UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1998
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-22735
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ROBOCOM SYSTEMS INC.
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(Name of small business issuer as specified in its charter)
New York 11-2617048
- --------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
511 Ocean Avenue, Massapequa, New York 11758
--------------------------------------------
(Address of principal executive offices)
516-795-5100
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|
As of October 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 - August 31, 1998 and May 31, 1998.......... 3
Statements of Operations - Three months ended August
31, 1998 and 1997.......................................... 4
Statements of Cash Flows - Three months ended August
31, 1998 and 1997.......................................... 5
Notes to Financial Statements.............................. 6
Item 2. Management's Discussion and Analysis or Plan of Operation.. 7
PART II. Other Information:
Item 6. Exhibits and Reports on Form 8-K........................... 10
Signatures ........................................................... 10
2
<PAGE>
ROBOCOM SYSTEMS INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
August 31,
1998 May 31, 1998
------------ ------------
<S> <C> <C>
Assets (Unaudited)
Current assets:
Cash and cash equivalents .................................... $ 618,303 $ 384,034
Short-term investments ....................................... 1,693,438 1,914,852
Accounts receivable, net ..................................... 1,283,335 1,904,284
Unbilled revenue ............................................. 688,706 924,298
Deferred taxes ............................................... 154,977 152,577
Other current assets ......................................... 103,840 142,086
------------ ------------
Total current assets ............................................ 4,542,599 5,422,131
Property and equipment, net ..................................... 372,819 389,127
Software development costs, net ................................. 4,363,615 4,407,862
Other assets .................................................... 21,024 17,922
------------ ------------
Total assets .................................................... $ 9,300,057 $ 10,237,042
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable ............................................. $ 186,004 $ 187,954
Accrued expenses ............................................. 661,673 916,164
Deferred revenue ............................................. 186,427 227,549
------------ ------------
Total current liabilities ....................................... 1,034,104 1,331,667
Noncurrent deferred tax liabilities ............................. 612,784 874,703
------------ ------------
Total liabilities ............................................... 1,646,888 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;
issued and outstanding: 3,467,984 shares
at August 31, 1998 and at May 31, 1998 .................... 34,680 34,680
Additional paid-in capital ................................... 10,571,882 10,571,882
Accumulated deficit .......................................... (2,811,881) (2,415,403)
Deferred compensation ........................................ (141,512) (160,487)
------------ ------------
Total shareholders' equity ...................................... 7,653,169 8,030,672
------------ ------------
Total liabilities and shareholders' equity ...................... $ 9,300,057 $ 10,237,042
============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
ROBOCOM SYSTEMS INC.
STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended August 31,
----------------------------
1998 1997
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Revenues:
Software license fees ........................ $ 277,617 $ 247,782
Services ..................................... 631,381 516,397
Hardware ..................................... 595,161 429,792
Maintenance .................................. 299,532 259,197
----------- ------------
Total revenues ............................... 1,803,691 1,453,168
----------- ------------
Cost of revenues:
Cost of license fees ......................... 66,127 43,161
Cost of services ............................. 398,317 493,271
Cost of hardware ............................. 493,584 465,584
Cost of maintenance .......................... 350,944 51,207
----------- ------------
Total cost of revenues ....................... 1,308,972 1,053,223
Amortization of software development costs ..... 263,829 188,146
----------- ------------
1,572,801 1,241,369
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Gross margin ................................... 230,890 211,799
Selling, general and administrative expenses ... 917,914 543,444
----------- ------------
(687,024) (331,645)
Interest income and other, net ................. 26,227 48,914
----------- ------------
Loss before provision (benefit) for income taxes (660,797) (282,731)
Provision (benefit) for income taxes ........... (264,319) 1,442,872
----------- ------------
Net loss ....................................... (396,478) (1,725,603)
Pro forma benefit for income taxes ............. -- (128,317)
----------- ------------
Pro forma net loss ............................. $ (396,478) $ (1,597,286)
=========== ============
Pro forma net loss per basic and diluted share . $ (.11) $ (.52)
=========== ============
Weighted average shares outstanding ............ 3,467,984 3,060,375
=========== ============
See accompanying notes.
4
<PAGE>
ROBOCOM SYSTEMS INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended August 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Operating activities
Net loss .............................................. $ (396,478) $(1,725,603)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation ..................................... 27,113 4,874
(Benefit) provision for deferred income taxes .... (264,319) 1,567,223
Amortization of software development costs ....... 263,829 188,146
Amortization of deferred compensation ............ 18,975 18,975
Changes in operating assets and liabilities:
Accounts receivable ............................ 620,949 547,033
Unbilled revenue ............................... 235,592 (360,091)
Other current assets and other ................. 35,144 (206,290)
Accounts payable ............................... (1,950) (182,470)
Accrued expenses ............................... (254,489) (132,728)
Deferred revenue ............................... (41,122) 19,806
----------- -----------
Net cash provided by (used in) operating activities ... 243,244 (261,125)
----------- -----------
Investing activities
Software development costs ............................ (219,582) (533,547)
Purchase of short-term investments .................... (5,056,707) (4,505,073)
Redemption of short-term investments .................. 5,278,120 --
Capital expenditures .................................. (10,806) (48,714)
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Net cash used in investing activities ................. (8,975) (5,087,334)
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Financing activities
Net payments of bank note payable ..................... -- (1,300,000)
Net proceeds from sale of common stock ................ -- 8,336,409
Distributions of S corporation retained earnings to
S corporation shareholders ......................... -- (1,600,000)
----------- -----------
Net cash provided by financing activities ............. -- 5,436,409
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Increase in cash and cash equivalents ................. 234,269 87,950
Cash and cash equivalents at beginning of period ...... 384,034 49,065
----------- -----------
Cash and cash equivalents at end of period ............ $ 618,303 $ 137,015
=========== ===========
Supplemental disclosures of cash flow information
Cash paid for interest ................................ $ -- $ 21,658
=========== ===========
Cash paid for income taxes ............................ $ 14,785 $ --
=========== ===========
</TABLE>
See accompanying notes.
5
<PAGE>
ROBOCOM SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS
August 31, 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 month period ended August 31, 1998 are not
necessarily indicative of the results that may be expected for the year ended
May 31, 1999. For further information, refer to the financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-KSB for the
year ended May 31, 1998.
Certain prior year amounts have been reclassified to conform with the
current year presentation.
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 approximately $8,160,000, net of expenses of $1,590,000.
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 pro forma benefit for income
taxes reflects income taxes for periods preceding the Offering. In addition,
included in the provision for income taxes for the three months ended August 31,
1997 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. New Accounting Pronouncements
Beginning in fiscal 1999, the Company adopted several recently issued
accounting pronouncements. Statement of Financial Accounting Standard ("SFAS")
No. 130, "Reporting Comprehensive Income", requires disclosure of all components
of comprehensive income. Comprehensive income is defined as the change in equity
of a business enterprise during a period from transactions and other events and
circumstances from non owner sources. SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information", requires certain financial and
supplementary information to be disclosed for each reportable segment of an
enterprise. Statement of Position 97-2, "Software Revenue Recognition", changes
the requirements for revenue recognition. The adoption of these pronouncements
had no effect on the Company's financial statements.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Certain statements in this Report constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Factors
that might cause such a difference include, among others, uncertainties relating
to general economic and business conditions; industry trends; changes in demand
for the Company's product; uncertainties relating to customer plans and
commitments and the timing of orders received from customers; announcements or
changes in pricing policies by the Company or its competitors; unanticipated
delays in the development, market acceptance or installation of the Company's
products; availability of management and other key personnel; availability,
terms and deployment of capital; relationships with third-party equipment
suppliers; governmental export and import policies; global trade policies; and
worldwide political stability and economic growth. The words "believe",
"expect", "anticipate", "intend" and "plan" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date the statement
was made.
RESULTS OF OPERATIONS
Comparison of Three Months Ended August 31, 1998 and August 31, 1997
Revenues. Total revenues increased by approximately 24% to $1,803,691 in
the three months ended August 31, 1998 as compared to $1,453,168 in the three
months ended August 31, 1997. Software license fees increased by approximately
12% during the 1998 period as compared to the 1997 period primarily due to the
increase in the number of RIMS.2001 software licenses sold in the three months
ended August 31, 1998 as compared to the three months ended August 31, 1997.
Services revenues increased by approximately 22% for the 1998 period as compared
to the 1997 period, primarily due to additional support services requested by
one customer and the installation of a large quantity of computer systems
network and office software in the three months ended August 31, 1998 as
compared to the three months ended August 31, 1997. Hardware revenues increased
by approximately 38% during the 1998 period as compared to the 1997 period,
primarily due to a delivery of a large quantity of hardware to one customer in
the 1998 period. Maintenance revenues increased approximately 16% for the 1998
period as compared to the 1997 period, primarily due to a larger number of
maintenance contracts in operation in the 1998 period.
Cost of Revenues. Total cost of revenues increased by approximately 24% to
$1,308,972 in the three months ended August 31, 1998 as compared to $1,053,223
in the three months ended August 31, 1997. As a percentage of revenues, total
cost of revenues remained unchanged at approximately 73% in both periods. As a
percentage of license fee revenues, cost of license fees increased to
approximately 24% in the 1998 period as compared to approximately 17% in the
1997 period. The increase is primarily due to a larger percentage of license
fees associated with an alliance partner in the 1998 period as compared to the
1997 period. As a percentage of services revenues, the cost of services was
significantly lower in the 1998 period as compared to the 1997 period primarily
due to higher billable services for support services and a large installation
which covered a larger portion of the cost of services in the 1998 period.
Additionally, since the Offering, the Company has been increasing its
infrastructure, including the hiring of additional personnel, including project
management, trainers and programmers, for the Company's anticipated future
revenue growth. As a percentage of hardware revenues, the cost of hardware was
lower in the 1998 period due to the type of hardware installed, in particular
for the delivery of a large quantity of hardware to one customer. As a
percentage of maintenance revenues, the cost of maintenance was higher in the
1998 period as compared to the 1997 period due to the maintenance of a larger
number of RIMS versions and translations in the 1998 period as compared to the
1997 period, during which primarily maintained only RIMS Version 3.3. The cost
of maintenance is expected to substantially decline as the Company's customers
gain experience using RIMS.
7
<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 40% to $263,829 in the three months
ended August 31, 1998 as compared to $188,146 in the three months ended August
31, 1997. The increase was due to the commencement of amortization of
capitalized software development costs for RIMS.2001 Versions 3.4, 3.5,
RIMS.Food and several language translation versions in fiscal 1998, during which
time such versions were first available for sale. As a percentage of revenue,
the amortization of software development costs was approximately 15% in the
three months ended August 31, 1998 and 13% in the three months ended August 31,
1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by approximately 69% to $917,914 in the three
months ended August 31, 1998 as compared to $543,444 in the three months ended
August 31, 1997. As a percentage of revenue, selling, general and administrative
expenses increased to approximately 51% in the three months ended August 31,
1998 as compared to approximately 37% in the three months ended August 31, 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, which commenced in the latter half of fiscal
1998, further management's plan to build the infrastructure for the Company's
anticipated future revenue growth.
Interest Income and Other, net. Interest income decreased by $39,868 to
$26,227 in the three months ended August 31, 1998 as compared to $66,095 in the
three months ended August 31, 1997. The decrease is primarily due to the
utilization of the proceeds from the Offering for software development, capital
expenditures and working capital requirements. The Company had no Interest
expense in the three months ended August 31, 1998 as compared to $17,187 in the
three months ended August 31, 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 40% and 42% of the loss before the provision (benefit) for
income taxes in the three month periods ended August 31, 1998 and 1997,
respectively. The decrease in the effective rate is due primarily to the effect
of different states income taxes in the respective periods. In addition, the
provision for income taxes for the three months ended August 31, 1997 included
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
period preceding the Offering.
8
<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 November 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 (8.25% at October 14, 1998). Since the Offering, the Company had no
borrowings under the Line of Credit. In the future, however, the Company may
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 provided by operating activities was $243,244 in the three months
ended August 31, 1998 and net cash used in operating activities was $261,125 in
the three months ended August 31, 1997. Cash flows from operations increased in
the 1998 period primarily due to decreased unbilled revenues and accounts
receivable offset by a higher loss from operations.
The Company capitalized $219,582 and $533,547 in the three months ended
August 31, 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 $10,806 and
$48,714 in the three months ended August 31, 1998 and 1997, respectively, for
purchases of property and equipment.
As of August 31, 1998, the Company had $618,303 in cash and cash
equivalents and working capital of $3,508,495 primarily as a result of the
investment of approximately $1,693,438 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 fiscal 1999 include approximately $300,000 to support
recently opened domestic and international sales and support offices and
approximately $1,000,000 for software development costs.
9
<PAGE>
PART II. OTHER INFORMATION:
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the first quarter of fiscal 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized, in the City of New
York, New York, on October 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
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> AUG-31-1998
<CASH> 618,303
<SECURITIES> 1,693,438
<RECEIVABLES> 1,486,995
<ALLOWANCES> 203,660
<INVENTORY> 0
<CURRENT-ASSETS> 4,542,599
<PP&E> 656,813
<DEPRECIATION> 283,993
<TOTAL-ASSETS> 9,300,057
<CURRENT-LIABILITIES> 1,034,104
<BONDS> 0
0
0
<COMMON> 34,680
<OTHER-SE> 7,618,489
<TOTAL-LIABILITY-AND-EQUITY> 9,300,057
<SALES> 5,059,327
<TOTAL-REVENUES> 1,803,691
<CGS> 1,308,972
<TOTAL-COSTS> 2,490,715
<OTHER-EXPENSES> (26,227)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (660,797)
<INCOME-TAX> (264,319)
<INCOME-CONTINUING> (396,478)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (396,478)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
