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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 March 31, 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 May 7, 1997 was 3,532,325.
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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
March 31, 1997 3
Consolidated Statements of Operations -
For the Three Months Ended March 31,
1997 and 1996 4
Consolidated Statements of Cash Flows -
For the Three Months Ended March 31,
1997 and 1996 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis
or Plan of Operation 8-9
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
March 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 726,316
Accounts receivable (net of allowance for doubtful accounts
of $165,362) 250,667
Inventories 22,045
Current portion of finance receivables (net of unearned lease income
of $4,472 and allowance for doubtful accounts of $5,010) 22,532
Notes receivable (net of allowance for doubtful accounts of $70,000) 22,470
Prepaid expenses 23,508
----------
Total current assets 1,067,538
PROPERTY AND EQUIPMENT, (net of accumulated
depreciation of $276,127) 306,354
OTHER ASSETS:
Long-term portion of finance receivables (net of unearned lease income
of $15,951 and allowance for doubtful accounts of $84,990) 16,402
Other assets 14,410
----------
$1,404,704
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 155,549
Accrued expenses 191,347
Customer deposits 228,825
Deferred revenue 134,351
Loans from officers 66,400
Line of credit 103,000
Current portion of notes payable 41,834
Current portion of lease payable 2,009
----------
923,315
LONG-TERM PORTION OF NOTES AND LEASE PAYABLE 77,522
STOCKHOLDERS' EQUITY:
Common stock ($.01 par; 10,000,000 shares
authorized, 3,532,325 issued and outstanding) 35,323
Additional paid-in capital 2,850,996
Accumulated deficit (2,482,452)
----------
403,867
----------
$1,404,704
==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Page 4
PART 1. FINANCIAL INFORMATION
COCONUT CODE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended March 31,
------------------------------------
1997 1996
---- ----
NET SALES $1,261,672 $365,192
OPERATING COSTS AND EXPENSES:
Cost of sales 126,154 74,131
Selling and marketing 131,307 178,990
General and administrative 262,808 234,283
Research and development 194,790 155,771
Depreciation and amortization 17,500 15,900
----------- -----------
732,559 659,075
----------- -----------
INCOME (LOSS) FROM OPERATIONS 529,113 (293,883)
----------- -----------
OTHER (EXPENSE) INCOME:
Interest income -- 607
Interest expense (5,817) (1,133)
Other 4,294 4,238
----------- -----------
(1,523) 3,712
----------- -----------
NET INCOME (LOSS) $527,590 ($290,171)
----------- -----------
NET INCOME (LOSS) PER COMMON SHARE $0.15 ($0.09)
----------- -----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,532,325 3,382,325
----------- -----------
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 three months ended March 31,
------------------------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 527,590 ($290,171)
Adjustments to reconcile net income (net loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 17,500 15,900
Provision for doubtful accounts 35,000 19,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (10,755) 26,598
Decrease in finance receivables, net 12,382 8,052
Decrease in inventories 5,229 7,537
(Increase) decrease in prepaid expenses (2,864) 10,784
Decrease in other assets 683 --
Decrease in accounts payable (80,368) (4,661)
Increase in accrued expenses 16,810 12,467
Increase in customer deposits 141,433 --
Increase in deferred revenue 1,157 19,455
--------- ---------
Total adjustments 136,207 115,132
--------- ---------
Net cash provided by (used in) operating activities 663,797 (175,039)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (51,281) (6,387)
Decrease in notes receivable -- 26,683
--------- ---------
Net cash (used in) provided by investing activities (51,281) 20,296
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in due to related party -- (4,500)
(Repayment of) proceeds from loans from officers (13,500) 16,800
Proceeds from note payable 39,714 27,400
Payments on note payable (8,297) --
--------- ---------
Net cash provided by financing activities 17,917 39,700
--------- ---------
Net increase (decrease) in cash and equivalents 630,433 (115,043)
CASH AND CASH EQUIVALENTS, beginning of period 95,883 242,603
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 726,316 $ 127,560
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 5,817 $ 1,133
========= =========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations incurred during the period ended March 31, 1997
were $10,772.
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 three month
period ended March 31, 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. SFAS No.
128 must be adopted for periods ending after December 15, 1997 and be
retroactively reflected in the financial statements.
<PAGE>
Page 7
COCONUT CODE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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. SUBSEQUENT EVENT
On April 29, 1997, the Company paid off the outstanding balance of $103,000
on its line of credit with a bank and is currently in discussion with the bank
to determine if the line of credit can be renewed without the personal
guarantees of three principal stockholders.
<PAGE>
Page 8
COCONUT CODE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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
Net sales for the first quarter ended March 31, 1997 were $1,262,000, up
$897,000, or approximately 246% over the comparable prior year quarter. The
record sales performance was directly attributable to the growth in sales of
custom software to national and regional restaurant chains. During the quarter,
the Company entered into a $1.9 million contract with a national fast food
restaurant chain for the installation of custom software in approximately 700
restaurants during 1997. As of March 31, 1997, the Company's order backlog
approximated $1.8 million.
During the first quarter of 1997, operating costs and expenses rose $73,000
versus the prior period. The principal reasons for the increase were the
addition of research and development staff for custom software development,
higher general 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, most
travel expenses were absorbed by the Company.
As a result of the strong sales performance, the Company realized its first
quarterly profit since the 1993 stock offering. Net income of $528,000
represented a 42% return on net sales for the first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had working capital of $144,000 compared to
a working capital deficit at December 31, 1996 of $444,000. The improvement in
<PAGE>
Page 9
COCONUT CODE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES (cont'd.)
working capital of $588,000 primarily results from the net income for the
quarter and significant increase in cash generated from the net profit for the
quarter.
As of March 31, 1997, the Company had a $300,000 line of credit facility
with a bank. Advances under the line bear interest at the prime rate plus one
percent and are secured by the Company's accounts receivable and the personal
guarantees of three principal stockholders. The line of credit expires on May 1,
1997. During 1996, the Company borrowed $103,000 under this facility which
amount was outstanding as of December 31, 1996 and March 31, 1997. On April 29,
1997, the Company paid off the $103,000 outstanding balance and is currently in
discussion with the bank to determine if the line can be renewed without the
personal guarantees of the three principal stockholders.
In January 1995, the Company obtained a $100,000 term loan with a bank. All
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 March 31, 1997, $71,228 of principal was
outstanding under the loan.
The Company believes that cash flow generated from 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 in the third quarter 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.
<PAGE>
Page 10
COCONUT CODE, INC.
PART 2. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the first
quarter of 1997
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: June 9, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 726,316
<SECURITIES> 0
<RECEIVABLES> 637,433
<ALLOWANCES> 325,362
<INVENTORY> 22,045
<CURRENT-ASSETS> 1,067,538
<PP&E> 582,481
<DEPRECIATION> 276,127
<TOTAL-ASSETS> 1,404,704
<CURRENT-LIABILITIES> 923,315
<BONDS> 0
0
0
<COMMON> 35,323
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,404,704
<SALES> 1,261,712
<TOTAL-REVENUES> 1,261,712
<CGS> 126,154
<TOTAL-COSTS> 606,405
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 35,000
<INTEREST-EXPENSE> 5,817
<INCOME-PRETAX> 527,590
<INCOME-TAX> 0
<INCOME-CONTINUING> 527,590
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 527,590
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
