SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended December 31, 1998
Commission File Number 33-7693
___________________________________________________________________________
DATAWORLD SOLUTIONS, INC.
(FORMERLY VERTEX COMPUTER CABLE & PRODUCTS, INC.)
(Exact name of registrant as specified in its charter)
___________________________________________________________________________
Delaware 11-2816128
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
920 Conklin Street, Farmingdale, New York 11735
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (516) 293-1610
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes _ No ___X____
Indicate by check mark whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes _X No _______
On June 1, 1999, 26,824,000 shares of common stock, $.10 par value were
outstanding.
Note: This is Page 1 of a document consisting of 18 pages.
DATAWORLD SOLUTIONS, INC.
(FORMERLY VERTEX COMPUTER CABLE & PRODUCTS, INC.)
TABLE OF CONTENTS
PAGE
PART I: FINANCIAL INFORMATION
ITEM 1: UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheet - December 31, 1998 ................................ 3
Statement of Operations - Three Months Ended
December 31, 1998 .............................................. 4
Statement of Operations - Six Months Ended
December 31, 1998 .............................................. 5
Statement of Changes in Stockholders' (Deficiency) for
the Six months ended December 31, 1998 ......................... 6
Statement of Cash flows for the Six months ended
December 31, 1998............................................... 7
Notes to Condensed Consolidated Financial Statements.............. 8-12
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 13-16
PART II- OTHER INFORMATION........................................... 17
SIGNATURES........................................................... 18
DATAWORLD SOLUTIONS, INC.
(FORMERLY VERTEX COMPUTER CABLE & PRODUCTS, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
December 31,
1998
ASSETS ------------
CURRENT ASSETS:
Accounts receivable, net of allowance
for doubtful accounts of $68,000.................. $ 1,614,927
Inventories, net................................... 1,052,211
Prepaid expenses and other current assets.......... 102,972
------------
TOTAL CURRENT ASSETS............................... 2,770,110
PROPERTY, PLANT AND EQUIPMENT, net................... 373,621
Goodwill ............................................ 3,615,854
DEFERRED CHARGES AND OTHER ASSETS.................... 36,290
------------
TOTAL ASSETS......................................... $ 6,795,875
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Cash overdraft..................................... $ 122,489
Current portion of long-term debt.................. 2,665,030
Current portion due to affiliate.................... 66,666
Accounts payable and accrued expenses.............. 2,461,554
Bankruptcy distributions payable................... 391,000
------------
TOTAL CURRENT LIABILITIES .......................... 5,706,739
DUE TO AFFILIATE..................................... 103,643
LONG-TERM DEBT, NET OF CURRENT PORTION............... 31,350
SECURED SUBORDINATED DEBENTURES, net................. 83,993
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Redeemable, cumulative, Convertible, preferred
stock, stated value $100 per share;
authorized, 5,000,000 shares; 6,000 issued
and outstanding.................................. 600,000
Common stock, par value $.10 per share;
authorized 40,000,000 shares; issued
and outstanding 26,824,000 ...................... 2,682,400
Accumulated Deficit................................ (2,412,250)
------------
TOTAL STOCKHOLDERS' EQUITY 870,150
------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY............................................. $ 6,795,875
============
The accompanying notes are an integral part of these financial statements.
DATAWORLD SOLUTIONS, INC.
(FORMERLY VERTEX COMPUTER CABLE & PRODUCTS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
December 31,
1998
(see Note 2)
-------------------
Net sales.......................................... $ 1,104,415
Cost of goods sold................................. 906,646
------------
Gross profit ...................................... 197,769
Selling, general and administrative expenses....... 446,324
------------
Loss before interest and income taxes.............. (248,555)
Interest expense................................... 40,915
------------
Loss before income taxes........................... (289,470)
Income taxes ...................................... 11,686
------------
Net loss attributable to common stockholders ...... $ (301,156)
============
Basic loss per share
Basis loss per share............................... $ (.01)
============
Weighted average number of common shares
outstanding - basic............................... 26,824,000
============
The accompanying notes are an integral part of these financial statements.
DATAWORLD SOLUTIONS, INC.
(FORMERLY VERTEX COMPUTER CABLE & PRODUCTS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended
December 31,
1998
(see Note 2)
-------------------
Net sales.......................................... $ 1,444,199
Cost of goods sold................................. 1,095,565
------------
Gross profit ...................................... 348,634
Selling, general and administrative expenses....... 603,645
Aborted offering and acquisition costs............. 36,532
------------
Loss before interest and income taxes.............. (291,543)
Interest expense................................... 40,915
------------
Loss before income taxes........................... (332,458)
Income taxes....................................... 13,162
------------
Net Loss attributable to common stockholders....... $ (345,620)
============
Basic loss per share
Basic loss per share.............................. $ (.01)
=============
Weighted average number of common shares
outstanding - basic.............................. 26,824,000
=============
The accompanying notes are an integral part of these financial statements.
DATAWORLD SOLUTIONS, INC.
(FORMERLY VERTEX COMPUTER CABLE & PRODUCTS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY (DEFICIENCY)
(Unaudited)
<TABLE>
<CAPTION>
Total
Pre- Preferred Common Paid- stock-
ferred stock Common stock in Retained holder's
shares amount shares amount capital earnings equity
------ -------- ---------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance July 1, 1998 -0- $ -0- 4,000,000 $ 4,000 $ 16,000 $ 38,164 $ 58,164
Net loss attributable
to common stock-
holder's (345,620) (345,620)
Issuance of preferred
stock 6,000 600,000 600,000
Effect of shares issued
and exchanged in
connection with the
acquisition of vertex 14,500,000 1,846,000 (16,000) (2,104,794) (274,794)
As adjusted in conn-
ection with the
merger with Vertex 8,324,000 832,400 832,400
------ -------- ---------- ----------- -------- ----------- ----------
Balance December 31,
1998 6,000 $600,000 26,824,000 $2,682,400 $ -0- $(2,412,250) $ 870,150
======= ======== ========== ========== ======== ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
DATAWORLD SOLUTIONS, INC.
(FORMERLY VERTEX COMPUTER CABLE & PRODUCTS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS
(Unaudited)
Six Months
Ended
December 31,
1998
(see Note 2)
-----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss.................................................. $(345,620)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization......................... 12,804
Change in operating assets and liabilities:
(Increase) in accounts receivable..................... (515,496)
(Increase) in inventories............................. (167,720)
Decrease in other assets.............................. 18,904
Increase in accounts payable and
accrued expenses.................................... 357,955
----------
Net cash used in operating activities...................... (639,173)
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Vertex, net............................... (74,795)
----------
Net cash used in investing activities...................... (74,795)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under debt and loan agreements............ 212,660
Proceeds from issuance of preferred stock................ 400,000
Cash overdraft........................................... 81,308
----------
Net cash provided by financing activities.................. 693,968
----------
NET DECREASE IN CASH....................................... (20,000)
CASH at beginning of period................................ 20,000
----------
CASH at end of period...................................... $ -0-
==========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest.............................................. $ 37,812
==========
The accompanying notes are an integral part of these financial statements.
DATAWORLD SOLUTIONS, INC.
(FORMERLY VERTEX COMPUTER CABLE & PRODUCTS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
DataWorld Solutions, Inc. (formerly Vertex Computer Cable & Products,
Inc.), operates primarily in one business segment - assembly and
distribution of electronic wire, cable and related products used
primarily for data communication and distribution. The principal
market for the Company's products is in the United States.
The condensed consolidated balance sheet as of December 31, 1998 and the
related consolidated statements of operations and changes in
stockholders' deficiency for the six months ended December 31, 1998 have
been prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the consolidated financial
position, results of operations and changes in cash flows at December
30, 1998 and for all periods presented have been made.
The condensed statements of income include the operations of DataWorld
Solutions, Inc. ("DataWorld") for the three and six month periods
ended December 31, 1998. The results of operations of Vertex Computer
Cable & Products, Inc. ("Vertex") have been included in the condensed
results of operations since the date of the merger (see Note 2). Results
of operations for the six months ended December 31, 1998 are not
necessarily indicative of results of operations that may be expected for
the year ending June 30, 1999. Information as to Vertex's significant
accounting policies and certain other information pertaining to Vertex
should be obtained from Vertex's historical financial reports including
it's Annual Report on Form 10-K for the year ended June 30, 1998.
DataWorld's significant accounting policies are not materially different
from those of Vertex's. Certain information and note disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted.
2. MERGER
On December 17, 1998, the Company entered into an agreement with (1)
DataWorld, a privately held distributor of connectivity products, Whose
principal shareholders, where Daniel McPhee and Christopher Francis, and (2)
TW Cable, LLC. ("TW") and Edward Goodstein, the Company's then
chairman and principal shareholder. Pursuant to the agreement, (i)
Vertex acquired all the outstanding shares of Dataworld in exchange
for the issuance of 1,500,000 shares of the Company's common stock
(ii) TW forgave approximately $2,300,000 in principal face amount of
secured subordinated debt and all accrued interest relating thereto,
(iii) TW forgave $280,000 of indebtedness, contributed $400,000 cash
and arranged for approximately $400,000 of TW funds held in escrow for
the benefit of Vertex's creditors to be released to such creditors as
payment on behalf of Vertex in exchange for 6,000 shares of the
Company's newly issued $6 Senior Cumulative Convertible Preferred
Stock having a stated value of $100 per share, and (iv) Messrs. McPhee
and Francis purchased 17,000,000 shares of the Company's common stock
from TW for $200,000. As a result of the above, Messrs. McPhee and
Francis collectively own approximately 69% of the Company's common
stock and effective December 18, 1998 Messrs. McPhee and Francis
became the Company's Chief Executive Officer and Chief Operating
Officer, respectively. Mr.McPhee became Chairman of the Board of
Directors as a result of DataWorld's purchase of the Vertex shares.
2. MERGER (CONTINUED)
The merger was accounted for under the purchase method of accounting as
a reverse acquisition of Vertex by DataWorld. Accordingly, the assets
acquired and liabilities assumed of Vertex were recorded at their
estimated fair values of approximately $2,275,000 and $5,058,000,
respectively. On the date of the merger the fair value of Vertex's
liabilities (after considering the above mentioned forgiveness and
capital contributions) exceeded the fair value of net assets by
approximately $2,783,000. The condensed consolidated statements of operations
for the three month and six month periods ended December 31, 1998 and the
condensed consolidated statement of cash flows for the six month period
ended December 31, 1998 reflect financial information of DataWorld and include
the financial results of Vertex for the period December 18-31, 1998. Pro-forma
financial results as defined below, are presented in these notes and in
Management's Discussion and Analysis section, as if DataWorld and Vertex had
been combined as of the beginning of the applicable period involved. This
pro-forma information does not purport to be indicative of what would have
occurred had the acquisition, in fact, occurred on the beginning date of the
applicable period involved nor of results that may occur in the future.
The following table summarizes the assets acquired and liabilities
assumed from Vertex:
Current Assets $(1,854,977)
Fixed Assets (383,322)
Other Assets (36,290)
Liabilities assumed 5,058,043
Deemed common stock
issued 832,400
------------
Goodwill $ 3,615,854
============
The unaudited consolidated statement of operations on a pro-forma
basis have been presented below as though Vertex had been acquired as
of the beginning of July, 1998. This pro-forma information does not
purport to be indicative of what would have occurred had the
acquisition been made as of July 1, 1998 or of results which may occur
in the future.
Six-Month Period Ended
December 31, 1998
----------------------
Net sales $ 4,085,000
Cost of goods sold 3,559,000
Gross Profit $ 526,000
============
Net loss attributable
to common stock $(1,531,000)
============
Basic loss per share $ (.06)
============
3. INVENTORIES
Inventory consists principally for products held for sale. The
Company regularly reviews its inventory for obsolete and slow-moving
items which includes reviews of inventory levels of certain product
lines and an evaluation of the inventory based on changes in
technology and markets. As of December 31, 1998, the reserve was
approximately $705,000.
December 31,
1998
---------------
Raw Materials $ 32,772
Work in Process 25,049
Finished Goods 994,390
---------------
Inventories, net $1,052,211
===============
DATAWORLD SOLUTIONS, INC.
(FORMERLY VERTEX COMPUTER CABLE & PRODUCTS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. LONG-TERM DEBT
Long-term debt consists of the following: December 31,
1998
-------------
Revolving asset-based loan (a).............. $ 2,614,404
Capitalized lease obligations (b)........... 117,660
-------------
2,696,380
Less current portion of long-term debt...... 2,665,030
-------------
$ 31,350
=============
a. On July 28, 1998 the Company enter into a financing agreement
("Agreement") with a financial institution. The Agreement provides
for a maximum borrowing of $3,000,000 through May 31, 2001. Total
borrowings are limited to 85% of eligible accounts receivable
(constituting those amounts outstanding 90 days or less) and 50% of
eligible accounts receivable outstanding between 91 and 120 days, and 40%
of regular inventories and 10% of slow moving inventory. Under the terms
of the July 28, 1998 financing, the Company is required to pay interest at
prime plus 2 1/2% and an initial commitment fee of 1.25% and 1% per annum
for the second and third year. Additionally, the Company is required to
maintain tangible net worth, (the aggregate amount of all assets, less
intangible assets, of the Company less the aggregate amount of all
liabilities of the Company excluding subordinated liabilities to Lender)
not less than $(750,000) and Working Capital of not less than $(500,000).
As of December 31, 1998, the Company is in technical default of the
Agreement, and accordingly has classified the entire balance due as a
current liability in the accompanying balance sheet . The lender
continues to provide borrowings under this Agreement, and the Company will
seek to amend the Agreement. However, no assurances can be made the
Company will be able to successfully amend the Agreement.
As a result of the December 1998 merger, DataWorld's financing agreement
with the same lender was merged into the Vertex financing agreement under
the same terms as stated above.
b. The Company leases certain warehouse and manufacturing equipment accounted
for as capital leases. The obligation for the warehouse equipment
requires the Company to make monthly payments of $1,240 through May 2000.
During the nine month period the Company leased certain manufacturing
equipment totaling approximately $111,000 that requires the Company to
make monthly payments of approximately $3,107 through August 2000.
The following is a summary of the aggregate annual maturities of long-term
debt
December 31, Total
------------- ------------
1999 $ 50,626
2000 31,056
2001 2,614,698
------------
$ 2,696,380
============
DATAWORLD SOLUTIONS, INC.
(FORMERLY VERTEX COMPUTER CABLE & PRODUCTS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. COMMITMENTS AND CONTINGENCIES
a. Leases
The Company's minimum annual lease commitments under noncancellable
operating leases for premises at December 31, 1998 are as follows:
December 31:
1999 240,334
2000 192,651
2001 173,253
----------
$ 606,238
==========
Rent expense, including related real estate taxes and other operating
charges, was approximately $54,941 for the six months ended December 31,
1998.
6. SECURED SUBORDINATED DEBENTURES
The subordinated debentures remain secured by all of the Company's
assets subordinated to all current and future institutional loan
facilities. In addition, payments on account of the subordinated
debentures shall be subordinated to future cash distributions based on
cash flows to the unsecured (Class 7) creditors under the Vertex Plan
of Reorganization (see Vertex's Form 10-K)
7. DUE TO AFFILIATE
As of December 31, 1998, amounts due to the affiliate has been
discounted at an interest rate of 10.75% per annum. The note requires
the Company to pay the affiliate over 36 months commencing July 1,
1999.
8. PREFERRED STOCK
As a result of the Merger (see Note 2) the Company issued to TW Cable
6,000 shares of $6 Senior Cumulative Convertible Preferred Stock
("Preferred Stock") having a stated value of $100 per share.
Beginning December 1, 1999, the dividends accrue at the rate of $6 per
share, and are payable quarterly beginning March 1, 2000. The holders
of the Preferred Stock have the right to convert the Preferred Stock
into the Company's common stock anytime after December 31, 1999
provided that market price of the Company's common stock is greater than $1.50.
In the event the holders of the Preferred Stock elect to convert, the amount
of shares received in conversion will be determined by dividing the stated
value, including accrued but unpaid dividends, by 75% of the market
price of the Company's Common stock, as defined. Further, the
Preferred Stock is redeemable at the option of the holder anytime after
December 1, 2003 at stated value plus any accrued but unpaid dividends.
In the event the holders seek redemption, the Company may either redeem
such shares for cash or issue shares of common stock with a market
value equaling the redemption amount.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Quarter Ended December 31, 1998
- ----------------------------------
DataWorld commenced operations on January 7, 1998, therefore the Company
can not provide any comparative financial information with respect to the
separate results of DataWorld. For the purposes of additional
comparative analysis, the Company has included in its discussion of
results of operations, proforma comparative results which include the
historical results of Vertex for all periods presented.
Net sales for the quarter ended December 31, 1998 were approximately
$1,104,000. Net sales include approximately $410,000 in revenues
generated from Vertex after the merger (see Note 2).
Pro-forma net sales for the three months ended December 31, 1998 were
approximately $2,091,000 which includes approximately $1,396,000 for
Vertex. Vertex's net sales for the three months ended December 31, 1997
were approximately $1,695,000. The decrease was a result of Vertex not
having sufficient cash to procure necessary materials for product delivery.
Gross profit for the quarter ended December 31, 1998 was approximately
$197,769. Gross profit as a percentage of sales was 17.9% for the quarter
ended December 31, 1998. Gross profit includes approximately $31,000 from
Vertex after the merger (see Note 2).
Pro-forma gross profit for the three month ended December 31, 1998 was
approximately $189,000 or 9.0% which includes approximately $21,000 for
Vertex. Vertex's gross profit for the three months ended December 31, 1997
was approximately $52,000. The decrease in pro-forma gross profit is
primarily a result of lower sales volume.
Selling, general and administrative expenses were approximately $446,000
or 40.4% for the quarter ended December 31, 1998. Included in Selling,
general and administrative expenses is approximately $20,000 for the
start-up of a Union Shop, approximately $25,000 for professional fees paid
in connection with potential acquisitions and approximately $28,000 for
fees paid for the company's new revolving credit facility.
Pro-forma selling, general and administrative expenses for the three months
ended December 31, 1998 was approximately $820,000 which includes
approximately $676,000 for Vertex. Vertex's selling, general and
administrative expenses for the three months ended December 31, 1997 was
approximately $810,000. The decrease in pro-forma selling, general and
administrative expense is due to Vertex reducing its payrolls and other
expenses such as insurance.
Interest expense for the quarter ended December 31, 1998 was approximately
$41,000. This interest was incurred by to the Company's revolving credit
facility and for the Company's outstanding Subordinated Debentures.
Pro-forma interest expense for the three months ended December 31, 1998 was
approximately $121,000. Vertex's interest expense for the three months
ended December 31, 1997 was approximately $81,000. The increase in
pro-forma interest expense relates to the Company's increased borrowing
under it's credit facility and interest accrued for outstanding
Subordinated Debentures.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Six Months Ended December 31, 1998
- -----------------------------------
DataWorld commenced operations on January 7, 1998, therefore the Company
can not provide any comparative financial information with respect to the
separate results of DataWorld. For the purposes of additional
comparative analysis, the Company has included in its discussion of
results of operations, pro-forma comparative results which include the
historical results of Vertex for all periods presented.
Net sales for the six months ended December 31, 1998 were approximately
$1,444,000. Net sales include approximately $410,000 in revenues
generated from Vertex after the merger (see Note 2).
Pro-forma net sales for the six months ended December 31, 1998 were
approximately $4,085,000 which includes approximately $3,051,000 for
Vertex. Vertex's net sales for the six months ended December 31, 1997 were
approximately $3,998,000. The decrease was a result of Vertex not having
sufficient cash to procure necessary materials for product delivery.
Gross profit for the six months ended December 31, 1998 was approximately
$349,000. Gross profit as a percentage of sales was 24.2% for the six
months ended December 31, 1998. Gross profit includes approximately
$31,000 from Vertex after the merger (see Note 2).
Pro-forma gross profit for the six months ended December 31, 1998 was
approximately $526,000 or 12.9% which includes approximately $208,000 for
Vertex. Vertex's gross profit for the six months ended December 31, 1997
was approximately $271,000. The decrease in pro-forma gross profit is
primarily a result of lower sales volume.
Selling, general and administrative expenses were approximately $604,000
or 41.8% for the six months ended December 31, 1998. Included in Selling,
general and administrative expenses is approximately $20,000 for the
start-up of a Union Shop, approximately $25,000 for professional fees paid
in connection with potential acquisitions and approximately
$28,000 for fees paid for the company's new revolving credit facility.
Pro-forma selling, general and administrative expenses for the six months
ended December 31, 1998 was approximately $1,684,000 which includes
approximately $1,382,000 for Vertex. Vertex's selling, general and
administrative expenses for the three months ended December 31, 1997 was
approximately $1,534,000. The decrease in pro-forma selling, general and
administrative expense is due to Vertex reducing its payrolls and other
expenses such as insurance.
Aborted offering and acquisition costs consist of legal and other
professional fees directly related to the Company's aborted private
placement memorandum (approximately $24,700) and due diligence costs
(approximately $11,800) relating to the investigation of an acquisition
target.
Interest expense for the six months ended December 31, 1998 was $40,915.
This interest was incurred by to the Company's revolving credit facility
and for the Company's outstanding Subordinated Debentures.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Six Months Ended December 31, 1998 (continued)
- -----------------------------------------------
Pro-forma interest expense for the six months ended December 31, 1998 was
approximately $233,000. Vertex's interest expense for the six months ended
December 31, 1997 was approximately $171,000. The increase in pro-forma
interest expense relates to the Company's increased borrowing under it's
credit facility.
Liquidity and Financial Condition
As of December 31, 1998
- ----------------------------------
Current assets at December 31, 1998 were approximately $2,770,000. The
Company had net working capital deficiency of approximately $2,937,000 at
December 31, 1998. The working capital at December 31, 1998 is not
sufficient to meet the Company's current liquidity needs. Under the
Vertex Plan of Reorganization, the Company is required to pay the
unsecured creditors under a payment arrangement (see Vertex's Form 10-K).
Currently the Company has not made any payment and is working to extend or
modify the payment terms. The Company is also exploring opportunities to
further reduce operating costs and to obtain additional sources of
working capital. However, there can be no assurances that new
management will be successful in further reducing operating costs or
obtaining additional sources of working capital. Total borrowings
outstanding were approximately $2,614,000 at December 31, 1998.
The Company's revolving credit facility is providing availability based on
combined accounts receivable and inventory of the merged entities. As of
December 31, 1998, the Company is in technical default of the Agreement,
and accordingly has classified the entire balance due as a current
liability in the accompanying balance sheet . The lender continues to
provide borrowings under this Agreement, and the Company will seek to
amend the Agreement. However, no assurances can be made the Company will
be able to successfully amend the Agreement.
During the six months ended December 31, 1998, the Company used
approximately $639,000 in cash from operating activities primarily due to
the Company's net loss and increase in accounts receivable. Cash provided
by financing activities approximated $694,000 during its six months ended
December 31, 1998, principally for its proceeds from issuing preferred
stock and additional borrowings under the credit facility. Cash used in
investing activities of approximately $75,000 relates to the acquisition
of Vertex, as Vertex had a cash overdraft on the date of acquisition.
YEAR 2000
The Year 2000 issue is the result of computer programs which were
written using two digits rather than four to define the applicable year.
For example, date-sensitive software may recognize a date using "00"
as the Year 1900 rather than the Year 2000. Such misrecognition could
result in system failures, or miscalculations causing disruptions of
operations, including, among others, a temporary inability to process
transactions, send invoices or engage in similar normal business
activities.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
YEAR 2000 (continued)
The Company has evaluated its programs to prepare computer systems and
applications for the Year 2000. The Company will need to modify or
replace its internal systems by acquiring a Year 2000 compliant system
by the end of September 1999. The Company expects to incur internal
staff costs as well as consulting and other expenses related to the
enhancements necessary to complete the systems for the Year 2000.
Management believes that the estimated costs to modify or replace such
applications will not be material to the Company. Management believes
that the internal risk concerning Y2K issues is minimal.
Information technology systems ("IT Systems") account for much of the
Year 2000 work and include all computer systems and technology used by
the Company. All core systems have been assessed, plans are in place,
and work is being undertaken to implement changes where required. The
appropriate vendors and suppliers have been contacted as to their Year
2000 compliance. Management believes that all of the Company's IT
systems and equipment have been identified, and that the majority of the
work necessary to make such systems and equipment Y2K compliant have been
finished.
An inventory and assessment of all non-IT systems (items containing
embedded chips, such as telephones) are being undertaken. The majority
of these non-IT systems are not believed to be potential sources of
significant disruption, although the contingency plans (described below)
will address non-IT Y2K failure as well as IT systems failure.
The Company's management is in the process of developing a "worst-case
scenario" with respect to Y2K non-compliance and to develop contingency
plans designed to minimize the effects of such scenario. Although
management believes that it is very unlikely that the worst-case scenario
will occur, contingency plans will be developed and will address both IT
and non-IT system failure.
PART II- OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
8-K, December 18, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATAWORLD SOLUTIONS, INC.
By: /s/ Daniel McPhee
Chief Executive Officer
By: /s/ Nicholas T. Hutzel
V.P. & Controller
Dated: July 2, 1999
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