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UNITED STATES 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 March 31, 1997
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 0-288-42
SPATIAL TECHNOLOGY INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-1035353
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2425 55th STREET, SUITE 100, BOULDER, COLORADO 80301
(address of principal executive offices) (Zip Code)
(303) 449-0649
(Registrant's telephone number, including area code)
Indicate by check 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
--- ---
As of April 1, 1997, there were outstanding 7,430,132 shares of the
Registrant's Common Stock (par value $0.01 per share).
Transitional Small Business Disclosure Format (check one): Yes No X
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SPATIAL TECHNOLOGY INC.
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets, December 31, 1996
and March 31, 1997 . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations, three
months ended March 31, 1996 and 1997 . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows, three
months ended March 31, 1996 and 1997 . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . 9
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
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SPATIAL TECHNOLOGY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except shares)
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents ........................... $ 8,407 $ 7,687
Accounts receivable, net of allowance of $50 and
$75 in 1996 and 1997, respectively ............ 1,542 1,840
Prepaid expenses and other .......................... 341 362
------------ ------------
Total current assets ........................... 10,290 9,889
Equipment, net ......................................... 423 562
Purchased computer software, net ....................... 358 332
------------ ------------
$ 11,071 $ 10,783
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .................................... $ 314 $ 252
Accrued royalties payable ........................... 366 379
Other accrued expenses .............................. 755 647
Deferred revenue .................................... 1,325 1,446
------------ ------------
Total current liabilities ......................... 2,760 2,724
------------ ------------
Stockholders' Equity:
Common stock, $.01 par value; 22,500,000 shares
authorized; 7,369,888 and 7,430,122 shares
issued in 1996 and 1997, respectively ......... 74 74
Additional paid-in capital ......................... 23,351 23,542
Accumulated deficit ................................ (15,034) (15,445)
Foreign currency translation adjustment ............ (80) (112)
------------ ------------
Total stockholders' equity ................... 8,311 8,059
------------ ------------
$ 11,071 $ 10,783
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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SPATIAL TECHNOLOGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1996 1997
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<S> <C> <C>
Revenue:
License fees ....................................... $ 951 $ 614
Royalties .......................................... 718 767
Maintenance and other .............................. 716 709
-------- --------
Total revenue ................................. 2,385 2,090
-------- --------
Cost of sales:
License fees ....................................... 83 68
Royalties .......................................... 65 56
Maintenance and other .............................. 158 69
-------- --------
Total cost of sales ........................... 306 193
-------- --------
Gross profit ........................................... 2,079 1,897
-------- --------
Operating expenses:
Sales and marketing ................................ 735 923
Research and development ........................... 861 888
General and administrative ......................... 330 574
-------- --------
Total operating expenses ...................... 1,926 2,385
-------- --------
Earnings (loss) from operations ............... 153 (488)
Other income (expense):
Interest income .................................... 5 107
Interest expense ................................... (36) (1)
Other, net ......................................... 1 (1)
-------- --------
Total other income (expense) .................. (30) 105
-------- --------
Earnings (loss) before income taxes ........... 123 (383)
Income tax expense ..................................... 64 28
-------- --------
Net earnings (loss) ........................... $ 59 $ (411)
======== ========
Earnings (loss) per common share ....................... $ 0.01 $ (0.05)
======== ========
Weighted average number of common shares and common
equivalent shares outstanding ...................... 5,218 7,486
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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SPATIAL TECHNOLOGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1996 1997
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<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ........................................... $ 59 $ (411)
Adjustments to reconcile net earnings (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization ............................... 59 70
Changes in operating assets and liabilities:
Accounts receivable ....................................... (528) (298)
Prepaid expenses and other ................................ 1 (21)
Accounts payable .......................................... (56) (62)
Accrued expenses .......................................... 145 (95)
Deferred revenue .......................................... 450 121
-------- --------
Net cash provided (used) by operating activities ....... 130 (696)
-------- --------
Cash flows from investing activities:
Additions to equipment ........................................ (34) (183)
-------- --------
Net cash used by investing activities .................. (34) (183)
-------- --------
Cash flows from financing activities:
Principal payments on notes payable ........................... (275) --
Proceeds from factored accounts receivable .................... 361 --
Proceeds from issuance of stock ............................... 1 191
-------- --------
Net cash provided by financing activities .............. 87 191
-------- --------
Foreign currency translation adjustment affecting cash .......... (7) (32)
-------- --------
Net increase (decrease) in cash and cash equivalents ... 176 (720)
Cash and cash equivalents at beginning of period ................ 153 8,407
-------- --------
Cash and cash equivalents at end of period ...................... $ 329 $ 7,687
======== ========
Supplemental disclosures:
Cash paid for interest ........................................ $ 21 $ --
======== ========
Cash paid for income taxes .................................... $ 44 $ 29
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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SPATIAL TECHNOLOGY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1997
A. FINANCIAL STATEMENT PRESENTATION
The accompanying audited and unaudited condensed consolidated financial
statements of the Company have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. The
Company believes the disclosures included in the condensed consolidated
financial statements, when read in conjunction with the Company's consolidated
financial statements and notes thereto included in the Company's annual report
on Form 10-KSB for the year ended December 31, 1996, are adequate to make the
information presented not misleading.
Certain prior year financial statement balances have been reclassified
to conform to the 1997 presentations.
B. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed using the weighted average number
of shares of common and common equivalent shares resulting from outstanding
options and warrants. Fully diluted earnings per share are the same as primary
earnings per share.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
presented here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section and those
discussed in the Company's Form 10-KSB for the year ended December 31, 1996,
particularly those contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
RESULTS OF OPERATIONS
Revenue
Total revenue for the quarter ended March 31, 1997 decreased 12% to $2.1
million from $2.4 million reported for the quarter ended March 31, 1996. This
decrease resulted from decreased license fee revenue, and maintenance and other
revenue, which was partially offset by higher royalty revenue. License fees
decreased 35% to $614,000 for the first quarter of 1997 from $951,000 reported
in the first quarter of 1996. The decrease in license fees is attributed
primarily to fewer new license contracts in the Asia Pacific and Western United
States sales regions in 1997 as compared to 1996. Royalties increased 7%,
growing to $767,000 for the first quarter of 1997 from $718,000 reported for
the same quarter in 1996. Maintenance and other revenue decreased slightly to
$709,000 for the quarter ended March 31, 1997 as compared to $716,000 reported
for the quarter ended March 31, 1996. International revenue represented 53% of
total revenue for the first quarter of 1997 as compared to 49% for the first
quarter of 1996.
Cost of Sales
Cost of sales consists of royalty payments by the Company to third party
developers, support costs, manufacturing costs (primarily media duplication,
manuals, and shipping) and amortization of purchased computer software. Total
cost of sales decreased 37% to $193,000 for the quarter ended March 31, 1997
from $306,000 reported in the comparable prior year period. The decrease
reflects a $49,000 decrease in manufacturing costs resulting from the Company's
transition to CD-ROM based media as its primary media format and to the use of
on-line documentation, as well as a $37,000 decrease in royalty expenses.
These decreases were partially offset by increased amortization of purchased
computer software. As a percent of total revenue, cost of sales decreased to
9% for the three month period ended March 31, 1997 as compared to 13% for the
comparable period in 1996.
Operating Expenses
Sales and marketing expense increased 26% to $923,000 for the fiscal
quarter ended March 31, 1997 as compared to $735,000 reported in the fiscal
quarter ended March 31, 1996. The increase is attributable to increased
staffing and promotional activity related to the introduction of a new product,
3D Building Blox(TM), in the first quarter of 1997. As a percent of total
revenue, sales and marketing expense increased to 44% for the quarter ended
March 31, 1997 as compared to 31% for the comparable prior year period.
Research and development expense increased slightly to $888,000 for the
quarter ended March 31, 1997 from $861,000 reported in the same prior year
quarter. As a percent of total revenue, research and development expense
increased to 42% for the quarter ended March 31, 1997 from 36% for the
comparable prior year quarter. The Company accounts for research and
development expense in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 86, under which the Company is required to capitalize
software development costs after technological feasibility is established.
Capitalizable software development costs incurred to date have not been
significant; therefore, the Company has expensed all of these costs in the
periods incurred.
General and administrative expense increased 74% to $574,000 for the
quarter ended March 31, 1997 from $330,000 reported for the same quarter in
1996. The increase is attributable to increased spending on insurance,
professional fees and other costs associated with the Company's reporting
obligations as a public company. As a percent of total revenue, general and
administrative expense increased to 27% for the first quarter of 1997 as
compared to 14% for the first quarter of 1996.
7
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Other Income (Expense), net
Other income increased to $105,000 for the quarter ended March 31, 1997
as compared to an expense of $30,000 reported for the quarter ended March 31,
1996. Increased other income reflects higher interest income resulting from
the investment of proceeds from the Company's initial public offering which was
completed in October 1996.
Income Tax Expense
Income tax expense decreased to $28,000 for the fiscal quarter ended
March 31, 1997 from $64,000 reported for the same quarter in 1996 reflecting
lower license fee revenue in Japan. Income tax expense for these periods
included only withholding taxes on foreign sales.
FLUCTUATIONS IN QUARTERLY RESULTS
The Company has experienced in the past and expects to continue to
experience significant fluctuations in quarterly operating results due to a
number of factors that are difficult to forecast, including, among others, the
volume of orders received within a quarter, demand for the Company's products,
the product mix purchased by the Company's customers, competing capital budget
considerations of the Company's customers, introduction and enhancement of
products by the Company and its competitors, market acceptance of new products,
reviews in the industry press concerning the products of the Company or its
competitors, changes or anticipated changes in pricing by the Company or its
competitors and general economic conditions. Due to the foregoing factors, it
is possible that the Company's operating results for some future quarters may
fall below the expectations of securities analysts and investors.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had $7.7 million in cash and cash
equivalents. Cash and cash equivalents decreased $720,000 for the three months
ended March 31, 1997, as compared to an increase in cash and cash equivalents
of $176,000 for the comparable prior year period.
Net cash used by operating activities was $696,000 for the three month
period ended March 31, 1997 as compared to cash provided by operations of
$130,000 for the three month period ended March 31, 1996. Net cash used for
operations in 1997 was primarily the result of the quarter's net loss combined
with an increase in accounts receivable. Cash provided by operations in the
period ended March 31, 1996 was primarily due to an increase in deferred
revenue and accrued expenses, which was partially offset by increased accounts
receivable.
Net cash used by investing activities totaling $183,000 and $34,000 for
the three month periods ended March 31, 1997 and 1996, respectively, reflects
cash used for capital equipment purchases.
Net cash provided by financing activities was $191,000 for the three
months ended March 31, 1997, reflecting primarily the issuance of stock in
connection with the exercise of stock options. Net cash provided by financing
activities in the three month period ended March 31, 1996 of $87,000 was
primarily due to proceeds from factored accounts receivable, partially offset by
cash used for principal payments on notes payable.
The Company has a revolving line of credit with a bank providing for
maximum borrowings of $500,000 through June 1997. The line of credit bears
interest at the bank's prime rate plus 0.75%. As of March 31, 1997, the
Company had no borrowings under this line of credit.
The Company believes cash generated from operations, together with
existing cash, will be sufficient to meet the Company's operating and capital
requirements for the foreseeable future including at least the next twelve
months.
8
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings:
On April 30, 1997, the Company filed a Complaint for Damages and
Injunctive Relief and Jury Demand in the District Court of Boulder County,
Colorado against Rolf Fischer, Ronald E. Davidson and Hyper Tree Technologies,
L.L.C. Both Mr. Fischer and Mr. Davidson were employees of the Company until
their resignations effective on March 31, 1997. Additionally, Mr. Davidson
served as an executive officer of the Company as Vice President, Pacific Rim
Sales. In the Complaint, the Company alleges that Messrs. Fischer and Davidson
have acted to deprive the Company of its rights to a technology known as "Lean
Design". The Company is seeking relief against the defendants for breach of
contract and employment duties, unfair competition, fraud, misappropriation of
trade secrets and conspiracy, among other items, and has requested a jury trial
to resolve the issues in dispute.
Item 2. Changes in Securities:
None
Item 3. Defaults on Senior Securities:
Not Applicable
Item 4. Submission of Matters to Vote of Security Holders:
None
Item 5. Other Information:
None
Item 6. Exhibits and Reports on Form 8-K:
a) Exhibits
27 - Financial Data Schedule
b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPATIAL TECHNOLOGY INC.
Date May 13, 1997 /s/ Mark C. Vellequette
------------ -----------------------------
Mark C. Vellequette
Vice President, Finance and
Administration and Secretary
(Principal Financial and
Accounting Officer)
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 - Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 7,687
<SECURITIES> 0
<RECEIVABLES> 1,915
<ALLOWANCES> (75)
<INVENTORY> 0
<CURRENT-ASSETS> 9,889
<PP&E> 2,400
<DEPRECIATION> (1,838)
<TOTAL-ASSETS> 10,783
<CURRENT-LIABILITIES> 2,724
<BONDS> 0
0
0
<COMMON> 74
<OTHER-SE> 7,985
<TOTAL-LIABILITY-AND-EQUITY> 10,783
<SALES> 0
<TOTAL-REVENUES> 2,090
<CGS> 0
<TOTAL-COSTS> 193
<OTHER-EXPENSES> 2,356
<LOSS-PROVISION> 29
<INTEREST-EXPENSE> 105
<INCOME-PRETAX> (383)
<INCOME-TAX> 28
<INCOME-CONTINUING> (411)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (411)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
