<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 0-21477
Javelin Systems, Inc.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 52-1945748
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1881 Langley Ave.
Irvine, California 92614
(Address of Principal Executive Offices) (Zip Code)
(714) 223-5130
(Issuer's Telephone Number, Including Area code)
N/A
--------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
------- -------
(APPLICABLE ONLY TO CORPORATE ISSUERS)
State the number of shares outstanding of each of the issuer's classes of
common stock equity, as of the latest practicable date.
Title Date Outstanding
Common Stock, $.01 par value October 31, 1997 3,139,650
Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE>
Part I. Financial Information
Item 1. Financial Statements
JAVELIN SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997*
------------ -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 628,765 $ 686,167
Accounts receivable - net 2,153,770 2,470,591
Inventories 1,676,397 1,674,097
Other current assets 48,508 46,535
---------- ----------
Total current assets 4,507,440 4,877,390
Property and equipment, net 356,706 295,519
Other assets, net 31,337 30,101
---------- ----------
Total assets $4,895,483 $5,203,010
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ --- $ 200,000
Accounts payable 1,332,224 1,503,825
Accrued expenses 93,561 144,732
---------- ----------
Total current liabilities 1,425,785 1,848,557
---------- ----------
Deferred rent expense 1,141 ---
---------- ----------
Stockholders' equity:
Preferred stock, $0.01 par value:
authorized shares--1,000,000
issued and outstanding shares--none --- ---
Common stock, $.01 par value:
authorized shares--10,000,000
issued and outstanding shares--3,139,650 at September 30,
1997, and 3,119,250 at June 30, 1997 31,396 31,193
Additional paid in capital 4,366,488 4,295,291
Deferred compensation (69,271) (90,803)
Accumulated deficit (860,056) (881,228)
---------- ----------
Total stockholders' equity 3,468,557 3,354,453
---------- ----------
Total liabilities and stockholders' equity $4,895,483 $5,203,010
========== ==========
</TABLE>
*The balance sheet at June 30, 1997 has been derived from audited financial
statements.
2
<PAGE>
JAVELIN SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
---------- ----------
<S> <C> <C>
Net sales $2,950,086 $1,351,721
Cost of sales 2,268,781 1,048,600
---------- ----------
Gross profit 681,305 303,121
Operating expenses:
Research and development 137,238 53,564
Selling and marketing 147,513 56,865
General and administrative 374,673 142,167
---------- ----------
Total operating expenses 659,424 252,596
---------- ----------
Operating income 21,881 50,525
Interest expense (1,842) (152,950)
Interest income 3,974 ---
Loss on disposal of assets (2,841) ---
---------- ----------
Net income $ 21,172 $ (102,425)
========== ==========
Earnings (loss) per common share:
Primary $ 0.01 $ (0.05)
========== ==========
Fully diluted $ 0.01 $ (0.05)
========== ==========
Shares used in computing
earnings (loss) per share:
Primary 3,263,040 2,104,250
========== ==========
Fully diluted 3,279,731 2,104,250
========== ==========
</TABLE>
See accompanying notes.
3
<PAGE>
JAVELIN SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
--------- ---------
<S> <C> <C>
Operating Activities
Net income (loss) $ 21,172 $(102,425)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 22,992 4,350
Amortization of deferred charge related to warrants --- 113,230
Loss on disposal of assets 2,841 ---
Amortization of deferred compensation 21,532 13,455
Deferred rent expense 1,141
Changes in operating assets and liabilities:
Accounts receivable 316,821 (487,844)
Inventories (2,300) (279,427)
Other current assets (1,973) (30,146)
Accounts payable (171,601) 470,877
Accrued expenses (51,171) (2,672)
--------- ---------
Net cash provided by (used in) operating activities 159,454 (300,602)
--------- ---------
Investing Activities
Purchase of equipment (86,997) (25,010)
Other assets (1,259) (254)
--------- ---------
Net cash used in investing activities (88,256) (25,264)
--------- ---------
Financing Activities
Net payments under line of credit (200,000) 133,184
Proceeds from issuance of notes payable --- 585,000
Re-payment of notes payable --- (20,000)
Deferred offering costs --- (226,684)
Exercise of stock options 71,400 ---
--------- ---------
Net cash provided by (used in) financing activities (128,600) 471,500
--------- ---------
Net increase (decrease) in cash and cash equivalents (57,402) 145,634
Cash and cash equivalents at beginning of period 686,167 6,404
--------- ---------
Cash and cash equivalents at end of period $ 628,765 $ 152,038
========= =========
Supplemental disclosure of cash flow information
Income tax paid $ --- $ ---
========= =========
Interest paid $ 1,842 $ 39,720
========= =========
</TABLE>
See accompanying notes.
4
<PAGE>
JAVELIN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. Summary of Significant Accounting Policies
General
Javelin Systems, Inc. ("the Company") was incorporated in the State of
Delaware under the name of Sunwood Research, Inc. on September 19, 1995. The
Company designs, develops, markets and sells open systems touch screen point-of-
sale ("POS") computers.
The Company has incurred total losses of $ 860,056 since inception,
primarily due to the start-up nature of its business and non-recurring interest
expenses based upon the fair market value of certain warrants issued in
connection with debt.
On November 1, 1996, the Company completed an initial public offering (the
"IPO") of 850,000 shares of its common stock at $5.00 per share, netting
proceeds to the Company of approximately $3.2 million. Proceeds to the Company
were used to repay debt with an outstanding balance of approximately $745,000
and for general corporate purposes.
Basis of Presentation
The accompanying financial statements have been prepared by the Company
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the SEC. In the opinion of the Company's management,
all adjustments necessary for a fair presentation of the accompanying unaudited
financial statements are reflected herein. All such adjustments are normal and
recurring in nature. Interim results are not necessarily indicative of the
results for the full year or for any future interim periods. For more complete
financial information, these financial statements should be read in conjunction
with the audited financial statements included in the Company's Annual Report on
Form 10-KSB filed with the SEC.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the accompanying financial
statements. Actual results could differ from these estimates.
5
<PAGE>
Inventories
Inventories consist primarily of computer hardware and components and are
stated at the lower of cost (first-in, first-out) or market as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, June 30,
1997 1997
------------- ----------
Raw materials $1,614,705 $1,525,653
Finished goods 61,692 148,444
---------- ----------
$1,676,397 $1,674,097
========== ==========
</TABLE>
Revenue Recognition
Revenues from sales of products are recognized upon shipment of the
products. The Company generally does not have any significant remaining
obligations upon shipment of the products. Product returns and sales
allowances, which historically have not been significant, are provided for at
the date of sale.
Earnings (Loss) per Common Share
Earnings per common share is computed using the weighted average number of
common shares and equivalents outstanding during the period. Common share
equivalents result from the effect of outstanding options and warrants to
purchase common stock. Loss per common share is computed using the weighted
average number of common shares outstanding during the period. Common share
equivalents were not included in the computation of loss per common share since
their effect would have been anti-dilutive.
Impact of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" which
establishes standards for computing and presenting earnings per share (EPS).
SFAS No. 128 will be adopted by the Company as required for the interim periods
and fiscal year ending after December 15, 1997. Upon adoption of SFAS No. 128,
the Company will present basic EPS as well as diluted EPS in the period of
adoption and restate all prior-period EPS data presented for comparative
purposes. Basic EPS will be computed similarly to basic EPS except that weighted
average numbers of shares of Common Stock outstanding will be increased to
include the number of additional shares of Common Stock that would have been
outstanding if the dilutive potential common shares had been issued. The Company
has not determined the effect of the implementation of this Standard.
2. Line of Credit
The Company has a line of credit with a financial institution expiring
December 15, 1997 and under which it may borrow an amount equal to 80% of the
Company's eligible accounts receivable (as defined) with monthly interest based
upon the prime rate of a national financial institution. Borrowings under the
line of credit are collateralized by substantially all the assets of the
Company. As of September 30, 1997, there were no borrowings under the line and
there was approximately $1,242,000 available for future borrowings.
6
<PAGE>
3. Stockholders' Equity
Common Stock
During the three months ended September 30, 1997, 20,400 shares of common
stock were issued upon the exercise of stock options with a weighted average
exercise price of $3.50 per share.
Stock Option Plan
The Company has elected to follow Accounting Principles Board Opinion No.
25 "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options. Under APB 25, the
Company recognizes as compensation expense the difference between the exercise
price and the fair market value of the underlying stock on the date of grant.
Stock based compensation expense is deferred and amortized over the life of the
stock option. During the three months ended September 30, 1997, the Company
recognized $21,532 in stock based compensation expense.
In August 1996, the Company adopted a stock incentive award plan ( the
"Plan") under which the Board of Directors, or a committee appointed for such
purpose, may from time to time grant options, restricted stock or other stock-
based compensation to the directors, officers, eligible employees or consultants
of the Company to acquire up to an aggregate of 300,000 shares of common stock,
in such numbers, under such terms and at such exercise prices as are determined
by the Board or such committee. Options vest over a 3 year period based on the
following schedule: 40% after year one, 30% after year two, and 30% at the end
of year three. All options expire five years from the date of grant. It is the
Company's intention to grant options under the Plan principally to employees.
During the three months ended September 30, 1997, options to purchase 39,000
shares of common stock were granted to employees at fair market value on the
date of grant. The weighted average exercise price of such options was $6.81.
As of September 30, 1997 there were 8,000 shares of common stock available for
issuance under the plan.
4. Income Taxes
No provision for federal or state income taxes is required since the
Company has the benefit of a net operating loss carryover from the prior years.
7
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General
Javelin Systems, Inc. (the "Company") designs, develops, markets and sells
open system touch screen POS computers primarily for the foodservice industry.
The following discussion and analysis addresses the results of the
Company's operations for the three month period ended September 30, 1997. On
November 1, 1996 the Company consummated an initial public offering (the "IPO")
of 850,000 shares of its common stock, resulting in net proceeds to the Company
of approximately $3.2 million.
This Quarterly Report on Form 10-QSB contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 as
amended and Section 21E of the Securities Exchange Act of 1934 as amended (the
"Exchange Act"), and the Company intends that such forward-looking statements be
subject to the safe harbors created thereby. The Company may experience
significant fluctuations in future operating results due to a number of factors,
including, among other things, the size and timing of customer orders, new or
increased competition, delays in new product enhancements and new product
introductions, quality control difficulties, changes in manufacturing systems,
supplies, or vendors, changes in market demand, market acceptance of new
products, product returns, seasonality in product sales, and pricing trends in
the industry in general, and in the specific markets in which the Company is
active. Any of these factors could cause operating results to vary
significantly from prior periods. Significant variability in orders during any
period may have a material adverse impact on the Company's cash flow, and any
significant decrease in orders could have a material adverse impact on the
Company's results of operations and financial condition. As a result, the
Company believes that period-to-period comparisons of its results of operations
are not necessarily meaningful and should not be relied upon as any indication
of future performance. Fluctuations in the Company's operating results could
cause the price of the Company's Common Stock to fluctuate substantially.
Assumptions relating to the foregoing involve judgments with respect to,
among other things, future economic, competitive and market conditions, all of
which are difficult or impossible to predict accurately, and many of which are
beyond the control of the Company. In addition, the business and operations of
the Company are subject to substantial risks which increase the uncertainty
inherent in the forward-looking statements. In light of the significant
uncertainties inherent in the forward-looking information included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives or plans of the Company will be
achieved.
8
<PAGE>
Results of Operations
Net sales for the three months ended September 30, 1997 increased by
$1,598,365 to $2,950,086 compared to net sales of $1,351,721 for the three
months ended September 30, 1996. This increase is due to increases in the
number of unit-sales of NexDisplay 4 and NexDisplay LC systems. During the
three months ended September 30, 1997, the Company sold 1,006 NexDisplay 4 and
591 NexDisplay LC systems to 119 customers compared to sales of 745 NexDisplay 4
systems to 53 customers for the three months ended September 30, 1996.
Gross margin was 23.1% for the three months ended September 30, 1997
compared to 22.4% for the three months ended September 30, 1996. The increase
in gross margin was due to product mix and the return of the manufacturing
process back to the Company's manufacturing facility. Commencing July 1996,
substantially all of the Company's manufacturing and assembly process was being
performed by outside contractors. In December 1996, management concluded that
such outsourcing of the final test and assembly of the NexDisplay-4 was not
conducive to the short lead times demanded by the market. Therefore, the
Company returned the assembly process back to its manufacturing facility.
Management anticipates further decreases in the cost per unit as the Company's
sales continue to increase, due primarily to reductions in prices from the
Company's suppliers and contract manufacturers resulting from the increased
volume of purchases being made by the Company.
Research and development expenses for the three months ended September 30,
1997 increased by $83,674 to $137,238 compared to research and development
expenses of $53,564 for the three months ended September 30, 1996. Such expenses
consisted primarily of payroll and related expenses. Management anticipates a
continued increase in product development costs primarily due to the anticipated
introduction of several product enhancements and new products as described
above.
Sales and marketing expenses for the three months ended September 30, 1997
increased by $90,648 to $147,513 compared to sales and marketing expenses of
$56,865 for the three months ended September 30, 1996. Such expenses consisted
primarily of payroll and travel costs. Management anticipates that such
expenses will continue to increase as the Company implements its strategy to
expand its product line, distribution network and markets.
9
<PAGE>
General and administrative expenses for the three months ended September
30, 1997 increased by $232,506 to $374,673 compared to general and
administrative expenses of $142,167 for the three months ended September 30,
1996. The increase consisted primarily of increased payroll costs, increased
facility costs due to expansion and costs associated with being a public
company. Management anticipates that such expenses will not increase as a
percentage of net sales.
Interest expense for the three months ended September 30, 1997 decreased by
$151,108 to $1,842 compared to interest expense of $152,950 for the three months
ended September 30, 1996. The decrease is due to a reduction in interest-
bearing debt and the inclusion of interest expense for the three months ended
September 30, 1996 of $113,230 related to warrants issued in connection with
certain promissory notes. This non-recurring interest expense was attributable
to the imputation of interest based upon the fair market value of the warrants
and did not represent a cash expense to the Company.
A provision for federal and state income taxes was not required since the
Company retains the benefit of net operating loss carryovers from the two
previous years.
Liquidity and Capital Resources
On November 1, 1996, the Company completed its IPO of 850,000 shares of its
common stock at $5 per share, netting proceeds to the Company of approximately
$3.2 million. A portion of the proceeds was used to repay debt of approximately
$745,000 and for general corporate purposes. The remaining proceeds were used
to build the Company's infrastructure and for working capital.
As of September 30, 1997, the Company had a cash balance of $628,765 and
working capital of $3,081,655
During the three months ended September 30, 1997, the Company's primary
source of liquidity has been from operations. Cash provided by operating
activities for the three months ended September 30, 1997 amounted to $159,454
compared to cash used in operating activities of $300,602 for the three months
ended September 30, 1996. Cash provided by operating activities during the
three months ended September 30, 1997 consisted of significant collections of
accounts receivable partially offset by a reduction in accounts payable.
Cash used in investing activities for the three months ended September 30,
1997 amounted to $88,256 and consisted primarily of purchases of property and
equipment.
10
<PAGE>
Cash used in financing activities for the three months ended September 30,
1997 amounted to $128,600. The Company received $71,400 from the exercise of
employee stock options and repaid $200,000 under the line of credit.
The Company has a line of credit with a financial institution expiring on
December 15, 1997 providing for borrowings of up to 80% of eligible accounts
receivable (as defined) with monthly interest based upon the prime rate of the
financial institution. As of September 30, 1997, there were no borrowings
outstanding and there was approximately $1,242,000 available for future
borrowings. The Company is currently negotiating an extension of the line of
credit, although there can be no assurances that such extension will be
obtained.
The Company believes that it has adequate financial resources to meet its
future liquidity and capital requirements for at least the next nine months.
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds.
The Company's report on Form SR filed with the Securities and
Exchange Commission on August 6, 1997 is hereby incorporated herein
by reference.
Item 6. Exhibits and Reports on Form 8-K.
(a) 27.1 Financial Data Schedule in accordance with Article 5 of Regulation
S-X.
(b) No reports on Form 8-K were filed during the three months ended
September 30, 1997.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Javelin Systems, Inc.
November 14, 1997 /s/ Richard P. Stack
- ---------------------------- -------------------------------------
Date Richard P. Stack
Chief Executive Officer
and President
November 14, 1997 /s/ Lawrence W. McCorkle
- ---------------------------- -------------------------------------
Date Lawrence W. McCorkle
Controller
(Principal Accounting and Financial Officer)
12
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EXHIBIT INDEX
-------------
27.1 Financial Data Schedule in accordance with Article 5 of Regulation S-X.
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF THE COMPANY AS OF AND FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 628,765
<SECURITIES> 0
<RECEIVABLES> 2,221,770
<ALLOWANCES> 68,000
<INVENTORY> 1,676,397
<CURRENT-ASSETS> 4,507,440
<PP&E> 417,900
<DEPRECIATION> 61,194
<TOTAL-ASSETS> 4,895,483
<CURRENT-LIABILITIES> 1,425,785
<BONDS> 0
0
0
<COMMON> 31,396
<OTHER-SE> 3,437,161
<TOTAL-LIABILITY-AND-EQUITY> 4,895,483
<SALES> 2,950,086
<TOTAL-REVENUES> 2,950,086
<CGS> 2,268,781
<TOTAL-COSTS> 2,268,781
<OTHER-EXPENSES> 632,424
<LOSS-PROVISION> 27,000
<INTEREST-EXPENSE> 1,842
<INCOME-PRETAX> 21,172
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,172
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
