U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1999
----------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from __________________ to ____________________
Commission file number 0-11485
ACCELR8 TECHNOLOGY CORPORATION
------------------------------
(Exact name of small business issuer as specified in its charter)
COLORADO 84-1072256
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
303 East Seventeenth Avenue, Suite 108, Denver, Colorado 80203
--------------------------------------------------------------
(Address of principal executive office)
(303) 863-8088
--------------
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 of the issuer's Common Stock:
Class Outstanding at January 31, 1999
----- -------------------------------
Common Stock, no par value 7,823,117
<PAGE>
Accelr8 Technology Corporation
INDEX
-----
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - as of
January 31, 1999 and July 31, 1998 3
Statements of Operations
for the three months and six months
ended January 31, 1999 and 1998 4
Statements of Cash Flows
for the six months ended January 31, 1999 and 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
2
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
Accelr8 Technology Corporation
Balance Sheets
January 31, July 31,
1999 1998
ASSETS (Unaudited) (Audited)
----------- ---------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 10,167,472 $ 10,439,233
Accounts receivable 1,009,539 944,692
Prepaid expenses 98,148 99,377
Income taxes receivable 55,120 470,620
Deferred tax assets 71,898 71,898
------------ ------------
Total current assets 11,402,177 12,025,820
------------ ------------
PROPERTY AND EQUIPMENT:
Computer equipment 381,971 344,258
Furniture and fixtures 111,927 111,387
------------ ------------
Total property and equipment 493,898 455,645
Less accumulated depreciation (205,524) (162,324)
------------ ------------
Net property and equipment 288,374 293,321
------------ ------------
SOFTWARE DEVELOPMENT COSTS:
Software development cost less accumulated
amortization: 1999 - $1,347,325; 1998 - $1,137,325 1,752,083 1,350,547
------------ ------------
INVESTMENTS 377,290 305,089
------------ ------------
Total assets $ 13,819,924 $ 13,974,777
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 150,419 $ 402,173
Accrued liabilities 62,195 192,087
Deferred maintenance revenue 268,622 195,595
------------ ------------
Total current liabilities 481,236 789,855
------------ ------------
LONG TERM LIABILITIES:
Deferred tax liabilities 523,941 523,941
------------ ------------
Other long-term liabilities 414,790 305,089
------------ ------------
SHAREHOLDERS' EQUITY
Common stock, no par value; 11,000,000 shares authorized;
7,858,617 shares issued and 7,823,117 shares outstanding 8,438,314 8,543,477
Contributed capital 315,049 315,049
Retained earnings 3,920,194 3,770,966
Shares held for employee benefit (1,129,110 shares) (273,600) (273,600)
------------ ------------
Shareholders' equity 12,399,957 12,355,892
------------ ------------
TOTAL LIABILITIES AND EQUITY $ 13,819,924 $ 13,974,777
============ ============
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Accelr8 Technology Corporation
Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
-------------------------- --------------------------
January 31, January 31, January 31, January 31,
1999 1998 1999 1998
---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C>
Consulting fees $ 7,989 $ 131,986 $ 91,850 $ 285,300
Product license and customer support fees 653,045 2,335,375 1,211,982 3,672,422
Resale of software purchased 44,157 137,360 129,867 276,887
----------- ----------- ----------- -----------
Total Revenues 705,191 2,604,721 1,433,699 4,234,609
----------- ----------- ----------- -----------
Costs and Expenses:
Cost of services 243,539 245,352 498,725 415,489
Cost of software purchased for resale 2,720 33,309 6,270 77,541
General and administrative 297,410 203,197 523,647 424,562
Marketing and sales 281,978 261,500 550,059 397,562
----------- ----------- ----------- -----------
Total Expenses 825,647 743,358 1,578,701 1,315,154
----------- ----------- ----------- -----------
Income (loss) from operations (120,456) 1,861,363 (145,002) 2,919,455
Investment income 202,378 116,135 329,730 221,239
----------- ----------- ----------- -----------
Income before income taxes 81,922 1,977,498 184,728 3,140,694
Income tax (provision) (12,150) (839,000) (35,500) (1,134,000)
----------- ----------- ----------- -----------
Net Income $ 69,772 $ 1,138,498 $ 149,228 $ 2,006,694
=========== =========== =========== ===========
Weighted average shares outstanding - basic 7,823,117 7,833,389 7,836,503 7,849,965
=========== =========== =========== ===========
Net income per share - basic $ .01 $ .15 $ .02 $ .26
=========== =========== =========== ===========
Weighted average shares outstanding - diluted 8,121,253 8,166,213 8,079,763 8,212,191
=========== =========== =========== ===========
Net income per share - diluted $ .01 $ .14 $ .02 $ .24
=========== =========== =========== ===========
4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Accelr8 Technology Corporation
Statements of Cash Flows
(Unaudited)
Six Months Ended
January 31, January 31,
1999 1998
---- ----
CASH FLOW FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 149,228 $ 2,006,694
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 253,200 162,875
Net change in assets and liabilities:
Accounts receivable (64,847) (1,277,403)
Prepaid expenses 1,229 (108,676)
Income tax receivable 415,500 --
Accounts payable (251,754) 87,677
Income taxes payable -- 661,000
Accrued liabilities (129,892) 24,129
Deferred consulting revenue -- (46,253)
Deferred maintenance revenue 73,027 58,663
Other long-term liabilities 109,701 40,060
------------ ------------
Net cash provided by operating activities 555,392 1,608,766
------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES:
Software development costs (611,536) (459,090)
Purchase of computer equipment (37,713) (31,733)
Purchase of office furniture and equipment (540) (68,124)
Increase in investments (72,201) (2,561)
------------ ------------
Net cash used in investing activities (721,990) (561,508)
------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Net proceeds provided from sale (purchase) of common stock (105,163) 360,800
------------ ------------
Net increase in cash and cash equivalents (271,761) 1,408,058
Cash and cash equivalents, beginning of period 10,439,233 7,877,932
------------ ------------
Cash and cash equivalents, end of period $ 10,167,472 $ 9,285,990
============ ============
5
</TABLE>
<PAGE>
Accelr8 Technology Corporation
Notes to Financial Statements
For the six months ended January 31, 1999 and 1998
Note 1. Accounting Policies
The financial information provided herein was prepared from the books and
records of the Company without audit. The information furnished reflects all
normal recurring adjustments which, in the opinion of the Company, are necessary
for a fair presentation of the balance sheets, statements of operations, and
statements of cash flows, as of the dates and for the periods presented. The
Notes to Financial Statements included in the Company's 1998 Annual Report on
Form 10-K should be read in conjunction with these financial statements.
Note 2. Reclassifications
Certain reclassifications have been made in the 1998 financial statements
to conform to the classification used in 1999.
Note 3. Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full set
of general-purpose financial statements. SFAS 130 requires that all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
The Company adopted SFAS 130 on August 1, 1998. The Company does not have any
items of other comprehensive income for the six month periods ended January 31,
1999 and 1998. Therefore, total comprehensive income was the same as net income
for those periods.
Note 4. Treasury Stock
The board of directors has authorized the repurchase of shares of the
Company's common stock. At January 31, 1999, the Company had repurchased 35,500
shares of its common stock in open market purchases. In accordance with Colorado
State law, the Company's repurchases of shares of common stock shall constitute
authorized but unissued shares. See 7-106-302 CRS.
Note 5. Amortization
An Agreement dated January 30, 1998 with a major company provided for
licensing of tools and providing support for a three year period. Lacking any
historical data on this contract, the Company began amortizing support income
ratably over the thirty-six month term. At the end of the first year of the
contract this amortization period was reviewed in light of the costs of
servicing the contract in the initial year compared to expected costs in future
years. This review indicated nearly eighty five per cent of the expected costs
were incurred in the first contract year and accordingly amortization was
increased by an additional $310,000 during the period.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
Information contained in the following discussion of results of operations
and financial condition of the Company contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
which can be identified by the use of words such as "may," "will," "expect,"
"anticipate," "estimate," or "continue," or variations thereon or comparable
terminology. In addition, all statements other than statements of historical
facts that address activities, events, or developments that the Company expects,
believes, or anticipates will or may occur in the future, and other such
matters, are forward-looking statements. The following discussion should be read
in conjunction with the Company's consolidated financial statements and related
notes included elsewhere herein. The Company's future operating results may be
affected by various trends and factors which are beyond the Company's control.
These include, among other factors, general public perception of Year 2000
issues and solutions, and other uncertain business conditions that may affect
the Company's business. The Company cautions the reader that a number of
important factors discussed herein, and in other reports filed with the
Securities and Exchange Commission, could affect the Company's actual results
and cause actual results to differ materially from those discussed in
forward-looking statements.
Changes in Results of Operations: Six months ended January 31, 1999 compared to
six months ended January 31, 1998
Total revenues for the six months ended January 31, 1999, were $1,433,699,
a decrease of $2,800,910 or 66.1%, as compared to the six months ended January
31, 1998. Consulting fees for the six months ended January 31, 1999, were
$91,850, a decrease of $193,450 or 67.8% as compared to the six months ended
January 31, 1998, and represented 6.4% of total revenues. Product license and
customer support fees for the six months ended January 31, 1999, were
$1,211,982, a decrease of $2,460,440 or 67.0%, as compared to the six months
ended January 31, 1998, and represented 84.5% of total revenues. Revenues from
the resale of purchased software for the six months ended January 31, 1999, were
$129,867, a decrease of $147,020 or 53.1%, as compared to the six months ended
January 31, 1998, and represented 9.1% of total revenues. The decrease in
revenues from consulting fees and product licenses and customer support fees was
largely the result of a general decline in market demand for Year 2000 tools and
training. The Company believes that demand for Year 2000 tools will resume as
companies realize the true extent of the problem beginning in early 1999. As
this realization develops and due to shortage of technical personnel, management
believes companies will be forced to purchase tools in order to become compliant
by year end. The decrease in resale of purchased software results from a
decreased emphasis on modernization of certain functions until after the Year
2000 solutions are completed.
During the six months ended January 31, 1999, sales to the Company's
largest customer were $424,103, representing 29.6% of the Company's revenues. In
comparison, sales to the Company's four largest customers were $1,000,000,
$604,840, $465,000, and $454,055, representing 23.6%, 14.3%, 11.0%, and 10.7%,
respectively, of total revenues for the six months ended January 31, 1998. The
loss of a major customer could have a significant impact on the Company's
financial performance in any given year.
Cost of services for the six months ended January 31, 1999, was $498,725,
an increase of $83,236 or 20.0%, as compared to the six months ended January 31,
1998. Cost of services as a percentage of revenues from both consulting fees and
product license and customer support fees increased from 10.5% for the six
months ended January 31, 1998, to 38.3% for the six months ended January 31,
1999. This increase is the result of significantly reduced sales while cost of
services increased due to increased amortization of capitalized software costs
and rent, offset by decreased salaries.
7
<PAGE>
Cost of software purchased for resale for the six months ended January 31,
1999, was $6,270, a decrease of $71,271 or 91.9%, as compared to the six months
ended January 31, 1998. This decrease was directly related to the decreased
resale of purchased software and product mix.
General and administrative expenses for the six months ended January 31,
1999, were $523,647, an increase of $99,085 or 23.3%, as compared to the six
months ended January 31, 1998. This increase was principally due to increased
employee benefit costs which resulted from new hires and costs associated with
building infrastructure during the last half of fiscal 1998.
Marketing and sales expenses for the six months ended January 31, 1999,
were $550,059, an increase of $152,497 or 38.4%, as compared to the six months
ended January 31, 1998. This increase was principally due to increased employee
costs, advertising the Company's Year 2000 tools in several trade publications,
and attending trade shows, as well as new product literature and web site
expense.
Investment income for the six months ended January 31, 1999, was $329,730,
an increase of $108,491 as compared to the six months ended January 31, 1998.
This increase resulted from a greater amount of cash earning interest during the
period plus the increase in market value of securities held in the "Rabbi"
Trust.
Income tax provision for the six month period ended January 31, 1999 was
$35,500, a decrease of $1,098,500 or 96.9% as compared to the six month period
ended January 31, 1998. This decrease was the result of decreased taxable income
of $2,955,967.
As a result of these factors, net income for the six months ended January
31, 1999, was $149,228, a decrease of $1,857,466 or 92.6%, as compared to the
six months ended January 31, 1998.
Capital Resources and Liquidity
At January 31, 1999, as compared to at July 31, 1998, the Company's current
assets decreased 5.2% from $12,025,820 to $11,402,177 and the Company's
liquidity, as measured by cash and cash equivalents, decreased by 2.6% from
$10,439,233 to $10,167,472. During the same period, shareholders' equity
increased 0.4% from $12,355,892 to $12,399,957.
The Company has historically funded its operations primarily through equity
financing and cash flow generated from operations. The Company anticipates that
current cash balances and working capital plus future positive cash flow from
operations will be sufficient to fund its capital and liquidity needs in the
foreseeable future.
Year 2000
The Company has established a program to address potential Year 2000
compliance issues. It has modified some portions of its software so that it will
function properly in the year 2000. Some earlier, non-Year 2000 compliant
software has been licensed. Users of the non-Year 2000 compliant software were
notified and upgrades are available. To date, the Company's accounting system
has been updated for Year 2000 compliance, including upgrading of hardware. The
total expected costs in relation to these upgrades are immaterial to the
Company. Management anticipates that all necessary changes to its software will
be completed before December 1, 1999, and that the Company will not experience
any significant impact with respect to Year 2000 compliance with the Company's
non-information technology systems and equipment.
8
<PAGE>
Changes in Results of Operations: Three months ended January 31, 1999 compared
to three months ended January 31, 1999
Total revenues for the three months ended January 31, 1999 were $705,191, a
decrease of $1,899,530 or 72.9%, as compared to the three months ended January
31, 1998. Consulting fees for the three months ended January 31, 1999, were
$7,989, a decrease of $123,997 or 94.0%, as compared to the three months ended
January 31, 1998, and represented 1.1% of total revenues. Product license and
customer support fees for the three months ended January 31, 1999, were
$653,045, a decrease of $1,682,330 or 72.0%, as compared to the three months
ended January 31, 1998, and represented 92.6% of total revenue. Revenues from
the resale of purchased software for the three months ended January 31, 1999,
were $44,157, a decrease of $93,203 or 67.9%, as compared to the three months
ended January 31, 1998, and represented 6.3% of total revenue. The decrease in
revenues from consulting fees and product licenses and customer support fees was
largely the result of a general decline in market demand for Year 2000 tools and
training. The Company believes that demand for Year 2000 tools will resume as
companies realize the true extent of the problem beginning in early 1999. As
this realization develops and due to shortage of technical personnel, management
believes companies will be forced to purchase tools in order to become compliant
by year end. The decrease in resale of purchased software results from a
decreased emphasis on modernization of certain functions until after the Year
2000 solutions are completed.
During the three months ended January 31, 1999, sales to the Company's
largest customers were $401,115 and $135,300, representing 56.9% and 19.2% of
the Company's revenues, respectively. In comparison, sales to the Company's
largest customers were $1,000,000 and $465,000, representing 38.4% and 17.9% of
total revenues for the three months ended January 31, 1998. The loss of a major
customer could have a significant impact on the Company's financial performance
in any given year.
Cost of services for the three months ended January 31, 1999, was $243,539,
a decrease of $1,813 or 0.7%, as compared to the three months ended January 31,
1998. Cost of services as a percentage of revenues from both consulting fees and
product license and customer support fees increased from 9.9% for the three
months ended January 31, 1998 to 36.8% for the three months ended January 31,
1999. This increase is the result of significantly reduced sales while cost of
services increased due to increased amortization of capitalized software costs
and rent, offset by decreased salaries.
Cost of software purchased for resale for the three months ended January
31, 1999, was $2,720, a decrease of $30,589 or 91.8%, as compared to the three
months ended January 31, 1998. This decrease was directly related to the
decreased resale of purchased software.
General and administrative expenses for the three months ended January 31,
1999, were $297,410, an increase of $94,213 or 46.4%, as compared to the three
months ended January 31, 1998. This increase was principally due to increased
employee benefit costs which resulted from new hires, and costs associated with
building infrastructure during the last half of fiscal 1998.
Marketing and sales expenses for the three months ended January 31, 1999,
were $281,978, an increase of $20,478 or 7.8%, as compared to the three months
ended January 31, 1998. This increase was principally due to increased employee
costs and advertising the Company's Year 2000 tools in several trade
publications, as well as new product literature and web site expense.
Investment income for the three months ended January 31, 1999, was
$202,378, an increase of $86,243, as compared to the three months ended January
31, 1998. This increase resulted from a greater amount of cash earning interest
during the period plus the increase in market value of securities held in the
"Rabbi" Trust.
9
<PAGE>
Income tax provision for the three month period ended January 31, 1999 was
$12,150, a decrease of $826,850 or 98.6% as compared to the three month period
ended January 31, 1998. This decrease was the result of decreased taxable income
of $1,895,577.
As a result of these factors, net income for the three months ended January
31, 1999, was $69,772, a decrease of $1,068,726 or 93.9%, as compared to the
three months ended January 31, 1998.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
a) Exhibits: There are no exhibits for the six months ended January 31, 1999.
b) Reports on Form 8-K: There were no reports on Form 8-K filed for the six
months ended January 31, 1999.
10
<PAGE>
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.
Date: ___________________
ACCELR8 TECHNOLOGY CORPORATION
/s/ Thomas V. Geimer
--------------------------------------
Thomas V. Geimer,
Principal Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements included in the Form 10-QSB for the quarter ended January
31, 1999.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> JUL-31-1998 JUL-31-1998
<PERIOD-START> AUG-01-1998 NOV-01-1998
<PERIOD-END> JAN-31-1999 JAN-31-1999
<CASH> 10,167,472 0
<SECURITIES> 0 0
<RECEIVABLES> 1,009,539 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 11,402,177 0
<PP&E> 288,374 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 13,819,924 0
<CURRENT-LIABILITIES> 481,236 0
<BONDS> 0 0
0 0
0 0
<COMMON> 8,438,314 0
<OTHER-SE> 3,961,643 0
<TOTAL-LIABILITY-AND-EQUITY> 13,819,924 0
<SALES> 129,867 131,986
<TOTAL-REVENUES> 1,433,699 2,604,721
<CGS> 0 0
<TOTAL-COSTS> 1,578,701 0
<OTHER-EXPENSES> 0 743,358
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 184,728 1,977,498
<INCOME-TAX> (35,500) 839,000
<INCOME-CONTINUING> 149,228 1,138,498
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 149,228 1,138,498
<EPS-PRIMARY> .02 .15
<EPS-DILUTED> .02 .14
</TABLE>
