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, 2000
|_| 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 of (I.R.S. Employer Identification No.)
incorporation or organization)
511 Ocean Avenue, Massapequa, New York 11758
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (516) 795-5100
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. $6,762,891
As of August 31, 2000, the issuer had outstanding 4,495,984 shares of its common
stock.
As of August 31, 2000, the aggregate market value of the issuer's common stock
held by non-affiliates was $8,148,971 (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 2000 Annual Meeting of
Stockholders to be held on October 30, 2000 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 and providing inventory visibility throughout the supply
chain. The Company's primary product, RIMS, 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 operates in an open system environment and
interfaces with an organization's existing information systems. In addition to
providing RIMS 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 and 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
visibility 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 Internet Transaction and Electronic Commerce. Trading partners are
increasingly expecting that systems with which they interface 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 RIMS 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 Internet-based applications will drive the next
significant technology change in the warehouse management system industry.
The Company believes that an event driven, open, world wide web-based,
multi-tiered application architecture will supplant the traditional rule
based, 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 support tools will make the product more
unique.
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 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 continue 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 and support 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 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, is a full-featured,
state-of-the-art warehouse management solution. RIMS is a highly scaleable,
highly configurable and flexible product with baseline functionality and
features sufficient for most warehouse installations. The strength of RIMS is
its adaptability to varied environments with little or no modification. In the
United States, RIMS 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 is generally sold to clients via distributors and
implemented by distributors and/or implementers.
The Company also markets pre-configured versions of RIMS that are
specifically targeted to various vertical markets such as food distribution,
medical and automotive. These pre-configured versions use the basic RIMS system
as the core with additional industry-specific features and functions.
As a standard, "off-the-shelf," highly-configurable software system, RIMS
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,
which runs on various operating platforms (most notably Unix, Linux and NT), has
a "Windows or screen" configurator and uses either Oracle or Progress database
management system software. The Company believes its clients recognize cost
savings
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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. RIMS is a responsive software application designed to manage an
entire warehouse operation. As a user configurable solution, RIMS incorporates
numerous warehousing practices and strategies as standard capability. RIMS 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 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 also utilizes radio frequency
communications and bar coding to provide real-time management, validation and
tracking of all warehouse activities. RIMS directs personnel and equipment and
manages the inventory, space, labor and equipment in the warehouse in an
efficient and cost effective manner.
RIMS is a comprehensive application that manages the receiving, put away,
outbound order processes, and general warehouse operations. With each warehouse
process, RIMS 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 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 facilitates cycle counting,
automatic replenishment, product moves, inventory control and
consolidation, labor tracking, system security, space utilization, vehicle
management and rewarehousing.
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.
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Service and Maintenance
In addition to licensing of RIMS, 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
o Configuration and User Training
o Customization
o Material handling and facility layout consulting
o Software and hardware maintenance services.
With a goal of total client satisfaction, the Company offers a structured
program 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 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 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 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 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 product cannot meet the clients
needs, the Company can enter into contracts to perform certain modifications to
the baseline product.
Third Party Hardware Products
The Company's RIMS 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
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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, 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 hardware-related agreements generally permit the
Company to resell the third-parties' products to any RIMS 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 outside of the United States.
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 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, 1998, none of the Company clients
accounted for more than 10% of total revenues. For each of the fiscal years
ended May 31, 1999 and 2000, 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 marketing 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. 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 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 installations are also encouraged by the Company's sales staff. While the
sales cycle varies substantially from opportunity to opportunity, it typically
ranges from six months for a standard system and from six to 12 months for a
system requiring substantial modification.
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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 provides 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 product significantly more attractive to SAP clients.
The Company currently markets RIMS through resellers located in the
Argentina, Australia, Belgium, Europe, Israel, Luxembourg, the Netherlands, New
Zealand and the United Kingdom. The Company's resellers are 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.
For the fiscal years ended May 31, 1998, 1999 and 2000, approximately
9.8%, 10.3% and 5.9%, respectively, of the Company's revenues were generated
outside the United States. The Company expects that international sales will
significantly increase because year 2000 concerns have been eliminated and as
the Company 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. 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 $1,562,463, $1,309,213; and
$1,261,600 in fiscal 1998, 1999 and 2000, 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 system for the food industry
(RIMS.Food). In May 1998, the Company released Version 3.5, which features wave
planning, standard conveyor/sortation interface
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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. In December
1999, the Company released Version 4.2, which enables users to manage and
operate their warehouses using an easily managed web browser interface on either
a corporate Intranet or the Internet without the need for additional software.
This new Data View technology provides secure, real-time visibility and access
directly into a RIMS warehouse.
The Company is continuing its software development efforts by designing
enhancements to RIMS using Internet technology that focuses on the Java
programming language and Extensible Markup Language (XML). By incorporating this
technology into RIMS, authorized users and their supply chain applications on
the World Wide Web are able to access and manage a RIMS controlled warehouse
from anywhere on the Internet. For example, a RIMS client is able to permit its
authorized users to access its RIMS data repository via the Internet, which will
reduce the burden on its own customer 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). Protection of the
client's data and restriction of unauthorized access are provided within the
RIMS system using standards based authorization and encryption. Scalability and
ease of maintenance are additional benefits of this architecture. The first
Internet- and intranet-based, Windows NT enabled RIMS Version was released in
April 1999 as Version 4.0. Version 4.2, which provides additional Internet- and
intranet-based capabilities, was released in December 1999, and Version 4.3 was
released in July 2000. RIMS Version 4.3 features multiwarehouse functionality, a
yard management system for inbound and outbound trucks and a link to a
transportation management system (TMS). RIMS Version 4.3 also highlights tasks
interleaving and new system directed RF task for increased operator
productivity.
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 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 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 offers maintenance services for earlier releases of
RIMS, 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.
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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.
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, EXE Technologies, Inc. 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., Great Plains Software Inc. 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.
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 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 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
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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 is
based on the number of concurrent users.
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 31, 2000, the Company had 41 employees, of which five were
employees primarily in management and administration, thirteen in product
development, two in software services, eleven in client support, and ten 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.
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 $37,527 (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
$33,330 (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 lease has an annual rental rate
of approximately $10,000 (excluding operating expenses and insurance). Effective
August 1, 2000, the Company has subleased this facility in its entirety to an
unaffiliated party.
The Company believes that its existing facilities are sufficient for its
current operations.
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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 2000.
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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 2000, 1999 and 1998 since the initial public
offering.
Fiscal 2000 Fiscal 1999 Fiscal 1998
----------- ----------- -----------
High Low High Low High Low
---- --- ---- --- ---- ---
Quarter ended August 31 $3.000 $1.250 $4.500 $2.750 $7.719 $6.875
Quarter ended November 30 2.313 1.313 3.000 0.625 8.500 7.000
Quarter ended February 29 4.625 1.063 2.250 1.000 8.000 5.250
Quarter ended May 31 9.938 1.875 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 31, 2000, there were 4,495,984 shares of the Company's Common
Stock outstanding held by approximately 35 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).
During fiscal 2000, the Company raised aggregate net proceeds of
approximately $1,271,000 in a private placement offering of its Common Stock,
primarily with a group of the Company's founders and executive
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management team. In exchange for the net proceeds, 1,028,000 shares of Common
Stock were issued, together with five-year warrants to purchase up to 385,500
shares of Common Stock at exercise prices ranging from $1.50 to $4.00 per share.
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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 three fiscal years, the Company's has replaced virtually
all of the customized revenues with revenues from the sale of the Company's
standard RIMS warehouse management software system. As a result, the Company's
future operating results are significantly dependent upon continued market
acceptance of RIMS 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, both the number of new sales of RIMS 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 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 the client requests them. Historically, all of the Company's RIMS
clients have entered into, and substantially all of the Company's RIMS clients
have renewed, maintenance agreements with the Company.
Prior to fiscal 2000, the Company's total revenues in any period had
become less dependent upon a relatively small number of large sales. However,
during fiscal 2000, the Company experienced two anomalies. First, in the fall of
1999, the Company executed a $4 million contract with one customer. In addition,
during fiscal
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2000, the Company experienced fewer sales of RIMS due to the year 2000 slowdown.
This combination resulted in fewer new customer installations in fiscal 2000,
while the significant contract with one customer contributed significantly to
revenues. Revenues from the Company's five largest clients in each of fiscal
1998, 1999 and 2000 accounted for approximately 34%, 33% and 45% of total
revenues, respectively. With the elimination of year 2000 concerns and the
availability of financing for sales and marketing and additional product
differentiation development, the Company expects the concentration of revenues
with a small number of customers to decline.
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 43, 29 and 29 at May 31, 1998, 1999 and 2000, 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 $1,562,463,
$1,309,213 and $1,261,600 in fiscal 1998, 1999 and 2000, respectively, for
software development costs. Research and developments costs for these periods
were not significant. The Company employed 24, 17, and 14 software development
employees at May 31, 1998, 1999 and 2000, 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 Version 3.5 in May 1998, and Version 4.0 in April 1999 and Version 4.2
in December 1999, the month in which such versions were first available for
sale. RIMS has been technologically feasible since 1992 and saleable since the
beginning of fiscal 1995. The Company's past, current and planned product
development efforts are directed at enhancing and improving RIMS. 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 provides additional Internet-
and intranet-based capabilities. The Company anticipates that the dollar amount
of the costs capitalized will decrease during fiscal 2001. However, amortization
of software development expenses will increase as new RIMS releases become
available for sale. RIMS Version 4.3 was released in July 2000. Some of RIMS
Version 4.3 new features include multiwarehouse functionality, a yard management
system for inbound and outbound trucks and a link to a transportation management
system (TMS). 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 24, 21 and 20
employees at May 31, 1998, 1999 and 2000, respectively. The Company anticipates
that such expenses will decrease as a percentage of total revenues as revenues
increase.
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Results of Operations:
The following table sets forth, for the periods indicated, certain
statement of operations data:
(In thousands)
Year ended May 31,
------------------------------
1998 1999 2000
------- ------- -------
Revenue:
Software license fees $ 1,670 $ 1,166 $ 916
Services 2,266 2,802 1,733
Hardware 2,560 2,301 2,804
Maintenance 1,048 1,276 1,310
------- ------- -------
Total revenues 7,544 7,545 6,763
------- ------- -------
Cost of revenue:
Cost of license fees 389 280 161
Cost of services 2,163 1,511 1,255
Cost of hardware 2,491 1,924 2,128
Cost of maintenance 709 1,193 1,012
------- ------- -------
Total cost of revenues 5,752 4,908 4,556
------- ------- -------
Amortization of software
development costs 730 1,085 1,477
------- ------- -------
Gross margin 1,062 1,552 730
Selling, general and administrative
expenses 3,234 3,799 3,673
------- ------- -------
Loss from operations (2,172) (2,247) (2,943)
Interest expense (income), net (173) (85) (46)
------- ------- -------
Loss before income taxes (1,999) (2,162) (2,897)
Provision (benefit) for income taxes 722 (678) --
Proforma provision (benefit) for income taxes (128) -- --
------- ------- -------
Net income (loss) $(2,593) $(1,484) $(2,897)
======= ======= =======
Comparison of Fiscal Years Ended May 31, 1999 and May 31, 2000
Revenue. Total revenue decreased from $7,544,989 in the year ended May 31,
1999 to $6,762,891 for the year ended May 31, 2000. The Company believes these
results were significantly affected by the Year 2000 slowdown in sales of
software. Software license fees decreased by approximately 21% in fiscal 2000 as
compared to fiscal 1999, primarily due to this slowdown. The Company believes
its fiscal 2000 results were greatly affected by the year 2000 slowdown in sales
of software. In particular, international sales were less than 6% of revenues
whereas in the past two fiscal years, international sales accounted for
approximately 10% of revenues. Services revenues decreased by approximately 38%
in fiscal 2000 as compared to fiscal 1999, primarily due to lower revenues from
services provided for fewer installations of RIMS software as a result of the
slowdown in new contracts, and to a lesser extent, fewer installations of
computer systems networks and office software in the 2000 period. Hardware
revenues increased by approximately 22% in fiscal 2000 as compared to fiscal
1999, primarily due to increased sales of RIMS-related hardware in the 2000
period. Maintenance revenues increased by approximately 3% in fiscal 2000 as
compared to fiscal 1999, due to the increased number of sites under maintenance
offset, in part, by lower hardware related maintenance revenues in the 2000
period due to the election by several customers to discontinue hardware
maintenance on older equipment.
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Cost of Revenues. Total cost of revenues decreased by approximately 7%
from $4,907,471 in fiscal 1999 to $4,556,178 in fiscal 2000. As a percentage of
revenue, total cost of revenues increased from approximately 65% in fiscal 1999
to approximately 67% in fiscal 2000. As a percentage of license fee revenues,
cost of license fees decreased to approximately 18% in fiscal 2000 as compared
to approximately 24% in fiscal 1999. This decrease is primarily due to higher
license fee revenues with no associated third party software fees in fiscal
2000. As a percentage of services revenues, the cost of services was
significantly higher in fiscal 2000 as compared to fiscal 1999, primarily due to
lower billable support and installation services as a result of the slowdown in
new contracts. As a percentage of hardware revenues, the cost of hardware was
lower in fiscal 2000 due to increased sales of the lower-cost RIMS related
hardware and significantly lower sales of higher cost hardware related to
computer systems networks in the 2000 period. As a percentage of maintenance
revenues, the cost of maintenance was significantly lower in the fiscal 2000
period due to a larger number of maintenance contracts in operation in the 2000
period, improved quality control procedures prior to product release and lower
costs associated with maintaining older versions of RIMS. In the 1999 period,
several RIMS versions and language translations had been released that required
higher initial maintenance.
Amortization of Software Development Costs. Amortization of software
development costs increased by approximately 36% from $1,084,867 in fiscal 1999
to $1,476,708 in fiscal 2000. The increase was due to the commencement of
amortization of capitalized software development costs for RIMS Version 4.0 in
April 1999 and Version 4.2 in December 1999, the month in which such versions
were first available for sale. As a percentage of revenue, the amortization of
software development costs was approximately 14% in fiscal 1999 and
approximately 22% in fiscal 2000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by approximately 3% from $3,799,846 in fiscal
1999 to $3,673,533 in fiscal 2000. As a percentage of revenue, selling, general
and administrative expenses increased from approximately 50% in fiscal 1999 to
approximately 53% for the 2000 period. The increase in selling, general and
administrative expenses as a percentage of revenues is due to lower revenues in
the 2000 period as selling, general and administrative expenses do not result in
attendant increases in revenues. Several reductions in selling, general and
administrative expenses were reflected in sales and marketing expenses and lower
insurance costs. Higher consulting services and higher travel expenses offset
these reductions.
Interest Expense (Income), net. Interest income decreased by $38,920 to
$46,432 in fiscal 2000 as compared to $85,352 in fiscal 1999. The decrease is
primarily due to the reduction of the remaining net proceeds from the Company's
public offering, which was utilized for software development and working capital
requirements, offset, in part, by interest income earned on the net proceeds of
the private placement fiscal 2000.
Provision (Benefit) for Income Taxes. No net deferred tax expense was
recorded as the Company continues to record a valuation allowance to reserve for
the net deferred tax asset. An additional valuation allowance of approximately
$1,100,000 was provided for fiscal 2000 because of uncertainty, based on the
Company's historical operating results, with respect to realization of deferred
tax assets. The benefit for income taxes for fiscal 1999 consisted of a tax
benefit reflected at 40% of the loss before the provision for income taxes. A
valuation allowance of approximately $221,000 was provided for in the fourth
quarter of fiscal 1999.
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
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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 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 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.
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 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, and, consequently,
the timing of such sales has caused material fluctuations in the Company's
operating
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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.
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 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 2000, the Company funded its operations primarily through
cash generated from the net proceeds of the Private Placement of its Common
Stock in November 1999 and February 2000. The Company raised net proceeds of
approximately $1,271,000 in these private placement offerings of its common
stock with a group of the Company's founders and executive management team. In
exchange for the proceeds, 1,028,000 shares of common stock were issued together
with five-year warrants to purchase up to 385,500 shares of common stock at
exercise prices ranging from $1.50 to $4.00. In fiscal 1999 and fiscal 1998, the
Company funded its operations primarily through cash flow from operations and
cash generated from the proceeds from the Offering. The Company has a bank line
of credit (the "Line of Credit"), which expires on September 30, 2000 and
provides for borrowings of up to $2,000,000. Amounts outstanding under the Line
of Credit are payable on demand and are collateralized by the assets of the
Company. Borrowings bear interest at the prime rate (9.50% at May 31, 2000). The
amount available under the Line of Credit is reduced by a $50,000 standby letter
of credit with the same bank, which is being utilized as collateral for a
customer and expires on February 9, 2001. There were no amounts outstanding
under the Line of Credit at May 31, 2000 or August 31, 2000. The Company does
not intend to renew this Line of Credit.
Net cash used in operating activities was $613,737 in fiscal 2000. Net
cash provided by operating activities was $290,251 in fiscal 1999, and net cash
used in operating activities was $1,222,183 in fiscal 1998. Cash flows from
operations decreased in the 2000 period primarily due to a higher loss from
operations.
The Company capitalized $1,562,463, $1,309,213 and $1,261,600 in fiscal
1998, 1999 and 2000, respectively, for software development costs. The Company
did not have any material commitments for software development costs as of May
31, 2000. Any such costs will be financed through working capital.
As of May 31, 2000, the Company had $60,673 in cash and cash equivalents,
$463,833 in marketable securities and total working capital of $488,083.
As of September 19, 2000, the Company secured additional lines of credit
from three shareholders of the Company. These lines of credit provide for
borrowings of up to $1,050,000 and expire on September 19, 2001. Borrowings
bear interest at the prime rate plus two percent (11.50% at September 19, 2000).
As of September 25, 2000, the Company had drawn down $500,000 from these lines.
To fund working capital and provide for future growth, management is
currently seeking to raise additional capital through a private financing. Our
inability to raise additional funds when needed could have a material adverse
effect on our business, operating results and financial condition. Our capital
requirements depend on many factors, including the expansion of sales and
marketing, new product development and the level and timing of revenue.
19
<PAGE>
Management believes that cash flows from operations, existing cash, cash
equivalents and marketable securities and the additional ability to borrow from
the lines of credit from the stockholders will be sufficient to meet the
Company's currently anticipated working capital and software development
requirements for the next 12 months.
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.
Impact of Year 2000
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In fiscal 1999, the Company completed its remediation
and testing of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company
incurred minimal costs in connection with remediating its systems. The Company
is not aware of any material problems resulting from Year 2000 issues, either
with its products, its internal systems, or the products and services of third
parties. The Company will continue to monitor its mission critical computer
applications and those of its suppliers and vendors throughout the year 2000 to
ensure that any latent Year 2000 matters that may arise are addressed promptly.
Item 7. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Form 10-KSB
Page Numbers
------------
Report of Independent Auditors.............................................. 21
Balance Sheets as of May 31, 2000 and 1999.................................. 22
Statements of Operations for the years ended May 31, 1998, 1999 and 2000.... 23
Statements of Shareholders' Equity for the years ended May 31, 1998, 1999
and 2000................................................................... 24
Statements of Cash Flows for the years ended May 31, 1998, 1999 and 2000.... 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, 2000 and 1999, and the related statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended May 31, 2000. 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 auditing standards generally accepted
in the United States. 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, 2000 and 1999, and the results of its operations, and its cash
flows for each of the three years in the period ended May 31, 2000 in conformity
with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Melville, New York
August 7, 2000, except for the second paragraph of Note 1,
as to which date is September 25, 2000.
21
<PAGE>
ROBOCOM SYSTEMS INTERNATIONAL INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
1999 2000
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ................................... $ 101,148 $ 60,673
Short-term investments ...................................... 1,144,136 463,833
Accounts receivable, less allowance for doubtful accounts of
$145,204 in 1999 and $8,823 in 2000 ...................... 1,694,241 1,352,736
Unbilled revenue ............................................ 272,733 172,023
Deferred taxes .............................................. 177,305 72,353
Other current assets ........................................ 242,580 177,183
------------ ------------
Total current assets ............................................. 3,632,143 2,298,801
Property and equipment, net ...................................... 314,872 241,474
Software development costs, net .................................. 4,632,208 4,417,100
Other assets ..................................................... 15,991 81,999
------------ ------------
Total assets ..................................................... $ 8,595,214 $ 7,039,374
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable ............................................ $ 294,579 $ 455,985
Accrued expenses ............................................ 946,981 885,388
Deferred revenue ............................................ 509,494 509,345
------------ ------------
Total current liabilities ........................................ 1,751,054 1,850,718
Deferred tax liabilities ......................................... 221,444 116,492
------------ ------------
Total liabilities ................................................ 1,972,498 1,967,210
------------ ------------
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, 1999 and
4,495,984 at May 31, 2000 ................................. 34,680 44,960
Additional paid-in capital .................................. 10,571,882 11,832,246
Accumulated deficit ......................................... (3,899,259) (6,796,355)
Deferred compensation ....................................... (84,587) (8,687)
------------ ------------
Total shareholders' equity ....................................... 6,622,716 5,072,164
------------ ------------
Total liabilities and shareholders' equity ....................... $ 8,595,214 $ 7,039,374
============ ============
</TABLE>
See accompanying notes.
22
<PAGE>
ROBOCOM SYSTEMS INTERNATIONAL INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended May 31,
------------------------------------------
1998 1999 2000
<S> <C> <C> <C>
Revenues:
Software license fees .................................. $ 1,670,118 $ 1,166,149 $ 915,774
Services ............................................... 2,265,516 2,801,392 1,732,558
Hardware ............................................... 2,559,895 2,301,221 2,804,092
Maintenance ............................................ 1,048,269 1,276,227 1,310,467
----------- ----------- -----------
Total revenues ......................................... 7,543,798 7,544,989 6,762,891
----------- ----------- -----------
Cost of revenues:
Cost of license fees ................................... 389,086 279,687 161,253
Cost of services ....................................... 2,162,589 1,511,037 1,254,964
Cost of hardware ....................................... 2,490,603 1,924,014 2,128,212
Cost of maintenance .................................... 709,569 1,192,733 1,011,749
----------- ----------- -----------
Total cost of revenues ................................. 5,751,847 4,907,471 4,556,178
Amortization of software development costs ................ 729,943 1,084,867 1,476,708
----------- ----------- -----------
6,481,790 5,992,338 6,032,886
----------- ----------- -----------
Gross margin .............................................. 1,062,008 1,552,651 730,005
Selling, general and administrative expenses .............. 3,233,605 3,799,846 3,673,533
----------- ----------- -----------
Loss from operations ...................................... (2,171,597) (2,247,195) (2,943,528)
Interest income and other ................................. 189,987 85,352 46,432
Interest expense and other ................................ (17,183) -- --
----------- ----------- -----------
Loss before provision (benefit) for income taxes .......... (1,998,793) (2,161,843) (2,897,096)
Provision (benefit) for income taxes ...................... 722,126 (677,987) --
----------- ----------- -----------
Net loss .................................................. (2,720,919) $(1,483,856) $(2,897,096)
=========== =========== ===========
Pro forma unaudited benefit for income taxes ............. (128,317)
-----------
Pro forma unaudited net loss .............................. $(2,592,602)
===========
Pro forma unaudited net loss for 1998 and net loss for 1999
and 2000 per basic and diluted share ................... $ (.77) $ (.43) $ (.73)
=========== =========== ===========
Weighted average shares outstanding ....................... 3,365,244 3,467,984 3,965,776
=========== =========== ===========
</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, 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
Private placements, net ..... 1,028,000 10,280 1,260,364 -- -- 1,270,644
Net loss .................... -- -- -- (2,897,096) -- (2,897,096)
Amortization of deferred
compensation ............. -- -- -- -- 75,900 75,900
----------- ----------- ----------- ----------- ----------- -----------
Balance, May 31, 2000 ....... 4,495,984 $ 44,960 $11,832,246 $(6,796,355) $ (8,687) $ 5,072,164
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
24
<PAGE>
ROBOCOM SYSTEMS INTERNATIONAL INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended May 31,
--------------------------------------------
1998 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities
Net loss ........................................... $ (2,720,919) $ (1,483,856) $ (2,897,096)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation and amortization of property and
equipment ................................... 43,273 108,895 118,659
Provision (benefit) for deferred taxes ...... 722,126 (677,987) --
Amortization of software development costs .. 729,943 1,084,867 1,476,708
Amortization of deferred compensation ....... 75,900 75,900 75,900
Provision for bad debts ..................... 192,360 30,000 --
Changes in operating assets and liabilities:
Accounts receivable ....................... (724,927) 180,043 296,895
Unbilled revenue .......................... 379,090 651,565 100,710
Other current assets ...................... (140,727) (100,494) 65,397
Accounts payable .......................... (357,410) 106,625 161,406
Accrued expenses .......................... 433,685 30,817 (61,593)
Deferred revenue .......................... 154,808 281,945 44,461
Other assets .............................. (9,385) 1,931 4,816
------------ ------------ ------------
Net cash (used in) provided by operating activities (1,222,183) 290,251 (613,737)
------------ ------------ ------------
Investing activities
Software development costs ......................... (1,562,463) (1,309,213) (1,261,600)
Purchase of short-term investments ................. (13,042,984) (12,332,532) (5,479,486)
Redemption of short-term investments ............... 11,128,132 13,103,248 6,159,789
Capital expenditures ............................... (374,217) (34,640) (45,261)
------------ ------------ ------------
Net cash used in investing activities .............. (3,851,532) (573,137) (626,558)
------------ ------------ ------------
Financing activities
Net payments of bank note payable .................. (1,300,000) -- --
Net proceeds from sale of common stock ............. 8,308,684 -- 1,270,644
Deferred costs related to private placement in
process ............................................ -- -- (70,824)
Distributions of S corporation retained earnings to
S corporation shareholders ....................... (1,600,000) -- --
------------ ------------ ------------
Net cash provided by financing activities .......... 5,408,684 -- 1,199,820
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents ... 334,969 (282,886) (40,475)
Cash and cash equivalents at beginning of year ..... 49,065 384,034 101,148
------------ ------------ ------------
Cash and cash equivalents at end of year ........... $ 384,034 $ 101,148 $ 60,673
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest ........................... $ 21,892 $ -- $ 1,712
============ ============ ============
</TABLE>
See accompanying notes.
25
<PAGE>
Robocom Systems International Inc.
Notes to Financial Statements
1. Organization and Significant Accounting Policies
Organization
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, 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 had working capital of $448,083, at May 31, 2000 and net
losses of $2,897,096, $1,483,856 and $2,720,919 for the years ended May 31,
2000, 1999 and 1998, respectively. The Company's ability to maintain a
satisfactory level of working capital during 2001 depends on its ability to
increase revenue, reduce costs, and obtain additional financing, if needed. As
of September 19, 2000, the Company secured additional lines of credit from three
shareholders of the Company. These lines of credit provide for borrowings of up
to $1,050,000 and expire on September 19, 2001. Borrowings bear interest at the
prime rate plus two percent (11.50% at September 19, 2000). As of September 25,
2000, the Company had drawn down $500,000 from these lines.
The Company's management believes that cash flows from operations,
existing cash, cash equivalents and marketable securities and the additional
ability to borrow from the lines of credit from the stockholders will be
sufficient to meet the Company's currently anticipated working capital and
software development requirements for the next 12 months.
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, 1998,
none of the Company's clients accounted for 10% or more of total revenues. For
the year ended May 31, 1999 and 2000, the Company had one client that accounted
for 10% of total revenues. Revenues from the Company's five largest clients in
each of fiscal 1998, 1999 and 2000 accounted for approximately 34%, 33% and 45%
of total revenues, respectively. Management does not believe significant credit
risk exists at May 31, 2000.
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.
26
<PAGE>
Robocom Systems International Inc.
Notes to Financial Statements (continued)
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 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 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 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", 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.
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.
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.
27
<PAGE>
Robocom Systems International Inc.
Notes to Financial Statements (continued)
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.
Basic and Diluted Net Loss Per Share
Basic and diluted net loss per share is computed using historical or pro
forma net loss divided by the weighted average number of shares of common stock
outstanding for the periods presented. Since the Company's common equivalent
shares, which consist of stock options and warrants, are antidilutive, the basic
and diluted net loss per share amounts are the same.
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 operations 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,
1998, 1999 and 2000 amounted to approximately $298,000, $347,000 and $208,000,
respectively.
28
<PAGE>
Robocom Systems International Inc.
Notes to Financial Statements (continued)
Segment Information
The Company operates in one business segment, as defined by SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
The Company's revenues by geographic markets are summarized below:
For the fiscal year ended May 31,
------------------------------------------------
1998 1999 2000
------------------------------------------------
Domestic .............. $6,801,762 $6,764,662 $6,360,854
Europe ................ 453,929 482,801 254,464
Pacific ............... 225,615 215,391 125,413
Other ................. 62,492 82,135 22,160
---------- ---------- ---------
$7,543,798 $7,544,989 6,762,891
========== ========== =========
2. Shareholders' Equity
Initial Public Offering and Private Placements
The Company completed its initial public offering of 1,500,000 shares of
common stock for sales 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.
During fiscal 2000, the Company raised aggregate net proceeds of
approximately $1,271,000 in private placement offerings of its common stock (the
"Private Placement"), primarily from a group of the Company's founders and
executive management team. In exchange for the net proceeds, 1,028,000 shares of
common stock were issued, together with five-year warrants to purchase up to
385,500 shares of common stock at exercise prices ranging from $1.50 to $4.00
per share.
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 1998, 1999 and
2000:
<TABLE>
<CAPTION>
Weighted-
Shares Average
under Exercise
Option Price
------------------ --------------
<S> <C> <C>
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
Grants ..................................... 234,000 $ 2.17
Cancelled .................................. (29,475) $ 3.70
-------
Balance, May 31, 2000 ...................... 632,950 $ 3.91
=======
</TABLE>
The options exercisable at May 31, 1998, 1999 and 2000 were 10,000,
104,197 and 197,227, respectively. The weighted average price of options
exercisable at May 31, 1998, 1999 and 2000 was $6.50, $6.78 and $5.86,
respectively.
The weighted-average fair value of options granted during the years ended
May 31, 1998, 1999 and 2000 was $2.16 per share, $1.30 per share and $1.58 per
share, respectively.
The following table summarized information about these plans at May 31,
2000:
Options Outstanding
-------------------
Weighted
Average Options
Remaining Exercisable
Exercise Contractual -----------
Prices Shares Life Shares
-------- --------- ----------- -----------
$1.2810 10,000 1.6 years 3,333
$1.4375 55,000 2.4 years 15,000
$1.5000 2,500 2.0 years --
$1.7500 45,000 2.0 years --
$2.0000 145,000 1.8 years 18,333
$2.6250 131,500 2.9 years --
$6.5000 118,950 0.1 years 83,617
$7.0000 15,000 2.1 years 6,000
$7.1500 110,000 1.1 years 70,944
---------- ----------
632,950 197,227
========== ==========
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 were
cancelled on August 16, 2000. In fiscal 2000, stock options to purchase 30,000
shares of common stock at an exercise price of $1.75 were granted to the Senior
Vice President of the Company, under his employment agreement. In addition,
10,000 shares of common stock at an exercise price of $1.4375 were granted
30
<PAGE>
Robocom Systems International Inc.
Notes to Financial Statements (continued)
to the Chief Financial Officer of the Company during fiscal 2000. These stock
options vest subject to the Company's net profit, as defined, for each of the
next two fiscal years. None of these stock options vested as of May 31, 2000.
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 $7.80 per share.
Pro forma information regarding net loss and net loss per share is
required by SFAS No. 123, which also requires that the information be determined
as if the Company had accounted for its employee stock option grants under the
fair value method required by SFAS No. 123. The fair value of each option grant
has been estimated as of the date of grant using the Black-Scholes option
pricing model with the following assumptions:
For the year ended May 31,
---------------------------------------
1998 1999 2000
---- ---- ----
Expected life .................. 3-5 years 3-5 years 3-5 years
Interest rate .................. 5.5% 5.5% 6.0%
Volatility ..................... .385 1.0442 1.20
Dividend yield ................. 0% 0% 0%
If the Company had recognized compensation cost for stock-based employee
compensation in accordance with SFAS No. 123, the Company's net loss for the
years ended May 31, 1998, 1999 and 2000 would have increased as follows:
<TABLE>
<CAPTION>
For the year ended May 31,
-----------------------------------------------
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Pro forma net loss:
As reported ............................... ($ 2,592,602) ($ 1,483,856) ($ 2,897,096)
Pro forma in accordance with SFAS No. 123 . ($ 2,772,317) ($ 1,625,350) ($ 2,909,530)
Pro forma basic and diluted net loss per share:
As reported ............................... $ (.77) $ (.43) $ (.73)
Pro forma in accordance with SFAS No. 123 . $ (.82) $ (.47) $ (.73)
</TABLE>
The compensation expense and pro forma net loss may not be indicative of
amounts to be included in future periods.
The total number of shares reserved for options and warrants at May 31,
2000 was 1,185,500.
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.
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,
--------------------------
. 1999 2000
--------- ---------
Equipment ................................... $ 452,526 $ 497,787
Furniture and fixtures ...................... 157,716 157,716
Automobiles ................................. 55,088 55,088
Leasehold improvements ...................... 15,317 15,317
--------- ---------
680,647 725,908
Less accumulated depreciation and
amortization ................................ (365,775) (484,434)
--------- ---------
$ 314,872 $ 241,474
========= =========
Software Development Costs, net
Software development costs, net, consist of the following:
May 31,
------------------------------
1999 2000
----------- -----------
Software development costs .............. $ 7,496,627 $ 8,758,227
Less accumulated amortization ........... (2,864,419) (4,341,127)
----------- -----------
$ 4,632,208 $ 4,417,100
=========== ===========
Accrued Expenses
Accrued expenses consist of the following:
May 31,
------------------------
1999 2000
-------- --------
Accrued third party software costs ............. $307,700 $240,357
Payroll and related taxes ...................... 254,908 140,606
Accrued hardware costs ......................... 105,498 125,139
Professional fees and other .................... 278,875 379,287
-------- --------
$946,981 $885,389
======== ========
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, 1998, 1999 and 2000 amounted to $49,000,
$54,000, and $51,000 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, 1999 and 2000 are as follows:
May 31,
------------------------
1999 2000
---------- ----------
Deferred tax assets:
Accrued expenses ..................... $ 119,223 $ 68,824
Allowance for doubtful accounts ...... 58,082 3,529
Net operating loss carryforwards ..... 1,781,231 2,885,807
Deferred compensation ................ 71,650 102,010
---------- ----------
Total deferred tax assets ............... 2,030,186 3,060,170
Valuation allowance ..................... 221,442 1,337,469
---------- ----------
Net deferred tax assets ................. 1,808,744 1,722,701
Deferred tax liabilities:
Software development costs .......... 1,852,883 1,766,840
---------- ----------
Net deferred tax liabilities ............ $ 44,139 $ 44,139
========== ==========
The valuation allowance at May 31, 1999 and 2000 was provided because of
uncertainty, based on the Company's historical results, with respect to
realization of deferred tax assets. At May 31, 1998, there was no valuation
allowance.
The components of the tax provision (benefit) for the years ended May 31,
1998, 1999 and 2000 are as follows:
For the year ended May 31,
--------------------------------------
1998 1999 2000
--------- --------- -----
Deferred:
Federal ............ $ 584,578 ($446,567) $ --
State .............. 137,548 (231,420) --
--------- --------- -----
Total .................. $ 722,126 ($677,987) $ --
========= ========= =====
33
<PAGE>
Robocom Systems International Inc.
Notes to Financial Statements (continued)
The provision (benefit) for income taxes for the fiscal years ended May 31,
1998, 1999 and 2000 differs from the statutory U.S. federal income tax rate due
to the following:
For the year ended May 31,
-----------------------------
1998 1999 2000
Federal statutory tax rate ............... (34.0%) (34.0%) (34.0%)
State income taxes, net of Federal benefit (8.0) (7.1) (5.9)
Valuation allowance ...................... -- 10.2 38.9
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) 1.0
------ ------ ------
36.1% (31.4%) 0.0%
====== ====== ======
At May 31, 2000, the Company has net operating loss carryforwards of
approximately $7.2 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, 2020.
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 paid to Properties rent of $168,000 for each of the two
years in the period ended May 31, 1999. For fiscal 2000, the Company paid
$132,000 to Properties and, at May 31, 2000, $36,000 was included in accrued
expenses in the accompanying balance sheet. 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, 2000, the outstanding aggregate principal amount of
the mortgage loans was approximately $717,000.
As of May 2000, a director and principal shareholder of the Company
entered into a one-year consulting agreement with the Company to provide
consulting services. No fees were accrued or paid under this agreement during
fiscal 2000.
As of November 1999, a director of the Company entered into a one-year
consulting agreement with the Company. During fiscal 2000, consulting fees of
approximately $26,000 were paid under this agreement.
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 and 2000, consulting fees of approximately
$3,000 and $22,000, respectively, were paid under this agreement. At May 31,
2000, $6,000 is unpaid relating to such services.
As of May 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, 1999 and 2000, consulting fees of
approximately $12,000, $23,000 and $17,000, respectively, were paid under this
agreement. At May 31, 2000, $6,000 is unpaid relating to such services.
34
<PAGE>
Robocom Systems International Inc.
Notes to Financial Statements (continued)
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:
2001......................................... $ 245,000
2002......................................... 178,000
2003......................................... 177,000
2004......................................... 168,000
2005......................................... 168,000
2006 and thereafter.......................... 938,000
------------
$ 1,874,000
============
Total rental expense for each of the years ended May 31, 1998, 1999 and
2000 amounted to approximately $236,000, $301,000, and $247,000, respectively.
8. 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, 2000. 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
(9.50% at May 31, 2000). At May 31, 2000, no borrowings were outstanding under
the line of credit. The amount available under the line of credit is reduced by
a $50,000 standby letter of credit with the same bank, which is being utilized
as collateral for a customer and expires on February 9, 2001. In the future,
however, the Company may borrow against this or a subsequent line of credit.
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, 2000.
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, 2000.
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, 2000.
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, 2000.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit
Number Description
------ -----------
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)).
36
<PAGE>
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 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)).
10.6 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 Consulting Agreement dated November 23, 1999, between the Company and
William J. Hancock (incorporated herein by reference to Exhibit 10.1 to
the Company's Form 10-QSB for the quarter ended November 30, 1999 as
filed with the Commission on January 15, 2000 (File No. 0-22735)).
10.8 Consulting Agreement dated May 16, 2000, between the Company and
Lawrence B. Klein.
10.9 Employment Agreement dated August 25, 2000, between the Company and C.
Kenneth Morrelly.
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, 2000 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, 1999 as filed
with the Commission on January 15, 2000 (File No. 0-22735)).
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)).
10.14 Line of Credit Commitment dated September 19, 2000 of Irwin Balaban.
10.15 Promissory Note dated September 19, 2000 from the Company to Irwin
Balaban.
10.16 Line of Credit Commitment dated September 19, 2000 of Herbert Goldman.
10.17 Promissory Note dated September 19, 2000 from the Company to Herbert
Goldman.
10.18 Line of Credit Commitment dated September 19, 2000 of Lawrence B.
Klein.
37
<PAGE>
10.19 Promissory Note dated September 19, 2000 from the Company to Lawrence
Klein.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of fiscal
2000.
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 September 26, 2000.
ROBOCOM SYSTEMS INTERNATIONAL INC.
By: /s/ C. Kenneth Morrelly
-------------------------------------
C. Kenneth Morrelly
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/Elizabeth A. Burke
-------------------------------------- Vice President - Finance and Chief Financial Officer September 26, 2000
Elizabeth A. Burke (Principal Accounting Officer)
/s/Irwin Balaban
-------------------------------------- Director and Chairman of the Board September 26, 2000
Irwin Balaban
/s/Lawrence B. Klein
-------------------------------------- Director September 26, 2000
Lawrence B. Klein
/s/Herbert Goldman
-------------------------------------- Director September 26, 2000
Herbert Goldman
/s/Yacov Shamash Director September 26, 2000
--------------------------------------
Yacov Shamash
/s/William J. Hancock Director September 26, 2000
--------------------------------------
William J. Hancock
</TABLE>
39
<PAGE>
Exhibit Index
Exhibit
Number Description
10.8 Consulting Agreement dated May 16, 2000, between the Company and
Lawrence B. Klein.
10.9 Employment Agreement dated August 25, 2000, between the Company and C.
Kenneth Morrelly.
10.14 Line of Credit Commitment dated September 19, 2000 of Irwin Balaban.
10.15 Promissory Note dated September 19, 2000 from the Company to Irwin
Balaban.
10.16 Line of Credit Commitment dated September 19, 2000 of Herbert Goldman.
10.17 Promissory Note dated September 19, 2000 from the Company to Herbert
Goldman.
10.18 Line of Credit Commitment dated September 19, 2000 of Lawrence B.
Klein.
10.19 Promissory Note dated September 19, 2000 from the Company to Lawrence
Klein.
27 Financial Data Schedule
40
