U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended September 30, 1997.
__ Transition report under Section 13 or 15(d) of the Exchange Act for the
transition period from to
Commission file number: 00-21219
CASDIM INTERNATIONAL SYSTEMS, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 83-0288100
(State of Incorporation) (I.R.S. Employer Identification No.)
150 East 58th Street
New York, New York 10155
(Address of Principal Executive Offices)
(212) 829-1700
Fax: (212) 829-1705
(Issuer's Telephone Number, Including Area Code)
(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__
APPLICABLE ONLY TO CORPORATE ISSUERS
As of September 30, 1997, the Issuer had 15,334,001 shares of Common Stock, par
value $0.01, outstanding.
Transitional Small Business Disclosure Format (check one): Yes__ No X
CASDIM INTERNATIONAL SYSTEMS, INC.
INDEX
Page
----
Part I - Financial Information:
Item 1. Financial Statements
Consolidated balance sheets at September 30, 1997 and December 31, 1996.....3
Consolidated statements of income for the three and nine months
ended September 30, 1997 and 1996..................................4
Consolidated statements of cash flows for the nine months
ended September 30, 1997 and 1996..................................5
Notes to unaudited consolidated financial statements.....................6-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................14
Part II - Other Information:
Item 4. Submission of Matters to a Vote of Shareholders...................18
Item 6. Exhibits and Reports on Form 8-K..................................18
Signatures....................................................................19
-2-
CASDIM INTERNATIONAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1997 1996
(Unaudited) (Audited)
----------- ---------
ASSETS
CURRENT ASSETS
Cash............................................................ $ 234,187 $ 915,527
Accounts receivable
Trade - Note 8......................................... 295,331 438,807
Related Parties........................................ 1,037,401 834,144
Other.................................................. 249,581 254,200
Prepaid expenses ............................................... -- 148,323
Investments..................................................... 90,000 173,596
---------- ---------
1,906,500 2,764,597
PROPERTY AND EQUIPMENT
Property and equipment.......................................... 283,401 225,361
Less accumulated depreciation................................... (93,871) (36,435)
-------- --------
189,530 118,926
OTHER ASSETS
Deposits........................................................ 55,893 10,200
Start-up and organization costs, net............................ 43,096 48,304
Patent, net - Note 3............................................ 362,500 400,000
Product development costs - Note 4.............................. 1,419,056 943,164
---------- ----------
Total..................................................... $3,976,575 $4,355,191
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable
Trade.................................................. $ 162,750 $ 52,675
Other-Note 13.......................................... 340,218 469,355
Current maturities of long-term debt............................... 200,400 --
Notes payable.................................................. 458,158 1,344,416
---------- ---------
1,161,526 1,866,446
LONG-TERM DEBT
Accrued severance pay - Note 5..................................... 7,450 25,474
Long term bank debt - Note 9....................................... 700,050 --
STOCKHOLDERS' EQUITY - Notes
Common stock, $.01 par value, 30,000,000
shares authorized 15,334,001 shares issued and
outstanding, 285,000 shares held as treasury stock.......... 169,590 985
Additional paid in capital......................................... 4,873,057 3,145,268
Less treasury stock (cost)......................................... (1,425) (1,425)
Gain (loss) from foreign currency translation...................... -- (51,860)
Retained earnings (deficit)................................... (2,933,673) (629,697)
----------- ---------
Total shareholders' equity..................... $2,107,549 $2,463,271
---------- ----------
Total liabilities and shareholders' equity. $3,976,575 $4,355,191
========== ==========
See accompanying notes to the consolidated financial statements.
-3-
CASDIM INTERNATIONAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
Sales........................................ $ 1,645 $122,832 $33,091 $384,866
Cost of sales................................ 18,296 26,679 50,547 82,707
-------- -------- ------ ---------
Gross profit................................. (16,651) (96,153) (17,456) 302,159
Selling, general and adminis-
trative expenses.......................... 386,296 188,277 2,348,839 779,720
------- -------- --------- --------
(Loss) from operations (402,947) (92,124) (2,366,295) (477,561)
Other income (expense)
Interest income......................... 8,901 30,953 26,437 40,164
Interest expense........................ (15,272) (6,937) (57,661) (41,744)
Gain (loss) from sale of
investments........................... -- -- 145,402 --
-------- ------- -------- ------
Total....................... (6,371) 24,061 114,178 (1,580)
------ ------- -------- -----
(Loss) from operations
before taxes............................. (409,318) (68,108) (2,252,117) (479,141)
Income taxes................................. -- -- -- --
--------- ------- ---------- --------
Net (loss)................................... $(409,318) $(68,108) $(2,252,117) $(479,141)
========= ======== =========== =========
Net (loss) per share of
common stock............................. $(.0252) $(.0050) $(.1469) $(.0351)
======= ======= ======= ========
Net (loss) per share of
common stock on a fully
diluted basis............................ $(.0277) $(.0044) $(.1571) $(.0354)
======= ======= ======== ========
Weighted average number of
outstanding shares....................... 14,635,009 15,606,139 14,334,497 13,898,100
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
-4-
CASDIM INTERNATIONAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
1997 1996
---- ----
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................................... $(2,252,117) $(531,002)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................................. 100,144 68,311
Stock option compensation....................................... -- 164,063
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable - trade..................................... 143,476 (331,400)
Accounts receivable - other..................................... (50,315) (264,208)
(Decrease) increase in:
Accounts payable - trade........................................ 110,075 13,888
Accounts payable - other........................................ (129,137) (42,264)
--------- -------
Net cash provided (used) by
operating activities....................................... (2,077,874) (922,612)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for start-up costs........................................... -- (37,843)
Purchase of property and equipment................................... (58,039) (81,602)
Sale of investments - net............................................ 83,596 --
Payment of security deposit.......................................... (45,963) (10,200)
Payment for product development costs................................ (475,892) (397,650)
-------- --------
Net cash used in investing activities..................... (496,028) (527,295)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable.......................................... 14,192 542,083
Severance pay........................................................ (18,024) 22,547
Proceeds from issuance of stock...................................... 1,896,394 2,686,766
--------- ---------
Net cash provided by financing activities.................. 1,892,562 3,251,396
--------- ---------
NET INCREASE (DECREASE) IN CASH........................................... (681,340) 1,801,489
CASH:
Beginning of period.................................................. 915,527 26
---------- ----------
End of period........................................................ $ 234,187 $1,801,515
========= ==========
See accompanying notes to consolidated financial statements.
-5-
CASDIM INTERNATIONAL SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying financial information is unaudited, but, in the opinion of
management, reflects all adjustments (which include only normally recurring
adjustments) necessary to present fairly the Company's financial position,
operating results and cash flows for the periods presented. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The financial
information should be read in conjunction with the audited financial
statements and notes thereto for the year ended December 31, 1996 included
in the Company's Annual Report on Form 10-KSB filed with the Securities and
Exchange Commission. The results of operations for the three- and
nine-month periods ended September 30, 1997 are not necessarily indicative
of the results to be expected for the full year.
2. Summary of Significant Accounting Policies:
This summary of significant accounting policies of CASDIM INTERNATIONAL
SYSTEMS, INC., (the "Company") and its subsidiaries, CASDIM INTERACTIVE
SYSTEMS USA, INC. ("Casdim USA") and CASDIM INTERACTIVE SYSTEMS, LTD.,
(ISRAEL) ("CISL"), is presented to assist in understanding the Company's
financial statements. The financial statements and notes are
representations of the Company's management, which is responsible for their
integrity and objectivity.
a. Principles of consolidation - In 1995, the Company issued 8,500,000
shares of stock after a 50:1 reverse stock split to acquire 100% of
the voting and equity shares of Casdim USA, which owns 100% of the
voting and equity shares of CISL. The business combination has been
accounted for using the pooling method of accounting. The consolidated
financial statements include the accounts of the Company and its
subsidiaries.
b. Foreign operations - CISL maintains its accounts in nominal New
Israeli Shekels ("NIS"). Certain of the dollar amounts in the
financial statements may represent the dollar equivalent of other
currencies, including the NIS, which may not be exchangeable for
dollars.
Transactions and balances denominated in dollars are presented at
their dollar amounts. Non-dollar transactions and balances are
remeasured into dollars in accordance with the principles set forth in
the Statement of Financial Accounting Standards ("FAS") No. 52,
"Foreign Currency Translation," of the Financial Accounting Standards
Board of the United States ("FASB").
-6-
CASDIM INTERNATIONAL SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Accordingly, certain items relating to the Company's Israel subsidiary
have been remeasured as follows:
Monetary items-at the current exchange rate at each balance sheet
date;
Nonmonetary items-at historical exchange rates;
Income and expense items-at exchange rates current as of the date
of recognition of those items (excluding depreciation and other
items deriving from nonmonetary items);
Exchange gains and losses from aforementioned remeasurement
(which are immaterial for each year) are reflected in the
statements of income.
Linkage Basis - Balances which are linked to the Israeli Consumer
Price Index (the "CPI") are presented on the basis of the index
at the balance sheet date, which index is published subsequently.
Balances denominated in, or linked to, currencies other than the
dollar are presented according to the exchange rates prevailing
at the balance sheet date.
The effects of the inflationary erosion of monetary items and
interest is included in financial income or expenses, as
appropriate.
c. Fixed Assets - Fixed assets are stated at cost. Depreciation has been
calculated by the straight-line method over the estimated useful lives
of the assets.
Years
-----
Leasehold improvements 10
Motor vehicles 7
Office furniture and equipment (mainly
computers and peripheral equipment) 5-20
Leasehold improvements are depreciated using the straight-line method
over the period of each lease, not to exceed the estimated useful life
of the improvements.
d. Cash and Cash Equivalents - For purposes of the statement of cash
flows, the Company considers cash and cash equivalents to consist of
all cash, either on hand or in banks including time deposits, and any
highly liquid debt instruments purchased with a maturity of three
months or less.
-7-
CASDIM INTERNATIONAL SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
e. Bad Debts - Uncollectible accounts receivables are charged directly
against earnings when they are determined to be uncollectible. Use of
this method does not result in a material difference from the
valuation method required by generally accepted accounting principles.
f. Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
3. Patent
In January 1995, the Company acquired a pending patent No. 108935 from
CASDIM SOFTWARE SYSTEMS, LTD. for the sum of $500,000. The patent is being
depreciated using the straight-line method over the period of ten years.
4. Product Development Costs
Based on the Company's product development process, technological
feasibility is established upon completion of a working model. Costs
incurred by the Company between completion of the working model and the
point at which the product is ready for general release have been
capitalized. Total costs incurred to September 30, 1997 were $1,419,056.
The costs were principally incurred in the development of the Company's IOD
information on demand project for Ramada Franchise Systems, Inc.
Capitalized software costs are amortized by the greater of: (i) ratio of
current gross revenues from sales of the software to the total of current
anticipated future gross revenue from sales of that software or (ii) the
straight-line method over the remaining estimated useful life of the
product (not greater than three years). The Company assesses the
recoverability of this intangible asset by determining whether the
amortization of the asset over its remaining life can be recovered through
undiscounted future operating cash flows from the specific product.
5. Accrued Severance Pay
The liability of the Company for severance pay for the employees of its
Israeli subsidiary is calculated on the basis of the latest salary paid to
its employees and the length of time they have worked for the Company.
Pursuant to Israeli law, the liability is covered by a provision in the
Company's balance sheet and amounts deposited with the severance pay funds
and insurance policies. The insurance policies are owned by CISL and have
been entered into by CISL on behalf of its individual employees. The
amounts accumulated with the insurance
-8-
CASDIM INTERNATIONAL SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
company are not under CISL's control or management and are therefore not
reflected in the Company's balance sheet.
6. Capital Stock
On May 22, 1997 the Company completed a private placement of its securities
in which 1,200,000 shares of common stock were issued for $1,500,000. The
Company has agreed to pay the purchasers a penalty of 20,000 shares of
Common Stock per month beginning August 26, 1997 until such time as a
Registration Statement covering such shares is declared effective by the
Securities and Exchange Commission.
7. Stock Warrants and Stock Options
Stock Compensation Plans
Under the Company's 1996 Stock Option Plan (the "Plan"), the Company may
grant options for up to 500,000 shares of its common stock to its
employees, directors and consultants. No options have been granted to date.
Under the Plan, the exercise price of incentive stock options ("ISOs") may
not be less than 100% (or 110%, if at the time of grant the optionee owns
more than 10% of the voting stock of the Company) of the fair market value
of the shares of common stock at the date of grant. The purchase price of
each share subject to an option, or any portion thereof, which is not
designated as an ISO, may not be less than 75% of the fair market of such
shares on the date of grant. The term of each option under the Plan may be
for a period of up to ten years (five years if the recipient is a 10% or
more stockholder).
Under a public relations retainer agreement (the "Agreement") with Sunrise
Financial Group Inc. ("Sunrise"), the Company agreed to issue Sunrise
options to purchase up to 700,000 shares of its common stock as
consideration for its public relations services. Of such options, 460,000
options vested as of April 24, 1996 and options to purchase 10,000 shares
of common stock were to vest monthly for a 24-month period, subject to the
continued provision of services by Sunrise. Options to purchase 540,000
shares of common stock had vested as of December 31, 1996. Under the
Agreement, the purchase price of each share subject to an option is $1.00.
In March 1997, the "Agreement" with Sunrise was terminated. The parties
agreed that Sunrise would retain options to purchase up to 300,000 shares
of the Company's common stock. The term of these options will expire on
April 2001.
In April 1997, the Company entered into an agreement with Pelican
Consultants U.S.A., Inc. ("Pelican") to provide financial consulting and
financial relations services to the Company. The Company agreed to issue
Pelican options to purchase up to 200,000 shares of the Company's common
stock at a purchase price of $1.00 per share. Of such options, 100,000
options vested as of April 11, 1997 and options to purchase the remaining
shares will vest ratably over the next 12-month period beginning May 11,
1997, subject to the continued provision of services by Pelican.
-9-
CASDIM INTERNATIONAL SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Company has accounted for the fair value of the grant of options to
Sunrise and Pelican in accordance with FASB Statement 123. The compensation
costs that has been charged against income for the options granted to
Sunrise and to Pelican was $164,063.
Warrants
The Company issued warrants exercisable into 1,150,000 shares of common
stock in connection with its May 1996 private placement. The Company issued
additional warrants exercisable into 200,000 shares of common stock in
connection with its May 22, 1997 private placement. All of such warrants,
which are exercisable at $1.00 per share, have been included in the
computation of fully diluted earnings per share. As of September 30, 1997,
500,000 of such warrants have been exercised and there remain 850,000
warrants available to be exercised.
8. Accounts Receivable
In March 1997, CISL was informed by Kupat Holim Lambed, of its continued
postponement of payment of a trade account receivable owed to the Company
in the amount of approximately $300,000. The Company has also been informed
by Kupat Holim Lambed that a change in senior management is currently being
contemplated. The Company is continuing to evaluate the collectibility of
this account.
9. Long Term Bank Debt
On March 3, 1997, CISL converted $900,450 of short-term debt into long-term
debt. The terms of the refinancing call for payments of principal and
interest at a 7.75% annual interest rate.
The following is a schedule of principal payments:
1997 $ 200,400
1998 200,400
1999 200,400
2000 200,400
2001 98,850
---------
$ 900,450
Current Maturities (200,400)
----------
Long Term Debt $ 700,050
==========
-10-
10. Recent Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("FAS 128") "Earnings Per Share."
This statement is effective for the Company's quarter ending December 31,
1997. The Statement redefines earnings per share under generally accepted
accounting principles. Under the new standard, primary earnings per share
is replaced by basic earnings per share and fully diluted earnings per
share is replaced by diluted earnings per share.
The unaudited pro forma basic and diluted earnings per share for the nine
months ended September 30, 1997 and 1996 computed in accordance with FAS
128 are as follows:
Nine Months Nine Months
Ended Ended
September 30, September 30,
1997 1996
---- ----
Basic (loss) per share............. $( .1471) $( .0351)
========= =========
Diluted (loss) per share........... $( .1546) $( .0354)
========= =========
11. Statement of Cash Flows
Supplemental Information:
Nine Months Nine Months
Ended Ended
September 30, September 30,
1997 1996
---- ----
Interest paid $ 57,661 $ 41,744
======== ========
Income taxes paid $ -0- $ -0-
====== =====
-11-
12. Segment Reporting-Foreign Operations
Included in the consolidated financial statements is the following
financial information relating to the company's wholly owned foreign
subsidiary, Casdim Interactive Systems, Ltd. ("CISL").
BALANCE SHEET AS OF SEPTEMBER 30, 1997
ASSETS
Cash..................................................... $ 1,173
Accounts receivable - trade.............................. 294,331
Accounts receivable - related parties.................... 1,037,401
Property and equipment - net............................. 112,402
Patent - net............................................. 362,500
-----------
Total ............................................ $ 1,808,807
===========
LIABILITIES AND SHAREHOLDERS EQUITY
Notes payable............................................ $ 658,558
Accounts payable......................................... 75,569
Other payables........................................... 793,583
Long term debt........................................... 700,050
Accrued severance pay - net.............................. 7,450
Capital stock............................................ 35
Retained earnings (deficit).............................. (426,438)
-----------
Total................................................. $ 1,808,807
===========
INCOME STATEMENT FOR THE NINE MONTHS ENDED SEPT. 30, 1997
Sales......................................................... $ 33,091
Cost of sales................................................. 50,547
-----------
Gross profit.................................................. ( 17,456)
Sales, administrative and general expenses.................... 427,649
-----------
Operating (loss).............................................. (455,105)
Interest expense.............................................. 57,661
-----------
Net (loss)............................................ $ (502,766)
============
-12-
CASDIM INTERNATIONAL SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
13. Other Payables
Included in other payables are the following:
Sept. 30, 1997 December 31, 1996
-------------- -----------------
Related party...................................... $453,365 --
Accrued payroll ................................... 25,748 $49,751
Accrued expenses................................... 7,822 12,662
Income taxes payable to the State of Israel........ 306,648 406,942
------- -------
$793,583 $469,355
======== ========
-13-
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The discussion and analysis which follows in this Quarterly Report and in
other reports and documents of the Company and oral statements made on behalf of
the Company by its management and others may contain trend analysis and other
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934 which reflect the Company's current views with respect to
future events and financial results. These include statements regarding the
Company's earnings, growth and expansion plans, forecasts and similar matters
which are not historical facts. The Company reminds stockholders that
forward-looking statements are merely predictions and therefore are inherently
subject to uncertainties and other factors which could cause the actual future
events or results to differ materially from those described in the forward
looking statements. These uncertainties and other factors include, among other
things, the Company's ability to generate increased sales; competitive factors;
the Company's ability to obtain additional financing; the Company's ability to
complete and subsequently obtain revenues from its new projects (see
"Developments in 1997"); and technological difficulties and resource constraints
encountered in developing new products. The forward-looking statements contained
in this Quarterly Report should be considered in light of these factors.
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial position and
operating results during the periods included in the accompanying condensed
financial statements.
Developments in 1997
On March 26, 1997, the Company and Ramada Franchise Systems, Inc. ("RFS"),
a wholly owned subsidiary of HFS Incorporated, announced their agreement to
enter into "alpha" and beta" testing of Casdim's integrated Information on
Demand System (the "IOD System"). The IOD System incorporates interactive TV,
Internet, video-on-demand, E-mail, and a club member facility. The IOD System is
designed to utilize a WAN to link video and data servers via satellites and/or
cable TV systems. Hotel guests will access their TV through the RFS/Casdim
default channel. Access to various services including E-mail, stock quotes,
sports scores, video-on-demand, airline and car rental reservations and
residential real estate listings will be provided to the hotel guest by the IOD
System. Under the proposed arrangement, Casdim will derive revenues from
advertising, vendor commissions and user fees. RFS currently has over 120,000
lodging rooms in its franchise network. The Company and RFS have agreed to enter
into an agreement for full system implementation of the IOD System, pursuant to
which RFS will exclusively recommend the IOD System to all of its franchises,
upon the successful completion of the alpha and beta testing at various Ramada
Inn locations. The testing of the IOD System is scheduled to be completed in
March 1998. No assurance can be given that such testing will prove successful,
or that the Company will be able to raise sufficient funds to install its IOD
System within the Ramada Inn franchise system.
-14-
The Company and Dick Clark International Cable Ventures Ltd. ("Dick Clark
Ventures") have agreed to enter into a joint venture, to be known as Technology
Transfer Corporation, to exploit certain satellite transmission licenses held by
an affiliate of Dick Clark Ventures in Mexico. These licenses, granted by the
Secretaria de Communicaciones y Transports ("SCT") of Mexico, allow for the
installation or utilization of shared teleports, for the bi-directional
transmission of voice, video and data within the footprint of the Mexican
Government's two Solidaridad satellites. The Company has agreed to contribute
$500,000 to the joint venture which will design, install and operate an advanced
communications platform based on the satellite platform. To date, the Company
has expended over $400,000 in connection with this project. When activated, the
satellite network is intended to provide a variety of electronic services,
currently unavailable on a wide scale in Mexico. Initially, the joint venture
intends to provide electronic transactional services under the trade name
DataMex(TM) which service will include transactional banking via an
interconnected ATM network, point of purchase transactions and international
funds transfers. No assurance can be given that this joint venture will begin
operation, will be able to raise sufficient capital for the initiation of its
proposed business or will be successful in developing the network.
Results of Operations
Quarter Ended September 30, 1997 Compared to Quarter Ended September 30, 1996.
Sales by the Company's wholly owned Israeli subsidiary decreased to $1,645
during the quarter ended September 30, 1997 from $122,832 in the comparable 1996
quarter. The Company expects that the revenues of its Israeli subsidiary will
increase to a limited degree during the remainder of 1997 as a result of its
installation of interactive multimedia informational and transactional kiosks at
Ben Gurion Airport and its obtaining exclusive rights from an Israeli insurance
company to sell insurance products through kiosks at the Ben Gurion Airport. The
Company is developing software to allow Israeli citizens to purchase insurance
prior to their departing Israel for trips abroad.
In the third quarter of 1997, the Company's costs of sales decreased to
$18,296 from $26,679 in the 1996 third quarter. As a result of its limited
sales, the Company had a negative gross profit for the 1997 third quarter of
$16,651 compared to a negative gross profit of $96,153 in the 1996 third
quarter. The Company expects its gross margins to vary in the future depending
on the nature and volume of its revenues.
Selling, general and administrative expenses increased to $386,296 in the
1997 third quarter from $188,277 in the 1996 third quarter, due primarily to the
increased marketing costs associated with the Company's efforts to penetrate the
North American market and costs associated with the maintenance of executive
offices in New York City. The Company anticipates that selling, general and
administrative expenses will continue to at approximately the same rate for the
remainder of 1997, a result of the expenses associated with the introduction of
its IOD System.
During the 1997 third quarter, the Company had other expenses of $6,371 as
compared to other income of $24,061 in the 1996 third quarter. In the 1997 third
quarter, the Company was able to offset a part of its increased interest
expenses with interest income from the investment of the
-15-
remaining proceeds of its May 1997 private placement. The Company expects that
its net interest expense will increase during the remainder of 1997.
For the quarter ended September 30, 1997, the Company had a loss from
operations of $409,318 as compared to a loss from operations of $68,108 in the
1996 comparable quarter. The Company's operating loss in the 1997 third quarter
was due primarily to the increase in the Company's selling, general and
administrative expenses and its low level of sales. The Company expects to
continue to incur losses during the remainder of 1997 and in 1998, but has begun
to institute a program to curb expenses in order to reduce the level of such
loss. After the completion of the third quarter, the Company cut its staff in
Israel to two full time employees and sharply reduced the ongoing operating
expenses of its Israeli subsidiary.
In the quarters ended September 30, 1997 and 1996, the Company was not
required to pay any income taxes as a result of its operating losses.
As a result of the foregoing, the Company's net loss was $409,318 or $.0252
per share for the quarter ended September 30, 1997 as compared to a net loss of
$68,108 or $.005 per share for the quarter ended September 30, 1996.
Nine Months Ended September 30, 1997 Compared with Nine Months Ended September
30, 1996
Product sales decreased to $33,091 during the nine-month period ended
September 30, 1997 from $384,866 during the comparable period in 1996. The
decrease in sales was principally attributable to the Company's Israeli
subsidiary's inability to generate substantial revenues from either kiosk sales
or leasing.
Cost of sales decreased to $50,547 in the 1997 period from $82,707 in the
1996 nine-month period, principally as a result of the Company's lower level of
sales. As a result of the foregoing, the Company's gross profit for the
nine-month period ended September 30, 1997 was a negative $17,456 as compared to
a gross profit of $302,159 in the 1996 period.
Selling, general and administrative expenses increased in the 1997
nine-month period to $2,348,839 from $779,720 in the 1996 comparable period, due
primarily to the Company's establishment of executive offices in New York City,
increased compensation, legal and accounting costs, and increased marketing
costs associated with the Company's efforts to penetrate the United States
market.
During the nine months ended September 30,1997, the Company had other
income of $114,178 as compared to other expenses of $1,580 in the 1996 period.
In the 1997 period the Company recorded a gain of $145,402 on the sale of an
investment.
For the nine-month period ended September 30, 1997, the Company had an
operating loss of $2,252,117 as compared to an operating loss of $479,141 for
the comparable period in 1996. The increase in the Company's operating loss
during the 1997 period was due primarily
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to the increase in the Company's selling, general and administrative expenses
and the decline in sales.
As a result of the foregoing, the Company had a net loss of $2,252,117 or
$.1469 per share for the 1997 nine-month period as compared to a net loss of
$479,141 or $.0351 per share in the comparable 1996 period.
Liquidity and Capital Resources
At September 30, 1997, the Company had $234,187 in cash and $744,974 in
working capital as compared to $915,527 in cash and $898,151 in working capital
at December 31, 1996. In 1997, the Company received $400,000 upon the exercise
of warrants issued in the 1996 private placement and the completed a $1.5
million private placement in the second quarter of 1997. In addition, the
Company's financial position benefitted from the conversion of $955,550 of its
Israeli subsidiary's short-term debt into long-term debt. These actions were
offset by the Company losses during 1997.
Among the factors that will affect the Company's working capital in the
future will be (i) the amount and timing of the expenditures required to
complete the development, installation and testing of the IOD System, and (ii)
the timing of the payment of remaining amount due on the capital contribution
which the Company has agreed to make to the joint venture with Dick Clark
Ventures. Another factor which will effect working capital is the collectibility
of a receivable of approximately $300,000 from Kupat Holim Lambed, an Israeli
health maintenance organization, which is almost two years old. The Company has
begun to reduce its costs in order to conserve its financial resources and
develop its current projects. Monthly expenses in the United States and Israel
were reduced to less than $150,000 per month in the third quarter of 1997 in
effort to conserve cash. The Company's Israeli subsidiary will concentrate its
efforts on its Ben Gurion Airport project, while in the United States, the
Company will concentrate on completing its alpha site in Miami for its project
with RFS and will seek to obtain contracts for the IOD System from other hotel
chains.
Management believes that the Company will require additional financing of
$1.5 million to $2.5 million by year end to fund the installation and testing of
the IOD System at various Ramada Inn sites and to start the full marketing and
sales activities for the IOD System and to have sufficient working capital for
1998. No assurance can be given that sufficient financing on either an equity or
debt basis will be available to the Company or that it will be available at
advantageous terms.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Shareholders
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
*2 Agreement for the Exchange of Stock and Reorganization
**3.1 Articles of Incorporation (Delaware)
**3.2 By-laws
***4.1 Form of Warrant Agreement
***4.2 Stock Option Agreement with Sunrise Financial Group Inc.
**4.3 Stock Option Agreement between the Company and Pelican Consultants
U.S.A., Inc.
**4.4 Warrant Agreement dated May 22, 1997 between the Company and
Lydford Ltd.
**4.5 Form of Registration Rights Agreement between the Company and
Brayford Ltd., Lydford Ltd. and Stolin Ltd.
*10.1 Software Adaptation Services Agreement dated January 10, 1995
between the Company and Casdim Software Systems Ltd.
**10.2 Debt Agreement dated March 3, 1997 between Casdim International
Systems, Ltd. and Bank Hapoalim
*10.3 Patent (No. 108935) Agreement dated January 6, 1995 between Casdim
Software Systems Ltd. and C.I.S. Clinical Information Systems Ltd.
***10.4 Private Placement Purchase Agreement
***10.5 Consulting Agreement dated April 24, 1996 with Pelican Securities &
Investments Ltd., Softbreeze Ltd., Montaraz Limited, Onvoy Holdings
Ltd. and Wideglobe Ltd.
****10.6 Alpha/Beta Test Agreement dated March 20, 1997 between the Company
and Ramada Franchise Systems, Inc.
*21 Subsidiaries of the Company
27 Financial Data Schedule
- ------------------
* Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995.
SB-2, File No. 333-10287.
*** Incorporated by reference to the Company's Report on Form 10-QSB for the
quarter ended September 30, 1996.
**** Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1996.
-18-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CASDIM INTERNATIONAL SYSTEMS, INC.
/s/Yehuda Shimshon
------------------
Yehuda Shimshon
Chairman of the Board, President & CEO
/s/Doron Leave
--------------
Doron Leave
Acting Chief Financial Officer
Date: November 18, 1997
-19-
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
*2 Agreement for the Exchange of Stock and Reorganization
**3.1 Articles of Incorporation (Delaware)
**3.2 By-laws
***4.1 Form of Warrant Agreement
***4.2 Stock Option Agreement with Sunrise Financial Group Inc.
**4.3 Stock Option Agreement between the Company and Pelican Consultants
U.S.A., Inc.
**4.4 Warrant Agreement dated May 22, 1997 between the Company and
Lydford Ltd.
**4.5 Form of Registration Rights Agreement between the Company and
Brayford Ltd., Lydford Ltd. and Stolin Ltd.
*10.1 Software Adaptation Services Agreement dated January 10, 1995
between the Company and Casdim Software Systems Ltd.
**10.2 Debt Agreement dated March 3, 1997 between Casdim International
Systems, Ltd. and Bank Hapoalim
*10.3 Patent (No. 108935) Agreement dated January 6, 1995 between Casdim
Software Systems Ltd. and C.I.S. Clinical Information Systems Ltd.
***10.4 Private Placement Purchase Agreement
***10.5 Consulting Agreement dated April 24, 1996 with Pelican Securities &
Investments Ltd., Softbreeze Ltd., Montaraz Limited, Onvoy Holdings
Ltd. and Wideglobe Ltd.
****10.6 Alpha/Beta Test Agreement dated March 20, 1997 between the Company
and Ramada Franchise Systems, Inc.
*21 Subsidiaries of the Company
27 Financial Data Schedule
- ------------------
* Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995.
** Incorporated by reference to the Company's Registration Statement on Form
SB-2, File No. 333-10287.
*** Incorporated by reference to the Company's Report on Form 10-QSB for the
quarter ended September 30, 1996.
**** Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1996.