<PAGE>
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 JUNE 30, 1997
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 000-21561
MIAMI COMPUTER SUPPLY CORPORATION
(Exact name of registrant as specified in its articles of incorporation)
OHIO 31-1001529
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4750 HEMPSTEAD STATION DRIVE, DAYTON, OHIO 45429
(Address of principal executive offices)
(937) 291-8282
(Registrant's telephone number, including area code)
Indicate by check 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) had been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
At June 30, 1997, 3,644,383 shares of common stock, no par value per
share, of the registrant were outstanding.
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 1997
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statement of Operations . . . . . . . . . . . . . 3
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition. . . . . . . . . 6-9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 10
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . 10
Item 3. Default Upon Senior Securities. . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . 10
Item 5. Other Information . . . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . 10
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MIAMI COMPUTER SUPPLY CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30,
--------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . $ 22,123,739 $ 13,691,476 $ 42,349,759 $ 26,247,459
Operating costs:
Cost of sales . . . . . . . . . . . . . . . 18,262,704 11,132,312 35,008,008 21,161,836
Selling, general and administrative
expenses. . . . . . . . . . . . . . . . 3,040,238 2,152,924 5,757,311 4,033,438
------------ ------------ ------------ -------------
Total operating costs. . . . . . . . . 21,302,942 13,285,236 40,765,319 25,195,274
------------ ------------ ------------ -------------
Operating income. . . . . . . . . . . . . . 820,797 406,240 1,584,440 1,052,185
Interest expense . . . . . . . . . . . . . (23,713) (75,649) (24,584) (142,587)
Other income . . . . . . . . . . . . . . . 14,472 3,176 26,593 11,114
------------ ------------ ------------ -------------
Income before income taxes . . . . . . . . 811,556 333,767 1,586,449 920,712
Provision for income taxes . . . . . . . . 328,680 138,497 642,512 382,079
------------ ------------ ------------ -------------
Net income. . . . . . . . . . . . . . . . $ 482,876 $ 195,270 $ 943,937 $ 538,633
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Earnings per share of common stock. . . . $ 0.13 $ 0.08 $ 0.26 $ 0.23
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Weighted average number of common
shares outstanding . . . . . . . . . . . . 3,609,312 2,388,000 3,573,853 2,388,000
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
3
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MIAMI COMPUTER SUPPLY CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, DECEMBER 31,
1997 1996
----------- -------------
<S> <C> <C>
Assets
Current assets:
Cash . . . . . . . . . . . . . . . . . $ 94,819 $ 780,875
Accounts receivable. . . . . . . . . . 9,949,305 8,636,657
Inventories. . . . . . . . . . . . . . 5,960,682 5,894,838
Prepaid expenses . . . . . . . . . . . 133,580 396,450
Deferred income tax assets . . . . . . 35,496 35,496
----------- -----------
Total current assets. . . . . . . . 16,173,882 15,744,316
----------- -----------
Property and equipment - net
of accumulated depreciation . . . . . . 1,246,909 1,016,164
----------- -----------
Other assets:
Deposits . . . . . . . . . . . . . . . 36,009 28,302
Cash surrender value officers'
life insurance. . . . . . . . . . . . 571,986 571,986
Intangible assets. . . . . . . . . . . 2,025,317 414,440
----------- -----------
Total other assets . . . . . . . . 2,633,312 1,014,728
Total assets . . . . . . . . . . . $20,054,103 $17,775,208
----------- -----------
----------- -----------
Liabilities and Stockholders' Equity
Current Liabilities:
Line-of-credit . . . . . . . . . . . . $ 1,343,772 $ 0
Accounts payable - trade . . . . . . . 3,400,118 4,308,785
Accrued expenses, payroll
taxes and withholdings. . . . . . . . 1,124,192 1,188,708
Accrued income taxes . . . . . . . . . 0 0
Current portion of long-term debt. . . 35,567 35,567
----------- -----------
Total current liabilities. . . . . . 5,903,649 5,533,060
Long-term debt . . . . . . . . . . . . 72,225 64,696
Other long-term liabilities. . . . . . 0 43,160
Deferred income taxes. . . . . . . . . 61,249 61,249
----------- -----------
Total liabilities. . . . . . . . . . 6,037,123 5,702,165
----------- -----------
Stockholders' equity:
Preferred Stock, no par value,
5,000,000 shares authorized; none
outstanding at June 30, 1997 and
December 31, 1996 . . . . . . . . . . 0 0
Common stock, no par value;
30,000,000 shares authorized,
3,644,383 shares outstanding at
June 30, 1997, 3,538,000 shares
outstanding at December 31, 1996. . . 0 0
Additional paid-in capital . . . . . . 9,349,249 8,349,249
Retained earnings. . . . . . . . . . . 4,682,731 3,738,794
----------- -----------
14,031,980 12,088,043
Less - Treasury common stock,
at cost 1,200 shares. . . . . . . . . . 15,000 15,000
----------- -----------
Total stockholders' equity. . . . . . 14,016,980 12,073,043
----------- -----------
Total liabilities and
stockholders' equity . . . . . . . . $20,054,103 $17,775,208
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
4
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows (used in) provided by operating
activities:
Net income . . . . . . . . . . . . . . . . . . $ 943,937 $ 538,633
Adjustments to reconcile net income to cash
(used in) provided by operating activities:
Depreciation and amortization . . . . . . . . . . 168,455 144,679
Changes in assets and liabilities net of
effects of acquisitions of businesses:
Accounts receivable . . . . . . . . . . . . . . (1,273,313) (1,363,445)
Inventories . . . . . . . . . . . . . . . . . . 403,058 262,765
Prepaid expenses. . . . . . . . . . . . . . . . 279,758 (35,953)
Deposits. . . . . . . . . . . . . . . . . . . . (7,732) (107,432)
Accounts payable - trade. . . . . . . . . . . . (1,310,291) 563,953
Accrued expenses. . . . . . . . . . . . . . . . 137,869 (17,752)
Accrued income taxes. . . . . . . . . . . . . . 19,296 (215,064)
----------- -----------
Cash used in operating activities . . . . . . . (638,963) (229,616)
----------- -----------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . (166,015) (62,530)
Investment in cash surrender value
officers' life insurance. . . . . . . . . . . . 0 (6,803)
Acquisition of Imperial Data
Supply Corporation. . . . . . . . . . . . . . . (1,000,000) 0
Cash included in acquisitions. . . . . . . . . . 8,626 109,467
----------- -----------
Cash (used in) provided by investing activities. . (1,157,389) 40,134
----------- -----------
Cash flows from financing activities:
Borrowings under line-of-credit. . . . . . . . . 4,792,953 6,041,274
Payments under line-of-credit. . . . . . . . . . (3,604,174) (5,772,741)
Principal payments on long-term debt . . . . . . (18,243) (3,637)
Payments under non-competition agreements. . . . (60,240) (60,240)
----------- -----------
Cash provided by financing activities . . . . 1,110,296 204,656
----------- -----------
Net (decrease) increase in cash. . . . . . . . . . (686,056) 15,174
Cash - Beginning of period . . . . . . . . . . . . 780,875 1,900
----------- -----------
Cash - End of period . . . . . . . . . . . . . . . $ 94,819 $ 17,074
----------- -----------
----------- -----------
Supplemental cash flow information:
Cash paid for interest . . . . . . . . . . . . . $ 25,066 $ 133,458
Cash paid for income taxes . . . . . . . . . . . $ 593,941 $ 648,189
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
5
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - GENERAL
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Rule 10-01 of SEC Regulation S-X. Consequently,
they do not include all the disclosures required under generally accepted
accounting principles for complete financial statements. However, in the
opinion of the management of Miami Computer Supply Corporation (the
"Company"), the consolidated financial statements presented herein contain
all adjustments (consisting only of normal recurring adjustments) necessary
to present fairly the financial position, results of operations and cash
flows of the Company and its consolidated subsidiaries. For further
information regarding the Company's accounting policies and the basis of
presentation of the financial statements, refer to the consolidated financial
statements and notes included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
NOTE 2 - ORGANIZATION
The Company sells a wide variety of computer supplies to corporate customers,
governmental agencies, universities, hospitals and, to a lesser extent,
computer supply dealers. Its primary sales products include laser toner, ink
jet cartridges, printer ribbons, computer tape cartridges, diskettes,
presentation products, paper supplies and printer cartridges.
NOTE 3 - ACQUISITION OF DDP
Effective May 30, 1996, Pittsburgh Investment Group, LLC ("LLC") contributed
its stock in Diversified Data Products, Inc. ("DDP") to the Company. The
acquisition has been accounted for using the purchase method of accounting,
and accordingly, the purchase price has been allocated to the assets based
upon the fair value of the liabilities assumed as of May 30, 1996.
In connection with the acquisition of DDP, LLC issued a loan to certain
former stockholders in an amount of $250,000. This amount was subject to
repayment based upon DDP generating specified income levels for the period
May 30, 1996 to December 31, 1996. DDP generated such income levels for this
period, and accordingly the loan was forgiven. The value of the assets
acquired has been adjusted to reflect this additional consideration.
The operating results of DDP have been included in the statement of
operations from the date of acquisition. The following unaudited pro forma
information has been prepared assuming that this acquisition had taken place
at the beginning of the respective period. This pro forma financial
information is presented for informational purposes only and may not be
indicative of what the actual results of operations might have been if the
acquisition had been effective at the beginning of 1996.
Six Months Ended
June 30, 1996
----------------
Net sales. . . . . . . . . . . . . . . . . . . $ 31,466,073
Net income . . . . . . . . . . . . . . . . . . $ 537,339
Earnings per share . . . . . . . . . . . . . . $ 0.23
On April 30, 1997 the Company acquired Imperial Data Supply Corporation
("IDS") headquartered in Spokane, Washington with offices in Idaho and
Montana. On July 1, 1997 the Company acquired Data Associates, Inc. ("DA")
headquartered in Roswell, Georgia with offices in Florida, North Carolina and
South Carolina. On July 15 the Company acquired Force 4 D.P. Supplies, Inc.
("Force 4") headquartered in Portland, Oregon with offices in Illinois,
Washington and Utah. The impact of these acquistions are not material to the
Company's financial statement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in conjunction with the information
contained in the (unaudited) Consolidated Financial Statements and Notes to
Consolidated Financial Statements. The following information contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Act") and is subject to the safe harbor
created by that Act. The words "estimate," "project," "anticipate," "expect,"
"intend," "believe," "plans" and similar expressions are intended to identify
forward-looking statements. Because such forward-looking statements involve
risks and uncertainties, there are important factors that could cause actual
results to differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially include, but are not limited to, changes in general economic and
business conditions, the availability of capital on acceptable terms, actions
of competitors, and changes in business strategies and other factors as
discussed in Exhibit 99.
6
<PAGE>
The Company has completed three acquisitions of computer supply and office
automation dealers in 1997 as follows:
1. On April 30, 1997 the Company acquired IDS headquartered in Spokane,
Washington with offices in Idaho and Montana. IDS's approximated annualized
revenues as of the closing date were $7 million. The net profit for the two
months included in the second quarter 1997 were nominal. The acquisition
included $1.7 million in goodwill.
2. On July 1, 1997 the Company acquired DA headquartered in Roswell,
Georgia with offices in Florida, North Carolina and South Carolina. DA's
approximate annualized revenues as of the closing date were $9 million.
3. On July 15, 1997 the Company acquired Force 4 headquartered in Portland,
Oregon with offices in Illinois, Washington and Utah. Force 4's approximate
annualized revenues as of the closing date were $14 million.
The Company intends to continue its aggressive acquisition strategy of
entering new markets domestically and internationally on an opportunistic
basis, to acquire computer and office automation supply distribution
companies and to hire certain experienced sales representatives in and
outside of the Company's current market areas, some of whom may be
constrained from working in their present locations for a period of time.
The Company actively continues to evaluate other potential acquisitions and
to identify and have preliminary discussions and negotiations with potential
acquisition candidates. There can be no assurance that any acquisition can or
will be consummated on terms favorable to the Company.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
NET SALES. Net sales for the three months ended June 30, 1997 increased by
$8.4 million, or 61.6%, to $22.1 million from $13.7 million for the three
months ended June 30, 1996. Approximately 79.5% of the increase resulted
from the acquisition of DDP on May 30, 1996 and 11.9% from the acquisition of
IDS on April 30, 1997. The remaining increase was primarily a result of
increased sales to the Company's current customer base.
GROSS PROFIT. Gross profit for the three months ended June 30, 1997 increased
by $1.3 million, or 50.9% to $3.9 million from $2.6 million for the three
months ended June 30, 1996. Gross profit as a percentage of net sales for
the three months ended June 30, 1997 was 17.5% compared to 18.7% for the
three months ended June 30, 1996. The decrease in the gross profit percentage
was due primarily to the acquisition of DDP which has lower operating gross
margins primarily due to volume discounts associated with sales to other
computer supply dealers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the three months ended June 30, 1997 increased by
$0.9 million, or 41.2% to $3.0 million from $2.1 million for the three months
ended June 30, 1996. Approximately 45.9% of the increase resulted from
increased salary expenses, while 14.6% was due to increased commission
expense resulting from the Company's increased sales volume. The remainder of
the increase in selling, general and administrative expenses resulted
primarily from the acquisition of DDP and IDS. As a percentage of net sales,
selling, general and administrative expenses were 13.7% for the three months
ended June 30, 1997 compared to 15.7% for the three months ended June 30,
1996. This decrease as a percentage of sales reflects the Company's ability
to support increased sales volumes without a significant increase in its
overhead structure.
OPERATING INCOME. Operating income for the three months ended June 30, 1997
increased by $0.4 million to $0.8 million from $0.4 million for the three
months ended June 30, 1996 for the reasons stated above.
INTEREST EXPENSE. Interest expense for the three months ended June 30, 1997
decreased by $51,936 or 68.7% to $23,713 from $75,649 for the three months
ended June 30, 1996 due primarily to the decreased level of indebtedness
during 1997.
PROVISION FOR INCOME TAXES. The provision for income taxes for the three
months ended June 30, 1997 increased $190,183 to $328,680 from $138,497 for
the three months ended June 30, 1996. The Company's effective tax rate was
40.5% for the three months ended June 30, 1997 as compared to 41.5% for the
corresponding period of the prior year.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
NET SALES. Net sales for the six months ended June 30, 1997 increased by
$16.1 million, or 61.4%, to $42.3 million from $26.2 million for the six
months ended June 30, 1996. Approximately 82.7% of the increase resulted
from the acquisition of DDP on May 30, 1996 and 6% of such increase was due
to the acquisition of IDS on April 30, 1997. The remaining increase was
primarily a result of increased sales to the Company's current customer base.
GROSS PROFIT. Gross profit for the six months ended June 30, 1997 increased
by $2.3 million, or 44.4% to $7.3 million from $5.1 million for the six
months ended June 30, 1996. Gross profit as a percentage of net sales for
the six months ended June 30, 1997 was
7
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17.3% compared to 19.4% for the six months ended June 30, 1996. The decrease
in the gross profit percentage was due primarily to the acquisition of DDP
which has lower operating gross margins primarily due to volume discounts
associated with sales to other computer supply dealers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the six months ended June 30, 1997 increased by
$1.7 million, or 42.7% to $5.7 million from $4.0 million for the six months
ended June 30, 1996. Approximately 39.7% of the increase resulted from
increased salary expenses, while 12.3% was due to increased commission
expense resulting from the Company's increased sales volume. The remainder of
the increase in selling, general and administrative expenses resulted
primarily from the acquisition of DDP and IDS. As a percentage of net
sales, selling, general and administrative expenses were 13.6% for the six
months ended June 30, 1997 compared to 15.4% for the six months ended June
30, 1996. This decrease as a percentage of sales reflects the Company's
ability to support increased sales volumes without a significant increase in
its overhead structure.
OPERATING INCOME. Operating income for the six months ended June 30, 1997
increased by $0.5 million to $1.6 million from $1.1 million for the six
months ended June 30, 1996 for the reasons stated above.
INTEREST EXPENSE. Interest expense for the six months ended June 30, 1997
decreased by $118,003 or 82.8% to $24,584 from $142,587 for the six months
ended June 30, 1996 due primarily to the decreased level of indebtedness
during 1997.
PROVISION FOR INCOME TAXES. The provision for income taxes for the six months
ended June 30, 1997 increased $260,433 to $642,512 from $382,079 for the six
months ended June 30, 1996. The Company's effective tax rate was 40.5% for
the six months ended June 30, 1997 as compared to 41.5% for the corresponding
period of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows used in operating activities totaled $0.6 million for the
first six months of 1997 compared to $0.2 million used by operating
activities during the first six months of 1996. The change in net cash flows
from operating activities in the first six months of 1997, compared to the
first six months of 1996, was due primarily to an decrease in accounts
payable. Working capital approximated $10.2 million at June 30, 1997 and
December 31, 1996.
Net cash used in investing activities was $1.2 million for the six months
ended June 30, 1997 versus $0.04 million cash provided by investing
activities for the six months ended June 30, 1996. The net cash used in
investing activities primarily reflects the acquisition of IDS in April 1997.
Net cash provided by financing activities totaled $1.1 million for the six
months ended June 30, 1997 compared with $0.2 million for the six months
ended June 30, 1996. This increase was due primarily to increased borrowing
levels under the Credit Facility.
Capital expenditures for the six months ended June 30, 1997 of $166,015 were
used primarily to upgrade the computer system at DDP and the purchase of
additional distribution vehicles.
For fiscal year 1997, the Company expects capital expenditures of
approximately $0.3 million (comprised of approximately $0.2 million to be
used for upgrading and enhancing the Company's management information systems
and approximately $0.1 million for capital maintenance items).
Actual expenditures for fiscal 1997 may be greater than budgeted amounts
depending on the level of acquisition activity and other factors.
The Company believes that its cash on hand, borrowing capacity under the
Credit Facility, capital resources and cash flows will be sufficient to fund
its ongoing operations and budgeted capital expenditures for the remainder of
1997, although actual capital needs may change, particularly in connection
with acquisitions which the Company may make in the future. The Company's
long-term requirements including capital expenditures and acquisitions, are
expected to be financed by a combination of internally generated funds,
additional borrowings and other sources of external financing as needed.
CREDIT FACILITY
On September 11, 1996, the Company increased the amount of its line-of-credit
with National City Bank of Dayton, Ohio (the "Bank") from $6,500,000 to
$15,000,000 in order to facilitate the planned expansion of the Company's
business activities, including acquisitions. The amount of the Credit
Facility that will be available to the Company may not exceed the lesser of
$15.0 million or an amount equal to the sum of: (i) 85.0% of the net book
value of all eligible receivables (i.e., those receivables less than 90 days
old, except that all receivables from any particular customer will be
ineligible if more than 15.0% of the total due from such customer are aged 90
days or more) plus (ii) an amount equal to the lesser of either 50.0% of the
value of all inventory, not to exceed 45.0% of the
8
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aggregate unpaid principal balance less the amount secured by inventory
acquired by the Company from Hewlett-Packard Company and not yet paid for, or
if advances are made against foreign accounts receivables, not to exceed $2.0
million (the "Borrowing Base"). Under the Credit Facility, the Company's
borrowing availability at June 30, 1997 approximated $9.3 million. At June
30, 1997, $1.3 million was outstanding under the Credit Facility.
The Borrowing Base may be changed by the Bank, in its sole discretion, from
time to time. Borrowings under the Credit Facility bear interest, at the
Company's option, (i) on amounts in excess of $500,000, at the applicable
London Interbank Offered Rate ("LIBOR") per annum determined by the Bank plus
2.0%, adjustable at the end of each contract period (one, two, three, four or
six months), as defined in the Credit Facility, or (ii) at the Bank's
applicable prime rate (as defined in the Credit Facility). Interest on the
Credit Facility is payable in arrears on the last day of each month and at
maturity, except that interest on loans bearing interest utilizing the LIBOR
option is payable on the last day of the contract period and at maturity,
unless the contract period is longer than 90 days in which case interest is
payable every three months.
The indebtedness under the Credit Facility is secured by substantially all of
the assets of the Company, including accounts receivable, equipment and
inventory. In addition, the Credit Facility requires that the Company
maintain a tangible net worth of $3.2 million in 1997 and thereafter
increasing by an amount equal to 50.0% of the Company's net income annually
thereafter, maintain a debt to tangible net worth ratio of 450.0% and annual
pre-tax interest coverage (net income plus interest expense plus income tax)
of 150.0% or more of the Company's annual interest expense. The Company was,
at June 30, 1997 and is as of the date hereof, in compliance with these
financial covenants.
9
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PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
At June 30, 1997 the Company was not involved in any legal proceedings
incidental to the conduct of its business as of the date hereof. The Company
maintains general liability and business interruption insurance coverage in
amounts which it believes to be adequate.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 29, 1997 the Company held its first annual shareholders meeting at its
principal offices located at 4750 Hempstead Station Drive, Dayton, Ohio
45429 at 10:30 a.m., Eastern Time.
There were 3,538,000 shares of Common Stock of the Company which could be
voted at the Annual Meeting, and 3,155,444 shares were represented at such
meeting by the holders thereof in person or by proxy, which constituted a
quorum. Matters voted upon were as follows:
Nominees for Board of Directors for a One-Year Term Expiring in 1998
NUMBER OF VOTES
NAME FOR WITHHELD NOT VOTED
- - ---- --- -------- ---------
a. Robert G. Hecht 3,154,844 600 382,556
b. Anthony W. Liberati 3,154,644 800 382,556
c. Harry F. Radcliffe 3,154,644 800 382,556
d. Albert L. Schwarz 3,154,844 600 382,556
e. Thomas C. Winstel 3,154,844 600 382,556
The shareholders also voted by ballot and by proxy to ratify the appointment
by the Board of Directors of Price Waterhouse LLP as the Company's
independent auditors for the fiscal year ending December 31, 1997, and the
result of the vote taken was as follows:
FOR AGAINST ABSTAIN NOT VOTED
--- ------- ------- ---------
3,153,944 1,000 500 382,556
The said proposals were approved by the requisite number of the total votes
eligible to be cast and these matters have been adopted by the stockholders of
the Company.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
99 Safe Harbor Under the Private Securities Litigation Reform Act of 1995
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended June 30,
1997.
10
<PAGE>
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.
MIAMI COMPUTER SUPPLY CORPORATION
(Registrant)
Date: August 14, 1997
By:/s/ Michael E. Peppel
Michael E. Peppel
Vice President - Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 94,819
<SECURITIES> 0
<RECEIVABLES> 9,949,305
<ALLOWANCES> 11,500
<INVENTORY> 5,960,682
<CURRENT-ASSETS> 16,173,882
<PP&E> 1,246,909
<DEPRECIATION> 1,222,573
<TOTAL-ASSETS> 20,054,103
<CURRENT-LIABILITIES> 5,903,649
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 14,016,980
<TOTAL-LIABILITY-AND-EQUITY> 20,054,103
<SALES> 42,349,759
<TOTAL-REVENUES> 42,349,759
<CGS> 35,008,008
<TOTAL-COSTS> 40,765,319
<OTHER-EXPENSES> 2,009
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,584
<INCOME-PRETAX> 1,586,449
<INCOME-TAX> 642,512
<INCOME-CONTINUING> 943,937
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 943,937
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
<PAGE>
EXHIBIT 99
SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements to encourage companies to
provide prospective information about their companies, so long as those
statements are identified as forward-looking and are accompanied by
meaningful cautionary statements identifying important factors that could
cause actual results to differ materially from those discussed in the
statement. The Company desires to take advantage of the "safe harbor"
provisions of the Act. Certain information, particularly information
regarding future economic performance and finances and plans and objectives
of management, contained, or incorporated by references, in the Company's
Quarterly Report on Form 10-Q for six months ended June 30, 1997 is
forward-looking. In some cases, information regarding certain important
factors that could cause actual results to differ materially from any such
forward-looking statement appear together with such statement. Also, the
following factors, in addition to other possible factors not listed, could
affect the Company's actual results and cause such results to differ
materially from those expressed in forward-looking statements.
Highly Competitive Industry. The computer and office automation product
supply industry is highly competitive. The Company competes with major
full-service office products distributors, other national and regional
computer supply distributors, office products superstores, direct mail order
companies, and, to a lesser extent, non-specialized retailers. Certain of the
Company's competitors, such as office products superstores and major
full-service office products distributors have substantially greater
financial and other resources and purchasing power than the Company. The
Company believes that the computer supply industry will become more
consolidated in the future and consequently more competitive. Increasing
competition will result in greater price discounting which will continue to
have a negative impact on the industry's gross margins. There can be no
assurance that the Company will not encounter increased competition in the
future, which could have a material adverse effect on the Company's business.
Dependence on Certain Key Suppliers. Although the Company regularly carries
products and accessories manufactured by approximately 500 original equipment
manufacturers, 50.6% of the Company's net sales in fiscal year 1996 were
derived from products supplied by the Company's ten largest suppliers, In
addition, the Company's business is dependent upon terms provided by its key
suppliers, including pricing and related provisions, product availability and
dealer authorizations. While the Company considers its relationships with its
key suppliers, including Hewlett-Packard Company ("Hewlett-Packard"), Lexmark
International, Inc. ("Lexmark") and Imation Corp. ("Imation") to be good,
there can be no assurance that these relationships will not be terminated or
that such relationships will continue as presently in effect. In addition,
changes by one or more of such key suppliers of their policies regarding
distributors or volume discount schedules or other marketing programs
applicable to the Company may have a material adverse effect on the Company's
business. Certain distribution agreements require the Company to make minimum
annual purchases. Under its distribution agreements with Hewlett-Packard,
Lexmark and Imation, the Company is required to make minimum annual purchases
of $5.0 million, $250,000 and $50,000, respectively.
Restrictions Imposed by Debt Arrangements. The Company's outstanding
indebtedness consists primarily of borrowings under the $15.0 million secured
revolving credit facility (the "Credit Facility") provided by National City
Bank of Dayton (the "Bank"). The Credit Facility contains restrictive
covenants which may have an adverse effect on the Company's operations in the
future. These covenants include, among other restrictions: (i) the
maintenance of certain financial ratios; (ii) prior notice to the Bank with
respect to (a) the purchase or sale of assets; (b) any merger, sale or
consolidation activity; (c) the creation or acquisition of any subsidiary or
the investment in any equity securities; (d) the entering into any
partnership or joint venture; or (e) the issuance of any equity securities;
and (iii) certain limitations on the incurrence of other indebtedness. These
provisions may constrain the Company's acquisition strategy, may delay,
deter, or prevent a takeover attempt that a shareholder might consider in its
best interests and may have an adverse effect on the market price of the
Company's Common Stock. In addition, the Credit Facility restricts the
payment of dividends to no more than 50.0% of the net income of the Company
in the year that the dividend is to be paid.
Ability to Manage Growth. The Company expects to experience rapid growth that
will likely result in new and increased responsibilities for management
personnel and which will challenge the Company's management, operating and
financial systems and resources. To compete effectively and manage future
growth, if any, the Company will be required to continue to implement and
improve its operational, financial and management information systems,
procedures and internal controls on a timely basis and to expand, train,
motivate and manage its work force. There can be no assurance that the
Company's personnel, systems, procedures and controls will be adequate to
support the Company's future operations. Any failure to implement and improve
the Company's operational, financial and management systems or to expand,
train motivate or manage employees could have a material adverse effect on
the Company's operating results and financial condition.
Dependence on Computer Systems. The Company's operations are generally
dependent on its proprietary software applications. Modifications to the
Company's computer systems and applications software will be necessary as the
Company executes its expansion
12
<PAGE>
plans and responds to customer needs, technological developments, electronic
commerce requirements and other factors. Such modifications may cause
disruptions in the operations of the Company, delay the schedule for
implementing the integration of newly acquired companies, or cost more to
design, implement or operate than currently budgeted. Such disruptions,
delays or costs could have a material adverse effect on the Company's
operations and financial performance.
The Company does not currently have redundant computer systems or redundant
dedicated communication lines linking its computers to its warehouses,
although all data is stored on two separate hard drives on a continual basis.
The Company has taken precautions to protect itself from events that could
interrupt its operations, including back-up power supplies that allow the
Company's computer system to function in the event of a power outage,
off-site storage of back-up data, fire protection, physical security systems
and an early warning detection and fire extinguishing system. The occurrence
of any of these events could have a material adverse effect on the Company's
operations and financial performance.
Failure to Implement Acquisition Strategy. The Company's business strategy
includes the acquisition of other computer and office automation supply
companies in the U.S. and overseas. Competition for desirable new
acquisitions in attractive major metropolitan markets is expected to
increase. No assurance can be given that the Company will be able to find
attractive acquisition candidates or that such acquisitions can be effected
at reasonable prices or in a timely manner, or that once acquired, the
Company will be able to profitably manage such companies. The failure to
complete acquisitions and continue the Company's expansion could have a
material adverse effect on its financial performance.
Integration of Acquisitions. The Company has acquired six computer and office
automation supply businesses in the past five years and intends to actively
pursue additional acquisitions. No assurance can be given that the Company
will be able to successfully integrate its future acquisitions with the
Company's existing systems and operations. The integration of acquired
businesses may also lead to the resignation of key employees of the acquired
companies and diversion of management attention from other ongoing business
concerns. The costs of integration could have an adverse effect on short-term
operating results. Any or all of these factors could have a material adverse
effect on the Company's operations in the future.
Financing for Acquisitions; Leverage. If acquisitions are consummated for
cash, it is likely that the Company will borrow the necessary funds and,
accordingly, the Company may become highly leveraged as a result thereof. If
it becomes highly leveraged, the Company may be more vulnerable to extended
economic downturns and its flexibility in responding to changing economic and
industry conditions may be limited. The degree to which the Company is
leveraged could have important consequences to purchasers of the Common
Stock, including the impairment of the Company's ability to obtain additional
financing for working capital, capital expenditures, acquisitions and general
corporate purposes. The Company's ability to make principal and interest
payments on its current and future indebtedness and to repay its current and
future indebtedness at maturity will be dependent on the Company's future
operating performance, which is itself dependent on a number of factors, many
of which are beyond the Company's control, and may be dependent on the
availability of borrowings under the Credit Facility or other financings. A
substantial portion of the Company's current borrowing capacity under the
Credit Facility could be consumed by increased working capital needs,
including future acquisitions.
Possible Need for Additional Financing to Implement Acquisition Strategy. No
portion of the Company's working capital has been set aside for the specific
purpose of funding future acquisitions and, therefore, the Company may
require additional funds to implement its acquisition strategy. While the
Company's Credit Facility may be utilized to finance acquisitions, the amount
which may be drawn upon by the Company may be limited. Accordingly, the
Company may require additional debt or equity financing for future
acquisitions. There can be no assurance that the Company will be able to
obtain additional debt or equity financing on terms favorable to the Company,
or at all, or if obtained, there can be no assurance that such debt or equity
financing will be sufficient for the financing needs of the Company.
Risks Relating to International Acquisitions. Expansion into international
markets may involve additional risks relating to such things as currency
exchange rates, new and different legal and regulatory requirements,
political and economic risks relating to the stability of foreign governments
and their trading relationship with the United States, difficulties in
staffing and managing foreign operations, differences in financial reporting,
differences in the manner in which different cultures do business, operating
difficulties and other factors.
Exchange Rate Fluctuations. Although the Company's operations are not
currently subject to material operational risks associated with fluctuations
in exchange rates, because the Company intends to expand the size and scope
of its international operations, its exposure to fluctuations in exchange
rates will be increased. Accordingly, no assurance can be given that the
Company's results of operations will not be adversely affected in the future
by fluctuations in foreign currency exchange rates. The Company has, at
times, entered into forward foreign currency exchange contracts in order to
hedge the Company's accounts receivable and accounts payable. In the future,
the Company may, from time to time, consider entering into other forward
foreign currency exchange contracts, although no assurances can be given that
the Company will do so, or will be able to do so, or that such arrangements
will adequately protect the Company from fluctuations in foreign currency
exchange rates.
13
