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: January 31, 2000
[ ] 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 07004-2308
- ------------------------------ -------------------
(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 January 31,
2000 was 31,274,064.
<PAGE>
DATATEC SYSTEMS, INC.
FORM 10-Q
THREE MONTHS ENDED JANUARY 31, 2000
INDEX
PART I: FINANCIAL INFORMATION
Page
Item 1: Consolidated Financial Statements
Balance Sheets at April 30, 1999 (audited) and
January 31, 2000 3
Statements of Operations for the three months ended
January 31, 1999 and 2000 4
Statements of Operations for the nine months ended
January 31, 1999 and 2000 5
Statements of Comprehensive Loss for the
nine months ended January 31, 1999 and 2000 6
Statements of Cash Flows for the nine months ended
January 31, 1999 and 2000 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, January 31,
1999 2000
(unaudited)
--------- -----------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 234,000 $ 82,000
Accounts receivable, net 20,661,000 25,610,000
Inventory 3,252,000 4,790,000
Prepaid expenses and other current assets 2,970,000 886,000
Net assets from discontinued operations 447,000 0
------------ ------------
Total current assets 27,564,000 31,368,000
Property and equipment, net 5,200,000 4,800,000
Goodwill, net 3,539,000 3,211,000
Other assets 4,300,000 6,017,000
============ ============
Total assets $ 40,603,000 $ 45,396,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 8,623,000 $ 11,240,000
Current portion of long-term debt 1,783,000 968,000
Accounts payable 9,943,000 9,112,000
Accrued and other liabilities 3,866,000 3,378,000
Due to related parties 1,052,000 1,052,000
------------ ------------
Total current liabilities 25,267,000 25,750,000
------------ ------------
Long-term debt 607,000 286,000
------------ ------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Preferred stock -- --
Common stock 30,000 32,000
Additional paid-in capital 34,317,000 38,312,000
Accumulated deficit (19,275,000) (18,638,000)
Accumulated other comprehensive loss (343,000) (346,000)
------------ ------------
Total shareholders' equity 14,729,000 19,360,000
============ ============
Total liabilities and shareholders' equity $ 40,603,000 $ 45,396,000
============ ============
</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
January 31,
-------------------------------------------------
1999 2000
--------------------- ---------------------
<S> <C> <C>
Revenues $ 19,377,000 $ 21,363,000
Cost of revenues 13,456,000 13,699,000
--------------------- ---------------------
Gross profit 5,921,000 7,664,000
Selling, general and administrative expenses 7,017,000 8,258,000
--------------------- ---------------------
Operating loss (1,096,000) (594,000)
Interest expense 483,000 437,000
--------------------- ---------------------
Loss before provision (benefit) for income
taxes (1,579,000) (1,031,000)
Provision (benefit) for income taxes -- --
--------------------- ---------------------
Net loss $ (1,579,000) $ (1,031,000)
===================== =====================
Loss per share (Note 3):
Basic and diluted $ (.05) $ (.03)
===================== =====================
WEIGHTED AVERAGE COMMON SHARES - BASIC 29,642,000 31,467,000
===================== =====================
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES - DILUTED 29,642,000 31,467,000
===================== =====================
</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 OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
January 31,
-------------------------------------------------
1999 2000
--------------------- ---------------------
<S> <C> <C>
Revenues $ 70,098,000 $ 72,422,000
Cost of revenues 46,146,000 45,259,000
--------------------- ---------------------
Gross profit 23,952,000 27,163,000
Selling, general and administrative expenses 23,064,000 25,179,000
--------------------- ---------------------
Operating income 888,000 1,984,000
Interest expense 1,448,000 1,347,000
--------------------- ---------------------
Income(loss) before provision (benefit) for
income taxes (560,000) 637,000
Provision (benefit) for income taxes -- --
--------------------- ---------------------
Net income(loss) $ (560,000) $ 637,000
===================== =====================
Income(loss) per share (Note 3):
Basic and diluted $ (.02) $ .02
===================== =====================
WEIGHTED AVERAGE COMMON SHARES - BASIC 29,285,000 31,129,000
===================== =====================
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES - DILUTED 29,285,000 31,614,000
===================== =====================
</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 COMPREHENSIVE INCOME (LOSS)
(unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
January 31,
----------------------------------------------------
1999 2000
-------------------- --------------------------
<S> <C> <C>
Net income(loss) $ (560,000) $ 637,000
Other comprehensive income(loss)- 2,000 (3,000)
Foreign currency translation adjustment
-------------------- --------------------------
Comprehensive income(loss) $ (558,000) $ 634,000
==================== ==========================
</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 CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
January 31,
-------------------------
1999 2000
-------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income(loss) $ (560,000) $ 637,000
Adjustments to reconcile net income to net cash used in
operating activities --
Depreciation and amortization 2,387,000 2,518,000
Changes in operating assets and liabilities:
Decrease(increase) in accounts receivable 2,194,000 (4,949,000)
Increase in inventory (153,000) (1,538,000)
Increase in prepaid expenses and other assets (1,723,000) (179,000)
(Increase) decrease in net assets from discontinued operations (292,000) 447,000
Increase (decrease) in accounts payable, accrued and other liabilities 237,000 (1,319,000)
----------- -----------
Net cash provided by(used in) operating activities 2,090,000 (4,383,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (881,000) (1,244,000)
----------- -----------
Net cash used in investing activities (881,000) (1,244,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease)increase in short-term borrowings (3,238,000) 2,617,000
Net payments of indebtedness (821,000) (1,136,000)
Net proceeds from common stock/warrant issuances 2,654,000 3,997,000
---------- -----------
Net cash (used in)provided by financing activities (1,405,000) 5,478,000
---------- -----------
Net effect of foreign currency translation on cash 2,000 (3,000)
----------- -----------
Net decrease in cash (194,000) (152,000)
Cash at beginning of period 317,000 234,000
=========== ===========
Cash at end of period $ 123,000 $ 82,000
=========== ===========
</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 nine months ended
January 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 and nine months ended January 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 and nine months
ended January 31, 1999 and 2000. Outstanding options and warrants have been
excluded for the three months ended January 31, 1999 and 2000 and for the nine
months ended January 31, 1999 as their inclusion would have been antidilutive
for these periods.
(4) Supplemental Disclosure of Cash Flows
Cash paid during the nine months ended January 31:
1999 2000
---------- ----------
Interest Paid $1,221,000 $1,132,000
8
<PAGE>
(5) eDeploy.com
The following table breaks out the revenue and expenses attributable to
the Company's subsidiary eDeploy.com for the nine months ended January 31, 2000.
All revenues and expenses not directly attributed to eDeploy.com are reflected
as Datatec.
eDeploy Datatec Consolidated
------- ------- ------------
Revenues $1,029,000 $71,393,000 $72,422,000
Operating income(loss) ($1,063,000) $ 3,047,000 $ 1,984,000
Net income(loss) ($1,954,000) $ 2,591,000 $ 637,000
9
<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 Nine Months Ended January 31, 2000
Revenues. Revenues for the three and nine months ended January 31,
2000 were $21,363,000 and $72,422,000 compared to $19,377,000 and $70,098,000
for the three and nine months ended January 31, 1999, respectively, representing
an increase of 10.2% and 3.3% for the three and nine months, respectively.
Included in revenues for the three and nine months ended January 31, 2000 were
eDeploy.com revenues of $490,000 and $1,029,000, respectively.
Gross Profit. Gross profits for the three and nine months ended
January 31, 2000 were $7,664,000 and $27,163,000 compared to $5,921,000 and
$23,952,000 for the three and nine months ended January 31, 1999, respectively.
Gross profits as a percentage of net sales were 35.9% and 37.5% for the three
and nine months ended January 31, 2000 compared to 30.6% and 34.2% for the three
and nine months ended January 31, 1999, respectively. The improved gross profit
margin is the result of initiatives that began in the 3rd and 4th quarter of
fiscal year ended April 30, 1999. These initiatives were focused on improving
project management information to allow for improved decision making. These
initiatives also included additional personnel in the role of project management
and sales engineering.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the three and nine months ended January 31, 2000
were $8,258,000 and $25,179,000, respectively, compared to $7,017,000 and
$23,064,000, respectively, for the three and nine months ended January 31, 1999,
respectively. As a percentage of sales, selling, general and administrative
expenses were 38.7% and 34.8% for the three and nine months ended January 31,
2000, compared to 36.2% and 32.9% for the three and nine months ended January
31, 1999. 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 nine months ended January 31, 2000 were eDeploy.com expenses of $718,000 and
$2,092,000, respectively.
Interest expense. Interest expense for the three and nine months
ended January 31, 2000 was $437,000 and $1,347,000 compared to $483,000 and
$1,448,000, respectively, for the three and nine months ended January 31, 1999,
respectively.
Financial Position
During the nine months ended January 31, 2000, cash used in
operations was $4,382,000, reflecting growth in the Company's receivables and
continued investment in the development of eDeploy(TM), compared to the nine
months ended January 31, 1999, during which cash provided by operations was
$2,090,000.
Cash used for investing activities during the first nine months of
the fiscal year ending April 30, 2000 was $1,244,000 compared to $881,000 during
the first nine months of the fiscal year ended April 30, 1999.
10
<PAGE>
Cash provided by financing activities during the nine months ended
January 31, 2000 was $5,477,000 compared to cash used in financing activities of
$1,405,000 in the year-ago period. Included in the current period were net
proceeds of $3,997,000 from the issuance of common stock related to the exercise
of stock options and warrants as well as purchases under the employee stock
purchase plan.
The Company's working capital improved from $2,297,000 at April 30,
1999 to $5,618,000 at January 31, 2000.
At January 31, 2000, total debt was $12,494,000 compared to
$11,013,000 at April 30, 1999.
Shareholders' equity increased $4,631,000 during the nine months
ended January 31, 2000, principally reflecting net income of $637,000 and
proceeds from the issuance of common stock related to the exercise of stock
options and warrants as well as purchases under the employee stock purchase plan
of $3,997,000.
11
<PAGE>
DATATEC SYSTEMS, INC.
FORM 10-Q
PART II - OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
None
12
<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
13
<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: March 15, 2000 By:/S/ James M. Caci
-----------------------------
James M. Caci
Chief Financial Officer and Duly
Authorized Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS AS OF JANUARY 31, 2000, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-END> JAN-31-2000
<CASH> 82
<SECURITIES> 0
<RECEIVABLES> 26,108
<ALLOWANCES> (498)
<INVENTORY> 4,790
<CURRENT-ASSETS> 31,368
<PP&E> 16,117
<DEPRECIATION> (11,317)
<TOTAL-ASSETS> 45,396
<CURRENT-LIABILITIES> 25,750
<BONDS> 0
<COMMON> 32
0
0
<OTHER-SE> 19,328
<TOTAL-LIABILITY-AND-EQUITY> 45,396
<SALES> 72,422
<TOTAL-REVENUES> 72,422
<CGS> 45,259
<TOTAL-COSTS> 45,259
<OTHER-EXPENSES> 25,179
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,347
<INCOME-PRETAX> 637
<INCOME-TAX> 0
<INCOME-CONTINUING> 637
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 637
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
