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 June 30, 1998
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 August 13, 1998
Common Stock, $.0001 par value 4,564,898
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
June 30, 1998 and December 31, 1997
Condensed Statements of Operations
Three Months and the Six Months Ended
June 30, 1998 and 1997 2
Condensed Statements of Cash Flows
for the Six Months Ended
June 30, 1998 and 1997 3
Notes to Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis
or Plan of Operation 5
Part II Other Information
Item 2. Changes in Securities and Use of Proceeds 10
Item 6. Exhibits and reports on Form 8-K 10
Signature 11
Exhibit Index 12
Exhibit 27 Article 5 Financial Data Schedule 13
<PAGE>
PART I Financial information
<TABLE>
OBJECTSOFT CORPORATION
CONDENSED BALANCE SHEETS -- JUNE 30, 1998 (Unaudited)
AND DECEMBER 31, 1997
<CAPTION>
June December
30, 1998 31, 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $434,210 $209,455
Marketable securities 99,000 915,938
Accounts receivable 249,032 364,859
Prepaid expenses and other
current assets 228,689 235,150
Notes receivable-
officer/ shareholder 440,000 440,000
Note receivable - other 25,000
------------ ------------
Total current assets 1,450,931 2,190,402
Equipment, at cost, net of
accumulated depreciation 478,258 384,071
Capitalized software 59,413 78,231
Other assets 18,747 70,847
------------ ------------
T O T A L 2,007,349 $2,723,551
============ ============
LIABILITIES
Current liabilities
Current portion of long-term
debt 15,806 $8,686
Current portion of obligations
under capital lease 6,788 27,348
Accounts payable 135,873 296,658
Accrued expenses 126,436 84,560
Other current liabilities 5,039 2,163
------------ ------------
Total current liabilities 289,942 419,415
Long-term debt 20,489 5,413
Obligations under capital lease 22,270 25,475
------------ ------------
Total Liabilities 332,701 450,303
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $.0001 par value; authorized
20,000,000 shares; issued and
outstanding 4,082,676 shares
at December 31, 1997, and 4,564,898
shares at June 30, 1998 456 408
Additional paid-in capital 7,772,721 6,942,862
Accumulated deficit (6,098,529) (4,670,022)
------------ ------------
Total stockholders' equity 1,674,648 2,273,248
------------ ------------
T O T A L $2,007,349 $2,723,551
============ ============
</TABLE>
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<PAGE>
<TABLE>
OBJECTSOFT CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND THE SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
UNAUDITED
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
1998 1997 * 1998 1997 *
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Sales and services income $ 59,411 $ 152,142 $ 103,702 $ 289,941
----------- ------------ ------------ -----------
Expenses:
Cost of sales and services income 178,355 205,196 361,711 424,658
Research and development 152,701 188,993 300,041 287,608
General and administrative 435,781 461,030 904,593 885,783
----------- ------------ ------------ -----------
Total expenses 766,837 855,219 1,566,345 1,598,049
----------- ------------ ------------ -----------
Loss from operations (707,426) (703,077) (1,462,643) (1,308,108)
----------- ------------ ------------ -----------
Other income(expense):
Realized and unrealized gain(loss) on
marketable securities (5,089) (6,935)
Interest and dividend income 12,835 48,546 47,206 84,672
Interest expense (3,248) (3,248) (6,135) (6,968)
Provision for loss on loan receivable 0 (150,000) (150,000)
----------- ------------ ------------ -----------
Total other income (expense) 4,498 (104,702) 34,136 (72,296)
----------- ------------ ------------ -----------
NET (LOSS) $ (702,928) $ (807,779) $ (1,428,507) $ (1,380,404)
=========== ============ ============ ===========
BASIC AND DILUTED NET (LOSS) PER SHARE $ (0.16) $ (0.20) $ (0.34) $ (0.34)
=========== ============ ============ ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 4,337,035 4,065,632 4,210,558 4,050,952
=========== ============ ============ ===========
* Reclassified to conform to current year's presentation
</TABLE>
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<TABLE>
OBJECTSOFT CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 - (UNAUDITED)
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1998 1997
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) (1,428,507) (1,380,404)
Adjustments to reconcile net loss to net
cash (used in) operating activities:
Depreciation and amortization 180,677 159,665
Provision for loss on loan receivable 150,000
Stock options issued for services rendered 4,000
Changes in operating assets and liabilities:
(Increase)in accounts receivable 115,827 (195,869)
Decrease in other current assets 6,461 36,389
Decrease in note receivable- other 25,000
(Increase)decrease in other assets 52,100 29,789
Increase in accounts payable (160,785) 73,919
(Decrease) in accrued expenses and
other liabilities 44,752 (11,505)
----------- ------------
Net cash used in operating activities (1,164,475) (1,134,016)
----------- ------------
Cash flow from investing activities:
Capital expenditures (224,292) (83,890)
Capitalized software and courseware (31,754) (27,162)
Investment in marketable securities 816,938 (2,123,982)
Loan receivable Interactivisions,Inc. (250,000)
Increase in notes receivable officer shareholder (440,000)
----------- ------------
Net cash (used in) investing activities 560,892 (2,925,034)
----------- ------------
Cash flow from financing activities
Proceeds from issuance of stock in
private placement 829,907
Proceeds from exercise of warrants
and issuance of 59,000 shares 59,000
Principal payments on obligations
under capital leases (23,765)
Proceeds from long-term debt 22,196
----------- ------------
Net cash provided by financing activities 828,338 59,000
----------- ------------
NET INCREASE (DECREASE) IN CASH 224,755 (4,000,050)
Cash, beginning of period 209,455 4,039,358
----------- ------------
Cash, end of period 434,210 $39,308
=========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest expense paid 6,135 $3,248
=========== ============
</TABLE>
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<PAGE>
OBJECTSOFT CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
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 Form 10-KSB (for the year ended December 31, 1997) as
filed with the Securities and Exchange Commission.
NOTE B -- LOSS PER SHARE
Basic and diluted net loss per share was computed based on the weighted average
number of shares of common stock outstanding during the period.
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OBJECTSOFT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
PART II
Special Note Regarding Forward-Looking Statements
A number of statements contained in this report 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: historical and potential
future operating losses; uncertainty of additional financing; limited operating
history; accumulated deficit; recent establishment of new business divisions;
recent change of operating focus; dependence on new untested product; risks
related to consulting and training services; uncertainty of product development;
vulnerability to technological factors; year 2000 problem; the uncertainty of
market acceptance of the Company's product; competition; possible difficulty in
complying with government contract requirements; dependence on certain third
parties and on the Internet; limited customer base; risk of potential
manufacturing difficulties; risk of requirements to comply with government
regulations; potential liability for information and content disseminated
throughout the network; dependence on key personnel and proprietary technology;
risk of system failure, security risks and liability risks; the Company's
vulnerability to rapid industry change and technological obsolescence; the
limited nature of its product life; 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 to detect
and correct; uncertainties with respect to the Company's business strategy;
NASDAQ maintenance requirements; possible delisting of securities from NASDAQ,
penny stock regulations; general economic conditions, and other risks described
elsewhere herein and in the Company's Form 10-KSB for the fiscal year ended
December 31, 1997 and in the Company's Post-Effective Amendment No. 2 to the
Registration Statement on Form SB-2 filed with the Securities and Exchange
Commission on August 12, 1998.
Results of Operations
Three Months and Six Months Ended June 30, 1998 Compared With Three
Months and Six Months Ended June 30, 1997
The results of operations for the six months and three months ended June 30,
1998 are not necessarily indicative of the results that may be expected for any
other interim period or for the fiscal year ending December 31, 1998.
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<PAGE>
Net sales and services income for the three months ended June 30, 1998, as
compared to the three months ended June 30, 1997, decreased by $92,731 or 61% to
$59,411 from $152,142. Net sales and services income for the six months ended
June 30, 1998, as compared to the six months ended June 30, 1997, decreased by
$186,239 or 64% to $103,702 from $289,941.
The Company's decreased sales and services income resulted from a decrease in
revenues from development and training due to the redirection of the Company's
resources to transactional fee-based products and services. In addition, there
was a decrease in rental income due to the completion of the original contract
with the City of New York, and an extension with the City of New York which
resulted in a reduction in the rental of five kiosks from $30,090 to $9,700 per
month, through June 30, 1999, which will be used to recover the incremented
costs associated with providing services for the extended period. The above
decreases were offset by an increase in revenues due to the sale of equipment
and revenues derived from advertising on the Company's kiosks.
Cost of sales and services for the three months ended June 30, 1998
as compared to the three months ended June 30, 1997, decreased by $26,841 or
13% to $178,355 from $205,196. Cost of services for the six months ended
June 30, 1998 as compared to the six months ended June 30, 1997, decreased by
$62,947 or 15% to $361,711 from $424,658. The decreases were due to the
redirection of the Company's resources to transactional fee-based products,
which were offset by an increase in costs related to the sale of equipment and
normal increases in expenses.
Cost of sales and services exceeded sales and services income due to
fixed costs incurred in the sale and services of initial units installed in
San Francisco, fixed costs associated with the sale of a small number
of units, and set up costs incurred in generating initial advertising
revenue. Management expects that as the number of installed kiosks will
increase, the incremental costs as a percentage of sales will decline.
The ratio of costs to sales will therefore be more favorable.
Research and development expenses for the three months ended June 30, 1998 as
compared to the three months ended June 30, 1997, decreased by $36,292 or 19% to
$152,701 for the three months ended June 30, 1998 from $188,993 for the three
months ended June 30, 1997. This was due to a decrease in personnel devoted to
research and development in the second quarter of 1998.
Research and development expenses for the six months ended June 30, 1998 as
compared to the six months ended June 30, 1997, increased by $12,433 or 4% to
$300,041 for the six months ended June 30, 1998 from $287,608 for the six months
ended June 30, 1997. This was due to an increase in personnel devoted to
research and development in the first quarter of 1998, in connection with the
Company's expansion into San Francisco.
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<PAGE>
General and administrative expenses for the three months ended June 30, 1998 as
compared to the three months ended June 30, 1997, decreased by $25,249 or 5% to
$435,781 for the three months ended June 30, 1998 from $461,030 for the three
months ended June 30, 1997. This was due principally to increases in personnel
costs offset by decreases in professional fees. General and administrative
expenses for the six months ended June 30, 1998 as compared to the six months
ended June 30, 1997, increased by $18,810 or 2% to $904,593 for the six months
ended June 30, 1998 from $885,783 for the six months ended June 30, 1997. This
was due principally to increases in personnel expenses in the first quarter of
1998.
Other income for the three months ended June 30, 1998 as compared to the three
months ended June 30, 1997, increased by $109,200 or 104% to $4,498 for the
three months ended June 30, 1998, from ($104,702) for the three months ended
June 30, 1997. Other income for the six months ended June 30, 1998 as compared
to the six months ended June 30, 1997, increased by $106,432 or 147% to $34,136
for the six months ended June 30, 1998, from ($72,296) for the six months ended
June 30, 1997. Investment income, in 1998, was lower than in 1997 due to the
utilization of cash and investments to fund operations. Additionally, during
1997, other income was reduced as a result of the $150,000 provision for loss
on a loan receivable.
The net loss for the three months ended June 30, 1998 as compared to the three
months ended June 30, 1997, decreased by $104,851 or 13% to $702,928 for the
three months ended June 30, 1998 from $807,779 for the three months ended June
30, 1997. This was due to lower revenues resulting from the renegotiation of the
New York City contract offset by a provision for loss on loan receivable in
1997. The net loss for the six months ended June 30, 1998 as compared to the six
months ended June 30, 1997, increased by $48,103 or 3% to $1,428,507 for the six
months ended June 30, 1998 from $1,380,404 for the six months ended June 30,
1997. This was due to lower revenues due to the renegotiation of the New York
City contract offset by a provision for loan receivable in 1997.
Liquidity and Capital Resources
The Company provides IPAT and Internet-based services. Beginning in mid-1994,
the Company changed its focus from consulting and training services to
transactional, fee-based and advertising-supported products and services. The
Company's SmartStreet(TM) IPATs were introduced in July 1996. The Company has
not recognized any significant income to date from the SmartStreet (TM) IPAT
rentals. Although the Company anticipates that it will begin to recognize
greater revenues from the SmartStreet (TM) IPATs during 1998, it cannot predict
the actual timing or amount of such revenues.
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<PAGE>
For the six months ended June 30, 1998, the Company incurred a net loss of
$1,428,507. The accumulated deficit increased to $6,098,529 as the Company
continues to incur operating losses as expenses exceed revenue. The Company
expects to report losses for the year ended December 31, 1998. To date, the
Company has installed seven IPATs in the City of New York and thirteen IPATs in
other locations and realized increased revenues from advertising on the kiosks.
The Company will continue to incur substantial losses unless and until it
significantly increases the number of IPATs placed in the City of New York and
other locations, and realizes increased revenues from advertising. The Company
has working capital of $1,160,989 as of June 30, 1998 as compared to
$1,770,987 as of December 31, 1997, or a decrease of $609,998.
Capitalized expenditures and capitalized software amounted to $256,046.
On May 13, 1998 (the "Subscription Date"), the Company entered into the
Financing Agreement with several investors (the "Investors") which provides for
a commitment to fund up to $7,100,000 to the Company. On the Subscription Date
the Investors purchased 444,444 shares of the Company's Common Stock (the
"Initial Shares") and received Warrants to purchase an aggregate of 18,000
shares of Common Stock for $900,000. In connection with the Financing Agreement,
the Company issued to the Placement Agent 37,778 shares of Common Stock and
Warrant A to purchase an additional 9,000 shares. The Financing Agreement also
provides, subject to the fulfillment of various conditions, for the Investors to
purchase 6% Series C Convertible Preferred Stock for $1,200,000. The shares are
to be issued in two parts within 120 days after the registration of the Initial
Shares. In addition, the Company may from time to time, subject to the
fulfillment of various conditions, offer the Investors to purchase additional
common Stock at 85% of the Market Price as defined in the Financing Agreement,
which could potentially produce proceeds of up to $5,000,000.
The Company's management believes that the combination of cash on hand and
operating cash flow will provide sufficient liquidity to meet the Company's cash
flow requirements at least until June 30, 1999.
-8-
<PAGE>
The Company is actively seeking to expand its presence to New York City and also
provide IPATs to other municipalities, states and government agencies and to
organizations in the private sector. The Company is also working on a version of
its SmartSign (TM) IPATs that can be sold to retail stores, and which the
Company believes has the potential to be sold to certain national chains. The
Company began deriving revenues from advertising in May 1998 from contracts
signed March 1998, and the Company is endeavoring to increase the revenue base.
In addition, the Company will seek to derive transaction fees in connection with
the use of kiosks by the public to obtain documents or certain other services,
although, so far, transaction revenues have been minimal. The amount of future
transaction and advertising revenues, if any, will depend on user and advertiser
acceptance of the IPATs.
The Company anticipates that its working capital requirements and its operating
expenses will significantly increase should the Company expand production and
sales of IPATs. The timing of increases of expenses, and the amount of the
working capital consumed by operations, marketing and roll-out expenses, will
impact the magnitude and timing of the Company's cash requirements. To meet any
additional working capital needs, the Company intends to use funds from
operations and to complete additional financing. Although the Company's
management believes that additional funding arrangements are available, the
execution of any such arrangements will depend on timing, market conditions and
available terms. However, there can be no assurance that the Company can or will
obtain sufficient funds from closing additional financing on terms acceptable to
the Company.
The rate of inflation was insignificant during the quarter ended June 30, 1998.
The Company continually reviews its cost in relation to the pricing of its
products and services.
Year 2000 Issues
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. Beginning in
the year 2000, these date code fields will need to accept four digit entries
to distinguish the twenty-first century dates from the twentieth century
dates. The Company uses software and related technologies that will be
affected by the "Year 2000 problem." The Company began the process of
identifying the changes required to their computer programs and hardware during
1996. The Company believes that all of its major programs and hardware are
Year 2000 compliant. The Company believes that it will not incur any
significant costs between now and January 1, 2000 to resolve Year 2000 issues.
However, there can be no assurance that other companies' computer systems and
applications on which the Company's operations rely will be timely converted,
or that any such failure to convert by another company would not have a
material adverse effect on the Company's systems and operations.
Furthermore, there can be no assurance that the software that the Company
uses which has been designed to be Year 2000 compliant contains all necessary
date code changes.
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<PAGE>
PART II
OTHER INFORMATION
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 33-10519.
The following information updates the information contained in Form SR.
From February 28, 1997 (the period of the Form SB) through June 30, 1998,
$3,000,100 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,
and the loan was written off.
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 June 30, 1998.
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<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 /s/ David E. Y. Sarna
David E. Y. Sarna, Co-Chief
Executive Officer and Secretary
August 14, 1998
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OBJECTSOFT CORPORATION
Exhibit Index
Exhibit Number Page #
27 Financial Data Schedule 13
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 434,210
<SECURITIES> 99,000
<RECEIVABLES> 249,032
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,450,931
<PP&E> 938,182
<DEPRECIATION> 459,924
<TOTAL-ASSETS> 2,007,349
<CURRENT-LIABILITIES> 289,942
<BONDS> 0
0
0
<COMMON> 408
<OTHER-SE> 7,772,721
<TOTAL-LIABILITY-AND-EQUITY> 2,007,349
<SALES> 103,702
<TOTAL-REVENUES> 103,702
<CGS> 361,711
<TOTAL-COSTS> 1,566,345
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,135
<INCOME-PRETAX> (1,428,507)
<INCOME-TAX> (1,428,507)
<INCOME-CONTINUING> (1,428,507)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,428,507)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> (.34)
</TABLE>
