<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 SEPTEMBER 30, 1997
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM to
COMMISSION FILE NUMBER: 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.)
2425 CROWN POINT EXECUTIVE DRIVE, CHARLOTTE, NC 28277
(Address of principal executives offices) (Zip code)
Registrant's telephone number, including area code: 704/847-7800
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: 14,034,810 shares of common
stock outstanding as of November 10 , 1997.
<PAGE> 2
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,
1997.
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
<PAGE> 3
COMPUTER INTEGRATION CORP.
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE RELATED DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 JUNE 30, 1997
(NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,927 $ 1,360
Accounts receivable, net 64,946 63,905
Inventory 18,367 17,350
Deferred income taxes 3,309 2,952
Prepaid expenses and other current assets 1,617 2,881
-------- --------
Total current assets 90,166 88,448
Property and equipment, net 2,204 2,145
Other assets:
Goodwill, net 11,600 11,770
Other 637 298
-------- --------
Total other assets 12,237 12,068
-------- --------
Total assets $104,607 $102,661
======== ========
</TABLE>
Continued on next page.
3
<PAGE> 4
COMPUTER INTEGRATION CORP.
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE RELATED DATA)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY SEPTEMBER 30, 1997 JUNE 30, 1997
(NOTE)
<S> <C> <C>
Current liabilities:
Note payable under line of credit $ 5,646 $ 8,717
Accounts payable 51,459 52,276
Accrued expenses 6,208 6,476
Restructuring accrual 630 --
Current portion of subordinated notes payable 671 268
Current portion of capital lease obligations 301 292
Other 565 860
-------- --------
Total current liabilities 65,480 68,889
Noncurrent liabilities:
Term note payable 27,500 27,500
Subordinated notes payable, less current portion 672 1,343
Capital lease obligations, less current portion 137 216
Deferred income taxes 497 497
-------- --------
Total noncurrent liabilities 28,806 29,556
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, 19,036 issued and outstanding in both
periods -- --
Series E, 9% cumulative, convertible, redeemable preferred stock;
250 shares authorized, 125 issued and outstanding in both
periods -- --
Common stock, $.001 par value, 20,000,000 shares authorized, 14,034,810
and 7,084,810 shares issued and outstanding at September 30, 1997
and June 30, 1997, respectively 14 7
Additional paid-in capital 17,028 9,854
(Accumulated deficit) retained earning (6,721) (5,645)
-------- --------
Total shareholders' equity 10,321 4,216
-------- --------
Total liabilities and shareholders' equity $104,607 $102,661
======== ========
</TABLE>
Note: The balance sheet at June 30, 1997 is derived from the Company's audited
consolidated 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.
4
<PAGE> 5
COMPUTER INTEGRATION CORP.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE RELATED DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
----------- ----------
<S> <C> <C>
Net sales $ 112,770 $ 108,332
Cost of goods sold 103,057 96,619
----------- ----------
Gross profit 9,713 11,713
Selling, general and administrative expenses 9,976 9,517
Restructuring accrual 630 --
----------- ----------
10,606 9,517
----------- ----------
(Loss) income from operations (893) 2,196
Interest expense 901 1,149
----------- ----------
(Loss) income before income taxes (1,794) 1,047
Income tax (benefit) expense (718) 440
----------- ----------
Net (loss) income (1,076) 607
Less required payments on convertible preferred stock 55 55
----------- ----------
(Loss) income applicable to common stock $ (1,131) $ 552
=========== ==========
Primary $ (.09) $ .08
=========== ==========
Fully diluted $ (.09) $ .07
=========== ==========
Weighted average common shares and common share equivalents
outstanding:
Primary 12,297,310 7,192,415
=========== ==========
Fully diluted 12,297,310 8,462,415
=========== ==========
</TABLE>
See accompanying notes.
5
<PAGE> 6
COMPUTER INTEGRATION CORP.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE RELATED DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(1,076) $ 607
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 412 462
Restructuring accrual 630 --
Changes in operating assets and liabilities:
Accounts receivable (1,041) (3,201)
Inventory (1,017) (8,286)
Prepaid expenses and other assets 515 (221)
Accounts payable (817) 3,208
Accrued expenses and other current liabilities (511) (1,400)
------- -------
Net cash used in operating activities (2,905) (8,831)
INVESTING ACTIVITIES
Acquisition of property and equipment (248) (622)
------- -------
Net cash used in investing activities (248) (622)
FINANCING ACTIVITIES
Proceeds from sale of capital stock, net of offering costs 7,236 --
Proceeds from exercise of stock options -- 8
Net (repayments)advances on line of credit (3,071) 4,008
Principal payments on subordinated notes payable (268) --
Preferred stock dividends paid (107) (108)
Repayments of capital lease obligations (70) (43)
------- -------
Net cash provided by financing activities 3,720 3,865
------- -------
Net increase (decrease) in cash 567 (5,588)
Cash at beginning of period 1,360 7,599
------- -------
$ 1,927 $ 2,011
======= =======
SUPPLEMENTAL INFORMATION
Interest paid $ 901 $ 1,120
======= =======
Taxes paid $ 9 $ 9
======= =======
NONCASH INVESTING AND FINANCING ACTIVITIES
Preferred stock dividends in accrued expenses $ 55 $ --
======= =======
</TABLE>
See accompanying notes.
6
<PAGE> 7
COMPUTER INTEGRATION CORP.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 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 months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for fiscal year 1998.
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, 1997.
2. COMMON STOCK SALE
On July 23, 1997, the Company completed the sale of 6,950,000 shares of its
common stock for an aggregate price of $7,436,500 to various unaffiliated third
parties. As a result of the sale, the buyers held 49.86% of the shares of the
Company's common stock outstanding. In connection with the sale, the Company
issued warrants to purchase 300,000 shares of common stock to the individuals
who facilitated the transaction. The warrants are immediately exercisable at a
price of $1.13 per share and expire in 2004. The fair value assigned to the
warrants was $1.09 per share. The total fair value of the 300,000 warrants,
$327,000, has been deducted from the proceeds received under the sale of common
stock, and has been allocated to additional paid-in capital applicable to stock
warrants. The proceeds received by the Company, net of associated expenses, of
approximately $7.2 million were used to repay borrowings under the Company's
revolving line of credit. Assuming this repayment and stock sale had occurred on
July 1, 1997, the loss per common share for the quarter ended September 30, 1997
would have been ($.08) as a result of a reduction of interest costs of
approximately $25,000 after tax and an increase in the average common shares
outstanding of 1,737,500.
7
<PAGE> 8
COMPUTER INTEGRATION CORP.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
3. RESTRUCTURING CHARGES
On September 18,1997, the Company announced a new logistics strategy and plan to
consolidate its headquarters and distribution functions into new facilities in
Charlotte, NC. The Company expects that these actions will allow it to be more
responsive to its customers and improve the quality, efficiency, and timeliness
of the products and services it provides. The strategy will be implemented in
stages with all elements expected to be completed by January 1998. The Company's
preliminary estimate of the cost associated with the consolidation is
approximately $2 million. These costs included employee severance and relocation
benefits, recruiting costs, facility relocation costs and the write-off of
certain property and equipment. This estimate also includes the anticipated
costs associated with the duplication of certain employees responsibilities and
redundant facilities during the transition period.
In conjunction with this planned relocation and consolidation, during the first
quarter of fiscal 1998, the Company recorded a special charge of $630,000 for
restructuring costs. This charge, which is included in the $2 million estimate
discussed above, includes approximately $350,000 for severance benefits for
approximately 58 affected employees, $240,000 for lease payments on idle
facilities, and $40,000 for the write-off of property and equipment which will
no longer be required. The employees who will be terminated are primarily
distribution, accounting, purchasing and administrative personnel in the
Company's Westwood, Massachusetts facility. As of September 30, 1997 none of the
charge had been utilized.
During the second quarter of fiscal 1997, the Company decided not to proceed
with a planned consolidation of some of the Company's headquarters, sales and
distribution facilities to Atlanta, which relocation was originally announced in
the fourth quarter of fiscal 1996. Accordingly, during the second quarter of
fiscal 1997, the Company reversed $1,843,423 of the original $2.3 million charge
for restructuring costs. The remaining restructuring accrual balances, included
in accrued expenses, were $53,000 and $128,000 as of September 30, 1997 and June
30, 1997, respectively.
4. EARNINGS PER COMMON SHARE
Earnings per common share is based on the weighted average number of common and
common equivalent shares (i.e. stock options) outstanding during the period. In
February, 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share," which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The Company has not yet determined the resulting
impact on primary earnings per share.
5. SUBSEQUENT EVENTS
In November 1997, the Company amended its financing agreement with its primary
lender, Congress Financial Corporation ("Congress"), to extend the expiration
date of the credit facility from July 1, 1998 to October 1, 1998 and to change
the maximum credit amount from $77 million to $70 million. This amount was
agreed to as an interim step while the Company and Congress negotiate the terms
and conditions of an extension of the financing agreement until at least July
1, 1999.
The Company currently has an agreement, originally entered into during the
fiscal year ended June 30, 1997 with a company to finance inventory purchases
for selected suppliers. In November the Company and the finance company agreed
to amend the inventory financing agreement such that the maximum credit limit
has been reduced to $1.5 million and the term has been extended to January 17,
1998. This change was agreed to as an interim step while the Company and the
finance company discuss the terms and conditions of a replacement facility.
At the Company's annual meeting on November 4, 1997, the Company's shareholders
voted to increase the number of authorized shares of capital stock from
22,000,000 shares to 42,000,000, including an increase in the number of
authorized shares of common stock from 20,000,000 shares to 40,000,000 shares.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Computer Integration Corp. (the "Company") is a reseller of microcomputers,
workstations, and related products, services and solutions to large and
medium-sized corporations, federal, state, and local governmental entities and
colleges and universities throughout 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 which include Hewlett-Packard Company ("HP"), Compaq Computer
Corporation, Sun Microsystems Corporation, Toshiba America Information Systems,
Inc., International Business Machines, Lexmark International, NEC Technologies,
Inc., 3COM, Inc., Oracle Corporation, Netscape Communications Corporation,
Sterling Commerce, 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 was one of the
largest dealers of HP computer products in the midwestern and western United
States at that time.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Net sales for the three months ended September 30, 1997 (the "fiscal 1998
Quarter") were $112.8 million compared to $108.3 million for the three months
ended September 30, 1996 (the "fiscal 1997 Quarter"), an increase of $4.5
million or 4.1%. The increase in sales was primarily due to improved focus by
the sales organization and its impact on expanding the Company's customer base
and regaining business from previous customers.
Gross profit decreased to $9.7 million in the fiscal 1998 Quarter from $11.7
million in the fiscal 1997 Quarter. The gross profit margin decreased to 8.6% of
sales in the fiscal 1998 Quarter compared to 10.8% in the fiscal 1997 Quarter.
The decrease in gross profit margin was primarily the result of increased
competitive pressures in the marketplace resulting in reduced selling prices.
Also contributing to the decline was increased inventory obsolescence resulting
from customer returns. These were partially offset by the favorable impact of a
large rebate received from a major supplier as a result of achieving certain
volume targets.
During the fiscal 1998 Quarter, the Company recorded a charge of $630,000
("Restructuring Charge") associated with a planned consolidation of its
headquarters and distribution facilities to two new facilities in Charlotte, NC.
This charge includes approximately $350,000 for severance benefits for
approximately 58 affected employees, $240,000 for lease payments on idle
facilities, and $40,000 for the write-off of property and equipment which will
no longer be required.
9
<PAGE> 10
Excluding the Restructuring Charge, selling, general and administrative expenses
("SG&A") were $10.0 million in the fiscal 1998 Quarter, compared to $9.5 million
in the fiscal 1997 Quarter, an increase of approximately $500,000, or 4.8%. As a
percentage of net sales, SG&A remained constant at 8.8% in both the fiscal 1998
and 1997 Quarters. The $500,000 increase was due primarily to increased travel,
increased recruiting costs associated with hiring salespeople and systems
engineers, additional costs associated with enhanced telecommunications, and
increased legal fees.
Interest expense decreased to approximately $900,000 for the fiscal 1998 Quarter
from $1.1 million during the fiscal 1997 Quarter as a result of decreased
borrowings under the Company's line of credit.
As a result of the factors discussed above, the Company had a net loss of $1.1
million in the fiscal 1998 Quarter compared to net income of approximately
$600,000 in the fiscal 1997 Quarter.
SUBSEQUENT EVENTS
Thus far in its second quarter, the Company has been unable to meet certain
demand because of a major manufacturer's inability to produce and supply a
sufficient quantity of selected products for which the Company has customer
orders. Unless the manufacturer can improve its supply or the Company can
convince its customers to accept alternative products, the Company's second
quarter sales and results of operations may be adversely affected.
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 September 30, 1997,
the Company had cash of $1.9 million, net accounts receivable of $64.9 million,
working capital of $24.7 million and available funds under its credit facility
of approximately $13.1 million.
Net cash used in operating activities during the three months ended September
30, 1997 was $2.9 million primarily as a result of increases in accounts
receivable of $1.0 million and inventory of $1.0 million and a reduction in
accounts payable of approximately $800,000.
Net cash used in investing activities for the three months ended September 30,
1997 was approximately $200,000, which was related to the acquisition of office
and computer equipment and software. Financing activities for the three months
ended September 30, 1997 provided cash of $3.7 million primarily as a result of
$7.2 million net proceeds from the sale of capital stock offset by a $3.1
million reduction in the outstanding balance on the Company's Credit Facility.
During November 1997, the Company amended its financing agreement ("Credit
Facility") with its primary lender, Congress Financial Corporation ("Congress")
to extend the expiration date of the Credit Facility from July 1, 1998 to
October 1, 1998 and change the maximum credit amount from $77 million to $70
million. The amount was agreed to as an interim step while the Company and
Congress negotiate the terms and conditions of an extension of the financing
agreement until at least July 1, 1999. 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 9.5% at September 30, 1997). The Credit Facility is used for inventory
financing and working capital, and is subject to a borrowing base formula using
eligible inventory and accounts receivable balances. The Credit facility
requires that CIC maintain, at all times, certain net worth and working capital
levels and restricts the payment of dividends by the Company.
10
<PAGE> 11
The Company currently has an agreement, originally entered into during the
fiscal year ended June 30, 1997, with a company to finance inventory purchases
for selected suppliers. The agreement provides a maximum credit limit of $3
million through November 17, 1997, at which time the agreement will terminate
and all amounts then outstanding will become due and payable by December 17,
1997. In November the Company and the finance company agreed to amend the
inventory financing agreement such that the maximum credit limit has been
reduced to $1.5 million and the term has been extended to January 17, 1998. This
change was agreed to as an interim step while the Company and the finance
company discuss the terms and conditions of a replacement facility. The finance
Company has a lien on the inventory financed under this facility, and a $1.5
million irrevocable letter of credit has been issued on behalf of the Company in
favor of the finance Company.
On July 23, 1997, the Company completed the sale of 6,950,000 shares of its
common stock for an aggregate price of $7,436,500 to various unaffiliated third
parties. As a result of the sale, the buyers held 49.86% of the shares of the
Company's common stock outstanding. The proceeds received by the Company, net of
related expenses, of approximately $7.2 million were used to repay borrowings
under the Company's revolving line of credit.
In September 1997, the Company announced a new logistics strategy and
consolidation of headquarters and distribution functions into new facilities in
Charlotte, NC. The consolidation is expected to be completed in January 1998.
The Company's estimate of non-recurring costs associated with the consolidation
is approximately $2 million. These costs include employee severance benefits,
reimbursed employee relocation expenses, recruiting, facility relocation
expenses, and the write-off of certain property and equipment. This estimate
also includes the costs associated with the duplication of certain employee
positions and redundant facilities during the transition period. Additionally,
expenditures for furniture, fixtures and equipment for the new Charlotte
facilities and a new office facility in suburban Boston, Massachusetts are
estimated at $1 million. The Company expects to finance these purchases through
either a capital or operating lease.
The Company has allocated approximately $2.0 million to be expended in the
fiscal year ended June 30, 1998 to significantly upgrade its management
information system, including installation of a new integrated software system
for order entry, purchasing, inventory, distribution and accounting, equipping
virtually all sales executives and systems engineers with HP laptop computers,
upgrading desktop personal computer hardware and software, and enhancing its
company-wide electronic mail system. Management believes that these upgrades are
necessary for the Company to take advantage of technological information system
improvements, reduce ongoing operating costs, and enhance its competitive
position. The Company expects to receive reimbursement from a vendor for some of
these capital expenditures. The Company expects to finance a portion, if not
all, of the expenditures with either a capital or operating lease.
In connection with the acquisition of Cedar, the Company has agreed to pay the
seller, on July 2, 1998, an amount equal to the difference between the market
price per share on that date for the 515,000 shares of common Stock owned by the
Seller, and $10 per share. On November 10, 1997, the closing price of the Common
Stock as reported by NASDAQ was $1.3125 per share.
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. The Company is also exploring the
possibility of obtaining additional debt or equity financing.
11
<PAGE> 12
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.
12
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 24, 1997, pursuant to an agreement dated May 15, 1997 between the
Company and Chartwell Group, Inc., a Texas corporation, ("Chartwell"), the
Company issued to the buyers listed below 6,950,000 shares of its common stock,
par value $.001 per share ("Common Stock"). The aggregate purchase price was
$7,436,500, or $1.07 per share. In connection with the foregoing transaction,
the Company issued to Chartwell's designees warrants (the "Warrants") to
purchase 300,000 shares of Common Stock at a purchase price per share of $1.13.
The Warrants expire on June 30, 2004. The Common Stock and Warrants were issued
in reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act of 1933, and were subsequently registered by the Company on a
Form S-3 Registration Statement (File No. 333-33417) declared effective by the
Securities and Exchange Commission on October 1, 1997.
<TABLE>
<CAPTION>
Buyer Number of Shares
----- ----------------
<S> <C>
Codinvest Limited 4,672,897
Donald Russell 200,000
David Searles 100,000
John Perry, III 300,000
Robert W. Johnson IV 1,000,000
Neil J. Burmeister 50,000
Arthur DelVesco 427,103
Thomas D. McCloskey, Jr. 200,000
</TABLE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On November 4, 1997, the Company held its annual meeting of stockholders.
At the annual meeting, the shareholders elected the following seven nominees as
directors: Samuel C. McElhaney, John E. Paget, Araldo A. Cossutta, Donald
Russell, Michael G. Santry, Matthew S. Waller and Frank J. Zappala, Jr.
10,619,211 votes were cast in favor of the election to the board of directors of
each of the seven nominees. 0 votes were cast against the election to the board
of directors of each of the seven nominees, and 1,021,595 votes abstained from
voting with respect to election to the board of directors of each of the seven
nominees.
At the annual meeting, the shareholders also voted upon proposals to: (i)
amend the Company's 1994 Stock Option Plan (the "Plan") to increase the number
of shares of Common Stock reserved for issuance under the Plan from 1,800,000
shares to 4,000,000 shares (the "Plan Amendment"); and (ii) amend the Company's
Certificate of Incorporation (the "Certificate") to increase the number of
authorized shares of capital stock from 22,000,000 shares to 42,000,000 shares,
including an increase in the number of authorized shares of Common Stock from
20,000,000 shares to 40,000,000 shares (the "Authorized Shares Amendment"). A
total of 11,026,303 votes were cast in favor of the Plan Amendment, 7,570 votes
were cast against the Plan Amendment and 35,174 votes abstained from voting with
respect to the Plan Amendment. A total of 11,596,462 votes were cast in favor of
the Authorized Shares Amendment, 44,334 votes were cast against the Authorized
Shares Amendment and 10 votes abstained from voting with respect to the
Authorized Amendment.
In addition, the shareholders voted to ratify the Company's selection of
the accounting firm of Ernst & Young LLP as the Company's independent certified
public accountants. A total of 11,603,622 votes were cast in favor of
ratification, 37,174 votes were cast against the ratification and 10 votes
abstained from voting with respect to the ratification of Ernst & Young LLP as
the Company's independent certified public accountants.
13
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10(b) - Employment Agreement between John Paget and CIC
Systems, Inc., dated July 24, 1997*
Exhibit 10(c) - Employment Agreement between Steven Wright and CIC
Systems, Inc., dated July 15, 1997*
Exhibit 10(d) - Employment Agreement between Samuel C. McElhaney and
CIC Systems, Inc., dated July 15, 1997*
Exhibit 10(e) - Employment Agreement between Edward Meltzer and CIC
Systems, Inc., dated July 15, 1997*
Exhibit 11 - Statement Re: Computation of Per Share Earnings
Exhibit 27 - Financial Data Schedule (for SEC use only)
- ----------
* Incorporated by reference to the Exhibits to the Registrant's Annual Report on
Form 10-K, as filed with the Securities and Exchange Commission on September 29,
1997, Commission File No. 0-20732.
(b) Reports on Form 8-K
On August 5, 1997, the Company filed a Form 8-K with respect to an
event required to be filed by "Item 1 - Changes in Control of
Registrant." No financial statements were filed in connection with the
Form 8-K.
14
<PAGE> 15
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 Principal Accounting Officer)
Dated: November 13, 1997
15
<PAGE> 16
EXHIBIT INDEX
PAGE
Exhibit 11 -- Statement Re: Computation of Per Share Earnings 17
Exhibit 27 -- Financial Data Schedule (for SEC use only) 18
16
<PAGE> 1
COMPUTER INTEGRATION CORP.
AND SUBSIDIARY
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER-SHARE EARNINGS
(IN THOUSANDS, EXCEPT SHARE RELATED DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
----------- ---------
<S> <C> <C>
Primary:
Average shares outstanding 12,297,310 6,948,193
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 -- 244,222
----------- ---------
Total 12,297,310 7,192,415
=========== =========
(Loss) income applicable to common stock $ (1,131) $ 552
=========== ==========
(Loss) income per share applicable to common stock $ (0.09) $ 0.08
=========== ==========
Fully diluted:
Average shares outstanding 12,297,310 6,948,193
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 -- 244,222
Assumed conversion of 9% series D and series E
cumulative, convertible, redeemable preferred stock
-- 1,270,000
----------- ----------
Total 12,297,310 8,462,415
=========== ==========
(Loss) income applicable to common stock $ (1,131) $ 552
Add required dividends on series D and series E cumulative,
convertible, redeemable preferred stock -- 55
----------- ----------
Total $ (1,131) $ 607
=========== ==========
(Loss) income per share applicable to common stock $ (0.09) $ 0.07
=========== ==========
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF COMPUTER INTEGRATION CORPORATION FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,927
<SECURITIES> 0
<RECEIVABLES> 64,946
<ALLOWANCES> 0
<INVENTORY> 18,367
<CURRENT-ASSETS> 90,166
<PP&E> 2,204
<DEPRECIATION> 0
<TOTAL-ASSETS> 104,607
<CURRENT-LIABILITIES> 65,480
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 10,307
<TOTAL-LIABILITY-AND-EQUITY> 104,607
<SALES> 112,770
<TOTAL-REVENUES> 112,770
<CGS> 103,057
<TOTAL-COSTS> 10,606
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 901
<INCOME-PRETAX> (1,794)
<INCOME-TAX> (718)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,076)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
