<PAGE>
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 June 30, 1998
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
incorporation or organization) Identification No.)
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. Yes [X] No[_]
Number of shares outstanding as of August 4, 1998: 13,006,480
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AUTO-TROL TECHNOLOGY CORPORATION
--------------------------------
REPORT TO SECURITIES AND EXCHANGE COMMISSION ON FORM 10-Q
---------------------------------------------------------
FOR THE NINE MONTHS ENDED JUNE 30, 1998
---------------------------------------
<TABLE>
<CAPTION>
Page Number
Part I. Financial Information
Item 1. Financial Statements
<S> <C>
Consolidated Statements of Operations (unaudited), three and nine months ended June 30, 1998 1
and 1997
Consolidated Balance Sheets (unaudited), June 30, 1998 and September 30, 1997 2
Consolidated Statements of Cash Flows (unaudited), nine months ended June 30, 1998 and 3
1997
Notes to Consolidated Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5-8
Part II. Other Information, Item 6(b) Reports on Form 8-k 9
Signatures 10
</TABLE>
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AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-----------------------------------------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues:
Sales................................................... $ 1,665 $ 738 $ 3,052 $ 4,653
Service................................................. 2,399 2,617 7,647 8,687
-----------------------------------------------------------
4,064 3,355 10,699 13,340
Costs and expenses:
Cost of sales........................................... 134 392 354 1,911
Cost of service......................................... 828 1,268 3,102 4,083
Research and product development........................ 1,500 1,551 4,529 4,778
Marketing, general and administrative................... 2,803 3,460 7,717 10,157
-----------------------------------------------------------
5,265 6,671 15,702 20,929
Loss from operations...................................... (1,201) (3,316) (5,003) (7,589)
Interest income........................................... 50 16 63 50
Interest expense (related party, $98, $60, $315, $240).... 134 104 498 364
-----------------------------------------------------------
Loss before income taxes.................................. (1,285) (3,404) (5,438) (7,903)
Income tax benefit........................................ 0 (17) 0 0
-----------------------------------------------------------
Net loss.................................................. $(1,285) $(3,387) $(5,438) $(7,903)
===========================================================
Basic and diluted loss per share.......................... $ (.10) $ (.39) $ (.49) $ (.95)
Weighted average number of basic and diluted common
shares outstanding....................................... 12,626 8,604 10,987 8,306
</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>
June 30,
1998 September 30,
(unaudited) 1997
------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................................. $ 1,300 $ 1,421
Receivables, net of allowance of $145 and $153............................ 1,916 3,233
Inventories............................................................... 59 51
Prepaid expenses.......................................................... 426 545
------------------------------------
Total current assets................................................... 3,701 5,250
------------------------------------
Property, facilities and equipment:
Land...................................................................... 356 356
Building and improvements................................................. 8,435 8,392
Machinery and equipment................................................... 7,087 7,955
Furniture, fixtures and leasehold improvements............................ 853 925
------------------------------------
16,731 17,628
Less accumulated depreciation and amortization............................ (10,874) (11,461)
------------------------------------
5,857 6,167
Purchased software, net of accumulated amortization of $1,403 and $1,369 395 322
Other assets................................................................ 63 63
------------------------------------
Total assets........................................................... $ 10,016 $ 11,802
====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt......................................... $ 240 $ 240
Accounts payable.......................................................... 604 840
Accrued interest payable, related party portion $265 and $356............. 330 390
Unearned service revenue and customer deposits............................ 1,642 1,141
Accrued compensation and related taxes.................................... 364 470
Other liabilities......................................................... 1,247 1,753
------------------------------------
Total current liabilities.............................................. 4,427 4,834
Long-term debt, related party portion $4,075 and $4,975..................... 5,515 6,415
------------------------------------
Total liabilities...................................................... 9,942 11,249
------------------------------------
Shareholders' equity:
Common stock, $.02 par value; authorized 40,000,000 shares; issued
(including treasury shares) 13,011,997 and 9,314,347 shares.............. 260 186
Additional paid-in capital................................................ 93,713 88,784
Cumulative currency translation adjustments............................... (1,079) (1,035)
Accumulated deficit....................................................... (92,335) (86,897)
Treasury stock, 26,140 common shares at cost.............................. (485) (485)
------------------------------------
Total shareholders' equity............................................. 74 553
------------------------------------
$ 10,016 $ 11,802
====================================
</TABLE>
See Notes to Consolidated Financial Statements
2
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AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
1998 1997
-----------------------------------
<S> <C> <C>
Cash flow from operating activities:
Net loss..................................................................... $(5,438) $(7,903)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization................................................ 892 1,099
Loss (gain) on disposal of property, facilities and equipment................ 24 63
Changes in operating assets and liabilities
Receivables............................................................. 1,518 1,830
Inventories............................................................. (7) 240
Prepaids................................................................ (69) 35
Accounts payable........................................................ (232) (656)
Accrued interest payable................................................ (60) (213)
Unearned revenue and customer deposits.................................. 503 (106)
Other liabilities....................................................... (590) (335)
-----------------------------------
Net cash used by operating activities........................................... (3,459) (5,946)
Cash flows from investing activities:
Capital expenditures......................................................... (713) (771)
Proceeds from sale of property, facilities and equipment..................... 34 97
Other assets................................................................. - 2
-----------------------------------
Net cash used by investing activities........................................... (679) (672)
Cash flows from financing activities:
Proceeds from issuance of notes payable, related party....................... 8,100 6,775
Payments on notes payable, capital leases and long-term debt,
related party portion $4,000 and $300.................................. (4,008) (310)
Proceeds from issuance of common stock....................................... 2 9
-----------------------------------
Net cash provided by financing activities....................................... 4,094 6,474
Effect of exchange rate changes on cash......................................... (77) (133)
-----------------------------------
Net decrease in cash and cash equivalents....................................... (121) (277)
Cash and cash equivalents at the beginning of the year.......................... 1,421 2,173
-----------------------------------
Cash and cash equivalents at the end of the period.............................. $ 1,300 $ 1,896
===================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, related party portion $406 and $490 $ 473 $ 568
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1998
(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, 1997 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, 1997 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 nine month periods
ending June 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending September 30, 1998.
(2) LOSS PER SHARE
The provisions of Statement of Financial Accounting Standards No. 128, Earnings
Per Share, are effective for financial statements for interim periods ending
after December 15, 1997. Basic loss per share is computed on the basis of
weighted-average common shares outstanding. Diluted loss per share is the same
as basic loss per share for the three and nine month period ending June 30, 1998
and 1997, as no dilutive common stock equivalents were outstanding.
4
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the following
discussions contain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. The Company undertakes no obligation to revise any forward-
looking statements in order to reflect events or circumstances that may
subsequently arise. Some additional factors, among others, are: the likelihood
that actual future revenues that are realized may differ from those inferred
from existing total backlog; the ability of the Company to attract and retain
highly trained professional employees; the delay or deferral of customer
implementations; the Company's success in expanding its direct sales force and
indirect distribution channels; the timing of new product introductions and
product enhancements by the Company and its competitors; the mix of products and
services sold; levels of international sales; the ability of the Company to
develop and market new products and control costs and general domestic and
international economic and political conditions.
RESULTS OF OPERATIONS
OVERVIEW
Operating losses for the third quarter and nine months ended June 30, 1998
continued, however they decreased as compared to the third quarter and nine
months ended June 30, 1997. The company continues to believe that its Product
Data Management (PDM), Electronic Publishing Solutions (EPS) and network
configuration products, 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 its 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.
Three months ended June 30, 1998 compared to three months ended June 30, 1997
- -----------------------------------------------------------------------------
Revenues - For the quarter ended June 30, 1998, total sales and service revenue
increased $709,000, or 21%, from the quarter ended June 30, 1997. Total sales
revenue for the third quarter of fiscal 1998 increased $927,000, or 126%, from
the quarter ended June 30, 1997. Hardware revenue for the third quarter of
fiscal 1998 decreased $214,000, or 89%, as compared to the third quarter of
fiscal 1997. The Company continues to shift the sales and support focus from
hardware to internally developed software and systems integration. The Company
may resell hardware primarily as part of a total systems solution. Total
software revenue increased $1,147,000, or 233%, as compared to the third quarter
of fiscal 1997. The increase is primarily due to increased sales of the
Company's PDM and EPS solutions domestically and in Germany.
Total service revenue for the quarter ended June 30, 1998, decreased $218,000,
or 8%, from the previous quarter ended June 30, 1997. Service revenue is
comprised of hardware and software maintenance, training and billable service
revenue. Hardware maintenance revenue decreased $154,000, or 73%, while
software maintenance revenue decreased 10%, or $150,000. Training and billable
services revenues increased $81,000 or 8% from the previous quarter ended June
30, 1997.
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 June
30, 1998, reflected the benefits of the product mix changing from hardware to
software and services. For the third quarter ended June 30, 1998, gross profit
margins on total revenue increased to 76% from 51% for the third quarter ended
June 30, 1997. Gross profit margins on sales revenue for the third quarter
ending June 30, 1998, increased to 92% from 47% for the third quarter ended June
30, 1997. In the third quarter of fiscal 1998, the gross profit margin on
software sales increased to 93%, as compared to 66% for the third quarter of
fiscal 1997.
Gross profit margins for total service revenue in the third quarter of fiscal
1998 increased $222,000, yielding a gross margin of 65%, as compared to a gross
margin of 52% in the third quarter of fiscal 1997. The gross profit margin on
billable services and training in the third quarter of fiscal 1998 increased
$199,000 yielding a gross profit margin of 52% as compared to 36% in the third
quarter of fiscal 1997. The company has matured in it's ability to sell and
deliver billable services and training which has resulted in increased revenue
while maintaining the current level of associated costs. The software
maintenance gross profit margin increased $39,000, or 4%, in the third quarter
of fiscal 1997 yielding a gross profit margin of 81% as compared to 70% in the
third quarter of fiscal 1997.
RESEARCH AND PRODUCT DEVELOPMENT Research and development expenses were
approximately 37% of revenue for the quarter ended June 30, 1998 and 46% of
revenue for the quarter ended June 30, 1997. Total research and development
expense decreased by 3% or $51,000 in the third quarter ended June 30, 1998
compared to the previous year's third quarter.
MARKETING, GENERAL, AND ADMINISTRATIVE - In the third quarter ended June 30,
1998, marketing, general and administrative expenses decreased $657,000, or 19%,
from the third quarter ended June 30, 1997. European marketing, general and
administrative spending decreased $290,000, or 38%, due to an unfavorable
exchange rate variance of $27,000, and a decrease in spending of $263,000, as
compared to the third quarter ended June 30, 1997. This reduction is a direct
result of the European restructuring activities completed by the end of fiscal
1997. In the third quarter of fiscal 1998, North American marketing, general
and administrative expenses decreased approximately $365,000, or 14%, as
compared to the third quarter of fiscal 1997 due primarily to reduced personnel
related expenses and occupancy costs.
INTEREST - In the quarter ended June 30, 1998, interest expense increased
$30,000 from the quarter ended June 30, 1997 as a result of increased
borrowings. Interest income increased $34,000 as compared to the third quarter
of fiscal 1997.
Nine months ended June 30, 1998 compared to nine months ended June 30, 1997
- ---------------------------------------------------------------------------
REVENUES For the nine months ended June 30, 1998, total sales and service
revenue decreased $2,641,000, or 20%, from the same period ended June 30, 1997.
Total sales revenue for the first nine months of fiscal 1998 decreased
$1,601,000, or 34%, from the nine month period ended June 30, 1997. Hardware
revenue for the first nine months of fiscal 1998 decreased $1,363,000, or 91%,
as compared to the same period in fiscal 1997. Total software revenue decreased
$233,000, or 7%, as compared to the first nine months of fiscal 1997. The
decrease can be attributed to lower sales of exploration data management and
mapping solutions. North American hardware sales revenue decreased $964,000, or
90%, while North American software sales revenue decreased $418,000, or 20%,
during the first nine months of fiscal 1998. European sales revenue increased
$50,000, or 5%, from the same period in fiscal 1997.
Total service revenue for the nine months ended June 30, 1998 decreased
$1,040,000, or 12%, from the previous year's comparable period. Hardware
maintenance revenue decreased $364,000, or 50%, while software maintenance
revenue decreased $230,000, or 5% for the first nine months of fiscal 1998 as
compared to the same period of fiscal 1997. Billable service and training
revenue decreased $448,000, or 14% for the nine month period ended June 30,
1998, as compared to the prior year's nine month period. North American service
revenue, which comprised 79% of the total worldwide service revenue, decreased
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-(CONTINUED)
$409,000, or 6%, as compared to the first nine months of fiscal 1997. European
service revenue decreased $562,000, or 30%, as compared prior year's nine month
period ended June 30, 1997.
COST OF SALES AND SERVICE For the nine months ended June 30, 1998, the gross
profit margin on total revenue of 68% increased from 55% in the comparable
period in the prior year. The gross profit margin on sales revenue for the nine
months ended June 30, 1998, increased to 88% from 59% for the nine months ended
June 30, 1997. Gross profit percentages can fluctuate quarterly based on the
revenue mix of Company-developed software, third party software, services and
hardware.
Gross profit margins for the total service revenue in the first nine months of
fiscal 1998 decreased $59,000, yielding a gross margin of 59%, as compared to a
gross margin of 53% in the first nine months of fiscal 1997. Gross profit
margins on hardware maintenance declined $109,000 yielding a gross margin of 9%
in the first nine months of fiscal 1998, as compared to a gross margin of 19% in
the first nine months of fiscal 1997. The reduction in gross profit margins on
hardware maintenance is attributed to the Company's growing utilization of
outside third parties for hardware maintenance services. The software
maintenance gross margin improved to 74% in the first half of fiscal 1998, as
compared to a gross margin of 70% in the first half of fiscal 1997.
RESEARCH AND PRODUCT DEVELOPMENT Research and development expenses were
approximately 42% of revenue for the nine months ended June 30, 1998, and 36% of
revenues for the nine months ended June 30, 1997. Total research and
development expenses decreased $249,000, or 5%, for the first nine months of
fiscal 1998 as compared to the same period in fiscal 1997.
MARKETING, GENERAL, AND ADMINISTRATIVE In the nine months ended June 30, 1998,
marketing, general and administrative expenses decreased $2,440,000, or 24%,
from the nine months ended June 30, 1997. In the first nine months of fiscal
1998, North American marketing, and general and administrative expenses
decreased approximately $1,429,000, or 19%, as compared to the first nine months
of fiscal 1997 due to lower personnel related expenses and occupancy costs.
European marketing, general and administrative spending declined $988,000, or
43%, due to a favorable exchange rate variance of $91,000 and a decrease in
spending of $897,000.
INTEREST In the nine months ended June 30, 1998, interest expense increased 37%
to $498,000 from $364,000 for the nine months ended June 30, 1997. Interest
income increased $13,000, or 26%, as compared to the same period in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL CONDITION - At June 30, 1998, the Company had approximately $1,300,000
in cash and cash equivalents, which was 9% lower than cash balances at September
30, 1997. The Company's net working capital was a deficit of approximately
$726,000 at June 30, 1998, as compared to working capital of $416,000 at
September 30, 1997. 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. At June
30, 1998, the Company had outstanding related party debt of $4,075,000 from an
affiliate of Howard B. Hillman, the Company's President, Chairman of the Board
and principle shareholder. In June 1998, the Company converted $500,000 of the
outstanding related-party debt into common stock.
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,
1998. If the Company does not achieve profitability in the near future, it will
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-(continued)
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, 1998.
CURRENCY FLUCTUATIONS
The Company has three wholly owned subsidiaries and one branch operation. The
three subsidiaries are located in Germany, 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, Switzerland 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 $168,000 increase in revenue volume resulted
in a $156,000 increase in non-U.S. revenue between the quarters ended June
30, 1998 and 1997. 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. For the first nine months ended June
30, 1998, the Company had realized a loss of approximately $29,000 through
payments it had received from its subsidiaries as compared to a $900 gain for
the same period in 1997.
8
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PART II. OTHER INFORMATION
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.
9
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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: August 13, 1998 /s/HOWARD B.HILLMAN
--------------------------------
Howard B. Hillman,
Chairman of the Board, President
(Principal Executive and
Financial Officer and Principal
Accounting Officer)
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,300
<SECURITIES> 0
<RECEIVABLES> 2,062
<ALLOWANCES> 145
<INVENTORY> 59
<CURRENT-ASSETS> 3,701
<PP&E> 5,857
<DEPRECIATION> 10,874
<TOTAL-ASSETS> 10,016
<CURRENT-LIABILITIES> 4,427
<BONDS> 5,515
260
0
<COMMON> 0
<OTHER-SE> (186)
<TOTAL-LIABILITY-AND-EQUITY> 10,016
<SALES> 1,665
<TOTAL-REVENUES> 4,064
<CGS> 134
<TOTAL-COSTS> 962
<OTHER-EXPENSES> 4,303
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 134
<INCOME-PRETAX> (1,285)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,285)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,285)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> 0
</TABLE>
