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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A-2
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
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 or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification 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 May 1, 1996.
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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 Registant
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.
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Computer Integration Corp.
and Subsidiary
Condensed Consolidated Balance Sheets
MARCH 31, JUNE 30,
1996 1995
-------------------------
(Unaudited) (Note)
ASSETS
Current assets:
Cash $ 1,894,034 $ 797,678
Accounts receivable, net 61,792,226 31,355,179
Inventory 22,719,330 11,547,902
Deferred income taxes 564,298 513,272
Prepaid expenses 220,005 353,688
------------ -----------
Total current assets 87,189,893 44,567,719
Property and equipment, net 2,692,605 1,693,723
Other assets:
Goodwill, net 12,577,166 7,705,754
Other 821,480 787,449
---------------------------
Total other assets 13,398,646 8,493,203
---------------------------
Total assets $103,281,144 $54,754,645
===========================
Continued on next page.
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Computer Integration Corp.
and Subsidiary
Condensed Consolidated Balance Sheets (continued)
MARCH 31, JUNE 30,
1996 1995
---------------------------
(Unaudited) (Note)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 11,262,441 $ 9,920,603
Accounts payable 44,263,269 22,829,019
Accrued expenses 4,689,350 1,712,415
Current portion of subordinated notes payable 302,440 -
Current portion of capital lease obligations 8,480 34,655
Other 886,198 849,110
----------------------------
Total current liabilities 61,412,178 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 2,299 7,753
Other 325,000 310,260
----------------------------
Total noncurrent liabilities 29,437,859 12,818,013
Shareholders' equity:
Preferred stock, $.001 par value, total
authorized 2,000,000 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
Common stock, $.001 par value, authorized
20,000,000 shares, issued and outstanding
6,915,000 and 6,400,000 shares at March 31,
1996 and June 30, 1995, respectively 6,915 6,400
Additional paid-in capital 9,780,065 5,534,154
Retained earnings 2,644,108 1,050,257
----------------------------
Total shareholders' equity 12,431,107 6,590,830
----------------------------
Total liabilities and shareholders' equity $ 103,281,144 $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.
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Computer Integration Corp.
and Subsidiary
Condensed Consolidated Statements of Income (Unaudited)
THREE MONTHS ENDED
MARCH 31
1996 1995
----------------------------------
Net sales $111,289,220 $53,070,283
Cost of goods sold 101,196,921 47,859,734
--------------------------------
Gross profit 10,092,299 5,210,549
Selling, general and administrative expenses:
Salaries and benefits 6,310,951 3,034,092
Other selling and administrative 2,316,825 778,802
Occupancy costs 556,245 202,189
Depreciation and amortization 451,333 331,261
--------------------------------
9,635,354 4,346,344
--------------------------------
Income from operations 456,945 864,205
Interest expense 1,083,078 619,712
--------------------------------
Income (loss) before income taxes (626,133) 244,493
Income taxes (262,999) 107,000
--------------------------------
Net income (loss) (363,134) 137,493
Less required payments on convertible preferred stock (55,010) (53,815)
--------------------------------
Income (loss) applicable to common stock $ (418,144) $ 83,678
================================
Net income (loss) per share:
Primary $ (.06) $ .01
================================
Fully diluted $ (.06) $ .01
================================
Common shares and common share equivalents
outstanding:
Primary 6,915,000 6,415,540
================================
Fully diluted 6,915,000 6,415,540
================================
See accompanying notes.
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Computer Integration Corp.
and Subsidiary
Condensed Consolidated Statements of Income (Unaudited)
NINE MONTHS ENDED
MARCH 31
1996 1995
----------------------------------
Net sales $343,998,166 $150,838,254
Cost of goods sold 311,892,874 135,848,032
---------------------------------
Gross profit 32,105,292 14,990,222
Selling, general and administrative expenses:
Salaries and benefits 18,042,441 8,792,129
Other selling and administrative 4,941,831 1,713,741
Occupancy costs 1,510,186 598,237
Depreciation and amortization 1,272,928 864,067
---------------------------------
25,767,386 11,968,174
---------------------------------
Income from operations 6,337,906 3,022,048
Interest expense 3,400,232 1,684,267
---------------------------------
Income before income taxes 2,937,674 1,337,781
Income taxes 1,233,800 553,000
---------------------------------
Net income 1,703,874 784,781
Less required payments on convertible preferred stock (165,030) (147,884)
---------------------------------
Income applicable to common stock $ 1,538,844 $ 636,897
=================================
Net income per share:
Primary $ .22 $ .10
=================================
Fully diluted $ .20 $ .10
=================================
Common shares and common share equivalents
outstanding:
Primary 7,131,000 6,414,985
=================================
Fully diluted 8,401,000 7,591,217
=================================
See accompanying notes.
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Computer Integration Corp.
and Subsidiary
Condensed Consolidated Statements of
Cash Flows (Unaudited)
NINE MONTHS ENDED
MARCH 31
1996 1995
------------------------
OPERATING ACTIVITIES
Net income $ 1,703,874 $ 784,781
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 1,272,928 864,067
Changes in operating assets and liabilities,
exclusive of effects from acquisitions:
Accounts receivable 8,886,086 (5,552,836)
Inventory 4,880,920 (566,306)
Prepaid expenses 200,904 (3,489)
Other assets (264,558) (211,716)
Accounts payable (8,063,273) 4,806,770
Accrued expenses and other current liabilities 77,444 (1,546,522)
Other noncurrent liabilities 14,740 58,693
------------------------
Net cash provided (used) by operating activities 8,709,065 (1,366,558)
INVESTING ACTIVITIES
Issuance of note receivable - (115,000)
Acquisition of property and equipment (823,363) (558,552)
Purchase of net assets of Dataprint, Inc., net of cash acquired - 185,494
------------------------
Net cash used in investing activities (823,363) (488,058)
FINANCING ACTIVITIES
Proceeds from sale of preferred stock, net of offering costs - 1,898,697
Net (repayments) advances on line of credit (6,461,520) 1,074,432
Principal payments on subordinated notes payable (186,174) (847,842)
Repayments of capital lease obligations (31,629) (20,492)
Dividends paid (110,023) (112,605)
------------------------
Net cash (used) provided by financing activities (6,789,346) 1,992,190
------------------------
Net increase in cash 1,096,356 137,574
Cash at beginning of period 797,678 909,805
------------------------
Cash at end of period $ 1,894,034 $1,047,379
========================
SUPPLEMENTAL INFORMATION
Interest paid $ 3,290,986 $1,684,267
========================
Taxes paid $ 1,537,598 $ 945,400
========================
See accompanying notes.
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Computer Integration Corp.
and Subsidiary
Notes to Condensed Consolidated
Financial Statements (Unaudited)
March 31, 1996
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Computer Integration Corp. (the Company) and 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 nine months
ended March 31, 1996 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.
Recently Issued Accounting Standards: In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, which provides an alternative to APB
Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for
stock-based compensation issued to employees. The Statement allows for a fair
value based method of accounting for employee stock options and similar equity
instruments. However, for companies that continue to account for stock-based
compensation arrangements under Opinion No. 25, Statement No. 123 requires
disclosure of the pro forma effect on net income and earnings per share of its
fair value based accounting for those arrangements. These disclosure
requirements are effective for fiscal years beginning after December 15, 1995,
or upon initial adoption of the statement, if earlier. The Company has
determined that it will not adopt the recognition and measurement provisions
of that Statement. Accordingly, the Company will continue to account for
stock-based compensation in accordance with APB No. 25 and will begin providing
the pro forma disclosures required by Statement No. 123 in the Company's
consolidated financial statements for the year ended June 30, 1997.
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 515,000 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).
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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 value. 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 plan to exit was fully executed in April
1996, therefore, only $10,000 of previously accrued costs relating to the
write-off of fixed assets was utilized during the three-months ended March 31,
1996.
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.
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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 March 31, 1995 assume the acquisition
occurred on July 1, 1994.
Sales $336,461,446
Net income 2,916,528
Net income per common share .36
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 March 31, 1996
under such facility were $38,762,441. 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 March 31, 1996. 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 CICS' senior
lenders and is guaranteed by the Company.
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Computer Integration Corp.
and Subsidiary
Notes to Condensed Consolidated
Financial Statements (Unaudited) (continued)
4. 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.
- A reverse stock split in which holders of the common stock would receive
four shares of common stock in exchange for every five shares held of
record. The reverse stock split was adopted by the stockholders in
connection with a proposed underwritten public offering of the common
stock and was subject to the ability of the Company's Board of Directors
to abandon such action at any time. On March 12, 1996, the Company's
underwriters determined not to proceed with the public offering and the
Board of Directors determined not to effectuate the reverse stock split.
5. SUBSEQUENT EVENT
On April 3, 1996, the Company's Board of Directors authorized the issuance of
two new series of cumulative convertible redeemable preferred stock, designated
Series D and Series E. The Series D Preferred Stock is identical to the
Company's existing Series A Preferred Stock, and the Series E Preferred Stock is
identical to the Company's existing Series C Preferred Stock, with the single
exception that the mandatory conversion feature of the Series A and Series C
Preferred Stock has been modified to extend the date of that conversion.
On May 5, 1996, the Company completed a private exchange offer with the holders
of its outstanding shares of Series A and Series C convertible preferred stock.
As a result of the exchange offer, the Registrant will issue 19,250 shares of
Series D Preferred stock in exchange for 19,250 outstanding shares of Series A
Preferred Stock and 125 shares of Series E Preferred Stock in exchange for 125
outstanding shares of Series C Preferred Stock.
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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 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
The Registrant's results of operations for the three and nine months
ended March 31, 1996 include the results of operations of Cedar for the entire
period. However, since Cedar was acquired effective July 1, 1995, the results
of operations for those periods are not, in all respects, comparable with the
results of the similar periods in the prior fiscal year. In addition, since
December 1995, the Registrant has been consolidating the operations of Cedar
with its existing operations. Therefore, the Registrant is unable to attribute
to Cedar any specific portions of the changes in results of operations for the
three and nine months ended March 31, 1996.
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Net sales for the three months ended March 31, 1996 (the "1996
Quarter") were $111,289,220 compared to $53,070,283 for the three months ended
March 31, 1995 (the "1995 Quarter"), an increase of $58,218,937 or 110%.
Gross profit increased to $10,092,299 in the 1996 Quarter from
$5,210,549 in the 1995 Quarter as a result of the increased revenue. Gross
profit margin decreased to 9.07% in the 1996 Quarter compared to 9.82% in the
1995 Quarter. That decrease was primarily due to inventory adjustments
attributable to the Registrant's midwest distribution facility, which facility
was closed on April 30, 1996 and integrated with the Registrant's existing
facility in Westwood, Massachusetts.
Selling, general and administrative expenses ("SG&A") were $9,635,354
in the 1996 Quarter, compared to $4,346,344 in the 1995 Quarter, an increase of
$5,289,010 primarily attributable to the 110% increase in sales. As a
percentage of net sales, SG&A increased 5.7% from 8.19% to 8.66%.
The primary component of the Registrant's SG&A is salaries and
benefits. Salaries and benefits were $6,310,951 in the 1996 Quarter, an
increase of $3,276,859, or 108%, from the 1995 Quarter. The majority of the
increase related to increased salaries and benefits associated with the Cedar
acquisition, increased sales volume and the addition of new executive
positions. In addition, in January 1996, the Registrant began offering health
and other benefits to employees acquired in connection with the Cedar
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acquisition, resulting in an additional charge to SG&A of approximately
$125,000. However, as a percentage of net sales, salaries and benefits
remained constant at 5.7%.
Other selling and administrative expenses increased $1,538,023 to
$2,316,825 in the 1996 Quarter primarily as a result of a one-time charge of
approximately $425,000 relating to costs associated with a public offering
which was terminated during the quarter, and increased professional and
recruiting fees of $125,000. The balance of the increase is directly related
to the 110% increase in sales. Exclusive of the specific items discussed
above, other selling and administrative expenses as a percentage of net sales
were 1.6% in the 1996 Quarter compared to 1.5% in the 1995 Quarter.
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 1996 Quarter, occupancy costs for all 37 facilities
were $556,245 compared to $202,189 for nine facilities in the 1995 Quarter.
Depreciation and amortization increased $120,072 to $451,333 for the
1996 Quarter. The increase is attributable primarily to increased
depreciation, amortization of goodwill and debt issuance costs related to the
acquisition of Cedar.
Interest expense increased to $1,083,078 for the 1996 Quarter from
$619,712 during the 1995 Quarter primarily as a result of higher outstanding
indebtedness related to the acquisition of Cedar and additional carrying costs
related to the increase in accounts receivable and inventory resulting from
increased sales volume.
As a result of the factors discussed above, the Registrant had a net
loss of ($363,134) in the 1996 Quarter compared to net income of $137,493 in
the 1995 Quarter.
NINE MONTHS ENDED MARCH 31, 1996 AND 1995
Net sales for the nine months ended March 31, 1996 (the "1996 Period")
were $343,998,166 compared to $150,838,254 for the nine months ended March 31,
1995 (the "1995 Period"), an increase of $193,159,912 or 128%.
Gross profit increased to $32,105,292 in the 1996 Period from
$14,990,222 in the 1995 Period as a result of the increased revenue. Gross
profit margin decreased to 9.33% in the 1996 Period compared to 9.94% in the
1995 Period. That decrease was primarily due to inventory adjustments incurred
during the third quarter attributable to the Registrant's midwest distribution
facility, which was closed on April 30, 1996 and integrated with the
Registrant's existing facility in Westwood, Massachusetts.
Selling, general and administrative expenses ("SG&A"), were
$25,767,386, compared to $11,968,174 in the 1995 Period, an increase of
$13,799,212 primarily attributable to the 128% increase in sales during the
period. As a percentage of net sales, SG&A decreased 5.5% from 7.93% to 7.49%.
The primary component of the Registrant's SG&A is salaries and
benefits. Salaries and benefits were $18,042,441 in the 1996 Period, an
increase of $9,250,312, or 105%, from the 1995 Period. The majority of the
increase related to increased salaries and benefits associated with the Cedar
acquisition and increased sales volume. In January 1996, the Registrant began
offering health and other benefits to employees acquired in connection with the
Cedar acquisition, resulting in an additional charge to SG&A of approximately
$125,000. However, as a percentage of net sales, salaries and benefits
decreased 10.3% to 5.2% during the 1996 Period.
Other selling and administrative expenses increased $3,228,090 to
$4,941,831 in the 1996 Period primarily as a result of a one-time charge of
approximately $425,000 relating to costs associated with a
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public offering which was terminated during the period. The balance of the
increase is directly related to the 128% increase in sales. Exclusive of the
specific item discussed above, other selling and administrative expenses as a
percentage of net sales were 1.3% in the 1996 Period compared to 1.1% in the
1995 Period.
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 1996 Period, occupancy expense for all 37 facilities
was $1,510,186 compared to $598,237 for nine facilities in the 1995 Period.
Depreciation and amortization increased $408,861 to $1,272,928 for the
1996 Period. The increase is attributable primarily to increased depreciation,
amortization of goodwill and debt issuance costs related to the acquisition of
Cedar.
Interest expense increased to $3,400,232 for the 1996 Period from
$1,684,267 during the 1995 Period primarily as a result of higher outstanding
indebtedness related to the acquisition of Cedar and additional carrying costs
related to the increase in accounts receivable and inventory resulting from
increased sales volume.
As of result of the factors discussed above, the Registrant had net
income of $1,703,874 for the 1996 Period compared to net income of $784,781 for
the 1995 Period, an increase of 117%.
Financial Condition
Primarily as a result of the acquisition of Cedar, the Registrant's
total assets increased $48,526,499 to $103,281,144 as of March 31, 1996,
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 March 31, 1996.
Total current liabilities increased $26,066,376 to $61,412,178 as of
March 31, 1996 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 satisfied
from the long-term portion of the Company's Credit Facility (defined below).
The Registrant's total noncurrent liabilities increased to $29,437,859
as of March 31, 1996 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 March 31, 1996, primarily as a result of the issuance of 515,000 shares of
the Registrant's Common Stock in connection with the acquisition of Cedar.
During the 1996 Period, retained earnings increased to $2,644,108 from
$1,050,257 as a result of earnings from operations, net of dividends paid on
the Registrant's Preferred Stock.
On March 12, 1996 the Registrant's Board of Directors approved a
restructuring plan which involves a relocation of the Registrant's corporate
headquarters located in Boca Raton, Florida to Atlanta, Georgia. The Company
has signed a five year lease, providing for monthly rental payments of
approximately $44,000, on a new headquarters and sales and distribution facility
in Atlanta which is scheduled for completion in late 1996. The Company will
recognize a restructuring charge in future periods and believes that these
actions, once completed, will result in improvements in operational efficiency.
The Registrant is in the process of quantifying the amount of the restructuring
charge, or the projected operational savings.
As a result of the consolidation of the Company's operations, the
installation of a new management information system, the restructuring and
other factors, management believes that the Company's sales and earnings for
the year ended June 30, 1996 will not meet the levels achieved, on a pro forma
basis, for the year ended June 30, 1995, and that the sales and earnings for
the three months ended September 30, 1996 may not meet the levels achieved, on
an actual basis, for the three months ended September 30, 1995.
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Liquidity and Capital Resources
Historically, the Registrant has funded its activities through the
private sale of equity securities and borrowings under its revolving line of
credit, and, during certain periods, through cash flow from operations. As of
March 31, 1996, the Registrant had cash of $1,894,034, net accounts receivable
of $61,792,226, working capital of $25,777,715 and available funds under its
credit facility of approximately $7.8 million.
Cash provided by operating activities during the 1996 Period was
$8,709,065. Cash from operating activities primarily resulted from net income
during the period and collections of accounts receivable and reductions in
inventory at greater rates than payments on corresponding accounts payable.
The Registrant has made a concentrated effort to reduce inventory levels, and
increase the average payment period to its major vendors.
Net cash used in investing activities for the 1996 Period was $823,363,
which was related to the acquisition of office and computer equipment.
Financing activities for the 1996 Period used $6,461,520 primarily as a result
of repayments on advances from the Registrant's Credit Facility.
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 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 accrues at
1% over the prime rate of interest (8.25% on March 31, 1996) 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 of property and the payment
of dividends by the Registrant and CIC. At May 10, 1996, the Registrant had an
outstanding balance under the Credit Facility of approximately $44.6 million.
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 next 12 months. 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.
Subsequent Event
On April 3, 1996, the Registrant's Board of Directors authorized the
issuance of two new series of cumulative convertible redeemable preferred
stock, designated Series D and Series E. The Series D Preferred Stock is
identical to the Registrant's existing Series A Preferred Stock, and the Series
E Preferred Stock is identical to the Registrant's existing Series C Preferred
Stock, with the single exception that the mandatory conversion feature of the
Series A and Series C Preferred Stock has been modified to extend the date of
that conversion.
On May 5, 1996, the Registrant completed a private exchange offer with
the holders of its outstanding shares of Series A and Series C convertible
preferred stock. As a result of the exchange offer, the Registrant will issue
19,250 shares of Series D Preferred stock in exchange for 19,250 outstanding
shares of Series A Preferred Stock and 125 shares of Series E Preferred Stock
in exchange
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16
for 125 outstanding shares of Series C Preferred Stock.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Statement Re: Computation of Per Share Earnings
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which
this report is being filed.
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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.
By: JOHN CHISTE
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John Chiste
Chief Financial Officer (Principal Financial
and Principal Accounting Officer)
Dated: June 11, 1996
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EXHIBIT INDEX
Page
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*Exhibit 4(a) - Certificate of Designation for Series D, 9% Cumulative Convertible
Redeemable Preferred Stock
*Exhibit 4(b) - Certificate of Designation for Series E, 9% Cumulative Convertible
Redeemable Preferred Stock
Exhibit 11 - Statement Re: Computation of Per Share Earnings 20
*Exhibit 27 - Financial Data Schedule (for SEC use only)
* previously filed
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