Delaware
|
87-0273300
|
(State
of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
525
Lincoln Drive
5
Greentree Center, Suite 117
Marlton,
New Jersey 08053
(Address
of principal executive offices, including zip
code)
|
Large accelerated filer o | Accelerated filer o | ||
Non-accelerated filer o | (Do not check if a smaller reporting company) | Smaller reporting company x |
Item
1 - Financial Statements
|
|
Condensed
Consolidated Balance Sheets
|
1
|
Condensed
Consolidated Statements of Operations
|
2
|
Condensed
Consolidated Statements of Cash Flows
|
3
|
Notes
to Condensed Consolidated Financial Statements
|
4
|
Item
2 - Management’s Discussion and Analysis of Financial Condition and
Results of Operations
|
12
|
Item
3 – Quantitative and Qualitative Information About Market Risk
|
29
|
Item
4T – Controls and Procedures
|
30
|
PART
II – OTHER INFORMATION
|
|
Item
4 – Submission of Matters to a Vote by Securities Holders
|
31
|
Item
6 – Exhibits
|
32
|
SIGNATURES
|
33
|
February 29, 2008
(Unaudited)
|
|
August 31, 2007
|
|||||
Assets
|
|||||||
Current
Assets
|
|||||||
Cash
|
$
|
863,830
|
$
|
2,251,352
|
|||
Receivables:
|
|||||||
Trade,
less allowance for doubtful accounts
|
26,704,561
|
28,774,286
|
|||||
Others
|
4,018,483
|
2,756,815
|
|||||
Inventories,
net
|
812,674
|
5,021,516
|
|||||
Prepaid
expenses
|
428,940
|
331,062
|
|||||
Deferred
tax asset - current
|
813,789
|
653,820
|
|||||
Total
current assets
|
33,642,277
|
39,788,851
|
|||||
Property
and equipment, net
|
1,048,119
|
1,308,582
|
|||||
Customer
relationships, net
|
7,142,601
|
7,432,776
|
|||||
Goodwill
|
8,978,788
|
9,014,055
|
|||||
Deferred
tax asset - long term
|
147,930
|
-
|
|||||
Restricted
cash
|
150,000
|
150,000
|
|||||
Other
assets
|
161,375
|
112,505
|
|||||
Total
assets
|
$
|
51,271,090
|
$
|
57,806,769
|
|||
Liabilities
and Stockholders' Equity
|
|||||||
Current
Liabilities
|
|||||||
Line
of credit
|
$
|
1,001,287
|
$
|
5,847,494
|
|||
Accounts
payable
|
24,527,183
|
26,578,127
|
|||||
Current
portion of long term debt - related party
|
1,276,880
|
1,280,660
|
|||||
Income
taxes payable
|
7,635
|
9,255
|
|||||
Accrued
liabilities
|
3,710,575
|
4,172,008
|
|||||
Due
to former stockholders
|
631,415
|
631,415
|
|||||
Customer
deposits
|
47,131
|
183,220
|
|||||
Deferred
revenue
|
1,192,318
|
1,362,333
|
|||||
Total
current liabilities
|
32,394,424
|
40,064,512
|
|||||
Deferred
tax liability
|
1,873,358
|
1,307,155
|
|||||
Accrued
liabilities
|
174,739
|
-
|
|||||
Long
term debt - related party
|
2,270,894
|
2,745,514
|
|||||
Total
liabilities
|
36,713,415
|
44,117,181
|
|||||
Commitments
and contingent liabilities
|
|||||||
Stockholders'
Equity
|
|||||||
Common
stock $0.01 par value; 25,000,000 shares authorized; 17,714,180
and
17,249,875 shares issued and 14,849,591 and 14,385,286, outstanding
at
February 29, 2008 and August 31, 2007, respectively
|
177,142
|
172,499
|
|||||
Additional
paid-in capital
|
20,490,168
|
20,348,736
|
|||||
Accumulated
deficit
|
(513,588
|
)
|
(1,235,600
|
)
|
|||
20,153,722
|
19,285,635
|
||||||
Less:
treasury stock, at cost, 2,864,589 shares
|
(5,596,047
|
)
|
(5,596,047
|
)
|
|||
Total
stockholders' equity
|
14,557,675
|
13,689,588
|
|||||
Total
liabilities and stockholders' equity
|
$
|
51,271,090
|
$
|
57,806,769
|
Three months ended
|
Six month ended
|
||||||||||||
February 29, 2008
|
February 28, 2007
|
February 29, 2008
|
February 28, 2007
|
||||||||||
Revenues
|
$
|
44,068,502
|
$
|
41,154,373
|
$
|
118,708,688
|
$
|
106,093,516
|
|||||
Cost
of revenues
|
39,097,259
|
36,802,405
|
105,092,468
|
95,682,901
|
|||||||||
Gross
profit
|
4,971,243
|
4,351,968
|
13,616,220
|
10,410,615
|
|||||||||
Operating
expenses:
|
|||||||||||||
Selling,
general, and administrative expenses
|
4,920,946
|
5,755,872
|
10,676,389
|
11,102,828
|
|||||||||
Management
fee – related party
|
-
|
58,334
|
-
|
145,834
|
|||||||||
Amended
employment agreements and management agreement charges
|
-
|
2,329,800
|
-
|
2,329,800
|
|||||||||
Rent
expense – related party
|
89,325
|
89,325
|
178,650
|
178,650
|
|||||||||
Depreciation
and amortization
|
307,511
|
291,485
|
608,014
|
550,736
|
|||||||||
Total
operating expenses
|
5,317,782
|
8,524,816
|
11,463,053
|
14,307,848
|
|||||||||
Operating
income (loss)
|
(346,539
|
)
|
(4,172,848
|
)
|
2,153,167
|
(3,897,233
|
)
|
||||||
Other
expense (income):
|
|||||||||||||
Interest
income – other
|
(48,888
|
)
|
(16,965
|
)
|
(66,663
|
)
|
(57,915
|
)
|
|||||
Interest
expense
|
315,720
|
354,880
|
652,743
|
563,598
|
|||||||||
Other
|
-
|
(163
|
)
|
(18
|
)
|
(413
|
)
|
||||||
Income
(loss) before income taxes
|
(613,371
|
)
|
(4,510,600
|
)
|
1,567,105
|
(4,402,503
|
)
|
||||||
Provision
(benefit) for income taxes
|
(221,993
|
)
|
(1,814,856
|
)
|
712,281
|
$
|
(1,739,810
|
)
|
|||||
Net
income (loss)
|
$
|
(391,378
|
)
|
$
|
(2,695,744
|
)
|
$
|
854,824
|
(2,662,693
|
)
|
|||
Net
(loss) income per common share
|
|||||||||||||
Basic
and Diluted
|
$
|
(0.03
|
)
|
$
|
(0.19
|
)
|
$
|
0.06
|
$
|
(0.19
|
)
|
||
Weighted
Average Shares Outstanding
|
|||||||||||||
Basic
|
14,519,049
|
14,385,286
|
14,519,049
|
14,385,286
|
|||||||||
Diluted
|
14,519,049
|
14,385,286
|
14,594,685
|
14,385,286
|
Six months ended
|
|||||||
February 29, 2008
|
February 28, 2007
|
||||||
Cash
Flows From Operating Activities
|
|||||||
Net
income (loss)
|
$
|
854,824
|
$
|
(2,662,693
|
)
|
||
Adjustments
to Reconcile Net Income (loss) to Net Cash Provided By (Used In)
Operating
Activities
|
|||||||
Depreciation
and amortization
|
608,014
|
550,736
|
|||||
Deferred
income tax expense (benefit)
|
499,606
|
(1,752,717
|
)
|
||||
Stock-based
compensation
|
146,075
|
190,122
|
|||||
Amended
employment agreements and management agreement charges
|
-
|
2,329,800
|
|||||
Changes
In Operating Assets and Liabilities
|
|||||||
Receivables
|
1,149,222
|
2,225,793
|
|||||
Inventories
|
4,208,842
|
(692,887
|
)
|
||||
Prepaid
expenses and other assets
|
(146,748
|
)
|
(262,169
|
)
|
|||
Accounts
payable
|
(2,050,944
|
)
|
(4,383,950
|
)
|
|||
Deferred
revenue
|
(170,015
|
)
|
(84,806
|
)
|
|||
Customer
deposits
|
(136,089
|
)
|
(637,498
|
)
|
|||
Income
taxes payable
|
(1,620
|
)
|
(15,267
|
)
|
|||
Accrued
liabilities
|
(966,709
|
)
|
(759,015
|
)
|
|||
Deferred
compensation
|
-
|
(272,332
|
)
|
||||
Net
Cash Provided By (Used In) Operating Activities
|
3,994,458
|
(6,226,883
|
)
|
||||
Cash
Flows From Investing Activities
|
|||||||
Purchases
of property and equipment
|
(57,373
|
)
|
(438,095
|
)
|
|||
Net
Cash Used In Investing Activities
|
(57,373
|
)
|
(438,095
|
)
|
|||
Cash
Flows From Financing Activities
|
|||||||
Net
increase (decrease) in line of credit
|
(4,846,207
|
)
|
7,505,597
|
||||
Repayment
of debt
|
(478,400
|
)
|
(640,961
|
)
|
|||
Net
Cash (Used In) Provided By Financing Activities
|
(5,324,607
|
)
|
6,864,636
|
||||
Net
(decrease) increase in Cash
|
(1,387,522
|
)
|
199,658
|
||||
Beginning
Cash
|
2,251,352
|
917,683
|
|||||
Ending
Cash
|
$
|
863,830
|
$
|
1,117,341
|
|||
Supplemental
Disclosure of Cash Flow Information
|
|||||||
Cash
paid during the period for:
|
|||||||
Income
taxes
|
$
|
922,050
|
$
|
35,349
|
|||
Interest
|
511,552
|
372,414
|
|
|
|
|
Weighted Average
|
|
Weighted Average
|
|
Aggregate
|
|
||||
For the Six Months Ended February 29, 2008
|
|
|
Shares
|
|
|
Exercise
Price
|
|
|
Remaining
Term
|
|
|
Intrinsic Value
|
|
Options
Outstanding -September 1, 2007
|
396,500
|
$
|
1.22
|
||||||||||
Options
Granted
|
32,500
|
$
|
0.68
|
||||||||||
Options
Exercised
|
-
|
||||||||||||
Options
Forfeited or Expired
|
(10,000
|
)
|
$
|
1.31
|
|||||||||
|
|||||||||||||
Options
Outstanding -February 29, 2008
|
419,000
|
$
|
1.18
|
6.55
years
|
$
|
3,800
|
|||||||
|
|||||||||||||
Options
Exercisable -February 29, 2008
|
156,625
|
$
|
1.19
|
7.58
years
|
$
|
3,800
|
Three Months Ended
|
Six Months Ended
|
||||||
February 29, 2008
|
February 29, 2008
|
||||||
Weighted-Average
Fair Value
|
$
|
0.61
|
$
|
0.53
|
|||
Assumptions
|
|||||||
Expected
Volatility
|
101
|
%
|
101
|
%
|
|||
Expected
Term
|
4.75
years
|
4.87
years
|
|||||
Expected
Forfeiture Rate
|
0
|
%
|
0
|
%
|
|||
Dividend
Yield
|
0
|
%
|
0
|
%
|
|||
Risk-Free
Interest Rate
|
3.34
|
%
|
3.27
|
%
|
For the Six Months Ended February 29, 2008
|
Shares
|
|
Weighted Average
Grant Date Fair Value
|
||||
Nonvested
- September 1, 2007
|
456,974
|
$
|
1.25
|
||||
Granted
|
10,331
|
$
|
1.21
|
||||
Vested
|
(133,763
|
)
|
|||||
Forfeited
|
(3,000
|
)
|
$
|
1.44
|
|||
Nonvested
-February 29, 2008
|
330,542
|
$
|
1.24
|
||||
Vested
-February 29, 2008
|
133,763
|
$
|
1.26
|
For the Three Months Ended
|
|||||||||||||
February 29, 2008
|
% of Total
|
February 28, 2007
|
% of Total
|
||||||||||
Departments
of the United States
|
|||||||||||||
Government
|
$
|
26,482,919
|
60.1
|
%
|
$
|
21,351,697
|
51.9
|
%
|
|||||
State
and Local Governments
|
2,262,595
|
5.1
|
%
|
3,243,055
|
7.9
|
%
|
|||||||
Commercial
Companies
|
11,387,333
|
25.8
|
%
|
12,951,877
|
31.5
|
%
|
|||||||
Education
and other
|
3,935,654
|
8.9
|
%
|
3,607,744
|
8.8
|
%
|
|||||||
Total
Revenues
|
$
|
44,068,502
|
100.0
|
%
|
$
|
41,154,373
|
100.0
|
%
|
For the Six Months Ended
|
|||||||||||||
February 29, 2008
|
% of Total
|
February 28, 2007
|
% of Total
|
||||||||||
Departments
of the United States
|
|||||||||||||
Government
|
$
|
74,853,433
|
63.1
|
%
|
$
|
67,513,193
|
63.6
|
%
|
|||||
State
and Local Governments
|
5,980,610
|
5.0
|
%
|
6,768,340
|
6.4
|
%
|
|||||||
Commercial
Companies
|
24,469,810
|
20.6
|
%
|
24,064,034
|
22.7
|
%
|
|||||||
Education
and other
|
13,404,835
|
11.3
|
%
|
7,747,949
|
7.3
|
%
|
|||||||
Total
Revenues
|
$
|
118,708,688
|
100.0
|
%
|
$
|
106,093,516
|
100.0
|
%
|
February 29,
|
August
31,
|
||||||
2008
|
2007
|
||||||
Trade
receivables
|
$
|
27,095,697
|
$
|
29,165,423
|
|||
Allowance
for doubtful accounts
|
$ |
(391,137
|
) | $ |
(391,137)
|
||
Trade
receivables, net
|
$
|
26,704,561
|
$
|
28,774,286
|
February 29, 2008
|
August 31, 2007
|
||||||
Accrued
payroll
|
$
|
760,326
|
$ |
934,517
|
|||
Accrued
commissions
|
522,053
|
507,317
|
|||||
Accrued
state sales taxes
|
665,983
|
286,158
|
|||||
Accrued
third party service fees
|
60,178
|
115,776
|
|||||
Other
accrued expenses
|
1,702,034
|
2,328,240
|
|||||
$
|
3,710,575
|
$ | 4,172,008 |
Accumulated
|
||||
Deficit
|
||||
Balance
at August 31, 2007
|
$
|
(1,235,600
|
)
|
|
Adoption
of FIN 48 -September 1, 2007
|
(132,812
|
)
|
||
(
see footnote 2 Income Taxes)
|
||||
Net
income for six months ended February 29, 2008
|
854,824
|
|||
Balance
at February 29, 2008
|
$
|
(513,588
|
)
|
February 29,
|
February 28,
|
||||||||||||
2008
|
2007
|
Change
|
%
|
||||||||||
Revenues
|
$
|
44,068,502
|
$
|
41,154,373
|
$
|
2,914,129
|
7.1
|
%
|
|||||
Cost
of revenues
|
39,097,259
|
36,802,405
|
2,294,854
|
6.2
|
%
|
||||||||
Gross
profit
|
4,971,243
|
4,351,968
|
619,275
|
14.2
|
%
|
||||||||
Percent
of revenues
|
11.3
|
%
|
10.6
|
%
|
|||||||||
Operating
expenses:
|
|||||||||||||
Selling,
general, and administrative expenses
|
4,920,946
|
5,755,872
|
(834,926
|
)
|
-14.5
|
%
|
|||||||
Management
fee – related party
|
-
|
58,334
|
(58,334
|
)
|
-100.0
|
%
|
|||||||
Amended
employment agreements and management agreement charges
|
-
|
2,329,800
|
(2,329,800
|
)
|
-100.0
|
%
|
|||||||
Rent
expense – related party
|
89,325
|
89,325
|
-
|
0.0
|
%
|
||||||||
Depreciation
and amortization
|
307,511
|
291,485
|
16,026
|
5.5
|
%
|
||||||||
Total
operating expenses
|
5,317,782
|
8,524,816
|
(3,207,034
|
)
|
-37.6
|
%
|
|||||||
Pecent
of revenues
|
12.1%
|
|
20.7%
|
|
|
|
|
||||||
Operating loss | (346,539 |
)
|
(4,172,848 |
)
|
3,826,309 |
91.7
|
%
|
||||||
Percent
of revenues
|
-0.8
|
%
|
-10.1
|
%
|
|||||||||
Other
expense (income):
|
|||||||||||||
Interest
income – other
|
(48,888
|
)
|
(16,965
|
)
|
(31,923
|
)
|
188.2
|
%
|
|||||
Interest
expense
|
315,720
|
354,880
|
(39,160
|
)
|
-11.0
|
%
|
|||||||
Other
|
-
|
(163
|
)
|
163
|
N/A
|
||||||||
Loss
before income taxes
|
(613,371
|
)
|
(4,510,600
|
)
|
3,897,229
|
86.4
|
%
|
||||||
Provision (benefit) for income taxes | (221,993 | ) | (1,814,856 | ) | 1,592,863 | 87.8 | % | ||||||
Net
loss
|
$
|
(391,378
|
)
|
$
|
(2,695,744
|
)
|
$
|
2,304,366
|
85.5
|
%
|
|||
Percent of revenues |
-0.9
|
%
|
-6.6
|
%
|
February 29, 2008
|
% of Total
|
February 28, 2007
|
% of Total
|
||||||||||
Departments
of the United States
|
|||||||||||||
Government
|
$
|
26,482,919
|
60.1
|
%
|
$
|
21,351,697
|
51.9
|
%
|
|||||
State
and Local Governments
|
2,262,595
|
5.1
|
%
|
3,243,055
|
7.9
|
%
|
|||||||
Commercial
Companies
|
11,387,333
|
25.8
|
%
|
12,951,877
|
31.5
|
%
|
|||||||
3,935,654
|
8.9
|
%
|
3,607,744
|
8.8
|
%
|
||||||||
Total
Revenues
|
$
|
44,068,502
|
100.0
|
%
|
$
|
41,154,373
|
100.0
|
%
|
February 29,
|
|
February 28,
|
|
|
|
|
|
||||||
|
|
2008
|
|
2007
|
|
Change
|
%
|
||||||
Revenues
|
$
|
118,708,688
|
$
|
106,093,516
|
$
|
12,615,172
|
11.9
|
%
|
|||||
Cost
of revenues
|
105,092,468
|
95,682,901
|
9,409,567
|
9.8
|
%
|
||||||||
Gross
profit
|
13,616,220
|
10,410,615
|
3,205,605
|
30.8
|
%
|
||||||||
Percent
of revenues
|
11.5
|
%
|
9.8
|
%
|
|||||||||
Operating
expenses:
|
|||||||||||||
Selling,
general, and administrative expenses
|
10,676,389
|
11,102,828
|
(426,439
|
)
|
-3.8
|
%
|
|||||||
Management
fee – related party
|
-
|
145,834
|
(145,834
|
)
|
-100.0
|
%
|
|||||||
Amended
employment agreements and management agreement charges
|
-
|
2,329,800
|
|
(2,329,800
|
) |
-100.0
|
%
|
||||||
Rent
expense – related party
|
178,650
|
178,650
|
-
|
0.0
|
%
|
||||||||
Depreciation
and amortization
|
608,014
|
550,736
|
57,278
|
10.4
|
%
|
||||||||
Total
operating expenses
|
11,463,053
|
14,307,848
|
(2,844,795
|
)
|
-19.9
|
%
|
|||||||
Pecent
of revenues
|
9.7
|
%
|
13.5
|
%
|
|||||||||
Operating
income (loss)
|
2,153,167
|
(3,897,233
|
)
|
6,050,400
|
155.2
|
%
|
|||||||
Percent
of revenues
|
1.8
|
%
|
-3.7
|
%
|
|||||||||
Other
expense (income):
|
|||||||||||||
Interest
income – other
|
(66,663
|
)
|
(57,915
|
)
|
(8,748
|
)
|
15.1
|
%
|
|||||
Interest
expense
|
652,743
|
563,598
|
89,145
|
15.8
|
%
|
||||||||
Other
|
(18
|
)
|
(413
|
)
|
395
|
N/A
|
|||||||
Income
(loss) before income taxes
|
1,567,105
|
(4,402,503
|
)
|
5,969,608
|
135.6
|
%
|
|||||||
Provision
(benefit) for income taxes
|
712,281
|
(1,739,810
|
)
|
2,452,091
|
-140.9
|
%
|
|||||||
$
|
854,824
|
$
|
(2,662,693
|
)
|
$
|
3,517,517
|
132.1
|
%
|
|||||
Percent
of revenues
|
0.7
|
%
|
-2.5
|
%
|
For the Six Months Ended
|
|||||||||||||
February 29, 2008
|
% of Total
|
February 28, 2007
|
% of Total
|
||||||||||
Departments
of the United States Government
|
$
|
74,853,433
|
63.1
|
%
|
$
|
67,513,193
|
63.6
|
%
|
|||||
State
and Local Governments
|
5,980,610
|
5.0
|
%
|
6,768,340
|
6.4
|
%
|
|||||||
Commercial
Companies
|
24,469,810
|
20.6
|
%
|
24,064,034
|
22.7
|
%
|
|||||||
13,404,835
|
11.3
|
%
|
7,747,949
|
7.3
|
%
|
||||||||
Total
Revenues
|
$
|
118,708,688
|
100.0
|
%
|
$
|
106,093,516
|
100.0
|
%
|
§
|
In
some instances, the “set-up” service is performed after date of delivery.
We recognize revenue for the “hardware” component at date of delivery when
the amount of revenue allocable to this component is not contingent
upon
the completion of “set-up” services and, therefore, our client has agreed
that the transaction is complete as to the “hardware” component. In
instances where our client does not accept delivery until “set-up”
services are completed, we defer all revenue in the transaction until
client acceptance occurs.
|
§
|
There
are occasions when a client requests a transaction on a “bill & hold”
basis. We follow the SAB 104 criteria and recognize revenue from
these
sales prior to date of physical delivery only when all the criteria
of SAB
104 are met. We do not modify our normal billing and credit terms
for
these customers. The customer is invoiced at the date of revenue
recognition when all of the criteria have been
met.
|
1.
|
Election
of Directors.
|
NOMINEE
|
FOR
|
AGAINST
|
ABSTENSIONS
|
|||||||
Keith
Grabel
|
13,298,604
|
-
|
18,481
|
2.
|
The
stockholders ratified the appointment of McGladrey & Pullen, LLP as
the Company’s independent registered public accounting firm for the fiscal
year ending August 31, 2008 by the vote set forth
below:
|
FOR
|
AGAINST
|
ABSTENSIONS
|
|||||
13,289,749
|
6,850
|
20,486
|
EMTEC,
INC.
|
|||
By:
|
/s/
DINESH R. DESAI
|
||
Dinesh
R. Desai
|
|||
Chairman
and Chief
|
|||
Executive
Officer
|
|||
(Principal
Executive Officer)
|
|||
By:
|
/s/
STEPHEN C. DONNELLY
|
||
Stephen
C. Donnelly
|
|||
Chief
Financial Officer
|
|||
(Principal
Financial Officer)
|