UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 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 number 0-19960
Datawatch Corporation
(Exact name of registrant as specified in its charter)
Delaware 02-0405716
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
234 Ballardvale Street, Wilmington Massachusetts 01887
(Address of principal executive offices) (Zip Code)
(508) 988-9700
(Registrant's telephone number, including area code)
None
(Former name, former address, former fiscal year, if changed since last report)
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 X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date:
Class Outstanding at February 11, 1997
Common stock, $.01 par value 9,100,321
DATAWATCH CORPORATION
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
a) Consolidated Condensed Balance Sheets:
December 31, 1996 and September 30, 1996 3
b) Consolidated Condensed Statements of Operations:
Three Months Ended December 31, 1996 and 1995 4
c) Consolidated Condensed Statements of Cash Flows:
Three Months Ended December 31, 1996 and 1995 5
d) Notes to Consolidated Condensed Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings *
Item 2. Changes in Securities *
Item 3. Default upon Senior Securities *
Item 4. Submission of Matters to a Vote of
Security Holders *
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES
* No information provided due to inapplicability of item.
<TABLE>
PART I.
Item 1. Financial Statements
DATAWATCH CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
December 31, September 30,
1996 1996
(Unaudited) (Audited)
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ASSETS
CURRENT ASSETS:
Cash and equivalents $ 703,109 $ 1,696,349
Short-term investments 643,520 792,665
Accounts receivable, net 9,651,704 7,767,748
Inventories 790,344 480,758
Prepaid advertising and other expenses 1,662,745 1,264,798
Total current assets 13,451,422 12,002,318
PROPERTY PLANT & EQUIPMENT
Property and equipment 4,155,118 3,534,759
Less accumulated depreciation and
amortization (2,100,403) (1,737,733)
Net property and equipment 2,054,715 1,797,026
OTHER ASSETS 358,048 400,062
EXCESS OF COST OVER NET ASSETS OF
ACQUIRED COMPANIES 1,747,381 1,041,165
TOTAL ASSETS $17,611,566 $15,240,571
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,696,939 $ 2,914,952
Accrued expenses 1,370,575 1,063,129
Deferred revenue 2,162,361 1,946,473
Borrowings under credit lines 317,995 636,806
Current portion of long-term debt 294,545 230,501
Total current liabilities 7,842,415 6,791,861
LONG-TERM DEBT 215,067 209,824
TOTAL LIABILITIES 8,057,482 7,001,685
SHAREHOLDERS' EQUITY:
Common stock 91,002 89,659
Additional paid-in capital 19,710,382 18,665,402
Accumulated deficit (10,115,679 (10,538,117)
Common stock held in treasury (140,388)
Cumulative translation adjustment 8,767 21,942
Total shareholders' equity 9,554,084 8,238,886
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $17,611,566 $15,240,571
See notes to consolidated condensed financial statements.
</TABLE>
<TABLE>
Item 1. Financial Statements (continued)
DATAWATCH CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
December 31,
1996 1995
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NET SALES ....................................... $ 8,219,472 $ 6,765,020
COSTS AND EXPENSES:
Cost of sales .................................. 1,460,033 1,074,417
Engineering & product development .............. 659,417 518,974
Selling, general and administrative ............. 5,710,576 5,115,970
INCOME FROM OPERATIONS ............... 389,446 55,659
INTEREST EXPENSE................................. (30,095) (22,762)
OTHER INCOME, primarily interest................. 16,029 16,168
FOREIGN CURRENCY TRANSACTION GAINS.............. 47,058 16,103
NET INCOME $ 422,438 $ 65,168
NET INCOME PER COMMON SHARE .............. $ .05 $ .01
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND
COMMON EQUIVALENT SHARES OUTSTANDING............ 9,154,200 8,883,094
See notes to consolidated condensed financial statements.
</TABLE>
<TABLE>
Item 1. Financial Statements (continued)
DATAWATCH CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
December 31,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 422,438 $ 65,168
Adjustments to reconcile net income to net cash:
Depreciation and amortization 383,397 222,212
Changes in current assets and liabilities:
Inventories (86,127) 16,907
Prepaid advertising and other expenses (280,387) 548,445
Accounts receivable (1,489,576) (1,075,067)
Accounts payable and accrued expenses 270,136 24,322
Deferred revenue 215,888 (62,444)
Net cash used in operating activities (564,231) (260,457)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment and fixtures (304,783) (69,706)
Proceeds from maturity of short-term investments 637,956 686,461
Purchase of short-term investments (488,811) (247,042)
Acquisition of Guildsoft Holdings Ltd., net of
working capital acquired 49,470
Other assets 31,135 9,352
Net cash (used in) provided by investing activities (75,033 379,065
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 9,333 2,026
Principal payments on long-term obligations (44,498) (12,795)
Borrowings under credit lines (318,811) (81,847)
Net cash used in financing activities (353,976) (92,616)
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS (993,240) 25,992
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 1,696,349 876,802
CASH AND EQUIVALENTS, END OF PERIOD $ 703,109 $ 902,794
See notes to consolidated condensed financial statements.
</TABLE>
Item 1. Financial Statements (continued)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation: The unaudited consolidated condensed
balance sheet as of December 31, 1996 and the audited
consolidated condensed balance sheet as of September 30, 1996
are presented herein. The unaudited consolidated condensed
statements of operations for the three months ended December 31,
1996 and 1995, and the unaudited consolidated condensed
statements of cash flows for the three months ended December 31,
1996 and 1995 are presented herein. In the opinion of
management, these statements include all adjustments necessary
for the fair presentation of the financial data for such
periods. The notes to the consolidated financial statements
which are contained in the 1996 Form 10-K should be read in
conjunction with the financial statements included herein. The
results of operations for the interim periods are not
necessarily indicative of the results to be expected for the
full year.
2. Acquisitions: On March 12, 1996, the Company acquired all of the
outstanding capital stock of WorkGroup Systems Limited
("WorkGroup"), a United Kingdom based provider of help desk and
asset management software, in exchange for 1,437,000 shares of
the Company's common stock. This acquisition has been accounted
for as pooling of interests. As a result, DATAWATCH's operating
results for the three month period ended December 31, 1995, as
discussed herein, have been adjusted to include WorkGroup's
operating results for the same period. On November 7, 1996, the
Company acquired all of the outstanding capital stock of
Guildsoft Holdings Limited ("Guildsoft"), a United Kingdom based
software distributor, in exchange for an aggregate of 125,000
shares of the Company's common stock, with 12,500 of such shares
held in escrow for contingent liabilities. The acquisition was
accounted for as a purchase.
3. Inventories: The Company accounts for its inventories using a
standard cost methodology. Inventories were comprised of the
following:
December 31, September 30,
1996 1996
Raw materials 235,384 218,615
Work in process 2,458 2,458
Finished goods 552,502 259,685
TOTAL $790,344 $ 480,758
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
GENERAL
DATAWATCH CORPORATION (the "Company" or "DATAWATCH") is engaged in
the design, development, manufacture, marketing and support of, and
consulting services relating to, personal computer software.
On March 12, 1996, the Company acquired all of the outstanding
capital stock of WorkGroup Systems Limited ("WorkGroup"), a United
Kingdom based provider of help desk and asset management software, in
exchange for 1,437,000 shares of the Company's common stock. This
acquisition has been accounted for as a pooling of interests. As a
result, DATAWATCH's operating results for the three month period ended
December 31, 1995, as discussed herein, have been adjusted to
include WorkGroup's operating results for the same period.
On November 7, 1996, the Company acquired all the outstanding
shares of capital stock of Guildsoft Holdings Limited ("Guildsoft"),
located in Plymouth, England, which provides software companies with
multi-lingual telesales, support and fulfillment services throughout
Europe, in exchange for 125,000 shares of DATAWATCH common stock. This
acquisition was accounted for as a purchase. The results of operations
for the period from the date of acquisition through December 31, 1996
have been included in the Company's Statements of Operations and
Statements of Cash Flows.
DATAWATCH's principal products are: Monarch(tm), which provides data
access, translation, and reporting capability to users of networked PCs;
VIREX(r) and VET(tm) for the PC, which detect, repair and monitor for virus
infections for Apple Macintosh and IBM compatible PCs, respectively; Q-
Support(tm) for Windows (in the United States), or Quetzal(tm)
(internationally), a complete help desk and asset management system; and
netOctopus(tm), a network management and administration system.
From time to time, information provided by the Company, statements made
by its employees or information in its filings with the Securities and
Exchange Commission (including statements in this Form 10-Q) may contain
statements which are not historical facts (so called "forward-looking
statements"), and are made pursuant to the safe harbor provision of the
Private Securities Litigation Reform Act of 1995 and releases of the
Securities and Exchange Commission. In that regard, the discussion in
this Item 2 contains forward looking statements which involve certain
risks and uncertainties, including statements related to liquidity and
capital resources. The Company's operating results may continue to vary
significantly from quarter to quarter or year to year depending on a
number of factors, including technological changes, competition and
general market trends, and the other factors identified in the Company's
Securities and Exchange Commission filings (including but not limited to
its Form 10-K for the year ended September 30, 1996). The Company's
current planned expense levels are based in part upon expectations as to
future revenue. Consequently, operating results may vary significantly
from quarter to quarter or year to year, based on timing of revenue.
Revenue or net income in any period will not necessarily be indicative
of results of subsequent periods and there can be no assurance that the
Company will maintain profitability or that revenue growth can be
sustained in the future.
RESULTS OF OPERATIONS
Three Months Ended December 31, 1996 and 1995.
Net sales for the three months ended December 31, 1996 were $8,219,000,
which represents an increase of $1,454,000 or 21% from the net sales of
$6,765,000 for the three months ended December 31, 1995. This increase
results from growth in sales for DATAWATCH's two principal products and
the inclusion of $469,000 of sales from Guildsoft. Monarch, which
amounted to approximately 41% of sales, increased by 21%; Q-Support,
which amounted to approximately 35% of sales, increased by 11%. For the
three months ended December 31, 1996, the Company's products for the IBM
compatible PC accounted for approximately 82% of sales while the
Company's products for the Apple PC accounted for approximately 18%.
The Company's cost of sales for the three months ended December 31, 1996
was $1,460,000 or approximately 18% of net sales. Cost of sales for the
three months ended December 31, 1995 was $1,074,000 or approximately 16%
of net sales. The increase in cost of sales, as a percentage of net
sales, results from the inclusion of Guildsoft's product sales which
bear lower gross margins than the company's other products. Cost of
sales, as a percentage of net sales, for the December 31, 1996 period
excluding Guildsoft would have been 15%, which is substantially
consistent with the prior period.
Engineering and product development expenses were $659,000 for the three
months ended December 31, 1996, an increase of $140,000 or approximately
27% from $519,000 for the three months ended December 31, 1995. This
increase is primarily attributable to additions in personnel and
expenses necessary for continued development of the Q-Support product
and quality assurance for the Monarch product.
Selling, general and administrative expenses were $5,711,000 for the
three months ended December 31, 1996, an increase of $595,000 or
approximately 12% from $5,116,000 for the three months ended December
31, 1995. This increase is primarily attributable to increases in
personnel within the sales and marketing organizations principally for
Q-Support and Monarch, as well as, the inclusion of Guildsoft's
operating expenses which accounted for 30% of the increase.
As a result of the foregoing, the net income for the three months ended
December 31, 1996 was $422,000, an increase of $357,000 when compared to
the net profit of $65,000 for the three months ended December 31, 1995.
The Company recorded no tax provisions for either domestic or
international operations during both periods because of its ability to
utilize net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The Company's management believes that its currently anticipated capital
needs for future operations of the Company will be satisfied through at
least December 31, 1997 by funds currently available and its unused
$1,500,000 bank line of credit. WorkGroup has an overdraft facility in
place which allows it to draw up to approximately $640,000, of which
approximately $350,000 was available at December 31, 1996 for future
borrowings. For the three months ended December 31, 1996, working
capital increased by approximately $398,000. Management believes that
the Company's current operations are not materially impacted by the
affects of inflation.
PART II.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
11.1 Computation of Net Income per Common Share.
27 Financial Data Schedule (filed with SEC Edgar version only).
B. Reports on Form 8-K
Current Report on Form 8-K dated November 7, 1996 filed with the Securities
and Exchange Commission on November 22, 1996 and relating to the acquisition
by the Company of Guildsoft Holdings Limited and its wholly-owned subsidiary
Guildsoft Limited.
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 thereunto duly authorized on February 13,
1997.
DATAWATCH CORPORATION
/s/ Bruce R. Gardner
Bruce R. Gardner
Executive Vice President,
Treasurer, and Director
(Principal Financial and
duly authorized officer)
<TABLE>
Exhibit 11.1
DATAWATCH CORPORATION AND SUBSIDIARY
COMPUTATION OF NET INCOME PER COMMON SHARE
Computation of weighted average number of shares outstanding used in determining
income per share was as follows:
Three Months Ended
December 31,
1996 1995
<S> <C> <C>
COMMON STOCK AND COMMON STOCK EQUIVALENTS:
Weighted shares outstanding of common stock 9,023,415 8,630,057
Common stock equivalent shares resulting from
assumed conversion of warrants and assumed exercise
of stock options ................................... 130,785 253,037
Weighted average of common and common equivalent
shares-primary ........... ............. 9,154,200 8,883,094
Assumed conversion of warrants and exercise of
stock options based on higher of average or
closing market price .... ............. 1,150
Weighted average of common and common equivalent
shares-fully diluted ...... ............. 9,154,200 8,884,244
NET INCOME: ............ $ 422,438 $ 65,168
NET INCOME PER COMMON SHARE:
Primary........................................ $ .05 $ .01
Fully diluted.................................... $ .05 $ .01
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1996
<CASH> 703,109
<SECURITIES> 643,520
<RECEIVABLES> 9,651,704
<ALLOWANCES> 0
<INVENTORY> 790,344
<CURRENT-ASSETS> 1,662,745
<PP&E> 4,155,118
<DEPRECIATION> 2,100,403
<TOTAL-ASSETS> 17,611,566
<CURRENT-LIABILITIES> 7,842,415
<BONDS> 0
0
0
<COMMON> 91,002
<OTHER-SE> 9,463,082
<TOTAL-LIABILITY-AND-EQUITY> 17,611,566
<SALES> 8,219,472
<TOTAL-REVENUES> 8,219,472
<CGS> 1,460,033
<TOTAL-COSTS> 6,369,993
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,095
<INCOME-PRETAX> 422,438
<INCOME-TAX> 0
<INCOME-CONTINUING> 422,438
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 422,438
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
