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, 1997
Commission file number 1-10751
OBJECTSOFT CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 22-3091075
(State of incorporation) (IRS Employer ID number)
CONTINENTAL PLAZA III, 433 HACKENSACK AVENUE
HACKENSACK, NJ 07601
(Address of Principal Executive Offices)
(201)343-9100
(Issuer's Telephone Number Including Area Code)
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 ___ .
(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 October 30, 1997
Common Stock, $.0001 par value 4,082,676
Redeemable Class A Warrants 1,366,050
Transitional Small Business Disclosure Format (check one):
Yes ___ No X
<PAGE>
OBJECTSOFT CORPORATION
INDEX
Page #
Part I. Financial Information
Item 1.Financial statements
Condensed Balance Sheets- 1
September 30, 1997 and December 31, 1996
Condensed Statements of Operations
Three Months and the Nine months Ended
September 30, 1997 and 1996 2
Condensed Statements of Cash Flows
Nine months Ended September 30, 1997
and 1996 3
Notes to Condensed Financial Statements 4
Item 2.Management's Discussion and Analysis
or Plan of Operation 6
Part II Other Information
Item 1. Legal proceedings 9
Item 2. Changes in Securities and Use of Proceeds 10
Item 6. Exhibits and reports on Form 8-K 10
Signatures 11
Exhibit index 12
Exhibit Exhibit 27, Article 5 Financial
Data Schedule 13
<PAGE>
PART I Financial information
<TABLE>
OBJECTSOFT CORPORATION
CONDENSED BALANCE SHEETS -- SEPTEMBER 30, 1997 (Unaudited)
AND DECEMBER 31, 1996
<CAPTION>
September 30, Dec 31,
1997 1996
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $101,606 $4,039,358
Marketable securities 1,589,601
Accounts receivable 223,839 5,900
Notes and loan receivable-
officer shareholder 440,000
Loan receivable - InteractiVisions, Inc. 50,000
Prepaid expenses and other
current assets 158,772 180,463
----------- ------------
Total current assets 2,563,818 4,225,721
Equipment, at cost, net of
accumulated depreciation 401,694 457,848
Capitalized software and courseware 105,375 168,118
Other assets 85,787 130,474
----------- ------------
T O T A L $3,156,674 $4,982,161
=========== ============
LIABILITIES
Current liabilities
Current portion of obligations
under capitalized leases $41,303 $45,740
Accounts payable 179,562 57,309
Accrued liabilities 136,816 101,872
Other current liabilities 9,785
----------- ------------
Total current liabilities 357,681 214,706
----------- ------------
Obligations under capitalized leases 12,828 38,335
----------- ------------
STOCKHOLDERS' EQUITY
Common stock, $.0001 par value; authorized
20,000,000 shares; issued and
outstanding 4,082,676 shares as of
September 30, 1997 and 4,022,676 shares
as of December 31, 1996 408 402
Additional paid-in capital 6,942,862 6,878,868
Accumulated deficit (4,157,105) (2,150,150)
----------- ------------
Total stockholders' equity 2,786,165 4,729,120
----------- ------------
T O T A L $3,156,674 $4,982,161
=========== ============
-1-
</TABLE>
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<TABLE>
OBJECTSOFT CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
UNAUDITED
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
1997 1996 1997 1996
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Consulting $58,993 $87,000 $168,394 $345,000
Development and training 14,260 52,214
Rental income 90,270 60,180 270,810 60,180
Investment income 53,282 137,954
----------- ----------- ------------ ------------
Total revenues 202,545 161,440 577,158 457,394
----------- ----------- ------------ ------------
Expenses:
Cost of Services 175,161 98,080 571,642 271,547
Research and development 175,167 79,909 462,775 79,909
General and administrative 425,340 169,542 1,339,300 501,955
Interest expense 3,428 157,430 10,396 248,226
Provision for loss on loan receivable 50,000 200,000
----------- ----------- ------------ ------------
Total expenses 829,096 504,961 2,584,113 1,101,637
----------- ----------- ------------ ------------
NET (LOSS) ($626,551) ($343,521) ($2,006,955) ($644,243)
----------- ----------- ------------ ------------
NET (LOSS) PER SHARE ($0.15) ($0.14) ($0.49) ($0.24)
=========== =========== ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 4,082,219 2,462,794 4,061,643 2,688,087
=========== =========== ============ ============
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</TABLE>
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<TABLE>
OBJECTSOFT CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 - (UNAUDITED)
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1997 1996
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) (2,006,955) (644,243)
Adjustments to reconcile net loss to net
cash (used in) operating activities:
Depreciation and amortization 260,435 104,485
Amortization of discount on note payable 214,263
Provision for doubtful accounts (16,160)
Provision for loss on loan receivable 200,000
Stock options issued for services rendered 4,000 10,000
Changes in operating assets and liabilities:
(Increase)in accounts receivable (217,939) (62,838)
(Increase) Decrease in other current assets 21,691 (70,111)
(Increase)decrease in other assets 44,687 (37,749)
Increase in accounts payable 122,253 120,520
Increase in accrued expenses and
other liabilities 25,159 5,467
(Decrease) in accrued officer compensation (376,000)
----------- ------------
Net cash (used in) operating activities (1,546,669) (752,366)
----------- ------------
Cash flow from investing activities:
Capital expenditures (94,381) (629,363)
Capitalized software and courseware (47,157)
Investment in marketable securities (1,589,601)
Loan receivable Interactivisions,Inc. (250,000)
Increase in notes receivable officer shareholder (440,000)
----------- ------------
Net cash (used in) investing activities (2,421,139) (629,363)
----------- ------------
Cash flow from financing activities
Proceeds from note payable 981,475
Proceeds from issuance of shares 816,286
Proceeds form 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 (29,944) (12,097)
Proceeds from exercise of warrants
and issuance of 60,000 shares 60,000
----------- ------------
Net cash provided by financing activities 30,056 1,665,645
----------- ------------
NET INCREASE (DECREASE) IN CASH (3,937,752) 283,916
Cash, beginning of period 4,039,358 63,995
----------- ------------
Cash, end of period $101,606 $347,911
=========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest expense paid $10,396 $7,567
=========== ============
</TABLE>
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OBJECTSOFT CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1997
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
SB. 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 and Form 10-KSB (for the year ended December 31,
1996) as filed with the Securities and Exchange Commission.
NOTE B -- LOSS PER SHARE
Net loss per share was computed based on the weighted
average number of shares of common stock outstanding during
the period and the net loss for the period ending March 31,
1996 was increased by dividends accruing on the cumulative
preferred stock. Prior to November 13, 1996, certain shares
of common stock and common stock equivalents were issued and
in accordance with certain rules of the Securities and
Exchange Commission all such shares of common stock and
common stock equivalents were considered outstanding through
June 30, 1996. Fully diluted net loss per share is not
shown since it would be anti-dilutive.
-4-
<PAGE>
NOTE C -- NOTES AND LOAN RECEIVABLE OFFICER SHAREHOLDER
In January 1997, with the approval of the board of
directors, the Company loaned $440,000 to the Company's
chairman of the board. The loan which is unsecured, bears
interest at 8% per annum and is due in November 1997. The
chairman of the board used the proceeds for a block purchase
of 80,000 shares of the Company's common stock from the
market maker, who was also the underwriter of the Company's
IPO, in an open market transaction. In February 1997, the
Company loaned the chairman of the board an additional
$197,500 under similar terms. The latter loan was repaid
in June, 1997.
-5-
<PAGE>
OBJECTSOFT CORPORATION
Item II.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 the recent establishment of new business
divisions; dependence on new untested product; risks associated with the
marketing of kiosks and expansion of services; risks related to
technological factors; potential manufacturing difficulties; dependence
on certain third parties and on the Internet; limited customer base;
risk of system failure, security risks and liability risks; and other
risks described in the Company's filings with the Securities and
Exchange Commission including but not limited to the Company's
Prospectus dated October 22, 1997.
Results of Operations
Three Months and Nine Months Ended September 30, 1997
Compared With Three Months and Nine Months Ended September 30, 1997
The results of operations for the nine months ended September 30,
1997 are not necessarily indicative of the results that may be expected
for any other interim period or for the fiscal year ending December 31,
1997.
Net revenue for the three months ended September 30, 1997
increased by 25.46% over the three months ended September 30, 1996 (from
$161,440 to $202,545) and net revenue for the nine months ended
September 30, 1997 increased by 26.18% over the nine months ended
September 30, 1996 (from $457,394 to $577,158). Revenue for the three
months and the nine months increased due to interest and dividend income
earned on short term investments and revenue received from the New York
City Kiosk Demonstration Program. This was offset by a reduction in
consulting and training revenue as the Company continued its shift away
from fee- based consulting, training and custom development activities
and redirected its 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.
Cost of services for the three months ended September 30, 1997
increased by 78.59% over the three months ended September 30, 1996 (from
$98,080 to $175,161) and the cost of services for the nine months ended
September 30, 1997 increased by 110.51% over the nine months ended
September 30, 1996 (from $271,547 to $571,642) due to higher personnel
expenses and kiosk expenses.
-6-
<PAGE>
Research and development expenses for the three months ended
September 30, 1997 compared to the three months ended September 30,
1996, increased by 119.21% (from $79,909 to $175,167), and by 479.13%
(from $79,909 to $462,775) for the nine months ended September 30, 1997
compared to the nine months ended September 30, 1996 due to the expensed
development costs for the SmartStreet(TM) operations.
General and administrative expenses for the three months ended
September 30, 1997 increased by 150.88% (from $169,542 to $425,340)
compared to the three months ended September 30, 1996, and by 166.82%
for the nine months ended September 30, 1997 compared to the nine months
ended September 30, 1996 (from $501,955 to $1,339,300) due principally
to increases in salaries and personnel related expenses,
professional fees and insurance for directors and officers.
Interest expenses for the three months ended September 30, 1997
decreased by 97.81% (from $157,430 to $3,428) compared to the three
months ended September 30, 1996, and by 95.81% for the nine months ended
September 30, 1997 compared to the nine months ended September 30, 1996
(from $248,226 to $10,396) due principally to interest on the bridge
notes financing which was repaid in 1996.
The Company has also provided for a loss on a loan receivable to
InteractiVision, Inc. in the amount of $200,000 (See below Liquidity and
Capital Resources).
The net loss for the three months ended September 30, 1997
compared to the three months ended September 30, 1996, increased by
82.39% (from $343,521 to $626,551) and by 211.52% for the nine months
ended September 30, 1997 compared to the nine months ended September 30,
1996 (from $644,243 to $2,006,955). This change is primarily due to
increases in costs associated with the Company's newer emphasis on
transactional and advertising-supported products and services, an
increase in research and development expenses, an increase in general
and administrative expenses due to higher costs associated with being a
public company and to support the redirection in revenue sources, and a
provision for loss on loan receivable.
Liquidity and Capital Resources
For the nine months ended September 30, 1997 the Company incurred
a net loss of $626,551. The accumulated deficit increased to $4,157,105
as the Company continues to incur operating losses as expenses exceed
revenue. The Company had working capital of $2,206,137 as of September
30, 1997 as compared to $4,011,015 as of December 31, 1996, or a
decrease of $1,804,878. Capital expenditures and capitalized software
amounted to $141,538.
-7-
<PAGE>
In November 1996, the Company completed the sale in a public
offering of 1,366,050 Units, from which it received net proceeds of
approximately $5,465,000. Of such amount, approximately $1,583,000 was
applied to the repayment of certain bridge loans and redemption of
Preferred Stock. The Company expects to fund the deployment
of additional SmartStreet (TM) kiosks in New York City and elsewhere,
and make kiosk related acquisitions, from available working capital and
from funds that will be derived from future operating revenues.
However, there can be no assurance that future revenues will be
generated in sufficient amounts or that additional funds will not be
required for the
expansion of operations. The Company intends to lease equipment whenever
possible on acceptable terms.
On May 5, 1997, the Company and InteractiVisions, Inc.
("InteractiVisions") signed a letter of intent which contemplates the
acquisition of all the outstanding stock of InteractiVisions in exchange
for the issuance of 600,000 shares of the Company's Common Stock,
subject to certain adjustments. Simultaneous with the signing of the
letter of intent, the Company loaned InteractiVisions $250,000 (the
"Loan"), payable 60 days after the termination of the letter of intent,
together with interest at the prime rate plus 3 points. On August 8,
1997, the Company terminated the letter of intent, and the Loan balance
is due and payable on or about October 8, 1997. As of the date of this
Form 10-QSB, no payment on the Loan has been made. The Company has
provided an allowance for loss on the Loan of $200,000.
The rate of inflation was insignificant during the quarter ended
September 30, 1997. In the past, the effects of inflation on personnel
costs have been offset by the Company's ability to increase its
charges for services rendered. The Company
anticipates that it will be able to continue to do so in the near
future. The Company continually reviews its costs in relation to the
pricing of its products and services.
The Company anticipates that its existing working capital will be
sufficient to fund its operations at least through the end of 1998.
-8-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In or about January 1997, the Company commenced an
action in the United States District Court for the District
of New Jersey against Harvey Bayard ("Bayard"), a former
stockholder, officer and director of the Company. In its
complaint, the Company alleges, among other things, that
Bayard wrongfully induced certain shareholders and investors
to repudiate and breach their commitments to enter into lock-
up agreements in connection with the Company's November 1996
initial public offering, that Bayard wrongfully interfered
with the Company's contractual relations with Renaissance
Financial Securities Corporation, that Bayard breached his
own agreement with the Company and his own agreement to
execute a lock-up agreement, and that Bayard breached
certain of his fiduciary obligations to the Company and
engaged in other actionable conduct that damaged the
Company. The Company seeks compensatory damages in excess
of $3,500,000.00 and punitive damages. In April 1997,
Bayard asserted a counterclaim against the Company and David
E.Y. Sarna ("Sarna"), the Chairman of the Board of the
Company. The counterclaim was dismissed with leave to amend by
Order dated September 9, 1997. Bayard amended his counterclaim
to allege that the Company tortiously interfered with prospective
business relations in that the Company and Sarna advised many of
Bayard's shareholders, business associates and clients that Bayard
had broken his agreement with the Company and that the Company
would never do business with Bayard again. Bayard seeks
compensatory and punitive damages in an unspecified amount.
The Company has moved to dismiss the Amended Counterclaim.
-9-
<PAGE>
Item 2. Changes in Securities and Use of Proceeds
The company filed a Form SR (the "Form SR") with the
Securities and Exchange Commission, dated February 20, 1997,
reporting the sales of securities and use of proceeds therefrom
in connection with the Company's Initial Public Offering in
November 1996 (the "Public Offering"). The effective date of
the registration statement filed in connection with the Public
Offering was November 12, 1996, Commission file
number 333-10519.
The following information updates the information
contained in Form SR. From February 28, 1997 (the period of
the Form SR) through September 30, 1997, $1,160,500 of the
net offering proceeds to the Company has been used for further
expansion of SmartStreet [TM] and related operations and for
general corporate purposes, additionally $250,000 was loaned
to InteractiVisions, Inc. in connection with a potential acquisition
which acquisition was later abandoned, in the form of direct or indirect
payments to others, and $1,589,600 remains in temporary investments.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
Exhibit 27- Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K
during the quarter ended September 30, 1997.
-10-
<PAGE>
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.
OBJECTSOFT CORPORATION
BY ___________________________
David E. Y. Sarna, Co-Chief
Executive Officer and
Secretary
Date: November 14, 1997
-11-
<PAGE>
OBJECTSOFT CORPORATION
Exhibit Index
Exhibit Number Page #
27 Financial Data Schedule 13
-12-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 101,606
<SECURITIES> 1,589,601
<RECEIVABLES> 223,839
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,563,818
<PP&E> 680,835
<DEPRECIATION> 279,141
<TOTAL-ASSETS> 3,156,674
<CURRENT-LIABILITIES> 357,681
<BONDS> 0
0
0
<COMMON> 408
<OTHER-SE> 6,942,862
<TOTAL-LIABILITY-AND-EQUITY> 3,156,674
<SALES> 577,158
<TOTAL-REVENUES> 577,158
<CGS> 0
<TOTAL-COSTS> 2,584,113
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,006,955)
<INCOME-TAX> (2,006,955)
<INCOME-CONTINUING> (2,006,955)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,006,955)
<EPS-PRIMARY> (.049)
<EPS-DILUTED> (.049)
</TABLE>
