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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
(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, 1998
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:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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None
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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 $4,546,574 during the fiscal year ended
December 31, 1998.
The aggregate market value of the voting stock held by non-affiliates as of
March 10, 1999 was approximately $3,970,000.
The number of shares outstanding of the registrant's common stock as of March
10, 1999 is 14,201,402 shares.
Documents incorporated by reference: None
Transitional Small Business Disclosure Format (Check One) Yes No X
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PART I
ITEM 1: DESCRIPTION OF BUSINESS
FORM AND YEAR OF ORGANIZATION
HelpMate Robotics Inc. (the "Company"), a Connecticut corporation, was
co-founded in 1984 as a robotics "think-tank" by its chairman, Joseph F.
Engelberger. During its early years, the Company's primary focus was contract
engineering and research and development for third parties. Through the years,
however, the focus of the Company has evolved into the development of commercial
applications for autonomous robotic products with the HelpMate-Registered
Trademark- 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-Registered Trademark- - THE FLAGSHIP PRODUCT
The Company's flagship product is the HelpMate-Registered Trademark- robotic
courier, an intelligent, self-navigating, battery-powered robot 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.
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 "unit loads", which may be considered merely errands but can represent
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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
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 without measurably
impacting perceived economic advantage to the
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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.
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.
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. (See
Footnotes 4 and 6 to the Financial Statements).
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.
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. 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. (See Footnote 6 to the Financial Statements).
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DISTRIBUTION METHODS
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 people (the
director of marketing and two part-time sales people) 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 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.
This license agreement was terminated in September 1998 and the Company is
currently seeking a European partner. The Company 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. (See
Management's Discussion and Analysis - 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.
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The Company's current small batch production mode results in sporadic shipments
from 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. A significant increase in volume would require the Company to
hire additional employees.
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 fourteen United States patents related to such technology to date.
The Company's success is heavily dependent on its proprietary software. The
Company's software is not patented or copyrighted and patent and copyright laws
offer only limited practical protection. The Company relies largely on its
license agreements with customers and its own security systems, confidentiality
procedures and employee nondisclosure agreements to maintain the trade secrecy
of its products. Further, the Company does not believe that its operations or
products infringe on the intellectual property rights of others.
TRADEMARKS
The Company currently holds registered trademarks for the names
HelpMate-Registered Trademark- and Labmate-Registered Trademark-, a component of
the Company's autonomous robotics navigation technology sold to universities,
laboratories and other research facilities.
LICENSES
In addition to its license with 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 Footnote 9 to
Financial Statements).
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.
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The Company also has funded research and development activities related to the
development and enhancement of its HelpMate systems. In 1997 the Company spent
$571,688 primarily on research and development in connection with HelpMate
compared to 1998 when very little was spent due to the reduced staff levels. The
Company also spent $291,185 and $308,700 in 1998 and 1997 respectively in
connection with other projects, including its contract research and development
activities.
BACKLOG
The backlog at December 31, 1998 consisted of approximately $90,000 in annual
rental revenue. This is a decrease of approximately $390,000 from the backlog at
December 31, 1997. This decrease was attributable to the decrease in sales staff
and reduction in marketing activities. It is anticipated that these systems and
robots will be placed in service by mid year 1999. In addition, the Company
estimates that, as of December 31, 1998, it had a backlog of approximately
$90,000 with respect to orders to purchase components for certain of its
research products.
EMPLOYEES
As of December 31, 1998, the Company had sixteen employees on a full-time basis
and one employee on a part-time basis.
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 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 $.31 on March 10, 1999.
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The following table sets forth the high and low bid price of the Company's
Common Stock as reported on the Nasdaq Bulletin Board:
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HIGH LOW
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Quarter ended March 31, 1998 $0.45 $0.27
Quarter ended June 30, 1998 0.34 0.16
Quarter ended September 30, 1998 0.25 0.13
Quarter ended December 31, 1998 0.69 0.13
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HOLDERS
The Company estimates that as of March 10, 1999, 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.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
As a result of disappointing performance in 1996, 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 1998 the Company continued to support existing customers, 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, 1998 is scheduled to be installed and
operational by mid year 1999. At that point, the Company will have 76 robots on
rental in its US customer base, providing a stream of on-going revenues. The
two-armed, mobile robot project under contract to NASA was completed and
delivered to NASA in September, 1998.
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. 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.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's near-term objective is to stabilize its business at the level of
its current customer base while seeking additional financing necessary to resume
original marketing plans.
As a result of the termination of the Otis agreement, the Company will receive
during fiscal 1999 seven robots from Otis at a cost of $1 each. In addition,
during fiscal 1999 the Company has the option to repurchase up to nine robots,
which are currently rented to hospitals, from HTLP robots, for an aggregate of
$81,000. Assuming these rentals continue, the Company estimates that these
robots would generate approximately $100,000 in rental revenue in 1999. Also,
the Company believes it has in inventory most of the parts necessary to perform
routine maintenance and repairs on its rental robots in 1999.
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 1999.
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. (See Footnote 6 to Financial Statements).
The Company continues to actively seek additional financing alternatives in
order to strengthen its liquidity situation in the short term. Although the
Company has identified some potential sources of such financing, the Company has
no current commitments or agreements with respect to such and there can be no
assurance that any additional financing will be available to the Company on
acceptable terms, or at all. Such alternatives include, but are not limited to
Financed Rental transactions similar in nature to that entered into with Leasing
Technologies International, Inc. ("LTI"); private placement of the Company's
securities in the United States or abroad; and/or mezzanine type financing
(including senior or subordinated debt). Further, additional equity financing
may involve substantial dilution of the stock ownership of the Company's
existing stockholders. Moreover, financial or other covenants imposed by future
financing sources might further adversely affect the Company's ability to pay
dividends and management's ability to control the Company. Additionally, by
transferring the title and rental agreements to a third party in Financed Rental
transactions for an immediate cash payment, the Company could lose all or a
portion of its opportunity to benefit from ongoing rentals in the future or from
the residual value of the units upon the expiration of the rental agreements.
Finally, no assurances can be given that any such financing will provide
sufficient cash required for the Company to attain an operating revenue stream
of cash sufficient to support the Company's continued operations. It is also not
anticipated that current stockholders will provide any additional financing.
In October 1998 the Company announced that it is conducting an investigation to
determine the extent to which it has been defrauded by its former payroll
company. The payroll company, KPM, Inc., of Brookfield, Connecticut, did
business under the names Payroll Express and Compusystems. Based upon the
Company's preliminary investigation, the Company believes that KPM
misappropriated Company funds which KPM was required to pay to the Internal
Revenue Service with respect to Company employment taxes. As part of its
investigation, the Company has discovered that copies of the tax returns
provided by KPM to the Company differ materially from the actual returns which
KPM filed on the Company's behalf with the IRS. KPM was engaged as
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the Company's payroll service from the late 1980's until August 1998. KPM filed
for bankruptcy in July 1998.
The Company understands from published reports that KPM may have similarly
misappropriated funds from a number of other KPM customers and that IRS Criminal
Investigation Division and the office of the United States Attorney are
currently investigating KPM.
Under the Internal Revenue Code, the Company is liable for the payment of these
unpaid taxes as well as interest and penalties assessed, if any. The Company has
calculated these unpaid taxes to approximate $1,000,000 exclusive of interest
and penalties. The Company anticipates that it will be able to negotiate a
settlement with the Internal Revenue Service not to exceed $150,000 and
therefore have recorded this amount in Accrued expenses and Selling, general and
administrative expenses in the accompanying 1998 financial statements.
The Company believes that this tax liability may have a material and adverse
affect on the Company's business, its financial condition and on the results of
its operations. The Company has taken the following actions; (a) filed a claim
in the KPM bankruptcy proceedings; (b) filed a claim under the Company's
insurance policy; the claim was denied; and (c) entered into discussion with the
Internal Revenue Service regarding a compromise of the Company's liability for
these employment taxes. In addition, the Company may need to use its available
cash and future revenues to liquidate its tax liability.
The Company is continuing to investigate this matter and expects to cooperate
fully with the ongoing IRS and United States Attorney investigations of KPM.
Although the accompanying financial statements have been prepared assuming that
the Company will continue as a going concern, failure to reach a compromise on
this matter on terms favorable to the Company raises substantial doubt about its
ability to continue as a going concern.
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. (See Footnote 6 to
the Financial Statements).
REVENUES
Total revenues increased by $899,065 or 25% from the year ended December 31,
1997 compared to the year ended December 31, 1998. Rental revenues increased
by $816,585 or 39% and sales revenues increased by $119,997 or 10%. Also, net
revenues from research and development contracts decreased by $37,517 or 12%
due to the completion of the NASA project in the third quarter of 1998. Total
sales revenue increased while the mix of sales shifted toward the sale of
robots versus sales of component products. In 1998 the Company increased its
sale of robots to twelve from five in 1998. At the same time the sale of
component products decreased in 1998 to $133,000 from $498,000 in 1997. The
increase in rental revenues reflects the Company's larger rental fleet of 73
robots being in place for an entire year.
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COST OF REVENUES
Cost of revenues increased by $466,366 or 20% from the year ended December 31,
1997, compared to the year ended December 31, 1998. Overall, cost of revenues
has decreased slightly as a percentage of revenues, which reflects the Company's
ongoing efforts to reduce the cost associated with manufacturing and installing
its HelpMate robots.
GROSS PROFIT
Gross profit increased by 32% or $432,699 from the year ended December 31, 1997
compared to the year ended December 31, 1998. 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 $1,332,911 or 38% from
the year ended December 31, 1997, compared to the year ended December 31, 1998.
The decrease reflects the full effect of the staff reductions instituted in
August 1997.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense, net of interest income decreased by $90,241 or 37% from the
year ended December 31, 1997, compared to the year ended December 31, 1998. The
decrease in net interest expense is reflective of a decrease in financing
obligations.
LOSSES
The Company incurred a net loss of $452,862 and $2,243,471 for each of the
years ended December 31, 1998 and 1997, respectively. These losses were
sustained primarily because the Company has not achieved the volume and mix
of sales and rentals of HelpMates required to cover the overhead expenses
associated with the commercialization of its HelpMate systems. Although the
decrease in staffing and sales and marketing expense have reduced losses
during fiscal 1998, the Company anticipates that such losses will continue
until the volume of sales and rentals of HelpMates necessary to cover
overhead expenses is achieved. As noted above, the overall profitability and
cash flow of the Company is highly dependent upon its mix of robot rentals,
i.e., more robot rentals than sales results in larger losses and a quicker
depletion of cash.
LOSS PER SHARE
Loss per share for the years ended December 31, 1998 and 1997 was ($0.04) and
($0.36), respectively. Basic and diluted loss per common share is computed
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.
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OTHER
The Company finalized the termination of its European license agreement with
Otis in September 1998. As a result, the Company purchased, for $1 each plus
transportation costs, seven robots from Otis and the Company will support three
installed robots in Europe until the leases with Otis expire, when the robots
will be owned by HelpMate and returned. Also, the Company paid Otis $25,381 to
settle all outstanding debts.
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 $18.6
million at December 31, 1998 expire during the years 1999 through 2013. The
related deferred tax asset has been fully reserved because the ability of the
Company to realize a future tax benefit from its net operating loss carry
forwards may be limited.
INFLATION
The Company does not believe that the relatively moderate levels of inflation
which have been experienced in the United States has had or will have a
significant effect on its revenues or operations.
YEAR 2000 READINESS
The Year 2000 issue affects computer and information technology ("IT") systems,
as well as non-IT systems which include embedded technology such as
micro-processors and micro-chips that have date sensitive programs that may not
properly recognize the year 2000. Systems that do not properly recognize such
information could generate inaccurate date or cause a system to fail, resulting
in business interruption. The Company is currently implementing a plan to
provide measured assurances that its computer and IT-systems and non-IT systems,
including analytical instruments and equipment, and those of third parties which
have a material relationship with the Company are or will be compliant.
The Company expects to complete in April 1999 a comprehensive inventory and
assessment of its existing IT and non-IT systems and those of third parties.
Assessment will include identifying critical systems - internal and external
(including third parties) - in order to formulate a remediation and verification
plan. The Company currently believes that remediation and verification , which
include obtaining written assurances from key vendors and suppliers, as well as
testing, will be
11
<PAGE>
complete by July 1999. The Company has completed its testing of its flagship
product, the HelpMate robotic courier system, and determined that it is year
2000 compliant.
The Company believes, based on preliminary information, that the costs
associated with remediation and verification to become year 2000 compliant will
not have a material adverse impact on the Company's financial position, results
of operations, or cash flow.
Although the Company has taken steps to address the year 2000 issue, there can
be no assurance that the failure of the Company and/or its material third
parties to timely attain year 2000 compliance or that the failures and/or the
impacts of broader compliance failures by telephone, mail, data transfer or
other utility or general service providers or government or private entities
will not have a material adverse effect on the Company. Further, based on the
information available, the Company cannot conclude that any failure of the
Company or third parties to achieve Year 2000 compliance will not adversely
effect the Company.
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," "Management's Discussion
and Analysis --General; -- Liquidity and Capital Resources -- Losses; and --
Other." There are important factors that could cause the actual results to
differ materially from those in the forward-looking statements. These important
factors include the following: (a) if the mix of robot rentals versus sales
changes; (b) if there are substantial returns of robots currently on rental or
if the Company is unable to place returned robots with new customers; (c) if
there is a substantial reduction in the aggregate number of hours for which
robots are rented; (d) if existing orders in backlog are canceled; (e) if the
Company's own order/installation forecast changes; (f) if the Company is unable
to purchase the robots from HTLP; (g) if the Company is unable to sustain its
current level of operations;(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; (j) the Company is unable to reach an agreement
with a new strategic marketing partner in Europe; (k) if customers or vendors
have year 2000 issues which adversely affect the Company; and (l) the impact of
the payroll company matters described in "Liquidity and Capital Resources."
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 &
12
<PAGE>
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.
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 73 Chairman, President, CEO and Director
Fred T. Cordano 56 Vice President, Manufacturing
Joseph G. Cote 57 Director
Howard Motter 51 Director
Theodore Sall 72 Director
Sheldon Sandler 54 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. Cordano has been employed with the Company in various engineering capacities
since 1990 and during the past two years he has served as the Company's Vice
President of Engineering.
Mr. Cote has been a director of the Company since August 1997. Currently Mr.
Cote is an independent business consultant. Prior to that Mr. Cote served as
co-president and chief operating officer of Prospect Street Ventures, a venture
capital firm, until 1998.
Mr. Motter has been a director of the Company since September 1998. Currently
Mr. Motter is a management consultant. Prior to that Mr. Motter served as
President and Chief Executive Officer of Elekta Oncology Systems and President
and Chief Executive Officer of Elekta Canada, Inc. Mr. Motter also spent 26
years with Philips Medical Systems. Mr. Motter currently serves as a Director of
Quanta Vision, Inc.
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.
13
<PAGE>
Mr. Sandler has been a director of the Company since March 1996. Mr. Sandler is
Chief Executive Officer and a founding partner of Bel Air Partners, a financial
consulting and investment banking firm. Previously Mr. Sandler was a managing
director with Ladenburg Thalmann & Co. Inc. Mr. Sandler was also a chief
examiner at the Securities and Exchange Commission.
BOARD OF DIRECTORS - GENERAL
The Board of Directors held seven meetings in 1998. 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 1998 with the exception of Mr.
Sandler, who did not attend three Board meetings.
COMPENSATION
The Company does not pay any additional remuneration to employees serving as
directors. The Company does pay $500 for each meeting attended 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 1998, 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. Sall and Sandler as the members of the Audit Committee. There
is currently a vacancy on this Committee.
COMPENSATION COMMITTEE. The Compensation Committee, which did not meet in 1998,
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 Mr. Sall as the members of the Compensation Committee. There
is currently a vacancy on this Committee.
STOCK OPTION COMMITTEE. The Stock Option Committee met twice in 1998. The Stock
Option Committee is responsible for administering the Company's 1984, 1988 and
1995 Stock Option Plans. The Board has appointed Messrs. Cote and Sall to the
Stock Option Committee.
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, 1998 exceeded $100,000.
14
<PAGE>
<TABLE>
<CAPTION>
SECURITIES UNDERLYING
NAME AND POSITION FISCAL YEAR SALARY OPTIONS
<S> <C> <C> <C>
Joseph F. Engelberger 1998 $ 81,250 98,750
Chairman and Chief
Executive Officer 1997 100,000 55,000
1996 100,000 0
Thomas K. Sweeny 1998 $107,873 138,125
President (1)
1997 150,000 58,125
1996 150,000 0
Fred T. Cordano 1998 $103,000 65,300
Vice President of
Manufacturing 1997 103,000 22,745
1996 101,750 0
</TABLE>
(1) As described in Item 13, Mr. Sweeny died on August 6, 1998.
The Company has entered into an employment agreement with Mr. Engelberger. This
agreement contains noncompetition, nondisclosure and noninterference provisions.
Mr. Engelberger's employment agreement initially ran 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.
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 UPON NUMBER OF SECURITIES
EXERCISE OF OPTIONS UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN THE
DURING OPTIONS AT MONEY OPTIONS AT
FISCAL 1998 DECEMBER 31, 1998 DECEMBER 31, 1998
----------- ----------------- -----------------
NUMBER VALUE EXERCISABLE UNEXERCISEABLE EXERCISABLE UNEXERCISEABLE
<S> <C> <C> <C> <C> <C> <C>
Joseph F. Engelberger 0 $0 56,613 80,543 9,447 0
Thomas K. Sweeny 0 $0 166,250 -0- 31,050 0
Fred T. Cordano 0 $0 21,458 55,161 3,261 0
</TABLE>
15
<PAGE>
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 10, 1999.
<TABLE>
<CAPTION>
SHARES TO BE PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED OWNERSHIP
<S> <C> <C>
Connecticut Financial Developments, LP 1,014,188 7.14%
Transitions Two Limited Partnership (1) 451,234 3.17%
Robert Gault (2) 806,061 5.60%
Gabriel Kaplan (3) 1,209,091 8.34%
The Boston Group, LP (4) 2,411,866 14.52%
Connecticut Innovations, Incorporated (5) 3,078,675 20.42%
Joseph F. Engelberger(6) 1,994,374 13.57%
Fred T. Cordano(7) 26,555 (9)
Howard E. Motter (8) 0 0%
Joseph G. Cote (8) 0 0%
Theodore Sall(8) 3,000 (9)
Sheldon Sandler (8) 0 0%
All Directors and Officers as a Group (6)(7)(8) 2,020,929 13.73%
</TABLE>
(1) Includes warrants to purchase 40,967 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 2,411,866 shares. This owner's address is
2049 Century Park East, Suite 3000, Los Angeles, CA 90067.
(5) Includes warrants to purchase 872,992 shares. This owner's address is 999
West Street, Rocky Hill, CT 06067. Includes CII Royalty Shares and CII Royalty
Warrants issued through January 1999.
(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
420,326 shares, and options to purchase 57,126 shares.
(7) Includes options to purchase 26,364 shares.
(8) Does not include options to purchase 30,000 shares which are currently not
exerciseable.
(9) Less than one percent.
16
<PAGE>
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 Footnote to 6 to the
Financial Statements.
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.
Total compensation paid to John Engelberger for the years ended December 31,
1998 and 1997 was $27,500 and $47,534, respectively.
The Company also employs Mr. Engelberger's daughter, Gay Engelberger, as the
Director of Marketing. Ms Engelberger receives an annual salary of $72,100 and
is eligible to participate in the Company's regular bonus plans and fringe
benefit programs.
ITEM 13: REPORTS ON FORM 8-K
A report on Form 8-K dated August 12, 1998 was filed with the Securities and
Exchange Commission (SEC) reporting the death of HelpMate Robotics Inc.'s
President Thomas K. Sweeny.
A report on Form 8-K dated October 12, 1998 was filed with the SEC reporting the
Company's investigation to determine the extent to which it has been defrauded
by its former payroll service company.
17
<PAGE>
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)
3.03 Amendment to the Certificate of Incorporation
4.01* Form of Common Stock Certificate
4.02* Form of Warrant Certificate
4.03* Form of Unit Certificate
4.04* Form of Warrant Agreement
4.05* Form of Underwriters' Unit Purchase Option
4.06* Pages of the Registrant's Certificate of Incorporation that define the
rights of holders of the securities being registered hereby are
incorporated herein by reference to pages 3, 4, 6 and 7 of Exhibit 3.01
4.07* Pages of the Registrant's By-Laws that define the rights of holders of
the securities being registered hereby are incorporated herein by
reference to pages 1, 2, 3, 4, 5, 6, 12 and 13 of Exhibit 3.02
10.01* Loan Agreement dated November 20, 1990 with Connecticut Innovations,
Incorporated ("CII")
10.02* $500,000 Promissory Note dated November 20, 1990 in favor of CII
10.03* Security Agreement dated November 20, 1990 in favor of CII
10.08* Security Agreement dated June 14, 1995 in favor of CII
10.09* Subordination Agreement dated June 14, 1995 among the Registrant, Mr.
Engelberger and CI.
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
10.22* Employment Agreement with Mr. Engelberger dated June 1, 1995 and
amended as of November 1, 1995
10.30* Amended and Restated Buy and Sell Agreement dated April 17, 1987, as
amended on September
10.31* Development Agreement dated May 1985 with Aktiebolaget Electrolux
("Electrolux")
10.32* Development Agreement dated April 15, 1987 with Electrolux
10.33* Development Agreement dated May 1986 between Consolidated Controls
Corporation and Connecticut Product Development Corporation (assumed by
the Registrant and CII, respectively)
10.34* Royalty Reduction Agreement with CII
10.35* Joint Venture Agreement, dated July 1, 1988 with Thrift Drug Company,
Automated Prescription Systems, Inc. ("APS") and Retired Persons
Services, Inc.
10.36* Agreement for Representation of Manufacturer/Licensee dated August,
1988 with APS
10.37* Distributor Agreement, dated August 14, 1991, with Yaskawa Electric
Manufacturing Company, Ltd. ("Yaskawa")
10.38* Technology Transfer and License Agreement with Yaskawa dated as of May
15, 1992
10.39* License Agreement Dated as of December 21, 1992 with Electrolux
10.44* Directors and Officers Liability Insurance Policy
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
NO. DESCRIPTION OF EXHIBIT
<S> <C>
10.45* Product Liability Insurance Policy
10.46* Stock Purchase Agreement dated July 29, 1987 with Transitions Two,
Limited Partnership ("Transitions Two")
10.47* Stock Purchase Agreement, dated July 29, 1987 with 3M
10.48* Stock Purchase Agreement dated February 24, 1989 with 3M, White
Consolidated Industries, Inc. ("White"), which is a subsidiary of
Electrolux, and Transitions Two, as amended by Amendment to Stock
Purchase Agreement, dated March 9, 1989
10.49* Stock Purchase Agreement, dated August 14, 1991 with Yaskawa
10.50* Preferred Stock Purchase Agreement dated as of May 28, 1993 with CFD
10.51* Registration Rights Agreement dated as of May 28, 1993 with CFD
10.52* Co-Sale Agreement among the Registrant, Mr. Engelberger, Margaret
Engelberger, Technology Transitions, Inc., 3M, White, Transitions Two,
Yaskawa and CFD
10.53* Stock Purchase Agreement dated December 1, 1994 with Otis
10.54* Warrant dated November 20, 1990, as amended on June 14, 1995, issued to
CII for 5,000 shares of the Registrant's Common Stock, expiring on July
1, 2000
10.55* Warrant dated January 16, 1991, issued to 3M for 3,000 shares of the
Registrant's Common Stock, expiring on February 1, 1997
10.61* 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)
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.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
NO. DESCRIPTION OF EXHIBIT
<S> <C>
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)
10.81 Creditor Agreement with Connecticut Innovations Inc.
10.82 Warrant and Stock Purchase Agreement with Connecticut Innovations Inc.
27.1 Financial Data Schedule for the year ended December 31, 1998.
</TABLE>
* Incorporated by reference to Form SB2 Number 33-99348 filed January 31,
1996 under the same exhibit number as filed therein.
20
<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/ Joseph F. Engelberger
-------------------------
Joseph F. Engelberger, Chairman, President,
Chief Executive Officer and Principal
Financial and Accounting Officer Date December 14, 1999
21
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Audited Financial Statements:
Report of Independent Public Accountants for the year ended December 31, 1998
and 1997----------------------------------------------------------------------------- F-2
Balance sheet at December 31, 1998 -------------------------------------------------- F-3
Statements of operations for the years ended December 31, 1998 and 1997-------------- F-4
Statements of cash flows for the years ended December 31, 1998 and 1997-------------- F-5
Statements of stockholders' equity (deficit) for the years ended
December 31, 1998 and 1997----------------------------------------------------------- F-6
Notes to Financial Statements-------------------------------------------------------- F-7
</TABLE>
F-1
<PAGE>
Report of Independent Public Accountants
The Board of Directors and Stockholders
HelpMate Robotics Inc.
We have audited the accompanying balance sheet of HelpMate Robotics Inc., a
Connecticut corporation, as of December 31, 1998, and the related statements of
operations, stockholders' equity (deficit) and cash flows for the years ended
December 31, 1998 and 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HelpMate Robotics Inc. as of
December 31, 1998, and the results of its operations and its cash flows for each
of the years ended December 31, 1998 and 1997, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11 to the
financial statements, the Company is liable for certain payroll taxes along with
interest and penalties assessed, if any, under the Internal Revenue Code as a
result of the failure of their former payroll company to remit these taxes to
the Internal Revenue Service. Failure to reach a compromise on this matter on
terms favorable to the Company raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to this matter are
also described in Note 11.
Arthur Andersen LLP
Hartford, Connecticut
March 22, 1999
F-2
<PAGE>
HelpMate Robotics Inc.
Balance Sheet
December 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 440,379
Accounts receivable, net of allowance for doubtful accounts of $50,000 802,862
Inventory, net of reserve for obsolescence of $170,000 395,975
------------
Total current assets 1,639,216
Installation costs, net of accumulated amortization of $811,675 95,793
Equipment leased to others, net (Note 3) 1,111,515
Property and equipment, net (Note 3) 312,723
Deposits 130,160
------------
$ 3,289,407
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 91,587
Accrued expenses 663,764
Accrued employee benefits 97,195
Current portion notes payable (Note 6) 322,448
Deferred revenue (Note 4) 49,817
------------
Total current liabilities 1,224,811
Deferred revenue, less current portion (Note 4) 217,837
Notes payable, less current portion (Note 6) 66,999
------------
Total liabilities
1,509,647
------------
Commitments and contingencies (Note 11)
Stockholders' equity (Note 8):
Common stock, no par value; 40,000,000 shares authorized; 14,004,773 shares
issued and outstanding 19,509,049
Capital surplus 5,232,012
Accumulated deficit (22,961,301)
------------
Total stockholders' equity 1,779,760
------------
$ 3,289,407
============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
F-3
<PAGE>
HelpMate Robotics Inc.
Statements of Operations
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues:
Sales revenues $ 1,376,101 $ 1,256,104
Rental revenues 2,899,290 2,082,705
Research and development contracts (net) 271,183 308,700
------------ ------------
Total revenues 4,546,574 3,647,509
Cost of revenues:
Cost of sales 710,775 764,565
Cost of rentals 1,788,707 1,259,036
Cost of research and development contracts 299,185 308,700
------------ ------------
Total costs of revenues 2,798,667 2,332,301
------------ ------------
Gross profit 1,747,907 1,315,208
Operating expenses:
Selling, general and administrative 2,205,343 3,538,254
------------ ------------
Operating loss (457,436) (2,223,046)
Interest expense (183,025) (256,488)
Interest income 29,642 12,864
Other income 19,830 24,204
------------ ------------
Net loss before extraordinary item (590,989) (2,442,466)
Extraordinary item-vendor forgiveness of debt (Note 6) 138,127 198,995
------------ ------------
Net loss $ (452,862) $ (2,243,471)
============ ============
Basic and diluted per share amounts:
Loss before extraordinary item $ (.05) $ (.39)
Extraordinary item .01 .03
------------ ------------
Net loss applicable to common stock $ (0.04) $ (0.36)
============ ============
Weighted average number of shares of common stock outstanding 11,429,291 6,292,650
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
HelpMate Robotics Inc.
Statements of Cash Flows
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (452,862) $(2,243,471)
Adjustments to reconcile net loss to net cash used by operating
activities:
Vendor forgiveness of debt (138,127) (198,995)
Provision for doubtful accounts -- 20,000
Provision for inventory obsolescence -- 50,000
Depreciation and amortization 832,605 735,057
Changes in operating accounts:
(Increase) decrease in accounts receivable (375,700) (287,370)
(Increase) decrease in inventory 488,156 620,543
(Increase) decrease in deposits (32,411) (3,164)
(Decrease) increase in accounts payable and accrued expenses 187,694 336,420
(Decrease) increase in customer advances -- (36,830)
(Decrease) increase in deferred revenue (261,625) (258,759)
----------- -----------
----------- -----------
Net cash provided by (used in) operating activities 247,730 (1,266,569)
----------- -----------
INVESTING ACTIVITIES
Sale of equipment leased to others -- 1,958,416
Installation costs (199,090) (260,407)
Equipment leased to others (164,258) (1,351,832)
Purchase of property and equipment (5,055) (8,382)
----------- -----------
Net cash (used in) provided by investing activities (368,403) 337,795
----------- -----------
FINANCING ACTIVITIES
Proceeds from issuance of notes payable 222,000 1,557,012
Repayments of notes payable (468,226) (434,132)
Proceeds from exercise of stock options -- 3,364
----------- -----------
Net cash (used in) provided by financing activities (246,226) 1,126,244
----------- -----------
Net (decrease) increase in cash and cash equivalents (366,899) 197,470
Cash at beginning of year 807,278 609,808
=========== ===========
Cash at end of year $ 440,379 $ 807,278
=========== ===========
SUPPLEMENTAL INFORMATION:
Conversion of notes, accounts payable and accrued expenses
to common stock $ 2,544,545 $ --
=========== ===========
Cash interest paid $ 37,158 $ 62,900
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
HelpMate Robotics Inc.
Statements of Stockholders' Equity (Deficit)
December 31, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated
Common Capital Surplus Deficit Total
Stock
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $ 16,961,140 $ 5,112,226 $(20,264,968) $ 1,808,398
Exercise of stock options (5,524 shares) 3,364 -- -- 3,364
Issuance of stock options below fair market value -- 62,613 -- 62,613
------------ ------------ ------------ ------------
Net loss -- -- (2,243,471) (2,243,471)
------------ ------------ ------------ ------------
Balance at December 31, 1997 $ 16,964,504 $ 5,174,839 $(22,508,439) $ (369,096)
Conversion of notes, accounts payable, and accrued
expenses to common stock 2,544,545 -- -- 2,544,545
Issuance of stock options below fair market value -- 57,173 -- 57,173
Net loss -- -- (452,862) (452,862)
------------ ------------ ------------ ------------
Balance at December 31, 1998 $ 19,509,049 $ 5,232,012 $(22,961,301) $ 1,779,760
============ ============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-6
<PAGE>
HelpMate Robotics Inc.
Notes to Financial Statements
December 31, 1998 and 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
HelpMate Robotics Inc. ("HelpMate", "HRI", or the "Company"), was incorporated
in May 1984. The Company is primarily engaged in the design, manufacture and
sale of the Company's flagship product, the HelpMate(Registered Trademark)
robotics courier system, a trackless robotic courier used primarily in the
healthcare industry to transport materials. The Company derives revenue from
three principal sources: rentals and sales of HelpMates; sales of robotic
components such as LabMate, LightRanger and BiSight and from research and
development contracts.
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 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; (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.
The Company is liable for the payment of unpaid taxes not remitted by the
Company's former payroll company to the Internal Revenue Service as well as
interest and penalties assessed, if any. The Company has calculated these unpaid
taxes to approximate $1,000,000 exclusive of interest and penalties. The Company
anticipates that it will be able to negotiate a settlement with the Internal
Revenue Service not to exceed $150,000 and therefore have recorded this amount
in Accrued Expenses and Selling, general and administrative expenses in the
accompanying 1998 financial statements (Note 11).
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The matter discussed above raises substantial
doubt about the Company's ability to continue as a going concern.
F-7
<PAGE>
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.
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. Included in
accounts receivable is $475,000 due from one customer that was subsequently
received in January 1999.
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, 1998, 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 what level of 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 $107,193 and $114,223 for the years ended December
31, 1998 and 1997, 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 $422,545 and
$366,063 for the years ended December 31, 1998 and 1997, respectively. The total
of guaranteed future minimum rentals on equipment leased to others at December
31, 1998 was $340,000, which consists of $173,000 in 1999, $149,000 in 2000 and
$72,000 in 2001.
F-8
<PAGE>
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 $302,867
and $254,769 for the years ended December 31, 1998 and 1997, 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 Statement of Financial Accounting Standards No.86
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed"("SFAS 86"). The Company will continue to evaluate the significance of
capitalizing software development costs.
EARNINGS PER SHARE AND SUPPLEMENTAL NET LOSS PER SHARE
The Company computes earnings per share in accordance with the provisions of
Statement of Financial Accounting Standards No.128 "Earnings Per Share"("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.
Common share equivalents include stock options and warrants.
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.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
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.
2. INVENTORY
Inventory is comprised of the following at December 31, 1998:
<TABLE>
<S> <C>
Raw materials $213,160
Work in process 199,826
Finished goods 152,989
---------
565,975
Reserve for obsolescence (170,000)
---------
$395,975
---------
---------
</TABLE>
F-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, 1998:
<TABLE>
<S> <C>
Equipment leased to others $ 2,278,258
Less accumulated depreciation and amortization (1,166,743)
-----------
Equipment leased to others, net $ 1,111,515
===========
Furniture and fixtures $ 90,843
Machinery and equipment 1,035,012
Leasehold improvements 26,292
-----------
1,152,147
Less accumulated depreciation and amortization (839,424)
-----------
Property and equipment, net $ 312,723
===========
</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 are currently under rent from the Company to hospitals
across the United States ("sold units"). The total proceeds obtained from this
transaction was $1,230,000. As part of the transaction, the Company assigned all
of its right title and interest in the underlying rental agreements for the sold
units and granted a security interest in fifteen additional rental agreements
for units that were not sold to LTI ("collateral units"). The Purchase, Security
and Remarketing Agreement requires the Company to, among other things, refurbish
any sold unit that ceases to be rented by a hospital and place that sold unit on
rent with another hospital prior to the Company placing one of its own units
with another hospital. In addition, the Company is responsible for the
maintenance of both the sold units and the collateral units. Upon the expiration
of the Master Lease Agreement (36 months), the Company shares in residual rental
payments from the sold units in the following manner: a)75% for the Company and
25% for LTI until such time as the Company receives an additional $372,032 and
b) 50% for the Company and 50% for LTI thereafter. Finally, the Company has no
right to repurchase the sold units from LTI. The Master Lease Agreement will be
classified as an operating lease in accordance with Statement of Financial
Accounting Standards No. 13, "Accounting for Leases". The book value and related
depreciation of the sold units, approximately $937,000 and $321,000,
respectively, will be removed from the accounts and the gain realized on the
sale of approximately $614,000 will be deferred and amortized over the term of
the Master Lease Agreement, 36 months. The maintenance costs expected to be
incurred for the sold units during the lease term will be accrued as of the date
of the sale, amortized over the term of the Master Lease Agreement and
correspondingly reduce the gain on the sale. Such costs are expected to
approximate $158,000 thereby reducing the gain to be deferred and amortized to
approximately $456,000. No provision for the refurbishment of the sold units
will be made, as the Company's historical experience demonstrates that units do
not cease being rented. Payments under the Master Lease Agreement are payable
monthly commencing in March, 1997 and approximate $526,000 annually.
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.
F-10
<PAGE>
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. VENDOR FORGIVENESS OF DEBT
During the fourth quarter of 1997 and the first quarter of 1998, the Company
reached agreements with a majority of its vendors to accept common stock of 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 6 As a result of agreements received with vendors
to accept reduced cash payments, the Company realized extraordinary gains of
$138,127 in 1998 and $198,995 in 1997.
6. NOTES PAYABLE
Notes Payable is comprised of the following at December 31, 1998:
<TABLE>
<S> <C>
Secured notes payable at12.2% $ 47,848
Secured notes payable to HTLP at 24% 341,599
---------
389,447
Less - current portion (322,448)
---------
$ 66,999
---------
---------
</TABLE>
The non-current portion of notes payable of $66,999 is payable in 2000.
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 former 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. The Company may, at its option, repurchase nine HelpMate robotic
courier systems at the expiration of the five year period in 1999 and four in
2000 for approximately $9,000 each. 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.
F-11
<PAGE>
In February 1998, the Company concluded a private placement of $1,350,000 (of
which $1,128,000 was received in 1997) of units, consisting of 7% promissory
notes due October 1, 1998 and warrants. Each note was converted effective April
18, 1998 into an aggregate of 4,090,909 shares of common stock. The warrants are
exercisable at $.33 per share for an aggregate of 1,350,000 shares of the common
stock.
In consideration for its services to the Company in connection with the private
placement, the Boston Group, LP was issued warrants, expiring December 31, 2001,
to purchase 2,411,866 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 $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 expiring December 31, 2001 to
purchase an aggregate of 179,250 shares of Common Stock at an exercise price of
$.33 per share. Also in consideration of this loan, the Company issued to its
chairman warrants to purchase 25,000 shares at the exercise price of $.33 per
share.
In April 1998, the principal and interest outstanding with respect to a certain
note in favor of the Company's chairman was converted into 534,552 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 expiring December 31, 2001 to purchase an aggregate of 176,402
shares of Common Stock at an exercise price of $.33 per share.
In consideration of a $150,000 loan made by Brookehill Equities, Inc. to the
Company in November 1997, the Company issued, in January 1998, warrants expiring
December 31, 2001 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 former president was converted
into 189,845 shares of the Company's common stock at a rate of one share for
every $.33 converted. In connection with the conversion of that loan, the
Company issued 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 these creditors agreed to
liquidate $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
expiring on December 31, 2001 to purchase an aggregate of 154,756 shares of
common stock at an exercise price of $.33 per share. These shares and warrants
were issued in April 1998.
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 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 an exercise price of $.33 per share
for each dollar liquidated. 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 accruing during the fiscal year
ending December 31, 1998, CII also agreed to accept one share of common stock
for each $.33 of royalties required to be paid and warrants 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.
As a result of the foregoing CII transactions CII was issued, in June 1998,
1,556,987 shares of Common Stock and warrants to purchase an aggregate of
513,809 shares of common stock in exchange for the liquidation of $513,809 of
principal, interest and accrued royalties through December 31, 1997. In
addition, CII received 402,057 shares of Common Stock and warrants to purchase
an aggregate of 132,678 shares of common stock in exchange for $132,678 of
accrued royalties for the first three quarters of 1998.
F-12
<PAGE>
7. INCOME TAXES
Significant components of the Company's deferred tax assets as of December 31,
1998 are as follows
<TABLE>
<S> <C>
Net operating loss carryforwards $7,454,681
Allowance for doubtful accounts 28,000
Reserve for inventory obsolescence 68,000
Compensation expense 12,044
Vacation accrual 38,878
Equipment leased to others 180,000
Other 82,869
------------------
Total deferred tax assets 7,864,472
Valuation allowance for deferred tax assets (7,864,472)
------------------
Amount recognized in the financial statements $ -
------------------
------------------
</TABLE>
The valuation allowance decreased by approximately $700,000 during the year
ended December 31, 1998 primarily due to options canceled and expired during the
year.
At December 31, 1998, the Company had net operating loss carryforwards for
federal tax purposes of approximately $18,600,000 which expire from 1999 through
2013. 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.
8. STOCKHOLDERS' EQUITY
WARRANTS
As of December 31, 1998, the Company had issued warrants to purchase an
aggregate of 7,068,360 shares of common stock. The warrants have exercise prices
ranging from $0.33 - $5.25 per share, are exercisable upon issuance and expire
as follows: 2006 (98,353); 2005 (226,290); 2002 (3,058,354); 2001 (3,568,255);
2000 (40,947); and 1999 (76,161).
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 two stock option plans. The 1988 Nonqualified Stock Option Plan
provides for the granting of nonqualified stock options for 235,279 shares of
common stock at an exercise price based upon a formula determined by the
Company's Board of Directors, with a minimum price of not less than $0.20 per
share. Options are exercisable starting one year from the date of grant to the
extent of 20% per year on a cumulative basis and expire ten years from the date
of grant. Option holders, upon approval by the Company, may surrender their
options to the Company in exchange for the difference between the fair market
value of the shares covered by the option and the option exercise price. In the
event of cessation of employment, an option holder may exercise his stock
options within a six month period at which time the stock option is canceled. At
December 31, 1998, 6,844 options are available for grant under this plan and
250,000 shares of common stock are reserved for issuance.
F-13
<PAGE>
The Company's 1995 Amended and Restated Stock Option Plan provides for the
granting of up to 700,000 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, 1998, 79,550 options are available for grant under this
plan and 700,000 shares of common stock are reserved for issuance.
The 1988 plan terminated on October 27, 1998 and the 1995 plan will terminate on
February 5, 2006, except as to options outstanding. The 1995 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 1998 and 1997 using the Black-Scholes option pricing model prescribed by SFAS
123. The weighted average assumptions used are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Risk free interest rate 6.85%-7% 5.77%-6.30%
Expected dividend yield None None
Expected lives 8 Years 8 Years
Expected volatility 106% 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>
1998 1997
---- ----
<S> <C> <C>
Net loss
As reported $ (452,862) $ (2,243,471)
Pro forma (484,031) (2,255,612)
Basic and diluted net loss per common share
As reported $ (.04) $ (.36)
Pro forma (.04) $ (.36)
</TABLE>
A summary of the status of the Company's stock option plan at December 31, 1998
and 1997 and changes during the years then ended is presented in the table and
narrative below.
F-14
<PAGE>
<TABLE>
<CAPTION>
1998 1997
------------------------------- --------------------------------
Weighted Weighted
Average Average
Shares Exercise Price Shares Exercise Price
-------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 483,086 $1.30 218,613 $1.71
Granted 549,175 0.17 273,699 0.96
Exercised - - (5,524) 0.61
Canceled/expired (379,291) 1.60 (3,702) 0.81
--------- ---- ------- ----
Outstanding, end of year 652,970 $0.18 483,086 $1.30
======= ===== ======= =====
Exerciseable, end of year 269,277 $0.17 200,656 $0.72
======= ===== ======= =====
Weighted average fair value
of options granted $0.17 $1.04
===== =====
</TABLE>
As a result of the cancellation or expiration of 379,291 options under the 1988
and 1995 Plans and reissuance of certain options under the 1995 Plan during
1998, all of the Company's outstanding options are exercisable at between $.10
and $.20 with a weighted average remaining contractual life and exercise price
of 5.3 years and $.17, respectively.
9. 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. Such royalties are payable only to the extent
that sales and license fees are realized. Through December 31, 1998, the Company
had paid approximately $527,000 in royalties to CII in cash and issued 420,057
shares of common stock.
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 theagreement, if
the Company relocates its business outside the State of Connecticut, among other
things, the
F-15
<PAGE>
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.
10. 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. The
Company contributions matches 25% of employee contributions up to $2000. During
1998, the Company contributed $1,971 to this plan.
11. COMMITMENTS AND CONTINGENCIES
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, 1998 are as follows:
<TABLE>
<S> <C>
1999 $187,500
2000 187,500
2001 15,625
-----------
$390,625
===========
</TABLE>
Rent expense for the years ended December 31, 1998 and 1997 approximated
$187,500 and $177,000 respectively.
In October 1998 the Company announced that it is conducting an investigation to
determine the extent to which it has been defrauded by its former payroll
company. The payroll company, KPM, Inc., of Brookfield, Connecticut, did
business under the names Payroll Express and Compusystems. Based upon the
Company's preliminary investigation, the Company believes that KPM
misappropriated Company funds which KPM was
required to pay to the Internal Revenue Service with respect to Company
employment taxes. As part of its investigation, the Company has discovered that
copies of the tax returns provided by KPM to the Company differ materially from
the actual returns which KPM filed on the Company's behalf with the IRS. KPM was
engaged as the Company's payroll service from the late 1980's until August 1998.
KPM filed for bankruptcy in July 1998.
The Company understands from published reports that KPM may have similarly
misappropriated funds from a number of other KPM customers and that IRS Criminal
Investigation Division and the office of the United States Attorney are
currently investigating KPM.
Under the Internal Revenue Code, the Company is liable for the payment of these
unpaid taxes as well as interest and penalties assessed, if any. The Company has
calculated these unpaid taxes to approximate $1,000,000 exclusive of interest
and penalties. The Company anticipates that it will be able to negotiate a
settlement with the Internal Revenue Service not to exceed $150,000 and
therefore have recorded this amount in Accrued Expenses and Selling, general and
administrative expenses in the accompanying 1998 financial statements.
The Company believes that this tax liability may have a material and adverse
affect on the Company's business, its financial condition and on the results of
its operations. The Company has taken the following actions; (a) filed a claim
in the KPM bankruptcy proceedings; (b) filed a claim under the Company's
insurance policy; the claim was denied; and (c) entered into discussion with the
Internal Revenue Service regarding a compromise of the Company's liability for
these employment taxes. In addition, the Company may need to use its available
cash and future revenues to liquidate its tax liability.
F-16
<PAGE>
The Company is continuing to investigate this matter and expects to cooperate
fully with the ongoing IRS and United States Attorney investigations of KPM.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The matter discussed above raises substantial
doubt about the Company's ability to continue as a going concern.
12. QUATERLY FINANCIAL DATA (UNAUDITED) (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
1998
Accumulated Deficit-
Beginning of Period $(22,508) $(22,798) $(23,080) $(22,964)
Accumulated Deficit-
End of Period (22,798) (23,080) (22,964) (22,961)
Stockholders' Equity (442) 1,553 1,708 1,780
Net Income (Loss) (290) (282) 116 3
Net Income (Loss) per
Share $ (0.04) $ (0.03) $ -- $ --
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>
F-17
