Amendment to Form 10-Q Quarterly Report
FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934
Commission File Number 0-22693
SYSCOMM INTERNATIONAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 11-2889809
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
20 Precision Drive
Shirley, N.Y. 11967
(Address of Principal Executive Offices and Zip Code)
(631) 205-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ________
Number of shares outstanding of the issuer's Common Stock, par value $.01 per
share, as of May 12, 2000: 4,703,421 shares.
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
SYSCOMM INTERNATIONAL CORPORATION
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
3/31/00 3/31/99 3/31/00 3/31/99
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $ 9,338,000 $ 14,355,000 $ 21,063,000 $ 41,684,000
Cost of sales 8,025,000 12,434,000 18,468,000 36,924,000
------------ ------------- ------------- -------------
Gross profit 1,313,000 1,921,000 2,595,000 4,760,000
------------ -------------- -------------- --------------
Selling & administrative expenses 1,848,000 1,553,000 4,082,000 3,455,000
------------ -------------- -------------- --------------
(Loss) Income from operations (535,000) 368,000 (1,487,000) 1,305,000
------------ -------------- -------------- --------------
Other income (expenses)
Interest expense (34,000) (80,000) (80,000) (181,000)
Other 73,000 2,000 73,000 17,000
-------------- --------------- -------------- --------------
Total other expenses 39,000 (78,000) (7,000) (164,000)
-------------- --------------- -------------- --------------
Income (loss) from operations
before income taxes (496,000) 290,000 (1,494,000) 1,141,000
Provision (benefit) for income taxes
Income (loss) from operations (26,000) (118,000) (276,000) 459,000
-------------- --------------- -------------- --------------
Net (loss) income $ (470,000) $ 172,000 $ (1,218,000) $ 682,000
============== =============== ============== ==============
Net (loss) income per common share
Basic $ (.10) $ .04 $ (.26) $ .14
Diluted $ (.10) $ .04 $ (.26) $ .14
Weighted average number of common
shares outstanding
Basic 4,683,120 4,752,477 4,711,523 4,759,914
Diluted 4,683,120 4,758,935 4,711,523 4,759,914
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 2000 September 30, 1999
-------------- ------------------
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 2,630,000 $ 2,263,000
Accounts receivable, net 7,347,000 11,401,000
Inventory 339,000 742,000
Other 665,000 1,156,000
---------- ----------
Total current assets 10,981,000 15,562,000
---------- ----------
Property, plant and equipment, net 3,390,000 3,315,000
Other assets 558,000 424,000
------------ ------------
Total assets $ 14,929,000 $ 19,301,000
============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 2,995,000 $ 6,378,000
Income taxes payable 4,000 10,000
Other current liabilities 415,000 96,000
--------- ---------
Total current liabilities 3,414,000 6,484,000
Long-term liabilities 1,560,000 1,610,000
--------- ---------
Total liabilities 4,974,000 8,094,000
--------- ---------
Stockholders' Equity:
Preferred stock, no par value - 0 - - 0 -
Common stock, $.01 par value 55,000 55,000
Additional paid-in capital 6,497,000 6,474,000
Retained earnings 4,304,000 5,522,000
Less: Treasury stock (at cost) (901,000) (844,000)
--------- ----------
Total stockholders' equity 9,955,000 11,207,000
----------- -----------
Total liabilities and
stockholders' equity $14,929,000 $19,301,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended March 31,
--------------------------
2000 1999
---- ----
<S> <C> <C>
Cash Flows From Operating Activities
Net (Loss)/Income $ (1,218,000) $ 682,000
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 150,000 165,000
Changes in assets and liabilities
Accounts receivable 4,054,000 6,747,000
Inventory 403,000 1,905,000
Prepaid expenses (235,000) 26,000
Recoverable income taxes 726,000 198,000
Other assets (134,000) (24,000)
Accounts payable and accrued liabilities (3,064,000) (6,019,000)
Income taxes payable (6,000) 400,000
----------- -----------
Net Cash Provided by Operating Activities 676,000 4,080,000
----------- -----------
Cash Flows from Investing Activities
Purchase of fixed assets (225,000) (39,000)
---------- -----------
Net Cash Used in Investing Activities (225,000) (39,000)
---------- -----------
Cash Flows From Financing Activities
Net proceeds of term loan -0- 100,000
Net payments under supplier credit facility -0- (3,020,000)
Payments of long-term liabilities (50,000) (50,000)
Purchase of treasury stock (57,000) (43,000)
Net Proceeds from Issuance of Common Stock 23,000 -0-
----------- -----------
Net Cash Used by Financing Activities 84,000 (3,013,000)
----------- -----------
Net Increase in Cash and Cash Equivalents 367,000 1,028,000
Cash and Cash Equivalents at Beginning of Period 2,263,000 914,000
----------- -----------
Cash and Cash Equivalents at End of Period $2,630,000 $1,942,000
=========== ===========
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Income taxes $ 6,000 $ 189,000
Interest 80,000 181,000
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements of SysComm International
Corporation (the "Company") are unaudited (except for the balance sheet
information as of September 30, 1999, which is derived from the Company's
audited financial statements) and reflect all adjustments (consisting only
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the financial position and operating
results for the interim periods. The condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto, contained in the Company's Annual Report. The
results of operations for the six months ended March 31, 2000 are not
necessarily indicative of the results for the entire fiscal year ending
September 30, 2000, or any future interim period.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations.
Results of Operations:
Three Months Ended March 31, 2000 Compared with Three Months Ended March 31,
1999
Net loss for the three months ended March 31, 2000 was $470,000 or $.10 per
share compared to a net profit of $172,000 or $.04 per share for the three
months ended March 31, 1999. The net loss was primarily the result of
significantly lower sales.
Revenues
Sales revenues for the three months ended March 31, 2000 were $9,338,000
compared with $14,355,000 for the same period last year, a decrease of
$5,017,000 or 35.0%. This decrease in sales revenues reflects significantly
higher competition in the sales of hardware components as well as a transition
from participation in IBM's Authorized Assembler Program in the quarter ended
March 31, 1999 to a more service-oriented sales emphasis.
Gross Profit
Gross Profit as a percentage of sales was 14.1% for the three months ended March
31, 2000 compared to 13.4% for the same period last year. This increase reflects
the Company's strategy of focusing on the more profitable mid-range computer
market and consulting services.
Selling & Administrative Expenses
Selling and administrative expenses for the three months ended March 31, 2000
increased by $295,000 or 19.0% to $1,848,000 from $1,553,000 for the same period
last year. This increase is due primarily to an increase in payroll and
payroll-related expenses associated with converting our operating and selling
staff from hardware sales to technical services and e-solutions selling.
Interest Expense
Interest expense for the three months ended March 31, 2000 decreased $46,000 or
57.5% to $34,000 from $80,000 for the same period last year. The decrease is
attributable to a reduction in borrowing as a result of the Company's reduction
in accounts receivable to $7,347,000 from $12,948,000 as of the same quarter-end
last year. The reduction in accounts receivable is primarily attributable to
reduced sales levels and more aggressive management of collections.
<PAGE>
(Loss) Income from Operations before Income Taxes
Loss before income taxes for the three months ended March 31, 2000 was $496,000
compared with a profit of $290,000 for the same period last year. The change of
$786,000 was primarily attributable to lower sales revenues (which was partially
offset by increased gross profit margins) and increases in selling and
administrative expenses.
Taxes
The Company's effective tax rate for the three months ended March 31, 2000 was a
tax benefit associated with a refund received from prior years compared to a tax
provision of $118,000 or 40.7% for the same period last year.
Six Months Ended March 31, 2000 Compared With Six Months Ended March 31, 1999.
Net loss for the six months ended March 31, 2000 was $1,218,000 compared to a
profit of $682,000 for the same period last year. Basic loss per share was $.26
for the six months ended March 31, 2000 compared to a profit of $.14 for the
same period last year. The loss is primarily the result of lower sales volume,
particularly offset by higher gross profit margins and higher selling and
administrative expenses.
Revenues
Sales revenues for the six months ended March 31, 2000 decreased by $20,621,000
or 49.5% to $21,063,000 from $41,684,000 for the same period last year. The
decrease in sales revenue is primarily attributed to the Company's decision to
discontinue low margin PC assembly operations and focus on sales of e-business
solutions including mid-range hardware and data and storage management software
and services.
Gross Profit
Gross profit as a percentage of sales was 12.3% for the six months ended March
31, 2000 compared to 11.4% for the same period last year. The increase reflects
the Company's strategy to focus on higher margin e-business solutions, mid-range
computer sales and services.
Selling & Administrative Expenses
Selling and administrative expenses for the six months ended March 31, 2000
increased $627,000 or 18.2% to $4,082,000 from $3,455,000 for the same period
last year. The increase in expenses is primarily attributable to the commitment
of the company to hiring a more technical sales and services staff to more
effectively compete in the e-solutions market space.
<PAGE>
Interest Expense
Interest expense for the six months ended March 31, 2000 decreased to $80,000
compared to $181,000 for the same period last year. The decrease in interest
expense is directly related to the significant decreases in both inventory and
accounts receivable.
Loss from Operations before Income Taxes
Loss from operations before income taxes for the six months ended March 31, 2000
was $1,494,000 versus a profit of $1,141,000 in the same period last year. The
loss is attributable to the decreases in sales volume, partially offset by the
increase in gross profit margins and the increase in selling and administrative
expenses.
Taxes
The Company's effective tax rate for the six months ended March 31, 2000 was a
tax benefit compared to 40.2% for the same period last year.
Liquidity and Capital Resources
The Company's current ratio at March 31, 2000 and 1999 was 3.22 and 2.67,
respectively. Working capital at March 31, 2000 was $7,567,000 a decrease of
$2,536,000 over the same period last year.
Cash provided by operating activities was $676,000 and $4,080,000 for the six
months ended March 31, 2000 and 1999, respectively, due primarily to reductions
in the Company's inventory and accounts receivable. Cash used in investing
activities was $225,000 and $39,000 for the six months ended March 31, 2000 and
1999, respectively, and was primarily utilized in the acquisition of computer
hardware and software. Cash used in financing activities during the six months
ended March 31, 2000 and 1999 was $84,000 and $3,013,000, respectively, and
represented net payments made under the Company's Supplier Credit Facility with
IBM and long-term debt in 2000 and 1999.
The Company maintains a credit arrangement with IBM Credit Corporation pursuant
to which it may borrow an amount equal to up to 85% of its eligible receivables
and 100% of eligible inventory up to a maximum of $22,000,000. In addition to
the permanent credit line, there are various credit line uplifts during the
year, which can increase the line of credit by as much as 50%. As of March 31,
2000, interest on outstanding borrowings was prime or prime plus 6.5% should the
Company fail to meet certain collateral requirements. Throughout fiscal 1999 and
the first six months of fiscal 2000, the Company has been in a positive
collateral position with IBM Credit. The Company believes that its present line
of credit with IBM Credit Corporation, coupled with its current earnings
capacity, will be sufficient to meet its capital and operational requirements
for at least the next twelve months.
<PAGE>
As of March 31, 2000, the Company was in default of certain covenants contained
in its loan agreement with IBM Credit Corporation and certain covenants
contained in the mortgage (the "Mortgage") on its building in Shirley, NY. In
both cases, a waiver and amendment was received which will allow continued
operations. With respect to the amendment to the IBM Credit Corporation credit
arrangement, (i) the maximum credit line was reduced to $22,500,000 from
$27,500,000 and (ii) the Net Profit after Tax to Revenue ratio was amended to
provide for a ratio equal to or greater than than ($500,000) for each of the
fiscal quarters ended June 30, 2000 and September 30, 2000 and $0 for the fiscal
year ended December 31, 2000 and at all times thereafter. All other collateral
requirements remain unchanged. With respect to the Mortgage, the bank and the
Company entered into a Waiver and Fourth Amendment to the Mortgage pursuant to
which the bank waived and amended the quarterly net loss/profit provision
contained in the Mortgage to allow up to a $496,000 net loss for the quarter
ended March 31, 2000 and limited net loss to $150,000 for the quarter ended June
30, 2000 and a net profit of $125,000 for the quarter ended September 30, 2000.
Also, the parties amended the debt service ratio to require the Company to
maintain the ratio, beginning December 31, 2000, at 1.25:1.00 on a rolling four
quarters calculation throughout the term of the mortgage.
Forward-Looking Statements
Certain information contained in this Quarterly Report on Form 10-Q, including,
without limitation, information appearing under Part I, Item 2, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," are
forward-looking statements (within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Factors set
forth in the Company's Prospectus filed June 17, 1997, or in the Company's other
Securities and Exchange Commission filings, could affect the Company's actual
results and could cause the Company's actual results to differ materially from
those expressed in any forward-looking statements made by, or on behalf of, the
Company in this Quarterly Report on Form 10-Q.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
*3.1 Amended and Restated Certificate of Incorporation
*3.2 Amended and Restated By-Laws
*4.1 Form of Common Stock Certificate
*4.2 Form of Representative Warrant
**10.1 1998 Incentive Stock Option Plan
***10.2 1999 Employee Stock Purchase Plan
10.3 Waiver and Fourth Amendment to Mortgage dated as of
May 11, 2000 by and between the Company and the Chase
Manhattan Bank.
10.4 Acknowledgment, Waiver and Amendment to Financing
Agreement dated as of May 15, 2000 by and between
Information Technology Services, Inc. and IBM Credit
Corporation
11 Statement Re: Computation of per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
________________________________________________________________________
* Incorporated by reference from the Registrant's Registration Statement on
Form S-1, Registration No. 333-25593
** Incorporated by reference from the Registrant's definitive proxy statement
filed with the Securities and Exchange Commission on December 27, 1999.
*** Incorporated by reference from the Registrant's definitive proxy statement
filed with the Securities and Exchange commission on December 29, 1998.
<PAGE>
Signatures
Pursuant to the requirements 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.
SYSCOMM INTERNATIONAL CORPORATION
(Registrant)
By:
---------------------------------------
John H. Spielberger
President and Chief Executive Officer
By:
---------------------------------------
Date: May 16, 2000 Thomas F. Belleau
Vice President, Chief Financial Officer
and Secretary
WAIVER and FOURTH AMENDMENT
dated as of May 11, 2000 to the Mortgage
made and entered into as of July 9, 1998
between Syscomm International Corporation
(the "Borrower")and The Chase Manhattan Bank,
a banking corporation duly organized
and existing under the laws of the State of
New York (the "Bank")
WHEREAS, the Borrower wishes to and waive and amend the provision of the
Mortgage with respect to the required quarterly consolidated net loss and net
profit and Debt Service Coverage Ratio;
WHEREAS, the Bank has consented to waive and amend that provision of the
Mortgage to reflect the changes herein set forth;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereby agree as follows:
Waiver of Section 53:
Compliance with Section 53 of the Mortgage is hereby waived to permit
the Borrower to incur a quarterly consolidated net loss for the fiscal
quarter ending March 31, 2000 as long as the net loss for the quarter
was not greater than $496,000. The Borrower was required to report a
minimum consolidated net profit of $500,000 for the fiscal quarter
ending March 31, 2000.
Amendment to Section 53:
Section 53 of the Mortgage is hereby amended as follows: (i) the
Borrower shall not suffer a quarterly consolidated net loss (calculated
exclusive of extraordinary gains) greater than $150,000 for the fiscal
quarter ending June 30, 2000; (ii) the Borrower shall report a
quarterly consolidated net profit of at least $125,000 for the fiscal
quarter ending September 30, 2000; and (iii) beginning December 31,
2000, the Borrower shall through out the term of the Mortgage maintain
a rolling four quarter Debt Service Coverage Ratio of 1.25:00.
The Waiver and Fourth Amendment shall be construed and enforced in accordance
with the laws of the State of New York.
Except as expressly amended or consented to hereby, the Mortgage shall remain in
full force and effect in accordance with the original terms thereof. The Waiver
and Fourth Amendment herein contained is limited specifically to the matters set
forth above and does not constitute directly or by implication an amendment or
waiver of any other provision of the Mortgage or any default which may occur or
may have occurred under the Mortgage.
Capitalized terms used herein and not otherwise defined herein shall have the
same meanings as defined in the Mortgage.
The Borrower hereby represents and warrants that, after giving effect to this
Waiver and Fourth Amendment, no Event of Default or Default exists under the
Mortgage or any related documents.
This Waiver and Fourth Amendment shall become effective when duly executed
counterparts hereof which, when taken together, bear the signatures of each of
the parties hereto shall have been delivered to the Bank.
IN WITNESS WHEREOF, the Borrower and the Bank have caused the Waiver and Fourth
Amendment to be duly executed by their duly authorized officers, all as of the
day and year first above written.
Syscomm International Corporation
By: /s/ Thomas F. Belleau
---------------------
Thomas F. Belleau, Chief Financial Officer
ATTEST:
/s/ Thomas F. Belleau
- ---------------------
Secretary
Accepted this 11th day of May, 2000
By The Chase Manhattan Bank
By: /s/
Title: Vice President
ACKNOWLEDGMENT, WAIVER AND AMENDMENT
TO
FINANCING AGREEMENT
This ACKNOWLEDGMENT, WAIVER AND AMENDMENT ("Amendment") TO THE INVENTORY
AND WORKING CAPITAL FINANCING AGREEMENT is made as of May 15, 2000 by and
between Information Technology Services, Inc., a New York corporation
("Customer"), and IBM Credit Corporation, a Delaware Corporation ("IBM Credit").
RECITALS:
WHEREAS, Customer and IBM Credit have entered into that certain Inventory
or Working Capital Financing Agreement dated as of September 24, 1996 (as
amended, supplemented or otherwise modified from time to time, the "Agreement");
WHEREAS, Customer is in default of one or more of its financial covenants
contained in the Agreement (as more specifically explained in Section 2 hereof);
and
WHEREAS, IBM Credit is willing to waive such defaults subject to the
conditions set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the premises set forth herein, and for
other good and valuable consideration, the value and sufficiency of which is
hereby acknowledged, the parties hereto agree that the Agreement is amended as
follows:
Section 1. Definitions. All capitalized terms not otherwise defined herein shall
have the respective meanings set forth in the Agreement.
Section 2. Acknowledgment.
Customer acknowledges that the financial covenants set forth in Attachment
A to the Agreement are applicable to the financial results of Customer for the
fiscal quarter ending March 31, 2000 and Customer was required to maintain such
financial covenants at all times. Customer further acknowledges its actual
attainment was as follows:
<TABLE>
<CAPTION>
Covenant Covenant Requirement Covenant Actual
-------- -------------------- ---------------
<S> <C> <C> <C>
(a) Revenue on an Annual Basis to Working Greater than Zero and
Capital Equal to or Less than 15.00:1.00 5.55:1.00
(b) Net Profit after Tax to Revenue Equal to or Greater than
$350,000 -$1,244,000
(c) Total Liabilities to Tangible Net Worth Greater than Zero and
Equal to or Less than 3.00:1.00 0.59:1.00
</TABLE>
Section 3. Waivers to Agreement. IBM Credit hereby waives the defaults of
Customer with the terms of the Agreement to the extent such defaults are set
forth in Section 2 hereof.
Section 4. Amendment. The Agreement is hereby amended as follows:
A. Attachment A to the Agreement is hereby amended by deleting such Attachment A
in its entirety and substituting, in lieu thereof, the Attachment A attached
hereto. Such new Attachment A shall be effective as of the date specified in the
new Attachment A. The changes contained in the new Attachment A include, without
limitation, the following:
(a) A new sub-section (iv) under Borrowing Base:
(iv) Less an amount equal to twenty percent (20%) of outstandings
under the Credit Line at all times;
(b) Credit Line is decreased from Twenty-Seven Million Five Hundred
Thousand Dollars ($27,500,000) to Twenty-Two Million Five Hundred
Thousand Dollars ($22,500,000);
(c) Customer shall be required to maintain the following financial
percentage(s) and ratio(s) as of the last day of the fiscal period
under review by IBM Credit:
<TABLE>
<CAPTION>
Covenant Covenant Requirement Covenant Requirement Covenant Requirement
-------- for the Fiscal Quarter For the Fiscal Quarter For the Fiscal Year
Ending 06/30/00 Ending 09/30/00 Ending 12/31/00 and at
--------------- --------------- all times thereafter
--------------------
<S> <C> <C> <C> <C>
(i) Revenue on an Greater than Zero and Equal Greater than Zero and Greater than Zero and
Annual Basis to to or Less than 15.00:1.00 Equal to or Less than Equal to or Less Than
Working Capital 15.00:1.00 15.00:1.00
(ii) Net Profit after Equal to or Greater than Equal to or Greater Equal to or Greater
Tax to Revenue -$500,000 than -$500,000 than $0
(iii) Total Liabilities to Greater than Zero and Equal Greater than Zero and Greater than Zero and
Tangible Net to or Less than 3.00:1.00 Equal to or Less than Equal to or Less than
Worth 3.00:1.00 3.00:1.00
</TABLE>
Section 5. Rights and Remedies. Except to the extent specifically waived herein,
IBM Credit reserves any and all rights and remedies that IBM credit now has or
may have in the future with respect to Customer, including any and all rights or
remedies which it may have in the future as a result of Customer's failure to
comply with its financial covenants to IBM Credit. Except to the extent
specifically waived herein, neither this Amendment, any of IBM's Credit's
actions or IBM's Credit's failure to act shall be deemed to be a waiver of any
such rights or remedies.
Section 6. Governing Law. This Amendment shall be governed by and interpreted in
accordance with the laws which govern the Agreement.
Section 7. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be an original and all of which shall
constitute one agreement.
IN WITNESS WHEREOF, this Amendment has been executed by duly authorized
representatives of the undersigned as of the day and year first above written.
IBM CREDIT CORPORATION INFORMATION TECHNOLOGY SERVICES, INC.
By: /s/ John Olsen By: /s/ Thomas F. Belleau
-------------- ---------------------
Print Name: John Olsen Print Name: Thomas F. Belleau
Title: Region Loan Manager Title: VP - Finance/CFO
<PAGE>
ATTACHMENT A, EFFECTIVE DATE APRIL 1, 2000 ("IWCF ATTACHMENT A")
TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT
("IWCF AGREEMENT")
DATED September 24, 1996
Customer: Information Technology Services, Inc.
I. Fees, Rates and Repayment Terms:
(A) Credit Line: Twenty-Two Million Five Hundred Thousand Dollars
($22,500,000.00)
(B) Borrowing Base:
(i) 85% of the amount of the Customer's Eligible Accounts as of the
date of determination as reflected in the Customer's most recent
Collateral Management Report;
(ii) a percentage, determined from time to time by IBM Credit in its
sole discretion, of the amount of Customer's Concentration Accounts
for a specific Concentration Account Debtor as of the date of
determination as reflected in the Customer's most recent Collateral
Management Report; unless otherwise notified by IBM Credit, in
writing, the percentage for Concentration Accounts for a specific
Concentration Account Debtor shall be the same as the percentage set
forth in paragraph (i) of the Borrowing Base;
Notwithstanding the terms of Section 3.1(W) of the Agreement,
Accounts arising from incentive payments, rebates, discounts and
refunds which are (i) verifiable by Authorized Suppliers; and
(ii) payable by Authorized Suppliers by check to the Lockbox will
be deemed to be Eligible Accounts.
(iii) 100% of the Customer's inventory in the Customer's possession as
of the date of determination as reflected in the Customer's most
recent Collateral Management Report constituting Products (other than
service parts) financed through a Product Advance by IBM Credit,
provided, however, IBM Credit has a first priority security interest
in such Products and such Products are in new and in unopened boxes.
The value to be assigned to such inventory shall be based upon the
Authorized Supplier's invoice price to Customer for Products net of
all applicable price reduction credits.
(iv) Less an amount equal to twenty percent (20%) of outstandings
under the credit line at all times;
(C) Product Financing Charge: Prime Rate
(D) Product Financing Period: 90 days
(E) Collateral Insurance Amount: Seven Million Dollars ($7,000,000.00)
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
I. Fees, Rates and Repayment Terms (continued):
(F) A/R Finance Charge:
(i) PRO Advance Charge: Prime Rate plus 0.25%
(ii) WCO Advance Charge: Prime Rate plus 0.25%
(G) Delinquency Fee Rate: Prime Rate plus 6.500%
(H) Shortfall Transaction Fee: Shortfall Amount multiplied by 0.30%.
(I) Free Financing Period Exclusion Fee: Product Advance multiplied
by 0.40%
(J) Other Charges:
(i) Application Processing Fee: $__N/A ___.00
(ii) Monthly Service Fee: $ ____1,500.00
(iii) Closing Fee: $__N/A ___.00
(iv) Commitment Fee: $__N/A ___.00
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
II. Bank Account
(A) Customer's Lockbox(es) and Special Account(s) will be maintained at the
following Bank(s):
Name of Bank: The Chase Manhattan Bank
Address: 1 Chase Manhattan Plaza
New York, NY 10081
Phone: (212) 403-5010
Lockbox Address:
Special Account #: 910-1-821826
Name of Bank:
Address:
Phone:
Lockbox Address:
Special Account #:
Name of Bank:
Address:
Phone:
Lockbox Address:
Special Account #:
Name of Bank:
Address:
Phone:
Lockbox Address:
Special Account #:
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants:
Definitions: The following terms shall have the following respective meanings in
this Attachment A. All amounts shall be determined in accordance with generally
accepted accounting principles (GAAP).
Consolidated Net Income shall mean, for any period, the net income (or
loss), after taxes, of Customer on a consolidated basis for such period
determined in accordance with GAAP.
Current shall mean within the ongoing twelve-month period.
Current Assets shall mean assets that are cash or expected to become cash
within the ongoing twelve months.
Current Liabilities shall mean payment obligations resulting from past or
current transactions that require settlement within the ongoing
twelve-month period. All indebtedness to IBM Credit shall be considered a
Current Liability for purposes of determining compliance with the Financial
Covenants.
EBITDA shall mean, for any period (determined on a consolidated basis in
accordance with GAAP), (a) the Consolidated Net Income of Customer for such
period, plus (b) each of the following to the extent reflected as an
expense in the determination of such Consolidated Net Income: (i) the
Customer's provisions for taxes based on income for such period; (ii)
Interest Expense for such period; and (iii) depreciation and amortization
of tangible and intangible assets of Customer for such period.
Fixed Charges shall mean, for any period, an amount equal to the sum,
without duplication, of the amounts for such as determined for the Customer
on a consolidated basis, of (i) scheduled repayments of principal of all
Indebtedness (as reduced by repayments thereon previously made), (ii)
Interest Expense, (iii) capital expenditures, (iv) dividends, (v) leasehold
improvement expenditures, and (vi) all provisions for U.S. and non-U.S.
Federal, state and local taxes.
Fixed Charge Coverage Ratio shall mean the ratio as of the last day of any
fiscal period of (i) EBITDA as of the last day of such fiscal period to
(ii) Fixed Charges.
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants (continued):
Interest Expense shall mean, for any period, the aggregate consolidated
interest expense of Customer during such period in respect of Indebtedness
determined on a consolidated basis in accordance with GAAP, including,
without limitation, amortization or original issue discount on any
Indebtedness and of all fees payable in connection with the incurrence of
such Indebtedness (to the extent included in interest expense), the
interest portion of any deferred payment obligation and the interest
component of any capital lease obligations.
Long Term shall mean beyond the ongoing twelve-month period.
Long Term Assets shall mean assets that take longer than a year to be
converted into cash. They are divided into four categories: tangible
assets, investments, intangibles and other.
Long Term Debt shall mean payment obligations of indebtedness which mature
more than twelve months from the date of determination, or mature within
twelve months from such date but are renewable or extendible at the option
of the debtor to a date more than twelve months from the date of
determination.
Net Profit after Tax shall mean Revenue plus all other income, minus all
costs, including applicable taxes.
Revenue shall mean the monetary expression of the aggregate of products or
services transferred by an enterprise to its customers for which said
customers have paid or are obligated to pay, plus other income as allowed.
Subordinated Debt shall mean Customer's indebtedness to third parties as
evidenced by an executed Notes Payable Subordination Agreement in favor of
IBM Credit.
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants (continued):
Tangible Net Worth shall mean:
Total Net Worth minus:
(a) goodwill, organizational expenses, pre-paid expenses,
deferred charges, research and development expenses,
software development costs, leasehold expenses,
trademarks, trade names, copyrights, patents, patent
applications, privileges, franchises, licenses and
rights in any thereof, and other similar intangibles
(but not including contract rights) and other current
and non-current assets as defined in Customer's
financial statements; and
(b) all accounts receivable from employees, officers,
directors, stockholders and affiliates; and
(c) all callable/redeemable preferred stock.
Total Assets shall mean the total of current Assets and Long Term
Assets.
Total Liabilities shall mean the Current Liabilities and Long Term
Debt less Subordinated Debt, resulting from past or current
transactions, that require settlement in the future.
Total Net Worth (the amount of owner's or stockholder's ownership in
an enterprise) is equal to Total Assets minus Total Liabilities.
Working Capital shall mean Current Assets minus Current Liabilities.
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants (continued):
Customer will be required to maintain the following financial ratios,
percentages and amounts as of the last day of the fiscal period under review by
IBM Credit:
(a) Revenue on an annual basis (i.e., the current fiscal year-to-date
Revenue annualized) to Working Capital ratio greater than zero and
equal to or less than 15.0:1.0;
(b) Net Profit after Tax equal to or greater than:
- Negative Five Hundred Thousand Dollars (-$500,000.00) for the
quarterly period ending June 30, 2000;
- Negative Five Hundred Thousand Dollars (-$500,000.00) for the
quarterly period ending September 30, 2000;
- Zero for each quarter thereafter;
(c) Total Liabilities to Tangible Net Worth ratio greater than zero and
equal to or less than 3.0:1.0.
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
IV. Additional Conditions Precedent Pursuant to Section 5.1(K) of the
Agreement:
THIS STATEMENT AND ANY OF THE FOLLOWING DOCUMENTS THAT DO NOT APPLY MUST BE
DELETED.
- Executed Contingent Blocked Account Amendment;
- Executed Corporate Guaranty of Syscomm International, Inc.;
- Subordination or Intercreditor Agreements from all creditors having a
lien which is superior to IBM Credit in any assets that IBM Credit
relies on to satisfy Customer's obligations to IBM Credit;
- An opinion of Counsel substantially in the form and substance of
Attachment H whereby the Customer's counsel states his or her opinion
about the execution, delivery and performance of the Agreement and
other documents by the Customer;
- A copy of an all-risk insurance certificate pursuant to Section 7.8
(B) of the Agreement.
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
Six Months Ended March 31
2000 1999
-------------------
Weighted average shares outstanding
Common stock 4,711,523 4,759,914
Common stock equivalents -0- -0-
--------- ---------
Weighted average common shares and
equivalents 4,711,523 4,759,914
========== ==========
Net (loss) income (1,218,000) 682,000
========== ==========
Net (loss) income per share:
Basic $ (0.26) $ 0.14
Diluted $ (0.26) $ 0.14
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001037417
<NAME> SYSCOMM INTERNATIONAL CORPORATION
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-1-1999
<PERIOD-END> MAR-31-2000
<CASH> 2,630,000
<SECURITIES> 0
<RECEIVABLES> 7,494,000
<ALLOWANCES> (147,000)
<INVENTORY> 339,000
<CURRENT-ASSETS> 10,981,000
<PP&E> 4,631,000
<DEPRECIATION> 1,241,000
<TOTAL-ASSETS> 14,929,000
<CURRENT-LIABILITIES> 2,414,000
<BONDS> 0
0
0
<COMMON> 55,000
<OTHER-SE> 9,755,000
<TOTAL-LIABILITY-AND-EQUITY> 14,929,000
<SALES> 21,063,000
<TOTAL-REVENUES> 21,063,000
<CGS> 18,468,000
<TOTAL-COSTS> 18,468,000
<OTHER-EXPENSES> 4,082,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80,000
<INCOME-PRETAX> (1,494,000)
<INCOME-TAX> (276,000)
<INCOME-CONTINUING> (1,218,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,218,000)
<EPS-BASIC> (.26)
<EPS-DILUTED> (.26)
</TABLE>
