FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934)
For the transition period from ___________ to ____________
Commission File Number 1-14160
HelpMate Robotics Inc.
(Exact name of small business issuer 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
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(Address of principal executive offices)
(203) 798-8988
--------------
(Issuer's telephone number)
-----------------------------------------------------------------
(Former name, former address and formal fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes |_| No |_|
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the registrant's common stock as of May 6,
1998 is 12,045,719 shares.
Transitional Small Business Disclosure Format (Check One) Yes |_| No |X|
1
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HELPMATE ROBOTICS INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheet as of March 31, 1998 3
Condensed Statements of Operations for the three months
ended March 31, 1998 and 1997 4
Condensed Statements of Cash Flows for the three months
ended March 31, 1998 and 1997 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II. OTHER INFORMATION
Item 2. Changes in Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURE 16
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
HelpMate Robotics Inc.
Condensed
Balance Sheet (Unaudited)
March 31, 1998
<TABLE>
<S> <C>
Assets
Current assets:
Cash $ 518,653
Accounts receivable, net of allowance for doubtful accounts of $80,000 589,431
Inventory, net of reserve for obsolescence of $100,000 995,706
Other 43,926
------------
Total current assets 2,147,716
Installation costs, net of accumulated amortization of $742,917 217,867
Equipment leased to others, net of accumulated amortization of $1,018,412 1,281,615
Property and equipment, net of accumulated amortization of $760,117 386,940
Other assets 81,584
------------
$ 4,115,722
============
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 420,633
Accrued expenses 783,897
Accrued compensation and employee benefits 260,557
Current portion of notes payable 391,687
Deferred revenue 280,265
------------
Total current liabilities 2,137,039
------------
Deferred revenue, less current portion 191,140
------------
Notes payable, less current portion 2,229,533
------------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, no par value; 10,000,000 shares
authorized; 6,951,300 shares issued and outstanding 17,181,402
Capital surplus 5,174,839
Accumulated deficit (22,798,231)
------------
Total stockholders' deficit (441,990)
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$ 4,115,722
============
</TABLE>
See accompanying notes
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HelpMate Robotics Inc.
Condensed
Statements of Operations (Unaudited)
Three months ended March 31, 1998 and 1997
Three months ended March 31
1998 1997
---- ----
Revenues:
Sales revenues $ 57,547 $ 344,069
Rental revenues 651,250 317,747
Research and development contracts 111,177 154,536
---------------------------
Total revenues 819,974 816,352
---------------------------
Cost of revenues:
Cost of sales 18,362 190,900
Cost of rental revenues 463,214 193,289
Cost of research and development contracts 111,177 154,536
Vendor forgiveness of debt (53,795) --
---------------------------
Total costs of revenues 538,958 538,725
---------------------------
Gross profit 281,016 277,627
Selling, general and administrative expenses 508,139 834,720
---------------------------
Operating loss (227,123) (557,093)
Other Income (Expense):
Other income 3,349 23,002
Interest expense (78,381) (70,334)
Interest income 12,363 7,432
---------------------------
Net loss $ (289,792) $ (596,993)
===========================
Basic and diluted loss per share $ (0.04) $ (0.10)
===========================
Weighted average. number of shares of
common stock outstanding 6,856,325 6,288,507
===========================
See accompanying notes
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HelpMate Robotics Inc.
Statements of Cash Flows (Unaudited)
Condensed
Three months ended March 31, 1998 and 1997
Three months ended March 31
1998 1997
---- ----
Operating activities
Net loss $ (289,792) $ (596,993)
Adjustments to reconcile net loss to net cash
used by operating activities:
Interest -- 54,558
Compensation -- 30,362
Vendor debt forgiveness (53,795) --
Provision for doubtful accounts -- (10,000)
Depreciation and amortization 195,287 176,981
Changes in operating accounts:
(Increase) decrease in accounts receivable 17,986 (291,596)
(Increase) decrease in inventory (111,575) 76,042
(Increase) in other assets (27,762) (65,626)
Increase in accounts payable and accrued expenses 88,416 48,975
(Decrease) in deferred revenue (57,874) (23,002)
(Decrease) in customer advances -- (43,944)
-------------------------
Total adjustments 50,683 (47,250)
-------------------------
Net cash used by operating activities (239,109) (644,243)
-------------------------
Investing activities
Proceeds from sale of equipment leased to others -- 1,180,000
Installation costs (91,673) (78,077)
Equipment leased to others (5,803) (544,044)
Purchase of property and equipment -- (12,358)
-------------------------
Net cash provided by (used in) investing
activities (97,476) 545,521
-------------------------
Financing activities
Proceeds from issuance of notes 222,000 --
Proceeds from capital lease obligation -- 144,012
Repayments of notes payable (174,040) (144,659)
Proceeds from exercise of stock options -- 3,363
-------------------------
Net cash provided by financing activities 47,960 2,716
-------------------------
Net increase (decrease) in cash and cash
equivalents (288,625) (96,006)
Cash and cash equivalents at beginning of period 807,278 609,808
-------------------------
Cash and cash equivalents at end of period $ 518,653 $ 513,802
=========================
Supplemental non-cash financing activities:
Conversion of notes and accrued interest to
common stock $ 216,898 --
=========================
See accompanying notes
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HelpMate Robotics Inc.
Notes to Condensed Financial Statements (Unaudited)
March 31, 1998
Basis of Presentation
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(R) 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.
Historically, the Company 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 the
proceeds of Financed Rentals. The Company continues to actively seek additional
financing alternatives in order to strengthen its liquidity situation in the
short term. (See Management's Discussion and Analysis - Liquidity and Capital
Resources)
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Rule 310 of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments, consisting only of normal
recurring accruals, considered necessary for a fair presentation have been
included in the accompanying unaudited financial statements. Operating results
for the three-month period ended March 31, 1998 are not necessarily indicative
of the results that may be expected for the full year ending December 31, 1998.
For further information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-KSB for the year ended
December 31, 1997.
Financing and Restructuring and Financed Rental Transactions
In January 1998, the Company announced a series of steps directed at improving
its short-term liquidity and cash flow. (See Management's Decision and Analysis
- - Financing and Restructuring Transactions) In February 1997 and May 1997, the
Company entered into two Financed Rental transactions with Leasing Technologies
International Inc. ("LTI"). (See Management's Decision and Analysis - Financed
Rental Transactions)
Item 2. Management's Discussion and Analysis
General
The Company develops, manufacturers and markets mobile robotic systems, which
are distinguished by their ability to navigate autonomously without the need for
fixed tracks or guide wires. The Company accomplishes this by employing state of
the art sensor technology, wireless radio and proprietary software to the
guidance of battery-powered vehicles of its own design. So equipped, these
autonomous vehicles can navigate from point to point, avoid stationary and
moving obstacles (including people), make almost instantaneous stops when
necessary, summon elevators to travel between floors, announce their arrival at
destinations, signal closed doors to open, and maintain communications with a
centrally located computer.
The Company also continues to sell, on a limited basis, components of its
autonomous mobile robotics technology to universities and other research
facilities, and has licensed some of its technologies for use in floor cleaning
and automated prescription filling applications. The Company also engages in
research and development contracts in the area of mobile robotics technology.
6
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Liquidity and Capital Resources
As a result of disappointing performance in 1996, as described below, the
Company experienced a severe shortage of cash in 1997 and was forced to take
drastic actions to preserve the Company in the latter half of the year. These
actions resulted in a further reduction of staff and slowing of marketing and
manufacturing activity. During this retrenchment, however, the Company continued
to support existing customers and even increase installations of HelpMate
robots, drawing from materials and parts that were previously ordered and
received, to fill orders that had been previously booked.
The remaining backlog at March 31, 1998 is scheduled to be installed and
operational by mid year 1998. At that point, the Company expects to have
approximately 88 robots on rental in its US customer base, providing a stream of
on-going revenues. In addition, the Company expects to sell several robots and
to fill orders for component products and to complete and deliver the Two-Armed
Mobile Robot project under contract to NASA during the year. As of March 31,
1998 the Company is operating at slightly below a cash break-even level and
management believes that cash generated by these transactions, together with
available cash, will be sufficient to complete the installation of robots from
the backlog of orders existing as of March 31, 1998 and to sustain continuing
operations at their present level through 1998 with a positive cash balance at
year end.
The Company believes the opportunity to establish the HelpMate robot as a
flexible, cost-efficient and preferred method for transporting materials within
hospitals and other healthcare facilities remains significant. Although the
Company does not presently have specific plans to purchase parts for builds of
new HelpMate robots, the Company will continue to maintain a sales presence in
the marketplace and book orders in anticipation of another release of HelpMate
units for production. Therefore, while the Company's near-term objective is to
stabilize and enhance its business at the level of the current customer base, it
will actively pursue additional means of financing that would be necessary to
resume expansion of its original aggressive marketing plans.
Historically, the Company 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 the
proceeds of Financed Rentals.
The Company continues to actively seek additional financing alternatives in
order to strengthen its liquidity situation in the short term. 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
Financed Rental transactions similar in nature to that entered into with Leasing
Technologies International, Inc. ("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 in Financed Rental
transactions 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.
Initial Public Offering
The Company completed an initial public offering on January 31, 1996 and
received proceeds of approximately $6.1 million net of expenses. The Company
sold 1,449,918 units in the IPO 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 (the "Selling Bridge Securityholders") who provided
interim financing to the Company.
7
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Use of IPO Proceeds
At the time of the IPO, the Company had already embarked upon a plan to address
the perceived market potential for HelpMate robots by increasing the installed
base of HelpMate robots in hospitals: through its own sales and marketing
efforts in the United States; and through the efforts of its distributors, Otis
in Europe and Yaskawa in Asia. Prior to the IPO, in 1995, the Company had
contracted with the Bell & Howell Mailmobile Company for sales of HelpMates in
the southwestern United States, and embarked upon an expansive marketing and
public relations program to promote the HelpMate robot. Subsequent to the IPO,
during 1996, the Company hired and trained five salespersons in various regions
of the United States, contracted with an independent manufacturers
representative for sales of HelpMate in the greater New York City area, strongly
implemented its marketing and public relations program, increased its
manufacturing staff and support staff, and ordered parts in sufficient
quantities for production runs of HelpMate robots to fill orders that were
forecast by the Company to come from hospitals in the United States, and from
European hospitals as forecast by Otis. The agreement between the Company and
Yaskawa provides for Yaskawa to manufacture its own HelpMate robots. The Company
had also increased several on-going engineering programs to enhance HelpMate
product features, increase product reliability, and reduce manufacturing and
installation costs.
Events Subsequent to the IPO
By mid 1996, however, the receipt of new orders had not met the Company's
original estimates for that period. Otis had reduced its forecast of purchases
from 26 units to 6 units (and for fiscal 1996 only purchased 4 units), and the
Bell & Howell Mailmobile Company had produced no new orders for HelpMate robots
and consequentially the sales agreement with Bell & Howell was cancelled.
Although the sales force hired and trained by the Company started recording
orders from the US market for HelpMate robots at an average rate of six per
month beginning in September 1996 (which continued on into March of 1997), this
was approximately three months later than originally planned. Therefore, overall
orders through the first quarter of 1997 were lower than planned. More
importantly the mix of orders was heavily weighted towards rentals versus sales,
resulting in a slower replenishment of cash and driving the Company into a
critical cash shortage.
In light of the foregoing, the Company took actions during the fourth quarter of
1996 to conserve cash while maintaining its proactive development of the market.
Effective November 1, 1996, the Company terminated ten employees, nine senior
managers of the Company agreed to a combination of partial salary deferrals and
stock in lieu of cash compensation, the Company's Chairman agreed to a grace
period on outstanding loan obligations owed him, and the Company postponed
research and development on new products. In addition, the Company sought other
sources of working capital, notably from a sale and leaseback transaction which
had been proposed and is described below.
Financed Rental Transactions
In February 1997 and May 1997, the Company entered into two Financed Rental
transactions with LTI. Under these transactions, the Company and LTI entered
into Purchase, Security and Remarketing Agreement and a Master Lease Agreements
(the "Lease and Remarketing Agreements") for the sale and leaseback of fifteen
(February transaction) and nine (May transaction) of its robotic courier systems
which were under rent from the Company to hospitals across the United States
("sold units"). The total proceeds obtained from these transactions was
$2,040,000. As part of these transactions, 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 eighteen additional rental agreements for units
that were not sold to LTI ("collateral units"). The Lease and Remarketing
Agreements require 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. Commencing in the first quarter of
2000, 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 amount ($372,032 with respect to the February
transaction and $225,400 with respect to the May transaction) 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 is classified as
an operating lease in accordance
8
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with Statement of Financial Accounting Standards No. 13, "Accounting for
Leases". The aggregate book value and related depreciation of the sold units,
approximately $1,485,000 and $347,000, respectively, was removed from the
accounts and the aggregate gain realized on the sales of approximately $902,000
will be deferred and amortized over the term of the Lease and Remarketing
Agreements. The maintenance costs expected to be incurred for the sold units
during the lease term was accrued as of the date of the sale, amortized over the
term of the Lease and Remarketing Agreements and correspondingly reduce the gain
on the sale. Such costs are expected to approximate $204,000 thereby reducing
the gain to be deferred and amortized to approximately $698,000. 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 lease are payable monthly and approximate $526,000 (February
transaction) and $379,000 (May transaction) annually.
Downsizing
During the second half of 1997, the Company's financial condition deteriorated
and the Company experienced severe cash shortages. In July 1997, the Company's
President, Thomas K. Sweeny, made a short term demand loan to the Company in the
amount of $60,000. The Company was unable to make loan payments to CII and to
the Company's Chairman, Joseph F. Engelberger which amounted to $465,764 and
$176,402 respectively in outstanding principal and interest (as of March 31,
1998). Past due accounts payable climbed to approximately $1.1 million as of
November 1997. The Company was served an eviction notice by its landlord due to
non-payment of rent. Additionally, LTI had notified the Company in August 1997
that the Company was in technical default under the terms of its Master Lease
Agreement. The Company was also delisted by the Philadelphia Stock Exchange and
NASDAQ Small Cap Market tier of the NASDAQ Stock Market as a result of the
Company's inability to meet the applicable listing requirements.
In light of the foregoing, Company management implemented a plan to reduce
expenses even further and to work out accommodations with creditors and lenders
while seeking alternative sources of capital. Management believed that if
accommodations could be made with creditors and lenders, then the Company could
operate in a downsized configuration, funded with the revenue streams generated
by the current and future rentals and sales of its HelpMate robots while the
Company pursued alternatives for the long-term growth capital needs of the
business. Accordingly, a substantial downsizing of the Company was concluded in
the third quarter of fiscal 1997. The staff was reduced to 12 full-time and 2
part-time employees (from a high of 40 employees in mid 1996), taken from all
departments including sales and marketing, engineering, manufacturing and
administration. The Vice President of Engineering and the Vice President of
Sales and Marketing resigned and the remaining senior management of the Company
deferred a significant portion of their salaries. Sales and marketing activities
were limited to responding to inquiries, no industry trade shows were attended
and the remaining staff was dedicated to support of the installed base of robots
operating at customer sites. The Company relocated to smaller operational space
yet continued to build and install robots, albeit at a reduced rate, filling
orders from its existing backlog, and using materials and parts which had been
previously ordered and received. However, no new materials for robots were
ordered.
In November 1997, the Company reached agreement with the landlord to forestall
eviction and negotiated a new three year lease for the reduced space which the
Company currently occupies. The Company also resolved its technical default
issues with LTI such that it is in full compliance with the Master Lease
Agreement.
Financing and Restructuring Transactions
In January 1998, the Company announced a series of steps directed at improving
its short-term liquidity and cash flow. These included the receipt of certain
loans, the completion of a private placement of $1,350,000 in convertible notes,
the agreement by certain creditors to accept reduced cash payment in liquidation
of outstanding trade payables, and the agreement by certain creditors to convert
their loans, trade payables, and other obligations of the Company to them into
shares of common stock and warrants to purchase common stock. Staff has been
increased slightly to 18, including the rehiring of a sales manager, and salary
levels of the remaining management have been reinstated. To further reduce
costs, the Company changed its outside auditors to Arthur Andersen LLP.
9
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Private Placement. In February 1998, the Company concluded a private placement
(the "Private Placement") of $1,350,000 consisting of a Promissory Note ("Unit
Note") and a Warrant ("Unit Warrant"). Each Unit Note is in the principal amount
of $100,000 and bears interest at a rate of seven percent (7.00%) per annum
payable quarterly and comes due on October 1, 1998. Each Unit Note was
converted, effective April 16, 1998 into 303,030 shares of Common Stock ("Unit
Note Shares") at a rate of one (1) share of Common Stock for each $.33 of
principal indebtedness outstanding under the Unit Note. Each Unit Warrant was
exercisable for 100,000 shares of Common Stock ("Unit Warrant Shares") at an
exercise price of $.33 per share. All of the Unit Notes were converted into an
aggregate of 4,090,909 Unit Note Shares. All of the Unit Warrants are
exercisable for an aggregate of 1,350,000 Unit Warrant Shares.
In consideration for its services to the Company in connection with the Private
Placement, the Boston Group, LP will be issued a warrant expiring December 31,
2001 ("Boston Group Warrant") immediately exercisable to purchase up to
approximately 2,400,000 shares of Common Stock ("Boston Group Warrant Shares")
at an exercise price of $.33 per Boston Group Warrant Share. The number of
Boston Group Warrant Shares will be based upon, among other things, the gross
proceeds of the Private Placement, and the dollar amount of payables and other
creditor payments liquidated, including those to Messrs. Engelberger and Sweeny
and to Connecticut Innovations Inc. (" CII") described herein. In addition to
the Boston Group Warrant, the Company also paid the Boston Group, LP commissions
and a non-accountable expense allowance in connection with the Private Placement
in the amount of $191,000.
Loans and Loan Restructuring. In November 1997, the Company's Chairman and
director, Joseph F. Engelberger, (and a foundation established by Mr.
Engelberger), made a demand loan to the Company in the amount of $150,000. Mr.
Engelberger is the Company's co-founder, its Chairman, and a director. In
exchange for that loan, the Company issued two demand notes bearing interest at
a rate of fifteen percent (15%) per annum (collectively the "1997 Engelberger
Note"). In consideration for this loan, in January 1998, the Company issued to
Mr. Engelberger warrants expiring December 31, 2001 ("First Engelberger
Warrants") to purchase 25,000 shares of Common Stock at an exercise price of
$.33 per share. In January 1998, the 1997 Engelberger Note was converted into
467,424 shares of the Company's Common Stock at a rate of one share of Common
Stock for every $.33 of principal and interest outstanding under the 1997
Engelberger Note. In consideration of Mr. Engelberger's agreement to convert the
1997 Engelberger Note, the Company issued to Mr. Engelberger warrants expiring
December 31, 2001 ("Additional Engelberger Warrants") to purchase 154,250 shares
of Common Stock at an exercise price of $.33 per share.
As of March 31, 1998, the Company was also indebted to Mr. Engelberger in the
amount of $176,402 pursuant to a term note dated May 26, 1995 bearing interest
at a rate of 10% per annum ("1995 Engelberger Note"). The 1995 Engelberger Note
required payments of interest only for one year, and then equal payments of
principal and interest for 48 months, through June, 2000. In January 1998, the
Company and Mr. Engelberger agreed to convert the 1995 Engelberger Note into
Shares of the Company's Common Stock ("Engelberger Shares") so that the
outstanding indebtedness thereunder will be liquidated at the rate of one share
of Common Stock for each $.33 of indebtedness liquidated. In addition, the
Company has agreed to issue to Mr. Engelberger warrants expiring December 31,
2001 ("Second Engelberger Warrants") exercisable for shares of Common Stock at
an exercise price of $.33 per share for each dollar of indebtedness liquidated.
On April 16, 1998, Mr. Engelberger received an aggregate of 534,552 Engelberger
Shares and Second Engelberger Warrants to purchase an aggregate of 176,402
shares in exchange for the liquidation of $176,402 of principal and interest
outstanding as of that date.
In November, 1997, Brookehill Equities, Inc. ("Brookehill") made a demand loan
to the Company in the amount of $150,000, as evidenced by a note bearing
interest at a rate of fifteen percent (15%) per annum ("Brookehill Note"). The
Company has subsequently repaid this loan. In consideration of this loan, in
January 1998, the Company issued to Brookehill warrants expiring December 31,
2001 ("Brookehill Warrants") to purchase 25,000 shares ("Brookehill Warrant
Shares") of Common Stock at an exercise price of $.33 per share.
In July 1997, the Company's President and director, Thomas K. Sweeny, made a
demand loan to the Company in the amount of $60,000 evidenced by a note bearing
interest at a rate of eight and one-half percent (8.5%) per annum. In January
1998, that note plus accrued interest was converted into 189,845 shares of the
Company's Common Stock at a rate of one share of Common Stock for every $.33 of
principal and interest outstanding thereunder. In consideration of Mr. Sweeny's
agreement to convert that note, the Company issued to Mr. Sweeny warrants
expiring December 31, 2001 ("Sweeny Warrants") to purchase 62,649 shares
("Sweeny Warrant Shares") of Common Stock at an exercise price of $.33 per
share.
10
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Trade Payable Restructuring. In December 1997 and January 1998, the Company
entered into agreements with certain of its creditors pursuant to which each of
those creditors agreed to liquidate the Company's payables to such creditor in
exchange for shares of the Company's stock ("Creditor Shares") and warrants to
purchase the Company's stock ("Creditor Warrants"). The Creditor Shares were
issued on April 16, 1998 at the rate of one Creditor Share for each $.33 of
indebtedness liquidated. The Creditor Warrants were also issued at the rate of
one Creditor Warrant per dollar of indebtedness liquidated and will be
exercisable for shares of Common Stock ("Creditor Warrant Shares") The Company
issued to the creditors an aggregate of 468,958 Creditor Shares and Creditor
Warrants to purchase an aggregate of 154,756 Creditor Warrant Shares in exchange
for the liquidation of $154,756 of payables.
In December 1997 and January 1998, the Company completed transactions with other
creditors pursuant to which each of those creditors agreed to liquidate the
Company's payables to such creditors in exchange an immediate cash payment of a
portion of the payables. The Company used approximately $515,000 of the Private
Placement proceeds to make these payments and, as a result, liquidated
approximately $850,000 of the $1.1 million of past due payables outstanding as
of November 13, 1997.
CII Restructuring. In January 1998, the Company reached an agreement in
principle with CII, a security-holder and creditor of the Company, pursuant to
which CII has agreed to convert the Company's loan indebtedness and certain
accrued royalty payments to CII into shares of Common Stock and warrants to
purchase Common Stock, and to accept shares of Common Stock and warrants in lieu
of certain royalty payments which may come due during the calendar year 1998.
The Company's loan indebtedness to CII is evidenced by a note dated June 14,
1995 ("CII Note") bearing interest at a rate of 10% per annum. The CII Note
requires payments of interest only for one year, and then equal payments of
principal and interest for 48 months, through June, 2000, and is secured by a
security interest in all of the Company's intellectual property relating the
HelpMate in the North and South American markets. As of March 31, 1998, the
outstanding principal and interest due under the CII Loan was $465,764. Under
the CII loan agreements, the Company is also required, among other things, to
retain its principal place of business and a majority of its employees and
operations in the State of Connecticut ("Connecticut Presence Requirements")
until June, 2001.
The Company also has certain royalty obligations to CII under a Development
Agreement dated December 29, 1986, pursuant to which CII reimbursed the Company
for certain development costs related to the HelpMate robotics courier system
("Sponsored Products"). Under the Development Agreement, the Company must pay
royalties to CII equal to (i) a specified percentage ("Company Percentage Rate")
of the Company's net sales of Sponsored Products, (ii) fifty percent of license
fees paid to the Company under licenses granting to third parties the rights to
produce or sell the Sponsored Products, and (iii) fifty percent of any royalties
received by the Company on net sales of Sponsored Products by third-party
licensees of the Company. During the two-year period ending February 1998
("Reduced Royalty Term"), the Company Percentage Rate was equal to 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 more than
five percent of net sales of Sponsored Products). After February 1998, the
Company Percentage Rate increases to five percent of the Company's net sales of
Sponsored Products. Subject to the satisfaction of certain conditions, at the
expiration of the Reduced Royalty Term, the Company will be credited with an
additional $300,000 in royalty payments against the Royalty Threshold described
below. The Company must pay royalties at the rate described above until the
total royalties paid or credited have aggregated $2,205,000 ("Royalty
Threshold"). Once royalties paid or credited have reached the Royalty Threshold,
the Company must thereafter pay royalties for a period equal to the period of
time taken to reach the Royalty Threshold except that the Company Percentage
Rate during that period would be reduced to one-half of one percent. Royalties
payable only to the extent that sales and license fees are realized. Through
December 31, 1997, the Company has paid approximately $265,000 in royalties to
CII.
CII has agreed to convert the outstanding indebtedness under the CII Note and
royalty payments accrued under the Development Agreement through December 31,
1997 into shares of the Company's Common Stock and such amounts will be
liquidated at the rate of one share of Common Stock for each $.33 of
indebtedness and royalty liquidated. In addition, the Company will issue to CII
warrants expiring December 31, 2001 ("CII Warrants") exercisable for shares of
Common Stock at an exercise price of $.33 per CII Warrant Share for each dollar
of
11
<PAGE>
indebtedness and royalty liquidated. The number of CII Shares and CII Warrants
to be issued will be determined as of the date of conversion. By way of
illustration, if the CII Note and the December 31, 1997 accrued royalty were to
be so liquidated as of April 30, 1998, CII would be entitled to receive an
aggregate of 1,492,367 CII Shares and CII Warrants to purchase an aggregate of
492,481 shares of Common Stock. In lieu of cash payments of the royalties
accruing during the fiscal year ending December 31, 1998, CII has also agreed to
accept one share of Common Stock ("CII Royalty Shares") for each $.33 of
royalties required to be paid and warrants expiring December 31, 2001 ("CII
Royalty Warrants") to purchase one share of Common Stock at an exercise price of
$.33 per share for each dollar of royalties required to be paid.
As part of its agreement with CII the Company must agree to extend the
Connecticut Presence Requirements to a term ending ten years from the date of
closing. In the event the Company violates the Connecticut Presence
Requirements, CII can (a) demand immediate payment of the balance of the Royalty
Threshold; and (b) require the Company to repurchase its Company Securities. The
security interest previously granted to CII in the intellectual property
relating to HelpMate in the North and South American markets will be extended so
that it also secures the Company's obligations to make the royalty payments
under the Development Agreement. In addition, a representative of CII would
continue to have the right to attend meetings of the Company's board of
directors so long as CII owns shares of the Company's stock and the Company has
any outstanding obligations under the Development Agreement.
Registration Rights. None of the securities issued in the transactions above may
be resold to the public unless they are registered under the Securities Act of
1933, as amended or unless an exemption from such registration is available. The
Company agreed to use its diligent efforts to register the Unit Warrants, the
Unit Note Shares, the Unit Warrant Shares, the Boston Group Shares and the
Boston Group Warrants and the Boston Group Warrant Shares for public sale thirty
(30) days after the closing of the issuance of the Creditor Shares. The Company
has concluded that the interests of the Company and its shareholders would be
best served by not undertaking to so register these securities at this time.
Among the reasons for this decision are: (1) the anticipated expenses of the
registration process; (2) the diversion of management time and resources; (3)
the current market for the Company's common stock; and (4) the potential adverse
impact of a secondary offering on the Company's ability to obtain additional
sources of investment capital.
Amendment To Certificate of Incorporation. At the time the Company entered into
the transactions described under the heading "Finance and Restructuring
Transactions," the Company did not have sufficient authorized shares of Common
Stock under its certificate of incorporation to provide for the issuance of the
shares issuable upon conversion or exercise of certain of the securities issued
in connection with those transactions. The Company undertook to seek the
approval of the Company's stockholders of an amendment to the Company's
Certificate of Incorporation to provide additional authorized shares of Common
Stock. At the April 9, 1998 special meeting of stockholders, the Company's
stockholders voted to approve an amendment to the Company's certificate of
incorporation to increase the number of authorized shares of Common Stock from
10,000,000 to 40,000,000. On April 16, 1998, the Company filed an amendment to
its certificate of incorporation with the Connecticut Secretary of the State
increasing its authorized shares of Common Stock from 10,000,000 to 40,000,000.
Distribution Agreement. The Company has conducted its foreign marketing and
distribution program in Europe, the former Soviet Union, Africa and parts of the
Middle East, principally through Otis. In 1996 Otis purchased only 4 of the 26
HelpMate units it had originally forecast and it purchased only one unit in
1997. The Company has recently been informed that Otis is currently undergoing a
restructuring of its European marketing operations and does not plan to continue
marketing the HelpMate robot. Therefore, the Company has opened discussions with
Otis regarding the termination of its license agreement with Otis. In the event
of such termination, the Company has plans to support the installed HelpMate
robots in Europe until such time as an agreement can be reached with a new
strategic marketing partner for Europe.
Results of Operations
Revenues
Total revenues increased by $3,622 from the quarter ended March 31, 1997
compared to the quarter ended March 31, 1998. However, the revenue mix changed
dramatically. Rental revenue increased by $333,503 or 105% while sales revenues
decreased by $288,522 or 83%. Also, the Company earned revenues from research
and development contracts of $111,177.
12
<PAGE>
The increase in rental revenues is reflective of the Company's expanded fleet of
rental units which at March 31, 1998 was 76, a 25% increase from the 61 units
under rent at March 31, 1997. The decrease in sales revenues was attributable to
a decrease in sales of robotic components to universities and researchers around
the world. In the quarter ended March 31, 1997 there was the sale of one
HelpMate compared to the quarter ended March 31, 1998 where no HelpMates were
sold.
Cost of Revenues
Cost of revenues increased slightly from the quarter ended March 31, 1997
compared to the quarter ended March 31, 1998. The increase in cost of revenues
generally reflects the increase in rental revenues and decrease in sales
revenues discussed above.
Gross Profit
For the quarter ended March 31, 1998 gross profit remained approximately the
same as the quarter ended March 31, 1997. The increase in gross profit
percentage and dollars for the quarter reflects the Company's on-going strategy
to reduce costs associated with manufacturing and installing its HelpMate robots
coupled with the fact that several of the Company's rental units are now fully
depreciated.
Selling, General and Administrative Expenses
Selling, General and Administrative Expenses decreased by $406,581 or 49% from
the quarter ended March 31, 1997 compared to the quarter ended March 31, 1998.
The decrease reflects a significant reduction in staffing in all departments in
the Company's on-going efforts to control costs.
Interest Expense and Interest Income
Net interest expense increased $3,116 from the quarter ended March 31, 1997
compared to the quarter ended March 31, 1998. The Company's use of cash in
expanding its fleet of rental units should result in a decrease in the amount of
interest income earned.
Losses
The Company incurred a net loss from continuing operations of $289,792 and
$596,993 for each of the quarters ended March 31, 1998 and 1997 respectively.
These losses were sustained primarily because the Company has not achieved the
volume and mix of sales and rentals of HelpMates required to cover the overhead
expenses associated with the commercialization of its HelpMate systems. Although
the decrease in staffing and sales and marketing expenses have reduced losses in
fiscal 1997 and the first quarter of 1998, 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).
Earnings (Loss) Per Share
Earnings (loss) per share of common stock for the quarter ended March 31, 1998
and 1997 was ($0.04) and ($0.10), respectively. Basic and diluted earnings
(loss) per common share is computed according to SFAS 128 which was adopted in
1997. It is 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 have been
included in the computations of earnings per share for all periods unless their
inclusion would be antidilutive.
Other
During the second quarter of 1997, the Company was notified by the Philadelphia
Stock Exchange that the Company's stock had been delisted due to a failure to
meet the requirements for net worth and minimum stock price. Further, the
Company has been notified by the Nasdaq the Company's stock had been delisted
for failure to meet the minimum bid price and net worth requirements.
13
<PAGE>
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 carry forwards of approximately $19.2
million at December 31, 1997 expire during the years 1999 through 2012. 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 carry
forwards 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.
Forward Looking Statements
Statements made in this report regarding (a) the projection of revenues, income,
earning per share, capital expenditures, dividends or other financial items, (b)
the plans and objectives of management for the Company's future operations, (c)
the future economic performance of the Company, and (d) statements regarding the
assumptions underlying or relating to the foregoing items are forward-looking
statements. Forward-looking statements are contained in this report, including
under the sections entitled "Management's Discussion and Analysis - Liquidity
and Capital Resources -- Losses; and -- Other." There are important factors that
could cause the actual results to differ materially from those in the
forward-looking statements. These important factors include the following: (a)
if the mix of robot rentals versus sales changes; (b) if there are substantial
returns of robots currently on rental or if the Company is unable to place
returned robots with new customers; (c) if there is a substantial reduction in
the aggregate number of hours for which robots are rented; (d) if existing
orders in backlog are canceled; (e) if the Company's own order/installation
forecast changes; (f) if the actions and measures described under the heading
"Management's Discussion and Analysis -- Financing and Restructuring
Transactions" are not sufficient to ensure that operations will continue
throughout 1998; (g) if the Company's financial condition negatively impacts the
Company's reputation in the marketplace and consequently negatively impacts
order receipts; (h) if the Company is unable in the foreseeable future to secure
additional financing; and (i) if the Company's distribution agreement with Otis
is terminated and the Company is unable to reach an agreement with a new
strategic marketing partner in Europe.
14
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities
As described in Item 4, the Company's shareholders voted to approve an amendment
to the Company's certificate of incorporation in order to increase the number of
authorized shares of Common Stock from 10,000,000 to 40,000,000 shares. On April
16, 1998, the Company filed an amendment to its certificate of incorporation
with the Connecticut Secretary of the State increasing its authorized shares of
Common Stock from 10,000,000 to 40,000,000.
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
On April 9, 1998, a special meeting of the Company's shareholders was held to
consider a proposal to amend the Company's certificate of incorporation in order
to increase the number of authorized shares of Common Stock from 10,000,000 to
40,000,000 shares. The proposal was approved by the Company's shareholders at
the special meeting. The number of votes cast for the proposal was 5,285,294;
the number of votes cast against or withheld with respect to the proposal was
38,499; the number of abstentions with respect to the proposal was 11,850; and
there were no broker non-votes with respect to the proposal.
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
A Form 8-K was filed on January 27, 1998 (as amended on January 30, 1998)
reporting a change in auditors from Ernst & Young LLP to Arthur Andersen LLP. On
February 20, 1998 a Form 8-K was filed describing financing and related
transactions.
NO. DESCRIPTION OF EXHIBIT
- --- ----------------------
3.03 Amendment to the Certificate of Incorporation
15
<PAGE>
SIGNATURES
In accordance with requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned , thereunto duly
authorized.
HelpMate Robotics Inc.
Date: May 14, 1998 /s/ Joseph F. Engelberger
--------------------------
Joseph F. Engelberger,
Chairman and Director
Date: May 14, 1998 /s/ Thomas K. Sweeny
--------------------
Thomas K. Sweeny,
President, and Chief Executive Officer,
Director, Treasurer and Principal
Financial Officer
Exhibit 3.03
HELPMATE ROBOTICS INC.
CERTIFICATE AMENDING CERTIFICATE OF INCORPORATION
BY ACTION OF BOARD OF DIRECTORS AND SHAREHOLDERS
1. The name of the Corporation is HelpMate Robotics Inc.
2. The Certificate of Incorporation of the Corporation is amended pursuant to
Section 33-797 of the Connecticut General Statutes, by the following resolution
recommended by the Board of Directors and adopted by the shareholders of the
Corporation:
"RESOLVED: That Article 3 of the Certificate of Incorporation of
the Corporation is hereby amended to read in its
entirety as follows:
'3. The authorized capital stock of the Corporation shall
consist of forty million (40,000,000) shares of common
stock without par value.'"
3. The date of adoption of the amendment to the Certificate of Incorporation was
April 9, 1998.
4. The vote of the shareholders of the Corporation in favor of the amendment to
the Certificate of Incorporation was asfollows:
Voting Shares Votes Entitled Votes Indisputably Undisputed Votes
Group Outstanding To Be Cast Represented At Meeting Favoring Amendment
- ----- ----------- ---------- ---------------------- ------------------
Common
Stock 6,951,300 6,951,300 5,335,643 5,285,294
5. The number of votes cast in favor of the amendment to the Certificate of
Incorporation by the holders of the common stock of the Corporation was
sufficient for approval by such voting group.
Dated: April 16, 1998.
/s/Thomas K.Sweeny
Thomas K. Sweeny, President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Helpmate
Robotics Inc. First Quarter 1998 Financial Statements and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 518,653
<SECURITIES> 0
<RECEIVABLES> 649,431
<ALLOWANCES> (80,000)
<INVENTORY> 995,706
<CURRENT-ASSETS> 2,147,716
<PP&E> 4,407,868
<DEPRECIATION> (2,521,446)
<TOTAL-ASSETS> 4,115,722
<CURRENT-LIABILITIES> 2,137,039
<BONDS> 0
0
0
<COMMON> 17,191,402
<OTHER-SE> (17,623,392)
<TOTAL-LIABILITY-AND-EQUITY> 4,115,722
<SALES> 57,547
<TOTAL-REVENUES> 819,974
<CGS> 18,362
<TOTAL-COSTS> 538,958
<OTHER-EXPENSES> 508,139
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (78,381)
<INCOME-PRETAX> (289,792)
<INCOME-TAX> 0
<INCOME-CONTINUING> (289,792)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (289,792)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
