<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 quarterly period ended December 31, 1997
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 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 [_]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
<TABLE>
<CAPTION>
Title Date Outstanding
<S> <C> <C>
Common Stock, $.01 par value January 31, 1998 4,034,650
</TABLE>
Transitional Small Business Disclosure Format (check one):
Yes [_] No [X]
<PAGE>
Part I. Financial Information
Item 1. Financial Statements (1)
JAVELIN SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997*
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,190,290 $ 686,167
Accounts receivable--net 4,835,367 2,470,591
Inventories 3,419,508 1,674,097
Other current assets 195,048 46,535
----------- ----------
Total current assets 9,640,213 4,877,390
Property and equipment, net 725,272 295,519
Excess of cost over net assets of purchased
businesses 5,556,286
Other assets, net 76,160 30,101
----------- ----------
Total assets $15,997,931 $5,203,010
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 1,368,755 $ 200,000
Accounts payable 2,649,427 1,503,825
Accrued expenses 398,189
Loans payable to shareholders 262,284
Customer deposits 1,605,791
Income taxes payable 65,786 144,732
----------- ----------
Total current liabilities 6,350,232 1,848,557
----------- ----------
Deferred rent expense 3,177 --
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-3,119,250 at June 30, 1997 and
4,034,650 at December 31, 1997 40,347 31,193
Additional paid in capital 10,430,912 4,295,291
Deferred compensation (59,259) (90,803)
Accumulated deficit (767,478) (881,228)
----------- ----------
Total stockholders' equity 9,644,522 3,354,453
----------- ----------
Total liabilities and stockholders' equity $15,997,931 $5,203,010
=========== ==========
</TABLE>
* The balance sheet at June 30, 1997 has been derived from audited financial
statements
(1) See Note 1 for filing of financial statements required by Item 310(b) of
Regulation S-B.
See accompanying notes.
2
<PAGE>
JAVELIN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $4,452,249 $1,283,527 $7,402,335 $2,635,249
Cost of sales 3,427,525 1,029,555 5,696,306 2,078,156
---------- ---------- ---------- ----------
Gross profit 1,024,724 253,972 1,706,029 557,093
Operating expenses:
Research and development 169,486 86,080 306,725 139,644
Selling and marketing 261,311 95,810 408,824 152,675
General and administrative 448,156 216,743 822,829 358,910
---------- ---------- ---------- ----------
Total operating expenses 878,953 398,633 1,538,378 651,229
---------- ---------- ---------- ----------
Operating income (loss) 145,771 (144,661) 167,651 (94,136)
Interest expense (6,918) (551,509) (8,760) (704,459)
Other income 8,894 6,054
Interest income 4,020 6,378 7,994 6,378
---------- ---------- ---------- ----------
Net income (loss) before
income taxes 151,767 (689,792) 172,939 (792,217)
Provision for income taxes 59,189 59,189
---------- ---------- ---------- ----------
Net income (loss) $ 92,578 $ (689,792) $ 113,750 $ (792,217)
========== ========== ========== ==========
Earnings (loss) per common
share:
Basic $ 0.03 $ (0.26) $ 0.04 $ (0.33)
========== ========== ========== ==========
Diluted $ 0.03 $ (0.26) $ 0.03 $ (0.33)
========== ========== ========== ==========
Shares used in computing
Earnings (loss) per share:
Basic 3,234,541 2,670,917 3,182,328 2,387,583
========== ========== ========== ==========
Diluted 3,328,680 2,670,917 3,304,206 2,387,583
========== ========== ========== ==========
</TABLE>
See accompanying notes.
3
<PAGE>
JAVELIN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1997 1996
------------ ------------
<S> <C> <C>
Operating Activities
Net income (loss) $ 113,750 $ (792,217)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 52,405 9,988
Amortization of deferred charge related to
warrants 636,097
Amortization of deferred compensation 31,545 31,833
Loss on disposal of assets 2,841
Deferred rent expense 3,177
Income tax benefit from exercise of stock options 59,155
Non-cash allowances 125,000
Changes in operating assets and liabilities:
Accounts receivable (1,224,252) (438,193)
Inventories (167,221) (1,495,298)
Other current assets (293,503) (56,655)
Accounts payable 487,149 26,909
Accrued expenses (35,029) 15,646
----------- -----------
Net cash used in operating activities (844,983) (2,061,890)
----------- -----------
Investing Activities
Purchase of equipment (180,112) (59,697)
Cash received from purchased businesses 665,102
Other assets (7,284)
----------- -----------
Net cash provided by (used in) investing activities 477,706 (59,697)
----------- -----------
Financing Activities
Net payments under line of credit 800,000 (206,552)
Proceeds from issuance of notes payable 585,000
Re-payment of notes payable (745,000)
Net proceeds from initial public offering 3,243,913
Exercise of stock options 71,400
----------- -----------
Net cash provided by financing activities 871,400 2,877,361
----------- -----------
Increase in cash and cash equivalents 504,123 755,774
Cash and cash equivalents at beginning of period 686,167 6,404
----------- -----------
Cash and cash equivalents at end of period $ 1,190,290 $ 762,178
=========== ===========
Supplemental disclosure of cash flow information
Income tax paid $ -- $ --
=========== ===========
Interest paid $ 6,918 $ 68,362
=========== ===========
Supplemental disclosure of non-cash financing
and investing activities:
See Note 3 for the acquisition of business in
exchange for 895,000 shares of the Company's
common stock
</TABLE>
See accompanying notes.
4
<PAGE>
JAVELIN SYSTEMS, INC.
NOTES TO CONSOLIDATED 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.
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.
In December 1997, the Company acquired all of the outstanding common stock
of POSNET Computers, Inc. and CCI Group, Inc. as described in Note 3. The
Company has filed with the Commission a Form 8-K with respect to each
acquisition. As permitted by Section (a)(4) of Item 7 of Form 8-K, the Company
will file the financial statements required by Item 310(b) of Regulation S-B no
later than 60 days after the date that the initial report on Form 8-K was
required to be filed.
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. 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 for the fiscal
year ended June 30, 1997 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>
Principles of consolidation
The consolidated balance sheet as of December 31, 1997 includes the
accounts of the Company and of its wholly-owned subsidiaries (see Note 3). All
significant intercompany balances have been eliminated. The results of
operations of the wholly-owned subsidiaries will be included with the results of
operations of the Company beginning in January 1998.
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>
December 31, June 30,
1997 1997
------------ ------------
<S> <C> <C>
Raw materials $3,333,411 $1,525,653
Finished goods 86,097 148,444
---------- ----------
$3,419,508 $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.
Revenue from the installation of products will be recognized upon the
completion of the installation of the product as acknowledged by the customer.
Service contract revenues will be recognized on a pro rata basis over the
term of the related contract.
Excess of Cost over Net Assets of Purchased Businesses
Assets and liabilities related to business combinations accounted for as
purchase transactions are recorded at their respective fair values. The excess
of cost over net assets of purchased businesses is amortized on a straight-line
basis over 25 years. Long-lived assets are reviewed for impairment whenever
events and changes in business circumstances indicate the carrying value of the
assets may not be recoverable. Impairment losses are recognized if expected
future cash flows of the related assets are less than their carrying value.
6
<PAGE>
Earnings (loss) per Common Share
The Financial Accounting Standards Board issued SFAS 128 Earnings per Share
("SFAS 128"), which specifies the computation, presentation and disclosure
requirements for earnings per share ("EPS"). It replaces the presentation of
primary and fully diluted EPS with basic and diluted EPS. Basic EPS excludes
all dilution. It is based upon the weighted average number of common shares
outstanding during the period. Diluted EPS reflects the potential dilution that
would occur if securities or other contracts to issue common stock were
exercised or converted into common stock. The Company has adopted SFAS 128 in
the quarter ended December 31, 1997 and has restated all previously reported per
share amounts to conform to the new presentation.
Diluted 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 diluted loss per common share since their
effect would have been anti-dilutive.
A reconciliation of the basic and diluted EPS for the three and six months
ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, 1997 December 31, 1997
BASIC DILUTED BASIC DILUTED
<S> <C> <C> <C> <C>
Net income (loss) $ 92,578 $ 92,578 $ 113,750 $ 113,750
========= ========= ========= =========
Weighted average common shares
outstanding 3,234,541 3,234,541 3,182,328 3,182,328
Additional shares due to
potential exercise of stock
options 94,139 121,878
--------- --------- --------- ---------
Weighted average common shares
outstanding 3,234,541 3,328,680 3,182,328 3,304,206
========= ========= ========= =========
Earnings per share $ 0.03 $ 0.03 $ 0.04 $ 0.03
========= ========= ========= =========
</TABLE>
7
<PAGE>
2. Line of Credit
The Company has a line of credit with a financial institution expiring
February 15, 1998 under which it may borrow up to 75% 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 December
31, 1997, borrowings outstanding under the line amounted to $1,000,000 with
$500,000 available for future borrowings.
The Company's subsidiaries have lines of credit which allow borrowings of
up to $1,200,000. As of December 31, 1997, borrowings outstanding under these
lines amounted to $368,755. Such lines of credit may be terminated in the three
months ending March 31, 1998.
3. Acquisitions
In December 1997, the Company acquired all of the outstanding capital stock
of POSNET Computers, Inc. ("POSNET"). POSNET sells, installs and maintains POS
systems and turnkey retail automation systems. The purchase price for the
POSNET capital stock consisted of 225,000 shares of the Company's common stock.
The company may be required to issue an additional 75,000 shares of its common
stock in 1998 and shares of its common stock with a market value of $500,000 in
each of 1999 and 2000 based upon the cumulative net profits of POSNET during the
three years ending December 31, 2000. The acquisition has been accounted for by
the purchase method, and accordingly, the results of operations of POSNET will
be included with those of the Company commencing on January 1, 1998. The
puchase price of $1,586,250 (including acquisition costs of approximately
$67,500) resulted in excess of acquisition costs over net assets of
approximately $1,712,500. Such excess (which will increase for any contingent
payments) is being amortized on a straight-line basis over 25 years.
In December 1997, the Company acquired all of the outstanding capital stock
of CCI Group, Inc. ("CCI"). CCI sells, installs and maintains POS systems and
turnkey retail automation systems. The purchase price for the CCI capital stock
consisted of 670,000 shares of the Company's common stock. The acquisition has
been accounted for by the purchase method, and accordingly, the results of
operations of CCI will be included with those of the Company commencing on
January 1, 1998. The purchase price of $4,448,000 (including costs of
acquisition of $82,500) resulted in excess of acquisition costs over net assets
of approximately $3,843,800. Such excess is being amortized on a straight-line
basis over 25 years.
Cash received in connection with the Company's purchase acquisitions is as
follows:
<TABLE>
<S> <C>
Fair value of assets acquired $9,152,108
Less liabilities assumed 3,932,991
Less stock issued to sellers 5,884,219
----------
Cash received $ 665,102
==========
</TABLE>
8
<PAGE>
4. Stockholders' Equity
Common Stock
During the six months ended December 31, 1997, the Company issued 895,000
shares of its common stock in connection with the acquisitions described in Note
3 and 20,400 shares of common stock upon the exercise of stock options with a
weighted average exercise price of $3.50 per share.
Income tax benefits from the exercise of the stock options of approximately
$59,000 has been credited to additional paid-in capital in the accompanying
consolidated balance sheet.
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 six months ended December 31, 1997, the Company
recognized $31,545 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 six months ended December 31, 1997, options to purchase 44,000 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 $7.18.
In December 1997, the stockholders approved at the Company's annual meeting
the Company's 1997 Equity Incentive 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 20% per year over a 5 year period. All options expire
ten years from the date of grant. It is the Company's intention to grant
options under the Plan principally to employees. During the six months ended
December 31, 1997, options to purchase 265,000 shares of common
9
<PAGE>
stock were granted at fair market value on the date of grant. The weighted
average exercise price of such options was $8.69.
10
<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 and six month periods ended December 31, 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. In December 1997, the Company acquired all of the
outstanding capital stock of POSNET Computers, Inc. and CCI Group, Inc. The
acquisitions have been accounted for by the purchase method, and accordingly,
the operations of the subsidiaries will be included with the operations of the
Company commencing in January 1998.
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 forward-looking statements 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.
11
<PAGE>
Results of Operations
Three months ended December 31, 1997 as compared to three months ended December
31, 1996
Net sales for the three months ended December 31, 1997 increased by $3,168,722
to $4,452,249 compared to net sales of $1,283,527 for the three months ended
December 31, 1996. These increases are due to increases in the number of unit-
sales of NexDisplay 4 and NexDisplay LC systems. During the three months ended
December 31, 1997, the Company sold 1,169 NexDisplay 4 and 1,304 NexDisplay LC
systems to 96 customers compared to sales of 780 NexDisplay 4 systems to 64
customers for the three months ended December 31, 1996.
Gross margin was 23% for the three months ended December 31, 1997 as compared
to a gross margin of 19.8% for the three months ended December 31, 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 corporate
warehouse. Management believes that responsiveness, quality, and profitability
have improved because of this change. The Company continues to evaluate
outsourcing partners who may be able to offer the responsiveness required.
Furthermore, 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 increased
volume of purchases by the Company.
Research and development expenses for the three months ended December 31, 1997
increased by $83,406 to $169,486 compared to research and development expenses
of $86,080 for the three months ended December 31, 1996. Such expenses consisted
primarily of payroll expenses and consulting expenses. Management anticipates a
substantial increase in research and development costs primarily due to the
anticipated introduction of several product enhancements and new products.
Selling and marketing expenses for the three months ended December 31, 1997
increased by $165,501 to $261,311 compared to selling and marketing expenses of
$95,810 for the three months ended December 31, 1996. Such expenses consisted
primarily of payroll, tradeshow fees, 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.
12
<PAGE>
General and administrative expenses for the three months ended December 31,
1997 increased by $231,413 to $448,156 compared to general and administrative
expenses of $216,743 for the three months ended December 31, 1996. Such expenses
consisted primarily of payroll costs, professional services, utilities, supplies
and rent. 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 in the future these expenses will not
increase significantly as a percentage of sales.
Interest expense for the three months ended December 31, 1997 decreased by
$544,591 to $6,918 compared to interest expense of $551,509 for the three months
ended December 31, 1996. The decrease is due to a reduction in interest-bearing
debt and inclusion of interest expense for the three months ended December 31,
1996 of $522,867 related to warrants issued in connection with certain
promissory notes. This non-recurring interest expense is 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 of $59,189 was required for
the three months ended December 31, 1997 since the Company incurred taxable
income while no provision was required for the three months ended December 31,
1996 as the Company incurred a net taxable loss for that period.
Six months ended December 31, 1997 as compared to six months ended December 31,
1996
Net sales for the six months ended December 31, 1997 increased by
$4,767,086 to $7,402,355 compared to net sales of $2,635,249 for the six months
ended December 31, 1996. These increases are due to increases in the number of
unit-sales of NexDisplay 4 and NexDisplay LC systems. During the six months
ended December 31, 1997, the Company sold 2,175 NexDisplay 4 and 1,895
NexDisplay LC systems to 148 customers compared to sales of 2,311 NexDisplay 4
systems to 77 customers for the six months ended December 31, 1996.
Gross margin was 23% for the six months ended December 31, 1997 as compared
to gross margin of 21.1% for the six months ended December 31, 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 corporate
warehouse. Management believes that responsiveness, quality, and profitability
have improved because of this change. The Company continues to evaluate
outsourcing partners who may be able to offer the responsiveness required.
Furthermore, 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 increased
volume of purchases by the Company.
13
<PAGE>
Research and development expenses for the six months ended December 31,
1997 increased by $167,081 to $306,725 compared to research and development
expenses of $139,644 for the six months ended December 31, 1996. Such expenses
consisted primarily of payroll expenses and consulting expenses. Management
anticipates a substantial increase in research and development costs primarily
due to the anticipated introduction of several product enhancements and new
products.
Selling and marketing expenses for the six months ended December 31, 1997
increased by $256,149 to $408,824 compared to selling and marketing expenses of
$152,675 for the six months ended December 31, 1996. Such expenses consisted
primarily of payroll, tradeshow fees, 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.
General and administrative expenses for the six months ended December 31,
1997 increased by $463,918 to $822,828 compared to general and administrative
expenses of $358,910 for the six months ended December 31, 1996. Such expenses
consisted primarily of payroll costs, professional services, utilities, supplies
and rent. 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 in the future these expenses will not
increase significantly as a percentage of sales.
Interest expense for the six months ended December 31, 1997 decreased by
$695,699 to $8,760 compared to interest expense of $704,459 for the six months
ended December 31, 1996. The decrease is due to a reduction in interest-bearing
debt and inclusion of interest expense for the six months ended December 31,
1996 of $636,097 related to warrants issued in connection with certain
promissory notes. This non-recurring interest expense is 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 of $59,189 was required for
the six months ended December 31, 1997 since the Company incurred taxable income
while no provision was required for the six months ended December 31, 1996 as
the Company incurred a net taxable loss for that period.
14
<PAGE>
Liquidity and Capital Resources
As of December 31, 1997, the Company had a cash balance of $1,190,290 and
working capital of $3,289,981.
Cash used in operating activities for the six months ended December 31,
1997 totaled $844,983 and consisted primarily of investments in trade
receivables. Cash provided by investing activities for the six months ended
December 31, 1997 totaled $477,706 and resulted primarily from cash received in
connection with the acquisitions. Cash provided by financing activities for the
six months ended December 31, 1997 totaled $871,400 and consisted primarily of
net borrowings under the line of credit. The Company has obtained a line of
credit providing for borrowings of up to 75% of eligible accounts receivable (as
defined) bearing interest at the prime rate. As of December 31, 1997, borrowings
available under the line of credit amounted to approximately $500,000.
The Company believes that it has adequate financial resources to meet its
reasonably foreseeable future liquidity and capital requirements.
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds
Recent Sales of Unregistered Securities. Since October 1, 1997, the Company
has sold and issued the following securities which were not registered under the
Securities Act:
(1) On December 19, 1997, the Company issued 225,000 shares of its Common
Stock to the former shareholders of POSNET Computers, Inc. ("POSNET")
in exchange for all of the outstanding shares of capital stock of
POSNET. On December 22, 1997, the Company issued 670,000 shares of its
Common Stock to the former shareholders of CCI Group, Inc. ("CCI") in
exchange for all of the outstanding shares of capital stock of CCI.
The total number of shares of Common Stock issued to the former
shareholders of POSNET and CCI are collectively referred to herein as
the "Shares". The Company did not engage the services of any
underwriter in connection with the issuances of the Shares. The sale
and issuance of the Shares were deemed to be exempt under the
Securities Act by virtue of Section 4(2) and/or Regulation D
promulgated thereunder. The Company's reliance on such exemptions was
based, in part, on the representations made by the holders of capital
stock of POSNET and CCI.
15
<PAGE>
Item 4. Submissions of Matters to a Vote of Security Holders
(a) The 1997 Annual Meeting of Stockholders (the "Annual Meeting") was
held on December 12, 1997.
(b) The following sets forth a brief description of each matter voted upon
at the Annual Meeting and the results of the voting of each such
matter:
(1) For the election of the following nominee as director:
<TABLE>
<CAPTION>
Withheld Authority or
For or Against
<S> <C> <C>
2,937,226 9,000
</TABLE>
(2) To approve the Company's Equity Incentive Plan
<TABLE>
<CAPTION>
For Against Abstained Non-votes
<S> <C> <C> <C>
2,342,445 38,700 6,200 558,881
</TABLE>
(3) To ratify the selection of Ernst & Young LLP as independent auditors
of the Company for its fiscal year ending June 30, 1998
<TABLE>
<CAPTION>
For Against Abstained Non-votes
<S> <C> <C> <C>
2,904,826 36,000 5,400
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
<TABLE>
<CAPTION>
(a) Exhibits
<C> <S>
2.1 Plan of Reorganization and Stock Purchase Agreement dated December
22, 1997 by and among Javelin Systems, Inc., CCI Group, Inc., Robert
Nichols, Robert Hess, Melissa Sobo and Renee Virol. (1)
2.2 Stock Purchase Agreement dated December 19, 1997 among Javelin
Systems, Inc., POSNET Computers, Inc., Mark LeMay and all of the
shareholders of POSNET Computers, Inc. (2)
3.1 Amended and Restated Certificate of Incorporation (incorporated
herein by reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form SB-2 filed with the Securities and Exchange
Commission (the "SEC") on August 30, 1996 (the "Form SB-2")).
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
3.2 Amended and Restated Bylaws of Registrant (incorporated by reference
to Exhibit No. 3.2 to the Form SB-2).
3.3 Certificate of Amendment of Amended and Restated Certificate of
Incorporation of Registrant (incorporated by Reference to Exhibit No.
3.3 to Amendment No. 1 to the Form SB-2 filed with the SEC on October
3, 1996)(the "Amendment No. 1 to Form SB-2").
3.4 Amendment to Amended and Restated Bylaws of Registrant (incorporated
by reference to Exhibit No. 3.4 to Amendment No. 1 to the Form SB-2).
4.1 Form of Representative's Warrant Agreement by and between the
Registrant and Meridien Capital Group, Inc. (incorporated by
reference to Exhibit No. 4.1 to Amendment No. 2 to Form SB-2 filed
with the SEC on October 25, 1996 (the "Amendment No. 2 to Form SB-
2)).
4.2 Form of Certificate evidencing shares of Registrant's common stock
(incorporated by reference to Exhibit No. 4.2 to Amendment No. 1 to
Form SB-2).
27.1 Financial Data Schedule in accordance with Article 5 of Regulation
SX.
</TABLE>
(b) Reports on Form 8-K
The Company filed a report on Form 8-K under Item 2 of such form dated
December 30, 1997 for the acquisition of POSNET Computers, Inc. and a
report on Form 8-K under Item 2 of such form dated January 5, 1998 for the
acquisition of CCI Group, Inc.
(1) Filed as Exhibit 2.1 to the Company's current Report on Form 8-
K filed with the Commission on January 5, 1998 and incorporated
herein.
(2) Filed as Exhibit 2.1 to the Company's current Report on Form 8-
K filed with the Commission on December 31, 1997 and
incorporated herein.
17
<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.
February 13, 1998
- ----------------------- -----------------------
Date Richard P. Stack
Chief Executive Officer
and President
February 13, 1998
- ----------------------- -----------------------
Date Horace Hertz
Chief Financial Officer
18
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
<C> <S>
27.1 Financial Data Schedule in accordance with Article 5 of Regulation SX.
</TABLE>
19
<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 DECEMBER 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> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,190,290
<SECURITIES> 0
<RECEIVABLES> 4,933,367
<ALLOWANCES> 98,000
<INVENTORY> 3,419,508
<CURRENT-ASSETS> 9,640,213
<PP&E> 815,810
<DEPRECIATION> 90,538
<TOTAL-ASSETS> 15,997,931
<CURRENT-LIABILITIES> 6,350,232
<BONDS> 0
0
0
<COMMON> 40,347
<OTHER-SE> 9,604,175
<TOTAL-LIABILITY-AND-EQUITY> 15,997,931
<SALES> 4,452,249
<TOTAL-REVENUES> 4,452,249
<CGS> 3,427,525
<TOTAL-COSTS> 878,953
<OTHER-EXPENSES> (12,914)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,918
<INCOME-PRETAX> 151,767
<INCOME-TAX> 59,189
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 92,578
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
