SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the quarterly period ended June 30, 1997
Commission file number 0-26598
PAPERCLIP SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State of incorporation)
22-3137907
(IRS Employer ID number)
THREE UNIVERSITY PLAZA
HACKENSACK, NJ 07601
(Address of principal executive offices) (Zip Code)
(201)487-3503
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceeding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No__.
(Applicable only to Corporate Issuers)
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the last practicable
date.
Class July 31, 1997
Common Stock, $.01 par value 8,065,521
Redeemable Class A Warrants 3,599,500
<PAGE>
PAPERCLIP SOFTWARE, INC.
INDEX
Page #
Part I. Financial Information
Item 1. Financial statements
Condensed Balance Sheets 1
Condensed Statements of Operations 2
Condensed Statements of Cash Flows 3
Notes to Condensed Financial Statements 4
Item 2 . Managements Discussion and Analysis
of Financial Condition and
Results of Operations 5
Part II Other Information
Item 6. Exhibits and reports on Form 8-K 6
Signatures 8
Exhibit index 9
Exhibit Exhibit 27, Article 5 Financial
Data Schedule 10
Exhibit 99.1 - Employment Termination 11
Agreement and Release between the Company
and Sol Rosenberg, dated as of
June 18, 1997.
<PAGE>
<TABLE>
PAPERCLIP SOFTWARE, INC.
CONDENSED BALANCE SHEETS -- JUNE 30, 1997 (Unaudited)
AND DECEMBER 31, 1996
<CAPTION>
June 30 Dec 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CASH and CASH EQUIVALENTS $181,728 $220,573
ACCOUNTS RECEIVABLE (net of
allowance for doubtful accounts
of $40,000 at June 30, 1997
and December 31, 1996 359,031 275,527
PREPAID EXPENSES AND OTHER CURRENT ASSETS 565 33,855
------------ ------------
Total current assets 541,324 529,955
------------ ------------
EQUIPMENT, FURNITURE AND FIXTURES
Computer and office equipment 386,597 669,889
Furniture and fixtures 204,858 204,858
------------ ------------
591,455 874,747
Less- Accumulated depreciation (276,609) (451,902)
------------ ------------
314,846 422,845
------------ ------------
OTHER ASSETS 50,624 53,282
------------ ------------
Total assets $906,794 $1,006,082
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $1,275,982 $1,125,306
LOANS PAYABLE - ASI 1,037,433
DEFERRED REVENUE 19,045 56,066
CAPITALIZED LEASE 29,260 49,442
------------ ------------
Total current liabilities 2,361,720 1,230,814
NOTES PAYABLE 129,691 129,691
CAPITAL LEASE, NET OF CURRENT PORTION 3,966
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, authorized 30,000,000
shares; $.01 par value; issued and
outstanding 8,065,521 shares on
June 30, 1997 and 7,722,188 shares
at December 31, 1996 80,655 77,222
Additional paid-in capital 16,412,045 16,362,395
Accumulated deficit (18,077,317) (16,798,006)
------------ ------------
Stockholders' equity (deficit) (1,584,617) (358,389)
------------ ------------
Total liabilities and
stockholders' equity (deficit) $906,794 $1,006,082
============ ============
-1-
</TABLE>
<PAGE>
<TABLE>
PAPERCLIP SOFTWARE, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
UNAUDITED
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1997 1996 1997 1996
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
NET SALES $635,559 $495,545 $920,868 $983,575
------------ ------------ ------------- ------------
OPERATING EXPENSES:
Salaries and related benefits 410,437 389,789 719,806 752,981
Research and development expenses 275,171 830,828 655,656 1,464,053
Selling expenses 119,158 402,771 326,378 596,590
General and administrative expenses 211,637 247,623 479,841 492,689
------------ ------------ ------------- ------------
Total operating expenses 1,016,403 1,871,011 2,181,681 3,306,313
------------ ------------ ------------- ------------
Loss from operations (380,844) (1,375,466) (1,260,813) (2,322,738)
------------ ------------ ------------- ------------
OTHER INCOME (EXPENSE):
Interest income 687 41,658 3,137 67,983
Interest expense (14,254) (1,672) (21,637) (3,147)
------------ ------------ ------------- ------------
(13,567) 39,986 (18,500) 64,836
------------ ------------ ------------- ------------
Net loss ($394,411) ($1,335,480) ($1,279,313) ($2,257,902)
============ ============ ============= ============
LOSS PER COMMON SHARE ($0.05) ($0.18) ($0.16) ($0.30)
============ ============ ============= ============
WEIGHTED AVERAGE NUMBER COMMON
SHARES OUTSTANDING 8,065,521 7,620,692 7,951,893 7,435,815
============ ============ ============= ============
-2-
</TABLE>
<PAGE>
<TABLE>
PAPERCLIP SOFTWARE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
UNAUDITED
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ($1,279,311) ($2,257,902)
Adjustments to reconcile net loss to
net cash used in operating activities-
Depreciation 107,999 75,852
(Increase) in accounts receivable (83,504) (107,026)
Decrease (Increase) in prepaid
expenses and other current assets 33,290 (21,683)
Decrease in other assets 2,658 366
Increase in accounts payable,
accrued expenses and deferred revenues 113,655 59,307
------------ ------------
Net cash used in operating activities (1,105,213) (2,251,086)
------------ ------------
INVESTING ACTIVITIES -- Purchases of
equipment, furniture and fixtures (107,587)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from issuance of stock in
exchange for Bridge Warrants and cash 616,456
Proceeds from issuance of stock in
exchange for Stock Options and cash 1,000 33,624
Issuance of stock for compensation 52,083
Proceeds from borrowings 1,037,433
Payments on capitalized leases (24,148) (22,520)
------------ ------------
Net cash provided by financing activities 1,066,368 627,560
------------ ------------
Net (decrease) increase in cash (38,845) (1,731,113)
CASH, beginning of period 220,573 3,661,009
------------ ------------
CASH, end of period $181,728 $1,929,896
============ ============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION
Interest paid $1,700 $1,672
============ ============
-3-
</TABLE>
<PAGE>
PAPERCLIP SOFTWARE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information, the
instructions to Form 10-QSB and item 310 (b) of Regulation
SB. Accordingly, they do not include all the information
and footnotes required by generally accepted accounting
principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for fair
presentation have been included. For further information,
refer to the Financial Statements and footnotes thereto
included in the Company's Registration Statement and
Prospectus and Form 10-KSB (for the year ended December 31,
1996) as filed with the Securities and Exchange Commission.
NOTE B -- LOSS PER SHARE
The loss per share amounts in the statement of operations
have been computed in accordance with a Staff Accounting
Bulletin (SAB) of the Securities and Exchange Commission.
According to the SAB, common stock and common stock warrants
issued are to be treated as common stock equivalents
outstanding for all periods presented if such common stock
was issued or such common stock warrants may be exercised,
at a price substantially below the public offering price.
As a consequence of the Company's offering of 1,799,750
shares of its common stock at $5.00 per share in an initial
public offering, its warrants issued to the Bridge Note
holders, entitling the holders thereof to acquire an
aggregate of 430,000 shares of the Company's common stock at
an exercise price of $2.25,would be treated as common stock
equivalents unless their inclusion be antidilutive. The
unexercised Bridge Warrants have not been treated as common
stock equivalents at June 30, 1996 or June 30, 1997 as their
inclusion would be antidilutive. The share data contained in
this note does not take into account a 2 for 1 stock split
effected as of May 1996.
-4-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
PAPERCLIP SOFTWARE, INC.
Three Months and Six Months Ended June 30, 1997 Compared
with Three Months and Six Months Ended June 30, 1996.
Net sales for the three months ended June 30, 1997
increased by 28% over the three months ended June 30, 1996
(from $495,545 to $635,559) due to increased demand. Net
sales for the six months ended June 30, 1997 decreased by 6%
over the six months ended June 30, 1996 (from $983,575 to
$920,868) due to lower demand in the first quarter of 1997.
None of such decrease was a result of a decrease in prices.
Net sales were adversely affected due to a decrease in
marketing efforts, which resulted from the Company's
financial constraints.
Salaries and related benefits for the three months ended
June 30, 1997 decreased by 5% over the three months ended
June 30, 1996 (from $389,789 to $410,437). Salaries and
related benefits for the six months ended June 30, 1997
decreased by 4% over the six months ended June 30, 1996
(from $752,981 to $719,806). The decrease was due to a
reduction in general and administrative personnel, resulting
from the Company's financial constraints.
Research and development expenses for the three months ended
June 30, 1997 decreased by 67% over the three months ended
June 30, 1996 (from $830,828 to $275,171). Research and
development expenses for the six months ended June 30, 1997
decreased by 55% over the six months ended June 30, 1996
(from $1,464,053 to $655,656). The decrease was due to
completion of internet products, cessation of work on the
workflow products, and the Company's financial constraints.
Selling expenses for the three months ended June 30, 1997
decreased by 70% over the three months ended June 30, 1996
(from $402,771 to $119,158). Selling expenses for the six
months ended June 30, 1997 decreased by 45% over the six
months ended June 30, 1996 (from $596,590 to $326,378). The
decrease was due to a lower marketing effort and lower
promotion expenses resulting from the Company's financial
constraints.
General and administrative expenses for the three months
ended June 30, 1997 decreased by 15% over the three months
ended June 30, 1996 (from $247,623 to $211,637). General and
administrative expenses for the six months ended June 30,
1997 decreased by 3% over the six months ended June 30,
1996 (from $492,689 to $479,841), due to a increase in
professional fees related to the sale of the Company's
assets, as described below, which increase was offset by a
reduction in recruiting fees.
-5-
<PAGE>
The net loss from operations for the three months ended June
30, 1997 decreased by 70% over the three months ended June
30, 1996 (from $1,335,480 to $394,411). The net loss from
operations for the six months ended June 30, 1997 decreased
by 43% over the six months ended June 30, 1996 (from
$2,257,902 to $1,279,313). The decrease was primarily due to
a decrease in research and development and marketing efforts
in light of the Company's financial constraints.
Liquidity and Capital Resources
June 30, 1997 Compared with December 31, 1996
For the quarter ended June 30, 1997 the Company incurred a
net loss of $394,411. As of June 30, 1997, the Company had
an accumulated deficit of $1,807,317. The Company continues
to incur operating losses. The Company had negative working
capital of $700,859 and $1,520,396 as of December 31, 1996
and June 30, 1997, respectively.
Throughout 1996, the Company incurred losses and had been
seeking sources of additional financing. In July 1996, the
underwriter of the Company's initial public offering and
principal market maker for its Common Stock, A.R. Baron &
Co, Inc. ("A.R. Baron"), filed for bankruptcy. In the last
several months of 1996, management had been engaged in
discussions with a number of investment banks, corporate
buyout firms and potential merger and joint venture partners
regarding various financial and strategic alternatives for
the Company. The Company was unable to identify additional
sources for public or private financing.
After evaluating several potential opportunities for a sale
of the Company or its assets, the Company entered into a non-
binding Letter of Intent dated January 2, 1997 (the "Letter
of Intent") with Access Solutions International, Inc.
("Access Solutions"), providing for the parties to use their
best efforts to negotiate a transaction involving the
purchase by Access Solutions of substantially all of the
assets of the Company and for Access Solutions to assume
specified liabilities of the Company.
Pursuant to the Letter of Intent, Access Solutions provided
a one year bridge loan, of $300,000 (the "Access Loan"), at
an interest rate of 12% per annum, to the Company for use as
operating capital. In consideration of such loan, the
Company issued a convertible note to Access Solutions("the
Convertible Note), convertible into common stock at a
conversion price of twenty-five cents ($0.25) per share.
-6-
<PAGE>
On April 15, 1997, the Company and Access Solutions entered
into a definitive agreement for Access Solutions to purchase
substantially all of the assets of the Company and for
Access Solutions to assume substantially all of the
liabilities of the Company, including the Convertible Note.
The purchase price will be paid by delivery to the Company
of approximately 1,544,438 shares of Access Solutions'
common stock plus an equivalent number of Access Solutions'
Class B Warrants (the "Asset Sale Transaction"). The shares
and warrants of Access Solutions that shall be received by
the Company in the transaction will be subject to a lock up
agreement which will limit the transferability thereof
prior to either (i) October 1998, if certain shareholders of
Access Solutions agree to be bound by an identical lock up,
or (ii) April 1998, if certain shareholders of Access
Solutions do not agree to be bound by a lock up through
October 1998.
The parties have also entered into a Management Agreement,
dated April 15, 1997 (the "Management Agreement"), pursuant
to which Access Solutions has assumed the management and
control of the day-to-day operations of the Company pending
the closing. Pursuant to the Management Agreement, pending
the closing, Access Solutions is advancing funds to the
Company, in accordance with an agreed upon budget. As of
July 31, 1997, aggregate amounts advanced to the Company
pursuant to the Management Agreement totalled $1,399,933.
Currently the Company and Access Solutions are engaged in
discussions regarding amending the form and the terms of the
Asset Sale Transaction. These discussions are not expected
to materially change the amount of consideration to be
received by the Company's shareholders in the transaction.
The discussions have resulted in a delay in the consummation
of the Asset Sale Transaction.
Consummation of a transaction with Access Solutions is
subject to various conditions, including approval of the
Company's shareholders and the filing of a registration
statement with the Securities Exchange Commission. The
transaction is expected to close in October, 1997. There
can be no assurance that the Company will be successful in
its current negotiations with Access Solutions regarding
amending the form and the terms of the Asset Sale
Transaction or otherwise consummating the original Asset
Sale Transaction. The Company has not identified any
alternative sources of liquidity and has no commitment with
regard to obtaining any further funds which would be
required to sustain the Company's operations if the
agreement with Access Solutions cannot be closed.
On March 11, 1997, the Company was informed by NASDAQ that
its securities had been deleted from The NASDAQ SmallCap
Market due to the Company's failure to comply with minimum
asset and capital surplus requirements established by
NASDAQ. The Company's securities are now quoted on the OTC
Bulletin Board.
-7-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
PAPERCLIP IMAGING SOFTWARE, INC.
BY /s/ William Weiss
William Weiss, Chief Executive
Officer and Principal
Financial Officer
Date: August 18, 1997
-8-
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
Exhibit 27- Financial Data Schedule
Exhibit 99.1 - Employment Termination Agreement
and Release between the Company
and Sol Rosenberg, dated as of
June 18, 1997.
(b) Reports on Form 8-K
The Company has not filed any reports 8-K
for the quarter months ended June 30, 1997.
-9-
<PAGE>
Paperclip Software, Inc.
Exhibit Index
Exhibit Number Page #
27 Financial Data Schedule 11
99.1 Employment Termination Agreement 12
and Release between the Company
and Sol Rosenberg, dated as of
June 18, 1997.
-10-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 181,728
<SECURITIES> 0
<RECEIVABLES> 399,031
<ALLOWANCES> 40,000
<INVENTORY> 0
<CURRENT-ASSETS> 541,324
<PP&E> 591,455
<DEPRECIATION> 276,609
<TOTAL-ASSETS> 906,794
<CURRENT-LIABILITIES> 2,361,720
<BONDS> 0
0
0
<COMMON> 80,655
<OTHER-SE> 16,412,045
<TOTAL-LIABILITY-AND-EQUITY> 906,794
<SALES> 920,868
<TOTAL-REVENUES> 920,868
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,181,681
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,500
<INCOME-PRETAX> (1,279,313)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,279,313)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,279,313)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
EMPLOYMENT TERMINATION AGREEMENT AND RELEASE
PAPERCLIP SOFTWARE, INC. (the "Company"), and SOL
ROSENBERG ("Rosenberg") hereby agree as follows:
1. The Company hereby terminates without "cause"
Rosenberg's employment effective May 15, 1997. Rosenberg
agrees to cooperate with the Company in the transition of
his duties (without additional compensation except as
provided in this Agreement and Release). The parties also
agree that the Employment Agreement dated as of May 1,
1995, between the Company and Rosenberg is terminated as of
May 15, 1997; provided however, that the parties agree that
the provisions of Section 6(b),(c) and (d) of the Employment
Agreement survive such termination.
2. The Company shall pay to Rosenberg a severance payment
of $120,000, subject to withholdings required by law.
The
severance payment shall be paid in bi-weekly installments of
$5000 with the Company's regular payroll payments; provided,
however, that any remaining balance shall be paid in full
within 5 business days of the closing of the Asset Purchase
Agreement dated April 15, 1997, between the Company and
Access Solutions International, Inc. ("Access").
3. The Company shall continue to provide its current
health care coverage for Rosenberg until such coverage is
obtained by him elsewhere, or until July 1, 1997,
whichever is sooner. Following that date, the Company
will respect Rosenberg's rights, if any, to continued
medical coverage at his own expense under the
Consolidated Omnibus Budget Reconciliation Act (COBRA).
4. Rosenberg hereby assigns and agrees to assign any works,
ideas and inventions developed by him for the Company during
the term of his employment, and shall, at the Company's
expense, assist the Company in every possible way to protect
such ideas and inventions, including but not limited to
signing patent and/or copyright applications, oaths and
assignments in favor of the Company relating to such works,
ideas and inventions both in the United States and in any
and all foreign countries.
5. Rosenberg agrees that for the period from April 15,
1997 through December 31, 1997, he will not, without the
prior written consent of the Company (which consent shall
not unreasonably be withheld), directly or indirectly,
whether as an officer, director, shareholder, partner,
proprietor, associate, employee, representative, agent,
salesperson, consultant, distributor or otherwise, develop,
market or sell, or assist the companies Filenet, Optika,
Compulink, Mosaix, Keyfile, Metafile, TASC, Bluebird
Technologies, Imnet Systems, Novasoft Systems, Westbrook
Technology or any other of their respective successors,
assigns or affiliates, to develop, market or sell, any
software products that compete directly with those sold by
the Company on the date of this Agreement. Nothing in the
preceding sentence shall prohibit Rosenberg from owning as a
passive investor up to 5% of the shares of any such company.
6. The execution of this Agreement shall not be construed as
an admission of a violation of any statute or law or breach
of any duty or obligation by either the Company or
Rosenberg.
7. This Agreement is confidential and shall not be made
public by either the Company or Rosenberg except as required
by law or if necessary in order to enforce this Agreement.
Rosenberg may disclose this agreement for purposes of
securing new employment or business.
8. In consideration of the foregoing, Rosenberg hereby
releases and forever discharges the Company, Access and
their respective present and former officers, directors,
employees, agents, partners, subsidiaries, successors and
assigns from any and all liabilities, causes of action,
debts, claims and demands both in law and in equity known
or unknown, fixed or contingent, which he may have or claim
to have based upon or in any way related to employment
or termination of employment with the Company except for
claims made by any third party against Rosenberg for any
acts or ommission(s) or the like (excluding criminal or
fraudulent acts or ommissions) committed by Rosenberg during
the term of his employment and within the scope of his
employment duties and hereby covenants not to file a
lawsuit or charge to assert such claims except in
enforcing terms of this agreement; provided, however, that
Rosenberg does not release any claim for breach of this
agreement. This includes but is not limited to claims
arising under federal, state or local laws prohibiting
employment discrimination, including specifically the Age
Discrimination in Employment Act of 1967, as amended
("ADEA"), or claims growing out of any legal restrictions on
the Company's right to terminate its employees.
9. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other
provisions hereof, and this Agreement shall be construed in
all respects as if such invalid or unenforceable provisions
were omitted.
10. Rosenberg understands that various State and Federal
laws prohibit employment discrimination based on age, sex,
race, color, national origin, religion, handicap or veteran
status. These laws are enforced through the Equal
Employment Opportunity Commission (EEOC), Department of
Labor and state human rights agencies. Rosenberg
acknowledges that he has been advised by the Company to
discuss this Agreement with his attorney and has been
encouraged to take this Agreement and Release home for up to
twenty-one days so he can thoroughly review and understand
the effect of this release before acting on it.
11. Rosenberg has carefully read and fully understands all
of the provisions of this Agreement and Release which sets
forth the entire understanding between him and the Company.
This Agreement may not be changed orally but only by an
agreement in writing signed by the party against whom
enforcement of any waiver, change, modification, extension
or discharge is sought. Rosenberg acknowledges that he has
not relied upon any representation or statement, written or
oral, not set forth in this document.
12. Rosenberg may revoke his agreement to the terms hereof
at any time during the seven-day period immediately
following the date of his signature below ("revocation
period") by delivering written notice of his revocation to
the Company. This Agreement shall become effective upon the
expiration of the revocation period.
13. Rosenberg acknowledges that the Company has entered
into an Asset Purchase Agreement with Access, pursuant to
which Access may acquire certain assets and liabilities of
the Company upon the satisfaction of certain conditions.
Rosenberg agrees that this Agreement will be assigned by the
Company to Access and may be enforced under the terms of
the Asset Purchase Agreement.
14. The provisions of paragraphs 4 and 8 shall not come
into force until Rosenberg has been paid in full under the
provisions of paragraph 2.
15. Governing Law. This agreement shall be governed by,
and construed in accordance with, the laws of the State of
New Jersey (without regard to conflict of laws rules).
16. The parties have executed this Agreement as indicated
by their signatures.
17. This Agreement may not be amended except by a writing
signed by the party against whom such amendment is sought to
be enforced. This Agreement shall be binding upon the parties
and their successors.
PAPERCLIP SOFTWARE, INC.
By: /s/William Weiss /s/Sol Rosenberg
William Weiss, CEO Sol Rosenberg
Access Solutions International, Inc.
By: /s/Robert H. Stone
Robert H. Stone, President & CEO
Dated: June 18, 1997
