<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____.
Commission File Number 000-21477
Aspeon, Inc.
(Exact name of registrant as specified in its charter)
JAVELIN SYSTEMS, INC.
---------------------
Former name (changed since last report)
DELAWARE 52-1945748
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
17891 Cartwright Road
Irvine, California 92614
(Address of principal executive offices) (Zip Code)
(949) 440-8000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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. [X] Yes [ ] No
As of January 31,2000, there were 9,115,771 shares of the Registrant's Common
Stock outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASPEON, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 1999*
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,798,900 $ 5,641,500
Investments in securities 3,745,000 7,472,000
Accounts receivable - net 17,194,300 16,000,200
Inventories 17,083,300 14,565,700
Deferred income taxes 530,900 530,900
Other current assets 1,398,100 823,500
------------ ------------
Total current assets 45,750,500 45,033,800
Property and equipment, net 4,993,500 2,861,400
Excess of cost over net assets of purchased businesses 30,524,800 27,021,200
Deferred financing costs 466,900 617,600
Other assets, net 249,600 273,600
------------ ------------
Total assets $ 81,985,300 $ 75,807,600
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 1,788,100 $ 2,056,600
Accounts payable 10,618,100 7,681,800
Accrued expenses 2,380,400 2,446,200
Current maturities of long-term debt 300,000 300,000
Customer deposits 2,700 2,700
Deferred maintenance revenues 1,536,100 397,500
Income taxes payable 575,300 1,517,400
------------ ------------
Total current liabilities 17,200,700 14,402,200
------------ ------------
Deferred rent expense 28,600 21,000
Long-term debt, net of current portion 1,329,500 1,774,000
Stockholders' equity:
Preferred stock, $0.01 par value:
authorized shares--1,000,000
issued and outstanding shares--none -- --
Common stock, $0.01 par value:
authorized shares--20,000,000
issued and outstanding shares--9,115,771 at December 31,
1999, and 8,887,203 at June 30, 1999 91,200 88,900
Additional paid in capital 57,928,600 55,800,700
Deferred compensation (6,700)
Retained earnings 5,454,000 3,799,700
Accumulated other comprehensive loss (47,300) (72,200)
------------ ------------
Total stockholders' equity 63,426,500 59,610,400
============ ============
Total liabilities and stockholders' equity $ 81,985,300 $ 75,807,600
============ ============
</TABLE>
*The balance sheet at June 30, 1999 has been derived from audited financial
statements.
SEE ACCOMPANYING NOTES.
2
<PAGE>
ASPEON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------------------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Product Sales $ 16,657,500 $ 13,997,500 $ 30,115,200 $ 25,585,400
Services 7,649,100 3,870,000 14,426,300 5,214,300
------------ ------------ ------------ ------------
Total revenues 24,306,600 17,867,500 44,541,500 30,799,700
------------ ------------ ------------ ------------
Cost of sales:
Product Sales 11,728,500 10,165,400 21,122,300 18,321,700
Services 5,660,500 2,940,400 11,074,300 4,050,900
------------ ------------ ------------ ------------
Total cost of sales 17,389,000 13,105,800 32,196,600 22,372,600
------------ ------------ ------------ ------------
Gross profit 6,917,600 4,761,700 12,344,900 8,427,100
------------ ------------ ------------ ------------
Operating expenses:
Research and development 492,800 285,200 961,900 583,200
Selling and marketing 1,931,200 1,038,700 3,650,100 1,405,400
General and administrative 2,905,700 2,241,900 5,022,100 4,217,600
------------ ------------ ------------ ------------
Total operating expenses 5,329,700 3,565,800 9,634,100 6,206,200
------------ ------------ ------------ ------------
Income from operations 1,587,900 1,195,900 2,710,800 2,220,900
Interest expense (144,200) (234,700) (277,400) (469,200)
Other income (expense) 286,800 (2,200) 278,600 25,900
------------ ------------ ------------ ------------
Income before income taxes 1,730,500 959,000 2,712,000 1,777,600
Provision for income taxes (674,900) (385,000) (1,057,700) (731,000)
------------ ------------ ------------ ------------
Net income $ 1,055,600 $ 574,000 $ 1,654,300 $ 1,046,600
============ ============ ============ ============
Earnings per common share:
Basic $ 0.12 $ 0.11 $ 0.18 $ 0.22
============ ============ ============ ============
Diluted $ 0.12 $ 0.11 $ 0.18 $ 0.22
============ ============ ============ ============
Shares used in computing Earnings per share:
Basic 9,020,679 5,251,180 8,957,059 4,691,368
============ ============ ============ ============
Diluted 9,148,186 5,390,930 9,161,315 4,831,333
============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
ASPEON, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER, 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
RETAINED ACCUMULATED
COMMON STOCK ADDITIONAL EARNINGS OTHER
-------------------- PAID IN DEFERRED (ACCUMULATED COMPREHENSIVE
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT) LOSS TOTAL
--------- -------- ----------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AS OF JULY 1, 1999 8,887,203 $ 88,900 $55,800,700 $ (6,700) $ 3,799,700 $ (72,200) $59,610,400
EXERCISE OF STOCK OPTIONS 44,600 400 389,000 389,400
SHARES ISSUED IN CONNECTION WITH
RGB/JADE EARNOUT 183,968 1,800 1,746,200 1,748,000
AMORTIZATION OF DEFERRED
COMPENSATION 6,700 6,700
OFFERING COSTS (7,200) (7,200)
COMPREHENSIVE INCOME 1,654,300 24,900 1,679,200
--------- -------- ----------- -------- ----------- ----------- -----------
BALANCE AS OF DECEMBER 31, 1999 9,115,771 $ 91,200 $57,928,600 $ -- $ 5,454,000 $ (47,300) $63,426,500
--------- -------- ----------- -------- ----------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
ASPEON, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,654,300 $ 1,046,600
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization 1,004,000 382,200
Amortization of goodwill 1,087,200 148,400
Amortization of deferred compensation 6,700 17,000
Deferred rent expense 7,500 2,400
Non-cash allowances (254,000) 192,200
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (743,500) (4,536,000)
Inventories (2,370,600) (7,577,000)
Other current assets (493,900) 58,200
Accounts payable 2,671,500 4,687,600
Accrued expenses (104,000) 689,300
Income taxes payable (942,100) 567,500
Customer deposits (548,400)
Deferred maintenance 726,200 (129,100)
----------- -----------
Net cash provided by ( used in) operating activities 2,249,300 (4,999,100)
----------- -----------
INVESTING ACTIVITIES
Purchase of equipment (1,769,800) (685,700)
Cash paid in connection with acquisitions (3,808,300) (1,889,800)
Sales of securities 3,727,000
Other assets (140,700) (61,700)
----------- -----------
Net cash used in investing activities (1,991,800) (2,637,200)
----------- -----------
FINANCING ACTIVITIES
Net (repayments) under line of credit (268,500) (341,000)
Proceeds from issuances of notes payable 9,100 5,800
Repayment of notes payable (249,600) (180,500)
Deferred offering costs (29,400)
Proceeds from public offerings 8,146,400
Exercise of stock options, net of offering costs 382,100 70,400
----------- -----------
Net cash provided by (used in) financing activities (126,900) 7,671,700
----------- -----------
CUMULATIVE TRANSLATION ADJUSTMENT 26,800 (35,400)
----------- -----------
Net increase (decrease) in cash and cash equivalents 157,400 0
Cash and cash equivalents at beginning of period 5,641,500 0
----------- -----------
Cash and cash equivalents at end of period $ 5,798,900 $ 0
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income tax paid $ 1,804,000 $ 161,300
=========== ===========
Interest paid $ 200,000 $ 319,100
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
ASPEON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 Solutions, Inc., a wholly-owned subsidiary, is the first "Next
Generation" Application Service Provider (ASP) focused on delivering
pre-integrated mission-critical business applications customized to meet
industry-specific needs. Javelin Systems, a division of Aspeon, is a leading
provider of integrated touchscreen computers and system integration services to
the global foodservice industry.
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: 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, Aspeon completed a public offering of 1,395,000 shares of its
common stock at $6.75 per share, netting proceeds of approximately $8.1 million.
Proceeds 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
6
<PAGE>
(WAN) products and services primarily to large retail, hospitality, and
telecommunications companies.
In February 1999, Aspeon completed a public offering of 2,375,000 shares of its
common stock at $12.25 per share, netting proceeds of approximately $26.9
million. Proceeds 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, Aspeon 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.
In August 1999, Aspeon acquired all of the outstanding capital stock of
Restaurant Consulting Services, Inc. ("RCS") as described in Note 2. 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 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 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.
7
<PAGE>
INVENTORIES
Inventories consist primarily of computer hardware and components and are stated
at the lower of cost (first-in, first-out) or market as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
----------- -----------
<S> <C> <C>
Raw materials $10,698,400 $ 7,195,600
Work-in-process 601,900 227,000
Finished goods 5,783,000 7,143,100
----------- -----------
$17,083,300 $14,565,700
=========== ===========
</TABLE>
EXCESS OF COST OVER NET ASSETS OF PURCHASED BUSINESSES
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. The workforce
of the acquired companies requires limited specialized skills. 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.
The Company recorded goodwill amortization of $585,300 and $84,800 for the
quarters ended December 31, 1999 and 1998, respectively, and $1,087,200 and
$148,400 for the six months ended December 31, 1999, respectively.
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 quarter ended December 31, 1997 and has
restated all previously reported per share amounts to conform to the new
presentation.
8
<PAGE>
A reconciliation of basic and diluted EPS for the quarters ended December 31,
1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
December 31, 1999 December 31, 1998
----------------------- -----------------------
BASIC DILUTED BASIC DILUTED
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $1,055,600 $1,055,600 $ 574,000 $ 574,000
---------- ---------- ---------- ----------
Weighted average common shares
outstanding 9,020,679 9,020,679 5,251,180 5,251,180
---------- ---------- ---------- ----------
Additional shares due to potential
exercise of stock options 127,507 139,750
---------- ---------- ---------- ----------
Diluted weighted average common shares
outstanding 9,020,679 9,148,186 5,251,180 5,390,930
========== ========== ========== ==========
Earnings per share $ 0.12 $ 0.12 $ 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 $965,800 and $540,000 for the quarters ended December 31, 1999 and 1998,
respectively, and $1,679,200 and $1,027,700 for the six months ended December
31, 1999 and 1998. 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
9
<PAGE>
2. 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 $3,033,100 in cash. 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 have been 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 $3.0 million. Such excess
(which will increase for any contingent payments) is being amortized on a
straight-line basis over 10 years. The final allocation of the purchase price
may vary as additional information is obtained, and accordingly, the ultimate
allocation may differ from that used in the unaudited consolidated financial
statements included herein. The results of operations of RCS prior to August
1999 were not material.
3. STOCKHOLDERS' EQUITY
During the six months ended December 31, 1999, 44,600 shares of common stock
were issued upon the exercise of stock options with a weighted average exercise
price of $8.73 per share and 183,968 shares of common stock with a value of
$1,748,000 were issued in connection with earnout provisions of the acquisition
of RGB and Jade.
4. SEGMENT INFORMATION
In 1999, the Company adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). The 1998 segment information has been restated to conform to the
1999 presentation. The Company's three reportable segments are as follows:
(1) Research and development- provides all research and development
activities for the other business segments.
(2) Hardware products- designs, manufactures and markets open system
touchscreen point-of-sale (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.
(3) Solutions- 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.
Segment data includes intersegment 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.
10
<PAGE>
The table below presents information about reportable segments for the quarters
ended December 31:
<TABLE>
<CAPTION>
RESEARCH AND HARDWARE
1999 DEVELOPMENT PRODUCTS SOLUTIONS TOTAL
<S> <C> <C> <C> <C>
SALES $13,252,000 $13,459,000 $26,711,000
NET INCOME (LOSS) $ (300,700) $ 1,015,600 $ 458,900 $ 1,173,800
TOTAL ASSETS $31,513,100 $50,472,200 $81,985,300
<CAPTION>
RESEARCH AND HARDWARE
1998 DEVELOPMENT PRODUCTS SOLUTIONS TOTAL
<S> <C> <C> <C> <C>
SALES $ 9,764,500 $ 8,983,200 $18,747,700
NET INCOME (LOSS) $ (170,700) $ 633,500 $ 240,800 $ 703,600
TOTAL ASSETS $19,165,000 $23,778,800 $42,943,800
</TABLE>
A reconciliation of total segment sales to total consolidated sales and of total
segment net income to total consolidated net income for the quarters ended
December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
SALES 1999 1998
<S> <C> <C>
Total segment sales $ 26,711,000 $ 18,747,700
Elimination of intersegment sales (2,404,300) (880,200)
------------ ------------
Consolidated sales $ 24,306,700 $ 17,867,500
============ ============
NET INCOME
Total segment net income $ 1,173,800 $ 703,600
Elimination of intersegment
gross profit net of income taxes 134,000 145,700
Elimination of non-segment
expenses, net of income taxes (252,200) (275,300)
------------ ------------
Consolidated net income $ 1,055,600 $ 574,000
============ ============
</TABLE>
11
<PAGE>
Specified items included in segment profit/loss for the quarters ended December
31:
<TABLE>
<CAPTION>
RESEARCH AND HARDWARE
1999 DEVELOPMENT PRODUCTS SOLUTIONS TOTAL
<S> <C> <C> <C>
Interest expense $ 131,000 $ 13,200 $ 144,200
Depreciation and
amortization
expense $ 278,200 $ 926,000 $1,204,200
Income tax expense
(benefit) $ (192,200) $ 649,300 $ 293,400 $ 750,500
Expenditures for
additions to long-
lived assets $ 136,800 $1,622,900 $1,759,700
<CAPTION>
RESEARCH AND HARDWARE
1998 DEVELOPMENT PRODUCTS SOLUTIONS TOTAL
<S> <C> <C> <C>
Interest expense $ 191,500 $ 43,200 $ 234,700
Depreciation and
amortization
expense $ 141,000 $ 144,200 $ 285,200
Income tax expense $ (114,500) $ 425,000 $ 161,500 $ 472,000
Expenditures for
additions to long-
lived assets $ 202,800 $3,019,300 $3,222,100
</TABLE>
12
<PAGE>
Revenues and long-lived asset information by geographic area as of and for the
quarters ended December 31:
<TABLE>
<CAPTION>
UNITED
1999 STATES EUROPE ASIA AUSTRALIA TOTAL
<S> <C> <C> <C> <C> <C>
Revenues $15,639,300 $ 7,056,700 $ 828,700 $ 782,000 $24,306,700
Long-lived assets $27,917,400 $ 7,063,900 $ 1,109,000 $ 144,400 $36,234,700
<CAPTION>
UNITED
1998 STATES EUROPE ASIA AUSTRALIA TOTAL
<S> <C> <C> <C> <C> <C>
Revenues $11,505,000 $ 5,700,000 $ 270,800 $ 391,700 $17,867,500
Long-lived assets $ 9,377,900 $ 3,177,700 $ 370,900 $ 43,000 $12,969,500
</TABLE>
13
<PAGE>
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
Aspeon, Inc. (the "Company") designs, manufactures, and markets open system
touchscreen point-of-sale ("POS") computers and provides POS systems integration
services primarily for the foodservice and retail industries.
This Quarterly Report on Form 10-Q 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 individual orders; seasonality of
revenues; employee hiring and retention, particularly with respect to sales and
consulting personnel; lengthy sales and implementation cycles; reduction in
demand for existing products and services and shortening of product life cycles;
the timing of the introduction of products, product enhancements and services by
the Company or its competitors; competition in pricing in the POS systems
industry; market acceptance of new products; service personnel utilization
rates; the ability of the Company to expand its domestic and international
sales, as well as the mix of such sales; foreign currency exchange rates;
changes in the mix of products and services sold; general health of the
restaurant industry, particularly the quick service restaurant segment; the
ability of the Company to generate service agreements; product quality problems;
the ability of the Company to control costs; the Company's success in
establishing and expanding its direct and indirect distribution channels; the
mix of distribution channels through which the Company's products are sold; and
general economic conditions. Any of these factors could cause operating results
to vary significantly from prior periods. Significant variability in orders
during any period may have a material adverse impact on the Company's cash flow,
and any significant decrease in orders could have a material adverse impact on
the Company's results of operations and financial condition. As a result, the
Company believes that period-to-period comparisons of its results of operations
are not necessarily meaningful and should not be relied upon as any indication
of future performance. Fluctuations in the Company's operating results could
cause the price of the Company's Common Stock to fluctuate substantially.
Assumptions relating to the foregoing involve judgments with respect to, among
other things, future economic, competitive and market conditions, all of which
are difficult or impossible to predict accurately, and many of which are beyond
the control of the Company. In addition, the business and operations of the
Company are subject to substantial risks which increase the uncertainty inherent
in the forward-looking statements. In light of the significant uncertainties
inherent in the forward-looking information included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives or plans of the Company will be achieved.
14
<PAGE>
RESULTS OF OPERATIONS
QUARTER ENDED DECEMBER 31, 1999 COMPARED TO QUARTER ENDED DECEMBER 31, 1998
The following discussion sets forth the historical results of operations and
financial condition of the Company for the quarters ended December 31, 1999 and
1998. The following table sets forth certain statements of operations data as a
percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
QUARTER ENDED
DECEMBER 31,
1999 1998
----- -----
<S> <C> <C>
Revenues:
Product sales 68.5% 78.3%
Services 31.5 21.7
----- -----
Total revenues 100.0 100.0
----- -----
Cost of revenues:
Cost of Product sales (1) 70.4 72.6
Cost of Services (1) 74.0 76.0
----- -----
Total cost of revenues 71.5 73.3
----- -----
Gross profit 28.5 26.7
----- -----
Operating expenses:
Research and development 2.0 1.6
Selling and marketing 7.9 5.8
General and administrative 12.0 12.6
----- -----
Total operating expenses 21.9 20.0
----- -----
Income from operations 6.6 6.7
Interest expense (0.6) (1.3)
Other income 1.1 --
Provision for income taxes (2.8) (2.2)
----- -----
Net income 4.3% 3.2%
===== =====
</TABLE>
(1) Expressed as a percentage of related revenues, not of total revenues.
REVENUES-PRODUCT SALES. Revenues from product sales increased by 19.0% to
$16.7 million in 1999 compared to revenues of $14.0 million for 1998. The
change is due to an increase in product sales at the Javelin division
("Javelin") of $1.1 million, an increase at the three international
subsidiaries of $867,700, an increase at RGB/Jade of $886,400, an increase at
DTI, a newly acquired subsidiary, of $475,100 offset by a decrease at CCI of
$667,100. The increase in product sales at Javelin is attributable to an
increase in unit sales; at the three international subsidiaries the increase
is primarily due to the enhanced acceptance of the product in such markets
and the
15
<PAGE>
continued maturation of the distribution channel; at RGB/Jade the increase is
due to the purchase of RGB/Jade in November 1998 that resulted in the
inclusion of operations of RGB/Jade for only two months in the quarter ended
December 31, 1998. The decrease at CCI is attributable to a delay in
shipments to a customer.
REVENUES-SERVICES. Revenues from services increased by 97.7% to $7.6 million in
1999 compared to revenues of $3.9 million for 1998. The change is primarily
attributable to an increase in service revenues at DTI and RCS, newly acquired
subsidiaries, of $3.1 million and an increase at RGB/Jade of $553,800. The
increase at RGB/Jade is due to the purchase of this subsidiary in November 1998
that resulted in the inclusion of operations of RGB/Jade for only two months in
the quarter ended December 31, 1998.
GROSS PROFIT. Gross profit increased by 45.3% to $6.9 million in 1999 compared
to a gross profit of $4.8 million in 1998. The increase is comprised of the
following:
<TABLE>
<CAPTION>
QUARTER ENDED DECEMBER 31,
------------------------------
1999 1998 INCREASE
------------- ------------- -------------
<S> <C> <C> <C>
Product sales $ 4.9 million $ 3.8 million $ 1.1 million
Services $ 2.0 million $ 929,600 $ 1.1 million
</TABLE>
The increase in gross profit from product sales is primarily attributable to
the increase in product sales described above and a larger proportion of
products sold directly to end users which carried a higher gross margin.
The increase in gross profit from service revenues is primarily attributable
to gross profit on services provided by DTI and RCS, newly acquired
subsidiaries which were at a higher margin.
RESEARCH AND DEVELOPMENT. Research and development expenses increased by 72.8%
to $492,800 in 1999 compared to research and development expenses of $285,200 in
1998. The increase is primarily attributable to software development costs of
$136,300 and additional costs of $71,300 relating to the design of new hardware
product. The Company has expensed all software development costs as
technological feasability has not been achieved.
SELLING AND MARKETING. Selling and marketing expenses increased by 85.9% to $1.9
million in 1999 compared to selling and marketing expenses of $1.0 million in
1998. The increase is primarily attributable to sales and marketing costs at DTI
and RCS of $227,100, additional personnel employed to expand the direct sales
forces and increased advertising costs associated with the growth of the
business.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by
29.6% to $2.9 million in 1999 compared to general and administrative of $2.2
million in 1998. The change is due to an increase in general and administrative
expenses relating to DTI and RCS of $767,400, an increase in amortization of
goodwill of $500,500 offset by a decrease of general and administrative expenses
relating to Aspeon and CCI of $599,400. The increase in the
16
<PAGE>
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 by $90,500 to $144,200 in 1999
compared to interest expense of $234,700 in 1998. The decrease is due to the use
of a portion of the proceeds from the follow-on offerings completed in October
1998 and February 1999 to repay certain indebtedness.
INCOME TAXES. Provision for federal, state and foreign income taxes increased by
$289,900 to $674,900 in 1999 compared to $385,000 in 1998. The increase is
attributable to the overall increase in income before income taxes of $771,500
as well as increases in income before income taxes from the Company's foreign
subsidiaries operating in jurisdictions with lower income tax rates than those
in the United States.
SIX MONTHS ENDED DECEMBER 31, 1999 AS COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1998
The following table sets forth certain statements of operations data as a
percentage of total revenues for the six months ended December 31, 1999 and
1998:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
----- -----
<S> <C> <C>
Revenues:
Product sales 67.6% 83.1%
Services 32.4 16.9
----- -----
Total revenues 100.0 100.0
----- -----
Cost of revenues:
Cost of Product sales (1) 70.1 71.6
Cost of Services (1) 76.8 77.7
----- -----
Total cost of revenues 72.3 72.6
----- -----
Gross profit 27.7 27.4
----- -----
Operating expenses:
Research and development 2.2 1.9
Selling and marketing 8.1 4.6
General and administrative 11.3 13.7
----- -----
Total operating expenses 21.6 20.2
----- -----
Income from operations 6.1 7.2
Interest expense (0.6) (1.5)
Other income 0.6 0.1
Provision for income taxes (2.4) (2.4)
----- -----
Net income 3.7% 3.4%
===== =====
</TABLE>
(1) Expressed as a percentage of related revenues, not of total revenues
17
<PAGE>
REVENUES-PRODUCT SALES. Revenues from product sales increased by 17.7% to
$30.1 million in 1999 compared to revenues of $25.6 million for 1998. The
change is due to an increase in product sales at the three international
subsidiaries of $1.6 million, an increase at RGB/Jade of $2.3 million, an
increase at DTI, a newly acquired subsidiary, of $1.6 million offset by a
decrease at CCI of $805,400. The increase in product sales at the three
international subsidiaries is primarily due to the enhanced acceptance of the
product in such markets and the continued maturation of the distribution
channel and the increase at RGB/Jade is due to the purchase of RGB/Jade in
November 1998 that resulted in the inclusion of operations of RGB/Jade for
only two months in the six months ended December 31, 1998. The decrease at
CCI is primarily attributable to a delay in shipments to a customer.
REVENUES-SERVICES. Revenues from services increased by 176.7% to $14.4
million in 1999 compared to revenues of $5.2 million for 1998. The change is
primarily attributable to an increase in service revenues at DTI and RCS,
newly acquired subsidiaries, of $6.0 million and an increase at RGB/Jade of
$3.4 million. The increase at RGB/Jade is due to the purchase of RGB/Jade in
November 1998 that resulted in the inclusion of operations of RGB/Jade for
only two months in the six months ended December 31, 1998.
GROSS PROFIT. Gross profit increased by 46.5% to $12.3 million in 1999 compared
to a gross profit of $8.4 million in 1998. The increase is comprised of the
following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31,
------------------------------
1999 1998 INCREASE
------------- ------------- -------------
<S> <C> <C> <C>
Product sales $ 9.0 million $ 7.3 million $ 1.7 million
Services $ 3.4 million $ 1.2 million $ 2.2 million
</TABLE>
The change in gross profit from product sales is primarily attributable to the
increase in product sales described above and a larger proportion of products
sold directly to end users which carried a higher gross margin.
The change in gross profit from service revenues is primarily attributable to
gross profit on services provided by DTI and RCS, newly acquired subsidiaries
which were at a higher margin.
RESEARCH AND DEVELOPMENT. Research and development expenses increased by 64.9%
to $961,900 in 1999 compared to research and development expenses of $583,200 in
1998. The increase is primarily attributable to software development costs of
$271,800 and additional costs of $106,800 relating to the design of new hardware
product. The Company has expensed all software development costs as
technological feasibility has not been achieved.
18
<PAGE>
SELLING AND MARKETING. Selling and marketing expenses increased by 159.8% to
$3.7 million in 1999 compared to selling and marketing expenses of $1.4 million
in 1998. The increase is primarily attributable to sales and marketing costs at
DTI and RCS of $357,700, additional personnel employed to expand the direct
sales forces and increased advertising costs associated with the growth of the
business.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by
19.1% to $5.0 million in 1999 compared to general and administrative of $4.2
million in 1998. The change is due to an increase in general and
administrative expenses relating to DTI and RCS of $1.1 million, an increase
in amortization of goodwill of $938,800 offset by a decrease of general and
administrative expenses relating to Aspeon and CCI of $1.4 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 by $191,800 to $277,400 in 1999
compared to interest expense of $469,200 in 1998. The decrease is due to the use
of a portion of the proceeds from the follow-on offerings completed in October
1998 and February 1999 to repay certain indebtedness.
INCOME TAXES. Provision for federal, state and foreign income taxes increased by
$326,700 to $1.1 million in 1999 compared to $731,000 in 1998. The increase is
attributable to the overall increase in income before income taxes of $934,400
as well as increases in income before income taxes 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% (10.25% as of December 31, 1999). As
of December 31, 1999 borrowings outstanding under the line amounted to $2.1
million with approximately $2.9 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.
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
19
<PAGE>
at 2% over the U.K. Base rate (as defined). As of December 31, 1999, there were
no borrowings outstanding under the line.
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 the
acquisition of DTI and SB, working capital and general corporate purposes.
As of December 31, 1999, the Company had cash and cash equivalents of $5.8
million and working capital of $28.5 million.
Cash provided by operating activities for the six months ended December 31,
1999 amounted to $2.2 million and consisted primarily of income before
depreciation and amortization and increases in accounts payable offset by
increases in trade receivables and inventories. Cash used in investing
activities for the six months ended December 31, 1999 amounted to $2.0
million and consisted primarily of cash used to acquire the outstanding
common stock of RCS and the purchase of equipment net of proceeds from sales
of investments. Cash used in financing activities for the six months ended
December 31, 1999 amounted to $126,900 and consisted primarily of repayments
of borrowings under the line of credit and notes payable.
The Company recently announced the formation of Aspeon Solutions, Inc., a
wholly owned subsidiary, focusing on delivering mission-critical business
applications customized to meet industry-specific needs. It is the intention
of Aspeon Solutions, Inc. to expand into several vertical markets. Such
expansion will require significant capital investments. If the Company or
Aspeon Solutions, Inc. is unable to secure the required capital, the
expansion of Aspeon Solutions, Inc. will have to be curtailed and/or abated.
The Company believes that, except for the expansion of Aspeon Solutions,
Inc., it has adequate financial resources to meet its capital requirements
for the next twelve months.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
a. The Annual Meeting of stockholder of the Company was held on December
22, 1999 (the "Annual Meeting").
b. Richard P. Stack and Robert Nichols were elected to serve as directors
of the Company at the Annual Meeting. In addition, the terms of Jay L.
Kear and Andrew F. Puzder continued after the Annual Meeting.
c. The following table sets forth the results of voting by proxy or ballot
for each of the proposals voted on at the Annual Meeting.
<TABLE>
<CAPTION>
FOR AGAINST WITHHELD ABSTAIN
------- ------- -------- --------
<S> <C> <C> <C> <C>
1. Election of Directors:
Richard P. Stack 7,559,212 314,070
--------- --------- --------- ------
Robert Nichols 7,559,212 314,070
--------- --------- --------- ------
2. To approve an amendment to the
Company's Certificate of
Incorporation to change the
Company's name to "Aspeon, Inc." 7,524,176 66,530 282,576
--------- --------- --------- ------
3. To approve an increase in the
authorized number of shares
under the Company's 1997 Equity
Incentive Plan by 1,000,000
shares. 3,283,447 1,875,474 2,625,183 89,178
--------- --------- --------- ------
4. To approve
PriceWaterhouseCoopers as the
Company's independent auditors. 7,843,871 11,002 18,409
--------- --------- --------- ------
</TABLE>
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 December 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.
Aspeon, Inc.
February 14, 2000 /s/ Richard P. Stack
- --------------------------- -----------------------------------
Date Richard P. Stack
Chief Executive Officer
and President
February 14, 2000 /s/ Horace M. Hertz
- --------------------------- -----------------------------------
Date Horace M. Hertz
Chief Financial Officer
21
<PAGE>
EXHIBIT INDEX
27.1 Financial Data Schedule in accordance with Article 5 of Regulation S-X.
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> JUN-30-2000
<CASH> 5,798,900
<SECURITIES> 3,745,000
<RECEIVABLES> 17,432,300
<ALLOWANCES> 238,000
<INVENTORY> 17,083,300
<CURRENT-ASSETS> 45,750,500
<PP&E> 6,126,500
<DEPRECIATION> 1,133,000
<TOTAL-ASSETS> 81,985,300
<CURRENT-LIABILITIES> 17,200,700
<BONDS> 0
0
0
<COMMON> 91,200
<OTHER-SE> 63,335,300
<TOTAL-LIABILITY-AND-EQUITY> 81,895,300
<SALES> 24,306,600
<TOTAL-REVENUES> 24,593,400
<CGS> 17,389,000
<TOTAL-COSTS> 22,718,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 15,000
<INTEREST-EXPENSE> 144,200
<INCOME-PRETAX> 1,730,500
<INCOME-TAX> 674,900
<INCOME-CONTINUING> 1,055,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,055,600
<EPS-BASIC> 0.12
<EPS-DILUTED> 0.12
</TABLE>
