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, 1999
|_| 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.
-----------------------------------------------------------
(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 October 15, 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
Item 1. Financial Statements: Page no.
Balance Sheets - August 31, 1999 and May 31, 1999............ 3
Statements of Operations - Three months ended
August 31, 1999 and 1998................................... 4
Statements of Cash Flows - Three months ended
August 31, 1999 and 1998................................... 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 INTERNATIONAL INC.
BALANCE SHEETS
August 31, 1999 May 31, 1999
--------------- ------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents ............... $ 293,943 $ 101,148
Short-term investments .................. 904,193 1,144,136
Accounts receivable, net ................ 791,082 1,694,241
Unbilled revenue ........................ 127,302 272,733
Deferred taxes .......................... 177,306 177,305
Other current assets .................... 224,038 242,580
------------ ------------
Total current assets ....................... 2,517,864 3,632,143
Property and equipment, net ................ 288,030 314,872
Software development costs, net ............ 4,585,248 4,632,208
Other assets ............................... 15,991 15,991
------------ ------------
Total assets ............................... $ 7,407,133 $ 8,595,214
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable ........................ $ 177,856 $ 294,579
Accrued expenses ........................ 879,684 946,981
Deferred revenue ........................ 484,551 509,494
------------ ------------
Total current liabilities .................. 1,542,091 1,751,054
Deferred tax liabilities ................... 221,444 221,444
------------ ------------
Total liabilities .......................... 1,763,535 1,972,498
------------ ------------
Shareholders' equity:
Preferred stock, $.01 par value;
1,000,000 shares authorized;
none issued .......................... -- --
Common stock, $.01 par value;
10,000,000 shares authorized;
3,467,984 shares issued and
outstanding at August 31, 1999
and at May 31, 1999 .................. 34,680 34,680
Additional paid-in capital .............. 10,571,882 10,571,882
Accumulated deficit ..................... (4,897,352) (3,899,259)
Deferred compensation ................... (65,612) (84,587)
------------ ------------
Total shareholders' equity ................. 5,643,598 6,622,716
------------ ------------
Total liabilities and
shareholders' equity .................... $ 7,407,133 $ 8,595,214
============ ============
See accompanying notes.
3
<PAGE>
ROBOCOM SYSTEMS INTERNATIONAL INC.
STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended August 31,
-----------------------------
1999 1998
----------- -----------
Revenues:
Software license fees ..................... $ 192,857 $ 277,617
Services .................................. 280,528 631,381
Hardware .................................. 217,165 595,161
Maintenance ............................... 350,445 299,532
----------- -----------
Total revenues ............................ 1,040,995 1,803,691
----------- -----------
Cost of revenues:
Cost of license fees ...................... 49,525 77,739
Cost of services .......................... 307,586 398,317
Cost of hardware .......................... 183,035 493,584
Cost of maintenance ....................... 280,920 339,332
----------- -----------
Total cost of revenues .................... 821,066 1,308,972
Amortization of software development costs ... 352,482 263,829
----------- -----------
1,173,548 1,572,801
----------- -----------
Gross margin ................................. (132,553) 230,890
Selling, general and
administrative expenses ................... 880,803 917,914
----------- -----------
(1,013,356) (687,024)
Interest income and other, net ............... 15,263 26,227
----------- -----------
Loss before benefit for income taxes ......... (998,093) (660,797)
Benefit for income taxes ..................... -- (264,319)
----------- -----------
Net loss ..................................... $ (998,093) $ (396,478)
=========== ===========
Net loss per basic and diluted share ......... $ (0.29) $ (0.11)
=========== ===========
Weighted average shares outstanding .......... 3,467,984 3,467,984
=========== ===========
See accompanying notes.
4
<PAGE>
ROBOCOM SYSTEMS INTERNATIONAL INC.
STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended August 31,
-----------------------------
1999 1998
----------- -----------
Operating activities
Net loss ..................................... $ (998,093) $ (396,478)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Depreciation ............................. 28,516 27,113
Benefit for deferred income taxes ........ -- (264,319)
Amortization of software
development costs ...................... 352,482 263,829
Amortization of deferred
compensation ........................... 18,975 18,975
Changes in operating assets
and liabilities:
Accounts receivable ...................... 858,549 620,949
Unbilled revenue ......................... 145,431 235,592
Other current assets and other ........... 18,540 35,144
Accounts payable ......................... (116,723) (1,950)
Accrued expenses ......................... (67,296) (254,489)
Deferred revenue ......................... 19,667 (41,122)
----------- -----------
Net cash provided by
operating activities ....................... 260,048 243,244
----------- -----------
Investing activities
Software development costs ................... (305,522) (219,582)
Purchase of short-term investments ........... (1,209,240) (5,056,707)
Redemption of short-term investments ......... 1,449,183 5,278,120
Capital expenditures ......................... (1,674) (10,806)
----------- -----------
Net cash used in investing activities ........ (67,253) (8,975)
----------- -----------
Increase in cash and cash equivalents ........ 192,795 234,269
Cash and cash equivalents at
beginning of period ....................... 101,148 384,034
----------- -----------
Cash and cash equivalents at
end of period .............................. $ 293,943 $ 618,303
=========== ===========
Supplemental disclosures of cash
flow information:
Cash paid for income taxes ................... $ 8,068 $ 14,785
=========== ===========
See accompanying notes.
5
<PAGE>
ROBOCOM SYSTEMS INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
August 31, 1999
(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 and Europe. 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, 1999 are not
necessarily indicative of the results that may be expected for the year ended
May 31, 2000. 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, 1999.
Certain prior year amounts have been reclassified to conform with the
current year presentation.
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, 1999 and August 31, 1998
Revenues. Total revenues decreased by approximately 42% to
$1,040,995 in the three months ended August 31, 1999 as compared to $1,803,691
in the three months ended August 31, 1998. Software license fees decreased by
approximately 31% during the 1999 period as compared to the 1998 period
primarily due to lower sales of RIMS.2001 software licenses sold internationally
offset by the increase in the number of RIMS.2001 software licenses sold
domestically in the three months ended August 31, 1999, as compared to the three
months ended August 31, 1998. Service revenues decreased by approximately 56%
for the 1999 period as compared to the 1998 period, primarily due to lower
revenues from modifications to standard RIMS software and a lower number of
installations of computer systems networks and office software in the 1999
period. Hardware revenues decreased by approximately 64% during the 1999 period
as compared to the 1998 period, primarily due to the lower sales of RIMS related
hardware to customers and fewer deliveries of computer systems network and
office hardware in the 1999 period. Maintenance revenues increased approximately
17% for the 1999 period as compared to the 1998 period, due to a larger number
of maintenance contracts in operation in the 1999 period.
Cost of Revenues. Total cost of revenues decreased by approximately
37% to $821,066 in the three months ended August 31, 1999 as compared to
$1,308,972 in the three months ended August 31, 1998. As a percentage of
revenues, total cost of revenues increased to approximately 79% in the 1999
period as compared to approximately 73% in the 1998 period. As a percentage of
license fee revenues, cost of license fees decreased primarily due to a lower
percentage of license fees associated with distributor fees in the 1999 period
as compared to the 1998 period. As a percentage of services revenues, the cost
of services was significantly higher in the 1999 period as compared to the 1998
period primarily due to lower billable support services, lower services revenues
for modifications and fewer installations of computer systems networks and
office software in the 1999 period. As a percentage of hardware revenues, the
cost of hardware remained relatively constant. As a percentage of maintenance
revenues, the cost of maintenance was significantly lower in the 1999 period as
compared to the 1998 period due to the maintenance of a larger number of
maintenance contracts in operation in the 1999 period.
Amortization of Software Development Costs. Amortization of software
development costs increased by approximately 34% to $352,482 in the three months
ended August 31, 1999 as compared to $263,829 in the three months ended August
31, 1998. The increase was due to the commencement of amortization of
capitalized software development costs for RIMS.2001 Version 4.0 in the fourth
quarter of fiscal 1999, during which time such versions were first available for
sale. As a percentage of revenue, the amortization of software development costs
was approximately 34% in the 1999 period and 15% in the 1998 period.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by approximately 4% to $880,803 in the three
months ended August 31, 1999 as compared to $917,914 in the three months ended
August 31, 1998. As a percentage of revenue, selling, general and administrative
expenses increased to approximately 85% in the 1999 period as compared to
approximately 51% in the 1998 period. The increase in selling, general and
administrative expense as a percentage of revenues is due to lower revenues in
the 1999 period as selling, general and administrative expenses do not result in
attendant increases in revenues.
Interest Income and Other, net. Interest income decreased by $10,964
to $15,263 in the three months ended August 31, 1999 as compared to the three
months ended August 31, 1998. The decrease is primarily due to the utilization
of the proceeds from the Company's initial public offering in June 1997 for
software development and working capital requirements.
Benefit for Income Taxes. Since the Company is operating at a loss,
no provision or benefit is reflected in the 1999 period. No deferred tax expense
has been recorded in the 1999 period as the Company continues to record a
valuation allowance to reserve for the net deferred tax assets. The benefit for
income taxes for the three month period ended August 31, 1998 consisted of a tax
benefit reflected at 40% of the loss before the benefit for income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a bank line of credit (the "Line of Credit"), which
expires on September 30, 2000 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 October 14, 1999). The Company had no borrowings under the
Line of Credit at August 31, 1999. 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 $260,048 in the three
months ended August 31, 1999 and net cash provided by operating activities was
$243,244 in the three months ended August 31, 1998. Cash flows from operations
increased in the 1999 period primarily due to accounts receivable offset by a
higher loss from operations as adjusted for the increased amortization of
software development.
The Company capitalized $305,522 and $219,582 in the three months
ended August 31, 1999 and 1998, respectively, for software development costs.
The capitalized software development costs in process in the 1999 period
included costs of adding, among other things, functionality to provide
additional internet and intranet-based capability to the standard RIMS.2001
product. The Company expended $1,674 and $10,806 in the three months ended
August 31, 1999 and 1998, respectively, for purchases of property and equipment.
As of August 31, 1999, the Company had $293,943 in cash and cash
equivalents and working capital of $975,773.
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 $900,000 for software development costs.
Year 2000 Readiness Disclosure
The Company has completed its investigation of the 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.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
The Company has developed and implemented 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,
assessment and testing phases of the plan and has remediated or replaced the
non-compliant systems.
The Company relies on third parties for hardware, payroll and other
services. The Company reviewed its external interfaces of its critical business
partners to determine their Year 2000 compliance status. The Company believes
that its business partners have completed the Year 2000 testing phase and
conversion activities. 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 clients 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 clients 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. Costs
incurred to date were approximately $70,000. Management does not believe that
such costs will have a material effect on the business, financial position and
results of operations of the Company.
9
<PAGE>
PART II. OTHER INFORMATION:
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
10.1 Letter Agreement, dated October 14, 1999,
between The Bank of New York and the Company.
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the first quarter of fiscal 2000.
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 October 15, 1999.
ROBOCOM SYSTEMS INTERNATIONAL INC.
By: /s/ David Dinin
--------------------------------------
David Dinin
President and Chief Executive Officer
By: /s/ Elizabeth A. Burke
--------------------------------------
Elizabeth A. Burke
Vice President - Finance and Chief
Financial Officer
10
<PAGE>
Exhibit Index
Exhibit
Number Description
- ------ -----------
10.1 Letter Agreement, dated October 14, 1999, between The Bank of New
York and the Company.
27 Financial Data Schedule
11
EXHIBIT 10.1
ROBOCOM SYSTEMS INTERNATIONAL INC.
[LETTERHEAD OF THE BANK OF NEW YORK]
October 14, 1999
Robocom Systems International, Inc.
511 Ocean Avenue
Massapequa, New York 11758
Attention: David Dinin, 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. (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 the Company 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 the Company 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 certain
marketable securities satisfactory to the Bank.
As you know lines of credit are cancellable 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,
<PAGE>
2
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, 30th 2000.
Very truly yours,
THE BANK OF NEW YORK
By: /s/ Thomas P. Powderly
------------------------
Thomas P. Powderly
Assistant Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-END> AUG-31-1999
<CASH> 293,943
<SECURITIES> 904,193
<RECEIVABLES> 816,108
<ALLOWANCES> 25,026
<INVENTORY> 0
<CURRENT-ASSETS> 2,517,864
<PP&E> 682,321
<DEPRECIATION> 394,291
<TOTAL-ASSETS> 7,407,133
<CURRENT-LIABILITIES> 1,542,091
<BONDS> 0
0
0
<COMMON> 34,680
<OTHER-SE> 5,643,598
<TOTAL-LIABILITY-AND-EQUITY> 7,407,133
<SALES> 1,040,995
<TOTAL-REVENUES> 1,040,995
<CGS> 821,066
<TOTAL-COSTS> 2,054,351
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (998,093)
<INCOME-TAX> 0
<INCOME-CONTINUING> (998,093)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (998,093)
<EPS-BASIC> (.29)
<EPS-DILUTED> (.29)
</TABLE>
