<PAGE>
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 March 31, 1997
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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Commission file number 0-22190
_______________________________________
ELTRAX SYSTEMS, INC.
(Exact name of small business Issuer as specified in its charter)
MINNESOTA 41-1484525
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10901 Red Circle Drive, Suite 345, Minnetonka, MN 55343
(Address of principal executive offices)
(612) 945-0833
(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 May 9, 1997: 7,582,063.
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PART I - ITEM 1. FINANCIAL STATEMENTS
ELTRAX SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, DECEMBER 31,
1997 1996
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ASSETS: (Unaudited)
Current assets:
Cash and cash equivalents $ 577,730 $ 501,199
Accounts receivable, net 6,515,148 6,049,966
Inventories 4,542,729 3,081,643
Other current assets 179,011 131,849
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Total current assets 11,814,618 9,764,657
Furniture and equipment, net 259,028 196,069
Intangible assets, net 5,830,740 4,641,044
Deferred income taxes 1,315,970 1,315,970
Other assets 133,464 151,312
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$ 19,353,820 $ 16,069,052
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LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 6,468,768 $ 6,453,992
Accrued expenses 915,892 936,555
Credit line bank debt 4,513,009 588,539
Other current liabilities 483,404 506,485
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Total current liabilities 12,381,073 8,485,571
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Shareholders' equity:
Series A convertible preferred stock,
no par, $7.50 per share liquidation
preference; -- --
Common stock, $.01 par value, 50,000,000
shares authorized;
7,582,063 and 7,558,063 shares issued and
outstanding 75,821 75,581
Additional paid-in capital 13,397,039 13,359,053
Accumulated deficit (6,500,113) (5,851,153)
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Total shareholders' equity 6,972,747 7,583,481
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$ 19,353,820 $ 16,069,052
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
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ELTRAX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
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1997 1996
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REVENUE $ 9,748,911 $ 4,233,916
COST OF REVENUE 8,248,711 3,421,724
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Gross Profit 1,500,200 812,192
OPERATING EXPENSES:
Selling, general and administrative 2,000,023 744,023
Amortization of intangible assets 102,237 --
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Total operating expenses 2,102,260 744,023
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Operating income (loss) (602,060) 68,169
INTEREST INCOME (EXPENSE), NET (46,900) 18,238
Income (loss) from continuing operations (648,960) 86,407
INCOME FROM DISCONTINUED OPERATIONS -- 80,737
GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS -- 133,214
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Net income (loss) $ (648,960) $ 300,358
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INCOME (LOSS) PER COMMON SHARE AND
COMMON SHARE EQUIVALENTS:
CONTINUING OPERATIONS $ (0.09) $ 0.02
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DISCONTINUED OPERATIONS $ 0.00 $ 0.04
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NET INCOME (LOSS) PER SHARE $ (0.09) $ 0.05
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WEIGHTED AVERAGE SHARES OUTSTANDING 7,576,730 5,603,473
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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ELTRAX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
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1997 1996
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OPERATING ACTIVITIES
Net income (loss) $ (648,960) $ 300,358
Adjustments to reconcile net income (loss)
to net cash used for operating activities:
Amortization 102,237 --
Depreciation 15,953 24,992
Gain on sale of digital imaging archiving
business -- (133,214)
Changes in current operating items:
Accounts receivable (465,182) 516,942
Inventories (678,983) 259,338
Other current assets (47,162) (42,301)
Accounts payable 14,776 (1,152,461)
Accrued expenses (96,486) (212,215)
Other current liabilities (23,081) (77,530)
Other assets 17,848 (93,769)
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Net cash provided by (used for) operating
activities: (1,809,040) (609,860)
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INVESTING ACTIVITIES
Cash paid in connection with acquisition of
MST, (2,028,214) --
Purchases of short-term investments -- (601,497)
Proceeds from sales of short-term investments -- 181,246
Purchases of furniture and equipment (48,912) (29,776)
Proceeds from sale of digital imaging
archiving business -- 100,000
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Net cash used for investing activities: (2,077,126) (350,027)
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FINANCING ACTIVITIES
Distributions to ANS shareholders -- (100,000)
Line of credit activity, net 3,924,470 604,099
Proceeds from issuances of common stock 38,227 --
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Net cash provided by financing activities: 3,962,697 504,099
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Increase, (decrease) in cash and cash
equivalents 76,531 (455,788)
CASH AND CASH EQUIVALENTS
Beginning of period 501,199 936,311
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End of period $ 577,730 $ 480,523
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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ELTRAX SYSTEMS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(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 March 31, 1997 and the results of operations
and cash flows for the three-month periods ended March 31, 1997 and
March 31, 1996. The condensed consolidated financial statements include
the accounts of Eltrax Systems, Inc. ("Eltrax") and its subsidiaries,
Nordata, Inc. and Rudata, Inc. ("Datatech") and Atlantic Network
Systems ("ANS"). ANS results are included for all periods presented
resulting from the merger of ANS in a pooling-of-interests on October
31, 1996. The Datatech results are included since May 17, 1996, the
date of acquisition, therefore they are included in the current quarter
but not in the quarter ending March 31, 1996. The Company's Health Card
and Digital Imaging Archiving businesses which were sold in November
1996 and March 1996 respectively, and have been reflected as discontinued
operations. Intercompany transactions have been eliminated.
These condensed financial statements should be read in conjunction with the
financial statements and the related notes thereto included in the
Company's Annual Report to Shareholders for the transition period ended
December 31, 1996, and the Company's Current Report on Form 8-K filed with
the Commission on January 31, 1997.
5
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2. ACQUISITION OF MST
On January 31, 1997, the Company acquired certain assets, and assumed
certain liabilities of MST Distribution ("MST") from MRK Technologies, LTD.
("MRK"). The assets acquired included inventory, contracts, furniture
and equipment and various intangibles. The purchase price for the
various assets including transaction costs was approximately $2,028,000.
The acquisition of MST has been accounted for as a purchase and,
accordingly, the results of MST's operations have been included in the
Company's results since January 31, 1997.
3. INCOME (LOSS) PER SHARE
Income (loss) per common and common stock equivalent share are computed by
dividing (loss) data 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.
6
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In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share" (Statement No. 128). This statement
modifies the methodology for calculating earnings per share and will be
adopted in the fourth quarter of 1997. There is no significant difference
between the Company's income (loss) per share data as presented herein and
as calculated under Statement No. 128.
7
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Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements in this Form 10-QSB and in the future filings by the
Company with the Securities and Exchange Commission and in the Company's
written and oral statements made by or with the approval of an authorized
executive officer constitute "forward-looking statements" within the
meaning of the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended and the Company intends that such
forward-looking statements be subject to the safe harbors created
thereby. The words "believe," "expect" and "anticipate" and similar
expressions identify forward-looking statements. These forward-looking
statements reflect the Company's current views with respect to future
events and financial performance, but are subject to many uncertainties
and factors relating to the Company's operations and business environment
which may cause the actual results of the Company to be materially
different from any future results expressed or implied by such
forward-looking statements. Examples of such uncertainties include, but
are not limited to, changes in customer demand and requirements, new
product announcements, interest rate fluctuations, changes in federal
income tax laws and regulations, competition, industry specific factors
and world wide economic and business conditions. The Company undertakes
no obligation to publicly update or revise any forward-looking statements
whether as a result of new information, future events or otherwise.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1996:
Total revenue for the three months ended March 31, 1997 increased by
$5,515,000 to $9,749,000 compared to revenue of $4,234,000 for the three
months ended March 31, 1996. The increase resulted from revenue of
$5,443,000 from Datatech which is included for the current quarter and was
not included in the 1996 results until the acquisition date of May 17, 1997.
Revenue is also higher at ANS for the period ended March 31, 1996, due to the
acquisition of MST on January 31, 1997, which contributed approximately
$1,030,000 of revenue in the current quarter.
Gross profit margin as a percentage of revenue for the three months
ended March 31, 1997 was 15.4% compared to 19.2% for the three months
ended March 31, 1996, but down only slightly from the 15.6% for the
nine month transition period ended December 31, 1996.
Operating expenses increased by $1,358,000 to $2,102,000 compared to
operating expenses of $744,000 for the three months ended March 31,
1996. The increase in operating expenses resulted primarily from an
increase in selling, general and administrative expenses, due to the
inclusion of Datatech and MST in this period. The amortization of
intangibles also contributed $102,000 of the increase. A portion of the
increase in general and administrative expense is associated with
Eltrax's merger and acquisition activity, which is expected to continue.
Net interest expense of $47,000 was $65,000 higher than the income of $18,000
during the three months ended March 31, 1997 compared to the same period last
year. The increase is due to use of cash and short term debt under the
Company's revolving credit facility with State Street to acquire Datatech and
to MST and provide working capital.
PRO FORMA FINANCIAL RESULTS
SELECTED PRO FORMA FINANCIAL DATA
The following selected unaudited pro forma financial data should be read
in conjunction with the Company's financial statements and related notes
thereto and "Management's Discussion and Analysis." The unaudited pro forma
statement of operations data is derived from unaudited financial statements
of the Company that are not included herein. The pro forma results are not
necessarily indicative of future results.
8
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PRO FORMA STATEMENT OF OPERATIONS DATA (UNAUDITED):
THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996
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Revenue $ 9,749,000 $ 8,965,000
Cost of Revenue 8,249,000 7,212,000
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Gross Profit 1,500,000 1,753,000
Operating Expenses 2,102,000 1,409,000
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Operating Income (loss) (602,000) 344,000
Interest and Other (net) (47,000) 28,000
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Income (loss) from Continuing
Operations (649,000) 372,000
Discontinued Operations (net) -- 214,000
Income Taxes -- 128,000
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Net Income (loss) $ (649,000) $ 458,000
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COMPARISON OF PRO FORMA THREE MONTHS ENDED MARCH 31, 1997 AND 1996
The following discussion describes the Company results as if the Datatech
acquisition had taken place as of the beginning of the three month period
ending March 31, 1996.
Total revenue for the three month period ending March 31, 1997 increased
by 8.7% to $9,749,000 when compared to the pro forma revenue of $8,965,000
for the three months ended March 31, 1996. This increase resulted from
increased sales activity at Datatech, which increased proforma revenue from
$4,731,000 in the three months ended March 31, 1996 to $5,443,000 in the same
period in 1997, and from increased sales activity at ANS which increased pro
forma revenue from $4,234,000 in the three months ended March 31, 1996 to
$4,306,000 in the same period in 1997.
The pro forma gross profit margin percentage decreased to 15.4% during the
three months ended March 31, 1997 from 19.6% in the three months ended March 31,
1996.
The pro forma operating expenses of the Company increased 50% to
$2,102,000 in the three months ended March 31, 1997, compared to $1,409,000
in the three months ended March 31, 1996. This increase is primarily due to
increased selling, general and administrative expenses as well as
amortization. A portion of the increase is associated with the Company's
acquisition activities.
9
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LIQUIDITY AND CAPITAL RESOURCES
MARCH 31, 1997 COMPARED TO DECEMBER 31, 1996:
The level of cash, cash equivalents and short-term investments
increased by $77,000 from $501,000 on December 31, 1996 to $578,000 on
March 31, 1997. The Company's short term borrowings, however, under
its bank line increased by $3,925,000 to $4,513,000 at March 31, 1997.
Approximately $2,028,000 was utilized to purchase the assets of MST
Distribution as discussed in Note 2. In addition, borrowings were used
to finance additional accounts receivable and inventory and the net
cash used for operating activities in the first quarter. The Company
has a $5,000,000 maximum credit facility available under its revolving
credit agreement with State Street.
Management believes that the Company will require additional financing
during the second or third quarter of 1997 and continues to explore
various alternatives to provide both working capital and long-term
funds.
10
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RECENT DEVELOPMENTS
The Company has announced that a newly created subsidiary is expected to merge
with EJG Techline, Inc. of Agoura Hills, CA on May 14, 1997. A Current Report
on Form 8-K is anticipated to be filed in connection with this merger.
11
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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
None.
Item 5. OTHER INFORMATION
On April 15, 1997 Nicholas J. Pyett was named the Company's Chief
Financial Officer.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on January 31, 1997,
reporting its acquisition of MST.
12
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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: May 14, 1997 /s/ Nicholas J. Pyett
-------------------------------------
Nicholas J. Pyett,
Chief Financial Officer (Principal
Financial and Accounting Officer)
13
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