<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 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: 0-20732
COMPUTER INTEGRATION CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 65-0506623
(State of other jurisdiction of (I.R.S. employer
incorporation or organization) Identification No.)
165 UNIVERSITY AVENUE, WESTWOOD, MA 02090
(Address of principal executives offices) (Zip code)
Registrant's telephone number, including area code: 617/320-8300
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) has been subject to such filing requirements for
the past 90 days. YES X NO
------- --
APPLICABLE ONLY TO ISSUERS 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 Sections 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_______ NO__
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 6,997,120 shares of common
stock outstanding as of May 12, 1997.
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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
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. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been consolidated or omitted
pursuant to such rules and regulations; however, the Registrant believes that
the disclosures are adequate to make the information presented not misleading.
It is suggested that these condensed, consolidated financial statements be read
in conjunction with the financial statements, and the notes thereto, included in
the Registrant's consolidated financial statements for the year ended June 30,
1996.
The condensed, consolidated financial statements for the interim periods
included herein, which are unaudited, include, in the opinion of management, all
adjustments (consisting only of normal recurring accruals) necessary to present
fairly the financial position and results of operations for interim periods
presented. The results of operations for interim periods should not be
considered indicative of results to be expected for the full year.
2
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Computer Integration Corp.
and Subsidiary
Condensed Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
------------------------------
(Unaudited) (Note)
ASSETS
<S> <C> <C>
Current assets:
Cash $ 1,654,663 $ 7,599,051
Accounts receivable, net 61,102,532 62,743,319
Inventory 15,220,977 23,705,565
Deferred income taxes 1,102,871 1,843,283
Prepaid expenses and other current assets 3,471,512 658,247
------------------------------
Total current assets 82,552,555 96,549,465
Property and equipment, net 2,314,983 5,010,690
Other assets:
Goodwill, net 11,938,882 12,446,491
Other 463,004 658,279
------------------------------
Total other assets 12,401,886 13,104,770
------------------------------
Total assets $97,269,424 $114,664,925
==============================
</TABLE>
Continued on next page.
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Computer Integration Corp.
and Subsidiary
Condensed Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited) (Note)
<S> <C> <C>
Current liabilities:
Notes payable under line of credit $ 9,078,362 $ 18,746,703
Accounts payable 46,395,794 46,171,003
Accrued expenses 4,519,278 5,994,832
Restructuring accrual 275,654 2,300,000
Current portion of subordinated notes payable 267,440 302,440
Current portion of capital lease obligations 284,721 265,625
Other 883,410 619,872
------------------------------
Total current liabilities 61,704,659 74,400,475
Noncurrent liabilities:
Term note payable 27,500,000 27,500,000
Subordinated notes payable, less current portion 1,343,120 1,610,560
Capital lease obligations, less current portion 292,828 508,392
Other 0 400,000
------------------------------
Total noncurrent liabilities 29,135,948 30,018,952
Shareholders' equity:
Preferred stock, $.001 par value, total authorized 2,000,000 shares,
issued and outstanding as follows:
Series A, 9% cumulative, convertible, redeemable preferred stock;
40,000 shares authorized, -0- issued and outstanding in both
periods -- --
Series B, 9% cumulative, convertible, redeemable preferred stock;
250 shares authorized, -0- issued and outstanding in both periods -- --
Series C, 9% cumulative, convertible, redeemable preferred stock;
250 shares authorized, -0- issued and outstanding in both periods -- --
Series D, 9% cumulative, convertible, redeemable preferred stock;
40,000 shares authorized, 19,129 issued and outstanding in both
periods 19 19
Series E, 9% cumulative, convertible, redeemable preferred stock;
250 shares authorized, 125 issued and outstanding in both
periods -- --
Common stock, $.001 par value, authorized 20,000,000 shares, issued
and outstanding 6,993,405 and 6,944,700 shares at March 31, 1997 and
June 30, 1996, respectively 6,993 6,945
Additional paid-in capital 9,849,026 9,809,736
Retained earnings (deficit) (3,427,221) 428,798
------------------------------
Total shareholders' equity 6,428,817 10,245,498
------------------------------
Total liabilities and shareholders' equity $97,269,424 $114,664,925
==============================
</TABLE>
Note: The balance sheet at June 30, 1996 is from the audited financial
statements at that date, but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
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Computer Integration Corp.
and Subsidiary
Condensed Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH, 31
1997 1996
------------------------------
<S> <C> <C>
Net sales $98,898,135 $111,289,220
Cost of goods sold 89,619,197 101,196,921
------------------------------
Gross profit 9,278,938 10,092,299
Selling, general and administrative expenses 10,662,121 9,635,354
Loss on abandonment of management information system 4,161,370 --
Revision of restructuring accrual -- --
------------------------------
14,823,491 9,635,354
------------------------------
Income (loss) from operations (5,544,553) 456,945
Interest expense 1,049,593 1,083,078
------------------------------
Income (loss) before income taxes (6,594,146) (626,133)
Income tax benefit (2,475,441) (262,999)
------------------------------
Net income (loss) (4,118,705) (363,134)
Less required payments on convertible preferred stock 55,012 55,010
------------------------------
Income (loss) applicable to common stock $(4,173,717) $ (418,144)
==============================
Net income (loss) per share:
Primary $ (.60) $ (.06)
==============================
Fully diluted $ (.60) $ (.06)
==============================
Common shares and common share equivalents
outstanding:
Primary 6,978,772 6,915,000
==============================
Fully diluted 6,978,772 6,915,000
==============================
</TABLE>
See accompanying notes.
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Computer Integration Corp.
and Subsidiary
Condensed Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31
1997 1996
------------------------------
<S> <C> <C>
Net sales $306,088,342 $343,998,166
Cost of goods sold 275,226,304 311,892,874
------------------------------
Gross profit 30,862,038 32,105,292
Selling, general and administrative expenses 30,683,980 25,767,386
Loss on abandonment of management information system 4,161,370 --
Revision of restructuring accrual (1,843,423) --
------------------------------
33,001,927 25,767,386
------------------------------
Income (loss) from operations (2,139,889) 6,337,906
Interest expense 3,630,601 3,400,232
------------------------------
Income (loss) before income taxes (5,770,490) 2,937,674
Income tax expense (benefit) (2,079,505) 1,233,800
------------------------------
Net income (loss) (3,690,985) 1,703,874
Less required payments on convertible preferred stock 165,034 165,030
------------------------------
Income (loss) applicable to common stock $ (3,856,019) $ 1,538,844
==============================
Net income per share:
Primary $ (.55) $ .22
==============================
Fully diluted $ (.55) $ .20
==============================
Common shares and common share equivalents
outstanding:
Primary 6,960,287 7,131,000
==============================
Fully diluted 6,960,287 8,401,000
==============================
</TABLE>
See accompanying notes.
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Computer Integration Corp.
and Subsidiary
Condensed Consolidated Statements of
Cash Flows (Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH, 31
1997 1996
------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ (3,690,985) $ 1,703,874
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,387,703 1,272,928
Revision of restructuring accrual (1,843,423) --
Loss on abandonment of management information system 4,161,370 --
Changes in operating assets and liabilities, exclusive of
effects from acquisitions:
Accounts receivable 1,640,787 8,886,086
Inventory 8,484,588 4,880,920
Prepaid expenses and other assets (2,061,358) (63,654)
Accounts payable (823,193) (8,063,273)
Accrued expenses and other current liabilities (1,449,738) 77,444
Other noncurrent liabilities (400,000) 14,740
------------------------------
Net cash provided by operating activities 5,405,751 8,709,065
INVESTING ACTIVITIES
Acquisition of property and equipment (1,113,993) (823,363)
------------------------------
Net cash used in investing activities (1,113,993) (823,363)
FINANCING ACTIVITIES
Proceeds from exercise of stock options 39,338 --
Net repayments on line of credit (9,668,341) (6,461,520)
Principal payments on subordinated notes payable (302,440) (186,174)
Preferred stock dividends paid (108,235) (110,023)
Repayments of capital lease obligations (196,468) (31,629)
------------------------------
Net cash used in financing activities (10,236,146) (6,789,346)
------------------------------
Net increase (decrease) in cash (5,944,388) 1,096,356
Cash at beginning of period 7,599,051 797,678
------------------------------
Cash at end of period $ 1,654,663 $ 1,894,034
==============================
SUPPLEMENTAL INFORMATION
Interest paid $ 3,683,642 $ 3,290,986
==============================
Taxes paid $ 396,455 $ 1,537,598
==============================
NONCASH INVESTING AND FINANCING ACTIVITIES
Preferred stock dividends in accrued expenses $ 165,034 $ --
==============================
Costs associated with management information
system acquisition included in accounts payable $ 1,047,984 $ --
==============================
</TABLE>
See accompanying notes.
7
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Computer Integration Corp.
and Subsidiary
Notes to Condensed Consolidated
Financial Statements (Unaudited)
March 31, 1997
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of Computer
Integration Corp. and its wholly-owned operating subsidiary, CIC Systems, Inc.
("CIC"), collectively, the "Company". All significant intercompany accounts and
transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Certain information and footnote disclosures required by
generally accepted accounting principles for complete financial statements have
been condensed or omitted. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary to present fairly
the financial position, results of operations and cash flows have been included.
The results of operations for the three and nine months ended March 31, 1997 are
not necessarily indicative of the results that may be expected for fiscal year
1997. It is suggested that these condensed consolidated financial statements be
read in conjunction with the financial statements and notes thereto included in
the Company's consolidated financial statements for the year ended June 30,
1996.
2. BORROWINGS
On September 30, 1996, the Company amended its financing agreement with its
primary lender, Congress Financial Corporation (New England) ("Congress"),
effective June 30, 1996, which included an increase in the maximum available
credit from $70 million to $77 million and modification of certain financial
covenants.
During the Quarter ended December 31, 1996 the Company entered into an agreement
with a lender to finance product purchases. The amount outstanding under this
agreement is included in accounts payable on the Consolidated Balance Sheets. In
connection with this facility, the lender has a lien on the inventory financed.
The Company has a $1.5 million letter of credit issued under its Credit Facility
with Congress in favor of the lender.
3. ABANDONMENT OF MANAGEMENT INFORMATION SYSTEM
During the 1996 fiscal year and the first half of the 1997 fiscal year, the
Company invested $4,161,370 in a management information system ("MIS System")
which was intended to replace the multiple systems in use. The Company
previously disclosed that it had halted further development of this system as
it evaluated alternatives. The Company has since concluded that the system did
not provide minimum required functionality and that the costs required to
achieve such functionality did not justify further investment and therefore
decided to abandon this MIS System and implement an alternative solution. As a
result the Company recorded a charge of $4,161,370 in the quarter ended
March 31, 1997 associated with the write-off of its investment in this MIS
System.
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Computer Integration Corp.
and Subsidiary
Notes to Condensed Consolidated
Financial Statements (Unaudited)
4. RESTRUCTURING CHARGE
During the fourth Quarter of fiscal 1996, the Company recorded a charge of $2.3
million for restructuring costs associated with a planned consolidation of some
of the Company's headquarters, sales and distribution facilities and relocation
to Atlanta. These costs included approximately $1.7 million for severance
benefits for approximately 125 affected employees, $400,000 for the write-off of
property and equipment, and approximately $200,000 for lease extension and
termination costs and other activities to close existing facilities. On October
30, 1996 the Company decided not to proceed with the consolidation of the
Company's headquarters, sales and distribution facilities and relocation to
Atlanta. It decided instead to maintain these functions in its existing
facilities in Boston, MA and Charlotte, NC. This decision primarily reflected
the Company's desire to retain certain key personnel for whom relocation was not
a viable option, as well as other cost considerations. Accordingly, during the
quarter ended December 31, 1996, the Company reversed $1,843,423 of the original
$2.3 million charge for restructuring costs. The remaining restructuring accrual
balance of $275,654 as of March 31, 1997 primarily represents future severance
payments related to the canceled Atlanta consolidation.
In conjunction with the Company's plans to relocate to Atlanta it had previously
signed a lease commencing January 1997. In the second quarter of fiscal 1997,
the Company recorded a reserve of $786,000 associated with management's estimate
of the future costs of terminating this lease liability. During the quarter
ended March 31, 1997, the Company negotiated a termination agreement with the
landlord bringing the total lease termination liability to $894,027.
Accordingly, the Company recorded an additional charge of $108,027 in the third
quarter of fiscal 1997. The remaining accrual balance included in accounts
payable as of March 31, 1997 was $655,076.
5. SUBSEQUENT EVENTS
The Company's Board of Directors approved dividend payments to all preferred
stock holders of record on January 31, 1997 which was paid on April 1, 1997.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Computer Integration Corp. (the "Company") is one of the largest volume
resellers of microcomputers, workstations, and related products to large and
medium-sized corporations, federal, state, and local governmental entities and
colleges and universities in the United States. The Company, through its
wholly-owned subsidiary, CIC Systems, Inc. ("CIC"), distributes a broad range of
microcomputer-related products from major hardware manufacturers and software
developers such as Hewlett-Packard Company ("HP"), Compaq Computer Corporation,
Sun Microsystems Corporation, Toshiba America Information Systems, Inc.,
International Business Machines, Lexmark International, Epson America, Inc., NEC
Technologies, Inc., 3COM, Inc., Novell, Inc. and Microsoft Corporation. The
Company is one of the largest resellers of computer products manufactured by HP
in the United States.
The Company began operations in 1992 with the organization of CIC and
acquired Copley Systems Corporation ("Copley"), a Massachusetts corporation, in
March 1993. The Company acquired all of the outstanding capital stock of
Dataprint, Inc. ("Dataprint"), a North Carolina corporation, effective July 1,
1994. Effective July 1, 1995, CIC acquired substantially all of the assets of
Cedar Computer Center, Inc., an Iowa corporation ("Cedar"), which, at the time
of the acquisition, was one of the largest dealers of HP computer products in
the midwestern and western United States.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Net sales for the three months ended March 31, 1997 (the "fiscal 1997
Quarter") were $98,898,135 compared to $111,289,220 for the three months ended
March 31, 1996 (the "fiscal 1996 Quarter"), a decrease of $12,391,085 or 11.1%.
The decrease in sales was primarily due to a loss in customer base resulting
from the distraction and lack of focus in the sales organization associated
with the changes in the Company's executive management during the six months
ended December 31, 1996 and the proposed relocation to Atlanta which was
originally announced in June 1996 and canceled in October 1996.
Gross profit decreased to $9,278,938 in the fiscal 1997 Quarter from
$10,092,299 in the fiscal 1996 Quarter as a result of the decrease in sales. The
gross profit margin increased to 9.4% of sales in the fiscal 1997 Quarter
compared to 9.1% in the fiscal 1996 Quarter.
During the 1996 fiscal year and the first half of the 1997 fiscal year, the
Company invested $4,161,370 in a management information system ("MIS System")
which was intended to replace the multiple systems in use, including the Copley,
Dataprint and Cedar systems. The Company previously disclosed that it had
halted further development of this system as it evaluated alternatives. The
Company has since concluded that the system did not provide minimum required
functionality and that the costs required to achieve such functionality did not
justity further investment and therefore decided to abandon this MIS System and
implement an alternative solution.
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<PAGE> 11
As a result the Company recorded a charge of $4,161,370 in the quarter ended
March 31, 1997 associated with the write-off of its investment in this MIS
System ("MIS Charge"). The Company believes that a portion of this write-off
was caused by the failure of consultants, previously engaged by the Company to
assist with the implementation of the MIS System, to perform as required under
their contracts with the Company. The Company is currently negotiating with
such consultants concerning remaining amounts allegedly due under the
consulting contracts. There can be no assurance that the Company will be
successful in such negotiations and the financial statements include these
remaining amounts as liabilities.
Excluding the MIS Charge, selling, general and administrative expenses
("SG&A") were $10,662,121 in the fiscal 1997 Quarter, compared to $9,635,354 in
the fiscal 1996 Quarter, an increase of $1,026,767 or 10.7% due primarily to an
increase in the reserve for uncollectible accounts receivable, increased
consulting costs, and costs associated with an enhanced telecommunication
system, partially offset by the non-recurrence of a $425,000 charge relating to
costs associated with a terminated public offering in the fiscal 1996 Quarter.
Interest expense decreased to $1,049,593 for the fiscal 1997 Quarter from
$1,083,078 during the fiscal 1996 Quarter as a result of decreased borrowings
under the line of credit in the fiscal 1997 Quarter as compared with the fiscal
1996 Quarter.
As a result of the factors discussed above, the Company had a net loss of
$4,118,705 in the fiscal 1997 Quarter compared to a net loss of $363,134 in the
fiscal 1996 Quarter.
NINE MONTHS ENDED MARCH 31, 1997 AND 1996
Net sales for the nine months ended March 31, 1997 were $306,088,342
compared to $343,998,166 for the nine months ended March 31, 1997 a decrease of
$37,909,824 or 11%. The decrease in sales was primarily due to distraction and
lack of focus in the sales organization associated with the changes in the
Company's executive management during the six months ended December 31, 1996
and the proposed relocation to Atlanta which was originally announced in June
1996 and canceled in October 1996. Revenues were also lower because of the
Company's reduced emphasis on lower margin sales opportunities in the first
half of fiscal year 1997.
Gross profit decreased to $30,862,038 for the nine months ended March 31,
1997 from $32,105,292 for the nine months ended March 31, 1996 as a result of
the decrease in sales. Gross profit margin increased to 10.1% for the nine
months ended March 31, 1997 compared to 9.3% for the nine months ending March
31, 1996 as a result of the Company's reduced emphasis on lower margin sales
opportunities in the first half of fiscal year 1997.
During the fourth Quarter of fiscal 1996, the Company recorded a charge of
$2.3 million for restructuring costs associated with a planned consolidation of
some of the Company's headquarters, sales and distribution facilities and
relocation to Atlanta. These costs included approximately $1.7 million for
severance benefits for approximately 125 affected employees, $400,000 for the
write-off of property and equipment, and approximately $200,000 for lease
extension and termination costs and other activities to close existing
facilities. On October 30, 1996 the Company decided not to proceed with the
consolidation of the Company's headquarters, sales and distribution facilities
and relocation to Atlanta. It decided instead to maintain these functions in its
existing facilities in Boston, MA and Charlotte, NC. This decision primarily
reflected the Company's desire to retain certain key personnel for whom
relocation was not a viable option, as well as other cost considerations.
Accordingly, during the quarter ended December 31, 1996, the Company reversed
$1,843,423 of the original $2.3 million charge for restructuring costs. The
remaining restructuring accrual balance of $275,654 as of March 31, 1997
primarily represents obligations for future severance payments related to the
canceled Atlanta consolidation.
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<PAGE> 12
The nine months ended March 31, 1997 included the previously mentioned MIS
Charge of $4,161,370.
Exclusive of the above mentioned restructuring charge reversal and MIS
Charge, selling, general and administrative expenses ("SG&A") were $30,683,980
for the nine months ended March 31, 1997, compared to $25,767,386 for the nine
months ended March 31, 1996, an increase of $4,916,594 or 19.1%. This included a
charge of $894,027 associated with the termination of a lease executed in
conjunction with the Company's plans to relocate to Atlanta commencing January
1997. Excluding this charge, SG&A increased $4,022,567 or 15.6% from the nine
months ended March 31, 1996 primarily due to an increase in the reserve for
uncollectible accounts receivable; higher salary, severance, and temporary help
caused by high employee turnover associated with the announced, then canceled,
relocation to Atlanta and changes in executive management; an enhanced
telecommunication system; and additional travel expenses, partially offset by
the non-recurrence of a $425,000 charge relating to costs associated with a
terminated public offering in the nine months ended March 31, 1996.
Interest expense increased to $3,630,601 for the nine months ended March
31, 1997 from $3,400,232 during the nine months ended March 31, 1996 as a result
of increased borrowings under the line of credit in the nine months ended March
31, 1997 as compared with the nine months ended March 31, 1996.
As a result of the factors discussed above, the Company had net loss of
$3,690,985 for the nine months ended March 31, 1997 compared to net income of
$1,703,874 for the nine months ended March 31, 1996.
FINANCIAL CONDITION
The Company's total assets decreased $17,395,501 to $97,269,424 as of
March 31, 1997 from $114,664,925 as of June 30, 1996. The primary components of
that decrease were a $5,944,388 reduction in cash and a $8,484,588 reduction in
inventory.
Total current liabilities decreased $12,695,816 to $61,704,659 as of
March 31, 1997 from $74,400,475 as of June 30, 1996. The most significant
components of the decrease are a $9,668,341 reduction in notes payable and a
$2,024,346 reduction in the restructuring accrual.
Total shareholders' equity decreased by $3,816,681 to $6,428,817 as of
March 31, 1997 from $10,245,498 as of June 30, 1996 primarily due to the
Company's net loss of $3,690,985 for the nine months ended March 31, 1997. As a
result of this net loss and an accrual for preferred dividend payments of
$165,034 over the same period, retained earnings as of March 31, 1997 were a
deficit of $3,427,221 compared with a surplus of $428,798 as of June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has funded its activities through the private
sale of equity securities and borrowings under its revolving line of credit,
and, during certain periods, through cash flow from operations. As of March 31,
1997, the Company had cash of $1,654,663, net accounts receivable of
$61,102,532, working capital of $20,847,896 and available funds under its credit
facility of approximately $4.4 million.
Net cash provided by operating activities during the nine months ended
March 31, 1997 was $5,405,751 primarily as a result of reductions in accounts
receivable of $1,640,787 and inventory of $8,484,588 partially offset by
increased prepaid expenses and other assets of $2,061,358 and decreased accrued
expenses and other current liabilities of $1,449,738.
Net cash used in investing activities for the nine months ended March 31,
1997 was $1,113,993, which was related to the acquisition of office and computer
equipment and software. Financing activities for the nine months ended March 31,
1997 used cash of $10,236,146 primarily as a result of a reduction in the
outstanding balance on the Company's Credit Facility.
On September 30, 1996, CIC amended its financing agreement with its primary
lender, Congress Financial Corporation ("Congress"), effective June 30, 1996,
which included an increase
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<PAGE> 13
in the maximum available credit from $70 million to $77 million and modification
of certain financial covenants. The Credit Facility is collateralized by CIC's
accounts receivable and inventory and consists of a $27.5 million, 3-year term
loan and a $49.5 million revolving line of credit. Interest on the Credit
Facility accrues at 1.0% over the prime rate of CoreStates Bank, N.A. (effective
rate of 9.25% at March 31, 1997). The Credit Facility, which is used for
inventory financing and working capital, will expire in July 1998 and will be
automatically renewable for one year at the option of Congress, upon certain
terms and conditions. The Credit facility requires that CIC maintain, at all
times, certain net worth and working capital levels and restricts acquisition of
property and the payment of dividends by Company.
During the Quarter ended December 31, 1996 CIC entered into an agreement
with a lender to finance product purchases. The amount outstanding under this
agreement is included in accounts payable on the Consolidated Balance Sheets. In
connection with this facility, the lender has a lien on the inventory financed.
CIC has a $1.5 million letter of credit issued under its Credit Facility with
Congress in favor of the lender.
The Company has recently been experiencing some slowness in collecting its
accounts receivable in a timely manner. The Company believes that this is a
short term problem caused by lack of focus and poor attention to detail by many
of its employees due to the uncertainties associated with the previously
discussed canceled move to Atlanta and changes in the Company's executive
management. During the third quarter the Company took actions which have
refocused the employees and improved collections.
The slowness in collection has caused an increase in the past due accounts
receivable and accounts receivable which are not eligible to be included in the
borrowing base in CIC's credit facility. This has unfavorably impacted CIC's
cash and the amount it can borrow under its line of credit. This in turn has
unfavorably impacted the Company's ability to pay some of its bills in a timely
manner. Thus far this has not had a material impact on the Company's
performance. As discussed, the Company has taken actions which it expects to
correct the slowness in collections and the resultant unfavorable impact on cash
and borrowing ability. While there has been considerable improvement, no
assurance can be given that these actions will have the intended effect and
that the slowness will not begin to materially impact the Company's performance.
The Company believes that cash flow from operations and borrowings under
the Credit Facility will provide sufficient cash to fund its operations and meet
current obligations for the next 12 months. This is dependent on continued
improvements in collection, profitability, and cash flow from current levels.
While management expects to achieve such improvements, there can be no
assurance that the improvements will occur. In addition to the actions discussed
above, the Company is also exploring the possibility of obtaining additional
debt or equity financing.
The Company has selected a management information system to replace
virtually all of its existing systems and the system it abandoned (see Results
of Operations above). The total cost of this system, including software,
hardware, and training is expected to be approximately $1 million over the next
12 months.
13
<PAGE> 14
This Form 10-Q contains forward-looking statements that are subject to
risks and uncertainties. Statements indicating that the Company "expects,"
"estimates," or "believes" are forward-looking as are all other statements
concerning future financial results, product offerings or other events that have
not yet occurred. There are several important factors that could cause actual
results or events to differ materially from those anticipated by the
forward-looking statements contained herein. Such factors include, but are not
limited to: the growth rates of the Company's market segments; the position of
the Company's products in those segments; the Company's ability to effectively
manage its business, and the growth of its business, in a rapidly changing
environment; the timing of new product introductions; inventory risks due to
changes in market conditions; the competitive environment in the computer
industry; the Company's ability to establish successful strategic relationships;
and general economic conditions.
14
<PAGE> 15
PART II - OTHER INFORMATION
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 5. Other Events
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Statement Re: Computation of Per Share Earnings
Exhibit 27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this
report is being filed.
15
<PAGE> 16
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.
COMPUTER INTEGRATION CORP.
By: /s/EDWARD A. MELTZER
----------------------------------------------------------
Edward A. Meltzer
Chief Financial Officer (Principal Financial and Accounting
Officer)
Dated: May 15, 1997
16
<PAGE> 17
EXHIBIT INDEX
Page
----
Exhibit 11 - Statement Re: Computation of Per Share Earnings 18
Exhibit 27 - Financial Data Schedule (for SEC use only) 20
17
<PAGE> 1
Computer Integration Corp.
and Subsidiary
Exhibit 11 - Statement Re: Computation of Per-Share Earnings
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
--------------------------
<S> <C> <C>
Primary:
Average shares outstanding 6,978,772 6,915,000
Net effect of dilutive stock options and warrants -- --
----------- -----------
Total 6,978,772 6,915,000
=========== ===========
Net loss applicable to common stock $(4,173,717) $ (418,144)
=========== ===========
Net loss per share applicable to common stock $ (.60) $ (.06)
=========== ===========
Fully diluted:
Average shares outstanding 6,978,772 6,915,000
Net effect of dilutive stock options and warrants -- --
Assumed conversion of 9% series D and series E
cumulative, convertible, redeemable preferred stock -- --
----------- -----------
Total 6,978,772 6,915,000
=========== ===========
Net loss applicable to common stock $(4,173,717) $ (418,144)
Add required dividends on series D and series E cumulative,
convertible, redeemable preferred stock -- --
----------- -----------
Total $(4,173,717) $ (418,144)
=========== ===========
Net loss per share applicable to common stock $ (.60) $ (.06)
=========== ===========
</TABLE>
18
<PAGE> 2
Computer Integration Corp.
And Subsidiary
EXHIBIT 11 - Statement Re: Computation of Per-Share Earnings (continued)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1997 1996
----------------------------
Primary:
<S> <C> <C>
Average shares outstanding 6,960,287 6,915,000
Net effect of dilutive stock options and warrants--based on
the treasury stock method using average market price of
$1.80 per share in 1996 -- 216,000
----------------------------
Total 6,960,287 7,131,000
============================
Net income (loss) applicable to common stock $(3,856,019) $1,538,844
============================
Net income (loss) per share applicable to common stock $ (.55) $ .22
============================
Fully diluted:
Average shares outstanding 6,960,287 6,915,000
Net effect of dilutive stock options and warrants--based on
the treasury stock method using the period end market
price, if higher than average market price -- 216,000
Assumed conversion of 9% series D and series E cumulative,
convertible, redeemable preferred stock -- 1,270,000
----------------------------
Total 6,960,287 8,401,000
============================
Net income (loss) applicable to common stock $(3,856,019) $1,538,844
Add required dividends on series D and series E cumulative,
convertible, redeemable preferred stock -- 165,030
----------------------------
Total $(3,856,019) $1,703,874
============================
Net income (loss) per share applicable to common stock $ (.55) $ .20
============================
</TABLE>
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
FINANCIAL STATEMENTS OF COMPUTER INTEGRATION CORPORATION FOR THE NINE MONTHS
ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,654,663
<SECURITIES> 0
<RECEIVABLES> 61,102,532
<ALLOWANCES> 0
<INVENTORY> 15,220,977
<CURRENT-ASSETS> 82,552,555
<PP&E> 2,314,983
<DEPRECIATION> 0
<TOTAL-ASSETS> 97,269,424
<CURRENT-LIABILITIES> 61,704,659
<BONDS> 0
0
19
<COMMON> 6,993
<OTHER-SE> 6,421,805
<TOTAL-LIABILITY-AND-EQUITY> 97,269,424
<SALES> 306,088,342
<TOTAL-REVENUES> 306,088,342
<CGS> 275,226,304
<TOTAL-COSTS> 33,001,927
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,630,601
<INCOME-PRETAX> (5,770,490)
<INCOME-TAX> (2,079,505)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,690,985)
<EPS-PRIMARY> (.55)
<EPS-DILUTED> (.55)
</TABLE>
