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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, 1997
or
[ ] Transition Report Pursuant to Section 13 or15(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, 1998: 10,649,356
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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, 1997
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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, 1997 1
and 1996
Consolidated Balance Sheets (unaudited) December 31, 1997 and September 30, 1997 2
Consolidated Statements of Cash Flow (unaudited) three months ended December 31, 1997 and 3
1996
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 , Item 5 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,
1997 1996
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Revenues:
Sales.............................................................. $ 831 $ 2,213
Service............................................................ 2,913 3,292
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3,744 5,505
Costs and expenses:
Cost of sales...................................................... 210 684
Cost of service.................................................... 1,144 1,489
Research and product development................................... 1,511 1,665
Marketing, general and administrative.............................. 2,386 3,312
-------------------------------------
5,251 7,150
Loss from operations................................................. (1,507) (1,645)
Interest income.................................................... 20 26
Interest expense, related party portion, $75 and $162.............. (177) (110)
-------------------------------------
Loss before income taxes............................................. (1,664) (1,729)
Income tax benefit (expense)......................................... (2) (11)
Net loss............................................................. $(1,666) $(1,740)
=====================================
Basic and diluted loss per share..................................... $(.17) $(.23)
Weighted average number of shares outstanding........................ 9,578 7,721
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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,
1997 September 30,
(unaudited) 1997
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<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................................. $ 990 $ 1,421
Receivables, net of allowance of $152 and $153............................ 2,166 3,233
Inventories............................................................... 40 51
Service parts and prepaid expenses........................................ 477 545
----------------------------------
Total current assets................................................... 3,673 5,250
----------------------------------
Property, facilities and equipment:
Land...................................................................... 356 356
Building and improvements................................................. 8,415 8,392
Machinery and equipment................................................... 6,923 7,955
Furniture, fixtures and leasehold improvements............................ 840 925
----------------------------------
16,534 17,628
Less accumulated depreciation and amortization............................ (10,524) (11,461)
----------------------------------
6,010 6,167
Purchased software, net of accumulated amortization of $1,323 and $1,369 296 322
Other assets................................................................ 63 63
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Total assets........................................................... $ 10,042 $ 11,802
==================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt......................................... $ 240 $ 240
Accounts payable.......................................................... 782 840
Interest payable, related party portion $461 and $214..................... 529 390
Unearned service revenue and customer deposits............................ 1,897 1,141
Accrued compensation and related taxes.................................... 359 470
Other liabilities......................................................... 1,188 1,753
----------------------------------
Total current liabilities.............................................. 4,995 4,834
Long-term debt, related party, $2,975 and $4,975............................ 4,415 6,415
Total liabilities...................................................... 9,410 11,249
----------------------------------
Shareholders' equity:
Common stock, $.02 par value; authorized 40,000,000 shares; issued
(including treasury shares) 10,648,360 and 9,314,347 shares.............. 213 186
Additional paid-in capital................................................ 90,758 88,784
Cumulative currency translation adjustments............................... (1,291) (1,035)
Accumulated deficit....................................................... (88,564) (86,897)
Treasury stock 26,140 common shares at cost............................... (485) (485)
Total shareholders' equity............................................. 632 553
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$ 10,042 $ 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)
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<CAPTION>
Three Months Ended
December 31,
1997 1996
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Cash flow from operating activities:
Net loss..................................................................... $(1,633) $(1,740)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization................................................ 301 376
Gain on disposal of property, facilities and equipment....................... 24 29
(Increase) decrease receivables.............................................. 959 (180)
Decrease inventories......................................................... 9 94
(Increase) decrease service parts and prepaids............................... 84 (69)
Decrease accounts payable.................................................... (89) (386)
Increase interest payable.................................................... 139 114
Increase income tax payable.................................................. 66 85
Increase (decrease) unearned service revenue and customer deposits........... 756 (158)
(Decrease) other liabilities................................................. (811) (302)
-------------------------
Net cash used by operating activities........................................... (195) (2,137)
Cash flow from investing activities:
Capital expenditures......................................................... (161) (217)
Proceeds from sale of property, facilities and equipment..................... 15 17
(Increase) decrease of non-current service parts and other assets............ (1) 1
-------------------------
Net cash used by investing activities........................................... (147) (199)
Cash flow from financing activities:
Proceeds from issuance of notes payable, related party....................... (2,000) 1,800
Payments on notes payable, capital lease and long-term debt.................. (9) (37)
Proceeds from issue of common stock.......................................... 2,002 9
-------------------------
Net cash (used) provided by financing activities................................ (7) 1,772
Effect of exchange rate changes on cash......................................... (82) (11)
-------------------------
Net decrease in cash and cash equivalents....................................... (431) (575)
Cash and cash equivalents at the beginning of the period........................ 1,421 2,173
-------------------------
Cash and cash equivalents at the end of the period.............................. $ 990 $ 1,598
=========================
</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, 1997
(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 month periods ending
December 31, 1997 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 at December 31, 1997 and 1996, 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
Revenues from sales and services for the first quarter ended December 31, 1997
compared to the quarter ended December 31, 1996 decreased due to the delay of
customer implementations and product development delays as well as an increased
complexity of the sales cycle in the PDM and network configuration markets.
Operating losses for the first quarter ended December 31, 1997 continued due
primarily to the lack of revenue growth from products under development in the
Electronic Publishing Solutions (EPS) and network configuration markets and
slower than expected penetration in the PDM and mapping solutions markets.
However, maintenance revenue increased slightly as the reductions in the legacy
software products and in hardware appear to have leveled out. The Company
continues to believe that its PDM, 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 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.
REVENUES - For the quarter ended December 31, 1997, total sales and service
revenue decreased $1,761,000, or 32%, from the quarter ended December 31, 1996.
Total sales revenue for the first quarter of fiscal 1998 decreased $1,382,000,
or 62%, from the quarter ended December 31, 1996. Hardware revenue for the
first quarter of fiscal 1998 decreased $382,000, or 83%, as compared to the
first 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 will continue to sell hardware primarily as part of a
total systems solution. Total software revenue decreased $1,000,000, or 57%, as
compared to the first quarter of fiscal 1997. The decrease can be attributed to
lower sales in the PDM and exploration data management and mapping solutions
markets.
Total service revenue for the quarter ended December 31, 1997, decreased
$379,000, or 12%, from the previous quarter ended December 31, 1996. Service
revenue is comprised of hardware and software maintenance, training and billable
service revenue. Hardware maintenance revenue decreased $66,000, or 24%, while
software maintenance revenue showed an increase of 10%, or $165,000. 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 decreased $478,000 or 35% from the previous quarter ended December 31,
1996 due to the corresponding decreases in new product revenue and delayed
customer implementations.
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, 1997, continued to reflect shifts in product mix from hardware to
software and services. For the first quarter ended December 31, 1997, gross
profit margins on total revenue increased to 64% from 61% for the first quarter
ended December 31, 1996. Gross profit margins on sales revenue for the first
quarter ending December 31, 1997, increased to 75% from 70% for the first
quarter ended December 31, 1996. In the first quarter of fiscal 1998 gross
profit margins on hardware declined by $88,000 as compared to the first quarter
of fiscal 1997. In the first quarter of fiscal 1998, the gross profit margin on
software sales remained constant at 83%, as compared to the first quarter of
fiscal 1997.
Gross profit margins for total service revenue in the first quarter of fiscal
1998 decreased $26,000, yielding a gross margin of 61%, as compared to a gross
margin of 54% in the first quarter of fiscal 1997. The gross margin on billable
services and training in the first quarter of fiscal 1998 decreased to 31% from
39% in the first quarter of fiscal 1997. Gross profit margins on hardware
maintenance decreased yielding a gross margin of 22% in the first quarter of
fiscal 1998, as compared to a gross margin of 31% in the first quarter of fiscal
1997. This reduction is attributed to the Company's growing utilization of
outside third parties for hardware maintenance services. The software
maintenance gross margin increased $268,000, or 79% in the first quarter of
fiscal 1998 from 71% in the first quarter of fiscal 1997.
RESEARCH AND PRODUCT DEVELOPMENT - Research and development expenses were
approximately 40% of revenue for the quarter ended December 31, 1997, and 30% of
revenues for the quarter ended December 31, 1996. Total research and
development expenses decreased by 9% or $154,000 in the first quarter ended
December 31, 1997 compared to the previous year's first quarter. This decrease
can be attributed to a cost reduction program that has been implemented.
MARKETING, GENERAL, AND ADMINISTRATIVE - In the first quarter ended December 31,
1997, marketing, general and administrative expenses decreased $927,000, or 28%,
from the first quarter ended December 31, 1996. European marketing, general and
administrative spending declined $400,000, or 49%, due to a favorable exchange
rate variance of $106,000, and a decrease in spending of $294,000, as compared
to the first quarter ended December 31, 1996. This reduction is a direct result
of the European restructuring activities completed by the end of fiscal 1997.
In the first quarter of fiscal 1998, North American marketing, general and
administrative expenses decreased approximately $527,000, or 22%, as compared to
the first quarter of fiscal 1997.
INTEREST - In the quarter ended December 31, 1997, interest expense increased
61% or $67,000 from the quarter ended December 31, 1996. Interest income
decreased $6,000 from the first quarter of fiscal 1997 compared to the first
quarter ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL CONDITION - At December 31, 1997, the Company had approximately
$990,000 in cash and cash equivalents, which was 30% lower than cash balances at
September 30, 1997. The Company's net working capital was approximately
($1,322,000) at December 31, 1997, as compared to $416,000 at September 31,
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. In December 1997, the
Company had outstanding related party debt of $2,975,000 from an affiliate of
Howard B. Hillman, the Company's President, Chairman of the Board and principle
shareholder.
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
continue to be dependent on its majority shareholder for additional funding and
to continue as a going
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-(continued)
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 $270,000 of unfavorable
exchange rate variance and a $880,000 decrease in revenue volume resulted
in a $1,150,000 decrease in non-U.S. revenue between the quarters ended
December 31, 1997 and 1996. 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 quarters ended December 31,
1997 and 1996, the Company had realized a loss of approximately $27,800 and $500
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 27,
1998, 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. An amendment to the Company's
Special Purpose Stock Option Plan and Incentive Stock Option Plan to increase
the number of shares of common stock available for grant collectively under the
Plans was approved at 1,000,000 shares.
ITEM 5
On February 13, 1998, Mary Lou Schwab, Vice President, Treasurer and principal
Financial and Accounting Officer, resigned from the Company.
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 13, 1997 /s/HOWARD B.HILLMAN
----------------------------------------------
Howard B. Hillman,
Chairman of the Board, President
(Principal Executive and Financial Officer and
Principal Accounting Officer)
9
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<PAGE>
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<PERIOD-TYPE> 3-MOS
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<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 990
<SECURITIES> 0
<RECEIVABLES> 2,318
<ALLOWANCES> 152
<INVENTORY> 40
<CURRENT-ASSETS> 3,673
<PP&E> 6,010
<DEPRECIATION> 10,524
<TOTAL-ASSETS> 10,042
<CURRENT-LIABILITIES> 4,995
<BONDS> 4,415
0
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