U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ..................... to ...................
Commission file number 0-23710
Micro-Integration Corp.
(Exact name of small business issuer as specified in its charter)
Delaware 06-1204847
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Science Park
Frostburg, MD 21532
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 301-689-0800
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes ...X... No .......
The number of shares outstanding of the issuer's classes of common stock as of
September 30, 1996 Common Stock, $.01 Par Value -- 2,403,565 shares
Transitional Small Business Disclosure Format (check one):
Yes ....... No ...X...
<PAGE>
Micro-Integration Corp. and Subsidiaries
Form 10-QSB/A
Index
Part I Financial Information Page
Item 1. Consolidated Balance Sheets 2
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Unaudited Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 7
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 11
<PAGE>
Part I Financial Information
Item 1. Financial Statements
Micro-Integration Corp. and Subsidiaries
Consolidated Balance Sheets
September 30 March 31
1996 1996
---------- ----------
(unaudited)
ASSETS
Current Assets
Cash and equivalents $ 163,095 $ 460,874
Marketable securities
Held-to-maturity 1,000,000 1,000,000
Accounts receivable trade, net 1,044,004 1,300,838
Inventory 856,054 933,522
Tax refund receivable 125,303 103,086
Prepaid expense 111,778 114,967
Deferred income taxes 23,483 23,483
---------- ----------
Total Current Assets 3,323,717 3,936,770
---------- ----------
Property, Plant and Equipment
Land 92,962 92,962
Buildings 1,455,518 1,455,518
Equipment 1,729,018 1,447,128
Automobiles 212,133 238,738
Property held for sale 59,251 59,933
---------- ----------
3,548,882 3,294,279
Less accumulated depreciation 1,306,514 1,149,678
---------- ----------
2,242,368 2,144,601
Cash Surrender Value of Life Insurance
and other noncurrent assets 180,207 177,402
Intangible Assets, Net of Amortization 503,950 356,052
---------- ----------
$6,250,242 $6,614,825
========== ==========
2
<PAGE>
Micro-Integration Corp. and Subsidiaries
Consolidated Balance Sheets
September 30 March 31
1996 1996
---------- ----------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt and $ 252,543 $ 299,067
capital lease obligations
Accounts payable 512,670 202,049
Accrued expenses 136,994 198,044
Income tax payable 0 1,000
---------- ----------
Total Current Liabilities 902,207 700,160
---------- ----------
Long-term debt, less current portion 1,111,744 1,133,008
Capital lease obligations, less current portion 33,560 53,202
Deferred Income Taxes 42,985 42,985
Shareholders' equity
Common stock-- $.01 par value; authorized
120,000,000 shares;
outstanding -- 2,403,565 shares at
September 1996; and 2,385,925 shares
at March 1996 66,186 25,155
Additional capital 5,404,795 5,404,795
Retained deficit (688,063) (113,162)
Foreign currency translation (217,750) (176,376)
---------- ----------
4,565,168 5,140,412
Less deferred compensation (49,528) (99,048)
Less treasury stock (355,894) (355,894)
---------- ----------
4,159,746 4,685,470
$6,250,242 $6,614,825
========== ==========
See Notes to Unaudited Consolidated Financial Statements.
3
<PAGE>
Micro-Integration Corp. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three months ended September 30 Six months ended September 30
1996 1995 1996 1995
----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue
Product revenue $ 1,542,503 $ 1,880,016 $ 3,056,853 $ 3,938,852
License revenue 17,263 91,563 77,606 240,214
----------- ----------- ----------- -----------
Total revenue 1,559,766 1,971,579 3,134,459 4,179,066
Cost of goods sold 647,966 536,574 1,128,990 1,412,591
----------- ----------- ----------- -----------
Gross profit 911,800 1,435,005 2,005,469 2,766,475
Operating Expenses
Selling, general, and administrative 1,213,785 1,365,871 2,359,848 3,246,995
Deferred Compensation amprtization 24,759 31,611 49,518 63,222
Depreciation and amortization expense 79,968 84,616 158,908 174,062
----------- ----------- ----------- -----------
1,318,512 1,482,098 2,568,274 3,484,279
Operating Loss (406,712) (47,093) (562,805) (717,804)
Other Income (Expense)
Interest expense (27,754) (27,954) (54,150) (58,343)
Other income (expense) 36,435 (3,081) 51,445 19,908
----------- ----------- ----------- -----------
8,681 (31,035) (2,705) (38,435)
----------- ----------- ----------- -----------
Income before income taxes (398,031) (78,128) (565,510) (756,239)
Income tax (benefit) expense (1,741) 33,096 9,392 66,704
----------- ----------- ----------- -----------
Net Loss $ (396,290) $ (111,224) $ (574,902) $ (822,943)
=========== =========== =========== ===========
Earnings (Loss) per Share $ (0.17) $ (0.05) $ (0.24) $ (0.34)
=========== =========== =========== ===========
Weighted Average Number of
Common Shares Outstanding and
Common Stock Equivalents 2,396,625 2,423,148 2,396,625 2,423,148
=========== =========== =========== ===========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
4
<PAGE>
Micro-Integration Corp. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six months ended September 30
1996 1995
----------- -----------
(unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net (Loss) $ (574,902) $ (822,944)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 286,040 401,603
(Gain) Loss on disposal of assets 0 811
Deferred income taxes 0 0
Change in operating assets and liabilities:
Accounts receivable 266,435 281,440
Inventory 82,447 (65,005)
Tax refund receivable 0 616,368
Prepaid expense (13,491) 79,086
Accounts payable 306,808 (151,172)
Accrued expenses (63,246) (109,266)
Income taxes payable (1,000) 28,495
----------- -----------
Net cash provided by operating activities 289,091 259,416
Cash Flows from Investing Activities:
Acquisition of property, plant, and equipment (257,853) (154,211)
Investment in other noncurrent assets and
intangibles (229,823) (26,469)
Purchase of held-to-maturity securities 3,000,000 (6,000,000)
Proceeds from maturity of held-to-maturity securities (3,000,000) 6,500,000
Increase in cash surrender value of life insurance (2,805) 0
Proceeds from sale of fixed assets 17,212 0
----------- -----------
Net cash (used in) provided by investing activities (473,269) 319,320
Cash Flows from Financing Activities:
Increase in notes payable and long-term debt 0 0
Repayments of notes payable, long-term debt, and
capital lease obligations (89,306) (122,994)
Issuance of common stock 185 0
----------- -----------
Net cash (used in) financing activities (89,121) (122,994)
Currency Adjustments:
Effect of exchange rate changes on cash (24,480) (32,337)
----------- -----------
Increase in cash (297,779) 423,405
Cash at beginning of period 460,874 427,085
----------- -----------
Cash at end of period $ 163,095 $ 850,490
=========== ===========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
5
<PAGE>
Micro-Integration Corp. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation have
been included. The results for the three months and the six months ended
September 30, 1996, and 1995, are not necessarily indicative of financial
information for the full year. The unaudited consolidated financial statements
should be read in conjunction with the consolidated financial statements and
footnotes thereto included in the Company's annual report and Form 10-KSB for
the year ended March 31, 1996.
For purposes of comparability, certain prior year amounts in the consolidated
financial statements have been reclassified to conform to the presentation used
for current period reporting.
2. Marketable Securities
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Debt securities are classified as held-to-maturity when the Company has the
positive intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost. Debt securities not classified as
held-to-maturity are classified as available-for-sale. Available-for-sale debt
securities are stated at fair value, with the unrealized gains and losses, net
of tax, reported as a separate component of shareholders' equity. Realized gains
and losses and declines in value judged to be other-than-temporary on
available-for-sale securities are included in investment income. The cost of
securities sold is based on the specific identification method. Interest on
securities classified as available-for-sale are included in investment income.
There were no trading securities at September 30, 1996.
Held-to-maturity securities include obligations of state municipalities and are
stated at cost $1,000,000. These securities mature in November 1996.
3. Inventory
Inventory consisted of the following:
September 30 March 31
1996 1996
---------- ---------
Raw material $ 157,680 $ 274,623
Finished goods 698,374 658,899
---------- ---------
$ 856,054 $ 933,522
========== =========
Inventory is stated at the lower of cost or market. Cost is determined using the
first-in, first-out method.
6
<PAGE>
Part I Financial Information
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition for the Six Months Ended September 30, 1996, and
1995
Recent Events
On October 30, 1996, the Company announced it has signed a Letter of Intent to
acquire the assets of Computer One of Ohio, Inc., an Ohio-based systems
integrator, in exchange for Micro-Integration Corp. common stock. During its
most recent fiscal year, Computer One had sales of $2.1 million, and the revenue
trend has been up. The Company expects that, if consummated, this transaction
will not have a significant effect on results of operations until the fourth
quarter, ending March 31, 1997.
Results of Operations
On August 21, 1996, the Company completed the purchase of the assets of Computer
Site, Inc., an Ohio-based systems integrator. In its last fiscal year ended
February 29, 1996, Computer Site generated revenues of $4.4 million, and the
revenue trend has been down. The Company is endeavoring to reverse this trend
quickly and build Computer Site's revenue and bottom line. Steps to achieve this
goal have already been put in place. While the Company expects Computer Site to
make a contribution toward building the Company's revenues in the remaining two
quarters of this fiscal year, the Company does not expect this acquisition to
have any significant impact on earnings until the fourth quarter. Computer Site
accounted for 8% of the consolidated total revenue of the Company for the
quarter ended September 30, 1996.
The Company's total revenue was $1.6 million for the quarter ended September 30,
1996, down 21% or $412,000 from the quarter ended September 30, 1995. Product
revenue decreased by $337,000 or 18%, and license revenue declined $75,000 or
81% compared to the same period last year. As in the previous quarter, there
were unit and revenue declines in the Company's core business AS/400
connectivity product classifications. This was partially offset by product sales
made by the Computer Site subsidiary, acquired six weeks before the end of the
quarter. The decline in core product unit sales was steeper in Europe than in
the United States, with European unit sales down 43% and U.S. unit sales down
26%. The overall decline in unit sales was 32% compared with 28% in the previous
quarter. The Company believes, as stated previously, that this decline in unit
sales is primarily a result of continued slowdown in purchases of connectivity
products in the IBM AS/400 marketplace.
For the six months ended September 30, 1996, total revenue was $3.1 million,
down 25% or $1,045,000 from the same period last year. Product revenue decreased
$882,000 or 22%, and license revenue decreased $162,000 or 67%. On a per unit
basis, core AS/400 connectivity product sales were down 30% for the six month
period. The Company believes that the general market slowdown in AS/400
connectivity purchases will continue for the forseeable future. The Company's
strategy to offset the declines in revenue from this trend is based on
diversifying its product base to provide computer systems and consulting
services to organizations in secondary markets. The acquisition of Computer Site
and other potential acquisitions reflect this strategy.
Gross margin declined to 58.4% for the quarter ended September 30, 1996, from
72.7% in the same period in 1995. The major factor causing this decline is the
effect of the Computer Site subsidiary's gross margin for the period. Computer
Site is a higher-volume, lower-margin system integration business, as opposed to
the Company's historic high-margin AS/400 connectivity business. In subsequent
periods the Company expects the trend of lower gross margins to continue, as
sales from Computer Site and other acquired businesses in the systems
integration area become a larger
7
<PAGE>
proportion of the Company's total business. On a year-to-date basis, gross
margin declined slightly from 66.2% in the first six months of last year to
63.9% this year. During the three-month period ended June 30, 1995, the Company
wrote off capitalized TAS software development costs and TAS inventory totaling
$249,000. Excluding this write off, the gross margin for the same period last
year would have been 72.2%. During the three-month period ended June 30, 1996,
the Company took a charge of $40,400 to reconcile inventory and write off
obsolete inventory. Excluding this charge, the gross margin for the quarter
would have been 65.3% The Company expects competitive price pressures will
continue to put pressure on margins in the forseeable future.
Selling, general, and administrative expenses (SG&A) decreased by $152,000 in
the quarter ended September 30, 1996, compared to the same period in 1995. As a
percentage of sales, SG&A was 77.8% of total sales in the current quarter
compared with 69% of total sales in the same quarter last year. For the six
months ended September 30, 1996, SG&A expenses decreased by $887,000 compared to
the same period last year. As a percentage of sales, SG&A was 75.3% of total
sales for the six months compared with 77.7% for the same period last year.
Management continues to make reductions in costs in its AS/400 connectivity
business to help bring those costs in line with expected revenues.
The Company's net other income of $9,000 and net other expense of $3,000 for the
three months and six months ended September 30, 1996, respectively, compares to
a net other expense of $31,000 and $38,000 for the same periods last year. The
swing to net income from net expense in the year-to-date figures is due
primarily to higher investment income in the second quarter of this year.
For the three months and six months ended September 30, 1996, the Company
recognized a corporate tax benefit of $2,000 and a corporate tax expense of
$9,000, respectively. At September 30, 1996, the Company has a net operating
loss carryforward of approximately $453,000, and $686,000 available for offset
against future U.S. and U.K. operating profits, respectively. The Company also
has foreign tax credit carryforwards of approximately $205,000 that can be
applied to offset the tax on future U.S. earnings.
Liquidity and Capital Resources
The Company satisfies its cash requirements primarily through cash flow from
operations, bank borrowings, and lease financing. At September 30, 1996, the
Company has $1.0 million invested in held-to-maturity securities and an
additional $163,000 in cash. The $298,000 decrease in cash on hand at September
30, 1996, compared with cash on hand at March 31, 1996, is primarily due to an
increase of $289,000 in cash provided by operations, offset by decreases of
$89,000 and $473,000 in cash caused by financing activities and investing
activities, respectively. Investing activities included continued capital
investment in the Company's Internet Division, capitalization of software
development costs associated with the Company's new Internet voice/fax server
product currently in development, capitalization of site licenses for software
under license to the Company, and the acquisition of Computer Site. The Company
expects that cash generated from operations and cash invested in
held-to-maturity securities will satisfy its operating cash needs for the
foreseeable future.
Working capital decreased from $3.1 million at March 31, 1996, to $2.4 million
at September 30, 1996, as working capital was expended to fund cash needs. In
spite of this reduction, the Company's current ratio remains healthy at 3.7 to 1
at September 30, 1996, as compared to 5.6 to 1 at March 31, 1996. At the end of
the September quarter, the Company's book value was $4.2 million or
approximately $1.73 per share.
8
<PAGE>
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
(11.1) Statement re: Computation of Earnings Per Share 10
(b) The Company did not file any reports on Form 8-K during
the three months ended September 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized in the city of Frostburg, state of
Maryland, on the 6th day of February, 1997:
Micro-Integration Corp.
By: John A. Parsons
------------------------------------
John A. Parsons
President, Chairman of the Board,
Chief Executive Officer
By: John A. Parsons
------------------------------------
John A. Parsons
Chief Financial Officer
Micro-Integration Corp. and Subsidiaries
Exhibit 11.1 - Statement re: Computation of Earnings Per Share
Three months ended Six months ended
September 30 September 30
1996 1995 1996 1995
------- ------- ------- -------
(unaudited) (unaudited)
Average shares outstanding 2,397 2,423 2,397 2,423
Net effect of dilutive stock
options based on the
treasury stock method
using average market price 0 0 0 0
------- ------- ------- -------
Total 2,397 2,423 2,397 2,423
======= ======= ======= =======
Net Loss $ (396) $ (111) $ (575) $ (823)
======= ======= ======= =======
Per share amount $ (0.17) $ (0.05) $ (0.24) $ (0.34)
======= ======= ======= =======
Note: Fully diluted earnings per share equals primary earnings per share.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 163,095
<SECURITIES> 1,000,000
<RECEIVABLES> 1,044,000
<ALLOWANCES> 0
<INVENTORY> 856,054
<CURRENT-ASSETS> 3,323,717
<PP&E> 3,548,882
<DEPRECIATION> 1,306,514
<TOTAL-ASSETS> 2,242,368
<CURRENT-LIABILITIES> 6,250,242
<BONDS> 0
0
0
<COMMON> 66,186
<OTHER-SE> 5,404,795
<TOTAL-LIABILITY-AND-EQUITY> 6,250,242
<SALES> 1,559,766
<TOTAL-REVENUES> 1,559,766
<CGS> 647,966
<TOTAL-COSTS> 647,966
<OTHER-EXPENSES> 1,318,512
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,754
<INCOME-PRETAX> (398,030)
<INCOME-TAX> (1,741)
<INCOME-CONTINUING> (396,030)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (396,020)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
