SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 FORM
10QSB
(Mark One)
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: 33-95782-D
Applied Computer Technology, Inc.
(Exact name of registrant as specified in its
charter)
Colorado 84-1164570
(State of incorporation) (I.R.S. Employer ID No.)
2573 Midpoint Drive
Fort Collins, Colorado 80525
(Address of principal executive offices)
(970) 490-1849
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed
all reports 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___
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest
practicable date.
As of July 31, 1996, the registrant had 3,040,000 shares of
Common Stock, no par value, outstanding.
APPLIED COMPUTER TECHNOLOGY, INC.
FORM 10-QSB
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of June 30, 1996 and
December 31,1995................................. 3-4
Statements of Operations for the Three
and Six Months Ended June 30, 1996 and
1995............................
5
Statements of Cash Flows for the Six
Months Ended June 30, 1996 and
1995........................67
Notes to the Financial
Statements..........................................8-
9 Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations
10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form
8K.......... 11
PART I. FINANCIAL
INFORMATION Item 1. Financial Statements
"APPLIED COMPUTER
TECHNOLOGY, INC."
BALANCE SHEETS
" March 31, "
"December 31,"
1996
1995 (unaudited)
ASSETS
CURRENT ASSETS:
Cash " $ 666,468 "
"
$
1,277,075 "
Accounts receivable "
2,202,579
"
" 1,780,054 "
Inventories "
1,969,810
"
" 1,442,655 "
Prepaid expenses "
294,594
"
" 177,488 "
Income tax refund receivable "
101,200 " " 155,900 "
Deferred income tax asset "
18,700 " " 18,700 "
Other current assets "
26,913 " " 50,051 "
Total current assets "
5,280,264 " " 4,901,923 "
PROPERTY AND EQUIPMENT - at cost:
Office and computer equipment "
1,164,374 " " 1,025,000 "
Vehicles " 109,325
"
"
109,325 "
Promotion equipment "
28,729
" " 28,729 "
Leasehold improvements "
74,803
" " 74,803 "
" 1,377,231
"
" 1,237,857 "
Less accumulated depreciation "
(450,151)" " (402,329)"
Net property and equipment "
927,080 " " 835,528 "
OTHER ASSETS
Trademarks (net of accumulated amortization
"of $2160 in 1996 and $2,544 in 1995)
8,742 " " 9,126 "
Deposits and other assets "
18,427 " " 15,429 "
Total other assets "
27,169
" " 24,555 "
Total assets " $
6,234,513
"
" $ 5,762,006 "
The accompanying Notes are an integral
part of this financial statement
"APPLIED COMPUTER TECHNOLOGY, INC."
BALANCE SHEETS
(continued)
" March 31, "
"December 31,"
1996
1995 (unaudited)
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable " $
856,020
"
" $ 482,082 "
Customer deposits "
52,502
" " 52,502 "
Accrued liabilities "
144,252
"
" 183,583 "
Current portion of long-term liabilities "
81,712 " " 100,000 "
Total current liabilities "
1,134,486 " " 818,167 "
LONG-TERM LIABILITIES:
Notes Payable "
666,612
"
" 646,577 "
Obligations under operating lease
" 5,359 " " 5,500 "
Deferred income tax liability "
33,600 " " 40,300 "
"
705,571
" " 692,377 "
Less portion due within one year "
(81,712)" " (100,000)"
Net long-term liabilities "
623,859 " " 592,377 "
Total Liabilities "
1,758,345 " " 1,410,544 "
STOCKHOLDERS' EQUITY
"Preferred stock - no par value;
5,000,000 shares" authorized; no
shares issued
"Common stock - no par value:
25,000,000" "shares authorized:
3,040,000 shares" issued and
outstanding "
4,023,852 " " 4,023,852 "
Other capital
115,032 "
" 115,032 "
Retained earnings "
337,284 "
" 212,578 "
Total stockholders' equity "
4,476,168 " " 4,351,462 "
Total liabilities and stockholders' equity "
$
6,234,513 " " $ 5,762,006 "
The accompanying Notes are an integral
part of this financial statement
"APPLIED COMPUTER
TECHNOLOGY, INC."
STATEMENTS OF
CASH FLOWS
Increase
(Decrease) in Cash and Cash Equivalents
(Unaudited)
Six
Months Ended
"June
30,"
1996
1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income "
$
74,764 " " $ 108,027 "
Adjustments to reconcile net income to net
cash used by operating activities
Depreciation
"
111,445 " "57,682 "
Amortization
690
450
Provision for losses on accounts
receivable - "7,409
"
Common stock issued for services
- - "5,000 "
Increase (decrease) from changes in assets and
liabilities
Accounts receivable
" (22,495)" "(1,071,234)"
Inventories "
(410,722)" "386,598 "
Prepaid expenses and other current
assets " (263,988)"
"(66,219)"
Income tax refund receivable
" 36,265 " -
Deferred income tax asset
- - "(17,200)"
Other current assets
" 24,018 "
Deposits and other assets
" (6,149)" "2,331 "
Accounts payable
" 731,701 " "(175,906)"
Customer deposits
" (52,502)" "52,371 "
Accrued liabilities
" (26,953)" "41,343 "
Obligations under operating leases
(191) (628)
Deferred income tax liability
- - "46,400 "
Net cash provided (used) by
operating activities
" $ 195,883 " " $(623,576)"
The accompanying
Notes are an integral part of this financial
statemnt
"APPLIED COMPUTER
TECHNOLOGY, INC."
STATEMENTS OF
CASH FLOWS
Increase
(Decrease) in Cash and Cash Equivalents
(continued)
(Unaudited)
Six
Months Ended
" June
30, "
1996
1995
CASH FLOWS FROM INVESTING ACTIVITIES
Equipment acquisitions
" $ (999,205)" " $(102,395)"
Start up costs
"
(143,262)" -
Net cash used by investing
activities " (1,142,467)" " (102,395)"
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft
- - " (67,364)"
Payments on long-term borrowings
" (72,309)" " (44,325)"
Net short-term borrowings
- - " 453,440 "
Net repayments from related parties
" (49,476)" " 19,867
"
Proceeds from the issuance of
common stock warrants
- - " 414,011 "
Payment of offering costs
- - " (51,381)"
Net cash provided (used) by
financing activities
"
(121,785)" " 724,248 "
NET DECREASE IN CASH
AND CASH EQUIVALENTS
" (1,068,369)" " (1,723)"
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD
" 1,277,075 " " 3,867 "
CASH AND CASH EQUIVALENTS AT
END OF PERIOD "
$
208,706 " " $ 2,144 "
The accompanying
Notes are an integral part of this fina
"APPLIED COMPUTER TECHNOLOGY, INC."
STATEMENTS OF
OPERATIONS
(Unaudited)
Three Months
Ended Six Months Ended
"June 30,"
"June 30," "June 30," "June 30,"
1996 1995
1996 1995
REVENUES " $ 3,574,056 "
" $ 3,075,473 " " $ 7,216,827 " "
$ 6,665,095 "
COST OF GOODS SOLD "
2,563,548 " " 2,626,576 " "
5,492,738 " " 5,587,542 "
GROSS PROFIT "
1,010,508 " " 448,897 " "
1,724,089 " " 1,077,553 "
OPERATING EXPENSES
"Selling, general and administrative expenses"
" 933,992 " " 321,255 " "
1,595,186 " " 805,736 "
Provision for doubtful accounts receivable
- - - " 7,409 "
Research and development expenses
- - - " 11,787 "
Total Operating Expenses
" 933,992 " " 321,255 " "
1,595,186 " " 824,932 "
INCOME FROM OPERATIONS "
76,516 " " 127,642 " "
128,903 " " 252,621 "
OTHER INCOME (EXPENSE):
Other income (expense) "
(8,393)" " 9,227 " "
7,017 " " 23,089 "
Interest income (expense)
" 1,787 " " (53,182)" "
(24,333)" " (109,583)"
Net other income (expense)
" (6,606)" " (43,955)" "
(17,316)" " (86,494)"
INCOME BEFORE INCOME TAXES
" 69,910 " "83,687 " "
111,587 " "166,127 "
INCOME TAX EXPENSE "
23,070 " " 58,100 " "
36,823 " " 58,100 "
NET INCOME " $
46,840 " " $ 25,587 " " $
74,764 " " $ 108,027 "
PRO FORMA INFORMATION
Net income before income taxes
" $ 69,910 " " $ 83,687 " "
$ 111,587 " " $ 166,127 "
Income tax expense "
23,070 " " 41,750 " "
36,823 " " 72,500 "
Net income " $
46,840 " " $ 41,937 " " $
74,764 " " $ 93,627 "
Earnings per common share
Primary $0.02 $
0.03 $ 0.03 $
0.04
Fully diluted $0.02
$ 0.03 $ 0.03 $
0.04
Shares used in computing earnings per common
share
Primary " 3,312,500 "
"1,629,780 " " 3,362,500 "
"2,096,666 "
Fully diluted "
3,312,500 " " 1,629,780 " "
3,362,500 " " 2,096,666 "
The accompanying Notes are an
integral part of this financial statement
APPLIED COMPUTER TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
Six months ended June 30, 1996
NOTE 1 - CERTAIN FINANCIAL POLICIES
Financial Information. The unaudited interim financial
statements of Applied Computer Technology, Inc. have been
prepared pursuant to the rules and regulations of the
Securities and Exchange Commission applicable to Regulation S-
B. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been
condensed or omitted. These interim financial statements
should be read in conjunction with the financial statements and
notes included in the Company's Annual Report on Form 10-KSB.
In the opinion of management, the interim financial
statements reflect all adjustments necessary for a fair
presentation of the interim periods, such adjustments being of
a normal recurring nature. The results of operations for the
interim periods are not necessarily indicative of the results
of operations to be expected for the full year.
Pro forma earnings per common share. Pursuant to
Securities and Exchange Commission Staff Accounting
Bulletins common
shares issued at prices substantially less than the offering
price of the Company's initial public offering ($3.50 per
share), plus the number of common equivalent shares issuable
pursuant to stock options granted at prices substantially less
than such price, using the treasury stock method, have been
included in the number of shares used in the calculation of
pro forma net income (loss) per share
as if they were outstanding
for all periods presented.
Income Taxes. During June 1995, the Company terminated its
election under Subchapter S of the Internal Revenue Code.
Pro forma net income and earnings (loss) per common share have
been determined assuming the Company had been taxed under
Subchapter C of the Internal Revenue Code for federal and
state income tax purposes for all periods presented.
Commencing in the second quarter of 1995, the Company
recognized deferred tax assets and liabilities for future tax
consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that
includes the enactment date.
NOTE 2 - INVENTORIES
Inventories consist of the following:
June 30, 1996 December 31,
1995 Computer components,
peripherals and software $1,541,802 $1,338,655
Completed computer systems 207,575
Contracts in process 104,000 104,000
$1,853,377 $ 1,442,655
NOTE 3 - START-UP COSTS
The Company has deferred start-up costs, including telephone
access fees, printing, and legal fees of approximately $76,665
associated with the development of business operations as an
internet access provider; deferred organizational costs of
approximately $7,720 associated with the development of business
operations for the Company's Asian purchasing subsidiary; and
deferred start-up costs including salaries and associated
indirect costs, consulting fees, and design fees of
approximately $58,877 associated with the planned opening of the
Company's new Tabor Center Business Center. As of June 30,
1996, internet access operations had not commenced; the
Company's Asian purchasing office was still being organized; and
the Tabor Center Business Center had not opened and,
accordingly, no amortization has been recorded for the start-up
and organizational costs.
NOTE 4 - OBLIGATIONS UNDER CAPITAL LEASES
The Company leases certain computer equipment under a
noncancellable lease agreement. The agreement provides that the
Company pay the taxes, insurance and maintenance expenses
related to the equipment.
Future minimum lease payments under the capital lease
are as follows.
Year
1996 $ 22,738
1997
45,476
1998
45,476
1999
45,476
2000..................................
45,476
Thereafter................................
4,590
Total minimum lease payments
209,232 Less amount representing interest
44,440 Present value of net minimum lease
payments
$164,792
MANAGEMENT'S DISCUSSION AND ANALYSIS
General
Revenues from product and system sales are recognized when
title to the product or system passes to the customer.
Results of Operations
Quarters ended June 30, 1996 and 1995
The company reported net income of $46,840 for the
quarter ended June 30, 1996 compared to $41,937 for the
similar period in 1995. Revenues increased $498,583 or
approximately 16% from the similar period in 1995, and the
gross profit margin increased
from approximately 15% to approximately 28% of revenues
compared to the period in 1995 primarily due to higher gross
profit margins on sales of hardware products. Selling,
general and administrative expenses increased by $612,737 from
the similar period in 1995 primarily due to increased sales
and marketing expenses.
Liquidity and Capital Resources
As of June 30, 1996, the company's principal sources of
liquidity were its cash of $208,706, accounts receivable of
$1,802,549, and inventory of $1,853,377, totalling
$3,864,632. The company's
current liabilities at June 30, 1996 were $1,439,891 and its
current ratio was approximately 3.1:1. Accounts receivable and
inventories increased during the six months ended June 30, 1996
by $432,217 primarily due to increased sales activities during
the period including and increase of $207,575 in finished
goods inventory. Prepaid expenses increased by $263,988 during
the six months ended June 30, 1996 primarily due to prepayments
required under acquisition agreements, training tuition and
marketing materials agreements, and credits due from vendors.
Office and computer equipment increased by $1,221,216 during
the six months ended June 30, 1996 primarily due to expansion of
the company's internal systems including the purchase of
office and computer equipment including internet access
equipment. Office and computer equipment also includes the
capitalization of approximately $267,488 in salaries and
associated
indirect costs. Accounts payable increased
by $731,701 during the six months ended June 30, 1996 primarily
to expanded credit offered to the company by its suppliers.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) There are no exhibits filed as a part of this
report. (b) There were no reports on Form 8-K filed
during the quarter ended June 30, 1996
SIGNATURES
Pursuant to the requirement 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.
APPLIED COMPUTER TECHNOLOGY,
INC. By /s/ Wiley E.
Prentice, Jr.
Wiley E. Prentice, Jr.
President, CEO, and
Chairman
of the Board of
Directors By /s/ Robert
Oliphant
Robert
Oliphant
Chief
Financial
Officer,
Treasurer
and Director
Date: September 6, 1996
