U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
----
/ X / QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
---- ACT OF 1934
For the quarterly period ended October 31, 2000
OR
----
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
---- ACT OF 1934
For the transition period from ____________ to ____________
Commission File No.: ________
PROGINET CORPORATION
--------------------
(Exact Name of Small Business Issuer in Its Charter)
Delaware 11-3264929
-------- ----------
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
200 Garden City Plaza, Garden City, NY 11530
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(Address of Principal Executive Offices)
(516) 248-2000
--------------
(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 ___
---
There were 13,478,054 shares of Common Stock outstanding as of December 6, 2000.
Transitional Small Business Disclosure Format:
Yes ___ No X
-----
<PAGE>
PROGINET CORPORATION
FORM 10-QSB
FOR THE QUARTER ENDED OCTOBER 31, 2000
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Balance Sheets as of October 31, 2000
and July 31, 2000 (Unaudited) 3
Statements of Operations for the Three
Months ended October 31, 2000 and 1999 (Unaudited) 4
Statement of Stockholders' Equity for the
Three Months ended October 31, 2000 (Unaudited) 5
Statements of Cash Flows for the Three
Months ended October 31, 2000 and 1999 (Unaudited) 6
Notes to Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II. OTHER INFORMATION
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
2
<PAGE>
PROGINET CORPORATION
Balance Sheets
<TABLE>
<CAPTION>
OCTOBER 31, JULY 31,
Assets 2000 2000
(UNAUDITED) (AUDITED)
----------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,196,623 $ 1,465,468
Accounts receivable, net 952,491 630,956
Prepaid expenses 19,633 27,090
----------------- ----------------
Total current assets 2,168,747 2,123,514
----------------- ----------------
Property and equipment, net 377,677 373,639
Capitalized software development costs, net 3,751,058 3,733,712
Purchased software, net 560,497 686,176
Other assets 45,701 45,701
----------------- ----------------
$ 6,903,680 $ 6,962,742
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable $ 55,877 $ 55,877
Accounts payable and accrued expenses 408,549 370,840
Deferred revenue 916,442 1,116,593
----------------- ----------------
Total current liabilities 1,380,868 1,543,310
----------------- ----------------
Notes payable, net of current portion 23,282 37,251
Other long-term liabilities 128,732 129,167
----------------- ----------------
1,532,882 1,709,728
----------------- ----------------
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized,
none issued - -
Common stock, $.001 par value, 40,000,000 shares authorized,
14,251,058 and 14,211,058 shares issued at October 31 and July 31, 2000,
respectively 14,251 14,211
Additional paid-in capital 11,809,799 11,770,256
Treasury stock,773,004 shares at October 31 and July 31, 2000,
respectively, at cost (415,856) (415,856)
Accumulated deficit (6,037,396) (6,115,597)
----------------- ----------------
Total stockholders' equity 5,370,798 5,253,014
----------------- ----------------
$ 6,903,680 $ 6,962,742
================= ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
PROGINET CORPORATION
Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
2000 1999
--------------- --------------
Revenues
<S> <C> <C>
Software sales and licenses $ 748,083 $ 234,853
Software maintenance fees 648,593 496,676
Other 26,245 -
--------------- --------------
1,422,921 731,529
--------------- --------------
Cost of revenues 561,872 370,499
--------------- --------------
Gross profit 861,049 361,030
--------------- --------------
Operating expenses:
Research and development 118,260 96,327
Selling and marketing 277,798 226,618
General and administrative 405,563 377,901
--------------- --------------
801,621 700,846
--------------- --------------
Operating income (loss) 59,428 (339,816)
Other income (expense)
Interest income 18,371 17,224
Other, net 402 (5,780)
--------------- --------------
Net income (loss) $ 78,201 $ (328,372)
=============== ==============
Basic and diluted income (loss) per common share $ 0.01 $ (0.02)
=============== ==============
Weighted average common shares outstanding - basic 13,476,315 13,595,452
=============== ==============
Weighted average common shares outstanding - diluted 13,535,609 13,595,452
=============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
PROGINET CORPORATION
Statement of Stockholders' Equity
Three months ended October 31, 2000
<TABLE>
<CAPTION>
ADDITIONAL ACCUM-
COMMON STOCK PAID-IN TREASURY ULATED
SHARES AMOUNT CAPITAL STOCK DEFICIT TOTAL
---------- ------------ -------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance - August 1, 2000 14,211,058 $ 14,211 $ 11,770,256 $ (415,856) $ (6,115,597) $ 5,253,014
Exercise of stock options 40,000 40 29,960 - - 30,000
Stock purchase warrants issued - - 9,583 - - 9,583
for services
Net lncome - - - - 78,201 78,201
-------------- ------------ -------------- ------------ ------------- -------------
Balance - October 31, 2000 14,251,058 14,251 11,809,799 (415,856) (6,037,396) 5,370,798
============== ============ ============== ============ ============= =============
</TABLE>
The accompanying notes are an integral part of this financial statement.
5
<PAGE>
PROGINET CORPORATION
Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
2000 1999
--------------- --------------
Cash flows from operating activities
<S> <C> <C>
Net income (loss) $ 78,201 $ (328,372)
Adjustments to reconcile net income (loss) to cash provided by
operating activities:
Depreciation and amortization 405,033 366,988
Recovery of bad debt allowance, net (43,000) -
Deferred revenue (200,151) (88,076)
Warrants issued for services 9,583 -
Changes in operating assets and liabilities
Accounts receivable (278,535) 81,131
Notes receivable from employees - (13,969)
Prepaid expenses 7,457 5,303
Accounts payable and accrued expenses 37,709 6,447
Other long-term liabilities (435) 2,312
--------------- --------------
Net cash provided by operating activities 15,862 31,764
--------------- --------------
Cash flows from investing activities
Capitalized software development costs (247,386) (258,396)
Purchase of property and equipment (53,352) (21,743)
--------------- --------------
Net cash used in investing activities (300,738) (280,139)
--------------- --------------
Cash flows from financing activities
Repayment of notes payable (13,969) -
Purchase of treasury stock - (3,746)
Proceeds from exercise of stock options 30,000 -
--------------- --------------
Net cash provided by (used in) financing activities 16,031 (3,746)
--------------- --------------
Net decrease in cash and cash equivalents (268,845) (252,121)
Cash and cash equivalents at beginning of the period 1,465,468 1,691,163
--------------- --------------
Cash and cash equivalents at end of the period $ 1,196,623 $ 1,439,042
=============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
PROGINET CORPORATION
NOTES TO FINANCIAL STATEMENTS
October 31, 2000
(Unaudited)
1. INTERIM FINANCIAL DATA
The accompanying unaudited financial statements have been prepared by
Proginet Corporation ("Proginet" or "the Company") in accordance with
generally accepted accounting principles. In the opinion of management,
the accompanying unaudited financial statements contain all
adjustments, consisting only of those of a normal recurring nature,
necessary for a fair presentation of the Company's financial position,
results of operations and cash flows at the dates and for the periods
indicated. These financial statements should be read in conjunction
with the financial statements and notes related thereto included in
the Annual Report on Form 10-KSB for year ended July 31, 2000.
These results for the period ended October 31, 2000 are not necessarily
indicative of the results to be expected for the full fiscal year. The
preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
2. REVENUE RECOGNITION
Revenue from the sale or license of software products is recognized
when persuasive evidence of an arrangement exists, the software has
been delivered, product customization is complete, the software's
selling price is fixed or determinable and collection of the resulting
receivable is probable.
Software maintenance fees are deferred and recognized as revenue
ratably over the term of the contract, typically one year.
Cost of revenues primarily consists of product costs, amortization of
capitalized software development costs and salaries and consulting fees
relating to providing customer software support under maintenance
contracts.
3. ACCOUNTS RECEIVABLE
The Company continually reviews accounts for collectability and
establishes an allowance for doubtful accounts. As of October 31 and
July 31, 2000 there was an allowance for doubtful accounts of $64,889
and $107,889, respectively.
4. RESEARCH AND DEVELOPMENT
Research and development costs not capitalized in connection with a
specific product are expensed in the period incurred. Such expenses are
based on management's estimate of time spent and costs incurred in
connection with research and development.
5. CAPITALIZED SOFTWARE
Capitalized software development costs consist of costs that are
directly related to programmers and facilities that develop software
which has reached technical feasibility. Software development costs
capitalized during the three months ended October 31, 2000 amounted to
$247,114. Capitalized software development costs are net of accumulated
amortization of $2,410,994 and $2,181,227 at October 31 and July 31,
2000, respectively.
7
<PAGE>
6. STOCK OPTION PLANS
Under the 1997 Stock Option Plan and 1994 Equity Incentive Plan (the
"Prior Plans"), as amended, the Company had reserved an aggregate of
2,000,000 shares of common stock for grants to employees, directors and
consultants. In June 2000, the Board of Directors authorized the
increase of the number of shares reserved under the 1997 Stock Option
Plan to 2,500,000. In October, the Board of Directors approved the 2000
Stock Option Plan ( the "2000 Plan") which limits the aggregate number
of shares available under the 2000 Plan and the Prior Plans to
2,500,000. At the Company's Annual Stockholder Meeting on November 14,
2000, the stockholders approved the 2000 Plan and the increase in the
number of shares reserved under the 1997 Stock Option Plan. Grants
under the 2000 Plan can be in the form of qualified or non-qualified
stock options. Qualified stock options (which are intended to qualify
as incentive stock options under Section 422A of the United States
Internal Revenue Code) may be awarded only to employees of the Company
and must have an exercise price of not less than 100% of the fair
market value of the Company's common stock on the grant date (110% for
qualified options granted to any 10% or greater stockholder of the
Company). The 2000 Plan provides that a committee selected by the Board
of Directors of the Company will administer the 2000 Plan and have full
authority to determine the identity of the recipients of the options
and the number of shares subject to each option. The term of any option
may be fixed by the committee but in no event shall exceed 10 years
from the date of grant.
In the first quarter of fiscal 2001, the Board of Directors granted
stock options under the 1997 Stock Option Plan to employees to purchase
29,000 shares of common stock, at an exercise price of $0.76, which
represented the fair market value of the underlying common stock at the
date of grant. Additionally, options to purchase 40,000 shares of
common stock were exercised, aggregating $30,000 in proceeds to the
Company.
7. STOCK PURCHASE WARRANTS
In the first quarter of fiscal 2000, Proginet entered into an agreement
with Mallory Factor Inc. (MFI) whereby MFI will provide guidance and
support on a "Strategic Corporate and Communications Counseling
Program" for Proginet. The terms of the entire agreement were approved
by the Canadian Venture Exchange and provide for granting of up to
500,000 warrants exercisable at a price of $.54 per share depending
upon achievement of pre-determined goals. The first 150,000 warrants
vest upon regulatory approval of the agreement and the next 100,000
vest provided that the Proginet stock price reaches $1.25. The next
250,000 vest, if and only if, two criteria are satisfied: (i)
Proginet's achievement of a listing on the United States OTC:BB and
(ii) Proginet's stock price reaching established thresholds. When
Proginet's stock price reaches $2.25, then 100,000 warrants will vest;
when Proginet's stock price reaches $3.25, then 100,000 additional
warrants will vest; and when Proginet's stock price reaches $4.25, the
final 50,000 warrants will vest. During the quarter ended October 31,
2000, Proginet recognized a non-cash expense of $9,583 relating to this
agreement. The expense relates to the first 250,000 warrants.
8. INCOME (LOSS) PER COMMON SHARE
Basic income (loss) per common share ("EPS") is computed by dividing
net income (loss) by the weighted average number of common shares
outstanding and diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of
common stock. Potential common shares of 125,100 at October 31, 1999
from stock options and warrants are excluded in computing diluted net
loss per share for the three months ended October 31, 1999 as their
effects would be antidilutive.
9. SUBSEQUENT EVENT
In November 2000, Proginet Corporation entered into a definitive
agreement whereby Proginet acquired certain software products (assets)
and entered into an e-commerce consulting agreement with SureFire
Commerce of Quebec, Canada. The Company received an existing software
product and assumed maintenance contracts with deferred revenue of
8
<PAGE>
$214,000 on the date of acquisition. The purchase price consisted of a
$100,000 up-front payment with future payments of $700,000 in 60 days,
$700,000 in 150 days and a subsequent payment of between $100,000 and
$250,000 depending upon the maintenance revenue earned by Proginet
within the 12 months subsequent to the transition. The total cost of
the acquired product line and technology is a minimum of $1.6 million
which will be recorded as purchased software and will be amortized over
a five year period.
9
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS
Revenues for the quarter were $1,422,921, an increase of 94.5%,
compared to $731,529 for the comparable period in 1999. Software sales
and license revenues were $748,083, an increase of 219% compared to the
$234,853 for the comparable period of 1999. Software sales and license
revenues continue to come from two sources, indirect sales channels and
the direct sales force, which accounted for 70% of total sales. Direct
sales for the quarter ending October 31,2000 were favorably impacted by
a one-time sale to an existing customer amounting to $540,000 with no
future revenue anticipated from this customer.
Software maintenance fees increased $151,917 to $648,593, compared to
$496,676 for the comparable period in 1999. This 30.5% increase is
related to increased income from maintenance fees from previously
licensed software products.
Other revenues amounted to $26,245 for the period ended October 31,
2000. This category of revenue is related to ad-hoc consulting services
that are typically provided in response to requests for support from
existing customers. Consulting revenue can vary considerably from
period to period, as it did in this period.
Cost of revenues increased to $561,872 from $370,499 for the comparable
period in 1999, an increase of 51.7%. This increase includes
amortization expense related to developed software available for sale,
increases in technical support costs, and costs related to indirect
channels of distributor support.
Operating expenses were $801,621, an increase of 14.4% over expenses of
$700,846 for the comparable period last year. Research and development
expenses increased 22.8% to $118,260 from $96,327 last year, reflective
of increased staffing levels dedicated to R&D activities. Selling and
marketing expenses increased 22.6% to $277,798 from $226,618, as
Proginet increased expenditures for marketing campaigns and
telemarketing services for sales lead generation. General and
administrative expenses were $405,563 for the quarter ended October 31,
2000, compared to $377,901 for the comparable period in 1999. This
increase of 7.3% is primarily related to increases in consulting
expenses, professional fees, and general and administrative payroll
increases for expanded staffing levels. The increased consulting
expenses are related to Proginet's increased use of outside
consultants. Professional fees increased significantly for legal and
accounting fees related to the company's filing its Form 10-KSB with
the Securities and Exchange Commission for the first annual filing
since becoming a U.S reporting company.
For the quarter ended October 31, 2000, Proginet reported a net
operating income of $59,428, compared to an operating loss of $339,816
for the same period for 1999. Net income amounted to $78,201, compared
to a loss of $328,372 for the comparable quarter ended October 31,
1999.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 2000, the Company had cash and cash equivalents of
$1,196,623 and working capital of $787,879, compared to $1,465,468, and
working capital of $580,204 at July 31, 2000.
The Company's operating activities provided cash of $15,862 and $31,764
for the quarters ended October 31, 2000 and 1999 respectively. For the
three months ended October 31, 2000 and 1999, investing activities used
net cash of $300,738 and $280,139, respectively, principally from
increases in capitalized software development costs. For the three
months ended October 31, 2000, financing activities provided cash of
$16,031 primarily from the exercise of the Company's stock options.
In January 2000, the Company established a line of credit in the amount
of $100,000 with a
10
<PAGE>
bank. The interest rate is variable based on prime plus 1%. The line of
credit expires in September 2001. At October 31, 2000, there was no
amount outstanding under this line of credit.
11
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
On November 14, 2000 the Company held its annual meeting of
stockholders. At the annual meeting, the Company's stockholders elected four
directors to serve until the next annual meeting and until their respective
successors are elected and qualified. At the annual meeting, the Company's
stockholders also (1) ratified the appointment of Grant Thornton LLP as the
Company's independent certified public accountants and auditors, (2) approved an
amendment to the Company's 1997 Stock Option Plan, as amended, pursuant to which
an additional 500,000 shares of the Company's common stock were reserved for
issuance under such Plan, and (3) adopted the Company's 2000 Stock Option Plan.
The votes for directors were as follows:
Votes
--------------------------------------------
For Withheld
------------------ ------------------
Kevin M. Kelly 4,815,034 152,204
John C. Daily 4,815,034 152,204
Stephen Sternbach 4,815,034 152,204
E. Kelly Hyslop 4,815,034 152,204
The votes to ratify the appointment of Grant Thornton LLP as the Company's
independent certified accountants and auditors were as follows:
For Against Abstain
------------------ ------------------ -----------------
4,838,034 129,204 0
The votes to approve the amendment to the Company's 1997 Stock Option Plan were
as follows:
For Against Abstain
------------------ ------------------ -----------------
4,486,607 180,631 300,000
The votes to adopt the Company's 2000 Stock Option Plan were as follows:
For Against Abstain
------------------ ------------------ -----------------
4,486,607 180,631 300,000
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
------------------
None
ITEM 6. EXHIBITS
---------
27.1 - Financial Data Schedule
13
<PAGE>
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DATE: December 13, 2000
PROGINET CORPORATION
/s/ Kevin M. Kelly
-----------------------------------
Kevin M. Kelly, President and
Chief Executive Officer
14
