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: October 31, 2000
----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 07004
------------------------------ --------------------------
(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 13 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,
2000 was 33,595,815.
<PAGE>
DATATEC SYSTEMS, INC.
FORM 10-Q
THREE MONTHS ENDED OCTOBER 31, 2000
INDEX
PART I: FINANCIAL INFORMATION
Page
Item 1: Consolidated Financial Statements
Balance Sheets at April 30, 2000 and
October 31, 2000 3
Statements of Operations for the three months ended
October 31, 1999 and 2000 4
Statements of Comprehensive Income for the
three months ended October 31, 1999 and 2000 5
Statements of Operations for the six months ended
October 31, 1999 and 2000 6
Statements of Comprehensive Income for the
six months ended October 31, 1999 and 2000 7
Statements of Cash Flows for the six months ended
October 31, 1999 and 2000 8
Notes to Unaudited Consolidated Financial Statements 9-12
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-14
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 15
2
<PAGE>
DATATEC SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31, 2000
April 30, 2000 (unaudited)
-------------- ------------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 10,077,000 $ 5,505,000
Receivables, net 23,849,000 37,383,000
Inventory 5,129,000 5,803,000
Prepaid expenses and other current assets 1,301,000 1,182,000
--------------- -------------------
Total current assets 40,356,000 49,873,000
Property and equipment, net 5,169,000 5,656,000
Goodwill, net 3,102,000 2,883,000
Other assets 6,435,000 7,008,000
--------------- -------------------
Total assets $ 55,062,000 $ 65,420,000
=============== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 9,070,000 $ 13,476,000
Current portion of long-term debt 776,000 402,000
Accounts payable 9,480,000 14,212,000
Accrued and other liabilities 3,482,000 4,703,000
Due to related parties 1,390,000 1,390,000
--------------- -------------------
Total current liabilities 24,198,000 34,183,000
--------------- -------------------
Long-term debt 226,000 111,000
--------------- -------------------
9,593,000 9,634,000
Minority interest
Shareholders' equity:
Common stock 33,000 33,000
Additional paid-in capital 42,268,000 42,919,000
Accumulated deficit (20,908,000) (21,110,000)
Accumulated comprehensive loss (348,000) (350,000)
--------------- -------------------
Total shareholders' equity 21,045,000 21,492,000
--------------- -------------------
Total liabilities and shareholders' equity $ 55,062,000 $ 65,420,000
=============== ===================
</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 OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
October 31,
------------------------------
1999 2000
----------- ------------
<S> <C> <C>
Revenues $25,503,000 $ 32,696,000
Cost of revenues 15,846,000 20,705,000
------------ -------------
Gross profit 9,657,000 11,991,000
Selling, general and administrative expenses 8,360,000 10,721,000
------------ -------------
Operating income 1,297,000 1,270,000
Interest expense 474,000 377,000
------------ -------------
Income before minority interest 823,000 893,000
Minority interest --- (170,000)
------------ -------------
Net income $ 823,000 $ 723,000
============ =============
Income per share (Note 3):
Basic and diluted:
Net income $ .03 $ .02
============ =============
WEIGHTED AVERAGE COMMON SHARES - BASIC 31,232,000 33,567,000
============ =============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES - DILUTED 31,956,000 34,403,000
============ =============
</TABLE>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these consolidated statements.
4
<PAGE>
DATATEC SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
October 31,
----------------------------
1999 2000
----------- ----------
<S> <C> <C>
Net Income $ 823,000 $ 723,000
Other comprehensive loss-
Foreign currency translation adjustment (3,000) (2,000)
----------- -----------
Comprehensive income $ 820,000 $ 721,000
=========== ===========
</TABLE>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these consolidated statements.
5
<PAGE>
DATATEC SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
October 31,
---------------------------------
1999 2000
------------- ------------
<S> <C> <C>
Revenues $ 51,059,000 $ 57,359,000
Cost of revenues 31,761,000 35,900,000
------------- ---------------
Gross profit 19,298,000 21,459,000
Selling, general and administrative expenses 16,720,000 20,617,000
------------- ---------------
Operating income 2,578,000 842,000
Interest expense 911,000 703,000
------------- ---------------
Income before minority interest 1,667,000 139,000
Minority interest --- (341,000)
------------- ---------------
Net income (loss) $ 1,667,000 $ (202,000)
============= ===============
Income per share (Note 3):
Basic: $ .05 $ (.01)
============= ===============
Diluted: $ .05 $ (.01)
============= ===============
WEIGHTED AVERAGE COMMON SHARES - BASIC 30,959,000 33,515,000
============= ===============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES - DILUTED 31,687,000 33,515,000
============= ===============
</TABLE>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these consolidated statements.
6
<PAGE>
DATATEC SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
October 31,
---------------------------------
1999 2000
-------------- --------------
<S> <C> <C>
Net Income (loss) $ 1,667,000 $ (202,000)
Other comprehensive loss-
Foreign currency translation adjustment (3,000) (2,000)
------------- ---------------
Comprehensive income (loss) $ 1,664,000 $ (204,000)
============= ==============
</TABLE>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these consolidated statements.
7
<PAGE>
DATATEC SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
October 31,
-------------------------------------------------
1999 2000
------------------ ---------------------
Cash Flows From Operating Activities
<S> <C> <C>
Net income (loss) $ 1,667,000 $ (202,000)
Adjustments to reconcile net income to net cash used in
operating activities --
Depreciation and amortization 1,601,000 2,345,000
Accretion of preferred discount --- 41,000
Changes in operating assets and liabilities:
Increase in accounts receivable (4,247,000) (13,534,000)
Increase in inventory (451,000) (674,000)
Decrease (increase) in prepaid expenses and other assets 100,000 (1,466,000)
Decrease in net assets held from discontinued
operations 447,000 ---
(Decrease) increase in accounts payable, accrued and
other liabilities (580,000) 5,953,000
------------------- -----------------------
Net cash used in operating activities (1,463,000) (7,537,000)
------------------- -----------------------
Cash flows from investing activities:
Purchases of property and equipment (962,000) (1,601,000)
----------------- -----------------------
Net cash used in investing activities (962,000) (1,601,000)
------------------- -----------------------
Cash flows from financing activities:
Net increase in short-term borrowings 2,922,000 4,406,000
Net payments of indebtedness (862,000) (489,000)
Net proceeds from common stock/warrant issuances 273,000 651,000
------------------- -----------------------
Net cash provided by financing activities 2,333,000 4,568,000
Net effect of foreign currency translation on cash (3,000) (2,000)
------------------- -----------------------
Net decrease in cash (95,000) (4,572,000)
Cash at beginning of period 234,000 10,077,000
------------------- -----------------------
Cash at end of period $ 139,000 $ 5,505,000
=================== =======================
</TABLE>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these consolidated statements.
8
<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, 2000. 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 October
31, 2000 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 months and six months ended October 31, 1999
and 2000. Diluted earnings per share 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 month and six
months ended October 31, 1999 and 2000.
(4) Supplemental Disclosure of Cash Flows
Cash paid during the six months ended October 31:
1999 2000
-------------- ---------------
Interest Paid $ 746,000 $ 478,000
9
<PAGE>
(5) Segment Information
For the Three Months Ended October 31, 2000
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
2000
-----------------------------------------------------------------------------
Deployment
Services eDeploy Eliminations Consolidated
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $32,158,000 $834,000 ($296,000) $32,696,000
Cost of
Revenues 20,649,000 352,000 (296,000) 20,705,000
------------------------------------------------------------------------
Gross Profit 11,509,000 482,000 --- 11,991,000
SG&A Expenses 8,971,000 1,750,000 --- 10,721,000
------------------------------------------------------------------------
Operating
Income 2,538,000 (1,268,000) --- 1,270,000
Interest expense,
net 132,000 265,000 (20,000) 377,000
------------------------------------------------------------------------
Income before
Minority Interest 2,406,000 (1,533,000) 20,000 893,000
Minority Interest --- --- 170,000 170,000
------------------------------------------------------------------------
Net Income 2,406,000 (1,533,000) (150,000) 723,000
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------
1999
----------------------------------------------------------------------
Deployment
Services eDeploy Eliminations Consolidated
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $25,024,000 $479,000 $0 $25,503,000
Cost of
Revenues 15,746,000 100,000 --- 15,846,000
----------------------------------------------------------------
Gross Profit 9,278,000 379,000 --- 9,657,000
SG&A Expenses 7,919,000 441,000 --- 8,360,000
----------------------------------------------------------------
Operating
Income 1,359,000 (62,000) --- 1,297,000
Interest expense,
net 184,000 290,000 --- 474,000
----------------------------------------------------------------
Income before
Minority Interest 1,175,000 (352,000) --- 823,000
Minority Interest --- --- --- $0
----------------------------------------------------------------
Net Income 1,175,000 (352,000) --- 823,000
=====================================================================================
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended October 31, 2000
-------------------------------------------------------------------------
2000
-------------------------------------------------------------------------
Deployment
Services eDeploy Eliminations Consolidated
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $55,742,000 $1,951,000 ($334,000) $57,359,000
Cost of
Revenues 35,540,000 694,000 (334,000) 35,900,000
-------------------------------------------------------------------------
Gross Profit 20,202,000 1,257,000 --- 21,459,000
SG&A Expenses 17,458,000 3,159,000 --- 20,617,000
-------------------------------------------------------------------------
Operating
Income 2,744,000 (1,902,000) --- 842,000
Interest expense,
net 252,000 492,000 (41,000) 703,000
-------------------------------------------------------------------------
Income before
Minority Interest 2,492,000 (2,394,000) 41,000 139,000
Minority Interest --- --- (341,000) (341,000)
-------------------------------------------------------------------------
Net Income 2,492,000 (2,394,000) (300,000) (202,000)
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------
1999
---------------------------------------------------------------------
Deployment
Services eDeploy Eliminations Consolidated
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $50,520,000 $ 539,000 $0 $51,059,000
Cost of
Revenues 31,560,000 201,000 --- 31,761,000
----------------------------------------------------------------
Gross Profit 18,960,000 338,000 --- 19,298,000
SG&A Expenses 15,546,000 1,174,000 --- 16,720,000
----------------------------------------------------------------
Operating
Income 3,414,000 (836,000) --- 2,578,000
Interest expense,
net 352,000 559,000 --- 911,000
----------------------------------------------------------------
Income before
Minority Interest 3,062,000 (1,395,000) --- 1,667,000
Minority Interest --- --- --- $0
----------------------------------------------------------------
Net Income 3,062,000 (1,395,000) --- 1,667,000
================================================================
</TABLE>
11
<PAGE>
(6) Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
financial statement presentation.
(7) Subsequent Event
In November 2000, the Company replaced its current lender with IBM Credit
Corporation. The new financing agreement calls for a $3,000,000 term loan
representing an increase of approximately $3,000,000 over previous financing
bearing interest at the prime rate plus 75 basis points and a $18,000,000
revolving line representing an increase of $3,000,000 over previous financing
bearing interest at the prime rate plus 25 basis points. The new financing
represents a decrease of 75 basis points and 50 basis points for the term loan
and revolving line of credit, respectively, as compared to the previous
financing.
12
<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 and Six Months Ended October 31,
2000
Revenues. Revenues for the three and six months ended October 31,
2000 were $32,696,000 and $57,359,000 compared to $25,503,000 and $51,059,000
for the three and six months ended October 31, 1999, respectively, representing
an increase of 28.2% and an increase of 12.3% for the three and six months,
respectively. Included in revenues for the three and six months ended October
31, 2000 were eDeploy.com revenues of $538,000 and $1,617,000, respectively, net
of eliminating intercompany revenues. Intercompany revenues were $296,000 and
$334,000 for eDeploy.com for the three and six months ended October 31, 2000,
respectively.
Gross Profit. Gross profits for the three and six months ended
October 31, 2000 were $11,991,000 and $21,459,000 compared to $9,657,000 and
$19,499,000 for the three and six months ended October 31, 1999, respectively.
Gross profits as a percentage of net sales were 36.7% and 37.4% for the three
and six months ended October 31, 2000 compared to 37.9% and 38.2% for the three
and six months ended October 31, 1999, respectively. The decrease in gross
margin percentage is primarily attributable to greater material content
associated with three major projects, as well as the increase in eDeploy.com's
amortization of development costs.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the three and six months ended October 31, 2000 were
$10,721,000 and $20,617,000 compared to $8,359,000 and $16,921,000, for the
three and six months ended October 31, 1999, respectively. As a percentage of
sales, selling, general and administrative expenses were 32.8% and 35.9% for the
three and six months ended October 31, 2000, compared to 32.8% and 33.1% for the
three and six months ended October 31, 1999, respectively. The increase in
selling, general and administrative expenses as a percentage of sales is
primarily attributable to the Company's continued investment in eDeploy.com.
Included in selling, general and administrative expenses for the three and six
months ended October 31, 2000 were eDeploy.com expenses of $1,750,000 and
$3,159,000, respectively. In the previous fiscal year, selling, general and
administrative expenses were $441,000 and $1,174,000, respectively, for
eDeploy.com.
Interest expense. Net interest expense for the three and six months
ended October 31, 2000 was $377,000 and $703,000 compared to $475,000 and
$911,000, for the three and six months ended October 31, 1999, respectively. The
reduction in interest expense was primarily the result of two factors. First,
prior periods included amortization of debt issuance costs which were fully
amortized by the end of fiscal year 2000. Secondly, since the Company's loan
with the current lender was in its final stages, payments made during the
current period consisted mainly of principal.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year financial statement presentation.
13
<PAGE>
Financial Position
During the six months ended October 31, 2000, cash used in
operations was $7,537,000, compared to $1,463,000 during the comparable period
in fiscal 2000. This is primarily due to the increase in accounts receivable
partially offset by higher accounts payable associated with the growth in the
business, as well as operating losses at eDeploy.com.
Cash used for investing activities during the first six months ended
October 31, 2000 was $1,601,000 compared to $962,000 during the comparable
period in fiscal 2000. This increase is primarily due to the capital
expenditures associated with the growth in eDeploy.com.
Cash provided by financing activities during the six months ended
October 31, 2000 was $4,568,000 compared to $2,333,000 in the comparable period
in fiscal 2000 due to increased borrowings and decreased repayments of debt.
Included in the current period is the increase in borrowing from our current
lender and the net proceeds of $651,000 from the issuance of common stock
related to the exercise of stock options and purchases under the employee stock
purchase plan.
At October 31, 2000, total debt was $13,976,000 compared to
$10,072,000 at April 30, 2000.
The Company's working capital decreased from $16,158,000 at April
30, 2000 to $15,690,000 at October 31, 2000 primarily due to the increase in
accounts receivable and accounts payable. Subsequent to October 31, 2000, the
Company collected approximately $11,000,000 in the month of November which
improved the Company's working capital.
Shareholders' equity increased $447,000 during the six months ended
October 31, 2000, principally reflecting a loss of $202,000 and proceeds of
$651,000 from the issuance of common stock related to stock option and employee
stock purchase plans.
Subsequent Event
In November 2000, the Company replaced its current lender with IBM
Credit Corporation. The new financing agreement calls for a $3,000,000 term loan
representing an increase of approximately $3,000,000 over previous financing
bearing interest at the prime rate plus 75 basis points and a $18,000,000
revolving line representing an increase of $3,000,000 over previous financing
bearing interest at the prime rate plus 25 basis points. The new financing
represents a decrease of 75 basis points and 50 basis points for the term loan
and revolving line of credit respectively, as compared to the previous
financing.
14
<PAGE>
DATATEC SYSTEMS, INC.
FORM 10-Q
PART II - OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
15
<PAGE>
SIGNATURES
In accordance with 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.
DATATEC SYSTEMS, INC.
Registrant
Date: December 15, 2000 By: /s/ Isaac Gaon
-------------------------------------
Isaac Gaon
Chairman, Chief Executive Officer and
Acting Chief Financial Officer
16
