<PAGE>
LAW OFFICES OF
PILLSBURY MADISON & SUTRO LLP
SUITE 1200
1050 CONNECTICUT AVE, N.W.
WASHINGTON D.C. 20036-5303
TELEPHONE (202) 887-0300
FACSIMILE (202) 296-7605
LOS ANGELES
NEW YORK
SACRAMENTO
SAN FRANCISCO
WASHINGTON D.C.
TOKYO
MENLO PARK
ORANGE COUNTY
SAN DIEGO
SAN JOSE
HONG KONG
WRITER'S OFFICE AND
DIRECT DIAL NUMBER
(202) 463-2334
August 14, 1996
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Form 10-QSB Filing for Micro-Integration Corp.
Dear Commissioners:
On behalf of Micro-Integration Corp. (the "Company"), we hereby transmit
for filing via EDGAR, a complete copy, with exhibits, of the Company's Quarterly
Report on Form 10-QSB for the quarter ended June 30, 1996. Three copies of the
Form 10- QSB are being delivered concurrently to the NASDAQ National Market.
Very truly yours,
/s/HOLLY E. BLEWER
Holly E. Blewer
ENCS.
cc: The Nasdaq National Market w/encs. (3 encs.)
Mr. Christopher J. Burgess
Mr. Keith J. Mendelson
<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file number 0-23710
MICRO-INTEGRATION CORP.
(Exact name of small business issuer as specified in its
charter)
DELAWARE 06-1204847
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Science Park
Frostburg, MD 21532
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 301-689-0800
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
The number of shares outstanding of the issuer's classes of common stock as of
June 30, 1996: Common Stock, $.01 Par Value ---- 2,394,745 shares
Transitional Small Business Disclosure Format (check one):
Yes No [X]
<PAGE>
MICRO-INTEGRATION CORP. AND SUBSIDIARIES
FORM 10-QSB
INDEX
PART I FINANCIAL INFORMATION PAGE
- ---------------------------- ----
Item 1. Consolidated Balance Sheets 2
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Unaudited Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 11
<PAGE>
Part I Financial Information
Item 1 Financial Statements
<TABLE>
<CAPTION>
MICRO-INTEGRATION CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30 March 31
1996 1996
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents $564,241 $460,874
Marketable securities
Held-to-maturity 1,000,000 1,000,000
Accounts receivable trade, net 1,212,929 1,300,838
Inventory 863,467 933,522
Tax refund receivable 107,052 103,086
Prepaid expense 78,438 114,967
Deferred income taxes 23,483 23,483
Total Current Assets 3,849,610 3,936,770
Property, Plant and Equipment
Land 92,962 92,962
Buildings 1,455,518 1,455,518
Equipment 1,542,150 1,447,128
Automobiles 209,202 238,738
Property held for sale 59,536 59,933
3,359,368 3,294,279
Less accumulated depreciation 1,223,300 1,149,678
2,136,068 2,144,601
Cash Surrender Value of Life Insurance
and other noncurrent assets 182,950 177,402
Intangible Assets,
Net of Amortization 360,380 356,052
$6,529,008 $6,614,825
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
MICRO-INTEGRATION CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30 MARCH 31
1996 1996
---- ----
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt and $273,101 $299,067
capital lease obligations
Accounts payable 177,614 202,049
Accrued expenses 139,254 198,044
Income tax payable 2,527 1,000
Total Current Liabilities 592,496 700,160
Long-term debt, less current portion 1,122,116 1,133,008
Capital lease obligations,
less current portion 50,908 53,202
Deferred Income Taxes 42,985 42,985
Commitments and Contingencies - -
Shareholders' equity
Common stock -- $.01 par value; authorized
120,000,000 shares; outstanding -- 2,394,745
shares at June 1996; and 2,385,925 shares at
at March 1996 25,243 25,155
Additional capital 5,404,795 5,404,795
Retained deficit (69,737) (113,162)
Foreign currency translation (209,615) (176,376)
5,150,686 5,140,412
Less deferred compensation 74,289 99,048
Less treasury stock 355,894 355,894
4,720,503 4,685,470
$6,529,008 $6,614,825
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
MICRO-INTEGRATION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three months ended June 30
1996 1995
---- ----
(unaudited)
<S> <C> <C>
REVENUE
Product revenue $1,511,670 $2,058,836
License revenue 60,343 148,651
Total Revenue 1,572,013 2,207,487
Cost of goods sold 431,801 876,017
Gross Profit 1,140,212 1,331,470
Operating Expenses
Selling, general and
administrative 970,759 1,881,124
Depreciation and
amortization expense 103,537 121,057
1,074,296 2,002,181
Operating Income (Loss) 65,916 (670,711)
Other Income (Expense)
Interest expense (26,380) (30,389)
Other income 15,022 22,989
(11,358) (7,400)
Income (Loss) before income taxes 54,558 (678,111)
Income tax expense 11,133 33,608
Net Income (Loss) $43,425 $(711,719)
Earnings (Loss) per Share $0.02 $(0.30)
Weighted Average Number of
Common Shares Outstanding 2,392,419 2,407,880
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
MICRO-INTEGRATION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30
1996 1995
---- ----
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income (loss) $ 43,425 $ (711,719)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 185,561 288,286
(Gain) Loss on disposal of assets 0 0
Deferred income taxes 0
Change in operating assets and liabilities:
Accounts receivable 92,703 162,710
Inventory 72,510 36,226
Tax refund receivable (3,821) 190,591
Prepaid expense 36,464 72,822
Accounts payable (25,665) (5,855)
Accrued expenses (34,063) (127,974)
Income taxes payable (24,205) 28,187
------- ------
Net cash provided by (used in
operating activities 342,909 (66,726)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property,
plant and equipment (136,522) (128,177)
Increase in other noncurrent
assets and intangibles (42,025) (24,649)
Purchase of held-to-maturity
securities (3,000,000) (4,000,000)
Proceeds from sale of
held-to-maturity securities 3,000,000 4,500,000
Increase in cash surrender
value of life insurance (5,548) 0
Proceeds from sale
of fixed assets 2,540 0
Net cash (used in) provided
by investing activities (181,555) 347,174
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable
and long-term debt 0 0
Repayments of notes payable,
long-term debt, and
capital lease obligations (37,945) (57,121)
Issuance of common stock 88 0
Net cash (used in) financing
activities (37,857) (57,121)
------- -------
CURRENCY ADJUSTMENTS:
Effect of exchange rate changes
on cash (20,130) 9,769
Increase in cash 103,367 233,096
Cash at beginning of period 460,874 427,085
Cash at end of period $564,241 $660,181
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
5
<PAGE>
MICRO-INTEGRATION CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB 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
only of normal recurring adjustments, necessary for a fair presentation have
been included. The results for the three months ended June 30, 1996, and 1995,
are not necessarily indicative of financial information for the full year. The
unaudited consolidated financial statements should be read in conjunction with
the consolidated financial statements and footnotes thereto included in the
Company's annual report and Form 10-KSB for the year ended March 31, 1996.
For purposes of comparability, certain prior year amounts in the consolidated
financial statements have been reclassified to conform to the presentation used
for current period reporting.
2. Marketable Securities
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Debt securities are classified as held-to-maturity when the Company has the
positive intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost. Debt securities not classified as
held-to-maturity are classified as available-for-sale. Available-for-sale debt
securities are stated at fair value, with the unrealized gains and losses, net
of tax, reported as a separate component of shareholders' equity. Realized gains
and losses and declines in value judged to be other-than-temporary on available-
for-sale securities are included in investment income. The cost of securities
sold is based on the specific identification method. Interest on securities
classified as available-for-sale are included in investment income. There were
no trading securities at June 30, 1996.
Held-to-maturity securities include obligations of state municipalities
and are stated at cost of $1,000,000. These
securities mature in August 1996.
3. Inventory
<TABLE>
<CAPTION>
Inventory consisted of the following:
June 30 March 31
1996 1996
---- ----
<S> <C> <C>
Raw material $231,683 $274,623
Finished goods 631,784 658,899
------- -------
$863,467 $933,522
======== ========
</TABLE>
Inventory is stated at the lower of cost or market. Cost is determined using the
first-in, first-out method.
6
Part I Financial Information
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition for the Three Months Ended June 30, 1996 and 1995
RECENT EVENTS
In July, 1996 the Company announced it had signed a Letter of Intent to acquire
the assets of Computer Site, Inc., an Ohio-based systems integrator. Terms were
not announced. As of the date of this report, the Company was performing due
diligence at Computer Site. The Company expects that even if this transaction
closes during the current quarter it will not have a significant effect on
results of operations until the quarter ending December 31, 1996.
RESULTS OF OPERATIONS
The Company's total revenue was $1.6 million for the quarter ended June 30,
1996, compared to $2.2 million during the quarter ended June 30, 1995, a decline
of 27%. Product revenue declined $547,000, or 27%, and license revenue declined
$88,000, or 59%, compared to the same period last year. There were unit and
revenue declines in most of the Company's product classifications, but per unit
prices remained nearly constant, ending a trend of lower unit prices that has
been evident for some time. The decline in unit sales was steeper in Europe than
in the United States, with European unit sales down 44% while U.S. unit sales
declined 20%. The decline in license revenue is a result of the Company's
previously announced policy of phasing out licenses for the Company's
technology. The Company believes the decline in unit sales is a result of a
general slowdown in purchases of connectivity products in the IBM AS/400
marketplace, with personnel turnover in Europe adding to the decline there. The
Company believes the general slowdown in connectivity purchases will continue.
Gross margins improved 20%, to 72.5% from the 60.3% recorded in the three-month
period ended June 30, 1995. During the three-month period ended June 30, 1995
the Company wrote off capitalized TAS software development costs and wrote down
the value of TAS inventory to fair market value, incurring an expense of
$249,000. Excluding this write down, the gross margin for the same quarter last
year would have been 71.6%. Management believes this improvement is a result of
a shift in product mix to the company's more profitable products. The Company
expects competitive price pressures will continue to put pressure on margins in
the foreseeable future.
Selling, general and administrative expenses (SG&A) decreased by $910,000 in the
quarter ended June 30, 1996 compared to the same period in 1995. As a percentage
of sales, SG&A was 62% of total sales in the current quarter, compared with 85%
of total sales in the same quarter last year. Management is continuing its
policy of matching expenses with projected revenues and strict cost containment
policies are in effect.
The Company's net other expense of $11,000 for the quarter ended June 30, 1996
represents an increase of $4,000 over the net other expense of $7,000 for the
quarter ended June 30, 1995. This change is due primarily to lower investment
income this year.
For the three months ended June 30, 1996, the Company recognized corporate tax
expense of $11,000 . At June 30, 1996 the company has a net operating loss
carryforward of approximately $20,000, and $430,000 available for offset against
future U.S. and U.K. operating profits, respectively. The company also has
foreign tax credit carryforwards of approximately $200,000.
7
LIQUIDITY AND CAPITAL RESOURCES
The Company satisfies its cash requirements primarily through cash flow from
operations, bank borrowings, and lease financing. At June 30, 1996 the company
had $1.0 million invested in held-to-maturity securities and an additional
$564,000 in cash. The $103,000 increase in cash compared with cash on hand at
March 31, 1996 is primarily due to an increase in cash provided by operations,
offset by a small increase in cash invested in capital equipment. The company
expects that cash generated from operations and cash invested in held-to-
maturity securities will satisfy its operating cash needs for the foreseeable
future.
Working capital at June 30, 1996 was unchanged from the $3.3 million at March
31, 1996. The Company's current ratio improved from 5.6 to 1 at March 31, 1996
to 6.5:1 at June 30, 1996.
At the end of the June quarter the company's book value was $4.7 million or
approximately $1.97 per share.
8
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
(11.1) Statement re: Computation of Earnings Per Share 10
(b) The Company did not file any reports on Form 8-K
during the three months ended June 30, 1996.
9
<PAGE>
<TABLE>
<CAPTION>
MICRO-INTEGRAITON CORP. AND SUBSIDIARIES
EXHIBIT 11.1 -- STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
Three months ended
June 30
1996 1995
---- ----
(thousands except per share)
(unaudited)
<S> <C> <C>
Average shares outstanding 2,392 2,408
Net effect of dilutive stock options
based on the treasury stock method
using average market price 0 0
- -
Total 2,392 2,408
===== =====
Net (loss) income $ 43 $ (712)
====== =========
Per share amount $ 0.02 $ (0.30)
======= =========
</TABLE>
Note: Fully diluted earnings per share equals primary earnings per share.
<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 in the city of Frostburg, state of
Maryland, on the 12th day of August, 1996:
MICRO-INTEGRATION CORP.
By: /s/ John A. Parsons
---------------
John A. Parsons
President, Chairman of the Board,
and Chief Executive Officer
By: /s/ Christopher J. Burgess
-----------------------
Christopher J. Burgess
Vice President, Finance and Administration
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1996
<CASH> 564241
<SECURITIES> 0
<RECEIVABLES> 1212929
<ALLOWANCES> 0
<INVENTORY> 863467
<CURRENT-ASSETS> 3849610
<PP&E> 3359368
<DEPRECIATION> 1223300
<TOTAL-ASSETS> 6529008
<CURRENT-LIABILITIES> 592496
<BONDS> 0
0
0
<COMMON> 25243
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6529008
<SALES> 591013
<TOTAL-REVENUES> 1572013
<CGS> 431801
<TOTAL-COSTS> 1506097
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (26380)
<INCOME-PRETAX> 54558
<INCOME-TAX> 11133
<INCOME-CONTINUING> 43425
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43425
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0
</TABLE>
