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 January 31, 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 December 22, 1997:
------------------------------------ ---------------------------------
Class A Common Stock, $.01 par value 4,720,419 shares
Class B Common Stock, $.01 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
January 31, 1998 (Unaudited)........................................ 3
Consolidated Statements of Operations for the Three Months
ended January 31, 1997 and January 31, 1998 (Unaudited)
and for the period November 18, 1991 (Inception) through
January 31, 1998 (Unaudited).........................................4
Consolidated Condensed Statements of Cash Flows for the
Three Months ended January 31, 1997 and January 31, 1998
(Unaudited) and for the period November 18, 1991
(Inception) to January 31, 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..............................10
SIGNATURES.............................................................11
INFOSAFE SYSTEMS, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, 1997 January 31, 1998
--------------- ----------------
(Audited) (Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 392,860 $ 16,262
Accounts receivable - net of allowance for doubtful accounts
of $8,000 at January 31, 1998 ($5,000 July 31, 1997) 6,149 8,448
Marketable securities - available for sale 2,498,945 1,198,753
Prepaid expenses and other assets 169,853 135,942
--------------- ----------------
Total current assets 3,067,807 1,359,405
Fixed assets 232,838 289,496
Software development costs 0 614,152
Other assets 191,734 175,009
--------------- ----------------
Total assets $ 3,492,379 $ 2,428,062
LIABILITIES
Current liabilities:
Accounts payable $ 234,422 $ 139,619
Loan payable 27,180 0
Capital lease obligation 10,364 5,319
Purchase agreement 85,000 55,000
Accrued expenses 115,618 105,552
Due to stockholder 60,000 0
---------------- ----------------
Total current liabilities 532,584 305,490
---------------- ----------------
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 14,231,791
(Deficit) accumulated during development stage (11,302,220) (12,181,583)
Unrealized gain on marketable securities 8,928 5,085
---------------- ----------------
Total stockholders' equity 2,959,795 2,132,572
---------------- ----------------
Total liabilities and stockholders' equity $ 3,492,379 $ 2,438,062
---------------- ----------------
</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 Six Months Period From
Ended October 31, Ended January 31, November 18, 1991
----------------------------- ----------------------------- (inception) through
1996 1997 1997 1998 January 31, 1997
----------------------------- ----------------------------- -------------------
<S> <C> <C> <C> <C> <C>
Revenue:
License Fees $ 350,000
Other $ 5,045 $ 5,649 $ 16,723 $ 8,799 267,962
------------ ------------ ------------ ------------- -------------------
Total 5,045 5,649 16,723 8,799 617,962
------------ ------------ ------------ ------------- -------------------
Expenses:
Cost of revenue 11,531 4,057 26,172 6,365 251,764
Operating expenses 547,140 445,207 1,052,730 949,359 11,326,189
Write-down of assets 30,000 0 60,000 0 977,356
------------ ------------ ------------ ------------- -------------------
Total 588,671 449,264 1,138,902 955,724 12,555,309
------------ ------------ ------------ ------------- -------------------
Operating (loss) (583,626) (443,615) (1,122,179) (946,925) (11,937,347)
Interest and investment
income 6,689 26,115 21,546 68,002 553,625
Settlement expense 0 0 0 0 (394,828)
Minority interest 0 0 0 0 1,000
Interest expense (442) (187) (946) (440) (395,633)
------------ ------------ ------------ ------------- -------------------
Net (loss) $ (577,379) $ (417,687) $(1,101,579) $ (879,363) $ (11,755,496)
------------ ------------ ------------ ------------- -------------------
Net (loss) per common
share $ (0.16) $ (0.08) $ (0.31) $ (0.17)
------------ ------------ ------------ -------------
Weighted average number
of common shares 3,545,582 5,311,741 3,545,582 5,311,741
------------ ------------ ------------ -------------
</TABLE>
Attention is directed to the accompanying notes to finincial statements
INFOSAFE SYSTEMS, INC. AND SUBSIDIARY
(a development stage company)
Consolidated Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Period From
Ended January 31, November 18, 1991
------------------------------- (inception) through
1996 1997 Janurary 31,1998
------------------------------- -------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) $ (1,101,579) $ (879,363) $ (12,173,183)
Adjustments to reconcile net (loss) to
net cash (used in) operating activities:
Write-down of assets 60,000 0 977,356
Other net cash provided by (used in)
operating activities 139,305 (33,123) 1,451,912
-------------- ------------- -------------------
Net cash (used in) operating
activities (902,274) (912,486) (9,743,915)
-------------- ------------- -------------------
Cash flows from investing activities:
Purchases of marketable securities (339,238) (499,726) (15,804,276)
Sales of marketable securities 1,241,864 1,796,075 14,610,608
Other investing activities 10,650 (713,236) (2,298,792)
-------------- ------------- -------------------
Net cash provided by (used in)
investing activities 913,276 583,113 (3,492,460)
-------------- ------------- -------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 16,075,260
Costs in connection with sale of
common stock (2,912,671)
Payment of purchase agreement (15,000) (157,840)
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)
Other financing activities (19,538) (32,225) 47,912
-------------- ------------- -------------------
Net cash provided by (used in)
financing activities 40,462 (47,225) 13,252,637
-------------- ------------- -------------------
Net increase (decrease) in cash and cash
equivalents 51,464 (376,598) 16,262
Cash and cash equivalents, beginning
of period 50,466 392,860
-------------- ------------- -------------------
Cash and cash equivalents, end of period $ 101,930 $ 16,262 $ 16,262
-------------- ------------- -------------------
</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
six-month periods ended January 31, 1998 and for the period from
November 18, 1991 (inception) to January 31, 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 products, documents
and programs, for use in stand-alone applications, corporate
networks and open networks particularly the Internet. From
November 18, 1991 (inception) to January 31, 1998, the Company
recognized revenues of approximately $618,000, and had an
accumulated deficit of approximately $12.2 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). During the
second quarter of 1998, ICC continued beta testing the CommerceSense
System, a new Internet-based Electronic Commerce/Electronic Data
Interchange (EC/EDI) service for corporations and their trading
partners. Subsequent to that beta test phase's completion, ICC
launched CommerceSense on March 5, 1998 and entered into agreements
with its first four CommerceSense customers ("hub" companies), three
of which are Fortune 1000 companies. 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'
technology, and are being used for the development and marketing
of the new product lines. Although management believes that the
Company will develop and market the new line of Electronic
Commerce (EC), 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 January 31, 1998 Compared with Three Months
Ended January 31, 1997.
Revenues were approximately $6,000 and $5,000, respectively,
for the three months ended January 31, 1998 (the "1998 Three
Months?), and for the three months ended January 31, 1997 (the
"1997 Three Months?). The 1998 revenues were generated from ICC
consulting and Infosafe Imaging.
Operating expenses were approximately $445,000 for the 1998
Three Months and approximately $547,000 for the 1997 Three
Months. General and administrative expenses increased
approximately $65,000 and technical expenses increased
approximately $224,000 from the comparable period a year ago, but
were offset by the capitalization of software development costs
of approximately $391,000 not present in the prior year's period.
For the 1997 Three months, assets held for lease were written
down by $30,000.
The Company had income from investments of approximately
$26,000 for the 1998 Three Months and approximately $7,000 for
the 1997 Three Months. The increase was due to an increase in
average balances of the Company's investment securities for the
period.
Interest expense was approximately $200 in the 1998 Three
Months and approximately $400 in the 1997 Three Months. Interest
expense is attributed to the financing of capital assets.
The net loss for the 1998 Three Months was $418,000 compared
to $577,000 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.
Six Months Ended January 31, 1998 Compared with Six Months Ended
January 31, 1997.
Revenues were approximately $9,000 and $17,000,
respectively, for the six months ended January 31, 1998 (the
"1998 Six Months"), and for the three months ended January 31,
1997 (the "1997 Six Months"). The 1998 revenues were generated
from ICC consulting and Infosafe Imaging.
Operating expenses were approximately $949,000 for the 1998
Six Months and approximately $1,053,000 for the 1997 Six Months.
General and administrative expenses increased approximately
$142,000 and technical expenses increased approximately $368,000
from the comparable period a year ago, but were offset by the
capitalization of software development costs of approximately
$614,000 not present in the prior year period. For the 1997 Six
months, assets held for lease were written down by $60,000.
The Company had income from investments of approximately
$68,000 for the 1998 Six Months and approximately $22,000 for the
1997 Six Months. The increase was due to an increase in average
balances of the Company's investment securities for the period.
Interest expense was approximately $400 in the 1998 Six
Months and approximately $1,000 in the 1997 Six Months. Interest
expense is attributed to the financing of capital assets.
The net loss for the 1998 Six Months was $879,000 compared
to $1,102,000 for the 1997 Six 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 may be generated commencing with the fiscal quarter
ending April 30, 1998, 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 January 31, 1998, the Company had working capital
of approximately $1.1 million. 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, 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 $10.8 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 c arryforward 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.
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: March 16, 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> 6-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 16,262
<SECURITIES> 1,198,753
<RECEIVABLES> 16,448
<ALLOWANCES> 8,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,359,405
<PP&E> 632,422
<DEPRECIATION> 342,926
<TOTAL-ASSETS> 2,438,062
<CURRENT-LIABILITIES> 305,490
<BONDS> 0
0
0
<COMMON> 77,279
<OTHER-SE> 2,055,293
<TOTAL-LIABILITY-AND-EQUITY> 2,438,062
<SALES> 8,799
<TOTAL-REVENUES> 8,799
<CGS> 6,365
<TOTAL-COSTS> 6,365
<OTHER-EXPENSES> 949,359
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 440
<INCOME-PRETAX> (879,363)
<INCOME-TAX> 0
<INCOME-CONTINUING> (879,363)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (879,363)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
