SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[ X ] Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities
Exchange Act Of 1934
For the quarterly period ended March 31, 2002
--------------
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 1-7636
DYNACORE HOLDINGS CORPORATION
(formerly Datapoint Corporation)
(Exact name of registrant as specified in its charter)
Delaware 74-1605174
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9901 IH10 West, Suite 800
San Antonio, Texas 78230-2292
(Address of principal executive office and zip code)
(210) 558-2898
(Registrant's telephone number, including area code)
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___.
Applicable only to registrants involved in bankruptcy proceedings during the
preceding five years: Indicate by check mark whether the registrant has filed
all documents and reports required to be filed by Section 12, 13 or 15 (d) of
the Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. Yes X No ___.
As of March 31, 2002, 9,984,726 shares of Dynacore Holdings Corporation
Common Stock were outstanding.
DYNACORE HOLDINGS CORPORATION AND SUBSIDIARIES
INDEX
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 2002 and December 31, 2001 3
Consolidated Statements of Operations -
Three Months Ended March 31, 2002 and 2001 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2002 and 2001 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
---------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
Dynacore Holdings Corporation and Subsidiaries
(In thousands, except share data)
------------------------------------------------------------------------------------------------------------
(unaudited)
Mar. 31, 2002 Dec. 31, 2001
------------- -------------
Assets
Current assets:
Cash and cash equivalents $1,926 $2,614
Investment in limited partnership 605 593
Accounts receivable, net 257 236
Prepaid expenses and other current assets 170 216
-------------------------------------------------------------------------------------------------------
Total current assets 2,958 3,659
Fixed assets, net 25 28
Other assets, net 441 458
Reorganization value in excess of amounts allocable to identifiable assets 1,944 2,932
----------------------------------------------------------------------------------------------------------
$5,368 $7,077
==========================================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $4 $126
Accrued expenses 272 376
----------------------------------------------------------------------------------------------------------
Total current liabilities 276 502
Accrued pension and post employment liabilities 2,746 2,790
Deferred federal income tax 400 400
Other long term liabilities 21 --
Stockholders' equity (deficit):
Common stock of $0.01 par value. Shares authorized 30,000,000;
shares issued and outstanding 9,984,726 in 2002 and 2001. 100 100
Paid in capital 7,389 7,389
Accumulated deficit (5,564) (4,104)
-----------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,925 3,385
----------------------------------------------------------------------------------------------------------
$5,368 $7,077
==========================================================================================================
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
Dynacore Holdings Corporation and Subsidiaries
(Unaudited)
--------------------------------------------------------------------------------------------------------------------------------
(In thousands, except share data)
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
---------------------------------------------------------------------------------------------------------------------------------
Mar. 31, 2002 Mar. 31, 2001
Revenue:
Sales $-- $9
-------------------------------------------------------------------------------------------------------------------------
Total revenue -- 9
Operating costs and expenses:
Cost of sales -- --
Selling, general and administrative 432 651
Patent Litigation Trust expenses 116 --
Restructuring costs -- 100
----------------------------------------------------------------------------------------------------------------------------------
Total operating costs and expenses 548 751
----------------------------------------------------------------------------------------------------------------------------------
Operating loss (548) (742)
Non-operating income (expense):
Equity in gain/(loss) of limited partnership 12 --
Other, net 64 363
----------------------------------------------------------------------------------------------------------------------------------
Loss before income taxes and cumulative effect of change
in accounting principle (472) (379)
Income tax -- --
-----------------------------------------------------------------------------------------------------------------------------------
Loss before cumulative effect of change in accounting principle (472) (379)
Cumulative effect of change in accounting principle, net of tax (988) --
---------------------------------------------------------------------------------------------------------------------------
Net loss $(1,460) $(379)
==================================================================================================================================
Basic and Diluted Loss Per Common Share
Before cumulative effect of change in accounting principle $ (.05) $(.04)
Cumulative effect of change in accounting principle (.10) --
----- ---
Net loss per common share $ (.15) $(.04)
===========================================================================================================================
Average Common Shares Outstanding:
Basic and Diluted 9,984,726 10,000,000
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dynacore Holdings Corporation and Subsidiaries
(Unaudited)
(In Thousands)
------------------------------------------------------------------------------------------------------------
Three Months Ended
----------------------------
Mar. 31, 2002 Mar. 31, 2001
Cash flows from operating activities:
Net loss $(1,460) $(379)
Adjustments to reconcile net loss to net
cash used in operating activities:
Cumulative effect of change in accounting principle 988 --
Depreciation and amortization 3 32
Amortization of reorganized value in excess of amounts allocable to
identifiable assets -- 63
Gain in equity of investee (12) --
Changes in assets and liabilities:
Decrease in prepaids 46 --
(Increase) decrease in receivables (21) 16
Decrease in accounts payable and accrued expenses (226) (1,117)
Other, net (6) 50
-----------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (688) (1,335)
Net decrease in cash and cash equivalents (688) (1,335)
Cash and cash equivalents at beginning of period 2,614 7,304
----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $1,926 $5,969
====== ======
Cash payments for:
Interest $-- $--
Income taxes, net $-- $--
See accompanying Notes to Consolidated Financial Statements.
DYNACORE HOLDINGS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
by Dynacore Holdings Corporation (the "Company") (formerly Datapoint
Corporation) in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the information furnished
reflects all adjustments which are necessary for a fair statement of the results
of the interim periods presented. All adjustments made in the interim statements
are of a normal recurring nature.
It is recommended that these statements be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 2001.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from these estimates.
The results for the three months ended March 31, 2002, are not necessarily
indicative of the results to be expected for the full year.
2. Reorganization Plan
Reorganization Under Chapter 11
On May 3, 2000 (the "Petition Date"), the Company filed a petition for relief
under Chapter 11 of the United States Bankruptcy Code with the United States
Bankruptcy Court. The Chapter 11 filing was the result of a default related to
the semi-annual interest payment on the Company's then outstanding 8 7/8%
Convertible Subordinated Debentures (the "Debentures"), recurring operating
losses and cash flow problems.
On December 5, 2000, the Company's Amended Plan of Reorganization (the "Plan")
was approved by the Bankruptcy Court and became effective December 18, 2000 (the
"Effective Date"). The accompanying consolidated financial statements were
prepared in conformity with principles of accounting applicable to a going
concern and reflect all adjustments relating to settlement of the claims of any
class of creditors that were provided for in the Company's Plan of
Reorganization.
On the Effective Date, all of the then existing debt and equity in Dynacore was
cancelled and 10 million shares of new common stock, as well as 10 million
beneficial interests, representing interests in the Dynacore Patent Litigation
Trust (the "PLT"), formed to pursue Dynacore's patent litigations, were issued.
As part of the Plan, Dynacore has committed to lend the PLT up to $1 million to
pursue Dynacore's patent litigations. As of March 31, 2002, the amount of such
loan is $377, of which $92 has been incurred, but not paid until the second
quarter of 2002. The PLT is accounted for as a consolidated subsidiary of the
Company. As such, the loan amount is eliminated in consolidation. For the
quarters ended March 31, 2002 and 2001, the PLT expenses of $116 and $0,
respectively, are included in the Company's Consolidated Statements of
Operations. None of the PLT expenses have been allocated to the 43.5% minority
interest because the minority interest has no obligation to fund cumulative
losses of the PLT. Future income of the PLT, if any, will be allocated entirely
to the Company until the loan and interest has been fully recovered.
Fresh Start Reporting
Under the provision of Statement of Position (SOP) 90-7, "Financial Reporting by
Entities in Reorganization under the Bankruptcy Code," issued in November 1990
by the American Institute of Certified Public Accountants, the Company prepared
a consolidated pro forma balance sheet as of the Effective Date, on the basis of
"fresh start" reporting since the reorganization value, as defined, was less
than the total of all post-petition liabilities and pre-petition claims, and
holders of voting shares immediately before confirmation of the Plan received
less than fifty percent of the voting shares of the emerging entity. Under this
concept, all assets and liabilities were restated to reflect the reorganization
value of the reorganized entity, which approximates its fair value at the date
of reorganization. The accumulated deficit of the Company was eliminated and its
capital structure was recast in conformity with the Plan. As such, the
accompanying consolidated balance sheet at March 31, 2002, represents that of a
successor company.
The Company estimated the fair value of the reorganized entity based upon the
issuance of 10 million shares of new common stock at a value of $0.75 per share
pursuant to the approved Plan. After the revaluation of the reorganized Company
was completed, an intangible asset of $3.8 million reflecting the reorganization
value in excess of identifiable assets was established in 2000, which was being
amortized on a straight-line basis over 15 years. Subsequently, during the first
quarter ended March 31, 2001, a favorable settlement of certain contested
bankruptcy claims existing at the Fresh Start date resulted in a gain of $140.
This gain of $140 was applied directly to the intangible asset. In addition, the
Company obtained clarification of certain issues relating to its German
subsidiary's obligations for the payment of disability benefits and related
insurance coverage for former employees. As a result, management reversed a
reserve of $350 that had been established at the December 18, 2000 fresh start
date. This reduction of the estimated liability was applied directly to the
intangible asset in the fourth quarter of 2001. Also during the fourth quarter
of 2001, $135 representing unclaimed bankruptcy checks and common stock was
likewise applied directly to the intangible asset. At December 31, 2001, the
intangible asset was $3,150 less accumulated amortization of $218 resulting in a
net balance of $2,932. The estimated $7,500 reorganization value of the Company
exceeded the identifiable net assets primarily because of the pension and other
post employment obligations of the Company's German subsidiary, which are not
obligations of the parent Company, except in substance, to the extent of a
percentage of certain future revenues, if any, earned in certain European
countries.
Statement of Financial Accounting Standards No. 142 - Goodwill and Other
Intangible Assets ("SFAS142") was applicable to the Company beginning in 2002.
SFAS 142 prescribes a new methodology for assessing the impairment of goodwill,
which for purposes of SFAS 142, includes the reorganization value in excess of
amounts allocable to identifiable assets. SFAS 142 requires the value of
goodwill be assessed using market conditions, which principally requires
reference to the Company's stock price. The Company has no subsidiaries or
divisions that meet the definition of a "reporting unit" as set forth in
SFAS142, therefore, the impairment test must be applied on a Company-wide basis.
The stockholders' equity at the beginning of 2002 exceeded the market
capitalization of the Company by $988, necessitating a noncash impairment charge
of that amount. This charge has been reflected as a cumulative effect of a
change in accounting principle in the Consolidated Statement of Operations for
the quarter ended March 31, 2002.
3. Liquidity
As of March 31, 2002, the Company had cash and cash equivalents of approximately
$1.9 million. In addition, the Company has approximately $605 thousand invested
in a limited partnership as more fully described in Footnote 4 below. The
Company believes that given its current and forecasted cash requirements for the
remainder of 2002 of approximately $1.0 million to $1.3 million, its cash and
its interest in the limited partnership, which are the Company's two major
sources of liquidity, will be sufficient for the remainder of 2002. This
forecast assumes the continuation of the selling, general and administrative
expenses of the type referenced in the income statement and assumes payments
under the existing executive employment agreements (see Item 11 Executive
Compensation on Form 10K for the year ended December 31, 2001) and continuation
of such salaries at current amounts after the expiration of such contracts on
June 18, 2002. This forecast also does not include the impact of any merger or
acquisition transaction, if any, does not include any net cash proceeds that may
be received from the patent management activities, if any, and does not include
any additional legal costs required by the PLT for court trial expenses, if any.
4. Investment in Limited Partnership
On May 1, 2001, the Company, with the approval of its Board of Directors, agreed
to become a Limited Partner of a partnership (the "Partnership"), of which Asher
B. Edelman & Associates, LLC ("Edelman & Associates") is the General Partner for
an initial investment of $1.5 million. Edelman & Associates is an entity
controlled by Asher B. Edelman, who is Dynacore's Chairman of the Board and
Chief Executive Officer and of which Gerald N. Agranoff, Dynacore's Vice
Chairman of the Board, Chief Operating Officer and Acting President, is a
member. The primary purpose of the Partnership is to acquire by open market
purchase, privately negotiated purchase or otherwise, securities of a specific
publicly traded company in the natural resource industry. Edelman & Associates
has expressly waived all management and incentive fees associated with the
Company's investment which would ordinarily be payable by an investor in this
Partnership. As of March 31, 2002, based upon the closing prices of the
securities as of that date, the Partnership had approximately $1.2 million of
assets and approximately $.1 million of liabilities for a net asset value of
approximately $1.1 million. The Company's ownership interest in the Partnership
approximated 56% and the Company's share of the Partnership's capital was
approximately $0.6 million. As an investment partnership, the Partnership
accounts for its investments in the publicly traded securities at fair value.
Changes in the fair value of the Partnership's securities are reflected in the
partnership's net income for the period. The Company carries its investment in
the Partnership on the equity method. Under the equity method, the Company's
allocable share of the earnings and losses of the Partnership is included in the
determination of the Company's net income. The Company's approximate share of
the Partnership's gain for the quarters ended March 31, 2002 and 2001, of $12
and $0, respectively, is included in non-operating income/(expense) on the
statement of operations. This investment is reflected as a short term investment
as the Company has the right to liquidate this investment, as permitted by the
Partnership agreement, prior to the end of the fourth quarter of 2002.
5. Commitments and Contingencies
From time to time, the Company is a defendant in lawsuits generally incidental
to its business. The Company is not currently aware of any such suit which, if
decided adversely to the Company, would result in a material liability.
6. Non-operating Income (Expense)
Quarter Ended
(In thousands) 03/31/02 03/31/01
-------- --------
Interest earned $8 $181
Imputed interest 14 --
Equity in gain (loss) of limited partnership 12 --
Foreign currency gains (losses) 42 182
-- ---
$76 $363
=== ====
7. Accounts Receivable
The Company has a receivable from Vugate, Inc. ("Vugate") the buyer of its
videoconferencing business (MINX). This receivable consists of a note with a
remaining face value of $362 that is payable out of certain Vugate cash flows.
This note is carried on the balance sheet at $213, which represents the present
value of the estimated payments at a discount rate of 12.5% per annum. This
carrying amount is net of a $72 impairment adjustment recorded in the fourth
quarter of 2001. The Company calculates imputed interest income at 12.5% per
annum on the adjusted balance on a prospective basis. While the Company
currently believes that the receivable is fully collectible, it is reasonably
possible that the note will be collected at a slower or faster rate than
estimated or that a portion of the note will turn out to be uncollectible. An
additional $44 is receivable from other parties. The $44 is net of an allowance
of $71 for claims billed to another party that are currently in dispute.
8. Accrued Expenses
Mar. 31, 2002 Dec. 31, 2001
-------------------------------------------------------------------------------
Salaries, commissions, and other benefits $57 $74
Accrued professional fees 204 174
Other 11 128
-------------------------------------------------------------------------------
$272 $376
===============================================================================
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (For the Three Months Ended March 31, 2002 and 2001)
Overview
The operations of Dynacore were significantly affected by the sale of the
Company's European Operations on June 30, 2000 and the cessation of virtually
all of the production operations of the Company. In addition, the financial data
for the periods presented reflect the adoption of Fresh Start Accounting on
December 18, 2000, the Effective Date of the approved Plan.
Since the confirmation of the Plan, the Company has been actively pursuing an
acquisition of assets, property or business that may be beneficial to it and its
stockholders. Although the Company has not entered into any proposals,
arrangements or understandings with the owners of any business or company
regarding the possibility of an acquisition by or merger transaction with the
Company, the Company has received expressions of interest regarding such a
possibility from several businesses. In addition, the Company has conducted
preliminary due diligence in this regard and formal presentations were made to
the Company's Board of Directors in connection with some of these businesses.
However, to date, the Company's Board of Directors and/or executive management
have concluded that the opportunities presented were not in the best interests
of the Company and its shareholders, and therefore terminated any further
discussions with these businesses. Currently, the Company is evaluating the
possibility of entering into serious negotiations and due diligence with an
additional company. Concurrently, the Company is continuing to pursue additional
opportunities for an acquisition or merger transaction. However the Company can
give no assurance that any such endeavor will be successful or profitable.
Patents and Trademarks
Dynacore owns certain patents, copyrights, trademarks and trade secrets in
network technologies, which it considers valuable proprietary assets. In this
regard, the Company, and the Dynacore PLT have been actively involved in not
only maximizing such intellectual property through licensing and/or royalty
arrangements but also, in protecting these assets from infringement by other
parties.
In this regard, the Company and the PLT have retained the services of
"intellectual property" Counsel, who meets regularly with the Company's
executive management to discuss, among other things, the status of current,
pending, and future patent litigation, certain patent infringement settlement
proposals, and proposed patent royalty and license agreements.
Multi-speed Networking Patents
During the quarter ended June 30, 2001, the Company and the Dynacore PLT,
established pursuant to the PLT Agreement, by and among the Company and the PLT
Trustees (as defined therein), dated December 18, 2000, filed suit in the
Southern District of New York against U.S. Philips Corporation,
STMicroelectronics, Inc., Compaq Computer Corporation, Hewlett-Packard
Corporation, Epson America, Inc., Fujitsu America, Inc., Matsushita Electric
Corporation of America, Texas Instruments Incorporated, Eastman Kodak Company,
Dell Computer Corporation, Dell Marketing Corporation, Gateway, Inc., Motorola,
Inc., Apple Computer, Inc., and NEC Computers, Inc., Civil Action No. 01-CV-5012
(LTS) (GWG); and Sony Electronics Inc., Nikon Inc., JVC Americas Corp., Adaptec,
Inc., Smartdisk Corporation, Evergreen Technologies, Inc., Ads Technologies,
Inc., Western Digital Corporation, Quadmation Incorporated, Lucent Technologies,
Inc., and 3COM Corporation, Civil Action No. 01-CV-10978 (LTS) (GWG), for patent
infringement regarding United States Patent No. 5,077,732. The suits allege that
The Institute of Electrical and Electronic Engineers ("IEEE") standard for the
computer and electronics industry known as 1394 utilizes technology that falls
within the scope of the subject matter of the `732 Patent and that each
defendant sells products that comply with the 1394 standard. Although this
action was initially stayed, the stay has been vacated and the action is
proceeding.
Any recovery by way of judgment or settlement will be received, net of expenses,
by the Dynacore PLT. Dynacore Holdings Corporation holds 56.5% of the Dynacore
PLT interests. The balance of the interests were distributed to former unsecured
creditors and preferred shareholders of the Company when it emerged from
bankruptcy proceedings in December 2000.
As the owner of United States Patent Nos. 5,008,879 and 5,077,732 related to
network technology, the Company believed these patents covered most products
introduced by various suppliers to the networking industry and dominated certain
types of dual-speed technology on networking recently introduced by various
industry leaders. Dynacore had asserted one or both of these patents in the
United States District Court for the Eastern District of New York against a
number of parties:
(1) Datapoint Corporation v. Standard Micro-Systems, Inc. and
Intel Corporation, No. C.V.-96-1685;
----------------------------------------------------------------------
(2) Datapoint Corporation v. Cisco Systems, Plaintree Systems Corp.,
Accton Technologies Corp., Cabletron Systems, Inc., Bay Networks,
Inc., Crosscom Corp. and Assante Technologies, Inc. No. CV 96 4534;
-------------------------------------------------------------
(3) Datapoint Corporation v. Dayna Communications, Inc., Sun
Microsystems, Inc., Adaptec, Inc. International Business
Machines Corp., Lantronix, SVEC America Computer Corporation, and
Nbase Communications, No. CV 96 6334; and
-----------------------------
(4) Datapoint Corporation v. Standard Microsystems Corp. and
Intel Corp., No. CV-96-03819.
-----------------------------------------------------------------------
These actions were consolidated for discovery, and for purposes of claim
construction. On January 20, 1998, a hearing commenced in the United States
District Court that concluded on January 23, 1998 during which claim
construction was submitted to a Special Master. The Special Master's report was
issued in April of 1998 adverse to Dynacore. The Company had filed two sets of
objections to certain portions of this report. The objections were overruled.
Both patents were submitted to the Patent Office for re-examination. After
re-examination, the patents were approved and a certificate for both patents was
issued. After this re-examination the action proceeded and the appeal was
ultimately denied on February 15, 2002. Accordingly, these actions are now over.
The above actions represent the trust property which the Company transferred and
assigned to the PLT pursuant to that certain PLT Agreement, by and among the
Company and the PLT trustees. As previously mentioned, the Company has retained
a 56.5% interest in the PLT.
Results of Operations
The following is a summary of the Company's sources of revenue:
Quarter Ended
(In thousands) 03/31/02 03/31/01
-------- --------
Sales:
U.S. $-- $9
Foreign -- --
--
-- 9
-
Total revenue $-- $9
=== ==
For the three month period ended March 31, 2002, the Company reported a net loss
of $1,460. For the same period, the Company reported an operating loss of $548.
Non-operating income (expense) for the three month period ended March 31, 2002,
was approximately $76, and consisted of interest income of $8, imputed interest
of $14, and a foreign currency transaction gain of $42, primarily related to the
liability for the pension benefits and other post employment obligations for all
employees of the Company's German subsidiary who did not transfer to the buyer
of the Company's European operations in June 2000 at the time of the Sale. Also
included was a gain of $12, for the three month period ended March 31, 2002,
representing the equity in gain of a limited partnership.
Statement of Financial Accounting Standards No. 142 - Goodwill and Other
Intangible Assets ("SFAS142") was applicable to the Company beginning in 2002.
SFAS 142 prescribes a new methodology for assessing the impairment of goodwill,
which for purposes of SFAS 142, includes the reorganization value in excess of
amounts allocable to identifiable assets. SFAS 142 requires the value of
goodwill be assessed using market conditions, which principally requires
reference to the Company's stock price. The Company has no subsidiaries or
divisions that meet the definition of a "reporting unit" as set forth in
SFAS142, therefore, the impairment test must be applied on a Company-wide basis.
The stockholders' equity at the beginning of 2002 exceeded the market
capitalization of the Company by $988, necessitating a noncash impairment charge
of that amount. This charge has been reflected as a cumulative effect of a
change in accounting principle in the Consolidated Statement of Operations for
the quarter ended March 31, 2002. Management does not believe, however, that
this charge reflects actual economic impairment. Although not permitted under
SFAS142, management views the reorganization value in excess of amounts
allocable to identifiable assets as principally relating to the Company's German
subsidiary, which at December 31, 2001 had accrued pension and post employment
liabilities of $2,790. These pension and post employment liabilities are
obligations of the Company's German subsidiary and are not obligations of the
Parent Company, except possibly to the extent of certain earmarked assets
amounting to $316 and of a percentage of certain future revenues, if any, earned
in certain European countries.
For the three month period ended March 31, 2001, the Company reported a net loss
of $379. For the same period, the Company reported an operating loss of $742,
which included approximately $100 of severance expenses related to the
termination of seven employees of the Company's Corebyte subsidiary and one
employee of the Parent.
Non operating income for the three month period ended March 31, 2001, was
approximately $363 and consisted of interest income of $181 and a foreign
currency transaction gain of $182 primarily related to the liability for the
pension benefits and other post employment obligations for all employees of the
Company's German subsidiary who did not transfer to the buyer of the Company's
European operations in June 2000 at the time of the Sale.
Financial Condition
During the first three months of 2002, the Company's cash and cash equivalents
decreased approximately $688 thousand. This decrease was the result of the
payment of the Company's current operating expenses for the first three months
of 2002. Included in this amount were certain one-time or annual payments of
Company obligations; therefore, this amount is not necessarily indicative of the
Company's quarterly "run rate" for 2002.
As of March 31, 2002, the Company had cash and cash equivalents of approximately
$1.9 million. In addition, the Company has approximately $605 thousand invested
in a limited partnership as more fully described below. The Company believes
that given its current and forecasted cash requirements for the remainder of
2002 of approximately $1.0 million to $1.3 million, its cash and its interest in
the limited partnership, which are the Company's two major sources of liquidity,
will be sufficient for the remainder of 2002. This forecast assumes the
continuation of the selling, general and administrative expenses of the type
referenced in the income statement and assumes payments under the existing
executive employment agreements (see Item 11 Executive Compensation on Form 10K
for the year ended December 31, 2001) and continuation of such salaries at
current amounts after the expiration of such contracts on June 18, 2002. This
forecast also does not include the impact of any merger or acquisition
transaction, if any, does not include any net cash proceeds that may be received
from the patent management activities, if any, and does not include any
additional legal costs required by the PLT for court trial expenses, if any.
On May 1, 2001, the Company, with the approval of its Board of Directors, agreed
to become a Limited Partner of a partnership (the "Partnership"), of which Asher
B. Edelman & Associates, LLC ("Edelman & Associates") is the General Partner for
an initial investment of $1.5 million. Edelman & Associates is an entity
controlled by Asher B. Edelman, who is Dynacore's Chairman of the Board and
Chief Executive Officer and of which Gerald N. Agranoff, Dynacore's Vice
Chairman of the Board, Chief Operating Officer and Acting President, is a
member. The primary purpose of the Partnership is to acquire by open market
purchase, privately negotiated purchase or otherwise, securities of a specific
publicly traded company in the natural resource industry. Edelman & Associates
has expressly waived all management and incentive fees associated with the
Company's investment which would ordinarily be payable by an investor in this
Partnership. As of March 31, 2002, based upon the closing prices of the
securities as of that date, the Partnership had approximately $1.2 million of
assets and approximately $.1 million of liabilities for a net asset value of
approximately $1.1 million. The Company's ownership interest in the Partnership
approximated 56% and the Company's share of the Partnership's capital was
approximately $0.6 million. As an investment partnership, the Partnership
accounts for its investments in the publicly traded securities at fair value.
Changes in the fair value of the Partnership's securities are reflected in the
partnership's net income for the period. The Company carries its investment in
the Partnership on the equity method. Under the equity method, the Company's
allocable share of the earnings and losses of the Partnership is included in the
determination of the Company's net income. The Company's approximate share of
the Partnership's gain for the quarters ended March 31, 2002 and 2001, of $12
and $0, respectively, is included in non-operating income/(expense) on the
statement of operations. This investment is reflected as a short term investment
as the Company has the right to liquidate this investment, as permitted by the
Partnership agreement, prior to the end of the fourth quarter of 2002.
Restructuring Costs
(In thousands)
During the quarter and three months ended March 31, 2002, the Company did not
incur any restructuring costs. For the three months ended March 31, 2001, the
Company incurred restructuring costs of $100 for employee terminations.
Restructuring charges are not recorded until specific employees are determined
(and notified of termination) by management in accordance with its overall
restructuring plan.
Cautionary Statement Regarding Risks and Uncertainties That May Affect
Future Results
This Quarterly Report on Form 10-Q contains forward-looking statements about the
business, financial condition and prospects of the Company. The actual results
of the Company could differ materially from those indicated by the
forward-looking statements because of various risks and uncertainties,
including, without limitation, actions which may be taken by trade creditors of
the Company or holders of the Company's Debentures, changes in product demand,
the availability of products, changes in competition, economic conditions, new
product development, changes in tax and other governmental rules and regulations
applicable to the Company, and other risks indicated in the Company's filings
with the Securities and Exchange Commission. These risks and uncertainties are
beyond the ability of the Company to control, and in many cases, the Company
cannot predict the risks and uncertainties that could cause its actual results
to differ materially from those indicated by the forward-looking statements.
When used in this Quarterly Report on Form 10-Q, the words "believes,"
"estimates," "plans," "expects," and "anticipates" and similar expressions as
they relate to the Company or its management are intended to identify
forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information concerning market risk is contained on page 29 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 2001 and is
incorporated by reference to such annual report.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Item 3 of Registrant's Report on Form 10-K for the fiscal year ended
December 31, 2001, for a description of certain legal proceedings heretofore
reported.
The Company is a Plaintiff in a number of actions related to its patents and
trademarks, which are more fully described in the Management's Discussion and
Analysis overview section of this Form 10Q.
Item 6. Exhibits and Reports on Form 8-K
There were no reports on Form 8-K that were filed during the quarter ended March
31, 2002.
SIGNATURE
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.
DYNACORE HOLDINGS CORPORATION
(Registrant)
DATE: May 13, 2002 /s/ Phillip P. Krumb
-----------------------------
Phillip P. Krumb
Chief Financial Officer
(Chief Accounting Officer)