<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: December 31, 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-STATEMENTS.COM, 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 December 31, 1999
- ------------------- -----------------------------
Common stock, par value $.01 11,744,128
Transitional Small Business Disclosure Format (check one)
Yes No X
--- ---
<PAGE>
INSCI-STATEMENTS.COM, CORP.
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of December 31, 1999 3
Statements of Operations for the Three Months and
Nine Months Ended December 31, 1999 and 1998 4
Statements of Cash Flows for the Nine Months
Ended December 31, 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 5. Other Information
Item 6. Exhibits and Reports on Form 8-K 15
Signature 15
<PAGE>
PART I FINANCIAL INFORMATION:
INSCI-STATEMENTS.COM, CORP.
BALANCE SHEET
(in thousands)
(unaudited)
December 31,
ASSETS 1999
------------
Current assets:
Cash and cash equivalents $ 2,136
Accounts receivable, net 4,024
Inventory 11
Prepaid expenses and other 105
--------
Total current assets 6,276
Property & equipment, net 715
Capitalized software development costs,
net of accumulated amortization of $879 1,112
Purchased software, net of accumulated amortization of $1276 1,645
Other assets 782
--------
Total assets $ 10,530
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes Payable 78
Accounts payable 908
Accrued expenses:
Compensation 558
Vacation 262
Commissions 159
Other 583
Deferred maintenance revenue 1,297
--------
Total current liabilities 3,845
--------
Stockholders' equity :
Common stock 118
Preferred stock 12
Additional paid-in capital 34,273
Accumulated deficit (27,718)
--------
Total stockholders' equity 6,685
========
Total liabilities and stockholders' equity $ 10,530
========
See accompanying notes
<PAGE>
INSCI-STATEMENTS.COM, CORP
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
------- ------- ------- -------
Revenue
Product $ 1,371 $ 2,065 $ 4,294 $ 4,585
Services 1,745 1,825 5,147 4,823
------- ------- ------- -------
Total revenue 3,116 3,890 9,441 9,408
------- ------- ------- -------
Cost of revenue
Product 582 315 1,586 983
Services 663 797 2,007 2,395
------- ------- ------- -------
Total cost of revenue 1,245 1,112 3,593 3,378
------- ------- ------- -------
Gross margin 1,871 2,778 5,848 6,030
------- ------- ------- -------
Expenses
Sales and marketing 990 1,142 2,964 3,152
Product development 651 712 2,034 2,520
General and administrative 1,150 741 2,786 1,924
------- ------- ------- -------
Total expenses 2,791 2,595 7,784 7,596
------- ------- ------- -------
Income (loss) from operations (920) 183 (1,936) (1,566)
------- ------- ------- -------
Other income (expense)
Interest income (expense) (15) 1 (65) 37
Other (1) 2 (1) (19)
Acquisition costs (664) (664) -
------- ------- ------- -------
Total other income (expense) (680) 3 (730) 18
------- ------- ------- -------
Net income (loss) (1,600) 186 (2,666) (1,548)
======= ======= ======= =======
Preferred stock dividends (125) (189) (428) (487)
Net income (loss) applicable
to common shares $(1,725) $ (3) $ (3,094) $(2,035)
======= ======= ======= =======
Basic earnings (loss) per common
share $ (0.16) $ - $ (0.32) $ (0.25)
======= ======= ======= =======
Diluted earnings (loss) per share $ (0.16) $ - $ (0.32) $ (0.25)
======= ======= ======= =======
Weighted average common
shares outstanding 10,847 8,370 9,661 8,095
======= ======= ======= =======
Weighted average common
shares outstanding, fully
diluted 10,847 8,370 9,661 8,095
======= ======= ======= =======
See accompanying notes
<PAGE>
INSCI-STATEMENTS.COM, CORP
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
NINE MONTHS ENDED
DECEMBER 31,
1999 1998
--------- ---------
Cash flows from operating activities:
Net income (loss) $ (2,666) $ (1,548)
Reconciliation of net income (loss) to net cash
used in operating activities:
Depreciation and amortization 400 347
Amortization of deferred software costs 1,077 647
Stock options granted for services 201 50
Changes in assets and liabilities:
Accounts receivable (986) (496)
Prepaid expenses and other current assets 118 30
Accounts payable (623) 87
Accrued and other liabilities (53) (248)
Deferred maintenance revenue (45) 145
Other assets 40 (112)
-------- --------
Net cash used in operating activities (2,537) (1,098)
-------- --------
Cash flows from investing activities:
Additions to capitalized software development costs (539) (355)
Additions to purchased software costs (613) (441)
Capital expenditures (339) (474)
-------- --------
Net cash used in investing activities (1,491) (1,270)
-------- --------
Cash flows from financing activities:
Increase in Note Payable 50 61
Proceeds from issuance of common stock 2,802 --
Proceeds from exercise of options of common stock 1,427 868
-------- --------
Net cash provided by financing activities 4,279 929
-------- --------
Net change in cash and cash equivalents 251 (1,439)
Cash and cash equivalents at beginning of period 1,885 2,831
-------- --------
Cash and cash equivalents at end of period $ 2,136 $ 1,392
======== ========
SUPPLEMENTAL DISCLOSURE OF NON CASH FINANCING AND INVESTING ACTIVITIES:
During the first nine months ended December 31, 1999, the Company issued 125,000
shares of its Common Stock in exchange for software source code rights. These
shares had a fair market value of $609,000. The Company also issued 25,000
shares of its Common Stock as a commission for the IBC acquisition. These shares
had a fair market value of $94,000.
See accompanying notes
<PAGE>
INSCI-STATEMENTS.COM, CORP.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The financial statements included in this report have been prepared by
insci-statements.com, corp., formally INSCI Corp. (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:
1. Supplemental financial statements and notes there to for the fiscal year
ended March 31, 1999 included in the Company's 8-KA filing on January 12,
2000.
2. 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
3. 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 December 31, 1999 and the results of operations for the
three months and nine months ended December 31, 1999 and December 31, 1998, and
cash flows for the nine months ended December 31, 1999 and December 31, 1998.
The accompanying consolidated financial statements give retroactive effect
to the acquisition of insci-statements.com, corp. and The Internet Broadcasting
Company, Inc. ("IBC") on December 10, 1999, which has been accounted for as a
pooling-of-interests. Accordingly, operating results for the three and nine
months ended December 31, 1999 and December 31, 1998 and the Statements of Cash
Flows for the nine months ended December 31, 1999 and December 31, 1998 include
the combined actual historical results of IBC and insci. IBC is a development
stage company and has incurred losses prior to its acquisition by insci. These
losses are included in the Consolidated Statements of Operations.
The accompanying financial statements also include the operations of the
Company and its wholly owned subsidiary; INSCI (UK) Limited, a product
development center located in the United Kingdom. The INSCI (UK) limited
subsidiary is not 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.
ACQUISITION
On December 10, 1999, the Company completed the acquisition of The
Internet Broadcasting Company, Inc. ("IBC") in a stock for stock exchange. The
Company issued 1,000,000 shares of its common stock in exchange for all
outstanding common stock of IBC. Additionally, all vested and unvested IBC stock
options were exchanged for similar insci stock options. IBC, a privately held
company located in Pompano Beach, Florida, is a developer and provider of
proprietary technology for the secure delivery of financial documents. The
acquisition was accounted for as a pooling-of-interests, and, accordingly, the
financial statements for periods prior to the combination have been restated to
include the accounts and results of operation of IBC.
The financial position and results of operations previously reported by insci
and IBC and the combined amounts presented in the accompanying supplemental
financial statements are summarized as follows (in thousands):
Three months ended Nine months ended
December 31, December 31,
1999 1998 1999 1998
Revenue
insci 3,105 3,724 9,349 9,233
IBC 11 166 92 175
----- ----- ----- -----
Combined 3,116 3,890 9,441 9,408
----- ----- ----- -----
Net income (loss)
insci (946) 385 (1,479) (278)
IBC (654) (199) (1,187) (1,270)
----- ----- ----- -----
Combined (1,600) 186 (2,666) (1,548)
----- ----- ----- -----
Total Assets
insci -- -- 10,368 --
IBC -- -- 162 --
------
Combined -- -- 10,530 --
------
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 December
31, 1999 and December 31, 1998 and the nine months ended December 31, 1999 and
December 31, 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.
Earnings (loss) per share for insci without giving effect to the IBC
acquisition for the three months ended December 31, 1999 and 1998 were (.05) and
.05 respectively. Per share amounts for the nine months ended December 31, 1999
and 1998 were (.12) and (.04) respectively.
ISSUANCE OF COMMON STOCK
During December 1999, 803,000 shares of common stock were issued to an
investor for $2,193,000. Shares of common stock were also issued in exchange for
a software source code license agreement in the amount of $609,000. See
supplemental disclosure of non-cash financing and investing activities.
In addition, during the nine months ended December 31, 1999 options were
exercised to purchase 942,000 shares of common stock for $1,427,000.
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 $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. As of December 31, 1999 the Company had no borrowings
outstanding against this credit facility.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
SUMMARY OF RECENT EVENTS
On December 10, 1999, the Company acquired privately-held Internet
Broadcasting Company, (IBC) of Pompano Beach, Florida. The Company acquired all
of the stock of IBC in exchange for 1,000,000 shares of insci Common Stock. The
acquisition has been accounted for as a pooling-of-interests. This acquisition
is related to the Company's 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.
On February 2, 2000 the Company announced that it had separated its two
principal businesses, both operationally and financially, to establish its
business-to-business, electronic statements presentment Internet portal as a
separate wholly-owned subsidiary named InfiniteSpace.com, Corp.
InfiniteSpace.com will initially focus on providing electronic statement/bill
presentment services to the financial services industry, a sector where insci
currently does approximately 60 percent of its business. InfiniteSpace.com will
also introduce a range of new portal-based products for the electronic
statement/bill presentment market to service the business-to-business needs of
other industries. insci currently exploring various ways of enhancing the value
of InfiniteSpace.com. It is examining a number of financing and strategic
alternatives and is close to finalizing an agreement with a leading investment
bank. To date, InfiniteSpace.com is still in a development stage and expects to
produce revenue later in the year.
The creation of the InfiniteSpace.com subsidiary is the next step in a
series of strategic initiatives insci is making to become an application service
provider in the market for high-end, Internet-based electronic statement
presentment services. 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. InfiniteSpace.com is also currently discussing its
services with a number of other companies who could be possible distribution
partners going forward.
On December 17, 1999, the Company entered into an equity transaction with
The Tail Wind Fund, Ltd. ("Tail Wind"), wherein the Company received the sum of
$2,193,000, as a result of the sale of 802,676 shares of Common Stock at $2.99
per share. Additionally, the Company issued 280,936 Warrants to purchases
280,936 shares of Common Stock at $4.30 per share. The Warrants are exercisable
for a period of five (5) years.
As a result of the agreement with Tail Wind, the Company provided
Registration Rights for the shares of Common Stock purchased by Tail Wind and
the underlying shares for the Warrants, and on January 19, 2000 the Company
filed a Form S-3 Registration Statement with the Commission to register the
securities purchased by Tail Wind.
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:
Three months ended Nine months ended
December 31, December 31,
1999 1998 1999 1998
--- --- --- ---
Revenue % % % %
--- --- --- ---
Product 44 53 45 49
Services 56 47 55 51
--- --- --- ---
Total revenue 100 100 100 100
Cost of revenue
Product 19 8 17 10
Services 21 20 21 25
--- --- --- ---
Total cost of revenue 40 28 38 35
--- --- --- ---
Gross margin 60 72 62 65
Expenses
Sales and marketing 32 29 31 34
Product development 21 18 22 27
General and administrative 37 19 30 20
--- --- --- ---
Total expenses 90 66 83 81
--- --- --- ---
Income (loss) from operation (30) 6 (21) (16)
Other expense, net (21) (1) (7) -
--- --- --- ---
Net income (loss) (51) 5 (28) (16)
=== === === ===
THREE MONTHS ENDED DECEMBER 31, 1999 AS COMPARED TO THE THREE MONTHS ENDED
DECEMBER 31, 1998:
REVENUE
insci currently 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.
Revenues for the quarter ended December 31, 1999 (the "current quarter")
totaled $3,116,000 and decreased by 20% compared to revenues of $3,890,000 for
the quarter ended December 31, 1998. This decrease in revenue was due
principally to the continuing effects of the industry-wide slowdown in software
sales as customers and prospects focused on remaining Year 2000 issues ("Y2K")
issues. While the current quarter was impacted by Y2K, the Company expects
revenues to increase in future quarters as customers concerns over Y2K issues
diminish. Revenues for IBC for the current quarter and last year were not
material.
Product revenue was $1,371,000 for the current quarter and decreased by
34% compared to product revenue of $2,065,000 for the same quarter last year.
This decrease, again, was largely the result of Y2K slowdowns. Service revenues,
which include systems integration and customer support services, totaled
$1,745,000 for the current quarter, and decreased by 4% compared to service
revenues of $1,825,000 for the same period last year. The decrease in service
revenues is primarily related to decreases in product revenues.
For the quarter ended December 31, 1999, the Company received in excess of
ten percent of its total revenues from Unisys Corporation, a strategic sales
partners of the Company. A decline in revenues from this sales partner 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 December 31, 1999 was $1,871,000 and
decreased 33% compared to gross margin of $2,778,000 for the same quarter last
year. Gross margin as a percent of revenues was 60% for the current quarter
compared to 72% for the same quarter last year. The decrease in gross margin is
primarily the result of decreased revenues for the quarter.
Cost of product revenue as a percentage of product revenue was 42% in the
current quarter as compared to 15% for the same quarter last year. The increase
in cost of product revenue as a percent of revenues in the current quarter
reflects lower revenues combined with cost increases for amortization 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. Cost of
services revenue was 37% in the current quarter as compared to 43% for the same
quarter last year. The decrease in the cost of service revenues reflects
increased productivity of the services organization.
SALES AND MARKETING
Sales and marketing expenses for the quarter ended December 31, 1999 were
$990,000 and decreased by 13%, compared to expenses of $1,142,000 for the
quarter ended December 31, 1998. The expense decrease primarily reflects lower
sales commissions related to revenue decreases for the current quarter. IBC
sales and marketing expenses for the three months ended December 31, 1999 and
1998 were immaterial.
PRODUCT DEVELOPMENT
Gross product development expenditures for the quarter ended December 31,
1999 were $1,041,000 before capitalization of software expenses of $390,000, for
net product development expenses of $651,000. Gross development expenditures for
the quarter ended December 31, 1998 were $1,060,000, before capitalization of
software expenses of $348,000, for net product development expenses of $712,000.
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. IBC product development expenses for the three months ended December 31,
1999 were $56,000 compared to $125,000 for the quarter ended December 31, 1998.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $1,150,000 for the quarter
ended December 31, 1999 and increased by 55% compared to $741,000 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. IBC general and administrative
expenses for the three months ended December 31, 1999 were $356,000 compared to
$196,000 for the quarter ended December 31, 1998.
OTHER INCOME (EXPENSE)
Other expense for the quarter ended December 31, 1999 was $680,000
compared to other income of $3,000 for the same quarter last year. Other expense
for the current quarter includes $664,000 of investment banking commissions and
other professional costs related to the acquisition of IBC. Under
pooling-of-interests accounting, these amounts have been expensed.
NET INCOME (LOSS)
Net loss for the quarter ended December 31, 1999 was $1,600,000 compared
to a net profit of $186,000 for the quarter ended December 31, 1998. Of the
total loss for the current quarter, $664,000 relates to acquisition expenses for
IBC, $436,000 (net of acquisition costs) for operating losses of IBC and
$175,000 for start up expenses incurred by insci relating to establishment of
its new electronic statements Internet portal. Net income for the quarter ended
December 31, 1998, included an operating loss of $200,000 for IBC.
NINE MONTHS ENDED DECEMBER 31, 1999 AS COMPARED TO THE NINE MONTHS ENDED
DECEMBER 31, 1998:
REVENUE
Revenues for the nine months ended December 31, 1999 (the "current
period") totaled $9,441,000 and increased slightly compared to revenues of
$9,408,000 for the nine months ended December 31, 1998. Revenue growth during
the first nine months was negatively impacted by the industry-wide slowdown in
software sales as customers and prospects focused on remaining Y2K issues. The
Company expects revenues to increase in future periods as customers concerns
over Y2K issues diminish. Revenues for IBC for the current period and last year
were not material.
Product revenue was $4,294,000 for the current period and decreased by 6%
compared to product revenue of $4,585,000 for the same period last year. This
decrease, again, was largely the result of Y2K slowdowns. Service revenues,
which include systems integration and customer support services, totaled
$5,147,000 for the current period, and increased by 7% compared to service
revenues of $4,823,000 for the same period last year. The increase in service
revenues is primarily related to added maintenance revenue as the Company's
installed base of customers increases.
For the nine months ended December 31, 1999, the Company received in
excess of ten percent of its total revenues from Unisys Corporation, a strategic
sales partner of the Company. A decline in revenues from this sales partner in
future quarters could materially effect the revenues and operating results of
the Company.
GROSS MARGIN AND COST OF REVENUE
Gross margin for the nine months ended December 31, 1999 was $5,848,000
and decreased 3% compared to gross margin of $6,030,000 for the same period last
year. Gross margin as a percent of revenues was 62% for the current nine months
compared to 65% for the same period last year. The decrease in gross margin is
primarily the result of decreased product revenues for the period.
Cost of product revenue as a percentage of product revenue was 37% in the
current period as compared to 21% for the same period last year. The increase in
cost of product revenue as a percent of revenues in the current period reflects
lower revenues combined with cost increases for amortization 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. Cost of services
revenue was 39% in the current quarter as compared to 49% for the same period
last year. The decrease in the cost of service revenues reflects increased
productivity of the services organization.
SALES AND MARKETING
Sales and marketing expenses for the nine months ended December 31,
1999 were $2,964,000 and decreased by 6%, compared to expenses of $3,152,000 for
the nine months ended December 31, 1998. The expense decrease primarily reflects
lower sales commissions related to product revenue decreases for the current
period. IBC sales and marketing expenses for the nine months ended December 31,
1999 were $41,000 compared to $59,000 for the same period last year.
PRODUCT DEVELOPMENT
Gross product development expenditures for the nine months ended December
31, 1999 were $3,398,000 before capitalization of software expenses of
$1,364,000, for net product development expenses of $2,034,000. Gross
development expenditures for the nine months ended December 31, 1998 were
$3,463,000, before capitalization of software expenses of $943,000, for net
product development expenses of $2,520,000. Gross product development
expenditures for the nine months ended December 31, 1999 reflect 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. IBC product development expenses for the nine months ended
December 31, 1999 were $225,000 compared to $843,000 for the same period last
year.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $2,786,000 for the nine months
ended December 31, 1999 and increased by 45% compared to $1,924,000 for the same
period 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. IBC general and administrative
expenses for the nine months ended December 31, 1999 were $696,000 compared to
$518,000 for the same period last year.
OTHER INCOME (EXPENSE)
Other expense for the quarter ended December 31, 1999 was $730,000
compared to other income of $18,000 for the same period last year. Other expense
for the current period includes the $664,000 of expenses related to the
acquisition of IBC.
NET INCOME (LOSS)
Net loss for the nine months ended December 31, 1999 was $2,666,000
compared to a net loss of $1,548,000 for the nine months ended December 31,
1998. Of the total loss for the current period, $664,000 relates to acquisition
expenses for IBC, $958,000 (net of acquisition costs) for operating losses of
IBC, and $175,000 of start up expenses incurred by insci relating to
establishment of its new electronic statements Internet portal. Of the total
loss for the nine months ended December 31, 1998, $1,270,000 relates to
operating losses of IBC.
FORWARD LOOKING COMMENTS
We believe that opportunities to increase future revenues are best served
by supporting investments that address the rapidly expanding market for Internet
based statement/bill presentment services and digital document storage,
workflow, and electronic commerce. We are addressing this market by separating
our two principal businesses, on-site software solutions and portal based
solutions, both operationally and financially, through the establishment of our
business-to-business, electronic statements presentment Internet portal as a
separate wholly-owned subsidiary named InfiniteSpace.com. 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. We are not
able to predict, however, when and to what degree future revenue increases from
our Internet based products 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 December 31, 1999 the Company had $2,136,000 of cash and working
capital of $2,431,000 in comparison to $1,392,000 of cash and working capital of
$983,000 as of December 31, 1998. Accounts receivable were $4,024,000 with
weighted days outstanding of 58 as of December 31, 1999 compared to receivables
of $3,444,000 with weighted days outstanding of 39, as of December 31, 1998. The
Company has available a $1.5 million working capital bank line. As of December
31, 1999 the Company had no borrowings outstanding against this facility. The
Company recently announced plans to enter the market for portal services and in
this regard has established a wholly owned subsidiary, InfiniteSpace.com. It is
anticipated that this subsidiary will require additional funding and the Company
is in discussions with a major investment bank to raise equity funding for this
initiative.
The Company's cash flows are summarized below for the periods indicated:
(in thousands)
NINE MONTHS ENDED DECEMBER 31,
1999 1998
Cash provided by (used in)
Operating activities $(2,537) $(1,098)
Investing activities (1,491) (1,270)
Financing activities 4,279 929
Increase(decrease) in cash and cash equivalents $ 251 $(1,439)
Cash and cash equivalents at end of period $ 2,136 $ 1,392
Cash increased by $251,000 for the nine months ended December 31, 1999
compared to a decrease of $1,439,000 for the same period last year. This
increase primarily reflects proceeds from the issuance of common stock. The
Company used cash of $2,537,000 in operating activities for the nine months
ended December 31, 1999 resulting mainly from the operating loss for the period
and an increase in Accounts Receivable. Net cash used in investing activities
was $1,491,000 for the current period, primarily from additions to capitalized
and purchased software. Cash provided by financing was $4,279,000 and reflects
proceeds from sale of common stock combined with 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 $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. As of December 31, 1999 the Company had no borrowings
outstanding against this credit facility. The Company expects available cash and
its existing credit facility will be sufficient to meet operating expense
requirements over the near term.
"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.
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 December 31, 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
On November 9, 1999, the Company's Annual Meeting of Stockholders ("Annual
Meeting") was held at the Company's offices in Westborough MA. The record date
to determine Stockholders entitled to vote at the Annual Meeting was September
22, 1999 and shares of the Company's Common Stock issued and outstanding as of
this date and entitled to vote were 9,463,000 shares.
Votes received totaled 8,900,000 shares.
The following individuals standing for re-election as Directors were
elected by a majority vote of shareholders:
Dr. E. Ted Prince, Francis X. Murphy, Robert F. Little, Thomas Farkas,
Darryl R. Dobin and John A. Lopiano. The number of votes cast for these
individuals were 8,608,000 with abstentions of 150,000.
Shareholders approved by a majority vote to change the name of the Company
to insci-statements.com, corp. The number of votes cast for the proposal were
8,610,000 against 224,000 and abstentions 13,000.
Shareholders approved by a majority vote to ratify the appointment of
Pannell Kerr Forster PC as the independent public accountants for the Company's
fiscal year ended March 31, 1999. The number of votes cast for the proposal were
8,839,000, against 42,000 and abstentions, 18,000.
Shareholders approved by a majority vote to increase the authorized number
of stock options under the Company's 1997 Equity Incentive Plan from 3,000,000
shares to 4,000,000 shares. The number of votes cast for the proposal were
4,529,000, against 513,000 and abstentions, 23,000.
ITEM 5. OTHER INFORMATION
This item is not applicable.
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 November 17, 1999 was filed by the
Company on December 6, 1999 regarding the name change of the Company
to insci-statements.com, corp.
A report of Form 8-K, dated December 10, 1999 was filed by the
Company on December 27, 1999 regarding the acquisition of The
Internet Broadcasting Company, Inc.
A report of Form 8-K, dated December 17, 1999 was filed by the
Company on January 4, 2000 regarding The Tail Wind Fund, Ltd.
Private Placement under Regulation D.
A report of Form 8-K, dated December 22, 1999 was filed by the
Company on January 4, 2000, regarding a change in management and the
addition of a board member.
A report of Form 8-KA, dated December 10, 1999 was filed by the
Company on January 12, 2000 as a supplement to the Form 8-K dated
the same day, regarding submission of supplemental financial
statements for the acquisition of The Internet Broadcasting Company,
Inc.
A report of Form 8-K, dated December 31, 1999 was filed by the
Company on January 12, 2000 regarding the expiration of warrants.
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-STATEMENTS.COM, CORP
Date: February 11, 2000 By: /S/ ROGER C. KUHN
------------------------------------
Roger C. Kuhn
Vice President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE THIRD QUARTER 10-QSB FOR INSCI'S 1999 FISCAL YEAR
</LEGEND>
<CIK> 0000878612
<NAME> m7rpwrt@
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 2136
<SECURITIES> 0
<RECEIVABLES> 4124
<ALLOWANCES> 100
<INVENTORY> 11
<CURRENT-ASSETS> 6276
<PP&E> 2116
<DEPRECIATION> 1401
<TOTAL-ASSETS> 10530
<CURRENT-LIABILITIES> 3845
<BONDS> 0
0
12
<COMMON> 118
<OTHER-SE> 6555
<TOTAL-LIABILITY-AND-EQUITY> 10530
<SALES> 9441
<TOTAL-REVENUES> 9441
<CGS> 3593
<TOTAL-COSTS> 3593
<OTHER-EXPENSES> 8448
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66
<INCOME-PRETAX> (2666)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2666)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2666)
<EPS-BASIC> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
