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, 1998
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [ ] NO [x]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of June 11, 1998, there were 18,252,050 common shares outstanding of the
Registrant's Common Shares $.01 par value.
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DELTA COMPUTEC INC.
Form 10-Q
Quarter Ended April 30, 1998
INDEX
Part I: Financial Information PAGE
Item 1. Financial Statements
Consolidated balance sheets at April 30, 1998 and October 31, 1997 3-4
Consolidated statements of operations for the three months ended
April 30, 1998 and 1997 and the six months ended April 30, 1998
and 1997 5
Consolidated statement of cash flows for the six months ended April
30, 1998 and 1997 6
Notes to consolidated financial statements 7-12
Item 2. Management's Discussion and Analysis of Operations and
Financial Condition 13-16
Part II: Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
Index to Exhibits 21
Exhibits 22-31
Calculation of Earnings Per Share 32
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DELTA COMPUTEC INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited) (Audited)
April 30, October 31,
1998 1997
---- ----
Current Assets:
Cash $27,587 $18,944
Accounts receivable, less allowance for doubtful
accounts of $82,013 and $86,280 at April 30, 1998
and October 31, 1997, respectively 2,347,496 1,673,643
Inventories 788,433 869,049
Prepaid expenses and other current assets 402,402 132,327
--------- ---------
Total current assets 3,565,918 2,693,963
Field spare parts, net of accumulated amortization
of $1,118,840 and $769,322 at April 30, 1998 and
October 31, 1997, respectively 2,601,787 2,756,169
Property And Equipment, at cost:
Vehicles 95,517 74,614
Office furniture and equipment 232,735 229,564
Technical equipment 131,893 131,893
Software 57,300 56,405
Leasehold improvements 75,042 71,092
--------- ---------
592,487 563,568
Less: Accumulated depreciation 407,507 369,784
--------- ---------
184,980 193,784
Deferred Income Taxes 150,000 150,000
Other Assets:
Goodwill, less accumulated amortization of $357,820
and $333,966 at April 30, 1998 and October 31, 1997
respectively 119,273 143,128
Other 144,320 89,185
--------- ---------
263,593 232,313
Total Assets $6,766,278 $6,026,229
========== ==========
See notes to consolidated financial statements.
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DELTA COMPUTEC INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS EQUITY
(Unaudited) (Audited)
April 30, October 31,
1998 1997
---- ----
Current Liabilities:
Accounts payable $ 1,336,148 $1,805,342
Deferred service revenue 1,467,311 1,413,135
Accrued expenses
Payroll and payroll taxes 242,731 282,764
Interest 112,080 64,658
Sales tax payable 181,379 210,197
Other 191,856 214,281
--------- ---------
Total current liabilities 3,531,505 3,990,377
Long-Term Debt 769,754 750,000
Due to Shareholder 3,647,000 2,865,000
Subordinated Debenture 600,001 600,001
--------- ---------
Total long-term liabilities 5,016,755 4,215,001
Shareholders' Investment:
Preferred shares, $ .01 par value; shares authorized
5,000,000 shares; issued and outstanding: none at
January 31, 1998 and October 31, 1997 - -
Common stock, $ .01 par value; authorized
20,000,000 shares; issued and outstanding
18,252,050 at April 30, 1998 and October 31, 1997
respectively 182,521 182,521
Additional paid-in capital 4,801,698 4,801,698
Accumulated deficit, beginning (6,766,201) (7,163,368)
---------- ----------
Total Shareholders' Investment (1,781,982) (2,179,149)
Total Liabilities And Shareholders Equity $ 6,766,278 $ 6,026,229
=========== ===========
See notes to consolidated financial statements.
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DELTA COMPUTEC INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Six Months Ended
APRIL 30, APRIL 30,
1998 1997 1998 1997
---- ---- ---- ----
Revenues From Continuing
Operations:
Service revenues $ 3,235,992 3,126,940 $ 6,161,566 6,509,208
Equipment sales 248,867 206,871 571,569 521,239
--------- --------- --------- ---------
Total Revenues 3,484,859 3,333,811 6,733,135 7,030,447
Costs And Expenses:
Service costs 2,373,318 2,188,478 4,487,764 4,271,525
Cost of equipment sold 187,148 134,738 437,967 478,899
Selling, general and
administrative 651,205 856,902 1,275,578 1,737,761
--------- --------- --------- ---------
Total Operating Expenses 3,211,671 3,180,118 6,201,309 6,488,185
Other Income (Expense), Net (140,367) (117,389) (107,994) (205,384)
--------- --------- --------- ---------
Earnings From Continuing Operations
Before Income Taxes 132,821 36,304 423,832 336,878
Income Taxes / (Benefit) 537 - 537 -
--------- --------- --------- ---------
Net Earnings (Loss) From
Continuing Operations 132,284 36,304 423,295 336,878
--------- --------- --------- ---------
Net Gain (Loss) From
Discontinued Operations 941 0 (26,130) 0
--------- --------- --------- ---------
Net Earnings (Loss) $ 133,225 $ 36,304 $ 397,165 $ 336,878
========= ========= ========= =========
Earnings Per Common And Common
Equivalent Share:
Continuing Operations $ .01 $ - $ .02 $ .03
Discontinued Operations - - - -
--- --- --- ---
Combined $ .01 $ - $ .02 $ .03
=== === === ===
NOTE:
The number of weighted average common shares outstanding were: (1) during the
quarters ended April 30, 1998 and April 30, 1997, 18,252,050 and 15,681,157,
respectively; and (2) during the six months ended April 30, 1998 and April 30,
1997, 18,252,050 and 11,172,861, respectively. In February, 1997, the Company
issued an aggregate 11,440,475 common shares as a result of the exercise of
certain options. (See Note 2 to the Financial Statements).
See notes to consolidated financial statements.
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DELTA COMPUTEC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
April 30,
1998 1997
---- ----
Cash Flow From Operating Activities:
Net earnings(loss) $ 397,166 $ 336,878
Adjustments to reconcile net earnings/(loss) to
net cash provided/(used) by operating activities:
Depreciation & amortization 411,095 344,740
Expenses charged to accrual for discontinued operations - (86,509)
Deferred taxes (31,099) -
Accounts receivable (673,853) 616,488
Inventories 80,616 (190,907)
Prepaid and other current assets (238,975) 309,455
Accounts payable and accrued expenses (484,230) (381,470)
Sales taxes payable (28,818) (127,995)
Deferred service revenue 54,176 (331,438)
--------- --------
Net cash flow from operating activities (513,922) 489,242
--------- --------
Cash Flow From Investing Activities:
Capital expenditures, including field spare parts (224,054) (470,187)
Investment in intangibles and other assets (55,135) (29,715)
--------- --------
Net cash flow from investing activities (279,189) (499,902)
--------- --------
Cash Flow From Financing Activities:
Proceeds from (payment on) shareholder debt 782,000 (140,000)
Net proceeds (payment) on note payable 19,754 -
(Payment) on subordinated debenture - (75,000)
--------- --------
Net cash flow from financing activities 801,754 (215,000)
--------- --------
Net Increase (Decrease) In Cash $ 8,643 $(225,660)
--------- --------
Cash - beginning of period 18,944 50,891
--------- --------
Cash - end of period $ 27,587 $(174,769)
========== =========
See notes to consolidated financial statements.
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DELTA COMPUTEC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED APRIL 30, 1998 AND 1997
(1) GENERAL DESCRIPTION OF BUSINESS & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company, by itself and through its wholly-owned subsidiary, SAI/Delta,
Inc. ("SAI/Delta"), provides a wide array of Computer System, Data
Communication and Lan/Wan technical services and products to a customer
base which encompasses many industries and geographic locations. The
Company's customer base includes large brokerage houses, banks,
pharmaceutical companies, major hospitals and long distance carriers,
located principally in the Northeast but reaching as far as Florida and the
West Coast. Technical services offered include, but are not limited to,
design, product procurement, installation, service, maintenance and on-site
technical management and consulting. Management has refocused the Company's
efforts on its core business of providing Integrated Technology Solutions
for computer systems, network environments and telecommunication systems.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Delta Data Net, Inc. ("Data Net"), and
SAI/Delta. 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, in the
opinion of management, are necessary for a fair presentation of the results
for the interim periods.
As reported by the Company in the 1997 Form 10-K Report, the Company's Data
Net subsidiary terminated its business operations and ceased operations in
Fiscal 1996 due to economic conditions in its industry. As also reported in
the 1997 Form 10-K Report, in the fourth quarter of Fiscal 1996, the
Company decided to close its Intronet Division. Accordingly, the operating
results for continuing operations for the three months ended April 30, 1998
and 1997, and for the six months ended April 30, 1998 and 1997, are for the
Company's core business and do not include the losses on disposal for
either the Company's Data Net subsidiary or its Intronet Division during
those respective periods. The $25,000 loss on disposal incurred in
discontinued operations for the three months ended April 30, 1997 and the
$102,0375 loss on disposal incurred in discontinued operations for the six
months ended April 30, 1997 were charged to the accrual for losses on
discontinued operations established at October 31, 1996. For the three
months ended April 30, 1998, the Company realized a minor benefit due to a
recovery related to discontinued operations. For the six months ended April
30, 1998, the Company incurred $26,130 in expenses related to discontinued
operations that exceeded the amount of the aforementioned accrual. These
expenses were charged to Fiscal 1998's results and are shown under Losses
From Discontinued Operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
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BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The audited
financial statements for Fiscal 1997, as set forth in this Form 10-Q
Quarterly Report, reflect a decrease in the shareholders' deficit, from
($2,753,412) as of October 31, 1996 to ($2,179,149) as of October 31, 1997,
essentially as a result of the $574,253 consolidated earnings reported for
the year ended October 31, 1997 ("Fiscal 1997"). The unaudited financial
statements contained in this Form 10-Q Quarterly Report show continued
improvement in the Company's financial position, with consolidated earnings
of $397,165 reported for the six months ended April 30, 1998 and a further
reduction in the shareholders' deficit, from ($2,179,149) as of October 31,
1997 to ($1,781,982) as of April 30, 1998. These improved figures are not a
guarantee that the improved financial position will continue into the
future.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements in order to conform to the current year's presentation.
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
----------- -----------
Vehicles 2 - 3 years
Office furniture and equipment 5 - 7 years
Technical equipment 5 - 7 years
Software 3 - 5 years
Leasehold improvements 5 - 10 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.
GOODWILL
Goodwill, representing the excess of the cost of acquired businesses over
the fair value of net assets acquired, is generally amortized on a
straight-line basis over ten years. On an ongoing basis, the Company
assesses impairment of such assets by reviewing the operating performance
of the underlying business or customer relationships.
DEFERRED SERVICE REVENUE
Service revenue is recognized ratably over the contract period. Deferred
service revenue represents the portion of billings to customers for which
service will be provided in future periods.
REVENUE RECOGNITION
Service revenues: Contract service revenue is recognized ratably over the
contractual period or as services are provided. Revenue from services
rendered on a "time and materials" basis and from projects is recognized in
the period the work is performed.
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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 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.
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
the dilutive effect of outstanding stock options and warrants using the
Treasury Stock Method. Weighted average shares outstanding for the three
months ended April 30, 1998 and 1997 totalled 18,252,050 and 15,681,157,
respectively.
NEW ACCOUNTING STANDARDS PRONOUNCEMENTS
1. EARNINGS PER SHARE
In March, 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share". The
new standard requires dual presentation of basic and diluted earnings per
share (EPS) on the face of the statement of operations and requires a
reconciliation of the numerators and denominators of basic and diluted EPS
calculations. The statement will be effective for periods ending after
December 15, 1997. Early adoption of the statement is not permitted. In the
opinion of management, the adoption of this standard will not have a
material impact on the Company's disclosures.
2. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income". SFAS No. 130 establishes standards for
reporting and disclosure of comprehensive income and its components in
financial statement format and is effective for financial statements for
fiscal years beginning after December 15, 1997. Comprehensive income is
defined as the change in equity of a business enterprise during a period
from transactions and other events and circumstances from non-owner
sources. Items considered comprehensive income include foreign currency
items, minimum pension liability adjustments and unrealized gains and
losses on certain investments in debt and equity securities. In the opinion
of management, SFAS No. 130 will not have a material effect on the
Company's financial statements.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of accounts receivable.
The Company's ten largest customers accounted for approximately 73% of its
total business in the six months ended April 30, 1998. The Company does not
require collateral or other security to support customers' receivables.
(2) REGISTRANT'S DEBT POSITION
Long-term debt and Debt Due to Shareholder consisted of the following at
April 30, 1998 and October 31, 1997, respectively:
APRIL 30, OCTOBER 31,
1998 1997
Due to shareholder $ 3,647,000 $ 2,865,000
Term loan, due in full on October 10, 2001,
with interest payable monthly at prime plus
1.0%, collateralized by field spare parts
(the "Term Loan") 750,000 750,000
Note payable 19,754 -
--------- ---------
4,416,754 3,615,000
Less: Current portion - 75,000
$ 4,416,754 $ 3,540,000
============ ===========
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On October 10, 1996, the Company restructured the note payable to its bank.
The bank, National Canada Finance Corp. ("NCFC") was also its then primary
lending institution. A portion of the note payable to NCFC plus related
fees and expenses, aggregating $1,544,661, was assumed by the Company's
principal stockholder, Joseph M. Lobozzo II ("Lobozzo"), and the balance of
the loan, in the amount of $750,000, was restructured as a Term Loan. The
Company has an Amended and Restated Credit Agreement with Lobozzo (the
"Lobozzo Credit Agreement", as amended and as restated, and, as of October
31, 1997, the First Restated Credit Agreement ("FRCA"), which provides for
the "Lobozzo Loan"), which provides that: (1) the maximum loan amount was
increased from $2,550,000 to $2,950,000, and (a) from October 1, 1997
through December 31, 1997, up to $3,650,000, and (b) from January 1, 1998
through June 30, 1998, up to $3,350,000, provided, as to the maximum loan
amounts in (1), (a) and (1), (b), respectively, that the Company meets its
Operating Budget Targets as agreed between the Company and its Board of
Directors; (2) the interest rate is 1.75% above the prime lending rate; (3)
the borrowing base shall be equal to 100% of the eligible receivables; (4)
certain financial covenant obligations with which the Company was in
default under its prior loan from NCFC were removed; (5) all assets of the
Company, other than field spare parts, were pledged as collateral for the
Lobozzo Loan with the pledged field spare parts being subordinated to the
prior pledge under the NCFC Term Loan; (6) for any loans made in excess of
the Available Borrowing Base, as defined in the Lobozzo Credit Agreement,
the interest rate is 5 percentage points above the prime lending rate; and
(7) payment was due on June 30, 1998.
In January, 1998, the lending agreement with its commercial lenders was
further amended ("Amendment No. 1 to the FRCA") to extend the terms of the
lending agreement from June 30, 1998 to November 1, 1998. Simultaneously
with the execution of Amendment No. 1 to the FRCA, in January, 1998, the
Lender executed a Waiver and Consent (the "January 1998 Waiver"), a copy of
which was annexed as an Exhibit to the 1997 Form 10-K Report, whereby the
Lenders waived any non-compliance, through and including the date of the
January 1998 Waiver, by the Company with certain provisions of the FRCA,
including Section 2.1 relating to maximum loan amounts, borrowing amounts
not supported by Eligible Receivables or borrowing amounts permitted only
if Operating Budget Targets are met, without the Company's meeting those
targets. Copies of both Amendment No. 1 to the FRCA and the January 1998
Waiver were annexed as Exhibits to the 1997 Form 10-K Report. In March,
1998, the FRCA was further amended ("Amendment No. 2 to the FRCA") to
extend its terms from November 1, 1998 to February 1, 1999. Simultaneously
with the execution of Amendment No. 2 to the FRCA, in March, 1998, the
Lender executed a further Waiver and Consent (the "March 1998 Waiver"),
whereby the Lenders waived any non-compliance, through and including the
date of the March 1998 Waiver, by the Company with certain provisions of
the FRCA, including Section 2.1 relating to maximum loan amounts, borrowing
amounts not supported by Eligible Receivables or borrowing amounts
permitted only if Operating Budget Targets are met, without the Company's
meeting those targets. Copies of Amendment No. 2 to FRCA and the March 1998
Waiver were annexed as Exhibits to the Company's Form 10-Q Quarterly Report
for the period ended January 31, 1998. In June, 1998, the FRCA was further
amended ("Amendment No. 3 to the FRCA") to extend its terms from February
1, 1999 to May 1, 1999. Simultaneously with the execution of Amendment No.
3 to the FRCA, in June, 1998, the Lender executed a further Waiver and
Consent (the "June 1998 Waiver"), whereby the Lenders waived any
non-compliance, through and including the date of the June 1998 Waiver, by
the Company with certain provisions of the FRCA, including Section 2.1
relating to maximum loan amounts, borrowing amounts not supported by
Eligible Receivables or borrowing amounts permitted only if Operating
Budget Targets are met, without the Company's meeting those targets. Copies
of Amendment No. 3 to FRCA and the June 1998 Waiver are annexed as Exhibits
A and B, respectively, to this Form 10-Q Quarterly Report.
As of May 31, 1998 and October 31, 1997, there were principal balances of
$3,429,000 and $2,865,000, respectively, outstanding under the Lobozzo
Loan.
The agreement underlying the Term Loan with NCFC requires the Company to
maintain a ratio of field spare parts inventory to outstanding indebtedness
of at least 2.5 to 1 with NCFC. The Company has been in compliance with
this ratio requirement for all periods since inception of the Term Loan
restructuring. Lobozzo has pledged 480,000 of his shares of the Company's
common shares as additional collateral for the Term Loan. Agreements have
been made to provide NCFC with additional equity in the Company (up to
17.5% of the Company's issued and outstanding common shares) under certain
circumstances. As described in Item 2, in February, 1997, the shareholder
transferred half of this debt obligation to, Joanne Lobozzo, his wife. (See
also "Exercise of Options", below).
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SUBORDINATED DEBENTURES
In November, 1992 the Company and Data Net jointly issued an 8%
subordinated debenture in the face amount of $475,000 due October 31, 1997
to the sellers ("the Sellers") of the assets acquired by Data Net on
November 1, 1992. As of October 31, 1996, the Sellers agreed to sell the
entire principal balance of the 8% subordinated debenture, together with
accrued interest of $55,384, to the Company for $75,000. This transaction,
which resulted in a $455,384 gain on purchase of debt, was reflected in the
Fiscal 1996 operating results as an extraordinary gain, and the payment of
the $75,000 to purchase the debenture was made in the first quarter of
Fiscal 1997.
The Company has also guaranteed an 8% subordinated debenture of Data Net in
the face amount of $600,001, as restated, to Lobozzo and Joanne Lobozzo
(the "Lobozzo Debenture"). The Lobozzo Debenture was due in annual
installments of $200,000 commencing January 31, 1996 and was issued in
connection with an option agreement entitling Lobozzo to purchase 1,304,350
shares of the Company's common shares at an exercise price of $.46 per
common share. The Restated Lobozzo Debenture and the Restated 1992 Lobozzo
Option Agreement were further restated in February, 1997 when Lobozzo
transferred to Joanne Lobozzo half of the Restated Lobozzo Debenture and
the Restated 1992 Lobozzo Option Agreement, and those documents have been
reissued as the "Second Amended and Restated Lobozzo Debentures" and the
"Second Amended and Restated Lobozzo Option Agreements". No payments of
principal have been made on the Second Amended and Restated Lobozzo
Debentures, as further amended, and the Second Amended and Restated Lobozzo
Option Agreements, as further amended, remain unexercised as of the date of
filing this Form 10-Q Quarterly Report. The Second Amended and Restated
Lobozzo Debentures provided, with respect to each of the two debentures,
that $300,000.50 (an aggregate of $600,001) would be paid in full on
January 31, 1998.
The following amendments have been executed with respect to the Lobozzo
Debentures and the two Second Amended and Restated Lobozzo Option
Agreements:
a) In January, 1998, the two Second Amended and Restated Lobozzo
Debentures were further amended ("Amendment No. 1 to Second Amended
and Restated Debentures") to provide that $300,000.50 (an aggregate of
$600,001) would be paid in full on January 31, 1999. Copies of
Amendment No. 1 to the Second Amended and Restated Lobozzo Debentures
were annexed as Exhibits to the 1997 Form 10-K Report. In January,
1998, the two Second Amended and Restated Lobozzo Option Agreements
were further amended ("Amendment No. 1 to Second Amended and Restated
Option Agreements") to provide that the exercise date of the options
would be extended from January 31, 1998 to January 31, 1999. Copies of
Amendment No. 1 to the Second Amended and Restated Option Agreements
were annexed as Exhibits to the 1997 Form 10-K Report.
b) In March, 1998, the two Second Amended and Restated Lobozzo Debentures
were further amended ("Amendment No. 2 to Second Amended and Restated
Debentures"), filed as Exhibits to the Company's Form 10-Q Quarterly
Report for the period ended January 31, 1998 (the "January, 1998 Form
10-Q Report"), to provide that $300,000.50 (an aggregate of $600,001)
would be paid in full on April 30, 1999. In March, 1998, the two
Second Amended and Restated Lobozzo Option Agreements were further
amended ("Amendment No. 2 to Second Amended and Restated Option
Agreements"), which were filed as Exhibits to the January, 1998 Form
10-Q Report, to provide that the exercise date of the options would be
extended from January 31, 1999 to April 30, 1999.
c) In June, 1998, the two Second Amended and Restated Lobozzo Debentures
were further amended ("Amendment No. 3 to Second Amended and Restated
Debentures"), which are filed as Exhibits C and D to this Form 10-Q
Quarterly Report, to provide that $300,000.50 (an aggregate of
$600,001) would be paid in full on July 31, 1999. In June, 1998, the
two Second Amended and Restated Lobozzo Option Agreements were further
amended ("Amendment No. 3 to Second Amended and Restated Option
Agreements"), which are filed as Exhibits E and F to this Form 10-Q
Quarterly Report, to provide that the exercise date of the options
would be extended from April 30, 1999 to July 31, 1999.
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(3) EXERCISE OF OPTIONS
In February, 1997, Lobozzo and Joanne Lobozzo, principal shareholders,
control persons and commercial lenders to the Company (Lobozzo is also an
officer and director of the Company) exercised options to purchase,
respectively 5,720,238 and 5,720,237 common shares of the Company in return
for payment of an agregate exercise price of $10.00, all as described in
the Company's 1997 Form 10-K Report.
(4) INCOME TAXES
No income tax provision has been recorded for the three months ended April
30, 1998 and the six months ended April 30, 1998, respectively, because of
the tax benefits associated with the use of the Company's net operating
loss carry-forwards.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Net Earnings From Continuing Operations For The Three Months Ended April
30, 1998 were $132,284 (3.8%), or $.01 per share (on 18,252,050 weighted
average common shares outstanding for the three months ended April 30,
1998), compared to net earnings from continuing operations of $36,304
(1.1%), or less than $.005 per share for the three months ended April 30,
1997 (on 15,681,157 weighted average common shares outstanding for the
three months ended April 30, 1997). The improvement in net earnings from
continuing operations for the three months ended April 30, 1998 was $95,980
versus the comparable period in Fiscal 1997, as a result of increased
revenue and lower sales and administrative expenses, the aggregate benefit
from which was partially offset by higher debt service costs.
Net Earnings From Continuing Operations For The Six Months Ended April 30,
1998 were $423,295 (6.3%), or $.02 per share (on 18,252,050 weighted
average common shares outstanding for the six months ended April 30, 1998),
compared to net earnings from continuing operations of $336,878 (4.8%), or
$.03 per share for the six months ended April 30, 1997 (on 11,172,861
weighted average common shares outstanding for the six months ended April
30, 1997). The improvement in net earnings from continuing operations for
the six months ended April 30, 1998 was $86,417 and 25.7% versus the
comparable period in Fiscal 1997. The decline in gross margin as a result
of lower revenue was offset by savings in sales and administrative
expenses, and the increase in net earnings from continuing operations in
the first half of Fiscal 1998 versus the first half of Fiscal 1997 was
realized from higher non-operating income, primarily due to a gain realized
on settlement of trade debt obligations, partially offset by increased debt
service charges, the latter of which were virtually wholly-related to
financing arrangements associated with discontinued operations.
During the three months ended April 30, 1998, the Company realized a minor
gain associated with Losses on disposal of discontinued operations. During
the six months ended April 30, 1998, the Company incurred $26,130 in losses
on disposal of discontinued operations.
Consolidated Net Earnings For The Three Months Ended April 30, 1998 Were
$133,225 (3.8%), or $.01 per share, (on 18,252,050 weighted average common
shares outstanding for the three months ended April 30, 1998), compared to
consolidated net earnings of $36,305 (1.1%), or less than $.005 per share
for the three months ended April 30, 1997 (on 15,681,157 weighted average
common shares outstanding for the three months ended April 30, 1997), an
increase of $96,920 or 267.0%. Consolidated net earnings for the six months
ended April 30, 1998 were $397,165 (5.9%), or $.02 per share, (on
18,252,050 weighted average common shares outstanding for the six months
ended April 30, 1998), compared to consolidated net earnings of $336,878
(4.8%), or $.03 per share for the six months ended April 30, 1997 (on
11,172,861 weighted average common shares outstanding for the six months
ended April 30, 1997), an increase of $60,287 or 17.9%.
REVENUES
Total Revenues For The Three Months Ended April 30, 1998 were $3,484,859,
compared to $3,333,811 for the three months ended April 30, 1997, an
increase of $151,048 and 4.5%. Service revenues for the three months ended
April 30, 1998 were $3,235,992 (92.9% of total revenues), compared to
$3,126,940 (93.8%) for the three months ended April 30, 1997, an increase
of $109,051 and 3.5%. The increase in service revenue for the second
quarter reflected new business as well as an expansion in business from the
Company's existing customers. Service revenues for the six months ended
April 30, 1998 were $6,161,566 (91.5%), compared to $6,509,208 (92.6%) for
the six months ended April 30, 1997, a decrease of $347,642 and 5.3%. The
decrease in service revenues for the first half of Fiscal 1998 reflected
the effect of service revenue realized in the first half of Fiscal 1997
from a project performed for a municipality, which project had been signed
just prior to the beginning of Fiscal 1997 and completed by the end of the
second quarter of Fiscal 1997. The negative effect of this, totalling
approximately $800,000, was largely offset by new business as well as an
expansion in business from the Company's existing customers as a result of
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management's continued concentration on developing the Company's core
business, resulting in a 56% reduction to the negative effect from the lost
municipal project revenue described above. As discussed in the Company's
1997 Form 10-K, management has redeployed its resources to certain new and
existing customers' sites to perform services in order to meet an increase
in demand for services at these locations, which business has continued to
expand.
Equipment Sales For The Three Months Ended April 30, 1998 were $248,867
(7.1% of total revenues), compared to $206,871 (6.2%) for the three months
ended April 30, 1997, an increase of $41,996 and 20.3%. The increase in
equipment sales during the respective quarterly periods reflected increased
purchases of supplies. Equipment sales for the six months ended April 30,
1998 were $571,569 (8.5%), compared to $521,239 (7.4%) for the six months
ended April 30, 1997, an increase of $50,330 and 9.7%. The increase in
equipment sales in the first half of Fiscal 1998 reflected increased
purchases of supplies.
OPERATING COSTS AND OTHER EXPENSES
Service Costs For The Three Months Ended April 30, 1998 were $2,373,318
(73.3% of service revenues), compared to $2,188,478 (70.0%) for the three
months ended April 30, 1997, an increase of $184,840 and 8.4%. Service
costs as a percentage of service revenue for the three months ended April
30, 1998 increased 3.3 percentage points versus the three months ended
April 30, 1997 due to increased salary and associated personnel costs.
Service costs for the six months ended April 30, 1998 were $4,487,764
(72.6%), compared to $4,271,525 (65.6%) for the six months ended April 30,
1997, an increase of $216,239 and 5.1%. Service costs as a percentage of
service revenue for the six months ended April 30, 1998 increased 7.0
percentage points versus the six months ended April 30, 1997 due to the
decline in service revenue for the comparable periods plus the effect of
increased salary and associated personnel costs.
Cost Of Equipment Sold For The Three Months Ended April 30, 1998 was
$187,148 (75.2% of equipment sales), compared to $134,738 (65.2%) for the
three months ended April 30, 1997, an increase of $52,410 and 38.9%. Cost
of equipment sold for the six months ended April 30, 1998 was $437,967
(76.6%), compared to $478,899 (91.9%) for the six months ended April 30,
1997, a decrease of $40,932 and 8.5%.
Gross Profit For The Three Months Ended April 30, 1998 was $924,393 (26.5%
of total revenues), compared to $1,010,595 (30.3%) for the three months
ended April 30, 1997, a decline of $86,202 and 8.5%. As a ratio of sales,
gross margin dropped 3.8 percentage points versus the prior fiscal year's
period. Gross profit for the six months ended April 30, 1998 and 1997 was
$1,807,405 (26.8%) and $2,280,024 (32.4%), respectively, a decrease of
$472,619 and 20.7%. As a ratio of sales, gross margin dropped 5.6
percentage points versus the prior fiscal year's period. The decline in the
gross margin percentage was due to the reasons discussed above.
Selling, General And Administrative Expenses For The Three Months Ended
April 30, 1998 were $651,205 (18.7% of total revenues), compared with
$856,902 (25.7%) for the three months ended April 30, 1997, a decrease of
$205,696 or 24.0%. The decrease in SG&A costs was primarily due to lower
personnel and associated costs as well as lower professional fees. Selling,
general and administrative expenses for the six months ended April 30, 1998
were $1,275,578 (18.9%), compared with $1,737,761 (24.7%) for the six
months ended April 30, 1997, an decrease of $462,184 or 26.6%, as compared
to the 5.3% decline in service revenue for the same period. The lower SG&A
costs were in personnel and associated costs as well as in professional
fees.
Total Operating Expenses For The Three Months Ended April 30, 1998 were
$3,211,671 (92.2%), compared with $3,180,118 (95.4%) for the three months
ended April 30, 1997, an increase of $31,553 and 1.0% versus a 4.5% rise in
total revenue for the same period, thus yielding an improvement of 3.2
percentage points in operating costs as a ratio of total revenue. Total
operating expenses for the six months ended April 30, 1997 were $6,201,309
(92.1%), compared with $6,488,185 (92.3%) for the six months ended April
30, 1997, a decrease of $286,876 or 4.4% versus a 4.2% drop in total
revenue for the same period, thus yielding an improvement of 0.2 percentage
points in operating costs as a ratio of total revenue.
14
<PAGE>
Income From Operations For The Three Months Ended April 30, 1998 was
$273,188 (7.8%), compared with $153,694 (4.6%) for the three months ended
April 30, 1997, an improvement of $119,494 and 77.7% on a 4.5% rise in
total revenue for the same period. Income from operations for the six
months ended April 30, 1997 was $531,827 (7.9%), compared with $542,262
(7.7%) for the six months ended April 30, 1997, a decrease of $10,435 or
1.9% versus a 4.2% drop in total revenue for the same period. The operating
profitability ratios for both periods
Non-operating Expenses For The Three Months Ended April 30, 1998 were
$140,367 (4.0%), compared with non-operating expenses of $117,389 (3.5%)
for the three months ended April 30, 1997, an increased expenditure of
$22,978 and 19.6%, essentially due to $25,000 in financing costs for a
quarterly prepayment premium on the $750,000 bank term loan. Non-operating
expenses for the six months ended April 30, 1998 were $107,994 (1.6%),
compared to $205,384 (2.9%) for the six months ended April 30, 1997, an
expense reduction of $97,389 and 47.4%, the net result of: (1) $203,154
additional non-operating income, derived from a $197,000 non-recurring gain
on trade debt settlements and a $31,000 benefit on the reversal of
prior-period tax expense, the aggregate benefit from which was partially
offset by miscellaneous expenses; less (2) $105,764 in additional interest
charges as a result of the higher blended rate effective in Fiscal 1998 on
a shareholder loan plus $50,000 in financing costs under the terms of the
$750,000 bank term loan.
As discussed above under "Results of Operations", Net Earnings From
Continuing Operations For The Three Months Ended April 30, 1998 were
$132,284 (3.8%), or $.01 per share, compared to net earnings from
continuing operations of $36,304 (1.1%), or less than $.005 per share for
the three months ended April 30, 1997, an improvement of $95,980. Net
earnings from continuing operations for the six months ended April 30, 1998
were $423,295 (6.3%), or $.02 per share, compared to net earnings from
continuing operations of $336,878 (4.8%), or $.03 per share for the six
months ended April 30, 1997, an improvement of $86,417 and 25.7%.
For the three months ended April 30, 1998 and the six months ended April
30, 1998, respectively, no provision for income taxes has been recorded due
to the tax benefits associated with the Company's net operating loss
carry-forwards. As of October 31, 1997, the Company has recorded a deferred
tax asset of approximately $2,002,000 reflecting the benefit of $5,880,016
in loss carryforwards, which expire in varying amounts between 2001 and
2010. Realization of this and other deferred assets is dependent upon
generating sufficient taxable income in future periods. Management believes
that sufficient future income will exist to allow utilization of $150,000
of the deferred tax asset.
As discussed above under "Results of Operations", Consolidated Net Earnings
For The Three Months Ended April 30, 1998 were $133,225 (3.8%), or $.01 per
share, compared to consolidated net earnings of $36,305 (1.1%), or less
than $.005 per share for the three months ended April 30, 1997, an increase
of $96,920 or 267.0%. Consolidated net earnings for the six months ended
April 30, 1998 were $397,165 (5.9%), or $.02 per share, compared to
consolidated net earnings of $336,878 (4.8%), or $.03 per share for the six
months ended April 30, 1997, an increase of $60,287 or 17.9%.
LIQUIDITY AND CAPITAL RESOURCES
As discussed in Note 2 to the Financial Statements, in June, 1998, the FRCA
was further amended to extend its terms from February 1, 1999 to May 1,
1999. Simultaneously with the execution of Amendment No. 3 to the FRCA, in
June, 1998, the Lender executed the June 1998 Waiver, whereby the Lenders
waived any non-compliance, through and including the date of the June 1998
Waiver, by the Company with certain provisions of the FRCA, including
Section 2.1 relating to maximum loan amounts, borrowing amounts not
supported by Eligible Receivables or borrowing amounts permitted only if
Operating Budget Targets are met, without the Company's meeting those
targets. Copies of Amendment No. 3 to FRCA and the June 1998 Waiver are
annexed as Exhibits A and B, respectively, to this Form 10-Q Report. In
June, 1998, the two Second Amended and Restated Lobozzo Debentures were
further amended, which are filed as Exhibits C and D to this Form 10-Q
Report, to provide that $300,000.50 (an aggregate of $600,001) would be
paid in full on July 31, 1999.
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As a result of the substantial losses incurred in the discontinued
operations in the Data Net Subsidiary and the Intronet Division, the
Company had suffered significant consolidated losses in the fiscal years
ended October 31, 1995 and 1996. The audited financial statements for
Fiscal 1997, as set forth in this Form 10-Q Report, reflect a decrease in
the shareholders' deficit, from ($2,753,412) as of October 31, 1996 to
($2,179,149) as of October 31, 1997, as a result of the consolidated
earnings reported for Fiscal 1997. The unaudited financial statements for
the second quarter of Fiscal 1998 show continued improvement in the
Company's financial position, with consolidated net earnings of $397,165
and a decrease in the shareholders' deficit, from ($2,179,149) as of
October 31, 1997 to ($1,781,982) as of April 30, 1998. These actual results
are not a guarantee that the improved financial position will continue into
the future.
Cash (Used) In Operations during the first six months of Fiscal 1998
totalled ($514,000). The benefit from net income of $397,000, non-cash
charges of $411,000 and a $54,000 increase in deferred revenue did not
offset the reduction in cash as a result of a $674,000 increase in accounts
receivable, a $239,000 increase in prepaid assets and a $484,000 decrease
in accounts payable and accrued expenses ($373,000 of which reduction
related to the Vertex & 3Com settlements). Cash provided by operations
during the first six months of Fiscal 1997 was $489,000. The $1,099,000
swing in cash used in the two comparative periods reflects the greater
investment in receivables in the first half of Fiscal 1998.
The Company had working capital of $34,410 at April 30, 1998, as compared
to a working capital deficit of ($1,296,414) at October 31, 1997. The
$1,330,824 improvement in working capital investment essentially flowed
from increases of $673,853 in accounts receivable, $270,075 in prepaid
charges and a decrease of $565,414 in accounts payable, the aggregate
effect of which, at $1,509,342, was partially offset by a reduction in
inventory and an increase in deferred service revenue. The Company had
working capital deficits of ($1,917,336) and ($1,974,918) at April 30,
1997 and October 31, 1996, respectively, representing a reduction of
$57,582 in the working capital deficit during the first half of Fiscal
1997.
Cash (Used) In Investing Activities During the first six months of Fiscal
1998 totalled ($279,000). This cash outlay was incurred principally due to
$195,000 in expenditures for field spare parts, with increases to PP&E and
other assets accounting for the remainder. Cash (used) in investing
activities during the first six months of Fiscal 1997 was ($500,000). The
$221,000 reduction in cash used in the two comparative periods reflects a
$243,000 lower investment requirement for spare parts.
Cash Provided By Financing Activities was $802,000 in the first six months
of Fiscal 1998, $782,000 of which came from drawdowns on the Lobozzo Loan
with the remainder coming from financing on a van purchase. Cash (used) in
financing activities in the first six months of Fiscal 1997 was $215,000,
for $140,000 in payments on the Lobozzo Loan and $75,000 for payment on the
Rexel subordinated debenture purchase. The $1,017,000 increase in cash
provided in the two comparative periods resulted from $922,000 in higher
drawdowns on the Lobozzo loan, financing on a van purchase in Fiscal 1998
and the $75,000 payment made in Fiscal 1997 relating to the Rexel
subordinated debenture purchase.
The net result of the above was an $8,643 provision of cash for the six
months ended April 30, 1998, compared to ($225,660) use of cash for the six
months ended April 30, 1997.
16
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PART II
OTHER INFORMATION
Item I. LEGAL PROCEEDINGS
A. HAMILTON COLLEGE
As previously reported in the 1997 Form 10-K, on December 12, l997, the
Company had commenced a litigation (the "Hamilton Litigation") in New York
State Supreme Court, Monroe County, against Hamilton College and against
one of Hamilton College's employees, seeking compensatory and punitive
damages based on several legal theories including: breach of contract,
quantum meruit, fraudulent inducement, account stated and tortious
interference with contractual relationships. The Hamilton Litigation arose
from claims made by the Company that Hamilton College failed to pay for
work performed by the Company, and materials ordered by Hamilton College
and installed by the Company, all in connection with a contract (the
"Hamilton Contract") whereby the Company, through its Intronet Division,
installed at Hamilton College the infrastructure and electronics for a
campus-wide voice, data and telecommunications network. Among other
matters, the Hamilton Litigation alleged that the Company was fraudulently
induced to enter into the Hamilton Contract by inaccurate documents
provided by Hamilton College, that Hamilton College had failed to make
certain payments which it was required to make and has otherwise breached
the Hamilton Contract, and that Hamilton College had received the benefit
of work and materials provided by the Company for which Hamilton College
had not paid. The Hamilton Litigation also alleged that one of Hamilton
College's employees, who was named as a defendant, deliberately and
maliciously interfered with the Company's efforts to complete the Hamilton
Contract, that the Company complained about the employee's actions, but
that Hamilton College had ignored these complaints and had in fact
acquiesced in them, with the result that the Company's contractual
relationships had been tortiously damaged.
Before the commencement of the Hamilton Litigation, one of the company's
subcontractors under the Hamilton contract, Marcy Excavation Company, Inc.
("Marcy"), had asserted claims against Hamilton College and against the
Company based on non-payment of statements rendered for subcontracting
work. Marcy had also filed a mechanic's lien (the "Mechanic's Lien")
against the College in Oneida County, New York (where Hamilton College is
located), and had commenced a litigation in Supreme Court, Oneida County,
New York against the Company's bonding company (the "Marcy Litigation").
neither Hamilton College nor the Company was named as a party to the Marcy
Litigation. In November, 1997, the Company and Marcy settled the claim by
Marcy against the Company (but not Marcy's claim against Hamilton College)
in return for payments to be made to Marcy by the Company. As part of the
settlement, Marcy assigned to the Company all of Marcy's claims against
Hamilton College and assigned to the Company all of Marcy's rights under
the Mechanic's Lien. Marcy also agreed to discontinue the Marcy Litigation
at the time that Marcy received payment in full of the settlement payment
agreed to between Marcy and the Company.
Hamilton had asserted counterclaims against the Company for $100,000 for
unspecified breaches of the Hamilton Contract and for $10,000 for failure
to cause Marcy to release the Mechanics Lien. Despite these counterclaims,
the Company did not anticipate (although it could not guarantee) that it
would have any liability to the defendants in the Hamilton Litigation as a
result of the Hamilton Litigation, or that it would have any liability as
result of the Marcy Litigation. As such, no accrual had been made in the
financial statements for either of those legal proceedings.
In June, 1998, the Company, Hamilton College, Marcy, the Company's bonding
Company and the Hamilton College employee agreed in principle to a
settlement of all claims and counterclaims. The settlement, which is
subject to the execution of documents by all parties, provides for: (1) a
payment by Hamilton College to the Company in full settlement of all
outstanding claims; (2) a payment by the Company to Marcy in full
settlement of all outstanding claims; (3) the exchange of Releases among
the various parties; and (4) a discontinuance of the Hamilton Litigation
which prejudice. Most of the settlement documents have been executed and
are being held in escrow pending receipt of the remaining documents, which
are anticipated being received during the week commencing June 15, 1998, at
which time, upon filing of the stipulation of discontinuance, the entire
dispute will be resolved.
17
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B. STATE OF CONNECTICUT
The Company, through its former Intronet Division, entered into a contract
with the State of Connecticut (the "State") through the State's Department
of Administrative Services to perform work at the State's Department of
Correction Walker Reception Facility. Subsequently, the State requested a
change in the original contract requiring additional work to be performed.
Only a portion of the contract amount was paid by the State. The Company
has attempted to resolve the issue with the State but has not yet been
successful in this regard although the Company intends to continue its
settlement efforts. In addition, on June 12, 1998, the Company filed a
Notice of Claim with the State's Office of Claims Commissioner seeking
payment in full of the amount of its claims, $55,912. No response has yet
been received from the State. The Company has not recorded any reserves
against this claim in its financial statements in view of its belief that
it will be able to prove its claim.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
As reported elsewhere in this Form 10-Q Report, in January, 1998, the First
Restated Credit Agreement was amended to extend the term thereof from June 30,
1998 to November 1, 1998. In March, 1998, the First Restated Credit Agreement
was further amended to extend the term thereof from November 1, 1998 to February
1, 1999. In June, 1998, the First Restated Credit Agreement was further amended
to extend the term thereof from February 1, 1999 to May 1, 1999 (See Exhibits A
and B hereto). In January, 1998, the Second Restated Lobozzo Debentures were
amended to extend the term thereof to January 31, 1999. In March, 1998, the
Second Restated Lobozzo Debentures were further amended to extend the term
thereof from January 31, 1999 to April 30, 1999. In June, 1998, the Second
Restated Lobozzo Debentures were further amended to extend the term thereof from
April 30, 1999 to July 31, 1999 (See Exhibits C and D hereto). In January 1998,
the Second Restated Lobozzo Option Agreements were amended to extend the
Expiration Date thereof to January 31, 1999. In March, 1998, the Second Restated
Lobozzo Option Agreements were further amended to extend the Expiration Dates
thereof from January 31, 1999 to April 30, 1999. In June, 1998, the Second
Restated Lobozzo Option Agreements were further amended to extend the Expiration
Dates thereof from April 30, 1999 to July 31, 1999 (See Exhibits E and F
hereto).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The First Restated Credit Agreement, as amended, provides that the maximum
amount of the Lobozzo Loan would be (1) $3,650,000 for the period from October
1, 1997 through December 31, 1997; (2) $3,350,000 for the period from January 1,
1998 through June 30, 1998; and (3) $2,950,000 for the period from July 1, 1998
through, as currently amended, May 1, 1999. From time to time, there may have
been instances where the Borrower (defined as the Company and Data Net) may not
have been in compliance with the provisions of the First Restated Credit
Agreement, or the several amendments thereto, including, without limitation: (a)
the borrowing by the Borrower of amounts which exceeded the maximum loan amounts
set forth in Section 2.1 of the First Restated Credit Agreement; (b) the
borrowing by the Borrower of amounts which were not supported by adequate
Eligible Receivables, as such term is defined in the First Restated Credit
Agreement; and (c) the borrowing by the Borrower of amounts which were only
permissible in the event that the Borrower met its Operating Budget Targets, as
such term is defined in the First Restated Credit Agreement, for certain time
periods, and the failure of the Borrower to meet those Operating Budget Targets.
In January, 1998, March, 1998 and again in June, 1998, (See Exhibit B hereto),
the lender waived any such non-compliance through the date of the Waiver and
Consent.
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ITEM 6. EXHIBITS AND REPORT ON FORM 8-K.
(a) Exhibit 11 - Statement regarding computation of earnings per share.
(b) REPORTS ON FORM 8-K filed during the quarter for which this Form 10-Q
Report is filed: None
EXHIBITS
EXHIBIT A - Amendment No. 3 to First Restated Credit Agreement and
Other Agreements dated June 12, 1998.
EXHIBIT B - Waiver and Consent to First Restated Credit Agreement and
Other Agreements dated June 12, 1998.
EXHIBIT C - Amendment No. 3 to Delta Data Net, Inc., Second Amended and
Restated 8% Subordinated Debentures due January 31, 1999
(Joseph M. Lobozzo, II), dated June 12, 1998.
EXHIBIT D - Amendment No. 3 to Delta Data Net, Inc., Second Amended and
Restated 8% Subordinated Debenture due January 31, 1999 (Joanne
M. Lobozzo), dated June 12, 1998.
EXHIBIT E - Amendment No. 3 to Delta Computec, Inc. Second Amended and
Restated October 1992 Option Agreement (Joseph M. Lobozzo, II),
dated June 12, 1998.
EXHIBIT F - Amendment No. 3 to Delta Computec, Inc. Second Amended and
Restated October 1992 Option Agreement (Joanne M. Lobozzo),
dated June 12, 1998.
19
<PAGE>
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: June 12, 1998 DELTA COMPUTEC INC.
By: /S/ JOHN DEVITO
----------------
John DeVito
President and
Chief Operating Officer
By: /S/ FRANK J. DONNELLY
----------------------
Frank J. Donnelly
Chief Financial Officer and
Principal Accounting Officer
20
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INDEX TO EXHIBITS
The following Exhibits are filed as part of this Quarterly Report on Form 10-Q
EXHIBIT A Amendment No. 3 to First Restated Credit Agree-
ment and Other Agreements dated June 12, 1998.
EXHIBIT B Waiver and Consent to First Related Credit Agree-
ment and Other Agreements dated June 12, 1998.
EXHIBIT C Amendment No. 3 to Delta Data Net, Inc., Second
Amended and Restated 8% Subordinated Debentures
due April 30, 1999 (Joseph M. Lobozzo, II) dated
June 12, 1998.
EXHIBIT D Amendment No. 3 to Delta Data Net, Inc., Second
Amended and Restated 8% Subordinated Debentures
due April 30, 1999 (Joanne M. Lobozzo) dated June
12, 1998.
EXHIBIT E Amendment No. 3 to Delta Computec, Inc., Second
Amended and Restated October 1992 Option Agreement
(Joseph M. Lobozzo, II) dated June 12, 1998.
EXHIBIT F Amendment No. 3 to Delta Computec, Inc., Second
Amended and Restated October, 1992, Option
Agreement (Joanne M. Lobozzo) dated June 12, 1998.
21
<PAGE>
EXHIBIT A
AMENDMENT NO. 3 TO FIRST RESTATED CREDIT AGREEMENT
AND OTHER AGREEMENTS
This Amendment No. 3 to First Restated Credit Agreement and Other
Agreements ("Amendment No. 3"), is made and entered into as of the 12th day of
June, 1998 by and among JOSEPH M. LOBOZZO II, an individual having an office at
690 Portland Avenue, Rochester, New York 14621 ("Lobozzo"), JOANNE M. LOBOZZO,
the wife of Lobozzo, with an address of 756 Rock Beach Road, Rochester, New York
14617 ("Joanne Lobozzo", and, together with Lobozzo, the "Lender"), DELTA
COMPUTEC INC., a New York corporation having its principal place of business
located at 900 Huyler Street, Teterboro, New Jersey 07608 ("DCI"), DELTA DATA
NET, INC., a New York corporation having its principal place of business located
at 900 Huyler Street, Teterboro, New Jersey 07608 ("DDI", DCI and DDI are
referred to collectively as the "Borrower"), and SAI/Delta, Inc., a Florida
corporation and a wholly-owned subsidiary of DCI ("SAI/Delta").
W I T N E S S E T H:
This Amendment No. 3 is intended to amend in certain respects as set forth
herein, the terms and conditions of a certain First Restated Credit Agreement
dated as of October 31, 1997, as amended by a certain Amendment No. 1 thereto
and by a certain Amendment No. 2 thereto (as amended, the "FRCA") by and among
the Borrower, the Lender and SAI/Delta, whereby Lobozzo and Joanne Lobozzo
agreed to provide the Borrower with Loans (as defined in the FRCA) up to the
current maximum principal amount of $3,350,000, subject to certain limitations
set forth in the FRCA.
NOW, THEREFORE, it is agreed as follows:
1. INCORPORATION OF RECITALS. The recitals set forth in the recital
paragraph of this Amendment No. 3 are intended to be, and are, incorporated
into this Amendment No. 3 as a part hereof.
2. AMENDMENT TO THE FRCA. The parties hereto agree that, from and after the date
hereof, the definition of the term Maturity Date as set forth in the FRCA is
deleted and replaced in its entirety by the following:
"Maturity Date" means May 1, 1999.
3. WAIVER. Lender hereby waives any non-compliance which may have existed with
regard to Section 2.1 of the FRCA for the period between October 31, 1997, the
date of the FRCA, and June 12, 1998, the date of this Amendment No. 3.
4. REAFFIRMATION. Except as amended by this Amendment No. 3, the terms and
conditions of the FRCA are hereby reaffirmed in their entirety.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 3 to be
duly executed and delivered by the proper and duly authorized officers as of the
date first above written.
/S/ JOSEPH M. LOBOZZO II
------------------------
Joseph M. Lobozzo II
/S/ JOANNE M. LOBOZZO
---------------------
Joanne M. Lobozzo
22
<PAGE>
DELTA COMPUTEC INC.
By: /S/ JOHN DEVITO
----------------------
John DeVito, President &
Chief Operating Officer
DELTA DATA NET, INC.
By: /S/ JOHN DEVITO
----------------------
John DeVito, President &
Chief Operating Officer
SAI/DELTA, INC.
By: /S/ JOHN DEVITO
-----------------------
John DeVito, President &
Chief Operating Officer
CONSENT AND AGREEMENT OF GUARANTOR
As of the date first above written, the undersigned hereby: (a) fully
consents and agrees to the terms and provisions of the above Amendment No. 3 and
the consummation of the transactions contemplated by Amendment No. 3; (b) agrees
that the First Restated Unlimited Continuing Guaranty dated as of October 31,
1997 (the "Guaranty") which it previously delivered to the Lender as security
for the payment and performance of all of the liabilities, obligations and
indebtedness of the Borrower to the Lender pursuant to the FRCA and the First
Restated Promissory Note dated as of October 31, 1997 from the Borrower to the
Lender (the "FRPN") is hereby ratified and confirmed and shall remain in full
force and effect; (c) acknowledges that it has no set-off, counterclaim or
defense with respect to the Guaranty; and (d) acknowledges that its consent and
agreement hereto is a condition to the Lender's obligations under Amendment No.
3 and it is in its interest and to its financial benefit to execute this Consent
and Agreement.
SAI/DELTA, INC.
By: /S/ JOHN DEVITO
--------------------
John DeVito, President &
Chief Operating Officer
23
<PAGE>
EXHIBIT B
WAIVER AND CONSENT
This Waiver and Consent is made as of the 12th day of June, 1998, by
Joseph M. Lobozzo II and Joanne M. Lobozzo (collectively, the "Lender") to
Delta Computec Inc., and Delta Data Net, Inc. (collectively, the
"Borrower") and is consented to by SAI/Delta, Inc. ("SAI/Delta").
WITNESSETH:
WHEREAS, Section 2.1 of a certain First Restated Credit Agreement dated as
of October 31, 1997 by and among the Lender, the Borrower and SAI/Delta, as
amended by Amendment No. 1, Amendment No. 2 and Amendment No. 3 thereto (as
amended, the "FRCA"), sets forth the maximum principal amount of all loans which
the Borrower may borrow from the Lender thereunder and the Borrower's required
borrowing base for all such loans; and
WHEREAS, under certain circumstances, there may have been instances where
non-compliance with Section 2.1 of the FRCA may have heretofore occurred,
including without limitation: (a) the borrowing by the Borrower of amounts which
exceeded the maximum loan amounts set forth in Section 2.1 of the FRCA; (b) the
borrowing by the Borrower of amounts which were not supported by adequate
Eligible Receivables, as such term is defined in the FRCA, and (c) the borrowing
by the Borrower of amounts which were only permissible in the event that the
Borrower met its Operating Budget Targets; as such term is defined in the FRCA,
for certain time periods, and the failure of the Borrower to meet those
Operating Budget Targets; and
WHEREAS, in addition to non-compliance with Section 2.1 of the FRCA which
may have heretofore occurred, certain violations of Section 2.1 of the FRCA may
also have occurred by virtue of the fact that the Borrower has recently settled
its accounts with 3Com Corporation ("3Com") and Vertex Technologies, Inc.
("Vertex"), and in connection with such settlements, the Borrower has made lump
sum payments to both 3Com and Vertex; and
WHEREAS, the Lender desires to: (a) waive any non-compliance with Section
2.1 of the FRCA, which may have heretofore occurred; (b) waive any
non-compliance with Section 2.1 of the FRCA which may have heretofore occurred
by virtue of the fact the Borrower has recently settled its accounts with 3Com
and Vertex; and (c) waive any non-compliance with the terms, covenants or
conditions of any of the other documents executed in connection with the FRCA
which may have heretofore occurred, by reason of any of the matters set forth in
this Waiver and Consent.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of all of which is hereby acknowledged, the Lender hereby agrees as
follows:
1. WAIVER OF PAST NON-COMPLIANCE. The Lender hereby waives any
non-compliance with Section 2.1 of the FRCA which may have heretofore occurred,
including, without limitation (a) the borrowing by the Borrower of amounts which
exceeded the maximum loan amounts set forth in Section 2.1 of the FRCA, (b) the
borrowing by the Borrower of amounts which were not supported by adequate
Eligible Receivables, as such term is defined in the FRCA, and (c) the Borrowing
by the Borrower of amounts which were only permissible in the event that the
Borrower met its Operating Budget Targets, as such term is defined in the FRCA,
for certain periods, and the failure of the Borrower to meet those Operating
Budget Targets.
2. WAIVER OF POSSIBLE ADDITIONAL NON-COMPLIANCE. The Lender hereby waives
any non-compliance with Section 2.1 of the FRCA which may hereinafter occur by
virtue of the fact that the Borrower recently settled its accounts with 3Com and
Vertex and made payments to 3Com and Vertex in settlement of its accounts.
3. WAIVER OF NON-COMPLIANCE WITH OTHER DOCUMENTS. To the extent that there
may have been non-compliance with any of the terms, covenants and/or other
conditions of any of the other documents executed by the Borrower in connection
with the FRCA by reason of any of the matters set forth in Sections 1 and 2 of
this Waiver and Consent, such non-compliance with such other documents is hereby
waived in their entirety by this Waiver and Consent.
24
<PAGE>
4. NO FUTURE WAIVERS. The waiver of non-compliance with certain possible
past non-compliance with the terms and conditions of the FRCA, and any of the
other documents executed by the Borrower in connection with the FRCA, does not,
under any circumstances, waive any future non-compliance with the FRCA or any of
the other documents executed by the Borrower in connection wit the FRCA.
IN WITNESS WHEREOF, the undersigned have executed this Waiver and Consent
as of the date first above written.
/S/ JOSEPH M. LOBOZZO II
------------------------
JOSEPH M. LOBOZZO II
/S/ JOANNE M. LOBOZZO
---------------------
JOANNE M. LOBOZZO
CONSENT OF GUARANTOR
As of the date first above written, the undersigned Guarantor, SAI/Delta,
Inc. ("Guarantor"), hereby: (a) fully consents to the terms and provisions of
the above Waiver and Consent dated as of June 12, 1998; (b) agrees that the
First Restated Unlimited Continuing Guaranty dated as of October 31, 1997 (the
"Guaranty") which Guarantor previously delivered to the lender as security for
the payment and performance of all of the liabilities, obligations and
indebtedness of the Borrower to the Lender, pursuant to the FRCA and the First
Restated Promissory Note dated as of October 31, 1997, is hereby ratified and
confirmed and shall remain in full force and effect; (c) acknowledges that
Guarantor has no set-off, counterclaim or defense with respect to the Guaranty;
and (d) acknowledges that Guarantor's consent and agreement hereto is a
condition to the Lender's waiver of the violations of the FRCA set forth in the
above Waiver and Consent and it is in Guarantor's interest and the Guarantor's
financial benefit to execute this Waiver and Consent. All capitalized terms as
set forth in this Consent of Guarantor, unless otherwise defined herein, have
the meaning set forth in the Guaranty.
SAI/DELTA, INC.
By: /S/ JOHN DEVITO
-----------------------
John DeVito, President and
Chief Operating Officer
25
<PAGE>
EXHIBIT C
AMENDMENT NO. 3 TO DELTA DATA NET, INC. SECOND AMENDED AND RESTATED
8% SUBORDINATED DEBENTURE DUE APRIL 30, 1999 - NO. 1
This Amendment No. 3 ("Amendment No. 3") to Delta Data Net, Inc. Second
Amended and Restated 8% Subordinated Debenture Due April 30, 1999 No. 1 is made
and entered into as of the 12th day of June, 1998 by and among DELTA DATA NET,
INC., a New York corporation having its principal place of business located at
900 Huyler Street, Teterboro, New Jersey 07608 ("DDN") and JOSEPH M. LOBOZZO II,
an individual having an office at 690 Portland Avenue, Rochester, New York 14621
("Lobozzo"), and is consented and agreed to by DELTA COMPUTEC INC., a New York
corporation having its principal place of business located at 900 Huyler Street,
Teterboro, New Jersey 07608.
W I T N E S S E T H:
This Amendment No. 3 is intended to amend in certain respects as set
forth herein, the terms and conditions of that certain Delta Data Net,
Inc. Second Amended and Restated 8% Subordinated Debenture Due April 30,
1999 - No. 1, dated February 19, 1997, as the same has heretofore been
amended by Amendment No. 1 thereto and Amendment No. 2 thereto (as amended,
"Debenture No. 1"), whereby DDN promised to pay to Lobozzo the principal
sum of Three Hundred Thousand and 50/100 Dollars ($300,000.50), plus
interest thereon, in the manner and upon the terms set forth in Debenture No.
1.
NOW, THEREFORE, it is agreed as follows:
1. INCORPORATION OF RECITALS. The recitals set forth in the
recital paragraph of this Amendment No. 3 are intended to be, and
hereby are, incorporated into this Amendment No. 3 as a part hereof.
2. AMENDMENT TO DEBENTURE NO. 1. The parties hereto agree that, from and
after the date hereof, the date on which payment in full of Debenture No. 1 is
due is extended from April 30, 1999 to July 31, 1999. Without limiting the
generality of the foregoing in any manner, all references in Debenture No. 1 to
a "repayment" date, "due" date or "stated maturity" date of " April 30, 1999"
are hereby deleted and replaced by "July 31, 1999".
3. REAFFIRMATION. Except as amended by this Amendment No. 3, the terms
and conditions of Debenture No. 1 remain unchanged and are hereby
ratified and reaffirmed in their entirety.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 3 to be
duly executed and delivered as of the date first above written.
DELTA DATA NET, INC.
By: /S/ JOHN DEVITO
-----------------------
John DeVito, President &
Chief Operating Officer
/S/ JOSEPH M. LOBOZZO II
------------------------
JOSEPH M. LOBOZZO II
26
<PAGE>
CONSENT AND AGREEMENT OF SUBORDINATED GUARANTOR
As of the date first above written, the undersigned hereby: (a) fully
consents and agrees to the terms and provisions of the above Amendment No. 3 and
the consummation of the transactions contemplated by Amendment No. 3; (b) agrees
that the Subordinated Guaranty which it delivered in connection with Debenture
No. 1 (the "Guaranty") as security for the payment and performance of all of the
liabilities, obligations and indebtedness of DDN to Lobozzo in connection with
Debenture No. 1 is hereby ratified and confirmed and shall remain in full force
and effect; (c) acknowledges that it has no set-off, counterclaim or defense
with respect to the Guaranty; and (d) acknowledges that its consent and
agreement hereto is a condition to Lobozzo's obligations under Amendment No. 3
and it is in its interest and to its financial benefit to execute this Consent
and Agreement.
DELTA COMPUTEC INC.
By: /S/ JOHN DEVITO
------------------------
John DeVito, President &
Chief Operating Officer
27
<PAGE>
EXHIBIT D
AMENDMENT NO. 3 TO DELTA DATA NET, INC. SECOND AMENDED AND RESTATED
8% SUBORDINATED DEBENTURE DUE JANUARY 31, 1999 - NO. 2
This Amendment No. 3 ("Amendment No. 3") to Delta Data Net, Inc. Second Amended
and Restated 8% Subordinated Debenture Due April 30, 1999 - No. 2, is made and
entered into as of the 12th day of June, 1998 by and among DELTA DATA NET, INC.,
a New York corporation having its principal place of business located at 900
Huyler Street, Teterboro, New Jersey 07608 ("DDN") and JOANNE M. LOBOZZO, an
individual with a residence address of 756 Rock Beach Road, Rochester, New York
14617 ("Joanne Lobozzo"), and is consented and agreed to by DELTA COMPUTEC INC.,
a New York corporation having its principal place of business located at 900
Huyler Street, Teterboro, New Jersey 07608.
W I T N E S S E T H:
This Amendment No. 3 is intended to amend in certain respects as set
forth herein, the terms and conditions of that certain Delta Data Net,
Inc. Second Amended and Restated 8% Subordinated Debenture Due April 30,
1999 - No. 2, dated February 19, 1997, as the same has heretofore been
amended by Amendment No. 1 thereto and Amendment No. 2 thereto (as amended,
"Debenture No. 2"), whereby DDN promised to pay to Joanne Lobozzo the
principal sum of Three Hundred Thousand and 50/100 Dollars ($300,000.50),
plus interest thereon, in the manner and upon the terms set forth in
Debenture No. 2.
NOW, THEREFORE, it is agreed as follows:
1. INCORPORATION OF RECITALS. The recitals set forth in the
recital paragraph of this Amendment No. 3 are intended to be, and
hereby are, incorporated into this Amendment No. 3 as a part hereof.
2. AMENDMENT TO DEBENTURE NO. 2. The parties hereto agree that, from and
after the date hereof, the date on which payment in full of Debenture No. 2 is
due is extended from April 30, 1999 to July 31, 1999. Without limiting the
generality of the foregoing in any manner, all references in Debenture No. 2 to
a "repayment" date, "due" date or "stated maturity" date of " April 30, 1999"
are hereby deleted and replaced by " July 31, 1999".
3. REAFFIRMATION. Except as amended by this Amendment No. 3, the
terms and conditions of Debenture No. 2 remain unchanged and are hereby
ratified and reaffirmed in their entirety.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 3 to be
duly executed and delivered as of the date first above written.
DELTA DATA NET, INC.
By: /S/ JOHN DEVITO
-------------------------
John DeVito, President &
Chief Operating Officer
/S/ JOANNE M. LOBOZZO
---------------------
JOANNE M. LOBOZZO
28
<PAGE>
CONSENT AND AGREEMENT OF SUBORDINATED GUARANTOR
As of the date first above written, the undersigned hereby: (a) fully
consents and agrees to the terms and provisions of the above Amendment No. 3 and
the consummation of the transactions contemplated by Amendment No. 3; (b) agrees
that the Subordinated Guaranty which it delivered in connection with Debenture
No. 2 (the "Guaranty") as security for the payment and performance of all of the
liabilities, obligations and indebtedness of DDN to Joanne Lobozzo in connection
with Debenture No. 2 is hereby ratified and confirmed and shall remain in full
force and effect; (c) acknowledges that it has no set-off, counterclaim or
defense with respect to the Guaranty; and (d) acknowledges that its consent and
agreement hereto is a condition to Joanne Lobozzo's obligations under Amendment
No. 3 and it is in its interest and to its financial benefit to execute this
Consent and Agreement.
DELTA COMPUTEC INC.
By: /S/ JOHN DEVITO
----------------------
John DeVito, President &
Chief Operating Officer
29
<PAGE>
EXHIBIT E
AMENDMENT NO. 2 TO DELTA COMPUTEC INC. SECOND AMENDED
AND RESTATED OCTOBER 1992 OPTION AGREEMENT
JOSEPH M. LOBOZZO II - 652,175 COMMON SHARES
This Amendment No. 3 ("Amendment No. 3") to Delta Computec Inc.
Second Amended and Restated October 1992 Option Agreement, Joseph M.
Lobozzo II - 652,175 Common Shares is made and entered into as of the 12th
day of June, 1998 by and among DELTA COMPUTEC INC., a New York corporation
having its principal place of business located at 900 Huyler Street,
Teterboro, New Jersey 07608 ("DCI") and JOSEPH M. LOBOZZO II, an individual
having an office at 690 Portland Avenue, Rochester, New York 14621
("Lobozzo").
W I T N E S S E T H:
This Amendment No. 3 is intended to amend in certain respects as set forth
herein, the terms and conditions of the Delta Computec Inc. Second Amended and
Restated October 1992 Option Agreement, Joseph M. Lobozzo II - 652,175 Common
Shares dated February 19, 1997, as the same has heretofore been amended by
Amendment No. 1 thereto and Amendment No. 2 thereto (as amended, the "Option
Agreement"), whereby DCI granted to Lobozzo an option to purchase 652,175 common
shares of DCI pursuant to the terms and conditions set forth in the Option
Agreement.
NOW, THEREFORE, it is agreed as follows:
1. INCORPORATION OF RECITALS. The recitals set forth in the
recital paragraph of this Amendment No. 3 are intended to be, and
hereby are, incorporated into this Amendment No. 3 as a part hereof.
2. AMENDMENT TO THE OPTION AGREEMENT. The parties hereto agree that, from
and after the date hereof, the "Exercise Date" of the Option, as such term is
defined in the Option Agreement, is extended from 3:00 p.m. on April 30, 1999 to
3:00 p.m. on July 31, 1999.
3. REAFFIRMATION. Except as amended by this Amendment No. 3, the
terms and conditions of the Option Agreement remain unchanged and are hereby
ratified and reaffirmed in their entirety.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 3 to be
duly executed and delivered as of the date first above written.
DELTA COMPUTEC INC.
By: /S/ JOHN DEVITO
-----------------------
John DeVito, President &
Chief Operating Officer
/S/ JOSEPH M. LOBOZZO II
------------------------
JOSEPH M. LOBOZZO II
30
<PAGE>
EXHIBIT F
AMENDMENT NO. 2 TO DELTA COMPUTEC INC. SECOND AMENDED
AND RESTATED OCTOBER 1992 OPTION AGREEMENT
JOANNE M. LOBOZZO - 652,175 COMMON SHARES
This Amendment No. 3 ("Amendment No. 3") to Delta Computec Inc.
Second Amended and Restated October 1992 Option Agreement, Joanne M.
Lobozzo - 652,175 Common Shares is made and entered into as of the 12th day
of June, 1998 by and among DELTA COMPUTEC INC., a New York corporation
having its principal place of business located at 900 Huyler Street,
Teterboro, New Jersey 07608 ("DCI") and JOANNE M. LOBOZZO, an individual
having a residence address of 756 Rock Beach Road, Rochester, New York 14617
("Joanne Lobozzo").
W I T N E S S E T H:
This Amendment No. 3 is intended to amend in certain respects as set forth
herein, the terms and conditions of the Delta Computec Inc. Second Amended and
Restated October 1992 Option Agreement, Joanne M. Lobozzo - 652,175 Common
Shares dated February 19, 1997, as the same has heretofore been amended by
Amendment No. 1 thereto and Amendment No. 2 thereto (as amended, the "Option
Agreement"), whereby DCI granted to Joanne Lobozzo an option to purchase 652,175
common shares of DCI pursuant to the terms and conditions set forth in the
Option Agreement.
NOW, THEREFORE, it is agreed as follows:
1. INCORPORATION OF RECITALS. The recitals set forth in the
recital paragraph of this Amendment No. 3 are intended to be, and
hereby are, incorporated into this Amendment No. 3 as a part hereof.
2. AMENDMENT TO THE OPTION AGREEMENT. The parties hereto agree that, from
and after the date hereof, the "Exercise Date" of the Option, as such term is
defined in the Option Agreement, is extended from 3:00 p.m. on April 30, 1999 to
3:00 p.m. on July 31, 1999.
3. REAFFIRMATION. Except as amended by this Amendment No. 3, the
terms and conditions of the Option Agreement remain unchanged and are hereby
ratified and reaffirmed in their entirety.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 3 to be
duly executed and delivered as of the date first above written.
DELTA COMPUTEC INC.
By: /S/ JOHN DEVITO
----------------------
John DeVito, President &
Chief Operating Officer
/S/ JOANNE M. LOBOZZO
---------------------
JOANNE M. LOBOZZO
31
<PAGE>
Exhibit 11
DELTA COMPUTEC INC. - CALCULATION OF EARNINGS PER SHARE
Three Months Ended Six Months Ended
APRIL 30, APRIL 30,
1998 1997 1998 1997
---- ---- ---- ----
Primary:
Continuing Operations $ 132,284 $ 36,304 $ 423,295 $ 336,878
Discontinued Operations 941 - (26,130) -
--------- -------- --------- ---------
Combined $ 133,225 $ 36,304 $ 397,165 $ 336,878
========== ========= ========== ==========
Average Common Shares
Outstanding 18,252,050 15,681,157 18,252,050 11,172,861
Dilutive Effect of Stock Options - - - -
---------- ---------- ---------- ----------
Weighted Average Common Shares
Outstanding 18,252,050 15,681,157 18,252,050 11,172,861
---------- ---------- ---------- ----------
Earnings (Loss) Per Common and
Common Equivalent Shares:
Continuing Operations $ .01 $ - $ .02 $ .03
Discontinued Operations - - - -
---- --- ---- ---
Combined $ .01 $ - $ .02 $ .03
=== === === ==
NOTE:
In February, 1997, the Company issued an aggregate 11,440,475 common shares
as a result of the exercise of certain options. (See Note 2 to the Financial
Statements).
32
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<CASH> 27,587
<SECURITIES> 0
<RECEIVABLES> 2,429,509
<ALLOWANCES> 82,013
<INVENTORY> 788,433
<CURRENT-ASSETS> 3,565,918
<PP&E> 4,313,114
<DEPRECIATION> 1,526,347
<TOTAL-ASSETS> 6,766,278
<CURRENT-LIABILITIES> 3,531,505
<BONDS> 0
0
0
<COMMON> 182,521
<OTHER-SE> (1,964,503)
<TOTAL-LIABILITY-AND-EQUITY> 6,766,278
<SALES> 6,733,135
<TOTAL-REVENUES> 6,733,135
<CGS> 4,925,731
<TOTAL-COSTS> 6,201,309
<OTHER-EXPENSES> (189,621)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 297,615
<INCOME-PRETAX> 423,832
<INCOME-TAX> 537
<INCOME-CONTINUING> 423,295
<DISCONTINUED> (26,130)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 397,165
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
