-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PmW/u1S0n51eRp2r7D1xvlYyVmzki3uxNKluyw4lsiGj0b1Vrm8vPgBdQn1+Unby MvNKc5kqKtDvfXnMH2MG1A== 0000792130-97-000007.txt : 19970812 0000792130-97-000007.hdr.sgml : 19970812 ACCESSION NUMBER: 0000792130-97-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970811 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATAWATCH CORP CENTRAL INDEX KEY: 0000792130 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 020405716 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19960 FILM NUMBER: 97655747 BUSINESS ADDRESS: STREET 1: 234 BALLARDVALE ST CITY: WILMINGTON STATE: MA ZIP: 01887 BUSINESS PHONE: 5089889700 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 OR [ ] 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: 0-19960 Datawatch Corporation (Exact name of registrant as specified in its charter) Delaware 02-0405716 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 234 Ballardvale Street, Wilmington Massachusetts 01887 (Address of principal executive offices) (Zip Code) (508) 988-9700 (Registrant's telephone number, including area code) None (Former name, former address, former fiscal year, if changed since last report) 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 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 of each of the issuer's classes of common stock as of the latest practicable date: Class Outstanding at August 1, 1997 Common stock, $.01 par value 9,112,780 DATAWATCH CORPORATION AND SUBSIDIARIES TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements Page # a) Consolidated Condensed Balance Sheets: 3 June 30, 1997 and September 30, 1996 b) Consolidated Condensed Statements of Operations: 4 Three Months Ended June 30, 1997 and 1996 Nine Months Ended June 30, 1997 and 1996 c) Consolidated Condensed Statements of Cash Flows: 5 Nine Months Ended June 30, 1997 and 1996 d) Notes to Unaudited Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II. OTHER INFORMATION Item 1. Legal Proceedings * Item 2. Changes in Securities * Item 3. Default upon Senior Securities * Item 4. Submission of Matters to a Vote of Security Holders * Item 5. Other Information * Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES * No information provided due to inapplicability of item. PART I. Item 1. Financial Statements DATAWATCH CORPORATION AND SUBSDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, September 30, 1997 1996 ASSETS (Unaudited) (Audited) CURRENT ASSETS: Cash and equivalents $ 1,503,206 $ 1,696,349 Short-term investments 496,399 792,665 Accounts receivable, net 7,831,542 7,767,748 Inventories 857,977 480,758 Prepaid advertising and other expenses 2,082,129 1,264,798 Total current assets 12,771,253 12,002,318 PROPERTY PLANT & EQUIPMENT: Property and equipment 4,303,932 3,534,759 Less accumulated depreciation and amortization (2,300,147) (1,737,733) Net property and equipment 2,003,785 1,797,026 OTHER ASSETS 316,696 400,062 EXCESS OF COST OVER NET ASSETS OF ACQUIRED COMPANIES 1,571,480 1,041,165 TOTAL ASSETS $ 16,663,214 $ 15,240,571 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 3,130,733 $ 2,914,952 Accrued expenses 1,468,634 1,063,129 Deferred revenue 2,017,451 1,946,473 Borrowings under credit lines 636,806 Current portion of long-term debt 397,260 230,501 Total current liabilities 7,014,078 6,791,861 LONG-TERM DEBT 1,485,698 209,824 TOTAL LIABILITIES 8,499,776 7,001,685 SHAREHOLDERS' EQUITY: Common stock 91,090 89,659 Additional paid-in capital 19,728,734 18,665,402 Accumulated deficit (11,466,693) (10,538,117) Common stock held in treasury (140,388) Cumulative translation adjustment (49,305) 21,942 Total shareholders' equity 8,163,438 8,238,886 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 16,663,214 $ 15,240,571 See notes to unaudited consolidated financial statements.
Item 1. Financial Statements (continued) DATAWATCH CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended June 30, June 30, 1997 1996 1997 1996 NET SALES $7,607,939 $8,026,996 $24,024,311 $22,323,962 COSTS AND EXPENSES: Cost of sales 1,488,181 1,291,616 4,403,260 3,446,532 Engineering & product development 789,899 645,095 2,104,635 1,716,817 Selling, general and administrative 6,737,419 5,378,981 18,398,343 16,344,533 INCOME (LOSS) FROM OPERATIONS (1,407,560) 711,304 (881,927) 816,080 INTEREST EXPENSE (55,497) (21,849) (106,376) (64,332) OTHER INCOME, primarily interest 15,643 2,592 36,226 38,034 FOREIGN CURRENCY TRANSACTION GAIN (LOSS) 10,623 (1,051) 23,501 7,109 PROVISION FOR INCOME TAX (10,407) (13,560) NET INCOME(LOSS) $(1,436,791) $ 680,589 $ (928,576) $ 783,331 NET INCOME (LOSS) PER COMMON SHARE $ (.16) $ .08 $ (.10) $ .09 WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON EQUIVALENT SHARES OUTSTANDING 9,070,271 8,963,598 9,064,505 8,891,748 See notes to unaudited consolidated financial statements.
Item 1. Financial Statements (continued) DATAWATCH CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) [CAPTION] NINE MONTHS ENDED June 30, 1997 1996 [S] [C] [C] CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) from continuing operations $ (928,576) $ 783,331 Adjustments to reconcile net income to net cash: Depreciation and amortization 1,030,426 679,345 Changes in current assets and liabilities: Inventories (156,354) (54,734) Prepaid advertising and other expenses (793,466) (69,575) Accounts receivable 332,008 (1,838,559) Accounts payable and accrued expenses (262,277) (604,218) Deferred revenue 70,978 31,119 Net cash used in operating activities (707,261) (1,073,291) CASH FLOWS FROM INVESTING ACTIVITIES: Additions to equipment and fixtures (616,656) (384,719) Proceeds from maturity of short-term investments 1,423,848 1,870,730 Purchase of short-term investments (1,127,582) (1,627,254) Acquisition of Guildsoft Holdings Ltd., net of working capital acquired 19,833 Other assets 112,240 (21,962) Net cash used in investing activities (188,317) (163,205) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 18,125 910,410 Proceeds from bank term loan 1,500,000 Principal payments on long-term obligations (178,884) (246,468) Borrowings under credit lines, net (636,806) 619,270 Net cash provided by financing activities 702,435 1,283,212 NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS (193,143) 46,716 CASH AND EQUIVALENTS, BEGINNING OF PERIOD 1,696,349 876,802 CASH AND EQUIVALENTS, END OF PERIOD $ 1,503,206 $ 923,518 See notes to unaudited consolidated financial statements. [/TABLE] Item 1. Financial Statements (continued) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation: The consolidated condensed balance sheet as of June 30, 1997 and the consolidated condensed statements of operations for the three months and nine months ended June 30, 1997 and 1996, and the consolidated condensed statements of cash flows for the nine months ended June 30, 1997 and 1996 are unaudited. In the opinion of management these statements include all adjustments necessary for the fair presentation of the financial data for such periods. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Company's audited financial statements for the year ended September 30, 1996 which appear in the Company's Form 10-K. 2. Inventories: The Company accounts for its inventories using a standard cost methodology. Inventories were comprised of the following: June 30, September 30, 1997 1996 Raw materials $ 343,524 $ 218,615 Work in process 2,639 2,458 Finished goods 511,814 259,685 --------- --------- TOTAL $ 857,977 $ 480,758 3. Acquisitions: On November 7, 1996, the Company acquired all of the outstanding capital stock of Guildsoft Holdings Limited ("Guildsoft"), a United Kingdom based software distributor, in exchange for an aggregate of 125,000 shares of the Company's common stock, with 12,500 of such shares held in escrow for contingent liabilities. The acquisition was accounted for as a purchase and as such, the $933,532 difference between the fair value of the assets acquired and the consideration was recorded as goodwill. On November 21, 1996 and in connection with the settlement of certain contingent liabilities of WorkGroup Systems Limited, a wholly owned subsidiary of the Company ("WorkGroup"), the company redeemed 32,052 shares of its common stock that were previously held in escrow in connection with the Company's acquisition of WorkGroup in March 1996. Accordingly, $140,388 was recorded as treasury stock. 4. Long-term Debt: During the quarter ended March 31, 1997 DATAWATCH paid down its overdraft facilities with a $1,500,000 term loan which calls for monthly principal payments beginning in March 1998 and ending in February 2001. This term loan bears interest at 1.5% above the prime rate, is collateralized by certain assets of the Company, and has priority over all debt incurred. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations GENERAL DATAWATCH CORPORATION (the "Company" or "DATAWATCH"), is engaged in the design, development, manufacture, marketing and support of personal computer software. On November 7, 1996, the Company acquired all the outstanding shares of capital stock of Guildsoft Holdings Limited ("Guildsoft"), located in Plymouth, England, which provides software companies with multi-lingual telesales, support and fulfillment services throughout Europe, in exchange for 125,000 shares of DATAWATCH common stock. This acquisition was accounted for as a purchase. Guildsoft's results of operations for the period from the date of acquisition through June 30, 1997 have been included in the Company's consolidated statements of operations and statements of cash flows. DATAWATCH's principal products are: Monarch(TM), which provides data access, translation, and reporting capability to users of networked PCs; VIREX(R) and VET(TM) for the PC, which detect, repair and monitor for virus infections for Apple Macintosh and IBM compatible PCs, respectively; Q-Support(TM) for Windows(in the United States), or Quetzal(TM)(internationally), a complete help desk and asset management system; and netOctopus(TM), a network management and administration system. From time to time, information provided by the Company, statements made by its employees or information in its filings with the Securities and Exchange Commission (including statements in this Form 10-Q) may contain statements which are not historical facts (so called "forward-looking statements"), and are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995 and releases of the Securities and Exchange Commission. In that regard, the discussion in this Item 2 contains forward looking statements which involve certain risks and uncertainties, including statements related to liquidity and capital resources. The Company's operating results may continue to vary significantly from quarter to quarter or year to year depending on a number of factors, including technological changes, competition and general market trends, and the other factors identified in the Company's Securities and Exchange Commission filings (including but not limited to its Form 10-K for the year ended September 30, 1996). The Company's current planned expense levels are based in part upon expectations as to future revenue. Consequently, operating results may vary significantly from quarter to quarter or year to year, based on timing of revenue. Revenue or net income in any period will not necessarily be indicative of results of subsequent periods and there can be no assurance that the Company will maintain profitability or that revenue growth can be sustained in the future. RESULTS OF OPERATIONS Three Months Ended June 30, 1997 and 1996. Net sales for the three months ended June 30, 1997 were $7,608,000, which represents a decrease of $419,000 or 5% from the net sales of $8,027,000 for the three months ended June 30, 1996. This decrease results from a decrease in international sales of DATAWATCH's Quetzal product. Overall, Monarch accounted for approximately 41% of sales, while Quetzal/Q-Support accounted for approximately 29%. For the three months ended June 30, 1997, the Company's products for the IBM compatible PC accounted for approximately 78% of sales while the Company's products for the Apple PC accounted for approximately 22%. The Company's cost of sales for the three months ended June 30, 1997 was $1,488,000 or approximately 20% of net sales. Cost of sales for the three months ended June 30, 1996 was $1,292,000 or approximately 16% of net sales. The increase in cost of sales, as a percentage of net sales, results from the inclusion of Guildsoft's product sales which bear lower gross margins than the Company's other products. Cost of sales, as a percentage of net sales, for the June 30, 1997 period, excluding Guildsoft, would have been 17%, which is higher, as a percentage of net sales, than the comparable prior year period due to a lower level of sales on which to amortize order fulfillment overheads. Engineering and product development expenses were $790,000 for the three months ended June 30, 1997, an increase of $145,000 or approximately 22% from $645,000 for the three months ended June 30, 1996. Included in the expenses for the three months ended June 30, 1997 were approximately $80,000 of expenses associated with organizational changes. Excluding those costs the engineering and product development expenses for the three months ended June 30, 1997 increased by $65,000 or 10% from the comparable period in the prior year. This increase is primarily attributable to additions in personnel and expenses necessary for continued development of the Q-Support product and quality assurance for the Monarch product. Selling, general and administrative expenses were $6,737,000 for the three months ended June 30, 1997, an increase of $1,358,000 from $5,379,000 for the three months ended June 30, 1996. Included in the expenses for the three months ended June 30, 1997 were $531,000 of expenses associated with organizational changes within the Company's wholly-owned international subsidiary, WorkGroup Systems Limited ("WorkGroup"), which is principally responsible for the Company's Quetzal product line. Also included were approximately $77,000 of expenses related to marketing programs which have been discontinued. Excluding these expenses the increase would have been $750,000 or approximately 14%. This increase is primarily attributable to increases in personnel within the sales and marketing organizations principally for Q-Support and Monarch, and the inclusion of Guildsoft's operating expenses for the period which accounted for approximately 33% of the increase. As a result of the foregoing, the loss from operations for the three months ended June 30, 1997 was $1,408,000, which compares to income from operations of $711,000 for the three months ended June 30, 1996. The net loss for the three months ended June 30, 1997 was $1,437,000 which compares to net income of $681,000 for the three months ended June 30, 1996. The net loss for the three months ended June 30, 1997 was larger than the loss from operations for the same period principally due to interest expenses incurred during the period. The Company in 1996 recorded only a minimal tax provision due to its ability to utilize net operating loss carryforwards. In 1997, from a domestic perspective, no tax benefits will be realized because of the net losses. Nine Months Ended June 30, 1997 and 1996. Net sales for the nine months ended June 30, 1997 were $24,024,000, which represents an increase of $1,700,000 or 8% from the net sales of $22,324,000 for the nine months ended June 30, 1996. This increase results from growth in sales of DATAWATCH's Monarch and Virex products and the inclusion of $1,444,000 of sales from Guildsoft. Monarch amounted to approximately 40% of sales; Q-Support amounted to approximately 34% of sales. For the nine months ended June 30, 1997, the Company's products for the IBM compatible PC accounted for approximately 82% of sales while the Company's products for the Apple PC accounted for approximately 18%. The Company's cost of sales for the nine months ended June 30, 1997 was $4,403,000 or approximately 18% of net sales. Cost of sales for the nine months ended June 30, 1996 was $3,447,000 or approximately 15% of net sales. The increase in cost of sales, as a percentage of net sales, results from the inclusion of Guildsoft's product sales which bear lower gross margins than the Company's other products. Excluding Guildsoft, the Company's cost of sales, as a percentage of net sales, for the nine months ended June 30, 1997 would have been 16%, which is substantially consistent with the prior period. Engineering and product development expenses were $2,105,000 for the nine months ended June 30, 1997, an increase of $388,000 or approximately 23% from $1,717,000 for the nine months ended June 30, 1996. The increase (net of approximately $80,000 of expenses associated with organizational changes) is primarily attributable to additions in personnel and expenses necessary for continued development of the Q-Support product and quality assurance for the Monarch product. Selling, general and administrative expenses were $18,398,000 for the nine months ended June 30, 1997, an increase of $2,054,000 from $16,344,000 for the nine months ended June 30, 1996. Included in the expenses for the nine months ended June 30, 1997 were $531,000 of expenses associated with organizational changes within WorkGroup. Also included were approximately $77,000 of expenses related to marketing programs which have been discontinued. Included in the expenses for the nine months ended June 30, 1996 were $450,000 of expenses associated with the acquisition of WorkGroup in March 1996. Excluding these expenses the increase in expenses would have been $1,896,000 or approximately 12%. This increase is primarily attributable to increases in personnel within the sales and marketing organizations principally for Q-Support and Monarch, and the inclusion of Guildsoft's operating expenses for the period which accounted for 25% of the increase. As a result of the foregoing, the loss from operations for the nine months ended June 30, 1997 was $882,000, which compares to the income from operations of $816,000 for the nine months ended June 30, 1996. The net loss for the nine months ended June 30, 1997 was $929,000, which compares to the net income for the nine months ended June 30, 1996 of $783,000. The net loss increases and the net income decreases in both periods is principally attributable to interest expense. The Company in 1996 recorded only a minimal tax provision due to its ability to utilize net operating loss carryforwards. In 1997, from a domestic perspective, no tax benefits will be realized because of the net losses. LIQUIDITY AND CAPITAL RESOURCES The Company's management believes that its currently anticipated capital needs for future operations of the Company will be satisfied through at least the end of fiscal 1997 by funds currently available and by funds available through the Company's $1,500,000 working capital line of credit (the "Working Capital Line") and the Company's $1,500,000 equipment line of credit (the "Equipment Line") with its bank pursuant to a letter agreement with the bank. As of June 30, 1997, the Company was not in compliance with two of the financial covenants contained in the letter agreement with the bank. The bank has waived any defaults under the Working Capital Line and Equipment Line as a result of the Company's non-compliance with such financial covenants at June 30, 1997. Management believes that the Company's current operations are not materially impacted by the effects of inflation. NEW ACCOUNTING PRONOUNCEMENTS In October 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based Compensation", which is effective for the Company's fiscal year 1997. This standard requires expanded disclosures of stock-based compensation arrangements with employees and encourages (but does not require) compensation costs to be measured based on the fair value of stock options awarded. The Company has evaluated this standard and, as permitted under SFAS No. 123, has decided that it will not adopt the fair value method and will continue to use APB No. 25 for the measurement and recognition of employee stock based transactions. As a result, compliance with this standard during fiscal 1997 will have no impact on the Company's 1997 financial statements, other than the required additional disclosure of the proforma effect of SFAS No. 123 on net income and earnings per share. In February 1997, the FASB issued SFAS No. 128, "Earnings per Share" which will become effective during the fourth quarter of fiscal 1998. SFAS No. 128 replaces the presentation of primary earnings per share with basic earnings per share, which excludes dilution, and requires the dual presentation of basic and diluted earnings per share. The Company has evaluated this standard and does not expect the adoption to have a material effect on the Company's earnings per share. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income", and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", both of which will be effective for the Company in fiscal 1998. SFAS No. 130 establishes standards for the reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general purpose financial statements. SFAS No. 131 establishes standards for the way that public business enterprises report selected information about operating segments in annual and interim financial reports. SFAS 131 also established standards for related disclosures about products and services, geographic areas, and major customers. The implementation of SFAS 130 and 131 are not expected to have a material effect on the Company's financial statements. PART II. Item 6. Exhibits and Reports on Form 8-K A. Exhibits 11.1 Computation of Net Income per Common Share. 27 Financial Data Schedule (filed with SEC Edgar version only). B. Reports on Form 8-K No Current Report on Form 8-K was filed during the quarterly period ended June 30, 1997. SIGNATURES 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 on August 11, 1997. DATAWATCH CORPORATION /s/ Bruce R. Gardner Bruce R. Gardner Executive Vice President, Treasurer and Director (Principal Financial and duly authorized officer) Exhibit 11.1 DATAWATCH CORPORATION AND SUBSIDIARIES COMPUTATION OF NET INCOME PER COMMON SHARE Computation of weighted average number of shares outstanding used in determining income(loss)per share was as follows:
Three Months Ended Nine Months Ended June 30, June 30, 1997 1996 1997 1996 COMMON STOCK AND COMMON STOCK EQUIVALENTS: Weighted shares outstanding of common stock 9,102,323 8,669,620 9,081,529 8,627,019 Shares held in treasury (32,052) (17,024) Common stock equivalent shares resulting from assumed exercise of stock options (a) 293,978 (a) 264,729 Weighted average of common and common equivalent shares-primary 9,070,271 8,963,598 9,064,505 8,891,748 Assumed exercise of stock options based on higher of average or closing market price (a) 7,532 (a) 4,915 Weighted average of common and common equivalent shares-fully diluted 9,070,271 8,971,130 9,064,505 8,896,663 NET INCOME(LOSS): $(1,436,791) $ 680,589 $(928,576) $ 783,331 NET INCOME (LOSS) PER COMMON SHARE: Primary $ (.16) $ .08 $ (.10) $ .09 Fully-diluted $ (.16) $ .08 $ (.10) $ .09 (a) Common Stock equivalent shares were excluded from the calculation for the three and nine month periods ending June 30, 1997 due to the antidilutive effect the inclusion of such would have had on loss per share.
EX-27 2
5 9-MOS SEP-30-1996 JUN-30-1997 1,503,206 496,399 7,831,542 0 857,977 12,771,253 4,303,932 2,300,147 16,663,214 7,014,078 0 0 0 91,090 8,072,348 16,663,214 24,024,311 24,024,311 4,403,260 20,502,978 0 0 106,376 (928,576) 0 (928,576) 0 0 0 (928,576) (.10) (.10)
-----END PRIVACY-ENHANCED MESSAGE-----