SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the quarterly period ended March 31, 1998
Commission file number 1-10751
OBJECTSOFT CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 22-3091075
(State of incorporation) (IRS Employer ID number)
CONTINENTAL PLAZA III, 433 HACKENSACK AVENUE
HACKENSACK, NJ 07601
(Address of Principal Executive Offices)
(201)343-9100
(Issuer's Telephone Number Including Area Code)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ___ .
(Applicable only to Corporate Issuers)
Indicate the number of shares outstanding of each of the
issuer's classes of common equity, as of the last practicable
date.
Class May 12, 1998
Common Stock, $.0001 par value 4,082,676
Redeemable Class A Warrants 1,366,050
Transitional Small Business Disclosure Format (check one):
Yes ___ No X
<PAGE>
OBJECTSOFT CORPORATION
INDEX
Page #
Part I. Financial Information
Item 1. Financial statements
Condensed Balance Sheets- 1
March 31, 1998 and December 31, 1997
Condensed Statements of Operations
Three Months Ended March 31, 1998
and 1997 2
Condensed Statements of Cash Flows
Three Months Ended March 31, 1998
and 1997 3
Notes to Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis
or Plan of Operation 5
Part II Other Information
Item 2. Changes in Securities and Use of Proceeds 8
Item 5. Other information 8
Item 6. Exhibits and reports on Form 8-K 10
Signatures 11
Exhibit index 12
Exhibit 27 Article 5 Financial Data Schedule 13
<PAGE>
PART I Financial information
<TABLE>
OBJECTSOFT CORPORATION
CONDENSED BALANCE SHEETS -- MARCH 31, 1998 (Unaudited)
AND DECEMBER 31, 1997
<CAPTION>
March December
31, 1998 31, 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $112,758 $209,455
Marketable securities 332,235 915,938
Accounts receivable 196,864 364,859
Prepaid expenses and other
current assets 250,957 235,150
Notes receivable-
officer/ shareholder 440,000 440,000
Note receivable - other 16,640 25,000
----------- -----------
Total current assets 1,349,454 2,190,402
Equipment, at cost, net of
accumulated depreciation 346,856 384,071
Capitalized software 81,990 78,231
Other assets 70,847 70,847
----------- -----------
T O T A L $1,849,147 $2,723,551
=========== ===========
LIABILITIES
Current liabilities
Current portion of long-term
debt $8,873 $8,686
Current portion of obligations
under capital lease 16,667 27,348
Accounts payable 136,597 296,658
Accrued expenses 106,954 84,560
Other current liabilities 5,398 2,163
----------- -----------
Total current liabilities 274,489 419,415
----------- -----------
Long-term debt 3,122 5,413
Obligations under capital lease 23,907 25,475
----------- -----------
Total Liabilities 301,518 450,303
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $.0001 par value; authorized
20,000,000 shares; issued and
outstanding 4,082,676 shares 408 408
Additional paid-in capital 6,942,862 6,942,862
Accumulated deficit (5,395,641) (4,670,022)
----------- -----------
Total stockholders' equity 1,547,629 2,273,248
----------- -----------
T O T A L $1,849,147 $2,723,551
=========== ===========
-1-
</TABLE>
<PAGE>
<TABLE>
OBJECTSOFT CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
UNAUDITED
<CAPTION>
Three Months Ended March 31,
1998 1997 *
----------- -----------
<S> <C> <C>
Revenues:
Development and training $15,166 $47,529
Rental income 29,125 90,270
----------- -----------
Total revenues 44,291 137,799
----------- -----------
Expenses:
Cost of Service:
Development and training 49,430 88,527
Rentals 133,926 130,935
Research and development 147,340 98,615
General and administrative 468,812 424,753
----------- -----------
Total expenses 799,508 742,830
----------- -----------
Loss from operations (755,217) (605,031)
----------- -----------
Other income(expense):
Realized and unrealized gain(loss) on
marketable securities (1,846)
Interest and dividend income 34,371 36,126
Interest expense (2,927) (3,720)
----------- -----------
Total other income (expense) 29,598 32,406
----------- -----------
NET (LOSS) ($725,619) ($572,625)
----------- -----------
BASIC AND DILUTED NET (LOSS) PER SHARE ($0.18) ($0.14)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 4,082,676 4,036,110
=========== ===========
* Reclassified to conform to current year's presentation
and restated to properly reflect interest income.
-2-
</TABLE>
<PAGE>
<TABLE>
OBJECTSOFT CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
UNAUDITED
<CAPTION>
Three Months Ended March 31
1998 1997
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) ($725,619) ($513,965)
Adjustments to reconcile net loss to net
cash (used in) operating activities:
Depreciation and amortization 81,825 78,366
Changes in operating assets and liabilities:
liabilities:
(Increase) decrease in:
Marketable securities 583,703 (2,000,000)
Accounts receivable 167,995 (70,690)
Other current assets (15,807) (98,987)
Note receivable- other 8,360
Other assets 14,898
Increase (decrease) in:
Accounts payable (160,061) 143,102
Accrued expenses and
other liabilities 25,629 (19,757)
----------- ------------
Net cash used in operating activities (33,975) (2,467,033)
----------- ------------
Cash flow from investing activities:
Capital expenditures (23,869) (79,026)
Capitalized software and courseware (24,500) (13,780)
Increase in notes and loan
receivable officer shareholder (637,500)
----------- ------------
Net cash (used in) investing activities (48,369) (730,306)
----------- ------------
Cash flow from financing activities
Proceeds from exercise of warrants
and issuance of 39,000 shares 39,000
Principal payments on obligations
under capital leases (12,249) (7,635)
Repayment of long-term debt (2,104)
----------- ------------
Net cash provided by financing activities (14,353) 31,365
----------- ------------
NET (DECREASE) IN CASH (96,697) (3,165,974)
Cash, beginning of period 209,455 4,039,358
----------- ------------
Cash, end of period $112,758 $873,384
=========== ============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION
Interest expense paid $2,927 $3,720
=========== ============
-3-
</TABLE>
<PAGE>
OBJECTSOFT CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information, the instructions to Form 10-QSB
and item 310 (b) of Regulation SB. Accordingly, they do not
include all the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for fair presentation have
been included. For further information, refer to the Financial
Statements and footnotes thereto included in the Company's Registration
Statement and Prospectus and Form 10-KSB (for the year ended
December 31, 1997) as filed with the Securities and Exchange Commission.
NOTE B -- LOSS PER SHARE
Basic and diluted net loss per share was computed based on
the weighted average number of shares of common stock outstanding during
the period.
Note C - Subsequent Events
On May 13, 1998 (the "Subscription Date"), the Company entered
into a Private Equity Line of Credit Agreement (the "Agreement")
with several investors (the "Investors") which provides for
a commitment to fund up to $7,100,000 to the Company.
On the Subscription Date the Investors purchased 444,444 shares of the
Company's Common Stock (the "Initial Shares") and received
Warrants to purchase an aggregate of 18,000 shares of
Common Stock for $900,000. The agreement also provides,
subject to the fulfillment of various conditions, for the Investors
to purchase 6% Series C Convertible Preferred Stock for $1,200,000.
The shares are to be issued in two parts within 120 days after the
registration of the Initial Shares.
In addition, the Company may from time to time, subject to the
fulfillment of various conditions, offer the Investors to
purchase additional common stock at 85% of the Market Price as
defined in the agreement, which could potentially produce
proceeds of up to $5,000,000.
On a proforma basis, assuming the Subscription Date were
March 31, 1998, and the Initial Shares were issued as of
such date, total stockholders equity would have been
approximately $2,447,600.
-4-
<PAGE>
OBJECTSOFT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Item 2
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
product; competition; possible difficulty in complying
with government contract requirements; dependence on
certain third parties and on the Internet; limited
customer base; risk of potential manufacturing
difficulties; risk of requirements to comply with
government regulations; potential liability for
information and content disseminated throughout the
network; dependence on key personnel and proprietary
technology; risk of system failure, security risks and
liability risks; the Company's vulnerability to rapid
industry change and technological obsolescence; the
limited nature of its product life; the unproven
status of the Company's products in widespread
commercial use, including the risks that the Company's
current and future products may contain errors that
would be difficult to detect and correct;
uncertainties with respect to the Company's business
strategy; general economic conditions, and other risks
described in the Company's Form 10KSB for the fiscal
year ended December 31, 1997, and in the Company's
Prospectus dated October 22, 1997.
Results of Operations
Three Months Ended March 31, 1998 Compared With Three
Months Ended March 31, 1997
The results of operations for the three months ended
March 31, 1998 are not necessarily indicative of the
results that may be expected for any other interim
period or for the fiscal year ending December 31,
1998.
-5-
<PAGE>
Net revenues decreased by $93,508 or 68% to $44,921
for the three months ended March 31, 1998 over net
revenues of $137,799 for the three months ended March
31, 1997. Development and training revenue decreased
by $32,363 or 68% to $15,166 from $47,529. Rental
income decreased by $61,145 or 68% to $29,125 from
$90,270. The Company's decreased revenues from
development and training resulted from redirection of
the Company's resources to transactional fee-based
products and services. The decrease in rental income
was due to the completion of the original contract
with the City of New York, and an extension with the
City of New York which resulted in a reduction in the
the rental of five kiosks from $30,090 to $9,700 per
month, through June 30, 1999, which will be used to
recover the incremental costs associated with
providing services for the extended period.
Cost of services for development and training
decreased by $39,097 or 44% to $49,430 for the three
months ended March 31, 1998 from $88,527 for the three
months ended March 31, 1997, due to the redirection of
the Company's resources to transactional fee-based
products. Cost of services for rentals increased by
$2,991 or 2% to $133,926 for the three months ended
March 31, 1998 from $130,935 for the three months
ended March 31, 1997, due to normal increases in
expenses.
Research and development expenses increased by $48,725
or 49% to $147,340 for the three months ended March
31, 1998 from $98,615 for the three months ended March
31, 1997, due to an increase in personnel devoted to
research and development in connection with the
Company's expansion into San Francisco.
General and administrative expenses increased by
$44,059 or 10% to $468,812 for the three months ended
March 31, 1998 from $424,753 for the three months
ended March 31, 1997, due principally to increases in
personnel expenses.
Other income decreased by $2,808 or 9% to $29,598 for
the three months ended March 31, 1998, from $32,406
for the three months ended March 31, 1997, due to
lower investments offset by higher return on current
investments.
The net loss increased by $152,994 or 27% to $725,619
for the three months ended March 31, 1998 from
$572,625 for the three months ended March 31, 1997,
due to lower revenues due to the renegotiatiog of the
New York City contract and an increase in research
and development expenses.
-6-
<PAGE>
Liquidity and Capital Resources
For the three months ended March 31, 1998 the Company
incurred a net loss of $725,619. The accumulated
deficit increased to $5,395,641as the Company
continues to incur operating losses as expenses exceed
revenue. The Company had working capital of
$1,074,965 as of March 31, 1998 as compared to
$1,770,987 as of December 31, 1997, or a decrease of
$696,022. Capital expenditures and capitalized
software amounted to $48,369.
The rate of inflation was insignificant during the
quarter ended March 31, 1998. The Company continually
reviews its costs in relation to the pricing of its
products and services.
On May 13, 1998 (the "Subscription Date"), the Company
entered into a Private Equity Line of Credit Agreement
(the "Agreement") with several investors (the
"Investors") which provides for a commitment to fund
up to $7,100,000 to the Company. On the Subscription
Date the Investors purchased 444,444 shares of the
Company's Common Stock (the "Initial Shares") and
received Warrants to purchase an aggregate of 18,000
shares of Common Stock for $900,000. The agreement
also provides, subject to the fulfillment of various
conditions, for the Investors to purchase 6% Series
C Convertible Preferred Stock for $1,200,000. The
shares are to be issued in two parts within 120 days
after the registration of the Initial Shares.
In addition, the Company may from time to time, subject to
the fulfillment of various conditions, offer
the Investors to purchase additional common stock at
85% of the Market Price as defined in the agreement,
which could potentially produce proceeds of up to
$5,000,000.
The Company anticipates that its existing working
capital will be sufficient to fund its operations at
least through June 30, 1999.
-7-
<PAGE>
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
The company filed a Form SR (the "Form SR") with
the Securities and Exchange Commission, dated
February 20, 1997, reporting the sales of securities
and use of proceeds therefrom in connection with
the Company's Initial Public Offering in November
1996 (the "Public Offering"). The effective date of
the registration statement filed in connection with
the Public Offering was November 12, 1996,
Commission file number 333-10519.
The following information updates the information
contained in Form SR. From February 28, 1997 (the
period of the Form SR) through March 31, 1998,
$2,305,100 of the net offering proceeds to the
Company has been used for further expansion of
SmartStreet [TM] and related operations and for
general corporate purposes, additionally $250,000
was loaned to InteractiVisions, Inc. in connection
with a potential acquisition which acquisition was
later abandoned, in the form of direct or indirect
payments to others, and $445,000 remain in cash and
temporary investments.
Item 5. Other Information
On May 13, 1998 (the "Subscription Date"),the
Company entered into a Private Equity Line of Credit
Agreement (the Agreement") with several investors
(the "Investors") which provides for a commitment to
fund up to $7,100,000 to the Company. On the
Subscription Date the Investors purchased 444,444
shares of the Company's Common Stock (the "Initial
Shares") and received Warrants to purchase an
aggregate of 18,000 shares of Common Stock for
$900,000. The Company agreed to promptly file a
Registration Statement under the Securities Act of
1933, as amended, registering shares of the
Company's Common Stock issuable in connection with
the transactions contemplated by the Agreement (the
"Registration Statement"). The purchasers of the
Common Stock received certain reset rights which
provide that the purchase price of the Initial
Shares is subject to repricing ("Repricing"), half
of the Initial Shares on the date the Registration
Statement is declared effective by the Securities
and Exchange Commission (the "Effective Date") and
-8-
<PAGE>
the other half 30 days thereafter. The Investors
will receive the benefit of such Repricing in the
form of additional shares of Common Stock. In
addition, the Company has received certain
repurchase rights with regard to the Common Stock in
the event the closing bid price of the Common Stock
falls below $1.50 per share.
Certain of the transactions contemplated by the
Agreement are subject to the Company obtaining
shareholder approval for the issuance of 20% or more
of its Common Stock, as required by the rules of the
NASD. If shareholder approval is not obtained, the
benefit of the Repricing, if any, to the extent
restricted by the failure to obtain such approval,
will be paid to the Investors in cash instead of in
additional shares of Common Stock.
The Agreement also provides for the purchase of
Series C Convertible Preferred Stock, bearing
dividends at an annual rate of 6% (the "Preferred
Stock") for an aggregate purchase price of
$1,200,000.The Agreement provides that the Preferred
Stock will be issued in two traunches of $600,000
each: the first will be funded 30 days from the
Effective Date and the second will be funded 90 days
from the Effective Date. The Preferred Stock,
including accrued dividends, would be convertible
into shares of the Company's Common Stock at a price
equal to the lesser of (x) the average closing bid
price of the Company's Common Stock for the five-day
trading period ending on the day prior to the date
of conversion times 85% or (y) the average closing
bid prices of the Company's Common Stock over the
five day trading period preceding the closing of the
first traunch of Preferred Stock. The Company has
the option of terminating the Preferred Stock
portion of the funding at any time but no later than
20 days after the Effective Date. The Preferred
Stock, including all accrued dividends, will
automatically convert into Common Stock on the
second anniversary of the closing of each traunch
of the Preferred Stock.
In addition, subject to the satisfaction of
certain conditions, the Company may, from time to
time, put (each, a "Put") to the Investors Common
Stock, potentially producing proceeds of up to
$5,000,000 (the "Equity Line of Credit"). The price
per share per Put will equal 85% of the Market Price
(defined as the average closing bid prices of the
Company's Common Stock over the five-day trading
period beginning three trading days prior to a Put
and ending on the trading day following a Put) of
-9-
<PAGE>
the Common Stock as of the date the Company delivers
notice of the Put to the Investors. The Investors
have received Warrants to purchase an aggregate of
30,000 shares of Common Stock in consideration of
their commitment to enter into the Equity Line of
Credit and will receive Warrants to purchase up to
an aggregate of 24,000 shares on the completion of
the purchase of the Preferred Stock. The Warrants
are exercisable for five years at an exercise price
of between 120% and 125% of either the closing bid
price of the Common Stock preceding the Subscription
Date or the average closing bid price of the Common
Stock over the five trading days preceding the
Subscription Date.
The Investors have agreed not to own, at any
time, in excess of 4.95% of the outstanding shares
of Common Stock of the Company.
On the Subscription Date, the Company paid the
placement agent a fee of 5% in cash of the purchase
price of the Initial Shares in connection with the
placement of the Initial Shares and 37,778 shares
of Common Stock and warrants to purchase up to an
aggregate of 9,000 shares of Common Stock. Upon the
completion of the purchase of the Preferred Stock,
the Company has agreed to pay the placement agent 3%
of the purchase price of the Preferred Stock in cash
and 4% of the purchase price of the Preferred Stock
in Preferred Stock. With regard to the Equity Line
of Credit, the Company has agreed to pay the
placement agent an amount equal to 6% of the gross
proceeds collected upon exercise of each Put. In
addition the Placement Agent is entitled to
reimbursement of a portion of legal fees and
expenses incurred.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
Exhibit 27- Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form
8-K during the quarter ended
March 31, 1998.
-10-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
OBJECTSOFT CORPORATION
BY /s/ David E.Y. Sarna
David E. Y. Sarna, Co-Chief
Executive Officer and
Secretary
Date: May 15, 1998
-11-
<PAGE>
OBJECTSOFT CORPORATION
Exhibit Index
Exhibit Number Page #
27 Financial Data Schedule 13
-12-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 112,758
<SECURITIES> 332,235
<RECEIVABLES> 196,864
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,349,454
<PP&E> 733,174
<DEPRECIATION> 386,318
<TOTAL-ASSETS> 1,849,147
<CURRENT-LIABILITIES> 274,489
<BONDS> 0
0
0
<COMMON> 408
<OTHER-SE> 6,942,862
<TOTAL-LIABILITY-AND-EQUITY> 1,849,147
<SALES> 44,291
<TOTAL-REVENUES> 44,291
<CGS> 0
<TOTAL-COSTS> 799,508
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2927
<INCOME-PRETAX> (725,619)
<INCOME-TAX> (725,619)
<INCOME-CONTINUING> (725,619)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (725,619)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
