UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 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 INTERNATIONAL INC.
----------------------------------------------------
(Exact name of small business issuer as specified
in its charter)
New York 11-2617048
- --------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
511 Ocean Avenue, Massapequa, New York 11758
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(Address of principal executive offices)
516-795-5100
------------------------------------------------
(Issuer's telephone number, including area code)
ROBOCOM SYSTEMS INC.
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(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|
As of January 13, 1999, 3,467,984 shares the issuer's common stock were
outstanding.
Transitional Small Business Disclosure Format (check one); Yes |_| No |X|
<PAGE>
ROBOCOM SYSTEMS INTERNATIONAL INC.
FORM 10-QSB
INDEX
PART I. Financial Information
Page
Item 1. Financial Statements: no.
Balance Sheets - November 30, 1998 and May 31, 1998..............3
Statements of Operations - Three months ended November 30, 1998
and 1997..........................................................4
Statements of Operations - Six months ended November 30, 1998
and 1997..........................................................5
Statements of Cash Flows - Six months ended November 30, 1998
and 1997..........................................................6
Notes to Financial Statements.....................................7
Item 2. Management's Discussion and Analysis or Plan of Operation.........8
PART II. Other Information:
Item 4. Submission of Matters to a Vote of Security Holders..............13
Item 6. Exhibits and Reports on Form 8-K.................................13
Signatures .................................................................13
2
<PAGE>
ROBOCOM SYSTEMS INTERNATIONAL INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
November 30, 1998 May 31, 1998
----------------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ............................................ $ 423,334 $ 384,034
Short-term investments ............................................... 1,711,469 1,914,852
Accounts receivable, net ............................................. 1,641,041 1,904,284
Unbilled revenue ..................................................... 179,795 924,298
Deferred taxes ....................................................... 150,111 152,577
Other current assets ................................................. 259,509 142,086
------------ ------------
Total current assets ....................................................... 4,365,259 5,422,131
Property and equipment, net ................................................ 351,076 389,127
Software development costs, net ............................................ 4,414,022 4,407,862
Other assets ............................................................... 18,422 17,922
------------ ------------
Total assets ............................................................... $ 9,148,779 $ 10,237,042
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable ..................................................... $ 316,724 $ 187,954
Accrued expenses ..................................................... 973,956 916,164
Deferred revenue ..................................................... 182,932 227,549
------------ ------------
Total current liabilities .................................................. 1,473,612 1,331,667
Noncurrent deferred tax liabilities ........................................ 365,961 874,703
------------ ------------
Total liabilities .......................................................... 1,839,573 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 November 30, 1998 and at
May 31, 1998 ....................................................... 34,680 34,680
Additional paid-in capital ........................................... 10,571,882 10,571,882
Accumulated deficit .................................................. (3,174,819) (2,415,403)
Deferred compensation ................................................ (122,537) (160,487)
------------ ------------
Total shareholders' equity ................................................. 7,309,206 8,030,672
------------ ------------
Total liabilities and shareholders' equity ................................. $ 9,148,779 $ 10,237,042
============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
ROBOCOM SYSTEMS INTERNATIONAL INC.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended November 30,
------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenues:
Software license fees ........................... $ 103,115 $ 386,731
Services ........................................ 826,708 718,906
Hardware ........................................ 672,800 551,510
Maintenance ..................................... 333,477 245,499
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Total revenues .................................. 1,936,100 1,902,646
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Cost of revenues:
Cost of license fees ............................ 29,030 111,255
Cost of services ................................ 336,734 631,938
Cost of hardware ................................ 538,653 488,417
Cost of maintenance ............................. 277,542 170,994
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Total cost of revenues .......................... 1,181,959 1,402,604
Amortization of software development costs ......... 263,829 178,070
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1,445,788 1,580,674
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Gross margin ....................................... 490,312 321,972
Selling, general and administrative expenses ....... 1,121,990 637,868
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(631,678) (315,896)
Interest income and other, net ..................... 26,784 45,273
----------- -----------
Loss before provision (benefit) for income taxes ... (604,894) (270,623)
Provision (benefit) for income taxes ............... (241,958) (113,662)
----------- -----------
Net loss ........................................... $ (362,936) $ (156,961)
=========== ===========
Net loss per basic and diluted share ............... $ (.10) $ (.05)
=========== ===========
Weighted average shares outstanding ................ 3,467,984 3,467,984
=========== ===========
</TABLE>
See accompanying notes.
4
<PAGE>
ROBOCOM SYSTEMS INTERNATIONAL INC.
STATEMENTS OF OPERATIONS
(unaudited)
Six Months Ended November 30,
----------------------------
1998 1997
----------- -----------
Revenues:
Software license fees ......................... $ 380,732 $ 634,513
Services ...................................... 1,458,089 1,235,303
Hardware ...................................... 1,267,961 981,302
Maintenance ................................... 633,009 504,696
----------- -----------
Total revenues ................................ 3,739,791 3,355,814
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Cost of revenues:
Cost of license fees .......................... 95,157 154,416
Cost of services .............................. 735,051 1,125,209
Cost of hardware .............................. 1,032,237 954,001
Cost of maintenance ........................... 628,486 222,201
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Total cost of revenues ........................ 2,490,931 2,455,827
Amortization of software development costs ....... 527,658 366,216
----------- -----------
3,018,589 2,822,043
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Gross margin ..................................... 721,202 533,771
Selling, general and administrative expenses ..... 2,039,904 1,181,312
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(1,318,702) (647,541)
Interest income and other, net ................. 53,010 94,186
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Loss before provision (benefit) for income taxes.. (1,265,692) (553,355)
Provision (benefit) for income taxes ............. (506,276) 1,329,210
----------- -----------
Net loss ......................................... (759,416) (1,882,565)
Pro forma benefit for income taxes ............... -- (128,317)
----------- -----------
Pro forma net loss ............................... $ (759,416) $(1,754,248)
=========== ===========
Pro forma net loss per basic and diluted share ... $ (.22) $ (.54)
=========== ===========
Weighted average shares outstanding .............. 3,467,984 3,263,066
=========== ===========
See accompanying notes.
5
<PAGE>
ROBOCOM SYSTEMS INTERNATIONAL INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended November 30,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Operating activities
Net loss ............................................... $ (759,416) $(1,882,565)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation ................................... 54,292 11,521
(Benefit) provision for deferred income taxes .. (506,276) 1,649,862
Amortization of software development costs ..... 527,658 366,216
Amortization of deferred compensation .......... 37,950 37,950
Provision (credit) for bad debts ............... -- (7,640)
Changes in operating assets and liabilities:
Accounts receivable ......................... 263,243 (163,701)
Unbilled revenue ............................ 744,503 (259,893)
Other current assets and other .............. (2,317) (483,135)
Accounts payable ............................ 13,163 (99,942)
Accrued expenses ............................ 57,793 154,556
Deferred revenue ............................ (44,617) 3,624
----------- -----------
Net cash provided by (used in) operating activities .... 385,976 (673,147)
----------- -----------
Investing activities
Software development costs ............................. (533,818) (889,412)
Purchase of short-term investments ..................... (7,568,831) (6,239,292)
Redemption of short-term investments ................... 7,772,214 2,456,207
Capital expenditures ................................... (16,241) (116,420)
----------- -----------
Net cash used in investing activities .................. (346,676) (4,788,917)
----------- -----------
Financing activities
Net payments of bank note payable ...................... -- (1,300,000)
Net proceeds from sale of common stock ................. -- 8,319,057
Distributions of S corporation retained earnings to
S corporation shareholders .......................... -- (1,600,000)
----------- -----------
Net cash provided by financing activities .............. -- 5,419,057
----------- -----------
Increase (decrease) in cash and cash equivalents ....... 39,300 (43,007)
Cash and cash equivalents at beginning of period ...... 384,034 49,065
----------- -----------
Cash and cash equivalents at end of period ............. $ 423,334 $ 6,058
=========== ===========
Supplemental disclosures of cash flow information
Cash paid for interest ................................. $ -- $ 21,658
=========== ===========
Cash paid for income taxes ............................. $ 14,785 $ --
=========== ===========
</TABLE>
See accompanying notes.
6
<PAGE>
ROBOCOM SYSTEMS INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1998
(unaudited)
1. Background and Basis of Financial Statement Presentation
The accompanying unaudited financial statements of Robocom Systems
International 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 six month period ended November 30, 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.
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 benefit for income
taxes reflects income taxes for periods preceding the Offering. In addition,
included in the provision for income taxes for the six months ended November 30,
1997 is a one-time, non-cash charge for deferred income taxes in the amount of
$1,433,302 resulting from the termination of the Company's S Corporation status.
This charge primarily relates to temporary differences for software development
costs.
Additionally, retained earnings of the Company as of the Offering and the
concurrent termination of the Company's S Corporation status were reclassified
to additional paid-in capital.
3. 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.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Certain statements in this Report constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Factors
that might cause such a difference include, among others, uncertainties relating
to general economic and business conditions; industry trends; changes in demand
for the Company's product; uncertainties relating to customer plans and
commitments and the timing of orders received from customers; announcements or
changes in pricing policies by the Company or its competitors; unanticipated
delays in the development, market acceptance or installation of the Company's
products; availability of management and other key personnel; availability,
terms and deployment of capital; relationships with third-party equipment
suppliers; governmental export and import policies; global trade policies; and
worldwide political stability and economic growth. The words "believe",
"expect", "anticipate", "intend" and "plan" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date the statement
was made.
RESULTS OF OPERATIONS
Comparison of Three Months Ended November 30, 1998 and November 30, 1997
Revenues. Total revenues increased by approximately 2% to $1,936,100 in
the three months ended November 30, 1998 as compared to $1,902,646 in the three
months ended November 30, 1997. Software license fees decreased by approximately
73% during the 1998 period as compared to the 1997 period primarily due to the
decrease in the number of RIMS.2001 software licenses sold in the three months
ended November 30, 1998 as compared to the three months ended November 30, 1997.
In addition, the 1997 period included the sale of one significant international
license. Services revenues increased by approximately 15% for the 1998 period as
compared to the 1997 period, primarily due to a higher number of installations
of large quantities of computer systems networks and office software in the
three months ended November 30, 1998 as compared to the three months ended
November 30, 1997. Hardware revenues increased by approximately 22% during the
1998 period as compared to the 1997 period, primarily due to several deliveries
of computer systems network and office hardware to new customers in the 1998
period. Maintenance revenues increased approximately 36% for the 1998 period as
compared to the 1997 period due to a larger number of maintenance contracts in
operation in the 1998 period.
Cost of Revenues. Total cost of revenues decreased by approximately 16% to
$1,181,959 in the three months ended November 30, 1998 as compared to $1,402,604
in the three months ended November 30, 1997. As a percentage of revenues, total
cost of revenues decreased to approximately 61% in the three months ended
November 30, 1998 as compared to approximately 74% in the three months ended
November 30, 1997. As a percentage of license fee revenues, cost of license fees
decreased slightly in the 1998 period as compared to the 1997 period. The
decrease is primarily due to distributor fees related to an international sale
of a large software license in 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 support services
and the installations of large quantities of computer systems networks and
office software which covered a larger portion of the cost of services in the
1998 period. Additionally, during fiscal 1998, the Company increased its
infrastructure, including the hiring of additional personnel (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. 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 language translations in the 1998 period as compared to the 1997
period. The cost of maintenance is expected to substantially decline as the
Company's customers gain experience using RIMS.
8
<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 48% to $263,829 in the three months
ended November 30, 1998 as compared to $178,070 in the three months ended
November 30, 1997. The increase was due to the commencement of amortization of
capitalized software development costs for RIMS.2001 Version 3.5 and several
language translation versions in the fourth quarter of 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 14% in the
three months ended November 30, 1998 and 9% in the three months ended November
30, 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by approximately 76% to $1,121,990 in the
three months ended November 30, 1998 as compared to $637,868 in the three months
ended November 30, 1997. As a percentage of revenue, selling, general and
administrative expenses increased to approximately 58% in the three months ended
November 30, 1998 as compared to approximately 34% in the three months ended
November 30, 1997. The increase in selling, general and administrative expenses
was primarily due to additional salespersons and marketing personnel, additional
salaries and related expenses incurred in connection with the establishment of
two international offices, higher advertising costs, which included memberships
to certain technology research groups, and increased commissions related to the
significant sales of computer systems networks and office software. These
increases, which primarily 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 $18,489 to
$26,784 in the three months ended November 30, 1998 as compared to $45,273 in
the three months ended November 30, 1997. The decrease is primarily due to the
utilization of the proceeds from the Offering for software development, capital
expenditures and working capital requirements.
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 November 30, 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.
Comparison of Six Months Ended November 30, 1998 and November 30, 1997
Revenues. Total revenues increased by approximately 11% to $3,739,791 in
the six months ended November 30, 1998 as compared to $3,355,814 in the six
months ended November 30, 1997. Software license fees decreased by approximately
40% during the 1998 period as compared to the 1997 period primarily due to the
decrease in the number of RIMS.2001 software licenses sold in the six months
ended November 30, 1998 as compared to the six months ended November 30, 1997.
In addition, the 1997 period included the sale of one significant international
license. Services revenues increased by approximately 18% for the 1998 period as
compared to the 1997 period, primarily due to a higher number of installations
of large quantities of computer systems networks and office software in the six
months ended November 30, 1998 as compared to the six months ended November 30,
1997. Hardware revenues increased by approximately 29% during the 1998 period as
compared to the 1997 period, primarily due to several deliveries of computer
systems network and office hardware to new customers in the 1998 period.
Maintenance revenues increased approximately 25% 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.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
Cost of Revenues. Total cost of revenues increased by approximately 1% to
$2,490,931 in the six months ended November 30, 1998 as compared to $2,455,827
in the six months ended November 30, 1997. As a percentage of revenues, total
cost of revenues decreased to approximately 67% in the six months ended November
30, 1998 as compared to approximately 73% in the six months ended November 30,
1997. As a percentage of license fee revenues, cost of license fees increased
slightly in the 1998 period as compared to the 1997 period. The increase is
primarily due to the mix of revenues. 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 support services and the
installations of large quantities of computer systems networks and office
software which covered a larger portion of the cost of services in the 1998
period. Additionally, during fiscal 1998, the Company increased its
infrastructure, including the hiring of additional personnel (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. 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 language translations in the 1998 period as compared to the 1997
period. The cost of maintenance is expected to substantially decline as the
Company's customers gain experience using RIMS.
Amortization of Software Development Costs. Amortization of software
development costs increased by approximately 44% to $527,658 in the six months
ended November 30, 1998 as compared to $366,216 in the six months ended November
30, 1997. The increase was due to the commencement of amortization of
capitalized software development costs for RIMS.2001 Version 3.5 and several
language translation versions in the fourth quarter of fiscal 1998 and the
amortization of RIMS Versions 3.4 and RIMS.Food in the second quarter of 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 14% in the six months ended November 30, 1998 and 11% in the six
months ended November 30, 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by approximately 73% to $2,039,904 in the six
months ended November 30, 1998 as compared to $1,181,312 in the six months ended
November 30, 1997. As a percentage of revenue, selling, general and
administrative expenses increased to approximately 55% in the six months ended
November 30, 1998 as compared to approximately 35% in the six months ended
November 30, 1997. The increase in selling, general and administrative expenses
was primarily due to hiring additional salespersons and marketing personnel,
salaries and related expenses incurred in connection with the establishment of
two international offices, increases in advertising costs which included
memberships to certain technology research groups and higher travel related to
increased sales efforts. 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 $58,358 to
$53,010 in the six months ended November 30, 1998 as compared to $111,368 in the
six months ended November 30, 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 six months ended November 30, 1998 as compared to $17,187 in the
six months ended November 30, 1997. The decrease is due to the repayment in July
1997 of the bank note payable with proceeds from the Offering.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
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 six month periods ended November 30, 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 (benefit) for income taxes for the six months ended November 30, 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a bank line of credit (the "Line of Credit"), which
expires on September 30, 1999 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 (7.75% at January 13, 1999). 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, 1999.
Net cash provided by operating activities was $385,976 in the six months
ended November 30, 1998 and net cash used in operating activities was $673,147
in the six months ended November 30, 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 $533,818 and $889,412 in the six months ended
November 30, 1998 and 1997, respectively, for software development costs. The
capitalized software development costs in process in the 1998 period included
costs of adding, among other things, functionality to provide internet/intranet
accessibility and Windows NT compatibility. The Company expended $16,241 and
$116,420 in the six months ended November 30, 1998 and 1997, respectively, for
purchases of property and equipment.
As of November 30, 1998, the Company had $423,334 in cash and cash
equivalents and working capital of $2,891,647 primarily as a result of the
investment of approximately $1,711,469 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 for the next twelve months. The
Company's working capital needs for the next twelve months include approximately
$1,000,000 for software development costs.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
Year 2000 Readiness Disclosure
The Company is in the process of investigating issues that could affect
its operations regarding Year 2000 compliance issues. The Year 2000 compliance
issues revolve around the fact that most computer systems do not recognize a
year by its traditional four digit format. Instead, computer systems recognize
the last two digits for a specified year.
The Company has developed, and is in the process of implementing, a Year
2000 remediation plan, which relates to the upgrade and standardization for Year
2000 internal computer systems and equipment. The Company has completed its
inventory and assessment phases of the plan and is in the process of remediating
or replacing the non-compliant systems. Testing of all remediated systems should
be fully completed by the middle of 1999. As results of this testing process
become available over the next six months, the Company will make contingency
plans where it deems necessary to become Year 2000 compliant.
The Company relies on third parties for hardware, payroll and other
services. The Company is in the process of reviewing its external interfaces of
its critical business partners to determine their Year 2000 compliance status.
Although the Company anticipates completing the Year 2000 testing phase and
conversion activities of the external interfaces of its business partners by the
middle of 1999, the inability of the Company's business partners to remedy Year
2000 issues could have a significant impact on the business, financial position
and results of operations of the Company. The Company will make contingency
plans for any entity it feels has not made satisfactory progress towards being
Year 2000 compliant. Contingency plans may include securing alternate supply
sources and taking other appropriate measures.
The Company has analyzed its products to determine if there are any
material issues associated with Year 2000 compliance. 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 fourth generation software language (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.
A Year 2000 project manager has been assigned to manage the computer
system upgrades, and ensure compliance for all external interfaces. While the
total cost to become Year 2000 compliant is not known at this time, management
does not believe that such costs will have a material effect on the business,
financial position and results of operations of the Company.
12
<PAGE>
PART II. OTHER INFORMATION:
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1998 Annual Meeting of shareholders was held on November 4, 1998.
At the meeting, the first matter acted upon by the shareholders was the election
of five directors to the Board of Directors. As of September 16, 1998, the
record date for the Annual Meeting, 3,467,984 shares of Common Stock were
outstanding and eligible to vote. Of the 2,932,190 shares of Common Stock voted
at the meeting, in person or by proxy, 2,898,740 were for the election and
33,450 withheld from voting for the election of the each of the five directors.
The five directors include Irwin Balaban, Mark Behrman, Herbert Goldman, Barry
J. Gordon and Lawrence B. Klein.
The second matter acted upon by the shareholders was the approval and adoption
of a proposal to amend the Company's 1997 Stock Option and Long-Term Incentive
Compensation Plan to increase the number of shares of Common Stock that may be
issued thereunder from 325,000 to 650,000. Of the 3,467,984 shares of Common
Stock outstanding and eligible to vote, 2,010,951 were voted in favor of the
proposal, 86,250 were voted against the proposal and 3,600 abstained from a vote
on the proposal.
The third matter acted upon by the shareholders was the approval and adoption of
a proposal to amend the Company's Restated Certificate of Incorporation to
change the name of the Company from Robocom Systems Inc. to Robocom Systems
International Inc. Of the 3,467,984 shares of Common Stock outstanding and
eligible to vote, 2,915,490 were voted in favor of the proposal, 10,600 were
voted against the proposal and 6,100 abstained from a vote on the proposal.
No other matters were brought before the meeting for a shareholder vote.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
10.1 Letter Agreement, dated January 13, 1999, between
The Bank of New York and the Company
27 Financial Data Schedule
(b) Reports on Form 8-K
On November 17, 1998, the Company filed a Current Report on Form 8-K dated
November 12, 1998 to report the change in the name of the Company from
Robocom Systems Inc. to Robocom Systems International Inc.
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 Massapequa, New
York, on January 13, 1999.
ROBOCOM SYSTEMS INTERNATIONAL 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
13
<PAGE>
Exhibit Index
Exhibit
Number Description
- ------- -----------
10.1 Letter Agreement, dated January 13, 1999, between The Bank of New
York and the Company
27 Financial Data Schedule
14
EXHIBIT 10.1
[LETTERHEAD OF THE BANK OF NEW YORK]
January 13, 1999
Robocom Systems International Inc.
511 Ocean Avenue
Massapequa, New York 11758
Attention: Irwin Balaban
President
Gentlemen/Ladies:
The Bank of New York (the "Bank") is pleased to confirm that it has,
subject to the terms and conditions set forth in this letter, extended the
period of availability of the $2,000,000 secured line of credit that the Bank
holds available to Robocom Systems International Inc., formerly known as Robocom
Systems Inc. (the "Company").
Each advance under this line of credit shall be evidenced by, shall be
payable as provided in, and shall bear interest at the rate specified in, the
Master Promissory Note dated May 15, 1997 made by Robocom Systems Inc. (now
known as Robocom Systems International Inc.) to the order of the Bank in the
principal amount of $2,000,000.00.
All obligations of the Company to the Bank with respect to this line of
credit shall be secured (i) pursuant to the General Loan and Security Agreement
dated April 13, 1994 executed by Robocom Systems Inc. (now known as Robocom
Systems International Inc.) in favor of the Bank, by a first priority security
interest in all personal property of the Company and (ii) pursuant to
documentation satisfactory in form and substance satisfactory to the Bank and
its counsel, by a first priority security interest in marketable securities
satisfactory to the Bank which have an aggregate market value (as determined by
the Bank in its sole discretion) which is equal to or greater than 100% of the
aggregate, outstanding principal amount of all advances under this line of
credit.
As you know lines of credit are cancelable at any time by either party
and, in addition, any extension of credit under this line of credit is subject
to the Bank's satisfaction, at the time of such extension of credit, with the
condition (financial and otherwise), business, prospects, properties, assets,
management, ownership and operations of the Company and with the collateral
security in respect of this line of credit. Unless cancelled earlier as provided
in the first sentence of this paragraph, this line of credit shall be held
available until September 30, 1999. In addition, the aggregate outstanding
principal amount of all advances under this line of credit shall be reduced to
zero for a period of thirty consecutive days during the period this line of
credit is held available.
Very truly yours,
THE BANK OF NEW YORK
By: /s/ Thomas Ryan
-----------------
Thomas Ryan
Vice President
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<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1998
<CASH> 423,334
<SECURITIES> 1,711,469
<RECEIVABLES> 1,844,701
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<COMMON> 34,680
<OTHER-SE> 7,274,526
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<SALES> 3,739,791
<TOTAL-REVENUES> 3,739,791
<CGS> 3,018,589
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