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, 2004

      |_|   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

                       ROBOCOM SYSTEMS INTERNATIONAL INC.
                 (Name of small business issuer in its charter)

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

     511 Ocean Avenue, Massapequa, New York                         11758
    (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. $3,354,619.

As of August 23, 2004, the issuer had outstanding 4,495,984 shares of its common
stock.

As of August 23, 2004, the aggregate market value of the issuer's common stock
held by non-affiliates was $1,172,210 (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|

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                                     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 timelier 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,
manufacturers, 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
them 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, specific labeling requirements, Global Trade
Item Number (GTIN) and Radio Frequency Identification (RFID) tags.

      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, improve order accuracy, maximize the efficiency of warehousing and
transportation systems and provide superior response times to customers.

      Retailers, manufacturers, 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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      o     Reduce Errors. Receiving, stocking and picking errors are common in
            a manual paper-based warehouse. An automated warehouse management
            system uses barcode technology and other self-checking mechanisms to
            ensure virtually 100% accuracy for every transaction.

      o     Improve Space Utilization. A warehouse management system tracks all
            warehouse locations and can direct each product to its optimal
            storage location to ensure 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 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 to 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 an audit trail. 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 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, tagging, and packaging requirements. A warehouse
            management system can provide compliant labeling, tagging, 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 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 its primary product, RIMS, is well positioned for the
growth anticipated in the electronic commerce market. RIMS, which is a full
featured automated warehouse management system, is designed to assist
manufactures and distributors in achieving these goals by improving inventory
accuracy, reducing errors, optimizing space utilization, providing workload
planning tools, and improving labor management productivity and reporting.

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 E-business providers and
            transportation providers, consultants to the supply chain industry,
            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."


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<PAGE>

      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, 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 and industry trends. 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 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 some competitors. In addition, the Company
            believes the continued development and enhancement of certain
            product personalization and configuration tools will make the
            product more unique. See "-- Products, "Third Party Hardware
            Products," and "-- Product Development."

      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 pursue
            the international business market. In this regard, the Company has
            established formal relationships with distributors in Argentina, the
            United Kingdom and Indonesia that are established systems
            integrators with large client bases in their respective regions. The
            Company maintains an international sales and support office in the
            Netherlands. 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 local distributors and
implemented by the distributors and/or local implementers.

      The Company also markets pre-configured versions of RIMS that are
specifically targeted to various vertical markets, such as food and beverage
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 or less 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
Windows), has a Field and Screen Configuration Toolkit and uses Oracle, Progress
or SQL Server as its database management system. The Company believes its
clients recognize cost savings throughout the warehousing and distribution
processes as a result of increases in worker productivity, efficiencies in space
utilization, increases in inventory accuracy due to lot control, shelf life
control and


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<PAGE>

product serialization tracking, and the elimination of lost product and 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 material handling equipment and is easily
integrated with customer or third party purchasing, electronic data interchange
(EDI), bar coding, accounting, manufacturing resource planning (MRP) and
enterprise resource planning (ERP) applications. RIMS also utilizes radio
frequency (RF) 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 features and 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 either in real-time local access, via the World Wide Web or via
            telnet remote access. This ability enables the RIMS warehouse to
            support Vendor Managed Inventory (VMI) by allowing vendors to
            monitor the products they supply to the RIMS warehouse and
            automatically replenish stock as needed. Multiple sites can also
            easily access a centrally located RIMS database.

      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 (ASN) 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, ownership, 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. Wave planning, automatic carton size
            selection, batch picking, narrow aisle support, and pick and pass
            processing are just a few of the supported options.

      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,
            truck appointment scheduling, system security, space utilization,
            vehicle management and rewarehousing.


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<PAGE>

      o     Activity-based costing and Third-party Logistics (3PL) support. The
            product provides the basis for support of third-party logistics
            facilities where multiple product owners share warehouse facilities
            and are billed for the space and services they use.

      o     Standard Interfaces. The Company has developed standard interfaces
            to several ERP solutions enabling customers to seamlessly benefit
            from RIMS warehouse management. In addition, RIMS offers a
            user-configurable Extensible Markup Language (XML) interface that
            enables users to quickly and easily map data between RIMS and ERP or
            other external systems.

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, but has been completed in as
little as ten weeks, 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, email, and internet 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. Whenever possible, custom modifications are built in such
a way to allow the client to maintain a standard upgrade path, thus enabling the
client to take advantage of future releases of the software as they become
available.


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<PAGE>

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.

      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 consumer products, industrial
supplies, petrochemical products, government, food processing, public utilities
and medical/pharmaceutical sectors, as well as other high-volume wholesalers and
distributors.

      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 levels 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 fiscal year ended May 31, 2002, the Company had one client that
accounted for approximately 19% of total revenues. For fiscal year ended May 31,
2003, the Company had three clients that accounted for approximately 24%, 13%
and 12% of total revenues, respectively. For fiscal year ended May 31, 2004, the
Company had two clients that accounted for approximately 22% and 21% 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, Internet listings,
advertising, seminars, trade shows and ongoing client communications programs.
The Company is also listed with the United States General Services
Administration (GSA), thus allowing federal agencies to purchase products from
the Company, without the usual open-bid process required for government
purchases from non-GSA suppliers. 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 Raamdonksveer, The Netherlands, that
seeks customers and viable distributors in its region of operation and provides
technical support for RIMS products.

      The Company obtains sales leads through partners, the Internet,
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. Reference calls to existing clients and 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


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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 usually be placed on a plan that ranges from ten to 24 weeks
after the 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
developments of the major software and hardware vendors and, in certain
instances, provide the Company with product development services. The Company is
a Solution Partner in the Symbol Technologies Partner Select Program, as a
result of which the Company is an authorized reseller of certain of Symbol's
products and licensed software and the Company and Symbol have agreed to certain
joint marketing strategies for products of both companies.

      The Company markets RIMS through resellers located in Argentina, the
United Kingdom and Indonesia. 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 will continue to
evaluate additional non-exclusive international resellers around the world.

      For the fiscal years ended May 31, 2002, 2003 and 2004, approximately 11%,
6% and 9%, respectively, of the Company's revenues were generated outside the
United States. 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
affect 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 and closely follows industry research
to determine their requirements and to design enhancements and new products to
meet client needs. Using input from the user and the technical 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 $331,290, $648,612 and $821,041 in fiscal 2002,
2003 and 2004, respectively. The Company plans to undertake continuous product
improvement to ensure competitiveness. New modules and features will continue to
be added throughout the fiscal year.

      The Company is continuing its software development efforts by designing
enhancements to RIMS using Internet technologies compliant with current industry
standards. By incorporating these technologies 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
for an order may be monitored directly by the authorized user (i.e., a retail
client or plant manager). Vendor Managed Inventory (VMI) is also supported using
the Internet accessibility. 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
enabled RIMS Version was released in April 1999 as Version 4.0. Version 4.2,
which provided additional Internet- and intranet-based


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capabilities, was released in December 1999, and Version 4.3 was released in
July 2000. RIMS Version 4.3 featured multiwarehouse functionality, a yard
management system for inbound trucks and a link to a transportation management
system (TMS). RIMS Version 4.3 also highlighted 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). A standard report
writer was also incorporated into the RIMS product offering. 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. RIMS Version 5.0 was
announced in May 2003 and is currently being tested at several customer sites.
Its primary focus is a modernized browser user interface and enhanced features
such as Third Party Billing (Activity Based Costing), kitting and kit assembly,
automatic carton size assignments to pickers, support for Global Trade Item
Number (GTIN), Radio Frequency Identification (RFID) tag generation, and
improved real-time screen configuration utilities. Additionally, improved
security features are incorporated into RIMS 5.0, as demanded by the
marketplace.

      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 and
transportation management systems. The Company is also researching the
development of a new product aimed at a different market base than that of its
traditional RIMS product. As currently contemplated, the Company will combine
its extensive warehouse systems experience, leading state-of-the-art technology
and the RIMS system flexibility and configurability to create a warehouse
management system targeted to small to mid-sized clients.

      There can be no assurance that the development of any product enhancements
or new products 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. The
Company continues to offer maintenance services for earlier releases of RIMS and
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 or
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, as
well as warehousing options embedded in certain ERP solutions. The Company,
however, believes that potential clients increasingly will purchase software
applications from outside vendors specializing in warehouse management software,
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 organizations not specifically focused on warehouse
management solutions.

      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,


                                       8
<PAGE>

picking, packing, 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 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
scalability, flexibility, hardware and platform independence, 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
Red Prairie Corporation, Manhattan Associates, Inc., HighJump Software, and
Provia Software, each of which provides complete warehouse management and
distribution software. In addition, certain well-known software developers, such
as SAP AG and J.D. Edwards & Co. 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
client's 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 also offers discounted
enterprise-wide licenses for clients with numerous sites.

      The Company does not generally 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.


                                       9
<PAGE>

      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 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 23, 2004, the Company had 27 employees, of which seven were
employees primarily in management and administration, nine in product
development, nine 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 $168,000 (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 280 square feet in Raamsdonksveer in
the Netherlands. The lease expires on April 13, 2005, and will automatically be
extended for a period of one year, until six months notice to terminate the
lease is given by the Company. The lease has an annual rental rate of
approximately $5,000 (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 2004.


                                       10
<PAGE>

                                     Part II

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

      The Company's Common Stock trades on The Over-the-Counter Bulletin Board
under the symbol RIMS. The following table represents the high and low price
information for the Company's Common Stock for each quarterly period in fiscal
2003 and 2004.

                                          Fiscal 2003       Fiscal 2004
                                          High     Low      High     Low
                                          ----     ---      ----     ---
            Quarter ended August 31      $0.28    $0.09    $1.02    $0.09
            Quarter ended November 30     0.18     0.05     1.17     0.60
            Quarter ended February 28     0.21     0.05     0.93     0.50
            Quarter ended May 31          0.26     0.06     0.85     0.40

      Quotations listed above reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.

      On August 23, 2004, the closing price of the Company's Common Stock as
reported on the Over-the-Counter Bulletin Board was $0.60.

      As of May 31, 2004, there were 4,495,984 shares of the Company's Common
Stock outstanding held by approximately 34 shareholders of record. Of the
4,495,984 shares, 1,824,348 shares of Common Stock were held in street name.

      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.


                                       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
standard 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. 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 scanners, 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.

      The Company's total revenues are dependent upon a relatively small number
of large sales. In addition, the Company continues to experience the effects of
economic uncertainties and depressed spending for information technology in the
United States and Europe. This decline has resulted in delayed and cancelled
buying decisions by customers. These factors further affected the Company's
sales and resulted in fewer new customer installations, while large contracts
with two customers contributed significantly to revenues. Revenues from the
Company's five largest clients in each of fiscal 2002, 2003 and 2004 accounted
for approximately 44%, 65% and 59% of total revenues, respectively.

      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


                                       12
<PAGE>

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 18 at May 31, 2002, 2003 and 2004.
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 $331,290,
$648,612 and $821,041 in fiscal 2002, 2003 and 2004, respectively, for software
development costs. Research and development costs for these periods were not
significant. The Company employed seven, eight and nine software development
employees at May 31, 2002, 2003 and 2004, respectively, some of which also
functioned as programmers for the installation or modification of the Company's
software. Amortization of software development costs has decreased primarily due
to the final amortization of capitalized software development costs for early
versions of RIMS. 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 4.2 provides additional Internet- and intranet-based capabilities.
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). RIMS Version 5.0 was announced in May 2003 and is
currently being tested at several customer sites. Its primary focus is a
modernized browser user interface and enhanced features such as Third Party
Billing (Activity Based Costing), kitting and kit assembly, automatic carton
size assignments to pickers, support for Global Trade Item Number (GTIN), Radio
Frequency Identification (RFID) tag generation, and improved real-time screen
configuration utilities. Additionally, improved security features are
incorporated into RIMS 5.0, as demanded by the marketplace. Additional
functionality to utilize RFID tags on product is being investigated and
discussed with several existing customers.

      The Company anticipates that the dollar amount of the costs capitalized
will not increase significantly during fiscal 2005. As a percentage of total
revenue, the Company anticipates that amortization of software development
expenses will remain consistent with current levels.

      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 eight
employees at May 31, 2002 and 2003 and nine employees at May 31, 2004. The
Company anticipates that such expenses will decrease as a percentage of total
revenues as revenues increase.

Strategy and Restructure of Operations

      During fiscal 2002, the Company implemented a new strategy to improve its
financial position by increasing its emphasis on its strong relationships with
existing customers in an effort to increase revenues from upgrades,
modifications to RIMS and additional training and consulting services, while
continuing to seek new customers. As existing customers upgrade to the latest
versions of RIMS Versions 4.3 and Version 5.0, the Company intends to more
aggressively market additional implementation services, as well as its RIMS
Alert product. The Company has also begun to offer additional maintenance
services for the computer systems administration of its existing customers.
Management anticipates that these additional services and product sales, as well
as sales to new customers, will increase 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. The Company is also researching the development of new products aimed at a
different market base than that of its standard RIMS product. It is anticipated
that these new products will combine the Company's extensive warehouse systems
experience and leading state-of-the-art technology.


                                       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
2002, the Company took actions to significantly reduce selling, general and
administrative expenses. These actions included restructuring operations to more
closely align operating costs with revenue, reducing overhead expenses, and
reviewing and revising all other expenditures. Although the Company continually
seeks ways in which it can reduce costs, it expects selling, general and
administrative expenses to remain at current levels beyond fiscal 2005.

      Since restructuring its operations, the Company has been able to increase
revenues and regain positive operating results, while improving relationships
with existing customers, and has obtained sales from new domestic and
international customers. The Company believes it will continue to increase
revenues and improve its operating results during fiscal 2005.

Results of Operations:

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

                                 (In thousands)

                                                         Year ended May 31,
                                                    ----------------------------
                                                      2002       2003      2004
                                                    -------     ------    ------
Revenue:
   Software license fees .......................    $   667     $  230    $  546
   Services ....................................        533      1,299     1,203
   Hardware ....................................        403        730        90
   Maintenance .................................      1,503      1,470     1,516
                                                    -------     ------    ------
   Total revenues ..............................      3,106      3,729     3,355
                                                    -------     ------    ------

Cost of revenue:
  Cost of license fees .........................        107          1       111
  Cost of services .............................        452        624       673
  Cost of hardware .............................        356        503        78
  Cost of maintenance ..........................      1,055        626       643
                                                    -------     ------    ------
  Total cost of revenues .......................      1,970      1,754     1,505
                                                    -------     ------    ------

Amortization of software
  development costs ............................      1,524        774       767
                                                    -------     ------    ------
Gross margin ...................................       (388)     1,201     1,083
Selling, general and administrative expenses ...        904        683       644
                                                    -------     ------    ------
Income (loss) from operations ..................     (1,292)       518       439
Interest expense, net ..........................         39         32        17
                                                    -------     ------    ------
Income (loss) before income taxes ..............     (1,331)       486       422
Income taxes ...................................         --         --        --
                                                    -------     ------    ------
Net income (loss) ..............................    $(1,331)    $  486    $  422
                                                    =======     ======    ======


                                       14
<PAGE>

Comparison of Fiscal Years Ended May 31, 2003 and May 31, 2004

      Revenue. Total revenue decreased from $3,728,794 in the year ended May 31,
2003 to $3,354,619 for the year ended May 31, 2004. Software license fees
increased by approximately 137% in fiscal 2004 as compared to fiscal 2003,
primarily because the Company sold one large domestic RIMS license and several
international RIMS licenses, in addition to third-party license sales made
during the 2004 period. The Company's revenues rely on a relatively small number
of license sales each period. As a result, software revenues fluctuate based on
the size of new license agreements and the number of sales of upgrades and
add-ons to existing licenses. Although software revenues increased during the
2004 period as discussed above, the Company continues to experience the effects
of economic uncertainties and depressed spending for information technology in
the United States and Europe. Services revenues decreased by approximately 7% in
fiscal 2004 as compared to fiscal 2003, primarily due to lower revenues from
services related to upgrades and modifications to existing RIMS sites, offset,
in part, by higher revenues related to the installation of new RIMS sites during
the 2004 period. In addition, during fiscal 2003, the Company realized
non-recurring deferred service revenue in the amount of $88,537. Hardware
revenues decreased by approximately 88% in fiscal 2004 as compared to fiscal
2003, primarily because the Company sold a significant amount of RIMS-related
hardware to one existing customer and sold hardware associated with the
implementation of a RIMS system to a new customer during the 2003 period. The
Company considers the sale of RIMS-related hardware to be non-strategic. These
sales primarily depend upon specific customer requirements. In addition,
customers have the ability to purchase hardware from a large variety of vendors
at competitive prices. Maintenance revenues increased by approximately 3% in
fiscal 2004, as compared to fiscal 2003. This increase was primarily due to
additional maintenance revenues for new RIMS sites, offset, in part, by a
reduction in pricing for maintenance of third-party licenses and hardware to
existing customers. Increases in maintenance revenue are dependant upon overall
license revenue growth and maintenance contract renewal rates.

      Cost of Revenues. Total cost of revenues decreased by approximately 14%
from $1,754,612 in fiscal 2003 to $1,505,509 in fiscal 2004. As a percentage of
revenue, total cost of revenues decreased from approximately 47% in fiscal 2003
as compared to approximately 45% in fiscal 2004. As a percentage of license fee
revenues, cost of license fees increased to approximately 20% in fiscal 2004 as
compared to approximately .5% in fiscal 2003. This increase is primarily due the
sale of licenses with associated third-party fees during the 2004 period. In
addition, during the 2003 period, the Company applied a credit related to prior
periods to third party license fees. As a percentage of service revenues, the
cost of services increased to approximately 56% in fiscal 2004 as compared to
approximately 48% in the 2003 period. This increase is primarily due to higher
variable costs associated with the installation of RIMS at customer sites. In
addition, the Company realized non-recurring service revenues with no associated
costs during the 2003 period. As a percentage of hardware revenues, the cost of
hardware was higher in fiscal 2004 due to higher hardware costs from suppliers.
The Company does not carry an inventory of hardware items sold and only offers
hardware as an option to customers who desire a turnkey solution. As a
percentage of maintenance revenues, the cost of maintenance was slightly lower
in the 2004 period as compared to the 2003 period. As new users gain experience
using the RIMS product, the cost of maintenance typically decreases.

      Amortization of Software Development Costs. Amortization of software
development costs decreased by approximately 1%, from $774,006 in fiscal 2003 to
$766,733 in fiscal 2004. This decrease was due to the final amortization of
capitalized software development costs for early versions of RIMS, offset, in
part, by increased amortization expense for newer versions of RIMS and
additional RIMS related products. As a percentage of revenue, the amortization
of software development costs was approximately 21% in fiscal 2003 and
approximately 23% in fiscal 2004.

      Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by approximately 6%, from $682,905 in fiscal
2003 to $643,787 in fiscal 2004. As a percentage of revenue, selling, general
and administrative expenses increased from approximately 18% in fiscal 2003 to
approximately 19% for the 2004 period. The decrease in selling, general and
administrative expenses was primarily due to decreased salaries and other
related expenses, offset, in part, by an increase in costs related to marketing
expenses, accrued professional fees and shareholder relations. Although the
Company continually seeks ways in which it can reduce costs, it expects selling,
general and administrative expenses to remain at current levels beyond fiscal
2005.


                                       15
<PAGE>

      Interest (Income) Expense, Net. Interest income decreased by $2,282 to
$1,137 as compared to $3,419 in fiscal 2003. The decrease is primarily due to
the decline in interest rates during the 2004 period. Interest expense decreased
by $17,187 to $17,913 as compared to $35,100 in fiscal 2003. This decrease is
primarily due to the reduction in the loan payable to Baseboard Investments,
LLC.

      Income Taxes. No provision for income taxes is reflected in the 2004 or
2003 periods, as the Company has sufficient net operating losses to offset
current earnings. No deferred tax expense has been recorded in the 2004 period
or the 2003 period as the Company continues to record a valuation allowance to
reserve for its net deferred tax assets. The valuation allowance was provided
for because of uncertainty, based on the Company's historical results, with
respect to realization of deferred tax assets.

Comparison of Fiscal Years Ended May 31, 2002 and May 31, 2003

      Revenue. Total revenue increased from $3,106,510 in the year ended May 31,
2002 to $3,728,794 for the year ended May 31, 2003. Software license fees
decreased by approximately 65% in fiscal 2003 as compared to fiscal 2002,
primarily because the Company sold fewer RIMS licenses, particularly
internationally. The Company has continued to experience the effects of the
declining United States' and European economies. This decline has resulted in
delayed and cancelled buying decisions by customers for software and pressure by
customers and competitors to discount license fees. In addition, during the 2002
period, the Company realized a non-recurring deferred license in the amount
$52,000. Services revenues increased by approximately 144% in fiscal 2003 as
compared to fiscal 2002, primarily due to higher revenues from services related
to the installations of new RIMS sites and upgrades and modifications to
existing RIMS sites during the 2003 period. In addition, during fiscal 2003, the
Company realized non-recurring deferred service revenue in the amount of
$88,537. Hardware revenues increased by approximately 81% in fiscal 2003, as
compared to fiscal 2002, primarily due to a significant sale of RIMS-related
hardware made during the 2003 period. Maintenance revenues decreased by
approximately 2% in fiscal 2003 as compared to fiscal 2002, primarily due to the
election of a few customers using older versions of RIMS to reduce maintenance
coverage. This decrease in maintenance revenue was offset, in part, by
additional maintenance revenues for new RIMS sites and for equipment and
software modifications sold during the 2003 period.

      Cost of Revenues. Total cost of revenues decreased by approximately 11%
from $1,970,238 in fiscal 2002 to $1,754,612 in fiscal 2003. As a percentage of
revenue, total cost of revenues decreased from approximately 63% in fiscal 2002
as compared to approximately 47% in fiscal 2003. As a percentage of license fee
revenues, cost of license fees decreased to approximately .5% in fiscal 2003 as
compared to approximately 16% in fiscal 2002. This decrease is primarily due to
a credit related to prior periods applied to associated third party license fees
in the 2003 period. As a percentage of services revenues, the cost of services
decreased to approximately 48% in fiscal 2003 as compared to approximately 85%
in the 2002 period. This decrease is primarily due to higher billable support
services associated with the installations of new RIMS sites and upgrades and
modifications to existing RIMS sites, in addition to the realization of
non-recurring service revenues with no associated costs during the 2003 period.
As a percentage of hardware revenues, the cost of hardware was lower in fiscal
2003 due to the sale of RIMS-related hardware at a higher margin during the 2003
period. As a percentage of maintenance revenues, the cost of maintenance was
lower in the 2003 period as compared to the 2002 period, primarily due to lower
maintenance costs relating to RIMS version 4.3. The Company expects these costs
to continue to decrease as customers continue to upgrade to newer versions of
RIMS.

      Amortization of Software Development Costs. Amortization of software
development costs decreased by approximately 49%, from $1,524,021 in fiscal 2002
to $774,006 in fiscal 2003. This decrease was due to the final amortization of
capitalized software development costs for early versions of RIMS during fiscal
2002. As a percentage of revenue, the amortization of software development costs
was approximately 49% in fiscal 2002 and approximately 21% in fiscal 2003.

      Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by approximately 24%, from $904,294 in fiscal
2002 to $682,905 in fiscal 2003. As a percentage of revenue, selling, general
and administrative expenses decreased from approximately 29% in fiscal 2002 to
approximately 18% for the 2003 period. During fiscal 2002, the Company took
actions to significantly reduce selling, general and administrative expenses.
These actions included restructuring operations to more closely align operating
costs with revenue, reducing overhead expenses, and reviewing and revising all
other expenditures. The results of these actions were reflected in the reduced
selling, general and


                                       16
<PAGE>

administrative expenses in fiscal 2003. Although the Company will continue to
seek ways in which it can reduce costs, it expects selling, general and
administrative expenses to remain at current levels through 2004.

      Interest (Income) Expense, Net. Interest income decreased by $808 to
$3,419 in fiscal 2003 as compared to $4,227 in fiscal 2002. The decrease is
primarily due to the decline in interest rates during the 2003 period. Interest
expense decreased by $8,388 to $35,100 from $43,488. This decrease is primarily
due to the reduction in the loan payable to Baseboard Investments, LLC.

      Income Taxes. No provision or benefit of income taxes is reflected in the
2003 or 2002 periods, as the Company has sufficient net operating losses to
offset current earnings. No deferred tax expense has been recorded in the 2003
or the 2002 period as the Company continues to record a valuation allowance to
reserve for its net deferred tax assets. The valuation allowance at May 31, 2002
and 2003 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
year's liability related to software costs.

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
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
six to twelve 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 2004, the Company funded its operations through cash flows
from operations. The Company did not require any draw down of its existing line
of credit during fiscal 2004.

      Net cash provided by operating activities was $461,337, $1,203,781 and
$1,212,187 in fiscal 2002, 2003 and 2004, respectively. Cash flows from
operations increased in the 2004 period primarily due to an increase accounts
receivable offset, in part, by a decrease in net income, amortization and
depreciation expenses and unbilled revenue.


                                       17
<PAGE>

      Net accounts receivable were $511,989 as of May 31, 2004. This compares to
$445,882 at May 31, 2003. The increase in accounts receivable primarily related
to an increase in sales related to the implementation of RIMS at customer sites.
At May 31, 2004, the Company recorded an allowance for doubtful accounts of
approximately $6,500. The Company believes it has adequately provided for any
risks with respect to receivables known or anticipated at this time.

      The Company expended $4,555, $19,996 and $11,731 for the purchase of
equipment in fiscal 2002, 2003 and 2004, respectively. The Company capitalized
$331,290, $648,612 and $821,041 in fiscal 2002, 2003 and 2004, respectively, for
software development costs. Any costs associated with the development of new
products or enhancements to the existing RIMS product will be financed through
working capital.

      As of May 31, 2004, the Company had $533,172 in cash and cash equivalents
and working capital of $305,066.

      The Company has 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 and was set to expire on September 19, 2004. Borrowings bear
interest at the prime rate plus two percent (6.50% at August 23, 2004). As of
November 21, 2003, this line of credit was extended until September 19, 2005,
under the existing terms. As of May 31, 2004, no borrowings were outstanding
under the line of credit. In the future, however, the Company may borrow against
this or a subsequent line of credit.

      The Company's capital requirements depend on many factors, including the
level and timing of revenues and new product development. However, the Company
is limited to its current cash, cash equivalents and available unused lines of
credit for funding such internal growth and development. No significant capital
expenditures are anticipated in the next 12 months.

      For the year ended May 31, 2004, the Company operated on a positive cash
flow basis and recorded net income of $1,188,547, or $.26 per share, excluding
the amortization of software development costs. The Company believes its
existing cash and cash equivalents, anticipated revenues from existing
maintenance contracts, and anticipated revenues from existing contracts for
implementation of RIMS at new sites, including license fees, hardware and
services, are sufficient to fund the Company's operations at the current levels
beyond fiscal 2005.

Inflation and Seasonality

      The Company does not believe its operations have been materially affected
by inflation or seasonality.


                                       18
<PAGE>

Item 7. Financial Statements

                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                         Form 10-KSB
                                                                                         Page Numbers
<S>                                                                                           <C>
Reports of Independent Registered Public Accounting Firm ..............................       20

Balance Sheets as of May 31, 2003 and 2004 ............................................       21

Statements of Operations for the years ended May 31, 2002, 2003 and 2004 ..............       22

Statements of Shareholders' Equity for the years ended May 31, 2002, 2003 and 2004 ....       23

Statements of Cash Flows for the years ended May 31, 2002, 2003 and 2004 ..............       24

Notes to Financial Statements .........................................................       25
</TABLE>


                                       19
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying balance sheets of Robocom Systems International
Inc. as at May 31, 2004, and 2003, and the related statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended May 31, 2004. 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 the standards of the Public Company
Accounting Oversight Board (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. as at May 31, 2004 and 2003, and the results of its operations, and its
cash flows for each of the three years in the period ended May 31, 2004 in
conformity with accounting principles generally accepted in the United States.


                                        /s/ Eisner & Lubin LLP
                                        ---------------------------------

New York, New York
July 12, 2004


                                       20
<PAGE>

                       ROBOCOM SYSTEMS INTERNATIONAL INC.

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                              2003             2004
                                                                          ------------     ------------
<S>                                                                       <C>              <C>
Assets
Current assets:
     Cash and cash equivalents .......................................    $    435,485     $    533,172
     Accounts receivable, less allowance for doubtful accounts of
       $20,201 in 2003 and $6,536 in 2004 ............................         445,882          511,989
     Unbilled revenue ................................................         117,212           51,754
     Deferred taxes ..................................................          37,929           40,076
     Other current assets ............................................         139,102          149,455
                                                                          ------------     ------------
Total current assets .................................................       1,175,610        1,286,446

Property and equipment, less depreciation of $334,576 in 2003 and
     $17,169 in 2004 .................................................          40,483           24,582
Capitalized software, net ............................................       1,521,925        1,576,233
                                                                          ------------     ------------
Total assets .........................................................    $  2,738,018     $  2,887,261
                                                                          ============     ============

Liabilities and Shareholders' Equity
Current liabilities:
     Accounts payable ................................................    $     68,683     $     70,807
     Accrued expenses ................................................         240,029          236,772
     Other current liabilities .......................................          25,000               --
     Deferred revenue ................................................         640,659          673,802
                                                                          ------------     ------------
Total current liabilities ............................................         974,371          981,381
                                                                          ------------     ------------

Loans payable to shareholders ........................................          71,830           56,644
Loans payable to Baseboard Investments, LLC ..........................         266,542               --
Deferred tax liabilities .............................................          37,929           40,076
                                                                          ------------     ------------
Total liabilities ....................................................       1,350,672        1,078,101
                                                                          ------------     ------------

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, 2003 and
       2004 ..........................................................          44,960           44,960
     Warrants: 100,000 outstanding at May 31, 2003and 2004 ...........         166,728          166,728
     Additional paid-in capital ......................................      11,832,246       11,832,246
     Accumulated deficit .............................................     (10,656,588)     (10,234,774)
                                                                          ------------     ------------
Total shareholders' equity ...........................................       1,387,346        1,809,160
                                                                          ------------     ------------
Total liabilities and shareholders' equity ...........................    $  2,738,018     $  2,887,261
                                                                          ============     ============
</TABLE>

See accompanying notes.


                                       21
<PAGE>

                       ROBOCOM SYSTEMS INTERNATIONAL INC.

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                  Year ended May 31,
                                                      ----------------------------------------
                                                          2002           2003          2004
                                                      -----------     ----------    ----------
<S>                                                   <C>             <C>           <C>
Revenues:
   Software license fees .........................    $   666,664     $  230,127    $  546,141
   Services ......................................        533,037      1,299,036     1,203,316
   Hardware ......................................        403,187        730,297        89,524
   Maintenance ...................................      1,503,622      1,469,334     1,515,638
                                                      -----------     ----------    ----------
   Total revenues ................................      3,106,510      3,728,794     3,354,619
                                                      -----------     ----------    ----------

Cost of revenues:
   Cost of license fees ..........................        107,404          1,071       111,414
   Cost of services ..............................        451,805        623,948       672,976
   Cost of hardware ..............................        356,005        503,141        77,973
   Cost of maintenance ...........................      1,055,024        626,452       643,146
                                                      -----------     ----------    ----------
   Total cost of revenues ........................      1,970,238      1,754,612     1,505,509
Amortization of software development costs .......      1,524,021        774,006       766,733
                                                      -----------     ----------    ----------
                                                        3,494,259      2,528,618     2,272,242
                                                      -----------     ----------    ----------
Gross margin .....................................       (387,749)     1,200,176     1,082,377

Selling, general and administrative expenses .....        904,294        682,905       643,787
                                                      -----------     ----------    ----------
Income (loss) from operations ....................     (1,292,043)       517,271       438,590
Interest expense, net ............................         39,261         31,681        16,776
                                                      -----------     ----------    ----------
Income (loss) before income taxes ................     (1,331,304)       485,590       421,814
Income taxes .....................................             --             --            --
                                                      -----------     ----------    ----------
Net income (loss) ................................    $(1,331,304)    $  485,590    $  421,814
                                                      ===========     ==========    ==========
Net income (loss) per basic and diluted share ....    $      (.30)    $      .11    $      .09
                                                      ===========     ==========    ==========

Weighted average shares outstanding:
   Basic .........................................      4,495,984      4,495,984     4,495,984
                                                      ===========     ==========    ==========
   Diluted .......................................      4,495,984      4,495,984     4,577,011
                                                      ===========     ==========    ==========
</TABLE>

See accompanying notes.


                                       22
<PAGE>

                       ROBOCOM SYSTEMS INTERNATIONAL INC.

                       STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                             Common Stock
                               ----------------------------------------
                                                                               Additional                                  Total
                                               Par Value                         Paid-In          Accumulated          Shareholders'
                                Shares            $.01         Warrants          Capital            Deficit               Equity
                               -----------------------------------------------------------------------------------------------------
<S>                            <C>              <C>            <C>             <C>                <C>                  <C>
Balance, June 1, 2001 ...      4,495,984        $44,960              --        $11,832,246        $ (9,810,874)        $ 2,066,332

Net loss ................             --             --              --                 --          (1,331,304)         (1,331,304)
                               -----------------------------------------------------------------------------------------------------

Balance, May 31, 2002 ...      4,495,984         44,960              --         11,832,246         (11,142,178)            735,028

Net income ..............             --             --              --                 --             485,590                  --

Common stock warrants ...             --             --         166,728                 --                  --                  --
                               -----------------------------------------------------------------------------------------------------

Balance, May 31, 2003 ...      4,495,984         44,960         166,728         11,832,246         (10,656,588)          1,387,346

Net Income ..............                                                                              421,814             421,814
                               -----------------------------------------------------------------------------------------------------

Balance, May 31, 2004 ...      4,495,984        $44,960        $166,728        $11,832,246        $(10,234,774)        $ 1,809,160
                               =====================================================================================================
</TABLE>

See accompanying notes.


                                       23
<PAGE>

                       ROBOCOM SYSTEMS INTERNATIONAL INC.

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                         Year ended May 31,
                                                            -------------------------------------------
                                                                2002            2003            2004
                                                            -----------     -----------     -----------
<S>                                                         <C>             <C>             <C>
Operating activities
Net income (loss) ......................................    $(1,331,304)    $   485,590     $   421,814
Adjustments to reconcile net income (loss) to net
   cash provided by operating activities:
       Depreciation and amortization of property and
         equipment .....................................         74,375          44,202          27,631
       Amortization of software development costs ......      1,524,021         774,006         766,733
       Provision for bad debts .........................          9,180          11,021           6,536
       Changes in operating assets and liabilities:
         Accounts receivable ...........................        102,045          (8,847)        (72,643)
         Unbilled revenue ..............................        (22,617)         46,196          65,458
         Other current assets ..........................        (56,435)        (14,005)        (10,352)
         Accounts payable ..............................         90,005         (25,610)        (22,876)
         Accrued expenses ..............................       (123,524)         (7,569)         (3,257)
         Deferred revenue ..............................        188,169        (101,203)         33,143
         Other assets ..................................          7,422              --              --
                                                            -----------     -----------     -----------
Net cash provided by operating activities ..............        461,337       1,203,781       1,212,187
                                                            -----------     -----------     -----------

Investing activities
Software development costs .............................       (331,290)       (648,612)       (821,041)
Capital expenditures ...................................         (4,555)        (19,996)        (11,731)
                                                            -----------     -----------     -----------
Net cash used in investing activities ..................       (335,845)       (668,608)       (832,772)
                                                            -----------     -----------     -----------

Financing activities
Loan payable to shareholders ...........................             --         (19,058)        (15,186)
Loan payable to Baseboard Investments LLC ..............             --        (300,000)       (266,542)
                                                            -----------     -----------     -----------
Net cash used in financing activities ..................             --        (319,058)       (281,728)
                                                            -----------     -----------     -----------

Increase in cash and cash equivalents ..................        125,492         216,115          97,687
Cash and cash equivalents at beginning of year .........         93,878         219,370         435,485
                                                            -----------     -----------     -----------
Cash and cash equivalents at end of year ...............    $   219,370     $   435,485     $   533,172
                                                            ===========     ===========     ===========

Supplemental disclosures of cash flow information:
  Cash paid for interest ...............................    $     2,303     $     1,396     $     1,666
                                                            ===========     ===========     ===========
</TABLE>

Non-cash financing activity:

  On May 27, 2003, the Company issued warrants to purchase 100,000 shares of
  Common Stock in return for the release of long-term debt in the amount of
  $161,872 and the related interest of $4,856.

See accompanying notes.


                                       24
<PAGE>

                       Robocom Systems International Inc.
                        Notes to the Financial Statements

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.

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.

      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.


                                       25
<PAGE>

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

      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
Statement of Financial Accounting Standards ("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.

      Property and Equipment

      Property and equipment consists of computers and other office equipment.
The Company depreciates the cost of computers and other office equipment using
the straight-line method over the estimated useful lives (three years).

      Basic and Diluted Net Income (Loss) Per Share

      Basic and diluted net income (loss) per share is computed by dividing net
income (loss) by the weighted average number of shares of common stock
outstanding for the periods presented.

      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.


                                       26
<PAGE>

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

      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. For the years ended May 31,
2002, 2003 and 2004, these costs amounted to approximately $53,000, $25,000 and
$43,000, respectively.

      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:

                                     2002           2003           2004
                                  ----------     ----------     ----------

      Domestic ..............     $2,765,234     $3,496,349     $3,060,086
      Europe ................        243,124        162,595        174,137
      Pacific ...............         85,084         60,102        103,938
      Other .................         13,068          9,748         16,458
                                  ----------     ----------     ----------
                                  $3,106,510     $3,728,794     $3,354,619
                                  ==========     ==========     ==========

      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 fiscal year ended May 31,
2002, the Company had one client that accounted for approximately 19% of total
revenues. For the fiscal year ended May 31, 2003, the Company had three clients
that accounted for approximately 24%, 13% and 12% of total revenues. For the
fiscal year ended May 31, 2004, the Company had two clients that accounted for
approximately 22% and 21% of total revenues. Revenues from the Company's five
largest clients in each of fiscal 2002, 2003 and 2004 accounted for
approximately 44%, 65% and 59% of total revenues, respectively. Management does
not believe significant credit risk existed at May 31, 2004.

2. Shareholders' Equity

      Warrants

      On May 27, 2003, the Company issued warrants to purchase 100,000 shares of
Common Stock at an exercise price of $0.50 per share to Robocom Properties, Inc.
("Properties"), in return for the release of long-term debt in the amount of
$161,872 and the related interest of $4,856 owed to Properties under a long-term
debt agreement dated May 30, 2002. These stock purchase warrants can be
exercised at any time and will expire on May 31, 2008. The shareholders of
Properties are also shareholders of the Company.


                                       27
<PAGE>

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

      Stock Option Plan

      The Company has a Stock Option and Long-term Incentive Compensation Plan
(the "Plan"), which, as amended, provides for the issuance of up to 1,150,000
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.

      The following summarizes stock option activity during fiscal 2002, 2003
and 2004:

                                                             Weighted-
                                                Shares        Average
                                                 under       Exercise
                                                Option         Price
                                               ---------     ---------
            Balance, June 1, 2001               790,450        $2.96
            Cancelled                          (506,750)       $2.22
                                               --------
            Balance, May 31, 2002               283,700        $4.29
            Granted                              45,000        $0.09
            Cancelled                          (154,700)       $6.91
                                               --------
            Balance, May 31, 2003               174,000        $0.87
            Granted                             350,000        $0.65
            Cancelled                            (5,000)       $2.00
                                               --------
            Balance, May 31, 2004               519,000        $0.71
                                               ========

      The options exercisable at May 31, 2002, 2003 and 2004 were 246,700,
174,000 and 399,000, respectively. The weighted average exercise price of
options exercisable at May 31, 2002, 2003 and 2004 was $4.76, $0.87 and $0.73,
respectively.

      The weighted-average fair value of options granted during the years ended
May 31, 2003 and 2004 was $0.09 and $0.65 per share, respectively. No options
were granted during fiscal 2002.

      The following table summarizes information about this plan at May 31,
2004:

                      Options                                  Options
                    Outstanding           Weighted           Exercisable
                    -----------           Average            -----------
    Exercise                             Remaining
      Prices           Shares         Contractual Life         Shares
      ------           ------         ----------------         ------
      $0.090           45,000             3.8 years            45,000
      $0.500           75,000             1.6 years            75,000
      $0.650          350,000             4.5 years           230,000
      $0.750           15,000             1.5 years            15,000
      $2.625           34,000              .9 years            34,000
                      -------                                 -------
                      519,000                                 399,000
                      =======                                 =======

      Pro forma information regarding net income (loss) and net income (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:


                                       28
<PAGE>

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

                                           For the year ended May 31,
                                           --------------------------
                                               2003           2004
                                             -------        -------
            Expected life ..............     5 years        5 years
            Interest rate ..............        1.18%          0.94%
            Volatility .................        1.80           1.80
            Dividend yield .............           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
year ended May 31, 2002 would have increased and net income for the years ended
May 31, 2003 and 2004 would have decreased as follows:

<TABLE>
<CAPTION>
                                                                                   For the year ended May 31,
                                                                             --------------------------------------
                                                                                 2002           2003         2004
                                                                             -----------      --------     --------
<S>                                                                          <C>              <C>          <C>
            Pro forma net income (loss):
                As reported ............................................     $(1,331,304)     $485,590     $421,814
                Pro forma in accordance with SFAS No. 123 ..............     $(1,400,825)     $433,348     $260,978
            Pro forma basic and diluted net income (loss) per share:
                As reported ............................................     $      (.30)     $    .11     $    .09
                Pro forma in accordance with SFAS No. 123 ..............     $      (.31)     $    .10     $    .06
</TABLE>

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

      The remaining number of shares reserved for options at May 31, 2004 was
631,000.

3. Detail of Certain Balance Sheet Accounts

      Software Development Costs, net

      Software development costs, net, consisted of the following:

                                                              May 31,
                                                   ----------------------------
                                                       2003             2004
                                                   -----------      -----------

            Software development costs .......     $ 4,590,393      $ 3,013,172
            Less accumulated amortization ....      (3,068,468)      (1,436,939)
                                                   -----------      -----------
                                                   $ 1,521,925      $ 1,576,233
                                                   ===========      ===========

      Accrued Expenses

      Accrued expenses consisted of the following:

                                                      May 31,
                                                --------------------
                                                  2003        2004
                                                --------    --------

            Payroll and related taxes ......    $ 74,623    $ 93,656
            Accrued hardware costs .........       1,000       3,196
            Accrued interest ...............      28,850      45,197
            Professional fees and other ....     135,556      94,723
                                                --------    --------
                                                $240,029    $236,772
                                                ========    ========


                                       29
<PAGE>

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

4. Employee Benefit Plan

      The Company has a 401(k) defined contribution plan. This plan covers all
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 6% of the
participating employee's compensation. Plan expenses for each of the years ended
May 31, 2002, 2003 and 2004 amounted to $23,000, $32,000 and $43,000,
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, 2003 and 2004 were as follows:

                                                                May 31,
                                                       ------------------------
                                                          2003          2004
                                                       ----------    ----------
            Deferred tax assets:
               Accrued expenses ...................    $   29,849    $   37,462
               Allowance for doubtful accounts ....         8,080         2,614
               Net operating loss carryforwards ...     3,180,446     3,030,026
                                                       ----------    ----------
            Total deferred tax assets .............     3,218,375     3,070,102
            Valuation allowance ...................     2,609,605     2,439,609
                                                       ----------    ----------
            Net deferred tax assets ...............       608,770       630,493
            Deferred tax liabilities:
               Software development costs .........       608,770       630,493
                                                       ----------    ----------
            Net deferred tax liabilities ..........    $       --    $       --
                                                       ==========    ==========

      The valuation allowance at May 31, 2002, 2003 and 2004 was provided
because of uncertainty, based on the Company's historical results, with respect
to realization of deferred tax assets. The valuation allowance increased during
the year ended May 31, 2002 by $387,458 and decreased during the years ended May
31, 2003 and 2004 by $251,082 and $169,996, respectively.

      The components of the tax provision for the three years ended May 31,
2002, 2003 and 2004 are as follows:

<TABLE>
<CAPTION>
                                                                 For the year ended May 31,
                                                              -------------------------------
                                                              2002      2003          2004
                                                              ----    ---------     ---------
<S>                                                                   <C>           <C>
            Currently Payable:
                Before benefit of operating loss
                  carryforward ...........................      --    $ 254,106     $ 152,584
                Benefit of operating loss carryforward ...      --     (254,106)     (152,584)
            Deferred:
                Federal ..................................      --           --            --
                State ....................................      --           --            --
                                                              -------------------------------
            Total ........................................      --    $      --     $      --
                                                              ===============================
</TABLE>


                                       30
<PAGE>

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

      Income taxes for the fiscal years ended May 31, 2002, 2003 and 2004
differs from the statutory U.S. federal income tax rate due to the following:

<TABLE>
<CAPTION>
                                                                For the year ended May 31,
                                                              ------------------------------
                                                               2002        2003        2004
                                                              ------      ------      ------
<S>                                                            <C>         <C>         <C>
            Federal statutory tax rate ...................     (34.0%)      34.0%       34.0%
            State income taxes, net of Federal benefit ...      (5.9)        5.9         5.9
            Valuation allowance ..........................      29.1       (40.0)      (40.0)
            Other ........................................      10.8         0.1         0.1
                                                              ------      ------      ------
                                                                 0.0%        0.0%        0.0%
                                                              ======      ======      ======
</TABLE>

      At May 31, 2004, the Company had net operating loss carryforwards of
approximately $7.6 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, 2022.

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 $177,991 in
fiscal 2002 and $168,000 in fiscal years ending 2003 and 2004. As of May 31,
2002 and 2003, expenses of $161,872 and $8,000 were unpaid, respectively. During
fiscal 2002, $161,872 of unpaid rental expense was converted to long-term debt
as of May 30, 2002, bearing interest at 3% per annum and maturing on May 30,
2004. On May 27, 2003, this amount, plus the related accrued interest of $4,856,
was exchanged for warrants to purchase 100,000 shares of Common Stock at an
exercise price of $.50 per share. These stock purchase warrants can be exercised
at any time and will expire on May 31, 2008.

      As of May 2000, a director and principal shareholder of the Company
entered into a one-year agreement with the Company to provide consulting
services. This agreement was not renewed in fiscal 2001. At May 31, 2002, $9,661
remained unpaid relating to such services. This amount was converted to
long-term debt as of May 30, 2002, bearing interest at 3% per annum and was to
mature on May 30, 2004. As of May 30, 2003, this note was extended until June
30, 2005, under the existing terms. At May 31, 2004, no balance remained unpaid
under this note.

      As of April 1999, the chairman of the board and a principal shareholder of
the Company entered into a three-year agreement with the Company to provide
consulting services. During fiscal 2002, consulting fees of approximately
$28,000 were incurred under this agreement. At May 31, 2002, $37,196 remained
unpaid relating to such services. This amount was converted to long-term debt as
of May 30, 2002, bearing interest at 3% per annum and was to mature on May 30,
2004. As of May 30, 2003, this note was extended until June 30, 2005, under the
existing terms. At May 31, 2004, $16,621 remained unpaid under this note.

      As of May 1998, a director and principal shareholder of the Company
entered into a three-year agreement with the Company to provide consulting
services. At May 31, 2002, $5,853 remained unpaid relating to such services.
This amount was converted to long-term debt as of May 30, 2002, bearing interest
at 3% per annum and was to mature on May 30, 2004. As of May 30, 2003, this note
was extended until June 30, 2005, under the existing terms. At May 31, 2004,
$3,677 remained unpaid under this note.


                                       31
<PAGE>

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

      During fiscal 2001, the Company secured lines of credit of $1,050,000 from
three principal shareholders and directors of the Company, including Irwin
Balaban, the Company's President and Chief Executive Officer. The lines of
credit expired on September 19, 2001 and were 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, and
expires September 19, 2005. As of May 31, 2004, no borrowings were outstanding
under the line of credit. In connection with the original lines of credit,
interest expense of $40,089 and $41,177 was incurred in fiscal 2001 and 2002,
respectively, of which $64,582 remained unpaid at May 31, 2002. This amount was
converted to long-term debt as of May 30, 2002, bearing interest at 3% per annum
and was to mature on May 30, 2004. As of May 30, 2003, this note was extended
until June 30, 2005, under the existing terms. At May 31, 2004, $36,346 remained
unpaid under this note.

7. Lease Commitments

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

            Fiscal year ending:

               2005 ..................................    $  176,000
               2006 ..................................       171,000
               2007 ..................................       171,000
               2008 ..................................       169,000
               2009 ..................................       168,000
               2010 and thereafter ...................       266,000
                                                          ----------
                                                          $1,121,000
                                                          ==========

      Total rental expense for each of the years ended May 31, 2002, 2003 and
2004 amounted to approximately $190,000, $184,000 and $184,000, respectively.


                                       32
<PAGE>

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

      None.

Item 8A. Controls and Procedures

      (a)   As of the end of the period covered by this report, the Company
            carried out an evaluation, under the supervision and with the
            participation of the Company's management, including the Company's
            Chief Executive Officer and principal accounting officer, of the
            effectiveness of the Company's disclosure controls and procedures
            (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
            Exchange Act of 1934 as amended (the "Exchange Act")). Based upon
            the evaluation, the Company's Chief Executive Officer and principal
            accounting officer concluded that as of the end of such period, the
            Company's disclosure controls and procedures are effective in timely
            recording, processing, summarizing and reporting information
            required to be included in the Company's periodic filings under the
            Exchange Act.

      (b)   There have been no significant changes in the Company's internal
            control over financial reporting (as such term is defined in Rules
            13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth
            quarter of 2004 that have materially affected, or are reasonably
            likely to materially affect, the Company's internal control over
            financial reporting.


                                       33
<PAGE>

                                    Part III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 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          72     Chairman of the Board, President and Chief
                              Executive Officer

Judy Frenkel           52     Senior Vice President and Chief Operating Officer

Robert B. Friedman     65     Director

Herbert Goldman        73     Director

Lawrence B. Klein      70     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 had 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 for the Company. From
April 1986 to September 1992, she was a Systems Analyst for the Company.

      Robert B. Friedman has been a director of the Company since March 2003.
Mr. Friedman is currently the principal owner and managing partner of several
business ventures, including the Norwich (CT) Comfort Suites Hotel, the Norwich
(CT) Navigators - Class AA affiliate of the San Francisco Giants, the Nathan
Hale Inn & Conference Center at the University of Connecticut and the Middletown
Inn & Conference Center. From 1969 to 1989, Mr. Friedman, a graduate of The
Wharton School of the University of PA, was President and a Director of the
Middex Development Corporation, a national real estate development company,
involved in the development, ownership and management of hotels and office
buildings.

      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 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.


                                       34
<PAGE>

      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.

Compliance with Section 16(a) of the Exchange Act

      Based solely upon a review of Forms 3, 4 and 5 furnished to the Company
pursuant to Section 16(a)-3e of the Securities Act of 1934, the Company notes
the following delinquencies for the period ended May 31, 2004:

      Ms. Frenkel did not file her Form 4 on a timely basis. Her Form 4 was
filed on December 19, 2003. None of Messrs. Balaban, Friedman, Goldman and Klein
or Ms. Frenkel has filed Forms 3 or 5, if required. The Company is not aware of
the requirement or exemption of any of such individuals to file a Form 5, but
notes the absence of any written representation identified in paragraph
(b)(2)(i) of Item 405 of Regulation S-B.

Code of Ethics

      The Company has not yet adopted a code of ethics. Management expects to
implement a formal code of ethics and related controls in the second quarter of
its 2005 fiscal year.

Committees of the Board of Directors

      The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee is responsible for recommending
independent auditors for selection by the Board of Directors, reviewing with the
independent auditors the scope and results of the audit engagement, monitoring
the Company's financial policies and internal control procedures, and reviewing
and monitoring the provisions of non-audit services performed by the Company's
independent auditors. The Compensation Committee is responsible for reviewing
and recommending salaries, bonuses and other compensation for the Company's
officers. The Compensation Committee is also responsible for the administering
the Company's stock option plan and for establishing terms and conditions of all
stock options granted under this plan. All of the members of the Audit Committee
and the Compensation Committee are non-employee directors.

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 fiscal year (collectively, the "Named
Executives"):

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                               Long-Term
                                               Annual Compensation                        Compensation Awards
                                                                                      Securities
                                                                   Other Annual       Underlying        All Other
  Name and Principal       Fiscal       Salary       Bonuses     Compensation (1)    Options/SARs    Compensation (2)
       Position             Year          ($)          ($)              ($)              (#)               ($)
<S>                         <C>         <C>           <C>             <C>               <C>              <C>
Irwin Balaban (3)           2004              0           0                0            60,000                0
  President and Chief       2003              0           0                0                 0                0
   Executive Officer        2002              0           0           28,180                 0                0

Judy Frenkel (4)            2004        128,000           0                0            50,000            3,874
  Chief Operating           2003        121,000       5,000                0                 0            3,417
   Officer                  2002        110,000           0           20,000                 0            2,600
</TABLE>


                                       35
<PAGE>

----------

(1)   Represents amounts paid for automobile expenses, consulting fees and
      commissions.

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


                                       36
<PAGE>

Stock Options

      The following table sets forth information with respect to fiscal
year-ended May 31, 2004 option values.

                      OPTION/SAR GRANTS IN LAST FISCAL YEAR
                               (Individual Grants)

<TABLE>
<CAPTION>
                    Number of        % of Total
                    Securities      Options/SARs
                    Underlying       Granted to
                   Options/SARs     Employees in    Exercise or Base Price
     Name          Granted (#)      Fiscal Year             ($/sh)              Expiration Date
<S>                   <C>              <C>                  <C>                 <C>
Irwin Balaban         60,000           17.14%               $0.65               December 6, 2008
Judy Frenkel          50,000           14.29%               $0.65               December 6, 2008
</TABLE>

      The following table sets forth the number and value of options exercised
by each of the Named Executive Officers during the fiscal year ended May 31,
2004 and of unexercised options held by each of the Named Executive Officers on
May 31, 2004:

                             OPTION YEAR END VALUES

<TABLE>
<CAPTION>
                                                                 Number of Securities
                                                                Underlying Unexercised       Value of Unexercised In-
                      Shares Acquired                           Options/SARs at FY-End      the-Money Options/SARs at
                        on Exercise        Value Realized                (#)                        FY-End ($)
       Name                 (#)                  ($)          Exercisable/Unexercisable     Exercisable/Unexercisable
<S>                         <C>                   <C>              <C>                           <C>
Irwin Balaban               --                    --               65,000 / 0                    $3,000 / 0
Judy Frenkel                --                    --               40,000 / 50,000                6,000 / 2,500
</TABLE>

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 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.

      Upon the election of Robert Friedman to serve as a Director of the
Company, Mr. Friedman was granted five-year options to purchase 45,000 shares of
Common Stock at an exercise price of $.09 per share. These options vested
immediately.

      During fiscal 2004, Irwin Balaban, Robert Friedman, Herbert Goldman and
Lawrence Klein were each granted five-year options to purchase 50,000 shares of
Common Stock at an exercise price of $.65 per share. These options vested
immediately.


                                       37
<PAGE>

Consulting Agreement

      On April 1, 1999, the Company and Mr. Balaban entered into a three-year
agreement pursuant to which Mr. Balaban was to receive $12,000 per year for
providing consulting services on an as-needed basis. During fiscal 2001 and
2002, consulting fees of approximately $28,000, were incurred under this
agreement. During fiscal 2002, Mr. Balaban assumed the offices of President and
Chief Executive Officer. At May 31, 2002, $37,196 was unpaid relating to such
services. This amount was converted to a promissory note as of May 30, 2002,
bearing interest at 3% per annum and maturing on May 30, 2004. As of May 30,
2003, this note was extended until June 30, 2005, under the existing terms. At
May 31, 2003, $25,194 remained unpaid under this note.

Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters.

      The following table sets forth, as of August 23, 2004, 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 .......................................         1,051,100(3)                  23.05%
Judy Frenkel ........................................           118,200(4)                   2.58
Robert B. Friedman ..................................           102,500(5)                   2.23
HerbertGoldman ......................................           946,500(6)                  20.76
Lawrence B. Klein ...................................           704,000(7)                  15.45
All executive officers and directors as a group
    (5 persons) .....................................         2,922,300(8)                  65.00
</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 65,000 shares
            subject to options that are presently exercisable.

      (4)   Includes 40,000 shares subject to options that are presently
            exercisable.

      (5)   Includes 102,500 shares subject to options that are presently
            exercisable.


                                       38
<PAGE>

      (6)   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 62,500 shares subject to
            options that are presently exercisable.

      (7)   Includes 60,000 shares subject to options that are presently
            exercisable.

      (8)   Includes 330,000 shares subject to options that are presently
            exercisable.

Securities Authorized for Issuance under Equity Compensation Plans

      The Company has one compensation plan under which shares of Common Stock
may be issued, the 1997 Stock Option and Long-term Incentive Compensation Plan.
The Company has no equity compensation plans or arrangements that have not been
approved by stockholders.

      The following table sets forth information as of May 31, 2004, with
respect to the compensation plan under which the Company is authorized to issue
shares of its Common Stock:

                      Equity Compensation Plan Information

<TABLE>
<CAPTION>
                                                Number of
                                             securities to be
                                               issued upon        Weighted average       Number of securities
                                               exercise of       exercise price of   remaining for future issuance
                                               outstanding          outstanding        under equity compensation
                                            options, warrants        options,         plans (excluding securities
                                                and rights      warrants and rights    reflected in columns (a))
                                                   (a)                  (b)                       (c)
<S>                                              <C>                   <C>                      <C>
Equity compensation plans approved
   by security holders .................         519,000               $0.71                    631,000
Equity compensation plans not
   approved by security holders ........              --                  --                         --
                                                 -------               -----                    -------
Total ..................................         519,000               $0.71                    631,000
                                                 =======               =====                    =======
</TABLE>

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. ("Properties") that
expires on December 31, 2010. The shareholders of Properties are Messrs.
Balaban, Goldman, Klein, and two former executive officers of the Company. In
connection therewith, the Company incurred expenses of $177,991 in fiscal 2001
and $168,000 in both fiscal 2003 and 2004. In fiscal 2002, $161,872 was
converted to long-term debt as of May 30, 2002, bearing interest at 3% per annum
and maturing on May 30, 2004. On May 27, 2003, this long-term debt, plus the
related accrued interest of $4,856, was exchanged for warrants to purchase
100,000 shares of Common Stock, at an exercise price of $.50 per share. These
stock purchase warrants can be exercised at any time and will expire on May 31,
2008.

      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 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, 2004 was 4.00%. 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.


                                       39
<PAGE>

      Irwin Balaban, Chairman of the Board, President and Chief Executive
Officer of the Company, entered into a three-year agreement on April 1, 1999,
pursuant to which Mr. Balaban was to receive $12,000 per year for providing
consulting services on an as-needed basis. During fiscal 2001 and 2002,
consulting fees of approximately $28,000 were incurred under this agreement. At
May 31, 2002, $37,196 was unpaid relating to such services. This amount was
converted to a promissory note as of May 30, 2002, bearing interest at 3% per
annum and maturing on May 30, 2004. As of May 30, 2003, this note was extended
until June 30, 2005, under the existing terms. At May 31, 2004, $16,621 remained
unpaid under this note.

      Lawrence Klein, a director of the Company, entered into a one-year
agreement on May 16, 2000, pursuant to which Mr. Klein was to receive $18,000
per year for providing consulting services to the Company on an as-needed basis.
This agreement was not renewed in fiscal 2001. At May 31, 2002, $9,661 remained
unpaid under this agreement. This amount was converted to a promissory note as
of May 30, 2002, bearing interest at 3% per annum and maturing on May 30, 2004.
As of May 30, 2003, this note was extended until June 30, 2005, under the
existing terms. At May 31, 2004, no balance remained unpaid under this note.

      Herbert Goldman, a director of the Company, entered into a three-year
agreement on May 15, 1997, pursuant to which Mr. Goldman was to receive $12,000
per year for providing consulting services on an as-needed basis. At May 31,
2002, $5,853 remained unpaid under this agreement. This amount was converted to
a promissory note as of May 30, 2002, bearing interest at 3% per annum and
maturing on May 30, 2004. As of May 30, 2003, this note was extended until June
30, 2005, under the existing terms. At May 31, 2004, $3,677 remained unpaid
under this note.

      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, and was to expire in
September 2002. As of November 21, 2003, this line of credit was extended until
September 19, 2005, under the existing terms. As of May 31, 2004, no borrowings
were outstanding under the line of credit.

Item 13. Principal Accountant Fees and Services.

      During the fiscal years ended May 31, 2003 and 2004, the Company incurred
audit and review service fees of $40,000, from Eisner and Lubin LLP. Eisner &
Lubin LLP has not performed any other services for the Company not expressly
mentioned above.

Board of Directors Pre-Approval

      The Company's Board of Directors pre-approved the engagement of Eisner &
Lubin LLP to act as the independent auditor for the year ended May 31, 2004 and
through the completion of our annual report on Form 10-KSB for the fiscal year
ended May 31, 2005. The Board of Directors also pre-approved the engagement of
Eisner & Lubin LLP to provide the audit and audit related services described
above.


                                       40
<PAGE>

Item 14. Exhibits and Reports on Form 8-K.

      (a) Exhibits.

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

3.1         Restated Certificate of Incorporation of the Company (incorporated
            herein by reference to Exhibit 3.1 to the Company's Registration
            Statement on Form SB-2 (Registration No. 333-27587)).

3.2         Amendment dated November 9, 1998 to Restated Certificate of
            Incorporation of the Company to reflect name change to Robocom
            Systems International Inc. (incorporated herein by reference to
            Exhibit 3.2 to the Company's Annual Report on Form 10-KSB for the
            year ended May 31, 1999 as filed with the Commission on August 25,
            1999 (File No. 0-22735)).

3.3         Amended and Restated By-laws of the Company (incorporated herein by
            reference to Exhibit 3.2 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        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)).

10.4        Line of Credit Commitment dated August 16, 2002 from Baseboard
            Investments, LLP (incorporated herein by reference to Exhibit 10.12
            to the Company's Annual Report on Form 10-KSB for the year ended May
            31, 2002 as filed with the Commission on August 29, 2002 (File No.
            0-22735)).

10.5        Promissory Note dated August 16, 2002 from the Company to Baseboard
            Investments, LLP (incorporated herein by reference to Exhibit 10.13
            to the Company's Annual Report on Form 10-KSB for the year ended May
            31, 2002 as filed with the Commission on August 29, 2002 (File No.
            0-22735)).

10.6        Amended and Restated Promissory Note dated May 30, 2003 from the
            Company to Irwin Balaban (incorporated herein by reference to
            Exhibit 10.7 to the Company's Annual Report on Form 10-KSB for the
            year ended May 31, 2003 as filed with the Commission on August 18,
            2003 (File No. 0-22735)).

10.7        Amended and Restated Promissory Note dated May 30, 2003 from the
            Company to Lawrence Klein (incorporated herein by reference to
            Exhibit 10.8 to the Company's Annual Report on Form 10-KSB for the
            year ended May 31, 2003 as filed with the Commission on August 18,
            2003 (File No. 0-22735)).

10.8        Amended and Restated Promissory Note dated May 30, 2003 from the
            Company to Herbert Goldman (incorporated herein by reference to
            Exhibit 10.9 to the Company's Annual Report on Form 10-KSB for the
            year ended May 31, 2003 as filed with the Commission on August 18,
            2003 (File No. 0-22735)).

10.9        Amended and Restated Promissory Note dated May 30, 2003 from the
            Company to Baseboard Investments, LLP (incorporated herein by
            reference to Exhibit 10.10 to the Company's Annual Report on Form
            10-KSB for the year ended May 31, 2003 as filed with the Commission
            on August 18, 2003 (File No. 0-22735)).


                                       41
<PAGE>

10.10       Stock Purchase Warrant Agreement dated May 27, 2003 between the
            Company and Robocom Properties, Inc. (incorporated herein by
            reference to Exhibit 10.11 to the Company's Annual Report on Form
            10-KSB for the year ended May 31, 2003 as filed with the Commission
            on August 18, 2003 (File No. 0-22735)).

10.11       Severance Agreement dated July 18, 2003 between the Company and Judy
            Frenkel (incorporated herein by reference to Exhibit 10.12 to the
            Company's Annual Report on Form 10-KSB for the year ended May 31,
            2003 as filed with the Commission on August 18, 2003 (File No.
            0-22735)).

10.12       Line of Credit Commitment dated November 21, 2003 from Baseboard
            Investments, LLC (incorporated herein by reference to Exhibit 10.1
            to the Company's Quarterly Report on Form 10-QSB for the period
            ended November 30, 2003 as filed with the Commission on January 12,
            2004 (File No. 0-22735)).

10.13       Promissory Note dated November 21, 2003 from the Company to
            Baseboard Investments, LLC (incorporated herein by reference to
            Exhibit 10.2 to the Company's Quarterly Report on Form 10-QSB for
            the period ended November 30, 2003 as filed with the Commission on
            January 12, 2004 (File No. 0-22735)).

31.1        Certification of the Company's Chief Executive Officer and principal
            accounting officer, Irwin Balaban, pursuant to Section 302 of the
            Sarbanes-Oxley Act of 2002.

32.1        Certification of the Company's Chief Executive Officer and principal
            accounting officer, Irwin Balaban, pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002.

      (b) Reports on Form 8-K.

      On March 29, 2004, the Company filed a Current Report on Form 8-K to file
      its press release disclosing earnings results, as reported in the
      Quarterly Report on Form 10-QSB for the fiscal quarter ended February 29,
      2004.


                                       42
<PAGE>

                                   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 August 18, 2004.

                                        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      August 23, 2004
  --------------------------------------     (Principal Executive Officer, Principal Accounting
  Irwin Balaban                              Officer, and Principal Financial Officer)


  /s/ Lawrence B. Klein                      Director                                               August 23, 2004
  --------------------------------------
  Lawrence B. Klein


  /s/ Herbert Goldman                        Director                                               August 23, 2004
  --------------------------------------
  Herbert Goldman


  /s/ Robert B. Friedman                     Director                                               August 23, 2004
  --------------------------------------
  Robert B. Friedman
</TABLE>


                                       43
<PAGE>

                                  Exhibit Index

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

31.1        Certification of the Company's Chief Executive Officer and principal
            accounting officer, Irwin Balaban, pursuant to Section 302 of the
            Sarbanes-Oxley Act of 2002.

32.1        Certification of the Company's Chief Executive Officer and principal
            accounting officer, Irwin Balaban, pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002.


                                       44