UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 14, 2003
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DATA SYSTEMS & SOFTWARE INC.
(Exact name of Registrant as Specified in its Charter)
Delaware 0-19771 22-2786081
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(State or Other Jurisdiction (Commission file Number) (IRS Employer
of Incorporation) Identification No.)
200 Route 17, Mahwah, New Jersey 07430
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (201) 529-2026
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Item 12. Results of Operations and Financial Condition.
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On November 14, 2003, we announced our results for the third quarter ended
September 30, 2003. Our press release announcing the results is furnished
herewith.
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 hereunto duly authorized.
DATA SYSTEMS & SOFTWARE INC.
Date: November 26, 2003 BY: /s/ Yacov Kaufman
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Yacov Kaufman
Vice President and CFO
FOR IMMEDIATE RELEASE:
DATA SYSTEMS & SOFTWARE REPORTS FINANCIAL RESULTS
FOR THE THIRD QUARTER OF FISCAL 2003
Mahwah, New Jersey -November 14, 2003 -- Data Systems & Software Inc. (NASDAQ:
DSSI) today announced results for the third quarter ended September 30, 2003.
DSSI reported total sales in the third quarter and first nine months of
2003 of $6.7 million and $26.8 million, respectively, compared to $11.3 million
and $36.9 million in the same periods of 2002. The decreases were primarily
attributable to not consolidating Comverge sales starting the second quarter of
2003.
Sales in the computer hardware segment in the third quarter and first
nine months of 2003 were $3.9 million and $13.0 million, decreasing by 17% and
3%, from sales of $4.6 million and $13.4 million, in the same periods of 2002,
respectively. The decrease was attributable to increased competition and
continued decline in the hardware market during the second and third quarters of
2003.
Software consulting and development sales were $2.8 million and $9.1
million in the third quarter and first nine months of 2003, respectively,
compared to $3.3 million and $10.6 million in the same periods of 2002. The
decrease was primarily attributable to the decrease in consulting revenues
resulting from the continued weakness in the global hi-tech markets generally
and in the software consulting and development market in particular.
Gross profit in the third quarter and the first nine months of 2003 was
$1.2 million and $5.6 million, respectively, compared to $2.4 million and $7.9
million in the same periods of 2002. The decreases were almost entirely
attributable to not consolidating Comverge's gross profit starting the second
quarter of 2003. The gross profit margin in the computer hardware segment
remained relatively stable. As a result of the Company's continued effort to
improve the cost structure of the software development and consulting segment,
gross profit margins in that segment increased to 21% and 19% in the first nine
months and third quarter of 2003, respectively, compared to 16% and 12% in the
same periods of 2002. In addition, in the third quarter of 2002, the Company had
a non-recurring expense of $240,000 for the write down of acquired software.
The decrease in R&D expenses in each 2003 period, as compared to the
comparable periods in 2002, was primarily attributable to not consolidating
Comverge's R&D starting the second quarter of 2003.
In the third quarter and first nine months of 2003, SG&A decreased to
$2.0 million and $8.4 million, respectively, from $3.9 million and $12.7 million
in the same periods of 2002. The decrease was primarily attributable to not
consolidating Comverge's SG&A, as well reduced SG&A in the software development
and consulting segment. The impairment of goodwill in the 2002 periods related
to goodwill recorded in connection with the acquisition of Endan in 2001 by
dsIT.
Interest expense includes both the accrual of interest related to
utilization of lines of credit and amortization of non-cash costs associated
with the issuance of convertible debt and warrants, primarily to finance the
activities of Comverge prior to its securing independent financing. Although the
interest expense associated with the utilization of lines of credit is expected
to continue at the current level, the amortization expenses are expected to
decrease over the coming quarters. Of the $721,000 of interest expense incurred
during the first nine months of 2003, $396,000 was related to the accretion of
discounts and the amortization of related costs in connection with convertible
debt and warrants.
The equity loss in 2003 was from the Company's formerly consolidated
Comverge subsidiary, whose results are accounted for on an equity basis starting
the second quarter of 2003. The Company's share of Comverge's $2.3 million and
$4.5 million of net losses during the third quarter of 2003 and period from
April 1, 2003 to September 30, 2003, was $0.6 million and $2.1 million,
respectively. Comverge's increased loss in the third quarter of 2003 of $2.2
million, compared to $0.6 million in the third quarter of 2002, was primarily
attributable to a decrease in sales. In addition, SG&A in Comverge has increased
primarily due to increased advertising and marketing expenses, particularly
those related to marketing and advertising its new Utah - PacifiCorp program.
Other expenses in 2003 included $298,000 from the write off of a note
received in 2001 in connection with the sale of stock to the CEO of Comverge.
Pursuant to this agreement, the Company issued to Comverge's CEO 50,000 shares
of its common stock in consideration for which it received an assignment of a
subordinated note in that amount issued by a publicly-held company. The company
which issued the note recently filed for bankruptcy and the Company therefore
recorded the write-off of this note as other expense in the third quarter of
2003.
George Morgenstern, Chairman and Chief Executive Officer of DSSI,
stated, "With the closing of its latest investment round, Comverge has secured
the financing it needs to build upon its position as a market leader in energy
intelligence solutions. Following the financing, we continue to be Comverge's
largest shareholder, though we no longer control Comverge's activities. Comverge
recently entered into a major long-term Virtual Peaking Capacity(TM) ("VPC")
contract with Sempra Energy's San Diego Gas & Electric Company division,
following on its earlier contract with Scottish Power's PacifiCorp subsidiary.
Under these agreements, Comverge will install, own and operate load management
systems designed to provide these utilities significant peak demand relief. This
reflects the confidence expressed by utilities in the VPC program and in
Comverge's basket of intelligence solutions for utilities.
"We continue to face a challenging economy in all our business
segments. To address this challenge we continue to endeavor to improve our cost
structure and evaluate ways to maximize the value of our dsIT and Databit
businesses, while we actively explore new business opportunities and strategic
alternatives to increase shareholder value."
Data Systems & Software Inc. (DSSI) is a provider of software
development and consulting services and is an authorized direct seller and value
added reseller of computer hardware. Through its Comverge subsidiary, DSSI
provides energy intelligence solutions for utilities. For more information about
DSSI contact: George Morgenstern, CEO, (201) 529-2026.
This press release includes forward-looking statements, which are subject to
risks and uncertainties, including risks associated with (i) the release, as
provided for in Comvege's investment and debt agreements, of the $1.5 million of
currently restricted cash pledged to secure Comverge's term loan, including
compliance by Converge with any applicable covenants and other conditions to
such release, (ii) the need to obtain necessary regulatory approvals, as well as
conditions in the market for energy intelligence solutions, including the pace
and consequences of deregulation and competition, (iii) conditions in the
computer hardware and IT solutions markets, (iv) unforeseen circumstances which
may affect the Company's ability to control costs and maintain budgeted
operations over the next 12 months, (v) the Company's evaluation of its
corporate activities and structure and possible new business opportunities, and
(vi) the Company's business generally. There is no assurance that the Company
will be successful in identifying and/or implementing restructuring or other
strategic alternatives. The evaluation of the Company's corporate activities and
structure referred to in this release has only recently commenced and there is
no assurance that any improvements in operating results and/or in the trading
price for the Company's shares will result from such evaluation. Actual results
may vary from those projected or implied by such forward-looking statements. A
more complete discussion of risks and uncertainties which may affect the
accuracy of these statements and the Company's business generally is included in
"Business--Factors Which May Affect Future Results" in the Company's most recent
Annual Report on Form 10-K as filed by the Company with the Securities and
Exchange Commission.
Tables Follow
DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
As of As of
December 31, September 30,
2002 2003
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ASSETS (unaudited)
Current assets:
Cash and cash equivalents......................................................... $1,150 $707
Restricted cash................................................................... 241 1,741
Trade accounts receivable, net.................................................... 12,267 5,656
Inventory......................................................................... 2,217 55
Other current assets.............................................................. 1,401 693
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Total current assets.......................................................... 17,276 8,852
Investment in affiliated company....................................................... - 2,575
Property and equipment, net............................................................ 1,972 790
Goodwill 4,929 4,430
Other intangible assets, net........................................................... 404 131
Long-term deposits - restricted........................................................ 5,700 -
Other assets........................................................................... 669 859
Prepaid employee termination benefits.................................................. 2,355 2,313
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Total assets.................................................................. $33,305 $19,950
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current maturities of long-term debt, net..................... $3,755 $1,681
Trade accounts payable............................................................ 5,185 2,118
Accrued payroll, payroll taxes and social benefits................................ 2,098 1,290
Other current liabilities......................................................... 3,411 2,717
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Total current liabilities..................................................... 14,449 7,806
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Long-term liabilities:
Long-term debt.................................................................... 6,278 529
Other liabilities................................................................. 477 279
Liability for employee termination benefits....................................... 3,364 3,247
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Total long-term liabilities................................................ 10,119 4,055
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Minority interests..................................................................... 1,609 1,492
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Shareholders' equity:
Common stock - $.01 par value per share:
Authorized - 20,000 shares;
Issued - 8,162 and 8,750 shares
as of December 31, 2002 and September 30, 2003, respectively................. 82 87
Additional paid-in capital........................................................ 37,687 42,906
Warrants.......................................................................... 364 461
Deferred compensation............................................................. (7) (2)
Accumulated deficit............................................................... (26,787) (32,940)
Treasury stock, at cost - 846 and 848 shares (3,913)
as of December 31, 2002 and September 30, 2003, respectively................. (3,915)
Stockholder's note.............................................................. (298) -
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Total shareholders' equity.................................................... 7,128 6,597
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Total liabilities and shareholders' equity.................................... $33,305 $19,950
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DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)
Nine months ended Three months ended
September 30, September 30,
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2002 2003 2002 2003
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Sales:
Products............................................... $24,868 $16,900 $7,207 $3,779
Services............................................... 11,992 9,937 4,062 2,905
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36,860 26,837 11,269 6,684
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Cost of sales:
Products............................................... 19,749 13,951 5,698 3,202
Services............................................... 9,178 7,323 3,208 2,279
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Gross profit........................................... 7,933 5,563 2,363 1,203
Research and development expenses........................... 1,266 153 256 -
Selling, general and administrative expenses................ 12,675 8,394 3,923 1,984
Impairment of goodwill...................................... 2,760 - 2,760 -
------------ ------------- ------------ ------------
Operating loss......................................... (8,768) (2,984) (4,576) (781)
Interest income............................................. 203 42 57 15
Interest expense............................................ (743) (721) (450) (71)
Other income (expense), net................................. 148 (510) 56 (345)
Minority interests.......................................... 852 139 649 35
Equity loss in unconsolidated subsidiary.................... - (2,112) - (611)
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Loss before provision for income taxes.................. (8,308) (6,146) (4,264) (1,758)
Provision (benefit) for income taxes........................ 64 7 7 (27)
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Net loss............................................... $(8,372) $ (6,153) $ (4,271) $ (1,731)
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Basic and diluted net loss per share:
Net loss per share..................................... $ (1.14) $ (0.80) $ (0.58) $ (0.22)
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Weighted average number of shares
outstanding - basic and diluted............... 7,353 7,680 7,353 7,894
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