UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ______________ to ________________.
Commission File Number 0-22735
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ROBOCOM SYSTEMS INC.
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(Name of small business issuer as specified in its charter)
New York 11-2617048
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
511 Ocean Avenue, Massapequa, New York 11758
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(Address of principal executive offices)
516-795-5100
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of October 13, 1997, 3,467,984 shares the issuer's common stock were
outstanding.
Transitional Small Business Disclosure Form (check one); Yes [ ] No [X]
<PAGE>
ROBOCOM SYSTEMS INC.
FORM 10-QSB
INDEX
PART I. Financial Information
Item 1. Financial Statements: Page no.
Balance Sheets - August 31, 1997 and May 31, 1997 ......... 3
Statements of Operations - Three months ended
August 31, 1997 and 1996 ................................. 4
Statement of Shareholders' Equity - Three months ended
August 31, 1997 .......................................... 5
Statements of Cash Flows - Three months ended
August 31, 1997 and 1996 ................................. 6
Notes to Financial Statements............................... 7
Item 2. Management's Discussion and Analysis or Plan of Operation 9
PART II. Other Information 11
Signatures 11
2
<PAGE>
ROBOCOM SYSTEMS INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
August 31, 1997 May 31, 1997
--------------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ..................................... $ 137,015 $ 49,065
Short-term investments ........................................ 4,505,073 --
Accounts receivable, net ...................................... 824,684 1,371,717
Costs incurred and income recognized in excess of billings on
uncompleted contracts ....................................... 1,663,479 1,303,388
Other current assets .......................................... 266,692 1,361
------------ -----------
Total current assets ............................................... 7,396,943 2,725,531
Property and equipment, net ........................................ 102,024 58,184
Software development costs, net .................................... 3,920,743 3,575,342
Other assets ....................................................... 9,536 157,402
------------ -----------
Total assets ....................................................... $ 11,429,246 $ 6,516,459
============ ===========
Liabilities and Shareholders' Equity
Current liabilities:
Bank notes payable ............................................ $ -- $ 1,300,000
Accounts payable .............................................. 362,894 545,364
Accrued expenses .............................................. 349,751 482,479
Billings on uncompleted contracts in excess of related costs
and income recognized ......................................... 92,547 72,741
------------ -----------
Total current liabilities .......................................... 805,192 2,400,584
Noncurrent deferred tax liabilities ................................ 1,627,266 --
------------ -----------
Total liabilities .................................................. 2,432,458 2,400,584
------------ -----------
Shareholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized;
none issued ................................................ -- --
Common stock, $.01 par value; 10,000,000 shares authorized;
issued and outstanding: 3,467,984 shares at August 31, 1997
and 1,967,984 at May 31, 1997 ............................... 34,680 19,680
Additional paid-in capital .................................... 10,599,607 262,832
Retained earnings (deficit) ................................... (1,420,087) 4,069,750
Deferred compensation ......................................... (217,412) (236,387)
------------ -----------
Total shareholders' equity ......................................... 8,996,788 4,115,875
------------ -----------
Total liabilities and shareholders' equity ......................... $ 11,429,246 $ 6,516,459
============ ===========
</TABLE>
See accompanying notes.
3
<PAGE>
ROBOCOM SYSTEMS INC.
STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended August 31,
-----------------------------
1997 1996
----------- -----------
Revenues:
Software license fees .......................... $ 247,782 $ 138,294
Services ....................................... 647,026 359,484
Hardware ....................................... 299,792 423,352
Maintenance .................................... 258,568 241,684
----------- -----------
Total revenues ................................. 1,453,168 1,162,814
----------- -----------
Cost of revenues:
Cost of license fees ........................... 43,161 --
Cost of services ............................... 668,620 327,933
Cost of hardware ............................... 265,982 324,212
Cost of maintenance ............................ 75,460 183,385
----------- -----------
Total cost of revenues ......................... 1,053,223 835,530
Amortization of software development costs ........ 188,146 91,571
----------- -----------
1,241,369 927,101
----------- -----------
Gross margin ...................................... 211,799 235,713
Selling, general and administrative expenses ...... 543,444 306,071
----------- -----------
(331,645) (70,358)
Interest income (expense) and other, net .......... 48,914 (2,006)
----------- -----------
Loss before provision (benefit) for income taxes .. (282,731) (72,364)
----------- -----------
Provision (benefit) for income taxes:
Current ........................................ (124,351) --
Deferred ....................................... 1,567,223 --
----------- -----------
1,442,872 --
----------- -----------
Net loss .......................................... (1,725,603) (72,364)
Pro forma benefit for income taxes ................ (128,317) (30,393)
----------- -----------
Pro forma net loss ................................ $(1,597,286) $ (41,971)
=========== ===========
Pro forma net loss per share ...................... $ (.52) $ (.02)
=========== ===========
Pro forma weighted average shares outstanding ..... 3,060,375 2,352,599
=========== ===========
See accompanying notes.
4
<PAGE>
ROBOCOM SYSTEMS INC.
STATEMENT OF SHAREHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
Common Stock
-------------------
Par Value Additional Retained Deferred Total Shareholders'
Shares $.01 Paid-In Capital Earnings(Deficit) Compensation Equity
--------- ------- --------------- ----------------- ------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1997 .. 1,967,984 $19,680 $ 262,832 $ 4,069,750 $(236,387) $ 4,115,875
Net loss ............... -- -- -- (1,725,603) -- (1,725,603)
Initial Public Offering 1,500,000 15,000 8,172,541 -- -- 8,187,541
Distributions to
S Corporation
shareholders .......... -- -- -- (1,600,000) -- (1,600,000)
Reclassification of
S Corporation earnings -- -- 2,164,234 (2,164,234) -- --
Amortization of deferred
compensation ........ -- -- -- -- 18,975 18,975
--------- ------- ----------- ----------- --------- -----------
Balance, August 31, 1997 3,467,984 $34,680 $10,599,607 $(1,420,087) $(217,412) $ 8,996,788
========= ======= =========== =========== ========= ===========
</TABLE>
See accompanying notes.
5
<PAGE>
ROBOCOM SYSTEMS INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended August 31,
-----------------------------
1997 1996
----------- ---------
<S> <C> <C>
Operating activities
Net loss ................................................ $(1,725,603) $ (72,364)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation ..................................... 4,874 5,010
Provision for deferred income taxes .............. 1,567,223 --
Amortization of software development costs ....... 188,146 91,571
Amortization of deferred compensation ............ 18,975 4,500
Provision (credit) for bad debts ................. -- (28,124)
Changes in operating assets and liabilities:
Accounts receivable ............................ 547,033 (592,586)
Costs incurred and income recognized in excess
of billings on uncompleted contracts ......... (360,091) 564,240
Other current assets ........................... (206,290) (1,414)
Accounts payable ............................... (182,470) (88,184)
Accrued expenses ............................... (132,728) (70,009)
Billings on uncompleted contracts in excess of
related costs and income recognized ......... 19,806 118,807
----------- ---------
Net cash used in operating activities ................... (261,125) (68,553)
----------- ---------
Investing activities
Software development costs .............................. (533,547) (279,996)
Purchase of short-term investments ...................... (4,505,073) --
Capital expenditures .................................... (48,714) --
----------- ---------
Net cash used in investing activities ................... (5,087,334) (279,996)
----------- ---------
Financing activities
Net payments of bank note payable ....................... (1,300,000) --
Net proceeds from sale of common stock .................. 8,336,409 --
Distributions of S corporation retained earnings to
S corporation shareholders ........................... (1,600,000) --
----------- ---------
Net cash provided by financing activities ............... 5,436,409 --
----------- ---------
Increase (Decrease) in cash and cash equivalents ........ 87,950 (348,549)
Cash and cash equivalents at beginning of period ....... 49,065 603,948
----------- ---------
Cash and cash equivalents at end of period .............. $ 137,015 $ 255,399
=========== =========
Supplemental disclosures of cash flow information
Cash paid for interest .................................. $ 21,658 $ --
=========== =========
</TABLE>
See accompanying notes.
6
<PAGE>
ROBOCOM SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS
August 31, 1997
(unaudited)
1. Background and Basis of Financial Statement Presentation
The accompanying unaudited financial statements of Robocom Systems Inc. (the
"Company") have been prepared in accordance with generally accepted accounting
principles for interim financial reporting and with the instructions to Form
10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. The Company's operations consist of the
development and marketing of automated warehouse management systems and related
software which is used by various commercial enterprises primarily located in
the United States. The Company licenses and installs its proprietary software
product RIMS.2001 which is an "off-the-shelf" inventory management system. The
Company also provides related services, including modification, project
management, training, implementation support, maintenance and the sale of
hardware and third party software.
Operating results for the three month period ended August 31, 1997 are not
necessarily indicative of the results that may be expected for the year ended
May 31, 1998. For further information, refer to the financial statements and
footnotes thereto included in the Company's annual report on Form 10-KSB for the
year ended May 31, 1997.
2. Initial Public Offering
The Company completed its initial public offering of 1,500,000 shares of
common stock for sale to the public on June 26, 1997 (the "Offering"). Proceeds
from the Offering were $8,187,541, net of expenses of $1,562,459.
Until the Offering, the Company elected to operate under Subchapter S of the
Internal Revenue Code and, consequently, was not subject to Federal and certain
state income taxes. The shareholders included their proportionate share of the
Company's taxable income (loss) in their personal tax returns for federal and
certain state income tax purposes. Concurrent with the closing of the Offering,
the Company terminated its status as an S Corporation and became subject to
Federal and state income taxes. The provision (benefit) for income taxes
presented on the statements of operations are recorded using an effective rate
of 42%. The pro forma benefit for income taxes reflects income taxes for periods
preceding the Offering. In addition, included in the provision for income taxes
for the three months ended August 31, 1997 the Company recorded a one-time,
non-cash charge for deferred income taxes in the amount of $1,433,302 as a
result of the termination of the Company's S Corporation status. This charge
primarily relates to temporary differences for software development costs.
Additionally, retained earnings of the Company as of the Offering and the
concurrent termination of the Company's S Corporation were reclassified to
additional paid-in capital.
3. Pro Forma Net Loss Per Share of Common Stock
Pro forma net loss per share is based on the weighted average number of
shares of common stock outstanding during the period. For the three months ended
August 31, 1997, the net loss per share of common stock is calculated using the
"treasury stock method". For the three months ended August 31, 1996, the
weighted average number of shares includes the portion of the shares offered by
the Company that would be necessary to fund the distribution of S Corporation
earnings ($2,500,000) based on the initial public offering price of $6.50 per
share. For the three months ended August 31, 1996, the common stock issuance of
31,584 shares in May 1997 is treated as outstanding.
7
<PAGE>
ROBOCOM SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS
August 31, 1997
(unaudited)
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25") and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
("Statement 123"), requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized. The Company's required pro forma net loss and net loss per share
calculated under Statement 123's fair value method is not materially different
from amounts reported under APB 25.
4. Short-term Investments
Short-term investments consist of U.S. Government securities, commercial
paper and corporate notes. All investments are classified as available-for-sale
and are available to support current operations. These investments are valued at
amortized cost which approximates fair value because of the short maturities of
these investments.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Certain statements in this Report constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Factors
that might cause such a difference include, among others, uncertainties relating
to general economic and business conditions; industry trends; changes in demand
for the Company's product; uncertainties relating to customer plans and
commitments and the timing of orders received from customers; announcements or
changes in pricing policies by the Company or its competitors; unanticipated
delays in the development, market acceptance or installation of the Company's
products; availability of management and other key personnel; availability,
terms and deployment of capital; relationships with third-party equipment
suppliers; governmental export and import policies; global trade policies; and
worldwide political stability and economic growth. The words "believe",
"expect", "anticipate", "intend" and "plan" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date the statement
was made.
RESULTS OF OPERATIONS
Comparison of Three Months Ended August 31, 1997 and August 31, 1996
Revenues. Total revenues increased by approximately 25% to $1,453,168 in
the three months ended August 31, 1997 from $1,162,814 in the three months ended
August 31, 1996. Software license fees increased by approximately 79% during the
1997 period as compared to the 1996 period primarily due to the increase in
RIMS.2001 software licenses sold to four clients in the three months ended
August 31, 1997 as compared to one client during the three months ended August
31, 1996. Services revenues increased by approximately 80% for the 1997 period
as compared to the 1996 period, primarily due to the larger number of RIMS
systems in the process of being installed in the three months ended August 31,
1997 as compared to in the three months ended August 31, 1996. Hardware revenues
decreased by approximately 29% during the 1997 period as compared to the 1996
period, primarily due to the timing of RIMS sales in the 1997 period and the
direct purchase by some customers of the hardware from the manufacturer in the
1997 period. Maintenance revenues increased by approximately 7% for the 1997
period as compared to the 1996 period, due primarily to the larger number of
maintenance contracts in operation during such period.
Cost of Revenues. Total cost of revenues increased by approximately 26% to
$1,053,223 in the three months ended August 31, 1997 from $835,530 in the three
months ended August 31, 1996. As a percentage of revenues, total cost of
revenues remained constant at approximately 72% in each of the three months
ended August 31, 1997 and August 31, 1996. Cost of license fees for the 1997
period reflects costs for third party software as compared to none for the 1996
period. As a percentage of hardware revenues, the cost of hardware was higher in
the 1997 period due to the type of hardware installed and lower hardware
revenues. As a percentage of service revenues, the cost of services was higher
in the 1997 period primarily due to costs for training incurred for the
Company's international distributors and higher installation costs for a
domestic customer. As a percentage of maintenance revenues, the cost of
maintenance was lower in the 1997 period due to a lower level of required
maintenance as compared to the 1996 period.
Amortization of Software Development Costs. Amortization of software
development costs increased by approximately 105% to $188,146 in the three
months ended August 31, 1997 from $91,571 in the three months ended August 31,
1996. The increase was due to the commencement of amortization of capitalized
software development costs for RIMS.2001 Versions 3.3, 3.4 and Food in June
1997, the date such versions were first available for sale. As a percentage of
revenue, the amortization of software development costs was approximately 13% in
the three months ended August 31, 1997 and 8% in the three months ended August
31, 1996.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by approximately 78% to $543,444 in the three
months ended August 31, 1997 from $306,071 in the three months ended August 31,
1996. As a percentage of revenue, selling, general and administrative expenses
increased to approximately 37% in the three months ended August 31, 1997 from
approximately 26% in the three months ended August 31, 1996. The increase in
selling, general and administrative expenses was primarily due to the hiring of
additional salespersons, consulting fees incurred for the opening of an
international office, higher advertising costs and higher travel expenses
incurred in connection with the establishment of domestic and international
sales and support offices.
Interest Income (Expense) and Other, net. Interest income increased by
$60,226 to $66,095 in the three months ended August 31, 1997 from $5,869 in the
three months ended August 31, 1996. The increase is primarily due to the
investment of the proceeds from the Offering. Interest expense increased by
$4,287 to $17,187 in the three months ended August 31, 1997 from $12,900 in the
three months ended August 31, 1996. The increase is due to the higher level of
borrowings offset by the lower interest rate on the outstanding balances in the
1997 period.
Provision(Benefit) for Income Taxes. The provision (benefit) for income
taxes is reflected at 42% of the loss before the provision (benefit) for income
taxes for the periods subsequent to the Offering. In addition, the provision for
income taxes for the three months ended August 31, 1997 includes the one-time,
non-cash provision for deferred income taxes in the amount of $1,433,302 as a
result of the termination of the Company's S Corporation status upon the
Company's initial public offering on June 26, 1997. This amount primarily
relates to temporary differences for software development costs.
Pro Forma Benefit for Income Taxes. The pro forma benefit for income taxes
is reflected at 42% of the loss before the provision (benefit) for income taxes
for the periods preceding the Offering.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a bank line of credit (the "Line of Credit"), which
expires on November 30, 1997 and provides for borrowings of up to $2,000,000.
Amounts outstanding under the Line of Credit are payable on demand and are
collateralized by the assets of the Company. Borrowings bear interest at the
prime rate (8.50% at October 14, 1997). The Line of Credit has been used
primarily for S Corporation distributions to the Company's shareholders prior to
the termination of the Company's S Corporation status on June 25, 1997 and for
working capital purposes. At August 31, 1997 the Company had no borrowings under
the Line of Credit. In the future, however, the Company may re-borrow against
this or a subsequent line of credit. The amount available under the Line of
Credit is reduced by a $150,000 standby letter of credit with the same bank,
which is being utilized as collateral for a vendor and which expires on December
31, 1997.
Net cash used in operating activities was $261,125 and $68,553 in the
three months ended August 31, 1997 and 1996, respectively. Cash flows from
operations decreased in the 1997 period due to a higher net loss and higher
balances of cost incurred and income recognized in excess of billings on
uncompleted contracts offset by lower receivable balances. The increase in
income recognized in excess of billings on uncompleted contracts is due to
service revenues which are billable upon completing certain milestones which had
not been attained as of August 31, 1997. The decrease in accounts receivable was
due to collections of billings during the three months ended August 31, 1997 for
significant deliveries of equipment and related services to several customers in
May 1997.
The Company capitalized $533,547 and $279,996 in the three months ended
August 31, 1997 and 1996, respectively, for software development costs.
As of August 31, 1997, the Company had $137,015 in cash and cash
equivalents and working capital of $6,591,751 primarily as a result of the
investment of approximately $4,500,000 in short-term investments in connection
with the Company's initial public offering.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
Management believes that cash flow from operations, existing cash and cash
equivalents and short-term investments and amounts available under the Line of
Credit will be sufficient to meet the Company's currently anticipated working
capital and software development requirements through fiscal 1999. The Company's
working capital needs in fiscal 1998 include approximately $1,000,000 to
establish additional domestic and international sales and support offices and
approximately $1,500,000 for software development costs.
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the first quarter of fiscal
1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized, in the City of New
York, New York, on October 15, 1997.
ROBOCOM SYSTEMS INC.
By: /s/Irwin Balaban
--------------------------
Irwin Balaban
President and Chief Executive Officer
By: /s/Elizabeth A. Burke
--------------------------
Elizabeth A. Burke
Vice President - Finance and Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> AUG-31-1997
<CASH> 137,015
<SECURITIES> 4,505,073
<RECEIVABLES> 843,624
<ALLOWANCES> (18,940)
<INVENTORY> 0
<CURRENT-ASSETS> 7,396,943
<PP&E> 320,505
<DEPRECIATION> 218,481
<TOTAL-ASSETS> 11,429,246
<CURRENT-LIABILITIES> 805,192
<BONDS> 0
0
0
<COMMON> 34,680
<OTHER-SE> 8,962,108
<TOTAL-LIABILITY-AND-EQUITY> 8,996,788
<SALES> 1,453,168
<TOTAL-REVENUES> 1,453,168
<CGS> 1,241,369
<TOTAL-COSTS> 1,784,813
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,187
<INCOME-PRETAX> (282,731)
<INCOME-TAX> (1,442,872)
<INCOME-CONTINUING> (282,731)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,725,603)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
