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 November 30, 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 incorporation (I.R.S. Employer
or organization) Identification No.)
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 January 14, 1998, 3,467,984 shares the issuer's common stock were
outstanding.
Transitional Small Business Disclosure Format (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 - November 30, 1997 and May 31, 1997............. 3
Statements of Operations - Three months ended November 30,
1997 and 1996 ................................................. 4
Statements of Operations - Six months ended November 30, 1997
and 1996 ...................................................... 5
Statements of Shareholders' Equity - Six months ended November
30, 1997 ...................................................... 6
Statements of Cash Flows - Six months ended November 30, 1997
and 1996 ...................................................... 7
Notes to Financial Statements.................................... 8
Item 2. Management's Discussion and Analysis or Plan of Operation........ 10
PART II. Other Information:
Item 2. Changes in Securities and Use of Proceeds........................ 14
Item 6. Exhibits and Reports on Form 8-K................................. 14
Signatures ................................................................. 14
2
<PAGE>
ROBOCOM SYSTEMS INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
November 30, 1997 May 31, 1997
----------------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ................................... $ 6,058 $ 49,065
Short-term investments ...................................... 3,783,085 --
Accounts receivable, net .................................... 1,543,058 1,371,717
Costs incurred and income recognized in excess of billings on
uncompleted contracts ..................................... 1,563,281 1,303,388
Other current assets ........................................ 513,620 1,361
------------ -----------
Total current assets ............................................. 7,409,102 2,725,531
Property and equipment, net ...................................... 163,083 58,184
Software development costs, net .................................. 4,098,538 3,575,342
Other assets ..................................................... 23,519 157,402
------------ -----------
Total assets ..................................................... $ 11,694,242 $ 6,516,459
============ ===========
Liabilities and Shareholders' Equity
Current liabilities:
Bank notes payable .......................................... $ -- $ 1,300,000
Accounts payable ............................................ 445,422 545,364
Accrued expenses ............................................ 637,035 482,479
Billings on uncompleted contracts in excess of related costs
and income recognized ..................................... 76,365 72,741
------------ -----------
Total current liabilities ........................................ 1,158,822 2,400,584
Noncurrent deferred tax liabilities .............................. 1,693,970 --
------------ -----------
Total liabilities ................................................ 2,852,792 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 November 30,
1997 and 1,967,984 at May 31, 1997 ........................ 34,680 19,680
Additional paid-in capital .................................. 10,582,256 262,832
Retained earnings (deficit) ................................. (1,577,049) 4,069,750
Deferred compensation ....................................... (198,437) (236,387)
------------ -----------
Total shareholders' equity ....................................... 8,841,450 4,115,875
------------ -----------
Total liabilities and shareholders' equity ....................... $ 11,694,242 $ 6,516,459
============ ===========
</TABLE>
See accompanying notes.
3
<PAGE>
ROBOCOM SYSTEMS INC.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended November 30,
------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Software license fees ................................ $ 386,731 $ 263,793
Services ............................................. 717,270 481,705
Hardware ............................................. 554,011 455,067
Maintenance .......................................... 244,634 243,621
----------- -----------
Total revenues ....................................... 1,902,646 1,444,186
----------- -----------
Cost of revenues:
Cost of license fees ................................. 101,468 78,758
Cost of services ..................................... 760,624 390,455
Cost of hardware ..................................... 435,840 360,646
Cost of maintenance .................................. 104,673 171,540
----------- -----------
Total cost of revenues ............................... 1,402,605 1,001,399
Amortization of software development costs .............. 178,070 116,599
----------- -----------
1,580,675 1,117,998
----------- -----------
Gross margin ............................................ 321,971 326,188
Selling, general and administrative expenses ............ 637,868 262,066
----------- -----------
(315,897) 64,122
Interest income (expense) and other, net ................ 45,273 (14,286)
----------- -----------
(Loss) income before provision (benefit) for income taxes (270,624) 49,836
----------- -----------
Provision (benefit) for income taxes:
Current .............................................. (196,301) --
Deferred ............................................. 82,639 --
----------- -----------
(113,662) --
----------- -----------
Net (loss) income ....................................... (156,962) 49,836
Pro forma provision for income taxes .................... -- 20,393
----------- -----------
Pro forma net (loss) income ............................. $ (156,962) $ 28,905
=========== ===========
Pro forma net (loss) income per share ................... $ (.05) $ .01
=========== ===========
Pro forma weighted average shares outstanding ........... 3,467,984 2,352,599
=========== ===========
</TABLE>
See accompanying notes.
4
<PAGE>
ROBOCOM SYSTEMS INC.
STATEMENTS OF OPERATIONS
(unaudited)
Six Months Ended November 30,
----------------------------
1997 1996
----------- -----------
Revenues:
Software license fees ....................... $ 634,513 $ 402,087
Services .................................... 1,364,294 841,189
Hardware .................................... 853,803 878,419
Maintenance ................................. 503,203 485,305
----------- -----------
Total revenues .............................. 3,355,813 2,607,000
----------- -----------
Cost of revenues:
Cost of license fees ........................ 144,629 78,758
Cost of services ............................ 1,429,243 718,388
Cost of hardware ............................ 701,823 684,858
Cost of maintenance ......................... 180,133 354,925
----------- -----------
Total cost of revenues ...................... 2,455,828 1 836,929
Amortization of software development costs ..... 366,216 208,170
----------- -----------
2,822,044 2,045,099
----------- -----------
Gross margin ................................... 533,769 561,901
Selling, general and administrative expenses ... 1,181,312 568,137
----------- -----------
(647,542) (6,236)
Interest income (expense) and other, net ....... 94,187 (16,292)
----------- -----------
Loss before provision (benefit) for income taxes (553,355) (22,528)
----------- -----------
Provision (benefit) for income taxes:
Current ..................................... (320,652) --
Deferred .................................... 1,649,862 --
----------- -----------
1,329,210 --
----------- -----------
Net loss ....................................... (1,882,565) (22,528)
Pro forma benefit for income taxes ............. (128,317) (9,462)
----------- ------------
Pro forma net loss ............................. $(1,754,248) $ (13,066)
=========== ===========
Pro forma net loss per share ................... $ (.54) $ (.01)
=========== ===========
Pro forma weighted average shares outstanding .. 3,263,066 2,352,599
=========== ===========
See accompanying notes.
5
<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 ..................... -- -- -- (1,882,565) -- (1,882,565)
Initial Public Offering....... 1,500,000 15,000 8,155,190 -- -- 8,170,190
Distributions to
S Corporation ............... -- -- -- (1,600,000) -- (1,600,000)
shareholders .................
Reclassification of
S Corporation earnings ...... -- -- 2,164,234 (2,164,234) -- --
Amortization of deferred
compensation .............. -- -- -- -- 37,950 37,950
--------- ---------- ----------- ----------- ----------- -----------
Balance, November 30, 1997 ... 3,467,984 $ 34,680 $10,582,256 $(1,577,048) $ (198,437) $ 8,841,450
========= ========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
6
<PAGE>
ROBOCOM SYSTEMS INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended November 30,
-----------------------------
1997 1996
----------- ---------
<S> <C> <C>
Operating activities
Net loss .............................................. $(1,882,565) $ (22,528)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation ................................... 11,521 10,020
Provision for deferred income taxes ............ 1,649,862 --
Amortization of software development costs ..... 366,216 208,170
Amortization of deferred compensation .......... 37,950 9,000
Provision (credit) for bad debts ............... (7,640) (28,124)
Changes in operating assets and liabilities:
Accounts receivable .......................... (163,701) (317,098)
Costs incurred and income recognized in excess
of billings on uncompleted contracts ....... (259,893) 505,428
Other current assets and other ............... (483,135) 28,085
Accounts payable ............................. (99,942) (18,900)
Accrued expenses ............................. 154,556 (59,254)
Billings on uncompleted contracts in excess of
related costs and income recognized ....... 3,624 225,652
----------- ---------
Net cash (used in) provided by operating activities ... (673,147) 540,451
----------- ---------
Investing activities
Software development costs ............................ (889,412) (599,887)
Purchase of short-term investments .................... (6,239,292) --
Redemption of short-term investments .................. 2,456,207 --
Capital expenditures .................................. (116,420) --
----------- ---------
Net cash used in investing activities ................. (4,788,917) (599,887)
----------- ---------
Financing activities
Net payments of bank note payable ..................... (1,300,000) --
Net proceeds from sale of common stock ................ 8,319,057 --
Distributions of S corporation retained earnings to
S corporation shareholders ......................... (1,600,000) --
----------- ---------
Net cash provided by financing activities ............. 5,419,057 --
----------- ---------
Decrease in cash and cash equivalents ................. (43,007) (59,436)
Cash and cash equivalents at beginning of period ..... 49,065 603,948
----------- ---------
Cash and cash equivalents at end of period ............ $ 6,058 $ 544,512
=========== =========
Supplemental disclosures of cash flow information
Cash paid for interest ................................ $ 21,658 $ --
=========== =========
</TABLE>
See accompanying notes.
7
<PAGE>
ROBOCOM SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 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 and six month periods ended November 30,
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 amendment no. 1 to 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 $8,170,190, net of expenses of $1,579,810.
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 six months ended November 30, 1997 is a one-time, non-cash
charge for deferred income taxes in the amount of $1,433,302 resulting from 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 status 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 and six
months ended November 30, 1997, the net loss per share of common stock is based
upon the weighted average number of common shares outstanding. For the three and
six months ended November 30, 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 and six
months ended November 30, 1996, the common stock issuance of 31,584 shares in
May 1997 is treated as outstanding.
8
<PAGE>
ROBOCOM SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 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.
9
<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 November 30, 1997 and November 30, 1996
Revenues. Total revenues increased by approximately 32% to
$1,902,646 in the three months ended November 30, 1997 as compared to $1,444,186
in the three months ended November 30, 1996. Software license fees increased by
approximately 47% during the 1997 period as compared to the 1996 period
primarily due to the higher number of users for one of the four RIMS.2001
software licenses sold in the three months ended November 30, 1997 as compared
to the five RIMS.2001 software licenses sold during the three months ended
November 30, 1996. Services revenues increased by approximately 49% 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
November 30, 1997 as compared to the three months ended November 30, 1996.
Hardware revenues increased by approximately 22% during 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 1997 period as compared to the three
months ended November 30, 1996. Maintenance revenues increased slightly for the
1997 period as compared to the 1996 period, due primarily to a larger number of
maintenance contracts in operation during such period offset by the expiration
of a pre-RIMS.2001 maintenance contract in the third quarter of fiscal 1997.
Without the expired pre-RIMS.2001 maintenance contract revenues in the 1996
period, maintenance revenues increased by approximately 20% during the 1997
period as compared to the 1996 period.
Cost of Revenues. Total cost of revenues increased by approximately
40% to $1,402,605 in the three months ended November 30, 1997 as compared to
$1,001,399 in the three months ended November 30, 1996. As a percentage of
revenues, total cost of revenues increased to approximately 74% in the 1997
period as compared to approximately 69% in the 1996 period. As a percentage of
license fee revenues, cost of license fees decreased to approximately 26% in the
1997 period as compared to approximately 30% in the 1996 period. The decrease is
generally due to lower costs for third party software in the 1997 period as
compared to the 1996 period, which included an unusually large third party
software fee for one customer, offset by distributor fees for international
sales of software licenses which began in the 1997 period. As a percentage of
service revenues, the cost of services was higher in the 1997 period as compared
to the 1996 period primarily due to higher salaries and related overhead and the
hiring of additional personnel, including project management and programmers.
These increases further management's plan to build the infrastructure for the
Company's anticipated future revenue growth. As a percentage of hardware
revenues, the cost of hardware was consistent in the 1997 period as compared to
the 1996 period. As a percentage of maintenance revenues, the cost of
maintenance was significantly lower in the 1997 period due to a lower level of
required maintenance as compared to the 1996 period and the expiration in fiscal
year 1997 of a pre-RIMS.2001 maintenance contract which incurred higher
maintenance costs.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
Amortization of Software Development Costs. Amortization of software
development costs increased by approximately 53% to $178,070 in the three months
ended November 30, 1997 as compared to $116,599 in the three months ended
November 30, 1996. The increase was due to the commencement of amortization of
capitalized software development costs for RIMS.2001 Versions 3.3, 3.4 and
RIMS.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 9% in the three months ended November 30, 1997 and 8% in the three
months ended November 30, 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by approximately 143% to $637,868 in the three
months ended November 30, 1997 as compared to $262,066 in the three months ended
November 30, 1996. As a percentage of revenue, selling, general and
administrative expenses increased to approximately 34% in the three months ended
November 30, 1997 as compared to approximately 18% in the three months ended
November 30, 1996. The increase in selling, general and administrative expenses
was primarily due to the increases in 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. These
increases further management's plan to build the infrastructure for the
Company's anticipated future revenue growth.
Interest Income (Expense) and Other, net. Interest income increased
by $38,560 to $45,273 in the three months ended November 30, 1997 as compared to
$6,714 in the three months ended November 30, 1996. The increase is primarily
due to the investment of the proceeds from the Offering. Interest expense
decreased to none in the three months ended November 30, 1997 as compared to
$21,000 in the three months ended November 30, 1996. The decrease is due to the
repayment of the bank note payable with the proceeds from the Offering in July
1997.
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.
Pro Forma Provision for Income Taxes. The pro forma provision for
income taxes is reflected at 42% of the income before the provision for income
taxes for the periods preceding the Offering.
Comparison of Six Months Ended November 30, 1997 and November 30, 1996
Revenues. Total revenues increased by approximately 29% to
$3,355,813 in the six months ended November 30, 1997 as compared to $2,607,000
in the six months ended November 30, 1996. Software license fees increased by
approximately 58% during the 1997 period as compared to the 1996 period
primarily due to the sale of eight RIMS.2001 software licenses in the six months
ended November 30, 1997 as compared to the sale of five RIMS.2001 software
licenses during the six months ended November 30, 1996. In addition, one of the
RIMS.2001 software licenses sold in the 1997 period was for a large number of
users yielding a higher license fee. Services revenues increased by
approximately 62% 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 six months ended November 30, 1997 as compared to the six months ended
November 30, 1996. Hardware revenues decreased by approximately 3% 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 4% for the 1997 period as compared to the 1996
period, due primarily to the larger number of maintenance contracts in operation
during such period offset by the expiration of a pre-RIMS.2001 maintenance
contract in the third quarter of fiscal 1997. Without the expired pre-RIMS.2001
maintenance customer's revenue in the 1996 period, maintenance revenues
increased by approximately 13% during the 1997 period as compared to the 1996
period.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
Cost of Revenues. Total cost of revenues increased by approximately
34% to $2,455,828 in the six months ended November 30, 1997 as compared to
$1,836,929 in the six months ended November 30, 1996. As a percentage of
revenues, total cost of revenues increased to approximately 73% in the 1997
period as compared to approximately 70% in the 1996 period. As a percentage of
license fee revenues, cost of license fees increased to approximately 23% in the
1997 period as compared to approximately 20% in the 1996 period. The increase is
generally due to distributor fees for international sales of software licenses
which began in the 1997 period. As a percentage of service revenues, the cost of
services was higher in the 1997 period as compared to the 1996 period primarily
due to higher salaries and related overhead and the hiring of additional
personnel, including project management and programmers, and, to a lesser
extent, to costs for training incurred for the Company's international
distributors and higher installation costs for a domestic customer. These
increases further management's plan to build the infrastructure for the
Company's anticipated future revenue growth. As a percentage of hardware
revenues, the cost of hardware was higher in the 1997 period due to the type of
hardware installed. As a percentage of maintenance revenues, the cost of
maintenance was significantly lower in the 1997 period due to a lower level of
required maintenance as compared to the 1996 period and the expiration in fiscal
year 1997 of a pre-RIMS.2001 maintenance contract which incurred higher
maintenance costs.
Amortization of Software Development Costs. Amortization of software
development costs increased by approximately 76% to $366,216 in the six months
ended November 30, 1997 as compared to $208,170 in the six months ended November
30, 1996. The increase was due to the commencement of amortization of
capitalized software development costs for RIMS.2001 Versions 3.3, 3.4 and
RIMS.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 11% in the six months ended November 30, 1997 and 8% in the six
months ended November 30, 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by approximately 108% to $1,181,312 in the six
months ended November 30, 1997 as compared to $568,137 in the six months ended
November 30, 1996. As a percentage of revenue, selling, general and
administrative expenses increased to approximately 35% in the six months ended
November 30, 1997 as compared to approximately 22% in the six months ended
November 30, 1996. The increase in selling, general and administrative expenses
was primarily due to the increases in 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. These
increases further management's plan to build the infrastructure for the
Company's anticipated future revenue growth.
Interest Income (Expense) and Other, net. Interest income increased
by $98,791 to $111,314 in the six months ended November 30, 1997 as compared to
$12,583 in the six months ended November 30, 1996. The increase is primarily due
to the investment of the proceeds from the Offering. Interest expense decreased
by $11,688 to $17,187 in the six months ended November 30, 1997 as compared to
$28,875 in the six months ended November 30, 1996. The decrease is due to the
repayment of the bank note payable with the proceeds from the Offering in July
1997.
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 six months ended November 30, 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 benefit for income taxes for
the periods preceding the Offering.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
LIQUIDITY AND CAPITAL RESOURCES
The Company has a bank line of credit (the "Line of Credit"), which
expires on September 30, 1998 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 January 14, 1998). 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 November 30, 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, 1998.
Net cash used in operating activities was $673,147 in the six months
ended November 30, 1997 and net cash provided by operating activities was
$68,553 in the six months ended 1996. Cash flows from operations decreased in
the 1997 period due to higher balances of cost incurred and income recognized in
excess of billings on uncompleted contracts and a lower balance of billings on
uncompleted contracts in excess of related costs and income recognized. The
increase in income recognized in excess of billings on uncompleted contracts is
due to service revenues which are billable upon completing certain milestones.
The decrease in billings on uncompleted contracts in excess of related costs and
income recognized is due to fewer modifications of the standard software
requested by customers, which typically required large advances.
The Company capitalized $889,412 and $599,887 in the six months
ended November 30, 1997 and 1996, respectively, for software development costs.
The capitalized software development costs in process in the 1997 period include
costs of adding, among other things, functionality to provide internet/intranet
accessibility and Windows NT compatibility.
As of November 30, 1997, the Company had $6,058 in cash and cash
equivalents and working capital of $6,250,280 primarily as a result of the
investment of approximately $3,800,000 in short-term investments in connection
with the Company's initial public offering.
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 the remainder of fiscal 1998 include
approximately $500,000 to establish additional domestic and international sales
and support offices and approximately $650,000 for software development costs.
13
<PAGE>
PART II. OTHER INFORMATION:
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On June 26, 1997, the Securities and Exchange Commission declared
the Company's registration statement on Form SB-2, as amended (File No.
333-27587), effective. Item 5 of Part II of the Company's Form 10KSB/A for the
fiscal year ended May 31, 1997 set forth information regarding the Company's
proceeds from the offering pursuant to such registration statement and the
Company's use of such proceeds. The following information has changed since such
disclosure.
Total expenses incurred to date were approximately $1,580,000,
consisting of $780,000 of underwriting discounts and commissions, $173,000 for
the reimbursement of actual expenses to underwriters and actual expenses of
approximately $627,000 of legal, accounting and other expenses. Of the
$8,170,000 of net proceeds to the Company from the offering, $3,783,000 are
invested in short-term investments, $1,550,000 has been applied to the repayment
of indebtedness, $1,600,000 has been distributed to the S Corporation
shareholders, $889,000 has been utilized for software development costs,
$116,000 has been utilized for capital expenditures, which include computers and
furniture, and $232,000 has been utilized for working capital purposes including
costs for the establishment of domestic and international sales offices,
negotiation with international distributors and planned increases in personnel
to build the infrastructure for the Company's anticipated future revenue growth.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
10.1 Letter Agreement, dated January 5, 1998,
between The Bank of New York and the Company
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the second 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 January 14, 1998.
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
14
<PAGE>
Exhibit Index
Exhibit
Number Description
- ------ -----------
10.1 Letter Agreement, dated January 5, 1998, between The Bank of New York
and the Company
27 Financial Data Schedule
15
Exhibit 10.1
[Letterhead of The Bank of New York]
January 5, 1998
Robocom Systems Inc.
511 Ocean Avenue
Massapequa, New York 11758
Attention: Irwin Balaban, President
Gentlemen/Ladies:
The Bank of New York (the "Bank") is pleased to confirm that it has
extended to Robocom Systems Inc. (the "Company"), the $2,000,000 secured line of
credit currently available by the Bank to the Company.
Each advance under this line of credit shall be evidenced by, shall be
payable as provided in, and shall bear interest at the rate specified in the
master promissory note dated 5/15/97 made by the Company to the order of the
Bank in the principal amount of $2,000,000.
All obligations of the Company to the Bank with respect to this line of
credit shall be secured, pursuant to the General Loan and Security Agreement
dated April 13, 1994 executed by the Company in favor of the Bank, by a first
priority security interest in all personal property of the Company.
As you know lines of credit are cancellable at any time by any party and,
in addition, any extension of credit under this line of credit is subject to the
Bank's satisfaction, at the time of such extension of credit, with the condition
(financial and otherwise), business, prospects and operations of the Company.
Unless cancelled earlier as provided in the first sentence of this paragraph,
this line of credit shall be held available until September 30, 1998. In
addition, the outstanding principal amount of all advances under this line of
credit shall be reduced to zero for a period of thirty consecutive days during
the period this line of credit is held available.
Very truly yours,
THE BANK OF NEW YORK
By: /s/ Thomas P. Powderly
--------------------------
Thomas P. Powderly
Assistant Vice President
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> NOV-30-1997
<CASH> 6,058
<SECURITIES> 3,783,085
<RECEIVABLES> 1,543,058
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<COMMON> 34,680
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