1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________to__________
Commission File Number: 0-20732
COMPUTER INTEGRATION CORP.
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 65-0506623
-------- ----------
(State of Incorporation) (I.R.S. Employer I.D. No.)
7900 Glades Road, Boca Raton, Florida 33434
------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 407-482-6678
------------
Check 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
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 6,915,000 shares of common
stock outstanding as of February 1, 1996.
This report contains a total of __ pages.
The Exhibit Index appears on page __.
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The condensed, consolidated financial statements included herein have
been prepared by the Registrant, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been consolidated
or omitted pursuant to such rules and regulations; however, the Registrant
believes that the disclosures are adequate to make the information presented
not misleading. It is suggested that these condensed, consolidated financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Registrant's consolidated financial statements for the
year ended June 30, 1995.
The condensed, consolidated financial statements for the interim
periods included herein, which are unaudited, include, in the opinion of
management, all adjustments (consisting only of normal recurring accruals)
necessary to present fairly the financial position and results of operations of
the Registrant for the periods presented. The results of operations for
interim periods should not be considered indicative of results to be expected
for the full year.
3
Computer Integration Corp.
and Subsidiary
Condensed Consolidated Balance Sheets
DECEMBER 31, JUNE 30,
1995 1995
--------------------------------
(Unaudited) (Note)
ASSETS
Current assets:
Cash $ 2,019,165 $ 797,678
Accounts receivable, net 63,284,965 31,355,179
Inventory 25,226,671 11,547,902
Deferred income taxes 564,298 513,272
Prepaid expenses 376,173 353,688
--------------------------------
Total current assets 91,471,272 44,567,719
Property and equipment, net 2,636,926 1,693,723
Other assets:
Goodwill, net 12,738,577 7,705,754
Other 1,274,161 787,449
--------------------------------
Total other assets 14,012,738 8,493,203
--------------------------------
Total assets $ 108,120,936 $ 54,754,645
================================
Continued on next page.
4
Computer Integration Corp.
and Subsidiary
Condensed Consolidated Balance Sheets (continued)
DECEMBER 31, JUNE 30,
1995 1995
-------------------------------
(Unaudited) (Note)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 19,072,583 $ 9,920,603
Accounts payable 38,874,099 22,829,019
Accrued expenses 7,269,341 1,712,415
Current portion of subordinated notes payable 302,440 -
Current portion of capital lease obligations 14,867 34,655
Other 568,804 849,110
-------------------------------
Total current liabilities 66,102,134 35,345,802
Noncurrent liabilities:
Term note payable 27,500,000 12,500,000
Subordinated notes payable, less current portion 1,610,560 -
Capital lease obligations, less current portion 3,978 7,753
Other - 310,260
-------------------------------
Total noncurrent liabilities 29,114,538 12,818,013
Shareholders' equity:
Preferred stock, $.001 par value, total authorized 200,000
shares, issued and outstanding as follows:
Series A, 9% cumulative, convertible, redeemable
preferred stock; 40,000 shares authorized, 19,250
issued and outstanding in both periods 19 19
Series C, 9% cumulative, convertible, redeemable
preferred stock; 250 shares authorized, 125 issued
and outstanding in both periods - -
Common Stock, $.001 par value, authorized 20,000,000
shares, issued and outstanding 6,915,000 and 6,400,000
shares at December 31, 1995 and June 30, 1995,
respectively 6,915 6,400
Additional paid-in capital 9,780,065 5,534,154
Retained earnings 3,117,265 1,050,257
-------------------------------
Total shareholders' equity 12,904,264 6,590,830
-------------------------------
Total liabilities and shareholders' equity $ 108,120,936 $ 54,754,645
===============================
Note: The balance sheet at June 30, 1995 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
5
Computer Integration Corp.
and Subsidiary
Condensed Consolidated Statements of Income (Unaudited)
THREE MONTHS ENDED
DECEMBER 31
1995 1994
------------------------------
Net sales $111,798,748 $49,763,224
Cost of goods sold 100,955,612 44,979,443
------------------------------
Gross profit 10,843,136 4,783,781
Selling, general and administrative expenses:
Salaries and benefits 5,789,488 2,948,312
Other selling and administrative 1,711,438 453,499
Occupancy costs 482,854 194,821
Depreciation and amortization 429,975 294,181
------------------------------
8,413,755 3,890,813
------------------------------
Income from operations 2,429,381 892,968
Interest expense 1,174,514 592,352
------------------------------
Income before income taxes 1,254,867 300,616
Income taxes 527,044 126,000
------------------------------
Net income 727,823 174,616
Less required payments on convertible preferred stock (55,010) (55,010)
------------------------------
Income applicable to common stock $ 672,813 $ 119,606
==============================
Continued on next page.
6
Computer Integration Corp.
and Subsidiary
Condensed Consolidated Statements of Income (Unaudited) (continued)
THREE MONTHS ENDED
DECEMBER 31
1995 1994
-----------------------------
Net income per share:
Primary $ .09 $ .02
=============================
Fully diluted $ .09 $ .02
=============================
Common shares and common share
equivalents outstanding:
Primary 7,150,107 6,415,540
=============================
Fully diluted 8,420,107 7,685,540
=============================
Pro forma net income per share after giving
effect to four-for-five reverse stock split:
Primary $ .12 $ .02
=============================
Fully diluted $ .11 $ .03
=============================
Pro forma common shares and common share
equivalents outstanding after giving effect to
four-for-five reverse stock split:
Primary 5,720,086 5,132,432
=============================
Fully diluted 6,736,086 6,148,432
=============================
See accompanying notes.
7
Computer Integration Corp.
and Subsidiary
Condensed Consolidated Statements of Income (Unaudited)
SIX MONTHS ENDED
DECEMBER 31
1995 1994
------------------------------
Net sales $232,708,946 $97,767,971
Cost of goods sold 210,692,516 87,988,298
------------------------------
Gross profit 22,016,430 9,779,673
Selling, general and administrative expenses:
Salaries and benefits 11,731,490 5,758,037
Other selling and administrative 2,628,443 934,939
Occupancy costs 953,941 396,048
Depreciation and amortization 821,595 532,806
------------------------------
16,135,469 7,621,830
------------------------------
Income from operations 5,880,961 2,157,843
Interest expense 2,317,154 1,064,555
------------------------------
Income before income taxes 3,563,807 1,093,288
Income taxes 1,496,799 446,000
------------------------------
Net income 2,067,008 647,288
Less required payments on convertible preferred stock (110,020) (94,069)
------------------------------
Income applicable to common stock $ 1,956,988 $ 553,219
==============================
Continued on next page.
8
Computer Integration Corp.
and Subsidiary
Condensed Consolidated Statements of Income (Unaudited) (continued)
SIX MONTHS ENDED
DECEMBER 31
1995 1994
---------------------------------
Net income per share:
Primary $ .27 $ .09
=================================
Fully diluted $ .25 $ .09
=================================
Common shares and common share
equivalents outstanding:
Primary 7,150,107 6,414,708
=================================
Fully diluted 8,420,107 7,544,056
=================================
Pro forma net income per share after giving
effect to four-for-five reverse stock split:
Primary $ .34 $ .11
=================================
Fully diluted $ .31 $ .11
=================================
Pro forma common shares and common share
equivalents outstanding after giving effect to
four-for-five reverse stock split:
Primary 5,720,086 5,131,766
=================================
Fully diluted 6,736,086 6,035,245
=================================
See accompanying notes.
9
Computer Integration Corp.
and Subsidiary
Condensed Consolidated Statements of
Cash Flows (Unaudited)
SIX MONTHS ENDED
DECEMBER 31
1995 1994
---------------------------
OPERATING ACTIVITIES
Net income $ 2,067,008 $ 647,288
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization 821,595 532,806
Changes in operating assets and liabilities, exclusive
of effects from acquisitions:
Accounts receivable 7,393,347 (2,815,210)
Inventory 2,373,579 1,560,149
Prepaid expenses 44,736 (9,394)
Other assets (634,013) (195,030)
Accounts payable (13,452,443) 659,211
Accrued expenses and other current liabilities 2,340,041 (1,442,464)
Other noncurrent liabilities (310,260) 30,993
----------------------------
Net cash provided (used) by operating activities 643,590 (1,031,651)
INVESTING ACTIVITIES
Issuance of note receivable - (115,000)
Acquisition of property and equipment (560,988) (479,540)
Purchase of net assets of Dataprint, Inc., net of
cash acquired
- 185,494
----------------------------
Net cash used in investing activities (560,988) (409,046)
FINANCING ACTIVITIES
Proceeds from sale of preferred stock, net of offering costs - 1,898,697
Net advances on line of credit 1,348,622 550,098
Principal payments on subordinated notes payable (186,174) (647,842)
Repayments of capital lease obligations (23,563) (12,340)
----------------------------
Net cash provided by financing activities 1,138,885 1,788,613
----------------------------
Net increase in cash 1,221,487 347,916
Cash at beginning of period 797,678 909,805
----------------------------
Cash at end of period $ 2,019,165 $ 1,257,721
============================
SUPPLEMENTAL INFORMATION
Interest paid $ 2,260,601 $ 1,065,781
============================
Taxes paid $ 502,614 $ 865,298
============================
See accompanying notes.
10
Computer Integration Corp.
and Subsidiary
Notes to Condensed Consolidated
Financial Statements (Unaudited)
December 31, 1995
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Computer Integration Corp. (the "Company"), its wholly-owned operating
subsidiary, CIC Systems, Inc. ("CICS"). All significant intercompany accounts
and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Certain information and footnote disclosures
required by generally accepted accounting principles for complete financial
statements have been condensed or omitted. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary to
present fairly the financial position, results of operations and cash flows
have been included. The results of operations for the three and six months
ended December 31, 1995 are not necessarily indicative of the results that may
be expected for fiscal year 1996. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's consolidated financial
statements for the year ended June 30, 1995.
2. ACQUISITION
Effective July 1, 1995, the Company through CICS acquired substantially all of
the assets and assumed all of the trade payables and certain other liabilities
of Cedar Computer Center, Inc. ("Cedar"), an Iowa corporation, for a
combination of cash, notes and securities of the Company. The purchase price
for the net assets of Cedar and related acquisition costs consisted of
approximately $9,820,327 in cash, $3,760,000 of subordinated promissory notes,
$4,246,426 representing the fair value of the guaranteed price for 412,000
shares of the Company's Common Stock and other liabilities incurred of $1,124.
The purchase price was determined by arms length negotiations between the
sellers and the Company. The cash portion of the purchase price was obtained
from a $70 million revolving credit facility from Congress Financial
Corporation (New England).
11
Computer Integration Corp.
and Subsidiary
Notes to Condensed Consolidated
Financial Statements (Unaudited) (continued)
2. ACQUISITION (CONTINUED)
The total purchase price of $17,827,877 was allocated to assets acquired and
liabilities assumed, based on their respective estimated fair values. The
excess of the purchase price over the aggregate amount assigned to the
identifiable net assets acquired was recorded as an intangible asset which will
be amortized using the straight-line method over 20 years. The allocation of
the purchase price is summarized as follows:
Accounts receivable $ 40,773,369
Inventories 16,052,348
Furniture and office equipment 764,587
Prepaid expenses 155,598
Accounts payable and accrued expenses (44,063,183)
------------
Fair value of assets acquired, net of liabilities assumed 13,682,719
Cost in excess of net assets acquired (goodwill) 4,145,158
------------
$ 17,827,877
============
The asset purchase agreement related to the acquisition of Cedar, provided for
adjustment of the purchase price based on the ultimate realization of certain
assets and the assumption of certain liabilities. As a result of such
adjustments, the asset purchase agreement was amended to reflect a reduction of
$2,025,016 in the net assets acquired and a corresponding reduction in the
purchase price of $1,682,780. The subordinated seller notes were also reduced
by $1,682,780 and related goodwill increased by $342,236.
At the time Cedar was acquired, management, with the approval of the Board of
Directors, was assessing the activities conducted at Cedar to determine which
functions, if any, were duplicative and should be eliminated. This assessment
resulted in a plan to exit certain activities conducted at Cedar and resulted
in an adjustment of the purchase price of $800,000, consisting of employee
termination benefits of $311,000, write-off of assets no longer required of
$200,000, lease termination payments of $52,000 and other costs associated with
the facility closing of $237,000.
The results of operations of Cedar have been included in the Company's
condensed consolidated statement of income since the effective date of
acquisition, July 1, 1995.
12
Computer Integration Corp.
and Subsidiary
Notes to Condensed Consolidated
Financial Statements (Unaudited) (continued)
2. ACQUISITION (CONTINUED)
The following summarized unaudited pro forma results of operations for the
period from July 1, 1994 through December 31, 1994 assuming the acquisition
occurred on July 1, 1994.
Sales $220,028,086
Net income 1,955,636
Net income per common share .30
The pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of the results of operations which would have
resulted had the combination been in effect on the date indicated or which may
result in the future.
3. BORROWINGS
During July 1995, the Company's revolving line was replaced by a $70,000,000
revolving line of credit with its existing lender under terms and conditions
similar to the existing agreement. Outstanding borrowings as of December 31,
1995 under such facility was $46,572,253. In addition to amounts outstanding, a
$10 million irrevocable letter of credit has been issued against the revolving
line to a major supplier of the Company.
In connection with the acquisition of Cedar, discussed in Note 2 above,
subordinated promissory notes in the aggregate principal amount of
approximately $1,913,000 and a short-term promissory note in the principal
amount of $250,000 were issued to the seller. The subordinated promissory notes
are payable in four annual installments of principal and interest at an
interest rate of 7.25% per annum, commencing July 2, 1996 through July 2, 1999.
The short-term promissory note was payable in six equal monthly installments of
principal and interest at an interest rate of 10% per annum. Such note has been
satisfied as of December 31, 1995. The notes are subordinate and junior in
right of payment to the prior payment of all indebtedness of CICS to its senior
lenders, secured by a pledge of 15% of the issued and outstanding shares of
common stock of CICS subject to the prior security interest of CICSG senior
lenders and is guaranteed by the Company.
4. EARNINGS PER SHARE
Earnings per share has been restated to reflect a four-for-five reverse stock
split which was approved by stockholders at the October 12, 1995 annual meeting
which will be effected only upon determination by the Board of Directors.
13
Computer Integration Corp.
and Subsidiary
Notes to Condensed Consolidated
Financial Statements (Unaudited) (continued)
5. PRO FORMA SUPPLEMENTAL EARNINGS PER SHARE
The Company has filed a Registration Statement on Form S-1 to register shares
and raise net proceeds of approximately 2,000,000 and $18,000,000,
respectively. Earnings per share for the three and six months ended
December 31, 1995, assuming that a portion of the proceeds is used to repay
approximately $13,000,000 under the Company's line of credit at the beginning
of the period would be $.15 and $.41 on a primary basis and $.14 and $.36 on a
fully diluted basis, respectively.
6. EQUITY TRANSACTIONS
At the October 12, 1995 annual stockholders meeting, the stockholders approved
the following:
- - An increase in the number of authorized shares of capital stock from
12,000,000 shares to 22,000,000 shares, including an increase in the
number of authorized shares of common stock from 10,000,000 shares to
20,000,000 shares.
- - An amendment to the Company's 1994 Stock Option Plan (the "Plan") to
(i) increase the total number of shares reserved for issuance under
the Plan from 500,000 to 1,050,000 shares and (ii) modify the formula
under the Plan to grant each nonemployee director a nonqualified
option to purchase 10,000 shares (compared to the present 5,000) of
the Company's common stock upon election to the Board of Directors or
one year anniversary of election and continued service on the Board.
14
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
Computer Integration Corp. (the "Registrant") is one of the largest
volume resellers of microcomputers, workstations and related products to large
and medium-sized corporations, federal, state and local governmental entities
and colleges and universities in the United States. The Registrant, through
its wholly-owned subsidiary, CIC Systems, Inc. ("CIC"), distributes a broad
range of microcomputer-related products from major hardware manufacturers and
software developers such as Hewlett-Packard Company ("HP"), Compaq Computer
Corporation, Sun Microsystems Computer Corporation, Toshiba America Information
Systems, Inc., International Business Machines, Lexmark International, Epson
America, Inc., NEC Technologies, Inc., 3COM, Inc., Canon Computer Systems,
Inc., Novell, Inc. and Microsoft Corporation. The Registrant is one of the
largest resellers of computer products manufactured by HP in the United States.
The Registrant began operations in 1992 with the organization of CIC
and acquired Copley Systems Corporation, a Massachusetts corporation in March
1993. The Registrant acquired all of the outstanding capital stock of
Dataprint, Inc., a North Carolina corporation, effective July 1, 1994.
Effective July 1, 1995, the Registrant acquired substantially all of the assets
of Cedar Computer Center, Inc., an Iowa corporation ("Cedar") which, at the
time of the acquisition, was one of the largest dealers of HP computer products
in the midwestern and western United States.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
The Registrant's results of operations for the three months ended
December 31, 1995 include the results of operations for Cedar for the entire
period. However, since Cedar was acquired effective July 1, 1995, the results
of operations for the three months ended December 31, 1995 are not, in all
respects, comparable with the results of the similar period in 1994.
Net sales for the three months ended December 31, 1995 (the "1995
Quarter") were $111,798,748 compared to $49,763,224 for the three months ended
December 31, 1994 (the "1994 Quarter"), an increase of $62,035,524 or 124.7%.
Sales by Cedar accounted for $49,472,690 of the increase in the 1995 Quarter
while the balance of the increase was attributable to sales to new and existing
customers.
Gross profit increased to $10,843,136 in the 1995 Quarter from
$4,783,781 in the 1994 Quarter. Of the total gross profit in the 1995 Quarter,
$4,507,204 was attributable to Cedar and the balance of the increase was
attributable to growth of existing operations. Gross profit margin increased
slightly to 9.7% in the 1995 Quarter compared to 9.6% in the 1994 Quarter.
Selling, general and administrative expenses ("SG&A") were $8,413,755
in the 1995 Quarter, compared to $3,890,813 in the 1994 Quarter, an increase of
$4,522,942. Of this increase, $3,377,327 or 74.7% was directly attributable to
expenses incurred by Cedar. As a percentage of net sales, SG&A decreased 3.8%
to 7.5% primarily due to lower operating costs associated with Cedar.
The primary component of the Registrant's SG&A expenses is salaries
and benefits. Salaries and benefits were $5,789,488 in the 1995 Quarter, an
increase of $2,841,176, or 96.4% over the 1994 Quarter.
15
Approximately $409,034 of the increase in salaries and benefits in the 1995
Quarter, or 14.4%, related to increased salaries and benefits from existing
operations (as a result of increased sales volume). The balance of the
increase in salaries and benefits during the 1995 Quarter related to salaries
and benefits paid to Cedar employees who were not employed by the Registrant in
the 1994 Quarter. As a percentage of net sales, salaries and benefits
decreased 11.9% to 5.2%.
Occupancy costs consist of rent and related occupancy expenses for 37
facilities occupied by the Registrant and its operating divisions throughout
the United States. In the 1995 Quarter, occupancy expense for all 37
facilities was $482,854 compared to $194,821 for nine facilities operating
during the 1994 Quarter.
Depreciation and amortization increased $135,794 to $429,975 for the
1995 Quarter. Depreciation and amortization directly related to Cedar was
$46,236. The balance of the increase is attributable primarily to increased
amortization of goodwill and debt issuance costs related to the acquisition of
Cedar.
Interest expense increased to $1,174,514 for the 1995 Quarter from
$592,352 during the 1994 Quarter primarily as a result of increased outstanding
indebtedness related to the acquisition of Cedar and increased carrying costs
related to the increase in accounts receivable and inventory as a result of
increased sales volume.
As a result of the foregoing, the Registrant had net income of
$727,823 in the 1995 Quarter compared to $174,616 in the 1994 Quarter. This
represents an increase of $553,207 or 316.8% in the 1995 Quarter as compared to
the 1994 Quarter.
SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
The Registrant's results of operations for the six months ended
December 31, 1995 include the results of operations for Cedar for the entire
period. However, since Cedar was acquired effective July 1, 1995, the results
of operations for the six months ended December 31, 1995 are not, in all
respects, comparable with the results of the similar period in 1994.
Net sales for the six months ended December 31, 1995 (the "1995 Half")
were $232,708,946 compared to $97,767,971 for the six months ended December 31,
1994 (the "1994 Half"), an increase of $134,940,975 or 138.0%. Sales by Cedar
accounted for $113,520,946 of the increase in the 1995 Half and the balance of
the increase was attributable to sales to new and existing customers.
Gross profit increased to $22,016,430 in the 1995 Half from $9,779,673
in the 1994 Half. Of the total gross profit in the 1995 Half, $10,076,056 was
attributable to Cedar and the balance of the increase was attributable to
growth of existing operations. Gross profit margin declined to 9.5% in the
1995 Half compared to 10.0% in the 1994 Half. While the gross profit margin
remained at 10.0% for the Registrant's existing operations, the decrease for
the 1995 Half is attributable to Cedar's operations which have historically
operated at a lower gross profit margin then the Registrant.
Selling, general and administrative expenses ("SG&A") were
$16,135,469 in the 1995 Half, compared to $7,621,830 in the 1994 Half, an
increase of $8,513,639. Of this increase, $6,660,535 or
16
78.2% was directly attributable to expenses incurred by Cedar. As a percentage
of net sales, SG&A decreased 11.5% to 6.9% primarily due to lower operating
costs associated with Cedar.
The primary component of the Registrant's SG&A expenses is salaries
and benefits. Salaries and benefits were $11,731,490 in the 1995 Half, an
increase of $5,973,453, or 103.7% over the 1994 Half. Approximately $969,212 of
the increase in salaries and benefits in the 1995 Half, or 16.2%, related to
increased salaries and benefits from existing operations (as a result of
increased sales volume). The balance of the increase in salaries and benefits
during the 1995 Half related to salaries and benefits paid to Cedar employees
who were not employed by the Registrant in the 1994 Half. As a percentage of
net sales, salaries and benefits decreased 15.3% to 5.0%.
Occupancy costs consist of rent and related occupancy expenses for 37
facilities occupied by the Registrant and its operating divisions throughout
the United States. In the 1995 Half, occupancy expense for all 37 facilities
was $953,941 compared to $396,048 for nine facilities operating during the 1994
Half.
Depreciation and amortization increased $288,789 to $821,595 for the
1995 Half. Depreciation and amortization directly related to Cedar was
$94,227. The balance of the increase is attributable primarily to increased
amortization of goodwill and debt issuance costs related to the acquisition of
Cedar.
Interest expense increased to $2,317,154 for the 1995 Half from
$1,064,555 during the 1994 Half primarily as a result of increased outstanding
indebtedness related to the acquisition of Cedar and increased carrying costs
related to the increase in accounts receivable and inventory as a result of
increased sales volume.
As a result of the foregoing, the Registrant had net income of
$2,067,008 in the 1995 Half compared to $647,288 in the 1994 Half. This
represents an increase of $1,419,720 or 219.3% in the 1995 Half as compared to
the 1994 Half.
FINANCIAL CONDITION
Primarily as a result of the acquisition of Cedar, the Registrant's
total assets increased $53,366,291 to $108,120,936 as of December 31, 1995
compared to $54,754,645 as of June 30, 1995. Of that increase, $39,323,133
represented additional accounts receivable and $16,052,348 represented
additional inventory acquired in the Cedar transaction. Goodwill associated
with the Cedar acquisition increased total other assets by approximately
$5,300,000 from June 30, 1995 to December 31, 1995.
Total current liabilities increased $30,756,332 to $66,102,134 as of
December 31, 1995 from $35,345,802 at June 30, 1995, as a result of additional
accounts payable and accrued expenses assumed in the amount of $32,434,102
which related to the business operations of Cedar. Simultaneously with the
closing, Cedar's line of credit of approximately $9.4 million was paid off with
proceeds from the long term portion of the Company's Credit Facility (defined
below).
The Registrant's total noncurrent liabilities increased to $29,114,538
as of December 31, 1995 from $12,818,013 at June 30, 1995, as a result of
additional long-term debt of $15,000,000 and the issuance of $1,913,000 of
subordinated notes ($302,440 of which is classified in current liabilities)
incurred in connection with the acquisition of Cedar.
Additional paid in capital increased by $4,245,911 from June 30, 1995
to December 31, 1995, primarily as a result of the issuance of 515,000 shares
of the Registrant's Common Stock in connection
17
with the acquisition of Cedar. During the 1995 Half, retained earnings
increased to $3,117,265 from $1,050,257 as a result of earnings from
operations.
LIQUIDITY AND CAPITAL RESOURCES
The Registrant has funded its operations to date primarily through
cash flow from operations, the private sale of equity securities and borrowings
under a revolving line of credit. As of December 31, 1995, the Registrant had
cash of $2,019,165, net accounts receivable of $63,284,965, working capital of
$25,369,138 and available funds under its credit facility of approximately
$2,500,000.
Cash provided by operating activities during the 1995 Half was
$643,590. This source of cash was a direct result of increased net income
during the period.
Net cash used in investing activities for the 1995 Half was $560,988,
which was related to the acquisition of office and computer equipment.
Financing activities for the 1995 Half provided $1,138,885, primarily as a
result of net advances under the revolving line of credit.
In connection with the July 1995 acquisition of substantially all of
the net assets of Cedar, CIC and Congress Financial Corporation (New England)
("Congress") amended CIC's then existing revolving credit facility with
Congress to provide increased available borrowings of up to $70 million
(the"Credit Facility"). The Credit Facility is collateralized by CIC's
accounts receivable and inventory and consists of a $27.5 million, 3-year term
note and a $42.5 million revolving line of credit. Interest on the Credit
Facility will accrue at 1% over the prime rate of interest (8.75% at December
31, 1995) of CoreStates Bank, N.A. The Credit Facility, which is used for
inventory financing and working capital, will expire in July 1998, and will be
automatically renewable for one year, at the option of Congress upon certain
terms and conditions. The Credit Facility requires that CIC maintain, at all
times, certain net worth and working capital levels and restricts acquisitions
or dispositions of property and the payment of dividends by the Registrant and
CIC. At February 15, 1996, the Registrant had an outstanding balance under the
Credit Facility of approximately $39,500,000. The Credit Facility is
guaranteed by the Registrant.
The Registrant believes that cash flow from the operations of CIC, and
borrowings under the Credit Facility will provide sufficient cash to fund its
operations and meet current obligations for the short term and the remainder of
the fiscal year ending June 30, 1996. Should the Registrant expand its
operations or make acquisitions that would require funds in addition to its
existing liquid assets, cash flows or borrowings under its Credit Facility, it
may have to seek additional debt or equity financing. There can be no
assurance that the Registrant could obtain such financing or that such
financing would be available on terms acceptable to the Registrant.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Statement Re: Computation of Per Share Earnings
Exhibit 27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
18
No reports were filed by the Registrant during the period covered by this
report.
COMPUTER INTEGRATION CORP.
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.
COMPUTER INTEGRATION CORP.
-------------------------------------
(Registrant)
February 20, 1996
By /s/ JOHN F. CHISTE
----------------------------------
John F. Chiste
Chief Financial Officer
(Principal Financial and Principal
Accounting Officer)
19
EXHIBIT INDEX
PAGE
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Exhibit 11 - Statement Re: Computation of Per Share Earnings 18
Exhibit 27 - Financial Data Schedule (for SEC use only)