U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
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 June 30, 1996.
--------------
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
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 Number)
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 required reports 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 filing requirements forth 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.
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 practical date: Common Stock, $0.01 par
value 4,712,795 shares at August 10, 1996.
Traditional Small Business Disclosure Format (Check One)
Yes [X] No [ ]
FORM 10 QSB QUARTERLY REPORT
DATATREND SERVICES, INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <S> <C>
Part I: Financial Information
Item 1.
Consolidated Balance Sheet - June 30, 1996 and December 31, 1995 2
Consolidated Statemet of Operations - Three Months and Six Months
Ended June 30, 1996 and June 30, 1995. 3
Consolidated Statement of Stockholders' Equity 4
Consolidated Statement of Cash Flows - Six Months Ended June 30,
1996 and June 30, 1995 6
Notes to the Financial Statements 7
Item 2.
Management Discussion and Analysis of Financial Condition and Results
of Operations 9
Part II Other Information
Items 1-6 11
Signatures 11
</TABLE>
Datatrend Services, Inc. and Subsidiary
Consolidated Balance Sheets
(Unaudited)
Assets
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
Current Assets
Cash $ 819,695 $ 374,628
Accounts Receivable $ 3,559,653 $ 4,297,413
Inventories $ 7,995,112 $ 6,092,711
Advances to Vendors $ -- $ 594,216
Deferred Tax Asset $ 100,000 $ 100,000
Other Current Assets $ 249,560 $ 499,543
--------------------------------
Total Current Assets $12,724,020 $11,958,511
--------------------------------
Property and Equipment
Property and Equipment at Cost $ 690,371 $ 331,767
Accumulated Depreciation $ (187,310) $ (128,464)
--------------------------------
Property and Equipment, Net $ 503,061 $ 203,303
--------------------------------
Other Assets $ 83,090 $ 68,134
--------------------------------
Total Assets $13,310,172 $12,229,948
================================
</TABLE>
See Accompanying Notes to the Financial Statements
<PAGE> 2
Datatrend Services, Inc. and Subsidiary
Consolidated Balance Sheets
(Unaudited)
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
Liabilities
Current Liabilities
Notes Payable, Bank $ -- $ 1,000,000
Notes Payable, Other $ 2,661,541 $ 1,137,500
Accounts Payable $ 6,499,102 $ 6,873,465
Accrued Expenses $ 555,408 $ 410,496
Capital Leases, Current $ 103,392 $ 40,639
--------------------------------
Total Current Liabilities $ 9,819,441 $ 9,462,100
--------------------------------
Other Liabilities $ -- $ --
--------------------------------
Stockholders' Equity
Common Stock $ 47,138 $ 47,138
Additional Paid in Capital $ 2,343,606 $ 2,343,606
Retained Earnings $ 1,099,986 $ 377,104
--------------------------------
Total Stockholders' Equity $ 3,490,730 $ 2,767,848
--------------------------------
Total Liabilities and Stockholders' Equity $13,310,172 $12,229,948
================================
</TABLE>
See Accompanying Notes to the Financial Statements
<PAGE> 3
Datatrend Services, Inc. and Subsidiary
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ------------------------------
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $10,559,839 $7,846,143 $17,670,457 $13,168,371
Cost of Sales $ 9,555,535 $6,763,493 $15,072,068 $11,428,241
--------------------------------------------------------------
Gross Profit $ 1,004,304 $1,082,650 $ 2,598,389 $ 1,740,130
Service Revenue $ 1,320,698 $ 41,506 $ 2,325,766 $ 41,506
--------------------------------------------------------------
Total $ 2,325,002 $1,124,156 $ 4,924,156 $ 1,781,636
--------------------------------------------------------------
Operating Expenses $ 2,024,556 $1,069,443 $ 4,042,786 $ 1,879,404
--------------------------------------------------------------
Operating Income (Loss) $ 300,446 $ 54,713 $ 881,370 $ (97,768)
--------------------------------------------------------------
Other Income and (Expense)
Rental Income $ 6,436 $ 10,145 $ 8,652 $ 16,336
Interest Expense $ (55,276) $ (54,677) $ (89,350) $ (102,512)
--------------------------------------------------------------
Total Other Income and (Expense) $ (48,480) $ (44,532) $ (80,697) $ (86,176)
Income (Loss) From Continuing Operations
Before Provision for Income Taxes $ 251,606 $ 10,181 $ 800,762 $ (183,944)
Income Tax Expense $ 25,040 $ 12,020 $ 77,790 $ 25,440
--------------------------------------------------------------
Income (Loss) from Continuing Operations $ 226,566 $ (1,839) $ 722,882 $ (209,384)
Income (Expense) From Discontinued Operations $ -- $ 123,722 $ -- $ 55,963
--------------------------------------------------------------
Net Income (Loss) $ 226,536 $ 121,883 $ 722,882 $ (153,421)
==============================================================
Weighted Average Number of Shares 4,712,795 4,712,795 4,712,795 3,927,496
Earnings Per Share
Continuing Operations $ 0.05 $ -- $ 0.15 $ (0.05)
Discontinued Operations $ -- $ 0.03 $ -- $ 0.01
--------------------------------------------------------------
Net $ 0.05 $ 0.03 $ 0.15 $ (0.04)
==============================================================
</TABLE>
See Accompanying Notes to the Financial Statements
<PAGE> 4
Datatrend Services, Inc. and Subsidiary
Consolidated Statement of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1996
Common Stock
Shares Par Value APIC Retained Earnings Total
------------ --------- ---------- ----------------- ----------
<S> <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 June 30, 1996 $ -- $ -- $ 722,882 $ 722,882
Balance June 30, 1996 4,712,795 $47,138 $2,343,606 $1,099,986 $3,490,730
</TABLE>
See Accompanying Notes to the Financial Statements
<PAGE> 5
Datatrend Services, Inc. and Subsidiary
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
----------------------------
1996 1995
----------- ------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income (Loss) $ 722,882 $ (153,421)
Adjustments to Net Income
Add Depreciation and Amortization $ 58,846 $ 33,137
Changes in Working Capital $ 3,054,195 $ (2,740,515)
----------------------------
Cash Provided (Used) by Operations $ 3,835,923 $ (2,707,378)
----------------------------
Cash Flows from Investing Activities
Acquisition of Property and Equipment $ (274,590) $ (68,490)
Other Assets $ (14,956) $ (41,722)
----------------------------
Cash Provided (Used) by Investing Activities $ (289,546) $ (110,212)
----------------------------
Cash Flows from Financing Activities
Advances from Notes Payable $ -- $ 16,950,594
Payments on Notes Payable $(3,080,049) $(15,696,127)
Distribution to S Corporation Shareholders $ -- $ (137,000)
Purchase and Retirement of Treasury Stock $ -- $ 210,000
Proceeds From Business Merger $ -- $ 2,146,395
Capital Lease Obligations $ (21,261) $ (6,211)
----------------------------
Cash Provided (Used) by Financing Activities $(3,101,310) $ 3,047,651
----------------------------
Net Increase (Decrease) in Cash $ 445,067 $ 76,640
Cash, Beginning of the Period $ 374,628 $ 2,015
----------------------------
Cash, End of the Period $ 819,695 $ 78,655
============================
</TABLE>
See Accompanying Notes to the Financial Statements
<PAGE> 6
DATATREND SERVICES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 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 three months ended June 30, 1995 is included in the Company's result
for the three months ended June 30, 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 principles and
should be read in conjunction with financial statements and related
notes included in the Company's annual report on form 10-KSB for the
year ended December 31, 1995.
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 $2,325,766
for the six months ended June 30, 1996 and $41,506 for the same period
in 1995.
Note 3 - Notes Payable
- ----------------------
During the year ended December 31, 1994, the Company maintained a line
of credit with the 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 June 30, 1996, the Company has repaid
these lines in full and closed them out.
The Company does not believe it will be adversely affected by the
closing of the lines of credit. The Company is currently in the process
of pursuing alternative financing from financial institutions.
Effective April 5, 1996, the Company converted $3,536,154 of trade
accounts payable into term notes payable. At June 30, 1996 the amount
outstanding on the notes payable is $2,661,541. In addition, effective
April 30, 1996, the Company has obtained a $2,000,000 floor plan line of
credit to finance the purchase of inventory.
<PAGE> 7
DATATREND SERVICES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(Continued)
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 this lawsuit.
<PAGE> 8
DATATREND SERVICES, INC. AND SUBSIDIARY
MANAGEMENT' DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
Liquidity and Capital Reserves
- ------------------------------
Working Capital was $2,905,000 at June 30, 1996 as compared to
$2,496,000 at December 31, 1995 which represents an increase of
$409,000. This increase in working capital resulted primarily from the
Company's profit for the first two quarters of 1996. As discussed in
more detail below, the Company terminated its line of credit
relationships with its previous banks, 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 June 30, 1996 and
December 31, 1995 was $-0- 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 June 30, 1997.
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.
Substantially all of the Company's assets are included in inventory and
accounts receivable. Inventory values are $7,995,000 and $6,092,000, at
June 30, 1996 and December 31, 1995, respectively. This represents an
increase of $1,903,000, or 31% during the first two quarters of 1996.
This increase is due primarily to the increased sales volume for the
second quarter of 1996. Accounts receivable were $3,560,000 at June 30,
1996 and $4,297,000 at December 31, 1995, decreasing $737,000, or 17%.
This decrease can be attributed to the decrease in turnover time during
the second quarter of 1996. Other current assets, including advances to
vendors, decreased $844,000 to $350,000 at June 30, 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 June 30, 1996 and December 31, 1995 were $6,499,000
and $6,873,000, an decrease of $374,000, or 5%. The reduction in
accounts payable includes almost $3,600,000 in accounts payable to one
vendor that was converted into a one year note payable in April of 1996.
Exclusive of the note conversion accounts payable increased during the
second quarter. The increased accounts payable has been offset by
increases in inventory as more vendors extend credit terms to the
Company.
<PAGE> 9
DATATREND SERVICES, INC. AND SUBSIDIARY
MANAGEMENT' DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
(Continued)
Results of Operations (Continued)
The Company has paid off $3,080,000 in notes payable in the first two
quarters of 1996. At December 31, 1995, the Company had a short term
note payable in the amount of $1,137,500 to an individual and $1,000,000
to the bank from the revolving credit agreement these notes were repaid
in full during 1996. In addition the Company has paid approximately
$900,000 to the vendor whose accounts payable was converted to a note
payable.
Revenues, including product sales and service revenue, for the six
months ended June 30, 1996 and 1995 respectively were $19,996,000 and
$13,209,000. This represents an increase in revenues of $6,787,000 or
51%. This increase was due in part to a significant increase of
approximately $2,284,000 in service revenue recognized by the Company
during the first two quarters 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 two quarters of 1996, the Company earned $2,325,000 in
service revenue, refurbishing the inventory of other manufacturers. The
Company earned $41,000 in service revenue in the first two quarters 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.
For the six months ended June 30, 1996, cost of sales were $15,072,000
and $11,428,000 an increase of $3,644,000, or 32%. The resulting gross
profits on product sales were $2,598,000, or 15% of product sales, in
the first two quarters of 1996, and $1,740,000, or 13% of product sales,
for the same period in 1995. Overall gross profits increased as a
percent of sales due to Company's higher level of activity in
refurbishing purchased inventory, which results in higher gross profit
percentages than direct purchase and resale of inventory.
Operating expenses for the first two quarters of 1996 and 1995 were
$4,043,000 and $1,879,000 respectively. The increase of $2,164,000, or
115% 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
two quarters of 1996 of approximately $723,000, or $.15 per share, as
compared to a loss during the first quarter of 1995 of approximately
($153,000) or ($.04) per share for the first two quarters of 1995. This
is an increase in profits of $876,000, or $.19 per share. Management
attributes this increase in profitability to several factors. During
the last quarter of 1995 and the first two quarters of 1996, DTI
significantly increased its revenues from service contracts, and
achieved significant profits therefrom. In addition, gross margins on
certain product sales have increased.
<PAGE> 10
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, 1995, the Company has filed an
action in the United Stated 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 ere 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 field during the first quarter of 1996.
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> 11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 819,695
<SECURITIES> 0
<RECEIVABLES> 3,559,653
<ALLOWANCES> 0
<INVENTORY> 7,995,112
<CURRENT-ASSETS> 12,724,020
<PP&E> 690,371
<DEPRECIATION> 187,310
<TOTAL-ASSETS> 13,310,172
<CURRENT-LIABILITIES> 9,819,441
<BONDS> 0
0
0
<COMMON> 47,138
<OTHER-SE> 3,443,592
<TOTAL-LIABILITY-AND-EQUITY> 13,310,172
<SALES> 17,670,457
<TOTAL-REVENUES> 19,996,223
<CGS> 15,072,068
<TOTAL-COSTS> 4,042,786
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89,350
<INCOME-PRETAX> 800,762
<INCOME-TAX> 77,790
<INCOME-CONTINUING> 772,882
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 722,882
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
