UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended May 31, 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.
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(Name of small business issuer in its charter)
New York 11-2617048
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
511 Ocean Avenue, Massapequa, New York 11758
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (516) 795-5100
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Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure is contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |X|
State issuer's revenues for its most recent fiscal year. $7,544,989
As of August 25, 1999, the issuer had outstanding 3,467,984 shares of its common
stock.
As of August 25, 1999, the aggregate market value of the issuer's common stock
held by non-affiliates was $4,768,478 (based upon the closing price of the
issuer's common stock on The Nasdaq SmallCap Market on such date).
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DOCUMENTS INCORPORATED BY REFERENCE
Part Item
1. Proxy Statement for the 1999 Annual Meeting
of Stockholders to be held on October 29, 1999 III 9, 10, 11, 12
Transitional Small Business Disclosure Format (check one) Yes |_| No |X|
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Part I
Item 1. Description of Business.
General
Robocom Systems International Inc. (the "Company"), incorporated in 1982,
develops, markets and supports advanced warehouse management software solutions
that enable companies to realize significant cost savings by automating their
warehouse operations. The Company's primary product, RIMS.2001, is a
client-configurable software solution that enables a company's warehouse to
respond to a customer order with greater accuracy and in a more timely manner,
thereby turning the warehouse into a competitive advantage. RIMS.2001 operates
in an open system environment and interfaces with an organization's existing
information systems. In addition to providing RIMS.2001 software licenses, the
Company provides installation, training, implementation support and maintenance
services and resells related hardware.
Industry Background
In recent years, a number of business trends have converged to change the
historical relationships among retailers, manufacturers and suppliers, and
distributors. Increasing globalization of the marketplace has resulted in
greater geographic diversity of supply and production facilities and has
increased competition as more suppliers are offering a greater range of product
offerings at multiple price levels. In addition, a number of trends in
retailing, including the emergence of virtual electronic commerce, shorter
product life cycles, a significant increase in the number and variety of product
offerings, and a more informed and price conscious consumer, have put increased
pressure on retailers to reduce expenses to remain competitive. Consequently,
distributors and retailers are seeking to reduce inventory management costs by
selecting suppliers that can respond to "just-in-time" purchasing and "quick
response" delivery techniques that enable the distributor or retailer to better
match product inventory to actual customer demand. Retailers and other vendors
also are increasingly demanding that their suppliers comply with standards for
electronic commerce and very specific labeling requirements.
As a result of these trends, manufacturers and suppliers are experiencing
significant pressures to satisfy customer demands for improved product delivery
and reduced delivery times. Historically, manufacturers have organized their
businesses primarily to increase manufacturing efficiency and output. However,
as major customers shift the burden of inventory management to the manufacturer
or distributor, manufacturers and distributors have refocused their business
process re-engineering efforts to evaluate the service and value provided to
customers from existing operations and supply chains and are seeking
alternatives for streamlining the supply, warehousing and distribution process.
The need to satisfy customer demand for more effective and efficient order
fulfillment has caused manufacturers and distributors to seek greater
communication, understanding and control over the entire supply chain. This is
necessary to minimize materials inventories, ensure the timing of deliveries
from suppliers, reduce manufacturing cycle times, minimize finished goods
inventories, maximize the efficiency of warehousing and transportation systems
and provide superior response times to customers.
Retailers, manufacturers and suppliers, and distributors are increasingly
recognizing that significant cost savings can be achieved through warehouse
computerization and automation. An effective warehouse management system will
improve customer service and reduce costs by achieving the following objectives:
o Improve Inventory Accuracy. The self-checking nature of an automated
warehouse management system ensures inventory accuracy and
eliminates the costly series of manual checks and backtracking that
results when the inventory on the books and the physical inventory
in a warehouse do not match. As a result of the poor accuracy in
traditional printed paper-based warehouses, costly physical
inventories need be taken to reconcile the system inventory to the
actual inventory. The inherent accuracy and cycle counting features
of a warehouse management system can eliminate the need for a
physical inventory.
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o Reduce Errors. Receiving, stocking and picking errors are common in
a manual paper-based warehouse. An automated warehouse management
system is self-checking and ensures virtually 100% accuracy for
every transaction.
o Improve Space Utilization. A warehouse management system tracks all
warehouse locations and can direct where each product can best be
stored for maximum space utilization.
o Increase Productivity. A warehouse management system maximizes the
time operators spend adding value to the distribution process,
filling orders and receiving goods. System direction minimizes
search time and dispatches operators and pickers to the best task
given the equipment and current location. A warehouse management
system also gives the warehouse control of the workload and provides
visibility into the entire range of tasks that need be performed
within a given time period.
o Improve Labor Management and Reporting. Paperwork in a warehouse for
picking and stocking drastically hampers productivity. Paperless
warehouse management system applications provide real-time
information, reduce the possibility for data entry errors and
information delays and improve productivity. In addition, a
warehouse management system has vast reporting capabilities because
every transaction is recorded. In paper-based warehouses, the only
method available for tracking productivity and performance is a
manual log that is time consuming to keep, susceptible to error and
is only as good as the information each operator provides.
o Support Electronic Commerce. Trading partners are increasingly
expecting that systems they interface with will be able to support
electronic commerce as well as specific labeling and packaging
requirements. A warehouse management system can provide compliant
labeling and the data required to support electronic commerce.
o Integration. Manufacturers and suppliers require warehouse
activities to be integrated with their manufacturing, transportation
and accounting systems and those of their customers. Such levels of
data processing and system integration require a capable,
highly-integrated warehouse management system solution.
The Company believes that the increasing need of manufacturers and
distributors to satisfy customer demand for more effective and efficient order
fulfillment will continue the trend of manufacturers and distributors to seek
the benefits of a state-of-the-art warehouse management system. Additionally,
electronic commerce provides the means for customers, vendors and suppliers to
collaborate and share data to make the supply chain more efficient. The Company
believes that its products are well positioned for the growth in the electronic
commerce market.
Strategy
The Company's objective is to continue to be a leading provider of
warehouse management software solutions and services, be an integral part of the
E-business/electronic commerce thrust and supply chain market and expand its
presence worldwide. To achieve these objectives, the Company has adopted the
following strategies:
o Strategic Alliances. The Company intends to supplement its marketing
efforts by aligning itself with complementary solutions providers
and technology partners, such as with E-business providers and
transportation providers, as well as supply chain management and
enterprise resource management solutions. Strategic alliances also
will assist the Company in keeping pace with technological
developments within the marketplace. Through such alliances, the
Company expects to gain greater exposure and acceptance of its
products and services. See "-- Sales and Marketing."
o New Product Development. The Company intends to continue to produce
a quality warehouse management system product that meets client
expectations in terms of functionality, flexibility,
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procurement cost, implementation cost and ongoing maintenance cost.
The Company believes that RIMS.2001 meets these expectations and
will continue to do so as the product evolves. The Company is
committed to continuous product improvement through a software
development program that is driven by industry focus groups and
customer input. The Company intends to continue to utilize its
industry, customer and supplier relationships to keep abreast of
emerging standards, protocols and application programming interfaces
as such trends are introduced and gain market acceptance. The
Company believes that Internet-based applications will be the next
significant technology change in the warehouse management system
industry. The Company believes that a portable, open, world wide
web-based, multi-tiered application architecture will supplant the
traditional proprietary client/server technology currently employed
by its competitors. See "-- Products, "-- Third Party Hardware
Products," and "-- Product Development." In addition, the Company
believes the incorporation of certain management decision aids will
make the product more saleable.
o Improve Vertical Market Concentration. By tailoring RIMS to support
the unique size requirements of certain targeted vertical markets,
the Company believes it will have a competitive advantage in selling
to prospective clients regardless of size in the same industry. The
Company believes that the expertise developed in each of these
vertical markets also will further contribute to its standard RIMS
product. See "-- Products."
o International Expansion. The Company intends to establish itself in
the international business market. In this regard, the Company has
established formal relationships with distributors in Argentina,
Australia, Belgium, Israel, Luxembourg, the Netherlands, New Zealand
and the United Kingdom that are established systems integrators with
large client bases in their respective regions. The Company has
established international sales offices in the Netherlands and
Australia. The Company intends to establish additional international
relationships. See "-- Sales and Marketing."
o Training, Implementation and Support. A key to the success of a
warehouse management system supplier is its ability to provide the
necessary services and expertise required to effectively implement a
complex warehouse management system. The Company believes that the
efficiency of its implementation process will allow the Company to
increase sales to prospective clients seeking standard, configurable
software solutions and enable the Company to increase its market
share with respect to its competitors. The Company intends to
continue to develop and improve its services organization and its
innovative conference room pilot program to ensure a continued
simple and efficient implementation process for its clients. See "--
Service and Maintenance" and "-- Sales and Marketing."
Products
The Company's principal product, RIMS.2001, is a full-featured,
state-of-the-art warehouse management solution. RIMS.2001 is a highly scaleable,
highly configurable and flexible product with baseline functionality and
features sufficient for most warehouse installations. The strength of RIMS.2001
is its adaptability to varied environments without modification. In the United
States, RIMS.2001 is generally sold as an entire turnkey solution that provides
the Company's clients with the software, services and hardware necessary for a
comprehensive warehouse management system solution. Internationally, RIMS.2001
is generally sold to clients via distributors and implemented by distributors
and/or implementers.
The Company also markets pre-configured versions of RIMS.2001 that are
specifically targeted to various vertical markets such as food distribution,
medical and automotive. These pre-configured versions use the basic RIMS.2001
system as the core with additional industry-specific features and functions.
As a standard, "off-the-shelf," highly-configurable software system,
RIMS.2001 is designed to be deployed in approximately four months and to achieve
measurable cost savings for clients. The efficiency of implementing the
Company's software solutions results from the open systems architecture of
RIMS.2001, which runs on various operating platforms (most notably Unix and NT),
has a "Windows or screen" configurator and uses either Oracle or
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Progress database management system software in addition to the Company's
extensive experience in developing and installing warehouse management systems.
The Company believes that its clients recognize cost savings throughout the
warehousing and distribution processes as a result of increases in worker
productivity, efficiencies in space utilization, increases in inventory accuracy
due to lot number controls, product expiration date controls and product
serialization controls, and the elimination of costly shipping errors through
the use of bar code technology.
RIMS.2001. RIMS.2001 is a responsive software application designed to
manage an entire warehouse operation. As a user configurable solution, RIMS.2001
incorporates numerous warehousing practices and strategies as standard
capability. RIMS.2001 is an open systems solution that is not restricted to any
particular equipment or computer system. As such, the application software has
been installed on numerous hardware platforms and database management systems.
RIMS.2001 can interface with an organization's current materials handling
equipment and is easily integrated with customer or third party purchasing,
electronic data exchange, bar coding, accounting, manufacturing resource
planning ("MRP") and enterprise resource planning ("ERP") applications.
RIMS.2001 also utilizes radio frequency communications and bar coding to provide
real-time management, validation and tracking of all warehouse activities.
RIMS.2001 directs personnel and equipment and manages the inventory, space,
labor and equipment in the warehouse in an efficient and cost effective manner.
RIMS.2001 is a comprehensive application that manages the receiving, put
away, outbound order processes, and general warehouse operations. With each
warehouse process, RIMS.2001 provides a variety of tactical choices that can be
user defined to a client's specific requirements and needs and that are designed
to maximize efficiency. Major system functions include:
o Internet and Intranet Ready. The product has been engineered using
Internet and intranet compatible technologies and standards.
Warehouse users and authorized trading partners can access warehouse
data (e.g. shipment details or inventory levels) either in real-time
local access, via the World Wide Web or via telnet remote access.
o Receiving. The receiving process provides control over the receipt
of inventory through scanning the bar codes of incoming product to
ensure accuracy of inventory in the warehouse. This process
facilitates the matching of purchase orders, transfer orders,
advanced shipping notices and customer returns. The receiving
process supports pre-storage activities, such as returned goods
processing and quality assurance inspection.
o Putaway Process. The putaway process ensures that all inventory is
stored in the most efficient location available based on
pre-configured management strategies. The Company or the client will
configure the system to implement the client's unique business
demands, assigning locations based on the client's parameters with
consideration given to product characteristics, product velocity,
demand codes, delivery and shipping requirements, storage devices
and cross-docking strategies.
o Picking and Shipping. The RIMS.2001 outbound order process analyzes
each order to determine the most efficient packing, loading and
shipping procedures. The order processing function is configured to
match each client's management strategies. The outbound order
process includes, among other features, order selection, allocation,
picking, loading and shipping.
o Management. The general warehouse operations process manages the
availability of space and the movement of warehouse personnel,
inventory and material handling equipment through information shared
by management and warehouse employees. The real-time information and
product flexibility allows a client to test or implement different
strategies to maximize productivity and efficiency. The system
allows clients to combine multiple tasks into a single job
assignment, such as grouping a put-away and picking assignment into
one trip. RIMS.2001 facilitates cycle counting, automatic
replenishment, product moves, inventory control and consolidation,
labor tracking, system security, space utilization, vehicle
management and rewarehousing.
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o Standard Interfaces. The Company has developed standard, certified
interfaces to two leading ERP products: MFG/PRO (QAD) and R/3 (SAP).
These interfaces are available "off the shelf" and will enable users
of these ERP products to seamlessly benefit from RIMS warehouse
management.
Service and Maintenance
In addition to licensing of RIMS.2001, the Company provides its clients
with a wide range of services which include:
o Computer software and hardware configuration services
o Operational process review and consultation
o Project management of the implementation
o Implementation support Configuration and User Training
o Customization
o Consulting
o Software and hardware maintenance services.
The Company offers a structured program with a goal of total client
satisfaction that typically lasts four to six months and begins with the
development of joint business scenarios between the Company and its client. This
program includes configuration of the software and hardware, configuration
training, a prototype "pilot training" program, project management and
implementation support services. These programs facilitate and integrate the
skill of the Company into the client's processes and operations resulting in a
modeling of the client's warehouse management operations. The outcome of this
program is the early identification of client operating issues prior to client
implementation. In addition, this program aids in the development of standard
warehouse operating procedures for the client. The Configuration course explains
basic RIMS.2001 terminology and methodology related to system configuration and
setup. The Company provides management and installation of operating systems,
hardware, networks, communication links and relational database management
tools. Standard User training for RIMS.2001 includes a Supervisors course, which
provides supervisory warehouse management training which is necessary to
effectively control and monitor the warehouse facility; a Operators course, a
hands-on training course for warehouse workers concentrating in the execution of
RIMS.2001 related tasks. In addition curriculum have been added during the past
year including a post implementation class and audit of client operational
procedures after implementation. Customized courses are also made available on
request. A Train-the-Trainer course provides information and materials to
third-party trainers who will perform the future RIMS.2001 training.
The Company offers turnkey maintenance services for the RIMS software,
third party software and certain hardware components of the system under a
separate maintenance agreement. Maintenance agreements are typically initiated
at the time of implementation, are renewable annually, and entitle the client to
telephone support, software upgrades, installation assistance and priority
problem resolution, including software fixes. Maintenance fees are typically a
percentage of the license fees (excluding hardware), with additional fees for
extended hours. If elected by the client, maintenance support is offered
24-hours per day, seven days per week. In the event a client does not enter into
a maintenance agreement with the Company, it would still be entitled to software
fixes for reported problems during the first year of its system's installation
pursuant to the one-year warranty provided to the Company's clients in the end
user contract; however, to date, all RIMS clients have entered into a
maintenance agreement with the Company after system implementation.
In those cases in which the standard RIMS.2001 product cannot meet the
clients needs, the Company can enter into contracts to perform certain
modifications to the baseline product.
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Third Party Hardware Products
The Company's RIMS.2001 products use an open architecture that enables
clients to use various operating systems, operate on multiple hardware platforms
and inter-operate with many third party software applications and legacy
systems. This open system capability enables clients to continue using their
existing computer resources and to choose among a wide variety of existing and
emerging computer hardware and peripheral technologies.
In conjunction with domestic sales of RIMS.2001, the Company offers for
resale a variety of hardware products developed by third parties, including
computer hardware, radio frequency terminal networks, bar code printers and
scanners, and other peripherals. In addition, the Company resells computer
hardware and network devices in support of office client server systems. The
Company resells all third-party products pursuant to agreements with the
products' manufacturers or through distributor authorized reseller agreements
pursuant to which the Company is entitled to purchase products at discount
prices and to receive technical support in connection with product installations
and subsequent product malfunctions. The RIMS.2001 hardware-related agreements
generally permit the Company to resell the third-parties' products to any
RIMS.2001 user in the United States. The Company anticipates that its foreign
distributors or other third party vendors will sell any hardware or peripherals
required in connection with the sale of RIMS.2001 outside of the United States.
Other Sales and Services
In addition to RIMS, the Company designs, implements, installs and
supports computer systems networks and office software on a limited basis
primarily in the northeastern United States. Clients range from Fortune 100
companies with sophisticated fault-tolerant, inter-networking, high connectivity
needs, to medium- and small-size companies requiring implementation and support
of a workgroup local area network. The Company provides entire turnkey software
solutions, consulting, systems analysis and custom training on almost any
application to be run on a network. The Company is fully equipped to support
most "off-the-shelf" software applications written for Novell, NT or UNIX, and
offers its clients a full range of support services, ranging from the resolution
of a specific application problem to a full software support contract
encompassing any or all of its client applications. The Company is a single
source provider due to its ability to (i) install hardware and application
software for local area networks, (ii) configure, upgrade and maintain such
systems, and (iii) provide training relating to such systems to its clients.
Clients
The Company targets its marketing efforts primarily on manufacturers,
distributors, retailers and wholesalers in the food processing, consumer
products, petro chemical products, public utilities, pharmaceutical sectors, as
well as other high-volume wholesalers.
Client orders for the Company's RIMS.2001 products over the last three
fiscal years have ranged from approximately $50,000 to over $1 million. Due to
the size of most orders and the need for differing amounts of modification for
each installation, the Company historically has obtained orders from a
relatively small number of new clients each fiscal quarter. As a result,
individual clients have often accounted for more than 10% of total revenues in a
particular fiscal period. For the fiscal year ended May 31, 1997, the Company
had two clients that accounted for approximately 21% and 13% of total revenues.
For the fiscal year ended May 31, 1998 , none of the Company's clients accounted
for more than 10% of total revenues. For the fiscal year ended May 31, 1999, the
Company had one client that accounted for approximately 10% of total revenues.
Because of the nature of the Company's business operations, the Company
anticipates that the number of clients that account for more than 10% of total
revenues for a fiscal period will vary from period to period depending on the
status and timing of significant orders by a particular client or clients in any
given fiscal period.
Sales and Marketing
The Company currently markets its products and services primarily through
a direct sales force in North America and directly and indirectly in other parts
of the world. The Company conducts comprehensive marketing
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and sales programs that include strategic partner development, public relations,
direct mail, advertising, seminars, trade shows and ongoing client
communications programs. Sales and marketing personnel are located at the
Company's headquarters in Massapequa, New York and in field offices located in
Pennsylvania and Ohio. The Company expects to open two additional domestic sales
and support offices in fiscal 2000. During the latter half of fiscal 1998, the
Company opened two international sales and support offices in Amsterdam,
Netherlands and Sydney, Australia. The mission of the international offices is
to seek viable distributors in their region of operation and to technically
support RIMS products.
The Company obtains sales leads through partners, advertising, seminars,
trade shows and relationships with industry consultants and other key players. A
typical sales cycle begins with the generation of a sales lead or the receipt of
a Request For Proposal ("RFP") from a prospective client or his representative.
After qualification of the sales lead and analysis of the prospective client's
requirements, a formal proposal in response to the RFP is prepared. The proposal
generally describes how RIMS.2001 is expected to meet the RFP requirements and
associated costs. Product demonstrations are often conducted at the prospective
client's facilities using realistic data and scenarios. Site visits to other
RIMS.2001 installations are also encouraged by the Company's sales staff. While
the sales cycle varies substantially from opportunity to opportunity, it
typically ranges from three to six months for a standard system and from six to
12 months for a system requiring substantial modification. The Company expects
that the sales cycle for the standard RIMS.2001 system will be reduced to 90 to
120 days as the system becomes more widely known through increased advertising,
including the Company's enhanced web site on the Internet.
The Company often employs an innovative conference room pilot approach for
potential new clients. The potential client is offered a fully-functioning
RIMS.2001 system for configuration, evaluation and analysis. The client executes
the RIMS.2001 application by working hands-on with a test machine in a
controlled environment. The conference room pilot offers a unique opportunity to
confront issues that a client might otherwise face in the actual operation of
its warehouse, and to work with the Company to solve potential problems prior to
full-scale system implementation. The Company believes this program is
instrumental in establishing client confidence and promoting additional
awareness of the broad functionality of the RIMS system. The conference room
pilot also enables potential clients to define additional requirements for
modification and provides mutual assurance to the Company and the client that
any defined modifications are, in fact, needed. Fees for training and consultant
services are charged to the potential client in connection with this program. At
the conclusion of the pilot period, the client has the option to request a full
refund of any license fees paid. To date, no client has requested a refund.
In addition, the Company has developed a standardized, comprehensive and
detailed implementation plan to guide new clients smoothly from contract signing
to system startup. The Company's project managers utilize this methodology to
ensure that projects are completed effectively and within budget. Depending on
the experience level of the client and the ease of host integration, a first
time client will be placed on a plan that ranges from 16 to 24 weeks after to
contract signing. Subsequent sites can typically be implemented four to eight
weeks apart.
The Company intends to supplement its marketing efforts by aligning itself
with complimentary solutions providers and technology partners. Strategic
alliances also assist the Company in keeping pace with technological
developments of the major software and hardware vendors and, in certain
instances, provide the Company with product development services. The Company
has entered into a strategic alliance with QAD, Inc., the developer of the
MFG/PRO ERP system. This relationship includes co-marketing and
technology-sharing arrangements, and provide the Company access to a very large
existing client bases. Purchasers of the MFG/PRO ERP system may be linked to
RIMS through an application program interface module that contains software of
the Company as an integral component. In addition, the Company has entered into
a Solutions Integrator Agreement with Symbol Technologies, Inc. as an authorized
reseller of its products and licensed software.
The Company has developed an interface to SAP AG's ("SAP") R/3 ERP system,
which is SAP certified. The Company believes its SAP-certified interface will
make its RIMS.2001 product significantly more attractive to SAP clients.
The Company currently markets RIMS.2001 through resellers located in the
Argentina, Australia, Belgium, Israel, Luxembourg, the Netherlands, New Zealand
and the United Kingdom. The Company's resellers are
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established systems integrators with large client bases in their respective
regions. The Company's agreements with such resellers are not exclusive. The
Company intends to establish additional non-exclusive international resellers in
Europe, Africa, the Middle East and Asia.
For the fiscal years ended May 31, 1997, 1998 and 1999, approximately
3.0%, 9.8% and 10.3%, respectively, of the Company's revenues were generated
outside the United States. The Company expects that international sales will
significantly increase as it adds additional international resellers. There are
a number of risks inherent in the Company's current and proposed international
business activities. There can be no assurance that such factors will not have
an adverse effect on the ability of the Company to increase revenues from future
international sales and, consequently, on the Company's results of operations.
Product Development
The Company seeks to offer an extensive, integrated product line that
provides complete warehouse management functionality to warehouses worldwide. To
effect this strategy, the Company intends to continue to introduce new modules,
upgraded functionality and enhancements to existing products.
The Company, through its development and support personnel, works closely
with its clients and prospective clients to determine their requirements and to
design enhancements and new products to meet client needs. Using input from the
user community, the Company's steering committee will select suitable
enhancements for inclusion in future releases of RIMS.2001. Product improvements
are often initiated by client-funded modifications that can be incorporated into
the standard package. Clients benefit by funding enhancements that improve the
baseline product through lower maintenance costs and future ability to upgrade.
All Company product development is performed by its employees. The Company's
capitalized software development costs were $1,518,298, $1,562,463, and
$1,309,213 in fiscal 1997, 1998 and 1999, respectively.
The Company plans to undertake continuous product improvement to ensure
competitiveness. New modules and features are constantly being added to the
product. In May 1997, the Company released Version 3.4. In August 1997, the
Company released the first pre-configured RIMS.2001 system for the food industry
(RIMS.Food). In May 1998, the Company released Version 3.5, which features wave
planning, standard conveyor/sortation interface and modules for picking
production materials and bulk receiving. In April 1999, the Company released
Version 4.0 which, based on Internet technology, enables authorized users to
monitor and manage their warehouses and enables supply chain partners to access
order and shipment status in real time, for the cost of an Internet connection.
Version 4.0 provides Internet functionality with Microsoft Windows NT
compatibility while maintaining compatibility with UNIX.
The Company is continuing its software development efforts by designing
enhancements to RIMS.2001 using Internet and intranet-based technology,
including enhancements based on a combination of the Java language and HTML
(hypertext markup language). By incorporating this technology into RIMS.2001,
authorized users on the World Wide Web are able to access information in any
RIMS.2001 World Wide Web-enabled server, utilizing standard World Wide Web
browsers. For example, a RIMS.2001 client is able to permit its authorized users
to access its RIMS.2001 data repository via the World Wide Web, which will
reduce the burden on its client service department because the status of orders
and the location of inventory for an order may be monitored directly by the
authorized user (i.e., a retail client or plant manager). The Company's
development of an Intranet-based application (Java and HTML) permits warehouse
management and related activity (e.g. client service) to be performed entirely
through World Wide Web browsers within the confines of the client organization.
This architecture permits access to data from authorized users via a familiar
browser interface. Protection of the client's data and restriction of
unauthorized access are provided within the RIMS.2001 system. Scalability and
ease of maintenance are additional benefits of this architecture. The first
Internet- and intranet-based, Windows NT enabled RIMS.2001 Version was released
in April 1999 as Version 4.0. Version 4.2, which provides additional Internet-
and intranet-based capabilities, is expected to be available for sale in the
second quarter of fiscal 2000.
The Company intends to continue development of enhancements and to explore
new opportunities as they relate to the acceleration of electronic commerce over
the Internet. New products that extend the capabilities of a
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traditional warehouse management system, such as transportation management and
sharing data with trading partners, are typical applications of this technology.
In addition, the Company intends to continue to develop certified interfaces
with complementary third-party products, including leading ERP products.
There can be no assurance that the development of these product
enhancements will be completed successfully or that they will include the
features required to achieve market acceptance. The introduction of each new
release of RIMS.2001 has resulted in enhancements of earlier releases as the new
releases offer improved features and functionality over prior versions. At the
present time, the Company to offers maintenance services for earlier releases of
RIMS.2001, the obsolescence of earlier releases has not had and is not expected
to have a material impact on the Company's results of operations or financial
condition. Delays or difficulties associated with introductions of new features,
modules and products could have a material adverse effect on the Company's
business, results of operations or financial condition.
Competition
The market for warehouse management and distribution software and related
services is very competitive and is characterized by rapid changes in technology
and user needs and the frequent introduction of new products and product
enhancements. The Company's competitors and potential market entrants range from
small, privately-held firms to large national and international organizations
with more extensive technical staffs and technological resources, larger
marketing and sales organizations, and greater financial resources than the
Company. The Company also competes with software applications developed by the
internal management information system departments of its potential clients. The
Company, however, believes that potential clients increasingly will purchase
software applications from outside vendors, including the Company, due to high
development costs, poor support, the lack of comparable functionality,
inconsistent or delayed development schedules and lack of programming talent
within most organizations.
The Company believes that historically the market for warehouse management
and distribution software could be characterized by the size of the client or
the complexity of the client's warehouse handling environment. Competitors in
the high end of the market offered turnkey systems that typically integrated all
aspects of software, hardware and services related to the warehouse management
system, including electronic commerce functionality, real-time labor management
functionality, labor planning, tracking and management functionality, integrated
host system communications, modular software development, material handling
device control, automated storage equipment control, inbound/outbound traffic
management, and full receiving, putaway/storage, order processing, picking,
shipping, inventory control and management reporting functionality. Middle
market competitors differ from high end competitors primarily by offering
systems with limited hardware flexibility, little or no management, labor and
storage reporting, little or no radio frequency functionality and reduced
hardware and software costs. Middle market systems generally provide excellent
tracking and control, but do not actively help to manage the warehouse
operation. At the lower end of the market, competitors tend to specialize in a
specific aspect of warehouse functionality, such as receipts tracking, warehouse
data collection tasks or carousel control, and have smaller technical and
development staffs.
The Company believes that, unlike most of its competitors, it can compete
effectively in both the high end and middle segments of the market due to the
scaleability, flexibility, configurability, functionality and price of
RIMS.2001. Consequently, the Company is implementing a product family to address
the high end, the middle and the middle-to-low end market segments. The Company
has a large number of competitors in these markets and believes that its primary
competitors in these markets are McHugh Freeman and Associates, Manhattan
Associates and Catalyst International, Inc., each of which provides complete
warehouse management and distribution software. In addition, certain well-known
computer manufacturers and software developers, such as SAP AG, J.D. Edwards &
Co., BAAN Company N.V. and PeopleSoft, Inc., offer integrated manufacturing or
accounting software packages that include a warehouse management component. Many
of the Company's competitors have greater name recognition, more extensive
engineering, management and marketing capabilities and significantly greater
financial, technological and personnel resources than the Company.
9
<PAGE>
Over the last few years, as software developers began to develop software
for more than one client in the same industry, the market for warehouse
management systems has increasingly been characterized by the industry in which
the client competes. By easily tailoring RIMS.2001 to support the unique
features of certain targeted markets, the Company believes it will have a
competitive advantage in selling prospective clients in the same industry in
which similar functionality and implementation issues arise. The Company has
identified the food distribution, medical and automotive industries as its
target markets.
The Company believes that the competitive factors affecting its markets
include features such as compatibility with electronic commerce, openness,
scalability, ability to integrate with third party products, functionality,
adaptability, ease of use, product reputation, quality, performance, price,
client service and support, effectiveness of sales and marketing efforts and
company reputation. Although the Company believes that it currently competes
favorably on most factors, there can be no assurance that the Company can
maintain its competitive position against current and potential competitors,
especially those with greater financial, market presence, product functionality
and/or other resources than the Company.
Proprietary Rights, Licenses and Pricing
The Company relies on a combination of contract, copyright, trademark and
trade secret laws, and other measures to protect its proprietary information.
The Company does not have any software patents or patent applications. Trade
secret and copyright laws afford only limited protection. The Company believes
that, because of the rapid pace of technological change in the computer software
industry, trade secret and copyright protection are less significant in
affecting the Company's business, results of operations or financial condition
than factors such as the knowledge, ability and experience of the Company's
employees, frequent product enhancements and timeliness and quality of support
services.
The Company sells its products to its clients under a non-transferable
perpetual license. The Company generally licenses its products solely for the
clients' internal operations and only at designated sites. The Company also
makes available multi-site licenses. Multi-site licenses are discounted from the
first license fee for the second site and beyond. Licensing of RIMS.2001 is
based on the number of concurrent users. International license fees may be
slightly higher or lower depending on the region.
The Company does not provide source code to the client under its licenses.
The Company believes that providing source code increases the likelihood of
misappropriation or other misuse of the Company's intellectual property. The
Company has, however, entered into source code escrow agreements with certain
clients whereby, under certain circumstances, source code is made available to a
client. This is a common practice in the software industry. Under the terms of
the Company's license agreements, the Company generally owns all modifications
to its software that are implemented for a client.
The Company is not aware of any case in which its products, trademarks or
other proprietary rights infringe the property rights of third parties, but has
not performed any independent investigations to determine whether such
infringement exists. Accordingly, there can be no assurance that third parties
will not assert infringement claims against the Company in the future with
respect to current or future products or that any such assertion may not require
the Company to enter into royalty arrangements or result in litigation. As the
number of software products in the industry increases and the functionality of
these products further overlap, the Company believes that software developers
may become increasingly subject to infringement claims. Any such claims, with or
without merit, can be time consuming and expensive to defend.
Employees
As of August 25, 1999, the Company had 50 employees, of which eight were
employees primarily in management and administration, 17 in product development,
six in software services, six in client support, and 13 in sales and marketing.
The Company's employees are not represented by any collective bargaining
organization and the Company has never experienced a work stoppage. The Company
considers its relations with its employees to be satisfactory.
10
<PAGE>
Item 2. Description of Property.
The Company's headquarters are located in Massapequa, New York in
approximately 10,000 square feet of office space that is leased from Robocom
Properties, Inc., a corporation of which the principal shareholders are
currently officers or directors of the Company. See "Item 12. Certain
Relationships and Related Transactions". The annual rental on the corporate
headquarters is $168,000 (excluding operating expenses, insurance, property
taxes and assessments), subject to increases based upon fluctuations in the
prime rate, as published in the Wall Street Journal. The lease expires on
December 31, 2010. The Company also leases approximately 1,775 square feet of
office space adjacent to this facility from an unrelated lessor. The lease on
this additional space expires on February 28, 2001 and has an annual rental rate
of $35,402 (excluding operating expenses and insurance).
The Company also leases approximately 2,000 square feet in Teaneck, New
Jersey. The lease expires on January 1, 2002 and may be extended by the Company
for an additional five-year period. The lease has an annual rental rate of
$33,297 (excluding operating expenses and insurance).
The Company also leases approximately 1,300 square feet in Hoofddorp in
the Netherlands. The lease expires on April 30, 2003 and may be extended by the
Company for an additional five-year period. The Company is able to cancel the
lease on May 1, 2001 if notice is provided prior to May 1, 2000. The lease has
an annual rental rate of approximately $10,000 (excluding operating expenses and
insurance).
In addition, the Company has short-term leases for its salespeople in the
United States and Australia.
The Company believes that its existing facilities are sufficient for its
current operations.
Item 3. Legal Proceedings.
The Company is not a party to any material legal proceeding.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1999.
11
<PAGE>
Part II
Item 5. Market for Common Equity and Related Shareholder Matters.
The Company's Common Stock has been listed on The Nasdaq SmallCap Market
under the symbol RIMS since January 25, 1999. From June 26, 1997, the date of
the initial public offering of the Common Stock, to January 25, 1999, the Common
stock had been listed on The Nasdaq Stock Market. The following table represents
the high and low price information for the Company's Common Stock for each
quarterly period in fiscal 1999 and fiscal 1998 since the initial public
offering.
Fiscal 1999 Fiscal 1998
----------- -----------
High Low High Low
---- --- ---- ---
Quarter ended August 31 $4.500 $2.750 $7.719 $6.875
Quarter ended November 30 3.000 0.625 8.500 7.000
Quarter ended February 28 2.250 1.000 8.000 5.250
Quarter ended May 31 3.000 1.313 6.375 3.750
Prices listed above are determined by the over-the-counter market and
therefore do not reflect broker's fees or commissions.
As of August 25, 1999, there were 3,467,984 shares of the Company's Common
Stock outstanding held by approximately 26 shareholders of record.
The Company does not currently pay dividends on its Common Stock. It is
management's intention not to declare or pay dividends on the Common Stock, but
to retain earnings, if any, for the operation and expansion of the Company's
business.
On June 26, 1997, the Securities and Exchange Commission declared the
Company's registration statement on Form SB-2, as amended (File No. 333-27587),
effective, and the offering commenced on that date. Such registration statement
registered the sale at an offering price of $6.50 per share of 1,500,000 shares
of Common Stock by the Company and the sale, pursuant to over-allotment options
granted to the underwriters, of up to an additional 225,000 shares of Common
Stock by the Company for an aggregate of 1,725,000 shares of Common Stock
registered at an aggregate offering price of $11,212,500. BlueStone Capital
Partners LLP was the managing underwriter of the offering, and Oscar Gruss & Son
Incorporated and Coleman and Company Securities, Inc. were co-managing
underwriters (collectively, the "Representatives"). The Company also registered
under the registration statement 150,000 warrants to purchase up to an aggregate
of 150,000 shares of Common Stock at $7.80 per share (120% of the public
offering price per share) granted to the Representatives. On June 26, 1997,
1,500,000 shares of Common Stock were sold at the offering price of $6.50 per
share for an aggregate of $9,750,000. In addition, the Company received $.001
per warrant, for aggregate net proceeds of $150, in consideration of the
warrants granted to the Representatives. The over-allotment option was not
exercised and expired on August 8, 1997. Total expenses incurred through May 31,
1998 were approximately $1,590,000, consisting of $780,000 of underwriting
discounts and commissions, $173,000 for the reimbursement of expenses to
underwriters and actual expenses of approximately $637,000 of legal, accounting
and other expenses. Of the $8,160,000 of net proceeds to the Company from the
offering, $1,550,000 has been applied to the repayment of indebtedness,
$1,600,000 has been distributed to the S Corporation shareholders, $2,871,000
has been utilized for software development costs, $374,000 has been utilized for
capital expenditures, which include computers, automobiles and furniture, and
$1,765,000 has been utilized for working capital purposes, including the
establishment of domestic and international sales offices, negotiation with
international distributors and planned increases in personnel to build the
infrastructure for the Company's anticipated future revenue growth. Three
principal shareholders individually own more than 10% of the Company (both
before and after the offering).
12
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation.
Certain statements in this Report and in the documents incorporated by
reference herein constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Factors that might
cause such a difference include, among others, uncertainties relating to general
economic and business conditions; industry trends; changes in demand for the
Company's product; uncertainties relating to client plans and commitments and
the timing of orders received from clients; announcements or changes in pricing
policies by the Company or its competitors; unanticipated delays in the
development, market acceptance or installation of the Company's products;
availability of management and other key personnel; availability, terms and
deployment of capital; relationships with third-party equipment suppliers;
governmental export and import policies; global trade policies; and worldwide
political stability and economic growth. The words "believe", "expect",
"anticipate", "intend" and "plan" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date the statement
was made.
Overview
The Company's principal activities include marketing and support of
comprehensive warehouse management software systems. In addition to its core
business, the Company also provides, to a limited extent, system integration
services in support of office client server systems. The Company licenses its
RIMS warehouse management systems and, in connection with its other system
integration services, certain third-party software products; it provides related
services (including customization and modification, project management, training
and implementation) and maintenance support; and it sells related third-party
hardware products. Prior to fiscal 1997, the Company's revenues were principally
derived from highly-customized RIMS warehouse systems and adaptations that
required substantial modifications to meet the functionality required by
clients. Over the past two fiscal years, the Company's has replaced virtually
all of the customized revenues with revenues from the sale of the Company's
standard RIMS.2001 warehouse management software system. In addition, since the
Company's introduction of the standard RIMS.2001 product in fiscal 1995, the
rate of RIMS.2001 installations has increased from a total of five installations
in the fiscal year ended May 31, 1996 to 25 installations in the fiscal year
ended May 31, 1999. The Company expects RIMS.2001 and related revenues to
continue to account for a substantial portion of the Company's revenue for the
foreseeable future. As a result, the Company's future operating results are
significantly dependent upon continued market acceptance of RIMS.2001 and
enhancements thereto. In addition, since a substantial portion of the Company's
revenues in any fiscal period are derived from relatively few sales of
RIMS.2001, both the number of new sales of RIMS.2001 and the timing of orders
for, and installations of, new systems in any fiscal period, has caused and is
expected to continue to cause, significant fluctuations in revenue from period
to period.
The Company's revenues are derived from software license fees, fees for
services, sales of hardware and maintenance fees. Software license fees include
revenue from the licensing of the Company's proprietary RIMS.2001 software and
revenue from the sublicensing of certain third-party software. Software license
fee revenue is recorded when the software has been delivered, the license
agreement with the client has been executed and collection of the resulting
receivable is deemed probable. Service revenues are derived from project
management, customization and modification of licensed software, training,
on-site support and implementation services. Service revenues are recorded when
the service is performed. Hardware revenues are derived from the Company's
resale of a variety of third-party hardware products on behalf of other
manufacturers, including computer hardware, radio frequency equipment, bar code
printers and other peripherals. Such revenues are recognized when the title to
such hardware passes to the client. Clients typically enter into one-year
maintenance agreements with the Company upon the completion of the software
utilization and pay maintenance fees annually or monthly in advance. The Company
recognizes revenue from each maintenance agreement ratably over the period
covered by the agreement, but is only required to perform maintenance services
as and when they are requested by the client. Historically, all of the Company's
RIMS.2001 clients have entered into, and substantially all of the Company's
RIMS.2001 clients have renewed, maintenance agreements with the Company.
13
<PAGE>
The Company's total revenues in any period are becoming less dependent
upon a relatively small number of large sales. Revenues from the Company's five
largest clients in each of fiscal 1997, 1998 and 1999 accounted for
approximately 50%, 34% and 33% of total revenues, respectively. The Company
expects that this declining trend will continue as the Company further
penetrates the market with its RIMS.2001 products.
Costs of revenues represents the cost of software modification, system
implementation and other services, hardware and maintenance support. Costs of
services and costs of maintenance consist primarily of labor costs for client
support, including personnel costs, and costs relating to subcontracted services
and overhead. Typically, costs of maintenance associated with the Company's
standard maintenance contract decrease over the life of the maintenance
contract. The number of programmers and service and support personnel employed
by the Company was 34, 43 and 29 at May 31, 1997, 1998 and 1999, respectively.
Programmers also function as engineers in the development of software, as
described below. Cost of hardware consists primarily of the cost of hardware
sold by the Company on behalf of other manufacturers.
Amortization of software development costs consists of the amortization of
costs of engineering personnel and related development expenses, such as the
development of software tools and documentation, capitalized starting at the
point technological feasibility is demonstrated. The Company believes that a
significant level of investment in software development is essential to achieve
and maintain a market leadership position. The Company capitalized $1,518,298,
$1,562,463 and $1,309,213 in fiscal 1997, 1998 and 1999, respectively, for
software development costs. Research and developments costs for these periods
were not significant. The Company employed 18, 24 and 17 software development
employees at May 31, 1997, 1998 and 1999, respectively, some of which also
functioned as programmers for the installation or modification of the Company's
software. Amortization of software development costs has increased primarily due
to the commencement of amortization of capitalized software development costs
for RIMS.2001 Version 3.4 in August 1997, RIMS.Food in August 1997, Version 3.5
in May 1998, and Version 4.0 in April 1999, the month in which such versions
were first available for sale. RIMS.2001 has been technologically feasible since
1992 and salable since the beginning of fiscal 1995. The Company's past, current
and planned product development efforts are directed at enhancing and improving
RIMS.2001. Version 3.5, features wave planning, standard conveyor/sortation
interface and modules for picking production materials and bulk receiving.
Version 4.0, based on Internet technology, enables authorized users to monitor
and manage their warehouses and enables supply chain partners to access order
and shipment status in real time, for the cost of an Internet connection.
Version 4.0 provides Internet functionality with Microsoft Windows NT
compatibility while maintaining compatibility with UNIX. Version 4.2, which
provides additional Internet- and intranet-based capabilities, is expected to be
available for sale in the second quarter of fiscal 2000. The Company anticipates
that the dollar amount of the costs capitalized will decrease in the latter half
of fiscal 2000. However, amortization of software development expenses will
increase as new RIMS.2001 releases become available for sale. As a percentage of
total revenue, however, the Company anticipates that amortization of software
development expenses will decrease as revenues increase.
Selling, general and administrative expenses consist primarily of salaries
for sales, marketing, administrative, executive and financial personnel,
commissions paid to sales personnel and travel and promotional expenses. The
sales and marketing, general and administrative staff consisted of 17, 24 and 21
employees at May 31, 1997, 1998 and 1999, respectively. The Company believes
that its selling, general and administrative expenses will increase marginally
in fiscal 2000. The Company anticipates that such expense will decrease as a
percentage of total revenues as revenues increase.
14
<PAGE>
Results of Operations:
The following table sets forth, for the periods indicated, certain
statement of operations data:
(In thousands)
<TABLE>
<CAPTION>
Year ended May 31,
---------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Revenue:
Software license fees .................... $ 1,241 $ 1,670 $ 1,166
Services .................................. 2,741 2,266 2,802
Hardware .................................. 2,352 2,560 2,301
Maintenance ............................... 1,179 1,048 1,276
------- ------- -------
Total revenues ............................ 7,513 7,544 7,545
------- ------- -------
Cost of revenue:
Cost of license fees ...................... 193 389 280
Cost of services .......................... 1,280 2,163 1,511
Cost of hardware .......................... 1,842 2,491 1,924
Cost of maintenance ....................... 707 709 1,193
------- ------- -------
Total cost of revenues .................... 4,022 5,752 4,908
------- ------- -------
Amortization of software
development costs ........................ 441 730 1,085
------- ------- -------
Gross margin ................................ 3,050 1,062 1,552
Selling, general & administrative
expenses .................................. 1,199 3,234 3,799
------- ------- -------
Income (loss) from operations ............... 1,851 (2,172) (2,247)
Interest expense (income), net .............. 34 (173) (85)
------- ------- -------
Income (loss) before income taxes ........... 1,817 (1,999) (2,162)
Provision (benefit) for income taxes ........ -- 722 (678)
Proforma provision (benefit) for income taxes 763 (128) --
------- ------- -------
Net income (loss) ........................... $ 1,054 $(2,593) $(1,484)
======= ======= =======
</TABLE>
Comparison of Fiscal Years Ended May 31, 1998 and May 31, 1999
Revenue. Total revenue remained relatively constant from $7,543,798 in the
year ended May 31, 1998 to $7,544,989 in the year ended May 31, 1999. Software
license fees decreased by approximately 30% in fiscal 1999 as compared to fiscal
1998 due to lower domestic sales which, in part, were due to domestic sales of
multisite licenses at a discount to existing clients during fiscal 1999.
Services revenues increased by approximately 24% in fiscal 1999 as compared to
fiscal 1998, primarily due to higher revenues from training, installation and
other services for sites sold in the latter half of fiscal 1998 and offset, in
part, by a lower number of installations of computer system networks and office
software in fiscal 1999. Hardware revenues decreased by approximately 10% in
fiscal 1999 as compared to fiscal 1998, primarily due to decreased sales of
RIMS-related hardware in connection with system installations. Maintenance
revenues increased by approximately 22% in fiscal 1999 as compared to fiscal
1998, due primarily to the larger number of maintenance contracts in fiscal 1999
as compared to fiscal 1998.
Cost of Revenues. Total cost of revenues decreased by approximately 15%
from $5,751,847 in fiscal 1998 to $4,907,471 in fiscal 1999. As a percentage of
revenue, total cost of revenues decreased from approximately 76% in fiscal 1998
to approximately 65% in fiscal 1999. As a percentage of license fee revenues,
cost of license fees increased slightly to approximately 24% in fiscal 1999 as
compared to approximately 23% in fiscal 1998. The increase is due to higher fees
for third party software in fiscal 1999 as compared to fiscal 1998. As a
percentage of
15
<PAGE>
services revenues, the cost of services was significantly lower in fiscal 1999
as compared to fiscal 1998 primarily due to higher billable support services and
slightly higher services revenues for modifications. Additionally, during the
fiscal 1998 period, the Company increased its infrastructure, including the
hiring of additional personnel for the Company's anticipated future revenue
growth. As a percentage of hardware revenues, the cost of hardware was lower in
fiscal 1999 due to decreased sales of the lower-cost RIMS related hardware. As a
percentage of maintenance revenues, the cost of maintenance was significantly
higher in fiscal 1999 period due to the maintenance of a larger number of RIMS
versions and language translations. The cost of maintenance is expected to
substantially decline as the Company's clients gain experience using RIMS.
Amortization of Software Development Costs. Amortization of software
development costs increased by approximately 49% from $729,943 in fiscal 1998 to
$1,084,867 in fiscal 1999. The increase was due to the commencement of
amortization of capitalized software development costs for RIMS.2001 Version 3.5
and several language translations in May 1998 and Version 4.0 in April 1999, the
month in which such versions were first available for sale. As a percentage of
revenue, the amortization of software development costs were approximately 10%
in fiscal 1998 and approximately 14% in fiscal 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by approximately 18% from $3,233,605 in fiscal
1998 to $3,799,846 in fiscal 1999. As a percentage of revenue, selling, general
and administrative expenses increased from approximately 43% in fiscal 1998 to
approximately 50% for the 1999 period. The increase in selling, general and
administrative expenses was primarily due to a full year of expenses associated
with the international offices.
Interest Expense (Income), net. Interest income decreased by $104,635 to
$85,352 in fiscal 1999 as compared to $189,987 in fiscal 1998. The decrease is
primarily due to the utilization of the proceeds from the Company's initial
public offering of 1,500,000 shares of common stock for sale to the public on
June 26, 1997 (the "Offering") for software development and working capital
requirements. The Company had no interest expense in fiscal 1999 as compared to
$17,180 in fiscal 1998. The decrease was 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 for fiscal 1999 consisted of a tax benefit reflected at 40% of the loss
before the provision for income taxes for the periods subsequent to the
Offering, limited to the net deferred tax credits. A valuation allowance of
$221,442 was provided because of uncertainty, based on the Company's historical
operating results, with respect to realization of deferred tax assets.
Comparison of Fiscal Years Ended May 31, 1997 and May 31, 1998
Revenue. Total revenue remained relatively consistent from $7,513,490 in
the year ended May 31, 1997 to $7,543,798 in the year ended May 31, 1998.
Software license fees increased by approximately 35% in fiscal 1998 as compared
to fiscal 1997 primarily due to the increase in RIMS.2001 software licenses from
17 during fiscal 1997 to 29 during fiscal 1998. Services revenues decreased by
approximately 17% in fiscal 1998 as compared to fiscal 1997, primarily due to
the decreasing level of services relating to the installation of
highly-configured, pre-RIMS.2001 systems originally contracted for prior to
fiscal 1996. Hardware revenues increased by approximately 9% in fiscal 1998 as
compared to fiscal 1997, primarily due to increased sales of hardware by the
Company in connection with its system installations. Maintenance revenues
decreased by approximately 11% in fiscal 1998 as compared to fiscal 1997, due
primarily to the larger number of maintenance contracts in operation during such
period offset by the expiration of a significant pre-RIMS.2001 maintenance
contract in the third quarter of fiscal 1997. Without the expired pre-RIMS.2001
maintenance contract revenues in the fiscal 1997 period, maintenance revenues
increased by approximately 5% in fiscal 1998 as compared to fiscal 1997.
Cost of Revenues. Total cost of revenues increased by approximately 43%
from $4,021,883 in fiscal 1997 to $5,751,847 in fiscal 1998. As a percentage of
revenue, total cost of revenues increased from approximately 54% in fiscal 1997
to approximately 76% in fiscal 1998. As a percentage of license fee revenues,
cost of license fees increased to approximately 23% in fiscal 1998 as compared
to approximately 16% in fiscal 1997. The increase was due to distributor fees
related to certain international sales of software licenses, which began in the
1998 period, and
16
<PAGE>
higher fees for third party software in fiscal 1998 as compared to fiscal 1997.
As a percentage of services revenues, the cost of services was significantly
higher in fiscal 1998 as compared to fiscal 1997 primarily due to higher
salaries and related overhead and the hiring of additional personnel, including
project management, trainers and programmers, and, to a lesser extent, to costs
for training incurred for the Company's international distributors. These
increases furthered management's plan to build the infrastructure for the
Company's anticipated future revenue growth. As a percentage of hardware
revenues, the cost of hardware was higher in fiscal 1998 due to the type of
hardware installed, which primarily consisted of computer systems networks that
has significantly lower margins as compared to warehouse management system
hardware. As a percentage of maintenance revenues, the cost of maintenance was
significantly lower in fiscal 1998 period due to a lower level of required
maintenance as compared to fiscal 1997 and the expiration in fiscal 1997 of a
pre-RIMS.2001 maintenance contract which incurred higher maintenance costs.
Amortization of Software Development Costs. Amortization of software
development costs increased by approximately 65% from $441,291 in fiscal 1997 to
$729,943 in fiscal 1998. The increase was due to the commencement of
amortization of capitalized software development costs for RIMS.2001 Version 3.4
in August 1997, RIMS.Food in August 1997 and Version 3.5 in May 1998, the month
in which such versions were first available for sale. As a percentage of
revenue, the amortization of software development costs were approximately 6% in
fiscal 1997 and approximately 10% in fiscal 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by approximately 170% from $1,199,515 in
fiscal 1997 to $3,233,605 in fiscal 1998. As a percentage of revenue, selling,
general and administrative expenses increased from approximately 16% in fiscal
1997 to approximately 43% for the 1998 period. The increase in selling, general
and administrative expenses was primarily due to hiring additional salespersons
and marketing personnel, salaries and related expenses incurred for the opening
of two international offices, and increases in advertising costs and travel
expenses incurred in connection with the establishment of domestic and
international sales and support offices. These increases furthered management's
plan to build the infrastructure for the Company's anticipated future revenue
growth. In addition, the Company established a $200,000 reserve for doubtful
accounts primarily relating to its one of its clients.
Interest Expense (Income), net. Interest income increased by $166,735 to
$189,987 in fiscal 1998 as compared to $23,252 in fiscal 1997. The increase is
primarily due to the investment of the proceeds from Offering. Interest expense
decreased to $17,180 in fiscal 1998 as compared to $57,473 in fiscal 1997. The
decrease is due to the repayment in July 1997 of the bank note payable with
proceeds from the Offering.
Pro Forma Provision (Benefit) for Income Taxes. The pro forma provision
(benefit) for income taxes is reflected at 42% of the income (loss) before the
provision (benefit) for income taxes for the periods preceding the Offering.
Provision for Income Taxes. The provision for income taxes for fiscal 1998
consisted of a tax benefit reflected at 42% of the loss before the provision for
income taxes for the periods subsequent to the Offering offset by a one-time,
non-cash charge for deferred income taxes in the amount of $1,433,302 resulting
from the termination of the Company's S Corporation status upon the Company's
initial public offering on June 26, 1997. This charge primarily relates to
temporary differences for software development costs.
Fluctuations in Operating Results
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future, depending upon a number of factors, such as the length of
the Company's sales cycle, the unanticipated cancellation of significant license
agreements, the timing of new version releases by the Company and its
competitors, budgeting cycles of the Company's clients, demand for the Company's
software, software life cycles, acceptance of new software introduced by the
Company and its competitors, the size and timing of client orders, changes in
the proportion of revenues attributable to software
17
<PAGE>
license fees versus services, changes in the level of operating expenses and
general economic conditions. In addition, a significant portion of the Company's
revenues has been derived from relatively few sales of licenses for RIMS.2001,
and, consequently, the timing of such sales has caused material fluctuations in
the Company's operating results. Accordingly, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as an indication of future performance.
The Company completed the Offering on June 26, 1997. The weighted average number
of shares in the proforma earnings per share for fiscal year ended May 31, 1997
does not include the shares issued by the Company in connection with the
Offering. If such shares had been included in the weighted average shares,
proforma earnings per share for the fiscal year ended May 31, 1997 would have
been $.30 per share.
Because the Company recognizes a significant portion of revenues over the
installation period of the system (which, although designed to be completed in
approximately four months, generally ranges from four to eight months in
duration as a result of the client's scheduling requirements) and because
installation commences promptly after execution of the related license
agreement, the Company does not maintain a significant backlog. Software license
fees for each quarter depend in part on orders for which implementation has
begun during that quarter and on license agreements under implementation that
were executed in prior quarters. The sales cycle for RIMS.2001 typically ranges
from four to six months, and contract signing may be delayed for a number of
reasons, including client budgetary constraints and internal authorization
reviews. In addition, delays in the completion of a contract may require that
the revenues associated with such contract be recognized over a longer period.
Consequently, the Company's business, results of operations or financial
condition for a quarter could be materially adversely affected by implementation
delays.
Liquidity and Capital Resources
During fiscal 1999, the Company funded its operations primarily through
cash flow from operations and cash generated from the proceeds from the
Offering. In fiscal 1998, the Company funded its operations primarily through
cash generated from the proceeds from the Offering, and in fiscal 1997, the
Company funded its operations from cash flow from operations, bank borrowings
and loans from officers. The Company has a bank line of credit (the "Line of
Credit"), which expires on September 30, 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 May 31, 1999). 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. There were no amounts outstanding under the Line of Credit
at May 31, 1999 or August 25, 1999. The Company does not intend to renew this
Line of Credit.
Net cash provided by operating activities was $290,251 in fiscal 1999. Net
cash provided by operating activities was $1,417,984 in fiscal 1997, and net
cash used in operating activities was $1,222,183 in fiscal 1998. Cash flows from
operations increased in the 1999 period due to lower unbilled revenues and
accounts receivable.
The Company capitalized $1,518,298, $1,562,463 and $1,309,213 in fiscal
1997, 1998 and 1999, respectively, for software development costs. The Company
did not have any material commitments for software development costs as of May
31, 1999. Any such costs will be financed through working capital.
As of May 31, 1999, the Company had $101,148 in cash and cash equivalents,
$1,144,136 in marketable securities and total working capital of $1,881,089.
Management believes that cash flow from operations and existing cash and
cash equivalents and marketable securities, will be sufficient to meet the
Company's currently anticipated working capital and software development
requirements for the next 12 months. The Company's working capital needs for the
next 12 months include approximately $900,000 for software development costs.
18
<PAGE>
The Company does not currently pay dividends on its Common Stock. It is
management's intention not to declare or pay dividends on the Common Stock, but
to retain earnings, if any, for the operation and expansion of the Company's
business.
Inflation and Seasonality
The Company does not believe its operations have been materially affected
by inflation. The Company's business is seasonal as the first quarter of the
fiscal year generally reflects lower revenues due principally to the
inaccessibility of clients during the summer months.
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.
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.
19
<PAGE>
Item 7. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Form 10-KSB
Page Numbers
Report of Independent Auditors ........................................ 21
Balance Sheets as of May 31, 1998 and 1999 ............................ 22
Statements of Operations for the years ended May 31, 1997, 1998
and 1999 ............................................................ 23
Statements of Shareholders' Equity for the years ended May 31, 1997,
1998 and 1999 ....................................................... 24
Statements of Cash Flows for the years ended May 31, 1997, 1998
and 1999 ............................................................ 25
Notes to Financial Statements ......................................... 26
20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Robocom Systems International Inc.
We have audited the accompanying balance sheets of Robocom Systems International
Inc. as of May 31, 1999 and 1998, and the related statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended May 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Robocom Systems International
Inc. at May 31, 1999 and 1998, and the results of its operations, and its cash
flows for each of the three years in the period ended May 31, 1999 in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Melville, New York
July 14, 1999
21
<PAGE>
ROBOCOM SYSTEMS INTERNATIONAL INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
May 31,
-------------------------------
1998 1999
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ........................................ $ 384,034 $ 101,148
Short-term investments ........................................... 1,914,852 1,144,136
Accounts receivable, less allowance for doubtful accounts of
$203,660 in 1998 and $145,204 in 1999 .......................... 1,904,284 1,694,241
Unbilled revenue ................................................. 924,298 272,733
Deferred taxes ................................................... 152,577 177,305
Other current assets ............................................. 142,086 242,580
------------ ------------
Total current assets ............................................... 5,422,131 3,632,143
Property and equipment, net ........................................ 389,127 314,872
Software development costs, net .................................... 4,407,862 4,632,208
Other assets ....................................................... 17,922 15,991
------------ ------------
Total assets ....................................................... $ 10,237,042 $ 8,595,214
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable ................................................. $ 187,954 $ 294,579
Accrued expenses ................................................. 916,164 946,981
Deferred revenue ................................................. 227,549 509,494
------------ ------------
Total current liabilities .......................................... 1,331,667 1,751,054
Deferred tax liabilities ........................................... 874,703 221,444
------------ ------------
Total liabilities .................................................. 2,206,370 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 May 31, 1998 and 1999 34,680 34,680
Additional paid-in capital ....................................... 10,571,882 10,571,882
Retained deficit ................................................. (2,415,403) (3,899,259)
Deferred compensation ............................................ (160,487) (84,587)
------------ ------------
Total shareholders' equity ......................................... 8,030,672 6,622,716
------------ ------------
Total liabilities and shareholders' equity ......................... $ 10,237,042 $ 8,595,214
============ ============
</TABLE>
See accompanying notes.
22
<PAGE>
ROBOCOM SYSTEMS INTERNATIONAL INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended May 31,
-----------------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Software license fees .................................. $ 1,241,511 $ 1,670,118 $ 1,166,149
Services ............................................... 2,741,206 2,265,516 2,801,392
Hardware ............................................... 2,351,833 2,559,895 2,301,221
Maintenance ............................................ 1,178,940 1,048,269 1,276,227
----------- ----------- -----------
Total revenues ......................................... 7,513,490 7,543,798 7,544,989
----------- ----------- -----------
Cost of revenues:
Cost of license fees ................................... 192,525 389,086 279,687
Cost of services ....................................... 1,280,379 2,162,589 1,511,037
Cost of hardware ....................................... 1,841,628 2,490,603 1,924,014
Cost of maintenance .................................... 707,351 709,569 1,192,733
----------- ----------- -----------
Total cost of revenues ................................. 4,021,883 5,751,847 4,907,471
Amortization of software development costs ............... 441,291 729,943 1,084,867
----------- ----------- -----------
4,463,174 6,481,790 5,992,338
----------- ----------- -----------
Gross margin ............................................. 3,050,316 1,062,008 1,552,651
----------- ----------- -----------
Selling, general and administrative expenses ............. 1,199,515 3,233,605 3,799,846
----------- ----------- -----------
Income (loss) from operations ............................ 1,850,801 (2,171,597) (2,247,195)
Interest income and other ................................ 23,252 189,987 85,352
Interest expense and other ............................... (57,473) (17,183) --
----------- ----------- -----------
Income (loss) before provision (benefit) for income taxes 1,816,580 (1,998,793) (2,161,843)
Provision (benefit) for income taxes ..................... -- 722,126 (677,987)
----------- ----------- -----------
Net income (loss) ........................................ 1,816,580 (2,720,919) $(1,483,856)
===========
Pro forma unaudited provision (benefit) for income taxes 762,964 (128,317)
----------- -----------
Pro forma unaudited net income (loss) .................... $ 1,053,616 $(2,592,602)
=========== ===========
Pro forma unaudited net income (loss) for 1997 and 1998
and net loss for 1999 per basic and diluted share ...... $ .45 $ (.77) $ (.43)
=========== =========== ===========
Weighted average shares outstanding ...................... 2,352,599 3,365,244 3,467,984
=========== =========== ===========
</TABLE>
See accompanying notes.
23
<PAGE>
ROBOCOM SYSTEMS INTERNATIONAL INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
----------------------
Additional Retained Total
Par Value Paid-In Earnings Deferred Shareholders'
Shares $.01 Capital (Deficit) Compensation Equity
--------- ------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1996 ...... 1,936,400 $19,364 $ 89,436 $ 3,153,170 $ (90,000) $ 3,171,970
Net income ................. -- -- -- 1,816,580 -- 1,816,580
Distributions to
S Corporation shareholders -- -- -- (900,000) -- (900,000)
Deferred compensation ...... 31,584 316 173,396 -- (173,712) --
Amortization of deferred
compensation ............. -- -- -- -- 27,325 27,325
--------- ------- ----------- ----------- ----------- -----------
Balance, May 31, 1997 ...... 1,967,984 $19,680 $ 262,832 $ 4,069,750 $ (236,387) $ 4,115,875
Net loss ................... -- -- -- (2,720,919) -- (2,720,919)
Initial Public Offering .... 1,500,000 15,000 8,144,816 -- -- 8,159,816
Distributions to
S Corporation shareholders -- -- -- (1,600,000) -- (1,600,000)
Reclassification of
S Corporation earnings ... -- -- 2,164,234 (2,164,234) -- --
Amortization of deferred
compensation ............. -- -- -- -- 75,900 75,900
--------- ------- ----------- ----------- ----------- -----------
Balance, May 31, 1998 ...... 3,467,984 34,680 10,571,882 (2,415,403) (160,487) 8,030,672
Net loss ................... -- -- -- (1,483,856) -- (1,483,856)
Amortization of deferred
compensation ............. -- -- -- -- 75,900 75,900
--------- ------- ----------- ----------- ----------- -----------
Balance, May 31, 1999 ...... 3,467,984 $34,680 $10,571,882 $(3,899,259) $ (84,587) $ 6,622,716
========= ======= =========== =========== =========== ===========
</TABLE>
See accompanying notes.
24
<PAGE>
ROBOCOM SYSTEMS INTERNATIONAL INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended May 31,
-------------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities
Net income (loss) .................................. $ 1,816,580 $ (2,720,919) $ (1,483,856)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation ................................... 16,335 43,273 108,895
Provision (benefit) for deferred taxes ......... -- 722,126 (677,987)
Amortization of software development costs ..... 441,291 729,943 1,084,867
Amortization of deferred compensation .......... 27,325 75,900 75,900
Provision (credit) for bad debts ............... (28,124) 192,360 30,000
Changes in operating assets and liabilities:
Accounts receivable .......................... (678,093) (724,927) 180,043
Unbilled revenue ............................. (480,031) 379,090 651,565
Other current assets ......................... (61) (140,727) (100,494)
Accounts payable ............................. 168,476 (357,410) 106,625
Accrued expenses ............................. 82,157 433,685 30,817
Deferred revenue ............................. 30,413 154,808 281,945
Other assets ................................. 21,716 (9,385) 1,931
------------ ------------ ------------
Net cash provided by (used in) operating activities 1,417,984 (1,222,183) 290,251
------------ ------------ ------------
Investing activities
Software development costs ......................... (1,518,298) (1,562,463) (1,309,213)
Purchase of short-term investments ................. -- (13,042,984) (12,332,532)
Redemption of short-term investments ............... -- 11,128,132 13,103,248
Capital expenditures ............................... (60,701) (374,217) (34,640)
------------ ------------ ------------
Net cash used in investing activities .............. (1,578,999) (3,851,532) (573,137)
------------ ------------ ------------
Financing activities
Net borrowings (payments) of bank note payable ..... 1,300,000 (1,300,000) --
Net proceeds from sale of common stock ............. -- 8,308,684 --
Deferred registration costs ........................ (148,868) -- --
Distributions of S corporation retained earnings to
S corporation shareholders ....................... (900,000) (1,600,000) --
Net repayments of officer loans .................... (645,000) -- --
------------ ------------ ------------
Net cash (used in) provided by financing activities (393,868) 5,408,684 --
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents ... (554,883) 334,969 (282,886)
Cash and cash equivalents at beginning of year ..... 603,948 49,065 384,034
------------ ------------ ------------
Cash and cash equivalents at end of year ........... $ 49,065 $ 384,034 $ 101,148
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest ........................... $ 66,161 $ 21,892 $ --
============ ============ ============
</TABLE>
See accompanying notes.
25
<PAGE>
Robocom Systems International Inc.
Notes to Financial Statements
Robocom Systems International Inc. (the "Company") was incorporated in
June 1982 in the State of New York. The Company is engaged in the development
and marketing of automated warehouse management systems and related software,
which is used by various commercial enterprises located in the United States and
abroad. Since June 1994, the Company licenses and installs its proprietary
software product RIMS.2001, which is an "off-the-shelf" inventory management
system. The Company also provides related services, including modification,
project management, training, implementation support, maintenance and the sale
of hardware and third party software.
The Company completed its initial public offering of 1,500,000 shares of
common stock for sale to the public on June 26, 1997 (the "Offering"). Proceeds
from the Offering were approximately $8,160,000, net of expenses of $1,590,000.
1. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentration of Credit Risk
The Company's client base is comprised of large clients in diversified
industries. Ongoing credit evaluations of its clients' financial condition are
made and generally no collateral is required. For the year ended May 31, 1997,
the Company had two clients that accounted for 21% and 13% of total revenues.
For the year ended May 31, 1998, none of the Company's clients accounted for 10%
or more of total revenues. For the year ended May 31, 1999, the Company had one
client that accounted for 10% of total revenues. Revenues from the Company's
five largest clients in each of fiscal 1997, 1998 and 1999 accounted for
approximately 50%, 34% and 33% of total revenues, respectively. Management does
not believe significant credit risk exists at May 31, 1999.
Carrying Value of Financial Instruments
The carrying value of the Company's financial instruments, such as cash
and cash equivalents and short-term investments approximate their fair values.
Revenue Recognition
The Company's revenues are derived from software license fees, fees for
services, sales of hardware and maintenance contracts. Software license fees
include revenue from the licensing of the Company's proprietary RIMS.2001
software and revenue from the sublicensing of certain third-party software.
Software license fee revenue is recorded when the software has been delivered,
the license agreement with the client has been executed, and collection of the
resulting receivable is deemed probable. Service revenues are derived from
project management, training, on-site support and implementation services, and,
to a lesser extent, from customization and modification of licensed software.
The majority of service revenues are recorded when the service is performed.
Service revenues for project management and modifications are recorded using the
percentage of completion method. Hardware revenues are derived from the sale of
products of other manufacturers, including computer hardware, radio frequency
equipment, bar code printers and other peripherals. Such revenues are recognized
when title to such hardware passes to the client. Clients typically enter into
one-year maintenance agreements with the Company upon utilization of RIMS.2001
and pay maintenance fees annually or monthly in advance. The Company
26
<PAGE>
Robocom Systems International Inc.
Notes to Financial Statements (continued)
recognizes revenue from each maintenance agreement ratably over the period
covered by the agreement, but is only required to perform maintenance services
as and when the client requests them. The Company recognized revenues, in all
periods presented, in accordance with the American Institute of Certified Public
Accountants Statement of Position 97-2, "Software Revenue Recognition." Unbilled
revenues represent aggregate revenues earned in excess of related billings and
are shown as a current asset. Deferred revenues relate to billings in advance of
the services and are shown as a current liability.
During fiscal 1999, the Company adopted Statement of Position (SOP) 97-2,
"Software Revenue Recognition" and SOP 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, with Respect to Certain Transactions", which amends
paragraphs 11 and 12 of SOP 97-2, to require recognition of revenue using the
residual method under certain circumstances. SOP 98-9 also amends SOP 98-4,
"Deferral of the Effective Date of a Provision of SOP 97-2, Software Revenue
Recognition", to extend the deferral of the application of certain passages of
SOP 97-2 provided by SOP 98-4 through fiscal years beginning on or before March
15, 1999. All other provisions of SOP 98-9 are effective for transactions
entered into in fiscal years beginning after March 15, 1999. The Company will
adopt this statement and such adoption is not expected to have a material effect
on the Company's financial statements.
Software Development Costs
Software development costs have been capitalized in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed." The capitalization
of these costs begins when a product's technological feasibility has been
established, and ends when the product is available for general release to
clients. The establishment of technological feasibility and the ongoing
assessment of recoverability of capitalized software development costs require
considerable judgment by management with respect to certain external factors,
including, but not limited to, technological feasibility, anticipated future
gross revenues, estimated economic life, and changes in software and hardware
technologies. The Company capitalizes software development costs associated with
each subsequent enhancement of its product upon the achievement of technological
feasibility. Software development costs including enhancements are amortized to
cost of revenue using the straight-line method over five years or the expected
life of the product, whichever is less. Research and development costs incurred
prior to the establishment of technological feasibility are expensed as
incurred. Such amounts for the periods presented are not significant.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents.
Short-term Investments
Short-term investments consist of U.S. Government securities and
commercial paper which are not cash equivalents. All investments are classified
as available-for-sale and are available to support current operations. These
investments are valued at amortized cost, which approximates fair value because
of the short maturities of these investments.
Property and Equipment
Property and equipment consists of furniture, computers, automobiles,
other office equipment and leasehold improvements. The Company depreciates the
cost of furniture, computers, automobiles and other office equipment using the
straight-line method over the estimated useful lives (three to five years).
Leasehold improvements are amortized over the shorter of the term of the lease
or the life of the asset.
27
<PAGE>
Robocom Systems International Inc.
Notes to Financial Statements (continued)
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share." Basic earnings per
share excludes any dilutive effects of options and warrants. All earnings
(losses) per share amounts for all periods are presented in conformity with
Statement 128 requirements.
Pro Forma Net Income (Loss) Per Share
Pro forma net income (loss) per share is based on the weighted average
number of shares of common stock outstanding during the period. For the year
ended May 31, 1997, the weighted average number of shares includes the portion
of the shares offered by the Company that would be necessary to fund the
distribution of S Corporation earnings ($2,500,000) based on the initial public
offering price of $6.50 per share. For the year ended May 31, 1997, the common
stock issuance of 31,584 shares in May 1997 is treated as outstanding.
Stock Options
Statement of Financial Accounting Standard ("SFAS") No. 123, "Accounting
for Stock-Based Compensation" defines a fair value method of accounting for the
issuance of stock options and other equity instruments. Under the fair value
method, compensation cost is measured at the grant date based on the fair value
of the award and is recognized over the service period, which is usually the
vesting period. Pursuant to SFAS No. 123, companies are encouraged, but are not
required, to adopt the fair value method of accounting for employee stock-based
transactions. Companies are also permitted to continue to account for such
transactions under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", but are required to disclose in the financial
statement footnotes, pro forma net income and per share amounts as if the
Company had applied the new method of accounting for all grants made since 1997.
SFAS No. 123 also requires increased disclosures for stock-based compensation
arrangements. The Company adopted the disclosure requirements of SFAS No. 123.
Income Taxes
Prior to the Offering, the Company elected to operate under Subchapter S
of the Internal Revenue Code and, consequently, was not subject to Federal and
certain state income taxes. The shareholders included their proportionate share
of the Company's taxable income (loss) in their personal tax returns for federal
and certain state income tax purposes. Concurrent with the closing of the
Offering, the Company terminated its status as an S Corporation and became
subject to Federal and state income taxes. The pro forma information presented
on the statements of income reflects a provision for such income taxes for the
period prior to the offering at an effective rate of 42%. As a result of the
termination of the Company's S Corporation status on June 25, 1997, the Company
recorded a one-time, non-cash charge against earnings for deferred income taxes
which was primarily related to temporary differences for software development
costs.
The Company provides for income taxes under SFAS No. 109, "Accounting for
Income Taxes," which employs an asset and liability approach in accounting for
income taxes payable or refundable at the date of the financial statements as a
result of all events that have been recognized in the financial statements and
as measured by the provisions of enacted laws.
Advertising Costs
Advertising costs are expensed as incurred and for the years ended May 31,
1997, 1998 and 1999 amounted to approximately $63,000, $298,000 and $347,000,
respectively.
28
<PAGE>
Robocom Systems International Inc.
Notes to Financial Statements (continued)
Segment Reporting
The Company operates in one business segment, which is the development and
marketing of automated warehouse management systems. In fiscal 1999, the Company
adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131 supersedes SFAS 14, "Financial Reporting for Segments of
a Business Enterprise," and requires that a public company report annual and
interim financial and descriptive information about its reportable operating
segments pursuant to criteria that differ from current accounting practice.
Operating segments as defined are components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision-maker in deciding how to allocate resources and in
assessing performance.
The Company's revenues by geographic markets are summarized below:
May 31,
--------------------------------------------------
1997 1998 1999
---------- ---------- ----------
Domestic ........... $7,284,578 $6,801,762 $6,764,662
Europe ............. 120,820 453,929 482,801
Pacific ............ -- 225,615 215,391
Other .............. 108,092 62,492 82,135
---------- ---------- ----------
$7,513,490 $7,543,798 $7,544,989
========== ========== ==========
2. Shareholders' Equity
Capital Stock
Effective May 15, 1997, the Company's Board of Directors and shareholders
approved an amendment to the Company's Certificate of Incorporation to increase
the authorized common shares from 2,000,000 to 10,000,000 and to authorize
1,000,000 shares of par value $.01 preferred stock. The terms and conditions of
the preferred stock, of which no shares have been issued, will be set by the
Board of Directors of the Company.
Common Stock Split
Effective May 15, 1997, the Board of Directors and shareholders voted to
effect a 1.88-for-1 split of the Company's common stock in the form of a common
stock dividend. All share amounts have been restated to reflect the stock split.
Stock Option Plan
Effective May 15, 1997, the Board of Directors and shareholders approved
the Company's Stock Option and Long-term Incentive Compensation Plan (the
"Plan") for the issuance of up to 325,000 shares of the Company's common stock.
Effective November 4, 1998, the Board of Directors and shareholders approved for
the issuance of an additional 325,000 shares of the Company's common stock.
Outstanding options were granted at an exercise price equal to or in excess of
the prevailing market price on the grant date. These options contain a vesting
schedule determined at the date of grant. Incentive stock options are granted to
employees. All other options granted, including those granted to directors and
consultants, are nonqualified options.
29
<PAGE>
Robocom Systems International Inc.
Notes to Financial Statements (continued)
The following summarizes stock option activity during fiscal 1999:
Shares
under Weighted-Average
Option Exercise Price
------- ----------------
Balance, June 1, 1997 -- --
Grants 328,075 $ 6.74
Canceled (2,900) $ 6.50
-------
Balance, May 31, 1998 325,175 $ 6.74
Grants 155,000 $ 1.95
Cancelled (51,750) $ 6.34
-------
Balance, May 31, 1999 428,425 $ 5.04
=======
The following table summarized information about these plans at May 31,
1998 and May 31, 1999:
<TABLE>
<CAPTION>
May 31, 1998 May 31, 1999
------------ ------------
Options Options
Options Outstanding Exercisable Options Outstanding Exercisable
------------------- ----------- ------------------- -----------
Weighted Weighted
Average Average
Remaining Remaining
Exercise Contractual Contractual
Prices Shares Life Shares Shares Life Shares
------ ------ ---- ------ ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
$1.281 -- -- -- 10,000 2.6 years --
$2.000 -- -- -- 145,000 2.8 years --
$5.375 5,000 2.9 years -- -- -- --
$6.125 7,500 2.8 years -- -- -- --
$6.500 187,675 2.1 years 10,000 148,425 1.1 years 58,225
$7.000 15,000 4.1 years -- 15,000 3.1 years 3,000
$7.150 110,000 3.1 years -- 110,000 2.1 years 42,972
------- ------ ------- -------
325,175 10,000 428,425 104,197
======= ====== ======= =======
</TABLE>
The weighted-average fair value of options granted during the years ended
May 31, 1998 and May 31, 1999 was $2.16 per share and $1.30 per share,
respectively.
In April 1999, stock options to purchase 90,000 shares of common stock at
an exercise price of $2.00 were granted to the President and Chief Executive
Officer of the Company, under his employment agreement. These stock options vest
subject to the Company's net profit, as defined, for each of the next three
fiscal years.
In connection with the Offering, the managing underwriters, received
five-year warrants to purchase up to 150,000 shares of common stock at an
exercise price of $7.80 per share.
Pro forma information regarding net income (loss) and net income (loss)
per share is required by SFAS No. 123, which also requires that the information
be determined as if the Company had accounted for its employee stock option
grants under the fair value method required by SFAS No. 123. The fair value of
each option grant has been estimated as of the date of grant using the
Black-Scholes option pricing model with the following assumptions:
30
<PAGE>
Robocom Systems International Inc.
Notes to Financial Statements (continued)
May 31, 1998 May 31, 1999
------------ ------------
Expected life .............. 3-5 years 3-5 years
Interest rate .............. 5.5% 5.5%
Volatility ................. 0.385 1.0442
Dividend yield ............. 0% 0%
If the Company had recognized compensation cost for stock-based employee
compensation in accordance with SFAS No. 123, the Company's net loss for the
years ended May 31, 1998 and May 31, 1999 would have increased as follows:
<TABLE>
<CAPTION>
May 31, 1998 May 31, 1999
------------ ------------
<S> <C> <C>
Pro forma net loss:
As reported ................................. ($ 2,592,602) ($ 1,483,856)
Pro forma in accordance with SFAS No. 123 ... ($ 2,772,317) ($ 1,625,350)
Pro forma basic and diluted net loss per share:
As reported ................................. $ (.77) $ (.43)
Pro forma in accordance with SFAS No. 123 ... $ (.82) $ (.47)
</TABLE>
The compensation expense and pro forma net income(loss) may not be
indicative of amounts to be included in future periods.
Deferred Compensation
In February 1996, the Company issued 56,400 shares of common stock to
certain employees under a restricted stock agreement. Compensation expense,
representing the fair value ($90,000) of the common shares issued to these
employees, is recognized ratably over the five-year vesting period. In May 1997,
31,584 shares of common stock were issued to an employee of the Company who
performs various accounting and administrative services. These shares have
certain restrictions as to transferability. Compensation expense, representing
the excess of the fair value ($173,712) of the common shares over the amount
paid for such stock, is recognized ratably over the three-year vesting period.
Shareholder Distributions
The Company made distributions to its S Corporation shareholders in the
amount of $382,500 and $517,500 on April 11, 1997 and May 16, 1997,
respectively, and, on July 1, 1997, an additional final distribution of
$1,600,000 was made to such shareholders.
31
<PAGE>
Robocom Systems International Inc.
Notes to Financial Statements (continued)
3. Detail of Certain Balance Sheet Accounts
Property and Equipment, net
Property and equipment, net, consist of the following:
May 31,
-------------------------
1998 1999
--------- ---------
Equipment ................... $ 417,299 $ 452,526
Furniture and fixtures ...... 158,303 157,716
Automobiles ................. 55,088 55,088
Leasehold improvements ...... 15,317 15,317
--------- ---------
646,007 680,647
Less accumulated depreciation (256,880) (365,775)
--------- ---------
$ 389,127 $ 314,872
========= =========
Software Development Costs, net
Software development costs, net, consist of the following:
May 31,
-----------------------------
1998 1999
----------- -----------
Software development costs .. $ 6,187,414 $ 7,496,627
Less accumulated amortization (1,779,552) (2,864,419)
----------- -----------
$ 4,407,862 $ 4,632,208
=========== ===========
Accrued Expenses
Accrued expenses consist of the following:
May 31,
----------------------
1998 1999
-------- --------
Payroll and related taxes ........... $327,160 $254,908
Accrued hardware costs .............. 262,718 105,498
Customer deposits and other ......... 175,765 374,241
Accrued third party software costs... 150,521 212,334
-------- --------
$916,164 $946,981
======== ========
4. Employee Benefit Plan
The Company has a 401(k) defined contribution plan. This plan covers
virtually all full-time employees subject to certain service requirements. Under
the terms of the 401(k) plan, the Company will match 50% of an employee's
contribution up to 4% of the participating employee's compensation. Effective
May 30, 1998, the Company's
32
<PAGE>
Robocom Systems International Inc.
Notes to Financial Statements (continued)
pension plan was merged into the 401(k) defined contribution plan. Plan expenses
for each of the years ended May 31, 1997, 1998 and 1999 amounted to $117,000,
$49,000 and $54,000, respectively.
5. Income Taxes
Deferred tax assets and liabilities are determined based on the difference
between the financial accounting and the tax bases of assets and liabilities.
Significant components of the Company's deferred tax assets and liabilities as
of May 31, 1998 and 1999 are as follows:
May 31, 1998 May 31, 1999
------------ ------------
Deferred tax assets:
Accrued expenses ............... $ 67,040 $ 119,223
Allowance for doubtful accounts 85,537 58,082
Net operating loss carryforwards 933,245 1,781,231
Deferred compensation .......... 43,355 71,650
---------- ----------
Total deferred tax assets ........ 1,129,177 2,030,186
Valuation allowance .............. -- 221,442
---------- ----------
Net deferred tax assets .......... 1,129,177 1,808,744
Deferred tax liabilities:
Software development costs ..... 1,851,303 1,852,883
---------- ----------
Net deferred tax liabilities ..... $ 722,126 $ 44,139
========== ==========
The valuation allowance at May 31, 1999 was provided because of
uncertainty, based on the Company's historical results, with respect to
realization of deferred tax assets.
The components of the tax provision (benefit) for the years ended May 31,
1998 and 1999 are as follows:
1998 1999
---- ----
Deferred:
Federal ...................... $ 584,578 ($446,567)
State ........................ 137,548 (231,420)
--------- ---------
Total .......................... $ 722,126 ($677,987)
========= =========
The provision (benefit) for income taxes for the fiscal years ended May
31, 1998 and 1999 differs from the statutory U.S. federal income tax rate due to
the following:
1998 1999
------ ------
Federal statutory tax rate ............... (34.0%) (34.0%)
State income taxes, net of Federal benefit (8.0) (7.1)
Valuation allowance ...................... -- 10.2
Cumulative effect of termination of
S corporation status ................... 71.7 --
Loss attributable to period prior
to termination of S corporation status 6.4 --
Other .................................... -- (.5)
------ ------
36.1% (31.4%)
====== ======
33
<PAGE>
Robocom Systems International Inc.
Notes to Financial Statements (continued)
At May 31, 1999, the Company has net operating loss carryforwards of
approximately $4.4 million for income tax purposes which may be able to reduce
taxable income in future years. The utilization of these losses to reduce future
income taxes will depend on the generation of sufficient taxable income prior to
the expiration of the net operating loss carryforwards. Net operating loss
carryforwards will expire through May 31, 2019.
6. Related Party Transactions
The Company leases its principal facilities from Robocom Properties, Inc.
("Properties"). The shareholders of Properties are also shareholders of the
Company. The Company has paid to Properties rent of $168,000 for each of the
three years in the period ended May 31, 1999. In connection with the purchase by
Properties in 1989 of the Company's corporate headquarters building, the Company
guaranteed three mortgage loans in an aggregate original principal amount of
$1,053,000 that mature in 2010 and bear interest at rates ranging from 8.25% to
8.877% per annum. At May 31, 1999, the outstanding aggregate principal amount of
the mortgage loans was approximately $762,000.
As of April 1999, the chairman of the board and a principal shareholder of
the Company entered into a three year consulting agreement with the Company to
provide consulting services with respect to new product development and related
technical matters. During fiscal 1999, consulting fees of approximately $3,000
were paid under this agreement. During fiscal 1998, a director and principal
shareholder of the Company entered into a three-year consulting agreement with
the Company to provide consulting services. During fiscal 1998 and 1999,
consulting fees of approximately $12,000 and $23,000, respectively, were paid
under this agreement.
7. Lease Commitments
The Company is obligated, under noncancellable operating leases covering
its facilities (Note 6) and certain equipment and automobiles, to pay minimum
annual rentals of approximately:
Fiscal year ending:
2000.................................................. $ 262,000
2001.................................................. 250,000
2002.................................................. 168,000
2003.................................................. 168,000
2004.................................................. 168,000
2005 and thereafter................................... 1,106,000
----------
$2,122,000
==========
Total rental expense for each of the years ended May 31, 1997, 1998 and
1999 amounted to approximately $193,000, $236,000, and $301,000, respectively.
8. Bank Note Payable and Loans Payable to Officers
Bank Note Payable
The Company has a line of credit facility with a bank that provides
for maximum borrowings of $2,000,000 and expires on September 30, 1999. Amounts
outstanding under the line of credit are due upon demand and are collateralized
by the Company's assets. Interest is payable at the bank's prime interest rate
(7.75% at May 31, 1999). At May 31, 1999, no borrowings were outstanding under
the line of credit. The amount available under the line of credit is reduced by
a $150,000 standby letter of credit with the same bank, which is being utilized
as
34
<PAGE>
Robocom Systems International Inc.
Notes to Financial Statements (continued)
collateral for a vendor and which expires on December 31, 1999. In the future,
however, the Company may borrow against this or a subsequent line of credit.
Loans Payable to Officers
During fiscal 1997, the Company repaid the remaining loan balance of
$645,000 borrowed from its principal stockholders. Such loans bore interest at
8% in fiscal 1997. Interest expense related to the loans payable to officers for
the year ended May 31, 1997 amounted to approximately $40,000.
35
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Sections 16(a) of the Exchange Act
Directors and Executive Officers
Information regarding the Directors of the Company is incorporated by
reference to the section entitled "Election of Directors" appearing in the
Company's Proxy Statement for the Annual Meeting of Stockholders to be filed
with the Securities and Exchange Commission (the "Commission") within 120 days
after the end of the Company's fiscal year ended May 31, 1999.
Item 10. Executive Compensation.
Information regarding executive compensation is incorporated by reference
to the information set forth under the caption "Executive Compensation" in the
Company's Proxy Statement for the Annual Meeting of Stockholders to be filed
with the Commission within 120 days after the end of the Company's fiscal year
ended May 31, 1999.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Information regarding security ownership of certain beneficial owners and
management is incorporated by reference to the information set forth under the
caption "Security Ownership of Certain Beneficial Owners and Management
Ownership" in the Company's Proxy Statement for the Annual Meeting of
Stockholders to be filed with the Commission within 120 days after the end of
the Company's fiscal year ended May 31, 1999.
Item 12. Certain Relationships and Related Transactions.
Information regarding certain relationships and related transactions is
incorporated by reference to the information set forth under the caption
"Certain Relationships and Related Transactions" in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be filed with the Commission
within 120 days after the end of the Company's fiscal year ended May 31, 1999.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit
Number Description
- ------ -----------
3.1 Restated Certificate of Incorporation of the Company (incorporated
herein by reference to Exhibit 3.1 to the Company's Registration
Statement on Form SB-2 (Registration No. 333-27587)).
3.2 Amendment dated November 9, 1998 to Restated Certificate of
Incorporation of the Company to reflect name change to Robocom
Systems International Inc.
3.3 Amended and Restated By-laws of the Company (incorporated herein by
reference to Exhibit 3.2 to the Company's Registration Statement on
Form SB-2 (Registration No. 333-27587)).
36
<PAGE>
Item 13. Exhibits and Reports on Form 8-K. (continued)
10.1 Lease Agreement, dated December 19, 1996, between Carriage IV Office
Center, L.L.C. and the Company (incorporated herein by reference to
Exhibit 10.6 to the Company's Registration Statement on Form SB-2
(Registration No. 333-27587)).
10.2 Lease Agreement, dated December 21, 1989, between Robocom
Properties, Inc. and the Company relating to 511 Ocean Avenue,
Massapequa, New York (incorporated herein by reference to Exhibit
10.7 to the Company's Registration Statement on Form SB-2
(Registration No. 333-27587)).
10.3 Guaranty dated December 21, 1989 from the Company to New York Job
Development Authority. (incorporated herein by reference to Exhibit
10.10 to the Company's Annual Report on Form 10-KSB for the year
ended May 31, 1997 as filed with the Commission on September 25,
1997 (File No. 0-22735)).
10.4 Guaranty dated December 14, 1989 from the Company to Long Island
Development Authority. (incorporated herein by reference to Exhibit
10.11 to the Company's Annual Report on Form 10-KSB for the year
ended May 31, 1997 as filed with the Commission on September 25,
1997 (File No. 0-22735)).
10.5 Consulting Agreement, dated May 15, 1997, between the Company and
Herbert Goldman (incorporated herein by reference to Exhibit 10.8 to
the Company's Registration Statement on Form SB-2 (Registration No.
333-27587)).
10.6 Consulting Agreement, dated April 1, 1999, between the Company and
Irwin Balaban (incorporated herein by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10QSB for the quarter ended
February 28, 1999 as filed with the Commission on April 14, 1999
(File No. 0-22735)).
10.7 Employment Agreement, dated May 15, 1997, between the Company and
Lawrence B. Klein (incorporated herein by reference to Exhibit 10.9
to the Company's Registration Statement on Form SB-2 (Registration
No. 333-27587)).
10.8 Employment Agreement, dated as of March 29, 1999, between the
Company and David Dinin.
10.9 Employment Agreement, dated May 15, 1997, between the Company and
Robert O'Connor (incorporated herein by reference to Exhibit 10.12
to the Company's Registration Statement on Form SB-2 (Registration
No. 333-27587)).
10.10 1997 Stock Option and Long-Term Incentive Compensation Plan
(incorporated herein by reference to Exhibit 10.14 to the Company's
Registration Statement on Form SB-2 (Registration No. 333-27587)).
10.11 General Loan and Security Agreement, dated April 13, 1994, between
the Company and The Bank of New York (incorporated herein by
reference to Exhibit 10.15 to the Company's Registration Statement
on Form SB-2 (Registration No. 333-27587)).
10.12 Letter Agreement dated January 5, 1999 between the Company and The
Bank of New York. (incorporated herein by reference to Exhibit 10.1
to the Company's Form 10-QSB for the quarter ended November 30, 1998
as filed with the Commission on January 15, 1999 (File No. 0-22735).
37
<PAGE>
Item 13. Exhibits and Reports on Form 8-K. (continued)
10.13 Tax Indemnification Agreement, dated June 6, 1997, between the
Company and certain shareholders of the Company (incorporated herein
by reference to Exhibit 10.21 to the Company's Annual Report on Form
10-KSB for the year ended May 31, 1997 as filed with the Commission
on September 25, 1997 (File No. 0-22735)).
27 Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of
fiscal 1999.
38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized, in Massapequa, New
York, on August 27, 1999.
ROBOCOM SYSTEMS INTERNATIONAL INC.
By: /s/David Dinin
-------------------------------------
David Dinin
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates stated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David Dinin President and Chief Executive Officer August 27, 1999
- ---------------------------- (Principal Executive Officer) and Director
David Dinin
/s/ Elizabeth A. Burke Vice President - Finance and Chief Financial August 27, 1999
- ---------------------------- Officer (Principal Accounting Officer)
Elizabeth A. Burke
/s/ Irwin Balaban Director August 27, 1999
- ----------------------------
Irwin Balaban
/s/ Lawrence B. Klein Director August 27, 1999
- ----------------------------
Lawrence B. Klein
/s/ Herbert Goldman Director August 27, 1999
- ----------------------------
Herbert Goldman
/s/ Barry J. Gordon Director August 27, 1999
- ----------------------------
Barry J. Gordon
/s/ Mark Behrman Director August 27, 1999
- ----------------------------
Mark Behrman
</TABLE>
39
<PAGE>
Exhibit Index
Exhibit
Number Description
- ------ -----------
3.2 Amendment dated November 9, 1998 to Restated Certificate of
Incorporation of the Company to reflect name change to Robocom
Systems International Inc.
10.8 Employment Agreement, dated as of March 29, 1999, between the
Company and David Dinin.
27 Financial Data Schedule
40
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
ROBOCOM SYSTEMS INC.
Pursuant to Section 805 of the
Business Corporation Law
The undersigned, being the President and Secretary, respectively, of
Robocom Systems, Inc., a New York corporation, hereby certifies and sets forth
as follows:
1. The corporation was incorporated under the name "Robocom Systems Inc."
and the Certificate of Incorporation of the corporation was filed with the
Department of State of the State of New York on June 30, 1982 and was amended on
October 30, 1995 and restated on June 18, 1997.
2. The corporation hereby amends its Certificate of Incorporation as
follows:
Paragraph FIRST of the Restated Certificate of Incorporation, relating to
the corporate name of the corporation is hereby amended to change the name of
the corporation and should read as follows:
"FIRST: That the name of the corporation is Robocom Systems
International Inc. (the "Corporation")."
3. The amendment effected herein was authorized and adopted by a vote of
the board at a meeting of the board of directors of the corporation held on
August 14, 1998, followed by a vote of a majority of all outstanding shares
entitled to vote thereon at the annual meeting of the shareholders of the
corporation held on November 4, 1998, pursuant to Sections 801, 803 and 805 of
the Business Corporation Law of the State of New York.
IN WITNESS WHEREOF, the undersigned, President and Secretary of the
Corporation, have each executed this Amendment on November 9, 1998, and each
affirms that the statements contained herein are affirmed as true under
penalties of perjury.
ROBOCOM SYSTEMS INC.
/s/ Irwin Balaban
------------------------
Irwin Balaban, President
/s/ Lawrence B. Klein
------------------------
Lawrence B. Klein, Secretary
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of March 29, 1999, by and between Robocom
Systems International Inc., a New York corporation (the "Company"), and David
Dinin (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Employee as President and Chief
Executive Officer and wishes to acquire and be assured of Employee's continued
services on the terms and conditions hereinafter set forth;
WHEREAS, the Employee desires to be employed by the Company as President
and Chief Executive Officer and to perform and to serve the Company on the terms
and conditions hereinafter set forth; and
NOW THEREFORE, in consideration of the mutual terms, covenants, agreements
and conditions hereinafter set forth, the Company and the Employee hereby agree
as follows:
1. Employment. The Company hereby employs the Employee to serve as a full
time employee of the Company, and the Employee hereby accepts such employment
with the Company, for the period set forth in Section 2 hereof. The Employee's
principal place of employment shall be at the Company's offices in Massapequa,
New York, or at such other location as shall be mutually acceptable to the
Employee and the Company.
2. Term.
(a) Unless earlier terminated as provided in this Agreement, the
term of the Employee's employment under this Agreement shall be for a period
beginning on the date hereof and ending on March 31, 2002 (such period or, if
the Employee's employment hereunder is earlier terminated, such shorter period,
or if Employee's employment is extended under paragraph (b) below, such longer
period, being hereinafter called the "Employment Term").
(b) The term of this Agreement shall automatically be extended for
an additional one-year period on April 1, 2002 and on each April 1 thereafter
unless, not later than the January 31 immediately preceding such April 1, the
Company shall have given notice that it does not wish to extend this Agreement
or Employee shall have notified the Company that he wishes to leave the employ
of the Company on the expiration date of the then current term of this
Agreement.
3. Duties and Authority.
(a) Duties. The Employee shall be employed as President and Chief
Executive Officer of the Company, and shall perform such duties at such times
and places and in such
<PAGE>
manner as the Board of Directors of the Company may from time to time reasonably
direct or such other duties appropriate to a senior executive managerial
position as the Board of Directors shall from time to time determine. Except as
otherwise may be approved in advance by the Board of Directors of the Company,
and except during vacation periods, disability periods pursuant to Section
7(a)(iii) and reasonable periods of absence due to sickness, personal injury or
other disability, the Employee shall devote Employee's full time throughout the
Employment Term to the services required of Employee hereunder. Except as
otherwise provided in Section 3(d) below, the Employee shall render Employee's
services exclusively to the Company during the Employment Term and shall use
Employee's best efforts, judgment and energy to improve and advance the business
and interests of the Company in a manner consistent with the duties of
Employee's position.
(b) Authority. The Employee shall have all the usual and necessary
authority, duties and responsibilities of a President and Chief Executive
Officer, in the operation of the Company's business, including but not limited
to responsibility for administrative, operations, marketing, production and
business development matters. The Employee shall report directly to the Board of
Directors of the Company at all times during the Employment Term.
(c) Board Membership. The Company will use its best efforts to cause
the Board of Directors to nominate the Employee for election as a management
nominee of the Board of Directors of the Company as long as Employee is employed
by the Company.
(d) Outside Activities. The Company agrees that the Employee has
various investments and business and not for profit interests which he may
pursue if such pursuits do not materially interfere with his duties hereunder.
Further, provided such activities are not in conflict or in competition with the
Company's interests, and the Company's trade secrets are not jeopardized in any
manner, and the time and energy the Employee devotes to such activities do not
significantly impair his ability to act satisfactorily as Employer's President
and Chief Executive Officer, the Employee shall be permitted to act in such
other capacities outside his employment with the Company as may be agreed from
time to time between the Board of Directors and the Employee.
4. Salary and Stock Options.
(a) Salary. In consideration for the services of the Employee
rendered to the Company hereunder, the Company shall pay the Employee a base
salary at an annual rate of $250,000 during the Employment Term, payable in
regular intervals in accordance with the Company's payroll practices. The
Employee's base salary shall be increased annually by 5% and also in accordance
with Section 4(c) below.
(b) Stock Options. On April 1, 1999, the Company will grant to the
Employee, pursuant to and subject to the terms of the Company's 1997 Stock
Option and Long-Term Incentive Compensation Plan (the "Option Plan") and an
option grant agreement, incentive stock options to purchase 50,000 of shares
common stock, $.01 par value ("Common Stock"), at an exercise price equal to
100% of the Fair Market Value (as defined in the Option Plan) of the
-2-
<PAGE>
Common Stock as of the date of grant (the "Exercise Price"). Subject to Section
9 of this Agreement, such options shall vest over a three year period in equal
increments on each anniversary of the date of grant and shall expire on the
fifth anniversary of the date of grant.
(c) Incentives. In addition to the salary and options referred to in
Section 4(a) and (b), respectively, Employee shall be entitled to (i) annual
salary increases, and (ii) an option to purchase 90,000 shares of Common Stock
at the Exercise Price ("Incentive Options") to be issued on the date hereof and
subject to the three-year vesting schedule below as such options are earned. The
salary increases and option vesting with respect to each of (i) and (ii) above
shall be based upon the Company's net profit before taxes determined in
accordance with generally accepted accounting principles consistent with past
practices ("Net Profit") for the four fiscal quarters ending with the quarter
ending May 31 as set forth below:
4 fiscal quarters 4 fiscal quarters 4 fiscal quarters
ending ending ending
May 31, 2000 May 31, 2001 May 31, 2002
------------ ------------ ------------
Option Salary Option Salary Option Salary
NET PROFIT Vesting Increase Vesting Increase Vesting Increase
---------- ------- -------- ------- -------- ------- --------
$0
to
$499,999 3,000 0 0 0 0 0
$500,000
to
$999,999 10,000 5% 5,000 0 5,000 0
$1,000,000
to
$1,500,000 20,000 5% 20,000 0 20,000 0
Above
$1,500,000 30,000 5% 30,000 5% 30,000 5%
All Incentive Options shall be issued pursuant to the Option Plan and an option
grant agreement and shall expire on the fifth anniversary of the date of grant.
Any portion of the Incentive Options which do not vest in accordance with the
above schedule shall terminate and be null and void. For example, if Net Profit
is $750,000 for the four fiscal quarters ending May 31, 2000, 10,000 options of
the 90,000 granted shall vest and 20,000 options shall terminate.
Notwithstanding the above, if the full 90,000 options granted to Employee have
not vested by May 31, 2002, Employee shall be entitled, and such options shall
immediately vest, to (i) 60,000 options less the number previously vested if Net
Profit is between $3,000,000 and $4,500,000 for the 12 fiscal
-3-
<PAGE>
quarters ended May 31, 2002, or (ii) 90,000 options less the number previously
vested if Net Profit is in excess of $4,500,000 for the 12 fiscal quarters ended
May 31, 2002.
(d) Withholding, Etc. The payment of any amounts hereunder shall be
subject to income tax, social security and other applicable withholdings, as
well as such deductions as may be required under the Company's employee benefit
plans.
5. Benefits.
(a) During the Employment Term, the Employee shall be:
(i) eligible to participate in all employee fringe benefits
and any pension and/or profit sharing plans that may be provided by the
Company for its key executive employees in accordance with the provisions
of any such plans, as the same may be in effect on and after the date
hereof;
(ii) eligible to participate in any medical and health plans
or other employee welfare benefit plans that may be provided by the
Company for its key executive employees in accordance with the provisions
of any such plans, as the same may be in effect on and after the date
hereof;
(iii) entitled to annual paid vacation in accordance with the
Company policy that may be applicable on and after the date hereof to key
executive employees;
(iv) entitled to sick leave, sick pay and disability benefits
in accordance with any Company policy that may be applicable on and after
the date hereof to key executive employees; and
(v) entitled to reimbursement for all reasonable and necessary
out-of-pocket business expenses incurred by the Employee in the
performance of Employee's duties hereunder in accordance with the
Company's policies applicable (on and after the date hereof) thereto.
(b) The Company acknowledges and agrees that, to fulfill his duties
hereunder, the Employee will need, and the Company will provide the Employee
with, the use of an automobile of Employee's choice for business use at the
headquarters of the Company in Massapequa, New York. The Employee will be given
a monthly automobile allowance of $1,200 which shall be used to pay all costs
attributable to that automobile, including leasing fees and the costs of repair,
servicing and insurance. The Company will pay for fuel and oil for the
automobile.
6. Inventions and Confidential Information. The Employee hereby covenants,
agrees and acknowledges as follows:
-4-
<PAGE>
(a) The Company is engaged in a continuous program of research,
design, development, production, marketing and servicing with respect to its
business.
(b) The Employee's employment hereunder creates a relationship of
confidence and trust between the Employee and the Company with respect to
certain information pertaining to the business of the Company and its Affiliates
(as hereinafter defined) or pertaining to the business of any client or customer
of the Company or its Affiliates which may be made known to the Employee by the
Company or any of its Affiliates or by any client or customer of the Company or
any of its Affiliates or learned by the Employee during the period of Employee's
employment by the Company.
(c) The Company possesses and will continue to possess information
that has been created, discovered or developed by, or otherwise become known to
it (including, without limitation, information created, discovered or developed
by, or made known to, the Employee during the period of Employee's employment or
arising out of Employee's employment) or in which property rights have been or
may be assigned or otherwise conveyed to the Company, which information has
commercial value in the business in which the Company is engaged and is treated
by the Company as confidential.
(d) Any and all inventions, products, discoveries, improvements,
processes, manufacturing, marketing and services methods or techniques,
formulae, designs, styles, specifications, data bases, computer programs
(whether in source code or object code), know-how, strategies and data, whether
or not patentable or registrable under copyright or similar statutes, made,
developed or created by the Employee (whether at the request or suggestion of
the Company, any of its Affiliates, or otherwise, whether alone or in
conjunction with others, and whether during regular hours of work or otherwise)
during the period of Employee's employment by the Company which may pertain to
the business, products, or processes of the Company or any of its Affiliates
(collectively hereinafter referred to as "Inventions"), will be promptly and
fully disclosed by the Employee to an appropriate executive officer of the
Company (other than the Employee) without any additional compensation therefor,
all papers, drawings, models, data, documents and other material pertaining to
or in any way relating to any Inventions made, developed or created by Employee
as aforesaid. For the purposes of this Agreement, the term "Affiliate" or
"Affiliates" shall mean any person, corporation or other entity directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company. For the purposes of this definition, "control" when
used with respect to any person, corporation or other entity means the power to
direct the management and policies of such person or entity, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
(e) The Employee will keep confidential and will hold for the
Company's sole benefit any Invention which is to be the exclusive property of
the Company under this Section 6 for which no patent, copyright, trademark or
other right or protection is issued.
-5-
<PAGE>
(f) The Employee also agrees that the Employee will not without the
prior approval of the Board of Directors of the Company (i) use for Employee's
benefit or disclose at any time during Employee's employment by the Company, or
thereafter, except to the extent required by the performance by Employee of
Employee's duties as an employee of the Company, any information obtained or
developed by Employee while in the employ of the Company with respect to any
Inventions or with respect to any customers, clients, suppliers, products,
employees, financial affairs, or methods of design, distribution, marketing,
service, procurement or manufacture of the Company or any of its Affiliates, or
any confidential matter, except information which at the time is generally known
to the public other than as a result of disclosure by Employee not permitted
hereunder, or (ii) take with Employee upon leaving the employ of the Company any
document or paper relating to any of the foregoing or any physical property of
the Company or any of its Affiliates.
(g) The Employee acknowledges and agrees that a remedy at law for
any breach or threatened breach of the provisions of this Section 6 would be
inadequate and, therefore, agrees that the Company and its Affiliates shall be
entitled to injunctive relief in addition to any other available rights and
remedies in case of any such breach or threatened breach; provided, however,
that nothing contained herein shall be construed as prohibiting the Company or
any of its Affiliates from pursuing any other rights and remedies available for
any such breach or threatened breach.
(h) The Employee agrees that upon termination of Employee's
employment by the Company for any reason, the Employee shall forthwith return to
the Company all documents and other property in Employee's possession belonging
to the Company or any of its Affiliates.
(i) Without limiting the generality of Section 9 hereof, the
Employee hereby expressly agrees that the foregoing provisions of this Section 6
shall be binding upon the Employee's heirs, successors and legal
representatives.
7. Termination. (a) The Employee's employment hereunder shall be
terminated upon the occurrence of any of the following:
(i) death of the Employee;
(ii) termination of the Employee's employment hereunder by the
Employee at any time for any reason whatsoever (including, without
limitation, resignation or retirement) other than for "good reason" as
contemplated by clause (v)(B) below;
(iii) termination of the Employee's employment hereunder by
the Company because of the Employee's inability to perform Employee's
duties on account of disability or incapacity for a period of one hundred
eighty (180) or more days, whether or not consecutive, occurring within
any period of twelve (12) consecutive months;
-6-
<PAGE>
(iv) termination of the Employee's employment hereunder by the
Company at any time for "cause" (as hereinafter defined), such termination
to take effect immediately upon written notice from the Company to the
Employee; and
(v) termination of the Employee's employment hereunder (A) by
the Company at any time, other than termination by reason of disability or
incapacity as contemplated by clause (iii) above or termination by the
Company for "cause" as contemplated by clause (iv) above and (B) by the
Employee for "good reason" (as hereinafter defined).
The following actions, failures or events shall constitute "cause"
for termination for purposes of this Agreement: (1) conviction of having
committed a felony, (2) acts of dishonesty or moral turpitude which are
materially detrimental to the Company and/or its Affiliates, (3) failure by the
Employee to obey the reasonable and lawful orders of the Board of Directors of
the Company or (4) negligence by the Employee in the performance of, or willful
disregard by the Employee of, Employee's obligations hereunder; provided,
however, that the occurrence of any action, failure or event referred to in
clause (3) or (4) above shall not constitute "cause" until Employee shall have
been furnished notice of such action, failure or event and failed to cure such
action, failure or event within 30 days of his receipt of such notice.
The following actions, failures or events shall constitute "good
reason" for purposes of this Agreement: (1) a material breach by the Company of
its obligations under this Agreement, (2) a material diminution of the
Employee's responsibilities or authority hereunder, (3) the failure of the
Company or the Board of Directors to nominate the Employee for election at the
Company's Annual Meeting to serve as a director of the Company, or (4) the
Company relocates its principal office outside the New York metropolitan area
without Employee's consent.
(b) In the event that the Company has terminated the Employee's
employment without cause or the Employee has terminated his employment for "good
reason", then this Agreement shall nonetheless be deemed terminated, and (i) the
Employee shall not be entitled to any benefits under this Agreement other than
those which have accrued as of the termination date, except that the Company
shall pay the Employee his base salary under Section 4(a); provided, however, if
Employee terminates for "good reason" with less than six (6) months left under
his Employment Term, Employee shall receive his base salary for a six (6) month
period after termination, and (ii) the Employee shall be entitled to the
continuation of medical and health benefits through the term of this Agreement
comparable to those benefits furnished by the Company to the Employee on the
date of termination. The Company and the Employee agree that the payments made
pursuant to this Section 6(b) shall be paid to the Employee as consideration for
the non-competition provisions set forth in Section 8(a)(x) hereof and that if
the Employee is no longer employed by the Company and the non-competition
provisions set forth in Section 8(a)(x) extend beyond the term of this
Agreement, the payments made pursuant to this Section 6(b) shall be paid to the
Employee through the date of termination of his agreement not to compete.
-7-
<PAGE>
(c) Notwithstanding anything to the contrary expressed or implied
herein, except as required by applicable law and except as set forth in Section
6(b) above, the Company (and its Affiliates) shall not be obligated to make any
payments to the Employee or on Employee's behalf of whatever kind or nature by
reason of the Employee's cessation of employment (including, without limitation,
by reason of termination of the Employee's employment by the Company for
"cause"), other than (i) such amounts, if any, of Employee's salary and bonus as
shall have accrued and remained unpaid as of the date of said cessation and (ii)
such other amounts which may be then otherwise payable to the Employee from the
Company's benefits plans or reimbursement policies, if any.
(d) No interest shall accrue on or be paid with respect to any
portion of any payments hereunder.
8. Non-Competition.
(a) The term "Non-Compete Term" shall mean the period during which
Employee is employed hereunder and, in the event Employee's employment is
terminated for any reason, the one-year period following such termination.
During the Non-Compete Term:
(i) the Employee will not make any statement or perform any
act intended to advance an interest of any existing or prospective
competitor of the Company or any of its Affiliates in any way that will or
may injure an interest of the Company or any of its Affiliates in its
relationship and dealings with existing or potential customers or clients,
or solicit or encourage any other employee of the Company or any of its
Affiliates to do any act that is disloyal to the Company or any of its
Affiliates or inconsistent with the interest of the Company or any of its
Affiliate's interests or in violation of any provision of this Agreement;
(ii) the Employee will not discuss with any existing or
potential customers or clients of the Company or any of its Affiliates the
present or future availability of services or products of a business, if
the Employee has or expects to acquire a proprietary interest in such
business or is or expects to be an employee, officer or director of such
business, where such services or products are competitive with services or
products which the Company or any of its Affiliates provides;
(iii) the Employee will not directly or indirectly (as a
director, stockholder, officer, employee, manager, consultant, independent
contractor, advisor or otherwise) engage in competition with, or own any
interest in, perform any services for, participate in or be connected with
(i) any business or organization which engages in competition with the
Company or any of its Affiliates in any geographical area where any
business is presently carried on by the Company or any of its Affiliates,
or (ii) any business or organization which engages in competition with the
Company or any of its Affiliates in any
-8-
<PAGE>
geographical area where any business shall be hereafter, during the period
of the Employee's employment by the Company, carried on by the Company or
any of its Affiliates, if such business is then being carried on by the
Company or any of its Affiliates in such geographical area; and
(iv) the Employee will not directly or indirectly solicit for
employment, or advise or recommend to any other person that they employ or
solicit for employment, any employee of the Company or any of its
Affiliates; and
provided, however, that the provisions of this Section 8(a) shall not be deemed
to prohibit the Employee's ownership of not more than five percent (5%) of the
total shares of all classes of stock outstanding of any publicly held company.
(b) (i) For purposes of this Section 8, a person or entity
(including, without limitation, the Employee) shall be deemed to be a competitor
of the Company or any of its Affiliates, or a person or entity (including,
without limitation, the Employee) shall be deemed to be engaging in competition
with the Company or any of its Affiliates, only if such person or entity in any
way conducts, operates, carries out or engages in the design, development,
marketing, installation or support of warehouse management systems or other
computer integrated or turnkey warehouse management systems in the United States
or such other business or businesses as the Company may in the future conduct in
such geographical area or areas as such business or businesses are conducted by
the Company.
(ii) The Employee further agrees that the limitations set
forth in this Section 8 (including, without limitation, any time or
territorial limitations) are reasonable and properly required for the
adequate protection of the businesses of the Company and its Affiliates.
It is understood and agreed that the covenants made by the Employee in
this Section 8 (and in Section 6 hereof) shall survive the expiration or
termination of this Agreement.
(iii) The Employee acknowledges and agrees that a remedy at
law for any breach or threatened breach of the provisions of this Section
8 would be inadequate and, therefore, agrees that the Company and any of
its Affiliates shall be entitled to injunctive relief in addition to any
other available rights and remedies in cases of any such breach or
threatened breach; provided, however, that nothing contained herein shall
be construed as prohibiting the Company or any of its Affiliates from
pursuing any other rights and remedies available for any such breach or
threatened breach.
9. Change in Control.
(a) In the event Employee's employment under this Agreement is
terminated on or following a Change in Control (as defined in Section 9(c)), the
Company shall pay to
-9-
<PAGE>
Employee and Employee shall be entitled to all the payments and rights he would
have had if Employee had terminated his employment for "good reason" as set
forth in Section 7(b). The aforesaid amount shall be paid to Employee within
thirty (30) days of the date of termination. In addition, the maximum number of
options granted pursuant to Sections 4(b) and 4(c) hereof that have not
previously vested shall immediately vest as of the date of the Change of Control
regardless of the Company's Net Profit or the vesting schedules set forth in
such Sections. Neither the occurrence of a Change in Control, nor the vesting in
any options as a result thereof shall require Executive to exercise any options.
In the event of a conflict between any option grant agreement or plan and this
Agreement, the terms of this Agreement shall control.
(b) Excise Tax Gross Up. In addition, if it is determined by an
independent accountant mutually acceptable to the Company and Employee that as a
result of any payment in the nature of compensation made by the Company to (or
for the benefit of) Employee pursuant to this Agreement or otherwise, an excise
tax may be imposed on Employee pursuant to Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), the Company shall pay Employee in cash an
amount to provide Employee with a full tax gross-up under the provisions of this
Section, so that on a net after-tax basis, the result to Employee shall be the
same as if the excise tax under Section 4999 of the Code (or any successor
provisions) had not been imposed.
(c) Change in Control. For purposes of this Agreement "Change in
Control" shall mean that any of the following events has occurred: (A) any
"person" or "group" of persons, as such terms are used in Sections 13 and 14 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than
any employee benefit plan sponsored by the Company, becomes the "beneficial
owner", as such term is used in Section 13 of the Exchange Act, (irrespective of
any vesting or waiting periods) of Common Stock or any class of stock
convertible into Common Stock in an amount equal to forty (40%) percent or more
of the Common Stock (treating all classes of outstanding stock, units or other
securities convertible into stock units as if they were converted into Common
Stock) issued and outstanding immediately prior to such acquisition and
disregarding any equity raise in connection with the financing of such
transaction; (B) Common Stock in excess of forty (40%) percent is purchased
pursuant to a tender or exchange offer other than an offer by the Company; or
(C) the dissolution or liquidation of the Company or the consummation of any
merger or consolidation of the Company or any sale or other disposition of all
or substantially all of its assets, if the shareholders of the Company own
immediately after consummation of such transaction, equity securities possessing
less than fifty (50%) percent of the surviving or acquiring company.
(d) Except for any rights which Employee may have pursuant to this
Section 9, the Company shall have no further obligations hereunder following
such termination after a Change of Control.
10. Non-Assignability. Neither this Agreement nor any right or interest
hereunder shall be assignable by the Employee, Employee's beneficiaries, or
legal representatives without the Company's prior written consent; provided,
however, that nothing in this Section 10 shall preclude the Employee from
designating a beneficiary to receive any benefit payable hereunder upon
Employee's death or incapacity.
-10-
<PAGE>
11. Binding Effect. Without limiting or diminishing the effect of Section
10 hereof, this Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, successors, legal representatives and
assigns.
12. Notice. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and either delivered in person or
sent by first class certified or registered mail, postage prepaid, if to the
Company, at the Company's principal place of business, and if to the Employee,
at Employee's home address set forth on the signature page hereto, or to such
other address or addresses as either party shall have designated in writing to
the other party hereto.
13. Severability. The Employee agrees that in the event that any court of
competent jurisdiction shall finally hold that any provision of Section 6 or 8
hereof is void or constitutes an unreasonable restriction against the Employee,
such provision shall not be rendered void but shall apply with respect to such
extent as such court may judicially determine constitutes a reasonable
restriction under the circumstances. If any part of this Agreement other than
Section 6 or 8 is held by a court of competent jurisdiction to be invalid,
illegible or incapable of being enforced in whole or in part by reason of any
rule of law or public policy, such part shall be deemed to be severed from the
remainder of this Agreement for the purpose only of the particular legal
proceedings in question and all other covenants and provisions of this Agreement
shall in every other respect continue in full force and effect and no covenant
or provision shall be deemed dependent upon any other covenant or provision.
14. Waiver. Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant or condition, nor shall any waiver or relinquishment of any right or
power hereunder at any one or more times be deemed a waiver or relinquishment of
such right or power at any other time or times.
15. Entire Agreement; Modifications. This Agreement constitutes the entire
and final expression of the agreement of the parties with respect to the subject
matter hereof and supersedes all prior agreements, oral and written, between the
parties hereto with respect to the subject matter hereof. This Agreement may be
modified or amended only by an instrument in writing signed by both parties
hereto.
16. Relevant Law. This Agreement shall be construed and enforced in
accordance with the internal laws of the State of New York without regard to the
conflicts of law principles thereof.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
-11-
<PAGE>
[Signature Page to Follow]
-12-
<PAGE>
IN WITNESS WHEREOF, the Company and the Employee have duly executed and
delivered this Agreement as of the day and year first above written.
ROBOCOM SYSTEMS INTERNATIONAL INC.
By: /s/ Irwin Balaban
-------------------------
Name: Irwin Balaban
Title: President
EMPLOYEE:
/s/ David Dinin
-----------------------------
DAVID DININ
Address: 117 Sterling Court
Muttontown, NY 11791
-13-
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