<PAGE>
U.S. 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 Quarter Ended March 31, 2000
[ ] 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 Registrant as specified in its charter)
MINNESOTA 41-1484525
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
400 Galleria Parkway, Suite 300, Atlanta, GA 30339
(Address of principal executive offices)
(678) 589-3585
(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 April 30, 2000: 25,483,459
<PAGE>
ELTRAX SYSTEMS, INC.
FORM 10-Q
INDEX
Part I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Item 1.
Condensed Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999.......................................................... 2
Condensed Consolidated Statements of Operations for the quarters
ended March 31, 2000 and 1999.............................................. 3
Condensed Consolidated Statements of Cash Flows for the quarters
ended March 31, 2000 and 1999.............................................. 4
Notes to Condensed Consolidated Financial Statements......................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................ 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk................... 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................ 13
Item 2. Changes in Securities and Use of Proceeds................................... 13
Item 6. Exhibits and Reports on Form 8-K............................................. 13
Signature Page........................................................................ 14
Exhibit Index......................................................................... 15
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I-ITEM 1: FINANCIAL STATEMENTS
ELTRAX SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 14,203,795 $ 613,294
Accounts receivable, net 28,391,245 31,643,231
Inventories, principally finished goods 8,439,890 5,187,836
Other current assets 3,937,567 3,799,550
------------ ------------
Total current assets 54,972,497 41,243,911
Furniture and equipment, net 7,827,573 6,642,878
Capitalized software, net 9,072,133 8,432,777
Intangibles, net 16,070,296 16,701,367
------------ ------------
Total assets $ 87,942,499 $ 73,020,933
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Line of credit $ 17,220,680 $ 9,468,882
Accounts payable 13,138,873 13,230,052
Accrued compensation 3,367,268 2,939,453
Accrued expenses 5,471,212 6,775,699
Unearned revenue and customer deposits 12,343,204 13,736,496
Current portion of long-term debt 474,856 569,587
------------ ------------
Total current liabilities 52,016,093 46,720,169
Long-term debt - 54,068
------------ ------------
Total liabilities 52,016,093 46,774,237
Shareholders' equity:
Common stock, $.01 par value, 50,000,000 shares authorized;
25,425,123 and 23,808,415 shares issued and outstanding 254,252 238,086
Additional paid-in capital 90,673,184 75,678,836
Accumulated deficit (54,272,118) (49,033,804)
Accumulated other comprehensive loss (728,912) (636,422)
------------ ------------
Total shareholders' equity 35,926,406 26,246,696
------------ ------------
Total liabilities and shareholders' equity $ 87,942,499 $ 73,020,933
============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ELTRAX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended March 31,
2000 1999
------------ ------------
<S> <C> <C>
Revenue:
Technology Services Group $ 18,068,526 $ 13,644,290
Hospitality Services Group 12,825,622 16,044,981
------------ ------------
Total revenue 30,894,148 29,689,271
Cost of revenue:
Technology Services Group 11,726,604 9,031,996
Hospitality Services Group 7,454,608 8,881,961
------------ ------------
Total cost of revenue 19,181,212 17,913,957
Gross profit:
Technology Services Group 6,341,922 4,612,294
Hospitality Services Group 5,371,014 7,163,020
------------ ------------
Gross profit 11,712,936 11,775,314
Operating expenses:
Direct expenses:
Technology Services Group 7,222,515 3,812,317
Hospitality Services Group 5,763,224 5,366,775
------------ ------------
Total direct expenses 12,985,739 9,179,092
Research and development:
Technology Services Group 609,680 264,737
Hospitality Services Group 259,948 453,259
------------ ------------
Total research and development 869,628 717,996
Corporate and administrative 2,230,865 1,434,751
Amortization of intangibles 631,071 585,783
Reorganization costs - 3,600,000
Transaction costs - 2,288,379
----------- -----------
Total operating expenses 16,717,303 17,806,001
------------ ------------
Operating loss (5,004,367) (6,030,687)
Interest expense, net (224,381) (160,046)
------------ ------------
Loss before income taxes (5,228,748) (6,190,733)
Income tax expense (benefit) 9,566 (79,519)
------------ ------------
Net loss $(5,238,314) $(6,111,214)
=========== ===========
Net loss per common share - basic and diluted $ (0.22) $ (0.26)
=========== ===========
Weighted average shares outstanding - basic and diluted 24,067,893 23,700,390
=========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
3
<PAGE>
ELTRAX SYSTEMS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended March 31,
2000 1999
------------ ------------
<S> <C> <C>
Operating Activities:
Net loss $(5,238,314) $(6,111,214)
Items which did not use (provide) cash:
Amortization of capitalized software 312,800 342,114
Amortization of intangibles 631,071 585,783
Depreciation 514,352 390,465
Other (60,009) 10,736
Changes in current operating items:
Accounts receivable, net 3,251,986 3,671,945
Inventories (3,252,054) 19,754
Other current assets (138,017) (13,166)
Accounts payable (91,179) 1,389,002
Accrued compensation 427,815 (135,648)
Accrued expenses (1,304,487) 1,258,680
Unearned revenue and customer deposits (1,393,292) (1,300,962)
------------ ------------
Net cash (used for) provided by operating activities: (6,339,328) 107,489
------------ ------------
Investing Activities:
Software development costs capitalized (952,156) (105,198)
Purchases of furniture and equipment, net (1,699,047) (617,537)
------------ ------------
Net cash used for investing activities: (2,651,203) (722,735)
------------ ------------
Financing Activities:
Payments on long-term debt (148,799) (797,416)
Borrowings (payments) on credit line, net 7,751,798 (3,998,203)
Proceeds from issuances of common stock 15,004,514 40,627
Payments issued in lieu of fractional shares - (6,901)
------------ ------------
Net cash provided by (used for) financing activities: 22,607,513 (4,761,893)
------------ ------------
Effect of exchange rate changes on cash (26,481) 35,308
Increase (decrease) in cash and cash equivalents 13,590,501 (5,341,831)
------------ ------------
Cash and Cash Equivalents:
Beginning of period 613,294 7,240,130
------------ ------------
End of period $ 14,203,795 $ 1,898,299
============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
4
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation
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
consolidated 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, 2000, and the results of operations and cash
flows for the periods ended March 31, 2000 and 1999. The condensed consolidated
financial statements include the accounts of Eltrax Systems, Inc. and its
subsidiaries, including Sulcus Hospitality Technologies Corp. and subsidiaries
("Sulcus"), and Windward Technology Group, Inc. ("Windward"), which merged with
the Company in the first quarter of 1999 in transactions accounted for as
poolings-of-interests. Significant intercompany transactions have been
eliminated. Certain prior year amounts in the consolidated financial statements
and notes have been reclassified to conform with the current year presentation.
These reclassifications had no effect on previously reported net income (loss)
or shareholders' equity.
The year-end condensed consolidated balance sheet was derived primarily from
audited consolidated financial statements, but does not include all disclosures
required by generally accepted accounting principles. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the year ended December 31, 1999.
2. Other Comprehensive Income
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this Statement
had no impact on the Company's net income or shareholders' equity. SFAS No. 130
requires that the Company's change in foreign currency translation adjustments
be included in other comprehensive income.
<TABLE>
<CAPTION>
2000 1999
----------------- -----------------
<S> <C> <C>
Net loss $(5,238,314) $(6,111,214)
Other comprehensive (loss) income:
Foreign currency translation (92,490) 35,308
----------- -----------
Comprehensive loss $(5,330,804) $(6,075,906)
=========== ===========
</TABLE>
4. Segment Information
The Company is reporting information for two segments, the Technology
Services Group and the Hospitality Services Group, and includes the effect of
the mergers with Sulcus and Windward in the first quarter of 1999.
Technology Services: The Technology Services Group consists of three
operating units:
. Application Services Provider, which provides application outsourcing
and remote delivery of applications including network and application
management.
. Technology Solutions, which provides strategic assessment,
application and network design, custom application development and
integration, network management, support and maintenance.
. Customer Care, which provides 7X24 help desk support and training
and installation services for the solutions the Company has developed and
implemented.
Hospitality Services: The Hospitality Services Group designs,
manufactures, markets and services enterprise information products and
services for the global hospitality industry.
5
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Condensed Consolidated Financial Statements
4. Segment Information - (continued)
Management evaluates the business unit performance based on income before
income taxes, intangibles amortization, interest income and expense and
corporate expenses. Inter-segment sales and transfers are not significant.
Summarized financial information concerning the Company's reportable
segments is shown in the following table (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31, 2000 Three Months Ended March 31, 1999
------------------------------------------------- ------------------------------------------------
Technology Hospitality Technology Hospitality
Services Services Total Services Services Total
-------------- --------------- -------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $18,069 $12,825 $30,894 $13,644 $16,045 $29,689
Segment (loss) profit (1,490) (652) (2,142) 535 1,343 1,878
Total assets 31,199 40,517 71,716 16,416 43,666 60,082
Capital Expenditures 634 830 1,464 194 422 616
Depreciation and software
amortization 226 581 807 79 561 640
</TABLE>
The following table reconciles the total segment profit to the pretax loss
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
2000 1999
-------- --------
<S> <C> <C>
Segments, above $(2,142) $ 1,878
Corporate and administrative expenses (2,231) (1,435)
Amortization (excluding acquired software) (631) (586)
Transaction and reorganization costs - (5,888)
Interest income (expense), net (225) (160)
------- -------
Pretax loss $(5,229) $(6,191)
======= =======
</TABLE>
The Company conducts operations world wide through separate geographic area
organizations that represent major markets. The geographic distribution of the
Company's revenues, segment income and total identifiable assets are as follows
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31, 2000 Three Months Ended March 31, 1999
------------------------------------------------------- ------------------------------------------------------
Segment Income Segment Income
Revenues (Loss) Assets Revenues (Loss) Assets
--------------- ------------------- -------------- --------------- ------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Domestic $27,045 $(1,203) $61,999 $23,839 $1,986 $48,907
Canada 1,407 (382) 3,457 1,415 (59) 2,822
Pacific Rim 1,237 (392) 3,026 2,015 (342) 4,365
Western Europe 1,205 (165) 3,234 2,420 293 3,988
------- ------- ------- ------- ------ -------
Total $30,894 $(2,142) $71,716 $29,689 $1,878 $60,082
======= ======= ======= ======= ====== =======
</TABLE>
Sales between geographic areas and export sales are not material.
Identified assets by geographic area exclude intercompany loans, advances and
investments in affiliates. Intercompany trade receivables have been eliminated.
6
<PAGE>
ELTRAX SYSTEMS, INC.
Notes to Condensed Consolidated Financial Statements
4. Segment Information - (continued)
The following table reconciles services and products revenue and cost of
revenue to the condensed consolidated statements of operations:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Revenue:
Technology Services Group:
Services $ 7,408,400 $ 4,984,342
Products 10,660,126 8,659,948
----------- -----------
Total Technology Services Group revenue 18,068,526 13,644,290
Hospitality Services Group:
Services 5,795,176 6,536,728
Products 7,030,446 9,508,253
----------- -----------
Total Hospitality Services Group revenue 12,825,622 16,044,981
----------- -----------
Total revenue $30,894,148 $29,689,271
=========== ===========
Cost of revenue:
Technology Services Group:
Services $ 2,458,945 $ 2,074,145
Products 9,267,659 6,957,851
----------- -----------
Total Technology Services Group cost of revenue 11,726,604 9,031,996
Hospitality Services Group:
Services 3,874,844 3,602,053
Products 3,579,764 5,279,908
----------- -----------
Total Hospitality Services Group cost of revenue 7,454,608 8,881,961
----------- -----------
Total cost of revenue $19,181,212 $17,913,957
=========== ===========
</TABLE>
5. Litigation
The Company is involved in claims and proceedings, which are routine and
which in the aggregate are not deemed material to the Company's business or
financial affairs.
7
<PAGE>
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Certain statements in this Form 10-Q and in future filings by the Company with
the Securities and Exchange Commission and in the Company's written and oral
statements that are not statements of historical facts are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The words "believe," "expect," "anticipate," "intend," "will" and
similar expressions are examples of words that identify forward-looking
statements. Forward-looking statements include, without limitation, statements
regarding our future financial position, business strategy and expected cost
savings. These forward-looking statements are based on our current beliefs, as
well as assumptions we have made based upon information currently available to
us.
Each forward-looking statement reflects our current view of future events and
is subject to risks, uncertainties and other factors that could cause actual
results to differ materially from any results expressed or implied by our
forward-looking statements. Important factors that could cause actual results
to differ materially from the results expressed or implied by any forward-
looking statements include:
- - general national and worldwide economic conditions;
- - our ability to implement our business plan and manage our growth;
- - the acceptance and increased use of the internet and internet-based business
solutions;
- - rapid technological and regulatory changes in the industry we serve;
- - our uncertain revenue growth;
- - the ability to identify appropriate businesses to acquire and efficiently
integrate those acquired businesses;
- - foreign currency fluctuations and other uncertainties relating to our
business in foreign countries;
- - competition; and
- - other factors disclosed in our Form 10-K for the year ended December 31, 1999
and in our other filings with the Securities and Exchange Commission.
All subsequent forward-looking statements relating to the matters described in
this document and attributable to us or to persons acting on our behalf are
expressly qualified in their entirety by such factors. We have no obligation to
publicly update or revise these forward-looking statements to reflect new
information, future events, or otherwise, except as required by applicable
Federal securities laws, and we caution you not to place undue reliance on these
forward-looking statements.
General
- -------
The Company operates through two separate business units: the Technology
Services Group ("TSG") and the Hospitality Services Group ("HSG"). The Company
reports financial results on a consolidated basis and by business unit. In
1999, the Company acquired two businesses, and recorded non-recurring merger-
related transaction and reorganization costs totaling $5.9 million. The Company
believes such events significantly affect the comparability of the Company's
results of operations from year to year. You should read the following
discussion of our results of operations and financial condition in conjunction
with our condensed consolidated financial statements and related notes thereto.
Consolidated Results of Operations
- ----------------------------------
Three Months Ended March 31, 2000, compared to Three Months Ended March 31, 1999
For the three months ended March 31, 2000, the Company's net loss totaled $5.2
million or $.22 per share, compared with a net loss of $6.1 million or $.26 per
share for the same period of 1999. Excluding non-recurring reorganization and
transaction costs totaling approximately $5.9 million, the net loss for the
three months ended March 31, 1999 totaled approximately $223,000.
8
<PAGE>
Total revenue was $30.9 million in the three months ended March 31, 2000, an
increase of 4.1% from the same period of 1999. Revenue increased due to growth
in TSG revenue of 32.4% as a result of expanded service offerings. The growth in
TSG revenue was offset by a decline in HSG revenue of 20.1% from the same period
of 1999. The decline in HSG revenue was primarily due to a decrease in sales of
the Company's lodging solutions due to a change in customer purchasing patterns
as a result of the Y2K transition and a decline in international sales due to
the strong U.S. dollar. See "Hospitality Services Group." Gross profit decreased
by $62,000 in the three months ended March 31, 2000, and was 37.9% of revenue,
compared with 39.7% in the same period of 1999. The decreased gross profit
percentage in the quarter ended March 31, 2000, when compared to March 31, 1999,
resulted from a decrease in the gross profit percentage of HSG. While the gross
profit percentage of TSG increased as a result of TSG's expanded service
offerings, the gross profit percentage of HSG decreased as a result of the
decline in system revenue.
Total operating expenses for the three months ended March 31, 2000, were $16.7
million, an increase of $4.8 million from the same period of 1999 excluding
reorganization and transaction costs. An increase in TSG operating expenses of
approximately $3.8 million resulted primarily from investment in the Company's
Application Services Provider ("ASP") initiatives and continued investment in
personnel and related costs to fuel growth in the TSG. An increase in the HSG
operating expenses of approximately $203,000 resulted primarily from increased
costs in the Company's restaurant division. Corporate and administrative
expenses increased approximately $796,000 due to increased marketing and
administrative costs to support the Company's growth. As a percent of revenue,
total operating expenses were 54.1% during the three months ended March 31,
2000, up from 40.1% in the same period of 1999.
Business Unit Performance
<TABLE>
<CAPTION>
Technology Hospitality
Dollars in thousands Services Services Consolidated
------------------- ------------------- -------------------
For the Three Months Ended March 31, 2000 1999 2000 1999 2000 1999
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenue $18,069 $13,644 $12,825 $16,045 $30,894 $29,689
Gross profit 6,342 4,613 5,371 7,163 11,713 11,776
Operating expenses 7,832 4,078 6,023 5,820 13,855 9,898
------- ------- ------- ------- ------- -------
Earnings before interest, taxes, and
amortization (1) (1,490) 535 (652) 1,343 (2,142) 1,878
Unallocated items
Corporate and administrative
expenses 2,231 1,435
Amortization expense (1) 631 586
Reorganization costs 5,888
------- -------
Operating loss (5,004) (6,031)
Interest expense (income), net 225 160
------- -------
Pre tax loss (5,229) (6,191)
------- -------
Gross margin 35.1% 33.8% 41.9% 44.6% 37.9% 39.7%
</TABLE>
(1) Excluding amortization of software which is charged to gross profit
9
<PAGE>
Technology Services Group
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------
Dollars in thousands 2000 1999 Change
- -------------------- ------------ ------------- ------------
<S> <C> <C> <C>
Revenue $18,069 $13,644 32.4%
Cost of revenue 11,727 9,031 29.9
------------ -------------
Gross profit 6,342 4,613 37.5
Gross profit margin 35.1% 33.8%
Operating expenses 7,832 4,078 92.1
------------ -------------
EBITA (1,490) 535 (378.5)
------------ -------------
</TABLE>
Operating results from TSG during the three months ended March 31, 2000,
reflect the impact of actions taken during the prior year to reposition
operations into areas with higher growth and higher margin potential. Revenues
increased approximately $4.4 million in the three months ended March 31, 2000
over the same period in 1999, primarily due to increased growth in and focus on
the Company's IT consulting services, network management and customer care
services. Gross profit in the three months ended March 31, 2000, increased
37.5% compared to the same period in 1999. The gross profit percentage
increased to 35.1% in the three months ended March 31, 2000, reflecting a change
in the mix of sales from lower margin products and services to higher margin
services. An increase in the TSG operating expenses of approximately $3.8
million resulted primarily from investment in the Company's ASP initiatives and
continued investment in personnel and related costs to fuel growth in the TSG.
Hospitality Services Group
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
Dollars in thousands 2000 1999 Change
- -------------------- -------------- -------------- ------------
<S> <C> <C> <C>
Revenue $12,825 $16,045 (20.1)%
Cost of revenue 7,454 8,882 (16.1)
-------------- --------------
Gross profit 5,371 7,163 (25.0)
Gross profit margin 41.9% 44.6%
Operating expenses 6,023 5,820 3.5
-------------- --------------
EBITA, after amortization of acquired software (652) 1,343 (148.5)
-------------- --------------
</TABLE>
For the three months ended March 31, 2000, the HSG revenue and gross profit
decreased $3.2 million and $1.8 million, respectively, over the same period in
1999. The decrease was the result of a reduction in sales for the Lodging and
International divisions of approximately $1.5 million and $1.7 million,
respectively, and a reduction in gross profit in the Lodging, Restaurant and
International divisions of approximately $571,000, $463,000 and $661,000,
respectively. The decreases in sales for the first quarter of 2000 were
primarily due to a change in the customer purchasing patterns resulting from the
Y2K transition and a decline in international sales due to the strong U.S.
dollar. Operating expenses increased during the three months ended March 31,
2000, when compared to the same period in 1999, primarily due to increased costs
in the domestic Lodging and Restaurant divisions. Research and development
expenses were lower by $193,000 during the three months ended March 31, 2000,
when compared to the same period in 1999, due to emphasis on new product
development, which is being capitalized, versus maintenance efforts on older
versions of software.
While HSG system sales have begun to increase during the second quarter over
those experienced during the first quarter, the Company expects HSG system
sales and revenue during the second quarter to be lower than originally
forecast. Unless increased revenue from the TSG offsets the expected lower HSG
revenue during the second quarter, consolidated revenue will be lower for the
second quarter than the Company originally forecast. As part of the Company's
strategy to accelerate its penetration into the ASP market, Eltrax engaged
Donaldson, Lufkin & Jenrette in the fourth quarter of 1999 to assist in the
divestiture of the HSG. These efforts are continuing.
10
<PAGE>
Liquidity and Capital Resources
Liquidity is the measurement of the Company's ability to have adequate cash or
access to cash at all times in order to meet financial obligations when due as
well as to fund corporate expansion and other activities. Historically, the
Company has met its liquidity requirements through a combination of working
capital provided by operating activities, debt from third party lenders and
issuances of equity securities. The Company's cash and cash equivalents totaled
$14.2 million at March 31, 2000, and $613,000 at March 31, 1999.
Cash used for operations in the three months ended March 31, 2000, totaled
approximately $6.3 million. The Company's use of cash for operations during
2000 resulted primarily from a net loss of $5.2 million and cash used for
operating items of approximately $2.5 million, offset by non-cash charges for
depreciation and amortization of $1.4 million. Cash provided by operations for
the same period in 1999 totaled approximately $107,000.
The Company used cash for investing activities in the three months ended
March 31, 2000, of approximately $2.7 million, compared to $723,000 for the same
period in 1999. Of such amounts, the Company spent $952,000 and $105,000 on
capitalized software costs in 2000 and 1999, respectively, and $1.7 million and
$618,000 on capital expenditures in 2000, and 1999, respectively
Cash provided by financing activities totaled approximately $22.6 million
in the three months ended March 31, 2000, compared to cash used for financing
activities of approximately $4.8 million for the same period in 1999. During
the quarter ended March 31, 2000 the Company raised approximately $13.0 million
from the sale of common stock to investors in a private placement and $2.0
million from the exercise of stock options.
On March 14, 2000, the Company obtained a $20.0 million asset based
revolving credit facility with PNC Bank. The facility is secured by
substantially all of the assets of the Company. The availability under the
facility at the closing was approximately $14.6 million. At March 31, 2000, the
Company had approximately $17.2 million outstanding under the PNC facility. In
addition, in the first quarter of fiscal year 2000, William P. O'Reilly,
chairman of the Board, made a bridge loan to the Company in the amount of $2.6
million, the proceeds of which were used for the Company's short term working
capital needs. The Company used $7.5 million of the proceeds of the PNC
facility to repay the old facility in full, $2.6 million to repay the bridge
loan to Mr. O'Reilly and approximately $900,000 to repay other third party debt.
Additional borrowings on the Company's PNC credit line during the three months
ended March 31, 2000, totaled approximately $7.8 million. During 1999,
reductions of the credit line and payments of long term debt totaled
approximately $4.8 million.
For the quarter ended March 31, 2000, the Company was not in compliance with
the net cash flow covenant in the PNC facility. The Company did not achieve the
net cash flow required by the covenant because of accelerated investment in the
operations and infrastructure of the TSG and lower than expected revenues from
the HSG, primarily due to a change in customer purchasing patterns resulting
from the Y2K transition and a decline in international sales due to the strong
U.S. dollar. See "Results of Operations - Hospitality Services Group." The
Company's accelerated investment in the TSG resulted from the closing of the
private placement in which the Company raised approximately $13.0 million. PNC,
the Company's lender, has waived the non-compliance and PNC and the Company have
amended the facility to increase the requirement that the Company maintain
undrawn availability under the facility from $1.0 million at all times to $3.0
million during the first and third month of each fiscal quarter and $2.0 million
during the second month of each fiscal quarter. The Company is currently
negotiating and expects to obtain a modification to the net cash flow covenant
to contemplate the accelerated investments in the TSG and the lower than
expected revenue of the HSG for the first and second quarters of 2000.
For the remainder of 2000, the Company expects that its primary sources of
cash will be from operations, borrowings under the PNC facility, and other
sources, including issuances of equity securities and possible sales of assets.
The Company believes it will have sufficient liquidity from these sources to
meet its current financial obligations through 2000. However, the facility
contains certain financial covenants and limitations on the Company's ability to
access funds under the facility. If the Company is in violation of the
facility, or does not have sufficient eligible accounts receivable to support
the level of borrowings it needs, the Company will be unable to draw on the
facility. To the extent the Company does not have borrowing availability under
the facility, the Company will be required to obtain additional sources of
capital, sell assets, obtain an amendment to the facility or otherwise
restructure its outstanding indebtedness. If the Company is unable to obtain
additional capital, sell assets, obtain an amendment to the facility or
otherwise restructure its outstanding indebtedness, the Company may not be able
to meet its obligations. In addition, in order to execute the Company's
business strategy, which calls for rapid growth, particularly in the TSG and ASP
business, the Company will require additional financial resources. Such
additional financing may not be available to the Company on favorable terms or
at all. If adequate funds are not available on acceptable terms, the Company
will not be able to execute its business strategy.
11
<PAGE>
ITEM 2: Quantitative and Qualitative Disclosures about Market Risk
Market Risk
The Company is exposed to various market risks, including changes in
foreign currency exchange rates and interest rates. Market risk is the
potential loss arising from adverse changes in market rates and prices, such as
foreign currency exchange and interest rates. The Company does not enter into
derivatives or other financial instruments for trading or speculative purposes.
The Company has also not entered into financial instruments to manage and reduce
the impact of changes in foreign currency exchange rates and interest rates.
The Company may enter into such transactions in the future.
Interest Rate Risks
The Company's debt at March 31, 2000, primarily carries interest rates
which vary with the prime rate. Accordingly, any increases in the banks' prime
rate will reduce the Company's earnings. A 1% increase in the prime rate on the
Company's $17.2 million of bank debt at March 31, 2000 would result in an annual
expense increase of approximately $172,000.
Foreign Currency Risks
At March 31, 2000 the Company had foreign currency denominated assets and
liabilities of approximately $9.7 million and $3.2 million, respectively.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Company is involved in claims and proceedings, which are routine and
which in the aggregate are not deemed material to the Company's business or
financial affairs.
During the quarter ended March 31, 2000, the Company settled a lawsuit
brought against Sulcus Hospitality Technologies Corp., one of the Company's
wholly-owned subsidiaries. The lawsuit was commenced during the quarter by
the former shareholders of Senercomm, Inc. which Sulcus purchased in
December 1997, to accelerate and demand payment of a past due promissory
note. The Company paid the past due and accelerated amounts, aggregating
approximately $900,000, and the lawsuit was dismissed.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
During the quarter ended March 31, 2000 the Company issued 1,194,532 shares
of common stock to 27 accredited investors in a private placement exempt
from the registration requirements of the Securities Act of 1933, as
amended ("the Act"), pursuant to Section 4 (2) of the Act and Rule 506 of
Regulation D promulgated under the Act. The shares were sold at $11.75 per
share for cash. Morgan Keegan & Company, Inc. acted as placement agent and
received a commission for such services of $722,000.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
27 Financial Data Schedule.
(b) Reports on Form 8-K.
None
13
<PAGE>
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.
Date: May 15, 2000 /s/ William A. Fielder, III
---------------------------------------------
Chief Financial Officer
(authorized signatory and
principal financial and accounting officer)
14
<PAGE>
ELTRAX SYSTEMS, INC.
EXHIBIT INDEX
FORM 10-Q
<TABLE>
<CAPTION>
Exhibit
Number Exhibits Method of Filing
- ------- -------- ----------------
<S> <C> <C>
27.1 Financial Data Schedule Filed herewith electronically
</TABLE>
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 14,203,795
<SECURITIES> 0
<RECEIVABLES> 28,391,245
<ALLOWANCES> (4,665,027)
<INVENTORY> 8,439,890
<CURRENT-ASSETS> 54,972,497
<PP&E> 7,827,573
<DEPRECIATION> 514,352
<TOTAL-ASSETS> 87,942,499
<CURRENT-LIABILITIES> 52,016,093
<BONDS> 0
0
0
<COMMON> 254,252
<OTHER-SE> 35,672,154
<TOTAL-LIABILITY-AND-EQUITY> 87,942,499
<SALES> 30,894,148
<TOTAL-REVENUES> 30,894,148
<CGS> 19,181,212
<TOTAL-COSTS> 16,717,303
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 224,381
<INCOME-PRETAX> (5,228,748)
<INCOME-TAX> 9,566
<INCOME-CONTINUING> (5,238,314)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,238,314)
<EPS-BASIC> (.22)
<EPS-DILUTED> (.22)
</TABLE>
