UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 1998
|_| 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 in its charter)
New York 11-2617048
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(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) (Zip Code)
Issuer's telephone number: (516) 795-5100
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
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(Title of Class)
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 |_|
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure is contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |X|
State issuer's revenues for its most recent fiscal year. $7,543,798
State the number of shares outstanding of each of the issuer's classes of common
equity, as of August 25, 1998. 3,467,984
As of August 25, 1998, the aggregate market value of the registrant's common
stock held by non-affiliates was $6,854,813 (based upon the closing price of the
issuer's common stock on The Nasdaq Stock Market on such date).
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DOCUMENTS INCORPORATED BY REFERENCE
Part Item
1. Proxy Statement for the 1998 Annual Meeting
of Stockholders to be held on October 27, 1998 III 9, 10, 11, 12
Transitional Small Business Disclosure Format (check one) Yes |_| No |X|
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Part I
Item 1. Description of Business.
General
Robocom Systems Inc. (the "Company"), incorporated in 1982, develops,
markets and supports advanced warehouse management software solutions that
enable companies to realize significant cost savings by automating their
warehouse operations. The Company's primary product, RIMS.2001, is a
customer-configurable software solution that enables a company's warehouse to
respond to a customer order with greater accuracy and in a more timely manner,
thereby turning the warehouse into a competitive advantage. RIMS.2001 operates
in an open system environment and interfaces with an organization's existing
information systems intrastructure. In addition to providing RIMS.2001 software
licenses, the Company provides installation, customization and maintenance
services and related hardware when required by the customer. The Company
believes that its customers that have implemented the RIMS.2001 solution have
realized increased customer satisfaction directly related to timely and accurate
receipt of shipments.
Industry Background
In recent years, a number of business trends have converged to change the
historical relationships among retailers, manufacturers and suppliers, and
distributors. Increasing globalization of the marketplace has resulted in
greater geographic diversity of supply and production facilities and has
increased competition as more suppliers are offering a greater range of product
offerings at multiple price levels. In addition, a number of trends in
retailing, including shorter product life cycles, a significant increase in the
number and variety of product offerings, an increase in buying power resulting
from the evolution of the retailer from the small local store to the large
regional or national department store chain, specialty store chain or
"superstore" chain, and the emergence of a more informed and price conscious
consumer, have put increased pressure on retailers to reduce expenses to remain
competitive. Consequently, retailers are seeking to reduce inventory management
costs by selecting suppliers that can respond to "just-in-time" purchasing and
"quick response" delivery techniques that enable the retailer to better match
product inventory to actual customer demand. Retailers and other vendors also
are increasingly demanding that their suppliers comply with standards for
electronic data interchange ("EDI"), electronic commerce and very specific
labeling requirements.
As a result of these trends, manufacturers and suppliers are experiencing
significant pressures to satisfy customer demands for improved product delivery
and reduced delivery times. Historically, manufacturers have organized their
businesses primarily to increase manufacturing efficiency and output. However,
as major customers shift the burden of inventory management to the manufacturer
or distributor, manufacturers and distributors have refocused their business
process re-engineering efforts to evaluate the service and value provided to
customers from existing operations and are seeking alternatives for streamlining
the warehousing and distribution process. The need to satisfy customer demand
for more effective and efficient order fulfillment has caused manufacturers to
seek greater control over the entire supply chain to minimize materials
inventories, ensure the timing of deliveries from suppliers, reduce
manufacturing cycle times, minimize finished goods inventories, maximize the
efficiency of warehousing and transportation systems and provide superior
response times to customers.
Retailers, manufacturers and suppliers, and distributors are increasingly
recognizing that significant cost savings can be achieved through warehouse
computerization and automation. An effective warehouse management system will
reduce costs and assist in improving customer service by achieving the following
objectives:
o Reduction of Errors. Receiving, stocking and picking errors are
common in a manual paper-based warehouse. An automated warehouse
management system is self-checking and ensures virtually 100%
accuracy for every transaction.
o Improvement of Inventory Accuracy. The self-checking nature of an
automated warehouse management system ensures inventory accuracy and
eliminates the costly series of manual checks and
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backtracking that results when the inventory on the books and the
physical inventory in a warehouse do not match. As a result of the
poor accuracy in traditional printed paper-based warehouses, costly
physical inventories need be taken to reconcile the system inventory
to the actual inventory. The inherent accuracy and cycle counting
features of a warehouse management system can eliminate the need for
a physical inventory.
o Improved Space Utilization. A warehouse management system tracks all
warehouse locations and can direct where each product can best be
stored for maximum space utilization.
o Increased Productivity. A warehouse management system maximizes the
time operators spend adding value to the distribution process,
filling orders and receiving goods. System direction minimizes
search time and dispatches operators and pickers to the best task
given the equipment and current location. A warehouse management
system also gives the warehouse control of the workload and provides
visibility into the entire range of tasks that need be performed
within a given time period.
o Improved Labor Management and Reporting. Paperwork in a warehouse
for picking and stocking drastically hampers productivity. Paperless
warehouse management system applications provide real-time
information, reduce the possibility for data entry errors and
information delays and improve productivity. In addition, a
warehouse management system has vast reporting capabilities because
every transaction is recorded. In paper-based warehouses, the only
method available for tracking productivity and performance is a
manual log that is time consuming to keep, susceptible to error and
is only as good as the information each operator provides.
o Support of Customer EDI Requirements. Retailers and other vendors
are increasingly demanding that their suppliers comply with
standards for EDI, electronic commerce and specific labeling and
packaging requirements. A warehouse management system can provide
special bar-code labeling and can track any value-added packaging
operations required.
o Integration. Manufacturers require warehouse activities to be
integrated with their manufacturing and accounting systems. Such
levels of data processing and system integration require a capable,
highly integrated warehouse management system solution.
Initial warehouse automation software systems developed in the early 1980s
only produced "batch" picking, shipping, receiving and product movement reports
that detailed the expected merchandise handling operations for an entire day.
These systems provided initial improvements in warehouse efficiencies, but were
unable to respond quickly to unexpected circumstances, such as unscheduled
shipments or scheduled deliveries that did not arrive, damaged goods that could
not be shipped when scheduled, and products stored in incorrect locations.
During the 1980s, automatic identification (primarily bar coding) became
widely accepted, and the cost of computer platforms supporting the initial
warehouse automation systems dropped as mini-computers and personal computers
were introduced and gained acceptance in the business workplace. In addition,
radio frequency hardware technology was introduced that first enabled software
designers to develop warehouse automation software that utilizes a local radio
network installed in the customer's warehouse to connect hand-held and
forklift-mounted mobile data terminals with the warehouse's central computer.
This development made possible software systems that manage a warehouse
dynamically in "real time" rather than batch mode. Real-time systems offer many
advantages over batch mode systems, including the ability to adapt to unexpected
circumstances, such as "rush" orders, late or unexpected in-bound shipments, and
incorrectly located merchandise; the ability to conduct partial inventory counts
while the warehouse remains fully operational; and the ability to improve
employee productivity by directing each worker to the next task to be performed
based upon the worker's current location and the location and priority of the
task.
Initially, warehouse management systems were custom-developed by internal
management information system (MIS) departments or third-party software
developers. These early custom-developed systems were often based on proprietary
operating systems, written in second and third generation programming languages
and very
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specific to the user's current methods of operation. As cost and time overruns
became commonplace, the finished system often exceeded budget, fell behind
schedule and was incapable of adapting to change as the business developed. As
computer hardware prices declined and less-costly minicomputers, personal
computers and computer networks replaced mainframes in the workplace, it became
desirable for computer applications to be written in a manner that allowed the
application to be transported from one computer to another. The emergence of
open system technology addressed this problem and evolved into the preferred
platform for many software applications, including warehouse management systems,
and many different data collection applications. Open systems are based on
industry standards, permit the integration of multi-vendor hardware and software
components and are designed to accommodate new components and technology as they
become available. The Company believes that it was one of the first suppliers of
an open system warehouse management system.
The proliferation of open system technologies in the early 1990s and the
availability of software development tool sets has led to the recent development
of custom configurable off-the-shelf products. Recent improvements in software
design, computer hardware, warehouse equipment and radio frequency technology
have enabled warehouse management software developers, such as the Company, to
design and install more affordable systems with increased functionality.
The Company believes that the increasing need of manufacturers and
distributors to satisfy customer demand for more effective and efficient order
fulfillment will continue the trend of manufacturers and distributors to seek
the benefits of a state-of-the-art warehouse management system.
Strategy
The Company's objective is to continue to be a leading provider of
warehouse management software solutions and services and to expand its presence
worldwide. To achieve these objectives, the Company has adopted the following
strategies:
o Strategic Alliances. The Company intends to supplement its marketing
efforts by aligning itself with complementary solutions providers
and technology partners. Strategic alliances also will assist the
Company in keeping pace with technological developments of the major
software and hardware vendors and, in certain instances, provide the
Company with product development services. The Company has entered
into a strategic alliance with QAD, Inc., a leading provider of
global supply chain management and enterprise resource management
solutions. This relationship includes co-marketing and
technology-sharing arrangements and provides the Company access to a
very large existing customer base. Through similar alliances, the
Company expects to gain greater exposure and acceptance of its
products and services. See "-- Sales and Marketing."
o New Product Development. The Company intends to continue to produce
a quality warehouse management system product that meets client
expectations in terms of functionality, flexibility, procurement
cost, implementation cost and ongoing maintenance cost. The Company
believes that the RIMS product line meets these expectations and
will continue to do so as the product evolves. The Company is
committed to continuous product improvement through a software
development program that is driven by industry focus groups and
customer input. The Company intends to continue to utilize its
industry, customer and supplier relationships to keep abreast of
emerging standards, protocols and application programming interfaces
as such trends are introduced and gain market acceptance. The
Company believes that Internet-based applications will be the next
significant technology change in the warehouse management system
industry. Development is currently underway for RIMS.2001
enhancements that will utilize this technology. The Company believes
that a portable, open, world wide web-based, multi-tiered, front-end
application architecture will supplant the traditional proprietary
client/server technology currently employed by its competitors. See
"-- Products, "-- Third Party Hardware Products," and "-- Product
Development."
o Establish Vertical Market Concentration. By tailoring RIMS.2001 to
support the uniqueness of certain targeted markets, the Company
believes it will have a competitive advantage in selling to
prospective
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customers in the same industry in which similar functional and
implementation issues arise. The Company believes that the expertise
developed in each of these vertical markets also will further
contribute to its standard RIMS.2001 product. In the development of
RIMS.Food, the Company established a focus group consisting of
current and potential clients in the food manufacturing and
distribution industry. This focus group provided direction, guidance
and partial funding for the development of RIMS.Food. The Company
intends to replicate this process to establish itself in other
vertical markets and has identified the following vertical markets
as additional targets: automotive, consumer products, petro chemical
products, public utilities and pharmaceutical products. See "--
Product Development."
o International Expansion. The Company intends to establish itself in
the international business market. In this regard, the Company has
established formal relationships with distributors in Canada, the
United Kingdom, Mexico, Brazil, Argentina, Australia and New Zealand
that are established systems integrators with large customer bases
in their respective regions. The Company has established
international sales offices in the Netherlands and Australia. The
Company intends to establish additional international relationships
and to strategically locate sales and support offices worldwide to
support its distributors as the number of foreign distributors
expands. See "-- Sales and Marketing."
o Training, Implementation and Support. A key to the success of a
warehouse management system supplier is its ability to provide the
necessary services and expertise required to effectively implement a
complex warehouse management system. The Company believes that the
efficiency of its implementation process will allow the Company to
increase sales to prospective customers seeking standard,
configurable software solutions and enable the Company to increase
its market share with respect to its competitors. The Company
intends to continue to develop and improve its services organization
and its innovative conference room pilot program to ensure a
continued simple and efficient implementation process for its
customers. See "-- Service and Maintenance" and "-- Sales and
Marketing."
Products
The Company's principal product, RIMS.2001, is a full-featured,
state-of-the-art warehouse management solution. The Company also markets
RIMS.Food, which is a modified version of RIMS.2001 that was recently developed
and is targeted at fresh and frozen food manufacturers and distributors. The
RIMS.2001 product line is a highly scaleable, highly configurable and flexible
product with baseline functionality and features sufficient for most warehouse
installations. The strength of RIMS.2001 is its adaptability to varied
environments without modification. RIMS.2001 is generally sold as an entire
turnkey solution that provides the Company's customers with both the software
and the hardware, if requested, necessary for a comprehensive warehouse
management system.
As a standard, "off-the-shelf," highly-configurable software system,
RIMS.2001 is designed to be deployed in approximately four months and to achieve
measurable cost savings for customers. The efficiency of implementing the
Company's software solutions results from the open systems architecture of
RIMS.2001, which runs on various operating platforms and uses either Oracle or
Progress database management system software, and the Company's extensive
experience in developing warehouse management systems. The Company believes that
its customers recognize cost savings throughout the warehousing and distribution
processes as a result of increases in worker productivity, efficiencies in space
utilization, increases in inventory accuracy, increases in lot number controls,
product expiration date controls and product serialization controls, and the
elimination of costly shipping errors through the use of bar code technology.
RIMS.2001. RIMS.2001 is a responsive software application designed to
manage an entire warehouse operation. As a user configurable solution, RIMS.2001
incorporates numerous warehousing practices and strategies as standard
capability. RIMS.2001 is an open systems solution that is not restricted to any
particular equipment or computer system. As such, the application software has
been installed on numerous hardware platforms and database management systems.
RIMS.2001 can interface with an organization's current materials handling
equipment and transactions-based systems and is easily integrated with customer
or third party purchasing,
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electronic data exchange, bar coding, accounting, manufacturing resource
planning ("MRP") and enterprise resource planning ("ERP") applications.
RIMS.2001 also utilizes radio frequency communications and bar coding to provide
real-time management, validation and tracking of all warehouse activities.
RIMS.2001 directs personnel and equipment and manages the inventory, space,
radio terminals, bar code scanners and printers in the warehouse in an efficient
and cost effective manner.
RIMS.2001 is a comprehensive application that manages the receiving, put
away, outbound order processes, and general warehouse operations. With each
warehouse process, RIMS.2001 provides a variety of tactical choices that can be
user defined to a customer's specific requirements and needs and that are
designed to maximize efficiency. Major system functions include:
o Receiving. The receiving process provides control over the receipt
of inventory through scanning the bar codes of incoming product to
ensure accuracy of inventory in the warehouse. This process
facilitates the matching of purchase orders, transfer orders,
advanced shipping notices and customer returns. The receiving
process supports pre-storage activities, such as returned goods
processing and quality assurance inspection.
o Putaway Process. The putaway process ensures that all inventory is
stored in the most efficient location available based on
pre-configured management strategies. The Company or the customer
will configure the system to implement the customer's unique
business demands, assigning locations based on the customer's
parameters with consideration given to product characteristics,
product velocity, demand codes, delivery and shipping requirements,
storage devices and cross-docking strategies.
o Picking and Shipping. The RIMS.2001 outbound order process analyzes
each order to determine the most efficient packing, loading and
shipping procedures. The order processing function is configured to
match each customer's management strategies. The outbound order
process includes, among other features, order selection, allocation,
picking, loading and shipping.
o Management. The general warehouse operations process manages the
availability of space and the movement of warehouse personnel,
inventory and material handling equipment through information shared
by management and warehouse employees. The real-time information and
product flexibility allows a customer to test or implement different
strategies to maximize productivity and efficiency. The system
allows customers to combine multiple tasks into a single job
assignment, such as grouping a put-away and picking assignment into
one trip. RIMS.2001 facilitates cycle counting, automatic
replenishment, product moves, inventory control and consolidation,
labor tracking, system security, space utilization, vehicle
management and rewarehousing.
RIMS.Food. RIMS.Food is a specialized application of RIMS.2001 targeted at
the food industry. This product includes all of the basic features and benefits
of the base RIMS.2001 product, and is the first product created by the Company
to focus on a particular vertical market. RIMS.Food is pre-configured to address
the unique requirements of the food industry. Key features include: specialized
processing, such as date triggers (sell by date, cure date, use by date, freeze
date, etc.), enhanced lot tracking, and industry-specific bar coding.
RIMS.3PL. RIMS.3PL is a software application designed to automate
warehouses that contain goods owned by more than one owner. As a comprehensive
solution, RIMS.3PL is designed to permit costing of the services rendered by the
amount of space, the length of time, the number of transactions and movement of
the goods stored for each customer. Major system functions include modules for
billing, repacking, web-enabling and re-ordering. The Company commenced
marketing of RIMS.3PL in the first quarter of fiscal 1999 pursuant to an
exclusive North American distribution agreement with the owner of this product,
which is a developer of third party logistics ("3PL") warehouse management
systems. This distribution agreement will allow the Company to expand its
marketing activities with an additional product.
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Service and Maintenance
In addition to licensing of RIMS.2001 and RIMS.3PL, the Company offers
certain services and maintenance agreements to its customers. Services provided
by the Company include project management, product customization, configuration
support, training and implementation support.
Maintenance is not provided as part of the Company's license agreement;
however, the Company offers turnkey maintenance services for the RIMS software
and certain hardware components of the system under a separate maintenance
agreement. Maintenance agreements are typically initiated at the time of
implementation, are renewable annually, and entitle the customer to telephone
support, software upgrades, installation assistance and priority problem
resolution, including software fixes. Maintenance fees are typically a
percentage of the license fees (excluding hardware), with additional fees for
extended hours. If elected by the customer, maintenance support is offered
24-hours per day, seven days per week. In the event a customer does not enter
into a maintenance agreement with the Company, it would still be entitled to
software fixes for reported problems during the first year of its system's
installation, pursuant to the one-year warranty provided to the Company's
customers in connection with the standard RIMS.2001 license fee; however, to
date, all RIMS customers have entered into a maintenance agreement with the
Company after system implementation.
The Company has several groups responsible for offering services and
maintenance to ensure customer satisfaction, including Software Engineering,
Product Support, Training and Customer Support. The Company's Software
Engineering Group offers a structured implementation program that typically
lasts two to three months and begins with the development of joint business
scenarios between the Company and the customer. This process consists of
training, business scenario development, configuration of the software, the
conference room pilot program, project management and implementation support
services. The conference room pilot program enables the Company and the customer
to model warehouse management operations and resolve operating issues prior to
live implementation. The Company's Product Support Group is responsible for
managing and installing operational systems, hardware, networks, communication
links and relational database management systems. Further, the Company offers
training to its customers for its RIMS.2001 products. Standard training for
RIMS.2001 includes three courses over three to four weeks. The Configuration
course explains basic RIMS.2001 terminology and methodology related to system
configuration and setup. The Supervisors course provides warehouse management
the training necessary to effectively control and monitor the facility. The
Operators course is a hands-on training course for warehouse workers
concentrating in the execution of RIMS.2001 related tasks. Customized courses
are also made available on request. A Train-the-Trainer course provides
information and materials to third-party trainers who will perform the future
RIMS.2001 training. A RIMS.2001 Internals course is designed to provide
technical personnel with knowledge of the software design and internal
operations of the RIMS.2001 system. The Company offers extensive customer
support to its maintenance customers, including a 24-hour help line.
In those cases in which the standard RIMS.2001 product cannot meet the
customers needs, the Company can enter into contracts to perform certain
modifications to the baseline product.
Third Party Hardware Products
The Company's RIMS.2001 products use an open architecture that enables
customers to use various operating systems, operate on multiple hardware
platforms and interoperate with many third party software applications and
legacy systems. This open system capability enables customers to continue using
their existing computer resources and to choose among a wide variety of existing
and emerging computer hardware and peripheral technologies.
In conjunction with virtually all sales of RIMS.2001, the Company resells
a variety of hardware products developed by third parties, including computer
hardware, radio frequency terminal networks, bar code printers and scanners, and
other peripherals. In addition, the Company resells computer hardware and
network devices in support of office client server systems. The Company resells
all third-party products pursuant to agreements with the products' manufacturers
or through distributor authorized reseller agreements pursuant to which the
Company is entitled to purchase products at discount prices and to receive
technical support in connection with product
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installations and subsequent product malfunctions. The RIMS.2001
hardware-related agreements generally permit the Company to resell the
third-parties' products to any RIMS.2001 user in the United States. The Company
anticipates that its foreign distributors or other third party vendors will sell
any hardware or peripherals required in connection with the sale of RIMS.2001
outside of the United States. The Company anticipates that sales of third-party
products will decrease in importance and as a percentage of revenues over time
as sales of the Company's software licenses and services increase.
Other Sales and Services
In addition to RIMS, the Company designs, implements, installs and
supports computer systems networks and office software on a limited basis.
Customers range from Fortune 100 companies with sophisticated fault-tolerant,
inter-networking, high connectivity needs, to medium- and small-size companies
requiring implementation and support of a workgroup local area network. The
Company provides entire turnkey software solutions, consulting, systems analysis
and custom training on almost any application to be run on a network. The
Company is fully equipped to support most "off-the-shelf" software applications
written for Novell, NT or UNIX, and offers its customers a full range of support
services, ranging from the resolution of a specific application problem to a
full software support contract encompassing any or all of its customer
applications. The Company is a single source provider due to its ability to (i)
install hardware and application software for local area networks, (ii)
configure, upgrade and maintain such systems, and (iii) provide training
relating to such systems to its customers.
Customers
The Company targets its marketing efforts primarily on manufacturers,
distributors, retailers and wholesalers in the food processing, consumer
products, petro chemical products, public utilities, pharmaceutical sectors and
third party warehouses, as well as other high-volume wholesalers. As of May 31,
1998, the Company had licensed RIMS.2001 to 38 customers operating a total of 57
warehouses.
Customer orders for the Company's RIMS.2001 products over the last three
fiscal years have ranged from approximately $50,000 to over $2 million. Due to
the size of most orders and the need for differing amounts of modification for
each installation, the Company historically has obtained orders from a
relatively small number of new customers each fiscal quarter. As a result,
individual customers have often accounted for more than 10% of total revenues in
a particular fiscal period. For the fiscal year ended May 31, 1996, the Company
had three customers that accounted for approximately 15%, 14% and 12% of total
revenues. For the fiscal year ended May 31, 1997, the Company had two customers
that accounted for approximately 21% and 13% of total revenues. For the fiscal
year ended May 31, 1998, none of the Company's customers accounted for more than
10% of total revenues. Because of the nature of the Company's business
operations, the Company anticipates that the number of customers that account
for more than 10% of total revenues for a fiscal period will vary from period to
period depending on the status and timing of significant orders by a particular
customer or customers in any given fiscal period. However, as sales of the
standard RIMS.2001 product increase and the average dollar amount of system
orders decreases, the Company expects that the number of customers accounting
for more than 10% of total revenues for a fiscal period will decline.
Sales and Marketing
The Company currently markets its products and services primarily through
a direct sales force in North America and directly and indirectly in other parts
of the world. The Company conducts comprehensive marketing programs that include
telemarketing, public relations, direct mail, advertising, seminars, trade shows
and ongoing customer communications programs. Sales and marketing personnel are
located at the Company's headquarters in Massapequa, New York and in field
offices located in Atlanta, Georgia, Pittsburgh, Pennsylvania, Chicago, Illinois
and San Ramon, California. The Company does not expect to open additional
domestic sales and support offices in fiscal 1999. During fiscal 1998, the
Company opened its first two international sales and support offices in
Amsterdam, Netherlands and Sydney, Australia. The Company plans to open a sales
and support office in Sao Paulo, Brazil during fiscal 1999. The mission of the
international offices is to seek viable distributors in their region of
operation and to technically support RIMS products.
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The Company obtains sales leads through advertising, seminars, trade shows
and relationships with industry consultants. A typical sales cycle begins with
the generation of a sales lead or the receipt of a Request For Proposal ("RFP")
from a prospective customer or his representative. After qualification of the
sales lead and analysis of the prospective customer's requirements, a formal
proposal in response to the RFP is prepared. The proposal generally describes
how RIMS.2001 is expected to meet the RFP requirements and associated costs.
Product demonstrations are often conducted at the prospective customer's
facilities using realistic data and scenarios. Site visits to other RIMS.2001
installations are also encouraged by the Company's sales staff. While the sales
cycle varies substantially from opportunity to opportunity, it typically ranges
from three to six months for a standard system and from six to 12 months for a
system requiring substantial modification The Company expects that the sales
cycle for the standard RIMS.2001 system will be reduced to 60 to 90 days as the
system becomes more widely known through increased advertising, including the
Company's enhanced web site on the Internet.
The Company often employs an innovative conference room pilot approach for
potential new customers. The potential customer is offered a fully-functioning
RIMS.2001 system for configuration, evaluation and analysis. The client executes
the RIMS.2001 application by working hands-on with a test machine in a
controlled environment at its own headquarters. The conference room pilot offers
a unique opportunity to confront issues that a customer might otherwise face in
the actual operation of its warehouse, and to work with the Company to solve
potential problems prior to full-scale system implementation. The Company
believes this program is instrumental in establishing client confidence and
promoting additional awareness of the broad functionality of the RIMS system.
The conference room pilot also enables potential customers to define additional
requirements for modification and provides mutual assurance to the Company and
the customer that any defined modifications are, in fact, needed. A client fee
and the costs of the necessary training services are charged to the potential
customer in connection with this program. At the conclusion of the pilot period,
the customer has the option to request a full refund of any license fees paid.
To date, no customer has requested a refund.
In addition, the Company has developed a standardized, comprehensive and
detailed implementation plan to guide new customers smoothly from contract
signing to system startup. The Company's project managers utilize this plan to
ensure that projects are completed effectively and within budget. Depending on
the experience level of the customer and the ease of host integration, a first
time customer will be placed on a plan that ranges from 16 to 24 weeks past
contract signing. Subsequent sites can typically be implemented four to eight
weeks apart.
The Company intends to supplement its marketing efforts by aligning itself
with complimentary solutions providers and technology partners. Strategic
alliances also assist the Company in keeping pace with technological
developments of the major software and hardware vendors and, in certain
instances, provide the Company with product development services. The Company
has entered into a strategic alliance with QAD, Inc., the developer of the
MFG/PRO ERP system. This relationship includes co-marketing and
technology-sharing arrangements, and will provide the Company access to a very
large existing customer base. Purchasers of the MFG/PRO ERP system may be linked
to RIMS.2001 through an application program interface module that contains
software of the Company as an integral component. The integration of the
Company's software into the application program interface assures purchasers of
the MFG/PRO ERP system that any future upgrades to the system will also upgrade
the warehouse management system of such customer if such customer has RIMS.2001
in place. A purchaser of an MFG/PRO ERP system that is not linked to RIMS.2001
will not receive the benefit of this upgrade capability. Currently, RIMS.2001 is
the only available warehousing solution that conforms with the MFG/PRO ERP
system application program interface and provides upgrade capability. This
upgrade capability provides customers with a significant cost savings by
eliminating the customer's need to adjust interfaces to maintain the integrity
between MFG/PRO ERP system and RIMS.2001.
The Company has signed a preliminary agreement with Transcomm Consulting
Services ("Transcomm") pursuant to which the Company may resell a software
interface developed jointly by Crown Equipment Corporation, Transcomm and the
Company. The agreement allows for co-marketing of an interface between RIMS.2001
and the ERP system marketed by BAAN Co. N.V. ("BAAN"). Although BAAN offers a
proprietary warehouse management system, the Company's believes that RIMS.2001
provides a greater variety of features and will be the candidate selected by
those customers for which functionality is critical.
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The Company is currently developing an interface to the R/3 ERP system
marketed by SAP AG ("SAP"), which will be a candidate for SAP certification. The
Company anticipates that the SAP interface is expected to be completed by the
end of calendar 1998 and available for sale at that time. The Company believes
there are several potential RIMS.2001 customers awaiting the completion of the
certification process.
The Company currently markets RIMS.2001 through resellers located in
Canada, South America, Mexico, the United Kingdom, Australia and New Zealand.
The Company is also in the final stages of negotiations with prospective
resellers in Saudi Arabia and Israel. The Company's resellers are established
systems integrators with large customer bases in their respective regions. The
Company's agreements with such resellers are not exclusive, except for the
Company's agreement with its United Kingdom reseller, which is exclusive in the
United Kingdom and Ireland and non-exclusive in Scandinavia and Germany. The
Company intends to establish additional non-exclusive international resellers in
Europe, Africa, the Middle East and Asia. As the number of foreign resellers
expands, the Company intends to strategically locate sales and support offices
throughout the world to support these distributors.
For the fiscal years ended May 31, 1997 and 1998, approximately 3.3% and
7.3%, respectively, of the Company's revenues were generated outside the United
States. The Company expects that international sales will significantly increase
as it adds additional international resellers and opens Company-owned
international sales and support offices. There are a number of risks inherent in
the Company's current and proposed international business activities. There can
be no assurance that such factors will not have an adverse effect on the
revenues from the Company's future international sales and, consequently, on the
Company's results of operations.
Product Development
The Company seeks to offer an extensive, integrated product line that
provides complete warehouse management functionality to warehouses worldwide. To
effect this strategy, the Company intends to continue to introduce new modules,
upgraded functionality and enhancements to existing products.
The Company, through its development and support personnel, works closely
with its customers and prospective customers to determine their requirements and
to design enhancements and new products to meet customer needs. Using the focus
group approach and input from the user community, the Company's steering
committee will select suitable enhancements for inclusion in future releases of
RIMS.2001. Software development is funded by Company funds and, to a lesser
extent, customer funds. Product improvements are often initiated by customer
funding of modifications that can be incorporated into the standard package.
Customers benefit by funding enhancements that improve the baseline product
through lower maintenance costs and future ability to upgrade. All Company
product development is performed by its employees. The Company's capitalized
software development costs were $815,908, $1,518,298 and $1,562,463 in fiscal
1996, 1997 and 1998, respectively.
The original version of RIMS.2001 was introduced in June 1994 (Version
3.0). The Company plans to undertake continuous product improvement to ensure
competitiveness. New modules and features are constantly being added to the
latest version of RIMS. In May 1997, the Company released Version 3.4. In August
1997, the Company released RIMS.Food. In May 1998, the Company released Version
3.5 and RIMS.2001 Version 4.0 is scheduled for release in the second quarter of
fiscal 1999.
Warehouses for different vertical markets often require different features
and functionality. In addition to modifying standard RIMS.2001 product, the
Company is in the initial stages of developing pre-configured versions of
RIMS.2001 that the Company anticipates will address the needs of specific
vertical markets. The Company believes that the expertise developed in each of
these vertical markets also will further contribute to its standard RIMS.2001
product. The RIMS.Food product, which was introduced in August 1997, was the
first of these versions. In the development of RIMS.Food, the Company
established a focus group consisting of current and potential clients in the
food manufacturing and distribution industry. The focus group provided
direction, guidance and partial funding for the development of RIMS.Food. The
Company intends to replicate this process to establish itself in other vertical
markets and, upon development of each industry-specific version of RIMS.2001, to
hire a dedicated
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sales force to market such product within the applicable vertical market. The
Company has targeted the automotive, consumer products, petro chemical products,
third party logistics and pharmaceutical products industries as additional
markets for an industry-specific RIMS.2001 product.
The Company is continuing its software development efforts by designing
enhancements to RIMS.2001 using Internet and intranet-based technology,
including enhancements based on a combination of the Java language and HTML
(hypertext markup language). By incorporating this technology into RIMS.2001,
authorized users on the World Wide Web will be able to access information in any
RIMS.2001 World Wide Web-enabled server, utilizing standard World Wide Web
browsers. For example, a RIMS.2001 customer will be able to permit its
authorized users to access its RIMS.2001 data repository via the World Wide Web,
which will reduce the burden on its customer service department because the
status of orders and the location of inventory for an order may be monitored
directly by the authorized user (i.e., a retail customer or plant manager). The
Company's development of an Intranet-based application (Java and HTML) will
permit warehouse management and related activity (e.g. customer service) to be
performed entirely through World Wide Web browsers within the confines of the
client organization. This architecture will permit access to data from
authorized users via a familiar browser interface. Scalability and ease of
maintenance are additional benefits of this architecture. RIMS.2001 Version 4.0,
which uses Internet and intranet-based technology and is Windows NT enabled, is
well into development as testing has commenced and is expected to be available
for sale in the second quarter of fiscal 1999.
There can be no assurance that the development of these product
enhancements will be completed successfully or that they will include the
features required to achieve market acceptance. The introduction of each new
release of RIMS.2001 has resulted in enhancements of earlier releases as the new
releases offer improved features and functionality over prior versions. Since
the Company continues to offer earlier releases of RIMS.2001, to service,
support and provide maintenance on such earlier releases and to make new
releases of RIMS.2001 available to customers, the obsolescence of earlier
releases has not had and is not expected to have a material impact on the
Company's results of operations or financial condition. Delays or difficulties
associated with introductions of new features, modules and products could have a
material adverse effect on the Company's business, results of operations or
financial condition.
Competition
The market for warehouse management and distribution software and related
services is intensely competitive and is characterized by rapid changes in
technology and user needs and the frequent introduction of new products and
product enhancements. The Company's competitors and potential market entrants
range from small, privately-held firms to large national and international
organizations with more extensive technical staffs and technological resources,
larger marketing and sales organizations, and greater financial resources than
the Company. The Company also competes with software applications developed by
the internal management information system departments of its potential
customers. The Company, however, believes that potential customers increasingly
will purchase software applications from outside vendors, including the Company,
due to high development costs, poor support, the lack of comparable
functionality and inconsistent or delayed development schedules.
The Company believes that historically the market for warehouse management
and distribution software could be characterized by the size of the customer or
the complexity of the customer's warehouse handling environment. Competitors in
the high end of the market offered turnkey systems that typically integrated all
aspects of hardware, software and services related to the warehouse management
system, including real-time labor management functionality, labor planning,
tracking and management functionality, integrated host system communications,
modular software development, material handling device control, automated
storage equipment control, inbound/outbound traffic management, and full
receiving, putaway/storage, order processing, picking, shipping, inventory
control and management reporting functionality. Middle market competitors differ
from high end competitors primarily by offering systems with limited hardware
flexibility, little or no management, labor and storage reporting, little or no
radio frequency functionality and reduced hardware and software costs. Middle
market systems generally provide excellent tracking and control, but do not
actively help to manage the warehouse operation. At the lower end of the market,
competitors tend to specialize in a specific aspect of warehouse
10
<PAGE>
functionality, such as receipts tracking, warehouse data collection tasks or
carousel control, and have smaller technical and development staffs.
The Company believes that, unlike most of its competitors, it can compete
effectively in both the high end and middle segments of the market due to the
scaleability, flexibility, configurability, functionality and price of
RIMS.2001. The Company has a large number of competitors in these markets and
believes that its primary competitors in these markets are McHugh Freeman and
Associates, Manhattan Associates and Catalyst International, Inc., each of which
provides complete warehouse management and distribution software. In addition,
certain well-known computer manufacturers and software developers, such as SAP
AG, J.D. Edwards & Co., BAAN Company N.V. and PeopleSoft, Inc., offer integrated
manufacturing or accounting software packages that include a warehouse
management component. Many of the Company's competitors have greater name
recognition, more extensive engineering, management and marketing capabilities
and significantly greater financial, technological and personnel resources that
the Company.
Over the last few years, as software developers began to develop software
for more than one customer in the same industry, the market for warehouse
management systems has increasingly been characterized by the industry in which
the customer competes. By tailoring RIMS.2001 to support the unique features of
certain targeted markets, the Company believes it will have a competitive
advantage in selling prospective customers in the same industry in which similar
functionality and implementation issues arise. The Company has identified the
automotive, consumer products, petro chemical products, third party logistics
and pharmaceutical products industries as its target markets. The Company
developed RIMS.Food as a specialized application of RIMS.2001 targeted at the
food industry.
The Company believes that the competitive factors affecting its markets
include features such as openness, scalability, ability to integrate with third
party products, functionality, adaptability, ease of use, product reputation,
quality, performance, price, customer service and support, effectiveness of
sales and marketing efforts and company reputation. Although the Company
believes that it currently competes favorably with respect to such factors,
there can be no assurance that the Company can maintain its competitive position
against current and potential competitors, especially those with greater
financial, marketing, service, support, technical and other resources than the
Company.
Proprietary Rights, Licenses and Pricing
The Company relies on a combination of contract, copyright, trademark and
trade secret laws, and other measures to protect its proprietary information.
The Company does not have any software patents or patent applications. Trade
secret and copyright laws afford only limited protection. The Company believes
that, because of the rapid pace of technological change in the computer software
industry, trade secret and copyright protection are less significant in
affecting the Company's business, results of operations or financial condition
than factors such as the knowledge, ability and experience of the Company's
employees, frequent product enhancements and timeliness and quality of support
services.
The Company generally sells its products to its customers under a
non-transferable perpetual license. The Company generally licenses its products
solely for the customers' internal operations and only at designated sites. The
Company also makes available multi-site licenses and enterprise licenses.
Domestic multi-site licenses are discounted from the first license fee for the
second site and beyond. Enterprise licenses are structured as a one time fee
with unlimited usage, plus a nominal fee as additional sites are installed with
the software. Licensing of RIMS.2001 and RIMS.3PL is concurrent user based.
Discounts are generally applied for multi-site licenses. International license
fees tend to be slightly higher and are structured by region.
The Company does not provide source code to the customer under its
licenses. The Company believes that providing source code increases the
likelihood of misappropriation or other misuse of the Company's intellectual
property. The Company has, however, entered into source code escrow agreements
with certain customers whereby, under certain circumstances, source code is made
available to a customer. This is a common practice in
11
<PAGE>
the software industry. Under the terms of the Company's license agreements, the
Company generally owns all modifications to its software that are implemented
for a customer.
The Company is not aware of any case in which its products, trademarks or
other proprietary rights infringe the property rights of third parties, but has
not performed any independent investigations to determine whether such
infringement exists. Accordingly, there can be no assurance that third parties
will not assert infringement claims against the Company in the future with
respect to current or future products or that any such assertion may not require
the Company to enter into royalty arrangements or result in litigation. As the
number of software products in the industry increases and the functionality of
these products further overlap, the Company believes that software developers
may become increasingly subject to infringement claims. Any such claims, with or
without merit, can be time consuming and expensive to defend.
Employees
As of August 25, 1998, the Company had 65 employees, of which seven were
employees primarily in management and administration, 23 in product development,
nine in software services, ten in customer support, and 16 in sales and
marketing. The Company's employees are not represented by any collective
bargaining organization and the Company has never experienced a work stoppage.
The Company considers its relations with its employees to be satisfactory.
Item 2. Description of Property.
The Company's headquarters are located in Massapequa, New York in
approximately 10,000 square feet of office space that is leased from Robocom
Properties, Inc., a corporation of which the principal shareholders are
currently officers or directors of the Company. See "Item 12. Certain
Relationships and Related Transactions". The annual rental on the corporate
headquarters is $168,000 (excluding operating expenses, insurance, property
taxes and assessments), subject to increases based upon fluctuations in the
prime rate, as published in the Wall Street Journal. The lease expires on
December 31, 2010.
The Company also leases approximately 2,000 square feet in Teaneck, New
Jersey. The lease expires on January 1, 2002 and may be extended by the Company
for an additional five-year period. The lease has an annual rental rate of
$33,297 (excluding operating expenses, insurance, property taxes and
assessments).
The Company also leases approximately 1,775 square feet in Massapequa, New
York. The lease expires on February 28, 2001. The lease has an annual rental
rate of $33,396 (excluding operating expenses and insurance).
In addition, the Company has short-term leases for its salespeople across
the United States, Australia and the Netherlands.
The Company believes that its existing facilities are sufficient for its
operations, although it intends to open additional sales and support offices in
the future.
Item 3. Legal Proceedings.
The Company is not a party to any material legal proceeding.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1998.
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Part II
Item 5. Market for Common Equity and Related Shareholder Matters.
The Company's Common Stock has been listed on The Nasdaq Stock Market
under the symbol RIMS since the initial public offering of the Common Stock on
June 26, 1997. The following table represents the high and low price information
for the Company's Common Stock for each quarterly period in fiscal 1998 since
the initial public offering.
Fiscal 1998 High Low
- ----------- ---- ---
Quarter ended August 31, 1997 $7.719 $6.875
Quarter ended November 30, 1997 8.500 7.000
Quarter ended February 28, 1998 8.000 5.250
Quarter ended May 31, 1998 6.375 3.750
Prices listed above are determined by the over-the-counter market and
therefore do not reflect broker's fees or commissions.
As of August 27, 1998, there were 3,467,984 shares of the Company's Common
Stock outstanding held by approximately 23 shareholders of record.
The Company does not currently pay dividends on its Common Stock. It is
management's intention not to declare or pay dividends on the Common Stock, but
to retain earnings, if any, for the operation and expansion of the Company's
business.
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, and the offering commenced on that date. Such registration statement
registered the sale at an offering price of $6.50 per share of 1,500,000 shares
of Common Stock by the Company and the sale, pursuant to over-allotment options
granted to the underwriters, of up to an additional 225,000 shares of Common
Stock by the Company for an aggregate of 1,725,000 shares of Common Stock
registered at an aggregate offering price of $11,212,500. BlueStone Capital
Partners LLP was the managing underwriter of the offering, and Oscar Gruss & Son
Incorporated and Coleman and Company Securities, Inc. were co-managing
underwriters (collectively, the "Representatives"). The Company also registered
under the registration statement 150,000 warrants to purchase up to an aggregate
of 150,000 shares of Common Stock at $7.80 per share (120% of the public
offering price per share) granted to the Representatives. On June 26, 1997,
1,500,000 shares of Common Stock were sold at the offering price of $6.50 per
share for an aggregate of $9,750,000. In addition, the Company received $.001
per warrant, for aggregate net proceeds of $150, in consideration of the
warrants granted to the Representatives. The over-allotment option was not
exercised and expired on August 8, 1997. Total expenses incurred through May 31,
1998 were approximately $1,590,000, consisting of $780,000 of underwriting
discounts and commissions, $173,000 for the reimbursement of expenses to
underwriters and actual expenses of approximately $637,000 of legal, accounting
and other expenses. Of the $8,160,000 of net proceeds to the Company from the
offering, $1,550,000 has been applied to the repayment of indebtedness,
$1,600,000 has been distributed to the S Corporation shareholders, $1,562,000
has been utilized for software development costs, $374,000 has been utilized for
capital expenditures, which include computers, automobiles and furniture, and
$1,159,000 has been utilized for working capital purposes, including 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. The
remaining balance of $1,915,000 is invested in short-term investments. Three
principal shareholders individually own more than 10% of the Company (both
before and after the offering).
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Item 6. Management's Discussion and Analysis or Plan of Operation.
Certain statements in this Report and in the documents incorporated by
reference herein 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.
Overview
The Company's principal activities include marketing and support of
comprehensive warehouse management software systems. In addition to its core
business, the Company also provides, to a limited extent, system integration
services in support of office client server systems. The Company licenses its
RIMS warehouse management systems and, in connection with its other system
integration services, certain third-party software products; it provides related
services (including customization and modification, project management, training
and implementation) and maintenance support; and it sells related third-party
hardware products. Prior to fiscal 1997, the Company's revenues were principally
derived from highly-customized RIMS warehouse systems and adaptations that
required substantial modifications to meet the functionality required by
customers. Over the past fiscal year, the Company's has replaced virtually all
of the customized revenues with revenues from the sale of the Company's standard
RIMS.2001 warehouse management software system. In addition, since the Company's
introduction of the standard RIMS.2001 product in fiscal 1995, the rate of
RIMS.2001 installations has increased from a total of five installations in the
fiscal year ended May 31, 1996 to 29 installations in the fiscal year ended May
31, 1998. The Company expects RIMS.2001 and related revenues to continue to
account for a substantial portion of the Company's revenue for the foreseeable
future. As a result, the Company's future operating results are significantly
dependent upon continued market acceptance of RIMS.2001 and enhancements
thereto. In addition, since a substantial portion of the Company's revenues in
any fiscal period are derived from relatively few sales of RIMS.2001, both the
number of new sales of RIMS.2001 and the timing of orders for, and installations
of, new systems in any fiscal period, has caused and is expected to continue to
cause, significant fluctuations in revenue from period to period.
The Company's revenues are derived from software license fees, fees for
services, sales of hardware and maintenance fees. Software license fees include
revenue from the licensing of the Company's proprietary RIMS.2001 software and
revenue from the sublicensing of certain third-party software. Software license
fee revenue is recorded when the software has been delivered, the license
agreement with the customer has been executed and collection of the resulting
receivable is deemed probable. Service revenues are derived from project
management, customization and modification of licensed software, training,
on-site support and implementation services. Service revenues are recorded when
the service is performed. Hardware revenues are derived from the Company's
resale of a variety of third-party hardware products on behalf of other
manufacturers, including computer hardware, radio frequency equipment, bar code
printers and other peripherals. Such revenues are recognized when the title to
such hardware passes to the customer. Customers typically enter into one-year
maintenance agreements with the Company upon the completion of the software
installation and pay maintenance fees monthly. The Company recognizes revenue
from each maintenance agreement ratably over the period covered by the
agreement, but is only required to perform maintenance services as and when they
are requested by the customer. Historically, all of the Company's RIMS.2001
customers have entered into, and substantially all of the Company's RIMS.2001
customers have renewed, maintenance agreements with the Company.
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The Company's total revenues in any period are substantially dependent
upon a relatively small number of large sales. Revenues from the Company's five
largest customers in each of fiscal 1996, 1997 and 1998 accounted for
approximately 56%, 50% and 34% of total revenues, respectively. The Company
expects that this downward trend will continue as the Company further penetrates
the market with its RIMS.2001 products.
Costs of revenues represents the cost of software modification, system
implementation and other services, hardware and maintenance support. Costs of
services and costs of maintenance consist primarily of labor costs for customer
support, including personnel costs, and costs relating to subcontracted services
and overhead. Typically, costs of maintenance associated with the Company's
standard maintenance contract decrease over the life of the maintenance
contract. The number of programmers and service and support personnel employed
by the Company was 27, 34 and 43 at May 31, 1996, 1997 and 1998, respectively.
Programmers also function as engineers in the development of software, as
described below. Cost of hardware consists primarily of the cost of hardware
sold by the Company on behalf of other manufacturers.
Amortization of software development costs consists of the amortization of
costs of engineering personnel and related development expenses, such as the
development of software tools and documentation, capitalized starting at the
point technological feasibility is demonstrated. The Company believes that a
significant level of investment in software development is essential to achieve
and maintain a market leadership position. The Company capitalized $815,908,
$1,518,298 and $1,562,463 in fiscal 1996, 1997 and 1998, respectively, for
software development costs. Research and developments costs for these periods
were not significant. The Company employed 15, 18 and 24 software development
employees at May 31, 1996, 1997 and 1998, respectively, some of which also
functioned as programmers for the installation or modification of the Company's
software. Amortization of software development costs has increased primarily due
to the commencement of amortization of capitalized software development costs
for RIMS.2001 Version 3.4 in August 1997, RIMS.Food in August 1997 and Version
3.5 in May 1998, the date such versions were first available for sale. RIMS.2001
has been technologically feasible since 1992 and salable since the beginning of
fiscal 1995. The Company's current and planned product development efforts are
directed at enhancing and improving RIMS.2001. Specifically, RIMS.2001 Version
4.0, which uses Internet and intranet-based technology and is Windows NT
enabled, is well into development as testing has commenced and is expected to be
available for sale in the second quarter of fiscal 1999. Accordingly, the
Company anticipates that the dollar amount of the costs capitalized will
decrease in the latter half of fiscal 1999. However, amortization of software
development expenses will increase as new RIMS.2001 releases become available
for sale. As a percentage of total revenue, however, the Company anticipates
that amortization of software development expenses will decrease as revenues
increase.
Selling, general and administrative expenses consist primarily of salaries
for sales, marketing, administrative, executive and financial personnel,
commissions paid to sales personnel and travel and promotional expenses. The
sales and marketing, general and administrative staff consisted of 15, 17 and 24
employees at May 31, 1996, 1997 and 1998, respectively. The Company believes
that its selling, general and administrative expenses will increase in dollar
amounts in fiscal 1999 to reflect a full year of the expenses added during
fiscal 1998. The Company anticipates that such expense will decrease as a
percentage of total revenues as revenues increase.
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Results of Operations:
The following table sets forth, for the periods indicated, certain
statement of operations data:
(In thousands)
Year ended May 31,
---------------------------
1996 1997 1998
------ ------ -------
Revenue:
Software license fees ....................... $ 970 $1,241 $ 1,670
Services ..................................... 3,195 2,741 2,266
Hardware ..................................... 1,793 2,352 2,560
Maintenance .................................. 1,006 1,179 1,048
------ ------ -------
Total revenues ............................... 6,964 7,513 7,544
------ ------ -------
Cost of revenue:
Cost of license fees ......................... 63 193 389
Cost of services ............................. 2,302 1,280 2,163
Cost of hardware ............................. 1,399 1,842 2,491
Cost of maintenance .......................... 680 707 709
------ ------ -------
Total cost of revenues ....................... 4,444 4,022 5,752
------ ------ -------
Amortization of software
development costs ........................... 311 441 730
------ ------ -------
Gross margin ................................... 2,209 3,050 1,062
Selling, general & administrative
expenses ..................................... 1,076 1,199 3,234
------ ------ -------
Income (loss) from operations .................. 1,133 1,851 (2,172)
Interest expense (income), net ................. 8 34 (173)
------ ------ -------
Income (loss) before income taxes .............. 1,125 1,817 (1,999)
Provision for income taxes ..................... -- -- 722
Proforma provision (benefit) for income taxes .. 473 763 (128)
------ ------ -------
Net income (loss) .............................. $ 652 $1,054 $(2,593)
====== ====== =======
Comparison of Fiscal Years Ended May 31, 1997 and May 31, 1998
Revenue. Total revenue remained relatively constant from $7,513,490 in the
year ended May 31, 1997 to $7,543,798 in the year ended May 31, 1998. Software
license fees increased by approximately 35% in fiscal 1998 as compared to fiscal
1997 primarily due to the increase in sales of RIMS.2001 software licenses from
17 during fiscal 1997 to 29 during fiscal 1998. Services revenues decreased by
approximately 17% in fiscal 1998 as compared to fiscal 1997, primarily due to
the decreasing level of services relating to the installation of
highly-configured, pre-RIMS.2001 systems originally contracted for prior to
fiscal 1996. Hardware revenues increased by approximately 9% in fiscal 1998 as
compared to fiscal 1997, primarily due to increased sales of hardware by the
Company in connection with its system installations. Maintenance revenues
decreased by approximately 11% in fiscal 1998 as compared to fiscal 1997, due
primarily to the larger number of maintenance contracts in operation during such
period offset by the expiration of a significant pre-RIMS.2001 maintenance
contract in the third quarter of fiscal 1997. Without the expired pre-RIMS.2001
maintenance contract revenues in the fiscal 1997 period, maintenance revenues
increased by approximately 5% in fiscal 1998 as compared to fiscal 1997.
Cost of Revenues. Total cost of revenues increased by approximately 43%
from $4,021,883 in fiscal 1997 to $5,751,847 in fiscal 1998. As a percentage of
revenue, total cost of revenues increased from approximately 54% in fiscal 1997
to approximately 76% in fiscal 1998. As a percentage of license fee revenues,
cost of license fees
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increased to approximately 23% in fiscal 1998 as compared to approximately 16%
in fiscal 1997. The increase is due to distributor fees related to certain
international sales of software licenses which began in the 1998 period and
higher fees for third party software in fiscal 1998 as compared to fiscal 1997.
As a percentage of services revenues, the cost of services was significantly
higher in fiscal 1998 as compared to fiscal 1997 primarily due to higher
salaries and related overhead and the hiring of additional personnel, including
project management, trainers and programmers, and, to a lesser extent, to costs
for training incurred for the Company's international distributors. 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 fiscal 1998 due to the type of
hardware installed which, primarily consisted of computer systems networks which
have significantly lower margins as compared to warehouse management system
hardware. The Company expects that the cost of hardware as a percentage of
hardware revenue will remain consistent. As a percentage of maintenance
revenues, the cost of maintenance was significantly lower in fiscal 1998 period
due to a lower level of required maintenance as compared to fiscal 1997 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 65% from $441,291 in fiscal 1997 to
$729,943 in fiscal 1998. The increase was due to the commencement of
amortization of capitalized software development costs for RIMS.2001 Version 3.4
in August 1997, RIMS.Food in August 1997 and Version 3.5 in May 1998, the date
such versions were first available for sale. As a percentage of revenue, the
amortization of software development costs were approximately 6% in fiscal 1997
and approximately 10% in fiscal 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by approximately 170% from $1,199,515 in
fiscal 1997 to $3,233,605 in fiscal 1998. As a percentage of revenue, selling,
general and administrative expenses increased from approximately 16% in fiscal
1997 to approximately 43% for the 1998 period. The increase in selling, general
and administrative expenses was primarily due to hiring additional salespersons
and marketing personnel, salaries and related expenses incurred for the opening
of two international offices, and increases in advertising costs and 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. In addition, the Company established a $200,000 reserve for doubtful
accounts primarily relating to its one of its customers.
Interest Expense (Income), net. Interest income increased by $166,735 to
$189,987 in fiscal 1998 as compared to $23,252 in fiscal 1997. The increase is
primarily due to the investment of the proceeds from the Company's initial
public offering of 1,500,000 shares of common stock for sale to the public on
June 26, 1997 (the "Offering"). Interest expense decreased to $17,180 in fiscal
1998 as compared to $57,473 in fiscal 1997. The decrease is due to the repayment
in July 1997 of the bank note payable with proceeds from the Offering.
Pro Forma Provision (Benefit) for Income Taxes. The pro forma provision
(benefit) for income taxes is reflected at 42% of the income (loss) before the
provision (benefit) for income taxes for the periods preceding the Offering.
Provision for Income Taxes. The provision for income taxes for fiscal 1998
consists of a tax benefit reflected at 42% of the loss before the provision for
income taxes for the periods subsequent to the Offering offset by 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 upon the Company's
initial public offering on June 26, 1997. This charge primarily relates to
temporary differences for software development costs.
Comparison of Fiscal Years Ended May 31, 1996 and May 31, 1997
Revenue. Total revenue increased by approximately 8% from $6,964,097 in
the year ended May 31, 1996 to $7,513,490 in the year ended May 31, 1997.
Software license fees increased by approximately 28% in fiscal 1997 as compared
to fiscal 1996 primarily due to the increase in RIMS.2001 software licenses from
five during fiscal 1996 to 17 during fiscal 1997. Services revenues decreased by
approximately 14% in fiscal 1997 as compared to
17
<PAGE>
fiscal 1997, primarily due to the decreasing level of services required for the
installation of highly-configured, pre-RIMS.2001 systems originally contracted
for prior to fiscal 1995. Hardware revenues increased by approximately 31% in
fiscal 1997 as compared to fiscal 1996, primarily due to increased sales of
hardware by the Company in connection with its system installations. Maintenance
revenues increased by approximately 17% in fiscal 1997 as compared to fiscal
1996, due primarily to the larger number of maintenance contracts in operation
during such period.
Cost of Revenues. Total cost of revenues decreased by approximately 10%
from $4,444,119 in fiscal 1996 to $4,021,883 in fiscal 1997. As a percentage of
revenue, total cost of revenues decreased from approximately 64% in fiscal 1996
to approximately 54% in fiscal 1997. The decrease primarily related to higher
license fee revenues discussed above, which have minimal direct related costs,
and higher margin services revenues due to increased modifications and training
services during the 1997 period.
Amortization of Software Development Costs. Amortization of software
development costs increased by approximately 42% from $311,321 in fiscal 1996 to
$441,291 in fiscal 1997. The increase was due to the commencement of
amortization of capitalized software development costs for RIMS.2001 Versions
3.1 and 3.2 in January 1996 and September 1996, respectively, the date such
versions were first available for sale. As a percentage of revenue, the
amortization of software development costs were approximately 4% in fiscal 1996
and approximately 6% in fiscal 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by approximately 12% from $1,075,309 in fiscal
1996 to $1,199,515 in fiscal 1997. As a percentage of revenue, selling, general
and administrative expenses increased from approximately 15% in fiscal 1996 to
approximately 16% for the 1997 period. The increase in selling, general and
administrative expenses was primarily due to the amortization of deferred
compensation in fiscal 1997 as compared to none in fiscal 1996, higher
professional and consulting fees offset by lower administrative salaries
resulting from the retirement of one of the Company's executive officers and
decreased selling expenses in fiscal 1997.
Interest Expense, net. Interest expense was $57,473 in fiscal 1997, an
increase of $18,898 or approximately 49% from $38,575 in fiscal 1996. The
increase was primarily due to higher interest rates on balances related to loans
from officers in fiscal 1997 as compared to fiscal 1996 and to interest on
higher average bank borrowings in fiscal 1997.
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.
Fluctuations in Operating Results
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future, depending upon a number of factors, such as the length of
the Company's sales cycle, the unanticipated cancellation of significant license
agreements, the timing of new version releases by the Company and its
competitors, budgeting cycles of the Company's customers, demand for the
Company's software, software life cycles, acceptance of new software introduced
by the Company and its competitors, the size and timing of customer orders,
changes in the proportion of revenues attributable to software license fees
versus services, changes in the level of operating expenses and general economic
conditions. In addition, a significant portion of the Company's revenues has
been derived from relatively few sales of licenses for RIMS.2001, and,
consequently, the timing of such sales has caused material fluctuations in the
Company's operating results. Accordingly, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as an indication of future performance.
The Company completed the Offering on June 26, 1997. The weighted average number
of shares in the proforma earnings per share for fiscal years ended May 31, 1996
and 1997 does not include the shares issued by the Company in connection with
the Offering. If such shares had been included in the weighted average shares,
proforma earnings per share for the fiscal year ended May 31, 1997 would have
been $.30 per share.
18
<PAGE>
Because the Company recognizes a significant portion of revenues over the
installation period of the system (which, although designed to be completed in
approximately four months, generally ranges from four to eight months in
duration as a result of the customer's scheduling requirements) and because
installation commences promptly after execution of the related license
agreement, the Company does not maintain a significant backlog. Software license
fees for each quarter depend in part on orders for which implementation has
begun during that quarter and on license agreements under implementation that
were executed in prior quarters. The sales cycle for RIMS.2001 typically ranges
from four to six months, and contract signing may be delayed for a number of
reasons, including customer budgetary constraints and internal authorization
reviews. In addition, delays in the completion of a contract may require that
the revenues associated with such contract be recognized over a longer period.
Consequently, the Company's business, results of operations or financial
condition for a quarter could be materially adversely affected by implementation
delays.
The Company is in the initial stages of developing pre-configured,
industry-specific versions of RIMS.2001 for use in certain vertical markets. The
Company believes that if it is able to successfully introduce and obtain market
acceptance of pre-configured versions of RIMS.2001, such versions would reduce
its quarterly fluctuations in operating results because such products would
enable the Company to sell its systems to a greater number of customers. The
RIMS.Food product, which was introduced in August 1997, was the first of these
industry specific versions. The Company has sold six RIMS.Food site licenses
during fiscal year 1998. There can be no assurance, however, that these
additional products will be successfully developed or that they will gain market
acceptance. See "Item 1. Business --Product Development."
Liquidity and Capital Resources
During fiscal 1998, the Company has funded its operations primarily
through cash generated from the proceeds from the Offering. In fiscal 1997 and
1996, the Company funded its operations from operations, bank borrowings and
loans from officers. 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. The Company intends to renew this Line of Credit. 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 August 25, 1998). 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. There were no amounts outstanding under the Line of Credit at May 31,
1998 or August 25, 1998.
Net cash used in operating activities was $1,222,183 in fiscal 1998 which
was primarily due to the operating loss. Net cash provided by operating
activities was $1,278,812 and $1,417,984 in fiscal 1996 and 1997, respectively.
Cash generated from operating activities in fiscal 1997 was generated primarily
from higher net income offset by the increase in accounts receivable. This
increase in accounts receivable was due to significant deliveries of equipment
and related services to several customers in May 1998.
The Company capitalized $815,908, $1,518,298,and $1,562,463 in fiscal
1996, 1997 and 1998, respectively, for software development costs. The Company
did not have any material commitments for software development costs as of May
31, 1998. Any such costs will be financed through working capital and proceeds
received by the Company from the Offering.
As of May 31, 1998, the Company had $384,034 in cash and cash equivalents,
$1,914,852 in marketable securities and total working capital of $5,139,711.
Management believes that cash flow from operations, existing cash and cash
equivalents and marketable securities, 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 1999 include approximately $300,000 to establish
an additional international sales and support office and approximately
$1,000,000 for software development costs.
19
<PAGE>
The Company does not currently pay dividends on its Common Stock. It is
management's intention not to declare or pay dividends on the Common Stock, but
to retain earnings, if any, for the operation and expansion of the Company's
business.
Inflation and Seasonality
The Company does not believe its operations have been materially affected
by inflation. The Company's business is seasonal as the first quarter of the
fiscal year generally reflects lower revenues due principally to the
inaccessibility of customers during the summer months.
Impact of Year 2000
The Company is working to resolve the potential impact of the year 2000 on
the ability of the Company's computerized information systems to accurately
process information that may be date-sensitive. Any of the Company's programs
that recognize a date using "00" as the year 1900 rather than the year 2000
could result in errors or system failures. The Company utilizes several computer
programs across its entire operations.
The Company has not completed its assessment, but currently believes that
costs of addressing this issue will not have a material adverse impact on the
Company's financial position. However, if the Company and third parties upon
which it relies are unable to address this issue in a timely manner, it could
result in a material financial risk to the Company. In order to assure that this
does not occur, the Company plans to devote all resources required to resolve
any significant year 2000 issues in a timely manner.
The Company's primary software, RIMS.2001, is Year 2000 compliant which
means that it is not adversely affected by the century change. RIMS.2001 will
function properly and as would be expected for all dates before and beyond the
year 2000. The RIMS application uses a modern 4GL(Progress) that supports Year
2000 and was designed with Year 2000 in mind. For customers with customized
systems or systems that pre-date the Company's standard RIMS.2001 product line,
the Company will make every effort to ensure that the maintained application
operates properly with regard to the century transition. The Company will
recover all costs associated with modifications for Year 2000 for customers with
customized systems or systems that pre-date the standard RIMS.2001 product line.
20
<PAGE>
Item 7. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Form 10-KSB
Page Numbers
Report of Independent Auditors ...................................... 24
Balance Sheets as of May 31, 1997 and 1998 .......................... 25
Statements of Operations for the years ended
May 31, 1996, 1997 and 1998 ....................................... 26
Statements of Shareholders' Equity for the years
ended May 31, 1996, 1997 and 1998 ................................. 27
Statements of Cash Flows for the years ended
May 31, 1996, 1997 and 1998 ....................................... 28
Notes to Financial Statements ....................................... 29
21
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Robocom Systems Inc.
We have audited the accompanying balance sheets of Robocom Systems Inc. as of
May 31, 1998 and 1997, and the related statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended May 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Robocom Systems Inc. at May 31,
1998 and 1997, and the results of its operations, and its cash flows for each of
the three years in the period ended May 31, 1998 in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Melville, New York
August 14, 1998
22
<PAGE>
ROBOCOM SYSTEMS INC.
BALANCE SHEETS
May 31,
----------------------------
1997 1998
----------- ------------
Assets
Current assets:
Cash and cash equivalents ................... $ 49,065 $ 384,034
Short-term investments ...................... -- 1,914,852
Accounts receivable, less allowance for
doubtful accounts of $18,940 in 1997
and $203,660 in 1998 ...................... 1,371,717 1,904,284
Unbilled revenue ............................ 1,303,388 924,298
Deferred taxes .............................. -- 152,577
Other current assets ........................ 1,361 142,086
----------- ------------
Total current assets .......................... 2,725,531 5,422,131
Property and equipment, net ................... 58,184 389,127
Software development costs, net ............... 3,575,342 4,407,862
Other assets .................................. 157,402 17,922
----------- ------------
Total assets .................................. $ 6,516,459 $ 10,237,042
=========== ============
Liabilities and Shareholders' Equity
Current liabilities:
Bank notes payable .......................... $ 1,300,000 $ --
Accounts payable ............................ 545,364 187,954
Accrued expenses ............................ 482,479 916,164
Deferred revenue ............................ 72,741 227,549
----------- ------------
Total current liabilities ..................... 2,400,584 1,331,667
Noncurrent deferred tax liabilities ........... -- 874,703
----------- ------------
Total liabilities ............................. 2,400,584 2,206,370
----------- ------------
Shareholders' equity:
Preferred stock, $.01 par value;
1,000,000 shares authorized;
none issued ............................... -- --
Common stock, $.01 par value;
10,000,000 shares authorized;
1,967,984 shares issued and
outstanding at May 31, 1997 and
3,467,984 at May 31, 1998 ................. 19,680 34,680
Additional paid-in capital .................. 262,832 10,571,882
Retained earnings (deficit) ................. 4,069,750 (2,415,403)
Deferred compensation ....................... (236,387) (160,487)
----------- ------------
Total shareholders' equity .................... 4,115,875 8,030,672
----------- ------------
Total liabilities and shareholders' equity .... $ 6,516,459 $ 10,237,042
=========== ============
See accompanying notes.
23
<PAGE>
ROBOCOM SYSTEMS INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended May 31,
-------------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Software license fees ....................... $ 969,789 $ 1,241,511 $ 1,670,118
Services .................................... 3,194,817 2,741,206 2,265,516
Hardware .................................... 1,793,053 2,351,833 2,559,895
Maintenance ................................. 1,006,438 1,178,940 1,048,269
----------- ----------- -----------
Total revenues .............................. 6,964,097 7,513,490 7,543,798
----------- ----------- -----------
Cost of revenues:
Cost of license fees ........................ 63,403 192,525 389,086
Cost of services ............................ 2,301,954 1,280,379 2,162,589
Cost of hardware ............................ 1,398,786 1,841,628 2,490,603
Cost of maintenance ......................... 679,976 707,351 709,569
----------- ----------- -----------
Total cost of revenues ...................... 4,444,119 4,021,883 5,751,847
Amortization of software development costs .... 311,321 441,291 729,943
----------- ----------- -----------
4,755,440 4,463,174 6,481,790
----------- ----------- -----------
Gross margin .................................. 2,208,657 3,050,316 1,062,008
Selling, general and administrative expenses .. 1,075,309 1,199,515 3,233,605
----------- ----------- -----------
Income (loss) from operations ................. 1,133,348 1,850,801 (2,171,597)
Interest and dividend income .................. 30,344 23,252 189,987
Interest expense and other .................... (38,575) (57,473) (17,183)
----------- ----------- -----------
Income (loss) before provision (benefit)
for income taxes ............................ 1,125,117 1,816,580 (1,998,793)
Provision for income taxes .................... -- -- 722,126
----------- ----------- -----------
Net income (loss) ............................. 1,125,117 1,816,580 (2,720,919)
Pro forma unaudited provision (benefit)
for income taxes ............................ 472,549 762,964 (128,317)
----------- ----------- -----------
Pro forma unaudited net income (loss) ......... $ 652,568 $ 1,053,616 $(2,592,602)
=========== =========== ===========
Pro forma unaudited net income (loss) per basic
and diluted share ........................... $ .28 $ .45 $ (.77)
=========== =========== ===========
Weighted average shares outstanding ........... 2,310,299 2,352,599 3,365,244
=========== =========== ===========
</TABLE>
See accompanying notes.
24
<PAGE>
ROBOCOM SYSTEMS INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
-----------------------
Additional Retained Total
Par Value Paid-In Earnings Deferred Shareholders'
Shares $.01 Capital (Deficit) Compensation Equity
--------- ---------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1995 ................... 1,880,000 $ 18,800 $ -- $ 2,028,053 $ -- $ 2,046,853
Net income .............................. -- -- -- 1,125,117 -- 1,125,117
Deferred compensation ................... 56,400 564 89,436 -- (90,000) --
--------- ---------- ----------- ----------- ----------- -----------
Balance, May 31, 1996 ................... 1,936,400 19,364 89,436 3,153,170 (90,000) 3,171,970
Net income .............................. -- -- -- 1,816,580 -- 1,816,580
Distributions to S Corporation
shareholders .......................... -- -- -- (900,000) -- (900,000)
Deferred compensation ................... 31,584 316 173,396 -- (173,712) --
Amortization of deferred
compensation ......................... -- -- -- -- 27,325 27,325
--------- ---------- ----------- ----------- ----------- -----------
Balance, May 31, 1997 ................... 1,967,984 $ 19,680 $ 262,832 $ 4,069,750 $ (236,387) $ 4,115,875
Net loss ................................ -- -- -- (2,720,919) -- (2,720,919)
Initial Public Offering.................. 1,500,000 15,000 8,144,816 -- -- 8,159,816
Distributions to
S Corporation ......................... -- -- -- (1,600,000) -- (1,600,000)
Reclassification of
S Corporation earnings ................ -- -- 2,164,234 (2,164,234) -- --
Amortization of deferred
compensation .......................... -- -- -- -- 75,900 75,900
--------- ---------- ----------- ----------- ----------- -----------
Balance, May 31, 1998 ................... 3,467,984 $ 34,680 $10,571,882 $(2,415,403) $ (160,487) $ 8,030,672
========= ========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
25
<PAGE>
ROBOCOM SYSTEMS INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended May 31,
--------------------------------------------
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Operating activities
Net income (loss) .................................. $ 1,125,117 $ 1,816,580 $ (2,720,919)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation ................................... 18,400 16,335 43,273
Provision for deferred taxes ................... -- -- 722,126
Amortization of software development costs ..... 311,321 441,291 729,943
Amortization of deferred compensation .......... -- 27,325 75,900
Provision (credit) for bad debts ............... 20,064 (28,124) 192,360
Changes in operating assets and liabilities:
Accounts receivable .......................... (139,265) (678,093) (724,927)
Costs incurred and income recognized in excess
of billings on uncompleted contracts ....... (270,115) (480,031) 379,090
Other current assets ......................... 4,385 (61) (140,727)
Accounts payable ............................. (13,509) 168,476 (357,410)
Accrued expenses ............................. 302,450 82,157 433,685
Billings on uncompleted contracts in excess of
related costs and income recognized ........ (49,786) 30,413 154,808
Other assets ................................. (30,250) 21,716 (9,385)
----------- ----------- ------------
Net cash provided by (used in) operating activities 1,278,812 1,417,984 (1,222,183)
----------- ----------- ------------
Investing activities
Software development costs ......................... (815,908) (1,518,298) (1,562,463)
Purchase of short-term investments ................. -- -- (13,042,984)
Redemption of short-term investments ............... -- -- 11,128,132
Capital expenditures ............................... -- (60,701) (374,217)
----------- ----------- ------------
Net cash used in investing activities .............. (815,908) (1,578,999) (3,851,532)
----------- ----------- ------------
Financing activities
Net borrowings (payments) of bank note payable ..... -- 1,300,000 (1,300,000)
Net proceeds from sale of common stock ............. -- -- 8,308,684
Deferred registration costs ........................ -- (148,868) --
Distributions of S corporation retained earnings to
S corporation shareholders ....................... -- (900,000) (1,600,000)
Net repayments of officer loans .................... (5,000) (645,000) --
Net payment to Robocom Properties .................. (30,250) -- --
----------- ----------- ------------
Net cash (used in) provided by financing activities (35,250) (393,868) 5,408,684
----------- ----------- ------------
Increase (decrease) in cash and cash equivalents ... 427,654 (554,883) 334,969
Cash and cash equivalents at beginning of period .. 176,294 603,948 49,065
----------- ----------- ------------
Cash and cash equivalents at end of period ......... $ 603,948 $ 49,065 $ 384,034
=========== =========== ============
Supplemental disclosures of cash flow information
Cash paid for interest ............................. $ 38,700 $ 66,161 $ 21,892
=========== =========== ============
</TABLE>
See accompanying notes.
26
<PAGE>
Robocom Systems Inc.
Notes to Financial Statements
Robocom Systems Inc. (the "Company") was incorporated in June 1982 in the
State of New York. The Company is engaged in 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. Since
June 1994, 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.
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 approximately $8,160,000, net of expenses of $1,590,000.
1. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentration of Credit Risk
The Company's customer base is comprised of large customers in diversified
industries. Ongoing credit evaluations of its customers' financial condition are
made and generally no collateral is required. For the year ended May 31, 1996,
the Company had three customers that accounted for 15%, 14% and 12% of total
revenues. For the year ended May 31, 1997, the Company had two customers that
accounted for 21% and 13% of total revenues. For the year ended May 31, 1998,
none of the Company's customers accounted for 10% or more of total revenues.
Management does not believe significant credit risk exists at May 31, 1998.
Carrying Value of Financial Instruments
The carrying value of the Company's financial instruments, such as cash
and cash equivalents and short-term investments approximate their fair values.
Revenue Recognition
The Company's revenues are derived from software license fees, fees for
services, sales of hardware and maintenance contracts. Software license fees
include revenue from the licensing of the Company's proprietary RIMS.2001
software and revenue from the sublicensing of certain third-party software.
Software license fee revenue is recorded when the software has been delivered,
the license agreement with the customer has been executed, and collection of the
resulting receivable is deemed probable. Service revenues are derived from
project management, training, on-site support and implementation services, and,
to a lesser extent, from customization and modification of licensed software.
The majority of service revenues are recorded when the service is performed.
Service revenues for project management and modifications are recorded using the
percentage of completion method. Hardware revenues are derived from the sale of
products of other manufacturers, including computer hardware, radio frequency
equipment, bar code printers and other peripherals. Such revenues are recognized
when title to such hardware passes to the customer. Customers typically enter
into one-year maintenance agreements with the Company upon the completion of the
software installation and pay maintenance fees monthly. The Company recognizes
revenue from each maintenance agreement ratably over the period covered by the
agreement, but is only required to perform maintenance services as and when they
are requested by the customer. The Company
27
<PAGE>
Robocom Systems Inc.
Notes to Financial Statements
recognized revenues, in all periods presented, in accordance with the American
Institute of Certified Public Accountants Statement of Position 91-1, "Software
Revenue Recognition." The aggregate of costs incurred and income recognized in
excess of related billings is shown as a current asset, and the aggregate of
billings in excess of related costs incurred and income recognized is shown as a
current liability.
Software Development Costs
Software development costs have been capitalized in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed". The capitalization
of these costs begins when a product's technological feasibility has been
established, and ends when the product is available for general release to
customers. The establishment of technological feasibility and the ongoing
assessment of recoverability of capitalized software development costs require
considerable judgment by management with respect to certain external factors,
including, but not limited to, technological feasibility, anticipated future
gross revenues, estimated economic life, and changes in software and hardware
technologies. The Company capitalizes software development costs associated with
each subsequent enhancement of its product upon the achievement of technological
feasibility. Software development costs including enhancements are amortized to
cost of revenue using the straight-line method over five to seven years or the
expected life of the product, whichever is less. Research and development costs
incurred prior to the establishment of technological feasibility are expensed as
incurred. Such amounts for the periods presented are not significant.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents.
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.
Property and Equipment
Property and equipment consists of furniture, computers, automobiles,
other office equipment and leasehold improvements. The Company depreciates the
cost of furniture, computers, automobiles and other office equipment using the
straight-line method over the estimated useful lives (three to five years).
Leasehold improvements are amortized over the term of the lease.
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share". Statement 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options and warrants.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. All earnings (losses) per share amounts for all
periods are presented in conformity with Statement 128 requirements.
28
<PAGE>
Robocom Systems Inc.
Notes to Financial Statements
Pro Forma Net Income (Loss) Per Share
Pro forma net income (loss) per share is based on the weighted average
number of shares of common stock outstanding during the period. For the years
ended May 31, 1997 and 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 years ended May 31, 1997 and 1996,
the common stock issuance of 31,584 shares in May 1997 is treated as
outstanding.
Stock Options
In October 1996, the Financial Accounting Standard Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 123, "Accounting for
Stock-Based Compensation". SFAS 123 defines a fair value method of accounting
for the issuance of stock options and other equity instruments. Under the fair
value method, compensation cost is measured at the grant date based on the fair
value of the award and is recognized over the service period, which is usually
the vesting period. Pursuant to SFAS No. 123, companies are encouraged, but are
not required, to adopt the fair value method of accounting for employee
stock-based transactions. Companies are also permitted to continue to account
for such transactions under Accounting Principles Board No. 25, but are required
to disclose in the financial statement footnotes, pro forma net income and per
share amounts as if the Company had applied the new method of accounting for all
grants made since 1997. SFAS No. 123 also requires increased disclosures for
stock-based compensation arrangements. The Company adopted the disclosure
requirements of SFAS No. 123 concurrent with the Offering.
Income Taxes
Prior to 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 pro forma information presented
on the statements of income reflects a provision for such income taxes for the
period prior to the offering at an effective rate of 42%. As a result of the
termination of the Company's S Corporation status on June 25, 1997, the Company
recorded a one-time, non-cash charge against earnings for deferred income taxes
which was primarily related to temporary differences for software development
costs.
The Company provides for income taxes under SFAS No. 109, "Accounting for
Income Taxes," which employs an asset and liability approach in accounting for
income taxes payable or refundable at the date of the financial statements as a
result of all events that have been recognized in the financial statements and
as measured by the provisions of enacted laws.
Advertising Costs
Advertising costs are expensed as incurred and for the years ended May 31,
1996, 1997 and 1998 amounted to approximately $146,000, $63,000 and $298,000,
respectively.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 requires disclosure of all
components of comprehensive income on an annual and
29
<PAGE>
Robocom Systems Inc.
Notes to Financial Statements
interim basis. Comprehensive income is defined as the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from nonowner sources. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. The Company will adopt this statement for
fiscal 1999 and such adoption is not expected to have a material effect on the
financial statements.
In July 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information." SFAS
No. 131 requires certain financial and supplementary information to be disclosed
on an annual and interim basis for each reportable segment of an enterprise.
SFAS No. 131 is effective for fiscal years beginning after December 31, 1997.
Unless impracticable, companies would be required to restate prior period
information upon adoption. The Company will adopt this statement for fiscal 1999
and such adoption is not expected to have a material effect on the financial
statements.
The American Institute of Certified Public Accountants has issued
Statement of Position 97-2, "Software Revenue Recognition" which changes the
requirements for revenue recognition effective for transactions entered into
beginning in fiscal 1999. The Company believes that the adoption of this
statement will not have an effect on the Company's revenue recognition policy.
2. Shareholders' Equity
Capital Stock
Effective May 15, 1997, the Company's Board of Directors and shareholders
approved an amendment to the Company's Certificate of Incorporation to increase
the authorized common shares from 2,000,000 to 10,000,000 and to authorize
1,000,000 shares of par value $.01 preferred stock. The terms and conditions of
the preferred stock, of which no shares have been issued, will be set by the
Board of Directors of the Company.
Common Stock Split
Effective May 15, 1997, the Board of Directors and shareholders voted to
effect a 1.88-for-1 split of the Company's common stock in the form of a common
stock dividend. All share amounts have been restated to reflect the stock split.
Stock Option Plan
Effective May 15, 1997, the Board of Directors and shareholders approved
the Company's Stock Option and Long-term Incentive Compensation Plan (the
"Plan") for the issuance of up to 325,000 shares of the Company's common stock.
Outstanding options were granted at an exercise price equal to or in excess of
the prevailing market price on the grant date. These options contain a vesting
schedule determined at the date of grant. Incentive stock options are granted to
employees. All other options granted, including those granted to directors and
consultants, are nonqualified options.
30
<PAGE>
Robocom Systems Inc.
Notes to Financial Statements
The following summarizes stock option activity during fiscal 1998:
Shares Weighted-Average
under Exercise
Option Price
---------------- ----------------
Balance, June 1, 1997 -- --
Grants 328,075 $6.74
Canceled (2,900) $6.50
-------
Balance, May 31, 1998 325,175 $6.74
=======
The following table summarized information about these plans at May 31,
1998:
Options Outstanding Options Exercisable
---------------------- -------------------
Weighted
Average
Remaining
Exercise Contractual
Prices Shares Life Shares
-------- ------ ----------- ------
$5.375 5,000 2.9 years --
$6.125 7,500 2.8 years 10,000
$6.500 187,675 2.2 years --
$7.000 15,000 4.3 years --
$7.150 110,000 3.2 years 10,000
------- ------
325,175 10,000
======= ======
The weighted-average fair value of options granted during the year was
$2.16 per share.
In May 1998, stock options to purchase 5,000 shares of common stock at an
exercise price of $5.375 were granted subject to obtaining the approval of the
stockholders of the Company of the amendment of the Plan to increase the number
of shares of the Company's Common Stock available for issuance upon exercise of
options under the Plan at the next annual meeting of stockholders of the Company
in October 1998.
In connection with the Offering, the managing underwriters, received
five-year warrants to purchase up to 150,000 shares of common stock at an
exercise price of $7.80 per share.
Pro forma information regarding net income (loss) and net income (loss)
per share is required by SFAS No. 123, which also requires that the information
be determined as if the Company had accounted for its employee stock option
grants under the fair value method required by SFAS No. 123. The fair value of
each option grant has been estimated as of the date of grant using the
Black-Scholes option pricing model with the following assumptions:
May 31, 1998
------------
Expected life................. 3-5 years
Interest rate................. 5.5%
Volatility.................... 0.385
Dividend yield................ 0%
31
<PAGE>
Robocom Systems Inc.
Notes to Financial Statements
If the Company had recognized compensation cost for stock-based employee
compensation in accordance with SFAS No. 123, the Company's net loss for the
year ended May 31, 1998 would have increased as follows:
May 31, 1998
------------
Pro forma net loss:
As reported .................................. $ (2,592,602)
Pro forma in accordance with SFAS No. 123 .... $ (2,772,317)
Pro forma basic and diluted net loss per share:
As reported .................................. $ (.77)
Pro forma in accordance with SFAS No. 123 .... $ (.82)
The compensation expense and pro forma net income(loss) may not be
indicative of amounts to be included in future periods.
Deferred Compensation
In February 1996, the Company issued 56,400 shares of common stock to
certain employees under a restricted stock agreement. Compensation expense,
representing the fair value ($90,000) of the common shares issued to these
employees, is recognized ratably over the five-year vesting period. In May 1997,
31,584 shares of common stock were issued to an employee of the Company who
performs various accounting and administrative services. These shares have
certain restrictions as to transferability. Compensation expense, representing
the excess of the fair value ($173,712) of the common shares over the amount
paid for such stock, is recognized ratably over the three-year vesting period.
Shareholder Distributions
The Company made distributions to its S Corporation shareholders in the
amount of $382,500 and $517,500 on April 11, 1997 and May 16, 1997,
respectively, and, on July 1, 1997, an additional final distribution of
$1,600,000 was made to such shareholders.
3. Detail of Certain Balance Sheet Accounts
Property and Equipment, net
Property and equipment, net, consist of the following:
May 31,
-----------------------
1997 1998
--------- ---------
Equipment ................... $ 182,729 $ 417,297
Furniture and fixtures ...... 89,062 158,303
Automobiles ................. -- 55,088
Leasehold improvements ...... -- 15,317
--------- ---------
271,791 646,007
Less accumulated
depreciation .............. (213,607) (256,880)
--------- ---------
$ 58,184 $ 389,127
========= =========
32
<PAGE>
Robocom Systems Inc.
Notes to Financial Statements
Software Development Costs, net
Software development costs, net, consist of the following:
May 31,
---------------------------
1997 1998
----------- -----------
Software development costs ..... $ 4,624,951 $ 6,187,414
Less accumulated amortization .. (1,049,609) (1,779,552)
----------- -----------
$ 3,575,342 $ 4,407,862
=========== ===========
Accrued Expenses
Accrued expenses consist of the following:
May 31,
--------------------
1997 1998
-------- --------
Payroll and related taxes ........ $149,580 $327,160
Accrued hardware costs ........... -- 262,718
Customer deposits and other ...... 332,899 175,765
Accrued third party software costs -- 150,521
-------- --------
$482,479 $916,164
======== ========
4. Employee Benefit Plans
The Company has a noncontributory defined contribution pension plan and a
401(k) defined contribution plan. These plans cover virtually all full-time
employees subject to certain age and service requirements. It is the Company's
policy to fund the noncontributory plan to the extent of the maximum allowable
contribution, in accordance with IRS guidelines and other relevant legal
requirements. Under the terms of the 401(k) plan, the Company will match 50% of
an employee's contribution up to 4% of the participating employee's
compensation. Pension expense for each of the years ended May 31, 1996, 1997 and
1998 amounted to approximately $16,000, $117,000 and $49,000, respectively.
Effective May 30, 1998, the pension plan was merged into the 401(k) defined
contribution plan.
5. Income Taxes
Deferred tax assets and liabilities are determined based on the difference
between the financial accounting and the tax bases of assets and liabilities.
Significant components of the Company's deferred tax assets and liabilities as
of May 31, 1998 are as follows:
May 31,
1998
-----------
Deferred tax assets:
Accrued expenses ............... $ 67,040
Allowance for doubtful
accounts ..................... 85,537
-----------
Total deferred tax asset ......... 152,577
-----------
33
<PAGE>
Robocom Systems Inc.
Notes to Financial Statements
Deferred tax liabilities:
Software development costs ............... 1,851,303
Net operating loss carryforwards ......... (933,245)
Deferred compensation .................... (43,355)
-----------
Total deferred tax liabilities ............. 874,703
===========
Net deferred tax liabilities ............... $ 722,126
===========
The components of the tax benefit for the year ended May 31, 1998 are as
follows:
1998
--------
Deferred:
Federal....................................... $584,578
State ........................................ 137,548
--------
Total .......................................... $722,126
========
The provision for income taxes for the fiscal year ended May 31, 1998
differs from the statutory U.S. federal income tax rate due to the following:
1998
------
Federal statutory tax rate ..................... 34.0%
State income taxes, net of Federal benefit ..... 8.0%
Cumulative effect of termination of
S corporation status ......................... (71.7%)
Loss attributable to period prior
to termination of S corporation status ...... (6.4%)
------
(36.1%)
======
At May 31, 1998, the Company has net operating loss carryforwards of
approximately $2.2 million for income tax purposes which may be able to reduce
taxable income in future years. The utilization of these losses to reduce future
income taxes will depend on the generation of sufficient taxable income prior to
the expiration of the net operating loss carryforwards. The net operating loss
carryforwards will expire in the fiscal year ended May 31, 2013.
6. Related Party Transactions
The Company leases its principal facilities from Robocom Properties, Inc.
("Properties"). The shareholders of Properties are also shareholders of the
Company. The Company has paid to Properties rent of $168,000 for each of the
three years in the period ended May 31, 1998. In connection with the purchase by
Properties in 1989 of the Company's corporate headquarters building, the Company
guaranteed three mortgage loans in an aggregate original principal amount of
$1,053,000 that mature in 2010 and bear interest at rates ranging from 8.25% to
8.877% per annum. At May 31, 1998, the outstanding aggregate principal amount of
the mortgage loans was approximately $807,000.
During fiscal 1998, a director and principal shareholder of the Company
entered into a three-year consulting agreement with the Company to provide
consulting services with respect to new product development and related
technical matters. During fiscal 1998, consulting fees of approximately $12,000
were paid under this agreement.
34
<PAGE>
Robocom Systems Inc.
Notes to Financial Statements
For the fiscal year ended May 31, 1997, consulting fees of approximately $7,415
were paid to this individual under an informal consulting arrangement.
7. Lease Commitments
The Company is obligated, under noncancellable operating leases covering
its facilities (Note 6) and certain equipment and automobiles, to pay minimum
annual rentals of approximately:
Fiscal year ending:
1999 ..................... $ 272,000
2000 ..................... 257,000
2001 ..................... 246,000
2002 ..................... 173,000
2003 ..................... 173,000
2004 and thereafter ...... 1,313,000
----------
$2,434,000
==========
Total rental expense for each of the years ended May 31, 1996, 1997 and
1998 amounted to approximately $174,000, $193,000 and $236,000, respectively.
8. Bank Note Payable and Loans Payable to Officers
Bank Note Payable
The Company has a line of credit facility with a bank which provides for
maximum borrowings of $2,000,000 and which expires on September 30, 1998.
Amounts outstanding under the line of credit are due upon demand and are
collateralized by the Company's assets. Interest is payable at the bank's prime
interest rate (8.50% at May 31, 1998). At May 31, 1998, no borrowings were
outstanding under the 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. In the future, however, the Company may borrow against this or a
subsequent line of credit.
Loans Payable to Officers
During fiscal 1996, the Company repaid $5,000 of amounts borrowed from its
principal stockholders. The remaining loan balance of $645,000 was entirely
repaid in January 1997. Such loans bore interest at 6% in fiscal 1996 and 8% in
fiscal 1997. Interest expense related to the loans payable to officers for each
of the years ended May 31, 1997 and 1996 amounted to approximately $40,000.
35
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Sections 16(a) of the Exchange Act
Directors and Executive Officers
Information regarding the Directors of the Company is incorporated by
reference to the section entitled "Election of Directors" appearing in the
Company's Proxy Statement for the Annual Meeting of Stockholders to be filed
with the Securities and Exchange Commission (the "Commission") within 120 days
after the end of the Company's fiscal year ended May 31, 1998.
Item 10. Executive Compensation.
Information regarding executive compensation is incorporated by reference
to the information set forth under the caption "Executive Compensation" in the
Company's Proxy Statement for the Annual Meeting of Stockholders to be filed
with the Commission within 120 days after the end of the Company's fiscal year
ended May 31, 1998.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Information regarding security ownership of certain beneficial owners and
management is incorporated by reference to the information set forth under the
caption "Security Ownership of Certain Beneficial Owners and Management
Ownership" in the Company's Proxy Statement for the Annual Meeting of
Stockholders to be filed with the Commission within 120 days after the end of
the Company's fiscal year ended May 31, 1998.
Item 12. Certain Relationships and Related Transactions.
Information regarding certain relationships and related transactions is
incorporated by reference to the information set forth under the caption
"Certain Relationships and Related Transactions" in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be filed with the Commission
within 120 days after the end of the Company's fiscal year ended May 31, 1998.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit
Number Description
- ------ -----------
3.1 Restated Certificate of Incorporation of the Company (incorporated
herein by reference to Exhibit 3.1 to the Company's Registration
Statement on Form SB-2 (Registration No. 333-27587)).
3.2 Amended and Restated By-laws of the Company (incorporated herein by
reference to Exhibit 3.2 to the Company's Registration Statement on
Form SB-2 (Registration No. 333-27587)).
36
<PAGE>
10.1 International Distributor Agreement, dated March 28, 1996, between
the Company and C&C Consultores, Argentina (incorporated herein by
reference to Exhibit 10.1 to the Company's Registration Statement on
Form SB-2 (Registration No. 333-27587)).
10.2 Distributor Agreement, dated April 1, 1996 and revised June 18,
1996, between the Company and Prophet 21, Inc. (incorporated herein
by reference to Exhibit 10.2 to the Company's Registration Statement
on Form SB-2 (Registration No. 333-27587)).
10.3 Distributor Agreement, dated January 30, 1996, between the Company
and Minerva International Holdings LTD. (incorporated herein by
reference to Exhibit 10.3 to the Company's Registration Statement on
Form SB-2 (Registration No. 333-27587)).
10.4 International Distributor's Agreement, dated September 1, 1996,
between the Company and Trendsoft Comercio de Software e Hardware
Ltda. (incorporated herein by reference to Exhibit 10.4 to the
Company's Registration Statement on Form SB-2 (Registration No.
333-27587)).
10.5 International Distribution Agreement, dated November 1996, between
the Company and Sistemos Integrados (incorporated herein by
reference to Exhibit 10.18 to the Company's Registration Statement
on Form SB-2 (Registration No. 333-27587)).
10.6 International Distribution Agreement, dated August 5, 1997, between
the Company and Cogita Holdings Ltd. (incorporated herein by
reference to Exhibit 10.6 to the Company's Annual Report on Form
10-KSB for the year ended May 31, 1997 as filed with the Commission
on September 25, 1997 (File No. 0-22735).
10.7 Non-Exclusive Agreement, dated July 28, 1996, between QED
Information Systems of San Diego and the Company (incorporated
herein by reference to Exhibit 10.5 to the Company's Registration
Statement on Form SB-2 (Registration No. 333-27587)).
10.8 Lease Agreement, dated December 19, 1996, between Carriage IV Office
Center, L.L.C. and the Company (incorporated herein by reference to
Exhibit 10.6 to the Company's Registration Statement on Form SB-2
(Registration No. 333-27587)).
10.9 Lease Agreement, dated December 21, 1989, between Robocom
Properties, Inc. and the Company relating to 511 Ocean Avenue,
Massapequa, New York (incorporated herein by reference to Exhibit
10.7 to the Company's Registration Statement on Form SB-2
(Registration No. 333-27587)).
10.10 Guaranty dated December 21, 1989 from the Company to New York Job
Development Authority. (incorporated herein by reference to Exhibit
10.10 to the Company's Annual Report on Form 10-KSB for the year
ended May 31, 1997 as filed with the Commission on September 25,
1997 (File No. 0-22735).
10.11 Guaranty dated December 14, 1989 from the Company to Long Island
Development Authority. (incorporated herein by reference to Exhibit
10.11 to the Company's Annual Report on Form 10-KSB for the year
ended May 31, 1997 as filed with the Commission on September 25,
1997 (File No. 0-22735).
10.12 Consulting Agreement, dated May 15, 1997, between the Company and
Herbert Goldman (incorporated herein by reference to Exhibit 10.8 to
the Company's Registration Statement on Form SB-2 (Registration No.
333-27587)).
37
<PAGE>
Item 13. Exhibits and Reports on Form 8-K. (continued)
10.13 Employment Agreement, dated May 15, 1997, between the Company and
Lawrence B. Klein (incorporated herein by reference to Exhibit 10.9
to the Company's Registration Statement on Form SB-2 (Registration
No. 333-27587)).
10.14 Employment Agreement, dated May 15, 1997, between the Company and
Irwin Balaban (incorporated herein by reference to Exhibit 10.10 to
the Company's Registration Statement on Form SB-2 (Registration No.
333-27587)).
10.15 Employment Agreement, dated May 15, 1997, between the Company and
Robert O'Connor (incorporated herein by reference to Exhibit 10.12
to the Company's Registration Statement on Form SB-2 (Registration
No. 333-27587)).
10.16 Letter Agreement dated January 5, 1998 between the Company and The
Bank of New York. (incorporated herein by reference to Exhibit 10.1
to the Company's Form 10-QSB for the quarter ended November 30, 1997
as filed with the Commission on January 15, 1998 (File No. 0-22735).
10.17 1997 Stock Option and Long-Term Incentive Compensation
Plan (incorporated herein by reference to Exhibit 10.14 to the
Company's Registration Statement on Form SB-2 (Registration No.
333-27587)).
10.18 General Loan and Security Agreement, dated April 13, 1994, between
the Company and The Bank of New York (incorporated herein by
reference to Exhibit 10.15 to the Company's Registration Statement
on Form SB-2 (Registration No. 333-27587)).
10.19 Tax Indemnification Agreement, dated June 6, 1997, between the
Company and certain shareholders of the Company. (incorporated
herein by reference to Exhibit 10.21 to the Company's Annual Report
on Form 10-KSB for the year ended May 31, 1997 as filed with the
Commission on September 25, 1997 (File No. 0-22735).
27 Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of fiscal
1998.
38
<PAGE>
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 August 27, 1998.
ROBOCOM SYSTEMS INC.
By: /s/ Irwin Balaban
------------------------------------
Irwin Balaban
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates stated:
Signature Title Date
/s/ Irwin Balaban Chairman of the Board, President and August 27, 1998
- ---------------------- Chief Executive Officer (Principal
Irwin Balaban Executive Officer)
/s/ Elizabeth A. Burke Vice President - Finance and Chief August 27, 1998
- ---------------------- Financial Officer (Principal
Elizabeth A. Burke Accounting Officer)
/s/ Herbert Goldman Director August 27, 1998
- ----------------------
Herbert Goldman
/s/ Lawrence B. Klein Director August 27, 1998
- ----------------------
Lawrence B. Klein
/s/ Barry J. Gordon Director August 27, 1998
- ----------------------
Barry J. Gordon
/s/ Mark Behrman Director August 27, 1998
- ----------------------
Mark Behrman
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<CASH> 384,034
<SECURITIES> 1,914,852
<RECEIVABLES> 2,107,944
<ALLOWANCES> (203,660)
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<CURRENT-ASSETS> 5,422,131
<PP&E> 646,007
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<TOTAL-LIABILITY-AND-EQUITY> 10,237,042
<SALES> 7,543,798
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