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 June 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from____________________to_____________________
Commission file number 0-23710
Micro-Integration Corp.
(Exact name of small business issuer as specified in its charter)
Delaware 06-1204847
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization)
Identification Number)
One Science Park
Frostburg, MD 21532
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 301-689-0800
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- ----
The number of shares outstanding of the issuer's classes of common stock as of
June 30, 1996:
Common Stock, $.01 Par Value ---- 2,394,745 shares
Transitional Small Business Disclosure Format (check one):
Yes No X
----- ----
<PAGE>
Micro-Integration Corp. and Subsidiaries
Form 10-QSB/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 Condensed 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
June 30 March 31
1996 1996
---------- ----------
(unaudited)
ASSETS
Current Assets
Cash and equivalents $ 566,096 $ 460,874
Marketable securities
Held-to-maturity 1,000,000 1,000,000
Accounts receivable trade, net 1,114,575 1,300,838
Inventory 816,829 933,522
Tax refund receivable 107,163 103,086
Prepaid expense 78,257 114,967
Deferred income taxes 23,483 23,483
---------- ----------
Total Current Assets 3,706,403 3,936,770
---------- ----------
Property, Plant and Equipment
Land 92,962 92,962
Buildings 1,455,518 1,455,518
Equipment 1,544,279 1,447,128
Automobiles 210,078 238,738
Property held for sale 59,536 59,933
---------- ----------
3,362,373 3,294,279
Less accumulated depreciation 1,225,215 1,149,678
---------- ----------
2,137,158 2,144,601
Cash Surrender Value of Life Insurance
and other noncurrent assets 182,950 177,402
Intangible Assets, Net of Amortization 360,379 356,052
---------- ----------
$6,386,890 $6,614,825
========== ==========
2
<PAGE>
Micro-Integration Corp. and Subsidiaries
Consolidated Balance Sheets
June 30 March 31
1996 1996
---------- ----------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt and $ 273,328 $ 299,067
capital lease obligations
Accounts payable 178,436 202,049
Accrued expenses 166,401 198,044
Income tax payable 2,545 1,000
---------- ----------
Total Current Liabilities 620,710 700,160
---------- ----------
Long-term debt, less current portion 1,122,116 1,133,008
Capital lease obligations, less current portion 51,264 53,202
Deferred Income Taxes 42,985 42,985
Commitments and Contingencies -- --
Shareholders' equity
Common stock -- $.01 par value; authorized
120,000,000 shares; outstanding -- 2,394,745
shares at June 1996; and 2,385,925 shares at
at March 1996 25,252 25,155
Additional capital 5,404,795 5,404,795
Retained deficit (291,774) (113,162)
Foreign currency translation (158,275) (176,376)
---------- ----------
4,979,998 5,140,412
Less deferred compensation 74,289 99,048
Less treasury stock 355,894 355,894
---------- ----------
4,549,815 4,685,470
---------- ----------
$6,386,890 $6,614,825
========== ==========
See notes to unaudited condensed consolidated financial statements.
3
<PAGE>
Micro-Integration Corp. and Subsidiaries
Consolidated Statements of Income
Three months ended June 30
1996 1995
----------- -----------
(unaudited)
Revenue
Product revenue $ 1,514,350 $ 2,058,836
License revenue 60,343 148,651
----------- -----------
Total Revenue 1,574,693 2,207,487
Cost of goods sold 481,024 876,017
----------- -----------
Gross Profit 1,093,669 1,331,470
Operating Expenses
Selling, general and administrative 1,146,063 1,881,124
Deferred Compensation amortization 24,759
Depreciation and amortization expense 78,940 121,057
----------- -----------
1,249,762 2,002,181
Operating Income (Loss) (156,093) (670,711)
Other Income (Expense)
Interest expense (26,396) (30,389)
Other income 15,010 22,989
----------- -----------
(11,386) (7,400)
----------- -----------
Income (Loss) before income taxes (167,479) (678,111)
Income tax expense 11,133 33,608
----------- -----------
Net Income (Loss) $ (178,612) $ (711,719)
=========== ===========
Earnings (Loss) per Share $ (0.07) $ (0.30)
=========== ===========
Weighted Average Number of
Common Shares Outstanding 2,392,419 2,407,880
=========== ===========
See notes to unaudited condensed consolidated financial statements.
4
<PAGE>
Micro-Integration Corp. and Subsidiaries
Consolidated Statements of Cash Flows
Three months ended June 30
1996 1995
----------- -----------
(unaudited)
Cash Flows from Operating Activities
Net Income (loss) $ (178,612) $ (711,719)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 185,561 288,286
(Gain) Loss on disposal of assets 0 0
Deferred income taxes 0
Change in operating assets and liabilities:
Accounts receivable 193,531 162,710
Inventory 120,445 36,226
Tax refund receivable (3,821) 190,591
Prepaid expense 37,437 72,822
Accounts payable (25,665) (5,855)
Accrued expenses (7,391) (127,974)
Income taxes payable (24,205) 28,187
----------- -----------
Net cash provided by (used in) operating activities 297,280 (66,726)
Cash Flows from Investing Activities
Acquisition of property, plant and equipment (136,523) (128,177)
Increase in other noncurrent assets and intangibles (42,025) (24,649)
Purchase of held-to-maturity securities (3,000,000) (4,000,000)
Proceeds from sale of held-to-maturity securities 3,000,000 4,500,000
Increase in cash surrender value of life insurance (5,548) 0
Proceeds from sale of fixed assets 2,540 0
----------- -----------
Net cash (used in) provided by investing activities (181,556) 347,174
Cash Flows from Financing Activities:
Increase in notes payable and long-term debt 0 0
Repayments of notes payable, long-term debt, and
capital lease obligations (37,945) (57,121)
Issuance of common stock 88 0
----------- -----------
Net cash (used in) financing activities (37,857) (57,121)
Currency Adjustments:
Effect of exchange rate changes on cash 27,355 9,769
----------- -----------
Increase in cash 105,222 233,096
Cash at beginning of period 460,874 427,085
----------- -----------
Cash at end of period $ 566,096 $ 660,181
=========== ===========
See notes to unaudited condensed consolidated financial statements.
5
<PAGE>
Micro-Integration Corp. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation have
been included. The results for the three months ended June 30, 1996, and 1995,
are not necessarily indicative of financial information for the full year. The
unaudited consolidated financial statements should be read in conjunction with
the consolidated financial statements and footnotes thereto included in the
Company's annual report and Form 10-KSB for the year ended March 31, 1996.
For purposes of comparability, certain prior year amounts in the consolidated
financial statements have been reclassified to conform to the presentation used
for current period reporting.
2. Marketable Securities
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Debt securities are classified as held-to-maturity when the Company has the
positive intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost. Debt securities not classified as
held-to-maturity are classified as available-for-sale. Available-for-sale debt
securities are stated at fair value, with the unrealized gains and losses, net
of tax, reported as a separate component of shareholders' equity. Realized gains
and losses and declines in value judged to be other-than-temporary on
available-for-sale securities are included in investment income. The cost of
securities sold is based on the specific identification method. Interest on
securities classified as available-for-sale are included in investment income.
There were no trading securities at June 30, 1996.
Held-to-maturity securities include obligations of state municipalities and are
stated at cost of $1,000,000. These securities mature in August 1996.
3. Inventory
Inventory consisted of the following:
June 30 March 31
1996 1996
-------- --------
Raw material $177,756 $274,623
Finished goods 639,073 658,899
-------- --------
$819,829 $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 Three Months Ended June 30, 1996 and 1995
Recent Events
In July 1996 the Company announced it had signed a Letter of Intent to acquire
the assets of Computer Site, Inc., an Ohio-based systems integrator. Terms were
not announced. As of the date of this report, the Company was performing due
diligence at Computer Site. The Company expects that even if this transaction
closes during the current quarter it will not have a significant effect on
results of operations until the quarter ending December 31, 1996.
Results of Operations
The Company's total revenue was $1.6 million for the quarter ended June 30,
1996, compared to $2.2 million during the quarter ended June 30, 1995, a decline
of 27%. Product revenue declined $544,000, or 26%, and license revenue declined
$88,000, or 59%, compared to the same period last year. There were unit and
revenue declines in most of the Company's product classifications, but per unit
prices remained nearly constant, ending a trend of lower unit prices that has
been evident for some time. The decline in unit sales was steeper in Europe than
in the United States, with European unit sales down 44% while U.S. unit sales
declined 20%. The decline in license revenue is a result of the Company's
previously announced policy of phasing out licenses for the Company's
technology. The Company believes the decline in unit sales is a result of a
general slowdown in purchases of connectivity products in the IBM AS/400
marketplace, with personnel turnover in Europe adding to the decline there. The
Company believes the general slowdown in connectivity purchases will continue.
Gross margins improved 15%, to 69.4% from the 60.3% recorded in the three-month
period ended June 30, 1995. During the three-month period ended June 30, 1995
the Company wrote off capitalized TAS software development costs and wrote down
the value of TAS inventory to fair market value, incurring an expense of
$249,000. Excluding this write down the gross margin for the same quarter last
year would have been 71.6%. In the quarter 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 72.5%.
The Company expects competitive price pressures will continue to put pressure on
margins in the foreseeable future.
Selling, general, and administrative expenses (SG&A) decreased by $735,000 in
the quarter ended June 30, 1996 compared to the same period in 1995. As a
percentage of sales, SG&A was 73% of total sales in the current quarter,
compared with 85% of total sales in the same quarter last year. Management is
continuing its policy of reducing expenses and strict cost containment policies
are in effect.
The Company's net other expense of $11,000 for the quarter ended June 30, 1996
represents an increase of $4,000 over the net other expense of $7,000 for the
quarter ended June 30, 1995. This change is due primarily to lower investment
income this year.
For the three months ended June 30, 1996, the Company recognized corporate tax
expense of $11,000. At June 30, 1996 the company has a net operating loss
carryforward of approximately $115,000 and $622,000 available for offset against
future U.S. and U.K. operating profits, respectively. The company also has
foreign tax credit carryforwards of approximately $200,000 that can be applied
to offset the tax on future U.S. earnings.
7
<PAGE>
Liquidity and Capital Resources
The Company satisfies its cash requirements primarily through cash flow from
operations, bank borrowings, and lease financing. At June 30, 1996 the company
had $1.0 million invested in held-to-maturity securities and an additional
$566,000 in cash. The $105,000 increase in cash compared with cash on hand at
March 31, 1996 is primarily due to an increase in cash provided by operations,
offset by a small increase in cash invested in capital equipment. The company
expects that cash generated from operations and cash invested in
held-to-maturity securities will satisfy its operating cash needs for the
foreseeable future.
Working capital at June 30, 1996 decreased to 3.1 million from the $3.2 million
at March 31, 1996. The Company's current ratio improved from 5.6 to 1 at March
31, 1996 to 6.0:1 at June 30, 1996.
At the end of the June quarter the Company's book value was $4.5 million or
approximately $1.90 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 June 30, 1996.
9
<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: /s/John A. Parsons
---------------------------------------------------
John A. Parsons
President, Chairman of the Board,
Chief Executive Officer
By: /s/John A. Parsons
---------------------------------------------------
John A. Parsons
Chief Financial Officer
Micro-Integraiton Corp. and Subsidiaries
Exhibit 11.1 -- Statement of Computation of Per Share Earnings
Three months ended
June 30
1996 1995
------- -------
(unaudited)
Average shares outstanding 2,392 2,408
Net effect of dilutive stock options
based on the treasury stock method
using average market price 0 0
------- -------
Total 2,392 2,408
======= =======
Net (loss) income $ (179) $ (712)
======= =======
Per share amount $ (0.07) $ (0.30)
======= =======
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> JUN-30-1996
<CASH> 566,096
<SECURITIES> 1,000,000
<RECEIVABLES> 1,114,575
<ALLOWANCES> 0
<INVENTORY> 816,829
<CURRENT-ASSETS> 3,706,403
<PP&E> 3,362,373
<DEPRECIATION> 1,225,215
<TOTAL-ASSETS> 6,386,890
<CURRENT-LIABILITIES> 620,710
<BONDS> 0
0
0
<COMMON> 25,252
<OTHER-SE> 5,404,795
<TOTAL-LIABILITY-AND-EQUITY> 6,386,890
<SALES> 1,514,350
<TOTAL-REVENUES> 1,514,350
<CGS> 481,024
<TOTAL-COSTS> 481,024
<OTHER-EXPENSES> 1,249,762
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,396
<INCOME-PRETAX> (167,479)
<INCOME-TAX> 11,133
<INCOME-CONTINUING> (178,612)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (178,612)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
