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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ TO _______
Commission File Number 0-23152
@POS.COM, INC.
-----------------
Exact Name of small business issuer as specified in its charter
DELAWARE 33-0253408
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3051 NORTH FIRST STREET, SAN JOSE, CA 95134
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (408) 468-5400
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 issuer was required to file such reports), and (2) has been
subject to filing requirements for the past 90 days. Yes [X] No [ ]
Number of shares of issuer's common stock outstanding as of
March 31, 2000: 3,642,052
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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@POS.COM, INC.
FORM 10-QSB
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet at March 31, 2000 3
Consolidated Statements of Operations for the
Three Months Ended March 31, 2000 and 1999 4
Consolidated Condensed Statements of Operations
for the Nine Months Ended March 31, 2000 and 1999 5
Consolidated Statements of Cash Flows for the
Nine Months Ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signature 19
</TABLE>
PART I: FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
2
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@pos.com, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
MARCH 31, 2000 JUNE 30, 1999
-------------- -------------
<S> <C> <C>
Current assets:
Cash and equivalents $ 3,644,197 $ 2,174,854
Accounts receivable (net of allowance
for bad debts of $58,113 at 3/31/00
and $218,262 at 6/30/99 1,813,678 6,253,113
Inventories (net of reserve for
obsolescence of $361,100 at 3/31/00
And $67,068 at 6/30/99 209,294 1,580,394
Prepaid expenses and other current
assets 419,542 222,792
------------ ------------
Total current assets 6,086,711 10,231,153
------------ ------------
Property and equipment 2,560,553 1,843,422
Less: Accumulated depreciation (813,988) (562,989)
------------ ------------
Property and equipment, net 1,746,565 1,280,433
------------ ------------
Total assets $ 7,833,276 $ 11,511,586
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 668,478 $ 2,077,114
Accrued and other liabilities 841,696 584,521
Notes and other short-term payables 750,000 800,000
Bank Overdraft -- 630,483
Deferred revenues 929,403 --
Capital lease obligations, current 170,536 121,524
------------ ------------
Total current liabilities 3,360,113 4,213,642
Capital lease obligations, non-current 721,047 613,463
------------ ------------
Total liabilities 4,081,160 4,827,105
------------ ------------
Minority interest 2,516,124 --
------------ ------------
Stockholders' equity:
Series B convertible preferred stock 563 662
Series C convertible preferred stock -- 28
Series D convertible preferred stock 1,273 1,273
Common stock 3,630 2,019
Additional paid-in capital 16,503,011 15,126,410
Common stock subscribed 3,059,000 --
Accumulated deficit (18,331,485) (8,445,911)
------------ ------------
Total stockholders' equity 1,235,992 6,684,481
------------ ------------
Total liabilities and
stockholders' equity $ 7,833,276 $ 11,511,586
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
3
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@pos.com, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 and 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Revenues $ 2,100,614 $ 5,144,343
Cost of revenues 1,616,415 2,814,653
----------- -----------
Gross margin 484,199 2,329,690
----------- -----------
Operating expenses:
Selling, general and administrative 1,986,197 1,227,420
Research and development 1,592,210 1,018,620
----------- -----------
Total operating expenses 3,578,407 2,246,040
----------- -----------
Operating income/(loss) (3,094,208) 83,650
Interest expense and other (562,448) --
Interest income 12,024 43,000
----------- -----------
Income/(loss) before income taxes (3,644,632) 126,650
Income taxes -- 19,200
Less minority interest share in subsidiary loss (152,924) --
----------- -----------
Net income/(loss) $(3,491,708) $ 107,450
=========== ===========
Net income/(loss) per share (Note 2)
Basic $ (0.97) $ 0.06
Diluted $ (0.97) $ 0.02
Weighted average shares outstanding
Basic 3,616,864 1,924,589
Diluted 3,616,864 6,310,841
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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@pos.com, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 2000 and 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Revenues $ 5,766,596 $ 15,252,249
Cost of revenues 4,205,758 8,447,868
------------ ------------
Gross margin 1,560,838 6,804,381
------------ ------------
Operating expenses:
Selling, general and administrative 5,996,026 3,541,417
Research and development 4,952,581 2,782,918
------------ ------------
Total operating expenses 10,948,607 6,324,335
------------ ------------
Operating income/(loss) (9,387,769) 480,046
Interest expenses and other (708,479) (61,962)
Interest income 57,750 168,094
------------ ------------
Income/(loss) before income taxes (10,038,498) 586,178
Income taxes -- 20,463
Less minority interest in subsidiary loss (152,924) --
------------ ------------
Net income/(loss) $ (9,885,574) $ 565,715
============ ============
Net income/(loss) per share (Note 2)
Basic $ (3.35) $ 0.29
Diluted $ (3.35) $ 0.09
Weighted average shares outstanding
Basic 2,947,457 1,920,917
Diluted 2,947,457 6,236,665
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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@pos.com, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
NINE MONTHS ENDED MARCH 31, 2000 and 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income(loss) $(9,885,574) 565,715
Adjustments to reconcile net income(loss) to
net cash used in operating activities:
Depreciation and amortization 396,609 122,565
Provision for bad debts (10,708) --
Issuance of Common Stock Purchase Warrants 901,353 138,422
Changes in operating assets and liabilities:
Accounts receivable 4,450,143 (3,955,839)
Inventories 1,371,100 1,081,270
Prepaid expenses and other current assets (196,750) (29,557)
Accounts payable (1,408,636) (987,620)
Accrued liabilities 264,735 115,065
Deferred revenues 929,403 (699,852)
----------- -----------
Net cash used in operating activities (3,188,325) (3,649,831)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (929,939) (135,357)
Disposal of property and equipment 13,729 --
----------- -----------
Net cash used in investing activities (916,210) (135,357)
----------- -----------
Cash flows from financing activities:
Short-term Borrowing 2,402,505 400,000
Repayments of Short-term Borrowing (3,630,483) (290,195)
Issuance or subscription of common stock 4,132,807 37
Proceeds from issuance of Series B
preferred stock -- (37)
Issuance of ReceiptCity preferred stock
and common stock 2,669,049 --
----------- -----------
Net cash provided by financing
activities 5,573,878 109,805
----------- -----------
Net decrease in cash 1,469,343 (3,675,383)
Cash and cash equivalents at beginning of
period 2,174,854 6,465,898
----------- -----------
Cash and cash equivalents at end of period $ 3,644,197 $ 2,790,515
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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@pos.com, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its majority owned subsidiaries. All inter-company accounts and transactions
have been eliminated.
The financial information included herein for the three-month and nine-month
periods ended March 31, 2000 and 1999 respectively, is unaudited; however, such
information reflects all adjustments consisting only of normal recurring
adjustments which are, in the opinion of management, necessary for a fair
presentation of the financial position, results of operations and cash flows for
the interim periods.
The interim consolidated financial statements presented herein have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-QSB. These interim
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Form 10-KSB of
@POS.com, Inc. (the "Company") for the year ended June 30, 1999.
The results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.
2. NET INCOME/(LOSS) PER SHARE
Basic net income per share is computed by dividing net income/(loss) available
to common stockholders (numerator) by the weighted average number of common
shares outstanding (denominator) during the period and excludes the dilutive
effect of stock options and convertible securities. Diluted net income per share
gives effect to all dilutive common shares and other dilutive securities
outstanding during the period, including the assumed conversion of the Preferred
Stock into Common Stock using the if converted method. In computing diluted net
income per share, the average stock price for the period is used in determining
the number of shares assumed to be purchased from the exercise of stock options.
7
<PAGE> 8
The following table sets forth the computation of basic and diluted earnings per
share for the three month and nine month periods ended March 31, 2000 and 1999
as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator for basic and
diluted earnings per
share - net income/(loss) ($3,491,708) $ 107,450 ($9,885,574) $ 565,715
----------- ----------- ----------- -----------
Denominator for basic
earnings per share -
weighted average common
shares 3,616,864 1,924,589 2,947,457 1,920,917
Effect of dilutive securities
Series B Preferred Stock -- 1,433,817 -- 1,444,388
Series C Preferred Stock -- 1,150,307 -- 1,150,307
Series D Preferred Stock -- 1,273,149 -- 1,273,149
Employee stock options and
warrants -- 528,979 -- 447,904
----------- ----------- ----------- -----------
Denominator for diluted
earnings per share
adjusted weighted average
shares 3,616,864 6,310,841 2,947,457 6,236,665
----------- ----------- ----------- -----------
Income/(loss) per share
Basic ($ .97) $ 0.06 ($ 3.35) $ 0.29
Diluted ($ .97) $ 0.02 ($ 3.35) $ 0.09
Potentially dilutive
securities excluded from
computations as the effect
would be antidilutive -- -- 4,462,765 --
</TABLE>
3. INVENTORIES
Inventories are carried at the lower of cost, as determined on a first-in,
first-out basis, or market. At March 31, 2000 and June 30, 1999, the Company's
inventories were as follows:
<TABLE>
<CAPTION>
March 31, 2000 June 30, 1999
-------------- -------------
<S> <C> <C>
Raw materials $449,098 1,394,265
Finished goods 121,296 253,197
Less inventory reserve (361,100) (67,068)
-------- ----------
Total $209,294 $1,580,394
======== ==========
</TABLE>
4. REVENUE RECOGNITION
Revenue from sales of hardware products is recognized upon shipment. A provision
for estimated warranty costs is provided for upon shipment and periodically
adjusted to reflect actual percentage of repair costs to products sold under
warranty during the prior twelve-month period. Software product revenues are
recognized when the related products are shipped provided there are no
significant post-delivery obligations, payment is probable, and payment is due
within one year. Payments received from customers for whom the related product
have not been shipped are recorded as deferred revenues until shipped. Revenues
from services, which are not significant, are generally recognized as services
are performed.
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The Company licenses its software to original equipment manufacturers ("OEMs")
under the terms of development and license agreements. Revenue for the
development of software is generally recognized using the
percentage-of-completion method. If no basis for determining the percentage of
completion exists, the completed contract method is used. Royalty revenues
derived from OEM sales of products to end-users are recognized when the OEM
advises the Company that the products have been shipped.
Cost of revenues for hardware sales consists mainly of purchased electronic
components and contract assembly labor.
Approximately $1,700,000 or 81% of the Company's revenues for the quarter ended
March 31, 2000 were derived from three customers.
5. RESEARCH AND DEVELOPMENT
Research and development costs are generally expensed as incurred. Statement of
Financial Accounting Standards ("SFAS") 86, "accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed," requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. In the Company's case,
capitalization would begin upon completion of a working model. For the quarters
ended March 31, 2000 and 1999, such costs were insignificant. Accordingly, the
Company has charged all such costs to research and development expense in the
accompanying consolidated statements of operations.
6. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets, generally
three to five years. At March 31, 2000 and June 30, 1999, the Company's property
and equipment were as follows:
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
----------- -----------
<S> <C> <C>
Office equipment $ 311,612 $ 346,775
Engineering and production equipment 227,241 291,403
Computer equipment and software 1,747,557 1,085,523
Furniture and fixtures 52,340 31,048
Leasehold improvements 221,803 88,673
----------- ----------
2,560,553 1,843,422
Less accumulated depreciation (813,988) (562,989)
----------- ----------
Total $ 1,746,565 $1,280,433
=========== ==========
</TABLE>
7. COMPREHENSIVE INCOME
As of July 1, 1998, the Company adopted SFAS NO. 130, "Reporting Comprehensive
Income". SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The objective of SFAS No. 130 is to report a measure of
all changes in equity of an enterprise that results from transactions and other
economic events of the period other than transactions with shareholders
("comprehensive income"). Comprehensive income is the total of net income and
all other non-owner changes in equity. For the quarter and nine month periods
ended March 31, 2000 and 1999, the Company's comprehensive income was equal to
net income or loss.
8. MINORITY INTEREST
During January 2000, the Company's subsidiary, ReceiptCity, Inc., received
$2,770,000 for Series A Preferred Stock convertible to 938,983 shares of its
$.001 par value common stock. In addition, options for 380,000 shares of common
stock, valued at $90,000, were granted to and exercised by a ReceiptCity, Inc.
advisor and by one of the members of its board of directors. These issuances
correspond to approximately 14% of the subsidiary's common shares, the Company
continues to own 8,000,000 shares, or approximately 85%, of its total voting
shares.
The value of the Minority Interest of $2,516,124, as presented in the
accompanying balance sheet, represents the net proceeds of the minority
stockholders' investment in ReceiptCity's Series A Preferred Stock, less their
share in the subsidiary's loss. The accompanying income statement reflects the
minority stockholder's share of $152,924 in the subsidiary's loss during the
nine-month period based on the percentage of their holdings in the subsidiary's
total outstanding common stock at March 31, 2000.
9. SEGMENT INFORMATION
During fiscal 1999, the Company adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." SFAS No. 131 requires a new
basis of determining reportable business segments (i.e., the management
approach). This approach requires that business segment information used by
management to assess performance and manage company resources be the source of
information disclosure. The following information regarding the performance of
@pos.com and ReceiptCity is presented for this purpose:
Selected Performance Statistics Nine Months Ending March 31, 2000
<TABLE>
<CAPTION>
In $ thousands @pos.com ReceiptCity Eliminations Consolidated
-------------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue 5,767 344 (344) 5,767
Operating Income (Loss) (7,723) (1,396) (269) (9,388)
Assets 5,286 3,236 (689) 7,833
</TABLE>
Selected Performance Statistics Ended Months Ending March 31, 2000
<TABLE>
<CAPTION>
In $ thousands @pos.com ReceiptCity Eliminations Consolidated
- -------------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue 2,101 344 (344) 2,101
Operating Income (Loss) (1,429) (1,396) (269) (3,094)
Asset 5,286 3,236 (689) 7,833
</TABLE>
10. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which the
Company will be required to adopt for fiscal year 2000. This statement
establishes a new model for accounting for derivatives and hedging activities.
Under SFAS No. 133, all derivatives must be recognized as assets and liabilities
and measured at fair value. The adoption of SFAS No. 133 has no impact on the
Company's consolidated financial position or results of operations.
9
<PAGE> 10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the accompanying
unaudited consolidated financial statements of @pos.com, Inc. and its majority
owned subsidiaries, including the notes thereto (see Part I, Item 1).
This quarterly report on Form 10-QSB ("Form 10-QSB") for @pos.com, Inc. (the
"Company") contains forward-looking statements made within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Exchange Act of 1934, as amended. Words such as "anticipates," "expects,"
"intends," "plans," "seeks," "estimates," and similar expressions identify such
forward looking statement. These statements are not guarantees of future
performance and are subject to certain risks and uncertainties that could cause
actual results to differ materially from those expressed or forecasted. Factors
that might cause such a difference include, but are not limited to, those
discussed in the section entitled "Business," "Operating Results," "Liquidity
and Capital Resources," and "Outlook" on pages 3-5 and 7-9 in the annual report
on Form 10-KSB ("Annual Report") filed with the Securities and Exchange
Commission("Commission") on September 30, 1999. Readers should not rely unduly
on forward-looking statements, which reflect only the opinion of the Company's
management as of the date hereof. Unless required by law, the Company undertakes
no obligation to revise forward-looking statements. Readers should also
carefully review the risk factors set forth in other reports or documents the
Company files from time to time with the Commission, particularly the quarterly
reports on Form 10-QSB, and any current reports on Form 8-K.
OVERVIEW
COMPANY NAME CHANGED TO @POS.COM, INC. TO REFLECT THE NEW BUSINESS DIRECTION
E-Commerce has dramatically impacted the retailer's business model. In June
1999, the Company launched a strategic initiative to deliver an integrated suite
of Internet applications, services, and a consumer Web portal to bring the power
of the Internet to the point-of-sale. These web-enabling services combined with
the interactive transaction terminals, iPOS TC, provide businesses with a
comprehensive Internet application suite that enhances the consumer shopping
experience, bridges the gap between the Internet and the existing retail
networks, and provides retailers with a powerful one-on-one marketing
opportunity at the point-of-sale. [Retailers may thereby improve customer
retention, increase frequency of customer contact, establish new revenue
streams, and reduce costs.]
FORMED STRATEGIC LICENSING RELATIONSHIPS WITH BUSINESS PARTNERS
The Company designs, develops the web-enabled POS devices and system software,
and licenses the technology to major point-of-sale terminal manufacturers.
In January of this year, the Company entered into licensing partnerships with
Hand Held Products, a Welch Allyn Affiliate, and VeriFone, a division of
Hewlett-Packard Company. On May 9, 2000, an additional partnership relationship
was entered into with IVI Checkmate. Under these contracts, @pos.com receives
prepaid fees and royalty payments. The licensee partners are entitled to
manufacture the devices under their private label, and sell and support the
Internet-based payment solution and the secured electronic signature capture
terminal based on @pos.com technology. @pos.com provides development tools
and applications along with optional electronic services, including real-time
personalized advertising and customer surveys, electronic receipt service for
merchants, and a Web site where consumers can store and manage their receipts.
Management believes that with strategic partners such as VeriFone, IVI Checkmate
Company and Hand Held Products which control a large POS terminal market share,
@pos.com can focus on developing future internet-related products for
point-of-sale.
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FORMED RECEIPTCITY.COM, INC. AS A COMPANY SUBSIDIARY
In connection with the new licensing business model, the Company recognized two
major business directions: @pos.com development of webenabling technology for
point of sale terminals and ReceiptCity related application services. In January
2000, the Company split into two business entities and announced the formation
of a majority owned subsidiary ReceiptCity. The strategic spin-off allows
ReceiptCity to focus on its own business model and product development,
establish a different customer base, as well as establish separate funding.
@pos.com continues to advance its point-of-sale technology in web-enabling the
retailer's transaction process and enhancing the customer's shopping experience.
ReceiptCity provides merchants and consumers with a Web portal for secured
electronic receipt storage and retrieval and present personalized e-messages
online and at the point-of-sale.
SEPARATE COMPANY RESOURCES BETWEEN THE TWO BUSINESS ENTITIES
Upon the completion of the separation, @pos.com transferred approximately 10% of
its tangible assets and elements of intellectual property to ReceiptCity
including 12 patents. Employee resources were also split between the two
companies. Each business entity seeks to work with strategic partners to expand
the market for web-enabled point-of-sale products and services, and to deliver
increasingly valuable services to retailers. Management anticipates that a
substantial investment in research and development, will be necessary to
maintain a Technology leadership position.
ABOUT @POS.COM
PRODUCTS AND SERVICES
The product family includes the iPOS TC (Transaction Computer) a web-based
transaction processing terminal with an interactive marketing message display
functionality. The iPOS 3100 (interactive point-of-sale) terminal that can be
used for signature capture, personal identification number input, as well as
promotion message and line-item display. In addition the Company produces the
PenWare1500 [signature capture device] that has proven successful in extending
the useful life of retailer's front-end legacy systems. Although the Company
will no longer produce these products directly, it has licensed the devices
based-on the @pos.com technology and plans to generate revenues from consulting
services provided to the licensee partners for product development and
differentiation.
CUSTOMER BASE
In addition to the licensing revenue derived from its licensing partners, the
Company recognizes other revenues from product sales to existing customers, such
as IBM, American Express and Federated Stores (@pos.com's largest retail
customer), IBM has successfully deployed the OEM model of iPOS 3100 to the
United States Post Offices. The Company is working with American Express on
several pilot programs to rollout the iPOS TC in a store environment with the
smart card application.
COMPETITION
The market is increasing competitive for web-enabled point-of-sale transaction
products and services. Management expects to compete primarily on the basis of
the Company's technology, price, time to market, functionality, quality and
breadth of product and service offerings.
<PAGE> 12
ABOUT RECEIPTCITY
ReceiptCity, a majority owned subsidiary of @pos.com, was formed in January
2000. ReceiptCity e-Services infrastructure gives "bricks and mortar" merchants
a unique means to improve their understanding of shoppers, achieve real-time
intimacy with shoppers, and to compete at Internet speed.
ReceiptCity is an infrastructure provider. At the data center, ReceiptCity hosts
point-of-sale data, allows shopper registration, and responds in real-time with
targeted advertisements and special offers. Management believes that the Company
can capture a significant share of the 30 billion transactions annually
preformed on 8.5 million point of sale devices in the U.S. ReceiptCity could be
involved with 4-6 billion subsequent returns, exchanges, billing disputes, and
warranty claim online. Retailers benefit from ReceiptCity's electronic receipt
storage and retrieval system by reducing their dependence on paper receipts,
improving operational efficiency, and accessing valuable marketing information
available in receipts.
OFFERING
ReceiptCity provides services to make shopper receipts accessible from a
merchant's Web site. This will increase Web traffic, resulting in opportunities
to up-sell and cross-sell by utilizing ReceiptCity's online services and
one-to-one marketing.
- Online consumer-accessible receipts - Hosted receipt services
accessible by shoppers from a merchant's Web site for viewing,
downloading and filing.
- eReceipts - Secure receipt access and viewing by merchant and
payment processors for loss prevention, customer service and
billing disputes
- "Clicks" One-to-One Marketing - Integrated marketing and
services that enable product reorders, cross-selling and
targeted promotions
- "Bricks and Mortar" One-to-One Marketing - Integrated marketing
delivered to the physical point-of-sale and personalized based
on online receipt profiles
ReceiptCity expects to receive revenue from merchants for having their receipts
online and available to the merchants' customers and authorized employees.
ReceiptCity also receives transaction-based revenue for premium marketing
services delivered online or within the brick-and-mortar point of sale. These
transaction fees will be derived from reorders and cross-selling revenue
sharing, promotion redemption, advertising delivery, and completed survey
questions. ReceiptCity will collect software license fees through @pos.com from
manufacturers of Web-based payment terminals or kiosks that license ReceiptCity
software.
RESULTS OF OPERATIONS
Prior to the third quarter of fiscal 2000, revenue for @pos.com were generated
almost exclusively through the manufacturing, sale and distribution of its
interactive electronic transaction terminals direct to retail customers. In
January of 2000, @pos.com entered into initial manufacturing license and
distribution agreements as a part of a sales and marketing strategy to expand
the presence of its product line. At the same time it entered into these
agreements, @pos.com split its sales force in conjunction with the formation of
ReceiptCity. Management believes that these events and the subsequent activities
related to the transition period reduced impacted the sales effort to generate
direct customer product orders in the third quarter.
<PAGE> 13
Net revenues for the third quarter declined 59% over the same period in fiscal
1999 to approximately $2,000,000. For the first nine months of the year,
revenues of approximately $5,144,000 was 62% below the same period in the
previous fiscal year.
In the third quarter 2000 @pos.com began licensing products under the new
manufacturing and licensing agreements, recognizing $226,620 from licensing
fees. This represented approximately 11% of total revenue for the third quarter.
In the future, @pos.com management plans to reduce significantly the amount of
revenue generated through product sales and plans to significantly increase
licensing fees so that they constitute a majority of @pos.com's revenues.
In the third quarter 2000 the major component of revenue, direct product sales
declined 63% over the same period in fiscal 1999. This trend was consistent with
the revenue decline experienced in the first half of the year. In the third
quarter, 2000 the Company also recorded as a sales discount, the fair value of
warrants to purchase Company stock, which had been issued to a customer in
September 1999 in connection with a pilot agreement. The impact of this discount
was recognized at the time of the pilot shipments and reduced sales in the
current quarter by $136,750. @pos.com's majority owned subsidiary, ReceiptCity,
recognized no direct revenue to customers in the third quarter 2000.
In the first half of the year, and prior to the formation of ReceiptCity, the
Company entered a period in which it transitioned its entire focus to
web-enabling the Point-of-Sale (POS) and its iPOS TC product, announced in late
fiscal 1999. The Company believes that customers were reluctant to implement
this new transaction payment system during its introductory period and the
holiday season. In addition, the Company believes that sales during the first
two quarters were negatively affected by the Year 2000 issue.
Gross margin for the third quarter 2000 was 23% compared to 45% in the third
quarter of 1999. Gross margin was negatively impacted by higher level of
warranty repairs, an increase in inventory reserves and the effect of the sales
discount previously discussed above. Under terms of the Company's one year
warranty policy, the Company performed customer repairs to address product
reliability issues associated with its PenWare 3100 product line for which the
Company had experienced significant unit shipments in the prior year. Inventory
reserves were increased to $361,100 to reflect the Company's change in focus
away from manufacturing and into licensing through its partners. During the
transition to new manufacturing and distribution partners, management has chosen
to discontinue manufacturing some products which has reduced the net realizable
value of some inventory.
The negative impacts to gross margin detailed above were partially offset by the
favorable impact of the new licensing revenue for which costs of sales were
significantly lower. As a greater percentage of the Company's revenue is derived
from licensing fees in the future, the Company will experience a significant
reduction in cost of revenues and realize an associated increase in the gross
margin.
Selling, general and administrative expenses increased 62% and 69% for the third
quarter and nine months ended 2000, respectively, versus the same periods last
year. The increases were largely the result of higher personnel expenses to
support business growth. Increased spending has been focused on the Company's
expanding internet business initiatives, including the establishment of
ReceiptCity. Selling, general and administrative expenses for the quarter was
$1,986,000, of which $852,000, or 43%, was incurred by ReceiptCity between the
period of January 15 and March 31, 2000.
<PAGE> 14
Research and development expenses increased 56% and 78% for the third quarter
and nine months ended 2000, respectively, versus the same periods last year.
These increases were attributable, in part, to increases in headcount. Expenses
for technology consulting, materials and non-recurring engineering activities
also rose significantly. For the quarter, research and development expenses
totaled $1,592,210, of which $889,000 were attributable to ReceiptCity. The
activities of @pos.com and ReceiptCity organizations were focused primarily on
the development of the advanced iPOS TC web-enabling technology and related
internet services. Research and development expenses are generally charged to
operations as incurred.
Interest expense and other non-operating expenses for the quarter, net of
interest income, was $550,000. On January 27, 2000, the Company issued warrants
to purchase 133,000 shares of the Company's common stock to Imperial Credit
Corporation in connection with the establishment of a bridge loan. The fair
value of the warrants, as calculated under the Black-Scholes method, was
determined to be approximately $497,000. This amount was recorded as a charge to
interest expense by the Company on the date of the repayment of the bridge loan
on March 16, 2000. Interest paid in cash was $208,090 for the nine month period.
LIQUIDITY AND CAPITAL RESOURCES
The Company consumed $3,188,000 in cash from operations during the nine months
ending March 31, 2000 compared to $3,650,000 for the same period in the prior
fiscal year. Net income from operations, after adjusting to reflect the impact
of non-cash charges, and a reduction in outstanding accounts payable consumed
cash of $10,007,000 during the period. This outflow was offset, in part, through
the collections of accounts receivable, a net reduction in inventory and the
collection of deferred revenue from customer prepayments, which combined
generated positive cash flow totaling $6,758,000.
The Company's investment activity of $916,000 in the first nine months of the
fiscal year related to the purchase of leasehold improvements and computer
equipment required by the expansion of the Company's operations.
During the first nine months, the Company financed cash requirements through the
subscription and sale of @pos.com common shares, the use of notes and short-term
borrowings and the issuance of Series A Preferred Stock by ReceiptCity.
As of March 31, 2000, @pos.com had received proceeds of $3,075,000 from the
subscription of common shares in the Company. On May 12, 2000, the Company
issued 683,333 shares of @pos.com common stock and warrants to purchase
1,161,667 shares of ReceiptCity common stock currently held by @pos.com. In
addition to the private placement of common shares, @pos.com also received
proceeds from exercise of employee stock options and warrants.
On January 27, 2000, @pos.com obtained a $2,000,000 bridge loan for the purpose
of paying down the bank line of credit. Under the terms of the bridge loan, the
Company paid interest at the prime rate plus 3.5% until March 16, 2000. The
Company paid down the entire balance of the bridge loan on March 16, 2000 with
the proceeds of the common stock subscription discussed above.
On January 26, 2000, ReceiptCity received $2,770,000 for the sale of shares of
Series A Preferred Stock convertible into 938,983 ReceiptCity common stock.
Management believes, based on the current cash position of the Company, that
significant sources of financing are required to support future
<PAGE> 15
operations. Currently, the Company and its subsidiary are negotiating the sale
of Series B Preferred Stock in ReceiptCity and expect to raise significant
operating capital in the near term. There is no assurance that these efforts
will be successful. If the Company is unsuccessful in raising the additional
capital through this effort, the Company may only find alternative sources at
significantly less favorable terms, if at all. Without sufficient financing,
there is a substantial doubt about the company's ability to operate as a going
concern.
SUBSEQUENT EVENTS
On May 9, 2000, the Company entered into a strategic licensing agreement with
IVI Checkmate. Under terms of the agreement, @pos.com granted IVI Checkmate the
right to manufacture, sell and support @pos.com products and technology in
return for licensing fees and other rights and privileges. Products included
under this agreement include @pos.com's iPOS TC, iPOS 3100 and PW 1500.
IMPACT OF CURRENCY AND INFLATION
The Company purchases the majority of its materials and services in U.S.
dollars, and most of its foreign sales are transacted in U.S. dollars. The
Company did not hold or purchase any foreign exchange contracts for the purchase
or sale of foreign currencies. The Company may choose to enter into such
contracts from time to time should conditions appear favorable. Effects of
inflation on the Company's financial results have not been significant.
RISK FACTORS AFFECTING THE COMPANY'S BUSINESS, OPERATING RESULTS AND FINANCIAL
CONDITION
In addition to other information in this Form 10-QSB and the risk factors
discussed in the Company's latest Annual Report filed with the Commission,
investors evaluating the Company and its business should carefully consider the
following risk factors, which may have a significant impact on the Company's
business, operating results and financial condition. The risk factors set forth
below and elsewhere in this Form 10-QSB and in the Company's Annual Report could
cause actual results to differ materially from those projected in any
forward-looking statements. These risk factors include but are not limited to
the following:
UNPREDICTABLE AND FLUCTUATING OPERATING RESULTS;
The Company has yet to sustain consistent profitability and sales trends are
inherently difficult to predict at this stage of development. Sales forecast
shortfalls, delayed product introductions, and manufacturing and financing
constraints, together with other risk factors, could lead to adverse
fluctuations in revenues and profits in any particular quarter.
HIGHLY COMPETITIVE MARKETS AND RAPIDLY DEVELOPING AND CHANGING TECHNOLOGIES AND
MARKET CONDITION;
The Point-of-Sale device market is constantly changing. These changes include,
among others: rapid technological advances; evolving industry standards in
electronic fund transfer and point-of-sale products; changes in customer
requirements; and frequent new product introductions and enhancements. The
Company may not successfully keep up with the new products and technological
advances of others. If the Company is not able to develop and market new
products and product enhancements that achieve market acceptance on a timely and
cost effective basis, it could materially and adversely affect the Company's
business, financial condition and results of operations.
DEPENDENCY ON LARGE CUSTOMERS;
The Company relies upon large retail customers with a large number of
point-of-sale terminals for a significant percentage of revenues. The Company
continues to diversify its customer base by developing strategic alliances and
partnerships to
<PAGE> 16
open more distribution channels and limit its reliance on large customers. While
the Company continues to transact business with its current customers and
attract new ones, the Company's revenues will decrease significantly if it loses
a large customer. Furthermore, there are no assurances the Company will be
successful in attracting new customers.
CLAIMS OF INFRINGEMENT ON OTHERS' PROPRIETARY RIGHTS; Although the Company
believes that its services and products do not infringe on the intellectual
property rights of others, the Company can not prevent someone else from
asserting a claim against the Company in the future for violating their
technology rights. Third parties making infringement claims may have
significantly greater resources than the Company does to pursue litigation, and
the Company cannot be certain that it would prevail in an infringement action.
SINGLE COMPONENT MANUFACTURER/SUPPLIERS; the Company depends on other
manufacturers and suppliers for some of its products and certain components used
in its products. The components it obtains from other manufacturers and
suppliers are only available from a limited number of sources. Certain
components and products are currently purchased from single supplier. While the
Company maintains sufficient inventory of certain products and continually
evaluate alternative sources of supply, the failure of any such single supplier
to meet its commitment on schedule could adversely affect the Company.
ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL; the Company's future performance
depends upon the continued service of a number of senior management and key
technical personnel. The loss or interruption of the services of one or more key
employees could have a material adverse effect on its business, financial
condition and results of operations. The Company's future also will depend upon
its ability to attract and retain highly skilled technical, managerial and
marketing personnel. Competition for qualified personnel is significant and
intense, and is likely to intensify in the future. The Company competes for
qualified personnel against numerous companies, including larger, more
established companies with significantly greater financial resources than the
Company's. Significant competition exists for such personnel. If the Company is
unable to hire and retain qualified personnel in the future, it could materially
and adversely affect its business, financial condition and results of operations
YEAR 2000 ISSUE
The Year 2000 issue arises from the fact that most computer software programs
have been written using two digits rather than four to represent a specific
year. Any computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculation causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send invoices
or engage in similar normal business activities. To date, costs incurred to
address the Year 2000 compliance issues have not been material. Costs related to
Year 2000 compliance issues continue to be funded through operating cash flow.
Further, the Company's current understanding of expected costs is subject to
change as the project progresses, and does not include potential costs related
to actual customer claims or the cost of internal software and hardware replaced
in the normal course of business.
<PAGE> 17
PART II: OTHER INFORMATION
ITEM 5: OTHER INFORMATION
During the third quarter 2000, the following director and officer changes
occurred for @pos.com; Vivian Stephenson resigned from the board effective April
1, 2000, Michael Dorsey was elected to the board effective January 2000, Aziz
Valliani resigned as Chairman and CEO and Michael Dorsey was elected Chairman
and Acting CEO effective on May 1, 2000, and Gary Rummelhoff was appointed CFO
effective February 28, 2000.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
@pos.com, INC.
Date: May 15, 2000 By: /s/ Gary Rummelhoff
------------------------------------
Gary Rummelhoff
Chief Financial Officer and
Vice President of Operations
(principal accounting officer)
16
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 3,644,197
<SECURITIES> 0
<RECEIVABLES> 1,871,791
<ALLOWANCES> 58,113
<INVENTORY> 209,294
<CURRENT-ASSETS> 6,086,711
<PP&E> 2,560,553
<DEPRECIATION> 813,988
<TOTAL-ASSETS> 7,833,276
<CURRENT-LIABILITIES> 2,610,113
<BONDS> 0
0
1,836
<COMMON> 3,630
<OTHER-SE> 4,254,009
<TOTAL-LIABILITY-AND-EQUITY> 7,833,276
<SALES> 5,766,596
<TOTAL-REVENUES> 5,766,596
<CGS> 4,244,758
<TOTAL-COSTS> 4,244,758
<OTHER-EXPENSES> 10,909,607
<LOSS-PROVISION> (10,728)
<INTEREST-EXPENSE> 705,138
<INCOME-PRETAX> (10,126,238)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,915,387)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,915,387)
<EPS-BASIC> (3.36)
<EPS-DILUTED> (3.36)
</TABLE>
