SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the quarterly period ended June 30, 2000
Commission file number 1-10751
OBJECTSOFT CORPORATION
(Exact Name of Small Business Issuer as Specified in Its
Charter)
DELAWARE 22-3091075
(State of incorporation) (IRS Employer ID number)
CONTINENTAL PLAZA III, 433 HACKENSACK AVENUE
HACKENSACK, NJ 07601
(Address of Principal Executive Offices)
(201)343-9100
(Issuer's Telephone Number Including Area Code)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X
NO ___ .
(Applicable only to Corporate Issuers)
Indicate the number of shares outstanding of each of the
issuer's classes of common equity, as of the last practicable
date.
Class August 9, 2000
Common Stock, $.0001 par value 5,988,331
Redeemable Class A Warrants 1,366,050
Transitional Small Business Disclosure Format (check one):
Yes ___ No X
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OBJECTSOFT CORPORATION
INDEX
Page #
Part I. Financial Information
Item 1.Financial statements
Condensed Balance Sheet-
June 30, 2000 1
Condensed Statements of Operations
Three Months and Six Months Ended
June 30, 2000 and 1999 2
Condensed Statements of Cash Flows
Six Months Ended June 30, 2000
and 1999 3
Notes to Condensed Financial Statements 4
Item 2.Management's Discussion and Analysis
or Plan of Operation 5
Part II Other Information
Item 2. Other information 9
Item 6.Exhibits and reports on Form 8-K 11
Signatures 12
Exhibit index 13
Exhibit 27 Article 5 Financial Data Schedule 14
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<TABLE>
PART I Financial information
OBJECTSOFT CORPORATION
CONDENSED BALANCE SHEET -- JUNE 30, 2000 (Unaudited)
<CAPTION>
JUNE
30, 2000
------------
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $469,350
Marketable securities 139,650
Accounts receivable 25,805
Prepaid expenses and other
current assets 253,138
Deferred tax asset 338,003
------------
Total current assets 1,225,946
Equipment, at cost, net of
accumulated depreciation 2,450,788
Capitalized software 322,367
Loans receivable-
officer/ shareholder 301,750
Other assets 36,559
Deferred tax asset- non current 200,000
------------
T O T A L $4,537,410
============
LIABILITIES
Current liabilities
Current portion of long-term
debt $7,165
Current portion of obligations
under capital lease 180,137
Accounts payable 554,333
Accrued expenses 101,714
Other current liabilities 1,117
------------
Total current liabilities 844,466
Obligations under capital lease 293,477
------------
Total Liabilities 1,137,943
------------
STOCKHOLDERS' EQUITY
6% non-voting convertible preferred G
stock, $100 par, authorized 30,000 shares
issued and outstanding 17,700 shares 1,770,000
Common stock, $.001 par value; authorized
50,000,000 shares; issued and outstanding
5,988,331 shares at June 30, 2000 599
Additional paid-in capital 18,951,176
Accumulated deficit (17,322,308)
------------
Total stockholders' equity 3,399,467
------------
T O T A L $4,537,410
============
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<TABLE>
OBJECTSOFT CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND THE SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
UNAUDITED
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales and services $33,609 $48,052 $70,027 $93,402
------------ ------------ ------------ ------------
Expenses:
Cost of sales and services 395,669 178,442 672,009 320,227
Research and development 76,410 86,958 161,298 165,869
General and administrative 1,021,698 675,310 1,833,231 1,243,464
------------ ------------ ------------ ------------
Total expenses 1,493,777 940,710 2,666,538 1,729,560
------------ ------------ ------------ ------------
Loss from operations (1,460,168) (892,658) (2,596,511) (1,636,158)
------------ ------------ ------------ ------------
Other income(expense):
Realized and unrealized (loss) on
marketable securities (37,203) (23,340) (36,050) (33,605)
Interest and dividend income 7,569 13,098 31,041 15,898
Interest expense (60,996) (10,244) (113,103) (16,363)
------------ ------------ ------------ ------------
Total other income (expense) (90,630) (20,486) (118,112) (34,070)
------------ ------------ ------------ ------------
(Loss) before income tax benefit (1,550,798) (913,144) (2,714,623) (1,670,228)
Income tax benefit 30,000 0 80,000 120,000
------------ ------------ ------------ ------------
NET (LOSS) ($1,520,798) ($913,144) ($2,634,623) ($1,550,228)
============ ============ ============ ============
Net (loss) available to common
stockholders
BASIC AND DILUTED NET (LOSS) PER SHARE ($0.49) ($0.78) ($1.15) ($1.86)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 4,724,108 1,187,985 4,500,715 1,171,121
============ ============ ============ ============
</TABLE>
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<TABLE>
OBJECTSOFT CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
UNAUDITED
<CAPTION>
Six Months Ended June 30,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) ($2,634,623) ($1,550,228)
Adjustments to reconcile net loss to net
cash (used in) operating activities:
Depreciation and amortization 464,234 237,040
Deferred tax benefit (80,000) (120,000)
Warrants and options issued for services rendered 62,013
Unrealized (gain) loss on marketable securities 22,975
Changes in operating assets and
liabilities:
(Increase) decrease in:
Marketable securities 160,293 (653,677)
Accounts receivable 3,529 (21,776)
Other current assets 84,836 (32,413)
Loan receivable-officer (26,695) (106,883)
Other assets 57,567 62,314
Increase (decrease) in:
Accounts payable 209,047 121,605
Accrued expenses and
other liabilities (72,831) 170,669
------------ ------------
Net cash used in operating activities (1,749,655) (1,893,349)
------------ ------------
Cash flow from investing activities:
Capital expenditures (1,230,776) (860,941)
Capitalized software and courseware (207,365) (172,354)
------------ ------------
Net cash (used in) investing activities (1,438,141) (1,033,295)
------------ ------------
Cash flow from financing activities:
Proceeds from exercise of warrants
and non-employee options 10,023 38,413
Proceeds from issuance of preferred and common stock 1,380,000 1,840,000
Principal payments on obligations
under capital leases (37,868) (15,738)
Proceeds from long term debt 123,200
Repayment of long-term debt (5,651) (8,278)
------------ ------------
Net cash provided by financing activities 1,346,504 1,977,597
------------ ------------
NET (DECREASE) IN CASH (1,841,292) (949,047)
Cash, beginning of period 2,310,642 982,006
------------ ------------
Cash, end of period $469,350 $32,959
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest expense paid $60,303 $16,363
============ ============
</TABLE>
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OBJECTSOFT CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2000
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, 1999 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.
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<PAGE>
PART II
Item 2.
OBJECTSOFT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Special Note Regarding Forward-Looking Statements
A number of statements contained in this report are forward-
looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 that involve risks
and uncertainties that could cause actual results to differ
materially from those expressed or implied in the applicable
statements. These risks and uncertainties include but are not
limited to: history and expectation of future losses and an
accumulated deficit; possibility of cut back or cessation of operations
if unable to obtain needed funding; uncertainty of new product
profitability; dependence on securing sufficient profitable locations
for the Company's products; dependence on the Company's continuing
relationship with DoubleClick; dilution of the value of the Company's
common stock as a result of the reservation of common stock for further
issuances ; no assurance of continued Nasdaq listing; if delisted from
Nasdaq, would be subject to penny stock regulations; dependence on
certain licenses, installation and maintenance services; technical
disruptions in the Company's and third parties' products could be
costly and detrimental to the Company's competitiveness; possible
liability and loss of business for unauthorized use of the Company's
information and injuries resulting from the Company's products;
possible disruptions in the Company's services due to technical and
operational systems failures; need to be continuously accepted in
rapidly changing markets; significant competition; difficulty complying
with government contract requirements and government regulation;
reliance on strategic relationship with Microsoft; dependence on
Microsoft's windows operating system; dependence upon common carriers and
Internet access providers; dependence on the Internet; dependence on a
single customer for a significant portion of revenues; dependence on
retaining subcontractors; potential fluctuation in the Company's
quarterly operating results; dependence upon key members of the Company's
management and employees; dependence on ability to adequately protect
proprietary technology; risk of liability due to future regulation of
the Internet access industry; no anticipation of the payment of
dividends; the possible negative effect of anti-takeover provisions, and
other risks described elsewhere herein and in the Company's registration
statement of Form S-3 which was declared effective by the Securities and
Exchange Commission on July 27,2000.
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<PAGE>
Overview
The Company provides Internet-connected, advertising-supported,
interactive kiosks which are public access computer terminals that offer
entertainment as well as information and the ability to execute
financial transactions. The Company originally provided consulting
and training services, but changed its focus in mid-1994 to its
current 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 $3,920,000 in 1999 and a
net loss of $2,515,000 in 1998. In July, 1996 the Company
introduced its SmartStreet kiosks and in October 1998 its FastTake
kiosks were introduced. The Company has recognized only limited
income to date from its kiosks. Although the Company anticipates
that it will begin to recognize greater revenues from the FastTake
kiosks during 2000, it cannot predict the actual timing or amount of
such revenues.
Results of Operations
Three Months and Six Months Ended June 30, 2000 Compared With Three
Months and Six Months Ended June 30, 1999
As of August 14, 2000, 145 FastTake kiosks were installed in stores,
contracts for another 109 have been signed and are in the process
of being installed, and another 176 have been ordered and are being
manufactured. In addition, the Company entered into an advertising
agreement with DoubleClick and began to generate limited revenues in
the second quarter of 2000.
The results of operations for the three months and six months ended June 30,
2000 are not necessarily indicative of the results that may be expected for
any other interim period or for the fiscal year ending December 31, 2000.
Recorded net revenues show a decrease of $14,443 or 30% to $33,609 for the
three months ended June 30, 2000 from $48,052 for the three months ended
June 30, 1999, and a decrease of $23,375 or 25% to $70,027 for the six months
ended June 30, 2000 from $93,402 for the six months ended June 30, 1999. The
change was primarily due to the inclusion of approximately $20,000 in revenues
from a video barter program for the three months and six months ended
June 30, 1999, which program was subsequently discontinued, as well as a
decrease of approximately $15,000 from consulting services for the six months
ended June 30, 2000 from the six months ended June 30, 1999. This was offset by
an increase in advertising revenue generated from the Company's FastTake
products of approximately $4,000 and $9,800 for the three months and six
months ended June 30, 2000.
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<PAGE>
Cost of sales and services increased by $217,227 or 122% to $395,669 for the
three months ended June 30, 2000 from $178,442 for the three months ended June
30, 1999, and increased by $351,782 or 110% to $672,009 for the six months ended
June 30, 2000 from $320,227 for the six months ended June 30, 1999,
due to an increase in depreciation and amortization of costs related to the
development and purchase of FastTake related products, and an increase in
maintenance costs related to the Fasttake kiosks that have been installed in
2000.
Research and development expenses decreased by $10,548 or 12% to $76,410 for the
three months ended June 30, 2000 from $86,958 for the three months ended
June 30, 1999, and decreased by $4,571 or 3 % to $161,298 for the six months
ended June 30, 2000 from $165,869 for the six months ended June 30, 1999,
due to a decrease in personnel devoted to research and development in
connection with the development and improvement of products not related to
Fasttake products.
General and administrative expenses increased by $346,388 or 51% to $1,021,698
for the three months ended June 30, 2000 from $675,310 for the three months
ended June 30, 1999,and increased by $589,767 or 47% to $1,833,231 for the six
months ended June 30, 2000 from $1,243,464 for the six months ended June
30, 1999 due to the hiring of marketing staff to accommodate the expansion
of sales opportunities related to FastTake products, and an increase in
consulting fees related to the Company's search for additional financing.
Other expense increased by $70,144 to $(90,630)for the three months ended
June 30, 2000 from ($20,486) for the three months ended June 30, 1999, and
increased by $84,042 to ($118,112)for the six months ended June 30, 2000 from
($34,070) for the six months ended June 30, 1999, due to an increase in
interest expense resulting from the leasing of kiosks.
The net loss increased by $607,654 or 67% to $$1,520,798 for the three months
ended June 30, 2000 from $913,144 for the three months ended June 30, 1999, and
increased by $1,084,395 or 70% to $2,634,623 for the six months ended June 30,
2000 from $1,550,228 for the six months ended June 30, 1999, due to an increase
in the development and marketing expenses related to FastTake.
Liquidity and Capital Resources
For the three months and for the six months ended June 30, 2000 the Company
incurred a net loss of $1,520,798 and $2,634,623, respectively. The accumulated
deficit increased to $17,322,308 resulting from the Company's continuing to
incur operating losses as expenses exceeded revenue, and the assumed dividends
from the issuance of preferred stock. The Company had working capital of
$381,480 as of June 30, 2000 as compared to $2,588,315 as of December 31, 1999,
or a decrease of $2,206,835. Capital expenditures and capitalized software
amounted to $1,438,141.
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<PAGE>
The Company expects to fund the deployment of additional
FastTake and other kiosks, and make kiosk related acquisitions, from
available working capital and from funds that will be derived from
future operating revenues and from equipment leasing, equity and/or
debt financing. 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 intends to meet its long-term liquidity needs
through available cash and cash flow as well as through additional
financing from outside sources. 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, giving effect to the sale of
$1,000,000 of Common Stock consummated on June 7, 2000, together with proceeds
from anticipated equipment financing arrangements and cash flow from
operations, the Company's existing working capital will be sufficient to fund
its operations at least through March 31, 2001. Continuing operations
thereafter will depend on cash flow from operations and the ability to raise
additional funds through equity, debt or other financing. There can be no
assurance, however, that such funds will be available.
Inflation and Seasonality
The rate of inflation was insignificant during the quarter
ended June 30, 2000. 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>
PART II
OTHER INFORMATION
Item 2: Changes in Securities and Use of Proceeds.
On June 7, 2000, the Company entered into subscription agreements with
several accredited investors pursuant to which, on that date, the Company sold
931,620 shares of common stock in the aggregate amount of $1,000,000. The
Company incurred expenses in the amount of $50,000 in connection with issuing
and distributing the common shares to the investors.
Under the terms of the subscription agreements, the investors agreed
not to sell any of these shares for 120 days after closing. After the 120th
day, the investors may sell 25% of the shares acquired, and 6.25% of the amount
of the shares originally acquired may then be sold each 30 days thereafter. At
the closing, the Company issued an additional 55,898 shares of common stock
to Intercoastal Financial Services Corp. as placement agent fees. The shares
of common stock were sold to accredited investors and were issued in reliance
on the exemptions from registration provided by Rule 506 of Regulation D and
Section 4(2) of the Securities Act of 1933, as amended (the "Act").
The Company registered for resale the shares of common stock under the
Act on a registration statement on Form S-3, Commission file number 333-41620.
The registration statement was declared effective by the Securities and Exchange
Commission on July 27, 2000.
Between June 7, 2000 and June 30, 2000, the Company used $400,000 of
the net offering proceeds for working capital and for general corporate
purposes.
Item 4. Submission of Matters to a Vote of Security Holders.
On June 6, 2000, at the Company's annual meeting of stockholders, the
stockholders of the Company approved the following matters:
First, the election of Messrs. George J. Febish and Daniel E. Ryan as
Class II directors of the Company to serve until the annual meeting of
stockholders scheduled to be held in the year 2002 and until their respective
successors are elected and qualified. There were 2,711,289 votes cast in favor
of the election of George J. Febish and 7,242 votes withheld. There were
2,711,289 votes cast in favor of the election of Daniel E. Ryan and 7,242 votes
withheld; the term of office of David E.Y. Sarna and Michael A. Burak as
Class I directors of the Company continued after the annual meeting until the
annual meeting of stockholders scheduled to be held in the year 2001 and until
their respective successors are elected and qualified;
Second, the approval of the issuance of the Company's securities
pursuant to a Subscription Agreement dated as of December 30, 1999 among the
Company and the investors referred to therein. There were 583,621 votes cast
for the matter, 28,291 votes cast against the matter, 8,113 abstentions and
2,098,506 broker non-votes;
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<PAGE>
Third, the approval of amendments to the Company's 1996 Stock Option
Plan, as amended (the "1996 Plan") to increase the maximum number of shares of
common stock for which options may be granted under the 1996 Plan from 208,333
to 1,000,000 shares and to increase the maximum number of shares of common
stock which may be granted to an individual employee during any calendar year
under the 1996 Plan from 41,666 (after giving effect to the one-for-six reverse
stock split which became effective on October 13, 1999) to 500,000 shares.
There were 568,586 votes cast in favor of the matter, 47,580 votes cast against
the matter, 4,458 abstentions and 2,097,907 broker non-votes;
Fourth, the approval of the grant of 500,000 non-qualified performance
vesting options (the "Performance Options") to each of Messrs. David E.Y. Sarna
and George J. Febish, such options having an exercise price of $1.50 for a term
of five years, vesting upon the achievement of certain milestones
(the "Milestones") determined by the Stock Option Committee and the
Compensation Committee based upon (a) financial achievements, (b) acquiring
lease financing for kiosks, (c) placing kiosks, and (d) other specified
achievements. In the event any of the Milestones are not achieved by
December 9, 2002, the portion of the Performance Options related to that
Milestone will expire. There were 564,207 votes cast in favor of the matter,
50,076 votes cast against the matter, 6,341 abstentions and 2,718,531 broker
non-votes; and
Fifth, the ratification and approval of the appointment of
Richard A. Eisner & Company as the independent auditors of the Company for the
fiscal year ending December 31, 2000. There were 2,705,737 votes cast for the
matter, 10,108 votes cast against the matter and 2,686 abstentions.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 27 -Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the three
months ended June 30, 2000.
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<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
OBJECTSOFT CORPORATION
BY /s/ David E. Y. Sarna
David E. Y. Sarna, Co-Chief
Executive Officer and Principal
Financial Officer
August 14, 2000
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