SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORTS UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 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 0-21662
Dataguard Recovery Services, Inc.
(Exact name of registrant as specified in its charter)
Kentucky 61-1064606
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10301 Linn Station Road, P.O. Box 37144, Louisville, KY 40233-7144
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 502-426-3434
Former name, former address, and former fiscal year, if changed since last
report.
Indicate by check [X] 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 - 5,029,770.
DATAGUARD RECOVERY SERVICES, INC. AND SUBSIDIARY
<TABLE>
Condensed Consolidated Balance Sheets
<CAPTION>
March 31, December 31,
1996 1995
(Unaudited) (Audited)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 136,496 $ 170,636
Accounts receivable, net 3,517,041 1,128,407
Other current assets 405,988 490,124
Total current assets 4,059,525 1,789,167
Property and equipment, net 8,186,995 8,761,358
Other assets 378,558 237,222
$12,625,078 $10,787,747
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt $ 439,165 $ 304,139
Current installments of obligations
under capital leases 1,748,464 1,858,755
Notes payable to stockholders 991,176 991,176
Accounts payable 997,290 941,812
Accrued income taxes 251,150 133,630
Accrued expenses 1,017,649 854,862
Total current liabilities 5,444,894 5,084,374
Long-term debt, excluding current installments 1,012,928 1,024,356
Obligations under capital leases,
excluding current installments 1,728,610 2,179,412
Customers' deposits 57,408 58,253
Deferred revenue 2,827,495 852,146
Deferred income taxes 294,156 309,938
Total liabilities 11,365,491 9,508,479
Stockholders' equity:
Preferred stock without par value. Authorized
2,000,000 shares: Series A Preferred Stock
($10 stated value); authorized 100,000 shares;
issued and outstanding 34,167 shares at
March 31, 1996 and December 31, 1995 341,670 341,670
Common stock without par value. Authorized
6,000,000 shares; issued and outstanding
5,029,770 shares at March 31, 1996 and
5,013,770 shares at December 31, 1995 3,037,833 3,029,833
Accumulated deficit (2,128,605) (2,119,092)
Foreign currency translation adjustment 8,689 26,857
Total stockholders' equity 1,259,587 1,279,268
$12,625,078 $10,787,747
</TABLE>
See notes to unaudited condensed consolidated financial statements.
DATAGUARD RECOVERY SERVICES, INC. AND SUBSIDIARY
<TABLE>
Condensed Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
Service revenues $ 2,344,117 $ 2,003,809
Operating expenses:
Cost of services 1,506,485 1,380,180
Selling, general and administrative expenses 588,109 441,892
2,094,594 1,822,072
Operating income 249,522 181,737
Other income (expense):
Interest expense (161,707) (131,063)
Other income (expense) 1,797 26,386
(159,910) (104,677)
Income before income taxes 89,612 77,060
Income taxes 99,125 117,700
Net loss $ (9,513) $ (40,640)
Net loss per common and common
equivalent share $ - $ (.01)
Weighted average number of common and
common equivalent shares outstanding 5,027,836 4,962,748
</TABLE>
See notes to unaudited condensed consolidated financial statements.
DATAGUARD RECOVERY SERVICES, INC. AND SUBSIDIARY
<TABLE>
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
<CAPTION>
Series A Foreign
Preferred Common Accumulated Currency
Stock Stock Deficit Translation Total
<S> <C> <C> <C> <C> <C>
Balance at
December 31,
1995 $ 341,670 $3,029,833 $(2,119,092) $ 26,857 $1,279,268
Issuance of
16,000 shares
of Common Stock - 8,000 - - 8,000
Net loss for
three months
ended March
31, 1996 - - (9,513) - (9,513)
Translation
adjustment at
March 31, 1996 - - - (18,168) (18,168)
Balance at March
31, 1996 $ 341,670 $3,037,833 $(2,128,605) $ 8,689 $1,259,587
</TABLE>
See notes to unaudited condensed consolidated financial statements.
DATAGUARD RECOVERY SERVICES, INC. AND SUBSIDIARY
<TABLE>
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (9,513) $ (40,640)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 574,714 384,433
Deferred income taxes (15,782) 82,400
Other (381) (846)
Change in operating assets and liabilities:
Accounts receivable (2,415,883) (2,583,577)
Other current assets 72,780 (17,179)
Accounts payable 62,736 246,893
Accrued expenses 186,046 1,018,913
Accrued income taxes 117,520 35,300
Other current liabilities (23) (15,877)
Increase in other assets (148,481) (41,379)
Increase in deferred revenue 1,978,928 1,274,758
Increase in customers' deposits 13,543 3,635
Net cash provided by operating
activities 416,204 346,834
Cash flows from investing activities:
Acquisition of property and equipment (96,115) (30,941)
Purchase of Twinsys - (203,856)
Net cash used in investing
activities (96,115) (234,797)
Cash flows from financing activities:
Proceeds from note payable to stockholder - 500,000
Proceeds from long-term debt 215,000 -
Principal payments on long-term debt and
obligations under capital leases (569,229) (233,584)
Net cash provided by (used in)
financing activities (354,229) 266,416
Net increase (decrease) in cash and cash
equivalents (34,140) 378,453
Cash and cash equivalents at beginning of
period 170,636 108,603
Cash and cash equivalents at end of period $ 136,496 $ 487,056
</TABLE>
See notes to unaudited condensed consolidated financial statements.
DATAGUARD RECOVERY SERVICES, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 1996
(1) In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position
as of March 31, 1996 and the results of operations and cash flows for the
three months then ended. Operating results for the three months ended March
31, 1996 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1996.
Certain reclassifications of amounts in the condensed consolidated
financial statements have been made to reflect comparability.
(2) This financial information should be read in conjunction with the
financial statements and the notes thereto included in the Company's annual
report on Form 10-KSB for the year ended December 31, 1995.
(3) On February 3, 1995, Dataguard Recovery Services, Inc. ("Dataguard")
purchased certain operating assets and assumed certain liabilities of Twinsys,
SA ("Twinsys"), a leading provider of computer disaster back-up services in
France.
Dataguard financed the purchase with funds borrowed from EPI Corporation,
Dataguard's largest stockholder, under an amendment to an existing loan
agreement. John P. Snyder, EPI's President and Chairman, is a director of
Dataguard. Dataguard also issued 16,000 shares of its common stock to EPI in
connection with the loan.
Summarized below are the proforma combined results of operations for the three
months ended March 31, 1995, as though the acquisition had occurred on
January 1, 1995.
<TABLE>
<CAPTION>
Three months ended
March 31, 1995
<S> <C>
Revenues $2,664,000
Net income (loss) 52,000
Net income per share
of common stock $ .01
</TABLE>
(4) For financial reporting purposes, income before income taxes includes
the following components:
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
<S> <C> <C>
Pretax income (loss)
United States $(180,704) $(241,092)
Foreign 270,316 318,152
$ 89,612 $ 77,060
</TABLE>
The provision for income tax expense is attributable to earnings from foreign
operations.
(5) Income per share is based on net income less preferred dividends divided
by the weighted average number of common and equivalent shares outstanding
during the period. Common stock equivalents outstanding are calculated for
stock options and warrants using the treasury stock method. Fully diluted per
share amounts are not materially different from primary per share amounts.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
The Company reported revenue of $2,344,117 and $2,003,809 for the three
months ended March 31 1996 and 1995, respectively. The Company reported a
net loss of $9,513 for the three month period March 31, 1996 after reporting
a net loss of $40,640 for the same period in 1995. The increase in revenue
is attributable almost entirely to the Company's subsidiary, Twinsys
Dataguard S.A. (hereinafter referred to as "Twinsys") which was acquired on
February 3, 1995. Accordingly, consolidated financial results for the first
quarter of 1996 include three months of operations for Twinsys compared to two
months for the prior year. Twinsys is a Paris, France-based provider of
disaster recovery services in Europe. Twinsys contributed net income of
approximately $171,000 and $201,000 for the first quarters of 1996 and 1995,
respectively, which offset a substantial portion of the net losses incurred by
the Company's North American operations during these same periods.
Consolidated service revenue increased approximately 17% through March 31,
1996 when compared to the same period in 1995. Twinsys accounted for
approximately $1,666,000 of consolidated service revenue during this period
in 1996. Twinsys has retained most of its pre-existing customers and added
several new customers since its acquisition by Dataguard in February 1995.
1996 revenues from customers under contract are expected to be higher than in
1995. Backup service revenue for the Company's North American operations
decreased 29% when compared to the same period in 1995. Bull backup service
revenue has decreased significantly when compared to 1995 due to the expiration
on June 1, 1995 of the Company's then largest contract, and to increased
competition. The expired contract generated approximately 36% of the Company's
revenue for the three month period March 31, 1995. The Company entered into a
new contract with this customer for significantly lower revenue due to the
customer's reduced backup service requirements. (See "Liquidity and Capital
Resources.") IBM backup service revenue grew by 27% during the first quarter
of 1996, but was more than offset by the decrease in Bull backup service
revenue. Consulting service revenue decreased approximately 26% for the three
month period March 31, 1996 when compared to the same period in 1995. The
Company's consulting services and other data processing services are not
recurring, and therefore significant changes in these revenues can occur from
year to year. The Company began offering outsourcing data processing services
in December 1995. Outsourcing services will provide an additional source of
revenue throughout 1996.
The Company's operating expenses increased to $2,094,594 for the three month
period in 1996 from $1,822,072 in 1995. This increase is principally
attributable to Twinsys. Twinsys' operating expenses amounted to $1,333,297
in 1996 and are comprised mainly of lease and maintenance expenses for its
facility and computer equipment, as well as personnel costs. The cost of
services for North American operations remained fairly stable during the
first quarter of 1996 when compared to the same period last year. These
costs had decreased throughout 1995 principally from reductions in Bull
computer equipment lease and maintenance costs. Selling, general and
administrative expenses increased to $588,109 for the three month period
March 31, 1996 from $441,892 for the same period in 1995. This increase
resulted primarily from the addition of expenses totaling $305,126 for
Twinsys during this period in 1996, which relate largely to personnel and
marketing expenses. General and administrative expenses, which had remained
stable for several years prior to 1995, were generally higher during 1995 and
the first quarter of 1996. The largest factor in the increase during these
periods were costs associated with the acquisition and the initial integration
and coordination of Twinsys operations. These expenses are expected to be
lower during the remainder of 1996 as the costs for establishing and
coordinating Twinsys' technical, sales and administrative procedures begin to
decrease.
Interest expense totaled $161,707 and $131,063 for the three month periods
March 31, 1996 and 1995, respectively. Interest expense for Twinsys was
$62,426 for the three month period in 1996 and is related mainly to capital
leases for computer equipment. Interest costs at Dataguard were comparable
to last year's first quarter, and are principally related to capital leases
for computer equipment and debt incurred to purchase Twinsys.
The provision for income taxes totaled $99,125 and $117,700 for the three
month periods ended March 31, 1996 and 1995, respectively, due to French
income taxes resulting from income of Twinsys. No income tax benefits can be
recognized currently for U.S. operating losses, but these losses are avail-
able to offset any future U.S. taxable income.
Liquidity and Capital Resources
At March 31, 1996, the Company's consolidated current liabilities exceeded
current assets by $1,385,369. The principal resources available to reduce
the Company's liquidity deficiency are monthly revenues payable under its
backup service contracts. Backup services revenue for the Company's
customers are generated in most cases under multi-year, non-cancelable
contracts that will provide a fixed revenue stream over the next several
years. These contractual revenues, though not recorded on the Company's
balance sheet, will be available to help meet the Company's liabilities as
recorded at March 31, 1996.
Income from Twinsys has provided a significant, positive impact upon the
consolidated cash flow of the Company. However, the timing and amount of
cash transfers between Twinsys and Dataguard are subject to rules governing
dividend payments by French subsidiaries of multi-national corporations, as
well as practical considerations. The Company will continue to assess the
working capital needs of its North American and European operations on a
periodic basis and will determine appropriate allocations of cash throughout
the year. The Company expects to meet its other cash flow needs in 1996
through payments of consulting revenues by existing customers, the addition
of new customers for backup, consulting and outsourcing services, as well as
the extension of payment terms on certain monthly expenses and other debt.
In addition, cash flow from operations throughout the remainder of 1996 will
be positively affected by the more favorable terms of new computer leases,
which replaced leases that expired during the last quarter of 1995. The
Company will continue to seek more favorable terms for its remaining lease
and maintenance agreements as the Company's present agreements expire. The
Company's domestic computer equipment will meet the technological require-
ments of the Company's current and prospective customers without the need for
any material capital expenditure during 1996. Twinsys acquired computer
equipment needed for the backup requirements of some of its largest customers
during the first quarter of 1996. The acquisition was financed through a
capital lease obligation totaling approximately $2,000,000. The Company's
objective is to finance capital needs with the smallest possible adverse
impact on the Company's liquidity position.
The Company's revenues from North American operations have not returned to the
levels that existed prior to the expiration of its two largest contracts in
December 1994 and June 1995. The Company's equipment costs decreased
significantly during the last quarter of 1995 as leases associated with one of
its contracts expired, which offset some of the lost revenue.
During 1994, an affiliate of Bull HN began offering backup services to Bull
computer users. The increased competition to procure backup service con-
tracts adversely affected the Company's revenues in 1995, and is expected to
adversely affect the Company's revenues in the future, pending the outcome of
litigation between the Company and Bull relating to competitive practices.
PART II. OTHER INFORMATION
Item 5. Other Information.
During the second quarter of 1996, the Company expects to announce
an expansion of its services to include millennium consulting,
conversion, and testing services. Users of large scale computer
systems are becoming increasingly aware of potential problems caused
by the inability of computer systems to properly interpret dates for
the year 2000 and beyond. The "millennium problem" arises from the
widespread use of computer programs that rely on two-digit date
codes to perform computations and decision-making functions. Many
of these computer programs may fail due to an inability to properly
interpret date codes. Based on its 12 years of experience as a
provider of a full range of information services, the Company
expects to assist customers in identifying, analyzing and resolving
millennium problems as well as enabling customers to test corrected
programs in advance.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused its quarterly report to be signed on its behalf by the undersigned,
hereunto duly authorized.
DATAGUARD RECOVERY SERVICES, INC.
Date: May 12, 1996 By: \s\ Richard W. Smith
Richard W. Smith, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
\s\ Richard W. Smith President and Director May 12, 1996
Richard W. Smith (Chief Executive Officer)
(Chief Financial Officer)
(Chief Accounting Officer)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> $ 136,496
<SECURITIES> 0
<RECEIVABLES> 3,517,041
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,059,525
<PP&E> 16,096,187
<DEPRECIATION> 7,909,192
<TOTAL-ASSETS> 12,625,078
<CURRENT-LIABILITIES> 5,444,894
<BONDS> 1,728,610
<COMMON> 3,037,833
0
341,670
<OTHER-SE> (2,128,605)
<TOTAL-LIABILITY-AND-EQUITY> 12,625,078
<SALES> 0
<TOTAL-REVENUES> 2,344,117
<CGS> 0
<TOTAL-COSTS> 2,094,594
<OTHER-EXPENSES> 159,910
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 89,612
<INCOME-TAX> 99,125
<INCOME-CONTINUING> (9,513)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,513)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
