SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q/A
(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, 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: 0-26826
Applied Computer Technology, Inc.
(Exact name of registrant as specified in its charter)
[GRAPHIC OMITTED]
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 June 30, 1997 the registrant had 3,063,127 shares of Common Stock,
no par value, outstanding.
==============================================================================
<PAGE>
APPLIED COMPUTER TECHNOLOGY, INC.
FORM 10-QSB
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of June 30, 1997 and
December 31,1996..... .............................3
Statements of Operations for the Six Months
Ended June 30, 1997 and 1996..........................4
Statements of Cash Flows for the Six Months Ended
June 30, 1997 and 1996....................................5
Notes to the Financial Statements.....................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .. ...7-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.....................11
<PAGE>
APPLIED COMPUTER TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In Thousands)
June 30, December 31,
1997 1996
(unaudited) (unaudited)
CURRENT ASSETS:
Cash $2 $710
Receivables:
Trade, less allowance for doubtful
accounts of $30,000 1,745 1,700
Income taxes 132 280
Loans to Officers 88 36
Other 84 31
Inventories 3,272 3,381
Prepaid and Other expenses 343 328
--- ---
Total Current Assets 5,666 6,868
PROPERTY AND EQUIPMENT, at cost, net 2,225 1,769
INTANGIBLE ASSETS, net 130 166
OTHER ASSETS 268 70
--- --
TOTAL ASSETS
$8,289 $8,873
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $623 $571
Note payable 1,806 1,959
Accounts payable 4,991 2,752
Accrued liabilities 376 345
--- ---
Total Current Liabilities 7,796 5,627
LONG-TERM DEBT 575 237
COMMITMENTS AND CONTINGENCIES
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; 3,063,127 shares issued
and outstanding 4,139 4,139
Accumulated deficit (4,221) (1,130)
------- -------
Total stockholders' equity (82) 3,009
---- -----
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,873 $8,289
======= ======
The accompanying notes are an integral part of this financial statement.
<PAGE>
APPLIED COMPUTER TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
Three months ended Six months ended
June 30 June 30
1997 1996 1997 1996
(unaudited) (unaudited) (unaudited) (unaudited)
Net Revenues $3,633 $3,574 $8,431 $7,217
Cost of Goods Sold:
Cost of Materials 3323 2564 7261 5493
Inventory Adjustment 681 0 681 0
Unabsorbed Services Cost 514 58 856 120
--- -- --- ---
Cost of Goods Sold 4,518 2,622 8,798 5,613
----- ----- ----- -----
Gross Profit (Loss) (885) 952 (367) 1,604
----- ----- ----- -----
Operating Expenses:
Marketing and selling 587 495 1,331 802
General and administrative 491 382 876 673
Internet access cost 180 - 337 -
--- - --- -
Total operating expenses 1,258 877 2,544 1,475
----- --- ----- -----
INCOME (LOSS) FROM OPERATIONS (2,143) 75 (2911) 129
------- -- ------ ---
OTHER INCOME (EXPENSE):
Other (expense) income 1 (8) 23 7
Interest expense (91) 2 (203) (24)
---- - ----- ----
Net other income (expense) (90) (7) (180) (17)
---- --- ----- ----
INCOME (LOSS) BEFORE
INCOME TAXES (2,233) 69 (3,092) 112
Income tax expense (benefit) - 23 - 37
-- --
NET INCOME (LOSS) ($2,233) $46 ($3,092) $75
======== === ======== ===
PRO FORMA INFORMATION:
Net income (loss) before
income taxes ($2,233) $69 ($3,092) $112
Income tax expense
(benefit) - 23 - 37
- -- - --
PRO FORMA NET INCOME (LOSS) ($2,233) $46 ($3,092) $75
===
NET INCOME (LOSS) PER
COMMON SHARE (.73) $0 ($1.01) $0
PRO FORMA NET INCOME (LOSS)
PER SHARE (.73) $0 ($1.01) $0
==
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 3,064,127 $0 3,064,127 $0
==
The accompanying notes are an integral part of this financial statement.
<PAGE>
APPLIED COMPUTER TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Six Months Ended
June 30,
1997 1996
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($3,092) $75
Adjustments to reconcile net income (loss) to net
cash used in
Operating activities:
Depreciation and amortization 319 112
Loss on disposal 0 0
Deferred taxes 0 0
Other 0 0
Increase (decrease) from changes in assets and
liabilities:
Accounts receivable (45) (22)
Inventories 108 (411)
Prepaid expenses and other current assets 91 (246)
Income tax refund receivable 148 36
Accounts payable 2340 732
Customer deposits 0 (53)
Accrued liabilities and other current 46 (27)
-- ----
liabilities
Net cash used in operating activities (85) 196
---- ---
CASH FLOWS FROM INVESTING ACTIVITY
Property and equipment acquisitions (745) (1142)
----- ------
CASH FLOWS FROM FINANCING ACTIVITIES 0 0
Bank overdraft 0 0
Net long-term borrowings 279 (72)
Net short-term borrowings (157) (49)
Obligations under capital leases 0 0
Dividend payments 0 0
Net proceeds from the issuance of common stock 0 0
and
common stock warrants 0 0
-
Net cash provided by financing 122 (122)
--- -----
activities
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (708) (1068)
CASH AND CASH EQUIVALENTS, at beginning of quarter 710 1277
CASH AND CASH EQUIVALENTS, at end of quarter $2 $209
SUPPLEMENTAL CASH FLOW INFORMATION:
Non-cash items:
Purchase of equipment for notes and capital 777 0
=== =
leases
Sale of equipment for notes 0 0
= =
Issuance of common stock under option for 0 0
= =
common stock Surrendered
Cash paid (received ) for:
Interest 203 0
=== =
Income taxes 0 0
= =
The accompanying notes are an integral part of this financial statement.
<PAGE>
APPLIED COMPUTER TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
Three months ended June 30, 1997
NOTE 1 - CERTAIN FINANCIAL POLICIES
Financial Information. The Company's unaudited interim financial
statements 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.
Revenues from product and system sales are recognized when title to the
product or system passes to the customer.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Quarters ended June 30, 1997 and 1996
The Company reported a net loss of $2,233,000 for the quarter ended June
30, 1997 as compared to a net income of $46,840 for the similar period in 1996.
Revenues were up $59,000 from the similar period in 1996, while the unadjusted
gross margin decreased from approximately 28.3% to 8.5%. Adjusted margins for
the period were (24%).
One significant factor contributing to the 2nd Qtr loss was less than
expected revenues of $3.6M versus a $6.0M budget which caused the Company to
operate below sales volume breakeven. The Company had $8,500,000 in confirmed
backlog at the end of the quarter, consisting of approximately $1,000,000 in
orders that would have been shipped 2nd Qtr had the orders been taken earlier in
the quarter. The remaining $7,500,000 in backlog were for delivery in August.
These August deliveries were completed according to contract in August, 1997.
Another contributor to the 2nd Qtr loss was a decrease in unadjusted gross
margins from 28.3% to 8.5% from the similar period in 1996. The Company
attributes this drop in margin to the commencement of certain large, long term
contracts which were initiated at low margin. It is the Company's expectation
that margins on these contracts will improve over time due to industry related
pricing declines. There can be no assurance, however, that margins will improve
on these or other contracts. Management believes that the decline in margin is
further attributable to a temporary loss of focus on product pricing as compared
to actual inventory valuation and a reduction in the Company's ability to
purchase economically due to present cash constraints. Margins have improved
throughout 3rd Qtr as the result of renewed focus in these areas. There can,
however, be no assurance that this improvement will continue or that the Company
can maintain desirable margins.
The Company's adjusted gross margin on sales dropped to (10.2%) as the result of
an unexpected physical inventory adjustment of $681,000. A portion of this
adjustment comes from the revaluation of stocked inventory in response to
industry technology and pricing trends. The Company believes that this approach
will facilitate the Company's renewed focus on product pricing with respect to
actual inventory valuation going forward. Management believes that an additional
portion of this adjustment is the result of an increase in the distribution of
inventory to Business Centers and Service locations. More stringent controls and
more effective rotation with respect to inventory allocations have been
implemented and enforced to facilitate accurate accounting of all inventory
locations. Whereas management believes that it has initiated corrective actions
to prevent future adjustments of this nature, there can be no assurance that
these actions will prove successful.
Unabsorbed costs for the Company's networking, training, and service
activities were approx $514,000 for 2nd Qtr, bringing the overall adjusted
margin to (24%). All three of these areas are being evaluated by the Company.
Operating expenses for the period were as follows: Sales & Marketing expenses
increased 18% to $587,000 from the same period in 1996. Contributing to this net
increase of $92,000 were increases in telephone and depreciation expense
associated with the increase in outbound prospecting at the Company's Denver
based Business Centers and shipping expenses to out of state clientele. General
& Administrative expenses increased 28% to $491,000 from the same period in
1996. Contributing to this net increase of $109,000 were increases in legal,
telephone and depreciation costs. Internet access costs for the company from its
investment in WEBAcess, the Company's internet subsidiary, were $180,000 for
this quarter versus $0 for similar period 1996. $64,000 of the SG&A increases
stated above were attributable to telephone charges. Since the Company shares
dedicated telephone equipment with WEBAccess, approximately 60% of this increase
can be attributed to WEBAccess, as well.
Management is disappointed in the results for this and recent periods and
has initiated corrective actions. As a means to regain margin on products sold,
the customer bid/product pricing process has come under increased scrutiny as
the Company refocuses its efforts to assure adequate margin on current and
future orders. Concurrently, the Company's product offerings are being evaluated
to develop a product mix which supports gross margin goals. The Company has
moved from last cost to average cost on inventory valuation to more accurately
relieve inventory on products sold. Additionally, the Company has contracted for
outside services to improve system controls and accuracy of the inventory system
processes including parts substitution, inventory transfers and service
inventory accounting. During 2nd Qtr, the Company appointed a Chief Financial
Officer to assist in implementing these improvements. While the Company believes
that these activities will improve the overall adjusted and unadjusted margins,
there can be go assurance that these efforts will successfully regain margin on
products sold.
Indirect service labor & overhead spending has been analyzed and the
individual service groups have been tasked to improve billable hours for
services rendered and hence improve their contribution to the Company's bottom
line. Job positions in all areas of the Company were evaluated at the close of
1st and 2nd Qtrs, resulting in the elimination of multiple positions. Analysis
on all positions continues. Additional SG&A expense reductions have been
identified and implemented, and results will continue to be reviewed in an
effort to control organizational spending. Whereas management believes that this
analysis and these activities will facilitate a return to a state of operational
profitability, there can be no guarantees that the Company will be successful in
this endeavor.
WEBAccess continues to operate at below breakeven. The Company plans to
focus resources to increase it's subscriber base to near breakeven by mid 4th
Qtr. Unused capacity available for subscriber use is approximately 65%. The
Company intends to use its internet capabilities to sell internet access and
hosting services to Corporate, Government, and end users, but there can be no
assurances that the Company will be successful in taking WEBAccess to a state of
operational profitability.
<PAGE>
Liquidity and Capital Resources
The Company incurred a loss of $2,233,000 2nd Qtr, 1997. Due in part to
the foregoing, the Company's working capital decreased by $2,278,000. Continuing
losses would cause significant liquidity problems and may ultimately impact the
Company's ability to continue future operations. The Company did anticipate and
plan for a portion of the 2nd Qtr, 1997 losses, and management does believe that
the Company's liquidity will recover as profits from 3rd Qtr operations generate
positive cash flow. The Company is also pursuing additional cash strategies
which include operational profitability, liquidation of certain Company assets,
and possible equity infusions. There can, however, be no assurance that the
Company will be successful in any of these strategies.
The Company's current assets were $5,666,000 on June 30, 1997 and did
change by $1,044,000 during the 3 months ended June 30, 1997. The Company's
current liabilities increased from $6,562,000 on March 31, 1997 to $7,796,000 on
June 30, 1997 due largely to an increase in the Company's accounts payable. A
significant portion of this increase was the result of inventories received
during 2nd Qtr to begin pre-production assembly of the $7,500,000 in orders due
in August. The Compan's note payable balance decreased approximately $600,000 as
a result of less borrowings from the Company's line of credit. The Company has
negligible working capital as of June 30, 1997.
The Company's net property and equipment remained relatively unchanged,
with a slight decrease from $2,262,000 to $2,225,000 during the 3 months ended
June 30, 1997.
As of June 30, 1997, the Company's principal sources of liquidity were its
cash and accounts receivable of $1,747,000 and inventories of $3,272,000. The
company's current assets are expected to be sufficient to meet the Company's
capital requirements during 1997. However, if cash from the collections of
accounts receivable, the sale of products, and any debt financing are
insufficient, the Company could be required to raise additional capital. There
can be no assurance the Company will be capable of raising additional capital or
that the terms upon which such capital will be available to the Company will be
acceptable.
The Company continues to reduce its overhead. There can, however, be no
assurance that the Company can generate profits, and other actions may be
required by management. Management, however, believes that the actions taken to
reduce overhead and increase revenues will enable the Company to continue
operations through 1997. As of June 30, 1997, the Company has a sales backlog of
approximately $8,500,000. These sales are at a margin acceptable to the Company,
and the Company continues to pursue additional sales for 3rd and 4th Qtrs, 1997.
The Company's working capital, while stretched, has thus far been
sufficient to meet the Company's aggressive 3rd Qtr production, inventory, and
A/R demands. This is due primarily to strong support from vendors, and this
support is expected to continue. There can, however, be no assurance that this
support will continue.
Subsequent to June 30, 1997 the Company obtained a short term loan from a major
vendor for $2.3 million that's payable in September 1997.
<PAGE>
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) No reports on Form 8-K were filed by the Company during the
three months ending June 30, 1997.
<PAGE>
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/ Daniel T. Radford
Daniel T. Radford
Chief Financial Officer
Date: September 4, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000946244
<NAME> Applied Computer Technology
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,000
<SECURITIES> 0
<RECEIVABLES> 1,745,000
<ALLOWANCES> 30,000
<INVENTORY> 3,272,000
<CURRENT-ASSETS> 5,666,000
<PP&E> 3,054,000
<DEPRECIATION> 829,000
<TOTAL-ASSETS> 8,289,000
<CURRENT-LIABILITIES> 7,796,000
<BONDS> 575,000
0
0
<COMMON> 4,139,000
<OTHER-SE> (4,221,000)
<TOTAL-LIABILITY-AND-EQUITY> 8,289,000
<SALES> 3,633,000
<TOTAL-REVENUES> 3,633,000
<CGS> 3,323,000
<TOTAL-COSTS> 5,776,000
<OTHER-EXPENSES> (1,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91,000
<INCOME-PRETAX> (2,233,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,233,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,233,000)
<EPS-PRIMARY> (0.73)
<EPS-DILUTED> (0.73)
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