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 (FEE REQUIRED)
For the quarterly period ended: October 31, 1999
----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission file number: 000-20688
---------------------------------
Datatec Systems, Inc.
---------------------
(Exact name of Registrant as specified in its charter)
Delaware 94-2914253
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23 Madison Road, Fairfield, NJ 07006-2371
- ------------------------------- ----------
(Address of principal executive (Zip Code)
offices)
(973) 808-4000
--------------------------------------------------
Registrant's telephone number, including area code
Check whether the Registrant (1) has filed all reports required to be filed by
Section 12 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Registrant was required to file such
reports) and (2) has been subjected to such filing requirements for the past 90
days. Yes X No .
-- --
The number of shares of Registrant's Common Stock outstanding on October 31,
1999 was 31,254,345.
<PAGE>
DATATEC SYSTEMS, INC.
FORM 10-Q
THREE MONTHS ENDED OCTOBER 31, 1999
INDEX
-----
PART I: FINANCIAL INFORMATION
Page
Item 1: Consolidated Financial Statements
Balance Sheets at April 30, 1999 (audited) and
October 31, 1999 3
Statements of Income for the three months ended
October 31, 1998 and 1999 4
Statements of Income for the six months ended
October 31, 1998 and 1999 5
Statements of Comprehensive Income for the
six months ended October 31, 1998 and 1999 6
Statements of Cash Flows for the six months ended
October 31, 1998 and 1999 7
Notes to Unaudited Consolidated Financial Statements 8
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II: OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders 11
Item 6: Exhibits and Reports of Form 8-K 12
2
<PAGE>
DATATEC SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, October 31, 1999
1999 (unaudited)
---------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 234,000 $ 139,000
Accounts receivable, net 20,661,000 24,908,000
Inventory 3,252,000 3,703,000
Prepaid expenses and other current assets 2,970,000 1,279,000
Net assets from discontinued operations 447,000 0
------------ ------------
Total current assets 27,564,000 30,029,000
Property and equipment, net 5,200,000 5,090,000
Goodwill, net 3,539,000 3,320,000
Other assets 4,300,000 5,582,000
============ ============
Total assets $ 40,603,000 $ 44,021,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 8,623,000 $ 11,545,000
Current portion of long-term debt 1,783,000 1,144,000
Accounts payable 9,943,000 9,940,000
Accrued and other liabilities 3,866,000 3,289,000
Due to related parties 1,052,000 1,052,000
------------ ------------
Total current liabilities 25,267,000 26,970,000
------------ ------------
Long-term debt 607,000 384,000
------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred stock -- --
Common stock 30,000 31,000
Additional paid-in capital 34,317,000 34,589,000
Accumulated deficit (19,275,000) (17,607,000)
Accumulated other comprehensive loss (343,000) (346,000)
------------ ------------
Total shareholders' equity 14,729,000 16,667,000
============ ============
Total liabilities and shareholders' equity $ 40,603,000 $ 44,021,000
============ ============
</TABLE>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these consolidated statements.
3
<PAGE>
DATATEC SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For the Three Months Ended
October 31,
--------------------------
1998 1999
----------- -----------
Revenues $25,574,000 $25,503,000
Cost of revenues 16,538,000 15,746,000
----------- -----------
Gross profit 9,036,000 9,757,000
Selling, general and administrative expenses 8,005,000 8,459,000
----------- -----------
Operating income 1,031,000 1,298,000
Interest expense 472,000 475,000
----------- -----------
Income before provision (benefit) for income
taxes 559,000 823,000
Provision (benefit) for income taxes -- --
----------- -----------
Net income $ 559,000 $ 823,000
=========== ===========
Income per share (Note 3):
Basic and diluted $ .02 $ .03
=========== ===========
WEIGHTED AVERAGE COMMON SHARES - BASIC 29,110,000 31,232,000
=========== ===========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES - DILUTED 29,931,000 31,956,000
=========== ===========
The accompanying notes to unaudited consolidated financial statements
are an integral part of these consolidated statements.
4
<PAGE>
DATATEC SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For the Six Months Ended
October 31,
----------- -----------
1998 1999
----------- -----------
Revenues $50,721,000 $51,059,000
Cost of revenues 32,690,000 31,560,000
----------- -----------
Gross profit 18,031,000 19,499,000
Selling, general and administrative expenses 16,047,000 16,921,000
----------- -----------
Operating income 1,984,000 2,578,000
Interest expense 965,000 911,000
----------- -----------
Income before provision (benefit) for income
taxes 1,019,000 1,667,000
Provision (benefit) for income taxes -- --
----------- -----------
Net income $ 1,019,000 $ 1,667,000
=========== ===========
Income per share (Note 3):
Basic $ .04 $ .05
=========== ===========
Diluted $ .03 $ .05
=========== ===========
WEIGHTED AVERAGE COMMON SHARES - BASIC 29,082,000 30,959,000
=========== ===========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES - DILUTED 30,232,000 31,687,000
=========== ===========
The accompanying notes to unaudited consolidated financial statements
are an integral part of these consolidated statements.
5
<PAGE>
DATATEC SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
October 31,
------------------------------------
1998 1999
------------ --------------
<S> <C> <C>
Net Income $ 1,019,000 $ 1,667,000
Other comprehensive loss- (10,000) (3,000)
Foreign currency translation adjustment
----------- -----------
Comprehensive income $ 1,009,000 $ 1,664,000
=========== ===========
</TABLE>
6
The accompanying notes to unaudited consolidated financial statements
are an integral part of these consolidated statements.
<PAGE>
DATATEC SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
October 31,
----------------------------------
1998 1999
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,019,000 $ 1,667,000
Adjustments to reconcile net income to net cash used in operating activities --
Depreciation and amortization 1,527,000 1,601,000
Changes in operating assets and liabilities:
Increase in accounts receivable (4,236,000) (4,247,000)
Increase in inventory (808,000) (451,000)
(Increase) decrease in prepaid expenses and other assets (726,000) 100,000
(Increase) decrease in net assets from discontinued operations (287,000) 447,000
Increase (decrease) in accounts payable, accrued and other liabilities 596,000 (580,000)
----------- -----------
Net cash used in operating activities (2,915,000) (1,463,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (565,000) (962,000)
----------- -----------
Net cash used in investing activities (565,000) (962,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings 1,124,000 2,922,000
Net payments of indebtedness (524,000) (862,000)
Net proceeds from common stock/warrant issuances 2,700,000 273,000
----------- -----------
Net cash provided by financing activities 3,300,000 2,333,000
----------- -----------
Net effect on foreign currency translation of cash (10,000) (3,000)
----------- -----------
Net decrease in cash (190,000) (95,000)
Cash at beginning of period 317,000 234,000
=========== ===========
Cash at end of period $ 127,000 $ 139,000
=========== ===========
</TABLE>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these consolidated statements.
7
<PAGE>
DATATEC SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Business
Datatec Systems, Inc. and its subsidiaries (the "Company" or "Datatec")
are in the business of providing rapid and accurate technology deployment
services and licensing software tools to support enterprises in the delivery of
complex IT solutions.
(2) Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All intercompany accounts and transactions have been
eliminated.
The accompanying unaudited consolidated financial statements have been
prepared in conformity with generally accepted accounting principles consistent
with those applied in, and should be read in conjunction with, the audited
financial statements for the year ended April 30, 1999. The interim financial
information is unaudited, but reflects all normal recurring adjustments that
are, in the opinion of management, necessary for a fair statement of results for
the interim periods presented. The results for the three and six months ended
October 31, 1999 are not necessarily indicative of the results expected for the
full fiscal year.
(3) Earnings per share:
Basic earnings per share is calculated using the weighted average number
of shares outstanding for the three and six months ended October 31, 1998 and
1999. Diluted earnings per shares is calculated using the weighted average
number of shares outstanding plus the incremental shares from assumed
conversions of options, debt and preferred stock for the three and six months
ended October 31, 1998 and 1999.
(4) Supplemental Disclosure of Cash Flows
Cash paid during the six months ended October 31:
1998 1999
--------------- --------------
Interest Paid $ 935,000 $ 746,000
<PAGE>
DATATEC SYSTEMS, INC.
PART I - FINANCIAL INFORMATION
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - For the Three and Six Months Ended October 31, 1999
- ---------------------------------------------------------------------------
Revenues. Revenues for the three and six months ended October 31,
1999 were $25,503,000 and $51,059,000 compared to $25,574,000 and $50,721,000
for the three and six months ended October 31, 1998, respectively, representing
a decrease of 0.3% and an increase of 0.1% for the three and six months,
respectively. Included in revenues for the three and six months ended October
31, 1999 were e-Deploy.com revenues of $479,000 and $539,000, respectively.
Gross Profit. Gross profits for the three and six months ended
October 31, 1999 were $9,757,000 and $19,499,000 compared to $9,036,000 and
$18,031,000 for the three and six months ended October 31, 1998, respectively.
Gross profits as a percentage of net sales were 38.3% and 38.2% for the three
and six months ended October 31, 1999 compared to 35.3% and 35.6% for the three
and six months ended October 31, 1998, respectively. The increase in gross
margin percentage is the result of the Company's improved ability to manage its
projects and the transition to providing rapid technology deployment services.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the three and six months ended October 31, 1999 were
$8,459,000 and $16,921,000, respectively, compared to $8,005,000 and
$16,047,000, respectively, for the three and six months ended October 31, 1998,
respectively. As a percentage of sales, selling, general and administrative
expenses were 31.2% and 33.1% for the three and six months ended October 31,
1999, compared to 31.3% and 31.6% for the three and six months ended October 31,
1998. The increase in selling, general and administrative expenses as a
percentage of sales is the result of the Company's continued investment in
supporting its ability to supply nationwide deployment capabilities to its
clients. Included in selling, general and administrative expenses for the three
and six months ended October 31, 1999 were e-Deploy.com expenses of $231,000 and
$583,000, respectively.
Interest expense. Interest expense for the three and six months
ended October 31, 1999 was $475,000 and $911,000, compared to $472,000 and
$965,000, respectively, for the three and six months ended October 31, 1998,
respectively.
Financial Position
- ------------------
During the six months ended October 31, 1999, cash used in
operations was $1,463,000 compared to a year-ago cash usage of $2,915,000.
Cash used for investing activities during the first six months of
the fiscal year ending April 30, 2000 was $962,000 compared to $565,000 during
the first six months of the fiscal year ended April 30, 1999.
9
<PAGE>
Cash provided by financing activities during the six months ended
October 31, 1999 was $2,333,000 compared to $3,300,000 in the year-ago period.
Included in the current period were net proceeds of $273,000 from the issuance
of common stock related to the exercise of stock options and purchases under the
employee stock purchase plan.
The Company's working capital improved from $2,297,000 at April 30,
1999 to $3,059,000 at October 31, 1999.
At October 31, 1999, total debt was $13,073,000 compared to
$11,013,000 at April 30, 1999.
Shareholders' equity increased $1,938,000 during the six months
ended October 31, 1999, principally reflecting net income of $1,667,000 and
proceeds from the issuance of common stock related to stock option and employee
stock purchase plans of $273,000.
10
<PAGE>
DATATEC SYSTEMS, INC.
FORM 10-Q
PART II - OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
None
11
<PAGE>
DATATEC SYSTEMS, INC.
FORM 10-Q
PART II - OTHER INFORMATION - CONTINUED
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
12
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DATATEC SYSTEMS, INC.
Registrant
Date: December 14, 1999 By: /s/ James M. Caci
-------------------------------
James M. Caci
Chief Financial Officer and Duly
Authorized Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS AS OF OCTOBER 31, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> OCT-31-1999
<CASH> 139
<SECURITIES> 0
<RECEIVABLES> 25,252
<ALLOWANCES> (344)
<INVENTORY> 3,703
<CURRENT-ASSETS> 30,029
<PP&E> 6,163
<DEPRECIATION> (1,073)
<TOTAL-ASSETS> 44,021
<CURRENT-LIABILITIES> 26,970
<BONDS> 0
<COMMON> 31
0
0
<OTHER-SE> 16,636
<TOTAL-LIABILITY-AND-EQUITY> 44,021
<SALES> 51,059
<TOTAL-REVENUES> 51,059
<CGS> 31,560
<TOTAL-COSTS> 31,560
<OTHER-EXPENSES> 16,921
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 911
<INCOME-PRETAX> 1,667
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,667
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,667
<EPS-BASIC> 0.05
<EPS-DILUTED> 0.05
</TABLE>
