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 SEPTEMBER 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 October 29,
1996 was 161,205,315.
Page 1of 10
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
DOCUMENT TECHNOLOGIES, INC.
BALANCE SHEET
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 40,000 $ 29,000
Accounts receivable, less allowance
for doubtful accounts of $6,000 in 1996 and 1995 14,000 10,000
Note receivable -- 17,000
Inventories 531,000 171,000
Other current assets 21,000 19,000
------------ ------------
Total current assets 606,000 246,000
Property and equipment, net 23,000 27,000
------------ ------------
$ 629,000 $ 273,000
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 127,000 $ 84,000
Accrued compensation 44,000 35,000
Accrued liabilities 118,000 132,000
Notes payable to shareholders 922,000 4,546,000
Interest payable to shareholders 22,000 236,000
Notes payable to vendors 9,000 96,000
------------ ------------
Total current liabilities 1,242,000 5,129,000
Notes payable to vendors -- 2,000
------------ ------------
Total liabilities 1,242,000 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 (19,622,000) (18,328,000)
------------ ------------
Total shareholders' deficit (613,000) (4,858,000)
------------ ------------
$ 629,000 $ 273,000
============ ============
<FN>
The accompanying notes are an integral part of these financial statements
</FN>
</TABLE>
2
<PAGE>
<TABLE>
STATEMENT TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1996 1995 1996 1995
------------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
Net sales $ 41,000 $ 12,000 $ 263,000 $ 150,000
------------- ----------- -------------- ------------
Costs and expenses:
Cost of sales 85,000 58,000 350,000 254,000
Research and development 89,000 88,000 296,000 260,000
Marketing and sales 193,000 190,000 532,000 613,000
General and administrative 70,000 66,000 222,000 212,000
------------- ----------- -------------- ------------
437,000 402,000 1,400,000 1,339,000
------------- ----------- -------------- ------------
Loss from operations (396,000) (390,000) (1,137,000) (1,189,000)
Interest and other expense, net (10,000) (72,000) (157,000) (182,000)
------------- ----------- -------------- ------------
Net loss $ (406,000) $ (462,000) $ (1,294,000) $(1,371,000)
============= =========== ============== ============
Net loss per share $ (0.00) $ (0.16) $ (0.02) $ (0.46)
Weighted average common shares 161,205,315 2,950,202 75,411,334 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)
Nine Months Ended September 30,
-------------------------------
1996 1995
---- ----
Cash flows from operating activities:
Net loss $ (1,294,000) $ (1,371,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 26,000 18,000
Interest on notes to shareholders 154,000 93,000
Changes in assets and liabilities:
Accounts receivable (4,000) 146,000
Notes receivable 17,000 57,000
Inventories (360,000) 74,000
Other current assets (2,000) 46,000
Accounts payable 43,000 15,000
Accrued compensation 9,000 18,000
Accrued liabilities (14,000) (11,000)
------------ -----------
Net cash used in operating activities (1,425,000) (915,000)
------------ -----------
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 1,547,000 1,071,000
Repayment of notes payable to vendors (89,000) (97,000)
------------ -----------
Net cash provided by financing
activities 1,458,000 974,000
------------ -----------
Net increase in cash 11,000 48,000
Cash at beginning of period 29,000 21,000
------------ -----------
Cash at end of period $ 40,000 $ 69,000
============ ===========
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest $ 2,000 $ 9,000
Conversion of notes payable and accrued
interest to shareholders to Common Stock $ 5,539,000 --
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 September 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 September 30, 1996, and the results of its operations
and its cash flows for the nine month periods ended September 30, 1996 and 1995.
NOTE 2 - INVENTORIES
The components of inventory were as follows:
September 30, December 31,
1996 1995
---- ----
Purchased component parts and
subassemblies $ 469,000 $ 150,000
Finished goods 47,000 8,000
Demonstration inventory 15,000 13,000
--------- ---------
$ 531,000 $ 171,000
========= =========
NOTE 3 - RELATED PARTY TRANSACTIONS
At September 30, 1996, the Company had issued $922,000 of interest bearing
convertible demand notes to shareholders, which are due on or before 180 days
after issuance and are convertible to Common Stock at a price equal to 75% of
the quoted closing bid price on the date that the shareholder elects to convert.
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.
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 nine month periods ended September 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
Third quarter 1996 compared to third quarter 1995
For the quarter ended September 30, 1996, sales totaled $41,000 compared to
sales of $12,000 for the quarter ended September 30, 1995. This represents a
242% increase in sales between periods. This increase is due to higher sales
volumes of the EasyRead 240. Sales to four customers accounted for 68% of sales
for the third quarter in 1996, and sales to five customers accounted for 100% of
sales for the third quarter in 1995.
Cost of sales represented 207% and 483% of related sales for the third 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 remained fairly constant between the third
quarter of 1996 and the third quarter of 1995. The Company has maintained
spending levels on hardware development and software development for the
Company's PCI version of the EasyRead 240.
Marketing and sales expenses also remained relatively constant between the third
quarter of 1996 and the third quarter of 1995. Although the Company did not
increase marketing costs significantly during the third quarter of 1996 compared
to the same time period in 1995, management believes that it is critical to
invest as much of its resources as possible on product marketing to increase its
revenues. However, there can be no assurance these efforts will result in
increased sales in future periods.
General and administrative costs remained relatively unchanged between the third
quarter of 1996 and the third quarter of 1995 due to the Company's ongoing
efforts to control spending.
7
<PAGE>
Interest and other expense, net, decreased by $61,000, or 86% to $10,000 in the
third quarter of 1996 from $72,000 in the third 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 notes of
$5,171,000 to Common Stock during the second quarter of 1996 and a reduction of
interest expense on note payable to vendors.
As a result of the foregoing, the Company incurred a net loss of $406,000 or
less than $0.01 per share in the third quarter of 1996, compared to a net loss
of $462,000 or $0.16 per share in the comparable 1995 period. The Company
anticipates that it will continue to incur losses in the forseeable future.
Nine months ended September 30, 1996 compared to nine months ended
September 30, 1995
For the nine months ended September 30, 1996, sales totaled $263,000 compared to
$150,000 during the nine months ended September 30, 1995. This represents a 75%
increase in sales between periods. This increase is due to higher sales volumes
of the EasyRead 240. Sales to two customers accounted for 57% of total sales for
the nine month period in 1996, and sales to two customers accounted for 74% of
sales for the nine month period in 1995.
Cost of sales represented 133% and 169% of related sales for the nine months
ended September 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 $296,000 for the nine months ended
September 30, 1996, compared to $260,000 for the nine months ended September 30,
1995. This represents a increase of 14% 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 $532,000 during the nine months ended
September 30, 1996, from $613,000 for the nine months ended September 30, 1995.
This represents an decrease of 13% and is the result of a reduction in headcount
and decreased spending on outside consulting services.
General and administrative expenses increased to $222,000 from $212,000 for the
nine months ended September 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.
Interest and other expense, net for the nine months ended September 30, 1996,
and 1995 decreased by 14%. 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 second quarter of 1996 and a reduction
of interest expense on note payable to vendors.
As a result of the foregoing, the Company incurred a net loss of $1,294,000 or
$0.02 per share for the nine months ended September 30, 1996, compared to a net
loss of $1,371,000 or $0.46 per share in the comparable 1995 period. The Company
anticipates that it will continue to incur significant losses in the forseeable
future.
8
<PAGE>
Factors That May Affect Future Results
Future operating results of Document Technologies, Inc. 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 September 30, 1996 was a deficit of $636,000, a decrease in
the deficit of $4,247,000 from the December 31, 1995 deficit of $4,883,000. This
reduction in the working capital deficit was primarily 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 during the second quarter of 1996. A
portion of the reduction in working capital deficit was offset by operating
losses which were funded in part by additional advances from shareholders in the
form of notes.
At September 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 September 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 November 7, 1996 By:_________________________________
Robert J. Wallace
President and Chief Operating and Financial Officer
(Principal Executive and Accounting Officer)
10
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000828934
<NAME> Document Technologies, Inc.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 40,000
<SECURITIES> 0
<RECEIVABLES> 14,000
<ALLOWANCES> 6,000
<INVENTORY> 531,000
<CURRENT-ASSETS> 21,000
<PP&E> 665,000
<DEPRECIATION> 642,000
<TOTAL-ASSETS> 629,000
<CURRENT-LIABILITIES> 127,000
<BONDS> 0
<COMMON> 19,009,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 629,000
<SALES> 41,000
<TOTAL-REVENUES> 41,000
<CGS> 85,000
<TOTAL-COSTS> 352,000
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 10,000
<INCOME-PRETAX> (406,000)
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</TABLE>
