<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, 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: 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.)
17891 CARTWRIGHT
IRVINE, CALIFORNIA 92614
(Address of Principal Executive Offices) (Zip Code)
(949) 440-8000
(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 January14,1999 5,835,333
</TABLE>
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -----
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (1)
JAVELIN SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1998*
------------ ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash $ $
Accounts receivable - net 14,703,700 7,449,700
Inventories 14,472,400 5,925,300
Deferred income taxes 204,900 204,900
Other current assets 593,300 426,900
------------ ------------
Total current assets 29,974,300 14,006,800
Property and equipment, net 1,797,500 1,036,400
Excess of cost over net assets of purchased businesses 10,230,600 6,457,500
Deferred financing costs 768,200 889,000
Other assets, net 173,200 141,600
------------ ------------
Total assets $ 42,943,800 $ 22,531,300
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 2,716,500 $ 1,343,000
Accounts payable 11,651,600 5,636,900
Accrued expenses 2,189,800 625,000
Current maturities of long-term debt 300,000 300,000
Customer deposits 648,800 1,197,200
Deferred maintenance revenues 368,000 385,300
Income taxes payable 1,038,400 438,700
------------ ------------
Total current liabilities 18,913,100 9,926,100
Long-term debt, net of current portion 1,359,600 1,200,000
Deferred rent expense 8,700 6,300
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--20,000,000
issued and outstanding shares--5,835,333 at December 31,
1998, and 4,111,962 at June 30, 1998 58,400 41,100
Additional paid in capital 21,472,400 11,270,900
Deferred compensation (22,200) (39,200)
Retained earnings 1,179,500 132,900
Cumulative translation adjustment (25,700) (6,800)
------------ ------------
Total stockholders' equity 22,662,400 11,398,900
------------ ------------
Total liabilities and stockholders' equity $ 42,943,800 $ 22,531,300
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
2
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*The balance sheet at June 30, 1998 has been derived from audited financial
statements.
SEE ACCOMPANYING NOTES.
3
<PAGE>
JAVELIN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31
--------------------------- ---------------------------
1998 1997 1998 1997
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 13,997,500 $ 4,452,200 $ 25,585,400 $ 7,402,400
Service 3,870,000 5,214,300
------------ ----------- ------------ -----------
Total revenues 17,867,500 4,452,200 30,799,700 7,402,400
------------ ----------- ------------ -----------
Cost of Sales:
Product sales 10,165,400 3,427,500 18,321,700 5,696,300
Service 2,940,400 4,050,900
------------ ----------- ------------ -----------
Total cost of sales 13,105,800 3,427,500 22,372,600 5,696,300
------------ ----------- ------------ -----------
Gross profit 4,761,700 1,024,700 8,427,100 1,706,100
------------ ----------- ------------ -----------
Operating expenses:
Research and development 285,200 169,500 583,200 306,700
Selling and marketing 1,038,700 261,300 1,405,400 408,900
General and administrative 2,241,900 448,200 4,217,600 822,800
------------ ----------- ------------ -----------
Total operating expenses 3,565,800 879,000 6,206,200 1,538,400
------------ ----------- ------------ -----------
Income from operations 1,195,900 145,700 2,220,900 167,700
Interest expense (234,700) (6,900) (469,200) (8,800)
Other income (expense) (6,700) 8,900 17,700 6,100
Interest income 4,500 4,100 8,200 8,000
------------ ----------- ------------ -----------
Net income before income taxes 959,000 151,800 1,777,600 173,000
Provision for income taxes (385,000) (59,200) (731,000) (59,200)
------------ ----------- ------------ -----------
Net income $ 574,000 $ 92,600 $ 1,046,600 $ 113,800
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
Earnings per common share:
Basic $ 0.11 $ 0.03 $ 0.22 $ 0.04
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
Diluted $ 0.11 $ 0.03 $ 0.22 $ 0.03
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
Shares used in computing
Earnings per share:
Basic 5,251,180 3,234,541 4,691,368 3,182,328
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
SEE ACCOMPANYING NOTES.
4
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Diluted 5,390,930 3,328,680 4,831,333 3,304,206
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
JAVELIN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,046,600 $ 113,800
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization 530,600 52,400
Amortization of deferred compensation 17,000 31,500
Loss on disposal of assets 2,800
Deferred rent expense 2,400 3,200
Income tax benefit from exercise of stock options 59,200
Non-cash allowances 192,200 125,000
Changes in operating assets and liabilities:
Accounts receivable (4,536,000) (1,224,300)
Inventories (7,577,000) (167,200)
Other current assets 58,200 (293,500)
Accounts payable 4,687,600 487,100
Accrued expenses 689,300 (35,000)
Income taxes payable 567,500
Customer deposits (548,400)
Deferred maintenance (129,100)
------------ ------------
Net cash used in operating activities (4,999,100) (845,000)
------------ ------------
INVESTING ACTIVITIES
Purchase of equipment (685,700) (180,100)
Cash (paid for) received from purchased businesses (1,889,800) 665,100
Other assets (61,700) (7,300)
------------ ------------
Net cash provided by (used in) investing activities (2,637,200) 477,700
------------ ------------
FINANCING ACTIVITIES
Net (payments) borrowings under line of credit (341,000) 800,000
Proceeds from issuance of notes payable 5,800
Repayment of notes payable (180,500)
Deferred financing costs (29,400)
Net proceeds from public offering 8,146,400
Exercise of stock options 70,400 71,400
------------ ------------
Net cash provided by financing activities 7,671,700 871,400
------------ ------------
CUMULATIVE TRANSLATION ADJUSTMENT (35,400)
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS - 504,100
Cash and cash equivalents at beginning of period 686,200
------------ ------------
Cash and cash equivalents at end of period $ - $ 1,190,300
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
SEE ACCOMPANYING NOTES.
6
<PAGE>
Income tax paid $ 161,300 $ ---
------------ ------------
------------ ------------
Interest paid $ 319,100 $ 6,900
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
AND INVESTING ACTIVITIES:
See Note 2 for the acquisition of businesses in exchange for
shares of the Company's common stock
Equity statement needed.
</TABLE>
SEE ACCOMPANYING NOTES.
7
<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, sells and provides services for open systems touch
screen point-of-sale ("POS") computers.
In December 1997, Javelin acquired all of the outstanding common stock of POSNET
Computers, Inc. ("Posnet") and CCI Group, Inc. ("CCI"). Posnet and CCI provide
full turn-key systems integration services, including system consulting,
staging, training, deployment, product support and maintenance.
In March and April 1998, Javelin established three international subsidiaries to
expand its sales and distribution channels in the international marketplace.
The international subsidiaries are: Javelin Systems (Europe) Limited ("Javelin
Europe") headquartered in England; Javelin Systems International Pte Ltd
("Javelin Asia") headquartered in Singapore; and Javelin Systems Australia Pty
Limited ("Javelin Australia") headquartered in Australia.
In May 1998, Javelin Asia acquired all of the outstanding common stock of
Aspact IT Services (Singapore) Pte Ltd ("Aspact"). Aspact is headquartered in
Singapore and provides consulting and system integration services.
In November 1998, the Company completed a public offering of 1,395,000 shares of
its common stock at $6.75 per share, netting proceeds to the Company of
approximately $8.1 million. Proceeds to the Company were used to repay
borrowings under a revolving line of credit of approximately $3.2 million, to
purchase all of the outstanding common stock of RGB/Trinet Ltd and Jade
Communications Ltd, as described in Note 2, and for general corporate purposes.
In December 1998, the Company increased the number of authorized shares of
common stock from 10,000,000 to 20,000,000.
Hereinafter, Javelin and its subsidiaries are referred to as the Company.
BASIS OF PRESENTATION
The accompanying consolidated 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
8
<PAGE>
unaudited financial statements are reflected herein. All such adjustments are
normal and recurring in nature. The consolidated financial statements include
the accounts of Javelin and of its wholly owned subsidiaries. All significant
intercompany transactions and balances have been eliminated. 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.
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,
1998 1998
------------ ------------
<S> <C> <C>
Raw materials $12,569,400 $ 3,572,500
Work in process 1,217,800 -
Finished goods 685,200 2,352,800
------------ ------------
$14,472,400 $ 5,925,300
------------ ------------
</TABLE>
EARNINGS PER COMMON SHARE
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 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 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.
A reconciliation of the basic and diluted EPS for the three and six months ended
December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
December 31, 1998 December 31, 1997
------------------------------ -------------------------------
BASIC DILUTED BASIC DILUTED
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $ 574,000 $ 574,000 $ 92,600 $ 92,600
9
<PAGE>
Weighted average common shares
outstanding 5,251,180 5,251,180 3,234,541 3,234,541
Additional shares due to potential
exercise of stock options 139,750 94,139
---------- ---------- ---------- ----------
Diluted weighted average
common shares outstanding 5,251,180 5,390,930 3,234,541 3,328,680
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings Per Share $ 0.11 $ 0.11 $ 0.03 $ 0.03
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
December 31, 1998 December 31, 1997
------------------------------ ------------------------------
BASIC DILUTED BASIC DILUTED
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $1,046,600 $1,046,600 $ 113,800 $ 113,800
Weighted average common shares
outstanding 4,691,368 4,691,368 3,182,328
3,182,328
Additional shares due to potential
exercise of stock options 139,035 121,878
---------- ---------- ---------- ----------
Diluted weighted average
common shares outstanding 4,691,368 4,831,333 3,182,328 3,304,206
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per share $ 0.22 $ 0.22 $ 0.04 0.03
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
COMPREHENSIVE INCOME
Effective in the first quarter of fiscal 1999, the Company adopted Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 establishes standards for reporting and displaying of
comprehensive income and its components in the Company's consolidated
financial statements. Comprehensive income is defined in SFAS 130 as the
change in equity (net assets) of a business enterprise during the period from
transactions and other events and circumstances from nonowner sources. Total
comprehensive income was $92,600 and $553,900 for the quarters ended December
31, 1997 and 1998, respectively, and $113,800 and $1,035,400 for the six
months ended December 31, 1997 and 1998, respectively. The primary difference
from net income as reported is the tax effected change in the cumulative
translation adjustment.
RECENTLY ISSUED ACCOUNTING STANDARD
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"), which supersedes Statement of Financial Accounting Standards
No. 14. This statement changes the way
10
<PAGE>
that publicly-held companies report information about operating segments as
well as disclosures about products and services, geographic areas and major
customers. Operating segments are defined as revenue-producing components of
the enterprise, which are generally used internally for evaluating segment
performance. SFAS 131 will be effective for the Company's year ending June
30, 1999 and will not affect the financial position or results of operations.
2. ACQUISITIONS
In August 1998, the Company agreed to issue 56,250 shares of its common
stock, valued at $363,200, to the former shareholders of Posnet in
consideration for the elimination of any future Earnout Shares. The value of
these shares was recorded as additional goodwill.
As described in Note 1, the Company acquired all of the outstanding capital
stock of RGB and 52.5% of the outstanding common stock of Jade in November 1998.
The remaining 47.5% of the outstanding common stock of Jade is owned by RGB.
RGB and Jade are headquartered in England and provide complementary Wide Area
Networking (WAN) products and services primarily to large retail and hospitality
chains as well as the telecommunications industry.
The aggregate purchase price for the RGB and Jade capital stock consisted of
$1,889,800 in cash (including acquistion costs of $148,700) and 257,058
shares of the Company's common stock. The Company may be required to issue
additional shares of its common stock with a market value of $3,290,000 in
each of 1999 and 2000 based upon the cumulative net profits of RGB and Jade
during the twenty-four month period ending September 30, 2000. The
acquisitions have been accounted for by the purchase method, and accordingly,
the results of operations of RGB and Jade have been included with those of
the Company commencing on the date of acquisition. The results of operations
of RGB and Jade were not material in relation to the Company's consolidated
results of operations. The puchase price of $3,528,500 resulted in excess of
acquisition costs over the fair value of net assets acquired by approximately
$2,865,200. Such excess (which will increase for any contingent payments) is
being amortized on a straight-line basis over 25 years. The final allocation
of the purchase price may vary as additional informatiion is obtained, and
accordingly, the ultimate allocation may differ from those used in the
unaudited consolidated financial statements included herein.
Cash paid in connection with the Company's purchase acquisitions is as follows:
<TABLE>
<S> <C>
Fair value of assets acquired, including goodwill $ 7,261,600
Less liabilities assumed (3,733,100)
Less stock issued to sellers (1,638,700)
------------
Cash paid $ 1,889,800
------------
------------
</TABLE>
11
<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, manufactures and markets
open system touch screen point-of-sale ("POS") computers and provides POS
systems integration services primarily for the food service and retail
industries.
Hereinafter, Javelin and its subsidiaries are referred to as the Company.
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.
12
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1998 AS COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1997
The following table sets forth certain statements of operations data as a
percentage of total revenues for the three months ended December 31, 1998 and
1997:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1997
----- -----
<S> <C> <C>
Revenues:
Hardware and related software 78.3% 100.0%
Services 21.7
----- -----
Total revenues 100.0 100.0
----- -----
Cost of revenues:
Hardware and related software 72.6 77.0
Services 76.0
----- -----
Total cost of revenues 73.3 77.0
----- -----
Gross profit 26.7 23.0
----- -----
Operating expenses:
Research and development 1.6 3.8
Selling and marketing 5.8 5.9
General and administrative 12.6 10.0
----- -----
Total operating expenses 20.0 19.7
----- -----
Operating income 6.7 3.3
Interest expense (1.3) (0.2)
Other income -- .2
Interest income .1
Provision for income taxes (2.2) (1.3)
----- -----
Net income 3.2% 2.1%
----- -----
----- -----
</TABLE>
REVENUES. Revenues increased by 301.3% to $17.9 million in 1998 compared to
revenues of $4.5 million for 1997. The change is due to an increase in
revenues relating to Javelin hardware
13
<PAGE>
sales of $1.9 million (42.6%), hardware revenues from CCI and RGB/Jade of
$4.1million and $993,000, respectively, service revenues from CCI and RGB/Jade
of $1.0 million and $2.6 million, respectively, and revenues primarily from
hardware from the newly established foreign subsidiaries of $2.8 million. The
increases relating to Javelin are attributable primarily to increases in the
number of units sold (approximately 5,400 units in 1998 compared to 2,400 in
1997).
GROSS PROFIT. Gross profit increased by 364.7% to $4.7 million in 1998 compared
to a gross profit of $1.0 million in 1997. The change is due to an increase in
gross profit relating to Javelin of $1.0 million (97.7%), gross profit relating
to hardware sales by CCI and RGB/Jade of $724,000 and $449,000, respectively,
gross profit relating to services provided by CCI and RGB/Jade of $2,000 and
$760,000, respectively, and gross profit from the newly established foreign
subsidiaries of $802,000. The increases relating to Javelin are attributable to
the increase in revenues and a reduction in the cost of its products due to
reductions in prices from the Company's suppliers resulting from increased
volume of purchases by the Company and the realization of manufacturing
efficiencies.
RESEARCH AND DEVELOPMENT. Research and development expenses increased by
68.4% to $285,000 in 1998 compared to research and development expenses of
$169,000 in 1997. All research and development activities are conducted by
Javelin. The increase is primarily attributable to increased payroll costs due
to the hiring of additional engineers.
SELLING AND MARKETING. Selling and marketing expenses increased by 297.5% to
$1.0 million in 1998 compared to selling and marketing expenses of $261,000 in
1997. The change is due to an increase in expenses of Javelin of $168,000
(64.4%), increases in expenses of RGB/Jade of $447,000 and in expenses of the
newly established foreign subsidiaries of $162,000. Such expenses consisted
primarily of payroll, tradeshow fees, and travel costs. The increase at Javelin
is primarily attributable to additional personnel and advertising costs
associated with the growth of the business.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by
400.2% to $2.2 million in 1998 compared to general and administrative of
$448,000 in fiscal 1997. The change is due to an increase in general and
administrative expenses relating to Javelin of $94,000 (20.8%), general and
administrative expenses from CCI of $960,000, general and administrative from
the newly established foreign subsidiaries of $490,000 and general and
administrative expenses of RGB/Jade of $250,000. The increase at Javelin
consisted primarily of increased payroll costs due primarily to an increase in
the number of employees, increased facility costs due to expansion and increased
costs associated with being a public company.
INTEREST EXPENSE. Interest expense increased by $228,000 to $235,000 in 1998
compared to interest expense of $7,000 in 1997. The increase is due to
borrowings under the credit facility in 1988. Such borrowings were necessary to
sustain the growth of business.
14
<PAGE>
INCOME TAXES. Provision for federal, state and foreign income taxes increased by
$326,000 to $385,000 in 1998 compared to income tax expenses of $59,000 in 1997.
The increase is attributable to the increase in income before income taxes of
$807.000.
SIX MONTHS ENDED DECEMBER 31, 1998 AS COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1997
The following table sets forth certain statements of operations data as a
percentage of total revenues for the six months ended December 31, 1998 and
1997:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1997
----- -----
<S> <C> <C>
Revenues:
Hardware and related software 83.1% 100.0%
Services 16.9
----- -----
Total revenues 100.0 100.0
----- -----
Cost of revenues:
Hardware and related software 71.6 77.0
Services 77.7
----- -----
Total cost of revenues 72.6 77.0
----- -----
Gross profit 27.4 23.0
----- -----
Operating expenses:
Research and development 1.9 4.1
Selling and marketing 4.6 5.5
General and administrative 13.7 11.1
----- -----
Total operating expenses 20.2 20.7
----- -----
Operating income 7.2 2.3
Interest expense (1.5) (0.1)
Other income 0.1 --
Provision for income taxes (2.4) (.8)
----- -----
Net income 3.4% 1.5%
----- -----
----- -----
</TABLE>
REVENUES. Revenues increased by 316.1% to $30.8 million for the first six
months of 1999 compared to revenues of $7.4 million for the first six months
of 1998. The change is due to an increase in revenues relating to Javelin
hardware
15
<PAGE>
sales of $5.7 million (77.2%), hardware revenues from CCI and RGB/Jade of
$7.3 million and $1.0 million, respectively, service revenues from CCI and
RGB/Jade of $2.2 million and $2.6 million, respectively, and revenues
primarily from hardware from the newly established foreign subsidiaries of
$4.6 million. The increases relating to Javelin are attributable primarily to
increases in the number of units sold (approximately 10,900 units in 1998
compared to 4,000 in 1997).
GROSS PROFIT. Gross profit increased by 393.9% to $8.4 million for the first
six months of 1999 compared to a gross profit of $1.7 million for the first
six months of 1998. The change is due to an increase in gross profit relating
to Javelin of $2.5 million (147.2%), gross profit relating to hardware sales
by CCI and RGB/Jade of $1.5 million and $449,000, respectively, gross profit
relating to services provided by CCI and RGB/Jade of $101,000 and $760,000,
respectively, and gross profit from the newly established foreign
subsidiaries of $1.4 million. The increases relating to Javelin are
attributable to the increase in revenues and a reduction in the cost of its
products due to reductions in prices from the Company's suppliers resulting
from increased volume of purchases by the Company and the realization of
manufacturing efficiencies.
RESEARCH AND DEVELOPMENT. Research and development expenses increased by
90.0% to $583,000 for the first six months of 1999 compared to research and
development expenses of $307,000 for the first six months of 1998. All
research and development activities are conducted by Javelin. The increase
is primarily attributable to increased payroll costs due to the hiring of
additional engineers.
SELLING AND MARKETING. Selling and marketing expenses increased by 243.7% to
$1.4 million for the first six months of 1999 compared to selling and
marketing expenses of $409,000 for the first six months of 1998. The change
is due to an increase in expenses of Javelin of $340,000 (16.9%), increases
in expenses of RGB/Jade of $447,000 and in expenses of the newly established
foreign subsidiaries of $209,000. Such expenses consisted primarily of
payroll, tradeshow fees, and travel costs. The increase at Javelin is
primarily attributable to additional personnel and advertising costs
associated with the growth of the business.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by
412.6% to $4.2 million for the first six months of 1999 compared to general
and administrative of $823,000 for the first six months of 1998. The change
is due to an increase in general and administrative expenses relating to
Javelin of $309,000 (24.5%), general and administrative expenses from CCI of
$1.9 million, general and administrative from the newly established foreign
subsidiaries of $947,000 and general and administrative expenses of RGB/Jade
of $250,000. The increase at Javelin consisted primarily of increased
payroll costs due primarily to an increase in the number of employees,
increased facility costs due to expansion and increased costs associated with
being a public company.
INTEREST EXPENSE. Interest expense increased by $460,000 to $469,000 in 1998
compared to interest expense of $9,000 in 1997. The increase is due to
borrowings under the credit facility in 1988. Such borrowings were necessary to
sustain the growth of business.
INCOME TAXES. Provision for federal, state and foreign income taxes increased
from 34.2% of income before income taxes for the first six months of 1998 to
41.1% of income before income taxes for the first six months of 1999. The
16
<PAGE>
increase is attributable to the utilization of available tax benefits in
fiscal 1997. All of such benefits were utilized during the fiscal year ended
June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
In October and November 1998, the Company received proceeds of $8.1 million
from the sale of 1,395,000 shares of its common stock in a public offering.
On June 8, 1998, the Company and its U.S. subsidiaries obtained a credit
facility of $7.5 million from a financial institution. The credit facility
expires on June 8, 2001 and consists of a line of credit of up to $6.0 million
and a term loan of $1.5 million. Under the line of credit, the Company may
borrow up to 80% of eligible receivables (as defined) and 50% of eligible
inventory (as defined) with monthly interest based upon the prime rate of a
national financial institution plus 1.75% (9.5% as of December 31, 1998). As of
December 31, 1998 borrowings outstanding under the line amounted to $2.4
million with approximately $3.5 million available for future borrowings.
Borrowings under the term loan are collateralized by substantially all of the
assets of the Company and bear interest at 13.65% per annum. The Company is
required to pay $25,000 per month under the term loan with all unpaid principal
and interest due on June 8, 2001.
As of December 31, 1998, the Company had working capital of $11.1 million.
Cash used in operating activities for the six months ended December 31, 1998
amounted to $5.0 million and consisted primarily of increases in trade
receivables and inventories. Cash used in investing activities for the six
months ended December 31, 1998 amounted to $2.8 million and consisted primarily
of cash used to acquire the outstanding common stock of RGB and Jade. Cash
provided by financing activities for the six months ended December 31, 1998
amounted to $7.7 million and consisted primarily of the proceeds from the public
offering completed in November.
The Company believes that the net proceeds from the public offering completed in
November 1998, together with the availability of its line of credit, will be
sufficient to meet its capital requirements for the foreseeable future.
17
<PAGE>
YEAR 2000
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The year 2000 problem is
pervasive and complex as virtually every computer operation will be affected in
some way by the rollover of the two digit year value to "00". The issue is
whether computer systems will properly recognize date-sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail. The Company
is reviewing both its information technology and its non-information technology
systems to determine whether they are year 2000 compliant, and to date the
Company has not identified any material systems which are not year 2000
compliant. The Company has not made any material expenditure to address the year
2000 problem and at present does not anticipate that it will be required to make
any such material expenditures in the future.
The Company has initiated formal communications with all significant suppliers
and service providers to determine the extent to which the Company is vulnerable
to those third parties' failure to remediate the year 2000 problem. Although the
Company has received verbal assurances of year 2000 compliance from certain of
such third parties, the Company has not received written assurances of year 2000
compliance from the third parties with whom it has relationships. The Company
believes its operations will not be significantly disrupted even if third
parties with whom the Company has relationships are not year 2000 compliant. In
the event that the Company's suppliers are unable to provide sufficient
quantities of materials or goods to the Company as a result of their failure to
be year 2000 compliant, the Company believes that it can obtain adequate
supplies of materials and goods at comparable prices from other sources. In the
event that the Company's OEMs and VARs are adversely affected by any failure to
become year 2000 compliant and are therefore unable to purchase anticipated
quantities of the Company's products on a timely basis, the Company may seek to
replace such OEMs and VARs. Nevertheless, the Company believes that any year
2000 compliance problems of its suppliers, OEMs and VARs could cause the
Company's results of operations to fluctuate on a period to period basis.
Uncertainty exists concerning the potential costs and effects associated with
any year 2000 compliance, and the Company intends to continue to make efforts to
ensure that third parties with whom it has relationships are year 2000
compliant. Any year 2000 compliance problem of either the Company or third
parties with whom the Company has relationships could materially adversely
affect the Company's business, financial condition or results of operations.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"), which supersedes Statement of Financial Accounting Standards
No. 14. This statement changes the way that publicly-held companies report
information about operating segments as well as disclosures about products
and services, geographic areas and major customers. Operating segments are
defined as revenue-producing components of the enterprise, which are
generally used internally for evaluating segment performance. SFAS 131 will
be effective for the Company's year ending June 30, 1999 and will not affect
the financial position or results of operations.
18
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Since October 1, 1998, the Company has sold and issued the following
securities which were not registered under the Securities Act:
(1) In November 1998, the Company issued 257,058 shares of its Common
Stock to the former shareholders of RGB/Trinet Ltd. ("RGB") And Jade
Communications Ltd. ("Jade") in exchange for all of the outstanding
shares of capital stock of RGB and 52.5% of the outstanding common
stock of Jade. The total number of shares of Common Stock issued to
the former shareholders of RGB and Jade 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 Regulation S promulgated thereunder. The
Company's reliance on such exemption was based, in part, on the
representations made by the holders of capital stock of RGB and Jade.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
1. (a) The stockholders of the Company acted by written consent to increase
the number of shares authorized under the Company's 1997 Equity
Incentive Plan from 300,000 shares to 1,100,000 shares on October 26,
1998.
(b) The number of shares that voted in favor of the plan increase was
2,177,808.
2. (a) The 1998 Annual Meeting of Stockholders (the "Annual Meeting") was
held on December 31, 1998.
(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 nominees as director:
Jay L. Kear and Andrew F.Puzder
<TABLE>
<CAPTION>
For Against Abstained Non-votes
<S> <C> <C> <C>
2,451,203 0 3,800 1,721,359
</TABLE>
(2) To amend the Company's Certificate of Incorporation to increase the
number of the Company's Common Stock from ten miilion to twenty
million
19
<PAGE>
<TABLE>
<CAPTION>
For Against Abstained Non-votes
<S> <C> <C> <C>
2,451,203 0 3,800 1,721,359
</TABLE>
(3) To ratify the selection of PricewaterhouseCoopers LLP as independent
auditors of the Company for its fiscal year ending June 30, 1999
<TABLE>
<CAPTION>
For Against Abstained Non-votes
<S> <C> <C> <C>
2,386,749 65,954 2,300 1,721,359
</TABLE>
(c) In addition, the terms of Richard P. Stack, Steven Goodman and Robert
Nichols all continued after the Annual Meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
3.1 Amended and Restated Certificate of Incorporation of Registrant.
10.1 Second and Third Amendments to Loan and Security Agreement dated
December 15, 1998 and January 10, 1999, respectively, by and among
the Company, CCI Group, Inc., POSNET Computers, Inc. and FINOVA
Capital Corporation.
27.1 Financial Data Schedule in accordance with Article 5 of Regulation SX.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1998.
20
<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.
January 21, 999 /s/ RICHARD P. STACK
- ------------------------------ ----------------------------------------
Date Richard P. Stack
Chief Executive Officer
and President
January 21, 1999 /s/ HORACE HERTZ
- ------------------------------ ----------------------------------------
Date Horace Hertz
Chief Financial Officer
21
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of Registrant.
10.1 Second and Third Amendments to Loan and Security Agreement dated December
15, 1998 and January 10, 1999, respectively, by and among the Company, CCI
Group, Inc., POSNET Computers, Inc. and FINOVA Capital Corporation.
27.1 Financial Data Schedule in accordance with Article 5 of Regulation SX.
</TABLE>
22
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF JAVELIN SYSTEMS, INC.
JAVELIN SYSTEMS, INC. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "DGCL"), does hereby certify that:
1. The name of the Corporation is Javelin Systems, Inc. The Corporation
was originally incorporated under the name Sunwood Research, Inc. The
Certificate of Incorporation for Sunwood Research, Inc. was filed with the
Secretary of State of the State of Delaware (the "Secretary of State") on
September 19, 1995.
2. Pursuant to an Action by Unanimous Written Consent in lieu of a
meeting of the Board of Directors of the Corporation, the Corporation adopted
resolutions setting forth a proposed Amended and Restated Certificate of
Incorporation of the Corporation, declaring said Amended and Restated
Certificate of Incorporation to be advisable and authorizing the officers of
the Corporation to present the proposed Amended and Restated Certificate of
Incorporation to the stockholders of the Corporation for their consideration.
3. Thereafter, the proposed Amended and Restated Certificate of
Incorporation of the Corporation was approved by the holders of a majority of
the outstanding shares of stock of the Corporation entitled to vote thereon
at a duly convened annual meeting of stockholders called in accordance with
Section 222 of the DGCL.
4. Pursuant to Sections 242 and 245 of the DGCL, this Amended and
Restated Certificate of Incorporation restates and further amends the
provisions of the Amended and Restated Certificate of Incorporation of this
Corporation filed with the Secretary of State on August 23, 1996 and the
Certificate of Amendment of Amended and Restated Certificate of Incorporation
of this Corporation filed with the Secretary of State October 3, 1996.
5. This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Sections 242 and 245 of the DGCL.
6. The text of the Certificate of Incorporation of the Corporation is
hereby restated and further amended to read in its entirety as follows:
FIRST. The name of the Corporation is Javelin Systems, Inc.
SECOND. The address of the Corporation's registered office in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the DGCL.
1.
<PAGE>
FOURTH.
(A) AUTHORIZED SHARES. The total number of shares which the Corporation
shall have authority to issue is twenty-one million (21,000,000) shares of
capital stock, of which twenty million (20,000,000) shares shall be
designated Common Stock, par value of $.01 per share, and one million
(1,000,000) shares shall be designated Preferred Stock, par value of $.01 per
share.
(B) PREFERRED STOCK. Shares of Preferred Stock may be issued from time
to time in one or more classes or series as the Board of Directors, by
resolution or resolutions, may from time to time determine, each of said
classes or series to be distinctively designated (each such resolution and
designation hereinafter being referred to as a "Preferred Stock
Designation"). The voting powers, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations or
restrictions thereof, if any, of each such class or series may differ from
those of any and all other classes or series of Preferred Stock at any time
outstanding, and the Board of Directors is hereby expressly granted authority
to fix or alter, by resolution or resolutions, the designation, number,
voting powers, preferences and relative, participating, optional and other
special rights, and the qualifications, limitations and restrictions thereof,
of each such class or series, including, but without limiting the generality
of the foregoing, the following:
(1) The distinctive designation of, and the number of shares of
Preferred Stock that shall constitute, such class or series, which number
(except as otherwise provided by the Board of Directors in the resolution
establishing such class or series) may be increased or decreased (but not
below the number of shares of such class or series then outstanding) from
time to time by like actions of the Board of Directors;
(2) The rights in respect of dividends, if any, of such class or series
of Preferred Stock, the extent of the preference or relation, if any, of such
dividends to the dividends payable on any other class or classes or any other
series of the same or other class or classes of capital stock of the
corporation, and whether such dividends shall be cumulative or noncumulative;
(3) The right, if any, of the holders of such class or series of
Preferred Stock to convert the same into, or exchange the same for, shares of
any class or classes or of any other series of the same or any other class or
classes of capital stock of the Corporation and the terms and conditions of
such conversion or exchange;
(4) Whether or not shares of such class or series of Preferred Stock
shall be subject to redemption, and the redemption price or prices and the
time or times at which, and the terms and conditions on which, shares of such
class or series of Preferred Stock may be redeemed;
(5) The rights, if any, of the holders of such class or series of
Preferred Stock upon the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation or in the event of any merger or consolidation
of or sale of assets by the Corporation;
2.
<PAGE>
(6) The terms of any sinking fund or redemption or purchase account, if
any, to be provided for shares of such class or series of Preferred Stock;
(7) The voting powers, if any, of the holders of any class or series of
Preferred Stock generally or with respect to any particular matter, which may
be less than, equal to or greater than one vote per share, and which may,
without limiting the generality of the foregoing, including the right, voting
as a class or series by itself or together with the holders of any other
class or classes or series of the same or other class or classes of Preferred
Stock or all classes or series of Preferred Stock, to elect one or more
directors of the Corporation (which, without limiting the generality of the
foregoing, may include a specified number or portion of the then-existing
number of authorized directorships of the Corporation, or a specified number
or portion of directorships in addition to the then-existing number of
authorized directorships of the Corporation) generally or under such specific
circumstances and on such conditions, as shall be provided in the resolution
or resolutions of the Board of Directors adopted pursuant hereto; and
(8) Such other powers, preferences and relative, participating, optional
and other special rights, and the qualifications, limitations and
restrictions thereof, as the Board of Directors shall determine.
FIFTH. The Board of Directors shall consist of not less than three (3)
nor more than seven (7) directors, the precise number thereof to be fixed
from time to time by vote of a majority of the Board of Directors; PROVIDED,
HOWEVER, that the number of directors shall not be reduced so as to shorten
the term of any director at the time in office.
The Board of Directors shall be divided into three classes, designated
Class I, Class II and Class III. Each class shall consist, as nearly as may
be possible, of one-third of the total number of directors constituting the
entire Board of Directors. Initially, Class I directors shall be elected for
a one-year term, Class II directors for a two-year term and Class III
directors for a three-year term. At the annual meeting of stockholders
beginning in 1997, and at each annual meeting thereafter, successors to the
class of directors whose term expires at that annual meeting of stockholders
shall be elected for a three-year term. If the number of directors has
changed, any increase or decrease shall be apportioned among the classes so
as to maintain the number of directors in each class as nearly equal as
possible, and any additional director of any class elected to fill a vacancy
resulting from an increase in such class shall hold office for a term that
shall coincide with the remaining term of that class, but in no case will a
decrease in the number of directors shorten the term of any incumbent
director. A director shall hold office until the annual meeting of
stockholders for the year in which his term expires and until his successor
shall be elected and shall qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal from office. Any vacancy
on the Board of Directors that results from an increase in the number of
directors shall be filled by a majority of the Board of Directors then in
office, provided that a quorum is present, and any other vacancy occurring in
the Board of Directors shall be filled by a majority of the directors then in
office, even if less than a quorum, or by a sole remaining director. Any
director elected to fill a vacancy not resulting from an increase in the
number of directors shall have the same remaining term as that of his
predecessor.
3.
<PAGE>
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation, if any, shall
have the right, voting separately by class or series, to elect directors at
an annual or special meeting of stockholders, the election, term of office,
filling of vacancies and other features of such directorships shall be
governed by the terms of this Certificate of Incorporation or the Preferred
Stock Designation applicable thereto, and such directors so elected shall not
be divided into classes pursuant to this Article FIFTH unless expressly
provided by such terms.
SIXTH. Directors of the Corporation may be removed, with or without
cause, by stockholders by the affirmative vote of the holders of a majority
of the outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors, voting together as a single
class.
SEVENTH. All the powers of the Corporation, insofar as the same may be
lawfully vested by this Certificate of Incorporation in the Board of
Directors, are hereby conferred upon the Board of Directors in furtherance
and not in limitation of the powers conferred by statute. In furtherance and
not in limitation of such powers, the Board of Directors shall have the power
to make, adopt, alter, amend and repeal from time to time the bylaws of the
Corporation, subject to the right of the stockholders entitled to vote with
respect thereto to adopt, alter, amend and repeal the bylaws made by the
Board of Directors.
EIGHTH. A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the DGCL as the same exists or may
hereafter be amended. Any amendment, modification or repeal of the foregoing
sentence by the stockholders of the Corporation shall not adversely affect
any right or protection of a director of the Corporation in respect of any
act or omission occurring prior to the time of such amendment, modification
or repeal.
NINTH. Elections of directors need not be by written ballot except and
to the extent provided in the bylaws of the Corporation.
TENTH. The Corporation reserves the right to amend, alter or repeal any
provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed herein or by statute, and all rights and powers
conferred herein are subject to this reserved power; PROVIDED, HOWEVER, that
subject to the powers and rights provided for herein or in any Preferred
Stock Designation with respect to Preferred Stock issued by the Corporation,
if any, but notwithstanding anything else contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all
of the then outstanding shares of capital stock of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class, shall be required to amend, alter, repeal or adopt any provision
inconsistent with, this Article TENTH or Articles FIFTH or SIXTH of this
Certificate of Incorporation.
4.
<PAGE>
ELEVENTH. The Board of Directors shall have the power to hold its
meetings within or outside the State of Delaware, at such place as from time
to time may be designated by the bylaws of the Corporation or by resolution
of the Board of Directors.
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate to be signed by Horace M. Hertz, its Chief Executive Officer, and
attested by Horace M. Hertz, its Secretary, this 12th day of January, 1999.
-----------------------
Horace M. Hertz
Chief Financial Officer
ATTEST:
- --------------------------
Horace M. Hertz, Secretary
5.
<PAGE>
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Second Amendment to Loan and Security Agreement (the "Amendment")
is dated as of this _______ day of December, 1998 and is entered into among
Javelin Systems, Inc., CCI Group, Inc. and Posnet Computer, Inc. (jointly and
severally, "Borrower") and FINOVA Capital Corporation ("FINOVA"), in reference
to that certain Loan and Security Agreement among them (the "Loan Agreement")
dated June 8, 1998, as amended. Capitalized terms herein, unless otherwise
defined herein, shall have the meaning set forth in the Loan Agreement.
(a) FINOVA currently provides financial accommodations to Borrower
pursuant to the terms of the Loan Agreement.
(b) Borrower has requested that FINOVA amend the collateral reporting
requirements under the Loan Agreement and consent to the acquisition by Javelin
of RGB/Trinet Limited and Jade Communications Limited. FINOVA has consented to
Borrower's request on the terms and subject to the conditions set forth in this
Amendment.
Now therefore, the parties hereto do hereby agree as follows:
1. MODIFICATION TO REPORTING REQUIREMENTS AND RELATED MODIFICATIONS.
Clause (i) of Section 9. 1 (b) of the Loan Agreement is hereby amended in full
to read as follows:
"(i) FINOVA'S STANDARD FORM COLLATERAL AND LOAN REPORT, DAILY, AND
UPON FINOVA'S REQUEST, COPIES OF SALES JOURNALS, CASH RECEIPT
JOURNALS, AND DEPOSIT SLIPS; PROVIDED THAT JAVELIN AND POSNET SHALL
PROVIDE FINOVA'S STANDARD FORM COLLATERAL AND LOAN REPORT MONTHLY
(RATHER THAN DAILY), BY THE FIFTH DAY OF EACH MONTH FOR THE PRECEDING
MONTH, SO LONG AS EXCESS AVAILABILITY AT ALL TIMES EXCEEDS
$3,000,000;"
2. CONSENT TO ACQUISITION. FINOVA hereby consents to the acquisition
by Javelin of RGB/Trinet Limited and Jade Communications Limited, on the terms
disclosed to FINOVA prior to the date hereof. This consent is limited to the
specific transaction described herein and shall not relieve Borrower of its
obligation to comply in the future with Section 6.2.1 of the Loan Agreement.
3. REAFFIRMATION. Except as amended by terms herein, the Loan
Agreement and each of the other documents, instruments and agreements executed
and delivered in connection therewith remain in full force and effect in
accordance with their terms. Without limiting the generality of the foregoing,
each of Javelin, Posnet and CCI shall continue to comply with the terms of
Section 2.10(c) of the Loan Agreement. If there is any conflict between the
terms and conditions of the Loan Agreement and the terms and provisions of this
Amendment, the terms and provisions of this Amendment shall govern.
4. ADDITIONAL FEES. In consideration of this Amendment, Borrower
shall pay to FINOVA on the date hereof a fee of $1,500, which fee shall be
deemed fully earned upon
<PAGE>
execution of this Amendment and shall be in addition to all other fees and
charges payable by Borrower to FINOVA.
5. COUNTERPARTS. This Amendment may be executed in multiple
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
6. GOVERNING LAW. This Amendment shall be governed by and construed
according to the laws of the State of Arizona.
7. ATTORNEYS' FEES AND WAIVER OF JURY TRIAL. Borrower agrees to pay,
on demand, all attorneys' fees and costs incurred in connection with the
preparation, negotiation, documentation and execution of this Amendment. If any
legal action or proceeding shall be commenced at any time by any party to this
Amendment in connection with its interpretation, enforcement or otherwise
concerning its terms, the prevailing party in such action or proceeding shall be
entitled to reimbursement of its reasonable attorneys' fees and costs in
connection therewith, in addition to all other relief to which the prevailing
party may be entitled. Each of the parties hereto hereby waives any and all
rights to a trial by jury in any such action or proceeding.
FINOVA CAPITAL CORPORATION
By:
-----------------------------------------
Its:
-----------------------------------------
JAVELIN SYSTEMS, INC.
By: /s/ [ILLEGIBLE]
-----------------------------------------
Its: CHIEF FINANCIAL OFFICER
-----------------------------------------
CCI GROUP, INC.
By: /s/ [ILLEGIBLE]
-----------------------------------------
Its: CHIEF FINANCIAL OFFICER
-----------------------------------------
POSNET COMPUTERS, INC.
By: /s/ [ILLEGIBLE]
-----------------------------------------
Its: CHIEF FINANCIAL OFFICER
-----------------------------------------
2
<PAGE>
Each of the undersigned guarantors reaffirms the terms of its Secured Continuing
Corporate Guaranty dated June 8, 1998, acknowledges that such Secured Continuing
Corporate Guaranty remains in full force and effect, and consents to and
acknowledges the terms of this Amendment as of the date first set forth above.
JAVELIN SYSTEMS, INC.
By: /s/ [ILLEGIBLE]
-----------------------------------------
Its: CHIEF FINANCIAL OFFICER
-----------------------------------------
CCI GROUP, INC.
By: /s/ [ILLEGIBLE]
-----------------------------------------
Its: CHIEF FINANCIAL OFFICER
-----------------------------------------
POSNET COMPUTERS, INC.
By: /s/ [ILLEGIBLE]
-----------------------------------------
Its: CHIEF FINANCIAL OFFICER
-----------------------------------------
3
<PAGE>
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Third Amendment to Loan and Security Agreement (the
"Amendment") is dated as of this ____ day of January, 1999 and is entered
into among Javelin Systems, Inc., CCI Group, Inc. and Posnet Computers, Inc.
(jointly and severally, "Borrower") and FINOVA Capital Corporation ("FINOVA"),
in reference to that certain Loan and Security Agreement among them (the
"Loan Agreement") dated June 8, 1998, as amended. Capitalized terms herein,
unless otherwise defined herein, shall have the meaning set forth in the Loan
Agreement.
(a) FINOVA currently provides financial accommodations to Borrower
pursuant to the terms of the Loan Agreement.
(b) Borrower has requested that FINOVA provide to Javelin a letter
of credit subline in the amount of $1,000,000. FINOVA has consented to
Borrower's request on the terms and subject to the conditions set forth in this
Amendment.
Now therefore, the parties hereto do hereby agree as follows:
1. LETTERS OF CREDIT. Section 2.4 of the Loan Agreement is restated in full to
read as follows:
"At the request of Javelin, FINOVA may, in its Permitted Discretion,
arrange for the issuance of letters of credit for the account of
Javelin and guarantees of payment of such letters of credit, in each
case in form and substance satisfactory to FINOVA in its sole
discretion (collectively, "Letters of Credit"). The aggregate face
amount of all outstanding Letters of Credit from time to time shall
not exceed the amount shown on the Schedule, and shall be reserved
against the availability of Revolving Credit Loans to Javelin.
Javelin shall pay all bank charges for the issuance of Letters of
Credit, together with an additional fee to FINOVA equal to the
percentage set forth on the Schedule of the aggregate face amount of
each Letter of Credit outstanding from time to time during the term of
this Agreement (the "L/C Fee"). The L/C Fee shall be deemed to be
fully earned upon the issuance of each Letter of Credit and shall be
due and payable on the first Business Day of each month following a
month during which any Letter of Credit is outstanding. Any advance
by FINOVA under or in connection with a Letter of Credit shall
constitute an Obligation hereunder. Each Letter of Credit shall have
an expiry date no later than thirty (30) days prior to the last day of
the Initial Term or, if issued during any Renewal Term no later than
thirty (30) days prior to the last day of such Renewal Term.
Immediately upon any termination of this Agreement, Javelin shall
either: (i) provide cash collateral to FINOVA in an amount equal to
105% of the maximum amount of FINOVA's obligations under or in
connection with all then outstanding Letters of Credit, or (ii) cause
to be delivered to FINOVA releases of all of FINOVA's obligations
under outstanding Letters of Credit. At FINOVA's
<PAGE>
discretion, any proceeds of Collateral received by FINOVA may be held
as the cash collateral required by this Section 2.4. Javelin hereby
agrees to indemnify, save, and hold FINOVA harmless from any loss,
cost, expense, or liability, including payments made by FINOVA,
expenses, and reasonable attorneys' fees incurred by FINOVA arising
out of or in connection with any Letters of Credit. Javelin agrees to
be bound by the issuing bank's regulations and interpretations of any
Letters of Credit guarantied by FINOVA and opened for Javelin's
account or by FINOVA's interpretations of any Letter of Credit issued
by FINOVA for Javelin's account, and Javelin understands and agrees
that FINOVA shall not be liable for any error, negligence, or mistake,
whether of omission or commission, in following Javelin's instructions
or those contained in the Letters of Credit or any modifications,
amendments, or supplements thereto. Javelin understands that FINOVA
may indemnify the bank issuing a Letter of Credit for certain costs or
liabilities arising out of claims by Javelin against such issuing
bank. Javelin hereby agrees to indemnify and hold FINOVA harmless
with respect to any loss, cost, expense, or liability incurred by
FINOVA under any such indemnification by FINOVA to any issuing bank."
2. CONDITIONS TO ADVANCES. The introductory clause of Section 4.2 of the Loan
Agreement is hereby deleted and replaced with the following:
"The obligation of FINOVA to make any advance or cause any Letter of
Credit to be issued hereunder (including the initial advance) shall be
subject to the further conditions precedent that, on and as of the
date of such advance or Letter of Credit issuance:"
3. REVOLVING LOAN LOANS. Clause (b)(i) of the borrowing formula of Javelin,
set forth on page S-2 of the Schedule to the Loan Agreement, is hereby
amended in full to read as follows:
"an amount equal to (A) 80% of the net amount of Javelin's Eligible
Receivables, less (B) the aggregate undrawn face amount of all Letters
of Credit issued under Section 2.4 of this Agreement; plus"
4. LETTERS OF CREDIT. The following is inserted at page S-3 immediately
following the paragraph entitled "Term Loan":
"LETTERS OF CREDIT (SECTION 2.4):
The aggregate face amount of all outstanding Letters of Credit from
time to time shall not exceed $1,000,000, and shall be reserved
against the availability of Revolving Credit Loans to Javelin pursuant
to Section 2.4 hereof. The L/C Fee shall equal 2.0% per annum of the
aggregate face amount of each Letter of Credit outstanding from time
to time during the term of this
2
<PAGE>
Agreement. The L/C Fee shall be deemed to be fully earned upon the
issuance of each Letter of Credit and shall be due and payable on the
first Business Day of each month following a month during which any
Letter of Credit is outstanding."
5. REPRESENTATIONS AND WARRANTIES. Borrower confirms to FINOVA that as of the
date hereof the representations and warranties contained in Section 5 of
the Loan Agreement are (before and after giving effect to this Amendment)
true and correct in all material respects (except to the extent any such
representation or warranty is expressly stated to have been made as of a
specific date, in which case it shall be true and correct as of such
specific date) and that no Default or Event of Default has occurred and is
continuing.
6. CONDITIONS PRECEDENT. Each of the following shall be a condition precedent
to the effectiveness of this Amendment:
(i) FINOVA shall have received this Amendment, duly executed by each of
the parties hereto, and such other documents and agreements as it
shall reasonably require.
(ii) No Default or Event of Default shall exist.
(iii) All fees payable by Borrower hereunder and under the Loan Agreement
shall have been received by FINOVA.
7. ACCOMMODATION FEE. In consideration of this Amendment and the financial
accommodations made available to Borrower from FINOVA, Borrower shall pay
to FINOVA on the date hereof an accommodation fee of $1,500, which fee
shall be deemed fully earned upon execution of this Amendment and shall be
in addition to all other fees and charges payable by Borrower to FINOVA.
8. REAFFIRMATION. Except as amended by the terms herein, the Loan Documents
remain in full force and effect. If there is any conflict between the terms
and provisions of the Loan Documents and the terms and provisions of this
Amendment, the terms and provisions of this Amendment shall govern.
9. COUNTERPARTS. This Amendment may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
10. GOVERNING LAW. This Amendment shall be governed by and construed according
to the laws of the State of Arizona.
11. ATTORNEYS' FEES. Borrower shall pay, on demand, all attorneys' fees and
costs incurred in connection with the negotiation, documentation and
execution of this Amendment. Further, if any legal action or proceeding
shall be commenced at any time by any party to this Amendment in connection
with its interpretation and enforcement, the prevailing party or parties in
such action or proceeding shall be entitled to reimbursement of its
3
<PAGE>
reasonable attorneys' fees and costs in connection therewith, in addition
to all other relief to which the prevailing party or parties may be
entitled.
12. WAIVER OF JURY TRIAL. Each of the parties hereto waives its right to a
trial by jury in any action to enforce, defend or interpret, or otherwise
concerning, this Amendment.
FINOVA CAPITAL CORPORATION
By:
-----------------------------------------
Its:
-----------------------------------------
JAVELIN SYSTEM INC.
By: /s/ [ILLEGIBLE]
-----------------------------------------
Its: CFO
-----------------------------------------
CCI GROUP, INC.
By: /s/ [ILLEGIBLE]
-----------------------------------------
Its: CFO
-----------------------------------------
POSNET COMPUTERS, INC.
By: /s/ [ILLEGIBLE]
-----------------------------------------
Its: CFO
-----------------------------------------
4
<PAGE>
Each of the undersigned guarantors reaffirms the terms of its Secured Continuing
Corporate Guaranty dated June 8, 1998, acknowledges that such Secured Continuing
Corporate Guaranty remains in full force and effect, and consents to and
acknowledges the terms of this Amendment as of the date first set forth above.
JAVELIN SYSTEMS, INC.
By: /s/ [ILLEGIBLE]
-----------------------------------------
Its: CFO
-----------------------------------------
CCI GROUP, INC.
By: /s/ [ILLEGIBLE]
-----------------------------------------
Its: CFO
-----------------------------------------
POSNET COMPUTERS, INC.
By: /s/ [ILLEGIBLE]
-----------------------------------------
Its: CFO
-----------------------------------------
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 15,102,700
<ALLOWANCES> 399,000
<INVENTORY> 14,472,400
<CURRENT-ASSETS> 29,974,300
<PP&E> 2,428,000
<DEPRECIATION> 630,500
<TOTAL-ASSETS> 42,943,800
<CURRENT-LIABILITIES> 18,913,100
<BONDS> 0
0
0
<COMMON> 58,400
<OTHER-SE> 22,604,000
<TOTAL-LIABILITY-AND-EQUITY> 42,943,800
<SALES> 17,867,500
<TOTAL-REVENUES> 17,867,500
<CGS> 13,105,800
<TOTAL-COSTS> 16,671,600
<OTHER-EXPENSES> 236,900
<LOSS-PROVISION> 51,000
<INTEREST-EXPENSE> 234,700
<INCOME-PRETAX> 959,000
<INCOME-TAX> 385,000
<INCOME-CONTINUING> 959,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 574,000
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
