<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 0-22718
RACOTEK, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE #41-1636021
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7301 OHMS LANE, SUITE 200, MINNEAPOLIS, MINNESOTA, 55439
(Address of principal executive offices, including zip code)
(612) 832-9800
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class March 31, 1998
----- --------------
Common Stock, $0.01 par value 25,015,558
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THIS REPORT CONSISTS OF 13 SEQUENTIALLY NUMBERED PAGES.
<PAGE>
RACOTEK, INC.
INDEX
PART I -- Financial Information
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Item 1. Financial Statements
Statements of Operations for the
Three Months Ended March 31, 1998, and 1997 3
Balance Sheets as of
March 31, 1998, and December 31, 1997 4
Statements of Cash Flows for the
Three Months Ended March 31, 1998, and 1997 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Not Applicable
PART II -- Other Information
Items
1-5. Not applicable 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
RACOTEK, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1998 1997
------ -------
<S> <C> <C>
Net revenues:
Services $1,334 $1,550
Products 70 189
------ -------
1,404 1,739
Cost and expenses:
Cost of services 776 1,080
Cost of products 6 179
Research and development 432 1,025
Sales and marketing 522 1,529
General and administrative 240 478
------ -------
Loss from operations (572) (2,552)
Interest income 76 127
------ -------
Net loss ($496) ($2,425)
------ -------
------ -------
Net loss per share- basic and diluted ($0.02) ($0.10)
------ -------
------ -------
Weighted average shares outstanding 25,001 24,863
------ -------
------ -------
</TABLE>
The accompanying financial statements are an integral
part of the financial statements.
3
<PAGE>
RACOTEK, INC.
BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
ASSETS
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $2,343 $3,103
Short-term investments 2,558 2,233
Accounts receivable, net 522 561
Prepaid expenses and other current assets 197 195
----------- ------------
Total current assets 5,620 6,092
Property and equipment, net 677 786
Restricted cash 355 355
Other long-term assets 3 4
----------- ------------
Total assets $6,655 $7,237
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $149 $6
Accrued expenses 573 651
Deferred revenue 124 303
----------- ------------
Total current liabilities 846 960
----------- ------------
Commitments
Stockholders' equity:
Common stock, $0.01 par value, 35,000 shares
authorized, 25,016 and 24,999 issued and
outstanding at March 31, 1998 and December 31, 1997,
respectively 250 250
Additional paid-in capital 71,293 71,265
Accumulated deficit (65,584) (65,088)
Promissory note receivable from stockholder (150) (150)
----------- ------------
Total stockholders' equity 5,809 6,277
----------- ------------
Total liabilities and stockholders' equity $6,655 $7,237
----------- ------------
----------- ------------
</TABLE>
The accompanying financial statements are an integral
part of the financial statements.
4
<PAGE>
RACOTEK, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1998 1997
------ -------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($496) ($2,425)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 118 237
Provision for bad debts - 30
Amortization of premiums (discounts) on investments 2 (16)
Stock issued for consulting services - 41
Changes in operating assets and liabilities:
Accounts receivable 39 87
Inventories - 31
Prepaid expenses and other current assets (2) 25
Current liabilities (114) (115)
------ -------
Net cash used in operating activities (453) (2,105)
Cash flows from investing activities:
Purchase of investments (1,927) (1,000)
Proceeds from maturity of investments 1,600 4,000
Purchase of equipment (8) (79)
------ -------
Net cash provided (used in) investing activities (335) 2,921
Cash flows from financing activities:
Proceeds from exercises of stock options 28 231
------ -------
Net cash provided from financing activities 28 231
------ -------
Net change in cash and cash equivalents (760) 1,047
Cash and cash equivalents, beginning of period 3,103 2,956
------ -------
Cash and cash equivalents, end of period $2,343 $4,003
------ -------
------ -------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note A. Basis of Presentation:
The unaudited financial statements of Racotek, Inc. ("Racotek" or the
"Company") as of March 31, 1998, and for the three month periods ended
March 31, 1998, and 1997, reflect, in the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
fairly state the financial position as of March 31, 1998, and the results of
operations and cash flows for the reported periods. The results of
operations for any interim period are not necessarily indicative of the
results to be expected for any other interim period or for the full year.
The year-end balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles. These financial statements should be read in
conjunction with the Company's audited financial statements and related notes
for the year ended December 31, 1997, which were included in the Company's
1997 Annual Report on Form 10-K.
Effective January 1, 1998, the Company adopted Statement of Position (SOP) 97-2,
"Software Revenue Recognition." The adoption of SOP 97-2 has had no effect
on the Company's revenue recognition practices or any impact on the Company's
financial position or results of operations. In addition, the adoption of
SOP 97-2 would have had no impact on previously reported results of
operations for the three months ended March 31, 1997.
Note B. Selected Balance Sheet Information (in thousands):
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
(Unaudited)
<S> <C> <C>
Accounts receivable, net:
Accounts receivable $ 755 $ 785
Less allowance for doubtful accounts (233) (224)
------- -------
$ 522 $ 561
------- -------
------- -------
Property and equipment, net:
Computer equipment $ 1,462 $ 1,453
Furniture and equipment 679 679
Leasehold improvements 106 106
------- -------
2,247 2,238
Less accumulated depreciation and
amortization (1,570) (1,452)
------- -------
$ 677 $ 786
------- -------
------- -------
</TABLE>
Note C. Net Loss per Share:
Effecive December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128. "Earnings per Share," and has disclosed basic
and diluted net loss per share for the quarters ended March 31, 1998 and 1997
in accordance with this standard.
6
<PAGE>
The Company incurred a net loss for the first quarter of 1998 and 1997, and
excluded common equivalent shares from the diluted loss per share computation,
as their effect is anti-dilutive. If the Company generates earnings in future
periods the impact of common equivalent shares may be dilutive. At March 31,
1998, the Company had 6,418,499 stock options outstanding, which may be
dilutive in future periods.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Racotek, Inc. ("Racotek" or the "Company") provides solutions that
enable its clients to deliver better service to their customers and improve the
productivity of their workforce. Clients of the Company are generally large
companies with significant numbers of employees engaged in field service. The
Company provides its clients with enterprise customer management system
integration services, including business case evaluation, system planning and
design, software development, training, installation, change management and
network management support.
The Company is also developing a wireless data technology that, in
concept, will enable high-speed data transmission over existing cellular
infrastructures at rates not possible with existing systems, without
requiring dedicated frequencies or diminishing the capacity or quality of
voice transmissions. The Company refers to this technology as "NextNet" and
received a United States patent registration for it in 1996. The Company has
since received several foreign patent registrations for the NextNet
technology.
Historically, the Company derived a substantial amount of its revenue
from sales of proprietary hardware and software that originally enabled data
communication over specialized mobile radio ("SMR") technology and,
eventually, most types of wireless networks. During 1996, the Company began a
process to expand the services it could offer to its clients by becoming a
systems integrator focused on wireless data communication and ceased
production of its proprietary hardware. In 1997, the Company completed the
exit from its SMR hardware operations, discontinuing support for SMR
technologies, except on a time and materials basis, closing several
facilities, disposing of assets no longer used in operations, hiring
personnel with skills and experience in field service and enterprise customer
management, and eliminating personnel with skills related to its previous
operations. These actions reduced the Company's payroll from approximately
95 employees to approximately 40 employees and reduced the Company's
operating costs significantly. Also, during the second half of 1997 and the
first quarter of 1998, the Company broadened its sales focus from providing
systems integration services for field service workers to providing such
services for all aspects of its clients' enterprises that affect their
customers. The Company continues to view field service as its primary target
market and will still license its proprietary software to clients and develop
custom software applications for use by its clients' field service employees.
However, the Company expects to derive an increasing percentage of its
revenues from integrating third party software and equipment for all aspects
of its clients' enterprises, including call centers, help desks and dispatch.
Although the Company has significantly reduced its operating costs and
cash flows used in operations, the Company expects to continue to incur
losses through 1998, as it attempts to grow its revenues by providing
services in the area of enterprise
8
<PAGE>
customer management systems integration. There can be no assurance that these
services will meet with market acceptance or that revenues from these
services will be sufficient for the Company to obtain or sustain
profitability. The Company does not expect to derive revenue from its
NextNet technology during 1998.
RESULTS OF OPERATIONS
NET REVENUES
Revenues for the quarter ended March 31, 1998, were $1,404,000 as
compared to $1,739,000 in the first quarter of 1997. Service revenues were
$1,334,000 for the quarter ended March 31, 1998, as compared to $1,550,000
for the comparable period in 1997. Product revenues were $70,000 and
$189,000 for the quarters ended March 31, 1998, and 1997, respectively. The
overall decrease in revenues is directly related to the changes in the
composition of the Company's revenues, as the Company has not yet replaced
the revenues obtained from providing proprietary products and incidental
services for those products with systems integration service revenues. The
Company expects that service revenues will be an increasing percentage of its
total revenues, and that product revenues will continue to decline. The
Company derives a substantial percentage of its revenues from a small number
of clients. The timing and amount of integration services performed for
these clients can fluctuate, causing the Company's service revenues to vary.
The Company expects this volatility to continue during 1998. As the Company
increases its focus on enterprise customer management, product revenues, if
any, will come from sourcing and reselling third party equipment to the
Company's integration service clients.
COST OF REVENUES
The Company's total cost of revenues for the quarter ended March 31,
1998, were $782,000, compared to $1,259,000 in the first quarter of 1997.
Cost of service revenues were $776,000 for the first quarter of 1998,
compared to $1,080,000 for the first quarter of 1997. Service gross margins
for the quarter ended March 31, 1998, were $558,000 or 42%, compared to
$470,000 or 30% for the first quarter of 1997. The increase in service gross
margins resulted primarily from the cost reduction measures taken in 1997.
The Company expects that gross margin percentages for the remainder of 1998
will be similar to those realized in the first quarter. Cost of product
revenues were $6,000 and $179,000 for the quarters ended March 31, 1998, and
1997, respectively. The decrease from 1997 to 1998 is primarily due to
ending the production and distribution of SMR hardware in the third quarter
of 1997. Cost of product revenues will continue to be significantly lower
during 1998 as compared to 1997, as the Company focuses on deriving revenues
from enterprise customer management systems integration services.
RESEARCH AND DEVELOPMENT
Research and development expenses were $432,000 and $1,025,000 for the
quarters ended March 31, 1998, and 1997, respectively. The Company is now
focused on systems integration services instead of product sales, and the
reduction in research and development expenses in the first quarter is due
to the reduction of research and development activities subsequent to the
third quarter of 1997. Research and development costs associated with
NextNet were $341,000 during the first quarter of 1998. Research and
development costs associated with NextNet were not significant in
9
<PAGE>
the first quarter of 1997. Research and development expenses are expected to
show similar amounts of decline on a comparable quarter basis for the second
and third quarters.
SALES AND MARKETING
Sales and marketing expenses were $522,000 and $1,529,000 for the
quarters ended March 31, 1998, and 1997, respectively. The decrease in these
costs resulted primarily from the cost reduction measures taken in the third
and fourth quarters of 1997. Sales and marketing expenses are expected to
increase gradually during 1998 over the amounts recorded in the first
quarter, as the Company incurs costs to market enterprise customer management
systems integration services.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $240,000 and $478,000 for the
quarters ended March 31, 1998, and 1997, respectively. The decrease in these
costs resulted primarily from the cost reduction measures implemented by the
Company in 1997. The Company expects quarterly general and administrative
costs to remain fairly constant for the remainder of 1998.
INTEREST INCOME
Interest income was $76,000 and $127,000 for the quarters ended March 31,
1998, and 1997, respectively. The decrease is primarily the result of a
decrease in cash and cash equivalents.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company had no significant capital spending or
purchase commitments and had cash, cash equivalents, and investments totaling
$4,901,000 and working capital of $4,774,000. The Company believes it has
sufficient capital resources to fund its enterprise customer management
systems integration operations into 1999, but is seeking strategic partners
to help fund the development of its NextNet technology. For the three months
ended March 31, 1998, the Company used $453,000 of cash in its operating
activities, compared to $2,105,000 of cash used in operations for the three
months ended March 31, 1997. The amount of cash used in operating activities
decreased primarily due to cost reduction measures implemented in 1997.
The impact of the 1997 cost reduction measures on the Company's use of cash
are expected to continue throughout 1998. During the three months ended
March 31, 1998, the Company used $335,000 of cash in investing activities,
primarily for the purchase of investments, net of proceeds from investments
that matured during the quarter. No significant financing activities
occurred during the three months ended March 31, 1998.
10
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISION OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The foregoing Management's Discussion and Analysis of Financial
Condition and Results of Operations contains various "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Forward-looking statements represent the Company's expectations or
beliefs concerning future events, including the following: any statements
regarding future sales and profit percentages, any statements regarding the
continuation of historical trends, and any statements regarding the
sufficiency of the Company's cash balances and cash generated from operating
and financing activities for the Company's future liquidity and capital
resource needs. The Company cautions that any forward-looking statements
made by the Company in this Form 10-Q or in any other announcements made by
the Company are further qualified by important factors that could cause
actual results to differ materially from the forward-looking statements,
including, without limitation, the ability of the Company to obtain
large-scale consulting services contracts, the Company's ability to use these
consulting services to obtain additional support services revenues, the
ability of the Company to hire and retain qualified personnel, the levels of
promotion and marketing required to promote the Company's services, the
ability of the Company to develop and market NextNet, its developmental
technology for high speed wireless data communication, the ability of the
Company to successfully obtain the funding necessary for the development of
NextNet and other factors identified in this Form 10-Q and the Company's
other filings with the Securities and Exchange Commission.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Company's shareholders was held on April 30,
1998. The shareholders considered two proposals. The first proposal
considered at the meeting were to elect five directors of the Company, each
to hold office until the next Annual Meeting of the Stockholders and until
his successor has been elected and qualified or until his earlier resignation
or removal. The following persons were nominated for election as directors:
Joseph B. Costello, Dixon R. Doll, Michael A. Fabiaschi, James L. Osborn, and
Norman D. Smith. All five of the nominated directors were elected. Votes cast
in favor and against the nominees were, respectively: Mr. Costello, 22,494,571
and 229,763; Mr. Doll, 22,477,571 and 246,763; Mr. Fabiaschi, 21,491,771 and
1,232,563; Mr. Osborn, 22,478,271 and 246,063; and Mr. Smith, 22,494,171 and
230,163. Prior to the Annual Meeting, Mr. Smith had resigned from the Board.
The second proposal was to ratify the selection of Coopers & Lybrand L.L.P. as
independent accountants for the Company for the current fiscal year. This
proposal passed, with 21,927,489 votes cast in favor, 23,395 votes cast
against, 51,450 votes abstaining, and 722,000 broker non-votes.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 1998.
12
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
RACOTEK, INC.
By: Michael A. Fabiaschi
-----------------------------------
Michael A. Fabiaschi
President, Chief Executive Officer
and Acting Chief Financial Officer
Dated: May 15, 1998
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1ST QUARTER
10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,343
<SECURITIES> 2,558
<RECEIVABLES> 755
<ALLOWANCES> (233)
<INVENTORY> 0
<CURRENT-ASSETS> 5,620
<PP&E> 2,247
<DEPRECIATION> (1,570)
<TOTAL-ASSETS> 6,655
<CURRENT-LIABILITIES> 846
<BONDS> 0
0
0
<COMMON> 71,543
<OTHER-SE> (150)
<TOTAL-LIABILITY-AND-EQUITY> 6,655
<SALES> 70
<TOTAL-REVENUES> 1,404
<CGS> 6
<TOTAL-COSTS> 782
<OTHER-EXPENSES> 1,194
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (496)
<INCOME-TAX> 0
<INCOME-CONTINUING> (496)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (496)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
