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, 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 February 18, 1998
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Micros-to-Mainframes, Inc
Condensed Consolidated Balance Sheets
December 31, March 31,
1997 1997
(Unaudited)
------------ ------------
Assets
Current Assets
Cash $ 1,885,345 $ 2,879,578
Accounts receivable, net 12,891,755 13,707,458
Inventory 2,327,206 1,458,467
Prepaid expenses and other current assets 339,938 410,817
Deferred income taxes 15,000 15,000
------------ ------------
Total current assets 17,459,244 18,471,320
Property, plant and equipment 1,860,545 1,653,266
Less accumulated deprecation
and amortization 840,436 626,940
------------ ------------
1,020,109 1,026,326
Goodwill, net of accumulated
amortization $103,050 787,950 836,550
Other Assets 475,415 94,294
------------ ------------
Total assets $19,741,718 $20,428,490
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Secured notes payable $ 5,000 $5,000
Accounts payable and accrued expenses 6,976,546 7,905,693
Income taxes payable 85,260 174,553
------------ ------------
Total current liabilities 7,066,806 8,085,246
Shareholders' Equity
Common stock 4,450 4,450
Additional paid-in capital 12,807,900 12,807,900
Retained (deficit) (137,438) (469,106)
------------ ------------
Total shareholders' equity 12,674,912 12,343,244
------------ ------------
Total liabilities and shareholders' equity $19,741,718 $20,428,490
============ ============
See accompanying footnotes
2
<PAGE>
Micros-to-Mainframes, Inc
Condensed Consolidated Statements of Income
Unaudited
Three Months Ended December 31
1997 1996
------------ ------------
Revenue
Products sales $11,699,580 $12,282,542
Services related sales 4,135,512 1,396,000
------------ ------------
15,835,092 13,678,542
Direct Cost
Products Cost 11,162,388 10,799,723
Cost related to services sales 2,466,678 526,818
------------ ------------
13,629,066 11,326,541
Selling, general and
administrative expenses 2,090,744 2,057,147
Interest expenses 8,181 1,104
------------ ------------
Total cost and expenses 15,727,991 13,384,792
Other Income 14,265 22,167
------------ ------------
Income before income taxes 121,366 315,917
Provision for income taxes 48,000 145,000
------------ ------------
Net income $ 73,366 $ 170,917
============ ============
Basic earnings per share $0.02 $0.04
============ ============
Diluted earnings per share $0.02 $0.04
============ ============
3
See accompanying footnotes
Micros-to-Mainframes, Inc
Condensed Consolidated Statements of Income
Unaudited
Nine months ended December 31,
1997 1996
------------ ------------
Revenue
Products sales $40,102,049 $36,541,354
Services related sales 10,646,514 3,899,000
------------ ------------
50,748,563 40,440,354
Direct Cost
Products Cost 38,752,273 32,743,961
Services and related cost 5,745,602 1,793,540
------------ -----------
44,497,875 34,537,501
Selling, general and
administrative expenses 5,731,915 5,117,329
Interest expenses 10,516 3,459
------------ -----------
Total cost and expenses 50,240,306 39,658,289
Other Income 44,412 109,035
------------ ------------
Income before income taxes 552,669 891,100
Provision for income taxes 221,000 375,000
------------ ------------
Net income $ 331,669 $ 516,100
============ ============
Basic earnings per share $0.07 $0.12
============ ============
Diluted earnings per share $0.07 $0.12
============ ============
See accompanying footnotes
4
<PAGE>
Micros-to-Mainframes, Inc
Condensed Consolidated Statement of Cash Flows
Unaudited
Nine Months Ended
December 31,
1997 1996
Operating activities
Net income $331,668 $ 516,100
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 262,096 186,252
Changes in operating assets and liabilities:
(Decease) increase Accounts receivable 815,703 (3,015,700)
Inventory (868,739) 242,871
Prepaid expenses and other assets (309,242) 50,800
Accounts payable and accrued expenses (929,147) (415,602)
Income taxes payable ( 89,293) ( 75,868)
----------------------
Net cash (used in) operating activities (786,954) (2,511,147)
Investing activities
Purchase of property and equipment (207,279) (533,617)
Purchase of Subsidiary, net of cash received (1,311,018)
------------------------
Net cash used in investing activities (207,279) (1,844,635)
Increase (decrease) in cash (994,233) (4,355,782)
Cash at the beginning period 2,879,578 5,284,587
---------------------------
$1,885,345 $ 928,805
===========================
Supplement disclosures of cash flow information
Cash paid during the quarter for:
Income taxes $383,619 $450,868
Noncash investing activities
Capital stock issued for acquisition $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. 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 nine months ended December 31, 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.
EARNINGS PER SHARE
In the quarter ended December 31, 1997, the Company adopted
Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" ("FAS No. 128"),which supersedes APB Opinion No. 15,
"Earnings Per Share", and specifies the computation, presentation,
and disclosure requirements for earnings per share ("EPS") for
entities with publicly held common stock or potential common
stock. FAS No. 128 replaces primary and fully diluted EPS
with basic and diluted EPS, respectively. It also requires dual
presentation of Basic EPS and Diluted EPS on the face of the
income statement and requires a reconciliation of the numerator
and denominator of the Basic EPS computation to the numerator and
denominator of the Diluted EPS computation.
Basic EPS, unlike Primary EPS, excludes all dilution while
Diluted EPS, like Fully Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings
of the entity.
The number of shares used in computing basic and fully diluted
earnings per share for the three months ended December 31, 1997 was
4,450,374 and 4,506,762, respectively. The number of shares used in
computing basic and diluted earnings per share for the three months ended
December 31, 1996 was 4,430,474 and 4,556,008 respectively. The number
of shares used in computing basic and fully diluted earnings per share
for the nine months ended December 31, 1997 was 4,450,374 and 4,494,419
respectively. The number of shares used in computing basic and diluted
earnings per share for the nine months ended December 31, 1996
was 4,413,825 and 4,454,558 respectively.
6
<PAGE>
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 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:
1993 Plan 1996 Plan
-----------------------------------------------
Number Option Number Option
of Exercise of Exercise
Options Price Per Options Price Per
Share Share
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
The Third Quarter 1998 -
------- -------
220,000 $1.25-$7.00 185,000 $2.25-$4.43
======= =======
7
<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,
1997 1996 1997 1996
Product Sales............... 77.88% 89.79% 79.02% 90.36%
Services related sales ..... 26.12 10.21 20.98 9.64
Net Sales ................... 100.00 100.00 100.00 100.00
Cost of products sales ( as a
% of total sales)...... 70.49 78.95 76.36 80.97
Cost related to service (as a
% of total sales) 15.58 3.85 11.32 4.44
Total Direct cost( as a % of
total sales)............. 86.07 82.81 87.68 85.40
Selling, general and
administrative expenses. 13.20 15.04 11.29 12.65
Income before income taxes... 0.77 2.31 1.09 2.20
Net Income................... 0.46 1.25 0.65 1.28
The Company had net sales of approximately $50,749,000 for the Nine Months
Ended December 31, 1997 (the "1998 Period"), as compared to approximately
$40,440,000 for the Nine months ended December 31, 1996 (the "1997 Period").
The Company had net sales of approximately $15,835,000 for the Three
Months Ended December 31,1997 (the "1998 Quarter"), as compared to $13,679,000
for the Three Months Ended December 30, 1996 (the "1997 Quarter"). The
increase in sales of approximately 25% and 16% for the 1998 Period and 1998
Quarter, respectively, were primarily attributable to increased sales in
services and service related products to both new and existing customers.
The revenue related to the service and consulting business was
approximately $10,647,000 for the 1998 Period and approximately $4,136,000 in
the 1998 Quarter as compared to approximately $3,999,000 for the 1997 Period
and approximately $1,396,000 for the 1997 Quarter.
As a percentage of net sales, the direct cost increased by
approximately 3% for the 1998 Period and 2% for the 1998 Quarter
as compared to the prior year's comparable periods due to continued market
pressures from increased competition. The cost related to services revenue,
increased approximately 11% 1998 period as compared to the 1997 periods and
increased approximately 7% 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.
8
<PAGE>
The Company increased its technical personnel salaries to in approximately
$3,131,000 from approximately $1,622,000 or a 93% increases in the 1998 Period
as compared to the 1997 Period and an increase of approximately $1,095,000 from
approximately $655,000 or a 67% increased in 1998 Quarter and 1997 Quarter.
Technical services personnel, increased to 93 employees in 1998 period from 55
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.
Selling, general and administrative expenses ("SG&A") were approximately
$38,752,000 in the 1998 Period as compared to $32,744,000 in the 1997 Period
and $2,091,000 for the 1998 Quarter compared to $2,057,000 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 13%
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, 1997 Period and 1998,1997 quarter
were approximately 40% and 42%, 40% and 45% respectively.
As a result of the foregoing, the Company had net income of approximately
$332,000 in the 1998 Period compared to $516,000 in the 1997 Period, and $73,000
for the 1998 Quarter compared to $171,000 for the 1997 Quarter. This represents
a decrease of 35% in the 1998 Period as compared to the 1997 Period and a 57%
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.
9
<PAGE>
Liquidity and Capital Resources
The Company measures its liquidity in a number of ways, including the
following:
December 31, March 31
1997 1997
(Dollars in thousands,
except current ratio data)
Cash and cash equivalents............... $ 1,885 $ 2,880
Working capital ........................ $10,392 $10,386
Current ratio .......................... 2.47:1 2.28:1
Working capital line available ......... $ 8,869 $ 8,759
The Company had working capital of approximately $10,392,000 as of
December 31,1997, a decrease of approximately $6,000 from March 31, 1997.
During the 1998 Period, the Company had net cash used in operating activities
of approximately $787,000, derived primarily from $331,668 of net income,
a decrease in accounts payable of approximately $929,000, an increase in
inventory of approximately $869,000, an increase in other current assets of
approximately $309,000, and a decrease in accounts receivable $815,000,
a decrease in income taxes payable of approximately $89,000.
The Company used net cash in investing activities resulting from the purchase
of office equipment of approximately $207,000.
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, as to
which the floor-planners hold a first lien pursuant to intercreditor agreements.
On December 31, 1997, the Company's total outstanding debt under these
arrangements with floor-planners was approximately $4,426,000 and a balance of
$3,874,000 was available under such lines of credit. On December 31, 1997, 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, 1997 such rate was 8.5%. The
credit facility will expire on February 28, 1998. 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.
10
<PAGE>
The Company's current ratio decreased to 2.47:1 at December 31, 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.
Termination of the Merger Agreement
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 was
be acquired by BTG and become a wholly-owned subsidiary of BTG.
On Friday, February 13, 1998, the Company was notified by BTG, Inc that for
financial consideration, it terminated the merger with the Company. As a
result of the default by BTG the merger agreement BTG had agreed and
forwarded the Company $500,000.
The Company expects to write off all costs incurred related to this
transactions during the fourth quarter as well as recognize the $500,000
payment received related to the transaction.
11
<PAGE>
PART II OTHER INFORMATION
Item 4. Submission of Matter to Vote on Security Holders
At the Company's Special Meeting of Shareholders held on December
31, 1997 and adjourned to January 5, 1998, the merger proposal with
BTG, Inc. under the Agreement and Plan of Merger as of August 29, 1997
was adopted by the vote below:
For Against Abstained
3,229,165 36,195 19,900
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
.
12 Basic and diluted earnings per share computation
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
(c)
File on December 24, 1997. In regards to:
On December 19, 1997, a lawsuit was filed against Micros-to-Mainframes,
Inc., a New York corporation (the "Registrant") and its directors,
seeking to enjoin Registrant's proposed merger with BTG, Inc.,
a Virginia corporation ("BTG"). The Agreement and Plan of Merger was
entered into by and between Registrant and BTG on August 29, 1997
and is described in the Registrant's Current Report on Form 8-K of the
same date.
The suit was filed in the Supreme Court, State of New York, County of
New York (Index No. 97-606469) as a class action by Adele Brody, on
behalf of herself and all others similarly situated. The named
defendants, in addition to the Registrant, are Howard Pavony,
Steven H. Rothman, Frank T. Wong, Robert A. Fries, Ramon Mota,
Joseph J.Farley and William Lerner, each of whom is a director of the
Registrant.
The complaint alleges that (i) the named defendants, by virtue of
authorizing the Merger Agreement, breached their fiduciary duties to
the plaintiff and to other public shareholders of MTM, and (ii) the
named defendants breached their duty of loyalty to the Registrant's
shareholders and violated the provisions of Section 501(c) of the
Business Corporation Law of the State of New York, which states in
part that "each share shall be equal to every other share of the
same class."
12
<PAGE>
The Registrant believes that there is no merit to any of the
allegations and intends to defend vigorously against the action.
On December 23 in New York State Supreme Court before Justice Ira
Gammerman, plaintiff's counsel, without submitting additional papers,
asked the Court for an order granting (a) expedited discovery in
preparation for the January 6, 1998 hearing; (b) a temporary
restraining order preventing the holding of a shareholders meeting;
and (c) a temporary restraining order preventing the closing of the
transaction. The Court refused to grant any of the relief requested
and directed that the parties appear at 4:00 p.m. on January 6, 1998
to argue the motion.
As a result of the termination of the merger, it is anticipated the
lawsuit will be dismissed.
13
<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 18, 1998 By: /s/ Howard A. Pavony
Howard A. Pavony
Chairman of the Board
of Directors
Date : February 18, 1998 By: /s/ Steven H. Rothman
Steven H. Rothman
Chief Executive Officer and
President
Date : February 18, 1998 By: /s/ Frank T. Wong
Frank T. Wong
Vice President - Finance
(Principal Financial and
Accounting Officer) and Secretary
14
<PAGE>
Micros-to-Mainframes, Inc
Exhibit 12
BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION
THREE MONTHS ENDED NINE MONTHS ENDED
December 31, 1997 December 31, 1997
BASIC DILUTED BASIC DILUTED
Average outstanding shares 4,450,374 4,450,374 4,450,374 4,450,374
Effect of dilutive
Securities 56,388 344,045
--------------------- --------------------
Equivalent Shares 4,450,374 4,506,762 4,450,374 4,494,419
==================== =====================
Net Income $73,366 $73,366 $331,669 $331,669
Earnings Per share $ 0.02 $ 0.02 $ 0.07 $ 0.07
======== ======= ====== ======
<PAGE>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> Dec-31-1997
<CASH> 1,885
<SECURITIES> 0
<RECEIVABLES> 12,892
<ALLOWANCES> 0
<INVENTORY> 2,327
<CURRENT-ASSETS> 17,459
<PP&E> 1,861
<DEPRECIATION> 840
<TOTAL-ASSETS> 19,742
<CURRENT-LIABILITIES> 7,067
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 12,675
<TOTAL-LIABILITY-AND-EQUITY> 19,742
<SALES> 50,749
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 44,498
<OTHER-EXPENSES> 5,732
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<INTEREST-EXPENSE> 11
<INCOME-PRETAX> 553
<INCOME-TAX> 221
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<EPS-PRIMARY> 0.07
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