UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-KSB

(Mark One)

            |X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                  OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended May 31, 2001

            |_|   TRANSITION REPORT UNDER SECTION 13 OR 15(d)
                  OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the transition period from          to         .

                         Commission File Number 0-22735
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                       ROBOCOM SYSTEMS INTERNATIONAL INC.
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                 (Name of small business issuer in its charter)

          New York                                    11-2617048
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(State or other jurisdiction of           (I.R.S. Employer Identification No.)
incorporation or organization)

  511 Ocean Avenue, Massapequa, New York                            11758
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 (Address of principal executive offices)                         (Zip Code)

Issuer's telephone number: (516) 795-5100

Securities registered under Section 12(b) of the Act: None

Securities registered under Section 12(g) of the Exchange Act:

                          Common Stock, $.01 par value
        ----------------------------------------------------------------
                                (Title of Class)

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 |_|

Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure is contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |X|

State issuer's revenues for its most recent fiscal year. $3,836,741

As of September 30, 2001, the issuer had outstanding 4,495,984 shares of its
common stock.

As of September 30, 2001, the aggregate market value of the issuer's common
stock held by non-affiliates was $314,719 (based upon the closing price of the
issuer's common stock on The Over-the-Counter Bulletin Board on such date).

Transitional Small Business Disclosure Format (check one)  Yes |_|  No |X|
<PAGE>

                                     Part I

Item 1. Description of Business.

General

      Robocom Systems International Inc. (the "Company"), incorporated in 1982,
develops, markets and supports advanced warehouse management software solutions
that enable companies to realize significant cost savings by automating their
warehouse operations and providing inventory visibility throughout the supply
chain. The Company's primary product, RIMS(TM), is a client-configurable
software solution that enables a company's warehouse to respond to a customer
order with greater accuracy and in a more timely manner, thereby turning the
warehouse into a competitive advantage. RIMS operates in an open system
environment and interfaces with an organization's existing information systems.
In addition to providing RIMS software licenses, the Company provides
installation, training, implementation support and maintenance services and
resells related hardware.

Industry Background

      In recent years, a number of business trends have converged to change the
historical relationships among retailers, manufacturers and suppliers, and
distributors. Increasing globalization of the marketplace has resulted in
greater geographic diversity of supply and production facilities and has
increased competition as more suppliers are offering a greater range of product
offerings at multiple price levels. In addition, a number of trends in
retailing, including the emergence of virtual electronic commerce, shorter
product life cycles, a significant increase in the number and variety of product
offerings, and a more informed and price conscious consumer, have put increased
pressure on retailers to reduce expenses to remain competitive. Consequently,
distributors and retailers are seeking to reduce inventory and inventory
management costs by selecting suppliers that can respond to "just-in-time"
purchasing and "quick response" delivery techniques that enable the distributor
or retailer to better match product inventory to actual customer demand.
Retailers and other vendors also are increasingly demanding that their suppliers
comply with standards for electronic commerce and very specific labeling
requirements.

      As a result of these trends, manufacturers and suppliers are experiencing
significant pressures to satisfy customer demands for improved product delivery
visibility and reduced delivery times. Historically, manufacturers have
organized their businesses primarily to increase manufacturing efficiency and
output. However, as major customers shift the burden of inventory management to
the manufacturer or distributor, manufacturers and distributors have refocused
their business process re-engineering efforts to evaluate the service and value
provided to customers from existing operations and supply chains and are seeking
alternatives for streamlining the supply, warehousing and distribution process.
The need to satisfy customer demand for more effective and efficient order
fulfillment has caused manufacturers and distributors to seek greater
communication, understanding and control over the entire supply chain. This is
necessary to minimize materials inventories, ensure the timing of deliveries
from suppliers, reduce manufacturing cycle times, minimize finished goods
inventories, maximize the efficiency of warehousing and transportation systems
and provide superior response times to customers.

      Retailers, manufacturers and suppliers, and distributors are increasingly
recognizing that significant cost savings can be achieved through warehouse
computerization and automation. An effective warehouse management system will
improve customer service and reduce costs by achieving the following objectives:

      o     Improve Inventory Accuracy. The self-checking nature of an automated
            warehouse management system ensures inventory accuracy and
            eliminates the costly series of manual checks and backtracking that
            results when the inventory on the books and the physical inventory
            in a warehouse do not match. As a result of the poor accuracy in
            traditional printed paper-based warehouses, costly physical
            inventories need be taken to reconcile the system inventory to the
            actual inventory. The inherent accuracy and cycle counting features
            of a warehouse management system can eliminate the need for a
            physical inventory.


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<PAGE>

      o     Reduce Errors. Receiving, stocking and picking errors are common in
            a manual paper-based warehouse. An automated warehouse management
            system is self-checking and ensures virtually 100% accuracy for
            every transaction.

      o     Improve Space Utilization. A warehouse management system tracks all
            warehouse locations and can direct where each product can best be
            stored for maximum space utilization.

      o     Increase Productivity. A warehouse management system maximizes the
            time operators spend adding value to the distribution process,
            filling orders and receiving goods. System direction minimizes
            search time and dispatches operators and pickers to the best task
            given the equipment and current location. A warehouse management
            system also gives the warehouse control of the workload and provides
            visibility into the entire range of tasks that need be performed
            within a given time period.

      o     Improve Labor Management and Reporting. Paperwork in a warehouse for
            picking and stocking drastically hampers productivity. Paperless
            warehouse management system applications provide real-time
            information, reduce the possibility for data entry errors and
            information delays and improve productivity. In addition, a
            warehouse management system has vast reporting capabilities because
            every transaction is recorded. In paper-based warehouses, the only
            method available for tracking productivity and performance is a
            manual log that is time consuming to keep, susceptible to error and
            is only as good as the information each operator provides.

      o     Support Internet Transaction and Electronic Commerce. Trading
            partners are increasingly expecting that systems with which they
            interface will be able to support electronic commerce as well as
            specific labeling and packaging requirements. A warehouse management
            system can provide compliant labeling and the data required to
            support electronic commerce.

      o     Integration. Manufacturers and suppliers require warehouse
            activities to be integrated with their manufacturing, transportation
            and accounting systems and those of their customers. Such levels of
            data processing and system integration require a capable,
            highly-integrated warehouse management system solution.

      The Company believes that the increasing need of manufacturers and
distributors to satisfy customer demand for more effective and efficient order
fulfillment will continue the trend of manufacturers and distributors to seek
the benefits of a state-of-the-art warehouse management system. Additionally,
electronic commerce provides the means for customers, vendors and suppliers to
collaborate and share data to make the supply chain more efficient. The Company
believes that its products are well positioned for the growth in the electronic
commerce market.

Strategy

      The Company's objective is to continue to be a leading provider of
warehouse management software solutions and services, be an integral part of the
E-business/electronic commerce thrust and supply chain market and expand its
presence worldwide. To achieve these objectives, the Company has adopted the
following strategies:

      o     Strategic Alliances. The Company intends to supplement its marketing
            efforts by aligning itself with complementary solutions providers
            and technology partners, such as with E-business providers and
            transportation providers, as well as supply chain management and
            enterprise resource management solutions. Strategic alliances also
            will assist the Company in keeping pace with technological
            developments within the marketplace. Through such alliances, the
            Company expects to gain greater exposure and acceptance of its
            products and services. See "-- Sales and Marketing."

      o     New Product Development. The Company intends to continue to produce
            a quality warehouse management system product that meets client
            expectations in terms of functionality, flexibility,


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<PAGE>

            procurement cost, implementation cost and ongoing maintenance cost.
            The Company believes RIMS meets these expectations and will continue
            to do so as the product evolves. The Company is committed to
            continuous product improvement through a software development
            program that is driven by customer input. The Company intends to
            continue to utilize its industry, customer and supplier
            relationships to keep abreast of emerging standards, protocols and
            application programming interfaces as such trends are introduced and
            gain market acceptance. The Company believes Internet-based
            applications will drive the next significant technology change in
            the warehouse management system industry. The Company believes that
            an event driven, open, world wide web-based, multi-tiered
            application architecture will supplant the traditional rule-based,
            proprietary client/server technology currently employed by its
            competitors. See "-- Products, "-- Third Party Hardware Products,"
            and "-- Product Development." In addition, the Company believes the
            incorporation of certain management decision support tools will make
            the product more unique.

      o     Improve Vertical Market Concentration. By tailoring RIMS to support
            the unique size requirements of certain targeted vertical markets,
            the Company believes it will have a competitive advantage in selling
            to prospective clients regardless of size in the same industry. The
            Company believes the expertise developed in each of these vertical
            markets also will further contribute to its standard RIMS product.
            See "-- Products."

      o     International Expansion. The Company intends to continue to
            establish itself in the international business market. In this
            regard, the Company has established formal relationships with
            distributors in Argentina, Belgium, Israel, Luxembourg, the
            Netherlands and the United Kingdom that are established systems
            integrators with large client bases in their respective regions. The
            Company has established an international sales and support office in
            the Netherlands. The Company intends to establish additional
            international relationships. See "-- Sales and Marketing."

      o     Training, Implementation and Support. A key to the success of a
            warehouse management system supplier is its ability to provide the
            necessary services and expertise required to effectively implement a
            complex warehouse management system. The Company believes the
            efficiency of its implementation process will allow the Company to
            increase sales to prospective clients seeking standard, configurable
            software solutions and enable the Company to increase its market
            share with respect to its competitors. See "-- Service and
            Maintenance" and "-- Sales and Marketing."

Products

      The Company's principal product, RIMS, is a full-featured,
state-of-the-art warehouse management solution. RIMS is a highly scaleable,
highly configurable and flexible product with baseline functionality and
features sufficient for most warehouse installations. The strength of RIMS is
its adaptability to varied environments with little or no modification. In the
United States, RIMS is generally sold as an entire turnkey solution that
provides the Company's clients with the software, services and hardware
necessary for a comprehensive warehouse management system solution.
Internationally, RIMS is generally sold to clients via distributors and
implemented by distributors and/or implementers.

      The Company also markets pre-configured versions of RIMS that are
specifically targeted to various vertical markets such as food distribution,
medical and automotive. These pre-configured versions use the basic RIMS system
as the core with additional industry-specific features and functions.

      As a standard, "off-the-shelf," highly-configurable software system, RIMS
is designed to be deployed in approximately four months and to achieve
measurable cost savings for clients. The efficiency of implementing the
Company's software solutions results from the open systems architecture of RIMS,
which runs on various operating platforms (most notably Unix, Linux and NT), has
a "Windows or screen" configurator and uses either Oracle or Progress database
management system software. The Company believes its clients recognize cost
savings throughout the warehousing and distribution processes as a result of
increases in worker productivity, efficiencies in


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<PAGE>

space utilization, increases in inventory accuracy due to lot number controls,
product expiration date controls and product serialization controls, and the
elimination of costly shipping errors through the use of bar code technology.

      RIMS. RIMS is a responsive software application designed to manage an
entire warehouse operation. As a user configurable solution, RIMS incorporates
numerous warehousing practices and strategies as standard capability. RIMS is an
open systems solution that is not restricted to any particular equipment or
computer system. As such, the application software has been installed on
numerous hardware platforms and database management systems. RIMS can interface
with an organization's current materials handling equipment and is easily
integrated with customer or third party purchasing, electronic data exchange,
bar coding, accounting, manufacturing resource planning ("MRP") and enterprise
resource planning ("ERP") applications. RIMS also utilizes radio frequency
communications and bar coding to provide real-time management, validation and
tracking of all warehouse activities. RIMS directs personnel and equipment and
manages the inventory, space, labor and equipment in the warehouse in an
efficient and cost effective manner.

      RIMS is a comprehensive application that manages the receiving, put away,
outbound order processes, and general warehouse operations. With each warehouse
process, RIMS provides a variety of tactical choices that can be user defined to
a client's specific requirements and needs and that are designed to maximize
efficiency. Major system functions include:

      o     Internet and Intranet Ready. The product has been engineered using
            Internet and intranet compatible technologies and standards.
            Warehouse users and authorized trading partners can access warehouse
            data (e.g. shipment details or inventory levels) either in real-time
            local access, via the World Wide Web or via telnet remote access.

      o     Receiving. The receiving process provides control over the receipt
            of inventory through scanning the bar codes of incoming product to
            ensure accuracy of inventory in the warehouse. This process
            facilitates the matching of purchase orders, transfer orders,
            advanced shipping notices and customer returns. The receiving
            process supports pre-storage activities, such as returned goods
            processing and quality assurance inspection.

      o     Putaway Process. The putaway process ensures that all inventory is
            stored in the most efficient location available based on
            pre-configured management strategies. The Company or the client will
            configure the system to implement the client's unique business
            demands, assigning locations based on the client's parameters with
            consideration given to product characteristics, product velocity,
            demand codes, delivery and shipping requirements, storage devices
            and cross-docking strategies.

      o     Picking and Shipping. The RIMS outbound order process analyzes each
            order to determine the most efficient packing, loading and shipping
            procedures. The order processing function is configured to match
            each client's management strategies. The outbound order process
            includes, among other features, order selection, allocation,
            picking, loading and shipping.

      o     Management. The general warehouse operations process manages the
            availability of space and the movement of warehouse personnel,
            inventory and material handling equipment through information shared
            by management and warehouse employees. The real-time information and
            product flexibility allows a client to test or implement different
            strategies to maximize productivity and efficiency. The system
            allows clients to combine multiple tasks into a single job
            assignment, such as grouping a put-away and picking assignment into
            one trip. RIMS facilitates cycle counting, automatic replenishment,
            product moves, inventory control and consolidation, labor tracking,
            system security, space utilization, vehicle management and
            rewarehousing.

      o     Standard Interfaces. The Company has developed standard, certified
            interfaces to two leading ERP products: MFG/PRO (QAD) and R/3 (SAP).
            These interfaces will enable users of these ERP products to
            seamlessly benefit from RIMS warehouse management.


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<PAGE>

Service and Maintenance

      In addition to licensing of RIMS, the Company provides its clients with a
wide range of services that include:

      o     Computer software and hardware configuration services
      o     Operational process review and consultation
      o     Project management of the implementation
      o     Implementation support
      o     Configuration and user training
      o     Customization
      o     Material handling and facility layout consulting
      o     Software and hardware maintenance services.

      With a goal of total client satisfaction, the Company offers a structured
program that typically lasts four to six months and begins with the development
of joint business scenarios between the Company and its client. This program
includes configuration of the software and hardware, configuration training, a
prototype "pilot training" program, project management and implementation
support services. These programs facilitate and integrate the skill of the
Company into the client's processes and operations resulting in a modeling of
the client's warehouse management operations. The outcome of this program is the
early identification of client operating issues prior to client implementation.
In addition, this program aids in the development of standard warehouse
operating procedures for the client. The Configuration course explains basic
RIMS terminology and methodology related to system configuration and setup. The
Company provides management and installation of operating systems, hardware,
networks, communication links and relational database management tools. Standard
user training for RIMS includes a Supervisors' course that provides supervisory
warehouse management training that is necessary to effectively control and
monitor the warehouse facility and an Operators' course that is a hands-on
training course for warehouse workers concentrating on the execution of RIMS
related tasks. In addition, curricula include a post-implementation class and an
audit of client operational procedures after implementation. Customized courses
are also made available on request. A Train-the-Trainer course provides
information and materials to third-party trainers who will perform the future
RIMS training.

      The Company offers turnkey maintenance services for the RIMS software,
third party software and certain hardware components of the system under a
separate maintenance agreement. Maintenance agreements are typically initiated
at the time of implementation, are renewable annually, and entitle the client to
telephone support, software upgrades, installation assistance and priority
problem resolution, including software fixes. Maintenance fees are typically a
percentage of the license fees (excluding hardware), with additional fees for
extended hours. If elected by the client, maintenance support is offered
24-hours per day, seven days per week. In the event a client does not enter into
a maintenance agreement with the Company, it would still be entitled to software
fixes for reported problems during the first year of its system's installation
pursuant to the one-year warranty provided to the Company's clients in the end
user contract; however, to date, all RIMS clients have entered into a
maintenance agreement with the Company after system implementation.

      In those cases in which the standard RIMS product cannot meet the client's
needs, the Company can enter into contracts to perform certain modifications to
the baseline product.

Third Party Hardware Products

      The Company's RIMS products use an open architecture that enables clients
to use various operating systems, operate on multiple hardware platforms and
inter-operate with many third party software applications and legacy systems.
This open system capability enables clients to continue using their existing
computer resources and to choose among a wide variety of existing and emerging
computer hardware and peripheral technologies.


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<PAGE>

      In conjunction with domestic sales of RIMS, the Company offers for resale
a variety of hardware products developed by third parties, including computer
hardware, radio frequency terminal networks, bar code printers and scanners, and
other peripherals. The Company resells all third-party products pursuant to
agreements with the products' manufacturers or through distributor authorized
reseller agreements pursuant to which the Company is entitled to purchase
products at discount prices and to receive technical support in connection with
product installations and subsequent product malfunctions. The RIMS
hardware-related agreements generally permit the Company to resell the
third-parties' products to any RIMS user in the United States. The Company
anticipates that its foreign distributors or other third party vendors will sell
any hardware or peripherals required in connection with the sale of RIMS outside
of the United States.

Clients

      The Company targets its marketing efforts primarily on manufacturers,
distributors, retailers and wholesalers in the food processing, consumer
products, petro chemical products, public utilities and pharmaceutical sectors,
as well as other high-volume wholesalers.

      Client orders for the Company's RIMS products over the last three fiscal
years have ranged from approximately $50,000 to over $1 million. Due to the size
of most orders and the need for differing amounts of modification for each
installation, the Company historically has obtained orders from a relatively
small number of new clients each fiscal quarter. As a result, individual clients
have often accounted for more than 10% of total revenues in a particular fiscal
period. For each of the fiscal years ended May 31, 1999, 2000 and 2001, the
Company had one client that accounted for approximately 10.3%, 26.5% and 13.8%
of total revenues, respectively. Because of the nature of the Company's business
operations, the Company anticipates that the number of clients that account for
more than 10% of total revenues for a fiscal period will vary from period to
period depending on the status and timing of significant orders by a particular
client or clients in any given fiscal period.

Sales and Marketing

      The Company currently markets its products and services primarily through
a direct sales force in North America and directly and indirectly in other parts
of the world. The Company conducts marketing and sales programs that include
strategic partner development, public relations, direct mail, advertising,
seminars, trade shows and ongoing client communications programs. Sales and
marketing personnel are located at the Company's headquarters in Massapequa, New
York. The Company has an international sales and support office in Amsterdam,
Netherlands that seeks viable distributors in its region of operation and
technically supports RIMS products.

      The Company obtains sales leads through partners, advertising, seminars,
trade shows and relationships with industry consultants and other key players. A
typical sales cycle begins with the generation of a sales lead or the receipt of
a Request For Proposal ("RFP") from a prospective client or his representative.
After qualification of the sales lead and analysis of the prospective client's
requirements, a formal proposal in response to the RFP is prepared. The proposal
generally describes how RIMS is expected to meet the RFP requirements and
associated costs. Product demonstrations are often conducted at the prospective
client's facilities using realistic data and scenarios. Site visits to other
RIMS installations are also encouraged by the Company's sales staff. While the
sales cycle varies substantially from opportunity to opportunity, it typically
ranges from six months for a standard system and from six to 12 months for a
system requiring substantial modification.

      The Company has developed a standardized, comprehensive and detailed
implementation plan to guide new clients smoothly from contract signing to
system startup. The Company's project managers utilize this methodology to
ensure that projects are completed effectively and within budget. Depending on
the experience level of the client and the ease of host integration, a first
time client will be placed on a plan that ranges from 16 to 24 weeks after to
contract signing. Subsequent sites can typically be implemented four to eight
weeks apart.

      The Company intends to supplement its marketing efforts by aligning itself
with complimentary solutions providers and technology partners. Strategic
alliances also assist the Company in keeping pace with technological


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<PAGE>

developments of the major software and hardware vendors and, in certain
instances, provide the Company with product development services. The Company
has entered into a strategic alliance with QAD, Inc., the developer of the
MFG/PRO ERP system. This relationship includes co-marketing and
technology-sharing arrangements, and provides the Company access to a very large
existing client bases. Purchasers of the MFG/PRO ERP system may be linked to
RIMS through an application program interface module that contains software of
the Company as an integral component. In addition, the Company has entered into
a Solutions Integrator Agreement with Symbol Technologies, Inc. as an authorized
reseller of its products and licensed software.

      The Company markets RIMS through resellers located in the Argentina,
Belgium, Israel, Luxembourg, the Netherlands and the United Kingdom. The
Company's resellers are established systems integrators with large client bases
in their respective regions. The Company's agreements with such resellers are
not exclusive. The Company intends to establish additional non-exclusive
international resellers in Europe.

      For the fiscal years ended May 31, 1999, 2000, and 2001, approximately
10.3%, 5.9%, and 16.8%, respectively, of the Company's revenues were generated
outside the United States. The Company expects that international sales will
increase as the Company adds additional international resellers. There are a
number of risks inherent in the Company's current and proposed international
business activities. There can be no assurance that such factors will not have
an adverse effect on the ability of the Company to increase revenues from future
international sales and, consequently, on the Company's results of operations.

Product Development

      The Company seeks to offer an extensive, integrated product line that
provides complete warehouse management functionality to warehouses worldwide. To
effect this strategy, the Company intends to continue to introduce new modules,
upgraded functionality and enhancements to existing products.

      The Company, through its development and support personnel, works closely
with its clients and prospective clients to determine their requirements and to
design enhancements and new products to meet client needs. Using input from the
user community, the Company's steering committee will select suitable
enhancements for inclusion in future releases of RIMS. Product improvements are
often initiated by client-funded modifications that can be incorporated into the
standard package. Clients benefit by funding enhancements that improve the
baseline product through lower maintenance costs and future ability to upgrade.
All Company product development is performed by its employees. The Company's
capitalized software development costs were $1,309,213, $1,261,600 and $494,669
in fiscal 1999, 2000 and 2001, respectively.

      The Company plans to undertake continuous product improvement to ensure
competitiveness. New modules and features are constantly being added to the
product. In August 1997, the Company released the first pre-configured RIMS
system for the food industry (RIMS.Food). In May 1998, the Company released
Version 3.5, which features wave planning, standard conveyor/sortation interface
and modules for picking production materials and bulk receiving. In April 1999,
the Company released Version 4.0 which, based on Internet technology, enables
authorized users to monitor and manage their warehouses and enables supply chain
partners to access order and shipment status in real time for the cost of an
Internet connection. Version 4.0 provides Internet functionality with Microsoft
Windows NT compatibility while maintaining compatibility with UNIX. In December
1999, the Company released Version 4.2, which enables users to manage and
operate their warehouses using an easily managed web browser interface on either
a corporate Intranet or the Internet without the need for additional software.
This new Data View technology provides secure, real-time visibility and access
directly into a RIMS warehouse.

      The Company is continuing its software development efforts by designing
enhancements to RIMS using Internet technology that focuses on the Java
programming language and Extensible Markup Language (XML). By incorporating this
technology into RIMS, authorized users and their supply chain applications on
the World Wide Web are able to access and manage a RIMS controlled warehouse
from anywhere on the Internet. For example, a RIMS client is able to permit its
authorized users to access its RIMS data repository via the Internet, which will
reduce the burden on its own customer service department because the status of
orders and the location of inventory


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<PAGE>

for an order may be monitored directly by the authorized user (i.e., a retail
client or plant manager). Protection of the client's data and restriction of
unauthorized access are provided within the RIMS system using standards-based
authorization and encryption. Scalability and ease of maintenance are additional
benefits of this architecture. The first Internet- and intranet-based, Windows
NT enabled RIMS Version was released in April 1999 as Version 4.0. Version 4.2,
which provides additional Internet- and intranet-based capabilities, was
released in December 1999, and Version 4.3 was released in July 2000. RIMS
Version 4.3 features multiwarehouse functionality, a yard management system for
inbound trucks and a link to a transportation management system (TMS). RIMS
Version 4.3 also highlights tasks interleaving and new system directed RF task
for increased operator productivity. During Fiscal 2001, additional features
were added to RIMS 4.3, including batch picking, cycle counting by item
velocity, and an interface to external systems structured around the technology
of Extensible Markup Language (XML). RIMS.alert, an event-driven tool that
employs XML technology to trigger electronic mail messages to subscribers, was
released in May 2001 and can be integrated with a customer's RIMS application or
implemented independently.

      The Company intends to continue development of enhancements and to explore
new opportunities as they relate to the acceleration of electronic commerce over
the Internet. New products that extend the capabilities of a traditional
warehouse management system to enhance a user's position in the supply chain,
such as transportation management, sharing data with trading partners, and
decision support tools, are typical applications of this technology. In
addition, the Company intends to continue to develop certified interfaces with
complementary third-party products, including leading ERP products.

      There can be no assurance that the development of these product
enhancements will be completed successfully or that they will include the
features required to achieve market acceptance. The introduction of each new
release of RIMS has resulted in enhancements of earlier releases as the new
releases offer improved features and functionality over prior versions. At the
present time, the Company offers maintenance services for earlier releases of
RIMS, the obsolescence of earlier releases has not had and is not expected to
have a material impact on the Company's results of operations or financial
condition. Delays or difficulties associated with introductions of new features,
modules and products could have a material adverse effect on the Company's
business, results of operations or financial condition.

Competition

      The market for warehouse management and distribution software and related
services is very competitive and is characterized by rapid changes in technology
and user needs and the frequent introduction of new products and product
enhancements. The Company's competitors and potential market entrants range from
small, privately-held firms to large national and international organizations
with more extensive technical staffs and technological resources, larger
marketing and sales organizations, and greater financial resources than the
Company. The Company also competes with software applications developed by the
internal management information system departments of its potential clients. The
Company, however, believes that potential clients increasingly will purchase
software applications from outside vendors, including the Company, due to high
development costs, poor support, the lack of comparable functionality,
inconsistent or delayed development schedules and lack of programming talent
within most organizations.

      The Company believes that historically the market for warehouse management
and distribution software could be characterized by the size of the client or
the complexity of the client's warehouse handling environment. Competitors in
the high end of the market offered turnkey systems that typically integrated all
aspects of software, hardware and services related to the warehouse management
system, including electronic commerce functionality, real-time labor management
functionality, labor planning, tracking and management functionality, integrated
host system communications, modular software development, material handling
device control, automated storage equipment control, inbound/outbound traffic
management, and full receiving, putaway/storage, order processing, picking,
shipping, inventory control and management reporting functionality. Middle
market competitors differ from high end competitors primarily by offering
systems with limited hardware flexibility, little or no management, labor and
storage reporting, little or no radio frequency functionality and reduced
hardware and software costs. Middle market systems generally provide excellent
tracking and control, but do not actively help to manage the warehouse
operation. At the lower end of the market, competitors tend to specialize in a
specific aspect of warehouse


                                       8
<PAGE>

functionality, such as receipts tracking, warehouse data collection tasks or
carousel control, and have smaller technical and development staffs.

      The Company believes that, unlike most of its competitors, it can compete
effectively in both the high end and middle segments of the market due to the
scaleability, flexibility, configurability, functionality and price of RIMS. The
Company has a large number of competitors in these markets and believes that its
primary competitors in these markets are McHugh Freeman and Associates,
Manhattan Associates, EXE Technologies, Inc. and Catalyst International, Inc.,
each of which provides complete warehouse management and distribution software.
In addition, certain well-known computer manufacturers and software developers,
such as SAP AG, J.D. Edwards & Co., Great Plains Software Inc. and PeopleSoft,
Inc., offer integrated manufacturing or accounting software packages that
include a warehouse management component. Many of the Company's competitors have
greater name recognition, more extensive engineering, management and marketing
capabilities and significantly greater financial, technological and personnel
resources than the Company.

      Over the last few years, as software developers began to develop software
for more than one client in the same industry, the market for warehouse
management systems has increasingly been characterized by the industry in which
the client competes. By easily tailoring RIMS to support the unique features of
certain targeted markets, the Company believes it will have a competitive
advantage in selling prospective clients in the same industry in which similar
functionality and implementation issues arise.

      The Company believes that the competitive factors affecting its markets
include features such as compatibility with electronic commerce, openness,
scalability, ability to integrate with third party products, functionality,
adaptability, ease of use, product reputation, quality, performance, price,
client service and support, effectiveness of sales and marketing efforts and
company reputation. Although the Company believes that it currently competes
favorably on most factors, there can be no assurance that the Company can
maintain its competitive position against current and potential competitors,
especially those with greater financial, market presence, product functionality
and/or other resources than the Company.

Proprietary Rights, Licenses and Pricing

      The Company relies on a combination of contract, copyright, trademark and
trade secret laws, and other measures to protect its proprietary information.
The Company does not have any software patents or patent applications. Trade
secret and copyright laws afford only limited protection. The Company believes
that, because of the rapid pace of technological change in the computer software
industry, trade secret and copyright protection are less significant in
affecting the Company's business, results of operations or financial condition
than factors such as the knowledge, ability and experience of the Company's
employees, frequent product enhancements and timeliness and quality of support
services.

      The Company sells its products to its clients under a non-transferable
perpetual license. The Company generally licenses its products solely for the
clients' internal operations and only at designated sites. The Company also
makes available multi-site licenses. Multi-site licenses are discounted from the
first license fee for the second site and beyond. Licensing of RIMS is based on
the number of concurrent users.

      The Company does not provide source code to the client under its licenses.
The Company believes that providing source code increases the likelihood of
misappropriation or other misuse of the Company's intellectual property. The
Company has, however, entered into source code escrow agreements with certain
clients whereby, under certain circumstances, source code is made available to a
client. This is a common practice in the software industry. Under the terms of
the Company's license agreements, the Company generally owns all modifications
to its software that are implemented for a client.

      The Company is not aware of any case in which its products, trademarks or
other proprietary rights infringe the property rights of third parties, but has
not performed any independent investigations to determine whether such
infringement exists. Accordingly, there can be no assurance that third parties
will not assert infringement claims against the Company in the future with
respect to current or future products or that any such assertion may not require
the Company to enter into royalty arrangements or result in litigation. As the
number of software products in


                                       9
<PAGE>

the industry increases and the functionality of these products further overlap,
the Company believes that software developers may become increasingly subject to
infringement claims. Any such claims, with or without merit, can be time
consuming and expensive to defend.

Employees

      As of August 31, 2001, the Company had 22 employees, of which three were
employees primarily in management and administration, eight in product
development, one in software services, eight in client support, and two in sales
and marketing. The Company's employees are not represented by any collective
bargaining organization and the Company has never experienced a work stoppage.
The Company considers its relations with its employees to be satisfactory.

Item 2. Description of Property.

      The Company's headquarters are located in Massapequa, New York in
approximately 10,000 square feet of office space that is leased from Robocom
Properties, Inc., a corporation of which the principal shareholders are
currently officers or directors of the Company. See "Item 12. Certain
Relationships and Related Transactions". The annual rental on the corporate
headquarters is $183,276 (excluding operating expenses, insurance, property
taxes and assessments), subject to increases based upon fluctuations in the
prime rate, as published in the Wall Street Journal. The lease expires on
December 31, 2010.

      The Company also leases approximately 2,000 square feet in Teaneck, New
Jersey. The lease expires on January 1, 2002 and may be extended by the Company
for an additional five-year period. Effective August 1, 2000, the Company has
subleased this facility in its entirety to an unaffiliated party.

      The Company also leases approximately 1,300 square feet in Hoofddorp in
the Netherlands. The lease expires on April 30, 2003, and may be extended by the
Company for an additional five-year period. The lease has an annual rental rate
of approximately $10,000 (excluding operating expenses and insurance).

      The Company believes that its existing facilities are sufficient for its
current operations.

Item 3. Legal Proceedings.

      The Company is not a party to any material legal proceeding.

Item 4. Submission of Matters to a Vote of Security Holders.

      No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 2001.


                                       10
<PAGE>

                                     Part II

Item 5. Market for Common Equity and Related Shareholder Matters.

      The Company's Common Stock has been listed on The Over-the-Counter
Bulletin Board since April 5, 2001 under the symbol RIMS. From January 25, 1999
to April 4, 2001, the Company's Common Stock had been listed on The Nasdaq
SmallCap Market under the same symbol. From June 26, 1997, the date of the
initial public offering of the Common Stock, to January 25, 1999, the Common
stock had been listed on The Nasdaq Stock Market. The following table represents
the high and low price information for the Company's Common Stock for each
quarterly period in fiscal 2001, 2000 and 1999.

<TABLE>
<CAPTION>
                                         Fiscal 2001               Fiscal 2000              Fiscal 1999
                                    --------------------       ------------------       ------------------
                                      High           Low         High         Low         High         Low
                                      ----           ---         ----         ---         ----         ---
<S>                                 <C>           <C>          <C>         <C>          <C>         <C>
Quarter ended August 31             $3.750        $1.438       $3.000      $1.250       $4.500      $2.750
Quarter ended November 30            2.188         0.688        2.313       1.313        3.000       0.625
Quarter ended February 28            0.938         0.219        4.625       1.063        2.250       1.000
Quarter ended May 31                 1.000         0.270        9.938       1.875        3.000       1.313
</TABLE>

      Quotations listed above since April 5, 2001, the date on which the
Company's Common Stock was first listed on the Over-the-Counter Bulletin Board,
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not represent actual transactions.

      As of September 30, 2001, there were 4,495,984 shares of the Company's
Common Stock outstanding held by approximately 33 shareholders of record.

      The Company does not currently pay dividends on its Common Stock. It is
management's intention not to declare or pay dividends on the Common Stock, but
to retain earnings, if any, for the operation and expansion of the Company's
business.

      During fiscal 2000, the Company raised aggregate net proceeds of
approximately $1,271,000 in a private placement offering of its Common Stock,
primarily with a group of the Company's founders and executive management team.
In exchange for the net proceeds, 1,028,000 shares of Common Stock were issued,
together with five-year warrants to purchase up to 385,500 shares of Common
Stock at exercise prices ranging from $1.50 to $4.00 per share.


                                       11
<PAGE>

Item 6. Management's Discussion and Analysis or Plan of Operation.

      Certain statements in this Report constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Factors
that might cause such a difference include, among others, uncertainties relating
to general economic and business conditions; industry trends; changes in demand
for the Company's product; uncertainties relating to client plans and
commitments and the timing of orders received from clients; announcements or
changes in pricing policies by the Company or its competitors; unanticipated
delays in the development, market acceptance or installation of the Company's
products; availability of management and other key personnel; availability,
terms and deployment of capital; relationships with third-party equipment
suppliers; governmental export and import policies; global trade policies; and
worldwide political stability and economic growth. The words "believe",
"expect", "anticipate", "intend" and "plan" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date the statement
was made.

Overview

      The Company's principal activities include marketing and support of
comprehensive warehouse management software systems. The Company licenses its
RIMS warehouse management systems; it provides related services (including
customization and modification, project management, training and implementation)
and maintenance support; and it sells related third-party hardware products.
Prior to fiscal 1997, the Company's revenues were principally derived from
highly-customized RIMS warehouse systems and adaptations that required
substantial modifications to meet the functionality required by clients. Over
the past four fiscal years, the Company's has replaced virtually all of the
customized revenues with revenues from the sale of the Company's standard RIMS
warehouse management software system. As a result, the Company's future
operating results are significantly dependent upon continued market acceptance
of RIMS and enhancements thereto. In addition, since a substantial portion of
the Company's revenues in any fiscal period are derived from relatively few
sales of RIMS, both the number of new sales of RIMS and the timing of orders
for, and installations of, new systems in any fiscal period, has caused and is
expected to continue to cause, significant fluctuations in revenue from period
to period.

      The Company's revenues are derived from software license fees, fees for
services, sales of hardware and maintenance fees. Software license fees include
revenue from the licensing of the Company's proprietary RIMS software and, to a
limited extent, revenue from the sublicensing of certain third-party software.
Software license fee revenue is recorded when the software has been delivered,
the license agreement with the client has been executed and collection of the
resulting receivable is deemed probable. Service revenues are derived from
project management, customization and modification of licensed software,
training, on-site support and implementation services. Service revenues are
recorded when the service is performed. Hardware revenues are derived from the
Company's resale of a variety of third-party hardware products on behalf of
other manufacturers, including computer hardware, radio frequency equipment, bar
code printers and other peripherals. Such revenues are recognized when the title
to such hardware passes to the client. Clients typically enter into one-year
maintenance agreements with the Company upon the completion of the software
utilization and pay maintenance fees annually or monthly in advance. The Company
recognizes revenue from each maintenance agreement ratably over the period
covered by the agreement, but is only required to perform maintenance services
as and when the client requests them. Historically, all of the Company's RIMS
clients have entered into, and substantially all of the Company's RIMS clients
have renewed, maintenance agreements with the Company.

      Prior to fiscal 2000, the Company's total revenues in any period had
become less dependent upon a relatively small number of large sales. However,
during fiscal 2000, the Company experienced two anomalies. First, in the fall of
1999, the Company executed a $4 million contract with one customer. In addition,
during fiscal 2000, the Company experienced fewer sales of RIMS due to the year
2000 slowdown. This combination resulted in fewer new customer installations in
fiscal 2000, while the significant contract with one customer contributed
significantly to revenues. Revenues from the Company's five largest clients in
each of fiscal 1999, 2000 and 2001 accounted for


                                       12
<PAGE>

approximately 33%, 45% and 38% of total revenues, respectively. The 2001 general
economic slowdown has further affected the Company sales.

      Costs of revenues represents the cost of software modification, system
implementation and other services, hardware and maintenance support. Costs of
services and costs of maintenance consist primarily of labor costs for client
support, including personnel costs, and costs relating to subcontracted services
and overhead. Typically, costs of maintenance associated with the Company's
standard maintenance contract decrease over the life of the maintenance
contract. The number of programmers and service and support personnel employed
by the Company was 29 at May 31, 1999 and 2000, and 21 at May 31, 2001.
Programmers also function as engineers in the development of software, as
described below. Cost of hardware consists primarily of the cost of hardware
sold by the Company on behalf of other manufacturers.

      Amortization of software development costs consists of the amortization of
costs of engineering personnel and related development expenses, such as the
development of software tools and documentation, capitalized starting at the
point technological feasibility is demonstrated. The Company believes that a
significant level of investment in software development is essential to achieve
and maintain a market leadership position. The Company capitalized $1,309,213,
$1,261,600 and $494,669 in fiscal 1999, 2000 and 2001, respectively, for
software development costs. Research and development costs for these periods
were not significant. The Company employed 17, 14 and 13 software development
employees at May 31, 1999, 2000 and 2001, respectively, some of which also
functioned as programmers for the installation or modification of the Company's
software. Amortization of software development costs has increased primarily due
to the commencement of amortization of capitalized software development costs
for RIMS Version 3.5 in May 1998, and Version 4.0 in April 1999, Version 4.2 in
December 1999, and Version 4.3 in July 2000, the months in which such versions
were first available for sale. RIMS has been technologically feasible since 1992
and saleable since the beginning of fiscal 1995. The Company's past, current and
planned product development efforts are directed at enhancing and improving
RIMS. Version 4.0, based on Internet technology, enables authorized users to
monitor and manage their warehouses and enables supply chain partners to access
order and shipment status in real time, for the cost of an Internet connection.
Version 4.0 provides Internet functionality with Microsoft Windows NT
compatibility while maintaining compatibility with UNIX. Version 4.2 provides
additional Internet- and intranet-based capabilities. New features in RIMS
Version 4.3 include multiwarehouse functionality, a yard management system for
inbound and outbound trucks and a link to a transportation management system
(TMS). The Company anticipates that the dollar amount of the costs capitalized
will decrease during fiscal 2002. As a percentage of total revenue, however, the
Company anticipates that amortization of software development expenses will
decrease as revenues increase.

      Selling, general and administrative expenses consist primarily of salaries
for sales, marketing, administrative, executive and financial personnel,
commissions paid to sales personnel, and travel and promotional expenses. The
sales and marketing, general and administrative staff consisted of 21, 20 and 10
employees at May 31, 1999, 2000 and 2001, respectively. The Company anticipates
that such expenses will decrease as a percentage of total revenues as revenues
increase.

New Strategy and Restructure of Operations

      In July 2001, the Company implemented a new strategy to improve its
financial position that significantly increases its emphasis on strengthening
its relationships with existing customers in an effort to increase revenues from
new modifications to RIMS and additional training and consulting services, while
continuing to seek new customers. As existing customers upgrade to the latest
version of RIMS, Version 4.3, the Company intends to more aggressively market
additional implementation services, new state-of-the-art hardware, as well as
its new RIMS.alert product. The Company also has begun to offer additional
maintenance services for its existing customers' computer systems
administration. Management anticipates that these additional services and
product sales, as well as sales to new customers, will increase maintenance
revenues.

      In addition, the Company intends to continue the advancement of its RIMS
product by developing new features and accessory software directly related to
RIMS. It has discontinued the development of non-RIMS related products.


                                       13
<PAGE>

      The Company's shift in strategy was accompanied by a restructuring of its
operations to more closely align operating costs with revenues. During fiscal
2001, the Company sold its computer systems network and office hardware
division. In July 2001, the Company took actions designed to reduce selling,
general and administrative expenses. The majority of these cost reductions were
attributable to a workforce restructuring that eliminated 11 positions, which
represented approximately 30% of the workforce at that time, including all
software developers and support staff in non-RIMS related areas. In addition,
overhead expenditures were reviewed and reduced, resulting in additional cost
savings.

Results of Operations:

      The following table sets forth, for the periods indicated, certain
statement of operations data:

                                 (In thousands)

<TABLE>
<CAPTION>
                                                      Year ended May 31,
                                              ----------------------------------
                                                1999         2000         2001
                                              -------      -------      -------
<S>                                           <C>          <C>          <C>
Revenue:
   Software license fees ................     $ 1,166      $   916      $   685
   Services .............................       2,802        1,733        1,313
   Hardware .............................       2,301        2,804          440
   Maintenance ..........................       1,276        1,310        1,399
                                              -------      -------      -------
   Total revenues .......................       7,545        6,763        3,837
                                              -------      -------      -------

Cost of revenue:
  Cost of license fees ..................         280          161           80
  Cost of services ......................       1,511        1,255          871
  Cost of hardware ......................       1,924        2,128          285
  Cost of maintenance ...................       1,193        1,012        1,239
                                              -------      -------      -------
  Total cost of revenues ................       4,908        4,556        2,475
                                              -------      -------      -------

Amortization of software
  development costs .....................       1,085        1,477        2,072
                                              -------      -------      -------
Gross margin ............................       1,552          730         (710)
Selling, general and administrative
  expenses ..............................       3,799        3,673        2,332
                                              -------      -------      -------
Loss from operations ....................      (2,247)      (2,943)      (3,042)
Interest (income) expense, net ..........         (85)         (46)          17
                                              -------      -------      -------
Loss before income taxes ................      (2,162)      (2,897)      (3,059)
Benefit of income taxes .................        (678)          --          (44)
                                              -------      -------      -------
Net loss ................................     $(1,484)     $(2,897)     $(3,015)
                                              =======      =======      =======
</TABLE>

Comparison of Fiscal Years Ended May 31, 2000 and May 31, 2001

      Revenue. Total revenue decreased from $6,762,891 in the year ended May 31,
2000 to $3,836,741 for the year ended May 31, 2001. Software license fees
decreased by approximately 25% in fiscal 2001 as compared to fiscal 2000,
primarily due to the sale of domestic licenses to one customer with a large
number of users during the 2000 period. Services revenues decreased by
approximately 24% in fiscal 2001 as compared to fiscal 2000, primarily due to
the cessation of installations of computer systems networks and office software
in the 2001 period, and, to a lesser extent, lower services revenues from
services related to installations. Hardware revenues decreased by approximately
84% in fiscal 2001 as compared to fiscal 2000, primarily due to a significant
sale of hardware to one customer during the 2000 period, in addition to the
cessation of sales of computer systems network and office hardware in the
earlier part of the 2001 period. Maintenance revenues increased by approximately
7% in fiscal 2001


                                       14
<PAGE>

as compared to fiscal 2000, due to a larger number of maintenance contracts in
operation in the 2001 period offset, in part, by the election by several
customers to discontinue hardware maintenance on older equipment.

      Cost of Revenues. Total cost of revenues decreased by approximately 45%
from $4,556,178 in fiscal 2000 to $ 2,475,036 in fiscal 2001. As a percentage of
revenue, total cost of revenues decreased from approximately 67% in fiscal 2000
to approximately 65% in fiscal 2001. As a percentage of license fee revenues,
cost of license fees decreased to approximately 12% in fiscal 2001 as compared
to approximately 18% in fiscal 2000. This decrease is primarily due to higher
license fee revenues with no associated third party or distributor fees in the
2001 period as compared to the 2000 period. As a percentage of services
revenues, the cost of services decreased to approximately 66% in fiscal 2001 as
compared to approximately 72% in the 2000 period. This decrease is primarily due
to the cessation of installations of computer systems networks and office
software and the reduction in related personnel in the 2001 period. As a
percentage of hardware revenues, the cost of hardware was lower in fiscal 2001
due to a credit from a hardware supplier for defective equipment. As a
percentage of maintenance revenues, the cost of maintenance was higher in the
2001 period as compared to the 2000 period due to higher maintenance costs
relating to RIMS Version 4.3, which was released in the 2001 period, offset, in
part, by a larger number of maintenance contracts in operation in the 2001
period.

      Amortization of Software Development Costs. Amortization of software
development costs increased by approximately 40% from $1,476,708 in fiscal 2000
to $2,071,718 in fiscal 2001. The increase was due to the inclusion of
amortization of capitalized software development costs for RIMS Version 4.3 in
the 2001 period, as well as the write down of certain non-core products that are
no longer emphasized. As a percentage of revenue, the amortization of software
development costs was approximately 22% in fiscal 2000 and approximately 54% in
fiscal 2001.

      Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by approximately 35% from $3,673,533 in fiscal
2000 to $2,331,836 in fiscal 2001. As a percentage of revenue, selling, general
and administrative expenses increased from approximately 54% in fiscal 2000 to
approximately 61% for the 2001 period. The increase in selling, general and
administrative expenses as a percentage of revenues is due to lower revenues in
the 2001 period as selling, general and administrative expenses did not result
in attendant increases in revenues. Lower selling, general and administrative
expenses resulted from reductions in the operating costs of the Company's
international offices, professional fees, sales and marketing expenses and the
costs associated with the office that provided the installation of computer
systems networks and office software.

      Interest (Income) Expense, Net. Interest income decreased by $13,956 to
$34,188 in fiscal 2001 as compared to $48,144 in fiscal 2000. The decrease is
primarily due to the reduction of the remaining net proceeds from the Company's
private placement in fiscal 2000, which was utilized for software development
and working capital requirements. Interest expense increased by $49,285 to
$50,996 from $1,711, primarily due to expense incurred in connection with the
outstanding borrowings under the Company's lines of credit during the 2001
period.

      Provision (Benefit) of Income Taxes. In fiscal 2001 and 2000, no net
deferred tax expense was recorded as the Company continued to record a valuation
allowance to reserve for the net deferred tax asset. The valuation allowance at
May 31, 2000 and 2001 was provided because of uncertainty, based on the
Company's historical results, with respect to realization of deferred tax
assets. The benefit of income taxes of $44,139 in the 2001 period consisted of a
reduction of the prior years liability related to software costs.

Comparison of Fiscal Years Ended May 31, 1999 and May 31, 2000

      Revenue. Total revenue decreased from $7,544,989 in the year ended May 31,
1999 to $6,762,891 for the year ended May 31, 2000. Software license fees
decreased by approximately 21% in fiscal 2000 as compared to fiscal 1999,
primarily due to this slowdown. The Company believes its fiscal 2000 results
were greatly affected by the year 2000 slowdown in sales of software. In
particular, international sales were less than 6% of revenues whereas in the
past two fiscal years, international sales accounted for approximately 10% of
revenues. Services revenues decreased by approximately 38% in fiscal 2000 as
compared to fiscal 1999, primarily due to lower revenues from services provided
for fewer installations of RIMS software as a result of the slowdown in new


                                       15
<PAGE>

contracts, and to a lesser extent, fewer installations of computer systems
networks and office software in the 2000 period. Hardware revenues increased by
approximately 22% in fiscal 2000 as compared to fiscal 1999, primarily due to
increased sales of RIMS-related hardware in the 2000 period. Maintenance
revenues increased by approximately 3% in fiscal 2000 as compared to fiscal
1999, due to the increased number of sites under maintenance offset, in part, by
lower hardware related maintenance revenues in the 2000 period due to the
election by several customers to discontinue hardware maintenance on older
equipment.

      Cost of Revenues. Total cost of revenues decreased by approximately 7%
from $4,907,471 in fiscal 1999 to $4,556,178 in fiscal 2000. As a percentage of
revenue, total cost of revenues increased from approximately 65% in fiscal 1999
to approximately 67% in fiscal 2000. As a percentage of license fee revenues,
cost of license fees decreased to approximately 18% in fiscal 2000 as compared
to approximately 24% in fiscal 1999. This decrease is primarily due to higher
license fee revenues with no associated third party software fees in fiscal
2000. As a percentage of services revenues, the cost of services was
significantly higher in fiscal 2000 as compared to fiscal 1999, primarily due to
lower billable support and installation services as a result of the slowdown in
new contracts. As a percentage of hardware revenues, the cost of hardware was
lower in fiscal 2000 due to increased sales of the lower-cost RIMS related
hardware and significantly lower sales of higher cost hardware related to
computer systems networks in the 2000 period. As a percentage of maintenance
revenues, the cost of maintenance was significantly lower in the fiscal 2000
period due to a larger number of maintenance contracts in operation in the 2000
period, improved quality control procedures prior to product release and lower
costs associated with maintaining older versions of RIMS. In the 1999 period,
several RIMS versions and language translations had been released that required
higher initial maintenance.

      Amortization of Software Development Costs. Amortization of software
development costs increased by approximately 36% from $1,084,867 in fiscal 1999
to $1,476,708 in fiscal 2000. The increase was due to the commencement of
amortization of capitalized software development costs for RIMS Version 4.0 in
April 1999 and Version 4.2 in December 1999, the months in which such versions
were first available for sale. As a percentage of revenue, the amortization of
software development costs was approximately 14% in fiscal 1999 and
approximately 22% in fiscal 2000.

      Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by approximately 3% from $3,799,846 in fiscal
1999 to $3,673,533 in fiscal 2000. As a percentage of revenue, selling, general
and administrative expenses increased from approximately 50% in fiscal 1999 to
approximately 53% for the 2000 period. The increase in selling, general and
administrative expenses as a percentage of revenues is due to lower revenues in
the 2000 period as selling, general and administrative expenses do not result in
attendant increases in revenues. Several reductions in selling, general and
administrative expenses were reflected in sales and marketing expenses and lower
insurance costs. Higher consulting services and higher travel expenses offset
these reductions.

      Interest (Income) Expense, Net. Interest income decreased by $38,920 to
$46,432 in fiscal 2000 as compared to $85,352 in fiscal 1999. The decrease is
primarily due to the reduction of the remaining net proceeds from the Company's
public offering, which was utilized for software development and working capital
requirements, offset, in part, by interest income earned on the net proceeds of
the private placement fiscal 2000.

      Provision (Benefit) of Income Taxes. No net deferred tax expense was
recorded as the Company continues to record a valuation allowance to reserve for
the net deferred tax asset. An additional valuation allowance of approximately
$1,100,000 was provided for fiscal 2000 because of uncertainty, based on the
Company's historical operating results, with respect to realization of deferred
tax assets. The benefit for income taxes for fiscal 1999 consisted of a tax
benefit reflected at 40% of the loss before the provision for income taxes. A
valuation allowance of approximately $221,000 was provided for in the fourth
quarter of fiscal 1999.


                                       16
<PAGE>

Fluctuations in Operating Results

      The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future, depending upon a number of factors, such as the length of
the Company's sales cycle, the unanticipated cancellation of significant license
agreements, the timing of new version releases by the Company and its
competitors, budgeting cycles of the Company's clients, demand for the Company's
software, software life cycles, acceptance of new software introduced by the
Company and its competitors, the size and timing of client orders, changes in
the proportion of revenues attributable to software license fees versus
services, changes in the level of operating expenses and general economic
conditions. In addition, a significant portion of the Company's revenues has
been derived from relatively few sales of licenses for RIMS, and, consequently,
the timing of such sales has caused material fluctuations in the Company's
operating results. Accordingly, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as an indication of future performance.

      Because the Company recognizes a significant portion of revenues over the
installation period of the system (which, although designed to be completed in
approximately four months, generally ranges from four to eight months in
duration as a result of the client's scheduling requirements) and because
installation commences promptly after execution of the related license
agreement, the Company does not maintain a significant backlog. Software license
fees for each quarter depend in part on orders for which implementation has
begun during that quarter and on license agreements under implementation that
were executed in prior quarters. The sales cycle for RIMS typically ranges from
four to six months, and contract signing may be delayed for a number of reasons,
including client budgetary constraints and internal authorization reviews. In
addition, delays in the completion of a contract may require that the revenues
associated with such contract be recognized over a longer period. Consequently,
the Company's business, results of operations or financial condition for a
quarter could be materially adversely affected by implementation delays.

Liquidity and Capital Resources

      During fiscal 2001, the Company funded its operations primarily through
cash flows from operations and cash generated from borrowings on a line of
credit obtained as of September 19, 2000 from three shareholders and directors
of the Company. These lines of credit provided for borrowings of up to
$1,050,000 and matured on September 19, 2001. Borrowings bore interest at the
prime rate plus two percent (9.00% at May 31, 2001). As of May 31, 2001, the
Company had drawn down $550,000 from these lines. In fiscal 2000, the Company
funded its operations primarily through cash generated from the net proceeds of
the private placement of its common stock in November 1999 and February 2000.
The Company raised net proceeds of approximately $1,271,000 in these private
placement offerings of its common stock with a group of the Company's founders
and executive management team. In exchange for the proceeds, 1,028,000 shares of
common stock were issued, together with five-year warrants to purchase up to
385,500 shares of common stock at exercise prices ranging from $1.50 to $4.00.
In fiscal 1999, the Company funded its operations primarily through cash flow
from operations and cash generated from the proceeds of the Company's 1997
initial public offering.

      Net cash used in operating activities was $571,276 in fiscal 2001. Net
cash used in operating activities was $613,737 in fiscal 2000, and net cash
provided by operating activities was $290,251 in fiscal 1999. Cash flows from
operations increased in the 2001 period primarily due to a smaller loss from
operations before amortization expenses and increased collections of accounts
receivable.

      The Company capitalized $1,309,213, $1,261,600 and $494,669 in fiscal
1999, 2000 and 2001, respectively, for software development costs. The Company
did not have any material commitments for software development costs as of May
31, 2001. Any such costs will be financed through working capital.

      As of May 31, 2001, the Company had $93,878 in cash and cash equivalents
and a working capital deficiency of $324,909.


                                       17
<PAGE>

      As of September 19, 2001, the Company secured a line of credit from
Baseboard Investments LLC, a limited liability company the members of which
consist of three principal shareholders and directors of the Company. This line
of credit provides for borrowings of up to $1,250,000, has a two-year term and
will expire in September 2002. Borrowings under this line of credit were used to
satisfy the amounts outstanding under the lines of credit that matured on
September 19, 2001. Borrowings bear interest at the prime rate plus two percent
(8.00% at September 19, 2001). As of September 19, 2001, $550,000 had been drawn
down from this line of credit.

      Management has taken actions to significantly reduce operating, selling,
general and administrative expenses and capital expenditures. These actions
include restructuring operations to more closely align operating costs with
revenue, reducing selling, general and administrative expenses and capital
expenditures through workforce reductions and reviewing and revising other
expenditures. Management expects to continue to seek ways in which it can reduce
operating costs and selling, general and administrative expenses.

      The Company's capital requirements depend on many factors, including the
level and timing of revenues, new product development and the expansion of sales
and marketing. However, the Company is limited to its current cash, cash
equivalents and short term investment balances and available unused lines of
credit for funding such internal growth and development, unless the Company is
able in the future to raise significant additional funds.

      Currently, the Company's existing cash and cash equivalents, revenues from
existing maintenance contracts, and revenues from existing contracts for
implementation of RIMS at new sites, including license fees, hardware and
services, are sufficient to fund operations until early fiscal 2003. However, to
increase revenues and expand the Company's business in any material respect, the
Company will require an additional substantial capital infusion. The Company has
not been successful in its efforts over the past approximately 18 months to
raise capital though a private financing. While the Company intends to continue
its efforts to raise additional capital through a private financing, the Company
continues to explore strategic alternatives, which may include the sale of the
Company, a merger, an asset sale or other comparable transaction, or a financial
restructuring. Potential investors in the Company's common stock should consider
the risk that, even if the Company is successful in completing a strategic
transaction, the Company's common stock may nonetheless have little or no value.

Inflation and Seasonality

      The Company does not believe its operations have been materially affected
by inflation. The Company's business is seasonal as the first quarter of the
fiscal year generally reflects lower revenues due principally to the
inaccessibility of clients during the summer months.


                                       18
<PAGE>

Item 7. Financial Statements

                          INDEX TO FINANCIAL STATEMENTS

                                                                    Form 10-KSB
                                                                    Page Numbers
Reports of Independent Auditors ......................................   20

Balance Sheets as of May 31, 2000 and 2001 ...........................   22

Statements of Operations for the years ended May 31, 1999, 2000 and
  2001 ...............................................................   23

Statements of Shareholders' Equity for the years ended May 31, 1999,
  2000 and 2001.......................................................   24

Statements of Cash Flows for the years ended May 31, 1999, 2000 and
  2001 ...............................................................   25

Notes to Financial Statements ........................................   26


                                       19
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders
  Robocom Systems International Inc.

We have audited the accompanying balance sheet of Robocom Systems International
Inc. as of May 31, 2001, and the related statements of operations, shareholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Robocom Systems International
Inc. at May 31, 2001, and the results of its operations, and its cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States.


                                        /s/ Eisner & Lubin LLP

New York, New York
August 30, 2001, except for the second paragraph of Note 1
and the last, paragraph of Note 6, as to which date is
September 19, 2001.


                                       20
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders
  Robocom Systems International Inc.

We have audited the accompanying balance sheet of Robocom Systems International
Inc. as of May 31, 2000, and the related statements of operations, shareholders'
equity and cash flows for each of the two years in the period ended May 31,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Robocom Systems International
Inc. at May 31, 2000, and the results of its operations, and its cash flows for
each of the two years in the period ended May 31, 2000 in conformity with
accounting principles generally accepted in the United States.


                                        /s/ Ernst & Young LLP

Melville, New York
August 7, 2000


                                       21
<PAGE>

                       ROBOCOM SYSTEMS INTERNATIONAL INC.

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                         2000            2001
                                                                     ------------    ------------
<S>                                                                  <C>             <C>
Assets
Current assets:
     Cash and cash equivalents ...................................   $     60,673    $     93,878
     Short-term investments ......................................        463,833              --

     Accounts receivable, less allowance for doubtful accounts of
        $8,823 in 2000 ...........................................      1,352,736         559,281
     Unbilled revenue ............................................        172,023         140,791
     Deferred taxes ..............................................         72,353          40,740
     Other current assets ........................................        177,183          68,662
                                                                     ------------    ------------
Total current assets .............................................      2,298,801         903,352

Property and equipment, net ......................................        241,474         134,509
Software development costs, net ..................................      4,417,100       2,840,050
Other assets .....................................................         81,999           7,422
                                                                     ------------    ------------
Total assets .....................................................   $  7,039,374    $  3,885,333
                                                                     ============    ============

Liabilities and Shareholders' Equity
Current liabilities:
     Accounts payable ............................................   $    455,985    $    298,590
     Accrued expenses ............................................        885,388         375,978
     Deferred revenue ............................................        509,345         553,693
                                                                     ------------    ------------
Total current liabilities ........................................      1,850,718       1,228,261
Loan payable to shareholders .....................................             --         550,000
Deferred tax liabilities .........................................        116,492          40,740
                                                                     ------------    ------------
Total liabilities ................................................      1,967,210       1,819,001
                                                                     ------------    ------------

Shareholders' equity:
     Preferred stock, $.01 par value; 1,000,000 shares authorized;
        None issued ..............................................             --              --
     Common stock, $.01 par value; 10,000,000 shares authorized;
       4,495,984 issued and outstanding at May 31, 2000 and
       2001 ......................................................         44,960          44,960
     Additional paid-in capital ..................................     11,832,246      11,832,246
     Accumulated deficit .........................................     (6,796,355)     (9,810,874)
     Deferred compensation .......................................         (8,687)             --
                                                                     ------------    ------------
Total shareholders' equity .......................................      5,072,164       2,066,332
                                                                     ------------    ------------
Total liabilities and shareholders' equity .......................   $  7,039,374    $  3,885,333
                                                                     ============    ============
</TABLE>

See accompanying notes.


                                       22
<PAGE>

                       ROBOCOM SYSTEMS INTERNATIONAL INC.

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                            Year ended May 31,
                                               -----------------------------------------
                                                   1999           2000           2001
                                               -----------    -----------    -----------
<S>                                            <C>            <C>            <C>
Revenues:
   Software license fees ...................   $ 1,166,149    $   915,774    $   684,624
   Services ................................     2,801,392      1,732,558      1,313,395
   Hardware ................................     2,301,221      2,804,092        439,921
   Maintenance .............................     1,276,227      1,310,467      1,398,801
                                               -----------    -----------    -----------
   Total revenues ..........................     7,544,989      6,762,891      3,836,741
                                               -----------    -----------    -----------

Cost of revenues:
   Cost of license fees ....................       279,687        161,253         79,906
   Cost of services ........................     1,511,037      1,254,964        870,925
   Cost of hardware ........................     1,924,014      2,128,212        285,006
   Cost of maintenance .....................     1,192,733      1,011,749      1,239,199
                                               -----------    -----------    -----------
   Total cost of revenues ..................     4,907,471      4,556,178      2,475,036
Amortization of software development costs .     1,084,867      1,476,708      2,071,718
                                               -----------    -----------    -----------
                                                 5,992,338      6,032,886      4,546,754
                                               -----------    -----------    -----------
Gross margin ...............................     1,552,651        730,005       (710,013)

Selling, general and administrative expenses     3,799,846      3,673,533      2,331,836
                                               -----------    -----------    -----------
Loss from operations .......................    (2,247,195)    (2,943,528)    (3,041,849)
Interest income and other ..................        85,352         46,432             --
Interest expense and other .................            --             --        (16,809)
                                               -----------    -----------    -----------
Loss before benefit of income taxes ........    (2,161,843)    (2,897,096)    (3,058,658)
Benefit of income taxes ....................      (677,987)            --        (44,139)
                                               -----------    -----------    -----------
Net loss ...................................   $(1,483,856)   $(2,897,096)   $(3,014,519)
                                               ===========    ===========    ===========
Net loss per basic and diluted share .......   $      (.43)   $      (.73)   $      (.67)
                                               ===========    ===========    ===========

Weighted average shares outstanding ........     3,467,984      3,965,776      4,495,984
                                               ===========    ===========    ===========
</TABLE>

See accompanying notes.


                                       23
<PAGE>

                       ROBOCOM SYSTEMS INTERNATIONAL INC.

                       STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                              Common Stock
                           --------------------
                                                  Additional                                   Total
                                      Par Value    Paid-In      Accumulated     Deferred    Shareholders'
                            Shares      $.01       Capital        Deficit     Compensation     Equity
                           ---------  ---------  ----------- ---------------  ------------  ------------
<S>                        <C>         <C>       <C>           <C>            <C>            <C>
Balance, June 1, 1998 ..   3,467,984   $34,680   $10,571,882   $(2,415,403)   $  (160,487)   $ 8,030,672
Net loss ...............          --        --            --    (1,483,856)            --     (1,483,856)
Amortization of deferred
   compensation ........          --        --            --            --         75,900         75,900
                           ---------   -------   -----------   -----------    -----------    -----------
Balance, May 31, 1999 ..   3,467,984    34,680    10,571,882    (3,899,259)       (84,587)     6,622,716
Private placements, net    1,028,000    10,280     1,260,364            --             --      1,270,644
Net loss ...............          --        --            --    (2,897,096)            --     (2,897,096)
Amortization of deferred
   compensation ........          --        --            --            --         75,900         75,900
                           ---------   -------   -----------   -----------    -----------    -----------
Balance, May 31, 2000 ..   4,495,984    44,960    11,832,246    (6,796,355)        (8,687)     5,072,164
Net loss ...............          --        --            --    (3,014,519)                   (3,014,519)
Amortization of deferred
   compensation ........          --        --            --            --          8,687          8,687
                           ---------   -------   -----------   -----------    -----------    -----------
Balance, May 31, 2001 ..   4,495,984   $44,960   $11,832,246   $(9,810,874)            --    $ 2,066,332
                           =========   =======   ===========   ===========    ===========    ===========
</TABLE>

See accompanying notes.


                                       24
<PAGE>

                       ROBOCOM SYSTEMS INTERNATIONAL INC.

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                     Year ended May 31,
                                                           ------------------------------------------
                                                               1999           2000           2001
                                                           ------------    -----------    -----------
<S>                                                        <C>             <C>            <C>
Operating activities
Net loss ...............................................   $ (1,483,856)   $(2,897,096)   $(3,014,519)
Adjustments to reconcile net loss to net
   cash provided (used in) by operating activities:
       Depreciation and amortization of property and
         equipment .....................................        108,895        118,659        105,640
       Benefit of deferred taxes .......................       (677,987)            --        (44,139)
       Amortization of software development costs ......      1,084,867      1,476,708      2,071,718
       Amortization of deferred compensation ...........         75,900         75,900          8,687
       Provision for bad debts .........................         30,000             --         (8,823)
       Changes in operating assets and liabilities:
         Accounts receivable ...........................        180,043        296,895        802,278
         Unbilled revenue ..............................        651,565        100,710         31,232
         Gain on sales of fixed assets .................             --             --        (13,167)
         Other current assets ..........................       (100,494)        65,397        108,521
         Accounts payable ..............................        106,625        161,406       (157,395)
         Accrued expenses ..............................         30,817        (61,593)      (509,410)
         Deferred revenue ..............................        281,945         44,461         44,348
         Other assets ..................................          1,931          4,816          3,753
                                                           ------------    -----------    -----------
Net cash provided by (used in) operating activities ....        290,251       (613,737)      (571,276)
                                                           ------------    -----------    -----------

Investing activities
Software development costs .............................     (1,309,213)    (1,261,600)      (494,668)
Purchase of short-term investments .....................    (12,332,532)    (5,479,486)            --
Redemption of short-term investments ...................     13,103,248      6,159,789        463,833
Proceeds from sales of fixed assets ....................             --             --         22,558
Capital expenditures ...................................        (34,640)       (45,261)        (8,066)
                                                           ------------    -----------    -----------
Net cash used in investing activities ..................       (573,137)      (626,558)       (16,343)
                                                           ------------    -----------    -----------

Financing activities
Net proceeds from sale of common stock .................             --      1,270,644             --
Loan payable to shareholders ...........................             --             --        550,000
Deferred costs related to private placement in
  process ..............................................             --        (70,824)      (159,012)
Write off of deferred costs related to private placement             --             --        229,836
                                                           ============    ===========    ===========
Net cash provided by financing activities ..............             --      1,199,820        620,824
                                                           ============    ===========    ===========

Increase (decrease) in cash and cash equivalents .......       (282,886)       (40,475)        33,205
Cash and cash equivalents at beginning of year .........        384,034        101,148         60,673
Cash and cash equivalents at end of year ...............             --             --             --
                                                           ------------    -----------    -----------
                                                           $    101,148    $    60,673    $    93,878
                                                           ============    ===========    ===========

Supplemental disclosures of cash flow information:
  Cash paid for interest ...............................   $         --    $     1,712    $    28,469
                                                           ============    ===========    ===========
</TABLE>

See accompanying notes.


                                       25
<PAGE>

                       Robocom Systems International Inc.
                    Notes to Financial Statements (continued)

1. Organization and Significant Accounting Policies

Organization

      Robocom Systems International Inc. (the "Company") was incorporated in
June 1982 in the State of New York. The Company is engaged in the development
and marketing of automated warehouse management systems and related software,
which is used by various commercial enterprises located in the United States and
abroad. Since June 1994, the Company licenses and installs its proprietary
software product RIMS, which is an "off-the-shelf" inventory management system.
The Company also provides related services, including modification, project
management, training, implementation support, maintenance and the sale of
hardware and third party software.

      The Company had a working capital deficiency of $324,909 at May 31, 2001
and net losses of $1,483,856, $2,897,096 and $3,014,519 for the years ended May
31, 1999, 2000 and 2001, respectively. The Company's ability to maintain a
satisfactory level of working capital during 2002 depends on its ability to
increase revenue and reduce costs. During fiscal 2001, the Company secured a
line of credit of $1,050,000 from three principal shareholders and directors of
the Company. The line of credit bore interest at the prime rate plus two percent
and expired on September 19, 2001. As of May 31, 2001, $550,000 had been drawn
down from this line of credit. Concurrent with the expiration of this line of
credit, the Company secured a line of credit from Baseboard Investments LLC, a
limited liability corporation, the members of which consist of three principal
shareholders and directors of the Company. This line of credit provides for
borrowings of up to $1,250,000 and expires on September 19, 2002. Borrowings
bear interest at the prime rate plus two percent (8.00% at September 19, 2001).
As of September 19, 2001, $550,000 had been drawn down from this line of credit.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 6,
"Classification of Short-term Obligations Expected to be Refinanced," this
amount has been classified as long-term debt.

      Management has taken actions to significantly reduce both operating,
selling, general and administrative expenses and capital expenditures. These
actions include restructuring operations to more closely align operating costs
with revenue, reducing selling, general and administrative expenses and capital
expenditures through workforce reductions and reviewing and revising other
expenditures. Management expects to continue to seek ways in which it can reduce
operating costs and selling, general, and administrative expenses.

Significant Accounting Policies

      Use of Estimates

      The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

      Concentration of Credit Risk

      The Company's client base is comprised of large clients in diversified
industries. Ongoing credit evaluations of its clients' financial condition are
made and generally no collateral is required. For the years ended May 31, 1999,
2000 and 2001, the Company had one client that accounted for 10%, 27% and 14% of
total revenues, respectively. Revenues from the Company's five largest clients
in each of fiscal 1999, 2000 and 2001 accounted for approximately 33%, 45% and
38% of total revenues, respectively. Management does not believe significant
credit risk existed at May 31, 2001.


                                       26
<PAGE>

                       Robocom Systems International Inc.
                    Notes to Financial Statements (continued)

      Carrying Value of Financial Instruments

      The carrying value of the Company's financial instruments, such as cash
and cash equivalents and short-term investments, approximate their fair values.

      Revenue Recognition

      The Company's revenues are derived from software license fees, fees for
services, sales of hardware and maintenance contracts. Software license fees
include revenue from the licensing of the Company's proprietary RIMS software
and revenue from the sublicensing of certain third-party software. Software
license fee revenue is recorded when the software has been delivered, the
license agreement with the client has been executed, and collection of the
resulting receivable is deemed probable. Service revenues are derived from
project management, training, on-site support and implementation services, and,
to a lesser extent, from customization and modification of licensed software.
The majority of service revenues are recorded when the service is performed.
Service revenues for project management and modifications are recorded using the
percentage of completion method. Hardware revenues are derived from the sale of
products of other manufacturers, including computer hardware, radio frequency
equipment, bar code printers and other peripherals. Such revenues are recognized
when title to such hardware passes to the client. Clients typically enter into
one-year maintenance agreements with the Company upon utilization of RIMS and
pay maintenance fees annually or monthly in advance. The Company recognizes
revenue from each maintenance agreement ratably over the period covered by the
agreement, but is only required to perform maintenance services as and when the
client requests them. The Company recognized revenues, in all periods presented,
in accordance with the American Institute of Certified Public Accountants
Statement of Position ("SOP") 97-2, "Software Revenue Recognition," and SOP
98-9, "Modification of SOP 97-2, Software Revenue Recognition with Respect to
Certain Transactions," which amends paragraphs 11 and 12 of SOP 97-2, to require
recognition of revenue using the residual method under certain circumstances.
Unbilled revenues represent aggregate revenues earned in excess of related
billings and are shown as a current asset. Deferred revenues relate to billings
in advance of the services and are shown as a current liability.

      Software Development Costs

      Software development costs have been capitalized in accordance with SFAS
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed." The capitalization of these costs begins when a product's
technological feasibility has been established, and ends when the product is
available for general release to clients. The establishment of technological
feasibility and the ongoing assessment of recoverability of capitalized software
development costs require considerable judgment by management with respect to
certain external factors, including, but not limited to, technological
feasibility, anticipated future gross revenues, estimated economic life, and
changes in software and hardware technologies. The Company capitalizes software
development costs associated with each subsequent enhancement of its product
upon the achievement of technological feasibility. Software development costs
including enhancements are amortized to cost of revenue using the straight-line
method over five years or the expected life of the product, whichever is less.
Research and development costs incurred prior to the establishment of
technological feasibility are expensed as incurred. Such amounts for the periods
presented are not significant.

      Cash and Cash Equivalents

      The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents.


                                       27
<PAGE>

                       Robocom Systems International Inc.
                    Notes to Financial Statements (continued)

      Short-term Investments

      Short-term investments consisted of U.S. Government securities and
commercial paper which were not cash equivalents. All investments were
classified as available-for-sale and were available to support current
operations. These investments were valued at amortized cost, which approximated
fair value because of the short maturities of these investments.

      Property and Equipment

      Property and equipment consists of furniture, computers, automobiles,
other office equipment and leasehold improvements. The Company depreciates the
cost of furniture, computers, automobiles and other office equipment using the
straight-line method over the estimated useful lives (three to five years).
Leasehold improvements are amortized over the shorter of the term of the lease
or the life of the asset.

      Basic and Diluted Net Loss Per Share

      Basic and diluted net loss per share is computed using historical or pro
forma net loss divided by the weighted average number of shares of common stock
outstanding for the periods presented. Since the Company's common equivalent
shares, which consist of stock options and warrants, are antidilutive, the basic
and diluted net loss per share amounts are the same.

      Stock Options

      SFAS No. 123, "Accounting for Stock-Based Compensation," defines a fair
value method of accounting for the issuance of stock options and other equity
instruments. Under the fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
service period, which is usually the vesting period. Pursuant to SFAS No. 123,
companies are encouraged, but are not required, to adopt the fair value method
of accounting for employee stock-based transactions. Companies are also
permitted to continue to account for such transactions under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," but
are required to disclose in the financial statement footnotes, pro forma net
income and per share amounts as if the Company had applied the new method of
accounting for all grants made since 1997. SFAS No. 123 also requires increased
disclosures for stock-based compensation arrangements. The Company adopted the
disclosure requirements of SFAS No. 123.

      Income Taxes

      The Company provides for income taxes under SFAS No. 109, "Accounting for
Income Taxes," which employs an asset and liability approach in accounting for
income taxes payable or refundable at the date of the financial statements as a
result of all events that have been recognized in the financial statements and
as measured by the provisions of enacted laws.

      Advertising Costs

      Advertising costs are expensed as incurred and for the years ended May 31,
1999, 2000 and 2001 amounted to approximately $347,000, $208,000 and $138,000,
respectively.


                                       28
<PAGE>

                       Robocom Systems International Inc.
                    Notes to Financial Statements (continued)

      Segment Information

      The Company operates in one business segment, as defined by SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information."

      The Company's revenues by geographic markets are summarized below:

                                        For the fiscal year ended May 31,
                                ------------------------------------------------
                                   1999               2000               2001
                                ----------         ----------         ----------

 Domestic .............         $6,764,662         $6,360,854         $3,192,716
 Europe ...............            482,801            254,464            522,797
 Pacific ..............            215,391            125,413            106,670
 Other ................             82,135             22,160             14,558
                                ----------         ----------         ----------
                                $7,544,989         $6,762,891         $3,836,741
                                ==========         ==========         ==========

2. Shareholders' Equity

      Private Placements

      During fiscal 2000, the Company raised aggregate net proceeds of
approximately $1,271,000 in private placement offerings of its common stock (the
"Private Placement"), primarily from a group of the Company's founders and
executive management team. In exchange for the net proceeds, 1,028,000 shares of
common stock were issued, together with five-year warrants to purchase up to
385,500 shares of common stock at exercise prices ranging from $1.50 to $4.00
per share.

      Stock Option Plan

      Effective May 15, 1997, the Board of Directors and shareholders approved
the Company's Stock Option and Long-term Incentive Compensation Plan (the
"Plan") for the issuance of up to 325,000 shares of the Company's common stock.
Effective November 4, 1998, the Board of Directors and shareholders approved for
the issuance of an additional 325,000 shares of the Company's common stock.
Effective November 1, 2000, the board of directors and shareholders approved for
the issuance of an additional 500,000 shares of the Company's common stock.
Outstanding options were granted at an exercise price equal to or in excess of
the prevailing market price on the grant date. These options contain a vesting
schedule determined at the date of grant. Incentive stock options are granted to
employees. All other options granted, including those granted to directors and
consultants, are nonqualified options.


                                       29
<PAGE>

                       Robocom Systems International Inc.
                    Notes to Financial Statements (continued)

   The following summarizes stock option activity during fiscal 1999, 2000 and
2001:

                                                        Weighted-
                                            Shares       Average
                                             under      Exercise
                                            Option        Price
                                         -----------   ----------
Balance, June 1, 1998                      325,175        $6.74
Grants                                     155,000        $1.95
Cancelled                                  (51,750)       $6.34
                                         -----------
Balance, May 31, 1999                      428,425        $5.04
Grants                                     234,000        $2.17
Cancelled                                  (29,475)       $3.70
                                         -----------
Balance, May 31, 2000                      632,950        $3.91
Grants                                     358,000        $0.95
Cancelled                                 (200,500)       $2.35
                                         -----------
Balance, May 31, 2001                      790,450        $2.96
                                         ===========

      The options exercisable at May 31, 1999, 2000 and 2001 were 104,197,
197,227 and 391,699, respectively. The weighted average price of options
exercisable at May 31, 1999, 2000 and 2001 was $6.78, $5.86 and $4.29,
respectively.

      The weighted-average fair value of options granted during the years ended
May 31, 1999, 2000 and 2001 was $1.30 per share, $1.58 per share and $0.64 per
share, respectively.

      The following table summarized information about these plans at May 31,
2001:

                          Options Outstanding
                          -------------------
                                      Weighted
                                       Average
                                      Remaining         Options
                                     Contractual      Exercisable
     Exercise                        -----------      -----------
      Prices         Shares             Life             Shares
      ------         ------             ----             ------

     $0.5000         180,000          1.6 years          60,000
     $0.7500          35,000          4.5 years          35,000
     $1.4375          55,000          1.4 years          25,000
     $1.5000           2,500          1.0 years             833
     $1.5625         140,000          1.2 years          16,667
     $1.6250           3,000          2.2 years              --
     $1.7500          45,000          1.0 years           5,000
     $2.0000           5,000          0.8 years           3,333
     $2.6250          93,000          1.9 years          31,000
     $6.5000         106,950          0.1 years         106,950
     $7.0000          15,000          1.1 years           9,000
     $7.1500         110,000          0.1 years          98,916
                   ------------                       ------------
                     790,450                            391,699
                   ============                       ============


                                       30
<PAGE>

                       Robocom Systems International Inc.
                    Notes to Financial Statements (continued)

      In fiscal 2000, stock options to purchase 30,000 shares of common stock at
an exercise price of $1.75 were granted to the Senior Vice President of the
Company, under his employment agreement. In addition, 10,000 shares of common
stock at an exercise price of $1.4375 were granted to the Chief Financial
Officer of the Company during fiscal 2000. In August 2000, stock options to
purchase 90,000 shares of common stock at an exercise price of $2.00 were
granted to the President and Chief Executive Officer of the Company under his
employment agreement.

      In connection with the Company's May 1997 initial public offering of
Common Stock, the managing underwriters received five-year warrants to purchase
up to 150,000 shares of common stock at an exercise price of $7.80 per share.

      Pro forma information regarding net loss and net loss per share is
required by SFAS No. 123, which also requires that the information be determined
as if the Company had accounted for its employee stock option grants under the
fair value method required by SFAS No. 123. The fair value of each option grant
has been estimated as of the date of grant using the Black-Scholes option
pricing model with the following assumptions:

                                               For the year ended May 31,
                                       -----------------------------------------
                                         1999            2000           2001
                                         ----            ----           ----
Expected life ................         3-5 years       3-5 years      2-5 years
Interest rate ................           5.5%            6.0%         4.64-6.26%
Volatility ...................          1.0442           1.20            1.30
Dividend yield ...............            0%              0%              0%

      If the Company had recognized compensation cost for stock-based employee
compensation in accordance with SFAS No. 123, the Company's net loss for the
years ended May 31, 1999, 2000 and 2001 would have increased as follows:

<TABLE>
<CAPTION>
                                                              For the year ended May 31,
                                                     --------------------------------------------
                                                        1999             2000             2001
                                                        ----             ----             ----
<S>                                                 <C>              <C>              <C>
Pro forma net loss:
    As reported ...............................     $(1,483,856)     $(2,897,096)     $(3,014,519)
    Pro forma in accordance with SFAS No. 123 .     $(1,625,350)     $(2,909,530)     $(3,175,934)
Pro forma basic and diluted net loss per share:
    As reported ...............................           $(.43)           $(.73)           $(.67)
    Pro forma in accordance with SFAS No. 123 .           $(.47)           $(.73)           $(.71)
</TABLE>

      The compensation expense and pro forma net loss may not be indicative of
amounts to be included in future periods.

      The total number of shares reserved for options and warrants at May 31,
2001 was 1,028,000.


                                       31
<PAGE>

                       Robocom Systems International Inc.
                    Notes to Financial Statements (continued)

      Deferred Compensation

      In February 1996, the Company issued 56,400 shares of common stock to
certain employees under a restricted stock agreement. Compensation expense,
representing the fair value ($90,000) of the common shares issued to these
employees, is recognized ratably over the five-year vesting period. In May 1997,
31,584 shares of common stock were issued to an employee of the Company who
performs various accounting and administrative services. These shares had
certain restrictions as to transferability. Compensation expense, representing
the excess of the fair value ($173,712) of the common shares over the amount
paid for such stock, was recognized ratably over the three-year vesting period.

3. Detail of Certain Balance Sheet Accounts

      Property and Equipment, net

      Property and equipment, net, consist of the following:

                                                               May 31,
                                                      --------------------------
                                                        2000             2001
                                                      --------         --------

 Equipment ...................................        $497,787         $501,614
 Furniture and fixtures ......................         157,716               --
 Automobiles .................................          55,088               --
 Leasehold improvements ......................          15,317               --
                                                      --------         --------
                                                       725,908          501,614
 Less accumulated depreciation and
   amortization ..............................        (484,434)        (367,105)
                                                      --------         --------
                                                      $241,474         $134,509
                                                      ========         ========

      Software Development Costs, net

      Software development costs, net, consist of the following:

                                                            May 31,
                                                  ------------------------------
                                                     2000               2001
                                                  ----------         ----------
 Software development costs ..............        $8,758,227         $6,569,812
 Less accumulated amortization ...........        (4,341,127)        (3,729,762)
                                                  ----------         ----------
                                                  $4,417,100         $2,840,050
                                                  ==========         ==========


                                       32
<PAGE>

                       Robocom Systems International Inc.
                    Notes to Financial Statements (continued)

      Accrued Expenses

      Accrued expenses consist of the following:

                                                                May 31,
                                                        ------------------------
                                                          2000            2001
                                                        --------        --------

Accrued third party software costs .............        $240,357        $ 32,925
Payroll and related taxes ......................         140,606         101,849
Accrued hardware costs .........................         125,139          23,792
Professional fees and other ....................         379,286         217,412
                                                        --------        --------
                                                        $885,388        $375,978
                                                        ========        ========

4. Employee Benefit Plan

      The Company has a 401(k) defined contribution plan. This plan covers
virtually all full-time employees subject to certain service requirements. Under
the terms of the 401(k) plan, the Company will match 50% of an employee's
contribution up to 4% of the participating employee's compensation. Plan
expenses for each of the years ended May 31, 1999, 2000 and 2001 amounted to
$54,000, $51,000 and $45,000, respectively.

5. Income Taxes

      Deferred tax assets and liabilities are determined based on the difference
between the financial accounting and the tax bases of assets and liabilities.
Significant components of the Company's deferred tax assets and liabilities as
of May 31, 2000 and 2001 were as follows:

                                                              May 31,
                                                     ---------------------------
                                                        2000             2001
                                                     ----------       ----------
Deferred tax assets:
   Accrued expenses ..........................       $   68,824       $   40,740
   Allowance for doubtful accounts ...........            3,529               --
   Net operating loss carryforwards ..........        2,885,807        3,463,024
   Deferred compensation .....................          102,010          105,485
                                                     ----------       ----------
Total deferred tax assets ....................        3,060,170        3,609,249
Valuation allowance ..........................        1,337,469        2,473,229
                                                     ----------       ----------
Net deferred tax assets ......................        1,722,701        1,136,020
Deferred tax liabilities:
    Software development costs ...............        1,766,840        1,136,020
                                                     ----------       ----------
Net deferred tax liabilities .................       $   44,139       $       --
                                                     ==========       ==========

      The valuation allowance at May 31, 1999, 2000 and 2001 was provided
because of uncertainty, based on the Company's historical results, with respect
to realization of deferred tax assets.


                                       33
<PAGE>

                       Robocom Systems International Inc.
                    Notes to Financial Statements (continued)

      The components of the tax benefit for the three years ended May 31, 1999,
2000 and 2001 are as follows:

                                                For the year ended May 31,
                                         --------------------------------------
                                           1999          2000            2001
                                           ----          ----            ----
Deferred:
    Federal ....................         (446,567)           --         (34,208)
    State ......................         (231,420)           --          (9,931)
                                         --------------------------------------
Total ..........................         (677,987)           --         (44,139)
                                         ======================================

      The benefit of income taxes for the fiscal years ended May 31, 1999, 2000
and 2001 differs from the statutory U.S. federal income tax rate due to the
following:

                                                    For the year ended May 31,
                                                  -----------------------------
                                                    1999       2000       2001
                                                  ------     ------     ------
 Federal statutory tax rate ...................    (34.0%)    (34.0%)    (34.0%)
 State income taxes, net of Federal benefit ...     (7.1)      (5.9)      (5.9)
 Valuation allowance ..........................     10.2       38.9       37.1
 Other ........................................      (.5)       1.0        1.4
                                                  ----------------------------
                                                   (31.4%)      0.0%      (1.4%)
                                                  ============================

      At May 31, 2001, the Company had net operating loss carryforwards of
approximately $8.7 million for income tax purposes, which may be able to reduce
taxable income in future years. The utilization of these losses to reduce future
income taxes will depend on the generation of sufficient taxable income prior to
the expiration of the net operating loss carryforwards. Net operating loss
carryforwards will expire through May 31, 2021.

6. Related Party Transactions

      The Company leases its principal facilities from Robocom Properties, Inc.
("Properties"). The shareholders of Properties are also shareholders of the
Company. In connection therewith, the Company incurred expenses of $168,000 in
fiscal 1999 and 2000 and $174,365 in fiscal 2001, of which $36,000 and $90,365
was unpaid at May 31, 2000 and 2001, respectively. In connection with the
purchase by Properties in 1989 of the Company's corporate headquarters building,
the Company guaranteed three mortgage loans in an aggregate original principal
amount of $1,053,000 that mature in 2010 and bear interest at rates ranging from
8.25% to 8.877% per annum. At May 31, 2001, the outstanding aggregate principal
amount of the mortgage loans was approximately $666,000.

      As of May 2000, a director and principal shareholder of the Company
entered into a one-year consulting agreement with the Company to provide
consulting services. No fees were accrued or paid under this agreement during
fiscal 2000. At May 31, 2001, approximately $18,000 was unpaid relating to such
services. This agreement was not renewed in fiscal 2001.

      As of November 1999, a director of the Company entered into a one-year
consulting agreement with the Company. During fiscal 2000 and 2001, consulting
fees of approximately $26,000 and $12,000, respectively, were incurred under
this agreement. This agreement was not renewed in fiscal 2001.

      As of April 1999, the chairman of the board and a principal shareholder of
the Company entered into a three-year consulting agreement with the Company to
provide consulting services with respect to new product development and related
technical matters. During fiscal 1999, 2000 and 2001 consulting fees of
approximately $3,000, $22,000, and $28,000, respectively, were incurred under
this agreement. At May 31, 2000 and 2001, $6,000 and $18,000, respectively, was
unpaid relating to such services.


                                       34
<PAGE>

                       Robocom Systems International Inc.
                    Notes to Financial Statements (continued)

      As of May 1998, a director and principal shareholder of the Company
entered into a three-year consulting agreement with the Company to provide
consulting services. During 1999 and 2000, consulting fees of approximately
$23,000 and $17,000, respectively, were paid under this agreement. At May 31,
2000 and 2001, $6,000 was unpaid relating to such services. This agreement was
not renewed in fiscal 2001.

      During fiscal 2001, the Company secured a line of credit of $1,050,000
from three principal shareholders and directors of the Company, including Irwin
Balaban, the Company's Chief Executive Officer. As of May 31, 2001, $550,000 had
been drawn down from this line of credit. The line of credit expired on
September 19, 2001 and has been replaced with a line of credit from Baseboard
Investments LLC, a limited liability company, the members of which consist of
the same three principal shareholders and directors of the Company. This line of
credit provides for borrowings of up to $1,250,000, has a two-year term and will
expire in September 2002. As of September 19, 2001, $550,000 had been drawn down
from this line of credit. In connection therewith, interest expense of $40,089
was incurred, of which $13,544 remains unpaid at May 31, 2001.

7. Lease Commitments

      The Company is obligated, under noncancellable operating leases covering
its facilities (Note 6) and certain equipment and automobiles, to pay minimum
annual rentals of approximately:

Fiscal year ending:

   2002............................................                178,000
   2003............................................                177,000
   2004............................................                168,000
   2005............................................                168,000
   2006............................................                168,000
   2007 and thereafter.............................                770,000
                                                                ----------
                                                                $1,629,000
                                                                ==========

      Total rental expense for each of the years ended May 31, 1999, 2000 and
2001 amounted to approximately, $301,000, $247,000 and $216,000, respectively.


                                       35
<PAGE>

                       Robocom Systems International Inc.
                    Notes to Financial Statements (continued)

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

      On July 13, 2001, the Company was informed by Ernst & Young LLP that they
were resigning as the Company's independent auditors. In connection with the
audits of the Company's financial statements for each of the two years in the
period ended May 31, 2000, and in the subsequent interim period, there were no
disagreements with Ernst & Young LLP on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope and procedures
which, if not resolved to the satisfaction of Ernst & Young LLP would have
caused Ernst & Young LLP to make reference to the matter in their report. The
Company has filed a Current Report on Form 8-K with the Securities and Exchange
Commission reflecting the resignation of these accountants.

      As of August 17, 2001, the Company retained the accounting firm of Eisner
& Lubin LLP to act as the Company's independent auditors and to audit the
Company's financial statements as of and for the year ended May 31, 2001. The
Company has filed a Current Report on Form 8-K with the Securities and Exchange
Commission reflecting the engagement of these accountants. There are no
disagreements of any matters of accounting principles or practices or financial
statement disclosure and none are contemplated.


                                       36
<PAGE>

                                    Part III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Sections 16(a) of the Exchange Act

Directors and Executive Officers

      The executive officers and directors of the Company are as follows:

       Name              Age                  Position
       ----              ---                  --------

Irwin Balaban            69     Chairman of the Board, President and
                                  Chief Executive Officer

Judy Frenkel             49     Chief Operating Officer and Senior
                                  Vice President - Systems Development

Herbert Goldman          70     Director

Lawrence B. Klein        67     Director

      Irwin Balaban, a co-founder of the Company, has been Chairman of the Board
since 1983. From 1983 until his retirement in March 1999, he was President and
Chief Executive Officer of the Company. Since March 1999, he has been providing
consulting services to the Company. In his capacity as a consultant to the
Company, in July 2001, Mr. Balaban assumed the offices of President and Chief
Executive Officer.

      Judy Frenkel has been Chief Operating Officer of the Company since July
2001. Prior thereto, Ms. Frenkel had been Senior Vice-President - Systems
Development since September 2000. From September 1999 to September 2000 she had
been Vice President - Systems Development of the Company. From September 1992 to
September 1999, she was the Manager of Systems Analysis of the Company.

      Herbert Goldman, a co-founder of the Company, has been a director since
1983. He provided consulting services to the Company from his retirement in 1996
until May 2000. From 1991 until his retirement, Mr. Goldman had been Executive
Vice President - Operations of the Company.

      Lawrence B. Klein, a co-founder of the Company, has been a director of
since 1991. He was Executive Vice President - Worldwide from May 1999 until his
retirement in May 2000, and from May 2000 to May 2001, provided consulting
services to the Company. From 1991 to May 1999, Mr. Klein was the Executive Vice
President, Marketing and Sales of the Company.

      All directors hold office until the next annual meeting of shareholders
and until their successors have been duly elected and qualified. Executive
officers are elected by, and serve at the discretion of, the Board of Directors.


                                       37
<PAGE>

Committees of the Board of Directors

      The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee recommends to the Board of Directors
the engagement of independent certified public accountants and reviews the audit
engagement, including the scope of services and results of the auditors' review
of the Company's accounting and control procedures and the accuracy of its
system of internal accounting and control procedures. The Compensation Committee
reviews and makes recommendations to the Company's Board of Directors relating
to the compensation of executives of the Company and administers the Company's
stock option and incentive plans. All of the members of the Audit Committee and
the Compensation Committee are non-employee directors.

Directors' Compensation

      Each non-employee director receives $500 for each Board meeting attended
and is reimbursed for all out-of-pocket expenses incurred in connection with
attendance at meetings of the Board or any committee thereof. Upon the annual
election to the Board of Directors, each non-employee director is granted
five-year options to purchase 5,000 shares of Common Stock at an exercise price
equal to fair market value of the Common Stock at the date of grant. In
addition, directors serving on either the Audit Committee or the Compensation
Committee are granted additional five-year options to purchase 2,500 shares of
Common Stock at an exercise price equal to the fair market value of the Common
Stock at the date of grant. These options vest immediately.


                                       38
<PAGE>

Item 10. Executive Compensation.

      The following table sets forth all compensation awarded to, earned by or
paid to the chief executive officer ("CEO") of the Company and the Company's
four most highly compensated executive officers, whose salary and bonus exceeded
$100,000 in compensation for the last three fiscal years (collectively, the
"Named Executives"):

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                  Long-Term
                                               Annual Compensation           Compensation Awards
                                               -------------------           -------------------
                                                                          Securities
            Name and              Fiscal                 Other Annual     Underlying      All Other
       Principal Position          Year       Salary    Compensation(1)  Options/SARs   Compensation(2)
       ------------------          ----       ------    ---------------  ------------   ---------------
<S>                                <C>       <C>             <C>             <C>          <C>
Irwin Balaban (3) ...........      2001      $      0        28,000                0      $      0
  President and Chief .......      2000      $      0        22,000                0             0
  Executive Officer .........      1999       203,461        12,597                0         4,777

C. Kenneth Morrelly (4)
  President and Chief .......      2001       240,116        16,399          140,000         5,078
  Executive Officer .........      2000       152,488        11,700           70,000         1,475

David Dinin (5) .............      2001        80,769         2,935                0         1,126
   President and Chief ......      2000       261,779        16,107           25,000         3,414
   Executive Officer ........      1999        38,462         2,568          140,000             0

Elizabeth A. Burke (6)
  Vice President - Finance, .      2001       151,971             0           45,000         3,039
  Chief Financial Officer and      2000       141,154             0           50,000         1,781
  Treasurer .................      1999       125,577             0                0         2,509


Judy Frenkel (7) ............      2001       110,000             0           30,000         2,200
  Chief Operating Officer ...      2000       102,343             0           10,000         1,962
                                   1999        85,195             0                0         1,704

Arthur B. Kahn (8)
  Vice President Sales and ..      2001       118,408         8,317           30,000         1,759
  Marketing .................      2000        26,953             0            5,000             0

Robert O'Connor (9) .........      2001       139,768        11,570           30,000         3,027
  Vice President - ..........      2000       137,522        12,015            5,000         2,880
  Systems Development .......      1999       125,786        11,570                0         2,776
</TABLE>


                                       39
<PAGE>

(1)   Represents amounts paid for automobile expenses, certain non-accountable
      expenses, and commissions, and consulting fees.

(2)   Represents matching contributions made by the Company pursuant to the
      Company's 401(k) Plan.

(3)   Since 1983, Mr. Balaban has been Chairman of the Board, and since his
      retirement in March 1999, has been providing consulting services to the
      Company under a consulting agreement. In his capacity as a consultant to
      the Company, Mr. Balaban assumed the offices of President and Chief
      Executive Officer in July 2001.

(4)   Mr. Morrelly became Sr. Vice President - Sales and Marketing in June 1999
      and became President and Chief Executive Officer on August 25, 2000. Mr.
      Morrelly resigned from employment with the Company in July 2001.

(5)   Mr. Dinin became President and Chief Executive Officer in April 1999 and
      resigned from employment with the Company in August 2000.

(6)   Ms. Burke separated employment with the Company in July 2001.

(7)   Ms. Frenkel became Chief Operating Officer of the Company in July 2001.

(8)   Mr. Kahn became Manager, Business Development in February 2000 and became
      Vice President of Sales and Marketing in September 2000 Mr. Kahn was
      terminated from the Company in July 2001.

(9)   Mr. O'Connor was terminated from the Company in July 2001

Consulting Agreement

      On April 1, 1999, the Company and Mr. Balaban entered into a three-year
agreement pursuant to which Mr. Balaban is to receive $12,000 per year for
providing consulting services on an as-needed basis. During fiscal 1999, 2000
and 2001, consulting fees of approximately $3,000, $22,000, and $28,000,
respectively, were incurred under this agreement. At May 31, 2001, $18,000 was
unpaid relating to such services. In his capacity as a consultant to the
Company, in July 2001, Mr. Balaban assumed the offices of President and Chief
Executive Officer.


                                       40
<PAGE>

Item 11. Security Ownership of Certain Beneficial Owners and Management.

      The following table sets forth, as of September 30, 2001, the names,
addresses and number of shares of Common Stock beneficially owned by (i) all
persons known to the management of the Company to be beneficial owners of more
than 5% of the outstanding shares of Common Stock, (ii) each director of the
Company, (iii) each named Executive Officer and (iv) all executive officers and
directors of the Company as a group (except as indicated, each beneficial owner
listed exercises sole voting power and sole dispositive power over the shares
beneficially owned):

<TABLE>
<CAPTION>
                                                                  Number of Shares
        Name and Address of                                         Beneficially          Percentage of Outstanding
       Beneficial Owner (1)                                           Owned(2)          Shares Beneficially Owned(2)
       --------------------                                           --------          ----------------------------
<S>                                                                <C>                              <C>
Irwin Balaban ...............................................      1,028,000(3)                     22.58%
Judy Frenkel ................................................         78,200(4)                      1.72
Herbert Goldman .............................................        909,000(5)                     20.11
Lawrence B. Klein ...........................................        694,000(6)                     15.27
All executive officers and directors as a group (4 persons) .      2,709,200(7)                     57.94
</TABLE>

----------
(1)   The address of each beneficial owner of more than 5% of the outstanding
      shares of Common Stock is c/o Robocom Systems International Inc., 511
      Ocean Avenue, Massapequa, New York 11758.

(2)   Except as indicated in the footnotes to this table, the Company believes
      that all persons named in the table have sole voting and investment power
      with respect to all Common Stock shown as beneficially owned by them. In
      accordance with the rules of the Securities and Exchange Commission (the
      "Commission"), a person or entity is deemed to be the beneficial owner of
      Common Stock that can be acquired by such person or entity within 60 days
      upon the exercise of options or warrants or other rights to acquire Common
      Stock. Each beneficial owner's percentage ownership is determined by
      assuming that options and warrants that are held by such person (but not
      those held by any other person) and which are exercisable within 60 days
      have been exercised. The inclusion herein of such shares listed as
      beneficially owned does not constitute an admission of beneficial
      ownership.

(3)   Includes 564,000 shares held by I&T Balaban L.P. and 55,000 shares subject
      to options that are presently exercisable.

(4)   Includes 50,000 shares subject to options that are presently exercisable.

(5)   Includes 564,000 shares held by H & N Goldman L.P., 160,000 shares held by
      the Herbert Goldman Revocable Trust, 160,000 shares held by the Naomi J.
      Goldman Revocable Trust and 25,000 shares subject to options that are
      presently exercisable.

(6)   Includes 50,000 shares subject to options that are presently expired.

(7)   Includes 180,000 shares subject to options that are presently exercisable.

Item 12. Certain Relationships and Related Transactions.

      The Company leases approximately 10,000 square feet of office space, which
functions as its corporate headquarters, in Massapequa, New York, pursuant to a
lease between the Company and Robocom Properties Inc. ("Robocom Properties")
that expires on December 31, 2010. The shareholders of Robocom Properties are
Messrs. Balaban, Goldman and Klein and Robert O'Connor, a former executive
officer of the Company. In connection therewith, the Company incurred expenses
of $168,000 in fiscal 1999 and 2000 and $174,365 in fiscal 2001, of which
$90,365 was unpaid at May 31, 2001. Since January 1, 1998, the annual base
rental of $168,000 payable under the lease has been adjusted and thereafter will
be adjusted each year by the ratio of the prime rate as published


                                       41
<PAGE>

in the Wall Street Journal on January 2 of such year to the prime rate as
published in the Wall Street Journal on January 2, 1997, which was 8.25%. The
prime rate on January 2, 2001 was 9.0%. However, the parties have agreed that
rent will not be less than $14,000 per month. The Company believes that these
rental terms are at least as favorable to the Company as could be obtained from
an unaffiliated third party.

      In connection with the purchase by Robocom Properties in 1989 of the
Company's corporate headquarters building, the Company guaranteed three mortgage
loans in an aggregate original principal amount of $1,053,000 that mature in
2010 and bear interest at rates ranging from 8.25% to 8.877% per annum. At May
31, 2001, the outstanding aggregate principal amount of the mortgage loans was
approximately $666,000.

      Irwin Balaban, Chairman of the Board of the Company, has been acting as a
consultant to the Company since his retirement as President and Chief Executive
Officer of the Company effective April 1, 1999. On April 1, 1999, the Company
and Mr. Balaban entered into a three-year agreement pursuant to which Mr.
Balaban is to receive $12,000 per year for providing consulting services on an
as-needed basis. During fiscal 1999, 2000 and 2001, consulting fees of
approximately $3,000, $22,000, and $28,000, respectively, were incurred under
this agreement. At May 31, 2001, $18,000 was unpaid relating to such services.
In his capacity as a consultant to the Company, in July 2001, Mr. Balaban
reassumed the offices of President and Chief Executive Officer.

      William J. Hancock, a former director of the Company, served as a
consultant to the Company from November 23, 1999 to November 22, 2000. On
November 23, 1999, the Company and Mr. Hancock entered into a one-year agreement
pursuant to which Mr. Hancock was to receive $36,000 per year for providing
consulting services to the Company on an as-needed basis. During fiscal 2001 and
2000, consulting fees of approximately $12,000 and $26,000, respectively, were
paid under this agreement. This agreement was not renewed in fiscal 2001.

      Lawrence Klein, a director of the Company, served as a consultant to the
Company from his retirement as Vice President - Worldwide of the Company
effective May 15, 2000 to May 14, 2001. On May 16, 2000, the Company and Mr.
Klein entered into a one-year agreement pursuant to which Mr. Klein was to
receive $18,000 per year for providing consulting services to the Company on an
as-needed basis. No fees were accrued or paid under this agreement during fiscal
2000. At May 31, 2001, approximately $18,000 was unpaid relating to such
services. This agreement was not renewed in fiscal 2001.

      Herbert Goldman, a director of the Company, acted as consultant to the
Company commencing on his retirement as Executive Vice President - Operations of
the Company effective July 1996 through May 2000. On May 15, 1997, the Company
and Mr. Goldman entered into a three-year agreement pursuant to which Mr.
Goldman received $12,000 per year for providing consulting services on an
as-needed basis. For the fiscal years ended May 31, 2000 and 1999, Mr. Goldman
received approximately $17,000 and $23,000, respectively, under this agreement.
This agreement was not renewed in fiscal 2001.

      During fiscal 2001, the Company secured a line of credit of $1,050,000
from three principal shareholders and directors of the Company, including Irwin
Balaban, the Company's Chief Executive Officer. As of May 31, 2001, $550,000 had
been drawn down from this line of credit. The line of credit expired on
September 19, 2001 and has been replaced with a line of credit from Baseboard
Investments LLC, a limited liability company the members of which consist of the
same three principal shareholders and directors of the Company. This line of
credit provides for borrowings of up to $1,250,000, has a two-year term and will
expire in September 2002. As of September 19, 2001, $550,000 had been drawn down
from this line of credit.


                                       42
<PAGE>

Item 13. Exhibits and Reports on Form 8-K.

      (a) Exhibits.

Exhibit
Number                             Description
------                             -----------

10.1  Lease Agreement, dated December 19, 1996, between Carriage IV Office
      Center, L.L.C. and the Company (incorporated herein by reference to
      Exhibit 10.6 to the Company's Registration Statement on Form SB-2
      (Registration No. 333-27587)).

10.2  Lease Agreement, dated December 21, 1989, between Robocom Properties, Inc.
      and the Company relating to 511 Ocean Avenue, Massapequa, New York
      (incorporated herein by reference to Exhibit 10.7 to the Company's
      Registration Statement on Form SB-2 (Registration No. 333-27587)).

10.3  Guaranty dated December 21, 1989 from the Company to New York Job
      Development Authority. (incorporated herein by reference to Exhibit 10.10
      to the Company's Annual Report on Form 10-KSB for the year ended May 31,
      1997 as filed with the Commission on September 25, 1997 (File No.
      0-22735)).

10.4  Guaranty dated December 14, 1989 from the Company to Long Island
      Development Authority. (incorporated herein by reference to Exhibit 10.11
      to the Company's Annual Report on Form 10-KSB for the year ended May 31,
      1997 as filed with the Commission on September 25, 1997 (File No.
      0-22735)).

10.5  1997 Stock Option and Long-Term Incentive Compensation Plan (incorporated
      herein by reference to Exhibit 10.14 to the Company's Registration
      Statement on Form SB-2 (Registration No. 333-27587)).

10.6  Tax Indemnification Agreement, dated June 6, 1997, between the Company and
      certain shareholders of the Company (incorporated herein by reference to
      Exhibit 10.21 to the Company's Annual Report on Form 10-KSB for the year
      ended May 31, 1997 as filed with the Commission on September 25, 1997
      (File No. 0-22735)).

10.7  Line of Credit Commitment dated September 19, 2001 from Baseboard
      Investments, LLP.

10.8  Promissory Note dated September 19, 2001 from the Company to Baseboard
      Investments, LLP.


                                       43
<PAGE>

      (b) Reports on Form 8-K.

      On April 9, 2001, the Company filed a Current Report on Form 8-K to report
that it had been notified by Nasdaq that the Nasdaq listing qualifications staff
had determined that the Company failed to comply with the $1.00 minimum closing
bid price requirement for continued listing. The Company also reported the
resignation of Yacov Shamash as a member of the Board of Directors effective
March 31, 2001.

      On July 13, 2001, the Company filed a Current Report on Form 8-K to report
that it was informed by Ernst & Young LLP that it was resigning as the Company's
independent auditor. The Company also reported the resignation of William J.
Hancock as a member of the Board of Directors effective June 22, 2001, the
resignation of C. Kenneth Morrelly from the Company's Board of Directors and as
Chief Executive Officer of the Company effective July 12, 2001, and the
separation of employment with the Company of the Chief Financial Officer,
Elizabeth Burke, effective July 13, 2001.

      On August 17, 2001, the Company filed a Current Report on Form 8-K to
report the Company had retained the accounting firm of Eisner & Lubin LLP to act
as the Company's independent auditor to audit the Company's financial statements
as of and for the year ending May 31, 2001.

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized, in Massapequa, New
York, on October 12, 2001.

                                        ROBOCOM SYSTEMS INTERNATIONAL INC.


                                        By: /s/ Irwin Balaban
                                           -------------------------------------
                                                Irwin Balaban
                                                Chief Executive Officer

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates stated:

<TABLE>
<CAPTION>
                Signature                                    Title                                    Date
<S>                                       <C>                                                    <C>
/s/ Irwin Balaban                         Chairman of the Board and Chief Executive Officer      October 12, 2001
--------------------------------------    (Principal Executive Officer and Principal
  Irwin Balaban                           Accounting Officer)

/s/ Lawrence B. Klein                     Director                                               October 12, 2001
--------------------------------------
  Lawrence B. Klein

/s/ Herbert Goldman                       Director                                               October 12, 2001
--------------------------------------
  Herbert Goldman
</TABLE>


                                       44
<PAGE>

                                  Exhibit Index

Exhibit
Number                             Description
------                             -----------

10.7  Line of Credit Commitment dated September 19, 2001 from Baseboard
      Investments, LLP.

10.8  Promissory Note dated September 19, 2001 from the Company to Baseboard
      Investments, LLP.


                                       45