<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-15935
ALTRIS SOFTWARE, INC.
______________________________________________________
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3634089
_______________________________ ___________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9339 CARROLL PARK DRIVE, SAN DIEGO, CA 92121
_____________________________________________________
(Address of principal executive offices and zip code)
(619) 625-3000
___________________________________________________
(Registrants 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 of Common Stock outstanding at April 25, 1997: 9,578,870
Number of Sequentially Numbered Pages: 14
Exhibit Index at Page 13
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ALTRIS SOFTWARE, INC.
_____________________
INDEX
_____
Page Number
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet 3
Consolidated Statement of Operations 4
Consolidated Statement of Cash Flows 5
Notes to the Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION 11
2
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ALTRIS SOFTWARE, INC.
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEET
______________________________
March 31, December 31,
1997 1996
------------ ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,440,000 $ 2,200,000
Short term investments -- 90,000
Receivables, net 10,882,000 9,752,000
Inventory, net 447,000 443,000
Other current assets 878,000 641,000
------------ ------------
Total current assets 13,647,000 13,126,000
Property and equipment, net 2,075,000 2,156,000
Computer software, net 2,485,000 2,252,000
Goodwill, net 4,759,000 4,972,000
Other assets 455,000 385,000
------------ ------------
$ 23,421,000 $ 22,891,000
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,723,000 2,614,000
Accrued liabilities 1,802,000 1,643,000
Notes payable 1,019,000 710,000
Deferred revenue 851,000 1,188,000
------------ ------------
Total current liabilities 6,395,000 6,155,000
Long term notes payable 1,383,000 1,203,000
Other long term liabilities 312,000 763,000
------------ ------------
Total liabilities 8,090,000 8,121,000
------------ ------------
Commitments
Shareholders' equity:
Common stock, no par value, 20,000,000 shares
authorized; 9,573,444 and 9,559,944 issued and
outstanding, respectively 61,630,000 61,583,000
Foreign currency translation adjustment 92,000 112,000
Accumulated deficit (46,391,000) (46,925,000)
------------ ------------
Total shareholders' equity 15,331,000 14,770,000
------------ ------------
$ 23,421,000 $ 22,891,000
------------ ------------
------------ ------------
See accompanying notes to the consolidated financial statements.
3
<PAGE>
ALTRIS SOFTWARE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
____________________________________
(Unaudited)
For the three months
ended March 31,
------------------------
1997 1996
---------- ----------
Revenues $6,615,000 $6,061,000
Cost of revenues 2,871,000 2,513,000
---------- ----------
Gross profit 3,744,000 3,548,000
---------- ----------
Operating expenses:
Research and development 812,000 907,000
Marketing and sales 1,640,000 1,253,000
General and administrative 729,000 711,000
---------- ----------
Total operating expenses 3,181,000 2,871,000
---------- ----------
Income from operations 563,000 677,000
Interest and other income 22,000 26,000
Interest and other expense (51,000) (26,000)
---------- ----------
Income before income taxes 534,000 677,000
Provision for income taxes -- --
---------- ----------
Net income $ 534,000 $ 677,000
---------- ----------
---------- ----------
Net income per share $ .06 $ .07
---------- ----------
---------- ----------
Weighted average shares outstanding 9,647,000 9,407,000
See accompanying notes to the consolidated financial statements.
4
<PAGE>
ALTRIS SOFTWARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
____________________________________
(Unaudited)
For the three months
ended March 31,
--------------------------
1997 1996
----------- -----------
Cash flow from operating activities:
Net income $ 534,000 $ 677,000
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 599,000 605,000
Loss on sale of short term investment 5,000 --
Changes in assets and liabilities:
Receivables, net (1,130,000) (1,390,000)
Inventory, net (4,000) 25,000
Other assets (313,000) 76,000
Accounts payable 109,000 125,000
Accrued liabilities 159,000 (1,454,000)
Deferred revenue (337,000) (423,000)
Other long term liabilities (451,000) (123,000)
----------- -----------
Net cash used in operating activities (829,000) (1,882,000)
----------- -----------
Cash flows from investing activities:
Sale of short term investment 85,000 180,000
Purchases of property and equipment (122,000) (192,000)
Purchases of software (39,000) (15,000)
Computer software capitalized (371,000) (226,000)
----------- -----------
Net cash used in investing activities (447,000) (253,000)
----------- -----------
Cash flows from financing activities:
Principal payment under cash advanced by a bank
related to former Optigraphics shareholder notes
payable -- (1,634,000)
Repayments under notes payable (174,000) (40,000)
Net borrowings under revolving loan and bank
agreements 663,000 --
Proceeds from exercise of stock options 47,000 210,000
----------- -----------
Net cash provided by (used in) financing activities 536,000 (1,464,000)
----------- -----------
Effect of exchange rate changes on cash (20,000) 17,000
----------- -----------
Net decrease in cash and cash equivalents (760,000) (3,582,000)
Cash and cash equivalents at beginning of period 2,200,000 4,656,000
----------- -----------
Cash and cash equivalents at end of period $ 1,440,000 $ 1,074,000
----------- -----------
Supplemental cash flow information:
Interest paid $ 44,000 $ 25,000
----------- -----------
Schedule of non-cash financing activity:
Conversion of Series B Preferred Stock to common
stock $ -- $ 3,306,000
----------- -----------
Conversion of note payable to common stock $ -- $ 1,000,000
----------- -----------
See accompanying notes to the consolidated financial statements.
5
<PAGE>
ALTRIS SOFTWARE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated balance sheet of Altris Software, Inc. (the
"Company") as of March 31, 1997 and the consolidated statement of operations
and of cash flows for the three month periods ended March 31, 1997 and 1996
are unaudited. The consolidated financial statements and related notes have
been prepared in accordance with generally accepted accounting principles
applicable to interim periods. In the opinion of management, the
consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
consolidated financial position, operating results and cash flows for the
periods presented.
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
NOTE 2 - NET INCOME PER SHARE
Net income per share is computed on the basis of weighted average shares
and common stock equivalent shares outstanding for each period presented, if
dilutive.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings per Share," which establishes standards for computing and
presenting earnings per share ("EPS"). SFAS No. 128 will be adopted by the
Company as required for the interim period and fiscal year ending December
31, 1997. Upon adoption of SFAS No. 128, the Company will present basic EPS
as well as diluted EPS in the period of adoption and restate all prior-period
EPS data presented for comparative purposes. Basic EPS will be computed by
dividing income available to common shareholders by the weighted average
number of shares of common stock outstanding. Diluted EPS will be computed
similar to basic EPS except that the weighted average number of shares of
common stock outstanding will be increased to include the number of
additional common shares that would have been outstanding if the dilutive
potential common shares had been issued. The pro forma EPS calculations based
upon SFAS No. 128 are indicated below:
For the three months
ended March 31,
------------------------
1997 1996
---------- ----------
BASIC EARNINGS PER COMMON SHARE
Net income per share $ .06 $ .07
---------- ----------
Weighted average shares 9,565,000 9,027,000
DILUTED EARNINGS PER COMMON SHARE
Net income per share $ .06 $ .07
---------- ----------
Weighted average shares 9,647,000 9,407,000
NOTE 3 - INVENTORY
Inventory consists of parts, supplies, and subassemblies and is stated at
the lower of cost or market value. Cost is determined using the first-in,
first-out (FIFO) method. As of March 31, 1997 and December 31, 1996, the
Company's reserve against excess quantities totaled $557,000 and $552,000,
respectively.
6
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NOTE 4 - NOTES PAYABLE
In October 1996 and September 1995, the Company entered into revolving
loan and security agreements, each providing for borrowings of up to
$1,000,000. The maximum credit available under one facility declines by
$200,000 in September of each year beginning in 1996. The loan balance is
payable in monthly installments of $16,667. At March 31, 1997, $717,000 was
outstanding on this agreement. The loan balance for the other facility is
payable in monthly installments. At March 31, 1997, $1,000,000 was
outstanding on this agreement. Total borrowings under the revolving loan and
security agreements are collateralized by the Company's assets and interest
is calculated based on the 30-day Commercial Paper Rate plus 2.95% (8.64% at
March 31, 1997). The revolving loan and security agreements contain certain
restrictive covenants including maintaining a certain ratio of debt to
tangible net worth.
In September 1996, the Company's United Kingdom subsidiary renewed an
overdraft facility with a bank with interest payable quarterly at 2.5% per
annum over the bank's base rate (8.5% at March 31, 1997). The facility
expires in August 1997 with any remaining balance due and payable. At March
31, 1997, $386,000 was outstanding and $103,000 was unused on the facility.
Repayment of borrowings under the facility are secured by the Company's
property and assets, and the Company has executed a guarantee of up to
$500,000 in connection with the facility.
At December 31, 1995, the Company had an outstanding payable for cash
advanced by a bank which acted as paying agent for the notes due to former
Optigraphics shareholders having a principal balance of $1,634,000 payable on
demand. The notes, which had an original maturity of September 1995 and
provided for interest payable quarterly at 6% per annum, were issued as part
of the total consideration paid in connection with the acquisition of
Optigraphics Corporation. The notes were paid in full in January 1996.
At December 31, 1995, the Company had an outstanding convertible note in
connection with the acquisition of Trimco having a principal balance of
$1,000,000 payable at 7% per annum, due on September 27, 1996. The note was
convertible into common stock at a rate of $8.00 per share, or an aggregate
of 125,000 shares. The note was secured by a second-priority lien on the
Company's assets, subject to the first-priority lien held by the lender in
connection with the Company's existing revolving loan agreement. In February
1996, the note was converted into 125,000 shares of the Company's common
stock, and no further obligations remain under the note.
NOTE 5 - PREFERRED STOCK
In April 1996, the Company issued 100,000 shares of its Series C
Convertible Preferred Stock (the "Series C Preferred Stock") in an offshore
private placement to a purchaser who is not a resident of the United States.
In consideration for the issuance and sale of the Series C Preferred Stock,
the Company received $2,000,000 in cash proceeds before expenses. In June
1996, 37,500 shares of Series C Preferred Stock were converted into 72,726
shares of common stock. In July 1996, the remaining 62,500 shares of Series
C Preferred Stock plus accrued dividends were converted into 163,274 shares
of common stock.
In December 1995, the Company issued 172,500 shares of its Series B
Convertible Preferred Stock (the "Series B Preferred Stock") for total
proceeds of $3,450,000 before expenses. In February 1996, the 172,500 shares
of Series B Preferred Stock were converted into 406,617 shares of common
stock.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
COMPARED WITH THREE MONTHS ENDED MARCH 31, 1996.
Revenues
Revenues for the three months ended March 31, 1997 were $6,615,000 as
compared to $6,061,000 for the three months ended March 31, 1996. The 9%
increase in revenues is primarily due to revenues generated by new software
product and version releases.
First quarter 1997 revenues consisted of $3,287,000 (50%) in new system
revenues and $3,328,000 (50%) related to system enhancements, expansion and
maintenance. This compares to first quarter 1996 revenue of $3,336,000 (55%)
in new system revenues and $2,725,000 (45%) related to system enhancements,
expansion and maintenance. New systems revenues were comparable to the prior
year, while revenues from system enhancements, expansion and maintenance
increased $603,000 (22%) due to the increase in sales of new software product
and version releases to existing customers.
A small number of customers have typically accounted for a large
percentage of the Company's annual revenue. In the first quarter of 1997, no
customer accounted for more than 10% of total revenue. During the first
quarter of 1996, two customers accounted for 14% and 11% of total revenues.
One consequence of this dependence has been that revenue can fluctuate
significantly on a quarterly basis. The Company's reliance on relatively few
customers could have a material adverse effect on the results of its
operations on a quarterly basis. Additionally, a significant portion of the
Company's revenues has historically been derived from the sale of systems to
new customers.
Gross Profit
Gross profit as a percentage of revenues was 57% for the first quarter
1997 compared to 59% for the same period a year ago. The decrease in gross
profit margin was due primarily to increased third party software costs for
the first quarter of 1997 compared to the prior year. Software license
revenue was $4,020,000 (61%) of total revenues in the first quarter 1997
compared to $3,462,000 (57%) of total revenues in the first quarter of 1996.
The higher margin of the software sales was offset partially by lower margin
hardware sales which decreased to $568,000 in the first quarter 1997 from
$681,000 in the first quarter of 1996. Service revenues, which include
maintenance, training and consulting services, increased to $2,027,000 in the
first quarter 1997 from $1,918,000 in the first quarter 1996. Software and
services are sold at a significantly higher margin than third party products
which are resold at a lower gross profit percentage in order for the Company
to remain competitive in the marketplace for such third party products.
Gross profit percentages can fluctuate quarterly based on the revenue mix of
Company software, services and third party software or hardware.
Operating Expenses
Research and development expense for the three months ended March 31,
1997 was $812,000 versus $907,000 for the same period in the prior year.
Research and development expense can vary year to year based on the amount of
engineering service contract work required for customers versus purely
internal development projects. It may also vary based on internal
development projects in which technological feasibility and marketability of
a product are established. These costs are capitalized as incurred and then
amortized when the product is available for general release to customers.
Technical expenses on customer-funded projects are included in cost of
revenues, while expenses on internal projects are included in research and
development expense. Technical expenses on customer-funded projects for the
quarter were $704,000 versus $734,000 in the first quarter of 1996.
Marketing and sales expense for the three months ended March 31, 1997
increased to $1,640,000 from $1,253,000 for the three months ended March 31,
1996. The increase is primarily attributable to additional marketing and
promotional costs incurred in connection with the initial marketing of the
new Altris EB-TM- product suite, the Company's next generation document
management software, and efforts to increase name
8
<PAGE>
recognition for the new "Altris" name. In addition, the increase is also
attributable to additional sales and support personnel hired and costs
associated therewith to support the Company's revenue growth.
General and administrative expense was $729,000 for the three months
ended March 31, 1997 as compared to $711,000 for the three months ended March
31, 1996. The increase in general and administrative expense was due
primarily to costs associated with additional personnel being hired.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company's cash and cash equivalents totaled
$1,440,000 as compared to $2,200,000 at December 31, 1996, and its current
ratio was 2.1 to 1.
During the first quarter of 1997, cash provided by financing activities
totaled $536,000 while cash used in operating and investing activities
totaled $829,000 and $447,000, respectively. Cash provided by financing
activities was primarily from borrowings under revolving loan and bank
agreements totaling $663,000. During the first quarter of 1996, cash used in
operating, investing and financing activities totaled $1,882,000, $253,000
and $1,464,000, respectively.
On December 27, 1995, the Company acquired Trimco Group plc. The cash
portion of the consideration paid to Trimco shareholders totaled $5,550,000.
As part of the transaction, the Company also issued a convertible note due in
September 1996, having a principal balance of $1,000,000 with interest
payable at 7% per annum. In February 1996, the note was converted into
125,000 shares of the Company's common stock. In addition, in connection
with the transaction, the Company assumed an accrued liability of $1,051,000
payable to certain Trimco employees, which the Company paid in full in
January 1996.
The Company believes that current working capital and funds generated
from operations will be adequate to meet expected needs for working capital
and capital expenditures over at least the next twelve months; however, in
order to continue to expand the Company's market penetration with its
next-generation product suite and to increase name recognition of the
Company's new name, the Company intends to explore additional financing
options.
Net Operating Loss Tax Carryforwards
As of December 31, 1996, the Company had a net operating loss
carryforward ("NOL") for federal and state income tax purposes of $31,700,000
and $7,000,000, respectively. In addition, the Company generated but has not
used research and investment tax credits for federal income tax purposes of
approximately $500,000. Under the Internal Revenue Code of 1986, as amended
(the "Code"), the Company generally would be entitled to reduce its future
Federal income tax liabilities by carrying unused NOL forward for a period of
15 years to offset future taxable income earned, and by carrying unused tax
credits forward for a period of 15 years to offset future income taxes.
However, the Company's ability to utilize any NOL and credit carryforwards in
future years may be restricted in the event the Company undergoes an
"ownership change," generally defined as a more than 50 percentage point
change of ownership by one or more statutorily defined "5-percent
stockholders" of a corporation, as a result of future issuances or transfers
of equity securities of the Company within a three-year testing period. In
the event of an ownership change, the amount of NOL attributable to the
period prior to the ownership change that may be used to offset taxable
income in any year thereafter generally may not exceed the fair market value
of the Company immediately before the ownership change (subject to certain
adjustments) multiplied by the applicable long-term, tax-exempt rate
announced by the Internal Revenue Service in effect for the date of the
ownership change. A further limitation would apply to restrict the amount of
credit carryforwards that might be used in any year after the ownership
change. As a result of these limitations, in the event of an ownership
change, the Company's ability to use its NOL and credit carryforwards in
future years may be delayed and, to the extent the carryforward amounts
cannot be fully utilized under these limitations within the carryforward
periods, these carryforwards will be lost. Accordingly, the Company may be
required to pay more Federal income taxes or to pay such taxes sooner than if
the use of its NOL and credit carryforwards were not restricted.
9
<PAGE>
Over the past three years the Company has issued equity securities in
connection with the Trimco acquisition in December 1995, the Optigraphics
acquisition in September 1993 and through traditional stock option grants to
employees. Although there was no "ownership change" in 1996, this activity,
combined with the liquidity available to stockholders, increases the
potential for an "ownership change" for income tax purposes.
In connection with the acquisition of Trimco, the Company acquired
deferred tax assets of approximately $926,000. The Company has recorded a
$626,000 valuation allowance, offsetting the deferred tax assets. Any future
recognition of acquired tax benefits will be used first to reduce any
remaining goodwill and other intangible assets related to the acquisition;
once those assets are reduced to zero, the benefit will be included as a
reduction of the Company's income tax provision.
In connection with the acquisition of Optigraphics, the Company acquired
Optigraphics' NOL of $9,500,000 for federal income tax purposes. As a result
of the change in ownership of Optigraphics, $8,000,000 of the NOL is limited
whereby the Company may only utilize approximately $500,000 annually to
offset future taxable income of Optigraphics. The remaining portion of
Optigraphics' NOL does not have any annual limitation.
Inflation
The Company believes that inflation has not had a material effect on its
operations to date. Although the Company enters into fixed-price contracts,
management does not believe that inflation will have a material impact on its
operations for the foreseeable future, as the Company takes into account
expected inflation in its contract proposals and is generally able to project
its costs based on forecasted contract requirements.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits - See Exhibit Index on Page 13.
(b) There were no Reports on Form 8-K filed during the three months ended
March 31, 1997.
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALTRIS SOFTWARE, INC.
By: /s/ John W. Low
--------------------------
John W. Low
Chief Financial Officer
Dated: May 14, 1997
-----------------------
12
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EXHIBIT INDEX
Exhibit
- -------
11 Statement Re Computation of Net Income Per Share
13
<PAGE>
EXHIBIT 11
ALTRIS SOFTWARE, INC.
STATEMENT RE COMPUTATION OF NET INCOME PER SHARE
________________________________________________
(Unaudited)
For the three months
ended March 31,
------------------------
1997 1996
---------- ----------
Net income per consolidated financial statements $ 534,000 $ 677,000
Primary net income per share:
Weighted average common shares 9,565,000 9,027,000
Common stock equivalents:
Common stock options 82,000 380,000
---------- ----------
Weighted average shares outstanding 9,647,000 9,407,000
---------- ----------
Fully diluted net income per share:
Weighted average common shares 9,565,000 9,027,000
Common stock equivalents:
Common stock options 82,000 380,000
---------- ----------
Weighted average shares outstanding 9,647,000 9,407,000
---------- ----------
Net income per share:
Primary $ .06 $ .07
---------- ----------
---------- ----------
Fully diluted $ .06 $ .07
---------- ----------
---------- ----------
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS FOUND ON
PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE MARCH 31, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,440
<SECURITIES> 0
<RECEIVABLES> 10,882
<ALLOWANCES> 0
<INVENTORY> 447
<CURRENT-ASSETS> 13,647
<PP&E> 7,381
<DEPRECIATION> 5,306
<TOTAL-ASSETS> 23,421
<CURRENT-LIABILITIES> 6,395
<BONDS> 0
0
0
<COMMON> 61,630
<OTHER-SE> (46,391)
<TOTAL-LIABILITY-AND-EQUITY> 23,421
<SALES> 6,615
<TOTAL-REVENUES> 6,615
<CGS> 2,871
<TOTAL-COSTS> 2,871
<OTHER-EXPENSES> 812
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (51)
<INCOME-PRETAX> 534
<INCOME-TAX> 0
<INCOME-CONTINUING> 534
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 534
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
