<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 June 30, 1999
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 - 4,827,569 shares as of July 28, 1999
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1: Financial Statements
Micros-to-Mainframes, Inc
Condensed Consolidated Balance Sheets
June 30, March 31
1999 1999
(unaudited)
Assets
Current Assets
Cash and cash equivalents $ 476,580 $ 678,680
Accounts receivable, net 16,516,041 16,891,070
Inventories 2,125,787 1,428,736
Prepaid expenses and other current assets 683,383 736,844
Deferred income taxes 85,000 84,100
-----------------------------
Total current assets 19,886,791 19,819,430
Property, plant and equipment 2,719,049 2,360,427
Less accumulated deprecation and amortization 1,250,060 1,170,173
-----------------------------
1,468,989 1,190,254
Goodwill, net of accumulated amortization 3,711,666 717,781
Investment in Pivot Technologies, Inc. - 1,067,217
Other Assets 159,578 155,078
----------------------------
Total assets $ 25,227,024 $ 22,949,760
=============================
Liabilities and Shareholders' Equity
Current liabilities:
Secured notes payable $ 580,000 $ 980,000
Inventory financing agreement 5,846,544 3,811,218
Accounts payable and accrued expenses 3,130,026 4,397,724
---------------------------
Total current liabilities 9,556,570 9,188,942
Deferred Income taxes 107,300 90,500
---------------------------
Total Liabilities 9,663,870 9,279,442
Commitments and Contingencies
Shareholders' Equity
Common stock 4,828 4,446
Additional paid-in capital 14,702,864 12,883,170
Retained earnings 855,462 782,702
---------------------------
Total shareholders' equity 15,563,154 13,670,318
---------------------------
Total liabilities and shareholders' equity $ 25,227,024 $ 22,949,760
============================
See accompanying footnotes
<PAGE>
Micros-to-Mainframes, Inc
Condensed Consolidated Statements of Income
Unaudited Three Months
Ended June 30
1999 1998
----------------------
Revenue
Products $ 13,062,295 $ 12,042,541
Service related sales 5,300,760 5,030,018
--------------------------------
18,363,054 17,072,559
--------------------------------
Costs and expenses:
Cost of products sold 12,356,007 11,840,135
Cost related to service sales 3,510,437 2,905,478
Selling, general and administrative expenses 2,379,025 2,282,956
-------------------------------
18,245,468 17,028,569
-------------------------------
Other Income 10,818 310,455
Interest expenses 5,644 2,963
------------------------------
122,760 351,482
Provision for income taxes
50,000 144,000
-------------------------------
Net income $ 72,760 $ 207,482
===============================
Net income per common share:
Basic $ 0.02 $ 0.05
===============================
Diluted $ 0.02 $ 0.05
===============================
Weighted average number of common and common
equivalent shares used in calculation
Basic 4,570,895 4,450,374
===============================
Diluted 4,641,720 4,456,468
===============================
See accompanying notes
<PAGE>
Micros-to-Mainframes, Inc
Condensed Consolidated Statement of Cash Flows
Unaudited
Three Months Ended
June 30,
1999 1998
-----------------------------
Operating activities
Net Income $ 72,760 $ 207,482
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 111,546 88,849
Deferred income taxes 15,900 93,400
Loss from investment in Pivot
Technologies,Inc. 1,589
Changes in operating assets and liabilities:
Decrease in accounts receivable 505,047 1,001,639
Decrease (Increase) in inventory (697,051) 184,596
Increase in prepaid expenses and
other current assets (70,539) (55,583)
Increase (Decrease) in other assets 500 (42,968)
Increase (Decrease) in accounts payable
and accrued expenses 725,555 (1,696,418)
Decrease in deferred revenue - (270,000)
Decrease in income taxes payable - (191,296)
Net cash provided by (used in) operating 665,307 (680,299)
--------------------------
Investing activities
Investment in Pivot Technologies, Inc - (594,139)
Acquisition of property and equipment (107,680) (35,749)
Purchase of subsidiary,net of cash acqired (371,227) -
---------------------------
Net cash used in investing activities (478,907) (629,888)
---------------------------
Financing activities
Repayment of secured notes payable (400,000) -
Proceeds from exercise of stock options 11,500
----------------------------
Cash(used in) financing activities (388,500) -
----------------------------
Decrease in cash (202,100) (1,310,187)
Cash at the beginning of period 678,680 3,991,593
----------------------------
Cash at the end of period $ 476,580 $ 2,681,406
============================
Supplemental disclosures of cash flow information
Cash paid during the quarter for:
Interest $ 5,644 $ 2,963
Income taxes $ - $ 260,950
Supplemental schedule of noncash financing
activities:
Acquisition of Pivot Technologies, Inc.
Warrants issued $ 370,771
Common stock issued $ 1,437,804
See accompanying footnotes
<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., MTM Advanced Technology, Inc. and Pivot Technologies,
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, 1999
are not necessarily indicative of the results that may be expected for the
year ending March 31, 2000. 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, 1999.
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 amounts have been reclassified to conform to the current year
presentation.
2. Acquisition of Pivot Technologies, Inc
On May 18, 1998, the Company acquired 19.9% of Pivot Technologies, Inc.
("Pivot"), a remote network servicer, and an option (the "Option") to cause
the merger of Pivot into a to-be-created wholly owned subsidiary of the
Company. In consideration for the Option and the Pivot shares, the Company
paid Pivot (exclusive of the merger consideration payable upon any exercise of
the Option) $475,000 and made further payments, as defined in the Purchase and
Option Agreement, of $346,000 over a five-month period commencing one month
after closing. Pursuant to the Option, the shareholders of Pivot (exclusive
of the Company) would receive 377,130 shares of the Company's common stock,
five-year warrants to acquire 100,000 shares of the Company's common stock at
$2.916767 per share, with one-third such warrants becoming exercisable at the
end of each of the first three years after the exercise of the Option and
$337,600 in cash. The Option had an initial term of six months and was
extended for three additional one-month terms for additional cash
consideration of $240,000. Such further payments gave the Company the right
to increase its ownership to 33.4% for no further consideration. The Company
also incurred acquisition costs of approximately $20,000. On February 22,
1999, the Company increased its ownership to 33.4%.
<PAGE>
The investment in Pivot was accounted for under the equity method of
accounting whereby earnings or losses from the investment are reflected in the
Company's earnings based on the Company's pro rata ownership interest. The
net loss from this investment for the period from April 1, 1999 to June 1,
1999 aggregated approximately $1,600.
On June 2, 1999, the Company acquired the remaining 66.6% ownership of Pivot.
In consideration, Pivot shareholders received 377,129 shares of the Company's
common stock; five-year warrants to acquire 100,000 shares of the Company's
common stock at $2.916767 per share, exercisable immediately; and $262,603 in
cash. The Company also paid $100,000 to the Pivot shareholders in
consideration for the shareholders' covenant not to compete. Additionally,
the Company entered into employment agreements which require the payment of
approximately $335,000 annually through March 2002. The approximate value of
the consideration for 100% of the ownership of Pivot was approximately
$3,356,000 and approximately $75,000 for other expenses.
<PAGE>
3. Shareholders' Equity
PREFERRED STOCK:
At the Annual Meeting of Shareholders on August 20, 1996, the Company amended
its Certificate of Incorporation, eliminating the old Series A preferred
stock and authorizing a new class of 2,000,000 shares of "blank check"
preferred stock, par value $.001 per share. As of June 30, 1999, there were
no preferred shares issued and outstanding.
EMPLOYEE STOCK OPTION PLAN:
The 1993 Employee Stock Option Plan (the 1993 Plan) was adopted by the
Company in May 1993 .The 1996 Stock Option Plan (the 1996 Plan) was
approved by the shareholders of the Company on August 20, 1996 and the 1998
Stock Option Plan (the 1998 Plan) was approved by the shareholders of the
Company on October 16, 1998. 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, 350,000 and 250,000
shares of common stock in the 1993 Plan,1996 Plan and 1998 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, 1999 158,334 $1.25-$7.00 199,700 $1.625- 4.43
Options issued during
The First Quarter 2000 9,000 $3.625-4.0625
Options exercised during
The First Quarter 2000 (4,000) $2.875
------- -------
158,334 $1.25-$7.00 204,700 $2.25-$4.43
======= =======
There have been no transactions relating to the 1998 Plan.
WARRANT:
In connection with the acquisition of Pivot Technologies, Inc, the Company
issued 100,000 Stock Purchase Warrants to Pivot's shareholders as part of the
consideration price of the transaction. Each Warrant allows the holder to
purchase one Micros-to-Mainframes, Inc. common share at a price of $2.916767,
exercisable immediately. As of June 30, 1999, the 100,000 Stock Purchase
Warrants were outstanding.
<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
1999 1998
Product sales .......................... 71.13% 70.54%
Services related sales ................. 28.87 29.46
Net Sales ...............................100.00 100.00
Cost of Product Sales( as a % of
Products sale)..................... 94.59 98.32
Costs related to services (as a
% of services related sales)...... 66.23 57.76
Total Direct Cost(as a % of total sales) 86.40 86.37
Selling, general and
administrative expenses............. 12.96 13.37
Income before income taxes .............. 0.67 2.06
Net Income............................... 0.40 1.22
The Three Months Ended June 30, 1999, as compared to the Three Months Ended
June 30, 1998
The Company had net sales of approximately $18,363,000 for the three
months ended June 30, 1999 ("First Quarter 2000"), as
compared to approximately $17,073,000 for the three months ended
June 30, 1998 ("First Quarter 1999"). The increase in sales of
approximately 8% or approximately $1,290,000 in the First Quarter
2000 was attributable to the increase in hardware sales of approximately
$1,019,000 or approximately 8% and an increase in technology
consulting services of approximately $270,000 or approximately 5% to
both new and existing customers.
As a percentage of net sales, the cost of products sold decreased
3.73% in the First Quarter 2000 and the costs as a percentage of the
service revenue increased 8.47% due to the Company's increase of
technical personnel during the Quarter. The technical personnel salaries
increased approximately 15% to approximately $1,590,000 from
approximately $1,381,000 from the First Quarter 1999 to the First
Quarter 2000.The Company trend is to continue to increase its technical
personnel as the customer demand for the Company's technical and consulting
services increases, which is indicated by the continued growth of the
Company's Advanced Technology Group. The revenue related to the service and
consulting business was approximately $5,301,000 for the First Quarter
2000 compared to $5,030,000 for the First Quarter 1999. This is an
increase of approximately $270,000 or 5%.
Selling, general and administrative expenses ("SG&A") were
approximately $2,379,000 in the First Quarter 2000 as compared to
$2,283,000 in the First Quarter 1999 , an increase of $96,000 or 4%. The
SG&A expenses as a percentage of net sales were 12.96% and 13.37% in the
First Quarter 2000 and the First Quarter 1999, respectively. The
increase is due to the Company's incurred additional expenses for Pivot
Technologies, Inc which was acquired on June 2, 1999. The decrease as to
the percentage of net sales was attributable to the increase in sales
volume to customers.
Other income was approximately $11,000 in the First Quarter 2000 as to
compared to approximately $310,000 in the First Quarter 1999. The decrease
resulted drom the inclusion in First Quarter 1999of a $270,000
contractual payment from BTG, Inc. and interest income of approximately
$40,000.
<PAGE>
The effective income tax rates were approximately 41% for both the First
Quarter 2000 and the First Quarter 1999.
As a result of the forgoing, the Company had net income of approximately
$73,000 in the First Quarter 2000 compared to $207,000 in the First
Quarter 1999. This represents a decrease of approximately 65%. The
basic and dilutive earnings per common share were $0.02 in the First
Quarter 2000 compared to $0.05 in the First Quarter 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company measures its liquidity in a number of ways, including the
following:
June 30, March 31,
1999 1999
(Dollars in thousands,
except current ratio data)
Cash and cash equivalents............... $ 477 $ 679
Working capital ......................... $10,330 $10,630
Current ratio .......................... 2.08:1 2.16:1
Secured notes payable .................. $ 580 $ 980
Working capital lines available.......... $ 7,873 $ 9,509
The Company had working capital of approximately $10,330,000 as of
June 30, 1999, a decrease of approximately $300,000 from March 31,
1999.
During the First Quarter 2000, the Company had net cash used in
operating activities of approximately $665,000 derived primarily
from $73,000 of net income, a decrease in accounts receivable of
approximately $505,000 and a increase in accounts payable of
approximately $726,000,offset by an increase in prepaid and other
current assets receivable of $71,000, and an increase of inventory of
$697,000.
The Company had cash used in investing activities of approximately
$479,000 from the acquisition of Pivot Technologies, Inc and purchase
of office equipment.
The Company had a decrease in its net cash of $388,500 from financing
activities, derived from repayment of secured notes payable of $400,000
and proceeds from options exercised by employees of $11,500.
As a result of the foregoing, the Company had a net decrease in cash of
$202,000.
The Company has entered into two financing agreements for the purchase
of inventory ("floor plan agreements"). These agreements aggregate
approximately $9,300,000 (approximately $3,453,000 and $5,489,000
unused at June 30, 1999 and March 31, 1999, respectively,) and
generally provide for 30-day repayment terms.
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. In addition, one of these agreements
provides for minimum amounts of tangible net worth and specified
financial ratios.
On January 19, 1999, the Company entered into a new one-year
$13,000,000 credit facility with one of its current floor planners.
This $13,000,000 credit facility includes an $8,000,000 floor plan
agreement and a $5,000,000 revolving receivable financing facility.
The combined facility is secured by the Company's assets (other than
inventories and accounts receivable directly financed by other floor
planners who have the lien thereon).
<PAGE>
In addition, the Company has a choice of two types of loans: (i) the
prime rate loan, in which interest is calculated at the prime rate
(7.75% at June 30, 1999) on the daily contract balance, and (ii) the
LIBOR loan, in which the unpaid principal amount of LIBOR loans shall
bear interest prior to maturity at a rate per annum equal to the LIBOR
in effect for each interest period, plus 1.5% per annum (5.1675% at
June 30, 1999).
On June 30, 1999, the Company's total outstanding debt under the
$5,000,000 revolving receivable financing facility was $580,000 which
bears interest at the prime rate. The Company also pays an unused
line fee of .125% per annum on the daily average of the unused amount
of the revolving receivable financing facility.
The Company's current ratio decreased to 2.08:1 at June 30, 1999 from
2.16:1 at March 31, 1999.
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. There can
be no assurance, however, that changes in Company's plans or other
events affecting the Company will not result in unexpected expenditures
or cash requirements.
Year 2000 Issue
Many existing computer systems, including certain of the Company's
Internal systems as well as those that the Company sells to customers,
use only the last two digits to identify years in the date field. As a
result, those systems may not accurately distinguish years in the 21st
century from years in the 20th century, or may not function properly
when faced with years later than 1999. This problem is generally
referred to as the "Year 2000 Issue." Computer systems that are able to
deal correctly with dates after 1999 are referred to as "Year-2000-
Compliant."
Year 2000 Readiness Disclosure
The Company has undertaken a complete and thorough review of all of its
operations to determine those aspects which involve or are dependent
upon a computer application. The Company is reviewing the software and
operating systems for each such application to determine if it is Year-
2000-Compliant. Any such system or application which is not Year-2000-
Compliant is being modified or upgraded to assure the Company's
continued ability to operate without interruption. This process has
been completed. The Company is considered Year 2000 compliance from other
companies upon which it may rely for products or services.
The Company expects to implement successfully the systems and
programming changes necessary to address the Year 2000 Issue. The
Company expects to implement these changes using primarily internal
information technology and other personnel. Moreover, the Company does
not expect the costs associated with that implementation to be material
to the Company's financial position or results of operations.
With respect to products sold to customers, the Company does not
warrant any products sold as Year-2000-Compliant. Instead, the Company
refers customers to warrantees provided by the product's manufacturers.
The Company believes the most reasonably likely worst case Year 2000
scenario would include a combination of some or all of the following:
<PAGE>
- - Internal information technology modules or systems may fail to
operate or may give erroneous information. Such failure could result in
shipping delays, inability to generate or delays in generation of
financial reports and statements, inability of the Company to
communicate among its various offices, and computer network downtime
resulting in inefficiencies and higher payroll expenses.
- - Components in HVAC, lighting, telephone, security and similar systems
might fail, causing such systems to fail.
- - Communications with customers and vendors that the Company depends
upon may fail or give erroneous information. These types of problems
could result in such difficulties as the inability to receive or
process customer orders, shipping delays, or sale of products at
erroneous prices. Furthermore, customers may be unable to, or may
suffer delays, in remitting payments to the Company on timely basis. -
The unavailability of products as a result of Year 2000 problems
experienced by one or more key vendors of the Company, or as a result
of changes in inventory levels at aggregators, VARs and similar
providers in response to an anticipated Year 2000 problem and/or the
inability of the Company to develop alternative sources for products.
- - Products sold to some of the Company's customers could fail to
perform some or all of their intended functions. In such a situation,
the Company's maximum obligation would be to repair or replace the
defective products to the extent the Company is required to do so under
manufacturer warranty.
The Company believes its plans for addressing the Year 2000 Issue as
outlined above are adequate to handle the most reasonably likely worst
case scenario. The Company does not believe it will incur a material
financial impact for the risk of failure, or from the costs associated
with assessing the risks of failure, arising from the Year 2000 Issue.
Consequently, the Company does not intend to create a contingency plan
other than as set forth above. In addition, if the Company's assessment
of its vendors, when completed, indicate that certain product shortages
can be anticipated, the Company may adjust its plans accordingly,
although the Company does believe that it has the capacity to maintain
significant levels of inventory.
The statements above describing the Company's plans and objectives for
handling the Year 2000 Issue and the expected impact of the Year 2000
Issue on the Company are forward-looking statements. Those statements
involve risks and uncertainties that could cause actual results to
differ materially from the results discussed above. Factors that might
cause such a difference include, but are not limited to, delays in
executing the plan outlined above and increased or unforeseen costs
associated with the implementation of the plan and any necessary
changes to the Company's systems. Any inability on the part of the
Company to implement necessary changes in a timely fashion could have
an adverse effect on future results of operations. Moreover, even if
the Company successfully implements the changes necessary to address
the Year 2000 Issue, there can be no assurance that the Company will
not be adversely affected by the failure of others to become Year-2000-
Compliant.
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibit
27.1 Financial Data Schedule
<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 : July 28, 1999 By: /s/ Howard A. Pavony
Howard A. Pavony
Chairman of the Board
of Directors
Date : July 28,1999 By: /s/ Steven H. Rothman
Steven H. Rothman
Chief Executive Officer and
President and Director
Date : July 28, 1999 By: /s/ Frank T. Wong
Frank T. Wong
Vice President - Finance
(Principal Financial and
Accounting Officer) and
Secretary
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> Jun-30-1999
<CASH> 477
<SECURITIES> 0
<RECEIVABLES> 16,516
<ALLOWANCES> 0
<INVENTORY> 12,126
<CURRENT-ASSETS> 19,887
<PP&E> 2,719
<DEPRECIATION> 1,250
<TOTAL-ASSETS> 25,227
<CURRENT-LIABILITIES> 9,557
<BONDS> 0
0
0
<COMMON> 5
<OTHER-SE> 14,703
<TOTAL-LIABILITY-AND-EQUITY> 25,277
<SALES> 18,363
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 15,866
<OTHER-EXPENSES> 2,379
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6
<INCOME-PRETAX> 123
<INCOME-TAX> 50
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
