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 March 31, 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 April 30, 1997
Common Stock, $.01 par value 8,055,521
Redeemable Class A Warrants 3,599,500
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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 7
Exhibit index 8
Exhibit Exhibit 27, Article 5 Financial
Data Schedule 9
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PAPERCLIP SOFTWARE, INC.
CONDENSED BALANCE SHEETS -- MARCH 31, 1997 (Unaudited)
AND DECEMBER 31, 1996
<CAPTION>
Mar 31, Dec 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CASH and CASH EQUIVALENTS $39,007 $220,573
ACCOUNTS RECEIVABLE (net of
allowance for doubtful accounts
of $40,000 at March 31, 1997
and December 31, 1996 197,301 275,527
PREPAID EXPENSES AND OTHER CURRENT ASSETS 16,144 33,855
------------ ------------
Total current assets 252,452 529,955
------------ ------------
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 (222,609) (451,902)
------------ ------------
368,846 422,845
------------ ------------
OTHER ASSETS 50,003 53,282
------------ ------------
Total assets $671,301 $1,006,082
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $1,337,336 $1,125,306
DEFERRED REVENUE 54,043 56,066
CURRENT PORTION OF CAPITALIZED LEASE 37,473 49,442
------------ ------------
Total current liabilities 1,428,852 1,230,814
NOTES PAYABLE 429,691 129,691
CAPITAL LEASE, NET OF CURRENT PORTION 3,966 3,966
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, authorized 30,000,000
shares; $.01 par value; issued and
outstanding 8,055,521 shares on
Mar 31, 1997 and 7,722,188 shares
at December 31, 1996 80,555 77,222
Additional paid-in capital 16,411,145 16,362,395
Accumulated deficit (17,682,908) (16,798,006)
(1,191,208) (358,389)
Total liabilities and ------------ ------------
stockholders' equity (deficit) $671,301 $1,006,082
============ ============
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<TABLE>
PAPERCLIP SOFTWARE, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996
UNAUDITED
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
NET SALES $285,309 $488,030
------------ ------------
OPERATING EXPENSES:
Salaries and related benefits 309,369 363,192
Research and development expenses 380,485 633,225
Selling expenses 207,220 193,819
General and administrative expenses 268,204 245,066
------------ ------------
Total operating expenses 1,165,278 1,435,302
------------ ------------
Loss from operations (879,969) (947,272)
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 2,450 41,658
Interest expense (7,383) (1,672)
------------ ------------
(4,933) 39,986
------------ ------------
Net loss ($884,902) ($907,286)
============ ============
LOSS PER COMMON SHARE ($0.11) ($0.25)
============ ============
WEIGHTED AVERAGE NUMBER COMMON
SHARES OUTSTANDING 7,837,003 3,625,467
============ ============
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<TABLE>
PAPERCLIP SOFTWARE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
UNAUDITED
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ($884,902) ($907,286)
Adjustments to reconcile net loss to
net cash used in operating activities-
Depreciation 53,999 35,652
Decrease (increase) in accounts
receivable 78,226 (55,133)
Decrease (Increase) in prepaid
expenses and other current assets 17,711 (12,508)
Decrease (increase) in other
assets 3,279 2,824
Increase (decrease) in accounts payable,
accounts payable, accrued
expenses and deferred revenues 210,007 (35,803)
------------ ------------
Net cash used in operating activities (521,680) (972,254)
------------ ------------
INVESTING ACTIVITIES -- Purchases of
equipment, furniture and fixtures 0 (39,997)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from issuance of stock in
exchange for Bridge Warrants and cash 0 222,743
Issuance of stock for compensation 52,083
Proceeds from borrowings 300,000 0
Payments on capitalized leases (11,969) (11,162)
------------ ------------
Net cash provided by financing activities 340,114 211,581
------------ ------------
Net (decrease) increase in cash (181,566) (800,670)
CASH, beginning of period 220,573 3,661,009
------------ ------------
CASH, end of period $39,007 $2,860,339
============ ============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION
Interest paid $865 $1,672
============ ============
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PAPERCLIP SOFTWARE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 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 March 31, 1996 or March 31, 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-
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PAPERCLIP SOFTWARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Three Months Ended March 31, 1997 Compared with Three Months
Ended March 31, 1996
Net sales for the three months ended March 31, 1997 decreased by
41.54% over the three months ended March 31, 1996 (from $488,030
to $285,309) due to lower demand. None of such decrease was a
result of a decrease in prices. The decrease in sales was
partially due to a decrease in marketing efforts which resulted
from the Company's financial constraints.
Salaries and related benefits decreased in such period by 14.82%
(from $363,192 to $309,369) due to reduced commissions and a
decrease in personnel resulting from the Company's financial constraints.
Research and development expenses decreased by 39.91% (from
$633,225 to $380,485) due to completion of internet products,
cessation of work on the workflow products, and the Company's financial
constraint.
Selling expenses increased by 6.91% (from $193,819 to $207,220).
General and administrative expenses increased by .09% (from
$245,066 to $268,204) due to an increase in fees related to the
sale of the Company's assets, as described below, which increase was
partially offset by a reduction in recruiting fees.
The net loss from operations for the three months ended March 31,
1997 decreased by 5.2% over the three months ended March 31,
1996 (from $947,272 to $897,969) primarily due to a decrease in
salaries and marketing efforts in light of the Company's
financial constraints.
Liquidity and Capital Resources
March 31, 1997 Compared with December 31, 1996
For the three months ended March 31, 1997 the Company incurred a
net loss of $884,902. As of March 31, 1997, the Company had an
accumulated deficit of $17,682,908. The Company continues to
incur operating losses. The Company had negative working capital
of $700,859 and $1,176,400 as of December 31, 1996 and March 31,
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 source 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.
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 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.
It is currently anticipated that, following the closing of the
transaction with Access Solutions, the Company will dissolve and
distribute the Access Solutions shares and warrants to its
shareholders, after making provisions for its liabilities, if
any, and subject to any necessary holdbacks for the benefit of
the Company's option and warrant holders. The timing of the
distribution of the Access Solutions shares and warrants to the
Company's shareholders has not yet been determined.
Consummation of the transaction 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 July or
August 1997. There can be no assurance that the Company will be
successful in closing the above-described sale of assets to
Access Solutions. 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.
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<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
Exhibit 27- Financial Data Schedule
(b) Reports on Form 8-K
The Company filed two(2) reports on Form 8-K
during the period covered by this report.
Each report on Form 8-K was filed with
respect to Item 5. The date of such reports
on Form 8-K were March 11, 1997 and
April 15, 1997.
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<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: May 15, 1997
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<PAGE>
Paperclip Software, Inc.
Exhibit Index
Exhibit Number Page #
27 Financial Data Schedule 9
-8-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 39007
<SECURITIES> 0
<RECEIVABLES> 237301
<ALLOWANCES> 40000
<INVENTORY> 0
<CURRENT-ASSETS> 252452
<PP&E> 591455
<DEPRECIATION> 222609
<TOTAL-ASSETS> 671303
<CURRENT-LIABILITIES> 1428852
<BONDS> 0
0
0
<COMMON> 80555
<OTHER-SE> 16411145
<TOTAL-LIABILITY-AND-EQUITY> 671301
<SALES> 285309
<TOTAL-REVENUES> 285309
<CGS> 0
<TOTAL-COSTS> 1165278
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7383
<INCOME-PRETAX> (884,902)
<INCOME-TAX> (884,902)
<INCOME-CONTINUING> (884,902)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (884,902)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
