<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-14733
DELTA COMPUTEC INC.
(Exact name of registrant as specified in its charter)
New York 16-1146345
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
366 White Spruce Blvd, Rochester, NY 14623
(Address of Principal Executive Offices) (Zip Code)
201-440-8585
(Registrant's telephone number including area code)
Indicate by check mark 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 preceding 12 months and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ ] No [x]
As of April 30, 1996, there were 6,811,575 shares outstanding of the
Registrant's Common Stock $.01 par value.
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DELTA COMPUTEC INC.
Form 10-Q
Quarter Ended April 30, 1996
INDEX
Part I: Financial Information Page
Consolidated balance sheets at April 30, 1996 and
October 31, 1995 3-4
Consolidated statements of operations for the three
months ended April 30, 1996 and 1995 and six months
ended April 30, 1996 and 1995 5
Consolidated statement of cash flows for the six months
April 30, 1996 and 1995 6
Notes to consolidated financial statements 7-18
Management's discussion and analysis of operations and
financial condition 19-23
Part II: Other Information
Exhibits and Reports on Form 8-K 24-26
Signatures 25
2
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DELTA COMPUTEC INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
April 30, October 31,
1996 1995
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ (171,736) $ (245,249)
Accounts receivable, less allowance
for doubtful accounts of $176,083
and $525,139 at April 30, 1996 and
October 31, 1995, respectively 3,091,723 5,005,240
Inventories 1,130,251 1,968,089
Prepaid expenses and other current assets 286,997 255,049
Deferred income taxes current 24,000 100,000
------------ ------------
Total current assets $ 4,361,835 $ 7,083,489
FIELD SPARE PARTS, net of accumulated
amortization $ 2,150,106 $ 2,279,490
PROPERTY AND EQUIPMENT, at cost:
Technical equipment $ 1,304,893 $ 1,413,162
Office furniture and equipment 552,930 1,422,293
Vehicles 74,614 154,661
Leasehold improvements 76,753 283,121
Software 72,958 112,736
------------ ------------
$ 2,082,148 $ 3,385,973
Less: Accumulated depreciation 1,842,135 2,408,824
------------ ------------
$ 239,763 $ 977,149
DEFERRED INCOME TAXES $ 424,299 $ 610,236
OTHER ASSETS:
Goodwill, net $ 383,468 $ 444,427
Customer lists, net 123,323 136,366
Other assets 222,574 232,907
------------ ------------
729,365 $ 813,700
------------ ------------
$ 7,905,368 $ 11,764,064
============ ============
</TABLE>
See notes to consolidated financial statements.
3
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DELTA COMPUTEC INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
April 30, October 31,
1996 1995
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 2,319,423 $ 3,575,423
Deferred service revenue 1,666,777 1,571,226
Accrued expenses
Payroll and payroll taxes 224,863 424,738
Interest 124,049 42,667
Sales tax payable 465,414 190,642
Other 45,925 308,490
Due to Shareholder 475,517 602,639
Bank line of credit 2,330,825 3,782,956
------------- -------------
Total current liabilities $ 7,652,793 $ 10,498,781
LONG-TERM DEBT $ - $ -
SUBORDINATED DEBENTURES $ 1,075,001 $ 1,075,001
RESERVE FOR DISCONTINUANCE OF OPERATIONS 450,491 1,172,086
STOCKHOLDERS' INVESTMENT
Common stock, $ .01 par value;
authorized 20,000,000 shares;
issued and outstanding 6,811,575 at
April 30, 1995 and October 31, 1995 $ 68,116 $ 68,116
Additional paid-in capital 4,916,093 4,916,093
Accumulated deficit (6,257,126) (5,966,012)
------------- -------------
Total stockholders' investment (1,272,917) $ (981,803)
------------- -------------
$ 7,905,368 $ 11,764,064
============= =============
</TABLE>
See notes to consolidated financial statements.
4
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DELTA COMPUTEC INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
---------------------------- ---------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES FROM CONTINUING OPERATIONS:
Service revenues $ 2,929,832 $ 3,234,004 $ 5,524,426 $ 6,556,552
Equipment sales 670,540 1,412,007 1,155,897 2,743,255
----------- ----------- ----------- -----------
3,600,372 4,646,011 6,680,323 9,299,807
COSTS AND EXPENSES:
Service costs 2,195,240 2,632,504 4,373,207 5,151,668
Cost of equipment sold 507,185 977,330 901,045 1,960,473
Selling, general and
administrative 872,393 907,924 1,532,182 1,872,358
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 3,574,818 4,517,758 6,806,434 8,984,499
OTHER EXPENSE, NET 75,633 49,662 165,003 77,345
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (50,079) 78,591 (291,114) 237,963
INCOME TAX PROVISION (CREDIT) - 32,128 - 90,428
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) FROM CONTINUING
OPERATIONS (50,079) 46,463 (291,114) 147,535
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) FROM
DISCONTINUED OPERATIONS (307,270) (259,726) (663,477) (347,574)
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) (357,349) (213,263) (954,591) (200,039)
=========== =========== =========== ===========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
CONTINUING OPERATIONS $ ( .01) $ .01 $ ( .04) $ .02
DISCONTINUED OPERATIONS ( .04) ( .04) ( .10) ( .05)
----------- ----------- ----------- -----------
COMBINED $ ( .05) $ ( .03) $ ( .14) $ ( .03)
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE -
ASSUMING FULL DILUTION:
CONTINUING OPERATIONS $ ( .01) $ .01 $ ( .04) $ .02
DISCONTINUED OPERATIONS ( .04) ( .04) ( .10) ( .05)
----------- ----------- ----------- -----------
COMBINED $ ( .05) $ ( .03) $ ( .14) $ ( .03)
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
5
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DELTA COMPUTEC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
April 30,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net earnings(loss):
Continuing operations $ (291,114) $ 147,535
Discontinued operations, including loss
for six months ended April 30, 1996 charged
to reserve for discontinued operations (721,595) (347,574)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation & amortization 525,978 614,460
Decrease in accounts receivable, inventories,
prepaid expenses, deferred income taxes -
current, net of accounts payable, accrued
expenses and sales taxes payable 1,433,482 658,266
Increase (decrease) in deferred
service revenue 95,551 (363,110)
------------ -----------
Net cash flow from operating activities $ 1,042,302 $ 709,577
------------ -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures, including field
spare parts $ (268,367) (504,980)
Fixed assets disposed of in
discontinued business 609,159 -
Acquisition of business - (337,000)
Deferred taxes - noncurrent 185,937
Investment in intangibles and other assets 84,335 -
------------ -----------
Net cash flow from investing activities $ 611,064 $ (841,980)
------------ -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Net proceeds (payment) on bank borrowing (1,452,131) 166,245
Proceeds (payment) on loans
from Shareholder (Note 3) (127,122) (12,500)
------------ -----------
Net cash flow from financing activities $ (1,579,253) $ (153,745)
------------ -----------
NET INCREASE (DECREASE) IN CASH $ 74,113 $ 21,342
CASH - beginning of year (245,249) 12,809
------------ -----------
CASH - end of period $ (171,136) $ 34,151
============ ===========
</TABLE>
See notes to consolidated financial statements.
6
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DELTA COMPUTEC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Description of Business
Delta Computec Inc. ("the Registrant" or "the Company")
provides a wide array of Data Communication and LAN/WAN
products consulting and services as well as multi-vendor
maintenance services for computer systems and peripheral
equipment. Subsequent to the close of the quarter ended
January 31, 1996, the operations of the Registrant's
wholly-owned subsidiary, Delta Data Net, Inc. ("Data Net"),
were discontinued (See Note 2).
Principles of Consolidation and Representation by Management
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries Data Net and
SAI/Delta, Inc. All significant intercompany accounts and
transactions have been eliminated in consolidation. The
unaudited interim financial statements included herein
reflect all normal and recurring adjustments that are, in the
opinion of management, necessary for fair presentation of the
results for the interim periods.
Basis of Presentation
The accompanying consolidated financial statements have been
prepared assuming the Registrant will continue as a going
concern. The Registrant incurred operating losses in fiscal
1993, 1994 and 1995 and was in default under a certain Credit
Agreement as of January 31, 1996 and continues to be in
default under the Credit Agreement (Note 3). As more fully
described in Note 3 discussing the Registrant's borrowing
arrangements, in fiscal 1994 the Registrant had executed a
Credit Agreement to provide a long-term credit facility which
was to expire April 30, 1997. Under amendments number one
through five to such Credit Agreement (collectively, the
original Credit Agreement and all amendments are referred to
as the "Credit Agreement"), certain debt covenants were
amended based on the Registrant's business plan for fiscal
1995 and 1996, respectively, and certain other revisions were
made to the credit facility, including an additional advance
for the November, 1994 purchase of assets from Intronet, Inc.
As previously reported by the Registrant in a Form 8-K dated
March 8, 1996, the Registrant's Data Net subsidiary
terminated its business operations and ceased operations due
to economic conditions in its industry (Note 2). This
termination of Data Net's business constituted an Event of
Default under the Credit Agreement with the Registrant's
commercial lender, National Canada Finance Corp. ("NCFC"). On
March 8, 1996, the Registrant and NCFC entered into a
Forbearance Agreement under the provisions of which,
including Amendments Number One through Six (collectively,
the original Forbearance Agreement and all amendments are
7
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referred to as the "Forbearance Agreement"), whereby, among
other matters, NCFC agreed to forbear from exercising certain
rights and remedies under the Credit Agreement (Note 3).
If certain measures regarding cost savings and restructuring
that management has implemented prove unsuccessful and
defaults continue to occur under the amended Credit and
Forbearance Agreements, then the Registrant will need
additional financing from outside sources (See Note 3).
In accordance with generally accepted accounting principles,
the operating results for all periods presented are for
continuing operations and therefore do not include the
Registrant's Data Net subsidiary, with the operating results
for Data Net for the three months ended April 30, 1995, and
for the six months ended April 30, 1995, having been
accordingly restated.
Property and Equipment
Property and equipment are stated at cost and are
depreciated using the straight-line method based on
estimated useful lives which are as follows:
Estimated
Description Useful Life
Technical equipment 5 - 7 years
Office furniture and equipment 5 - 7 years
Vehicles 2 - 3 years
Leasehold improvements 5 - 10 years
Software 3 - 5 years
Maintenance and repairs are charged to expense as incurred. The cost
of renewals or improvements that increase the useful lives of the
assets is capitalized in the appropriate asset account. The gain or
loss on property retired or otherwise disposed of is credited or
charged to operations and the cost and accumulated depreciation are
removed from the accounts.
Inventories
Inventories represent computer equipment and peripherals held
for resale in the normal course of business and consumable
field spare parts. These inventories are recorded at the
lower of cost(first-in, first-out) or market.
Field Spare Parts
Field spare parts are stated at cost and are amortized using
the straight-line method over an estimated useful life of 5
years beginning in the year after acquisition.
8
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Goodwill
Goodwill, representing the excess of the cost of acquired
business over the fair value of net assets acquired, is being
amortized on a straight-line basis over periods ranging from
ten to twenty years. The amount of goodwill related to the
Registrant's purchase in November, 1992 of certain assets of
the Data Net business has been included in the Reserve for
Discontinuance of Operations as at October 31, 1995 (Note 2).
In addition, and as discussed more fully in Note 7, because
of the significant and continuing operating losses in the
Company's Intronet Division, management has determined that
the earning potential of the Division, and hence the carrying
value of its investment, has been impaired. In accordance
with generally accepted accounting principles, management has
therefore elected, effective October 31, 1995, to write off
the goodwill associated with its purchase of certain assets
of Intronet, Inc. in its entirety. The amount of goodwill at
October 31, 1995 related to the acquisition of certain assets
of Intronet, Inc. amounted to approximately $330,000 (Note
6).
Customer Lists
Customer lists, representing the fair market value of
customer lists for business acquired, are being amortized on
a straight-line basis over a ten-year period.
Deferred Service Revenue
Service revenue is recognized ratably over the contract
period. Deferred service revenue represents billings in
advance of the service period.
Revenue Recognition
Service revenues: Contract service revenue is recognized
ratably over the contractual period or as services are
provided. Revenue from service rendered on a "time and
materials" basis is recognized in the period the work is
performed.
Equipment sales: Revenue from equipment sales and the related
cost of sales are recognized when title to the equipment
passes. Component repair revenue and related costs are
recognized upon completion of the repair.
Income Taxes
Income taxes are recognized for the amount of taxes payable
or refundable for the current tax year, and deferred tax
liabilities and assets for the future tax consequence of
events that have been recognized in the Company's
consolidated financial statements or tax returns.
At April 30, 1996 the Registrant had operating loss
carryforwards for tax purposes from losses generated by its
Intronet Division from the November 1, 1994 date of
acquisition. The Registrant had recognized the tax benefit
9
<PAGE>
of these losses, in the form of deferred tax assets on its
balance sheet, through April 30, 1995. Generally accepted
accounting principles procedure(FAS 109) establishes
guidelines to be used in valuing deferred tax assets. The
Registrant incorporated in the financial statements at April
30, 1996 reserves for the valuation of previously recorded
deferred tax assets in the amount of $448,299. As discussed
in Note 2, effective March 8, 1996 the Registrant terminated
the operations of its Data Net subsidiary and, accordingly,
wrote off the portion of its deferred tax assets relating to
Data Net. This amount, aggregating $261,937 in current and
non-current charges, was written off in March, 1996. The
Registrant will continue to assess the value of the deferred
tax assets. This assessment will include, but not be limited
to, the Registrant's ability to divest itself of
non-strategic business units and the ability to project
adequate profits to utilize the operating loss carryforward
including that portion that has been reserved during the
period being reported.
Earnings per Share
Earnings per common and common equivalent share are computed
based upon the weighted average of common shares outstanding
during each year adjusted for dilutive outstanding stock
options and warrants using the treasury stock method.
Earnings per common and common equivalent share assuming full
dilution are computed on the assumption that all outstanding
convertible debentures, and all stock options and warrants
which were capable of being exercised, were exercised on the
issue date. Where the combined results from continuing and
discontinued operations yield a loss, under the treasury
stock method's calculation of earnings per share the weighted
average of common shares outstanding during each year is not
adjusted for the dilutive effect of outstanding stock options
and warrants.
(2) Termination of Operations in Data Net Subsidiary
As discussed in Note 1 above, and as previously reported by
the Registrant in a Form 8-K dated March 8, 1996, the
Registrant's Data Net subsidiary terminated its business
operations and ceased operations due to the combined negative
effect of general economic conditions that existed in its
industry as well as operating inefficiencies that were not
able to be overcome. These inefficiencies included (1) its
inability, due to cash flow constraints, to obtain products
at competitive prices, which, in turn, narrowed profit
margins; (2) product obsolescence from continuing
technological enhancements in the goods being sold; and (3)
the lack of critical business mass and the related
opportunity to maximize employee utilization.
The termination by Data Net of its operations constituted an
Event of Default under the Credit Agreement with NCFC.
Pursuant to the Credit Agreement, NCFC was entitled to
immediate possession of all of Data Net's collateral. In view
of the termination of business operations, Data Net
voluntarily surrendered its collateral to NCFC so that NCFC
could liquidate such collateral and apply the proceeds to all
outstanding obligations to NCFC under the Credit Agreement.
At March 8, 1996, the
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Registrant and Data Net had outstanding loan obligations to
NCFC in excess of $2,600,000 and the Data Net accounts
receivable in which NCFC had a security interest amounted to
$721,405. In addition, Date Net's inventory and fixed assets
were sold at a public auction with the net proceeds of
approximately $122,000 applied to the NCFC loan balance (See
Note 3, Forbearance Agreement).
In accordance with generally accepted accounting principles,
the Registrant's unaudited financial statements as at and for
fiscal period ended October 31, 1995 included a Reserve for
Discontinuance of Operations in the amount of approximately
$1,172,000, consisting of operating losses incurred
subsequent to October 31, 1995, expenses related to the
termination of Data Net and the net loss from disposal of
assets, less liabilities not assumed, by the Company. The
amount of operating losses incurred, loss on net asset
disposal and expenses related to the termination of Data Net
for the six months ended April 30, 1996 have been charged to
the reserve as at April 30, 1996.
(3) Registrant's Debt Position
April 1, 1994 Credit Agreement
On April 1, 1994, the Registrant executed a Credit Agreement
to provide a long-term credit facility. This facility will
expire on April 30, 1997 and bears interest at 2% above
NCFC's prime lending rate (8.25%) at April 30, 1996, and at
3%, on loans made under the Credit Agreement and the
Overadvance Facility, respectively. Proceeds from this credit
facility have been utilized to refinance existing credit
facilities and provide working capital. This credit facility
was amended in November, 1994 to complete the acquisition of
the assets of Intronet, Inc. (See Note 6) and at other times
for various purposes (See Amendments to Credit Agreement). As
of April 30, 1996, the availability of funds under this
credit facility was limited to the lesser of $3,250,000 or a
percentage of eligible accounts receivable and inventory. The
Credit Agreement contains restrictive covenants, the more
significant of which require maintenance of minimum net
working capital, minimum tangible net worth, maximum
debt-to-tangible net worth, pretax income and a restriction
on capital expenditures and prohibition of dividend payments.
As of April 30, 1996 as well as the date of this report, the
Registrant was not in compliance with certain of these
restrictive covenants due to lower-than-projected earnings
for the respective periods.
Amendments to Credit Agreement
Amendment No. 1 to the Credit Agreement, dated November 17,
1994, increased the maximum amount of the credit facility
from $4,000,000 to $5,000,000 to enable the Borrower (defined
in the Credit Agreement as the Company and Data Net) to
acquire the assets of Intronet, Inc. (Note 6) and to provide
additional working capital. Certain financial covenants were
also amended, the definition of the term "Borrowing Base" was
amended and the Credit Agreement was further amended to
provide for the issuance of standby letters of credit up to a
maximum of $500,000.
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There was a $5,000 closing fee paid to NCFC with regard to
the increase of the credit facility covered by Amendment No.
1.
By Amendment No. 2 to the Credit Agreement, dated as of
January 24, 1995, NCFC waived the non-compliance of the
Borrower with certain financial covenants of the Credit
Agreement and modified certain financial covenants of the
Credit Agreement for the fiscal year ended October 31, 1995.
Amendment No. 2 required as a condition precedent to the
effectiveness of Amendment No. 2, including, but not limited
to, NCFC's waiver of non-compliance, that the October 28,
1992 $600,001 principal amount Subordinated Debenture issued
by Data Net and guaranteed by the Registrant, be surrendered
and exchanged for an Amended and Restated Subordinated
Debenture in the same amount, and that Joseph M. Lobozzo II
("Lobozzo"), Chairman, director and principal shareholder of
the Registrant, consent to that change. The condition
precedent was met and the Subordinated Debenture, Amended and
Restated as at February 16, 1995 (the "Restated Lobozzo
Debenture"), changed the due date of the Restated Lobozzo
Debenture from October 28, 1995 to January 31, 1998 and
provided for a revised schedule of principal payments. The
Restated Lobozzo Debenture provided that principal payments
of the lesser of $200,000 or 100% of Consolidated Net Income
of the Borrowers could be made approximately 90 days after
the close of the fiscal years ended October 31, 1995 and
1996, respectively so long as the Borrower was not in default
under the Credit Agreement with NCFC and so long as the
Borrowing Base under the Credit Agreement had an availability
of at least $200,000. The remaining balance of the Restated
Lobozzo Debenture, after any principal payments, is payable
in full on January 31, 1998. No principal payments have been
made to date with regard to the Restated Lobozzo Debenture.
The Borrower paid a fee of $6,000 to NCFC in consideration of
NCFC's waiving Borrower's non-compliance with the financial
covenants and for NCFC's agreement to the amendment of
certain financial covenants.
Amendment No. 3 to the Credit Agreement dated as of April 3,
1995, was entered into at the time that the Registrant
acquired the remaining 66% of the stock of its subsidiary,
SAI Delta, Inc. ("SAI/Delta"), and was executed by NCFC for
the purpose of consenting to the purchase of the SAI/Delta
common stock. In addition, Amendment No. 3 redefined the
Borrowing Base by increasing the amount of the Registrant's
Eligible Receivables to be included in the Borrowing Base,
decreasing the amount of Data Net's Eligible Inventory
included in the Borrowing Base, adding SAI/Delta's Eligible
Receivables to the Borrowing Base and reducing the maximum
amount of the Revolving Credit Facility to $4,500,000.
SAI/Delta also entered into an Unlimited Continuing Guaranty
of the obligations of the Registrant and Data Net under the
Credit Agreement. Amendment No. 3 also acknowledges NCFC's
authorization of unplanned advances previously made to
Borrower totaling $250,000 in excess of the Borrowing Base
expired as of April 3, 1995.
Amendment No. 4 to the Credit Agreement was dated as of May
1, 1995. In view of the need of the Borrower for additional
financing, and in recognition of the commitment of Lobozzo to
make loans of up to $400,000 to the Borrower, NCFC agreed to
lend an additional $300,000 to the
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Borrower pursuant to Amendment No. 4 (the "Overadvance
Facilities"). The commitment of Lobozzo to participate in the
Overadvance Facilities is referred to as the "Lobozzo
Commitment". The Overadvance Facilities as set forth in
Amendment No. 4 sets forth, as conditions precedent to NCFC's
making additional advances of any funds under its portion of
the Overadvance Facilities, that the Borrower not be in
default under the Credit Agreement or the Lobozzo Commitment;
that Lobozzo have fully funded the Lobozzo Commitment to lend
$400,000 and that the loans shall be outstanding; that the
total principal of the Overadvance Facilities not exceed
$700,000 and that the total amount of all loans made by NCFC
to the Borrower under the Revolving Credit Facility and the
NCFC portion of the Overadvance Facilities not exceed
$4,500,000. Amendment No. 4 states that the NCFC Overadvance
Facilities terminate on April 30, 1996, and that NCFC may
terminate its obligations under the NCFC Overadvance
Facilities if the Lobozzo Commitment is terminated prior to
April 30, 1996 or if there is a Declaration of Default as
provided for in the Credit Agreement. The NCFC Overadvance
Facility provides for loans on the balance at two and
one-half percent per annum over the prime rate of NCFC; after
maturity, by acceleration or otherwise, the interest rate
increases to four and one-half percent per annum over the
prime rate of NCFC. All loans under the NCFC Overadvance
Facilities are required to be paid before any repayment of
loans made pursuant to the Lobozzo Overadvance Facility.
Amendment No. 4 also amended certain financial covenants of
the Credit Agreement. A $1,500 commitment fee was required to
be paid in connection with Amendment No. 4.
By Amendment No. 5 to the Credit Agreement, made dated
October 27, 1995, NCFC waived non-compliance by the Borrower
with certain financial covenants for the fiscal quarter ended
July 31, 1995. Amendment No. 5 also increased the interest
rate on Revolving Credit Loans to two percent per annum over
NCFC's prime rate, and, after maturity, by acceleration or
otherwise, the interest rate increases to four percent per
annum over NCFC's prime rate. Amendment No. 5 also increased
the interest rate on loans made pursuant to the NCFC
Overadvance Facilities to three percent per annum over NCFC's
prime rate and, after maturity, by acceleration or otherwise,
the interest rate increases to five percent per annum over
NCFC's prime rate. A waiver and amendment fee of $6,000 was
required with regard to Amendment No. 5. By a letter
agreement between NCFC and Lender dated March 6, 1996, NCFC
reduced the Borrowing Base and confirmed that the Maximum
Loan Amount that could be borrowed was $3,750,000.
Forbearance Agreement
As of March 8, 1996, NCFC and the Borrower entered into a
Forbearance Agreement whereby, among other matters, the
Lender agreed to forbear from exercising default remedies
available to it against the Registrant and Data Net as a
result of defaults under the Credit Agreement. As stated in a
Form 8-K filed March 20, 1996, the Forbearance Agreement was
entered into as part of the procedure whereby Data Net, due
to economic conditions in its industry, ceased operations and
surrendered possession of the Data Net collateral under the
Credit Agreement to NCFC. (Note 2). As described in a Form
8-K dated March 20, 1996, under the April 1, 1994, Credit
Agreement, NCFC was entitled to immediate possession of all
13
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of Data Net's collateral. Data Net's obligations to NCFC
under the revolving credit line with NCFC exceeded
$2,600,000. In view of the termination of business
operations, Data Net also voluntarily surrendered Data Net's
collateral to NCFC so that NCFC could liquidate that Data Net
collateral and apply the proceeds to reduce the indebtedness
owing from Data Net to NCFC. Data Net anticipated that there
would be a deficiency owning from Data Net to NCFC after
liquidation of the Data Net collateral, leaving nothing for
Data Net's unsecured creditors. The collateral which was
voluntarily surrendered by Data Net included Data Net's
inventory, equipment, patents, field spare parts, trademarks,
general intangibles, and proceeds of the forgoing and other
collateral as described in the General Security Agreement
between NCFC and Data Net.
The Registrant's own business operations did not terminate
and, pursuant to the Forbearance Agreement, NCFC continued
its lending relationship with the Registrant without waiving
any rights against the Registrant. The Registrant and NCFC
intended to proceed to complete a definitive restructuring
agreement with regard to the continuing loan by NCFC to the
Registrant.
Data Net supplied NCFC with a letter indicating Data Net's
decision to terminate its business operations which resulted
in an Event of Default under the Credit Agreement. The
Borrower also supplied NCFC with a Release and
Indemnification Agreement; SAI/Delta supplied NCFC with a
Reaffirmation of Guaranty; and Lobozzo supplied NCFC with a
Reaffirmation of Subordination with regard to the
Subordination Agreement which Lobozzo had entered into on
April 1, 1994, in connection with the original Credit
Agreement.
The Forbearance Period set forth in the original Forbearance
Agreement expired on May 8, 1996.
Amendments to Forbearance Agreement
Amendment No. 1 to the Forbearance Agreement of May 9, 1996,
reduced the Maximum Loan Amount to $3,250,000 and extended
the Forbearance Period to May 22, 1996. A further Release and
Indemnification Agreement, Reaffirmation of Guaranty of
SAI/Delta, and Reaffirmation of Subordination Agreement from
Lobozzo were required in connection with Amendment No. 1, as
well as with regard to Amendments No. 2, 3, 4, 5, and 6 to
the Forbearance Agreement, referred to below.
Amendment No. 2 to the Forbearance Agreement of May 23, 1996,
revised the collateral upon which NCFC would permit loans to
be made to revise the percent which NCFC would advance on the
Registrant's Eligible Receivables, and extended the
Forbearance Period to June 14, 1996.
Amendment No. 3 to the Forbearance Agreement of June 14,
1996, conditioned the Maximum Loan Amount of $3,250,000,
including Letter of Credit Obligations, based on a
requirement that NCFC obtain a Loan participant in an amount
not less than $300,000. In the event NCFC does
14
<PAGE>
not obtain such a Loan participant, then the Maximum Loan
Amount shall not exceed $2,950.000 including Letter of Credit
Obligations. Amendment No. 3 extended the Forbearance Period
to July 31, 1996.
Amendment No. 4 to the Forbearance Agreement of July 31,
1996, continued the Maximum Loan Amount of $3,250,000,
including Letter of Credit Obligations, based on a
requirement that NCFC obtain a Loan participant in an amount
not less than $300,000. In the event NCFC does not obtain
such a Loan participant, then the Maximum Loan Amount shall
not exceed $2,950,000 including Letter of Credit Obligations.
Amendment No. 4 extended the Forbearance Period to August 15,
1996.
Amendment No. 5 to the Forbearance Agreement of August 15,
1996, continued the Maximum Loan Amount of $3,250,000,
including Letter of Credit Obligations, based on a
requirement that NCFC obtain a Loan participant in an amount
not less than $300,000. In the event NCFC does not obtain
such a Loan participant, then the Maximum Loan Amount shall
not exceed $2,950,000 including Letter of Credit Obligations.
Amendment No. 5 extended the Forbearance Period to September
3, 1996.
Amendment No. 6 to the Forbearance Agreement of September 9,
1996, reduced the Maximum Loan Amount to $1,855,000,
including Letter of Credit Obligations, until such time as a
Term Sheet relating to a proposed Buy-out of the NCFC Credit
Agreement had been agreed upon and executed by NCFC, the
Registrant and Lobozzo, and, upon such execution, the Maximum
Borrowing Amount would increase to $2,200,000 including
Letter of Credit Obligations. The Term Sheet was executed as
of September 9, 1996. Amendment No. 6 extended the
Forbearance Period to September 30, 1996.
Term Sheet for Proposed NCFC Buyout
As of September 9, 1996, NCFC, the Registrant and Lobozzo
executed a Term Sheet (the "Term Sheet") relative to a
proposed Buy-out (the "Buy-out") of the Credit Agreement with
NCFC. The Buy-out, among other matters, upon execution of
definitive agreements, will be to the effect that: (i) the
Registrant will issue a Five Year Note to NCFC in the amount
of $750,000 (the "$750,000 Note"), requiring payment of
interest only at prime plus one percent, and will be payable
in full in five years, to be secured only by the Registrant's
spare parts inventory; (ii) provision will be made for a
group to be formed by Lobozzo (the "Lobozzo Group") to
purchase the balance of the NCFC-Loan; (iii) provision will
be made for the issuance by Lobozzo of an assignment of a
portion of Lobozzo's option to purchase 11,440,475 common
shares of the Registrant, which assignment will enable NCFC
to purchase up to seventeen and one-half percent (17.5%) of
the currently issued and outstanding common shares of the
Registrant (the "NCFC Warrant"), which NCFC Warrant will not
be exercisable unless an Event of Default occurs or if the
$750,000 Note is not paid by the first day of the
thirty-seventh month after issuance; (iv) in the event of the
issuance of additional common shares of the Registrant,
additional warrants may be required to be issued; (v)
prepayment of the $750,000 Note will carry no penalty for the
first twelve months but between the commencement of the
thirteenth month and
15
<PAGE>
the conclusion of the thirty-six month, any prepayment of the
$750,000 Note will require a prepayment penalty of $25,000
per quarter to a maximum of $200,000; (vi) the $750,000 Note
will permit partial payments which, during the first thirty
six months, will have the effect of reducing subsequent
prepayment premium payments and which will also have the
effect of reducing the amount of common shares covered by the
NCFC Warrant; and (vii) the purchase by the Lobozzo Group of
a portion of the NCFC Loan is to be made in such a manner
that the NCFC perfected security interest in the assets of
the Registrant and its subsidiaries (less the Registrant's
spare parts inventory), is transferred to the Lobozzo Group
as of the date that the security interest was originally
perfected by NCFC. A copy or the Term Sheet is annexed as an
Exhibit to this 10-Q Report.
Overadvance Agreement
As previously reported by the Registrant in a Form 8-K dated
May 4,1995, on May 1, 1995 the Registrant reached an
agreement with its commercial lender, NCFC, for an additional
$700,000 lending facility to enable the Registrant to obtain
overadvances above those which would otherwise be permitted
under the terms of the Credit Agreement ("the Overadvance
Lending Facility"). Lobozzo agreed with the Registrant and
with NCFC to provide funding for $400,000 of the $700,000
Overadvance Lending Facility. In return, as part of the
transaction whereby the Registrant obtained a $700,000
Overadvance Facility, $400,000 of which was supplied by
Lobozzo (See Amendment No. 4 to the Credit Agreement above)
the Registrant agreed to issue to Mr. Lobozzo an option to
purchase 11,440,475 common shares of the Registrant, the
balance of its available authorized but unissued common
shares for a four-year period between May 20, 1995 and May
20, 1999. If Mr. Lobozzo exercises the option, Mr Lobozzo and
affiliated parties will hold or control 78 percent of the
authorized common shares of the Registrant. The option is
cancelable under certain circumstances if the Registrant's
computer service business is sold by May 20, 1996. As of
January 31, 1996, and as of the date of this Form 10-Q, the
Registrant's computer business was not sold and the
aforementioned option had not been exercised.
(4) Subordinated Debentures
In November, 1992 the Company and Data Net jointly issued an
8% subordinated debenture in the face amount of $475,000 due
November 4, 1997 to the seller of the assets which were
acquired by Data Net. As of January 31, 1996, and as of the
date of this Form 10-Q, the Company was in default under the
subordinated debenture, including a failure to make certain
payments thereunder.
In October, 1992, Data Net issued an 8% subordinated
debenture (the "Lobozzo Debenture") in the face amount of
$600,001 to Mr Lobozzo, the proceeds of which were used in
the acquisition of the assets which were acquired by Data
Net. The Registrant guaranteed the Lobozzo Debenture. The
Lobozzo Debenture is convertible into 1,304,350 common shares
of the Registrant at $.46 per common share. As part of
Amendment No. 2 to the
16
<PAGE>
NCFC Credit Agreement, in February, 1995 the Lobozzo
Debenture was amended and restated to, among other matters,
extend its due date to January 31, 1998. As of April 30,
1996, and as of the date of this Form 10-Q, the Restated
Lobozzo Debenture remained outstanding and had not been
converted. As of April 30, 1996, and as of the date of this
Form 10-Q, the Company was in default under the Restated
Lobozzo Debenture, including a failure to make certain
payments thereunder. Principal payments under the Restated
Lobozzo Debenture were due in three annual installments of
$200,000, commencing January 31, 1996 subject to meeting bank
loan covenants. No payments have been made.
(5) Other Matters
As previously discussed in a Form 8-K dated June 1, 1995, on
June 1, 1995, the Registrant signed preliminary letters of
intent to sell certain of its business units to a private
investment group. Although the term of these letters has
expired and although the Registrant has discontinued
discussions with this group, the Registrant has had
discussions with other parties in an attempt to divest itself
of non-performing operations in a timely manner.
In addition to the loans made by Mr. Lobozzo, specifically,
his $400,000 funding of the Overadvance Facility and the
Lobozzo Debenture (Note 4), he has also made working capital
loans on a regular basis to the Registrant to assist in the
purchase of equipment for sale to customers and to meet its
trade obligations. For the current fiscal year, these loans
have aggregated approximately $146,000 as at April 30, 1996
and $801,000 through September 17, 1996, of which
approximately $49,000 plus a premium to be paid, representing
approximately 50% of the gross margin realized by the
Registrant on such sales, was outstanding at April 30, 1996
and $355,000 plus accrued interest was outstanding at
September 17, 1996.
(6) Acquisitions
On November 17, 1994, the Company acquired substantially all
of the operating assets of Intronet, Inc and since that date
has operated those assets as its Intronet Division. The
Intronet Division designs, installs, and supports advanced
computer networks with emphasis on large campus and
industrial facilities requiring network hubbing integrated
with fiber and copper cabling. These assets were acquired in
exchange for $337,000 in cash and assumption of approximately
$588,000 in liabilities of the seller. The Company accounted
for the acquisition as a purchase and the operating results
of the acquisition from November 17, 1994 have been included
in the consolidated financial statements.
On December 1, 1994, the Company exercised an option to
acquire the remaining shares of SAI/Delta, Inc., thereby
making SAI/Delta a wholly-owned subsidiary). The Company
accounted for the acquisition as a purchase and the operating
results of SAI Delta are included in the Company's net
earnings (loss) from continuing operations
17
<PAGE>
(7) Downsizing and Restructuring of the Intronet Division
In the fall of 1995, the Company reduced the size of its
operating staff of the Waltham, Massachusetts office of its
Intronet Division. The Company and two of its employees who
had also been principal executives of Intronet, Inc. prior to
the acquisition reached agreement terminating employment
agreements with those employees. One employee has since
become an independent agent for the Intronet Division in the
State of Connecticut.
Faced with continuing losses in this division and finding
such looses unacceptable, management has restructured the
operations. Beginning in August, 1996, the Intronet Division
stopped accepting any new contracts or business for which it
would perform cable installation services which required
using Intronet Division employees. Any new contracts of this
nature, if accepted by the Intronet Division, will now be
subcontracted to other parties on a fixed-price basis, with
the Intronet Division acting as a general contractor.
At the end of August, 1996, the management/administrative
staff at the Intronet Division was reduced from twenty-one to
three people. As part of this downsizing, this Division will
now be refocused to pursue regional opportunities in DCI's
core business of providing computer system, data
communication and Lan/Wan technical services and products.
18
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
Results of Operations
The net loss from continuing operations for the three months
ended April 30, 1996 was $50,079 (1%), or $.01 per share,
compared to net earnings of $46,463 (1%), or $.01 per share,
for the three months ended April 30, 1995. Operating results
for continuing operations for the three months ended April
30, 1996 were negatively impacted by the continued
detrimental effects of the Company's cash flow and liquidity
problems, non-recurring costs associated with administrative
staff turnover plus the restructuring and integration of its
Intronet Division purchased in November, 1994. The Intronet
Division's net loss for the three months ended April 30, 1996
was $195,292 (38%), compared to net income of $6,390 (0%) for
the three months ended April 30, 1995.
The net loss from continuing operations for the six months
ended April 30, 1996 was $291,114 (4%), or $.04 per share,
compared to net earnings of $147,535 (2%), or $.02 per share,
for the six months ended April 30, 1995. Operating results
for continuing operations for the six months ended April 30,
1996 were negatively impacted by the continued detrimental
effects of the Company's cash flow and liquidity problems,
non-recurring costs associated with administrative staff
turnover plus the restructuring and integration of its
Intronet Division purchased in November, 1994. The Intronet
Division's net loss for the six months ended April 30, 1996
was $469,498 (43%), compared to net income of $59,800 (2%)
for the six months ended April 30, 1995.
As discussed in Notes 2 and 3, on March 8, 1996 the Company
terminated operations in its Data Net subsidiary which had
commenced operations in November, 1992. In accordance with
generally accepted accounting principles, Data Net's
operating results for the three months ended April 30, 1996
and April 30, 1995 have been reported in the income statement
under Loss from Discontinued Operations. Data Net incurred
net losses of $307,270 (57%) or $.04 per share for the three
months ended April 30, 1996 and $259,726 (10%) or $.04 per
share for the three months ended April 30, 1995. For the six
months ended April 30, 1996, Data Net incurred a net loss of
$663,477 (29%), or $.10 per share, and a net loss of $347,574
(5%), or $.05 per share, for the three months ended April 30,
1995.
Operating results for the three and six months ended April
30, 1995 were negatively impacted by the continued
restructuring and integration of its Data Net subsidiary
purchased in November 1992 and its Intronet division
purchased in November 1994.
As discussed in Note 7, the losses incurred by the Company's
Intronet Division have had a material impact upon operating
results. The table below provides segment information for the
three months ended
19
<PAGE>
April 30, 1996 and April 30, 1995, as well as for the six
months ended April 30, 1996 and April 30, 1995 for continuing
operations, comprised of Delta CompuTec's core business and
the Intronet Division. As illustrated by the following
figures, DCI's core business net earnings of $145,213 (5%) for
the three months ended April 30, 1996 were $105,140 better
than the reported net earnings figure for the same period in
the prior year. The net earnings of $178,384 (3%) for DCI's
core business for the six months ended April 30, 1996 were
$90,649 higher than the reported net earnings figure for the
same period in the prior year. Higher interest costs on
increased borrowings required because of poor operating
results in the Registrant's Data Net subsidiary as well as in
the Intronet Division accounted for approximately $57,000 and
$135,000 additional expenses in the current year's
three-month and six-month interim periods, respectively.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
DCI 1996 1995 1996 1995
--- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Service revenues $ 2,613,070 $ 2,407,188 $ 4,886,623 $ 4,670,971
Equipment sales 474,077 214,966 688,109 514,722
----------- ----------- ----------- -----------
Total Revenues 3,087,147 2,622,154 5,574,732 5,185,693
Net profit (loss) 145,213 40,073 178,384 87,735
Identifiable Assets 6,645,813 7,438,569
Intronet Division
Service revenues $ 316,762 $ 826,816 $ 637,803 $ 1,885,581
Equipment sales 196,463 1,197,041 467,788 2,228,533
----------- ----------- ----------- -----------
Total Revenues 513,225 $ 2,023,857 1,105,591 4,114,114
Net profit (loss) (195,292) 6,390 (469,498) 59,800
Identifiable Assets 1,589,719 1,920,732
</TABLE>
Revenues
Revenues from continuing operations were $3,600,372 for the
three months ended April 30, 1996 compared to $4,646,011 for
the three months ended April 30, 1995, representing a
decrease of $1,045,639 and 23%. Service revenues were
$2,929,832 compared to $3,234,004 for the three months ended
April 30, 1996 and 1995, respectively, a decrease of $304,172
and 9%. Equipment sales for the three months ended April 30,
1996 were $670,640 compared to $1,412,007 for the three
months ended April 30, 1995, a decrease of $741,367 and 53%.
The decline in revenue was the result of the impact of the
significant operating losses in Data Net, as well as in the
Intronet Division, all of which placed an extensive burden
20
<PAGE>
upon the Company's resources and its ability to nurture its
existing business base as well as develop new business.
Revenues from continuing operations were $6,680,323 for the
six months ended April 30, 1996 compared to $9,299,807 for
the six months ended April 30, 1995, a decrease of $2,619,484
and 28%. Service revenues were $5,524,426 compared to
$6,556,552 for the six months ended April 30, 1996 and 1995,
respectively, a decrease of $1,032,126 and 16%. Equipment
sales for the six months ended April 30, 1996 were $1,155,897
compared to $2,743,255 for the six months ended April 30,
1995, a decrease of $1,587,358 and 58%. The decline in
revenue was the result of the impact of the significant
operating losses in Data Net, as well as in the Intronet
division, upon the Company's resources and its ability to
nurture its existing business base as well as develop new
business.
Costs and Expenses
Service costs in continuing operations were $2,195,240 (75%)
for the three months ended April 30, 1996 compared with
$2,632,504 (81%) for the three months ended April 30, 1995.
Service costs as a percentage of service revenue decreased
from 81% to 75% due to the benefit from management's cost
reduction program, partially offset by the
lower-than-expected results in the Intronet Division from
lower margins occasioned by the impact of fixed expenses upon
a lower revenue base plus the impact of cost overruns on a
major contract undertaken by the Intronet Division.
Service costs in continuing operations were $4,373,207 (79%)
for the six months ended April 30, 1996 compared to
$5,151,668 (79%) for the six months ended April 30, 1995.
Costs of equipment sold in continuing operations were
$901,045 (78%) for the six months ended April 30, 1996
compared to $1,960,473 (72%) for the six months ended April
30, 1995. The increase in cost of equipment sold as a
percentage of equipment sales from 72% to 78% was due to the
detrimental effect of the Company's tight cash flow upon its
ability to purchase equipment at competitive prices as well
as the impact of contract cost overruns in the Intronet
Division.
Selling, general and administrative expenses in continuing
operations were $872,393 (24%) for the three months ended
April 30, 1996 compared with $907,924 (20%) for the three
months ended April 30, 1995. Selling general and
administrative expenses decreased $35,531 or 4% for the
second quarter ended April 30, 1996 versus 1995 which, when
compared to the 23% decline in revenues for the same periods,
resulted in an increase in SG&A expenses as a percentage of
revenue from 20% to 24%. This deterioration in the operating
ratio of SG&A expenses was primarily due to the sluggish
revenue in both the Registrant's primary area of business and
that of its Intronet Division which more than offset the
benefit from
21
<PAGE>
cost reductions instituted by management, plus the impact of
non-recurring costs associated with administrative staff
turnover.
Selling, general and administrative expenses in continuing
operations were $1,532,182 (23%) for the six months ended
April 30, 1996 compared with $1,872,358 (20%) for the six
months ended April 30, 1995. Selling general and
administrative expenses decreased $340,176 or 18% for the six
months ended April 30, 1996 versus 1995 which, when compared
to the 23% decline in revenues for the same periods, resulted
in an increase in SG&A expenses from 20% to 23%. This
deterioration in the operating ratio of SG&A expenses was
primarily due to the sluggish revenue in both the
Registrant's primary area of business and that of its
Intronet Division which more than offset the benefit from
cost reductions instituted by management, plus the impact of
non-recurring costs associated with administrative staff
turnover.
Other expense was $75,633 (2%) for the three months ended
April 30, 1996 compared with $49,662 (1%) for the three
months ended April 30, 1995, an increase of $25,971 or 52%.
Other expense was $165,003 (3%) for the six months ended
April 30, 1996 compared with $77,345 (1%) for the six months
ended April 30, 1995, an increase of $87,658 or 113%. The
increase was due to the rise in bank borrowing and higher
interest rates for the respective periods.
Income tax expense in continuing operations was $0 for the
three months ended April 30, 1996 compared with $32,138 for
the three months ended April 30, 1995.
Income tax expense in continuing operations was $0 for the
six months ended April 30, 1996 compared with $90,428 for the
six months ended April 30, 1995.
Liquidity and Capital Resources
The Company experienced sales growth and significant related
working capital requirements as a result of the Intronet
acquisition in November, 1994. As discussed in Note 3, the
Company executed a Credit Agreement, as amended, the
Overadvance Lending Facility and the Forbearance Agreement,
as amended, which agreements and facility provided funding
for the acquisition of the assets of Intronet, Inc. in
November, 1994 and the financing of ongoing working capital
requirements. The Credit Agreement expires on April 30, 1997
and bears interest at 2% above NCFC's prime lending rate.
Funds provided under the Overadvance Lending Facility bear
interest at 3% above NCFC's prime lending rate. At April 30,
1996, the availability of funds under the Credit Agreement
was limited to the lesser of $3,250,000 or a percentage of
eligible accounts receivable and inventory (Note 3).
22
<PAGE>
Cash flow from operations for the six months ended April 30,
1996 was $1,042,302 compared with $709,577 for the six months
ended April 30, 1995, an increase of $332,725 and 47%. This
resulted primarily from the net effect an aggregate $812,670
decrease in net earnings(loss) which was more than offset by
an aggregate benefit of $1,233,867 from working capital and
deferred service revenue.
Cash flow from investing activities for the six months ended
April 30, 1996 was $611,064 compared with a cash outlay of
$841,980 for the six months ended April 30, 1995, a increase
of $1,453,044. This benefit was the aggregate net benefit
from (1) $236,613 in lower capital spending for spare parts
and property, plant and equipment; (2) a $609,159 reduction
relating to fixed assets disposed of; (3) $337,000 in
Intronet Division acquisition costs present in 1995; and (4)
$270,272 in lower deferred taxes - noncurrent and
intangibles, relating to the write off of these assets as a
result of the termination of Data Net's business activities
(Note 2).
Financing activities for the six months ended April 30, 1996
consumed $1,579,253, an increase of $1,425,508 over the six
months ended April 30, 1995. This change resulted from
$1,618,376 in higher paydowns on bank borrowing plus $114,622
in additional payments on borrowings from the Company's
principal shareholder.
The net result of the above was a $74,113 increase in cash
for the six months ended April 30, 1996 compared to a $21,342
source of cash for the six months ended April 30, 1995, an
increase of $52,771.
23
<PAGE>
DELTA COMPUTEC, INC.
PART II
OTHER INFORMATION
Item 3. Default Upon Senior Securities
See the following Notes to the accompanying Financial
Statements Notes 1, 2, 3 and 4
Item 5. Other Information
See the Notes to the accompanying Financial Statements
In September, 1996, the Registrant was advised that a
minority shareholder was questioning certain activities of
the Registrant's current and prior officers and directors.
The Registrant believes that all actions taken by its
officers and directors were proper.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11 - Statement regarding computation of earnings per share
(b) Term Sheet dated as of September 9, 1996
(c) Reports on Form 8-K:
(1) On March 20, 1996, the Registrant filed Form 8-K concerning the
discontinuance of the business operations of its Data Net
subsidiary.
24
<PAGE>
SIGNATURES
Pursuant to 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 thereto duly authorized.
Dated: September 18, 1996 DELTA COMPUTEC INC.
By: /s/ John DeVito
----------------------
John DeVito, President
By: /s/ Frank J. Donnelly
----------------------
Frank J. Donnelly
Chief Financial Officer and
Chief Accounting Officer
25
<PAGE>
Exhibit 11
DELTA COMPUTEC INC. - CALCULATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
April 30, April 30,
---------------------- ----------------------
1996 1995 1996 1995
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Primary
- -------
Net Earnings (Loss):
Continuing Operations $ ( 50,079) $ 46,463 $(291,114) $ 147,535
Discontinued Operations (307,270) (259,726) (663,477) (347,574)
---------- --------- --------- ----------
Net Earnings(Loss), Combined (357,349) (213,263) (954,591) (200,039)
========== ========= ========= ==========
Average Common Shares Outstanding 6,811,575 6,811,575 6,811,575 6,811,575
Dilutive Effect of Stock Options - - - -
---------- --------- --------- ----------
Weighted Average
Shares Outstanding 6,811,575 6,811,575 6,811,575 6,811,575
---------- --------- --------- ----------
Earnings (Loss) Per Common and
Common Equivalent Shares:
Continuing Operations $ (.01) $ .01 $ (.04) $ .02
Discontinued Operations (.04) (.04) (.10) (.05)
---------- --------- --------- ----------
Combined (.05) (.03) $ (.14) $ (.03)
========== ========= ========= ==========
Assuming Full Dilution
- ----------------------
Net Earnings (Loss):
Continuing Operations $ ( 50,079) $ 46,463 $(291,114) $ 147,535
Discontinued Operations (307,270) (259,726) (663,477) (347,574)
---------- --------- --------- ----------
Net Earnings(Loss), Combined (357,349) (213,263) (954,591) (200,039)
========== ========= ========= ==========
Weighted Average
Shares Outstanding 6,811,575 6,811,575 6,811,575 6,811,575
Additional Dilutive Effect
Of Stock Options - - - -
---------- --------- --------- ----------
Weighted Average
Shares Outstanding 6,811,575 6,811,575 6,811,575 6,811,575
---------- --------- --------- ----------
Earnings (Loss) Per Common Share
Assuming Full Dilution:
Continuing Operations $ (.01) .01 $ (.04) $ .02
Discontinued Operations (.04) (.04) (.10) (.05)
---------- --------- --------- ----------
Combined (.05) (.03) $ (.14) $ (.03)
========== ========= ========= ==========
</TABLE>
26
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<CASH> (171,736)
<SECURITIES> 0
<RECEIVABLES> 3,267,806
<ALLOWANCES> 176,083
<INVENTORY> 1,130,251
<CURRENT-ASSETS> 4,361,835
<PP&E> 4,232,254
<DEPRECIATION> 1,842,135
<TOTAL-ASSETS> 7,905,368
<CURRENT-LIABILITIES> 7,652,793
<BONDS> 0
0
0
<COMMON> 68,116
<OTHER-SE> (1,341,033)
<TOTAL-LIABILITY-AND-EQUITY> 7,905,368
<SALES> 6,680,323
<TOTAL-REVENUES> 6,680,323
<CGS> 5,274,252
<TOTAL-COSTS> 6,806,434
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 165,003
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