SECURITIES AND EXCHANGE
COMMISSION Washington, D.C.
20549
FORM 10-QSB
(Mark One
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: 33-95782-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 ___
As of October 31, 1996, the Company had 3,040,000
shares of Common Stock, no par value, issued and outstanding.
Transitional Small Business Disclosure Format
Yes No X
APPLIED COMPUTER TECHNOLOGY, INC.
FORM 10-QSB
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of September 30, 1996 and December
31,1995.....................................................
................3-4
Statements of Operations for the Three and
Nine Months Ended September 30, 1996 and
1995......................................................5
Statements of Cash Flows for the Nine Months
Ended September 30, 1996 and 1995...........................6-7
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 8-K... ...11
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
APPLIED COMPUTER TECHNOLOGY, INC.
BALANCE SHEETS
September 30, December 31,
1996 1995
(unaudited)
ASSETS
CURRENT ASSETS
Cash $ 183,247 $1,277,075
Accounts receivable 2,341,114 1,780,054
Inventories 2,587,894 1,442,655
Prepaid expenses 343,127 177,488
Income tax refund receivable - 155,900
Deferred income tax asset 18,700 18,700
Other current assets 8,736 50,051
Total current assets 5,482,818 4,901,923
ADVANCES TO RELATED PARTIES 54,476 -
PROPERTY AND EQUIPMENT - at cost
Office and computer equipment 1,919,118 1,025,000
Vehicles 156,487 109,325
Promotion equipment 30,698 28,729
Leasehold improvements 84,957 74,803
2,191,260 1,237,857
Less accumulated depreciation (360,766) (402,329)
Net property and equipment 1,830,494 835,528
OTHER ASSETS
Trademarks (net of accumulated
amortization of $3,492 in 1996
and $2,544 in 1995) 9,860 9,126
Start-up costs 231,617 -
Deferred offering costs 36,392 -
Deposits and other assets 18,082 15,429
Total other assets 295,951 24,555
Total assets $7,663,739 $5,762,006
The accompanying Notes are an integral part of this financial
statement
APPLIED COMPUTER TECHNOLOGY, INC.
BALANCE SHEETS
(continued)
September 30, December
31, 1996 1995
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 1,030,949 $ -
Accounts payable 621,445 482,082
Customer deposits - 52,502
Income taxes payable 160,023 -
Accrued liabilities 230,741 183,583
Current portion of
long-term liabilities 34,715 100,000
Total current liabilities 2,077,873 818,167
LONG-TERM LIABILITIES
Notes payable 613,136 646,577
Obligations under
capital lease 157,697 -
Obligations under
operating lease 5,309 5,500
Deferred income tax
liability 40,300 40,300
816,442 692,377
Less portion due within
one year (34,715) (100,000)
Net long-term liabilities 781,727 592,377
Total liabilities 2,859,600 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 665,255 212,578
Total stockholders' equity 4,804,139 4,351,462
Total liabilities and
stockholders' equity $7,663,739 $5,762,006
The accompanying Notes are an integral part
of this financial statement
APPLIED COMPUTER TECHNOLOGY, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
REVENUES $ 9,126,163 $ 7,851,007 $16,342,991 14,516,102
COST OF GOODS
SOLD 7,168,441 6,553,138 12,661,179 12,140,680
GROSS PROFIT 1,957,722 1,297,869 3,681,812 2,375,422
OPERATING EXPENSES
Selling, general and
administrative
expenses 1,355,531 564,687 2,950,719 1,377,832
Research and
development
expenses - 5,894 - 17,681
Total Operating
Expenses 1,355,531 570,581 2,950,719
1,395,513
INCOME FROM
OPERATIONS 602,191 727,288 731,093 979,909
OTHER INCOME (EXPENSE):
Other income
(expense) 4,474 9,444 11,491 32,533
Interest income
(expense) (68,726) (106,210) (93,059)
(215,793)
Net other income
(expense) (64,252) (96,766) (81,568)
(183,260)
INCOME BEFORE
INCOME TAXES 537,939 630,522 649,525 796,649
INCOME TAX
EXPENSE 160,023 220,727 196,846 278,827
NET INCOME $ 377,916 $ 409,795 $452,679 $
517,822
PRO FORMA INFORMATION
Net income before
income taxes $ 537,939 $ 630,522 $649,525 $
796,649
Income tax
expense 160,023 227,000 196,846 299,500
Net income $ 377,916 $ 403,522 $452,679 $ 497,149
Earnings per common share
Primary $0.12 $ 0.19 $0.15 $ 0.23
Fully diluted$0.12 $ 0.19 $0.15 $ 0.23
Shares used in
computing
earnings per
common share
Primary 3,328,443 2,158,214 3,339,109 2,158,214
Fully diluted 3,328,443 2,158,214 3,339,109 2,158,214
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)
Nine Months Ended
September 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 452,679 $517,822
Adjustments to reconcile
net income to net
cash used by operating activities
Depreciation 233,016 86,032
Amortization 948 720
Provision for losses on accounts
receivable - 19,454
Common stock issued for services - 5,000
(Gain) loss from disposition of assets 160,961 (13,500)
Increase (decrease) from changes
in assets and liabilities
Accounts receivable (561,060) (733,238)
Inventories (1,145,239) (779,132)
Prepaid expenses (165,639) (11,871)
Income tax refund receivable 155,900 -
Deferred income tax asset - (17,200)
Other current assets 41,315 48,035
Deposits and other assets (2,653) (169)
Accounts payable 139,363 158,575
Customer deposits (52,502) (55,814)
Income taxes payable 160,023 0
Accrued liabilities (18,127) 243,889
Obligations under operating leases (191) (802)
Deferred income tax liability - 38,100
Net cash provided (used) by
operating activities $ (601,206) $ (494,099)
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)
Nine Months Ended
September 30,
1996 1995
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment acquisitions $ (1,146,649) $ (123,113)
Start up costs (231,617) -
Payment for trademarks (1,682) -
Net cash used by investing activities (1,379,948) (123,113)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on obligations
under capital lease (19,314) -
Bank overdraft - (108,308)
Principal payments on long-term
borrowings (33,441) (65,258)
Net short-term borrowings 1,030,949 426,563
Dividend payments - (3,426)
Loans to related parties (54,476) -
Proceeds from the issuance of
common stock warrants - 476,511
Payment of offering costs (36,392) (107,030)
Net cash provided (used)
by financing activities 887,326 619,052
NET DECREASE IN CASH
AND CASH EQUIVALENTS 1,093,828 1,840
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,277,075 3,867
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 183,247 $5,707
The accompanying Notes are an integral part of this financial
statement
APPLIED COMPUTER TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS Nine months ended
September 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:
September 30, 1996 December 31, 1995
Computer components,
peripherals and software $2,467,161 $1,338,655
Completed computer systems 16,733 -
Contracts in process 104,000 104,000
Total $2,587,894 $1,442,655
NOTE 3 - START-UP COSTS
The Company has deferred start-up costs, including telephone access
fees, printing, legal fees, and salaries and associated indirect costs
of approximately $97,386 associated with the development of business
operations as an internet access provider; deferred organizational
costs of approximately $11,412 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, design fees of approximately $122,819
associated with the company's new marketing plan which will be
implemented in connection with the planned opening of the Company's
new Tabor Center Business Center. As of September 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 $11,370
1997 45,476
1998 45,476
1999 45,476
2000 45,476
Thereafter 4,590
Total minimum lease payments 197,864
Less amount representing interest 39,365
Present value of net minimum lease payments $158,499
Item 2.
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 September 30, 1996 and 1995
The company reported net income of $377,916 for
the quarter ended September 30, 1996 compared to $409,795 for the
similar period in 1995. Revenues increased by $1,275,156 or
approximately 17% from the similar period in 1995, and gross profit
margin decreased by approximately 5% (from approximately 16.5% to
21.4%), primarily due to an adjustment in valuation of Property and
equipment. Selling, general and administrative expenses increased
by $790,844 from the similar period in 1995 primarily due to
increased sales and marketing expenses.
Liquidity and Capital Resources
As of September 30, 1996, the company'sprincipal sources of
liquidity were its cash of $183,247, accounts receivable of
$2,341,114, inventory of $2,587,894. The company's current
liabilities at September 30, 1996 were $2,077,873 and its
current ratio was approximately 2.6:1. Accounts receivable and
inventories increased during the nine months ended September 30, 1996
by $1,706,299 primarily due to increased sales activities during
the period. Prepaid expenses increased by $165,639 during the
nine months ended September 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 $894,118 during the nine months
ended September 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 $107,026
in salaries and associated indirect costs. Accounts payable
increased by $139,363 during the nine months ended September 30,
1996 primarily to expanded credit offered to the company by its
suppliers. Long-term liabilities increased by $189,350
primarily due to obligations under a capital lease of $157,697.
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) On September 19, 1996 the Company filed an 8K report
concerning the fact that the Company's Independent Certified Public
Accountants declined to stand for reelection as the Company's auditors
for the fiscal year ending December 31, 1996.
On November 8, 1996 the Company filed an 8K report
concerning the fact that the Company has retained Grant Thornton LLP
as the Company's Independent Certified Public Accountants. In this
regard, Grant Thornton LLP replaced Brock and Company CPA,s, P.C. as
the Company's certifying public accountants.
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/ R. Scott Goering
R. Scott Goering
Controller
Date: November 21, 1996
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