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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1997
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 0-21695
Manchester Equipment Co., Inc.
(Exact name of registrant as specified in its charter)
New York 11-2312854
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
160 Oser Avenue
Hauppauge, New York 11788
(Address of registrant's principal executive offices)
(516) 435-1199
(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.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes
of stock, as of the latest practicable date.
There were 8,525,000 outstanding shares of COMMON STOCK at June 12, 1997.
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MANCHESTER EQUIPMENT CO., INC. AND SUBSIDIARIES
Index
PART I. FINANCIAL INFORMATION Page
Item 1. Condensed Consolidated Balance Sheets April 30, 1997
(unaudited) and July 31, 1996 3
Condensed Consolidated Statements of Income Three
months and nine months ended April 30, 1997
and 1996 (unaudited) 4
Condensed Consolidated Statements of Cash Flows
Nine months ended April 30, 1997 and 1996 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports 13
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Part I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Manchester Equipment Co., Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands except share amounts)
April 30, 1997 July 31, 1996
(Unaudited)
------------------------------------
Assets:
Cash and cash equivalents $ 15,649 $ 5,774
Marketable securities 2,947 -
Accounts receivable, net 22,570 19,068
Inventory 11,177 8,957
Deferred income taxes 334 334
Prepaid expenses and other current assets 83 197
----- ------
Total current assets 52,760 34,330
Property and equipment, net 2,676 2,244
Goodwill, net 1,493 -
Deferred income taxes 395 395
Other assets 1,000 792
----- -----
$58,324 $37,761
======= =======
Liabilities:
Current maturities under capital
lease obligation $ 99 $ 99
Notes payable - bank 1,264 6,500
Notes payable - shareholder - 353
Notes payable - other 307 -
Accounts payable and accrued expenses 20,108 17,113
Deferred service revenue 113 129
Income taxes payable - 295
------ ------
Total current liabilities 21,891 24,489
Capital lease obligation, less current maturities 111 175
Deferred compensation payable 268 183
------ -----
Total liabilities 22,270 24,847
------ ------
Redeemable common stock - 4,739
Shareholders' equity:
Preferred stock, $.01 par value; 5,000,000
shares authorized, none issued - -
Common stock, $.01 par value; 25,000,000 shares
authorized, 8,525,000 and 6,200,000 shares
issued and outstanding 85 62
Additional paid-in capital 20,397 -
Retained earnings 15,572 8,113
------ -----
Total shareholders' equity 36,054 8,175
------ -----
$58,324 $37,761
======= =======
See notes to condensed consolidated financial statements.
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Manchester Equipment Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(in thousands, except share and per share amounts)
Three months ended Nine months ended
April 30, April 30,
1997 1996 1997 1996
Unaudited Unaudited
--------- ---------
Revenues $44,170 $50,764 $139,841 $141,264
Cost of revenues 37,732 43,848 119,923 121,816
------ ------ ------- -------
Gross profit 6,438 6,916 19,918 19,448
Selling, general and
administrative expenses 5,194 6,070 15,487 15,330
----- ----- ------ ------
Income from operations 1,244 846 4,431 4,118
Interest expense (2) (110) (193) (300)
Interest income 217 5 344 15
Other income (expense) - - 23 (7)
---- ---- ---- ----
Income before income taxes 1,459 741 4,605 3,826
Provision for income taxes 589 296 1,885 1,537
--- --- ----- -----
Net income $ 870 $ 445 $2,720 $2,289
====== ======== ====== ======
Net Income per share $0.10 $ 0.07 $0.36 $0.37
===== ======== ===== =====
Weighted average
shares outstanding 8,525,000 6,262,626 7,530,978 6,262,626
========= ========= ========= =========
See notes to condensed consolidated financial statements.
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Manchester Equipment Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
For the nine months
ended April 30,
1997 1996
(Unaudited)
----------------------
Cash flows from operating activities:
Net income $2,720 $2,289
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 450 297
Allowance for doubtful accounts 210 319
Stock options granted to sales representatives 6 -
Change in assets and liabilities, net of the
effects of the purchase of Electrograph:
Increase in accounts receivable (1,606) (2,305)
(Increase) decrease in inventory (514) 865
Decrease in prepaid expenses and
other current assets 128 29
Increase in other assets (168) (98)
Increase (decrease) in accounts payable and
accrued expenses 1,009 (143)
Decrease in deferred service contract revenue (16) (28)
Increase (decrease) in income taxes payable (295) 416
Increase in deferred compensation payable 85 2
---- ----
Net cash provided by operating activities 2,009 1,643
----- -----
Cash flows from investing activities:
Capital expenditures (881) (413)
Proceeds from sale of assets 54 18
Purchases of marketable securities (2,947) -
Payment for purchase of Electrograph, net
of cash acquired (1,857) -
------ ----
Net cash used in investing activities (5,631) (395)
------ ----
Cash flows from financing activities:
Net repayments of borrowings (6,500) (2,100)
Payments on notes payable-shareholder (353) -
Payments on capital lease obligation (64) -
Net proceeds from initial public offering 20,414 -
------ -----
Net cash (used in) provided by
financing activities 13,497 (2,100)
------ ------
Net increase (decrease) in cash and cash equivalents 9,875 (852)
Cash and cash equivalents at beginning of period 5,774 1,834
----- -----
Cash and cash equivalents at end of period $15,649 $982
======= ====
See notes to condensed consolidated financial statements.
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Manchester Equipment Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
1. Organization and Basis of Presentation
Manchester Equipment Co., Inc. (the "Company") is a systems integrator and
reseller of computer hardware, software and networking products, primarily for
commercial customers. The Company offers its customers single-source solutions
customized to their information systems needs by combining value-added services
with hardware, software, networking products and peripherals from leading
vendors.
Sales of hardware, software and networking products comprise most of the
Company's revenues. Service revenues have not comprised a significant part of
revenues to date. The Company has entered into agreements with certain suppliers
and manufacturers which provide the Company favorable pricing and price
protection in the event the vendor reduces its prices.
In the opinion of the Company, the accompanying unaudited Condensed
Consolidated Financial Statements contain all adjustments (consisting of only
normal and recurring accruals) necessary to present fairly the financial
position of the Company as of April 30, 1997 and the results of operations for
the three and nine months ended April 30, 1997 and 1996 and cash flows for the
nine months ended April 30, 1997 and 1996. Although the Company believes that
the disclosures herein are adequate to make the information not misleading,
these financial statements should be read in conjunction with the audited
financial statements and the notes thereto for the year ended July 31, 1996,
included in the Company's Prospectus dated November 25, 1996 prepared in
connection with the Company's initial public offering.
2. Net Income Per Share
Net income per share is based upon the weighted average number of common
shares and common share equivalents outstanding during each period. Common share
equivalents include dilutive stock options and warrants, if any, using the
treasury stock method.
3. Initial Public Offering
On December 2, 1996, the Company completed an initial public offering (the
"Offering") of 2,325,000 shares of its common stock (including 200,000
overallotment shares) at an initial public offering price of $10 per share. Net
proceeds to the Company were approximately $20.4 million, after deducting the
underwriting discounts and commissions and other costs associated with the
Offering.
4. Redeemable Common Stock
Prior to the consummation of the Offering, the Company had an agreement
with a retired shareholder whereby the Company would be required to redeem all
of the shares held by the shareholder in accordance with terms set forth in the
agreement. In September 1996, among other provisions, the retired shareholder
agreed to terminate his option to sell his remaining shares to the Company,
subject to successful completion of the Offering. As a result of the successful
completion of the Offering, in the April 30, 1997 Condensed Consolidated Balance
Sheet, the amounts which would have been due under this agreement have been
reclassified from redeemable common stock to retained earnings.
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5. Purchase of Electrograph Systems, Inc.
On April 25, 1997, the Company, through a newly formed wholly-owned
subsidiary, acquired substantially all of the assets and assumed certain
liabilities of Electrograph Systems, Inc., a wholly owned subsidiary of Bitwise
Designs, Inc. Electrograph is a specialized distributor of microcomputer
peripherals, primarily in the eastern United States. The purchase price and
transaction costs, aggregated approximately $2.6 million, of which $2.5 million
was paid in cash at closing. In connection with the acquisition, the Company
assumed certain liabilities of Electrograph including debt with balances of
$1,264,000 in notes payable - bank and $307,000 in notes payable - other as of
April 30, 1997.
The acquisition has been accounted for as a purchase and the operating
results of Electrograph are included in the Condensed Consolidated Statements of
Income from the date of acquisition. The acquisition resulted in goodwill of
approximately $1,500,000 which is being amortized on the straight-line basis
over 20 years.
The following unaudited pro forma consolidated results of operations for
the nine months ended April 30, 1997 and 1996 assume that the Electrograph
acquisition occurred on August 1, 1995 and reflect the historical operations of
the purchased business adjusted for lower interest on invested funds and
increased amortization, net of applicable income taxes resulting from the
acquisition:
1997 1996
(in thousands)
--------------
Revenues $155,579 $153,270
Net income 2,837 2,353
Net income per share $0.38 $0.38
The pro forma results of operations are not necessarily indicative of the
actual results that would have occurred had the acquisition been made at the
beginning of the period, or of results which may occur in the future.
6. Litigation
On March 28, 1997 a complaint was filed by plaintiff Vincent Manguard in
the United States District Court for the Eastern District of New York against
the Company, its President and Chief Executive Officer, its Executive Vice
President and Secretary, and its Chief Financial Officer. The plaintiff claims
to have purchased shares in the Company's Offering and purports to sue on his
own behalf and on behalf of a class of persons who purchased the Company's
common stock either pursuant to the Offering or in the period November 26, 1996
through February 13, 1997. The Complaint asserts that the Company and the
individual defendants made false or misleading statements and omissions in
connection with the Offering in violation of Sections 11, 12(a)(2) and 15 of the
federal Securities Act of 1933, and seeks damages on behalf of the putative
class in an unspecified amount and/or rescission, together with costs and
expenses of litigation.
The Company believes that the allegations in the complaint are entirely
without merit and intends vigorously to defend this matter.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis 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
Prospectus dated November 25, 1996. This discussion and analysis contains
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 involves risks and uncertainties that could
cause actual results to differ from those expected and projected. These risks
and uncertainties include, but are not limited to, those set forth below and the
risk factors described in the Company's Prospectus.
GENERAL
Manchester is a systems integrator and reseller of computer hardware,
software and networking products, primarily for commercial customers. The
Company offers its customers single-source solutions customized to their
information systems needs by combining value-added services with hardware,
software, networking products and peripherals from leading vendors. To date,
most of the Company's revenues have been derived from product sales. The Company
generally does not develop or sell software products. However, certain computer
hardware products sold by the Company are loaded with pre-packaged software
products.
As a result of intense price competition within the computer industry as
well as other industry conditions, the Company has experienced increasing
pressure on its gross profit and operating margins with respect to the sale of
products. The Company's strategy includes increasing its focus on providing
value added services with operating margins that are higher than those obtained
with respect to the sale of products. The Company's future performance will
depend in part on its ability to manage successfully a continuing shift in its
operations to value-added services.
The Company directly competes with local, regional and national systems
integrators, value-added resellers ("VARs") and distributors as well as with
certain computer manufacturers that market through direct sales forces. In the
future, the Company may face further competition from new market entrants and
possible alliances between existing competitors. In addition, certain suppliers
and manufacturers may choose to market products directly to end users through a
direct sales force rather than or in addition to channel distribution. Some of
the Company's competitors have, or may have, greater financial, marketing and
other resources, and may offer a broader range of products and services, than
the Company. As a result, they may be able to respond more quickly to new or
emerging technologies or changes in customer requirements, benefit from greater
purchasing economies, offer more aggressive hardware and service pricing or
devote greater resources to the promotion of their products and services. There
can be no assurance that the Company will be able to compete successfully in the
future with these or other current or potential future competitors.
The Company's business is dependent upon its relationships with major
manufacturers in the computer industry. There can be no assurance that the
pricing and related terms offered by major manufacturers will not adversely
change in the future. The failure to obtain an adequate supply of products, the
loss of a major manufacturer, the deterioration of the Company's relationship
with a major manufacturer or the Company's inability in the future to develop
new relationships with other manufacturers could have a material adverse effect
on the Company's business, results of operations and financial condition.
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The Company's largest customer accounted for approximately 14% and 16% (or
$20,069,000, and $22,346,000, respectively) of the Company's revenues for the
nine months ended April 30, 1997 and 1996, respectively, substantially all of
which revenues were derived from the sale of hardware products. This customer
accounted for 16% of revenues for the fiscal year ended July 31, 1996. There can
be no assurance that the Company will continue to derive substantial revenues
from this customer.
The Company's profitability has been enhanced by its ability to obtain
volume discounts from certain manufacturers, which has been dependent in part
upon the Company's ability to sell products to computer resellers, including
VARs. There can be no assurance that the Company will be able to continue to
sell products to resellers and thereby obtain the desired discounts from the
manufacturers or that the Company will be able to increase sales to end-users to
offset the need to rely upon sales to resellers.
The markets for the Company's products and services are characterized by
rapidly changing technology and frequent introductions of new hardware and
software products and services, which render many existing products
noncompetitive, less profitable or obsolete. The Company believes that its
inventory controls have contributed to its ability to respond effectively to
these technological changes. As of April 30, 1997 and 1996, inventories
represented 19% and 27%, respectively of total assets. For the nine months ended
April 30, 1997 and 1996, annualized inventory turnover was 14 and 19 times,
respectively. Inventory turned 18 times in the fiscal year ended July 31, 1996.
The failure of the Company to anticipate technology trends or to continue to
effectively manage its inventory could have a material adverse effect on the
Company's business, results of operations and financial condition.
The Company believes its controls on accounts receivable have contributed
to its profitability. The Company's bad debt expense represented 0.2% of total
revenues in each of the nine month periods ended April 30, 1997 and 1996. For
the fiscal year ended July 31, 1996, bad debt expense represented 0.1% of total
revenues.
The Company's quarterly revenues and operating results have varied
significantly in the past and are expected to continue to do so in the future.
Quarterly revenues and operating results generally fluctuate as a result of the
demand for the Company's products and services, the introduction of new hardware
and software technologies with improved features, the introduction of new
services by the Company and its competitors, changes in the level of the
Company's operating expenses, the timely availability of product supply,
competitive conditions and economic conditions. In particular, the Company
currently is increasing its fixed operating expenses, including a significant
increase in personnel, as part of its strategy to increase its focus on
providing higher margin, value-added services. Accordingly, the Company believes
that period-to-period comparisons of its operating results should not be relied
upon as an indication of future performance. In addition, the results of any
quarterly period are not indicative of results to be expected for a full fiscal
year.
As a result of rapid changes which are taking place in computer and
networking technologies, product life cycles are short. Accordingly, the
Company's product offerings change constantly. Prices of products change with
generally higher prices early in the life cycle of the product and lower prices
near the end of the product's life cycle. The Company believes that the impact
of price or volume changes of any particular product or products is not material
to the Company's Consolidated Financial Statements.
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The Company's Chief Executive Officer has entered into an employment
agreement with the Company under which he will receive $550,000 in compensation,
exclusive of fringe benefits, for each of the fiscal years ending July 31, 1997
and 1998. In addition, the Company's Executive Vice President has agreed to
receive base compensation, exclusive of fringe benefits, of $450,000 for the
fiscal years ending July 31, 1997 and 1998. These officers have agreed that they
will not be entitled to any bonuses for fiscal 1997 and that any bonus payable
to either of these officers in fiscal 1998 will require the approval of a
majority of the independent directors of the Company. The Company leases certain
warehouse and offices from entities that are owned or controlled by the
Company's majority shareholder. Each of the leases with related parties has been
amended effective with the closing of the Offering to reduce the rent payable
under that lease to then current market rates.
RECENT ACQUISITION
On April 25, 1997, the Company, through a newly formed wholly-owned
subsidiary, acquired substantially all of the assets and assumed certain
liabilities of Electrograph Systems, Inc., a wholly owned subsidiary of Bitwise
Designs, Inc. Electrograph is a specialized distributor of microcomputer
peripherals, primarily in the eastern United States. The purchase price and
transaction costs, aggregated approximately $2.6 million, of which $2.5 million
was paid in cash at closing. In connection with the acquisition, the Company
assumed certain liabilities of Electrograph including debt with balances of
$1,264,000 in notes payable - bank and $307,000 in notes payable - other as of
April 30, 1997.
The acquisition has been accounted for as a purchase and the operating
results of Electrograph are included in the Condensed Consolidated Statements of
Income from the date of acquisition. The acquisition resulted in goodwill of
approximately $1,500,000 which is being amortized on the straight-line basis
over 20 years.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information
derived from the Company's Condensed Consolidated Statements of Income expressed
as a percentage of revenues.
Percentage of Revenues
Three Months Ended Nine Months Ended
April 30 April 30,
1997 1996 1997 1996
---- ---- ---- ----
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 85.4 86.4 85.8 86.2
---- ---- ---- ----
Gross profit 14.6 13.6 14.2 13.8
Selling, general and
administrative expenses 11.8 12.0 11.0 10.9
---- ---- ---- ----
Income from operations 2.8 1.7 3.2 2.9
Interest and other income, net .5 ( .2) .1 (.2)
-- ---- --- ---
Income before income taxes 3.3 1.5 3.3 2.7
Provision for income taxes 1.3 .6 1.4 1.1
--- -- --- ---
Net income 2.0% .9% 1.9% 1.6%
=== == === ===
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Three Months Ended April 30, 1997 Compared to Three Months Ended April 30, 1996
- --------------------------------------------------------------------------------
Revenues. The Company's revenues decreased $6.6 million or 13.0% from $50.8
million for the three months ended April 30, 1996 to $44.2 million for the three
months ended April 30, 1997 due to a general softness in the marketplace for
personal computers and peripherals, as well as lower revenues from the Company's
major customer.
Gross Profit. Cost of revenues includes the direct costs of products sold,
freight and the personnel costs associated with providing technical services,
offset in part by certain market development funds provided by manufacturers.
All other operating costs are included in selling, general and administrative
expenses. Gross profit decreased $478,000 or 6.9% from $6.9 million for the
third quarter of fiscal 1996 to $6.4 million for the most recent fiscal quarter.
As a percentage of revenues, gross profit increased from 13.6% in fiscal 1996 to
14.6% in fiscal 1997. The decrease in gross profit dollars is principally due to
the decrease in revenues. Competitive pressures, changes in the types of
products or services sold and product availability result in fluctuations in
gross profit from period to period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $876,000 or 14.4% from $6.1 million in the
third quarter of fiscal 1996 to $5.2 million in the third quarter of fiscal
1997. This decrease is principally a result of lower officers' salaries and
rents paid to related parties due to agreements that were entered into in
connection with the Company's initial public offering. Giving pro forma effect
to the changes in officers compensation and rents to related parties, described
above and under General, the pro forma selling, general and administrative
expenses would have been approximately $5.0 million or 9.8% of revenues for the
three months ended April 30, 1996.
Interest Income. Interest income increased from $5,000 in fiscal 1996 to
$217,000 in fiscal 1997 due to earnings on short term investments made with
certain of the proceeds from the Company's initial public offering.
Provision for Income Taxes. The effective income tax rate remained constant
at 40% of pre tax income.
NINE MONTHS ENDED APRIL 30, 1997 COMPARED TO NINE MONTHS ENDED APRIL 30, 1996
Revenues. The Company's revenues decreased $1.4 million or 1.0% from $141.3
million for the nine months ended April 30, 1996 to $139.8 million for the nine
months ended April 30, 1997 due to somewhat softer demand for personal computers
and peripherals as well as lower revenue from the Company's major customer.
Gross Profit. Gross profit increased $470,000 or 2.4% from $19.4 million
for the first nine months of fiscal 1996 to $19.9 million for the most recent
fiscal nine months. As a percentage of revenues, gross profit increased from
13.8% to 14.2%. The increase in gross profit percentage is primarily due to
changes in product mix. Competitive pressures, changes in the types of products
or services sold and product availability result in fluctuations in gross profit
from period to period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $157,000 or 1.0% from $15.3 million in the
first nine months of fiscal 1996 to $15.5 million in the first nine months of
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fiscal 1997. This increase is principally a result of higher payroll and related
costs due to the hiring of additional technical and administrative staff in
support of the Company's strategy to increase its value-added services revenue
partially offset by lower officers' salaries and rents paid to related parties.
In addition, the Company incurred higher insurance, depreciation and
professional fees during the current period. Giving pro forma effect to the
changes in officers compensation and rents to related parties, described above
and under General, the pro forma selling, general and administrative expenses
would have been $14.3 million or 10.1% of revenues for the nine months ended
April 30, 1996.
Interest Income. Interest income increased from $15,000 for the first nine
months of fiscal 1996 to $344,000 for the first nine months of fiscal 1997 due
to the earnings on the short term investments made with certain of the proceeds
from the Company's initial public offering.
Provision for Income Taxes. The effective income tax rate increased
slightly from 40% for the nine months ended April 30, 1996 to 41% for the nine
months ended April 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of financing have been internally generated
working capital from profitable operations and a line of credit from a financial
institution.
For the nine months ended April 30, 1997, cash provided by operating
activities was $2.0 million consisting primarily of net income offset by
increases in accounts receivable and inventory net of an increase in accounts
payable and accrued expenses. The Company's accounts receivable and accounts
payable and accrued expenses balances as well as its investment in inventory can
fluctuate significantly from one period to the next due to the receipt of large
customer orders or payments or variations in product availability and vendor
shipping patterns at any particular date. Generally, the Company's experience is
that increases in accounts receivable, inventory and accounts payable and
accrued expenses will coincide with growth in revenue and increased operating
levels. In addition, during the nine months ended April 30, 1997 the Company
used approximately $900,000 for capital expenditures, $1.9 million (net of cash
acquired) for the purchase of Electrograph Systems, Inc. and $2.9 million for
the purchase of marketable securities and generated $13.5 million in cash from
financing activities primarily from the net proceeds of the Offering ($20.4
million) partially offset by the net repayments of bank debt ($6.5 million).
The Company and a subsidiary have available lines of credit with a
financial institution in the aggregate amount of $13.5 million. All amounts
outstanding under this line at the completion of the Offering were repaid by the
Company with the proceeds from the Offering described below. At April 30, 1997,
a subsidiary of the Company has $1.3 million outstanding under its line of
credit.
On December 2, 1996, the Company completed an initial public offering (the
"Offering") of 2,325,000 shares (including 200,000 overallotment shares) of its
common stock resulting in net proceeds to the Company, after deducting
underwriting discount and expenses, of approximately $20.4 million. The Company
utilized $7.7 million of the proceeds from the Offering to repay the balance
outstanding at that date under its line of credit with a financial institution.
The remaining net proceeds have been invested in short-term, interest bearing,
investment grade securities.
The Company believes that its current balances in cash and cash equivalents
and marketable securities, expected cash flows from operations and available
borrowings under the line of credit will be adequate to support current
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operating levels for the foreseeable future, specifically through at least the
end of fiscal 1998. The Company has entered into commitments for the renovation
and expansion of certain of its sales and service facilities as well as for the
acquisition of a new internal telecommunications system. The aggregate
commitment for these projects is approximately $1.0 million which will be paid
out of the Company's available cash balances. The Company currently has no other
material commitments for capital expenditures. Future capital requirements of
the Company include those for the growth of working capital items such as
accounts receivable and inventory and the purchase of equipment and expansion of
facilities as well as the possible opening of new offices and potential
acquisitions.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On March 28, 1997 a complaint was filed by plaintiff Vincent Manguard in
the United States District Court for the Eastern District of New York against
the Company, its President and Chief Executive Officer, its Executive Vice
President and Secretary, and its Chief Financial Officer. The plaintiff claims
to have purchased shares in the Company's Offering and purports to sue on his
own behalf and on behalf of a class of persons who purchased the Company's
common stock either pursuant to the Offering or in the period November 26, 1996
through February 13, 1997. The Complaint asserts that the Company and the
individual defendants made false or misleading statements and omissions in
connection with the Offering in violation of Sections 11, 12(a)(2) and 15 of the
federal Securities Act of 1933, and seeks damages on behalf of the putative
class in an unspecified amount and/or rescission, together with costs and
expenses of litigation.
The Company believes that the allegations in the complaint are entirely
without merit and intends vigorously to defend this matter.
Item 6. Exhibits and Reports
(a) Exhibits
Exhibit No. Description
10.10 Asset Purchase Agreement among Electrograph Systems, Inc.,
Bitwise Designs, Inc. and Electrograph Acquisition, Inc.,
Manchester Equipment Co., Inc., April 15, 1997
27 Financial Data Schedule
(b) Reports on Form 8-K
None
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MANCHESTER EQUIPMENT CO., INC.
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.
MANCHESTER EQUIPMENT CO., INC.
(Registrant)
DATE: June 12, 1997 /s/ Barry Steinberg
----------------------
Barry Steinberg
President and Chief Executive Officer
DATE: June 12, 1997 /s/ Joseph Looney
-----------------
Joseph Looney
Chief Financial Officer