<PAGE>
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 March 31, 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.
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(Exact name of registrant as specified in its charter)
NEW YORK 11-2920559
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(State or other jurisdiction of (I.R.S Employer Identification Number)
incorporation or organization)
382 Main Street, Salem, New Hampshire 03079
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(Address of principal executive offices) (Zip Code)
(603)898-9800
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(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.
5,922,956 common shares, $.01 par value, were outstanding as of April 30, 1996.
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ACROSS DATA SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION Page #
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets at March 31,
1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations for
the three months ended March 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 1996 and 1995 5-6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. OTHER INFORMATION 9-11
2
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ACROSS DATA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1996 1995
----------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,077,971 $ 3,147,509
Marketable securities - 2,044,962
Accounts receivable, net 1,742,926 1,423,603
Income taxes receivable 36,000 -
Inventory 108,062 125,334
Prepaid expenses and other assets 164,721 157,054
Deferred income taxes 342,800 268,000
----------- -----------
Total current assets 6,472,480 7,166,462
----------- -----------
PROPERTY AND EQUIPMENT, NET 757,029 586,881
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OTHER ASSETS
Excess of cost over net assets acquired, net 3,585,130 3,717,393
Service contracts acquired, net 1,952,977 2,016,850
Software development costs, net 1,925,314 1,505,169
Deferred income taxes - 26,400
Deposits 41,237 40,043
----------- -----------
7,504,658 7,305,855
----------- -----------
$14,734,167 $15,059,198
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 20,746 $ 36,131
Current maturities of loans from related companies 117,000 117,000
Accounts payable 708,051 514,249
Accrued expenses 356,574 444,841
Income taxes payable - 88,412
Customer deposits 206,803 213,221
Deferred revenue 1,551,541 1,648,987
----------- -----------
Total current liabilities 2,960,715 3,062,841
----------- -----------
LONG TERM DEBT, NET OF CURRENT MATURITIES 40,225 43,975
----------- -----------
DEFERRED INCOME TAXES 61,200 -
----------- -----------
LOANS FROM RELATED COMPANIES 424,753 453,847
----------- -----------
SHAREHOLDERS' EQUITY
Preferred stock - -
Common stock 59,229 59,224
Additional paid-in-capital 10,371,673 10,371,302
Retained earnings 829,251 1,096,222
Unearned compensation (24,116) (33,323)
Foreign currency translation adjustments 11,237 5,110
----------- -----------
11,247,274 11,498,535
----------- -----------
$14,734,167 $15,059,198
----------- -----------
----------- -----------
See notes to condensed consolidated financial statements.
3
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ACROSS DATA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 1996 and 1995
(Unaudited)
1996 1995
----------- -----------
REVENUE
Consulting and service $ 2,102,811 $ 1,440,165
Software 289,798 852,614
Other 166,815 104,621
----------- -----------
2,559,424 2,397,400
----------- -----------
COST OF REVENUE
Consulting and service 1,055,085 613,294
Software 132,744 130,340
Other 132,620 89,246
----------- -----------
1,320,449 832,880
----------- -----------
GROSS MARGIN 1,238,975 1,564,520
OPERATING EXPENSES 1,570,942 974,348
----------- -----------
OPERATING INCOME (LOSS) (331,967) 590,172
----------- -----------
OTHER INCOME (EXPENSES)
Interest income 51,431 1,255
Interest expense (7,835) (15,976)
----------- -----------
43,596 (14,721)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST (288,371) 575,451
MINORITY INTEREST - 15,291
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (288,371) 560,160
INCOME TAX EXPENSE (21,400) 191,400
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NET INCOME (LOSS) $ (266,971) $ 368,760
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----------- -----------
NET INCOME (LOSS) PER COMMON SHARE $ (0.05) $ 0.10
----------- -----------
----------- -----------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES 5,922,847 3,839,166
----------- -----------
----------- -----------
See notes to condensed consolidated financial statements.
4
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ACROSS DATA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (266,971) $ 368,760
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation 41,825 25,226
Amortization 253,191 62,277
Tax effect of utilizing deferred tax assets
that were fully reserved at date of acquisition 37,000 172,300
Minority interest in income of consolidated subsidiary - 15,291
Changes in operating assets and liabilities:
Accounts receivable (318,484) (212,392)
Inventory 13,272 (18,290)
Prepaid expenses and other assets (9,088) 3,520
Income taxes receivable (36,000) -
Deferred income taxes 12,800 (132,100)
Deposits (3,090) (35,653)
Accounts payable 193,659 (5,246)
Accrued expenses (88,398) (15,934)
Income taxes payable (88,839) (79,927)
Customer deposits (6,436) (63,512)
Deferred revenue (98,001) 171,556
----------- -----------
Net cash provided (used) by operating activities (363,560) 255,876
----------- -----------
INVESTING ACTIVITIES
Redemption of marketable securities 2,044,962 -
Purchases of property and equipment (211,562) (18,720)
Software development costs (499,036) (121,994)
Employee repayments 7,409 6,176
----------- -----------
Net cash provided (used) by investing activities 1,341,773 (134,538)
----------- -----------
FINANCING ACTIVITIES
Deferred costs - (64,020)
Payments on long-term debt (19,196) (20,520)
Loans from related companies - 1,513,007
Payments on loans from related companies (29,094) -
Proceeds from issuance of common stock - 528,400
Proceeds from exercise of stock options 376 -
----------- -----------
Net cash provided (used) by financing activities (47,914) 1,956,867
----------- -----------
(continued)
</TABLE>
See notes to condensed consolidated financial statements.
5
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ACROSS DATA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Three Months Ended March 31, 1996 and 1995
(Unaudited)
1996 1995
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EFFECT OF EXCHANGE RATE CHANGES ON CASH $ 163 $ 30,591
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NET INCREASE IN CASH AND CASH EQUIVALENTS 930,462 2,108,796
CASH AND CASH EQUIVALENTS
Beginning of period 3,147,509 691,305
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End of period $4,077,971 $2,800,101
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See notes to condensed consolidated financial statements.
6
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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 March 31, 1996 and December 31, 1995
and the results of operations and cash flows for the three months ended March
31, 1996 and 1995. The results of operations and cash flows for the three
months ended March 31, 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 1996 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). The March 31,
1995 statements of operations and cash flows include only the operations of
Across, ProfitKey, Bizware and ASU as Level 8 was acquired effective April 1,
1995.
7
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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 months ended March 31, 1996 was approximately $2,559,000
as compared $2,397,000 for the three months ended March 31, 1995, an increase of
$162,000. The increase is primarily related to an increase in revenue at ASU of
approximately $76,000 and the additional revenue in 1996 from Level 8 of
approximately $618,000. Level 8 was acquired effective April 1, 1995 and is
therefore not included in the first quarter 1995. These increases were offset
by a decrease in revenue at ProfitKey and Bizware of approximately $115,000 and
$417,000 respectively. 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. Bizware's
revenue decreased as a result of the completion of a major contract in early
1995.
Gross margin for the three months ended March 31, 1996 was 48.4% as compared to
65.3% for the three months ended March 31, 1995. The decrease is related to
reduced margins in consulting and service and software. Consulting and service
margin decreased from 57.4% in 1995 to 49.8% in 1996 due to reduced margins at
Bizware and the addition of Level 8 which operated at a gross margin of 38.7%.
In addition, the software margin decreased due to lower sales and higher
software amortization costs at Bizware and ProfitKey.
Operating expenses for the three months ended March 31, 1996 were approximately
$1,571,000 as compared to approximately $974,000 for the three months ended
March 31, 1995, an increase of approximately $597,000. The increase is the
result of an increase in non-cash amortization charges of approximately
$111,000, the addition of Level 8 operating expenses and increased staffing
levels at ProfitKey as a result of new products and services being prepared for
release.
Interest income increased by approximately $50,000 from 1995 to 1996 as a result
of investing approximately $4,000,000 in three and six-month treasury bills.
Liquidity and Capital Resources
Operating and financing activities for the three months ended March 31, 1996
used net cash of approximately $364,000 and $48,000 respectively. At March 31,
1996, the Company had working capital of approximately $3,512,000 and a current
ratio of 2.19. The Company believes that cash from operations and the proceeds
from its initial public offering will be adequate to fund its working capital
and capital expenditure requirements at least through the end of 1996.
The Company continued new product development at ProfitKey, Bizware and Level 8.
During the three months ended March 31, 1996, the Company spent approximately
$499,000 on software development.
8
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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
None
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
9
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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 May 10, 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
<PAGE>
ACROSS DATA SYSTEMS, INC. AND SUBSIDIARIES
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENTS
EXHIBIT 11.0
THREE MONTHS ENDED
MARCH 31, MARCH 31,
PRIMARY: 1996 1995
---------------------
WEIGHTED AVERAGE COMMON SHARES 5,922,847 2,911,863
COMMON STOCK EQUIVALENTS 177,795
COMMON STOCK EQUIVALENTS PURSUANT
TO SAB TOPIC 4D 749,508
---------------------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES 5,922,847 3,839,166
---------------------
---------------------
FULLY DILUTED:
WEIGHTED AVERAGE COMMON SHARES 5,922,847 2,911,863
COMMON STOCK EQUIVALENTS 177,795
COMMON STOCK EQUIVALENTS PURSUANT
TO SAB TOPIC 4D 749,508
---------------------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES 5,922,847 3,839,166
---------------------
---------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 4,077,971
<SECURITIES> 0
<RECEIVABLES> 1,742,926
<ALLOWANCES> 0
<INVENTORY> 108,062
<CURRENT-ASSETS> 6,472,480
<PP&E> 757,029
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,734,167
<CURRENT-LIABILITIES> 2,960,715
<BONDS> 0
0
0
<COMMON> 59,229
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,734,167
<SALES> 2,559,424
<TOTAL-REVENUES> 2,559,424
<CGS> 1,320,449
<TOTAL-COSTS> 2,891,391
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,835
<INCOME-PRETAX> (288,371)
<INCOME-TAX> (21,400)
<INCOME-CONTINUING> (266,971)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (266,971)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
