SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2000
/ / Transition report pursuant to Section 13 or 15(d) of the Exchange Act
For the transition period from ____________ to ____________
Commission file number 0 - 26817
Global DataTel, Inc.
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(Exact name of small business issuer as specified in its charter)
Nevada 87-0067813
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3333 Congress Ave., Delray Beach, FL 33445
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(Address of principal executive offices)
(561) 276-8260
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(Issuer's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the 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 ___ No _X_
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check 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 court.
Yes ___ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of July 31, 2000:
23,772,924 shares of common stock, par value $.001 per share.
Transitional Small Business Disclosure Format (check one):
Yes ___ No _X_
GLOBAL DATATEL, INC. AND SUBSIDIARIES
Index to Form 10-QSB
for the Period Ended June 30, 2000
PART I . FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets 3 - 4
Consolidated Statements of Operations and Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of Operation 8 - 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
2
GLOBAL DATATEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2 0 0 0 1 9 9 9
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A S S E T S
Current assets:
Cash $ 372,569 $ 173,579
Accounts receivable, net of allowance
for doubtful accounts of $62,216 and
$363,718, respectively 2,534,364 3,030,984
Inventories 560,981 948,724
Prepaid expenses and taxes 1,675,307 604,301
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Total current assets 5,143,221 4,757,588
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Property, plant and equipment, net of
accumulated depreciation of $391,339
and $384,272, respectively 443,829 500,681
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Other assets:
Goodwill, net of accumulated amortization
of $97,512 and $66,720, respectively 1,134,232 1,165,024
Other assets 110,532 174,931
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Total other assets 1,244,764 1,339,955
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Total assets $6,831,814 $6,598,224
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See accompanying notes to consolidated financial statements.
3
GLOBAL DATATEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2 0 0 0 1 9 9 9
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LIABILITIES AND STOCKHOLDERS' DEFICIENCY
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Current liabilities:
Short term borrowings, banks $ 1,113,722 $ 707,029
Note payable - Surge Components, Inc. 3,311,458 1,000,000
Deferred revenues 204,926 40,441
Accounts payable 4,145,039 2,948,700
Accrued expenses 596,729 1,359,764
Notes payable to shareholders -- 661,667
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Total current liabilities 9,371,874 6,717,601
Mortgage payable - bank 69,008 72,921
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Total liabilities 9,440,882 6,790,522
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Commitments and contingencies
Stockholders' deficiency:
Preferred stock 25,000,000 shares
authorized, par value $.001, none issued -- --
Common stock, 50,000,000 shares authorized
par value $.001, 23,772,924 and 23,280,124
issued and outstanding respectively 23,773 23,280
Paid in capital 11,703,315 11,703,788
Accumulated deficit (14,270,564) (12,019,715)
Foreign currency translation adjustment (65,592) 100,349
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Total stockholders' deficiency (2,609,068) (192,298)
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Total liabilities and stockholders' deficiency $ 6,831,814 $ 6,598,224
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See accompanying notes to consolidated financial statements.
4
GLOBAL DATATEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
Six Months Ended Three Months Ended
June 30, June 30,
2 0 0 0 1 9 9 9 2 0 0 0 1 9 9 9
------------ ------------ ------------ ------------
Net sales $ 3,504,921 $ 7,303,458 $ 974,536 $ 801,446
Costs of goods sold 2,193,290 4,886,463 611,555 43,216
------------ ------------ ------------ ------------
Gross profit 1,311,631 2,416,995 362,981 758,230
------------ ------------ ------------ ------------
Selling, general, and administrative expenses 2,021,759 2,344,983 649,473 1,919,979
Payroll and related expenses 1,334,112 1,090,948 422,194 796,948
Interest expense, net 206,609 246,553 94,243 160,468
------------ ------------ ------------ ------------
Total expenses 3,562,480 3,682,484 1,165,910 2,877,395
------------ ------------ ------------ ------------
Loss before provisions for income taxes (2,250,849) (1,265,489) (802,929) (2,119,165)
Provision for income taxes (benefit) -- (9,801) -- (249,801)
------------ ------------ ------------ ------------
Net loss (2,250,849) (1,255,688) (802,929) (1,869,364)
Other comprehensive (loss) income:
Foreign currency translation, net of tax (165,941) 19,050 (91,597) 11,011
------------ ------------ ------------ ------------
Comprehensive loss $ (2,416,790) $ (1,236,638) $ (894,526) $ (1,858,353)
============ ============ ============ ============
Loss per share
Basic $ (.10) $ (.06) $ (.03) $ (.08)
Diluted $ (.10) $ (.06) $ (.03) $ (.08)
Weighted average shares outstanding
Basic 23,536,053 22,260,680 23,772,924 22,280,124
Diluted 23,536,053 22,260,680 23,772,924 22,280,124
See accompanying notes to consolidated financial statements.
5
GLOBAL DATATEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
2 0 0 0 1 9 9 9
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,250,849) $(1,255,688)
Adjustment to reconcile net loss to net
cash used in operations
Depreciation and amortization 82,802 53,856
Provision for bad debt expense (301,502) --
Changes in operating assets and liabilities:
Accounts receivable 798,122 (2,207,026)
Inventories 387,743 (444,771)
Other assets (1,001,765) (571,053)
Accounts payable and accrued expenses 433,324 5,140,653
Deferred revenues 164,485 (359,878)
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Net cash (used in) provided by operating activities (1,687,640) 356,093
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CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of fixed assets -- (111,382)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings of notes payable 2,052,571 (581,648)
Proceeds from issuance of common stock -- 300,000
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Net cash flows provided by (used in) financing activities 2,052,571 (281,648)
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Foreign currency effect on cash (165,941) 57,402
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Net change in cash 198,990 20,465
Cash at beginning of year 173,579 133,676
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Cash at end of year $ 372,569 $ 154,141
=========== ===========
See accompanying notes to consolidated financial statements.
6
GLOBAL DATATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
In the opinion of management, the accompanying consolidated financial statements
of Global DataTel, Inc. contain all adjustments necessary to present fairly the
Company's financial position as of June 30, 2000 and December 31, 1999 and the
statements of income and comprehensive income for the six months ended June 30,
2000 and 1999 and statement of cash flows for the six months ended June 30, 2000
and 1999.
The consolidated results of operations for the six months ended June 30, 2000
and 1999 are not necessarily indicative of the results to be expected for the
full year.
The accounting policies followed by the Company are set forth in Note 2 to the
Company's financial statements included in its Annual Report on Form 10-KSB, for
the year ended December 31, 1999.
NOTE 2 - PLEDGE OF ASSETS
On June 2, 2000, the Board of Directors and a sufficient number of shareholders
consented to pledge all the Company's assets and certain of its liabilities to
Surge Components, Inc. ("Surge") in furtherance of satisfying a condition
precedent to closing the sale of such assets to Surge. As a result of the
execution of the pledge agreement, Surge took effective control of the Company's
assets and operations. The Company has reported its operations through the date
of the change in control.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Except for historical information, the materials contained in this
Management's Discussion and Analysis or Plan of Operation is forward-looking
(within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act) and involve a number of risks and uncertainties. These include the
Company's losses, lack of working capital, general economic downturns, economic,
social and political conditions in Colombia and other parts of Central and South
America, and other risks detailed from time to time in the Company's filings
with the Securities and Exchange Commission. Although forward-looking statements
in this Report reflect the good faith judgment of the Company's management, such
statements can only be based on facts and factors currently known by the
Company. Consequently, forward-looking statements are inherently subject to
risks and uncertainties, actual results and outcomes may differ materially from
the results and outcomes discussed in the forward-looking statements. Readers
are urged to carefully review and consider the various disclosures made by the
Company in this Report, as an attempt to advise interested parties of the risks
and factors that may affect the Company's business, financial condition and
results of operations and prospects.
Six months ended June 30, 2000 as compared to the six months ended June 30,
1999.
Net sales for the six months ended June 30, 2000 ("Fiscal 2000") decreased by
$3,798,537, or 52%, to $3,504,921, as compared to $7,303,458 for the six months
ended June 30, 1999 ("Fiscal 1999"). This decrease was attributable primarily to
a large demand for products during the early part of 1999 due to year 2000
concerns and having the Company's main supplier sell a significant amount of
goods directly to customers, with the Company receiving a commission on the
sale. The Company is currently negotiating with its main supplier in order to
attempt to obtain more favorable credit terms. Approximately 88% of the sales in
Fiscal 1999, or $6,427,043 were from the sales of computer equipment as compared
to $2,247,688, or 64% of sales in Fiscal 2000.
The Company's gross profit for Fiscal 2000 decreased by $1,105,364, or 46%, to
$1,311,631, as compared to $2,416,995 for Fiscal 1999. The decrease in the gross
profit resulted primarily from the decrease in sales volume. The Company has
reduced the amount of inventory it keeps on hand and the related carrying costs
as a result of the Company's main supplier selling directly to the customer.
Additionally, a greater percentage of the sales during 2000 were from services
provided to customers. These sales have historically had a higher gross profit
than those of the sales of products. The receiving of commission on the sales
made by the Company's main supplier directly to the Company's customers and the
greater efficiency in inventory management resulting from the merger of the
Colombian subsidiaries have also resulted in an increased gross profit. As a
result, gross profit as a percentage of sales increased from 33% in Fiscal 1999
to 37% in Fiscal 2000.
Selling, general and administrative expenses decreased by $323,224, or 14% to
$2,021,759 in Fiscal 2000, as compared to $2,344,983 for Fiscal 1999. The
decrease in expenses relates to cost savings associated with the combining of
the Colombian subsidiaries during 1999.
8
Payroll expenses increased by $243,164, or 22% to $1,334,112 in Fiscal 2000, as
compared to $1,090,948 in Fiscal 1999. The increase is due to the hiring of
additional staff such as marketing, design, and technical personnel. These
increases are primarily due to the Company's commitment towards increasing sales
and its related investment in internet e-commerce activities since the later
part of 1999.
As a result of the above, the Company had a loss from operations totaling
$2,250,849 in Fiscal 2000, as compared to a loss from operations totaling
$1,265,489 in Fiscal 1999. Included in the net loss for Fiscal 2000, are losses
totaling approximately $854,000 from the operations of ehola.
Liquidity and Capital Resources
The Company's Current Ratio changed to 0.55 at June 30, 2000, as compared to
0.71 at December 31, 1999, as a result of an increase of other current assets,
notes and accounts payable and accrued expenses. At December 31, 1999, the
Company has a working capital deficiency totaling $1,960,013. During the six
months ended June 30, 2000, the working capital deficiency increased to
$4,228,653.
During the six months ended June 30, 2000, the Company had net cash used in
operating activities of $1,687,640, as compared to $356,093 provided by
operating activities in the six months ended June 30, 1999. The increase in cash
used in operating activities resulted primarily from losses incurred during the
six months ended June 30, 2000.
The Company had net cash provided by financing activities of $2,052,571 for
six months ended June 30, 2000, as compared to $281,648 used in financing
activities for the six months ended June 30, 1999. This increase in the cash
provided by financing activities was a result of proceeds from a convertible
note with Surge as described more fully below. As a result of the foregoing, the
Company had a net increase in cash of $198,990 during the six months ended June
30, 2000, as compared to $20,465 for the six months ended June 30, 1999.
As 95% of the Company's operations are currently conducted in Colombia, the
Company is subject to special consideration and significant risks not typically
associated with Companies operating in North America and Western Europe. These
include risks associated with, among others, the political, economic and legal
environments and foreign currency exchange. The Company's results may be
adversely affected by changes in the political and social conditions in
Colombia, and by changes in governmental policies with respect to laws and
regulations, anti-inflationary measures, currency conversion, remittance abroad,
and rates and methods of taxation among other things. Since its working capital
has been limited, obligations and commitments have gone unfulfilled. The
Company's current financial situation, as well as the ongoing funding to support
the initial and continuing operations of ehola, will require the Company to
obtain additional financing in order to meet its obligations during the next
twelve months. As a result, the Company has not been able to adequately fund the
marketing of ehola. Ehola has therefore been unable to attract and retain more
than 350 paid subscribers for its internet service provider operations.
Consequently, revenues for ehola totaled less than $42,000 for
9
the six months ended June 30, 2000. The Company has obtained funds through a
convertible note with Surge that has been used in part to sustain the operations
of the Company. A significant amount of additional funding is anticipated from
the potential exercised of Surge warrants subsequent to the completion of the
proposed acquisition by Surge.
The Company has had losses generated from operations for several years. These
losses have generally been financed through stockholder loans, proceeds from
stock issuances or the issuance of shares to pay for services rendered to the
Company. On February 5, 1999 the Company did an offering under Rule 504 of
Regulation D for 100,000 shares of its common stock at $3.00 per share. The
offering was subscribed to in full by a related party.
At June 30, 2000 the Company has only one class of common stock outstanding and
a Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock
has a liquidating value of no less than $35,000,000 and has preference over all
other stock in a liquidation. The conversion value is based on the liquidating
value and a maximum share price of 111 shares of common stock for one share of
preferred stock. There are no arrearages in preferred dividends. On June 25,
1999, the shares were converted into 13,000,001 shares of the Company's common
stock.
On March 14, 1996, DLR obtained a mortgage from a bank for the purchase of their
office facility in Bogota, Colombia. The mortgage expires on March 2012 and had
an initial principal balance of $99,400. The mortgage agreement allows for an
increase in the outstanding principal balance due to monetary adjustments as
mandated by the Colombian Central Bank.
The Colombian subsidiaries obtain short-term financing from banks and financing
companies. Interest on such obligations range between 18% and 28% annually and
is determined by the financing source subsequent to the availability of funds.
Officers of the companies personally guarantee a portion of these obligations
and the balance owed as of June 30, 2000 approximated $978,393.
ICR and Global have available lines of credit aggregating $148,750, at 10%
interest, personally guaranteed by the majority stockholder of the Company, for
working capital purposes. As of June 30, 2000, the balance owed on this line of
credit was approximately $141,461.
In December 1999, the Company entered into an asset purchase agreement with
Surge whereby Surge would acquire the assets of the Company in exchange for
stock to be treated as a "tracking stock" covering the assets sold by the
Company. Among other conditions, the completion of the acquisition is
conditioned on the approval of both Companies' stockholders and successful
completion of due diligence.
10
In October 1999, the Company issued a subordinated Convertible Promissory Note
(the "Note") in the amount of $1,000,000. The Note is due on June 1, 2000 and
accrues interest at the rate of 10% per annum. Upon the successful completion of
the asset purchase by Surge, the Note is canceled and all interest accrued to
date will be forgiven. If the asset purchase with Surge is not completed by
February 28, 2000 or is not approved by the shareholders of both companies,
Surge at its sole discretion may convert the Note into the common stock of the
Company at a conversion price equal to 90% of the average closing price of the
Company's common stock for the twenty previous trading days or demand repayment.
In January 2000, the Note was cancelled and replaced with a new note totaling
$4,100,000.
In February 2000, the Company replaced the previous Subordinated Convertible
Promissory Note ("Convertible Note") with Surge totaling up to $6,250,000. The
Convertible Note accrues interest at the rate of 10% per annum. Upon completion
of the Company's acquisition by Surge, the Convertible Note and all accrued
interest will be forgiven. If the acquisition does not occur by September 15,
2000, as extended, Surge, at its own discretion, may convert this note into the
common stock of the Company on a dollar for dollar basis at a conversion price
equal to 90% of the average closing price of the Company's Common Stock for the
preceding 20 trading days or Surge may demand repayment. The Convertible Note is
secured by the pledging of certain shares of stock owned by the President of the
Company.
In April 1999, the Company entered into an option agreement with a consultant,
in partial payment for services rendered. The agreement grants 250,000 shares of
the Company's common stock, at an exercise price of $5.75 per share. The options
are non-dilutive. To date, no options have been exercised.
In December 1999, the Company granted options to purchase 550,000 shares of the
Company's Common Stock to an officer of the Company. The options are exercisable
over a three year period at an exercise of $.52 per share. In March 2000, the
options were exercised using the cashless method into 492,800 shares of the
Company's Common Stock.
INFLATION
The effects of inflation have lessened in recent years as indicated by the
average consumer price index, which has been below 3% in each of the past two
years. The Company has generally been able to offset the impact of rising costs
through purchase price reductions. As a result, inflation has not had, nor is it
expected to have, a significant impact on the Company's business. However,
inflation and changing interest rates have had a significant effect on the
economy in general and, therefore, could affect the Company's future operating
results.
11
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit No. Description
- ----------- -----------
11.1 Statement re: Computation of per share earnings.
27. Statement re: Financial Data Schedule
(b)
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GLOBAL DATATEL, INC.
By: /s/ Antonio Serrato
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Antonio Serrato
President
By: /s/ German Ramirez
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German Ramirez
Chief Financial Officer
Dated: August 14, 2000
12