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, 2000
Commission File Number 33-7693
_______________________________________________________________________________
DATAWORLD SOLUTIONS, 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 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 _______
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 November 1, 2000, 29,044,000 shares of common stock, $.001 par value were
outstanding.
Note: This is Page 1 of a document consisting of 14 pages.
DATAWORLD SOLUTIONS, INC.
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS:
Balance Sheet - September 30, 2000 and June 30, 2000 ................ 3
Statement of Operations - Three Months Ended
September 30, 2000 and 1999..................................... 4
Statement of Changes in Stockholders' Equity for the three
months ended September 30, 2000................................... 5
Statement of Cash flows for the three months ended
September 30, 2000 and 1999..................................... 6
Notes to Financial Statements...................................... 7-9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ................. 10-12
PART II- OTHER INFORMATION........................................... 13
SIGNATURES........................................................... 14
DATAWORLD SOLUTIONS, INC.
BALANCE SHEETS
September 30, June 30,
2000 2000
(Unaudited)
------------- ----------
ASSETS
CURRENT ASSETS:
Cash............................................... $ - $ 51,153
Accounts receivable, net of allowance for doubtful
accounts of $71,000 and 56,000 as of September 30,
2000 and June 30, 2000, respectively............. 3,524,037 3,058,572
Inventories, net................................... 1,767,671 1,680,577
Prepaid expenses and other current assets.......... 72,689 30,221
---------- ----------
TOTAL CURRENT ASSETS............................... 5,364,397 4,820,523
PROPERTY, PLANT AND EQUIPMENT, net................... 459,589 466,139
GOODWILL............................................. 3,391,020 3,437,472
OTHER ASSETS......................................... 88,350 88,350
----------- ----------
TOTAL ASSETS......................................... $ 9,303,356 $ 8,812,484
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt.................. $ 17,114 $ 22,972
Current portion Notes payable - Affiliate.......... 66,666 66,666
Cash overdraft..................................... 141,211 -
Accounts payable................................... 2,344,130 2,211,220
Accrued expenses and other........................ 908,731 815,537
Bankruptcy distributions payable................... 259,503 291,000
---------- ----------
TOTAL CURRENT LIABILITIES.......................... 3,737,355 3,407,395
LONG-TERM DEBT, NET OF CURRENT PORTION............... 4,016,758 3,721,967
SUBSCRIPTIONS RECEIVED............................... 217,000 217,000
NOTES PAYABLE - AFFILIATE, net....................... 55,556 66,667
SECURED SUBORDINATED DEBENTURES, net................. 86,513 86,153
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
8% Series B Convertible Preferred Stock, $.01
par value, stated value $1,000 per share;
Redemption value $2,000,000, authorized,
3,000 shares; 1,600 shares issued and outstanding. 1,600,000 1,600,000
$6 Senior Cumulative Convertible Preferred stock,
stated value $100 per share; authorized 5,000,000
shares; 6,500 issued and outstanding................ 682,500 672,750
Common stock, par value $.001 per share; authorized
40,000,000 shares; 29,044,000 issued and outstanding
at September 30, 2000 and June 30, 2000........... 29,044 29,044
Additional paid in capital.......................... 773,020 773,020
Accumulated deficit................................. (1,894,390) (1,761,512)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY.......................... 1,190,174 1,313,302
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY.............................................$ 9,303,356 $ 8,812,484
=========== ============
The accompanying notes are an integral part of these financial statements.
DATAWORLD SOLUTIONS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
2000 1999
----------- -------------
Net sales.......................................... $ 3,661,356 $ 3,280,912
Cost of goods sold................................. 2,726,180 2,600,933
---------- ------------
Gross profit....................................... 935,176 679,979
Selling, general and administrative expenses....... 817,016 572,178
---------- ------------
Earnings before interest and
depreciation and amortization................... 118,160 107,801
Interest expense................................... 129,543 100,257
---------- ----------
Earnings before depreciation and amortization...... (11,383) 7,544
Depreciation and amortization...................... 79,747 75,526
---------- ----------
Net loss........................................... (91,130) (67,982)
Accrued dividends on preferred stock............... 41,748 -
---------- ----------
Net loss applicable to common stockholders......... $ (132,878) $ (67,982)
============ ==========
Share Information
Basic and diluted loss per share................... $ (.01) $ (.01)
=========== ==========
Weighted average number of common shares
outstanding....................................... 29,044,000 26,824,000
=========== ===========
The accompanying notes are an integral part of these financial statements.
DATAWORLD SOLUTIONS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
8% $6.00 Retained Total
Preferred Preferred Common Paid- earnings stock-
stock stock Common stock in (accumulated) holder's
amount amount shares amount capital deficit) equity
------ -------- ---------- --------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance July 1,
2000 $1,600,000 $672,750 29,044,000 $29,044 $773,020 $(1,761,512) $1,313,302
Accrued dividends
on 8% Preferred
stock (31,998) (31,998)
Accrued dividends
on $6 Preferred
stock 9,750 (9,750) -
Net loss (91,130) (91,130)
========== ======== ========== ========== ========== ============ ===========
Balance September
30, 2000 $1,600,000 $682,500 29,044,000 $29,044 $773,020 $(1,894,390) $1,190,174
</TABLE>
The accompanying notes are an integral part of these financial statements.
DATAWORLD SOLUTIONS, INC.
STATEMENTS OF CASHFLOWS
(Unaudited)
Three Months Ended
September 30,
2000 1999
---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................. $ (91,130) $ (67,982)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization..................... 79,747 69,751
Provision for doubtful accounts....................... 15,000 -
Change in operating assets and liabilities:
Increase in accounts receivable................... (480,465) (621,481)
Increase in inventories........................... (87,094) (494,756)
Increase in prepaid expenses and other current assets(42,468) (38,536)
Increase in other assets.......................... - (2,100)
Increase in accounts payable and accrued expenses. 194,106 676,633
---------- ---------
Net cash used in operating activities............. (412,304) (478,471)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................ (26,385) -
---------- ---------
Net cash used in investing activities............... (26,385) -
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under debt and loan agreements...... 288,933 417,077
(Repayment) borrowings from affiliate.............. (11,111) 73,000
Cash overdraft..................................... 141,211 -
Decrease in bankruptcy distributions payable....... (31,497) -
--------- ---------
Net cash provided by financing activities............. 387,536 490,077
--------- ---------
NET (DECREASE) INCREASE IN CASH....................... (51,153) 11,606
CASH at beginning of period........................... 51,153 -
--------- ---------
CASH at end of period............................ $ - $ 11,606
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest..................................... $ 127,689 $ 100,257
=========== ==========
DATAWORLD SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
DATAWORLD SOLUTIONS, INC., (the "Company") 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 balance sheet as of September 30, 2000 and the related statements of
operations, statement of changes in stockholders' equity and cash flows for
the three months ended September 30, 2000 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 financial
position, results of operations and changes in cash flows at September 30, 2000
and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principals
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with the financial statements and notes thereto included
in the Annual Report on Form 10-KSB for the year ended June 30, 2000 filed by
the Company. The results of operations for the period ended June 30, 2000 and
1999 are not necessarlly indicitive of the operating results for the respective
full years.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern, which assumes the realization of assets and
settlement of liabilities in the normal course of business. For the three
months ended September 30, 2000, the Company incurred a net loss from operations
of $91,130 and working capital of $1,627,042, which is not sufficient to fund
the Company's operations. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management is currently
seeking additional sources of working capital, although no assurances can be
given that management will be successful in receiving additional capital.
2. INVENTORIES
Inventory consists principally of 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, 2000 and June
30, 2000, the allowance for obsolete and slow-moving inventory was approximately
$532,000, respectively.
September 30, June 30,
2000 2000
------------ -------------
Raw Materials $ 1,350,924 $ 1,590,577
Work in Process 402,159 90,000
Finished Goods 14,588 -
------------ --------------
Inventories, net $ 1,767,671 $ 1,680,577
============ ==============
DATAWORLD SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
3. LONG-TERM DEBT
Long-term debt consists of the following:
September 30, June 30,
2000 2000
------------- ------------
Revolving asset-based loan (a)......... $ 3,956,747 $ 3,657,677
Capitalized lease obligations(b)....... 77,125 87,262
------------- -----------
4,033,872 3,744,939
------------- -----------
Less current portion of long-term debt. 17,114 22,972
------------- -----------
$ 4,016,758 $ 3,721,967
============= ============
a. The Company has a financing agreement ("Agreement") with a financial
institution that, as amended, provides for revolving loans and letters of
credit subject to maximum borrowings of $5,000,000 through January 31, 2002.
Total borrowings are limited to 85% of eligible accounts receivable
(constituting those amounts outstanding 90 days or less), 50% of eligible
accounts receivable outstanding between 91 and 120 days, 40% of regular
inventories, 10% of slow moving inventory and the amount of collateral deposited
by TW Cable LLC, a related entity ("TW"). The Company is required to pay
interest at prime plus 2 1/2% (12% at September 30, 2000) and a commitment
fee of 1% per annum. At September 30, 2000, there were $75,000 outstanding
letters of credit issued for inventory purchases. Borrowings under the Agreement
are collateralized by all of the assets of the Company. In connection with the
Agreement, TW agreed to deposit approximately $1,268,000 as additional
collateral for borrowings under the Agreement. Under the terms of the
Agreement, TW has the right to draw down on such collateral beginning January
2000 and has begun to do so on June 15, 2000. The Agreement, as amended,
requires, among other things, 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.
b. The Company leases certain computer equipment, which are accounted for as
capital leases. The obligation for the computer equipment requires the Company
to make monthly payments of $1,426 through March 2005.
DATAWORLD SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
4. NET LOSS PER COMMON SHARE
Stock options and warrants to purchase 822,500 shares have been excluded from
the calculation of diluted loss per share, as their effect would have been
antidilutive.
5. CONTINGENCIES
a. LITIGATION MATTERS
The Company is a party to legal matters arising in the general conduct of
business. Management believes the ultimate outcome of such matters is not
expected to have a material adverse effect on the Company's results of
operations or financial position.
b. BANKRUPTCY DISTRIBUTIONS
On March 24, 2000, the Company agreed with the Official Committee of Unsecured
Creditors ("the Committee") as to the modification of the treatment of the
Class 7 Unsecured Creditors ("the Class 7 Creditors") under the Company's
confirmed Chapter 11 plan of reorganization, as previously modified ("the
Plan"). Pursuant to such agreement, in satisfaction of the claims of the
Class 7 Creditors, the Company paid the Class 7 Creditors, $400,000 from an
escrow account (see Note A-2) and $100,000 from the Company on or about April
24, 2000. As of September 30, 2000 the balance due to the Class 7 Creditors
is approximately $259,000. This amount is payable in 30 monthly installments
of approximately $11,000 at 8% interest beginning on June 15, 2000. In
addition, the Company has the option, until March 31, 2001, to pay the then
balance due plus an additional $25,000 to the Class 7 creditors. In the event
the Company does not exercise this option, the Company is obligated to pay the
Class 7 Creditorsa percentage of the Company's cumulative cash flow, as defined,
through September 2002, as originally specified in the Plan.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Quarter Ended September 30, 2000
When used herein, the words "believe," "anticipate," "think," "intend," "will
be," "expect" and similar expressions identify forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such statements are not guarantees of future performance, which could cause
actual results to differ materially from those in the forward-looking
statements. Readers are cautioned not to place undue reliance on the
forward- looking statements, which speak only as of the date hereof. Readers
are also urged carefully to review and consider the various disclosures made
by the Company which attempt to advise interested parties of the factors which
affect the Company's business, including, without limitation, the disclosures
made under the caption "Management's Discussion and Analysis or Plan of
Operation." All references to a fiscal year are to the Company's fiscal year,
which ends June 30.
Net sales for the quarter ended September 30, 2000 were approximately
$3,661,000. Net sales for the quarter ended September 30, 1999 were
approximately $3,281,000. This growth in net sales was due to the addition
of new customers, increased sales to certain existing strategic customers,
and expanded product lines with its vendors.
Gross profit for the quarter ended September 30, 2000 was approximately
$935,000. Gross profit as a percentage of sales was 25.5% for the quarter
ended September 30, 2000. Gross profit for the period 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. The growth in gross profit
and gross profit percentage was due to increased sales volume, which provides
for the absorption of fixed costs and further, afforded the Company the
opportunity to obtain more favorable pricing of purchased components.
Selling, general and administrative expenses were approximately $817,000 or
22.3% of sales for the quarter ended September 30, 2000. For the period ended
September 30, 1999 selling, general and administrative expenses were
approximately $572,000 or 17.4% of sales for the quarter ended September 30,
1999. The increase was principally due to the combination of the following;
a provision for accounts receivable was recorded for approximately $15,000,
an increase in office salaries of approximately $60,000, an increase in
insurance costs of approximately $37,000, an increase in computer expenses of
approximately $20,000, an increase in sales related expenses of approximately
$44,000, an increase in stockholder reporting fees of approximately $34,000
and an increase in bank charges relating to an increases in the Company's
credit facility of approximately $16,000.
Interest expense for the quarter ended September 30, 2000 was approximately
$130,000. For the period ended September 30, 1999 interest expense was
approximately $100,000. This increase of approximately $30,000 is a result of
an increase in borrowings under 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, 2000
The Company has net working capital of approximately $1,627,000 at September 30,
2000. The working capital at September 30, 2000 is not sufficient to meet the
Company's current liquidity needs. The Company is also exploring opportunities
to increase operating efficiencies and intendes to make a concerted effort to
decrease the average days sales in accounts receivable in order to increase its
cash position. Management is also working to obtain additional sources of
working capital. However, there can be no assurances that management will be
successful in increasing operating efficiencies or obtaining additional sources
of working capital.
During the quarter ended September 30, 2000, the Company used approximately
$412,000 in cash from operating activities. Net cash used during the quarter
was primarily due to the an increase in accounts receivable of approximately
$480,000 and an increase in inventory of approximately $87,000, offset by an
increase in accounts payable of approximately $194,000. This increase in
receivables gave the Company additional borrowing under its revolving credit
facility, which enabled the Company to decrease the average days outstanding
for its payables.
Investing activities used net cash of approximately $26,000 during the quarter
ended September 30, 2000. The principal use was for purchases of additional
computer equipment needed for the Company's new system implemented in January
2000.
Financing activities provided cash of approximately $388,000. The cash provided
by financing activities was funded by increased borrowings under the Company's
revolving credit facility.
On May 31, 2000, the Company issued 1,600 shares of newly created 8% Series B
Convertible Preferred Stock ("8% Preferred Stock"), $.01 par value, with a
stated value of $1,000 per share, 3,000 shares authorized, to accredited
investors pursuant to Regulation D under the Securities Act of 1933 for net cash
proceeds of approximately $1,435,000. The 8% Preferred Stock has no voting
rights and is convertible into common stock of the Company at an effective
conversion price of the lower of (i) 75% of the market price or (ii) 110% of
the lowest closing bid of the Company's common stock for the five trading days
immediately preceding the closing date, May 31, 2000, as defined in the
Certificate of Designation of the 8% Preferred Stock. In addition, the
investors were granted five-year warrants to purchase 160,000 shares of common
stock at a purchase price equal to 120% of the lowest of the closing bid prices
for the Company's common stock for the five trading days prior to May 31, 2000.
The Company recorded a deemed dividend of $638,780 for the year ended June 30,
2000, representing the discount resulting from the allocation of the proceeds
to the beneficial conversion feature and the fair value of the underlying
warrants. Such deemed dividend was recognized on the date of issuance since
the 8% Preferred Stock was immediately convertible. In connection with this
transaction, the Company issued five-year warrants to the broker/finder to
purchase an aggregate of 100,000 shares of the Company's common stock at 120%
of the lowest of the closing bid prices for the Company's common stock for the
five trading days preceding the closing date, May 31, 2000. These warrants
were fair valued at $105,000. In addition the Company issued 500,000 warrants
to a consultant.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Financial Condition
As of September 30, 2000
(CONTINUED)
Management's plans are to continue to increase revenues of the Company, which
will provide additional borrowings under its revolving credit facility. The
Company has been repaying cash collateral under the credit facility on a
monthly basis beginning June 15, 2000 of approximately $15,000 per month. In
an effort to continue to grow the Company, the management will seek additional
sources of capital investments. The Company plans to file a Registration
Statement before December 31, 2000 and seek additional sources to
obtain equity financing.
The Company's continuing existence as a going concern is dependent on its
ability to obtain profitable operations, generate sufficient cash flow to
meet its obligations on a timely basis, comply with the terms and covenants
of its financing agreement and to obtain additional financing as may be
required.
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
27. Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: November 14, 2000
DATAWORLD SOLUTIONS, INC.
By: /s/ Daniel McPhee
Chief Executive Officer
By: /s/ Nicholas T. Hutzel
V.P. & Controller
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
DATAWORLD SOLUTIONS, INC.
By: ___________________
Daniel McPhee
Chief Executive Officer
By: ______________________
Nicholas T. Hutzel
V.P. & Controller
By: ______________________
Christopher Francis
Chief Operating Officer
By: ______________________
Edward Goodstein
Director
Dated: November14, 2000
