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: 0-26826
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 May 31, 1997, the Company had 3,063,127 shares of Common
Stock issued and outstanding.
Transitional Small Business Disclosure Format: Yes No X
APPLIED COMPUTER TECHNOLOGY, INC.
FORM 10-QSB
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of March 31, 1997
and December 31,1996..............................3-4
Statements of Operations for the Three
Months Ended March 31, 1997 and
1996...............................................5
Statements of Cash Flows for the Three
Months Ended March 31, 1997 and 1996.............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
APPLIED COMPUTER TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1997 1996
CURRENT ASSETS:
Cash $154,000 $710,000
Receivables:
Trade, less allowance
for doubtful accounts of
$30,000 2,237,000 1,700,000
Income taxes 180,000 280,000
Loans to Officers 90,000 36,000
Other 171,000 31,000
Inventories 3,550,000 3,381,000
Prepaid and Other
expenses 327,000 328,000
Total current assets 6,710,000 6,868,000
PROPERTY AND EQUIPMENT,
at cost, net 2,262,000 1,769,000
INTANGIBLE ASSETS,
net 154,000 166,000
OTHER ASSETS 199,000 70,000
TOTAL ASSETS $9,325,000 $8,873,000
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Current portion of long-
term debt $698.000 $571,000
Note payable 2,404,000 1,959,000
Accounts payable 3,222,000 2,752,000
Accrued liabilities 239,000 345,000
Total current liabilities 6,562,000 5,627,000
LONG-TERM DEBT 612,000 237,000
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 out-
standing 4,139,000 4,139,000
Accumulated deficit (1,988,000) (1,130,000)
Total stockholders' equity 2,151,000 3,009,000
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $9,325,000 $8,873,000
The accompanying notes are an integral part of this financial
statement.
<PAGE>
APPLIED COMPUTER TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
1997 1996
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss) ($859,000) $125,000
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 150,000 48,000
Loss on disposal -- --
Deferred taxes -- (7,000)
Other -- --
Increase (decrease) from changes in
assets and liabilities:
Accounts receivable (536,000) (423,000)
Inventories (99,000) (527,000)
Prepaid expenses and other current assets 117,000 (94,000)
Income tax refund receivable -- 55,000
Accounts payable 569,000 374,000
Customer deposits 2,000 (3,000)
Accrued liabilities and other current
liabilities (93,000) (39,000)
Net cash used in operating activities (749,000) (491,000)
CASH FLOWS FROM INVESTING ACTIVITY
Property and equipment acquisitions (639,000) (94,000)
CASH FLOWS FROM FINANCING ACTIVITIES -- --
Bank overdraft -- --
Net long-term borrowings 316,000 (25,000)
Net short-term borrowings 516,000 --
Obligations under capital leases -- --
Dividend payments -- --
Net proceeds from the issuance of common
stock and common stock warrants -- --
Net cash provided by financing activities 832,000 (25,000)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (556,000) (611,000)
CASH AND CASH EQUIVALENTS,
at beginning of quarter 710,000 1,277,000
CASH AND CASH EQUIVALENTS,
at end of quarter - $154,000 $666,000
SUPPLEMENTAL CASH FLOW INFORMATION:
Non-cash items:
Purchase of equipment for notes and
capital leases 316,000 --
Sale of equipment for notes -- --
Issuance of common stock under option for
common stock surrendered -- --
Cash paid (received ) for:
Interest 112,000 --
Income taxes -- --
The accompanying notes are an integral part of this financial
statement
<PAGE>
APPLIED COMPUTER TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended March 31,
1997 1996
Net Revenues $4,798,000 $3,643,000
Cost of goods sold 4,280,000 2,929,000
Gross Profit 518,000 714,000
Operating Expenses:
Marketing and selling 744,000 443,000
General and administrative 386,000 218,000
Internet access cost 157,000 --
Total operating expenses 1,287,000 661,000
INCOME (LOSS) FROM OPERATIONS (768,000) 52,000
OTHER INCOME (EXPENSE):
Other (expense) income 22,000 15,000
Interest expense (112,000) (26,000)
Net other income (expense) (90,000) (11,000)
INCOME (LOSS) BEFORE INCOME TAXES (859,000) 42,000
Income tax expense (benefit) -- 14,000
NET INCOME (LOSS) ($859,000) $28,000
NET INCOME (LOSS) PER
COMMON SHARE (0.28) 0.01
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 3,065,127 3,524,480
The accompanying notes are an integral part of this financial statement.
<PAGE>
APPLIED COMPUTER TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
Three months ended March 31, 1997
NOTE 1 - CERTAIN FINANCIAL POLICIES
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 10KSB. 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>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Quarters ended March 31, 1997 and 1996
The Company reported a net loss of $<859,000> for the quarter
ended March 31, 1997 compared to net income of $53,000 for the
similar period in 1996. Revenues increased by $1,154,987 or
approximately 32% from the similar period in 1996, while the
gross profit margin decreased from approximately 20% to 11%.
Contributing to this loss were less than expected revenues as
well as several large one-time start-up and development expenses
which continued throughout the first quarter of 1997. These
expenses included (i) costs associated with the opening of the Company's
Business Center in the Denver Tech Center; (ii) expenses incurred
in the redevelopment of the Company's image and the generation of
associated marketing materials; and (iii) costs involved in the
development of the Company's internal information systems. These
costs were incurred to complete expansion projects which were
begun in 1996, and the Company believes that the majority of
these projects are now materially complete.
Sales and service revenues were approximately $4,500,000.
Overall margins were approximately 17% for the Company's normal
business accounts. The margins for the quarter, however,
decreased to 11% as the result of a $1,600,000 contract which was
delivered to NASA at a very low margin. This order to NASA was
an exception to the Company's normal business, which the Company
deemed to be appropriate based upon a reasonable probability of
continued business with this particular customer.
The Company's expansion of its sales force did not contribute to
revenues during the first quarter as anticipated, particularily
in the areas of retail and SOHO (Small Office/Home Office)
business. Towards the end of the first quarter of 1997, the
Company scaled down its efforts in the SOHO markets, eliminated
many of the sales, marketing, and support expenses associated
with this effort, and redeployed remaining Company resources
towards the generation of corporate business.
In addition, the Company's expansion efforts in the Denver market-
place were delayed due to construction and other factors
associated with the opening of its Denver Tech Center Business
Center, which did not open until February of 1997.
Notwithstanding the above, sales in the Company's traditional
markets continued to be strong. During March 1997, the Company
was awarded annual contracts with the United States Military, the
United States Air Force, and the United States Naval Academies
for delivery of PC's to their incoming freshmen classes. Gross
revenues for these contracts will be opproximately $7,500,000.
Sales and marketing expenses increased 68% to $487,000 during the
first quarter of 1997 over the same period in 1996. Many of
these expenses were continuations of costs associated with the
Company's expansion into the Denver marketplace and the Company's
upgrading of its corporate image. Although these costs carried
into first quarter of 1997, the Company has significantly
decreased these expenses as of April 1997.
General and Administrative expenses increased 34% to $386,000
from first quarter of 1997. These expenses were primarily
associated with the Company's increase in sales as well as the
continuation of infrastructure improvements. The Company
continued to make minor investments in its Internet services
division, WEBAccess. In March 1997, WEBAccess successfully
generated revenues in excess of its expenses.
While the Company intends to continue the development of WEBAccess,
the Company believes that the majority of the start-up expenses
for WEBAccess were incurred in 1996.
The Company's operations are seasonal to a certain degree, with
sales and sevice revenues generally higher in the third and
fourth quarters of each year as opposed to the first two
quarters. Management attributes this seasonality to purchases
made prior to commencement of the school year, sales attributable
to the Christmas holiday, and budgetary purchasing cycles of its
corporate and government customers.
Liquidity and Capital Resources
The Company incurred a loss of $(859,000) during quarter ending March
31, l997. Due in part to the foregoing, the Company's working capital
decreased by $1,093,000. Continuing losses would cause significant
liquidity problems and may ultimately impact the Company's ability to
continue future operations. The Company anticipated losses in
the first quarter, and management believes it has adequate
liquidity to sustain future operations.
The Company's current assets were at $6,710,000 as of March 31,
1997 and did not materially change during the three months ended
March 31, 1997. The Company's current liabilities increased from
$5,627,000 on December 31, 1996 to $6,562,000 on March 31, 1997
due largely to an increase in the Company's accounts payable and
notes payable. The Note Payable balance increased as a result of
additional borrowings from the Company's line of credit to finance
the NASA order. The Company had working capital of approximately
$148,000 at March 31, 1997.
The Company's property and equipment increased from $1,768,000 to
$2,262,000 during the three months ended March 31, 1997 as the
result of costs associated with furnishing and equiping the
Company's new Business Center in the Denver Technological Center,
as well as equipment purchased for the Company's internal systems
and internet services division.
As of March 31, 1997, the Company's principal sources of
liquidity were cash of $154,000, accounts receivable of
$2,237,000 and inventory of $3,550,000. 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.
In March 1997 the Company reduced 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 April 30, 1997, the Company had a sales
backlog of approximately $8,500,000, and the Company continues to
aggressively pursue additional sales.
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 February 4, 1997 the Company filed an 8-K report disclosing
the appointment of Hein + Associates as the Company's Independent
Auditors.
<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, and Chief Executive Officer
By /s/ R. Scott Goering
R. Scott Goering, Chief Accounting Officer
Date: June 9, 1997
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