UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended February 28,
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.
-----------------------------------------------------------
(Name of small business issuer as specified in its charter)
New York 11-2617048
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
511 Ocean Avenue, Massapequa, New York 11758
--------------------------------------------
(Address of principal executive offices)
516-795-5100
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of April 14, 1998, 3,467,984 shares the issuer's common stock were
outstanding.
Transitional Small Business Disclosure Format (check one); Yes [ ] No [X]
<PAGE>
ROBOCOM SYSTEMS INC.
FORM 10-QSB
INDEX
PART I. Financial Information
Item 1. Financial Statements: Page no.
Balance Sheets - February 28, 1998 and May 31, 1997................3
Statements of Operations - Three months ended February 28,
1998 and 1997 .....................................................4
Statements of Operations - Nine months ended February 28,
1998 and 1997 .....................................................5
Statements of Shareholders' Equity - Nine months ended
February 28, 1998 .................................................6
Statements of Cash Flows - Nine months ended February 28,
1998 and 1997 .....................................................7
Notes to Financial Statements......................................8
Item 2. Management's Discussion and Analysis or Plan of Operation.........10
PART II. Other Information:
Item 2. Changes in Securities and Use of Proceeds.........................14
Item 6. Exhibits and Reports on Form 8-K..................................14
Signatures ................................................................14
<PAGE>
ROBOCOM SYSTEMS INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
February 28, 1998 May 31, 1997
------------------ ------------------
<S> <C> <C>
Assets (Unaudited)
Current assets:
Cash and cash equivalents ......................................... $ 233,731 $ 49,065
Short-term investments ............................................ 2,539,725 --
Accounts receivable, net .......................................... 1,661,487 1,371,717
Costs incurred and income recognized in excess of billings on
uncompleted contracts ........................................... 1,560,973 1,303,388
Deferred taxes .................................................... 673,882 --
Other current assets .............................................. 128,463 1,361
------------------ ------------------
Total current assets .................................................... 6,798,261 2,725,531
Property and equipment, net ............................................. 233,525 58,184
Software development costs, net ......................................... 4,213,685 3,575,342
Other assets ............................................................ 101,115 157,402
------------------ ------------------
Total assets ............................................................ $ 11,346,586 $ 6,516,459
================== ==================
Liabilities and Shareholders' Equity Current liabilities:
Bank notes payable ................................................ $ -- $ 1,300,000
Accounts payable .................................................. 448,254 545,364
Accrued expenses .................................................. 527,935 482,479
Billings on uncompleted contracts in excess of related costs and
income recognized ............................................... 147,082 72,741
------------------ ------------------
Total current liabilities ............................................... 1,123,271 2,400,584
Noncurrent deferred tax liabilities ..................................... 1,734,363 --
------------------ ------------------
Total liabilities ....................................................... 2,857,634 2,400,584
------------------ ------------------
Shareholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized;
none issued ..................................................... -- --
Common stock, $.01 par value; 10,000,000 shares authorized;
issued and outstanding: 3,467,984 shares at February 28, 1998 and
1,967,984 at May 31, 1997 ....................................... 34,680 19,680
Additional paid-in capital ........................................ 10,581,882 262,832
Retained earnings (deficit) ....................................... (1,948,148) 4,069,750
Deferred compensation ............................................. (179,462) (236,387)
------------------ ------------------
Total shareholders' equity .............................................. 8,488,952 4,115,875
------------------ ------------------
Total liabilities and shareholders' equity .............................. $ 11,346,586 $ 6,516,459
================== ==================
</TABLE>
See accompanying notes.
3
<PAGE>
ROBOCOM SYSTEMS INC.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended February 28,
----------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C>
Revenues:
Software license fees ................................ $ 546,442 $ 497,379
Services ............................................. 380,832 779,597
Hardware ............................................. 524,150 850,602
Maintenance .......................................... 252,088 350,274
------------------ ------------------
Total revenues ....................................... 1,703,512 2,477,852
------------------ ------------------
Cost of revenues:
Cost of license fees ................................. 78,718 17,478
Cost of services ..................................... 814,309 296,227
Cost of hardware ..................................... 440,321 644,637
Cost of maintenance .................................. 135,832 198,701
------------------ ------------------
Total cost of revenues ............................... 1,469,180 1,157,043
Amortization of software development costs .............. 183,108 116,599
------------------ ------------------
1,652,288 1,273,642
------------------ ------------------
Gross margin ............................................ 51,224 1,204,210
Selling, general and administrative expenses ............ 733,938 216,304
------------------ ------------------
(682,714) 987,906
Interest income (expense) and other, net ................ 42,886 (7,955)
------------------ ------------------
(Loss) income before provision (benefit) for income taxes (639,828) 979,951
Benefit for income taxes ................................ (268,728) --
------------------ ------------------
Net (loss) income ....................................... (371,100) 979,951
Pro forma provision for income taxes .................... -- 411,579
------------------ ------------------
Pro forma net (loss) income ............................. $ (371,100) $ 568,372
================== ==================
Pro forma net (loss) income per common share and
per common share assuming dilution ................... $ (.11) $ .24
================== ==================
Pro forma weighted average shares outstanding ........... 3,467,984 2,352,599
================== ==================
</TABLE>
See accompanying notes.
4
<PAGE>
ROBOCOM SYSTEMS INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine months Ended February 28,
----------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C>
Revenues: (Unaudited)
Software license fees ................................ $ 1,180,955 $ 899,466
Services ............................................. 1,745,128 1,620,786
Hardware ............................................. 1,377,953 1,729,021
Maintenance .......................................... 755,291 835,579
------------------ ------------------
Total revenues ....................................... 5,059,327 5,084,852
------------------ ------------------
Cost of revenues:
Cost of license fees ................................. 223,347 96,236
Cost of services ..................................... 2,243,553 1,014,615
Cost of hardware ..................................... 1,142,144 1,329,495
Cost of maintenance .................................. 315,965 553,626
------------------ ------------------
Total cost of revenues ............................... 3,925,009 2,993,972
Amortization of software development costs .............. 549,324 324,769
------------------ ------------------
4,474,333 3,318,741
------------------ ------------------
Gross margin ............................................ 584,994 1,766,111
Selling, general and administrative expenses ............ 1,915,250 784,441
------------------ ------------------
(1,330,256) 981,670
Interest income (expense) and other, net ................ 137,074 (24,247)
------------------ ------------------
(Loss) income before (benefit) provision for income taxes (1,193,182) 957,423
Provision for income taxes .............................. 1,060,482 --
------------------ ------------------
Net (loss) income ....................................... (2,253,664) 957,423
Pro forma (benefit) provision for income taxes .......... (128,317) 402,118
------------------ ------------------
Pro forma net (loss) income ............................. $ (2,125,347) $ 555,305
================== ==================
Pro forma net (loss) income per common share and
per common share assuming dilution ................... $ (.64) $ .24
================== ==================
Pro forma weighted average shares outstanding ........... 3,330,621 2,352,599
================== ==================
See accompanying notes.
</TABLE>
5
<PAGE>
ROBOCOM SYSTEMS INC.
STATEMENT OF SHAREHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
Common Stock
-------------------
Par Value Additional Retained Deferred Total Shareholders'
Shares $.01 Paid-In Capital Earnings(Deficit) Compensation Equity
--------- --------- --------------- ----------------- ------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1997 .... 1,967,984 $19,680 $262,832 $4,069,750 $(236,387) $4,115,875
Net loss ................. -- -- -- (2,253,664) -- (2,253,664)
Initial Public Offering .. 1,500,000 15,000 8,154,816 -- -- 8,169,816
Distributions to S
Corporation
shareholders ............ -- -- -- (1,600,000) -- (1,600,000)
Reclassification of
S Corporation earnings .. -- -- 2,164,234 (2,164,234) -- --
Amortization of deferred
compensation .......... -- -- -- -- 56,925 56,925
--------- --------- --------------- ----------------- ------------- ------------------
Balance, February 28, 1998 3,467,984 $34,680 $10,581,882 $(1,948,148) $(179,462) $8,488,952
========= ========= =============== ================= ============= ==================
</TABLE>
See accompanying notes.
6
<PAGE>
ROBOCOM SYSTEMS INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months Ended February 28,
-------------------------------
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
Operating activities
Net (loss) income .................................................... $(2,253,664) $ 957,423
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation .................................................. 21,119 11,088
Provision for deferred income taxes ........................... 1,681,317 --
Amortization of software development costs .................... 549,324 324,769
Amortization of deferred compensation ......................... 56,925 18,000
Credit for bad debts .......................................... (15,280) (28,124)
Changes in operating assets and liabilities:
Accounts receivable ......................................... (274,490) (509,423)
Costs incurred and income recognized in excess
of billings on uncompleted contracts ...................... (257,585) (50,053)
Other current assets and other .............................. (840,518) 22,087
Accounts payable ............................................ (97,110) 75,719
Accrued expenses ............................................ 45,456 (103,181)
Billings on uncompleted contracts in excess of
related costs and income recognized ...................... 74,341 128,759
----------- -----------
Net cash (used in) provided by operating activities .................. (1,310,165) 847,064
----------- -----------
Investing activities
Software development costs ........................................... (1,187,667) (1,045,342)
Purchase of short-term investments ................................... (9,039,612) --
Redemption of short-term investments ................................. 6,499,887 --
Capital expenditures ................................................. (196,461) (45,000)
----------- -----------
Net cash used in investing activities ................................ (3,923,853) (1,090,342)
----------- -----------
Financing activities
Net (payments) borrowings of bank note payable ....................... (1,300,000) 350,000
Net proceeds from sale of common stock ............................... 8,318,684 --
Net repayments of officer loans ...................................... -- (645,000)
Distributions of S corporation retained earnings to
S corporation shareholders ........................................ (1,600,000) --
----------- -----------
Net cash provided by (used in) financing activities .................. 5,418,684 (295,000)
----------- -----------
Increase (decrease) in cash and cash equivalents ..................... 184,666 (538,278)
Cash and cash equivalents at beginning of period ..................... 49,065 603,948
----------- -----------
Cash and cash equivalents at end of period ........................... $ 233,731 $ 65,670
=========== ===========
Supplemental disclosures of cash flow information
Cash paid for interest ............................................... $ -- $ 58,492
=========== ===========
</TABLE>
See accompanying notes.
7
<PAGE>
ROBOCOM SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS
February 28, 1998
(unaudited)
1. Background and Basis of Financial Statement Presentation
The accompanying unaudited financial statements of Robocom Systems Inc.
(the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial reporting and with the instructions
to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The Company's operations
consist of the development and marketing of automated warehouse management
systems and related software which is used by various commercial enterprises
primarily located in the United States. The Company licenses and installs its
proprietary software product RIMS.2001, which is an "off-the-shelf" inventory
management system. The Company also provides related services, including
modification, project management, training, implementation support, maintenance
and the sale of hardware and third party software.
Operating results for the three and nine month periods ended February 28,
1998 are not necessarily indicative of the results that may be expected for the
year ended May 31, 1998. For further information, refer to the financial
statements and footnotes thereto included in amendment no. 1 to the Company's
annual report on Form 10-KSB for the year ended May 31, 1997.
2. Initial Public Offering
The Company completed its initial public offering of 1,500,000 shares of
common stock for sale to the public on June 26, 1997 (the "Offering"). Proceeds
from the Offering were $8,169,816, net of expenses of $1,580,184.
Until the Offering, the Company elected to operate under Subchapter S of
the Internal Revenue Code and, consequently, was not subject to Federal and
certain state income taxes. The shareholders included their proportionate share
of the Company's taxable income (loss) in their personal tax returns for federal
and certain state income tax purposes. Concurrent with the closing of the
Offering, the Company terminated its status as an S Corporation and became
subject to Federal and state income taxes. The provision (benefit) for income
taxes presented on the statements of operations are recorded using an effective
rate of 42%. The pro forma benefit for income taxes reflects income taxes for
periods preceding the Offering. In addition, included in the provision for
income taxes for the nine months ended February 28, 1998 is a one-time, non-cash
charge for deferred income taxes in the amount of $1,433,302 resulting from the
termination of the Company's S Corporation status. This charge primarily relates
to temporary differences for software development costs.
Additionally, retained earnings of the Company as of the Offering and the
concurrent termination of the Company's S Corporation status were reclassified
to additional paid-in capital.
3. Pro Forma Net Loss Per Share of Common Stock
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.
8
<PAGE>
ROBOCOM SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS
February 28, 1998
(unaudited)
Pro forma net loss per share is based on the weighted average number of
shares of common stock outstanding during the period. For the three and nine
months ended February 28, 1998, the net loss per share of common stock is based
upon the weighted average number of common shares outstanding. For the three and
nine months ended February 28, 1997, the weighted average number of shares
includes the portion of the shares offered by the Company that would be
necessary to fund the distribution of S Corporation earnings ($2,500,000) based
on the initial public offering price of $6.50 per share. For the three and nine
months ended February 28, 1997, the common stock issuance of 31,584 shares in
May 1997 is treated as outstanding.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25") and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
("Statement 123"), requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized. The Company's required pro forma net loss and net loss per share
calculated under Statement 123's fair value method is not materially different
from amounts reported under APB 25.
4. Short-term Investments
Short-term investments consist of U.S. Government securities, commercial
paper and corporate notes. All investments are classified as available-for-sale
and are available to support current operations. These investments are valued at
amortized cost, which approximates fair value because of the short maturities of
these investments.
5. Year 2000
The Company utilizes software and related technologies throughout its
business that will be affected by the date change in the year 2000. All
significant computer systems sold by the Company are compliant with the year
2000 requirement. Anticipated spending for internal systems will be expensed as
incurred and is not expected to have a material impact on the Company's ongoing
results of operations.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Certain statements in this Report constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Factors
that might cause such a difference include, among others, uncertainties relating
to general economic and business conditions; industry trends; changes in demand
for the Company's product; uncertainties relating to customer plans and
commitments and the timing of orders received from customers; announcements or
changes in pricing policies by the Company or its competitors; unanticipated
delays in the development, market acceptance or installation of the Company's
products; availability of management and other key personnel; availability,
terms and deployment of capital; relationships with third-party equipment
suppliers; governmental export and import policies; global trade policies; and
worldwide political stability and economic growth. The words "believe",
"expect", "anticipate", "intend" and "plan" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date the statement
was made.
RESULTS OF OPERATIONS
Comparison of Three Months Ended February 28, 1998 and February 28, 1997
Revenues. Total revenues decreased by approximately 31% to $1,703,512 in
the three months ended February 28, 1998 as compared to $2,477,852 in the three
months ended February 28, 1997. Software license fees increased by approximately
10% during the 1998 period as compared to the 1997 period primarily due to the
increase in the number of RIMS.2001 software licenses sold to ten in the three
months ended February 28, 1998 as compared to the seven RIMS.2001 software
licenses sold during the three months ended February 28, 1997. Services revenues
decreased by approximately 51% for the 1998 period as compared to the 1997
period, primarily due to the decreasing level of services required for the
installation of standard RIMS.2001 systems in the three months ended February
28, 1998 as compared to the three months ended February 28, 1997 and the
inclusion, in the 1997 period, of services revenues from customer specific
modifications. Hardware revenues decreased by approximately 38% during the 1998
period as compared to the 1997 period, primarily due to timing of RIMS sales in
the 1998 period. Maintenance revenues decreased approximately 28% for the 1998
period as compared to the 1997 period, due primarily to a larger number of
maintenance contracts in operation during such period offset by the expiration
of a pre-RIMS.2001 maintenance contract in the third quarter of fiscal 1997.
Without the expired pre-RIMS.2001 maintenance contract revenues in the 1998
period, maintenance revenues increased by approximately 3% during the 1998
period as compared to the 1997 period.
Cost of Revenues. Total cost of revenues increased by approximately 27% to
$1,469,180 in the three months ended February 28, 1998 as compared to $1,157,043
in the three months ended February 28, 1997. As a percentage of revenues, total
cost of revenues increased to approximately 86% in the 1998 period as compared
to approximately 47% in the 1997 period. As a percentage of license fee
revenues, cost of license fees increased to approximately 14% in the 1998 period
as compared to approximately 4% in the 1997 period. The increase is primarily
due to higher fees for third party software in the 1998 period as compared to
the 1997 period. As a percentage of services revenues, the cost of services was
significantly higher in the 1998 period as compared to the 1997 period primarily
due to higher salaries and related overhead and the hiring of additional
personnel, including project management, trainers and programmers. These
increases further management's plan to build the infrastructure for the
Company's anticipated future revenue growth. As a percentage of hardware
revenues, the cost of hardware was higher in the 1998 period due to the type of
hardware installed. As a percentage of maintenance revenues, the cost of
maintenance was consistent in the 1998 period as compared to the 1997 period.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
Amortization of Software Development Costs. Amortization of software
development costs increased by approximately 57% to $183,108 in the three months
ended February 28, 1998 as compared to $116,599 in the three months ended
February 28, 1997. The increase was due to the commencement of amortization of
capitalized software development costs for RIMS.2001 Versions 3.3, 3.4 and
RIMS.Food in June 1997, the date such versions were first available for sale. As
a percentage of revenue, the amortization of software development costs was
approximately 11% in the three months ended February 28, 1998 and 5% in the
three months ended February 28, 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by approximately 239% to $733,938 in the three
months ended February 28, 1998 as compared to $216,304 in the three months ended
February 28, 1997. As a percentage of revenue, selling, general and
administrative expenses increased to approximately 43% in the three months ended
February 28, 1998 as compared to approximately 9% in the three months ended
February 28, 1997. The increase in selling, general and administrative expenses
was primarily due to hiring additional salespersons and administrative
personnel, consulting fees, 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.
Interest Income (Expense) and Other, net. Interest income increased by
$37,348 to $42,886 in the three months ended February 28, 1998 as compared to
$5,538 in the three months ended February 28, 1997. The increase is primarily
due to the investment of the proceeds from the Offering. Interest expense
decreased to none in the three months ended February 28, 1998 as compared to
$21,367 in the three months ended February 28, 1997. The decrease is due to the
repayment in July 1997 of the bank note payable with proceeds from the Offering.
Provision (Benefit) for Income Taxes. The provision (benefit) for income
taxes is reflected at 42% of the loss before the provision (benefit) for income
taxes for the periods subsequent to the Offering.
Pro Forma Provision for Income Taxes. The pro forma provision for income
taxes is reflected at 42% of the income before the provision for income taxes
for the periods preceding the Offering.
Comparison of Nine months Ended February 28, 1998 and February 28, 1997
Revenues. Total revenues remained relatively unchanged in the nine months
ended February 28, 1998 as compared to the nine months ended February 28, 1997.
Software license fees increased by approximately 31% during the 1998 period as
compared to the 1997 period primarily due to the sale of 18 RIMS.2001 software
licenses in the nine months ended February 28, 1998 as compared to the sale of
12 RIMS.2001 software licenses during the nine months ended February 28, 1997.
In addition, in the 1997 period, one RIMS.2001 software license sold was for a
significant non-refundable master license fee. Services revenues increased by
approximately 8% for the 1998 period as compared to the 1997 period, primarily
due to the larger number of RIMS systems in the process of being installed in
the nine months ended February 28, 1998 as compared to the nine months ended
February 28, 1997 offset by decreasing level of services required for the
installation of standard RIMS.2001 systems and the inclusion, in the 1997
period, of services revenues from customer specific modifications. Hardware
revenues decreased by approximately 20% during the 1998 period as compared to
the 1997 period, primarily due to the timing of RIMS sales and the direct
purchase by some customers of the hardware from the manufacturer in the 1998
period. Maintenance revenues decreased by approximately 10% for the 1998 period
as compared to the 1997 period, due primarily to the larger number of
maintenance contracts in operation during such period offset by the expiration
of a pre-RIMS.2001 maintenance contract in the third quarter of fiscal 1997.
Without the expired pre-RIMS.2001 maintenance customer's revenue in the 1997
period, maintenance revenues increased by approximately 16% during the 1998
period as compared to the 1997 period.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
Cost of Revenues. Total cost of revenues increased by approximately 31% to
$3,925,009 in the nine months ended February 28, 1998 as compared to $2,993,972
in the nine months ended February 28, 1997. As a percentage of revenues, total
cost of revenues increased to approximately 78% in the 1998 period as compared
to approximately 59% in the 1997 period. As a percentage of license fee
revenues, cost of license fees increased to approximately 19% in the 1998 period
as compared to approximately 11% in the 1997 period. The increase is due to
distributor fees for international sales of software licenses which began in the
1998 period and higher fees for third party software in the 1998 period as
compared to the 1997 period. As a percentage of services revenues, the cost of
services was significantly higher in the 1998 period as compared to the 1997
period 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 the 1998
period due to the type of hardware installed. As a percentage of maintenance
revenues, the cost of maintenance was significantly lower in the 1998 period due
to a lower level of required maintenance as compared to the 1997 period and the
expiration in fiscal year 1997 of a pre-RIMS.2001 maintenance contract which
incurred higher maintenance costs.
Amortization of Software Development Costs. Amortization of software
development costs increased by approximately 69% to $549,324 in the nine months
ended February 28, 1998 as compared to $324,769 in the nine months ended
February 28, 1997. The increase was due to the commencement of amortization of
capitalized software development costs for RIMS.2001 Versions 3.3, 3.4 and
RIMS.Food in June 1997, the date such versions were first available for sale. As
a percentage of revenue, the amortization of software development costs was
approximately 11% in the nine months ended February 28, 1998 and 6% in the nine
months ended February 28, 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by approximately 144% to $1,915,250 in the
nine months ended February 28, 1998 as compared to $784,441 in the nine months
ended February 28, 1997. As a percentage of revenue, selling, general and
administrative expenses increased to approximately 38% in the nine months ended
February 28, 1998 as compared to approximately 15% in the nine months ended
February 28, 1997. The increase in selling, general and administrative expenses
was primarily due to hiring additional salespersons and administrative
personnel, consulting fees, 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.
Interest Income (Expense) and Other, net. Interest income increased by
$118,952 to $137,073 in the nine months ended February 28, 1998 as compared to
$18,121 in the nine months ended February 28, 1997. The increase is primarily
due to the investment of the proceeds from the Offering. Interest expense
decreased by $25,180 to $17,187 in the nine months ended February 28, 1998 as
compared to $42,367 in the nine months ended February 28, 1997. The decrease is
due to the repayment in July 1997 of the bank note payable with proceeds from
the Offering.
Provision (Benefit) for Income Taxes. The provision (benefit) for income
taxes is reflected at 42% of the loss before the provision (benefit) for income
taxes for the periods subsequent to the Offering. In addition, the provision for
income taxes for the nine months ended February 28, 1998 includes the one-time,
non-cash provision for deferred income taxes in the amount of $1,433,302 as a
result of the termination of the Company's S Corporation status upon the
Company's initial public offering on June 26, 1997. This amount primarily
relates to temporary differences for software development costs.
Pro Forma Benefit for Income Taxes. The pro forma benefit for income taxes
is reflected at 42% of the loss before the benefit for income taxes for the
periods preceding the Offering.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
LIQUIDITY AND CAPITAL RESOURCES
The Company has a bank line of credit (the "Line of Credit"), which
expires on September 30, 1998 and provides for borrowings of up to $2,000,000.
Amounts outstanding under the Line of Credit are payable on demand and are
collateralized by the assets of the Company. Borrowings bear interest at the
prime rate (8.50% at April 14, 1998). The Line of Credit has been used primarily
for S Corporation distributions to the Company's shareholders prior to the
termination of the Company's S Corporation status on June 25, 1997 and for
working capital purposes. At February 28, 1998, the Company had no borrowings
under the Line of Credit. In the future, however, the Company may re-borrow
against this or a subsequent line of credit. The amount available under the Line
of Credit is reduced by a $150,000 standby letter of credit with the same bank,
which is being utilized as collateral for a vendor and which expires on December
31, 1998.
Net cash used in operating activities was $1,310,165 in the nine months
ended February 28, 1998 and net cash provided by operating activities was
$847,064 in the nine months ended February 28, 1997. Cash flows from operations
decreased in the 1998 period due to the Company's net loss and an increase in
accounts receivable and a higher balance of costs incurred and income recognized
in excess of billings on uncompleted contracts. Cash flows from operations
increased in the 1997 period due to net income which was partially offset by
increased accounts receivables.
The Company capitalized $1,187,667 and $1,045,342 in the nine months ended
February 28, 1998 and 1997, respectively, for software development costs. The
capitalized software development costs in process in the 1998 period include
costs of adding, among other things, functionality to provide internet/intranet
accessibility and Windows NT compatibility. The Company expended $196,461 and
$45,000 in the nine months ended February 28, 1998 and 1997, respectively, for
purchases of property and equipment.
As of February 28, 1998, the Company had $233,731 in cash and cash
equivalents and working capital of $5,674,990 primarily as a result of the
investment of approximately $2,540,000 in short-term investments in connection
with the Company's initial public offering.
Management believes that cash flow from operations, existing cash and cash
equivalents and short-term investments and amounts available under the Line of
Credit will be sufficient to meet the Company's currently anticipated working
capital and software development requirements through fiscal 1999. The Company's
working capital needs in the remainder of fiscal 1998 and fiscal 1999 include
approximately $150,000 and $600,000, respectively, to establish additional
domestic and international sales and support offices and approximately $400,000
and $1,000,000, respectively, for software development costs.
13
<PAGE>
PART II. OTHER INFORMATION:
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On June 26, 1997, the Securities and Exchange Commission declared the
Company's registration statement on Form SB-2, as amended (File No. 333-27587),
effective. Item 5 of Part II of the Company's Form 10KSB/A for the fiscal year
ended May 31, 1997 set forth information regarding the Company's proceeds from
the offering pursuant to such registration statement and the Company's use of
such proceeds. The following information has changed since such disclosure.
Total expenses incurred to date were approximately $1,580,000, consisting
of $780,000 of underwriting discounts and commissions, $173,000 for the
reimbursement of actual expenses to underwriters and actual expenses of
approximately $627,000 of legal, accounting and other expenses. Of the
$8,170,000 of net proceeds to the Company from the offering, $1,550,000 has been
applied to the repayment of indebtedness, $1,600,000 has been distributed to the
S Corporation shareholders, $1,188,000 has been utilized for software
development costs, $196,000 has been utilized for capital expenditures, which
include computers and furniture, and $1,096,000 has been utilized for working
capital purposes, including costs for the establishment of domestic and
international sales offices, negotiation with international distributors and
planned increases in personnel to build the infrastructure for the Company's
anticipated future revenue growth. The remaining balance ($2,540,000) is
invested in short-term investments.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the third quarter of fiscal 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized, in the City of New
York, New York, on April 14, 1998.
ROBOCOM SYSTEMS INC.
By: /s/ Irwin Balaban
-------------------------------------
Irwin Balaban
President and Chief Executive Officer
By: /s/ Elizabeth A. Burke
-------------------------------------
Elizabeth A. Burke
Vice President - Finance and Chief Financial Officer
14
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<PERIOD-END> FEB-28-1998
<CASH> 233,731
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