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FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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Commission file number 0-28008
SmartServ Online, Inc.
- - --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 13-3750708
- - --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Metro Center, One Station Place, Stamford, Connecticut 06902
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(Address of principal executive offices) (Zip Code)
(203) 353-5950
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(Registrant's telephone number, including area code)
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 preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __ No __X_
Transitional Small Business Disclosure Format (check one):
Yes NO X
--- ---
The number of shares of common stock, $.01 par value, outstanding as of May 13,
1996 was 3,695,000.
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SmartServ Online, Inc.
(A Development Stage Enterprise)
Index
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - June 30, 1995 and March 31, 1996
(unaudited) ....................................................... 2
Statements of Operations - three months ended March 31, 1996
and 1995; nine months ended March 31, 1996 and 1995; and the
period from August 20, 1993 (inception) to March 31, 1996
(unaudited)........................................................ 4
Statements of Stockholders' Equity (Deficiency) - for the
period August 20, 1993 (inception) to June 30, 1995 and for
the nine months ended March 31, 1996 (unaudited)................... 5
Statements of Cash Flows - three months ended March 31, 1996
and 1995; nine months ended March 31, 1996 and 1995; and the
period from August 20, 1993 (inception) to March 31, 1996
(unaudited)........................................................ 7
Notes to Unaudited Financial Statements........................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................. 16
Exhibit 11 - Computation of earnings per share - three
months and nine months ended March 31, 1996 and
1995....... ...................................................... 17
Exhibit 27 - Financial Data Schedule........................... 18
Signatures........................................................ 19
1
SmartServ Online, Inc.
(A Development Stage Enterprise)
Balance Sheets
June 30, March 31,
1995 1996
---------------------------
Assets (unaudited)
Current assets:
Cash $ -- $ 4,266,240
Due from officers 4,053 25,812
Inventory 10,440 --
Prepaid expenses 8,669 55,910
Accounts receivable -- 1,972
---------------------------
Total current assets 23,162 4,349,934
Property and equipment:
Data processing equipment 72,460 176,196
Office furniture and equipment 26,600 32,674
Display equipment 12,815 12,815
---------------------------
111,875 221,685
Accumulated depreciation (23,190) (44,322)
---------------------------
88,685 177,363
Other assets:
Deferred financing costs -- 332,016
Security deposit 81,218 81,218
Computer software, net of accumulated
amortization of $4,986 at June 30, 1995
and $9,671 at March 31, 1996 respectively 20,526 28,004
---------------------------
101,744 441,238
---------------------------
Total assets $ 213,591 4,968,535
===========================
See accompanying notes.
2
SmartServ Online, Inc.
(A Development Stage Enterprise)
Balance Sheets
June 30, March 31,
1995 1996
--------------------------
Liabilities and stockholders' equity (unaudited)
Current liabilities:
Accounts payable $ 282,481 $ 223,760
Accrued liabilities 22,234 214,054
Accrued interest 106,595 --
Payroll taxes payable 88,183 16,598
Salaries payable 28,192 18,250
Notes payable 462,502 --
Loans from officers 42,550 --
--------------------------
Total current liabilities 1,032,737 472,662
Long-term debt 1,225,000 --
Stockholders' equity (deficiency)
Common stock:
Common shares - $.01 par value; 5,000,000 shares
authorized; shares issued and outstanding,
1,775,000 at June 30, 1995 and 3,695,000 at
March 31, 1996 17,750 36,950
Additional paid-in capital 319,205 8,637,818
Deficit accumulated during development stage (2,381,101) (4,178,895)
--------------------------
Total stockholders' equity (deficiency) (2,044,146) 4,495,873
--------------------------
Total liabilities and stockholders' equity $ 213,591 $ 4,968,535
===========================
See accompanying notes.
3
SmartServ Online, Inc.
(A Development Stage Enterprise)
Statements of Operations
August 20, 1993
Three months Nine months (inception) to
ended March 31, ended March 31, March 31, 1996
-----------------------------------------------------------------------
1996 1995 1996 1995
-----------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
Product development expenses ............... $ (370,014) $ (156,932) $ (652,737) $ (581,026) $(1,330,040)
Selling, general and administrative expenses (237,184) (406,790) (645,436) (892,421) (2,218,289)
-----------------------------------------------------------------------
Loss from operations ....................... (607,198) (563,722) (1,298,173) (1,473,447) (3,548,329)
Other income (expense):
Interest income ............................ 150 2,216 150 7,257 9,145
Interest expense ........................... (281,480) (43,208) (499,771) (43,208) (639,711)
-----------------------------------------------------------------------
Net loss ................................... $ (888,528) $ (604,714) $(1,797,794) $(1,509,398) $(4,178,895)
=======================================================================
Net loss per share (Note 1) ................ $ (0.42) $ (0.51) $ (0.90) $ (0.91)
========================================================
Weighted average shares outstanding
(Note 1) ................................ 2,118,750 1,176,650 1,990,700 1,663,950
========================================================
See accompanying notes.
4
SmartServ Online, Inc.
(A Development Stage Enterprise)
Statements of Stockholders' Equity (Deficiency)
For the period August 20, 1993
(inception) to June 30, 1995 and for
the nine months ended March 31, 1996
(unaudited)
Deficit
Accumulated
Common Stock Additional During
Paid-in Development
Shares Par Capital Stage
Value
------------------------------------------------------------
Issuance of common stock to officers on August 20,
1993 875,000 $ 9
Contribution of computer equipment by officer on
August 20, 1993 $ 3,609
Issuance of shares to investors in conjunction with
issuance of $600,000, 8.5% notes on February 1, 1994 84,000 840 136,713
Issuance of shares to investors in exchange for the
$600,000, 8.5% notes, $600,000 in cash, and 36
warrants on June 30, 1994 797,000 7,970 1,087,823
Net loss $ (534,918)
------------------------------------------------------------
Balances at June 30, 1994 1,756,000 8,819 1,228,145 (534,918)
Conversion of equity investment by an investor to
debt (12% notes due December 31, 1999) on
January 1, 1995 (881,000) (8,810) (1,191,190)
Cancellation of Class A (voting) common stock on
March 15, 1995 (875,000) (9)
Issuance of common stock in exchange for Class A
(voting) common stock to officers on March 15, 1995 1,597,500 15,975 (15,975)
Issuance of common stock to investor in
conjunction with issuance of $312,500, 12% notes
on March 15, 1995 177,500 1,775 298,225
Net loss (1,846,183)
------------------------------------------------------------
Balances at June 30, 1995 1,775,000 17,750 319,205 (2,381,101)
See accompanying notes.
5
SmartServ Online, Inc.
(A Development Stage Enterprise)
Statements of Stockholders' Equity (Deficiency)
For the period August 20, 1993 (inception) to June 30, 1995 and for
the nine months ended March 31, 1996 (unaudited)
Deficit
Additional Accumulated
Paid -in During Development
Shares Par Value Capital Stage
----------------------------------------------------------------------
Balances at June 30, 1995 1,775,000 $ 17,750 $ 319,205 $ (2,381,101)
Issuance of common stock and warrants to investors
at $4 57,500 575 229,425
Issuance of warrants in conjunction with the $1,200,000
of Bridge notes 30,000
Cancellation of 393,535 shares previously issued to
officers (393,535) (3,935) 3,935
Issuance of common stock at $5.00 per share and
1,725,000 warrants at $0.10, net of direct costs
of the offering of $1,543,560 1,695,000 16,950 7,086,990
Issuance of 427,735 shares of common stock in
redemption of the $612,500, 12% convertible,
subordinated notes and accrued interest thereon 427,735 4,277 701,486
Issuance of warrants to a noteholder as additional
consideration for the termination of a consulting
agreement 1,000
Issuance of Underwriter's warrants 10
Issuance of warrants as additional consideration in
connection with the $25,000, 12% notes 500
Issuance of common stock, valued at $2 per share, to a
financing intermediary for arrangement of a standby
revolving credit proposal 116,550 1,165 231,935
Issuance of common stock, valued at $2 per share, to an
investor in accordance with the terms of the $312,500,
12% notes 16,750 168 33,332
Net Loss (1,797,794)
----------------------------------------------------------------------
Balances at March 31, 1996 3,695,000 $ 36,950 $ 8,637,818 $ (4,178,895)
======================================================================
* Basis of contributed capital is the original cost of the asset, net of
obligation related to such asset, at the date of transfer.
See accompanying notes.
6
SmartServ Online, Inc.
(A Development Stage Enterprise)
Statements of Cash Flows
August 20, 1993
Three months ended Nine months ended (inception)
March 31, March 31, to March 31, 1996
1996 1995 1996 1995
------------------------------------------------------------------------
Operating activities (unaudited) (unaudited) (unaudited)
NET LOSS $ (888,528) $ (604,714) $(1,797,794) $(1,509,398) $(4,178,895)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 9,050 6,414 21,132 17,643 44,322
Amortization 1,763 1,215 4,685 3,206 14,423
Write-off of software development costs -- -- -- 181,956 181,956
Accretion and noncash charges for interest
expense 90,126 -- 158,263 -- 191,608
Cost of obtaining financing -- 300,000 -- 300,000 300,000
Consulting service (10,002) -- (10,002) -- 115,000
Changes in assets and liabilities:
Accounts receivable 34,115 (23,147) (1,972) (23,147) (1,972)
Inventories 9,844 (32) 10,440 (5,156) --
Prepaid expenses (5,301) 6,187 (11,241) (3,871) (19,910)
Security deposits -- -- -- -- (81,218)
Accounts payable (20,821) 20,269 (58,721) 141,567 223,760
Accrued liabilities 184,095 36,476 191,820 44,398 214,054
Accrued interest (229,435) 42,802 (106,595) 42,802 --
Payroll taxes payable 14,108 9,365 (71,585) (9,025) 16,598
Salaries payable (11,173) (9,193) (9,942) (2,855) 18,250
Unearned revenue -- (50,000) -- (25,000) --
------------------------------------------------------------------------
Net cash used in operating activities (822,159) (264,358) (1,681,512) (846,880) (2,962,024)
Investing activities
Purchase of equipment (77,334) (1,361) (109,810) (59,797) (221,685)
Purchase of computer software (7,014) (1,388) (12,163) (6,208) (224,383)
------------------------------------------------------------------------
Net cash used in investing activities (84,348) (2,749) (121,973) (66,005) (446,068)
Financing activities
Proceeds from the issuance of Bridge notes, net 190,000 -- 1,170,000 -- 1,170,000
Proceeds from the issuance of common stock 8,475,000 -- 8,705,000 -- 9,305,010
Proceeds from the issuance of warrants 182,510 -- 202,510 -- 202,510
Proceeds from the issuance of notes -- 250,000 -- 300,000 337,500
Repayment of notes (427,500) -- (452,500) -- (452,500)
Repayment of Bridge notes (1,200,000) -- (1,200,000) -- (1,200,000)
Proceeds from the issuance of debt -- -- -- 25,000 625,000
Repayment of debt (612,500) -- (612,500) -- (612,500)
Due from officers, net (79,962) (741) (64,309) 5,028 (25,812)
Capital contribution -- (9) -- (9) 3,600
Cost of issuing securities (1,543,560) -- (1,543,560) -- (1,543,560)
Deferred financing 137,637 -- (134,916) -- (134,916)
------------------------------------------------------------------------
Net cash provided by financing activities 5,121,625 249,250 6,069,725 330,019 7,674,332
Increase (decrease) in cash and cash equivalents 4,215,118 (17,857) 4,266,240 582,866 4,266,240
Cash at beginning of the period 51,122 17,857 -- 582,866 --
------------------------------------------------------------------------
Cash at end of the period $ 4,266,240 $ -- $ 4,266,240 $ -- $ 4,266,240
------------------------------------------------------------------------
See accompanying notes.
7
SmartServ Online, Inc.
(A Development Stage Enterprise)
Notes to Unaudited Financial Statements
March 31, 1996
1. ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
SmartServ Online, Inc.; formerly, Smart Phone Communications (Delaware), Inc.
(the "Company"), is a development stage company which commenced operations on
August 20, 1993. The Company makes available online information and
transactional services to subscribers through screen-based phones, personal
computers, personal digital assistants, and interactive voice response systems.
The Company also offers a range of services designed to meet the varied needs of
clients of potential strategic partners, as well as potential direct
subscribers, including: business credit information, investment newsletters,
stock research reports, stock quotes, nationwide business and residential
directory services, business and financial news, sports information, electronic
bill payment, research and analysis reports, trading by insiders of
corporations, stock recommendations, online package tracking, electronic mail
and ordering flowers and gifts. The Company's software architecture and
capabilities format information for a particular device and present the
information in a user friendly manner. The Company is in the initial stages of
developing a subscriber base.
The market for online information and transactional services is highly
competitive and subject to rapid innovation and the technological change,
shifting consumer preferences and frequent new service introductions. The
Company believes that potential new competitors, including large multimedia and
information system companies, are increasing their focus on transaction
processing. Increased competition in the market for the Company's services could
materially and adversely affect the Company's results of operations through
price reductions and loss of market share.
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information,
the instructions of Form 10-QSB and Rule 310 of Regulation SB and, therefore, do
not include all information and notes necessary for a presentation of results of
operations, financial position and cash flows in conformity with generally
accepted accounting principles. These statements should be read in conjunction
with the annual financial statements and related notes in the Company's Initial
Public Offering Prospectus dated March 21, 1996. In the opinion of the Company,
all adjustments (consisting of normal recurring accruals) necessary for a fair
presentation have been made. Results of operations for the nine months ended
March 31, 1996 are not necessarily indicative of those expected for the year
ending June 30, 1996.
8
SmartServ Online, Inc.
(A Development Stage Enterprise)
Notes to Unaudited Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
BASIS OF PRESENTATION (CONTINUED)
In March 1995, the outstanding shares of Class A (voting) common stock, $.01 par
value, of the Company were exchanged on a one-for-one thousand basis for
1,756,000 shares of common stock. The exchange is reflected as a stock split for
all periods.
EARNINGS PER SHARE
Net loss per share of common stock is computed based on the weighted average
number of shares of common stock and common stock equivalents outstanding for
each period. For purposes of computing net loss per share and pursuant to
Securities and Exchange Commission determinations, options, warrants and common
stock granted or issued by the Company during the 12 month period preceding the
date of the initial public offering (see Note 3) at a price below the initial
public offering price have been included in the determination of the weighted
average number of shares outstanding using the treasury stock method.
2. DEBT
June 30, March 31,
1995 1996
----------------------------
Senior notes payable, due June 30, 1995 with interest at 12% per annum; subject
to a 16% default rate of interest; senior to all
other debt; collateralized by all of the assets of the Company $312,500 $ -
Note payable, due on demand with interest at 12% per annum 125,002
Note payable, due on the earlier of the closing of the initial
public offering or June 23, 1996 with interest at 12% 25,000
----------------------------
$462,502 $ -
============================
In conjunction with the Company's Initial Public Offering (see Note 3), the
Company repaid the senior notes due June 30, 1995 and the note payable due June
23, 1996. The 12% demand note was repaid in accordance with a stipulation of
settlement resulting in payments of $115,000.
9
SmartServ Online, Inc.
(A Development Stage Enterprise)
Notes to Unaudited Financial Statements (continued)
2. DEBT (CONTINUED)
At June 30, 1995, long-term debt consisted of convertible, subordinated notes in
the amount of $1,225,000, due on December 31, 1999, bearing interest at 12% per
annum. The convertible, subordinated notes were convertible into shares of
common stock in accordance with the terms of the redemption and loan agreement.
In conjunction with the Initial Public Offering, the Company repaid one-half of
the outstanding principal and accrued interest thereon, and converted the
remaining portion of the debt and interest accrued through March 21, 1996 into
427,735 shares of common stock (at a conversion rate of $1.65 per share of
common stock).
In a private placement commencing in September 1995, the Company issued secured
promissory notes and common stock purchase warrants to investors in exchange for
$1,000,000 of interim financing. The notes were repaid with the proceeds of the
Initial Public Offering along with interest at a rate of 2% per thirty (30) day
month. The warrants provide for the purchase of 200,000 common shares with the
same terms and conditions as the warrants issued in conjunction with the Initial
Public Offering.
On January 31, 1996, the Company entered into an agreement to borrow $200,000 at
an interest rate of 10%. Principal and accrued interest were repaid with the
proceeds of the Initial Public Offering. In conjunction with this note, the
Company agreed to issue warrants for the purchase of 100,000 common shares on
August 1, 1996. These warrants are exercisable at $4.00 per share for a five
year period commencing August 1, 1996.
All costs incurred in connection with the issuance of these notes have been
charged to interest expense in the statement of operations for the nine months
ended March 31, 1996.
3. EQUITY TRANSACTIONS
On January 1, 1995, an investor converted its equity investment of 881,000 Class
A (voting) shares of common stock, $.01 par value, into convertible,
subordinated notes payable in the amount of $1,200,000, due on December 31,
1999, bearing interest at a rate of 12% per annum. Subsequent to such
conversion, the investor loaned the Company an additional $25,000. The
convertible, subordinated notes were converted to common stock in accordance
with the redemption and loan agreement on March 21, 1996 (see note 2).
In March 1995, the Company canceled all issued and outstanding shares of Class A
(voting), $.01 par value common stock. In exchange, the Company issued 1,597,500
shares of common stock with a par value of $.01 per share on a one-for-one
thousand basis.
10
SmartServ Online, Inc.
(A Development Stage Enterprise)
Notes to Unaudited Financial Statements (continued)
3. EQUITY TRANSACTIONS (CONTINUED)
In conjunction with financing provided by an investor ($312,500, 12% senior
notes), the Company issued to such investor, 177,500 shares of common stock. The
Company recognized an expense of $300,000 in relation to this transaction during
the year ended June 30, 1995. This issuance represented a 10% interest in the
Company at June 30, 1995. The investor received 16,750 additional shares of
common stock in order to maintain its 10% interest in the Company as shares of
common stock were sold or issued to other investors.
On March 21, 1996, the Company completed an Initial Public Offering of 1,695,000
shares of common stock at $5.00 per share and 1,725,000 redeemable common stock
purchase warrants for $.10 per warrant. Each Warrant entitles the registered
holder thereof to purchase one share of common stock at an exercise price of
$4.00 per share, subject to adjustment in certain events, at any time during the
period commencing one year from March 21, 1996, and expiring on March 20, 2001.
The warrants are subject to redemption by the Company at $.10 per warrant at any
time commencing March 21, 1997, on not less than 30 days' prior written notice
to the holders of the warrants, provided the average closing bid quotation of
the common stock as reported on The NASDAQ Stock Market or a national securities
exchange, if traded thereon, has been at least 187.5% of the current exercise
price of the warrants (initially $7.50 per share), for 20 consecutive trading
days ending on the third day prior to the date on which the Company gives notice
of redemption.
At March 31, 1996, the Company had warrants outstanding to purchase 2,162,500
shares of its common stock at prices ranging from $4 to $12 per share, expiring
in fiscal years 2001 and 2002.
4. OPERATING LEASES
The Company has entered into a lease modification agreement for additional space
at its Stamford, Connecticut headquarters. The lease includes escalation clauses
for items such as real estate taxes, building operation and maintenance and
electricity usage. Minimum future rental payments at March 31, 1996 are as
follows:
Fiscal Year Ending June 30
1997 $147,500
1998 174,000
1999 179,700
2000 186,000
2001 192,500
2002 198,700
2003 69,200
--------------
$1,147,600
--------------
11
SmartServ Online, Inc.
(A Development Stage Enterprise)
Notes to Unaudited Financial Statements (continued)
5. COMMITMENTS
On August 21, 1995, the Company entered into an agreement with a financial
intermediary for the arrangement of a $2,500,000 secured revolving credit
facility. As compensation for this proposal, the Company issued 116,550 shares
of common stock to this financial intermediary which has been valued at
$233,100, and recorded as deferred financing costs in the balance sheet at March
31, 1996. Such costs will be amortized over the term of the agreement. The
Company subsequently received a commitment letter which, at present, it believes
to be unacceptable; however, management intends to continue to negotiate the
terms of such letter.
Additionally, the Proposal contemplated that the Company would enter into a
consulting agreement, whereby such financial intermediary would provide
consulting services with regard to operational, management and strategic issues.
As consideration for these on-going services, the Company would pay $72,000 per
annum over the four year term of the agreement.
6. EMPLOYEE STOCK OPTION PLAN
The Board of Directors, by unanimous consent, approved the establishment of an
Employee Stock Option Plan authorizing stock option grants to employees and
directors for the purchase of up to 400,000 common shares. The Board has
approved the grant of stock options to employees and officers for the purchase
of 350,000 shares of common stock at prices ranging from $6.50 to $7.15 per
share. The issuance of such options is contingent upon the approval of the Plan
by the stockholders. The Company will record a non-cash charge to earnings at
such time the Plan is approved by the stockholders based on the difference
between the fair value of the common stock on the date of the stockholder
approval and the exercise price of the shares.
7. SUPPLEMENTAL EARNINGS PER SHARE DATA
Supplemental net loss per share of common stock for the nine months ended March
31, 1996 was $(0.73). Supplemental net loss per share of common stock is
computed using the if- converted method based on the weighted average number of
shares of common stock and common stock equivalent shares as defined previously,
and the assumed conversion of $612,500 of convertible subordinated notes and
accrued interest thereon that were converted into common stock at the closing of
the Initial Public Offering. Net loss per share used in the supplemental
earnings per share calculation was decreased for interest expense on the
convertible subordinated notes assumed converted.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Quarter Ended March 31, 1996 vs. Quarter Ended March 31, 1995
The Company provides online information and transactional services through
screen-based phones, PC's, PDA's and interactive voice response systems to
clients of potential strategic partners, as well as to prospective direct
subscribers. Since inception in August 1993, the Company has been developing
core communications software to meet anticipated subscriber and operational
needs. The Company has substantially completed development of its core SmartServ
information platform and core communication software.
On March 21, 1996, the Company completed an Initial Public Offering of 1,695,000
shares of common stock and 1,725,000 common stock purchase warrants.
During the quarter ended March 31, 1996, the Company incurred selling, general
and administrative expenses of $237,184, primarily for salaries and facilities.
Product development expenses amounted to $370,014. Both product development
expenses and selling, general and administrative increased during the period
over the corresponding period of the prior year as a result of increased
liquidity provided by the senior notes and the Bridge financing. Senior notes in
the amount of $462,500, and convertible, subordinated notes in the amount of
$1,225,000 were outstanding at June 30, 1995 through March 27, 1996.
Additionally, the Company issued Bridge notes with common stock purchase
warrants between September 1995 and February 1996, in the amount of $1,200,000,
to provide sufficient resources through the date of the Company's Initial Public
Offering. Interest expense for the quarter ended March 31, 1996 amounted to
$281,480. All unamortized costs associated with the Bridge notes were charged to
interest expense during the quarter ended March 31, 1996, as a result of the
repayment of those notes from the proceeds of the Initial Public Offering.
During the quarter ended March 31, 1995, the Company incurred selling, general
and administrative expenses aggregating $406,790, of which $300,000 related to
costs associated with the issuance of 177,000 shares of common stock in
connection with the $312,550 of senior notes. Product development expenses were
$156,932. Interest expense of $43,208 was incurred primarily as a result of the
convertible, subordinated notes which were issued on January 1, 1995.
13
Nine Months Ended March 31, 1996 vs. Nine Months Ended March 31, 1995
During the nine months ended March 31, 1996, the Company incurred selling,
general and administrative expenses of $645,436. These costs amounted to
$892,421 during the corresponding period ended March 31, 1995; however, included
therein was a $300,000 non-cash charge for common stock issued to facilitate the
issuance of the senior notes on March 15, 1995. Product development expenses
amounted to $652,737 as the Company concentrated on completing the development
of the SmartServ information platform. Product development expenses for the nine
months ended March 31, 1995 were $581,026, which included the write-off of
$182,000 of previously capitalized software costs resulting from the delayed
commercialization of the Company's products and services.
Capital Resources and Liquidity
Since inception of the Company on August 20, 1993 through March 20, 1996, the
date of the Initial Public Offering, the Company has funded its operations
through a combination of private debt and equity financings totaling $2,900,000
and $300,000, respectively.
The Initial Public Offering of 1,695,000 common shares and 1,725,000 common
stock purchase warrants on March 21 1996, provided the Company with gross
proceeds of $8,647,500. Direct costs associated with the offering were
approximately $1,544,000. In conjunction with the Offering, the Company
converted one-half of the convertible, subordinated debt and accrued interest
thereon, into 427,735 shares of common stock at a conversion rate of $1.65 per
share. The remainder of the debt and accrued interest thereon, totaling
$705,763, was repaid from the proceeds of the Offering. Additionally, the
Company retired senior notes amounting to $462,500, as well as the Bridge notes
amounting to $1,200,000.
The Company estimates that it will require approximately $3,800,000 to fund its
operations for the next twelve months. Of such funds, approximately $1,500,000
will be used to support additional costs for programming and supervisory
personnel necessary to integrate the Company's software with the information
systems of its Strategic Partners, as well as to make additional computer
hardware and software purchases of approximately $171,000. The Company expects
to augment its capital formation through the realization of revenues from the
sale of its information and transactional services, but no assurances can be
given that this will occur.
The Company anticipates that the net proceeds of the Offering will be sufficient
to fund the Company's operations for at least the next twelve months. The
Company may also have access to additional funding because as part of the
Offering, the Company issued 1,725,000 common stock purchase warrants entitling
the holders thereof to purchase one share of common stock at an exercise price
of $4.00 per share, subject to certain adjustments, at any time commencing on
March 21, 1997 through March 20, 2001. The warrants are subject to redemption by
the Company at $.10 per warrant commencing March 21, 1997, on thirty days
written notice, provided the average closing bid quotation for the common stock
as reported on The NASDAQ Stock Market or other national exchange, if traded
thereon, has
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been at least $7.50 for a period of 20 consecutive trading days ending on the
third day prior to the date on which the Company gives notice of redemption.
Exercise of these warrants by the holders or redemption by the Company could
provide additional capital of approximately $6,700,000; however such exercise or
redemption can not be assured.
Additionally, a financial intermediary, has put forth a Proposal, and has agreed
to act as an agent in connection with the arrangement of a $2,500,000 credit
facility. The Proposal, which is subject to execution and delivery of definitive
documentation, provides that any loans made under the Facility will be secured
by a first priority security interest in, and lien upon, all of the assets of
the Company. The Proposal provides further that any loans made under the
Facility will bear interest at the rate of 15% per annum; provided, however,
that in the event the Company achieves two consecutive quarters of earnings from
recurring operations of at least $300,000, such interest rate shall float at 2
1/2% above the prime rate of interest as published in the Federal Reserve
Bulletin. If the Facility is consummated pursuant to the Proposal, the Company
would be prohibited from incurring further indebtedness and from granting any
further liens and encumbrances. The financial intermediary has yet to identify a
potential lender. In January 1996, the Company received a draft commitment
letter which contained terms and conditions which were unacceptable to the
Company. Although management intends to continue to negotiate acceptable terms
with this intermediary, no assurance can be given that the Company and the
intermediary will reach agreement on the terms of a commitment letter. As
compensation for this Proposal, the financial intermediary received 116,550
shares of common stock. The Proposal also contemplated that the Company would
enter into a consulting agreement with the financial intermediary for a term of
48 months at a fee of $6,000 per month with payment to commence on the closing
of the Offering.
The Company's management believes that upon full implementation of its business
plan, sufficient revenues will be generated to meet operating requirements.
Management further believes that the Company's plan of operations will, if
successful, generate adequate cash flow from operations to enable the Company to
offer its proposed services on an economically sound basis; however, no
assurance can be given that such goals will be attained or that any expected
revenues or cash flows will be realized.
15
PART 2. OTHER INFORMATION
SmartServ OnLine, Inc.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
Exhibit 11 - Statement re: computation of earnings per share
Exhibit 27 - Financial Data Schedule
(b) The Company did not file any report on Form 8-K during the nine months
ended March 31, 1996.
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SmartServ OnLine, Inc.
(A Development Stage Enterprise)
SIGNATURES
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.
SmartServ OnLine, Inc.
(Registrant)
Date MAY 14, 1996 By: /S/ SEBASTIAN E. CASSETTA
------------ ----------------------------------
Sebastian E. Cassetta
Chairman of the Board, Chief Executive Officer
Date MAY 14, 1996 /S/ THOMAS W. HALLER
------------ ----------------------------------
Thomas W. Haller
Chief Financial Officer, Treasurer
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