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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the 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: 0-9247
AUTO-TROL TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Colorado 84-0515221
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12500 North Washington Street, Denver, Colorado 80241-2400
(Address of principal executive offices)
(303) 452-4919
(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
Number of shares outstanding as of May 9, 1996: 6,079,262
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AUTO-TROL TECHNOLOGY CORPORATION
--------------------------------
REPORT TO SECURITIES AND EXCHANGE COMMISSION ON FORM 10-Q
---------------------------------------------------------
FOR THE SIX MONTHS ENDED MARCH 31, 1996
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Number
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations (unaudited) six months ended March 31, 1996 and 1995 1
Consolidated Balance Sheets (unaudited) March 31, 1996 and September 30, 1995 2-3
Consolidated Statements of Cash Flow (unaudited) March 31, 1996 and 1995 4
Notes to Consolidated Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6-10
Part II. Other Information, Item 6 Exhibits, Reports on Form 8-K 11
Signatures 12
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AUTO-TROL TECHNOLOGY CORPORATION
--------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
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THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
1996 1995 1996 1995
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Revenues:
Sales.................................... $ 2,111 $ 2,655 $ 4,206 $ 6,307
Service.................................. 2,987 3,740 6,085 7,900
--------------------------------------------------
$ 5,098 $ 6,395 $10,291 $14,207
Costs and expenses:
Cost of sales............................ 824 886 1,504 2,377
Cost of service.......................... 1,473 1,806 2,990 3,588
Research and product development......... 2,441 2,137 4,595 4,207
Marketing, general and administrative.... 3,449 4,128 6,959 8,291
--------------------------------------------------
$ 8,187 $ 8,957 $16,048 $18,463
Loss from operations........................ (3,089) (2,562) (5,757) (4,256)
Interest income............... 14 32 86 94
Interest expense.............. 125 119 325 359
---------------------------------------------------
Loss before income taxes.................... (3,200) (2,649) (5,996) (4,521)
Income tax (benefit)........................ (18) 55 (20) 55
--------------------------------------------------
Net loss before............................. $(3,182) $(2,704) $(5,976) $(4,576)
==================================================
Loss per share.............................. $(.77) $(.92) $(1.48) $(1.81)
Weighted average number of shares outstanding 4,145 2,943 4,027 2,527
</TABLE>
See Notes to Consolidated Financial Statements
1
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AUTO-TROL TECHNOLOGY CORPORATION
--------------------------------
CONSOLIDATED BALANCE SHEETS
(in thousands)
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<CAPTION>
MARCH 31, SEPTEMBER 30,
1996 1995
(UNAUDITED)
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ASSETS
Current Assets:
Cash and cash equivalents.......... $ 1,674 $ 2,388
Receivables net of allowance of
$178,000 and $132,000............. 3,115 4,325
Inventories........................ 267 196
Service parts and prepaid expenses. 468 330
-------------------------------------
Total current assets............ $5,524 $ 7,239
-------------------------------------
Property, facilities and equipment:
Land............................... 355 355
Building and improvements.......... 8,139 8,098
Machinery and equipment............ 9,000 8,574
Furniture, fixtures and leasehold
improvements...................... 887 898
-------------------------------------
18,382 17,925
Less accumulated depreciation and
amortization...................... (11,738) (11,421)
-------------------------------------
6,644 6,504
Purchased software, net of
accumulated amortization of
$982,000 and $991,000.............. 472 548
Other assets......................... 115 97
-------------------------------------
Total assets.................... $ 12,755 $ 14,388
=====================================
</TABLE>
See Notes to Consolidated Financial Statements
2
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AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
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<CAPTION>
MARCH 31, SEPTEMBER 30,
1996 1995
(UNAUDITED)
----------------------------------
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt.............................. $ 240 $ 240
Current portion of capital lease obligations................... 310 254
Accounts payable............................................... 1,143 1,309
Interest payable, related-party portion $219,000 and $370,000.. 230 407
Unearned service revenue and customer deposits................. 1,135 1,188
Accrued compensation and related taxes......................... 600 554
Other liabilities.............................................. 991 1,910
----------------------------------
Total current liabilities................................... $ 4,649 $ 5,862
Capital lease obligations........................................ 98 173
Long-term debt, related-party portion $1,400,000 and $2,900,000.. 3,320 4,820
----------------------------------
Total liabilities........................................... $ 12,992 $ 10,855
----------------------------------
Shareholders' equity:
Common stock, $.02 par value authorized 40,000,000 shares; issued
(including treasury shares) 6,079,262 and 3,220,567 shares... 122 64
Additional paid-in capital..................................... 79,140 71,689
Cumulative currency translation adjustments.................... (789) (411)
Accumulated deficit............................................ (73,300) (67,324)
Treasury stock, 26,140 and 26,140 common shares at cost........ (485) (485)
----------------------------------
Total shareholders' equity.................................. 4,688 3,533
----------------------------------
$ 12,755 $ 14,388
==================================
</TABLE>
See Notes to Consolidated Financial Statements
3
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AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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SIX MONTHS ENDED
MARCH 31,
1996 1995
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Cash flow from operating activities:
Net loss.......................................................................... $(5,976) $(4,473)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization..................................................... 1,336 903
(Gain) loss on disposal of property, facilities and equipment..................... (45) (150)
Provision for inventory obsolescence and shrinkage................................ 0 0
(Increase) decrease receivables................................................... 970 752
Increase (decrease) inventories................................................... (81) 7
(Increase) decrease service parts and prepaids.................................... (159) 88
Decrease accounts payable......................................................... (214) (548)
Decrease interest payable........................................................ (177) (342)
Increase (decrease) income tax payable............................................ 8 27
Increase (decrease) unearned service revenue and customer deposits................ (53) 288
Increase (decrease) other liabilities............................................. (912) 55
-------------------------
Net cash used by operating activities............................................... (5,303) (3,393)
Cash flow from investing activities:
Capital expenditures.............................................................. (1,413) (572)
Proceeds from sale of property, facilities and equipment.......................... 58 256
(Increase) decrease of non-current service parts and other assets................. (18) (18)
-------------------------
Net cash used by investing activities............................................... (1,373) (334)
Cash flow from financing activities:
Proceeds from issuance of notes payable, related party............................ 6,000 3,750
Payments on notes payable, capital lease and long-term debt....................... (19) 0
Proceeds from issue of common stock............................................... 9 13
Capital contributions to subsidiary............................................... 0 181
-------------------------
Net cash provided by financing activities........................................... 5,990 3,944
Effect of exchange rate changes on cash............................................. (28) (22)
-------------------------
Net increase in cash and cash equivalents........................................... (714) 195
Cash and cash equivalents at the beginning of the year.............................. 2,388 2,120
-------------------------
Cash and cash equivalents at the end of the period.................................. $ 1,674 $ 2,315
=========================
Supplemental disclosures of cash flow information;
Cash paid during the period for:
Interest related party portion $414,000 and $559,000.............................. $ 414 $ 559
Income taxes...................................................................... 0 0
</TABLE>
See Notes to Consolidated Financial Statements
4
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AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 1995
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for the
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Financial information as of September 30, 1995 has been
derived from the audited consolidated financial statements of Auto-trol
Technology Corporation and subsidiaries (the Company).
The condensed consolidated financial statements do not include all information
and notes required by generally accepted accounting principles for complete
financial statements. However, except as disclosed herein, there has been no
material change in the information disclosed in the notes to the consolidated
financial statements as of and for the year ended September 30, 1995 included in
Form 10-K previously filed with the SEC. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included in the accompanying Condensed Consolidated
Financial Statements. Operating results for the three and six month periods
ending March 31, 1996 are not necessarily indicative of the results that may be
expected for the year ending September 30, 1996.
(2) Business Combination with Related Party
On June 30, 1995, AT Development Inc., a wholly owned subsidiary of Auto-trol
Technology Corporation, acquired a 100% interest in Metaware, Inc., doing
business as Centra 2000, Inc. (Centra). The consideration for the purchase was
four shares of the Company's common stock for each share of Centra common stock
outstanding. The 1,212,008 shares of the Company's common stock exchanged were
not registered under Federal or State securities laws and are subject to
restrictions on resale. Additional consideration for existing Centra
shareholders consists of a cash bonus and stock in the Company in each of the
next four years, which is contingent upon meeting a development schedule and
market acceptance of the Centra 2000 product.
The Company's President and Chairman of the Board, Howard B. Hillman, controls,
through various affiliates, the majority of the outstanding shares of capital
stock of both the Company and Centra.
The effect of applying the purchase method of accounting to the acquisition of
the common stock of Centra owned by the other shareholders was not significant.
Accordingly, the acquisition has been accounted for in a manner similar to a
pooling of interests of entities under common control. The accompanying
consolidated financial statements have been restated for all periods prior to
the merger to include the accounts and operations of Centra with those of the
Company from the commencement of Centra's operations of October 1, 1994. The
effects of restating the Company's December 31, 1994, consolidated balance sheet
for the business combination were not significant. Intercompany transactions
between Centra and the Company prior to the date of the combination have been
eliminated.
(3) Loss Per Share
Loss per share is computed on the basis of the weighted average number of shares
outstanding and is adjusted, if applicable, for common stock equivalents. At
March 31, 1996 and 1995, the weighted average number of shares outstanding
includes no weighted common stock equivalent shares because their effect would
be antidilutive. Share amounts have been retroactively adjusted for the one-for-
ten reverse stock split effective January 30, 1996.
5
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AUTO-TROL TECHNOLOGY CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Overview
Operating losses for the second quarter and the six months ended March 31, 1996
continued due to decreased revenue in mature product areas. New product revenue
from the Product Data Management (PDM) and network configuration markets grew in
the six months ended March 31, 1996 over the same period ended March 31, 1995,
however, the Company continues to operate below break-even. The Company
continues to believe that its products in these market areas, when complete,
will present a unique complementary combination that will differentiate the
Company from its competitors.
Due to the nature of the software industry, the future operating results of the
Company depend largely on its ability to rapidly and continuously develop and
deliver new software products that are competitively priced and offer enhanced
performance. However, the Company is unable to predict the impact of new
products or the effect that industry economic conditions will have on future
results of operations.
Business Combination with Related Party - On June 30, 1995, AT Development
Inc., a wholly owned subsidiary of Auto-trol Technology Corporation, acquired a
100% interest in Metaware, Inc. doing business as Centra 2000, Inc. Financial
results for the quarter and the six months ended March 31, 1995 reflect the
combination of the Company's results of operations. Both the Company and Centra
2000, Inc. were under common control at the date of acquisition.
Three months ended March 31, 1996 compared to three months ended March 31, 1995
Revenues - For the quarter ended March 31, 1996, total sales and service revenue
decreased $1.3 million, or 20%, from the quarter ended March 31, 1995. Total
sales revenue for the second quarter of fiscal 1996 decreased $488,000, or 18%,
from the quarter ended March 31, 1995. Hardware revenue for the second quarter
of fiscal 1996 declined $253,000, or 21%, as compared to fiscal 1995. The
Company continues to shift the sales and support focus from hardware to
internally developed software and systems integration. The Company will continue
to sell hardware primarily as part of a total systems solution. Total software
revenue declined $235,000, or 16%, as compared to the second quarter of fiscal
1995. The decline can be attributed to reduced sales of the Company's Series
5000 and related products based on that technology, as sales from the network
configuration products increased. North America hardware sales revenue decreased
$265,000, or 43%, while North America software sales revenue decreased $353,000,
or 35% during the second quarter of fiscal 1996. European sales revenue
decreased $49,000, or 5% from the second quarter of fiscal 1995. This decrease
consisted of a favorable exchange rate variance of 1% and a 4% decrease in sales
volume. The decrease in revenue was due in part to a decrease of $128,000 in
hardware revenue, or 22% as compared to the second quarter of fiscal 1995.
European software revenue increased $79,000, or 17%, as compared to the second
quarter of fiscal 1995
Total service revenue for the quarter ended March 31, 1996, decreased $809,000,
or 22%, from the previous year's quarter ended March 31, 1995. Service revenue
is comprised of hardware and software maintenance, training and billable service
revenue. Hardware maintenance revenue decreased $352,000, or 46%, while
software maintenance revenue decreased $453,000, or 22% for the second quarter
of fiscal 1996 as compared to the second quarter of fiscal 1995. The Company
experienced a decline in service revenue in all geographic locations. As the
Company shifts from being a hardware and software solution
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-(continued)
provider to a software, systems integration, and service provider, revenue from
hardware and hardware maintenance will continue to decline. The Company's
management expects this trend to continue into the future. The declines in
software maintenance revenue can be attributed to a decline in older products
maintenance revenue. Billable services and training revenue remained steady at
$887,000 and $891,000, respectively, for the quarters ended March 31, 1996 and
1995. North American service revenue, which comprised 76% of the total worldwide
service revenue, declined $671,000, or 23%, as compared to the second quarter of
fiscal 1995. European service revenue declined $113,000, or 15%, as compared to
fiscal 1994.
Cost of Sales and Service - The result of operations for the quarter ended March
31, 1996, continued to reflect lower sales volumes which did not off set the
fixed costs of operations. Although the product mix continues the shift from
hardware and hardware maintenance to software sales and service the gross profit
margins declined. For the second quarter ended March 31, 1996, gross profit
margins on total revenue of 55% decreased 3% from the prior year second quarter.
Gross profit margins on sales revenue for the second quarter ending March 31,
1996, decreased slightly to 62% from 65% for the second quarter ended March 31,
1995. In the second quarter of fiscal 1996 gross profit margins on hardware
declined, yielding a gross margin of 21%, as compared to a gross margin of 25%
in the second quarter of fiscal 1995. This decline reflects the continued
pressure on hardware pricing throughout the computer industry. In the second
quarter of fiscal 1996 gross profit margins on software sales declined slightly
to 93% as compared to a gross margin of 97% for the same period in fiscal 1995.
Gross profit for total service revenue in the second quarter of fiscal 1996
decreased $530,000, yielding a gross margin of 50%, as compared to a gross
margin of 53% in fiscal 1995. Gross margins on billable services and training
in the second quarter of fiscal 1996 decreased $67,000 yielding a gross margin
of 31% as compared with 52% gross margin during the second quarter of fiscal
1995. The decline in training revenue corresponded with the decline in software
sales, however the gross profit for training did not incrementally decrease as
the majority of training expenses were fixed. Gross profit margins on hardware
maintenance declined $137,000 yielding gross margins of 19% in the second
quarter of fiscal 1996 as compared to gross margins of 28% in the second quarter
of fiscal 1995. This decline reflects the Company's transition from directly
providing hardware maintenance to relying on outside third parties for this
service. Software maintenance gross margins at 64% in the second quarter of
fiscal 1996 were only two percentage points less than in the second quarter of
1995 even though software maintenance sales reduced by 22% over the two periods.
Research and Product Development - Research and development expenses were
approximately 48% of revenue for the quarter ended March 31, 1996, and 33% of
revenues for the quarter ended March 31, 1995. The increase in research and
development spending as a percentage of revenue in the second quarter of fiscal
1996 is due in part to an increase of $304,000, or 14%, in spending coupled with
the overall 20% decrease in total revenue as compared to the second quarter of
fiscal 1995. The increase in spending is a result of the Company continuing to
invest in new product technology in the PDM, network configuration and
manufacturer computer aided design markets. For the balance of fiscal 1996 the
Company expects to increase its spending in research and development as it
brings several enhanced products to the marketplace.
In addition, the second quarter of fiscal 1995 research and product development
expenditures were restated to reflect the acquisition of Centra 2000, Inc.,
which occurred on June 30, 1995. Accordingly, research and product development
expenses were increased by $216,000 for the second fiscal quarter of 1995.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-(CONTINUED)
Marketing, General, and Administrative - In the second quarter ended March 31,
1996, marketing, and general and administrative expenses decreased $679,000, or
16%, from the second quarter ended March 31, 1995. European marketing and
general and administrative spending declined $324,000 due to a favorable
exchange rate variance of $209,000, a decrease in spending of $115,000, and
reduced headcount in the second quarter of 1996. In the second quarter of fiscal
1996, North American marketing, and general and administrative expenses,
decreased approximately $344,000, or 11%, as compared to the second quarter of
fiscal 1996 due primarily to reduced personnel related expenses and occupancy
costs.
Interest - In the quarter ended March 31, 1996, the Company's average debt level
increased resulting in increased interest expense of 5% to $125,000 from
$119,000 the quarter ended March 31, 1995. Interest income also decreased
$18,000, or 56% as compared to the second quarter of fiscal 1995.
Six months ended March 31, 1996 compared to six months ended March 31, 1995
Revenues - For the six months ended March 31, 1996, total sales and service
revenue decreased $3.9 million, or 28%, from the same period ended March 31,
1995. Total sales revenue for the first six months of fiscal 1996 decreased
$2.0 million, or 33%, from the six month period ended March 31, 1995. Hardware
revenue for the first half of fiscal 1996 declined $1.0 million or 38%, as
compared to the same period in fiscal 1995. Total software revenue declined
$1.0 million, or 29%, as compared to the first six months of fiscal 1995. The
decline can be attributed to reduced sales of some of the Companies mature
products. North America hardware sales revenue decreased $716,000, or 48%,
while North America software sales revenue decreased $752,000, or 33% during the
first six months of fiscal 1996. European sales revenue decreased $649,000, or
28% from the same period in fiscal 1995. This decrease consisted of an
unfavorable exchange rate variance of 2% and a 30% decrease in sales volume.
The decrease in revenue was due in part to a decrease of $454,000 in hardware
revenue, or 39% as compared to the first six months of fiscal 1995. European
software revenue decreased $194,000, or 17%, as compared to the same six month
period of fiscal 1995.
Total service revenue for the six months ended March 31, 1996, decreased $1.9
million, or 24%, from the previous year's comparable period. Hardware
maintenance revenue decreased $828,000, or 48%, while software maintenance
revenue decreased $888,000, or 21% for the first six months of fiscal 1996 as
compared to the same period of fiscal 1995. Billable services and training
revenue decreased $148,000, or 7% for the six month period ended March 31, 1996
as compared to the prior year's six month period. North American service
revenue, which comprised 75% of the total worldwide service revenue, declined
$1.6 million, or 25%, as compared to the first six months of fiscal 1995.
European service revenue declined $248,000, or 15%, as compared prior year's six
month period ended March 31, 1995.
Cost of Sales and Service - For the six months ended March 31, 1996, gross
profit margins on total revenue of 56% decreased two percentage points from the
comparable period in the prior year. Gross profit margins on sales revenue for
the six months ending March 31, 1996, increased slightly to 64% from 62% for the
six months ended March 31, 1995. In the first half of fiscal 1996 gross profit
margins on hardware declined, yielding a gross margin of 24%, as compared to a
gross margin of 27% in the comparable first six months of fiscal 1995. In the
first six months of fiscal 1996 gross profit margins on software sales increased
to 90% as compared to a gross margin of 87% for the same period in fiscal 1995.
Gross profit margins for total service revenue in the first six months of fiscal
1996 decreased $1.3 million, yielding a gross margin of 51%, as compared to a
gross margin of 55% in the first six months of fiscal 1995. Gross margins on
billable services including training in the first half of fiscal 1996 were 38%
compared to 52% in the first half of fiscal 1995 due to higher fixed costs not
being offset by a commensurate increase in revenue.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-(CONTINUED)
Gross profit margins on hardware maintenance declined $369,000 yielding gross
margins of 23% in the first six months of fiscal 1996 as compared to gross
margins of 34% in the first six months of fiscal 1995. The Company is increasing
its reliance on third party vendors for hardware maintenance and as a result
the margins are decreasing. Software maintenance gross margins at 65% in the
first half of fiscal 1996 were only one percentage point less than in the first
half of fiscal 1995 even though software maintenance sales reduced by 21% over
the two periods. The Company maintenance related costs were reduced
accordingly.
RESEARCH AND PRODUCT DEVELOPMENT - Research and development expenses were
approximately 45% of revenue for the six months ended March 31, 1996, and 30% of
revenues for the six months ended March 31, 1995. The increase in research and
development spending as a percentage of revenue in the second quarter of fiscal
1996 is due in part to an increase of $388,000, or 9%, in spending coupled with
the overall 28% decrease in total revenue as compared to the first half of
fiscal 1995.
In addition, the first six months of fiscal 1995 research and product
development expenditures were restated to reflect the acquisition of Centra
2000, Inc., which occurred on June 30, 1995. Accordingly, research and product
development expenses were increased by $388,000 for the first six months of
fiscal 1995.
MARKETING, GENERAL, AND ADMINISTRATIVE - In the six months ended March 31, 1996,
marketing, and general and administrative expenses decreased $1.3 million, or
16%, from the six months ended March 31, 1995. European marketing, and general
and administrative spending declined, $392,000, or 20% due to an unfavorable
exchange rate variance of $38,000, and a decrease in spending of $430,000
primarily due to reduced headcount in the first half of fiscal 1996. In the
first six months of fiscal 1996, North American marketing, and general and
administrative expenses, decreased approximately $932,000, or 15%, as compared
to the first six months of fiscal 1996 due primarily to reduced marketing and
selling expenses, lower personnel related expenses and occupancy costs.
INTEREST - In the six months ended March 31, 1996, interest expense decreased 9%
to $325,000 from $359,000 the six months ended March 31, 1995. Interest income
also decreased $8,000, or 9% as compared to the same period in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL CONDITION - At March 31, 1996, the Company had approximately $1.7
million in cash and cash equivalents, which was 29% lower than cash balances at
December 31, 1995. The Company's net working capital was approximately $.9
million at March 31, 1996, as compared to $.7 million at December 31, 1995.
Other than the uncertainty of future profitability, there are no known demands,
commitments, events, or uncertainties that will result in the Company's
liquidity increasing or decreasing in any material way. However, during the
second quarter of fiscal 1996, the Company has borrowed an additional
$3,000,000, totaling $6,000,000 for the six months ended March 31, 1996, with
the notes bearing interest at 10% per annum, from an affiliate of Howard B.
Hillman, the Company's President, Chairman of the Board and principal
shareholder. In March 1996, the Company converted $7,500,000 of the outstanding
related-party debt into common stock. On May 2, 1989, the Company announced a
program to repurchase the Company's stock in the open market. The maximum cost
of the shares to be purchased was limited to $2 million. To date, 261,400
shares have been purchased at a cost of $485,000.
During fiscal 1994, the Company received a permanent waiver of financial
covenants of its outstanding Industrial Development Revenue Bonds. The Company
received a permanent waiver of financial ratio
9
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requirements which placed restrictions on long-term lease agreements, debt
agreement, and current ratio requirements.
The Company will require additional funds from its majority shareholder to
continue to fund future operating losses. The shareholder has committed, in
writing, to continue providing financial support at least through December 31,
1996. If the Company is not able to achieve financial independence and
profitability through improved results in the near future, it will continue to
be dependent on its majority shareholder for additional funding and to continue
as a going concern.
CURRENCY FLUCTUATIONS
The Company has four wholly owned subsidiaries and one branch operation. The
four subsidiaries are located in Germany, Sweden, Canada and the United Kingdom;
the branch is located in Australia. The Company does business in the local
currencies of these countries, in addition to other countries where the
subsidiaries may have customers. These local currency revenues and expenses are
translated into dollars for U.S. reporting purposes. A stronger U.S. dollar
will decrease the level of reported U.S. dollar revenues and expenses.
Approximately $3,000 of favorable exchange rate variance and a $493,000 decrease
in revenue volume resulted in a $490,000 decrease in non-U.S. revenue between
the quarters ended March 31, 1996 and 1995. These effects on the Company's
results of operations could become significant if the percentage of revenues and
expenses attributed to International operations increases and/or if the dollar
fluctuates significantly against international currencies. The Company's
International operations are also subject to certain risks inherent in doing
business abroad and may be adversely affected by government policies,
restrictions, or other factors.
The Company does not use foreign exchange contracts, interest rate swaps, or
options contracts. Foreign currency risk for the Company is limited to
outstanding debt owed to the Company by the subsidiaries. The Company invoices
its subsidiaries in their local currencies for products that are sold to the
subsidiaries' end customers. Upon receipt of payment from the subsidiaries, a
foreign currency gain or loss can occur. As of March 31, 1996, and 1995, the
Company had realized a loss of approximately $16,000 and $3,000 respectively,
through payments it had received from its subsidiaries.
10
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PART II. OTHER INFORMATION
ITEM 6(b) REPORTS ON FORM 8-K:
On March 22, 1996 the Company converted $7.5 million of related party debt to
equity. A total of 2,142,857 shares of common stock was issued. A
consolidating proforma balance sheet reflecting this debit conversion was
provided.
11
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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.
AUTO-TROL TECHNOLOGY CORPORATION
(Registrant)
Date: May 10, 1996 /s/ HOWARD B. HILLMAN
---------------------------------
Howard B. Hillman,
President
Date: May 10, 1996 /s/ David C. O'Brien
---------------------------------
David C. O'Brien
Vice President, Finance
12
<TABLE> <S> <C>
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