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 March 31, 1996
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 May 10, 1996
Common stock, $.01 par value 8,645,745
DATAWATCH CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page #
a) Consolidated Condensed Balance Sheets: 3
March 31, 1996 and September 30, 1995
b) Consolidated Condensed Statements of Operations: 4
Three Months Ended March 31, 1996 and 1995
Six Months Ended March 31, 1996 and 1995
c) Consolidated Condensed Statements of Cash Flows: 5
Six Months Ended March 31, 1996 and 1995
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 11
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
* No information provided due to inapplicability of item.
PART I.
Item 1. Financial Statements
DATAWATCH CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
March 31, September 30,
1996 1995
ASSETS (Restated)
CURRENT ASSETS:
Cash and equivalents $ 932,476 $ 876,802
Short-term investments 743,795 885,659
Accounts receivable, net 6,808,131 5,230,685
Inventories 315,764 262,528
Prepaid advertising and
other expenses 1,373,520 1,508,179
Total current assets 10,173,686 8,763,853
PROPERTY PLANT & EQUIPMENT:
Property and equipment 2,918,214 2,724,220
Less accumulated depreciation
and amortization (1,313,247) (1,184,370)
Net property and equipment 1,604,967 1,539,850
OTHER ASSETS 535,788 596,690
EXCESS OF COST OVER NET ASSETS
OF ACQUIRED COMPANIES 1,251,163 1,457,742
TOTAL ASSETS $ 13,565,604 $ 12,358,135
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Loan payable $ 541,455 $ -
Accounts payable 4,760,926 3,662,116
Accrued expenses 473,725 819,069
Deferred revenue 1,348,858 1,314,655
Current portion of
long-term debt 115,477 336,255
Total current liabilities 7,240,441 6,132,095
LONG-TERM DEBT 215,432 163,868
TOTAL LIABILITIES 7,455,873 6,295,963
SHAREHOLDERS' EQUITY:
Common stock 86,408 86,291
Additional paid-in capital 17,625,265 17,614,360
Accumulated deficit (11,560,735) (11,663,477)
Cumulative translation adj. (41,207) 24,998
Total shareholders' equity 6,109,731 6,062,172
TOTAL LIABILITIES & SHAREHOLDERS
EQUITY $13,565,604 $ 12,358,135
See notes to unaudited consolidated financial statements.
Item 1. Financial Statements (continued)
DATAWATCH CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
1996 1995 1996 1995
(Restated) (Restated)
NET SALES $7,531,946 $5,708,959 $14,297,016 $10,766,402
COSTS AND EXPENSES:
Cost of sales 1,080,499 868,034 2,154,921 1,794,731
Engineering & product
development 552,748 555,027 1,071,722 1,082,510
Selling, general and
administrative 5,849,582 4,228,000 10,965,597 7,959,864
INCOME (LOSS) from
operations 49,117 57,898 104,776 (70,703)
INTEREST EXPENSE (19,721) (20,335) (42,483) (30,323)
OTHER INCOME,
primarily interest 19,274 8,808 35,442 24,311
FOREIGN CURRENCY
TRANSACTION GAIN(LOSS) (7,943) 12,803 8,160 13,272
NET INCOME (LOSS) BEFORE
PROVISION FOR TAX 40,727 59,174 105,895 (63,443)
PROVISION FOR TAX 3,153 2,192 3,153 2,192
NET INCOME (LOSS) $ 37,574 $ 56,982 $ 102,742 $ (65,635)
NET INCOME (LOSS)
PER COMMON SHARE $ 0 $ .01 $ .01 $ (.01)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES AND
COMMON EQUIVALENT
SHARES OUTSTANDING 8,881,747 8,314,595 8,882,408 8,055,505
See notes to unaudited consolidated financial statements.
Item 1. Financial Statements (continued)
DATAWATCH CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
March 31,
1996 1995
(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $102,742 $ (65,635)
Adjustments to reconcile net income
(loss) to net cash:
Results of operations of WorkGroup for
the three months ended December 31,
1994 194,093
Depreciation and amortization 412,027 665,727
Changes in current assets and liabilities:
Inventories (53,236) (8,803)
Prepaid expenses 134,659 (199,155)
Accounts receivable (1,577,446) (1,260,560)
Accounts payable and accrued expenses 681,884 323,073
Loans payable 541,455 0
Deferred revenue 34,203 255,218
Net cash provided by (used in)
operating activities 276,288 (96,042)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment and fixtures (181,795) (476,355)
Proceeds from maturity of
short-term investments 1,128,714 0
Purchase of short-term investments (986,850) (291,262)
Other assets 30,764 11,796
Net cash (used in) investing activities (9,167) (755,821)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 11,022 1,138,946
Principal payments on long-term
obligations (222,469) (21,349)
Net cash (used in) provided by
financing activities (211,447) 1,117,597
NET INCREASE IN CASH AND EQUIVALENTS 55,674 265,734
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 876,802 1,625,592
CASH AND EQUIVALENTS, END OF PERIOD $932,476 $1,891,326
See notes to unaudited consolidated financial statements.
Item 1. Financial Statements (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation: The consolidated condensed balance sheet
as of March 31, 1996 and the consolidated condensed statements of
operations for the three months and six months ended March 31, 1996
and 1995, and the consolidated condensed statements of cash flows
for the six months ended March 31, 1996 and 1995 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.
2. Inventories: The Company accounts for its inventories using a
standard cost methodology. Inventories were comprised of the
following:
March 31, September 30,
1996 1995
Raw materials $ 209,913 $ 198,917
Work in process 15,767 2,974
Finished goods 90,084 60,637
--------- ---------
TOTAL $ 315,764 $ 262,528
3. Business Combinations: On March 12, 1996, the Company acquired
all of the outstanding shares of capital stock of WorkGroup Systems
Limited ("WorkGroup") in exchange for an aggregate of 1,437,000
shares of the Company's Common Stock, $.01 par value per share. The
acquisition has been accounted for as a pooling-of-interests. As a result of
the pooling-of-interests, WorkGroup changed its fiscal
year end from December 31 to September 30 effective with the fiscal
year beginning October 1, 1994. Operating results of WorkGroup for
the three months ended December 31, 1994 were included in the
results of operations for both the fiscal year ended September 30,
1994 and the six months ended March 31, 1995. Accordingly,
accumulated deficit was decreased by $194,093 to account for its
inclusion in both periods. Revenues and net losses for WorkGroup for
the period from October 1, 1995 through March 12, 1996 were
approximately $3,700,000 and $66,000 respectively. As of March 31,
1996, WorkGroup had an overdraft facility in place which allowed it
to draw up to approximately $150,000, which was fully utilized at
that time.
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 October 13, 1995, the Company acquired all of the outstanding
shares of the capital stock of Pole Position Software GmbH ("Pole
Position") in exchange for 300,000 shares of the Company's common
stock. On March 12, 1996, the Company acquired all of the
outstanding capital stock of WorkGroup Systems Limited
("WorkGroup"), a United Kingdom based provider of help-desk and
asset management software, in exchange for 1,437,000 shares of the
Company's common stock. Both acquisitions have been accounted for
as pooling of interests. As a result, DATAWATCH's operating
results have been adjusted to include both WorkGroup's and Pole
Position's operating results for both the three and six month
periods ending March 31, 1995 and 1996, as discussed herein.
DATAWATCH's principal products are: Monarch (trademark) for Windows, which
provides data access, translation, and reporting capability to
users of networked PCs; VIREX (trademark) and VIREX for the PC, which
detect, repair and monitor for virus infections for both the Apple
Macintosh and IBM compatible PCs, respectively; Quetzal
(internationally) or Q-Support (trademark) for Windows (in the United
States), a complete help desk and asset management system; and
netOctopus (trademark), 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 from year to year
depending on a number of factors, including technological changes,
competition and general market trends. 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 March 31, 1996 and 1995.
Net sales for the three months ended March 31, 1996 were
$7,532,000, which represents an increase of $1,823,000 or 32% from
the net sales of $5,709,000 for the three months ended March 31,
1995. This increase in sales results from growth in all of
DATAWATCH's products. Monarch, which amounted to approximately
41% of sales, increased by 27%; Quetzal and Q-Support, which
amounted to approximately 39% of sales, increased by 58%; Virex,
which amounted to approximately 15% of sales, increased by 4%; and
netOctopus, which amounted to approximately 3% of sales, increased
by 391%. For the three months ended March 31, 1996, the Company's
products for the IBM compatible PC accounted for approximately 81%
of sales while the Company's products for the Apple PC accounted
for approximately 19%.
The Company's cost of sales for the three months ended March 31,
1996 was $1,080,000 or approximately 14% of net sales. Cost of
sales for the three months ended March 31, 1995 was $868,000 or
approximately 15% of net sales. This decrease as a percentage of
net sales is principally due to higher sales volumes which allow
for increased absorption of overheads.
Engineering and product development expenses were $553,000 for the
three months ended March 31, 1996, compared to $555,000 for the
three months ended March 31, 1995. These expenses remained
reasonably level when comparing the three months ended March 31,
1996 to the same period a year earlier.
Selling, general and administrative expenses were $5,850,000 for
the three months ended March 31, 1996. Included in these expenses
were non-recurring expenses associated with the acquisition of
WorkGroup amounting to approximately $450,000. Excluding the non-
recurring expenses, selling, general and administrative expenses
increased by $1,172,000 or approximately 28% from the $4,228,000
for the three months ended March 31, 1995. This increase is
primarily attributable to increases in personnel within the sales
and marketing organizations principally for Quetzal and Q-Support
and to increases in promotional costs, principally for Monarch.
As a result of the foregoing, the net income for the three months
ended March 31, 1996 was $38,000, a decrease of $19,000 when
compared to the net income of $57,000 for the three months ended
March 31, 1995. The Company recorded only a de minimis tax
provision for both domestic and international operations during
the period because of its net operating loss carryforwards.
Six Months Ended March 31, 1996 and 1995.
Net sales for the six months ended March 31, 1996 were
$14,297,000, which represents an increase of $3,531,000 or 33%
from the net sales of $10,766,000 for the six months ended March
31, 1995. This increase in sales results from growth in all of
DATAWATCH's products. Monarch, which amounted to approximately
41% of sales, increased by 22%; Quetzal and Q-Support, which
amounted to approximately 39% of sales, increased by 61%; Virex,
which amounted to approximately 16% of sales, increased by 13%;
and netOctopus, which amounted to approximately 3% of sales,
increased by 305%.
The Company's cost of sales for the six months ended March 31,
1996 was $2,155,000 or approximately 15% of net sales. Cost of
sales for the six months ended March 31, 1995 was $1,795,000 or
approximately 17% of net sales. This decrease as a percentage of
net sales is principally due to higher sales volumes which allow
for increased absorption of overheads.
Engineering and product development expenses were $1,072,000 for
the six months ended March 31, 1996, compared to $1,083,000 for
the six months ended March 31, 1995. The expenses remained
reasonably level when comparing the six months ended March 31,
1996 to the same period a year earlier.
Selling, general and administrative expenses were $10,966,000 for
the six months ended March 31, 1996. Included in these expenses
were non-recurring expenses associated with the acquisition of
WorkGroup amounting to approximately $450,000. Excluding the non-
recurring expenses, selling, general and administrative expenses
increased by $2,556,000 or approximately 32% from the $7,960,000
for the six months ended March 31, 1995. This increase is
primarily attributable to increases in personnel within the sales
and marketing organizations principally for Quetzal and Q-Support
and to increases in promotional costs, principally for Monarch.
As a result of the foregoing, the net income for the six months
ended March 31, 1996 was $103,000, an increase of $169,000 when
compared to the net loss of $66,000 for the six months ended March
31, 1995. The Company recorded only a de minimis tax provision
for both domestic and international operations during the period
because of its net operating loss carryforwards.
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 1996 by funds
currently available and its unused $1,500,000 bank line of credit.
WorkGroup has an overdraft facility in place which allowed it to
draw up to approximately $150,000. As of March 31, 1996 the
facility was fully utilized, however the facility was increased to
approximately $500,000 subsequent to March 31, 1996. The Company
currently has warrants outstanding to purchase approximately
170,000 shares of common stock for a price of $7.50 per share.
These warrants expire on May 28, 1996. If Datawatch's common
stock price is in excess of $7.50 at or prior to the expiration
date, the Company expects that some of the holders may choose to
exercise the warrant thus providing the Company with additional
working capital. As of May 13, 1996 the closing price on the
Nasdaq National Market was $9.50 per share. For the six months
ended March 31, 1996, working capital increased by approximately
$301,000. Management believes that the Company's current
operations are not materially impacted by the effects of
inflation.
PART II.
Item 4. Submission of Matters to a Vote of Security Holders
A. The annual meeting of stockholders of DATAWATCH CORPORATION was
held on March 14, 1996.
B. No information provided due to inapplicability of item.
C. A vote was proposed to (1) elect a Board of Directors to serve
for the ensuing year or until their respective successors are duly
elected and qualified; and (2) to ratify the selection of Deloitte &
Touche LLP as independent auditors for the fiscal year ending
September 30, 1996.
The ballot results are as follows:
Voted Voted Broker
For Against Abstained Non-Votes
(1) Thomas R. Foley 6,112,353 57,700
Bruce R. Gardner 6,112,353 57,700
John A. Blaeser 6,112,353 57,700
Jerome Jacobson 6,112,353 57,700
David T. Riddiford 6,112,353 57,700
(2) Deloitte & Touche LLP 6,107,953 46,600 15,500
D. No information provided due to inapplicability of item.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
10.1 Share Sale and Purchase Agreement, dated March 12, 1996, by
and between Datawatch Corporation and the individuals and entities
named on Schedule I contained therein, who constitute the holders of
all the outstanding shares of capital stock of WorkGroup Systems
Limited (filed as Exhibit 2.1 to the Company's Current Report on
Form 8-K dated March 12, 1996, and incorporated by reference).
11.1 Computation of Net Income (Loss) per Common Share (filed
herewith).
B. Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated March 12, 1996
covering the Company's acquisition of all the outstanding shares of
capital stock of WorkGroup Systems Limited.
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 May 14, 1996.
DATAWATCH CORPORATION
/s/Betsy J. Hartwell
Betsy J. Hartwell
Controller
(Chief Accounting and
duly authorized Officer
Exhibit 11.1
DATAWATCH CORPORATION
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
Computation of weighted average number of shares outstanding used in
determining income (loss) per share was as follows:
Three Months Ended Six Months Ended
March 31, March 31,
1996 1995 1996 1995
(Restated) (Restated)
COMMON STOCK AND COMMON STOCK EQUIVALENTS:
Weighted shares outstanding
of common stock 8,634,575 8,144,398 8,632,304 7,781,044
PRIMARY CALCULATION:
Common stock equivalent shares
resulting from assumed conversion
of warrants and assumed exercise
of stock options 247,172 170,197 250,104 (a)
Weighted average of common and common
equivalent shares-primary 8,881,747 8,314,595 8,882,408 7,781,044
FULLY DILUTED CALCULATION:
Assumed conversion of warrants and
exercise of stock options based on
higher of average or closing
market price 8,678 18,945 4,915 (a)
Weighted average of common and
common equivalent shares-fully
diluted 8,890,425 8,333,540 8,887,323 7,781,044
NET INCOME (LOSS) $ 37,574 $ 56,982 $ 102,742 $(65,635)
NET INCOME (LOSS) PER COMMON SHARE:
Primary $ .00 $ .01 $ .01 $ (.01)
Fully-diluted $ .00 $ .01 $ .01 $ (.01)
(a) Common stock equivalent shares were excluded from the calculation for the
six months ended March 31, 1995 due to the antidulitive effect the inclusion
of such shares would have had on loss per share.