<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [Fee Required]
For the fiscal year ended March 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [No Fee Required]
For the transition period from ...............to.................
Commission file number 0000-23710
MICRO-INTEGRATION CORP.
(Name of small business issuer in its charter)
DELAWARE 06-1204847
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Science Park
Frostburg, MD 21532
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 301-689-0800
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 Par Value
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
.......
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $7,784,016
The aggregate market value of the voting stock held by non-affiliates of the
registrant on June 1, 1996 was approximately $5,088,833 (based on the price at
which the stock was sold on that date).
The number of shares outstanding of the issuer's classes of common stock as of
June 1, 1996: Common Stock, $.01 Par Value -- 2,394,745 shares
Number off shares outstanding of each of the issuer's classes of common equity,
as of June 15, 1996 -- 2,394,745.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Definitive Proxy Statement for 1996 Annual Meeting of Stockholders -- Items
9, 10, 11, and 12.
Transitional Small Business Disclosure Format (check one): Yes No X
<PAGE>
INDEX TO FORM 10-K
MICRO-INTEGRATION CORP.
PART I
Item 1. Description of Business........................................2
Item 2. Description of Properties......................................9
Item 3. Legal Proceedings..............................................9
Item 4. Submission of Matters to a Vote of Security Holders............9
PART II
Item 5. Market for Common Equity and Related Shareholder Matters.......12
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................12
Item 7. Financial Statements and Supplementary Data....................16
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure.......................................16
PART III
Item 9. Directors, Executive Officers, and Key Personnel
of the Registrant..............................................17
Item 10. Executive Compensation.........................................17
Item 11. Security Ownership of Certain Beneficial Owners and
Management.....................................................17
Item 12. Certain Relationships and Related Transactions.................17
PART IV
Item 13. Exhibits and Reports on Form 8-K...............................18
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
Micro-Integration Corp. ("MI" or "the Company") designs, develops, markets,
sells, and supports products and provides services used for distributed
computing and the Internet. MI's services include a full range of Internet
access, page hosting and consulting services, as well as systems integration and
network design services. The Company's products provide communications and
connectivity between personal computers ("PCs") and IBM mainframe and midrange
AS/400 computers.
The Company's mission is to provide high-quality products, tools, and services
that help corporate customers take maximum advantage of distributed computing
and the Internet.
The Company is transitioning itself from a PC-to-AS/400 communications product
development company to a broad-based systems integrator and service provider. It
is leveraging its customer base of more than 25,000 AS/400 customers and its
expertise in communications to bring new products and services to the customer
base. At the same time, it is leveraging its communications and networking
expertise to enter into new markets, such as the Internet Service Provider
("ISP") market. The Company intends to concentrate on developing its services
business into a major new source of revenue. The Company will also continue to
develop new software and hardware products as market needs dictate. The Company
intends to introduce new products and services in the future that will
complement its Internet services.
John A. Parsons, the Company's current Chairman and CEO, founded the Company's
predecessor, Micro-Integration Inc., in 1978. The Company was formed in 1986 to
hold the stock of Micro-Integration Inc. and i.e. Systems, Inc. The two
subsidiaries were merged into the Company in 1988. From 1978 until 1995, the
Company and its predecessors designed, developed, marketed, and supported
client-server and PC-to-IBM host communications and connectivity products. In
late 1995, the Company began offering Internet access in Western Maryland and
began offering other Internet services and systems integration and network
design services.
The Company has a European subsidiary, Micro-Integration Corp. PLC ("MI UK"),
headquartered in Birmingham, U.K., with a sales and service office near
Brussels, Belgium.
SIGNIFICANT DEVELOPMENTS DURING FISCAL YEAR 1995-1996
In January 1995, the Company's Board of Directors authorized the repurchase of
up to 100,000 shares of common stock, subject to certain conditions and
limitations. During fiscal year 1994-1995, the Company repurchased 70,000 shares
at an average market price of $3.36. In March 1996, the Company's Board of
Directors authorized the repurchase of up to 100,000 additional shares of common
stock, subject to certain conditions and limitations. During fiscal year 1995-
1996, the Company repurchased 50,000 shares at an average market price of $1.95.
In the quarter ended June 30, 1995, the Company completed a restructuring of its
European operations and implemented cost-cutting measures in the United States.
The costs associated with the restructuring resulted in a significant loss for
the first quarter of fiscal year 1995-1996. Since that time the Company has
operated at a near break-even level.
In December 1995, the Company began offering Internet access in Allegany and
Garrett Counties, Maryland. In February, 1996, the Company began offering
Internet access to customers in Washington County, Maryland. In January 1996,
the Company began offering Internet consulting, systems integration, and network
configuration services to this three-county area. As of the end of the 1995-1996
fiscal year,
2
<PAGE>
the Company had approximately 1,100 Internet subscribers. Internet services were
contributing less than 2% of the Company's revenue at that time.
STRATEGY
The Company's strategy is to move toward being a provider of services and away
from a dependence on product development. The Company has begun providing
Internet services, consulting, systems integration, and network configuration
services and intends to bring help- desk services on-line in the near future. It
intends to grow these business areas into a significant source of revenue for
the Company through an expansion of service offerings to the Company's current
customer base, and the deployment of new services based on the Internet,
acquired by planned acquisitions.
Management believes the Company's long-term success will depend on its ability
to identify market segments and develop or acquire products or services that
will allow the Company to gain and hold a significant market share in the
segments identified.
SERVICES
The Company offers Internet access service to customers in Western Maryland. On
March 31, 1996, it had more than 1,100 subscribers, with new subscribers being
added at a rate of approximately two hundred per month. The Company has
partnered with the school systems in Washington, Allegany, and Garrett Counties,
Maryland, to bring free Internet access to all elementary, middle, and high
schools. The Company is also working with the public libraries in these three
counties to bring free Internet access to the public libraries. The Company has
co- marketing arrangements with Allegany College and Frostburg State University
for Internet access for students and expects these arrangements to increase its
Internet subscriber base in the fall of 1996.
The Company offers systems integration, network design, help desk, and
consulting services on a regional basis. As of March 31, 1996, these services
had not contributed significantly to the Company's results of operations. In
conjunction with plans to expand these services and their contribution to
results, the Company has embarked on a mission to improve the skill set of its
employees through training and certification. The Company itself has become
certified as a Microsoft Solution Provider. The Company's goal is to have all
U.S.-based service and product development personnel certified as Novell
Certified Network Engineers (CNEs) or Microsoft Certified Systems Engineers
(MCSEs) by December 31, 1996. The Company has also embarked on a plan to install
a new client-server Help Desk/Service/Support/Sales integrated Enterprise
Management System at its Frostburg headquarters. This system will provide
management and support for help desk, maintenance, consulting, and support
services for the Company and its customers. The Company does not expect the
training, certification, or Enterprise Management System installation to have a
significant negative impact on results of operations in the short term, but
believes that these actions position the Company for a positive impact on
results of operations in the future.
PRODUCTS
The Company's PC-to-IBM midrange (System/36, System/38, and AS/400)
client-server communications products have been the Company's core business.
They provide PC users with easy access to computer applications and data on IBM
midrange computers. These products establish communications connections between
a customer's PC or LAN and IBM midrange computers, using familiar, easy-to-use
modems, networks, or twinax hardware and software. The products provide
PC-to-IBM host and LAN-to-IBM host connections using a wide variety of network
and communications system configurations, including several types of direct and
modem connections, multiple LAN operating systems, communications hardware, and
a range of communications servers and gateways.
3
<PAGE>
The Company's core products, listed below, currently generate approximately 94%
of revenue. Within each product category, the individual products may consist of
software, hardware, or a combination of the two.
CLIENT-SERVER COMMUNICATIONS PRODUCTS
The Company currently offers the following client-server communications
products, which are available from the Company or its resellers. The suggested
U.S. retail prices range from $245 to $2,995. The client software portion of the
LAN Communications Servers and IBM Host Gateways is licensed on a LAN basis; all
other client and server software is licensed on a PC basis.
LAN COMMUNICATIONS SERVERS AND IBM HOST GATEWAYS
5250 LOCAL GATEWAY: a PC LAN gateway server for connecting PC LANs to an IBM
midrange computer through a twinax connection.
5250 REMOTE GATEWAY: a PC LAN gateway server for connecting PC LANs to an IBM
midrange computer through analog or digital data links.
3270 REMOTE GATEWAY: a PC LAN gateway server for connecting PC LANs to an IBM
mainframe computer through analog or digital data links.
PC-TO-IBM MIDRANGE COMMUNICATIONS PRODUCTS
5250 SAA FOR WINDOWS: connects PCs running Windows to an IBM midrange computer,
using IBM Advanced Program-to-Program Communications ("APPC") connections over a
wide variety of connection topologies.
5250 LOCAL: connects PCs running DOS or Windows to an IBM midrange computer
through a twinax connection.
5250 REMOTE: connects PCs to an IBM midrange computer through analog or digital
data links.
5250 LOCAL NOTEBOOK: connects notebook and portable PCs running DOS or Windows
to an IBM midrange computer through a twinax connection; comes with either a
Personal Computer Memory Card Interface Adapter ("PCMCIA") credit-card-sized
hardware adapter, or an external adapter that communicates with the PC through
the PC's parallel printer port.
5250 REMOTE NOTEBOOK: connects PCs to an IBM midrange computer through a Hayes
AutoSync protocol connection, using a standard serial COM port and Hayes
AutoSync-capable modems.
IBM COMPATIBLE TWINAX CARD: a compatible replacement for the IBM twinax hardware
adapter; runs all IBM emulation and PC Support software with no hardware changes
or software bridges; compatible low-cost alternative to the IBM 5250 adapter.
PC-TO-IBM MAINFRAME COMMUNICATIONS PRODUCTS
In recent years, the Company has focused on the connection of PCs and LANs to
IBM midrange computers. The Company's mainframe connectivity products are still
being sold. These products perform many of the same functions as the Company's
midrange products. The mainframe connectivity products include 3270 LOCAL, 3270
LOCAL DFT, 3270 REMOTE, 3270 LOCAL NOTEBOOK, 3270 REMOTE NOTEBOOK, 3780 REMOTE,
and the 3270 CHAMELEON CARD.
4
<PAGE>
CLIENT-SERVER FILE TRANSFER APPLICATIONS
The Company's client-server applications and development tools, running with the
Company's (or other vendors') communications platforms and application
programming interfaces, provide utilities for database access and data exchange
and reformatting between PCs and IBM midrange computers. These products are
available from the Company or its resellers at suggested U.S. retail prices
ranging from $295 to $1,995. DECISIONLINK AND DECISIONLINK PRO are client-server
file transfer and data formatting utilities for use with IBM midrange servers.
SALES AND MARKETING
The Company sells its products worldwide through a combination of direct sales
and sales through resellers and distributors.
The Company's U.S. sales are primarily handled by experienced telesales
representatives. These sales people handle typical reseller and end-user
accounts. The Company employs two outside sales persons in the U.S., one for
major accounts in the core product line and one for major accounts in the
Internet and services area. The Company consults with and supports its resellers
with experienced sales, marketing, systems engineering, and technical support
staff.
In Europe, the Middle East, and Africa, approximately 60% of the Company's sales
are made through distributors. Approximately 37% of the Company's revenue for
the fiscal year ended March 31, 1996, was attributable to sales made outside the
United States. MI UK contributed 28% of total revenue in the same period.
The Company no longer licenses its technology to OEMs, but most of the Company's
OEM customers have long-term contracts. This OEM customer base generated
approximately 6% of the Company's gross revenues in the fiscal year ended March
31, 1996.
RESEARCH AND DEVELOPMENT
The Company performs research, design, product development, and testing of
software and the hardware necessary to support certain software. Historically,
the Company has developed new products internally, although it has contracted
out certain specific development projects. As of March 31, 1996, 10 employees
were engaged in product development and testing. The Company spent approximately
$559,000 and $1,021,000, respectively, during the years ended March 31, 1996 and
1995, on product development, enhancement, and maintenance. Of these amounts,
$258,000 and $45,000, respectively, were capitalized in the years ending March
31, 1996 and 1995. These amounts related to software development and the
licensing of software products and hardware designs for some of the Company's
products.
MANUFACTURING
The Company sells two basic types of products: computer software and computer
hardware. Each product may be either manufactured by the Company or purchased
elsewhere for resale. The Company manufactures computer software kits and
hardware boards in the U.S. and manufactures software kits in the United
Kingdom. Other products are purchased from a variety of suppliers worldwide.
The Company maintains an inventory of all these items, which it believes to be
sufficient to meet demand. The Company purchases and maintains certain
high-volume items in larger quantities.
5
<PAGE>
Raw materials for software kits are obtained on an as-needed basis, with four to
six weeks as the longest lead time from purchase order to receipt of most
materials. All materials used in preparation of the software kits can be
produced by a large number of vendors, helping to assure quick delivery and
competitive pricing.
The Company currently contracts with two outside firms in the United States for
the production of the Company's custom hardware boards. One of these firms
purchases and stocks raw materials and both assemble finished boards on the
Company's orders. The Company is currently producing 11 distinct hardware board
designs.
COMPETITION
The Company competes in several segments of the computer market: the IBM
mainframe client- server connectivity segment, which is of minor significance to
the Company; the IBM AS/400 client-server connectivity and server segment, which
is the Company's current major segment but is decreasing in significance; the
Internet Service Provider segment, and the systems integration and network
design segment.
All these market segments are extremely competitive. The Company expects
competition to increase in all segments in the immediate future.
The Company currently has eight major competitors in the IBM midrange
client-server connectivity and server segment: IBM, Novell, I.D.E. Associates,
Inc., Andrew Corporation, Wall Data, Inc., Better Online Solutions, Inc., DCI,
Inc., and Eicon Technology Corp.
The principal competitive factors affecting the market for the Company's
products and services include: product functionality, ease of use, quality,
performance, and reliability; quality of customer service and support; product
availability; vendor credibility; ability to keep pace with technological
change; and price. All of the markets in which the Company competes are subject
to rapidly changing technology and evolving standards incorporated into the
Internet, PCs, networks, and IBM computers. All the markets for the Company's
products and services are also characterized by significant price competition.
BACKLOG
The Company typically ships its products on the same day orders are received
and, consequently, substantially all of the Company's total revenues in any
quarter result from orders received in that quarter. Accordingly, the Company
does not have any significant product backlog and believes that a product
backlog at any given point in time is not a reliable indicator of future sales
or earnings. The seasonal purchasing patterns of many of the Company's customers
and the absence of significant backlog may contribute to variations in the
Company's quarterly results of operations.
The Company has no services backlog because the service offerings were recently
developed.
PATENTS, TRADEMARKS, AND COPYRIGHTS
The Company regards its software and hardware as proprietary and relies
primarily on a combination of copyright and trademark laws, trade secrets,
confidentiality procedures, and contractual provisions, including employee and
third-party nondisclosure agreements, to protect its proprietary rights. The
Company seeks to protect its software, documentation, and other written
materials under trade secret and copyright laws, which afford only limited
protection. The laws of some foreign countries do not protect
6
<PAGE>
the Company's proprietary rights to the same extent as do the laws of the United
States. The Company requires its employees to enter into confidentiality
agreements.
The Company owns several U.S. patents and U.S. and foreign trademarks, including
the mark "Micro-Integration" in the United States. None of the patents or
trademarks, other than the marks "Micro-Integration" and "MI," are significant
to the Company's business.
While the Company's competitive position may be affected by its ability to
protect its proprietary information, the Company believes that, because of the
rapid pace of technological change in the industry, factors such as the
technical expertise, knowledge and innovative skill of the Company's management
and technical personnel, name recognition, timeliness and quality of support
services provided by the Company, and ability to rapidly develop, produce,
enhance, and market products and services may be more significant in maintaining
the Company's competitive position.
No material claims have been made against the Company for infringement of
proprietary rights of third parties. There can be no assurance, however, that
third parties will not assert infringement claims against the Company in the
future. As the number of products in the industry increases and the
functionality of these products further overlaps, the Company believes that
software programs will increasingly become subject to infringement claims. The
cost of responding to any such assertion may be material, whether or not the
assertion is valid.
SOFTWARE LICENSE AND WARRANTY TERMS
The Company's software products are licensed on a per-user, per-host, or per-LAN
basis. For certain, major customers, the Company makes available enterprise-wide
or site licenses. Under the terms of these licenses, the customer acquires a
master copy of the software and documentation and the right to make and
distribute multiple copies of these materials within the enterprise or site. In
addition, certain Company products are priced in volume packs, where the
customer pays a lower unit price for a pack that contains a large number of
units of the product.
The Company provides a one-year limited warranty against defects in the
Company's hardware and software products. For certain hardware products, the
Company provides a limited lifetime warranty when the customer returns the
registration card. It is the Company's experience that the cost of the extended
warranty is immaterial, but there can be no assurance that this will continue to
be the case.
MI's OEM customers generally have non-exclusive licenses to distribute and
market certain products of the Company. The licenses are generally cancelable by
the OEM on 90 days notice and by the Company for cause. The Company receives a
license fee or royalty based on the number of copies of the Company's technology
distributed by the OEM.
EMPLOYEES
MI currently employs approximately 63 people, of which approximately 49 are
employed in the United States and 14 in the United Kingdom and Europe.
Approximately 78% of all employees are employed in Frostburg, Maryland.
Approximately one-third of the Company's employees work in customer sales and
service; approximately 16% work in administration; and approximately 11% work in
research and development. The remaining employees provide marketing or product
management services.
7
<PAGE>
ENVIRONMENTAL
The Company owns or leases several parcels of real estate on which its
operations are located. Adjacent to the Company's headquarters building in
Frostburg, Maryland, is a property which was formerly operated as a sanitary
landfill. The Company leases this property from The Cumberland Allegany County
Industrial Foundation ("CACIF"), with an option to purchase. The Company uses
part of this property as a parking lot, the rest of the site being open space.
Although the Company has not performed an environmental assessment on the
property, neither CACIF nor the Company is aware of any environmental problems
which would necessitate a cleanup. CACIF has contractually agreed to indemnify
the Company should any environmental cleanup costs arise from the property's
pre-existing condition (excluding consequential damages). In addition, should
any pre-existing environmental condition interrupt or materially impair the
Company's use of the property, then the Company has the right through at least
the year 2023 to require CACIF or Allegany County, Maryland, to promptly
alleviate the condition and compensate the Company for any lost use of the
property (again, excluding consequential damages). If either or both fail to
satisfy this requirement, then the Company has the right to obligate CACIF and
Allegany County to repurchase the property and reimburse the Company for all
improvements made by the Company. There can be no assurance that CACIF and
Allegany County will fulfill their contractual obligations to the Company. Were
environmental problems to arise with respect to the property, failure by either
CACIF or Allegany County to fulfill its obligations, or the occurrence of
consequential damages, could have a material adverse effect on the Company.
GOVERNMENTAL APPROVAL OF HARDWARE PRODUCTS
All computer hardware products must meet certain radiowave emissions standards
prescribed by the Federal Communications Commission ("FCC") in the United States
and EC Directives in the European Economic Community ("EEC"). The Company's
current products meet the FCC standards and are certified to comply with
Conformite Europeene ("CE") in the EEC. The Company does not expect to have
problems meeting FCC or CE standards with its future products. Although the
Company's products meet current FCC and CE radiowave emissions standards, such
products sold internationally may not meet the standards of, and may not be
approved by, the certification authorities of other countries. If any of the
Company's products were found not to meet the standards of any country, the
Company would be required to incur the expenses of bringing such products in
conformance with those standards or to cease selling the product in that
country.
8
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTIES
<TABLE>
<CAPTION>
As of March 31, 1996, the Company owned or leased the following facilities:
Location Type of Facility Condition Approximate Leased or Owned
Square Feet
- - --------------------------- ----------------------------- ---------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Frostburg, MD Corporate Offices, Excellent 20,000 Owned (1)
R & D, and
distribution
Friendsville, MD Vacant Fair 3,752 Owned (2)
Leuven, Belguim MI Europe sales Good 1,584 Leased
office
Birmingham, UK MI UK offices Excellent 2,567 Leased (3)
Birmingham, UK MI UK distribution Good 747 Leased (3)
</TABLE>
(1) This property was financed with two separate notes. One is a 20-year,
$215,000 note from Allegany County, Maryland, bearing interest at 7.5%, payable
through August 2013. The other isa 20-year, $1,005,000 note from the State of
Maryland, bearing interest at 5.93%, payable through September 2013. At March
31, 1996, these notes had balances of $205,000 and $960,000, respectively.
Management believes the property is adequately covered by insurance.
(2) This property is currently vacant and is on the market for sale.
(3) On June 1, 1996, the UK offices and distribution center were combined in a
new leased facility which contains 1,461 square feet and is in good condition.
ITEM 3. LEGAL PROCEEDINGS
The Company was not involved in any legal actions at March 31, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during fiscal year
1995-1996.
9
<PAGE>
EXECUTIVE OFFICERS AND KEY PERSONNEL OF THE REGISTRANT
(a) Executive Officers
------------------
<TABLE>
<CAPTION>
The following sets forth information concerning the individuals who are
currently serving as executive officers of the Company:
Name Age Position
---- --- --------
<S> <C>
John A. Parsons 53 Chief Executive Officer and CEO
John R. McLellan 38 Vice President, Product Marketing
Barry S. Wirtanen 43 Vice President, Sales
Christopher J. 48 Vice President, Finance and
Burgess Administration and Chief
Financial Officer
Douglas Ros 44 Managing Director, MI Europe
</TABLE>
JOHN A. PARSONS, CDP, the Company's founder, has been
President, Chairman of the Board of Directors, and a director
of the Company since it was founded in 1986. He held the same
positions at MII, the Company's predecessor, from its founding
in 1978. From 1975 to 1978, he was an independent consultant
doing business as John A. Parsons and Associates, specializing
in IBM mainframe communications systems. He was with Avon
Products, Inc. as project and group leader, software and
communications systems from 1972 to 1975 and a data processing
supervisor for AT&T from 1964 to 1972. He was awarded the ICCP
(Institute for the Certification of Computer Professionals)
CDP (Certificate in Data Processing) in 1977.
JOHN R. MCLELLAN joined the Company in 1995. Prior to joining
MI, Mr. McLellan served as director of western area sales for
Andrew Corporation, a competitor of MI. There, he headed a
group of sales managers and systems engineers charged with
increasing sales of network products in the western U.S.,
Latin America, and Western Canada.
BARRY S. WIRTANEN joined the Company in 1995. Prior to joining
MI, Mr. Wirtanen was vice president of sales and marketing at
MRK Computer Systems, Inc., based in Cleveland, Ohio.
CHRISTOPHER J. BURGESS joined the Company in 1995. Mr. Burgess
is a Chartered Accountant, the English equivalent of the
Certified Public Accountant qualification in the U.S. Prior to
joining MI, he held the position of controller with Mars Super
Markets, Inc., a regional supermarket chain based in
Baltimore, Maryland, from 1987 to 1995.
DOUGLAS ROS has been the Company's Managing Director for
Europe since 1994. Prior to joining MI, Mr. Ros was operations
manager and international sales manager for Europe with Thorn
EMI, the European sales and marketing giant. There, he was
responsible for building direct and distributor sales forces.
10
<PAGE>
(b) Key Personnel
-----------------
WILLIAM L. SHOMO has been with the Company and its predecessor
MII since 1978. He is currently Vice President, Product
Research. Prior to assuming his current position in 1995, Mr.
Shomo has held a variety of positions with the Company,
including Vice President, Products, Vice President, Customer
Support, and Vice President, Product Development.
MARK A. PROUDFOOT is currently the Company's Vice
President, Marketing. Mr. Proudfoot joined the Company in
1981. Prior to becoming Vice President,
Marketing, Mr. Proudfoot served as Vice President, Product
Development and Vice President, Customer Service.
P. EDWARD FISHER is currently the Company's Vice President,
Product Development. Mr. Fisher joined the Company in 1978.
Prior to becoming Vice President, Product Development in 1993,
he was Vice President, Special Products during most of 1992,
when he handled the quality training for all Company
employees. From July 1991 to March 1992, he was OEM sales
manager. Prior to that, he was product development manager.
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Since the Company's initial public offering in May 1994, the Common Stock has
been traded in the NASDAQ National Market System under the symbol MINT.
Set forth below are the high and low closing sales price for the Common Stock as
reported by NASDAQ for the periods indicated.
<TABLE>
<CAPTION>
Fiscal Year Ended March 1996 High Low
- - ---------------------------- ---- ---
<S> <C> <C>
First quarter (June 30, 1995) $4 $3-1/4
Second quarter (September 30, 1995) $3-1/4 $2
Third quarter (December 31, 1995) $2-1/2 $1-5/8
Fourth quarter (March 31, 1996) $2-5/8 $1-3/4
</TABLE>
The approximate number of record holders of the Common Stock as of March 31,
1996, was 203. The Company estimates that there is in excess of 400 beneficial
holders of its Common Stock.
The Company has no present intention of paying dividends in the foreseeable
future as it intends to retain any future earnings to fund operations and the
continued development of its business. The declaration and payment of dividends
and the amount paid, if any, is subject to the discretion of the Company's Board
of Directors and will necessarily be dependent on the earnings, financial
condition, and capital requirements of the Company and any other factors the
Company's Board of Directors may consider relevant.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
When used in this discussion, the words, "estimate," "project," and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those projected. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof. The company undertakes no obligation to publicly release the result
of any revisions to those forward looking statements which may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
The following is Management's discussion and analysis of the consolidated
financial condition and results of operations of the Company. It should be read
in conjunction with the audited consolidated financial statements and related
notes.
OVERVIEW
MI had a disappointing start to fiscal 1995-1996, with substantial improvement
in results of operations in the final three quarters. Revenue for the year
decreased 23%, or $2,339,000, from the prior year. The majority of this
decrease, $2,048,000, was due to pricing pressure caused by increased
competition in all of the Company's product lines and a decline in the sales of
non- Windows-based DOS products. Unit sales for the period were essentially
flat, while revenue for those units declined 19%. The Company attributes
$291,000 of the decline to a decline in license revenue caused by the Company's
previously announced strategy of de-emphasizing license revenue in favor of
direct product sales. For the year, the Company lost $801,000 on sales of $7.8
million. The majority of this loss, $712,000, occurred during the Company's
first quarter, ended June 30, 1995. The Company has taken action, discussed
below, in an effort to return to profitability.
During 1995, management began a program to improve the Company's financial
results. The first step was to change the manner in which it conducts business
in Europe. On March 31, 1995, the Company closed its subsidiary in Belgium ("MI
Europe"). Around the same time, MI UK opened a branch office in Belgium for
sales and service to areas previously covered by MI Europe.
During the 1995-1996 fiscal year,
12
<PAGE>
management continued this program by changing the cost structure of the Company
in the United States. In June 1995, the Company reduced its U.S. workforce by
approximately 30% and announced plans to close its Tustin, California office. In
August 1995, the Company closed the Tustin office and moved the responsibilities
of this office to Frostburg, MD. The Company also further reduced its workforce
in Europe during the 1995- 1996 fiscal year.
In January 1995, the Company's Board of Directors authorized the repurchase of
up to 100,000 shares of common stock, subject to certain conditions and
limitations. During fiscal year 1994-1995, the Company repurchased 70,000 share
at an average market price of $3.36. In March 1996, the Company's Board of
Directors authorized the repurchase of up to 100,000 additional shares of Common
Stock, subject to certain conditions and limitations. During fiscal year 1995-
1996 the Company repurchased 50,000 shares at an average market price of $1.95.
RESULTS OF OPERATIONS
COMPARISON OF FISCAL YEAR 1995-1996 TO FISCAL YEAR 1994-1995
The Company's total revenue decreased $2,339,000, or 23%, from $10.1 million in
fiscal year 1994-1995 to $7.8 million in fiscal year 1995-1996. Product revenue
decreased $2,048,000 million, or 22%. There was a $291,000 (39%) decline in OEM
license revenue.
Product revenue decreased due to strong pricing pressure across all of the
Company's product lines accompanied by a sharp decline in sales of
non-Windows-based DOS products. Revenue from sales of Windows-based products was
essentially unchanged from the prior year, even though unit sales were up 20%.
Non-Windows product sales were down $2,023,000 (34%), while non-Windows unit
sales declined 23%. This decline in sales of DOS-based products accounts for
substantially all the revenue decline for the period, and pricing pressures
prevented the increase in unit sales of Windows products from compensating. The
Company introduced several new Windows-based products during the year and
continues to develop and introduce such new products.
Sales of DOS-based products declined due to the market shifting to Windows-based
products. The Company expects this trend to continue. The strategy to meet this
shift in demand is, among other things, to continue to introduce new
Windows-based products, expand sales channels in order to increase market share
of existing products, develop or acquire new products with which the Company can
attain a significant position in a market segment, and shift the Company's
revenue base away from product sales and toward revenue for services.
License revenue is expected to continue to decline over time because, generally,
the Company no longer enters into new license agreements with OEM customers. The
Company does not expect the further decline in license revenue to have a
significant impact on results of operations in the near term.
Revenue related to sales of the Company's products (including license revenue)
outside of the United States represented $2.9 million (37% of total revenue) in
fiscal year 1995-1996, compared to $4.1 million (41% of total revenue) in fiscal
year 1994-1995. Sales of DOS-based products declined for the same reasons as
discussed above.
International product sales which are generated from MI's U.S. operations ("MI
USA"), are billed in U.S. dollars. International license revenue customers, on
the other hand, typically pay royalties as a percentage of their product sales
price, which is usually in a foreign currency. The Company is partially
protected against negative currency fluctuations by having minimum per- unit
royalties stated in U.S. dollars. In the United Kingdom, sales are made in
Pounds Sterling. On the European continent, sales are generally billed in
Belgian Francs, except in France where they are billed in French francs. The
Company recognized no
13
<PAGE>
significant gains or losses on foreign currency exchange during fiscal year
1995-1996. Future fluctuations could have a significant adverse or beneficial
effect on future revenue and earnings.
Gross margin declined to 68.2% in fiscal year 1995-1996 from 71.9% in fiscal
year 1994-1995. The Company's gross margin varies with the mix between license
revenue and product revenue and with the mix of its product sales. The entire
decline in gross margin is attributed to the first quarter write-off of Terminal
Access Server (TAS) inventory and specialized software, an expense of $249,000.
Excluding this one-time charge, the gross margin for the year would have been
essentially unchanged at 71.4%, compared to 71.9% in fiscal year 1994-1995.
Management expects that the gross margin percentage on the current product line
will decline as competitive price pressures are encountered and as the license
revenue percentage of total revenue declines.
Selling, general, and administrative expenses (SG&A) were reduced from $8.0
million in fiscal year 1994-1995 to $5.6 million in fiscal year 1995-1996, a
reduction of $2.4 million (30%). Within this category, the Company's marketing
costs, were reduced by $910,000, salaries and benefits were reduced by
$1,135,000, and general operating costs were reduced by $420,000. These
reductions were partially offset by an increase in bad debt expense of $96,000,
as a result of a $46,000 and $106,000 increase in the provision for bad and
doubtful debts in the U.S. and U.K., respectively. The cost reductions were
primarily a result of the actions taken at the end of the fiscal year 1994-1995
and the first quarter of fiscal year 1995-1996 in closing MI Europe and reducing
personnel costs and other expenses worldwide. The Company continues to monitor
costs closely and expects to be able to maintain costs at a similar level, as a
percentage of revenues, in fiscal year 1996-1997.
Depreciation and amortization expenses decreased by $68,000 to $455,000 in
fiscal year 1995- 1996, from $523,000 in fiscal year 1994-1995, including
deferred compensation amortization of $113,000 and $126,000 in fiscal year
1995-1996 and fiscal year 1994-1995, respectively. Amortization of deferred
compensation is the annual amortization of the value of stock options that were
granted as inducement for certain key employees to join the Company. The $13,000
decrease in amortization of the value of stock options was caused by a
cancellation, in the third quarter of fiscal year 1995-1996, of $41,000 in the
amount of stock options to be amortized. These stock options had previously been
granted to two employees who left the Company in that quarter. The $99,000
balance of unamortized deferred compensation will be fully amortized during
fiscal year 1996-1997. The remaining $55,000 decrease in depreciation and
amortization is due to $22,000 of goodwill associated with contract rights
becoming fully amortized in fiscal year 1994-1995, and a $33,000 reduction in
depreciation in fiscal year 1995-1996 for property, plant, and equipment in the
United Kingdom, compared to fiscal year 1994-1995. During the year, the
remaining goodwill balance of $45,000 associated with a previous acquisition was
fully amortized.
The Company's net other income/loss decreased from a net other income of
$132,000 in fiscal year 1994-1995 to a net other loss of $43,000 in fiscal year
1995-1996. The drop in net other income/loss of $175,000 year-to-year is
primarily due to an exchange rate transaction gain of $200,000 included in last
year's figure, offset by a reduction in interest expense of $27,000 due to lower
interest rates and debt redemption in fiscal year 1995-1996.
In fiscal 1995-1996, the Company recorded a $34,000 income tax benefit as a
result of using the remainder of the operating loss carryback, available as a
result of the operating losses incurred by MI USA and the MI USA write off of
its $1,051,000 investment in MI Europe in fiscal 1994- 1995. At March 31, 1996,
the Company has a net operating loss carryforward of approximately $70,000, and
$500,000 available for offset against future U.S. and U.K. operating profits.
The Company also has foreign tax credit carryforwards of $194,000.
14
<PAGE>
COMPARISON OF FISCAL YEAR 1994-1995 TO FISCAL YEAR 1993-1994
The Company's total revenue increased $665,000 (7%) from $9.5 million in fiscal
year 1993-1994 to $10.1 million in fiscal 1994-1995. Product revenue increased
$830,000 (10%). This was partially offset by a $165,000 (18%) decline in OEM
license revenue.
Revenue related to sales of the Company's products (including license revenue)
outside of the United States represented $4.1 million (41% of total revenue) in
fiscal year 1994-1995, compared to $3.9 million (42% of total revenue) in fiscal
1993-1994.
Gross margin declined to 71.9% in fiscal year 1994-1995 from 75.3% in fiscal
year 1993-1994. The decline in gross margin was attributed to lower margins
caused by price competition, particularly in Europe, a shift in product mix to
lower margin products, and the continued decline in license revenue as a
percentage of total revenue.
Selling, general, and administrative expenses (SG&A) increased to $8.0 million
in fiscal year 1994-1995, from $5.8 million in fiscal year 1993-1994. The
Company's increased marketing activities, sales force expansions, and increased
expenses associated with the costs of being a public company caused increases in
expenses of $2,219,000 in these three categories combined.
Depreciation and amortization expense increased to $523,000 in fiscal year
1994-1995, compared to $319,000 in fiscal year 1993-1994, including deferred
compensation amortization of $126,000 and $53,000 in fiscal year 1994-1995 and
fiscal year 1993-1994, respectively.
The Company's net other income improved to $132,000 in fiscal year 1994-1995,
compared to a net other loss of $37,000 in fiscal year 1993-1994. The net
increase in other income of $169,000 in fiscal year 1994-1995 was due primarily
to exchange rate transaction gains of $200,000, which were due to the weakening
of the dollar against foreign currencies.
In fiscal 1994-1995, the Company recorded a $511,000 income tax benefit as a
result of the operating losses incurred by MI USA and the write-off of its
$1,051,000 investment in MI Europe.
LIQUIDITY AND CAPITAL RESOURCES
The Company has satisfied its cash requirements primarily through cash flow from
operations, bank borrowings, and lease financing. At March 31, 1996, the Company
had $1.0 million of the initial public offering proceeds invested in
held-to-maturity securities and an additional $461,000 held as cash.
In fiscal year 1995-1996, cash provided by operations exceeded cash used in
operations by $517,000. Of the tax refunds, $772,000 were received during the
year because of net operating loss carrybacks in the U.S. A further tax refund
receivable of $93,000 was created as of March 31, 1996, using the remaining net
operating loss carryback in the U.S.
The Company's working capital decreased during the 1995-1996 fiscal year to $3.3
million at March 31, 1996, from $4.5 million at March 31, 1995, as working
capital was expended to fund cash needs and the income tax refunds mentioned
above were received.
The Company has two working capital credit lines totaling $450,000, which are
renewable annually. The largest line of credit is maintained with a U.S. bank.
Borrowings under the U.S. line are limited to the lesser of $400,000, or 70%, of
acceptable domestic accounts receivable. The line is secured by substantially
all of the Company's assets. There were no amounts outstanding under these
credit lines at March 31, 1996.
15
<PAGE>
At March 31, 1995, the Company was in violation of a debt covenant associated
with the MI's USA $400,000 credit line, of which no amounts were outstanding,
and a separate note with a balance of $280,000. The lender involved issued a
waiver as of March 31, 1995, for the violation and any default arising thereof.
The next measurement date of the aforementioned debt convenant is June 30, 1996.
As it is most likely that the Company will still be in violation of the debt
covenant at that date, the Company has reclassified the entire outstanding
balance on this note of $200,000 as a current liability on the consolidated
balance sheet as of March 31, 1996, in accordance with FAS 78. Notwithstanding
this debt reclassification, the Company has no reason to believe the lender will
call this debt in the immediate future as a result of the debt covenant
violation.
The Company expects that cash generated from future operations and the proceeds
from the initial public offering will satisfy its operating cash needs for the
foreseeable future.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item 7 is set forth on pages F-1 through F-23.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND
FINANCIAL DISCLOSURE
None.
16
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, AND KEY PERSONNEL OF THE REGISTRANT
DIRECTORS
The information required by Item 9 relating to directors of the Company is
presented under the caption "Nomination and Election of Directors" of the
Company's definitive Proxy Statement for the 1996 Annual Meeting of Shareholders
to be filed with the Securities and Exchange Commission (the "Commission") no
later than July 3, 1996, and is hereby incorporated by reference herein.
EXECUTIVE OFFICERS AND KEY PERSONNEL
See Part I, EXECUTIVE OFFICERS AND KEY PERSONNEL OF THE REGISTRANT.
SECTION 16 REPORTS
The information required by this Item is presented under the caption "Other
Matters -- Compliance with Section 16(a) of the Exchange Act" of the Company's
definitive Proxy Statement to be filed with the Commission no later than July 3,
1996, and is hereby incorporated by reference herein.
ITEM 10. EXECUTIVE COMPENSATION
The information required by Item 10 is presented under the caption "Executive
Compensation" of the Company's definitive Proxy Statement to be filed with the
Commission no later than July 3, 1996, and is hereby incorporated by reference
herein.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by Item 11 is presented under the caption "Security
Ownership of Certain Beneficial Owners and Management" of the Company's
definitive Proxy Statement to be filed with the Commission no later than July 3,
1996, and is hereby incorporated by reference herein.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 12 is presented under the caption "Certain
Transactions" of the Company's definitive Proxy Statement to be filed with the
Commission no later than July 3, 1996, and is hereby incorporated by reference
herein.
17
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
-------------
The Exhibits listed below are filed or incorporated by reference herein.
EXHIBIT INDEX
-------------
Exhibit
Number Description of Document
------ -----------------------
3(ii).1 Amended and Restated Bylaws of Micro-Integration Corp.,
filed as Exhibit 3(ii).1 to the Company's Registration
Statement on Form SB-2, Registration No. 33-72752,
is hereby incorporated by reference.
4.1 Article IV of the Restated Certificate of Incorporation
of Micro- Integration Corp., filed as Exhibit 4.1 to
the Company's Registration Statement on Form SB-2,
Registration No. 33-72752, is hereby incorporated by
reference.
4.2 Form of Common Stock Certificate, filed as Exhibit 4.2
to Amendment No. 1 to the Company's Registration
Statement on Form SB-2, Registration No. 33-72752,
is hereby incorporated by reference.
4.3 Form of Underwriter's Warrant, filed as Exhibit 4.3 to
Amendment No. 1 to the Company's Registration Statement
on Form SB-2, Registration No. 33-72752, is hereby
incorporated by reference.
10.1 Micro-Integration Corp. Employee Savings and Stock
Ownership Plan, filed as Exhibit 10.1 to the
Company's Registration Statement on
Form SB-2, Registration No. 33-72752, is hereby
incorporated by reference.
10.2 1994 Stock Plan of Micro-Integration Corp., filed as
Exhibit 10.2 to the Company's Registration Statement
on Form SB-2, Registration No. 33-
72752, is hereby incorporated by reference.
10.3 Agreement between Micro-Integration Corp.,
Micro-Integration Europe n.v. and Gabor Weiner
entered into September 28, 1990, filed as
Exhibit 10.3 to the Company's Registration Statement on
Form SB-2, Registration No. 33-72752, is hereby
incorporated by reference.
10.4 Agreement between Micro-Integration Corp. and Gabor
Weiner entered into on September 28, 1990, filed as
Exhibit 10.4 to the Company's Registration Statement on
Form SB-2, Registration No. 33-72752, is hereby
incorporated by reference.
10.5 Amendment to Agreements between Micro-Integration
Corp., Micro- Integration Europe n.v., and Gabor
Weiner, entered into on March 21, 1994, filed as
Exhibit 10.5 to the Company's Registration Statement on
Form SB-2, Registration No. 33-72752, is hereby
incorporated by reference.
18
<PAGE>
10.6 Contract of Sale made on August 23, 1995 between CCSAC
Federal Credit Union and Micro-Integration Corp., filed
as Exhibit 10.6 to the Company's Registration Statement
on Form SB-2, Registration No. 33-
72752, is hereby incorporated by reference.
10.7 Agreement made as of May 20, 1993 between Micro-
Integration Corp. and Lashley Construction, Inc.,
filed as Exhibit 10.7 to the Company's
Registration Statement on Form SB-2, Registration No.
33-72752, is hereby incorporated by reference.
10.8 Contract of sale made on September 16, 1992 between
Micro- Integration Corp., Cumberland Allegany County
Industrial Foundation and the Board of County
Commissioners of Allegany County, Maryland, filed as
Exhibit 10.8 to the Company's Registration Statement on
Form SB-2, Registration No. 33-72752, is hereby
incorporated by reference.
10.9 Promissory Note dated September 24, 1993 payable to
Micro-Integration Corp. to the Board of Commissioners
of Allegany County, Maryland or order, filed as Exhibit
10.9 to the Company's Registration Statement on Form SB
-2, Registration No. 33-72752, is hereby
incorporated by reference.
10.10 Promissory Note dated September 24, 1993 payable by
Micro-Integration Corp. to the order of the Board of
County Commissioners of Allegany County, Maryland,
filed as Exhibit 10.10 to the Company's
Registration Statement on Form SB-2, Registration No.
33-72752, is hereby incorporated by reference.
10.11 Revolving Note Agreement dated May 17, 1993 by and
between Micro-Integration Corp. and The
First National Bank of Maryland, filed as
Exhibit 10.11 to the Company's Registration Statement
on Form SB-2, Registration No. 33-72752, is hereby
incorporated by reference.
10.12 Business Promissory Note dated September 22, 1993
payable by Micro-Integration Corp. to the order
of The First National Bank of Maryland, filed as
Exhibit 10.12 to the Company's Registration
Statement on Form SB-2, Registration No. 33-72752, is
hereby incorporated by reference.
10.13 Agreement and Plan of Reorganization made in April 1986
by and among Micro-Integration Corp., Micro-Integration
Inc., John A. Parsons, i.e. Systems, Inc. and
the Stockholders named therein, filed as
Exhibit 10.14 to the Company's Registration Statement
on Form SB-2, Registration No. 33-72752, is hereby
incorporated by reference.
10.14 Indemnification Agreements between Micro-Integration
Corp. and its directors and officers, filed as Exhibit
10.14 to the Company's Form 10-KSB for the year
ended March 31, 1996, is hereby incorporated by
reference.
11.1 Statement of computation of per share earnings.
21.1 Subsidiaries of Micro-Integration Corp.
23.1 Consent of Independent Accountants.
(b) Reports on Form 8-K.
------------------------
None.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DATED JUNE 30, 1996 REGISTRANT:
MICRO-INTEGRATION CORP.
By: /s/ John A. Parsons
-----------------------
John A. Parsons
President, Chairman of the Board,
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
By: /s/ John A. Parsons June 30, 1996
- - ----------------------
John A. Parsons
President, Chairman of the Board,
and Chief Executive Officer
(principal executive officer)
By: /s/ Christopher J. Burgess June 30, 1996
- - -----------------------------
Christopher J. Burgess
Vice President, Finance and Administration
and Chief Financial Officer
(principal financial and accounting officer)
By: /s/ Maxwell F. Eveleth, Jr. June 30, 1996
- - -------------------------------
Maxwell F. Eveleth, Jr.
Director
By: /s/ Wayne M. Lee June 30, 1996
- - -------------------
Wayne M. Lee
Director
By: /s/ W. Braun Jones, Jr. June 30, 1996
- - ----------------------------
W. Braun Jones, Jr.
Director
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14(A)(I) AND (2), (C) AND (D)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED MARCH 31, 1996
MICRO-INTEGRATION CORP.
FROSTBURG, MD
<PAGE>
MICRO-INTEGRATION CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1996, 1995, AND 1994
Report of Independent Auditors...............................................F-2
Audited Consolidated Financial Statements:
Consolidated Balance Sheets..............................................F-4
Consolidated Statements of Operations....................................F-6
Consolidated Statements of Shareholders' Equity..........................F-7
Consolidated Statements of Cash Flows....................................F-8
Notes to Consolidated Financial Statements...................................F-9
Audited Financial Schedules:
Consolidated Financial Statement Schedule:
Schedule II -- Valuation and Qualifying Accounts........................F-23
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
<PAGE>
GRAPHIC OMITTED
Ernst & Young logo
Ernst & Young
One North Charles
Baltimore, Maryland 21201
Phone: 410 939 7940
Report of Independent Auditors
Board of Directors
Micro-Integration Corp.
We have audited the accompanying ____ consolidated balance sheets of
Micro-Integration Corp. as of March 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended March 31, 1996. Our audits also
included the financial statement schedule listed in the Index at Item 7. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Micro-Integration Corp. at March 31, 1996 and 1995, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended March 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young
------------------
Ernst & Young
May 30, 1996
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK.
F-3
<PAGE>
<TABLE>
<CAPTION>
Micro-Integration Corp. and Subsidiaries
Consolidated Balance Sheets
March 31
1996 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 460,874 $ 427,085
Accounts receivable, trade 1,300,838 1,757,124
Net of allowance for doubtful accounts --
$145,616 and $34669
Marketable securities
Held-to-maturity 1,000,000 1,500,000
Inventory 933,522 1,057,497
Tax refund receivable 103,086 772,014
Prepaid expense 114,967 229,663
Deferred income taxes 23,483 8,603
------ -----
Total Current Assets 3,936,770 5,751,986
--------- ---------
Property, Plant, and Equipment
Land 92,962 92,962
Buildings 1,455,518 1,363,552
Equipment 1,447,128 1,284,288
Automobiles 238,738 262,315
Property held for sale 59,933 61,185
------ ------
3,294,279 3,064,302
Less accumulated depreciation 1,149,678 906,019
--------- -------
2,144,601 2,158,283
Cash Surrender Value of Life Insurance
and Other Noncurrent Assets 177,402 175,426
Intangible Assets, Net of Amortization 356,052 299,597
------- -------
$ 6,614,825 $ 8,385,292
============ ===========
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
Micro-Integration Corp. and Subsidiaries
Consolidated Balance Sheets
March 31
1996 1995
---- ----
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt and
capital lease obligations $ 299,067 $430,318
Accounts payable 202,049 698,616
Accrued expenses 198,044 328,575
Income tax payable 1,000 9,908
----- -----
Total Current Liabilities 700,160 1,467,417
------- ---------
Long-term debt, less current portion 1,133,008 1,174,843
Capital lease obligations,
less current portion 53,202 117,261
Deferred income taxes 42,985 7,406
Commitments and Contingencies -- --
Shareholders' Equity
Common stock -- $.01 par value; authorized 12,000,000 shares; outstanding --
2,385,925 shares in 1996; and
2,400,573 shares in 1995 25,155 24,706
Additional capital 5,404,795 5,502,500
Retained (deficit) earnings (113,162) 688,087
Foreign currency translation (176,376) (103,428)
-------- --------
5,140,412 6,111,865
Less deferred compensation 99,048 252,909
Less treasury stock 355,894 240,591
------- -------
4,685,470 5,618,365
--------- ---------
$ 6,614,825 $ 8,385,292
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
<TABLE>
<CAPTION>
Micro-Integration Corp. and Subsidiaries
Consolidated Statements of Operations
Year ended March 31
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
REVENUE
License revenue $ 463,476 $ 754,182 $ 919,556
Product revenue 7,320,540 9,368,616 8,538,490
--------- --------- ---------
Total Revenue 7,784,016 10,122,798 9,458,046
Cost of goods sold 2,471,761 2,847,393 2,335,659
Gross Profit 5,312,255 7,275,405 7,122,387
--------- --------- ---------
OPERATING EXPENSES
Selling, general,
and administrative 5,649,981 8,019,904 5,808,766
Restructuring expense 0 462,579 0
Depreciation and amortization
expense 454,955 522,810 318,517
------- ------- -------
6,104,936 9,005,293 6,127,283
Operating (loss) income (792,681) (1,729,888) 995,104
OTHER INCOME (EXPENSE)
Interest expense $ (111,533) (138,346) (83,638)
Other income 68,796 270,504 46,848
------ ------- ------
(42,737) 132,158 (36,790)
------- ------- -------
(Loss) income before income taxes (835,418) (1,597,730) 958,314
Income tax (benefit) expense (34,169) (510,944) 395,547
------- -------- -------
NET (LOSS) INCOME $ (801,249) $(1,086,786) $ 562,767
========== =========== ==========
(Loss) earnings per Share $ (0.33) $ (0.46) $ 0.29
========== =========== ==========
Weighted average number of
common shares outstanding 2,413,555 2,352,030 1,934,453
========= ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
<TABLE>
<CAPTION>
Micro-Integration Corp. and Subsidiaries
Consolidated Statements of Shareholders' Equity
Equity
adjustment
Common from
stock Retained foreign
$0.01 par Additional earnings currency Deferred Treasury Total
value capital (deficit) translation compensation Stock equity
----- ------- --------- ----------- ------------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1993 $18,044 $1,505,826 $1,212,106 ($13,342) ($432,161) 0 $2,290,473
Aggregate
translation adjustment (8,077) (8,077)
Issuance of common
stock to ESOP 96 65,902 65,998
Retirement of
common stock (30) (20,143) (20,173)
Amortization of
deferred compensation 52,812 52,812
Net income for 1994 562,767 562,767
------------------------------------------------------------------------------------------------------
Balance, March 31, 1994 18,110 1,551,585 1,774,873 (21,419) (379,349) 0 2,943,800
------------------------------------------------------------------------------------------------------
Aggregate translation
adjustment (82,009) (82,009)
Issuance of common stock,
net of
offering expenses 6,212 3,950,915 3,957,127
Stock options exercised 384 384
Repurchase of common stock (240,591) (240,591)
Amortization of deferred compensation 126,440 126,440
Net loss for 1995 (1,086,786) (1,086,786)
-------------------------------------------------------------------------------------------------------
Balance, March 31, 1995 24,706 5,502,500 688,087 (103,428) (252,909) (240,591) 5,618,365
-------------------------------------------------------------------------------------------------------
Aggregate translation
adjustment (72,948) (72,948)
Stock options exercised 449 449
Stock options cancelled
-unamortized
deferred compensation (41,121) 41,121 0
Deferred compensation cancelled (56,584) (56,584)
Amortization of
deferred compensation 112,740 112,740
Repurchase of common stock (115,303) (115,303)
Net loss for 1996 (801,249) (801,249)
-------------------------------------------------------------------------------------------------------
Balance, March 31, 1996 $25,155 $5,404,795 ($113,162) ($176,376) ($99,048)($355,894) $4,685,470
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
<PAGE>
<TABLE>
<CAPTION>
MICRO-INTEGRATION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended March 31
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET (LOSS) INCOME $ (801,249) $(1,086,786) $ 562,767
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization 599,998 617,450 347,772
(Gain) Loss on disposal of assets (2,069) 10,259 (36,255)
Loss on sale of available-for
-sale securities 0 47,263 0
Deferred income taxes 20,699 54,600 (10,161)
Change in operating assets and liabilities:
Accounts receivable 415,482 9,952 (441,804)
Inventory 113,128 (11,044) (474,980)
Prepaid expense 111,719 (103,304) (57,735)
Income taxes receivable 667,997 (705,231) 0
Accounts payable (481,747) (6,824) 370,816
Accrued expenses (127,778) 9,095 258,835
ESOP contribution payable 0 0 (66,000)
- - -------
Income taxes payable 1,000 (130,762) (56,489)
Net cash provided by
(used in) operating
activities 517,180 (1,295,332) 396,766
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property,
plant and equipment (310,852) (425,103) (1,477,354)
(Increase) Decrease in
other noncurrent assets (304,209) 177,559 (431,567)
Purchase of held-
to-maturity securities (12,000,000) (2,511,202) 0
Purchase of available-
for-sale securities 0 (2,500,000) 0
Increase in cash
surrender value of
life insurance (1,976) (9,956) (16,521)
Proceeds from sale
of fixed assets 14,224 25,858 226,200
Proceeds from sales of
available-for-sale
securities 0 2,452,737 0
Proceeds from held
-to-maturity securities 12,500,000 1,011,202 0
---------- --------- -
Net cash (used in)
investing activities (102,813) (1,778,905) (1,699,989)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable
and long-term debt 0 176,706 1,521,591
Repayments of notes payable
long-term debt, and
capital lease obligations (227,776) (309,933) (296,755)
Net (repayment) issuance
of short-term debt 0 (37,981) (106,672)
Issuance of common stock 449 3,957,127 65,998
Repurchase of common stock (115,303) (240,591) (20,173)
-------- -------- -------
Net cash (used in) provided
by financing activities (342,630) 3,545,328 1,163,989
CURRENCY ADJUSTMENTS:
Effect of exchange rate
changes on cash (37,948) (184,656) 5,952
------- -------- -----
Increase (decrease)
in cash 33,789 286,435 (132,535)
Cash at beginning of year 427,085 140,650 273,185
------- ------- -------
Cash at end of year $ 460,874 $ 427,085 $ 140,650
============ =========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-8
<PAGE>
MICRO-INTEGRATION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The principal business activity of Micro-Integration Corp. and subsidiaries (the
"Company") is the development, design, marketing, and support of leading-edge
computer programs and hardware adapters that support enterprise computing. These
products provide communications links, terminal emulation, application
programming interfaces, and client-server applications and development tools for
networking personal computers and IBM mainframe and midrange computers.
Substantially all of the Company's accounts receivable are due from companies
located throughout the United States and Europe. Credit is extended based on an
evaluation of the customer's financial condition and, generally, collateral is
not required.
Principles of Consolidation
The consolidated financial statements of Micro-Integration Corp. ("MI") and
subsidiaries include the accounts of MI and its subsidiary Micro-Integration
Corp. PLC ("MI UK"). The Company consolidates all subsidiaries in which it has a
controlling interest (greater than 50% owned). All significant intercompany
accounts have been eliminated.
Certain prior years' amounts in the consolidated financial statements have been
reclassified to conform to the presentation used for 1996.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Accounts Receivable Trade
Accounts receivable trade is stated net of allowance for bad debts of $146,000
at March 31, 1996, and $34,700 at March 31, 1995.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined using the
first-in, first-out method.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortizedon a straight-line method over the shorter
of the lease term or estimated useful life of the asset.
In 1996, the Company adopted the provisions of Financial Accounting Standards
Board Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of." The adoption of this Statement did not
have a material impact on the reported results of operations of the Company.
F-9
<PAGE>
MICRO-INTEGRATION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Net Income Per Common Share
Net income per common share is based on the weighted average number of shares of
common stock outstanding and common stock equivalents of dilutive stock options.
Net income per share and weighted average common shares outstanding and common
stock equivalents have been restated for the two-for-one split of the Company's
common stock effective March 31, 1994. In addition, the financial statements
have been restated to give effect to the conversion of the Class B common stock
outstanding into common stock.
Intangible Assets
Goodwill is being amortized on a straight-line basis over its estimated useful
life of ten years and organization costs over five years.
License fees are amounts paid for products designed externally and are amortized
based on unit sales not to exceed a period of three years from the date of the
product release or first sale.
The company capitalizes costs associated with new software development and
enhancements in accordance with the guidelines of Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased, or Otherwise Marketed." Capitalization of software costs begins
upon the establishment of technological feasibility and ceases when the software
is available for general release to customers. The establishment of
technological feasibility and the ongoing assessment of recoverability of
capitalized software costs require considerable judgment by management with
respect to certain external factors, including but not limited to, changes in
software and hardware technologies, anticipated future gross revenues, and
estimated economic life. The Company capitalized $257,855, $45,000, and $199,000
for 1996, 1995, and 1994, respectively. Amortization of capitalized software
development costs is provided on a product-by-product basis and is based on unit
sales not to exceed a period of three years. The amortization charged to cost of
sales was $191,194, $90,334, and $29,255 for 1996, 1995, and 1994 respectively.
Other intangible assets represent contract rights and customer lists and are
amortized over their estimated useful life of five years (See Note 13 for
details).
Revenue Recognition
Revenue is recognized from the sale of goods, including software products, upon
delivery net of product returns and exchanges. Revenue is recognized from
licensing arrangements upon the establishment of the licensing agreement and
royalty arrangements upon delivery of products to third parties. The Company's
revenue recognition policies conform to Statement of Position 91-1, "Software
Revenue Recognition," promulgated by the American Institute of Certified Public
Accountants. Warranty costs, which have been insignificant to date, are expensed
as incurred.
Research and Development
Research and development costs approximating $326,791, $960,000, and $741,000
were charged to expense for 1996, 1995, and 1994, respectively.
F-10
<PAGE>
MICRO-INTEGRATION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Translation of Foreign Currency
The financial statements of foreign subsidiaries have been translated into U.S.
dollars in accordance with generally accepted accounting principles. Assets and
liabilities denominated in foreign currencies are translated to U.S. dollars at
the exchange rate on the balance sheet date. Revenues, costs, and expenses are
translated at the average rates of exchange prevailing during the year.
Translation adjustments resulting from this process are shown separately in
shareholders' equity. Exchange adjustments resulting from foreign currency
transactions are recognized in income.
Stock Options Granted to Employees
The Company records compensation expense for all stock-based compensation plans
using the intrinsic value method prescribed by APB Opinion No. 25, "Accounting
for Stock Issued to Employees." In October 1995, The Financial Accounting
Standards Board issued Statement No. 123, "Accounting for Stock-Based
Compensation," which encourages companies to recognize expense for stock-based
awards based on their estimated fair value on the date of grant.
Statement No. 123, effective for 1997, does not require companies to change
their existing accounting for stock-based awards, but if the new fair value
method is not adopted, pro forma income and earnings per share data should be
provided in the footnotes to the financial statements. The Company intends to
continue to account for stock-based compensation plans using the intrinsic value
method and will supplementally disclose in its 1997 financial statements the
required pro forma information as if the fair value method had been adopted.
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, marketable equity securities,
accounts payable, and accrued expenses approximate their fair values.
2. INVENTORY
Inventory consisted of the following:
<TABLE>
<CAPTION>
March 31,
1996 1995
---- ----
<S> <C> <C>
Raw material $274,623 $356,705
Finished goods 658,899 700,792
------- -------
$933,522 $1,057,497
======== ==========
</TABLE>
F-11
<PAGE>
MICRO-INTEGRATION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
3. NOTES PAYABLE AND LONG-TERM DEBT
The Company has a $400,000 line of credit with a U.S. bank, secured by accounts
receivable and inventory. Outstanding borrowings are payable on demand and bear
interest at the bank's prime lending rate plus 3/4% (9 % at March 31, 1996).
There were no outstanding amounts due on this line of credit as of March 31,
1996, or March 31, 1995, and the line has not been used to date.
The Company also has a $50,000 line of credit with a bank in the United Kingdom,
secured by a guarantee from MI. Outstanding borrowings are payable on demand and
bear interest at the bank's prime lending rate plus 2 1/2% (8.5% at March 31,
1996). This credit facility is not currently in use.
<TABLE>
<CAPTION>
Long-term
debt consisted of the following:
March 31,
1996 1995
---- ----
<S> <C> <C>
Note payable in monthly installments of $364
including principal and interest at 10.5% through
August 1998, secured by real property $9,295 $12,505
Note payable, due in one installment in August 1995
and bearing interest at 8%, secured by all assets
transferred to the Company by HandsOn Software -0- 10,000
Note payable in monthly installments of $455
including principal and interest at 11.85% through
May 1995, secured by an automobile -0- 1,436
Note payable in monthly installments of $1,765 including principal and interest
at 7.5% through August 2013, secured by real property.
Interest-only payments paid through March 31, 1994 205,583 211,114
Note payable in quarterly installments of $22,132 including principal and
interest at 5.95% commencing December 1994 through September 2013, secured by
real property. Interest-only payments from date of
first proceeds payment through initial 15 months 959,965 990,428
Note payable in monthly installments of $6,667, principal only at 3/4% above
prime through September
1998, secured by assets of the business 200,000 280,000
------- -------
$1,374,843 $1,505,483
========== ==========
</TABLE>
F-12
<PAGE>
MICRO-INTEGRATION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
3. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
The fair value of the Company's debt was determined using quoted market prices
and is $1,335,977 at March 31, 1996.
Combined maturities for long-term debt by year and in the aggregate consisted of
the following:
<TABLE>
<CAPTION>
March 31
<S> <C>
1997 $121,835
1998 124,650
1999 85,043
2000 46,011
Thereafter 997,304
-------
$1,374,843
==========
</TABLE>
During the years ended March 31, 1996, 1995, and 1994, the Company paid interest
related to these borrowings of $94,164, $107,000, and $56,000, respectively.
Among the provisions of the loan agreement with a U.S. bank related to a line of
credit for working capital purposes and a separate note, certain financial
covenants are imposed which require the Company to maintain minimum cash flows
to debt service coverage. As a result of operating losses, the Company was in
violation of the minimum cash flow to debt service coverage covenant at March
31, 1995. The minimum cash flow to debt service coverage covenant was waived by
the bank subsequent to the balance sheet date as of March 31, 1995. The next
measurement date of the minimum cash flow to debt service covenant is June 30 ,
1996, being the end of the first quarter of the Company's fiscal year ending
March 31, 1997.
As it is most likely that the Company will still be in violation of the debt
convenant at June 30, 1996, the Company has reclassified the entire outstanding
balance on the note of $200,000 as a current liability on the consolidated
balance sheet as of March 31, 1996 in accordance with FAS 78.
4. SHAREHOLDERS' EQUITY
Common and preferred stock reported on the Company's balance sheet consisted of
the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
AUTHORIZED ISSUED OUTSTANDING ISSUED OUTSTANDING
---------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C>
Common stock 12,000,000 2,515,463 2,385,925 2,470,573 2,400,573
Preferred
stock 4,000,000 -- -- -- --
</TABLE>
All stock has a $0.01 par value. The dividend rights of preferred stock have not
been established.
During 1994, the Company issued 9,770 shares of common stock at an appraised
value of $6.75 per share to its Employee Stock Ownership Plan. The Company also
repurchased and retired 2,986 shares of common stock from its Employee Stock
Ownership Plan at an appraised value of $6.75 per share.
During 1995, the Company issued 621,227 shares of common stock in an initial
public offering of stock. Key employees also exercised stock options for 38,292
shares of common stock. During the last quarter of fiscal year 1995, the Company
repurchased 70,000 shares of common stock as follows: February 2, 1995, 25,000
shares at $4.00 per share; March 2, 1995,
F-13
<PAGE>
MICRO-INTEGRATION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
25,000 shares at $3.00 per share; and March 14, 1995, 20,000 shares at $3.00 per
share.
During 1996, key employees exercised stock options for 42,340 shares of common
stock. In addition, during the last quarter of fiscal year 1996, the Company
repurchased 50,000 shares of common stock as follows: November 27, 1995, 30,000
shares at $2.00 per share; March 15, 1996, 20,000 shares at $1.88 per share.
Also during 1996, the Company repurchased and retired 9,538 shares of common
stock from two former employees of the company.
5. LEASE COMMITMENTS
The Company leases office space for its Belgium branch office in Brussels. The
lease is for three years and is renewable in November 1996 with two further
options to renew at three year intervals. The terms of the lease relating to the
amount of space occupied were renegotiated in February 1996, allowing the branch
to occupy a much smaller area in return for a substantial rent reduction.
Effective April 1, 1996, the annual lease expense is $20,000 for the office
space compared with $76,000 for the year to March 31, 1996.
The Company also entered into a lease agreement for its subsidiary MI UK on
January 4, 1994, for lease of office space. The lease is renewable every three
years with an annual lease expense of $50,000, $55,000, and $64,000 for the
first, second, and third years, respectively. MI UK also entered into a one-year
lease in January 1995 for a shipping area. The annual expense associated with
this lease is $14,000. Effective June 1, 1996, the Company moved to smaller
premises incorporating both the office facility and the shipping area in the
same building. As the landlord for both the old and new locations is the same,
the company was able to terminate the old lease and enter into a new lease for a
twelve month period as of June 1, 1996. The annual expense associated with the
new building is $33,000.
The Company leases equipment and automobiles under the terms of the various
capital lease and operating lease agreements, which all expire by the year 2004.
During the years ending March 31, 1996, and 1995, the Company acquired $0 and
$197,000 of assets under capital lease obligations, respectively.
Property, plant, and equipment include the following amount for capitalized
leases at the dates indicated:
<TABLE>
<CAPTION>
March 31,
1996 1995
---- ----
<S> <C> <C>
Equipment $290,662 $296,986
Automobiles 153,120 162,732
------- -------
443,782 459,718
Less: Accumulated
amortization (286,410) (212,601)
-------- --------
$ 157,372 $ 247,117
========= =========
</TABLE>
F-14
<PAGE>
MICRO-INTEGRATION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Future minimum payments for these leases, by year and in the aggregate,
consisted of the following at the dates indicated:
<TABLE>
<CAPTION>
March 31
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
<C> <C> <C>
1997 $ 65,730 $ 92,929
1998 43,086 48,472
1999 13,610 41,616
2000 -- 6,448
2001 -- 6,448
Thereafter -- 24,178
--------- ------
Total minimum lease payments 122,426 $220,091
========
Less amounts representing 11,992
interest ------
Present value of future
minimum capital lease payment $110,434
========
</TABLE>
Rent expense related to the operating leases was $179,000, $225,000, and
$108,000 for the years ended March 31, 1996, 1995, and 1994, respectively.
Interest expense recognized and paid on the capital lease obligations was
$15,000, $26,000, and $21,000 during the years ended March 31, 1996, 1995, and
1994, respectively.
6. INCOME TAXES
Income tax (benefit) expense for the years ended March 31, 1996, 1995, and 1994
consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $(78,858) $(490,040) $ 280,176
State (821) (72,000) 73,246
Foreign 24,811 57,600 86,515
------ ------ ------
(54,868) (504,440) 439,937
======= ======== =======
Deferred:
Federal 24,994 (8,047) (36,344)
State (4,295) 1,543 (8,046)
Foreign -- -- --
------ ------ -------
20,699 (6,504) (44,390)
------ ------ -------
$(34,169) $(510,944) $395,547
======== ========= ========
</TABLE>
F-15
<PAGE>
MICRO-INTEGRATION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
6. INCOME TAXES (CONTINUED)
Under the liability method, the deferred tax liability or asset is determined
based on the difference between the financial statements and tax basis of assets
and liabilities (i.e., temporary differences) and is measured at the enacted tax
rates that will be in effect when these differences reverse. Deferred tax
expense is determined by the change in the liability or asset for deferred
taxes.
<TABLE>
<CAPTION>
Years Ended
March 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Depreciation expense $(1,631) $(3,892) $(6,937)
Deferred compensation expense 20,309 45,155 (27,424)
Research and development
expense 48,840 (2,456) --
Net operating loss
carryforward (162,035) -- --
Research and development
credit (37,476) -- --
Foreign tax credit (131,412) -- (62,440)
Other (24,189) 1,565 (10,029)
Change in valuation allowance 239,321 84,536 --
----------- -------- --------
$ 20,699 $ (6,504) $(44,390)
=========== ======== ========
</TABLE>
Total deferred tax assets and deferred tax liabilities as of March 31, 1996, and
March 31, 1995, and the sources of the differences between financial accounting
and tax basis of the Company's assets and liabilities which give rise to the
deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
March 31
1996 1995
---- ----
<S> <C> <C>
Current deferred taxes
Deferred compensation (10,010) 10,299
Other 33,493 9,304
------ -----
Net current deferred tax asset (liability) 23,483 19,603
Valuation allowance for deferred tax assets 0 (11,000)
- -------
Net current deferred tax asset after 23,483 8,603
------ -----
valuation allowance
Non-current deferred taxes
Foreign tax carryforward 193,857 131,417
Net operating loss carryforward 162,035 --
Research and development credit 37,476 --
carryforward
Research and development expense (105,582) (56,742)
Tax over book depreciation (6,914) (8,545)
------ ------
Net non-current deferred tax asset 280,872 66,130
Valuation allowance for deferred tax asset (323,857) (73,536)
-------- -------
Net non-current deferred tax (liability)
after valuation allowance (42,985) (7,406)
Net deferred tax asset (liability) $(19,502) $1,197
======== ======
</TABLE>
At March 31, 1996, the Company had foreign tax credit carryforwards of
approximately $194,000 which expire in the years 1997 to 2001.
F-16
<PAGE>
MICRO-INTEGRATION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
6. INCOME TAXES (CONTINUED)
During the years ended March 31, 1996, 1995, and 1994, the Company paid income
taxes of $819, $4,100, and $329,000, respectively.
Federal income taxes have not been provided on unremitted earnings of the
Company's foreign subsidiaries totaling $0 and $146,000 at March 31, 1996 and
1995 respectively. The Company's intention is to reinvest its earnings
permanently or to repatriate such earnings only when it is tax-efficient to do
so.
The reasons for the difference between total tax expense and tax computed by
applying the U.S. Federal income tax rates to earnings before income taxes for
the years ended March 31 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
U.S. Federal statutory rate (34.0)% (34.0)% 34.0%
State income tax (net of
Federal income tax benefit) (1.1)% (3.2)% 4.4%
Non-deductible expenses 8.4% 1.9 % 2.3%
Non-taxable income (5.6%) (2.3)% --
Foreign Taxes withheld 8.0% -- --
Higher effective tax rate on earnings
of foreign subsidiaries -- 1.4 % 0.8%
Utilization of R & D tax -- (2.3)% (0.2)%
credit
Different tax rate on
carryback of net operating
loss-Federal 1.5% -- --
Change in valuation 12.9% 5.3 % --
allowance
Other (1.1)% 1.3 % --
(11.0)% (31.9)% 41.3%
</TABLE>
At March 31, 1996, the Company had a net operating loss carryover of
approximately $70,000 and $500,000 available for offset against future U.S. and
UK operating profits, respectively. The U.S. net operating loss carryover will
expire in the year 2011, and the UK net operating loss can be carried forward
indefinitely.
7. EMPLOYEE BENEFIT PLANS
In 1988, the Company initiated an Employee Stock Ownership Plan (ESOP), which
covers all eligible employees. Contributions are made at the Company's
discretion. They are approved by the Board of Directors subsequent to year-end
after consideration of the profits of the Company and other factors. The Company
made no contributions in the years ended March 31, 1996, 1995, and 1994,
respectively.
In conjunction with the Employee Stock Ownership Plan, the Company also has an
Employee Savings 401(k) Plan, which covers all eligible employees. Under this
plan, employees may contribute up to 10% of their compensation, subject to the
rules of Section 401(k) of the Internal Revenue Code, to their accounts. The
Company, at its discretion, contributes up to 50% of the employee's
contribution. The Company contribution was $0, $51,000 (50%), and $47,000 (50%)
in the years ended March 31, 1996, 1995, and 1994, respectively.
F-17
<PAGE>
MICRO-INTEGRATION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
8. STOCK OPTIONS AND WARRANTS
Executives and other key employees of the Company (the "Original Option
Holders") have been granted restricted stock options to purchase common stock
under agreements adopted in fiscal 1991 and 1993. Options for 87,760 and 36,120
shares were granted in fiscal 1991 and 1993, respectively. Under the original
agreement by which these options were granted, the options were exercisable ten
years from the date of grant, provided certain vesting conditions were met. The
difference between the option price and the market value of the common stock at
the date of grant was recognized as an increase to paid in capital and deferred
compensation. Deferred compensation was amortized into expense over ten years.
At March 31, 1996, options to purchase 35,260 shares were outstanding under
these grants.
Upon completion of the Company's initial public offering, by agreement between
the Original Option Holders and the Company, the vesting period for these
options changed such that one-twelfth of the options vest per quarter over a
three-year period beginning May 23, 1994. The Company is amortizing the
remaining deferred compensation expense over this revised period.
The Company adopted the Micro-Integration 1994 Stock Plan (the "Stock Plan") in
April 1994. Under the Stock Plan, options to purchase 3,000 shares were granted
to each of the three non-employee members of the Board of Directors during the
fiscal year ended March 31, 1995. The options are exercisable at $7.00 per
share. One-fourth of the options will vest per year over a four-year period
beginning September 14, 1994. Options for a further 1,000 shares were granted to
each of the three non-employee members of the Board of Directors during the
fiscal year ended March 31, 1996. The options are exercisable at $3.25 per
share. One fourth of the options will vest per year over a four year period
beginning August 15, 1995.
Options for 25,764 shares were granted upon completion of the initial public
offering to certain key employees. The options are exercisable at $7.50 per
share. The options will vest on a daily basis over a three-year period beginning
May 23, 1994. No part of these options becomes exercisable during the first 12
months after the grant date. During 1995, options for one-third of these shares
expired with the resignation of an employee.
Options for an additional 45,000, 18,000, and 8,000 shares were granted under
the Stock Plan to certain key employees on April 1, 1995, April 26, 1995, and
November 1, 1995 respectively. These options are exercisable at $3.75, $4.00,
and $2.375 per share, respectively. All of the options vest on a daily basis
over a two-year period beginning with the date of the grant, with the exception
of the options granted to one employee for 13,000 shares, which vest over a
three-year period. No part of these options becomes exercisable during the first
12 months after the grant date. Of the above options granted on April 1, and
April 26, 1995, options for 16,588 and 9,000 shares have expired with the
resignation of two employees on August 1, 1995 and April 3, 1996 respectively.
On April 28, 1995, the Company filed a registration statement on Form S-8 with
the Securities and Exchange Commission registering 150,000 shares of common
stock for issuance under the Stock Plan.
The Company issued warrants to the underwriters of the initial public offering
to purchase 38,822 shares of the Company's common stock. These shares constitute
5% of the total shares sold in the offering. The warrants represent the right to
purchase the Company's common stock for $9.00 per share. The warrants are
exercisable for a period of three and one-half years beginning one year after
the offering date.
F-18
<PAGE>
MICRO-INTEGRATION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
9. PUBLIC STOCK OFFERING
On May 23, 1994, the Company completed a public offering of 621,227 shares of
newly issued common stock for proceeds of approximately $3.9 million, net of
expenses. The Company will use a majority of the proceeds for general corporate
purposes. The Company may use a lesser portion of the net proceeds for capital
expenditures and to fund the acquisition of businesses, products, or
technologies. The Company invested the net proceeds in short-term investment
grade securities and in shares of investment companies that invest primarily in
such securities.
10. MARKETABLE SECURITIES
Management determines the appropriate classification of debt securities at the
time of purchase and re-evaluates 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 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 March 31, 1996, and March
31, 1995.
Held-to-maturity securities include obligations of state municipalities and are
stated at cost of $1,000,000 and $1,500,000, at March 31, 1996 and March 31,
1995, respectively, with fair market value of $1,000,000 and $1,500,000, at
March 31, 1996 and March 31, 1995, respectively. These securities matured in
April 1996 and April 1995, respectively.
Available-for-sale securities including government bonds with a cost of
$2,500,000 were sold in the quarter ended December 31, 1994, for $2,452,737,
resulting in a loss of $47,263.
11. RESTRUCTURING EXPENSE
During the quarter ended December 31, 1994, the Board of Directors approved a
restructuring plan which entailed closing the Company's Belgium subsidiary MI
Europe. Management decided to restructure its European operations to eliminate
duplication of functions between MI Europe and MI UK and move administrative
functions from Belgium to the United Kingdom, where costs are lower. This action
resulted in the recognition of a restructuring charge of $463,000, consisting
primarily of employee separation expenses. On March 31, 1995, the Company closed
MI Europe. MI UK purchased the assets and non-affiliated liabilities of MI
Europe and opened a branch office in Belgium, which is responsible for sales and
service to areas previously covered by MI Europe. As a result of this closing,
MI USA wrote-off $1,051,000 of intercompany receivables and investments in MI
Europe: MI Europe wrote-off $1,237,000 in intercompany payables. The net
consolidated effect of these write-offs was to record a $186,000 foreign
currency exchange gain and to generate an MI USA tax benefit of $392,000 in the
fiscal year ended March 31, 1995.
F-19
<PAGE>
MICRO-INTEGRATION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
12. FOREIGN OPERATIONS
The company operates in the United States, in Europe through its wholly-owned
subsidiary in the United Kingdom, and in Brussels, Belgium through its sales
branch. Sales, operating (loss), profit, and identifiable assets by geographic
area are presented below.
<TABLE>
<CAPTION>
Year Ended March 31
1996 1995 1994
---- ---- ----
NET SALES AND OTHER INCOME
UNITED STATES
<S> <C> <C> <C>
Unaffiliated customers $ 5,629,238 $ 7,105,170 $ 6,577,217
Interarea transfers 243,364 696,318 543,526
5,872,602 7,801,488 7,120,743
EUROPE
Unaffiliated customers 2,154,778 3,017,628 2,880,829
Eliminations-- transfers 243,364 (696,318) 543,526
------- -------- -------
7,784,016 10,122,798 9,458,046
Operating (loss) profit
United States (326,896) (474,892) 855,427
Europe (465,785) (1,254,996) 139,677
-------- ---------- -------
$(792,681) $(1,729,888) $955,104
========= =========== ========
Identifiable Assets
United States $ 5,458,587 $6,773,282 $ 4,605,334
Europe 1,156,238 1,612,010 1,191,572
--------- --------- ---------
$ 6,614,825 $8,385,292 $ 5,796,906
=========== ========== ===========
</TABLE>
The Company does not currently have domestic sales nor sales to an individual
customer in excess of 10% of its consolidated revenues. Intersegment sales are
accounted for at cost. Operating profit is total revenue less cost of goods
sold, operating expenses (including depreciation and amortization), excluding
interest and corporate expenses. Identifiable assets by geographic location
include assets directly identified with those operations.
F-20
<PAGE>
MICRO-INTEGRATION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
13. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
Year ended March 31
1996 1995 1994
---- ---- ----
GROSS:
<S> <C> <C> <C>
Organization costs $ 37,605 $ 37,605 $ 37,605
Goodwill 495,947 495,947 495,947
Capitalized software and
design costs 594,803 336,948 291,738
Licensed products 81,354 35,000 35,000
Deferred financing costs 232,421 232,421 232,421
Other $ 27,809 $ 27,809 $ 27,809
---------- ------------ ------------
$1,469,939 $1,165,730 $1,120,520
========== ========== ==========
<CAPTION>
Year ended March 31
1996 1995 1994
---- ---- ----
NET:
<S> <C> <C> <C>
Organizaiton costs $ -- $ -- $ 1,800
Goodwill 26,596 75,254 123,996
Capitalized software and
design costs 291,004 221,113 258,463
Licensed products 38,452 3,230 16,668
Deferred financing costs -- -- 232,421
Other -- -- 20,085
------
$356,052 $299,597 $653,433
======== ======== ========
</TABLE>
F-21
<PAGE>
MICRO-INTEGRATION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
14. QUARTERLY DATA (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended March 31, 1996 and 1995.
<TABLE>
<CAPTION>
Quarter ended
JUNE 30 Sept. 30 Dec. 31 Mar. 31
------- -------- ------- -------
(thousands except per-share data)
FISCAL YEAR ENDED
MARCH 31, 1996:
<S> <C> <C> <C> <C>
Net sales $ 2,207 $ 1,972 $ 1,762 $ 1,843
Cost of sales 876 537 442 617
Net (loss) income (712) (111) 15 7
Net (loss) income per share $ ($0.30) $ ($0.04) $ 0.01 $ 0.00
-------- -------- ------ ---------
FISCAL YEAR ENDED
MARCH 31, 1995:
Net sales $ 2,906 $ 2,284 $ 2,363 $ 2,570
Cost of sales 755 580 608 904
Net income (loss) 133 (591) (412) (217)
Net income (loss) per share $ 0.06 $ (0.26) $ (0.18) $ (0.08)
---------- --------- -------- --------
</TABLE>
F-22
<PAGE>
Schedule II -- Valuation and Qualifying Accounts
Micro-Integration Corp. and Subsidiaries
<TABLE>
<CAPTION>
Beginning Charged to Costs Charged to Other Ending
Classification Balance and Expenses Accounts Deductions Balance
<S> <C> <C> <C> <C> <C>
Year Ended March 31, 1996:
Deducted from asset
accounts:
Allowance for doubtful
accounts $34,669 $152,339 $ 41,392 $ 145,616
------- -------- -------- ---------
Total $34,669 $152,339 $ 0 $ 41,392 $ 145,616
======= ======== ======== ======== =========
Year Ended March 31, 1995:
Deducted from asset
accounts:
Allowance for doubtful
A45 accounts $33,230 $ 56,385 $ 54,946 $ 34,669
-- ------- -------- -------- ---------
Total $33,230 $ 56,385 $ 0 $ 54,946 $ 34,669
======= ======== ======== ======== =========
Year Ended March 31, 1994:
Deducted from asset
accounts:
Allowance for doubtful
accounts $20,041 $ 64,730 $ 51,541 $ 33,230
------- -------- -------- ----------
Total $20,041 $ 64,730 $ 0 $ 51,541 $ 33,230
======= ======== ========== ======== ==========
</TABLE>
(1) Uncollectible accounts written-off, net of recoveries.
F-23
<PAGE>
EXHIBIT INDEX
Exhibit Description of Document Page
NUMBER NUMBER
------ ------
3(ii).1 Amended and Restated Bylaws of Micro-Integration Corp., filed as Exhibit
3(ii).1 to the Company's Registration Statement on Form SB-2, Registration
No. 33-72752, is hereby incorporated by reference.
4.1 Article IV of the Restated Certificate of Incorporation of Micro-
Integration Corp., filed as Exhibit 4.1 to the Company's Registration
Statement on Form SB-2, Registration No. 33-72752, is hereby incorporated
by reference.
4.2 Form of Common Stock Certificate, filed as Exhibit 4.2 to Amendment No. 1
to the Company's Registration Statement on Form SB-2, Registration No.
33-72752, is hereby incorporated by reference.
4.3 Form of Underwriter's Warrant, filed as Exhibit 4.3 to Amendment No. 1 to
the Company's Registration Statement on Form SB-2, Registration No.
33-72752, is hereby incorporated by reference.
10.1 Micro-Integration Corp. Employee Savings and Stock Ownership Plan, filed as
Exhibit 10.1 to the Company's Registration Statement on Form SB-2,
Registration No. 33-72752, is hereby incorporated by reference.
10.2 1994 Stock Plan of Micro-Integration Corp., filed as Exhibit 10.2 to the
Company's Registration Statement on Form SB-2, Registration No. 33- 72752,
is hereby incorporated by reference.
10.3 Agreement between Micro-Integration Corp., Micro-Integration Europe n.v.
and Gabor Weiner entered into September 28, 1990, filed as Exhibit 10.3 to
the Company's Registration Statement on Form SB-2, Registration No.
33-72752, is hereby incorporated by reference.
10.4 Agreement between Micro-Integration Corp. and Gabor Weiner entered into on
September 28, 1990, filed as Exhibit 10.4 to the Company's Registration
Statement on Form SB-2, Registration No. 33-72752, is hereby incorporated
by reference.
10.5 Amendment to Agreements between Micro-Integration Corp., Micro- Integration
Europe n.v., and Gabor Weiner, entered into on March 21, 1994, filed as
Exhibit 10.5 to the Company's Registration Statement on Form SB-2,
Registration No. 33-72752, is hereby incorporated by reference.
10.6 Contract of Sale made on August 23, 1995 between CCSAC Federal Credit Union
and Micro-Integration Corp., filed as Exhibit 10.6 to the Company's
Registration Statement on Form SB-2, Registration No. 33- 72752, is hereby
incorporated by reference.
10.7 Agreement made as of May 20, 1993 between Micro-Integration Corp. and
Lashley Construction, Inc., filed as Exhibit 10.7 to the Company's
Registration Statement on Form SB-2, Registration No. 33-72752, is hereby
incorporated by reference.
<PAGE>
10.8 Contract of sale made on September 16, 1992 between Micro- Integration
Corp., Cumberland Allegany County Industrial Foundation and the Board of
County Commissioners of Allegany County, Maryland, filed as Exhibit 10.8 to
the Company's Registration Statement on Form SB-2, Registration No.
33-72752, is hereby incorporated by reference.
10.9 Promissory Note dated September 24, 1993 payable to Micro- Integration
Corp. to the Board of Commissioners of Allegany County, Maryland or order,
filed as Exhibit 10.9 to the Company's Registration Statement on Form SB-2,
Registration No. 33-72752, is hereby incorporated by reference.
10.10Promissory Note dated September 24, 1993 payable by Micro- Integration
Corp. to the order of the Board of County Commissioners of Allegany County,
Maryland, filed as Exhibit 10.10 to the Company's Registration Statement on
Form SB-2, Registration No. 33-72752, is hereby incorporated by reference.
10.11Revolving Note Agreement dated May 17, 1993 by and between Micro-
Integration Corp. and The First National Bank of Maryland, filed as Exhibit
10.11 to the Company's Registration Statement on Form SB-2, Registration
No. 33-72752, is hereby incorporated by reference.
10.12Business Promissory Note dated September 22, 1993 payable by
Micro-Integration Corp. to the order of The First National Bank of
Maryland, filed as Exhibit 10.12 to the Company's Registration Statement on
Form SB-2, Registration No. 33-72752, is hereby incorporated by reference.
10.13Agreement and Plan of Reorganization made in April 1986 by and among
Micro-Integration Corp., Micro-Integration Inc., John A. Parsons, i.e.
Systems, Inc. and the Stockholders named therein, filed as Exhibit 10.14 to
the Company's Registration Statement on Form SB-2, Registration No.
33-72752, is hereby incorporated by reference.
10.14Indemnification Agreements between Micro-Integration Corp. and its
directors and officers, filed as Exhibit 10.14 to the Company's Form 10-KSB
for the year ended March 31, 1996, is hereby incorporated by reference.
11.1 Statement of computation of per share earnings.
21.1 Subsidiaries of Micro-Integration Corp.
23.1 Consent of Independent Accountants.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11.1 U STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(000'S EXCEPT PER-SHARE DATA)
Year ended March 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Primary
Average shares outstanding 2,414 2,352 1,811
Net effect of dilutive stock options
based on the treasury stock method
using average market price 0 0 124
- - ---
Total 2,414 2,352 1,935
===== ===== =====
Net (loss) income $ (801) (1,087) $ 563
======== ====== ========
Per share amount $ (0.33) $ (0.46) $ 0.29
======== ======== ========
</TABLE>
Note: Fully diluted earnings per share equals primary earnings
per share.
<PAGE>
EXHIBIT 21.1 -- SUBSIDIARIES OF MICRO-INTEGRATION CORP.
Name Jurisdiction
---- ------------
Micro-Integration Corp. PLC United Kingdom
<PAGE>
EXHIBIT 23.1 - CONSENT OF INDependent Auditors
We consent to the incorporation by references in the registration statement
(form s-8, no. 33-91724) Pertaining to the micro-integration corp. Stock option
plan of our report dated may 30, 1996, with respect to the consolidated
financial statements and schedules of micro-integration corp. Included in the
annual report (form 10-ksb) for the year ended march 31, 1996.
form 10-ksb) for the year ended march 31, 1996.
/s/ ERNST & YOUNG LLP
---------------------
ERNST & YOUNG LLP
Baltimore, Maryland
June 27, 1996