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 September 30, 1999
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: (631) 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 January 1, 2000, 26,824,000 shares of common stock, $.001 par value were
outstanding.
Note: This is Page 1 of a document consisting of 13 pages.
DATAWORLD SOLUTIONS, INC.
TABLE OF CONTENTS
PAGE
PART I: FINANCIAL INFORMATION
ITEM 1: UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheet - September 30, 1999 and June 30, 1999 .............. 3
Statement of Operations - Three Months Ended
September 30, 1999 and 1998...................................... 4
Statement of Cash flows for the three months ended
September 30, 1999 and 1998...................................... 5
Notes to Condensed Consolidated Financial Statements.............. 6-8
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 9-11
PART II- OTHER INFORMATION........................................... 12
SIGNATURES........................................................... 13
DATAWORLD SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, June 30,
1999 1999
--------------- ------------
ASSETS
CURRENT ASSETS:
Cash....................................... $ 11,606 $ -
Accounts receivable, net of allowance
for doubtful accounts of $57,000 and
$67,000 as of September 30, 1999 and
June 30, 1999, respectively.............. 2,778,735 2,157,254
Inventories, net........................... 1,413,231 918,474
Prepaid expenses and other current
assets............................ ...... 109,899 71,362
------------ ------------
TOTAL CURRENT ASSETS....................... 4,313,471 3,147,090
PROPERTY, PLANT AND EQUIPMENT, net........... 307,715 333,114
GOODWILL..................................... 3,576,828 3,623,280
DEFERRED CHARGES AND OTHER ASSETS............ 76,944 74,844
------------ ------------
TOTAL ASSETS................................. $ 8,274,958 $ 7,178,328
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt.......... $ 44,352 $ 51,261
Current portion Notes payable - Affiliate.. 66,666 66,666
Cash overdraft............................. - 26,120
Accounts payable and accrued expenses...... 3,614,245 2,942,923
Bankruptcy distributions payable........... 391,000 391,000
------------ ------------
TOTAL CURRENT LIABILITIES ............... 4,164,473 3,477,970
LONG-TERM DEBT, NET OF CURRENT PORTION....... 3,686,782 3,241,987
NOTES PAYABLE - AFFILIATE, net............... 185,167 103,643
SECURED SUBORDINATED DEBENTURES, net......... 84,713 84,713
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Redeemable, Cumulative, Convertible Preferred
stock, stated value $100 per share,
authorized 5,000,000 shares, 7,050 issued
and outstanding, net..................... 705,000 705,000
Common stock, par value $.001 per share;
authorized 40,000,000 shares; issued
and outstanding 26,824,000 shares ....... 26,824 26,824
Accumulated Deficit........................ (529,791) (461,809)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 202,033 270,015
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY.................................... $ 8,274,958 $ 7,178,328
============ ============
The accompanying notes are an integral part of these financial statements.
DATAWORLD SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
1999 1998
------------ ------------
(See Note 2)
Net sales.................................... $ 3,280,912 $ 339,784
Cost of goods sold........................... 2,600,933 188,919
------------ ------------
Gross profit................................. 679,979 150,865
Selling, general and administrative expenses. 572,178 158,797
Aborted offering and acquisition costs....... - 36,536
------------ ------------
Earnings (loss) before interest and
depreciation ............................. 107,801 (44,464)
Interest expense............................. 100,257 -
------------ ------------
Earnings (loss) before depreciation.......... 7,544 (44,464)
Depreciation and amortization................ 75,526 -
------------ ------------
Net loss $ (67,982) $ (44,464)
============ ============
Share Information
Basic and diluted loss per share............. $ (.003) $ (.002)
============ ============
Weighted average number of common shares
outstanding................................. 26,824,000 26,824,000
============ ============
The accompanying notes are an integral part of these financial statements.
DATAWORLD SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS
(Unaudited)
Three Months Ended
September 30,
1999 1998
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss attributable to common stock.............. $ (67,982) $ (2,472,309)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization.................. 69,751 419,779
Provision for losses on accounts receivable.... - 80,000
Provision for slow-moving and obsolete
inventories.................................... - 70,000
Loss on extinquishment of debt................... - 120,000
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable..... (621,481) 289,677
(Increase) in inventories...................... (494,756) (1,012,017)
(Increase) decrease in prepaid expenses and
other current assets......................... (38,536) 464,210
(Increase) in other assets..................... (2,100) (67,262)
Increase in accounts payable and
accrued expenses............................. 676,633 2,239,175
------------ -----------
Net cash provided by operating activities........ (478,471) 131,253
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................ - (112,398)
Proceeds from sale of headquarters, net......... - 2,086,502
----------- -----------
Net cash provided by investing activities....... - 1,974,104
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under debt and loan agreements......... 3,492,365 16,767,905
Loan from affiliate............................... 73,000 -
Debt repayments................................... (3,075,288) (18,607,141)
------------ ------------
Net cash provided by (used in) financing
activities....................................... 490,077 (1,839,236)
------------ ------------
NET INCREASE IN CASH............................... 11,606 282,574
CASH at beginning of period........................ - 73,230
------------ ------------
CASH at end of period.............................. $ 11,606 $ 355,804
============ ============
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 100,257 $ 528,432
============ ============
DATAWORLD SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
DATAWORLD SOLUTIONS, INC., (the "Company") formerly known as 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 September 30, 1999 and
the related consolidated statements of operations, changes in
stockholders' deficiency and cash flows for the three months ended
September 30, 1999 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
September 30, 1999 and for all periods presented have been made.
The comparative condensed statements of income for the three months
ended September 30, 1998 include only the operations of DataWorld
Solutions, Inc. ("DataWorld") for the three month ended September 30,
1998. The results of operations of Vertex Computer Cable & Products,
Inc. ("Vertex") are not included in the condensed results of
operations since the merger (see Note 2) did not conclude until December
17, 1998. 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, formerly known as Vertex Computer
Cable & Products, Inc., entered into an agreement with a privately
held distributor, DataWorld Solutions, Inc. ("Old DataWorld"), the
principal shareholders of DataWorld Solutions, Inc. who where Daniel
McPhee and Christopher Francis, TW Cable, LLC. and Edward Goodstein,
the Company's then chairman and principal shareholder. Pursuant to the
agreement, (i) Vertex acquired all the outstanding shares of Old
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. Thereafter in May 1999,
Vertex, the surviving entity, merged with Old DataWorld and changed
its name to DataWorld Solutions, Inc. Thereafter in July 1999, the
Company's certificate of incorporation was amended to reflect a change
in the Company's par value for common stock from $.10 to $.001 per
share.
DATAWORLD SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. MERGER (CONTINUED)
Mr. McPhee became Chairman of the Board of Directors as a result of
DataWorld's purchase of the Vertex shares.
The merger was accounted for under the purchase method of accounting as
a reverse acquisition of Vertex by Old DataWorld. Accordingly, the
assets acquired and liabilities assumed of Vertex were recorded at their
estimated fair values of approximately $2,070,000 and $4,958,000,
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 $2,888,000. The comparative condensed statements of income
for the three months ended September 30, 1998 include only the
operations of Old DataWorld Solutions, Inc. for the three month ended
September 30, 1998. The results of operations of Vertex are not
included in the condensed results of operations since the merger (see
Note 2) did not conclude until December 17, 1998. Pro-forma financial
results as defined below, are presented in these notes and in
Management's Discussion and Analysis section, as if Old 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 $(1,651,000)
Fixed Assets (383,000)
Other Assets (36,000)
Liabilities assumed 4,958,000
Deemed common stock
issued 832,000
-------------
Goodwill $ 3,720,000
=============
A pro-forma unaudited consolidated statement of operations has been
presented below as though Vertex had been acquired as of July 1, 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.
Three-Month Period Ended
September 30, 1998
Net sales $ 1,994,000
Cost of goods sold 1,657,000
-----------
Gross Profit $ 337,000
============
Net loss attributable
to common stock $ (589,000)
============
Basic loss per share $ (.02)
============
DATAWORLD SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 September 30, 1999 and June 30, 1999,
the allowance for obsolete and slow-moving inventory was
approximately $647,000.
September 30, June 30,
1999 1999
-------------- ------------
Raw Materials $1,369,104 $ 869,506
Work in Process 8,492 32,563
Finished Goods 35,635 16,405
------------- ------------
Inventories, net $1,413,231 $ 918,474
============= ============
4. LONG-TERM DEBT
Long-term debt consists of the following: September 30, June 30,
1999 1999
------------ -----------
Revolving asset-based loan (a).............. $ 3,686,782 $ 3,236,129
Capitalized lease obligations (b)........... 44,352 57,119
------------ -----------
3,731,134 3,293,248
Less current portion of long-term debt...... 44,352 51,261
------------ -----------
$ 3,686,782 $ 3,241,987
============ ===========
a. The Company has a financing agreement ("Agreement") with a financial
institution which, as amended, provides for maximum borrowings of
$5,000,000 through January 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. The Company is required to pay interest
at prime plus 2 1/2% and a commitment fee of 1% per annum. Borrowings
under the agreement are collateralized by all assets of the Company.
The agreement, as amended, requires the Company to maintain a deficiency
in tangible net worth of not more than $3,500,000 and a deficiency in
Working Capital of not more than $3,800,000, as defined.
5. SUBSEQUENT EVENT
On December 16, 1999, the Company issued to a non affiliated party a
Convertible Debentures for a principal amount of $250,000. The
debenture accrues interest at a rate of 2 1/4% over prime rate and is
payable semi-annually commencing on June 1, 2000. The entire principal
balance plus any accrued and unpaid interest shall be payable on
November 30, 2004 (the "Maturity Date"). The debenture holder was
granted warrants which shall permit the holder to purchase up to a
maximum of three hundred thousand (300,000) shares of the Company's
common stock at fifty ($.50) cents per share. If at anytime prior to
the Maturity Date, the common stock of the Company reaches or exceeds an
average bid price of $1.50 per share over a period of thirty (30)
consecutive business days, as quoted on any exchange or electronic
market on which the stock is regularly quoted, then the principal amount
of the debenture then outstanding shall automatically be converted into
fully paid and nonassessable shares of common stock of the Company at a
conversion price of $1.00 per share.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Quarter Ended September 30, 1999
Old DataWorld Solutions, Inc. was incorporated on January 7, 1998 and
commenced operations on March 1, 1998, therefore the Company can provide
limited comparative financial information with respect to the separate
results of Old DataWorld and Vertex. For the purposes of additional
comparative analysis, the Company has included in its Notes to Condensed
Consolidated Financial Statements, pro-forma comparative results which
include the historical results of Vertex for all periods presented.
Net sales for the quarter ended September 30, 1999 were approximately
$3,281,000. Net sales for the quarter ended September 30, 1998 were
approximately $340,000. This increase is a result of Old DataWorld
merging with Vertex, as well as an increase in sales of distribution
products from Old DataWorld.
Gross profit for the quarter ended September 30, 1999 was approximately
$680,000. Gross profit as a percentage of sales was 20.7% for the quarter
ended September 30, 1999. Gross profit for the period ended September 30,
1998 was approximately $151,000. This increase in Gross profit is a result
of increased sales volume in the current period.
Selling, general and administrative expenses were approximately $572,000
or 17.4% for the quarter ended September 30, 1999. For the period ended
September 30, 1998 Selling, general and administrative expenses were
approximately $159,000. The increase is a result of Old DataWorld merging
with Vertex which increased expenses for administrative personnel, sales
personnel, insurance expenses and professional fees.
Interest expense for the quarter ended September 30, 1999 was
approximately $100,000. This interest was incurred by to the Company's
revolving credit facility.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Financial Condition
As of September 30, 1999
Current assets at September 30, 1999 were approximately $4,313,000 and
working capital of approximately $149,000 at September 30, 1999. The
working capital at September 30, 1999 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. Currently the Company has not made its
required 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.
The Company's revolving credit facility is providing availability based on
combined accounts receivable and inventory of the merged entities. As of
September 30, 1999, the Company was not in compliance with the original
financial covenants, however, on January 13, 2000, the Company's lender
amended the revolving credit facility and as of such date the Company is
in compliance with the terms of the agreement.
On December 16, 1999, the Company issued to a non affiliated party a
Convertible Debentures for a principal amount of $250,000. The
debenture accrues interest at a rate of 2 1/4% over prime rate and is
payable semi-annually commencing on June 1, 2000. The entire principal
balance plus any accrued and unpaid interest shall be payable on
November 30, 2004 (the "Maturity Date"). The debenture holder was
granted warrants which shall permit the holder to purchase up to a
maximum of three hundred thousand (300,000) shares of the Company's
common stock at fifty ($.50) cents per share. If at anytime prior to
the Maturity Date, the common stock of the Company reaches or exceeds an
average bid price of $1.50 per share over a period of thirty (30)
consecutive business days, as quoted on any exchange or electronic
market on which the stock is regularly quoted, then the principal amount
of the debenture then outstanding shall automatically be converted into
fully paid and nonassessable shares of common stock of the Company at a
conversion price of $1.00 per share.
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 has replaced its internal
systems by acquiring a Year 2000 compliant system. The Company
estimates the replacement of hardware and software to cost approximately
$175,000. This cost will be accounted for as a capital lease in the
fiscal year ended June 30, 2000. The replacement project is in its
final stages, notwithstanding the late arrival of Year 2000 compliant
software, the Company anticipates being Year 2000 compliant by December
31, 1999 and has provided stand alone software for its bill of material
(a detailed list of parts needed to build an end product) manufacturing
operations. The Company's manufacturing equipment is not data-sensitive
and therefore will not have any lapse in processing time. The Company
expects to incur additional internal staff costs as well as consulting
and other expenses related to any enhancements of the systems.
Management believes that the additional costs to enhance such
applications will not be material to the Company.
In addition, the Company has inquired with its major suppliers,
including insight about their progress in identifying and addressing
problems related to the Year 2000. The Company is currently unable to
determine the extent to which the Year 2000 issues will affect its
suppliers, or the extent to which it would be vulnerable to the
suppliers' failure to remediate any of their Year 2000 problems.
Although no assurance can be given, the Company believes that Year 2000
problems will not be significant.
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
Non
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: February 4, 2000
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