SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM __________ TO___________
Commission File Number 1-10751
OBJECTSOFT CORPORATION
(Name of small business issue in its charter)
Delaware 22-3091075
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Continental Plaza III, 433 Hackensack Avenue
Hackensack, New Jersey 07601
(Address of principal executive offices)
Issuer's telephone number: (201) 343-9100
Securities registered under Section 12(b)
of the Exchange Act: None
Title of each class: None
Name of each exchange on which registered: None
Securities registered under Section 12(g)
of the Exchange Act:
Title of Each Class: Common Stock
Redeemable Class A Warrants
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities 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 ____
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained in this
form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. [X]
The issuer's revenue for its most recent fiscal year was
$631,167
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which
the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within the past 60 days.
At March 25, 1998, the aggregate market value of the Common
Stock held by non-affiliates 2,441,676 shares was
$6,867,213.75.
State the number of shares outstanding of each of the
issuer's classes of common equity as of the latest
practicable date.
At March 25, 1998, 4,082,676 shares of Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the
issuer's Definitive Proxy Statement for the 1998 Annual
Meeting of Stockholders of the Company are incorporated by
reference into Part III hereof.
Transitional Small Business Disclosure Format (check one):
Yes ___ No X
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PART I
Item 1. Description of Business
General
ObjectSoft Corporation (the "Company") was
incorporated in Delaware in January 1996 and is the
surviving corporation of a merger on January 31, 1996
between it and its predecessor, ObjectSoft Corporation, a
New Jersey corporation incorporated in December 1990.
The Company's executive offices are located at
Continental Plaza III, 433 Hackensack Avenue, Hackensack,
New Jersey 07601; its telephone number is (201) 343-9100;
its facsimile number is (201) 343-0056; its Internet e-mail
address is [email protected]; and its homepage on
the World-Wide Web is at http://www.objectsoftcorp.com.
The Company is currently engaged in the business of
providing transaction-based and advertising-supported
services through interactive public access terminals (IPATs
or kiosks), and the Internet. Its IPATs may be sold to
others, or held for operating income, which is derived
from advertising fees and transactional revenue. An IPAT is
a machine deployed in areas with high pedestrian traffic,
and that permits the general public to obtain information or
to purchase goods and services. At a minimum, an IPAT
contains a computer, a computer monitor and a touch screen.
It may also contain a keyboard, page printer, receipt
printer, credit card reader, communications devices, a
second processor, an upper monitor, a ticket printer,
illuminated signs, or combinations of these devices. The
IPATs use standard, off-the-shelf operating systems and
proprietary software to control and manage the IPAT
functions.
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Prior to 1996, the Company's activities consisted
primarily of consulting, writing, training and custom
software development for various corporate and government
clients, including Microsoft, for which it produced
technical papers and provided consulting services. In
performance of these activities, the Company developed
skills in rapid application development and a base of
courseware and reusable software objects to which it retains
title. In 1995, the Company decided to direct these skills
and its expanding body of reusable software objects toward
the development of services through which it can derive
revenue on a "per transaction" basis. It initially
developed and operated OLEBroker(tm), an Internet-based
subscription service that allows customers to search its
database of information about software objects, find the
information needed and at the customer's option, purchase
needed objects on-line. The Company discontinued active
marketing of OLEBroker(tm) at the end of 1996 in order to
concentrate on its IPAT- and Internet-related businesses.
However, in connection with the development of
OLEBroker(tm), the Company developed significant additional
software objects, which it then used in the development of
technology for the IPAT and Internet service delivery
programs. The Company anticipates that the IPAT and
Internet service delivery programs will constitute the most
significant part of its business. It may continue to engage
in consulting activities as resources permit. In selecting
consulting opportunities, the Company will focus primarily
on assignments in connection with the sale of IPAT services
or that can otherwise enhance its skill base.
In early 1996, as part of its IPAT Demonstration
Project, the City of New York (the "City") entered into the
City Agreement with the Company (the "City Agreement") to
develop public IPATs to be located in City offices and other
public locations in an effort to expedite transactions with
the City. Under the City Agreement, the City agreed to
lease the first five IPATs, and the Company may deploy
additional IPATs throughout the City area at its
own risk and expense, subject to City approval of IPAT
locations. The first five IPATs were deployed in the City
in July 1996. A sixth IPAT was installed in August,
1997. A seventh was installed in March 1998. All IPATs
providing City services for information, whether operated by
the Company or other suppliers, carry the City's
CityAccess(tm) logo. Pursuant to the City Agreement, the
Company has developed IPATs through which members of the
public can obtain access to the records of the Department of
Buildings, certain Department of Health services,
including copies (for a fee) of birth certificates, death
certificates and dog licenses, obtaining public health
information, and registering for certain courses offered by
the Department of Health. Information on City government,
directional information and information about the City's
events, museums, tourist attractions, shopping and
similar matters is provided without fee. The City has
recently advised the Company of its plans to extend the
City Agreement through the end of the Citys 1999 fiscal year.
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The Company's goal in designing the SmartStreet(tm)
IPATs was to maximize potential use by developing software
that would be inviting and easy to use. The IPATs are
designed so that a potential user is attracted to the IPAT
by digital videos played from the upper monitor. These
videos presently include an "attract loop," narrated by the
noted actor Tony Randall (currently Director of the National
Repertory Theater) and a message from New York Mayor Rudolph
W. Giuliani, as well as "spot" advertisements. The attract
loop explains what can be done with the IPATs and how to use
them, and shows people from many walks of life using them
successfully.
The IPATs are configured to permit the Company to
offer additional services provided either by the Company or
third parties and to sell advertising on such IPATs. The
current extended City Agreement requires the Company to pay
to the City 50% of advertising and third party service
revenues from the first five IPATs and no revenue from such
additional IPATs that carry the CityAccess logo. The
Company plans to exercise these rights and to actively
solicit additional service providers and advertisers. The
Company will seek to provide SmartStreet(tm) services to
other municipalities, states and government agencies and to
organizations in the private sector that provide a large
volume of information, records and documents to the public.
The first such additional agreement was recently entered
into with the City of San Francisco. The Company may also
seek to enter into agreements with the City and other
customers to provide information and services over the
Internet, in order to significantly expand the accessibility
of such information and services. The Company also supplied
eight IPATs to King County, Washington.
In connection with the development of the IPATs and
the deployment and operation of the first five IPATs, the
City agreed to pay to the Company an aggregate of $661,080,
of which $361,080 was paid in the form of monthly payments
of $30,090 ($6,018 per IPAT), commencing as of August 1,
1996, and the balance of $300,000 was payable in partial
amounts as certain milestones in the development, deployment
and operation of the IPATs were achieved. All amounts due
under the initial contract were earned through December 31,
1997.
For the eleven-months ending February 28, 1998, the Company's
IPATs were used a total of 122,997 times (10,250 per month)
and 11,640 times on average during the three months ended
February 28, 1998, or 1,708 and 1,940 times per IPAT per
month, respectively.
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The Company may also receive transaction fees in
connection with the use of the IPATs by the public to obtain
documents or certain other services. As of December 31,
1997, all the Companys IPATs were available to provide City
information and transaction services, but those IPATs did
not provide or carry any paid advertising or third party
services. Consequently, no significant revenues have been
generated to date by user transactions or advertising.
Revenues from advertising are expected to begin in April
1998, from contracts signed in March 1998.
In August 1997, the Company announced the development
and immediate availability of SmartSign(tm), a modular line
of IPATs contained in an enclosure that is only 7-1/2" in
depth, with each module weighing less than 70 pounds, making
the units suitable for regular shipment through UPS and
Federal Express. The modules initially consist of (a) a
Pentium class processor unit, (b) an active-matrix touch
screen, with optional sealed heavy-duty keyboard, and
optional credit card reader, (c) a printer unit with page
printer and optional receipt printer, (d)several light-box
advertising modules with optional LCD display and (e) an
optional touch-sensitive light-box. Although a working unit
has been delivered and is operational, there can be no
assurances that there will be any commercial sales of this
line. The first IPAT to utilize the Company's new SmartSign
design was deployed in March, 1998 at the Harlem Heights
Historical Society in the City. All advertising space has
been sold for a minimum of six months beginning April 1998.
The amount of future transaction and advertising revenues,
if any, will depend on user and advertiser acceptance of the
IPATs.
Pursuant to the City Agreement, the Company has the
right to install additional IPATs in the City, at the
Company's risk and expense and subject to certain conditions
including site approval by the City. The City will not be
required to pay additional monthly payments for such IPATs,
but it is anticipated, although there can be no assurance,
that use by the public will generate transaction fees. The
Company had commenced evaluating potential sites and will
seek to install up to 25 additional IPATs during the next
year. The first of these additional IPATs was installed in
July 1997 in the Museum of Science in Queens. The second was
installed at the Harlem Heights Historical Society in March
1998.
At the time the City Agreement with the Company was
executed, the City also signed similar agreements with two
other companies for additional IPATs. Based on the success
of the program to date, the City expects to issue a Request
for Proposals for competitive bidding for additional IPATs
throughout the City.
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The Company intends to market IPATs to other
municipalities, government agencies and organizations in the
private sector. In the future, the Company may seek to make
its transactional services available over the Internet and
to make the Internet available from the Company's public
IPATs. Recently, the Company was the successful bidder in
Seattle, Washington, for the installation of eight IPATs
providing information regarding ferry service. In March
1998 the Company concluded an agreement with the City of San
Francisco to provide a trial of its SmartSign kiosks in San
Francisco. The initial trial will be in the MUNI station
located in the Castro district. Additional trials can be
arranged by mutual agreement.
There can be no assurance that the Company's initial
IPATs will perform on a commercial basis as anticipated,
that the Company will be able to install and operate
additional IPATs pursuant to the City Agreement, that the
City will seek to acquire additional IPATs, that the Company
will secure a contract to supply additional IPATs to the
City, that it will succeed in marketing its IPATs to other
potential users, or that it will be able to attract
additional service providers or advertisers to IPATs that
may be located in the City or elsewhere.
The Company has established a strategic relationship
with Microsoft that it believes is important to its sales,
marketing and support activities, as well as to its product
development efforts relating to its IPATs. Microsoft
supports the Company in marketing its public access
services, and has informally agreed to exhibit the Company's
IPATs in Microsoft displays at various trade shows. It has
also issued statements that included favorable references
relating to the Company's products. Microsoft has also
entered into various non-disclosure agreements with the
Company with respect to unannounced Microsoft products,
under which the Company has the opportunity to have advance
knowledge of software technology being developed by
Microsoft. Microsoft has also provided, and continues to
provide, fee-based consulting services to the Company
through Microsoft Consulting. Since 1994, the Company has
served as the exclusive regional host and sponsor of
Microsoft Developer Days, an ongoing series of technical
conferences organized and operated by Microsoft. The most
recent conference was held on March 1997. The conference
attracted over 5,000 paid registrants and was completely
sold out. The next event is scheduled for September 2,
1998. The Company has also produced technical papers for,
and provided consulting services to, Microsoft.
Research and Development expenditures were $613,000
in 1997 and in 1996 $92,693, due to the expensed development
costs for the SmartStreet(TM) operations. In addition,
during the years ended December 31, 1997 and December 31,
1996, the Company has capitalized additional software
development costs which aggregated $37,909 and $137,904,
respectively.
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Competition
The Company is subject to competition from different
sources for its different services. The Company's intranet
IPAT business competes with numerous companies, including
IBM, North Communications, Golden Screens and ATCOM/INFO.
The City has also awarded contracts, comparable to the
contract awarded to the Company, to North Communications and
DSSI (which awarded a subcontract to Golden Screens), both
of which have sold similar IPATs to other municipalities.
After fulfillment of the initial contracts, if the City
chooses to install additional IPATs throughout the City, it
may award to others, and not the Company, the contract to
install such additional IPATs. Further, there can be no
assurance that other municipalities or other entities will
seek to acquire IPATs from the Company. In addition, if the
use of IPATs provided by the Company and others proves to be
successful in the City and other municipalities and
locations, additional companies in the software, hardware
and communications areas, among others, may seek to enter
the market. Many of such competitors may have resources far
greater than the Company. A total of 19 companies competed
for the contracts with the City, many of which can be
expected to compete aggressively in other competitive
situations.
Marketing
The two objectives of the Company's marketing
efforts are to obtain the rights to place its IPATs in
compelling high-density locations and to attract advertisers
based on the number and demographics of "impressions" that
the Company can offer to advertisers. To this end, the
Company has commissioned site surveys that count that actual
population at each existing location. The Company has
retained a consultant to assist the Company in leasing space
in favorable locations and on satisfactory terms. The
Company has retained a public relations consultant to
disseminate news related to its IPATs and to stimulate
demand. Additional marketing efforts focus on identifying
content-providers whose offerings can create additional
transaction revenue for the Company's IPATs. In seeking
content-providers, the Company will exhibit at major trade
shows where it will partner with several of its major
vendors. For example, the Company partnered with Microsoft
at the Government Summit held on Microsoft's campus in
March 1998 which attracted Chief Information Officers
representing state and local governments from about 25
states as well as ten foreign countries. The Company expects
to continue to participate in similar joint efforts on an
ongoing basis. A telemarketing program has been initiated to
target tourist, recreational and similar facilities to list
their facilities on the Company's IPATs.
The Company's marketing activities are currently
performed by its executive officers and consultants under
such officers' supervision.
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Proprietary Rights
The Company's success is highly dependent on its
proprietary technology. The Company views its SmartSign
housing design as well as its software as proprietary, and
relies on a combination of trade secret, copyright and
trademark laws, non-disclosure agreements and contractual
provisions to establish and protect its proprietary rights.
The Company has applied to in the United States for the
following trademarks: SmartStreet(tm), ObjectSoft(tm), and
SmartSign(tm). In addition, the Company plans to register
certain of these trademarks in principal foreign
jurisdictions. The Company has also retained patent counsel
and expects to file patent applications for appropriate
hardware and software components of its technology. There
can be no assurances that such applications, if filed, will
be allowed by the Patent Office, or if allowed will not be
successfully challenged.
The source code for the Company's proprietary
software is protected as a trade secret. In addition,
because the Company does not sell or license its technology
to third parties, but rather delivers services through its
IPATs, its proprietary software is not disclosed to third
parties. Furthermore, the Company enters into agreements, as
appropriate, with employees, consultants and subcontractors
containing provisions relating to confidentiality and the
assignment of inventions and other developments to the
Company. There can be no assurance that the steps taken by
the Company to protect its proprietary rights will be
adequate or that the Company's competitors will not
independently develop technologies that are substantially
equivalent or superior to the Company's technologies or
products.
Customers
The customer base for the Company's IPAT business
consists principally of municipalities and other public
sector or commercial entities to which the Company would
sell or lease IPATs, prospective advertisers and ultimately
consumers accessing IPAT services or products. The Company
also intends to market its consulting services to mall
operators.
The Company historically has derived a significant
portion of its revenues from a relatively limited number of
customers. During the year ended December 31, 1997, the
City accounted for 84% of the Company's revenues pursuant to
the City Agreement. During the year ended December 31,
1996, two customers, the City and Microsoft accounted for
71% of the Company's revenues.
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Government Regulations and Licensing
The Company believes that it has all licenses
necessary to operate its business as currently conducted in
New Jersey and New York.
The Company is not currently subject to direct
regulation by the Federal Communications Commission or any
other agency, other than regulations applicable to
businesses generally and businesses doing business with
governmental agencies. In connection with its contract
with the City and future contracts, if any, with the City
and other municipalities or government entities, the Company
will have to comply with such regulations, including bidding
procedures and record-keeping, audit, insurance, bonding and
anti-discrimination provisions, among others.
Due to the increase in Internet use and publicity,
it is possible that laws and regulations may be adopted with
respect to the Internet, including with respect to privacy,
pricing and characteristics of products or services. The
Company cannot predict the impact, if any, that future laws
and regulations or legal or regulatory changes may have
on its business.
Employees
As of March 25, 1998, the Company had 18 employees,
15 of which were full-time, and all of whom are based in its
Hackensack, NJ offices. These include 6 in product
development, 3 in management and sales, 7 in operations and
2 in finance and administration.
The Company expects the size of its workforce to
remain approximately the same in 1998, and the Company
intends to continue with its policy to outsource non-
strategic functions such as artwork development, repetitive
testing, maintenance and bookkeeping rather than using its
own staff for these functions.
Other than Messrs. Sarna and Febish, no other senior
personnel have entered into employment agreements obligating
them to remain in the Company's employ for any specific
term; however, substantially all key employees of the
Company are parties to nonsolicitation, confidentiality
and noncompetition agreements with the Company. In
addition, independent contractors enter into confidentiality
agreements with the Company.
Item 2. Description of Property
The Company occupies approximately 4,300 square feet
of office space in Hackensack, New Jersey, under a lease
with an unaffiliated landlord that expires on March 31, 2003
and provides for a base rent of $70,703 per annum in 1998,
subject to certain increases in subsequent periods.
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Item 3. 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 alleged, 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. 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. The action was settled pursuant to a Compromise and
Settlement Agreement between the Company, Bayard and Sarna,
dated December 31, 1997, under which Bayard transferred
privately held shares of another company to the Company.
On January 15, 1998, Infusion Capital Partners, LLC
("Infusion"), a firm that was engaged to seek financing
opportunities for the Company, instituted a lawsuit for
alleged breach of contract, indemnification and legal fees
against the Company by filing a praecipe to issue writ of
summons in the Court of Common Pleas, Philadelphia County.
On March 3, 1998, Infusion filed a complaint against the
Company asserting claims for breach of contract, fraud,
unjust enrichment, promissory estoppel and equitable
estoppel. Infusion seeks on all claims compensatory damages
allegedly in excess of $50,000, reasonable attorneys fees
and costs, an accounting, and a disgorgement of fees and
profits and on its fraud claim additionally seeks punitive
damages in excess of $50,000. On March 24, 1998, the Company
filed its preliminary objection to Infusion's complaint.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the Company's
security holders, through the solicitation of proxies or
otherwise, during the fourth quarter of its fiscal year
ended December 31, 1997.
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PART II
Item 5. Market For Common Equity and Related Stockholder
Matters
On November 12, 1996, the Company's common stock,
par value $.0001 per share (the "Common Stock") and
Redeemable Class A Warrants were listed for quotation on the
SmallCap Market on the Nasdaq System under the symbols OSFT
and OSFTW, respectively and the Company's units, each
consisting of one share of Common Stock and one Redeemable
Class A Warrant (the "Units), were quoted on the Nasdaq
SmallCap Market under the symbol OSFTU until January 9,
1997. Prior to the Company's initial public offering in
November 1996, there was no public market for the Company's
securities. The following table sets forth, for the periods
indicated the high and low bid prices for the Common Stock
and Class A Warrants as reported on the Nasdaq SmallCap
Market.
Quarters Common Stock Class A Warrants
Ended High Low High Low
Fiscal Year 1997
Fourth Quarter 5 1/4 2 7/8 17/32 0 1/2
Third Quarter 5 7/8 3 1/4 11/4 0 3/4
Second Quarter 6 3/8 4 1/4 15/8 0 7/8
First Quarter 5 7/8 4 1/2 11/2 0 3/4
Fiscal Year 1996
Fourth Quarter 6 5 1/4 1 0 11/16
As of March 30, 1998, there were approximately 42
holders of record of the Common Stock and 3 holders of
record of Class A Warrants.
The Company did not pay cash dividends on its Common
Stock during the two years ended December 31, 1997 and the
Company does not presently intend to pay any dividends on
its Common Stock.
Item 6. Management's Discussion and Analysis or Plan of
Operation
The following discussion and analysis provides
information which the Company's management believes is
relevant to an assessment and understanding of the Company's
results of operations and financial condition. This
discussion should be read in conjunction with the
consolidated financial statements and notes thereto
appearing elsewhere herein.
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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; the
uncertainty of market acceptance of the Company's products;
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 and costly to detect and correct; uncertainties
with respect to the Company's business strategy; general
economic conditions, and other risks described elsewhere
herein and in the Company's Prospectus dated October 22,
1997.
Overview
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 has sustained net losses in each
of the last two fiscal years with a net loss of $1,240,695
in 1996 and a net loss of $2,519,872 in 1997. In September
1995, the Company introduced OLEBroker(tm), its fee-based
website on the Internet. 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 or from OLEBroker(tm).
Although the Company anticipates that it will begin to
recognize greater revenues from the SmartStreet(tm) IPATs
and from OLEBroker(tm) during 1998, it cannot predict the
actual timing or amount of such revenues.
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Results of Operations
Year Ended December 31, 1997 Compared to Year Ended December
31, 1996
Revenues increased by $190,037 or 43% to
$631,167 for the fiscal year ended December 31, 1997 over
net revenues of $441,130 for the fiscal year ended
December 31, 1996. Development and training revenue
decreased by $23,827 to $266,853 from $290,680 or 8%. Rental
income increased by $213,864 or 142% to $364,314 from
$150,450. The Company's decreased revenues from training and
custom development services resulted from redirection of the
Company resources to transactional fee-based products and
services.
The Company continues to devote its resources toward
the growth in transactional fee-based products and services
utilizing intranet technology and believes this trend will
continue in the future. Kiosk-based rental revenues
represented approximately 58% of 1997 revenues and
training and custom development represented approximately
42% of 1997 net revenues.
Costs of services for development and training
increased by $56,542 to $346,767 in 1997 from $290,225 in
1996, and cost of services for rentals increased by $219,799
to $426,755 in 1997 from $206,956 in 1996 due to higher
personnel expenses and kiosk expenses.
Research and development expenses for the year ended
December 31, 1997 increased by $520,307 to $613,000 compared
to $92,693 for the year ended December 31, 1996, due to the
expensed development costs for the SmartStreet(TM)
operations.
General and administrative expenses for the year
ended December 31, 1997 increased by $1,004,218 to
$1,766,333 compared to $762,115 for the year ended December
31, 1996, due principally to increases in salaries and
personnel related expenses, professional fees and insurance
for directors and officers.
Other income increased by $331,652 to income of
$1,816 for the year ended December 31, 1997 compared to
expense of $ 329,836 for the year ended December 31,
1996, due principally to interest on the bridge
notes financing which was repaid in 1996, and investment
income earned from investments of cash that resulted from
the public offering. The above was offset by a loss on a
loan receivable to InteractiVision, Inc. in the amount of
$250,000 (See below Liquidity and Capital Resources).
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Net loss increased by $1,279,177 to a net loss of
$2,519,872 for the fiscal year ended December 31, 1997 over
net loss of $1,240,695 for the fiscal year ended December
31, 1996. 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 the loss on
the uncollectible loan receivable.
At December 31, 1997, the Company had federal net
operating loss carryforwards of approximately $4,800,000.
A valuation allowance has been recorded for the entire
deferred tax asset as a result of uncertainties regarding
the realization of the asset due to the lack of earnings
history of the Company. See Note K of Notes to Financial
Statements.
Financial Condition, Liquidity and Capital Resources
As of December 31, 1997, cash and cash equivalents
were $209,455 as compared with $4,039,358 at December 31,
1996. The decrease is a result of the net loss of
$2,519,872 for the year ended December 31, 1997, investment
in marketable securities of $850,000 and the loss of
$250,000 on the loan to InteractiVisions, Inc.
On May 2, 1997, the Company and InteractiVisions,
Inc. ("InteractiVisions") signed a letter of intent which
contemplated 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,
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 was written off as
uncollectible.
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 the Company's Series
A Preferred Stock. The Company expects to fund the
deployment of additional SmartStreet(tm) kiosks in the 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.
-13-
<PAGE>
The Company intends to meet its long-term liquidity
needs through available cash and cash flow as well as
through financing from outside sources. The Company has
retained an underwriter to assist it with a possible minimum
of $1,500,000 and a maximum of $2,000,000 in a private
offering of securities and an additional possible $2,000,000
private offering of securities if certain conditions are
met. However, no assurance can be given that the Company
will be successful in raising additional capital. Further,
there can be no assurance, assuming the Company successfully
raises additional funds, that the Company will achieve
profitability or positive cash flows. If the Company is not
successful in raising additional funds, it might be forced
to curtail the scope of its operations.
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 effected 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.
Inflation and Seasonality
The rate of inflation was insignificant during the
year ended December 31, 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's business is not seasonal.
-14-
<PAGE>
Item 7. Financial Statements
The financial statements of the Company required by
this item are set forth at end of this Form 10-KSB at pages
F-1 through F-15.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16 (a) of the
Exchange Act
The information required by this item is
incorporated by reference from the Company's Definitive
Proxy Statement under the captions "Management--Executive
Officers and Directors" and "-Section 16(a) Beneficial
Ownership Reporting Compliance."
Item 10. Executive Compensation
The information required by this item is
incorporated by reference from the Company's Definitive
Proxy Statement under the captions "Management--Directors'
Compensation" and "Executive Compensation."
Item 11. Security Ownership of Certain Beneficial Owners
and Management
The information required by this item is
incorporated by reference from the Company's Definitive
Proxy Statement under the caption "Security Ownership."
Item 12. Certain Relationships and Related Transactions
The information required by this item is
incorporated by reference from the Company's Definitive
Proxy Statement under the caption "Certain Relationships and
Related Transactions."
-15-
<PAGE>
Item 13. Exhibits, List and Reports on Form 8-K
a. Exhibits
2.1 * Certificate of Ownership and Merger
of ObjectSoft Corporation (a New Jersey
corporation) into the Company.
2.2 * Plan of Merger of ObjectSoft Corporation
(a New Jersey corporation) into the
Company.
3.1(a) * Certificate of Incorporation of the
Company.
3.1(b) @ Amendment to Certificate of Incorporation
of the Company.
3.2(a) * By-laws of the Company.
3.2(b) @ Amended and Restated By-laws of the
Company.
4.1 * Form of Representative's Unit Purchase
Option Agreement.
4.2 * Specimen Certificate of the Company's
Common Stock
4.3 * Form of Class A Warrant Agreement,
including form of Class A Warrant.
10.1+ * Employment Agreement dated as of
July 1,1996 between the Company and David
E. Y. Sarna.
10.2+ * Employment Agreement dated as of
July 1, 1996 between the Company and
George J. Febish.
10.3+ * 1996 Stock Option Plan.
10.4 * Form of Bridge Loan Promissory Note.
10.5 * Form of Bridge Loan Warrant.
10.6 * Form of Warrant Agreement with placement
agent for Bridge Loan Offering.
10.7 * Form of Subscription Agreement and
Investment Representation of Investor
with each of the investors in
the July 1996 Offering.
10.8 * Form of July 1996 Warrant Agreement.
10.9 * Form of Warrant Agreement with
placement agent for July 1996 Offering.
agent for July 1996 Offering.
10.10 * Agreement, dated January 11, 1996,
as amended, with the City of New York
(Department of Information Technology and
Telecommunications).
10.11 * Cooperation Agreement with Microsoft
Corporation, dated November 7, 1995.
10.12 * Agreement with ACORD Corporation
dated July 5,1995.
10.13 * Form of Investor Warrant.
10.14+ * Form of Officer Warrant.
10.15 * Cyndel Warrant
10.16 Promissory Note between David E.Y. Sarna
and the Company, as amended, dated
January 2, 1997
10.17 Security Agreement beteen David E. Y.
Sarna and the Company, dated March 18,
1998
27.1 Financial Data Schedule
-16-
<PAGE>
b. The Company did not file any Report on Form 8-K
during the last quarter of its fiscal year ended December
31, 1997.
* Denotes Exhibits incorporated by reference
to the Company's Registration Statement on Form SB-2
(Registration No. 333-10519).
+ Management contract or compensatory plan or
arrangement.
@ Denotes Exhibits incorporated by reference to the
Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1996 (File No. 1-10751).
-17-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the
Exchange Act, the registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: March 31, 1998 OBJECTSOFT CORPORATION
By: /s/ David E. Y. Sarna
David E. Y. Sarna, Chairman
In accordance with the Exchange Act, this report has
been signed below by the following persons on behalf of the
registrant and in the capacities and on the dated indicated:
Signature Title Date
/s/ David E. Y. Sarna Chairman, Co-Chief March 31 ,1998
David E. Y. Sarna Executive Officer,
Secretary and Director
(Principal Executive
Officer, Principal
Financial Officer and
Principal Accounting
Officer)
/s/ George J. Febish President, Co-Chief March 31, 1998
George J. Febish Executive Officer,
Treasurer and Director
(Principal Executive
Officer)
/s/ Daniel E. Ryan Director March 31, 1998
Daniel E. Ryan
/s/ Gunther L. Less Director March 31, 1998
Gunther L. Less
<PAGE>
OBJECTSOFT CORPORATION
Contents
Page
-----
Financial Statements
Independent auditors' report F-1
Balance sheet as of December 31, 1997 F-2
Statements of operations for the years ended
December 31, 1997 and 1996 F-3
Statements of changes in stockholders' equity
for the years ended December 31, 1997 and 1996 F-4
Statements of cash flows for the years ended
December 31, 1997 and 1996 F-5
Notes to financial statements F-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
ObjectSoft Corporation
Hackensack, New Jersey
We have audited the accompanying balance sheet of ObjectSoft
Corporation as of December 31, 1997 and the related statements of
operations, changes in stockholders' equity and cash flows for each of
the years in the two-year period ended December 31, 1997. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present
fairly, in all material respects, the financial position of ObjectSoft
Corporation as of December 31, 1997 and the results of its operations
and cash flows for each of the years in the two-year period ended
December 31, 1997, in conformity with generally accepted accounting
principles.
Richard A. Eisner & Company, LLP
Florham Park, New Jersey
February 20, 1998
F - 1
<PAGE>
<TABLE>
OBJECTSOFT CORPORATION
Balance Sheet
December 31, 1997
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note A[9]) $ 209,455
Marketable securities (Note A[2]) 915,938
Accounts receivable 364,859
Prepaid expenses and other current assets 235,150
Note receivable officer/shareholder (Note B) 440,000
Note receivable other 25,000
-----------
Total current assets 2,190,402
Furniture and equipment, at cost, net of accumulated
depreciation (Notes A[3], C and G) 384,071
Capitalized software (Notes A[6] and D) 78,231
Other assets 70,847
-----------
$ 2,723,551
===========
LIABILITIES
Current liabilities:
Current portion of long-term debt (Note G) $ 8,686
Current portion of obligations under
capital lease (Note F) 27,348
Accounts payable 296,658
Accrued expenses (Note H) 84,560
Other liabilities 2,163
-----------
Total current liabilities 419,415
Long-term debt (Note G) 5,413
Obligations under capital lease (Note F) 25,475
-----------
Total liabilities 450,303
-----------
Commitments and contingency (Note N)
STOCKHOLDERS' EQUITY ( Notes E and I)
Common stock, $.0001 par, authorized
20,000,000 shares, issued and outstanding
4,082,676 shares 408
Additional paid-in capital 6,942,862
Accumulated deficit (4,670,022)
-----------
Total stockholders' equity 2,273,248
-----------
$ 2,723,551
===========
See notes to financial statements
F-2
</TABLE>
<PAGE>
<TABLE>
OBJECTSOFT CORPORATION
Statements of Operations
<CAPTION>
Year Ended December 31,
-------------------------
1997 1996 *
----------- -----------
<S> <C> <C>
Revenues (Note M):
Development and training $ 266,853 $ 290,680
Rental income (Note N[1]) 364,314 150,450
----------- -----------
Total revenues 631,167 441,130
----------- -----------
Expenses:
Cost of services:
Development and training 346,767 290,225
Rentals 426,755 206,956
Research and development 613,000 92,693
General and administrative 1,766,333 762,115
----------- -----------
Total expenses 3,152,855 1,351,989
----------- -----------
Loss from operations (2,521,688) (910,859)
----------- -----------
Other income (expense):
Realized and unrealized gain on
on marketable securities 137,927
Interest and dividend income 126,562
Interest expense (12,673) (329,836)
Loss on uncollectible loan (Note O) (250,000)
----------- -----------
Total other income (expense) 1,816 (329,836)
----------- -----------
Net (loss) $ (2,519,872) $ (1,240,695)
=========== ===========
Basic and diluted net loss per share ($0.62) ($0.49)
=========== ===========
* Reclassified to conform to current years presentation.
See notes to financial statements
F-3
</TABLE>
<PAGE>
<TABLE>
OBJECTSOFT CORPORATION
Statements of Changes in Stockholders' Equity
Years Ended December 31, 1997 and 1996
<CAPTION> Additional
Common Stock Paid-in
Shares Amount Capital (Deficit) Total
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 2,293,000 $229 $278,331 ($877,404) ($598,844)
Warrants issued in connection 123,525 123,525
with bridge loan, net of costs (Note E)
Compensatory warrant granted (Note I[2]) 16,000 16,000
Preferred stock dividends declared (32,051) (32,051)
Units issued, net of costs (Note I[1]) 1,639,051 164 6,279,771 6,279,935
Exercise of warrants 90,625 9 181,241 181,250
Net loss (1,240,695) (1,240,695)
----------- ----------- ------------ ------------ ------------
Balance, December 31, 1996 4,022,676 402 6,878,868 (2,150,150) 4,729,120
Exercise of warrants and nonemployee option 60,000 6 59,994 60,000
Compensatory warrant granted (Note I[2]) 4,000 4,000
Net loss (2,519,872) (2,519,872)
----------- ----------- ------------ ------------ ------------
4,082,676 $408 $6,942,862 ($4,670,022) $2,273,248
=========== =========== ============ ============ ============
See notes to financial statements
F-4
</TABLE>
<PAGE>
<TABLE>
OBJECTSOFT CORPORATION
Statements of Cash Flows
<CAPTION>
Year Ended December 31,
--------------------------
1997 1996
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (2,519,872)$ (1,240,695)
Adjustments to reconcile net loss to net
net cash (used in) operating activities:
Depreciation and amortization 330,393 174,699
Amortization of discount on note payable 268,525
(Recovery) for doubtful accounts (16,200)
Warrant issued for services rendered 4,000 16,000
Loss on uncollectible loan 250,000
Unrealized gain on marketable securities (65,938)
Changes in:
Marketable securities (850,000)
Accounts receivable (358,959) 82,902
Prepaid expenses and other current assets (54,687) (153,884)
Other assets 59,627 (94,875)
Accounts payable 176,444 (1,005)
Accrued expenses (17,312) 7,617
Accrued officer compensation (391,687)
Other liabilities (7,622) 8,169
----------- ------------
Net cash (used in) operating activities (3,053,926) (1,340,434)
----------- ------------
Cash flow from investing activities:
Increase in bank overdraft 62,907
Loan receivable (Note O) (250,000)
Capital expenditures (92,486) (419,096)
Capitalized software (37,909) (137,904)
Note receivable officer/shareholder (637,000)
Repayment of note receivable officer/shareholder 197,000
Note receivable other (25,000)
----------- ------------
Net cash (used in) investing activities (782,488) (557,000)
----------- ------------
Cash flow from financing activities:
Proceeds from issuance of warrants - bridge units 123,525
Proceeds from note payable 981,475
Repayment of note payable (3,403) (1,250,000)
Proceeds from issuance of common stock and warrants 6,279,935
Dividends (32,051)
Proceeds from exercise of warrants and nonemployee
options 60,000 181,250
Principal payments on obligations under capital
leases (50,086) (27,431)
Redemption of preferred stock (383,906)
----------- ------------
Net cash provided by financing activities 6,511 5,872,797
----------- ------------
Net increase (decrease) in cash and cash equivalents (3,829,903) 3,975,363
Cash and cash equivalents, beginning of period 4,039,358 63,995
----------- ------------
Cash and cash equivalents, end of period $ 209,455 $ 4,039,358
=========== ============
Supplemental disclosures of cash flow
Cash paid during the period interest expense: $ 12,673 $ 3,502
=========== ============
See notes to financial statements
F-5
</TABLE>
<PAGE>
OBJECTSOFT CORPORATION
Notes to Financial Statements
December 31, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] The Company:
ObjectSoft Corporation (the "Company") is currently engaged in the
business of providing transaction based and advertising supported
services over the Internet and through public access kiosks. Its
Kiosks may be sold to others or held for operating income.
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which
contemplates continuation of the Company as a going concern,
however, the Company sustained substantial operating losses
through December 31, 1997. The Company has retained an
underwriter to assist it with a possible minimum of $1,500,000 and
a maximum of $2,000,000 in a private offering of securities and an
additional possible $2,000,000 private offering of securities if
certain conditions are met. However, no assurance can be given
that the Company will be successful in raising additional capital.
Further, there can be no assurance, assuming the Company
successfully raises additional funds, that the Company will
achieve profitability or positive cash flows.
[2] Marketable securities:
The Company's marketable securities. primarily equity securities,
are bought and held principally for the purpose of selling them in
the near term and are classified as trading securities. Trading
securities are recorded at fair value on the balance sheet in
current assets, with the change in fair value during the period
reported in earnings.
[3] Furniture and equipment:
Furniture and equipment is carried at cost, less accumulated
depreciation. Depreciation is provided using the straight-line
method over estimated useful lives of the assets (three to seven
years).
[4] Provision for income taxes:
Deferred income taxes arise from temporary differences resulting
primarily from income and expense items being reported on an
accrual basis for financial reporting purposes and on a cash basis
for tax purposes, capitalized software and net operating loss
carryforwards (see Note K).
F - 6
<PAGE>
[5] Software revenue recognition policies:
The Company is engaged as a developer in a number of software
transactions. Generally, revenue from generic software is
recognized upon delivery of the software. After the sale, if
significant obligations remain or significant uncertainties exist
about customer acceptance of the software, revenue is deferred
until the obligations are satisfied or the uncertainties are
resolved. Revenue from software services is recognized as the
services are performed. Revenue from software leased through the
Internet (generally one year) is deferred and amortized over the
lease term. Revenue from custom software development (included in
consulting revenue) is recognized based upon its percentage
completion.
[6] Software development costs:
The Company capitalizes software development costs when project
technological feasibility is established and concluding when the
project is ready for release. Research and development costs
related to software development are expensed as incurred.
The Company's policy is to amortize capitalized software costs by
the greater of (a) the ratio that current gross revenues for a
product bears to the total of current and anticipated future gross
revenues for that product or (b) the straight-line method over the
remaining estimated economic life of the product including the
period being reported on. It is reasonably possible that those
estimates of anticipated future gross revenues, the remaining
economic useful life of the product or both will be reduced in the
near term.
[7] Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
[8] Stock-based compensation:
Statement of Financial Accounting Standards No. 123,"Accounting
for Stock-Based Compensation" ("SFAS No. 123") allows companies to
either expense the estimated fair value of stock options granted
to employees or to continue to follow the intrinsic value method
set forth in APB Opinion 25, "Accounting for Stock Issued to
Employees" ("APB 25") but disclose the pro forma effects on net
(loss) had the fair value of the options been expensed. The
Company has elected to continue to apply APB 25 in accounting for
its stock option incentive plans. See Note I[2] to the financial
statements for further information.
F - 7
<PAGE>
[9] Cash and cash equivalents:
Cash and cash equivalents include cash on hand, demand deposits
and all highly-liquid investments with a maturity of three months
or less at the time of purchase.
[10] Per Share data:
The per share data has been computed on the basis of the loss for
the year divided by the weighted average number of shares of
common stock outstanding. The per share data for 1996 has been
restated in conformity with Statement of Financial Accounting
Standards No. 128 "Earnings Per Share".
NOTE B - NOTE RECEIVABLE OFFICER/SHAREHOLDER
The note receivable is due from the chairman of the Companys board of
directors and is collateralized by contract rights to receive an
option convertible into marketable securities. It was initially due
November 1997 and was extended to May 1998 and bears interest at 8
percent per annum.
Also, during 1997, the Company loaned the chairman of the board an
additional $197,000 which was repaid with interest at 8 percent per
annum.
NOTE C - Furniture and Equipment
As of December 31, 1997, furniture and equipment consists of:
Kiosks $ 437,036
Furniture and other equipment 277,154
-----------
714,190
Accumulated depreciation 330,119
-----------
$ 384,071
===========
Depreciation expense aggregated $202,597 and $83,587 for the years
ended December 31, 1997 and 1996, respectively. In 1997 and 1996,
included in furniture and other equipment are assets under capital
leases with costs of $60,393 and $49,094, respectively. Accumulated
depreciation on these assets as of December 31, 1997 and 1996
aggregated $28,076 and $23,316, respectively. Depreciation expense is
depreciation expense on equipment under capital lease which aggregated
$8,417 and $14,920, for the years ended December 31, 1997 and 1996,
respectively.
During 1997 and 1996, the Company acquired equipment under capital
lease aggregating $18,834 and $98,906, respectively.
F - 8
<PAGE>
NOTE D - CAPITALIZED SOFTWARE
During the years ended December 31, 1997 and 1996, the Company
capitalized software development costs which aggregated $37,909 and
$137,904, respectively. Amortization of capitalized software costs
aggregated $127,796 and $78,392 for the years ended December 31, 1997
and December 31, 1996, respectively. Additionally amortization of
capitalized courseware costs aggregated $12,720 for the year ended
December 31, 1996.
NOTE E - FINANCING
In 1996, prior to the initial public offering of its common stock
("IPO"), the Company sold 12.5 bridge units, each consisting of a
$100,000, 7% note and warrants to purchase 30,000 shares of common
stock or other securities as might be offered in the Company's IPO
("IPO Securities"). Additionally, the placement agent received a
warrant to purchase 37,500 shares of common stock or other securities
as might be offered in the Company's IPO.
The Company valued the warrants at $138,750. Accordingly, additional
paid-in capital has been credited $123,525 which represents the value
of the warrants less the allocable portion of the offering costs. The
short-term note was discounted by the value of the warrants and the
offering costs. The discount was amortized as additional interest
expense from the date of issuance to November 22, 1996, the date the
note was paid in full. As a result of the IPO, the bridge unit
warrants are exercisable into the IPO Securities at $3.50 per unit.
These warrants expire in November 1999. The placement agent warrants
are exercisable at $4.55 and expire in November 2001. The IPO
securities consist of one share of common stock and a warrant to
purchase a share of common stock at $6.50.
NOTE F - OBLIGATIONS UNDER CAPITAL LEASE
Minimum future lease payments under capital leases expiring through
2002, as of December 31, 1997 are as follows:
Year Ending
December 31, Amount
------------- -----------
1998 $ 33,722
1999 10,576
2000 10,576
2001 7,689
2002 4,580
-----------
67,143
Less amount representing interest 14,320
-----------
Present value of net minimum lease payments 52,823
Less present value of net minimum lease
payments due within one year 27,348
-----------
$ 25,475
===========
F - 9
<PAGE>
NOTE G - LONG-TERM DEBT
Long-term debt consists of a note payable, collateralized by
equipment, which is due in monthly installments of $797 including
principal and interest at 8.65% per annum. The note matures in July
1999. The contractual principal payments due in 1998 and 1999 are
$8,686 and $5,413, respectively.
NOTE H - ACCRUED EXPENSES:
Accrued expenses as of December 31, 1997 are as follows:
Accrued rents $ 40,560
Accrued legal fees 20,000
Other 24,000
-----------
$ 84,560
===========
NOTE I - STOCKHOLDERS' EQUITY
[1] Private placement and initial public offerings:
In August 1996, the Company issued 273,001 units consisting of one
share of common stock and a warrant to purchase two-thirds of a
share of common stock at an exercise price of $3.00 per two-thirds
share. The Company received proceeds of $816,285, net of offering
costs of $139,215. Additionally, the placement agent was granted
warrants to purchase 27,300 of these units at an exercise price of
$4.50 per unit. The warrants expire November 13, 1999.
In November 1996, the Company issued 1,366,050 units, consisting
of one share of common stock and a warrant to purchase one share
of common stock at an exercise price of $6.50 per share expiring
November 2001. The Company received proceeds of $5,463,650 net of
offering costs of $1,366,600. In connection with the IPO, the
underwriter was granted an option to purchase 87,500 units at
$8.00 per unit.
[2] Stock options and warrants:
The Company has warrants outstanding, expiring in April 1998, to
purchase 143,333 shares of common stock at an exercise price of
$0.50. In 1996, warrants to purchase 90,625 shares of common
stock at an exercise price of $2.00 were exercised and warrants to
purchase 15,625 shares of common stock expired.
In 1995, the Company granted an option to purchase 100,000 shares
of common stock at $1.00 per share in exchange for consulting
services. The options are exercisable through September 2000. In
1996, in exchange for an additional $5,000 payment to the option
holder, the Company cancelled the option on 50,000 shares. During
1997, the remaining options were exercised.
F - 10
<PAGE>
In 1996, the Company granted a warrant to purchase 10,000 shares
of common stock at $1.00 per share in exchange for $20,000 of
professional services to be rendered during the vesting period.
This warrant vested ratably over a ten month period ending March
1997 and was exercisable through May 2001. During 1997 and 1996,
the Company recognized expense of $4,000 and $16,000,
respectively. This warrant was exercised in 1997.
In connection with the redemption of preferred stock in 1996, the
Company issued a warrant to purchase 20,000 shares of common stock
at an exercise price of $7.00. The warrant expires November 1999.
The Company maintains a stock option ("Plan") which 250,000 shares
of common stock are reserved for issuance upon exercise of either
incentive or nonincentive stock options which may be granted from
time to time by the Board of Directors to employees and others.
The Company applies APB 25 in accounting for its stock option
incentive plan and, accordingly, recognizes compensation expense
for the difference between the fair value of the underlying common
stock and the grant price of the option at the date of grant. The
effect of applying SFAS No. 123 on 1997 and 1996 net loss is not
necessarily representative of the effects on reported net loss for
future years due to, among other things, (1) the vesting period of
the stock options and (2) the fair value of additional stock
options in future years. Had compensation cost for the Company's
stock option plans been determined based upon the fair value at
the grant date for awards under the plans consistent with the
methodology prescribed under SFAS No. 123, the Company's net loss
in 1997 would have been approximately $2.7 million or $(0.67) per
share and the net loss in 1996 would have been approximately $1.4
million or $(0.54) per share.
The fair value of each option granted in 1997 and 1996 has been
estimated on the date of grant using the Black-Scholes options
pricing model with the following assumption: no dividends yield,
expected volatility of 40% and 0%, risk free interest rates of
5.36% and 6.37%, respectively, and expected lives of approximately
four and half years for the 1997 options and five years for the
1996 options. The fair value of options granted during 1997 and
1996 were $2.18 and $1.20 per share, respectively.
As of December 31, 1997, 2,863,554 shares were reserved for
issuance of shares for outstanding warrants and options.
F - 11
<PAGE>
<TABLE>
The following summarizes stock option transactions under the Plan:
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1997 1996
------------------------ --------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
----------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Outstanding options at the beginning
of year 145,000 $3.43
Options granted 110,000 4.64 145,000 $3.43
Options expired or canceled (5,000) 3.50
----------- ------------ ----------- ---------
Outstanding options at the end of
year 250,000 $3.96 145,000 $3.43
=========== ============ =========== =========
</TABLE>
<TABLE>
The following table summarizes information about the plan's options
outstanding as of December 31, 1997:
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------- ---------------------------
Weighted
Average
Remaining Weighted Weighted
Range of Contractual Average Average
Exercise Number Life Exercise Number Exercise
Prices Outstanding(In Years) Price Exercisable Price
--------- ---------------------- ------------ ----------- ---------
<C> <C> <C> <C> <C> <C>
$2.50 to $5.25 250,000 4.50 $3.96 186,672 $3.79
</TABLE>
F -12
<PAGE>
NOTE J - EARNINGS PER SHARE
The following is the reconciliation of the net loss, net loss
available to common stockholders and weighted average number of
shares.
<TABLE>
Year Ended December 31,
--------------------------------------------------------------------
1997 1996
------------------------------- ---------------------------------------
Per Per
Loss Shares Share Loss Shares Share
-------------------------------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net loss (2,519,872) ($1,240,695)
Less preferred stock
dividends 32,051
------------ ------------
Net loss available to
common
stockholders ($2,519,872) 4,066,994 ($0.62) ($1,272,746) 2,595,904 ($0.49)
=============================================================================================
</TABLE>
NOTE K - INCOME TAXES
The significant components of the Company's deferred tax assets and
liabilities as of December 31, 1997 is as follows:
Accrual to cash adjustment $ 133,000
Capitalized software (24,000)
Net operating losses carryforward 2,064,000
Research and development credits 83,000
Marketable securities (27,000)
Valuation allowance (2,229,000)
-----------
Net deferred tax asset $ 0
===========
During the years ended December 31, 1997 and 1996 there were no
provisions for income taxes, however, the benefit for deferred taxes
before change in valuation allowances aggregated $1,437,000 and
$481,000, respectively, which were fully offset by valuation
allowances.
The difference between the statutory federal income tax rate on the
Company's net loss and the Company's effective income tax rate for
each of the years ended December 31, 1997 and 1996, respectively, is
summarized as follows:
1997 1996
----------- ---------
Statutory federal income tax rate 34.0% 34.0%
Increase in valuation allowance -41.7 -38.8
Research and development credit 2.6 0.9
Miscellaneous 5.1 3.9
----------- ---------
Effective income tax rate 0.0% 0.0%
=========== =========
F - 13
<PAGE>
As of December 31, 1997, the Company had a net operating loss
carryforward of $4,800,000, which expires through 2001.
NOTE L - EMPLOYEE BENEFIT PLAN
The Company maintains a noncontributory Employee Savings Plan, in
accordance with the provisions of Section 401(k) of the Internal
Revenue Code. Pursuant to the terms of the plan, participants can
defer a portion of their income through contributions to the Plan.
NOTE M - FINANCIAL INSTRUMENTS, REVENUES AND OTHER MATTERS
[1] Revenues:
For the year ended December 31, 1997, 84 percent of revenues were
derived from one customer and for the year ended December 31,
1996, 71 percent of revenues were derived from two customers.
[2] Microsoft Corporation:
The Company's software is generally based upon Microsoft Windows
technology. Additionally, it has established a strategic
relationship with Microsoft that management believes is important
to its sales, marketing and support and product development
activities. Accordingly, any change in this relationship or any
factor adversely affecting the demand for, or the use of
Microsoft's Windows operating system could have a negative impact
on demand for the Company's products and services. Additionally,
changes to the underlying components of the Windows operating
system would require changes to the Company's products and could
result in the loss of sales if the Company did not implement
changes in a timely manner.
NOTE N - COMMITMENTS AND CONTINGENCY
[1] Lease income:
In 1995, the Company entered into an agreement with the City of
New York ("New York") whereby the Company would develop custom
software and lease five kiosks, hardware and software to New
York. All rental income relates to this agreement. Additionally,
the Company can earn fees based upon the number of transactions
effectuated in the kiosks.
Effective January 1, 1998, the annual rental income was reduced to
$84,000.
F - 14
<PAGE>
[2] Lease:
The Company leases office space and equipment under operating
leases with an initial or remaining term of one year or more
through 2003. Minimum annual rentals are as follows:
Year Ending
December 31, Amount
1998 $77,822
1999 80,494
2000 84,787
2001 89,080
2002 97,666
2003 9,311
-----------
$439,160
===========
Rent expense approximated $77,900 and $62,500, for the years
ended December 31, 1997 and 1996, respectively.
[3] Employment agreements
The Company entered into employment agreements with two key
executives expiring in December 2001. Under the terms of the
agreements, the aggregate initial annual compensation is $208,000
per executive. Additionally, the agreements include provisions
for bonuses (aggregating the sum of 5 percent of earnings before
depreciation, interest, taxes and amortization and other amounts,
if any, to be determined by the board of directors), increases in
compensation and severance payment based upon certain events.
[4] Litigation
In 1998, litigation commenced against the Company alleging breach
of contract and seeking in excess of $100,000. While the outcome
cannot be determined, management believes that the action is
without merit and is vigorously contesting this matter.
NOTE O - LOSS ON UNCOLLECTIBLE LOAN
During 1997, the Company entered into a letter of intent to acquire
another software company. Concurrently, the Company loaned this
company $250,000. The acquisition has been cancelled and the loan
written off as uncollectible.
F - 15
<PAGE>
PROMISSORY NOTE
$440,000 January 2, 1997
For value received, the undersigned, David E. Y. Sarna
(the "Maker"), residing at 625 North Forest Drive, Teaneck, New
Jersey 07666, promises to pay to ObjectSoft Corporation (the
"Payee"), at the business address of the Payee located at
Continental Plaza Building III, 433 Hackensack Avenue,
Hackensack, New Jersey 07601, the principal sum of Four Hundred
Forty Thousand Dollars ($440,000), payable on May 31, 1998 (the
"Maturity Date"), together with accrued interest at the rate of
eight percent (8%) per annum on the outstanding principal amount.
At all times after the Maturity Date and/or during the
continuance of an Event of Default (as hereinafter defined),
interest shall accrue on any unpaid principal amount outstanding
under this Note, and shall be payable by the Maker upon demand of
the Payee, at a rate equal to ten percent (10%) per annum (the
"Default Rate").
The Maker may prepay this Note in whole or in part at
any time without penalty or premium.
All payments by the Maker on account of principal,
interest or fees hereunder shall be made in lawful money of the
United States of America in immediately available funds. All
payments of principal and other amounts, if any, due the Payee
pursuant to this Note shall be made by 12:30 P.M. (New York City
time) on the date payment is due to the Payee at its offices at
the address set forth above, and, or as otherwise instructed by
the Payee. All advances and payments made pursuant to this Note
may be recorded by the Payee on its books and records, and such
records shall be conclusive as to the existence and amounts
thereof absent manifest error. Should any payment become due and
payable on other than a Business Day, the maturity thereof shall
be extended to the next succeeding Business Day. Any payment
received by the Payee hereunder shall be applied in the following
order of priority: (a) first, to the payment or reimbursement of
any fees, costs or expenses incurred by the Lender in connection
with the enforcement of Payees rights hereunder, (b) second, to
the payment of any accrued but unpaid interest, and (c) third to
the reduction of any portion of the principal amount then
outstanding hereunder.
This Note is subject to the express condition that at
no time shall the Maker be obligated or required to pay interest
on the principal balance due hereunder at a rate which could
subject the Payee to either civil or criminal liability as a
result of being in excess of the maximum interest rate which the
Maker is permitted by applicable law to contract or agree to pay.
If by the terms of this Note, the Maker is at any time required
or obligated to pay interest on the principal balance due
hereunder at a rate in excess of such maximum rate, the interest
rate that would be applicable hereunder but for the provisions of
this section shall be deemed to be immediately reduced to such
maximum rate and any payments in excess of the maximum rate shall
be deemed to have been payments in reduction of principal and not
on account of the interest due hereunder. Notwithstanding the
foregoing, the Maker will not be obligated to pay interest in
excess of ten percent (10%) per annum.
In the event of the loss, theft or destruction of this
Note, the Maker shall execute and deliver an identical new Note
to the Payee in substitution therefor upon the Makers receipt of
(i) notice from the Payee confirming such event and (ii) an
indemnity agreement from (and in such form and substance as
may be acceptable to) the Payee if requested by the Maker.
In the event of mutilation of or other damage to this Note,
the Maker shall execute and deliver an identical new Note to
the Payee in substitution therefore, following which the
Payee will return the mutilated or damaged Note to the
Maker.
If any of the following events (each such event, an
"Event of Default") shall occur and be continuing:
i. The Maker shall fail to make any payment of principal
of or interest on this Note (including, without limitation, any
mandatory prepayment of principal) or any other amount when due
(or, if applicable, when demanded by the Payee) hereunder;
ii. The Maker shall default in any material respect in the
performance or observance of any covenant or agreement contained
in this Note; and
iii. The Maker shall become insolvent, make an assignment for
the benefit of creditors, file a petition in bankruptcy, be
adjudicated insolvent or bankrupt, admit in writing his inability
to pay his debts as they mature, petition or apply for, consent
to, or acquiesce in the appointment of, a trustee or receiver of
it property or for a substantial part of his property; or any
other bankruptcy, reorganization, debt arrangement or other
proceeding under any bankruptcy or insolvency law, or any
dissolution or liquidation proceeding shall be instituted by or
against the Maker or any guarantor, and if instituted, shall be
consented to or acquiesced in or shall not be dismissed or, if
contested, stayed within a period of thirty (30) days; or any
judgment, writ of attachment or execution or any similar process
involving an amount in excess of $100,000 shall be issued or
levied against a substantial part of the property of the Maker
and shall not be released, stayed, bonded or vacated within a
period of thirty (30) days after its issue or levy;
then, and in any such event, the Payee may declare the entire
unpaid principal amount of this Note and any interest, fees and
expenses, if any, accrued and unpaid hereunder to be forthwith
due and payable, whereupon the same shall become and be forthwith
due and payable, without presentment, demand, protest or notice
of any kind, all of which are hereby expressly waived by the
Maker.
No failure on the part of the Payee to exercise, and no
delay in exercising any right hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise by the Payee of
any right hereunder preclude any other or further exercise
thereof or the exercise of any other rights. The remedies herein
provided are cumulative and not exclusive of any remedies
provided by law.
The Maker shall reimburse the Payee for all fees, costs
and expenses incurred by the Payee, including (without
limitation) the reasonable fees and disbursements of counsel to
the Payee, in connection with enforcement of the Payee's rights
hereunder.
No amendment, modification or waiver of any provision
of this Note nor consent to any departure by the Maker therefrom
shall be effective unless the same shall be in writing and signed
by the Payee and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for
which given.
This Note shall be deemed to be a contract made under
the laws of the State of New Jersey and shall be construed in
accordance with the laws of said State without regard to
principles of conflict of laws or choice of law.
Whenever in this Note reference is made to any party,
such reference shall be deemed to include the successors,
assigns, heirs and legal representatives of such party, and,
without limiting the generality of the foregoing, all
representations, warranties, covenants and other agreements made
by or on behalf of the Maker in this Note shall inure to the
benefit of the successors and assigns of the Payee; provided,
however, that nothing herein shall be deemed too authorize or
permit the Maker to assign any of his rights or obligations under
this Note to any other person, and the Maker covenants and agrees
that it shall not make any such assignment. The Payee from time
to time may assign and/or grant participation interests to one or
more other persons of all or any portion of its rights and
interests and/or obligations under this Note of its rights to
payments of principal and /or interest under the Note, and may
take any and all reasonable actions necessary or appropriate in
connection with any such assignment, all without notice to or
consent of the Maker or any other person.
The provisions of this Note are severable, and if any
provision shall be held invalid or unenforceable in whole or in
any jurisdiction, then such invalidity or unenforceability shall
not in any manner affect such provision in any other jurisdiction
or any other provision of this Note in any jurisdiction.
The Maker hereby irrevocably consents to the
jurisdiction and venue of any New Jersey State or Federal court
located in Bergen County, New Jersey, over any action or
proceeding arising out of any dispute between the Maker and the
Payee under this Note or otherwise, and the Maker further
irrevocably consents to the service of process in any such action
or proceeding by the mailing of a copy of such process to the
Maker at the address set forth in the first paragraph of this
Note. THE MAKER AND THE PAYEE HEREBY WAIVE TRIAL BY JURY IN ANY
LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR
ARISING OUT OF THE TRANSACTIONS CONTEMPLATED BY THIS NOTE, OR THE
VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT
HEREOF, OR ANY OTHER CLAIM OR DISPUTE HOWSOEVER ARISING, BETWEEN
THE MAKER AND THE PAYEE.
/s /David E.Y. Sarna
David E. Y. Sarna
ACCEPTED AND AGREED:
OBJECTSOFT CORPORATION
By:/s /George J. Febish
George J. Febish, President
SECURITY AGREEMENT
This Security Agreement (this "Agreement") is made as of
the 18th day of March, 1998 between DAVID E.Y. SARNA, residing at
625 North Forest Drive, Teaneck, New Jersey 07666 (the
"Pledgor"), and OBJECTSOFT CORPORATION, a Delaware corporation
with an address at Continental Plaza III, 433 Hackensack Avenue,
Hackensack, NJ 07601 (the "Secured Party").
WHEREAS, in order to secure the payment and performance of
the Pledgor's obligations under the promissory note issued by the
Pledgor to the Secured Party, dated January 2, 1997 (the "Note"),
such Note being in the principal amount of $440,000 (and accrued
interest at the rate of eight percent per annum on the
outstanding principal amount), and in consideration for the
Secured Party extending the date on which the Note was to become
due and payable from November 30, 1997 to May 31, 1998, the
Pledgor has agreed to pledge and grant a lien and security
interest in the contract rights of Pledgor in and to the
agreement between the Pledgor and Todd M. Spehler, dated August
1, 1997(collectively, and whether constituting an instrument,
contract right, general intangible, investment property or
otherwise, and including the proceeds thereof, "the
"Collateral").
NOW, THEREFORE, in consideration of the foregoing, the
covenants and conditions herein contained and the mutual
agreements of the parties hereto, the Pledgor and the Secured
Party hereby agree as follows:
1. Collateral. To secure the prompt payment and
performance of the Pledgor's obligations and liabilities under
the Note (the "Secured Obligations"), the Pledgor hereby grants
unto the Secured Party a security interest in all of Pledgor's
right, title and interest in and to the Collateral.
2. Collateral Documentation and Representations.
2.1. The Pledgor shall deliver to the Secured Party
upon execution of this Agreement, such financing statements,
consents and other instruments, documents and agreements as the
Secured Party may reasonably deem necessary to perfect any
security interest granted or required to be granted under this
Agreement, each in such form and substance as may be reasonably
acceptable to the Secured Party.
2.2. The Pledgor hereby irrevocably authorizes the
Secured Party in its discretion: (i) to file without the
signature of the Pledgor any and all financing statements,
modifications and continuations in respect of the Collateral and
the transactions contemplated by this Agreement; (ii) to sign any
such statement, modification or continuation on behalf of the
Pledgor if the Secured Party deems such signature necessary or
desirable under applicable law; and (iii) to file a reproduction
of any financing statement or modification if the Secured Party
deems such filing necessary or desirable under applicable law.
2.3. The Pledgor makes no representations or
warranties other than as expressly set forth herein.
3. Affirmative Covenants. The Pledgor covenants and
agrees that, from the date hereof and until the Secured
Obligations have been fully paid and satisfied, unless the
Secured Party shall consent otherwise in writing:
3.1. The Pledgor shall give written notice to the
Secured Party of the institution of any action involving or
affecting the Secured Obligations, any part of the Collateral, or
any of the transactions contemplated by this Agreement.
3.2. The Pledgor shall comply with all current
applicable laws, the non-compliance with or violation of which
could have a material adverse effect on the Collateral.
3.3. The Pledgor shall defend and enforce its right,
title and interest in and to each and every part of the
Collateral, and the Pledgor shall defend the Secured Party's
right, title and interest in and to each and every part of the
Collateral, each against all manner of claims and demands on a
timely basis to the full extent permitted by applicable law.
3.4. The Pledgor will comply with the terms of the
Note in all material respects.
4. Negative Covenants. The Pledgor covenants and agrees
that, from the date hereof until the Secured Obligations have
been fully paid and satisfied, unless the Secured Party shall
consent otherwise in writing:
4.1. The Pledgor shall not directly or indirectly
(i) make, create or permit to exist any assignment, pledge,
security interest or other lien or encumbrance in, to or against
any part of the Collateral which is senior to the rights of the
Secured Party hereunder or (ii) assign, pledge or in any way
transfer, or otherwise encumber its right to receive proceeds
from any part of the Collateral which is senior to the rights of
the Secured Party hereunder.
4.2. The Pledgor shall not directly or indirectly
cause, suffer or permit any waiver of any term or provision
applicable to any of the Collateral, or offer or agree to do so,
if the result of such action would be materially adverse to the
Secured Party, without the prior consent of the Secured Party,
which consent shall not be unreasonably withheld.
5. Default and Remedies.
5.1. The occurrence of any of the following shall
constitute an "Event of Default" hereunder:
5.1.1. The Pledgor shall fail to duly observe
or perform any covenant or agreement made by him hereunder and
such failure is not cured within 15 days after the Pledgor
receives written notice of such breach from the Secured Party; or
5.1.2. A default under the Note shall occur
and is not cured within the period provided for such cure in the
Note.
5.2. If an Event of Default shall have occurred and
be continuing, the Secured Party may at its option:
5.2.1. Notify each of the obligors of the
Collateral of the Secured Party's interest therein or of any
action proposed to be taken with respect thereto, and direct one
or more of such parties to make all payments otherwise payable to
the Pledgor with respect thereto directly to the Secured Party
until notified by the Secured Party that all Secured Obligations
have been fully paid and satisfied;
5.2.2. Immediately exercise all enforcement
and other ownership rights pertaining to any or all of the
Collateral as though the Secured Party was the outright owner of
such Collateral;
5.2.3. Exercise any and all rights of
acceleration, collection, conversion or exchange, and any and all
other rights, privileges, options or powers of the Pledgor
pertaining or relating to any and all of the Collateral;
5.2.4. Sell, assign and deliver the whole or,
from time to time, any part of the Collateral at any broker's
board or at any private sale or at public auction, with or
without demand for performance, advertisement or notice of the
time or place of sale or adjournment thereof or otherwise, for
cash, for credit or for other property, for immediate or future
delivery, and for such price or prices and on such terms as the
Secured Party in its discretion may determine;
5.2.5. Act with or without judicial process
to take possession of the Collateral; and
5.2.6. Exercise any other remedy specifically
granted under this Agreement or the Note now or hereafter
existing in equity, at law, by virtue of statute (including,
without limitation, the Uniform Commercial Code), whether as a
secured party in possession of Collateral or otherwise.
5.3. At any sale made pursuant to Subsection 5.2, the
Secured Party may bid for and purchase, free from any right or
equity of redemption on the part of the Pledgor (the same being
hereby waived and released), any part of or all of the Collateral
that is offered for sale and may make payment on account thereof
by using any claim then due and payable to the Secured Party by
the Pledgor of such Collateral as a credit against the purchase
price.
5.4. The Secured Party shall apply the proceeds of
any sale of the whole or any part of the Collateral and any other
monies at the time held by the Secured Party under the provisions
of this Agreement, after deducting all reasonable costs and
expenses of collection, sale and delivery incurred by the Secured
Party in connection with such sale, towards the payment of the
Secured Obligations. After full and final payment to the Secured
Party in cash of all such obligations the Secured Party shall
remit any surplus to the Pledgor.
6. Power of Attorney. The Pledgor authorizes the
Secured Party and does hereby make, constitute and appoint the
Secured Party, and any agent of the Secured Party, with full
power of substitution, as the Pledgor's true and lawful attorney-
in-fact, with power, in its own name or in the name of the
Pledgor upon the occurrence and continuation of an Event of
Default: (a) to endorse any notes, checks, draft, money orders,
or other instruments of payment (including payments payable under
or in respect of any policy of insurance) in respect of the
Collateral that may come into possession of the Secured Party;
(b) to sign and endorse any drafts against debtors, assignments,
verifications and notices in connection with accounts, and other
documents relating to the Collateral; (c) to pay or discharge any
liens, security interests or other encumbrances at any time
levied or placed on or threatened against the Collateral; (d) to
demand, collect, receipt for, compromise, settle and sue for
monies due in respect of the Collateral; and (e) generally, to
do, at the Secured Party's option and at the Pledgor's expense,
all acts and things that the Secured Party deems necessary to
protect, preserve and realize upon the Collateral and the Secured
Party's security interest therein in order to effect the intent
of this Agreement and the Note all as fully and effectually as
the Pledgor might or could do; and the Pledgor hereby ratifies
all that said attorney shall lawfully do or cause to be done by
virtue hereof. This power of attorney shall be irrevocable for
the term of this Agreement and thereafter as long as any of the
Secured Obligations shall be outstanding and an Event of Default
continuing.
7. Termination of Agreement. Upon the payment or
prepayment in full of all Secured Obligations or the cancellation
thereof, the security interests granted hereunder shall
terminate. Upon such complete payment and satisfaction or
cancellation, the Secured Party shall cause to be transferred to
the Pledgor all of the Collateral (less any portion of same sold,
transferred or disposed of pursuant to, and under the
circumstances specified in, Section 5 hereof) and, shall cause to
be delivered to the Pledgor, at the Pledgor's cost and expense,
in proper form for filing in each office in which a financing
statement relating to the Collateral shall have been filed, an
executed termination statement under the Uniform Commercial Code,
and this Agreement shall thereupon be terminated. The Pledgor
shall pay all reasonable costs of enforcement and collection
incurred by the Secured Party hereunder.
8. Miscellaneous.
8.1. The Pledgor further unconditionally agrees that
if an Event of Default under (and as defined in) the Note has
occurred and is continuing, the Secured Party may exercise its
rights and remedies hereunder prior to, concurrently with, or
subsequent to, the exercise by the Secured Party of its rights
and remedies under the Note or otherwise.
8.2. Any modification or waiver of any provision of
this Agreement, or any consent to any departure by any party
hereto therefrom, shall not be effective unless the same is in
writing and signed by that party and then such modification,
waiver or consent shall be effective only in the specific
instance and for the specific purpose given. Any notice to or
demand on the Pledgor not specifically required of the Secured
Party hereunder shall not entitle the Pledgor to any similar,
other or further notice or demand in the same, similar or other
circumstances unless specifically required hereunder.
8.3. Any notice, request, demand, consent, approval
or other communication provided or permitted hereunder shall be
in writing and be given by personal delivery or sent by United
States first-class mail, postage prepaid, addressed to the party
for whom it is intended, at such address as the party for whom it
is intended has specified in writing to the other party hereto.
8.4. This Agreement shall be deemed to have been made
under, and shall be governed by, the laws of the State of New
York in all respects, including matters of construction, validity
and performance.
8.5. If any provision of this Agreement is prohibited
by, or is unlawful or unenforceable under, any applicable law of
any jurisdiction, such provision shall, as to such jurisdiction,
be ineffective to the extent of such prohibition without
invalidating the remaining provisions hereof; provided, however,
that any such prohibition in any jurisdiction shall not
invalidate such provision in any other jurisdiction.
8.6. This Agreement may be executed in counterparts,
each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
IN WITNESS WHEREOF, the Pledgor and the Secured Party have
caused this Agreement to be executed as of the date first above
written.
/s /David E. Y. Sarna
David E. Y. Sarna, Pledgor
OBJECTSOFT CORPORATION, Secured Party
By: /s /George J. Febish
George J. Febish, President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 209455
<SECURITIES> 915938
<RECEIVABLES> 364859
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2190402
<PP&E> 714190
<DEPRECIATION> 330119
<TOTAL-ASSETS> 2723551
<CURRENT-LIABILITIES> 419415
<BONDS> 0
0
0
<COMMON> 408
<OTHER-SE> 6942862
<TOTAL-LIABILITY-AND-EQUITY> 2723551
<SALES> 631167
<TOTAL-REVENUES> 631167
<CGS> 0
<TOTAL-COSTS> 3152855
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2519872)
<INCOME-TAX> (2519872)
<INCOME-CONTINUING> (2519872)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2519872)
<EPS-PRIMARY> (.62)
<EPS-DILUTED> (.62)
</TABLE>
