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 September 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 November 13, 1995 there were 5,306,949 shares of the Registrant's
Common Stock outstanding.
<PAGE>
<TABLE>
DATAFLEX CORPORATION
Consolidated Balance Sheets
(Unaudited)
September 30, March 31,
1995 1995
Assets
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 3,563,325 $ 5,589,741
Accounts Receivable, Net 64,864,402 56,833,576
Inventory 39,500,963 32,029,137
Deferred Tax Asset 426,031 311,660
Other Current Assets 9,255,726 11,493,326
_____________ ___________
Total Current Assets 117,610,447 106,257,440
Property and Equipment, Net 12,683,242 11,617,460
Other Assets 1,030,036 962,646
Goodwill 32,713,209 27,743,444
_____________ ____________
Total Assets $ 164,036,934 $146,580,990
Liabilities and Shareholders' Equity
Current Liabilities:
Current Portion of Long-Term Debt $ 7,635,996 $ 7,249,222
Accounts Payable 41,839,799 45,197,903
Accrued Expenses and Other Payables 7,035,092 6,663,361
Income Taxes Payable - 176,077
_____________ ___________
Total Current Liabilities 56,510,887 59,286,563
Long-Term Debt 67,767,309 52,510,305
Deferred Tax Liability 688,226 428,249
Other Long-Term Liabilities 622,287 215,917
_____________ ___________
Total Liabilities 125,588,709 112,441,034
Commitments and Contingencies
Shareholders' Equity:
Common Stock - No Par Value;
Authorized 20,000,000 Shares;
Issued 5,420,852 and 4,867,184
Shares at September 30, 1995
and March 31, 1995, respectively 22,901,193 19,044,531
Less: Loans Receivable for
Exercised Stock Options (334,692) (413,212)
Retained Earnings 16,476,869 16,025,262
_____________ ____________
39,043,370 34,656,581
Less: Treasury Stock - At Cost;
113,901 and 104,237 shares at
September 30, 1995 and March 31,
1995, respectively (595,145) (516,625)
_____________ ___________
Total Shareholders' Equity 38,448,225 34,139,956
_____________ ___________
Total Liabilities and
Shareholders' Equity $ 164,036,934 $146,580,990
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
DATAFLEX CORPORATION
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenue $107,844,209 $ 57,879,421 $ 218,169,134 $111,653,910
Cost of Revenue 95,076,415 50,998,925 193,501,522 98,973,926
____________ ____________ _____________ ____________
Gross Profit 12,767,794 6,880,496 24,667,612 12,679,984
Selling, General
and Administrative
Expenses 10,161,821 5,113,878 19,581,342 9,582,695
Amortization of
Goodwill 316,301 108,000 599,996 197,816
____________ ___________ _____________ ___________
Operating Income 2,289,672 1,658,618 4,486,274 2,899,473
Interest Expense, Net 2,040,350 461,102 3,693,980 744,597
____________ ___________ _____________ ___________
Income Before Income
Taxes 249,322 1,197,516 792,294 2,154,876
Provision for
Income Taxes 107,209 536,058 340,687 972,794
____________ ___________ _____________ ___________
Net Income $ 142,113 $ 661,458 $ 451,607 $ 1,182,082
____________ ___________ _____________ ___________
Earnings Per
Common Share $ 0.03 $ 0.15 $ 0.08 $ 0.26
____________ ___________ _____________ ___________
Weighted Average
Common Shares
Outstanding 5,630,194 4,502,272 5,455,945 4,481,514
____________ ___________ _____________ ___________
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
DATAFLEX CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended September 30,
1995 1994
<S> <C> <C>
Operating Activities:
Net Income $ 451,607 $ 1,182,082
Adjustments to Reconcile
Net Income to Net Cash:
Depreciation and Amortization 2,273,386 1,012,441
Deferred Taxes 145,606 15,597
Changes in Assets and Liabilities:
Accounts Receivable (6,527,699) (10,795,108)
Inventory (6,572,705) (10,779,282)
Other Current Assets 2,277,276 (358,978)
Other Assets (95,654) (201,371)
Accounts Payable (4,123,914) (3,241,749)
Accrued Expenses and
Other Payables (527,051) 956,939
Income Taxes Payable (176,077) 345,899
Accrued Settlement - (712,500)
Other Long-Term Liabilities 450,370 -
____________ ___________
Net Cash - Operating (12,424,855) (22,576,030)
____________ ___________
Investing Activities:
Capital Expenditures (1,772,402) (2,302,528)
Acquisition of Businesses,
Net of Cash Acquired (692,246) (9,743,773)
____________ ___________
Net Cash - Investing (2,464,648) (12,046,301)
____________ ___________
Financing Activities:
Proceeds from Issuance of
Notes Payable 122,279,727 31,360,836
Payments of Notes Payable (109,399,204) (10,400,000)
Payments on Long-Term Borrowings (43,998) -
Proceeds from Common Stock
and Options 26,562 51,166
Sale of Treasury Stock - 16,844
Purchase of Treasury Stock (78,520) -
Payments on Officers Loans
Receivable for Exercised
Stock Options 78,520 -
____________ ___________
Net Cash - Financing 12,863,087 21,228,846
____________ ___________
Net Decrease in Cash (2,026,416) (13,393,485)
Cash - Beginning of Year 5,589,741 15,946,749
____________ ___________
Cash - End of Year $ 3,563,325 $ 2,553,264
____________ ___________
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
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. 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 only 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
Effective July 1, 1995, the Company acquired substantially all
of the assets and assumed substantially all of the liabilities of
Valtron Technologies, Inc. in Valencia, California for 476,193
shares of the Company's common stock with an approximate aggregate
market value of $3,750,000 and two subordinated notes aggregating
$1,000,000. The notes mature six months from the closing date and
bear interest at 9% per annum.
The acquisition has been accounted for under the purchase
method and, accordingly, the operating results of Valtron have been
included in the consolidated operating results since the date of
acquisition.
The cost of the acquisition has been allocated on the basis of
the fair market value of the assets acquired and the liabilities
assumed. The resulting goodwill will be amortized over 25 years on
a straight line basis.
The historical results of the Company for the periods
presented would not be materially different on a pro forma basis.
C) INVENTORY
Inventory consists of:
September 30, March 31,
1995 1995
Finished Goods $ 33,761,643 $ 25,744,443
Spare Parts, Net 5,739,320 6,284,694
______________ ____________
$ 39,500,963 $ 32,029,137
Accumulated amortization of spare parts inventory was
$2,377,306 and $1,554,217 at September 30, 1995 and March 31,
1995, respectively. Amortization expense amounted to $925,461 and
$608,320 for the six-month periods ended September 30, 1995 and
1994, respectively.
D) OTHER CURRENT ASSETS
The balance in other current assets at September 30, 1995 and
March 31, 1995 includes receivables from major vendors for returned
goods, marketing and other programs of $8,100,445 and $9,895,946,
respectively.
E) CREDIT FACILITY
The Company's credit facility with IBM Credit Corporation
includes several financial covenants. As of September 30, 1995,
the Company failed to meet certain financial ratios required under
the agreement. IBM Credit Corporation waived these events of
default.
F) 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
$326,174 at September 30, 1995 and is included as a reduction to
common stock in the accompanying consolidating balance sheet.
G) SHAREHOLDERS' EQUITY
In September 1995, the Company's shareholders approved the
resolution proposed by the Board of Directors to amend Article
Fourth of the Company's Certificate of Incorporation to authorize
the Company to issue 10,000,000 shares of Preferred Stock, without
par value, and to increase the number of authorized shares of
common stock, no par value, from 10,000,000 shares to 20,000,000
shares.
As of September 30, 1995, there are no issued shares of
Preferred Stock.
H) SUPPLEMENTARY CASH FLOW INFORMATION:
The following is a summary of supplementary cash flow
information:
Six Months Ended
September 30,
1995 1994
Non Cash Investing
and Financing activities:
Business acquisitions:
Accounts receivable acquired $ 1,503,127 $13,486,566
Inventory acquired 899,121 4,765,395
Fixed assets acquired 858,406 536,174
Other assets acquired 39,676 352,702
Debt issued and
liabilities assumed 4,044,164 17,785,816
Common stock issued 3,750,000 500,000
<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>
Three Months Ended Six Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Cost of Revenue 88.2 88.1 88.7 88.6
Gross Profit 11.8 11.9 11.3 11.4
Selling, General and Administrative Expenses 9.4 8.8 9.0 8.6
Amortization of Goodwill 0.3 0.2 0.3 0.2
Operating Income 2.1 2.9 2.0 2.6
Interest Expense, Net 1.9 0.8 1.7 0.7
Income Before Income Taxes 0.2 2.1 0.3 1.9
Provision for Income Taxes 0.1 0.9 0.1 0.9
Net Income 0.1% 1.2% 0.2% 1.0%
PERIOD ENDED SEPTEMBER 30, 1995 COMPARED TO THE PERIOD ENDED
SEPTEMBER 30, 1994
Revenues increased by $49,965,000, or 86.3%, to $107,844,000 for the quarter ended
September 30, 1995, as compared with $57,879,000 for the quarter ended September 30, 1994.
Revenues increased by $106,515,000, or 95.4%, to $218,169,000 for the six months ended
September 30, 1995, as compared with $111,654,000 for the six months ended September 30,
1994. The increase primarily relates to revenues contributed by prior year acquisitions and
continued growth in both the hardware and services segments of the Company's business.
Product revenues, which include desktop computers, printers, displays, LAN products,
software and other peripherals, increased by $44,269,000, or 85.0%, to $96,350,000 for the
quarter ended September 30, 1995 and $95,025,000, or 94.4%, to $195,726,000 for the six
months ended September 30, 1995. Service revenues, which include consulting, training,
networking, on-site maintenance and project management, increased by $5,696,000, or 98.2%,
to $11,494,000 for the quarter ended September 30, 1995 and $11,490,000, or 104.9%, to
$22,443,000 for the six months ended September 30, 1995. Revenue increases over the prior
period reflect continued growth and the impact of recent acquisitions.
Gross profit increased by 85.6%, or $5,887,000, from $6,881,000 in the same quarter
of last year to $12,768,000. Gross profit for the six month period ended September 30, 1995
increased by $11,988,000, or 94.5%, to $24,668,000 from $12,680,000 in the six-month period
ended September 30, 1994. This increase primarily relates to the gross profit contribution
provided by the acquired companies. As a percentage of revenues, gross profit remained
approximately the same as last year.
Selling, general and administrative expenses increased by 98.7%, or $5,048,000, from
$5,114,000 in the second quarter of fiscal year 1995 to $10,162,000 in the second quarter of
fiscal 1996. Selling, general and administrative expenses for the six-month period increased
$9,999,000, or 104.3%, from $9,583,000 in the prior year fiscal period to $19,581,000 in the
six months ended September 30, 1995. This increase is primarily due to current and prior year
acquisitions. As a percentage of revenues, selling, general and administrative expenses increased
to 9.4% in the quarter ended September 30, 1995 from 8.8% in the comparable quarter in the
last fiscal year. For the six month period ended September 30, 1995, selling, general and
administrative expenses, as a percentage of revenues, increased to 9.0% from 8.6% in the
comparable period last fiscal year. This increase is primarily due to the acquisition of Valtron
Technologies, Inc. in July 1995.
Amortization of goodwill increased 192.9%, or $208,000, to $316,000 in the second
quarter of fiscal 1996 from $108,000 in the comparable quarter of last year. Amortization of
goodwill increased $402,000, or 203.3%, for the six-month period ended September 30, 1995
from $198,000 in the same period last year. This increase reflects the amortization of the excess
of purchase price over net assets acquired and liabilities assumed for current and prior year
acquisitions.
Interest expense was $2,040,000 in the second quarter of fiscal 1996 compared to
$461,000 in the comparable quarter last year. Interest expense was $3,694,000 for the six-
month period ended September 30, 1995 compared to $745,000 in the prior year period. The
increase primarily relates to higher interest costs associated with increased borrowings in
connection with recent acquisitions and borrowings under the line of credit to fund working
capital activities.
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.
Net cash used in investing activities of $2,465,000 primarily reflects capital expenditures
in support of the Company's growth and expenses related to acquisitions during fiscal year 1995
and 1996. 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 under an Inventory and Working Capital Agreement executed between the
Company, Dataflex Southwest Corporation and IBM Credit Corporation.
In July, the Company finalized the 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 with a value of $3,750,000 (see Note B to the consolidated financial statements).
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.
<PAGE>
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
a. The Annual Meeting of Stockholders of the Company was held on September 1,
1995. The Company solicited proxies in connection with the approval of the
following matters:
(1) To elect two directors.
(2) To ratify the selection of Price Waterhouse LLP as the Company's
independent accountants for the fiscal year ending March 31, 1996.
(3) To approve to increase the authorized common shares, no par value, of
the Company from 10,000,000 shares to 20,000,000 shares.
(4) To approve to authorize the Company to issue 10,000,000 shares of
Preferred Stock, without par value.
b. All directors nominated by the Board of Directors of the Company were elected
at the meeting. Philip Doganiero was elected to the Company's Board of
Directors. Richard C. Rose was reappointed to the Company's Board of
Directors.
c. The following Directors were duly elected, receiving the respective number of
votes:
Number of Votes
Director For Against Abstain
Philip Doganiero 3,906,651 238,430 15,068
Richard C. Rose 3,894,450 250,656 16,043
The ratification of Price Waterhouse LLP as the Company's independent
accountants for the fiscal year ending March 31, 1996 was approved by a vote of
4,124,325 shares in favor, 8,416 shares against and 12,584 shares abstained.
The Board of Director's resolution proposing to increase the authorized common
shares, no par value, of the Company from 10,000,000 shares to 20,000,000
shares was approved by a vote of 3,652,047 in favor, 382,581 shares against and
28,792 shares abstained.
The Board of Director's resolution proposing to authorize 10,000,000 shares of
Preferred Stock, without par value, was approved by a vote of 1,544,713 in
favor, 1,183,336 shares against and 35,553 shares abstained.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit 27 - Financial Data Schedule
b. No report on Form 8-K has been filed in the quarter applicable to this report.
<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.
Dated: November 13, 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
and Chief Financial Officer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27 for Dataflex Corporation
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 3,563,325
<SECURITIES> 0
<RECEIVABLES> 64,864,402
<ALLOWANCES> 0
<INVENTORY> 39,500,963
<CURRENT-ASSETS> 117,610,447
<PP&E> 18,328,995
<DEPRECIATION> 5,645,753
<TOTAL-ASSETS> 164,036,934
<CURRENT-LIABILITIES> 56,510,887
<BONDS> 1,237,905
<COMMON> 22,901,193
0
0
<OTHER-SE> 15,547,032
<TOTAL-LIABILITY-AND-EQUITY> 164,036,934
<SALES> 218,169,134
<TOTAL-REVENUES> 218,169,134
<CGS> 193,501,522
<TOTAL-COSTS> 193,501,522
<OTHER-EXPENSES> 20,181,338
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,693,980
<INCOME-PRETAX> 792,294
<INCOME-TAX> 340,687
<INCOME-CONTINUING> 451,607
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 451,607
<EPS-PRIMARY> .08
<EPS-DILUTED> .08<F1>
<FN>
<F1>Items reported as "zero" are not applicable or are immaterial to the
consolidated financial position of the Company.
