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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, 2000
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 - 5,135,569 shares as of November 10, 2000
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INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors and Shareholders
Micros-to-Mainframes, Inc.
We have reviewed the accompanying condensed consolidated balance sheet
of Micros-to-Mainframes, Inc. and subsidiaries as of September 30,
2000, and the related condensed consolidated statements of income and
cash flows for the three-month period and the six-month period then
ended. These financial statements are the responsibility of the
company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of persons
responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with generally
accepted auditing standards, the objective of which is the expression
of an opinion regarding the condensed financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying condensed financial statements
for them to be in conformity with generally accepted accounting
principles.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
November 2, 2000
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PART I FINANCIAL INFORMATION
Micros-to-Mainframes, Inc. and subsidiaries
Condensed Consolidated Balance Sheets
September 30, March 31,
2000 2000
----------------------------------
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 2,366,334 $ 1,055,432
Accounts receivable, net 16,295,061 14,603,961
Inventories 2,307,805 1,908,082
Prepaid expenses and other current assets 1,719,519 1,252,689
Deferred income taxes 84,500 84,500
------------- -----------
Total current assets 22,773,219 18,904,664
Property and equipment 4,889,279 3,900,091
Less accumulated deprecation
and amortization 2,051,400 1,677,097
-------------- ----------
2,837,879 2,222,994
Goodwill, net of accumulated amortization 3,250,080 3,376,421
Other assets 431,077 446,181
------------- -----------
Total Assets $ 29,292,255 $24,950,260
============= ===========
Liabilities and Shareholders' Equity
Current liabilities:
Secured notes payable $ 5,000,000 $ 3,040,000
Accounts payable and accrued expenses 7,176,085 5,630,567
Current portion of capital
lease obligations 40,267 32,247
---------- ---------
Total current liabilities 12,216,352 8,702,814
Capital lease obligation,
net of current portion 12,780 40,764
Deferred income taxes 221,300 221,300
---------- ---------
Total liabilities 12,450,432 8,964,878
Commitments and Contingencies
Shareholders' Equity:
Common stock 5,136 4,878
Additional paid-in capital 15,805,156 14,974,888
Retained earnings 1,031,531 1,005,616
---------- -----------
Total shareholders' equity 16,841,823 15,985,382
---------- -----------
Total Liabilities and Shareholders' Equity $29,292,255 $24,950,260
=========== ===========
See notes to condensed consolidated financial statements
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Micros-to-Mainframes, Inc and subsidiaries
Condensed Consolidated Statements of Income
Unaudited Six Months
Ended September 30,
2000 1999
-------------------------
Net Revenue:
Products $ 31,211,716 $ 26,568,418
Services 11,235,422 10,818,956
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42,447,138 37,387,374
Costs and expenses:
Cost of products sold 28,986,404 24,978,853
Cost of services provided 6,693,980 7,447,481
Selling, general and administrative expenses 6,578,159 4,717,263
----------- ----------
42,258,543 37,143,597
Other Income 36,690 17,214
Interest expenses 182,370 49,810
----------- ----------
Income before income taxes 42,915 211,181
Provision for income taxes 17,000 86,000
----------- ------------
Net income $ 25,915 $ 125,181
============ ============
Net income per common share:
Basic and Diluted $ 0.01 $ 0.03
============= =============
Weighted-average number of common
shares outstanding:
Basic 4,900,754 4,698,531
============ ==============
Diluted 5,095,864 4,766,683
============ ==============
See notes to condensed consolidated financial statements
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Micros-to-Mainframes, Inc and subsidiaries
Condensed Consolidated Statements of Income
Unaudited Three Months
Ended September 30,
2000 1999
----------------------
Net Revenue:
Products $ 14,852,708 $ 13,506,123
Services 5,966,738 5,518,196
------------ ------------
20,819,446 19,024,319
Costs and expenses:
Cost of products sold 13,757,627 12,622,846
Cost of services provided 3,134,138 3,937,044
Selling, general and administrative expenses 3,777,064 2,338,238
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20,668,829 18,898,128
Other Income 21,117 6,396
Interest expense 112,400 44,166
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Income before income taxes 59,334 88,421
Provision for income taxes 25,700 36,000
------------ ------------
Net income $ 33,634 $ 52,421
============ ============
Net income per common share:
Basic and Diluted $ 0.01 $ 0.01
============= ===========
Weighted-average number of common
shares outstanding:
Basic 4,890,539 4,827,569
=========== ==========
Diluted 5,116,770 4,895,874
=========== ==========
See notes to condensed consolidated financial statements
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Micros-to-Mainframes, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Six months ended September 30,
2000 1999
(Unaudited)
Cash flows from operating activities:
Net income $ 25,915 $ 125,181
Adjustments to reconcile net income
to net cash (used in) operating activities:
Depreciation and amortization 374,303 172,087
Amortization of goodwill 126,641 96,936
Deferred income taxes 4,100
Loss from investment in
Pivot Technologies, Inc. 1,589
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivabl (1,691,100) 2,141,317
Increase in inventory (399,723) (819,313)
Increase in prepaid expenses and
other current assets (466,830) (366,562)
Decrease in other assets 15,104 499
Increase (decrease) in accounts payable
and accrued expenses 1,545,518 (2,339,871)
------------ -----------
Net cash used in operating activities (470,472) (984,037)
Cash flows from investing activities:
Acquisition of property and equipment (989,188) (270,090)
Purchase of subsidiary,
net of cash acquired (371,227)
------------ -----------
Net cash used in investing activities (989,188) (641,317)
Cash flows from financing activities:
Increase in secured notes payable 1,960,000 1,320,000
Proceeds from exercise of stock options 10,501 11,500
Net proceeds from issuance of common stock 820,025
Payments on Capital lease obligations (19,964)
----------- ---------
Net cash provided by financing activities 2,770,562 1,331,500
Net increaes(decrease) in cash
and cash equivalents 1,310,902 (293,854)
Cash and cash equivalents at
the beginning of period 1,055,432 678,680
----------- ------------
Cash and cash equivalents at
the end of period $ 2,366,334 $ 384,826
============= ============
Supplemental disclosures of cash flow information:
Cash paid during the quarter for:
Interest $ 174,371 $ 33,672
Income taxes 7,137 15,700
Supplemental schedule of
noncash financing activities:
Issuance of warrants in connection
with purchase of Pivot - 370,770
Issuance of common stock in connection
with purchase of Pivot - 1,437,804
See notes to condensed consolidated financial statements
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Micros-to-Mainframes, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Micros-to-Mainframes, Inc. and its subsidiaries, MTM Advanced
Technology, Inc., PTI Corporation (formerly known as Pivot Technologies,
Inc.)("Pivot"), and Data.Com RESULTS, Inc. ("Data.Com") (collectively,
the "Company" or "MTM") serve as a "one-stop" organization for data
processing solutions by providing computer hardware and software sales,
systems design, installation, consulting, maintenance and integration of
microcomputer products, including the design and implementation of wide
area networks ("WAN's") and local area networks ("LANs"). The Company
sells, installs and services microcomputers, microcomputer software
products, supplies, accessories and custom designed microcomputer systems.
The accompanying unaudited condensed consolidated financial
statements 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, 2000 are not
necessarily indicative of the results that may be expected for the
year ending March 31, 2001. 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, 2000.
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.
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis of financial
condition and results of operations of the Company should
be read in conjunction with the condensed consolidated
financial statements and notes thereto included elsewhere
in this Quarterly Report on Form 10-Q and with the
Company's Annual Report on Form 10-K. This discussion and
analysis contains certain forward-looking statements
within the meaning of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of
1934, as amended, which are not historical facts, and
involve risks and uncertainties that could cause actual
results to differ materially from the results anticipated
in those forward-looking statements. These risks and
uncertainties include, but are not limited to, those set
forth below, those set forth in the Company's Annual
Report on Form 10-K for the year ended March 31, 2000, and
those set forth in the Company's other filings from time
to time with the Securities and Exchange Commission.
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,
2000 1999 2000 1999
---------------------------------------
Product sales............... 73.53% 71.06% 71.34% 70.99%
Services ........... . . .. 26.47 28.94 28.66 29.01
Net sales ................... 100.00 100.00 100.00 100.00
Cost of product sales ( as a
% of product sales)...... 92.87 94.02 92.63 93.46
Cost of services provided (as a
% of services) 60.58 68.84 52.53 71.35
Total direct costs( as a % of
Total sales)............. 84.06 86.73 81.13 87.05
Selling, general and
administrative expenses. 15.50 12.62 18.14 12.29
Income before income taxes... 0.10 0.56 0.29 0.46
Net Income................... 0.06 0.33 0.16 0.28
The Company had net sales of approximately $42,447,000 for the Six
Months Ended September 30, 2000(the "2001 Period"), as compared to
approximately $37,387,000 for the Six Months Ended September 30, 1999
(the "2000 Period"). The Company had net sales of approximately
$20,819,000 for the Three Months Ended September 30, 2000 ("Second
Quarter 2001"), as compared to approximately $19,024,000 for the Three
Months Ended September 30, 1999 ("Second Quarter 2000"). The increases
in sales of approximately 14% and 9% for the 2001 Period and Second
Quarter 2001, respectively, were attributable to increases in product
sales of $4,643,000 and $1,347,000 for the 2001 Period and Second
Quarter 2001, respectively, and increases in the service related sales
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of approximately $416,000 and approximately $449,000 for the 2001 Period
and Quarter. The revenue related to the service and consulting business
was approximately $11,235,000 for the 2001 Period and approximately
$5,967,000 in the Second Quarter 2001, as compared to approximately
$10,819,000 for the 2000 Period and approximately $5,518,000 for the
1999 Quarter. These figures represent an increase in revenue of
approximately 17% and 10% for the products sales, and 4% and 8% for the
service related sales for the 2000 Period and Quarter, respectively. The
increase in sales was due to the combination of increased sales to new
and existing customers.
Gross profit margin on products sales increased 6% and 13% in the 2001
Period and Second Quarter, respectively. The increase in gross profit
margin from product sales is primarily related to the mix of products
sold during the period. Gross profit margin on services provided increased
27% and 66% for the 2001 Period and Second Quarter 2001, respectively. The
increase in gross profit on services provided was a result of a decrease
in the use of outside contractors to perform certain services and the
increased efficiency in the use of Company's technical engineering
staff. The Company expects to continue to hire additional professional
technicians and engineers for its consulting and service business in order to
meet the expected demand in the outsourcing and services business and to
not be as dependent on third party service contractors in the future.
To the extent necessary the Company will continue use subcontractors.
Selling, general and administrative expenses ("SG&A") were
approximately $6,578,000 in the 2001 Period as compared to approximately
$4,717,000 in the 2000 Period and approximately $3,777,000 for the
Second Quarter 2001 compared to approximately $2,338,000 for the 2000
Quarter. This represented an increase of approximately 39% for SG&A
during the 2001 Period and 62% during 2001 Quarter as compared to the 2000
Period and Quarter. As a percentage of net sales, SG&A increased
to 15.5% from 12.6% and to 18.1% from 12.3% for the 2001 Period
and 2000 period, and for the Second Quarter 2001 and
Second Quarter 2000, respectively. The increases were due to additional
expenses in payroll, payroll taxes, telephone, depreciation and
amortization, and a newly created office.
Other income increased to approximately $37,000 in the 2001 Period and
approximately $21,000 in Second Quarter 2001 as compared to approximately
$17,000 in the 2000 Period and approximately 6,000 in Second Quarter 2000.
Interest expenses increased to approximately $182,000 in the 2001 Period
and 112,000 in Second Quarter 2001 from approximately $50,000 in the 2000
Period and approximately $44,000 in the Second Quarter 2000, due to higher
bank borrowing in the 2000 Period and Second Quarter 2001.
The effective income tax rates were 40% and 44% in 2001 Period and
2001 Quarter as compared to 41% the 2000 Period and 2000 Quarter.
As a result of the forgoing, the Company had net income of approximately
$26,000 in the 2001 Period compared to approximately $125,000 in the
2000 Period, and approximately $34,000 for the 2001 Quarter compared to
approximately $52,000 for the 2000 Quarter. The basic and diluted earnings
per share were $0.01 in 2001 Period and Second Quarter 2001 as compare to
$0.03 in 2000 Period and $0.01 in Second Quarter 2001.
<PAGE>
Liquidity and Capital Resources
The Company measures its liquidity in a number of ways, including the
following:
September 30, March 31
2000 2000
(Dollars in thousands,
except current ratio data)
Cash and cash equivalents............... $ 2,366 $ 1,055
Working capital ........................ $ 10,557 $10,202
Current ratio .......................... 1.86:1 2.17:1
Secured notes payable . . . . . . . . .. $ 5,000 $ 3,040
Working capital line available ......... $ 7,356 $ 7,064
The Company had working capital of approximately $10,557,000 as of
September 30, 2001, a increase of approximately $1,311,000 from March
31, 2000.
For the six months ended September 30, 2000, the Company had net cash
used in operating activities of approximately $470,000 derived
primarily from approximately $26,000 of net income, and the increase in
accounts payable of approximately $1,546,000 offset by an increase in accounts
receivable of approximately $1,691,000, an increase in inventory approximately
$400,000, and an increase in prepaid and other current assets of approximately
$467,000.
The Company had cash used in investing activities of approximately
$989,000 consisting of in purchase of office equipment of approximately
$482,000 and approximately $507,000 from costs incurred in development
of computer software.
The Company had an increase in its net cash of $2,771,000 from financing
activities, derived from borrowing of $1,960,000 from its bank, net
proceeds from sales of common stock of approximately $820,000 and proceeds from
options exercised by employees of approximately $11,000.
As a result of the foregoing, the Company had a net increase in cash of
approximately $1,311,000 in the 2001 Period.
The Company has entered into two financing agreements for the purchase of
inventory totaling $15,000,000. This facility includes a $10,000,000 floor
plan agreement and a $5,000,000 revolving receivable financing facility.
Included in the floor plan agreement was a $2,000,000 temporary increase
granted on June 22, 2000. This increase expired on November 4, 2000. The
company is awaiting confirmation of a permanent increase, to $10,000,000,
in the floor plan agreement. 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).
On the revolving receivable financing facility, the Company has a choice
of two types of loans: (i) the prime rate loan, on which interest is
calculated at the prime rate (9.50% at September 30, 2000) 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 (8.1206% and
8.1225% at September 30, 2000), plus 1.5% per annum.
The other financing agreement is a $1,300,000 floor plan agreement
and is secured by the Company's assets (other than inventories and
accounts receivable directly financed by other floor planners who have the
lien thereon).
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The financing agreements are effective until notice of termination
is given by either party (within a specific time-frame, as defined). The
floor- plan agreements generally allow the Company to borrow interest free
for a period of 30 to 60 days. 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.
The Company's total outstanding debt under the $5,000,000 revolving
receivable financing facility was $5,000,000 and $3,040,000 at September
30, 2000 and March 31, 2000, respectively. The Company 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 1.86:1 at September 30, 2000
from 2.17:1 at March 31, 2000.
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.
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PART II OTHER INFORMATION
Item 2: Changes in Securities
On September 26, 2000, the Company sold a total of 240,000 shares of common
stock and warrants to purchase an additional 60,000 shares for a total
purchase price of $1,200,000 in private offering exempt from the
registration requirements of the Securities Act under Section 4(2) of
the Securities Act and Rule 506 of Regulation D. The warrants may be
exercised until September 25, 2003 at an initial exercise price of
$5.00 per share. In connection with the private offering, the Company
issued to designees of Sunrise Securities, Inc., placement agent for the
offering, warrants to purchase a total of 24,000 shares of common stock
plus 6,000 of the warrants issued to the investors in the private
offering. The warrants issued to the designees of the placement agent
may be exercised until September 25, 2005 at an initial exercise price
of $5.00.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on October
30,2000 the following proposals were adopted by the vote specified below:
Proposal For Against
Election
1. Election of Directors:
Howard Pavony 4,227,810 156,625
Steve Rothman 4,227,810 156,625
William Lerner 4,227,810 156,625
Arnold Wasserman 4,227,810 156,625
Alvin E. Nashman 4,227,810 156,625
2. Approval of adoption of 2000 Long-Term Performance Plan
For Against Abstain Broker Non-vote
2,220,298 186,961 5,825 1,971,351
3. Ratification of the appointment of Goldstien Golub Kessler LLP
as independent auditors for fiscal year ending March 31, 2001
For Against Abstain Broker Non-vote
4,361,195 16,415 6,825 0
Item 6. Exhibits
27.1 Financial Data Schedule
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SIGNATURES
Pursuant to the Requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
MICROS-TO-MAINFRAMES, INC.
Date : November 10, 2000 By: /s/ Howard A. Pavony
Howard A. Pavony
Chairman of the Board
of Directors
Date : November 10, 2000 By: /s/ Steven H. Rothman
Steven H. Rothman
Chief Executive Officer and
President and Director
Date : November 10, 2000 By: /s/ Frank T. Wong
Frank T. Wong
Vice President - Finance
(Principal Financial and
Accounting Officer) and
Secretary
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