<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from __________ to __________
_______________________________________________
Commission File No. 0-15551
DATAFLEX CORPORATION
(Exact name of Registrant as specified in its charter)
New Jersey 22-2163376
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3920 Park Avenue
Edison, New Jersey 08820
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 321-1100
N/A
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Securities registered pursuant to Section 12(b) of the Act: None
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 twelve (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 _____
As of July 26, 1995 there were 4,835,172 shares of the Registrant's Common
Stock outstanding.
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<TABLE>
<CAPTION>
DATAFLEX CORPORATION
Consolidated Balance Sheet
Assets
June 30, March 31,
1995 1995
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 5,721,196 $ 5,589,741
Accounts Receivable 65,549,771 56,833,576
Inventory 36,363,732 32,029,137
Deferred Tax Asset 444,687 311,660
Other Current Assets 10,274,949 11,493,326
------------ ------------
Total Current Assets 118,354,335 106,257,440
Property and Equipment, Net 11,700,695 11,617,460
Other Assets 1,066,013 962,646
Goodwill, Net 27,528,254 27,743,444
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Total Assets $158,649,297 $146,580,990
------------ ------------
Liabilities and Shareholder's Equity
Current Liabilities:
Current Portion of
Long-Term Debt $ 5,240,733 $ 7,249,222
Accounts Payable 40,651,141 45,197,903
Accrued Expenses and
Other Payables 6,968,466 6,663,361
Income Taxes Payable 319,130 176,077
------------ -----------
Total Current Liabilities 53,179,470 59,286,563
Long-Term Debt 70,166,423 52,510,305
Deferred Tax Liability 550,780 428,249
Other Long-Term Liabilities 192,122 215,917
----------- -----------
Total Liabilities 124,088,795 112,441,034
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Commitments and Contingencies
Shareholders' Equity:
Common Stock - No Par Value;
Authorized 10,000,000 Shares;
Issued 4,939,409 and
4,867,184 Shares at June 30,
1995 and March 31, 1995,
respectively 19,084,928 19,044,531
Less: Loans Receivable
for Exercised Options (342,557) (413,212)
Retained Earnings 16,334,756 16,025,262
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35,077,127 34,656,581
Less: Treasury Stock -
At Cost; 104,237
Shares at June 30,
1995 and March 31,
1995 (516,625) (516,625)
Total Shareholders' Equity 34,560,502 34,139,956
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Total Liabilities and
Shareholders' Equity $158,649,297 $146,580,990
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</TABLE>
See Notes to Consolidated Financial Statements
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<TABLE>
<CAPTION>
DATAFLEX CORPORATION
Consolidated Statements of Operations
(Unaudited)
Three Months Ended June 30,
1995 1994
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<S> <C> <C>
Revenue $ 110,324,924 $ 53,774,489
Cost of Revenue 98,425,105 47,975,001
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Gross Profit 11,899,819 5,799, 488
Selling, General &
Administrative Expenses 9,419,522 4,468,817
Amortization of Goodwill 283,695 89,816
-------------- --------------
Operating Income 2,196,602 1,240,855
Interest Expense, Net 1,653,630 283,495
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Income Before Income Taxes 542,972 957,360
Provision for Income Taxes 233,478 436,736
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Net Income $ 309,494 $ 520,624
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Earnings Per Common Shares $ 0.02 $ 0.12
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Weighted Average Common
Shares Outstanding 5,281,697 4,460,769
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</TABLE>
See Notes to Consolidated Financial Statements
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<TABLE>
<CAPTION>
DATAFLEX CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended June 30,
1995 1994
------------ ----------
<S> <C> <C>
Operating Activities:
Net Income $ 309,494 $ 520,624
Adjustments to Reconcile
Net Income to Net Cash:
Depreciation and Amortization 1,047,848 538,503
Amortization of Restricted
Stock Grants 40,397 -
Deferred Taxes (10,496) 64,129
Change in Assets and Liabilities:
Accounts Receivable (8,716,195) (1,240,689)
Inventory (4,334,595) (2,093,743)
Other Current Assets 1,218,377 1,705,661
Income Taxes Receivable - (21,399)
Other Assets (197,195) (29,951)
Accounts Payable (4,546,762) (3,675,339)
Accrued Expenses and
Other Payables 305,105 (1,161,353)
Income Taxes Payable 143,053 323,027
Accrued Settlement - (712,500)
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Net Cash - Operating (14,740,969) (5,783,030)
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Investing Activities:
Capital Expenditures (822,064) (1,186,698)
Acquisition of Businesses,
Net of Cash Acquired - (10,586,744)
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Net Cash - Investing (822,064) (11,773,442)
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Financing Activities:
Proceeds from Issuance
of Notes Payable 72,839,134 13,200,000
Payments of Notes Payable (57,191,506) (10,420,043)
Payments on Long-Term
Borrowings (23,795) 173,468
Receipts on Officers Loans
Receivable 70,655 -
Proceeds - Common Stock
and Options - 25,983
Sale of Treasury Stock - 16,844
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Net Cash - Financing 15,694,488 2,996,252
Net Increase (Decrease) in Cash 131,455 (14,560,220)
Cash - Beginning of Year 5,589,741 15,946,749
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Cash - End of Year $ 5,721,196 $ 1,386,529
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</TABLE>
See Notes to Consolidated Financial Statements
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DATAFLEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A) PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the Company and its
wholly-owned subsidiary. As further described in Note B, the Company completed
an acquisition on August 19, 1994 which has been accounted for as a pooling of
interests. Accordingly, the Consolidated Statement of Operations and Cash
Flows for the period ended June 30, 1994 have been restated. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The consolidated financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
for reporting on Form 10-Q. Certain information and footnote disclosures
normally included in consolidated financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations.
These consolidated financial statements should be read in conjunction with
the summary of accounting policies and notes to consolidated financial
statements included in the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1995.
In the opinion of management, the consolidated financial statements reflect
all adjustments consisting of normal recurring adjustments necessary for a fair
presentation of the financial condition, results of operations and cash flows
for such periods. However, these results are not necessarily indicative of the
results for any other interim period or the full year.
B) ACQUISITION
On August 19, 1994, the Company acquired all of the issued and outstanding
common stock of Sunland Computer Services, Inc. ("Sunland"), a reseller and
service provider of computer products, based in Tempe, Arizona. The acquisition
was accounted for as a pooling of interests and, accordingly, the accompanying
consolidated financial statements for the period ended June 30, 1994 have been
restated to include the accounts and operations of Sunland.
Sunland's net sales and net income for the three-month period ended
June 30, 1994 were $6,765,000 and $62,000, respectively.
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C) INVENTORY
Inventory consists of:
<TABLE>
<CAPTION>
June 30, March 31,
1995 1995
<S> <C> <C>
Finished Goods $29,651,482 $25,744,443
Spare Parts, Net 6,712,250 6,284,694
$36,363,732 $32,029,137
</TABLE>
Accumulated amortization of spare parts inventory was $1,831,070 and
$1,554,217 at June 30, 1995 and March 31, 1995, respectively. Amortization
expense amounted to $373,741 and $91,324 for the three-month periods ended
June 30, 1995 and 1994, respectively.
D) OTHER CURRENT ASSETS
The balance in other current assets at June 30, 1995 and March 31, 1995
includes receivables from major vendors for returned goods, marketing and other
programs of $8,940,191 and $9,895,946, respectively.
E) RESTRICTED STOCK GRANTS
In April 1995, the Company issued 72,225 shares of common stock to certain
employees as part of amendments to existing employment agreements. Pursuant to
the terms of the amended agreements, the shares are subject to certain
restrictions which expire no later than March 31, 1998. The restrictions lapse
equally each year for the term of the grant and with respect to all shares in
the event of termination of employment for any reason other than "cause",
voluntary termination for "good reason" and death or disability, as defined.
If at any time prior to the expiration of the restriction period, employment is
terminated "for cause" or any other reason not provided for under
the agreement, any such shares still subject to restrictions, as previously
described, shall be transferred to the Company, without monetary consideration.
The value of restricted stock grants, net of amortization, was $365,876 at
June 30, 1995 and is included as a reduction to common stock in the accompanying
consolidating balance sheet.
F) SUBSEQUENT EVENT
On August 4, 1995, the Company finalized an agreement to purchase
substantially all of the assets and assume substantially all of the liabilities
of Valtron Technologies, Inc. in Valencia, California for 476,191 shares of the
Company's common stock with an approximate aggregate market value of $3,750,000
and subordinated notes totaling $1,000,000. The notes mature six months from
the closing date and bear interest at 9% per annum.
The historical results of the Company for the periods presented would not
be materially different on a pro forma basis.<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to total revenues of the items listed in the Company's Consolidated
Statements of Operations:
<TABLE>
<CAPTION>
Percentage of Revenue
Quarters Ended June 30,
1995 1994
<S> <C> <C>
Revenue 100.0% 100.0%
Cost of Revenue 89.2 89.2
Gross Profit 10.8 10.8
Selling, General and Administrative Expenses 8.5 8.3
Amortization of Goodwill .3 .2
Operating Income 2.0 2.3
Interest Expense, Net 1.5 .5
Income Before Income Taxes .5 1.8
Provision for Income Taxes .2 .8
Net Income .3% 1.0%
</TABLE>
QUARTER ENDED JUNE 30, 1995 COMPARED TO THE QUARTER ENDED JUNE 30, 1994
Revenues increased by $56,551,000, or 105%, to $110,325,000 for the quarter
ended June 30, 1995, as compared with $53,774,000 for the quarter ended June 30,
1994. The increase primarily relates to revenues contributed by prior year
acquisitions which occurred in June and November 1994 and January 1995 which are
in-part or not reflected in the prior fiscal quarter amounts. For the quarter,
product revenues, which include desktop computers, printers, displays, LAN
products, software and other peripherals, increased by $50,757,000, or 104%.
Service revenues, which include consulting, training, networking, on-site
maintenance and project management, increased by $5,794,000, or 112%.
Gross profit increased by 105%, or $6,101,000, from $5,799,000 in the first
quarter of last year to $11,900,000 in the first quarter of the current fiscal
year. This increase primarily relates to the gross profit contribution provided
by the acquired companies. As a percentage of revenues, gross profit remained
the same as last year.
Selling, general and administrative expenses increased by 111%, or
$4,951,000, from $4,469,000 in the first quarter of fiscal 1995 to $9,420,000 in
the first quarter of fiscal 1996, primarily due to prior year acquisitions and
increases in corporate infrastructure to support the growth of the Company. As
a percentage of revenues, selling, general and administrative expenses increased
to 8.5% in the quarter ended June 30, 1995 from 8.3% in the comparable quarter
in the last fiscal year.
Amortization of goodwill increased 216%, or $194,000, to $284,000 in the
first quarter of fiscal 1996 from $90,000 in the comparable quarter of last
year. This increase reflects the amortization of the excess of purchase price
over net assets acquired and liabilities assumed for acquisitions in June and
November 1994 and January 1995.
Interest expense was $1,654,000 in the first quarter of fiscal 1996
compared to $284,000 in the comparable quarter last year. The increase
primarily relates to increased borrowings in connection with the acquisitions in
fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was funded by the Company's Inventory
and Working Capital Agreement with IBM Credit Corporation and cash flow from
operations.
Net cash used in investing activities of $822,000 reflects capital
expenditures in support of the Company's growth. The Company has no material
commitments for capital expenditures for the fiscal year ending March 31, 1996.
Net cash provided by financing activities increased primarily due to the
net increase in notes payable of $13,700,000 under an Inventory and Working
Capital Agreement executed between the Company, Dataflex Southwest Corporation
and IBM Credit Corporation.
Management is continuing strategic actions initiated in March 1995 to
reduce overall general and administrative costs by consolidating duplicative
department functions resulting from fiscal 1995 acquisitions and by improving
operating efficiencies.
On August 4, 1995, the Company finalized an agreement to purchase
substantially all of the assets and assume substantially all of the liabilities
of Valtron Technologies, Inc. in Valencia, California for $1,000,000 in
subordinated notes and 476,191 shares of the Company's common stock (see Note F
to the consolidated financial statements).
<PAGE>
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Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - None required to be filed for Part II of this report.
b. No report on Form 8-K has been filed in the quarter applicable to this
report.
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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.
Dated: August 8, 1995
DATAFLEX CORPORATION
By: /s/ Richard C. Rose
Richard C. Rose
Chairman and Chief Executive Officer
By: /s/ Raymond DioGuardi
Raymond DioGuardi
Senior Vice President, Finance
