<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 DECEMBER 31, 1996
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: 6,957,038 shares of common
stock outstanding as of January 31, 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.
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Computer Integration Corp.
and Subsidiary
<TABLE>
Condensed Consolidated Balance Sheets (Unaudited)
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
---------------------------------
(UNAUDITED) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,457,117 $ 7,599,051
Accounts receivable, net 62,096,286 62,743,319
Inventory 20,562,175 23,705,565
Deferred income taxes 1,102,871 1,843,283
Prepaid expenses and other current assets 676,724 658,247
---------------------------------
Total current assets 86,895,173 96,549,465
Property and equipment, net 6,667,891 5,010,690
Other assets:
Goodwill, net 12,108,083 12,446,491
Other 603,520 658,279
---------------------------------
Total other assets 12,711,603 13,104,770
---------------------------------
Total assets $106,274,667 $114,664,925
=================================
</TABLE>
Continued on next page.
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Computer Integration Corp.
and Subsidiary
<TABLE>
Condensed Consolidated Balance Sheets (continued)
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
---------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited) (Note)
<S> <C> <C>
Current liabilities:
Notes payable under line of credit $ 17,691,277 $ 18,746,703
Accounts payable 41,611,088 46,171,003
Accrued expenses 5,144,372 5,994,832
Restructuring accrual 456,577 2,300,000
Current portion of subordinated notes payable 267,440 302,440
Current portion of capital lease obligations 278,160 265,625
Other 930,195 619,872
---------------------------------
Total current liabilities 66,379,109 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 366,882 508,392
Other 0 400,000
---------------------------------
Total noncurrent liabilities 29,210,002 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, 19,250 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 6,957,038 and 6,944,700 shares at December 31, 1996
and June 30, 1996, respectively 6,957 6,945
Additional paid-in capital 9,822,062 9,809,736
Retained earnings 856,518 428,798
---------------------------------
Total shareholders' equity 10,685,556 10,245,498
---------------------------------
Total liabilities and shareholders' equity $106,274,667 $114,664,925
=================================
<FN>
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.
</TABLE>
See accompanying notes.
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Computer Integration Corp.
and Subsidiary
<TABLE>
Condensed Consolidated Statements of Income (Unaudited)
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31
1996 1995
-------------------------------
<S> <C> <C>
Net sales $98,858,011 $111,798,748
Cost of goods sold 88,988,044 100,955,612
-------------------------------
Gross profit 9,869,967 10,843,136
Selling, general and administrative expenses 10,504,858 8,413,755
Revision of restructuring accrual (1,843,423) 0
-------------------------------
8,661,435 8,413,755
-------------------------------
Income from operations 1,208,532 2,429,381
Interest expense 1,431,863 1,174,514
-------------------------------
Income (loss) before income taxes (223,331) 1,254,867
Income taxes expense (benefit) (43,800) 527,044
-------------------------------
Net income (loss) (179,531) 727,823
Less required payments on convertible preferred stock 55,012 55,010
-------------------------------
Income (loss) applicable to common stock $ (234,543) $ 672,813
===============================
Net income (loss) per share:
Primary $ (.03) $ .09
===============================
Fully diluted $ (.03) $ .09
===============================
Common shares and common share equivalents outstanding:
Primary 6,954,299 7,150,107
===============================
Fully diluted 6,954,299 8,420,107
===============================
</TABLE>
See accompanying notes.
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Computer Integration Corp.
and Subsidiary
<TABLE>
Condensed Consolidated Statements of Income (Unaudited)
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31
1996 1995
--------------------------------
<S> <C> <C>
Net sales $207,190,207 $232,708,946
Cost of goods sold 185,607,107 210,692,516
--------------------------------
Gross profit 21,583,100 22,016,430
Selling, general and administrative expenses 20,021,859 16,135,469
Revision of restructuring accrual (1,843,423) 0
--------------------------------
18,178,436 16,135,469
--------------------------------
Income (loss) from operations 3,404,664 5,880,961
Interest expense 2,581,008 2,317,154
--------------------------------
Income (loss) before income taxes 823,656 3,563,807
Income taxes 395,936 1,496,799
--------------------------------
Net income (loss) 427,720 2,067,008
Less required payments on convertible preferred stock 110,022 110,020
--------------------------------
Income (loss) applicable to common stock $ 317,698 $ 1,956,988
================================
Net income per share:
Primary $ .04 $ .27
================================
Fully diluted $ .05 $ .25
================================
Common shares and common share equivalents outstanding:
Primary 7,152,026 7,150,107
================================
Fully diluted 8,422,026 8,420,107
================================
</TABLE>
See accompanying notes.
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Computer Integration Corp.
and Subsidiary
<TABLE>
Condensed Consolidated Statements of
Cash Flows (Unaudited)
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31
1996 1995
----------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 427,720 $ 2,067,008
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Depreciation and amortization 923,136 821,595
Changes in operating assets and liabilities, exclusive of effects
from acquisitions:
Accounts receivable 647,033 7,393,347
Inventory 3,143,390 2,373,579
Prepaid expenses (18,477) 44,736
Other assets 672,651 (634,013)
Accounts payable (4,559,915) (13,452,443)
Accrued expenses and other current liabilities (2,275,325) 2,340,041
Other noncurrent liabilities (400,000) (310,260)
----------------------------
Net cash provided (used) by operating activities (1,439,787) 643,590
INVESTING ACTIVITIES
Acquisition of property and equipment (2,119,409) (560,988)
----------------------------
Net cash used in investing activities (2,119,409) (560,988)
FINANCING ACTIVITIES
Proceeds from exercise of stock options 12,338 -
Net (repayments) advances on line of credit (1,055,426) 1,348,622
Principal payments on subordinated notes payable (302,440) (186,174)
Preferred stock dividends paid (108,235) -
Repayments of capital lease obligations (128,975) (23,563)
----------------------------
Net cash (used) provided by financing activities (1,582,738) 1,138,885
----------------------------
Net increase (decrease) in cash (5,141,934) 1,221,487
Cash at beginning of period 7,599,051 797,678
----------------------------
Cash at end of period $ 2,457,117 $ 2,019,165
============================
SUPPLEMENTAL INFORMATION
Interest paid $ 149,424 $ 2,260,601
============================
Taxes paid $ 7,793 $ 502,614
============================
</TABLE>
See accompanying notes.
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Computer Integration Corp.
and Subsidiary
Notes to Condensed Consolidated
Financial Statements (Unaudited)
December 31, 1996
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of Computer
Integration Corp. (the "Registrant") 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 six months ended December 31, 1996
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. RECLASSIFICATIONS
Certain reclassifications have been made in the prior period's financial
statements to conform to current presentation.
3. 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.
Additionally the Company had a $1 million letter of credit issued under its
Credit Facility with Congress in favor of the lender.
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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 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 to consolidate these functions in its existing facilities in Boston, MA
and Charlotte, NC. This decision primarily reflects 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
$456,577 as of December 31, 1996 primarily represents future severance payments
related to the cancelled Atlanta consolidation.
In conjunction with the Company's plans to relocate to Atlanta it previously
signed a lease which commences January 1997. The Company's total lease liability
is approximately $3.2 million. The Company is exploring various alternatives to
terminate this liability including subleasing the facility and negotiating a
termination agreement with the landlord. In the December 1996 quarter the
Company recorded a reserve of $786,000 associated with management's estimate of
the future costs of terminating this lease liability.
5. SUBSEQUENT EVENTS
The Company's Board of Directors approved dividend payments to all preferred
stock holders of record on January 31, 1997 to be paid on March 1, 1997.
In February 1997 CIC increased the credit availability under its inventory
financing facility. In conjunction with this, the letter of credit issued under
its credit facility with Congress in favor of the lender was increased from $1
million to $1.5 million.
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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 DECEMBER 31, 1996 AND 1995
Net sales for the three months ended December 31, 1996 (the "fiscal
1997 Quarter") were $98,858,011 compared to $111,798,748 for the three months
ended December 31, 1995 (the "fiscal 1996 Quarter"), a decrease of $12,940,737
or 11.6%. 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 and the announced, then canceled, consolidation and
relocation to Atlanta. Revenues were also lower because of the Company's reduced
emphasis on lower margin sales opportunities.
Gross profit decreased to $9,869,967 in the fiscal 1997 Quarter from
$10,843,136 in the fiscal 1996 Quarter as a result of the decrease in sales. The
gross profit margin increased to 10.0% of sales in the fiscal 1997 Quarter
compared to 9.7% in the fiscal 1996 Quarter. This increase was primarily due to
the Company's reduced emphasis on lower margin sales opportunities.
Selling, general and administrative expenses ("SG&A") were $10,504,858
in the fiscal 1997 Quarter, compared to $8,413,755 in the fiscal 1996 Quarter,
an increase of $2,091,103 or 24.9%. This included a charge of $786,000
associated with management's estimate of the future costs of exiting from a
lease agreement for a facility in Atlanta. Excluding this charge, SG&A increased
$1,305,103 or 15.5% from the fiscal 1996 Quarter due to higher salary,
severance, recruiting, and temporary help caused by high employee turnover
associated with the announced, then cancelled, relocation to Atlanta and
changes in executive management;
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health benefits offered to employees acquired in connection with the Cedar
acquisition; an enhanced telecommunication system; and additional travel
expenses. In conjunction with the Company's plans to relocate to Atlanta, it
previously signed a lease which commences January 1997. The Company's total
lease liability is approximately $3.2 million. The Company is exploring various
alternatives to terminate this liability including subleasing the facility and
negotiating a termination agreement with the landlord. In the December 1996
quarter the Company recorded the previously mentioned reserve of $786,000
associated with management's estimate of the future costs of exiting from the
lease liability.
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 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 relocation and
consolidation of the Company's headquarters, sales and distribution facilities
to Atlanta. It decided to consolidate these functions in its existing facilities
in Boston, MA and Charlotte, NC. This decision primarily reflects 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 $456,577 as of December 31, 1996 primarily represents future
severance payments related to the cancelled Atlanta consolidation.
Interest expense increased to $1,431,863 for the fiscal 1997 Quarter
from $1,174,514 during the fiscal 1996 Quarter as a result of increased
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 $179,531 in the fiscal 1997 Quarter compared to net income of $727,823 in the
fiscal 1996 Quarter.
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
Net sales for the six months ended December 31, 1996 (the "fiscal 1997
Half") were $207,190,207 compared to $232,708,946 for the six months ended
December 31, 1995 (the "fiscal 1996 Half"), a decrease of $25,518,739 or 11.0%.
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 and the announced, then canceled, consolidation and relocation to
Atlanta. Revenues were also lower because the Company's reduced emphasis on
lower margin sales opportunities.
Gross profit decreased to $21,583,100 in the fiscal 1997 Half from
$22,016,430 in the fiscal 1996 Half as a result of the decrease in sales. Gross
profit margin increased to 10.4% in the fiscal
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1997 Half compared to 9.5% in the fiscal 1996 Half as a result of the Company's
reduced emphasis on lower margin sales opportunities.
Selling, general and administrative expenses ("SG&A") were $20,021,859
in the fiscal 1997 Half, compared to $16,135,469 in the fiscal 1996 Half, an
increase of $3,886,390 or 24.1%. This included the the previously mentioned
charge of $786,000 associated with the Atlanta lease. Excluding this charge SG&A
increased $3,100,390 or 19.2% from the fiscal 1996 Half primarily due to higher
salary, severance, recruiting, and temporary help caused by high employee
turnover associated with the announced, then cancelled, relocation to Atlanta
and changes in executive management; health benefits offered to employees
acquired in connection with the Cedar acquisition; an enhanced telecommunication
system; increased marketing efforts; and additional travel expenses.
The fiscal 1997 Half included the impact of reversing a portion of the
previously recorded $2.3 million restructuring reserve as previously discussed.
Interest expense increased to $2,581,008 for the fiscal 1997 Half from
$2,317,154 during the fiscal 1996 Half as a result of as a result of increased
borrowings under the line of credit in the fiscal 1997 Half as compared with the
fiscal 1996 Half.
As a result of the factors discussed above, the Company had net income
of $427,720 in the fiscal 1997 Half compared to net income of $2,067,008 in the
fiscal 1996 Half.
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 December
31, 1996, the Company had cash of $2,457,117, net accounts receivable of
$62,096,286, working capital of $20,516,064 and available funds under its credit
facility of approximately $5.1 million.
Net cash used in operating activities during the fiscal 1997 Half was
$1,439,787 primarily as a result of reductions in trade accounts payable of
$4,559,915 and reductions in accrued expenses and other current liabilities of
$2,275,325, partially offset by a $3,143,390 decrease in inventory.
Net cash used in investing activities for the fiscal 1997 Half was
$2,119,409, which was related to the acquisition of office and computer
equipment and software. Financing activities for the fiscal 1997 Half used cash
of $1,582,738 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 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.
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(effective rate of 9.25% at December 31, 1996). 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 the Registrant and CIC.
The Credit Facility is guaranteed by the Registrant.
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. Additionally, CIC had a $1 million letter of credit issued under its
Credit Facility with Congress in favor of the lender. As a subsequent event, in
February 1997 the letter of credit was increased from $1 million to $1.5 million
in conjunction with an increase in the credit available under this financing
facility.
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 announced, then
canceled, move to Atlanta and changes in the Company's executive management. The
Company believes that the employees have recently regained their focus and that
actions have been taken to improve collection.
The slowness in collection has caused an increase in the 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.
No assurance can be made 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
improvements in collection, profitability, and cash flow from current levels.
While management expects to achieve the required improvements, there can be no
assurance that the required 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 invested approximately $4 million in a management
information system which is intended to replace the multiple systems currently
in use, including the original Copley and Dataprint systems. During the quarter
ended December 31, 1996 the Company learned that the costs to complete this
information system and achieve the desired functionality will be higher than
originally estimated. As a result, the Company has halted development of this
information system while it evaluates whether it is prudent to continue or to
adopt another solution.
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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.
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PART II - OTHER INFORMATION
Item 5. Other Events
Effective October 3, 1996, the employment agreement of Frank J.
Slovenec, President of the Company, was terminated and Mr.
Slovenec entered into a one-year consulting agreement with the
Company. Effective November 4, 1996, Steven Wright became the
Chief Operating Officer of the Company. Mr. Wright was
previously employed by the Company as Vice President of
Logistics
Effective December 4, 1996, the employment agreement of Ronald
G. Farrell, Chief Executive Officer of CIC, was terminated and
Mr. Farrell entered into a two-year consulting agreement with
CIC. Effective December 4, 1996, Samuel C. McElhaney became the
Chief Executive Officer of CIC. Mr. McElhaney was the founder of
Dataprint and was a member of the Board of Directors of the
Company at the time of his appointment.
At the meeting of the Board of Directors on January 4, 1997, Mr.
Farrell was not reelected as Chairman of the Board of Directors
of the Company. At the meeting of the Board of Directors on
January 7, 1997, Frank J. Zappala, a Director, was elected as
Chairman. Mr. Farrell continues to be a member of the Board of
the Company.
Effective February 4, 1997, Ronald G. Assaf resigned from the
Board of Directors of the Company.
Effective December 31, 1996 John Chiste resigned as Chief
Financial Officer of the Company and effective February 4, 1997,
Edward A. Meltzer was appointed as Chief Financial Officer of
the Company.
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.
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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: February 12, 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
<TABLE>
Exhibit 11 - Statement Re: Computation of Per-Share Earnings
<CAPTION>
Three months ended
December 31
1996 1995
-----------------------------
<S> <C> <C>
Primary:
Average shares outstanding 6,954,299 6,915,000
Net effect of dilutive stock options and warrants--based
on the treasury stock method using average market
price of $1.87 per share in 1995 - 235,107
-----------------------------
Total 6,954,299 7,150,107
=============================
Net income (loss) applicable to common stock $ (234,543) $ 672,813
=============================
Per-share amount, net income (loss) applicable to common stock $ (.03) $ .09
=============================
Fully diluted:
Average shares outstanding 6,954,299 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 - 235,107
Assumed conversion of 9% Series D and Series E cumulative,
convertible, redeemable preferred stock - 1,270,000
-----------------------------
Total 6,954,299 8,420,107
=============================
Net income (loss) applicable to common stock $ (234,543) $ 672,813
Add required dividends on Series D and Series E cumulative,
convertible, redeemable preferred stock - 55,010
-----------------------------
Total $ (234,543) $ 727,823
=============================
Per share amount, net income (loss) applicable to
common stock $ (.03) $ .09
=============================
</TABLE>
18
<PAGE> 2
Computer Integration Corp.
and Subsidiary
Exhibit 11 -- Statement Re: Computation of Per-Share Earnings (continued)
<TABLE>
<CAPTION>
Six months ended
December 31
1996 1995
-------------------------
<S> <C> <C>
Primary:
Average shares outstanding 6,951,246 6,915,000
Net effect of dilutive stock options and warrants--based on
the treasury stock method using average market price of
$1.64 and $1.87 per share in 1996 and 1995, respectively 200,780 235,107
--------------------------
Total 7,152,026 7,150,107
==========================
Net income applicable to common stock $ 317,968 $1,956,988
==========================
Per-share amount, net income applicable to common stock $ .04 $ .27
==========================
Fully diluted:
Average shares outstanding 6,951,246 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 200,780 235,107
Assumed conversion of 9% Series D and Series E
cumulative, convertible, redeemable preferred stock 1,270,000 1,270,000
--------------------------
Total 8,422,026 8,420,107
==========================
Net income applicable to common stock $ 317,698 $1,956,988
Add required dividends on Series D and Series E cumulative,
convertible, redeemable preferred stock 110,022 110,020
--------------------------
Total $ 427,720 $2,067,008
==========================
Per share amount, net income applicable to common stock $ .05 $ .25
==========================
</TABLE>
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF COMPUTER INTEGRATOIN CORP. FOR THE SIX MONTHS ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,457,117
<SECURITIES> 0
<RECEIVABLES> 62,096,286
<ALLOWANCES> 0
<INVENTORY> 20,562,175
<CURRENT-ASSETS> 86,895,173
<PP&E> 6,667,891
<DEPRECIATION> 0
<TOTAL-ASSETS> 106,274,667
<CURRENT-LIABILITIES> 66,379,109
<BONDS> 0
0
19
<COMMON> 6,957
<OTHER-SE> 10,678,580
<TOTAL-LIABILITY-AND-EQUITY> 106,274,667
<SALES> 207,190,207
<TOTAL-REVENUES> 207,190,207
<CGS> 185,607,107
<TOTAL-COSTS> 18,178,436
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,581,008
<INCOME-PRETAX> 823,656
<INCOME-TAX> 395,936
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 427,720
<EPS-PRIMARY> .04
<EPS-DILUTED> .05
<FN>
20
</FN>
</TABLE>
