Back to GetFilings.com
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT HAVE 1934
For the quarterly period ended June 30, 2002
Commission file number 0-22122
MICROS-TO-MAINFRAMES, INC.
(Exact name of registrant as specified in its charter)
New York 13-3354896
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
614 Corporate Way, Valley Cottage, NY 10989
(Address of principal executive offices) (Zip Code)
(845) 268-5000
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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 Registrant's Common Stock,
Par value $.001 per share, as of August 7, 2002 was 4,748,869
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors and Shareholders
Micros-to-Mainframes, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
Micros-to-Mainframes, Inc. and Subsidiaries as of June 30, 2002 and the
related condensed consolidated statements of operations and cash flows for
the three-month period then ended. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the condensed financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed financial statements in
order for them to be in conformity with generally accepted accounting
principles.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
July 30, 2002
Micros-to-Mainframes, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
June 30,2002 March 31,2002
Unaudited
ASSETS
Current Assets:
Cash and cash equivalents $ 443,998 $ 1,217,790
Accounts receivable - trade, net of
allowance of $408,000 and $335,000 respectively 13,945,318 13,504,056
Inventories 1,530,418 1,863,370
Prepaid expenses and other current assets 1,163,544 1,314,006
Refundable income taxes 862,000 862,000
Deferred income taxes 155,000 155,000
--------------------------
Total current assets 18,100,278 18,916,222
Property and Equipment: 8,190,401 7,858,342
Less accumulated deprecation and amortization 4,172,697 3,797,562
-------------------------
4,017,704 4,060,780
Goodwill 3,228,729 3,228,729
Other Assets 179,327 180,495
--------------------------
Total Assets $25,526,038 $ 26,386,226
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Secured notes payable $ 3,859,201 $ 5,235,837
Accounts payable and accrued expenses 6,681,572 4,919,342
Current portion of capital lease obligations 358,174 352,379
-------------------------
Total current liabilities 10,898,947 10,507,558
Capital Lease Obligations, net of current portion 392,290 484,943
Deferred Income Taxes 167,000 588,000
-------------------------
Total liabilities 11,458,237 11,580,501
Commitments and Contingencies
Shareholders' Equity:
Common stock - $.001 par value; authorized
10,000,000 shares, issued and outstanding
4,769,469 shares and 4,957,569 shares,
respectively 4,770 4,958
Additional paid-in capital 15,385,844 15,685,456
Accumulated deficit (1,322,813) (884,689)
---------------------------
Total shareholders' equity 14,067,801 14,805,725
===========================
Total Liabilities and Shareholders' Equity $ 25,526,038 $ 26,386,226
============================
See Notes to Condensed Consolidated Financial Statements
Micros-to-Mainframes, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Three Months ended June 30, 2002 2001
Unaudited
--------------------
Net Revenue:
Products $ 10,060,532 $ 15,551,860
Services 5,369,013 4,314,994
--------------------------
15,429,545 19,866,854
--------------------------
Costs and expenses:
Cost of products sold 9,459,453 14,452,481
Cost of services provided 3,579,408 2,468,631
Selling, general and administrative expenses 3,178,537 2,730,326
-------------------------
16,217,398 19,651,438
Other Income 7,417 17,393
Interest expense 78,688 122,221
--------------------------
Income (loss) before (benefit) provision
for income taxes (859,124) 110,588
(Benefit) Provision for income taxes (421,000) 19,900
--------------------------
Net income (loss) $(438,124) $ 90,688
==========================
Net income (loss) per common shares:
Basic and diluted $ (0.09) $ 0.02
Weighted average number of common shares
outstanding:
Basic 4,926,577 5,130,037
========================
Diluted 4,926,577 5,131,035
========================
See Notes to Condensed Consolidated Financial Statements
Micros-to-Mainframes, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Three Months Ended
June 30,
2002 2001
----------------------
(Unaudited)
Cash flows from operating activities:
Net income (loss) $ (438,124) $ 90,688
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 375,135 238,620
Deferred income taxes (421,000) 19,900
Changes in operating assets and liabilities:
Increase in accounts receivable (441,262) (627,782)
Decrease (Increase) in inventory 332,952 (149,009)
Decrease (Increase) in prepaid expenses and
other current assets 150,462 (71,802)
Decrease (Increase) in other assets 1,168 (24,718)
Increase (decrease) in accounts payable
and accrued expenses 1,762,230 1,564,233
--------------------------
Net cash provided by operating activities 1,321,561 1,040,130
--------------------------
Cash flows used in investing activities:
Acquisition of property and equipment (332,059) (744,241)
-------------------------
Cash flows from financing activities:
Repayment of secured notes payable (1,376,636) (520,000)
Purchases of common stock (299,800) (40,100)
Proceed from capital lease equipment - 449,296
Payments on Capital lease obligations (86,858) (15,621)
--------------------------
Net cash used in financing activities (1,763,294) (126,425)
--------------------------
Net (decrease) increase in cash and
cash equivalents (773,792) 169,464
Cash and cash equivalents at the
beginning of period 1,217,790 1,205,874
--------------------------
Cash and cash equivalents at the
end of period $ 443,998 $ 1,375,338
==========================
Supplemental disclosures of cash flow information:
Cash paid during the quarter for:
Interest $ 88,080 $ 132,486
See Notes to Condensed Consolidated Financial Statements
Micros-to-Mainframes, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
1. Description of Business and Basis Presentation
Micros-to-Mainframes, Inc. and its subsidiaries, MTM Advanced
Technology, Inc., PTI Corporation (formerly known as Pivot Technologies,
Inc.)("Pivot"), and Data.Com RESULTS, Inc. ("Data.Com") (collectively,
the "Company" or "MTM") serve as a single source provider of advanced
technology solutions, including design and consulting services,
communication services and products, internet/Intranet development
services, and Network and Security Managed Services. In addition, the
Company delivers a total processing solution by providing computer
hardware and software sales, systems design, installation, consulting,
maintenance and integration of microcomputer products, including the
design and implementation of wide area networks ("WAN's") and local area
networks ("LANs"). The Company sells, installs and services
microcomputers, microcomputer software products, supplies, accessories
and custom designed microcomputer systems. MTM is an authorized direct
dealer and value added reseller. The Company also serves as a systems
integrator, by integrating into a single working system, for a client, a
group of hardware and software products from more than 40 major computer
vendors including Compaq Computer Corporation, Hewlett Packard Company,
IBM Corporation, Dell Computer Corporation, NEC Technologies, Inc.,
Seagate Technology Inc., Citrix Systems, Inc., Cisco Systems, Inc., Canon
USA, Inc., Novell, Inc., Microsoft Corporation, Toshiba American
Information, Inc., 3COM Corporation, Cubix Corporation, Fore Systems,
Inc. and Madge Development Corp. The Company also serves as a Managed
Service Provider (MSP) providing automated remote network, system and
security management solutions and related consulting and engineering.
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q 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 of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three months ended
June 30, 2002 are not necessarily indicative of the results that
may be expected for the year ending March 31, 2003. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report Form 10-
K (Commission file number 0-22122) for the fiscal year ended
March 31, 2002.
INVENTORIES
Inventories, comprised principally of computer hardware and
software, are stated at the lower of cost or market using the
first-in, first-out (FIFO) method.
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis of financial condition and
results of operations of the Company should be read in
conjunction with the condensed consolidated financial statements
and notes thereto included elsewhere in this Quarterly Report on
Form 10-Q and with the Company's Annual Report on Form 10-K. This
discussion and analysis contains certain forward-looking statements
within the meaning of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which
are not historical facts, and involve risks and uncertainties
that could cause actual results to differ materially from the
results anticipated in those forward-looking statements. These
risks and uncertainties include, but are not limited to, those
set forth below, those set forth in the Company's Annual Report
on Form 10-K for the year ended March 31, 2002, and those set
forth in the Company's other filings from time to time with the
Securities and Exchange Commission.
The following table sets forth, for the periods indicated, certain items in
the Company's Consolidated Statements of Operations expressed as a
percentage of that period's net sales.
Percentage of Sales
Three Months Ended June 30,
2002 2001
Product sales .......................... 65.20% 78.28%
Service sales ...... .................. 34.80 21.72
Net sales .............................. 100.00 100.00
Cost of products sold( as a % of
product sales)..................... 94.03 92.93
Cost of service provided (as a % of
Services . . . . . . . ........ . 66.67 57.21
Total Direct Cost(as a % of total sales) 84.51 85.17
Selling, general and
administrative expenses............. 20.60 13.74
Income (loss) before provision (benefit)
for income taxes . . . . ..... (5.57) 0.56
Net(loss) income......................... (2.84) 0.46
The Three Months Ended June 30, 2002, as compared to the Three Months Ended
June 30, 2001
The Company had net sales of approximately $15,430,000 for the three
months ended June 30, 2002 ("First Quarter 2003"), as compared
to approximately $19,867,000 for the three months ended June 30, 2001
("First Quarter 2002"). The decrease in sales of approximately 22% or
approximately $4,437,000, in the First Quarter 2003 was primarily
attributable to the decrease in hardware sales of approximately $5,491,000
or 35%, offset by an increase of Service related sales of approximately
$1,054,000 or 24%. The tragic events of September 11, 2001 affected all
industries. Many companies reduced their capital expenditures due to the
economic slow down. The Company strategy is to secure higher margin sales
and not pursue sales with low margins.
As a percentage of product sales, the cost of products sold increased
by 1% in the First Quarter 2003 and the costs of services as a percentage
of the service revenue increased 9%. Technical personnel salaries charged
to cost of service sales increased approximately 20% to approximately
$1,542,000 from approximately $1,282,000 from the First Quarter 2002.
Selling, general and administrative expenses ("SG&A") were
approximately $3,179,000 in the First Quarter 2003 as compared to
$2,730,000 in the First Quarter 2002, an increase of approximately
$449,000 or 16%. SG&A expenses as a percentage of net sales were
approximately 20% and 14% in the First Quarter 2003 and the First Quarter
2002, respectively. The increase is due to an increase in payroll, payroll
taxes, employee benefits and other employee expenses and deprecation
expenses during the First Quarter 2003.
Other income was approximately $7,000 and $17,000 in the First
Quarter 2003 and 2002, respectively. Interest expenses decreased
approximately $43,000 in the First Quarter 2003 to approximately $79,000
from approximately $122,000 in the First Quarter 2002 due to a decline in
the interest rate and decreased borrowing from its lender in the First
Quarter 2003.
The effective income tax rate was approximately 49% for the First
Quarter 2003.
As a result of the forgoing, the Company had a net loss of
approximately $438,000 in the First Quarter 2003 compared to net income
of approximately $91,000 in the First Quarter 2002. The basic and
dilutive earnings (loss) per common share were ($0.09) in the First
Quarter 2003 compared to $0.02 in the First Quarter 2002.
Recently Issued Accounting Standard
As of April 1, 2001, the Company has adopted the Statement of Financial
Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 eliminates the amortization of goodwill and certain
other intangible assets. It also requires the Company to complete a test
for impairment of these assets annually, as well as a transitional
goodwill impairment test within six months from the date of adoption. The
Company has completed this impairment test, and has found no impairment.
LIQUIDITY AND CAPITAL RESOURCES
The Company measures its liquidity in a number of ways, including the
following:
June 30, March 31,
2002 2002
(Dollars in thousands,
except current ratio data)
Cash and cash equivalents............... $ 444 $ 1,218
Working capital ......................... $ 7,201 $ 8,409
Current ratio .......................... 1.66:1 1.80:1
Secured notes payable .................. $ 3,859 $ 5,236
Working capital lines available.......... $ 9,564 $ 9,035
The Company had working capital of approximately $7,201,000 as of
June 30, 2002, a decrease of approximately $1,208,000 from March 31,
2002.
During the First Quarter 2003, the Company had net cash provided by
operating activities of approximately $1,322,000 consisting primarily of
an increases in accounts payable and accrued expenses of $1,762,000,
decrease in inventory of approximately a $333,000, decrease in prepaid
expenses and other current assets of approximately $150,000, which were
offset by an increase in accounts receivable of approximately $441,000,
and an operating net loss of approximately $438,000.
The Company had cash used in investing activities of approximately
$332,000 consisting of the acquisition of property and equipment of
approximately $73,000, and $259,000 from costs incurred in development of
computer software.
The Company had used approximately $1,763,000 in cash from financing
activities, of which approximately $1,377,000 consisted of a repayment to
its bank, approximately $300,000 for the repurchase of its common stock
and approximately $87,000 payment to its capital obligation.
As a result of the foregoing, the Company had a net decrease in cash
of approximately $774,000.
The Company entered into two credit agreements with two banks on
its major credit facility. One of these agreements is a $16,000,000
financing facility. This credit facility is comprised of a floor plan
agreement and a revolving receivable financing facility, and is secured
by the Company's assets (other than inventories and accounts receivable
directly financed by other floor planners who have lien thereon). The
floor-plan agreements generally allow the Company to borrow for a period
of 30 days interest free. Interest is charged to the Company only after
the due date. In addition, the agreements provide for minimum amounts of
tangible net worth and specified financial ratios. The borrowing interest
rate on the revolving receivables financing loan is a per annum of rate
one half of one percentage point (0.5%) below the base rate. The base
rate is the prime rate as listed in The Wall Street Journal. The
Company's borrowing rate was 4.25% as of June 30, 2002.
The other financing agreement is a $1,300,000 floor plan agreement
and is secured by the Company's assets (other than inventories and
accounts receivable directly financed by other floor planners who have
the lien thereon).
The Company's total outstanding debt under the revolving receivable
financing facility was $3,859,201 and $5,235,837 at June 30, 2002 and
March 31, 2002, respectively. The Company is charged a facility
management fee of $40,000 per annum for this financing facility.
The Company's current ratio decreased to 1.66:1 at June 30, 2002 from
1.80:1 at March 31, 2002.
On May 9, 2001, the Company's Board of Directors approved a stock
repurchase program which authorized the Company at its discretion to
purchase up to a total of 250,000 shares, of its common stock not to exceed
$250,000 from time-to-time as market and business conditions warrant.
In June 14, 2002, the Board of Directors amended the program to authorize
the Company to purchase up to a total of an additional 250,000 shares.
During the three months ended June 30, 2002, the Company repurchased
188,100 shares under the program for $299,800. As of June 30, 2002, the
Company has purchased a total of 366,000 shares for $546,863 since May 9,
2001. At June 30, 2002, the total remaining number of shares available for
repurchase under the program totaled 61,900 shares. The repurchased shares
are reduced to the number of common shares outstanding
Our sources of liquidity include, but are not limited to,
funds from operations and funds available under the two
aforementioned credit facilities. Our capital requirements depend
on a variety of factors, including but not limited to, the rate of
increase or decrease in our existing business base; the success,
timing, and amounts of investment required to bring new products
on-line; revenue growth or decline; and potential acquisitions. We
believe that we have the financial resources
to meet our future business requirements through the end of this
fiscal year.
Application of Critical Accounting Policies
The Company recorded goodwill as a result of the acquisition of PTI
Corporation (formerly known as PIVOT Technologies, Inc.), a subsidiary
of Micros to Mainframes. The Company determined the fair value of the
PTI Corporation (formerly known as PIVOT Technologies, Inc.) operations
through a discounted cash flow method. This analysis was based on a
projection of future sales and earnings for a discrete period of five
years plus an assumed average growth rate for all years beyond the
initial projected period.
We develop our budgets based on recent sales data for existing
products, planned timing of new product launches, and customer
commitments related to existing and newly developed products. In
estimating future sales and growth rates, we used our internal budgets
and make comparisons to other competitors.
We believe that the accounting estimate related to goodwill
impairment is a "critical accounting estimate" because: (1) it is
highly susceptible to change from period to period because it requires
Company management to make assumptions about future sales, cost of
sales, growth rates over the next five years of the subsidiary; and (2)
the impact that recognizing an impairment would have on the assets
reported on our balance sheet as well as our net income would be
material. Management's assumptions about future sales prices, future
sales volumes, and growth rates require significant judgment because
actual sales prices and volumes have fluctuated in the past and are
expected to continue to do so. If Management's assumptions change then
the Company could be required to recognize an impairment loss, equal to
the difference between the fair value of the goodwill and the reported
amount of the goodwill. Management has discussed the development and
selection of this critical accounting estimate with the audit committee
of our board of directors relating to it in Management's discussion,
and analysis.
PART II OTHER INFORMATION
None
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.
MICROS-TO-MAINFRAMES, INC.
Date : August 12, 2002 By: /s/ Howard A. Pavony
Howard A. Pavony
Chairman of the Board
of Directors
Date : August 12, 2002 By: /s/ Steven H. Rothman
Steven H. Rothman
Chief Executive Officer,
President and Director
(Principal Executive Officer)
Date : August 12, 2002 By: /s/ Frank T. Wong
Frank T. Wong
Vice President of Finance
Principal Financial and
Accounting Officer) and
Secretary
CERTIFICATION
I, Steve H. Rothman, Chief Executive Officer and Chief Financial
Officer of Micros-To-Mainframes, certify, pursuant to 18 U.S.C. Section 1350,
as enacted by Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) the Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2002 (the "Periodic Report") which this statement
accompanies fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934; and
(2) information contained in the Periodic Report fairly presents,
in all material respects, the financial condition and results of
operations of June 30, 2002.
Dated: August 14, 2002
s/s Steven H. Rothman
-----------------------
Steven H. Rothman
Micros -To- Mainframes, Inc
CERTIFICATION
I, Howard Pavony, Chairman of the Board of Directors of Micros-To-
Mainframes, certify, pursuant to 18 U.S.C. Section 1350, as enacted by
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) the Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2002 (the "Periodic Report") which this statement
accompanies fully complies with the requirements of Section 13(a)of the
Securities Exchange Act of 1934; and
(2) information contained in the Periodic Report fairly presents,
in all material respects, the financial condition and results of
operations of June 30, 2002.
Dated: August 14, 2002
s/s Howard Pavony
---------------------
Howard Pavony
Micros -To- Mainframes, Inc