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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 December 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 February 10, 1997: 7,740,680
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AUTO-TROL TECHNOLOGY CORPORATION
--------------------------------
REPORT TO SECURITIES AND EXCHANGE COMMISSION ON FORM 10-Q
---------------------------------------------------------
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
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Page
Number
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations (unaudited) three months ended December 31, 1996 and 1995 1
Consolidated Balance Sheets (unaudited) December 31, 1996 and September 30, 1996 2
Consolidated Statements of Cash Flow (unaudited) three months ended December 31, 1996 and 1995 3
Notes to Consolidated Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5-7
Part II. Other Information, Item 4 and Item 6(b) Reports on Form 8-k 8
Signatures 9
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AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1996 1995
----------------------------
<S> <C> <C>
Revenues:
Sales................................. $ 2,213 $ 2,095
Service............................... 3,292 3,098
----------------------------
5,505 5,193
Costs and expenses:
Cost of sales......................... 684 680
Cost of service....................... 1,489 1,517
Research and product development...... 1,665 2,154
Marketing, general and administrative. 3,312 3,510
----------------------------
7,150 7,861
Loss from operations.................... (1,645) (2,668)
Interest income....................... 26 72
Interest expense related party
portion, $75 and $162............... (110) (200)
----------------------------
Loss before income taxes................ (1,729) (2,796)
Income tax benefit (expense)............ (11) 2
----------------------------
Net loss................................ $(1,740) $(2,794)
============================
Loss per share.......................... $(.23) $(.71)
Weighted average number of shares
outstanding........................... 7,721 3,910
</TABLE>
See Notes to Consolidated Financial Statements
1
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AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands except per share amounts)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
(unaudited)
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................................... $ 1,598 $ 2,173
Receivables net of allowance of $177 and $173............................... 3,005 2,846
Inventories................................................................. 213 304
Service parts and prepaid expenses.......................................... 660 522
----------- -----------
Total current assets.................................................... $ 5,476 $ 5,845
----------- -----------
Property, facilities and equipment:
Land........................................................................ 356 356
Building and improvements................................................... 8,204 8,204
Machinery and equipment..................................................... 8,429 9,560
Furniture, fixtures and leasehold improvements.............................. 915 906
----------- -----------
17,904 19,026
Less accumulated depreciation and amortization.............................. (11,578) (12,572)
----------- -----------
6,326 6,454
Purchased software, net of accumulated amortization of $1,193 and $1,123....... 399 461
Other assets................................................................... 88 90
----------- -----------
Total assets............................................................ $ 12,289 $ 12,850
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt........................................... $ 240 $ 240
Current portion of capital lease obligations................................ 99 128
Accounts payable............................................................ 799 1,195
Interest payable, related party portion $565 and $490....................... 630 516
Unearned service revenue and customer deposits.............................. 1,432 1,590
Accrued compensation and related taxes...................................... 396 673
Other liabilities........................................................... 1,280 1,235
----------- -----------
Total current liabilities............................................... 4,876 5,577
Capital lease obligations...................................................... -- 8
Long-term debt, related party, $3,700 and $1,900............................... 5,380 3,580
----------- -----------
Total liabilities....................................................... 10,256 9,165
----------- -----------
Shareholders' equity:
Common stock, $.02 par value authorized 40,000,000 shares; issued
(including treasury shares) 7,747,680 and 7,745,929 shares................ 155 155
Additional paid-in capital.................................................. 84,115 84,106
Cumulative currency translation adjustments................................. (901) (980)
Accumulated deficit......................................................... (80,851) (79,111)
Treasury stock 26,140 and 26,140 common shares at cost...................... (485) (485)
----------- -----------
Total shareholders' equity.............................................. 2,033 3,685
----------- -----------
$ 12,289 $ 12,850
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
2
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AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
1996 1995
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Cash flow from operating activities:
Net loss............................................................. $ (1,740) $ (2,794)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization........................................ 376 338
Gain on disposal of property, facilities and equipment............... 29 11
(Increase) decrease receivables...................................... (180) 1,058
Decrease inventories................................................. 94 (37)
(Increase) decrease service parts and prepaids....................... (69) (127)
Decrease accounts payable............................................ (386) (121)
Increase (decrease) interest payable................................ 114 (234)
Increase (decrease) income tax payable............................... 85 (34)
Increase (decrease) unearned service revenue and customer deposits... (158) 2
Increase (decrease) other liabilities................................ (302) (538)
-------- --------
Net cash used by operating activities................................... (2,137) (2,476)
Cash flow from investing activities:
Capital expenditures................................................. (217) (799)
Proceeds from sale of property, facilities and equipment............. 17 -
(Increase) decrease of non-current service parts and other assets.... 1 (2)
-------- --------
Net cash used by investing activities................................... (199) (801)
Cash flow from financing activities:
Proceeds from issuance of notes payable, related party............... 1,800 3,000
Payments on notes payable, capital lease and long-term debt.......... (37) (71)
Proceeds from issue of common stock.................................. 9 8
-------- --------
Net cash provided by financing activities............................... 1,772 2,937
Effect of exchange rate changes on cash................................. (11) (32)
-------- --------
Net increase in cash and cash equivalents............................... (575) (372)
Cash and cash equivalents at the beginning of the year.................. 2,173 2,388
-------- --------
Cash and cash equivalents at the end of the period...................... $ 1,598 $ 2,016
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, related party portion $0 and $433.......................... $ - $ 433
</TABLE>
See Notes to Consolidated Financial Statements
3
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AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1996
(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, 1996 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, 1996 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 month periods ending
December 31, 1996 are not necessarily indicative of the results that may be
expected for the year ending September 30, 1997.
(2) 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
December 31, 1996 and 1995, the weighted average number of shares outstanding
includes no weighted common stock equivalent shares because their effect would
be antidilutive.
4
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
Revenues from sales and services for the first quarter ended December 31, 1996
increased slightly as new product sales and services offset the decrease in
sales and maintenance revenue in mature product areas. Operating losses for the
first quarter ended December 31, 1996 continued, however, it was the smallest
operating loss the Company has had in the last ten fiscal quarters. New product
revenue from the Product Data Management (PDM), exploration data management and
mapping solutions markets grew in the first quarter ended December 31, 1996 over
the same period ended December 31, 1995. The Company continues to believe that
its PDM, Electronic Publishing Solutions (EPS) and network configuration
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. The Company believes that these products are competitive both
functionally and from a pricing perspective. 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.
REVENUES - For the quarter ended December 31, 1996, total sales and service
revenue increased $312,000, or 6%, from the quarter ended December 31, 1995.
Total sales revenue for the first quarter of fiscal 1997 increased $124,000, or
6%, from the quarter ended December 31, 1995. Hardware revenue for the first
quarter of fiscal 1997 decreased $269,000, or 37%, as compared to fiscal 1996.
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 increased $392,000, or 29%, as compared to the first quarter of
fiscal 1996. The increase can be attributed to higher sales of PDM and
exploration data management and mapping solutions.
Total service revenue for the quarter ended December 31, 1996, increased
$188,000, or 6%, from the previous quarter ended December 31, 1995. Service
revenue is comprised of hardware and software maintenance, training and billable
service revenue. Hardware maintenance revenue decreased 42%, while software
maintenance revenue remained the same for the first quarter of fiscal 1997 as
compared to the first quarter of fiscal 1996. As the Company shifts from being
a hardware and software solution provider to a software, systems integration,
and service provider, revenue from hardware and hardware maintenance will
continue to decline. Training and billable services revenues increased 29% from
the previous quarter ended December 31, 1995.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-(CONTINUED)
COST OF SALES AND SERVICE - The result of operations for the quarter ended
December 31, 1996, continued to reflect shifts in product mix from hardware to
software and services. For the first quarter ended December 31, 1996, gross
profit margins on total revenue increased by 3% to 61% from 58% for the first
quarter ended December 31, 1995. Gross profit margins on sales revenue for the
first quarter ending December 31, 1996, increased to 70% from 67% for the first
quarter ended December 31, 1995. In the first quarter of fiscal 1997 gross
profit margins on hardware declined, yielding a gross margin of 18%, as compared
to a gross margin of 27% in the first quarter of fiscal 1996. This decline
reflects the continued pressure on hardware pricing throughout the computer
industry. In the first quarter of fiscal 1997, the gross profit margin on
software sales decreased to 83%, as compared to a gross margin of 89% in the
first quarter of fiscal 1996, as the Company sold more third party software.
Gross profit margins for total service revenue in the first quarter of fiscal
1997 increased $206,000, yielding a gross margin of 54%, as compared to a gross
margin of 51% in the first quarter of fiscal 1996. The gross margin on billable
services and training in the first quarter of fiscal 1997 remained at 39%, as it
was in the first quarter of fiscal 1996. Gross profit margins on hardware
maintenance decreased yielding a gross margin of 31% in the first quarter of
fiscal 1997, as compared to a gross margin of 27% in the first quarter of fiscal
1996. This reduction is attributed to the Company's growing utilization of
outside third parties for hardware maintenance services. The software
maintenance gross margin increased 6% in the first quarter of fiscal 1997 to 71%
from 65% in the first quarter of fiscal 1996.
RESEARCH AND PRODUCT DEVELOPMENT - Research and development expenses were
approximately 30% of revenue for the quarter ended December 31, 1996, and 41% of
revenues for the quarter ended December 31, 1995. Research and development
expenses decreased by 23% or $489,000 in the first quarter ended December 31,
1996 compared to the previous years first quarter. This decrease in spending is
a direct result of the Company ceasing development of its Mozaic product due to
competitive pressures in September 1996 and the Company's focus on developing
its other proprietary software products.
MARKETING, GENERAL, AND ADMINISTRATIVE - In the first quarter ended December 31,
1996, marketing, general and administrative expenses decreased $198,000, or 6%,
from the first quarter ended December 31, 1995. European marketing, general and
administrative spending declined $85,000 due to a favorable exchange rate
variance of $81,000, and a decrease in spending of $4,000, as compared to the
first quarter ended December 31, 1995. In the first quarter of fiscal 1997,
North American marketing, general and administrative expenses, decreased
approximately $129,000, or 5%, as compared to the first quarter of fiscal 1996
due primarily to reduced personnel related expenses and occupancy costs.
INTEREST - In the quarter ended December 31, 1996, interest expense decreased
45% or $90,000 from the quarter ended December 31, 1995, as a result of
decreased borrowings. Interest income decreased $47,000 from the first quarter
of fiscal 1996 compared to the first quarter ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL CONDITION - At December 31, 1996, the Company had approximately $1.6
million in cash and cash equivalents, which was 26% lower than cash balances at
September 30, 1996. The Company's net working capital was $600,000 at December
31, 1996, as compared to $268,000 at September 30, 1996. 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 first quarter of fiscal
1997, the Company borrowed a total of $1,800,000, 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 December 1996,
the Company had outstanding related party debt of $3,700,000. 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, 26,140 shares have been purchased at a cost of $485,000.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-(CONTINUED)
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,
1997. If the Company does not achieve profitability in the near future, it will
continue to be dependent on its majority shareholder for additional funding and
to continue as a going concern. The Company's long term viability will be in
jeopardy if it is not able to achieve financial independence through improved
results, or should support from its majority shareholder not continue after
December 31, 1997.
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, such as Norway, Finland and Italy. 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 $12,000 of unfavorable exchange
rate variance and a $148,000 decrease in revenue volume resulted in a net
decrease of $136,000 in non-U.S. revenue between the quarters ended December
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
option 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 December 31, 1996, and 1995, the
Company had realized a loss of approximately $500 and $1,000 respectively,
through payments it had received from its subsidiaries.
7
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PART II. OTHER INFORMATION
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of stockholders, which was held on January 28,
1997, the Company's stockholders elected the following three persons as
directors, each to serve until the next annual meeting of stockholders or until
his successor is elected and qualified: Howard B. Hillman, Major General
William Usher, USAF (Ret.) and J. Roderick Heller III. All nominees were
elected. In addition, the Company's stockholders affirmed the selection of the
Company's auditors for the ensuing fiscal year.
ITEM 6(B) REPORTS ON FORM 8-K
No reports on Form 8-k were filed during the quarter for which this report is
filed.
8
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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: February 14, 1997 /s/HOWARD B. HILLMAN
--------------------------------
Howard B. Hillman,
President
Date: February 14, 1997 /s/MARY LOU SCHWAB
--------------------------------
Mary Lou Schwab
Vice President, Treasurer
(Principal Financial Officer
and Principal Accounting Officer)
9
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<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,598
<SECURITIES> 0
<RECEIVABLES> 3,182
<ALLOWANCES> 177
<INVENTORY> 213
<CURRENT-ASSETS> 5,476
<PP&E> 17,904
<DEPRECIATION> 11,578
<TOTAL-ASSETS> 12,289
<CURRENT-LIABILITIES> 4,876
<BONDS> 5,380
0
0
<COMMON> 155
<OTHER-SE> 1,878
<TOTAL-LIABILITY-AND-EQUITY> 12,289
<SALES> 2,213
<TOTAL-REVENUES> 5,505
<CGS> 684
<TOTAL-COSTS> 2,173
<OTHER-EXPENSES> 4,977
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<INTEREST-EXPENSE> 110
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<INCOME-TAX> 11
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<EPS-PRIMARY> (.23)
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