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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, 1996
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 31, 1996 was 3,382,325.
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COCONUT CODE, INC.
INDEX TO FORM 10-QSB
Page
Number
PART 1 FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Balance Sheet as of September 30, 1996 3
Statements of Operations - For the
Three Months and Nine Months
Ended September 30, 1996 and 1995 4
Statements of Cash Flows - For the
Nine Months Ended September 30, 1996
and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 7-9
PART 2. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders 9
Item 6. Exhibits and Reports on Form 8-K 9
Page 3
PART 1. FINANCIAL INFORMATION
COCONUT CODE, INC.
CONSOLIDATED BALANCE SHEET
September 30, 1996
(Unaudited)
ASSETS
Current Assets:
Cash and equivalents $ 114,098
Accounts receivable (net of allowance for doubtful
accounts of $165,271) 301,203
Inventories 20,288
Current portion of finance receivables (net of unearned income
of $8,346 and allowance for doubtful accounts of $27,851) 38,947
Notes receivable (net of allowance for doubtful accounts of $49,000) 45,464
Prepaid expenses 31,394
-----------
Total current assets 551,394
PROPERTY AND EQUIPMENT, at cost (net of accumulated
depreciation of $237,523) 223,450
OTHER ASSETS:
Long-term portion of finance receivables (net of unearned income
of $14,255 and allowance for doubtful accounts of $44,753) 23,440
Other assets 969
-----------
$ 799,253
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 199,687
Accrued expenses 200,160
Deferred revenue 114,448
Loans from officers 89,600
Notes payable 136,324
-----------
740,219
LONG-TERM LIABILITY
Note payable 53,597
STOCKHOLDERS' EQUITY:
Common stock ($.01 par; 10,000,000 shares
authorized, 3,382,325 issued and outstanding) 33,823
Additional paid-in capital 2,792,496
Accumulated deficit (2,820,882)
-----------
5,437
-----------
$ 799,253
===========
See notes to consolidated financial statements.
Page 4
PART 1. FINANCIAL INFORMATION
COCONUT CODE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------- -------------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
NET SALES $ 604,508 $ 492,938 $ 1,510,981 $ 1,555,811
COST OF SALES 80,562 89,016 249,562 323,163
----------- ----------- ----------- -----------
Gross profit 523,946 403,922 1,261,419 1,232,648
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling and marketing 159,335 212,133 494,623 663,830
General and administrative 204,043 230,604 723,585 670,565
Research and development 185,579 121,883 506,815 320,399
Depreciation and amortization 16,500 17,430 48,900 40,290
----------- ----------- ----------- -----------
565,457 582,050 1,773,923 1,695,084
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (41,511) (178,128) (512,504) (462,436)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 39 2,596 689 13,140
Interest expense (4,583) (854) (15,486) (2,122)
Other 10,102 9,127 19,108 21,206
----------- ----------- ----------- -----------
5,558 10,869 4,311 32,224
----------- ----------- ----------- -----------
NET LOSS ($ 35,953) ($ 167,259) ($ 508,193) ($ 430,212)
----------- ----------- ----------- -----------
NET LOSS PER SHARE ($ 0.01) ($ 0.05) ($ 0.15) ($ 0.13)
----------- ----------- ----------- -----------
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,382,325 3,382,325 3,382,325 3,381,114
----------- ----------- ----------- -----------
See notes to consolidated financial statements.
Page 5
PART 1. FINANCIAL INFORMATION
COCONUT CODE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended September 30,
---------------------------------------
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($508,193) ($430,212)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 48,900 40,290
Provision for doubtful accounts 92,993 75,096
Changes in operating assets and liabilities:
(Increase) in accounts receivable (56,383) (140,545)
Decrease (increase) in inventories 11,064 (2,196)
Decrease in finance receivables, net 21,007 25,071
Decrease in prepaid expenses 25,937 23,840
Decrease in other assets 1,324 16,601
Increase in accounts payable 33,220 46,956
Increase in accrued expenses 28,781 29,047
Increase in deferred revenue 14,028 91,560
--------- ---------
Total adjustments 220,871 205,720
--------- ---------
Net cash used in operating activities (287,322) (224,492)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (22,196) (71,138)
Decrease in notes receivable 26,715 60,115
--------- ---------
Net cash provided by (used in) investing activities 4,519 (11,023)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in due to related party (7,823) (9,500)
Increase in loans from officers 44,800 --
Proceeds from note payable 130,400 64,500
Payments on note payable (13,079) --
Net proceeds from issuance of common stock -- 20,400
--------- ---------
Net cash provided by financing activities 154,298 75,400
--------- ---------
Net decrease in cash and cash equivalents (128,505) (160,115)
CASH AND EQUIVALENTS, beginning of period 242,603 473,147
--------- ---------
CASH AND EQUIVALENTS, end of period $ 114,098 $ 313,032
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See notes to consolidated financial statements.
Page 6
COCONUT CODE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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, 1996 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 1995 Annual Report
filed as part of the Company's 10-KSB for the year ended December 31, 1995 .
2. NET LOSS PER SHARE
Net Loss per share is calculated by dividing net loss by the weighted
average number of shares outstanding during the period. Fully diluted net loss
per share is equivalent to primary net loss per share.
Page 7
COCONUT CODE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September
30, 1996
Net sales for the nine months ended September 30, 1996 were $1,510,981
versus $1,555,811 for the comparable period in the prior year. The decrease of
$44,830 in net sales primarily resulted from a delay in customers placing orders
in anticipation of the introduction of the Company's new Windows(R) based
accounting software which was officially released to the general public on May
1, 1996. Partially offsetting the decrease was an increase in sales of custom
accounting and management software to national and regional restaurant chains.
As of September 30, 1996, the Company had a backlog of orders approximating
$1,260,000, substantially all of which were scheduled for installation in the
fourth quarter of 1996 and first quarter of 1997.
For the first nine months of 1996, gross profit increased $28,771, or 2.3%
versus the 1995 period. As a percentage of sales, gross profit grew by 4.3% in
1996 to 83.5%. The primary reason for both the dollar and percentage of sales
increase in gross profit was attributable to a larger protion of 1996 sales in
higher margin software products versus TimeWare(R) hardware products.
Operating expenses for the 1996 period increased $78,839 compared to the
corresponding period in 1995. The increase principally resulted from the
addition of research and development staff to work on custom accounting and
management software and the continuing enhancement of the Company's new
Windows(R) based software and an overall increase in general administration
expenses, offset partly by lower agent commissions in 1996 versus 1995.
Third Quarter 1996 Compared to Third Quarter 1995
For the quarter ended September 30, 1996, net sales increased $111,570, or
22.6%, versus the same period in the prior year, primarily due to growth of
custom accounting and management software sales to national and regional
restaurant chains
Gross profit for the first nine months 1996 increased by $120,024 to
$523,946. As a percentage of sales, gross profit jumped 4.8% to 86.7% in the
1996 period, primarily because a larger portion of 1996 sales were in higher
margin software products versus the Company's TimeWare hardware products.
Page 8
COCONUT CODE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS (cont'd.)
Third Quarter of 1996 Compared to Third Quarter of 1996 (cont'd.)
For the 1996 quarter, operating expenses decreased $16,593 versus the
corresponding 1995 period. The principal reasons for the decrease were lower
selling, marketing and general and administrative expenses which were partially
offset by an increase in research and development expenses caused by the
addition of staff to support the continuing enhancement of the Company's new
Windows(R) based software and the design and development of custom software for
national and regional restaurant chains.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had a working capital deficit of
$188,825 compared to working capital of $208,208 at December 31, 1995. The
decrease of $397,033 reflects working capital used for operations of the
Company.
The Company has 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. As of September 30, 1996, the Company had borrowed
$103,000 under this facility. No advances have been taken subsequent to
September 30, 1996. The line of credit expires on May 1, 1997.
In January 1995, The Company obtained a $100,000 term loan with a bank. The
loan agreement required interest only payments, at the bank's prime rate plus
one percent, through February 1996, at which time the principal amount
outstanding, $100,000, 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.
The Company believes that cash flow generated from the release of its new
Windows(R) based accounting software, cash flow from the growth in fixed-price
contracts for the development of custom accounting and management software for
national and regional restaurant chains, continuing sales of the Company's DOS
based accounting software, and cash available from its line of credit facility
will be sufficient to fund the Company's operations through the end of the year
and will allow the Company to continue to expand marketing and product
distribution.
Page 9
COCONUT CODE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
PART 2. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On August 22, 1996, the Company held its 1996 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 Product Support; Frank J. Abdo
and J. Kenneth Gulden). Of the shares voting, approximately 100% voted in the
affirmative for the reelection of directors.
Item 6. Exhibits and Reports on Form 8-K
None.
Page 10
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 14, 1996 BY: /s/ Daniel W. Reese III
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Daniel W. Reese III
Vice President &
Chief Financial Officer