanying
unaudited financial statements reflect all adjustments (of a normal and
recurring nature) which are necessary to present fairly the financial position
of the Company as of September 30, 1999 and the results of operations for the
three months and six months ended September 30, 1999 and September 30, 1998, and
cash flows for the six months ended September 30, 1999 and September 30, 1998.
The accompanying financial statements include the operations of the
Company and its wholly owned subsidiary; INSCI (UK) Limited, a product
development center located in the United Kingdom. During fiscal 1998, the
Company's Board of Directors approved the closing of the Company's Philippine
subsidiary. Neither subsidiary is financially significant to the consolidated
results of the Company. All intercompany transactions and balances have been
eliminated in the preparation of the financial statements.
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
EARNINGS (LOSS) PER SHARE
Basic net income (loss) per common share is computed by dividing net
income (loss) applicable to common shares by the weighted average number of
common shares outstanding during the period. For the three months ended
September 30, 1999 diluted net income per share includes stock options and
warrants. Convertible securities for this period are not included since their
impact would be antidilutive. For the six months ended September 30, 1999 and
1998 and the three months ended September 30, 1998, diluted net loss per share
is the same as basic net loss per share since the inclusion of stock options,
warrants and convertible securities would be antidilutive.
The following table sets forth the computation of basic and diluted earnings per
share (in thousands except per share data):
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
---- ---- ---- ----
Numerator used for both basic and
diluted earnings (loss)
per share $ 90 $(1,018) $ (836) $ (962)
------- ------- ------- ------
Denominator for basic earnings
per share:
Weighted average shares
outstanding 9,204 7,143 8,130 6,956
------- ------- ------- ------
Denominator for diluted earnings
per share:
Denominator for basic earnings
per share 9,204 7,143 8,130 6,956
Effective of dilutive securities:
Options 3,540 -- -- --
Warrants 69 -- -- --
------- ------- ------- ------
12,813 7,143 8,130 6,956
======= ======= ======= ======
Basic earnings (loss) per share $ 0.01 $ (0.14) $ (0.10) $(0.14)
======= ======= ======= ======
Diluted earnings (loss) per share $ 0.01 $ (0.14) $ (0.10) $(0.14)
------- ------- ------- ------
CONTINGENCIES
None
CREDIT FACILITY
On July 16, 1999, the Company executed an Agreement ("Agreement") with
Silicon Valley Bank ("SVB") to renew its bank line of credit. The terms of this
Agreement provide for a $1,500,000 working capital credit facility for a term of
one year. The terms further provide for working capital advances up to seventy
five percent of the Company's eligible domestic accounts receivable under ninety
days from invoice date. Collateral for the line, which is secured by a lien, is
comprised of all Company assets. The rate of interest to be paid to SVB is prime
plus one percent. In order to borrow against the line, the Company is required
to meet certain covenants which include minimum tangible net worth of $750,000
for the quarter ending September 30, 1999, $1,100,000 for the quarter ending
December 31, 1999 and $1,500,000 for the quarter ending March 31, 2000, and a
quick ratio, excluding deferred maintenance revenue, of 1:50 to 1. The Company,
at its option, may terminate the credit facility with SVB without penalty.
Subsequent to September 30, 1999 the Company has borrowed and outstanding
$1,000,000 against this credit facility.
SUBSEQUENT EVENT, BUSINESS ACQUISITION
On November 3, 1999, the Company announced that it had signed an
agreement to acquire privately-held Internet Broadcasting Company (IBC) of
Pompano Beach, Florida. Final closing is expected within 30 days pending IBC
shareholder approval and satisfactory completion of customary closing
requirements. This acquisition is related to the Company's recent announcement
that it will enter the market for statement portal services, a means by which
banks, savings and loans, and businesses of all types can outsource on a per
transaction basis the management and high volume delivery to customers of
statements, confirmations, invoices and other documents via the Internet, e-mail
and/or fax.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
COMPARISON OF RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentage relationship that certain items of the Company's results of
operations bear to total revenue:
SEGMENTS AS PERCENT OF TOTAL REVENUE
---------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1999 1998 1999 1998
---- ---- ---- ----
Revenue % % % %
---- ---- ---- ----
Product 53 33 47 46
Services 47 67 53 54
---- ---- ---- ----
Total revenue 100 100 100 100
Cost of revenue
Product 17 14 16 12
Services 17 37 22 29
---- ---- ---- ----
Total cost of revenue 34 51 38 41
---- ---- ---- ----
Gross margin 66 49 62 59
Expenses
Sales and marketing 29 41 31 36
Product development 15 27 19 20
General and administrative 17 21 21 16
---- ---- ---- ----
Total expenses 61 89 71 72
---- ---- ---- ----
Income (loss) from operations 5 (40) (9) (13)
Interest income, net 1 2 -- 1
---- ---- ---- ----
Net income (loss) 6 (38) (9) (12)
==== ==== ==== ====
THREE MONTHS ENDED SEPTEMBER 30, 1999 AS COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1998:
REVENUE
INSCI develops, sells, installs and supports electronic document
repository software with integrated internet, imaging, workflow,
print-on-demand, electronic distribution and archive (COLD) software for the
enterprise level (high volume production) market. INSCI's software products
enable customers to improve their services through electronic access to
documents (e.g. invoices, statements, reports, etc.); provide financial savings
through elimination of paper and microfiche; and provide the foundation for the
digital document "back office" for electronic commerce applications. Sales to
end users generally include software, systems integration and consulting
services, installation, and training. Post-installation maintenance and customer
support is available under the terms of a separate contract at an additional
charge. INSCI sells its products through a combination of a direct sales force
and indirectly through value added resellers ("VARs"), distributors and
strategic sales alliances with companies including Unisys Corporation, Xerox
Corporation and Moore Corporation. Revenue is net of discounts and allowances
given to third party VARs and distributors.
In September 1999, the Company announced that it will enter the rapidly
emerging market for statement portal services, a means by which banks, savings
and loans, and businesses of all types can outsource on a per transaction basis
the management and high volume delivery to customers of statements,
confirmations, invoices and other documents via the Internet, e-mail and/or fax.
The Company believes its new portal capabilities will further enhance the close
relationships it has developed with its strategic distribution partners, which
include Unisys, Xerox, First Data Investor Services and Moore North America.
The September 30, 1999 quarter (the "current quarter") represented the
highest quarterly revenue in the Company's history. Total revenue for the
quarter was $3,824,000 and increased by 67% compared to revenue of $2,296,000
for the quarter ended September 30, 1998. Sales increased through both the
Company's direct and indirect sales channels, which include such strategic
partners as Xerox, Unisys and Fuji Xerox. Revenues through indirect sales
channels more than tripled over last year, reflecting the Company's program to
secure a greater portion of its revenues through indirect channels.
Product revenue was $2,013,000 for the current quarter and increased by
167% compared to product revenue of $755,000 for the same quarter last year.
This increase was largely driven by increases in the Company's COINSERV(TM) for
Windows NT and Web-based products. Service revenues, which include systems
integration and customer support services, totaled $1,811,000 for the current
quarter, and increased by 18% compared to revenues of $1,541,000 for the same
period last year. This increase reflects a growing installed base of customers
that require integration and support services. To the degree that the Company's
revenues grow over the next several quarters, it is expected that product
revenues will grow at a faster rate than service revenues as the result of the
Company's new products.
For the quarter ended September 30, 1999, the Company received in
excess of ten percent of its total revenues from both Unisys Corporation and
Xerox Corporation, strategic sales partners of the Company. A decline in
revenues from these sales partners in future quarters could materially effect
the revenues and operating results of the Company.
GROSS MARGIN AND COST OF REVENUE
Gross margin for the quarter ended September 30, 1999 was $2,546,000
and increased 123% compared to gross margin of $1,140,000 for the same quarter
last year. Gross margin as a percent of revenues was 66% for the current quarter
compared to 49% for the same quarter last year. The increase in gross margin is
primarily the result of increased product revenue for the quarter.
Cost of product revenue as a percentage of product revenue was 32% in
the current quarter as compared to 42% for the same quarter last year. Cost of
services revenue was 35% in the current quarter as compared to 55% for the same
quarter last year. The decrease in cost of product revenue as a percent of
revenues in the current quarter reflects the relatively fixed nature of
amortization costs of capitalized software. To the degree that the Company's
product revenues grow in future periods, cost of revenue as a percent of revenue
is expected to decrease as increased revenues are available to absorb
amortization costs.
SALES AND MARKETING
Sales and marketing expenses for the quarter ended September 30, 1999
were $1,091,000 and increased by 15%, compared to expenses of $950,000 for the
quarter ended September 30, 1998. The expense increase primarily reflects
increases in commissions related to revenue increases for the current quarter.
PRODUCT DEVELOPMENT
The Company's product development program has been directed toward
creating a suite of complementary products to meet customer and marketplace
requirements for a more complete electronic document management solution. This
development program includes continued development of NT and Web based products
combined with enhancement of existing Unix based products. During fiscal 1999,
the Company released significant enhancements to its Windows NT suite of
products, which combine an electronic digital document repository with internet
access and integrated imaging and workflow. This software can archive and
retrieve high volumes of documents operating on the NT platform.
Gross product development expenditures for the quarter ended September
30, 1999 were $952,000 before capitalization of software expenses of $372,000,
for net product development expenses of $580,000. Gross development expenditures
for the quarter ended September 30, 1998 were $877,000, before capitalization of
software expenses of $259,000, for net product development expenses of $618,000.
The increase of gross expenditures for the current quarter reflects additional
funding of the Company's Web and NT based products to meet the strategic
direction of providing products to support the rapidly growing market for back
office e-commerce support for document archiving and internet delivery, on both
a packaged software and transaction basis. The Company plans to continue
development expenditures at current or moderately increased levels into the
foreseeable future in order to maintain its leadership position in the markets
that it serves.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $650,000 for the quarter ended
September 30, 1999 and increased by 37% compared to $475,000 for the same
quarter last year. This increase reflects expenses associated with additions to
the administrative staff, the addition of a formal management information
services department to support the Company's technological infrastructure and
the addition of an investor relations program.
OTHER INCOME
Other income for the quarter ended September 30, 1999 was $8,000
compared to $20,000 for the same quarter last year. The decrease reflects lower
cash balances in the current quarter with correspondingly lower interest income.
NET INCOME (LOSS)
Net income for the quarter ended September 30, 1999 was $233,000
compared to a net loss of $883,000 for the quarter ended September 30, 1998. The
increase in net income reflects revenue growth of 67% and gross margin growth of
123%, compared to expense growth of 14%.
SIX MONTHS ENDED SEPTEMBER 30, 1999 AS COMPARED TO THE SIX MONTHS ENDED
SEPTEMBER 30, 1998:
REVENUE
Total revenue for the six months ended September 30, 1999 (the "current
period") was $6,244,000 and increased by 13% compared to revenue of $5,509,000
for the six months ended September 30, 1998. Product revenue was $2,923,000 for
the current period and increased by 16% compared to product revenue of
$2,520,000 for the same period last year. The increase in product revenues
reflects the impact of the Company's Web and Windows NT based products in
conjunction with a 58% increase in revenues through indirect sales channels.
Revenues sold through indirect sales channels include Unisys, Xerox and several
other third party selling partners. The Company believes that it now has the
products and channels to support increased product revenue growth in future
periods. However, the long sales cycle associated with the Company's market
combined with large orders that will impact total quarterly revenues can result
in quarter-to-quarter revenue volatility.
Service revenues totaled $3,321,000 for the current period, and
increased by 11% compared to revenues of $2,989,000 for the same period last
year. Increased service revenues are linked to increases in product revenues and
the Company's installed base. In many cases customers require the Company's
systems integration and training support in order to efficiently implement the
Company's software products. The Company expects services revenues to grow in
relation to increases in product revenue growth in future quarters.
For the six months ended September 30, 1999, the Company received in
excess of ten percent of its total revenues from Unisys and Xerox Corporations.
A decline in revenues from these sales partners in future quarters could
materially effect the revenues and operating results of the Company.
GROSS MARGIN AND COST OF REVENUE
Gross margin for the six months ended September 30, 1999 was $3,896,000
and increased by 20% compared to gross margin of $3,243,000 for the same period
last year. Gross margin as a percent of revenues was 62% for the current period
compared to 59% for the same period last year. The increase in gross margin is
primarily the result of increased product revenue for the current period.
Cost of product revenue as a percentage of product revenue was 33% in
the current period as compared to 27% for the same period last year. The
increase in cost of product revenues as a percent of revenues reflects an
increase in capitalized software amortization combined with increased content of
third party software expenses related to higher revenues from Web based
products. Cost of services revenue was 41% in the current period as compared to
53% for the same period last year. The decrease in cost of services revenues as
a percent of services revenues reflects increased productivity of the services
organization. To the extent that the Company's revenues grow in future periods,
cost of revenue as a percent of revenue is expected to decrease as increased
revenues are available to absorb those costs that are relatively fixed in
nature.
SALES AND MARKETING
Sales and marketing expenses for the six months ended September 30,
1999 were $1,941,000 and decreased by 3%, compared to expenses of $2,003,000 for
the same period last year. Sales and marketing expenses as a percent of revenue
were 31% for the current period compared to 36% for the same period last year.
The decreases in sales and marketing expense for the current period, both in
absolute terms and as a percentage of revenue, reflects the cost efficiency
related to increased revenues through indirect channels. It is expected that
sales and marketing expense as a percent of revenue will decrease to the extent
that future revenues increase.
PRODUCT DEVELOPMENT
Gross product development expenses for the six months ended September
30, 1999 were $1,981,000, before capitalization of software expenses of
$768,000, for net product development expenses of $1,213,000. Gross product
development expenses for the six months ended September 30, 1998 were
$1,534,000, before capitalization of software expenses of $445,000, for net
product development expenses of $1,089,000. The increase of gross expenditures
reflects additional funding of the Company's Web and NT based products to
support the rapidly growing market for e-commerce document archiving and
internet delivery. The Company plans to continue development expenditures at
current or moderately increased levels into the foreseeable future in order to
maintain its leadership position in the markets that it serves.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $1,297,000 for the six months
ended September 30, 1999 and increased by 51% compared to $860,000 for the same
period last year. This increase reflects the addition of a formal management
information services department to support the Company's technological
infrastructure, additional compensation, and the addition of an investor
relations program.
OTHER INCOME
Other income for six months ended September 30, 1999 was $21,000
compared to $45,000 for the same quarter last year. The decrease reflects lower
cash balances in the current period with correspondingly lower interest income.
NET INCOME (LOSS)
Net loss for the six months ended September 30, 1999 was $534,000
compared to a net loss of $664,000 for the same period last year. The decrease
in net loss reflects revenue growth of 13% and gross margin growth of 20%,
compared to expense growth of 13%.
YEAR 2000 COMPUTER SOFTWARE CONVERSION
Many computer systems will experience problems handling dates beyond
the year 1999. Therefore, some computer hardware and software will need to be
modified prior to the year 2000 in order to remain functional. The Company has
assessed both internal readiness of its computer systems and the compliance of
its computer software sold to customers for its ability to process the year
2000. The Company believes that it is materially ready to process year 2000
requirements. The majority of the costs associated with implementing the
Company's year 2000 compliance program have already been recognized and have not
been material in terms of the Company's financial operating results. The Company
believes there is little risk associated with year 2000 issues relative to its
internal operations or computer software sold. There can be no assurance,
however, that there will not be a delay in, or increased costs associated with
the implementation of future changes, if required. The Company's inability to
implement such changes could have an adverse effect on future results of
operations.
FORWARD LOOKING COMMENTS
We believe that opportunities to increase future revenues are best
served by supporting sales growth through our strategic sales partner channels
due to the existing customer relationships that these partners have and the
relatively large number of sales personnel that they can direct to selling our
products, as compared to much lower sales coverage of our internal direct sales
force. We have also continued to increase our expenditures for product
development with the objective of continuing to provide leading products to the
markets that we serve. The increase in revenues for fiscal 2000 compared to
fiscal 1999 reflects the positive impact on revenues of the Company's new
products and increased revenues through indirect channels. We are not able to
predict, however, when and to what degree future revenue increases from our Web
and NT based products or increased use of sales channels may occur. In addition,
the long sales cycle associated with our products and market combined with the
large dollar value of many customer orders, which may or may not be received in
a given quarter, can result in quarter-to-quarter revenue volatility.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999 the Company had $1,265,000 of cash and working
capital of $1,983,000 in comparison to $1,593,000 of cash and working capital of
$1,353,000 as of September 30, 1998. Accounts receivable were $4,276,000 with
weighted days outstanding of 56 as of September 30, 1999 compared to receivables
of $2,526,000 with weighted days outstanding of 98, as of September 30, 1998.
The Company targets average collections at 45 days. Actual receivable days were
below this target due to the lack of any extended payment terms in the Company's
current mix of receivables. The present cash reserves of the Company are
believed to be sufficient to meet the foreseeable needs of the Company. The
Company has available a $1.5 million working capital bank line of which
$1,000,000 has been utilized subsequent to September 30, 1999. The Company
recently announced plans to enter the market for portal services. It is
anticipated that this plan will require additional working capital and the
Company is in the process of raising additional equity financing.
The Company's cash flows are summarized below for the periods
indicated: (in thousands)
SIX MONTHS ENDED SEPTEMBER 30,
1999 1998
---- ----
Cash provided by (used in)
Operating activities $ (890) $ (266)
Investing activities (1,018) (739)
Financing activities 1,306 2
------- -------
Increase(decrease) in cash and cash
equivalents $ (602) $(1,003)
------- -------
Cash and cash equivalents at end of period $ 1,265 $ 1,593
Cash use decreased by $401,000 for the six months ended September 30,
1999 compared to the same period last year, primarily as the result of proceeds
from the issuance of common stock. The Company used cash of $890,000 in
operating activities for the six months ended September 30, 1999. Net cash used
in investing activities was $1,018,000 for the current period, primarily from
additions to capitalized and purchased software. Cash provided by financing was
$1,306,000 and reflects proceeds from the exercise of Company stock options.
On July 16, 1999, the Company executed an Agreement ("Agreement") with
Silicon Valley Bank ("SVB") to renew its bank line of credit. The terms of this
Agreement provide for a $1,500,000 working capital credit facility for a term of
one year. The terms further provide for working capital advances up to seventy
five percent of the Company's eligible domestic accounts receivable under ninety
days from invoice date. Collateral for the line, which is secured by a lien, is
comprised of all Company assets. The rate of interest to be paid to SVB is prime
plus one percent. In order to borrow against the line, the Company is required
to meet certain covenants which include minimum tangible net worth of $750,000
for the quarter ending September 30, 1999, $1,100,000 for the quarter ending
December 31, 1999 and $1,500,000 for the quarter ending March 31, 2000, and a
quick ratio, excluding deferred maintenance revenue, of 1:50 to 1. The Company,
at its option, may terminate the credit facility with SVB without penalty.
Subsequent to September 30, 1999 the Company has borrowed and outstanding
$1,000,000 against this credit facility.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT:
With the exception of historical information, the matters discussed in
this report are "forward looking statements" as the term is defined in Section
21E of the Securities Exchange Act of 1934. While the Company believes that its
strategic plan is on target and the business outlook remains strong, several
important factors, many of which are beyond the control of the Company, have
been identified which could cause results to differ materially from historical,
planned, implied or predicted results of the Company. While the Company has
achieved an operating income in some past quarters, INSCI historically has been
unable to generate sales volumes necessary to achieve profitability on a
sustained basis. INSCI has experienced, and may in the future experience,
significant quarter to quarter fluctuations in revenues and the results of
operations. Such fluctuations may result in volatility in the market price of
the Company's Common Stock.
Quarterly revenues and results of operations may fluctuate as the
result of a variety of factors, including the lengthy sales cycle for the
Company's products, the proportion of revenues attributable to software license
fees versus services, the amount of revenue generated by alliances with other
companies selling INSCI's products, demand for the Company's products, the size
and timing of individual license transactions, the introduction of new products
and product enhancements by the Company or its competitors, changes in customer
budgets, competitive conditions in the industry and general economic conditions.
Additionally, the sale of the Company's products generally involves a
significant commitment of capital by its customers and may be delayed due to
time consuming authorization procedures within an organization. Other factors
affecting the Company's operating results include INSCI's ability to design and
introduce on a timely basis new products which compete effectively on the basis
of price and performance and which address customer requirements, product
obsolescence, technological changes, competition and competitive pressures on
price, the ability to hire and retain qualified personnel and general economic
conditions affecting the investment by potential customers in peripheral
computer devices. There is no assurance that the Company can maintain or
increase its sales volume going forward or that it will be able to achieve a
profit in the marketing of its products.
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
To the best of the Company's knowledge, there are no material legal
proceedings pending against the Company or any of its property, nor was any such
proceeding terminated during the quarter ended September 30, 1999.
ITEM 2. CHANGE IN SECURITIES
This item is not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
This item is not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders is scheduled for November
9, 1999 for the purposes of (1) electing six Directors to serve for the ensuing
year or until their successors are elected and have been qualified, (2)
approving an amendment to the Articles of Incorporation to change the name of
the Company to insci-statements.com,corp, (3) ratifying the appointment of
Pannell Kerr Forster PC as the independent public accountants for the Company's
fiscal year ended March 31, 1999, (4) ratifying and approving the Board of
Directors' resolution to increase the authorized number of stock options under
the Company's 1997 Equity Incentive Plan from 3,000,000 to 4,000,000 shares (5)
considering such other business as may be properly brought before the meeting.
Shareholders of record as of September 22, 1999 will be entitled to vote at the
Annual Meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS.
Exhibit 27, Financial Data Schedule
(B) REPORTS ON FORM 8-K.
A report of Form 8-K, dated July 27, 1999 was filed by the Company
on July 27, 1999 regarding filing with the Commission of Post
Effective Amendment No.1 to the Form S-1 Registration Statement,
registration number 333-22187.
A report of Form 8-K, dated September 24, 1999 was filed by the
Company on September 30, 1999 regarding extension of the expiration
date to December 30, 1999 for warrants on the Company's 8% Preferred
Stock .
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
INSCI
Date: November 5, 1999 By: /S/ ROGER C. KUHN
------------------------
Roger C. Kuhn
Vice President and Chief Financial
Officer
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