<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 September 30, 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.
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(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
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(Address of principal executive offices and zip code)
(619) 625-3000
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(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 October 31, 1997: 9,613,413
------------
Number of Sequentially Numbered Pages: 16
Exhibit Index at Page 15
1
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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 9
PART II. OTHER INFORMATION 13
2
<PAGE>
ALTRIS SOFTWARE, INC.
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 688,000 $ 2,200,000
Short term investments 1,632,000 90,000
Receivables, net 11,937,000 9,752,000
Inventory, net 429,000 443,000
Other current assets 888,000 641,000
------------ ------------
Total current assets 15,574,000 13,126,000
Property and equipment, net 2,219,000 2,156,000
Computer software, net 2,879,000 2,252,000
Goodwill, net 4,332,000 4,972,000
Other assets 983,000 385,000
------------ ------------
$ 25,987,000 $ 22,891,000
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,041,000 $ 2,614,000
Accrued liabilities 1,932,000 1,643,000
Notes payable 758,000 710,000
Deferred revenue 1,335,000 1,188,000
------------ ------------
Total current liabilities 6,066,000 6,155,000
Long term notes payable 33,000 1,203,000
Other long term liabilities 205,000 763,000
Subordinated debt 3,000,000 -
------------ ------------
Total liabilities 9,304,000 8,121,000
------------ ------------
Commitments
Shareholders' equity:
Convertible preferred stock, $1 par value,
3,000 shares authorized; 3,000 shares
issued and outstanding 2,653,000 -
Common stock, no par value, 20,000,000 shares authorized;
9,612,663 and 9,559,944 issued and outstanding,
respectively 61,769,000 61,583,000
Common stock warrants 585,000 -
Foreign currency translation adjustment 54,000 112,000
Accumulated deficit (48,378,000) (46,925,000)
------------ ------------
Total shareholders' equity 16,683,000 14,770,000
------------ ------------
$ 25,987,000 $ 22,891,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to the consolidated financial statements.
3
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ALTRIS SOFTWARE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
--------------------------- ----------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 5,850,000 $ 5,806,000 $ 19,541,000 $ 17,973,000
Cost of revenues 2,828,000 2,395,000 8,379,000 7,041,000
------------ ------------ ------------ ------------
Gross profit 3,022,000 3,411,000 11,162,000 10,932,000
------------ ------------ ------------ ------------
Operating expenses:
Research and development 1,120,000 791,000 2,962,000 2,547,000
Marketing and sales 2,310,000 1,357,000 5,886,000 4,004,000
General and administrative 821,000 758,000 2,337,000 2,323,000
Provision for doubtful accounts 1,100,000 - 1,100,000 -
Write-off of certain offering costs - - 270,000 -
------------ ------------ ------------ ------------
Total operating expenses 5,351,000 2,906,000 12,555,000 8,874,000
------------ ------------ ------------ ------------
(Loss) income from operations (2,329,000) 505,000 (1,393,000) 2,058,000
Interest and other income 41,000 18,000 93,000 64,000
Interest and other expense (159,000) (31,000) (268,000) (78,000)
------------ ------------ ------------ ------------
(Loss) income before income taxes (2,447,000) 492,000 (1,568,000) 2,044,000
Income tax benefit - - (205,000) -
------------ ------------ ------------ ------------
Net (loss) income (2,447,000) 492,000 (1,363,000) 2.044,000
Preferred stock dividends (90,000) - (90,000) -
------------ ------------ ------------ ------------
Net (loss) income available to
common shareholders $ (2,537,000) $ 492,000 $ (1,453,000) $ 2,044,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net (loss) income per common share $ (0.26) $ .05 $ (0.15) $ .22
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average shares 9,587 9,651 9,575 9,414
outstanding
</TABLE>
See accompanying notes to the consolidated financial statements.
4
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ALTRIS SOFTWARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
---------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flow from operating activities:
Net (loss) income $ (1,363,000) $ 2,044,000
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 1,754,000 1,506,000
Changes in assets and liabilities:
Receivables, net (2,185,000) (4,223,000)
Inventory, net 14,000 (9,000)
Other assets (172,000) (614,000)
Accounts payable (573,000) 80,000
Accrued liabilities 260,000 (1,136,000)
Deferred revenue 147,000 (444,000)
Other long term liabilities (558,000) (325,000)
------------ ------------
Net cash used in operating activities (2,676,000) (3,121,000)
------------ ------------
Cash flows from investing activities:
Sale or maturity of short term investments 153,000 180,000
Purchases of short term investments (1,499,000) -
Purchases of property and equipment (579,000) (857,000)
Purchases of software (41,000) (20,000)
Computer software capitalized (1,121,000) (791,000)
------------ ------------
Net cash used in investing activities (3,087,000) (1,488,000)
------------ ------------
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 (2,243,000) (116,000)
Net borrowings under revolving loan and bank agreements 1,121,000 262,000
Proceeds from exercise of stock options 186,000 919,000
Preferred stock dividends (61,000) -
Net proceeds from issuance of preferred stock 2,653,000 1,923,000
Net proceeds from issuance of subordinated debt 2,653,000 -
------------ ------------
Net cash provided by financing activities 4,309,000 1,354,000
------------ ------------
Effect of exchange rate changes on cash (58,000) 22,000
------------ ------------
Net decrease in cash and cash equivalents (1,512,000) (3,233,000)
Cash and cash equivalents at beginning of period 2,200,000 4,656,000
------------ ------------
Cash and cash equivalents at end of period $ 688,000 $ 1,423,000
------------ ------------
------------ ------------
Supplemental cash flow information:
Interest paid $ 189,000 $ 50,000
------------ ------------
------------ ------------
Schedule of non-cash financing and investing activities:
Conversion of Preferred Stock and note payable to
Common Stock $ - $ 6,230,000
------------ ------------
------------ ------------
Issuance of common stock warrants in connection with
private placement $ 585,000 $ -
------------ ------------
------------ ------------
Transfer of Treasury Bills from Indemnity Trust $ 201,000 $ -
------------ ------------
------------ ------------
Preferred stock dividends declared $ 29,000 $ -
------------ ------------
------------ ------------
</TABLE>
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 September 30, 1997 and the consolidated statement of operations
and of cash flows for the three and nine month periods ended September 30, 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:
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
BASIC EARNINGS PER COMMON SHARE
Net (loss) income per share $ (.26) $ .05 $ (.15) $ .23
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average shares 9,587,000 9,420,000 9,575,000 8,967,000
DILUTED EARNINGS PER COMMON SHARE
Net (loss) income per share $ (.26) $ .05 $ (.15) $ .22
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average shares 9,587,000 9,651,000 9,575,000 9,414,000
</TABLE>
6
<PAGE>
NOTE 3 - RECEIVABLES
September 30, 1997 December 31, 1996
------------------ -----------------
(Unaudited)
Billed receivables $ 4,625,000 $ 7,234,000
Unbilled receivables 8,551,000 2,689,000
Less allowance for doubtful accounts (1,239,000) (171,000)
------------ ------------
$ 11,937,000 $ 9,752,000
------------ ------------
------------ ------------
During the third quarter of 1997, the Company increased its allowance for
doubtful accounts by $1,100,000. This increase included $650,000 relating to a
receivable from a specific value-added reseller (VAR) for which collection
appears doubtful. As a result of this experience and a reassessment of the
Company's provision for VAR receivables, generally, the Company increased its
allowance for doubtful accounts by an additional $450,000 as well.
NOTE 4 - 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 September 30, 1997 and December 31, 1996, the
Company's reserve against excess quantities totaled $587,000 and $552,000,
respectively.
NOTE 5 - NOTES PAYABLE
In October 1996 and September 1995, the Company entered into two revolving
loan and security agreements, each providing for borrowings of up to $1,000,000.
The maximum credit available under each facility declines by $200,000 each year
in March and September beginning in 1997 and 1996, respectively. Each loan is
payable in monthly installments of $16,667. At September 30, 1997, $233,000 was
outstanding and $1,167,000 was unused on these facilities. 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% (effective rate was 8.51% at September 30, 1997). The revolving
loan and security agreements contain certain restrictive covenants including,
without limitation, a covenant requiring the Company to maintain a certain ratio
of debt to tangible net worth.
In August 1997, the Company's United Kingdom subsidiary renewed an
overdraft facility with a bank with interest calculated at 2.0% per annum over
the bank's base rate (effective rate was 9.0% at September 30, 1997). The
facility is payable on demand although the bank's present intention is to make
the facility available until August 31, 1998. At September 30, 1997, $558,000
was outstanding and $88,000 was unused on the facility. The property and assets
of the Company's United Kingdom subsidiary secure repayment of the borrowings
under the facility. The Company has executed a guarantee in connection with the
facility (up to $485,000 at September 30, 1997).
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
shareholders of the Company's Optigraphics subsidiary (which notes were issued
in connection with the Company's acquisition of Optigraphics Corporation in
September 1993) 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 paid in full in January 1996.
At December 31, 1995, the Company had outstanding a note in the principal
amount of $1,000,000 convertible at any time into the Company's common stock at
the rate of $8 per share. The convertible note, which accrued interest at the
rate of 7% per annum and was due on September 27, 1996, was issued in connection
with the Company's acquisition of Trimco Group plc in December 1995. In
February 1996, the holder converted the note into 125,000 shares of the
Company's common stock. The Company does not have any remaining obligations
with respect to this note.
7
<PAGE>
NOTE 6 - SUBORDINATED DEBT
At September 30, 1997, the Company had outstanding an 11.5% Subordinated
Debenture in principal amount of $3,000,000 (the "Subordinated Debenture"). The
Subordinated Debenture, which was issued to a lender on June 27, 1997 at 100% of
par, provides for quarterly interest payments with a maturity date of June 27,
2002. The Company may prepay the Subordinated Debenture prior to maturity
without penalty. In connection with the issuance of the Subordinated Debenture,
the Company granted to the lender warrants valued at $585,000 to purchase
300,000 shares of its common stock at an exercise price of $6.00 per share,
exercisable at any time on or before June 27, 2002. In addition, the Company
has agreed to grant to the lender additional warrants to purchase 50,000 shares
of its common stock at an exercise price of $7.00 per share on June 27, 2000 if
the Subordinated Debenture then remains outstanding and on each anniversary
thereafter on which the Subordinated Debenture remains outstanding (any such
additional warrants expire on the fifth anniversary of the date of grant).
NOTE 7 - PREFERRED STOCK
In June 1997, the Company issued 3,000 shares of its Series D Convertible
Preferred Stock (the "Series D Preferred Stock") in a private placement that was
exempt from registration under the securities laws. In consideration for the
issuance and sale of the Series D Preferred Stock, the Company received
$3,000,000 in cash proceeds before expenses. The Series D Preferred Stock bears
a dividend of 11.5% per annum, accruing quarterly, and is convertible into
shares of the Company's common stock at a conversion price of $6 per share of
common stock (subject to reset on June 27, 1999 to a lower conversion price if
the average closing price of the common stock on the 20 trading days immediately
prior to June 27, 1999 is less than $6 per share). The Company may redeem any
or all of the Series D Preferred Stock at its stated value on or after June 27,
1999 at any time the 20-day average of the closing price of the common stock
equals or exceeds $9.50 per share. Additionally, the Company may redeem any or
all of the Series D Convertible Preferred Stock on or after June 27, 2002 at its
stated value irrespective of the trading price of its common stock. In
connection with the issuance of the Series D Preferred Stock, the Company has
agreed to grant to the purchaser of the Series D Preferred Stock warrants to
purchase the following number of shares of its common stock in the event that
the Series D Preferred Stock has not been redeemed or converted in full on or
prior to each of the following dates: (i) 50,000 shares, at an exercise price
of $7.00 per share, on June 27, 2000; (ii) 50,000 shares, at an exercise price
of $7.00 per share, on June 27, 2001; (iii) 250,000 shares, at an exercise price
equal to the trading price per share at the issuance of the warrant, on July 17,
2002; and (iv) 250,000 shares, at an exercise price equal to the trading price
per share at the issuance of the warrant, on June 27, 2003. Any such warrants
that may be issued will be exercisable until the fifth anniversary of the date
of grant.
In April 1996, the Company issued 100,000 shares of its Series C
Convertible 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 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.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1996.
Revenues
Revenues for the three and nine months ended September 30, 1997 were
$5,850,000 and $19,541,000, respectively, as compared to $5,806,000 and
$17,973,000 for the three and nine months ended September 30, 1996. Revenues
for the three months ended September 30, 1997 were comparable to revenues for
the same period in the prior year. The increase of 9% in revenues for the nine
months ended September 30, 1997 is primarily due to revenues generated by
software licenses.
For the three and nine months ended September 30, 1997 revenues consisted
of $3,704,000 (63%) and $10,753,000 (55%), respectively, in new system revenues
and $2,146,000 (37%) and $8,788,000 (45%), respectively, related to system
enhancements, expansion and maintenance. This compares to $3,611,000 (62%) and
$11,132,000 (62%), respectively, in new system revenues and $2,195,000 (38%) and
$6,841,000 (38%), respectively, related to system enhancements, expansion and
maintenance, for the three and nine months ended September 30, 1996.
A small number of customers have typically accounted for a large percentage
of the Company's annual revenues. In the first nine months of 1997, no customer
accounted for 10% or more of total revenues. In the first nine months of 1996,
one customer accounted for 11% of total revenues. One consequence of this
dependence has been that revenues 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.
A significant portion of the Company's revenues is generated overseas.
For the nine months ended September 30, 1997 international revenues accounted
for 51% of total revenues as compared to 34% for the same period a year ago.
Management believes the recent market turmoil in the international markets,
especially South America and the Far East may have an adverse effect on the
Company's sales in these markets. Revenues from South America and the Far
East for the nine months ended September 30, 1997 totaled $1,783,000 or 9%
versus $902,000 or 5% in 1996.
Gross Profit
Gross profit as a percentage of revenues was 52% and 57% for the three
months and nine months ended September 30, 1997 compared to 59% and 61% for the
same periods a year ago. The decrease in gross profit margin was due primarily
to increased third party software costs compared to the prior year. Software
license revenue was $3,441,000 (59%) and $11,993,000 (61%) of total revenues for
the three and nine months ended September 30, 1997 compared to $2,765,000 (48%)
and $10,239,000 (57%) of total revenues in the same periods in 1996. Hardware
sales, which typically have a higher margin than software sales, amounted to
$557,000 and $1,639,000 for the three and nine months ended September 30, 1997
as compared to $637,000 and $1,456,000 for the same periods in 1996. Service
revenues, which include maintenance, training and consulting services, decreased
to $1,852,000 and $5,909,000 for the three and nine months ended September 30,
1997 from $2,404,000 and $6,278,000 for the same periods in 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 percentage can fluctuate quarterly based on the revenue mix of Company
software, services and third party software or hardware.
9
<PAGE>
Operating Expenses
Research and development expense for the three and nine months ended
September 30, 1997 was $1,120,000 and $2,962,000 as compared to $791,000 and
$2,547,000 for the same periods 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 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. For the three and nine months
ended September 30, 1997, technical expenses on customer-funded projects were
$553,000 and $2,205,000, respectively, versus $632,000 and $2,107,000,
respectively, for the same period last year.
Marketing and sales expense for the three and nine months ended September
30, 1997 was $2,310,000 and $5,886,000 as compared to $1,357,000 and $4,004,000
for the three and nine months ended September 30, 1996. This 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 recognition for the new "Altris" name which the Company adopted in
October 1996. In addition, the increase is attributable to additional sales and
support personnel hired and costs associated therewith to support the Company's
revenue growth.
General and administrative expense for the three and nine months ended
September 30, 1997 increased to $821,000 and $2,337,000 from $758,000 and
$2,323,000 for the three and nine months ended September 30, 1996. The increase
in general and administrative expense for the three months ended September 30,
1997 is due primarily to costs associated with additional personnel being hired.
General and administrative expense for the nine months ended September 30, 1997
was comparable to the prior year.
During the second quarter of 1997, the Company wrote-off certain offering
costs, resulting in a one-time charge to operations in the amount of $270,000.
The costs that were written-off were not directly related to the private
placement that occurred during the second quarter of 1997. This one-time
charge, however, was partially offset by the income tax benefit of $205,000 that
resulted from the realization of an asset that had been previously written-down.
During the third quarter of 1997, the Company took a $1,100,000 charge for
potential bad debt. This charge included $650,000 relating to a receivable from
a specific value-added reseller (VAR) for which collection appears doubtful. As
a result of this experience and a reassessment of the Company's provision for
VAR receivables, generally, the Company increased its allowance for doubtful
accounts by an additional $450,000 as well.
Interest and Other Income
Interest and other income was $41,000 and $93,000 for the three and nine
months ended September 30, 1997 as compared to $18,000 and $64,000 in the prior
year. The increase is due primarily to higher short-term investment balances.
Interest and Other Expense
Interest and other expense was $159,000 and $268,000 for the three and nine
months ended September 30, 1997 as compared to $31,000 and $78,000 in the prior
year. The increase is due primarily to a higher debt balance coupled with a
higher rate of interest paid on the Company's debt in 1997 as compared to 1996.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company's cash and cash equivalents totaled
$688,000 as compared to $2,200,000 at December 31, 1996. At September 30, 1997,
the Company's current ratio was 2.57 to 1. At September 30, 1997, the Company's
short term investments totaled $1,632,000 as compared to $90,000 at December 31,
1996.
For the first nine months of 1997, cash provided by financing activities
totaled $4,309,000 while cash used in operating and investing activities totaled
$2,676,000 and $3,087,000, respectively. For the first nine months of 1996,
cash used in operating and investing activities totaled $3,121,000 and
$1,488,000, respectively, while cash provided by financing activities totaled
$1,354,000.
In June 1997, the Company issued 3,000 shares of its Series D Convertible
Preferred Stock (the "Series D Preferred Stock") in a private placement that was
exempt from registration under the securities laws. In consideration for the
issuance and sale of the Series D Preferred Stock, the Company received
$3,000,000 in cash proceeds before expenses. The Series D Preferred Stock bears
a dividend of 11.5% per annum, accruing quarterly, and is convertible into
shares of the Company's common stock at a conversion price of $6 per share of
common stock (subject to reset on June 27, 1999 to a lower conversion price if
the average closing price of the common stock on the 20 trading days immediately
prior to June 27, 1999 is less than $6 per share). The Company may redeem any
or all of the Series D Preferred Stock at its stated value on or after June 27,
1999 at any time the 20-day average of the closing price of the common stock
equals or exceeds $9.50 per share. Additionally, the Company may redeem any or
all of the Series D Convertible Preferred Stock on or after June 27, 2002 at its
stated value irrespective of the trading price of its common stock. In
connection with the issuance of the Series D Preferred Stock, the Company has
agreed to grant to the purchaser of the Series D Preferred Stock warrants to
purchase the following number of shares of its common stock in the event that
the Series D Preferred Stock has not been redeemed or converted in full on or
prior to each of the following dates: (i) 50,000 shares, at an exercise price
of $7.00 per share, on June 27, 2000; (ii) 50,000 shares, at an exercise price
of $7.00 per share, on June 27, 2001; (iii) 250,000 shares, at an exercise price
equal to the trading price per share at the issuance of the warrant, on July 17,
2002; and (iv) 250,000 shares, at an exercise price equal to the trading price
per share at the issuance of the warrant, on June 27, 2003. Any such warrants
which may be issued will be exercisable until the fifth anniversary of the date
of grant.
In addition, the Company had outstanding an 11.5% Subordinated Debenture in
principal amount of $3,000,000 (the "Subordinated Debenture") at September 30,
1997. The Subordinated Debenture, which was issued to a lender on June 27, 1997
at 100% of par, provides for quarterly interest payments with a maturity date of
June 27, 2002. The Company may prepay the Subordinated Debenture prior to
maturity without penalty. In connection with the issuance of the Subordinated
Debenture, the Company granted to the lender warrants to purchase 300,000 shares
of its common stock at an exercise price of $6.00 per share, exercisable at any
time on or before June 27, 2002. In addition, the Company has agreed to grant
to the lender additional warrants to purchase 50,000 shares of its common stock
at an exercise price of $7.00 per share on June 27, 2000 if the Subordinated
Debenture then remains outstanding and on each anniversary thereafter on which
the Subordinated Debenture remains outstanding (any such additional warrants
expire on the fifth anniversary of the date of grant).
The Company believes that current working capital, the unused portion of
the Company's credit facilities, and funds generated from operations will be
adequate to meet expected needs for working capital over at least the next
twelve months.
11
<PAGE>
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.
Over the past three years the Company has issued equity securities in
connection with the issuance of convertible preferred stock and warrants to
purchase common stock in June 1997, 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.
Year 2000 Compliance
The Company warrants to its customers that all of its then current software
will be Year 2000 compliant provided that all hardware, firmware and software
used in combination with the Company's products are also compliant and
properly exchange accurate date data with the Company's software products.
The Year 2000 compliance is not retroactive, only applies to current
products, and is not applicable to third party products sold by the Company.
The Company believes that the Year 2000 compliance for its own products as
well as its internal systems will not have a material impact on its
operations.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits - See Exhibit Index on Page 15.
(b) There were no Reports on Form 8-K filed during the three months ended
September 30, 1997.
13
<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.
ALTRIS SOFTWARE, INC.
By: /s/JOHN W. LOW
-------------------------------------
John W. Low
Chief Financial Officer
Dated: November 12, 1997
----------------------------------
14
<PAGE>
EXHIBIT INDEX
Exhibit
- -------
11 Statement Re Computation of Net Income Per Share
15
<PAGE>
EXHIBIT 11
ALTRIS SOFTWARE, INC.
STATEMENT RE COMPUTATION OF NET INCOME PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
-------------------------- --------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net (loss) income available to common
shareholders per consolidated
financial statements $(2,537,000) $ 492,000 $(1,453,000) $ 2,044,000
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Primary net (loss) income per share:
Weighted average common shares 9,587,000 9,420,000 9,575,000 8,967,000
Common stock equivalents:
Common stock options - 200,000 - 295,000
Convertible preferred stock and
convertible note - 31,000 - 152,000
Common stock warrants - - - -
----------- ---------- ----------- -----------
Weighted average shares outstanding 9,587,000 9,651,000 9,575,000 9,414,000
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Fully diluted net (loss) income per share:
Weighted average common shares 9,587,000 9,420,000 9,575,000 8,967,000
Common stock equivalents:
Common stock options - 200,000 - 295,000
Convertible preferred stock and
convertible note - 31,000 - 152,000
Common stock warrants - - - -
----------- ---------- ----------- -----------
Weighted average shares outstanding 9,587,000 9,651,000 9,575,000 9,414,000
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Net (loss) income per share:
Primary $ (.26) $ .05 $ (.15) $ .22
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Fully diluted $ (.26) $ .05 $ (.15) $ .22
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
16
<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 SEPTEMBER 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 688
<SECURITIES> 0
<RECEIVABLES> 13,176
<ALLOWANCES> 1,239
<INVENTORY> 429
<CURRENT-ASSETS> 15,574
<PP&E> 7,741
<DEPRECIATION> 5,522
<TOTAL-ASSETS> 25,987
<CURRENT-LIABILITIES> 6,066
<BONDS> 0
0
2,653
<COMMON> 61,769
<OTHER-SE> (48,378)
<TOTAL-LIABILITY-AND-EQUITY> 25,987
<SALES> 19,541
<TOTAL-REVENUES> 19,541
<CGS> 8,379
<TOTAL-COSTS> 8,379
<OTHER-EXPENSES> 2,962
<LOSS-PROVISION> 1,100
<INTEREST-EXPENSE> (268)
<INCOME-PRETAX> (1,568)
<INCOME-TAX> (205)
<INCOME-CONTINUING> (1,363)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,363)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
