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 December 31, 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 January 15, 2001, 29,044,000 shares of common stock, $.001 par value were
outstanding.
Note: This is Page 1 of a document consisting of 16 pages.
DATAWORLD SOLUTIONS, INC.
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS:
Balance Sheet - December 31, 2000 and June 30, 2000 ................... 3
Statement of Operations - Quarter Ended
December 31, 2000 and 1999........................................... 4
Statement of Operations - Six Months Ended
December 31, 2000 and 1999........................................... 5
Statement of Changes in Stockholders' Equity for the six
months ended December 31, 2000......................................... 6
Statement of Cash flows for the six months ended
December 31, 2000 and 1999........................................... 7
Notes to Financial Statements............................................ 8-10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ............................ 11-14
PART II- OTHER INFORMATION.............................................. 15
SIGNATURES.............................................................. 16
DATAWORLD SOLUTIONS, INC.
BALANCE SHEETS
(Unaudited)
December 31, June 30,
ASSETS 2000 2000
CURRENT ASSETS:
Cash............................................... $ - $ 51,153
Accounts receivable, net of allowance for doubtful
accounts of $85,000 and $56,000 as of December 31,
2000 and June 30, 2000, respectively............ 3,366,408 3,058,572
Inventories, net.................................. 1,661,815 1,680,577
Prepaid expenses and other current assets......... 46,885 30,221
----------- -----------
TOTAL CURRENT ASSETS................................ 5,075,108 4,820,523
PROPERTY, PLANT AND EQUIPMENT, net.................. 440,385 466,139
GOODWILL............................................ 3,344,568 3,437,472
OTHER ASSETS........................................ 88,350 88,350
----------- -----------
TOTAL ASSETS........................................ $ 8,948,411 $ 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.................................... 114,081 -
Accounts payable.................................. 2,389,838 2,211,220
Accrued expenses and other....................... 729,760 815,537
Bankruptcy distributions payable.................. 249,004 291,000
--------- ---------
TOTAL CURRENT LIABILITIES......................... 3,566,463 3,407,395
LONG-TERM DEBT, NET OF CURRENT PORTION.............. 3,959,619 3,721,967
SUBSCRIPTIONS RECEIVED.............................. 217,000 217,000
NOTES PAYABLE - AFFILIATE, net...................... 55,556 66,667
SECURED SUBORDINATED DEBENTURES, net................ 86,873 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............... 692,250 672,750
Common stock, par value $.001 per share; authorized
40,000,000 shares; 29,044,000 issued and outstanding
at December 31, 2000 and June 30, 2000............. 29,044 29,044
Additional paid in capital, net..................... 773,020 773,020
Accumulated deficit................................. (2,031,414) (1,761,512)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY.......................... 1,062,900 1,313,302
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY........................................... $ 8,948,411 $ 8,812,484
============ ===========
The accompanying notes are an integral part of these financial statements.
DATAWORLD SOLUTIONS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
December 31,
2000 1999
----------- ------------
Net sales......................................... $ 3,850,151 $ 3,055,460
Cost of goods sold................................ 2,954,425 2,164,649
---------- ------------
Gross profit...................................... 895,726 890,811
Selling, general and administrative expenses...... 771,675 746,572
Depreciation and amortization..................... 80,103 83,145
----------- ------------
Earnings before interest ......................... 124,051 144,239
Interest expense.................................. 139,224 118,273
----------- ------------
Net loss.......................................... (95,276) (57,179)
Accrued dividends on preferred stock.............. 41,748 -
----------- ------------
Net loss applicable to common stockholders........ $ (137,024) $ (57,179)
=========== ============
Share Information
Basic and diluted loss per share.................. $ (.01) $ (.002)
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.
STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended
December 31,
2000 1999
----------- -----------
Net sales......................................... $ 7,511,507 $ 6,336,372
Cost of goods sold................................ 5,680,604 4,765,582
------------ -----------
Gross profit...................................... 1,830,903 1,570,790
Selling, general and administrative expenses...... 1,588,692 1,318,030
Depreciation and amortization..................... 159,851 159,391
------------ -----------
Earnings before interest.......................... 242,211 252,760
Interest expense.................................. 268,766 218,530
------------ -----------
Net loss.......................................... (186,406) (125,161)
Accrued dividends on preferred stock.............. 83,496 -
------------ -----------
Net loss applicable to common stockholders........ $ (269,902) $ (125,161)
============ ===========
Share Information
Basic and diluted loss per share.................. $ (.01) $ (.005)
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)
8% $6.00 Paid- Total
Preferred Preferred Common in stock-
stock stock Common stock capital, Accumulated holder's
amount amount shares amount net deficit equity
------ -------- ---------- ----------- -------- ----------- ----------
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 (63,996) (63,996)
Accrued dividends
on $6 Preferred
stock 19,500 (19,500) -
Net loss (186,406) (186,406)
========== ======== ========== ========== ========== ============ ===========
Balance December
31, 2000 $1,600,000 $692,250 29,044,000 $29,044 $773,020 $(2,031,414) $1,062,900
The accompanying notes are an integral part of these financial statements.
DATAWORLD SOLUTIONS, INC.
STATEMENTS OF CASHFLOWS
(Unaudited)
Six Months Ended
December 31,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ $(186,406) $ (125,161)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization................... 159,851 159,901
Provision for doubtful accounts................. 15,000 -
Change in operating assets and liabilities:
Increase in accounts receivable............. (322,836) (859,009)
(Decrease) increase in inventories.......... 18,762 (91,752)
Increase in prepaid expenses and other
current assets............................. (16,664) (21,572)
Increase in other assets.................... - (5,195)
Increase (decrease) in accounts payable and
accrued expenses........................... 28,844 (24,674)
---------- ----------
Net cash used in operating activities....... (303,449) (967,462)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................... (40,473) (178,675)
----------- ----------
Net cash used in investing activities (40,473) (178,675)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under debt and loan
agreements.................................. 231,795 845,934
(Repayment) borrowings from affiliate........ (11,111) 73,000
Issuance of subordinated debenture.......... - 250,000
Cash overdraft............................... 114,081 -
Decrease in bankruptcy distributions payable. (41,996) -
----------- ----------
Net cash provided by financing activities....... 292,769 1,168,934
----------- ----------
NET (DECREASE) INCREASE IN CASH................. (51,153) 22,797
CASH at beginning of period..................... 51,153 -
----------- -----------
CASH at end of period........................... $ - $ 22,797
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest.............................. $ 268,766 $ 218,021
=========== ===========
Non cash financing transaction:
Warrants issued in connection with
Subordinated debenture................. $ - $ 51,000
=========== ===========
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 December 31, 2000 and the related statements of
operations, statement of changes in stockholders' equity and cash flows for the
three and six months ended December 31, 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 December
31, 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 years ended June 30,
2000 and 1999 are not necessarily indicative 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 six
months ended December 31, 2000, the Company incurred a net loss of $1865406
and at such date had working capital of $1,508,645, 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 December 31, 2000 and June 30,
2000, the allowance for obsolete and slow-moving inventory was approximately
$514,000 and $532,000, respectively.
December 31, June 30,
2000 2000
Raw Materials $ 1,431,485 $ 1,590,577
Work in Process 220,330 90,000
Finished Goods 10,000 -
----------- ------------
Inventories, net $ 1,661,815 $ 1,680,577
DATAWORLD SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
3. LONG-TERM DEBT
Long-term debt consists of the following:
December 31, June 30,
2000 2000
----------- ----------
Revolving asset-based loan (a)............... $ 3,903,887 $ 3,657,677
Capitalized lease obligations(b)..... 72,847 87,262
----------- -----------
3,976,734 3,744,939
Less current portion of long-term debt...... 17,114 22,972
----------- -----------
$ 3,959,620 $ 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 December 31, 2000) and a commitment fee of 1% per annum. At
December 31, 2000, there were $110,000 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 began 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 and $100,000 from the Company on or about April 24, 2000.
As of December 31, 2000 the balance due to the Class 7 Creditors is
approximately $249,000. This amount is payable in monthly installments of
approximately $11,000 at 8% interest. 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
Creditors a percentage of the Company's cumulative cash flow, as defined,
through September 2002, as originally specified in the Plan.
6. WEB SITE DEVELOPMENT COSTS
In January 2000, the Company issued 1,800,000 non-forfeitable shares of its
common stock, in exchange for services valued at $360,000 to be provided in
connection with the development of the Company's Web site. Through December
31, 2000, the Company recognized $54,000 of expense relating to the initial
design of the Web site. Unamortized Web site development costs have been
classified as a component of stockholders' equity in the accompanying
financial statements and will be recognized as services are provided.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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, and
actual results may 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
hereunde.
Results of Operations
Quarter Ended December 31, 2000
Net sales for the quarter ended December 31, 2000 were approximately $3,851,000.
Net sales for the quarter ended December 31, 1999 were approximately $3,055,000.
This increase of approximately $796,000 or 26.1% in 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 December 31, 2000 was approximately $896,000.
Gross profit as a percentage of sales was 23.3% for the quarter ended December
31, 2000. Gross profit for the quarter ended December 31, 1999 was
approximately $891,000. Gross profit as a percentage of sales was 29.2% for the
quarter ended December 31, 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 $772,000 or
20.1% of sales for the quarter ended December 31, 2000. For the quarter ended
December 31, 1999 selling, general and administrative expenses were
approximately $747,000 or 24.5% of sales. The increase of approximately $25,000
is primarily due to increased office salaries of approximately $10,000 and other
office expenses and also included in selling, general and administrative
expenses for the quarter ended December 31, 2000 is approximately $15,000 for
a provision for doubtful accounts.
Interest expense for the quarter ended December 31, 2000 was approximately
$139,000. For the quarter ended December 31, 1999 interest expense was
approximately $118,000. This increase of approximately $21,000 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
Results of Operations
Six Months Ended December 31, 2000
Net sales for the six months ended December 31, 2000 were approximately
$7,512,000. Net sales for the six months ended December 31, 1999 were
approximately $6,336,000. This increase of approximately $1,176,000 or 18.6% 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 six months ended December 31, 2000 was approximately
$1,831,000. Gross profit as a percentage of sales was 24.4% for the six months
ended December 31, 2000. Gross profit for the six months ended December 31,
1999 was approximately $1,571,000. Gross profit as a percentage of sales was
24.8% for the six months ended December 31, 1999. The growth in gross profit
was due to increased sales volume.
Selling, general and administrative expenses were approximately $1,589,000 or
21.2% of sales for the six months ended December 31, 2000. Selling, general and
administrative expenses were approximately $1,318,000 or 20.8% of sales for the
six months ended December 31, 1999. The increase was principally due to the
combination of the following; a provision for accounts receivable was
recorded for approximately $30,000, an increase in office salaries of
approximately $49,000, an increase in insurance costs of approximately $16,000,
an increase in computer expenses of approximately $28,000, an increase in
stockholder reporting fees of approximately $52,000 and an increase in bank
charges relating to an increases in the Company's credit facility of
approximately $34,000.
Interest expense for the six months ended December 31, 2000 was approximately
$269,000. For the six months ended December 31, 1999 interest expense was
approximately $218,000. This increase of approximately $51,000 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 December 31, 2000
The Company has net working capital of approximately $1,509,000 at December 31,
2000. The working capital at December 31, 2000 is not sufficient to meet the
Company's current liquidity needs. The Company is exploring opportunities
to increase operating efficiencies and intends 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 six months ended December 31, 2000, the Company used approximately
$303,000 in cash from operating activities. Net cash used during the six months
was primarily due to the an increase in accounts receivable of approximately
$322,000 and a decrease in inventory of approximately $19,000, offset by an
increase in accounts payable of approximately $29,000. 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 $40,000 during the six
months ended December 31, 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 $293,000. 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 63% of the market price, subject to further
reduction for each month or partial month subsequent to the date hereof that
the related SEC registration statement is not declared effective and subject to
reduction to 50% if such registration statement is not effective by May 31,
2001. 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 December 31, 2000
(CONTINUED)
Management plans to continue to pursue revenue growth, which would
provide additional borrowings under its revolving credit facility. In light
of the recent economic downturn in the United States (including delays in
spending by some of the Company's telecom customers), the Company plans to focus
in the near-term on expanding its relationships with its OEM customer base. 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, management intends to seek additional sources
of equity and debt financing.
As required by the terms of the Company's 8% Series B Convertible Preferred
Stock, the Company filed a registration statement in December 2000. The
Registration Statement covers shares of the Company's common stock issuable
(i) upon conversion of such Preferred Stock, (ii) in lieu of cash dividends on
such Preferred Stock and pursuant to (iii) upon exercise of certain options
and warrants issued, in connection with such financing.
The Company's continuing existance 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: March 6, 2001
DATAWORLD SOLUTIONS, INC.
By: /s/ Daniel McPhee
--------------------------------
Chief Executive Officer
By: /s/ Christopher Francis
---------------------------------
Chief Operating Officer