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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 COMMISSION FILE NUMBER 0-19771
DATA SYSTEMS & SOFTWARE INC.
(Exact name of registrant as specified in charter)
Delaware 22-2786081
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
200 Route 17, Mahwah, New Jersey 07430
(Address of principal executive offices) (Zip code)
(201) 529-2026
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 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.
|X| Yes |_| No
Number of shares outstanding of the registrant's common stock,
as of July 31, 2000: 7,468,722
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DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1999 and June 30, 2000...... 1
Consolidated Statements of Operations and Comprehensive Income for the
three and six month periods ended June 30, 1999 and 2000 .......... 2
Consolidated Statement of Changes in Shareholders' Equity for the
six month period ended June 30, 2000 ............................. 3
Consolidated Statements of Cash Flows for the
six month periods ended June 30, 1999 and 2000 .................... 4
Notes to Consolidated Financial Statements .............................. 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................ 7
PART II. Other Information
Item 1. Legal Proceedings ................................................. 10
Item 4. Submission of Matters to a Vote of Security Holders................ 10
Item 6. Exhibits and Reports on Form 8-K .................................. 10
Signatures ........................................................... 11
Certain statements contained in this report are forward-looking in nature. These
statements are generally identified by the inclusion of phrases such as "the
Company expects", "the Company anticipates", "the Company believes", "the
Company estimates" and other phrases of similar meaning. Whether such statements
ultimately prove to be accurate depends upon a variety of factors that may
affect the business and operations of the Registrant.
DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(dollars in thousands, except share data)
As of As of
December 31, June 30,
ASSETS 1999 2000
----------- ----------
(unaudited)
Current assets:
Cash and cash equivalents ................................................. $ 1,379 $ 7,008
Short-term interest bearing bank deposits ................................. 1,009 9,074
Investment held for sale .................................................. 25,900 --
Restricted cash ........................................................... 536 329
Trade accounts receivable, net ............................................ 10,078 10,995
Inventory ................................................................. 1,249 478
Other current assets ...................................................... 1,124 1,043
---------- ----------
Total current assets .................................................. 41,275 28,927
---------- ----------
Property and equipment, net .................................................... 1,853 1,813
---------- ----------
Other assets:
Goodwill and other intangible assets, net ................................. 4,285 3,838
Long-term deposits ........................................................ -- 11,076
Other ..................................................................... 995 437
---------- ----------
5,280 15,351
---------- ----------
Total assets .......................................................... $ 48,408 $ 46,091
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt ........................................................... $ 8,375 $ 1,593
Trade accounts payable .................................................... 5,809 7,068
Accrued payroll, payroll taxes and social benefits ........................ 1,246 1,699
Other current liabilities ................................................. 5,838 2,704
---------- ----------
Total current liabilities ............................................. 21,268 13,064
---------- ----------
Long-term liabilities:
Convertible debentures .................................................... 2,000 --
Long-term debt ............................................................ -- 6,000
Other ..................................................................... 584 618
---------- ----------
Total long-term liabilities ........................................... 2,584 6,618
---------- ----------
Minority interests ............................................................. 10 98
---------- ----------
Shareholders' equity:
Common stock - $.01 par value per share:
Authorized 20,000,000 shares; Issued and outstanding - 7,923,540 and
8,008,515 shares at December 31, 1999 and June 30, 2000, respectively . 79 80
Additional paid-in capital ................................................ 35,398 35,593
Warrants .................................................................. 432 432
Deferred compensation expense ............................................. (73) --
Retained earnings ......................................................... (8,925) (7,061)
---------- ----------
26,911 29,044
Treasury stock, at cost - 490,262 and 539,793 shares at
December 31, 1999 and June 30, 2000, respectively ..................... (2,365) (2,733)
---------- ----------
Total shareholders' equity ............................................ 24,546 26,311
---------- ----------
Total liabilities and shareholders' equity ............................ $ 48,408 $ 46,091
========== ==========
The accompanying notes are an integral part of
these consolidated financial statements
- 1 -
DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income (unaudited)
(in thousands, except per share data)
Six months ended Three months ended
June 30, June 30,
-------------------- --------------------
1999 2000 1999 2000
-------- -------- -------- --------
Sales:
Products ................................ $ 6,317 $ 19,841 $ 3,898 $ 10,459
Services ................................ 9,624 10,671 4,367 5,331
-------- -------- -------- --------
15,941 30,512 8,265 15,790
-------- -------- -------- --------
Cost of sales:
Products ................................ 4,985 15,862 2,953 8,325
Services ................................ 7,477 7,802 3,599 3,904
-------- -------- -------- --------
12,462 23,664 6,552 12,229
-------- -------- -------- --------
Gross profit ........................ 3,479 6,848 1,713 3,561
Research and development ..................... 581 540 272 146
Selling, general and administrative .......... 5,662 8,553 2,872 3,853
Operating loss ...................... (2,764) (2,245) (1,431) (438)
-------- -------- -------- --------
Interest income .............................. 289 760 265 474
Interest expense ............................. (115) (518) (75) (358)
Other income (loss), net ..................... (21) 4,847 (24) --
-------- -------- -------- --------
(2,611) 2,844 (1,265) (322)
Minority interests ........................... 109 -- 91 --
Loss in affiliates, net of minority interests (3,274) -- (1,761) --
-------- -------- -------- --------
Income (loss) from continuing operations
before income taxes .................... (5,776) 2,844 (2,935) (322)
Provision for income taxes ................... 12 536 (25) 485
-------- -------- -------- --------
Income (loss) from continuing operations
after income taxes ...................... (5,788) 2,308 (2,910) (807)
Loss from discontinued operation ............. -- 104 -- 104
-------- -------- -------- --------
Net income (loss) before extraordinary item .. (5,788) 2,204 (2,910) (911)
Extraordinary loss on early redemption
of convertible debentures ............... -- 340 -- --
-------- -------- -------- --------
Net income (loss) ....................... (5,788) 1,864 (2,910) (911)
Other comprehensive income:
Unrealized gain on marketable securities ..... -- -- (172) --
-------- -------- -------- --------
Comprehensive income (loss) ............. $ (5,788) $ 1,864 $ (3,082) $ (911)
======== ======== ======== ========
Basic net income (loss) per share:
Net income (loss) from continuing operations . $ (0.78) $ 0.31 $ (0.39) $ (0.11)
Discontinued operations ...................... -- (0.01) -- (0.01)
Extraordinary item ........................... -- (0.05) -- --
-------- -------- -------- --------
Net income (loss) ............................ $ (0.78) $ 0.25 $ (0.39) $ (0.12)
======== ======== ======== ========
Weighted average number of shares
outstanding ............................. 7,433 7,465 7,433 7,470
-------- -------- -------- --------
Diluted net income (loss) per share:
Net income (loss) from continuing operations . $ (0.78) $ 0.29 $ (0.39) $ (0.11)
Discontinued operations ...................... -- (0.01) -- (0.01)
Extraordinary item ........................... -- (0.04) -- --
-------- -------- -------- --------
Net income (loss) ............................ $ (0.78) $ 0.24 $ (0.39) $ (0.12)
======== ======== ======== ========
Weighted average number of shares
outstanding .................................. 7,433 7,721 7,433 7,707
======== ======== ======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
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DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Equity (unaudited)
(in thousands)
Additional
Number Common Paid-In Deferred Deferred Treasury Retained
of Shares Stock Capital Compensation Interest Warrants Stock Earnings Total
--------- ---------- -------- ------------ -------- -------- -------- -------- --------
Balances as of
January 1, 2000 7,924 $ 79 $ 35,702 $ (73) $ (304) $ 432 $ (2,365) $ (8,925) $ 24,546
Conversion of
convertible debentures 85 1 259 -- -- -- -- -- 260
Reversal of imputed
interest on
convertible debentures -- -- (317) -- -- -- -- (317)
Exercise of options 22 -- 51 -- -- -- -- -- 51
Amortization of
restricted stock award
compensation and
warrants -- -- -- 73 202 -- -- -- 275
Purchase of treasury
shares (22) -- -- -- -- -- (368) -- (368)
Net income -- -- -- -- -- -- -- 1,864 1,864
------- -------- -------- -------- -------- -------- -------- -------- --------
Balances as of
June 30, 2000 8,009 $ 80 $ 35,695 $ -- $ (102) $ 432 $ (2,733) $ (7,061) $ 26,311
======= ======== ======== ======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
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DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
(dollars in thousands)
Six months ended June 30,
1999 2000
-------- --------
Cash flows provided by (used in) operating activities:
Net income (loss) ...................................................... $ (5,788) $ 1,864
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization ...................................... 555 868
Minority interests ................................................. (109) --
Issuance of subsidiary shares to minority interests ................ -- 87
Gain on sale of investment held for sale ........................... -- (4,989)
Increase (decrease) in liability for severance pay ................. (74) 31
Loss in affiliates ................................................. 3,274 --
Gain on sale of securities ......................................... (247) --
Loss on sale of property, plant and equipment, net ................. 21 --
Amortization of restricted stock award compensation ................ 172 73
Reversal of imputed interest on convertible debentures ............. -- (317)
Interest expense related to warrants issued ........................ -- 202
Other .............................................................. (120) (43)
Increase in accounts receivable and other current assets ........... (149) (836)
Decrease in inventory .............................................. 123 771
Decrease in other assets ........................................... 132 601
Decrease in accounts payable and other liabilities ................. (63) (1,410)
-------- --------
Net cash used in operating activities .............................. (2,273) (3,098)
-------- --------
Cash flows provided by (used in) investing activities:
Short-term and long-term bank deposits, net ............................ 1,252 (24,141)
Restricted cash ........................................................ 293 207
Acquisitions of property and equipment ................................. (227) (393)
Proceeds from sale of property and equipment ........................... 69 21
Proceeds from sale of investment held for sale ......................... -- 30,889
Proceeds from sale of marketable securities and maturity of deposits ... 1,520 5,000
Purchase of minority interest share of subsidiary ...................... (559) --
Acquisition of intangible assets ....................................... (2,182) (9)
-------- --------
Net cash provided by investing activities .......................... 166 11,574
-------- --------
Cash flows provided by (used in) financing activities:
Short-term debt, net ................................................... 2,050 (6,753)
Proceeds of long-term debt ............................................. 29 6,000
Repayments of long-term debt ........................................... (465) (37)
Proceeds from stock options exercised .................................. -- 51
Issuance of shares from conversion of convertible debt ................. -- 260
Purchase of treasury shares ............................................ -- (368)
Redemption of convertible debt ......................................... -- (2,000)
-------- --------
Net cash provided by (used in) financing activities ................ 1,614 (2,847)
-------- --------
Net increase (decrease) in cash and cash equivalents ........................ (493) 5,629
Cash and cash equivalents at beginning of period ............................ 1,003 1,379
-------- --------
Cash and cash equivalents at end of period .................................. $ 510 $ 7,008
======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest ........................................................... $ 114 $ 556
======== ========
Income taxes ....................................................... $ 65 $ 3,282
======== ========
Non-cash activities:
Reversal of unrealized gain on securities available for sale ....... $ (172)
========
The accompanying notes are an integral part of
these consolidated financial statements.
- 4 -
DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(dollars in thousands)
Note 1: Basis of Presentation
In the opinion of the Company, all adjustments necessary for a fair
presentation have been reflected herein. Certain financial information, which is
normally included in financial statements prepared in accordance with generally
accepted accounting principles but which is not required for interim reporting
purposes, has been omitted. The accompanying consolidated financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1999. The results of operations for the six months ended June 30, 2000 are
not necessarily indicative of the results to be expected for the full year.
Note 2: Investment Held for Sale
In December 1999, the Company entered into an agreement to sell its
interest in Tower Semiconductor Ltd. ("Tower") for $30,889. The closing of the
agreement took place in January 2000, at which time the Company received the
proceeds from the sale. The Company recorded a gain of $4,989 which was included
in other income.
Note 3: Short and Long-Term Deposits
Short and long-term deposits are comprised of the following:.
Interest
Maturity date Rate Amount
------------- ---- -------
Short-term deposits:
Asset backed security September 2000 6.67% $ 998
Asset backed security September 2000 6.61% 998
Certificate of deposit September 2000 6.62% 5,078
Certificate of deposit September 2000 6.37% 2,000
-------
$ 9,074
-------
Long-term deposits:
Asset backed security November 2001 7.05% $ 5,076
Certificate of deposit (*) February 2002 6.90% 6,000
-------
$11,076
-------
(*) A security interest has been granted against this deposit securing the
repayment of its long-term bank debt. (see Note 6).
Note 4: Convertible Debentures
In February 2000, the Company redeemed $1,740 of the $2,000 convertible
debentures for an aggregate redemption price of $2,001, recording an
extraordinary expense of $340 due to the early redemption. The $260 balance of
convertible debentures was converted into 84,794 shares of common stock of the
Company.
Note 5: Long-Term Debt
In February 2000, a subsidiary of the Company refinanced its $6,000
short-term bank loan. The bank loan bears interest at LIBOR +0.75%, payable
quarterly. Principal is payable in a single installment on the maturity date in
February 2002.
Note 6: Discontinued Operations
In April 1998, the Company sold substantially all of the assets of its
help-desk segment. The $104 reflects a provision for expenses made in the
current period relating to this discontinued operation.
- 5 -
DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(dollars in thousands)
Note 7: Segment Information
Computer
consulting Computer Utility
services hardware solutions Other (*) Total
---------- -------- --------- -------- --------
Six months ended June 30, 2000:
Revenues from external customers $ 10,309 $ 9,550 $ 10,466 $ 149 $ 30,474
Intersegment revenues 187 177 675 -- 1,039
Segment profit (loss) 58 192 (971) 29 (692)
Six months ended June 30, 1999:
Revenues from external customers $ 9,630 $ 5,146 $ 642 $ 343 $ 15,761
Intersegment revenues 86 16 346 -- 448
Segment profit (loss) 268 (77) (1,362) (315) (1,486)
Three months ended June 30, 2000:
Revenues from external customers $ 5,251 $ 4,426 $ 6,025 $ 80 $ 15,782
Intersegment revenues 5 161 431 -- 597
Segment profit (loss) 60 (38) (122) 17 (83)
Three months ended June 30, 1999:
Revenues from external customers $ 4,615 $ 2,865 $ 555 $ 141 $ 8,176
Intersegment revenues 52 2 346 -- 400
Segment profit (loss) 257 21 (724) (235) (681)
- ----------
(*) Represents operating segments below the quantitative thresholds of FAS 131,
in 2000 a VAR software operation in Israel and in 1999 the VAR software
operation in Israel, an Internet database venture and a multimedia
entertainment operation.
Reconciliation of Segment Profit to Consolidated Net Profit (Loss)
Six months ended Three months ended
June 30, June 30,
------------------------ -------------------------
1999 2000 1999 2000
------- ------- ------- -------
Total loss for reportable segments $(1,171) $ (721) $ (446) $ (100)
Other operational segment profit (loss) (315) 29 (235) 17
Unallocated amounts:
Net profit (loss) of corporate headquarters (4,302)* 2,556* (2,229)** (828)
------- ------- ------- -------
Total consolidated net income (loss) $(5,788) $ 1,864 $(2,910) $ (911)
======= ======= ======= =======
- ----------
(*) In 1999 includes equity in losses of Tower (net of minority interest) of
$3,227 and in 2000 includes a $4,989 gain from the sale of Tower shares.
(**) Includes equity losses of Tower (net of minority interest) of $1,738.
Note 8: Subsequent Event
In August 2000, the Company completed the sale of substantially all the
assets of its CinNetic division, included in the computer consulting segment,
for an initial purchase price of $ 1.3 million. The Company will recognize a
pre-tax gain on this sale of approximately $800,000 in the third quarter of
2000. The agreement provides for a possible additional $500,000 payment to IDO
upon the satisfaction of certain conditions.
- 6 -
Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
The following discussion includes statements that are forward-looking in
nature. Whether such statements ultimately prove to be accurate depends upon a
variety of factors that may affect our business and operations. Certain of these
factors are discussed at "Item 1. Description of Business - Factors That May
Influence Future Results" in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.
During 1999 and in the first six months of 2000, we operated in three
reportable segments: computer consulting and development services, computer
hardware and utility solutions. The following analysis should be read together
with the segment information provided in Note 7 to the interim financial
statements included in this quarterly report, which information is hereby
incorporated by reference into this Item 2.
Computer Consulting and Development Services
Sales and gross profits increased in comparison to the previous quarter and
the second quarter of 1999. These increases were attributable to both our
Israeli and domestic activities. Although we have been successful in increasing
our gross profit margins this quarter, the competitive marketplace for qualified
engineers in general and in Israel in particular continues and we expect that
such competition will have a negative effect on profit margins in the future.
Computer Hardware
Sales in this segment in the second quarter of 2000 were significantly
higher than those in the same quarter in 1999, although lower than the previous
quarter in 2000. Gross profit margins continued to decline due to the
competitive markets and changing customer base.
Utility Solutions
In the latter half of 1999 we acquired the Scientific Atlanta Control
Systems business division, including its line of load control products and
Maingate gateway system. The segment first began to have significant sales in
the second quarter of 1999. These sales increased throughout the rest of 1999
and into 2000 to date, with over $6 million in sales this quarter and over $10
million so far this year.
Results of Operations
The following table sets forth certain information with respect to the
results of operations of the Company for the six and three months ended June 30,
1999 and 2000, including the percentage of total revenues during each period
attributable to selected components of operations statement data and the period
to period percentage changes in such components.
Six months ended June 30,
-------------------------------------------------------------------
1999 2000
----------------------- -----------------------
% of % of % of
($,000) sales ($,000) sales 1999
-------- ----- -------- ----- ----
Sales $ 15,941 100% $ 30,512 100% 91%
Cost of sales 12,462 78 23,664 78 90
-------- ---- -------- ----
Gross profit 3,479 22 6,848 22 97
R&D expenses 581 4 540 2 (7)
SG&A expenses 5,662 35 8,553 38 51
-------- ---- -------- ----
Operating loss (2,764) (17) (2,245) (7) 19
Interest income, net 174 1 242 1 39
Other income (loss) (21) (--) 4,847 16
-------- ---- -------- ----
Profit (loss) before income taxes (2,611) (16) 2,844 9 209
Minority interests 109 1 -- -- (100)
Equity loss, net of minority interests (3,274) (30) -- -- 100
-------- ---- -------- ----
Income (loss) from continuing operations before (5,776) 2,844 9 150
income tax
Provision for income taxes 12 -- 536 2
-------- ---- -------- ----
Income (loss) from continuing operations after (5,788) 2,308 7 140
income taxes
Loss from discontinued operation -- 104 -- 100
-------- ---- -------- ----
Net income (loss) before extraordinary item (5,788) (36) 2,204 7 138
Extraordinary loss early redemption of convertible
debentures -- -- 340 1 100
-------- ---- -------- ----
Net income (loss) (5,788) 1,864 6 132
Unrealized gain on marketable securities -- --
-------- ---- -------- ----
Comprehensive income (loss) $ (5,788) (36%) $ 1,864 6% 132%
======== ==== ======== ====
Three months ended June 30,
-----------------------------------------------------------------
1999 2000
----------------------- -----------------------
% of % of % of
($,000) sales ($,000) sales 1999
-------- ----- -------- ----- ----
Sales $ 8,265 100% $ 15,790 100% 91%
Cost of sales 6,552 79 12,229 78 87
-------- ---- -------- ----
Gross profit 1,713 21 3,561 22 108
R&D expenses 272 3 146 1 (46)
SG&A expenses 2,872 35 3,853 24 34
-------- ---- -------- ----
Operating loss (1,431) (17) (438) (3) 69
Interest income, net 190 2 116 1 (39)
Other income (loss) (24) (--) -- (--) 100
-------- ---- -------- ----
Profit (loss) before income taxes (1,265) (15) (322) (2) 75
Minority interests 91 1 -- -- (100)
Equity loss, net of minority interests (1,761) (21) -- -- 100
-------- ---- -------- ----
Income (loss) from continuing operations before (2,935) (35) (322) (2) 89
income tax
Provision for income taxes (25) (--) 485 3
-------- ---- -------- ----
Income (loss) from continuing operations after (2,910) (35) (807) (5) 72
income taxes
Loss from discontinued operation -- 104 1
-------- ---- -------- ----
Net income (loss) before extraordinary item (2,910) (35) (911) (6) 69
Extraordinary loss early redemption of convertible
debentures -- -- -- --
-------- ---- -------- ----
Net income (loss) (2,910) (35) (911) (6) 69
Unrealized gain on marketable securities (172) (2) -- -- 100
-------- ---- -------- ----
Comprehensive income (loss) $ (3,082) (37%) $ (911) (6%) 70%
======== ==== ======== ====
- 7 -
SALES. Sales in the second quarter of 2000 increased for the fifth
consecutive quarter and were the highest in the last four years. The increase in
sales as compared to the same period in 1999, was due primarily to the utility
solutions segment sales of $6 million in the second quarter of 2000. Utility
solutions segment sales exceeded $10 million in the first six months of 2000.
This segment first experienced commercial sales in the second quarter of 1999,
when it recorded $560,000 in sales. The computer hardware and consulting
segments also recorded increased sales in the second quarter of 2000 as compared
to the same quarter in 1999, increasing $1.6 million and $600,000 respectively.
Sales in these segments increased in the first six months of 2000 by $4.4
million and $530,000, respectively, compared to the same period in 1999.
GROSS PROFIT. The increase in gross profit was due primarily to increased
sales. The utility solutions segment accounted for $1.5 million and $2.6 million
of the increase, in the second quarter and first six months of 2000,
respectively. Gross profit also increased in the computer consulting and
hardware segments. Gross profit in the computer consulting segment increased in
the second quarter and the first six months of 2000 by $290,000 and $250,000
respectively, as compared to the same periods in 1999. Gross profit in the
computer hardware segment increased in the second quarter and the first six
months of 2000 by $210,000 and $760,000 respectively, as compared to the same
periods in 1999. The increase in gross profit margin was primarily attributable
to the increased gross profit in the utility solutions segment which had a 25%
gross profit margin both in the second quarter and in the first six months of
2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A"). The increase in SG&A
was due primarily to increased administrative and marketing costs in the utility
solutions segment. SG&A of the utility solutions segment increased by $680,000
and $1.5 million in the second quarter and the first six months of 2000,
respectively, as compared to the same periods in 1999. This increase is
associated with this segment's increased level of activity, as it builds its
infrastructure and increases its marketing efforts. In addition, corporate
expenses and computer hardware segment SG&A expenses increased in the first six
months of 2000 by $760,000 and $510,000 respectively, due to bonus compensation
and increased sales expenses, primarily in the first quarter of 2000.
INTEREST INCOME (EXPENSE). The increase in interest income was primarily
due to the interest earned on the proceeds from the sale of our investment in
Tower. This increase was partially offset by an increase in interest expense,
primarily due to the interest on the bank loan taken to finance the acquisition
of the Scientific-Atlanta Control Systems division in the third quarter of 1999.
OTHER INCOME. Other income in the first six months of 2000 was from the
sale in January 2000 of our investment in Tower.
INCOME TAXES. Income taxes this quarter and the first six months of 2000
were primarily attributable to federal taxes due on the sale of our investment
in Tower in January of this year. Due to our history of losses we record
valuation allowances against any deferred tax assets.
EQUITY LOSS. The equity loss net of minority interests in the second
quarter and first six months of 1999 resulted from losses in Tower. Since we
sold our investment in Tower we no longer included Tower's results.
FINANCIAL CONDITION
As of June 30, 2000 we had working capital of $15.9 million, including
cash, cash equivalents and short-term interest-bearing deposits of $16.1
million, and in addition had long-term interest-bearing cash deposits of $11.1
million. Some of the long-term deposits serve as security for a $6 million term
loan, taken by our Comverge subsidiary to finance the acquisition of the
Scientific-Atlanta Control Systems division and for working capital
requirements. The loan is repayable in February 2002 and bears interest at a
rate of LIBOR +0.75% per annum.
The increase in cash equivalents and interest-bearing deposits is due to
the proceeds from the sale of our investment in Tower in January 2000. In
addition, proceeds from this sale were used to finance our operations, redeem
$1.76 million of the $2 million convertible debenture outstanding and reduce our
short-term debt.
We believe we now have adequate liquidity to finance our activities
including the activities of our utility solutions segment, for the foreseeable
future.
- 8 -
PART II - Other information
Item 1: Legal Proceedings
None
Item 4: Submission of Matters to a Vote of Security Holders
None
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
- 9 -
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 its
Principal Financial Officer thereunto duly authorized.
DATA SYSTEMS & SOFTWARE INC.
Dated: August 8, 2000
By: /s/ YACOV KAUFMAN
-----------------------
Yacov Kaufman
Chief Financial Officer
- 10 -