U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______to________
Commission file number: 1-14076
VIZACOM INC.
(Exact name of small business issuer as specified in its charter)
Delaware 22-3270045
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
3A Oak Road, Fairfield, New Jersey 07004
(Address of principal executive offices)
(973) 808-1992
(Issuer's telephone number)
SOFTWARE PUBLISHING CORPORATION HOLDINGS, INC.
(Former name, former address and former fiscal years,
if changed since last report)
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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 6,601,544 shares of Common Stock, as
of July 15, 1999.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
VIZACOM INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item Pages
- ---- -----
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 1999(Unaudited)
and December 31, 1998........................................................3
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 1999 and 1998 (Unaudited) ..............4
Condensed Consolidated Statement of Changes in Stockholders' Equity
for the Six Months Ended June 30,1999 (Unaudited) ..........................5
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 1998 (Unaudited............................................6
Notes to Condensed Consolidated Financial Statements........................7-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ...............................................12-18
Part II. OTHER INFORMATION................................................19-20
2
<PAGE>
VIZACOM INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 762,742 $ 2,377,648
Marketable securities 2,440,146 1,020,000
Receivables
Trade accounts, net 903,642 1,169,233
Other 136,569 390,429
Notes, current portion 221,487 13,026
Inventories 589,272 607,181
Prepaid expenses and other current assets 1,176,143 684,268
------------ ------------
Total current assets 6,230,001 6,261,785
Property and equipment, net 576,813 445,447
Acquired software, net 961,667 2,144,417
Goodwill, net 156,138 193,611
Restricted cash 200,000 200,000
Notes receivable, long term portion 73,289 28,078
Other assets 739,214 724,972
------------ ------------
Total assets $ 8,937,122 $ 9,998,310
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,545,641 $ 3,484,275
Accrued liabilities 1,648,243 2,147,394
Current portion of long-term debt 75,222 195,044
------------ ------------
Total current liabilities 5,269,106 5,826,713
Long-term debt, less current maturities 75,084 99,554
------------ ------------
Total liabilities 5,344,190 5,926,267
------------ ------------
Commitments and Contingencies
Stockholders' equity:
Preferred Stock
Class B, Series A, 60,520 shares authorized, none issued -- --
Junior Participating, Series A, 100,000 shares authorized; none issued -- --
Serial Preferred Stock, $.001 par value, 1,939,480 shares authorized;
Class A, 1,500 shares authorized, 0 and 930 shares issued, respectively -- 930,000
Class C, 1,000 shares authorized, 930 and 0 shares issued, respectively 930,000 --
Common stock, $.001 par value, 30,000,000 shares authorized;
issued 5,791,986 and 5,083,653 shares, respectively 5,792 5,084
Additional paid-in capital 46,415,141 45,385,487
Accumulated deficit (43,734,850) (42,238,133)
Accumulated other comprehensive loss (12,756) --
Treasury stock, at cost, 3,095 shares (10,395) (10,395)
------------ ------------
Total stockholders' equity 3,592,932 4,072,043
------------ ------------
Total liabilities and stockholders' equity $ 8,937,122 $ 9,998,310
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
VIZACOM INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 4,362,187 $ 4,079,533 $ 9,297,715 $ 8,002,979
Cost of goods sold 1,524,653 745,657 3,057,618 1,703,301
----------- ----------- ----------- -----------
Gross profit 2,837,534 3,333,876 6,240,097 6,299,678
Selling, general and administrative expenses 3,982,247 2,889,044 7,986,643 5,590,873
Product development 112,975 517,324 266,344 772,577
Amortization of goodwill and purchased technology 578,528 596,389 1,172,848 1,188,639
Unrealized holding gain on marketable securities (760,146) -- (1,420,146) --
Other expense (income), net (251,295) 5,273 (268,875) (54,365)
----------- ----------- ----------- -----------
3,662,309 4,008,030 7,736,814 7,497,724
Loss before income taxes (824,775) (674,154) (1,496,717) (1,198,046)
Income taxes -- 44,971 -- --
----------- ----------- ----------- -----------
Net loss (824,775) (629,183) (1,496,717) (1,198,046)
Dividends on Series A and Series C Preferred Stock (25,155) -- (51,316) --
----------- ----------- ----------- -----------
Net loss attributable to common stockholders $ (849,930) $ (629,183) $(1,548,033) $(1,198,046)
=========== =========== =========== ===========
Net loss per common share:
Net loss per common share - basic and diluted $ (.16) $ (.18) $ (.30) $ (.36)
=========== =========== =========== ===========
Weighted average number of common shares
outstanding - basic and diluted 5,278,524 3,576,425 5,229,233 3,296,956
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
VIZACOM INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock
-------------------------------------------------------------
Class A Class C Common Stock
--------------------------------- ------------------------- ------------------------
Shares Amount Shares Amount Shares Amount
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 930 $ 930,000 -- -- 5,083,653 $ 5,084
Comprehensive income (loss):
Net loss -- -- -- -- -- --
Currency translation adjustment -- -- -- -- -- --
Total comprehensive loss -- -- -- -- -- --
Exchange of Class A Preferred Stock
for Class C Preferred Stock and warrants,
less related costs (930) (930,000) 930 930,000 -- --
Common stock issued on exercise
of warrants -- -- -- -- 183,333 183
Sale of common stock in private
placement, net -- -- -- -- 525,000 525
Issuance of options and warrants for
current and future services -- -- -- -- -- --
Dividends on preferred stock -- -- -- -- -- --
---------------------------------------------------------------------------------------
Balance at June 30, 1999 -- -- 930 $ 930,000 5,791,986 $ 5,792
=======================================================================================
<CAPTION>
Accumulated
Additional Other Total
Paid-in Accumulated Comprehensive Treasury Stockholders'
Capital Deficit Loss Stock Equity
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------
Balance at December 31, 1998 $ 45,385,487 $(42,238,133) $ -- $ (10,395) $ 4,072,043
Comprehensive income (loss):
Net loss -- (1,496,717) -- --
Currency translation adjustment -- -- (12,756) --
Total comprehensive loss -- -- -- -- (1,509,473)
Exchange of Class A Preferred Stock
for Class C Preferred Stock and warrants,
less related costs (33,905) -- -- -- (33,905)
Common stock issued on exercise
of warrants 5,317 -- -- -- 5,500
Sale of common stock in private
placement, net 987,831 -- -- -- 988,356
Issuance of options and warrants for
current and future services 121,727 -- -- -- 121,727
Dividends on preferred stock (51,316) -- -- -- (51,316)
-------------------------------------------------------------------------
Balance at June 30, 1999 $ 46,415,141 $(43,734,850) $ (12,756) $ (10,395) $ 3,592,932
=========================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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VIZACOM INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Operating activities:
Net loss $(1,496,717) $(1,198,046)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,412,037 1,330,749
Unrealized holding gain on marketable securities (1,420,146) --
Gain on licensing of technology (211,006) --
Stock options issued for legal services 20,462 --
Sale of marketable securities -- 173,600
Changes in assets and liabilities:
Receivables 519,451 (173,841)
Inventories 17,909 (43,304)
Prepaid expenses and other currents assets (550,927) (4,184)
Other assets (5,479) (16,100)
Accounts payable 61,366 558,124
Accrued liabilities (550,467) (2,037,923)
----------- -----------
Net cash used in operating activities (2,203,517) (1,410,925)
----------- -----------
Investment activities:
Purchase of property and equipment (219,001) (21,571)
Collection of notes receivable 4,709 --
----------- -----------
Net cash used in investing activities (214,292) (21,571)
----------- -----------
Financing activities:
Payment of long-term debt (144,292) (104,004)
Proceeds from sale of common stock, net 988,356 1,038,247
Proceeds from warrant exercise 5,500 --
Costs of issuance of preferred stock (33,905) --
----------- -----------
Net cash provided by financing activities 815,659 934,243
----------- -----------
Effect of exchange rate changes on cash and cash equivalents (12,756) --
Net decrease in cash and cash equivalents (1,614,906) (498,253)
Cash and cash equivalents, at beginning of period 2,377,648 2,586,753
----------- -----------
Cash and cash equivalents at end of period $ 762,742 $ 2,088,500
=========== ===========
Supplemental disclosure of cash flow information:
Interest $ 10,744 $ --
=========== ===========
Income taxes $ -- $ --
=========== ===========
Supplemental disclosure of non-cash financing and investing activities:
Dividends accrued on preferred stock $ 51,316 $ --
=========== ===========
Warrants issued for other assets $ 101,265 $ --
=========== ===========
Common stock issued in payment of liabilities $ -- $ 107,107
=========== ===========
Common stock issued for services $ -- $ 110,500
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
VIZACOM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Vizacom Inc. (formerly known as Software Publishing Corporation Holdings,
Inc.) and its wholly owned subsidiaries, have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310 of
Regulation S-B. Accordingly, they do not include all of 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 a fair
presentation have been included. Operating results for the six month period
ended June 30, 1999 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1999. For further information,
refer to the consolidated financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1998.
The condensed consolidated balance sheet as of December 31, 1998 has been
derived from the Company's audited consolidated balance sheet as of that
date. See Note 2 with respect to reclassifications.
2. Significant Accounting Policies
Software Development Costs
Product development costs for products which have established technological
feasibility are capitalized and capitalization is discontinued when the
product is available for sale. Approximately $166,000 was capitalized at
June 30, 1999. Software development costs incurred prior to establishment
of technological feasibility are charged to product development expense.
Direct-Response Advertising
Advertising costs associated with direct-response advertising, whose
primary purpose is to elicit sales to customers who could be shown to have
responded specifically to that advertising, are capitalized and recognized
ratably in the future as a percentage of actual period to total revenues
anticipated from such advertising. Costs associated with direct-response
advertising include mailing list rental, postage, production, and other
associated promotional activities.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards of
reporting and displaying comprehensive income and its components of net
income and "other comprehensive income" in financial statements. "Other
Comprehensive Income" refers to revenues, expenses, gains and losses that
are not included in net income but rather are recorded directly in
stockholders' equity.
Reclassifications
Certain reclassifications have been made to the 1998 amounts to conform
with the 1999 presentation.
7
<PAGE>
VIZACOM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Loss per Share
Basic loss per share is computed based upon the weighted average number of
common shares outstanding during each period presented. Stock options and
warrants did not have an effect on the computation of diluted earnings per
share in the six month periods ended June 30, 1999 and 1998 since they were
anti-dilutive.
4. Marketable Securities
The Company accounts for its investment in marketable securities, 120,000
shares of X-Ceed, Inc. common stock ("Xceed Shares"), as a trading
security, and therefore records an unrealized holding gain or loss each
period determined by the market value of Xceed Shares at the end of each
period. On July 14, 1999, the Board of Directors of the Company called for
redemption all outstanding shares of the Class C 11 % Cumulative
Non-Convertible Redeemable Preferred Stock ("Class C Preferred") of the
Company with a record date for such redemption of July 19, 1999. On July 1,
1999, the Company agreed with the holder of such shares of Class C
Preferred (the "Holder") that in the event the Company called for
redemption any of its shares of Class C Preferred within 45 days, the
Company would sell to the Holder 53,815 Xceed Shares owned by the Company
at a price of $18.44 per Xceed Share, or $992,349 in the aggregate. Such
transaction was consummated on July 19, 1999. On August 11, 1999 the
closing market value of Xceed common stock was $14.50, representing a
decline of $488,114 in the value of the Company's remaining 66,185 Xceed
Shares.
5. Stockholders' Equity
In January 1999, the holder of all 930 shares of the Class A 14% Cumulative
Non-Convertible Redeemable Preferred Stock ("Class A Preferred") of the
Company exchanged such Class A Preferred shares for (i) the issuance of 930
shares of the Class C Preferred of the Company, (ii) the issuance of
warrants to purchase 260,000 shares of Common Stock, at an exercise price
of $1.0625 per share, exercisable immediately and expiring in January 2006,
and (iii) a payment of $7,134 representing all accrued dividends on the
Class A Preferred through the effective date of such exchange. The
Certificate of Designations with respect to the Class C Preferred
authorizes a class of 1,000 shares of Class C Preferred. Holders of shares
of Class C Preferred will be entitled to (a) cumulative dividends of $110
per share per annum, payable semi-annually on June 30 and December 31, of
each calendar year, commencing on June 30, 1999, (b) a liquidation
preference of $1,000 per share and (c) the right to elect one director in
the event the Corporation fails to tender in full three consecutive
semi-annual dividend payments. In addition, the Company has the right to
redeem the Class C Preferred, in part or whole, at any time, upon payment
of $1,000 per share of Class C Preferred.
In February 1999, the Company issued 183,333 shares of its common stock
pursuant to the exercise of warrants to purchase such shares at $.03 per
share, or $5,500.
On April 6, 1999 the Company entered into certain annual financial advisory
and investment banking agreements whereby the Company issued warrants to
purchase 100,000 and 45,000 shares, respectively, of common stock of the
Company at an exercise price of $1.125. The warrants are exercisable for
the period from April 6, 2000 through April 6, 2004. The warrants were
valued at $69,742 and $31,523, respectively, and are included in other
assets. The Company also issued options to purchase 25,000 shares of its
common
8
<PAGE>
VIZACOM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Stockholders' Equity (cont.)
stock to employees of its legal counsel, at an exercise price of $1.03125.
These options were valued at $20,462. In July 1999, Options to purchase
13,625 shares of common stock, of the 25,000 options given to the
aforementioned employees, have been cancelled.
On June 9, 1999, the Company sold an aggregate of 525,000 shares of Common
Stock for aggregate gross proceeds of $1,050,000, before associated
transaction costs of $61,644, to twenty-two accredited investors.
On July 1, 1999, the Company sold an aggregate of 762,653 shares of common
stock for aggregate gross proceeds of $1,510,000 to 45 investors in a
private placement in which Joseph Stevens & Company, Inc. acted as
placement agent.
In July 1999 the Company issued 50,000 shares of common stock to the
members of it's corporate counsel in exchange for a reduction in
outstanding fees due to such law firm. See Note 7.
On July 14, 1999, the Board of Directors of the Company called for
redemption all outstanding shares of Class C Preferred of the Company with
a record date for such redemption of July 19, 1999. See Note 4.
On July 20, 1999 the Company issued warrants to purchase an aggregate of
225,000 shares of its common stock at an exercise price of $2.00, through
July 20, 2004, in connection with a consulting agreement.
6. License of Technology
On June 14, 1999 the Company entered into an agreement to license certain
of its proprietary technology to an outside third party in return for
certain future payments totaling $275,000. For the quarter ended June 30,
1999 the Company recorded the present value of the payments as a note
receivable and included a gain on the licensing of the technology in other
income amounting to $211,006.
7. Litigation
On January 30, 1998, an action was commenced against the Company and
certain current and former officers, in which plaintiffs allege that, in
October 1997, the plaintiffs purchased an aggregate 296,333 shares of the
Company's common stock (adjusted for the May 28,1998 three-for-one reverse
stock split) for gross proceeds of $919,495 based upon certain allegedly
misleading statements made to one of the plaintiffs which were allegedly
designed to deceive plaintiffs as to the Company's true financial state.
Plaintiffs seek recision of their investment, a return of their purchase
price and certain other relief. The Company believes that these claims are
without merit and is vigorously defending itself in this action. The
Company has denied the plaintiffs' allegations and asserted affirmative
defenses, including that the plaintiffs' subscription agreements bar
plaintiffs' claims, and has asserted counterclaims that, among other
things, plaintiffs breached certain of the representations contained in
their subscription agreements, that one of the plaintiffs breached his
fiduciary duties to the Company and that plaintiffs' violated Section 13(d)
of the Exchange Act by filing a materially false and misleading Schedule
13D with respect to the Common Stock. This action currently is in the
discovery stage.
In the fourth quarter of 1998, an action was commenced against the Company
in California in which plaintiff is seeking $300,000 in damages for the
Company's alleged violation of a lease for office space located in San
Jose, California. The Company believes that plaintiff's claims in this
action are without merit and intends to vigorously defend itself in this
action. The Company has filed an answer in this action denying the
plaintiff's allegations. This action is currently in the discovery stage
and is scheduled for non-
9
<PAGE>
VIZACOM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Litigation (cont.)
binding mediation.
The Company has other litigation matters in progress in the ordinary course
of business. In the opinion of management, all of such other pending
litigation of the Company is expected to be resolved without a material
adverse effect on the Company's financial position, results of operations
or cash flow.
8. Related Party Transactions
During the six months ended June 30, 1999, the Company incurred
approximately $238,000 of legal fees to a law firm of which a director of
the Company is a member. Approximately $360,000 owed to such law firm is
included in accounts payable at June 30, 1999. In July 1999, 50,000 shares
of common stock were granted to the members of this law firm in exchange
for an agreed $100,000 reduction in outstanding fees. 37,500 shares of
common stock were granted to the director with the balance granted to his
partner. In addition, in June and July 1999, options to purchase an
aggregate of 100,000 shares of common stock were granted to the members of
this law firm at exercise prices of $2.75 and $3.08 per share. Options to
purchase 75,000 of these shares were granted under the Company's 1994 Long
Term Incentive Plan.
9. Foreign and Domestic Operations
The Company conducts its business within the computer software industry.
Foreign and domestic operations for the six months ended June 30, 1999 and
1998, were as follows:
United States International Consolidated
------------- ------------- ------------
June 30,1999:
Net sales $ 3,489,249 $ 5,808,466 $ 9,297,715
=========== =========== ===========
Loss before income taxes $(1,265,228) $ (231,489) $(1,496,717)
=========== =========== ===========
June 30,1998:
Net sales $ 3,830,594 $ 4,172,385 $ 8,002,979
=========== =========== ===========
Income (loss) before income taxes $(1,557,324) $ 359,278 $(1,198,046)
=========== =========== ===========
Income tax expense $ -- $ 44,971 $ 44,971
=========== =========== ===========
10
<PAGE>
VIZACOM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. Commitments and Contingencies
In September 1997, the Company applied for a closing agreement with the IRS
pursuant to which we would become jointly and severally liable for the tax
obligations of Software Publishing Corporation ("SPC'), a subsidiary of the
Company, upon occurrence of a "triggering event" requiring recapture of
dual consolidated losses previously utilized by SPC. The Company acquired
SPC in December 1996. Such closing agreement would avoid SPC's being
required to recognize a tax of approximately $8 million on approximately
$24.5 million of SPC's pre-acquisition dual consolidated losses. The
Company recently received notification from the IRS that the IRS has
determined not to act on its application until such time as SPC submits
certain filings pertaining to pre-acquisition filings made by SPC. Such
additional filings require SPC to obtain IRS relief so as to permit SPC to
appropriately make the election allowing SPC to utilize dual consolidated
losses. We believe that once the appropriate prior year filings are made,
and re-application for a closing agreement is made, the IRS should agree to
such a closing agreement. However, no assurance can be given that the IRS
will do so, and any failure to do so could result in the recognition of
this tax liability. Should such a closing agreement be obtained, in certain
circumstances, a future acquirer of the Company may also be required to
agree to a similar closing agreement in order to avoid the same tax
liability, to the extent it is able to do so. This could have a material
adverse effect on our future ability to sell SPC. The report of our
auditors covering the December 31, 1998 consolidated financial statements
contains a paragraph emphasizing these dual consolidated losses.
On July 14, 1999, the Company entered into a three year employment
agreement with the Company's President and Chief Executive Officer, Mark E.
Leininger. Under the terms of the agreement, Mr. Leininger will receive
$162,500 base pay with minimum $10,000 annual increases during the term of
the agreement. Such annual increases may be revised upward at the
discretion of the Compensation Committee of the Board of Directors. Mr.
Leininger will receive a $25,000 bonus upon the Company's attainment of its
first profitable fiscal quarter. Mr. Leininger will also receive a
quarterly bonus of 3% of the Company's net income before extraordinary
items. In the event of a change of control, the agreement provides that Mr.
Leininger shall have the right to terminate the employment agreement within
six months thereafter, and receive payment of three times the average
annual cash compensation paid by the Company to Mr. Leininger over the
previous five years, less $1.00. The agreement further contains
restrictions on the employee engaging in competition with the Company for
the term thereof and for up to one year thereafter, and provisions
protecting the Company's proprietary rights and information.
On July 14, 1999 the Company entered into a sublease agreement for its
corporate headquarters. Under the sublease agreement the Company will lease
4,787 square feet of commercial office space commencing September 1, 1999
for a fixed annual rental of $119,675. The lease runs through January 31,
2003.
On July 27, 1999 the Company entered into a minimum annual purchase
commitment of approximately $230,000 with a distributor of certain software
the Company intends to sell in its direct mail operation.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Statements contained in this Quarterly Report on Form 10-QSB, that are not based
on historical fact, include "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Forward-looking statements included
in this Form 10-QSB involve known and unknown risks, uncertainties and other
factors which could cause the actual results, performance (financial or
operating) or achievements expressed or implied by such forward-looking
statements not to occur or be realized. Such forward-looking statements
generally are based upon the Company's best estimates of future results,
performance or achievement, based upon current conditions and the most recent
results of operations. Forward-looking statements may be identified by the use
of forward-looking terminology such as "may," "will," "expect," "believe,"
"estimate," "anticipate," "continue" or similar terms, variations of those terms
or the negative of those terms. Potential risks and uncertainties include, among
other things, such factors as:
o the overall level of business and consumer spending for computer
software,
o the market acceptance and amount of sales of the Company's products,
o the extent that the Company's direct marketing programs achieve
satisfactory response rates,
o the ability of the Company to obtain sufficient supplies of successful
products,
o the efficiency of the Company's telemarketing operations,
o the competitive environment within the computer software and direct
marketing industries,
o the Company's ability to raise additional capital,
o unforeseen operational difficulties and financial losses due to year
2000 computer problems,
o the cost-effectiveness of the Company's product development
activities,
o the extent to which the Company is successful in developing, acquiring
or licensing products which are accepted by the market,
o the ability to obtain from the Internal Revenue Service ( the "IRS")
relief to make the appropriate election under the Internal Revenue
Code of 1986, as amended ( the "Code"), which would permit reporting
dual consolidated losses by SPC; approval by the IRS of our
application for a closing agreement, and approval by the IRS of a
similar application for a closing agreement in the event the Company
chooses to sell SPC in the future, and
o the other factors and information disclosed and discussed elsewhere in
this Quarterly Report on Form 10-QSB.
Investors should carefully consider such risks, uncertainties and other
information, disclosures and discussions which contain cautionary statements
identifying important factors that could cause actual results to differ
materially from those provided in the forward-looking statements. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
General
The Company makes and sells computer software products for both the United
States domestic and international markets. Most of these products are visual
communication tools comprised of desktop publishing, presentation graphics and
graphics/drawing software for the corporate, SOHO and consumer markets. Our
products are intended to allow the user to improve the visual and graphical
appeal as well as the overall effectiveness of documents and digital images
produced by either the Company's or third parties' desktop publishing, web
publishing, presentation graphics, e-mail, word processing and other similar
applications and products. We currently offer twenty-six products that operate
on the Windows(R) 98, Windows 95, Windows NT(R), Windows 3.1 and DOS operating
systems for IBM personal computers and compatibles. We also sell software
products together with certain computer hardware, such as "mouse pens," new
personal computers and digital cameras. We have established a multi-channel
distribution system utilizing direct mail, telemarketing, retail, corporate and
OEM sales channels and also disseminate some of our software programs over the
Internet. The Company currently derives substantially all of its net sales from
products sold directly to end-users by its direct mail and telemarketing
centers, and to retailers, distributors and corporate purchasers by its internal
sales force and independent sales representatives. We estimate that
approximately 95% of our net sales for the six months ended June 30, 1999 (the
"1999 Six Month Period") were generated through the Company's direct sales and
telemarketing efforts, compared to 81% of our net sales for the period ended
June 30, 1998 (the "1998 Six Month Period").
12
<PAGE>
North America and International net sales for the three and six months June 30,
1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------------------- -------------------------------------------------
1999 1998 1999 1998
----------------------- ----------------------- ----------------------- -----------------------
Amount % Amount % Amount % Amount %
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
North America $1,803,879 41.4 $1,955,375 47.9 $3,489,249 37.5 $3,830,594 47.9
International 2,558,308 58.6 2,124,158 52.1 5,808,466 62.5 4,172,385 52.1
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net sales $4,362,187 100.0 $4,079,533 100.0 $9,297,715 100.0 $8,002,979 100.0
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
We believe that end users are continuing to migrate from the Windows 3.1 and
Windows 95 environments to the Windows NT and Windows 98 platforms and to
Internet computing. We expect increased competition, including price
competition, in the computer software and hardware markets in the future.
Several of our competitors sell suites of products which include products that
directly compete with our products. We believe that these offerings of product
suites have and will continue to adversely affect sales of our products as the
individual products within the suites continue to gain increased levels of
inter-operability and functionality. The Company currently does not offer a
suite of general purpose office products; however, we currently offer one
product suite, Serif Publishing Power Suite, as well as products that complement
competitive suite products.
The Company currently is in the process of developing a new website entitled
VisualCities.com. The Company contemplates that this website will be an Internet
portal/community which would provide information, content, goods and services to
users. No assurance can be given that the Company will be able to successfully
develop and operate this website, that it will attract a significant number of
users or that the Company will achieve significant revenues therefrom.
In July 1996, we acquired Serif Inc. and Serif (Europe) Limited (collectively,
the "Serif companies"), which significantly expanded our product line to include
desktop publishing and drawing titles Serif PagePlus and Serif DrawPlus, among
others. In December 1996, we acquired all of the outstanding capital stock of
SPC, as a result of which our product line expanded further to include SPC's
presentation graphics and other visual communications and business productivity
software products. We continue to operate the Serif companies and SPC as
wholly-owned subsidiaries. Since January 1998, the operations of SPC have been
significantly reduced.
We are currently substantially dependent upon sales of our Serif line of
software programs. Microsoft Corporation, Corel Corporation, Adobe Systems and
others sell products targeted for substantially the same market as the Serif
product line, some of which are included in product suites.
We believe that in order to increase net revenues, we must continue to develop
and introduce new technologies and products internally, obtain additional
technologies and products through strategic alliances and acquisitions and
introduce new marketing strategies to include strengthening our marketing
through e-commerce and the Internet. Any inability or delay in executing these
strategies, difficulties encountered in introducing new products or marketing
programs, or failures of our current and future products to compete successfully
with products offered by other vendors, could adversely affect our performance.
The Company's growth is expected to require increases in the number of
employees, expenditures for new product development and expansion of our
e-commerce and Internet sites, the acquisition of product rights, sales and
marketing expenses, and general and administrative expenses.
In the third quarter of the 1998 fiscal year, we began selling our Go Digital
Camera Pak, which consists of a digital camera and digital imaging software
licensed from a third party, as well as certain accessories. The digital imaging
market is fairly new and we may not sustain a profitable level of sales as
competitors focus their marketing efforts, develop enhancements to their
products and develop products that take advantage of technological advances.
13
<PAGE>
Results of Operations
Comparison of the Three and Six Month Periods Ended June 30, 1999 and 1998
Net Sales: Net sales for the quarter ended June 30, 1999 (the "1999 Second
Quarter") increased $282,654, or 7%, to $4,362,187 from $4,079,533 in the
quarter ended June 30, 1998 (the "1998 Second Quarter"). Net sales for the 1999
Six Month Period increased $1,294,736, or 16%, to $9,297,715 from $8,002,979 in
the 1998 Six Month Period. The increase in net sales in the 1999 Second Quarter
and 1999 Six Month Period resulted primarily from sales of the Company's Go
Digital Camera Pak direct response promotion, which was not available for sale
in the 1998 Six Month Period. The Company provided for returns and allowances at
18% and 16% of gross sales in the 1999 Second Quarter and 1999 Six Month Period
as compared to 10% and 9%, respectively, of gross sales in the 1998 Second
Quarter and 1998 Six Month Period, primarily as a result of a shift to increased
hardware sales which has a greater rate of returns and allowances. The Company's
European Sales were adversely affected in the 1999 Second Quarter by the Easter
holiday period.
Cost of Goods Sold and Gross Profit: Cost of goods sold increased $778,996, to
$1,524,653 in the 1999 Second Quarter from $745,657 in the 1998 Second Quarter.
Cost of goods sold increased $1,354,317, to $3,057,618 in the 1999 Six Month
Period from $1,703,301 in the 1998 Six Month Period. The higher costs are due to
the increase in sales volume and a change in the product mix to a greater
proportion of hardware compared to software sales. The Company's cost of goods
sold consists primarily of product costs, royalties and inventory allowances for
damaged and obsolete products. Product costs consist of the costs to purchase
the underlying materials and print both boxes and manuals, media costs (CD-ROMs
and other media), assembly costs, and hardware costs. Gross profit for the 1999
Second Quarter was 65% compared to 82% in the 1998 Second Quarter. Gross profit
for the 1999 Six Month Period was 67% compared to 79% for the 1998 Six Month
Period. The decline in margin for the 1999 Second Quarter and 1999 Six Month
Period reflects a change in product mix resulting primarily from higher
proportion of hardware versus software sales in the comparative periods due to
the Company's Go Digital Camera Pak promotion, and the delay in the introduction
of additional software products originally expected during the 1999 Six Month
Period. Gross profit may be affected from time to time by the mix of
distribution channels used, mix of products sold and the timing of product
introductions, the mix of international versus domestic revenues, promotional
pricing and rebate offers, as well as by return privileges and marketing
promotions in connection with new product introductions and upgrades. These
promotions may have a negative influence on average selling prices and gross
margins. In addition, gross margin is expected to fluctuate on a quarterly basis
as the Company utilizes alternative direct response promotions. Gross margins
have also been, and may continue to be, adversely affected by competitive
pricing strategies in the industry as a whole, including competitive upgrade
pricing, the OEM business and alternative licensing arrangements.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses for the 1999 Second Quarter increased $1,093,203, or
38%, to $3,982,247 from $2,889,044 in the 1998 Second Quarter. Selling, general
and administrative expenses for the 1999 Six Month Period increased $2,395,770,
or 43%, to $7,986,643 from $5,590,873 in the 1998 Six Month Period. Selling,
general and administrative expenses increased primarily as a result of increased
catalog and direct mail costs, including the cost of developing an expanded
direct-response list in the United States and the introduction of a direct mail
program in Germany. During 1999 Second Quarter, the Company experienced what the
Company believes is a seasonally induced lower response rate, coupled with a
higher than expected return rate for its digital cameras which contributed to a
significant increase in its direct mailing costs in proportion to revenue
generation. The Company also incurred increased costs associated with the
Company's expansion into Germany as well as costs associated with the Company's
development of its anticipated Internet portal/community VisualCities.com.
Additionally approximately $80,000 and $170,000 charges were incurred relating
to financial advisory and investment banking agreements, for the 1999 Second
Quarter and 1999 Six Month Period, respectively, which had not been incurred in
the comparative 1998 periods. The Company also incurred an additional
approximate $17,000 and $40,000 for outside public relations services during the
1999 Second Quarter and 1999 Six Month Period, respectively, which it had not
incurred during the comparative 1998 periods.
The Company establishes several of its marketing expenditure levels based on
expected net revenues. The Company periodically reviews and adjusts its variable
expenditure levels based on actual sales volumes. In the future, the
14
<PAGE>
Company's net revenues and operating results could be adversely affected by
these and other factors, such as delays in new product introductions, delays in
receiving single sourced (e.g., digital cameras) or other manufactured products,
the mix of product sales or distribution channels and customer choices regarding
operating systems.
Amortization of Acquired Software and Goodwill: This represents the Company's
amortization of acquired software and goodwill associated with its acquisitions
of Serif and SPC in the quarter and six month 1999 and 1998 periods.
Unrealized Holding Gain on Marketable Securities: The unrealized holding gain of
$760,146 and $1,420,146, represents the increase in value of the Company's
investment in marketable securities for the 1999 Second Quarter and 1999 Six
Month Period, respectively. On July 14, 1999, the Board of Directors of the
Company called for redemption all outstanding shares of Class C Preferred of the
Company with a record date for such redemption of July 19, 1999. On July 1,
1999, the Company agreed with the Holder that in the event the Company called
for redemption any of its shares of Class C Preferred within 45 days, the
Company would sell to the Holder 53,815 Xceed Shares, owned by the Company, at a
price of $18.44 per Xceed Share, or $992,349 in the aggregate. Such transaction
was consummated on July 19, 1999.
Product Development: Product development expenses for the 1999 Second Quarter
declined $404,349, or 78%, to $112,975 from $517,324 in the 1998 Second Quarter.
Product development expenses for the 1999 Six Month Period declined $506,233, or
66%, to $266,344 from $772,577 in the 1998 Six Month Period. Product development
costs as percentage of net sales were 2.6 % and 2.9 % for the 1999 Second
Quarter and 1999 Six Month Period, respectively, compared to 12.7 % and 9.7% in
the 1998 Second Quarter and 1998 Six Month Period, respectively. The Company
capitalized approximately $166,000 of its product development cost associated
with product designs where technological feasibility has been established. All
other development costs have been expensed in the period incurred. The Company
intends to continue to acquire externally developed technology, explore
strategic alliances and other methods of acquiring or licensing technology, and
invest in certain internal development projects, including the updating of
existing products. The Company believes that development expenses may increase
in dollar amount in the future, although the Company's long-term goal is to
continue to reduce product development costs as a percentage of sales. Because
of the inherent uncertainties associated with software development projects,
there can be no assurance that the Company's research and development efforts
will result in successful product introductions or increased revenues or
profitability.
Other Income: Other income for the 1999 Second Quarter and 1998 Six Month Period
increased approximately $257,000 and $215,000, respectively, over amounts in the
comparable 1998 periods. The increases were primarily attributable to a gain on
the licensing of certain software technology of approximately $211,000, as well
as a technical support service agreement providing income of approximately
$20,000 during the 1999 Second Quarter. During the 1998 Second Quarter the
Company's other income included a gain on the sale of certain marketable
securities of approximately $26,000.
Liquidity and Capital Resources
During the 1999 Six Month Period, the Company's cash and cash equivalents
decreased by $1,614,906 to $762,742 at June 30, 1999 from $2,377,648 at December
31,1998, primarily as a result of using $2,203,517 of cash for operations and
$214,292 for investing activities. The Company received net proceeds of $815,659
from financing activities in the1999 Second Quarter and received additional net
proceeds of $1,269,000 on July 2, 1999 from the sale of common stock. The
Company had working capital of $960,895 at June 30, 1999, an increase of
$525,823 from the Company's working capital at December 31, 1998 of $435,072.
The increase in working capital was attributable to the Company's $1,420,146
unrealized holding gain on its investment in marketable securities as well as
the proceeds received from the private placement of the Company's common stock,
which more than offset losses incurred in the Company's business operations.
The Company believes that its existing cash and cash equivalents and cash
generated from operations, if any, should be sufficient to meet its currently
anticipated liquidity and capital expenditure requirements for the next twelve
months. On June 9, 1999 the Company received net proceeds of $988,356 from the
sale of common stock. On July 2, 1999 the Company received net proceeds of
approximately $1,269,000 (after placement agent fees and associated costs) from
the sale of shares of common stock. The Company is pursuing another possible
offering of its equity
15
<PAGE>
securities and expects to raise an additional approximately one million dollars
during the third quarter of 1999; however, there can be no assurance that the
Company will be successful in completing such an offering, or that the terms of
such offering will be beneficial to the Company or its stockholders. The Company
intends to utilize some of the proceeds of its financings and its intended third
quarter 1999 offering to develop additional software, to obtain additional
camera availability at reduced costs due to purchase capabilities, further
develop its Internet portal/community strategy, and expand its European
operations. There can be no assurance, however, that the Company will be
successful in attaining its sales or strategic goals, nor that attaining such
goals will have the desired effect on the Company's cash resources. The Company
has a letter of credit facility of $200,000 relating to certain lease
obligations. Serif (Europe) Limited has a letter of credit facility of
approximately $200,000, which was fully drawn upon as of June 30, 1999, with its
primary bank in the United Kingdom, and which is secured by substantially all of
the assets of Serif (Europe) Limited. There can be no assurance that the Company
will be able to obtain additional financing, if at all, or that such financing
will be on terms acceptable to the Company.
The Company's operating activities for the 1999 Six Month Period used cash of
$2,203,517, primarily related to increased direct marketing expenditures,
European expansion, the costs associated with the development of future software
products, and the development of its anticipated Internet portal/community
VisualCities.com. The Company intends to continue to utilize its working capital
in 1999 for Internet website development, securing additional digital camera
supplies, product development, marketing and advertising, to finance the higher
level of inventory and accounts receivable necessary to support an anticipated
increase in sales, for capital expenditures, including the purchase of computer
equipment, and for internal and external software development. However, the
Company's cash requirements may change depending upon numerous factors,
including, without limitation, the need to finance the licensing or acquisition
of third party software as well as increased inventory and accounts receivable
arising from the sale and shipment of new products.
The Company has a backlog of approximately $370,000 as of June 30,1999,
primarily relating to digital cameras.
In the 1999 Six Month Period, approximately 62.5% of the Company's net sales
were generated outside the United States as compared to 52.1% in the 1998 Six
Month Period. The Company expects that the percentage of net sales derived from
international net sales will continue to increase as it continues to expand its
foreign sales operations. The Company's exposure to foreign currency gains and
losses is partially mitigated as the Company incurs operating expenses in the
principal foreign currency in which it invoices foreign customers. As of June
30, 1999, the Company had no foreign exchange contracts outstanding. The
Company's foreign exchange gains and losses may be expected to fluctuate from
period to period depending upon the movement in exchange rates.
Net Operating Loss Carryforwards; Possible Tax Obligation
We estimate our consolidated tax net operating loss carryforwards to be
approximately $84 million at December 31, 1998, which expire in years 2002
through 2018, and our general business credit carryover to be approximately $1.5
million, which expires in years 2005 and 2006. These carryforwards are subject
to certain limitations described below. Under Section 382 of the Internal
Revenue Code of 1986, as amended (the "Code"), changes in the ownership or the
business of a corporation that has net operating loss carryforwards can result
in the inability to use or the imposition of significant restrictions on the use
of such net operating loss carryforwards to offset future income and tax
liability of such corporation. An "ownership change" may be deemed to have
occurred under Section 382 of the Code and the regulations thereunder with
respect to both the Company and SPC, and the use by the Company of these net
operating loss carryforwards will be limited. Utilization of the net operating
loss carry forwards of SPC may be further limited by reason of the consolidated
return/separate return limitation year rules. In addition, the SPC net operating
loss carryforwards are also subject to the additional limitation that such
losses can only be utilized to offset the separate taxable income of SPC. We
estimate the maximum utilization of such net operating loss carryforwards to be
approximately $1,200,000 per year for losses through December 31, 1996; losses
incurred thereafter can be fully utilized until expired under present
circumstances. There can be no assurance that we will be able to utilize all of
our net operating loss carryforwards. In addition, the foreign losses incurred
by SPC may decrease or otherwise restrict our ability to claim U.S. tax credits
for foreign income taxes.
In September 1997, we applied for a closing agreement with the Internal Revenue
Service (the "IRS") pursuant to which we would become jointly and severally
liable for SPC's tax obligations upon occurrence of a "triggering
16
<PAGE>
event" requiring recapture of dual consolidated losses previously utilized by
SPC. The Company acquired SPC in December 1996. Such closing agreement would
avoid SPC's being required to recognize a tax of approximately $8 million on
approximately $24.5 million of SPC's pre-acquisition dual consolidated losses.
We recently received notification from the IRS that the IRS has determined not
to act on our application until such time as SPC submits certain filings
pertaining to pre-acquisition filings made by SPC. Such additional filings
require SPC to obtain IRS relief so as to permit SPC to appropriately make the
election allowing SPC to utilize the dual consolidated losses. We believe that
once the appropriate prior year filings are made, and reapplication for a
closing agreement is made, the IRS should agree to such a closing agreement.
However, no assurance can be given that the IRS will do so, and any failure to
do so could result in the recognition of this tax liability. Should such a
closing agreement be obtained, in certain circumstances, a future acquirer of
the Company may also be required to agree to a similar closing agreement in
order to avoid the same tax liability, to the extent it is able to do so. This
could have a material adverse effect on our future ability to sell SPC. The
report of our auditors covering the December 31, 1998 consolidated financial
statements contains a paragraph emphasizing these dual consolidated losses.
Year 2000 Compliance Issues
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish twenty-first century dates
from twentieth century dates. As a result, in less than six months, computer
systems and software used by some companies may need to be upgraded to comply
with such "Year 2000" requirements. We are in the process of conducting a review
of issues related to our Year 2000 compliance. This review is intended to
determine the effect of the turn of the century on the operability of our
products, internal and external information technology ("IT") systems, non-IT
systems we utilize to conduct our business and other internal and external
processes which may impact our operations. In connection with this evaluation,
we also intend to continue to review our vendors and suppliers for Year 2000
compliance and to effect changes where necessary.
This review process is being conducted in three phases. The first phase
encompasses a review of all of our products, internal and external
systems/processes and vendors and suppliers for Year 2000 compliance. The second
phase is expected to correct all items identified as non-compliant and essential
to our operations. The third phase is contemplated to be a second review to
ensure year 2000 compliance and interoperability of all systems/processes.
We are conducting our review with our current resources and believe that we have
sufficient resources to complete the review process in a timely manner. We
identified one IT system which we believe will need to be replaced. The Company
has expended a total of approximately $75,000 in its year 2000 compliance review
and implementation efforts through June 30, 1999, and anticipates additional
expenditures of approximately $15,000 to complete such review and implementation
efforts. The Company has not determined, at this time, however, what costs and
efforts we would incur to implement any necessary corrections should any
additional deficiencies be found.
We produce computer application software. We believe the products that we have
developed within the last several years are Year 2000 compliant and we are in
the process of comprehensively re-testing such products. We are currently
reviewing products sold by the Company prior to 1994 for Year 2000 compliance,
some of which we have determined are not Year 2000 compliant. We currently
believe that we have no material liability concerning any of our products with
respect to Year 2000 requirements.
The Company has evaluated and determined that its direct mail telemarketing
operation systems failure would have a significant impact on the Company should
it fail to operate properly in the year 2000. Based on a cost-benefit analysis,
management has instituted a contingency plan whereby either its Europe or United
States telemarketing operations would support the other operation in the event
that it failed. Management believes that it is unlikely that both systems would
fail simultaneously, and has no contingency plans for such an event.
17
<PAGE>
Seasonality
The computer software and digital camera markets are characterized by
significant seasonal swings in demand, which typically peak in the fourth
quarter of each calendar year. The seasonal pattern is due primarily to the
increased demand for software and digital cameras during the year-end holiday
buying season and reduced demand for software and digital cameras during the
European Easter and summer vacation period. The Company expects its net sales
and operating results to continue to reflect this seasonality. The Company's
revenues may also experience substantial variations as a result of a number of
factors, such as consumer and business preferences and introduction of competing
titles by competitors, as well as limited time promotional pricing offers. There
can be no assurance that the Company will achieve consistent growth or
profitability on a quarterly or annual basis.
Inflation
The Company believes that inflation has generally not had a material impact on
its operations.
18
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is hereby made to Item 3 of the Company's Annual Report on
Form 10-KSB, for the fiscal year ended December 31, 1998, filed April
15, 1999 (Commission File No.: 1-14076), and to the references
therein, for a discussion of all material pending legal proceedings to
which the Company or any of its subsidiaries are parties.
Item 2. Changes in Securities and Use of Proceeds.
On June 9, 1999, the Company sold an aggregate of 525,000 shares of
Common Stock for aggregate gross proceeds of $1,050,000 to twenty-two
accredited investors. Each investor received one demand and piggyback
registration rights. The issuance of these shares of Common Stock was
a private transaction exempt from registration under Section 4(2) of
the Securities Act and Rule 506 of Regulation D thereunder.
On June 11, 1999, the Company issued options to purchase 25,000 shares
of common stock at an exercise price of $2.75 to Neil M. Kaufman, a
director of the Company. The issuance of these options to purchase
common stock was a private transaction exempt from registration under
Section 4(2) of the Securities Act.
On July 1, 1999, the Company sold an aggregate of 762,653 shares of
common stock for aggregate gross proceeds of $1,510,000 to 45
investors in a private placement in which Joseph Stevens & Company,
Inc. acted as placement agent. Each investor received one demand and
piggyback registration rights. The issuance of these shares of Common
Stock was a private transaction exempt from registration under Section
4(2) of the Securities Act and Rule 506 of Regulation D thereunder.
On July 20, 1999 the Company issued warrants to purchase an aggregate
of 225,000 shares of its common stock at an exercise price of $2.00
through July 20, 2004. The warrants were issued in connection with a
consulting agreement. The issuance of these warrants was a private
transaction exempt from registration under Section 4(2) of the
Securities Act.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holder.
The Annual Meeting of Stockholders of Software Publishing Corporation
Holdings, Inc. was held on July 14, 1999, at which the following
matters were voted upon and adopted by the votes indicated:
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
To elect one director, Mark E. Leininger, in Class
III, to the Board of Directors of the Company. 4,076,245 50,566
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
To amend the Company's Certificate of Incorporation
to change the Company's name to "Vizacom Inc.". 4,034,973 70,391 21,446
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
To amend the Company's Certificate of Incorporation
to increase the number of authorized shares of the
Company's Common Stock to 60,000,000 from
30,000,000. 3,818,534 260,238 48,039
To amend the Company's 1994 Long Term Incentive
Plan to increase the number of shares available
for award thereunder to 5,000,000 from 1,333,333. 1,349,240 210,366 50,277
To amend the Company's Outside Director and
Advisor Stock Option Plan to:
(a) increase the number of shares available for award
thereunder to 750,000 from 166,666; 1,303,099 298,176 8,609
(b) increase the number of shares underlying each
initial and annual option awarded thereunder; 1,257,765 298,041 54,077
(c) modify the language with respect to the calculation
of the exercise price of options granted thereunder. 3,800,135 270,168 11,232
</TABLE>
Mark E. Leininger was elected as a director in Class III. The names of
the other directors on the board whose terms will continue after this
meeting are Marc E. Jaffe, Esq. (Class I), Norman W. Alexander (Class
II), Werner G. Haase (Class I), and Neil M. Kaufman, Esq. (Class II).
There were no broker non-votes with respect to the matters listed
above.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Set forth below are all exhibits to this Quarterly Report on Form
10-QSB
Number Description
------ -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
On June 14, 1999 the Company filed a Current Report on Form 8-K
(Date of Report: June 8, 1999) with the Commission reporting Item
5. Other event matters.
On July 15, 1999 the Company filed a Current Report on Form 8-K
(Date of Report: July 1, 1999) with the Commission reporting Item
5. Other event matters.
20
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VIZACOM INC.
Dated: August 13, 1999 By: /s/ Mark E. Leininger
-------------------------------------------
Mark E. Leininger
President and Chief Executive Officer
(Principal Executive Officer)
Dated: August 13, 1999 By: /s/ Alan W. Schoenbart
-------------------------------------------
Alan W. Schoenbart
Vice President - Finance, Treasurer
and Chief Financial Officer
(Principal Financial Officer)
<PAGE>
VIZACOM INC.
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
27. Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
condensed financial statements for the period ended June 30,1999 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Jun-30-1999
<CASH> 762,742
<SECURITIES> 2,625,000
<RECEIVABLES> 2,037,586
<ALLOWANCES> (776,888)
<INVENTORY> 589,272
<CURRENT-ASSETS> 6,230,001
<PP&E> 664,248
<DEPRECIATION> 87,635
<TOTAL-ASSETS> 8,937,122
<CURRENT-LIABILITIES> 5,269,106
<BONDS> 75,084
0
930,000
<COMMON> 5,792
<OTHER-SE> 2,657,140
<TOTAL-LIABILITY-AND-EQUITY> 9,121,976
<SALES> 9,297,715
<TOTAL-REVENUES> 9,297,715
<CGS> 3,057,618
<TOTAL-COSTS> 3,057,618
<OTHER-EXPENSES> 266,344
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,744
<INCOME-PRETAX> (1,496,717)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,496,717)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,496,717)
<EPS-BASIC> (.30)
<EPS-DILUTED> (.30)
</TABLE>
