<PAGE>
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 September 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 No.)
incorporation of organization)
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 - 4,450,374 shares as of October 10, 1997
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Micros-to-Mainframes, Inc
Condensed Consolidated Balance Sheets
September 30, March 31,
1997 1997
(Unaudited)
------------ ------------
Assets
Current Assets
Cash $166,182 $2,879,578
Accounts receivable, net 15,119,401 13,707,458
Inventory 1,775,990 1,458,467
Prepaid expenses and other current assets 532,033 410,817
Deferred income taxes 15,000 15,000
------------ ------------
Total current assets 17,608,606 18,471,320
Property, plant and equipment 1,828,738 1,653,266
Less accumulated deprecation
and amortization 759,936 626,940
------------ ------------
1,068,802 1,026,326
Goodwill, net of accumulated
amortization $86,850 804,150 836,550
Other Assets 94,294 94,294
------------ ------------
Total assets $19,575,852 $20,428,490
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Secured notes payable $455,000 $5,000
Accounts payable and accrued expenses 6,519,305 7,905,693
Income taxes payable 0 174,553
------------ ------------
Total current liabilities 6,974,305 8,085,246
Shareholders' Equity
Common stock 4,450 4,450
Additional paid-in capital 12,807,900 12,807,900
Retained (deficit) (210,803) (469,106)
------------ ------------
Total shareholders' equity 12,601,547 12,343,244
------------ ------------
Total liabilities and shareholders' equity $19,575,852 $20,428,490
============ ============
2
See accompanying footnotes
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Micros-to-Mainframes, Inc
Condensed Consolidated Statements of Income
Unaudited
Three Months Ended September
1997 1996
------------ ------------
Revenue
Products sales $13,751,325 $12,263,430
Services related sales 3,586,271 1,187,000
------------ ------------
17,337,596 13,450,430
Direct Cost
Products Cost 13,333,638 11,245,215
Cost related to services sales 1,992,309 539,277
------------ ------------
15,325,947 11,784,492
Selling, general and
administrative expenses 1,809,808 1,572,500
Interest expenses 1,850 349
------------ ------------
Total cost and expenses 17,137,605 13,357,341
Other Income 10,918 40,881
------------ ------------
Income before income taxes 210,909 133,970
Provision for income taxes 83,000 55,000
------------ ------------
Net income $127,909 $78,970
============ ============
Primary earnings per share $0.03 $0.02
============ ============
Weighted average number of common and
common equivalent shares used in calculation
primary earnings per share 4,518,707 4,445,934
See accompanying footnotes
3
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Micros-to-Mainframes, Inc
Condensed Consolidated Statements of Income
Unaudited
Six months ended September 30
1997 1996
------------ ------------
Revenue
Products sales $28,402,469 $24,258,812
Services related sales 6,511,002 2,503,000
------------ ------------
34,913,471 26,761,812
Direct Cost
Products Cost 27,589,885 21,944,238
Cost related to services sales 3,278,924 1,266,722
------------ ------------
30,868,809 23,210,960
Selling, general and
administrative expenses 3,641,171 3,060,182
Interest expenses 2,335 2,355
------------ ------------
Total cost and expenses 34,512,315 26,273,497
Other Income 30,147 86,868
------------ ------------
Income before income taxes 431,303 575,183
Provision for income taxes 173,000 230,000
------------ ------------
Net income $258,303 $345,183
============ ============
Primary earnings per share $0.06 $0.08
============ ============
Weighted average number of common and
common equivalent shares used in calculation
primary earnings per share 4,517,693 4,476,475
See accompanying footnotes
4
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Micros-to-Mainframes, Inc
Condensed Consolidated Statement of Cash Flows
Unaudited
Six Months Ended September 30
1997 1996
Operating activities
Net income $258,303 $345,183
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 165,396 117,751
Changes in operating assets and liabilities:
Increase in accounts receivable (1,411,943) (629,641)
Increase in inventory (317,523) (137,356)
(Increase) Decrease in prepaid expenses
and other current assets (121,216) (233,390)
Increase in other assets 0 (63,394)
Decrease in accounts payable
and accrued expenses (1,386,388) 386,713
Increase (Decrease) in income taxes payable (174,553) (31,806)
------------ ------------
Net cash provided by (used in)
operating activities (2,987,924) (245,940)
Investing activities
Purchase of property and equipment (175,472) (340,199)
Purchase of Subsidiary, net of cash received (1,311,018)
------------ ------------
Net cash used in investing activities (175,472) (1,651,217)
Financing activities
Borrowings under the secured notes payable 450,000 0
------------ ------------
Net cash (used in) provided
by financing activities 450,000 0
------------ ------------
Increase (decrease) in cash (2,713,396) (1,897,157)
Cash at the beginning period 2,879,578 5,284,587
------------ ------------
$166,182 $3,038,290
============ ============
Supplement disclosures of cash flow information
Cash paid during the quarter for:
Income taxes $534,785 $264,008
Noncash investing activities
Capital stock issued for acquisition 0 407,813
See accompanying footnotes
5
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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 collectively
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 six months ended September 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 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.
6
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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
The Second Quarter 1998 15,000 $2.50-3.875
------- -------
220,000 $1.25-$7.00 185,000 $2.25-$4.43
======= =======
</TABLE>
7
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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
Six Months ended Three Months ended
September 30, September 30,
1997 1996 1997 1996
------------------- -----------------
Product Sales............... 81.35% 90.65% 79.32% 91.18%
Services related sales ..... 18.65 9.35 20.68 8.82
Net Sales ................... 100.00 100.00 100.00 100.00
Cost of products sales ( as a
% of Products sales)...... 97.14 90.46 96.96 91.70
Cost related to service (as a
% of services related sales) 50.36 50.61 55.55 45.43
Total Direct cost( as a % of
Total sales)............. 88.42 86.73 88.40 87.61
Selling, general and
administrative expenses. 10.43 11.43 10.44 11.69
Income before income taxes... 1.24 2.15 1.22 1.00
Net Income................... 0.74 1.29 0.74 0.59
The Company had net sales of approximately $34,913,000 for the Six Months Ended
September 30, 1997 (the "1998 Period"), as compared to approximately $26,762,000
for the Six Months Ended September 30, 1996 (the "1997 Period"). The Company had
net sales of approximately $17,378,000 for the Three months Ended September 30,
1997 (the "1998 Quarter"), as compared to $13,450,000 for the Three Months Ended
September 30, 1996 (the "1997 Quarter"). The increase in sales of approximately
30% and 28% for the 1998 Period and 1998 Quarter, respectively, were primarily
attributable to increased sales of both hardware and services to both new
and existing customers. The revenue related to the service and consulting
business was approximately $6,511,000 for the 1998 Period and approximately
$3,586,000 in the 1998 Quarter as compared to approximately 2,503,000 for
the 1997 Period and approximately $1,187,000 for the 1997 Quarter.
As a percentage of net sales, the cost of products sold increased by
approximately 7% for the 1998 Period and 1997 Quarter as compared to the prior
year's comparable periods due to continued market pressures from increased
competition. The cost related to services revenue, are the same in the 1998 and
1997 periods and increased approximately 10% in the 1998 and 1997 Quarter. The
increase is due an increase in Company personnel. The Company expects to hire
additional professional technicians and engineers to handle the increased demand
pertaining to the system consulting outsourcing business in the future.
The Company increased its technical personnel salaries to in approximately
$2,036,000 from approximately $966,000 or a 107% increase in the 1998 Period as
compared to the 1997 Period and an increase of approximately $1,082,000 from
approximately $954,000 or a 13% increased in 1998 Quarter and 1997 Quarter.
Technical services personnel, increased to 81 employees in 1998 period from 53
employees in the comparable period of the prior year. This increase in
personnel is due to the customer demand for the Company's technical and
consulting services, as indicated by the continued growth of the Company's
Advanced Technology Group.
8
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Selling, general and administrative expenses ("SG&A") were approximately
$3,641,000 in the 1998 Period as compared to $3,060,000 in the 1997 Period and
$1,810,000 for the 1998 Quarter compared to $1,573,000 for the 1997 Quarter.
This represented an increase of approximately 18% for SG&A during the 1998
Period as compared to the 1997 Period and an increase of approximately 15%
during the 1998 Quarter as compared to the 1997 Quarter. The increase is
attributable an increased in salesperson compensation as a result of higher
revenues, and other increases including other employee payroll, benefits and
payroll taxes.
The effective income tax rates for the 1998 Period and 1998 quarter as compared
to the 1997 Period and 1997 Quarter was approximately 40% and 41%, respectively.
As a result of the forgoing, the Company had net income of approximately
$258,000in the 1998 Period compared to $345,000 in the 1997 Period, and $128,000
for the 1998 Quarter compared to $79,000 for the 1997 Quarter. This represents
a decrease of 25% in the 1998 Period as compared to the 1997 Period and a 62%
increase for the 1998 Quarter compared to the 1997 Quarter. The Company
believes that its recent investments in personnel, software and equipment,
which has increased overhead and expenses in the 1998 Period and 1998 Quarter,
will have long term benefits for shareholder.
Liquidity and Capital Resources
The Company measures its liquidity in a number of ways, including the following:
September 30, March 31
1997 1997
(Dollars in thousands,
except current ratio data)
Cash and cash equivalents............... $ 166 $ 5,285
Working capital ........................ $10,634 $10,685
Current ratio .......................... 2.52:1 3.05:1
Working capital line available ......... $ 8,397 $ 8,759
The Company had working capital of approximately $10,634,000 as of September 30,
1997, a decrease of approximately $51,000 from March 31, 1997.
During the 1998 Period, the Company had net cash used in operating activities of
approximately $2,988,000, derived primarily from $258,303 of net income,
a decrease in accounts payable of approximately $1,386,000, an increase
in accounts receivable of approximately $1,412,000, an increase in inventory
of approximately $318,000, an increase in other current assets of
approximately $121,000, and a decrease in income taxes payable of approximately
$174,000.
The Company used net cash in investing activities resulting from the purchase
of office equipment of approximately $175,000.
The Company borrowed $450,000 from its existing revolving credit line in
the 1997 Quarter.
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
9
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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 September 30, 1997, the Company's total outstanding debt under these
arrangements with floor-planners was approximately $4,448,000 and a balance of
$3,852,000 was available under such lines of credit. On September 30, 1997, the
Company's outstanding debt under the bank revolver line of credit was
$455,000 with a balance of $4,545,000 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 September 30, 1996 such rate was 8.5%. The
credit facility will expire on December 31, 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. The Company intends to obtain a new credit line
upon the expiration of this facility on market terms.
The Company's current ratio decreased to 2.51:1 at September 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.
Proposed Sale
On August 29, 1997, the Company entered into an Agreement and Plan of
Merger with BTG, Inc., a Virginia corporation ("BTG"), and BTG Merger Sub,
Inc., a wholly owned subsidiary of BTG, pursuant to which the Company will
be acquired by BTG and become a wholly-owned subsidiary of BTG.
The Company anticipates that it will incur substantial professional fees
for services related to the merger. These fees will be recognized prior
to the closing of the transaction.
10
<PAGE>
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.
(c)
File on September 12, 1997. In regards to:
On August 29, 1997, the Company entered into an Agreement and Plan of
Merger with BTG, Inc., a Virginia corporation ("BTG"), and BTG Merger Sub,
Inc., a wholly owned subsidiary of BTG, pursuant to which the Registrant will
be acquired by BTG and become a wholly-owned subsidiary of BTG.
11
<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 : October 10, 1997 By: /s/ Howard A. Pavony
Howard A. Pavony
Chairman of the Board
of Directors
Date : October 10, 1997 By: /s/ Steven H. Rothman
Steven H. Rothman
Chief Executive Officer and
President
Date : October 10, 1997 By: /s/ Frank T. Wong
Frank T. Wong
Vice President - Finance
(Principal Financial and
Accounting Officer) and Secretary
11
<TABLE>
Exhibit (11.1) - Statement Re: Computation of Earnings Per Share
Three Months Ended Six Months Ended
September 30 September 30
1997 1996 1997 1996
Primary:
<S> <C> <C> <C> <C>
Average shares outstanding 4,450,374 4,397,276 4,450,374 4,413,825
Net effect of dilutive stock
options based on treasury
stock method using
average market price 68,333 48,658 68,333 62,650
---------- ---------- ---------- ---------
Average shares outstanding
as adjusted for calculation 4,518,707 4,445,934 4,518,707 4,476,475
Actual net income $ 127,909 $ 78,970 $ 258,303 $ 345,183
Per share amount $0.03 $0.02 $0.06 $0.08
===== ====== ===== =====
Fully diluted:
Actual net income $ 127,909 $ 78,970 $ 258,303 $ 345,183
Average shares outstanding 4,450,374 4,397,276 4,450,374 4,413,825
Net effect of dilutive stock
options-based on treasury
stock method using
ending market price 67,319 30,277 67,319 50,224
----------- --------- --------- ---------
Average shares outstanding
as adjusted for calculation 4,517,693 4,427,553 4,517,693 4,465,049
------------ ---------- --------- ----------
Per share amount $.03 $.02 $.06 $ .08
==== ==== ==== =====
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 166
<SECURITIES> 0
<RECEIVABLES> 15,119
<ALLOWANCES> 0
<INVENTORY> 1,776
<CURRENT-ASSETS> 17,609
<PP&E> 1,829
<DEPRECIATION> 760
<TOTAL-ASSETS> 19,576
<CURRENT-LIABILITIES> 6,974
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 12,597
<TOTAL-LIABILITY-AND-EQUITY> 19,576
<SALES> 34,913
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 30,869
<OTHER-EXPENSES> 3,641
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 431
<INCOME-TAX> 173
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 173
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
