UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission file number 0-22122
MICROS-TO-MAINFRAMES, INC.
(Exact name of registrant as specified in its charter)
New York 13-3354896
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation of organization) No.)
614 Corporate Way, Valley Cottage, NY 10989
(Address of principal executive offices)
(914) 268-5000
(Registrant's telephone number )
Not applicable
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Security Exchange Act of 1994 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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Common Stock, $.001 par value - 3,450,374 shares as of August 7, 1996
<PAGE>
MICROS-TO-MAINFRAMES, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1996 (Unaudited) and March 31, 1996 ................. 3
Condensed Consolidated Statements of Income (Unaudited)
Three months ended June 30, 1996 and 1995 .................. 4
Condensed Consolidated Statements of Cash Flows
Three months ended June 30, 1996 and 1995 (Unaudited) ........ 5
Notes to Condensed Consolidated Financial
Statements - June 30, 1996 ................................ 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................9-12
PART II. OTHER INFORMATION ..................................... 12
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
(11.1) Statement re: computation of earnings per share
(27.1) Financial Data Schedule
SIGNATURES ......................................................13
2
<PAGE>
Micros-to-Mainframes, Inc.
Condensed Consolidated Balance Sheets
June 30 March 31,
1996 1996
(Unaudited)
Assets
Current Assets
Cash $ 3,038,290 $ 5,284,587
Accounts receivable, net 11,021,691 8,844,204
Inventory 1,619,118 1,331,000
Prepaid expenses and other current assets 552,408 432,460
----------------------------
Total current assets 16,231,507 15,892,251
Property, plant and equipment 1,213,982 705,023
Less accumulated deprecation and amortization 511,884 457,884
----------------------------
702,098 247,139
Other Assets 840,553 69,162
----------------------------
Total assets $ 17,774,158 $ 16,208,552
============================
Liabilities and Shareholders' Equity
Current liabilities:
Secured notes payable $ -- $ 5,000
Accounts payable and accrued expenses 5,863,152 5,083,969
Income taxes payable 246,537 119,140
----------------------------
Total current liabilities 6,109,689 5,208,109
Shareholders' Equity
Preferred stock $140,000 liquidation preference 1,400 1,400
Common stock 4,233 3,363
Additional paid-in capital 12,781,717 12,374,774
Retained (deficit) (1,122,881) (1,379,094)
----------------------------
Total shareholders' equity 11,664,469 11,000,443
----------------------------
Total liabilities and shareholders' equity $ 17,774,158 $ 16,208,552
============================
See accompanying footnotes
3
<PAGE>
Micros-to-Mainframes, Inc.
Condensed Consolidated Statements of Income
Unaudited
Three Months Ended
June 30 June 30
1996 1995
Net sales $ 13,311,382 $ 10,903,699
Costs and expenses:
Cost of products sold 10,999,023 9,274,274
Technical personnel salaries 427,445 239,348
Selling, general and administrative expenses 1,487,682 964,950
Interest expenses 2,006 1,825
----------------------------
12,916,156 10,480,397
Other Income 45,987
----------------------------
Income before income taxes 441,213 423,302
Provision for income taxes 185,000 176,000
----------------------------
Net income $ 256,213 $ 247,302
============================
Primary earnings per share $0.06 $0.11
============ ===========
Fully diluted (loss) per share NA ($0.86)
============ ===========
Weighted average number of common and
common equivalent shares used in calculation
primary earnings per share 4,435,272 2,233,855
Weighted average number of common and
common equivalent shares used in calculation
for fully diluted (loss) per share NA 3,920,928
See accompanying footnotes
4
<PAGE>
Micros-to-Mainframes, Inc.
Condensed Consolidated Statements of Cash Flows
Unaudited
Three Months Ended
June 30 June 30
1996 1995
Operating activities
Net income $ 256,213 $ 247,302
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 62,092 26,000
Changes in operating assets and liabilities:
Increase in accounts receivable (707,578) (188,451)
Increase in inventory (256,719) (176,188)
Decrease in prepaid expenses and
other current assets 8,989 14,370
Increase in other assets (46,585)
Decrease in accounts payable
and accrued expenses (131,338) (96,019)
Increase (Decrease) in income taxes payable 127,397 (72,460)
--------------------------
Net cash provided by (used in) operating activities (687,529) (245,446)
Investing activities
Purchase of property and equipment (242,750) (116,665)
Purchase of Subsidiary, net of cash received (1,311,018)
--------------------------
Net cash used in investing activities (1,553,768) (116,665)
Financing activities
Principal payments on secured notes payable (5,000) -
--------------------------
Net cash (used in) provided by financing activities (5,000) -
--------------------------
Increase (decrease) in cash (2,246,297) (362,111)
Cash at the beginning period 5,284,587 1,167,008
----------------------------
$ 3,038,290 $ 804,897
============================
Supplement disclosures of cash flow information
Cash paid during the quarter for:
Income taxes $52,362 $248,525
Noncash investing activities
Capital stock issued for acquisition (see note 2) $407,813 -
See accompanying footnotes
5
<PAGE>
MICROS-TO-MAINFRAMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Micros-to-Mainframes, Inc. (the "Company") and its wholly-owned subsidiaries
Data.Com RESULTS, Inc. and MTM Advanced Technology, Inc. hereafter referred to
as the "Company" have been prepared in accordance with generally accepted
accounting principles for interim financial information and the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three months
ended June 30, 1996 are not necessarily indicative of the results that may be
expected for the year ending March 31, 1997. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's Annual Report Form 10-K (Commission file number 0-22122) for the
fiscal year ended March 31, 1996.
INVENTORIES
Inventories which are comprised principally of computer hardware and software,
are stated at the lower-of-cost or market using the first-in, first-out (FIFO)
Method.
2. ACQUISITION OF DATA.COM RESULTS, INC.
On May 6, 1996, a subsidiary of the Company, acquired substantially all of the
assets of Data.Com RESULTS, Inc. ("Data.Com"), in exchange for issuance of
87,000 shares of Common Stock of the Company (valued at approximately $407,000),
and the assumption of certain of Data.Com's payables (primarily trade). Data.Com
is a data communication, wide area network (WAN) and local area network (LAN)
consultant and advanced technology solutions provider primarily serving clients
located in Connecticut.
The acquisition has been accounted for using the purchase method of accounting,
and, accordingly, the purchase price has been allocated to the assets acquired
and the liabilities assumed based upon the fair values at the date of
acquisition. The excess of the purchase price over the fair values of the net
assets acquired and the closing cost was approximately $720,000 and has been
recorded as goodwill, which is being amortized on a straight-line basis over 15
years.
In addition to the above consideration, contingent consideration is payable in
the Company's common stock based upon defined future levels of Data.Com's
earnings before taxes, depreciation, and amortization ("EBDTA") through
6
<PAGE>
Fiscal 1999. The maximum number of shares to be issued are 25,000, 25,000, and
35,000 in Fiscal 1997, 1998, and 1999, respectively. The contingent
consideration is not included in the calculation of the acquisition cost. In
addition to the above contingent consideration, the president of Data.Com will
be issued 5,000, 5,000, and 10,000 stock options in Fiscal 1997, 1998, and 1999,
respectively, if Data.Com's EBTDA is greater than $1.25 million, $1.25 million,
and $1.35 million for Fiscal 1997, 1998, 1999, respectively. The option price
for any option so granted shall be 110% of the fair market value of the
Company's common stock as at the first day of the taxable year in which the
respective options, if any, are granted. The options shall not vest until the
first day of the taxable year following the year of grant, at which time all
such options shall vest. Compensation expense will be recognized during the
target period based on the market value of the Company's common stock.
3. SHAREHOLDERS' EQUITY
Capital stock consists of the following at June 30, 1996:
* Preferred Stock, $.001 par value; 1,400,000 shares
authorized, issued and outstanding; aggregate liquidation
preference of $140,000 .................................. $ 1,400
Common Stock, $.001 par value; 10,000,000 shares authorized;
3,450,374 shares issued and outstanding ................. $ 3,450
* At the Annual Meeting of Shareholders which will be held on August 20,
1996, the Company intends to ratify the conversion of the 1,400,000 outstanding
shares of Preferred Stock into 980,000 shares of Common Stock.
The 1,400,000 convertible preferred shares are convertible into common
stock (1 to 1) at the option of the holders, solely if the Company's net sales
in any four consecutive fiscal quarters aggregates $50 million or more and its
net income amounts to $1,500,000 or more, or such proportionately higher amount
of net income (3% of net sales) on net sales in excess of $50 millon.
In the fourth quarter of the year ended March 31, 1996 ("Fiscal 1997"),
the thresholds for convertibility were considered probable. In conjunction with
this determination, the Company and the holders of the preferred shares
committed to accelerate the convertibility and fix the amount of compensation
expense to be charged to earnings. The Board of Directors and the preferred
shareholders agreed subject to the receipt of necessary stockholders' consent
and an independent appraisal as to the equivalent value of the shares of
Preferred stock and Common stock, to the conversion of the preferred shares into
common shares. The appraisal concluded that the 1,400,000 preferred shares were
equivalent to 980,000 common shares. Based on the market value of the Company's
common stock at March 31, 1996, the Company recognized a non-recurring, non-cash
charge of $4,655,000.
7
<PAGE>
The stock options granted under the Employee Stock Option Plan are summarized
as follows:
Number of Option Exercise
Options Price Per Share
March 31, 1996 balance 228,875 $1.25 - $7.00
Options issued during the period -
Outstanding at June 30, 1996 228,875 $1.25 - $7.00
========
Exercisable at June 30, 1995 123,750
8
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The following table sets forth for the periods indicated certain items in the
Company's Consolidated Statements of Income expressed as a percentage of that
period's net sales.
Percentage of Sales
Three Months ended
June 30,
1996 1995
Net Sales ...............................100.00% 100.00%
Cost of products sold ................... 82.63 85.06
Technical personnel salaries............. 3.21 2.20
Selling, general and
administrative expenses............. 11.18 8.85
Income from operations .................. 3.31 3.88
Net Income............................... 1.92 2.27
On May 6, 1996, a newly formed subsidiary of the Company ("Data.Com")
acquired substantially all of the assets of Data.Com. RESULTS, Inc. The purchase
price for the assets was approximately $1,820,000 which included the assumption
of liabilities, of which $1,343,000 were paid at the closing of the acquisition,
and the issuance of 87,000 shares of Common Stock valued at $407,000. Additional
consideration is payable in Common Stock, contingent upon Data.Com's achieving
certain levels of earnings before taxes, depreciation and amortization through
Fiscal 1999. The maximum number of shares to be issued are 25,000, 25,000 and
35,000 in Fiscal 1997, 1998 and 1999, respectively. On the first anniversary of
the closing of the transaction, there may also be some additional consideration
given by the Company based on accounts receivable claims and sales of written
down inventory. The above table and the discussion that follows includes the
results of Data.Com the date of acquisition.
The Three Months Ended June 30, 1996, as compared to the Three Months Ended June
30, 1995
The Company had net sales of approximately $13,311,000 for the Three
Months Ended June 30, 1996 ("First Quarter 1997"), as compared with
approximately $10,904,000 for the Three Months Ended June 30, 1995 ("First
Quarter 1996"). The increase in sales of approximately 22% or approximately
$2,408,000 in the First Quarter 1997 were attributable to the inclusion of
results of Data.Com, whose sales of hardware and technology consulting services
were approximately $930,000, and the increased sales of hardware and technology
consulting services to both new and existing customers.
As a percentage of net sales, the cost of products sold decreased by
approximately 2.4% for the First Quarter 1997. The decrease was due in part to
sales of high-ended computer products relating to technical consulting services
which yielded higher profit margins.
9
<PAGE>
The Company increased its technical personnel salaries by approximately $188,000
or 78.6% in the First Quarter 1997 as compared to the First Quarter 1996. This
increase in personnel is due to the increase in customer demand for the
Company's technical and consulting services, as indicated by the continued
growth of the Company's Advanced Technology Group. The revenue related to the
service and consulting business was approximately $852,000 (approximately
$175,000 from Data.Com) for the First Quarter 1997 compared to $578,000 for the
First Quarter 1996. This is an increase of approximately $274,000 or 47%. The
Company expects to hire additional professional technicians and engineers to
handle the increased demand pertaining to the outsourcing business for the
future.
Selling, general and administrative expenses ("SG&A") were approximately
$1,487,000 in the First Quarter 1997 as compared to $965,000 in the First
Quarter 1996. The SG&A expenses as a percentage of net sales were 11.2% and 8.9%
in the First Quarter 1997 and the First Quarter 1996, respectively. As a whole,
SG&A increased approximately 54% or $522,000. The increase is attributable to
approximately $250,000 of expenses of Data.Com in the first quarter. In
addition, the Company opened a new office in New Jersey in February 1996.
Furthermore there was an increase in salesperson compensation due to increased
sales, and other increases including employee payroll, benefits and payroll
taxes, insurance, legal and accounting, and other professional fees.
The effective income tax rates for the First Quarter 1997 and the First Quarter
1996 were both approximately 42%.
As a result of the forgoing, the Company had net income of approximately
$257,000 in the First Quarter 1997 compared to $247,000 in the First Quarter
1996. This represents an increase of approximately 4%. Primary earnings per
share was $0.06 in the First Quarter 1997 compared to $0.11 in the First Quarter
1997. The primary earnings per share calculations are based on the total
weighted average common and common equivalent shares outstanding and the net
effect of dilutive stock options (4,435,272 shares in the First Quarter 1997 and
2,233,855 shares in the First Quarter 1996). In addition, in the First Quarter
1997, primary earnings per share included the effect of the conversion of
1,400,000 shares of Preferred stock into 980,000 shares of Common stock. The
increase in weighted average common and common equivalent shares outstanding is
primarily attributable to the inclusion of 980,000 shares of Common Stock from
the assumed conversion of preferred shares and the issuance of approximately
1,200,000 share of common stock in December 1995 from the exercise of
substantially all of the Company's Warrants and Representatives Warrants. The
fully diluted (loss) per share was ($.86) in the First Quarter 1996 based on
3,920,928 weighted average shares outstanding.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company measures its liquidity in a number of ways, including the following:
June 30, March 31,
1996 1996
(Dollars in thousands,
except current ratio data)
Cash and cash equivalents............... $ 805 $ 5,285
Working capital ......................... $ 4,814 $10,685
Current ratio .......................... 2.10:1 3.05:1
Secured notes payable .................. $ - $ 5
Working capital line available .......... $ 6,119 $ 8,759
The Company had working capital of approximately $10,121,000 as of June 30,
1996, a decrease of approximately $563,000, or 5%, from March 31, 1996. The
decrease was due to the acquisition of Data.Com, the purchase of new office
equipment and the opening of a new office in New Jersey, offset by the net
profit of $256,000 for the First Quarter 1997.
During the First Quarter 1997, the Company had net cash used in operating
activities of approximately $687,5290 derived primarily from $256,000 of net
income, offset by an increase in inventory of approximately $257,000 an increase
in accounts receivable of $708,000, a decrease in accounts payable and accrued
expenses of approximately $131,000, offset by a increase in income taxes payable
of approximately $127,000. The Company had net cash used in investing activities
of approximately $1,554,000, resulting from the purchase of office equipment of
approximately $243,000 and the acquistion of Data.Com of approximately
$1,311,000.
As a result of the foregoing, the Company decreased its cash by $2,246,000.
The Company finances much of its business through a two-year $5,000,000
revolving credit facility from a bank, and separately arranged floor-plan
financing agreements aggregating $6,300,000, which are alternate credit lines
provided by manufacturers or vendors. The floor-plan agreements generally allow
the Company to borrow for a period of 30 to 60 days interest free. Interest is
charged to the Company only after the due date. These arrangements generally
provide for security interests in the related inventory and/or accounts
receivable, and liens against all assets of the Company. All of such borrowings
are subordinated to the Company's bank revolver except as to inventory and
equipment, as to which the floor-planners hold a first lien pursuant to
intercreditor agreements. On June 30, 1996, the Company's total outstanding debt
under these arrangements with floor-planners was approximately $2,200,000 and a
balance of $4,100,000 was available under such lines of credit. On June 30,
1996, the Company had $5,000,000 available under the bank line of credit.
The borrowing rate on the Company's $5,000,000 credit facility is the
11
<PAGE>
"Alternate Bank Rate" as defined by the Bank. At June 30, 1996 such rate was 8%.
The credit facility (originally expiring on July 31, 1996) was extended to
September 30, 1996. The credit facility provides, among other matters, for: (i)
a general security interest first lien on substantially all of the Company's
assets (a second lien to the extent a first lien on inventory and equipment is
held under the financing agreements described above); (ii) unconditional
guarantees of MTM Advanced Technology, Inc., and (iii) financial covenants,
including minimum amounts of working capital, tangible net worth, restrictions
on certain transactions, including the payment of dividends, and specified
financial ratios.
The Company's current ratio decreased to 2.10:1 at June 30, 1996 from 3.05:1 at
March 31, 1996.
The Company believes that expected cash flow from its operations combined with
available financing arrangements will be sufficient to satisfy its expected cash
requirements for the next 12 months.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11.1 Statement Re: Computation of Per Share Earnings.
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
Report on Form 8-K was filed on May 20, 1996 and Report Form 8-K/A was
filed June 7, 1996 reflecting the acquisition of the assets of Data.Com
RESULTS, Inc.
12
<PAGE>
SIGNATURES
Pursuant to the Requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MICROS-TO-MAINFRAMES, INC.
Date : August 9, 1996 By: /s/ Howard A. Pavony
Howard A. Pavony
President (Co-Principal
Executive Officer) and Director
Date : August 9, 1996 By: /s/ Steven H. Rothman
Steven H. Rothman
Vice President (Co-Principal
Executive Officer) and Director
Date : August 9, 1996 By: /s/ Frank T. Wong
Frank T. Wong
Vice President - Finance
(Principal Financial and
Accounting Officer) Secretary
and Director
13
<PAGE>
Exhibit (11.1) - Statement Re: Computation of Earnings Per Share
Three Months Ended June 30
1996 1995
Primary:
Actual net income $256,213 $247,302
Average shares outstanding 4,396,912 2,177,410
Net effect of dilutive stock
options and warrants--based
on treasury stock method using
average market price 38,460 56,445
---------- ---------
Average shares outstanding
as adjusted for calculation 4,435,372 2,233,855
----------- ----------
Per share amount $0.06 $0.11
============ ==========
Fully diluted:
Actual net income 247,302
Adjustment to reflect
additional earnings to reach
earnings targets 1,252,698
Adjustments to recognize
compensatory nature of
Preferred Stock (4,900,000)
Add 6% (assumed T-Bill rate)
interest net of federal
income tax effect 23,303
------------
Net (Loss) adjusted for
calculation (3,376,697)
===========
Average shares outstanding 3,157,410
Net effect of dilutive stock
options and warrants--based
on treasury stock method using
ending market price 763,518
---------
Average shares outstanding
as adjusted for calculation 3,920,928
----------
Per share amount $(0.86)
==========
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1996
<CASH> 3,038
<SECURITIES> 0
<RECEIVABLES> 11,022
<ALLOWANCES> 0
<INVENTORY> 1,619
<CURRENT-ASSETS> 552
<PP&E> 1,214
<DEPRECIATION> 512
<TOTAL-ASSETS> 17,774
<CURRENT-LIABILITIES> 6,110
<BONDS> 0
0
1
<COMMON> 4
<OTHER-SE> 11,659
<TOTAL-LIABILITY-AND-EQUITY> 17,774
<SALES> 13,311
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 11,426
<OTHER-EXPENSES> 1,490
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 441
<INCOME-TAX> 185
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 256
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<PAGE>
</TABLE>
