Public Offering Has Disappointing Results

In a letter to stockholders, John Parsons, CEO of Micro-Integration Corp. of Frostburg, Md., announced plans to get the company back on track after a disappointing first year of being a publicly traded company.

In March 1994, the company introduced its MI Access Server product line, and in April 1994 began shipping a new product, the Terminal Access Server for IBM midrange computers. Clients include Jefferson Pilot, Volkswagen and the American Tobacco Co.

About a year ago, the 87-employee company completed a public offering of 621,227 shares of common stock, earning proceeds of approximately $4.1 million. However, significant investments this year in the sales force and increased marketing efforts for MI's core products did not produce revenue as rapidly as the company had expected. As a result, sales increased only 7 percent to $10.1 million and the company took a net loss of $1.1 million.

During 1995, management improved the international company's financial results by closing its European office in March. The company believes this restructuring, along with cost-cutting measures at home, will return the company to profitability.

Micro-Integration's major competitors in the mainframe and midrange client/server segments are IBM, Attachmate Corp. and IDEAssociates. The company places itself fourth in line after its competitors.

So was going public a bad move for Micro-Integration? Kenneth Tressler, chief financial officer, explains the company's desire to access the capital market and its plans to expand sales for research and development: "Going public wasn't a bad move for us," Tressler said. "In the high-tech business, you need to take risks." However, the company registered a gross profit increase of 2 percent after going public.

"There is always a risk involved when a company goes public," said Bill Loomis, an equity analyst for Ferris Baker Watts. "And, a company would not fall apart because of going public... Usually it has to do with poor internal operations, or not investing money wisely."

MI has a strategy to get out of its black hole. According to Parsons, the company plans to reengineer its approach to sales and marketing based on the nature of its customer base. An analysis of the customer base showed 78 percent of MI's customers bought less than $2,000 worth of products per year. Parsons attributes part of the loss in FY95 to too much money spent marketing the new Terminal Access Server. A second solution is to spend time and money on researching and developing new products that Micro-Integration's competitors lack. Parsons hopes to build Micro-Integration into a billion-dollar company over the next 10 years.