SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______TO _______ .
Commission file number: 33-43389
DOCUMENT TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
California 77-0170932
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
549 Weddell Drive
Sunnyvale, California 94089
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 541-8660
Check whether the issuer (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 _____
The number of shares outstanding of the issuer's Common Stock as of
August 6, 1996 was 161,205,315.
Page 1 of 9
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
DOCUMENT TECHNOLOGIES, INC.
BALANCE SHEET
June 30, December 31,
1996 1995
------------ ------------
ASSETS (Unaudited)
Current assets:
Cash $ 5,000 $ 29,000
Accounts receivable, less allowance for doubtful
accounts of $6,000 in 1996 and 1995 43,000 10,000
Note receivable -- 17,000
Inventories 276,000 171,000
Other current assets 16,000 19,000
------------ ------------
Total current assets 340,000 246,000
Property and equipment, net 32,000 27,000
------------ ------------
$ 372,000 $ 273,000
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 125,000 $ 84,000
Accrued compensation 43,000 35,000
Accrued liabilities 123,000 132,000
Notes payable to shareholders 258,000 4,546,000
Interest payable to shareholders 12,000 236,000
Notes payable to vendors 18,000 96,000
------------ ------------
Total current liabilities 579,000 5,129,000
Notes payable to vendors -- 2,000
------------ ------------
Total liabilities 579,000 5,131,000
------------ ------------
Shareholders' deficit:
Preferred Stock, no par value, 5,000,000
shares authorized
Common Stock, no par value, 200,000,000 shares -- --
authorized; 161,205,315 shares and 2,950,202
shares issued and outstanding in 1996 and 1995 19,009,000 13,470,000
Accumulated deficit (19,216,000) (18,328,000)
------------ ------------
Total shareholders' deficit (207,000) (4,858,000)
------------ ------------
$ 372,000 $ 273,000
============ ============
The accompanying notes are an integral part of these financial statements
2
<PAGE>
<TABLE>
DOCUMENT TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1996 1995 1996 1995
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Net sales $ 152,000 $ 72,000 $ 222,000 $ 137,000
---------- ---------- --------- ----------
Costs and expenses:
Cost of sales 167,000 106,000 265,000 195,000
Research and development 87,000 93,000 207,000 172,000
Marketing and sales 157,000 222,000 339,000 423,000
General and administrative 72,000 67,000 152,000 146,000
---------- ---------- --------- ----------
483,000 488,000 963,000 936,000
---------- ---------- --------- ----------
Loss from operations (331,000) (416,000) (741,000) (799,000)
Interest and other expense, net (61,000) (64,000) (147,000) (109,000)
---------- ---------- --------- ----------
Net loss $ (392,000) $ (480,000) $(888,000) $ (908,000)
========== ========== ========= ==========
Net loss per share $ (0.01) $ (0.16) $ (0.03) $ (0.31)
Weighted average common shares 62,078,486 2,950,202 32,514,344 2,950,202
<FN>
The accompanying notes are an integral part of these financial statements
</FN>
</TABLE>
3
<PAGE>
DOCUMENT TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
-------------------------
1996 1995
---------- ---------
Cash flows from operating activities:
Net loss $ (888,000) $(908,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 17,000 13,000
Interest on notes to shareholders 144,000 22,000
Changes in assets and liabilities:
Accounts receivable (33,000) 88,000
Notes receivable 17,000 32,000
Inventories (105,000) 60,000
Other current assets 3,000 47,000
Accounts payable 41,000 7,000
Accrued compensation 8,000 15,000
Accrued liabilities (9,000) (15,000)
---------- ---------
Net cash used in operating activities $ (805,000) $(639,000)
---------- ---------
Cash flows used in investing activities for
acquisition of property and equipment (22,000) (11,000)
---------- ---------
Cash flows from financing activities:
Proceeds from notes payable to shareholders 883,000 757,000
Repayment of notes payable to vendors (80,000) (80,000)
---------- ---------
Net cash provided by financing activities 803,000 677,000
---------- ---------
Net increase in cash (24,000) 27,000
Cash at beginning of period 29,000 21,000
---------- ---------
Cash at end of period $ 5,000 $ 48,000
========== =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 2,000 $ 6,000
Conversion of notes payable to shareholders and $5,539,000 --
accrued interest to Common Stock
The accompanying notes are an integral part of these financial statements
4
<PAGE>
DOCUMENT TECHNOLOGIES, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
NOTE 1 - GENERAL
The information contained in the following Condensed Notes to Financial
Statements is condensed from that which would appear in the annual financial
statements; accordingly, the financial statements contained herein should be
reviewed in conjunction with the Company's Form 10-KSB for the year ended
December 31, 1995.
The results of operations for the interim periods presented are not necessarily
indicative of the results expected for the entire year.
The financial information for the periods ended June 30, 1996 and 1995, included
herein is unaudited but includes all adjustments which, in the opinion of
management of the Company, are necessary to present fairly the financial
position of the Company at June 30, 1996, and the results of its operations and
its cash flows for the six month periods ended June 30, 1996 and 1995.
NOTE 2 - INVENTORIES
The components of inventory were as follows:
June 30, December 31,
1996 1995
--------- ----------
Purchased component parts and
subassemblies $ 226,000 $ 150,000
Finished goods 47,000 8,000
Demonstration inventory 3,000 13,000
--------- ---------
$ 276,000 $ 171,000
========= =========
NOTE 3 - RELATED PARTY TRANSACTIONS
At June 30, 1996, the Company had issued $258,000 of interest bearing
convertible demand notes to shareholders, which are due 180 days after issuance
and are convertible to Common Stock at the price of $0.035 on the dates of
maturity of these notes at the option of the holders. These notes are secured by
the Company's assets and bear annual interest of 7.07%, payable at their
maturity dates, or date of payment or conversion whichever is earlier. No
accrued interest was paid on these notes during the quarter ended June 30, 1996.
At May 28, 1996, $5,171,000 of notes payable to shareholders and $368,000 of
accrued interest were converted into 158,255,113 shares of Common Stock.
5
<PAGE>
NOTE 4 - NET LOSS PER SHARE
Net loss per share amounts were computed by dividing net loss over the weighted
average number of common shares outstanding. Common stock equivalent shares from
convertible notes payable, stock options and warrants are excluded from the
computation for the three and six month periods ended June 30, 1996 and 1995 as
their effects are anti-dilutive.
6
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Except for historical information contained herein, this Report contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The
forward-looking statements contained herein are subject to certain risks and
uncertainties, including those discussed herein and in the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995, that could
cause actual results to differ materially from those projected or discussed.
Investors are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis only as of the date hereof. The
Company undertakes no obligation to publicly release the results of any revision
to these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Results of Operations
Second quarter 1996 compared to second quarter 1995
For the quarter ended June 30, 1996, sales totaled $152,000 compared to sales of
$72,000 during the quarter ended June 30, 1995. This represents a 111% increase
in sales between periods. This increase is due to higher sales volumes of the
EasyRead 240. Sales to one customer accounted for 65% sales for the second
quarter in 1996, and sales to three different customers accounted for 96% of
sales for the second quarter in 1995.
Cost of sales represented 110% and 147% of related sales for the second quarter
of 1996 and 1995, respectively. These percentages were high due to modest sales
volumes during the periods in relation to fixed overhead costs associated with
maintaining the Company's manufacturing capability. To improve its gross
margins, the Company will need to substantially increase its sales to more fully
absorb fixed manufacturing costs. However, for more than two years the Company
has been unsuccessful in its efforts to do so despite diligent efforts on the
part of management, and there is no assurance that the Company will be
successful in increasing sales in the foreseeable future.
Research and development expenses decreased by $6,000, or 6% to $87,000 in the
second quarter of 1996 from $93,000 in the second quarter of 1995. This decrease
is due to decreased spending on hardware development for the Company's PCI
version of the EasyRead 240 and decreased spending on patent and legal expense.
During the second quarter 1996, the Company was issued a patent by the U.S.
Patent and Trademark Office for its enhanced display of high resolution document
images.
Marketing and sales expenses decreased to $157,000 in the second quarter of 1996
from $222,000 in the second quarter of 1995, for a decrease of $65,000, or 29%.
This decrease is mainly due to a reduction in headcount and decreased spending
on outside consulting services. Although the Company did reduce marketing costs
during the second quarter of 1996 compared to the same time period in 1995,
management believes that it is critical to invest as much of its
7
<PAGE>
resources as possible on product marketing to increase its revenues, however,
there is no assurance these efforts will increase sales in future periods.
General and administrative costs increased to $72,000 in the second quarter of
1996 from $67,000 in the second quarter of 1995, for an increase of $5,000, or
7%. General and administrative costs have remained fairly stable between periods
due to the Company's ongoing efforts to control spending.
Interest and other expense, net, decreased by $3,000, or 5% to $61,000 in the
second quarter of 1996 from $64,000 in the second quarter of 1995. This decrease
is primarily a result of a decrease in interest expense accruing to lower
amounts outstanding on shareholder notes due to the conversion of the notes
during the quarter and a reduction of interest expense on note payable to
vendors.
As a result of the foregoing, the Company incurred a net loss of $392,000 or
$0.01 per share in the second quarter of 1996, compared to a net loss of
$480,000 or $0.16 per share in the comparable 1995 period. The Company
anticipates that it will continue to incur losses in the forseeable future.
Six months ended June 30, 1996 compared to six months ended June 30, 1995
For the six months ended June 30, 1996, sales totaled $222,000 compared to
$137,000 during the six months ended June 30, 1995. This represents a 62%
increase in sales between periods. This increase is due to higher sales volumes
of the EasyRead 240. Sales to two customers accounted for 69% of total sales for
the second quarter in 1996, and sales to three customers accounted for 93% of
sales for the second quarter in 1995.
Cost of internally developed products represented 119% and 142% of related sales
for the six months ended June 30, 1996 and 1995, respectively. Costs were high
compared to related sales due to the fixed overhead costs associated with
maintaining the Company's manufacturing capability in a period of modest sales
volumes.
Costs for research and development were $207,000 for the six months ended June
30, 1996, compared to $172,000 for the six months ended June 30, 1995. This
represents a increase of 20% which is primarily due to increased spending on
hardware development for the Company's PCI version of the EasyRead 240. In
previous periods the Company had focused on software development which requires
less funding than does hardware development.
Marketing and sales expenses decreased to $339,000 during the six months ended
June 30, 1996, from $423,000 for the six months ended June 30, 1995. This
represents an decrease of 20% and is the result of a reduction in headcount and
decreased spending on outside consulting services.
General and administrative expenses increased to $152,000 from $146,000 for the
six months ended June 30, 1996 and 1995, respectively. General and
administrative costs have remained fairly stable between periods due to the
Company's ongoing efforts to control spending.
8
<PAGE>
Interest and other expense, net for the six months ended June 30, 1996, and 1995
increased by 35%. This increase is due to interest accrued on a higher average
outstanding balance of shareholder notes during 1996.
As a result of the foregoing, the Company incurred a net loss of $888,000 or
$0.03 per share for the six months ended June 30, 1996, compared to a net loss
of $908,000 or $0.31 per share in the comparable 1995 period. The Company
anticipates that it will continue to incur significant losses in the forseeable
future.
Factors That May Affect Future Results
Document Technologies, Inc. future operating results may be adversely affected
by sudden fluctuations in product demand, the ability of suppliers to deliver
components and integral subassemblies in time to meet critical manufacturing and
distribution schedules and the capability to secure and maintain intellectual
property rights.
The Company continues its efforts to expand into the third-party distribution
channels and may be adversely affected by the financial health and loyalty of
these resellers. Some of these companies are thinly capitalized and may be
unable to withstand changes in business conditions.
While the Company attempts to identify and respond to rapidly changing events
and conditions, as soon as possible, there are no assurances that the Company
will be successful in its efforts.
Liquidity and Capital Resources
Working capital at June 30, 1996 was a deficit of $239,000, a decrease in the
deficit of $4,644,000 from the December 31, 1995 deficit of $4,883,000. This
reduction in the working capital deficit was due to the conversion of $5,171,000
of notes payable to shareholders and $368,000 of accrued interest into
158,255,113 shares of Common Stock.
At June 30, 1996, the Company had no significant backlog of orders. The Company
normally ships products within 30-45 days after receipt of an order and
typically has no more than one to two month's sales in backlog at any time.
Product orders included in backlog are subject to change or cancellation at the
option of the purchaser without significant penalty. Backlog as of any
particular date may not be a reliable measure of sales for any future period.
At June 30, 1996, the Company continues to be in default of the total asset
requirement and the capital surplus requirements for listing on the Nasdaq
market. This failure of the Company to meet the maintenance requirements
resulted in the Company's securities being delisted from Nasdaq. The Company's
securities now trade on the OTC Bulletin Board or on the "pink sheets"
maintained by the National Quotation Bureau, Inc. As a result, investors may
find it more difficult to dispose of, or obtain accurate quotations as to the
price of the Company's securities.
The Company has continued to incur operating losses. Unless additional working
capital is raised, the Company may not be able to continue its operations.
Although the Company has secured additional working capital in the past through
shareholder notes, there is no assurance that it will continue to be successful
in its efforts in the future.
9
<PAGE>
PART II
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DOCUMENT TECHNOLOGIES, INC.
Dated August 7, 1996 By:_________________________________
Robert J. Wallace
President and Chief Operating and
Financial Officer
(Principal Executive and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,000
<SECURITIES> 0
<RECEIVABLES> 4,000
<ALLOWANCES> 6,000
<INVENTORY> 276,000
<CURRENT-ASSETS> 16,000
<PP&E> 665,000
<DEPRECIATION> 633,000
<TOTAL-ASSETS> 372,000
<CURRENT-LIABILITIES> 579,000
<BONDS> 0
<COMMON> 19,009,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 372,000
<SALES> 152,000
<TOTAL-REVENUES> 152,000
<CGS> 167,000
<TOTAL-COSTS> 167,000
<OTHER-EXPENSES> 316,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61,000
<INCOME-PRETAX> (392,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (392,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (392,000)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
