AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 20, 1999
Registration No. 333-10519
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST EFFECTIVE AMENDMENT NO. 3 TO
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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OBJECTSOFT CORPORATION
(Name of small business issuer in its charter)
Delaware 7373 22-3091075
(State of other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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Continental Plaza III, 433 Hackensack Avenue, Hackensack, New
Jersey 07601 (201) 343-9100 (Address and telephone
number of principal executive offices)
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Continental Plaza III, 433 Hackensack Avenue, Hackensack,
New Jersey 07601 (Address of principal place of business or
intended principal place of business)
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David E.Y. Sarna, Chairman
ObjectSoft Corporation
Continental Plaza III, 433 Hackensack Avenue, Hackensack, New
Jersey 07601 (201) 343-9100 (Name, address and
telephone number of agent for service)
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Copies to:
Melvin Weinberg, Esq.
Parker Chapin Flattau & Klimpl, LLP
New York, New York 10036
Tel: (212) 704-6000
Fax: (212) 704-6288
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this registration statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
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If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
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If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
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If delivery of the prospectus is expected to be made pursuant to Rule
343, check the following box.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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EXPLANATORY NOTE
This Registration Statement covers the registration of (i) up to
1,366,050 shares of common stock of ObjectSoft Corporation and 1,366,050
redeemable Class A Warrants, sold by us in a public offering and (ii) an
additional 656,037 shares of common stock and 412,500 Class A Warrants for
resale by the selling securityholders.
The complete Prospectus relating to the offering by us follows
immediately after this Explanatory Note. Following the Prospectus for the
offering by the Company are pages of the Prospectus relating solely to the
selling securityholders securities, including alternative front and back cover
pages and sections entitled "Concurrent Public Offering," "Plan of
Distribution," and "Selling Securityholders" to be used in lieu of the section
entitled "Concurrent Registration of common stock" in the Prospectus relating to
the offering by the Company. Certain sections of the Prospectus for the offering
by the Company, such as "Use of Proceeds" will not be used in the Prospectus
relating to the selling securityholders securities.
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The information in this Prospectus is not complete. The Selling Stockholder may
not sell these securities until the Registration Statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell nor is it seeking an offer to buy these securities in any State where
the offer or sale is not permitted.
SUBJECT TO COMPLETION DATED MAY 20, 1999
PROSPECTUS
OBJECTSOFT CORPORATION
1,366,050 Shares of Common Stock
1,366,050 Redeemable Warrants
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This Prospectus is being delivered to the holders of 1,366,050
Redeemable class A Warrants that were issued by ObjectSoft Corporation, in its
initial public offering of certain Units that became effective on November 12,
1996.
Each Class A Warrant:
o entitles the registered holder of the warrant to purchase one
share of common stock at an exercise price of $6.50, subject
to adjustment, until November 12, 2001;
o may be redeemed by us at a redemption price of $.10 per
warrant on 30 days' prior written notice to the warrant holder
provided that the average closing bid quotation of the common
stock has been at least 130% of the then current exercise
price of the Class A Warrants, for a period of 20 consecutive
trading days ending within 15 days of the date on which we
give notice of redemption;
o will be exercisable until the close of business on the day
immediately preceding the date fixed for redemption. See
"Description of Securities -- Class A Warrants."
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NASDAQ SmallCap Market Symbol for:
Common Stock: "OSFT"
Class A Warrants: "OSFTW"
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On May 14, 1999, the closing bid price for the common stock and the
Class A Warrants were $2 and $.594, respectively.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE FACTORS DESCRIBED UNDER THE CAPTION "RISK FACTORS" ON
PAGE 7 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Concurrently with this offering, we registered the offering of 656,037
shares of common stock and 412,500 Class A Warrants pursuant to a Selling
Securityholder Prospectus, which Prospectus includes the Placement Agent
Warrant. That Prospectus is included within the Registration Statement of which
this Prospectus forms a part. See "Certain Transactions" and "Concurrent
Offering."
THE DATE OF THIS PROSPECTUS IS MAY __, 1999
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TABLE OF CONTENTS
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Page
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Prospectus Summary ..................................................3
Risk Factors.........................................................6
Use of Proceeds.....................................................19
Dividend Policy.....................................................19
Capitalization......................................................20
Selected Financial Data.............................................22
Management's Discussion And Analysis of Financial
Condition and Results of Operations...........................23
Business............................................................27
Management..........................................................34
Principal Stockholders..............................................43
Description of Securities...........................................45
Shares Eligible for Future Sale.....................................49
Concurrent Offering ................................................50
Legal Matters.......................................................50
Experts.............................................................50
Additional Information..............................................50
Index to Financial Statements......................................F-1
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PROSPECTUS SUMMARY
This summary highlights some information from this Prospectus. It may
not contain all of the information important to you. To understand this offering
fully, you should read the entire Prospectus carefully, including the risk
factors.
WHAT WE DO
We are currently engaged in the business of providing retail kiosks
that offer transaction-based and advertising-supported services through
interactive public access terminals (IPATs or kiosks) as well as the Internet.
These kiosks utilize a foundation developed during projects with the Cities of
New York and San Francisco that support many retail businesses with a minimum of
adaptation. The kiosk can easily change its personality (i.e., "look and feel")
in three ways:
o Change the appearance of the enclosure
o Change the on-screen graphics
o Change the database supporting what is being retailed
Our IPATs are primarily held for operating income which is derived from
rental and advertising fees and transactional revenue, but may be sold outright
to some customers. This approach allows us to control the look and operation of
our kiosks. A customer can recognize the brand name and develop an expectation
for how the kiosk will operate. In addition, we can control the content to
ensure that it is being kept up-to-date. An IPAT is a machine deployed in areas
with high pedestrian traffic or within a retail outlet 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 one or more of the following devices: keyboard, page printer, receipt
printer, credit card reader, video camera, signature pad, 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.
OUR NEWEST PRODUCT--FASTTAKE(R)
Our newest product is FastTake(R), which we introduced in October 1998
at the East Coast Video Show and began shipping in March 1999. FastTake(R) is
initially targeted for the video industry. It permits users to search a database
for a favorite actor or director, or by a portion of the movie name. The user
can then access facts about the movie title, a plot summary, the names of its
major actors and directors, still pictures from the movie (photographs) and a
preview of the video (known as a trailer). For the video store owner,
FastTake(R) has three main purposes:
o Provide the consumer with an easy way to locate "Catalog Titles"
(i.e., older films). The consumer does not normally require a
kiosk to find the latest video titles which are heavily marketed;
FastTake(R) assists consumers find older titles that are no longer
marketed.
o Generate revenue through a three-way "barter." Studios provide us
with barter product, typically Catalog Titles with a value of
approximately $100 per title per kiosk, based on manufacturer's
suggested retail price (MSRP). This product would be placed on or
near the kiosk. This increases the chances that a consumer will
see the title and want to buy or rent it.
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o Support direct product sales. Advertisers can sell additional
products through the kiosk, such as candy, popcorn, soda and toys
that are related to video sales. FastTake(R) also offers a
facility that allows consumers to sign-up on the kiosk for
drawings and prizes.
In a future release of FastTake(R), we expect to add an electronic
commerce feature that will enable the purchase or rental of chosen videos.
Although we anticipate that we will begin to recognize greater revenues
from FastTake(R) during 1999, we cannot predict the actual timing or amount of
such revenues.
FastTake(R) revenues are expected to be generated from several sources,
as follows:
o Monthly rental fees.
o Studio barter product which lower retailers' effective monthly
rental cost. Barter can become an additional source of income for
both us and the retailers as the number of titles contributed by
the studios exceeds the monthly rental cost of the unit
(approximately 8 titles). Currently, we are providing six studio
titles per kiosk during the trial period.
o Advertising and sponsorship capabilities, both in poster form on
the sides of the enclosure and through on-screen opportunities.
o In-store promotions, including give-away and "buy popcorn and a
movie and get a discount" type offers.
o Merchandise sales.
HOW OUR COMPANY IS ORGANIZED
We were incorporated in Delaware in January 1996 and are the
surviving corporation of the merger on January 31, 1996 between us and our
predecessor, ObjectSoft Corporation, a New Jersey corporation, which was
incorporated in December 1990. The sole purpose of the merger was to change the
corporate domicile of our Company to Delaware. We were organized as a
wholly-owned subsidiary of ObjectSoft-NJ. Prior to the merger, we conducted no
business unrelated to our organization or to effecting the merger.
OUR ADDRESSES AND TELEPHONE NUMBER
Our executive offices are located at Continental Plaza III,
433 Hackensack Avenue, Hackensack, New Jersey 07601; our telephone number is
(201) 343-9100; our facsimile number is (201) 343-0056; our Internet e-mail
address is [email protected]; and our homepage on the World-Wide Web
is at http://www.objectsoft.net.
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THE OFFERING
Securities being Offered Hereby............. 1,366,050 shares of common stock
and 1,366,050 Class A Warrants.
Securities offered Concurrently
by Selling Securityholders.................. 656,037 shares of common stock and
412,500 Class A Warrants, all for
resale by the holders of the Class
A Warrants or of certain other
warrants.
Common Stock Outstanding
prior to Offering (1)....................... 7,152,238 shares
Common Stock to be Outstanding after the
Offering (1)................................ 7,152,238 shares
Class A Warrants Outstanding prior to the
Offering (2)................................ 1,366,050 Class A Warrants
Risk Factors................................ The securities offered hereby
involve a high degree of risk. See
"Risk Factors".
Use of Proceeds............................. Proceeds received from exercise of
the Class A Warrants are intended
to be used for working capital and
general corporate purposes. See
"Use of Proceeds."
NASDAQ symbols:
Common Stock............................. OSFT
Class A Warrants......................... OSFTW
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(1) Does not include: (i) 1,366,050 shares of common stock issuable upon
exercise of the Class A Warrants included in the Units offered hereby;
(ii) 2,274,324 shares of common stock issuable upon exercise of other
outstanding options and warrants and the Class A Warrants issuable upon
the exercise of certain of such warrants, (iii) an indeterminate number
of shares of common stock issuable upon conversion of the Series D
Stock issued in connection with the Amended and Restated 6% Series D
Convertible Preferred Stock Subscription Agreement, dated as of
December 13, 1998; and (iv) an indeterminate number of shares of common
stock issuable upon conversion of the Series E Stock issued in
connection with the 6% Series E Convertible Preferred Stock
Subscription Agreement dated as of March 17, 1999. See "Management,"
"Certain Transactions" and "Description of Securities" and
"Underwriting."
(2) Does not include 500,000 Class A Warrants, of which (i) 87,500 are
included in the units issuable upon the exercise of the Underwriter's
Unit Purchase Option, (ii) 375,000 are included in the units issuable
upon the exercise of the Bridge Warrants, and (iii) 37,500 are included
in the units issuable upon the exercise of the Placement Agent's
Warrant. See "Certain Transactions" and "Description of Securities."
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RISK FACTORS
BEFORE YOU BUY SHARES OF OUR COMMON STOCK, YOU SHOULD BE AWARE THAT
THERE ARE VARIOUS RISKS ASSOCIATED WITH SUCH PURCHASE, INCLUDING THOSE DESCRIBED
BELOW. YOU SHOULD CONSIDER CAREFULLY THESE RISK FACTORS, TOGETHER WITH ALL OF
THE OTHER INFORMATION IN THIS PROSPECTUS, AND THE DOCUMENTS WE HAVE INCORPORATED
BY REFERENCE IN THE SECTION "WHERE YOU CAN FIND MORE INFORMATION ABOUT US"
BEFORE YOU DECIDE TO PURCHASE SHARES OF OUR COMMON STOCK.
SOME OF THE INFORMATION IN THIS PROSPECTUS AND IN THE DOCUMENTS WE HAVE
INCORPORATED BY REFERENCE MAY CONTAIN FORWARD-LOOKING STATEMENTS. SUCH
STATEMENTS CAN BE GENERALLY IDENTIFIED BY THE USE OF FORWARD-LOOKING WORDS SUCH
AS "MAY," "WILL," "EXPECT," "ANTICIPATE," "INTEND," "ESTIMATE," "CONTINUE,"
"BELIEVE," OR OTHER SIMILAR WORDS. THESE STATEMENTS DISCUSS FUTURE EXPECTATIONS,
OR STATE OTHER "FORWARD-LOOKING" INFORMATION. WHEN CONSIDERING SUCH STATEMENTS,
YOU SHOULD KEEP IN MIND THE RISK FACTORS AND OTHER CAUTIONARY STATEMENTS IN THIS
PROSPECTUS. THE RISK FACTORS NOTED IN THIS SECTION AND OTHER FACTORS NOTED IN
THIS PROSPECTUS COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
CONTAINED IN ANY FORWARD-LOOKING STATEMENTS.
WE HAVE A LIMITED OPERATING HISTORY; WE HAVE A HISTORY AND EXPECTATION OF FUTURE
LOSSES AND AN ACCUMULATED DEFICIT
We were incorporated in 1990 and have a limited operating history. In
addition, we recently changed our business focus from consulting and training
services to focus on products from which we derive operating income and leasing
fees, and on Internet services. As a result, any analysis of our operations in
the past has only minimal relevance to an evaluation of our net worth, our
current products and services and our prospects.
Although we have generated revenues from operations, we have
experienced substantial operating losses. We have incurred, and will continue to
incur, significant costs in connection with the development of our interactive
public access terminals and Internet operations, which may result in operating
losses. We cannot assure you as to if and when we may begin generating
significant revenues or achieve profitable operations.
We have incurred the following losses since 1996:
Fiscal year ended:
o December 31, 1996 ............... $1,240,695
o December 31, 1997 ............... $2,519,872
o December 31, 1998 ............... $2,514,670
Quarter ended:
o March 31, 1999 .................. $ 637,084
As of December 31, 1998, we had an accumulated deficit of $7,184,692. As of
March 31, 1999, we had an accumulated deficit of $7,821,776.
OUR NEED FOR ADDITIONAL FINANCING; THE UNCERTAINTY OF ADDITIONAL FINANCING
Our current policy is generally to own and operate our public access
terminals, which may require substantial capital investment. We intend to enter
into one or more lease financing arrangements for these terminals.
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We may need to raise additional funds through public or private debt or
sale of our equity in order to respond to unanticipated competitive pressures or
take advantage of unanticipated opportunities, including acquisitions of
complementary businesses or technologies, and the development of new products.
In addition, if we experience rapid growth, we may require additional funds to
expand our operations or enlarge our organization. In any such event, our
continued operation may be dependent on our ability to procure additional
financing through sales of additional equity or debt. If we were to issue any
additional equity securities or debt securities which are convertible into
equity, such issuance could substantially dilute the interests of our security
holders existing at the time of such issuance. Such equity securities may also
have rights, preferences or privileges senior to those of the holders of our
common stock.
We cannot assure you that additional financing will be available on
terms favorable to us, or that additional financing will be available at all. If
adequate funds are not available or are not available on acceptable terms, we
may not be able to take advantage of unanticipated opportunities, develop new
products or otherwise respond to unanticipated competitive pressures. Such
inability could have a materially negative effect on our business, financial
condition and results of operations and could require us to materially reduce,
suspend or cease operations.
THE CONVERSION OF THE SERIES D AND SERIES E PREFERRED STOCK AND THE EXERCISE OF
THE WARRANTS ISSUED IN THE DECEMBER 1998 AND MARCH 1999 PRIVATE PLACEMENTS WILL
DILUTE THE VALUE OF YOUR SHARES
The value of your Shares will be diluted upon the conversion of the
Series D and Series E Preferred Stock and upon exercise of the warrants issuable
in connection therewith. Specifically, our Series D Preferred Stock is and our
Series E Preferred Stock may be convertible into common stock at rates which
represent a discount from future market prices of our common stock. This
conversion may result in substantial dilution to existing holders of common
stock. The sale of such common stock could have a negative impact on the trading
price of the common stock and could increase the volatility in the trading price
of the common stock. Moreover, if the trading price of the common stock were to
decrease significantly, the issuance of the shares upon conversion of the Series
D and Series E Preferred Stock could conceivably effect a change of control of
the Company.
In addition, certain warrants which we have issued, including warrants
owned by the Selling Stockholders, entitle their holders to acquire our common
stock at prices which may represent discounts from its future market prices.
Such discounts could result in substantial dilution to existing holders of our
common stock. The sale of such common stock acquired at a discount could have a
negative impact on the trading price of our common stock and could increase the
volatility in its trading price.
At the date of this Prospectus, we have reserved an aggregate of
approximately 4,400,000 shares of common stock for issuance upon exercise of
options and warrants to purchase shares of our common stock at an exercise price
between $0.50 and $8.00 per share. The number of shares issuable upon exercise
of certain of the warrants may be adjusted pursuant to the terms of these
warrants. During the terms of the options and warrants, we must give their
holders the opportunity to profit from a rise in the market price of our common
stock. The existence of the warrants may adversely affect the terms on which we
may obtain additional funds in return for the issuance of our equity. Moreover,
the holders of these securities are likely to exercise their rights to acquire
our common stock at a time when we would otherwise be able to obtain capital
with more favorable terms than we could obtain through the exercise of such
securities.
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WE CHANGED OUR OPERATING FOCUS
Beginning in mid-1994, we changed our business focus from consulting
and training services to focus on products from which we derive operating income
and leasing fees and on Internet based services. Operating income is derived
from either advertising fees or fees for transactions performed on our
interactive public access terminals. Our first public access terminals
(SmartStreet(TM)) were introduced in July 1996. Our newest product is FastTake
(R), which we introduced in October 1998 at the East Coast Video Show and which
we began shipping in March, 1999. FastTake(R) is designed for the video
industry. It permits users to search a data base for a favorite actor, director,
or by a portion of the movie name. The user can then access a plot summary, the
names of the major actors and directors, still pictures from the movie
(photographs) and a preview of the video (known as a trailer). In a future
release of the product we expect to add an electronic commerce feature. The
operations to which we are now devoting our resources are in the early stages of
development. We cannot assure you that we will be successful in attracting new
customers or retaining current customers for our new business divisions or in
generating significant revenues or profits from such business divisions.
Although we anticipate that we will begin to recognize greater revenues from the
SmartSign(TM) and FastTake(R) public access terminals during 1999, we cannot
predict the actual timing or amount of such revenues. You should consider our
prospects in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly
companies in new and rapidly evolving markets. To address these risks, we must,
among other things, respond to competitive developments, attract, retain and
motivate qualified product development and marketing personnel, continue to
upgrade our existing technologies, develop new technologies and commercialize
products and services incorporating such technologies. We cannot assure you that
we will be successful in addressing such risks. In order to have the financial
and technical resources to respond to changing market demands on a timely basis,
we may also need to enter into strategic alliances and cooperate with others in
an effort to develop our products and services. We cannot assure you that
entities with the necessary technical or financial resources will be willing to
enter into such alliances with us on acceptable terms or at all.
WE DEPEND ON A NEW UNTESTED PRODUCT
In early 1996, as part of its Public Access Terminal Demonstration
Project, the City of New York entered into an agreement with us to develop
public terminals to be located in city offices and other public locations in an
effort to expedite transactions with the City of New York . Under this
agreement, the City of New York agreed to lease the first five public access
terminals, and we have the option to deploy additional terminals throughout the
New York City area at our own risk and expense, subject to the approval of
terminal locations by the City of New York . We deployed the first five public
access terminals in New York City in July 1996, we installed a sixth terminal in
August, 1997 (which was discontinued in January 1999) and we installed a seventh
in March 1998. The agreement was extended through the end of the 1999 fiscal
year of the City of New York (June 30, 1999). The public access terminals are
configured to permit us to offer additional services provided either by us or by
third parties and to sell advertising on such terminals. The current extended
agreement requires us to pay to the City of New York 50% of advertising and
third party service revenues from the first five installed terminals. We have
been seeking, and will continue to 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. We entered into the first such additional agreement on March 11,
1998 with the City of San Francisco. The first public access terminal under this
agreement was installed in June 1998. It was removed in March 1999 as we decided
not to make the investment needed to make the Kiosk fully accessible to blind
persons, a condition imposed by the City of San Francisco, since we determined
that such cost was uneconomic. We may also seek to enter into agreements with
the City of New York and other customers to provide information and services
over the Internet, in order to significantly expand the accessibility
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of such information and services. We also supplied eight terminals to King
County, Washington. To be profitable, we must significantly increase the number
of terminals placed in New York City and other locations.
We anticipate that revenues from the public access terminals will be
provided by leasing fees paid by the service providers, such as the City of New
York, by advertising fees paid by company's advertising on these terminals and
by usage fees paid by consumers who obtain services through these terminals.
Although public access terminals are currently in operation, we cannot assure
you that our terminals will be able to operate consistently and efficiently to
provide the anticipated services, that members of the general public will find
the public access terminals user-friendly or that they will be comfortable with
or be willing to pay the additional cost for the convenience of using this
terminal to transact business by electronic means with the City of New York or
other service providers. We cannot assure you that the City of New York will be
satisfied with the results of the operations of our public access terminals, or
that even if they perform adequately, that the City of New York and other
potential users of similar terminals will not opt for the products of our
competitors. Our ability to market public access terminals to other potential
customers will be highly dependent on the continued success and acceptance of
the New York City terminals. Furthermore, the municipalities, states and other
government agencies that constitute a primary target market for our terminals
are subject to potentially severe budgetary constraints and cuts that may limit
their ability to fund the acquisition of new technology such as these terminals.
In addition, we anticipate that a significant portion of the revenues
related to the public access terminals will consist of leasing fees and usage
fees derived by providing unrelated transactions, such as restaurant information
and shopping services, to the users of the terminal and from commercial
advertising by local and national companies and businesses. We cannot assure you
that commercial entities will be interested in marketing or advertising their
products and services by means of public access terminals providing government
services. Neither can we assure you that such sale of services or advertising
can provide significant revenues to us, or that such sale of services or
advertising, if commenced, will prove to be effective and will be continued.
As of December 31, 1998, all our public access terminals installed in
the New York City area were available to provide City of New York information
and transaction services. Revenues from advertising began in May 1998, from
contracts signed in March 1998. Advertisers in the New York area include
Microsoft, Consolidated Edison and Isabella Geriatric Center. To date, we have
achieved about $3,000 in monthly fees per public access terminal for the
terminals initially installed in New York. We cannot assure you that revenues
from additional terminals will achieve these levels of revenue, that the current
advertisers will continue to advertise once their contracts have expired or that
new advertisers will be found.
In October 1998 we first demonstrated a new product based on our
SmartStreet(TM) technology called FastTake(R), which is designed for the video
industry. Deliveries of this product (in many cases on a trial basis) began in
March, 1999. As of May 19, 1999, we have placed 22 units in pilot programs, and
we have agreements for placement in pilot programs the remaining 8 units
currently maufactured as well as most of the 70 units on order. We cannot assure
you that additional pilot agreements will be signed, or will be extended into
long term agreements. Neither can we assure you that these products will prove
to be effective and continue to be in demand. If the FastTake(R) units are not
placed in their initial locations we cannot assure you that we will be able to
find other locations on the same terms or at all.
WE DEPEND ON CERTAIN LICENSES, INSTALLATION AND MAINTENANCE SERVICES
FastTake(R) uses databases compiled by and licensed from Video
Pipeline, Inc. and film trailers licensed from Screenplay, Inc. If these
licenses were canceled for any reason, it may be difficult or expensive to
license similar data bases from other providers. We also rely on installation
and maintenance services for our FastTake(R)
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public access terminals which we receive from International Business Machines
(IBM). These contracts could be canceled on short notice. If such contracts were
canceled by IBM, this could have a negative affect on our sales as well as on
the quality of service which we could provide to our customers.
WE CANNOT BE CERTAIN ABOUT OUR PRODUCT DEVELOPMENT
Hardware and software as complex and sophisticated as that employed by
us in our public access terminals commonly experience errors, or "bugs," both
during development and subsequent to commercial introduction. As such terminals
are installed in the City of New York and elsewhere, we may identify such
problems, either in the software platforms developed by others or in our own
proprietary software. We cannot assure you that all the potential problems will
be identified, that any bugs that are located can be corrected on a timely basis
or at all, or that additional errors will not be located in existing or future
products at a later time or when usage increases. Any such errors could delay
the commercial introduction or use of existing or new products and require
modifications in systems that have already been installed. Remedying such errors
could be costly and time consuming. Furthermore, bugs involving the proprietary
software of third parties could require the redesign of our proprietary
software. Delays in debugging or modifying our products could materially and
adversely affect our competitive position with respect to existing and new
technologies and products offered by our competitors. In particular, delays in
remedying existing or newly identified errors in our public access terminals
could materially and adversely affect our ability to achieve significant market
penetration with them.
WE ARE VULNERABLE TO TECHNOLOGICAL CHANGES; WE NEED TO BE CONTINUOUSLY ACCEPTED
IN RAPIDLY CHANGING MARKETS
The markets we serve experience rapid technological change, changing
customer requirements, frequent new product introductions and evolving industry
standards that may render existing products and services obsolete. As a result,
more advanced products produced by our competitors could erode our position in
our existing markets or other markets that we may enter. It is difficult to
estimate the life cycles of our products and services. Our future success will
depend, in part, upon our ability to enhance existing products and services and
to develop new products and services on a timely basis. In addition, our
products and services must keep pace with technological developments, conform to
evolving industry standards, particularly client/server and Internet
communication and security protocols and publishing formats. We also must
address increasingly sophisticated customer needs. In particular, the success of
our public access terminals will depend in large measure on their being
user-friendly to the public and capable of operating reliably. We might
experience difficulties that could delay or prevent the successful development,
introduction and marketing of new products and services. New products and
services and enhancements might not meet the requirements of the marketplace and
achieve market acceptance. If these things happen, they would materially and
negatively affect our financial condition and results of operations.
WE HAVE SIGNIFICANT COMPETITION
We are subject to significant competition from different sources for
our different services. Our Internet public access terminal business competes
with numerous companies, including IBM, North Communications, Golden Screens and
ATCOM/INFO. The City of New York has also awarded contracts, comparable to the
contract awarded to us, to North Communications and DSSI (which awarded a
subcontract to Golden Screens), both of which have sold similar public access
terminals to other municipalities. After fulfillment of the initial contracts,
if the City of New York chooses to install additional public access terminals
throughout New York City, it may award to others, and not to us, the contract to
install such additional terminals. Further, other municipalities or other
entities might not seek to acquire these terminals from us. In addition, if this
business is
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successful, 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 ours. A total of 19 companies competed for the
contracts with the City of New York, many of which can be expected to compete
aggressively in other competitive situations.
Our FastTake(R) business competes with a number of companies,
principally Muze, Inc., Advanced Communication Design Inc. and Clair-V, which
have been in the video field for far longer than us. Although we believe that
FastTake(R) is a competitive product, we cannot assure you that these or other
companies with far greater resources than ours might enter the field and
negatively affect our FastTake(R) business prospects in this market.
WE MAY HAVE DIFFICULTY COMPLYING WITH GOVERNMENT CONTRACT REQUIREMENTS AND
GOVERNMENT REGULATION
We are initially marketing our public access terminals to entities
including municipalities, states and other government agencies, among others.
Governmental agencies and authorities are subject to public contract
requirements and regulations which vary from one jurisdiction to another. Some
of the issues which these requirements and regulations relate to are listed
below:
o bidding procedures;
o audits;
o guarantees;
o insurance coverage;
o non-discrimination in hiring practices;
o access to the disabled;
o record-keeping.
In San Francisco, we were requested to make the public access terminals
accessible to blind persons. Other jurisdictions may impose similar
requirements. We are currently attempting to develop a program to make our
public access terminals accessible to blind persons, with the aid and
cooperation of various organizations for the blind.
Some public contract requirements may be onerous or even impossible for
us to satisfy, such as requirements for large guarantees, and we may not be able
to make sales in these jurisdictions. In addition, public contracts frequently
require a formal competitive bidding process. The process to date has been and
may continue to be long. Even following contract award, significant delays in
contract implementation are possible.
OUR STRATEGIC RELATIONSHIP WITH MICROSOFT AFFECTS OUR SALES, MARKETING, SUPPORT
ACTIVITIES AND PRODUCT DEVELOPMENT
We have established a strategic relationship with Microsoft that we
believe is important to our sales, marketing and support activities as well as
to our product development efforts, relating to our public access terminals.
Microsoft supports us in marketing our public assets and services and has agreed
to exhibit our public access terminals in Microsoft displays at various trade
shows. It has also issued public statements that included favorable references
relating to our products. Additionally, Microsoft currently advertises on public
access terminals in New York City. It is possible that Microsoft would not
continue to support our products, continue our participation in the Developer
Days program, continue to advertise on our public access terminals or enter into
such agreements with us in the future. Such an eventuality would materially
negatively affect us.
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WE DEPEND UPON MICROSOFT'S WINDOWS OPERATING SYSTEM
We have invested in software built on Microsoft's Internet Explorer,
Windows Internet Information Server, Windows NT and BackOffice and Office
platforms. This software uses programming languages designed for these operating
systems. If these platforms do not remain competitive, we might have to spend
significant time and resources to make our software compatible to other
platforms. Any factor negatively affecting the demand for, or use of,
Microsoft's Windows operating system could have an impact on demand for our
products or services which in turn would have a material negative effect on our
business, results of operations and financial condition. Additionally, any
changes to the Windows operating system that require us to make changes to our
products would negatively affect us if we were unable to develop or implement
such changes in a timely fashion.
WE DEPEND UPON COMMON CARRIERS AND INTERNET ACCESS PROVIDERS
We are also dependent on various regulated common carriers and
unregulated Internet access providers, such as AT&T, Bell Atlantic and PSI. Our
service or profitability could be materially and negatively effected if such
carriers or providers cannot timely respond to our requirements for service,
fail to provide reliable service or increase their rates substantially.
WE DEPEND ON THE INTERNET
Sales of our Internet-related products and services will depend in
large part upon the growth of the Internet industry. We depend on a robust
Internet industry and infrastructure for providing commercial Internet access
and carrying Internet traffic, and we depend on increased commercial use of the
Internet.
WE HAVE A LIMITED CUSTOMER BASE
The long term success of our business will depend to a large extent on
our ability to enter into arrangements with municipalities, other government
entities and private entities to make services available through public access
terminals and with advertisers to use the terminals as an advertising medium.
Ultimately, however, it will also depend upon the willingness of consumers to
pay fees to transact business by means of the public access terminals. To date,
pursuant to the agreement with the City of New York, we operate only public
terminals, which have been available for public use for a short period of time.
Additionally we supplied eight public access terminal's to Kings County, Seattle
Washington and one public access terminal to the City of San Francisco, which
was later removed. The decision of the City of New York to acquire public access
terminals from providers other than us could have a direct and materially
negative effect on our prospects and could also decrease our ability to market
the public access terminals to other potential service providers and
advertisers. In addition, we cannot assure you that our initial public access
terminals will perform on a commercial basis as anticipated or that we will be
able to install and operate additional public access terminals pursuant to the
agreement with the City of New York. Nor can we assure you that the City of New
York will seek to acquire additional terminals or that we will secure a contract
to supply additional terminals to the City of New York. With regard to other
potential users, we cannot assure you that we will succeed in marketing our
public access terminals to other potential users, or that we will be able to
attract additional service providers or advertisers to public access terminals
that may be located in New York City area or elsewhere.
Historically, we have derived a significant portion of our revenues
from a relatively limited number of customers. During 1998, one customer
accounted for approximately 73% of our revenues. During 1997, one customer
accounted for approximately 84% of our revenues, and during 1996, two customers
accounted for approximately 71% of our revenues. The services provided to such
customers were consulting and related services
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and, more recently, services related to the development of Intranet and public
access terminal technology. We cannot assure you that such customers or others
will retain us to install public access terminals or to provide such services to
them in the future. So far, we have derived only limited revenue from
FastTake(R), which we began shipping in March 1999.
THERE IS RISK INVOLVED IN OUR MANUFACTURING ACTIVITIES
We are responsible for the design of our public access terminals.
Subcontractors are responsible for the engineering and manufacturing of their
hardware and graphical components. Only a limited number of public access
terminals have been built to date, so it is difficult for us to predict if our
current subcontractors will be able to engineer and produce such terminals on a
satisfactory basis. While we believe that we could arrange to have public access
terminals built by other subcontractors on comparable terms, we would experience
costs and delays if we needed to do so. Our future success will depend in part
on our ability to retain subcontractors and maintain good relationships with
subcontractors, because we need to assure the timelines and quality of the
manufacture of our public access terminals.
THERE IS POTENTIAL FLUCTUATION IN OUR QUARTERLY OPERATING RESULTS
Our quarterly operating results have in the past and may in the future
vary significantly. These variations depend upon factors such as the timing of
significant orders, which in the past have been, and may be in the future,
delayed from time to time due to delays in the contracting process. The
potential customers for our public access terminals are expected to include
municipalities, government agencies and large organizations; that is, entities
that typically engage in extended competitive bidding, approval and negotiation
procedures with respect to contracts, with no assurance that the contract will
ultimately be awarded to us. Our FastTake(R) public access terminals are
dependent on agreements with distributors, video stores and studios (to provide
advertising support). To date, only one distributor agreement has been signed
(with Plaza Entertainment) and agreements have been signed with four studios and
eight video outlets representing 30 initial locations. Additional factors
contributing to variability of operating results include the following:
o the pricing and mix of services and products which we sell;
o terminations of our service;
o new products which we or our competitors introduce;
o market acceptance of new and enhanced versions of our products and
services;
o changes in pricing or marketing policies by our competitors and our
responses thereto;
o our ability to obtain sufficient vendors;
o our ability to obtain supplies of sole or limited source components;
o our ability to make changes in our network infrastructure costs, as a
result of demand variation or otherwise;
o and the lengthening of our sales cycle due to expansion and the timing
of the expansion of our network infrastructure.
Variations in the timing and amounts of revenues and costs could have a
materially negative effect on our quarterly operating results.
WE DEPEND UPON KEY MEMBERS OF OUR MANAGEMENT
Our business is greatly dependent on the efforts of our executive
officers and key employees, and on our ability to attract key personnel. In
particular, our future success is dependent upon the personal efforts of our
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founders, David E. Y. Sarna, our Chairman, Co-Chief Executive Officer, Secretary
and Director and George J. Febish, our President, Co-Chief Executive Officer,
Treasurer and Director. We have entered into employment agreements with each of
Messrs. Sarna and Febish, which terminate on December 31, 2001. We have in place
key person life insurance policies, of which we are the beneficiary, on the
lives of Messrs. Sarna and Febish in the amount of $1,000,000 each. However, the
loss of the services of our executive officers or other key employees could
delay our ability to fully implement our operating strategy, which could have a
materially negative effect on our business, operating results and financial
condition.
OUR SUCCESS DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN EMPLOYEES AND CONTRACT
PROVIDERS
Our success will depend in large part upon our ability to attract,
develop, motivate and retain highly skilled technical employees. In particular
we must be able to attract software developers, project managers and other
senior personnel, as well as independent providers of creative content for our
public access terminals and websites. Qualified project managers and skilled
developers with Intranet, Internet and ActiveX(TM) skills are in particularly
great demand and are likely to remain a limited resource for the foreseeable
future. Although we expect to continue to be able to attract and retain
sufficient numbers of highly skilled technical employees, developers, project
managers and independent content providers for the foreseeable future, there can
be no assurance that we will be able to do so. The loss of some or all of our
project managers and other senior personnel could have a materially adverse
impact on us, particularly on our ability to secure and complete engagements.
Other than Messrs. Sarna and Febish, no other senior personnel have entered into
employment agreements obligating them to remain employed by us for any specific
term; however, substantially all our key employees are parties to
nonsolicitation, confidentiality and noncompetition agreements with us.
OUR SUCCESS DEPENDS UPON OUR PROPRIETARY TECHNOLOGY
Our success and ability to compete is dependent in part upon our
proprietary technology. While we rely on trade secret, contract, trademark,
patent and copyright law to protect our technology, we believe that other
factors are more essential to establishing and maintaining a technology
leadership position. Theses factors include: the technological and creative
skills of our personnel, new product developments, frequent product
enhancements, name recognition and reliable product maintenance. We presently
have several patents or patent applications pending. There can be no assurance
that such patent applications will be allowed or even if such applications are
allowed that others will not develop technologies that are similar or superior
to our technology. The source code for our proprietary software is protected as
a trade secret. In addition, we do not sell or license our technology to third
parties, but rather deliver services through our public access terminals. Our
proprietary software is not disclosed to third parties. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain aspects of our products or to obtain and use information that
we regard as proprietary or to develop similar technology independently.
Policing unauthorized use of our products is difficult. In addition, effective
trade secret and copyright protection may be unavailable or limited in certain
foreign countries. We cannot assure you that the steps we have taken will
prevent misappropriation of our technology. In addition, litigation may be
necessary in the future to enforce our intellectual property rights, to protect
trade secrets, to determine the validity and scope of the proprietary rights of
others, or to defend againstclaims of infringement or invalidity. Such
litigation could result in substantial costs and diversion of resources and
could have a material negative effect on our business, operating results or
financial condition.
Certain technology used in our products or services is licensed or
leased from third parties, generally on a nonexclusive basis. While the licenses
involved are primarily "shrink wrap licenses"; that is, licenses available to
anyone who purchases publicly available software programs, in the event any of
these licenses or leases is terminated or in the event the underlying programs
are discontinued our operations may be materially negatively
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affected. Replacement of certain technologies which we license or lease could be
costly and could result in product delays which would materially and negatively
affect our operating results. While it may be necessary or desirable in the
future to obtain other licenses or leases relating to one or more of our
products or services or relating to current or future technologies, we cannot
assure you that we will be able to do so on commercially reasonable terms or at
all.
WE ARE EXPOSED TO RISK OF SYSTEM FAILURE, RISKS ASSOCIATED WITH THE SECURITY OF
OUR SYSTEMS AND LIABILITY RISKS
Our operations are dependent upon our ability, and the ability of our
suppliers, such as AT&T, Bell Atlantic and PSI to protect our network
infrastructure against damage from fire, earthquakes, power loss,
telecommunications failures and similar events. Despite the precautions we take,
the occurrence of a natural disaster or other unanticipated problems at our
network operations center or public access terminals in the future could cause
interruptions in the services we provide. In addition, there could be
interruptions in the services we provide if our telecommunications providers
fail to provide the data communications capacity we require as a result of a
natural disaster, operational disruption or for any other reason. Any damage or
failure that causes interruptions in our operations could have a material
negative effect on our business, financial condition and results of operations.
Our public access terminals are designed to operate with reduced functionality
even without connection to telecommunication lines. However, a substantial
failure could negatively affect our business.
Despite the implementation of security measures, the core of the
infrastructure of our network is vulnerable to computer virus attacks and other
disruptive problems. In the past, we and our Internet access providers have
experienced, and may in the future experience, interruptions in service as a
result of the accidental or intentional actions of Internet users, current and
former employees or others. Unauthorized use could also potentially jeopardize
the security of confidential information stored in our computer systems and in
the computer systems of our customers, which may result in us being liable to
our customers and also may deter potential users. Although we intend to continue
to implement industry-standard security measures, including the use of firewalls
and virus detection and prevention software, such measures have been
circumvented in the past, and we cannot assure you that measures we implement
will not be circumvented in the future. Eliminating computer viruses and
alleviating other security problems may require interruptions, delays or
cessation of service to our customers which could have a material negative
effect on our financial condition and results of operations.
Our success will depend upon the capacity, reliability and security of
our network infrastructure, including processing capability, and the facilities
and capacity leased from access providers and telecommunications vendors. We
must continue to expand and adapt our network infrastructure as the number of
users and the amount of information they wish to transfer increases, and to meet
changing customer requirements. The expansion and adaptation of our network
infrastructure will require substantial financial, operational and management
resources. We cannot assure you that we will be able to expand or adapt our
network infrastructure to meet additional demand or our customers' changing
requirements on a timely basis, at a commercially reasonable cost, or at all. If
we fail to expand our network infrastructure on a timely basis or adapt it
either to changing customer requirements or to evolving industry standards, our
business, financial condition and results of operations could be materially
negatively affected.
The public access terminals that were installed in various locations in
New York City since July 1996, in Kings County, Seattle, Washington since June
1997 and the FastTake(R) Kiosks installed since March 1999 have have only been
operating for a short time. Accordingly, we have only limited experience with
actual consumer interaction with the public access terminals. While we have
designed the public access terminals to be resistant to vandalism, there can be
no assurance that vandals will not succeed in damaging or disabling these
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terminals. In addition, although we believe it is unlikely, users of the public
access terminals may seek to hold us liable for injuries allegedly incurred in
connection with using them.
While we maintain insurance covering, among other things , losses
resulting from business interruptions caused by system failures, damages to
public access terminals or claims by users of the public access terminals, with
an annual limit of $2,000,000, and a $5,000,000 umbrella policy, we cannot
assure you that such insurance will provide sufficient coverage or that if there
are multiple claims, such insurance will not be terminated or will be available
for terms affordable to us.
WE HAVE RISK OF LIABILITY DUE TO FUTURE REGULATION OF THE INTERNET ACCESS
INDUSTRY
We are currently not 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
(see "Risk Factors -- We May Have Difficulties Complying with Government
Contract Requirements and Government Regulation").
Changes in the regulatory environment relating to the Internet access
industry could have a negative effect on our business. 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. We cannot predict the impact, if
any, that future laws and regulations or legal or regulatory changes may have on
our business.
The law relating to the liability of on-line services companies and
Internet access providers for information carried on or disseminated through
their systems is currently unsettled. Parties have instituted several private
lawsuits seeking to impose such liability upon on-line services companies and
Internet access providers. In addition, there is proposed legislation which
would impose liability for or prohibit the transmission on the Internet of
certain types of information and content. We may be exposed to such potential
liability in the event we were to make services such as the one offered through
our public access terminals available over the Internet. Although we carry
insurance, it may not be adequate to compensate us in the event we become liable
for information carried on or disseminated through our systems.
OUR CURRENT MANAGEMENT HAS CONTINUING CONTROL OF THE COMPANY
As of the date of this Prospectus, David E. Y. Sarna, our Chairman and
Co-Chief Executive Officer, and George J. Febish, our President and Co-Chief
Executive Officer, each of whom is also a director and a principal stockholder
of ours, together with The David E. Y. Sarna Family Trust and The George J.
Febish Family Trust, beneficially own, in the aggregate, approximately 23% of
our issued and outstanding shares of our common stock. As a result, assuming no
exercise of any of the warrants and options or convertible securities which we
have issued, and subject to the effect of additional voting shares which we may
issue in the future, these stockholders could exercise a significant influence
over the control of the Company and on the outcome of matters submitted
to our stockholders for approval, which influence might not be consistent with
the interests of other stockholders. In addition, if they were to act together,
they could under certain circumstances be able to elect a majority of our
directors, deter or cause a change in control of the Company and otherwise
generally control our affairs. On the other hand, the conversion rights which
may be exercised pursuant to the December 1998 and March 1999 Subscription
Agreements could conceivably effect a change of control of the Company if the
trading price of our common stock were to decrease significantly.
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WE DO NOT ANTICIPATE THE PAYMENT OF DIVIDENDS
Other than distributions made prior to 1993, when we were a
closely-held "S corporation," we have not paid any dividends on our common stock
in the past, and do not anticipate that we will declare or pay any dividends in
the foreseeable future.
SHARES THAT ARE ELIGIBLE FOR SALE IN THE FUTURE MAY AFFECT THE MARKET PRICE OF
OUR COMMON STOCK
A significant number of the outstanding shares of our common stock are
"restricted securities" as that term is defined in Rule 144 promulgated under
the Securities Act. The restricted shares may be sold pursuant to an effective
registration statement under the Securities Act, in compliance with the
exemption provisions of Rule 144 or pursuant to another exemption under the
Securities Act. In the absence of any agreement to the contrary, the outstanding
restricted common stock could be sold in accordance with one or more other
exemptions under the Securities Act (including Rule 144). Rule 144, as amended,
permits sales of restricted securities by any person (whether or not an
affiliate) after one year, at which time sales can be made subject to the Rule's
existing volume and other limitations and by non-affiliates without adhering to
Rule 144's existing volume or other limitations after two years. In general, an
"affiliate" is a person with the power to manage and direct our policies. The
SEC has stated that, generally, executive officers and directors of an entity
are deemed affiliates of the entity. Future sales of substantial amounts of
shares in the public market, or the perception that such sales could occur,
could negatively affect the price of the shares in any market that may develop
for the trading of such shares.
WE CANNOT ASSURE YOU OF CONTINUED NASDAQ LISTING; WE MAY BE SUBJECT TO PENNY
STOCK REGULATIONS
The Board of Governors of the National Association of Securities
Dealers, Inc. has established certain standards for the continued listing of a
security on the Nasdaq SmallCap Market(TM). The maintenance standards for
continued listing of our common stock on Nasdaq require, among other things,
that the minimum bid price of our common stock is at least $1.00 and that we
maintain net tangible assets (as defined by NASDAQ) of at least $2,000,000. Net
tangible assets is total assets (excluding goodwill) minus total liabilities.
The closing bid price of our common stock as of May 14, 1999 was $2. As of March
31, 1999, our net tangible assets amounted to $3,435,040. If our securities were
to be excluded from Nasdaq, it may negatively affect the prices of our
securities and the ability of holders to sell them. In the event that our
securities are not listed on Nasdaq, trading would be conducted in the "pink
sheets" or through the National Association of Securities Dealers, Inc.
Electronic Bulletin Board. In the absence of our common stock being quoted on
Nasdaq, trading in our common stock would be covered by Rule 15g-9 promulgated
under the Securities Exchange Act of 1934 for non-Nasdaq and non-exchange listed
securities. Under such rule, broker/dealers who recommend such securities to
persons other than established customers and accredited investors must make a
special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction prior to sale. Securities are
exempt from this rule if the market price is at least $5.00 per share.
The Commission adopted regulations that generally define a penny stock
to be any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Unless an exception is available, the regulations
require the delivery, prior to any transaction involving a penny stock, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith. If our common stock were subject to the regulations on penny stocks,
the market liquidity for our common stock would be severely affected by limiting
the ability of broker/dealers to sell our common stock and the ability of
purchasers to sell their securities in the
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secondary market. We cannot assure you that trading in our securities will not
be subject to these or other regulations in the future which would adversely
affect the market for such securities.
RISK RELATED TO THE YEAR 2000 ISSUE
Many currently installed computer systems and software products accept
only two digit codes to define a specific year. Computer equipment and software
with embedded technology which are time-sensitive may recognize the two digit
date code "00" as the year 1900 rather than the year 2000, resulting in system
failure or miscalculations. This problem is generally referred to as the "Year
2000 issue". We use software and related technologies that will be affected by
the "Year 2000 issue." We began the process of identifying the changes required
to our computer programs and hardware during 1996. We believe that all of our
major programs and hardware are Year 2000 compliant. We believe that we will not
incur any significant costs between now and January 1, 2000 to resolve Year 2000
issues. However, we cannot assure you that other companies' computer systems and
applications on which our operations rely will be timely converted, or that any
such failure to convert by another company would not have a material negative
effect on our systems and operations. Furthermore, there can be no assurance
that the software that we use which has been designed to be Year 2000 compliant,
contains all necessary date code changes.
THE POSSIBLE NEGATIVE EFFECT OF ANTI-TAKEOVER PROVISIONS, A STAGGERED BOARD AND
PROVISIONS RELATING TO STOCKHOLDER ACTIONS
There are certain provisions of Delaware law and certain provisions in
our Certificate of Incorporation, as amended, and in our Amended and Restated
Bylaws, which could make it more difficult for a third party to acquire control
of the Company and could discourage a third party from attempting to do so.
Certain of these provisions allow us to issue Preferred Stock with rights senior
to those of our common stock without any further vote or action by the
stockholders, eliminate the right of stockholders to act by written consent and
impose various procedural and other requirements which could make it more
difficult for stockholders to effect certain corporate actions. In addition, our
Board of Directors is divided into classes which serve in staggered terms,
meaning that the Board members may only be replaced a few at a time. This fact
could have the effect of delaying a change in control of the Company. In
addition, we have 5,000,000 shares of authorized Preferred Stock, which we could
issue in the future without further stockholder approval and upon such terms and
conditions, and with such rights, privileges and preferences, as the Board of
Directors may determine. The rights of the holders of our common stock will be
subject to, and may be negatively affected by, the rights of the holders of
Preferred Stock that may be issued in the future. In addition to the Series D
Preferred Stock which we have issued under the terms of the December 1998
Subscription Agreement and the Series E Preferred Stock which we have issued
under the terms of the March 1999 Subscription Agreement, we may issue
additional Preferred Stock in connection with future financings. See
"Description of Securities - Delaware Takeover Statute and Certain Charter
Provisions."
THERE ARE LIMITATIONS ON THE LIABILITY OF OUR DIRECTORS AND OFFICERS
Our Certificate of Incorporation, as amended, and our Amended and
Restated Bylaws contain provisions limiting the liability of our directors for
monetary damages to the fullest extent permissible under Delaware law. This is
intended to eliminate the personal liability of a director for monetary damages
on an action brought by or in the right of our Company for breach of a
director's duties to us or to our stockholders except in certain limited
circumstances. In addition, our Certificate of Incorporation, as amended, and
our Amended and Restated Bylaws contain provisions requiring us to indemnify our
directors, officers, employees and agents serving at our request, against
expenses, judgments (including derivative actions), fines and amounts paid in
settlement. This indemnification is limited to actions taken in good faith in
the reasonable belief that the conduct was lawful and
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in or not opposed to the best interests of the Company. The Certificate of
Incorporation, as amended, and the Amended and Restated Bylaws provide for the
indemnification of directors and officers in connection with civil, criminal,
administrative or investigative proceedings when acting in their capacities as
agents for us. These provisions may reduce the likelihood of derivative
litigation against directors and executive officers and may discourage or deter
stockholders or management from suing directors or executive officers for
breaches of their duties to us, even though such an action, if successful, might
otherwise benefit the Company and its stockholders.
USE OF PROCEEDS
The net proceeds which may be realized by our Company upon the exercise
of all of the Class A Warrants which were issued in connection with the
Company's initial public offering in November 1996, after provision for a
possible payment of a warrant solicitation fee of five percent and deduction of
expenses of this offering, will be approximately $8,400,000. Inasmuch as the
Company has received no firm commitments for the exercise of such Class A
Warrants, no assurance can be given that any such Class A Warrants will be
exercised.
Any net proceeds received from the exercise of the Class A Warrants
offered hereby are intended to be used for general corporate purposes and
working capital.
DIVIDEND POLICY
Other than distributions made prior to 1993, when we were a
closely-held "S corporation," we have never declared or paid cash dividends on
its common stock. We currently anticipate that we will retain all available
funds for use in the operation of our business, and therefore we do not
anticipate paying any cash dividends on the common stock in the foreseeable
future.
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CAPITALIZATION
The following table sets forth the capitalization of our Company as of March 31,
1999
<TABLE>
<CAPTION>
Actual
(Unaudited)
March 31,1999
-------------
<S> <C>
6% non-voting convertible preferred stock, $100 par, authorized 20,000 shares;
issued and outstanding 10,500 shares 1,050,000
6% non-voting convertible preferred stock, $100 par, authorized 25,000 shares;
issued and outstanding 21,000 shares 2,100,000
Common stock, $.001 par value; authorized 20,000,000 shares; issued and
outstanding 6,960,135 shares at March 31, 1999 696
Additional paid-in capital 8,106,120
Accumulated deficit (7,821,776)
----------
Total stockholders' equity 3,435,040
----------
</TABLE>
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<PAGE>
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On November 12, 1996, the common stock and Class A Warrants were listed
for quotation on the SmallCap Market(TM) on the Nasdaq System under the symbols
OSFT and OSFTW, respectively. 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 by Nasdaq. Quotations reflect prices between dealers, without retail
mark-up, mark down or commissions and may not necessarily represent actual
transactions.
Quarters Ended Common Stock Class A Warrants
-------------- ------------ ----------------
High Low High Low
---- --- ---- ---
Fiscal Year 1999
First Quarter 4.875 1.656 2.125 0.375
Fiscal Year 1998
Fourth Quarter 7.50 0.375 3.00 0.063
Third Quarter 2.188 1.00 0.375 0.125
Second Quarter 3.250 1.781 0.656 0.0
First Quarter 3.313 2.125 0.750 0.188
Fiscal Year 1997
Fourth Quarter 5.25 2.875 0.53125 0.50
Third Quarter 5.875 3.25 2.75 0.75
Second Quarter 6.375 4.25 1.875 0.875
First Quarter 5.875 4.50 5.50 0.75
As of May 18, 1999, there were 51 holders of the common stock and 8 holders of
record of the Class A Warrants.
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<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below as at December 31, 1998 and
for each of the two fiscal years then ended have been derived from our audited
financial statements. Our financial statements as at December 31, 1998, and for
each of the years in the two-year period then ended, including the notes
thereto, and the related report of Richard A. Eisner & Company, LLP, independent
auditors, are included elsewhere in this Prospectus. The selected financial data
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements of our Company and related notes thereto included elsewhere in this
Prospectus. Data for the three month periods ended March 31, 1999 and 1998 are
derived from unaudited statements, but in the opinion of management include all
adjustments necessary for a fair presentation of the data. Results for the three
month period ended March 31, 1999 may not be indicative of results expected for
the year ending December 31, 1999.
<TABLE>
<CAPTION>
Three Months Ended March 31 Year Ended December 31
--------------------------- ----------------------
STATEMENT OF OPERATIONS DATA: 1999 1998 (1) 1998 1997
---- ---- ---- ----
REVENUES:
<S> <C> <C> <C> <C>
Development and Training $ 16,100 $ 15,166 $ 43,672 266,853
Rental Income 29,250 29,125 116,793 364,314
--------- --------- ----------- ---------
Total Revenues 45,350 44,291 160,465 631,167
--------- --------- ----------- ---------
EXPENSES:
Cost of Service:
Development and training 94,922 49,430 334,503 346,767
Rentals 92,429 133,926 331,587 426,755
Research and development 78,911 147,340 490,558 613,000
General and administrative 522,588 468,812 1,930,255 1,766,333
--------- --------- ----------- ---------
Total expenses 788,850 799,508 3,086,903 3,152,855
--------- --------- ----------- ---------
Loss from operations (743,500) (755,217) (2,926,438) (2,521,688)
--------- --------- ----------- ---------
Other income (expense):
Realized and unrealized gain (loss)
on marketable securities (10,265) (1,846) (7,041) 137,927
Interest and dividend income 2,800 34,371 72,891 126,562
Interest expense (6,119) (2,927) (14,082) (12,673)
Loss on uncollectible loan (250,000)
--------- --------- ----------- ---------
Total other income (13,584) 29,598 51,768 1,816
--------- --------- ----------- ---------
Loss before income tax benefit (757,084) (725,619) (2,874,670) (2,519,872)
Income tax benefit 120,000 90,000 360,000
--------- --------- -----------
Net (Loss) ($637,084) ($635,619) ($2,514,670) (2,519,872)
========= ========== =========== ==========
Basic and Diluted Net (Loss)
Per share ($0.18) ($0.16) ($0.55) ($0.62)
========= =========== ========== ==========
Weighted Average Number of 6,924,421 4,082,676 4,548,696 4,066,994
========= =========== ========== ==========
Shares Outstanding
BALANCE SHEET DATA: March 31, 1999 March 31, December 31, December 31,
-------------- --------- ------------ ------------
1998 1998 1997
---- ---- ----
Working capital $1,963,017 $1,074,965 $932,854 $1,330,987
Total assets 3,902,734 1,849,147 2,937,107 2,723,551
Accumulated deficit (7,821,776) (5,395,641) (7,184,692) (4,670,022)
Total stockholders' equity 3,435,040 1,547,629 2,193,711 2,273,248
</TABLE>
--------------
(1) Adjusted for year end audit adjustments
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information
which our management believes is relevant to assessing and understanding our
results of operations and financial condition. This discussion should be read in
conjunction with the consolidated financial statements and notes thereto
appearing elsewhere in the Prospectus.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the information in this Prospectus and in the
documents we have incorporated by reference may contain forward-looking
statements. Such statements can be generally identified by the use of
forward-looking words such as "may," "will," "expect," "anticipate," "intend,"
"estimate," "continue," "believe," or other similar words. These statements
discuss future expectations, or state other "forward-looking" information. When
considering such statements, you should keep in mind the risk factors and other
cautionary statements in this Prospectus. The risk factors noted in this section
and other factors noted in this Prospectus could cause our actual results to
differ materially from those contained in any forward-looking statements.
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 $2,519,872 in 1997 and a net loss of $2,514,670
in 1998. For the quarter ended March 31, 1999, the Company sustained a net loss
of $637,084. 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 and its FastTake(R) IPATs were introduced in October
1998. The Company has not recognized any significant income to date from its
IPATs. Although the Company anticipates that it will begin to recognize greater
revenues from the FastTake(R) IPATs during 1999, it cannot predict the actual
timing or amount of such revenues.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues decreased by $470,702 or 75% to $160,465 in 1998 from
$631,167 in 1997. Development and training revenue decreased by $223,181 or 84%
to $43,672 in 1998 from $266,853 in 1997. Rental income decreased by $247,521 or
68% to $116,793 in 1998 from $364,314 in 1997. The Company's decreased
development and training revenue resulted from a redirection of the Company's
resources to transactional fee-based products and services. The above decreases
were offset, in part, by an increase in revenues from advertising on the
Company's kiosks. The decrease in rental income was due to the completion of the
original contract with the City of New York, and an extension of the contract
with the City of New York which resulted in a reduction in the rental of five
kiosks from $30,090 to $9,700 per month, through June 30, 1999, which will be
used to recover the incremented costs associated with providing services for the
extended period.
Costs of services for development and training decreased by
$12,264 or 4% to $334,503 in 1998 from $346,767 in 1997, and cost of services
for rentals decreased by $95,168 or 22% to $331,587 in 1998 from $426,755 in
1997. The decreases were due to the redirection of the Company's resources to
transactional fee-based products, which were offset, in part, by normal
increases in expenses.
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<PAGE>
Research and development expenses decreased by $122,442 or 20%
to $490,558 in 1998 from $613,000 in 1997, due to the expensed development costs
for the SmartStreetJ operations in 1997. In addition, during the years ended
December 31, 1998 and December 31, 1997, the Company has capitalized additional
software development costs which aggregated $72,027 and $37,909, respectively.
Approximately $44,000 of the costs capitalized in 1998, relate to the
development of FastTake(R).
General and administrative expenses increased by $163,922 or
9% to $1,930,255 in 1998 from $1,766,333 in 1997, due principally to increases
in advertising and marketing expenses.
Other income increased by $49,952 to $51,768 in 1998 from
$1,816 in 1997, Investment income, in 1998, was lower than in 1997 due to the
utilization of cash and investments to fund operations. Additionally, during
1997, other income was reduced as a result of the $250,000 provision for loss on
a loan receivable.
The Company has entered into an agreement to sell certain New
Jersey net operating losses and research and development credits, which resulted
in the Company recognizing in 1998 an income tax benefit of $360,000 in 1998 and
$120,000 in the first quarter of 1999.
Net loss decreased by $5,202 to a net loss of $2,514,670 in
1998 from a net loss of $2,519,872 in 1997. This was due to lower revenues due
to the renegotiation of the New York City contract, offset by lower expenses
related to lower revenues and partly offset by the income tax benefit in 1998
and a provision for loan receivable in 1997.
At December 31, 1998, the Company had federal net operating
loss carryforwards of approximately $7,346,000. A valuation allowance
aggregating $2,806,000 has been recorded as a result of uncertainties regarding
the realization of substantially all of the assets due to the lack of earnings
history of the Company. See Note I of Notes to Financial Statements.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1998
The results of operations for the three months ended March 31, 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.
Net revenues increased by $1,059 or 2% to $45,350 for the three months
ended March 31, 1998 from $44,291 for the three months ended March 31, 1997. The
change was due to the initial shipment of FastTake(R) product in March, 1999.
Significant shipments of FastTake(R) began in April, 1999, which are not
reflected in these financial statements.
Cost of services increased by $3,995 or 2% to $187,351 for the three
months ended March 31, 1999 from $183,356 for the three months ended March 31,
1998, due to normal increases in expenses.
Research and development expenses decreased by $68,429 or 46% to
$78,911 for the three months ended March 31, 1999 from $147,340 for the three
months ended March 31, 1998, due to a decrease in personnel devoted to research
and development in connection with the Company's expansion into San Francisco,
which was terminated in March, 1999.
General and administrative expenses increased by $53,776 or 11% to
$522,588 for the three months ended March 31, 1999 from $468,812 for the three
months ended March 31, 1998, due principally to increases in marketing expenses
relating to the Company's new product FastTake(R).
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<PAGE>
Other income decreased by $43,182 to ($13,584) for the three months
ended March 31, 1999 from $29,598 for the three months ended March 31, 1998, due
to lower investments.
The net loss increased by $1,465 or .2% to $637,084 for the three
months ended March 31, 1999 from $635,619 for the three months ended March 31,
1998, due to an increase in marketing expenses related to FastTake(R) offset by
a decrease in research and development related to the Company's expansion into
San Francisco.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1999 the Company incurred a net
loss of $637,084. The accumulated deficit increased to $7,821,776 as the Company
continues to incur operating losses as expenses exceed revenue. The Company had
working capital of $1,963,017 as of March 31, 1999 as compared to $932,854 as of
December 31, 1998, or a increase of $1,030,163. Capital expenditures and
capitalized software amounted to $357,830.
The Company expects to fund the deployment of additional FastTake(R)
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 $1,800,000 (net of expenses) in connection with a
private financing of Series E Preferred Stock consummated on March 17, 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. On
February 19, 1999, the Company entered into a letter of intent with a New York
Stock Exchange member firm for a proposed underwritten secondary public offering
of up to $20 million of Common Stock. The proposed public offering would be made
only by means of a prospectus. However, no assurance can be given that the
Company will be successful in consummating such an offering or raising any
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.
The Company anticipates that its existing working capital will be
sufficient to fund its operations at least through October 31, 1999. Continuing
operations thereafter will depend on cash flow 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
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<PAGE>
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.
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 year ended December
31, 1998. 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 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>
BUSINESS
WHAT WE DO
We are currently engaged in the business of providing retail kiosks
that offer transaction-based and advertising- supported services through
interactive public access terminals (IPATs or kiosks) as well as the Internet.
These kiosks utilize a foundation developed during projects with the Cities of
New York and San Francisco that support many retail businesses with a minimum of
adaptation. The kiosk can easily change its personality (i.e., "look and feel")
in three ways:
o Change the appearance of the enclosure
o Change the on-screen graphics
o Change the database supporting what is being retailed
The Company's IPATs are primarily held for operating income which is
derived from rental and advertising fees and transactional revenue, but may be
sold outright to some customers. This approach allows the Company control over
the look and operation of its kiosks. A customer can recognize the brand name
and develop an expectation for how the kiosk will operate. In addition, the
Company can control the content to ensure that it is being kept up-to-date. An
IPAT is a machine deployed in areas with high pedestrian traffic or within a
retail outlet 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 one or more of the
following devices: keyboard, page printer, receipt printer, credit card reader,
video camera, signature pad, 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.
The Company's newest product is FastTake(R), which the Company
introduced in October 1998 at the East Coast Video Show and began shipping in
March 1999. FastTake(R) is initially targeted for the video industry. It permits
users to search a database for a favorite actor or director, or by a portion of
the movie name. The user can then access facts about the movie title, a plot
summary, the names of its major actors and directors, still pictures from the
movie (photographs) and a preview of the video (known as a trailer). For the
video store owner, FastTake(R) has three main purposes:
o Provide the consumer with an easy way to locate "Catalog Titles"
(i.e., older films). The consumer does not normally require a
kiosk to find the latest video titles which are heavily marketed;
FastTake(R) assists consumers find older titles that are no longer
marketed.
o Generate revenue through a three-way "barter." Studios provide the
Company with barter product, typically Catalog Titles with a value
of approximately $100 per title per kiosk, based on manufacturer's
suggested retail price (MSRP). This product would be placed on or
near the kiosk. This increases the chances that a consumer will
see the title and want to buy or rent it.
o Support direct product sales. Advertisers can sell additional
products through the kiosk, such as candy, popcorn, soda and toys
that are related to video sales. FastTake(R) also offers a
facility that allows consumers to sign-up on the kiosk for
drawings and prizes.
In a future release of FastTake(R), the Company expects to add an
electronic commerce feature that will enable the purchase or rental of chosen
videos. FastTake(R) uses databases compiled by and licensed from Video Pipeline,
Inc.
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<PAGE>
and film trailers licensed from Screenplay, Inc. As of May 19, 1999, 30 units
were manufactured, of which 22 were installed, and an additional 70 units were
ordered for delivery in the near future.
Most retailers require a 90-120 day trial period to determine how
successfully FastTake(R) operates in their stores. At the conclusion of such
trial period, they can determine whether or not they wish to expand into
additional stores.
The Company's FastTake(R) public access terminals are dependent on
agreements with sales distributors, video stores and studios to provide
advertising support. To date, only one distributor agreement has been signed
(with Plaza Entertainment) and agreements have been signed with four studios and
29 video outlets representing 59 initial locations. Several additional outlets
are expected to sign similar agreements shortly. As of May 19, 1999, a total
of 22 FastTake(R) kiosks have been installed. The majority of the FastTake(R)
kiosks have been placed in locations through introductions provided by the four
largest distributors in the industry.
Although the Company anticipates that it will begin to recognize
greater revenues from FastTake(R) during 1999, it cannot predict the actual
timing or amount of such revenues. In addition, most of the units being placed
are for trial periods of six months or less and there can be no assurance that
when the Company installs these products, they will prove to be effective and
continue to be in demand. The Company also relies on installation and
maintenance services for the FastTake(R) terminals provided by International
Business Machines (IBM). These contracts could be canceled on short notice. If
such contracts were canceled by IBM, this could have a negative affect on the
Company's sales as well as on the quality of service which the Company could
provide to the Company's customers.
FastTake(R) revenues are expected to be generated from several sources,
as follows:
o Monthly rental fees.
o Studio barter product which lower retailers' effective monthly
rental cost. Barter can become an additional source of income for
both the Company and the retailers as the number of titles
contributed by the studios exceeds the monthly rental cost of the
unit (approximately 8 titles). Currently, the Company is providing
six studio titles per kiosk during the trial period.
o Advertising and sponsorship capabilities, both in poster form on
the sides of the enclosure and through on- screen opportunities.
o In-store promotions, including give-away and buy popcorn and a
movie and get a discount type offers.
OUR IPAT BUSINESS
In early 1996, as part of its IPAT Demonstration Project, the City of
New York (the "City") entered into an agreement with the Company to develop
public IPATs to be located in City offices and other public locations in an
effort to expedite transactions with the City (the "City Agreement"). 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 and
discontinued in January 1999. A seventh was installed in March 1998 and 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 applications for use on IPATs These
applications allow the public 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. They can also obtain
public health information, register for certain courses offered by the
Department of Health, and locate information on City
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<PAGE>
government, as well as information about museums, tourist attractions, shopping
and similar matters without a fee. The City Agreement has been extended through
the end of the 1999 fiscal year of the City (June 30, 1999), and the City has
advised the Company of its intention to extend the City Agreement through the
end of calendar year 1999. During this time frame the City intends to issue a
request for proposals and to award a long-term contract to one or more vendors.
This development led to a general purpose Kiosk Operating system that could
easily be used in new kiosk applications such as the FastTake(R) project.
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. While much of the software has
been improved and continues to form the core of the Company's products, the
courseware is no longer current.
The Company 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 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 and may seek to acquire one or more other businesses providing
kiosk-related consulting services. 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 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. The
extension of such contract was valued at $202,650 through June 30, 1999. Through
March 1999, $146,043 was billed under this contract.
Through April 1999, the IPATs in New York City have been used 385,762
times. Revenues from advertising generated a total of $18,122 in 1998 and no
revenues from advertising were generated in 1999.
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(TM) design was deployed in March, 1998 at the Harlem
Heights Historical Society in the City. The amount of future transactions and
advertising revenues, if any, will depend on user and advertiser acceptance of
the IPATs.
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<PAGE>
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. The kiosk in the Museum of Science was de-installed in
January 1999 as it did not generate revenue.
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.
The Company intends to market IPATs to other municipalities, government
agencies and organizations in the future, but intends to direct the majority of
its efforts at 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.
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.
OUR RELATIONSHIP WITH MICROSOFT
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 September 2, 1998. The Company has also produced
technical papers for, and provided consulting services to, Microsoft. Joint
marketing efforts with Microsoft are continuing. The most recent conference was
held in March 1999 and additional events are scheduled through the summer of
1999. Microsoft recently prepared a comprehensive "casestudy" on FastTake(R)
which it expects to release shortly.
ObjectSoft Corporation was incorporated in Delaware in January
1996 and is the surviving corporation of the merger on January 31, 1996 (the
"Merger") between it and its predecessor, ObjectSoft Corporation, a New Jersey
corporation ("ObjectSoft-NJ"), which was incorporated in December 1990. The sole
purpose of the Merger was to effect a change of the corporate domicile of
ObjectSoft-NJ to Delaware. The Company was organized as a wholly-owned
subsidiary of ObjectSoft-NJ; prior to the Merger, the Company conducted no
business unrelated to its organization or to effecting the Merger. Throughout
this Prospectus, the "Company" will, unless the context otherwise requires,
include ObjectSoft-NJ.
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<PAGE>
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.objectsoft.net.
OUR FACILITIES
Our corporate headquarters are located in Hackensack, New Jersey, in a
leased facility consisting of approximately 4,300 square feet, which we occupied
effective April 1, 1996 under a lease expiring March 31, 2003. We will pay a
base rent of $ 86,557 per annum in 1999 subject to certain increases in
subsequent periods. We believe that this new space will be adequate to meet its
requirements for the presently foreseeable future.
OUR EMPLOYEES
As of April 30, 1999, we had 19 employees, 16 of whom were full-time,
and all of whom are based in our Hackensack, NJ office. These include six in
product development, four in management and sales, six in operations and three
in finance and administration.
We expect the size of our workforce to remain approximately the same in
1999, and we intend to continue with our policy to outsource non-strategic
functions such as artwork development, repetitive testing, maintenance and
bookkeeping rather than using our own staff for these functions.
Other than Messrs. Sarna and Febish, no other senior personnel have
entered into employment agreements obligating them to remain with our Company
for any specific term; however, substantially all our key employees are parties
to nonsolicitation, confidentiality and noncompetition agreements. In addition,
independent contractors enter into confidentiality agreements with us.
LEGAL PROCEEDINGS
We are not currently involved in any material legal proceedings.
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<PAGE>
RECENT FINANCINGS
SERIES D FINANCING
On December 30, 1998, we entered into an Amended and Restated 6% Series
D Convertible Preferred Stock Subscription Agreement, formerly known as the
Private Equity Line of Credit Agreement, with Settondown Capital International,
Ltd. as placement agent and certain investors, contemplating a potential funding
of up to $ 2,000,000 of 6% Series D Convertible Preferred Stock in three
separate tranches. On December 31, 1998, the investors purchased the first
tranche of 10,000 Series D Preferred Shares and Warrants to purchase an
aggregate of 50,000 shares of common stock for an aggregate purchase price of
$1,000,000. On February 26, 1999, our registration statement registering for
resale the shares of common stock issuable in connection with the Series D
Agreement, was declared effective by the SEC.
The obligation of our Company and the investors to consummate the
second and third tranches in an aggregate principal amount of $1,000,000 was
later terminated in connection with the Series E Financing described below.
In connection with this funding the Company issued to the placement
agent 500 Series D Shares, a Warrant to purchase 40,000 shares of common stock
and 2% of the investment amount in cash, as placement agent fees.
The Series D Shares are convertible into shares of Common stock as more
fully described below; provided, however, that the number of shares of common
stock issuable to each holder at any time upon conversion will not exceed the
number of shares which, when aggregated with all other shares of common stock
then owned of record by such holder, would result in such holder owning, in
aggregate, more than 9.99% of all our outstanding common stock on the date of
conversion.
Each Series D Share may be converted into shares of common stock at a
conversion rate determined by dividing $100, the purchase price per Series D
Share, by the conversion price, which is the lesser of (a) 0.80 times the
average closing bid price of the common stock for the five trading days ending
on the day prior to conversion, or (b) $2.03.
The investors have agreed to vote all shares of common stock which may
be beneficially held by them in favor of all nominees to the Company's Board of
Directors who are nominated by the then current Board of Directors.
As of May 19, 1999, $250,000 of principal amount Series D Preferred
Stock was converted.
SERIES E FINANCING
On March 17, 1999, we closed a private financing under a 6% Series E
Convertible Preferred Stock Subscription Agreement dated as of March 17, 1999
with Settondown Capital International, Ltd. as placement agent and certain
investors pursuant to which the Company sold, and the investors purchased,
20,000 shares of 6% Series E Convertible Preferred Stock and warrants to
purchase an aggregate of 50,000 shares of common stock for an aggregate purchase
price of $2,000,000. On April 30, 1999, our registration statement registering
for resale shares of common stock issuable in connection with the Series E
Agreement was declared effective by the SEC.
Pursuant to the Series E Agreement, we issued to the placement agent as
placement agent fees (i) 1,000 Series E Shares, (ii) a warrant to purchase
50,000 shares of common stock and (iii) 3% of the investment amount in cash
($60,000).
The Series E Shares are convertible into shares of common stock as more
fully described below; provided, however, that the number of shares of common
stock issuable to each holder at any time upon conversion will not exceed
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<PAGE>
the number of shares which, when aggregated with all other shares of common
stock then owned of record by such holder, would result in such holder owning,
in aggregate, more than 9.99% of all our outstanding common stock on the date of
conversion.
Each Series E Share may be converted into shares of common stock at a
conversion rate determined by dividing $100, the purchase price per share of
Series E Shares, by the "Conversion Price," which is the lesser of (x) the
closing bid price for the common stock on March 16, 1999 or (y) the average of
(A) the average of the three lowest closing bid prices of the common stock
during the 22 day trading period immediately preceding the conversion date (the
"Lookback Period") and (B) the converting holder's choice of five consecutive
closing bid prices of the common stock during the Lookback Period. (The Lookback
Period is increased by two trading days on the last trading day of each month,
starting on the first day of the fourth month from the closing, until the
Lookback Period equals a maximum of 30 trading days.)
The investors have agreed to vote all shares of common stock which may
be beneficially held by them in favor of all nominees to the Company's Board of
Directors who are nominated by the then current Board of Directors.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
NAME AGE POSITION
- ---- --- --------
David E. Y. Sarna 1 48 Chairman, Secretary and Treasurer
George J. Febish 1 49 President, Treasurer and Director
Daniel E. Ryan1 2 3 4 50 Director
Michael A. Burak 2 4 58 Director
1 Member of Executive Committee
2 Member of Audit Committee
3 Member of Compensation Committee
4 Member of Stock Option Plan Committee
DAVID E. Y. SARNA together with Mr. Febish founded the Company in 1990.
Mr. Sarna has been the Chairman, Co-Chief Executive Officer, Secretary and a
director of the Company since December 1990. He has also been, since 1994, a
Contributing Editor of DATAMATION magazine. Prior to co-founding the Company,
Mr. Sarna founded Image Business Systems Corporation, a computer software
development company, in 1988. Prior to founding Image Business Systems
Corporation, Mr. Sarna was formerly Executive Vice-President and a co-founder of
International Systems Services Corp., a computer software company that developed
ISS Three(TM). From 1976 to 1981, Mr. Sarna was employed by Price Waterhouse &
Co., as a management consultant, beginning as a senior consultant and rising to
the position of senior manager. From 1970 to 1976 Mr. Sarna was employed by IBM
Corporation in technical and sales positions. Mr. Sarna began his professional
career at Honeywell in 1968. Mr. Sarna holds a BA degree from Brandeis
University and did graduate work at the Technion - Israel Institute of
Technology. Mr. Sarna is a Certified Systems Professional and a Certified
Computer Programmer. He is the co-author, with Mr. Febish, of PC Magazine
Windows Rapid Application Development (published by Ziff- Davis Press in 1994),
several other books and over 50 articles published in professional magazines.
Mr. Sarna is also the co-inventor of patented software for the recognition of
bar- codes.
GEORGE J. FEBISH together with Mr. Sarna founded the Company in 1990.
Mr. Febish has been the President, Co-Chief Executive Officer, Treasurer and a
director of the Company since December 1990. He has also been, since 1994, a
Contributing Editor of DATAMATION magazine. Prior to co-founding the Company,
Mr. Febish was Executive Vice President and Chief Operating Officer of Image
Business Systems Corporation, a computer software development company, from 1988
to 1990. Prior to joining Image Business Systems Corporation, Mr. Febish was the
Director of Marketing at ISS, a computer software company that developed ISS
Three(TM). Prior to joining ISS, Mr. Febish was the Eastern Regional Sales
Manager for Bool & Babbage. In 1970, Mr. Febish began his professional career
with New York Life Insurance Company. Mr. Febish holds a BS degree from Seton
Hall University. He is the co-author, with Mr. Sarna, of PC Magazine Windows
Rapid Application Development and the author of numerous published articles.
DANIEL E. RYAN has been a director since 1991. Mr. Ryan has been
employed by New York Life Insurance Company since July, 1965 where, since 1981,
he has held the title of Corporate Vice President. Mr. Ryan is the head of the
Service Center Development of New York Life Insurance Company's Information
Systems organization. Mr.
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<PAGE>
Ryan holds an MBA in Computer Science from Baruch College and a BS/BA in
Industrial Management from Manhattan College. Mr. Ryan is a Certified Systems
Professional.
MICHAEL A. BURAK has been a director since February 1999. Mr. Burak is
President of the firm of Michael A. Burak, Inc. and has been actively engaged in
real estate operations for over 30 years as an owner, a property manager and
broker dealing with sales and leasing. Mr. Burak received a B.S. in Real Estate
from New York University's School of Commerce and M.S. from Urban Planning
division of the Graduate School of Architecture at Columbia University. As a
William Kinne Fellow, he spent 1964 and 1965 studying Urban problems in Europe.
He is past president of the Metropolitan Real Estate Square Club, and currently,
an active member of the Associated Owners and Builders of Greater New York, the
National Realty Club and the National Association of Home Builders.
The Company's Board of Directors is divided into two classes. The Board
is composed of two Class I Directors (Messrs. Sarna and Burak) and two Class II
Directors (Messrs. Febish and Ryan). The term of office Class I Directors
expires at the Company's 1999 Annual Meeting of Stockholders and the term of
office of Class II Directors expires at the Company's 2000 Annual Meeting of
Stockholders. Directors elected to succeed those whose terms expire are elected
to a term of office expiring at the second Annual Meeting of Stockholders
following their election. Directors hold office until the expiration of their
respective terms and until their successors are elected or until death,
resignation or removal. The classification of the Board of Directors could have
the effect of making it more difficult for a third party to acquire, or
discouraging a third party from acquiring, control of the Company. Vacancies on
the Board of Directors may be filled only with the approval of a majority of the
Board of Directors then in office. Furthermore, any director elected by the
stockholders, or by the Board of Directors to fill a vacancy, may be removed
only for cause and by a vote of 75% of the outstanding shares of common stock.
See "Description of Securities - Delaware Takeover Statute and Certain Charter
Provisions."
Executive officers of the Company are elected by the Board of Directors
on an annual basis and serve at the discretion of the Board of Directors.
NON-EMPLOYEE DIRECTOR COMPENSATION
Until March 1996, non-employee directors of the Company received no
compensation for attendance at Board meetings or committee meetings of the
Board; however, each non-employee director was reimbursed for out-of-pocket
expenses incurred in connection with attendance at meetings or other Company
business.
In March 1996 the Board of Directors adopted the 1996 Stock Option Plan
(the "1996 Plan") pursuant to which each non-employee director of the Company on
the date the 1996 Plan was approved by Stockholders was granted an option to
purchase 10,000 shares of common stock. Thereafter when each non-employee
director first became a director, such individual was granted an option to
purchase 10,000 shares of common stock. In addition, immediately following each
Annual Meeting of Stockholders at which directors were elected, each
non-employee director of the Company who was then a director was granted an
option to purchase an additional 5,000 shares of common stock (the "Formula
Grants"). At the 1998 Annual Meeting of Stockholders, stockholders voted in
favor of a proposal to amend the 1996 Plan, which proposal included the deletion
of the Formula Grants from the 1996 Plan.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has established (i) a Compensation Committee whose sole
member is Mr. Ryan, (ii) an Audit Committee whose members are Messrs. Ryan and
Burak, (iii) an Executive Committee whose members are Messrs. Sarna, Febish and
Ryan, and (iv) a Stock Option Plan Committee whose members are Messrs. Ryan and
Burak.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning annual and
long-term compensation, paid or accrued, for the Chief Executive Officer and for
each other executive officer of the Company whose compensation exceeded $100,000
in fiscal 1998 (the "Named Executive Officers") for services in all capacities
to the Company during the last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------- ---------------------------
Other Awards(1) Payouts
Name and Annual Securities All
Principal Compen- Underlying Other
Position Year Salary(2) sation (3) Options/SAR Compensation
-------- ---- ------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
David E.Y. Sarna, Chairman, 1998 $215,000 -- 50,000 --
Secretary and Co-Chief 1997 $208,000 -- 50,000 --
Executive Officer 1996 $200,000 -- 50,000 --
George J. Febish, President, 1998 $215,000 -- 50,000 --
Treasurer and Co-Chief 1997 $208,000 -- 50,000 --
Executive Officer 1996 $200,000 -- 50,000 --
</TABLE>
----------------
(1) None of the Named Executive Officers received any Restricted Stock
Awards or LTIP Payouts in 1996, 1997 or 1998.
(2) Does not include a sum of $195,844 of compensation which was accrued as
of December 31, 1995 and paid in 1996. Such sum was paid as follows:
$100,000 and $50,000 paid to each of Messrs. Sarna and Febish from the
proceeds of a bridge loan offering of notes and warrants completed in
June 1996 and an offering of units of common stock and warrants
completed in August 1996, respectively, and the balance paid from
operating revenues.
(3) As to each individual named, the aggregate amounts of perquisites and
personal benefits not included in the Summary Compensation Table did not
exceed the lesser of either $50,000 or 10% of the total annual salary
and bonus reported for the Named Executive Officer.
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<PAGE>
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with each of David E.
Y. Sarna and George J. Febish, effective as of July 1, 1996, which expires on
December 31, 2001. The employment agreements each provide for a current annual
base salary of $215,000. Each of the employment agreements also provides for a
bonus of 5% per annum of the Company's Earnings Before Depreciation, Interest,
Taxes and Amortization. In addition, on an annual basis, the Board of Directors
will consider paying an additional bonus to each of Messrs. Sarna and Febish
that is based upon the increase in the Company's gross revenues, taking into
account any increase in the Company's expenses. The annual base salary under the
current agreements may be increased at the discretion of the Board of Directors.
The agreements provide for (i) a severance payment of the base compensation and
bonus of the prior full fiscal year and payment of all medical, health,
disability and insurance benefits then payable by the Company for the longer of
(a) the remainder of the term of the employment agreement or (b) 12 months, as
well as (ii) the base compensation and bonus accrued to the date of termination,
upon the occurrence of (x) termination by the Company without cause, (y)
termination by the employee for good reason or (z) a change in control of the
Company, if the employee resigns after the occurrence of the such change in
control. Each of the employment agreements limit the severance payments to an
amount that is less than the amount that would cause an excise tax or loss of
deduction under the rules relating to golden parachutes under the Internal
Revenue Code.
OFFICER WARRANTS
Each of David E. Y. Sarna and George J. Febish have entered into a
Warrant and Warrant Agreement with the Company. The Warrant and Warrant
Agreements, dated April 15, 1993 (the "Officer Warrants") provides for the right
of each of them to purchase 50,000 shares of common stock at an exercise price
per share of $.50 exercisable until April 30, 1998. The Company extended the
exercise date of the Officer Warrants to April 30, 2000 in consideration of
their waiver of the registration rights with respect to the Company's 1996
Public Offering and their agreement to enter into an 18 month lock-up agreement
with the Underwriter. The Officer Warrants permit the executive's estate to
cause the Company to purchase the underlying shares at the Company's book value
per share. The Officer Warrants provide that the number of shares and the
exercise price are subject to anti-dilution adjustments and grants "piggyback"
registration rights with respect to the underlying shares. See "Description of
Securities - Outstanding Warrants and Options - Officer/Stockholder Warrants;
1996 Stock Option Plan."
STOCK OPTIONS
The following table sets forth information as to all grants of stock
options to the Named Executive Officers during fiscal 1998.
OPTION GRANTS IN 1998(1)
Individual Grants (1)
-----------------------------------------------------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees Exercise Expiration
Name Granted in 1998 Price Date (2)
---- ------- ------- ----- --------
David E.Y. Sarna 50,000 23.25% $1.45 July 8, 2003
George J. Febish 50,000 23.25% $1.45 July 8, 2003
- ------------------------
(1) No stock appreciation rights ("SARs") were granted to any of the Named
Executive Officers during fiscal 1998.
(2) The options vested as to 50% of the shares on July 9, 1998, the grant
date, and 50% will vest on July 9, 1999.
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<PAGE>
There were no stock options or SAR exercises by Named Executive
Officers during fiscal 1998 and no SARs were outstanding at December 31, 1998.
OPTION REPRICING
The following table sets forth information with respect to the
participation by the Company's current and former executive officers in a
repricing of options implemented by the Company during fiscal year 1998. Under
the repricing, all outstanding employee stock options (and no non-employee
director options) previously granted under the 1996 Plan were repriced from
$3.50 to $1.45 and the vesting periods were modified as follows:
<TABLE>
<CAPTION>
LENGTH OF
ORIGINAL
NUMBER OF OPTION TERM
SECURITIES MARKET PRICE REMAINING AT
UNDERLYING OF STOCK AT EXERCISE PRICE DATE OF
OPTIONS TIME OF AT TIME OF NEW REPRICING OR
REPRICED OR REPRICING OR REPRICING OR EXERCISE ADMENDMENT
DATE AMENDED (#)(1) AMENDMENT ($) AMENDMENT ($) PRICE (YEARS)
----- -------------- ------------- -------------- --------- -------------
<S> > <C> <C> <C> <C> <C> <C>
David E.Y. Sarna, 7/9/98 50,000 1.45 3.50 1.45 3
George J. Febish 7/9/98 50,000 1.45 3.50 1.45 3
</TABLE>
COMPENSATION COMMITTEE REPORT ON OPTION REPRICING
The 1996 Plan was established as an employment incentive to retain the
persons necessary for the development and financial success of the Company. As a
result of a decrease in the market price of the Company's Common Stock and
recognizing that previously granted stock options had lost much of their value
in motivating employees, including the Named Executive Officers, to remain with
the Company and share in its overall financial goals, the Stock Option Committee
of the Board of Directors, in July 1998, voted to approve the repricing of
205,000 options, including 100,000 options granted to the executive officers
named above. Such repricing was effected by amending the exercise price in the
option contracts of the employees to an exercise price of $1.45 per share, which
was the fair market value of the Common Stock on the date of repricing. In
exchange, each employee who accepted the repricing amendment agreed to a revised
vesting schedule. By repricing the existing options granted under the 1996 Plan,
the Company intended to reward key employees, including the Named Executive
Officers, holding such options for their contributions to the Company.
Daniel E. Ryan
Member of the Compensation Committee
--------------------------------------
(1) The vesting period for these repriced options granted to Mr. Sarna and
Mr. Febish was extended and revised so that options for half of the
shares remained vested as of July 9, 1998 and options for half of the
shares will vest on July 9, 1999.
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<PAGE>
1996 STOCK OPTION PLAN
The Company's 1996 Plan was adopted by the Board of Directors on March
15, 1996 and was approved by the Stockholders on September 16, 1996 and July 9,
1998. On March 15, 1999 our Board of Directors adopted certain amendments to the
1996 Plan, including the increase in the number of shares available under the
1996 Plan from 750,000 to 1,250,000. Our stockholders will vote on this proposal
at the 1999 Annual Meeting of Stockholders scheduled to be held on June 3, 1999.
As of April 30, 1999, 16,033 options had been exercised and options to purchase
598,134 shares held by eighteen optionees were outstanding at a weighted average
per share exercise price of $1.90. Options granted under the 1996 Plan may
include those qualified as incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended, as well as non-qualified options. Key
employees as well as other individuals, such as outside directors, consultants
and advisors who provide necessary services to the Company are eligible to
participate in the 1996 Plan. Non-employees and part-time employees may receive
only non-qualified options. As of April 30, 1999 options to purchase an
aggregate of 598,134 shares of common stock have been granted under the 1996
Plan, including 150,000 options granted to each of David E. Y. Sarna and George
J. Febish, the Company's Co-Chief Executive Officers .
The 1996 Plan is administered by a committee of the Board of Directors
of not less than two Directors, each of whom must be a "Non-Employee Director"
within the meaning of regulations promulgated by the Securities and Exchange
Commission. The Board of Directors has designated the Stock Option Plan
Committee of the Board consisting of Messrs. Ryan and Burak to administer the
1996 Plan. The Stock Option Plan Committee has the authority under the 1996 Plan
to determine the terms of options granted under the 1996 Plan, including, among
other things, the individuals who shall receive options, the times when they
shall receive them, whether an incentive stock option and/or non-qualified
option shall be granted, the number of shares to be subject to each option, and
the date or dates each option shall become exercisable.
The following summary of the 1996 Plan set forth herein is qualified in
its entirety by reference to the text of the 1996 Plan, a copy of which is filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part.
TYPES OF GRANTS AND AWARDS
The 1996 Plan permits the grant of options which may either be
"incentive stock options" ("ISOs"), within the meaning of Section 422 of the
Code, or "non-qualified stock options" ("NQSOs"), which do not meet the
requirements of Section 422 of the Code.
ELIGIBILITY
All employees (including officers) and directors of the Company or its
subsidiaries, consultants and advisors to, the Company or its subsidiaries are
eligible to be granted options under the 1996 Plan. The Company currently has
approximately 19 employees, 16 of whom are full-time employees.
STOCK SUBJECT TO THE 1996 PLAN
The total number of shares of common stock for which options may be
granted under the 1996 Plan may not exceed 750,000 shares (which number will be
increased to 1,250,000 shares if a proposal to approve such increase is adopted
by the stockholders at the 1999 Annual Meeting), subject to possible adjustment
in the future. Any shares of common stock subject to any option which for any
reason expires, is canceled or is terminated unexercised or which ceases for any
reason to be exercised will again become available for granting of options under
the 1996 Plan.
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<PAGE>
ADMINISTRATION
The 1996 Plan is administered by a committee of the Board of Directors
of not less than two Directors, each of whom must be a "Non-Employee Director"
within the meaning of regulations promulgated by the Securities and Exchange
Commission. The Board of Directors has designated the Stock Option Plan
Committee of the Board consisting of Messrs. Burak and Ryan to administer the
1996 Plan. The Stock Option Plan Committee has the authority under the 1996 Plan
to determine the terms of options granted under the 1996 Plan, including, among
other things, the individuals who shall receive options, the times when they
shall receive them, whether an incentive stock option and/or non-qualified
option shall be granted, the number of shares to be subject to each option, and
the date or dates each option shall become exercisable.
EXERCISE PRICE
The exercise price of options granted under the 1996 Plan is determined
by the Stock Option Plan Committee, but in the case of an ISO may not be less
than 100% of the fair market value of the common stock on the date the ISO is
granted (110% of such fair market value in the case of ISOs granted to an
optionee who owns or is deemed to own stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company (a "Ten
Percent Stockholder")). The exercise price of the shares of common stock under
each Non-Employee Director Option shall be equal to the fair market value of the
common stock subject to such option on the date of grant. The exercise price is
payable at the time of exercise of the option in cash or by certified check,
previously acquired shares of common stock (valued at their fair market value on
the date of exercise of the option) or a combination thereof, in the discretion
of the Stock Option Plan Committee. The Stock Option Plan Committee may, in its
discretion, permit payment of the exercise price of options by delivery of
properly executed exercise notices, together with a copy of irrevocable
instructions from the optionee to a broker acceptable to the Stock Option Plan
Committee to deliver promptly to the Company the amount of sale or loan proceeds
to pay such exercise. To facilitate the foregoing, the Company may enter into
agreements for coordinated procedures with one or more brokerage firms.
TERMS AND CONDITIONS
As to options granted to employees and consultants:
i. Options granted to employees and consultants may be
granted for such terms as is established by the Stock
Option Committee, provided that, the term of each ISO
shall be for a period not exceeding ten years from
the date of the grant, and further provided that ISOs
granted to a Ten Percent Stockholder shall be for a
period not exceeding five years from the date of
grant.
ii. If an employee or consultant optionee's relationship
with the Company is terminated for any reason other
than "disability" or death, the option may be
exercised at any time within three months thereafter
to the extent exercisable on the date of termination.
However, in the event such relationship is terminated
either (a) for cause, or (b) without the consent of
the Company, such option shall terminate immediately.
iii. In the event of the death of an optionee while an
employee of, or consultant or advisor to the Company,
within three months after the termination of such
relationship (unless such termination was for cause
or without the consent of the Company) or within one
year following the termination of such relationship
by reason of the optionee's "disability", the option
may be exercised, to the extent exercisable on the
date of his death, by the optionee's legal
representatives at any time within one year after
death, but not thereafter and in no event after the
date the option would otherwise have expired.
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<PAGE>
iv. An option may not be transferred other than by will
or the laws of descent and distribution and may be
exercised during the lifetime of the optionee only by
the optionee or by the optionee's legal
representatives.
v. The foregoing notwithstanding, in no case may options
be exercised later than the expiration date specified
in the grant.
As to options granted to Non-Employee Directors:
i. The Non-Employee Director Option shall not be
affected by the optionee ceasing to be a director of
the Company or becoming an employee of the Company,
any of its Subsidiaries or a Parent; provided,
however, that if he is terminated for cause, such
option shall terminate immediately.
ii. The term of a Non-Employee Director Option shall not
be affected by the death or disability of the
optionee. If an optionee holding a Non-Employee
Director Option dies during the term of such option,
the option may be exercised at any time during its
term by his/her legal representative.
iii. An option may not be transferred other than by will
or the laws of descent and distribution and may be
exercised during a holder's lifetime only by the
holder or by his/her or legal representative. Except
to the extent provided above, options may not be
assigned, transferred, pledged, hypothecated or
disposed of in any way (whether by operation of law
or otherwise) and shall not be subject to execution,
attachment or similar process, and any such attempted
assignment, transfer, pledge, hypothecation or
disposition shall be null and void ab initio and of
no force or effect.
iv. The foregoing notwithstanding, in no case may options
be exercised later than the expiration date specified
in the grant.
SEP
The Company established in 1990 a simplified employee pension plan (the
"SEP Plan") covering all qualified employees. Pursuant to the SEP Plan,
employees could elect to contribute up to 15% of their compensation on a pre-tax
basis (up to the statutory prescribed annual limit ($9,500 in 1997)) to the SEP
Plan. In April 1997, the Company discontinued the SEP Plan. The SEP Plan was
intended to qualify under Section 408(k) of the Internal Revenue Code.
401(K) PLAN
Effective April 1, 1997, the Company adopted a Profit Sharing Plan and
Trust intended to qualify under Section 401(k) of the Internal Revenue code of
1986, as amended. Company employees are eligible to participate in the plan if
they were employed by the Company on April 1, 1997, and otherwise become
eligible to participate in the plan if they have completed one-half year of
service with the Company and have attained age 21. Each participant in the plan
may elect to defer, in the form of contributions to the plan, no more than a
specified percentage of compensation that would otherwise be paid to the
eligible employee in the applicable year, not to exceed a statutorily prescribed
annual limit of $10,000 in 1999, provided that allocations to any participant's
account may generally be no more than the lesser of $30,000 or 25% of any such
participant's compensation in any year. The Company makes discretionary matching
contributions to the plan on behalf of participants as determined each year by
the Company, subject to certain
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conditions set forth in the plan, and may make a special discretionary
contribution equal to a percentage of the participant's contribution. Each
participant is always 100% vested in the amount that such participant has
contributed, is 100% vested in the Company's special contributions made to the
plan and is subject to certain vesting provisions included in the plan with
respect to the Company's discretionary matching contributions (25% after each of
the first four years of service).
KEY-MAN LIFE INSURANCE
The Company currently maintains key man insurance, of which it is the
beneficiary, on the lives of each of David E. Y. Sarna and George J. Febish in
the amount of $1,000,000 each.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Section 145 ("Section 145") of the General Corporation Law of the State
of Delaware ("DGCL") provides, in general, that a corporation incorporated under
the laws of the State of Delaware, such as the registrant, may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (other than a
derivative action by or in the right of the corporation) by reason of the fact
that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. In the case of a
derivative action, a Delaware corporation may indemnify any such person against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or any other court in which such action was brought determines such
person is fairly and reasonably entitled to indemnity for such expenses.
The Ninth Article of the Company's Certificate of Incorporation, as
amended provides that the Company shall indemnify all persons whom the Company
shall have power to indemnify under Section to the fullest extent permitted by
such Section. In addition, Article Eighth of the Company's Certificate of
Incorporation provides, in general, that no director of the Company shall be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DECL. (which provides
that, under certain circumstances, directors may be jointly and severally liable
for willful or negligent violations of the DECL. provisions regarding the
payment of dividends or stock repurchases or redemptions), or (iv) for any
transaction from which the director derived an improper personal benefit.
The Company maintains primary and excess directors and officers
liability policies in an aggregate amount of $5,000,000 per policy year.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
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PRINCIPAL STOCKHOLDERS
The following table sets forth, as of May 17, 1999, information with
respect to the beneficial ownership of the Company's common stock by (i) each
person known by the Company to beneficially own more than 5% of the outstanding
shares of common stock, (ii) each director of the Company, (iii) each Executive
Officer named in the Summary Compensation Table herein titled "Executive
Compensation" and (iv) all directors and executive officers of the Company as a
group.
Amount and
Name and Nature of
Address of Beneficial Percent of
Beneficial Owner(1) Owner(2) Class(3)
------------------- ----------- ----------
Headwaters Capital (4) 484,990 6.55%
David E. Y. Sarna (5) (6) 694,000 9.85
George J. Febish (5) (7) 932,500 13.24
Daniel E. Ryan (8) 32,500 *
Michael A. Burak(9) 11,000 *
All officers and directors as 1,662,500 23.08
a group (4 persons) (3)(10)
* Less than 1%.
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(1) Unless otherwise indicated, the business address of each of the
officers and directors is c/o ObjectSoft Corporation, Continental Plaza
III, 433 Hackensack Avenue, Hackensack, New Jersey 07601.
(2) Unless otherwise noted, the Company believes that all persons named
have sole voting and investment power with respect to all shares of
common stock listed as owned by them.
(3) Each person's percentage interest is determined assuming that all
options, warrants and convertible securities that are held by such
person (but not by anyone else) and which are exercisable or
convertible within 60 days have been exercised for or converted into
common stock.
(4) Includes 459,990 shares of common stock which Headwaters Capital has a
right to acquire upon conversion of the Company's Series E Convertible
Preferred Stock and 25,000 shares of common stock which Headwaters
Capital has a right to acquire pursuant to presently exercisable
warrants. The number of shares of common stock issuable upon conversion
of Series E Convertible Preferred Stock is dependent upon the market
price of common stock. Accordingly, the actual number of shares of
common stock issued upon conversion of Series E Convertible Preferred
Stock cannot be determined at this time. The number of shares
attributed to Headwaters Capital is based on an assumed conversion date
of April 13, 1999. The general partners of Headwaters Capital are Mr.
John Ungar, Mr. Sheldon Kahn and Mr. Jeff Goshay. The business address
of Headwaters Capital is 200 Montgomery Street, Suite 500, San
Francisco, California 94104.
Footnote explanations continue on the following page.
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(5) Includes, for each of Messrs. Sarna and Febish, immediately exercisable
warrants to purchase 50,000 shares of common stock and immediately
exercisable options to purchase 75,000 shares of common stock granted
under the Company's 1996 Plan.
(6) Includes 150,000 shares held by The David E. Y. Sarna Family Trust
("Sarna Trust"), of which Rachel Sarna, the wife of Mr. Sarna, and
Melvin Weinberg, Esq. are the trustees. The children of Mr. and Mrs.
Sarna are the sole beneficiaries. Mr. Sarna disclaims beneficial
ownership of the shares held by the Sarna Trust.
(7) Includes 150,000 shares held by The George J. Febish Family Trust
("Febish Trust"), of which Janis Febish, the wife of Mr. Febish, and
Melvin Weinberg, Esq. are the trustees. The children of Mr. and Mrs.
Febish are the sole beneficiaries. Mr. Febish disclaims beneficial
ownership of the shares held by the Febish Trust.
(8) Includes immediately exercisable stock options to purchase 25,000
shares of common stock granted under the Company's 1996 Plan.
(9) Includes immediately exercisable stock options to purchase 10,000
shares of common stock granted under the Company's 1996 Plan and 1,000
shares of common stock purchased on the open market in the name of Lois
Burak, Mr. Burak's wife. Mr. Burak disclaims beneficial ownership of
the shares held by Mrs. Burak.
(10) Includes 185,000 shares of common stock which certain of the current
Executive Officers and Directors have a right to acquire pursuant to
presently exercisable stock options and 100,000 shares of common stock
which certain of the current Executive Officers and Directors have a
right to acquire pursuant to presently exercisable warrants.
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CERTAIN TRANSACTIONS
The Company believes that all transactions with affiliates were made on
terms no less favorable to the Company than those available from non-affiliated
third parties. All future transactions between the Company and its officers,
directors or 5% stockholders will be on terms no less favorable than could be
obtained from non-affiliated third parties and will be approved by a majority of
the independent, disinterested directors of the Company.
EXTENSION OF EXPIRATION DATES OF OFFICER WARRANTS
In consideration of their waiver of the registration rights with
respect to the Offering and their agreement to enter into an 18 month lock-up
agreement with the Underwriter, the expiration date of the Officer Warrants held
by Messrs. Sarna and Febish was extended to April 30, 2000. See "Description of
Securities - Outstanding Warrants and Options - Officer/Stockholder Warrants"
and "Concurrent Offering."
LOAN TO OFFICER
On January 2, 1997 the Company extended to Mr. Sarna a loan in the
amount of $440,000 (the "Loan"). The Loan was approved by the Board of the
Directors of the Company, with Mr. Sarna abstaining. Subsequently, the Board of
Directors, with Mr. Sarna abstaining, unanimously agreed to extend the maturity
date of the Loan from November 30, 1997 to May 31, 1999. Mr. Sarna utilized the
funds for a block purchase of 80,000 shares of the Company's common stock from
the market maker, who was also the underwriter of the Company's Public Offering,
in an open market transaction.
DESCRIPTION OF SECURITIES
We are authorized to issue up to 20,000,000 shares of common stock, par
value $.0001 per share and up to 5,000,000 shares of Preferred Stock, par value
$.0001 per share. On March 15, 1999, our Board of Directors adopted a resolution
approving a proposal to amend our Certificate of Incorporation to increase the
number of shares of common stock which we are authorized to issue from
20,000,000 shares to 50,000,000 shares. Our stockholders will vote on this
proposal at the 1999 Annual Meeting of Stockholders scheduled to be held on June
3, 1999.
UNITS
Each Unit consists of one share of common stock and one Class A
Warrant. The Units are immediately detachable and separately transferable upon
issuance.
COMMON STOCK
Holders of shares of common stock are entitled to one vote per share
on all matters that are submitted to the stockholders for their approval and
have no cumulative voting rights. Subject to the prior rights of Preferred
Stock, the holders of common stock are entitled to receive dividends, if any, as
may be declared by the Board of Directors from funds legally available therefor,
from time to time. Upon liquidation or dissolution of the Company, the remainder
of the assets of the Company will be distributed ratably among the holders of
common stock, after the payment of all liabilities and the holders of any
Preferred Stock. The common stock has no preemptive or other subscription rights
and there are no conversion or sinking fund provisions with respect to such
shares. All of the outstanding shares of common stock are, and the shares
issuable upon exercise of Class A Warrants will be, upon payment of the exercise
price, fully paid and nonassessable. As of May 18, 1999, there were 7,152,238
shares of common stock outstanding.
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CLASS A WARRANTS
Each Class A Warrant entitles the holder thereof to purchase one share
of common stock at an exercise price of $6.50 share (130% of the initial public
offering price per Unit), subject to adjustment, until November 12, 2001. The
Class A Warrants are redeemable by the Company at a price of $.10 per Class A
Warrant on not less than 30 days prior written notice to the holders thereof,
provided the average closing bid quotation of the common stock as reported on
NASDAQ, if traded thereon, or if not traded thereon, the average closing bid
quotation of the common stock if listed on a national securities exchange (or
other reporting system that provides last sale prices), has been at least 130%
of the then current exercise price of the Class A Warrants (initially, $8.45 per
share), for a period of 20 consecutive trading days ending within 15 days of the
date on which the Company gives notice of redemption. The Class A Warrants will
be exercisable until the close of business on the day immediately preceding the
date fixed for redemption.
The Class A Warrants may be exercised upon surrender of the Class A
Warrant certificate on or prior to the expiration date at the offices of the
warrant agent, with the exercise form on the reverse side of the Class A Warrant
certificate completed and executed as indicated, accompanied by full payment of
the exercise price (by certified check or bank draft payable to the Company) to
the warrant agent for the number of Class A Warrants being exercised. The Class
A Warrant Holders do not have the rights or privileges of holders of common
stock.
No Class A Warrant will be exercisable unless at the time of exercise
the Company has filed a current registration statement with the Commission
covering the shares of common stock issuable upon exercise of such Class A
Warrant and such shares have been registered or qualified or deemed to be exempt
from registration or qualification under the securities laws of the state of
residence of the holder of such Class A Warrant.
No fractional shares will be issued upon exercise of the Class A
Warrants. However, if a Warrant Holder exercises all Class A Warrants then owned
of record by him, the Company will pay to such Warrant Holder, in lieu of the
issuance of any fractional share which is otherwise issuable, an amount in cash
based on the market value of the common stock on the last trading day prior to
the exercise date.
In the Warrant Agreement between the Company, Renaissance and
Continental Stock Transfer & Trust Company, the Company agreed to pay
Renaissance a fee of 5% of the exercise price of each Class A Warrant exercised
until the expiration of the exercise period of the Class A Warrants, provided,
(i) the market price of the common stock on the date such warrant was exercised
was greater than the warrant exercise price on that date, (ii) the exercise of
such warrant was solicited by a member of the NASD, (iii) such warrant was not
held in a discretionary account, (iv) the disclosure of compensation
arrangements was made both at the time of the Offering and at the time of
exercise of such warrant, (v) the solicitation of the exercise of such warrant
was not a violation of applicable provisions under the Exchange Act and (vi)
Renaissance is designated in writing as the soliciting NASD member. Renaissance
and any other soliciting broker/dealers may be prohibited from engaging in any
market making activities or solicited brokerage activities with regard to the
Company's securities during certain periods before the solicitation of the
exercise of any Class A Warrant until the later of the terminating of such
solicitation activity or the termination of any right Renaissance and any other
soliciting broker/dealer may have to receive a fee for the solicitation of the
Class A Warrants. The Company understands that Renaissance has ceased operating
and has given up its NASD license. It is therefore unclear as to whether, under
the Warrant Agreement, any such warrant solicitation fee will be paid.
OTHER WARRANTS AND OPTIONS
Officer/Stockholder Warrants
In April 1993 the Company issued common stock warrants to purchase an
aggregate of 143,333 shares of common stock, exercisable at $.50 per share of
common stock (the "Officer Warrants"). The Officer Warrants were
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issued to two executive officers and a former officer of the Company in
consideration of their foregoing salaries in 1992. The Officer Warrants contain
anti-dilution provisions providing for adjustments of the exercise price and the
number of shares underlying the Officer Warrants upon the occurrence of certain
events, including any recapitalization, reclassification, consolidation, merger,
sale, lease or conveyance of all or substantially all of the assets of the
Company, stock dividend, stock split, stock combination or similar transaction.
The holders of the Officer Warrants have the right to cause the Company to
register the Officer Warrants and the shares of common stock issuable upon
exercise of the Officer Warrants, if the Company registers any of its securities
on a registration statement filed with the Securities and Exchange Commission
for sale to the general public. The original expiration date of the Officer
Warrants was April 30, 1998. In consideration of their waiver of the
registration rights with respect to the Offering and their agreement to enter
into an 18 month lock-up agreement with the Underwriter, the expiration date of
the Officer Warrants was extended to April 30, 2000. The resale of the shares
issuable upon the exercise of 43,333 of the Officer Warrants has been registered
in the Selling Securityholder Prospectus. See "Concurrent Offering."
PRIVATE PLACEMENT WARRANTS
The Company has outstanding 412,500 Bridge Warrants and July 1996
Warrants to purchase 200,204 shares of common stock, as described in "Certain
Transactions -- Recent Financings," above.
PLACEMENT AGENT'S WARRANT; JULY PLACEMENT WARRANT
In connection with the Bridge Loan Offering, the Company sold to the
Underwriter, in its capacity as Placement Agent of such offering, the Placement
Agent's Warrant to purchase a number of Units equal to 10% of Units issuable
upon the exercise of the Bridge Warrants contained in the Bridge Units. The
exercise price of the Placement Agent's Warrant is $5.00. The Placement Agent's
Warrant contains anti-dilution provisions providing for adjustments of $5.00 the
exercise price and the number of shares underlying the Placement Agent's Warrant
upon the occurrence of certain events, including any recapitalization,
reclassification, stock dividend, stock split, stock combination or similar
transaction. None of the securities underlying the Placement Agent's Warrant
will be redeemable. The Placement Agent's Warrant grants the holders thereof
certain registration rights which are described below.
In connection with the sale of the July 1996 Units, the placement agent
for such sale, Win Capital Corporation, was granted the July Placement Warrant
to purchase 27,300 July 1996 Units at an exercise price of $4.50 per July 1996
Unit. The July Placement Warrant contains anti-dilution provisions providing for
adjustments of the exercise price and the number of shares underlying the July
Placement Warrant upon the occurrence of certain events, including any
recapitalization, reclassification, stock dividend, stock split, stock
combination or similar transaction. None of the securities underlying the July
Placement Warrant will be redeemable, and the holders of the July Placement
Warrant have certain registration rights, described below.
The resale of the shares of common stock issuable upon the exercise of
the Placement Agent's Warrant and the Class A Warrants issuable upon the
exercise thereof, as well as the resale of the shares of common stock issuable
upon the exercise of the July Placement Warrant and the July 1996 Warrants
issuable upon the exercise thereof, has been registered for sale in the Selling
Securityholder Prospectus. See "Description of Securities - Registration Rights"
and "Concurrent Offering."
REGISTRATION RIGHTS
Currently, the holders of the Bridge Warrants, the July 1996 Warrants
and the Officer Warrants, as well as the holders of the shares of common stock
issued in the July 1996 Offering, have certain rights with respect to the
registration of such shares and the Units and shares of common stock issuable
upon the exercise of such warrants under the Securities Act. Under the terms of
the agreements between the Company and the holders of such registrable
securities, if the Company proposes to register any of its securities under
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the Securities Act, either for its own account or for the account of other
security holders exercising registration rights, such holders are entitled to
notice of such registration and are entitled to include shares of such common
stock therein. The stockholders benefiting from these rights may also require
the Company to file a registration statement under the Securities Act at its
expense with respect to their shares of common stock, and the Company is
required to use its best efforts to effect such registration. All of these
rights are subject to certain conditions and limitations, among them the right
of the underwriters of an offering to limit the number of shares included in
such registration.
The holders of the common stock issuable upon exercise of the Placement
Agent's Warrant have rights similar to those described in the preceding
paragraph. In addition, the right to notice and inclusion in any registration
statement filed by the Company is effective until November 11, 2001. The right
to demand the registration of the common stock issuable upon exercise of the
Placement Agent's Warrant extends from November 11, 1997 to November 11, 2001.
The holders of the July Placement Warrants have similar registration rights,
except that the right to demand the registration of common stock issuable upon
exercise of the July Placement Warrants extends from November 11, 1998 to
November 11, 2001.
The Units and certain of the shares of common stock subject to
registration rights have been registered in the Selling Securityholder
Prospectus. See "Shares Eligible for Future Sale" and "Concurrent Offering."
TRANSFER AGENT AND WARRANT AGENT
Continental Stock Transfer & Trust Company, New York, New York is the
transfer agent and the common stock and Warrant Agent for the Class A Warrants.
DELAWARE TAKEOVER STATUTE AND CERTAIN CHARTER PROVISIONS
The Company is subject to Section 203 of the Delaware General
Corporation Law ("Section 203") which, subject to certain exceptions, prohibits
a Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that such
stockholder became an interested stockholder, unless: (i) prior to such date,
the Board of Directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction which resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (x) by persons
who are directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer;
or (iii) on or subsequent to such date, the business combination is approved by
the Board of Directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least 66
2/3% of the outstanding voting stock which is not owned by the interested
stockholder.
The Company's Certificate of Incorporation, as amended, provides that
vacancies on the Board of Directors may be filled only with the approval of a
majority of the Board of Directors then in office. Furthermore, any director
elected by the stockholders, or by the Board of Directors to fill a vacancy, may
be removed only for cause and by a vote of 75% of the combined voting power of
the shares of common stock entitled to vote for the election of directors,
voting as a single class.
The Company's Certificate of Incorporation and Amended and Restated
Bylaws provides that any action required or permitted to be taken by the
stockholders of the Company may be taken only at a duly called annual or
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special meeting of the stockholders. These provisions, could have the effect of
delaying until the next stockholders meeting stockholder actions which are
favored by the holders of a majority of the outstanding voting securities of the
Company, since special meetings of stockholders may be called only by (x) the
Board of Directors pursuant to a resolution adopted by a majority of the entire
Board of Directors, either upon motion of a director or upon written request by
the holders of at least 50% of the voting power of all the shares of capital
stock of the Corporation then entitled to vote generally in the election of
directors, voting together as a single class, or (y) the chairman or the
president of the Corporation.
The foregoing provisions, which may be amended only by a 75% vote of
the stockholders, could have the effect of making it more difficult for a third
party to effect a change in the control of the Board of Directors. In addition,
these provisions could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from attempting to acquire,
an interest in the Company which constitutes less than a majority of the
outstanding voting stock of the Company and may make more difficult or
discourage a takeover of the Company.
SHARES ELIGIBLE FOR FUTURE SALE
As of May 18, 1999, the Company had 7,152,238 outstanding shares of
common stock. A substantial portion of the shares of common stock currently
issued and outstanding which are not so registered are "restricted securities,"
as that term is defined under Rule 144 promulgated under the Securities Act, in
that such shares were issued and sold by the Company in private transactions not
involving a public offering. In general, under Rule 144 as currently in effect,
a person, including an affiliate of the Company, after at least one year has
elapsed from the sale by the Company or any affiliate of the restricted
securities, can (along with any person with whom such individuals is required to
aggregate sales) sell, within any three-month period, a number of shares of
restricted securities that does not exceed the greater of 1% of the total number
of outstanding shares of the same class, or, if the common stock is quoted on
NASDAQ or a stock exchange, the average weekly trading volume during the four
calendar weeks preceding the sale. A person who has not been an affiliate of the
Company for at least three months, after at least two years have elapsed from
the sale by the Company or an affiliate of the restricted securities, is
entitled to sell such restricted shares under Rule 144 without regard to any of
the limitations described above.
No prediction can be made as to the effect, if any, the future sales of
common stock or the availability of common stock for future sale will have on
the market price of the common stock prevailing from time to time. Sales of
substantial amounts of common stock (including shares issued upon exercise of
stock options or warrants or in connection with the Financing Agreement) in the
public market following this offering, or the perception that such sales could
occur, could adversely affect prevailing market prices of the common stock. See
" Risk Factors -- Dilution; Impact of Sale of common stock upon Conversion of
Series D and E Preferred Stock and Exercise of Warrants."
Sales of substantial amounts of common stock pursuant to Rule 144 could
subsequently adversely affect the market prices of the common stock offered
hereby. As of the date of this Prospectus, the majority of the outstanding
shares of common stock are eligible for sale under Rule 144, and the balance of
the outstanding shares will become eligible for sale under Rule 144 from time to
time thereafter. In addition, concurrently with this offering, the Company is
registering for resale by the Selling Securityholders 656,037 shares of common
stock and 412,500 Class A Warrants that are outstanding or issuable upon the
exercise of currently exercisable warrants. Certain holders of the Company's
outstanding common stock, warrants and options (including current and former
executive officers) have "piggyback" registration rights and/or demand
registration rights that they may exercise. See "Risk Factors-Shares Eligible
for Future Sale; Effect on Ability to Raise Capital; No Prior Public Market for
the common stock; Possible Volatility of common stock Price" and "Concurrent
Offering."
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CONCURRENT OFFERING
Concurrently with the Offering, the Company has registered the offering
of 656,037 Selling Securityholder Shares and 412,500 Class A Warrants under the
Securities Act on behalf of the Selling Securityholders pursuant to a Selling
Securityholder Prospectus included within the Registration Statement of which
this Prospectus forms a part. The Selling Securityholder Securities are
outstanding or issuable upon the exercise of immediately exercisable warrants.
The Company will not receive any of the proceeds from the sale of the Selling
Securityholder Securities, but will receive the proceeds of the exercise, if
any, of the various warrants pursuant to which the shares of common stock and
Class A Warrants comprising 412,500 Units and 270,837 other Selling
Securityholder Shares are issuable. It is anticipated that when the Selling
Securityholder Securities are eligible for sale, they will be offered and sold
from time to time in the over-the-counter market, or otherwise, at prices and
terms then prevailing or at prices related to the then current market price, or
in negotiated transactions.
LEGAL MATTERS
The validity of the securities being offered hereby were passed upon
for the Company by Parker Chapin Flattau & Klimpl, LLP, New York, New York,
Melvin Weinberg, Esq., a partner of Parker Chapin Flattau & Klimpl, LLP, may be
deemed the beneficial owner of 300,000 shares of common stock as a result of his
being a trustee of each of the Family Trusts.
EXPERTS
The financial statements of the Company as at December 31, 1998 and for
each of the years in the two-year period then ended included in this Prospectus
have been so included in reliance on the report of Richard A. Eisner & Company,
LLP, independent auditors, given on the authority of said firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form SB-2 under the Securities Act of 1933, with
respect to the Units offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and such
Units, reference is made to the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or other document referred to herein are not necessarily complete,
and, in each instance, if such contract or document is an exhibit to the
Registration Statement, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference to such exhibit. The
Registration Statement, including exhibits and schedules thereto, may be
inspected without charge and copied at the public reference facilities of the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. and at its
Regional Offices at 7 World Trade Center, Suite 1300, New York, New York 10048,
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661, and copies of such material may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
upon payment of fees at rates prescribed by the Commission. Electronic
registrations statements made through the Electronic Data Gathering Analysis and
Retrieval ("EDGAR") System are publicly available through the Commission's
Website (http://www.sec.gov).
The Company will provide without charge to each person who receives
this Prospectus, upon written or oral request of such person, a copy of any of
the information that is incorporated by reference in this Prospectus. Any such
request should be directed to the attention of the Corporate Secretary,
ObjectSoft Corporation, Continental Plaza III, 433 Hackensack Avenue, Hackensack
New Jersey 07601, telephone number (201) 343-9100.
-50-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT AUDITORS.........................................F-2
BALANCE SHEET - AS AT DECEMBER 31, 1998................................F-3
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND DECEMBER 31, 1997................................F-4
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(CAPITAL DEFICIENCY) FOR THE YEARS ENDED
DECEMBER 31, 1998 AND DECEMBER 31, 1997................................F-5
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND DECEMBER 31, 1997................................F-6
NOTES TO FINANCIAL STATEMENTS..........................................F-7
CONDENSED BALANCE SHEETS - AS AT MARCH 31, 1999 AND
DECEMBER 31, 1998.....................................................F-16
CONDENSED STATEMENTS OF OPERATIONS - THREE MONTHS
ENDED MARCH 31, 1999 AND 1998.........................................F-17
CONDENSED STATEMENTS OF CASH FLOWS - THREE MONTHS
ENDED MARCH 31, 1999 AND 1998.........................................F-18
NOTES TO CONDENSED FINANCIAL STATEMENTS...............................F-19
F-1
<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, 1998 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, 1998. 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, 1998 and the results of its operations and cash flows for each of
the years in the two-year period ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ Richard A. Eisner & Company, LLP
Richard A. Eisner & Company, LLP
Florham Park, New Jersey
February 20, 1999
With regard to Note A[1]
March 19, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
OBJECTSOFT CORPORATION
Balance Sheet
December 31, 1998
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 982,006
Accounts receivable, less allowance for doubtful accounts of $75,000 77,440
Prepaid expenses and other current assets 195,367
Deferred tax asset 360,000
-------------------
Total current assets 1,614,813
Furniture and equipment, at cost, net of accumulated depreciation 666,994
Capitalized software 58,790
Note receivable - officer/shareholder 440,000
Other assets 156,510
-------------------
$ 2,937,107
===================
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 15,494
Current portion of obligations under capital lease 21,268
Accounts payable 522,383
Accrued expenses 118,401
Other liabilities 4,413
-------------------
Total current liabilities 681,959
Long-term debt 12,816
Obligations under capital lease 48,621
-------------------
Total liabilities 743,396
-------------------
Commitments
STOCKHOLDERS' EQUITY
6% non-voting convertible preferred stock, $100 par, authorized 20,000 shares;
issued and outstanding 10,500 shares 1,050,000
Common stock, $.0001 par, authorized 20,000,000 shares, issued and outstanding
6,850,769 shares 685
Additional paid-in capital 8,327,718
Accumulated deficit (7,184,692)
-------------------
Total stockholders' equity 2,193,711
-------------------
$ 2,937,107
===================
</TABLE>
See notes to financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
OBJECTSOFT CORPORATION
Statements of Operations
Year Ended
December 31,
1998 1997
---- ----
<S> <C> <C>
Revenues:
Development and training $ 43,672 $ 266,853
Rental income 116,793 364,314
------------- -------------
Total revenues 160,465 631,167
------------- -------------
Expenses:
Cost of services:
Development and training 334,503 346,767
Rentals 331,587 426,755
Research and development 490,558 613,000
General and administrative 1,930,255 1,766,333
------------ -------------
Total expenses 3,086,903 3,152,855
------------ -------------
Loss from operations (2,926,438) (2,521,688)
------------ ------------
Other income (expense):
Realized and unrealized gain (loss) on marketable securities (7,041) 137,927
Interest and dividend income 72,891 126,562
Interest expense (14,082) (12,673)
Loss on uncollectible loan (250,000)
------------- -------------
Total other income 51,768 1,816
------------- -------------
Loss before income tax benefit (2,874,670) (2,519,872)
Income tax benefit 360,000
------------- -------------
Net (loss) $(2,514,670) $(2,519,872)
=========== ===========
Basic and diluted net loss per share $ (0.55) $ (0.62)
============ ===========
</TABLE>
See notes to financial statements
F-4
<PAGE>
<TABLE>
<CAPTION>
OBJECTSOFT CORPORATION
Statements of Changes in Stockholders' Equity
Years Ended December 31, 1998 and 1997
6% Series C 6% Series D
Non-Voting Non-Voting
Convertible Convertible Additional
Preferred Stock Preferred Stock Common Stock Paid-in
Shares Amount Shares Amount Shares Amount Capital (Deficit) Total
----- ------ ------ ------ ------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 4,022,676 $ 402 $6,878,868 $(2,150,150) $4,729,120
Compensatory warrant 4,000 4,000
Exercise of warrants and
nonemployee options 60,000 6 59,994 60,000
Net loss --------- ---------- -------- --------- ------------ ----- ---------- (2,519,872) (2,519,872)
Balance, December 31, 1997 4,082,676 408 6,942,862 (4,670,022) 2,273,248
Common stock, net of costs 719,444 72 336,561 336,633
Issuance of Series C
preferred stock 12,480 $1,248,000 57,778 6 (132,506) 1,115,500
Compensatory warrants
and common stock 50,000 5 12,995 13,000
Conversion of Series C preferred
stock to common stock (12,480) (1,248,000) 1,940,871 194 1,247,806 0
Issuance of Series D
preferred stock 10,500 $1,050,000 (80,000) 970,000
Net loss (2,514,670) (2,514,670)
------------------------------------------------------------------------------------------------
Balance, December 31, 1998 0 $ 0 10,500 $1,050,000 6,850,769 $ 685 $8,327,718 $ (7,184,692) $2,193,711
================================================================================================
</TABLE>
See notes to financial statements
F-5
<PAGE>
<TABLE>
<CAPTION>
OBJECTSOFT CORPORATION
Statements of Cash Flows
Year Ended
December 31,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $(2,514,670) $(2,519,872)
Adjustments to reconcile net loss to net cash (used in) operating activities:
Depreciation and amortization 362,407 330,393
Deferred tax benefit (360,000)
Warrants and common stock issued for services rendered 13,000 4,000
Loss on uncollectible loan 250,000
Provision for uncollectible accounts 75,000
Unrealized (gain) loss on marketable securities 65,938 (65,938)
Changes in:
Marketable securities 850,000 (850,000)
Accounts receivable 212,419 (358,959)
Prepaid expenses and other current assets 39,783 (54,687)
Other assets (85,663) 59,627
Accounts payable 225,725 176,444
Accrued expenses 33,841 (17,312)
Other liabilities 2,250 (7,622)
------------ ------------
Net cash used in operating activities (1,079,970) (3,053,926)
------------ ------------
Cash flow from investing activities:
Increase in bank overdraft 62,907
Loan receivable (250,000)
Capital expenditures (475,811) (92,486)
Capitalized software (72,027) (37,909)
Note receivable - officer/shareholder (637,000)
Repayment of note receivable - officer/shareholder 197,000
Note receivable - other 25,000 (25,000)
------------ ------------
Net cash used in investing activities (522,838) (782,488)
------------ ------------
Cash flow from financing activities:
Repayment of note payable (16,663) (3,403)
Proceeds from issuance of common stock 336,633
Proceeds from exercise of warrants and nonemployee options 60,000
Principal payments on obligations under capital leases (30,111) (50,086)
Proceeds from issuance of preferred stock 2,085,500
------------ -----------
Net cash provided by financing activities 2,375,359 6,511
------------ -----------
Net increase (decrease) in cash and cash equivalents 772,551 (3,829,903)
Cash and cash equivalents, beginning of period 209,455 4,039,358
------------ -----------
Cash and cash equivalents, end of period $ 982,006 $ 209,455
============ ===========
Supplemental disclosures of cash flow
Cash paid for interest $ 11,720 $ 12,673
=========== ===========
</TABLE>
See notes to financial statements
F-6
<PAGE>
OBJECTSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company:
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 operated by the
Company for operating income.
The Company raised an additional $1,800,000 (net of expenses) in a
private offering of equity securities in March 1999.
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.
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).
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 is recognized
based upon its percentage completion.
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 may
vary in the near term.
Marketable securities
During 1998 and 1997, the Company bought and held marketable equity
securities for the purpose of selling them in the near term and were
classified as trading securities. Changes in fair value of trading
securities during the period are reported in earnings.
F-7
<PAGE>
OBJECTSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 H to the
financial statements for further information.
Per share data:
The basic and diluted per share data has been computed on the basis of
the loss for each year divided by the weighted average number of shares
of common stock outstanding. The weighted average shares of common stock
outstanding for the years ended December 31, 1998 and 1997 aggregated
4,548,696 and 4,066,994, respectively.
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.
Recent accounting pronouncement:
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the
Cost of Computer Software Developed or Obtained for Internal Use" ("SOP
98- 1"). SOP 98-1 is effective for financial statements for years
beginning after December 15, 1998. SOP 98-1 provides guidance over
accounting for computer software developed or obtained for internal uses
including the requirements to capitalize specified costs and amortization
of such costs. The Company does not expect the adoption of this standard
to have a material effect on its capitalization policy.
NOTE B - NOTE RECEIVABLE OFFICER/SHAREHOLDER
The note receivable is due from the chairman of the Company's 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 further extended to May 31, 1999 and bears interest at 8 percent
per annum.
F-8
<PAGE>
OBJECTSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE C - FURNITURE AND EQUIPMENT
As of December 31, 1998, furniture and equipment consists of:
Kiosks $ 961,478
Furniture and other equipment 306,274
------------
1,267,752
Accumulated depreciation 600,758
$ 666,994
============
Depreciation expense aggregated $270,939 and $202,597 for the years ended
December 31, 1998 and 1997, respectively. Included in furniture and other
equipment are assets under capital leases with costs of $157,382. Accumulated
depreciation on these assets aggregated $68,704. Depreciation expense on
equipment under capital lease aggregated $33,389 and $32,041, for the years
ended December 31, 1998 and 1997, respectively.
During 1998 and 1997, the Company acquired equipment under capital lease
aggregating $47,177 and $18,834, respectively.
NOTE D - CAPITALIZED SOFTWARE
During the years ended December 31, 1998 and 1997, the Company capitalized
software development costs which aggregated $72,027 and $37,909, respectively.
Amortization of capitalized software costs aggregated $91,468 and $127,796 for
the years ended December 31, 1998 and December 31, 1997, respectively.
NOTE E - OBLIGATIONS UNDER CAPITAL LEASE
Minimum future lease payments under capital leases expiring through 2002, as of
December 31, 1998 are as follows:
Year Ending Amount
December 31, ------
------------
1999 $ 33,826
2000 31,408
2001 22,723
2002 4,580
------------
92,537
Less amount representing interest 22,648
------------
Present value of net minimum lease payments 69,889
Due within one year 21,268
Due after one year $ 48,621
============
F-9
<PAGE>
OBJECTSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE F - LONG-TERM DEBT
Long-term debt as of December 31, 1998 consists of:
Note payable collateralized by equipment,
interest at 8.65%, principal and interest
of $797, due in monthly installments
through July 1999 $ 5,413
Note payable collateralized by equipment,
interest at 15.44%, principal and interest
of $1,077, due in monthly installments
through January 2001 22,897
--------
28,310
Current portion of long-term debt 15,494
--------
Long-term debt $ 12,816
========
As of December 31, 1998, annual maturities of long-term debt outstanding are as
follows:
Year Ended Amount
December 31, ------
------------
$ 15,494
1999 11,754
2000 1,063
2001
NOTE G - ACCRUED EXPENSES:
Accrued expenses are:
Accrued rents $ 39,401
Accrued legal fees 40,000
Other 39,000
----------
$118,401
==========
NOTE H - STOCKHOLDERS' EQUITY
Preferred stock:
In September 1998, the Company issued 12,000 shares of Series C 6% convertible
preferred stock, warrants to purchase 24,000 shares of common stock at $3.04 per
share ("warrant A") and warrants to purchase 24,000 shares of common stock at
$3.16 per share ("warrant B") for $1,115,500, net of costs. Additionally, the
placement agents received 480 shares of the Series C preferred stock, warrant A
`to purchase 29,000 shares of common stock and 57,778 shares of common stock. In
November 1998, all of the outstanding Series C preferred stock were converted
into 1,940,871 shares of common stock. The warrants expire in May 2003.
F-10
<PAGE>
OBJECTSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE H - STOCKHOLDERS' EQUITY (CONTINUED)
In December 1998, the Company issued for $970,000, net of costs, 10,000 shares
of Series D 6% cumulative convertible preferred stock and warrants to purchase
50,000 shares at $2.44 per share expiring December 2003. Additionally, the
placement agent received 500 shares of Series D preferred stock and
aforementioned warrants to purchase 40,000 shares. The preferred stock is
convertible any time after March 1, 1999. The number of shares of common stock
to be issued upon conversion shall be determined by dividing $1,050,000 by the
lesser of (i) 80% of the average closing bids for the Company's common stock for
the five business days ending one day prior to the conversion or (ii) $2.03.
Stock options and warrants:
The Company has warrants outstanding, expiring in April 2000, to purchase
143,333 shares of common stock at an exercise price of $0.50.
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 canceled the option on 50,000
shares. During 1997, the remaining options were exercised.
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, which was exercised in 1997,
vested ratably over a ten month period ending March 1997. During 1997, the
Company recognized expense of $4,000.
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.
In July 1998, the Company repriced all employee stock options to the then
current market value of $1.45. In conjunction with the repricing, the vesting
periods were extended.
In November 1998, the Company issued warrants to purchase 675,000 shares of
common stock at price ranging from $1.00 to $5.00 per share and 50,000 shares of
common stock in exchange for professional services to be performed substantially
over a 24 month period. The estimated fair value of the warrants and stock at
date of issue aggregated $248,000 and is being amortized over 24 months. During
the year ended December 31, 1998, the Company recognized an expense of $13,000.
The Company maintains a stock option plan ("Plan") pursuant to which 750,000
shares of common stock are reserved for issuance upon exercise of either
incentive or non incentive stock options which may be granted from time to time
by the Board of Directors to employees and others. In July 1998, the
stockholders approved increasing the shares reserved under the Plan for 250,000
shares to 750,000 shares.
The Company 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 valuing the options, on 1998 and 1997 net loss is
not necessarily representative of the effects on reported net earnings or 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 of the options at the grant date for awards under the plans
consistent with the methodology prescribed under SFAS No. 123, the Company's pro
forma net loss in 1998 would have been approximately $2.6 million or $(0.57) per
share and the pro forma net loss in 1997 would have been approximately $2.7
million or $(0.67) per share.
F-11
<PAGE>
OBJECTSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
Stock options and warrants: (continued)
The fair value of each option granted in 1998 and 1997 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%, risk free interest
rates of 5.50% and 5.36%, respectively, and expected lives of approximately four
and half years for the 1997 options and three years for the 1998 options. The
fair value of options granted during 1998 and 1997 were $0.48 and $2.18 per
share, respectively.
As of December 31, 1998, 4,276,387 shares were reserved for issuance of shares
for outstanding warrants and options.
The following summarizes stock option transactions under the Plan:
Year Ended December 31,
1998 1997
---- ----
Weighted Weighted
Average Average
Exercise Exercise
--------------- ----------------
Shares Price Shares Price
------ ----- ------ -----
Outstanding options at the beginning
of year 250,000 $3.96 145,000 $3.43
Options granted 435,000 1.45 110,000 4.64
Options expired or canceled (293,333) 3.59 (5,000) 3.50
-------- --------
Outstanding options at the end of year 391,667 $1.45 250,000 $3.96
======== ========
The following table summarizes information about the plan's options outstanding
as of December 31, 1998:
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
- --------- ----------- ----------- ------- ----------- ---------
$1.45 391,667 4.5 $1.45 161,389 $1.45
NOTE I - INCOME TAXES
The significant components of the Company's deferred tax assets and liabilities
as of December 31, 1998 is as follows:
Net operating losses carryforward $3,004,000
Accrual to cash adjustment 72,000
Capitalized software (10,000)
Depreciation 25,000
Research and development credits 75,000
Valuation allowance (2,806,000)
----------
Net deferred tax asset $ 60,000
============
F-12
<PAGE>
OBJECTSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE I - INCOME TAXES
In accordance with New Jersey statutes, the Company has entered into an
agreement to sell certain New Jersey net operating losses and research and
development credits accordingly, a state income tax benefit and deferred tax
asset has been recognized in 1998. There was no provision for income taxes for
the year ended December 31, 1997.
During the years ended December 31, 1998 and 1997, the benefit for deferred
taxes before change in valuation allowances aggregated $326,000 and $1,437,000,
respectively, which the valuation allowance as of December 31, 1998 and 1997
were $2,411,000 and $2,229,000, respectively and the change in valuation
allowances for the years ended December 31, 1998 and 1997 were $507,000 and
$956,000, respectively.
The difference between the statutory federal income tax rate and the effective
rate for the Company's income tax benefit for each of the years ended December
31, 1998 and 1997, respectively, is summarized as follows:
1998 1997
---- ----
Statutory federal income tax rate 34.0% 34.0%
State income tax benefit, net of federal tax effect 9.5
Increase in valuation allowance (31.4) (41.7)
Research and development credit 2.6
Miscellaneous 2.3 5.1
------ ------
Effective income tax rate 14.4% 0.0%
====== ======
As of December 31, 1998, the Company had a net operating loss carryforward of
$7,346,000 for federal income tax purposes, which expires through 2018.
NOTE J - 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 K - FINANCIAL INSTRUMENTS, REVENUES AND OTHER MATTERS
1. Cash and cash equivalents:
The Company places its cash and cash equivalents in a commercial bank. At
times, the cash balances exceed federally insured limits.
2. Revenues:
For the years ended December 31, 1998 and 1997, 73 percent and 84 percent
of revenues, respectively, were derived from one customer.
F-13
<PAGE>
OBJECTSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE K - FINANCIAL INSTRUMENTS, REVENUES AND OTHER MATTERS
3. 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 L - COMMITMENTS
1. Lease income:
The Company leases five kiosks, hardware and software to the City of 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 1998, the Company extended its agreement
with the City of New York through June 1999. Under the terms of this
agreement, the annual rental income is $117,000.
2. Lease:
The Company leases office space and equipment under operating leases with
initial or remaining terms of one year or more through 2003. Minimum
annual rentals are as follows:
Year Ending Amount
December 31, -------
------------
$112,289
1999 117,356
2000 103,544
2001 97,666
2002 24,685
2003 ----------
$455,540
==========
Rent expense approximated $100,023 and $77,900, for the years ended
December 31, 1998 and 1997, respectively.
3. EMPLOYMENT AGREEMENTS
The Company previously entered into employment agreements with two key
executives expiring in December 2001. Under the terms of the agreements,
the aggregate current annual compensation is $215,000 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.
F-14
<PAGE>
OBJECTSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE M - 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.
NOTE N - ADVERTISING COSTS
Advertising costs are charged to operations in the year incurred and aggregated
$40,723 and $40,521 for the years ended December 31, 1998 and 1997,
respectively.
F-15
<PAGE>
<TABLE>
OBJECTSOFT CORPORATION
CONDENSED BALANCE SHEETS --MARCH 31, 1999 (Unaudited)
AND DECEMBER 31, 1998
<CAPTION>
March December
31, 1999 31, 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $977,338 $982,006
Marketable securities 504,256
Accounts receivable 80,326 77,440
Prepaid expenses and other
current assets 337,824 195,367
Note receivable - other
Deferred tax asset 480,000 360,000
------------ ------------
Total current assets 2,379,744 1,614,813
Equipment, at cost, net of
accumulated depreciation 881,075 666,994
Capitalized software 87,251 58,790
Notes receivable-
officer/ shareholder 440,000 440,000
Other assets 114,664 156,510
------------ ------------
TOTAL LIABILITIES 3,902,734 2,937,107
============ ============
Current liabilities
Current portion of long-term
debt $13,597 $15,494
Current portion of obligations
under capital lease 22,659 21,268
Accounts payable 240,415 522,383
Accrued expenses 137,583 118,401
Other current liabilities 2,473 4,413
------------ ------------
Total current liabilities 416,727 681,959
------------ ------------
Long-term debt 10,045 12,816
Obligations under capital lease 40,922 48,621
------------ ------------
Total Liabilities 467,694 743,396
------------ ------------
STOCKHOLDERS' EQUITY
6% non-voting convertible preferred stock,
$100 par, authorized 20,000 shares
issued and outstanding 10,500 shares 1,050,000 1,050,000
6% non-voting convertible preferred
stock, $100 par, authorized 25,000 shares
issued and outstanding 21,000 shares 2,100,000
Common stock, $.0001 par value; authorized
20,000,000 shares; issued and
outstanding 6,850,769 shares at
December 31, 1998,
and 6,960,135 at March 31, 1999 696 685
Additional paid-in capital 8,106,120 8,327,718
Accumulated deficit (7,821,776) (7,184,692)
------------ ------------
Total stockholders' equity 3,435,040 2,193,711
------------ ------------
TOTAL $3,902,734 $2,937,107
============ ============
</TABLE>
F-16
<PAGE>
<TABLE>
OBJECTSOFT CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
UNAUDITED
<CAPTION>
Three Months Ended March 31,
1999 1998*
------------ ------------
<S> <C> <C>
Sales and services $45,350 $44,291
------------ ------------
Expenses:
Cost of sales and services 187,351 183,356
Research and development 78,911 147,340
General and administrative 522,588 468,812
------------ ------------
Total expenses 788,850 799,508
------------ ------------
Loss from operations (743,500) (755,217)
------------ ------------
Other income(expense):
Realized and unrealized (loss) on
marketable securities (10,265) (1,846)
Interest and dividend income 2,800 34,371
Interest expense (6,119) (2,927)
------------ ------------
Total other income (expense) (13,584) 29,598
------------ ------------
Loss before income tax benefit (757,084) (725,619)
Income tax benefit 120,000 90,000
------------ ------------
NET (LOSS) ($637,084) ($635,619)
------------ ------------
BASIC AND DILUTED NET (LOSS) PER SHARE ($0.18) ($0.16)
============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 6,924,421 4,082,676
============ ============
* Adjusted for year end audit adjustments
F-17
</TABLE>
<PAGE>
<TABLE>
OBJECTSOFT CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
UNAUDITED
<CAPTION>
Three Months Ended March 31,
1999 1998*
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) ($637,084) ($635,619)
Adjustments to reconcile net loss to net
cash (used in) operating activities:
Depreciation and amortization 115,288 81,825
Changes in operating assets and
liabilities:
(Increase) decrease in:
Marketable securities (504,256) 583,703
Accounts receivable (2,886) 167,995
Other current assets (142,457) (15,807)
Note receivable- other 8,360
Deferred tax asset (120,000) (90,000)
Other assets 41,846
Increase (decrease) in:
Accounts payable (281,968) (160,061)
Accrued expenses and
other liabilities 17,242 25,629
------------ ------------
Net cash used in operating activities (1,514,275) (33,975)
------------ ------------
Cash flow from investing activities:
Capital expenditures (289,570) (23,869)
Capitalized software and courseware (68,260) (24,500)
------------ ------------
Net cash (used in) investing activities (357,830) (48,369)
------------ ------------
Cash flow from financing activities:
Proceeds from exercise of warrants
and nonemployee options 38,413
Proceeds from issuance of preferred stock 1,840,000
Principal payments on obligations
under capital leases (6,308) (12,249)
Repayment of long-term debt (4,668) (2,104)
------------ ------------
Net cash provided by financing activities 1,867,437 (14,353)
------------ ------------
NET (DECREASE) IN CASH (4,668) (96,697)
Cash, beginning of period 982,006 209,455
------------ ------------
Cash, end of period $977,338 $112,758
============ ============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION
Interest expense paid $6,119 $2,927
============ ============
* Adjusted for year end audit adjustments
F-18
</TABLE>
<PAGE>
OBJECTSOFT CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 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
In April, 1999, the Company entered into a sale and leaseback agreement in which
the Company received $123,200. The net book value of the assets sold was
approximately $85,000.
F-19
<PAGE>
The information in this Prospectus is not complete. The Selling Stockholder may
not sell these securities until the Registration Statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell nor is it seeking an offer to buy these securities in any State where
the offer or sale is not permitted.
SUBJECT TO COMPLETION DATED MAY 20, 1999
PROSPECTUS
OBJECTSOFT CORPORATION
412,500 Class A Warrants and
656,037 shares of common stock issuable upon the exercise of certain warrants
-------------------
The securityholders of our Company listed on page A4-A6 of this
Prospectus are offering for sale up to 412,500 Class A Warrants and 656,037
shares of common stock issuable upon exercise of the Class A Warrants and
certain other warrants. Under this Prospectus selling securityholders may
pledge, donate or transfer their shares and other successors, may also use this
prospectus. The Selling Stockholders may offer their shares through public or
private transactions, at prevailing market prices, or at privately negotiated
prices.
The selling securityholders, and intermediaries through whom such
securities are sold, may be deemed underwriters within the meaning of the
Securities Act of 1933 with respect to the securities offered, and any profits
realized or commissions received may be deemed underwriting compensation. The
Company has agreed to indemnify the Selling Securityholders against certain
liabilities.
The selling securityholders will receive all of the net proceeds from
the resale of the shares. Accordingly, we will not receive any proceeds from the
resale of the shares. We may however receive proceeds from the exercise of the
warrants. We will use such net proceeds for general corporate purposes. We have
agreed to bear the expenses relating to the registration of the securities,
other than brokerage commissions and expenses, if any, which will be paid by the
selling securityholders.
Concurrently with this offering, we registered 1,366,050 shares of
common stock and 1,366,050 Class A Warrants that were issued by us in our
initial public offering. See "Concurrent Public Offering."
------------------------------------
NASDAQ SmallCap Market Symbol for:
Common Stock: "OSFT"
Class A Warrants: "OSFTW"
------------------------------------
On May 14, 1999, the closing bid price for the common stock and the Class A
Warrants were $2 and $.594, respectively.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE FACTORS DESCRIBED UNDER THE CAPTION "RISK FACTORS" ON
PAGE 7 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY ___, 1999
[ALTERNATE PROSPECTUS PAGE]
A-1
<PAGE>
[ALTERNATE PROSPECTUS PAGE]
----------------------
TABLE OF CONTENTS
----------------------
Page
----
Prospectus Summary.......................................................3
Risk Factors.............................................................6
Use of Proceeds.........................................................19
Dividend Policy.........................................................19
Capitalization..........................................................20
Selected Financial Data.................................................22
Management's Discussion And Analysis of Financial
Condition and Results of Operations..................................23
Business................................................................27
Management..............................................................34
Principal Stockholders..................................................43
Description of Securities...............................................45
Shares Eligible for Future Sale.........................................49
Concurrent Offering ....................................................50
Legal Matters...........................................................50
Experts.................................................................50
Additional Information..................................................50
Index to Financial Statements..........................................F-1
Selling Securityholders................................................A-3
Plan of Distribution...................................................A-7
Concurrent Public Offering.............................................A-7
ObjectSoft Corporation is subject to the reporting requirements of the
Securities Exchange Act of 1934, and, in accordance therewith, files reports,
proxy and information statements and other information with the Securities and
Exchange Commission. These reports, proxy and information statements and other
information can be inspected and copied at the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the following regional offices: New York Regional Office,
Suite 1300, 7 World Trade Center, New York, New York 10048, and Chicago Regional
Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and
copies of such material may also be obtained by mail from the Public Reference
Section of the Commission at prescribed rates. Electronic registration
statements made though the Electronic Data Gathering Analysis and Retrieval
System are publicly available through the Commission's Website
(http://www.sec.gov). See "Additional Information."
We intend to furnish our stockholders with annual reports containing
audited financial statements and such other reports as we deem appropriate or as
may be required by law.
A-2
<PAGE>
[ALTERNATE PROSPECTUS PAGE]
SELLING SECURITYHOLDERS
Up to an aggregate of 656,037 shares of common stock and 412,500 Class
A Warrants may be offered for resale by the Selling Securityholders.
412,500 Class A Warrants and 412,500 of the shares of common stock are
issuable, in the form of units, each Unit consisting of one share of common
stock and one Class A Warrant.
The Units are issuable upon the exercise of:
o 375,000 warrants (the "Bridge Warrants") issued to
investors in a private placement by the Company in
April through June, 1996 (the "Bridge Loan Offering")
and
o 37,500 warrants issued to Renaissance Financial
Securities Corporation in its capacity as placement
agent of the Bridge Loan Offering (the "Placement
Agent's Warrant").
Renaissance subsequently assigned the Placement Agent's Warrant to two
of its executive officers.
Of the other 270,837 shares of common stock to which this Prospectus is
related:
o 182,004 shares are issuable upon the exercise of
warrants issued to the investors in the July 1996
Offering ( the "July 1996 Warrants"),
o 45,500 shares are issuable upon the exercise of a
warrant (and the July 1996 Warrants issuable upon the
exercise thereof) issued to Win Capital Corporation
in its capacity as placement agent of the July 1996
Offering (the "July Placement Warrant") and
o 43,333 shares are issuable upon the exercise of
warrants originally issued to a former executive
officer of the Company (the "Officer Warrants"). See
"Selling Securityholders" and "Plan of Distribution."
See "Plan of Distribution" and "Concurrent Public
Offering."
The following table sets forth certain information with respect to each
Selling Securityholder for whom we are registering Selling Securityholder
Securities for resale to the public. We will not receive any of the proceeds
from the sale of such securities. In the event the Placement Agent's Warrant and
all of the Bridge Warrants and the other warrants exercisable to acquire shares
of common stock are exercised in full, we will receive gross proceeds of
$5,226,685. Renaissance acted as the Underwriter of our initial public offering
in November, 1996. We understand that the Underwriter has ceased operating and
has given up its NASD license. Other than as described with respect to
Renaissance, to the Company's knowledge, there are no material
relationships between any of the Selling Securityholders and the Company, nor
have any such material relationships existed within the past three years.
Other than Adam J. Cohen and Todd M. Spehler (former executive officers
of Renaissance), who individually own the Unit Purchase Option which was
originally issued to Renaissance, and the holders of the Officer Warrants, no
Selling Securityholder currently owns securities of the Company other than the
Selling Securityholder Securities or warrants exercisable to purchase Selling
Securityholder Securities. Assuming all of the Selling Securityholder Securities
are issued and sold, and based on the securities of the Company currently owned
by the Selling Securityholders, no Selling Securityholder, with the possible
exception of Win Capital, will beneficially own 1% or more of the Company's
common stock.
A-3
<PAGE>
[ALTERNATE PROSPECTUS PAGE]
<TABLE>
<CAPTION>
MAXIMUM MAXIMUM NUMBER
NUMBER OF OF CLASS A WARRANTS
BRIDGE OFFERING SHARES TO BE SOLD (1) TO BE SOLD (1)
--------------- --------------------- ---------------
<S> <C> <C>
Adam J. Cohen 25,000(2) 25,000(2)
Todd M. Spehler 12,500(2) 12,500(2)
Nathan Eisen 7,500 7,500
Richard, Steven and Kenneth Etra 15,000 15,000
William J. Ludwig 15,000 15,000
Joseph W. And Ann G. Schantz 7,500 7,500
Gregg Gallant 7,500 7,500
Mary and Mark Albritton 15,000 15,000
Sydney Katz 7,500 7,500
Louis Falletta 7,500 7,500
Phillip Levien 7,500 7,500
Pamda Retirement Trust 15,000 15,000
Eric W. Larson 15,000 15,000
Herbert M. Reichlin and Diane J. Reichlin (3) 37,500 37,500
Peter S. Morford 7,500 7,500
Robert E. Coomes 7,500 7,500
Gary G. Hammon 7,500 7,500
Sheldon Sisken 7,500 7,500
Abraham David 7,500 7,500
Bay N. Sayegh 7,500 7,500
American Waste Oil Services Corp. 15,000 15,000
Gastroenterology Associates 30,000 30,000
Servesting Investment Co. 7,500 7,500
Martin Hodas 15,000 15,000
Richard Someck 15,000 15,000
Roger Testa 30,000 30,000
Cyril J. Galagan 15,000 15,000
Jack P. Conlon 15,000 15,000
Joseph Schanne and Theresa Schanne 15,000 15,000
Anthony Quarranta 15,000 15,000
-------- --------
TOTAL 412,500 412,500
----- ======== ========
</TABLE>
A-4
<PAGE>
[ALTERNATE PROSPECTUS PAGE]
MAXIMUM NUMBER
OF SHARES ISSUABLE
ON EXERCISE OF
JULY 1996 WARRANTS
JULY 1996 OFFERING TO BE SOLD
------------------ -----------
Win Capital Corporation (4) 18,200
Lawrence Dell Aquila 2,381
David Barron 6,667
Louis Chapman and Elaine Chapman 2,000
Michael Damiani and Beverly Damiani 3,333
Seymour Fertig 4,762
Theodore Kaplan & Selma Kaplan 5,334
Edgar Lindblom 6,667
Thomas J. Luisi 6,000
Donald Markowitz 8,000
Gary O'Leary 6,667
PAMCO General Contracting Corp. 3,334
Pension Solutions 6,667
Nicholas Ponzio 4,762
Jeffrey Reizner 3,334
Samuel Richman 2,000
Charles Ruppman 16,667
Rose Salvato 10,667
James R. Smith 14,667
John H. Smith 3,333
Stourbridge Investment Ltd. 41,429
Suan Investments Inc. 20,000
Faye Zelmanovicz 3,333
---------
TOTAL 200,204
=========
A-5
<PAGE>
[ALTERNATE PROSPECTUS PAGE]
MAXIMUM NUMBER
OF SHARES ISSUED
ON EXERCISE OF
OFFICER WARRANTS
OFFICER WARRANT HOLDER TO BE SOLD
---------------------- -------------------
Arthur Wein 43,333
----------
TOTAL OFFICER WARRANTS 43,333
==========
---------
(1) Except as to Adam J. Cohen and Todd M. Spehler, consists of common
stock and Class A Warrants comprising Units issuable upon the exercise
of the Bridge Warrants.
(2) Consists of common stock and Class A Warrants comprising Units issuable
upon the exercise of the Placement Agent's Warrant. In March 1998, the
Placement Agent's Warrant and the Underwriter's Unit Purchase Option
were assigned to Messrs. Cohen and Spehler, individually.
(3) A Warrant was originally issued to each of HRIS Associates, Inc.,
Program Advisors Corporation, Program Resource Organization, Inc. and
Association of Independent Employers, Inc. to acquire 15,000 shares of
common stock and Class A Warrants, 7,5000 shares of common stock and
Class A Warrants, 7,5000 shares of common stock and Class A Warrants
and 7,5000 shares of common stock and Class A Warrants, respectively.
On December 30, 1997, these Warrants were assigned to Herbert M.
Reichlin and Diane J.
Reichlin.
(4) Consists of shares issuable upon the exercise of the July Placement
Warrant and upon the exercise of July 1996 Warrants issuable upon such
exercise of the July Placement Warrant. Does not include 222,500 shares
of common stock.
A-6
<PAGE>
[ALTERNATE PROSPECTUS PAGE]
PLAN OF DISTRIBUTION
The sale of the Selling Securityholder Securities by the Selling
Securityholders may be effected from time to time in transactions (which may
include block transactions by or for the amount of the Selling Securityholders)
in the over-the-counter market or in negotiated transactions, through the
writing of options on the securities, a combination of such methods of sale or
otherwise. Sales may be made at fixed prices which may be changed, at market
prices prevailing at the time of sale or at negotiated prices.
The Selling Securityholders may effect such transactions by selling
their securities directly to purchasers, through broker-dealers acting as agents
for the Selling Securityholders or to broker-dealers who may purchase shares as
principals and thereafter sell the securities from time to time in the
over-the-counter market in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders or the purchasers
for whom such broker-dealers may act as agents or to whom they may sell as
principals or otherwise (which compensation as to a particular broker-dealer may
exceed customary commissions).
Under applicable rules and regulations under the Securities Exchange
Act of 1934, any person engaged in the distribution of the Selling
Securityholder Warrants may not simultaneously engage in market making
activities with respect to any securities of the Company during the applicable
"cooling-off" period (at least two, and possibly nine, business days) prior to
the commencement of such distribution. Accordingly, in the event that an
underwriter is engaged in a distribution of Selling Securityholder Securities,
it will not be able to make a market in the Company's securities during the
applicable restrictive period. In addition, each Selling Securityholder desiring
to sell Selling Securityholder Securities will be subject to the applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including without limitation, provisions which may limit the timing of the
purchases and sales of shares of the Company's securities by such Selling
Securityholders.
The Selling Securityholders and broker-dealers, if any, acting in
connection with such sale might be deemed to be underwriters within the meaning
of Section 2(11) of the Securities Act and any commission received by them and
any profit on the resale of the securities might be deemed to be underwriting
discounts and commissions under the Securities Act.
CONCURRENT PUBLIC OFFERING
On the date of this Prospectus, a Registration Statement was declared
effective under the Securities Act with respect to an offering by us of
1,366,050 shares of common stock and 1,366,050 Class A Warrants.
Renaissance acted as Underwriter of our initial public offering in
November, 1996 and, in connection therewith, was granted an option (the
"Underwriter's Unit Purchase Option") to purchase up to 87,500 Units at an
exercise price equal to 160% of the initial price of the Units sold in our
initial public offering in November, 1996. The Class A Warrants included in the
Units issuable upon the exercise of the Underwriter's Unit Purchase Option will
not be redeemable by us and will be exercisable at a price an exercise price of
$8.00. The Underwriter's Unit Purchase Option was assigned to two executive
officers of the Underwriter.
A-7
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides,
in general, that a corporation incorporated under the laws of the State of
Delaware, such as our company, may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (other than a derivative action by or in the right of the
corporation) by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe such person's conduct was
unlawful. In the case of a derivative action, a Delaware corporation may
indemnify any such person against expenses (including attorneys' fees) actually
and reasonably incurred by such person in connection with the defense or
settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery of the State of Delaware or any other court in which such
action was brought determines such person is fairly and reasonably entitled to
indemnity for such expenses.
Our Certificate of Incorporation provides that directors shall not be
personally liable for monetary damages to us or our stockholders for breach of
fiduciary duty as a director, except for liability resulting from a breach of
the director's duty of loyalty to our stockholders, intentional misconduct or
wilful violation of law, actions or inactions not in good faith, an unlawful
stock purchase or payment of a dividend under Delaware law, or transactions from
which the director derives improper personal benefit. Such limitation of
liability does not affect the availability of equitable remedies such as
injunctive relief or rescission. Our Certificate of Incorporation also
authorizes us to indemnify our officers, directors and other agents, by bylaws,
agreements or otherwise, to the fullest extent permitted under Delaware law. We
have entered into an Indemnification Agreement (the "Indemnification Agreement")
with each of our directors and officers which may, in some cases, be broader
than the specific indemnification provisions contained in our Certificate of
Incorporation or as otherwise permitted under Delaware law. Each Indemnification
Agreement may require us, among other things, to indemnify such officers and
directors against certain liabilities that may arise by reason of their status
or service as a director or officer, against liabilities arising from willful
misconduct of a culpable nature, and to obtain directors' and officers'
liability insurance if available on reasonable terms.
We maintain a directors and officers liability policy with Lloyds and
Agriculture Insurance Companies that contains a combined limit of liability of
$5,000,000 per policy year.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
II - 1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses of the offering, other than underwriting discounts and
commissions, are as follows:
Securities and Exchange Commission registration fee................ $ 0
NASD filing fee.................................................... 0
Legal fees and expenses*........................................... 10,000
Accounting fees and expenses*...................................... 5,000
Printing and engraving expenses*................................... 2,000
Miscellaneous*..................................................... 2,000
Total......................................................... $19,000
=======
--------------------
* Estimated
II - 2
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following sets forth certain information regarding sales of
securities of the Company issued within the past three years, which were not
registered pursuant to the Securities Act of 1933 (the "Securities Act").
During the period April through June 1996, the Company sold 12.5 Bridge
Units to accredited investors, each Bridge Unit consisting of a $100,000 7% Note
(the "Bridge Notes") and warrants to purchase 30,000 Units identical to the
Units offered in the Company's initial public offering. The Bridge Notes were
repaid in full in November, 1996. The Bridge Warrants are exercisable at an
exercise price of $3.50 until November, 1999. In connection with the Bridge Loan
Offering, the Company sold to the Underwriter, in its capacity as Placement
Agent of such offering, a warrant (the "Placement Agent's Warrant") to purchase
a number of Units equal to 10% of Units issuable upon the exercise of the Bridge
Warrants contained in the Bridge Units. The exercise price of the Placement
Agent's Warrant is $5.00 exercisable at any time until November 15, 2001. The
securities were issued in reliance on the exemptions from registration provided
by Rule 506 of Regulation D promulgated under the Securities Act and Section
4(2) of the Securities Act.
In July and August 1996, the Company sold , to accredited investors, an
aggregate of 273,001 units (the "July 1996 Units") for an aggregate of $955,504,
or $3.50 per July 1996 Unit. Each July 1996 Unit consists of one share of common
stock and a warrant (the "July 1996 Warrants") to purchase two-thirds (2/3) of a
share of common stock at an exercise price of $3.00 per 2/3 share (or $4.50 per
share). The July 1996 Warrants are exercisable until November 12, 1999. In
connection with the sale of the July 1996 Units, the placement agent for such
sale, Win Capital Corporation, was granted a warrant to purchase 27,300 July
1996 Units at an exercise price of $4.50 per July 1996 Unit (the "July Placement
Warrant"). The securities were issued in reliance on the exemptions from
registration provided by Rule 506 of Regulation D promulgated under the
Securities Act and Section 4(2) of the Securities Act.
In July 1996, the Company redeemed the 1,250 shares of Series B
Preferred Stock held by Cyndel and in connection therewith, issued to Cyndel
warrants exercisable for a period of three years, to purchase 20,000 shares of
common stock at an exercise price of $7.00 per share. The securities were issued
in reliance on the exemption from registration provided by Section 4(2) of the
Securities Act.
On May 7, 1996, the Company issued a warrant to Morton Getman, a
consultant to the Company, for 10,000 shares of common stock. The warrants
granted to Mr. Getman vested at the rate of 1,000 per month and have been
exercised at a price of $1.00 per share.
On February 20, 1997 and August 11, 1997, the Company issued 9,000 and
1,000 shares, respectively, to Mr. Getman, upon the exercise of the
above-mentioned warrants.
On May 13, 1998, the Company entered into the Private Equity Line of
Credit Agreement and pursuant thereto, issued 444,444 shares of common stock and
12, 000 Series C Preferred Shares to the Investors and 37,778 shares of common
stock and 480 Series C Preferred Shares to the Placement Agent. The securities
were issued in reliance on the exemption from registration provided by Section
4(2) of the Securities Act.
On December 30, 1998, the Company entered into an Amended and Restated
6% Series D Convertible Preferred Stock Subscription Agreement, formerly known
as the Private Equity Line of Credit Agreement, with several investors and
pursuant thereto issued 10,000 Series D Preferred Shares and warrants to
purchase an aggregate of 50,000 shares of common stock for an aggregate purchase
price of $1,000,000. At the closing, the Company issued to the placement agent
500 Series D Preferred Shares, a Warrant to purchase 40,000 shares of common
stock and 2% of the
II - 3
<PAGE>
investment amount in cash, as placement agent fees. The securities were issued
in reliance on the exemption from registration provided by Section 4(2) of the
Securities Act.
On March 17, 1999, the Company entered into a 6% Series E Convertible
Preferred Stock Subscription Agreement with several investors pursuant to which
the Company sold $2,000,000 of 6% Series E Convertible Preferred Stock and
Warrants to purchase an aggregate of 50,000 shares of common stock for an
aggregate purchase price of $2,000,000. The Company issued to the Placement
Agent as placement agent fees 1,000 shares of Series E Preferred Stock, warrants
to purchase 50,000 shares of common stock and 3% of the investment amount in
cash. The securities were issued in reliance on the exemption from registration
provided by Section 4(2) of the Securities Act.
II - 4
<PAGE>
ITEM 27. EXHIBITS.
The following exhibits are filed as part of this registration
statement:
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
1.1 Form of Underwriting Agreement. (4)
2.1 Certificate of Ownership and Merger of ObjectSoft Corporation
(a New Jersey corporation) into the Company. (1)
2.2 Plan of Merger of ObjectSoft Corporation (a New Jersey
corporation) into the Company. (1)
3.1(a) Certificate of Incorporation of the Company. (1)
3.1(b) Form of Amendment to Certificate of Incorporation of the
Company, filed with the Secretary of State of Delaware. (2)
3.2(a) By-laws of the Company. (1)
3.2(b) Amended and Restated Bylaws of the Company. (2)
4.1 Form of Underwriter's Unit Purchase Option Agreement.
4.2 Specimen Certificate of the Company's common stock. (2)
4.3 Form of Class A Warrant Agreement, including form of Class
A Warrant. (1)
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP as to the
legality of securities being registered. (3)
10.1 Employment Agreement dated as of July 1, 1996 between the
Company and David E.Y. Sarna. (2)
10.2 Employment Agreement dated as of July 1, 1996 between the
Company and George J. Febish. (2)
10.3(a) 1996 Stock Option Plan. (1)
10.3(b) 1996 Stock Option Plan, as amended. (7)
10.4 Form of Bridge Loan Promissory Note. (1)
10.5 Form of Bridge Loan Warrant. (1)
10.6 Form of Warrant Agreement with placement agent for Bridge
Loan Offering. (1)
10.7 Form of Subscription Agreement and Investment Representation
of Investor with each of the investors in the July 1996
Offering. (1)
10.8 Form of July 1996 Warrant Agreement. (1)
10.9 Form of Warrant Agreement with placement agent for July 1996
Offering. (1)
10.10 Agreement, dated January 11, 1996, as amended, with the City
of New York (Department of Information Technology and
Telecommunications). (1)
10.11 Cooperation Agreement with Microsoft Corporation, dated
November 7, 1995. (2)
10.12 Agreement with ACORD Corporation dated July 5,1995. (2)
10.13 Equity Line of Credit Agreement, dated May 13, 1998. (6)
10.14 Form of Investor Warrant. (2)
10.15 Form of Officer Warrant. (2)
10.17 Cyndel Warrant. (2)
10.18 Amended and Restated 6% Series D Convertible Preferred Stock
Subscription Agreement, formerly known as the Private Equity
Line of Credit Agreement, dated as of December 30, 1998. (8)
10.19 Form of Series D Investors' Warrant. (8)
10.20 Series D Registration Rights Agreement, dated as of December
30, 1998. (8)
10.21 6% Series E Convertible Preferred Stock Subscription
Agreement, dated as of March 17, 1999. (9)
II - 5
<PAGE>
10.22 Form of Series E Investors' Warrant. (9)
10.23 Series E Registration Rights Agreement, dated as of March
17, 1999. (9)
23.1 Consent of Richard A. Eisner & Company, LLP. (10)
23.2 Consent of Parker Chapin Flattau & Klimpl, LLP (included in
their opinion filed as Exhibit 5.1).
24.1 Power of Attorney. (1)
24.2 Michael A. Burak Power of Attorney (10)
------------------
(1) Filed with initial filing of Registration Statement on Form SB-2,
Registration No. 333-10519.
(2) Filed with Amendment No. 1 to Form SB-2, Registration No. 333-10519.
(3) Filed with Amendment No. 2 to Form SB-2, Registration No. 333-10519.
(4) Filed with Amendment No. 3 to Form SB-2, Registration No. 333-10519.
(5) Filed with Post-Effective Amendment No. 1 to Form SB-2, Registration
No. 333-10519.
(6) Filed with Registration Statement on Form S-3, dated June 26, 1998,
Registration No. 333-57753.
(7) Filed with Post-Effective Amendment No. 2 to Form SB-2, Registration
No. 333-57753.
(8) Filed with Form 8-K, dated January 15, 1999.
(9) Filed with Form 8-K, dated March 17, 1999.
(10) Filed herewith
II - 6
<PAGE>
ITEM 28. UNDERTAKINGS.
The Company hereby undertakes that it will:
(1) For determining any liability under the Securities Act of 1933 (the
"Act"), treat the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act as part of this registration statement as of the time the
Commission declared it effective;
(2) For determining any liability under the Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and the offering of such securities at that time as the initial bona fide
offering of those securities.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Company of expenses incurred or paid by a director,
officer or controlling persons of the Company in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
persons in connection with the securities being registered, the Company will,
unless in the opinion of its counsel that the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
date of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
II - 7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Company certifies that it has reasonable grounds to believe that it meets all of
the requirements of filing on Form SB-2 and authorized this amendment to the
registration statement to be signed on its behalf by the undersigned, in the
City of New York, State of New York, on May 20, 1999.
OBJECTSOFT CORPORATION
By: /s/ David E.Y. Sarna
------------------------------
David E.Y. Sarna, Chairman
In accordance with the requirements of the Securities Act of 1933, this
amendment to the registration statement was signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ David E.Y. Sarna Chairman of the Board of Directors and May 20, 1999
- ---------------------- Secretary (Co-Principal Executive Officer
David E. Y. Sarna and Principal Financial Officer)
* President, Treasurer and Director (Co- May 20, 1999
- ---------------------- Principal Executive Officer and Principal
George J. Febish Accounting Officer)
* Director May 20, 1999
- ----------------------
Daniel E. Ryan
</TABLE>
*By: /s/ David E.Y. Sarna
-------------------------
David E.Y. Sarna,
Attorney-in-Fact
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that Michael A. Burak, whose
signature appears below constitutes and appoints each of David E.Y. Sarna and
George J. Febish and each of them with power of substitution, as his
attorney-in-fact, in all capacities, to sign any amendments to this registration
statement and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-act or their substitutes may
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by:
Signature Title Date
- --------- ----- ----
/s/ Michael A. Burak
- --------------------
Michael A. Burak Director May 20, 1999
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
EXHIBITS TO FORM S-B2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------
OBJECTSOFT CORPORATION
(EXACT NAME OF ISSUER AS SPECIFIED
IN ITS CHARTER)
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
1.1 Form of Underwriting Agreement. (4)
2.1 Certificate of Ownership and Merger of ObjectSoft Corporation
(a New Jersey corporation) into the Company. (1)
2.2 Plan of Merger of ObjectSoft Corporation (a New Jersey
corporation) into the Company. (1)
3.1(a) Certificate of Incorporation of the Company. (1)
3.1(b) Form of Amendment to Certificate of Incorporation of the
Company, filed with the Secretary of State of Delaware. (2)
3.2(a) By-laws of the Company. (1)
3.2(b) Amended and Restated Bylaws of the Company. (2)
4.1 Form of Underwriter's Unit Purchase Option Agreement.
4.2 Specimen Certificate of the Company's common stock. (2)
4.3 Form of Class A Warrant Agreement, including form of Class
A Warrant. (1)
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP as to the
legality of securities being registered. (3)
10.1 Employment Agreement dated as of July 1, 1996 between the
Company and David E.Y. Sarna. (2)
10.2 Employment Agreement dated as of July 1, 1996 between the
Company and George J. Febish. (2)
10.3(a) 1996 Stock Option Plan. (1)
10.3(b) 1996 Stock Option Plan, as amended. (7)
10.4 Form of Bridge Loan Promissory Note. (1)
10.5 Form of Bridge Loan Warrant. (1)
10.6 Form of Warrant Agreement with placement agent for Bridge
Loan Offering. (1)
10.7 Form of Subscription Agreement and Investment Representation
of Investor with each of the investors in the July 1996
Offering. (1)
10.8 Form of July 1996 Warrant Agreement. (1)
10.9 Form of Warrant Agreement with placement agent for July 1996
Offering. (1)
10.10 Agreement, dated January 11, 1996, as amended, with the City
of New York (Department of Information Technology and
Telecommunications). (1)
10.11 Cooperation Agreement with Microsoft Corporation, dated
November 7, 1995. (2)
10.12 Agreement with ACORD Corporation dated July 5,1995. (2)
10.13 Equity Line of Credit Agreement, dated May 13, 1998. (6)
10.14 Form of Investor Warrant. (2)
10.15 Form of Officer Warrant. (2)
10.17 Cyndel Warrant. (2)
10.18 Amended and Restated 6% Series D Convertible Preferred Stock
Subscription Agreement, formerly known as the Private Equity
Line of Credit Agreement, dated as of December 30, 1998. (8)
10.19 Form of Series D Investors' Warrant. (8)
10.20 Series D Registration Rights Agreement, dated as of December
30, 1998. (8)
10.21 6% Series E Convertible Preferred Stock Subscription
Agreement, dated as of March 17, 1999. (9)
10.22 Form of Series E Investors' Warrant. (9)
<PAGE>
10.23 Series E Registration Rights Agreement, dated as of March 17,
1999. (9)
23.1 Consent of Richard A. Eisner & Company, LLP. (10)
23.2 Consent of Parker Chapin Flattau & Klimpl, LLP (included in
their opinion filed as Exhibit 5.1).
24.1 Power of Attorney. (1)
24.2 Michael A. Burak Power of Attorney (10)
------------------
(1) Filed with initial filing of Registration Statement on Form SB-2,
Registration No. 333-10519.
(2) Filed with Amendment No. 1 to Form SB-2, Registration No. 333-10519.
(3) Filed with Amendment No. 2 to Form SB-2, Registration No. 333-10519.
(4) Filed with Amendment No. 3 to Form SB-2, Registration No. 333-10519.
(5) Filed with Post-Effective Amendment No. 1 to Form SB-2, Registration
No. 333-10519.
(6) Filed with Registration Statement on Form S-3, dated June 26, 1998,
Registration No. 333-57753.
(7) Filed with Post-Effective Amendment No. 2 to Form SB-2, Registration
No. 333-57753.
(8) Filed with Form 8-K, dated January 15, 1999.
(9) Filed with Form 8-K, dated March 17, 1999.
(10) Filed herewith
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this post effective amendment No. 3 to
the registration statement on Form SB-2 of our report dated February 20, 1999
(with respect to Note A [1] March 19, 1999) on the financial statements of
ObjectSoft Corporation as at December 31, 1998 and for each of the two year
period ended December 31, 1998. We also consent to the reference to our firm
under the captions "Selected Financial Data" and "Experts."
/s/ Richard A. Eisner & Company, LLP
Richard A. Eisner & Company, LLP
Florham Park, New Jersey
May 20, 1999
