<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(AMENDMENT NO. 1)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the three months ended September 30, 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
ASPEON, INC.
(Exact Name of registrant as specified in Its charter)
DELAWARE 52-1945748
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
17891 CARTWRIGHT ROAD
IRVINE, CALIFORNIA 92614
(Address of Principal Executive Offices) (Zip Code)
(949) 440-8000
(Issuer's Telephone Number, Including Area code)
JAVELIN SYSTEMS, INC.
--------------------------------------------------------------------------------
(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 No X
-------- --------
As of October 31, 1999, there were 8,894,803 shares of the Registrant's common
stock, par value $.01 per share, were outstanding.
This amendment No. 1 on Form 10-Q/A ("the Amendment") amends and restates in
full the disclosures made by the registrant, Aspeon, Inc., formerly Javelin
Systems, Inc. ("Aspeon", and together with its subsidiaries, the "Company"),
in response to "Part I, Item 1. Financial Statements," "Part I, Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Part II, Item 6(a). Exhibits" in its Form 10-Q as originally
filed with the Securities and Exchange Commission (the "Commission") via
Edgar transmission on November 12, 1999 under the name Javelin Systems, Inc.
(the "Original Filing"). The disclosures responsive to all other Items in the
Original Filing are not affected by this Amendment but continue as set forth
in the Original Filing without change. Notwithstanding the foregoing, the
disclosures in the Original Filing, as amended by this Amendment, are subject
to updating and supplementation by the disclosures contained in the filings
made by the Company with the Commission for any period subsequent to the
three-month period ended September 30, 1999 covered by the Original Filing.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASPEON, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1999 1999*
------------------------------------
(As restated, Note 2)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,410,500 $ 5,641,500
Investments 4,594,800 7,472,000
Accounts receivable - net 18,486,200 16,275,500
Inventories 15,265,000 14,565,700
Other current assets 1,697,500 1,354,400
----------------- -------------
Total current assets 44,454,000 45,309,100
Property and equipment, net 4,652,700 2,861,400
Goodwill 28,385,900 25,755,200
Other intangible assets 1,179,100 1,266,000
Other assets, net 935,500 891,200
----------------- -----------------
Total assets $ 79,607,200 $ 76,082,900
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 2,876,900 $ 2,056,600
Accounts payable 9,548,200 7,681,800
Accrued expenses 2,044,600 2,446,200
Current maturities of long-term debt 300,000 300,000
Customer deposits 48,000 278,000
Deferred revenues 1,057,200 397,500
Income taxes payable 1,192,600 1,517,400
----------------- ----------------
Total current liabilities 17,067,500 14,677,500
----------------- ----------------
Purchase price payable for acquisitions - 874,000
Long-term debt, net of current portion 2,269,400 900,000
Other 25,000 21,000
Stockholders' equity:
Preferred stock, $0.01 par value:
1,000,000 shares authorized
no shares issued and outstanding - -
Common stock, $0.01 par value:
20,000,000 shares authorized
8,894,803, and 8,887,203 issued and outstanding 88,900 88,900
Additional paid-in capital 55,869,200 55,800,700
Deferred stock-based compensation - (6,700)
Retained earnings 4,244,700 3,799,700
Accumulated other comprehensive income (loss) 42,500 (72,200)
----------------- ----------------
Total stockholders' equity 60,245,300 59,610,400
----------------- ----------------
Total liabilities and stockholders' equity $ 79,607,200 $ 76,082,900
================= =================
</TABLE>
*The balance sheet at June 30, 1999 has been derived from audited financial
statements.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
2
<PAGE>
ASPEON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
1999 1998
------ -----
(As restated, Note 2)
<S> <C> <C>
Revenues:
Products $ 13,188,200 $ 11,588,000
Services 6,777,200 1,344,200
----------------- ------------
Total revenues 19,965,400 12,932,200
----------------- ------------
Cost of revenues:
Products 9,449,100 8,156,300
Services 5,167,800 1,110,500
----------------- ------------
Total cost of revenues 14,616,900 9,266,800
----------------- ------------
Gross profit 5,348,500 3,665,400
Operating expenses:
Research and development 469,100 298,000
Selling and marketing 1,732,100 366,700
General and administrative 2,267,700 1,975,700
------------------ ------------
Total operating expenses 4,468,900 2,640,400
------------------ ------------
Income from operations 879,600 1,025,000
Interest expense (229,700) (234,500)
Interest income 79,600 3,700
Other income (expense) - 24,400
----------------- ------------
Income before income taxes 729,500 818,600
Provision for income taxes (284,500) (346,000)
----------------- -------------
Net income $ 445,000 $ 472,600
================= ============
Net income per common share:
Basic $ 0.05 $ 0.11
================ ============
Diluted $ 0.05 $ 0.11
================= ============
Shares used in computing net income:
Basic 8,893,432 4,131,556
================= ============
Diluted 9,174,443 4,271,736
================= ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
3
<PAGE>
ASPEON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
1999 1998
---------------- -------------
(As restated, Note 2)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 445,000 $ 472,600
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization 939,800 245,300
Amortization of deferred stock-based compensation 6,700 9,200
Deferred rent expense 4,000 -
Non-cash allowances (156,200) 117,200
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable (1,711,800) (2,323,900)
Inventories (699,300) (2,066,300)
Prepaid and other current assets (284,800) (338,900)
Other assets 46,400 (185,100)
Accounts payable 1,612,000 2,014,500
Accrued expenses (431,500) 53,900
Income taxes payable (324,800) 302,400
Customer deposits (230,000) (1,032,000)
Deferred revenues 247,200 75,200
---------------- -------------
Net cash used in operating activities (537,300) (2,655,900)
---------------- -------------
INVESTING ACTIVITIES
Purchase of equipment (626,400) (308,700)
Cash paid in connection with acquisitions (3,759,100) -
Investment in securities 2,877,200 -
--------------- --------------
Net cash used in investing activities (1,508,300) (308,700)
--------------- --------------
FINANCING ACTIVITIES
Net borrowings under line of credit 820,300 3,055,000
Repayment of notes payable (174,800) (75,000)
Deferred offering costs - (39,400)
Exercise of stock options 68,500 8,900
---------------- -------------
Net cash provided by financing activities 714,000 2,949,500
---------------- -------------
Effect of exchange rate changes on cash 100,600 15,100
---------------- -------------
Net decrease in cash and cash equivalents (1,231,000) -
Cash and cash equivalents at beginning of period 5,641,500 -
---------------- -------------
Cash and cash equivalents at end of period $ 4,410,500 $ -
================ ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income tax paid $ 750,000 $ 43,600
================ ===============
Interest paid $ 131,200 $ 159,400
================= ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
<PAGE>
ASPEON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Aspeon, Inc. ("Aspeon"), formerly Javelin Systems, Inc., was incorporated in the
State of Delaware on September 19, 1995 under the name of Sunwood Research, Inc.
Aspeon is a leading provider of retail foodservice technology solutions and
services that enable restaurants and retailers to capture, analyze, disseminate
and use information throughout the enterprise, from the point-of-sale (POS) cash
register terminal to the back office to an organization's headquarters. Aspeon
designs, manufactures and markets open system touchscreen POS network-ready
hardware systems and provides POS systems integration services and software
solutions primarily for the foodservice and retail industries.
On November 1, 1996, Aspeon completed an initial public offering (the "IPO") of
850,000 shares of its common stock at $5.00 per share, netting proceeds of
approximately $3.2 million. Proceeds were used to repay debt with an outstanding
balance of approximately $745,000 and for general corporate purposes.
In December 1997, Aspeon 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, Aspeon established three international subsidiaries to
expand its sales and distribution channels in the international marketplace. The
international subsidiaries are: Aspeon Systems (Europe) Limited ("Aspeon
Europe") headquartered in England; Aspeon Systems International Pte Ltd ("Aspeon
Asia") headquartered in Singapore; and Aspeon Systems Australia Pty Limited
("Aspeon Australia") headquartered in Australia.
In May 1998, Aspeon 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 below, and for general corporate
purposes.
In November 1998, Aspeon acquired all of the outstanding common stock of RGB and
Jade. RGB and Jade are headquartered in England and provide complementary Wide
Area Networking (WAN) products and services primarily to large retail,
hospitality, and telecommunications companies.
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 to purchase the
outstanding common stock of Dynamic Technologies, Inc. ("DTI") and SB Holdings,
Inc. ("SB"), as described below, and for working capital and general corporate
purposes.
In April 1999, the Company acquired all of the outstanding capital stock of DTI
and all of the outstanding capital stock of SB. DTI and SB provide custom
Internet/Intranet software and services.
5
<PAGE>
In August 1999, the Company acquired all of the outstanding capital stock of
Restaurant Consulting Services, Inc. ("RCS") as described in Note 3. RCS
implements, operates and supports packaged software applications for the
restaurant industry.
Hereinafter, Aspeon and its subsidiaries are referred to as the "Company".
BASIS OF PRESENTATION
The accompanying unaudited 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. 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 unaudited consolidated financial statements should be read
in conjunction with the audited consolidated financial statements included in
the Company's Annual Report on Form 10-K for the year ended June 30, 2000
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>
SEPTEMBER 30, JUNE 30,
1999 1999
----------- -----------
(As restated, Note 2)
<S> <C> <C>
Raw materials $ 7,215,300 $ 7,195,600
Work-in-process 666,500 227,000
Finished goods 7,383,200 7,143,100
----------- -----------
$15,265,000 $14,565,700
=========== ===========
</TABLE>
EXCESS OF COST OVER NET ASSETS OF PURCHASED BUSINESSES (AS RESTATED, NOTE 2)
Excess of cost over net assets of purchased businesses (goodwill) represents the
excess of purchase price over the fair value of the net assets of acquired
businesses. For the acquisitions of Posnet, CCI, Aspact, RGB and Jade, the
excess was allocated entirely to goodwill. Management determined that for these
acquired companies, there were no other identifiable intangible assets, such as
workforce, that would require an allocation of the purchase price. Other
intangible assets include the estimated value associated with a non-compete
agreement, workforce and software acquired in the acquisition of DTI. These
items are being amortized on a straight-line basis over periods ranging from two
to ten years. Goodwill is stated at cost and is amortized on a straight-line
basis over 10 years for DTI and SB and over 25 years for all other acquired
companies. The Company assesses the recoverability of these intangible assets by
determining whether the amortization of the goodwill balances over the remaining
lives can be recovered through projected undiscounted cash flows of the related
operations. The amount of goodwill impairment, if any, is measured based on
projected discounted cash flows and is charged to operations in the period in
which goodwill impairment is determined by management. To date, management has
not identified any impairment of goodwill.
EARNINGS PER COMMON SHARE
The Financial Accounting Standards Board ("FASB") 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 three
6
<PAGE>
months ended December 31, 1997.
A reconciliation of basic and diluted net income per share for the quarters
ended September 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------------- -------------------------
BASIC DILUTED BASIC DILUTED
--------- --------- -------- ---------
(As restated, Note 2)
<S> <C> <C> <C> <C>
NET INCOME $ 445,000 $ 445,000 $ 472,600 $ 472,600
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 8,893,432 8,893,432 4,131,556 4,131,556
ADDITIONAL SHARES DUE TO POTENTIAL
EXERCISE OF STOCK OPTIONS - 281,011 - 140,180
DILUTED WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 8,893,432 9,174,443 4,131,556 4,271,736
NET INCOME PER SHARE $ 0.05 $ 0.05 $ 0.11 $ 0.11
</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 $559,700 (as restated, Note 2) and $487,700 for the
three months ended September 30, 1999 and 1998, respectively. The primary
difference from net income as reported is the change in the cumulative
translation adjustment.
SEGMENT INFORMATION
In fiscal year 1999, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 supersedes SFAS 14, "Financial Reporting for
Segments of a Business Enterprise", replacing the "industry segment" approach
with the "management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. SFAS
131 also requires disclosures about products and services, geographic areas, and
major customers. The adoption of SFAS 131 did not affect results of operations
or financial position but did affect the disclosure of segment information.
RECLASSIFICATIONS
Certain amounts in fiscal 1999 have been reclassified to conform to the fiscal
2000 presentation.
7
<PAGE>
2. RESTATEMENT
The Company's previously reported results of operations for the three months
ended September 30, 1999 have been restated to reflect certain accounting
adjustments. The effects, increase or (decrease), of the adjustments on the
results of operations for the three months ended September 30, 1999 are set
forth in the following table:
<TABLE>
<S> <C>
Products revenues .................... $(269,500)
Products cost of revenues ............. (190,700)
-----------
Gross profit ......................... (78,800)
Total operating expenses ............. 164,500
----------
Income from operations .............. (243,300)
Other expenses ............... 8,700
Provision for income taxes ............ 98,300
----------
Net income ..................... $(153,700)
==========
Basic net income per share $(0.02)
=======
Diluted net income per share $(0.02)
=======
</TABLE>
Products revenues and products cost of revenues were reduced primarily due to
the deferral of revenues associated with point of sale units shipped by the
Company during the three months ended September 30, 1999 for which
installation work remained at the end of the period. Total operating expenses
were increased primarily to reflect the impact of increased amortization of
intangibles due to purchase accounting adjustments; expensing of costs
previously capitalized and accrual of general expenses not recorded during
the period.
3. ACQUISITION OF RCS
In August 1999, the Company acquired all of the outstanding capital stock of
RCS. RCS implements, operates and supports packaged software applications for
the restaurant industry. The aggregate purchase price for the RCS capital stock
consisted of $3,054,400 in cash (including acquisition costs of $21,300). The
Company may, in the future, be required to pay an additional $1,516,600 in cash
and issue shares of its common stock with a market value of up to $1,516,600
based upon the cumulative net profits of RCS during the twenty-four months
ending August 31, 2001. The acquisition has been accounted for by the purchase
method, and accordingly, the results of operations of RCS will be included with
those of the Company commencing on the date of acquisition. The purchase price
resulted in excess of purchase price over the fair value of net assets acquired
of approximately $2,706,200. Such excess is being amortized on a straight-line
basis over 10 years.
8
<PAGE>
4. STOCKHOLDERS' EQUITY
During the three months ended September 30, 1999, 7,600 shares of common stock
were issued upon the exercise of stock options with a weighted average exercise
price of $9.76 per share.
5. SEGMENT INFORMATION
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies. The segments
and a description of their businesses follows:
The Research and Development segment provides all research and development
activities for the other business segments.
The POS Products segment designs, manufactures and markets open system
touchscreen point-of-sale (POS) network-ready hardware systems. These systems
are sold on a stand-alone basis or integrated as part of an end-to-end solution.
The Solutions Services segment provides retail foodservice technology solutions
and services that enable restaurants and retailers to capture, analyze,
disseminate and use information throughout the enterprise, from the
point-of-sale (POS) cash register terminal to the back office to an
organization's headquarters.
The ASP Services segment provides pre-integrated business application services
customized to meet industry specific needs of the foodservice and retail
industry.
The accounting policies of the segments are the same as those described in
the "Summary of Significant Accounting Policies." Segment data includes
inter-segment revenues. The Company does not allocate corporate-headquarters
costs or research and development costs to the operating segments. Resources
for research and development are allocated based on budgets. The Company
evaluates the performance of its segments and allocates resources to them
based on net income (loss). Prior and current year information have been
restated to conform to segment information as reported in the Company's Form
10-K for the year ended June 30, 2000.
Information about the Company's reportable segments for the three months ended
September 30, 1999 and 1998 are as follows (fiscal 1999 amounts restated to
reflect adjustments described in Note 2):
<TABLE>
<CAPTION>
RESEARCH AND POS SOLUTIONS ASP
DEVELOPMENT PRODUCTS SERVICES SERVICES TOTAL
<S> <C> <C> <C> <C> <C>
1999
REVENUES - $10,737,300 $ 7,853,000 $3,901,900 $ 22,492,200
NET INCOME (LOSS) $ (250,700) $ 627,400 $ (73,700) $ 296,700 $ 599,700
TOTAL ASSETS - $60,009,300 $ 14,899,000 $4,698,900 $ 79,607,200
1998
REVENUES - $10,041,900 $ 4,489,500 - $ 14,531,400
NET INCOME (LOSS) $ (172,800) $ 779,900 $ 22,200 - $ 629,300
TOTAL ASSETS - $14,437,300 $ 13,363,000 - $ 27,800,300
</TABLE>
9
<PAGE>
A reconciliation of total segment revenues to total consolidated revenues and of
total segment net income to total consolidated net income for the three months
ended September 30, 1999 and 1998 is as follows (fiscal 1999 amounts restated to
reflect adjustments described in Note 2):
<TABLE>
<CAPTION>
1999 1998
------------- ------------
<S> <C> <C>
REVENUES
Total segment revenues $ 22,492,200 $ 14,531,400
Elimination of inter-segment revenues (2,526,800) (1,599,200)
------------- ------------
Consolidated revenues $ 19,965,400 $ 12,932,200
============= ============
NET INCOME
Total segment net income $ 599,700 $ 629,300
Elimination of intersegment
gross profit net of income taxes 82,800 13,200
Elimination of non-segment
expenses, net of income taxes (237,500) (169,900)
------------- -------------
Consolidated net income $ 445,000 $ 472,600
============ ============
</TABLE>
Specified items included in segment profit/loss for the three months ended to
September 30, 1999 and 1998 are as follows (fiscal 1999 amounts restated to
reflect adjustments described in Note 2):
<TABLE>
<CAPTION>
RESEARCH AND POS SOLUTIONS ASP
DEVELOPMENT PRODUCTS SERVICES SERVICES TOTAL
<S> <C> <C> <C> <C> <C>
1999
Interest expense - $229,000 $ - $ 700 $ 229,700
Interest income - $(86,000) $ 6,400 - $ (79,600)
Depreciation
and amortization expense - $200,300 $238,900 $ 500,600 $ 939,800
Income tax expense
(benefit) $(129,200) $183,100 $ 52,100 $ 178,500 $ 284,500
Expenditures for
additions to
long-lived assets - $428,100 $ 46,100 $3,712,200 $4,186,400
1998
Interest expense - $211,300 $ 22,200 1,000 $ 234,500
Interest income - $ (2,900) - (800) $ (3,700)
Depreciation
and amortization expense - $131,500 $113,800 - $ 245,300
Income tax expense $(125,200) $564,800 $ 16,100 - $ 455,700
Expenditures for
additions to
long-lived assets - $209,200 $489,500 - $ 698,700
</TABLE>
Revenues and long-lived asset information by geographic area as of and for the
three months ended September 30, 1999 and 1998 (fiscal 1999 amounts restated to
reflect adjustments described in Note 2):
<TABLE>
<CAPTION>
UNITED
STATES EUROPE ASIA AUSTRALIA TOTAL
<S> <C> <C> <C> <C> <C>
1999
Revenues $13,069,200 $5,920,500 $423,000 $552,700 $19,965,400
Long-lived assets $27,925,600 $6,209,600 $942,000 $138,500 $35,215,700
1998
Revenues $ 11,092,400 $1,207,800 $293,800 $338,200 $12,932,200
Long-lived assets $ 8,752,300 $32,200 $351,700 $39,400 $9,175,600
</TABLE>
10
<PAGE>
6. SUBSEQUENT EVENTS
MONUMENT ACQUISITION
In March 2000, the Company acquired all of the outstanding capital stock of
Monument Software Corporation ("Monument"). The aggregate purchase price for
Monument consisted of $1,579,000 in cash (including acquisition costs of
$79,000) and 104,802 shares of common stock with a value of $2,060,700. The
acquisition has been accounted for by the purchase method.
MANDATORILY REDEEMABLE SERIES A PREFERRED STOCK
In March 2000, the Company completed a private placement in which the Company
sold an aggregate of 10,000 shares of Series A Convertible Exchangeable
Preferred Stock (the "Preferred Stock"), a warrant to acquire 583,334 shares of
common stock of the Company at an initial exercise price of $17.00 per share and
a warrant to acquire 1,250,000 shares of common stock of Aspeon Solutions, Inc.,
a wholly-owned subsidiary of the Company, at an exercise price of $5.00 per
share. Proceeds to the Company amounted to $9,568,400, net of $431,600 in
issuance costs.
The net proceeds from the issuance of the Preferred Stock was allocated based
on the relative fair values of each equity instrument using an independent
valuation as follows:
<TABLE>
<S> <C>
Preferred Stock $ 5,274,500
Warrants, Aspeon, Inc. 3,426,600
Warrants, Aspeon Solutions 867,300
-----------
Total net proceeds $ 9,568,400
===========
</TABLE>
The Preferred Stock conversion price was less than the market value of the
Company's common stock on the date of issuance; accordingly, the Company
recorded a beneficial conversion feature equal to the difference between the
conversion price and the fair value of the common stock, multiplied by the
number of shares into which the Preferred Stock is convertible (intrinsic
value). The resultant value was limited to the amount allocated to the
Preferred Stock of $5,274,500 and was charged to retained earnings, to the
extent available, and paid in capital on the issuance date, and increased the
net loss available to common stockholders.
The Preferred Stock discount that resulted from the allocation of the net
proceeds to the other equity instruments issued is being accreted over the
minimum period from the date of issuance to the date on which the Preferred
Stock can first be redeemed (March 2002), and has increased the net loss
available to common stockholders.
The Preferred Stockholders have the following rights: i) the right of first
offer for the subsequent sale of equity securities by the Company, as defined,
through March 2001, ii) the right to exchange Preferred Stock for equity
securities subsequently issued by the Company, through September 2001, iii) the
option to exchange the Preferred Stock for shares of the preferred stock of
Aspeon Solutions following an initial public offering and based on the trading
volume of the Company's common stock, as defined, and iv) registration rights
for the shares of common stock issuable upon the conversion of the Preferred
Stock.
The Preferred Stock also contains the following preferences: i) cumulative
dividends at an annual rate of 6%, payable quarterly in cash or common stock at
the option of the Company commencing in April 2000, ii) liquidation preference
equal to the original issuance price plus unpaid dividends, iii) conversion into
common stock at any time after March 2000 at a conversion price equal to the
lower of (a) $16.00 or (b) the average of the three lowest closing bid prices of
the Company's common stock during the 10 day period prior to the conversion, iv)
redemption of the Preferred Stock by the Company in March 2002 at the original
issuance price ($1,000 per share) plus unpaid dividends, or at the option of the
Company if certain conditions remain satisfied, as defined, in shares of common
stock, and v) mandatory redemption if certain events occur, as defined, at a
redemption price equal to 125% of the original issuance price plus unpaid
dividends.
In August 2000, $150,000 (150 shares of Preferred Stock stated value) plus
accrued and unpaid dividends, were converted into 53,054 shares of the Company's
common stock.
In October 2000, a notice of default was received from the Preferred
Stockholders due to the Company's failure to timely file its Form 10-K and the
suspension of trading of the Company's common stock by Nasdaq. In accordance
with the provisions of the Preferred Stock agreement, the Company is required to
pay 1.5% of the stated value of the Preferred Stock ($9,850,000) for each thirty
calendar day period during which the default remains. As a result of the
defaults not being cured within ten days of the default notice, the conversion
price of the Preferred Stock was reduced and the Preferred Stockholders have the
right to require the Company to redeem the Preferred Stock. In addition, as a
result of the defaults, the Company will be required to accrete the Preferred
Stock to its redemption value of $9,850,000, plus accrued but unpaid dividends
at the 1.5% default rate, in the second quarter of fiscal 2001.
The Company currently is negotiating with the Preferred Stockholders to attempt
to obtain a waiver of the defaults under the terms of the Preferred Stock and
related agreements. However, no assurances can be made that the Company will be
successful in its efforts to obtain a waiver of the defaults. If the Company is
not able to obtain a waiver of defaults from the Preferred Stockholders, and the
Preferred Stockholders elect to pursue the default remedies described above, the
Company would be forced to seek financing to obtain the funds necessary to pay
to the Preferred Stockholders the redemption amount of the Preferred Stock and
the accrued 1.5% penalty amounts. If the Company is not able to obtain financing
on satisfactory terms, the Company may be required to terminate its operations
and sell its assets and dissolve, reduce planned capital expenditures, reduce
planned levels of advertising and promotion, scale back its manufacturing or
other operations or enter into
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<PAGE>
arrangements on terms which it would not otherwise accept, and any of these
occurrences could have a material adverse effect of the Company's business,
financial condition and results of operations.
NOTES RECEIVABLE FROM OFFICER
In April and August 2000, the Company executed a $300,000 unsecured and $400,000
secured note receivable (collectively the "Notes") with its CEO. The $400,000
note was collateralized by certain assets of the CEO and bore interest at the
rate of 6.6% annum. The principal and interest of the Notes were paid in full in
September 2000.
LINE OF CREDIT COVENANT DEFAULT
At June 30, 2000, the Company was in default of certain non-financial covenants
under its line of credit facility. In October 2000, the Company obtained a
waiver on all defaults through June 30, 2000 pursuant to certain terms and
conditions including accelerating term loan repayments, accruing interest on the
term loan at the default rate of 11.5%, and limiting borrowings to approximately
$3,538,000.
SALE OF ASPACT
In August 2000, the Company executed a sale agreement with the then current
director of Aspact (the "Purchaser"). The initial purchase price is $350,000
that is payable to the Company in monthly installments of $14,600 commencing in
July 2001. In the event the Purchaser consummates an initial public offering or
disposes of all or substantially all of Aspact's common stock, the Purchaser
will be required to pay: a) the unpaid balance of the initial consideration and
b) 50% of the net proceeds received from the initial public offering less the
amount paid under a), in an amount not to exceed $200,000. Concurrent with the
sale agreement, the Purchaser was terminated as an employee of the Company.
SUSPENSION OF TRADING
In October 2000, the Nasdaq Stock Market ("Nasdaq") suspended trading in the
Company's Common Stock while it sought additional information from the
Company. On October 11, 2000, Nasdaq sent a letter to the Company stating
that that Company's Common Stock would be delisted from Nasdaq if the Company
did not file its Form 10-K for the fiscal year ended June 30, 2000 with the
Securities and Exchange Commission ("SEC") by October 18, 2000. The Form 10-K
was not filed with the SEC by the October 18, 2000 deadline. On November 9,
2000, the Company participated in a hearing before the Nasdaq Listing
Qualifications Panel which was held for the purpose of evaluating whether the
Company's Common Stock may continue to be listed on Nasdaq or if it will be
delisted. On December 11, 2000 the Company received a letter from the Nasdaq
stating the Company must be in compliance with all SEC filings by December
18, 2000.
LITIGATION
In October 1999, the Company and two former officers of a subsidiary of the
Company were named as defendants in a breach of contract and intentional tort
action brought by an individual who claims rights to computer software products
once offered for sale by subsidiaries of the Company. The plaintiff is seeking
payment of one half of all the sales proceeds of the commercial software product
line of "Special Delivery" sold since February 1997 and makes claim to one half
of the asset purchase price (as apportioned to the "Special Delivery" asset)
paid by the Company to the shareholders of the subsidiary in April 1999. The
Company and its subsidiaries have indemnification rights against one of the
selling shareholders in connection with his representations and warranties made
about "Special Delivery" in various documents. Although the Company and its
subsidiaries support the selling shareholder's position as it relates to the
plaintiff in this action, cross-claims have been filed against the selling
shareholder, for indemnification and contribution, for further protection.
Management is unable to determine whether the outcome of this complaint will
have a material impact on the Company's consolidated
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financial position, results of operations or cash flows.
In October and November 2000, the Company, the Company's Chief Executive
Officer, and its former Chief Financial Officer were sued in the United States
District Court for the Central District of California for alleged violations of
the Securities Exchange Act of 1934. The plaintiffs seek class action status.
The complaints do not specify the amount of damages sought. According to press
releases, other plaintiffs are purported to have filed similar lawsuits against
the Company and its officers or former officers. Management is unable to
determine whether the outcome of these complaints or associated legal costs will
have a material impact on the Company's consolidated financial position, results
of operations, or cash flows.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
This Quarterly Report on Form 10-Q/A 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 following discussion should be read in
conjunction with the Company's consolidated financial statements and the related
notes thereto and the other financial information included in the Company's Form
10-K. This discussion contains forward-looking statements that include risk and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of any number of
factors, including those set forth under the heading "Risk Factors" in Item I of
the Company's Form 10-K filed on November 30, 2000. Such forward-looking
statements represent management's current expectations and are inherently
uncertain. Investors are warned that actual results may differ from management's
expectations. The Company assumes no obligation to update the forward-looking
information to reflect actual results or changes in the factors affecting such
forward-looking information.
BUSINESS
Aspeon, Inc. ("Aspeon"), formerly known as Javelin Systems, Inc., was
incorporated in the State of Delaware on September 19, 1995 under the name of
Sunwood Research, Inc. Aspeon Solutions, Inc., a wholly-owned subsidiary, is
an application service provider ("ASP") providing services which enable
software applications to be deployed, managed, supported and upgraded from
centrally located servers, rather than individual computers. Javelin Systems,
a division of Aspeon, is a provider of integrated touchscreen computers and
system integration services to the foodservice and retail industries.
Aspeon's background as a developer of point of sale systems, communications
solutions, and enterprise applications, has allowed the Company to gain
contracts in the ASP market.
In December 1997, Aspeon acquired CCI Group, Inc. and Posnet Computers; both
companies focused on providing point of sale solutions to large restaurant
chains including White Castle, AFC, Red Robin and Jamba Juice. These
acquisitions formed the basis of Aspeon's POS Products and Solution Services
businesses.
Aspeon began its globalization initiative in 1998, first opening Aspeon sales
and support offices in the United Kingdom (UK) and Australia. In November 1998,
Aspeon acquired RGB/Jade, a networking solutions provider with customers such as
Marks and Spencer, WH Smith, Body Shop and Bass pubs. Although primarily retail
focused, Jade has relationships with major non-retail customers including
Reuters and British Telecom. Aspeon launched another UK subsidiary, Teneo, in an
effort to expand its service management and wide area network solutions
business.
By late 1998, Aspeon was positioned globally to provide both point of sale and
communications solutions to the retail and restaurant industries, but realized
it lacked the expertise in enterprise software and infrastructure, which
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would be necessary to complete the Company's end-to-end vision. The Company was
not in a position to build a large enterprise consulting practice due to the
difficulty of hiring and retaining the hundreds of consultants needed to serve
its large clients.
Aspeon began evaluating alternative business models and identified the ASP
Services business as suitable for its vertical focus since it could
develop a pre-integrated, vertically-focused suite of software applications
that could be delivered through the Internet in a hosted environment. In
1999, Aspeon began developing its ASP Services business.
In April 1999, Aspeon acquired Dynamic Technologies, Inc. and SB Holdings, Inc.
(collectively "DTI"), Philadelphia-based providers of hosted messaging, customer
relationship management, and custom software solutions to a variety of customers
in the Delaware Valley area including Aventis and Right Management. This
acquisition served as the platform for Aspeon's ASP Services offering by
providing application development, implementation, and support capabilities.
In August 1999, Aspeon acquired Restaurant Consulting Services ("RCS"), a
provider of technology outsourcing services including Oracle Financials hosting
and communications management to customers such as Champs Entertainment, Inc.,
Fuddruckers, Chart House, and Xando-Cosi.
The Company has attempted to assemble a high caliber management team and build
an ASP infrastructure designed to rapidly scale as companies increasingly turn
to outsourcers, like Aspeon, to satisfy their internal information technology
("IT") needs.
All of the acquisitions were accounted for by the purchase method, and
accordingly, the results of operations of these subsidiaries have been included
with those of the Company commencing on the dates of acquisition. Goodwill
resulting from these acquisitions is amortized on a straight-line basis over
periods of 3 to 25 years.
The Company's principal business activities are:
(1) POS Products - designs, manufactures and markets open system
touchscreen POS network-ready hardware systems. These systems can
be sold on a stand-alone basis or integrated as part of an
end-to-end solution.
(2) Solutions Services - provides retail foodservice technology
solutions and services that enable restaurants and retailers to
capture, analyze, disseminate and use information throughout the
enterprise, from the POS cash register terminal to the back office
to an organization's headquarters.
(3) ASP Services - provides pre-integrated business application
services customized to meet industry specific needs of the
foodservice and retail industry.
REVENUES
POS PRODUCTS
POS Products revenues consist primarily of sales of POS hardware, software and
peripheral equipment including printers and personal computers. The replacement
cycle for hardware in the POS foodservice industry is generally long, and
consequently, revenues for hardware products to a specific end-user tend to be
non-recurring. The Company may experience significant variations in POS Products
revenue in any quarterly or annual period.
SOLUTIONS SERVICES
Solutions Services revenues consist primarily of staging and design,
installation, maintenance and repair and consulting services. Maintenance and
repair contract Solution Services tend to be recurring while services such as
staging, design and installation tend not to be recurring. Installation services
are not always a required service to be provided for in connection with the sale
of the Company's POS Products. Maintenance services are typically provided for
under the terms of a single or multi-year maintenance agreement.
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<PAGE>
ASP SERVICES
ASP Services revenues consists primarily of information technology outsourcing,
hosting, remote services, help desk and consulting services. Revenues are
classified into two categories: recurring or multi-year contractually based
revenue, and revenue generated via non-recurring agreements. Services such as
consulting tend not to be recurring.
ASP Services also include certain purchases of equipment procured by the Company
on behalf of a customer. Typically, these purchases are passed through to the
customer with a nominal markup on the cost to the Company.
Management anticipates that Solution Services and ASP Services revenues in
the future will increase as a percentage of total revenues. As sales of
hardware products and services to specific end-users become more significant
relative to total revenues, the Company may experience significant variations
in any quarterly or annual reporting period. These variations may result
from, among other things, delays in installations or the Company's inability
to timely address any problems with installations that have been completed or
are near completion. Any of these factors could cause the Company's results
of operations to fluctuate significantly from period to period, including on
a quarterly basis.
COST OF REVENUES
POS PRODUCTS
POS Products cost of revenues consists primarily of POS hardware, software and
peripheral equipment costs. POS hardware costs consist of the acquisition costs
of non-Aspeon product line hardware that is resold by the Company and the costs
of components and payroll and related costs for assembly, manufacturing,
purchasing, quality control and repairs of Aspeon products. Sales of non-Aspeon
hardware generally carry a lower gross margin than do other product sales. The
cost of the components incorporated in the Aspeon product line represents in
excess of 80% of the total cost of such products, which is consistent with prior
fiscal years. The cost of five components represents in excess of 75% of the
total component costs included in the Aspeon product line.
SOLUTIONS SERVICES
Solutions Services cost of revenues consists primarily of payroll and related
costs for technical and support staff providing staging, installation,
maintenance and other services. Cost of revenues per contract increases as new
installations under the contract are completed. Consequently, until the Company
has a larger volume of matured service contracts, gross margins on such service
revenues will be lower than the Company believes can be realized by its service
operations. Additionally, because the Company's service business should generate
higher revenues and higher margins in periods in which the Company handles
significant system deployments, and because contracts for such deployments are
non-recurring in nature, the Company anticipates that revenues and gross margins
from its service business will fluctuate from period to period.
ASP SERVICES
ASP Services cost of revenues consists primarily of payroll and related costs
for the technical and support staff providing information technology
outsourcing, hosting, remote services, help desk and consulting services.
Cost of revenues also includes certain utility charges (i.e., telephone)
associated with providing remote services and help desk. In anticipation of
gaining new customers, the Company has invested in the ASP Services business
by incurring costs necessary to meet the needs of a higher level of service
revenues. ASP Services cost of revenues also includes costs associated with
purchases of equipment procured by the Company on behalf of a customer.
Typically, these purchases are passed through to the customer with a nominal
markup on the cost to the Company.
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<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 (RESTATED) COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
The following discussion sets forth the historical results of operations and
financial condition of the Company for the three months ended September 30, 1999
and 1998. The following table sets forth certain statements of operations data
as a percentage of total revenues for the periods indicated (1999 amounts
restated to reflect adjustments described in Note 2):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1999 1998
----- -----
<S> <C> <C>
Revenues:
POS Products 66.1% 89.6%
Solution Services 14.4 10.4
ASP Services (1) 19.5 -
----- -----
Total revenues 100.0 100.0
----- -----
Cost of revenues:
POS Products (2) 71.6 70.4
Solutions Services (2) 79.9 82.6
ASP Services (1)(2) 73.6 -
---- ----
Total cost of revenues 73.2 71.7
---- ----
Gross profit 26.8 28.3
---- ----
Operating expenses:
Research and development 2.3 2.3
Selling and marketing 8.7 2.8
General and administrative 11.4 15.3
---- ----
Total operating expenses 22.4 20.4
---- ----
Income from operations 4.4 7.9
Interest expense (0.7) (1.8)
Interest income - -
Other income - 0.2
Provision for income taxes (1.5) (2.6)
----- -----
Net income 2.2% 3.7%
===== =====
</TABLE>
(1) ASP Services for the three months ended September 30, 1999 includes
approximately $1.1 million and $1.0 million, respectively, of non-POS
equipment related transactions, which are categorized within the ASP
Services segment.
(2) Expressed as a percentage of related revenues, not of total revenues.
REVENUES - POS PRODUCTS. Revenues from POS Product sales increased $1.6
million, or 13.8%, to $13.2 million for the three months ended September 30,
1999 compared to $11.6 million for the same period a year ago. As a
percentage of total revenues, POS Product sales accounted for 66.1% and 89.6%
for the three months ended September 30, 1999 and 1998, respectively. The
increase reflects the continued maturation of the Company's indirect
distribution channels offset, in part, by a reduction in shipments of 1,035
units to McDonald's Corporation.
REVENUES - SOLUTIONS SERVICES. Revenues from Solution Services increased $1.5
million, or 113.9%, to $2.9 million for the three months ended September 30,
1999 compared to $1.4 million for the same period a year ago. As a percentage
of total revenues, Solutions Services accounted for 14.4% and 10.4% for the
three months ended September 30, 1999 and 1998, respectively. The increase
reflects the impact one significant new contract for which deployment and
installation services were provided coupled with a significant "one-time"
hardware deployment contract commencing during the quarter offset, in part,
by one significant fiscal 1999 customer contract which ended during the
quarter.
REVENUES - ASP SERVICES. Revenues from ASP Services amounted to $3.9 million
for the three months ended September 30, 1999. As a percentage of total
revenues, ASP Services accounted for 19.5% of total revenues
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<PAGE>
for the three months ended September 30, 1999. ASP Services revenues reflect the
impact of the Company's April 1999 acquisition of DTI coupled with its August
1999 acquisition of RCS.
GROSS PROFIT. Gross profit increased $1.6 million, or 45.9%, to $5.3 million for
the three months ended September 30, 1999 compared with $3.7 million for the
same period a year ago. The increase is comprised of the following (1999 amounts
restated to reflect adjustments described in Note 2):
<TABLE>
<CAPTION>
THREE MONTHS ENDED INCREASE/
SEPTEMBER 30, (DECREASE)
1999 1998 $ %
---- ---- - -
<S> <C> <C> <C> <C>
POS Products $3.7 $3.5 $0.2 5.7%
Solution Services $0.6 0.2 $0.4 200.0%
ASP Services $1.0 - $1.0 -
</TABLE>
The increase in gross profit from POS Products sales is primarily attributable
to a larger proportion of units sold at a higher gross profit directly to end
users offset, in part, by fewer unit sales to McDonalds Corporation as discussed
above. The increase in gross profit from Solutions Services is due primarily to
an increase in gross profit from sales at CCI and RGB/Jade. Gross profits from
ASP Services reflects gross profits associated with the acquired operation of
DTI and RCS in April 1999 and August 1999, respectively, for the three months
ended September 30, 1999.
RESEARCH AND DEVELOPMENT. Research and development expenses increased $0.2
million, or 57.4%, to $0.5 million for the three months ended September 30, 1999
compared to $0.3 million for the same period a year ago. As a percentage of
total revenues, research and development expenses amounted to 2.3% for the three
months ended September 30, 1999 and 1998. The increase is primarily attributable
to additional development costs relating to the design of new POS Products
hardware and DTI costs of $0.1 million.
SELLING AND MARKETING. Selling and marketing expenses increased $1.4 million, or
372.3%, to $1.7 million for the three months ended September 30, 1999 compared
to $0.4 million for the same period a year ago. As a percentage of total
revenues, selling and marketing expenses amounted to 8.7% and 2.8%, for the
three months ended September 30, 1999 and 1998, respectively. The increase is
primarily attributable to sales and marketing costs at ASP Services and
Solutions Services of approximately $0.8 million, additional personnel employed
to expand the direct sales forces of the three international subsidiaries and
CCI and increased advertising costs associated with the growth of the business.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased $0.3
million, or 14.8%, to $2.3 million for the three months ended September 30, 1999
compared to $2.0 million for the same period a year ago. As a percentage of
total revenues, general and administrative expenses amounted to 11.4% and 15.3%,
for the three months ended September 30, 1999 and 1998, respectively. The
increase is due to an increase in general and administrative expenses associated
with DTI, RCS and RGB/Jade of $0.5 million, an increase in amortization of
goodwill of $0.5 million offset, in part, by a decrease of general and
administrative expenses relating to Aspeon and CCI of $0.8 million. The increase
in the amortization of goodwill resulted from the acquisitions of RGB, Jade, DTI
and RCS. The decrease of general and administrative expenses at Aspeon and CCI
resulted from the continued consolidation of administrative functions.
INTEREST EXPENSE. Interest expense decreased approximately $5,000 to $229,700
for the three months ended September 30, 1999 compared with $234,500 for the
same period a year ago. The decrease is due to the use of a portion of the
proceeds from the October 1998 and February 1999 common stock public offerings
to repay certain indebtedness.
INTEREST INCOME. Interest income increased approximately $76,000 to $79,600 for
the three months ended September 30, 1999 compared to $3,700 for the same period
a year ago. The increase primarily reflects the impact of interest earned on
invested proceeds from the Company's February 1999 common stock public offering.
INCOME TAXES. Provision for federal, state and foreign income taxes decreased
approximately $61,000 to $285,000 for the three months ended September 30, 1999
compared to $346,000 for the same period a year ago. The decrease is
attributable to the overall decrease in income before income taxes of $89,000
offset, in part, by an increase in
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<PAGE>
income before income taxes from the Company's foreign subsidiaries which operate
in jurisdictions with lower income tax rates than those in the United States.
LIQUIDITY AND CAPITAL RESOURCES
The following discussion of liquidity and capital resources has been updated
to add certain disclosures provided for in the Company's Form 10-K for the
year ended June 30, 2000.
In June 1998, the Company and its U.S. subsidiaries obtained a credit facility
of $7,500,000 from an unrelated financial institution. The credit facility
expires in June 2001 and consisted of a line of credit of up to $6,000,000 and a
term loan of $1,500,000. The credit facility contains a .50% per annum unused
line of credit fee, which is based on the difference between the borrowing
capacity and outstanding balance. Borrowings under the term loan are
collateralized by substantially all of the assets of the Company, bear interest
at 13.65% per annum and are repayable at $25,000 per month with all unpaid
principal and interest due in June 2001. At June 30, 2000, borrowings
outstanding under the term loan amounted to $900,000. The Company is not
permitted to pay cash dividends to common stockholders under the terms of the
credit facility without approval of the unrelated financial institution.
Under the terms of the credit facility, the Company is permitted to borrow up to
80% of eligible accounts receivable (as defined) and 50% of eligible inventory
(as defined) with monthly interest payments based upon the prime rate of a
national financial institution plus 1.75% (9.5% as of June 30, 2000). Borrowings
under the line of credit are collateralized by substantially all the assets of
the Company. At June 30, 2000, borrowings outstanding under the line amounted to
$2,497,000.
The credit facility contains certain restrictive financial and non-financial
covenants. The Company is required to maintain a stated current ratio, net
worth, senior debt service coverage ratio and total debt service coverage ratio.
At June 30, 2000, the Company was in default of certain non-financial covenants.
In October 2000, the Company obtained a waiver on all defaults through June 30,
2000 pursuant to certain terms and conditions including accelerating term loan
repayments, accruing interest on the term loan at the default rate of 11.5%, and
limiting borrowings to approximately $3,538,000.
Jade has a line of credit facility of $1,800,000 from an unrelated financial
institution. Borrowings under the line of credit are collateralized by all of
the assets of Jade and bear interest at 2% over the U.K. Base rate (8.0% at June
30, 2000). The credit facility was renewed in October 2000 and expires in August
2001. As of September 30, 1999, borrowings outstanding under the line amounted
to $917,000 with approximately $883,000 available for future borrowings. At June
30, 2000, borrowings under the line amounted to $692,000 with approximately
$1,108,000 available for future borrowings.
In March 2000, the Company completed a private placement in which the Company
sold an aggregate of 10,000 shares of Series A Convertible Exchangeable
Preferred Stock (the "Preferred Stock"), a warrant to acquire 583,334 shares of
common stock of the Company at an initial exercise price of $17.00 per share and
a warrant to acquire 1,250,000 shares of common stock of Aspeon Solutions, Inc.
("Aspeon Solutions"), a wholly-owned subsidiary of the Company, at an exercise
price of $5.00 per share. Proceeds to the Company amounted to $9,568,400, net of
$431,600 in issuance costs.
In October 2000, a notice of default was received from the Preferred
Stockholders due to the Company's failure to timely file its Form 10-K and the
suspension of trading of the Company's common stock by Nasdaq. In accordance
with the provisions of the Preferred Stock agreement, the Company is required to
pay 1.5% of the stated value of the Preferred Stock ($9,850,000) for each thirty
calendar day period during which the default remains ($147,800 per month). As a
result of the defaults not being cured within ten days of the default notice,
the conversion price of the Preferred Stock was reduced and the Preferred
Stockholders have the right to require the Company to redeem the Preferred
Stock. In the event that the Preferred Stockholders exercise their right to
require that the Company redeem the Preferred Stock, no assurances can be made
that the Company will be able to obtain the funds necessary to meet such
redemption obligation.
In October 2000, The Nasdaq Stock Market ("Nasdaq") suspended trading in the
Company's Common Stock while it sought additional information from the Company.
On October 11, 2000, Nasdaq sent a letter to the
18
<PAGE>
Company stating that that Company's Common Stock would be delisted from
Nasdaq if the Company did not file its Form 10-K for the fiscal year ended
June 30, 2000 with the Securities and Exchange Commission ("SEC") by October
18, 2000. The Form 10-K was not filed with the SEC by the October 18, 2000
deadline. On November 9, 2000, the Company participated in a hearing before
the Nasdaq Listing Qualifications Panel which was held for the purpose of
evaluating whether the Company's Common Stock may continue to be listed on
Nasdaq or if it will be delisted. On December 11, 2000 the Company received a
letter from the Nasdaq stating the Company must be in compliance with all SEC
filings by December 18, 2000. No assurances can be given that the Company's
Common Stock will be traded on Nasdaq or any other exchange or market at any
time in the future. If the Company's Common Stock does not trade on any
exchange or market in the future, then stockholders of the Company may lose
their investment in the Company and it will be more difficult for the Company
to raise funds in the future through the issuance of capital stock.
As of September 30, 1999, the Company had cash and cash equivalents of $4.4
million and working capital of $27.4 million. As of September 30, 2000, the
Company had cash and cash equivalents of approximately $3.3 million.
Cash used in operating activities for the three months ended September 30, 1999
amounted to $0.5 million and consisted primarily of increases in trade
receivables and inventories. Cash used in investing activities for the quarter
ended September 30, 1999 amounted to $1.5 million and consisted primarily of
cash used to acquire the outstanding common stock of RCS and the purchase of
equipment. Cash provided by financing activities for the quarter ended September
30, 1999 amounted to $0.7 million and consisted primarily of the proceeds from
the borrowings under the line of credit.
Cash used in operating activities for the year ended June 30, 2000 amounted to
approximately $2.1 million and was primarily attributable to the use of cash to
fund the Company's net loss and inventory. This was partially offset by an
increase in accounts payable and accrued expenses. Cash used in investing
activities for the year ended June 30, 2000 amounted to approximately $5.5
million and consisted primarily of cash used to acquire the outstanding common
stock of RCS and Monument, payment of various earn-out provisions associated
with acquired businesses and the purchase of equipment. Cash provided by
financing activities for the year ended June 30, 2000 amounted to approximately
$11.1 million and consisted primarily of the gross proceeds from the issuance of
$10.0 million of Preferred Stock in March 2000. Proceeds from the Preferred
Stock have been used primarily to acquire Monument, settle future contingent
payments associated with RCS, hire management and staff personnel, expand
corporate facilities and fund ASP Services operations.
The Company has sustained significant losses during fiscal 2000 and has
experienced negative cash flows from operations since its inception. The
Company's ability to meet its obligations in the ordinary course of business is
dependent upon its ability to re-initiate trading of its Common Stock, return to
profitability, obtain a waiver of preferred stock defaults, replace the existing
domestic line of credit and raise additional financing through public or private
equity financings and evaluate potential strategic opportunities.
Management must re-initiate trading of the Company's Common Stock and retain its
listing on the Nasdaq. Management believes it can satisfy all SEC filing
requirements, including but not limited to certain quarterly filing requirements
on Form 10-Q communicated to the Nasdaq Panel on November 9, 2000. However, no
assurances can be made that the Company will not be delisted by the Nasdaq
prior, or subsequent, to filing all information with the SEC.
Management has instituted certain business initiatives to streamline operations
and generate future on-going cost savings. In June 2000, the Company recorded a
$3,900,000 charge for severance costs associated with the termination of senior
management personnel in the ASP Services segment. Management anticipates annual
cash savings from this initiative of approximately $1,800,000. The Company also
anticipates monthly cost savings of approximately $100,000 associated with
management's decision to exit the retail ASP operations and focus solely on the
foodservice ASP operations. The Company has delayed plans to consolidate and
outsource data center functions for ASP Services resulting in the elimination of
measurable up-front costs which would otherwise have been incurred. The Company
has also delayed and reduced the budgeted dollars associated with its corporate
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wide marketing and advertising campaign. However, no assurances can be made that
these initiatives will return the Company to profitability in the immediate
future.
Management believes that through an inventory reduction program and aggressive
receivable collection efforts it may generate between $5.0 million to $7.5
million of cash. Management has developed and implemented a POS sales rebate
program effective in the first quarter of fiscal 2001. However, there can be no
assurance that the Company's rebate program will generate significant sales
volumes and inventory reductions of POS products. The Company has recorded an
income tax receivable in excess of $2.0 million as of June 30, 2000 reflecting,
in part, the carryback of losses incurred during the fiscal year. However, there
can be no assurance that the Company will collect this money in the immediate
future. Management intends to replace its existing domestic line of credit with
a new facility to fund its working capital needs. However, no assurances can be
made that such financing can be successfully completed on terms acceptable to
the Company. In addition, the management of the Company's UK subsidiaries has
renewed its existing line of credit which will expire in August 2001.
Management continues to evaluate raising additional financing through public or
private equity financings. If additional funds are raised through the issuance
of equity securities, our stockholders may experience significant dilution.
Furthermore, there can be no assurance that additional financing will be
available when needed or that if available, such financing will include terms
favorable to our stockholders or the Company. If such financing is not available
when required or is not available on acceptable terms, we may be unable to
develop or enhance our products and services, take advantage of business
opportunities or respond to competitive pressures, any of which could have a
material adverse effect on our business, financial condition and results of
operations.
Management continues to evaluate exit strategy opportunities relating to the
sale of the Company or certain subsidiaries. However, there can be no assurance
that any opportunity to sell the Company, or any of its divisions, would be
approved by the stockholders of the Company. Furthermore, there can be no
assurance that such transaction can be successfully completed on terms
acceptable to the Company.
YEAR 2000
Some older computer programs were written using two digits rather than four to
define the applicable year. As a result, those computer programs have
time-sensitive software that recognize a date using "00" as the year 1900 rather
than 2000. This failure to use four digits to define the applicable year has
created what is commonly referred to as the "Year 2000 Issue" and could cause a
system failure or miscalculations causing disruption of operations, including a
temporary inability to process transactions or engage in similar normal business
activities.
The Company recognizes the need to ensure that its operations will not be
adversely impacted by the Year 2000 Issue. The Company does not believe that it
has a material exposure to the Year 2000 Issue with respect to its own products
or information systems since its products and systems correctly define the Year
2000. The Company has not made any material expenditure to address the Year 2000
Issue and does not anticipate that it will be required to make any such
expenditure in the future. The Company has contacted most of its significant
suppliers and service providers to determine the extent to which it is
vulnerable to their failure to address the Year 2000 Issue. Although the Company
has received verbal assurances from some of these third parties that their
systems are year 2000 compliant, the Company has not yet received written
assurances from any of them. Although the Company does not believe its
operations will be significantly disturbed even if third parties to whom it has
relationships are not year 2000 compliant, there can be no assurance that any
year 2000 compliance problems of its suppliers and resellers of its products
will not negatively affect the Company's financial performance. If the Company's
suppliers are unable to provide it sufficient quantities of materials or goods
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. If resellers of the Company's products 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 these resellers. Because uncertainty exists
concerning the potential costs and effects associated with any year 2000
compliance, the Company intends to continue to make efforts to ensure that third
parties to whom it has relationships are year 2000 compliant.
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The Year 2000 Issue could also have an effect on the Company's revenues. Demand
for the Company's products and services may decline after January 1, 2000, as
the Company may not be able to incorporate its products and services into a Year
2000 driven POS retrofit. Similarly, many companies may spend substantial
resources to prevent or minimize problems associated with the Year 2000 Issue
and therefore may choose not to, or not have the budget capacity to, upgrade
their current POS systems for some period of time. Any lessening of demand for
the Company's products and services could have a material adverse effect on the
Company's business, financial condition and results of operations.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 27.1 Financial Data Schedule in accordance with Article 5 of
Regulation S-X.
(b) No reports on Form 8-K were filed during the three months ended
September 30, 1999
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.
ASPEON, INC.
December 18, 2000 /s/ Richard P. Stack
-------------------------- -------------------------------------
Date Richard P. Stack
Chief Executive Officer and President
December 18, 2000 /s/ Edmund Brooks
-------------------------- -------------------------------------
Date Edmund Brooks
Chief Executive Officer of
Javelin Systems
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EXHIBIT INDEX
27.1 Financial Data Schedule in accordance with Article 5 of Regulation
S-X.
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