SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the quarterly period ended September 30, 1996
Commission file number 333-10519
OBJECTSOFT CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 223091075
(State of incorporation) (IRS Employer ID number)
Continental Plaza III, 433 Hackensack Avenue, Hackensack, New Jersey 07601
(Address of principal executive offices)
(201) 343-9100
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ] No [X].
(Applicable only to Corporate Issuers)
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the last practicable date.
Class December 31, 1996
----- -----------------
Common Stock, $.0001 par value 4,023,126
Redeemable Class A Warrants 1,366,500
<PAGE>
OBJECTSOFT CORPORATION
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets-
September 30, 1996 and December 31, 1995 3-4
Condensed Consolidated Statements of Operations-
Three and Nine Months ended September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows-
Nine Months ended September 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 7-8
PART II. OTHER INFORMATION
Item 4. Matters Submitted to the Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K. 10
Signatures 11
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<PAGE>
PART I
FINANCIAL INFORMATION
OBJECTSOFT CORPORATION
CONDENSED BALANCE SHEETS -- SEPTEMBER 30, 1996 and DECEMBER 31, 1995
UNAUDITED
<TABLE>
<CAPTION>
Sep. 30, Dec. 31,
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 347,911 $ 63,995
Accounts receivable less allowance for doubtful accounts 1,600 72,602
Unbilled receivable 150,000
Prepaid expenses and other current assets 96,690 26,579
---------- ----------
Total current assets 596,201 163,176
Equipment, at cost, net of accumulated depreciation 603,879 23,433
Capitalized software and courseware 65,758 121,326
Deferred offering costs 240,457 30,250
Other assets 43,098 5,349
---------- ----------
T O T A L $1,549,393 $ 343,534
LIABILITIES
Current liabilities:
Current portion of obligations under capital lease $ 46,619 $ 9,210
Accounts payable 178,834 58,314
Accrued liabilities 94,240 94,255
Accrued officer compensation 15,687 391,687
---------- ----------
Total current liabilities 335,380 553,466
Noncurrent liabilities:
Note payable 1,195,738
Obligations under capital lease 52,790 3,390
Other liabilities 7,098 1,616
---------- ----------
Total noncurrent liabilities 1,255,626 5,006
Preferred stock $.0001 par, authorized 500,000 shares:
Series A, 9% cumulative voting; issued and outstanding 212,500
($212,500 aggregate liquidation preference) 273,239 258,906
Series B, 10% cumulative non-voting convertible; 1,250
issued and outstanding ($125,000 aggregate liquidation 125,000
preference) as of December 31, 1995
---------- ----------
273,239 383,906
CAPITAL DEFICIENCY
Common stock, $.0001 par, authorized 20,000,000 shares, issued and
outstanding 2,566,001 shares as of September 30, 1996
and 2,293,000 shares as of December 31, 1995 257 229
Additional paid-in capital 1,228,114 278,331
Accumulated deficit (1,543,223) (877,404)
---------- ----------
Total capital deficiency (314,852) (598,844)
T O T A L $1,549,393 $343,534
</TABLE>
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<PAGE>
OBJECTSOFT CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
30 Sep. 96 30 Sep. 95 30 Sep. 96 30 Sep. 95
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Consulting $ 87,000 $ 99,932 $ 345,000 $ 382,494
Development and training 14,260 31,883 52,214 129,783
Kiosk Income 60,180 60,180
----------- ----------- ----------- -----------
Total revenues 161,440 131,815 457,394 512,277
----------- ----------- ----------- -----------
Costs and Expenses:
Cost of services 101,229 62,771 256,283 295,189
Research and development 79,983 17,587 79,983 17,587
General and administrative 166,319 24,060 517,145 183,947
Interest 157,430 826 248,226 2,781
----------- ----------- ----------- -----------
Total expenses 504,961 105,244 1,101,637 499,504
----------- ----------- ----------- -----------
NET INCOME (LOSS) ($ 343,521) $ 26,571 ($ 644,243) $ 12,773
Net income (loss) per share ($ 0.14) $ 0.01 ($ 0.25) $ 0.00
Weighted average number of shares outstanding 2,462,794 2,797,134 2,688,087 2,797,134
</TABLE>
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<PAGE>
OBJECTSOFT CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
UNAUDITED
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($ 644,243) $ 12,773
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 104,485 56,258
Amortization of discount on note payable 214,263
Provision for doubtful accounts (16,160)
Stock options issued for services rendered 10,000
Changes in operating assets and liabilities
(Increases) decreases in:
Accounts receivable 87,162 94,705
Unbilled receivable (150,000)
Prepaid expenses and other current assets (70,111) (37,117)
Other assets (37,749) 34,587
Increases (decreases) in:
Accounts payable 120,520 (20,400)
Accrued and other liabilities 5,467 (42,830)
Accrued officer compensation (376,000)
Net cash provided by (used in) operating (752,366) 97,976
Cash flows from investing activities:
Capital expenditures (629,363)
Capitalized software and courseware (79,747)
Net cash (used in) investing activities (629,363) (79,747)
Cash flows from financing activities:
Proceeds from note payable 981,475
Proceeds from issuance of shares 816,286
Proceeds from issuance of warrants 123,525
Deferred offering costs (210,207)
Dividends (7,243)
Redemption of preferred stock (125,000)
Proceeds from capital lease obligations 98,906
Principal payments on obligations under capital leases (12,097) (10,662)
Net cash provided by (used in) financing activities 1,665,645 (10,662)
NET INCREASE (DECREASE) IN CASH 283,916 7,567
Cash, beginning of period 63,995 7,492
CASH, END OF PERIOD $ 347,911 $ 15,059
=========== ===========
Supplemental disclosures of cash flow Cash paid during the period:
Interest expense $ 7,567 $ 1,755
=========== ===========
</TABLE>
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<PAGE>
OBJECTSOFT CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1996
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information, the instructions to Form 10-QSB and item 310 (b) of
Regulation S-B. Accordingly, they do not include all 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. For further information, refer to the Financial Statements and
footnotes thereto included in the Company's Registration Statement and
Prospectus as filed with the Securities and Exchange Commission.
NOTE B -- LOSS PER SHARE
The loss per share amount in the statement of operations has been
computed in accordance with a Staff Accounting Bulletin (SAB) of the Securities
and Exchange. According to the SAB, common stock and common stock warrants
issued are to be treated as common stock equivalents outstanding for all periods
presented if such common stock was issued or such common stock warrants may be
exercised, at a price substantially below the public offering price. As a
consequence of the Company's offering of 1,250,000 Units each unit consisting of
one share of the Company's common stock and one Redeemable Class Warrant at
$5.00 per unit in an initial public offering, its warrants issued to the Bridge
Note holders, entitling the holders thereof to acquire an aggregate of 512,500
shares of the Company's common stock would have been treated as common stock
equivalents unless their inclusion would be antidilutive. The unexercised Bridge
Warrants have not been treated as common stock equivalents at September 30, 1996
as their inclusion would be antidilutive.
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<PAGE>
OBJECTSOFT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Three and Nine Months Ended September 30, 1996 Compared with Three and
Nine Months Ended September 30, 1995
Special Note Regarding Forward-Looking Statements
A number of statements contained in this filing are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 that involve risks and uncertainties that could cause actual results to
differ materially from those expressed or implied in the applicable statements.
These risks and uncertainties include but are not limited to: limited operating
history; recent establishment of new business divisions; potential future
operating losses; dependence on new and untested product; risks related to
technological factors; potential manufacturing difficulties; dependence on
certain third parties and on the Internet; limited customer base; risk of
manufacturing activities; dependence on key personnel and proprietary
technology; risk of system failure, security risks and liability risks;
uncertainty of additional financing; the Company's vulnerability to rapid
industry change and technological obsolescence; the limited nature of its
product life and the uncertainty of market acceptance of the Company's products;
the unproven status of the Company's products in widespread commercial use,
including the risks that the Company's current and future products may contain
errors that would be difficult and costly to detect and correct; uncertainties
with respect to the Company's business strategy; general economic conditions;
and other risks described in the Company's Prospectus.
Net sales for the three months ended September 30, 1996 increased by
22.5% over the three months ended September 30, 1995 (from $131,815 to $161,440)
and net sales for the nine months ended September 30, 1996 declined by 39.4%
over the nine months ended September 30, 1995 (from $512,277 to $457,394). Sales
for the three months increased due to greater revenues from the New York City
Kiosk Demonstration Project. Sales for the nine months decreased due to a
reduction in revenue from Consulting and from Development and Training as the
Company shifted away from fee-based consulting, training and custom development
and redirection of the Company's resources towards the development of
transactional, fee-based and advertising-supported products and services.
Revenue changes were not a result of increases or decreases in prices.
Costs and expenses increased for the three months ended September 30,
1996 by 379.8% (from $105,244 to $504,961) and by 120.6% (from $499,504 to
$1,101,637) for the nine months ended September 30, 1996 due to the addition of
administrative and sales personnel, expenses related to the Company's initial
public offering, and the write-off of unamortized note payable discounts and
deferred financing costs related to Bridge Loans received by the Company.
Costs and expenses increased with respect to research and development
expenses by 354.8% (from $17,587 to $79,983) for the three months and nine
months ended September 30, 1996 due to undertaking work which is not included in
cost of services and which under generally accepted accounting principles had
not yet reached the stage where it should be capitalized.
The net loss from operations for the three months ended September 30,
1996 compared to net income for the three months ended September 30, 1995
increased by 1,292.84% from $26,571 to ($343,521) and by 5,043.8% for the nine
months ended September 30, 1996 over the nine months ended September 30, 1995
(from
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<PAGE>
$12,773 to $644,243) primarily due to the increase in costs relating to the
Company's public offering, an increase research and development expenses and an
increase in sales expense.
Liquidity and Capital Resources
September 30, 1996 Compared with December 31, 1995
For the nine months ended September 30, 1996 the Company incurred a
net loss of $644,243. As of September 30, 1996, the Company had an accumulated
deficit of $1,543,223. The Company continues to incur operating losses. The
Company had negative working capital of $390,290 as of December 31, 1995 and
positive working capital of $260,821 as of September 30, 1996, respectively. For
the nine month period ended September 30, 1996 the Company received proceeds of
approximately $981,475 from notes payable and $816,286 from the issuance of
common stock, and $123,525 from the issuance of warrants. It expended $125,000
in redeeming preferred stock.
The Company received $98,906 in proceeds from capital leases.
The Company completed its initial public offering in November, 1996,
and anticipates that its existing working capital will be sufficient to fund its
operations at least through the end of 1997.
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<PAGE>
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
A special meeting of stockholders of the Company (the "Meeting") was
held on September 16, 1996.
At the Meeting an Amendment to the Certificate of Incorporation of
the Company providing for, among other things, a classified Board of Directors
and higher voting requirements for certain stockholder actions was approved, a
classified Board of Directors was elected, Amended and Restated Bylaws of the
Company were adopted, and the Company's 1996 Stock Option Plan was approved. All
of the foregoing documents are described in the Company's Registration Statement
on Form SB-2 No. 333-10519 and were filed as exhibits thereto. As of the record
date of the Meeting, there were 2,566,001 shares of Common Stock and 212,500
Series A Preferred Stock with voting rights outstanding. The votes for the
proposals approving such actions were as follows:
<TABLE>
<CAPTION>
Shares Voted Broker
Shares Voted Against or Non-
For Withheld Abstentions votes
------------ -------- ----------- -----
<S> <C> <C> <C> <C>
1. Approval of Amendment to
Certificate of Incorporation 1,655,572* 0 0 0
2. Election of the Board of
Directors
Class I Directors
David E. Y. Sarna 1,655,572* 0 0 0
Julius Goldfinger 1,655,572* 0 0 0
Class II Directors
George J. Febish 1,655,572* 0 0 0
Daniel E. Ryan 1,655,572* 0 0 0
3. Adoption of Amended and
Restated Bylaws 1,655,572* 0 0 0
4. Adoption of 1996
Stock Option Plan 1,655,572* 0 0 0
</TABLE>
*Includes the votes of 12,500 shares of Series A Preferred Stock, which has
subsequently been redeemed.
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<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(b) The Company filed no reports on Form 8-K during the quarter ended
September 30, 1996.
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<PAGE>
SIGNATURES
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.
OBJECTSOFT CORPORATION
BY: /s/ David E. Y. Sarna
-------------------------
David E. Y. Sarna, Chairman and
Co-Chief Executive Officer
Date: January 10, 1997
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<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000896145
<NAME> OBJECTSOFT CORPORATION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 347,911
<SECURITIES> 0
<RECEIVABLES> 151,600
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 596,201
<PP&E> 701,973
<DEPRECIATION> 98,076
<TOTAL-ASSETS> 1,549,393
<CURRENT-LIABILITIES> 335,380
<BONDS> 0
273,239
0
<COMMON> 257
<OTHER-SE> (315,109)
<TOTAL-LIABILITY-AND-EQUITY> 1,549,393
<SALES> 457,394
<TOTAL-REVENUES> 457,394
<CGS> 256,383
<TOTAL-COSTS> 256,383
<OTHER-EXPENSES> 597,128
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 248,226
<INCOME-PRETAX> (644,243)
<INCOME-TAX> 0
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<EPS-PRIMARY> (0.14)
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</TABLE>
