<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 July 31, 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 July 31, 1996, there were 6,811,575 shares outstanding of the Registrant's
Common Stock $.01 par value.
1
<PAGE>
DELTA COMPUTEC INC.
Form 10-Q
Quarter Ended July 31, 1996
INDEX
Part I: Financial Information Page
----
Consolidated balance sheets at July 31, 1996 and
October 31, 1995 3-4
Consolidated statements of operations for
the three months ended July 31, 1996 and 1995
and nine months ended July 31, 1996 and 1995 5
Consolidated statement of cash flows for
the nine months July 31, 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
<PAGE>
DELTA COMPUTEC INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited) (Unaudited)
July 31, October 31,
1996 1995
----------- -----------
CURRENT ASSETS:
Cash $ (195,465) $ (245,249)
Accounts receivable, less allowance
for doubtful accounts of $148,166
and $525,139 at July 31, 1996 and
October 31, 1995, respectively 2,408,892 5,005,240
Inventories 1,437,552 1,968,089
Prepaid expenses and other current assets 247,569 255,049
Deferred income taxes current 24,000 100,000
------------ ------------
Total current assets $ 3,922,548 $ 7,083,129
FIELD SPARE PARTS, net of accumulated
amortization $ 2,107,958 $ 2,279,490
PROPERTY AND EQUIPMENT, at cost:
Technical equipment $ 1,308,415 $ 1,413,162
Office furniture and equipment 552,930 1,422,293
Vehicles 74,614 154,661
Leasehold improvements 78,878 283,121
Software 72,958 112,736
------------ ------------
$ 2,087,795 $ 3,385,973
Less: Accumulated depreciation 1,870,740 2,408,824
------------ ------------
$ 217,055 $ 977,149
DEFERRED INCOME TAXES $ 424,299 $ 610,236
OTHER ASSETS:
Goodwill, net $ 367,137 $ 444,427
Customer lists, net 116,802 136,366
Other assets 247,974 232,907
------------ ------------
731,913 $ 813,700
------------ ------------
$ 7,403,773 $ 11,763,704
============ ============
See notes to consolidated financial statements.
3
<PAGE>
DELTA COMPUTEC INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited) (Unaudited)
July 31, October 31,
1996 1995
----------- -----------
CURRENT LIABILITIES:
Accounts payable $ 2,241,892 $ 3,575,423
Deferred service revenue 2,099,986 1,571,226
Accrued expenses
Payroll and payroll taxes 152,151 424,738
Interest 157,585 42,667
Sales tax payable 470,189 190,642
Other 208,193 308,129
Due to Shareholder 570,000 602,639
Bank line of credit 1,799,738 3,782,956
------------ ------------
Total current liabilities $ 7,699,734 $ 10,498,420
LONG-TERM DEBT $ -- $ --
SUBORDINATED DEBENTURES $ 1,075,001 $ 1,075,001
RESERVE FOR DISCONTINUANCE OF OPERATIONS 179,249 1,172,086
STOCKHOLDERS' INVESTMENT
Common stock, $ .01 par value;
authorized 20,000,000 shares;
issued and outstanding 6,811,575 at
July 31, 1996 and October 31, 1995 $ 68,116 $ 68,116
Additional paid-in capital 4,916,093 4,916,093
Accumulated deficit (6,534,420) (5,966,012)
------------ ------------
Total stockholders' investment (1,550,211) $ (981,803)
------------ ------------
$ 7,403,773 $ 11,763,704
============ ============
See notes to consolidated financial statements.
4
<PAGE>
DELTA COMPUTEC INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
---------------------------- ----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES FROM CONTINUING OPERATIONS:
Service revenues $ 2,864,619 $ 3,837,581 $ 8,389,045 $ 10,394,133
Equipment sales 599,078 628,409 1,754,975 3,371,664
------------ ------------ ------------ ------------
3,463,697 4,465,990 10,144,020 13,765,797
COSTS AND EXPENSES:
Service costs 2,298,021 3,198,886 6,671,228 8,350,554
Cost of equipment sold 456,460 501,449 1,357,505 2,461,922
Selling, general and
administrative 893,704 892,691 2,425,886 2,765,049
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 3,648,185 4,593,026 10,454,619 13,577,525
OTHER EXPENSE, NET 92,805 42,091 257,808 119,436
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (277,293) (169,127) (568,407) 68,836
INCOME TAX PROVISION (CREDIT) -- (28,097) -- 62,331
------------ ------------ ------------ ------------
NET EARNINGS (LOSS) FROM CONTINUING
OPERATIONS (277,293) (141,030) (568,407) 6,505
------------ ------------ ------------ ------------
NET EARNINGS (LOSS) FROM
DISCONTINUED OPERATIONS (329,360) (425,816) (992,837) (773,390)
NET EARNINGS (LOSS) (606,653) (566,846) (1,561,244) (766,885)
============ ============ ============ ============
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
CONTINUING OPERATIONS $ (.04) $ (.02) $ (.08) $ .00
DISCONTINUED OPERATIONS (.05) (.06) (.15) (.11)
------------ ------------ ------------ ------------
COMBINED $ (.09) $ (.08) $ (.23) $ (.11)
============ ============ ============ ============
EARNINGS PER COMMON SHARE -
ASSUMING FULL DILUTION:
CONTINUING OPERATIONS $ (.04) $ (.02) $ (.08) $ .00
DISCONTINUED OPERATIONS (.05) (.06) (.15) (.11)
------------ ------------ ------------ ------------
COMBINED $ (.09) $ (.08) $ (.23) $ (.11)
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
DELTA COMPUTEC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
July 31,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net earnings (loss):
Continuing operations $ (568,407) $ 6,505
Discontinued operations, including loss
for nine months ended July 31, 1996 charged
to reserve for discontinued operations (992,837) (773,390)
Adjustments to reconcile net earnings(loss) to
net cash provided by operating activities:
Depreciation & amortization 788,967 1,311,702
Decrease in accounts receivable, inventories,
prepaid expenses, deferred income taxes -
current, net of accounts payable, accrued
expenses and sales taxes payable 1,898,775 4,274
Increase (decrease) in deferred
service revenue 528,761 (273,351)
----------- -----------
Net cash flow from operating activities $ 1,655,259 $ 275,740
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures, including field
spare parts $ (466,501) (887,254)
Fixed assets disposed of in
discontinued business 609,159 --
Acquisition of business -- (394,611)
Deferred taxes - noncurrent 185,937
Investment in intangibles and other assets 81,787 --
----------- -----------
Net cash flow from investing activities $ 410,382 $(1,281,865)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Net proceeds (payment) on bank borrowing (1,983,218) 613,403
Proceeds (payment) on loans
from Shareholder (Note 3) (32,639) 400,000
Principal payments on long-term debt (12,500)
----------- -----------
Net cash flow from financing activities $(2,015,857) $ 1,000,903
----------- -----------
NET INCREASE (DECREASE) IN CASH $ 49,784 $ (5,222)
CASH - beginning of year (245,249) 12,809
----------- -----------
CASH - end of period $ (195,465) $ 7,587
=========== ===========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
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
<PAGE>
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 July 31, 1995, and for the nine months ended July 31,
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
<PAGE>
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 July 31, 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 of these losses, in the form of deferred tax assets on its
balance sheet, through April 30, 1995. Generally accepted accounting
9
<PAGE>
principles procedure(FAS 109) establishes guidelines to be used in
valuing deferred tax assets. The Registrant incorporated in the
financial statements at July 31, 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
10
<PAGE>
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, Data 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 nine months ended July
31, 1996 have been charged to the reserve as at July 31, 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 July 31, 1996, the availability of funds under
this credit facility was limited to the lesser of $2,950,000 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 July 31, 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.
11
<PAGE>
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
12
<PAGE>
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
<PAGE>
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 July 31, 1996, and as of the date of this Form
10-Q, the Restated Lobozzo Debenture remained outstanding and had not
been converted. As of July 31, 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 July 31,
1996 and $801,000 through September 18, 1996, of which $355,000 plus
accrued interest was outstanding at September 18, 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 July
31, 1996 was $277,293 (8%), or $.04 per share, compared to a net loss
from continuing operations of $141,030 (3%), or $.02 per share, for the
three months ended July 31, 1995. Operating results for continuing
operations for the three months ended July 31, 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 July 31, 1996 was
$324,888 (77%), compared to a net loss of $249,957 (12%) for the three
months ended July 31, 1995.
The net loss from continuing operations for the nine months ended July
30, 1996 was $568,407 (6%), or $.08 per share, compared to net earnings
from continuing operations of $6,505 (0%), or $.00 per share, for the
nine months ended July 31, 1995. Operating results for continuing
operations for the nine months ended July 31, 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 nine months ended July 31, 1996 was
$794,836 (52%), compared to a net loss of $190,157 (3%) for the nine
months ended July 31, 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 losses incurred subsequent to October
31, 1995 through March 8, 1996, as well as expenses related to the
termination of Data Net and the net loss from disposal of assets, less
liabilities not assumed, by the Company, through July 31, 1996 and
operating losses for the comparative nine months ended July 31, 1995
have been reported in the income statement under Loss from Discontinued
Operations. For the nine months ended July 31, 1996, an aggregate
$992,837 or $.15 per share was charged to the reserve, representing Data
Net's net loss from operations of $663,477 (29%), or $.10 per share,
plus expenses related to the termination of Data Net and the net loss
from disposal of assets, less liabilities not assumed, by the Company
and a net loss of $773,390 (8%), or $.11 per share, for the nine months
ended July 31, 1995
Operating results for the three and nine months ended July 31, 1995
were negatively impacted by the continued restructuring and integration
of its
19
<PAGE>
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 July 31,
1996 and July 31, 1995, as well as for the nine months ended July 31,
1996 and July 31, 1995 for continuing operations, comprised of Delta
CompuTec's core business and the Intronet Division. As set forth in the
following table, DCI's core business net earnings of $48,045 (2%) for
the three months ended July 31, 1996 were $60,882 lower than the
reported net earnings figure for the same period in the prior year. The
net earnings of $226,429 (3%) for DCI's core business for the nine
months ended July 31, 1996 were $29,767 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 $41,000 and $176,000 in
additional expenses absorbed by DCI's core business segment in the
current year's three-month and nine-month interim periods, respectively
versus the prior year.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
DCI 1996 1995 1996 1995
--- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Service revenues $2,717,765 $2,406,063 $7,604,388 $7,077,034
Equipment sales 321,891 (75,537) 1,010,000 439,185
----------- ----------- ----------- -----------
Total Revenues 3,039,656 2,330,526 8,614,388 7,516,219
Net profit (loss) 48,045 108,927 226,429 196,662
Identifiable Assets 5,503,546 8,066,456
Intronet Division
Service revenues $146,854 $1,431,518 $784,657 $3,317,099
Equipment sales 277,187 703,946 744,975 2,932,479
----------- ----------- ----------- -----------
Total Revenues 424,041 $2,135,464 1,529,632 6,249,578
Net profit (loss) (324,888) (249,957) (794,836) (190,157)
Identifiable Assets 1,316,482 2,313,330
</TABLE>
Revenues
Revenues from continuing operations were $3,463,697 for the three
months ended July 31, 1996 compared to $4,465,990 for the three months
ended July 31, 1995, a decrease of $1,002,293 and 22%. Service revenues
were $2,864,619 compared to $3,837,581 for the three months ended July
31,
20
<PAGE>
1996 and 1995, respectively, a decrease of $972,962 and 25%. Equipment
sales for the three months ended July 31, 1996 were $599,078 compared
to $628,409 for the three months ended July 31, 1995, a decrease of
$29,331 and 5%. 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 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 $10,144,020 for the nine
months ended July 31, 1996 compared to $13,765,797 for the nine months
ended July 31, 1995, a decrease of $3,621,777 and 26%. Service revenues
were $8,389,045 compared to $10,394,133 for the nine months ended July
31, 1996 and 1995, respectively, a decrease of $2,005,088 and 19%.
Equipment sales for the nine months ended July 31, 1996 were $1,754,975
compared to $3,371,664 for the nine months ended July 31, 1995, a
decrease of $1,616,689 and 48%. 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 $2,298,021 (80%) for the
three months ended July 31, 1996 compared with $3,198,886 (83%) for the
three months ended July 31, 1995. Service costs as a percentage of
service revenue decreased from %83 to 80% 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
from 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 $6,671,228 (80%) for the
nine months ended July 31, 1996 compared to $8,350,554 (80%) for the
nine months ended July 31, 1995.
Costs of equipment sold in continuing operations were $456,460 (76%)
for the three months ended July 31, 1996 compared to $501,449 (80%) for
the three months ended July 31, 1995.Costs of equipment sold in
continuing operations were $1,357,505 (77%) for the nine months ended
July 31, 1996 compared to $2,461,922 (73%) for the nine months ended
July 31, 1995. The increase in cost of equipment sold as a percentage
of equipment sales from 73% last year to 77% in the current year 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 $893,704 (26%) for the three months ended July 31, 1996 compared
with $892,691 (20%) for the three months ended July 31, 1995. Selling
21
<PAGE>
general and administrative expenses were virtually flat in absolute
dollar terms which resulted in a significantly greater burden, as a
ratio of sales, when absorbed by a revenue base that declined 22%. 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.
Selling, general and administrative expenses in continuing operations
were $2,425,886 (24%) for the nine months ended July 31, 1996 compared
with $2,765,049 (20%) for the nine months ended July 31, 1995. Selling
general and administrative expenses decreased $339,163 or 12% for the
nine months ended July 31, 1996 versus 1995 which, when compared to the
26% decline in revenues for the same periods, resulted in an increase
in SG&A expenses as a percentage of revenues 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 cost reductions instituted by management, plus the impact
of non-recurring costs associated with administrative staff turnover.
Other expense was $92,805 (3%) for the three months ended July 31, 1996
compared with $42,091 (1%) for the three months ended July 31, 1995, an
increase of $50,714 or 121%. Other expense was $257,808 (3%) for the
nine months ended July 31, 1996 compared with $119,436 (1%) for the
nine months ended July 31, 1995, an increase of $138,372 or 116%. 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 July 31, 1996 compared with a credit of $28,097 for the three
months ended July 31, 1995.
Income tax expense in continuing operations was $0 for the nine months
ended July 31, 1996 compared with a provision of $62,331 for the nine
months ended July 31, 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
22
<PAGE>
interest at 3% above NCFC's prime lending rate. At July 31, 1996, the
availability of funds under the Credit Agreement was limited to the
lesser of $2,950,000 or a percentage of eligible accounts receivable
and inventory (Note 3).
Cash flow from operations for the nine months ended July 31, 1996 was
$1,655,259 compared with $275,740 for the nine months ended July 31,
1995, an increase of $1,379,519. This resulted primarily from the net
effect of a $794,359 increase in the net loss which was more than offset
by an aggregate benefit of $2,173,878 from working capital and deferred
service revenue.
Cash flow from investing activities for the nine months ended July 31,
1996 was $410,382 compared with a cash outlay of $1,281,865 for the nine
months ended July 31, 1995, an increase of $1,692,247. This increase was
the aggregate net benefit from (1) $420,753 in lower capital spending
for spare parts and property, plant and equipment; (2) a $609,159
reduction relating to fixed assets disposed of; (3) $394,611 in Intronet
Division acquisition costs incurred in 1995; and (4) $267,724 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 nine months ended July 31, 1996 consumed
$2,015,857, a decrease of $3,016,760 from the $1,000,903 funds provided
in the nine months ended July 31, 1995. This change resulted from
$2,596,621 in higher paydowns on bank borrowing plus $420,139 in
additional payments on borrowings from the Company's principal
shareholder.
The net result of the above was a $49,784 increase in cash for the nine
months ended July 31, 1996 compared to a $5,222 use of cash for the nine
months ended July 31, 1995, an increase of $55,006.
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 23, 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 Nine Months Ended
July 31, July 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary
Net Earnings (Loss):
Continuing Operations $(277,293) $(141,030) $(568,407) $6,505
Discontinued Operations (329,360) (425,816) (992,837) (773,390)
----------- ----------- ----------- -----------
Net Earnings(Loss), Combined (606,653) (566,846) (1,561,244) (766,885)
=========== =========== =========== ===========
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 $(.04) $(.02) $(.08) $.00
Discontinued Operations (.05) (.06) (.15) (.11)
----------- ----------- ----------- -----------
Combined (.09) (.08) $(.23) $(.11)
=========== =========== =========== ===========
Assuming Full Dilution
Net Earnings (Loss):
Continuing Operations $(277,293) $(141,030) $(568,407) $6,505
Discontinued Operations (329,360) (425,816) (992,837) (773,390)
----------- ----------- ----------- -----------
Net Earnings (Loss), Combined (606,653) (566,846) (1,561,244) (766,885)
=========== =========== =========== ===========
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 $(.04) $(.02) $(.08) $.00
Discontinued Operations (.05) (.06) (.15) (.11)
----------- ----------- ----------- -----------
Combined (.09) (.08) $(.23) $(.11)
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JUL-31-1996
<CASH> (195,465)
<SECURITIES> 0
<RECEIVABLES> 2,557,058
<ALLOWANCES> 148,166
<INVENTORY> 1,437,552
<CURRENT-ASSETS> 3,922,548
<PP&E> 4,195,753
<DEPRECIATION> 1,870,740
<TOTAL-ASSETS> 7,403,773
<CURRENT-LIABILITIES> 7,699,734
<BONDS> 0
0
0
<COMMON> 68,116
<OTHER-SE> (1,618,327)
<TOTAL-LIABILITY-AND-EQUITY> 7,403,773
<SALES> 10,144,020
<TOTAL-REVENUES> 10,144,020
<CGS> 8,028,733
<TOTAL-COSTS> 10,454,619
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 257,808
<INCOME-PRETAX> (568,407)
<INCOME-TAX> 0
<INCOME-CONTINUING> (568,407)
<DISCONTINUED> (992,837)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,561,244)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
