SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the quarterly period ended September 30, 1999
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 November 12, 1999
Common Stock, $.0001 par value 1,835,872
Redeemable Class A Warrants 1,066,050
Transitional Small Business Disclosure Format (check one):
Yes ___ No X
<PAGE>
OBJECTSOFT CORPORATION
INDEX
Page #
Part I. Financial Information
Item 1.Financial statements
Condensed Balance Sheets- 1
September 30, 1999
Condensed Statements of Operations
Three Months and Nine Months Ended
September 30, 1999 and 1998 2
Condensed Statements of Cash Flows for the
Nine Months Ended September 30, 1999
and 1998 3
Notes to Condensed Financial Statements 4
Item 2.Management's Discussion and Analysis
or Plan of Operation 5
Part II Other Information
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 -- SEPTEMBER 30, 1999 (Unaudited)
AND DECEMBER 31, 1998
<CAPTION>
September
30, 1999
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,128,362
Marketable securities 282,043
Accounts receivable 107,358
Prepaid expenses and other
current assets 238,509
Deferred tax asset 480,000
------------
Total current assets 2,236,272
Equipment, at cost, net of
accumulated depreciation 1,579,522
Capitalized software 180,552
Loans receivable-
officer/ shareholder 552,331
Other assets 45,344
------------
T O T A L $ 4,594,021
============
LIABILITIES
Current liabilities
Current portion of long-term
debt $ 12,534
Current portion of obligations
under capital lease 130,649
Accounts payable 248,717
Accrued expenses 236,634
Other current liabilities 2,473
------------
Total current liabilities 631,007
Long-term debt 3,149
Obligations under capital lease 345,673
------------
Total Liabilities 979,829
------------
STOCKHOLDERS' EQUITY
6% non-voting convertible preferred E
stock, $100 par, authorized 25,000 shares
issued and outstanding 4,750 shares 477,500
6% non-voting convertible preferred F
stock, $100 par, authorized 25,000 shares
issued and outstanding 23,500 shares 2,350,000
Common stock, $.001 par value; authorized
50,000,000 shares; issued and outstanding
1,141,795 shares at December 31, 1998,
and 1,725,244 at September 30, 1999 172
Additional paid-in capital 11,413,471
Accumulated deficit (10,626,951)
------------
Total stockholders' equity 3,614,192
------------
T O T A L $ $4,594,021
============
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</TABLE>
<PAGE>
<TABLE>
OBJECTSOFT CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
UNAUDITED
<CAPTION>
Three months ended Nine Months Ended
September 30 September 30 September 30 September 30
1999 1998* 1999 1998*
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales and services $ 32,946 $ 29,710 $ 126,348 $ 133,412
----------- ------------ ------------ ------------
Expenses:
Cost of sales and services 315,631 156,273 769,087 517,984
Research and development 119,256 135,304 285,125 435,345
General and administrative 656,775 503,282 1,767,010 1,407,875
----------- ------------ ------------ ------------
Total expenses 1,091,662 794,859 2,821,222 2,361,204
----------- ------------ ------------ ------------
Loss from operations (1,058,716) (765,149) (2,694,874) (2,227,792)
----------- ------------ ------------ ------------
Other income(expense):
Realized and unrealized gain(loss) on
marketable securities (34,852) 1,000 (68,457) (5,935)
Interest and dividend income 4,749 12,184 20,647 59,390
Interest expense (19,693) (2,607) (36,056) (8,742)
----------- ------------ ------------ ------------
Total other income (expense) (49,796) 10,577 (83,866) 44,713
----------- ------------ ------------ ------------
Loss before income tax benefit (1,108,512) (754,572) (2,778,740) (2,183,079)
Income tax benefit 90,000 120,000 270,000
----------- ------------ ------------ ------------
NET LOSS $ (1,108,512) $ (664,572) $ (2,658,740) $ (1,913,079)
=========== ============ ============ ============
BASIC AND DILUTED NET (LOSS) PER SH $ (0.83) $ (0.87) $ (2.67) $ (2.65)
=========== ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 1,477,582 760,816 1,274,398 721,662
=========== ============ ============ ============
* Adjusted for year end audit adjustments
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</TABLE>
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<TABLE>
OBJECTSOFT CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
UNAUDITED
<CAPTION>
Nine Months Ended September 30,
1999 1998*
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ ($2,658,740) $ ($1,913,079)
Adjustments to reconcile net loss to net
cash (used in) operating activities:
Depreciation and amortization 450,705 273,887
Changes in operating assets and
liabilities:
(Increase) decrease in:
Marketable securities (282,043) 815,938
Accounts receivable (29,918) 173,590
Other current assets 78,758 (131,195)
Note receivable- other 25,000
Deferred tax asset (120,000) (270,000)
Notes receivable officer/shareholder (112,331)
Other assets 111,166 48,673
Increase (decrease) in:
Accounts payable (273,666) 119,252
Accrued expenses and
other liabilities 116,293 132,314
------------ ------------
Net cash used in operating activities (2,719,776) (725,620)
------------ ------------
Cash flow from investing activities:
Capital expenditures (933,136) (250,565)
Capitalized software and courseware (197,632) (28,449)
------------ ------------
Net cash (used in) investing activities (1,130,768) (279,014)
------------ ------------
Cash flow from financing activities:
Proceeds from issuance of stock in
private placement 870,674
Proceeds from exercise of warrants
and nonemployee options 44,913
Proceeds from issuance of preferred stock 3,912,408
Principal payments on obligations
under capital leases (70,994) (39,712)
Proceeds from capital leases 123,200 30,874
Repayment of long-term debt (12,627)
------------ ------------
Net cash provided by financing activities 3,996,900 861,836
------------ ------------
NET (DECREASE) IN CASH 146,356 (142,798)
Cash, beginning of period 982,006 209,455
------------ ------------
Cash, end of period $ $1,128,362 $ $66,657
============ ============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION
Interest expense paid $ $36,056 $ $8,742
============ ============
Noncash Activities
Capital lease obligations resulting from
leases of new equipment $ 354,227
============
Stock issued for future services $ 121,900
============
</TABLE>
* Adjusted for year end audit adjustments
-3-
<PAGE>
OBJECTSOFT CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information, the instructions to
Form 10-QSB and item 310 (b) of Regulation SB. Accordingly, they do
not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for fair presentation have
been included. For further information, refer to the Financial
Statements and footnotes thereto included in the Company's Form 10-
KSB for the year ended December 31, 1998 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 and the net loss increased by the dividends accruing on
the cumulative preferred stock.
NOTE C -- SUBSEQUENT EVENTS
On October 13, 1999, the Company effected a one-for-six reverse
stock split of the Company's common stock. The financial statements
give retroactive effect to the reverse stock split.
-4-
<PAGE>
PART II
Item 2.
OBJECTSOFT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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: limited operating history; history and
expectation of future losses and an accumulated deficit;
dilution of the value of the Company's common shares as a
result of the conversion of the Company's convertible
preferred stock and the exercise of the warrants issued in
various private placements; need for additional financing;
the uncertainty of acquiring additional financing; municipal
kiosks de-emphasized; no assurance of continued Nasdaq
listing; subject to penny stock regulations; change in the
Company's operating focus; dependence
on a new untested product; dependence on certain licenses,
installation and maintenance services; uncertainty about the
Company's product development; vulnerability to technological
changes; need to be continuously accepted in rapidly changing
markets; significant competition; difficulty complying with
government contract requirements and government regulation;
strategic relationship with Microsoft affects the Company's
sales, marketing, support activities and product development;
dependence upon common carriers and Internet access providers;
dependence on the Internet; limited customer base; risk
involved in manufacturing activities; potential fluctuation in
the Company's quarterly operating results; dependence upon key
members of the Company's management; dependence on ability to
attract and retain employees and contract providers;
dependence upon proprietary technology; exposure to risk of
system failure; risks associated with the security of the
Company's systems and liability risks; risk of liability due
to future regulation of the Internet access industry; current
management has continuing control of the Company; no
anticipation of the payment of dividends; shares that are
eligible for sale in the future may affect the market price of
the Company's common stock; risk related to
the year 2000 issue; the possible negative effect of anti-
takeover provisions, a staggered board and provisions relating
to stockholder actions; limitations on the liability of
directors and officers of the Company; general economic
conditions, and other risks described elsewhere herein and in
Amendment No. 1 to the Company's registration statement of
Form S-3 dated September 30, 1999, and in the Company's Post-
Effective Amendment to a Registration Statement on Form SB-2 dated
May 20, 1999.
-5-
<PAGE>
Results of Operations
Three Months and Nine Months Ended September 30, 1999 Compared With
Three Months and Nine Months Ended September 30, 1998
The results of operations for the three months and nine months
ended September 30, 1999 are not necessarily indicative of the
results that may be expected for any other interim
period or for the fiscal year ending December 31,
1999.
During the three months ended September 30, 1999, the Company
increased the number of FastTake kiosks operational in stores from 46
to 85 as of September 30, 1999. As of the date of this filing, 92 kiosks
are installed. A total of 105 kiosks are scheduled to be installed
by December 31,1999. Orders were placed for 30 additional kiosks
that are expected to be installed by the end of the first quarter,
2000.
Net revenues increased by $3,236 or 11% to $32,946 for the
three months ended September 30, 1999 from $29,710 for the three
months ended September 30, 1998. Net revenues decreased by $7,064
or 5% to $126,348 for the nine months ended September 30, 1999 from
$133,412 for the nine months ended September 30, 1998. The change
was due to a decrease in the sale of equipment offset by revenues
from shipments of FastTake products.
Cost of services increased by $159,357 or 102% to $315,631 for
the three months ended September 30, 1999 from $156,273 for the
three months ended September 30, 1998. Cost of services increased by
$251,103 or 48% to $769,087 for the nine months ended September 30,
1999 from $517,984 for the nine months ended September 30, 1999.
Such increases were due to expenses incurred in installing the new
FastTake products and depreciation on FastTake products that have
been installed.
Research and development expenses decreased by $16,047 or 12%
to $119,257 for the three months ended September 30, 1999 from
$135,304 for the three months ended September 30, 1998, and
decreased by $150,219 or 35% to $285,126 for the nine months
ended September 30, 1999 from $435,345 for the nine months ended
September 30, 1998, due to a decrease in personnel devoted to research
and development.
General and administrative expenses increased by $153,493 or
30% to $656,775 for the three months ended September 30, 1999 from
$503,282 for the three months ended September 30, 1998, and
increased by $359,135 or 26% to $1,767,010 for the nine months
ended September 30, 1998 from $1,407,875 for the nine months ended
September 30, 1999, due to an increase in rent and utilities resulting from
the Company relocating to larger quarters, and the ramp up of the
sales effort for FastTake.
-6-
<PAGE>
Other income decreased by $60,373 to $(49,796) for the three
months ended September 30, 1999 from $10,577 for the three months
ended September 30, 1998, and decreased by $128,579 to $(83,866) for
the nine months ended September 30, 1999 from $44,713 for the nine
months ended September 30, 1999,due to lower investments, realized
and unrealized losses in investments and an increase in interest
expense which resulted from the Company's financing for some of its
equipment.
The net loss increased by $443,940 or 67% to $1,108,512 for the
three months ended September 30, 1999 from $664,572 for the three
months ended September 30, 1999. The net loss increased by $745,661
or 39% to $2,658,740 for the nine months ended September 30, 1999
from $1,913,079 for the nine months ended September 30, 1999. The
increase in losses were due to an increase in expenses related
to FastTake, and related to relocating the Company's offices offset
by a decrease in research and development.
Liquidity and Capital Resources
For the three months and for the nine months ended September 30,
1999 the Company incurred a net loss of $1,108,512 and $2,658,740,
respectively. The accumulated deficit increased to $10,601,951
as the Company continues to incur operating losses as expenses
exceed revenue. The Company had working capital of $1,605,265 as
of September 30, 1999 as compared to $932,854 as of December 31,
1998, or a increase of $672,411. Capital expenditures and
capitalized software amounted to $1,484,995.
The Company expects to fund the deployment of additional
FastTake and other kiosks, 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.
The Company raised approximately $2,079,000 (net of expenses)
in connection with a private financing of Series F Convertible
Preferred Stock consummated on August 13, 1999. The Company
intends to meet its long-term liquidity needs through available
cash and cash flow as well as through additional financing from
outside sources. However, no assurance can be given that the
Company will be successful in obtaining any additional financing.
Further, there can be no assurance, even 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.
-7-
<PAGE>
The Company anticipates that, giving effect to the Series
F Convertible Preferred Stock financing consummated on August
13, 1999, the Company's existing working capital will be
sufficient to fund its operations at least through June 30,
2000. Continuing operations thereafter will depend on cash flow
from operations and the ability to raise additional funds
through equity, debt or other financing. There can be no
assurance, however, that such funds will be available.
Year 2000
General
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.
Third Parties
The Company has also initiated formal communications with
significant suppliers and other key third parties to
determine the extent to which the Company is vulnerable to
those third parties' failure to resolve their own Year 2000
compliance issues. There can be no assurance that the
systems of other companies on which the Company's systems
rely will be timely converted, or that a failure to convert
by another company, or a conversion that is incompatible with
the Company's systems, would not have a material adverse
effect on the Company's results of operations.
-8-
<PAGE>
Risk Assessment/Contingency Planning
At this time, the Company believes its most reasonable likely
worst case scenario would include (i) a key material vendor
or service provider experiencing problems with delivery of
materials, components or services; or (ii) the failure of
infrastructure services provided by government agencies and
other third parties (e.g., electricity, telephone,
transportation, Internet services, etc.). As noted above,
the Company is evaluating the Year 2000 compliance status of
its key third-party vendors to identify potential risks for
contingency planning purposes. The Company anticipates that
appropriate contingency plans will be prepared throughout
1999 as determined to be necessary.
Inflation and Seasonality
The rate of inflation was insignificant during the
three months and nine months ended September 30, 1999. The Company
continually reviews its costs in relation to the pricing of its
products and services.
The Company's business is not seasonal.
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<PAGE>
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 three
months ended September 30, 1999.
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<PAGE>
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 Principal
Financial Officer
November 16, 1999
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<PAGE>
OBJECTSOFT CORPORATION
Exhibit Number Page #
27 Financial Data Schedule 13
-12-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,128,362
<SECURITIES> 282,043
<RECEIVABLES> 207,358
<ALLOWANCES> 100,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,236,272
<PP&E> 1,954,357
<DEPRECIATION> 374,835
<TOTAL-ASSETS> 4,594,021
<CURRENT-LIABILITIES> 631,007
<BONDS> 0
0
2,827,500
<COMMON> 172
<OTHER-SE> 11,413,471
<TOTAL-LIABILITY-AND-EQUITY> 4,594,021
<SALES> 126,348
<TOTAL-REVENUES> 126,348
<CGS> 769,087
<TOTAL-COSTS> 2,821,222
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,056
<INCOME-PRETAX> (2,778,740)
<INCOME-TAX> 120,000
<INCOME-CONTINUING> (2,658,740)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,658,740)
<EPS-BASIC> (2.67)
<EPS-DILUTED> (2.67)
</TABLE>
