-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GTs6jJEhC95jDcr7u7U9q2lU7lhMNXoWSdxncenL5MeIHKadMwLDZ/V5SApttL81 +CT4vWtYMRzu6i8HVBud0A== 0000912057-99-005189.txt : 19991115 0000912057-99-005189.hdr.sgml : 19991115 ACCESSION NUMBER: 0000912057-99-005189 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JAVELIN SYSTEMS INC CENTRAL INDEX KEY: 0001021917 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 521945748 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21477 FILM NUMBER: 99748811 BUSINESS ADDRESS: STREET 1: 17891 CARTWRIGHT AVENUE CITY: IRVINE STATE: CA ZIP: 92614 BUSINESS PHONE: 7142235130 MAIL ADDRESS: STREET 1: 1881 LANGLEY AVE STREET 2: 2882 C WALNUT AVENUE CITY: IRVINE STATE: CA ZIP: 92614 10-Q 1 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____. Commission File Number 000-21477 Javelin Systems, Inc. (Exact name of registrant as specified in its charter) DELAWARE 52-1945748 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification number) 17891 Cartwright Road Irvine, California 92614 (Address of principal executive offices) (Zip Code) (949) 440-8000 (Registrant's telephone number, including area code) 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 for 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. [X] Yes [ ] No As of October 31, 1999, there were 8,894,803 shares of the Registrant's Common Stock outstanding. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS JAVELIN SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, JUNE 30, 1999 1999* -------------------- -------------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 4,410,500 $ 5,641,500 Investments in securities 4,594,800 7,472,000 Accounts receivable - net 18,744,800 16,000,200 Inventories 15,075,900 14,565,700 Deferred income taxes 530,900 530,900 Other current assets 1,166,600 823,500 -------------------- -------------------- Total current assets 44,523,500 45,033,800 Property and equipment, net 4,408,400 2,861,400 Excess of cost over net assets of purchased businesses 30,071,100 27,021,200 Deferred financing costs 542,300 617,600 Other assets, net 248,800 273,600 -------------------- -------------------- Total assets $ 79,794,100 $ 75,807,600 -------------------- -------------------- -------------------- -------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Line of credit $ 2,876,900 $ 2,056,600 Accounts payable 9,548,200 7,681,800 Accrued expenses 2,088,600 2,446,200 Current maturities of long-term debt 300,000 300,000 Customer deposits 2,700 2,700 Deferred maintenance revenues 1,091,700 397,500 Income taxes payable 1,192,600 1,517,400 -------------------- -------------------- Total current liabilities 17,100,700 14,402,200 -------------------- -------------------- Deferred rent expense 25,000 21,000 Long-term debt, net of current portion 2,269,400 1,774,000 Stockholders' equity: Preferred stock, $0.01 par value: authorized shares--1,000,000 issued and outstanding shares--none --- --- Common stock, $0.01 par value: authorized shares--20,000,000 issued and outstanding shares--8,894,803 at September 30, 1999, and 8,887,203 at June 30, 1999 88,900 88,900 Additional paid in capital 55,869,200 55,800,700 Deferred compensation (6,700) Retained earnings 4,398,400 3,799,700 Accumulated other comprehensive income (loss) 42,500 (72,200) -------------------- -------------------- Total stockholders' equity 60,399,000 59,610,400 -------------------- -------------------- Total liabilities and stockholders' equity $ 79,794,100 $ 75,807,600 -------------------- -------------------- -------------------- --------------------
*The balance sheet at June 30, 1999 has been derived from audited financial statements. SEE ACCOMPANYING NOTES. 2 JAVELIN SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 1999 1998 ---------------- --------------- Revenues: Product sales $ 13,457,700 $ 11,588,000 Services 6,777,200 1,344,200 ------------------- --------------- Total revenues 20,234,900 12,932,200 ------------------- --------------- Cost of revenues: Cost of product sales 9,639,800 8,156,300 Cost of services 5,167,800 1,110,500 ------------------- --------------- Total cost of revenues 14,807,600 9,266,800 ------------------- --------------- Gross profit 5,427,300 3,665,400 ------------------- --------------- Operating expenses: Research and development 469,100 298,000 Selling and marketing 1,718,900 366,700 General and administrative 2,116,400 1,975,700 ------------------- --------------- Total operating expenses 4,304,400 2,640,400 ------------------- --------------- Income from operations 1,122,900 1,025,000 Interest expense (133,200) (234,500) Other income (expense) (8,200) 28,100 ------------------- --------------- Income before income taxes 981,500 818,600 Provision for income taxes (382,800) (346,000) ------------------- --------------- Net income $ 598,700 $ 472,600 ------------------- --------------- ------------------- --------------- Earnings per common share: Basic $ 0.07 $ 0.11 ------------------- --------------- ------------------- --------------- Diluted $ 0.07 $ 0.11 ------------------- --------------- ------------------- --------------- Shares used in computing earnings per share: Basic 8,893,432 4,131,556 ------------------- --------------- ------------------- --------------- Diluted 9,174,443 4,271,736 ------------------- --------------- ------------------- ---------------
SEE ACCOMPANYING NOTES. 3 JAVELIN SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 1999 1998 ---------------- ------------------ OPERATING ACTIVITIES Net income $ 598,700 $ 472,600 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 385,100 181,600 Amortization of goodwill 501,900 63,700 Amortization of deferred compensation 6,700 9,200 Deferred rent expense 3,900 Non-cash allowances (156,200) 117,200 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable (2,252,800) (2,323,900) Inventories (510,200) (2,066,300) Other current assets (262,400) (338,900) Accounts payable 1,601,600 2,014,500 Accrued expenses (387,800) 53,900 Income taxes payable (324,800) 302,400 Customer deposits (1,032,000) Deferred maintenance 281,800 75,200 ------------------------------------- Net cash used in operating activities (514,500) (2,470,800) ------------------------------------- INVESTING ACTIVITIES Purchase of equipment (641,200) (308,700) Cash paid in connection with acquisitions (3,808,300) Investment in securities 2,877,200 Other assets 25,100 (185,100) ------------------------------------- Net cash used in investing activities (1,547,200) (493,800) ------------------------------------- FINANCING ACTIVITIES Net borrowings under line of credit 820,300 3,055,000 Repayment of notes payable (174,600) (75,000) Deferred offering costs (39,400) Exercise of stock options 68,500 8,900 ------------------------------------- Net cash provided by financing activities 714,200 2,949,500 ------------------------------------- CUMULATIVE TRANSLATION ADJUSTMENT 116,500 15,100 ------------------------------------- Net decrease in cash and cash equivalents (1,231,000) 0 Cash and cash equivalents at beginning of period 5,641,500 0 ------------------------------------- Cash and cash equivalents at end of period $ 4,410,500 $ 0 ------------------------------------- ------------------------------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Income tax paid $ 750,000 $ 43,600 ------------------------------------- ------------------------------------- Interest paid $ 131,200 $ 159,400 ------------------------------------- -------------------------------------
SEE ACCOMPANYING NOTES. 4 JAVELIN SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL Javelin Systems, Inc. ("Javelin") was incorporated in the State of Delaware on September 19, 1995 under the name of Sunwood Research, Inc. Javelin is a leading provider of retail foodservice technology solutions and services that enable restaurants and retailers to capture, analyze, disseminate and use information throughout the enterprise, from the point-of-sale (POS) cash register terminal to the back office to an organization's headquarters. Javelin designs, manufactures and markets open system touchscreen POS network-ready hardware systems and provides POS systems integration services and software solutions primarily for the foodservice and retail industries. On November 1, 1996, Javelin completed an initial public offering (the "IPO") of 850,000 shares of its common stock at $5.00 per share, netting proceeds of approximately $3.2 million. Proceeds were used to repay debt with an outstanding balance of approximately $745,000 and for general corporate purposes. In December 1997, Javelin acquired all of the outstanding common stock of POSNET Computers, Inc.("Posnet") and CCI Group, Inc. ("CCI"). Posnet and CCI provide full turn-key systems integration services, including system consulting, staging, training, deployment, product support and maintenance. In March and April 1998, Javelin established three international subsidiaries to expand its sales and distribution channels in the international marketplace. The international subsidiaries are: Javelin Systems (Europe) Limited ("Javelin Europe") headquartered in England; Javelin Systems International Pte Ltd ("Javelin Asia") headquartered in Singapore; and Javelin Systems Australia Pty Limited ("Javelin Australia") headquartered in Australia. In May 1998, Javelin Asia acquired all of the outstanding common stock of Aspact IT Services (Singapore) Pte Ltd ("Aspact"). Aspact is headquartered in Singapore and provides consulting and system integration services. In November 1998, the Company completed a public offering of 1,395,000 shares of its common stock at $6.75 per share, netting proceeds to the Company of approximately $8.1 million. Proceeds to the Company were used to repay borrowings under a revolving line of credit of approximately $3.2 million, to purchase all of the outstanding common stock of RGB/Trinet Limited ("RGB") and Jade Communications Ltd ("Jade"), as described below, and for general corporate purposes. 5 In November 1998, Javelin acquired all of the outstanding common stock of RGB and Jade. RGB and Jade are headquartered in England and provide complementary Wide Area Networking (WAN) products and services primarily to large retail, hospitality, and telecommunications companies. In February 1999, the Company completed a public offering of 2,375,000 shares of its common stock at $12.25 per share, netting proceeds to the Company of approximately $26.9 million. Proceeds to the Company were used to purchase the outstanding common stock of Dynamic Technologies, Inc. ("DTI") and SB Holdings, Inc. ("SB"), as described below, and for working capital and general corporate purposes. In April 1999, the Company acquired all of the outstanding capital stock of DTI and all of the outstanding capital stock of SB. DTI and SB provide custom Internet/Intranet software and services. In August 1999, the Company acquired all of the outstanding capital stock of Restaurant Consulting Services, Inc. ("RCS") as described in Note 2. RCS implements, operates and supports packaged software applications for the restaurant industry. Hereinafter, Javelin and its subsidiaries are referred to as the Company. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the SEC. In the opinion of the Company's management, all adjustments necessary for a fair presentation of the accompanying unaudited consolidated financial statements are reflected herein. All such adjustments are normal and recurring in nature. Interim results are not necessarily indicative of the results for the full year or for any future interim periods. For more complete financial information, these consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's Annual Report on Form 10-KSB filed with the SEC. 6 INVENTORIES Inventories consist primarily of computer hardware and components and are stated at the lower of cost (first-in, first-out) or market as follows:
September 30, June 30, 1999 1999 -------------------- ------------------- Raw materials $ 7,215,300 $ 7,195,600 Work-in-process 666,500 227,000 Finished goods 7,194,100 7,143,100 -------------------- ------------------- $ 15,075,900 $ 14,565,700 -------------------- ------------------- -------------------- -------------------
EXCESS OF COST OVER NET ASSETS OF PURCHASED BUSINESSES Excess of cost over net assets of purchased businesses (goodwill) represents the excess of purchase price over the fair value of the net assets of acquired businesses. For the acquisitions of Posnet, CCI, Aspact, RGB and Jade, the excess was allocated entirely to goodwill. Management determined that for these acquired companies, there were no other identifiable intangible assets, such as workforce, that would require an allocation of the purchase price. The workforce of the acquired companies requires limited specialized skills. Goodwill is stated at cost and is amortized on a straight-line basis over 10 years for DTI and SB and over 25 years for all other acquired companies. The Company assesses the recoverability of these intangible assets by determining whether the amortization of the goodwill balances over the remaining lives can be recovered through projected undiscounted cash flows of the related operations. The amount of goodwill impairment, if any, is measured based on projected discounted cash flows and is charged to operations in the period in which goodwill impairment is determined by management. To date, management has not identified any impairment of goodwill. The Company recorded $501,900 and $63,700 in goodwill amortization for the quarters ended September 30, 1999 and 1998, respectively. EARNINGS PER COMMON SHARE The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No.128, "Earnings per Share" ("SFAS 128"), which specifies the computation, presentation and disclosure requirements for earnings per share ("EPS"). It replaces the presentation of primary and fully diluted EPS with basic and diluted EPS. Basic EPS excludes all dilution. It is based upon the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock. The Company adopted SFAS 128 in the quarter ended December 31, 1997 and has restated all previously reported per share amounts to conform to the new presentation. 7 A reconciliation of basic and diluted EPS for the quarters ended September 30, 1999 and 1998 is as follows:
- ------------------------------------------------------------------------------------------------------------------------------- Quarter Ended Quarter Ended September 30, 1999 September 30, 1998 - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- BASIC DILUTED BASIC DILUTED - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- Net income $ 598,700 $ 598,700 $ 472,600 $ 472,600 - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- Weighted average common shares outstanding 8,893,432 8,893,432 4,131,556 4,131,556 - ------------------------------------------------------------------------------------------------------------------------------- Additional shares due to potential exercise of stock options 281,011 140,180 - ------------------------------------------------------------------------------------------------------------------------------- Diluted weighted average common shares outstanding 8,893,432 9,174,443 4,131,556 4,271,736 - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- Earnings per share $ 0.07 $ 0.07 $ 0.11 0.11 - ------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME Effective in the first quarter of fiscal 1999, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for reporting and displaying of comprehensive income and its components in the Company's consolidated financial statements. Comprehensive income is defined in SFAS 130 as the change in equity (net assets) of a business enterprise during the period from transactions and other events and circumstances from nonowner sources. Total comprehensive income was $713,400 and $487,700 for the quarters ended September 30, 1999 and 1998, respectively. The primary difference from net income as reported is the change in the cumulative translation adjustment. SEGMENT INFORMATION In fiscal year 1999, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 supersedes SFAS 14, "Financial Reporting for Segments of a Business Enterprise", replacing the "industry segment" approach with the "management" approach. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company's reportable segments. SFAS 131 also requires disclosures about products and services, geographic areas, and major customers. The adoption of SFAS 131 did not affect results of operations or financial position but did affect the disclosure of segment information 8 2. ACQUISITION OF RCS In August 1999, the Company acquired all of the outstanding capital stock of RCS. RCS implements, operates and supports packaged software applications for the restaurant industry. The aggregate purchase price for the RCS capital stock consisted of $3,033,100 in cash. The Company may, in the future, be required to pay an additional $1,516,600 in cash and issue shares of its common stock with a market value of up to $1,516,600 based upon the cumulative net profits of RCS during the twenty four months ending August 31, 2001. The acquisition has been accounted for by the purchase method, and accordingly, the results of operations of RCS will be included with those of the Company commencing on the date of acquisition. The purchase price resulted in excess of purchase price over the fair value of net assets acquired of approximately $3.0 million. Such excess (which will increase for any contingent payments) is being amortized on a straight-line basis over 10 years. The final allocation of the purchase price may vary as additional information is obtained, and accordingly, the ultimate allocation may differ from that used in the unaudited consolidated financial statements included herein. The results of operations of RCS prior to August 1999 were not material. 3. STOCKHOLDERS' EQUITY During the three months ended September 30, 1999, 7,600 shares of common stock were issued upon the exercise of stock options with a weighted average exercise price of $9.76 per share. 4. SEGMENT INFORMATION In 1999, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). The 1998 segment information has been restated to conform to the 1999 presentation. The Company's three reportable segments are as follows: (1) Research and development- provides all research and development activities for the other business segments. (2) Hardware products- designs, manufactures and markets open system touchscreen point-of-sale (POS) network-ready hardware systems. These systems can be sold on a stand-alone basis or integrated as part of an end-to-end solution. (3) Solutions- provides retail foodservice technology solutions and services that enable restaurants and retailers to capture, analyze, disseminate and use information throughout the enterprise, from the point-of-sale (POS) cash register terminal to the back office to an organization's headquarters. Segment data includes intersegment revenues. The Company does not allocate corporate-headquarters costs or research and development costs to the operating segments. Resources for research and development are allocated based on budgets. The Company evaluates the performance of its segments and allocates resources to them based on net income/loss. 9 The table below presents information about reportable segments for the quarters ended September 30:
RESEARCH AND HARDWARE DEVELOPMENT PRODUCTS SOLUTIONS TOTAL 1999 SALES $ 9,463,000 $ 12,228,400 $ 21,691,400 NET INCOME (LOSS) $ (286,200) $ 703,600 $ 336,000 $ 753,400 TOTAL ASSETS $30,097,700 $ 49,696,400 $ 79,794,100
RESEARCH AND HARDWARE DEVELOPMENT PRODUCTS SOLUTIONS TOTAL 1998 SALES $ 10,041,900 $ 4,489,500 $ 14,531,400 NET INCOME (LOSS) $ (172,800) $ 779,900 $ 22,200 $ 629,300 TOTAL ASSETS $ 14,437,300 $ 13,363,000 $ 27,800,300
A reconciliation of total segment sales to total consolidated sales and of total segment net income to total consolidated net income for the quarters ended September 30, 1999 and 1998 is as follows:
SALES 1999 1998 Total segment sales $ 21,691,400 $ 14,531,400 Elimination of intersegment sales (1,456,500) (1,599,200) ------------ ------------ Consolidated sales $ 20,234,900 $ 12,932,200 ------------ ------------ ------------ ------------ NET INCOME Total segment net income $ 753,400 $ 629,300 Elimination of intersegment gross profit net of income taxes 82,800 13,200 Elimination of non-segment expenses, net of income taxes (237,500) (169,900) ------------ ------------ Consolidated net income $ 598,700 $ 472,600 ------------ ------------ ------------ ------------
10 Specified items included in segment profit/loss for the quarters ended September 30:
RESEARCH AND HARDWARE DEVELOPMENT PRODUCTS SOLUTIONS TOTAL 1999 Interest expense $119,900 $13,300 $133,200 Depreciation and amortization expense $200,300 $686,700 $887,000 Income tax expense (benefit) $(151,800) $449,800 $214,800 $512,800 Expenditures for additions to long-lived assets $414,700 $3,771,800 $4,186,500
RESEARCH AND HARDWARE DEVELOPMENT PRODUCTS SOLUTIONS TOTAL 1998 Interest expense $211,300 $23,200 $234,500 Depreciation and amortization expense $131,500 $113,800 $245,300 Income tax expense $(125,200) $564,800 $16,100 $455,700 Expenditures for additions to long-lived assets $209,200 $489,500 $698,700
11 Revenues and long-lived asset information by geographic area as of and for the quarters ended September 30:
UNITED STATES EUROPE ASIA AUSTRALIA TOTAL 1999 Revenues $13,363,300 $5,920,500 $398,500 $552,600 $20,234,900 Long-lived assets $27,940,200 $6,249,900 $942,000 $138,500 $35,270,600
UNITED STATES EUROPE ASIA AUSTRALIA TOTAL 1998 Revenues $11,092,400 $1,207,800 $293,800 $338,200 $12,932,200 Long-lived assets $8,752,300 $32,200 $351,700 $39,400 $9,175,600
12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Javelin Systems, Inc. (the "Company") designs, manufactures, and markets open system touchscreen point-of-sale ("POS") computers and provides POS systems integration services primarily for the foodservice and retail industries. This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended (the "Exchange Act"), and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. The Company may experience significant fluctuations in future operating results due to a number of factors, including, among other things, the size and timing of individual orders; seasonality of revenues; employee hiring and retention, particularly with respect to sales and consulting personnel; lengthy sales and implementation cycles; reduction in demand for existing products and services and shortening of product life cycles; the timing of the introduction of products, product enhancements and services by the Company or its competitors; competition in pricing in the POS systems industry; market acceptance of new products; service personnel utilization rates; the ability of the Company to expand its domestic and international sales, as well as the mix of such sales; foreign currency exchange rates; changes in the mix of products and services sold; general health of the restaurant industry, particularly the quick service restaurant segment; the ability of the Company to generate service agreements; product quality problems; the ability of the Company to control costs; the Company's success in establishing and expanding its direct and indirect distribution channels; the mix of distribution channels through which the Company's products are sold; and general economic conditions. Any of these factors could cause operating results to vary significantly from prior periods. Significant variability in orders during any period may have a material adverse impact on the Company's cash flow, and any significant decrease in orders could have a material adverse impact on the Company's results of operations and financial condition. As a result, the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance. Fluctuations in the Company's operating results could cause the price of the Company's Common Stock to fluctuate substantially. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, all of which are difficult or impossible to predict accurately, and many of which are beyond the control of the Company. In addition, the business and operations of the Company are subject to substantial risks which increase the uncertainty inherent in the forward-looking statements. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved. 13 RESULTS OF OPERATIONS QUARTER ENDED SEPTEMBER 30, 1999 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1998 The following discussion sets forth the historical results of operations and financial condition of the Company for the quarters ended September 30, 1999 and 1998. The following table sets forth certain statements of operations data as a percentage of total revenues for the periods indicated:
QUARTER ENDED SEPTEMBER 30, ----------------- 1999 1998 ------ ------ Revenues: Product sales 66.5% 88.4% Services 33.5 11.6 ----- ----- Total revenues 100.0 100.0 ----- ----- Cost of revenues: Cost of product sales (1) 71.6 70.4 Cost of Services (1) 76.3 82.6 ----- ----- Total cost of revenues 73.2 71.7 ----- ----- Gross profit 26.8 28.3 ----- ----- Operating expenses: Research and development 2.3 2.3 Selling and marketing 8.5 2.9 General and administrative 10.5 15.2 ----- ----- Total operating expenses 21.3 20.4 ----- ----- Income from operations 5.5 7.9 Interest expense (0.6) (1.8) Other income ---- 0.2 Provision for income taxes (1.9) (2.6) ----- ----- Net income 3.0% 3.7% ----- ----- ----- -----
(1) Expressed as a percentage of related revenues, not of total revenues. REVENUES-PRODUCT SALES. Revenues from product sales increased by 16.1% to $13.5 million in 1999 compared to revenues of $11.6 million for 1998. The change is due to an increase in product sales at DTI and RGB/Jade, newly acquired subsidiaries, of $2.5 million, and an increase at the three international subsidiaries of $735,000 offset by a decrease at Javelin of $1.2 million. The increase in product sales at the three international subsidiaries is primarily due to the enhanced acceptance of the product in such markets and the continued maturation of the 14 distribution channel. The decrease at Javelin is attributable to a reduction in shipments of 1,035 units to McDonald's Corporation. REVENUES-SERVICES. Revenues from services increased by 404.2% to $6.8 million in 1999 compared to revenues of $1.3 million for 1998. The change is due to an increase in service revenues at DTI and RGB/Jade of $5.2 million. GROSS PROFIT. Gross profit increased by 48.1% to $5.4 million in 1999 compared to a gross profit of $3.7 million in 1998. The increase is comprised of the following:
QUARTER ENDED SEPTEMBER 30, ------------------------------ 1999 1998 INCREASE ------------- --------------- -------- Product sales $3.8 million $3.4 million $ 386,200 Services $1.6 million $233,700 $ 1.4 million
The change in gross profit from product sales is due to an increase in gross profit from the sale of hardware at DTI and RGB/Jade of $604,000, an increase in gross profit at the three international subsidiaries of $196,000 offset by a decrease in gross profit at Javelin of $419,100. The change in gross profit from service revenues is due to gross profit on services provided by DTI and RGB/Jade of $1.4 million. RESEARCH AND DEVELOPMENT. Research and development expenses increased by 57.4% to $469,100 in 1999 compared to research and development expenses of $298,000 in 1998. The increase is primarily attributable to software development costs incurred at DTI of $88,400 and additional costs of $35,500 at Javelin relating to the design of new hardware product. The Company has expensed all software development costs as technological feasability has not been achieved. SELLING AND MARKETING. Selling and marketing expenses increased by 368.7% to $1.7 million in 1999 compared to selling and marketing expenses of $366,700 in 1998. The increase is primarily attributable to sales and marketing costs at DTI and RGB/Jade of $740,400, additional personnel employed to expand the direct sales forces of the three international subsidiaries and of CCI and increased advertising costs associated with the growth of the business. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by 7.1% to $2.1 million in 1999 compared to general and administrative of $2.0 million in 1998. The change is due to an increase in general and administrative expenses relating to DTI and RGB/Jade of $516,300, an increase in amortization of goodwill of $438,200 offset by a decrease of general and administrative expenses relating to Javelin and CCI of $845,000. The increase in the amortization of goodwill resulted from the acquisitions of RGB, Jade, DTI and RCS. The decrease of general and administrative expenses at Javelin and CCI resulted from the continued consolidation of administrative functions. 15 INTEREST EXPENSE. Interest expense decreased by $101,300 to $133,200 in 1999 compared to interest expense of $234,500 in 1998. The decrease is due to the use of a portion of the proceeds from the follow-on offerings completed in October 1998 and February 1999 to repay certain indebtedness. INCOME TAXES. Provision for federal, state and foreign income taxes increased by $36,800 to $382,800 in 1999 compared to $346,000 in 1998. The increase is attributable to the overall increase in income before income taxes of $162,900 as well as increases in income before income taxes from the Company's foreign subsidiaries operating in jurisdictions with lower income tax rates than those in the United States. LIQUIDITY AND CAPITAL RESOURCES On June 8, 1998, the Company and its U.S. subsidiaries obtained a credit facility of $7.5 million from a financial institution. The credit facility expires on June 8, 2001 and consists of a line of credit of up to $6.0 million and a term loan of $1.5 million. Under the line of credit, the Company may borrow up to 80% of eligible receivables (as defined) and 50% of eligible inventory (as defined) with monthly interest based upon the prime rate of a national financial institution plus 1.75% (10% as of September 30, 1999). As of September 30, 1999 borrowings outstanding under the line amounted to $2.0 million with approximately $2.6 million available for future borrowings. Borrowings under the term loan are collateralized by substantially all of the assets of the Company and bear interest at 13.65% per annum. The Company is required to pay $25,000 per month under the term loan with all unpaid principal and interest due on June 8, 2001. As of September 30, 1999, Jade has a line of credit facility of $1,800,000 from an unrelated financial institution. Borrowings under the line of credit are collateralized by all of the assets of Jade and bear interest at 2% over the U.K. Base rate (as defined). As of September 30, 1999, borrowings outstanding under the line amounted to $917,000 with approximately $883,000 available for future borrowings. In November 1998, the Company completed a public offering of 1,395,000 shares of its common stock at $6.75 per share, netting proceeds to the Company of approximately $8.1 million. Proceeds to the Company were used to repay borrowings under the revolving line of credit of approximately $3.2 million, to purchase all of the outstanding common stock of RGB and Jade and for general corporate purposes. In February 1999, the Company completed a public offering of 2,375,000 shares of its common stock at $12.25 per share, netting proceeds to the Company of approximately $26.9 million. 16 Proceeds to the Company were used for the acquisition of DTI and SB, working capital and general corporate purposes. As of September 30, 1999, the Company had cash and cash equivalents of $4.4 million and working capital of $27.4 million. Cash used in operating activities for the quarter ended September 30, 1999 amounted to $514,500 and consisted primarily of increases in trade receivables and inventories. Cash used in investing activities for the quarter ended September 30, 1999 amounted to $1.5 million and consisted primarily of cash used to acquire the outstanding common stock of RCS and the purchase of equipment. Cash provided by financing activities for the quarter ended September 30, 1999 amounted to $714,200 and consisted primarily of the proceeds from the borrowings under the line of credit. The Company believes that it has adequate financial resources to meet its capital requirements for the next twelve months. YEAR 2000 Some older computer programs were written using two digits rather than four to define the applicable year. As a result, those computer programs have time-sensitive software that recognize a date using "00" as the year 1900 rather than 2000. This failure to use four digits to define the applicable year has created what is commonly referred to as the "Year 2000 Issue" and could cause a system failure or miscalculations causing disruption of operations, including a temporary inability to process transactions or engage in similar normal business activities. The Company recognizes the need to ensure that its operations will not be adversely impacted by the Year 2000 Issue. The Company does not believe that it has a material exposure to the Year 2000 Issue with respect to its own products or information systems since its products and systems correctly define the Year 2000. The Company has not made any material expenditure to address the Year 2000 Issue and does not anticipate that it will be required to make any such expenditure in the future. The Company has contacted most of its significant suppliers and service providers to determine the extent to which it is vulnerable to their failure to address the Year 2000 Issue. Although the Company has received verbal assurances from some of these third parties that their systems are year 2000 compliant, the Company has not yet received written assurances from any of them. Although the Company does not believe its operations will be significantly disturbed even if third parties to whom it has relationships are not year 2000 compliant, there can be no assurance that any year 2000 compliance problems of its suppliers and resellers of its products will not negatively affect the Company's financial performance. If the Company's suppliers are unable to provide it sufficient quantities of materials or goods as a result of their failure to be year 2000 compliant, the Company believes that it can obtain adequate supplies of materials and goods at comparable prices from other sources. If resellers of the Company's products are adversely affected by any failure to become year 2000 compliant 17 and are therefore unable to purchase anticipated quantities of the Company's products on a timely basis, the Company may seek to replace these resellers. Because uncertainty exists concerning the potential costs and effects associated with any year 2000 compliance, the Company intends to continue to make efforts to ensure that third parties to whom it has relationships are year 2000 compliant. The Year 2000 Issue could also have an affect on the Company's revenues. Demand for the Company's products and services may decline after January 1, 2000, as the Company may not be able to incorporate its products and services into a Year 2000 driven POS retrofit. Similarly, many companies may spend substantial resources to prevent or minimize problems associated with the Year 2000 Issue and therefore may choose not to, or not have the budget capacity to, upgrade their current POS systems for some period of time. Any lessening of demand for the Company's products and services could have a material adverse affect on the Company's business, financial condition and results of operations. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) 27.1 Financial Data Schedule in accordance with Article 5 of Regulation S-X. (b) No reports on Form 8-K were filed during the three months ended September 30, 1999 18 SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Javelin Systems, Inc. November 14, 1999 /s/ Richard P. Stack - ------------------------------------ ------------------------------------- Date Richard P. Stack Chief Executive Officer and President November 14, 1999 /s/ Horace M. Hertz - ------------------------------------ ------------------------------------- Date Horace M. Hertz Chief Financial Officer 19 EXHIBIT INDEX 27.1 Financial Data Schedule in accordance with Article 5 of Regulation S-X. 20 EX-27 2 EXHIBIT 27
5 3-MOS JUN-30-2000 JUL-01-1999 SEP-30-1999 4,410,500 4,594,800 18,971,700 226,900 15,075,900 44,523,500 7,132,700 2,724,300 79,794,100 17,100,700 0 0 0 88,900 60,310,100 79,794,100 20,234,900 20,234,900 14,807,600 19,112,000 141,400 (195,000) 133,200 981,500 382,800 598,700 0 0 0 598,700 0.07 0.07
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