-----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, ATG/OjFvIkKciFqT8KJ2nThMr/A8ZleKSSyesvzt5ZqRXP5i2aWWrs82nE2tFdDw IhwW0KmY3dYcPNGGwGpS7Q== 0000912057-00-024566.txt : 20000516 0000912057-00-024566.hdr.sgml : 20000516 ACCESSION NUMBER: 0000912057-00-024566 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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: SEC FILE NUMBER: 000-15935 FILM NUMBER: 633239 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 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 March 31, 2000 [ ] 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) (858) 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 April 14, 2000: 13,121,234 ---------- Number of Sequentially Numbered Pages: 15 ALTRIS SOFTWARE, INC. INDEX
Page Number ----------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets 3 Consolidated Statements of Operations 4 Consolidated Statements of Cash Flows 5 Notes to the Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II. OTHER INFORMATION 15
2 ALTRIS SOFTWARE, INC. CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 DECEMBER 31, 1999 -------------- ----------------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 213,000 $ 142,000 Receivables, net 260,000 355,000 Other current assets 91,000 92,000 ------------ ------------ Total current assets 564,000 589,000 Property and equipment, net 390,000 436,000 Computer software, net 3,485,000 3,707,000 Other assets 202,000 249,000 ------------ ------------ Total assets $ 4,641,000 $ 4,981,000 ============ ============ LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Accounts payable $ 1,563,000 $ 1,507,000 Accrued liabilities 1,346,000 1,512,000 Notes payable 777,000 574,000 Deferred revenue 2,406,000 2,289,000 ------------ ------------ Total current liabilities 6,092,000 5,882,000 Deferred revenue, long term portion 1,402,000 1,542,000 Other long term liabilities 1,344,000 1,223,000 Subordinated debt, net of discount 2,737,000 2,708,000 ------------ ------------ Total liabilities 11,575,000 11,355,000 ------------ ------------ Mandatorily redeemable convertible preferred stock, $1,000 par value, 3,000 shares authorized; 3,000 shares issued and outstanding ($3,875,000 and $3,770,000 total liquidation preference, respectively) 3,528,000 3,423,000 Shareholders' deficit: Common stock, no par value, 30,000,000 shares authorized; 13,121,234 and 13,101,734 issued and outstanding, respectively 62,997,000 63,097,000 Common stock warrants 718,000 718,000 Accumulated deficit (74,177,000) (73,612,000) ------------ ------------ Total shareholders' deficit (10,462,000) (9,797,000) ------------ ------------ Total liabilities and shareholders' deficit $ 4,641,000 $ 4,981,000 ============ ============
The accompanying condensed notes are an integral part of these consolidated financial statements. 3 ALTRIS SOFTWARE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the three months Ended March 31, ---------------------------- 2000 1999 ------------ ------------ Revenues: Licenses $ 240,000 $ 772,000 Services and other 1,427,000 1,613,000 ------------ ------------ Total revenue 1,667,000 2,385,000 Cost of revenues: Licenses 277,000 305,000 Services and other 737,000 1,067,000 ------------ ------------ Total cost of revenues 1,014,000 1,372,000 ------------ ------------ Gross profit 653,000 1,013,000 ------------ ------------ Operating expenses: Research and development 415,000 1,011,000 Marketing and sales 316,000 765,000 General and administrative 341,000 1,447,000 ------------ ------------ Total operating expenses 1,072,000 3,223,000 ------------ ------------ Loss from operations (419,000) (2,210,000) Interest and other income 1,000 9,000 Interest and other expense (147,000) (163,000) ------------ ------------ Net loss $ (565,000) $ (2,364,000) ============ ============ Basic net loss per common share $ (.05) $ (.26) ============ ============ Diluted net loss per common share $ (.05) $ (.26) ============ ============ Shares used in computing basic and diluted net loss per common share 13,122,000 9,615,000
The accompanying condensed notes are an integral part of these consolidated financial statements 4 ALTRIS SOFTWARE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the three months Ended March 31, -------------------------- 2000 1999 ----------- ----------- Cash flow from operating activities: Net loss $ (567,000) $(2,364,000) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 316,000 1,085,000 Changes in assets and liabilities: Receivables, net 95,000 633,000 Inventory -- 2,000 Other assets 40,000 51,000 Accounts payable 56,000 142,000 Accrued liabilities (166,000) 161,000 Deferred revenue (23,000) 269,000 Other long term liabilities 121,000 (101,000) ----------- ----------- Net cash used in operating activities (128,000) (122,000) ----------- ----------- Cash flows from investing activities: Purchases of property and equipment (9,000) -- ----------- ----------- Net cash used in investing activities (9,000) -- Cash flows from financing activities: Borrowings under revolving loan and bank agreements 225,000 8,000 Repayments of revolving loan and bank agreements (22,000) (100,000) Net proceeds from exercise of stock options 5,000 -- ----------- ----------- Net cash provided by (used in) financing activities 208,000 (92,000) ----------- ----------- Effect of exchange rate changes on cash -- 75,000 Net increase (decrease) in cash and cash equivalents 71,000 (139,000) Cash and cash equivalents at beginning of period 142,000 530,000 ----------- ----------- Cash and cash equivalents at end of period $ 213,000 $ 391,000 =========== =========== Supplemental cash flow information: Interest paid during the period $ 99,000 $ 108,000 =========== =========== Accretion of dividends on mandatorily redeemable convertible preferred stock $ 105,000 $ 105,000 =========== ===========
The accompanying condensed notes are an integral part of these consolidated financial statements. 5 ALTRIS SOFTWARE, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - LIQUIDITY AND CAPITAL RESOURCES Altris Software, Inc. (the Company) has suffered recurring losses and has an accumulated deficit of $74,177,000, a working capital deficit of $5,528,000 and a deficit in shareholders' equity of $10,462,000 as of March 31, 2000, which raise substantial doubt about the Company's ability to continue as a going concern. To address these financial concerns, in April 2000, the Company completed a transaction with Spescom Ltd., a South African company which owns 26% of the Company. Under the terms of the transaction the Company converted the subordinated debt of $3,000,000 and preferred stock of $3,000,000 owned by Spescom, along with accrued interest and dividends into 9,528,096 shares of common stock. In addition, Spescom purchased 5,258,714 shares of common stock for $3,700,000 in cash. (See note 10). Management believes that such additional cash infusion is adequate to meet its short-term needs for working capital. NOTE 2 - BASIS OF PRESENTATION The information contained in the following Condensed Notes to the Financial Statements is condensed from that which would appear in the annual financial statements; accordingly, the financial statements included herein should be reviewed in conjunction with the consolidated financial statements and related notes thereto contained in the Company's 1999 Annual Report to Shareholders. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods presented are not necessarily indicative of the results expected for the entire year. The accompanying balance sheet of the Company as of March 31, 2000 and the consolidated statement of operations and of cash flows for the three month periods ended March 31, 2000 and 1999 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 financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. NOTE 3 - SPESCOM AND RELATED PARTIES In May 1999, the Company completed a transaction with Spescom, whereby Spescom invested $1,800,000 for 2,000,000 shares of the Company's common stock. In addition, as part of the transaction, Spescom paid the Company an additional $1,000,000 and invested $1,200,000 directly into the Company's United Kingdom subsidiary, Altris Software Ltd. ("ASL") for a 60% ownership interest in ASL. In conjunction with the transaction, the Company contributed $400,000 into ASL and retained a 40% interest in ASL. As of March 31, 2000 the Company has deferred $125,000 of the proceeds for potential warranty claims. Other terms of the transaction included Spescom's right to nominate one director for election to the Company's board of directors. In addition, the shares of stock representing the Company's 40% interest in ASL have been pledged to Spescom to secure the obligations of the Company to Spescom, such pledge not to extend beyond the second anniversary of the closing date. In addition, the Company entered into a distribution agreement with ASL which grants ASL exclusive distribution rights for the Company's products around the world, excluding North and South America and the Caribbean. Under this distribution agreement, this exclusivity is contingent upon ASL meeting certain minimum royalty commitments beginning in 2002. The agreement provides for a royalty to the Company on sales of the 6 Company's products by ASL and at March 31, 2000 royalties to the Company totaled $80,000. The Company had a receivable from ASL in the amount of $18,000 at March 31, 2000. Also as part of the May 1999 transaction, the Company became Spescom's exclusive distributor of EMS 2000, Spescom's configuration management (CM) product, in North and South America and the Caribbean. At March 31, 2000 the Company had an accounts payable to Spescom of $95,000. In order for the Company to obtain consent to this Spescom transaction by the investor holding the Company's subordinated debenture and the Company's Series D Convertible Preferred Stock ("the Investor") to the May 1999 Spescom transaction, the interest rate on the subordinated debenture was increased from 11.5% to 12% (see Note 6). In addition, the Series D Convertible Preferred Stock was exchanged for Series E Convertible Preferred Stock with substantially similar terms except that the conversion rate was adjusted from $6.00 per share of common stock to $1.90 and the exercise price on warrants entitling the Investor to purchase 300,000 shares of the Company's common stock was also adjusted from $6.00 to $1.90 per share. In December 1999, Spescom acquired the subordinated debt and Series E Preferred Stock in a separate transaction directly from the Investor (See Note 6). In January 2000, the Company's Board of Directors agreed to issue to Spescom 5,285,714 shares of common stock for $3,700,000 in cash, subject to approval by the Company's shareholders. In addition, the subordinated debt and Series E convertible preferred stock, along with related accrued interest and dividends, was to be converted at the rate of $0.70 per share into 9,528,096 shares of common stock. As part of the transaction, the Company will acquire for $200,000 all the rights to Spescom's EMS 2000 software, which is currently being integrated with the Altris eB(R) product. The Company has also agreed tO transfer its remaining 40% share of ASL, with no remaining carrying value, to Spescom. In April 2000 this transaction was completed (See Note 10). NOTE 4 - RECEIVABLES
March 31, 2000 December 31, 1999 -------------- ----------------- Billed receivables $ 292,000 $ 424,000 Unbilled receivables 37,000 -- Less allowance for doubtful accounts (69,000) (69,000) --------- --------- $ 260,000 $ 355,000 ========= =========
NOTE 5 - INVENTORY Inventory consists of parts, supplies, and subassemblies primarily used in maintenance contracts which service the Company's hardware products sold in prior years. Inventory is stated at the lower of cost or market value. Cost is determined using the first-in, first-out (FIFO) method. As of both March 31, 2000 and December 31, 1999, the Company has fully reserved the carrying amount of inventory. NOTE 6 - NOTES PAYABLE AND SUBORDINATED DEBT Notes payable and subordinated debt consist of the following:
March 31, 2000 December 31, 1999 -------------- ----------------- Revolving loans $ 450,000 $ 474,000 Short term loan 327,000 100,000 ---------- ---------- 777,000 574,000 Subordinated debt, less discount of $263,000 and $292,000 respectively 2,737,000 2,708,000 ---------- ---------- $3,514,000 $3,282,000 ========== ==========
7 The Company has a revolving loan and security agreement, which provides for borrowings of up to $1,000,000. The maximum credit available under the facility declines by $200,000 each year beginning in March 1997. The loan is payable in monthly installments of $16,667 plus interest equal to the 30-day Commercial Paper Rate plus 2.95% (9.00% December 31, 1999). At March 31, 2000, $450,000 was outstanding under the agreement with no additional funds available. Total borrowings under the revolving loan and security agreement are collateralized by the Company's assets. The revolving loan and security agreement contains certain restrictive covenants, including the maintenance of a minimum ratio of debt to tangible net worth, for which the Company was in violation at December 31, 1999. The Company obtained a waiver of such violations through March 15, 2000. In May 1999, in order to obtain the consent for the Spescom transaction from the lender, the Company agreed to reduce the principal balance of the combined facilities by a total of $150,000 on or before June 30, 1999. The Company has not made the payment and is in violation of the agreement. In April 2000 as part of the transaction with Spescom, this credit facility was paid off (See Note 10). In November 1999, the Company received a short-term loan of $100,000 from Spescom with interest at 10%. In February 2000, the Company received an additional short term loan of $225,000 from Spescom with interest at 12%. In April 2000 as part of the transaction with Spescom, both loans were paid off (See Note 10). NOTE 7 - RECONCILIATION OF NET LOSS AND SHARES USED IN PER SHARE COMPUTATIONS: Basic net loss per common share is computed as net loss plus accretion of dividends on mandatorily redeemable convertible preferred stock divided by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed as net loss divided by the weighted average number of common shares and potential common shares, using the treasury stock method, outstanding during the period and assumes conversion into common stock at the beginning of each period of all outstanding shares of convertible preferred stock. Computations of basic and diluted earnings per share do not give effect to individual potential common stock instruments for any period in which their inclusion would be anti-dilutive.
For the three months Ended March 31, ---------------------------- 2000 1999 ------------ ------------ Net Loss Used: Net loss $ (565,000) $ (2,364,000) Accretion of dividends on mandatorily redeemable convertible preferred stock (105,000) (105,000) ------------ ------------ Net loss used in computing basic and diluted net loss per share $ (670,000) $ (2,469,000) ============ ============ Shares Used: Weighted average common shares outstanding used in computing basic and diluted net loss per common share 13,122,000 9,615,000 ============ ============
NOTE 8 - SEGMENT AND GEOGRAPHIC INFORMATION The Company has one business segment which consists of the development and sale of a suite of client/server document management software products. 8 Revenues for March 31, 2000 and 1999 by customer location are as follows:
March 31, 2000 March 31, 1999 -------------- -------------- United States $1,576,000 $1,615,000 Europe, primarily United Kingdom 87,000 690,000 Other International 4,000 80,000 ---------- ---------- $1,667,000 $2,385,000 ========== ==========
NOTE 9 - LITIGATION On July 30, 1999, the United States District Court for the Southern District of California approved the settlement of certain securities class action lawsuits against the Company. The settlement provides for the dismissal and release of all claims in these cases in exchange for (a) payment of $2,500,000 by the Company's insurance carrier to the class of plaintiffs, (b) issuance by the Company of 2,304,271 shares of its common stock to the plaintiffs, which is equal to twenty percent of the sum of (i) the number of shares of common stock currently outstanding and (ii) the maximum number of shares issuable upon conversion of the Series E Preferred Stock, and (c) cooperation by the Company with plaintiffs' counsel by providing certain documents and information regarding the claims asserted in the class actions. The Company recorded expense of $1,128,000 in connection with this settlement in 1998 based on the average closing market price the week preceding the execution of the memorandum of understanding for the settlement times the number of shares of the Company's common stock to be issued in the settlement. In addition, as a part of the settlement in these class actions, the Company's former Chairman of the Board, President, and Chief Executive Officer, Jay V. Tanna, has agreed to forego any claim for unpaid compensation of $131,000 under the Separation Agreement and Release of Claims that Mr. Tanna and the Company entered into on April 1, 1998, and to surrender his 35,000 shares of common stock in the Company. Mr. Tanna and the Company also have entered into a Settlement Agreement and Mutual Release resolving all claims and disputes with one another, with the exception of certain existing indemnification obligations under Altris' bylaws, California law, and the indemnity agreement between the Company and Mr. Tanna related to his services as a director and officer of the Company. In addition to the securities actions described above, the Company is involved from time to time in litigation arising in the normal course of business. Management believes that any liability with respect to such routine litigation, individually or in the aggregate, is not likely to be material to the Company's consolidated financial position or results of operations. NOTE 10 - SUBSEQUENT EVENT On April 14, 2000, a special meeting of shareholders was held at the Company's headquarters. At this meeting, the shareholders approved a proposal to amend the Company's Article's of Incorporation to increase the number of authorized shares of common stock from 30,000,000 to 40,000,000 shares. The shareholders also approved a proposed Stock Purchase agreement with Spescom for the conversion of the subordinated debt of $3,000,000 and preferred stock of $3,000,000, along with accrued interest and dividends, into 9,528,096 shares of common stock and the issuance of 5,258,714 shares for $3,700,000. On April 21, 2000, the Stock Purchase agreement transaction was completed. As part of the transaction the short term loans totaling $327,000 and revolving loans of $450,000 were all repaid at this time. In addition, the Company acquired all rights to Spescom's EMS 2000 software, a configuration management product. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED MARCH 31, 1999. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or anticipated results, including those set forth under "Certain Factors That May Affect Future Results" below and elsewhere in, or incorporated by reference into, this report. Revenues Revenues for the quarter ended March 31, 2000 were $1,667,000 compared to $2,385,000 for the quarter ended March 31, 1999. For the quarter ended March 31, 2000 revenues consisted of $240,000 (14%) in software licenses and $1,427,000 (86%) related to services and other revenue. This compares to software license revenues of $772,000 (32%) and services and other revenue of $1,613,000 (68%) for the quarter ended March 31, 2000. For the quarter ended March 31, 2000, software license revenues decreased from the comparable period in the prior year by $532,000, while revenues generated from services decreased by $186,000. This reduction is attributable in part to excluding ASL operations as of April 1, 1999, from the consolidated results as a result of the Spescom transaction (see Note 3). Additionally, management believes that although the Company's Altris EB product reached general availability in the second half of 1999, the timing between order received and revenue recognition has been extended from shipment to when acceptance has occurred since a historical record has not yet been demonstrated that acceptance is perfunctory. In addition, management believes new orders have been negatively impacted by customers' uncertainty regarding the financial condition of the Company. Management also believes that purchasing patterns of customers and potential customers was affected by Year 2000 issues, with many companies expending significant resources to correct their software systems for Year 2000 compliance. Management believes that these expenditures have reduced funds available to purchase software products such as those offered by the Company. A small number of customers have typically accounted for a large percentage of the Company's annual revenue, although no customer accounted for more than 10% of total revenue for the quarter ended March 31, 2000. One consequence of this dependence has been that revenue 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. Cost of Revenues Cost of license revenues consists of costs associated with reselling third-party software products and amortization of internal software development costs. Gross profit as a percentage of license revenues was a loss of 15% for the quarter ended March 31, 2000 compared to 60% for the quarter ended March 31, 1999. The decrease in the gross profit margin from licenses was due principally to revenues decreasing while amortization of software development costs remained fixed. Cost of services and other revenues consists primarily of personnel-related costs in providing consulting services, training to customers and support. It also includes costs associated with reselling third-party hardware, 10 services and maintenance. Gross profit as a percentage of services and other revenue was 48%, for the quarter ended March 31, 2000 compared to 34% for the quarter ended March 31, 1999. The increase in gross profit as a percentage of services and other revenues for the comparable period is due to the Company reducing personnel related costs associated with services. Additionally, commencing as of April 1, 1999, cost of services has not included ASL's cost of services. The Company's software and services are sold at a significantly higher margin than third party products and services 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 percentages can fluctuate quarterly based on the revenue mix of Company software, services and third party software or hardware. Operating Expenses Research and development expense for the quarter ended March 31, 2000 was $415,000, as compared to $1,011,000 for the same period in the prior year. The decrease in research and development for the quarter ended March 31, 2000 was primarily attributed to the exclusion of ASL research and development expenses as of April 1, 1999. In addition, the Company has reduced the expenditures associated with outside development groups. Marketing and sales expense for the quater ended March 31, 2000 was $316,000 as compared to $765,000 for the same period in the prior year. The decrease is primarily due to lower personnel and associated costs. In addition, as a result of the delay in releasing Altris EB, the Company reduced marketing and promotional costs. Commencing April 1, 1999, marketing and sales expense has not included ASL's expenses. General and administrative expense was $341,000 for the quarter ended March 31, 2000 as compared to $1,447,000 for the same period in the prior year. The decrease in the general and administrative expense in the first quarter is due primarily to excluding ASL general and administrative expense since April 1, 1999. The exclusion of ASL also reduced the amount of goodwill amortization by $660,000 for the quarter ended March 31, 2000 compared to the same period in the prior year. In addition, with the settlement of the securities class action lawsuits against the Company, legal fees have been reduced. Interest and other income was $1,000 for the quarter ended March 31, 2000 as compared to $9,000 for the same period a year ago. The decrease in the quarter total is primarily due to lower cash balances in 2000 versus 1999. Interest and other expense was $147,000 for the quarter ended March 31, 2000 versus $163,000 for the same period in the prior year. The decrease was due to a lower debt balance in 2000 versus the same period in 1999. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2000, the Company's cash and cash equivalents totaled $213,000 as compared to $142,000 at December 31, 1999, and its current ratio was .09 to 1. The Company has one revolving credit facilities. At March 31, 2000, $450,000 was outstanding on the revolving loan agreements with no additional funds available under the facilities. For the period ended March 31, 2000, cash used in operating activities and investing activities totaled $128,000 and $9,000 respectively, while cash provided by financing activities totaled $208,000. Cash provided by financing activities was from net borrowings from Spescom. In 1999 and the first quarter of 2000, the Company experienced a reduction in incoming orders. The Company's ability to continue operations is dependent upon the generation of new system sales of Altris eB(TM) in the near term, which cannot be assured, along with raising additional cash through a debt or equity offering. To address these financial concerns in April 2000 the Company completed a tranasaction with Spescom whereby the subordinated debt of $3,000,000 and preferred stock of $3,000,000 owned by Spescom, along with accrued 11 interest and dividends was converted into 9,528,096 shares of common stock. In addition, Spescom purchased 5,258,714 shares of common stock for $3,700,000 in cash. (See Note 10 to the Consolidated Finacial Statements). Management believes that such additional cash infusion is adequate to meet its short-term needs for working capital. Net Operating Loss Tax Carryforwards As of December 31, 1999, the Company had a net operating loss carryforward ("NOL") for federal and state income tax purposes of $52,717,000 and $8,294,000, respectively which expires over the years 2000 through 2019. In addition, the Company generated but has not used research and investment tax credits for federal income tax purposes of approximately $1,150,000, which will substantially expire in the years 2000 through 2005. 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 to 20 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. 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. In April 2000, the Company completed a share issuance to Spescom whereby Spescom owns approximately 66% of the voting control of the Company. Since Spescom has now acquired its entire majority interest in the Company within one year, this would constitute an "ownership change" under the Code. Thus, the Company's ability to use its NOL and credit carryforwards in future years will be delayed and, to the extent the carryforward amounts could not be fully utilized under the limitations discussed above within the carryforward periods, these carryforwards would be lost. Accordingly, if the Company generates net income in future years, the Company will 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. In connection with the acquisition of Optigraphics, the Company acquired Optigraphics' net operating losses which are limited to offset against that entity's future taxable income, subject to annual limitations. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS Customer Concern Regarding the Company's Financial Position As a result of misapplications in its revenue recognition policies, the Company in 1998 restated its previously presented interim financial information and annual financial statements for 1996 and the interim information for the first three quarters of 1997. In addition, the report of the Company's independent accountants, Grant Thornton LLP, on the Company's Consolidated Financial Statements as of and for the year ended December 31, 1999 includes an explanatory paragraph regarding the Company's ability to continue as a going concern. See "Report of Independent Certified Public Accountants" accompanying the Consolidated 12 Financial Statements. The Company's restatement of its financial statements, de-listing of the Company's Common Stock from the Nasdaq National Market as a result of the Company's failure to meet certain listing requirements, corporate actions to restructure operations and reduce operating expenses, and customer uncertainty regarding the Company's financial condition has had, and are likely to have in the future, a material adverse effect on the Company and its ability to sell its products in future. Foreign Currency The Company's geographic markets are primarily in the United States and Europe, with sales in other parts of the world. For the quarter ended March 31, 2000, revenue from the United States, Europe and other locations in the world were 95%, 4% and 1%, respectively. This compares to 68%, 29% and 3%, respectively, for the same period in 1999. The increase in revenue from the United States is due to the sale of ASL. The revenue from Europe is now taken through royalties (see Note 3). The European currencies have been relatively stable against the U.S. dollar for the past several years. As a result, foreign currency fluctuations have not had a significant impact on the Company's revenues or results of operations. Changes in foreign currency rates, the condition of local economies, and the general volatility of software markets may result in a higher or lower proportion of foreign revenues in the future. Although the Company's operating and pricing strategies take into account changes in exchange rates over time, there can be no assurance that future fluctuations in the value of foreign currencies will not have a material adverse effect on the Company's business, operating results and financial condition. 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. Year 2000 Compliance Many currently installed computer systems and software products were coded to accept only two digit entries in the date code field; however, these date code fields need to accept four digit entries to distinguish 21st century dates from 20th century dates. As a result, many companies' computer systems and/or software were required to be upgraded or replaced to comply with such "Year 2000" requirements. The Company has completed a program, to review the Year 2000 compliance status of the software and systems used in its internal business processes, to obtain appropriate assurances of compliance from the manufacturers of these products and agreement to modify or replace all non-compliant products. The Company did address all issues identified prior to Year 2000 and did not encounter any material difficulties. The Company, in its ordinary course of business, tests and evaluates its own software products. The Company has tested all of its legacy products and believes that its software products are generally Year 2000 compliant, meaning that the use or occurrence of dates on or after January 1, 2000 will not materially affect the performance of the Company's software products with respect to four digit date dependent data or the ability of such products to correctly create, store, process and output information related to such date data. The Company did not encounter any significant Year 2000 problems for the change from 1999 to 2000.. However, there can be no assurances that the Company's current products do not contain undetected errors or defects associated with date functions. To the extent the Company's software products are not fully Year 2000 compliant, there can be no assurance that the Company's software products contain all necessary software routines and codes necessary for the accurate calculation, display, storage and manipulation of data involving dates. In addition, in certain circumstances, the Company has warranted that the use or occurrence of dates on or after January 1, 2000 will not adversely affect the performance of the Company's products with respect to four digit date dependent data or the ability to create, store, process and output information related to such data. If any of the Company's licensees experience Year 2000 problems, such licensees could assert claims for damages against 13 the Company. In addition, some commentators have stated that a significant amount of litigation will arise out of Year 2000 compliance issues, and the Company is aware of lawsuits against other software vendors. Because of the unprecedented nature of such litigation, it is uncertain to what extent the Company may be affected by it. In addition, management believes that future purchasing patterns of customers and potential customers have been affected by Year 2000 issues, with many companies expending significant resources to correct their software systems for Year 2000 compliance. These expenditures have reduced funds available to purchase software products such as those offered by the Company. PART II. OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS On July 30, 1999, the United States District Court for the Southern District of California approved the settlement of certain securities class action lawsuits against the Company and dismissed the lawsuits with prejudice. The settlement provides for the dismissal and release of all claims in these cases in exchange for (a) payment of $2,500,000 by the Company's insurance carrier to the class of plaintiffs, (b) issuance by the Company of 2,304,271 shares of its common stock to the plaintiffs, which is equal to twenty percent of the sum of (i) the number of shares of common stock currently outstanding and (ii) the maximum number of shares issuable upon conversion of the Series E Preferred Stock, and (c) cooperation by the Company with plaintiffs' counsel by providing certain documents and information regarding the claims asserted in the class actions. The Company recorded expense of $1,128,000 in connection with this settlement in 1998 based on the average closing market price the week preceding the execution of the memorandum of understanding for the settlement times the number of shares of the Company's common stock to be issued in the settlement. In addition, as a part of the settlement in these class actions, the Company's former Chairman of the Board, President, and Chief Executive Officer, Jay V. Tanna, has agreed to forego any claim for unpaid compensation of $131,000 under the Separation Agreement and Release of Claims that Mr. Tanna and the Company entered into on April 1, 1998, and to surrender his 35,000 shares of common stock in the Company. Mr. Tanna and the Company also have entered into a Settlement Agreement and Mutual Release resolving all claims and disputes with one another, with the exception of certain existing indemnification obligations under Altris' bylaws, California law, and the indemnity agreement between the Company and Mr. Tanna related to his services as a director and officer of the Company. In addition to the securities actions described above, the Company is involved from time to time in litigation arising in the normal course of business. The Company believes that any liability with respect to such routine litigation, individually or in the aggregate, is not likely to be material to the Company's consolidated financial position or results of operations. ITEM 5 - SUBSEQUENT EVENT: On April 14, 2000, a special meeting of shareholders was held at the Company's headquarters. At this meeting, the shareholders approved a proposal to amend the Company's Article's of Incorporation to increase the number of authorized shares of common stock from 30,000,000 to 40,000,000 shares. The shareholders also approved a proposed Stock Purchase agreement with Spescom for the conversion of the subordinated debt of $3,000,000 and preferred stock of $3,000,000, along with accrued interest and dividends, into 9,528,096 shares of common stock and the issuance of 5,258,714 shares for $3,700,000. On April 21, 2000, the Stock Purchase agreement transaction was completed. As part of the transaction the short term loans totaling $327,000 and revolving loans of $450,000 were all repaid at this time. In addition, the Company acquired all rights to Spescom's EMS 2000 software, a configuration management product. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K: (a) None 14 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: May 15, 2000 ------------------------ 15 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS FOUND ON PAGES 3 AND 4 OF THE COMPANY'S FORM 10Q FOR THE YEAR TO DATE MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 213 0 260 0 0 91 2,689 (2,299) 4,641 6,092 0 3,528 0 62,997 (74,177) 4,641 1,667 1,667 1,014 1,014 415 0 (147) (565) 0 (565) 0 0 0 (565) (0.05) (0.05)
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