U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File No.: 0-13117
MICROFRAME, INC.
----------------
(Exact Name of Small Business Issuer in Its Charter)
New Jersey 22-2413505
---------- ----------
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
21 Meridian Road, Edison, New Jersey 08820
------------------------------------------
(Address of Principal Executive Offices)
(908) 494-4440
--------------
(Issuer's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [_]
There were 4,839,303 shares of Common Stock outstanding as of August 13, 1997.
Transitional Small Business Disclosure Format:
Yes [_] No [X]
<PAGE>
MICROFRAME, INC. AND SUBSIDIARY
FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 1997
PART I. FINANCIAL INFORMATION Page
Item 1. Condensed Consolidated Financial Information 2
Condensed Consolidated Balance Sheets as of June 30, 1997
(Unaudited) and March 31, 1997 3
Condensed Consolidated Statements of Operations for the three
months ended June 30, 1997 and June 30, 1996 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the three
months ended June 30, 1997 and June 30, 1996 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis or Plan of Operation 7-8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 5. Other Information 9
Item 6. Exhibits and reports on Form 8-K 9
SIGNATURES 10
<PAGE>
<PAGE>
PART I. Financial Information
Item 1. Condensed Consolidated Financial Information.
The condensed consolidated financial statements included herein have
been prepared by the registrant without audit pursuant to the rules and
regulations of the Securities and Exchange Commission. Although the registrant
believes that the disclosures are adequate to make the information presented not
misleading, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. It is suggested that these condensed financial statements be read
in conjunction with the audited financial statements and the notes thereto
included in the registrant's Annual Report on Form 10-KSB for the year ended
March 31, 1997.
<PAGE>
MicroFrame, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
June 30, March 31,
ASSETS 1997 1997
----------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 588,815 $ 539,214
Accounts receivable, less allowance for doubtful
accounts of $109,374 and $100,000 1,652,761 1,898,810
Inventory, net 1,038,992 1,030,343
Deferred tax asset 326,462 314,242
Prepaid expenses and other current assets 118,051 120,990
----------- -----------
Total current assets 3,725,081 3,903,599
Property and equipment at cost, net 336,259 343,123
Capitalized software, less accumulated amortization
of $857,257 and $812,257 290,568 315,568
Goodwill, less accumulated amortization of $19,065 and $16,230 82,545 85,380
Security deposits 25,184 34,703
----------- -----------
Total assets $ 4,459,637 $ 4,682,373
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank borrowings $ 43,203 $ 42,266
Accounts payable 391,783 361,537
Accrued payroll and related liabilities 169,523 280,512
Deferred income 245,980 268,518
Other current liabilities 307,951 255,346
----------- -----------
Total current liabilities 1,158,440 1,208,179
----------- -----------
Deferred tax liabilities 165,076 173,077
Long-term debt 19,203 30,398
Committments and contingencies
Stockholders' equity
Common stock - par value $.001 per share; authorized 50,000,000 shares,
issued 4,839,203 shares and outstanding 4,838,803 shares at
June 30, 1997; issued 4,839,203 shares and outstanding 4,838,803
shares at March 31, 1997 4,839 4,839
Preferred stock - par value $10 per share;
authorized 200,000 shares, none issued
Additional paid-in capital 6,212,828 6,212,828
Accumulated deficit (3,096,749) (2,942,948)
----------- -----------
3,120,918 3,274,719
Less - Treasury stock, 400 shares, at cost (4,000) (4,000)
----------- -----------
Total stockholders' equity 3,116,918 3,270,719
----------- -----------
Total liabilities and stockholders' equity $ 4,459,637 $ 4,682,373
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements
3
<PAGE>
MicroFrame, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
- --------------------------------------------------------------------------------
(unaudited)
Three Months Ended
June 30,
------------------
1997 1996
----------- -----------
Net sales $ 1,736,546 $ 1,776,335
Cost of sales 741,046 605,059
----------- -----------
Gross Margin 995,500 1,171,276
Research and development expenses 286,552 223,950
Selling, general and administrative expenses 887,191 903,295
----------- -----------
Income (loss) from operations (178,243) 44,031
Interest income 5,645 10,268
Interest expense (1,424) (14,199)
----------- -----------
Income (loss) before income tax provision(benefit) (174,022) 40,100
Income tax provision(benefit) (20,221) 0
----------- -----------
Net income (loss) $ (153,801) $ 40,100
=========== ===========
Per share data
Primary
Net income (loss) per share $ (0.03) $ 0.01
----------- -----------
Weighted average number of common shares
outstanding n/a $ 4,883,704
----------- -----------
The accompanying notes are an integral part of these condensed
consolidated financial statements
4
<PAGE>
MicroFrame, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
June 30,
------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (153,801) $ 40,100
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 94,738 84,671
Provision for bad debts 9,374 17,686
Provision for inventory obsolescence 15,000 10,000
Deferred tax provision (20,221) 0
(Increase) decrease in
Accounts receivable 236,675 350,173
Inventory (23,649) (261,486)
Prepaid expenses and other current assets 2,939 28,601
Security deposits 9,519 67
Increase (decrease) in
Accounts payable 30,246 117,310
Accrued payroll and related liabilities (110,989) (102,140)
Deferred income (22,538) (13,529)
Other current liabilities 52,605 (80,995)
----------- -----------
Net cash provided by operating activities 119,898 190,458
----------- -----------
Cash flows from investing activities
Capital expenditures (40,039) (31,863)
Capitalized software (20,000) (84,920)
----------- -----------
Net cash used in investing activities (60,039) (116,783)
----------- -----------
Cash flows from financing activities
Repayments of debt (10,258) (209,403)
Issuance of common stock 0 1,350,504
----------- -----------
Net cash provided by (used in) financing activities (10,258) 1,141,101
----------- -----------
Net increase in cash and cash equivalents 49,601 1,214,776
Cash and cash equivalents - beginning of period 539,214 48,302
----------- -----------
Cash and cash equivalents - end of period $ 588,815 $ 1,263,078
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements
5
<PAGE>
MICROFRAME, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 1997
(Unaudited)
Note 1 - Condensed Consolidated Financial Statements:
- -----------------------------------------------------
The condensed consolidated balance sheets as of June 30, 1997 and March 31,
1997, the condensed consolidated statements of operations for the three month
periods ended June 30, 1997 and 1996 and the condensed consolidated statements
of cash flows for the three month periods then ended have been prepared by the
Company without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary for the fair presentation
of the Company's financial position, results of operations and cash flows at
June 30, 1997 and 1996 have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed financial
statements be read in conjunction with the audited financial statements and
notes thereto included in the Annual Report on Form 10KSB for the year ended
March 31, 1997.
Note 2 - Inventory:
- -------------------
Inventory consists of the following:
June 30, 1997 March 31, 1997
----------- -----------
Raw materials $ 537,231 $ 625,583
Work in process 459,868 374,802
Finished goods 41,893 29,958
----------- -----------
1,253,992 1,230,343
Less, allowance for obsolescence (215,000) (200,000)
----------- -----------
Total $ 1,038,992 $ 1,030,343
=========== ===========
Note 3 - Earnings Per Share:
- ----------------------------
The computation of earnings per common and common equivalent share is based upon
the weighted average number of common shares outstanding during the period plus
(in periods in which they have a dilutive effect) the effect of common stock
equivalents, comprised of outstanding stock options and warrants. Fully diluted
earnings per share also reflect additional dilution related to outstanding stock
options due to the use of the market price at the end of the period, when higher
than the average price for the period. Net loss per share is based on the number
of common shares outstanding at the end of the period.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- ------------------------------------------------------------------
A number of statements contained in this report are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 that involve risks and uncertainties that could cause actual results to
differ materially from those expressed or implied in the applicable statements.
These risks and uncertainties include, but are not limited to, the recent
introduction of, and the costs associated with, a new product line; dependence
on the acceptance of this new family of products; risks related to technological
factors; potential manufacturing difficulties; dependence on third parties; a
limited customer base; and liability risks.
Results of Operations
- ---------------------
Revenues for the quarter ended June 30, 1997 were $1,736,546 as compared
with revenues of $1,776,335 for the same quarter of the previous fiscal year, or
a decrease of approximately 2 %. Revenues were lower than expected due to the
last minute request by a major customer to delay a significant shipment until in
the late second quarter of this fiscal year. The Company continued to see
acceptance of its new product, the Sentinel 2000, as well interest in the other
member of the family of SNS products, the Manager 2000.
The Company's cost of goods sold increased from $605,059 for the
quarter ended June 30, 1996 to $741,046 for the quarter ended June 30, 1997 as a
result of the continued change in the product mix from mature product lines to
the new family of products and a decrease in the amount of capitalized software
costs. Cost of goods sold as a percentage of sales increased from 34.1% for the
previous comparable fiscal period to 42.7% for this fiscal period, due to the
factors discussed above. The Company continues to focus on lowering the costs
related to the newer products as they begin to mature and will eventually see
the benefits from manufacturing efficiencies.
Research and development expenses, net of capitalized software
development, increased from $223,950 in the quarter ended June 30, 1996 to
$286,552 in the current fiscal quarter, an increase of 28%. This is a direct
reflection of the Company's continued increased activity related to the
development of the Secure Network Systems/2000 set of products. Research and
development expenses as a percentage of revenues increased from 12.6% to 16.5%.
Selling, general and administrative expenses decreased approximately 2% from
$903,295 for the prior year's comparable fiscal period to $887,191 for the
fiscal period ended June 30, 1997. This decrease represents lower general and
administrative costs offset by increases in the Company's selling expenses as we
embark on an aggressive growth plan. The Company anticipates seeing increased
revenues as a result of these increased selling expenses in the third and fourth
quarters of this fiscal year.
The Company had a loss from operations of $178,243 for the period ended
June 30, 1997, compared to income from operations of $44,031 for the same period
a year ago. Due to the reduction in interest costs to the Company and the
effects of the income tax benefit of $20,221, the net loss for the period ended
June 30, 1997 was $153,801 compared to net income of $40,100 for the quarter
ended June 30, 1996. At March 31, 1997 the Company had provided a partial
valuation allowance against its existing deferred tax assets. At June 30, 1997
the Company has provided a full valuation allowance against any benefits arising
out of the net loss for the period. The current expiration dates range from the
years 2001 through 2011.
7
<PAGE>
Financial Condition and Capital Resources
- -----------------------------------------
During the first quarter of fiscal year 1998, the Company recorded a
net loss of approximately $154,000. Included in this loss were non-cash charges
of approximately $109,000 for depreciation, amortization and provisions for
inventory allowance and bad debts. As a result, during the first three months of
fiscal year 1998, the Company's financial condition remained relatively stable.
The Company's operations provided $120,000 of cash, due to the
collection of accounts receivable, offset by the payment of accrued payroll and
related liabilities. The Company utilized approximately $60,000 of cash for
capital and software-related expenditures. The Company utilized approximately
$10,000 of cash to pay down its long-term debt in the first quarter as well as
approximately $55,000 to satisfy its New York State tax settlement.
On August 30, 1996, the Company executed a credit agreement with
Farrington Bank of North Brunswick, New Jersey (subsequently acquired by United
National Bank of Bridgewater, New Jersey). The agreement provides the Company
with a $500,000 line of credit to finance future working capital requirements,
collateralized by accounts receivable of the Company. The agreement expires on
August 30, 1997. No amount of this credit line had been utilized as of June 30,
1997.
Based on its current cash and working capital position, as well as
its available line of credit, the Company believes that it will have sufficient
capital to meet its operational needs over the next twelve months.
In fiscal 1998, the Company is required adopt the provisions of the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS 128"), which is effective for
financial statements for annual periods ending after December 15, 1997. SFAS 128
establishes standards for the computation, presentation and disclosure
requirements for earnings per share. The adoption of this standard is not
expected to have a material impact on the Company's earnings per share.
In fiscal 1998, the Company is require to adopt the provisions of the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 131, "Segment Reporting" ("SFAS 131"), which is effective for
financial statements for annual periods ending after December 15, 1997. SFAS 131
establishes standards for the disclosure requirements relative to operating
segments. The Company is currently evaluating the disclosure requirements of the
recently issued statement.
8
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
In April 1997, the Company reached a settlement with the New York
State Department of Taxation and Finance as it related to a sales tax
assessment of $227,392 received in a notice of determination in March
1996. The settlement amount of $55,513 was paid in full in April
1997.
Item 5. Other Information
-----------------
On July 1, 1997 the Company elected a new Director, Mr. Alexander C.
Stark Jr., to serve until the next annual meeting of shareholders to
be held on September 15, 1997.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits: None.
(b) Reports on Form 8-K:
On July 10, 1997 the Company filed Form 8-K as a
result of the resignation and simultaneous
replacement effective July 1, 1997 of the Company's
Chief Financial Officer and the election of a new
Director.
9
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: August 13, 1997
MICROFRAME, INC.
/s/ Stephen B. Gray
-----------------------------
Stephen B. Gray, President, Chief Executive
Officer and Chief Operating Officer
/s/ John F. McTigue
-----------------------------
John F. McTigue, Chief Financial
Officer and Treasurer (Principal Financial
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000754813
<NAME> MICROFRAME, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 588,815
<SECURITIES> 0
<RECEIVABLES> 1,762,135
<ALLOWANCES> (109,374)
<INVENTORY> 1,038,992
<CURRENT-ASSETS> 3,725,081
<PP&E> 1,121,798
<DEPRECIATION> (785,540)
<TOTAL-ASSETS> 4,459,637
<CURRENT-LIABILITIES> 1,158,440
<BONDS> 0
0
0
<COMMON> 4,839
<OTHER-SE> 3,096,749
<TOTAL-LIABILITY-AND-EQUITY> 4,459,637
<SALES> 1,736,546
<TOTAL-REVENUES> 1,736,546
<CGS> 741,046
<TOTAL-COSTS> 1,914,789
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,424
<INCOME-PRETAX> (174,022)
<INCOME-TAX> (20,221)
<INCOME-CONTINUING> (153,801)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (153,801)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
