UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________________to ___________________
Commission File Number 0-26392
ACROSS DATA SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 11-2920559
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
382 Main Street, Salem, New Hampshire 03079
(Address of principal executive offices) (Zip Code)
(603)898-9800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15d 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 X NO __
Indicate the number of shares outstanding in each of the issuer's classes of
common stock, as of the latest practicable date.
6,169,756 common shares, $.01 par value, were outstanding as of July 31, 1996.
<PAGE>
ACROSS DATA SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION Page #
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets
at June 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations
for the three and six months ended
June 30, 1996 and 1995 4-5
Condensed Consolidated Statements of Cash Flows
for the three months ended
June 30, 1996 and 1995 6-7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. OTHER INFORMATION 9-11
2
<PAGE>
ACROSS DATA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,547,000 $ 3,147,509
Marketable securities -- 2,044,962
Accounts receivable, net 2,197,305 1,423,603
Income taxes receivable 240,103 --
Inventory 168,662 125,334
Prepaid expenses and other assets 122,315 157,054
Deferred income taxes 254,800 268,000
------------ ------------
Total current assets 5,530,185 7,166,462
------------ ------------
PROPERTY AND EQUIPMENT, NET 885,050 586,881
------------ ------------
OTHER ASSETS
Excess of cost over net assets acquired, net 3,445,792 3,717,393
Service contracts acquired, net 1,888,438 2,016,850
Software development costs, net 2,411,773 1,505,169
Deferred income taxes -- 26,400
Deposits 60,499 40,043
------------ ------------
7,806,502 7,305,855
------------ ------------
$ 14,221,737 $ 15,059,198
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 16,887 $ 36,131
Current maturities of loans from related companies 150,000 117,000
Accounts payable 531,661 514,249
Accrued expenses 369,262 444,841
Income taxes payable 45,454 88,412
Customer deposits 250,651 213,221
Deferred revenue 1,738,654 1,648,987
------------ ------------
Total current liabilities 3,102,569 3,062,841
------------ ------------
LONG TERM DEBT, NET OF CURRENT MATURITIES 35,409 43,975
------------ ------------
LOANS FROM RELATED COMPANIES 391,753 453,847
------------ ------------
SHAREHOLDERS' EQUITY
Preferred stock -- --
Common stock 59,229 59,224
Additional paid-in-capital 10,371,673 10,371,302
Retained earnings 271,266 1,096,222
Unearned compensation (14,909) (33,323)
Foreign currency translation adjustments 4,747 5,110
------------ ------------
10,692,006 11,498,535
------------ ------------
$ 14,221,737 $ 15,059,198
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
ACROSS DATA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended June 30, 1996 and 1995
(Unaudited)
1996 1995
----------- -----------
REVENUE
Consulting and service $ 2,400,413 $ 2,044,142
Software 371,848 630,324
Other 184,104 364,418
----------- -----------
2,956,365 3,038,884
----------- -----------
COST OF REVENUE
Consulting and service 1,270,213 990,852
Software 200,955 72,014
Other 140,194 288,513
----------- -----------
1,611,362 1,351,379
----------- -----------
GROSS MARGIN 1,345,003 1,687,505
OPERATING EXPENSES 1,906,909 1,162,450
----------- -----------
OPERATING INCOME (LOSS) (561,906) 525,055
----------- -----------
OTHER INCOME (EXPENSE)
Interest income 29,380 907
Interest expense (7,259) (17,595)
----------- -----------
22,121 (16,688)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (539,785) 508,367
INCOME TAX EXPENSE 18,200 127,600
----------- -----------
NET INCOME (LOSS) $ (557,985) $ 380,767
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE $ ( 0.09) $ 0.10
=========== ===========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES 5,922,956 3,839,166
=========== ===========
See notes to condensed consolidated financial statements.
4
<PAGE>
ACROSS DATA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
REVENUE
Consulting and service $ 4,503,224 $ 3,484,208
Software 661,646 1,482,938
Other 350,919 469,138
----------- -----------
5,515,789 5,436,284
----------- -----------
COST OF REVENUE
Consulting and service 2,325,298 1,604,935
Software 333,699 202,354
Other 272,814 376,970
----------- -----------
2,931,811 2,184,259
----------- -----------
GROSS MARGIN 2,583,978 3,252,025
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,477,851 2,136,798
----------- -----------
OPERATING INCOME (LOSS) (893,873) 1,115,227
----------- -----------
OTHER INCOME (EXPENSE)
Interest income 80,811 2,162
Interest expense (15,094) (33,571)
----------- -----------
65,717 (31,409)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES AND
MINORITY INTEREST (828,156) 1,083,818
INCOME TAX EXPENSE (BENEFIT) (3,200) 319,000
----------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST (824,956) 764,818
MINORITY INTEREST IN INCOME OF
CONSOLIDATED SUBSIDIARY 0 15,291
----------- -----------
NET INCOME (LOSS) $ (824,956) $ 749,527
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE $ (0.14) $ 0.20
=========== ===========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES 5,922,902 3,839,166
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
ACROSS DATA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (824,956) $749,527
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation 87,811 54,241
Amortization 538,954 235,939
Tax effect of utilizing deferred tax assets
that were fully reserved at date of acquisition 49,600 307,200
Deferred income taxes 39,600 (403,300)
Minority interest in income of consolidated subsidiary -- 15,291
Changes in operating assets and liabilities:
Accounts receivable (773,702) 811,585
Inventory (43,328) (24,645)
Prepaid expenses and other assets 24,075 (128,885)
Income taxes receivable (240,103) --
Deposits (20,456) (40,169)
Accounts payable and accrued expenses (58,167) (481,775)
Income taxes payable (42,958) 137,901
Deferred revenue and customer deposits 127,097 130,292
---------- --------
Net cash provided (used) by operating activities (1,136,533) 1,363,202
---------- --------
INVESTING ACTIVITIES
Redemption of marketable securities 2,044,962 --
Purchases of property and equipment (385,980) (47,209)
Software development costs (1,079,253) (236,132)
Employee repayments 10,664 6,758
Advances to former shareholders of acquired subsidiary -- (294,622)
Payments to former shareholders of acquired subsidiary -- (445,056)
Cash acquired in acquisition -- 5,669
Cost of acquisition -- (2,088,217)
---------- --------
Net cash provided (used) by investing activities 590,393 (3,098,809)
---------- --------
FINANCING ACTIVITIES
Payments on long-term debt (27,810) (41,263)
Proceeds from issuance of long-term debt -- 31,912
Loans from related companies -- 1,513,007
Payments on loans from related companies (29,094) (250,000)
Proceeds from issuance of common stock -- 528,400
Proceeds from exercise of stock options 376 --
Deferred public offering and other costs -- (255,280)
---------- --------
Net cash provided (used) by financing activities (56,528) 1,526,776
---------- --------
(continued)
</TABLE>
See notes to condensed consolidated financial statements
6
<PAGE>
ACROSS DATA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Six Months Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
EFFECT OF EXCHANGE RATE CHANGES ON CASH $ 2,159 $ 19,186
---------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (600,509) (189,645)
CASH AND CASH EQUIVALENTS
Beginning of period 3,147,509 691,305
---------- --------
End of period $2,547,000 $501,660
========== ========
</TABLE>
See notes to condensed consolidated financial statements.
7
<PAGE>
ACROSS DATA SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
In the opinion of the Company, these unaudited condensed consolidated financial
statements contain all normal recurring adjustments necessary to present fairly
the financial position of the Company as of June 30, 1996 and December 31, 1995
and the results of operations for the three and six months ended June 30, 1996
and 1995. The results of operations for the three and six months ended June 30,
1996 are not necessarily indicative of the results to be expected for the year
ending December 31, 1996, or any other period. For further information, refer to
the consolidated financial statements and notes included in the Company's annual
report on Form 10-K for the year ended December 31, 1995.
2. Principles of Consolidation
The condensed consolidated financial statements include the accounts of Across
Data Systems, Inc. (Across), its 100% wholly-owned subsidiary ProfitKey
International, Inc. (ProfitKey), its 100% wholly-owned Canadian subsidiary,
3077934 Canada, Inc. and its 100% wholly-owned subsidiary, Bizware Computer
Systems (Canada) Inc. (Bizware), its 100% wholly-owned subsidiary, Level 8
Systems, Inc. (Level 8) and its ASU consulting division (ASU). Financial
information of Level 8 is included from the date of acquisition, April 1, 1995.
All intercompany accounts and transactions are eliminated in consolidation.
3. Reclassification
Certain items in the 1995 financial statements have been reclassified in order
to conform to the 1996 presentaion.
8
<PAGE>
ACROSS DATA SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Across Data Systems, Inc., through its wholly-owned subsidiaries ProfitKey,
Bizware, and Level 8 and its ASU consulting division, develops and markets
business software and provides consulting and ancillary services. The Company's
products and services include: transactional messaging middleware and
distributed object technology, which facilitate communication among applications
that reside on distributed and often incompatible hardware and software;
industry specific ("vertical") software applications the Company has developed
for manufacturers and for the petroleum and convenience store industry; and
consulting services for enterprise messaging and for the manufacturing and
financial services industries.
Results of Operations
Revenue for the three and six months ended June 30, 1996 was approximately
$2,956,000 and $5,516,000 respectively, compared to revenue for the three and
six months ended June 30, 1995 of approximately $3,039,000 and $5,436,000,
respectively. Level 8 was acquired on April 1, 1995 and therefore is included in
the six months ended June 30, 1995 only since the acquisition date. The decrease
in revenue for the three months ended June 30, 1996 of $83,000 is primarily
related to decreases at ProfitKey and Bizware of approximately $193,000, and
$305,000, respectively. These decreases were offset by increases at Level 8 and
ASU of $352,000 and $63,000, respectively. The decrease at ProfitKey is
primarily from reduced hardware sales and the decrease at Bizware is related to
reduced software sales and reduced service revenue. The increase at Level 8 is
primarily attributed to increased consulting services from its Florida location
which opened in April 1996. The increase in ASU revenue is attributed to
additional services provided to existing and new clients. The increase for the
six months ended June 30, 1996 of $80,000 is related to increases at Level 8 and
ASU of $970,000 and $140,000, respectively. These increases were offset by
decreases in revenue at ProfitKey and Bizware of approximately $308,000 and
$722,000, respectively. The increase in Level 8 revenue is related to the
addition of a Florida office in the second quarter of 1996 and that Level 8 was
only included since its acquisition date in 1995. The increase in ASU revenue is
attributed to additional services provided to existing and new clients. The
decrease in ProfitKey revenue is attributed to a reduction of new software
system installations and reduced hardware sales. Bizware's revenue decreased as
a result of decreased software revenue related to the completion of a major
contract in early 1995.
Gross margin for the three and six months ended June 30, 1996 was 45.5% and
46.8%, respectively, compared to gross margin for the three and six months ended
June 30, 1995 of 55.5% and 59.8%, respectively. The decrease is related to
reduced margins in consulting and service and software sales. Consulting and
service margin decreased from the three months ended June 30, 1995 to June 30,
1996 from 51.5% to 47.1% and for the six months ended June 30, 1995 to June 30,
1996 from 53.9% to 48.4% due to reduced margins at Bizware and Level 8. In
addition, the software margin decreased due to lower sales and higher
amortization of software development costs at Bizware and ProfitKey.
Operating expenses for the three and six months ended June 30, 1996 were
approximately $1,907,000 and $3,478,000, respectively, compared to operating
expenses for the three and six months ended June 30, 1995 of approximately
$1,162,000 and $2,137,000, respectively. The increase for the three months ended
June 30, 1996 is the result of an increase in non-cash amortization charges, the
addition of Level 8 operating expenses associated with the start up of the
Florida location and increased staffing levels at ProfitKey as a result of new
products and services being prepared for release.
Interest income for the three and six months ended June 30, 1996 increased by
approximately $28,000 and $79,000, respectively. The increase is the result of
investing approximately $3,000,000 in three month treasury bills.
9
<PAGE>
Liquidity and Capital Resources
The Company's net losses have been funded from proceeds from its initial public
offering. Operating and financing activities for the three and six months ended
June 30, 1996 used net cash of approximately $782,000 and $1,193,000
respectively. At June 30, 1996, the Company had working capital of approximately
$2,428,000 and a current ratio of 1.8.
The Company continued new product development at ProfitKey, Bizware and Level 8.
During the three months ended June 30, 1996, the Company spent approximately
$580,000 on software development. Total spending on software development costs
for the six months ended June 30, 1996 were approximately $1,079,000. In
addition to software development the Company used cash to fund its $824,956
loss, which included establishing a Level 8 sales and systems integration office
in Florida, and purchase approximately $386,000 of property and equipment
On July 26, 1996, the Company and Candle Corporation (Candle), signed an
investment agreement whereby Candle acquired, for $2,714,800, four percent of
the Company's common stock at a price of $11.00 per share and signed a letter of
intent that initiates a strategic alliance between the two companies. Funds were
received by the Company on July 30, 1996.
10
<PAGE>
Part II
ACROSS DATA SYSTEMS, INC. AND SUBSIDIARIES
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security-Holders
(a) The annual meeting of shareholders of Across Data Systems, Inc.
was held on May 2, 1996.
(b) A vote was proposed to (1) elect the Board of Directors to serve
for the ensuing year, and (2) to ratify the selection of Lurie,
Besikof, Lapidus and Co. LLP as independent auditors for the
fiscal year ending December 31, 1996.
The shareholders voting results are as follows:
<TABLE>
<CAPTION>
Votes
For Against Withheld Abstained
--- ------- -------- ---------
<S> <C> <C> <C> <C>
(1) Robert R. MacDonald 5,537,602 N/A 12,207 N/A
Arik Kilman 5,537,602 N/A 12,207 N/A
Samuel Somech 5,537,602 N/A 12,207 N/A
Theodore Fine 5,537,602 N/A 12,207 N/A
Lenny Recanati 5,537,602 N/A 12,207 N/A
Frank Klein 5,537,602 N/A 12,207 N/A
(2) Lurie, Besikof, Lapidus and Co. LLP 5,536,229 8,700 4,880
</TABLE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
(11) Statement regarding computation of earnings per share
(27) Financial Data Schedule
Reports on Form 8-K:
None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date August 12, 1996 ACROSS DATA SYSTEMS, INC.
----------------------- -------------------------
(Registrant)
/s/ Robert R. MacDonald
------------------------------
Robert R. MacDonald, President
/s/ Joseph J. Di Zazzo
------------------------------
Joseph J. Di Zazzo, Controller and
Chief Accounting Officer
ACROSS DATA SYSTEMS, INC. AND SUBSIDIARIES
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENTS
EXHIBIT 11.0
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
PRIMARY: 1996 1995 1996 1995
--------------------- ---------------------
<S> <C> <C> <C> <C>
WEIGHTED AVERAGE COMMON SHARES 5,922,956 2,911,863 5,922,902 2,911,863
COMMON STOCK EQUIVALENTS 177,795 177,795
COMMON STOCK EQUIVALENTS PURSUANT
TO SAB TOPIC 4D 749,508 749,508
--------------------- ---------------------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES 5,922,956 3,839,166 5,922,902 3,839,166
===================== =====================
FULLY DILUTED:
WEIGHTED AVERAGE COMMON SHARES 5,922,956 2,911,863 5,922,902 2,911,863
COMMON STOCK EQUIVALENTS 177,795 177,795
COMMON STOCK EQUIVALENTS PURSUANT
TO SAB TOPIC 4D 749,508 749,508
--------------------- ---------------------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES 5,922,956 3,839,166 5,922,902 3,839,166
===================== =====================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,547,000
<SECURITIES> 0
<RECEIVABLES> 2,197,305
<ALLOWANCES> 0
<INVENTORY> 168,662
<CURRENT-ASSETS> 5,530,185
<PP&E> 885,050
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,221,737
<CURRENT-LIABILITIES> 3,102,569
<BONDS> 0
0
0
<COMMON> 59,229
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,221,737
<SALES> 5,515,789
<TOTAL-REVENUES> 5,515,789
<CGS> 2,931,811
<TOTAL-COSTS> 6,409,622
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,094
<INCOME-PRETAX> (828,156)
<INCOME-TAX> (3,200)
<INCOME-CONTINUING> (824,956)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (824,956)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
