-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PeNlixMycB77ooDnr0trwe4EuM1FYp0MBrFobTXpYlHmMA+d1gJZzVD0SwB7L5PJ 2eRsVVVLsxpnThfQDsAXvQ== 0000950133-97-003991.txt : 19971117 0000950133-97-003991.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950133-97-003991 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: OBJECTIVE COMMUNICATIONS INC CENTRAL INDEX KEY: 0000944310 STANDARD INDUSTRIAL CLASSIFICATION: TELEGRAPH & OTHER MESSAGE COMMUNICATIONS [4822] IRS NUMBER: 541707962 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-22235 FILM NUMBER: 97721349 BUSINESS ADDRESS: STREET 1: 14100 MEADOW PARK DR CITY: CHANTILLY STATE: VA ZIP: 20151 BUSINESS PHONE: 7032273000 MAIL ADDRESS: STREET 1: 14100 MEADOW PARK DRIVE CITY: CHANTILLY STATE: VA ZIP: 20151 10QSB 1 OBJECTIVE COMMUNICATIONS, INC. FORM 10-QSB 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 ------------------------------------------------- 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 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (603) 334-6700 - -------------------------------------------------------------------------------- (Issuer's Telephone Number, Including Area Code) 14100 Park Meadow Drive Chantilly, VA 20151 - -------------------------------------------------------------------------------- (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 ----- ----- 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 ----- ----- 2 Part I - Finanancial Information Item1. Financial Statements OBJECTIVE COMMUNICATIONS, INC. (A Development Stage Enterprise) Balance Sheets
ASSETS September 30, December 31, 1997 1996 ---- ---- (Unaudited) 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 =========== ===========
The accompanying notes are an integral part to these financial statements. 3 OBJECTIVE COMMUNICATIONS, INC. (A Development Stage Enterprise) Statements of Operations (Unaudited) -----------
Three months ended September 30, 1997 1996 ---- ---- 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 Nine months ended September 30, 1997 1996 ---- ---- 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 For the period October 5, 1993 (date of inception) to September 30, 1997 ------------------ 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) -------------
The accompanying notes are an integral part to these financial statements. 4 OBJECTIVE COMMUNICATIONS, INC. (A Development Stage Enterprise) Statements of Cash Flows (Unaudited) -----------
Nine months ended Sept 30, 1997 1996 ---- ---- 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 ---------- ---- For the period October 5, 1993 (date of inception) to September 30, 1997 ---- 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 ----------
The accompanying notes are an integral part of these financial statements. 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 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 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 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 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 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 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 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 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 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 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 EX-11 2 WEIGHTED AVERAGE SHARES 1 Objective Communication Weighted average Exhibit 11
Three months ended Nine months ended September 30, September 30, 1997 1996 1997 1996 ------------ ------------- ------------- ----------- 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 ============ ============= ============= ===========
EX-27.1 3 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1997 JUL-01-1997 SEP-30-1997 2,244,538 0 35,723 0 272,621 2,791,154 1,983,442 404,535 4,570,621 1,039,717 0 0 0 46,368 0 4,570,621 0 0 0 0 2,604,238 0 0 (2,534,700) 0 (2,534,700) 0 0 0 (2,534,700) (0.55) (0.55)
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