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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
--- SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
TRANSITION REPORT UNDER 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 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:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None
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
--- ---
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 $3,647,509, during the fiscal year ended
December 31, 1997.
The aggregate market value of the voting stock held by non-affiliates as of
March 17, 1997 was approximately $1,544,000.
The number of shares outstanding of the registrant's common stock as of March
11, 1997 is 6,951,300 shares.
Documents incorporated by reference: None
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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
commercial applications for autonomous robotic products with the HelpMate(R)
robotic courier, the flagship product of the Company, becoming its namesake.
Company Technology
The Company develops, manufactures 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.
HelpMate(R) - the Flagship Product
The Company's flagship product is the HelpMate(R) robotic courier, an
intelligent, self-navigating, battery- powered robot which is used for
automated materials transport. The HelpMate is approximately 4 1/2 feet tall
by 2 1/2 feet square, weighs over six hundred pounds, has a payload capacity
of approximately six cubic feet and can be dispatched by users from an
ATM-like screen and keyboard located on its back control panel. HelpMate
development began in 1987, and, following extensive testing at Danbury
Hospital in Connecticut, the first HelpMate became operational there in 1991.
152 HelpMates had been shipped as of December 31, 1997.
HelpMate Market Introduction
Potentially applicable in many industries and markets, the institutional
hospital market was chosen as the first market for HelpMate due its need for
constant, around-the-clock transport at a time when major cost reductions and
improved efficiencies continue to be urgently sought.
Transportation throughout a hospital is a significant component of overall
operating cost. It encompasses patient transport as well as the routine
delivery of large items such as meal carts, trash carts, laundry carts,
stretchers and wheel chairs. Also is the less noticed but more numerous small
deliveries, so-called
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"unit loads", which may be considered merely errands but can represent fully
one quarter of all materials movement within a hospital. Common examples of
this include delivery of medications, retrieval of lab specimens, re-supply
of out of stock items, and deliveries of special or late meal trays resulting
from dietary changes, patient transfers and new or late admissions, which can
amount to 10 percent of all meals delivered in the hospital. Another typical
situation is in hospital departments such as pharmacies and central supply
areas where delivery needs on second and third shifts are complicated by the
presence of only a single staff member who cannot leave to make needed
deliveries.
Some hospitals maintain a transportation department with human couriers
dedicated to this task. This is not an insignificant undertaking however,
since full coverage with just one person for three shifts a day, 365 days a
year, requires over five and a half (5 1/2) full time equivalents (FTEs) when
weekends, holidays, vacations and sick time are considered. And while these
deliveries may be assigned to unskilled, low wage workers, they are always
managed by, and often shared with, high skilled personnel who would otherwise
be engaged in either department management, critical patient care, or both.
Again, independent studies cite significant amounts of nurse's time spent on
deliveries and running errands as a detriment to patient care.
The HelpMate is offered to hospitals as an automation solution to the
transport problem which is both cheaper and more reliable than the use of
humans for these low value yet necessary, "fetch and carry" tasks. HelpMate
is available at lower capital cost and can be installed faster and with less
disruption than alternative automation systems such as conveyors,
dumbwaiters, pneumatic tubes or automated guided vehicles. These other
systems have various inherent limitations such as payload size, fixed routes
(horizontal or vertical only), maintenance accessibility, etc. that restrict
their application to only certain types of transport. By comparison to
HelpMate, they are all deficient in the areas of cost, installation and
overall flexibility, in that they require extensive permanent modifications
to be made to the facility for installation of ductwork, tubes, tracks and
guide path systems in ceilings, walls and floors, making them not only more
expensive to install but also considerably more difficult to modify in the
event of changing materials delivery requirements.
The overall market potential for HelpMate robots in United States hospitals
alone is estimated to be 10,000 robots, based on a formula of one robot for
every 100 beds in the nation's 2,000 largest hospitals. The Company believes
the European and Asian markets to be equally as large.
HelpMate Pricing and Acquisition
HelpMates may be purchased, rented or, most recently, leased. List price of a
basic HelpMate robotic system, complete with standard peripheral equipment,
is $105,000. Various peripheral equipment and options can increase this
amount upwards to $140,000 when installation costs are included. The Company
also offers annual maintenance contracts priced according to the list price
of the HelpMate equipment. Based upon current wage rates, the Company
estimates that hospitals can achieve a payback on the purchase of a HelpMate
system in nine to twenty-four months, depending on the number of hours the
system is operated and the efficiency of its utilization.
The Company has depended upon a rental program for a large percentage
(approximately 78%) of its initial placements in the United States. The
rental arrangement is attractive to hospitals because the base rental rates
for HelpMates, which range from $7.00 per hour for the minimum 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.
Additional peripheral equipment adds to these basic hourly charges
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without measurably impacting perceived economic advantage to the customer.
Maintenance is included in the rental charge.
The Company considers the rental approach essential to the introduction of
HelpMate, providing a necessary stimulus to early market development by
removing the need for a financial decision and commitment prior to evaluation
and acceptance of such a revolutionary new product It also facilitates
decision-making at lower levels within the hospital's management. The term of
the rental agreement is short, typically one year, with a one month
cancellation provision. Domestic sales of HelpMate systems have often been
made to those end-users who previously had rented a HelpMate robot. Purchase
of a rental HelpMate robot is encouraged with a discount based on prior
months rent.
The Company wrote its first HelpMate lease in late 1997 by converting an
existing rental customer to a four year lease complete with a separate
service contract for the same period. As market acceptance increases, the
Company anticipates greater demand for acquisition of HelpMates by lease.
HelpMate Market Status
Within the United States, HelpMates may be found in use across the country in
some 30 different states. HelpMates have been accepted for transport service
in scheduled and unscheduled trips in hospitals, carrying all types of unit
loads including medications, lab samples, supplies, radiology films, late
meal trays, and medical records between departments and nursing stations on
the floors. HelpMates are found dedicated exclusively to certain departments
and/or shared amongst several departments; in service as single units or more
recently, as multiple units in a small fleet.
As of December 31, 1997, the Company had placed a total of 152 HelpMates,
including 93 at hospitals in the United States, 31 in Japan through a
distributor and 10 at customers in Europe through a distributor. Of the 152
total units, 79 have been sold and 73 are being rented. During 1997, 8
HelpMate robots that were out on rental were returned for various reasons
including shut down of a facility and changeover to a pneumatic tube for
specialized department transportation requirements. These robots have since
been redeployed and as of December 31, 1997, the Company had a firm backlog
of 16 orders for additional rental units which are presently being installed.
Company Financing
The Company's capital requirements in connection with the continuing
development and commercialization of the HelpMate robot have been
significant, and have been funded principally through private investment, the
Company's 1996 initial public offering, and certain financing transactions
whereby the Company has assigned the rental stream from rental robots in
exchange for lump sum payments ("Financed Rentals").
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Operationally, the Company's cash balance and overall profitability are
highly dependent upon the mix of HelpMate robot rentals to robot sales. From
the sale of a basic HelpMate robotic system for $105,000, the Company
achieves a gross margin of approximately 40% (at current volume and design
levels), which is received immediately upon completion of installation. The
rental program yields an average annual revenue to the Company of $30,000 per
robot net of approximately $6,000 in maintenance expense. However, with a
rented robot, it currently takes approximately 18 months for the Company to
recoup production and installation costs. Thus with a high mix of rentals,
the Company is not able to sustain growth without continuing outside
financing, although, as market acceptance increases, the Company anticipates
being able to negotiate longer term rental and lease contracts with its
customers such that these agreements may be used as collateral for additional
working capital financing.
As described below, the Company was compelled during late 1996 and 1997 to
take steps, resulting in a significant down-sizing of the Company and
reduction of its sales and marketing efforts, in order to reduce expenses and
conserve cash. (See "Management's Discussions and Analysis -- Events
Subsequent to the IPO; and --Downsizing".) In January, 1998 the Company
announced a series of steps directed at improving its short-term liquidity.
These included 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.
The Company's near-term objective is to stabilize it's business at the level
of its current customer base while seeking additional financing necessary to
resume expansion of its original marketing plans. (See "Management's
Discussion and Analysis -- General").
Distribution Methods
The Company's strategy has been to reserve the US market for itself and enter
the European and Asian markets through other distributors, licensees or
strategic partners who would invest in the Company in exchange for marketing
rights to those areas and who would either purchase HelpMate robots directly
from the Company or manufacture HelpMate robots themselves and pay royalties
to the Company.
The Company's domestic sales and marketing activity focuses principally on
the North American hospital market for the HelpMate. The Company handles all
marketing activity directly from its Danbury, Connecticut location. The
Company's sales and marketing staff currently consists of two full time
people (the director of marketing and one regional sales manager), one
part-time sales person and an independent manufacturers representative for
the Greater New York City area. 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.
The Company has conducted its foreign marketing and distribution program
principally through sales to two foreign distributors. 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 ("Otis") 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 ("Yaskawa"), to manufacture and distribute HelpMate and
other of its products in Japan and other Asian countries. The Company has
recently been informed that Otis is currently undergoing a restructuring of
its European marketing operations and does not plan to
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continue marketing the HelpMate robot. See "Management's Discussion and
Analysis -- Financing and Restructuring Transactions: Distribution Agreement."
Competitive Business Conditions
The Company believes its HelpMate robotics systems currently have no direct
competition other than human beings against which the HelpMate robot provides
a lower cost and superior service. The Company has not experienced any
resistance from organized labor and continues to believe that a HelpMate can
be used to the benefit of all job labor categories within the organization.
While the Company also believes the HelpMate system technology provides a
lower cost and flexible alternative to large fixed automation systems such as
automatic conveyors, dumbwaiters, pneumatic tubes, and track-guided systems
such as automated guided vehicles, the Company also recognizes that
manufacturers of these systems have greater sales and marketing resources to
bring to bear on the available market.
In addition, other major robotics manufacturers who may have significantly
greater financial, technical and marketing resources than the Company could
enter the market in which the Company competes and prove to be more effective
in selling alternative systems. 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.
Raw Materials and 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. 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.
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 any transition
to a higher volume building program.
Patents and Technology
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, wireless radio,
network communication, navigation software and supervisory capabilities. The
Company has obtained 14 United States patents related to such technology to
date.
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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(R)
and Labmate(R), a component of the Company's autonomous robotics navigation
technology sold to universities, laboratories and other research facilities.
Licenses
In addition to its licenses with Otis and Yaskawa, the Company has licensed
certain of its intellectual property regarding navigation and control systems
for use in various floor care equipment to Electrolux.
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 "Management's Discussions and Analysis -- Financing and Restructuring
Transactions: CII Restructuring."
Research and Development
Since its inception the Company has engaged in research and development in
the areas of service robotics and robotics technology applications. The
Company has performed this work under contract to various government agencies
and industrial clients. Generally the Company has retained commercial
development rights to certain of the technologies and has, in some instances,
subsequently invested its own funds to supplement the development of a
commercial product. These research and development contracts have also
enabled the Company to allocate a portion of the cost of Company overhead and
technical resources used in maintaining its existing HelpMate product line.
The Company intends to continue 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. The Company
may incur unfunded expenses in soliciting such research and development
contracts.
The Company also has engaged in internally funded research and development
activities related to the development and enhancement of its HelpMate
systems. In 1997 and 1996, the Company spent $571,688 and $1,030,735
primarily on research and development in connection with HelpMate and
$308,700 and $155,380, respectively, in connection with other projects,
including its contract research and development activities.
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Backlog
As of December 31, 1997, the Company had orders to rent an additional 16
HelpMate robotics systems, a decrease of 10 units in backlog compared to
December 31, 1996. This decrease was attributable to the decrease in sales
staff during the Company's downsizing. See "Management's Discussion and
Analysis --Events Subsequent to the IPO and Downsizing". It is anticipated
that these systems and robots will be placed in service during 1998, most of
them by mid year. In addition, the Company estimates that, as of December 31,
1997, it had a backlog of approximately $50,000 with respect to orders to
purchase components for certain of its research products.
Employees
As of December 31, 1997, the Company had twelve employees on a full-time
basis and two employees on a part-time basis. The Company has since added
back six full-time employees and reduced part-time employees to one; the
additions being to the sales, engineering, administration, and manufacturing
departments.
Item 2: Properties
The Company leases a facility in Danbury, Connecticut with 22,951 square feet
from Shelter Rock Business Center pursuant to a lease which expires in
February 2001. Rent for the premises is $15,625 per month and includes
amounts for taxes and outside maintenance. The lease does not contain any
renewal option. The Company subleases approximately half of this space to
tenants at the same rental rate, charged pro rata on the basis of square
footage. These tenant leases are on a month to month basis and the Company
may expand into this space with minimum notice if and when it needs to do so
to support increased production. The Company 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 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.
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Subsequently, during 1997 the Company's shares of Common Stock and Warrants
were delisted from the Nasdaq SmallCap Market tier of the Nasdaq Stock Market
and the Philadelphia Stock Exchange for failure to meet the capital, surplus
and bid price requirements. The Company's Common Stock and Warrants are
currently traded on the Nasdaq Bulletin Board. A recent last sales price for
the shares of Common Stock as reported on the Nasdaq Bulletin Board was $.34
on March 17, 1998.
The following table sets forth the high and low sales price of the Company's
Common Stock, as reported on the Nasdaq Small Cap Market (prior to September
29, 1997) and on the Nasdaq Bulletin Board (thereafter).
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Quarter ended March 31, 1997 $1.50 $0.75
Quarter ended June 30, 1997 1.03 0.78
Quarter ended September 30, 1997 0.94 0.31
Quarter ended December 31, 1997 0.67 0.27
</TABLE>
Holders
The Company estimates that as of March 18, 1998, there were approximately 1,200
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 CII the Company agreed that for a period
expiring June 2001, 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
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 December 31, 1997 is scheduled to be installed and
operational by mid year 1998. At that point, the Company will have 88 robots
on rental in its US customer base, providing a stream of on-going revenues.
In addition, the Company expects to fill orders for component products and to
complete and deliver the Two-Armed Mobile Robot project under contract to
NASA during the year. The Company believes these revenues, together with
available cash, will be sufficient to sustain continuing operations at their
present level throughout 1998 with a positive cash balance by the end of the
year.
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.
Liquidity and Capital Resources
As of March 31, 1998, the Company is operating at slightly below a cash
break-even level and management believes that at the Company's current level
of operations, it will have sufficient cash to maintain operations throughout
1998 and to complete the installation of robots from the backlog of orders
existing as of March 31, 1998.
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
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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. Immediately
prior to the closing of the initial public offering, all outstanding shares
of preferred stock of the Company were converted into common stock, certain
convertible notes issued to the Selling Bridge Securityholders in the
original principal amount of $800,000 were converted into 196,622 units, the
Company's certificate of incorporation was amended to increase the authorized
common stock of the Company to 10,000,000 shares, the Company's certificate
of incorporation was amended to eliminate the class of preferred stock, and a
4.93599 - to - 1 stock split with respect to common stock was effected.
Accordingly, all common share amounts were restated to give effect to the
4.93599 - to - 1 stock split.
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
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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 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.
11
<PAGE>
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 $454,545 and $171,862 respectively in outstanding principal and
interest (as of January 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.
12
<PAGE>
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 is convertible 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
will be immediately exercisable for 100,000 shares of Common Stock ("Unit
Warrant Shares") at an exercise price of $.33 per share. All of the Unit
Notes will be 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. By their terms, however, the Unit Notes will not be converted
into Unit Note Shares and the Unit Warrants will not be effective nor
exercisable for Unit Warrant Shares unless and until the Amendment
Effectiveness (as defined below) occurs.
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 determined as of the date
the Amendment Effectiveness occurs and 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 CII described herein. By its terms, the Boston
Group Warrant will not be effective nor exercisable for the Boston Group
Warrant Shares unless and until the Amendment Effectiveness occurs. 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 $189,000.
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.
The Company is also indebted to Mr. Engelberger 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
13
<PAGE>
Common Stock at an exercise price of $.33 per share for each dollar of
indebtedness liquidated. The number of Engelberger Shares and Second
Engelberger Warrants to be issued in exchange for the liquidation of this
indebtedness will be determined as of the date of conversion based upon the
outstanding balance under the Second Engelberger Note. By way of
illustration, if the Second Engelberger Note were to be liquidated as of
April 30, 1998, Mr. Engelberger would be entitled to receive an aggregate of
536,448 Engelberger Shares and Second Engelberger Warrants to purchase an
aggregate of 177,028 shares in exchange for the liquidation of $177,028 of
principal and interest outstanding as of that date.
The 1995 Engelberger Note will not be converted, the Engelberger Shares will
not be issued, and by their terms the First Engelberger Warrants, the
Additional Engelberger Warrants, and the Second Engelberger Warrants will not
be effective nor exercisable for shares of the Company's Common Stock
("Engelberger Warrant Shares") unless and until the Amendment Effectiveness
(as defined below) occurs.
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. By
their terms, the Brookehill Warrants will not be effective nor exercisable
for the Brookehill Warrant Shares unless and until the Amendment
Effectiveness occurs.
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 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. By their terms, the Sweeny Warrants will not be effective nor
exercisable for shares of the Sweeny Warrant Shares unless and until the
Amendment Effectiveness occurs.
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 will be issued at the rate of one Creditor Share for each
$.33 of indebtedness liquidated. The Creditor Warrants will be 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 proposes to issue 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. The
Creditor Shares and Creditor Warrants will not be issued, and by their terms,
the Creditor Warrants will not be effective nor exercisable for the Creditor
Warrant Shares unless and until the Amendment Effectiveness occurs.
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
14
<PAGE>
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 January 31, 1998, the
outstanding principal and interest due under the CII Loan was $454,545. 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 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
15
<PAGE>
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. The CII Shares and the CII Royalty Shares will not be issued, and
by their terms, the CII Warrants and CII Royalty Warrants will not be
effective nor exercisable for shares of the Company's Common Stock (the "CII
Warrant Shares") unless and until the Amendment Effectiveness occurs.
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. Upon the Amendment Effectiveness, the Company has 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.
Amendment Effectiveness. The Company does not have sufficient shares
available to provide for the issuance of the Unit Note Shares, Unit Warrant
Shares, Engelberger Note Shares, Engelberger Warrant Shares, Sweeny Warrant
Shares, Creditor Shares, Creditor Warrant Shares, CII Shares, CII Royalty
Shares, CII Warrant Shares and the Boston Group Warrant Shares (collectively,
the "Contingent Shares") and the Company agreed to seek the approval of the
Company's stockholders of an amendment to the Company's Certificate of
Incorporation to provide additional authorized shares for issuance of the
Contingent Shares. At the April 9, 1998 special meeting of shareholders, the
Company's shareholders 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. The Company intends to file the
certificate of amendment shortly. Upon the filing of the certificate of
amendment (the "Amendment Effectiveness"), the Company will have sufficient
shares to provide for the issuance of the Contingent Shares.
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
16
<PAGE>
HelpMate robots in Europe until such time as an agreement can be reached with
a new strategic marketing partner for Europe.
Revenues
Total revenues increased by $1,030,432 or 39% from the year ended December
31, 1996 compared to the year ended December 31, 1997. Rental revenues
increased by $800,551 or 62% and sales revenues increased by $95,730 or 8%.
Also, net revenues from research and development contracts increased by
$134,150 or 77%. The increase in rental revenues is reflective of the
Company's expanded fleet of rental units which at December 31, 1997 was 73, a
50% increase from the 32 units under rent at December 31, 1996.
Cost of Revenues
Cost of revenues increased by $53,178 or 3% from the year ended December 31,
1996, compared to the year ended December 31, 1997. Cost of Research and
Development increased by $153,320 or 99% the year ended December 31, 1996,
compared to the year ended December 31, 1997. Overall, cost of revenues has
decreased as a percentage of revenues, which reflects the Company's ongoing
efforts to reduce the cost associated with manufacturing and installing its
HelpMate robots. These costs are partially offset by an increase in
depreciation and amortization of the Company's rental units and related
installation costs, which were attributable to the increase in the rental
fleet discussed above. In addition, the Company increased its reserve for
inventory obsolescence by $50,000 during the second quarter of 1997 to
reflect current economic conditions.
Gross Profit
Gross profit increased by 182% or $977,254 from the year ended December 31,
1996 compared to the year ended December 31, 1997. The increase in gross
profit percentage and dollars 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 $1,930,811 or 35%
from the year ended December 31, 1996, compared to the year ended December
31, 1997. The decrease reflects a significant reduction in staffing in all
departments. In addition, the Company increased its allowance for doubtful
accounts by $40,000 during the second quarter to reflect the larger customer
base. The Company also incurred $63,351 and $45,938 of non cash compensation
expense in 1997 and 1996 respectively, reflecting the issuance of stock
options at a price below fair market value.
Interest Expense and Interest Income
Interest expense, net of interest income increased by $43,294 or 22% from the
year ended December 31, 1996, compared to the year ended December 31, 1997.
The increase in net interest expense is reflective of an increase in
financing obligations and a decrease in interest income earned. As the
Company has continued to use available cash for expanding its fleet of rental
units interest income decreased $121,130 or 90% from the year ended December
31, 1996, compared to the year ended December 31, 1997.
17
<PAGE>
Losses
The Company incurred a net loss from continuing operations of $2,243,471and
$5,115,005 for each of the years ended December 31, 1997 and 1996,
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
expense have reduced losses during fiscal 1997, 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, 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 years ended December 31,
1997 and 1996 was ($0.36) and ($0.88), respectively. Basic and diluted
earnings (loss) per common share is computed according to FASB 123 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 anti-dilutive.
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.
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
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<PAGE>
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 "Description
of Business -- Company Financing; --Distribution Methods; and -- Research and
Development," "Properties," "Management's Discussion and Analysis --General;
- -- 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 Company's stockholders do not approve, or the Company is
unable to file, an amendment to the Company's certificate of incorporation to
increase the authorized number of shares of stock to permit the issuance of
additional shares of stock, including the Contingent Shares; (g) 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; (h) if the Company's
financial condition negatively impacts the Company's reputation in the
marketplace and consequently negatively impacts order receipts; (i) if the
Company is unable in the foreseeable future to secure additional financing;
and (j) 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.
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
In order to reduce its auditing expenses, on January 21, 1998, the Company
appointed Arthur Andersen LLP ("Arthur Andersen") as auditors for the fiscal
year ended December 31, 1997 and terminated the appointment of Ernst & Young
LLP ("Ernst & Young") as its auditors for that year. Ernst & Young had
audited the Company's financial statements since 1985.The reports of Ernst &
Young on the financial statements of the Company as of December 31, 1996 and
1995 did not contain an adverse opinion or a disclaimer of opinion, or was
qualified or modified as to uncertainty, audit scope or accounting
principles. In connection with the audits of the Company's financial
statements for each of the two years ended December 31, 1996 and in the
subsequent interim period, there were no disagreements with Ernst & Young on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope and procedures, which disagreements, if not
resolved to the satisfaction of Ernst &Young would have caused it to make
reference to the subject matter of the disagreement in their reports. The
decision to change accountants must be approved by the Company's Board of
Directors.
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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:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Name Age Position
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Joseph F. Engelberger 72 Chairman and Director
- ----------------------------------------------------------------------------------------
Thomas K. Sweeny 60 President, Chief Executive Officer, Treasurer and
Director
- ----------------------------------------------------------------------------------------
John F. Barry 45 Director
- ----------------------------------------------------------------------------------------
Joseph G. Cote 56 Director
- ----------------------------------------------------------------------------------------
Theodore Sall 71 Director
- ----------------------------------------------------------------------------------------
Sheldon Sandler 53 Director
- ----------------------------------------------------------------------------------------
</TABLE>
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
20
<PAGE>
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.
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 six years. Mr. Barry currently
serves as a director of Prospect Street High Income Shares and Skyline
Multimedia Company.
Mr. Cote has been a Director of the Company since August 1997. Mr. Cote is
currently co-president and chief operating officer of Prospect Street
Ventures, a position he has held since 1989.
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.
Board of Directors - General
The Board of Directors held four meetings in 1997. 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 1997 with the
exception of Mr. Barry, who did not attend three Board meetings.
Compensation
The Company does not pay any additional remuneration to employees serving as
directors nor does it pay any such remuneration to non-employee directors.
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 once in 1997, 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, and Sandler as
the members of the Audit Committee. There is currently a vacancy on this
Committee.
21
<PAGE>
Compensation Committee. The Compensation Committee, which met three times in
1997, 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 and Sall as the members of the
Compensation Committee.
Stock Option Committee. The Stock Option Committee is responsible for
administering the Company's 1984, 1988 and 1995 Stock Option Plans. The board
has appointed Mr. Barry to the Stock Option Committee. There is currently a
vacancy on this Committee.
Compliance with Section 16(a) of the Exchange Act:
Mr. Engelberger did not file reports as required by Section 16(a) of the
Exchange Act ("Section 16 Reports") by February 15, 1998 with respect to the
grant by the Company of options to purchase 30,000 shares of common stock at
an exercise price of $1.31 per share granted on March 7, 1997 and of options
to purchase 25,000 shares of common stock at an exercise price of $.20 per
share granted on May 20, 1997. Mr. Sweeny did not file Section 16 Reports by
February 15, 1998 with respect to the grant by the Company of options to
purchase 30,000 shares of common stock at an exercise price of $1.31 per
share granted on March 7, 1997 and of options to purchase, 28,125 shares of
common stock at an exercise price of $.20 per share granted on May 20, 1997.
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, 1997 exceeded $100,000.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Securities Underlying
Name and Position Fiscal Year Salary Options
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Joseph F. Engelberger 1997 $100,000 55,000
Chairman of the Board 1996 100,000 0
1995 113,333 32,345
- ---------------------------------------------------------------------------
Thomas K. Sweeny 1997 $150,000 58,125
President/Chief 1996 $150,000 0
Executive Officer 1995 $ 37,500 24,680
- ---------------------------------------------------------------------------
Fred Cordano 1997 103,000 22,745
Director of 1996 101,750 0
Manufacturing 1995 98,000 805
- ---------------------------------------------------------------------------
</TABLE>
The Company has entered into employment agreements with Messrs. Engelberger and
Sweeny. Each of these agreements contains noncompetition, nondisclosure and
noninterference provisions.
22
<PAGE>
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 fifty percent of normal working hours and, effective April 1,
1998, receives an annual salary of $75,000. 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
twelve months notice, it must continue to compensate Mr. Engelberger through
the twelve-month period.
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.
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 Acquired Number of Securities
Upon Exercise of Underlying Unexercised Value of Unexercised in the
Options During Options at money Options at
Fiscal 1997 December 31, 1997 December 31, 1997
------------------- ------------------------------ -----------------------------
Number Value Exercisable Unexerciseable Exercisable Unexerciseable
------ ------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Joseph F. Engelberger 0 $0 44,329 33,949 13,058 0
Thomas K. Sweeny 0 $0 37,997 44,808 11,476 0
Fred Cordano 0 $0 23,659 15,000 3,848 0
</TABLE>
Item 11 Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information based upon the Company's records
and Securities and Exchange Commission filings with respect to each executive
officer, each director and each person known to be a beneficial owner of more
than 5% of the Common Stock of the Corporation and all officers and directors
as a group as of March 17, 1998. Under the rules and regulations of the
Securities and Exchange Commission, a person is deemed to own beneficially
all securities of which that person owns or shares voting or investment power
as well as all securities which may be acquired through the exercise of
currently available conversion, warrant or option rights. Unless otherwise
indicated, each such person possesses sole voting and investment power with
respect to the shares owned by him.
23
<PAGE>
<TABLE>
<CAPTION> Shares
Beneficially Percent
Beneficial Owner Address Owned Ownership
- ----------------- --------- --------------- ---------
<S> <C> <C> <C>
Connecticut Financial c/o Prospect Street Connecticut Capital Inc. 1,014,188 14.59%
Developments, LP 250 Park Avenue, 17th Floor
New York, NY 10177
Transitions Two c/o Landmark Partners Inc. 467,593 6.67%
Limited Partnership (1) 760 Hopmeadow Street
Simsbury, CT 06070
Joseph F. Engelberger(2) HelpMate Robotics Inc. 1,179,075 16.52%
Shelter Rock Lane
Danbury, CT 06810
Thomas K. Sweeny (3) HelpMate Robotics Inc. 397,186 5.67%
Shelter Rock Lane
Danbury, CT 06810
John F. Barry (4) Prospect Street Connecticut Capital Inc. 0 0
250 Park Avenue, 17th Floor
New York, NY 10177
Joseph G. Cote (4) Prospect Street Connecticut Capital Inc. 0 0
Exchange Place, 37th Floor
Boston, MA 02109
Theodore Sall(5) 47 Lake View Drive 13,000 (6)
Old Tappan, NJ 07675
Sheldon Sandler (4)(5) Ladenburg, Thalmann & Co., Inc. 10,000 (6)
590 Madison Avenue
New York, NY 10022
All Directors and Officers as 1,602,825 22.25%
a Group (2)(3)(5)
</TABLE>
- -------------
(1) Includes warrants to purchase 57,326 shares 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 311,616 shares owned
by the Joseph F. Engelberger Foundation. Also includes warrants to
purchase125,226 shares, and options to purchase 59,709 shares, each of which is
currently exercisable. Does not include the First Engelberger Warrants,
Additional Engelberger Warrants, Second Engelberger Warrants or Engelberger
Shares described under the heading "Management's Discussion and Analysis --
Financing and Restructuring Transactions."
(3) Includes options to purchase
47,869 shares. Does not include the Sweeny Warrants described under the heading
"Management's Discussion and Analysis -- Financing and Restructuring
Transactions."
(4) Does not include shares beneficially owned by these
individuals' employers, Prospect Street Connecticut Capital Inc., and Ladenburg,
Thalmann & Co., Inc.
(5) Includes options to purchase 10,000 shares owned by
such person.
(6) Less than one percent.
24
<PAGE>
Effect on Beneficial Ownership. In the event that the Amendment Effectiveness
occurs on or before April 30, 1998, the 1995 Engelberger Note, the CII Note and
December 31, 1997 accrued royalty to CII were to be liquidated as described
above as of April 30, 1998, and no other applicable changes in beneficial
ownership occur (other than the vesting of previously granted options), and
after giving effect to the anti-dilutive provisions of outstanding options and
warrants as a result of the foregoing, the following table sets forth the number
of shares which would be beneficially owned by the persons and group listed in
the beneficial ownership table above, and by each person known to the Company
who would become a beneficial owner of more than 5% of the Common Stock of the
Company as of April 30, 1998:
<TABLE>
<CAPTION>
Shares to be Percent
Beneficial Owner Beneficially Owned Ownership
---------------- ------------------ ---------
<S> <C> <C>
Connecticut Financial Developments, LP 1,014,188 7.46%
Transitions Two Limited Partnership (1) 467,593 3.43%
Robert Gault (2) 806,060 5.85%
Gabriel Kaplan (3) 1,209,090 8.71%
The Boston Group, LP (4) 2,406,731 15.05%
Connecticut Innovations, Incorporated (5) 2,300,150 16.09%
Joseph F. Engelberger(6) 2,052,801 14.55%
Thomas K. Sweeny (7) 465,835 3.40%
John F. Barry (8) 0 0%
Joseph G. Cote (8) 0 0%
Theodore Sall(9) 13,000 (10)
Sheldon Sandler (8)(9) 10,000 (10)
All Directors and Officers as a Group (6)(7)(9) 2,454,200 17.87%
</TABLE>
- -------------
(1) Includes warrants to purchase 123,752 shares.
(2) Includes warrants to purchase 200,000 shares. This owner's address is 91
Shelby Street, Eminence, KY 40019.
(3) Includes warrants to purchase 300,000 shares. This owner's address is 9551
Hidden Valley Road, Beverly Hills, CA 90210.
(4) Consists of warrants to purchase 2,406,731 shares. This owner's address is
545 Madison Avenue, 14th Floor, New York, NY 10022.
(5) Includes warrants to purchase 710,611 shares. This owner's address is 999
West Street, Rocky Hill, CT 06067. Includes CII Royalty Shares and CII Royalty
Warrants estimated issuable through April 30, 1998.
(6) 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 311,616 shares owned
by the Joseph F. Engelberger Foundation. Also includes warrants to purchase
456,504 shares, and options to purchase 65,709 shares.
(7) Includes options to purchase 53,869 shares and warrants to purchase 62,649
shares.
(8) Does not include shares beneficially owned by these individuals' employers,
Prospect Street Connecticut Capital Inc., and Ladenburg, Thalmann & Co., Inc.
(9) Includes options to purchase 10,000 shares owned by such person.
25
<PAGE>
(10) Less than one percent.
Item 12: Certain Relationships and Related Transactions
For a description of certain transactions between the Company and its Chairman
and President during the two most recent fiscal years, see "Management's
Discussion and Analysis -- Financing and Restructuring Transactions."
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, he is currently entitled a commission 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, 1997 and 1996 was $47,534 and $79,000, 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.
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
1997.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Audited Financial Statements:
Report of Independent Public Accountants for the year ended December 31, 1997......................1
Report of Independent Auditors for the year ended December 31, 1996................................2
Balance sheet at December 31, 1997.................................................................3
Statements of operations for the years ended December 31, 1997 and 1996............................4
Statements of stockholders' equity (deficit) for the years ended
December 31, 1997 and 1996.......................................................................5
Statements of cash flows for the years ended December 31, 1997 and 1996............................6
Notes to Financial Statements......................................................................7
</TABLE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NO. DESCRIPTION OF EXHIBIT
- ---- ----------------------
<S> <C>
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
</TABLE>
26
<PAGE>
<TABLE>
<S> <C>
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
4.08 Form of Convertible Note from 1997-1998 Private Placement
4.09 Form of Warrant from the 1997-1998 Private Placement
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.
10.20* 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.
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.
10.26* 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.
10.30* 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").
10.44* 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.
</TABLE>
27
<PAGE>
<TABLE>
<S> <C>
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.
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 Amended and Restated 1995 Stock Option Plan. (Incorporated by
reference to Annex 1 attached to the Company's definitive proxy
statement for the 1997 Annual Meeting of Stockholders)
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)
</TABLE>
28
<PAGE>
<TABLE>
<S> <C>
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. (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.
10.78 Purchase, Security and Remarketing Agreement with Leasing Technologies
International, Inc. dated as of May 5, 1997.(Incorporated by reference
to Form 10-QSB filed May 8, 1997, Exhibit 10.78)
10.79 Equipment Schedules No. 08 through No. 10. To Master Lease Agreement
with Leasing Technologies International, Inc. dated as of January 23,
1997.(Incorporated by reference to Form 10-QSB filed May 8, 1997,
Exhibit 10.79)
10.80 Stock Subscription Warrant dated May 5, 1997, issued to Leasing
Technologies International for 98,182 shares of the Registrant's Common
Stock, expiring May 4, 2006. (Incorporated by reference to Form 10- QSB
filed May 8, 1997, Exhibit 10.80)
27.1 Financial Data Schedule for the year ended December 31, 1997
</TABLE>
* Incorporated by reference to Form SB2 Number 33-99348 filed January 31, 1996
under the same exhibit number as filed therein.
29
<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
--------------------
Thomas K. Sweeny,
President and Chief Executive Officer,
Treasurer and Principal Financial Officer Date April 10, 1998
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
-------------------------
Joseph F. Engelberger,
Chairman and Director Date April 10, 1998
By: /s/ Thomas K. Sweeny
--------------------
Thomas K. Sweeny,
President and Chief Executive Officer,
Director, Treasurer, Principal Financial Officer
and Principal Accounting officer Date April 10, 1998
By: /s/ Theodore Sall
----------------
Theodore Sall, Director Date April 10, 1998
/s/ Sheldon Sandler
By -------------------------
Sheldon Sandler, Director Date April 10, 1998
By: /s/ Joseph G. Cote
-------------------
Joseph G. Cote, Director Date April 10, 1998
By: /s/ John F. Barry
-----------------
John F. Barry, Director Date April 10, 1998
30
<PAGE>
Report of Independent Public Accountants
To the Board of Directors and Stockholders of
HelpMate Robotics Inc.:
We have audited the accompanying balance sheet of HelpMate Robotics Inc. (a
Connecticut corporation) as of December 31, 1997, and the related statements
of operations, stockholders' equity (deficit) and cash flows for the year
then ended. 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 audit. The financial statements of HelpMate
Robotics Inc. as of December 31, 1996, were audited by other auditors whose
report dated March 7, 1997 expressed an unqualified opinion on those
statements.
We conducted our audit 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 audit provides 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, 1997, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Hartford, Connecticut
March 23, 1998 (except with respect to the matter discussed in Note 13, as to
which the date is April 9, 1998)
1
<PAGE>
Report of Independent Auditors
To the Board of Directors and Stockholders of
HelpMate Robotics Inc.:
We have audited the accompanying statement of operations, stockholders'
equity and cash flows of HelpMate Robotics Inc. for the year 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 audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly,
in all material aspects, the results of operations and cash flows of HelpMate
Robotics Inc. for the year ended December 31, 1996.
Ernst & Young LLP
Stamford, Connecticut
March 7, 1997
2
<PAGE>
HelpMate Robotics Inc.
Balance Sheet
As of December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 807,278
Accounts receivable, net of allowance for doubtful accounts of $80,000 607,417
Inventory, net of reserve for obsolescence of $100,000 884,131
Other 16,165
--------------------
Total current assets 2,314,991
Installation costs net of accumulated amoritzation of $699,255 199,570
Equipment leased to others, net (Note 3) 1,369,802
Property and equipment, net (Note 3) 414,861
Other assets 81,584
--------------------
$ 4,380,808
====================
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 538,766
Accrued expenses 687,654
Accrued compensation and employee benefits 270,449
Current portion of notes payable (Note 7) 468,217
Deferred revenue (Note 4) 217,836
--------------------
Total current liabilities 2,182,922
--------------------
Deferred revenue, less current portion (Note 4) 251,938
--------------------
Notes payable, less current portion (Note 7) 2,315,044
--------------------
Commitments and contingencies (Notes 6, 12 and 13)
Stockholders' equity (deficit) (Note 9):
Common stock, no par value; 10,000,000 shares authorized; 6,294,031
shares issued and outstanding 16,964,504
Capital surplus 5,174,839
Accumulated deficit (22,508,439)
--------------------
Total stockholders' deficit (369,096)
--------------------
$ 4,380,808
====================
</TABLE>
The accompanying notes are an integral part of this financial statement.
3
<PAGE>
HelpMate Robotics Inc.
Statements of Operations
For theYears Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Revenues:
Sales revenues $ 1,256,104 $ 1,160,373
Rental revenues 2,082,705 1,282,154
Research and development contracts 308,700 174,550
----------- -----------
Total revenues 3,647,509 2,617,077
----------- -----------
Cost of revenues:
Cost of sales 764,565 739,573
Cost of rentals 1,259,036 1,185,175
Cost of research and development contracts 308,700 155,380
Vendor forgiveness of debt (Note 6) (198,995) -
----------- -----------
Total costs of revenues 2,133,306 2,080,128
----------- -----------
Gross profit 1,514,203 536,949
Selling, general and administrative 3,538,254 5,469,065
----------- -----------
Operating loss (2,024,051) (4,932,116)
Other income (expense):
Interest expense (256,488) (334,324)
Interest income 12,864 133,994
Other income 24,204 74,588
------------ -----------
Loss before preferred stock dividends (2,243,471) (5,057,858)
Preferred stock dividends paid - 57,147
------------ -----------
Net loss applicable to common stock $(2,243,471) $(5,115,005)
------------ -----------
------------ -----------
Basic and diluted per share amounts:
Net loss applicable to common stock $ (0.36) $ (0.88)
------------ -----------
------------ -----------
Weighted average number of shares of common stock
outstanding 6,292,650 5,847,781
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
HelpMate Robotics Inc.
Statements of Stockholders' Equity (Deficit)
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Series A
Convertible
Preferred Stock Common Stock Capital Surplus
--------------- ------------ ---------------
<S> <C> <C> <C>
Balance at December 31, 1995 $ 7,057,400 $ 2,729,178 $5,349,735
Preferred stock dividends paid -- -- (57,147)
Cancellation of treasury stock -- -- (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 --
Issuance of common stock (38,400 shares) in
consideration of obligation to chairman -- 120,000 --
Issuance of common stock (2,505,992 shares)
net of expenses -- 6 ,093,441 --
Issuance of common stock in consideration of
amendment to 1986 development agreement
(50,000 shares) -- 156,250 --
Redemption of common stock (34,552 shares)
issued for rent -- -- (210,000)
Exercise of stock options (16,155 shares) -- 4,871 --
Issuance of stock options below fair market value -- -- 45,938
Net loss -- -- --
--------------- ------------ ---------------
Balance at December 31, 1996 -- 16,961,140 5,112,226
Exercise of stock options (5,524 shares) -- 3,364 --
Issuance of stock options below fair market value -- -- 62,613
Net loss -- -- --
--------------- ------------ ---------------
Balance at December 31, 1997 -- $ 16,964,504 $5,174,839
--------------- ------------ ---------------
--------------- ------------ ---------------
</TABLE>
<TABLE>
<CAPTION>
Accumulated Treasury
Deficit Stock Total
------------- ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1995 $(15,207,110) $(16,300) $(87,097)
Preferred stock dividends paid -- -- (57,147)
Cancellation of treasury stock -- 16,300 --
Conversion of preferred stock (71,438 shares)
into common stock (1,604,409 shares) -- -- --
Conversion of promissory notes payable
into common stock (393,844 shares) -- -- 800,000
Issuance of common stock (38,400 shares) in
consideration of obligation to chairman -- -- 120,000
Issuance of common stock (2,505,992 shares)
net of expenses -- -- 6,093,441
Issuance of common stock in consideration of
amendment to 1986 development agreement
(50,000 shares) -- -- 156,250
Redemption of common stock (34,552 shares)
issued for rent -- -- (210,000)
Exercise of stock options (16,155 shares) -- -- 4,871
Issuance of stock options below fair market value -- -- 45,938
Net loss (5,057,858) -- (5,057,858)
------------- ------------ ------------
Balance at December 31, 1996 (20,264,968) -- 1,808,398
Exercise of stock options (5,524 shares) -- -- 3,364
Issuance of stock options below fair market value -- -- 62,613
Net loss (2,243,471) -- (2,243,471)
------------- ------------ ------------
Balance at December 31, 1997 $(22,508,439) -- $(369,096)
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
HelpMate Robotics Inc.
Statements of Cash Flows
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Operating activities:
Net loss $ (2,243,471) $ (5,057,858)
Adjustments to reconcile net loss to net cash used in operating
activities:
Interest - 249,974
Royalty - 156,250
Compensation 62,613 45,938
Vendor debt forgiveness (198,995) -
Provision for doubtful accounts 20,000 71,355
Provision for inventory obsolescence 50,000 -
Depreciation and amortization 735,057 982,202
Other - 44,547
Changes in operating accounts:
(Increase) decrease in accounts receivable (287,370) 22,917
(Increase) decrease in inventory 620,543 (289,718)
(Increase) decrease in other assets (3,164) 14,460
(Decrease) increase in accounts payable and accrued expenses 273,807 507,325
(Decrease) increase in customer advances (36,830) (83,083)
(Decrease) increase in deferred revenue (258,759) -
------------- -------------
Net cash used in operating activities (1,266,569) (3,335,691)
------------- -------------
Investing activities:
Sale of equipment leased to others 1,958,416 -
Installation costs (260,407) (385,597)
Equipment leased to others (1,351,832) (1,174,038)
Purchase of property and equipment (8,382) (352,234)
------------- -------------
Net cash provided by (used in) investing activities 337,795 (1,911,869)
------------- -------------
Financing activities:
Proceeds from issuance of notes payable 1,557,012 -
Repayments of notes payable (434,132) (393,549)
Proceeds from exercise of stock options 3,364 4,871
Redemption of common stock issued for rent - (210,000)
Proceeds from issuance of common stock, net of expenses - 6,093,441
Preferred stock dividends paid - (57,147)
------------- -------------
Net cash provided by financing activities 1,126,244 5,437,616
------------- -------------
Net increase in cash and cash equivalents 197,470 190,056
Cash at beginning of year 609,808 419,752
------------- -------------
Cash at end of year $ 807,278 $ 609,808
------------- -------------
------------- -------------
Supplemental information:
Cash interest paid $62,900 $ 84,350
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
HelpMate Robotics Inc.
Notes to Financial Statements
December 31, 1997 and 1996
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(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. 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 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.
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 $127,000 and $284,000 for
the years ended December 31, 1997 and 1996, respectively.
7
<PAGE>
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. As of December 31, 1997, the
Company's cash and cash equivalents are deposited with one financial
institution.
Inventory
Inventory is stated at the lower of cost (first-in first-out method) or market
and is evaluated periodically to determine whether a reserve for obsolescence is
required.
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 $114,225 and $98,530 for the years ended December 31,
1997 and 1996, 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 $366,063 and
$736,335 for the years ended December 31, 1997 and 1996, respectively. The total
of guaranteed future minimal rentals on equipment leased to others at December
31, 1997 was $147,000, which consists of $102,000 in 1998 and $45,000 in 1999.
Installation Costs
The Company incurs certain direct expenses associated with the installation of
its equipment leased to others. Such costs are amortized over the initial term
of the lease in accordance with the generally accepted accounting principles
prescribed for leases. Amortization expense for installation costs was $254,769
and $147,337 for the years ended December 31, 1997 and 1996, respectively.
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.
8
<PAGE>
Earnings Per Share and Supplemental Net Loss per Share
The Company has adopted the provisions of Statement of Financial Accounting
Standards No.128 "Earnings Per Share"("SFAS 128") effective December 31, 1997.
SFAS 128 established new standards for computing and presenting earnings per
share. Under SFAS 128, earnings per share is computed both under the basic and
dilutive methods. Basic earnings per share is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding; dilutive earnings per share is computed by giving effect to all
dilutive potential common share equivalents that were outstanding during the
period. Dilutive common share equivalents include stock options and warrants.
The adoption of SFAS 128 did not have a material impact on the Company's
earnings per share.
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 $62,613 and $45,938 for stock options granted below fair market value
has been recorded in the years ended December 31, 1997 and 1996, respectively.
Fair Value of Financial Instruments
Cash, Accounts Receivable and Long-Term Debt - The carrying amount reported in
the balance sheet for these accounts approximate their fair value.
Accounts Payable - The carrying amount reported in the balance sheet for this
account approximates fair value except for subsequent vendor forgiveness
described in Note 6.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109").This
statement requires the Company to recognize deferred tax liabilities and assets
for the expected future tax consequences of events that have been recognized in
the Company's financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference between the
financial statement carrying amounts and the tax basis of the assets and
liabilities and the net operating loss carryforwards available for tax reporting
purposes, using applicable tax rates for the years in which the differences are
expected to reverse.
Recently Issued Accounting Standards
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130") which
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. The adoption
of SFAS 130 in 1998 is not expected to have a material impact on the Company's
results of operations or financial position.
2. Inventory
Inventory is comprised of the following at December 31, 1997:
<TABLE>
<S> <C>
Raw materials $ 190,963
Work in process 271,705
Finished goods 521,463
-----------
984,131
Reserve for obsolescence (100,000)
-----------
$ 884,131
-----------
-----------
</TABLE>
9
<PAGE>
3. Equipment Leased to Others and Property and Equipment
Equipment leased to others and property and equipment is comprised of the
following at December 31, 1997:
<TABLE>
<S> <C>
Equipment leased to others $2,320,977
Less accumulated depreciation and amoritzation (951,175)
-----------
Equipment leased to others, net $ 1,369,802
-----------
-----------
Furniture and fixtures $ 90,843
Machinery and equipment 1,029,957
Leasehold improvements 26,292
-----------
1,147,092
Less accumulated depreciation and amoritzation (732,231)
-----------
Property and equipment, net $ 414,861
-----------
-----------
</TABLE>
4. Sale and Leaseback Transactions
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 were under rent from the Company to hospitals
across the United States ("sold units"). The total proceeds obtained from
this transaction were $1,230,000. As part of the transaction, the Company
assigned all of its rights, 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 net book value of these collateral units at December 31, 1997 is
approximately $293,000. 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 is 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, was removed from the accounts and the gain realized
on the sale of approximately $614,000 was 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 were accrued as of
the date of the sale and 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 was made, as the Company's historical experience demonstrates
that units do not cease being rented. Payments under the Master Lease
Agreement payable monthly, commenced in March, 1997 and approximate $526,000
annually.
Further on May 5, 1997, the Company entered into another Purchase, Security
and Remarketing Agreement and a Master Lease Agreement with LTI for the sale
and leaseback of nine 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 this transaction were $810,000. As part of the
transaction, the Company assigned all of its rights, title and interest in
the underlying rental agreements for the sold units and granted a security
interest in three additional rental agreements for units that were not sold
to LTI ("collateral units"), and issued to LTI 98,182 warrants to purchase
the Company's common stock at $1.2375. The net book value of these collateral
units at December 31, 1997 is approximately $56,000. The warrants expire on
May 4, 2006.
10
<PAGE>
Sale and Leaseback Transactions (continued)
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 (32
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 $225,400 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 with Statement of Financial Accounting
Standards No. 13, "Accounting for Leases". The book value and related
depreciation of the sold units, approximately $548,000 and $26,000,
respectively, was removed from the accounts and the gain realized on the sale
of approximately $288,000 was deferred and amortized over the term of the
Master Lease Agreement, 32 months. The maintenance costs expected to be
incurred for the sold units during the lease term were 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 $46,000 thereby reducing the gain to be deferred and amortized to
approximately $242,000. No provision for the refurbishment of the sold units
was made, as the Company's historical experience demonstrates that units do
not cease being rented. Payments under the Master Lease Agreement are payable
monthly, commenced in June, 1997 and approximate $379,000 annually.
5. 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 9) 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.
6. Vendor Forgiveness of Debt
During the fourth quarter of 1997, the Company reached agreements with a
majority of its vendors to accept common stock and warrants or a reduced cash
payment (first $1,000 plus 30% of the outstanding balance) for the amounts
owed to them at September 30, 1997. Agreements for common stock and warrants
are discussed in Note 13. As a result of agreements received with vendors
during 1997 to accept reduced cash payments, the Company realized a gain of
$198,995 in 1997. These reduced cash payments were made during 1997.
Additional agreements reached with vendors during 1998 are expected to result
in an additional gain of approximately $168,000. Payments on agreements
reached during 1998 have not be made at December 31, 1997, and related
amounts due are recorded in accounts payable.
11
<PAGE>
7. Notes Payable
Notes Payable is comprised of the following at December 31, 1997:
<TABLE>
<S> <C>
Secured notes payable to Center Capital
at rates ranging from 15% to 17.5% $ 52,253
Secured notes payable at 10% to 15% 977,860
Secured notes payable to HTLP at 24% 625,148
Notes payable at 7% 1,128,000
---------
2,783,261
Less current portion (468,217)
---------
$2,315,044
---------
---------
</TABLE>
Maturities of notes payable are $468,217 in 1998, $322,455 in 1999 and
$66,999 in 2000. See Note 13 regarding the conversion of certain of these
debts into equity subsequent to December 31, 1997.
During the period August-December 1995, the Company assigned the operating
leases for four HelpMate(R) 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 only 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 161,616
shares of Common Stock at an exercise price of $1.24 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 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
12
<PAGE>
Notes Payable (continued)
the Loan Agreement in the form of a promissory note and subsequently in
conjunction with the Company's initial public offering (see Note 9) 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 64,647 shares of Common
Stock at an exercise price of $1.24 per share, which expire on May 25, 2005.
The Loan Agreement relieves the Company of any previous obligations with its
Chairman. Beginning in November 1996, the Company received, from its
Chairman, permission to delay the repayment schedule on this loan.
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. Beginning in November 1996, the Company received, from CII, permission
to delay the repayment schedule on this loan.
See Note 13 regarding the conversion of certain of these debts into equity
subsequent to December 31, 1997. These amounts have been classified as
non-current liabilities at December 31, 1997.
8. Income Taxes
Significant components of the Company's deferred tax assets as of December 31,
1997 are as follows:
<TABLE>
<S> <C>
Net operating loss carryforwards $ 7,692,322
Allowance for doubtful accounts 32,000
Reserve for inventory obsolescence 40,000
Compensation expense 56,830
Vacation accrual 51,350
Equipment leased to others 247,320
Other 128,474
-----------
Total deferred tax assets 8,501,085
Valuation allowance for deferred tax assets (8,501,085)
-----------
Amount recognized in the financial statements $ -
-----------
-----------
</TABLE>
The valuation allowance increased by approximately $1,300,000 during the year
ended December 31, 1997 primarily to fully reserve the net operating loss
generated during the year.
At December 31, 1997, the Company had net operating loss carryforwards for
federal tax purposes of approximately $19,200,000 which expire from 1999
through 2012. 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.
9. Stockholders' Equity (Deficit)
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 5). The Company received proceeds of
approximately $6.1 million, net of expenses of approximately $1.7 million and
13
<PAGE>
Initial Public Offering (continued)
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.
The Company's Units, Common Stock and Warrants were quoted on the Nasdaq
SmallCap Market tier of 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. Subsequently,
during 1997 the Company's shares of Common Stock and Warrants were delisted
from the Nasdqaq SmallCap Market tier of the Nasdaq Stock Market and the
Philadelphia Stock Exchange for failure to meet the capital, surplus and bid
price requirements. The Company's Common Stock and Warrants are currently
traded on the Nasdaq Bulletin Board.
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, 1997, the Company had issued warrants to purchase an
aggregate of 1,968,456 shares of common stock. The warrants have exercise
prices ranging from $1.2375 to $5.75 per share, are exercisable on issuance,
and expire as follows: May, 2006 (98,182); June, 2005 (161,616); May, 2005
(64,674); February, 2001 (1,494,118); July, 2000 (40,947); June, 1999
(35,214); March, 1999 (40,947); and August, 1998 (32,758).
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.
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
14
<PAGE>
Stock Option Plans (continued)
is canceled. At December 31, 1997, 6,844 options are available for grant
under these plans and 250,000 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, 1997, 156,301 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 Company has adopted the provisions of Statement of Financial Accounting
Standards, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123
requires the measurement of the fair value of stock options or warrants to be
included in the statement of operations or disclosed in the notes to
financial statements. The Company has determined that it will continue to
account for stock-based compensation for employees under Accounting
Principles Board Opinion No. 25 and elect the disclosure-only alternative
under SFAS 123. The Company has computed the pro forma disclosures required
under SFAS 123 for options granted in 1997 and 1996 using the Black-Scholes
option pricing model prescribed by SFAS 123. The weighted average assumptions
used are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Risk free interest rate 5.77%-6.30% 6.15%-6.94%
Expected dividend yield None None
Expected lives 8 years 8 years
Expected volatility 91% 91%
</TABLE>
Had compensation cost for the Company's stock option plans been determined
based on the fair value at the grant dates of awards under these plans
consistent with the method of SFAS 123, the Company's net loss and net loss
per share would have been as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net loss:
As reported $(2,243.471) $(5,115,005)
Pro forma (2,297,301) (5,124,762)
Basic and diluted net loss per common share:
As reported $(0.36) $(0.88)
Pro forma (0.37) (0.88)
</TABLE>
15
<PAGE>
Stock Option Plans (continued)
A summary of the status of the Company's stock option plan at December 31,
1997 and 1996 and changes during the years then ended is presented in the
table and narrative below.
<TABLE>
<CAPTION>
1997 1996
------------------------------- ---------------------------
Weighted Weighted
Average Average
Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C>
Outstanding, beginning of year 218,613 $1.71 146,335 $0.75
Granted 273,699 0.96 94,000 2.84
Exercised (5,524) 0.61 (16,155) 0.30
Canceled/expired (3,702) 0.81 (5,567) 0.53
------- ---- -------- ----
Outstanding, end of year 483,086 $1.30 218,613 $1.71
------- ---- -------- ----
------- ---- -------- ----
Exercisable, end of year 200,656 $0.72 96,215 $0.79
------- ---- -------- ----
------- ---- -------- ----
Weighted average fair value of
options granted $1.04 $2.62
---- ----
---- ----
</TABLE>
The following table presents weighted average price and life information for
significant option groups outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exerciseable
- -------------------------------------------------------------------------- ------------------------------------
Weighted Weighted
Range of Number Weighted Average Average Number Average
Exercise Outstanding Remaining Exercise Exerciseable Exercise
Prices at 12/31/97 Contractual Life Price at 12/31/97 Price
<S> <C> <C> <C> <C> <C>
$0.20-$1.13 216,680 7.2 years $0.56 176,050 $0.46
$1.31-$3.88 266,406 8.9 years 1.91 24,606 2.64
------- -------
483,086 200,656
------- -------
------- -------
</TABLE>
10. 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(R) 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
16
<PAGE>
Development Contract and Related Royalty Agreement (continued)
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, 1997, the Company had paid approximately
$265,000 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.
11. Defined Contribution Plan
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.
12. Commitments and Contingencies
In December, 1992, the Company entered into an operating lease agreement for
its office and research facility which was to expire in December, 2002. In
addition to the minimum lease payments, the Company was 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 9). This
lease was terminated during 1997.
During 1997, the Company entered into a new operating lease agreement for its
office and manufacturing facility which expires in February 2001. In addition
to the lease payments, the Company is obligated to pay its proportionate
share of the operating expenses of the facility.
Future minimum lease payments as of December 31, 1997 are as follows:
<TABLE>
<S> <C> <C>
1998 $ 171,875
1999 187,500
2000 187,500
2001 15,625
-----------
$ 562,500
-----------
-----------
</TABLE>
17
<PAGE>
Commitments and Contingencies (continued)
Rent expense for the years ended December 31, 1997 and 1996 approximated
$177,000 and $165,000, respectively.
13. Subsequent Event
In February 1998, the Company concluded a private placement of $1,350,000 (of
which $1,128,000 was received in 1997) (Note 7) of units, consisting of 7%
promissory notes due October 1, 1998 (the "Investor Notes") and warrants (the
"Investor Warrants"). The Investor Notes are convertible into an aggregate of
4,090,909 shares (the "Investor Shares") of common stock. The Investor
Warrants are exercisable at $.33 per share for an aggregate of 1,350,000
shares of the common stock.
In connection with the private placement, the Boston Group, LP will be issued
warrants (the "Boston Group Warrants") expiring December 31, 2001 to purchase
approximately 2,379,000 shares of common stock at an exercise price of $.33
per share. The number of shares subject to the Boston Group Warrants will be
determined after the date the Amendment Effectiveness described below and
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 the Company's chairman and president and to
Connecticut Innovations, Incorporated ("CII") described below.
In January 1998, the principal and interest outstanding with respect to a
certain $150,000 note in favor of the Company's chairman was converted into
467,424 shares of the common stock at a rate of one share of Common Stock for
every $.33 converted. In connection with this loan and its conversion, the
Company also issued to its chairman warrants (the "First Chairman Warrants")
expiring December 31, 2001 to purchase an aggregate of 179,250 shares of
Common Stock at an exercise price of $.33 per share.
In January 1998, the Company also agreed to convert a certain term note in
favor of the Company's chairman bearing interest at a rate of 10% per annum
into shares (the "Chairman Shares") of the Company's common stock at the rate
of one share for each $.33 of indebtedness liquidated. In addition, the
Company has agreed to issue to its Chairman warrants (the "Second Chairman
Warrants") expiring December 31, 2001 exercisable for shares of common stock
at an exercise price of $.33 per share for each dollar of indebtedness
liquidated.
In consideration of a $150,000 loan made by Brookehill Equities, Inc. to the
Company in November 1997, the Company agreed in January 1998 to issue to
Brookehill warrants expiring December 31, 2001 (the "Brookehill Warrants") to
purchase 25,000 shares of common stock at an exercise price of $.33 per share.
In January 1998, the principal and interest outstanding with respect to a
certain $60,000 note in favor of the Company's president was converted into
189,845 shares (the "President Shares") of the Company's common stock at a
rate of one share for every $.33 converted. In January 1998, in connection
with the conversion of that loan, the Company issued warrants (the "President
Warrants") expiring December 31, 2001 to purchase 62,649 shares of Common
Stock at an exercise price of $.33 per share.
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 approximately $154,756 of the Company's payables to such creditor in
exchange for an aggregate of 468,958 shares (the "Creditor Shares") of common
stock and warrants (the "Creditor Warrants") expiring December 31, 2001 to
purchase an aggregate of 154,756 shares of common stock at an exercise price of
$.33 per share.
In January 1998, CII agreed to convert the outstanding indebtedness under its
June 14, 1995 Note from the Company bearing interest at a rate of 10% per
annum and royalty payments accrued under its Development Agreement with the
Company through December 31, 1997 into shares (the "CII Conversion Shares")
of common stock at the rate of one share of Common Stock for each $.33 of
indebtedness and royalty liquidated. In addition, the Company agreed to issue
CII warrants expiring December 31, 2001 exercisable for shares of Common
Stock at
18
<PAGE>
Subsequent Event (continued)
an exercise price of $.33 per share for each dollar liquidated (the "CII
Conversion Warrants"). The number of CII Conversion Shares and CII Conversion
Warrants to be issued will be determined as of the date of conversion.
Moreover, in lieu of cash payments of royalties accruing during the fiscal
year ending December 31, 1998, CII also agreed to accept one share of common
stock ("CII Royalty Shares") for each $.33 of royalties required to be paid
and warrants (the "CII Warrant Shares") expiring December 31, 2001 to
purchase one share of common stock at an exercise price of $.33 per share for
each dollar of royalties required to be paid.
Under its existing Certificate of Incorporation, the Company does not have
sufficient authorized shares of common stock available to issue the Investor
Shares, the Chairman Shares, Creditor Shares, CII Conversion Shares or CII
Royalty Shares (collectively, the "Contingent Shares"), or to provide for the
exercise of the Investor Warrants, the Boston Group Warrants, the First
Chairman Warrants, the Second Chairman Warrants, the Brookehill Warrants, the
President Warrants, the Creditor Warrants, the CII Conversion Warrants or the
CII Royalty Warrants (the "Contingent Warrants") and the Company agreed 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 for these purposes. On April 9, 1998, the Company's
shareholders 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. Upon the filing of the Certificate of
Amendment (the "Amendment Effectiveness"), the Company will have sufficient
shares to provide for the issuance of the Contingent Shares and the exercise
of the Contingent Warrants.
14. Quarterly Financial Data (unaudited) (in thousands except per share amounts)
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
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)
Stockholders Equity 5,708 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)
1997
- ----
Accumulated Deficit-
Beginning of period $ (20,265) $ (20,862) $ (21,806) $ (22,149)
Accumulated Deficit-
End of period (20,862) (21,806) (22,149) (22,508)
Stockholders Equity 1,215 271 72 (369)
Net Loss (597) (944) (343) (359)
Net Loss per Share $ (0.10) $ (0.15) $ (0.05) $ (0.06)
</TABLE>
19
<PAGE>
Exhibit 4.08
- ------------
THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, OR THE LAW OF ANY STATE, AND
MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED, DISPOSED OF OR
OFFERED FOR SALE, IN WHOLE OR IN PART, IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THAT ACT OR SUCH APPLICABLE STATE SECURITIES LAW
COVERING THIS NOTE AND/OR THE COMMON STOCK ISSUABLE UPON CONVERSION HEREOF, OR
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO HELPMATE ROBOTICS INC. THAT AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
Principal Sum: Holder:
Note No.:
CONVERTIBLE NOTE
----------------
(the "Note")
HELPMATE ROBOTICS INC.
HELPMATE ROBOTICS INC., a Connecticut corporation (hereinafter called the
"Company"), hereby promises to pay the Principal Sum to the order of Holder on
October 1, 1998. This Note shall accrue interest at the rate of 7% per annum,
payable on the first day of each calendar quarter commencing January 1, 1998.
1. Subscription Agreement. This Note is one of two notes being
issued under a Private Placement Purchase Agreement between the Company and
the Holder (the "Subscription Agreement"). Unless the context otherwise
requires, capitalized terms used herein shall have the same meanings as are
ascribed to them in the Subscription Agreement.
2. Conversion. The principal and accrued interest on this Note will,
upon the Amendment Effectiveness automatically, and with further notice.
convert into shares of common stock of the Company (the "Note Shares") at a
rate of thirty three cents ($0.33) per principal amount of indebtedness
represented hereby (the "Conversion Price"). Promptly upon such conversion,
the Company shall issue certificates for the Note Shares upon surrender of
this Note. The Holder acknowledges and agrees that in the event of a Reverse
Split (as described in the Subscription Agreement) the Conversion Price and
number of Note Shares issuable pursuant to this Note, shall be appropriately
adjusted in order to reflect the Reverse Split so that the percentage of the
Company's outstanding common stock to be acquired upon conversion of this
Note immediately after the occurrence of the Reverse Split will be the same
as the Holder would have been able to acquire upon conversion immediately
prior to the occurrence of such Reverse Split.
3. Valid Shares. The Company covenants and agrees that the Note
Shares will, upon issuance, be duly and validly issued, fully paid and
non-assessable and no personal liability will attach to the holder thereof.
4. Purchase for Investment. The Holder, by acceptance hereof,
reaffirms each and every representation and warranty contained in paragraph 8
of the Subscription Agreement as if fully set forth herein.
<PAGE>
5. Events of Default and Acceleration of the Note.
(a) An "event of default" with respect to this Note shall exist if
any of the following shall occur, if:
(i) The Company shall breach or fail to comply with
any provision of this Note and such breach or
failure shall continue for 15 days after written
notice by any Holder of any Note to the Company.
(ii) A receiver, liquidator or trustee of the Company
or of a substantial part of its properties shall
be appointed by court order and such order shall
remain in effect for more than 15 days; or the
Company shall be adjudicated bankrupt or
insolvent; or a substantial part of the property
of the Company shall be sequestered by court order
and such order shall remain in effect for more
than 15 days; or a petition to reorganize the
Company under any bankruptcy, reorganization or
insolvency law shall be filed against the Company
and shall not be dismissed within 45 days after
such filing.
(iii) The Company shall file a petition in voluntary
bankruptcy or request reorganization under any
provision of any bankruptcy, reorganization or
insolvency law, or shall consent to the filing of
any petition against it under any such law.
(iv) The Company shall make an assignment for the
benefit of its creditors, or admit in writing its
inability to pay its debts generally as they
become due, or consent to the appointment of a
receiver, trustee or liquidator of the Company, or
of all or any substantial part of its properties.
(b) If an event of default referred to in clause (i) shall occur,
the Holder may, in addition to such Holder's other remedies, by written
notice to the Company, declare the principal amount of this Note, together
with all interest accrued thereon, to be due and payable immediately. Upon
any such declaration, such amount shall become immediately due and payable
and the Holder shall have all such rights and remedies provided for under the
terms of this Note and the Subscription Agreement. If an event of default
referred to in clauses (ii), (iii) or (iv) shall occur, the principal amount
of this Note, together with all interest accrued thereon, shall become
immediately due and payable and the Holder shall have all such rights and
remedies provided for under the terms of this Note and the Subscription
Agreement.
6. Miscellaneous.
(a) All notices and other communications required or permitted to be
given hereunder shall be in writing and shall be given (and shall be deemed
to have been duly given upon receipt) by delivery in person, by telegram, by
facsimile, recognized overnight mail carrier, telex or other standard form of
telecommunications, or by registered or certified mail, postage prepaid,
return receipt requested, addressed as follows: (a) if to the Holder, to such
address as such Holder shall furnish to the Company in accordance with this
Section, or (b) if to the Company, to it at its headquarters office, or to
such other address as the Company shall furnish to the Holder in accordance
with this Section.
(b) This Note shall be governed and construed in accordance with the
laws of the State of Connecticut without regard to its conflicts of laws
principals.
<PAGE>
(c) The Company waives protest, notice of protest, presentment,
dishonor, notice of dishonor and demand.
(d) If any provision of this Note shall for any reason be held to be
invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision hereof, but this Note shall be construed as if
such invalid or unenforceable provision had never been contained herein.
(e) The waiver of any event of default or the failure of the Holder
to exercise any right or remedy to which it may be entitled shall not be
deemed a waiver of any subsequent event of default or of the Holder's right
to exercise that or any other right or remedy to which the Holder is entitled.
(f) The Holder of this Note shall be entitled to recover its
reasonable legal and other costs of collecting on this Note, and such costs
shall be deemed added to the principal amount of this Note.
(g) In addition to all other remedies to which the Holder may be
entitled hereunder, Holder shall also be entitled to decrees of specific
performance without posting bond or other security.
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, THIS NOTE SHALL NOT BE
CONVERTIBLE INTO NOTE SHARES UNLESS AND UNTIL THE AMENDMENT EFFECTIVENESS, AS
DEFINED IN THE SUBSCRIPTION AGREEMENT.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as
of the 24th day of December, 1997.
HELPMATE ROBOTICS INC.
By:
--------------------------
Thomas K. Sweeny
President
3
<PAGE>
Exhibit 4.09
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, OR THE LAW OF ANY
STATE, AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED,
DISPOSED OF OR OFFERED FOR SALE, IN WHOLE OR IN PART, IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THAT ACT OR SUCH APPLICABLE STATE
SECURITIES LAW COVERING THIS WARRANT AND/OR THE COMMON STOCK ISSUABLE UPON
EXERCISE HEREOF, OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO HELPMATE
ROBOTICS INC. THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
HELPMATE ROBOTICS INC.
WARRANT
Date:
Warrant No.:
Number of Shares:
Holder:
Holder's Address:
1. THIS CERTIFIES THAT, subject to the provisions of paragraph 14, the
Holder is entitled to purchase from HELPMATE ROBOTICS INC., a Connecticut
corporation (hereinafter called the "Company"), the number of shares (the
"Warrant Shares") of the Company's common stock ("Common Stock") set forth
above, at an exercise price equal to thirty three cents ($0.33) per Warrant
Share.
2. All rights granted under this Warrant shall expire on the fourth
anniversary of the date of issuance of this Warrant.
3. In the event the Company breaches its obligation to deliver
irrevocable instructions to its transfer agent as required under Section 12,
then, without limiting Holder's other rights and remedies, the Company shall
forthwith pay to the Holder an amount accruing at the rate of $1,000 per day for
each day of such breach for each 80,000 shares of common stock subject to this
Warrant, with pro rata payments for shares in an amount less than 80,000.
4. This Warrant and the Warrant Shares issuable on exercise of this
Warrant may be transferred, sold, assigned or hypothecated, only if registered
by the Company under the Securities Act of 1933 (the "Act") and any applicable
state securities laws or if the Company has received from counsel to the Company
a written opinion to the effect that such registration of the Warrant or the
Warrant Shares is not necessary in connection with such transfer, sale,
assignment or hypothecation. The Warrant and the Underlying Shares shall be
appropriately legended to reflect this restriction and stop transfer
instructions shall apply. The Holder shall through its counsel provide such
information as is reasonably necessary in connection with such opinion.
HelpMate Warrant
<PAGE>
5. The Holder of this warrant is entitled to certain registration
rights under an Agreement dated of even date herewith (the "Subscription
Agreement"). Upon each permitted transfer of this Warrant after the registration
statement has been declared effective, the Company will within three business
days file a supplement to the Registration Statement (as defined in the
Subscription Agreement) to reflect the name(s) of the transferee(s) as a selling
security holder under the Registration Statement.
6. Any permitted assignment of this Warrant shall be effected by the
Holder by (i) executing the form of assignment at the end hereof, (ii)
surrendering the Warrant for cancellation at the office of the Company,
accompanied by the opinion of counsel to the Company referred to above; and
(iii) unless in connection with an effective registration statement which covers
the sale of this Warrant and or the shares underlying the Warrant, delivery to
the Company of a statement by the transferee (in a form acceptable to the
Company and its counsel) that such Warrant is being acquired by the Holder for
investment and not with a view to its distribution or resale; whereupon the
Company shall issue, in the name or names specified by the Holder (including the
Holder) new Warrants representing in the aggregate rights to purchase the same
number of Shares as are purchasable under the Warrant surrendered. Such Warrants
shall be exercisable immediately upon any such assignment of the number of
Warrants assigned. The transferor will pay all relevant transfer taxes.
Replacement warrants shall bear the same legend as is borne by this Warrant.
7. The term "Holder" should be deemed to include any permitted record
transferee of this Warrant.
8. The Company covenants and agrees that all Warrant Shares of Common
Stock which may be issued upon exercise hereof will, upon issuance, be duly and
validly issued, fully paid and non-assessable and no personal liability will
attach to the holder thereof. The Company further covenants and agrees that,
during the periods within which this Warrant may be exercised, the Company will
at all times have authorized and reserved a sufficient number of shares of
Common Stock for issuance upon exercise of this Warrant and all other Warrants.
9. This Warrant shall not entitle the Holder to any voting rights or
other rights as a stockholder of the Company.
10. In the event that as a result of reorganization, merger,
consolidation, liquidation, recapitalization, stock split (including the Reverse
Split described in the Subscription Agreement), combination of shares or stock
dividends payable with respect to such Common Stock, the outstanding shares of
Common Stock of the Company are at any time increased or decreased or changed
into or exchanged for a different number or kind of share or other security of
the Company or of another corporation, then appropriate adjustments in the
number and kind of such securities then subject to this Warrant shall be made
effective as of the date of such occurrence so that the percentage of the
Company's outstanding common stock to be acquired upon exercise of this Warrant
immediately after the occurrence of such event will be the same as the holder
would have been able to acquire upon exercise immediately prior to the
occurrence of such event. Such adjustment shall be made successively whenever
any event listed above shall occur and the Company will notify the Holder of the
Warrant of each such adjustment. Any fraction of a share resulting from any
adjustment shall be eliminated and the price per share of the remaining shares
subject to this Warrant adjusted accordingly.
11. The rights represented by this Warrant may be exercised at any time
within the period above specified by (i) surrender of this Warrant (with the
purchase form at the end hereof properly executed) at the principal executive
office of the Company (or such other office or agency of the Company as it may
designate
HelpMate Warrant
<PAGE>
by notice in writing to the Holder at the address of the Holder appearing on the
books of the Company); (ii) payment to the Company of the exercise price for the
number of Warrant Shares specified in the above-mentioned purchase form together
with applicable stock transfer taxes, if any; and (iii) unless in connection
with an effective registration statement which covers the sale of the shares
underlying the Warrant, the delivery to the Company of a statement by the Holder
(in a form acceptable to the Company and its counsel) that such Warrant Shares
are being acquired by the Holder for investment and not with a view to their
distribution or resale.
12. Within two business days following each receipt by the Company of
the documents required to exercise all any part of this Warrant as provided in
Section 11, the Company shall deliver irrevocable instructions to its transfer
agent (with a copy to Holder) to issue on an expedited basis certificates
evidencing the Warrant Shares. Such certificates shall bear appropriate
restrictive legends in accordance with applicable securities laws, but once the
Registration Statement referred to in the Subscription Agreement has been
declared effective, the Company will issue unlegended certificates representing
the Warrant Shares which are sold pursuant to the Registration Statement.
13. This Warrant shall be governed by and construed in accordance with
the laws of the State of Connecticut without regard to its conflicts of laws
principles. Service of process shall be effective if by certified mail, return
receipt requested. All notices shall be in writing and shall be deemed given
upon receipt by the party to whom addressed. This instrument shall be
enforceable by decrees of specific performances well as other remedies.
14. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, THIS WARRANT SHALL
NOT BE EFFECTIVE AND MAY NOT BE EXERCISED, NO WARRANT SHARES SHALL BE ISSUABLE
PURSUANT HERETO, AND NO OTHER RIGHTS OR OBLIGATIONS OF THE COMPANY OR THE HOLDER
SHALL EXIST UNDER THIS WARRANT UNLESS AND UNTIL THE AMENDMENT EFFECTIVENESS, AS
DEFINED IN THE SUBSCRIPTION AGREEMENT.
IN WITNESS WHEREOF, HelpMate Robotics Inc. has caused this Warrant to be signed
by its duly authorized officers and to be dated as of the date set forth above.
HELPMATE ROBOTICS INC.
By:
-----------------------------------
Thomas K. Sweeny
President
HelpMate Warrant
3
<PAGE>
FORM OF ASSIGNMENT
TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto the person(s) listed below the right to purchase that number of shares of
Common Stock of HelpMate Robotics Inc. set forth below pursuant to the terms of
the attached Warrant, together with all right, title and interest therein, with
full power of substitution in the premises:
<TABLE>
<CAPTION>
<S> <C> <C>
Name(s) of Assignee(s) Address of Assignee(s) Number of Shares Assigned
</TABLE>
And if said number of shares shall not be all of the shares represented
by the attached Warrant, a new Warrant shall be issued in the name of the
undersigned for the balance remaining of the shares represented by said Warrant.
Dated:
-----------------------------
SIGNATURE OF INDIVIDUAL HOLDER: SIGNATURE OF NON-INDIVIDUAL HOLDER:
--------------------------------
- ---------------------------- [Print Name of Holder Above]
[Print Name of Individual Holder Above]
By
----------------------------
Title:
-----------------------
Address:
- ------------------------------------
- ------------------------------------
- ------------------------------------
NOTICE: The signature to the foregoing Assignment must correspond to
the name as written upon the face of the attached Warrant in every particular,
without alteration or enlargement or any change whatsoever; signatures must be
guaranteed by an eligible guarantor institution (banks, stock brokers, savings
and loan associations and credit unions with membership in an approved signature
guarantee medallion program) pursuant to Securities and Exchange Commission Rule
17Ad-15.
HelpMate Warrant
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HELPMATE
ROBOTICS FORM 10KSB FOR YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> DEC-31-1997
<CASH> 807278
<SECURITIES> 0
<RECEIVABLES> 687417
<ALLOWANCES> (80000)
<INVENTORY> 884131
<CURRENT-ASSETS> 2314991
<PP&E> 4366894
<DEPRECIATION> (2382661)
<TOTAL-ASSETS> 4380808
<CURRENT-LIABILITIES> 2182922
<BONDS> 0
0
0
<COMMON> 16964504
<OTHER-SE> (17333600)
<TOTAL-LIABILITY-AND-EQUITY> 4380808
<SALES> 1256104
<TOTAL-REVENUES> 3647509
<CGS> 764565
<TOTAL-COSTS> 2133306
<OTHER-EXPENSES> 3481186
<LOSS-PROVISION> (20000)
<INTEREST-EXPENSE> (256488)
<INCOME-PRETAX> (2243471)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2243471)
<EPS-PRIMARY> (.36)
<EPS-DILUTED> 0
</TABLE>
