UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the 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: 0-9247
AUTO-TROL TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Colorado 84-0515221
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12500 North Washington Street, Denver, Colorado 80241-2400
(Address of principal executive offices)
(303) 452-4919
(Registrant's telephone number, including area code)
Indicate by check mark 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. [X] Yes [_]No
Number of shares outstanding as of August 11, 1997: 9,314,347
AUTO-TROL TECHNOLOGY CORPORATION
--------------------------------
REPORT TO SECURITIES AND EXCHANGE COMMISSION ON FORM 10-Q
---------------------------------------------------------
FOR THE NINE MONTHS ENDED JUNE 30, 1997
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Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations (unaudited) three and 1
nine months ended June 30, 1997 and 1996
Consolidated Balance Sheets (unaudited) June 30, 1997 and 2
September 30, 1996
Consolidated Statements of Cash Flow (unaudited) nine months 3
ended June 30, 1997 and 1996
Notes to Consolidated Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition 5-8
and Results of Operations
Part II. Other Information, Item 5 and Item 6(b) Reports on Form 8-k 9
Signatures 10
AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
------------------------------------------
Revenues:
Sales.......................................... $ 738 $ 3,381 $ 4,653 $ 7,637
Service........................................ 2,617 3,056 8,687 9,091
------------------------------------------
$ 3,355 $ 6,437 $13,340 $16,728
Costs and expenses:
Cost of sales.................................. 390 1,416 1,949 2,930
Cost of service................................ 1,264 1,577 4,036 4,557
Research and product development............... 1,551 2,249 4,778 6,844
Marketing, general and administrative.......... 3,466 3,561 10,166 10,520
------------------------------------------
$ 6,671 $ 8,803 $20,929 $24,851
Loss from operations............................. (3,316) (2,366) (7,589) (8,123)
Interest income................................ 16 31 50 180
Interest expense............................... 104 197 364 585
------------------------------------------
Loss before income taxes......................... (3,404) (2,532) (7,903) (8,529)
Income tax (benefit)............................. (17) (20) 0 (40)
------------------------------------------
Net loss......................................... $(3,387) $(2,512) $(7,903) $(8,489)
==========================================
Loss per share................................... $ (.39) $ (.42) $ (.95) $ (1.81)
Weighted average number of shares outstanding.... 8,604 6,053 8,306 4,700
See Notes to Consolidated Financial Statements
1
AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands except per share amounts)
JUNE 30, SEPTEMBER 30,
1997 1996
(UNAUDITED)
-------------------------------
ASSETS
Current Assets:
Cash and cash equivalents............................................ $ 1,896 $ 2,173
Receivables net of allowance of $176 and $173........................ 1,035 2,846
Inventories.......................................................... 67 304
Service parts and prepaid expenses................................... 555 522
-------------------------------
Total current assets.............................................. $ 3,553 $ 5,845
-------------------------------
Property, facilities and equipment:
Land................................................................. 356 356
Building and improvements............................................ 8,204 8,204
Machinery and equipment.............................................. 7,935 9,560
Furniture, fixtures and leasehold improvements...................... 1,052 906
-------------------------------
17,547 19,026
Less accumulated depreciation and amortization...................... (11,425) (12,572)
-------------------------------
6,122 6,454
Purchased software, net of accumulated
amortization of $1,315 and $1,123.................................... 314 461
Other assets........................................................... 88 90
-------------------------------
Total assets...................................................... $ 10,077 $ 12,850
===============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt.................................... $ 240 $ 240
Current portion of capital lease obligations......................... 26 128
Accounts payable..................................................... 510 1,195
Interest payable, related-party portion $240 and $490................ 303 516
Unearned service revenue and customer deposits....................... 1,484 1,590
Accrued compensation and related taxes............................... 368 673
Other liabilities.................................................... 1,102 1,235
-------------------------------
Total current liabilities......................................... $ 4,033 $ 5,577
Capital lease obligations.............................................. - 8
Long-term debt, related-party portion $3,775 and $1,900............... 5,455 3,580
-------------------------------
Total liabilities................................................. $ 9,488 $ 9,165
-------------------------------
Shareholders' equity:
Common stock, $.02 par value authorized 40,000,000 shares; issued
(including treasury shares) 9,314,347 and 7,745,929 shares......... 186 155
Additional paid-in capital........................................... 88,784 84,106
Cumulative currency translation adjustments.......................... (882) (980)
Accumulated deficit.................................................. (87,014) (79,111)
Treasury stock, 26,140 and 26,140 common shares at cost.............. (485) (485)
-------------------------------
Total shareholders' equity........................................ 589 3,685
-------------------------------
$ 10,077 $ 12,850
===============================
See Notes to Consolidated Financial Statements
2
AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
NINE MONTHS ENDED
JUNE 30,
1997 1996
---------------------
Cash flow from operating activities:
Net loss.................................................................... $(7,903) $(8,489)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization............................................... 1,099 1,333
(Gain) loss on disposal of property, facilities and equipment............... 63 232
(Increase) decrease receivables............................................. 1,830 135
Increase (decrease) inventories............................................. 240 (42)
(Increase) decrease service parts and prepaids.............................. 35 (82)
Increase (decrease) accounts payable........................................ (656) (383)
Increase (decrease) interest payable........................................ (213) 10
Increase (decrease) income tax payable...................................... (20) (84)
Increase (decrease) unearned service revenue and customer deposits.......... (106) 377
Increase (decrease) other liabilities (315) (778)
---------------------
Net cash used by operating activities.......................................... (5,946) (7,771)
Cash flow from investing activities:
Capital expenditures........................................................ (771) (1,868)
Proceeds from sale of property, facilities and equipment.................... 97 66
(Increase) decrease of non-current service parts and other assets........... 2 13
---------------------
Net cash used by investing activities.......................................... (672) (1,789)
Cash flow from financing activities:
Proceeds from issuance of notes payable, related party...................... 6,775 10,000
Payments on notes payable, capital lease and long-term debt................. (310) (236)
Proceeds from issue of common stock......................................... 9 9
---------------------
Net cash provided by financing activities.................................... 6,474 9,773
Effect of exchange rate changes on cash........................................ (133) (44)
---------------------
Net increase in cash and cash equivalents...................................... (277) 169
Cash and cash equivalents at the beginning of the year......................... 2,173 2,388
---------------------
Cash and cash equivalents at the end of the period............................. $ 1,896 $ 2,557
=====================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, related party portion $490,000 and $414,000....................... $ 568 $ 457
See Notes to Consolidated Financial Statements
3
AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1997
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for the
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Financial information as of September 30, 1996 has
been derived from the audited consolidated financial statements of Auto-trol
Technology Corporation and subsidiaries (the Company).
The condensed consolidated financial statements do not include all information
and notes required by generally accepted accounting principles for complete
financial statements. However, except as disclosed herein, there has been no
material change in the information disclosed in the notes to the consolidated
financial statements as of and for the year ended September 30, 1996 included in
Form 10-K previously filed with the SEC. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included in the accompanying Condensed Consolidated
Financial Statements. Operating results for the three and nine month periods
ending June 30, 1997 are not necessarily indicative of the results that may be
expected for the year ending September 30, 1997.
(2) LOSS PER SHARE
Loss per share is computed on the basis of the weighted average number of shares
outstanding and is adjusted, if applicable, for common stock equivalents. At
June 30, 1997 and 1996, the weighted average number of shares outstanding
includes no weighted common stock equivalent shares because their effect would
be antidilutive.
4
AUTO-TROL TECHNOLOGY CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
Operating losses for the third quarter and the nine months ended June 30, 1997
continued due to decreased revenue in mature product areas and delayed orders
from customers for newer products. New product revenue from the Product Data
Management (PDM), net work configuration management and exploration data
management and mapping solutions markets grew in the nine months ended June 30,
1997 over the same period ended June 30, 1996, however, the Company continues to
operate below break-even.
Due to the nature of the software industry, the future operating results of the
Company depend largely on its ability to rapidly and continuously develop and
deliver new software products that are competitively priced and offer enhanced
performance. However, the Company is unable to predict the impact of new
products or the effect that industry economic conditions will have on future
results of operations.
Three months ended June 30, 1997 compared to three months ended June 30, 1996
- -----------------------------------------------------------------------------
REVENUES - For the quarter ended June 30, 1997, total sales and service revenue
decreased $3.1 million, or 48%, from the quarter ended June 30, 1996. Total
sales revenue for the third quarter of fiscal 1997 decreased $2.6 million, or
78%, from the quarter ended June 30, 1996. Hardware revenue for the third
quarter of fiscal 1997 declined $1.3 million, or 75%, as compared to fiscal
1996. During the third quarter of fiscal 1996 the Company had it's last major
hardware order that was sold as part of a total systems solution. Total
software revenue declined $1.4 million, or 74%, as compared to the third quarter
of fiscal 1996. The decline can be attributed to reduced sales of the Company's
legacy products, delays in customers orders and acceptance as well as extended
sales cycle for the Company's enterprise wide software solutions.
Total service revenue for the quarter ended June 30, 1997, decreased $433,000,
or 14%, from the previous year's quarter ended June 30, 1996. Service revenue
is comprised of hardware and software maintenance, training and billable service
revenue. Hardware maintenance revenue decreased $154,000, or 42%, while
software maintenance revenue decreased $266,000, or 16% for the third quarter of
fiscal 1997 as compared to the third quarter of fiscal 1996. The Company
experienced a decline in service revenue in all geographic locations. As the
Company shifts from being a hardware and software solution provider to a
software, systems integration, and service provider, revenue from hardware and
hardware maintenance will continue to decline significantly. The declines in
software maintenance revenue can be attributed to a decline in older products
maintenance revenue. Billable services and training revenue decreased $14,000,
or 1% over the quarter ended June 30, 1996. North American service revenue,
which comprised 77% of the total worldwide service revenue, declined $349,000,
or 15%, as compared to the third quarter of fiscal 1996. European service
revenue declined $55,000, or 9%, as compared to fiscal 1996. This decrease is
primarily due to the closure of the Swedish subsidiary during the third quarter
of fiscal 1997.
COST OF SALES AND SERVICE - The result of operations for the quarter ended June
30, 1997, continued to reflect shifts in product mix from hardware to software
sales and services. For the third quarter ended June 30, 1997, the gross profit
margin on total revenue decreased to 51% from 54% for the third quarter ended
June 30, 1996. The gross profit margin on sales revenue for the third quarter
ending June 30, 1997, decreased to 51% from 58% for the third quarter ended June
30, 1996. In the third quarter of fiscal 1997 the gross profit margin on
hardware declined, yielding a gross margin of 11%, as compared to a gross margin
of 20% in the third quarter of fiscal 1996. This decline reflects the continued
pressure on
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-(CONTINUED)
hardware pricing throughout the computer industry and lower volume pricing. In
the third quarter of fiscal 1997, the gross profit margin on software sales
decreased to 70%, as compared to a gross margin of 89% in the third quarter of
fiscal 1996 due to third party software costs and decreased software revenue
volume.
Gross profit margins for total service revenue in the third quarter of fiscal
1997 decreased $151,000, yielding a gross margin of 51%, as compared to a gross
margin of 48% in fiscal 1996. The gross margin on billable services and
training in the third quarter of fiscal 1997 increased $43,000 yielding a gross
margin of 36% as compared with a 32% gross margin during the third quarter of
fiscal 1996. Gross profit margins on hardware maintenance decreased $43,000 in
the third quarter of fiscal 1997. This reduction is attributed to the Company's
growing utilization of outside third parties for hardware maintenance services
and the Company's efforts to move out of this service. The software maintenance
gross margin increased in the third quarter of fiscal 1997 to 68% from 66% in
the third quarter of fiscal 1996 although the gross profit margin decreased
$115,000.
RESEARCH AND PRODUCT DEVELOPMENT - Research and development expenses were
approximately 46% of revenue for the quarter ended June 30, 1997, and 35% of
revenue for the quarter ended June 30, 1996. Research and development expenses
decreased by 31% or $698,000 in the third quarter ended June 30, 1997 compared
to the previous year's third quarter. This decrease in spending is a direct
result of the Company ceasing development of its Mozaic product due to
competitive pressures in September 1996.
MARKETING, GENERAL, AND ADMINISTRATIVE - In the third quarter ended June 30,
1997, marketing, general and administrative expenses decreased $94,000, or 3%,
from the third quarter ended June 30, 1996. European marketing, general and
administrative spending increased $47,000, or 7% due to a favorable exchange
rate variance of $32,000, and an increase in spending of $79,000, as compared to
the third quarter ended June 30, 1997. The increase in spending was due to the
severance expense related to the closure of the Sweden subsidiary and the
restructuring in both the Germany and United Kingdom subsidiaries. In the third
quarter of fiscal 1997, North American marketing, general and administrative
expenses, decreased $136,000, or 5%, as compared to the third quarter of fiscal
1996 due primarily to reduced personnel related expenses and occupancy costs.
INTEREST - In the quarter ended June 30, 1997, interest expense decreased 48% or
$94,000 from the quarter ended June 30, 1996, as a result of decreased
borrowings. Interest income decreased $15,000, or 49% as compared to the third
quarter of fiscal 1996.
Nine months ended June 30, 1997 compared to nine months ended June 30, 1996
- ---------------------------------------------------------------------------
REVENUES - For the nine months ended June 30, 1997, total sales and service
revenue decreased $3.4 million, or 20%, from the same period ended June 30,
1996. Total sales revenue for the first nine months of fiscal 1997 decreased
$3.0 million, or 39%, from the nine month period ended June 30, 1996. Hardware
revenue for the first nine months of fiscal 1997 decreased $1.3 million or 32%,
as compared to the same period in fiscal 1996. Total software revenue decreased
$1.3, or 30%, as compared to the first nine months of fiscal 1996. The decrease
can be attributed to reduced sales of legacy products and slower sales of new
products caused by delayed orders and extended sales cycles. North American
hardware sales revenue decreased $410,000, or 28%, while North American software
sales revenue decreased $445,000, or 25% during the first nine months of fiscal
1997. European sales revenue decreased $1.8 million, or 64% from the same
period in fiscal 1996. The European revenue decrease was due to a decrease of
48% in hardware revenue, and a software revenue decrease of 78%, as compared to
fiscal 1996. Approximately
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-(CONTINUED)
10% of this decrease was due to unfavorable exchange rates and the remainder was
due to decreased sales volume. Total service revenue for the nine months ended
June 30, 1997, decreased $404,000, or 4%, from the previous year's comparable
period. Hardware maintenance revenue decreased $520,000, or 41%, while software
maintenance revenue decreased $343,000, or 7% for the first nine months of
fiscal 1997 as compared to the same period of fiscal 1996. Billable services
and training revenue increased $464,000, or 16% for the nine month period ended
June 30, 1997, as compared to the prior year's nine month period. North
American service revenue, which comprised 49% of the total worldwide service
revenue, decreased $459,000, or 7%, as compared to the first nine months of
fiscal 1996. European service revenue decreased 3%, as compared prior year's
nine month period ended June 30, 1996.
COST OF SALES AND SERVICE - For the nine months ended June 30, 1997, the gross
profit margin on total revenue of 55% remained the same compared to the same
period in the prior year. The gross profit margin on sales revenue for the nine
months ended June 30, 1997, decreased to 60% from 62% for the nine months ended
June 30, 1996. Gross profit percentages can fluctuate quarterly based on the
revenue mix of Company software, third party software, services and hardware.
Gross profit margins for total service revenue in the first nine months of
fiscal 1997 increased $41,000, yielding a gross margin of 53%, as compared to a
gross margin of 50% in the first nine months of fiscal 1996.
Gross profit margins on hardware maintenance declined $107,000 yielding a gross
margin of 19% in the first nine months of fiscal 1997, as compared to a gross
margin of 20% in the first nine months of fiscal 1996. The reduction in gross
profit margins on hardware maintenance is attributed to the Company's growing
utilization of outside third parties for hardware maintenance services and its
focus to no longer provide this service. The software maintenance gross margin
improved to 70% in the first nine months of fiscal 1997, as compared to a gross
margin of 65% in the first nine months of fiscal 1996.
RESEARCH AND PRODUCT DEVELOPMENT - Research and development expenses were
approximately 36% of revenue for the nine months ended June 30, 1997, and 41% of
revenues for the nine months ended June 30, 1996. This decrease in spending is a
direct result of the Company's focus on its software products in the PDM, EPS
and network configuration management markets.
MARKETING, GENERAL, AND ADMINISTRATIVE - In the nine months ended June 30, 1997,
marketing, general and administrative expenses decreased $355,000, or 3%, from
the nine months ended June 30, 1996. In the first nine months of fiscal 1997,
North American marketing, and general and administrative expenses, decreased
approximately $359,000, or 4%, as compared to the first nine months of fiscal
1997 due to lower personnel related expenses and occupancy costs. European
marketing, general and administrative spending declined minimally by $9,000, due
to a favorable exchange rate variance of $172,000 and an increase in spending of
$161,000 caused by restructuring activities.
INTEREST - In the nine months ended June 30, 1997, interest expense decreased
40% to $364,000 from $607,000 the nine months ended June 30, 1996. Interest
income also decreased to $50,000, or 75% as compared to the same period in
fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL CONDITION - At June 30, 1997, the Company had approximately $1.9
million in cash and cash equivalents, which was 26% lower than cash balances at
June 30, 1996. The Company's net working capital was a negative $481,000 at June
30, 1997, as compared to $2.2 million at June 30, 1996. Other
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-(CONTINUED)
than the uncertainty of future profitability, there are no known demands,
commitments, events, or uncertainties that will result in the Company's
liquidity increasing or decreasing in any material way. However, during the
third quarter of fiscal 1997, the Company has borrowed an additional $2,300,000,
totaling $6,675,000 for the nine months ended June 30, 1997, with the notes
bearing interest at 10% per annum, from an affiliate of Howard B. Hillman, the
Company's President, Chairman of the Board and principal shareholder. In March
1997, the Company converted $4,700,000 of the outstanding related-party debt
into common stock. On May 2, 1989, the Company announced a program to
repurchase the Company's stock in the open market. The maximum cost of the
shares to be purchased was limited to $2 million. To date, 26,140 shares have
been purchased at a cost of $485,000.
The Company will require additional funds from its majority shareholder to
continue to fund future operating losses. The shareholder has committed, in
writing, to continue providing financial support at least through December 31,
1997. If the Company is not able to achieve profitability in the near future,
it will continue to be dependent on its majority shareholder for additional
funding and to continue as a going concern. The Company's long term viability
will be in jeopardy if it is not able to achieve financial independence through
improved results, or should support from its majority shareholder not continue
after December 31, 1997.
CURRENCY FLUCTUATIONS
The Company has four wholly owned subsidiaries and one branch operation. The
four subsidiaries are located in Germany, Sweden, Canada and the United Kingdom;
the branch is located in Australia. During the third quarter of fiscal 1997 the
Company completed a transaction from having a subsidiary presence in Sweden to
having a relationship with a Swedish distributor. The Company is currently in
process of liquidating its Sweden subsidiary. The Company does business in the
local currencies of these countries, in addition to other countries where the
subsidiaries may have customers. These local currency revenues and expenses are
translated into dollars for U.S. reporting purposes. A stronger U.S. dollar
will decrease the level of reported U.S. dollar revenues and expenses.
Approximately $214,000 of unfavorable exchange rate variance and a $1.1 million
decrease in revenue volume resulted in a $1.3 million decrease in non-U.S.
revenue between the quarters ended June 30, 1997 and 1996. These effects on the
Company's results of operations could become significant if the percentage of
revenues and expenses attributed to International operations increases and/or if
the dollar fluctuates significantly against international currencies. The
Company's International operations are also subject to certain risks inherent in
doing business abroad and may be adversely affected by government policies,
restrictions, or other factors.
The Company does not use foreign exchange contracts, interest rate swaps, or
options contracts. Foreign currency risk for the Company is limited to
outstanding debt owed to the Company by the subsidiaries. The Company invoices
its subsidiaries in their local currencies for products that are sold to the
subsidiaries' end customers. Upon receipt of payment from the subsidiaries, a
foreign currency gain or loss can occur. As of June 30, 1997, and 1996, the
Company had realized a gain of approximately $1,000 and a loss of $22,000,
respectively, through payments it had received from its subsidiaries.
8
PART II. OTHER INFORMATION
ITEM 6(B) REPORTS ON FORM 8-K:
None.
9
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
AUTO-TROL TECHNOLOGY CORPORATION
(Registrant)
Date: August 13, 1997 /s/Howard B. Hillman
---------------------------
Howard B. Hillman,
President
Date: August 13, 1997 /s/Mary Lou Schwab
---------------------------
Mary Lou Schwab
Vice President, Finance
10