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 Three Months Ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission File No. 33-64164-A
For the transition period from _______ to _______
COCONUT CODE, INC.
(Exact name of registrant as specified in its charter)
FLORIDA
(State or jurisdiction of Incorporation organization)
59-2556411
(I.R.S. Employer Identification No.)
1430 South Federal Highway, Deerfield Beach, Florida 33441
(Address of prinicpal executive offices) (Zip code)
Registrant's telephone number, including area code (954) 481-9331
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 April 24, 1998 was 3,604,509.
<PAGE>
COCONUT CODE, INC.
INDEX TO FORM 10-QSB
Page
Number
------
PART 1 FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheet as of March 31, 1998 3
Statements of Operations - For the
Three Months Ended March 31, 1998
and 1997 4
Statements of Cash Flows - For the
Three Months Ended March 31, 1998
and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
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, 1998
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 161,355
Accounts receivable (net of allowance for doubtful accounts
of $96,213) 288,962
Inventories 34,049
Current portion of finance receivables (net of unearned lease income
of $3,773 and allowance for doubtful accounts of $17,500) 8,592
Notes receivable (net of allowance for doubtful accounts of $85,000) 7,470
Prepaid expenses 5,892
-----------
Total current assets 506,320
PROPERTY AND EQUIPMENT, (net of accumulated
depreciation of $394,098) 462,357
OTHER ASSETS:
Long-term portion of finance receivables (net of unearned lease income
of $15,651 and allowance for doubtful accounts of $88,150) 860
Other assets 74,490
-----------
$ 1,044,027
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 156,586
Accrued expenses 212,299
Customer deposits 16,562
Deferred revenue 149,224
Loan from officer 3,300
Current portion of notes payable 42,655
Current portion of lease payable 26,753
-----------
607,379
-----------
LONG-TERM PORTION OF NOTES AND LEASE PAYABLE 82,204
-----------
STOCKHOLDERS' EQUITY:
Common stock ($.01 par; 10,000,000 shares
authorized, 3,604,509 issued and outstanding) 36,045
Additional paid-in capital 2,866,958
Accumulated deficit (2,548,559)
-----------
354,444
-----------
$ 1,044,027
===========
</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,
---------------------------
1998 1997
------------ ------------
NET SALES $ 538,948 $ 1,261,672
------------ ------------
OPERATING COSTS AND EXPENSES:
Cost of sales 119,219 126,154
Selling and marketing 154,738 131,307
General and administrative 233,603 262,808
Research and development 264,623 194,790
Depreciation and amortization 27,000 17,500
------------ ------------
799,183 732,559
------------ ------------
(LOSS) INCOME FROM OPERATIONS (260,235) 529,113
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 712 --
Interest expense (5,243) (5,817)
Other 2,739 4,294
------------ ------------
(1,792) (1,523)
------------ ------------
NET (LOSS) INCOME ($ 262,027) $ 527,590
------------ ------------
NET (LOSS) INCOME PER COMMON SHARE:
Basic and diluted ($ 0.07) $ 0.15
------------ ------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted 3,610,409 3,532,325
------------ ------------
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,
----------------------------
1998 1997
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ($262,027) $ 527,590
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization 27,000 17,500
Provision for doubtful accounts 15,000 35,000
Compensation expense for stock issuances 2,170 --
Changes in operating assets and liabilities:
Accounts receivable 185,376 (10,755)
Finance receivables, net 1,516 12,382
Inventories (2,241) 5,229
Prepaid expenses 1,500 (2,864)
Other assets (11,827) 683
Accounts payable and customer deposits (811) 61,065
Accrued expenses and deferred revenue 23,525 17,976
--------- ---------
Total adjustments 241,208 136,216
--------- ---------
Net cash (used in) provided by operating activities (20,819) 663,806
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (16,576) (51,281)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of loans from officers (15,755) (13,500)
Proceeds from notes payable -- 39,714
Payments on notes and leases payable (16,439) (8,297)
--------- ---------
Net cash (used in) provided by financing activities (32,194) 17,917
--------- ---------
Net (decrease) increase in cash and equivalents (69,589) 630,442
CASH AND CASH EQUIVALENTS, beginning of period 230,944 95,883
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 161,355 $ 726,325
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 5,243 $ 1,133
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Page 6
COCONUT CODE, INC.
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 information software primarily for 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, 1998 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 1997 Annual Report
filed as part of the Company's 10-KSB for the year ended December 31, 1997.
2. NET (LOSS) INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share" which simplifies the accounting for earnings per share
by requiring 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 net (loss) income per share are the same
since the Company's stock options and warrants are anti-dilutive.
<PAGE>
Page 7
COCONUT CODE, INC.
MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Net sales for the first quarter ended March 31, 1998 were down
significantly from the corresponding quarter in 1997. At $539,000, sales
declined $723,000 from the record 1997 level of $1,262,000. Two principle
factors caused the drop: (1) delayed market introduction of the Company's new,
Windows based software, and (2) the significant effort and human resource
allocation the Company made to its major custom software customer. As of March
31, 1998, the Company's order backlog approximated $100,000.
For the 1998 quarter, operating costs and expenses increased $66,000 when
compared to the corresponding quarter in the prior year. The principal reason
for the increase was higher spending on research and development.
Because of the drop in sales and with operating expenses at a level to
support a much higher volume of sales, the Company incurred a net loss of
$262,000 for the first quarter of 1998 versus a net profit of $528,000 for the
1997 quarter.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had a working capital deficit of $101,000
compared to working capital of $178,000 at December 31, 1997. The decrease in
working capital in the quarter primarily results from the net loss caused by the
decline in sales.
As of March 31, 1998, the Company had $38,000 outstanding under its
$100,000 three year term loan facility with a bank. This loan matures in March
1999.
During 1997, the Company entered into three capital lease obligations
aggregating $104,034 for the purchase of computer equipment for use by the
Company. Two leases are for a term of 48 months, while the third lease is for 36
months. At March 31, 1998, the total amount outstanding under these leases was
$82,000.
In March 1997, the Company borrowed $44,000 from a bank 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 March 31, 1998, $32,000 was
outstanding on the loan which matures in April 2001.
<PAGE>
Page 8
COCONUT CODE, INC.
MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (cont'd.)
LIQUIDITY AND CAPITAL RESOURCES (cont'd.)
Other than the borrowings described above, the Company's primary source of
funds has been from the sale of its products and services.
In the near term, because of insufficient sales, the Company is going to
experience a decline in its cash position and, consequently, will find it
increasingly more difficult to continue operations at current spending levels.
The Company's ability to generate new sales and improve cash flow could be
hampered to the extent, if any, the Company is required to reduce operating
costs and expenses. In addition, meeting the new, June 1, 1998 scheduled release
date of the Company's Windows based software is critical to achieving sufficient
cash flow to support the Company's current operations. Any delay in the release
of this product, will have an adverse impact on the Company, the degree of which
cannot be accurately determined at this time.
In mid-May, 1998, the Company will be showing its new Windows based
software at the National Restaurant Association Trade Show in Chicago, Illinois
and it anticipates that the product will be favorably received and will result
in new orders.
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information". SFAS No. 130 is effective as
of March 31, 1998 and SFAS No. 131 as of December 31, 1998. The Company adopted
SFAS No. 130 as of January 1, 1998 and such adoption did not have an impact on
the disclosures herein as comprehensive loss is equal to net loss for the three
months ended March 31, 1998. SFAS No. 131 will not have an impact on the
Company's annual or interim financial statements or disclosures since the
Company currently operates in only one business segment.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure
about Pensions and Other Postretirement Benefits". This statement is effective
for fiscal years beginning after December 15, 1997. Since the Company does not
currently sponsor a defined benefit pension plan or defined benefit
postretirement plan, the disclosures required by SFAS No. 132 will presently not
be required to be made by the Company.
<PAGE>
Page 9
COCONUT CODE, INC.
MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (cont'd.)
Recently Issued Accounting Pronouncements (cont'd.)
In October 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
("SOP") 97-2, Software Revenue Recognition. SOP 97-2 supercedes SOP 91-1. SOP
97-2 requires companies to defer revenue and profit recognition unless four
required criteria of a sale are met. In addition, SOP 97-2 requires that revenue
recognized from software arrangements be allocated to each element of the
arrangement based on the relative fair values of the elements, such as software
products, upgrades, enhancements, post-contract customer support, installation
or training. SOP 97-2 is effective for all transactions entered into in fiscal
years beginning after December 15, 1997 and has been adopted by the Company
effective January 1, 1998. The adoption of SOP 97-2 did not have a material
impact on the Company's financial position, results of operations or cash flows
for the quarter ended March 31, 1998.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". The SOP is effective for
fiscal years beginning after December 15, 1998. The SOP requires that certain
costs related to the development or purchase of internal-use software be
capitalized and amortized over the estimated useful of the software. The SOP
also requires that certain costs, as defined, related to an internal-use
computer software development project be expensed as incurred, while certain
other costs incurred at the latter stage of the project be capitalized and
amortized over the estimated useful life of the software. It is expected that
SOP 98-1will not have a material impact on the Company.
<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 1998.
Item 6. Exhibits and Reports on Form 8-K
None
<PAGE>
Page 11
COCONUT CODE, INC.
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: May 15, 1998 BY: /s/ Daniel W. Reese III
-----------------------
Daniel W. Reese III
Vice President and Chief Financial officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 161,355
<SECURITIES> 0
<RECEIVABLES> 592,747
<ALLOWANCES> 286,863
<INVENTORY> 34,049
<CURRENT-ASSETS> 506,320
<PP&E> 856,455
<DEPRECIATION> 394,098
<TOTAL-ASSETS> 1,044,027
<CURRENT-LIABILITIES> 607,379
<BONDS> 0
0
0
<COMMON> 36,045
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,044,027
<SALES> 538,948
<TOTAL-REVENUES> 538,948
<CGS> 119,219
<TOTAL-COSTS> 799,183
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,243
<INCOME-PRETAX> (262,027)
<INCOME-TAX> 0
<INCOME-CONTINUING> (262,027)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (262,027)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
