-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HfPeL8QRAGXiwbdp2DVbNDLVVvt14KdmE128R13YKqyj/GVSKieiauKarh+INGSF xx9jxBuw7Z3YSv8Yr6z0+Q== 0000910680-98-000309.txt : 19980813 0000910680-98-000309.hdr.sgml : 19980813 ACCESSION NUMBER: 0000910680-98-000309 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980812 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICROFRAME INC CENTRAL INDEX KEY: 0000754813 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 222413505 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-13117 FILM NUMBER: 98683571 BUSINESS ADDRESS: STREET 1: 21 MERIDIAN RD CITY: EDISON STATE: NJ ZIP: 08820 BUSINESS PHONE: 2014944440 MAIL ADDRESS: STREET 1: 21 MERIDIAN RD CITY: EDISON STATE: NJ ZIP: 08820 10QSB 1 MICROFRAME INC. 10-QSB U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB / X / QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR /___/ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission File No.: 0-13117 MICROFRAME, INC. ----------------------- (Exact Name of Small Business Issuer in Its Charter) New Jersey 22-2413505 ---------- ---------- (State or Other Jurisdiction of (IRS Employer Identification Number) Incorporation or Organization) 21 Meridian Road, Edison, New Jersey 08820 ------------------------------------------- (Address of Principal Executive Offices) (732) 494-4440 -------------- (Issuer's telephone number, including area code) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- There were 5,403,480 shares of Common Stock outstanding as of August 4, 1998. Transitional Small Business Disclosure Format: Yes No X --- --- MICROFRAME, INC. AND SUBSIDIARY FORM 10-QSB FOR THE QUARTER ENDED JUNE 30, 1998
PART I. FINANCIAL INFORMATION Page ---- Item 1. Condensed Consolidated Financial Information 2 Condensed Consolidated Balance Sheets as of June 30, 1998 and March 31, 1998 (Unaudited) 3 Condensed Consolidated Statements of Operations for the three months ended June 30, 1998 and June 30, 1997 (Unaudited) 4 Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 1998 and June 30, 1997 (Unaudited) 5 Notes to Condensed Consolidated Financial Statements (Unaudited) 6-7 Item 2. Management's Discussion and Analysis 8-9 PART II. OTHER INFORMATION Item 6. Exhibits and reports on Form 8-K 10 SIGNATURES 11
PART I. Financial Information Item 1. Condensed Consolidated Financial Information. -------------------------------------------- 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. Although the registrant believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. It is suggested that these condensed financial statements be read in conjunction with the audited financial statements and the notes thereto included in the registrant's Annual Report on Form 10-KSB for the year ended March 31, 1998. 2 MicroFrame, Inc. and Subsidiary Condensed Consolidated Balance Sheets (unaudited) - --------------------------------------------------------------------------------
June 30, March 31, 1998 1998 ASSETS Current assets Cash and cash equivalents $ 447,186 $ 507,726 Accounts receivable, less allowance for doubtful accounts of $126,000 and $126,000, respectively 3,578,280 2,667,319 Inventory, net 1,887,644 1,425,351 Deferred tax asset 371,822 366,137 Prepaid expenses and other current assets 186,172 153,568 ---------------- ---------------- Total current assets 6,471,104 5,120,101 Property and equipment, less accumulated depreciation of $568,687 and $971,903 458,685 421,701 Capitalized software, less accumulated amortization of $1,106,354 and $1,054,827 433,682 396,351 Deferred tax assets, net 2,745 129,689 Goodwill, less accumulated amortization of $28,605 and $26,130 73,005 75,480 Security deposits 39,348 35,716 Other assets 293,135 ---------------- ---------------- Total assets $ 7,771,704 $ 6,179,038 ================ ================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Bank borrowings $ 600,000 $ 300,000 Current portion of long-term debt 18,817 30,009 Accounts payable 1,066,763 910,842 Accrued payroll and related liabilities 225,541 348,397 Deferred income 268,751 181,573 Other current liabilities 452,673 405,263 ---------------- ---------------- Total current liabilities 2,632,545 2,176,084 ---------------- ---------------- Other liabilities 69,529 0 Committments and contingencies Stockholders' equity Common stock - par value $.001 per share; authorized 50,000,000 shares, issued 5,403,480 shares and outstanding 5,403,080 shares at June 30, 1998; issued 4,849,531 shares and outstanding 4,849,131 and subscribed 50,000 shares at March 31, 1998 5,403 4,899 Preferred stock- par value $10 per share; authorized 200,000 shares, none issued Additional paid-in capital 7,143,363 6,345,613 Stock subscription receivable 0 (104,000) Accumulated deficit (2,070,494) (2,231,638) Cumulative translation adjustment (4,642) (7,920) ---------------- ---------------- 5,073,630 4,006,954 Less - Treasury stock, 400 shares, at cost (4,000) (4,000) ---------------- ---------------- Total stockholders' equity 5,069,630 4,002,954 ---------------- ---------------- Total liabilities and stockholders' equity $ 7,771,704 $ 6,179,038 ================ ================
The accompanying notes are an integral part of these condensed consolidated financial statements 3 MicroFrame, Inc. and Subsidiary Condensed Consolidated Statements of Operations - -------------------------------------------------------------------------------- (unaudited)
Three Months Ended June 30, -------- 1998 1997 Net sales $ 2,963,973 $ 1,736,546 Cost of sales 1,008,005 741,046 --------------- ------------- Gross margin 1,955,968 995,500 Research and development expenses 412,967 286,552 Selling, general and administrative expenses 1,219,648 887,191 --------------- ------------- Income (loss) from operations 323,353 (178,243) Interest income 2,336 5,645 Interest expense (8,969) (1,424) --------------- ------------- Income (loss) before income tax provision(benefit) 316,720 (174,022) Income tax provision(benefit) 155,576 (20,221) --------------- -------------- Net income (loss) $ 161,144 $ (153,801) =============== ============== Per share data Net income (loss) per share Basic $ 0.03 $ (0.03) --------------- -------------- Diluted $ 0.02 $ (0.03) --------------- -------------- Weighted average number of common shares outstanding basic 5,134,272 4,883,704 ------------- -------------- Weighted average number of common shares outstanding diluted 7,042,534 4,883,704 ------------- --------------
The accompanying notes are an integral part of these condensed consolidated financial statements 4 MicroFrame, Inc. and Subsidiary Condensed Consolidated Statements of Cash Flows - -------------------------------------------------------------------------------- (unaudited)
Three Months Ended June 30, -------- 1998 1997 Cash flows from operating activities Net income (loss) $ 161,144 $ (153,801) Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 123,115 94,738 Provision for bad debts 9,374 Provision for inventory obsolescence 15,000 Deferred tax provision 121,259 (20,221) (Increase) decrease in Accounts receivable (910,961) 236,675 Inventory (462,293) (23,649) Prepaid expenses and other current assets (32,604) 2,939 Security deposits (3,632) 9,519 Increase (decrease) in Accounts payable 155,921 30,246 Accrued payroll and related liabilities (122,856) (110,989) Deferred income 87,178 (22,538) Other current liabilities 47,410 52,605 Other liabilities 69,529 --------------------- --------------------- Net cash (used in) provided by operating activities (766,790) 119,898 --------------------- --------------------- Cash flows from investing activities Capital expenditures (102,819) (40,039) Capitalized software (88,858) (20,000) Other assets (293,135) 0 -------------------- --------------------- Net cash used in investing activities (484,812) (60,039) --------------------- --------------------- Cash flows from financing activities Proceeds of short-term borrowings 300,000 Repayments of debt (11,192) (10,258) Issuance of common stock 902,254 --------------------- --------------------- Net cash provided by (used in) financing activities 1,191,062 (10,258) --------------------- --------------------- Net (decrease) increase in cash and cash equivalents (60,540) 49,601 Cash and cash equivalents - beginning of period 507,726 539,214 -------------------- --------------------- Cash and cash equivalents - end of period $ 447,186 $ 588,815 ===================== =====================
The accompanying notes are an integral part of these condensed consolidated financial statements 5 MICROFRAME, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 (Unaudited) Note 1 - Condensed Consolidated Financial Statements: - ---------------------------------------------------- The condensed consolidated balance sheets as of June 30, 1998 and March 31, 1998, the condensed consolidated statements of operations for the three month periods ended June 30, 1998 and 1997 and the condensed consolidated statements of cash flows for the three month periods then ended have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary for the fair presentation of the Company's financial position, results of operations and cash flows at June 30, 1998 and 1997 have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the audited financial statements and notes thereto included in the annual report on Form 10-KSB for the year ended March 31, 1998.
Note 2 - Inventory: - ------------------ Inventory consists of the following: June 30, 1998 March 31, 1998 ------------- -------------- Raw materials $ 814,193 $ 1,003,132 Work in process 1,115,323 525,918 Finished goods 143,128 81,301 ---------- ---------- 2,072,644 1,610,351 Less, allowance for obsolescence (185,000) (185,000) --------- --------- Total $1,887,644 $1,425,351 ========== ==========
Note 3 - Earnings Per Share: - --------------------------- The Company has adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128") in the quarter ended December 31, 1997. All prior periods presented have been restated to account for this change. The computaion of Basic Earnings Per Share is based on the weighted average number of common shares outstanding for the period. Diluted Earnings Per Share is based on the weighted average number of common shares outstanding for the period plus the dilutive effect of common stock equivalents, comprised of outstanding stock options and warrants. The following is a reconciliation of the denominator used in the calculation of basic and diluted earnings per share: 6 Three Months Three Months Ended Ended 6/30/98 6/30/97 ------------ ----------- Weighted Average # of Shares Outstanding 5,134,272 4,833,704 Incremental Shares for Common Equivalents 1,908,262 --------- --------- Diluted Shares Outstanding 7,042,534 4,833,704 Note 4 - Recent Pronouncements: - ------------------------------ In June 1997, the Financial Accounting Standards Board issued SFAS 131, "Disclosure about Segments of an Enterprise and Related Information" which becomes effective for financial statements for periods beginning after December 31, 1997. This Statement establishes standards for the way that public business enterprises report information about operaing segments in annual financial reports and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The adoption of this standard is not expected to have a material impact on the Company's financial statements. 7 Item 2. Management's Discussion and Analysis ------------------------------------ A number of statements contained in this report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the applicable statements. These risks and uncertainties include, but are not limited to, the recent introduction of, and the costs associated with, a new product line; dependence on the acceptance of this new family of products; risks related to technological factors; potential manufacturing difficulties; dependence on third parties; a limited customer base; and liability risks. Results of Operations --------------------- Revenues for the quarter ended June 30, 1998 were $2,963,973 as compared with revenues of $1,736,546 for the same quarter of the previous fiscal year, or an increase of approximately 71 %. The increase in revenues was primarily the result of increased business activity and as a result of the continued acceptance of its Sentinel product line as well interest in the other member of the family of SNS products, the Manager 2000. The Company's cost of goods sold increased from $741,046 for the quarter ended June 30, 1997 to $1,008,005 for the quarter ended June 30, 1998 as a result of increased business activity. Cost of goods sold as a percentage of sales decreased from 42.7% for the previous comparable fiscal period to 34.0% for this fiscal period, due to the increased volumes, manufacturing efficiencies and higher margin software and services sales in the quarter. Research and development expenses, net of capitalized software development, increased from $286,552 in the quarter ended June 30, 1997 to $412,967 in the current fiscal quarter, an increase of 44%. This is a direct reflection of the Company's continued increased activity related to the development of the Secure Network Systems/2000 set of products. Research and development expenses as a percentage of revenues decreased from 17% to 14%. Selling, general and administrative expenses increased approximately 37% from $887,191 for the prior year's comparable fiscal period to $1,219,648 for the fiscal period ended June 30, 1998. This increase results primarily from the Company's aggressive growth plan in the sales and marketing area. The Company had income from operations of $323,383 for the period ended June 30, 1998, compared to a loss from operations of $178,243 for the same period a year ago. Due to the reduction in interest costs to the Company and the effects of the income tax benefit of $20,221, the net loss for the period ended June 30, 1997 was $153,801 compared to net income of $161,144 for the quarter ended June 30, 1998. 8 Financial Condition and Capital Resources - ----------------------------------------- During the first quarter of fiscal year 1999, the Company recorded net income of approximately $161,000. Included in this net income were non-cash charges of approximately $123,000 for depreciation and amortization and $121,000 of deferred taxes. As a result and in conjunction with the following items discussed below, during the first three months of fiscal year 1999, the Company's cash position remained relatively stable. The Company's operations used $767,000 of cash, primarily as a result of an increase in accounts receivable of $910,961 for sales that occurred later in the quarter and an increase in inventory buildup of $462,293 as the Company prepares to ship its backlog going into the second quarter These increases were offset by the payment of accrued payroll and related liabilities. The Company utilized approximately $200,000 of cash for capital and software-related expenditures and an additional $293,000 for one-time merger related costs that have been capitalized. Proceeds from stock option and warrant exercises were approximately $900,000 and proceeds from borrowings under the company's line of credit were $300,000. The Company utilized approximately $10,000 of cash to pay down its long-term debt in the first quarter. In November 1997, the Company successfully negotiated with United National to provide the Company with a $1,000,000 line of credit, collateralized by accounts receivable of the Company, to finance future working capital requirements that was due to expire on July 31, 1998. In July 1998 the bank extended this line of credit for a period of 60 days, in anticipation of renewal, negotiations of which are progressing. As of August 3, 1998, the Company has utilized $600,000 under this line. Based on its current cash and working capital position, as well as its available line of credit, the Company believes that it will have sufficient capital to meet its operational needs over the next twelve months. In June 1997, the Financial Accounting Standards Board issued SFAS 131, "Disclosure about Segments of an Enterprise and Related Information" which becomes effective for financial statements for periods beginning after December 31, 1997. This Statement establishes standards for the way that public business enterprises report information about operaing segments in annual financial reports and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The adoption of this standard is not expected to have a material impact on the Company's financial statements. 9 PART II. Other Information Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: -------- 27. Financial Data Schedule (b) Reports on Form 8-K: ------------------- On May 19, 1998, the Company filed a Current Report on Form 8-K, disclosing a press release in connection with the execution of a letter of intent relating to the Company's proposed acquisition of SolCom Systems Limited. 10 SIGNATURES ---------- In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: August 7, 1998 MICROFRAME, INC. /s/ Stephen B. Gray ---------------------------------------------------- Stephen B. Gray, President, Chief Executive Officer and Chief Operating Officer /s/ John F. McTigue ---------------------------------------------------- John F. McTigue, Chief Financial Officer and Treasurer (Principal Financial Officer) -11- EXHIBIT INDEX Exhibit No. Description - ---------- ----------- 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS MAR-31-1999 APR-01-1998 JUN-30-1998 447,186 0 3,578,280 (126,000) 1,887,644 6,471,104 1,027,372 (568,687) 7,771,704 (2,632,545) 0 5,403 0 0 5,064,227 7,771,704 2,963,973 2,963,973 1,008,005 1,632,615 0 0 (8,969) 316,720 155,576 161,144 0 0 0 161,144 .03 .02
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