U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
/X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1996
/ / Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
Commission file number 0-15929
DATATREND SERVICES, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 11-2726109
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1515 Washington Street, Braintree, MA 02184
(Address of Principal Executive Offices)
(617) 691-1200
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
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[ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check 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 [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the last practicable date: Common Stock, $0.01 par value
4,712,795 shares at March 10, 1996
Traditional Small Business Disclosure Format (check one):
Yes [X] No [ ]
<PAGE> 1
FORM 10-QSB QUARTERLY REPORT
DATATREND SERVICES, INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
PAGE
----
Part I: FINANCIAL INFORMATION
<S> <C>
Item 1.
Consolidated Balance Sheets - March 31, 1996
and December 31, 1995 3-4
Consolidated Statements of Operations -Three Months
Ended March 31, 1996 and 1995 5
Consolidated Statement of Stockholders' Equity 6
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1996 and 1995 7
Notes to Financial Statements 8-9
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-12
Part II: OTHER INFORMATION
Items 1-6. 13
Signatures 14
</TABLE>
<PAGE> 2
DATATREND SERVICES INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 476,810 $ 374,628
Accounts Receivable 4,767,010 4,297,413
Inventories 7,090,103 6,092,711
Advances to Vendors -- 594,216
Deferred Tax Asset (Note 2) 100,000 100,000
Other Current Assets 320,292 499,543
----------- -----------
Total Current Assets 12,754,215 11,958,511
----------- -----------
Property & Equipment at Cost 523,515 331,767
Less Accumulated Depreciation 147,221 128,464
Property and Equipment, Net 376,294 203,303
----------- -----------
OTHER ASSETS 62,909 68,134
----------- -----------
TOTAL ASSETS $13,193,418 $12,229,948
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE> 3
DATATREND SERVICES INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Note Payable, Bank $ 247,722 $ 1,000,000
Note Payable, Other -- 1,137,500
Accounts Payable 8,857,514 6,873,465
Accrued Expenses 709,509 410,496
Capital Leases 114,508 40,639
------------------------------
Total Current Liabilities 9,929,253 9,462,100
------------------------------
STOCKHOLDERS' EQUITY
Common Stock: 47,138 47,138
Additional Paid in Capital 2,343,606 2,343,606
Retained Earnings 873,421 377,104
------------------------------
Total Stockholders' Equity 3,264,165 2,767,848
------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $13,193,418 $12,229,948
==============================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE> 4
DATATREND SERVICES INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1996 1995
---------------------------
<S> <C> <C>
SALES $7,110,620 $5,322,228
COST OF SALES 5,516,533 4,664,748
---------- ----------
GROSS PROFIT 1,594,087 657,480
SERVICE REVENUE 1,005,068 --
---------- ----------
TOTAL 2,599,155 657,480
---------- ----------
OPERATING EXPENSES 2,018,230 800,326
---------- ----------
OPERATING INCOME 580,925 (142,846)
---------- ----------
OTHER INCOME AND EXPENSE
Rental Income 2,216 6,191
Interest Expense (34,074) (47,835)
---------- ----------
Total Other Income (Expense) (31,858) (41,644)
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE PROVISION
FOR INCOME TAXES 549,067 (184,490)
INCOME TAX EXPENSE 52,750 13,420
---------- ----------
INCOME (LOSS) FROM
CONTINUING OPERATIONS 496,317 (197,910)
EXPENSE FROM DISCONTINUED
OPERATIONS (20,855)
---------- ----------
NET INCOME (LOSS) $ 496,317 $ (218,765)
========== ==========
Weighted average Number of Shares 4,712,795 3,141,863
Earnings Per Share
Continuing Operations $ 0.11 $ (0.06)
Discontinued Operations $ -- $ (0.01)
---------- ----------
Net $ 0.11 $ (0.07)
========== ==========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE> 5
DATATREND SERVICES INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
--------------------- Paid In Treasury Retained
Shares Par Value Capital Stock Earnings Total
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1995 4,712,795 $47,138 $2,343,606 $ -- $377,104 $2,767,848
Net Income for the Period Ended March 31,1996 496,317 496,317
Balance - March 31, 1996 4,712,795 $47,138 $2,343,606 $ -- $873,421 $3,264,165
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE> 6
DATATREND SERVICES INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
-------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ 496,317 $ (218,765)
Depreciation and Amortization 18,757 16,340
Change in Working Capital 1,589,540 (1,113,966)
-------------------------
Cash Provided by (Used in) Operating Activities 2,104,614 (1,316,391)
-------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Property, Plant & Equipment (191,748) (17,778)
Other Assets 5,225 (39,343)
-------------------------
Cash Used in Investing Activities (186,523) (57,121)
-------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Note Payable, Bank (752,278) 1,259,303
Notes Payable Other (1,137,500) (1,743,567)
Distributions to S Corporation Shareholders (12,000)
Capital Lease Obligations 73,869 (3,059)
Purchase and Retirement of Treasury Stock (210,000)
Proceeds From Business Merger 2,147,128
-------------------------
Cash Provided by (Used in) Financing Activities (1,815,909) 1,437,805
-------------------------
NET INCREASE IN CASH 102,182 64,293
-------------------------
CASH, BEGINNING OF PERIOD 374,628 2,015
-------------------------
CASH, END OF PERIOD $ 476,810 $ 66,308
=========================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE> 7
DATATREND SERVICES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
Note 1 - The Company
Datatrend, Inc. was incorporated on April 26, 1993 and commenced
operations on that date. Its principal business activity is the wholesale
distribution and retail sale of new, refurbished and used computer hardware
throughout the United States, Canada and Europe. The Company is also involved in
performing service contracts involving refurbishing computer equipment for
manufacturers.
In January of 1995, Datatrend, Inc., through a reverse acquisition, was
merged with Babystar, Inc., a publicly traded company ("the Merger"). Babystar,
Inc. no longer has any operations. Babystar's net loss for the two months ended
March 31, 1995 is included in the Company's results for the three months ended
March 31, 1995. In November 1995, the combined entity changed its name to
Datatrend Services, Inc. References to "the Company" shall apply to Datatrend
Services Inc., or, for the period prior to February 1995, Datatrend, Inc.
Datatrend, Inc. survives as the wholly-owned and sole operating subsidiary of
the Company.
In connection with the Merger, certain former Datatrend, Inc.
shareholders received 1,200,000 shares of the Company's common stock, and may
receive up to an additional 1,200,000 shares if after tax earnings reach certain
levels.
The Company also has 4,265,200 stock warrants outstanding, which have exercise
prices between $.5625 and $4.69 per share, with expiration dates between July,
1997 and June, 1998.
Note 2 - Accounting Policies and Disclosures
Basis of Presentation -The results of operations for the interim periods shown
in this report are not necessarily indicative of the results to be expected for
the fiscal year. In the opinion of management, the information contained herein
reflects all adjustments necessary to make the results of operations for the
interim periods a fair statement of such operations. All such adjustments are of
a normal recurring nature.
The accompanying financial statements do not contain all of the
disclosures required by generally accepted accounting principals and should be
read in conjunction with the financial statements and related notes included in
the Company's annual report on form 10-KSB for the year ended December 31, 1995.
<PAGE 8>
DATATREND SERVICES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(Continued)
Revenue Recognition - The Company recognizes revenue when its products are
shipped to its customers. Service revenue is recognized when services are
provided to customers. Service revenue totaled $1,005,068 for the three months
ended March 31, 1996. The company had no service revenue for the three months
ended March 31, 1995.
Note 3 - Note Payable, Bank
During the year ended December 31, 1994, the Company maintained a line
of credit with a bank which permitted borrowings of up to $5,000,000, and was
collateralized by substantially all of the assets of the Company. In June of
1995, the Company entered into a similar loan arrangement with another bank. At
March 31, 1996, the Company was in the process of closing this line of credit.
Amounts outstanding on the line of credit are $247,722 and $1,000,000 at March
31, 1996 and December 31, 1995. As of May 1, 1996, the Company has repaid the
line of credit in full.
The Company does not believe it will be adversely affected by the
closing of the line of credit. The Company is currently in the process of
pursuing alternative financing from financial institutions. Effective April 1,
1996, the Company converted approximately $3,600,000 of trade accounts payable
into term notes payable. In addition, effective April 30, 1996, the Company has
obtained a $2,000,000 line of credit to finance the purchase of inventory.
Note 4 - Contingencies
The Company has filed an action in United States District Court against
a supplier of computer products, Jabil Circuit, Inc. for breach of contract and
related damages. The Company is seeking damages in excess of one half million
dollars. Jabil Circuit Inc. has filed a counterclaim against the Company seeking
damages in excess of 2 million dollars. The Company believes it will not be
materially affected by the outcome of these lawsuits.
<PAGE> 9
DATATREND SERVICES INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Reserves
Working Capital was $2,825,000 at March 31, 1996 as compared to
$2,496,000 at December 31, 1995 which represents an increase of $329,000. This
increase in working capital resulted primarily from the Company's profit for the
first quarter. As discussed in more detail below, the Company terminated its
line of credit relationship with its previous bank, paying off the entire
balance of that line of credit prior to the date hereof.
The Company previously maintained a line of credit with a local banking
institution. The balance of that line of credit at March 31, 1996 and December
31, 1995 was $247,722 and $1,000,000 respectively. As of May 1, 1996, the
Company has repaid that line of credit in full and has terminated that line of
credit relationship. It is not believed that the closing of this line of credit
will adversely affect the Company. The Company is currently in the process of
pursuing alternative financing from financial institutions. Effective April 1,
1996 the Company was able to convert approximately $3,600,000 of trade accounts
payable of a particular vendor into a twelve month term note payable. In
addition, effective April 30, 1996, the Company has entered into a financing
arrangement with a commercial finance provider which allows the Company access
to up to $2,000,000 for the purchase of certain inventory. Based upon the
Company's working capital, reasonable expected levels of future revenues, and
the availability of sums to the Company under the financing arrangements
discussed above, the Company's management believes that it will be able to meet
the Company's capital needs through 1996.
Results of Operations
Effective February 1, 1995, the Company acquired all of the capital
stock of Datatrend, Inc. ("DTI") by merging a wholly owned subsidiary of the
Company into DTI. DTI is a Massachusetts corporation, newly formed and
incorporated under the laws of the Commonwealth of Massachusetts in April 1993.
DTI is engaged in the wholesale and retail distribution of new, used and
refurbished computer hardware and components. Substantially all of the Company's
business operations are currently conducted by its wholly-owned subsidiary, DTI.
For financial reporting purposes, the Merger of Babystar Inc. and DTI has been
treated as if DTI acquired Babystar Inc. Any references to the Company made in
this management discussion and in the accompanying financial statements shall
apply to Datatrend Services Inc., or, for the period prior to February 1995,
DTI. DTI survives as the sole operating subsidiary of the Company.
<PAGE> 10
DATATREND SERVICES INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Substantially all of the Company's assets are included in inventory and
accounts receivable. Inventory values are $7,090,000 and $6,092,000, at March
31, 1996 and December 31, 1995, respectively. This represents an increase of
$998,000, or 16 % over the first quarter of 1996. This increase is due primarily
to the receipt of inventory for which the Company had prepaid at December 31,
1995. Accounts receivable were $4,767,000 and 4,297,000 at March 31, 1996 and
December 31, 1995, respectively, an increase of $470,000, or 11%. This increase
can be attributed to the increase service billings made in the first quarter of
1996. Other current assets, including advances to vendors, decreased $773,000 to
$420,000 at March 31, 1996 from $1,194,000 at December 31, 1995. This decrease
is primarily due to the reduction in advances to vendors as a result of the
receipt of the associated inventory.
Accounts payable at March 31, 1996 and December 31, 1995 were
$8,857,000 and $6,873,000, an increase of $1,984,000, or 29%. The Company has
paid off $1,890,000 in notes payable in the first quarter of 1996, as discussed
below. The increase in accounts payable is reflective of the method the Company
is using to finance inventory in the short term. At December 31, 1995, the
Company had a short term note payable in the amount of $1,137,500. These funds
were borrowed to finance an inventory purchase. The note was repaid in full in
January 1996.
Revenues, including product sales and service revenue, for the three
months ended March 31, 1996 and 1995 respectively were $8,116,000 and
$5,322,000. This represents an increase in revenues of $2,794,000 or 52%. This
increase was due in part to a significant increase of approximately $1,000,000
in service revenue recognized by the Company during the first quarter of 1996,
as discussed below. The additional increase in sales was due to increased volume
of product sales to a variety of customers.
In the first quarter of 1996, the Company earned $1,005,000 in service
revenue, refurbishing the inventory of other manufacturers. The Company earned
no service revenue in the first quarter of 1995, and $559,000 for the entire
fiscal year 1995. The service component of the Company's activities results in
higher margins for the same level of revenue activity, or, conversely , requires
less revenues to earn margins equivalent to an inventory sale. The Company
expects the service component of its business to continue to increase in 1996 as
compared to 1995.
<PAGE> 11
DATATREND SERVICES INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
For the three months ended March 31, 1996 and 1995, cost of sales were
$5,516,000 and $4,665,000 an increase of $851,000, or 18%. The resulting gross
profits on product sales were $1,594,000, or 22% of sales, in the first quarter
of 1996, and $657,000, or 12% of sales, for the same period in 1995. The
increase in gross profits as a percent of sales was due to Company's higher
level of activity in refurbishing purchased inventory, which results in higher
gross profit percentages than the direct purchase and resale of inventory.
Operating expenses for the first quarters of 1996 and 1995 were
$2,018,000 and $800,000 respectively. The increase of $1,218,000, or 152% was a
result of two major factors. First, the Company engages in increased activity in
refurbishing its purchased inventory. This activity requires increased personnel
levels, as well as a greater level of equipment and supplies. Second, the
Company's aforementioned increased service related activities result in
additional expenses, primarily for increased labor to perform service related
functions.
The Company's current operations have resulted in a profit in
the first quarter of 1996 of approximately $496,000 or $.11 per share, as
compared to a loss during the first quarter of 1995 of approximately
($219,000)or ($.07) per share for the first quarter of 1995. This is an increase
in profits of $715,000, or $.18 per share. Management attributes this increase
in profitability to several factors. During the first quarter of last quarter of
1995 and the first quarter of 1996, DTI significantly increased its revenues
form service contracts, and achieved significant profits therefrom. In addition,
gross margins on certain product sales have increased.
<PAGE> 12
DATATREND SERVICES, INC. AND SUBSIDIARY
Part II: OTHER INFORMATION
Item 1. Legal Proceedings
As previously reported and more fully discussed in the Company's form 10-KSB for
the year ended December 31, 195, the Company has filed an action in the United
States District Court entitled Datatrend, Inc. v. Jabil Circuit, Inc. (Civil
Action No. 95-11764DPW).
The Company is not currently involved in any other material legal
proceedings.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
first quarter of 1996.
Item 5. Other Information
None.
Item 6. Exhibits and Reports of Form 8-K
No reports on form 8-K were filed during the first quarter of 1996.
<PAGE> 13
DATATREND SERVICES INC. AND SUBSIDIARY
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.
DATATREND SERVICES INC.
/s/ Mark A. Hanson
Mark A. Hanson
President, Chief Executive Officer
and Chief Financial Officer
<PAGE> 14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 476,810
<SECURITIES> 0
<RECEIVABLES> 5,310,889
<ALLOWANCES> 543,879
<INVENTORY> 7,090,103
<CURRENT-ASSETS> 12,754,215
<PP&E> 523,515
<DEPRECIATION> 147,221
<TOTAL-ASSETS> 13,193,418
<CURRENT-LIABILITIES> 9,929,253
<BONDS> 0
0
0
<COMMON> 47,138
<OTHER-SE> 3,217,027
<TOTAL-LIABILITY-AND-EQUITY> 13,193,418
<SALES> 8,115,688
<TOTAL-REVENUES> 8,115,688
<CGS> 5,516,533
<TOTAL-COSTS> 2,018,230
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,074
<INCOME-PRETAX> 549,067
<INCOME-TAX> 52,750
<INCOME-CONTINUING> 496,317
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 496,317
<EPS-PRIMARY> $0.11
<EPS-DILUTED> $0.11
</TABLE>
