UNITED STATES
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 period ended March 31, 2000
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 May 5, 2000: 32,323,555
Page
Part I. Financial Information Number
Item 1. Financial Statements
Independent Accountants' Report
Consolidated Statements of Operations (unaudited),
three months ended March 31, 2000 and 1999 and
six months ended March 31, 2000 and 1999 1
Consolidated Statements of Comprehensive Loss (unaudited),
three months ended March 31, 2000 and 1999 and six
months ended March 31, 2000 and 1999 1
Consolidated Balance Sheets (unaudited), March 31, 2000
and September 30, 1999 2
Consolidated Statements of Cash Flows (unaudited), six
months ended March 31, 2000 and 1999 3
Notes to Consolidated Statements 4-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-9
Part II. Other Information, Item 6(b) Reports on Form 8-k 10
Signatures 11
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
Auto-trol Technology Corporation
We have reviewed the accompanying consolidated balance sheet of Auto-trol
Technology Corporation and subsidiaries as of March 31, 2000, and the related
consolidated statements of operations and comprehensive loss for the three-month
and six month periods then ended and the consolidated statement of cash flows
for the six month period then ended. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of September 30, 1999, and the
related consolidated statements of operations, comprehensive loss, shareholders'
equity and cash flows for the year then ended (not presented herein); we
expressed an unqualified opinion on those consolidated financial statements,
with an emphasis paragraph describing the majority shareholder's commitment to
provide financial support through December 31, 2000. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
December 31, 1999, is fairly stated in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/s/ GELFOND HOCHSTADT PANGBURN, P.C.
- ------------------------------------
GELFOND HOCHSTADT PANGBURN, P.C.
Denver, Colorado
May 5, 2000
AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
Revenues:
Sales ....................................... $ 825 $ 695 $ 1,680 $ 2,015
Service ..................................... 1,097 2,331 2,310 4,668
-------- -------- -------- --------
1,922 3,026 3,990 6,683
Costs and expenses:
Cost of sales ............................... 120 225 362 480
Cost of service ............................. 47 264 314 1,189
Research and product development ............ 1,631 1,887 2,863 3,347
Marketing, general and administrative ....... 2,291 2,400 4,375 4,360
-------- -------- -------- --------
4,089 4,776 7,914 9,376
Loss from operations ............................ (2,167) (1,750) (3,924) (2,693)
Interest income ................................. 13 50 25 68
Interest expense (related party $108, $131, $241,
$385) ........................................ (163) (158) (302) (438
-------- -------- -------- --------
Loss before income taxes ........................ (2,317) (1,858) (4,201) (3,063)
-------- -------- -------- --------
Income tax expense (benefit) .................... 1 7 1
-------- -------- -------- --------
Net loss ........................................ $ (2,317) $ (1,859) $ (4,208) $ (3,064)
======== ======== ======== ========
Basic and diluted loss per share ................ (.07) (.11) (.14) (.19)
Weighted average number of basic and diluted
common shares outstanding ..................... 31,325 16,905 30,374 16,079
AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands except per share amounts)
(unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ------------------
2000 1999 2000 1999
------------------ ------------------
Net Loss .................................... $(2,317) $(1,859) $(4,208) $(3,064)
Other Comprehensive Income/(Loss) net of tax:
Foreign Currency Translation Adjustments . 270 544 (109) 789
------- ------- ------- -------
Total Comprehensive Loss .................... $(2,047) $(1,315) $(4,317) $(2,275)
======= ======= ======= =======
See Notes to Consolidated Financial Statements
1
AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands except per share amounts)
March 31, September 30,
2000 1999
(unaudited)
----------------------
ASSETS
Current Assets:
Cash and cash equivalents ........................................ $ 1,655 1,836
Receivables, net of allowance of $52 and $62 ..................... 1,729 2,264
Service Parts and prepaid Expenses ............................... 335 260
----------------------
Total current assets ........................................ 3,719 4,360
----------------------
Property, facilities and equipment:
Land ............................................................. 356 356
Building and improvements ........................................ 8,395 8,404
Machinery and equipment .......................................... 5,418 5,261
Furniture, fixtures and leasehold improvements ................... 854 851
----------------------
15,023 14,872
Less accumulated depreciation and amortization ................... (9,622) (9,256)
----------------------
5,401 5,616
Purchased software, net of accumulated amortization of $1,035 and $981 352 239
Other assets ......................................................... 54 55
----------------------
Total assets ................................................ $ 9,526 $ 10,270
======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt ................................ $ 240 $ 240
Current portion of capital lease obligations ..................... 40 40
Accounts payable ................................................. 197 678
Accrued interest payable, related party portion $133 and $532 .... 149 548
Unearned service revenue and customer deposits ................... 1,291 1,056
Accrued compensation and related taxes ........................... 216 350
Other liabilities ................................................ 779 844
----------------------
Total current liabilities ................................... 2,912 3,756
Long-term debt, related party portion $5,600 and $4,050 .............. 6,560 5,010
Capital lease obligations ............................................ 38 54
----------------------
Total liabilities ........................................... 9,510 8,820
----------------------
Shareholders' equity:
Common stock, $.02 par value; authorized 40,000,000 shares; issued
and outstanding 32,303,587 and 29,273,172 shares .............. 647 585
Additional paid-in capital ....................................... 105,726 102,905
Accumulated other comprehensive loss ............................. (424) (315)
Accumulated deficit .............................................. (105,933) (101,725)
----------------------
Total shareholders' equity .................................. 16 1,450
----------------------
$ 9,526 $ 10,270
======================
See Notes to Consolidated Financial Statements
2
AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
March 31,
2000 1999
------------------
Cash flow from operating activities:
Net loss .................................................................. $(4,208) $(3,470)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization ............................................. 488 319
Provision for bad debt .................................................... 23
Loss (gain) on disposal of property, facilities and equipment ............. (4) 0
Changes in operating assets and liabilities
Receivables .......................................................... 648 397
Service parts and prepaid expenses ................................... (154) 68
Accounts payable ..................................................... (478) (101)
Accrued interest payable ............................................. (399) 82
Unearned service revenue and customer deposits ....................... 230 (291)
Other liabilities .................................................... (185) (145)
------------------
Net cash used by operating activities ........................................... (4,039) (3,141)
Cash flows from investing activities:
Capital expenditures ...................................................... (409) 515
Other assets .............................................................. (129) 92
------------------
Net cash used by investing activities ........................................... (538) 607
Cash flows from financing activities:
Proceeds from issuance of notes payable ................................... 4,550 1,042
Payments on notes payable, capital leases and long-term debt .............. (16) 0
Proceeds from issuance of common stock .................................... 1 2,000
------------------
Net cash provided by financing activities ....................................... 4,535 3,042
Effect of exchange rate changes on cash ......................................... (139) (10)
------------------
Net increase (decrease) in cash and cash equivalents ............................ (181) 498
Cash and cash equivalents at the beginning of the year .......................... 1,836 1,325
------------------
Cash and cash equivalents at the end of the period .............................. $ 1,655 $ 1,823
==================
Supplemental disclosure of cash flow information:
Cash paid for interest during the period .................................. $ 701 $ 398
==================
Supplemental schedule of non-cash investing and financing activities:
Conversion of related party debt to common stock .......................... $ 3,000
=======
See Notes to Consolidated Financial Statements
3
AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
(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-QSB.
Financial information as of September 30, 1999 has been derived from the audited
consolidated financial statements of Auto-trol Technology Corporation and
subsidiaries (the Company).
The accompanying unaudited 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, 1999 included in Form 10-KSB 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 six month periods ending March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending September 30,
2000.
(2) Loss Per Share
The provisions of Statement of Financial Accounting Standards No. 128, Earnings
Per Share, are effective for financial statements for interim periods ending
after December 15, 1997. Basic loss per share is computed on the basis of
weighted-average common shares outstanding. Diluted loss per share is the same
as basic loss per share for the three and six month periods ending March 31,
2000 and 1999, as no dilutive common stock equivalents were outstanding.
(3) Changes in Borrowings and Shareholder's Equity
An additional $4.6 million was borrowed from the related party for the six
months ended 3/31/00. $3.0 million of the debt to the related party was
converted to 3,025,641 shares of common stock during the six months ended
3/31/00. At the conversion dates, the per share conversion prices were greater
than the quoted market prices of the Company's stock. During the quarter ended
March 31, 2000, the Company also issued 4,744 shares of common stock in exchange
for approximately $1,000 cash.
4
(4) Litigation
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material effect on the financial
statements of the Company.
On March 17, 1982, the Company entered into a License/Exchange Agreement ("the
Agreement") with J. Fox Inc., an independent third party which provided the
Company with a license to certain computer programs. Under the terms of the
Agreement, the Company was required to pay royalties based on a percentage of
revenues from sales and maintenance for the computer programs sold. Subsequent
to the execution of the Agreement, the computer programs became obsolete. In
February 1999, the Company filed a motion with the Denver District Court to
declare the agreement terminated. Upon filing this motion, a counter claim was
initiated against the Company for approximately $2,000,000. While it is not
possible to predict the outcome of this case, it is the opinion of the Company's
management that the counter/claim is without merit and that it will not have a
material adverse effect in the Company's consolidated financial statements.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the following
discussions contain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. The Company undertakes no obligation to revise any
forward-looking statements in order to reflect events or circumstances that may
subsequently arise. Some additional factors, among others, are: the likelihood
that actual future revenues that are realized may differ from those inferred
from existing total backlog; the ability of the Company to attract and retain
highly trained professional employees; the delay or deferral of customer
implementations; the Company's success in expanding its direct sales force and
indirect distribution channels; the timing of new product introductions and
product enhancements by the Company and its competitors; the mix of products and
services sold; levels of international sales; the ability of the Company to
develop and market new products and control costs and general domestic and
international economic and political conditions.
Results of Operations
Overview
Operating losses for the second quarter ended March 31, 2000 continued and
increased $458,000 as compared to the second quarter ended March 31, 1999. The
company continues to believe that its Product Data Management (PDM), Electronic
Publishing Solutions (EPS) and when it is completed, network configuration
products, will present a unique complementary combination that will
differentiate the Company from its competitors.
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. The Company believes that its products are competitive both
functionally and from a pricing perspective. 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.
The three months ended March 31, 2000 compared to three months ended March 31,
- --------------------------------------------------------------------------------
1999
- ----
Revenues - For the quarter ended March 31, 2000, total sales and
service revenue decreased $1,104 or 4.7%, from the quarter ended March 31, 1999.
In Thousands
Three Months Ended Increase/
March 31, 2000 March 31, 1999 Decrease %
-------------- -------------- -------- -------
Sales Revenue: $ 825 $ 695 $ 130 18.7%
Service Revenue: 1,097 2,331 (1,234) (52.9%)
------- ------- ------- ------
$ 1,922 $ 3,026 $(1,104) (36.4%)
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-(continued)
Cost of Sales and Service - For the second quarter ended March 31, 2000, gross
profit margins on total revenue increased to 91.3% from 83.8% for the second
quarter ended March, 1999.
In Thousands
Three Months Ended Increase/
March 31, 2000 March 31, 1999 (Decrease) %
-------------- -------------- ---------- ------
Sales
Gross Profit $ 705 $ 470 $ 235 50%
Service
Gross Profit 1,050 2,067 (1,017) (49.2%)
------- ------- ------- ------
$ 1,755 $ 2,537 $ (782) (30.8%)
Research and Product Development - Research and development expenses were
approximately 84.9% of revenue for the quarter ended March 31, 2000 and 59.5% of
revenue for the quarter ended December 31, 1999. Total research and development
expense decreased by 13.6% or $256,000 in the second quarter ended March 31,
1999 compared to the previous year's second quarter.
Marketing, General, and Administrative - In the second quarter ended March 31,
2000, marketing, general and administrative expenses decreased $109,000, or
4.5%, from the second quarter ended March 31, 1999.
Interest - In the quarter ended March 31, 2000, interest expense increased
$5,000 from the quarter ended March 31, 1999 as a result of increased
borrowings. Interest income decreased $37,000 as compared to the second quarter
of fiscal 1999.
The six months ended March 31, 2000 compared to six months ended March 31, 1999
- --------------------------------------------------------------------------------
Revenues - For the quarter ended March 31, 2000, total sales and service revenue
decreased $2,693,000 or 40.3%, from the quarter ended March 31, 1999.
In Thousands
Six Months Ended Increase/
March 31, 2000 March 31, 1999 Decrease %
-------------- -------------- -------- ------
Sales Revenue: $ 1,680 $ 2,015 $ (335) (16.6%)
Service Revenue: 2,310 4,668 (2,358) (50.5%)
------- ------- ------- ------
$ 3,990 $ 6,683 $(2,693) (40.3%)
Cost of Sales and Service - For the six months ended March 31, 2000, gross
profit margins on total revenue increased to 83% from 75% for the six months
ended March 31, 1999. Gross profit margins on sales revenue for the six months
ending March 31, 2000, increased 78.5% from 76.1% for the six months ended March
31, 1999.
Gross profit margins for total service revenue in the six months of fiscal 2000
decreased $1,483,000 yielding a gross margin of 86.4%, as compared to a gross
margin of 74.5% in the six months of fiscal 1999.
Research and Product Development - Research and development expenses were
approximately 71.8% of revenue for the six months ended March 31, 2000 and 50%
of revenue for the six months ended March 31, 1999. Total research and
development expense decreased by 14.5% or $484,000 in the first six months ended
March 31, 2000 compared to the previous year's six months.
7
Marketing, General, and Administrative - In the six months ended March 31, 2000,
marketing, general and administrative expenses increased $15,000, or .3%, from
the six months ended March 31, 1999.
Interest - In the six months ended March 31, 2000, interest expense decreased
$136,000 from the six months ended March 31, 1999 as a result of debt to equity
conversion. Interest income decreased $43,000 as compared to the six months of
fiscal 1999, due to reduced investments.
Liquidity and Capital Resources
Financial Condition - At March 31, 2000, the Company had approximately
$1,655,000 in cash and cash equivalents, which was 9.8% lower than cash balances
of $1,836,000 at September 30, 1999. The Company's net working capital was
$807,000 at March 31, 2000, as compared to a working capital of $604,000 at
September 30, 1999. Other 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. At March
31, 2000, the Company had outstanding related party debt of $5,600,000 from an
affiliate of Howard B. Hillman, the Company's President, Chairman of the Board
and principle shareholder. 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, 2000. If the Company does not 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, 2000.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-(continued)
Currency Fluctuations
The Company has three wholly owned International subsidiaries and one branch
operation. The three subsidiaries are located in Germany, Canada and the United
Kingdom; the branch is located in Australia. The Company does business in the
local currencies of these countries, in addition to other countries where the
subsidiaries may have customers, such as Norway, Switzerland, Japan and Italy.
These local currency revenues and expenses are translated into dollars for U.S.
reporting and consolidation purposes.
The Company does not use foreign exchange contracts, interest rate swaps, or
option 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. For the second three months ended March
31, 2000, the Company had realized a loss of approximately $30,872 through
payments it had received from its subsidiaries as compared to a $10,202 loss for
the same period in 1999.
9
PART II. OTHER INFORMATION
Item 6(b) Reports on Form 8-k
No reports on Form 8-k were filed during the quarter for which this report is
filed.
10
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: May 08, 2000 /s/ Howard B. Hillman
- ------------------ ---------------------
Howard B. Hillman,
Chairman of the Board, President
(Principal Executive and Financial Officer and
Principal Accounting Officer)
11