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 APRIL 30, 2001
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 0-21695
Manchester Technologies, Inc.
(Exact name of registrant as specified in its charter)
New York 11-2312854
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
160 Oser Avenue
Hauppauge, New York 11788
(Address of registrant's principal executive offices)
(631) 435-1199
(Registrant's telephone number, including area code)
Manchester Equipment Co., Inc.
(Former name or former address, 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.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
There were 7,990,315 outstanding shares of COMMON STOCK at June 11,
2001.
MANCHESTER TECHNOLOGIES, INC. AND SUBSIDIARIES
Table of Contents
PART I. FINANCIAL INFORMATION Page
- ------- --------------------- ----
Item 1. Condensed Consolidated Balance Sheets
April 30, 2001 (unaudited) and July 31, 2000 3
Condensed Consolidated Statements of Income
Three months and nine months ended
April 30, 2001 and 2000 (unaudited) 4
Condensed Consolidated Statements of Cash Flows
Nine months ended April 30, 2001
and 2000 (unaudited) 5
Notes to Unaudited Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports 14
Part I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Manchester Technologies, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands except per share amounts)
April 30, 2001 July 31, 2000
(Unaudited)
------------ ----------
Cash and cash equivalents $15,469 $16,156
Accounts receivable, net 28,135 36,024
Inventory 10,240 6,797
Deferred income taxes 579 579
Prepaid income taxes 194 635
Prepaid expenses and other current assets 662 538
--- ---
Total current assets 55,279 60,729
Property and equipment, net 6,449 6,329
Goodwill, net 6,249 6,534
Deferred income taxes 673 673
Other assets 248 308
--- ---
$68,898 $74,573
====== ======
Liabilities:
Accounts payable and accrued expenses $ 23,139 $29,312
Notes payable - 18
Deferred service contract revenue 651 946
--- ---
Total current liabilities 23,790 30,276
Deferred compensation payable 34 34
------ ------
Total liabilities 23,824 30,310
------ ------
Shareholders' equity:
Preferred stock, $.01 par value; 5,000
shares authorized, none issued - -
Common stock, $.01 par value; 25,000
shares authorized, 7,990 and 8,159 issued
and outstanding 80 82
Additional paid-in capital 18,866 19,402
Deferred compensation (43) (65)
Retained earnings 26,171 24,844
------ ------
Total shareholders' equity 45,074 44,263
------ ------
$68,898 $74,573
======= =======
See notes to condensed consolidated financial statements.
Manchester Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
Unaudited
Three months ended Nine months ended
April 30, April 30,
2001 2000 2001 2000
---- ---- ---- ----
Revenue
Products $66,522 $80,424 $214,984 $212,788
Services 2,076 1,443 5,644 5,286
------- ------- -------- --------
68,598 81,867 220,628 218,074
------- ------- -------- --------
Cost of revenue
Products 57,151 69,367 188,194 184,345
Services 1,682 1,249 3,995 3,765
------- ------- -------- --------
58,833 70,616 192,189 188,110
------- ------- -------- --------
Gross profit 9,765 11,251 28,439 29,964
Selling, general and
administrative expenses 8,734 8,860 26,592 24,606
------- ------- -------- --------
Income from operations 1,031 2,391 1,847 5,358
Interest expense -- (2) -- (4)
Interest income 116 211 407 482
------- ------- -------- --------
Income before income taxes 1,147 2,600 2,254 5,836
Provision for income taxes 482 1,105 927 2,430
------- ------- -------- --------
Net income $ 665 $ 1,495 $ 1,327 $ 3,406
======= ======= ======== ========
Net income per share
Basic $0.08 $0.18 $0.16 $0.42
==== ===== ===== =====
Diluted $0.08 $0.18 $0.16 $0.42
===== ===== ===== =====
Weighted average
shares outstanding
Basic 8,005 8,155 8,051 8,090
===== ===== ===== =====
Diluted 8,005 8,456 8,080 8,200
===== ===== ===== =====
See notes to condensed consolidated financial statements.
Manchester Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
For the nine months ended April 30,
2001 2000
(Unaudited)
------------------
Cash flows from operating activities:
Net income $ 1,327 $ 3,406
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 1,636 1,491
Allowance (recovery) for doubtful accounts 405 (141)
Stock compensation expense 22 20
Tax benefit from exercise of options 77 --
Change in assets and liabilities, net of the effects of acquisition:
Decrease (increase) in accounts receivable 7,484 (11,909)
Increase in inventory (3,443) (6,086)
Decrease in prepaid income taxes 441 --
Increase in prepaid expenses and
other current assets (124) (139)
Decrease in other assets 60 90
Increase (decrease) in accounts payable and
accrued expenses (6,173) 24,218
Decrease in deferred service revenue (295) (6)
Increase in income taxes payable -- 246
----- -----
Net cash provided by operating activities 1,417 11,190
Cash flows from investing activities:
Capital expenditures (1,471) (1,192)
Payments for acquisitions, net of cash acquired -- (240)
------ ------
Net cash used in investing activities (1,471) (1,432)
------- ------
Cash flows from financing activities:
Net repayments of borrowings -- (648)
Payments on notes payable (18) (2)
Payments on capital lease obligations -- (81)
Purchase and retirement of common stock (621) (518)
Issuance of common stock upon exercise of options 6 409
------ -----
Net cash used in financing activities (479) (840)
------ ------
Net (decrease) increase in cash and cash equivalents (687) 8,918
Cash and cash equivalents at beginning of period 16,156 5,749
------ ------
Cash and cash equivalents at end of period $ 15,469 $ 14,667
======== ========
See notes to condensed consolidated financial statements.
Manchester Technologies, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
1. Organization and Basis of Presentation
Manchester Technologies, Inc., formerly Manchester Equipment Co.,
Inc., ("Manchester," "we," "us," or the "Company") is a single-source
solutions provider specializing in hardware and software procurement,
custom networking, storage, enterprise and Internet solutions. Manchester
engineers provide answers to companies' MIS needs by combining
comprehensive analysis, design and integration services with a complete
line of competitively priced products and peripherals from the industry's
leading vendors.
Sales of hardware, software and networking products comprise the
majority of the Company's revenue. The Company has entered into agreements
with certain suppliers and manufacturers that may provide the Company
favorable pricing and price protection in the event a vendor reduces its
prices.
In the opinion of the Company, the accompanying unaudited Condensed
Consolidated Financial Statements contain all adjustments (consisting of
only normal and recurring accruals) necessary to present fairly the
financial position of the Company as of April 30, 2001 and the results of
operations for the three and nine months ended April 30, 2001 and 2000 and
cash flows for the nine months ended April 30, 2001 and 2000. Although the
Company believes that the disclosures herein are adequate to make the
information not misleading, these financial statements should be read in
conjunction with the audited financial statements and the notes thereto for
the year ended July 31, 2000, included in the Company's Annual Report on
Form 10-K as filed with the Securities and Exchange Commission.
2. Net Income Per Share
Basic net income per share has been computed by dividing net income by
the weighted average number of common shares outstanding. Diluted net
income per share has been computed by dividing net income by the weighted
average number of common shares outstanding, plus the assumed exercise of
dilutive stock options and warrants, less the number of treasury shares
assumed to be purchased from the proceeds of such exercises using the
average market price of the Company's common stock during each respective
period. Stock options and warrants representing 881,000 and 250,000 shares
for the three months ended April 30, 2001 and 2000, respectively, and
663,000 and 589,000 shares for the nine months ended April 30, 2001 and
2000, respectively, have been excluded from the calculation of diluted net
income per share as they are antidilutive. The following table reconciles
the denominators of the basic and diluted per share computations. For each
period, the numerator is the net income as reported.
(shares in thousands)
Three months ended April 30, Nine months ended April 30,
2001 2000 2001 2000
---- ---- ---- ----
Per share Per share Per share Per share
Shares amount Shares amount Shares amount Shares amount
------ ------ ------ ------ ------ ------ ------ ------
Basic 8,005 $0.09 8,155 $0.18 8,051 $0.17 8,090 $0.42
===== ===== ==== =====
Effect of
dilutive
options - 301 29 110
--- --- -- ----
Diluted 8,005 $0.09 8,456 $0.18 8,080 $0.17 8,200 $0.42
===== ===== ===== ===== ====== ===== ===== =====
3. Acquisition of Texport Technology Group, Inc. and Learning Technology
Group, LLC.
On March 22, 2000, the Company acquired all of the outstanding
ownership interests of Texport Technology Group, Inc. ("Texport") and
Learning Technology Group, LLC ("LTG"), affiliated entities engaged in
reselling and providing of microcomputer services and peripherals to
companies in the greater Rochester, New York area. The acquisition, which
has been accounted for as a purchase, consisted of a cash payment of $0.4
million plus a potential future contingent payment. A contingent payment of
up to $750,000 will be payable on March 22, 2002 based upon achieving
certain agreed upon increases in revenue and pretax earnings. The cash
payment at closing was made from the Company's cash balances. The selling
owners received employment agreements that also provided for the issuance
of 10,000 shares of common stock. The fair value of the common stock,
amounting to $61,250, was recorded as deferred compensation and is being
expensed over the three-year vesting period. In connection with the
acquisition, the Company assumed approximately $648,000 of bank debt, which
was subsequently repaid.
Operating results of Texport and LTG are included in the condensed
consolidated statements of income from the date of acquisition. The
estimated fair value of assets and liabilities acquired was $1.6 million
and $2.2 million, respectively. The excess of the aggregate purchase price
over the estimated fair value of the net assets acquired was approximately
$995,000, which is being amortized on a straight-line basis over 20 years.
The difference between the reported and the pro forma results of
operations, assuming the acquisition had taken place August 1, 1999, for
Texport and LTG for the quarter and nine months ended April 30, 2000 have
not been reflected as they are deemed to be immaterial.
4. Statement of Cash Flow Information
Supplemental disclosure of cash flow information:
Nine months ended April 30,
2001 2000
---- ----
(in thousands)
Cash paid for income taxes $93 $1,892
== =====
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations of the Company should be read in conjunction with the condensed
consolidated financial statements and notes thereto included elsewhere in this
Quarterly Report on Form 10-Q and with the Company's Annual Report on Form 10-K.
This discussion and analysis contains certain forward-looking statements within
the meaning of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are not historical facts, and
involve risks and uncertainties that could cause actual results to differ
materially from the results anticipated in those forward-looking statements.
These risks and uncertainties include, but are not limited to, those set forth
below, those set forth in the Company's Annual Report on Form 10-K for the year
ended July 31, 2000, and those set forth in the Company's other filings from
time to time with the Securities and Exchange Commission.
General
- -------
We are a single-source solutions provider specializing in hardware and
software procurement, custom networking, storage enterprises and Internet
solutions. Our engineers provide answers to companies' MIS needs by combining
comprehensive analysis, design and integration services with a complete line of
competitively priced products and peripherals from the industry's leading
vendors. To date, most of our revenue has been derived from product sales. We
generally do not develop or sell software products. However, certain computer
hardware products sold by us are loaded with packaged software products.
The computer industry is characterized by a number of potentially adverse
business conditions, including pricing pressures, evolving distribution
channels, market consolidation and a decline in the rate of growth in sales of
personal computers. Heightened price competition among various hardware
manufacturers may result in reduced per unit revenue and declining gross profit
margins. As a result of the intense price competition within our industry, we
have experienced increasing pressure on our gross profit and operating margins
with respect to our sale of products. Our inability to compete successfully on
the pricing of products sold, or a continuing decline in gross margins on
products sold due to adverse industry conditions or competition, may have a
material adverse effect on our business, financial condition and results of
operations.
We have recently experienced a reduction in demand for computer products.
We believe that this reduction coincides with an overall slowdown in economic
activity being experienced in the U.S. We cannot predict when the economic
slowdown will end or if the end of the slowdown will result in an increase in
demand for computer products. A continued slowdown, or an end to the slowdown
without an increase in such demand, could have a material adverse impact on our
financial condition and results of operations.
An integral part of our strategy is to increase our value-added services
revenue. These services generally provide higher operating margins than those
associated with the sale of products. This strategy requires us, among other
things, to attract and retain highly skilled technical employees in a
competitive labor market, provide additional training to our sales
representatives and enhance our existing service management system. We cannot
predict whether we will be successful in increasing our focus on providing
value-added services, and the failure to do so may have a material adverse
effect on our business, results of operations and financial condition.
Our strategy also includes expanding our presence in the New York
metropolitan area by increasing the sales and service capabilities in our New
York City office and enlarging our sales, service and training capabilities at
our Long Island headquarters as well as expanding geographically into growing
business centers in the eastern half of the United States. We cannot assure you
that the expansion of our New York metropolitan area operations will increase
profits generated by such operations, that the opening of new offices will prove
profitable, or that these expansion plans will not substantially increase future
capital expenditures or other expenditures. The failure of this component of our
strategy may materially adversely affect our business, results of operations and
financial condition.
To date, our success has been based primarily upon sales in the New York
Metropolitan area. Our strategy, encompassing the expansion of service
offerings, the expansion of existing offices and the establishment of new
regional offices, has challenged and will continue to challenge our senior
management and infrastructure. We cannot predict our ability to respond to these
challenges. If we fail to effectively manage our planned growth, there may be a
material adverse effect on our business, results of operations and financial
condition.
In addition, the success of our strategy depends in large part upon our
ability to attract and retain highly skilled technical personnel and sales
representatives, including independent sales representatives, in a labor market
that remains very competitive. Our ability to grow our service offerings has
been somewhat limited by a shortage of qualified personnel, and we cannot assure
you that we will be able to attract and retain such skilled personnel and
representatives. The loss of a significant number of our existing technical
personnel or sales representatives, difficulty in hiring or retaining additional
technical personnel or sales representatives, or reclassification of our sales
representatives as employees may have a material adverse effect on our business,
results of operations and financial condition.
The computer industry is characterized by intense competition. We directly
compete with local, regional and national systems integrators, value-added
resellers and distributors as well as with certain computer manufacturers that
market through direct sales forces and/or the Internet. The computer industry
has recently experienced a significant amount of consolidation through mergers
and acquisitions, and manufacturers of personal computers may increase
competition by offering a range of services in addition to their current product
and service offerings. In the future, we may face further competition from new
market entrants and possible alliances between existing competitors. In
addition, certain suppliers and manufacturers may choose, or may have already
chosen, to market products directly to end users through a direct sales force
and/or the Internet rather than or in addition to channel distribution, and may
also choose to market services, such as repair and configuration services,
directly to end users. Some of our competitors have or may have, greater
financial, marketing and other resources, and may offer a broader range of
products and services, than us. As a result, they may be able to respond more
quickly to new or emerging technologies or changes in customer requirements,
benefit from greater purchasing economies, offer more aggressive hardware and
service pricing or devote greater resources to the promotion of their products
and services. We may not be able to compete successfully in the future with
these or other current or potential competitors.
Our business is dependent upon our relationships with major manufacturers
and distributors in the computer industry. Many aspects of our business are
affected by our relationships with major manufacturers, including product
availability, pricing and related terms, and reseller authorizations. The
increasing demand for personal computers and ancillary equipment has resulted in
significant product shortages from time to time, because manufacturers have been
unable to produce sufficient quantities of certain products to meet demand. We
cannot predict that manufacturers will maintain an adequate supply of these
products to satisfy all the orders of our customers or that, during periods of
increased demand, manufacturers will provide products to us, even if available,
or at discounts previously offered to us. In addition, we cannot assure you that
the pricing and related terms offered by major manufacturers will not adversely
change in the future. Our failure to obtain an adequate supply of products, the
loss of a major manufacturer, the deterioration of our relationship with a major
manufacturer or our inability in the future to develop new relationships with
other manufacturers may have a material adverse effect on our business,
financial condition and results of operations.
Certain manufacturers offer market development funds, cooperative
advertising and other promotional programs to systems integrators, distributors
and computer resellers. We rely on these funds for some of our advertising and
promotional campaigns. In recent years, manufacturers have generally reduced
their level of support with respect to these programs, which has required us to
increase spending of our own funds to obtain the same level of advertising and
promotion. If manufacturers continue to reduce their level of support for these
programs, or discontinue them altogether, we would have to further increase our
advertising and promotion spending, which may have a material adverse effect on
our business, financial condition and results of operations.
Our profitability has been affected by our ability to obtain volume
discounts from certain manufacturers, which has been dependent, in part, upon
our ability to sell large quantities of products to computer resellers,
including value added resellers. Our sales to resellers have been made at profit
margins generally less favorable than our sales directly to commercial
customers. Our inability to sell products to computer resellers and thereby
obtain the desired volume discounts from manufacturers or to expand our sales to
commercial customers sufficiently to offset our need to rely on sales to
computer resellers may have a material adverse effect on our business, financial
conditions and results of operations.
The markets for our products and services are characterized by rapidly
changing technology and frequent introduction of new hardware and software
products and services. This may render many existing products and services
noncompetitive, less profitable or obsolete. Our continued success will depend
on our ability to keep pace with the technological developments of new products
and services and to address increasingly sophisticated customer requirements.
Our success will also depend upon our abilities to address the technical
requirements of our customers arising from new generations of computer
technologies, to obtain these new products from present or future suppliers and
vendors at reasonable costs, to educate and train our employees as well as our
customers with respect to these new products or services and to integrate
effectively and efficiently these new products into both our internal systems
and systems developed for our customers. We may not be successful in
identifying, developing and marketing product and service developments or
enhancements in response to these technological changes. Our failure to respond
effectively to these technological changes may have a material adverse effect on
our business, financial condition and results of operations.
Rapid product improvement and technological change characterize the
computer industry. This results in relatively short product life cycles and
rapid product obsolescence, which can place inventory at considerable valuation
risk. Certain of our suppliers provide limited price protection to us, which is
intended to reduce the risk of inventory devaluation due to price reductions on
current products. Certain of our suppliers also provide stock balancing to us
pursuant to which we are able to return unsold inventory to a supplier as a
partial credit against payment for new products. There are often restrictions on
the dollar amount of inventory that we can return at any one time. Price
protection and stock balancing may not be available to us in the future, and,
even if available, these measures may not provide complete protection against
the risk of excess or obsolete inventories. During fiscal 2000, certain
manufacturers reduced the period for which they provide price protection and
stock balancing rights. Although we maintain a sophisticated, proprietary
inventory management system, we cannot assure you that we will continue to
successfully manage our existing and future inventory. Our failure to
successfully manage our current or future inventory may have a material adverse
effect on our business, financial condition and results of operations.
Our strategy envisions that part of our future growth will come from making
acquisitions consistent with our strategy. There can be no assurance that we
will be able to identify suitable acquisition candidates and, once identified,
to negotiate successfully their acquisition at a price or on terms and
conditions favorable to us, or to integrate the operations of such acquired
businesses with our operations. Certain of these acquisitions may be of
significant size and may include assets that are outside our geographic
territories or are ancillary to our core business strategy.
Our quarterly revenue and operating results have varied significantly in
the past and are expected to continue to do so in the future. Quarterly revenue
and operating results generally fluctuate as a result of the demand for our
products and services, the introduction of new hardware and software
technologies with improved features, the introduction of new services by us and
our competitors, changes in the level of our operating expenses, competitive
conditions and economic conditions. In particular, we have increased certain of
our fixed operating expenses, including a significant increase in personnel, as
part of our strategy to increase our focus on providing systems integration and
other higher margin and value added services. As a result, we believe that
period-to-period comparisons of our operating results should not be relied upon
as an indication of future performance. In addition, the results of any
quarterly period are not necessarily indicative of results to be expected for a
full fiscal year.
As a result of the rapid changes that are taking place in computer and
networking technologies, product life cycles are short. Accordingly, our product
offerings change constantly. Prices of products change, with generally higher
prices early in the life cycle of the product and lower prices near the end of
the product's life cycle. The computer industry has experienced rapid declines
in average selling prices of personal computers. In some instances, we have been
able to offset these price declines with increases in units shipped. There can
be no assurance that average selling prices will not decline or that we will be
able to offset declines in average selling prices with increases in units
shipped.
Most of the personal computers we sell utilize operating systems developed
by Microsoft Corporation. The United States Department of Justice has brought a
successful antitrust action against Microsoft, which could delay the
introduction and distribution of Microsoft products. The potential
unavailability of Microsoft products could have a material adverse effect on our
business, results of operations and financial condition.
We lease certain warehouses and offices from entities that are owned or
controlled by our majority shareholder. Each of the leases with related parties
has been amended effective with the closing of our initial public offering in
December 1996 to reduce the rent payable under that lease to then current market
rates.
Results of Operations
---------------------
The following table sets forth, for the periods indicated, information
derived from our Condensed Consolidated Statements of Income expressed as a
percentage of related revenue or total revenue.
Percentage of Revenue
Three Months Ended Nine Months Ended
April 30, April 30,
---------- ----------
2001 2000 2001 2000
---- ---- ---- ----
Product sales 97.0% 98.2% 97.4% 97.6%
Services 3.0 1.8 2.6 2.4
--- --- --- ---
Total revenue 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of product sales 85.9 86.3 87.5 86.6
Cost of services 81.0 86.6 70.8 71.2
---- ---- ---- ----
Cost of revenue 85.8 86.3 87.1 86.3
---- ---- ---- ----
Product gross profit 14.1 13.7 12.5 13.4
Services gross profit 19.0 13.4 29.2 28.8
---- ---- ---- ----
Gross profit 14.2 13.7 12.9 13.7
Selling, general and
administrative expenses 12.7 10.8 12.1 11.2
---- ---- ---- ----
Income from operations 1.5 2.9 0.8 2.5
Interest and other income, net 0.2 0.3 0.2 0.2
--- --- --- ---
Income before income taxes 1.7 3.2 1.0 2.7
Provision for income taxes 0.7 1.4 0.4 1.1
--- --- --- ---
Net income 1.0% 1.8% 0.6% 1.6%
=== === === ===
Three Months Ended April 30, 2001 Compared with Three Months Ended April 30,
2000
Revenue. The Company's revenue decreased $13.3 million or 16.2% from $81.9
million for the three months ended April 30, 2000 to $68.6 million for the three
months ended April 30, 2001. Product revenue decreased by $13.9 million due
primarily to decreases in shipments of computers as well as lower per unit
prices for computers partially offset by increased shipments of displays. The
Company has experienced a slowdown in orders for computer products reflecting
the overall slowdown currently being experienced by the U.S. economy in general
and the technology industry specifically. Service revenue increased $633,000 to
$2.1 million from $1.4 million in the same quarter last year as a result of
enhanced marketing efforts of the Company's services as well as increased sales
of third-party services.
Gross Profit. Cost of revenue includes the direct costs of products sold,
freight and the personnel costs associated with providing technical services,
offset in part by certain market development funds provided by manufacturers.
All other operating costs are included in selling, general and administrative
expenses. Gross profit decreased $1.5 million or 13.2% from $11.3 million for
the third quarter of fiscal 2000 to $9.8 million for the most recent fiscal
quarter. Gross profit from the sale of products decreased by $1.7 million while
gross profit from the sale of services increased by $200,000. The changes in
gross profit primarily result from the changes in revenue discussed above. As a
percentage of revenue, gross profit increased to 14.2% in the third quarter of
fiscal 2001 as compared with 13.7% in fiscal 2000 reflecting additional rebates
and volume discounts from manufacturers as well as improved margins on service
offerings partially offset by continued pressures on margins for computer
products. Competitive pressures, changes in types of products or services sold
and product availability result in fluctuations in gross profit.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $126,000 or 1.4% from $8.9 million in the
third quarter of fiscal 2000 to $8.7 million in the third quarter of fiscal
2001. This decrease is principally a result of lower officers' compensation and
insurance costs partially offset by higher advertising and bad debts expense.
Interest Income. Interest income decreased from $211,000 in the third
quarter of 2000 to $116,000 in the third quarter of 2001 due to lower cash
balances available for investment as well as lower interest rates received on
investments.
Provision for Income Taxes. The effective income tax rate decreased
slightly to 42.0% in the current period compared with 42.5% of pre-tax income in
the prior year period.
Nine Months Ended April 30, 2001 Compared with Nine Months Ended April 30, 2000
Revenue. The Company's revenue increased by $2.6 million or 1.2% from
$218.1 million for the nine months ended April 30, 2000 to $220.6 million for
the nine months ended April 30, 2001. Revenue from the sale of products
increased by $2.2 million (1.0%) while revenue from service offerings increased
by $358,000 (6.8%). The increases in product revenue were largely attributable
to growth in shipments of computers, displays and peripherals partially offset
by lower average selling prices for computers. The growth in shipments of
computers and peripherals reflects growth in the first quarter of the fiscal
year. The two most recent quarters have seen declines in sales of these products
as compared with last year.
Gross Profit.Gross profit decreased by $1.5 million (5.1%) to $28.4 million
for the first nine months of fiscal 2001 from $30.0 million in the comparable
period a year ago. Gross profit from product sales decreased by 5.8% ($1.7
million) from $28.4 million in the first nine months of fiscal 2000 to $26.8
million in the most recent nine-month period. Service offerings generated $1.6
million of gross profit in the first nine months of fiscal 2001 as compared with
$1.5 million in fiscal 2000. Gross margin percentages declined in the recent
period due to generally lower vendor incentives on computer products and the
highly competitive marketplace for computer products.
Selling, General and Administrative Expenses. Selling general and
administrative expenses increased by $2.0 million or 8.1% from $24.6 million for
the first nine months of fiscal 2000 to $26.6 million for the first nine months
of fiscal 2001. The increase is principally due to higher salaries and personnel
costs, as well as higher bad debt expenses
Interest Income. Interest income decreased due to lower cash balances
available for investment as well as lower interest rates.
Provision for Income Taxes. The effective income tax rate decreased
slightly to 41.1% for the first nine months of fiscal 2001 from 41.6% for the
first nine months of fiscal 2000 .
Liquidity and Capital Resources
- -------------------------------
The Company's primary sources of financing have been internally generated
working capital from operations and a line of credit from financial
institutions.
For the nine months ended April 30, 2001, cash provided by operating
activities was $1.4 million consisting primarily of net income of $1.3 million,
depreciation and amortization of $1.6 million, $405,000 increase in the
allowance for doubtful accounts and a reduction in accounts receivable of $7.5
million partially offset by a decrease of $6.2 million in accounts payable and
accrued expenses and an increase in inventory of $3.4 million. The Company also
spent approximately $1.5 million in capital expenditures and $621,000 for the
repurchase of its common stock during the nine months ended April 30, 2001. The
Company's accounts receivable and accounts payable and accrued expenses balances
as well as its investment in inventory can fluctuate significantly from one
period to the next due to the receipt of large customer orders or payments or
variations in product availability and vendor shipping patterns at any
particular date. Generally, the Company's experience is that increases in
accounts receivable, inventory and accounts payable and accrued expenses will
coincide with growth in revenue and increased operating levels.
The Company has available a line of credit with financial institutions in
the aggregate amount of $15.0 million. No amounts were outstanding under this
line as of April 30, 2001.
The Company believes that its current balances in cash and cash
equivalents, expected cash flows from operations and available borrowings under
the line of credit will be adequate to support current operating levels for the
foreseeable future, specifically through at least the end of fiscal 2002. The
Company currently has no material commitments for capital expenditures. Future
capital requirements of the Company include those for the growth of working
capital items such as accounts receivable and inventory and the purchase of
equipment and expansion of facilities, the possible opening of new offices,
potential acquisitions, and expansion of the Company's service and e-commerce
capabilities.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports
(a) Exhibits
None.
(b) Reports on Form 8-K
None
MANCHESTER TECHNOLOGIES, INC.
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.
MANCHESTER TECHNOLOGIES., INC.
------------------------------
(Registrant)
DATE: June 11, 2001 ss/ Barry Steinberg
--------------------------
Barry Steinberg
President and Chief Executive Officer
DATE: June 11, 2001 ss/ Joseph Looney
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Joseph Looney
Vice President of Finance and
Chief Financial Officer