<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1997
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
--------- --------
Commission file number 000-2235
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Objective Communications, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 54-1707962
- ----------------------------------------- ----------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
75 Rochester Avenue
Portsmouth, NH 03801
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(Address of Principal Executive Offices)
(603) 334-6700
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(Issuer's Telephone Number, Including Area Code)
14100 Park Meadow Drive
Chantilly, VA 20151
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(Former Name, Former Address and Former Fiscal Year, 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
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APPLICATION ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of November 14, 1997: 5,674,350
Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE> 2
Part I - Finanancial Information
Item1. Financial Statements
OBJECTIVE COMMUNICATIONS, INC.
(A Development Stage Enterprise)
Balance Sheets
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $2,244,538 $623,241
Accounts receivable 35,723 84,855
Inventory 272,621 366,099
Other current assets 238,272 178,376
----------- -----------
Total current assets 2,791,154 1,252,571
Property and equipment, net 1,578,907 182,072
Debt issue costs, net 0 214,066
Trademarks and patents 104,382 32,869
Other Assets 96,178 0
----------- -----------
$4,570,621 $1,681,578
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable, net of unamortized discounts $0 $1,714,000
Notes payable, related parties 0 199,000
Accounts payable 573,307 390,438
Accrued liabilities 250,347 263,376
Obligations under capital lease, current portion 216,063 15,543
------------ ------------
Total current liabilities 1,039,717 2,582,357
Obligations under capital lease 76,511 25,610
------------ ------------
Total liabilities 1,116,228 2,607,967
Redeemable Series A Convertible Preferred Stock, par value $.01,
500,000 shares authorized, 0 and 250,000 shares issued and outstanding
at September 30, 1997 and December 31, 1996, respectively 0 848,440
Stockholders' equity (deficit):
Preferred Stock, par value $.01, 250,000 shares authorized, none
issued and outstanding at December 31, 1996 and September 30, 1997
Common stock, par value $.01, 10,000,000 shares authorized;
4,636,844 and 1,896,577 issued and outstanding at September 30, 1997
and December 31, 1996, respectively 46,368 18,966
Additional paid-in capital 15,059,178 3,371,115
Deficit accumulated during development stage (11,651,153) (5,164,910)
------------ ------------
Total stockholders' equity (deficit) 3,454,393 (1,774,829)
--------- ---------
$4,570,621 $1,681,578
=========== ===========
</TABLE>
The accompanying notes are an integral part to these financial statements.
<PAGE> 3
OBJECTIVE COMMUNICATIONS, INC.
(A Development Stage Enterprise)
Statements of Operations
(Unaudited)
-----------
<TABLE>
<CAPTION>
Three months ended
September 30,
1997 1996
---- ----
<S> <C> <C>
Operating revenues:
Merchandise revenue $0 $0
Service revenue 0 2,441
- -----
Total revenues 0 2,441
- -----
Operating expenses:
Cost of merchandise 0 0
Cost of services 0 4,319
Research and development 1,257,537 236,603
Selling, general and administrative 1,224,914 165,651
Depreciation and amortization 121,787 31,634
Other 0 0
- -
Total operating expenses 2,604,238 438,207
--------- -------
Loss from operations (2,604,238) (435,766)
Interest (income) expense, net (69,538) 9,787
-------- -----
Net loss $(2,534,700) $(445,553)
------------ ----------
Net loss per common share $(0.55) $(0.12)
Weighted average common shares
and common share equivalents
outstanding 4,633,511 3,607,634
<CAPTION>
Nine months ended
September 30,
1997 1996
---- ----
<S> <C> <C>
Operating revenues:
Merchandise revenue $0 $0
Service revenue 0 22,623
- ------
Total revenues 0 22,623
- ------
Operating expenses:
Cost of merchandise 0 0
Cost of services 0 14,666
Research and development 2,588,177 801,622
Selling, general and administrative 2,699,312 685,361
Depreciation and amortization 444,466 83,169
Other 0 0
- -
Total operating expenses 5,731,955 1,584,818
--------- ---------
Loss from operations (5,731,955) (1,562,195)
Interest (income) expense, net 360,386 14,168
------- ------
Net loss $(6,092,341) $(1,576,363)
------------ ------------
Net loss per common share $(1.67) $(0.44)
Weighted average common shares
and common share equivalents
outstanding 3,639,737 3,607,634
<CAPTION>
For the period
October 5, 1993
(date of inception) to
September 30, 1997
------------------
<S> <C>
Operating revenues:
Merchandise revenue $175,301
Service revenue 320,359
-------
Total revenues 495,660
-------
Operating expenses:
Cost of merchandise 169,309
Cost of services 80,066
Research and development 5,092,930
Selling, general and administrative 4,954,670
Depreciation and amortization 667,240
Other 15,997
------
Total operating expenses 10,980,212
----------
Loss from operations (10,484,552)
Interest (income) expense, net 759,704
-------
Net loss $(11,244,256)
-------------
</TABLE>
The accompanying notes are an integral
part to these financial statements.
<PAGE> 4
OBJECTIVE COMMUNICATIONS, INC.
(A Development Stage Enterprise)
Statements of Cash Flows
(Unaudited)
-----------
<TABLE>
<CAPTION>
Nine months ended Sept 30,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss ($6,092,341) ($1,576,363)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 444,466 83,171
Interest expenses related to issuance of warrants 385,000 0
Non-cash compensation expense 340,166 0
Stock issued in exchange for services rendered 0 0
Changes in operating assets and liabilities:
Accounts receivable 49,131 12,972
Other current assets (254,072) (692)
Inventory (260,826) (298,465)
Trademarks and patents (75,132) (13,828)
Accounts payable 46,971 310,389
Accrued liabilities 67,042 107,217
------ -------
Net cash used in operating activities (5,349,595) (1,375,599)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (971,381) (27,502)
--------- --------
Net cashed used in investing activities (971,381) (27,502)
--------- --------
Cash flows from financing activities:
Proceeds from the issuance of preferred stock, net 962,203 0
Proceeds from the issuance of common stock, net 9,530,251 922,863
Proceeds from the issuance of notes payable 0 289,705
Repayment of notes payable (2,300,000) 0
Proceeds from the issuance of notes payable to related parties 0 104,500
Repayments of notes payable to related parties (199,000) 0
Debt issue costs 0 0
Principal payments on capital leases (51,181) 0
----------- ----------
Net cash provided by financing activities 7,942,273 1,317,068
--------- ---------
Net increase (decrease) in cash and cash equivalents 1,621,297 (86,033)
Cash and cash equivalents at beginning of period 623,241 86,491
------- ------
Cash and cash equivalents at end of period $2,244,538 $458
---------- ----
<CAPTION>
For the period
October 5, 1993
(date of inception) to
September 30,
1997
----
<S> <C>
Cash flows from operating activities:
Net loss ($11,244,256)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 667,240
Interest expenese related to issuance of warrants 706,789
Non-cash compensation expense 340,166
Stock issued in exchange for services rendered 55,834
Changes in operating assets and liabilities:
Accounts receivable (35,724)
Other current assets (334,450)
Inventory (272,621)
Trademarks and patents (113,625)
Accounts payable 573,307
Accrued liabilities 250,347
-------
Net cash used in operating activities (9,406,993)
-----------
Cash flows from investing activities:
Purchase of property and equipment (1,627,683)
-----------
Net cashed used in investing activities (1,627,683)
-----------
Cash flows from financing activities:
Proceeds from the issuance of preferred stock, net 1,810,643
Proceeds from the issuance of common stock, net 11,432,993
Proceeds from the issuance of notes payable 2,550,000
Repayment of notes payable (2,550,000)
Proceeds from the issuance of notes payable to related parties 716,223
Repayments of notes payable to related parties (364,000)
Debt issue costs (253,459)
Principal payments on capital leases (63,186)
----------
Net cash provided by financing activities 13,279,214
----------
Net increase (decrease) in cash and cash equivalents 2,244,538
Cash and cash equivalents at beginning of period 0
-
Cash and cash equivalents at end of period $2,244,538
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited condensed financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with instructions to
Form 10-QSB and Article 10 of Regulation S-X. 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 considered necessary for a
fair presentation of the financial position and the results of
operations for the interim period have been included. The interim
financial statements should be read in conjunction with the audited
financial statements and notes thereto in the Company's Registration
Statement on Form SB-2 (File No. 333-35913), as amended, as filed
with the Securities and Exchange Commission under the Securities Act
of 1933, as amended. Certain financial statement items have been
reclassified to the current periods' format.
2. Capital Stock
Common Stock
During April 1997, the Company issued 2,070,000 shares of
common stock, par value $.01 (the "Common Stock") for approximately
$9.5 million in proceeds, net of underwriting discounts and
commissions and certain other expenses of the offering. The issuance
of these shares was pursuant to an initial public offering at a price
of $5.50 per share. The net proceeds of the initial public offering
were used primarily to repay certain outstanding notes payable and to
fund the continued research and development and the working capital of
the Company. In connection with the initial public offering, all
500,000 of the issued and outstanding shares of Redeemable Series A
Convertible Preferred Stock automatically converted into Common Stock
on a one-for-one basis.
During January 1997, the Company executed a warrant exchange agreement
with investors who purchased Common Stock and received warrants
through the Company's financial advisory firm during 1995 and 1996.
The purpose of the warrant exchange was to induce such investors to
enter into lock-up arrangements with the underwriter of the Company's
initial public offering (the "Underwriter") and into agreements
consolidating such investors' registration rights with those granted
by the Company to other investors, and to provide those investors with
the opportunity to invest in the Company upon terms and conditions
that more closely reflect the terms and conditions upon which the
other investors invested in the Company during a comparable time
period. As a result of the warrant exchange, the Company issued
165,267 shares of Common Stock. The fair market value of such shares
was reflected in the first quarter of 1997 in a non-cash compensation
expense of $340,166 and a direct charge to equity of $320,902 as a
cost of equity financing.
3
<PAGE> 6
OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Additionally, in the warrant exchange, the Company issued warrants for
the purchase of 165,269 shares of Common Stock with an exercise price
of $4.00 per share and retired warrants for the purchase of 330,536
shares of Common Stock.
Warrants
In July 1997, warrants to acquire an aggregate of 5,000
shares of Common Stock were exercised.
In April 1997, in connection with the initial public offering,
certain holders of warrants issued in connection with the bridge
financing in October and November 1996 surrendered to the Company
warrants to acquire an aggregate of 150,000 shares of Common Stock.
The surrender and cancellation of such warrants did not have any other
effect on the bridge financing, nor did the Company pay any
consideration in connection with such surrender.
3. Net Loss Per Share
Net loss per share is based on the weighted average number of
common shares and dilutive common share equivalents outstanding during
the periods presented. Pursuant to Securities and Exchange Commission
requirements, Common Stock issued and options and warrants to purchase
shares of Common Stock granted by the Company during the twelve months
preceding the initial filing date of the Registration Statement have
been included in the calculation of weighted average common shares and
common share equivalents outstanding for the three months and nine
months ended September 30, 1996. Options and warrants issued by the
Company prior to the aforementioned twelve-month period have not been
included in the calculation for any of the periods presented because
the effects of such items were anti-dilutive. Options and warrants
outstanding have not been included in the calculation of weighted
average common shares and common share equivalents outstanding for the
three months and nine months ended September 30, 1997, because the
effects of these items were anti-dilutive.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, "Earnings
per Share" (FAS 128). FAS 128 simplifies the existing earnings per
share (EPS) computations under Accounting Principles Board Opinion No.
15, "Earnings Per Share" (APB 15), revises disclosure requirements,
and increases the comparability of EPS data on an international basis.
In simplifying the EPS computations, the presentation of primary EPS
is replaced with basic EPS, with the principal difference being that
common stock equivalents are not considered in computing basic EPS.
In addition, FAS 128 requires dual presentation of basic and diluted
EPS. FAS 128 is effective for financial statements issued for periods
ending after December 15, 1997.
4
<PAGE> 7
OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The Company does not expect the EPS amounts calculated under FAS 128
to be materially different from the amounts presented in the financial
statements under APB 15.
4. Income taxes
The Company has not recorded a provision for income taxes for
the three months and nine months ended September 30, 1997 and 1996
based on the fact that the Company has generated net operating losses
during each of those periods. The Company has recorded a full
valuation allowance against the net deferred tax asset generated
primarily from its net operating loss carryforwards.
5. Accounting Standards
The Financial Accounting Standard Board recently issued
Statement of Financial Accounting Standard No. 130, "Reporting
Comprehensive Income." This Statement requires that changes in
comprehensive income be shown in a financial statement that is
displayed with the same prominence as other financial statements. The
Statement will become effective for fiscal years beginning after
December 15, 1997. The Company will adopt the new standard beginning
in the first quarter of the fiscal year ending December 31, 1998.
In June 1997, the Financial Accounting Standard Board issued
Statement of Financial Accounting Standard No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS No. 131).
SFAS No. 131 specifies new guidelines for determining a company's
operating segments and related requirements for disclosure. The
Company is in the process of evaluating the impact of the new standard
on the presentation of the financial statements and the disclosures
therein. The Statement will become effective for fiscal years
beginning after December 15, 1997. The Company will adopt the new
standard for the fiscal year ending December 31, 1998.
6. Subsequent Events
During November 1997, the Company issued 1,000,000 shares of
Common Stock at $23.125 per share and received net proceeds of
approximately $21.5 million (net of underwriting discounts) , pursuant
to a public offering on a Registration Statement on Form SB-2 (File
No. 333-35913), as amended, as filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
5
<PAGE> 8
Certain statements contained in this Quarterly Report on Form
10-QSB, other than historical financial information, constitute
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. All such forward-looking
statements involve known and unknown risks, uncertainties or other
factors which may cause actual results, performance or achievement of
the Company to be materially different from any future results,
performance or achievement expressed or implied by such
forward-looking statements. Factors that might cause such a
difference include risks and uncertainties related to the Company's
dependence on the emerging market for video broadcast, retrieval and
conferencing, development of additional products, protection of its
intellectual property, limited marketing experience, limited number of
customers, and the need the for additional personnel, as well as risks
and uncertainties associated with the Company's growth strategy,
technological changes affecting the Company and competitive factors
affecting the Company.
The following discussion should be read in conjunction with
the financial statements and notes thereto appearing elsewhere in this
Quarterly Report on Form 10-QSB.
Overview
The Company was incorporated in October 1993 to develop and
produce products and systems to support video broadcast, retrieval of
stored video and multi-party conferencing to and from a desktop
personal computer or conference room using telephone wires. The
Company's operations to date have related primarily to organizational
activities, including research and development for its initial
products, including the VidPhone(R) system, recruiting management and
technical personnel and raising capital. Currently, the Company
expects to complete development of the VidPhone(R) system and begin
commercial production and delivery of the first units in late 1997.
To date, the Company has not generated substantial revenues
from the sale of its products and services. The Company expects to
incur substantial operating expenses in the future to support its
product development efforts, expand and enhance significantly its
sales and marketing capabilities and organization, expand its
technical and management personnel and for other selling, general and
administrative expenses. Through September 30, 1997, the Company had
cumulative losses of $11.2 million. The Company expects to incur
additional operating losses until the Company's products achieve
commercial acceptance, which is expected to occur in 1998. The
Company's results of operations may vary significantly from quarter to
quarter during this period. Through September 30, 1997, the Company's
operations have been funded primarily through public and private sales
of debt and equity securities.
During November 1997, the Company issued 1,000,000 shares of
Common Stock at $23.125 per share and received net proceeds of
approximately $21.5 million (net of underwriting discounts) pursuant
to a public offering on a Registration Statement on Form SB-2 (File
No. 333-35913) (the "Follow-on Offering"). These proceeds will be used
to fund the Company's inventory, capital expenditures (including
facilities expansion), sales and marketing, product development,
working capital and general corporate purposes.
6
<PAGE> 9
During the third quarter, the Company continued implementation
of a plan to relocate the Company's headquarters, research and
development, engineering and manufacturing facilities to a new
location in Portsmouth, New Hampshire. Currently, the Company
maintains a sales office in the Washington, D.C. metropolitan area
and intends to hire additional sales personnel for the New Hampshire
facility. The Company anticipates that the move to New Hampshire will
be completed during fourth quarter of 1997. The move has facilitated
the recruitment of additional staff, including Ms. Mary C. Murphy,
Vice President of Marketing, a new executive officer of the Company.
At the end of October 1997 the Company had approximately seventy
employees.
Results of Operations
Comparison of the Three Months Ended September 30, 1997 and September
30, 1996
The Company had no revenues in the three months ended
September 30, 1997 compared to revenues of approximately $2,400 in the
same period in 1996. The revenues recorded in 1996 were generated
from consulting arrangements, not from the Company's primary business.
During 1997, the Company has devoted all of its resources to the
development, production, and sale of the VidPhone(R) system and
related software products.
Selling, general and administrative expenses increased by
approximately $1,059,000, or 640%, in the three months ended
September 30, 1997 to approximately $1,225,000 from approximately
$166,000 in the three months ended September 30, 1996. Sales and
marketing costs have increased significantly in preparation for the
introduction of the Company's products to the marketplace, including
approximately $225,000 incurred during the third quarter 1997 in
connection with a multi-city product introduction tour. The
remaining increase is primarily due to legal, accounting, personnel
and other related expenses incurred as a result of the increased size
and complexity of operations, becoming a publicly-traded company,
certain costs associated with the Company's move from Virginia to New
Hampshire and with recruiting efforts associated with the New
Hampshire facility.
Research and development expenses increased by approximately
$1,021,000, or 432%, for the three months ended September 30, 1997, to
approximately $1,258,000 as compared to $237,000 for the three months
ended September 30, 1996. The increase was due primarily to the
hiring of additional technical staff, particularly in connection with
the hiring of additional research and development personnel for the
New Hampshire facility, and increased levels of spending in
connection with final product design. Research and development
expenses include the costs associated with all personnel, materials
and contract personnel engaged in research and development for the
Company, as well as an allocated portion of overhead expenses, such as
rent, telephone, and office supplies.
The Company intends to continue to expand research and
development by hiring additional technical staff and purchasing
additional research and development related
7
<PAGE> 10
material. As the Company continues developing, testing, and
demonstrating its product line, the Company expects research and
development expenses to increase.
Depreciation and amortization increased approximately $90,000
to $122,000 in the three months ended September 30, 1997 from $32,000
in the three months ended September 30, 1996. The increase is due
to increased levels of fixed assets and capitalized leases and
intellectual property held by the Company.
The Company earned approximately $70,000 in net interest
income in the three months ended September 30, 1997 compared to
incurring approximately $10,000 in net interest expense for the three
months ended September 30, 1996. Interest income was earned primarily
on the invested proceeds of the Company's Initial Public Offering
completed in early April 1997 (the "Initial Offering").
As a result of the foregoing factors, the net loss increased
by approximately $2.1 million, or 469%, to approximately $2.5 million
for the three months ended September 30, 1997 from approximately
$446,000 during the three months ended September 30, 1996.
Comparison of the Nine Months Ended September 30, 1997 and September
30, 1996
The Company had no revenues in the nine months ended September
30, 1997 compared to revenues of approximately $22,600 in the same
period in 1996. The revenues recorded in 1996 were generated from
consulting arrangements, not from the Company's primary business. In
1997, the Company devoted all of its resources to the development,
production, and sale of the VidPhone(R) system and related software
products.
Selling, general and administrative expenses increased by
approximately $2,014,000, or 294%, in the nine months ended September
30, 1997 to approximately $2,699,000 from $685,000 in the nine
months ended September 30, 1996. Included in administrative expenses
for the nine months period is approximately $340,000 in non-recurring
compensation expense associated with a warrant exchange conducted in
January 1997. Approximately 1,098,000 of the remaining increase is
attributable to increased sales and marketing expenses as the Company
prepares to commercially market its VidPhone(R) products, increased
administrative expenses associated with becoming a publicly-traded
company in the second quarter of 1997 and other related expenses.
Research and development expenses increased by approximately
$1,787,000, or 223%, for the nine months ended September 30, 1997, to
approximately $2,588,000 million as compared to $802,000 for the period
ended September 30, 1996. Approximately $663,000 of the increase was
due to the hiring of additional technical staff and increased use of
subcontractors in the development of components of the Company's
VidPhone(R) system, and approximately $484,000 of the increase was due
to the costs associated with materials and supplies for the research
and development personnel of the Company. Research and development
expenses include the costs associated with all personnel, materials
and contract personnel engaged in research and development for the
Company, as well as an allocated portion of overhead expenses, such as
rent, telephone and office supplies.
The Company intends to accelerate and expand research and
development by hiring additional technical staff and purchasing
additional research and development related material. As the Company
continues
8
<PAGE> 11
developing, testing, and demonstrating its product line, the Company
expects research and development expenses to increase.
Depreciation and amortization increased approximately $361,000
to $444,000 in the nine months ended September 30, 1997 from $83,000
in the nine months ended September 30, 1996. During the period the
Company charged to amortization expense $209,000 of capitalized debt
issuance costs upon the repayment of the debt from the proceeds of the
Initial Offering. To a lesser extent, depreciation on increased
levels of fixed assets, capitalized leases, and intellectual property
owned by the Company also contributed to the increase.
Net interest expense increased by approximately $346,000 to
approximately $360,000 in the nine months ended September 30, 1997
from approximately $14,000 in the nine months ended September 30,
1996. Net interest expense for the period consisted of approximately
$606,000 of interest expense offset by nearly $246,000 in interest
income. Interest expense included a write-off of approximately
$385,000 of unamortized debt discount representing the fair value of
warrants issued to holders of bridge notes in connection with a bridge
financing completed in November 1996. Offsetting this expense was
interest income earned during the period ended September 30, 1997 on
the invested proceeds of the Initial Offering.
As a result of the foregoing factors, the net loss increased
by approximately $4.5 million, or 287%, from approximately $1.6
million to $6.1 million for the nine months ended September 30, 1997
as compared to the nine months ended September 30, 1996.
Liquidity and Capital Resources
The Company has financed its operations to date primarily
through the public and private sales of equity and debt securities.
The Company has incurred cumulative losses aggregating approximately
$11.2 million from inception through September 30, 1997. The Company
expects to incur additional operating losses until the Company's
products achieve commercial acceptance, which is expected to occur in
1998. During the nine months ended September 30, 1997, the Company
satisfied its cash requirements principally from the proceeds of the
Initial Offering and, prior to the Initial Offering, from private
sales of equity and debt securities. The primary uses of cash have
been to fund research and development and sales, general and
administrative expenses.
At September 30, 1997, the Company had cash of approximately
$2.2 million and a working capital surplus of approximately $1.8
million. In April 1997, the Company received net proceeds of
approximately $9.5 million from the issuance of 2,070,000 shares of
Common Stock at a price of $5.50 per share in the Initial Offering,
including the exercise in full of the over-allotment option granted to
the underwriter of the Initial Offering (net of underwriting discounts
and commissions and other expenses of the Initial Offering).
Approximately $2.1 million of the gross proceeds from the Initial
Offering were used to retire outstanding indebtedness under bridge
notes and bridge warrants issued in a bridge financing completed
during October and November 1996 and approximately $600,000 were used
to repay related party loans and other expenses. The remainder of the
net proceeds from the
9
<PAGE> 12
Initial Offering were or will be used to fund the Company's sales and
marketing and product development efforts, for working capital and for
general corporate purposes.
During November 1997, the Company issued 1,000,000 shares of
Common Stock at $23.175 per share and received net proceeds of
approximately $21.5 million (net of underwriting discounts) from the
Follow-on Offering. These proceeds will be used to fund the Company's
inventory, capital assets, facilities expansion, research and
development, sales and marketing, working capital and general
corporate purposes.
Net cash used in operating activities for the nine months
ended September 30, 1997 totaled approximately $5.3 million. Net cash
used in investing activities for the nine months ended September 30,
1997 totaled approximately $1.0 million. Net cash provided by
financing activities for the nine months ended September 30, 1997
totaled approximately $7.9 million.
Based on the Company's operating plan, the Company believes
that the net proceeds of the Follow-on Offering together with its
existing resources and revenues from continuing operations, will be
sufficient to satisfy its capital requirements and finance its
operations for at least the next 12 months. Such belief is based on
certain assumptions, and there can be no assurance that such
assumptions are correct. There can be no assurance that the Company's
current resources will be sufficient to satisfy the Company's capital
requirements. In order to accommodate potential future growth and
expansion of the Company's operations and other contingencies, the
Company may seek additional funding sooner than anticipated. The
Company has no current arrangements with respect to, or specific
sources of, any such capital. The Company anticipates that any
additional financing required to meet its current plans for expansion
may take the form of the issuance of common or preferred stock or debt
securities, or may involve other secured or unsecured debt financing.
Additional equity financing may involve substantial dilution to the
interests of the Company's then existing stockholders. To the extent
that the Company elects to obtain debt financing, the lender may
impose certain restrictive covenants on the Company and upon any
default by the Company on such debt financing, and in a liquidation of
the Company, the rights of such lender would be superior to the rights
of the holders of Common Stock. There can be no assurance that the
Company will be able to obtain such additional capital on a timely
basis, on favorable terms, or at all. In any of such events, the
Company may be unable to implement its business plan.
Part II
Item 2. Changes in Securities and Use of Proceeds
(c) In July 1997, the Company issued 5,000 shares of Common Stock upon the
exercise of outstanding warrants by an existing investor of the
Company for aggregate consideration of $20,000. The sale and issuance
of such securities by the Company were effected in reliance upon the
exemption from registration afforded by Section 4(2) of the Securities
Act of 1933, as amended.
Item 6. Exhibits and Reports on Form 8-K
10
<PAGE> 13
(a) Exhibits
3.1 Amended and Restated Certificate of Incorporation (Incorporated by
reference to Exhibit No. 3.1 forming a part of the Registrant's
Registration Statement on Form SB-2 (File No. 333-20625) filed with
the Securities and Exchange Commission under the Securities Act of
1933, as amended).
3.2 Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.2
forming a part of Amendment No. 2 to the Registrant's Registration
Statement on Form SB-2 (File No. 333-20625) filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended).
4.1 Form of Warrant for the Purchase of Shares of Common Stock, issued in
connection with the private placement of $2,000,000 aggregate
principal amount of Bridge Notes (Incorporated by reference to Exhibit
3.4 forming a part of the Registrant's Registration Statement on Form
SB-2 (File No. 333-20625) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended).
4.2 Form of Warrant to Purchase Common Stock of the Registrant, issued in
connection with the private placement of units in June 1995 and August
1996. (Incorporated by reference to Exhibit 3.5 forming a part of the
Registrant's Registration Statement on Form SB-2 (File No. 333-20625)
filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended).
4.3 Form of Warrants for the Purchase of 100,000 Shares of Common Stock,
$.01 par value per share, issued in connection with the private
placement of Series A Convertible Preferred Stock and warrants in
December 1996 and January 1997 (Incorporated by reference to Exhibit
3.7 forming a part of the Registrant's Registration Statement on Form
SB-2 (File No. 333-20625) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended).
4.4 Form of Option for the Purchase of 180,000 shares of Common Stock
issued to Barington Capital Group, L.P. (Incorporated by reference to
Exhibit 3.8 forming a part of the Registrant's Registration Statement
on Form SB-2 (File No. 333-20625) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended).
4.5 Specimen certificate evidencing shares of Common Stock of the
Registrant (Incorporated by reference to Exhibit 4.2 forming a part of
Amendment No. 2 to the Registrant's Registration Statement on Form
SB-2 (File No. 333-20625) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended).
10.1 1994 Stock Option Plan (Incorporated by reference to Exhibit 10.1
forming a part of the Registrant's Registration Statement on Form SB-2
(File No. 333-20625) filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended).
11
<PAGE> 14
10.2 1996 Stock Incentive Plan (Incorporated by reference to Exhibit No.
10.2 forming a part of the Registrant's Registration Statement on Form
SB-2 (File No. 333-20625) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended).
10.3 Employment Agreement between the Registrant and Steven A. Rogers
(Incorporated by reference to Exhibit No. 10.3 forming a part of
Amendment No. 2 to the Registrant's Registration Statement on Form
SB-2 (File No. 333-20625) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended).
10.4 Form of Consulting Agreement by and between the Registrant and
Barington Capital Group, L.P. (Incorporated by reference to Exhibit
No. 10.4 forming a part of the Registrant's Registration Statement on
Form SB-2 (File No. 333-20625) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended).
10.5 Letter Agreement, dated October 7, 1996, between Barington Capital
Group and the Registrant (Incorporated by reference to Exhibit No.
10.5 forming a part of Amendment No. 2 to the Registrant's
Registration Statement on Form SB-2 (File No. 333-20625) filed with
the Securities and Exchange Commission under the Securities Act of
1933, as amended).
10.6 Letter Agreement, dated December 5, 1995, by and among PVR Securities,
Inc., the Registrant, Steven A. Rogers and John B. Torkelsen
(Incorporated by reference to Exhibit No. 10.6 forming a part of
Amendment No. 2 to the Registrant's Registration Statement on Form
SB-2 (File No. 333-20625) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended).
10.7 Voting Agreement, dated December 19, 1996, by and among the
Registrant, Steven A. Rogers, Applewood Associates, L.P. and Acorn
Technology Partners, L.P. (Incorporated by reference to Exhibit No.
10.7 forming a part of Amendment No. 2 to the Registrant's
Registration Statement on Form SB-2 (File No. 333-20625) filed with
the Securities and Exchange Commission under the Securities Act of
1933, as amended).
11 Statement re: computation of per share earnings.
27.1 Financial Data Schedule.
(b) The Registrant did not file any reports on Form 8-K during the quarter
ended September 30, 1997.
12
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Objective Communications, Inc.
By: /s/ Steven A. Rogers
------------------------------------------
Steven A. Rogers
President and Chief Executive Officer
(duly authorized executive officer)
/s/ Robert H. Emery
------------------------------------------
Robert H. Emery
Vice President, Administration and Finance
(principal financial officer)
November 14, 1997
13
<PAGE> 1
Objective Communication
Weighted average Exhibit 11
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
------------ ------------- ------------- -----------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 1,896,577 1,711,413 1,896,577 1,711,413
Shares issued within one year of filing of initial
public offering 350,431 350,431
Options issues within one year of filing of initial
public offering 138,000 138,000
Warrants issued within one year of filing of initial
public offering 907,790 907,790
Convertible securities issued within one year of
filing of initial public offering 500,000 500,000
Weighted average of warrants outstanding 165,267 156,086
Weighted average shares issued for initial
public offering 1,800,000 1,146,667
Weighted average of conversion of preferred
stock to common stock 500,000 318,519
Weighted average shares issued for overallotment
of initial public offering 270,000 118,000
Weighted average of options exercised 1,667 3,889
------------ ------------- ------------- -----------
4,633,511 3,607,634 3,639,738 3,607,634
============ ============= ============= ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,244,538
<SECURITIES> 0
<RECEIVABLES> 35,723
<ALLOWANCES> 0
<INVENTORY> 272,621
<CURRENT-ASSETS> 2,791,154
<PP&E> 1,983,442
<DEPRECIATION> 404,535
<TOTAL-ASSETS> 4,570,621
<CURRENT-LIABILITIES> 1,039,717
<BONDS> 0
0
0
<COMMON> 46,368
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,570,621
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,604,238
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,534,700)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,534,700)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,534,700)
<EPS-PRIMARY> (0.55)
<EPS-DILUTED> (0.55)
</TABLE>
