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, 1996
___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 incorporation or organization) (I.R.S. Employer Identification No.)
2145 Calumet Street
Clearwater, Florida 34625
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (813) 562-2200
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 12, 1996, there were 5,691,169 shares of the Registrant's Common
Stock outstanding.
<PAGE>
DATAFLEX CORPORATION
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
Assets
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 811,424 $ 499,144
Accounts Receivable, Net 21,825,543 57,333,174
Inventory, Net 7,456,557 25,754,983
Net Assets Held for Sale 44,280,430 45,229,410
Deferred Tax Asset 300,000 3,287,647
Income Taxes Receivable 3,665,003 828,823
Other Current Assets 8,080,010 8,428,151
------------ ------------
Total Current Assets 86,418,967 141,361,332
Property and Equipment, Net 4,327,252 9,436,611
Other Assets 138,157 798,919
Deferred Tax Asset 2,472,092 -
Goodwill 14,669,965 18,715,751
------------ ------------
Total Assets $ 108,026,433 $ 170,312,613
Liabilities and Shareholders' Equity
Current Liabilities:
Current Portion of Long-Term Debt $ 39,735,432 $ 32,967,368
Accounts Payable 15,566,155 42,477,509
Accrued Expenses and Other Payables 8,783,961 8,385,420
------------- -------------
Total Current Liabilities 64,085,548 83,830,297
Long-Term Debt 16,091,072 54,061,619
Deferred Tax Liability - 347,640
Other Long-Term Liabilities 192,336 224,627
------------- -------------
Total Liabilities 80,368,956 138,464,183
Commitments and Contingencies
Shareholders' Equity:
Common Stock - No Par Value;
Authorized 20,000,000 Shares; Issued
5,691,169 and 5,587,661 Shares at
September 30, 1996 and March 31, 1996,
respectively 23,443,593 23,064,542
Less: Loans Receivable for Exercised
Stock Options (194,269) (311,024)
Retained Earnings 5,011,631 9,690,057
______________ ___________
28,260,955 32,443,575
Less: Treasury Stock - At Cost;
115,382 and 113,901 shares at September
30, 1996 and March 31, 1996, respectively (603,478) (595,145)
______________ ___________
Total Shareholders' Equity 27,657,477 31,848,430
______________ ____________
Total Liabilities and Shareholders' Equity $ 108,026,433 $ 170,312,613
______________ ____________
______________ ____________
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DATAFLEX CORPORATION
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenue
Equipment $ 73,760,571 $ 96,349,885 $ 149,712,566 $ 195,726,017
Services 10,114,016 11,494,324 20,193,413 22,443,117
____________ ____________ _____________ ____________
83,874,587 107,844,209 169,905,979 218,169,134
____________ ___________ _____________ ____________
____________ ___________ _____________ ____________
Cost of Revenue
Equipment 66,397,101 85,380,547 133,773,732 175,065,188
Services 7,946,876 9,965,868 16,232,787 18,436,334
____________ __________ ____________ ____________
74,343,977 95,076,415 150,006,519 193,501,522
____________ __________ ____________ _____________
____________ __________ ____________ _____________
Gross Profit 9,530,610 12,767,794 19,899,460 24,667,612
Selling, General and
Administrative Expenses 7,791,181 10,161,821 17,221,744 19,581,342
Amortization of Goodwill 190,710 316,301 381,420 599,996
___________ __________ __________ __________
Operating Income 1,548,719 2,289,672 2,296,296 4,486,274
Interest Expense, Net 1,651,945 2,040,350 3,335,663 3,693,980
Loss on Dispositions of Businesses 6,229,975 --- 6,229,975 ---
___________ _________ _________ __________
(Loss) Income Before Income Taxes (6,333,201) 249,322 (7,269,312) 792,294
(Benefit from) Provision for
Income Taxes (2,188,359) 107,209 (2,590,886) 340,687
___________ _______ ___________ _______
Net (Loss) Income $(4,144,842) $142,113 $(4,678,426) $ 451,607
____________ ________ ____________ _________
____________ ________ ____________ _________
(Loss) Earnings Per Common Share $ (.075) $ 0.03 $ 0.85) $ 0.08
____________ ________ ____________ __________
____________ ________ ____________ __________
Weighted Average Common
Shares Outstanding 5,525,079 5,630,194 5,503,601 5,455,945
__________ _________ __________ __________
__________ _________ __________ __________
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
DATAFLEX CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended September 30,
1996 1995
<S> <C> <C>
erating Activities:
Net (Loss) Income $ (4,678,426) $ 451,607
Adjustments to Reconcile
Net Income to Net Cash:
Depreciation and Amortization 1,624,341 2,273,386
Amortization of Restricted
Stock Grants 62,164 -
Deferred Taxes 467,915 145,606
Loss on Disposition of Businesses 6,229,975 -
Changes in Assets and Liabilities:
Accounts Receivable 35,107,631 (6,527,699)
Inventory 17,798,426 (6,572,705)
Net Assets Held for Sale 6,272,894 -
Other Current Assets (370,394) 2,277,276
Other Assets 372,721 (95,654)
Accounts Payable (26,911,354) (4,123,914)
Accrued Expenses and Other Payables (1,082,852) (527,051)
Income Taxes Receivable (2,836,180) (176,077)
Other Long-Term Liabilities (32,291) 450,370
___________ ____________
Net Cash - Operating 32,024,570 (12,424,855)
__________ ____________
__________ ____________
Investing Activities:
Capital Expenditures (1,161,766) (1,772,402)
Acquisition of Businesses,
Net of Cash Acquired - (692,246)
___________ ___________
Net Cash - Investing (1,161,766) (2,464,648)
___________ ___________
Financing Activities:
Proceeds from Issuance
of Notes Payable 88,995,137 122,279,727
Payments of Notes Payable (120,017,473) (109,399,204)
Payments on Long-Term Borrowings (43,998) (43,998)
Proceeds from Common Stock and Options 288,853 26,562
Purchase of Treasury Stock - (78,520)
Sale of Treasury Stock (8,333) -
Payments on Officers Loans Receivable
for Exercised Stock Options 235,290 78,520
___________ ____________
Net Cash - Financing (30,550,524 12,863,087
____________ ____________
Net Increase (Decrease) in Cash 312,280 (2,026,416)
Cash - Beginning of Year 499,144 5,589,741
___________ ____________
Cash - End of Year $ 811,424 $ 3,563,325
----------- ------------
___________ ____________
</TABLE>
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, 1996.
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) DISPOSITION OF BUSINESSES
In October, the Company completed the sale of substantially
all the assets and the transfer of certain liabilities of its
Eastern and Midwestern regional operations (located in Edison, New
Jersey, New York City, New York, Bensenville, Illinois and
Milwaukee, Wisconsin) for $43,500,000 in cash, including $5,000,000
placed in escrow pending final adjustments. The cash proceeds were
used to reduce the Company's interest-bearing obligations on its
credit facility with IBM Credit Corporation ("IBMCC"). The
anticipated loss on this transaction is included in the
Consolidated Statement of Operations for the three and six months
ended September 30, 1996. The Eastern and Midwestern regions had
combined revenues of $45,286,000 and $85,068,000 and $36,871,000
and $78,712,000 for the three and six-month periods ended September
30, 1996 and 1995, respectively.
In May, the Company completed the sale of substantially all
the assets and the transfer of substantially all the liabilities of
its Western region (primarily its Alameda, California and Tempe,
Arizona locations) for approximately $42,000,000 in cash, including
$5,000,000 placed in escrow pending final adjustments. The cash
proceeds were used to reduce the Company's accounts payable and
interest-bearing obligations on its credit facility with IBMCC.
In July, the Company completed the sale of substantially all
the assets and the transfer of substantially all the liabilities of
its Valtron division for $2,900,000 in cash, $750,000 in
forgiveness of a note payable and the receipt of a three-year note
of $850,000, bearing interest at 9% per annum.
The aggregate anticipated loss on the sale of the Western
region and Valtron division was recorded at March 31, 1996.
C) INVENTORY
Inventory consists of:
September 30, March 31,
1996 1996
Finished Goods $ 6,451,481 $ 21,989,311
Spare Parts, Net 1,005,076 3,765,672
------------- ------------
$ 7,456,557 $ 25,754,983
Accumulated amortization of spare parts inventory was $1,386,147
and $906,887 at September 30, 1996 and March 31, 1996, respectively.
Amortization expense amounted to $604,149 and $925,461 for the six-month periods
ended September 30, 1996 and 1995, respectively.
D) OTHER CURRENT ASSETS
The balance in other current assets at September 30, 1996 and March
31, 1996 includes receivables from major vendors for returned goods, marketing
and other programs of $3,792,448 and $7,375,799, respectively.
E) CONTINGENCIES
A suit was filed against the Company in August, 1996 alleging the
Company breached a registration agreement executed in connection with the
August, 1994 purchase of all the issued and outstanding common stock of
Sunland Computer Services, Inc. The Company intends to vigorously defend
this suit and the Company's liability, if any, is not determinable at this time.
The Company believes the ultimate resolution of this matter will not have a
material adverse effect on the financial position of the Company.
<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>
Three Months Ended Six Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Cost of Revenue 88.6 88.2 88.3 88.7
Gross Profit 11.4 11.8 11.7 11.3
Selling, General and Administrative Expenses 9.3 9.4 10.1 9.0
Amortization of Goodwill 0.2 0.3 0.2 0.3
Operating Income 1.9 2.1 1.4 2.0
Interest Expense, Net 2.0 1.9 2.0 1.7
Loss on Dispositions of Businesses 7.4 - 3.7 -
(Loss) Income Before Income Taxes (7.5) 0.2 (4.3) 0.3
(Benefit) Provision for Income Taxes (2.6) 0.1 (1.5) 0.1
Net (Loss) Income (4.9)% 0.1% (2.8)% 0.2%
</TABLE>
PERIOD ENDED SEPTEMBER 30, 1996 COMPARED TO THE PERIOD ENDED
SEPTEMBER 30, 1995
Revenues decreased by $23,969,000, or 22.2%, to $83,875,000
for the quarter ended September 30, 1996, as compared with
$107,844,000 for the quarter ended September 30, 1995. For the six
months ended September 30, 1996, revenues decreased by $48,263,000,
or 22.1%, to $169,906,000, as compared with $218,169,000 for the
six months ended September 30, 1995. The decrease in revenues for
the three and six-month periods ended September 30, 1996 is
primarily attributable to the sale of the Company's Western region
operations as of April 1, 1996. On a comparable basis, excluding
revenues associated with the Western region, revenues increased by
$11,421,000, or 15.8% and $21,281,000, or 14.3% for the three and
six-month periods ended September 30, 1996, as compared with the
comparable periods in the prior year. This increase primarily
relates to continued growth in the Company's Midwest and Southeast
regions partially offset by a decline in revenues from the Eastern
region.
Gross profit decreased by $3,237,000, or 25.4%, to $9,531,000
in the second quarter of the current fiscal year as compared with
$12,768,000 in the second quarter of last fiscal year. For the six
months ended September 30, 1996, gross profit decreased by
$4,768,000, or 19.3%, to $19,900,000, as compared with $24,668,000
for the six months ended September 30, 1995. This decrease
primarily relates to the exclusion of gross profit contribution
provided by the Western region. As a percentage of revenues, gross
profit was 11.4% and 11.7% for the three and six-month periods
ended September 30, 1996 as compared with 11.8% and 11.3% for the
three and six-month periods ended September 30, 1995. The decrease
in gross profit as a percentage of sales in the second quarter
period reflects a slight softening in hardware margins as compared
to the prior year. The increase in gross profit as a percentage of
sales for the six months ended September 30, 1996 as compared with
the prior year is primarily due to the disposition of less
profitable services business in the Western region.
Selling, general and administrative expenses decreased by
$2,371,000, or 23.3% and $2,359,000, or 12.0% to $7,791,000 and
$17,222,000 as compared with $10,162,000 and $19,581,000 for the
three and six-month periods ended September 30, 1996 and 1995,
respectively. This decrease primarily relates to the sale of the
Company's Western region operations. As a percentage of revenues,
selling, general and administrative expenses were 9.3% and 10.1% as
compared with 9.4% and 9.0% for the three and six-month periods
ended September 30, 1996 and 1995, respectively. The increase in
selling, general and administrative expenses as a percentage of
revenues for the six months ended September 30, 1996 as compared
with the prior year reflects selling, general and administrative
expenses associated with the Company's Valtron division which was
acquired in July 1995 and disposed of in July 1996.
Amortization of goodwill decreased by $125,000, or 40.0% and
$219,000 or 36.5% to $191,000 and $381,000 as compared with
$316,000 and $600,000 for the three and six-month periods ended
September 30, 1996 and 1995, respectively, due primarily to the
disposition of goodwill associated with the sale of the Company's
Western region.
Interest expense decreased by $387,000 or 19.0% and $358,000,
or 9.7% to $1,652,000 and $3,336,000 as compared with $2,040,000
and $3,694,000 for the three and six-month periods ended September
30, 1996 and 1995, respectively. The decrease primarily relates to
reduced average borrowings resulting from the pay down of debt from
the use of proceeds on the sale of the Western region partially
offset by higher interest costs from increased interest rates.
Loss on disposition of business represents the aggregate
difference between the carrying value of the net assets of the sale
of the Eastern and Midwestern regional operations and the estimated
net realizable value of these net assets. The Company has recorded
a loss of approximately $6,200,000 on the disposition of these
businesses.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was funded primarily
by proceeds from the disposition of the Company's Western region
and Valtron division and cash flow from operations.
Net cash used in investing activities of $1,162,000 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, 1997.
Net cash used in financing activities primarily reflects a net
decrease in notes payable of $31,022,000 resulting from the use of
proceeds from the sale of the Company's Western region and Valtron
division and cash flow from operations.
In October 1996, the Company completed the sale of
substantially all the assets and the transfer of certain
liabilities of its Eastern and Midwestern regional operations for
$43,500,000 in cash, including $5,000,000 placed in escrow pending
final adjustments. The proceeds were used to reduce the Company's
interest bearing obligations on its credit facility with IBM Credit
Corporation.
<PAGE>
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. Report on Form 8-K
(1) Report on Form 8-K reporting Item 6, dated October 7,
1996, filed October 23, 1996.
(2) Report on Form 8-K reporting Items 2 and 7, dated October
11, 1996, filed October 28, 1996.
<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 19, 1996
DATAFLEX CORPORATION
By:/s/ Richard C. Rose
------------------------
Richard C. Rose
Chairman and Chief
Executive Officer
By:/s/ Anthony Lembo
-------------------------
Anthony Lembo
President, Chief Operating Officer
and Chief Financial Officer
