UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the quarterly period ended: JULY 31, 1998
/ / 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.)
20C COMMERCE WAY, TOTOWA, NJ 07512-1154
- ---------------------------- ----------
(Address of principal executive (Zip Code)
offices)
(973) 890-4800
--------------
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 July 31, 1998
was 29,064,670.
<PAGE>
DATATEC SYSTEMS, INC.
FORM 10-Q/A
THREE MONTHS ENDED JULY 31, 1998
INDEX
PART I: FINANCIAL INFORMATION
PAGE
Item 1: Consolidated Financial Statements
Balance Sheets at April 30, 1998 and
July 31, 1998 3
Statements of Operations for the three months ended
July 31, 1997 and 1998 4
Statements of Cash Flows for the three months ended
July 31, 1997 and 1998 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II: OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders 9
Item 6: Exhibits and Reports of Form 8-K 10
2
<PAGE>
DATATEC SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31, 1998
APRIL 30, 1998 (UNAUDITED)
-------------- -------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 317,000 $ 137,000
Accounts receivable, net 18,106,000 18,337,000
Inventory 3,118,000 3,760,000
Prepaid expenses and other current assets 2,983,000 3,553,000
Net assets from discontinued operations 501,000 773,000
------------ ------------
Total current assets 25,025,000 26,560,000
Property and equipment, net 6,012,000 5,716,000
Goodwill, net 3,975,000 3,866,000
Other Assets 2,801,000 2,498,000
============ ============
Total assets $ 37,813,000 $ 38,640,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 10,759,000 $ 8,830,000
Current portion of long-term debt 1,063,000 1,074,000
Accounts payable 7,085,000 8,121,000
Accrued liabilities 3,882,000 3,771,000
Other current liabilities 1,214,000 338,000
------------ ------------
Total current liabilities 24,003,000 22,134,000
------------ ------------
Due to related parties 927,000 927,000
------------ ------------
Long-term debt 2,415,000 2,116,000
------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred stock -- --
Common stock 29,000 29,000
Additional paid-in capital 29,556,000 32,088,000
Accumulated deficit (18,769,000) (18,309,000)
Cumulative translation adjustment (348,000) (345,000)
------------ ------------
Total shareholders' equity 10,468,000 13,463,000
============ ============
Total liabilities and shareholders' equity $ 37,813,000 $ 38,640,000
============ ============
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
3
<PAGE>
DATATEC SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JULY 31,
------------------------------------
1997 1998
----------- -----------
<S> <C> <C>
Net sales $18,600,000 $25,143,000
Cost of sales 11,277,000 16,151,000
----------- -----------
Gross profit 7,323,000 8,992,000
Selling, general and administrative expenses 6,844,000 8,039,000
----------- -----------
Operating income 479,000 953,000
----------- -----------
Interest expense 454,000 493,000
----------- -----------
Income before provision (benefit) for income
taxes 25,000 460,000
Provision (benefit) for income taxes -- --
----------- -----------
Net income $ 25,000 $ 460,000
=========== ===========
INCOME (LOSS) PER SHARE :
BASIC
$ 0.00 $0.02
=========== ===========
DILUTED
$ 0.00 $0.02
=========== ===========
WEIGHTED AVERAGE COMMON SHARES - BASIC
23,709,000 29,054,000
=========== ===========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES - DILUTED 25,834,000 30,561,000
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
4
<PAGE>
DATATEC SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JULY 31,
---------------------------------
1997 1998
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 25,000 $ 460,000
Adjustments to reconcile net income to net cash used in
operating activities --
Depreciation and amortization 489,000 746,000
Changes in operating assets and liabilities:
Increase in accounts receivable (256,000) (231,000)
Increase in inventory (339,000) (642,000)
Increase in prepaid expenses and other assets (2,114,000) (340,000)
Decrease (increase) in assets held for sale or disposition 395,000 (284,000)
Increase in accounts payable, accrued and other liabilities 1,430,000 49,000
----------- -----------
Net cash used in operating activities (370,000) (242,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (280,000) (256,000)
----------- -----------
Net cash used in investing activities (280,000) (256,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments of short-term borrowings (2,441,000) (1,929,000)
Net payments of indebtedness (381,000) (288,000)
Net proceeds from common stock/warrant issuances 3,085,000 2,532,000
----------- -----------
Net cash provided by financing activities 263,000 315,000
----------- -----------
Net effect on foreign currency translation on cash 11,000 3,000
----------- -----------
Net decrease in cash (376,000) (180,000)
CASH AT BEGINNING OF PERIOD 1,135,000 317,000
=========== ===========
CASH AT END OF PERIOD $ 759,000 $ 137,000
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
5
<PAGE>
DATATEC SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Business
Datatec Systems, Inc. (the "Company"), and its subsidiaries are in the
business of providing rapid and accurate technology deployment services.
(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, 1998. 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 months ended July 31,
1998 are not necessarily indicative of results expected for the full fiscal
year.
(3) Comprehensive Income
Effective May 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income", which
establishes standards for reporting and display of comprehensive income and its
components (revenue, expenses, gains, and losses) in a full set of
general-purpose financial statements. For the three months ended July 31, 1998,
the components of comprehensive income were immaterial. The components of other
comprehensive income consist primarily of foreign currency translation
adjustments.
(4) Equity
In May 1998, the Company issued 300 shares of Series E Convertible
Preferred Stock. The net proceeds from this issuance were approximately
$2,350,000. In connection with this transaction, the Company issued warrants to
purchase 165,000 of common stock at $6.29.
(5) Supplemental Disclosure of Cash Flows
Cash paid during the quarter for:
1997 1998
-------- --------
Interest Paid $380,000 $429,000
6
<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 MONTHS ENDED JULY 31, 1998
NET SALES. Net sales for the three months ended July 31, 1998 were
$25,143,000 compared to $18,600,000 for the three months ended July 31, 1997
representing an increase of 35.2%.
GROSS PROFIT. Gross profits for the three months ended July 31, 1998
were $8,992,000 compared to $7,323,000 for the three months ended July 31, 1997.
Gross profits as a percentage of net sales were 35.8% for the three months ended
July 31, 1998 compared to 39.4% for the three months ended July 31, 1997. A
large number of recent hires in the Company's field service operations had a
short term negative impact on gross profit. Approximately 33% of the Company's
450 field service personnel were hired during the last six months and
consequently were at the initial stages of the learning curve during the
quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the three months ended July 31, 1998 were $8,039,000
compared to $6,844,000 for the three months ended July 31, 1997, representing
32.0% and 36.8% of net sales, respectively. The increase in selling, general and
administrative expenses is partly attributable to an increase in infrastructure
costs, including personnel to support the Company's migration to the more
complex service business.
INTEREST EXPENSE. Interest expense for the three months ended July
31, 1998 was $493,000 compared to $454,000 for the three months ended July 31,
1997, representing an increase of 8.6%.
FINANCIAL POSITION
During the three months ended July 31, 1998, cash used in operations
was $242,000 compared to a year-ago cash usage of $370,000.
Cash used for investing activities during the first quarter of the
fiscal year ending April 30, 1999 was $256,000 compared to $280,000 during the
first quarter of the fiscal year ended April 30, 1998.
Cash provided by financing activities during the three months ended
July 31, 1998 was $315,000 compared to $263,000 in the year-ago period. Included
in the current period were net proceeds of approximately $2,350,000 from the
issuance of 300 shares of Series E Convertible Preferred Stock. The net proceeds
were used to repay the convertible note issued during March 1998 to the former
minority interest shareholder of the Company's
7
<PAGE>
subsidiary Computer-Aided Software, Integration, Inc. and for working capital
purposes. Also included in the current period were net proceeds of $182,000 from
the issuance of common stock related to stock option and employee stock plans.
Offsetting the proceeds from the preferred and common stock activity were
principal payments of debt of $2,217,000.
The Company's working capital improved from $1,472,000 at April 30,
1998 to $4,876,000 at July 31, 1998.
At July 31, 1998, total debt was $12,020,000 compared to $14,237,000
at April 30, 1998.
Stockholders' equity increased $2,995,000 during the three months
ended July 31, 1998, principally reflecting net income of $460,000, proceeds of
approximately $2,350,000 from the issuance of Series E Convertible Preferred
Stock and proceeds from the issuance of common stock related to stock option and
employee stock plans of $182,000.
IMPACT OF THE YEAR 2000 ISSUE
Many computer systems and software products currently in use by
businesses and government organizations are coded to accept two digits, rather
than four, to specify the year. Such computer systems and software products will
be unable to properly interpret dates beyond the year 1999, which could lead to
business disruptions (the "Year 2000 Issue"). As a result, in less than two
years, computer systems and/or software used by many companies may need to be
upgraded to properly interpret dates beyond 1999. The Company's technical
personnel are in the process of assessing the impact of the Year 2000 Issue on
the Company's products.
Based on a recent assessment of its internal computer systems, the
Company determined that it will be required to modify or replace portions of its
internal software so that its computer systems will properly utilize dates
beyond December 31, 1999. The Company is in the process of performing its Year
2000 modifications and expects to have its internal computer systems year 2000
compliant by the end of 1999. If such modifications are not completed timely,
the Year 2000 Issue could have a material impact on the operations of the
Company.
The Company has initiated formal communications with all of its
significant suppliers and large customers to determine the extent to which the
Company is vulnerable to those third parties' failure to remediate their own
Year 2000 Issue. However, there can be no guarantee that the systems of other
companies on which the Company's systems rely will be timely converted, or that
a failure to convert by another company, or a conversion that is incompatible
with the Company's systems, would not have a material adverse effect on the
Company.
The Company will utilize both internal and external resources to
reprogram, or replace, and test software for Year 2000 modifications. The total
cost of the program is being funded through operating cash flows. Costs
associated with the purchase of new software will be capitalized. The total cost
associated with the required modifications and conversions is not expected to be
material to the Company's consolidated results of operations and financial
position.
8
<PAGE>
DATATEC SYSTEMS, INC.
FORM 10-Q
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
9
<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
(1) On May 6, 1998, the Company filed a Form 8-K dated April
30, 1998 reporting the private sale of $3,000,000 of
Series E Convertible Preferred Stock.
10
<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: February 12, 1999 By: /S/ JAMES M. CACI
----------------------
James M. Caci
Chief Financial Officer and Duly
Authorized Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS AS OF JULY 31, 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> JUL-31-1998
<CASH> 137
<SECURITIES> 0
<RECEIVABLES> 18,642
<ALLOWANCES> (305)
<INVENTORY> 3,760
<CURRENT-ASSETS> 26,560
<PP&E> 11,007
<DEPRECIATION> (5,291)
<TOTAL-ASSETS> 38,640
<CURRENT-LIABILITIES> 22,134
<BONDS> 0
<COMMON> 29
0
0
<OTHER-SE> 13,434
<TOTAL-LIABILITY-AND-EQUITY> 38,640
<SALES> 25,143
<TOTAL-REVENUES> 25,143
<CGS> 16,151
<TOTAL-COSTS> 16,151
<OTHER-EXPENSES> 8,039
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 493
<INCOME-PRETAX> 460
<INCOME-TAX> 0
<INCOME-CONTINUING> 460
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 460
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
