<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 March 31, 1999
[ ] 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.
Title Date Outstanding
Common Stock, $.01 par value April 26, 1999 8,786,807
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -----
<PAGE>
SEE ACCOMPANYING NOTES. 5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JAVELIN SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1999 1998*
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 22,211,300 $
Accounts receivable - net 15,069,800 7,449,700
Inventories 14,059,000 5,925,300
Deferred income taxes 204,900 204,900
Other current assets 651,300 426,900
------------ ------------
Total current assets 52,196,300 14,006,800
Property and equipment, net 2,200,400 1,036,400
Excess of cost over net assets of purchased businesses 11,100,600 6,457,500
Deferred financing costs 692,900 889,000
Other assets, net 174,300 141,600
------------ ------------
------------ ------------
Total assets $ 66,364,500 $ 22,531,300
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 1,878,600 $ 1,343,000
Accounts payable 7,194,600 5,636,900
Accrued expenses 2,308,800 625,000
Current maturities of long-term debt 300,000 300,000
Customer deposits 2,700 1,197,200
Deferred maintenance revenues 497,800 385,300
Income taxes payable 912,100 438,700
------------ ------------
Total current liabilities 13,094,600 9,926,100
Deferred rent expense 15,100 6,300
Long-term debt, net of current portion 1,331,800 1,200,000
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--8,334,581 at March 31,
1999 and 4,111,962 at June 30, 1998 83,300 41,100
Additional paid in capital 49,618,600 11,270,900
Deferred compensation (14,400) (39,200)
Retained earnings 2,314,400 132,900
Accumulated other comprehensive loss (78,900) (6,800)
------------ ------------
Total stockholders' equity 51,923,000 11,398,900
------------ ------------
------------ ------------
Total liabilities and stockholders' equity $ 66,364,500 $ 22,531,300
------------ ------------
------------ ------------
</TABLE>
*The balance sheet at June 30, 1998 has been derived from audited financial
statements.
SEE ACCOMPANYING NOTES.
2
<PAGE>
JAVELIN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------------------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 17,547,000 $ 9,357,500 $ 43,132,400 $ 16,759,800
Service 3,544,000 1,286,000 8,758,200 1,286,000
------------ ------------ ------------ ------------
Total revenues 21,091,000 10,643,500 51,890,600 18,045,800
------------ ------------ ------------ ------------
Cost of revenues:
Cost of product sales 12,430,900 6,864,100 30,752,400 12,560,400
Cost of service 2,942,300 891,800 6,993,300 891,800
------------ ------------ ------------ ------------
Total cost of revenues 15,373,200 7,755,900 37,745,700 13,452,200
------------ ------------ ------------ ------------
Gross profit 5,717,800 2,887,600 14,144,900 4,593,600
------------ ------------ ------------ ------------
Operating expenses:
Research and development 349,400 250,100 932,600 556,800
Selling and marketing 1,101,300 438,100 2,506,700 806,900
General and administrative 2,318,300 1,581,700 6,535,900 2,444,500
------------ ------------ ------------ ------------
Total operating expenses 3,769,000 2,269,900 9,975,200 3,808,200
------------ ------------ ------------ ------------
Income from operations 1,948,800 617,700 4,169,700 785,400
Interest expense, net (157,300) (24,600) (615,200) (6,300)
Other income 8,100 23,200 22,900 10,200
------------ ------------ ------------ ------------
Income before income taxes 1,799,600 616,300 3,577,400 789,300
Provision for income taxes (664,700) (262,900) (1,395,700) (322,200)
------------ ------------ ------------ ------------
Net income $ 1,134,900 $ 353,400 $ 2,181,700 $ 467,100
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Earnings per common share:
Basic $ 0.16 $ 0.09 $ 0.40 $ 0.13
Diluted $ 0.16 $ 0.09 $ 0.39 $ 0.13
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Shares used in computing earnings per share:
Basic 6,951,212 4,034,650 5,444,549 3,466,436
============ ============ ============ ============
Diluted 7,237,141 4,115,291 5,633,269 3,574,567
============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
JAVELIN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1999 1998
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,181,700 $ 467,100
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization 907,700 179,900
Amortization of deferred compensation 24,800 41,600
Loss on disposal of assets 2,800
Deferred rent expense 8,800 4,800
Income tax benefit from exercise of stock options 223,600 59,200
Non-cash allowances 276,000 764,000
Changes in operating assets and liabilities:
Accounts receivable (4,962,100) (1,894,000)
Inventories (7,163,600) (2,004,100)
Other current assets 200 (326,700)
Accounts payable 230,600 1,673,000
Accrued expenses 784,300 (28,700)
Income taxes payable 664,800 61,400
Customer deposits (1,194,500) (693,700)
Deferred maintenance revenues 700
------------ -----------
Net cash used in operating activities (8,017,000) (1,693,400)
------------ -----------
INVESTING ACTIVITIES
Purchase of equipment (1,284,600) (486,100)
Cash (paid to) received from purchased businesses (1,972,500) 699,800
Other assets (164,600) (44,400)
------------ -----------
Net cash provided by (used in) investing activities (3,421,700) 169,300
------------ -----------
FINANCING ACTIVITIES
Net (payments) borrowings under line of credit (1,178,900) 996,200
Proceeds from issuance of notes payable 43,500
Repayment of notes payable (246,000) (229,700)
Deferred financing costs 10,000
Net proceeds from public offerings 34,995,700
Exercise of stock options 255,200 71,400
------------ -----------
Net cash provided by financing activities 33,879,500 837,900
------------ -----------
CUMULATIVE TRANSLATION ADJUSTMENT (229,500)
------------ -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 22,211,300 (686,200)
Cash and cash equivalents at beginning of period 686,200
------------ -----------
------------ -----------
Cash and cash equivalents at end of period $ 22,211,300 $ ---
------------ -----------
------------ -----------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
SEE ACCOMPANYING NOTES.
4
<PAGE>
<TABLE>
<S> <C> <C>
Income tax paid $ 402,700 $ ---
------------ -----------
------------ -----------
Interest paid $ 728,700 $ 33,800
------------ -----------
------------ -----------
</TABLE>
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
5
<PAGE>
JAVELIN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Javelin Systems, Inc. ("Javelin" or "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 Limited ("RGB")
and Jade Communications Ltd ("Jade"), 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.
In February 1999, the Company completed a public offering of 2,375,000 shares
of its common stock at $12.25 per share, netting proceeds to the Company of
approximately $26.9 million. Proceeds to the Company were used for working
capital and general corporate purposes.
Hereinafter, Javelin and its subsidiaries are referred to as the Company.
6
<PAGE>
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 unaudited consolidated financial statements
are reflected herein. All such adjustments are normal and recurring in
nature. 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 consolidated financial statements should be read in
conjunction with the audited consolidated 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>
March 31, June 30,
1999 1998
------------ -----------
<S> <C> <C>
Raw materials $ 7,118,200 $ 3,572,500
Finished goods 6,940,800 2,352,800
------------ -----------
$ 14,059,000 $ 5,925,300
------------ -----------
------------ -----------
</TABLE>
EARNINGS (LOSS) 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 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.
A reconciliation of the basic and diluted EPS for the three and nine months
ended March 31, 1999 and 1998 is as follows:
7
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Quarter Ended Quarter Ended
March 31, 1999 March 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
BASIC DILUTED BASIC DILUTED
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 1,134,900 $ 1,134,900 $ 353,400 $ 353,400
- ---------------------------------------------------------------------------------------------------------------------------
Weighted average common shares
outstanding 6,951,212 6,951,212 4,034,650 4,034,650
- ---------------------------------------------------------------------------------------------------------------------------
Additional shares due to potential
exercise of stock options and
warrants 285,929 80,641
- ---------------------------------------------------------------------------------------------------------------------------
Diluted weighted average common shares
outstanding 6,951,212 7,237,141 4,034,650 4,115,291
- ---------------------------------------------------------------------------------------------------------------------------
Earnings per share $ 0.16 $ 0.16 $ 0.09 $ 0.09
- ---------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended
March 31, 1999 March 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
BASIC DILUTED BASIC DILUTED
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 2,181,700 $ 2,181,700 $ 467,100 $ 467,100
- -----------------------------------------------------------------------------------------------------------------------------
Weighted average common shares
outstanding 5,444,549 5,444,549 3,466,436 3,466,436
- -----------------------------------------------------------------------------------------------------------------------------
Additional shares due to potential
exercise of stock options and
warrants 188,720 108,131
- -----------------------------------------------------------------------------------------------------------------------------
Diluted weighted average common shares
outstanding 5,444,549 5,633,269 3,466,436 3,574,567
- -----------------------------------------------------------------------------------------------------------------------------
Earnings per share $ 0.40 $ 0.39 $ 0.13 $ 0.13
- -----------------------------------------------------------------------------------------------------------------------------
</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 $1,100,200 and $353,400 for the quarters ended March
31, 1999 and 1998, respectively, and $2,135,600 and $467,100 for the nine
months ended March 31, 1999 and 1998, respectively. The primary difference
from net income as reported is the tax effected change in the cumulative
translation adjustment.
8
<PAGE>
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 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 provide complementary Wide Area Network (WAN) products and
services 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
$1,914,300 in cash (including acquistion costs of $173,200) 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. During the quarter ended
March 31, 1999, the Company issued 68,771 shares of its common stock at a
value of $874,100. 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
puchase price of $3,553,100 resulted in excess of acquisition costs over the
fair value of net assets acquired of approximately $2,979,100. 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 information is obtained, and accordingly, the ultimate
allocation may differ from those used in the unaudited consolidated financial
statements included herein.
9
<PAGE>
Cash paid in connection with the Company's purchase acquisitions is as
follows:
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets acquired $ 7,261,600
Less liabilities assumed (3,708,600)
Less stock issued to sellers (1,638,700)
-----------
Cash paid $ 1,914,300
-----------
-----------
</TABLE>
The results of operations of RGB and Jade prior to November 1, 1998 were not
material in relation to the Company's consolidated results of operations.
3. SUBSEQUENT EVENT
On April 23, 1999, the Company acquired all of the outstanding capital stock of
Dynamic Technologies, Inc., a Pennsylvania corporation ("DTI"), and the
outstanding capital stock of SB Holdings, Inc., a Pennsylvania corporation
("SB"). DTI and SB provide custom Internet/Intranet software and services.
The aggregate purchase price for DTI and SB consisted of $10,000,000 in cash and
452,226 shares of the Company' s common stock valued at $4,250,000, with an
additional (i) $2,000,000 in cash and (ii) $1,000,000 of the Company's common
stock issuable upon the satisfaction of certain milestones for each of the
quarters in the fiscal year ending April 30, 2000. The acquisition has been
accounted for by the purchase method, and accordingly, the results of operations
of DTI and SB will be included with those of the Company commencing on the date
of acquisition.
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, manufactures and markets
open system touch screen point-of-sale ("POS") computers and provides POS
systems integration services primarily for the foodservice 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, integration of acquisitions, 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 MARCH 31, 1999 AS COMPARED TO THREE MONTHS ENDED
MARCH 31, 1998
The following table sets forth certain statements of operations data as a
percentage of total revenues for the three months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
MARCH 31,
---------
1999 1998
------ ------
<S> <C> <C>
Revenues:
Product sales 83.2% 87.9%
Service 16.8 12.1
------ ------
Total revenues 100.0 100.0
------ ------
Cost of revenues:
Cost of product sales(1) 70.8 73.4
Cost of service(1) 83.0 69.4
------ ------
Total cost of revenues 72.9 72.9
------ ------
Gross profit 27.1 27.1
------ ------
Operating expenses:
Research and development 1.7 2.3
Selling and marketing 5.2 4.1
General and administrative 11.0 14.9
------ ------
Total operating expenses 17.9 21.3
------ ------
Operating income 9.2 5.8
Interest expense, net (0.7) (0.2)
Other income 0.2
Provision for income taxes (3.1) (2.5)
------ ------
Net income 5.4% 3.3%
------ ------
------ ------
</TABLE>
(1) Expressed as a percentage of related revenues, not of total revenues.
REVENUES-PRODUCT SALES. Revenues from product sales increased by 87.5% to
$17.5 million in 1999 compared to revenues of $9.4 million for 1998. The
change is due to an increase in revenues relating to Javelin hardware sales
of $3.3 million (68.1%), a decrease in revenues relating to non-Javelin
hardware from CCI of $676,000, revenues from RGB/Jade of $2.9 million and
revenues from the newly established foreign subsidiaries of $2.7 million. The
increase at Javelin is attributable primarily to increases in the number of
units sold (approximately 6,250 units in 1999 compared to 2,500 in 1998)
whereas the decresase in non-Javelin hardware revenues is attributable to a
roll-out completed by CCI in the quarter ended March 31, 1998.
12
<PAGE>
REVENUES-SERVICES. Revenues from services increased by 175.6% to $3.5 million
in 1999 compared to revenues of $1.3 million for 1998. The change is due to a
decrease in service revenues from CCI of $361,800 (28.1%) resulting from the
completion of a roll-out in the quarter ended March 31, 1998, an increase in
service revenues from RGB/Jade of $2.3 million and an increase in service
revenues from the newly established foreign subsidiaries of $311,800.
GROSS PROFIT. Gross profit increased by 98.0% to $5.7 million in 1999
compared to a gross profit of $2.9 million in 1998. The increase is comprised
of the folllowing:
<TABLE>
<CAPTION>
Quarter ended March 31,
---------------------------------
99 98 Increase
------------- ------------- --------
<S> <C> <C> <C>
Product sales $ 5.1 million $ 2.5 million $ 2.6 million
Service $ 601,700 $ 394,200 $ 207,500
</TABLE>
The change in gross profit from product sales is due to an increase in gross
profit from the sale of Javelin hardware of $1.2 million, a decrease of
$346,900 in gross profit from the sale of non-Javelin hardware sold by CCI,
gross profit from RGB/Jade of $1.0 million and gross profit from the newly
established foreign subsidiaries of $743,100. The increase at Javelin is
attributable to the increase in the number of units sold as described above,
offset by a decrease in average sales price of approximately $100 per unit
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. The decrease in
gross profit of non-Javelin hardware sold by CCI is attibutable to the
completion of a roll-out in 1998 as described above.
The change in gross profit from service revenues is due to a decrease of
$305,500 in gross profit on services provided by CCI and gross profit on
services provided by RGB/Jade of $267,200 and gross profit on services
provided by the newly established foreign subsidiaries of $245,800. The
decrease in gross profit on services provided by CCI is attibutable to the
completion of a roll-out in the quarter ended March 31, 1998 as described
above.
RESEARCH AND DEVELOPMENT. Research and development expenses increased by
39.7% to $349,400 in 1999 compared to research and development expenses of
$250,100 in 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 and additional prototype costs for
new products.
SELLING AND MARKETING. Selling and marketing expenses increased by 151.4% to
$1.1 million in 1999 compared to selling and marketing expenses of $438,100
in 1998. The change is due to selling and marketing expenses of RGB/Jade of
$561,300 and selling and marketing expenses of the newly established foreign
subsidiaries of $175,300. Such expenses consisted primarily of payroll,
tradeshow fees, and travel costs.
13
<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by
46.6% to $2.3 million in 1999 compared to general and administrative expenses
of $1.6 million in 1998. The change is due to general and administrative
expenses from the newly established foreign subsidiaries of $577,300 and
general and administrative expenses of RGB/Jade of $224,000.
INTEREST EXPENSE, NET. Interest expense, net, increased by $132,700 to
$157,300 in 1999 compared to interest expense of $24,600 in 1998. The
increase is due to borrowings under the credit facility in 1999 prior to the
completion of the public offering in February 1999. Such borrowings were
necessary to sustain the growth of business.
INCOME TAXES. Provision for federal, state and foreign income taxes increased
by $401,800 to $664,700 in 1999 compared to a provision for income tax of
$262,900 in 1998. The increase is attributable to the overall increase in
income before income taxes of $1.2 million as well as increases in income
from the Company's foreign subsidiaries operating in jurisdictions with lower
income tax rates than those in the United States.
14
<PAGE>
NINE MONTHS ENDED MARCH 31, 1999 AS COMPARED TO NINE MONTHS ENDED MARCH 31, 1998
The following table sets forth certain statements of operations data as a
percentage of total revenues for the nine months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1999 1998
------ ------
<S> <C> <C>
Revenues:
Product sales 83.1% 92.9%
Service 16.9 7.1
------ ------
Total revenues 100.0 100.0
------ ------
Cost of revenues:
Cost of product sales(1) 71.3 74.9
Cost of service(1) 79.9 69.4
------ ------
Total cost of revenues 72.7 74.5
------ ------
Gross profit 27.3 25.5
------ ------
Operating expenses:
Research and development 1.8 3.1
Selling and marketing 4.9 4.5
General and administrative 12.6 13.5
------ ------
Total operating expenses 19.3 21.1
------ ------
Operating income 8.0 4.4
Interest expense (1.2) (0.1)
Other income 0.1 0.1
Provision for income taxes (2.7) (1.8)
------ ------
Net income 4.2% 2.6%
------ ------
------ ------
</TABLE>
(1) Expressed as a percentage of related revenues, not of total revenues.
REVENUES-PRODUCT SALES. Revenues from product sales increased by 157.4% to
$43.1 million in 1999 compared to revenues of $16.8 million for 1998. The
change is due to an increase in revenues relating to Javelin hardware sales
of $9.0 million, revenues from CCI of $6.6 million, revenues from RGB/Jade of
$3.9 million and revenues from the newly established foreign subsidiaries of
$6.9 million. The increase relating to Javelin is attributable primarily to
an increase in the number of units sold (approximately 17,700 units in 1999
compared to 6,500 in 1998).
REVENUES-SERVICES. Revenues from services increased by 581.0% to $8.8 million
in 1999 compared to revenues of $1.3 million for 1998. The change is due to
service revenues from CCI of $1.8 million, service revenues from RGB/Jade of
$4.9 million and service revenues from the newly established foreign
subsidiaries of $704,000.
15
<PAGE>
GROSS PROFIT. Gross profit increased by 207.9% to $14.1 million in 1999
compared to a gross profit of $4.6 million in 1998. The increase is comprised
of the folllowing:
<TABLE>
<CAPTION>
Quarter ended March 31,
---------------------------------
99 98 INCREASE
------------- ------------ --------
<S> <C> <C> <C>
Product sales $12.4 million $4.2 million $8.2 million
Service $1.8 million $394,200 $1.4 million
</TABLE>
The change in gross profit from product sales is due to an increase in gross
profit from the sale of Javelin hardware of $3.7 million, gross profit from
CCI of $1.1 million, gross profit from RGB/Jade of $1.5 million and gross
profit from the newly established foreign subsidiaries of $1.9 million. The
increase relating to Javelin is attributable to the increase in the number of
units sold as described above, offset by a decrease in average sales price of
approximately $100 per unit 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.
The change in gross profit from service revenues is due to gross profit on
services provided by RGB/Jade of $1.0 million and gross profit on services
provided by the newly established foreign subsidiaries of $557,700.
RESEARCH AND DEVELOPMENT. Research and development expenses increased by
67.5% to $932,600 in 1999 compared to research and development expenses of
$556,800 in 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 210.7% to
$2.5 million in 1999 compared to selling and marketing expenses of $806,900
in 1998. The change is due to an increase in selling and marketing expenses
of Javelin of $266,700, selling and marketing expenses of RGB/Jade of
$662,300 and selling and marketing expenses of the newly established foreign
subsidiaries of $770,800. Such expenses consisted primarily of payroll,
tradeshow fees, and travel costs.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by
167.4% to $6.5 million in 1999 compared to general and administrative
expenses of $2.4 million in 1998. The change is due to an increase in general
and administrative expenses relating to Javelin of $800,500, general and
administrative expenses of CCI of $1.3 million, general and administrative
expenses from the newly established foreign subsidiaries of $1.5 million and
general and administrative expenses of RGB/Jade of $474,300. The increase at
Javelin consisted primarly of increased payroll costs due primarily to an
increase in the number of employees and increased facility costs due to
expansion.
16
<PAGE>
INTEREST EXPENSE, NET. Interest expense, net, increased by $608,900 to $615,200
in 1999 compared to interest expense of $6,300 in 1998. The increase is due to
borrowings under the credit facility prior to the completion of the public
offerings in November 1998 and February 1999. Such borrowings were necessary to
sustain the growth of business.
INCOME TAXES. Provision for federal, state and foreign income taxes increased
by $1.1 million to $1.4 million in 1999 compared to a provision for income
tax of $322,200 in 1998. The increase is attributable to the overall increase
in income before income taxes of $2.8 million as well as increases in income
from the Company's foreign subsidiaries operating in jurisdictions with lower
income tax rates than those in the United States.
LIQUIDITY AND CAPITAL RESOURCES
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 March 31,
1999). As of March 31, 1999 borrowings outstanding under the line amounted to
$1.9 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.
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 the revolving line of credit of approximately $3.2 million,
to purchase all of the outstanding common stock of RGB and Jade and for
general corporate purposes.
In February 1999, the Company completed a public offering of 2,375,000 shares
of its common stock at $12.25 per share, netting proceeds to the Company of
approximately $26.9 million. Proceeds to the Company were used for working
capital and general corporate purposes.
As of March 31, 1999, the Company had cash and cash equivalents of $22.2
million and working capital of $39.1 million.
Cash used in operating activities for the nine months ended March 31, 1999
amounted to $8.0 million and consisted primarily of increases in trade
receivables and inventories. Cash used in investing activities for the nine
months ended March 31, 1999 amounted to $3.4 million and consisted primarily
of cash used to acquire equipment and the outstanding common stock of RGB and
Jade. Cash provided by financing activities for the nine months ended March 31,
1999
17
<PAGE>
amounted to $33.9 million and consisted primarily of the proceeds from the
public offerings completed in November 1998 and February 1999.
In April 1999, the Company completed an additional acquisition. See Note 3 to
the consolidated financial statements for additional details.
The Company believes that it has adequate financial resources to meet its
capital requirements for the foreseeable future
YEAR 2000.
The Company is aware of the issues associated with the programming code in
existing computers systems as the year 2000 approaches. The year 2000 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 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
expenditures 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
OEM's and VAR's 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
OEM's and VAR's. Nevertheless, the Company believes that any year 2000
compliance problems of its suppliers, OEM's and VAR's 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.
18
<PAGE>
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segment 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 product 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.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On February 1, 1999, the Company issued an aggregate of 9,327 shares of its
Common Stock to Meridian Capital Group, Inc. ("Meridian") upon exercise of
warrants held by Meridian pursuant to the net-exercise provisions contained
in such warrants. The issuance of the Common Stock was deemed to be exempt
from registration under the Securities Act of 1933, as amended (the "Act") by
virtue of Section 4(2) of the Act.
On March 1, 1999, the Company issued an aggregate of 68,771 shares of the
Company's Common Stock to Gary Green, Roger Scarlett, Anthony Sampson and
Contech Consultants Limited, former shareholders of RGB/Trinet Ltd. ("RGB")
and Jade Communications Ltd. ("Jade"), pursuant to the earnout provisions of
the stock purchase agreement related to the acquisition of RGB and Jade. The
issuance of the Common Stock was deemed to be exempt from registration under
the Act, by virtue of Regulation S promulgated under the Act.
The recipients of the above-described securities represented their intention
to acquire the securities for investment only and not with a view to
distribution thereof. Appropriate legends were affixed to the stock
certificates issued in such transactions. All recipients had adequate access,
through employment or other relationships, to information about the Company.
19
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
27.1 Financial Data Schedule in accordance with Article 5 of
Regulation S-X.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 1999.
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.
May 9, 1999 /s/ Richard P. Stack
- -------------------------------------- -------------------------------
Date Richard P. Stack
Chief Executive Officer
and President
May 9, 1999 /s/ Horace Hertz
- -------------------------------------- -------------------------------
Date Horace Hertz
Chief Financial Officer
21
<PAGE>
EXHIBIT INDEX
-------------
27.1 Financial Data Schedule in accordance with Article 5 of Regulation S-X.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 22,211,300
<SECURITIES> 0
<RECEIVABLES> 15,513,800
<ALLOWANCES> 444,000
<INVENTORY> 14,059,000
<CURRENT-ASSETS> 52,196,300
<PP&E> 2,999,800
<DEPRECIATION> 799,400
<TOTAL-ASSETS> 66,364,500
<CURRENT-LIABILITIES> 13,094,600
<BONDS> 0
0
0
<COMMON> 83,300
<OTHER-SE> 51,839,700
<TOTAL-LIABILITY-AND-EQUITY> 66,364,500
<SALES> 21,091,000
<TOTAL-REVENUES> 21,091,000
<CGS> 15,373,200
<TOTAL-COSTS> 19,142,200
<OTHER-EXPENSES> 149,200
<LOSS-PROVISION> 45,000
<INTEREST-EXPENSE> 157,300
<INCOME-PRETAX> 1,799,600
<INCOME-TAX> 664,700
<INCOME-CONTINUING> 1,134,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,134,900
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
