-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CdAxsc2ArMooxntKLmioy/todE72bi5RATxnlTwLuFNhLb4X0YMPKoauu7dSZuOe HGALM6mzTqRUEgb19ulhog== 0000912057-97-027368.txt : 19970814 0000912057-97-027368.hdr.sgml : 19970814 ACCESSION NUMBER: 0000912057-97-027368 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALTRIS SOFTWARE INC CENTRAL INDEX KEY: 0000813747 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 953634089 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15935 FILM NUMBER: 97657631 BUSINESS ADDRESS: STREET 1: 9339 CARROLL PARK DR CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6196253000 MAIL ADDRESS: STREET 1: ALPHAREL INC /CA/ STREET 2: 9339 CARROLL PARK DR CITY: SAN DIEGO STATE: CA ZIP: 92121 FORMER COMPANY: FORMER CONFORMED NAME: ALPHAREL INC /CA/ DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-15935 ALTRIS SOFTWARE, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) CALIFORNIA 95-3634089 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 9339 CARROLL PARK DRIVE, SAN DIEGO, CA 92121 ----------------------------------------------------- (Address of principal executive offices and zip code) (619) 625-3000 --------------------------------------------------- (Registrants 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. YES X NO ------- ------- Number of shares of Common Stock outstanding at July 31, 1997: 9,575,944 -------------- Number of Sequentially Numbered Pages: 16 Exhibit Index at Page 15 1 ALTRIS SOFTWARE, INC. INDEX
Page Number ----------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheet 3 Consolidated Statement of Operations 4 Consolidated Statement of Cash Flows 5 Notes to the Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION 13
2 ALTRIS SOFTWARE, INC. PART I. FINANCIAL INFORMATION CONSOLIDATED BALANCE SHEET
June 30, 1997 December 31, 1996 ------------- ----------------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 6,696,000 $ 2,200,000 Short term investments - 90,000 Receivables, net 13,078,000 9,752,000 Inventory, net 411,000 443,000 Other current assets 943,000 641,000 ------------ ------------ Total current assets 21,128,000 13,126,000 Property and equipment, net 2,121,000 2,156,000 Computer software, net 2,676,000 2,252,000 Goodwill, net 4,546,000 4,972,000 Other assets 1,293,000 385,000 ------------ ------------ $ 31,764,000 $ 22,891,000 ------------ ------------ ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,941,000 $ 2,614,000 Accrued liabilities 1,960,000 1,643,000 Notes payable 1,218,000 710,000 Deferred revenue 901,000 1,188,000 ------------ ------------ Total current liabilities 8,020,000 6,155,000 Long term notes payable 1,243,000 1,203,000 Other long term liabilities 256,000 763,000 Subordinated debt 3,000,000 - ------------ ------------ Total liabilities 12,519,000 8,121,000 ------------ ------------ Commitments Shareholders' equity: Preferred stock, $1 par value, 3,000 shares authorized; 3,000 shares issued and outstanding 2,686,000 - Common stock, no par value, 20,000,000 shares authorized; 9,575,944 and 9,559,944 issued and outstanding, respectively 61,639,000 61,583,000 Common stock warrants 585,000 - Foreign currency translation adjustment 176,000 112,000 Accumulated deficit (45,841,000) (46,925,000) ------------ ------------ Total shareholders' equity 19,245,000 14,770,000 ------------ ------------ $ 31,764,000 $ 22,891,000 ------------ ------------ ------------ ------------
See accompanying notes to the consolidated financial statements. 3 ALTRIS SOFTWARE, INC. CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
For the three months For the six months ended June 30, ended June 30, --------------------------- ---------------------------- 1997 1996 1997 1996 ------------ ------------ ------------- ------------- Revenues $ 7,076,000 $ 6,106,000 $ 13,691,000 $ 12,167,000 Cost of revenues 2,680,000 2,133,000 5,551,000 4,646,000 ------------ ------------ ------------- ------------- Gross profit 4,396,000 3,973,000 8,140,000 7,521,000 ------------ ------------ ------------- ------------- Operating expenses: Research and development 1,030,000 849,000 1,842,000 1,756,000 Marketing and sales 1,936,000 1,394,000 3,576,000 2,647,000 General and administrative 787,000 854,000 1,516,000 1,565,000 Write-off of certain offering costs 270,000 - 270,000 - ------------ ------------ ------------- ------------- Total operating expenses 4,023,000 3,097,000 7,204,000 5,968,000 ------------ ------------ ------------- ------------- Income from operations 373,000 876,000 936,000 1,553,000 Interest and other income 30,000 20,000 52,000 46,000 Interest and other expense (58,000) (21,000) (109,000) (47,000) ------------ ------------ ------------- ------------- Income before income taxes $ 345,000 875,000 879,000 1,552,000 Income tax benefit (205,000) - (205,000) - ------------ ------------ ------------- ------------- Net income $ 550,000 $ 875,000 $ 1,084,000 $ 1,552,000 ------------ ------------ ------------- ------------- ------------ ------------ ------------- ------------- Net income per share $ .06 $ .09 $ .11 $ .17 ------------ ------------ ------------- ------------- ------------ ------------ ------------- ------------- Weighted average shares 9,622 9,594 9,634 9,234 outstanding
See accompanying notes to the consolidated financial statements. 4 ALTRIS SOFTWARE, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
For the six months ended June 30, -------------------------------- 1997 1996 ------------ ------------ Cash flow from operating activities: Net income $ 1,084,000 $ 1,552,000 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 1,137,000 956,000 Changes in assets and liabilities: Receivables, net (3,326,000) (3,950,000) Inventory, net 32,000 14,000 Other assets (316,000) (49,000) Accounts payable 1,327,000 (691,000) Accrued liabilities 317,000 (906,000) Deferred revenue (287,000) (410,000) Other long term liabilities (507,000) (171,000) ------------ ------------ Net cash used in operating activities (539,000) (3,655,000) ------------ ------------ Cash flows from investing activities: Sale of short term investment 85,000 180,000 Purchases of property and equipment (303,000) (764,000) Purchases of software (41,000) (15,000) Computer software capitalized (746,000) (466,000) ------------ ------------ Net cash used in investing activities (1,005,000) (1,065,000) ------------ ------------ Cash flows from financing activities: Principal payment under cash advanced by a bank related to former Optigraphics shareholder notes payable - (1,634,000) Repayments under notes payable (257,000) (78,000) Net borrowings under revolving loan and bank agreements 805,000 - Proceeds from exercise of stock options 56,000 699,000 Net proceeds from issuance of preferred stock 2,686,000 1,908,000 Net proceeds from issuance of subordinated debt 2,686,000 - ------------ ------------ Net cash provided by financing activities 5,976,000 895,000 ------------ ------------ Effect of exchange rate changes on cash 64,000 70,000 ------------ ------------ Net increase (decrease) in cash and cash equivalents 4,496,000 (3,755,000) Cash and cash equivalents at beginning of period 2,200,000 4,656,000 ------------ ------------ Cash and cash equivalents at end of period $ 6,696,000 $ 901,000 ------------ ------------ ------------ ------------ Supplemental cash flow information: Interest paid $ 85,000 $ 37,000 ------------ ------------ ------------ ------------ Schedule of non-cash financing activities: Conversion of Preferred Stock and note payable to Common Stock $ - $ 5,003,000 ------------ ------------ ------------ ------------ Issuance of common stock warrants in connection with private placement $ 585,000 $ - ------------ ------------ ------------ ------------
See accompanying notes to the consolidated financial statements. 5 ALTRIS SOFTWARE, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - BASIS OF PRESENTATION The accompanying consolidated balance sheet of Altris Software, Inc. (the "Company") as of June 30, 1997 and the consolidated statement of operations and of cash flows for the three and six month periods ended June 30, 1997 and 1996 are unaudited. The consolidated financial statements and related notes have been prepared in accordance with generally accepted accounting principles applicable to interim periods. In the opinion of management, the consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the consolidated financial position, operating results and cash flows for the periods presented. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. NOTE 2 - NET INCOME PER SHARE Net income per share is computed on the basis of weighted average shares and common stock equivalent shares outstanding for each period presented, if dilutive. In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings per Share," which establishes standards for computing and presenting earnings per share ("EPS"). SFAS No. 128 will be adopted by the Company as required for the interim period and fiscal year ending December 31, 1997. Upon adoption of SFAS No. 128, the Company will present basic EPS as well as diluted EPS in the period of adoption and restate all prior-period EPS data presented for comparative purposes. Basic EPS will be computed by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding. Diluted EPS will be computed similar to basic EPS except that the weighted average number of shares of common stock outstanding will be increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. The pro forma EPS calculations based upon SFAS No. 128 are indicated below:
For the three months For the six months ended June 30, ended June 30, -------------------- -------------------- 1997 1996 1997 1996 --------- --------- --------- --------- BASIC EARNINGS PER COMMON SHARE Net income per share $ .06 $ .10 $ .11 $ .18 --------- --------- --------- --------- --------- --------- --------- --------- Weighted average shares 9,574,000 9,202,000 9,570,000 8,848,000 DILUTED EARNINGS PER COMMON SHARE Net income per share $ .06 $ .09 $ .11 $ .17 --------- --------- --------- --------- --------- --------- --------- --------- Weighted average shares 9,622,000 9,594,000 9,634,000 9,234,000
NOTE 3 - INVENTORY Inventory consists of parts, supplies and subassemblies and is stated at the lower of cost or market value. Cost is determined using the first-in, first-out (FIFO) method. As of June 30, 1997 and December 31, 1996, the Company's reserve against excess quantities totaled $572,000 and $552,000, respectively. 6 NOTE 4 - NOTES PAYABLE At June 30, 1997, the Company had outstanding an 11.5% Subordinated Debenture in principal amount of $3,000,000 (the "Subordinated Debenture"). The Subordinated Debenture, which was issued to a lender on June 27, 1997 at 100% of par, provides for quarterly interest payments with a maturity date of June 27, 2002. The Company may prepay the Subordinated Debenture prior to maturity without penalty. In connection with the issuance of the Subordinated Debenture, the Company granted to the lender warrants to purchase 300,000 shares of its common stock at an exercise price of $6.00 per share, exercisable at any time on or before June 27, 2002. In addition, the Company has agreed to grant to the lender additional warrants to purchase 50,000 shares of its common stock at an exercise price of $7.00 per share on June 27, 2000 if the Subordinated Debenture then remains outstanding and on each anniversary thereafter on which the Subordinated Debenture remains outstanding (any such additional warrants expire on the fifth anniversary of the date of grant). In October 1996 and September 1995, the Company entered into revolving loan and security agreements, each providing for borrowings of up to $1,000,000. The maximum credit available under one facility declines by $200,000 in September of each year beginning in 1996. Each loan balance is payable in monthly installments of $16,667. At June 30, 1997, $1,643,000 was outstanding under these agreements. Total borrowings under the revolving loan and security agreements are collateralized by the Company's assets and interest is calculated based on the 30-day Commercial Paper Rate plus 2.95% (8.57% at June 30, 1997). The revolving loan and security agreements contain certain restrictive covenants including, without limitation, a covenant requiring the Company to maintain a certain ratio of debt to tangible net worth. In September 1996, the Company's United Kingdom subsidiary renewed an overdraft facility with a bank with interest payable quarterly at 2.5% per annum over the bank's base rate (9.0% at June 30, 1997). The facility expires in August 1997 with any remaining balance due and payable on August 31, 1997. At June 30, 1997, $518,000 was outstanding under this facility. The Company's property and assets secure repayment of borrowings under the facility, and the Company has executed a guarantee of up to $500,000 in connection with the facility. At December 31, 1995, the Company had an outstanding payable for cash advanced by a bank which acted as paying agent for the notes due to former shareholders of the Company's Optigraphics subsidiary (which notes were issued in connection with the Company's acquisition of Optigraphics Corporation in September 1993) having a principal balance of $1,634,000 payable on demand. The notes, which had an original maturity of September 1995 and provided for interest payable quarter at 6% per annum, were paid in full in January 1996. At December 31, 1995, the Company had outstanding a note in principal amount of $1,000,000 convertible at any time into the Company's common stock at the rate of $8 per share. The convertible note, which accrued interest at the rate of 7% per annum and was due on September 27, 1996, was issued in connection with the Company's acquisition of Trimco Group plc in December 1995. In February 1996, the holder converted the note into 125,000 shares of the Company's common stock. The Company does not have any remaining obligations with respect to this note. NOTE 5 - PREFERRED STOCK In June 1997, the Company issued 3,000 shares of its Series D Convertible Preferred Stock (the "Series D Preferred Stock") in a private placement that was exempt from registration under the securities laws. In consideration for the issuance and sale of the Series D Preferred Stock, the Company received $3,000,000 in cash proceeds before expenses. The Series D Preferred Stock bears a dividend of 11.5% per annum, accruing quarterly, and is convertible into shares of the Company's common stock at a conversion price of $6 per share of common stock (subject to reset on June 27, 1999 to a lower conversion price if the average closing price of the common stock on the 20 trading days immediately prior to June 27, 1999 is less than $6 per share). The Company may redeem any or all of the Series D Preferred Stock at its stated value on or after June 27, 1999 at any time the 20-day average of the closing price of the common stock equals or exceeds $9.50 per share. Additionally, the Company may redeem any or all of the Series D Convertible Preferred Stock on or after June 27, 2002 at its stated value irrespective of the trading price of its common stock. In connection with the issuance of the Series D Preferred Stock, the Company has agreed to grant to the purchaser of the Series D Preferred Stock warrants to purchase the following number of shares of its common stock in the event 7 that the Series D Preferred Stock has not been redeemed or converted in full on or prior to each of the following dates: (i) 50,000 shares, at an exercise price of $7.00 per share, on June 27, 2000; (ii) 50,000 shares, at an exercise price of $7.00 per share, on June 27, 2001; (iii) 250,000 shares, at an exercise price equal to the trading price per share at the issuance of the warrant, on July 17, 2002; and (iv) 250,000 shares, at an exercise price equal to the trading price per share at the issuance of the warrant, on June 27, 2003. Any such warrants which may be issued will be exercisable until the fifth anniversary of the date of grant. In April 1996, the Company issued 100,000 shares of its Series C Convertible Preferred Stock in an offshore private placement to a purchaser who is not a resident of the United States. In consideration for the issuance and sale of the Series C Preferred Stock, the Company received $2,000,000 in cash proceeds before expenses. In June 1996, 37,500 shares of Series C Preferred Stock were converted into 72,726 shares of common stock. In July 1996, the remaining 62,500 shares of Series C Preferred Stock plus accrued dividends were converted into 163,274 shares of common stock. In December 1995, the Company issued 172,500 shares of its Series B Convertible Preferred Stock for total proceeds of $3,450,000 before expenses. In February 1996, the 172,500 shares of Series B Preferred Stock were converted into 406,617 shares of common stock. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE AND SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH THE THREE AND SIX MONTHS ENDED JUNE 30, 1996. Revenues Revenues for the three and six months ended June 30, 1997 were $7,076,000 and $13,691,000, respectively, as compared to $6,106,000 and $12,167,000 for the three and six months ended June 30, 1996. The increase of 16% and 13%, respectively, in revenues for the three and six months ended June 30, 1997 is primarily due to revenues generated by software licenses. For the three and six months ended June 30, 1997 revenues consisted of $3,762,000 (53%) and $7,049,000 (51%), respectively, in new system revenues and $3,314,000 (47%) and $6,642,000 (49%), respectively, related to system enhancements, expansion and maintenance. This compares to $4,185,000 (69%) and $7,521,000 (62%), respectively, in new system revenues and $1,921,000 (31%) and $4,646,000 (38%), respectively, related to system enhancements, expansion and maintenance, for the three and six months ended June 30, 1996. The increase in system enhancements, expansion and maintenance in the second quarter 1997 is primarily due to a large expansion order from a leading financial institution and several other significant customers expanding their systems. A small number of customers have typically accounted for a large percentage of the Company's annual revenues. In the first six months of 1997, one customer accounted for 10% of total revenues, and in the first six months of 1996, one customer accounted for 15% of total revenues. One consequence of this dependence has been that revenues can fluctuate significantly on a quarterly basis. The Company's reliance on relatively few customers could have a material adverse effect on the results of its operations on a quarterly basis. Additionally, a significant portion of the Company's revenues has historically been derived from the sale of systems to new customers. Gross Profit Gross profit as a percentage of revenues was 62% and 59% for the three months and six months ended June 30, 1997 compared to 65% and 62% for the same periods a year ago. The decrease in gross profit margin was due primarily to increased third party software costs compared to the prior year. Software license revenue was $4,532,000 (64%) and $8,552,000 (62%) of total revenues for the three and six months ended June 30, 1997 compared to $4,187,000 (69%) and $7,474,000 (64%) of total revenues in the same periods in 1996. The higher margin of the software sales was offset partially by lower margin hardware sales of $514,000 and $1,082,000 for the three and six months ended June 30, 1997 as compared to $138,000 and $819,000 for the same periods in 1996. Service revenues, which include maintenance, training and consulting services, increased to $2,030,000 and $4,057,000 for the three and six months ended June 30, 1997 from $1,781,000 and $3,874,000 for the same periods in 1996. Software and services are sold at a significantly higher margin than third party products which are resold at a lower gross profit percentage in order for the Company to remain competitive in the marketplace for such third party products. Gross profit percentage can fluctuate quarterly based on the revenue mix of Company software, services, proprietary hardware and third party software or hardware. Operating Expenses Research and development expense for the three and six months ended June 30, 1997 was $1,030,000 and $1,842,000 as compared to $849,000 and $1,756,000 for the same periods in the prior year. Research and development expense can vary year to year based on the amount of engineering service contract work required for customers versus purely internal development projects. It may also vary based on internal development projects in which technological feasibility and marketability of a product are established. These costs are capitalized and then amortized when the product is available for general release to customers. Technical expenses on customer-funded projects are included in cost of revenues, while expenses on internal projects are included in research and development expense. For the three and six months ended June 30, 9 1997, technical expenses on customer-funded projects were $948,000 and $1,652,000, respectively, versus $741,000 and $1,475,000, respectively, for the same period last year. Marketing and sales expense for the three and six months ended June 30, 1997 was $1,936,000 and $3,576,000 as compared to $1,394,000 and $2,647,000 for the three and six months ended June 30, 1996. This increase is primarily attributable to additional marketing and promotional costs incurred in connection with the initial marketing of the new Altris EB-TM- product suite, the Company's next generation document management software, and efforts to increase name recognition for the new "Altris" name. In addition, the increase is attributable to additional sales and support personnel hired and costs associated therewith to support the Company's revenue growth. General and administrative expense for the three and six months ended June 30, 1997 decreased to $787,000 and $1,516,000 from $854,000 and $1,565,000 for the three and six months ended June 30, 1996. The decrease in general and administrative expense was due primarily to a reduction in administrative personnel and related employee benefit costs. During the second quarter of 1997, the Company wrote-off certain offering costs, resulting in a one-time charge to operations in the amount of $270,000. The costs that were written-off were not directly related to the private placement that occurred during the second quarter of 1997. This one-time charge; however, was partially offset by the income tax benefit of $205,000 that resulted from the realization of an asset that had been previously written-down. Interest and Other Income Interest and other income was $30,000 and $52,000 for the three and six months ended June 30, 1997 which was comparable to $20,000 and $46,000 in the prior year. Interest and Other Expense Interest and other expense was $58,000 and $109,000 for the three and six months ended June 30, 1997 as compared to $21,000 and $47,000 in the prior year. The increase is due primarily to a higher debt balance coupled with a higher rate of interest paid on the Company's debt in 1997 as compared to 1996. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1997, the Company's cash and cash equivalents totaled $6,696,000 as compared to $2,200,000 at December 31, 1996. At June 30, 1997, the Company's current ratio was 2.6 to 1. For the first six months of 1997, cash provided by financing activities totaled $5,976,000 while cash used in operating and investing activities totaled $539,000 and $1,005,000, respectively. For the first six months of 1996, cash used in operating and investing activities totaled $3,655,000 and $1,065,000, respectively, while cash provided by financing activities totaled $895,000. On December 27, 1995, the Company acquired Trimco Group plc. The cash portion of the consideration paid to Trimco shareholders totaled $5,550,000. As part of the transaction, the Company also issued a convertible note due in September 1996, having a principal balance of $1,000,000 with interest payable at 7% per annum. In February 1996, the note was converted into 125,000 shares of the Company's common stock. In addition, in connection with the transaction, the Company assumed an accrued liability of $1,051,000 payable to certain Trimco employees, which the Company paid in full in January 1996. In June 1997, the Company issued 3,000 shares of its Series D Convertible Preferred Stock (the "Series D Preferred Stock") in a private placement that was exempt from registration under the securities laws. In consideration for the issuance and sale of the Series D Preferred Stock, the Company received $3,000,000 in cash proceeds before expenses. The Series D Preferred Stock bears a dividend of 11.5% per annum, accruing quarterly, and is convertible into shares of the Company's common stock at a conversion price of $6 per share of common stock (subject to reset on June 27, 1999 to a lower conversion price if the average closing price of the common stock on the 20 trading days immediately prior to June 27, 1999 is less than $6 per share). The Company may redeem any or all of the Series D Preferred Stock at its stated value on or after June 27, 1999 at any time the 20-day average of the closing price of the common stock equals or exceeds 10 $9.50 per share. Additionally, the Company may redeem any or all of the Series D Convertible Preferred Stock on or after June 27, 2002 at its stated value irrespective of the trading price of its common stock. In connection with the issuance of the Series D Preferred Stock, the Company has agreed to grant to the purchaser of the Series D Preferred Stock warrants to purchase the following number of shares of its common stock in the event that the Series D Preferred Stock has not been redeemed or converted in full on or prior to each of the following dates: (i) 50,000 shares, at an exercise price of $7.00 per share, on June 27, 2000; (ii) 50,000 shares, at an exercise price of $7.00 per share, on June 27, 2001; (iii) 250,000 shares, at an exercise price equal to the trading price per share at the issuance of the warrant, on July 17, 2002; and (iv) 250,000 shares, at an exercise price equal to the trading price per share at the issuance of the warrant, on June 27, 2003. Any such warrants which may be issued will be exercisable until the fifth anniversary of the date of grant. In addition, the Company had outstanding an 11.5% Subordinated Debenture in principal amount of $3,000,000 (the "Subordinated Debenture") at June 30, 1997. The Subordinated Debenture, which was issued to a lender on June 27, 1997 at 100% of par, provides for quarterly interest payments with a maturity date of June 27, 2002. The Company may prepay the Subordinated Debenture prior to maturity without penalty. In connection with the issuance of the Subordinated Debenture, the Company granted to the lender warrants to purchase 300,000 shares of its common stock at an exercise price of $6.00 per share, exercisable at any time on or before June 27, 2002. In addition, the Company has agreed to grant to the lender additional warrants to purchase 50,000 shares of its common stock at an exercise price of $7.00 per share on June 27, 2000 if the Subordinated Debenture then remains outstanding and on each anniversary thereafter on which the Subordinated Debenture remains outstanding (any such additional warrants expire on the fifth anniversary of the date of grant). The Company believes that current working capital and funds generated from operations will be adequate to meet expected needs for working capital and capital expenditures over at least the next twelve months along with continuing to expand the Company's market penetration with its next-generation product suite and to increase name recognition of the Company's new name. Net Operating Loss Tax Carryforwards As of December 31, 1996, the Company had a net operating loss carryforward ("NOL") for federal and state income tax purposes of $31,700,000 and $7,000,000, respectively. In addition, the Company generated but has not used research and investment tax credits for federal income tax purposes of approximately $500,000. Under the Internal Revenue Code of 1986, as amended (the "Code"), the Company generally would be entitled to reduce its future Federal income tax liabilities by carrying unused NOL forward for a period of 15 years to offset future taxable income earned, and by carrying unused tax credits forward for a period of 15 years to offset future income taxes. However, the Company's ability to utilize any NOL and credit carryforwards in future years may be restricted in the event the Company undergoes an "ownership change," generally defined as a more than 50 percentage point change of ownership by one or more statutorily defined "5-percent stockholders" of a corporation, as a result of future issuances or transfers of equity securities of the Company within a three-year testing period. In the event of an ownership change, the amount of NOL attributable to the period prior to the ownership change that may be used to offset taxable income in any year thereafter generally may not exceed the fair market value of the Company immediately before the ownership change (subject to certain adjustments) multiplied by the applicable long-term, tax-exempt rate announced by the Internal Revenue Service in effect for the date of the ownership change. A further limitation would apply to restrict the amount of credit carryforwards that might be used in any year after the ownership change. As a result of these limitations, in the event of an ownership change, the Company's ability to use its NOL and credit carryforwards in future years may be delayed and, to the extent the carryforward amounts cannot be fully utilized under these limitations within the carryforward periods, these carryforwards will be lost. Accordingly, the Company may be required to pay more Federal income taxes or to pay such taxes sooner than if the use of its NOL and credit carryforwards were not restricted. Over the past three years the Company has issued equity securities in connection with the issuance of convertible preferred stock and warrants to purchase common stock in June 1997, the Trimco acquisition in December 1995, the Optigraphics acquisition in September 1993 and through traditional stock option grants to employees. Although there was no "ownership change" in 1996, this activity, combined with the liquidity available to stockholders, increases the potential for an "ownership change" for income tax purposes. 11 In connection with the acquisition of Trimco, the Company acquired deferred tax assets of approximately $926,000. The Company has recorded a $626,000 valuation allowance, offsetting the deferred tax assets. Any future recognition of acquired tax benefits will be used first to reduce any remaining goodwill and other intangible assets related to the acquisition; once those assets are reduced to zero, the benefit will be included as a reduction of the Company's income tax provision. In connection with the acquisition of Optigraphics, the Company acquired Optigraphics' NOL of $9,500,000 for federal income tax purposes. As a result of the change in ownership of Optigraphics, $8,000,000 of the NOL is limited whereby the Company may only utilize approximately $500,000 annually to offset future taxable income of Optigraphics. The remaining portion of Optigraphics' NOL does not have any annual limitation. Inflation The Company believes that inflation has not had a material effect on its operations to date. Although the Company enters into fixed-price contracts, management does not believe that inflation will have a material impact on its operations for the foreseeable future, as the Company takes into account expected inflation in its contract proposals and is generally able to project its costs based on forecasted contract requirements. 12 PART II. OTHER INFORMATION ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K: (a) Exhibits - See Exhibit Index on Page 15. (b) Form 8-K, dated June 27, 1997. 13 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. ALTRIS SOFTWARE, INC. By: /s/John W. Low -------------------------------- John W. Low Chief Financial Officer Dated: August 12, 1997 ----------------------------- 14 EXHIBIT INDEX EXHIBIT 11 Statement Re Computation of Net Income Per Share 15 EX-11 2 EXHIBIT 11, STATEMENT RE. COMP OF NET INCOME/SHARE EXHIBIT 11 ALTRIS SOFTWARE, INC. STATEMENT RE COMPUTATION OF NET INCOME PER SHARE (Unaudited)
For the three months For the six months ended June 30, ended June 30, ------------------------- --------------------------- 1997 1996 1997 1996 ---------- ---------- ------------ ------------- Net income per consolidated financial statements $ 550,000 $ 875,000 $ 1,084,000 $ 1,552,000 ---------- ---------- ------------ ------------- ---------- ---------- ------------ ------------- Primary net income per share: Weighted average common shares 9,574,000 9,202,000 9,570,000 8,848,000 Common stock equivalents: Common stock options 48,000 304,000 64,000 342,000 Convertible preferred stock - 88,000 - 44,000 Common stock warrants - - - - ---------- ---------- ------------ ------------- Weighted average shares outstanding 9,622,000 9,594,000 9,634,000 9,234,000 ---------- ---------- ------------ ------------- ---------- ---------- ------------ ------------- Fully diluted net income per share: Weighted average common shares 9,574,000 9,202,000 9,570,000 8,848,000 Common stock equivalents: Common stock options 95,000 304,000 92,000 342,000 Convertible preferred stock 5,000 88,000 3,000 44,000 Common stock warrants - - - - ---------- ---------- ------------ ------------- Weighted average shares outstanding 9,674,000 9,594,000 9,665,000 9,234,000 ---------- ---------- ------------ ------------- ---------- ---------- ------------ ------------- Net income per share: Primary $ .06 $ .09 $ .11 $ .17 ---------- ---------- ------------ ------------- ---------- ---------- ------------ ------------- Fully diluted $ .06 $ .09 $ .11 $ .17 ---------- ---------- ------------ ------------- ---------- ---------- ------------ -------------
16 EX-27 3 EXHIBIT 27, FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS FOUND ON PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1997 JUN-30-1997 6,696 0 13,078 0 411 21,128 7,486 5,365 31,764 8,020 0 0 2,686 61,639 (45,841) 31,764 13,691 13,691 5,551 5,551 1,842 0 (109) 879 (205) 1,084 0 0 0 1,084 .11 .11
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