<PAGE>
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, 1997
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 - 4,450,374 shares as of August 7, 1997
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<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION:
ITEM 1: Financial Statements
Micros-to-Mainframes, Inc
Condensed Consolidated Balance Sheets
June 30, March 31,
1997 1997
(Unaudited)
------------ ---------
<S> <C> <C>
Assets
Current Assets
Cash $ 1,885,796 $ 2,879,578
Accounts receivable, net 13,364,322 13,707,458
Inventory 1,480,844 1,458,467
Prepaid expenses and other current asset 545,096 410,817
Deferred income taxes 15,000 15,000
----------- ----------
Total current assets 17,291,058 18,471,320
Property, plant and equipment 1,799,273 1,653,266
Less accumulated deprecation and amortization 693,438 626,940
----------- ---------
1,105,835 1,026,326
Goodwill, net of accumulated amortization 820,350 836,550
Other Assets 94,294 94,294
----------- -----------
Total assets $19,311,537 $20,428,490
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Secured notes payable $ 5,000 $ 5,000
Accounts payable and accrued expenses 6,832,899 7,905,693
Income taxes payable 0 174,553
---------- ----------
Total current liabilities 6,837,899 8,085,246
Shareholders' Equity
Common stock 4,450 4,450
Additional paid-in capital 12,807,900 12,807,900
Retained (deficit) (338,712) (469,106)
----------- ------------
Total shareholders' equity 12,473,638 12,343,244
----------- ------------
Total liabilities and shareholders' equity $19,311,537 $20,428,490
============ ============
<FN>
See accompanying footnotes
</TABLE>
2
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<TABLE>
Micros-to-Mainframes, Inc
Condensed Consolidated Statements of Income
Unaudited Three Months
Ended June 30
1997 1996
----------------------------
<S> <C> <C>
Revenue
Products $ 14,651,144 $11,836,413
Service related sales 2,924,731 1,474,969
------------- -----------
17,575,875 13,311,382
------------- -----------
Costs and expenses:
Cost of products sold 13,656,247 10,531,797
Cost related to service sales 1,886,615 894,671
------------- ----------
15,542,862 11,426,468
------------- ----------
Selling, general and administrative expenses 1,831,363 1,487,682
Interest expenses 485 2,006
----------- ----------
17,374,710 12,916,156
Other Income 19,229 45,987
---------- ---------
Income before income taxes 220,394 441,213
Provision for income taxes 90,000 185,000
---------- ---------
Net income $130,394 $256,213
========== =========
Primary earnings per share $0.03 $0.06
====== =====
Fully diluted earnings per share NA $0.05
==== =====
Weighted average number of common and
common equivalent shares used in calculation
primary earnings per share 4,481,306 4,435,372
Weighted average number of common and
common equivalent shares used in calculation
for fully diluted earnings per share NA 4,920,928
<FN>
See accompanying notes
3
</TABLE>
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<TABLE>
Micros-to-Mainframes, Inc
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended June 30
1997 1996
-------------------------
<S> <C> <C>
Operating activities
Net income $ 130,394 $ 256,213
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 82,698 62,092
Changes in operating assets and liabilities:
Decrease (Increase) in accounts receivable 343,136 (707,578)
Increase in inventory (22,377) (256,719)
(Increase) decrease in prepaid expenses and
other current assets (134,279) 8,989
Increase in other assets - (46,585)
Decrease in accounts payable
and accrued expenses (1,072,794) (131,338)
Increase (Decrease) in income taxes payable (174,553) 127,397
----------- --------
Net cash provided by (used in) operating (847,775) (687,529)
Investing activities
Purchase of property and equipment (146,007) (242,750)
Purchase of Subsidiary, net of cash received (1,311,018)
---------- ----------
Net cash used in investing activities (146,007) (1,553,768)
Financing activities
Principal payments on secured notes payable 0 (5,000)
----------- ---------
Net cash (used in) provided by financing activities 0 (5,000)
--------- ----------
Increase (decrease) in cash (993,782) (2,246,297)
Cash at the beginning of period 2,879,578 5,284,587
----------- -----------
Cash at the end of period $ 1,885,796 $ 3,038,290
=========== ===========
Supplement disclosures of cash flow information
Cash paid during the quarter for:
Income taxes $287,285 $52,362
Noncash investing activities
Capital stock issued for acquisition - $407,813
<FN>
See accompanying footnotes
</TABLE>
4
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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. 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, 1997 are not necessarily indicative of the results that may be
expected for the year ending March 31, 1998. 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, 1997.
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.
RECLASSIFICATION
Certain amount have been reclassified to conform to the current year
presentation.
5
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2 EMPLOYEE STOCK OPTION PLAN
The 1993 Employee Stock Option Plan (the 1993 Plan) was adopted by the
Company in May 1993 and the 1996 Stock Option Plan (the 1996 Plan) was
approved by the shareholders of the Company on August 20, 1996. The
Plans provide for granting of options, including incentive stock
options, non-qualified stock options and stock appreciation rights to
qualified employees (including officers and directors) of the Company,
independent contractors, consultants and other individuals, to
purchase up to an aggregate of 250,000 and 350,000 shares of common
stock in the 1993 Plan and 1996 Plan, respectively. The exercise price
of options generally, may not be less than 100% of the fair market
value of the Company's common stock at the date of grant. Options may
not be exercised more than ten years after the date of grant. Options
granted under the Plans become exercisable in accordance with
different vesting schedules depending on the duration of the options.
Information regarding the Company's stock option plans is summarized
below:
<TABLE>
<CAPTION>
1993 Plan 1996 Plan
-----------------------------------------------
Number Option Number Option
of Exercise of Exercise
Options Price Per Options Price Per
Share Share
<S> <C> <C> <C> <C>
Outstanding at March 31, 1997 220,000 $1.25-$7.00 145,000 $2.50-4.43
Options issued during
The First Quarter 1998 25,000 $2.875
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220,000 $1.25-$7.00 170,000 $2.25-$4.43
======= =======
6
</TABLE>
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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,
1997 1996
Product sales .......................... 83.36% 88.92%
Services related sales ................. 16.64 11.08
Net Sales ...............................100.00 100.00
Cost of Product Sales( as a % of
Products sale)..................... 93.21 88.97
Costs related to services (as a
% of services related sales)...... 64.50 60.65
Total Direct Cost(as a % of total sales) 88.43 85.84
Selling, general and
administrative expenses............. 10.42 11.18
Income before income taxes .............. 1.25 3.31
Net Income............................... .84 2.24
The Three Months Ended June 30, 1997, as compared to the Three Months Ended
June 30, 1996
The Company had net sales of approximately $17,576,000 for the three
months ended June 30, 1997 ("First Quarter 1998"), as compared to
approximately $13,311,000 for the three months ended June 30, 1996 ("First
Quarter 1998"). The increase in sales of approximately 32% or approximately
$4,265,000 in the First Quarter 1998 was attributable to sales of hardware
and technology consulting services to both new and existing customers.
As a percentage of net sales, the cost of products sold increased 4.24%
in the First Quarter 1998 due to continued market pressures from increased
competition. The cost related to service revenue increased 3.85% due
to the employment of more technical personnel to meet demand for future
growth from services rendered. 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 $2,925,000 for the First Quarter 1998 compared to $1,475,000
for the First Quarter 1997. This is an increase of approximately $1,450,000
or 98%. The Company expects to hire additional professional technicians
and engineers to handle the increased demand pertaining to the system
consulting outsourcing business for the future.
Selling, general and administrative expenses ("SG&A") were approximately
$1,831,000 in the First Quarter 1998 as compared to $1,488,000 in the
First Quarter 1997, an increase of $343,000 or 23%. The SG&A expenses as a
percentage of net sales were 10.4% and 11.2% in the First Quarter 1998 and the
First Quarter 1997, respectively. The increase is attributable to the increase
in personnel to 138 in First Quarter 1998 as compared to 96 in First Quarter
1997. Furthermore, due to the increase in sales volume, there was an increase
in sales commissions, and other expense increases including employee payroll,
benefits and payroll taxes, and other professional fees.
7
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The effective income tax rates for the First Quarter 1998 and the First
Quarter 1997 were approximately 41% and 42%, respectively.
As a result of the forgoing, the Company had net income of approximately
$130,000 in the First Quarter 1998 compared to $256,000 in the First Quarter
1997. This represents a decrease of approximately 49%. Primary earnings per
share was $0.03 in the First Quarter 1998 compared to $0.06 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 (4,481,306 shares in the First Quarter 1998 and
4,435,372 shares in the First Quarter 1997).
LIQUIDITY AND CAPITAL RESOURCES
The Company measures its liquidity in a number of ways, including the following:
June 30, March 31,
1997 1997
(Dollars in thousands,
except current ratio data)
Cash and cash equivalents............... $ 1,886 $ 2,880
Working capital ......................... $10,381 $10,386
Current ratio .......................... 2.53:1 2.28:1
Secured notes payable .................. $ 5 $ 5
Working capital lines available.......... $ 9,020 $ 8,140
The Company had working capital of approximately $10,381,000 as of June 30,
1997, a decrease of approximately $5,000, from March 31, 1997.
During the First Quarter 1998, the Company had net cash used in operating
activities of approximately $848,000 derived primarily from $130,000 of net
income, offset by an increase in inventory of approximately $22,000 an increase
in prepaid and other receivable of $134,000, a decrease in accounts payable and
accrued expenses of approximately $1,073,000, a decrease in income taxes payable
of approximately $175,000, offset by an decrease in accounts receivable
$343,000.
The Company had net cash used in investing activities of approximately
$146,000 from the purchase of office equipment.
As a result of the foregoing, the Company decreased its cash by $994,000.
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 $8,300,000, 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, 1997, the Company's total outstanding debt
under these arrangements with floor-planners was approximately $4,274,000 and a
balance of $4,025,000 was available under such lines of credit.
The borrowing rate on the Company's $5,000,000 credit facility is the
"Alternate Bank Rate" as defined by the Bank. At June 30, 1997 such rate was 8%.
The credit facility (originally expiring on June 30, 1997) was extended to
September 30, 1997. 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.
8
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The Company's current ratio increased to 2.53:1 at June 30, 1997 from 2.28:1 at
March 31, 1997.
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
(a) Exhibits:
11.1 Statement Re: Computation of Per Share Earnings.
27.1 Financial Data Schedule
10
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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.
MICROS-TO-MAINFRAMES, INC.
Date : August 8 , 1997 By: /s/ Howard A. Pavony
Howard A. Pavony
President (Co-Principal
Executive Officer) and Director
Date : August 8, 1997 By: /s/ Steven H. Rothman
Steven H. Rothman
Vice President (Co-Principal
Executive Officer) and Director
Date : August 8, 1997 By: /s/ Frank T. Wong
Frank T. Wong
Vice President - Finance
(Principal Financial and
Accounting Officer) Secretary
and Director
11
Exhibit (11.1) - Statement Re: Computation of Earnings Per Share
Three Months Ended June 30
1997 1996
Primary:
Actual net income $ 130,394 $ 256,213
Average shares outstanding 4,450,374 4,396,912
Net effect of dilutive stock
options -based on treasury
stock method using average
market price 30,932 38,460
---------- ---------
Average shares outstanding
as adjusted for calculation 4,481,306 4,435,372
----------- ----------
Earnings per share $0.03 $0.06
============ ==========
Fully Diluted:
Actual net income $ 130,394 $ 256,213
Average shares outstanding 4,450,374 4,396,912
Net effect of dilutive
stock options-based on
treasury stock method
using ending market price 24,641 524,016
---------- -----------
Average share outstanding
as adjusted 4,475,015 4,920,928
---------- -----------
Earnings per share $0.03 $0.05
===== ======
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 1,886
<SECURITIES> 0
<RECEIVABLES> 13,364
<ALLOWANCES> 0
<INVENTORY> 1,481
<CURRENT-ASSETS> 17,291
<PP&E> 1,799
<DEPRECIATION> 693
<TOTAL-ASSETS> 19,312
<CURRENT-LIABILITIES> 6,838
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 12,469
<TOTAL-LIABILITY-AND-EQUITY> 19,312
<SALES> 17,576
<TOTAL-REVENUES> 17,576
<CGS> 14,589
<TOTAL-COSTS> 15,543
<OTHER-EXPENSES> 1,831
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 220
<INCOME-TAX> 90
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 130
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
