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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
X ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
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SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1996
TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
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SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from___________ to ____________
Commission File Number 1-14160
HelpMate Robotics Inc.
(Exact name of registrant as specified in its charter)
Connecticut 06-1110906
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Shelter Rock Lane
Danbury, Connecticut 06810
(Address of principal
executive offices) (Zip Code)
Issuer's telephone number (203) 798-8988
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Units Philadelphia Stock Exchange
Common Stock Philadelphia Stock Exchange
Warrants Philadelphia Stock Exchange
Securities registered pursuant to Section 12(g)
of the Act: Units, Common Stock
and Warrants
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
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Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB. ___
The registrant had revenues totaling $2,617,077 during the fiscal year ended
December 31,1996.
The aggregate market value of the voting stock held by non-affiliates as of
March 11, 1997 was approximately $8,646,697
The number of shares outstanding of the registrant's common stock as of March
11, 1997 is 6,288,507 shares.
Documents incorporated by reference: None
Transitional Small Business Disclosure Format (Check One) Yes No X
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PART I
Item 1 Description of Business
Form and Year of Organization
HelpMate Robotics Inc. (the "Company"), a Connecticut corporation, was
co-founded in 1984 as a robotics "think-tank" by its chairman, Joseph F.
Engelberger. During its early years, the Company's primary focus was contract
engineering and research and development for third parties. Through the
years, however, the focus of the Company has evolved into the development of
products having commercial applications.
Initial Public Offering
The Company completed an initial public offering on January 31, 1996 of
1,449,918 units with each unit consisting of two shares of common stock, no par
value per share, and one redeemable common stock purchase warrant, whereby
1,252,996 units were sold by the Company and 196,922 units were sold by certain
lenders who provided interim financing to the Company (the "Selling Bridge
Securityholders"). The Company received proceeds of approximately $6.1 million
net of expenses of approximately $1.7 million and has used such proceeds for,
among other things, the expansion of its sales and marketing activities.
Further, $210,000 of the proceeds were used to redeem certain common shares
issued for rent (see "Item 2 Properties").
Immediately prior to the closing of the initial public offering, the
following became effective: (i) all outstanding shares of preferred stock of
the Company were converted into common stock, (ii) certain convertible notes
issued to the Selling Bridge Securityholders in the original principal amount
of $800,000 were converted into 196,622 units, (iii) the Company's
certificate of incorporation was amended to increase the authorized common
stock of the Company to 10,000,000 shares, (iv) the Company's certificate of
incorporation was amended to eliminate the class of preferred stock, and (v)
a 4.93599 - to - 1 stock split with respect to common stock was effected.
Accordingly, all common share amounts have been restated to give effect to
the 4.93599 - to - 1 stock split.
Principal Products and Services
The Company designs, manufactures and markets autonomous robot transport
systems for use by the institutional healthcare industry. The Company's
flagship product, called HelpMate-TM-, is an intelligent, self-navigating,
battery-powered robot, which travels throughout a hospital free of fixed
tracks or guidewires. HelpMate robots provide repetitive, around-the-clock
transport of meals, medications, lab samples, supplies and medical records
within a hospital environment, relieving staff of unscheduled
"fetch-and-carry" tasks, and thus, the Company believes, reducing labor costs
and improving productivity. Using proprietary sensory technology and a
preprogrammed map of the facility, the HelpMate robot can avoid obstacles and
people, making almost instantaneous stops when necessary, and via radio link,
can summon elevators to travel between floors. The HelpMate system's
technology allows it to be a more flexible and cost-effective alternative to
systems such as dumbwaiters, pneumatic tubes or automated guided vehicles.
HelpMate development began in 1987, and in 1991, following extensive testing
at Danbury Hospital in Connecticut, the first HelpMate became operational.
Further, in connection with the development of its HelpMate robots, the
Company also has developed other applications of its robotics technology. The
Company has sold and continues to sell, on a limited basis, components of its
autonomous robotics navigation technology to universities, laboratories and
other research facilities. Moreover, the Company has licensed some of its
technologies for use in floor-cleaning and automated prescription-filling
applications. The Company also believes that there are opportunities for
expanding its HelpMate product lines to other uses, both within the hospital
environment and for other healthcare users such as nursing homes, and for
developing non-healthcare related applications and products.
The Company also engages in and continues to solicit research and development
contract opportunities in the areas of service robotics and robotics
technology applications. However, the Company only intends to engage in such
contract research and development to the extent that the incremental costs
for such activities are fully funded by the contracting party or other
outside sources.
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Market Overview
The transportation of materials is a significant component of hospital costs
and includes not only the routine delivery of large items such as meal carts,
trash carts, laundry carts and even patient stretchers and wheel chairs, but
also the less noticed but more numerous small deliveries, so-called "unit
loads," made by nurses, food service and laundry employees, and pharmacy and
supply personnel. Independent studies have demonstrated that a significant
amount of the time of nurses is spent on deliveries, that as much as
one-quarter of all hospital transport is of the unit load type, and that as
many as ten percent of the meal tray deliveries are unit loads, single or
small deliveries resulting from dietary changes, patient transfers and new or
late admissions. Moreover, hospital pharmacies and central supply areas often
have acute delivery needs on second and third shifts, when such areas are
frequently staffed by a single professional who cannot leave to make needed
deliveries.
Accordingly, the Company estimates that the market in the United States for
HelpMate robots is approximately 10,000 HelpMates (or approximately one for
every 100 beds in the nation's 2,000 largest hospitals). In addition, the
Company's licensees estimate that the Asian and European markets are at least
as large. As of December 31, 1996, the Company has placed a total of 107
HelpMates, including 55 at customers in the United States, 31 in Japan
through a distributor, 10 at customers in Europe through a distributor, 1 at
a customer in Canada, and 1 directly at a customer in Germany. Of the 107
units, 59 have been sold and 48 are being rented. In addition the Company
has a firm backlog to install one additional sold unit and 26 additional
rental units at December 31, 1996.
Currently, most of the HelpMates in use at hospital locations have been
rented to end-users on a short-term basis (typically one to three years).
This marketing strategy has helped the HelpMate gain initial market
acceptance both by avoiding lengthy capital equipment procurement procedures
and by facilitating decision-making at lower levels within the hospital's
management. Domestic sales of HelpMate systems have generally been to those
end-users who previously have rented a HelpMate robot. Renting on this basis,
however, has required the Company to invest significant up-front capital for
the manufacture of HelpMates. Rental rates are on a per-hour basis based upon
the length of the rental agreement, with rates declining as hourly usage of
the robot increases. Maintenance is included in the rent charge. Additional
peripheral equipment adds to these basic hourly charges.
Distribution Methods
Domestic Marketing and Distribution
The Company's sales and marketing activity focuses principally on the North
American hospital market for the HelpMate. To promote the HelpMate, the
Company initially traded heavily on the name recognition and reputation of
its co-founder and Chairman. The Company handles all marketing activity
directly from its Danbury, Connecticut location. The Company's sales and
marketing staff currently consists of eight people, the director of
marketing, six full-time salespersons and one marketing administrator. Other
officers of the Company also are employed in this function from time to time
in the course of their travels to different regions of the country. During
1996, the Company hired five of the aforementioned salespersons in various
regions of the United States, conducted presentations of the HelpMate robot
at eleven trade shows and contracted with two health care equipment
manufacturer's representatives to sell the product in the greater New York
and Los Angeles areas.
Approximately 67% of the Company's placements of robots in North America are
rentals rather than purchases. The rental arrangement is attractive to
hospitals because the base rental rates for HelpMates, which range from $7.00
per hour for 12-hour daily use to $5.50 per hour for 24-hour daily use,
compare quite favorably with the typical rates for nurses of $22 per hour and
for couriers of $10 per hour. The rental of HelpMates has proven to be a
popular option among the Company's customers, one of whom has rented the same
unit for nearly six years and recently renewed its rental agreement through
1998.
Customers who prefer to purchase a HelpMate robotics system typically can
purchase a basic system for a list price of $105,000. Based upon current wage
rates, the Company estimates the payback to a hospital purchasing a HelpMate
to be between nine and twenty-four months, depending on the number of hours
the system is operated and the efficiency of its utilization. The Company
also offers annual maintenance contracts at 8% of the HelpMate system
purchase price.
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Distribution Methods (continued)
Domestic Marketing and Distribution (continued)
In addition, as longer-term rental arrangements are entered into and as
market acceptance has been proven, the Company may elect to finance these
rental agreements and/or offer long term leases to its customers. These
rental/leasing financing arrangements will permit the Company to continue to
earn revenues and generate immediate cash flow by providing the Company with
a one-time lump-sum payment of the discounted present value of the
rental/lease payments otherwise payable monthly by a customer.
Foreign Marketing and Distribution
In exchange for certain royalties previously provided to the Company and
certain royalties payable to the Company in the future, the Company has
granted an exclusive license to a Danish affiliate of Otis Elevator Company
to distribute the Company's HelpMate systems in Europe, the former Soviet
Union, Africa and parts of the Middle East, and has granted an exclusive
license to Yaskawa Electric Corporation, to manufacture and distribute
HelpMate and other of its products in Japan and other Asian countries. (See
Item 12 "Certain Relationships and Related Transactions" for additional
information.)
Competitive Business Conditions
The Company believes its HelpMate robotics systems currently have no direct
competitor other than human beings. The HelpMate system's technology allows
it to be a flexible alternative to large fixed automation systems such as
automatic box conveyors, which are impractical for small, one-off deliveries;
dumbwaiters, which are generally very costly to install and which can only
travel vertically and generally with only small loads; pneumatic tubes, which
are also very costly install and which are limited in payload size and, due
to rapid acceleration and deceleration, are not suitable for certain items
such as blood samples; and track-guided systems such as automated guided
vehicles, which often are feasible for installation only in new construction.
The tasks performed by the HelpMate robots are generally those which can be
performed by unskilled workers. The Company believes, however, that HelpMate
robotics systems compare favorably with human labor rates. The Company
estimates that three-shift coverage, 365 days per year including weekends,
holidays, vacations and sick time requires more than five full-time
equivalent employees. Hospitals can compare the hourly costs of HelpMate at
the rate of between $5.00 and $7.00 per hour with that of human labor which
can range from $10.00- $22.00 per hour (or more depending on locale), and
effectively "hire" one dependable 24-hour-per-day, 365-day-a-year HelpMate at
a considerable cost savings.
Furthermore, other major robotics entities who may have significantly greater
financial, technical and marketing resources than the Company could enter the
market in which the Company competes and proves to be more effective in
selling alternative systems to potential purchasers. To date however, these
companies generally have adhered to industrial and manufacturing applications
of robotics. In addition, some companies have developed robotics products
aimed at the service, rather than the industrial sector, although the Company
believes these products currently do not compete with HelpMate in the
hospital and healthcare industry.
Sources and Availability of Raw Materials and Names of Principal Suppliers
All HelpMate components, fabricated parts and electronic assemblies are
manufactured by third-party vendors. The Company's manufacturing technicians
perform inspection, testing, final assembly and quality assurance. The
Company has approximately four primary suppliers and several hundred
secondary vendors. All printed circuit board assemblies, cables, and
subassemblies are made by a single subcontractor (AB Electronics of Danbury,
CT) for whom the Company represents approximately twenty percent of its
business.
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Sources and Availability of Raw Materials and Names of Principal Suppliers
(continued)
The Company's current small batch production mode results in sporadic
shipments to vendors increasing the overall product lead time to six months
from batch order to customer shipment. The Company believes that increases in
the batch size would reduce overall product lead time to three months, would
improve the quality, reliability and performance of its HelpMate robotics
systems, and would allow the Company to realize cost savings through volume
discount purchases of component parts. The Company has implemented process
controls and quality assurance procedures in anticipation of this transition
to a higher volume building program.
Two suppliers, AB Electronics Inc. of Danbury, Connecticut, and Aldine Metal
Corporation of Brookfield, Connecticut provide more than ten percent of the
cost of the components and assembly work for the HelpMate units.
Patents, Technology, Trademarks, Licenses and Royalty Agreements
Patents and Technology
The requirements for service robot technology are different than those for
industrial robot technology, in which speed and precision are essential. The
Company's technology is embodied in a core set of hardware and software
modules for sensing and control of mobile systems as well as
application-specific technology. The Company's component technologies include
drive and controls, vision sensors, proximity sensors, navigation software
and supervisory capabilities. The Company has obtained 14 United States
patents related to such technology to date.
The Company's success is heavily dependent on its proprietary software. The
Company's software is not patented or copyrighted and patent and copyright
laws offer only limited practical protection. The Company relies largely on
its license agreements with customers and its own security systems,
confidentiality procedures and employee nondisclosure agreements to maintain
the trade secrecy of its products. Further, the Company does not believe that
its operations or products infringe on the intellectual property rights of
others.
Trademarks
The Company currently holds registered trademarks for the names
HelpMate-Registered Trademark- and Labmate-Registered Trademark-, a component
of the Company's autonomous robotics navigation technology sold to
universities, laboratories and other research facilities.
Licenses
The Company has granted Yaskawa Electric Corporation ("Yaskawa"), a
stockholder of the Company, an exclusive license to manufacture and sell its
HelpMate products in Japan and other Asian countries and has granted an
exclusive license to a Danish affiliate of Otis Elevator (another stockholder
of the Company) to distribute HelpMate systems in Europe, the former Soviet
Union, Africa and parts of the Middle East. (See Item 12 "Certain
Relationships and Related Transactions" for additional information.)
In addition, the Company has licensed certain of its intellectual property
regarding navigation and control systems for use in various floor care
equipment to Electrolux, who is also a stockholder and holder of a warrant to
purchase 33,134 shares of Common Stock at an exercise price of $2.60 per
share and which, through its subsidiary, is a stockholder of the Company.
(See Item 12 "Certain Relationships and Related Transactions" for additional
information.)
Royalty Agreements
The Company has an agreement with Connecticut Innovations, Incorporated
("CII"), a State of Connecticut sponsored development corporation, pursuant
to which CII reimbursed the Company for $441,000 of development costs related
to the HelpMate systems (the "Sponsored Products"). In return for such
reimbursement, the Company must pay royalties aggregating $2,205,000 to CII.
(See Item 12 "Certain Relationships and Related Transactions" for additional
information.)
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Research and Development
Since its inception the Company has engaged in research and development
activities related to service robotics and robotics technology applications.
The Company has conducted these activities on a contract basis for government
agencies and for industrial clients. The Company also has engaged in
internally funded research and development activities related to the
development and enhancement of its HelpMate systems.
Under its third-party research and development contracts, the Company has
earned fees in connection with research and development activities conducted
for these parties. In some instances, these activities have led to the
development of products which may also have commercial application. The
Company sometimes has funded its own additional research and development
activities to supplement the contract research and development activities
performed for third parties with a view toward the commercial development of
products arising out of such research and development. Generally, the Company
has endeavored to retain commercial development rights to certain of the
technologies arising out of such research and development contracts.
The Company continues to solicit research and development contract
opportunities in the areas of service robotics and robotics technology
applications. However, the Company only intends to engage in such contract
research and development to the extent that the incremental costs for such
activities are fully funded by the contracting party or other outside
sources. Because government agencies are under increasing pressure to cut
spending, the Company anticipates that there will be fewer opportunities to
engage in such research and development activities.
In 1996 and 1995, the Company spent $1,030,735 and $1,636,404, respectively,
primarily on research and development in connection with HelpMate and
$155,380 and $95,298, respectively, in connection with other projects,
including its contract research and development activities.
Backlog
As of December 31, 1996, the Company had orders to rent an additional 26
HelpMate robotics systems, an increase from the 11 units in the rental
backlog at December 31, 1995. It is anticipated that these systems and robots
will be placed in service during 1997. In addition, the Company estimates
that, as of December 31, 1996, it had a backlog of $93,554 with respect to
orders to purchase components for certain of its research products, backlog
to sell one HelpMate robotic system to Otis Elevator for use at its United
States headquarters for $60,000 and a firm fixed price contract from NASA for
Phase II of the project entitled "Two Armed Mobile Sensate Research Robot"
for $597,044.
Employees
As of December 31, 1996, the Company had thirty-six employees of whom thirty
four were employed on a full-time basis.
Item 2 Properties
The Company leases a facility in Danbury, Connecticut with approximately
47,000 square feet from Westinghouse Electric Corporation ("Westinghouse")
pursuant to a lease which expires in 2002. Rent for the premises was $11,666
per month for the first three years, $13,789 per month for the following two
years, and $17,728 per month for the final five years. The Company is also
obligated to pay its pro-rata share of taxes, operating expenses and
management fees for the facility. The lease does not contain any renewal
option. Westinghouse agreed to accept a total of 34,552 shares of the Common
Stock in lieu of an aggregate of $420,000 of rent for the period from
December 1992 through December 1995. In connection with the issuance of these
shares, Westinghouse received certain anti-dilution rights and piggyback and
demand registration rights. In October 1995 Westinghouse agreed to waive
these anti-dilution rights and to sell all of its shares of Common Stock back
to the Company for a total purchase price of $210,000, which was paid by the
Company from the proceeds of its public offering.
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Item 2 Properties (continued)
Currently, production of HelpMates is done on a batch-build basis, generally
assembling HelpMates in batches of fifteen to twenty-six robots at a time. As
placements of Helpmates increase and to the extent that the Company's
liquidity improves, the Company intends to continue its increase in the rate
at which robots are built. The Company believes that it has sufficient excess
capacity in its current facility to increase the volume of its final assembly
work to accommodate an enhanced building program. The Company further
believes that the facilities used in its operations are in satisfactory
condition and adequate for its current and reasonably foreseeable future
needs.
Item 3 Legal Proceedings
NONE
Item 4 Submission of Matters to a Vote of Security Holders
NONE
PART II
Item 5 Market for Common Equity and Related Stockholder Matters
Market Information
The Company's Units, Common Stock and warrants were quoted on The Nasdaq
SmallCap Market tier of the The Nasdaq Stock Market under the symbols HELPU,
HELP and HELPW, respectively (principal market) on January 31, 1996 and were
listed on The Philadelphia Stock Exchange on February 9, 1996. A recent last
sales price for the shares of Common Stock as reported on the NASDAQ
Composite Tape was $1.375 on March 11, 1997.
The following table sets forth the high and low sales price of the Company's
Common Stock, as reported on the NASDAQ Composite Tape.
High Low
Quarter ended March 31, 1996 $5.875 $3.625
Quarter ended June 30, 1996 4.125 2.625
Quarter ended September 30, 1996 3.000 1.500
Quarter ended December 31, 1996 1.750 0.625
Holders
The Company estimates that as of March 11, 1997, there were approximately
1,100 holders of record of the Company's Common Stock.
Dividends
The Company has not paid nor does it anticipate paying cash dividends on the
Common Stock in the foreseeable future since currently it intends to retain
any earnings for use in its business. In addition, in connection with certain
financing provided to the Company by Connecticut Innovations, Incorporated
("CII") in June 1995 and in September 1995, the Company agreed that for a
period of six years, it would not directly or indirectly declare, order, pay
or reserve any sum or property for the payment of any dividend or other
distribution on the Company's capital stock until such time as the Company
has achieved a net profit for three consecutive fiscal quarters.
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Item 6 Management's Discussion and Analysis
General
The Company's near-term objective is to attain profitability by establishing
the HelpMate robotics system as a flexible, cost-efficient and preferred
method for transporting materials within hospitals and other healthcare
facilities. The Company's business strategy has been to (a) build a marketing
and customer service staff that will implement its marketing program for the
rental and sale of HelpMates to hospital users within North America, and (b)
enhance its HelpMate robotics systems through product improvement, cost
reduction and new feature development. To that end, during 1996, the Company
hired five salespersons in various regions of the United States, conducted
presentations of the HelpMate robot at eleven trade shows and contracted with
two health care equipment manufacturer's representatives to sell the product
in the greater New York and Los Angeles areas.
The Company's cash requirements and overall profitability are, among other
things, highly dependent upon the Company's mix of robot rentals and robot
sales. While the cost of producing and installing a unit is recouped
immediately when a unit or its related revenue stream is sold, it currently
takes approximately 18 months for the Company to recoup such costs when a
unit is rented. (This payback period has been reduced from 23 months at the
beginning of the fiscal year due to the Company's efforts to reduce costs in
the manufacturing and installation process. ) During the year ended December
31, 1996, the Company has expended approximately $1.6 million to produce and
install robots rented during the period.
Revenues
Total revenues decreased by $141,876 or 5% from the year ended December 31,
1995 compared to the year ended December 31, 1996. Rental revenues however
increased by $333,109 or 35% and sales revenues decreased by $519,980 or 31%.
Also, revenues from research and development contracts increased by $44,995
or 35%.
The increase in rental revenues is reflective of the Company's expanded fleet
of rental units which at December 31, 1996 was 48, a 50% increase from the 32
units under rent at December 31, 1995. The decrease in sales revenues was
attributable to Yaskawa Electric Corporation purchasing a significant amount
of component parts in 1995 (none purchased in 1996) so that it could begin to
manufacture and distribute HelpMates in Japan and the Far East in accordance
with the Company's distribution agreement with Yaskawa. The increase in
research and development contract revenues is primarily attributable to the
completed contract for the first phase of a NASA sponsored program entitled
"Two Armed, Mobile, Sensate Research Robot." (Note: The Company has also
been awarded the second phase contract for this program, which is for a firm
fixed price of $597,044)
Cost of Revenues
Cost of revenues decreased by $204,943 or 9% from the year ended December 31,
1995 compared to the year ended December 31, 1996. The decrease in cost of
revenues generally reflects the decrease in revenues discussed above coupled
with the Company's ongoing efforts in reducing the cost associated with
manufacturing and installing its HelpMate robots offset by an increase in
depreciation and amortization of the Company's rental units and related
installation costs, which was attributable to the increase in the rental
fleet discussed above.
Gross Profit
Gross profit increased by 13% or $63,067 from the year ended December 31,
1995 compared to the year ended December 31, 1996. The increase in gross
profit dollars for the year reflects the Company's on-going strategy to
reduce costs (as discussed above). Further, the increase is partially
attributable to the fact that the sales made in 1995 were reflective of
discounts required to be granted to the Company's distributors in the Far
East and Europe. Further, gross profit as a percentage of total revenues
increased by 20% to 21% in the year ended December 31, 1996 from the year
ended December 31, 1995. This increase in gross profit as a percentage of
total revenues is further reflective of the Company's on going strategy to
reduce costs.
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Selling General and Administrative Expenses
Selling, General and Administrative Expenses increased by $2,686,254 or 98%
from the year ended December 31, 1995 compared to the year ended December 31,
1996. The increase reflects an increase in staffing (including the hiring of
five sales executives) and the implementation of a expansive marketing and
public relations program associated with promoting the HelpMate robot
including attendance at eleven trade shows in 1996. The aforementioned
increases have resulted in a significant number of rental orders being
recently received by the Company (6 in September, October, November and
December of 1996 and 14 more through February of 1997). Also, the Company
received three purchase orders for its HelpMate robot in February 1997.
Further, the Company also incurred costs required to enhance the Company's
HelpMate robotics systems through improved product reliability, manufacturing
and installation cost reduction, and value engineering, which also
contributed to the increase in selling, general and administrative expenses.
In addition, in light of the Company's receiving relatively few orders until
the third quarter, (see "Liquidity and Capital Resources" below) it shifted
its planned production and installation of HelpMate robots to later in the
year. This caused a reduction of direct labor hours and therefore a
requirement for more overhead to be unabsorbed resulting in an increase in
selling, general and administrative expenses.
The Company also incurred $698,787 of non cash compensation expense in 1995
related to the issuance of 148,080 shares of common stock to the Company's
president and to his former employer, the issuance of stock options at a
price below fair market value, the issuance of certain notes to the Company's
chairman in satisfaction of a contingent compensation agreement and the
issuance of 500 shares of preferred stock to Landmark Partners Inc. (formerly
known as Landmark Ventures Inc.)
Interest Expense and Interest Income
Interest expense net of interest income decreased by $127,373 or 39% from the
year ended December 31, 1995 compared to the year ended December 31, 1996.
The decrease in interest expense reflects interest income earned on the
proceeds from the Company's initial public offering offset by interest
expense related to loans received by the Company in the latter half of 1995.
Such declines are not expected to continue as the Company's use of cash in
expanding its fleet of rental units will result in a decrease in the amount
of interest income earned.
The Company also recorded $461,933 of non cash financing expense in 1995
related to the compensatory nature of the Selling Bridge Securityholders'
conversion rights and the compensatory element of the warrants issued in
connection with the two loans received by the Company in May and June 1995.
Losses
The Company incurred a net loss from continuing operations of $5,057,858 and
$3,683,274 for each of the years ending December 31, 1996 and 1995,
respectively. These losses were sustained primarily because the Company has
not achieved the volume of sales and rentals of HelpMates required to cover
the overhead expenses associated with the commercialization of its HelpMate
systems, and to the increase in staffing and sales and marketing expenses
noted above. It should further be mentioned that while the Company's order
flow continues to increase it has increased substantially for rentals not for
sales, thereby resulting in increased losses and a more rapid depletion of
cash than originally anticipated. The Company anticipates that such losses
will continue until the volume of sales and rentals of HelpMates necessary to
cover overhead expenses is achieved. As noted above, the overall
profitability and cash flow of the Company is highly dependent upon its mix
of robot rentals and robot sales, (i.e., more robot rentals than sales
results in larger losses and a quicker depletion of cash in the short run.)
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Earnings (Loss) Per Share
Earnings (loss) per share of common stock for the year ended December 31,
1996 and 1995 was ($0.88) and ($2.76), respectively. The reduction in the net
loss per share is attributable to the increase in number of shares
outstanding from the aforementioned initial public offering. Earnings per
common share is computed using the treasury stock method based on the
weighted average number of common shares and common stock equivalent shares
outstanding during the period, as adjusted for the stock split that occurred
in conjunction with the initial public offering. Shares from the assumed
exercise of options and warrants granted by the Company and shares issuable
in connection with the Company's convertible preferred stock have been
included in the computations of earnings per share for all periods unless
their inclusion would be anti-dilutive. However, for purposes of computing
net loss per share, options and warrants granted by the Company during the 12
months preceding the initial public offering date, including those shares
issuable in connection with the anti-dilution provisions of certain warrant
agreements, have been included in the calculation of common stock and common
stock equivalent shares outstanding as if they were outstanding for all
periods presented using the treasury stock method and the public offering
price of $6.25 per unit or $3.00 per share and $0.25 per warrant.
Supplemental net loss per share of common stock for the year ended December,
1996 was ($0.84). Supplemental net loss per share of common stock is
computed using the if-converted method based on the pro forma weighted
average number of shares of common stock and common stock equivalent as
defined above, and convertible preferred shares that were converted into
common stock on a 1-4.55 basis upon the closing of the initial public
offering, adjusted retroactively for the aforementioned stock split. Net
loss per share used in the supplemental loss per share calculation was
decreased for dividend requirements on preferred shares.
Liquidity and Capital Resources
The Company historically has been dependent upon sources other than
operations to finance its working capital requirements. These sources
include loans and/or investments from stockholders and their affiliates,
private placements of its debt and equity securities, the Company's initial
public offering and certain financing transactions pursuant to which the
Company assigned the revenue stream from certain HelpMate robots and assigned
the existing rental agreements related thereto in exchange for lump sum
payments to the Company.
As of December 31, 1996, the Company's capital requirements in connection
with the design, development and commercialization of its HelpMate system
continue to be significant. (Principally due to the increased rate at which
rental orders are being received (discussed above). As of December 31, 1996,
the Company had orders to rent an additional 26 HelpMate robotics systems, an
increase from the 11 units in the rental backlog at December 31, 1995.
However, the manufacture and installation of the units required to satisfy
this backlog is expected to utilize a significant amount of cash. Further,
as the Company's trend of rapid rental order receipts continues, it will
continue to put pressure on the Company's limited cash liquidity.
In addition, by mid 1996, the Company had determined that the results that it
expected to experience had varied from the Company's estimates in that (i.)
Otis Elevator had reduced its forecast of purchases from 26 units to 6 units
(and for fiscal 1996 only purchased 4 units); (ii.) the distribution
agreement established with Bell & Howell Mailmobile Company had resulted in
no placements of HelpMates and was consequently terminated; (iii.) the mix of
robot rentals versus robot sales was significantly weighted to rentals,
resulting in a slower replenishment of cash, and (iv.) the time by which the
Company was able to fully train its sales force and establish its marketing
program was delayed by three months until June 30, 1996.
In light of the foregoing liquidity issues, the Company took the following
actions effective November 1, 1996; a) the Company terminated ten employees
from all of its departments; b) nine senior executives of the Company,
including the Company's Chairman, its President, Vice President of
Engineering and Controller agreed to partial salary deferrals for a period of
up to six months. (The Chairman has elected to receive no pay and the
President has elected to receive 25% of his pay.) If not then repaid, it is
anticipated that the salary deferred by these executives would be exchanged
sometime in the Spring of 1997 for non-qualified options to purchase the
Company's Common Stock. The terms of such options have not yet been
finalized, although it is anticipated that they will have a below market
exercise price and will be exercisable for no more than 100,000 shares of the
Company's Common Stock in
10
<PAGE>
the aggregate, and that their issuance would
require the approval by the Company's stockholders of an amendment to the
Company's existing Amended and Restated 1995 Stock Option Plan; c) the
Company's Chairman agreed to a grace period of up to six months for which
principal and interest due on outstanding obligations owed him be waived
until such time as the Company is better able to satisfy such obligations;
and d) the Company postponed research and development related to new
products until such time that the Company would be better able to finance the
projects. The foregoing actions were taken with the objective of ensuring
that the Company's cash on hand and cash generated from operations would be
sufficient to satisfy its contemplated cash requirements until such time as
it was able to complete the sale and leaseback transaction described below.
On February 7, 1997, the Company entered into a Purchase, Security and
Remarketing Agreement and a Master Lease Agreement with Leasing Technologies
International, Inc. ("LTI") for the sale and leaseback of fifteen of its
robotic courier systems which are currently under rent from the Company to
hospitals across the United States ("sold units"). The total proceeds
obtained from this transaction was $1,230,000. As part of the transaction,
the Company assigned all of its right, title and interest in the underlying
rental agreements for the sold units and granted a security interest in
fifteen additional rental agreements for units that were not sold to LTI
("collateral units"). The Purchase, Security and Remarketing Agreement
requires the Company to, among other things, refurbish any sold unit that
ceases to be rented by a hospital and place that sold unit on rent with
another hospital prior to the Company placing one of its own units with
another hospital. In addition, the Company is responsible for the maintenance
of both the sold units and the collateral units. Upon the expiration of the
Master Lease Agreement (36 months), the Company shares in residual rental
payments from the sold units in the following manner: a)75% for the Company
and 25% for LTI until such time as the Company receives an additional
$372,032 and b) 50% for the Company and 50% for LTI thereafter. Finally, the
Company has no right to repurchase the sold units from LTI. Concurrent with
the closing of the above transaction, the Company a) hired two employees, b)
restored the salaries of the nine senior executives discussed above and c)
resumed making principal and interest due on outstanding obligations. The
Company has continued to postpone research and development related to new
products until such time and the Company would be better able to finance the
projects.
The Company anticipates obtaining additional working capital financing during
the Spring or Summer of 1997 which will allow HRI to utilize an existing
commitment for up to $5 million in additional rental financing and up to $10
million in lease financing. The Company has however taken actions and will
institute other measures such as employee termination, salary deferrals, and
the curtailment of sales, marketing and production activity to ensure that
operations would continue throughout 1997 if the additional financing
transactions are not consummated. These actions could however impact the
Company in the following manner: a) reduce the time in which the Company
will be able to fulfill its backlog requirements, b) negatively impact the
Company's reputation in the marketplace and consequently negatively impact
order receipts and c) indefinitely postpone the Company's ability to
generate positive cash flow and / or income. However, the Company believes
that even at a reduced level of operations, it will be able to produce, rent
and/or sell, and install those units for which it has received firm orders.
The Company continues to actively seek additional financing alternatives in
order to strengthen its liquidity situation in the short term, and although
the Company has identified some potential sources of such financing, the
Company has no current commitments or agreements with respect to such and
there can be no assurance that any additional financing will be available to
the Company on acceptable terms, or at all. Such alternatives include, but
are not limited to transactions similar in nature to that entered into with
LTI; private placement of the Company's securities in the United States or
abroad; and / or mezzanine type financing (including senior or subordinated
debt). Further, additional equity financing may involve substantial dilution
of the stock ownership of the Company's existing stockholders. Moreover,
financial or other covenants imposed by future financing sources might
further adversely affect the Company's ability to pay dividends and
management's ability to control the Company. Additionally, by transferring
the title and rental agreements to a third party for an immediate cash
payment, the Company could lose all or a portion of its opportunity to
benefit from ongoing rentals in the future or from the residual value of the
units upon the expiration of the rental agreements. Finally, no assurances
can be given that any such financing will provide sufficient cash required
for the Company to attain an operating revenue stream of cash sufficient to
support the Company's continued operations. It is also not anticipated that
current stockholders will provide any additional financing. (This paragraph
contains forward looking statements and the Company's actual results may
differ if (a) the mix of robot rentals versus sales changes; (b) existing
orders get canceled; (c) the Company's own order/installation forecast
changes; (d) the Company is unable to secure additional financing and (e) the
actions and measures described above are not sufficient to ensure that
operations will continue throughout 1997.)
11
<PAGE>
Other (including 1995 and 1996 financing transactions)
In 1995 and 1994, the Company entered into three agreements with Hospital
Tranporters Limited Partnership ("HTLP"), a limited partnership whose limited
partners include the Chairman, the Chairman's brother and the President of
the Compnay, whereby the Company transferred title to thirteen of its
HelpMate robotic courier systems to HTLP to provide the Company with
additional capital to fund its operations. The total proceeds obtained from
these agreements approximated $1,170,000. (See Item 12 "Certain Relationships
and Related Transactions" for additional information.)
In October, 1995, four entities which previously provided equity financing to
the Company, Connecticut Innovations Incorporated, Minnesota Mining and
Manufacturing, Landmark Partners Inc. and Connecticut Financial Developments,
L.P. (collectively, the "Selling Bridge Security Holders") advanced an
aggregate of $800,000 to the Company in exchange for, among other things,
certain notes which, immediately prior to the Company's initial public
offering of securities were convertible at a rate of one unit for each $4.06
advanced or 196,922 units. (See Item 12 "Certain Relationships and Related
Transactions" for additional information.)
During the period August-December 1995, the Company assigned the operating
leases for four HelpMate-Registered Trademark- robotics courier systems to
Center Capital to provide the Company with additional capital to fund its
operations. The total proceeds obtained from such financings approximated
$228,000. (See Note 5 of the Notes to Financial Statements, which are
attached hereto and made part hereof for additional information).
In 1995, the Company entered into an agreement with Westinghouse Electric
Corporation ("Westinghouse"), the owner of its Danbury facility, to
repurchase, for $210,000, all of the shares of the Company's Common Stock
previously issued to Westinghouse in lieu of approximately $420,000 of rental
obligations from the Company to Westinghouse. Such repurchase took place upon
the closing of the Company's initial public offering.
In addition, during 1995 the Company received two loans, one from CII and one
from its chairman for a total of $820,000. Such loans are payable over terms
from four to five years, bear interest at 10% per annum and only interest is
due on such loans for the first year. (See Item 12 "Certain Relationships and
Related Transactions" for additional information.)
The Company's liquidity is also affected by its royalty obligations to
Connecticut Innovations, Incorporated ("CII"). (See Item 12 "Certain
Relationships and Related Transactions" for additional information.)
For the foreseeable future, the Company does not anticipate paying dividends
and the Company anticipates retaining any earnings to fund its operations.
Moreover, the ability of the Company to pay dividends is subject to
contractual restrictions through September 2001. Specifically, during that
period, the Company may not, unless otherwise approved by one of its lenders,
directly or indirectly declare, order, pay or reserve any sum or property for
the payment of any dividend or other distribution on the Company's capital
stock until such time as the Company has achieved a net profit for three
consecutive fiscal quarters.
INCOME TAXES
The Company accounts for income taxes in accordance with Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes" ("SFAS
109"), SFAS 109. The Company's net operating loss carryforwards of
approximately $17.3 million at December 31, 1995 expire during the years
1997-2011. The related deferred tax asset has been fully reserved because
the ability of the Company to realize a future tax benefit from its net
operating loss carryforwards may be limited.
INFLATION
The Company does not believe that the relatively moderate levels of inflation
which have been experienced in the United States has had or will have a
significant effect on its revenues or operations.
12
<PAGE>
IMPACT OF NEW ACCOUNTING STANDARDS
In March, 1995 the Financial Accounting Standards Board (FASB) issued
Statement No.121, Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of. Accordingly, the Company adopted the
accounting treatment prescribed by this statement for its 1996 fiscal year.
Consequently, in the event that circumstances indicate that the carrying
value of the Company's long lived assets may be impaired, an evaluation of
the recoverability would be performed. If such an evaluation is required, the
estimated future undiscounted cash flow associated with the asset would be
compared to the carrying value of the asset to determine if a write-down to
net realizable value is required. To date, such write-downs have not been
material.
In 1995, the Financial Accounting Board also issued Statement No. 123
"Accounting for Stock Based Compensation" ("SFAS 123"). However, the Company
continues to account for its stock based compensation under APB 25 and will
only make the financial statement disclosures required by SFAS 123, if
material or otherwise required. Accordingly, the aforementioned new
accounting standard did not have any effect on the Company's results of
operations.
Item 7 Financial Statements
The information required by Item 7 of Part II is incorporated herein by
reference to the financial statements filed with this report. See item 13 of
Part III.
Item 8 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
NONE
13
<PAGE>
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16(a) of the Exchange Act.
Directors, Executive Officers, Promoters and Control Persons:
The Company's executive officers and directors are as follows:
NAME AGE POSITION
Joseph F. Engelberger 71 Chairman and Director
Thomas K. Sweeny 59 President, Chief Executive Officer,
Treasurer and Director
John M. Evans, Jr. 55 Vice President, Engineering, Secretary
and Director
John F. Barry 44 Director
Nobuo Saita 52 Director
Kevin F. Littlejohn 34 Director
Theodore Sall 70 Director
Sheldon Sandler 52 Director
Marc D. Greenberg 31 Controller and Assistant Treasurer
Mr. Engelberger co-founded the Company in 1984 and has served as a Director
and the Chairman since that time. Prior to that, Mr. Engelberger founded and
served as the first president of Unimation, Inc., the first industrial
robotics company, which was acquired by Westinghouse Electric Corporation. He
also founded and was the first president of Consolidated Controls
Corporation, which was ultimately acquired by Eaton Corporation. Mr.
Engelberger has written extensively on the subjects of instrumentation and
robotics. Mr. Engelberger is the father of Gay Engelberger, the Company's
director of marketing. Mr. Engelberger formerly served as a director of
Anderson Group, Inc. and currently serves as a director of EDO Corporation.
Mr. Sweeny, a director of the Company since 1987, joined its management team
in February 1995. From 1987 to February, 1995, Mr. Sweeny had been a partner
and a managing director at Landmark Ventures Inc., a venture capital firm
and, through an affiliate, one of the original investors in the Company.
While at Landmark, Mr. Sweeny served as a director of eleven companies,
including Infodex, Inc. and Nova Technologies, Inc., and acted in the
capacity of CEO for Vortech Data Systems, Inc. and occupied the office of the
president at Metallon Engineered Materials, Inc. From 1986 to 1987, Mr.
Sweeny was employed by the Holley Division of Coltec Industries as Vice
President of Joint Ventures and Acquisitions and later as Vice President of
Engineering. From 1981 until 1986 he was employed by the Diesel Systems
Division of United Technologies Corporation. He is also a past Chairman and
past President of the Connecticut Venture Group and the founder and first
Chairman of the Connecticut Venture Fair.
Dr. Evans co-founded the Company in 1984, and has served as a Director since
that time. Dr. Evans served as the President of the Company from 1984 until
February 1995. Dr. Evans currently serves as the Company's Vice President of
Engineering. Prior to joining the Company, Dr. Evans founded Nova Robotics.
From 1978 to 1981, Dr. Evans was Vice President of Engineering and Operations
at a subsidiary of Gerber Scientific, Inc. From 1970 to 1978, Dr. Evans was
employed by the National Bureau of Standards and Technology of the United
States Department of Commerce where he started the Automation Technology
program.
Mr. Barry has been a Director of the Company since June 1993. Mr. Barry is
currently a Vice President of Prospect Street Connecticut Capital, Inc. and
has served in that capacity for the past five years. Mr. Barry currently
serves as a director of Prospect Street High Income Shares and Skyline
Multimedia Company.
Mr. Saita has been a director of the Company since May 1996. He currently is
employed by Yaskawa Electric Corporation, one of the Company's stockholders,
as the Tokyo plant manager and a Director and has served in those capacities
for the last five years.
Mr. Littlejohn has been a director of the Company since June 1995. He
currently is a Vice President and Principal of Prospect Street Connecticut
Capital, Inc. and has served in that capacity for the past five years.
14
<PAGE>
Dr. Sall has been a director of the Company since March 1996. He currently is
a Professor Emeritus at Ramapo College of New Jersey. Prior to holding this
position, Dr. Sall was an Adjunct Professor of Clinical Medicine at the
University of Medicine and Dentistry, New Jersey School of Nursing from 1991
to July 1995. Dr. Sall is also a Director of International Vitamin
Corporation and Fluro Scan Inc.
Mr. Sandler has been a director of the Company since March 1996. He has been
the Managing Director of Corporate Finance for Ladenburg Thalmann & Co.,
Inc., an investment banking firm located in New York City since 1991. Prior
to joining Ladenburg, Mr. Sandler was the Managing Partner of two investment
firms, Carnegie Securities and Sandler, Trench & Co., both located in
Princeton, NJ Mr. Sandler was also a chief examiner at the Securities and
Exchange Commission.
Mr. Greenberg has been Controller of the Company since November 1995. Prior
to joining the Company, Mr. Greenberg was employed as the Controller of
FlexiInternational Software, Inc., a software publisher from March 1995 to
November 1995 and by the international professional services firm of Ernst &
Young LLP from 1987 to 1995, where he provided audit, accounting and business
services to a broad range of clients from start-ups to large publicly traded
multinationals in diverse industries, including the Company and others in the
high tech industry. Mr. Greenberg is a member of the American Institute of
Certified Public Accountants and the Connecticut Society of Certified Public
Accountants.
Board of Directors - Committees and Meetings
General
The board of directors held seven meetings in 1996. All of the directors
attended at least 75% of the meetings of the board and the respective
committees of the board of which they were a member during 1996 or in the
case of Mssrs. Sall, Sandler, and Saita during the period in which they were
directors, with the exception of Mr. Saita and Mr. Komiyama (Mr. Saita's
predecessor), who did not attend any meetings.
Compensation
The Company does not pay any additional remuneration to employees serving as
directors nor does it pay any such remuneration to Mssrs. Barry, Littlejohn
or Saita. Mssrs. Sall and Sandler however receive an annual retainer of
$5,000 plus fees of $500 per day for attendance at meetings of the board of
directors and their respective committees. Directors' out of pocket expenses
are not reimbursed by the Company.
Committees
The Board of Directors has the following standing Committees:
Audit Committee
The Audit Committee, which met two times in 1996, consists of three
directors of the Company, all of whom are independent. The Audit Committee is
responsible for the engagement of the Company's independent auditors and
reviews with them the scope and timing of their audit services and any other
services which they are asked to perform, their report on the Company's
accounts following completion of the audit and the Company's policies and
procedures with respect to internal accounting and financial control. The
board of directors has appointed Messrs. Barry, Littlejohn and Sandler as the
members of the Audit Committee.
15
<PAGE>
Compensation Committee
The Compensation Committee, which met three times in 1996, is responsible for
making recommendations to the board of directors with respect to compensation
and benefit levels of executive officers of the Company. The board has
appointed Messrs. Barry, Littlejohn and Sall as the members of the
Compensation Committee.
Stock Option Committee
The Stock Option Committee, which met three times in 1996, is responsible for
administering the Company's 1984, 1988 and 1995 Stock Option Plans. The board
has appointed Messrs. Barry and Littlejohn to the Stock Option Committee.
Compliance with Section 16(a) of the Exchange Act:
Joseph F. Engelberger, Chairman and Director of the Company, filed his
August, 1996 Form 4 in October 1996. Such form reported one purchase of
1,000 shares of the Company's Common Stock.
Item 10 Executive Compensation
The following table sets forth certain information regarding compensation
awarded to, earned by, or paid to the Company's chief executive officer and
each other executive officer and employee whose salary and bonus for the
fiscal year ended December 31, 1996 exceeded $100,000.
FISCAL SECURITIES UNDERLYING
NAME AND POSITION YEAR SALARY OPTIONS/SARS
Joseph F. Engelberger 1996 $100,000 -
Chairman of the Board 1995 $113,333 32,345
1994 $126,000 9,872
Thomas K. Sweeny 1996 $150,000 -
President/Chief 1995 $ 37,500 24,680
Executive Officer 1994 - -
John M. Evans 1996 $139,000 -
Vice President 1995 $139,000 1,145
of Engineering 1994 $127,000 -
Bala Krishnamurthy 1996 $103,750 -
Director of 1995 $100,000 824
Software Engineering 1994 $100,000 -
Fred Cordano 1996 $101,750 -
Director of 1995 $ 98,000 805
Manufacturing 1994 $ 98,000 -
The Company has entered into employment agreements with Messrs. Engelberger,
Sweeny, and Evans and Ms. Krishnamurthy as well as one other employee not
listed above. Each of these agreements contains noncompetition, nondisclosure
and noninterference provisions.
Mr. Engelberger's employment agreement initially runs until December 31, 1998
and is automatically renewable from year to year thereafter. Mr. Engelberger
is employed at seventy percent of normal working hours and receives an annual
salary of $100,000. After the initial term, the agreement may be terminated
by Mr. Engelberger at any time and by the Company with at least twelve months
prior notice. If the Company provides less than tweleve months notice, it
must continue to compensate Mr. Engelberger through the twelve-month period.
In May 1995, the Company executed a promissory note for $320,000 in favor of
Mr. Engelberger in connection with $200,000 of new financing provided to the
Company and the refinancing of contingent compensation obligation to Mr.
Engelberger for $120,000. See "Certain Relationships and Related
Transactions."
16
<PAGE>
Mr. Sweeny's employment agreement initially runs until December 31, 1998 and
is automatically renewable from year to year thereafter. His annual base
salary under the agreement is $150,000, and he is eligible for performance
bonuses in amounts determined by the board of directors in its sole
discretion. The agreement may be terminated by the Company for cause at any
time with thirty days prior notice; after December 31, 1998, either party may
terminate the agreement without cause with thirty days prior notice,
provided, however, that if the Company terminates the agreement without
cause, Mr. Sweeny is entitled to continue receiving his salary for a period
of twelve months. In connection with this employment agreement, Mr. Sweeny
received an option under the Company's 1988 Stock Option Plan to purchase up
to 24,680 shares of its Common Stock for $1.01 per share. The option may be
exercised in installments until October 31, 2005. (See Item 12 "Certain
Relationships and Related Transactions" for additional information.)
Mr. Evans' employment agreement runs until December 31, 1998 and is
automatically renewable from year to year thereafter. Under his agreement,
Mr. Evans will be considered for annual salary increases based upon his
performance and that of the Company. The agreement may be terminated by the
Company for cause at any time with thirty days prior notice; after December
31, 1998, either party may terminate the agreement without cause with thirty
days prior notice, provided, however, that if the Company terminates the
agreement without cause, Mr. Evans is entitled to continue receiving his
salary for a period of twelve months.
Ms. Krishnamurthy's employment agreement runs until December 31, 1997 and is
automatically renewable from year to year thereafter. Under her agreement,
Ms. Krishnamurthy will be considered for annual salary increases based upon
her performance and that of the Company. The agreement may be terminated by
either party without cause with thirty days prior notice, provided, however,
that if the Company terminates the agreement without cause, Ms. Krishnamurthy
is entitled to continue receiving her salary for a period of three months.
No grants of stock options or warrants were made during fiscal 1996 to the
individuals named in the executive compensation table.
The following table sets forth information on the exercise of stock options
and warrants issued to individuals named in the executive compensation table.
<TABLE>
<CAPTION>
Shares Number of Value of
acquired upon Securities unexercised
exercise of underlying unexercised in the money
Options during Options/SARS at Options/SARS at
Name fiscal 1996 December 31, 1996 December 31, 1996
- ------------ -------------- --------------------------- --------------------------
Number Value Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Joseph F. Engelberger 0 $0 107,132 5,923 $13,397 $ 866
Thomas K. Sweeny 0 $0 4,936 19,744 $ 722 $2,888
John M. Evans, Jr. 0 $0 15,499 0 $ 6,824 $ 0
Bala Krishnamurthy 12,054 $17,025 0 0 $ 0 $ 0
Fred Cordano 0 $0 15,934 0 $ 5,241 $ 0
</TABLE>
17
<PAGE>
Item 11 Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to beneficial
ownership of the Company's Common Stock as of December 31, 1996 by each of
the individuals named in the executive compensation table, the Company's
directors and nominees, all directors and officers as a group and each person
who is known by the Company to beneficially own five percent or more of the
Company's voting securities.
<TABLE>
<CAPTION>
Shares Beneficially Percent
Beneficial Owner Owned Ownership
- ---------------- -------------------- -----------
<S> <C> <C>
Connecticut Financial Developments, LP 1,014,188 12.05%
c/o Prospect Street Connecticut Capital.
250 Park Avenue, 17th Floor
New York, NY 10177
Transitions Two Limited Partnership 492,161 5.85%
c/o Landmark Partners, Inc.
760 Hopmeadow Street
Simsbury, CT 06070 (1)
Joseph F. Engelberger (2)(6) 633,848 7.65%
Thomas K. Sweeny (3)(6) 164,408 1.98%
John M. Evans Jr. (4)(6) 97,353 1.18%
Bala Krishamurthy (6) 32,044 (8)
Fred Cordano (5)(6) 20,870 (8)
John F. Barry (7) -0- -0-
Prospect Street Connecticut Capital Inc.
250 Park Avenue, 17th Floor
New York, NY 10177
Kevin F. Littlejohn (7) -0- -0-
Prospect Street Connecticut Capital Inc.
Exchange Place, 37th Floor
Boston, MA 02109
Nobuo Saita (7) -0- -0-
Yaskawa Electric Corporation
1-6-1, Ohtemachi Building
Chiyoda-ku, Tokyo 100, Japan
Theodore Sall (9) 3,000 (8)
47 Lake View Drive
Old Tappan, NJ 07675
Sheldon Sandler (9) -0- -0-
Ladenburg, Thalmann & Co. Inc.
540 Madison Avenue
New York, NY 10022
All Directors and Officers as a Group 955,087 11.52%
</TABLE>
18
<PAGE>
(1) Includes 81,894 warrants which are currently exercisable
(2) Includes 72,589 shares of common stock owned by Mr. Engelberger's wife,
Margaret Engelberger, but does not include shares beneficially owned by Mr.
Engelberger's adult children or his brother. Also includes 89,777 warrants
which are currently exercisable and 17,355 options which are currently
exercisable but does not include 5,923 options which are not currently
exercisable.
(3) Includes 4,936 options which are currently exercisable but does not
include 19,744 options which are not currently exercisable.
(4) Includes 15,499 options which are currently exercisable.
(5) Includes 15,934 options which are currently exercisable.
(6) The address for these individuals is in care of HelpMate Robotics Inc.,
Shelter Rock Lane, Danbury, CT 06810.
(7) Does not include shares beneficially owned by these individuals'
employers.
(8) Less than one percent.
(9) Does not include 10,000 options which are currently not exercisable.
Item 12 Certain Relationships and Related Transactions
LOANS and FINANCING TRANSACTIONS
Hospital Transporters Limited Partnership
In 1995 and 1994, the Company entered into three agreements with Hospital
Tranporters Limited Partnership ("HTLP"), a limited partnership whose limited
partners include the Chairman, the Chairman's brother and the President of
the Company, whereby the Company sold thirteen of its HelpMate robotic
courier systems to HTLP to provide the Company with additional capital to
fund its operations. Under the agreements, the Company guaranteed payments
to HTLP of aggregating $2,020,829 over a five year period and at the
expiration of the five year period the Company can repurchase from HTLP the
HelpMate robotic courier systems. The total proceeds obtained from these
agreements approximated $1,170,000 and as stipulated by these agreements, the
Company remains responsible for the maintenance of the systems for which HTLP
agreed to pay $3,500 per unit per year to the Company. The Company accounted
for these transactions as a financing, recognizing the proceeds received as
obligations at the discounted present value of the guaranteed payments having
an effective interest rate of approximately 24%. The related assets are
being depreciated over their estimated economic life (five years)
Connecticut Innovations Incorporated
In June, 1995, Connecticut Innovations Incorporated ("CII"), a shareholder,
extended a loan ("CII Loan") to the Company in the amount of $500,000 with an
annual interest rate of 10%. Interest alone was payable on the note in its
first year and thereafter principal and interest is payable in forty eight
equal installments. In connection with this loan, the Company granted to CII
security interests in certain of its assets, including all of its
intellectual property relating to HelpMate in the North and South American
markets, and issued to CII warrants to purchase an aggregate of 74,074 shares
of Common Stock at an exercise price of $2.70 per share, which expire on June
14, 2005. By virtue of this loan agreement, the Company is also required to,
among other things, retain its principal place of business, and a majority of
its employees and operations in the State of Connecticut until June, 2001.
In November 1996, the Company received from CII permission to postpone the
repayment schedule on this loan for a period not to exceed six months.
In November, 1990, the Company entered into a loan agreement with CII. The
agreement provided the Company with a $500,000 secured note, which is secured
by the Company's property and equipment. The note is payable monthly,
including interest at 12% in 60 equal installments commencing January 1,
1992. As additional consideration for entering into the loan agreement, the
Company issued to CII warrants to purchase an aggregate of 40,947 shares of
Common Stock at an exercise price of $2.44 per share, which expire on July 1,
2000. In November 1996, the Company received from CII permission to postpone
the repayment schedule on this loan for a period not to exceed six months.
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<PAGE>
Chairman
In June, 1995, the Company entered into a financing transaction ("Loan
Agreement") with the Company's Chairman in the amount of $200,000 on
substantially the same terms as the CII Loan. Concurrently, the Company had
committed to make a lump sum payment of $120,000 to its Chairman upon the
occurrence of certain events. The Company and its Chairman however agreed to
add the $120,000 obligation to the term of Loan Agreement in the form of a
promissory note and subsequently in conjunction with the Company's initial
public offering, the $120,000 obligation was converted into 19,200 units
which consists of two shares of Common Stock and a Warrant to purchase one
additional share of Common Stock at $5.75 per share.
Accordingly, the Company recorded $120,000 as non cash compensation expense
in the year ended December 31, 1995. In consideration for making the Loan
Agreement, the Company issued to its Chairman additional warrants to purchase
an aggregate of 29,630 shares of Common Stock at an exercise price of $2.70
per share, which expire on May 25, 2005. The Loan Agreement relieved the
Company of any previous obligations with its Chairman. In November 1996, the
Company received from its Chairman, permission to delay the repayment
schedule on this loan for a period not to exceed six months. No additional
interest accrued on this obligation by virtue of the delay in repayment. The
Company also recognized $31,166 as a non-cash financing expense in the year
ended December 31, 1995 to account for the compensatory nature of the
issuance of the aforementioned warrants.
Selling Bridge Security Holders
In October 1995, CII, Minnesota Mining and Manufacturing ("3M"), Connecticut
Financial Developments, L.P. ("CFD"), and Landmark Ventures Inc.
("Landmark"), each a stockholder of the Company, loaned the Company $300,000,
$250,000, $100,000 and $150,000, respectively, and were issued warrants to
purchase 29,616, 24,680, 9,872 and 14,808 shares, respectively, of the Common
Stock at an exercise price of $4.05 per share. Interest only is due on each
of these loans for the first year, and thereafter, they are payable over four
years in monthly installments of principal and interest. Immediately prior to
the closing of the Company's initial public offering, these warrants were
canceled and these loans were converted into Units at a rate of one Unit for
each $4.0625 of principal outstanding. Accordingly, the Company recorded
$430,767 as an additional financing cost related to the issuance of these
notes.
ROYALTY AND LICENSING ARRANGEMENTS
Connecticut Innovations Incorporated
During 1986, the Company entered into a contract with an independent
corporation (the "Corporation") to assist in the development and
manufacturing of a trackless robotic courier to be used primarily in the
healthcare industry to transport materials ("HelpMate"). The Corporation had
entered into a development agreement with CII, a state sponsored development
corporation, in which CII would reimburse the Corporation for a portion of
the development costs for the HelpMate-Registered Trademark- robotics courier
system (the "sponsored products"). The contract between the Corporation and
the Company granted the Company the right to assume the Corporation's rights
under the agreement with CII.
During 1987, the Company assumed the Corporation's rights under the
agreement, pursuant to which CII reimbursed the Company for $441,000 of
development costs related to the sponsored products. In return for such
reimbursement, the Company must pay royalties aggregating $2,205,000 to CII
as follows: (i) five percent of the Company's net sales of Sponsored
Products, and (ii) fifty percent of any royalties received by the Company for
payments against shipments of Sponsored Products by licensees of the Company.
Thereafter, the Company must continue to pay royalties for a period equal to
the period of time taken to satisfy this $2,205,000 royalty obligation,
except that the royalty rate on the Company's net sales of Sponsored Products
shall be reduced to one-half of one percent during such period. Such
royalties are payable only to the extent that sales and license fees are
realized. Through December 31, 1996, the Company had paid approximately
$250,000 in royalties to CII.
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<PAGE>
In January 1996, the Company and CII agreed that during the two-year period
commencing on the closing of the Company's initial public offering, the
obligation to pay a royalty at a rate of five percent of sales of Sponsored
Products would be reduced so that the payment with respect thereto would not
exceed the greater of (i) one and one-half percent of the net sales of
Sponsored Products or (ii) twenty percent (20%) of the Company's pre-tax
profits (but in no event would such payment be more than five percent of net
sales of Sponsored Products.) In addition, the Company will receive a credit
of $300,000 against the $2,205,000 royalty obligation. In consideration of
this modification, the Company issued to CII 50,000 shares of its Common
Stock and a warrant to purchase 25,000 additional shares at $5.75 per share
immediately prior to the closing of the Company's initial public offering. In
addition, the Company may, at its option, extend the period permitting
reduced royalty payments for an additional two years and receive another
$300,000 credit against the royalty obligation by issuing to CII an
additional 50,000 shares of Common Stock and warrants to purchase an
additional 25,000 shares exercisable at $5.75 per share. Under the agreement,
if the Company relocates its business outside the State of Connecticut, among
other things, the Company must grant CII a nonexclusive right to all existing
and future patents pertaining to the Sponsored Products. CII also may
exercise a nonexclusive, worldwide and royalty-free license to manufacture,
use and sell the Sponsored Products and to use all patent and trademark
rights, technical information and know-how relating to the Sponsored Products
in the event the Company defaults under the agreement. Accordingly, the
Company recorded $156,250 of non-cash royalty expense in the year ended
December 31, 1996 related to the issuance of these securities.
Yaskawa Electric Corporation
The Company has two agreements with Yaskawa Electric Corporation ("Yaskawa"),
one of Japan's largest manufacturers of industrial robots and a shareholder
of the Company.
Under its 1991 agreement with Yaskawa, the Company appointed Yaskawa as its
exclusive distributor in Japan and certain other countries throughout Asia
("Yaskawa Territory") to sell its HelpMate robots and LabMate. This
Agreement, which automatically renews for three-year terms unless a party
elects not to renew, permits Yaskawa to purchase these products at a discount
from the Company's then current published prices.
Under its 1992 agreement, the Company granted Yaskawa an exclusive license to
manufacture, market and sell, in the Yaskawa Territory, systems which
incorporate or make use of certain of the Company's technology and products
used in the HelpMate robot system (collectively, the "Components"). This
agreement permits Yaskawa to purchase the Company's products at their then
current published prices. In exchange for this license, Yaskawa paid the
Company a one-time nonrefundable and non-creditable fee of $500,000 in 1992,
and until May 2002 will pay the Company a royalty based upon the sales of
Yaskawa systems in the Yaskawa Territory and the relative proportion of the
Components incorporated therein. At the end of this period, and assuming
Yaskawa has fully paid all royalties due to the Company, Yaskawa will retain
a royalty-free license to manufacture, market and sell systems that
incorporate or make use of the Components.
In addition, the Company has granted Yaskawa a right of first refusal to
become the exclusive distributor in the Yaskawa Territory of those future
products of the Company having public, commercial and domestic service
applications, including those used in healthcare, social welfare, cleaning
and transportation. This right of first refusal does not apply to products
that (i) are licensed to Electrolux pursuant to the Electrolux Agreements
described below, (ii) are the subject of the Company's agreements with APS
described below, or (iii) otherwise have been developed for the United States
government under certain research and development agreements. Yaskawa has
determined that building design and personal tastes in Japan require certain
design modifications related to the size of the HelpMates.
21
<PAGE>
Otis A/S, a Danish affiliate of Otis Elevator Company
The Company has granted Otis A/S ("Otis"), a Danish affiliate of Otis
Elevator Company ("Otis Elevator"), a shareholder of the Company, an
exclusive license to sell and/or rent HelpMates and peripheral equipment in
Europe, the former Soviet Union, Africa, parts of the Middle East and certain
other regions (the "Otis Territory"). In exchange for this license, Otis paid
the Company a non-refundable and non-creditable $150,000 fee in six quarterly
installments during the 24-month period beginning January 1, 1995 for
technical training provided by the Company, and will pay the Company a fee
equal to 5% of the gross sales of the products by Otis during the 18-month
period beginning July 1, 1997. The training fee is recognized as revenue as
it is earned ($25,000 per quarter). Otis has the right to purchase these
products from the Company generally at a discount which approximates 58% of
the Company's list prices. Further, if certain mutually agreed upon cost
savings are achieved by the Company, the price of these products will be
reduced by a portion of such savings. Otis also is entitled to a six percent
finder's fee for successfully referring potential HelpMate customers in the
United States to the Company. Otis also has the right, at no additional cost,
to become the Company's exclusive distributor of HelpMates and peripheral
equipment on a worldwide basis, other than in the United States and the
Yaskawa Territory (unless these other areas become available in the future).
Otis also has the right to match any third-party offer to become the
Company's exclusive distributor in the Otis Territory (including any
territory added to the Otis Territory as described above) of other products
used for the transport of goods and people. The agreement with Otis expires
in 2001, but will be extended until 2004 if Otis previously has purchased at
least 250 HelpMate units. Thereafter, the agreement will be renewed
automatically for three-year terms unless either party elects not to renew.
If the Company elects not to renew the agreement, it must repurchase the
shares of the Common Stock owned by Otis Elevator at a mutually agreed upon
price. In the event the Company fails to meet Otis' annual production
requirements, Otis may terminate the agreement and obtain the world-wide
non-exclusive, irrevocable license to the intellectual property, rights,
know-how and technology used in the products covered by the agreement (the
"Product Technology") upon the payment to the Company of (i) a one time fee
of up to $300,000, and (ii) royalties of six percent on net revenues from the
sale or rental of covered products by Otis for a period of five years.
Further, Otis may obtain a license to certain technical information related
to the Products Technology currently held in escrow by Otis Elevator without
any payment on its part in the event the Company materially breaches this
agreement. The Company has agreed that ownership of trademark rights for the
"HelpMate" name will belong to Otis in the Otis Territory.
Electrolux
Beginning in 1985, the Company entered into a series of license and
development agreements with Electrolux, a stockholder and warrant holder of
the Company, pursuant to which Electrolux was granted an exclusive worldwide
license to manufacture, use, sell or lease (i) mobile robots containing a
Company-developed navigation and control system (a "Company Controller") and
having cleaning or mowing as their principal function; (ii) autonomous and
semi-autonomous vacuum cleaners containing a Company Controller, and (iii)
mobile robots developed with Company Controller technology and having indoor
or outdoor floor care as their principal function. The Company and Electrolux
have retained non-exclusive, worldwide licenses to manufacture, use, sell or
lease such cleaner/mowers and vacuum cleaners so long as cleaning, mowing or
vacuuming are only minor parts of their principal function. The licenses of
the parties with respect to cleaner/mowers are royalty-free. Electrolux must
pay royalties to the Company not to exceed $150,000 under its licenses for
vacuum cleaners through April 1997 and must pay royalties to the Company not
to exceed $3,000,000 under its licenses for floor cleaning machines through
December 2002. The Company must pay royalties to Electrolux not to exceed
$50,000 under its licenses for vacuums having vacuuming as only a minor
function through April 1997. In connection with the license granted to
Electrolux for floor cleaning machines, Electrolux received a right of first
refusal to engage in projects with the Company for lawn care products using
the Company's technology.
Through December 31, 1996, cumulative revenues, which are recognized upon
shipment, from its agreements with the Otis affiliate and Yaskawa affiliates
were $695,642 and $1,421,693, respectively.
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<PAGE>
EMPLOYMENT MATTERS
In February, 1995, Landmark agreed to make the services of its employee,
Thomas K. Sweeny available to the Company as its President and Chief
Executive Officer for a period of three years. To that end, since November,
1, 1995, the Company has directly employed Mr. Sweeny as its President and
Chief Executive Officer pursuant to an employment agreement. From February
1, 1995 to October 31, 1995, Mr. Sweeny's services as President and Chief
Executive Officer were provided to the Company pursuant to a service
agreement between the Company and Landmark. As consideration, Landmark
received an aggregate sum of $100,000 and 37,020 shares of the Company's
common stock and Mr. Sweeny received 111,060 shares of the Company's common
stock. Accordingly, the Company recognized non-cash compensation expense of
$444,200 relating to the issuance of these shares during the year ended
December 31, 1995.
The Company currently employs Mr. Engelberger's brother, John Engelberger, as
a part-time Senior Sales Executive. Under the terms of John Engelberger's
employment agreement, which is automatically renewable from year to year
unless sooner terminated, he is entitled to an annual salary of $54,000 plus
a commissions of $5,000 per robotic courier system that he sells or rents and
is successfully installed. He is also eligible to participate in the
Company's regular bonus plans and fringe benefit programs. Total
compensation paid to John Engelberger for the years ended December 31, 1996
and 1995 was $79,000 and $76,000, respectively.
The Company also employs Mr. Engelberger's daughter, Gay Engelberger, as the
Director of Marketing. Ms Engelberger receives an annual salary of $70,000
and is eligible to participate in the Company's regular bonus plans and
fringe benefit programs.
The Company further employs Mr. Sweeny's son, Thomas K. Sweeny III, as a
Sales Executive, who receives an annual salary of $25,000 and is eligible to
participate in the Company's regular bonus and commission plans, as well as
the Company's fringe benefit programs. No commissions were paid to Mr.
Sweeny in 1996 or 1995.
OTHER STOCKHOLDER AGREEMENTS
In 1993 the Company authorized the issuance of $50,000 in equity securities
to Landmark Partners, Inc. as payment for advisory services rendered by
Landmark in 1992 and 1993. In fulfillment of its obligation to issue those
securities, the Company issued, at the direction of Landmark Partners, Inc.,
5,609 Shares of Common Stock to Mr. Sweeny and 5,610 shares to other
stockholders of Landmark. On October 1, 1995, 500 shares of the Company's
preferred stock were issued to the Company's president and two other
stockholders of Landmark Partners, Inc., as consideration for advisory
services rendered to the Company. Accordingly, the Company recognized
non-cash compensation expense of $50,000 relating to the issuance of these
shares during the year ended December 31, 1995.
In December 1994, Otis Elevator Company ("Otis Elevator"), a stockholder of
the Company, purchased 123,400 shares of the Common Stock at a purchase price
of $12.16 per share. In connection with the purchase, Otis was given the
right to be notified by the Company of any negotiations which the Company may
conduct with third parties regarding the sale of the Company. Upon such
notification, Otis will have the right to negotiate with the Company on its
own behalf regarding any proposed transaction.
SAFE HARBOR STATEMENT
Statements which are not historical facts in this report are forward looking
statements, made on a good faith basis. Such forward looking statements,
including those concerning the Company's expectations for demand and sales
or rentals of new or existing products, profitability, cash flow, etc. all
involve risk and uncertainties. Actual results may differ materially from
forward looking statements for reasons including, but not limited to, changes
in the healthcare industry, mix of robot rentals versus sales and the
Company's ability to finance its ongoing operations.
23
<PAGE>
Item 13 Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed by the registrant during the fourth
quarter of 1996.
INDEX TO FINANCIAL STATEMENTS
Audited Financial Statements:
Report of Independent Auditors .............................................. 1
Balance sheet at December 31, 1996 .......................................... 2
Statements of operations for the years ended December 31, 1996 and 1995 ..... 3
Statements of stockholders' equity (deficit) for the years ended
December 31, 1996 and 1995 ................................................ 4
Statements of cash flows for the years ended December 31, 1996 and 1995 ..... 5
Notes to Financial Statements ............................................... 6
INDEX TO EXHIBITS
NO. DESCRIPTION OF EXHIBIT
3.01 Amended and Restated Certificate of Incorporation of Registrant as
filed on December 28, 1995 (Incorporated by reference to Form SB2
No. 33-99348 filed January 31, 1996, Exhibit No. 3.02)
3.02 Form of By-Laws of the Registrant, as amended .(Incorporated by
reference to Form SB2 No, 33-99348 filed January 31, 1996, Exhibit
No. 3.03)
4.01* Form of Common Stock Certificate
4.02* Form of Warrant Certificate
4.03* Form of Unit Certificate
4.04* Form of Warrant Agreement
4.05* Form of Underwriters' Unit Purchase Option
4.06* Pages of the Registrant's Certificate of Incorporation that define
the rights of holders of the securities being registered hereby are
incorporated herein by reference to pages 3, 4, 6 and 7 of Exhibit 3.01
4.07* Pages of the Registrant's By-Laws that define the rights of holders of
the securities being registered hereby are incorporated herein by
reference to pages 1, 2, 3, 4, 5, 6, 12 and 13 of Exhibit 3.02
10.01* Loan Agreement dated November 20, 1990 with Connecticut Innovations,
Incorporated ("CII").
10.02* $500,000 Promissory Note dated November 20, 1990 in favor of CII.
10.03* Security Agreement dated November 20, 1990 in favor of CII.
10.04* Loan Agreement May 26, 1995 with Joseph F. Engelberger ("Mr.
Engelberger").
10.05* $320,000 Promissory Note dated May 26, 1995 in favor of Mr.
Engelberger.
10.06* Financing Agreement dated June 14, 1995 with CII.
10.07* $500,000 Senior Note dated June 14, 1995 in favor of CII.
10.08* Security Agreement dated June 14, 1995 in favor of CII.
10.09* Subordination Agreement dated June 14, 1995 among the Registrant,
Mr. Engelberger and CII.
10.10* First Amendment to Financing Agreement dated September 20, 1995 with
CII.
10.11* $300,000 Senior Convertible Note dated September 20, 1995 in favor of
CII.
10.12* First Amendment to Security Agreement dated September 20, 1995 with
CII.
10.13* Amendment to Subordination Agreement dated September 20, 1995 with
CII.
10.14* Loan Agreement dated October 3, 1995 with Minnesota Mining and
Manufacturing Company ("3M").
10.15* $250,000 Note dated October 3, 1995 in favor of 3M.
10.16* Loan Agreement dated September 28, 1995 with Landmark Partners Inc.
("Landmark").
10.17* $150,000 Note dated September 28, 1995 in favor of Landmark.
10.18* Loan Agreement dated September 27, 1995 with Connecticut Financial
Developments, L.P. ("CFD").
10.19* $100,000 Note dated September 27, 1995 in favor of CFD.
10.20* Sales and Maintenance Agreement with Hospital Transporters,
Limited Partnership dated as of August 19, 1994, with letter agreement
dated October 14, 1994, and letter agreement dated August 4, 1995.
24
<PAGE>
NO. DESCRIPTION OF EXHIBIT
10.21* Program Agreement dated May 30, 1995 with Center Capital Corporation.
10.22* Employment Agreement with Mr. Engelberger dated June 1, 1995 and
amended as of November 1, 1995.
10.23* Employment Agreement with John M. Evans, Jr. dated April 17, 1987 and
amended as of February 1, 1995 and as of November 1, 1995.
10.24* Employment Agreement dated April 17, 1987 with Carl Weiman.
10.25* Employment Agreement dated April 17, 1987 with Bala Krishnamurthy.
10.26* Employment Agreement dated as of November 1, 1995 with Thomas K.
Sweeny ("Mr. Sweeny")
10.27* Stock Option Agreement dated as of November 1, 1995 with Mr. Sweeny.
10.28* Service Agreement dated February 1, 1995 with Landmark (terminated
pursuant to Exhibit 10.29)
10.29* Termination Agreement with Landmark dated as of November 1, 1995
10.30* Amended and Restated Buy and Sell Agreement dated April 17, 1987, as
amended on September.
10.31* Development Agreement dated May 1985 with Aktiebolaget Electrolux
("Electrolux").
10.32* Development Agreement dated April 15, 1987 with Electrolux.
10.33* Development Agreement dated May 1986 between Consolidated Controls
Corporation and Connecticut Product Development Corporation (assumed by
the Registrant and CII, respectively).
10.34* Royalty Reduction Agreement with CII.
10.35* Joint Venture Agreement, dated July 1, 1988 with Thrift Drug Company,
Automated Prescription Systems, Inc. ("APS") and Retired Persons
Services, Inc.
10.36* Agreement for Representation of Manufacturer/Licensee dated August,
1988 with APS.
10.37* Distributor Agreement, dated August 14, 1991, with Yaskawa Electric
Manufacturing Company, Ltd. ("Yaskawa").
10.38* Technology Transfer and License Agreement with Yaskawa dated as of
May 15, 1992.
10.39* License Agreement Dated as of December 21, 1992 with Electrolux.
10.40* Distribution Agreement dated on or about December 1, 1994 with a
subsidiary of Otis Elevator Company ("Otis").
10.41* Agreement for Sales with Bell & Howell Mailmobile dated October 18,
1995.
10.42* Lease dated as of November 1, 1992 with Westinghouse Electric
Corporation ("Westinghouse") for premises located at Shelter Rock
Lane in Danbury, Connecticut.
10.43* Letter Agreement dated October 21, 1992, with Westinghouse.
10.44* Directors and Officers Liability Insurance Policy.
10.45* Product Liability Insurance Policy.
10.46* Stock Purchase Agreement dated July 29, 1987 with Transitions
Two, Limited Partnership ("Transitions Two").
10.47* Stock Purchase Agreement, dated July 29, 1987 with 3M.
10.48* Stock Purchase Agreement dated February 24, 1989 with 3M, White
Consolidated Industries, Inc. ("White"), which is a subsidiary of
Electrolux, and Transitions Two, as amended by Amendment to Stock
Purchase Agreement, dated March 9, 1989.
10.49* Stock Purchase Agreement, dated August 14, 1991 with Yaskawa.
10.50* Preferred Stock Purchase Agreement dated as of May 28, 1993 with CFD.
10.51* Registration Rights Agreement dated as of May 28, 1993 with CFD.
10.52* Co-Sale Agreement among the Registrant, Mr. Engelberger, Margaret
Engelberger, Technology Transitions, Inc., 3M, White, Transitions Two,
Yaskawa and CFD.
10.53* Stock Purchase Agreement dated December 1, 1994 with Otis.
10.54* Warrant dated November 20, 1990, as amended on June 14, 1995, issued
to CII for 5,000 shares of the Registrant's Common Stock, expiring on
July 1, 2000.
10.55* Warrant dated January 16, 1991, issued to 3M for 3,000 shares of the
Registrant's Common Stock, expiring on February 1, 1997.
10.56* Warrant dated January 16, 1991, issued to Mr. Engelberger for 3,000
shares of the Registrant's Common Stock, expiring on February 1, 1997.
10.57* Warrant dated January 16, 1991, issued to White for 3,000 shares of
the Registrant's Common Stock, expiring on February 1, 1997.
10.58* Warrant dated January 16, 1991, issued to Transitions Two for 3,000
shares of the Registrant's Common Stock, expiring on February 1, 1997.
10.59* Warrant dated July 6, 1992, issued to Mr. Engelberger for 2,000 shares
of the Registrant's Common Stock, expiring on August 1, 1998.
10.60* Warrant dated July 6, 1992, issued to Transitions Two for 2,000 shares
of the Registrant's Common Stock, expiring on August 1, 1998.
25
<PAGE>
NO. DESCRIPTION
10.61* Warrant dated March 22, 1993, issued to Transitions Two for 5,000
shares of the Registrant's Common Stock, expiring on March 21, 1999.
10.62* Warrant dated July 1, 1993, issued to Electrolux for 4,300 shares of
the Registrant's Common Stock, expiring on June 30, 1999.
10.63* Warrant dated May 26, 1995, issued to Mr. Engelberger for 4,000 shares
of the Registrant's Common Stock, expiring May 25, 2005.
10.64* Stock Subscription Warrant dated June 14, 1995, issued to CII for
10,000 shares of the Registrant's Common Stock, expiring June 14, 2005.
10.65* Warrant and Stock Put Agreement dated June 14, 1995 between the
Registrant and CII.
10.66* Stock Subscription Warrant dated September 20, 1995, issued to
CII for 6,000 shares of the Registrant's Common Stock, expiring
September 20, 2005.
10.67* Warrant and Stock Put Agreement dated September 20, 1995 with CII.
10.68* Stock Subscription Warrant dated October 3, 1995, issued to 3M for
5,000 shares of the Registrant's Common Stock, expiring
September 30, 2005.
10.69* Stock Subscription Warrant dated September 28, 1995, issued to
Landmark for 3,000 shares of the Registrant's Common Stock, expiring
September 30, 2005.
10.70* Stock Subscription Warrant dated September 27, 1995, issued to CFD for
2,000 shares of the Registrant's Common Stock, expiring
September 30, 2005.
10.71* 1984 Nonqualified Stock Option Plan dated September 21, 1984.
10.72* 1988 Nonqualified Stock Option Plan dated October 27, 1988.
10.73* Form of 1995 Stock Option Plan.
10.74 Purchase, Security and Remarketing Agreement with Leasing Technologies
International, Inc. dated as of February 7, 1997. 1995 (Incorporated by
reference to Form 8-K filed February 21, 1997, Exhibit No. 10.01)
10.75 Master Lease Agreement with Leasing Technologies International, Inc.
dated as of January 23, 1997 and related Equipment Schedules No. 01
through No. 05. 1995 (Incorporated by reference to Form 8-K No. filed
February 21, 1997, Exhibit No. 10.02)
10.76 Letter Agreement with Leasing Technologies International, Inc. dated
as of February 7, 1997. 1995 (Incorporated by reference to Form 8-K
filed February 21, 1997, Exhibit No. 10.03)
10.77 HelpMate Robotics Inc. 1996/1997 Vendor Marketing Program dated
12/12/96.
11.01 Statement Re: Computation of Primary Per Share Earnings.
11.02 Statement Re: Computation of Supplemental Per Share Earnings
27.1 Financial Data Schedule for the year ended December 31, 1996
* Incorporated by reference to Form SB2 Number 33-99348 filed January 31,
1996 under the same exhibit number as filed therein.
26
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
(REGISTRANT) HELPMATE ROBOTICS INC.
By /s/ Thomas K. Sweeny
-------------------------------------- Date March 27, 1997
(Signature and Title)
Thomas K. Sweeny,
President and Chief Executive Officer,
Director, Treasurer and Principal
Financial Officer
By /s/ Marc D. Greenberg
-------------------------------------- Date March 27, 1997
(Signature and Title)
Marc D. Greenberg,
Controller and Assistant Treasurer,
Principal Accounting Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and the
dates indicated.
By /s/ Joseph F. Engelberger
------------------------------------- Date March 27, 1997
(Signature and Title)
Joseph F. Engelberger,
Chairman and Director Date
By /s/ Thomas K. Sweeny
-------------------------------------- Date March 27, 1997
(Signature and Title)
Thomas K. Sweeny,
President and Chief Executive Officer,
Director, Treasurer and
Principal Financial Officer
By /s/ John M. Evans Jr.
-------------------------------------- Date March 27, 1997
(Signature and Title)
John M. Evans Jr.,
Vice President Engineering, Secretary
and Director
By /s/ Theodore Sall
-------------------------------------- Date March 27, 1997
(Signature and Title)
Theodore Sall, Director
By /s/ John Barry
-------------------------------------- Date March 27, 1997
(Signature and Title)
John Barry, Director
By /s/ Sheldon Sandler
-------------------------------------- Date March 27, 1997
(Signature and Title)
Sheldon Sandler, Director
By /s/ Kevin Littlejohn
-------------------------------------- Date March 27, 1997
(Signature and Title)
Kevin Littlejohn, Director
27
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
HelpMate Robotics Inc.
We have audited the balance sheet of HelpMate Robotics Inc. as of December
31, 1996 and the related statements of operations, stockholders' equity and cash
flows for each of the two years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HelpMate Robotics Inc. at
December 31, 1996 and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company changed the
period over which installation costs related to equipment leased to others is
amortized.
Ernst & Young LLP
Stamford, Connecticut
March 7, 1997
1
<PAGE>
HelpMate Robotics Inc.
BALANCE SHEET
December 31, 1996
<TABLE>
<S> <C>
Assets
Current assets:
Cash............................................................ $ 609,808
Accounts receivable, net of allowance for doubtful accounts of
$60,000....................................................... 340,047
Inventory, net of reserve for obsolescence of $50,000 (Notes 1
and 2)........................................................ 1,554,674
Other........................................................... 13,000
----------
Total current assets............................................ 2,517,529
Installation costs, net of accumulated amortization of $761,742
(Note 1)...................................................... 353,353
Equipment leased to others, net of accumulated depreciation of
$764,864 (Notes 1 and 3)...................................... 1,331,412
Property and equipment, net of accumulated depreciation of
$618,359 (Notes 1 and 3)...................................... 520,704
----------
$4,722,998
----------
----------
Liabilities and stockholders' equity
Current liabilities:
Accounts payable.............................................. $ 740,462
Accrued expenses.............................................. 245,121
Accrued compensation and employee benefits.................... 231,807
Current portion notes payable (Note 5)........................ 507,821
Customer advances............................................. 36,830
----------
Total current liabilities....................................... 1,762,041
Notes payable, less current portion (Note5)..................... 1,152,559
Commitments (Note 10)
Stockholders' equity: (Note 7)
Common stock, no par value; 10,000,000 shares authorized;
6,288,507 shares issued and outstanding....................... 16,961,140
Capital surplus............................................... 5,112,226
Accumulated deficit........................................... (20,264,968)
----------
Total stockholders' equity...................................... 1,808,398
----------
$4,722,998
----------
----------
</TABLE>
See accompanying notes.
2
<PAGE>
HelpMate Robotics Inc.
STATEMENTS OF OPERATIONS
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Revenues:
Sales revenues................................................ $ 1,160,373 $ 1,680,353
Rental revenues............................................... 1,282,154 949,045
Research and development contracts............................ 174,550 129,555
------------- -------------
Total revenues.................................................. 2,617,077 2,758,953
Cost of revenues:
Cost of sales................................................. 739,573 1,282,510
Cost of rentals............................................... 1,185,175 907,263
Cost of research and development contracts.................... 155,380 95,298
------------- -------------
Total costs of revenues......................................... 2,080,128 2,285,071
------------- -------------
Gross profit.................................................... 536,949 473,882
Operating expenses:
Selling, general and administrative........................... 5,423,127 2,736,873
Non-cash compensation expense (Notes 1 and 11)................ 45,938 698,787
------------- -------------
5,469,065 3,435,660
------------- -------------
Operating loss.................................................. (4,932,116) (2,961,778)
Non-cash financing expense (Notes 4 and 5)...................... -- (461,933)
Interest expense (Note 5)....................................... (334,324) (328,630)
Interest income................................................. 133,994 927
Other income.................................................... 74,588 68,140
------------- -------------
(125,742) (721,496)
------------- -------------
Loss before preferred stock dividends........................... (5,057,858) (3,683,274)
Preferred stock dividends paid (Note7).......................... 57,147 790,866
------------- -------------
Net loss applicable to common stock........................... $ (5,115,005) $ (4,474,140)
------------- --------------
------------- --------------
Per share amounts:
Net loss applicable to common stock........................... $ (0.88) $ (2.76)
------------- -------------
------------- -------------
Weighted average number of shares of common stock outstanding
(Note 1).................................................... 5,847,781 1,623,802
------------- -------------
------------- -------------
Supplemental net loss applicable to common stock.............. $ (0.84)
-------------
-------------
Supplemental weighted average number of shares of common stock
outstanding (Note 1)........................................ 6,001,628
-------------
-------------
</TABLE>
See accompanying notes.
3
<PAGE>
HelpMate Robotics Inc.
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Series A
Convertible
Preferred Common Capital Accumulated Treasury
Stock Stock Surplus Deficit Stock Total
---------- ---------- ----------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994.................... $6,216,534 $2,594,987 $5,149,881 ($11,523,836) ($16,300) $ 2,421,266
Common stock issued for rent (11,040 shares).... - 134,191 - - - 134,191
Preferred stock issued for services rendered
(500 shares)................................. 50,000 - - - - -
Preferred stock dividends:
Issuance of 7,909 shares of preferred stock.. 790,866 - (790,866) - - -
Issuance of warrants............................ - - 31,166 - - 31,166
Compensatory element related to conversion
rights of convertible promissory notes....... - - 430,767 - - 430,767
Issuance of 148,080 shares of common stock...... - - 444,240 - - 444,240
Issuance of stock options below fair market
value........................................ - - 84,547 - - 84,547
Net loss........................................ - - - (3,683,274) - (3,683,274)
---------- ---------- ----------- ----------- -------- -----------
Balance at December 31, 1995.................... 7,057,400 2,729,178 5,349,735 (15,207,110) (16,300) (87,097)
Preferred Stock Dividends Paids................. - - (57,147) - - (57,147)
Cancellation of Treasury Stock.................. - - (16,300) - 16,300 -
Conversion of preferred stock (71,438 shares)
into common stock (1,604,409 shares)......... (7,057,400) 7,057,400 - - - -
Conversion of promissory notes payable into
common stock (393,844 shares)................ - 800,000 - - - 800,000
Issuance of common stock (38,400 shares) in
consideration of cancellation of obligtion
to chairman.................................. - 120,000 - - - 120,000
Issuance of common stock (2,505,992 shares)
net of expenses.............................. - 6,093,441 - - - 6,093,441
Issuance of common stock in consideration of
amendment to 1986 development agreement
(50,000 shares).............................. - 156,250 - - - 156,250
Redemption of common stock (34,552 shares)
issued for rent.............................. - - (210,000) - - (210,000)
Exercise of stock options (16,155 shares)....... - 4,871 - - - 4,871
Issuance of stock options below fair market
value........................................ - - 45,938 - - 45,938
Net loss........................................ - - - (5,057,858) - (5,057,858)
---------- ---------- ----------- ----------- -------- -----------
Balance at December 31, 1996.................... $ - $16,961,140 $5,112,226 ($20,264,968) $ - $1,808,398
---------- ---------- ----------- ----------- -------- -----------
---------- ---------- ----------- ----------- -------- -----------
</TABLE>
4
<PAGE>
HelpMate Robotics Inc.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Operating activities
Net loss........................................................ $ (5,057,858) $ (3,683,274)
Adjustments to reconcile net loss to net cash used by operating
activities:
Rent (Note10)................................................. -- 134,191
Interest (Note 5)............................................. 249,974 219,258
Royalty (Note 8).............................................. 156,250 --
Compensation (Notes 1 and 11)................................. 45,938 698,787
Financing (Notes 4 and 5)..................................... -- 461,933
Provision for doubtful accounts............................... 71,355 55,096
Provision for inventory obsolescence.......................... -- 50,000
Depreciation and amortization (Notes 1 and 3)................. 982,202 757,058
Other......................................................... 44,547 --
Changes in operating accounts:
(Increase) decrease in accounts receivable.................... 22,917 33,889
(Increase) decrease in inventory.............................. (289,718) 101,238
(Increase) decrease in other assets........................... 14,460 23,460
(Decrease) increase in accounts payable and accrued expenses.. 507,325 62,071
(Decrease) increase in customer advances...................... (83,083) (42,840)
------------- -------------
Total adjustments............................................... 1,722,167 2,554,141
------------- -------------
Net cash used by operating activities........................... (3,335,691) (1,129,133)
------------- -------------
Investing activities
Installation costs.............................................. (385,597) (193,666)
Equipment leased to others...................................... (1,174,038) (410,284)
Purchase of property and equipment.............................. (352,234) (45,178)
------------- -------------
Net cash used by investing activities........................... (1,911,869) (649,128)
------------- -------------
Financing activities
Proceeds from issuance of notes payable (Note 5)................ -- 1,287,981
Proceeds from issuance of convertible promissory notes (Note
4)............................................................ -- 800,000
Repayments of notes payable (Note 5)............................ (393,549) (393,720)
Proceeds from exercise of stock options (Note 7)................ 4,871 --
Redemption of common stock issued for rent (Notes 7 and 10)..... (210,000) --
Deferred equity issuance costs.................................. -- (45,500)
Proceeds from issuance of common stock, net of expenses (Note
7)............................................................ 6,093,441 --
Preferred stock dividends paid (Note 7)......................... (57,147) --
------------- -------------
Net cash provided by (used in) financing activities............. 5,437,616 1,648,761
------------- -------------
Net increase (decrease) in cash and cash equivalents............ 190,056 (129,500)
Cash at beginning of year....................................... 419,752 549,252
------------- -------------
Cash at end of year............................................. $ 609,808 $ 419,752
------------- -------------
------------- -------------
Supplemental Information:
Cash interest paid (Note 5)..................................... $ 84,350 $ 108,445
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
5
<PAGE>
HELPMATE ROBOTICS INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization, Nature of Business and Summary of Significant Accounting
Policies
ORGANIZATION / NATURE OF BUSINESS
HelpMate Robotics Inc. ("HelpMate", "HRI", or the "Company"), was
incorporated in May 1984. The Company is primarily engaged in the design,
manufacture and sale of the Company's flagship product, the
HelpMate-Registered Trademark- robotics courier system, a trackless robotic
courier used primarily in the healthcare industry to transport materials. The
Company derives revenue from three principal sources: rentals and sales of
HelpMates; sales of robotic components such as LabMate, LightRanger and BiSight
and from research and development contracts.
BASIS OF PRESENTATION
The financial statements have been prepared in conformity with generally
accepted accounting principles. Such preparation requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual amounts may differ from these
estimates. In addition, certain amounts for prior periods have been reclassified
to be comparable with the current period presentation.
The accompanying financial statements have also been prepared assuming the
Company will continue as a going concern. The Company anticipates obtaining
additional working capital financing during the Spring or Summer of 1997 which
will allow HRI to utilize an existing commitment for up to $5 million in
additional rental financing and up to $10 million in lease financing. The
Company has however taken actions and will institute other measures such as
employee termination, salary deferrals, and the curtailment of sales, marketing
and production activity to ensure that operations would continue throughout 1997
if the additional financing transactions are not consummated. The Company
believes that even at a reduced level of operations, it will be able to produce,
rent and/or sell, and install those units for which it has received firm orders.
The Company continues to actively seek additional financing alternatives in
order to strengthen its liquidity situation in the short term, and although the
Company has identified some potential sources of such financing, the Company has
no current commitments or agreements with respect to such and there can be no
assurance that any additional financing will be available to the Company on
acceptable terms, or at all.
SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenues from rentals for equipment leased to others is recognized on a
straight line basis over the lease term which commences upon the delivery,
installation and training of personnel on the product. Revenues from HelpMate
product sales are recognized upon the delivery, installation and training of
personnel on the product. Revenues from the Company's foreign licensors, who are
also shareholders of the Company, and revenues from sales of robotic components
are recognized upon shipment of product. Revenues from research and development
contracts are accounted for on the percentage of completion method, based upon
costs incurred and are comprised principally of studies and prototypes of
robotic applications predominantly for governmental agencies. Where estimated
losses on research and development contracts exist, they are provided for on the
entire contract.
Revenues from the Company's shareholders approximated $284,000 and $615,000
for the years ended December 31, 1996 and 1995, respectively.
6
<PAGE>
HELPMATE ROBOTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. Organization, Nature of Business and Summary of Significant Accounting
Policies (CONTINUED)
CONCENTRATION OF CREDIT RISK
The Company markets its robotic couriers mainly to hospitals in the United
States. The Company performs periodic credit evaluations of its customer's
financial condition and generally does not require collateral. Credit losses
have historically been within the Company's expectations. Further, the Company
maintains two federally insured disbursing accounts for its cash. The Company
has potential credit risk associated with cash balances in excess of federal
depository insurance.
At December 31, 1996, amounts due from government agencies approximated 14%
and amounts due from shareholders approximated 16% of total accounts receivable,
respectively.
INVENTORY
Inventory is stated at the lower of cost (first-in first-out method) or
market and is evaluated periodically to determine what level of a reserve for
obsolescence is required. The Company has approximately thirty primary suppliers
and several hundred secondary vendors. Two such suppliers each provide more than
ten percent of the cost for the HelpMate Robotic Courier Systems. The Company
believes that with appropriate hardware or engineering effort several
commercially available alternatives for parts from these vendors exist.
PROPERTY AND EQUIPMENT
Furniture and fixtures, machinery and equipment and leasehold improvements
are stated at cost. Depreciation is computed on the straight line method based
upon the estimated useful lives of the assets. These include furniture and
fixtures (three to five years); machinery and equipment (five to ten years); and
leasehold improvements (over the term of the lease). Depreciation expense for
property and equipment was $98,530 and $72,770 for the years ended December 31,
1996 and 1995, respectively.
EQUIPMENT LEASED TO OTHERS
Equipment leased to others is stated at cost. Depreciation is computed on
the straight line method based upon the estimated useful lives of the assets
(five years). Depreciation expense for equipment leased to others was $736,335
and $566,264 for the years ended December 31, 1996 and 1995, respectively. The
total of guaranteed future minimal rentals on equipment leased to others at
December 31, 1996 was $950,762, which consists of $815,360 in 1997 and $135,402
in 1998.
INSTALLATION COSTS
The Company incurs certain direct expenses associated with the
installation of its equipment leased to others. The Company has recast its
fiscal 1995 statements of operations, cash flows and stockholders' equity to
reflect a change in the period over which the Company's installation costs
related to its equipment leased to others is amortized. The Company
previously amortized such costs over a five year period. Under the new policy
such costs are amortized over the initial term of the lease in accordance
with the generally accepted accounting principles prescribed for leases. In
1996, such costs increased in significance in relation to the Company's
financial statements, which was attributable to among other things, the
Company's increased volume of business and current market conditions which
required the Company to incur more of these costs. This change affects the
financial statements of the Company primarily by amortizing such costs more
rapidly, as typically the initial term of the leases entered into by the
Company range from one to three years. This change increased the Company's
previously reported 1995 net loss by $119,118 ($0.07 per share). Further,
accumulated deficit and stockholder's equity (deficit) as of January 1, 1995
have been increased and decreased, respectively by $123,086 for the effect of
applying this change retroactively. Amortization expense for installation
costs was $147,337 and $118,024 for the years ended December 31, 1996 and
1995, respectively.
7
<PAGE>
HELPMATE ROBOTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. Organization, Nature of Business and Summary of Significant Accounting
Policies (CONTINUED)
SOFTWARE DEVELOPMENT COSTS
Software development costs incurred by the Company have historically been
expensed as incurred as the Company has, to date, not been able to demonstrate
recovery (net realizable value) based upon future cash flows from the rental or
sale of the associated products. Current enhancements to the Company's software
are not of a nature considered to be material modifications and therefore would
not be capitalized under SFAS 86. The Company will continue to evaluate the
significance of capitalizing software development costs.
EARNINGS PER SHARE AND SUPPLEMENTAL NET LOSS PER SHARE
Earnings per common share is computed using the treasury stock method based
on the weighted average number of common shares and common stock equivalent
shares outstanding during the period, as adjusted retroactively for the stock
split described in Note 7. Shares from the assumed exercise of options and
warrants granted by the Company and shares issuable in connection with the
Company's convertible preferred stock have been included in the computations of
earnings per share for all periods unless their inclusion would be
anti-dilutive. However, for purposes of computing net loss per share, options
and warrants granted by the Company during the 12 months preceding the initial
public offering date, including those shares issuable in connection with the
anti-dilution provisions of certain warrant agreements have been included in the
calculation of common stock and common stock equivalent shares outstanding as if
they were outstanding for all periods presented using the treasury stock method
and the public offering price of $6.25 per unit or $3.00 per share and $0.25 per
warrant. (See Note 7)
Supplemental net loss per share of common stock for the year ended December
31, 1996 was ($0.84). Supplemental net loss per share of common stock is
computed using the if-converted method based on the pro forma weighted average
number of shares of common stock and common stock equivalent as defined above,
and convertible preferred shares that were converted into common stock on a
1-4.55 basis upon the closing of the initial public offering (described in Note
7), adjusted retroactively for the aforementioned stock split. Net loss per
share used in the supplemental loss per share calculation was decreased for
dividend requirements on preferred shares.
STOCK BASED COMPENSATION
The Company accounts for stock option grants in accordance with APB 25 and
expects to continue to do so in the future. Accordingly, non-cash compensation
expense of $45,938 and $84,547 for stock options granted below fair market value
has been recorded in the years ended December 31, 1996 and 1995, respectively.
In 1995, the Financial Accounting Board also issued Statement No. 123
"Accounting for Stock Based Compensation" ("SFAS 123") and the Company only make
the financial statement disclosures required by SFAS 123, if material or
otherwise required. No disclosures related to SFAS 123 have been recorded for
the year ended December 31, 1996.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, Accounts Receivable and Accounts Payable--The carrying amount reported
in the balance sheet for these accounts approximate their fair value.
Long Term Debt--The fair value of the Company's long term debt is estimated
using discounted cash flow analyses, based upon the Company's current
incremental borrowing rates for similar types of borrowing arrangements. Such
fair value is approximately $16,000 less than the carrying amount.
8
<PAGE>
HELPMATE ROBOTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVENTORY
Inventory is comprised of the following at December 31, 1996:
<TABLE>
<S> <C>
Raw materials................................................... $1,015,570
Work in process................................................. 82,437
Finished goods.................................................. 506,667
---------
1,604,674
Reserve for obsolescence........................................ (50,000)
---------
$1,554,674
---------
---------
</TABLE>
3. PROPERTY AND EQUIPMENT AND EQUIPMENT LEASED TO OTHERS
Property and equipment and equipment leased to others is comprised of the
following at December 31, 1996:
<TABLE>
<S> <C>
Furniture and fixtures.......................................... $ 90,843
Machinery and equipment......................................... 1,021,928
Leasehold improvements.......................................... 26,292
---------
1,139.063
Less accumulated depreciation and amortization.................. (618,359)
---------
$ 520,704
---------
---------
Equipment leased to others...................................... $2,096,276
Less accumulated depreciation and amortization.................. (764,864)
---------
$1,331,412
---------
---------
</TABLE>
4. CONVERTIBLE PROMISSORY NOTES PAYABLE
In October, 1995, four entities which previously provided equity
financing to the Company, Connecticut Innovations Inc., Minnesota Mining and
Manufacturing, Landmark Partners and Connecticut Financial Developments, L.P.
(collectively, the "Selling Bridge Security Holders") advanced an aggregate
of $800,000 to the Company in exchange for, among other things, certain notes
which, immediately prior to the Company's initial public offering of
securities (Note 7) were convertible at a rate of one unit for each $4.06
advanced or 196,922 units. The notes bore interest at a rate of 10% and were
due and payable on or before October 1, 2000. In conjunction with the
advancement of the aforementioned funds, the Selling Bridge Security Holders
were issued warrants to purchase an aggregate of 78,976 shares of the
Company's common stock at an exercise price of $4.05 per share. Such warrants
were canceled upon the consummation the Company's initial public offering and
the Company recognized $430,767 as a non cash financing expense related to
the conversion rights of these notes in the year ended December 31, 1995.
9
<PAGE>
HELPMATE ROBOTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE
Notes Payable is comprised of the following at December 31, 1996:
<TABLE>
<S> <C>
Secured note payable at 12%..................................... $ 32,711
Secured notes payable to Center Capital at rates ranging from
15% to 17.5%.................................................. 127,116
Secured notes payable at 10%.................................... 651,719
Secured notes payable to HTLP at 24%............................ 848,834
---------
Less current portion............................................ (507,821)
---------
$1,152,559
---------
---------
</TABLE>
Maturities of notes payable are $507,821 in 1997, $519,087 in 1998, $477,076
in 1999 and $156,396 in 2000.
During the period August-December 1995, the Company assigned the operating
leases for four HelpMate-Registered Trademark- robotics courier systems to
Center Capital to provide the Company with additional capital to fund its
operations. The total proceeds obtained from such financings approximated
$228,000 and as stipulated by the assignment agreements, the Company remains
responsible for the maintenance of the systems. The Company accounted for these
transactions as a financing, recognizing the proceeds received as obligations at
the discounted present value of the lease payments having effective interest
rates of 15% to 17.5% on the remaining obligations. The related leased assets
are being depreciated over the life of the assets. On August 15, 1996, the
revenue stream from one of the systems reverted back to the Company as the fixed
term of the operating lease assigned had expired.
In 1995 and 1994, the Company entered into three agreements with Hospital
Transporters Limited Partnership ("HTLP"), a limited partnership whose limited
partners include the Chairman, the Chairman's brother and the President of the
Company, whereby the Company transferred title and assigned the related rental
agreements to thirteen of its HelpMate robotic courier systems to HTLP to
provide the Company with additional capital to fund its operations. Under the
agreements, the Company guaranteed payments to HTLP of $2,020,829 over a five
year period and at the expiration of the five year period the Company can
repurchase from HTLP the HelpMate robotic courier systems. The total proceeds
obtained from these agreements approximated $1,170,000 and as stipulated by
these agreements, the Company remains responsible for the maintenance of the
systems for which HTLP agreed to pay $3,500 per unit per year to the Company.
The Company accounted for these transactions as a financing, recognizing the
proceeds received as obligations at the discounted present value of the
guaranteed payments having an effective interest rate of approximately 24%. The
related assets are being depreciated over their estimated economic life.
In June, 1995, Connecticut Innovations Incorporated ("CII") extended a
loan ("CII Loan") to the Company in the amount of $500,000 with an annual
interest rate of 10%. Interest alone was payable on the note in its first
year and thereafter principal and interest is payable in forty eight equal
installments. In connection with this loan, the Company granted to CII
security interests in certain of its assets, including all of its
intellectual property relating to HelpMate in the North and South American
markets, and issued to CII warrants to purchase an aggregate of 74,074 shares
of Common Stock at an exercise price of $2.70 per share, which expire on June
14, 2005. By virtue of this loan agreement, the Company is also required to,
among other things, retain its principal place of business, and a majority of
its employees and operations in the State of Connecticut until June, 2001. In
November 1996, the Company received from CII permission to postpone the
repayment schedule on this loan for a period not to exceed six months.
10
<PAGE>
HELPMATE ROBOTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE (CONTINUED)
In June, 1995, the Company entered into a financing transaction ("Loan
Agreement") with the Company's Chairman in the amount of $200,000 on
substantially the same terms as the CII Loan. Concurrently, the Company had
committed to make a lump sum payment of $120,000 to its Chairman upon the
occurrence of certain events. The Company and its Chairman however agreed to add
the $120,000 obligation to the term of the Loan Agreement in the form of a
promissory note and subsequently in conjunction with the Company's initial
public offering (see Note 7) the $120,000 obligation was converted into 19,200
units. Accordingly, the Company recorded $120,000 as non cash compensation
expense in the year ended December 31, 1995. In consideration for making the
Loan Agreement, the Company issued to its Chairman warrants to purchase an
aggregate of 29,630 shares of Common Stock at an exercise price of $2.70 per
share, which expire on May 25, 2005. The Loan Agreement relieves the Company of
any previous obligations with its Chairman. In November 1996, the Company,
received from its Chairman, permission to delay the repayment schedule on this
loan for a period not to exceed six months. No additional interest was accrued
on this obligation by virtue of the delay in repayment.
The Company also recognized $31,166 as a non-cash financing expense in the
year ended December 31, 1995 to account for the compensatory nature of the
issuance of the aforementioned warrants.
In November, 1990, the Company entered into a loan agreement with CII. The
agreement provided the Company with a $500,000 secured note, which is secured by
the Company's property and equipment. The note is payable monthly, including
interest at 12% in sixty equal installments commencing January 1, 1992. As
additional consideration for entering into the loan agreement, the Company
issued to CII warrants to purchase an aggregate of 40,947 shares of Common Stock
at an exercise price of $2.44 per share, which expire on July 1, 2000. In
November 1996, the Company received from CII permission to postpone the
repayment schedule on this loan for a period not to exceed six months.
The Company recognized $334,324 and $327,703 in interest on its notes
payable and convertible promissory notes payable for the years ended December
31, 1996 and 1995, respectively.
6. INCOME TAXES
Significant components of the Company's deferred tax assets as of December
31, 1996 are as follows:
<TABLE>
<S> <C>
Net operating loss carryforwards............................. $6,555,886
Allowance for doubtful accounts.............................. 23,964
Reserve for inventory obsolescence........................... 19,970
Compensation expense......................................... 220,030
Vacation accrual............................................. 68,331
Equipment leased to others................................... 179,730
Other........................................................ 136,676
---------
Total deferred tax assets.................................... 7,204,587
Valuation allowance for deferred tax assets.................. (7,204,587)
---------
Amount recognized in the financial statements................ $ --
---------
---------
</TABLE>
The valuation allowance increased by approximately $1,713,000 during the
year ended December 31, 1996 primarily to fully reserve the net operating loss
generated during the year.
At December 31, 1996, the Company had net operating loss carryforwards for
federal tax purposes of approximately $17.1 million, which expire from 1999
through 2011. However, under the Tax Reform Act of 1986, the ability of the
Company to realize a future tax benefit from its net operating loss
carryforwards is severely limited due to changes in the proportionate ownership
of the Company and the entities which own stock in the Company. At December 31,
1996, the Company has net operating loss carryforwards for state tax purposes of
approximately $10.6 million which expire from 1997 through 2001.
11
<PAGE>
HELPMATE ROBOTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY
INITIAL PUBLIC OFFERING
The Company completed an initial public offering on January 31, 1996 of
1,449,918 units with each unit consisting of two shares of common stock, no par
value per share, and one redeemable common stock purchase warrant, whereby
1,252,996 units were sold by the Company and 196,922 units were sold by certain
lenders who provided interim financing to the Company (the "Selling Bridge
Securityholders") (Note 4). The Company received proceeds of approximately $6.1
million net of expenses of approximately $1.7 million and has used such proceeds
for, among other things, the expansion of its sales and marketing activities.
Further, $210,000 of the proceeds were used to redeem certain common shares
issued for rent.
Immediately prior to the closing of the initial public offering, the
following became effective: (i) all outstanding shares of preferred stock of the
Company were converted into common stock, (ii) certain convertible notes issued
to the Selling Bridge Securityholders in the original principal amount of
$800,000 were converted into 196,622 units, (iii) the Company's certificate of
incorporation was amended to increase the authorized common stock of the Company
to 10,000,000 shares, (iv) the Company's certificate of incorporation was
amended to eliminate the class of preferred stock, and (v) a 4.93599--to--1
stock split with respect to common stock was effected. Accordingly, all common
share amounts have been restated to give effect to the 4.93599--to--1 stock
split.
PREFERRED STOCK
In 1993, the Company authorized the issuance of up to 150,000 shares of
Series A convertible preferred stock with a par value of $100 per share. The
authorization entitled the purchaser to elect preferred stock that paid a 12%
preferred stock dividend or an 8% cash dividend. The preferred stock had no
voting rights and was convertible at any time into 4.55 shares of common stock
for each share of preferred stock. Effective January 1, 1996 all owners of
preferred stock elected to receive the 8% cash dividend and immediately prior to
the Company's initial public offering all outstanding shares of preferred stock
of the Company were converted into common stock.
WARRANTS
As of December 31, 1996, the Company had issued warrants to purchase an
aggregate of 1,845,960 shares of common stock. The warrants have exercise prices
ranging from $2.44--$5.75 per share, are exercisable upon issuance and expire as
follows: June 2005 (74,074); May 2005 (29,630); January 2001 (1,494,118); July
2000 (40,947); June 1999 (35,214); March 1999 (40,947); August 1998 (32,758) and
February 1997 (98,272).
DIVIDENDS ON COMMON STOCK
To date and for the foreseeable future, the Company has not nor does it
anticipate paying dividends on its common stock. Moreover, the ability of the
Company to pay dividends is subject to contractual restrictions through
September, 2001. Specifically during that period, the Company may not, unless
approved by CII, directly or indirectly declare, order, pay or reserve any sum
or property for the payment of any dividend or other distribution on the
Company's common stock until such time as the Company has achieved a net profit
for three consecutive fiscal quarters.
12
<PAGE>
HELPMATE ROBOTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. Stockholders' Equity (CONTINUED)
STOCK OPTION PLANS
The Company has three stock option plans. The 1984 and 1988 Nonqualified
Stock Option Plans, provide for the granting of nonqualified stock options
for 235,279 shares of common stock at an exercise price based upon a formula
determined by the Company's Board of Directors, with a minimum price of not
less than $0.20 per share. Options are exercisable starting one year from the
date of grant to the extent of 20% per year on a cumulative basis and expire
ten years from the date of grant. Option holders, upon approval by the
Company, may surrender their options to the Company in exchange for the
difference between the fair market value of the shares covered by the option
and the option exercise price. In the event of cessation of employment, an
option holder may exercise his stock options within a six month period at
which time the stock option is canceled. At December 31, 1996 6,844 options
are available for grant under these plans and 155,457 shares of common stock
are reserved for issuance.
The Company's 1995 Amended and Restated Stock Option Plan provides for the
granting of up to 500,000 shares of the Company's common stock to officers,
directors and employees of the Company at an exercise price not less than 100%
of the fair market value of the Company's common stock on the date of grant.
Options are exercisable starting one year from the date of grant to the extent
of 20% per year on a cumulative basis and expire ten years from the date of
grant. At December 31, 1996 430,000 options are available for grant under this
plan and 500,000 shares of common stock are reserved for issuance.
The 1984 plan terminated on September 21, 1994, the 1988 plan will terminate
on October 27, 1998 and the 1995 plan will terminate on February 5, 2006, except
as to options outstanding. The 1988 plan can be terminated by the Company's
Board of Directors at any time.
The following table describes the Company's stock option activity:
<TABLE>
<CAPTION>
OPTION PRICE PER
NUMBER OF SHARES SHARE
----------------- ---------------------
<S> <C> <C>
Outstanding at December 31, 1995.................... 146,335 $ 0.20-$1.42
Granted............................................. 94,000 $ 1.00-$3.88
Exercised........................................... 16,155 $ 0.20-$0.41
Canceled / Expired.................................. 5,567 $ 0.20-$3.88
------- -----------
Outstanding at December 31, 1996.................... 218,613 $ 0.20-$3.88
------- -----------
------- -----------
</TABLE>
At December 31,1996, 96,215 options are exercisable, the weighted average
exercise price of options is $1.71 and the weighted average remaining
contractual life of these options is 7.25 years.
13
<PAGE>
HELPMATE ROBOTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INITIAL PUBLIC OFFERING (CONTINUED)
8. DEVELOPMENT CONTRACT AND RELATED ROYALTY AGREEMENT
During 1986, the Company entered into a contract with an independent
corporation (the "Corporation") to assist in the development and manufacturing
of a trackless robotic courier to be used primarily in the healthcare industry
to transport materials ("HelpMate"). The Corporation had entered into a
development agreement with CII, a state sponsored development corporation, in
which CII would reimburse the Corporation for a portion of the development costs
for the HelpMate-Registered Trademark-robotics courier system (the "sponsored
products"). The contract between the Corporation and the Company granted the
Company the right to assume the Corporation's rights under the agreement with
CII.
During 1987, the Company assumed the Corporation's rights under the
agreement, pursuant to which CII reimbursed the Company for $441,000 of
development costs related to the sponsored products. In return for such
reimbursement, the Company must pay royalties aggregating $2,205,000 to CII as
follows: (i) five percent of the Company's net sales of Sponsored Products, and
(ii) fifty percent of any royalties received by the Company for payments against
shipments of Sponsored Products by licensees of the Company. Thereafter, the
Company must continue to pay royalties for a period equal to the period of time
taken to satisfy this $2,205,000 royalty obligation, except that the royalty
rate on the Company's net sales of Sponsored Products shall be reduced to
one-half of one percent during such period. Such royalties are payable only to
the extent that sales and license fees are realized. Through December 31, 1996,
the Company had paid approximately $250,000 in royalties to CII.
In January 1996, the Company and CII agreed that during the two-year
period commencing on the closing of the Company's initial public offering,
the obligation (described in (i) in the preceding paragraph) to pay a royalty
at a rate of five percent of sales of Sponsored Products would be reduced so
that the payment with respect thereto would not exceed the greater of (i) one
and one-half percent of the net sales of Sponsored Products or (ii) twenty
percent (20%) of the Company's pre-tax profits (but in no event would such
payment be more than five percent of net sales of Sponsored Products.) In
addition, the Company will receive a credit of $300,000 against the
$2,205,000 royalty obligation. In consideration of this modification, the
Company issued to CII 50,000 shares of its Common Stock and a warrant to
purchase 25,000 additional shares at $5.75 per share immediately prior to the
closing of the Company's initial public offering. In addition, the Company
may, at its option, extend the period permitting reduced royalty payments for
an additional two years and receive another $300,000 credit against the
royalty obligation by issuing to CII an additional 50,000 shares of Common
Stock and warrants to purchase an additional 25,000 shares exercisable at
$5.75 per share. Under the agreement, if the Company relocates its business
outside the State of Connecticut, among other things, the Company must grant
CII a nonexclusive right to all existing and future patents pertaining to the
Sponsored Products. CII also may exercise a nonexclusive, worldwide and
royalty-free license to manufacture, use and sell the Sponsored Products and
to use all patent and trademark rights, technical information and know-how
relating to the Sponsored Products in the event the Company defaults under
the agreement. Accordingly, the Company recorded $156,250 of non-cash
royalty expense in the year ended December 31, 1996 related to the issuance
of these securities.
9. EMPLOYEE BENEFIT PLANS
The Company sponsors a defined contribution plan for substantially all of
its employees. Employees can contribute to the plan, on a pre tax basis, a
percentage of their qualifying compensation up to the legal limits allowed. No
Company contributions were made to the plan.
14
<PAGE>
HELPMATE ROBOTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS
In December, 1992, the Company entered into an operating lease agreement for
its office and research facility which expires in December, 2002. In addition to
the minimum lease payments, the Company is obligated to pay its proportionate
share of operating expenses of the facility. For the first three years of the
lease, the Company was permitted to issue common stock at the rate of $12.16 per
share in satisfaction of its minimum lease payments as adjusted for the issuance
by the Company of additional shares of common stock at a lesser price. A total
of 34,552 shares of common stock were issued in connection with this lease
arrangement, all of which were subsequently repurchased by the Company, at the
rate of $0.50 per $1.00 of stock issued, with the proceeds from the Company's
initial public offering (Note 7).
Future minimum lease payments as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 165,000
1998 213,000
1999 213,000
2000 213,000
2001 213,000
Thereafter 212,000
---------
$1,229,000
---------
---------
</TABLE>
Rent expense for the years ended December 31, 1996 and 1995 approximated
$165,000 and $144,000, respectively.
11. RELATED PARTY TRANSACTIONS
On October 1, 1995, 500 shares of the Company's preferred stock were
issued to the Company's president and two other stockholders of Landmark
Partners, Inc. as consideration for advisory services rendered to the
Company. (Landmark Partners Inc. ("Landmark"), is an entity which owns a
significant amount of the Company's common stock through its affiliates
Technology Transitions, Inc. and Transitions Inc., Limited Partnership.)
Accordingly, the Company recognized non-cash compensation expense of $50,000
relating to the issuance of these shares during the year ended December 31,
1995.
In June, 1995, the Company entered into a financing transaction ("Loan
Agreement") with the Company's Chairman in the amount of $200,000 on
substantially the same terms as the CII Loan. Concurrently, the Company had
committed to make a lump sum payment of $120,000 to its Chairman upon the
occurrence of certain events. The Company and its Chairman however agreed to
add the $120,000 obligation to the term of the Loan Agreement in the form of
a promissory note and subsequently in conjunction with the Company's initial
public offering (see Note 7) the $120,000 obligation was converted into
19,200 units. Accordingly, the Company recorded $120,000 as non cash
compensation expense in the year ended December 31, 1995. In consideration
for making the Loan Agreement, the Company issued to its Chairman warrants to
purchase an aggregate of 29,630 shares of Common Stock at an exercise price
of $2.70 per share, which expire on May 25, 2005.
In February, 1995, Landmark agreed to make the services of its employee,
Thomas K. Sweeny available to the Company as its President and Chief
Executive Officer for a period of three years. To that end, since November,
1, 1995, the Company has directly employed Mr. Sweeny as its President and
Chief Executive Officer pursuant to an employment agreement. From February 1,
1995 to October 31, 1995, Mr. Sweeny's services as President and Chief
Executive Officer were provided to the Company pursuant to a service
agreement between the Company and Landmark. As consideration, Landmark
received an aggregate sum of $100,000 and 37,020 shares of the Company's
common stock and Mr. Sweeny received 111,060 shares of the Company's common
stock. Accordingly, the Company recognized non-cash compensation expense of
$444,200 relating to the issuance of these shares during the year ended
December 31, 1995.
15
<PAGE>
HELPMATE ROBOTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. SUBSEQUENT EVENT
On February 7, 1997, HelpMate Robotics Inc. ("HRI" or the "Company")
entered into a Purchase, Security and Remarketing Agreement and a Master
Lease Agreement with Leasing Technologies International, Inc. ("LTI") for the
sale and leaseback of fifteen of its robotic courier systems which are
currently under rent from the Company to hospitals across the United States
("sold units"). The total proceeds obtained from this transaction was
$1,230,000. As part of the transaction, the Company assigned all of its right
title and interest in the underlying rental agreements for the sold units and
granted a security interest in fifteen additional rental agreements for units
that were not sold to LTI ("collateral units"). The Purchase, Security and
Remarketing Agreement requires the Company to, among other things, refurbish
any sold unit that ceases to be rented by a hospital and place that sold unit
on rent with another hospital prior to the Company placing one of its own
units with another hospital. In addition, the Company is responsible for the
maintenance of both the sold units and the collateral units. Upon the
expiration of the Master Lease Agreement (36 months), the Company shares in
residual rental payments from the sold units in the following manner: a)75%
for the Company and 25% for LTI until such time as the Company receives an
additional $372,032 and b) 50% for the Company and 50% for LTI thereafter.
Finally, the Company has no right to repurchase the sold units from LTI. The
Master Lease Agreement will be classified as an operating lease in accordance
with Statement of Financial Accounting Standards No. 13, "Accounting for
Leases". The book value and related depreciation of the sold units,
approximately $937,000 and $321,000, respectively, will be removed from the
accounts and the gain realized on the sale of approximately $614,000 will be
deferred and amortized over the term of the Master Lease Agreement, 36
months. The maintenance costs expected to be incurred for the sold units
during the lease term will be accrued as of the date of the sale, amortized
over the term of the Master Lease Agreement and correspondingly reduce the
gain on the sale. Such costs are expected to approximate $158,000 thereby
reducing the gain to be deferred and amortized to approximately $456,000. No
provision for the refurbishment of the sold units will be made, as the
Company's historical experience demonstrates that units do not cease being
rented. Payments under the Master Lease Agreement are payable monthly
commencing in March, 1997 and approximate $526,000 annually.
16
<PAGE>
HELPMATE ROBOTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. Quarterly Financial Data (unaudited)
As discussed in Note 1, the Company changed the period over which the
Company's installation costs related to its equipment leased to others is
amortized and has recast its fiscal 1995 statements of operations, cash flows
and stockholders' equity. The following table presents the recast quarterly data
for fiscal years 1995 and 1996 for the effect of applying this change
retroactively. (see quarterly reports filed on form 10-QSB for data previously
reported.)
<TABLE>
<CAPTION>
(000'S OMITTED) FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
- --------------------------------------------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
1995
Accumulated Deficit--Beginning of period $(11,524) $(12,166) $(12,968) $(13,558)
Accumulated Deficit--End of period................. (12,166) (12,968) (13,558) (15,207)
Stockholder's Equity (Deficit)..................... 2,410 1,642 1,086 (87)
Net Loss........................................... (642) (802) (590) (1,649)
Net Loss per share................................. $ (0.51) $ (0.61) $ (0.49) $ (1.15)
1996
Accumulated Deficit--Beginning of period $(15,207) $(16,087) $(17,089) $(18,387)
Accumulated Deficit--End of period................. (16,087) (17,089) (18,387) (20,265)
Stockholder's Equity............................... 5,780 4,825 3,527 1,808
Net Loss........................................... (880) (1,002) (1,298) (1,878)
Net Loss per share................................. $ (0.21) $ (0.16) $ (0.20) $ (0.31)
</TABLE>
Accumulated deficit and stockholders equity as of January 1, 1995
increased and decreased, respectively by $123,086. The net loss for first,
second, third and fourth quarters in 1995 increased by $31,554, $53,723,
$18,983, and $14,858, respectively or ($0.02 per share, $0.03 per share,
$0.01 per share and $0.01 per share, respectively). The net loss for first,
second, and third quarters in 1996 increased by $79,889, $160,619 and
$130,399, respectively or ($0.02 per share, $0.03 per share and $0.02 per
share, respectively).
17
<PAGE>
Exhibit 10.77
12/12/96
HelpMate Robotics Inc.
1996/1997 Vendor Marketing Program
Rental Program
A. November-January ($1,250,000) No conditions other than HelpMate
agreeing to Part B when conditions are met.
1. Lessor: Leasing Technologies International, Inc. (LTI)/Neptune
Technology Leasing Corp. (NepTech)
2. Lessee: HelpMate Robotics, Inc.
3. Equipment: HelpMate Robots on rent to hospitals acceptable to
Lessor, with assignment of underlying rental agreements and
monthly rentals directed to lockbox.
4. Purchase Price: $82,000 per Robot plus remarketing proceeds as
further defined below in #10.
5. Commitment Amount: Lessor commits to purchase 15 Robots for
$1,230,000 within 30 days subject to documentation. Remainder
of commitment subject to HelpMate's progress on implementing
vendor leasing program and search for new capital.
6. Additional Collateral: Lessee will pledge one additional Robot
for every one purchased. Cash flow on pledged collateral will
go to HelpMate unless there is an event of default on lease.
7. Maintenance, Insurance & Taxes: All maintenance, insurance,
taxes and all items of a similar nature will be the
responsibility of the Lessee. The lessee will cause physical
damage and liability insurance to be carried and maintained with
respect to the Equipment in such amounts and in such form as
required by the Lessor.
8. Documentation: As requested by Lessor.
9. Priority Remarketing: In the event a rental unit of Equipment is
not renewed or sold to the initial rental customer, Lessee will
take back and refurbish the equipment at its sole cost and
expense and proceed to remarket the Equipment to a new user under
terms reasonably acceptable to Lessor.
10. Residual Sharing: All user rentals and/or sales proceeds will be
remitted to Lessor until purchase price is repaid at 18%/annum
compounded monthly. Thereafter, all proceeds from equipment will
be shared 25/75 between Lessor and Lessee until Lessee receives
full Sales Price per Robot. Thereafter, proceeds shall be split
50/50 between Lessor and Lessee.
<PAGE>
HelpMate Robotics Inc. Page 2
B. 1997 Rental Programs: assumes 1) introductions of vendor leasing
program 2) commitment letter from third party for additional equity
in form and substance satisfactory to Lessor, 3) no material adverse
change in HelpMate.
1. Commitment Amount: $2,500,000 - $5,000,000 (at LTI/NepTech Option)
2. Purchase Price: 10% discount from Sales Price
3. Additional Collateral: None; negative pledge on assets.
4. Residual Sharing: All user rentals/sales proceeds will be
remitted to Lessor until purchase price is repaid at 16% p.a.
Thereafter proceeds will be split 40/60 Lessor/Lessee.
All other terms under A above remain the same.
II. Lease Program: Lessor and Lessee agree to begin immediately to structure
a comprehensive Rental/Lease/Sales Marketing Program for 1997 as follows,
Commitment amount: up to $10 MM.
A. Standard Lease Program
- FMV Option at lease termination
- Separate maintenance agreement with HelpMate for $500/month
- 50/50 residual share
Term: 36 Months 48 Months 60 Months
Purchase Price: $90,000 $90,000 $90,000
Monthly Rental: $ 2,925 $ 2,350 $ 2,000
Rate Factor: .0325 .0261 .0222
B. Metered Lease Program
- 12 hour minimum usage; $4/hour thereafter
- FMV at lease termination
- Separate maintenance agreement $500/month
- Lessor/Lessee split extra hourly charges and residuals 50/50
Term: 36 Months 48 Months 60 Months
Purchase Price: $60,000 $60,000 $60,000
Monthly Rental: $ 1,800 $ 1,600 $ 1,400
<PAGE>
HelpMate Robotics Inc. Page 3
Term: 36 Months 48 Months 60 Months
5 extra hours aver. $ 600 $ 600 $ 600
6 extra hours aver. $ 720 $ 720 $ 720
12 extra hours aver. $ 1,440 $ 1,440 $ 1,440
C. Flexible Rent Lease Program
- FMV
- Separate maintenance agreement $500/month
- 50/50 residual share
Purchase Price: Decided on each transaction as a multiple of monthly
rents, not to exceed $90,000.
36 Months 48 Months 60 Months
Multiple of Base 31 38 45
Monthly Rent
<PAGE>
Exhibit 11.1
<TABLE>
<CAPTION>
HELPMATE ROBOTICS INC.
CALCULATION OF NET LOSS PER
COMMON SHARE
----------------------------
<S> <C> <C>
YEAR YEAR
ENDED ENDED
PRIMARY EARNINGS PER SHARE 12/31/96 12/31/95
------------- -------------
Historical
Net Loss........................................................ $ (5,057,858) $ (3,683,274)
Preferred Dividends............................................. (57,147) (790,866)
------------- -------------
Net Loss Applicable to Common Shareholders...................... $ (5,115,005) $ (4,474,140)
------------- -------------
------------- -------------
Weighted Average Common Shares Outstanding...................... 5,844,084 1,585,249
Incremental Shares Issuable Pursuant to SAB Topic 4D............ 3,697 38,553
------------- -------------
Total Shares.................................................... 5,847,781 1,623,802
------------- -------------
------------- -------------
Historical Net Loss per Common Share............................ $ (0.88) $ (2.76)
------------- -------------
------------- -------------
</TABLE>
<PAGE>
Exhibit 11.2
<TABLE>
<CAPTION>
HELPMATE ROBOTICS INC.
CALCULATION OF NET LOSS PER COMMON
SHARE
-------------------------------------
YEAR
ENDED
SUPPLEMENTAL EARNINGS PER SHARE 12/31/96
---------------------------------------
<S> <C>
Historical
Net Loss Applicable to Common Shareholders........... $ (5,057,858)
----------------------
----------------------
Weighted Average Common Shares Outstanding........... 5,844,084
Incremental Shares Issuable Pursuant to SAB Topic
4D................................................. 3,697
Shares Applicable to Convertible Preferred Stock..... 153,847
----------------------
Total Shares......................................... 6,001,628
----------------------
----------------------
Historical Net Loss Per Common Share................. $ (0.84)
----------------------
----------------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 609,808
<SECURITIES> 0
<RECEIVABLES> 340,047
<ALLOWANCES> (60,000)
<INVENTORY> 1,554,674
<CURRENT-ASSETS> 2,517,529
<PP&E> 2,205,469
<DEPRECIATION> (2,144,965)
<TOTAL-ASSETS> 4,722,998
<CURRENT-LIABILITIES> 1,762,041
<BONDS> 0
0
0
<COMMON> 16,961,140
<OTHER-SE> (15,136,442)
<TOTAL-LIABILITY-AND-EQUITY> 4,722,998
<SALES> 1,160,373
<TOTAL-REVENUES> 2,617,077
<CGS> 739,573
<TOTAL-COSTS> 2,080,128
<OTHER-EXPENSES> 5,469,065
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 334,324
<INCOME-PRETAX> (5,057,858)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,057,858)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,057,858)
<EPS-PRIMARY> (.88)
<EPS-DILUTED> (.84)
</TABLE>