Form 10-Q Quarterly Report
FORM 10-Q
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 June 30, 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) 205-9000
(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 August 10, 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 NINE MONTHS ENDED
6/30/00 6/30/99 6/30/00 6/30/99
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $ 10,832,000 $ 14,017,000 $ 31,895,000 $ 55,701,000
Cost of sales 9,798,000 12,799,000 28,266,000 49,723,000
------------ ------------ ------------ ------------
Gross profit 1,034,000 1,218,000 3,629,000 5,978,000
------------ ------------ ------------ ------------
Selling & administrative expenses 1,572,000 1,995,000 5,654,000 5,449,000
------------ ------------ ------------ ------------
Income (loss) from operations (538,000) (777,000) (2,025,000) 529,000
------------ ------------ ------------ ------------
Other income (expenses)
Interest expenses (39,000) (36,000) (119,000) (217,000)
Other 47,000 15,000 120,000 32,000
------------ ------------ ------------ ------------
Total other income (expenses) 8,000 (20,000) 1,000 (185,000)
------------ ------------ ------------ ------------
Income (loss) from operations
before income taxes (530,000) (797,000) (2,024,000) 344,000
Provision (benefit) for income taxes - 0 - (319,000) (276,000) 140,000
------------ ------------ ------------ ------------
Net income (loss) $ (530,000) $ (478,000) $ (1,748,000) $ 204,000
============ ============ ============ ============
Net income (loss) per common share
Basic $ (0.11) $ (0.10) $ (0.37) $ 0.04
Diluted $ (0.11) $ (0.10) $ (0.37) $ 0.04
Weighted average number of common
shares outstanding
Basic 4,683,120 4,745,897 4,683,120 4,755,243
Diluted 4,683,120 4,745,897 4,683,120 4,755,243
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 2000 September 30, 1999
------------- ------------------
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,245,000 $ 2,263,000
Accounts receivable, net 9,161,000 11,401,000
Inventory 257,000 742,000
Other current assets 611,000 1,156,000
---------- ----------
Total current assets 11,274,000 15,562,000
---------- ----------
Property, plant and equipment, net 3,401,000 3,315,000
Other assets 422,000 424,000
---------- ------------
Total assets 15,097,000 $ 19,301,000
========== ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities 4,363,000 $ 6,378,000
Income taxes payable - 0 - 10,000
Other current liabilities 98,000 96,000
---------- ----------
Total current liabilities 4,461,000 6,484,000
Long-term liabilities 1,211,000 1,610,000
---------- ----------
Total liabilities 5,672,000 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 3,774,000 5,522,000
Less: Treasury stock (at cost) (901,000) (844,000)
---------- ----------
Total stockholders' equity 9,425,000 11,207,000
---------- ----------
Total liabilities and
stockholders' equity $ 15,097,000 $ 19,301,000
============ ============
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
--------------------------
2000 1999
---- ----
Cash Flows From Operating Activities
<S> <C> <C>
Net Income (loss) $(1,748,000) $ 204,000
Adjustments to reconcile net income (net loss) to net cash
provided by (used in) operating activities
Depreciation and amortization 225,000 248,000
Compensatory stock options issued to non-employees - 0 - 169,000
Changes in assets and liabilities
Accounts receivable 2,240,000 9,666,000
Inventory 485,000 1,990,000
Prepaid expenses and other current assets 545,000 (207,000)
Recoverable income taxes - 0 - 251,000
Other assets 2,000 (18,000)
Accounts payable and accrued liabilities (2,015,000) (6,369,000)
Income taxes payable (10,000) - 0 -
---------- ----------
Net Cash Provided by (used in) Operating (276,000) 5,934,000
---------- ----------
Activities
Cash Flows From Investing Activities
Purchase of fixed assets (311,000) (77,000)
---------- ----------
Net Cash Used in Investing Activities (311,000) (77,000)
---------- ----------
Cash Flows From Financing Activities
Net proceeds from (payments under) supplier credit facility - 0 - (3,020,000)
Net proceeds from term loan - 0 - 100,000
Net proceeds from government grant - 0 - 100,000
Net proceeds from the issuance of common stock 23,000 - 0 -
Payments of long-term liabilities (397,000) (74,000)
Purchase of treasury stock (57,000) (56,000)
---------- ----------
Net Cash Used in Financing Activities (431,000) (2,951,000)
---------- ----------
Net Increase (decrease) in Cash and Cash Equivalents (1,018,000) 2,906,000
Cash and Cash Equivalents at Beginning of Period 2,263,000 915,000
---------- ----------
Cash and Cash Equivalents at End of Period $ 1,245,000 $ 3,821,000
=========== ===========
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Income taxes $ 6,000 $ 206,000
Interest $ 119,000 217,000
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<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 nine months ended June 30, 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 June 30, 2000 Compared with Three Months Ended June 30, 1999
Net loss for the three months ended June 30, 2000 was $530,000 or $.11 per share
compared to a net loss of $478,000 or $.10 per share for the three months ended
June 30, 1999. The net loss was primarily the result of significantly lower
sales.
Revenues
Sales revenues for the three months ended June 30, 2000 were $10,832,000
compared with $14,017,000 for the same period last year, a decrease of
$3,185,000 or 22.7%. This decrease in sales revenues reflects significantly
higher competition in the sales of hardware components as well as a transition
to a more service-oriented sales emphasis.
Gross Profit
Gross Profit as a percentage of sales was 9.5% for the three months ended June
30, 2000 compared to 8.7% 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 June 30, 2000
decreased by $423,000 or 21.2% to $1,572,000 from $1,995,000 for the same period
last year. This decrease is due primarily to a decrease in payroll and
payroll-related expenses associated with streamlining our operating and selling
staff to more effectively utilize our resources.
Interest Expense Interest expense for the three months ended June 30, 2000
increased $3,000 or 8.3% to $39,000 from $36,000 for the same period last year.
Income (loss) from Operations before Income Taxes
The loss before income tax benefit for the three months ended June 30, 2000 was
$530,000 compared with a loss of $797,000 for the same period last year. The
change of $267,000 was primarily attributable to lower sales revenues, which
were partially offset by increased gross profit margins and decreases in selling
and administrative expenses and interest expenses.
Taxes
The Company's effective tax rate for the three months ended June 30, 2000 was
zero compared to a tax benefit of $319,000 or 40.0% for the same period last
year.
<PAGE>
Nine Months Ended June 30, 2000 Compared With Nine Months Ended June 30, 1999
Net loss for the six months ended June 30, 2000 was $1,748,000 compared to a
profit of $204,000 for the same period last year. Basic loss per share was $.37
for the nine months ended June 30, 2000 compared to an income per share of $.04
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 nine months ended June 30, 2000 decreased by $23,806,000
or 42.7% to $31,895,000 from $55,701,000 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 were 11.4% for the nine months ended June
30, 2000 compared to 10.7% for the same period last year. This 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 nine months ended June 30, 2000
increased $205,000 or 3.8% to $5,654,000 from $5,449,000 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 service staff to more
effectively compete in the e-solutions market space.
<PAGE>
Interest Expense
Interest expenses for the nine months ended June 30, 2000 decreased $98,000
compared to $217,000 for the same period last year. The decrease in interest
expense is directly related to the significant decrease in both inventory and
accounts receivable.
Loss from Operations before Income Taxes
Loss from operations before income taxes for the nine months ended June 30, 2000
was $2,024,000 versus a profit of $344,000 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 nine months ended June 30, 2000
was a tax benefit compared to 40.7% for the same period last year.
Liquidity and Capital Resources
The Company's current ratio at June 30, 2000 and 1999 was 2.53 and 2.87,
respectively. Working capital at June 30, 2000 was $6,813,000, a decrease of
$3,092,000 over the same period last year.
Cash provided by (used in) operating activities was ($276,000) and $5,934,000
for the nine months ended June 30, 2000 and 1999, respectively, due primarily to
reductions in the Company's inventory and accounts receivable. Cash used in
investing activities was $311,000 and $77,000 for the nine months ended June 30,
2000 and 1999, respectively, and was primarily utilized in the acquisition of
computer hardware and software. Cash used in financing activities during the
nine months ended June 30, 2000 and 1999 was $431,000 and $2,951,000,
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 $22,500,000. 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 June 30,
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 nine 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.
As of June 30, 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 have been 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 ($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 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 $496,000 net loss for the quarter ended
March 31, 2000 and limited net loss to $550,000 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 Option Plan
****10.3 Waiver and Amendment to Mortgage dated as of
August 10, 2000 by and between the Company and the Chase
Manhattan Bank.
****10.4 Acknowledgement, Waiver and Amendment to Financing
Agreement dated as of August 14, 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.
**** To be filed by amendment.
<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: /s/ John H. Spielberger
------------------------
John H. Spielberger
President and Chief Executive Officer
By: /s/ Mary Driscoll
------------------
Mary Driscoll
Controller
Dated: August 14, 2000
