FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- --------- EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1998
----------------
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 1-14160
HelpMate Robotics Inc.
(Exact name of small business issuer as
specified in its charter)
Connecticut 06-1110906
----------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Shelter Rock Lane; Danbury, Connecticut; 06810
----------------------------------------------
(Address of principal executive offices)
(203) 798-8988
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(Issuer's telephone number)
-----------------------------------------------------------------
(Former name, former address and formal fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. Yes /X/ No / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes / / No / /
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the registrant's common stock as of July 20,
1998 is 13,677,280 shares.
Transitional Small Business Disclosure Format (Check One) Yes / / No /X/
1
HELPMATE ROBOTICS INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheet as of June 30, 1998 3
Condensed Statements of Operations for the three months
ended June 30, 1998 and 1997 4
Condensed Statements of Operation for the six months
ended June 30, 1998 and 1997 5
Condensed Statements of Cash Flows for the six months
ended June 30, 1998 and 1997 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 2. Changes in Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURE 18
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HelpMate Robotics Inc.
Condensed
Balance Sheet (Unaudited)
June 30, 1998
ASSETS
Current assets:
Cash $ 268,268
Accounts receivable, net of allowance for doubtful accounts of $44,297 519,899
Inventory, net of reserve for obsolescence of $100,000 641,533
Other 44,826
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Total current assets 1,474,526
Installation costs, net of accumulated amortization of $828,833 280,180
Equipment leased to others, net of accumulated amortization of $1,125,888 1,470,090
Property and equipment, net of accumulated amortization of $788,159 363,485
Other assets 78,251
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$ 3,666,532
===========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable $ 307,937
Accrued expenses 400,948
Accrued compensation and employee benefits 208,626
Current portion of notes payable 396,359
Deferred revenue 263,103
Customer advances 211,349
-----------
Total current liabilities 1,788,322
-----------
Deferred revenue, less current portion 136,681
-----------
Notes payable, less current portion 188,951
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Stockholders' equity:
Common stock, no par value; 40,000,000 shares authorized; 13,677,280 shares
issued and outstanding 19,400,976
Capital surplus 5,231,963
Accumulated deficit (23,080,361)
-----------
Total stockholders' equity 1,552,578
-----------
$ 3,666,532
===========
SEE ACCOMPANYING NOTES.
3
HelpMate Robotics Inc.
Statements of Operations (Unaudited)
Condensed
Three months ended June 30, 1998 and 1997
Three months ended June 30,
1998 1997
---------- ----------
Revenues:
Sales revenues $ 45,270 $ 232,377
Rental revenues 780,099 506,633
Research and development contracts 114,738 54,656
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Total revenues 940,107 793,666
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Cost of revenues:
Cost of sales 32,720 179,985
Cost of rental revenues 509,022 263,834
Cost of research and development contracts 114,738 54,656
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Total costs of revenues 656,480 498,475
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Gross profit 283,627 295,191
Operating expenses:
Selling, general and administrative expenses 569,949 1,141,925
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Operating loss (286,322) (846,734)
Other income (expenses):
Interest income 6,003 2,332
Interest expense (52.649) (70,484)
Other income 16,406 (119)
Vendor forgiveness of debt 34,432 -
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Net loss $ (282,130) $ (915,005)
========== ==========
Basic and diluted loss per share $ (0.03) $ (0.15)
========== ==========
Weighted average number of shares of common stock
outstanding 11,223,909 6,294,031
========== ==========
SEE ACCOMPANYING NOTES.
4
HelpMate Robotics Inc.
Statements of Operations (Unaudited)
Condensed
Six months ended June 30, 1998 and 1997
Six months ended June 30,
1998 1997
---------- ----------
Revenues:
Sales revenues $ 102,817 $ 576,446
Rental revenues 1,431,349 918,819
Research and development contracts 225,915 209,192
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Total revenues 1,760,081 1,704,457
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Cost of revenues:
Cost of sales 51,082 389,463
Cost of rental revenues 972,236 658,725
Cost of research and development contracts 225,915 209,192
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Total costs of revenues 1,249,233 1,257,380
---------- ----------
Gross profit 510,848 447,077
Operating expenses:
Selling, general and administrative expenses 1,078,088 1,856,869
---------- ----------
Operating loss (567,240) (1,409,792)
Other income (expenses):
Interest income 18,366 9,764
Interest expense (131,030) (140,818)
Other Income 19,755 -
Vendor forgiveness of debt 88,227 -
---------- ----------
Net loss $ (571,922) $(1,540,846)
========== ==========
Basic and diluted loss per share $ (0.06) $ (0.24)
========== ==========
Weighted average number of shares of common stock
outstanding 9,024,054 6,291,269
========== ==========
SEE ACCOMPANYING NOTES
5
HelpMate Robotics Inc.
Statements of Cash Flows (Unaudited)
Condensed
Six months ended June 30, 1998 and 1997
Six months ended June 30,
1998 1997
------------ ------------
OPERATING ACTIVITIES
Net loss $ (571,922) $ (1,540,846)
Adjustments to reconcile net loss to net cash used
by operating activities:
Interest - 105,294
Compensation - 58,160
Provision for doubtful accounts - 59,241
Provision for inventory obsolescence - 50,000
Vendor forgiveness of debt (88,277) -
Depreciation 416,721 368,130
Other - 25,719
Changes in operating accounts:
(Increase) decrease in accounts receivable 87,518 (470,436)
(Increase) decrease in inventory 242,598 (11,570)
(Increase) decrease in other assets (25,329) (60,882)
(Decrease) increase in accounts payable and accrued expenses (85,567) 191,899
(Decrease) in deferred revenue (129,495) (170,092)
(Decrease) increase in customer advances 211,349 9,689
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Total adjustments 629,518 155,152
------------ ------------
Net cash provided by (used in) operating activities 57,596 (1,385,694)
------------ ------------
INVESTING ACTIVITIES
Sale of equipment leased to others - 1,958,416
Installation costs (239,902) (118,011)
Equipment leased to others (301,792) (876,456)
Purchase of property and equipment (4,549) (17,223)
------------ ------------
Net cash provided by (used in) investing activities (546,243) 946,726
------------ ------------
FINANCING ACTIVITIES
Repayments of notes payable (272,363) (264,248)
Proceeds from capital lease - 144,012
Proceeds from exercise of stock options - 3,363
Proceeds from issuance of notes 222,000 -
------------ ------------
Net cash provided by (used in) financing activities (50,363) (116,873)
------------ ------------
Net increase (decrease) in cash and cash equivalents (539,010) (555,841)
Cash and cash equivalents at beginning of period 807,278 609,808
------------ ------------
Cash and cash equivalents at end of period $ 268,268 $ 53,967
============ ============
Supplemental non-cash financing activities:
Conversion of notes, accounts payable, and accrued
expenses to equity $ 2,493,596 -
============ ============
SEE ACCOMPANYING NOTES.
6
HelpMate Robotics Inc.
Notes to Condensed Financial Statements (Unaudited)
June 30, 1998
BASIS OF PRESENTATION
HelpMate Robotics Inc. ("HelpMate", "HRI", or the "Company"), was incorporated
in May 1984. The Company is primarily engaged in the design, manufacture and
sale of the Company's flagship product, the HelpMate(R) robotics courier system,
a trackless robotic courier used primarily in the healthcare industry to
transport materials. The Company derives revenue primarily from rentals and
sales of HelpMate robots. The Company also sells robotic components such as
LabMate, LightRanger and BiSight and performs research and development
contracts.
Historically, the Company has been dependent upon sources other than operations
to finance its working capital requirements. These sources include loans and/or
investments from stockholders and their affiliates, private placements of its
debt and equity securities, the Company's initial public offering and the
proceeds of Financed Rentals. The Company continues to actively seek additional
financing alternatives in order to strengthen its liquidity situation in the
short term. (See Management's Discussion and Analysis - Liquidity and Capital
Resources)
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Rule 310 of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments, consisting only of normal
recurring accruals, considered necessary for a fair presentation have been
included in the accompanying unaudited financial statements. In addition,
certain amounts for prior periods have been reclassified to be comparable with
the current period presentation. Operating results for the three month and six
month periods ended June 30, 1998 are not necessarily indicative of the results
that may be expected for the full year ending December 31, 1998. For further
information, refer to the financial statements and footnotes thereto included in
the Company's annual report on Form 10-KSB for the year ended December 31, 1998.
FINANCING AND RESTRUCTURING AND FINANCED RENTAL TRANSACTIONS
In January 1998, the Company announced a series of steps directed at
improving its short-term liquidity and cash flow (See Management's Decision
and Analysis -Financing and Restructuring Transactions). In February 1997 and
May 1997, the Company entered into two Financed Rental transactions with
Leasing Technologies International Inc. ("LTI"). (See Management's Decision
and Analysis - Financed Rental Transactions)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
The Company develops, manufacturers and markets mobile robotic systems, which
are distinguished by their ability to navigate autonomously without the need for
fixed tracks or guide wires. The Company accomplishes this by employing state of
the art sensor technology, wireless radio and proprietary software to the
guidance of battery-powered vehicles of its own design. So equipped, these
autonomous vehicles can navigate from point to point, avoid stationary and
moving obstacles (including people), make almost instantaneous stops when
necessary, summon elevators to travel between floors, announce their arrival at
destinations, signal closed doors to open, and maintain communications with a
centrally located computer.
The Company also continues to sell, on a limited basis, components of its
autonomous mobile robotics technology to universities and other research
facilities, and has licensed some of its technologies for use in floor cleaning
and automated prescription filling applications. The Company also engages in
research and development contracts in the area of mobile robotics technology.
7
LIQUIDITY AND CAPITAL RESOURCES
As a result of disappointing performance in 1996, as described below, the
Company experienced a severe shortage of cash in 1997 and was forced to take
drastic actions to preserve the Company in the latter half of the year. These
actions resulted in a further reduction of staff and slowing of marketing and
manufacturing activity. During this retrenchment, however, the Company continued
to support existing customers and even increase installations of HelpMate
robots, drawing from materials and parts that were previously ordered and
received, to fill orders that had been previously booked.
The remaining backlog at June 30, 1998 consists of approximately $300,000 in
annual rental revenues which should become operational in the third quarter of
1998. In addition, the Company expects to sell several robots and to fill orders
for component products and complete and deliver the Two-Armed, Mobile, Sensate,
Research Robot project under contract to NASA during the second half of the
year. As of June 30, 1998, the Company is operating at approximately a cash
break even level. Management believes that cash generated by these transactions,
together with available cash, will be sufficient to complete the installation of
robots from the backlog and to sustain continuing operations through the end of
1998.
The Company believes the opportunity to establish the HelpMate robot as a
flexible, cost-efficient and preferred method for transporting materials within
hospitals and other healthcare facilities remains significant. Although the
Company does not presently have specific plans to purchase parts for builds of
new HelpMate robots, the Company will continue to maintain a sales presence in
the marketplace and book orders in anticipation of another release of HelpMate
units for production. Therefore, while the Company's near-term objective is to
stabilize and enhance its business at the level of the current customer base, it
will actively pursue additional means of financing that would be necessary to
resume expansion of its original aggressive marketing plans.
Historically, the Company has been dependent upon sources other than operations
to finance its working capital requirements. These sources include loans and/or
investments from stockholders and their affiliates, private placements of its
debt and equity securities, the Company's initial public offering and the
proceeds of Financed Rentals.
The Company continues to actively seek additional financing alternatives in
order to strengthen its liquidity situation in the short term. Although the
Company has identified some potential sources of such financing, the Company has
no current commitments or agreements with respect to such and there can be no
assurance that any additional financing will be available to the Company on
acceptable terms, or at all. Such alternatives include, but are not limited to
Financed Rental transactions similar in nature to that entered into with Leasing
Technologies International, Inc. ("LTI"); private placement of the Company's
securities in the United States or abroad; and/or mezzanine type financing
(including senior or subordinated debt). Further, additional equity financing
may involve substantial dilution of the stock ownership of the Company's
existing stockholders. Moreover, financial or other covenants imposed by future
financing sources might further adversely affect the Company's ability to pay
dividends and management's ability to control the Company. Additionally, by
transferring the title and rental agreements to a third party in Financed Rental
transactions for an immediate cash payment, the Company could lose all or a
portion of its opportunity to benefit from ongoing rentals in the future or from
the residual value of the units upon the expiration of the rental agreements.
Finally, no assurances can be given that any such financing will provide
sufficient cash required for the Company to attain an operating revenue stream
of cash sufficient to support the Company's continued operations. It is also not
anticipated that current stockholders will provide any additional financing.
INITIAL PUBLIC OFFERING
The Company completed an initial public offering on January 31, 1996 and
received proceeds of approximately $6.1 million net of expenses. The Company
sold 1,449,918 units in the IPO with each unit consisting of two shares of
common stock, no par value per share, and one redeemable common stock purchase
warrant, whereby 1,252,996 units were sold by the Company and 196,922 units were
sold by certain lenders (the "Selling Bridge Securityholders") who provided
interim financing to the Company.
8
USE OF IPO PROCEEDS
At the time of the IPO, the Company had already embarked upon a plan to address
the perceived market potential for HelpMate robots by increasing the installed
base of HelpMate robots in hospitals: through its own sales and marketing
efforts in the United States; and through the efforts of its distributors, Otis
in Europe and Yaskawa in Asia. Prior to the IPO, in 1995, the Company had
contracted with the Bell & Howell Mailmobile Company for sales of HelpMates in
the southwestern United States, and embarked upon an expansive marketing and
public relations program to promote the HelpMate robot. Subsequent to the IPO,
during 1996, the Company hired and trained five salespersons in various regions
of the United States, contracted with an independent manufacturers
representative for sales of HelpMate in the greater New York City area, strongly
implemented its marketing and public relations program, increased its
manufacturing staff and support staff, and ordered parts in sufficient
quantities for production runs of HelpMate robots to fill orders that were
forecast by the Company to come from hospitals in the United States, and from
European hospitals as forecast by Otis. The agreement between the Company and
Yaskawa provides for Yaskawa to manufacture its own HelpMate robots. The Company
had also increased several on-going engineering programs to enhance HelpMate
product features, increase product reliability, and reduce manufacturing and
installation costs.
EVENTS SUBSEQUENT TO THE IPO
By mid 1996, however, the receipt of new orders had not met the Company's
original estimates for that period. Otis had reduced its forecast of purchases
from 26 units to 6 units (and for fiscal 1996 only purchased 4 units), and the
Bell & Howell Mailmobile Company had produced no new orders for HelpMate robots
and consequentially the sales agreement with Bell & Howell was canceled.
Although the sales force hired and trained by the Company started recording
orders from the US market for HelpMate robots at an average rate of six per
month beginning in September 1996 (which continued on into March of 1997), this
was approximately three months later than originally planned. Therefore, overall
orders through the first quarter of 1997 were lower than planned. More
importantly the mix of orders was heavily weighted towards rentals versus sales,
resulting in a slower replenishment of cash and driving the Company into a
critical cash shortage.
In light of the foregoing, the Company took actions during the fourth quarter of
1996 to conserve cash while maintaining its proactive development of the market.
Effective November 1, 1996, the Company terminated ten employees, nine senior
managers of the Company agreed to a combination of partial salary deferrals and
stock in lieu of cash compensation, the Company's Chairman agreed to a grace
period on outstanding loan obligations owed him, and the Company postponed
research and development on new products. In addition, the Company sought other
sources of working capital, notably from a sale and leaseback transaction which
had been proposed and is described below.
FINANCED RENTAL TRANSACTIONS
In February 1997 and May 1997, the Company entered into two Financed Rental
transactions with LTI. Under these transactions, the Company and LTI entered
into Purchase, Security and Remarketing Agreement and a Master Lease Agreements
(the "Lease and Remarketing Agreements") for the sale and leaseback of fifteen
(February transaction) and nine (May transaction) of its robotic courier systems
which were under rent from the Company to hospitals across the United States
("sold units"). The total proceeds obtained from these transactions was
$2,040,000. As part of these transactions, the Company assigned all of its right
title and interest in the underlying rental agreements for the sold units and
granted a security interest in eighteen additional rental agreements for units
that were not sold to LTI ("collateral units"). The Lease and Remarketing
Agreements require the Company to, among other things, refurbish any sold unit
that ceases to be rented by a hospital and place that sold unit on rent with
another hospital prior to the Company placing one of its own units with another
hospital. In addition, the Company is responsible for the maintenance of both
the sold units and the collateral units. Commencing in the first quarter of
2000, the Company shares in residual rental payments from the sold units in the
following manner: (a)75% for the Company and 25% for LTI until such time as the
Company receives an additional amount ($372,032 with respect to the February
transaction and $225,400 with respect to the May transaction) and (b) 50% for
the Company and 50% for LTI thereafter. Finally, the Company has no right to
repurchase the sold units from LTI. The Master Lease Agreement is classified as
an operating lease in accordance
9
with Statement of Financial Accounting Standards No. 13, "Accounting for
Leases". The aggregate book value and related depreciation of the sold units,
approximately $1,485,000 and $347,000, respectively, was removed from the
accounts and the aggregate gain realized on the sales of approximately $902,000
will be deferred and amortized over the term of the Lease and Remarketing
Agreements. The maintenance costs expected to be incurred for the sold units
during the lease term was accrued as of the date of the sale, amortized over the
term of the Lease and Remarketing Agreements and correspondingly reduce the gain
on the sale. Such costs are expected to approximate $204,000 thereby reducing
the gain to be deferred and amortized to approximately $698,000. No provision
for the refurbishment of the sold units will be made, as the Company's
historical experience demonstrates that units do not cease being rented.
Payments under the lease are payable monthly and approximate $526,000 (February
transaction) and $379,000 (May transaction) annually.
DOWNSIZING
During the second half of 1997, the Company's financial condition deteriorated
and the Company experienced severe cash shortages. In July 1997, the Company's
President, Thomas K. Sweeny, made a short term demand loan to the Company in the
amount of $60,000. The Company was unable to make loan payments to CII and to
the Company's Chairman, Joseph F. Engelberger which amounted to $465,764 and
$176,402 respectively in outstanding principal and interest (as of March 31,
1998). Past due accounts payable climbed to approximately $1.1 million as of
November 1997. The Company was served an eviction notice by its landlord due to
non-payment of rent. Additionally, LTI had notified the Company in August 1997
that the Company was in technical default under the terms of its Master Lease
Agreement. The Company was also delisted by the Philadelphia Stock Exchange and
NASDAQ Small Cap Market tier of the NASDAQ Stock Market as a result of the
Company's inability to meet the applicable listing requirements.
In light of the foregoing, Company management implemented a plan to reduce
expenses even further and to work out accommodations with creditors and lenders
while seeking alternative sources of capital. Management believed that if
accommodations could be made with creditors and lenders, then the Company could
operate in a downsized configuration, funded with the revenue streams generated
by the current and future rentals and sales of its HelpMate robots while the
Company pursued alternatives for the long-term growth capital needs of the
business. Accordingly, a substantial downsizing of the Company was concluded in
the third quarter of fiscal 1997. The staff was reduced to 12 full-time and 2
part-time employees (from a high of 40 employees in mid 1996), taken from all
departments including sales and marketing, engineering, manufacturing and
administration. The Vice President of Engineering and the Vice President of
Sales and Marketing resigned and the remaining senior management of the Company
deferred a significant portion of their salaries. Sales and marketing activities
were limited to responding to inquiries, no industry trade shows were attended
and the remaining staff was dedicated to support of the installed base of robots
operating at customer sites. The Company relocated to smaller operational space
yet continued to build and install robots, albeit at a reduced rate, filling
orders from its existing backlog, and using materials and parts which had been
previously ordered and received. However, no new materials for robots were
ordered.
In November 1997, the Company reached agreement with the landlord to forestall
eviction and negotiated a new three year lease for the reduced space which the
Company currently occupies. The Company also resolved its technical default
issues with LTI such that it is in full compliance with the Master Lease
Agreement.
FINANCING AND RESTRUCTURING TRANSACTIONS
In January 1998, the Company announced a series of steps directed at improving
its short-term liquidity and cash flow. These included the receipt of certain
loans, the completion of a private placement of $1,350,000 in convertible notes,
the agreement by certain creditors to accept reduced cash payment in liquidation
of outstanding trade payables, and the agreement by certain creditors to convert
their loans, trade payables, and other obligations of the Company to them into
shares of common stock and warrants to purchase common stock. Staff has been
increased slightly to 18, including the rehiring of a sales manager, and salary
levels of the remaining management have been reinstated. To further reduce
costs, the Company changed its outside auditors to Arthur Andersen LLP.
10
PRIVATE PLACEMENT. In February 1998, the Company concluded a private placement
(the "Private Placement") of $1,350,000 consisting of a Promissory Note ("Unit
Note") and a Warrant ("Unit Warrant"). Each Unit Note is in the principal amount
of $100,000 and bears interest at a rate of seven percent (7.00%) per annum
payable quarterly and comes due on October 1, 1998. Each Unit Note was
converted, effective April 16, 1998 into 303,030 shares of Common Stock ("Unit
Note Shares") at a rate of one (1) share of Common Stock for each $.33 of
principal indebtedness outstanding under the Unit Note. Each Unit Warrant was
exercisable for 100,000 shares of Common Stock ("Unit Warrant Shares") at an
exercise price of $.33 per share. All of the Unit Notes were converted into an
aggregate of 4,090,909 Unit Note Shares.
All of the Unit Warrants are exercisable for an aggregate of 1,350,000 Unit
Warrant Shares.
In consideration for its services to the Company in connection with the Private
Placement, the Boston Group, LP was issued in August 1998 a warrant expiring
December 31, 2001 ("Boston Group Warrant") immediately exercisable to purchase
2,411,866 shares of Common Stock at an exercise price of $.33 per share. In
addition to the Boston Group Warrant, the Company also paid the Boston Group, LP
commissions and a non-accountable expense allowance in connection with the
Private Placement in the amount of $191,000.
LOANS AND LOAN RESTRUCTURING. In November 1997, the Company's Chairman and
director, Joseph F. Engelberger, (and a foundation established by Mr.
Engelberger), made a demand loan to the Company in the amount of $150,000. Mr.
Engelberger is the Company's co-founder, its Chairman, and a director. In
exchange for that loan, the Company issued two demand notes bearing interest at
a rate of fifteen percent (15%) per annum (collectively the "1997 Engelberger
Note"). In consideration for this loan, in January 1998, the Company issued to
Mr. Engelberger warrants expiring December 31, 2001 ("First Engelberger
Warrants") to purchase 25,000 shares of Common Stock at an exercise price of
$.33 per share. In January 1998, the 1997 Engelberger Note was converted into
467,424 shares of the Company's Common Stock at a rate of one share of Common
Stock for every $.33 of principal and interest outstanding under the 1997
Engelberger Note. In consideration of Mr. Engelberger's agreement to convert the
1997 Engelberger Note, the Company issued to Mr. Engelberger warrants expiring
December 31, 2001 ("Additional Engelberger Warrants") to purchase 154,250 shares
of Common Stock at an exercise price of $.33 per share.
As of March 31, 1998, the Company was also indebted to Mr. Engelberger in the
amount of $176,402 pursuant to a term note dated May 26, 1995 bearing interest
at a rate of 10% per annum ("1995 Engelberger Note"). The 1995 Engelberger Note
required payments of interest only for one year, and then equal payments of
principal and interest for 48 months, through June, 2000. In January 1998, the
Company and Mr. Engelberger agreed to convert the 1995 Engelberger Note into
Shares of the Company's Common Stock ("Engelberger Shares") so that the
outstanding indebtedness thereunder will be liquidated at the rate of one share
of Common Stock for each $.33 of indebtedness liquidated. In addition, the
Company has agreed to issue to Mr. Engelberger warrants expiring December 31,
2001 ("Second Engelberger Warrants") exercisable for shares of Common Stock at
an exercise price of $.33 per share for each dollar of indebtedness liquidated.
On April 16, 1998, Mr. Engelberger received an aggregate of 534,552 Engelberger
Shares and Second Engelberger Warrants to purchase an aggregate of 176,402
shares in exchange for the liquidation of $176,402 of principal and interest
outstanding as of that date.
In November, 1997, Brookehill Equities, Inc. ("Brookehill") made a demand loan
to the Company in the amount of $150,000, as evidenced by a note bearing
interest at a rate of fifteen percent (15%) per annum ("Brookehill Note"). The
Company has subsequently repaid this loan. In consideration of this loan, in
January 1998, the Company issued to Brookehill warrants expiring December 31,
2001 ("Brookehill Warrants") to purchase 25,000 shares ("Brookehill Warrant
Shares") of Common Stock at an exercise price of $.33 per share.
11
In July 1997, the Company's President and director, Thomas K. Sweeny, made a
demand loan to the Company in the amount of $60,000 evidenced by a note bearing
interest at a rate of eight and one-half percent (8.5%) per annum. In January
1998, that note plus accrued interest was converted into 189,845 shares of the
Company's Common Stock at a rate of one share of Common Stock for every $.33 of
principal and interest outstanding thereunder. In consideration of Mr. Sweeny's
agreement to convert that note, the Company issued to Mr. Sweeny warrants
expiring December 31, 2001 ("Sweeny Warrants") to purchase 62,649 shares
("Sweeny Warrant Shares") of Common Stock at an exercise price of $.33 per
share.
TRADE PAYABLE RESTRUCTURING. In December 1997 and January 1998, the Company
entered into agreements with certain of its creditors pursuant to which each of
those creditors agreed to liquidate the Company's payables to such creditor in
exchange for shares of the Company's stock ("Creditor Shares") and warrants to
purchase the Company's stock ("Creditor Warrants"). The Creditor Shares were
issued on April 16, 1998 at the rate of one Creditor Share for each $.33 of
indebtedness liquidated. The Creditor Warrants were also issued at the rate of
one Creditor Warrant per dollar of indebtedness liquidated and will be
exercisable for shares of Common Stock ("Creditor Warrant Shares") The Company
issued to the creditors an aggregate of 468,958 Creditor Shares and Creditor
Warrants to purchase an aggregate of 154,756 Creditor Warrant Shares in exchange
for the liquidation of $154,756 of payables.
In December 1997 and January 1998, the Company completed transactions with other
creditors pursuant to which each of those creditors agreed to liquidate the
Company's payables to such creditors in exchange an immediate cash payment of a
portion of the payables. The Company used approximately $515,000 of the Private
Placement proceeds to make these payments and, as a result, liquidated
approximately $850,000 of the $1.1 million of past due payables outstanding as
of November 13, 1997.
CII RESTRUCTURING. In June 1998, CII, a security-holder and creditor of the
Company, agreed to convert the Company's loan indebtedness and certain accrued
royalty payments to CII into shares of Common Stock and warrants to purchase
Common Stock, and to accept shares of Common Stock and warrants in lieu of
certain royalty payments which may come due during the calendar year 1998.
The Company's loan indebtedness to CII was evidenced by a note dated June 14,
1995 ("CII Note") bearing interest at a rate of 10% per annum. The CII Note
required payments of interest only for one year, and then equal payments of
principal and interest for 48 months, through June, 2000, and is secured by a
security interest in all of the Company's intellectual property relating the
HelpMate in the North and South American markets. Under the CII loan agreements,
the Company is also required, among other things, to retain its principal place
of business and a majority of its employees and operations in the State of
Connecticut ("Connecticut Presence Requirements") until June, 2001.
The Company also has certain royalty obligations to CII under a Development
Agreement dated December 29, 1986, pursuant to which CII reimbursed the Company
for certain development costs related to the HelpMate robotics courier system
("Sponsored Products"). Under the Development Agreement, the Company must pay
royalties to CII equal to (i) a specified percentage ("Company Percentage Rate")
of the Company's net sales of Sponsored Products, (ii) fifty percent of license
fees paid to the Company under licenses granting to third parties the rights to
produce or sell the Sponsored Products, and (iii) fifty percent of any royalties
received by the Company on net sales of Sponsored Products by third-party
licensees of the Company. During the two-year period ending February 1998
("Reduced Royalty Term"), the Company Percentage Rate was equal to the greater
of (i) one and one-half percent of the net sales of Sponsored Products or (ii)
twenty percent (20%) of the Company's pre-tax profits (but in no event more than
five percent of net sales of Sponsored Products). After February 1998, the
Company Percentage Rate increases to five percent of the Company's net sales of
Sponsored Products. Subject to the satisfaction of certain conditions, at the
expiration of the Reduced Royalty Term, the Company will be credited with an
additional $300,000 in royalty payments against the Royalty Threshold described
below. The Company
12
must pay royalties at the rate described above until the total royalties paid or
credited have aggregated $2,205,000 ("Royalty Threshold"). Once royalties paid
or credited have reached the Royalty Threshold, the Company must thereafter pay
royalties for a period equal to the period of time taken to reach the Royalty
Threshold except that the Company Percentage Rate during that period would be
reduced to one-half of one percent. Royalties payable only to the extent that
sales and license fees are realized. Through December 31, 1997, the Company has
paid approximately $265,000 in royalties to CII.
CII agreed to convert the outstanding indebtedness under the CII Note and
royalty payments accrued under the Development Agreement through December 31,
1997 into shares of the Company's Common Stock and such amounts will be
liquidated at the rate of one share of Common Stock for each $.33 of
indebtedness and royalty liquidated. In addition, the Company issued to CII
warrants expiring December 31, 2001 ("CII Warrants") exercisable for shares of
Common Stock at an exercise price of $.33 per CII Warrant Share for each dollar
of indebtedness and royalty liquidated. In lieu of cash payments of the
royalties accruing during the fiscal year ending December 31, 1998, CII has also
agreed to accept one share of Common Stock ("CII Royalty Shares") for each $.33
of royalties required to be paid and warrants expiring December 31, 2001 ("CII
Royalty Warrants") to purchase one share of Common Stock at an exercise price of
$.33 per share for each dollar of royalties required to be paid. As a result of
the foregoing transactions CII was issued an aggregate of 1,556,987 shares of
Common Stock and warrants to purchase an aggregate of 513,809 shares of Common
Stock in exchange for the liquidation of $513,809 of principal interest and
accrued royalties through December 31, 1997. In addition, CII received 74,564
shares of Common Stock and warrants to purchase an aggregate of 24,605 shares of
Common Stock in exchange for $24,605 of accrued royalties for the first quarter
of 1998.
As part of its agreement with CII the Company must agree to extend the
Connecticut Presence Requirements to a term ending ten years from June 30, 1998.
In the event the Company violates the Connecticut Presence Requirements, CII can
(a) demand immediate payment of the balance of the Royalty Threshold; and (b)
require the Company to repurchase its Company Securities. The security interest
previously granted to CII in the intellectual property relating to HelpMate in
the North and South American markets will be extended so that it also secures
the Company's obligations to make the royalty payments under the Development
Agreement. In addition, a representative of CII would continue to have the right
to attend meetings of the Company's board of directors so long as CII owns
shares of the Company's stock and the Company has any outstanding obligations
under the Development Agreement.
REGISTRATION RIGHTS. None of the securities issued in the transactions above may
be resold to the public unless they are registered under the Securities Act of
1933, as amended or unless an exemption from such registration is available. The
Company agreed to use its diligent efforts to register the Unit Warrants, the
Unit Note Shares, the Unit Warrant Shares, the Boston Group Shares and the
Boston Group Warrants and the Boston Group Warrant Shares for public sale thirty
(30) days after the closing of the issuance of the Creditor Shares. The Company
has concluded that the interests of the Company and its shareholders would be
best served by not undertaking to so register these securities at this time.
Among the reasons for this decision are: (1) the anticipated expenses of the
registration process; (2) the diversion of management time and resources; (3)
the current market for the Company's common stock; and (4) the potential adverse
impact of a secondary offering on the Company's ability to obtain additional
sources of investment capital.
AMENDMENT TO CERTIFICATE OF INCORPORATION. At the time the Company entered into
the transactions described under the heading "Finance and Restructuring
Transactions," the Company did not have sufficient authorized shares of Common
Stock under its certificate of incorporation to provide for the issuance of the
shares issuable upon conversion or exercise of certain of the securities issued
in connection with those transactions. The Company undertook to seek the
approval of the Company's stockholders of an amendment to the Company's
Certificate of Incorporation to provide additional authorized shares of Common
Stock. At the April 9, 1998 special meeting of stockholders, the Company's
stockholders voted to approve an amendment to the Company's certificate of
incorporation to increase the number of authorized shares of Common Stock from
10,000,000 to 40,000,000. On April 16, 1998, the Company filed an amendment to
its certificate of incorporation with the Connecticut Secretary of the State
increasing its authorized shares of Common Stock from 10,000,000 to 40,000,000.
13
DISTRIBUTION AGREEMENT. The Company has conducted its foreign marketing and
distribution program in Europe, the former Soviet Union, Africa and parts of the
Middle East, principally through Otis. In 1996 Otis purchased only 4 of the 26
HelpMate units it had originally forecast and it purchased only one unit in
1997. The Company has recently been informed that Otis is currently undergoing a
restructuring of its European marketing operations and does not plan to continue
marketing the HelpMate robot. Therefore, the Company has opened discussions with
Otis regarding the termination of its license agreement with Otis. In the event
of such termination, the Company has plans to support the installed HelpMate
robots in Europe until such time as an agreement can be reached with a new
strategic marketing partner for Europe.
RESULTS OF OPERATIONS
REVENUES
Total revenues increased by $146,441 or 18% from the three months ended June 30,
1997 compared to the three month period ended June 30, 1998. Rental revenues
increased by $273,466 or 54%; sales revenues decreased by $187,107 or 80%, and
revenues from research and development contracts increased by $60,082 or 110%
for the same period.
Total revenues increased by $55,624 or 3% from the six months ended June 30,
1997 compared to the six month period ended June 30, 1998. Rental revenues
increased by $512,530 or 56% and sales revenues decreased by $473,629 or 82%.
Also, revenues from research and development contracts increased by $16,723 or
8%.
The increase in rental revenues is reflective of the Company's expanded fleet of
rental units which at June 30, 1998 was 81, a 21% increase from the 67 units
under rent at June 30, 1997, coupled with higher monthly rentals. The sales
revenue declined in both the three month and six month periods ended June 30,
1998 due to the de-emphasis of component product sales in 1998.
COST OF REVENUES
Cost of revenues increased by $158,005 or 32% from the three months ended June
30, 1997 compared to the three months ended June 30, 1998. Cost of revenues
decreased slightly from the six months ended June 30, 1997 compared to the six
months ended June 30, 1998. Overall, cost of revenues has decreased as a
percentage of revenues, which reflects the Company's ongoing efforts to reduce
the cost associated with manufacturing and installing its HelpMate robots. These
costs are partially offset by an increase in depreciation and amortization of
the Company's rental units and related installation costs, which were
attributable to the increase in the rental fleet discussed above.
GROSS PROFIT
Gross profit decreased by 4% or $11,564 from the three months ended June 30,
1997 compared to the three months ended June 30, 1998. Gross profit increased by
14% or $63,771 from the six months ended June 30, 1997 compared to the six
months ended June 30, 1998. The increase in gross profit percentage and dollars
reflects the fact that several of the Company's rental units are now fully
depreciated.
SELLING GENERAL AND ADMINISTRATIVE EXPENSES
Selling, General and Administrative Expenses decreased by $571,976 or 51% from
the three months ended June 30, 1996 compared to the three months ended June 30,
1998. Selling, General and Administrative Expenses decreased by $778,781 or 42%
from the six months ended June 30, 1997 compared to the six months ended June
30, 1998. The decrease reflects a significant reduction in staffing in all
departments in the Company's ongoing efforts to reduce costs.
14
INTEREST EXPENSE AND INTEREST INCOME AND OTHER INCOME
Interest expense decreased for both the three month and six month periods ending
June 30, 1998. The decrease reflects the conversion of certain long-term
obligations and interest thereon to equity.
Vendor forgiveness of debt reflects the savings the Company realized when
certain vendors agreed to take less than the amount owed to them at September
30, 1997. (See footnote to financial statements in the Company's annual report
on Form 10-KSB for the year ended December 31, 1997.)
LOSSES
The Company incurred a net loss from continuing operations of $282,130 and
$915,005 for each of the three month periods ending June 30, 1998 and 1997,
respectively, and incurred a net loss from operations of $571,922 and $1,540,846
for each of the six month periods ending June 30, 1998 and 1997, respectively.
These losses were sustained primarily because the Company has not achieved the
volume of sales and rentals of HelpMates required to cover the overhead expenses
associated with the commercialization of its HelpMate systems. Although the
decrease in staffing and sales and marketing expenses have reduced losses in
fiscal 1997 and the first quarter of 1998, the Company anticipates that such
losses will continue until the volume of sales and rentals of HelpMates
necessary to cover overhead expenses is achieved. As noted above, the overall
profitability and cash flow of the Company is highly dependent upon its mix of
robot rentals and robot sales (i.e., more robot rentals than sales results in
larger losses and a quicker depletion of cash).
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share of common stock for the three months ended June 30,
1998 and 1997 was ($0.03) and ($0.15), respectively. Earnings (loss) per share
of common stock for the six months ended June 30, 1998 and 1997 was ($0.06) and
($0.24), respectively. Basic and diluted earnings (loss) per common share is
computed according to SFAS 128 which was adopted in 1997. It is based on the
weighted average number of common shares and common stock equivalent shares
outstanding during the period, as adjusted for the stock split that occurred in
conjunction with the initial public offering. Shares from the assumed exercise
of options and warrants granted by the Company have been included in the
computations of earnings per share for all periods unless their inclusion would
be antidilutive.
OTHER
During the second quarter of 1997 the Company was notified by the Philadelphia
Stock Exchange that the Company's stock had been delisted due to a failure to
meet the requirements for net worth and minimum stock price. Further, the
Company has been notified by Nasdaq the Company's stock had been delisted for
failure to meet the minimum bid price and net worth requirements.
For the foreseeable future, the Company does not anticipate paying dividends and
the Company anticipates retaining any earnings to fund its operations. Moreover,
the ability of the Company to pay dividends is subject to contractual
restrictions through September 2001. Specifically, during that period, the
Company may not, unless otherwise approved by one of its lenders, directly or
indirectly declare, order, pay or reserve any sum or property for the payment of
any dividend or other distribution on the Company's capital stock until such
time as the Company has achieved a net profit for three consecutive fiscal
quarters.
INCOME TAXES
The Company accounts for income taxes in accordance with Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes" ("SFAS 109"),
SFAS 109. The Company's net operating loss carry forwards of approximately $19.2
million at December 31, 1997 expire during the years 1999 through 2012. The
related deferred tax asset has been fully reserved because the ability of the
Company to realize a future tax benefit from its net operating loss carry
forwards may be limited.
15
INFLATION
The Company does not believe that the relatively moderate levels of inflation
which have been experienced in the United States has had or will have a
significant effect on its revenues or operations.
YEAR 2000 READINESS
The Company is continuing its assessment of its year 2000 readiness. The Company
believes its internal computer systems will be ready for the year 2000. The
Company also believes that the operation of its principal product, a mobile
robotic system, will not be adversely affected by the year 2000 issues. The
Company plans to survey its major customers and vendors as to their readiness
for the year 2000. Based on the current status of this assessment is not yet
able to estimate the costs to be incurred by the Company for all the year 2000
issues
FORWARD LOOKING STATEMENTS
Statements made in this report regarding (a) the projection of revenues, income,
earning per share, capital expenditures, dividends or other financial items, (b)
the plans and objectives of management for the Company's future operations, (c)
the future economic performance of the Company, and (d) statements regarding the
assumptions underlying or relating to the foregoing items are forward-looking
statements. Forward-looking statements are contained in this report, including
under the sections entitled "Management's Discussion and Analysis - Liquidity
and Capital Resources -- Losses; Other; and -- Year 2000 Readiness" There are
important factors that could cause the actual results to differ materially from
those in the forward-looking statements. These important factors include the
following: (a) if the mix of robot rentals versus sales changes; (b) if there
are substantial returns of robots currently on rental or if the Company is
unable to place returned robots with new customers; (c) if there is a
substantial reduction in the aggregate number of hours for which robots are
rented; (d) if existing orders in backlog are canceled; (e) if the Company's own
order/installation forecast changes; (f) if the actions and measures described
under the heading "Management's Discussion and Analysis -- Financing and
Restructuring Transactions" are not sufficient to ensure that operations will
continue throughout 1998; (g) if the Company's financial condition negatively
impacts the Company's reputation in the marketplace and consequently negatively
impacts order receipts; (h) if the Company is unable in the foreseeable future
to secure additional financing; (i) if the Company's distribution agreement with
Otis is terminated and the Company is unable to reach an agreement with a new
strategic marketing partner in Europe; and (j) if customers or vendors have year
2000 issues which adversely affect the Company.
16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
As described in Item 4, the Company's shareholders voted to approve an amendment
to the Company's certificate of incorporation in order to increase the number of
authorized shares of Common Stock from 10,000,000 to 40,000,000 shares. On April
16, 1998, the Company filed an amendment to its certificate of incorporation
with the Connecticut Secretary of the State increasing its authorized shares of
Common Stock from 10,000,000 to 40,000,000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 9, 1998, a special meeting of the Company's shareholders was held to
consider a proposal to amend the Company's certificate of incorporation in order
to increase the number of authorized shares of Common Stock from 10,000,000 to
40,000,000 shares. The proposal was approved by the Company's shareholders at
the special meeting. The number of votes cast for the proposal was 5,285,294;
the number of votes cast against or withheld with respect to the proposal was
38,499; the number of abstentions with respect to the proposal was 11,850; and
there were no broker non-votes with respect to the proposal.
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
NO. DESCRIPTION OF EXHIBITS
10.81 Creditor Agreement with Connecticut Innovations Inc.
10.82 Warrant and Stock Purchase Agreement with Connecticut Innovations Inc.
17
SIGNATURES
In accordance with requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned , thereunto duly
authorized.
HelpMate Robotics Inc.
Date: August 13, 1998 /s/ Joseph F. Engelberger
-------------------------
Joseph F. Engelberger
Chairman and Chief Executive Officer
18