UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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 February 9, 1995 there were 5,307,701 shares of the Registrant's
Common Stock outstanding.
DATAFLEX CORPORATION
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
1995 1995
<S> <C> <C>
Assets
Current Assets:
Cash and Cash Equivalents $ 948,675 $ 5,589,741
Accounts Receivable, Net 76,625,245 56,833,576
Inventory 57,879,812 32,029,137
Deferred Tax Asset 557,858 311,660
Other Current Assets 11,109,646 11,493,326
Total Current Assets 147,121,236 106,257,440
Property and Equipment, Net 12,767,074 11,617,460
Other Assets 881,659 962,646
Goodwill 32,529,102 27,743,444
Total Assets $ 193,299,071 $ 146,580,990
Liabilities and Shareholders' Equity
Current Liabilities:
Current Portion of Long-Term Debt $ 7,825,543 $ 7,249,222
Accounts Payable 56,320,679 45,197,903
Accrued Expenses and Other Payables 9,392,510 6,663,361
Income Taxes Payable - 176,077
Total Current Liabilities 73,538,732 59,286,563
Long-Term Debt 79,979,861 52,510,305
Deferred Tax Liability 678,031 428,249
Other Long-Term Liabilities 536,718 215,917
Total Liabilities 154,733,342 112,441,034
Commitments and Contingencies
Shareholders' Equity:
Common Stock - No Par Value;
Authorized 20,000,000 Shares; Issued
5,421,602 and 4,867,184 Shares at
December 31, 1995 and March 31, 1995,
respectively 22,943,923 19,044,531
Less: Loans Receivable for Exercised
Stock Options (413,212) (413,212)
Retained Earnings 16,630,163 16,025,262
39,160,874 34,656,581
Less: Treasury Stock - At Cost;
113,901 and 104,237 shares at December
31, 1995 and March 31, 1995, respectively (595,145) (516,625)
Total Shareholders' Equity 38,565,729 34,139,956
Total Liabilities and Shareholders' Equity $ 193,299,071 $ 146,580,990
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
DATAFLEX CORPORATION
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenue $ 122,634,745 $ 64,135,240 $ 340,803,879 $ 175,789,150
Cost of Revenue 108,960,438 56,578,823 302,461,959 155,552,749
Gross Profit 13,674,307 7,556,417 38,341,920 20,236,401
Selling, General and
Administrative Expense 11,050,498 5,613,083 30,631,840 15,195,778
Amortization of Goodwill 332,553 111,153 932,548 308,969
Operating Income 2,291,256 1,832,181 6,777,532 4,731,654
Interest Expense, Net 2,022,323 617,764 5,716,303 1,362,361
Income Before Income Taxes 268,933 1,214,417 1,061,229 3,369,293
Provision for Income Taxes 115,641 529,173 456,328 1,501,967
Net Income $ 153,292 $ 685,244 $ 604,901 $1,867,326
Earnings Per Common Share $ 0.03 $ 0.15 $ 0.11 $ 0.41
Weighted Average Common
Shares Outstanding 5,353,595 4,694,937 5,421,829 4,566,494
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
DATAFLEX CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended December 31,
1995 1994
Operating Activities:
Net Income $ 604,901 $ 1,867,326
Adjustments to Reconcile
Net Income to Net Cash:
Depreciation and Amortization 3,512,648 1,590,436
Deferred Taxes 3,584 82,270
Changes in Assets and Liabilities:
Accounts Receivable (18,288,542) (3,138,571)
Inventory (24,951,554) (4,496,907)
Other Current Assets 423,356 (3,495,538)
Other Assets 27,993 (104,278)
Accounts Payable 10,356,968 (6,829,430)
Accrued Expenses and Other Payables 2,134,395 1,083,200
Income Taxes Payable (Receivable) (176,077) 219,311
Accrued Settlement - (712,500)
Other Long-Term Liabilities 320,801 (115,290)
Net Cash - Operating (26,031,527) (14,049,972)
Investing Activities:
Capital Expenditures (2,698,859) (3,215,221)
Acquisition of Businesses, Net of Cash (1,144,720) (12,023,431)
Net Cash - Investing (3,843,579) (15,238,652)
Financing Activities:
Proceeds from Issuance of Notes Payable 197,943,280 34,546,645
Payments of Notes Payable (172,594,660) (20,668,005)
Payments on Long-Term Borrowings (65,997) - -
Proceeds from Common Stock and Options 29,937 275,666
Sale of Treasury Stock - 54,239
Purchase of Treasury Stock (78,520) -
Net Cash - Financing 25,234,040 14,208,545
Net Decrease in Cash (4,641,066) (15,080,079)
Cash - Beginning of Year 5,589,741 15,946,749
Cash - End of Year $ 948,675 $ 866,670
See Notes to Consolidated Financial Statements
<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 in February 1996 and bear interest at
9% per annum.
Pursuant to the purchase agreement, the Company guaranteed to
one of the selling shareholders one-half the dollar value of the
aggregate purchase price in cash or additional shares of common
stock. As a result, the Company expects to issue approximately
165,000 additional shares of common stock.
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:
December 31, March 31,
1995 1995
Finished Goods $ 49,609,708 $ 25,744,443
Spare Parts, Net 8,270,104 6,284,694
_____________ ____________
$ 57,879,812 $ 32,029,137
Accumulated amortization of spare parts inventory was
$2,969,014 and $1,554,217 at December 31, 1995 and March 31, 1995,
respectively. Amortization expense amounted to $1,488,575 and
$682,047 for the nine-month periods ended December 31, 1995 and
1994, respectively.
D) OTHER CURRENT ASSETS
The balance in other current assets at December 31, 1995 and
March 31, 1995 includes receivables from major vendors for returned
goods, marketing and other programs of $9,847,221 and $9,895,946,
respectively.
E) CREDIT FACILITY
The Company's credit facility with IBM Credit Corporation
includes the repayment of a promissory note and several financial
covenants. As of December 31, 1995, the Company failed to meet the
terms of the promissory note and to meet certain financial ratios
required under the agreement. IBM Credit Corporation waived these
events of default and has agreed to modify the existing agreement
subject to the completion of raising additional financing. (See
Note I)
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
$286,819 at December 31, 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 December 31, 1995, there are no issued shares of
Preferred Stock.
H) SUPPLEMENTARY CASH FLOW INFORMATION:
The following is a summary of supplementary cash flow
information:
Nine Months Ended
December 31,
1995 1994
Non Cash Investing and
Financing activities:
Business acquisitions:
Accounts receivable acquired $ 1,503,127 $ 14,362,690
Inventory acquired 899,121 5,484,911
Fixed assets acquired 858,406 543,788
Other assets acquired 39,676 426,512
Debt issued and
liabilities assumed 4,044,164 19,254,698
Common stock issued 3,750,000 500,000
I) SUBSEQUENT EVENT
In January 1996, the Company entered into an Investment
Agreement with Recovery Equity Investors II, L.P. (REI) whereby REI
will invest $10 million in Dataflex in exchange for 3.2 million
shares of a new class of Preferred Stock. The agreement with REI
is contingent upon Dataflex selling at least $10 million of
subordinated debt, modifying its existing borrowing agreements and
satisfying certain other conditions. 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:
Three Months Ended Nine Months Ended
December 31, December 31,
1995 1994 1995 1994
Revenue 100.0% 100.0% 100.0% 100.0%
Cost of Revenue 88.9 88.2 88.7 88.5
_____ _____ _____ _____
Gross Profit 11.1 11.8 11.3 11.5
Selling, General and
Administrative
Expenses 9.0 8.8 9.0 8.6
Amortization of
Goodwill 0.3 0.2 0.3 0.2
_____ _____ _____ ____
Operating Income 1.8 2.8 2.0 2.7
Interest Expense, Net 1.6 1.0 1.7 0.8
___ ___ ___ ___
Income Before
Income Taxes 0.2 1.8 0.3 1.9
Provision for
Income Taxes 0.1 0.8 0.1 0.9
______ ____ ____ ____
Net Income 0.1% 1.0% 0.2% 1.0%
PERIOD ENDED DECEMBER 31, 1995 COMPARED TO THE PERIOD ENDED
DECEMBER 31, 1994
Revenues increased by $58,500,000, or 91.2%, to $122,635,000
for the quarter ended December 31, 1995, as compared with
$64,135,000 for the quarter ended December 31, 1994. Revenues
increased by $165,015,000, or 93.9%, to $340,804,000 for the nine
months ended December 31, 1995, as compared with $175,789,000 for
the nine months ended December 31, 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 $52,520,000, or 92.0%, to $109,600,000 for the quarter ended
December 31, 1995 and $147,545,000, or 93.5%, to $305,326,000 for
the nine months ended December 31, 1995. Service revenues, which
include consulting, training, networking, on-site maintenance and
project management, increased by $5,980,000, or 84.8%, to
$13,034,000 for the quarter ended December 31, 1995 and
$17,470,000, or 97.0%, to $35,478,000 for the nine months ended
December 31, 1995. Revenue increases over the prior period reflect
continued growth and the impact of recent acquisitions.
Gross profit increased by 81.0%, or $6,118,000, from
$7,556,000 in the same quarter of last year to $13,674,000. Gross
profit for the nine month period ended December 31, 1995 increased
by $18,106,000, or 89.5%, to $38,342,000 from $20,236,000 in the
nine-month period ended December 31, 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
96.9%, or $5,437,000, from $5,613,000 in the third quarter of
fiscal 1995 to $11,050,000 in the third quarter of fiscal 1996.
Selling, general and administrative expenses for the nine-month
period increased $15,436,000, or 101.6%, from $15,196,000 in the
prior year fiscal period to $30,632,000 in the nine months ended
December 31, 1995. This increase is primarily due to current and
prior year acquisitions. As a percentage of revenues, selling,
general and administrative expenses increased to 9.0% in the
quarter ended December 31, 1995 from 8.8% in the comparable quarter
in the last fiscal year. For the nine month period ended December
31, 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. which has a higher
selling, general and administrative percentage as a percentage of
revenues.
Amortization of goodwill increased 199.2%, or $221,000, to
$333,000 in the third quarter of fiscal 1996 from $112,000 in the
comparable quarter of last year. Amortization of goodwill
increased $624,000, or 201.8%, for the nine-month period ended
December 31, 1995 from $309,000 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 $2,022,000 in the third quarter of fiscal
1996 compared to $618,000 in the comparable quarter last year.
Interest expense was $5,716,000 for the nine-month period ended
December 31, 1995 compared to $1,362,000 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 $3,843,579 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 January 1996, the Company reached an agreement with
Recovery Equity Investors II, L.P. ("REI") whereby REI will invest
$10 million in exchange for 3.2 million shares of a new class of
Preferred Stock. The agreement is contingent upon the Company
selling at least $10 million of subordinated debt, modifying its
existing borrowing agreements and satisfying certain other
conditions.
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.
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.
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: February 13, 1996
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> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 948,675
<SECURITIES> 0
<RECEIVABLES> 76,625,245
<ALLOWANCES> 0
<INVENTORY> 57,879,812
<CURRENT-ASSETS> 146,999,054
<PP&E> 19,233,987
<DEPRECIATION> 6,466,914
<TOTAL-ASSETS> 193,176,889
<CURRENT-LIABILITIES> 73,463,607
<BONDS> 1,215,906
<COMMON> 22,943,923
0
0
<OTHER-SE> 15,621,806
<TOTAL-LIABILITY-AND-EQUITY> 193,176,889
<SALES> 340,803,879
<TOTAL-REVENUES> 340,803,879
<CGS> 302,461,959
<TOTAL-COSTS> 302,461,959
<OTHER-EXPENSES> 31,564,388
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,716,303
<INCOME-PRETAX> 1,061,229
<INCOME-TAX> 456,328
<INCOME-CONTINUING> 604,901
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 604,901
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
