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 December 31, 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
incorporation of organization) Identification 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 Securities 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 practicable date:
Common Stock, $.001 par value - 4,440,374 shares as of February 5, 1997
<PAGE>
<TABLE>
PART I: FINANCIAL INFORMATION:
Item 1: Financial Statements
Micros-to-Mainframes, Inc.
Condensed Consolidated Balance Sheets
December 31 March 31,
1996 1996
(Unaudited)
Assets
<S> <C> <C>
Current Assets
Cash $ 931,805 $ 5,284,587
Accounts receivable, net 13,329,813 8,844,204
Inventory 1,119,528 1,331,000
Prepaid expenses and other current assets 421,930 432,460
----------------------------
Total current assets 15,803,076 15,892,251
Property, plant and equipment 1,504,849 705,023
Less accumulated deprecation and amortization 623,885 457,884
----------------------------
880,964 247,139
Other Assets 867,474 69,162
----------------------------
Total assets $ 17,551,514 $ 16,208,552
============================
Liabilities and Shareholders' Equity
Current liabilities:
Secured notes payable $ 5,000 $ 5,000
Accounts payable and accrued expenses 5,578,888 5,083,969
Income taxes payable 43,272 119,140
----------------------------
Total current liabilities 5,627,160 5,208,109
Shareholders' Equity
Preferred stock $140,000 liquidation preference - 1,400
Common stock 4,430 3,363
Additional paid-in capital 12,782,919 12,374,774
Retained (deficit) ( 862,995) (1,379,094)
----------------------------
Total shareholders' equity 11,924,354 11,000,443
----------------------------
Total liabilities and shareholders' equity $ 17,551,514 $ 16,208,552
============================
<FN>
See accompanying footnotes
</TABLE>
<PAGE>
<TABLE>
Micros-to-Mainframes, Inc.
Condensed Consolidated Statements of Income
Unaudited
Three Months Ended
December 31
1996 1995
<S> <C> <C>
Net sales $ 13,678,542 $ 13,413,997
Costs and expenses:
Cost of products sold 10,671,382 11,552,268
Technical personnel salaries 655,159 281,098
Selling, general and administrative expenses 2,057,148 1,002,074
Interest expenses 1,104 1,741
----------------------------
13,384,793 12,837,181
Other Income 22,167
----------------------------
Income before income taxes 315,916 576,816
Provision for income taxes 145,000 240,000
----------------------------
Net income $ 170,916 $ 336,816
============================
Primary earnings per share $0.04 $0.12
============ ===========
Fully diluted (loss) per share NA ($0.90)
============ ===========
Weighted average number of common and
common equivalent shares used in calculation
primary earnings per share 4,451,854 3,100,099
Weighted average number of common and
common equivalent shares used in calculation
for fully diluted (loss) per share NA 3,931,798
<FN>
See accompanying footnotes
</TABLE>
<PAGE>
<TABLE>
Micros-to-Mainframes, Inc.
Condensed Consolidated Statements of Income
Unaudited
Nine Months Ended
December 31
1996 1995
<S> <C> <C>
Net sales $ 40,440,354 $35,504,768
Costs and expenses:
Cost of products sold 32,915,620 30,520,307
Technical personnel salaries 1,621,881 801,509
Selling, general and administrative expenses 5,117,329 2,925,399
Interest expenses 3,459 5,898
----------------------------
39,658,289 34,253,113
Other Income 109,035 15,376
----------------------------
Income before income taxes 891,100 1,267,031
Provision for income taxes 375,000 528,000
----------------------------
Net income $ 516,100 $ 739,031
============================
Primary earnings per share $0.12 $0.26
============ ===========
Fully diluted (loss) per share N/A $(0.93)
============ ===========
Weighted average number of common and
common equivalent shares used in calculation
primary earnings per share 4,469,198 3,126,986
Weighted average number of common and
common equivalent shares used in calculation
for fully diluted (loss) per share N/A 3,764,106
<FN>
See accompanying footnotes
</TABLE>
<PAGE>
<TABLE>
Micros-to-Mainframes, Inc.
Condensed Consolidated Statements of Cash Flows
Unaudited
Nine Months Ended
December 31
1996 1995
<S> <C> <C>
Operating activities
Net income $ 516,100 $ 739,031
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 186,252 86,000
Changes in operating assets and liabilities:
Accounts receivable (3,015,700) (4,129,158)
Inventory 242,871 (417,282)
Prepaid expenses and other assets 50,800 (42,126)
Accounts payable and accrued expenses (415,602) 967,843
Income taxes payable ( 75,868) (125,240)
--------------------------
Net cash provided by (used in) operating activities (2,511,147) (2,920,932)
Investing activities
Purchase of property and equipment (533,617) (230,042)
Purchase of Subsidiary, net of cash received (1,311,018)
--------------------------
Net cash used in investing activities (1,844,635) (230,042)
Financing activities
Issuance of common stock - 5,095,283
Increase in stock subscription receivable - ( 322,538)
--------------------------
Net cash (used in) provided by financing activities - 4,772,745
--------------------------
Increase (decrease) in cash (4,355,782) 1,621,771
Cash at the beginning period 5,284,587 1,167,008
----------------------------
$ 928,805 $ 2,788,779
============================
Supplement disclosures of cash flow information
Cash paid during the quarter for:
Income taxes $450,868 $ 645,405
Noncash investing activities
Capital stock issued for acquisition (see note 2) $407,813 -
See accompanying footnotes
</TABLE>
<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 and nine months ended December 31, 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 on 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 described 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 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 and 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
<PAGE>
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.
The following summarizes the pro forma results of operations
for the Three Months Ended December 31, 1996, 1995 and the Nine
Months Ended December 31, 1996, 1995, assuming the acquisition
had occurred at the beginning of the respective periods.
Three Months Ended Nine Months Ended
December 31, December 31,
1996 1995 1996 1995
Net Sales $13,678,542 $14,751,012 $41,285,524 $39,515,812
Net Income 170,916 301,052 553,704 631,739
Earnings per
share-primary .04 .09 .12 .20
3. Shareholders' Equity
Capital stock consists of the following at December 31, 1996:
Common Stock, $.001 par value; 10,000,000 shares
authorized; 4,430,374 shares issued and outstanding .....$ 4,430
During the second quarter of Fiscal 1997, 1,400,000 shares of preferred
stock were converted into 980,000 shares of common stock.
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 225,000 $1.25 - $7.00
Options issued during the period 115,000 $3.9375-4.35
Outstanding at December 31, 1996 340,000 $1.25 - $7.00
Exercisable at December 31, 1996 213,750
<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
Nine Months ended Three Months ended
December 31, December 31,
1996 1995 1996 1995
Net Sales ..................... 100.00% 100.00% 100.00% 100.00%
Cost of products sold ......... 81.39 85.96 78.02 86.12
Technical personnel
salaries................... 4.01 2.26 4.79 2.10
Selling, general and
administrative expenses.... 12.65 8.24 15.04 7.47
Interest ....................... .01 .02 .01 .01
Income from operations ......... 2.20 3.57 2.31 4.30
Net Income...................... 1.28 2.08 1.25 2.51
The Company had net sales of approximately $40,440,000 for the Nine
Months Ended December 31, 1996 ( the "1997 Period"), as compared with
approximately $35,505,000 for the Nine Months Ended December 31, 1995
(the "1996 Period"). The Company had net sales of approximately
$13,679,000 for the Three months Ended December 31, 1996 (the "1997
Quarter"), as compared to $13,414,000 for the Three Months Ended
December 31, 1995 (the "1996 Quarter"). The increase in sales of
approximately 13% and 2% for the 1997 Period and 1997 Quarter,
respectively, were attributable to increased sales of hardware and
technology consulting services to both new and existing customers. The
revenue related to the service and consulting business was approximately
$3,899,000 for the 1997 Period and approximately $1,395,000 for the 1997
Quarter, as compared to approximately $3,711,000 for the 1996 Period and
approximately $1,418,000 for the 1996 Quarter.
As a percentage of net sales, the cost of products sold decreased by
approximately 5% for the 1997 Period and 8% for the 1997 Quarter as
compared to the prior year's comparable periods. The decrease was due in
part to sales of high-ended computer products relating to technical
consulting sales which yielded higher profit margins, and the increase
in margin of high-ended consulting and services. The profit margin was
14.60% and 17.19% of the 1997 Period and 1997 Quarter, respectively, as
compare to 11.78% and 13.88% for the 1996 Period and 1996 Quarter,
respectively. These represented a 24% increase in gross profit margin in
both the 1997 Period and 1997 Quarter.
The Company increased its technical personnel salaries by
approximately $820,000 or 102% in the 1997 Period compared to the 1996
Period and approximately $374,000 or 133% in the 1997 Quarter as
compared to the 1996 Quarter. This increase in personnel is due to the
acquisition of Data.Com in May whose technical personnel salaries were
approximately $435,000 in the 1997 Period and $204,000 in the 1997
Quarter. The increase is also due to the Company's continued growth in
sales of technology consulting services.
Selling, general and administrative expenses ("SG&A") were
approximately $5,117,000 in the 1997 Period as compared to $2,925,000 in
the 1996 Period and $2,057,000 for the 1997 Quarter compared to
$1,002,000 for the 1996 Quarter. This resulted in an increase of
approximately 75% for SG&A during the 1997 Period as compared to the
1996 Period and an increase of approximately 105% during the 1997
Quarter as compared to the 1996 Quarter. The increase is primarily
attributable to approximately $1,303,000 and $530,000 of expenses of
Data.Com in the 1997 Period and 1997 Quarter, respectively. Furthermore
there was an increase in salesperson compensation due to increased
<PAGE>
sales, and other increases including employee payroll, benefits and
payroll taxes, insurance, legal and accounting and other professional
fees.
The effective income tax rate for both the 1997 period and 1997
quarter were 42% and 46%,respectively, as compared to the 1996 Periods
and 1996 Quarter which were approximately 42%.
As a result of the forgoing, the Company had net income of
approximately $516,000 in the 1997 Period compared to $739,000 in the
1996 Period, and $171,000 for the 1997 Quarter compared to $337,000 for
the 1996 Quarter. This represents a decrease of 30% in the 1997 Period
as compared to the 1996 Period and 49% for the 1997 Quarter compared to
the 1996 Quarter.
Earnings per share was $0.12 in the 1997 Period compared to $0.26 in
the 1996 Period, and $0.04 in the 1997 Quarter compared to $0.12 in the
1996 Quarter. The earnings per share calculations are based on the
total weighted average common shares outstanding and the net effect of
dilutive stock options and warrants (4,469,198 shares in the 1997 Period
and 3,126,986 shares in the 1996 Period, 4,451,854 shares in the 1997
Quarter and 3,100,099 shares in the 1996 Quarter). 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 conversion of preferred shares and issuance of
approximately 1,200,000 share of common stock in December 1995 from
exercise of substantially all of the Company's Warrants and
Representatives Warrants. The fully diluted (loss) per share was ($0.93)
in the 1996 Period based on 3,764,106 and the (loss) per share was
($0.90) in the 1996 Quarter based on 3,906,544 weighted average shares
outstanding. (Refer to Exhibit (11.1)- Statement Re: Computation of
Earnings Per Share)
<PAGE>
Liquidity and Capital Resources
The Company measures its liquidity in a number of ways, including the
following:
December 31, March 31
1996 1996
(Dollars in thousands,
except current ratio data)
Cash and cash equivalents............... $ 932 $ 5,285
Working capital ......................... $10,176 $10,685
Current ratio ........................... 2.81:1 3.05:1
Secured notes payable .................. $ 5 $ 5
Working capital line available .......... $ 11,270 $ 8,759
The Company had working capital of approximately $10,176,000 as of
December 31, 1996, a decrease of approximately $510,000, or 5%, from
March 31, 1996. The decrease was due to the acquisition of Data.Com, the
purchases of new office equipment, investment in new software and the
expansion of the offices in New York City, offset by the net profit of
$516,000 for the 1997 Period.
During the 1997 Period, the Company had net cash used in operating
activities of approximately $2,511,000, derived primarily from $516,000
of net income, a decrease in inventory of approximately $242,000, a
decrease in other current assets of approximately $51,000, offset by an
increase in accounts receivable of approximately $3,015,000, decrease in
accounts payable of approximately $416,000, and a decrease in income tax
payable of approximately $76,000. The Company had net cash used in
investing activities of $1,845,000, resulting from the purchase of
office equipment and new software of approximately $534,000 and the cash
used in connection with the acquisition of Data.Com of approximately
$1,311,000.
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 $9,550,000, 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, as
to which the floor-planners hold a first lien pursuant to intercreditor
agreements. On December 31, 1996, the Company's total outstanding debt
under these arrangements with floor-planners was approximately
$3,275,000 and a balance of $6,275,000 was available under such lines of
credit. On December 31, 1996, the Company's outstanding debt under the
bank revolver line of credit was $5,000 with a balance of $4,995,000
available under such line 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 December 31, 1996
such rate was 8.25%. The credit facility will expire on April 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 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.
On August 12, 1996, the Company announced its intention to purchase up
to 100,000 shares of Common Stock from time to time on the open market.
<PAGE>
As of February 5, 1997 the Company had 4,440,374 shares of Common Stock
outstanding. The timing of any purchases will depend upon the price and
availability of the stock. As of the date hereof, the Company has not
repurchased any of its own stock.
With respect to the acquisition of Data.Com, 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 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 and 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.
The Company's current ratio decreased to 2.81:1 at December 31, 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 at least next 12 months.
PART II
OTHER INFORMANTION
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.
None
<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 : February 5, 1997 By: /s/ Howard A. Pavony
Howard A. Pavony
Chairman of the Board
of Directors
Date : February 5, 1997 By: /s/ Steven H. Rothman
Steven H. Rothman
Chief Executive Officer and
President
Date : February 5, 1997 By: /s/ Frank T. Wong
Frank T. Wong
Vice President - Finance
(Principal Financial and
Accounting Officer)
and Secretary
Exhibit Index:
Exhibit No. Description
11.1 Statement Re: Computation of Earning Per Share
27.1 Financial Data Schedule
<TABLE>
Exhibit (11.1) - Statement Re: Computation of Earnings Per Share
Three Months Ended Nine Months Ended
December 31 December 31
1996 1995 1996 1995
Primary:
<S> <C> <C> <C> <C>
Average shares outstanding 4,430,374 2,411,561 4,419,261 2,257,644
Net effect of dilutive stock
options and warrants--based
on treasury stock method using
average market price 21,480 690,331 49,937 869,342
---------- ---------- ---------- ---------
Average shares outstanding
as adjusted for calculation 4,451,854 3,101,892 4,469,198 3,126,986
Actual net income $170,916 $336,816 $ 516,100 $ 739,031
Add 6% (assumed T-Bill rate)
interest net of federal
income tax effect - 20,000 - 81,000
----------- ---------- ------------ --------
$ 170,916 $ 356,816 $ 516,100 $820,031
---------- --------- ----------- --------
Per share amount $0.04 $0.12 $0.12 $0.26
====== ====== ===== =====
Fully diluted:
Actual net income $ 170,916 $ 336,816 $516,100 $739,031
Adjustment to reflect
additional earnings to reach
earnings targets 1,163,184 760,969
Adjustments to recognize
compensatory nature of
Preferred Stock (5,022,000) (5,022,500)
Add 6% (assumed T-Bill rate)
interest net of federal
income tax effect 747 11,980 - 36,784
------- ----------- -------- -----------
Net Profit(Loss) adjusted for
calculation $ 171,663 $(3,510,520) $ 516,100 $(3,485,716)
Average shares outstanding 4,430,374 3,391,561 4,419,261 3,237,644
Net effect of dilutive stock
options and warrants--based
on treasury stock method using
Ending market price - 514,983 31,501 526,462
-------- ---------- -------- ----------
Average shares outstanding
as adjusted for calculation 4,430,374 3,906,544 4,450,762 3,764,106
Per share amount $0.04 $(.90) $.12 $(0.93)
====== ===== ===== ======
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9 MONS
<FISCAL-YEAR -END> MARCH 31, 1997
<PERIOD ENDED> December 31, 1996
<CASH> 932
<SECURITIES> 0
<RECEIVABLES> 13,330
[ALLOWANCE] 0
<INVENTORY> 1,120
<CURRENT ASSETS> 15,803
<PP&E> 1,505
<DEPRECATION> 624
<TOTAL ASSETS> 17,552
<CURRENT LIABILITIES> 6,474
<BOND> 0
0
0
<COMMON> 4
<OTHER-SE> 11,920
<TOTAL-LIABILITY-AND-EQUITY> 17,552
<SALES> 40,440
<TOTAL-COST> 32,916
<TOTAL EXPENSES> 6,739
<LOSS- PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> 891
<INCOME TAX> 375
<INCOME CONTINUING>
<DISCONTINUED>
<EXTRAORDINARY>
<CHANGES>
<NET INCOME> 516
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
