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SECURITIES AND EXCHANGE COMMISSION Washington, D.C.
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1997
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 No. 33-64164-A
COCONUT CODE INC.
(Exact name of registrant as specified in its charter)
FLORIDA
(State or jurisdiction of incorporation or organization)
59-2556411
(I.R.S. employer identification No.)
1430 South Federal Highway, Deerfield Beach, Florida 33441
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (954) 481-9331
NOT APPLICABLE
Former name, address and fiscal year if changed since last report
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 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___
The number of shares of common stock, $.01 par value, of the Registrant issued
and outstanding as of October 15, 1997 was 3,620,984.
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<PAGE>
COCONUT CODE, INC.
INDEX TO FORM 10-QSB
Page
Number
------
PART 1 FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheet as of
September 30, 1997 3
Consolidated Statements of Operations -
For the Three and Nine Months Ended
September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows -
For the Nine Months Ended
September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART 2. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
<PAGE>
Page 3
PART 1. FINANCIAL INFORMATION
COCONUT CODE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
September 30, 1997
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $533,141
Accounts receivable, net of allowance for doubtful accounts
of $176,597 345,891
Inventories 23,437
Current portion of finance receivables, net of unearned lease income
of $4,248 and allowance for doubtful accounts of $19,098 8,669
Notes receivable, net of allowance for doubtful accounts of $72,000 20,470
Prepaid expenses 9,743
-----------
Total current assets 941,351
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $326,002 442,815
OTHER ASSETS:
Long-term portion of finance receivables, net of unearned lease income
of $15,326 and allowance for doubtful accounts of $78,990 12,152
Other assets 50,154
-----------
$1,446,472
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 128,353
Accrued expenses 203,827
Customer deposits 165,604
Deferred revenue 125,797
Loans from officers 44,955
Current portion of notes payable 42,373
Current portion of leases payable 16,652
-----------
727,561
-----------
LONG-TERM PORTION OF NOTES AND LEASES PAYABLE 99,580
-----------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par; 10,000,000 shares
authorized, 3,620,984 shares issued and outstanding 36,210
Additional paid-in capital 2,859,079
Accumulated deficit (2,275,958)
-----------
619,331
-----------
$1,446,472
===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Page 4
Part I - Financial Information
COCONUT CODE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $942,449 $604,508 $3,227,210 $1,510,981
OPERATING COSTS AND EXPENSES:
Cost of sales 149,092 80,563 433,234 249,562
Selling and marketing 166,676 159,335 452,083 494,623
General and administrative 291,423 204,043 832,846 723,585
Research and development 281,155 185,579 710,205 506,815
Depreciation and amortization 31,000 16,500 67,375 48,900
----------- ----------- ----------- -----------
919,346 646,020 2,495,743 2,023,485
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 23,103 (41,512) 731,467 (512,504)
----------- ----------- ----------- -----------
OTHER (EXPENSE) INCOME:
Interest income 6,470 -- 10,031 --
Interest expense (4,956) (4,544) (18,695) (14,797)
Other 2,830 10,102 11,282 19,108
----------- ----------- ----------- -----------
4,344 5,558 2,618 4,311
----------- ----------- ----------- -----------
NET INCOME (LOSS) $27,447 ($35,954) $734,085 ($508,193)
----------- ----------- ----------- -----------
NET INCOME (LOSS) PER COMMON
SHARE $0.01 ($0.01) $0.20 ($0.15)
----------- ----------- ----------- -----------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 3,619,299 3,382,325 3,581,202 3,382,325
----------- ----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Page 5
PART 1. FINANCIAL INFORMATION
COCONUT CODE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
-------------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $734,085 ($508,193)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 67,375 48,900
Provision for doubtful accounts 115,000 92,993
Compensation expense for stock issuances 68,970 --
Changes in operating assets and liabilities:
Accounts receivable (165,890) (56,383)
Finance receivables, net 12,407 21,007
Inventories 3,837 11,064
Prepaid expenses 10,901 25,937
Other assets (35,061) 1,324
Accounts payable (107,564) 33,220
Accrued expenses (30,710) 28,781
Increase in customer deposits 78,212 --
Deferred revenue (7,397) 14,028
--------- ---------
Total adjustments 10,080 220,871
--------- ---------
Net cash provided by (used in) operating activities 744,165 (287,322)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (248,389) (22,196)
Decrease in notes receivable -- 26,715
--------- ---------
Net cash (used in) provided by investing activities (248,389) 4,519
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in due to related party -- (7,823)
(Repayment of) proceeds from loans from officers (34,945) 44,800
Proceeds from note and leases payable 122,161 130,400
Payments on notes and leases payable (145,734) (13,079)
--------- ---------
Net cash (used in) provided by financing activities (58,518) 154,298
--------- ---------
Net increase (decrease) in cash and equivalents 437,258 (128,505)
CASH AND CASH EQUIVALENTS, beginning of period 95,883 242,603
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $533,141 $114,098
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $18,695 $10,904
========= =========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations incurred during the nine month period ended September
30, 1997 amounted to $78,037. Notes payable incurred for fixed asset purchases
during the period amounted to $44,124.
See notes to consolidated financial statements.
<PAGE>
Page 6
COCONUT CODE, INC.
6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Coconut Code, Inc. (the "Company") was organized as a Florida corporation
on April 30, 1984. The Company's principal business is to develop, market and
support accounting and management software primarily to the restaurant and
hospitality industry.
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial statements, the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Certain information and footnote disclosures required by
generally accepted accounting principles for complete financial statements have
been condensed or omitted.
In the opinion of management, the accompanying financial statements include
all adjustments (consisting of only normal recurring adjustments) considered
necessary for a fair presentation of financial condition, results of operations
and cash flows of the Company. The results of operations for the nine month
period ended September 30, 1997 are not necessarily indicative of the results
that may be expected for the full year. For further information, these financial
statements should be read in conjunction with the Company's 1996 Annual Report
filed as part of the Company's 10-KSB for the year ended December 31, 1996.
2. NET INCOME (LOSS) PER COMMON SHARE
In February 1997, The Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share" which requires adoption for periods ending after
December 15, 1997. SFAS No. 128 simplifies the accounting for earnings per share
by requiring the presentation of basic earnings per share including only
outstanding common stock and diluted earnings per share including the effect of
dilutive common stock equivalents. The Company's basic and diluted earnings per
share are the same since the the Company's common stock equivalents are
antidilutive. In addition, the Company's basic and diluted earnings per share
are the same as that computed under APB No. 15, "Earnings Per Share", as
presented in the accompanying consolidated statements of operations. The effect
of the adoption of SFAS No. 128 must be retroactively reflected in the financial
statements.
<PAGE>
Page 7
COCONUT CODE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
(Unaudited)
3. STOCK ISSUANCE
On January 1, 1997, the Company issued its Vice President of Research and
Development 150,000 shares of the Company's common stock. Through December 31,
1996, the Company charged compensation expense and credited accrued expenses for
$60,000, representing the fair market value, as determined by the Board of
Directors, of 150,000 shares of the Company's common stock on December 31, 1996.
Such determination by the Board was required as the Company's shares are not,
and have not been in the recent past, actively traded.
4. INCENTIVE STOCK GRANTS AND STOCK OPTIONS
On April 30, 1997 and September 1, 1997, the Company granted 86,159 and
2,500 incentive stock grants, valued by the Company's Board of Directors at
$1.00 per share, to certain key employees of the Company. The grants become 100%
vested at the conclusion of the four year period immediately following the date
of grant. Employees do not vest any portion of the grants prior to the end of
this four year period, and unvested grants revert to the Company upon
termination of the employee. The estimated fair value of the grants amounting to
$88,659 has been recorded as an issuance of common stock with an offsetting
deferred compensation equity account. Such deferred compensation is included in
additional paid-in capital in the accompanying balance sheet. Such value is
being amortized to operating costs and expenses over the vesting period of the
grants.
On May 15, 1997, the Company granted 90,006 stock options to certain
employees under the Company's 1994 Stock Option Plan to purchase common shares
at $7.75 per share. The options become exercisable five years from the date of
grant and expire ten years from the date of grant.
<PAGE>
Page 8
COCONUT CODE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTORY STATEMENT
The Private Securities Litigation Reform Act provides a "safe harbor" for
forward-looking statements. Certain statements included in this Form 10-QSB are
forward-looking and are based on the Company's current expectations and are
subject to a number of risks and uncertainties that could cause actual results
to differ significantly from results expressed or implied in any forward-looking
statements made by, or on behalf of, the Company. The Company assumes no
obligation to update any forward-looking statements contained herein or that may
be made from time to time by, or on behalf of, the Company.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1997 Compared to the Nine Months Ended September
30, 1996
For the nine months ended September 30, 1997, net sales were $3,227,000
versus $1,511,000 for the comparable prior year period. The sales increase of
approximately 114% was directly the result of the growth in sales of custom
software to national and regional restaurant chains. In February 1997, the
Company entered into a $1.9 million contract with a national fast food
restaurant chain for the delivery of custom software for installation in
approximately 700 restaurants during 1997. As of September 30, 1997, the
Company's order backlog approximated $714,000.
For the first nine months of 1997, operating costs and expenses increased
$472,000 compared to the corresponding 1996 period. The primary reasons for the
increase were higher cost of sales due to the increase in sales, the addition of
research and development staff for custom software development, higher general
and administrative expenses primarily due to growth of the Company, offset in
part by lower selling and marketing expenses as travel and related costs are now
reimbursed to the Company by most major customers. In 1996, the majority of
travel expenses were absorbed by the Company.
As a result of the growth in sales, the Company recorded a $734,000 profit
for the first nine months of 1997.
<PAGE>
Page 9
COCONUT CODE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (cont'd.)
RESULTS OF OPERATIONS (cont'd.)
Three Months Ended September 30, 1997 Compared to the Three Months Ended
September 30, 1996
Net sales for the third quarter of 1997 were $942,000 compared to the 1996
level of $605,000. The reason for the sales increase was due to the growth in
sales of custom software to national and regional restaurant chains.
Operating costs and expenses for the three months ended September 30, 1997
increased $273,000 to $919,000. The principal reasons for the increase were
higher cost of sales attributable to the growth in sales, the addition of
research and development staff to work on custom software development and higher
general and administrative expenses due to the growth of the Company.
For the three months ended September 30, 1997, the Company recognized net
income of $27,000.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had working capital of $214,000 compared
to a working capital deficit at December 31, 1996 of $444,000. The improvement
in working capital of $658,000 is primarily a result of cash generated from
operations during the the first nine months of 1997 and due to the growth in
sales of custom software.
On April 29, 1997, the Company paid off the outstanding balance on its line
of credit amounting to $103,000, which was borrowed in 1996. On May 1, 1997 the
line of credit expired. The Company did not renew the line of credit.
In January 1995, the Company obtained a $100,000 term loan with a bank.
Borrowings under this facility were used primarily to finance the purchase of
computer hardware for use by the Company's research and development staff in the
design of custom software and the Company's new Windows(R) based software. In
February 1996, the $100,000 balance outstanding under this facility was
converted to a three year term loan bearing interest at the prime rate plus one
percent and requiring 36 equal monthly payments comprised of principal and
interest through March 1999. As of September 30, 1997, $55,013 of principal was
outstanding under the loan.
<PAGE>
Page 10
COCONUT CODE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (cont'd.)
LIQUIDITY AND CAPITAL RESOURCES (cont'd.)
In January and April 1997, the Company entered into two capital lease
obligations aggregating $78,037 for the purchase of computer hardware for use by
the Company. Each lease has a term of 48 months. As of September 30, 1997,
$68,027 of principal remained outstanding under the leases.
In March 1997, the Company entered into a 48 month loan in the amount of
$44,124 for the purchase of three automobiles for use by the Company's product
support staff in servicing the Company's major national account. As of September
30, 1997, $35,565 of principal was outstanding under this borrowing.
The Company believes that cash flow generated from the growth in
fixed-price contracts for the custom development of accounting and management
related software for national and regional restaurant chains, cash resulting
from the Company's new Windows(R) based accounting software now scheduled for
official release by the end of 1997, and continuing sales of the Company's DOS
based accounting software will be sufficient to fund the Company's activities
through the end of the year and will allow the Company to continue to expand
marketing and product distribution.
PART 2. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On August 14, 1997, the Company held its 1997 Annual Meeting of
Shareholders at which shareholders approved the one item up for vote which was
the reelection of a Board of Directors consisting of seven directors (John E.
Abdo, Chairman of the Board; Mark E. Wotell, President; Matthew J. Wotell,
Executive Vice President of Sales; Christopher L. Wotell, Vice President of
Marketing; Eugene J. Wotell, Vice President of Support Services, Frank J. Abdo
and J. Kenneth Gulden). Of the shares voted, approximately 100% voted in the
affirmative for reelection of directors.
Item 6. Exhibits and Reports on Form 8-K
None
<PAGE>
Page 11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned there
unto duly authorized.
COCONUT CODE, INC.
(Registrant)
Date: November 12, 1997 BY: /s/ Daniel W. Reese III
-----------------------
Daniel W. Reese III
Vice President & Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 553,141
<SECURITIES> 0
<RECEIVABLES> 733,867
<ALLOWANCES> 346,685
<INVENTORY> 23,437
<CURRENT-ASSETS> 941,351
<PP&E> 768,817
<DEPRECIATION> 326,002
<TOTAL-ASSETS> 1,446,472
<CURRENT-LIABILITIES> 727,561
<BONDS> 0
0
0
<COMMON> 36,210
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,446,472
<SALES> 3,227,210
<TOTAL-REVENUES> 3,227,210
<CGS> 433,234
<TOTAL-COSTS> 2,495,743
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 115,000
<INTEREST-EXPENSE> 18,695
<INCOME-PRETAX> 734,085
<INCOME-TAX> 0
<INCOME-CONTINUING> 734,085
<DISCONTINUED> 734,085
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 734,085
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
