U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarter Ended June 30, 1996
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________ to _________
Commission file number 0-22190
ELTRAX SYSTEMS, INC.
(Exact name of small business Issuer as specified in its charter)
MINNESOTA
(State or other jurisdiction 41-1484525
of incorporation or organization) (I.R.S. Employer Identification No.)
Rush Lake Business Park, 1775 Old Highway 8, Suite 111
St. Paul, Minnesota 55112
(Address of principal executive offices)
(612) 633-8373
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 ____
Shares of the Registrant's Common Stock, par value $.01 per share, outstanding
as of August 8, 1996: 6,583,563
PART I - ITEM 1. FINANCIAL STATEMENTS
ELTRAX SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, MARCH 31,
1996 1996
------------ ------------
(Unaudited)
ASSETS:
Current assets:
Cash and cash equivalents $ 865,139 $ 480,523
Short-term investments 583,613 1,384,886
Accounts receivable, net 3,662,924 223,991
Inventories 1,966,725 57,091
Prepaid expenses 43,221 26,510
Note receivable - current 82,167 81,832
------------ ------------
Total current assets 7,203,789 2,254,833
Furniture and equipment, net 74,508 42,514
Deferred income taxes 1,342,368
Intangible assets, net 5,243,523
Note receivable - non current 187,469 198,658
Lease contracts receivable 44,398 --
Other assets 10,500 --
------------ ------------
$ 14,106,555 $ 2,496,005
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 3,668,778 $ 65,537
Accrued expenses 993,900 74,199
Unearned revenue 84,927 70,807
Deferred income taxes 444,398 --
Income tax payable 392,946 --
------------ ------------
Total current liabilities 5,584,949 210,543
Shareholders' equity:
Preferred stock 29,163 29,163
Common stock, at $ .01 par value 65,837 44,971
Additional paid-in capital 13,834,000 7,622,100
Accumulated deficit (5,407,394) (5,410,772)
------------ ------------
Total shareholders' equity 8,521,606 2,285,462
------------ ------------
$ 14,106,555 $ 2,496,005
============ ============
See accompanying Notes to Condensed Consolidated Financial Statements.
ELTRAX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
-----------------------------
1996 1995
----------- -----------
<S> <C> <C>
REVENUE $ 2,998,436 $ 283,671
COST OF REVENUE 2,309,260 131,598
----------- -----------
Gross Profit 689,176 152,073
OPERATING EXPENSES:
Selling, general and administrative 611,248 211,384
Amortization of intangible assets 53,420 --
Product development 38,017 11,774
----------- -----------
Total operating expenses 702,685 223,158
----------- -----------
Operating loss (13,509) (71,085)
INVESTMENT INCOME, NET 16,887 33,289
Gain (loss) from continuing operations 3,378 (37,796)
DISCONTINUED DIGITAL IMAGING ARCHIVING OPERATIONS -- (11,121)
----------- -----------
Net income (loss) $ 3,378 $ (48,917)
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE AND
COMMON SHARE EQUIVALENTS:
CONTINUING OPERATIONS $ 0.00 $ (0.01)
=========== ===========
DISCONTINUED OPERATIONS $ 0.00 $ (0.00)
=========== ===========
NET INCOME (LOSS) PER SHARE $ 0.00 $ (0.01)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 5,811,031 3,686,629
=========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
<TABLE>
<CAPTION>
ELTRAX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended June 30,
-------------------------------
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 3,378 $ (48,917)
Adjustments to reconcile net income (loss) to net
cash (used in) provided from operating activities:
Amortization 53,420 --
Depreciation 6,961 20,940
Unrealized loss on short-term investments 1,194 --
Changes in current operating items excluding impact of Datatech
acquisition:
Accounts receivable 222,209 (14,659)
Inventories 428,919 57,517
Prepaid expenses (16,712) 2,277
Other assets (727) --
Accounts payable (781,420) (3,603)
Accrued expenses (9,968) (24,148)
Unearned revenue 8,092 60,861
Income tax payable (22,376) --
----------- -----------
Net cash from (used in) provided by operating activities: (107,030) 50,268
----------- -----------
INVESTING ACTIVITIES
Cash consideration paid for Datatech, net of cash acquired (326,929) --
Purchases of Furniture and Equipment (10,271) --
Purchases of short-term investments -- (199,579)
Proceeds from sales of short-term investments 800,081 265,561
----------- -----------
Net cash provided by investing activities: 462,881 65,982
----------- -----------
FINANCING ACTIVITIES
Proceeds from issuances of common stock 28,765 350,001
----------- -----------
Increase in cash and cash equivalents 384,616 466,251
CASH AND CASH EQUIVALENTS
Beginning of period 480,523 194,079
----------- -----------
End of period $ 865,139 $ 660,330
=========== ===========
NON CASH INVESTING AND FINANCING ACTIVITIES:
Transaction related expenses of Datatech acquisition incured
but unpaid as of June 30, 1996 $ 132,437
Issuance of 2,068,000 shares of common stock as partial
consideration for Datatech $ 6,204,000
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
ELTRAX SYSTEMS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
1. Unaudited Statements
The accompanying unaudited condensed consolidated financial statements
have been prepared by Eltrax Systems, Inc. (the "Company" or "Eltrax")
in accordance with generally accepted accounting principles, pursuant
to the rules and regulations of the Securities and Exchange Commission.
Pursuant to such rules and regulations, certain financial information
and footnote disclosures normally included in the financial statements
have been condensed or omitted.
In the opinion of management, the accompanying unaudited condensed
financial statements contain all necessary adjustments, consisting only
of those of a recurring nature, and disclosures to present fairly the
financial position as of June 30, 1996 and the results of operations
and cash flows for the periods ended June 30, 1996 and June 30, 1995.
The Company has a March 31 fiscal year end. The condensed consolidated
financial statements include the accounts of Nordata, Inc. and Rudata,
Inc. (dba Datatech) since the date of acquisition on May 17, 1996. All
significant intercompany transactions have been eliminated.
It is suggested that these condensed financial statements be read in
conjunction with the financial statements and the related notes thereto
included in the Company's Annual Report to Shareholders for fiscal year
1996, and the Company's current report on Form 8-K filed with the
Commission on August 5, 1996.
2. Acquisition of Datatech
On May 17, 1996, pursuant to an Agreement and Plan of Merger dated as
of May 14, 1996 (the "Merger Agreement") by and among Eltrax, a
Minnesota corporation, Datatech Acquisition Corporation, a Minnesota
corporation and a wholly-owned subsidiary of Eltrax, Rudata Acquisition
Corporation, a Minnesota corporation and wholly-owned subsidiary of
Eltrax, Nordata, Inc. ("Nordata"), a California corporation and Rudata,
Inc. ("Rudata"), a California corporation and Howard B. and Ruby Lee
Norton (collectively the "Shareholders"), Datatech Acquisition
Corporation merged with and into Nordata, and Rudata Acquisition
Corporation separately merged with and into Rudata, whereupon the
separate existences of each of Datatech Acquisition Corporation and
Rudata Acquisition Corporation ceased and Nordata and Rudata continue
as the surviving corporations and as wholly-owned subsidiaries of
Eltrax (the "Merger"), with Nordata and Rudata doing business as
"Datatech".
Pursuant to the terms of the Merger Agreement, upon the closing of the
Merger on May 17, 1996, 1,983,000 unregisterd shares of Eltrax were
issued to Howard B. and Ruby Lee Norton, as community property, in
connection with the merger of Datatech Acquisition Corp. with and into
Nordata and $1,016,000 cash was paid to the Shareholders in connection
with the merger of Rudata Acquisition Corp. with and into Rudata. In
addition, the Company paid broker fees consisting of 85,000 unregisterd
shares of the Company's common stock and cash of $160,000. Of the
1,983,000 shares issued to the Shareholders, 450,000 shares (the
"Escrowed Shares") were issued in the name of Emseg & Co., as Escrow
Agent under the terms of that certain Escrow Agreement between Eltrax,
the Shareholders, and Norwest Bank Minnesota, National Association, the
terms of which provide for the release of the Escrowed Share to the
Shareholders on May 17, 1998, subject to certain claims and conditions.
All of the acquired shares issued to the Shareholders in connection
with the Merger are "restricted stock," as defined in the rules
promulgated under the Securities Act of 1933, as amended, and have
certain Form S-3 demand and "piggyback" registration rights. The
expenses of any such registration will be borne by the Company.
The acquisition of Datatech has been accounted for as a purchase and,
accordingly, the results of Datatech's operations have been included in
the Company's results since May 17, 1996.
The cost of the acquisition has been allocated on the basis of the
estimated fair value of the assets acquired and the liabilities
assumed. This allocation resulted in intangibles net of amortization of
approximately $5.2 million, which is expected to consist principally of
goodwill to be amortized over 15 years. The allocation of the purchase
price will be finalized during fiscal year 1997.
The following summary, prepared on a pro forma basis, combines the
results of operations as if Datatech had been acquired as of the
beginning of the periods presented, after including the impact of
purchase accounting adjustments:
Three Months Ended June 30,
---------------------------
1996 1995
---------- ----------
Revenue $6,008,158 $4,097,565
Income from continuing operations $ 18,000 $ 42,000
Income from continuing operations $ 0.00 $ 0.01
per share
The pro forma information is presented for informational purposes only
is not necessarily indicative of the results of operations that would
have occured had the Datatech acquisition been consummated as of the
above dates, nor are they indicative of future operating results.
3. Income (Loss) Per Share
Income (loss) per common and common stock equivalent shares are
computed by dividing net earnings (loss) by the weighted average number
of common and common stock equivalent shares outstanding during the
respective periods. Common stock equivalent shares included in the
computation represent shares issuable upon assumed exercise of stock
options and warrants which would have had a dilutive effect.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1995:
Total revenue for the three months ended June 30, 1996 increased by $2,714,800,
to $2,998,400 when compared to sales of $283,700 for the three months ended June
30, 1995. The increase resulted from revenue of $2,793,600 from Datatech which
is included from May 17, 1996 to June 30, 1996, and lower card system sales of
$78,800. Datatech's historical revenue for the three months ended June 30, 1996
increased by $1,990,900, or 52.2% to $5,803,300 when compared to sales of
$3,812,400 for the three months ended June 30, 1995.
Gross profit margin as a percentage of sales for the three months ended June 30,
1996, was 23.0%. Management anticipates overall margins in future quarters will
be slightly lower than the results of the three months ended June 30, 1996.
Datatech's historical gross profit margin for the three months ended June 30,
1996, was 19.7% compared to 20.3% for the same period last year.
Operating expenses increased by $479,500, to $702,700 compared to operating
expenses of $223,200 for the three months ended June 30, 1995. The increase in
operating expenses resulted from an increase in selling, general and
administrative and product development expenses. Selling, general and
administrative expenses increased by $453,300 to $664,700 compared to $211,400
for the three months ended June 30, 1995, due primarily to the Datatech selling,
general and administrative expenses of $483,100, and amortization of intangible
assets of $53,400 which are amortized over 5 to 15 years. Product development
expenses increased by $26,243 during the three months ended June 30, 1996
compared to the same period last year. Datatech's historical operating expenses
for the three months ended June 30, 1996 increased $346,600, or 59.4% to
$929,900 compared to operating expenses of $583,300 for the three months ended
June 30, 1995.
As of August 8, 1996 the Company had the equivalent of approximately twenty
sales, sales support and sales management personnel compared to approximately
two and one half as of June 30, 1995. This increase resulted from the
acquisition of Datatech. Management believes the existing sales, sales support
and sales management staff is adequate to approximately maintain existing sales
levels for the near term, however additional personnel may be needed to support
an increased level.
Although the Company continues to make additional software enhancements to its
existing products, no significant product development efforts are currently
underway. Management believes the Company's resources would be better utilized
by acquiring or marketing products and services of other companies rather than
internally developing new products.
Net investment income was nearly $16,400 lower during the three months ending
June 30, 1996 compared to the same period last year. Most of the decrease is due
to lower interest rates and the use of cash to acquire Datatech during the three
months ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
JUNE 30, 1996 COMPARED TO JUNE 30, 1995:
The level of cash, cash equivalents and short-term investments decreased by
$416,700 from March 31, 1996 to June 30, 1996. This decrease is primarily due to
the acquisition of Datatech in which cash consideration paid for Datatech, net
of cash acquired, was $326,929, with the remainder primarily due to transaction
related costs of acquiring Datatech. See Item 1 under "Financial Statements"
footnote 3 entitled Acquisition of Datatech of this Form 10-QSB for additional
information regarding the terms of this acquisition.
Although there can be no assurances that additional financing will not be
required, the Company has made changes in its operations that it believes will
provide it with the appropriate financial structure to enable the Company to
meet its liquidity and capital needs for the foreseeable future.
Management believes that inflation will not have a material effect on the
Company's operations, financial condition or amounts associated with expected
capital equipment expenditures.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on July 23, 1996,
holders of Eltrax Common Stock voted in favor of the following actions:
(i) the election of the following nominees to the Board of Directors:
Gene A. Bier, Patrick J. Dirk, Clunet R. Lewis, Thomas F. Madison,
Howard B. Norton, William P. O'Reilly, Mack V. Traynor, III, each of
whom received more than 3,859,700 shares voting in favor of their
election (out of a total of 3,880,645 shares of Eltrax Common Stock
represented in person or by proxy), and (ii) approval of the Company's
Proposal to amend article III, section 3.1 of the Company's amended and
restated articles of incorporation to increase the number of authorized
shares of common stock from 8,000,000 to 50,000,000, for which
3,794,008 shares were voted in favor of adoption and 86,637 shares were
voted against adoption.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.0 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed an amendment No.1 to its Current report on
Form 8-K on August 5, 1996, which amends the financial
statements, exhibits or other portions of its Current Report
on Form 8-K, which was initially filed with Commission on June
3, 1996, to include the following:
Report Of Independent Accountants as of July 31, 1996
Combined Balance Sheets As Of December 31, 1995 And March 31,
1996,(Unaudited))
Combined Statements Of Income For The Years Ended December 31,
1995 And 1994 And For The Three-Month Periods Ended March 31,
1996 and 1995 (Unaudited)
Combined Statements Of Stockholders' Equity For The Years
Ended December 31, 1995 And 1994 And For The Three-Month
Period Ended March 31, 1996 (Unaudited)
Combined Statements Of Cash Flows For The Years Ended December
31, 1995 And 1994 And For The Three-Month Periods Ended March
31, 1996 And 1995 (Unaudited)
Pro Forma Financial Information With Respect To Eltrax And
Datatech
The June 3, 1996 original filing of the Form 8-K described the
Company's acquisition of Nordata, Inc. and Rudata, Inc. (collectively
"Datatech").
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Eltrax Systems, Inc.
(the "Registrant")
Date: August 14, 1996 /s/ Mack V. Traynor
----------------------------------------
Mack V. Traynor, Chief Executive Officer
and President (principal executive
officer, acting principle financial
officer and acting principal accounting
officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 865,139
<SECURITIES> 583,613
<RECEIVABLES> 3,976,958
<ALLOWANCES> 0
<INVENTORY> 1,966,725
<CURRENT-ASSETS> 7,203,789
<PP&E> 74,508
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,106,555
<CURRENT-LIABILITIES> 5,584,949
<BONDS> 0
0
29,163
<COMMON> 65,837
<OTHER-SE> 5,393,560
<TOTAL-LIABILITY-AND-EQUITY> 8,521,606
<SALES> 2,998,436
<TOTAL-REVENUES> 2,998,436
<CGS> 2,309,260
<TOTAL-COSTS> 2,309,260
<OTHER-EXPENSES> 702,685
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,378
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,378
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,378
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
