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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 June 30, 2000
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 Identification No.)
incorporation or organization)
2425 55TH STREET, SUITE 100, BOULDER, COLORADO 80301
(address of principal executive offices) (Zip Code)
(303) 544-2900
(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 July 1, 2000, there were outstanding 11,495,274 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
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets, December 31, 1999
and June 30, 2000...................................................................... 3
Condensed Consolidated Statements of Operations, three and six
months ended June 30, 1999 and 2000.................................................... 4
Condensed Consolidated Statements of Cash Flows, six
months ended June 30, 1999 and 2000.................................................... 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.......................................................................... 11
Signatures........................................................................................... 12
</TABLE>
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SPATIAL TECHNOLOGY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except shares)
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
-------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ................................................. $ 1,324 $ 3,331
Accounts receivable, net of allowance of $199 and $250 in 1999 and
2000, respectively .................................................... 4,156 4,475
Prepaid expenses and other ................................................ 691 819
-------------- --------------
Total current assets .................................................. 6,171 8,625
Equipment, net ................................................................. 1,891 2,513
Purchased computer software, net ............................................... 2,010 2,082
-------------- --------------
$ 10,072 $ 13,220
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .......................................................... $ 1,028 $ 1,370
Accrued expenses .......................................................... 1,245 1,442
Deferred revenue .......................................................... 1,921 2,569
-------------- --------------
Total current liabilities ............................................. 4,194 5,381
-------------- --------------
Stockholders' Equity:
Common stock, $.01 par value; 22,500,000 shares authorized;
9,508,179 and 11,495,274 shares issued in 1999 and 2000,
respectively .......................................................... 95 115
Additional paid-in capital ................................................ 25,828 32,849
Accumulated deficit ....................................................... (19,936) (24,986)
Accumulated other comprehensive loss ...................................... (109) (139)
-------------- --------------
Total stockholders' equity ............................................ 5,878 7,839
-------------- --------------
$ 10,072 $ 13,220
============== ==============
</TABLE>
See accompanying notes to condensed 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 Six Months Ended
June 30, June 30,
---------------------- ----------------------
1999 2000 1999 2000
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
License fees ................................ $ 1,286 $ 928 $ 2,956 $ 2,160
Royalties ................................... 1,082 970 2,359 2,397
Services .................................... 1,235 1,286 2,339 2,695
--------- --------- --------- ---------
Total revenue ......................... 3,603 3,184 7,654 7,252
--------- --------- --------- ---------
Cost of revenue:
License fees ................................ 163 223 283 386
Royalties ................................... 9 -- 9 --
Services .................................... 139 533 243 907
--------- --------- --------- ---------
Total cost of revenue ................. 311 756 535 1,293
--------- --------- --------- ---------
Gross profit ................................... 3,292 2,428 7,119 5,959
--------- --------- --------- ---------
Operating expenses:
Sales and marketing ......................... 1,242 2,077 2,675 3,782
Research and development .................... 1,664 2,962 3,430 5,398
General and administrative .................. 491 994 966 1,796
Acquired in-process research and development. 500 -- 500 --
--------- --------- --------- ---------
Total operating expenses .............. 3,897 6,033 7,571 10,976
--------- --------- --------- ---------
Loss from operations .................. (605) (3,605) (452) (5,017)
Other income (expense)
Interest income ............................. 43 66 88 130
Other, net .................................. (4) (20) (6) (25)
--------- --------- --------- ---------
Total other income .................... 39 46 82 105
--------- --------- --------- ---------
Loss before income taxes .............. (566) (3,559) (370) (4,912)
Income tax expense ............................. 39 37 175 138
--------- --------- --------- ---------
Net loss .............................. $ (605) $ (3,596) $ (545) $ (5,050)
========= ========= ========= =========
Other comprehensive income (loss):
Foreign currency translation adjustment ..... 2 (26) 9 (30)
--------- --------- --------- ---------
Comprehensive loss .......................... $ (603) $ (3,622) $ (536) $ (5,080)
--------- --------- --------- ---------
Loss per common share:
Basic and diluted ......................... $ (0.07) $ (0.31) $ (0.06) $ (0.46)
Weighted average number of shares outstanding:
Basic and diluted ......................... 9,294 11,483 9,284 10,914
</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>
Six Months Ended
June 30,
------------------
1999 2000
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Cash flows from operating activities:
Net loss ............................................................... $ (545) $(5,050)
Adjustments to reconcile net loss to net cash provided (used)
by operating activities:
Depreciation and amortization ........................................ 361 509
Acquired in-process research and development ......................... 500 --
Changes in operating assets and liabilities:
Accounts receivable ................................................ (140) (319)
Prepaid expenses and other ......................................... (9) (128)
Accounts payable ................................................... (275) 532
Accrued expenses ................................................... 489 7
Deferred revenue ................................................... 42 648
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Net cash provided (used) by operating activities ................. 423 (3,801)
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Cash flows from investing activities:
Additions to equipment ................................................. (272) (935)
Additions to purchased computer software ............................... (650) (268)
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Net cash used by investing activities ............................ (922) (1,203)
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Cash flows from financing activities:
Principal payments on debt ............................................. (89) --
Proceeds from issuance of common stock, net ............................ 77 7,041
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Net cash provided (used) by financing activities ................. (12) 7,041
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Foreign currency translation adjustment affecting cash .................... 9 (30)
------- -------
Net increase (decrease) in cash and cash equivalents ............. (502) 2,007
Cash and cash equivalents at beginning of period .......................... 4,534 1,324
------- -------
Cash and cash equivalents at end of period ................................ $ 4,032 $ 3,331
======= =======
Supplemental disclosures:
Cash paid for interest ................................................. $ 5 $ 5
======= =======
Cash paid for income taxes ............................................. $ 77 $ 86
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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SPATIAL TECHNOLOGY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2000
A. FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and disclosures required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and six month
periods ended June 30, 2000 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2000. The unaudited condensed
consolidated financial statements should be read in conjunction with the
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1999
B. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Diluted earnings per
share is computed based on the weighted average number of common shares
outstanding plus the dilutive effect of potential dilutive securities. For the
three and six month periods ended June 30, 1999 and 2000, diluted loss per share
is the same as basic loss per share, as the effect of potential dilutive
securities, consisting of common stock options, is antidilutive. For the three
month periods ended June 30, 1999 and 2000 the impact of potential dilutive
securities on the diluted weighted average number of common shares outstanding
would have been 360,632 and 560,232, respectively. For the six month periods
ended June 30, 1999 and 2000 the impact of potential dilutive securities on the
diluted weighted average number of common shares outstanding would have been
371,505 and 735,087, respectively.
C. ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 ("SAB 101") "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on revenue recognition issues. The
Company does not anticipate any material adverse effect from SAB 101 on the
Company's financial statements.
D. SUBSEQUENT EVENTS
In July 2000, the Company announced plans to sell the assets of its
component business to Dassault Systemes in a cash transaction of $21.5 million.
In addition, certain cross licensing agreements for component and Internet
technologies will be executed as part of the transaction. In connection with
this transaction, Dassault Systemes will increase its minority investment in the
Company. The transaction is subject to stockholder approval.
In July 2000, the Company announced the acquisition of certain assets of
Prescient Technologies, Inc. ("Prescient") including intellectual property and
personnel. The asset purchase was valued at approximately $1.4 million, in which
Spatial will issue Prescient between 300,000 and 350,000 shares of Spatial
common stock, depending on the achievement of certain performance objectives,
and $100,000 in cash.
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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, 1999,
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 June 30, 2000, decreased 12% to $3.2
million from $3.6 million reported for the quarter ended June 30, 1999. License
fees decreased 28% to $928,000 for the second quarter of 2000 from $1.3 million
reported in the second quarter of 1999. The decrease in license fees for the
quarter ended June 30, 2000, as compared to the comparable prior year quarter is
attributable to a decrease in the number of new contracts executed for the
Company's component product line, in addition to changes in the way many
high-end software customers purchase new technologies, which is trending toward
lower upfront license fees, in favor of increased royalty and service fees in
future periods. Royalties decreased 10% to $970,000 for the second quarter of
2000 versus $1.1 million reported for the same quarter in 1999. Decreased
royalties for the quarter ended June 30, 2000 as compared to the same quarter in
1999 resulted from a decrease in the number of executed prepaid royalty
contracts partially offset by increased recurring royalties. Service revenue,
derived from the sale of maintenance contracts and the performance of training
and consulting services, increased 4% to $1.3 million for the quarter ended June
30, 2000 as compared to $1.2 million reported for the quarter ended June 30,
1999.
For the six month period ended June 30, 2000, total revenue decreased 5% to
$7.3 million as compared to $7.7 million reported for the same six month period
in 1999, resulting from a decrease in license revenue partially offset by
increased royalty and service revenue. License fees decreased 27% to $2.2
million in the six month period ended June 30, 2000, as compared to $3.0 million
reported for the comparable prior year period. The decrease in license fees for
the six month period ended June 30, 2000 results from competition and a trend in
the high-end software market towards lower upfront license fees, in favor of
increased royalty and service fees in future periods. Royalties remained flat at
$2.4 million for the six month period ended June 30, 2000, as compared to the
same prior year period. Service revenue increased 15% to $2.7 million for the
six month period ended June 30, 2000, as compared to $2.3 million reported for
the comparable period in 1999, reflecting growth in the Company's installed
customer base and increased services performed for these customers.
Geographically, international revenue decreased 39% for the quarter ended
June 30, 2000, and represented 33% of revenue as compared to 48% for the quarter
ended June 30, 1999. Decreased international revenue for the second quarter of
2000 is due to changes in key personnel in Europe and Japan, and a delay in
hiring additional sales and support personnel. Domestic revenue increased 13%
for the quarter ended June 30, 2000, as compared to the same prior year quarter
reflecting the completion of two large value contracts. For the six month period
ended June 30, 2000 international revenue decreased 34% and represented 34% of
total revenue as compared to 48% for the comparable prior year period. The
decrease in the ratio of international revenue for this six month period is
attributable to a decrease in the number of contracts executed and changes in
key personnel in Europe and Japan. Domestic revenue increased 21% for the six
month period ended June 30, 2000, as compared to the same prior year period.
Increased domestic revenue for the six month period ended June 30, 2000,
reflects an increase in the value of the contracts executed.
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Cost of Revenue
Cost of revenue consists of support costs, royalty payments by the Company
to third party developers, manufacturing costs (primarily media duplication,
manuals, and shipping) and amortization of purchased computer software. Total
cost of sales increased 143% to $756,000 for the quarter ended June 30, 2000
from $311,000 reported for the quarter ended June 30, 1999. For the six month
period ended June 30, 2000 cost of sales increased 142% to $1.3 million from
$535,000 reported in the comparable prior year period. The increase in cost of
sales for all periods presented was primarily due to increased staffing costs
associated with the Company's customer support efforts in addition to increased
royalty expenses to third party developers associated with certain component
software translation tools. As a percent of total revenue, cost of revenue
increased to 24% and 18% for the three and six months ended June 30, 2000,
respectively, as compared to 9% and 7% for the comparable periods in 1999,
respectively.
Operating Expenses
Sales and marketing expense increased 67% to $2.1 million for the quarter
ended June 30, 2000 as compared to $1.2 million for the same prior year quarter.
For the six month period ended June 30, 2000 sales and marketing expense
increased 41% to $3.8 million from $2.7 million reported for the six month
period ended June 30, 1999. Increased sales and marketing expense in 2000 as
compared to 1999 is due to increased marketing efforts in the Company's Web
infrastructure for engineering services through its PlanetCAD division. In
addition, for the quarter ended June 30, 2000, the Company realized certain
operating expenses of Prescient Technologies, Inc. ("Prescient"). The Company
acquired Prescient in July 2000, however, prior to the close of the transaction,
the Company assumed responsibility for certain operating expenses of Prescient
in order to protect specific intellectual property values. As a percent of total
revenue, sales and marketing expense increased to 65% for the second quarter of
2000 as compared to 34% for the second quarter of 1999. For the six month period
ended June 30, 2000 sales and marketing expense increased as a percent of total
revenue to 52% versus 35% for the same prior year period.
Research and development expense increased 78% to $3.0 million for the
quarter ended June 30, 2000 from $1.7 million reported in the same prior year
quarter. For the six month period ended June 30, 2000 research and development
expense increased 57% to $5.4 million from $3.4 million reported in the
comparable prior year period. Increased research and development expense was due
to increased staffing in support of the Company's continued development of its
Web infrastructure for engineering services through its PlanetCAD division,
which includes the following application services: 3Dshare.com, Bits2Parts.com
and 3Dpublish.com. In addition, for the quarter ended June 30, 2000, as noted
above, the Company assumed certain operating expenses of Prescient prior to
completion of the acquisition. As a percent of total revenue, research and
development expense increased to 93% and 74% for the three and six month periods
ended June 30, 2000, respectively, from 46% and 45% for the comparable prior
year periods, respectively. The Company accounts for software development costs
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. Software development costs
incurred after technological feasibility has been established to date have not
been significant; therefore, the Company has expensed all of these costs as
research and development in the periods incurred.
General and administrative expense increased 102% to $994,000 for the
quarter ended June 30, 2000 from $491,000 reported for the same quarter in 1999.
For the six month period ended June 30, 2000 general and administrative expense
increased 86% to $1.8 million from $966,000 reported for the comparable prior
year period. Increased general and administrative expense was due to
administrative expenses, including legal and staffing costs, in support of the
Company's PlanetCAD division as well as increased bad debt reserve. As a percent
of total revenue, general and administrative expense increased to 31% and 25%
for the three and six month periods ended June 30, 2000, respectively, as
compared to 14% and 13% for the comparable prior year periods, respectively.
Acquired In-process Research and Development
Acquired in-process research and development expense of $500,000 in the
quarter ended June 30, 1999 relates to the acquisition of certain assets and
liabilities of Sven Technologies, Inc. ("Sven"). Specifically,
8
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included in this expense were amounts allocated to three separate projects,
which had not reached technological feasibility, and had no probable alternative
future uses.
Other Income (Expense), net
Other income increased to $46,000 for the second quarter of 2000 as
compared to $39,000 reported for the second quarter of 1999 and to $105,000 for
the six month period ended June 30, 2000 from $82,000 for the comparable prior
year period. Increased other income reflects higher interest income, as a result
of higher cash balances due to the equity transaction completed by the Company
in February 2000. (See "Liquidity and Capital Resources").
Income Tax Expense
Income tax expense decreased to $37,000 for the quarter ended June 30, 2000
as compared to $39,000 reported for the same quarter in 1999. For the six month
period ended June 30, 2000 income tax expense decreased to $138,000 from
$175,000 for the same period in 1999. Decreased income tax expense in 2000 as
compared to 1999 is due to decreased sales and taxable income in Japan.
FLUCTUATIONS IN QUARTERLY RESULTS
The Company has experienced in the past and expects to continue to
experience in the future 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 June 30, 2000, the Company had $3.3 million in cash and cash
equivalents. Cash and cash equivalents increased $2.0 million for the six months
ended June 30, 2000, as compared to a decrease of $502,000 for the comparable
prior year period. In February 2000, the Company completed a private equity
transaction, in which the Company sold 1.9 million shares of common stock at a
price of $3.60 per share and warrants to purchase 1.2 million shares of common
stock at $0.05 per warrant for $6.9 million. The warrants are exercisable at
$6.50 per share. The proceeds from the transaction are invested in high grade
commercial paper with maturities less than less than 90 days.
Net cash used by operating activities was $3.8 million for the six month
period ended June 30, 2000 as compared to net cash provided by operations of
$423,000 for the six month period ended June 30, 1999. Net cash used by
operations in 2000 was primarily the result of the net loss for the six month
period ended June 30, 2000 partially offset by increased deferred revenue and
accounts payable. Cash provided by operations in the six month period ended June
30, 1999 was primarily the result of increased accrued liabilities associated
with cash payments made by the Company to Sven in the third and fourth quarters
of 1999 in connection with the Sven acquisition, partially offset by increased
accounts receivable and decreased accounts payable.
Net cash used by investing activities totaling $1.2 million for the six
month period ended June 30, 2000 reflects $935,000 used for equipment purchases
and $268,000 used for purchased computer software. Cash used by investing
activities during the first half of 1999 includes $272,000 for equipment
purchases and $650,000 for purchased computer software including $500,000 in
connection with the Sven acquisition.
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Net cash provided by financing activities was $7.0 million for the six
months ended June 30, 2000, due to proceeds from the equity transaction in
February 2000. Net cash used by financing activities for the six month period
ended June 30, 1999 was $12,000 reflecting cash used for principal payments on
debt partially offset by proceeds from the issuance of common stock in
connection with the exercise of employee stock options.
As indicated in Management's Discussion and Analysis, the Company has
allocated significant resources to its Web based business, PlanetCAD. In
addition, the Company continues to experience significant fluctuations in
operating results for its component division. For the six month period ended
June 30, 2000 both the Internet and component divisions contributed to the
reported operating loss. To capitalize on its Internet market strategy, the
Company will continue to invest in its infrastructure, research and development
and marketing. As a result, the Company has been actively pursuing financing
alternatives to meet the capital requirements needed for the execution of this
business strategy. In July 2000, the Company announced plans to sell the assets
of its component business to Dassault Systemes in a cash transaction of $21.5
million. In addition, certain cross licensing agreements for component and
Internet technologies will be executed as part of the transaction. In connection
with this transaction, Dassault Systemes will increase its minority investment
in the Company. The transaction is subject to stockholder approval. Management
believes that cash from the proposed transaction to sell the component business
, together with existing cash and cash generated from operations, will be
sufficient to meet the Company's operating and capital requirements for the
foreseeable future including at least the next twelve months. In the event that
the transaction to sell the Company's component division to Dassualt Systemes is
not completed, the Company will be required to seek alternative sources of
funding for operations. Such funding may not be available on a timely basis, in
sufficient amounts or on terms acceptable to the Company. Should the Company not
be able to raise additional capital, management believes it can scale back
operations for both the Company's Internet and Component divisions such that
cash generated form 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.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings:
None
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 August 14, 2000
--------------- /s/ R. Bruce Morgan
-------------------------------------
R. Bruce Morgan
President, Chief Executive Officer,
and Director (Principal Executive
and Financial Officer)
/s/ Todd S. Londa
-------------------------------------
Todd S. Londa
Vice President, Administration and
Corporate Controller (Principal
Accounting Officer)
12
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
27 Financial Data Schedule
</TABLE>
