SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the quarterly period ended September 30, 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 November 6, 2000
Common Stock, $.0001 par value 6,705,301
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-
September 30, 2000 1
Condensed Statements of Operations
Three Months and Nine Months Ended
September 30, 2000 and 1999 2
Condensed Statements of Cash Flows
Nine Months Ended September 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 10
Signatures 11
Exhibit index 12
Exhibit 27 Article 5 Financial Data Schedule 13
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<TABLE>
PART I Financial information
OBJECTSOFT CORPORATION
CONDENSED BALANCE SHEETS -- SEPTEMBER 30, 2000 (Unaudited)
<CAPTION>
SEPTEMBER
30, 2000
--------------
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $73,616
Marketable securities 9,581
Accounts receivable 22,997
Due from investor 82,138
Prepaid expenses and other
current assets 238,357
Deferred tax asset 538,003
--------------
Total current assets 964,692
Equipment, at cost, net of
accumulated depreciation 3,154,961
Capitalized software 319,507
Loans receivable-
officer/ shareholder 316,210
Other assets 35,644
Deferred tax asset- non current
--------------
T O T A L $4,791,014
==============
LIABILITIES
Current liabilities
Current portion of long-term
debt $4,173
Current portion of obligations
under capital lease 187,989
Accounts payable 1,766,286
Accrued expenses 155,014
Other current liabilities 1,117
--------------
Total current liabilities 2,114,579
Long-term debt
Obligations under capital lease 246,864
Convertible loans payable 350,000
--------------
Total Liabilities 2,711,443
--------------
STOCKHOLDERS' EQUITY
6% non-voting convertible preferred G
stock, $100 par, authorized 30,000 shares
issued and outstanding 17,400 shares 1,740,000
Common stock, $.001 par value; authorized
50,000,000 shares; issued and outstanding
6,476,207 shares at September 30, 2000 648
Additional paid-in capital 19,310,430
Accumulated deficit (18,971,507)
--------------
Total stockholders' equity 2,079,571
--------------
T O T A L $4,791,014
==============
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<TABLE>
OBJECTSOFT CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
UNAUDITED
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
2000 1999 2000 1999
----------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Sales and services $52,623 $32,946 $122,650 $126,348
----------------- -------------- -------------- --------------
Expenses:
Cost of sales and services 463,232 263,001 1,135,241 583,228
Research and development 92,957 119,256 254,255 285,125
General and administrative 1,043,895 709,405 2,877,126 1,952,869
----------------- -------------- -------------- --------------
Total expenses 1,600,084 1,091,662 4,266,622 2,821,222
----------------- -------------- -------------- --------------
Loss from operations (1,547,461) (1,058,716) (4,143,972) (2,694,874)
----------------- -------------- -------------- --------------
Other income(expense):
Realized and unrealized (loss) on
marketable securities 2,013 (34,852) (34,037) (68,457)
Interest and dividend income 2,279 4,749 33,320 20,647
Interest expense (55,266) (19,693) (168,369) (36,056)
Amortization of discount associated
with issuance of warrants (49,400) (49,400)
----------------- -------------- -------------- --------------
Total other income (expense) (100,374) (49,796) (218,486) (83,866)
----------------- -------------- -------------- --------------
(Loss) before income tax benefit (1,647,835) (1,108,512) (4,362,458) (2,778,740)
Income tax benefit 80,000 120,000
----------------- -------------- -------------- --------------
NET (LOSS) ($1,647,835) ($1,108,512) ($4,282,458) ($2,658,740)
================= ============== ============== ==============
Net (loss) available to common
stockholders
BASIC AND DILUTED NET (LOSS) PER SHARE ($0.27) ($0.83) ($1.35) ($2.67)
================= ============== ============== ==============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 6,164,830 1,477,582 5,059,469 1,274,398
================= ============== ============== ==============
</TABLE>
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<TABLE>
OBJECTSOFT CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
UNAUDITED
<CAPTION>
Nine Months Ended September 30,
2000 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (4,282,458)$ (2,658,740)
Adjustments to reconcile net loss to net
cash (used in) operating activities:
Depreciation and amortization 780,732 450,705
Changes in operating assets and
liabilities:
Deferred tax asset (80,000) (120,000)
Warrants and options issued for services rendered 159,606
Unrealized (gain) loss on marketable securities 33,675
(Increase) decrease in:
Marketable securities 279,662 (282,043)
Accounts receivable 6,337 (29,918)
Other current assets 99,617 78,758
Notes receivable officer/shareholder (41,155) (112,331)
Other assets 58,482 111,166
Increase (decrease) in:
Accounts payable 1,421,000 (273,666)
Accrued expenses and
other liabilities (19,531) 116,293
-------------- --------------
Net cash used in operating activities (1,584,033) (2,719,776)
-------------- --------------
Cash flow from investing activities:
Capital expenditures (2,196,108) (933,136)
Capitalized software and courseware (259,843) (197,632)
-------------- --------------
Net cash (used in) investing activities (2,455,951) (1,130,768)
-------------- --------------
Cash flow from financing activities:
Proceeds from issuance of preferred and common stock 1,478,207
Sale of an option 50,000
Proceeds from exercise of warrants
and nonemployee options 10,023 44,913
Proceeds from convertible loan payable 350,000
Proceeds from issuance of preferred stock 3,912,408
Principal payments on obligations
under capital leases (76,629) (70,994)
Proceeds from capital leases 123,200
Repayment of long-term debt (8,643) (12,627)
-------------- --------------
Net cash provided by financing activities 1,802,958 3,996,900
-------------- --------------
NET INCREASE (DECREASE) IN CASH (2,237,026) 146,356
Cash, beginning of period 2,310,642 982,006
-------------- --------------
Cash, end of period $ 73,616 $ 1,128,362
============== ==============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION
Interest expense paid $ 89,169 $ 36,056
============== ==============
Noncash Activities
Capital lease obligations resulting from
leases of new equipment $ 39,773 $ 354,227
============== ==============
Stock issued for future services $ 121,900
==============
</TABLE>
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<PAGE>
OBJECTSOFT CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
September 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 S-B. 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.
NOTE C -- SUBSEQUENT EVENTS
On October 13, 2000, the Company borrowed $175,000 from an accredited investor
and issued a thirty-day promissory note in the amount of $175,000 and a
warrant to purchase 100,000 shares of common stock, and on October 27, 2000,
the Company borrowed $200,000 from an accredited investor and issued a
thirty-day promissory note in the amount of $200,000 and a warrant to purchase
114,285 shares of common 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 October 19, 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 began to recognize greater
revenues from the FastTake kiosks during 2000, it cannot predict the actual
timing or amount of future revenues, if any.
OBJECTSOFT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
Three Months and Nine Months Ended September 30, 2000 Compared With Three
Months and Nine Months Ended September 30, 1999
As of November 6, 2000, 248 FastTake kiosks were
installed in stores, contracts for another 89 have been signed and are in the
process of being installed, and another 93 have been ordered and are being
manufactured. This compares with 145 FastTake kiosks which were installed in
stores as of August 14, 2000, an increase of 65% As of September 30, 2000, 201
FastTake kiosks were installed in stores, contracts for another 55 were signed
and were in the process of being installed, and another 174 had 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 and third quarter of 2000.
The results of operations for the three months and nine months ended September
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 shows an increase of $19,677 or 60% to $52,623 for the
three months ended September 30, 2000 from $32,946 for the three months ended
September 30, 1999, and a decrease of $3,698 or 3% to $122,650 for the nine
months ended September 30, 2000 from $126,348 for the nine months ended
September 30, 1999. The increase for the third quarter was primarily due to
the increase in revenues generated from advertising on the FastTake kiosks at
the end of the second quarter and the beginning of the third quarter in 2000.
The decrease for the nine months was due to a decrease in 2000 of consulting
income which was partially offset by an increase in 2000 of FastTake related
advertising revenue.
Cost of sales and services increased by $200,231 or 76% to $463,232 for the
three months ended September 30, 2000 from $263,001 for the three months ended
September 30, 1999, and increased by $552,013 or 95% to $1,135,241 for the
nine months ended September 30, 2000 from $583,228 for the nine months ended
September 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 $26,299 or 22% to $92,957 for
the three months ended September 30, 2000 from $119,256 for the three months
ended September 30, 1999, and decreased by $30,870 or 11% to $254,255 for
the nine months ended September 30, 2000 from $285,125 for the nine months
ended September 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.
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<PAGE>
General and administrative expenses increased by $334,490 or 47% to $1,043,895
for the three months ended September 30, 2000 from $709,405 for the three
months ended September 30, 1999,and increased by $924,257 or 47% to $2,877,126
for the nine months ended September 30, 2000 from $1,952,869 for the nine
months ended September 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 $50,578 or 102% to $(100,374) for the three months
ended September 30, 2000 from ($49,796) for the three months ended September
30, 1999, and increased by $134,620 or 161% to ($218,486)for the nine months
ended September 30, 2000 from ($83,866) for the nine months ended September
30, 1999, due to an increase in interest expense resulting from the leasing of
kiosks, and amortization of discount associated with the issuance of warrants.
The net loss increased by $539,323 or 49% to $1,647,835 for the three months
ended September 30, 2000 from $1,108,512 for the three months ended September
30, 1999, and increased by $1,623,718 or 61% to $4,282,458 for the nine months
ended September 30, 2000 from $2,658,740 for the nine months ended September
30, 1999, due to an increase in the development and marketing expenses related
to FastTake, and expenses associated with issuance of warrants
Liquidity and Capital Resources
For the three months and for the nine months ended September 30, 2000 the
Company incurred a net loss of $1,647,835 and $4,282,458 respectively. The
accumulated deficit increased to $18,971,507 resulting from the Company
continuing to incur operating losses as expenses exceeded revenue, and the
assumed dividends from the issuance of preferred stock. The Company had
working capital deficit of $1,149,887 as of September 30, 2000 as compared to
a positive working capital of $2,588,315 as of December 31, 1999, or a
decrease of $3,738,202. Capital expenditures and capitalized software
amounted to $2,455,951.
-7-
<PAGE>
During August and September 2000, the Company raised an aggregate of
approximately $590,000 (net of expenses) in connection with equity and debt
financings. See Part II, Item 2 of this Form 10-QSB. Additionally, on
October 13, 2000, the Company borrowed $175,000 from an accredited investor
and issued a thirty-day promissory note in the amount of $175,000 and a
warrant to purchase 100,000 shares of common stock, and on October 27, 2000,
the Company borrowed $200,000 from an accredited investor and issued a
thirty-day promissory note in the amount of $200,000 and a warrant to purchase
114,285 shares of common stock.The Company expects to fund the deployment of
additional FastTake and other kiosks, and make kiosk related acquisitions,
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 for
the expansion of operations. The Company intends to lease equipment whenever
possible on acceptable terms.
The Company has incurred, and will continue to incur, significant
costs, developing and maintaining its kiosks and Internet operations. The
Company anticipates incurring additional losses until it can successfully
market and distribute its products and develop new technologies and
commercially viable future products. The Company's ability to continue
operations will depend on its positive cash flow from future operations and on
its ability to raise additional funds through equity or debt financing. The
Company does not know if it will be able to raise additional funding or if
additional funding will be available on favorable terms. The Company will be
required to cut back or stop operations if it is unable to raise or obtain
needed funding.
Inflation and Seasonality
The rate of inflation was insignificant during the quarter
ended September 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.
-8-
<PAGE>
PART II
OTHER INFORMATION
Item 2: Changes in Securities and Use of Proceeds.
On August 24, 2000, the Company entered into a common stock purchase
agreement with an accredited investor pursuant to which the Company sold
450,000 shares of common stock for an aggregate purchase price of
$410,690.70. The Company incurred expenses in the amount of approximately
$15,000 in connection with issuing and distributing the common shares to the
investor. $123,207.21 (30% of the purchase price) was paid directly to the
Company and $287,483.49 (70% of the purchase price) was paid into escrow. On
October 25, 2000, $82,138.14 (20% of the purchase price), plus interest in an
amount of approximately $400, was released from escrow to the Company after it
notified the investor that the Form S-3 registration statement, Commission
file number 333-47458, which registered for resale the shares of common stock
under the Securities Act of 1933, as amended (the "Act"), was declared
effective by the Securities and Exchange Commission on October 19, 2000 (the
"Effective Date"), and that the closing bid price of its common stock was at
least $0.75 per share, based on an average of the five trading days following
the Effective Date. The remaining escrowed 50% of the purchase price will be
distributed pursuant to the terms of the common stock purchase agreement, and
as set forth in the S-3 registration statement.
Under the terms of the common stock purchase agreement, the investor
agreed as follows: beginning the Effective Date and on each 30th day
thereafter until the 120th day after the Effective Date, the investor may only
sell or transfer 90,000 of its shares plus any amounts unsold from any prior
30 day period. The shares of common stock issued to the accredited investor
were issued in reliance on the exemptions from registration provided by Rule
506 of Regulation D and Section 4(2) of the Act.
Between August 24, 2000 and September 30, 2000, the Company used the
net offering proceeds which it has received for working capital and for
general corporate purposes.
On September 13, 2000, the Company borrowed $350,000 and issued a
convertible promissory note in the amount of $350,000 in favor of an
accredited investor. The note bears interest at a rate of 12% per annum and
was due and payable on October 13, 2000. Pursuant to the terms of amendments
to the note, the maturity date of the note was extended to November 30, 2000.
On the maturity date, subject to certain conditions and at the option of the
holder of the note, the principal amount of the note, plus interest, is
convertible into a new class of preferred stock to be issued in the next
private placement of the Company's securities. In connection with the
issuance of the promissory note, the Company issued to the accredited investor
warrants to purchase an aggregate of 250,000 shares of the Company's common
stock. The warrants have an exercise price of $1.0625 per share and have a
term of five years. The issuance of the warrants will not be credited against
the payment of the outstanding principal amount of the note. The convertible
promissory note and the related warrants were issued in reliance on the
exemptions from registration provided by Rule 506 of Regulation D and Section
4(2) of the Act.
Between September 13, 2000 and September 30, 2000, the Company used
the proceeds from the note for working capital and for general corporate
purposes.
On or about September 28, 2000, the Company sold to an accredited
investor, for a purchase price of $50,000, the right to acquire 82,051 shares
of the Company's common stock or a pro rata share of the Company's next equity
financing. Between September 28, 2000 and September 30, 2000, the Company used
such proceeds for general corporate purposes.
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<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 27 -Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the three
months ended September 30, 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
November 14, 2000
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OBJECTSOFT CORPORATION
Exhibit Index
Exhibit Number Page #
27 Financial Data Schedule 13
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