Quarterly Report 6-30-1997
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
[ ] 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, 1997: Common Stock, $.01 Par Value --- 2,491,939 shares
Transitional Small Business Disclosure Format (check one):
Yes ............ No ......X......
<PAGE>
Micro-Integration Corp. and Subsidiaries
Form 10-QSB
Index
Part I Financial Information Page
- ---------------------------- ----
Item 1. Consolidated Balance Sheets 2
Consolidated Statements of Operations 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
1997 1997
------- --------
(unaudited)
ASSETS
Current Assets
Cash $ 472,546 $ 370,598
Marketable securities, available-for-sale 100,000 100,000
Receivables
Trade, net of allowance for doubtful
accounts $86,548 and $76,324 1,652,708 1,872,291
Note 28,056 70,000
Tax refund 46,141 46,141
Inventory 584,699 596,556
Prepaid expense 72,556 97,576
--------- ---------
Total Current Assets 2,956,706 3,153,162
--------- ---------
Property, Plant, and Equipment
Land 92,962 92,962
Buildings 1,457,558 1,455,518
Equipment 1,389,574 1,384,231
Automobiles 83,952 83,952
Property held for sale 58,509 58,794
--------- ---------
3,082,555 3,075,457
Less accumulated depreciation (1,116,081) (1,041,637)
--------- ---------
1,966,474 2,033,820
Cash Surrender Value of Life Insurance
and Other Noncurrent Assets, Net 307,958 298,437
Intangible Assets, Net of Amortization 781,943 745,912
--------- ---------
$6,013,081 $6,231,331
========= =========
<PAGE>
Micro-Integration Corp. and Subsidiaries
Consolidated Balance Sheets
June 30 March 31
1997 1997
------- --------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Demand notes payable $ 421,500 $ 462,500
Current portion of long-term debt and
capital lease obligations 187,991 196,181
Accounts payable 938,720 933,434
Accrued expenses 308,466 471,137
Income tax payable 6,708 1,800
--------- ---------
Total Current Liabilities 1,863,385 2,065,052
--------- ---------
Long-Term Liabilities
Debt, less current portion 1,189,922 1,210,139
Shareholders' Equity
Preferred stock - $.01 par value: authorized
4,000,000 shares; none issued as of
June 30, 1997 and March 31, 1997 - -
Common stock - $.01 par value; authorized
12,000,000 shares; issued 2,641,477 as of
June 30, 1997 and March 31, 1997 26,415 26,415
Additional capital 5,603,263 5,603,263
Retained deficit (2,289,010) (2,292,644)
--------- ---------
3,340,668 3,337,034
Less treasury stock 380,894 380,894
--------- ---------
2,959,774 2,956,140
--------- ---------
$6,013,081 $6,231,331
========= =========
See Notes to Unaudited Condensed Consolidated Financial Statements.
<PAGE>
Micro-Integration Corp. and Subsidiaries
Consolidated Statements of Operations
Three months ended June 30
1997 1996
---- ----
(unaudited)
[S] [C] [C]
REVENUE
License revenue $ 9,905 $ 60,343
Product revenue 3,348,976 1,514,350
--------- ---------
Total Revenue 3,358,881 1,574,693
Cost of goods sold 2,243,637 481,024
--------- ---------
Gross Profit 1,115,244 1,093,669
Operating Expenses
Selling, general, and administrative 1,009,450 1,146,063
Depreciation and amortization expense 80,301 103,699
--------- ---------
1,089,751 1,249,762
Operating Income (Loss) 25,493 (156,093)
Other Income (Expense)
Interest expense (35,785) (26,396)
Other income 19,154 15,010
--------- ---------
(16,631) (11,386)
--------- ---------
Income (Loss) before Income Taxes 8,862 (167,479)
Income tax expense 5,228 11,133
--------- ---------
Net Income (Loss) $ 3,634 $ (178,612)
========= =========
Income (Loss) per Share $ - $ (0.07)
========= =========
Weighted Average Number of
Common Shares Outstanding 2,491,939 2,392,419
========= =========
See Notes to Unaudited Condensed Consolidated Financial Statements.
<PAGE>
Micro-Integration Corp. and Subsidiaries
Consolidated Statements of Cash Flows
Three months ended June 30
1997 1996
---- ----
(unaudited)
[S] [C] [C]
Cash Flows from Operating Activities
Net income (loss) $ 3,634 $(178,612)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 80,301 185,561
Change in operating assets and liabilities:
Accounts receivable 219,583 193,531
Note receivable 41,944 -
Tax refund receivable - (3,821)
Inventory 11,857 120,445
Prepaid expense 25,020 37,437
Accounts payable 5,286 (25,665)
Accrued expenses (162,671) (7,391)
Income taxes payable 4,908 (24,205)
--------- ---------
Net cash provided by operating activities 229,862 297,280
Cash Flows from Investing Activities
Acquisition of property, plant, and equipment (7,383) (136,523)
Increase in other noncurrent assets (41,603) (42,025)
Purchase of available-for-sale securities - (3,000,000)
Proceeds from sales of available-for-sale securities - 3,000,000
Increase in cash surrender value of life insurance (9,521) (5,548)
Proceeds from sale of fixed assets - 2,540
--------- ---------
Net cash used in investing activities (58,507) (181,556)
Cash Flows from Financing Activities
Repayments of notes payable, long-term debt, and
capital lease obligations (28,407) (37,945)
Net repayment of short-term debt (41,000) -
Issuance of common stock - 88
--------- ---------
Net cash used in financing activities (69,407) (37,857)
Currency Adjustments:
Effect of exchange rate changes on cash - 27,355
--------- ---------
Increase in cash 101,948 105,222
Cash at beginning of period 370,598 460,874
--------- ---------
Cash at end of period $ 472,546 $ 566,096
========= =========
See Notes to Unaudited Condensed Consolidated Financial Statements.
<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, 1997, and 1996, are not necessarily indicative of financial
information for the full year. The unaudited condensed 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, 1997.
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
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 is included in investment income. Available-for-sale securities include
obligations of state municipalities and are stated at fair market value of
$100,000 at June 30, 1997, and March 31, 1997. These securities mature in
August 2026. There were no unrealized gains/losses with respect to these
securities during the quarters ended June 30, 1997, nor 1996.
3. Inventory
Inventory consisted of the following:
June 30 March 31
1997 1997
---- ----
Raw material $ 112,374 $ 129,766
Finished goods 472,325 466,790
--------- ---------
$ 584,699 $ 596,556
========= =========
Inventory is stated at the lower of cost or market. Cost is determined using
the first-in, first-out method.
<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, 1997, and 1996
Results of Operations
The Company's total revenue was $3.4 million for the quarter ended June 30,
1997, up 113% or $1.8 million from the quarter ended June 30, 1996. Product
and service revenue increased by $1.8 million or 121%, and license revenue
declined, as expected, by $50,000 or 84% compared to the same period last
year. There were slight unit and revenue declines in the Company's AS/400
connectivity product sales compared to the quarter ended June 30, 1996, but
these declines were not as steep as they have been in the recent past. The
Company believes, as stated previously, that this decline in unit sales is
primarily a result of a slowdown in purchases of connectivity products in the
IBM AS/400 marketplace, and that this decline will continue. These declines
were offset by increased revenues from sales by the Company's systems
integration and consulting business primarily through the Company's Computer
One and Computer Site subsidiaries. The Company's Computer One and Computer
Site subsidiaries jointly accounted for 66% of the Company's total revenue for
the June 30, 1997, quarter.
Gross margin declined to 33.2% for the quarter ended June 30, 1997, from 69.5%
in the same period in 1996. The major contributing factor to this decline is
the change in product mix from high-margin AS/400 connectivity products where
unit volumes are declining to lower-margin systems integration and consulting
services sold primarily by the Company's Computer One and Computer Site
subsidiaries. Gross margins on product sales by the Computer One and Computer
Site subsidiaries are also lower than those in the Company's new technology
services business sector, where margins are strong and sales are increasing.
The Company expects gross margins to decline further in the short term, as
computer and network equipment sales by the subsidiaries continue to become a
larger proportion of the product mix. These gross margins may increase in the
future, however, if high-margin technology services become a more predominant
part of the product mix.
Selling, general, and administrative expenses (SG&A) decreased by $137,000 in
the quarter ended June 30, 1997, compared to the same period in 1996. As a
percentage of sales, SG&A represented 30.1% of total sales in the current
quarter compared with 72.8% of total sales in the same quarter last year.
Management continues to control costs in an attempt to keep them below
expected gross margins.
The Company's net other expense increased $5,000 or 46% from $11,000 for the
quarter ended June 30, 1996, to $17,000 for the quarter ended June 30, 1997.
This increase resulted from an increase of $9,000 or 36% in interest expense
partially offset by an increase of $4,000 or 28% in other income.
For the three months ended June 30, 1997, the Company recognized a corporate
tax expense of $5,000. At June 30, 1997, the Company had a net operating
loss carryforward of approximately $2.3 million available for offset against
future operating profits.
Liquidity and Capital Resources
The Company satisfies its cash requirements primarily through cash flow from
operations, bank borrowings, and lease financing. At June 30, 1997, the
Company had $100,000 invested in available-for-sale securities and an
additional $472,000 in cash. The $102,000 increase in cash on hand at June
30, 1997, compared with cash on hand at March 31, 1997, is primarily due to
cash provided by operating activities net of investing activities and long-
and short-term loan repayments. Investing activities included capitalization
of software development costs assoicated with the Company's new Internet
voice/fax server product currently in development.
At June 30, 1997, the Company had two working capital credit lines with U.S.
banks. One credit line, which is secured by a deposit from MI, had an
outstanding balance of $70,000 as of June 30, 1997. The second line which
had a balance of $351,500 at June 30, 1997, has been renegotiated to an
available line of $300,000 as of July 31, 1997. This line of credit will
continue through January 31, 1998, at which time the terms and conditions of
the loan will be re-evaluated. The Company expects that cash generated from
operations will satisfy its operating cash needs for the foreseeable future.
Working capital remained unchanged at $1.1 million as of June 30, 1997, and
March 31, 1997. The Company's current ratio showed a slight improvement from
1.5 to 1 at March 31, 1997, to 1.6 to 1 at June 30, 1997. At the end of the
June 1997 quarter, the Company's book value was $2.96 million or
approximately $1.19 per weighted average share outstanding.
<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 reports on Form 8-K
during the three months ended June 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized in the city of Frostburg, state of
Maryland, on the 12th day of August, 1997:
Micro-Integration Corp.
By: /s/ John A. Parsons
---------------------------
John A. Parsons
President, Chairman of the Board
Chief Executive Officer
By: /s/ Terry D. Frost
----------------------------
Terry D. Frost
Chief Financial Officer
Exhibit 11.1 - Statement of Computation of Earnings Per Share
(In thousands except per-share data)
Three months ended
June 30
1997 1996
---- ----
(unaudited)
Primary
Average shares outstanding 2,492 2,392
Net effect of dilutive stock options
based on the treasury stock method
using average market price - -
------ ------
Total 2,492 2,392
====== ======
Net income (loss) $ 4 $ (179)
======= =======
Per share amount $ - $ (0.07)
======= =======
Note: Fully diluted earnings per share equals primary earnings per share.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 472,546
<SECURITIES> 100,000
<RECEIVABLES> 1,739,256
<ALLOWANCES> 86,548
<INVENTORY> 584,699
<CURRENT-ASSETS> 2,956,706
<PP&E> 3,082,555
<DEPRECIATION> 1,116,081
<TOTAL-ASSETS> 6,013,081
<CURRENT-LIABILITIES> 1,863,385
<BONDS> 0
0
0
<COMMON> 26,415
<OTHER-SE> 2,933,359
<TOTAL-LIABILITY-AND-EQUITY> 6,013,081
<SALES> 3,358,881
<TOTAL-REVENUES> 3,358,881
<CGS> 2,243,637
<TOTAL-COSTS> 2,243,637
<OTHER-EXPENSES> 1,089,751
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,785
<INCOME-PRETAX> 8,862
<INCOME-TAX> 5,228
<INCOME-CONTINUING> 3,634
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,634
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
