SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
_____________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended April 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-25362
INFOSAFE SYSTEMS, INC.
(Exact Name of Small Business Issueras Specified in Its Charter)
Delaware 13-3645702
- ------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
805 Third Avenue
Ninth Floor
New York, NY 10022
----------------------------------------
(Address of Principal Executive Offices)
(212) 867-7200
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Not Applicable
----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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.
Class Outstanding at March 31, 1998:
------------------------------------- ----------------------------------
Class A Common Stock, $.01 par value 4,720,419 shares
Class B Common Stock, $.001 par value 1,372,566 shares
Traditional Small Business Disclosure Format
Yes__X__ No_____
INDEX TO FORM 10-QSB
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of July 31, 1997 and
April 30, 1998 (Unaudited)........................................ 3
Consolidated Statements of Operations for the Three Months and
Nine Months ended April 30, 1997 and April 30, 1998 (Unaudited)
and for the period November 18, 1991 (Inception) through
April 30, 1998 (Unaudited).........................................4
Consolidated Condensed Statements of Cash Flows for the
Nine Months ended April 30, 1997 and April 30, 1998
(Unaudited) and for the period November 18, 1991
(Inception) to April 30, 1998 (Unaudited)...........................5
Notes to Financial Statements.........................................6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................7-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..............................11
SIGNATURES.............................................................11
INFOSAFE SYSTEMS, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, 1997 April 30, 1998
--------------- ----------------
(Audited) (Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 392,860 $ 65,667
Accounts receivable - net of allowance for doubtful accounts
of $9,500 at April 30, 1998 ($5,000 July 31, 1997) 6,149 2,706
Marketable securities - available for sale 2,498,945 330,766
Prepaid expenses and other assets 169,853 123,726
--------------- ----------------
Total current assets 3,067,807 522,865
Fixed assets 232,838 586,666
Software development costs 0 714,373
Other assets 191,734 11,585
--------------- ----------------
Total assets $ 3,492,379 $ 1,835,489
LIABILITIES
Current liabilities:
Accounts payable $ 234,422 $ 158,031
Loan payable 27,180 0
Capital lease obligation 10,364 82,848
Purchase agreement 85,000 0
Accrued expenses 115,618 296,141
Due to stockholder 60,000 0
---------------- ----------------
Total current liabilities 532,584 537,020
---------------- ----------------
Capital lease obligation - less current portion 219,357
---------------- ----------------
Total liabilities $ 532,584 $ 756,377
---------------- ----------------
STOCKHOLDERS' EQUITY
Common stock:
Class A - par value $.01 per share, 40,000,000 shares authorized,
one vote per share; 4,720,419 shares issued and outstanding 47,204 47,204
Class B - par value $.001 per share, 2,000,000 shares authorized,
six votes per share; 1,372,566 shares issued and outstanding,
including 781,244 shares held in escrow 1,433 1,433
Class E-1 - par value $.01 per share 2,000,000 shares authorized,
one vote per share; 1,432,137 shares issued and to be issued
redemption value $.0001 per share 14,321 14,321
Class E-2 - par value $.01 per share 2,000,000 shares authorized,
one vote per share; 1,432,137 shares issued and to be issued
redemption value $.0001 per share 14,321 14,321
Additional paid-in capital 14,175,808 14,259,785
(Deficit) accumulated during development stage (11,302,220) (13,259,295)
Unrealized gain on marketable securities 8,928 1,343
---------------- ----------------
Total stockholders' equity 2,959,795 1,079,112
---------------- ----------------
Total liabilities and stockholders' equity $ 3,492,379 $ 1,835,489
---------------- ----------------
</TABLE>
Attention is directed to the accompanying notes to financial statments
INFOSAFE SYSTEMS, INC. AND SUBSIDIARY
(a development stage company)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months Period From
Ended April 30, Ended April 30, November 18, 1991
----------------------------- ----------------------------- (inception) through
1996 1997 1997 1998 April 30, 1998
----------------------------- ----------------------------- -------------------
<S> <C> <C> <C> <C> <C>
Revenue:
License Fees $ 350,000
Other $ 600 $ 2,058 $ 17,323 $ 10,857 270,020
------------ ------------ ------------ ------------- -------------------
Total 600 2,058 17,323 10,857 620,020
------------ ------------ ------------ ------------- -------------------
Expenses:
Cost of revenue 10,642 23,323 36,814 29,688 275,087
Operating expenses 698,065 877,797 1,750,795 1,827,156 12,134,679
Write-down of assets 281,836 183,750 341,836 183,750 977,356
------------ ------------ ------------ ------------- -------------------
Total 990,543 1,084,870 2,129,445 2,040,594 13,387,122
------------ ------------ ------------ ------------- -------------------
Operating (loss) (989,943) (1,082,812) (2,112,122) (2,029,737) (12,767,102)
Interest and investment
income 29,368 13,933 50,914 81,935 567,558
Settlement expense 0 0 0 0 (394,828)
Minority interest 0 0 0 0 1,000
Interest expense (382) (8,833) (1,328) (9,273) (404,466)
------------ ------------ ------------ ------------- -------------------
Net (loss) $ (960,957) $(1,077,712) $(2,062,536) $ (1,957,075) $ (12,997,838)
------------ ------------ ------------ ------------- -------------------
Net (loss) per common
share $ (0.21) $ (0.20) $ (0.53) $ (0.37)
------------ ------------ ------------ -------------
Weighted average number
of common shares 4,517,559 5,311,741 3,877,881 5,311,741
------------ ------------ ------------ -------------
</TABLE>
Attention is directed to the accompanying notes to financial statements
INFOSAFE SYSTEMS, INC. AND SUBSIDIARY
(a development stage company)
Consolidated Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Period From
Ended April 30, November 18, 1991
------------------------------- (inception) through
1996 1997 April 30, 1998
------------------------------- -------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) $ (2,062,536) $ (1,957,075) $ (13,250,895)
Adjustments to reconcile net (loss) to
net cash (used in) operating activities:
Write-down of assets 341,836 183,750 1,161,106
Other net cash provided by (used in)
operating activities 78,396 238,385 1,723,420
-------------- ------------- -------------------
Net cash (used in) operating
activities (1,642,304) (1,534,940) (10,366,369)
-------------- ------------- -------------------
Cash flows from investing activities:
Purchases of marketable securities (339,238) (499,726) (15,804,276)
Sales of marketable securities 1,241,864 2,664,836 15,479,369
Capitalization of software development
costs (714,373) (921,188)
Other investing activities (2,215) (437,651) (1,816,392)
-------------- ------------- -------------------
Net cash provided by (used in)
investing activities 900,411 1,013,086 (3,062,487)
-------------- ------------- -------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 5,050,000 16,075,260
Costs in connection with sale of
common stock (864,999) (2,912,671)
Payment of purchase agreement (70,000) (212,840)
Exercise of warrants and options 60,000 424,895
Proceeds from bridge loan 1,500,000
Payment of bridge loan (1,500,000)
Payment of deferred financing costs (224,919)
Proceeds from financing lease 312,639 340,715
Other financing activities (21,899) (47,978) 4,083
-------------- ------------- -------------------
Net cash provided by (used in)
financing activities 4,223,102 194,661 13,494,523
-------------- ------------- -------------------
Net increase (decrease) in cash and cash
equivalents 3,481,209 (327,193) 65,667
Cash and cash equivalents, beginning
of period 50,466 392,860
-------------- ------------- -------------------
Cash and cash equivalents, end of period $ 3,531,675 $ 65,667 $ 65,667
-------------- ------------- -------------------
</TABLE>
Attention is directed to the accompanying notes to financial statements
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(Note A) Basis of Presentation and the Company:
(1) Basis of presentation:
The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Article 3 of
Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for fair presentation
have been included. Operating results for the three-month and
nine-month periods ended April 30, 1998 are not necessarily
indicative of the results that may be expected for
the year ending July 31, 1998.
The consolidated balance sheet at July 31, 1997 has been
derived from the audited consolidated financial statements at
that date but does not include all the footnotes required by
generally accepted accounting principles for complete financial
statements. For further information, refer to the audited
financial statements and footnotes thereto included in the Form
10-KSB for the Company's fiscal year ended July 31, 1997.
(2) Organization and business:
Infosafe Systems, Inc. (the "Company") is a development stage
company engaged in the design, development and marketing of
systems for securing, controlling, metering and auditing
electronic products, documents and programs for use in stand-
alone applications, corporate networks and open networks
particularly the Internet.
(Note B) - Summary of Significant Accounting Policies:
(1) Loss per share of common stock:
The Company adopted Statement of Financial Accounting
Standards No. 128 "SFAS No. 128". Net loss per share of common
shares is based on the weighted average number of shares
outstanding during the period excluding Class B shares in escrow
and all Class E-1 and Class E-2 shares. The adoption of SFAS No.
128 which requires a retroactive adjustment to the Company's
financial statement, did not have a material effect.
(2) Capitalized software development costs:
The Company's evaluation of software development costs are
based on cost and projections of future operating results.
Management believes these projections are reasonable, however
actual future operating results may differ.
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
Except for the description of historical facts contained
herein, this Form 10-QSB contains certain forward-looking
statements within the meaning of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995 concerning
applications of the Company's technologies and the Company's
proposed products and future prospects, that involve risks and
uncertainties, including the possibility that the Company will
(i) be unable to commercialize products based on its technology,
or (ii) that it will ever achieve profitable operations, as
detailed herein under "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
from time to time in the Company's filings with Securities and
Exchange Commission and elsewhere. Such statements are based on
management's current expectations and are subject to a number of
factors and uncertainties which could cause actual results to
differ materially from those described in the forward-looking
statements. The Company's actual results could differ materially
from those discussed herein.
Overview
The Company is a development stage company engaged in the
design, development and marketing of systems for securing,
controlling, metering and auditing electronic documents and
programs, for use in corporate networks and open networks
particularly the Internet. From November 18, 1991 (inception) to
April 30, 1998, the Company recognized revenues of
approximately $620,000, and had an accumulated deficit of
approximately $13 million. The Company has continued to
operate at a deficit since inception and expects to continue to
operate at a deficit until such time, if ever, as operations
generate sufficient revenues to cover costs. The Company's
ability to generate revenues and operate profitably and continue
as a going concern, is dependent on its ability to market the
CommerceSense(TM) System developed by its majority-owned subsidiary
Internet Commerce Corporation ("ICC") and on it's ability to raise
the necessary additional operating funds. During the third
fiscal quarter, ICC launched CommerceSense, a new Internet-based electronic
commerce/electronic data interchange (EC/EDI) service for
corporations and their trading partners. Also in the third fiscal quarter,
the Company has discontinued operations and support for both Advanced
Imaging Systems and its CopyRight Metering Systems. This action
was taken due to the inability to generate sufficient revenue
streams and market penetration in conjunction with the Company's
need to conserve cash. The likelihood of the success of the
Company must be considered in light of the difficulties and risks
inherent in a new business. There can be no assurance that
revenues will increase significantly in the future or that the
Company will ever achieve profitable operations.
The Company has incurred substantial losses since
inception and anticipates losses to continue through the fiscal
year ending July 31, 1998 ("Fiscal 1998") as the Company attempts
to expand commercial markets for CommerceSense. The net
proceeds of the 1997 Private Placement were partially used to
form and purchase a majority interest in ICC and to license
Visus' Advanced Imaging System, since abandoned, and are being
used for the development and marketing of the new product lines.
Although management believes that the Company will be successful
in marketing CommerceSense, there can be no assurance that it will
be able to do so or that its present resources or access to additional
financing will be adequate, if available at all, to achieve these
objectives or to continue as a going concern.
Results of Operations
Three Months Ended April 30, 1998 Compared with Three Months
Ended April 30, 1997.
Revenues were approximately $2,000 and $1,000, respectively,
for the three months ended April 30, 1998 (the "1998 Three Months"),
and for the three months ended April 30, 1997 (the "1997 Three Months").
The 1998 revenues were generated from ICC's CommerceSense System
consulting and Infosafe Imaging.
Operating expenses were approximately $878,000 for the 1998
Three Months and approximately $698,000 for the 1997 Three Months.
General and administrative expenses decreased approximately $43,000 and
technical expenses increased approximately $323,000 from the comparable
period a year ago, but were offset by the capitalization of software
development costs of approximately $100,000 not present in the
prior year's period. For the 1998 Three months, the un-amortized
portion of the Visus Technology prepaid license fee of
approximately $139,000 and the Notes Receivable of $45,000 from
Visus Technology were written off as the Company has discontinued
operations and support for Advanced Imaging Systems. For the
1997 Three months, assets held for lease were written down by
$282,000.
The Company had income from investments of approximately
$14,000 for the 1998 Three Months and approximately $29,000 for
the 1997 Three Months. The decrease increase was
due to an decrease increase in average balances of the Company's
investment securities for the period. Interest expense was
approximately $9,000 in the 1998 Three Months and
approximately $400 in the 1997 Three Months. The interest
expense increase is attributed to the financing of ICC's data
center equipment.
The net loss for the 1998 Three Months was $1,078,000
compared to $961,000 for the 1997 Three Months. Management
believes that losses will continue through fiscal 1998 as the
Company is still in the development stage and is in the process
of commercializing and marketing new products.
Nine Months Ended April 30, 1998 Compared with Nine Months
Ended April 30, 1997.
Revenues were approximately $11,000 and $17,000, respectively,
for the nine months ended April 30, 1998 (the "1998 Nine Months"),
and for the nine months ended April 30, 1997 (the "1997 Nine Months").
The 1998 revenues were generated from ICC CommerceSense and
consulting and Infosafe Imaging.
Operating expenses were approximately $1,827,000 for the
1998 Nine Months and approximately $1,751,000 for the 1997
Nine Months. General and administrative expenses increased
approximately $99,000 and technical expenses increased
approximately $691,000 from the comparable period a year ago,
but were offset by the capitalization of software development
costs of approximately $714,000 not present in the prior year
period. For the 1998 Nine months, the un-amortized portion of the
Visus Technology prepaid license fee of approximately $139,000
and the Notes Receivable of $45,000 from Visus Technology were
written off as the Company has discontinued operations and
support for Advanced Imaging Systems. For the 1997 Nine
months, assets held for lease were written down by $342,000.
The Company had income from investments of approximately
$82,000 for the 1998 Nine Months and approximately $51,000
for the 1997 Nine Months. The increase was due to an increase
in average balances of the Company's investment securities for
the period. Interest expense was approximately $9,000 in the
1998 Nine Months and approximately $1,000 in the 1997 Nine
Months. I The interest expense increase is attributed to the
financing of ICC's data center equipmentnterest expense is
attributed to the financing of capital assets.
The net loss for the 1998 Nine Months was approximately
$1,957,000 compared to approximately $2,063,000 for the 1997
Nine Months. Management believes that losses will continue
through fiscal 1998 as the Company is still in the development
stage and is in the process of commercializing and marketing new
products.
Liquidity and Capital Resources
The Company has incurred substantial losses since inception.
Although no assurance can be given, the Company anticipates that
revenues will continue to be generated, although as a result of
increased expenses associated with any such revenues, losses may
increase, or the decrease in losses realized in fiscal 1998
compared to fiscal 1997 may not be similarly realized in fiscal
1998 compared to fiscal 1997. At April 30, 1998, the
Company had working capital of approximately ($14,000). The Company
has financed its operations through private placements during
fiscal 1994, its initial public offering during
fiscal 1995 (the "IPO") and a private placement in March 1997.
The Company anticipates losses through fiscal 1998 as the Company
attempts to market its products and develop new applications for
its technologies. The Company does not have sufficient financial
resources to continue its operations, at present levels, through
fiscal 1998, at present levels, without obtaining additional
financing. There can be no assurance that the Company will be
able to obtain the necessary financing or to generate sufficient
revenue to continue its operations and continue as a going
concern. Any additional equity financing will be dilutive to
stockholders, and debt financing, if available, may contain
covenants that might restrict the Company's ability to implement
its current objectives.
The Company has a net operating loss carryforward of
approximately $12.0 million to offset any future taxable income
for federal tax purposes. The utilization of the loss
carryforward to reduce any such future income taxes will depend
on the Company's ability to generate sufficient taxable income
prior to the expiration of the net operating loss carryforwards.
The carryforward expires from 2007 to 2012. The Internal Revenue
Code of 1986, as amended, generally contains provisions which
limit the use of available net operating loss carryforwards in
any given year should significant changes (greater than 50%) in
ownership interests occur. Due to the IPO, the net operating
loss carryover of approximately $1,900,000 incurred prior to the
IPO will be subject to an annual limitation of approximately
$400,000 until that portion of the net operating loss is utilized
or expires.
Possible Delisting of Securities from the Nasdaq Stock Market
While the Company's Units. Class A Shares, Class A Warrants and
Class B Warrants, are currently listed on the NASDAQ/SmallCap
Market, there can be no assurance that the Company will meet the
criteria for continued listing. Continued inclusion on NASDAQ
requires that among other things, the Company have at least $2
million in "net tangible assets" ("net tangible assets" equals
total assets less total liabilities and goodwill) or at least $35
million in total market value or at least $500 thousand in net
income in two out of its last three fiscal years, as well as at
least 500 thousand shares in the public float, at least $1
million in market value of the public float, and a bid price of
not less than $1.00 per share for 30 trading days.
If the Company is unable to satisfy NASDAQ's maintenance
requirements, its securities may be delisted from NASDAQ. In
such event, trading, if any, in the Units, Class A Shares and
Warrants would thereafter be conducted in the over-the-counter
market in the so-called "pink sheets" or the NASD's "Electronic
Bulletin Board." Consequently, the liquidity of the Company's
securities could be adversely affected, not only in the number of
securities which could be bought and sold, but also through
delays in the timing of transactions, reduction in security
analysts' and media coverage of the Company and lower prices for
the Company's securities than might otherwise be attained.
On May 28, 1998, the Company was notified by NASDAQ that the
Company has failed to maintain a minimum bid price of $1.00.
NASDAQ will provide ninety (90) calendar days for the Company to
regain compliance with the minimum bid requirement. If at any
time within the next ninety calendar days from May 28, 1998, the
common stock and units reports a closing bid price of $1.00 or
greater for ten consecutive trading days, it will have complied
with the minimum bid price requirement. However, if the Company
is unable to demonstrate compliance with the minimum $1.00 bid
price on or before the end of the ninety day period August 28,
1998, the Company's securities will be subject to delisting,
effective with the close of business on August 28, 1998. To stay
the delisting, the Company may request a hearing by the close of
business on August 28, 1998.
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibit(s).
Number Description Method of Filing
- ------ -------------------------- ---------------------------
27 Financial Data Schedule Filed with this Form 10-QSB
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended
January 31, 1998.
SIGNATURES
In accordance with the requirements of the Securities
Exchange Act of 1934 as amended, the registrant has caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
INFOSAFE SYSTEMS, INC.
Dated: June 15, 1998 By: /s/ Arthur R. Medici
--------------------------------------
Arthur R. Medici, President, Chief
Executive Officer and Director
By: /s/ Alan N. Alpern
--------------------------------------
Alan N. Alpern, Chief Financial
Officer (Principal Financial Officer)
By: /s/ Walter M. Psztur
--------------------------------------
Walter M. Psztur, Controller and
Secretary (Principal Accounting
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> APR-30-1998
<CASH> 65,667
<SECURITIES> 330,766
<RECEIVABLES> 12,206
<ALLOWANCES> 9,500
<INVENTORY> 0
<CURRENT-ASSETS> 522,865
<PP&E> 936,235
<DEPRECIATION> 349,569
<TOTAL-ASSETS> 1,835,489
<CURRENT-LIABILITIES> 537,020
<BONDS> 0
0
0
<COMMON> 77,279
<OTHER-SE> 1,001,833
<TOTAL-LIABILITY-AND-EQUITY> 1,835,489
<SALES> 10,857
<TOTAL-REVENUES> 10,857
<CGS> 29,688
<TOTAL-COSTS> 29,688
<OTHER-EXPENSES> 2,010,906
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,273
<INCOME-PRETAX> (1,957,075)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,957,075)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,957,075)
<EPS-PRIMARY> (0.37)
<EPS-DILUTED> (0.37)
</TABLE>
