| UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 |
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2003 |
| 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 No.: 0-22693
| InfoTech USA, Inc. |
| (formerly SysComm International Corporation) |
| (Exact name of registrant as specified in its charter) |
| Delaware | 11-2889809 |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 7 Kingsbridge Road, Fairfield, New Jersey 07004 |
| (Address of principal executive offices) (Zip code) |
Registrant's telephone number, including area code: (973) 227-8772
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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
The number of shares outstanding of each class of our common equity as of May 9, 2003 is as follows:
| Class of Common Equity | Number of Shares |
| Common Stock, par value $.01 | 4,895,998 |
INFOTECH USA, INC.
(FORMERLY SYSCOMM
INTERNATIONAL CORPORATION)
TABLE OF CONTENTS
| Item | Description | Page |
| PART I – FINANCIAL INFORMATION |
| 1. | Consolidated Condensed Financial Statements Consolidated Condensed Balance Sheets - March 31, 2003 (unaudited) and September 30, 2002 |
3 |
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| Consolidated Condensed Statements of Operations - Three and Six Months ended March 31, 2003 and 2002 (unaudited) |
4 |
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| Consolidated Condensed Statement of Stockholders' Equity - Six Months ended March 31, 2003 (unaudited) |
5 |
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| Consolidated Condensed Statements of Cash Flows - Six Months ended March 31, 2003 and 2002 (unaudited) |
6 |
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| Notes to Consolidated Condensed Financial Statements (unaudited) | 7 | |||
| 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
9 |
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| 3. | Quantitative and Qualitative Disclosures About Market Risk | 13 | ||
| 4. | Controls and Procedures | 13 |
| PART II – OTHER INFORMATION |
| 4. | Submission of Matters to a Vote of Security Holders | 14 | ||
| |
6. |
Exhibits and Reports on Form 8-K |
14 |
|
| SIGNATURE | 15 | |||
| CERTIFICATIONS | 16 | |||
| EXHIBITS | 18 | |||
2
PART
I FINANCIAL INFORMATIONITEM
ITEM 1. FINANCIAL STATEMENTS
| INFOTECH USA, INC. AND SUBSIDIARIES |
| CONSOLIDATED CONDENSED BALANCE SHEETS |
| (In thousands except par value) |
| Assets | |||||
| March 31, 2003 | September 30, 2002 | ||||
| (Unaudited) | |||||
| Current Assets | |||||
| Cash and cash equivalents | $ 2,024 | $ 3,398 | |||
| Accounts receivable (net of allowance for doubtful accounts of | 1,982 | 1,913 | |||
| $124 and $208) | |||||
| Inventories | 58 | 91 | |||
| Deferred tax assets | 13 | 42 | |||
| Other current assets | 302 | 135 | |||
| Total Current Assets | 4,379 | 5,579 | |||
| Property, equipment and improvements, net | 422 | 524 | |||
| Goodwill, net | 2,154 | 2,154 | |||
| Other assets | 1,844 | 1,500 | |||
| Total Assets | $ 8,799 | $ 9,757 | |||
| Liabilities and Stockholders' Equity | |||||
| Current Liabilities | |||||
| Current maturities of capital lease obligation | $ 21 | $ 21 | |||
| Amounts due to Parent Company | 111 | 127 | |||
| Accounts payable | 133 | 190 | |||
| Accrued expenses and other liabilities | 793 | 1,160 | |||
| Total Current Liabilities | 1,058 | 1,498 | |||
| Capital lease obligation | 11 | 21 | |||
| Total Liabilities | 1,069 | 1,519 | |||
| Commitments and Contingencies | |||||
| Stockholders' Equity | |||||
| Preferred shares: | |||||
| Authorized 5,000 shares, no par value; none issued | -- | -- | |||
| Common shares: | |||||
| Authorized 80,000 shares of $.01 par value; 5,757 shares issued; | 58 | 58 | |||
| 4,896 shares outstanding | |||||
| Additional paid-in capital | 6,653 | 6,653 | |||
| Retained earnings | 1,937 | 2,445 | |||
| Treasury stock (861 shares, carried at cost) | (918 | ) | (918 | ) | |
| Total Stockholders' Equity | 7,730 | 8,238 | |||
| Total Liabilities and Stockholders' Equity | $ 8,799 | $ 9,757 | |||
| See the accompanying notes to consolidated condensed financial statements. | 3 |
| INFOTECH USA, INC. AND SUBSIDIARIES |
| CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS |
| (In thousands except per share data) (Unaudited) |
| For The Three Months Ended March 31, |
For The Six Months Ended March 31, |
|||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||
| Revenues: | ||||||||||||
| Product revenue | $ | 1,934 | $ | 9,694 | $ | 4,320 | $ | 14,290 | ||||
| Service revenue | 600 | 811 | 1,094 | 1,556 | ||||||||
| Total revenues | 2,534 | 10,505 | 5,414 | 15,846 | ||||||||
| Cost of sales: | ||||||||||||
| Cost of products sold | 1,648 | 8,734 | 3,615 | 12,795 | ||||||||
| Cost of services sold | 399 | 406 | 667 | 774 | ||||||||
| Total cost of products and services sold | 2,047 | 9,140 | 4,282 | 13,569 | ||||||||
| Gross profit | 487 | 1,365 | 1,132 | 2,277 | ||||||||
| Selling, general and administrative expenses | 887 | 1,184 | 1,830 | 2,412 | ||||||||
| Depreciation and amortization | 55 | 74 | 112 | 137 | ||||||||
| (Loss) income from operations | (455) | 107 | (810) | (272) | ||||||||
| Other expense (income) | 2 | (1) | - | (1) | ||||||||
| Interest expense | 3 | 71 | 10 | 159 | ||||||||
| (Loss) income before income tax (benefit) expense | (460) | 37 | (820) | (430) | ||||||||
| Income tax (benefit) expense | (171) | 16 | (312) | (171) | ||||||||
| Net (loss) income available to common stockholders | $ | (289) | $ | 21 | $ | (508) | $ | (259) | ||||
| Net (loss) income per common share – basic | $ | (0.06) | $ | 0.00 | $ | (0.10) | $ | (0.05) | ||||
| Weighted average number of common | ||||||||||||
| shares outstanding – basic | 4,896 | 4,896 | 4,896 | 4,896 | ||||||||
| See the accompanying notes to consolidated condensed financial statements. | 4 |
| INFOTECH USA, INC. AND SUBSIDIARIES |
| CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY For the Six Month Period Ended March 31, 2003 |
| (In Thousands) (Unaudited) |
| Preferred Stock | Common Stock | Additional Paid-In |
Retained | Treasury Stock | Total Stockholders' |
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| Number | Amount | Number | Amount | Capital | Earnings | Number | Amount | Equity | |||||||||||
| |
|
|
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| Balance, October 1, 2002 | – | $ – | 5,757 | $ 58 | $ 6,653 | $ 2,445 | (861 | ) | $ (918 | ) | $ 8,238 | ||||||||
| Net loss | – | – | – | – | – | (508 | ) | – | – | (508 | ) | ||||||||
| Balance, March 31, 2003 | – | $ – | 5,757 | $ 58 | $ 6,653 | $ 1,937 | (861 | ) | $ (918 | ) | $ 7,730 | ||||||||
| See the accompanying notes to consolidated condensed financial statements. | 5 |
| INFOTECH USA, INC. AND SUBSIDIARIES |
| CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS |
| (In Thousands) (Unaudited) |
| For The Six Months Ended March 31, |
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| 2003 | 2002 | ||||
| Cash flows from operating activities | |||||
| Net loss | $ (508 | ) | $ (259 | ) | |
| Adjustments to reconcile net loss to cash provided by (used in) operating | |||||
| activities | |||||
| Depreciation and amortization | 112 | 137 | |||
| Deferred income taxes | (312 | ) | (171 | ) | |
| Change in assets and liabilities: | |||||
| (Increase) decrease in accounts receivable | (69 | ) | 5,654 | ||
| Decrease (increase) in inventories | 33 | (269 | ) | ||
| (Increase) decrease in other current assets | (185 | ) | 128 | ||
| (Increase) decrease in other assets | (3 | ) | 4 | ||
| Decrease in accounts payable and accrued expenses | (424 | ) | (3,200 | ) | |
| Net cash (used in) provided by operating activities | (1,356 | ) | 2,024 | ||
| Cash flows from investing activities | |||||
| Capital expenditures | (10 | ) | (36 | ) | |
| Payments received on notes receivable | 18 | 25 | |||
| Proceeds from disposition of property and equipment | -- | 2,441 | |||
| Net cash provided by investing activities | 8 | 2,430 | |||
| Cash flows from financing activities | |||||
| Payments on capital lease obligation and long term debt | (10 | ) | (995 | ) | |
| Net payments on Parent Company line of credit | (16 | ) | (510 | ) | |
| Net cash used in financing activities | (26 | ) | (1,505 | ) | |
| Net (decrease) increase in cash and cash equivalents | (1,374 | ) | 2,949 | ||
| Cash and cash equivalents - beginning of period | 3,398 | 1,811 | |||
| Cash and cash equivalents - end of period | $ 2,024 | $ 4,760 | |||
| See the accompanying notes to consolidated condensed financial statements. | 6 |
| INFOTECH USA, INC. AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS |
|
(In thousands, except per share data) (Unaudited) |
In the opinion of management, the accompanying unaudited consolidated condensed financial statements reflect all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position of InfoTech USA, Inc. (formerly SysComm International Corporation) (the “Company”) and its wholly-owned subsidiaries, as of March 31, 2003, their results of operations for the three and six months ended March 31, 2003 and 2002, their changes in stockholders’ equity for the six months ended March 31, 2003 and their cash flows for the six months ended March 31, 2003 and 2002. Information included in the consolidated condensed balance sheet as of September 30, 2002 has been derived from the audited consolidated balance sheet included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2002 (the “10-K”) previously filed with the Securities and Exchange Commission (the “SEC”). Pursuant to the rules and regulations of the SEC, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from these consolidated condensed financial statements unless significant changes have taken place since the end of the most recent fiscal year. Accordingly, these unaudited consolidated condensed financial statements should be read in conjunction with the consolidated financial statements, notes to consolidated financial statements and the other information in the 10-K.
The consolidated results of operations for the three and six months ended March 31, 2003 are not necessarily indicative of the results to be expected for the full year ending September 30, 2003.
The financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
| Inventory at March 31, 2003 and September 30, 2002 consists of: | ||||||
| March 31, 2002 |
September 30, 2002 |
|||||
| Finished goods | $ 97 | $ 169 | ||||
| Allowance for excess and obsolescence | (39) |
(78) |
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| $ 58 |
$ 91 |
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As further explained in Note 1 of the notes to the Company’s audited financial statements included in the 10-K previously filed with the SEC, the Company presents basic earnings (loss) per share and, if appropriate, diluted earnings per share in accordance with the provisions of Statement of Financial Accounting Standards No. 128, ” Earnings per Share”.
Since the Company had net losses for the three and six months ended March 31, 2003 and 2002, the assumed effects of the exercise of employee stock options for the purchase of 4,660 and 2,794 common shares at March 31, 2003 and 2002, respectively, and warrants for the purchase of 300 common shares at $0.5775 per share outstanding at March 31, 2003 would have been anti-dilutive.
The Company continues to measure compensation cost related to stock options issued to employees using the intrinsic value method of accounting prescribed by Accounting Principles Board Opinion No. 25 (“APB 25”), “Accounting For Stock Issued To Employees”. The Company has adopted the disclosure-only provisions of Statement
7
| INFOTECH USA, INC. AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS |
| (In thousands, except per share data) (Unaudited) |
of Financial Accounting Standards No. 123 (“SFAS 123”), “Accounting For Stock-Based Compensation.” Accordingly, no earned or unearned compensation cost was recognized in the accompanying consolidated condensed financial statements for the stock options granted by the Company to its employees since all of those options have been granted at exercise prices that equaled or exceeded the market value at the date of grant. The Company's historical net income (loss) and income (loss) per common share and pro forma net income (loss) and income (loss) per common share assuming compensation cost had been determined in 2003 and 2002 based on the fair value at the grant date for all awards by the Company consistent with the provisions of SFAS 123 are set forth below:
| Three Months Ended March 31, |
Six Months Ended March 31, |
||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||
| Net (loss) income - as reported | $(289 | ) | $ 21 | $(508 | ) | $(259 | ) | ||
| Deduct total stock-based employee compensation | |||||||||
| expense determined under a fair value based method | |||||||||
| for all awards, net of related tax effects | (23 | ) | (25 | ) | (45 | ) | (50 | ) | |
| Net loss - pro forma | $(312 | ) | $ (4 | ) | $(553 | ) | $(309 | ) | |
| Net loss per share: | |||||||||
| Basic - as reported | $(.06 | ) | $ – | $(.10 | ) | $(.05 | ) | ||
| Basic - pro forma | $(.06 | ) | $ – | $(.11 | ) | $(.06 | ) | ||
8
This discussion should be read in conjunction with the accompanying consolidated condensed financial statements and related notes in Item 1 of this report as well as our Annual Report on Form 10-K for the year ended September 30, 2002. Certain statements made in this report may contain forward-looking statements. For a description of risks and uncertainties relating to such forward-looking statements, see the Forward-Looking Statements and Associated Risk section later in this Item.
Due to market conditions resulting in weak sales and reduced margins and in an effort to reduce expenses and improve profitability, we reduced portions of our workforce in October 2002, January 2003 and again in March 2003 by a total of 13 employees. There was no significant impact on the results of operations in the first quarter as a result of these reductions, however, the current quarter was negatively affected as a result of severance payments totaling $147,000. We expect annual savings in salary and benefit costs of approximately $900,000 as a result of these reductions.
On March 10, 2003, Kevin McLaughlin resigned as chief executive officer and Jerome C. Artigliere was named chief executive officer.
On April 3, 2003, Jerome C. Artigliere resigned as chairman and chief executive officer. Kevin McLaughlin was appointed chairman, and Sebastian F. Perez was named chief operating officer and will act as president and chief executive officer until our Board of Directors appoints a new president and chief executive officer.
On April 3, 2003 J. Robert Patterson was appointed to the Board of Directors.
On March 27, 2003, our stockholders approved an amendment to our certificate of incorporation changing our name to InfoTech USA, Inc.
BUSINESS DESCRIPTION
(in $'000 unless otherwise noted)
We are a Delaware corporation incorporated in 1997. Through our two wholly-owned subsidiaries, Information Technology Services, Inc., and InfoTech USA, Inc., we provide professional services in the area of systems integration, information technology procurement and logistics, and technology strategy in the New York City metropolitan area and New Jersey. We are a full service provider of information technology solutions and products. We specialize in tailoring our approach to the individual customer needs of medium to large size entities . We provide information technology consulting, networking, procurement, deployment, integration, migration and security services and solutions. We also provide on-going system and network maintenance services. We are controlled by our 53% majority stockholder, Applied Digital Solutions, Inc.
We operate in a highly competitive industry, which in turn places constant pressures on maintaining gross profit margins. Many of our sales are high volume equipment sales, which produce lower than average gross profit margins, but are often accompanied by a service arrangement which yields higher than average gross profit margins.
9
The following table sets forth, for the periods indicated, the percentage relationship to total revenue of certain items in our consolidated condensed statements of operations.
| Relationship to Revenue | |||||||||
| | |||||||||
| Three Months Ended March 31, |
Six Months Ended March 31, |
||||||||
| | |||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||
| % | % | % | % | ||||||
| Product revenue | 76 | .3 | 92 | .3 | 79 | .8 | 90 | .2 | |
| Service revenue | 23 | .7 | 7 | .7 | 20 | .2 | 9 | .8 | |
| | |||||||||
| Total revenue | 100 | .0 | 100 | .0 | 100 | .0 | 100 | .0 | |
| | |||||||||
| Cost of products sold | 65 | .0 | 83 | .1 | 66 | .8 | 80 | .7 | |
| Cost of services sold | 15 | .8 | 3 | .9 | 12 | .3 | 4 | .9 | |
| | |||||||||
| Total cost of products and services sold | 80 | .8 | 87 | .0 | 79 | .1 | 85 | .6 | |
| | |||||||||
| Gross profit | 19 | .2 | 13 | .0 | 20 | .9 | 14 | .4 | |
| Selling, general and administrative expenses | 35 | .0 | 11 | .3 | 33 | .8 | 15 | .2 | |
| Depreciation and amortization | 2 | .1 | 0 | .7 | 2 | .1 | 0 | .9 | |
| | |||||||||
| (Loss) income from operations | (17 | .9) | 1 | .0 | (15 | .0) | (1 | .7) | |
| Other expense (income) | 0 | .1 | (0 | .0) | 0 | .0 | (0 | .0) | |
| Interest expense | 0 | .2 | 0 | .6 | 0 | .1 | 1 | .0 | |
| | |||||||||
| (Loss) income before income tax (benefit) expense | |||||||||