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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 June 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 July 15, 1997 was 3,618,484.
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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
June 30, 1997 3
Consolidated Statements of Operations -
For the Three and Six Months Ended
June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows -
For the Six Months Ended June 30 1997 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>
PART 1. FINANCIAL INFORMATION Page 3
COCONUT CODE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS:
<S> <C>
Cash and cash equivalents $ 691,805
Accounts receivable, net of allowance for doubtful accounts
of $173,362 263,893
Inventories 31,823
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 1,026,403
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $295,002 427,543
OTHER ASSETS:
Long-term portion of finance receivables, net of unearned lease income
of $15,676 and allowance for doubtful accounts of $78,990 15,099
Other assets 38,737
-----------
$ 1,507,782
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 151,120
Accrued expenses 210,049
Customer deposits 185,928
Deferred revenue 140,090
Loans from officers 61,455
Current portion of notes payable 41,834
Current portion of leases payable 14,993
-----------
805,469
------------
LONG-TERM PORTION OF NOTES AND LEASES PAYABLE 115,811
------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par; 10,000,000 shares
authorized, 3,618,484 shares issued and outstanding 36,185
Additional paid-in capital 2,853,722
Accumulated deficit (2,303,405)
-----------
586,502
-----------
$ 1,507,782
===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Part I - Financial Information Page 4
COCONUT CODE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- ---------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 1,023,089 $ 541,281 $ 2,284,761 $ 906,473
OPERATING COSTS AND EXPENSES:
Cost of sales 157,988 94,868 284,142 168,999
Selling and marketing 154,100 156,298 285,407 335,288
General and administrative 278,614 285,259 541,422 519,542
Research and development 234,260 165,465 429,050 321,236
Depreciation and amortization 18,875 16,500 36,375 32,400
----------- ----------- ----------- -----------
843,837 718,390 1,576,396 1,377,465
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 179,252 (177,109) 708,365 (470,992)
----------- ----------- ----------- -----------
OTHER (EXPENSE) INCOME:
Interest income 3,526 43 3,561 650
Interest expense (7,887) (9,771) (13,738) (10,904)
Other 4,156 4,768 8,450 9,006
----------- ----------- ----------- -----------
(205) (4,960) (1,727) (1,248)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 179,047 ($ 182,069) $ 706,638 ($ 472,240)
----------- ----------- ----------- -----------
NET INCOME (LOSS) PER COMMON
SHARE $ 0.05 ($ 0.05) $ 0.20 ($ 0.14)
----------- ----------- ----------- -----------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 3,591,027 3,382,325 3,561,838 3,382,325
----------- ----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
PART 1. FINANCIAL INFORMATION Page 5
COCONUT CODE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended June 30,
-----------------------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 706,638 ($472,240)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 36,375 32,400
Provision for doubtful accounts 75,000 96,000
Compensation expense for stock issuances 63,588 --
Changes in operating assets and liabilities:
Increase in accounts receivable (43,893) (109,459)
Decrease in finance receivables, net 9,459 29,757
Increase in inventories (4,549) (6,766)
Decrease in prepaid expenses 10,901 23,218
Increase in other assets (23,644) --
(Decrease) increase in accounts payable (84,797) 61,902
(Decrease) increase in accrued expenses (24,488) 20,325
Increase in customer deposits 98,536 --
Increase in deferred revenue 6,896 24,091
--------- ---------
Total adjustments 119,384 171,468
--------- ---------
Net cash provided by (used in) operating activities 826,022 (300,772)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (202,117) (21,617)
Decrease in notes receivable -- 27,358
--------- ---------
Net cash (used in) provided by investing activities (202,117) 5,741
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in due to related party -- (7,823)
(Repayment of) proceeds from loans from officers (18,445) 37,100
Proceeds from note and leases payable 122,161 60,400
Payments on notes and leases payable (131,699) (8,333)
--------- ---------
Net cash provided by financing activities (27,983) 81,344
--------- ---------
Net increase (decrease) in cash and equivalents 595,922 (213,687)
CASH AND CASH EQUIVALENTS, beginning of period 95,883 242,603
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 691,805 $ 28,916
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 13,738 $ 10,904
========= =========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations incurred during the six month period ended June
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>
COCONUT CODE, INC. Page 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 six month
period ended June 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. SFAS No.
128 must be adopted for periods ending after December 15, 1997 and be
retroactively reflected in the financial statements.
<PAGE>
COCONUT CODE, INC. Page 7
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
Effective April 30, 1997, the Company granted 86,159 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 $86,159 has been
recorded as an issuance of common stock with an offsetting deferred compensation
equity account. 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>
COCONUT CODE, INC. Page 8
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
Six Months Ended June 30, 1997 Compared to the Six Months Ended June 30, 1996
Net sales for the six months ended June 30, 1997 were $2,285,000, up
$1,379,000, or approximately 252% over the comparable prior year period The
significant sales increase 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 installation of custom software in approximately 700
restaurants during 1997. As of June 30, 1997, the Company's order backlog
approximated $968,000.
For the first six months of 1997, operating costs and expenses rose
$199,000 versus the prior 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 strong sales performance, the Company recorded a
$707,000 profit for the first six months of 1997.
Three Months Ended June 30, 1997 Compared to the Three Months Ended June 30,
1996
Net sales for the second quarter of 1997 were $1,023,000 compared to
$541,000 for the corresponding quarter of 1996. The reason for the sales
<PAGE>
COCONUT CODE, INC. Page 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (cont'd.)
RESULTS OF OPERATIONS (cont'd.)
increase was Three Months Ended June 30, 1997 Compared to the Three Months Ended
June 30, 1996 (cont'd.)
specifically due to the growth in sales of custom software to national and
regional restaurant chains.
Operating costs and expenses for the three months ended June 30, 1997
increased $125,000, or 17%, to $844,000. The principal reasons for the increase
were higher cost of sales attributable to the growth in sales and the addition
of research and development staff to work on custom software development.
Due to the factors stated above, the Company recognized net income of
$179,000 for the three month period ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had working capital of $221,000 compared to a
working capital deficit at December 31, 1996 of $444,000. The improvement in
working capital of $665,000 primarily results from the net income for the first
six months of 1997 and significant increase in cash generated from the net
income for the period.
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 June 30, 1997, $63,166 of principal was
outstanding under the loan.
The Company believes that cash flow generated from the growth in
fixed-price contracts for the custom development of accounting and management
<PAGE>
COCONUT CODE, INC. Page 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (cont'd.)
LIQUIDITY AND CAPITAL RESOURCES (cont'd.)
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
No matters were submitted to a vote of security holders during the second
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: August 14, 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> 6-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Jun-30-1997
<CASH> 691,805
<SECURITIES> 0
<RECEIVABLES> 651,581
<ALLOWANCES> 343,450
<INVENTORY> 31,823
<CURRENT-ASSETS> 1,026,403
<PP&E> 722,545
<DEPRECIATION> 295,002
<TOTAL-ASSETS> 1,507,782
<CURRENT-LIABILITIES> 805,469
<BONDS> 0
0
0
<COMMON> 36,185
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,507,782
<SALES> 2,284,761
<TOTAL-REVENUES> 2,284,761
<CGS> 284,142
<TOTAL-COSTS> 1,576,396
<OTHER-EXPENSES> (12,011)
<LOSS-PROVISION> 75,000
<INTEREST-EXPENSE> 13,738
<INCOME-PRETAX> 706,638
<INCOME-TAX> 0
<INCOME-CONTINUING> 706,638
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 706,638
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
