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: July 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
------------------------------------ ---------------------------
(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 July 31, 2000
was 33,494,558.
<PAGE>
DATATEC SYSTEMS, INC.
FORM 10-Q
THREE MONTHS ENDED JULY 31, 2000
INDEX
PART I: FINANCIAL INFORMATION
Page
Item 1: Consolidated Financial Statements
Balance Sheets at April 30, 2000 and
July 31, 2000 3
Statements of Operations for the three months ended
July 31, 1999 and 2000 4
Statements of Comprehensive Income for the
three months ended July 31, 1999 and 2000 5
Statements of Cash Flows for the three months ended
July 31, 1999 and 2000 6
Notes to Unaudited Consolidated Financial Statements 7
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>
July 31, 2000
April 30, 2000 (unaudited)
------------------------- --------------------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 10,077,000 $ 7,627,000
Receivables, net 23,849,000 31,495,000
Inventory 5,129,000 5,571,000
Prepaid expenses and other current assets 1,301,000 1,174,000
------------------------- --------------------------
Total current assets 40,356,000 45,867,000
Property and equipment, net 5,169,000 5,137,000
Goodwill, net 3,102,000 2,992,000
Other assets 6,435,000 6,637,000
------------------------- --------------------------
Total assets $ 55,062,000 $ 60,633,000
========================= ==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 9,070,000 $ 14,282,000
Current portion of long-term debt 776,000 588,000
Accounts payable 9,480,000 10,626,000
Accrued and other liabilities 3,482,000 3,491,000
Due to related parties 1,390,000 1,390,000
------------------------- --------------------------
Total current liabilities 24,198,000 30,377,000
------------------------- --------------------------
Long-term debt 226,000 170,000
------------------------- --------------------------
Minority interest 9,593,000 9,614,000
Shareholders' equity:
Common stock 33,000 33,000
Additional paid-in capital 42,268,000 42,620,000
Accumulated deficit (20,908,000) (21,832,000)
Accumulated comprehensive loss (348,000) (349,000)
------------------------- --------------------------
Total shareholders' equity 21,045,000 20,472,000
------------------------- --------------------------
Total liabilities and shareholders' equity $ 55,062,000 $ 60,633,000
========================= ==========================
</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
July 31,
-------------------------------------------------
1999 2000
--------------------- ---------------------
<S> <C> <C>
Revenues $ 25,556,000 $ 24,663,000
Cost of revenues 15,915,000 15,194,000
--------------------- ---------------------
Gross profit 9,641,000 9,469,000
Selling, general and administrative expenses 8,361,000 9,897,000
--------------------- ---------------------
Operating income(loss) 1,280,000 (428,000)
Interest expense 436,000 325,000
--------------------- ---------------------
Income(loss) before minority interest 844,000 (753,000)
Minority interest -- (171,000)
--------------------- ---------------------
Net income(loss) $ 844,000 ($ 924,000)
===================== =====================
Income(loss) per share (Note 3):
Basic and diluted:
Net income(loss) $ .03 ($ .03)
===================== =====================
WEIGHTED AVERAGE COMMON SHARES - BASIC 30,686,000 33,463,000
===================== =====================
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES - DILUTED 31,418,000 33,463,000
===================== =====================
</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(LOSS)
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
July 31,
---------------------------------------------------------
1999 2000
------------------------- --------------------------
<S> <C> <C>
Net Income(loss) $ 844,000 ($ 924,000)
Other comprehensive loss-
Foreign currency translation adjustment (1,000) (1,000)
------------------------- --------------------------
Comprehensive income(loss) $ 843,000 ($ 925,000)
========================= ==========================
</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 CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
July 31,
------------------------------------------------------
1999 2000
------------------------- ------------------------
Cash Flows From Operating Activities
<S> <C> <C>
Net income(loss) $ 844,000 ($ 924,000)
Adjustments to reconcile net income to net cash used in
operating activities --
Depreciation and amortization 786,000 1,168,000
Changes in operating assets and liabilities:
Increase in accounts receivable (2,845,000) (7,646,000)
Increase in inventory (230,000) (442,000)
Increase in prepaid expenses and other assets (234,000) (572,000)
Decrease in assets held for sale or disposition 447,000 ----
Increase (decrease) in accounts payable, accrued and
other liabilities (1,293,000) 1,155,000
--------------------- --------------------------
Net cash used in operating activities (2,525,000) (7,261,000)
--------------------- --------------------------
Cash flows from investing activities:
Purchases of property and equipment (430,000) (508,000)
---------------------- -------------------------
Net cash used in investing activities (430,000) (508,000)
--------------------- --------------------------
Cash flows from financing activities:
Net borrowings of short-term borrowings 3,319,000 5,212,000
Net payments of indebtedness (590,000) (244,000)
Net proceeds from common stock/warrant issuances 117,000 352,000
--------------------- --------------------------
Net cash provided by financing activities 2,846,000 5,320,000
Net effect on foreign currency translation on cash (1,000) (1,000)
--------------------- --------------------------
Net decrease in cash (110,000) (2,450,000)
Cash and cash equivalents at beginning of period 234,000 10,077,000
--------------------- --------------------------
Cash and cash equivalents at end of period $ 124,000 $ 7,627,000
===================== ==========================
</TABLE>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these consolidated statements.
6
<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.
Certain prior year amounts have been reclassified to conform to the
current year financial statement presentation.
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 July 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 ended July 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 months ended July 31, 1999 and
2000. For the three months ended July 31, 2000 approximately 1,637,000 of
outstanding options and warrants have been excluded from the calculation of
diluted earnings per share as their inclusion would have been anti-dilutive.
(4) Supplemental Disclosure of Cash Flows
Cash paid during the three months ended July 31:
1999 2000
--------- ---------
Interest Paid $ 351,000 $ 365,000
7
<PAGE>
(5) Segment Information
<TABLE>
<CAPTION>
2000
------------------------------------------------------------------
Deployment
Services eDeploy Eliminations Consolidated
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $23,584,000 $1,116,000 ($37,000) $24,663,000
Cost of Revenues 14,890,000 341,000 (37,000) $15,194,000
------------------------------------------------------------------
Gross profit 8,694,000 775,000 - $9,469,000
SG&A expenses 8,487,000 1,410,000 - $9,897,000
------------------------------------------------------------------
Operating Income 207,000 (635,000) - (428,000)
Interest expense, net 120,000 226,000 (21,000) $325,000
------------------------------------------------------------------
Income before Minority Interest 87,000 (861,000) 21,000 (753,000)
Minority interest - - (171,000) ($171,000)
------------------------------------------------------------------
Net income $87,000 ($861,000) ($150,000) ($924,000)
==================================================================
</TABLE>
<TABLE>
<CAPTION>
1999
---------------------------------------------------------------------
Deployment
Services eDeploy Eliminations Consolidated
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $25,496,000 $60,000 - $25,556,000
Cost of Revenues 15,814,000 101,000 - $15,915,000
---------------------------------------------------------------------
Gross profit 9,682,000 (41,000) - $9,641,000
SG&A expenses 7,628,000 733,000 - $8,361,000
---------------------------------------------------------------------
Operating Income 2,054,000 (774,000) - 1,280,000
Interest expense, net 168,000 268,000 - $436,000
---------------------------------------------------------------------
Income before Minority Interest 1,886,000 (1,042,000) - 844,000
Minority interest - - - $0
---------------------------------------------------------------------
Net income $1,886,000 ($1,042,000) - $844,000
=====================================================================
</TABLE>
8
<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, 2000
Revenues. Revenues for the three months ended July 31, 2000 were
$24,663,000 compared to $25,556,000 for the three months ended July 31, 1999,
representing a decrease of 3.5%. eDeploy.com revenues were $1,116,000 for the
three months ended July 31, 2000 compared to $60,000 for the three months ended
July 31, 1999. Included in the three months ended July 31, 2000 is a sale of a
Master Agreement of $1,000,000. Datatec Services revenues were $23,584,000 for
the three months ended July 31, 2000 compared to $25,496,000 for the three
months ended July 31, 1999, representing a decrease of 7.5%, which is attributed
to the transition from a direct sales model to an indirect model.
Gross Profit. Gross profits for the three months ended July 31, 2000
were $9,469,000 compared to $9,641,000 for the three months ended July 31, 1999.
Gross profits as a percentage of revenues were 38.4% for the three months ended
July 31, 2000 compared to 37.7% for the three months ended July 31, 1999.
Datatec Services gross profits as a percentage of sales decreased from 38% for
the three months ended July 31, 1999 to 36.9% for the three months ended July
31, 2000.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the three months ended July 31, 2000 were $9,897,000
compared to $8,361,000 for the three months ended July 31, 1999, representing
40.1% and 32.7% of revenues, respectively. eDeploy.com's selling, general and
administrative expenses for the three months ended July 31, 2000 were $1,410,000
compared to $733,000 for the three months ended July 31, 1999. The largest
contributing factor to this increase is the number of eDeploy.com associates.
Datatec Services' selling, general and administrative expenses were $8,487,000
in the first quarter of the fiscal year ending April 30, 2001 compared to
$7,628,000 for the first quarter of the fiscal year ended April 30, 2000. The
increase of 11.3% is largely due to an increase in the number of and quality of
Datatec's personnel, primarily in the client services and sales groups. The
commitment to employing high quality, dedicated associates will position the
Company to successfully deliver more complex services to its clients.
Minority interest. For the three months ended July 31, 2000 the
company recorded minority interest expense of $171,000. Of this amount, $150,000
represents the 6% annual dividend on the $10 million investment in eDeploy.com.
The remainder, $21,000, represents amortization of deferred financing fees
associated with the investment.
Interest expense. Net interest expense for the three months ended
July 31, 2000 was $325,000 compared to $436,000 for the three months ended July
31, 1999, representing a decrease of 25.5%. The decrease in net interest expense
is the result of the Company recording interest income of $133,000 in the three
months ended July 31, 2000. Gross interest expense increased 5% as a result of
increased average debt balances.
9
<PAGE>
Financial Position
During the three months ended July 31, 2000 cash used in operations
was $7,261,000, reflecting growth in the Company's receivables, compared to a
year-ago cash usage of $2,525,000.
Cash used for investing activities during the first quarter of the
fiscal year ending April 30, 2001 was $508,000 compared to $430,000 during the
first quarter of the fiscal year ended April 30, 2000.
Cash provided by financing activities during the three months ended
July 31, 2000 was $5,320,000 compared to $2,846,000 in the year-ago period. The
cash was provided by an increase in the Company's borrowing under its revolving
credit facility to fund the increase in receivables.
The Company's working capital was $15,490,000 at July 31, 2000
compared to $16,158,000 at April 30, 2000.
At July 31, 2000, total debt was $15,039,000 compared to $10,072,000
at April 30, 2000.
Shareholders' equity decreased $573,000 during the three months
ended July 31, 2000, principally reflecting a loss of $924,000 and proceeds from
the issuance of common stock related to stock option and employee stock plans of
$352,000.
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: September 14, 2000 By: /s/ James M. Caci
-------------------------------
James M. Caci
Chief Financial Officer and Duly
Authorized Officer
