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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR SECTION 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR SECTION 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
COMMISSION FILE NO. 0-9247
AUTO-TROL TECHNOLOGY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
COLORADO 84-0515221
(STATE OF INCORPORATION) (IRS EMPLOYER
IDENTIFICATION NUMBER)
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12500 NORTH WASHINGTON, DENVER, COLORADO 80241-2400
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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AREA CODE (303) 452-4919
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
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 ninety days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of December 12, 1995, was $1,820,000 based on the closing sale
price on such date. The aggregate number of shares of common stock outstanding
on December 12, 1995, was 39,476,269.
Document Incorporated by Reference: Proxy Statement and Notice of Annual
Meeting of Shareholders to be held on January 30, 1996: Part III - Items 10, 11,
12, and 13.
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AUTO-TROL TECHNOLOGY CORPORATION
REPORT ON FORM 10-K
FOR THE YEAR ENDED SEPTEMBER 30, 1995
TABLE OF CONTENTS
PART I Page
----
Item 1. Business.......................................................................... 1
Item 2. Properties........................................................................ 5
Item 3. Legal Proceedings................................................................. 5
Item 4. Submission of Matters to a Vote of Security Holders............................... 5
PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder Matters......... 6
Item 6. Selected Financial Data........................................................... 6
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations...................................................................... 7
Item 8. Financial Statements and Supplementary Data....................................... 12
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure...................................................................... 24
PART III
Item 10. Directors and Executive Officers of the Registrant................................ 24
Item 11. Executive Compensation............................................................ 24
Item 12. Security Ownership of Certain Beneficial Owners and Management.................... 24
Item 13. Certain Relationships and Related Transactions.................................... 24
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................. 25
Signatures .................................................................................. 29
ITEM 1. BUSINESS
GENERAL
Auto-trol Technology Corporation and its wholly-owned subsidiaries (referred to
hereafter as "Auto-trol" or the "Company") develop, integrate, market, sell, and
support its products and the products of certain third-party vendors for end
user markets involved in: product data management, physical network management,
mapping, technical illustration, design, engineering, drafting, and
manufacturing processes. Historically, the Company sold proprietary hardware
products. However, reduced margins on hardware products have caused the Company
to sell less hardware to its customers than in past years. The Company
continues to shift the sales and support focus from hardware to internally
developed software and systems integration. The Company will continue to sell
hardware primarily as part of a total systems solution. Auto-trol believes that
by offering customers a broad spectrum of applications and options from analysis
through implementation and ongoing support, the Company is able to develop long-
term relationships with its customers and expand into new markets. The
Company's business is not seasonal in nature nor is the Company dependent on any
single individual customer. On June 30, 1995, AT Development Inc., a wholly
owned subsidiary of Auto-trol Technology Corporation, acquired a 100% interest
in Metaware, Inc. doing business as Centra 2000, Inc. Financial results for the
years ended September 30, 1995, and 1994 reflect the combination of the
Company's results of operations for the years ended September 30, 1995, and 1994
with Centra 2000, Inc. results of operations from commencement of Centra 2000,
Inc.'s operations of October 1, 1994. Both the Company and Centra 2000, Inc.
were under common control at the date of acquisition.
PRODUCTS
CENTRA 2000(TM)
The CENTRA 2000 system is a product data management, document management and
workflow system specifically designed to solve the complex problems facing
engineering, manufacturing, technical publishing, petrochemical and other
operations. The product is intended for scaleable implementation from the work
group to the entire enterprise. In addition to traditional Product Data
Management (PDM) functions, the CENTRA 2000 product manages pure data
environments, audio/video and large document assemblies. The product is
designed to fit a customer's environment with a general focus to automate
configuration management and project management, as well as processes integrated
with a customer's hardware and business systems, rules and procedures. The core
CENTRA 2000 technology was used to develop the NASA Electronic Library System
(NELS), which serves as a solution for configuration management of technical
documentation and programming source code. CENTRA 2000 technology was also used
to map and track the parts list for the space station.
KONFIG(TM)
The KONFIG product is advanced software for physical network, cable/wire, and
asset management of data, voice or video networks. The KONFIG software stores
and models the entire network infrastructure in ORACLE(R)'S relational database
management system (RDBMS), including both active elements such as workstations,
hubs, routers, and switches, along with passive elements such as cables,
connectors, distribution frames, and patch panels. The spatial location,
topological information, connectivity, and non-graphic attributes of each
network object are stored in the ORACLE RDBMS. A detailed graphical
representation of the network can be automatically generated from the database
and overlayed on a facility drawing. Auto-trol's powerful Series 5000(TM)
graphic engine is used to generate graphic views of the network as well as
create and modify the facility drawings. The KONFIG Network Manager product
provides integration with industry-leading network management tools.
MOZAIC(TM)
The Mozaic suite of applications is a new generation of software providing
feature-based applications to easily take a product from conceptual design
through the manufacturing and assembly processes. Emphasizing ease of use,
interoperability, single data modeling and re-use of legacy databases, the core
functionality of the Mozaic product is developed using the latest object-
oriented technology. The basic Mozaic product offering includes Mozaic
Assembly, Mozaic Modeler and Mozaic Drafter modules, along with other external
file converters.
The Mozaic Assembly module is a feature-based application that allows the user
to perform "top down" or "bottom up" assembly modeling, using solid and/or
surface models as needed. The Mozaic Modeler module is a feature-based solid
modeling application that provides the user with a set of tools needed to
perform conceptual and detail design work. The Mozaic Drafter module is a
robust drafting application that complements Mozaic Assembly and Modeler
1
modules and provides 2D drafting capabilities. Optional Mozaic modules include
Mozaic Surfacing, Mozaic Manufacturing and gateways.
SERIES 5000(TM)
The Series 5000 product is a graphics design platform consisting of graphics
tools, macro languages and a relational database query language that allows
engineers and designers to create, visualize and document their designs. As
Auto-trol's flagship product for more than a dozen years, the Series 5000
product is used primarily in the architectural, engineering and construction
fields. The Series 5000 product has a set of accompanying products such as data
converters, plotter drivers and application specific tools.
SERIES 7000(TM)
The Series 7000 system is a suite of graphics products used to design and
document mechanical parts and assemblies. Manufacturing companies are
traditionally the largest users of the Series 7000 system. Applications such as
three-dimensional part design, the creation of numerical control machining
programs, and the engineering analysis of mechanical parts and assemblies are
examples of how Auto-trol customers use the Series 7000 system.
TECH ILLUSTRATOR(TM)
Auto-trol's Electronic Publishing Solutions (EPS) product line, comprised of a
suite of application and converter products, embodies a standards-based solution
set that augments illustration productivity "off-the-shelf". The EPS product
line enables compliance with important military and commercial standards that
affect contemporary publishing operations. Auto-trol's solution provides access
to a wide variety of reference material ranging from legacy hard copy and
electronic archives to current digital 3D design data, for direct use in
creating illustration views. The EPS product line provides the added advantage
of being easily and extensively customized to adhere to end user requirements.
GEOSTATION(R) GIS
The Geostation product is an integrated exploration data management and mapping
solution that allows for visualization of complex data. This product is used as
a subsurface exploration tool in oil and gas exploration and for assessment of
mineral rights associated with land. Geostation software is also used in the
mapping and cartography industry.
Approximately 23%, 25% and 18% of total revenue was derived from software sales
for the years ended September 30, 1995, 1994 and 1993 respectively.
HARDWARE
Auto-trol helps its customers configure hardware to be integrated with Auto-trol
proprietary and third-party software. The Company integrates hardware from
suppliers including Hewlett Packard Company (HP) and Sun Microsystems, Inc.
(Sun). For further information see subheading "Sources of Supply" under Item 1.
In fiscal year 1994, the Company had limited development of hardware products to
ancillary products that complement third-party vendor hardware. Approximately
19%, 21% and 23% of total revenue was derived from hardware sales for the years
ended September 30, 1995, 1994 and 1993 respectively.
CUSTOMER SUPPORT
CONSULTING SERVICES
Auto-trol offers consulting services that include software and hardware needs
assessments, system configuration and implementation of its products, third
party product integration and system customization. Additionally, Auto-trol can
develop custom software or modify its existing software products to solve
specific customer needs. These services are sold in conjunction with product
sales and have standard rates. Occasionally, Auto-trol will develop custom
software or modify existing software products. Approximately 8%, 9%, and 5% of
total revenue was derived from consulting service revenue for the years ended
September 30, 1995, 1994 and 1993, respectively.
EDUCATIONAL SERVICES
Auto-trol provides comprehensive product training programs for all of the
Company's applications. Additionally, Auto-trol provides certified HP and Sun
training and offers a wide range of courses both domestically and
2
internationally. Approximately 7%, 5%, and 3% of total revenue was derived from
education service revenue for the years ended September 30, 1995, 1994 and 1993,
respectively.
NATIONAL TECHNICAL SUPPORT
Auto-trol believes that the quality of customer support is an important factor
in helping the customer to attain and maintain productivity levels and its
related return on investment in Auto-trol products. Post-sale customer support
services are provided on a time and materials basis or under warranties and
service contracts. Approximately 20% of Auto-trol's employees are engaged in
post-sales support functions. A technical staff offers software support
services for most problems. Field and applications engineers provide customer
support for repair service and preventative maintenance for hardware, and in
some cases, support for software applications. Approximately 43%, 41% and 49%
of total revenue was derived from customer support revenue for the years ended
September 30, 1995, 1994 and 1993, respectively.
RESEARCH AND PRODUCT DEVELOPMENT
Approximately 40% of Auto-trol's employees are engaged in research and product
development activities. The Company has and will continue significant
investment in product development and enhancement due to rapidly changing
technology, competitive pressures, and customer demands. The expenditures from
1993 through 1995 are as follows:
YEAR ENDED SEPTEMBER 30,
--------------------------
1995 1994 1993
------ ------ ------
(in thousands)
Research and product development expense.... $8,834 $7,908 $8,306
Percent of total revenues................... 35% 23% 22%
MARKETING
Auto-trol's customers are chiefly from the petroleum, pharmaceutical, chemical,
manufacturing, engineering, and public utility industries. Governmental
customers include federal, state and municipal agencies. The Company markets
and sells its products and services directly to end users in the United States
from its twelve Domestic sales offices. The Company markets its products in
Europe through wholly owned subsidiaries with offices located in Germany,
Sweden, and the United Kingdom. Additionally, the Company markets its products
in Canada through Auto-trol Technology (Canada) Ltd., a wholly owned subsidiary,
and in Australia through a Company sales office. Export sales to South America
and the Pacific Rim countries are handled by independent distributors. The
Company ships product to its distributors after the sale has been negotiated
with the end customer. The Company does not grant rights to the distributor to
return products for other merchandise, credit, or refund.
The following table states the revenue derived from foreign sales for the last
three fiscal years. For additional financial information about foreign or
domestic operations and export sales, see Note 8 of "Notes to the Consolidated
Financial Statements."
YEAR ENDED SEPTEMBER 30,
-------------------------
1995 1994 1993
------- ------- -------
(in thousands)
Foreign total revenues............. $14,287 $16,245 $17,626
Percent of total revenues.......... 56% 46% 46%
Customers may purchase hardware and software systems with related services, or
they may purchase software and services independently. The Company maintains
standard pricing structures for hardware and software products. Pricing of
customer service contracts is determined based on customer needs. As is
customary in the industry, the Company licenses its software and sublicenses
third-party software to protect the ownership of such software. The Company's
Process License Agreement provides for a transfer of the product, but limits
disclosure of the software to third parties. Auto-trol offers a 90 day warranty
on its software products. Auto-trol will administer and recognize vendor
warranties of third-party software products. Payment terms are net 30 upon
receipt of invoice.
Due to the competitive pressures in the software industry, the Company strives
to minimize the time that elapses from the approval of purchase orders to the
date of shipment of the product. Therefore, the Company routinely ships
software products to its customers within twenty-four hours after approval of
the order. Shipment of hardware products is dependent on vendor supply as the
Company does not maintain a large inventory.
3
The Company's backlog at the end of a quarter only represents a portion of
future sales and should not be used solely to predict future results. Orders in
backlog may be canceled but are subject to a cancellation fee. The Company's
recorded backlog was approximately $1.2 million as of September 30, 1995,
compared to $1.6 million as of September 30, 1994.
COMPETITION
Within the Product Data Management market, the Company's primary competitors are
Sherpa Corporation, Xerox/Documentum, and Structural Dynamic Research Company
(SDRC). Intergraph Inc. is a competitor in the process industry and technical
illustration market. ISICAD, Inc. and Accugraph Corporation are the primary
competitors in the physical electronic network market. In the Manufacturing
Computer Aided Design (M-CAD) market, Parametric Technology Corporation, SDRC
and Computervision Corporation are among the Company's top competitors. The
Company believes that its products in the design, drafting, and product and
network management markets, uniquely leverage the Company's core competencies in
the engineering graphics and documentation areas to provide a total solution to
the customer.
Auto-trol competes primarily on the basis of quality and technical expertise.
The Company believes the functionality of its applications products, technical
support, and responsiveness to customer needs enhances its competitive position.
The Company believes that, although price is a competitive factor, customers
consider product functionality, ease of implementation, and user friendliness to
be of greater importance when selecting a vendor's product.
SOURCES OF SUPPLY
Many of the parts and components used by the Company are available from several
sources, although the Company currently purchases certain key components from
single suppliers. The Company has agreements with Sun and HP for their hardware
platforms. The Company believes relations with its suppliers are good and does
not anticipate difficulty in receiving equipment as scheduled. The Company's
operations would be adversely affected if it experienced significant delays in
delivery from suppliers. Additionally, if production of one or more vendor's
computer products was wholly discontinued, operations would be negatively
impacted as this would require software modifications in the Company's graphics
systems.
The agreement in place with HP is dated July, 1994. This agreement renews each
year in July and is currently effective through June, 1996. Pursuant to that
agreement, HP provides certain hardware equipment at various discounts. This
equipment must be used with systems developed by Auto-trol, in the country where
the equipment is purchased. This agreement is international in scope. The
Company is also providing refurbishment services to HP for hardware components
manufactured by HP.
The agreement in place with Sun is dated April 30, 1993. This agreement renews
each year in June and is currently effective until June, 1996. Pursuant to that
agreement, Sun provides certain hardware equipment to Auto-trol at discounts
based upon volume with special discounts for certain equipment. This equipment
is to be used with systems developed by Auto-trol, in the country where the
equipment is purchased. This agreement is international in scope, and provides
for marketing cooperation.
Auto-trol also buys other components and devices such as magnetic disk and tape
drives, keyboards and printers from single sources. Alternate sources for these
items are generally available and loss of a particular supplier would not have a
material effect on the Company's operations.
PATENTS AND LICENSES
The Company holds five patents, issued in the United States, and one patent in
each of Canada, Australia and Taiwan for license management methods. Generally,
the Company seeks to protect aspects of its systems through trade secret
protection. The Company's standard Process License Agreement prohibits the
customer from disclosing any confidential or proprietary information. Included
in the Company's purchase of vendor equipment is the right to resell and
sublicense systems software licenses under Auto-trol's standard Process License
Agreement.
The Company is also licensed to use and sublicense a limited number of graphics
and applications programs developed by others. The Company does not believe
that the manufacture and sales of its products require additional licenses from
others. If such licenses were required, the Company believes that it would not
have a materially adverse financial impact on operations.
4
EMPLOYEES
The Company has no collective bargaining agreements and there have been no work
stoppages due to labor difficulties. The Company believes that relations with
its employees are good. As of September 30, 1995, Auto-trol had 353 employees
which includes 142 in research and development, 42 in customer support, 65 in
administrative support, 87 in sales and support and 17 in marketing.
ITEM 2. PROPERTIES
The Company's 127,000 square foot corporate headquarters facility is located on
a 20-acre site about 15 miles North of downtown Denver, Colorado, in the City of
Thornton. Financing for this facility was obtained primarily through the
issuance of $6 million of Industrial Development Revenue Bonds, Series 1979, by
the City of Thornton, Colorado, which mature through 2004.
The Company also leases approximately 35,000 square feet of office space
throughout the United States, approximately 25,000 square feet in Canada, and
approximately 21,000 square feet in Europe.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings before any
court, administrative agency or other tribunal.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders during the fourth
quarter of the fiscal year covered by this report.
5
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The Company's common stock is traded on the NASDAQ SmallCap Market System under
the symbol ATTC. The following table sets forth the range of high and low
closing sale prices in the NASDAQ National Market System and the National
SmallCap Market System for the common stock for the fiscal quarters indicated,
as reported by NASDAQ.
FISCAL FISCAL
1995 1994
-------------------------------------------------------
HIGH LOW HIGH LOW
------ ---- -------- ----
First Quarter......... $1 1/2 $3/4 $3/4 $3/8
Second Quarter........ 1 1/2 3/4 1 13/16 3/8
Third Quarter......... 1 1/4 5/8 2 7/8
Fourth Quarter........ 1 1/4 5/8 2 1
As of December 12, 1995, there were 728 holders of record of the Company's
common stock. The Company has never paid or declared any dividends on its
common stock. The indenture to the Industrial Development Revenue Bonds
restricts the payment of dividends to the amount of $2,000,000 minus 100% of the
accumulated deficit subsequent to December 31, 1978.
ITEM 6. SELECTED FINANCIAL DATA
AS OF AND FOR THE YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
1995 1994/1/ 1993 1992 1991
-------- -------- -------- ------- -------
(in thousands, except per share data)
SUMMARY OF OPERATIONS:
Revenues................................ $ 25,591 $35,046 $ 38,335 $58,900 $64,416
Net loss................................ (10,777) (6,723) (10,544) (9,129) (7,883)
Loss per share.......................... (.35) (.35) (1.05) (1.36) (1.17)
Weighted average number of common shares
outstanding........................... 30,519 19,155 10,057 6,695 6,715
BALANCE SHEET DATA, END OF YEAR:
Working capital (deficit)............... $ 1,829 $ 1,712 $ 1,893 $ (597) $ 6,855
Total assets............................ 14,388 16,079 18,826 24,433 30,360
Current portion of long term-debt and
capital lease obligations............. 494 240 869 7,197 1,542
Long-term debt and capital lease 4,993 8,148 7,488 2,640 2,880
obligations...........................
Shareholders' equity.................... 3,985 1,410 3,245 7,770 16,752
/1/Restated to reflect the acquisition of a 100% interest in Metaware, Inc. on
June 30, 1995. See Note 9 to the Consolidated Financial Statements.
6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
During 1995 the Company continued to shift its sales efforts from hardware sales
to internally developed software and system integration services. Sales of
products based on the Company's Series 5000 and Series 7000 platforms continued
to decline as cheaper alternative products on the personal computer platform
continue to erode the Company's installed base of UNIX(R) design and drafting
products. Operating losses continued for the seventh consecutive year due
primarily to the lack of revenue growth from products in development in the M-
CAD, PDM and network configuration markets. These sales did not materialize due
in part to product development delays as well as an increased complexity of the
sales cycle in these markets. The Company continues to believe that its
products in these market areas, when complete, 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. During fiscal 1995, the Company lowered its prices on its product
data management and network configuration products. The Company believes that
these 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.
BUSINESS COMBINATION WITH RELATED PARTY - On June 30, 1995, AT Development
Inc., a wholly owned subsidiary of Auto-trol Technology Corporation, acquired a
100% interest in Metaware, Inc. doing business as Centra 2000, Inc. Financial
results for the years ended September 30, 1995, and 1994 reflect the combination
of the Company's results of operations for the years ended September 30, 1995,
and 1994 with Centra 2000, Inc. results of operations from commencement of
Centra 2000, Inc.'s operations of October 1, 1994. Both the Company and Centra
2000, Inc. were under common control at the date of acquisition.
REVENUES - For the year ended September 30, 1995, total sales and service
revenue decreased $9.5 million, or 27%, from the year ended September 30, 1994.
Total sales revenue for fiscal 1995 decreased $5.6 million, or 34%, from the
year ended September 30, 1994. Hardware revenue for fiscal 1995 declined $2.7
million or 36%, as compared to fiscal 1994. The Company continues to shift the
sales and support focus from hardware to internally developed software and
systems integration. The Company will continue to sell hardware primarily as
part of a total systems solution. Total software revenue declined $3.0 million,
or 33%, as compared to fiscal 1994. The decline can be attributed to reduced
sales of the products based on the Company's Series 5000 and 7000 platforms.
In addition, the growth in revenue from the M-CAD and PDM, and network
management products were below the Company's expectations. Delays in product
development contributed to the reduced growth in software from these newer
products. In fiscal 1994, the Company received as consideration, $702,000 from
Italcad, a former software joint venture partner, in exchange for allowing
Italcad to transfer its rights to certain technology to a newly formed company.
The Company booked this settlement as Domestic software sales. Domestic hardware
sales revenue decreased $1.5 million, or 57%, while Domestic software sales
revenue decreased $2.3 million, or 46% during fiscal 1995, excluding the Italcad
settlement. International sales revenue decreased $1.8 million, or 20% from
fiscal 1994. This decrease consisted of a favorable exchange rate variance of
4% and a 24% decrease in sales volume. The decrease in revenue was entirely due
to a decrease of $1.9 million in hardware revenue, as compared to fiscal 1994.
International software revenue increased $82,000, or 3%, as compared to fiscal
1994. Canadian sales revenue for fiscal 1995 decreased $2.0 million, or 43% as
compared to fiscal 1994. European sales revenue grew $108,000, or 3% in fiscal
1995 as compared to fiscal 1994. Increased sales of the Company's process
software in Germany accounted for the majority of the year-to-year improvement
in software sales in Europe.
For the year ended September 30, 1994, total sales and service revenue decreased
$3.3 million, or 9%, from the year ended September 30, 1993. Total sales
revenue increased $499,000, or 3%, from the year ended September 30, 1993.
Fiscal 1994 hardware sales decreased $1.4 million, or 16%, as compared to fiscal
1993. Fiscal 1994 software sales revenue increased $1.9 million, or 28%, from
the year ended September 30, 1993, reflecting growth in software revenue based
on the Series 5000 and Series 7000 platforms. Domestic and Canadian operations
both experienced an increase in sales revenue in fiscal 1994, compared to fiscal
1993. Domestic sales revenue in fiscal 1994 increased
7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-(CONTINUED)
$1.0 million, or 16% as compared to fiscal 1993. In fiscal 1994, Domestic
hardware revenue decreased $1.5 million or 44%, and Domestic software revenue
increased $2.6 million, or 80% as compared to fiscal 1993. On November 16,
1993, an agreement between the Company and Italcad was reached whereby the
Company was released of its outstanding debt plus accrued interest in exchange
for allowing Italcad to transfer its rights to certain technology to a newly
formed company. Sales revenue for the year ended September 30, 1994, included
$702,000 relating to this agreement. Fiscal 1994 European sales revenue
decreased $1.2 million, or 23%, as compared to fiscal 1993. A 9% increase was
the result of exchange rate fluctuations with approximately 14% resulting from
reduced sales volume. Fiscal 1994 Canadian sales revenue increased $984,000,
or 27%, as compared to fiscal 1993. This increase consisted of an unfavorable
exchange rate variance of 6% and a 33% increase in sales volume.
Total service revenue for the year ended September 30, 1995, decreased $3.8
million, or 21%, from the year ended September 30, 1994. Service revenue is
comprised of hardware and software maintenance, training and billable service
revenue. Hardware maintenance revenue was down $1.5 million, or 34%, while
software maintenance revenue was down $1.6 million, or 16% for fiscal 1995 as
compared to fiscal 1994. The Company experienced a decline in service revenue
in all geographic locations. As the Company shifts from being a hardware and
software solution provider to a software, systems integration, and service
provider, revenue from hardware and hardware maintenance will continue to
decline. The Company's management expects this trend to continue into the
future. The declines in software maintenance revenue can be attributed to a
lack of new software products sales combined with a decline in older products
maintenance revenue. Billable services revenue declined $902,000, or 31% from
fiscal 1994. This decline is consistent with the decline in sales revenue, as
these services are performed after the initial sale. Training revenue increased
$117,000, or 7%, as compared to fiscal 1994. This increase can be attributed to
an increased demand for Sun and HP training given in the Company's training
centers in Denver and Calgary. Domestic service revenue, which comprised 54% of
the total worldwide service revenue, declined $3.2 million, or 29%, as compared
to fiscal 1994. Canadian service revenue declined $166,000 or 5%, as compared
to fiscal 1994. European service revenue declined $473,000, or 13%, as compared
to fiscal 1994.
Total service revenue for the year ended September 30, 1994, decreased $3.8
million, or 17%, from the year ended September 30, 1993. Hardware maintenance
revenue was down $2.3 million, or 34%, as compared to fiscal 1993. Software
maintenance revenue was down $2.1 million, or 18%, for fiscal 1994 as compared
to fiscal 1993. The Company experienced a decline in service revenue in all
geographic locations. Billable services were up approximately $334,000, or 13%,
as compared to fiscal 1993. This increase can be attributed to the increase in
software sales. Domestic service revenues which comprised 63% of the total
service revenue, decreased $3.0 million, or 21%, as compared to fiscal 1993.
Canadian service revenue declined $92,000, or 3%, as compared to fiscal 1993.
European service revenue declined $821,000, or 19%, as compared to fiscal 1993.
COST OF SALES AND SERVICE - The result of operations for the year ended
September 30, 1995, continued to reflect shifts in product mix from hardware to
software and services. For the year ended September 30, 1995, gross profit
margins on total revenue increased to 58% from 54% for the year ended September
30, 1994. Gross profit margins on sales revenue for the year ending September
30, 1995, increased to 63% from 61% for the year ended September 30, 1994. In
fiscal 1995 gross profit margins on hardware declined $871,000, yielding a gross
margin of 28%, as compared to a gross margin of 30% in fiscal 1994. This
decline reflects the continued pressure on hardware pricing throughout the
computer industry. In fiscal 1995 gross profit margins on software sales
declined $2.4 million, yielding a gross margin of 91%, as compared to a gross
margin of 88% in fiscal 1994. This increase in gross profit margin can be
attributed in part to the reduction in sales of third party software sold by the
Company which has a range in costs from a few percent to 50% of the total
revenue sold.
Gross profit margins for total service revenue in fiscal 1995 decreased
$726,000, yielding a gross margin of 55%, as compared to a gross margin of 47%
in fiscal 1994. This improvement reflects Management's efforts to reduce costs
while still providing high quality support and services to customers. Gross
margins on billable services in fiscal 1995 improved to 51% from 35% in fiscal
1994. Gross margins on training were flat year-to-year at 48%. Gross profit
margins on hardware maintenance declined $1.9 million yielding gross margins of
29% in fiscal 1995 as compared to gross margins of 62% in fiscal 1994. The
decline in hardware maintenance revenue was not matched with commensurate cost
reductions in reducing hardware maintenance support costs. The Company will
continue its efforts at cost reduction measures in the coming fiscal year, to
reduce field support costs on hardware. Software maintenance
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-(CONTINUED)
gross margins improved to 66% from 44% in fiscal 1994, reflecting the Company's
efforts to control costs in its delivery of support.
For the year ended September 30, 1994, gross profit margins on total revenue
decreased $1.7 million, yielding a gross margin of 54%, unchanged from the year
ended September 30, 1993. Gross profit margin on sales revenue increased $1.4
million, yielding a gross margin of 61% from 54% in fiscal 1993. This
improvement reflects the mix shift from hardware to software products.
Gross profit margin on service revenues decreased $3.1 million, yielding a gross
margin of 47% in fiscal 1994, from 53% for fiscal 1993. The decrease can be
attributed to a reduction in revenue as most of the expenses were fixed in
nature and did not fluctuate with the decreased revenue.
RESEARCH AND PRODUCT DEVELOPMENT - Research and development expenses were
approximately 35% of revenue for the year ended September 30, 1995, and 23% and
22% of revenues for the years ended September 30, 1994 and 1993 respectively.
The change in research and development spending as a percentage of revenue in
fiscal 1995 is due in part to an increase of $925,000, or 12%, in spending
coupled with the overall 27% decrease in total revenue as compared to fiscal
1994. The increase in spending is a result of the Company continuing to invest
in new product technology.
In the year ended September 30, 1994, expenditures for research and product
development decreased $398,000, or 5%, from the year ended September 30, 1993,
as the Company focused its efforts on limited products.
In addition, the fiscal 1995 and 1994 research and product development
expenditures were restated to reflect the acquisition of Centra 2000, Inc.,
which occurred on June 30, 1995. Research and product development expenses were
increased by $689,000 and $1,232,000 for fiscal years 1994 and 1995
respectively.
MARKETING, GENERAL, AND ADMINISTRATIVE - In the year ended September 30, 1995,
marketing, and general and administrative expenses decreased $1.2 million, or
7%, from the year ended September 30, 1994. European marketing, and general and
administrative spending declined $1.0 million due to the closure of some
European offices in fiscal 1994. In fiscal 1995, Canadian marketing, general
and administrative spending declined $216,000, as compared to fiscal 1994. In
fiscal 1995, Domestic marketing, and general and administrative expenses,
increased approximately $14,000, as compared to fiscal 1994.
During fiscal 1995, the Company implemented cost containment measures to
streamline both Domestic and International operations. Implementation of these
measures resulted in a workforce reduction of 28 employees. The Company will
continue to identify and implement cost containment measures and implement them
as appropriate.
As software sales revenues increase in the future, The Company's management
expects to meet these increases without a commensurate increase in general and
administrative expenditures as an ordinary course of business. In fiscal 1996,
however, the Company expects to increase its spending in research and
development as it brings several enhanced products to the marketplace.
In the year ended September 30, 1994, marketing, and general and administrative
expenses decreased $4.6 million, or 21%, from the year ended September 30, 1993.
Of this change, Domestic marketing, and general and administrative expenses
decreased 24%, while European and Canadian related expenses decreased 18% and
14% respectively. During fiscal 1994, there was a reduction of 33 employees.
Additionally, legal fees declined $171,000 and outside services relating to
software developed for internal business use declined $173,000 in comparison to
September 30, 1993.
INTEREST - In the year ended September 30, 1995, interest expense decreased 3%
for the year ended September 30, 1994, as a result of converting $12.4 million
of related party debt to common stock in three transactions. Interest income
increased 42% from fiscal 1994, due to an increase in cash investments from an
average monthly balance of $.6 million in fiscal 1994, to $2.1 million in fiscal
1995.
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-(CONTINUED)
In the year ended September 30, 1994, interest expense decreased 13% to $863,000
from the year ended September 30, 1993, as a result of converting $4 million of
related party debt to common stock in February, 1994. In November, 1993, an
agreement between the Company and Italcad, a former joint venture partner, was
reached whereby the Company was released of its outstanding debt plus accrued
interest in exchange for allowing Italcad to transfer its rights to certain
technology to a newly formed company, which resulted in reduced interest expense
in the amount of $73,000. Interest income decreased 25%, to $188,000, from
fiscal 1993, due to a reduction of cash investments from an average monthly
balance of $1.1 million in fiscal 1993, to $.6 million in fiscal 1994.
INFLATION - The Company is affected by inflation principally through increases
in salaries and wages and by increases in prices of services, at rates
comparable to those experienced by other businesses. Historically, the impact
of inflation has been partially mitigated by general price declines in
electronic components resulting from improved technology.
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL CONDITION - At September 30, 1995, the Company had approximately $2.4
million in cash and cash equivalents, which was 6% higher than cash balances at
September 30, 1994. The Company's net working capital was approximately $1.8
million at September 30, 1995, as compared to $1.7 million at September 30,
1994. 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. However, during October
and November 1995, the Company borrowed a total of $2,000,000, with the notes
bearing interest at 10% per annum, from an affiliate of Howard B. Hillman, the
Company's President, Chairman of the Board and principal shareholder. In
December 1994, the Company paid $559,000 of accrued interest on the outstanding
related party debt of $5,998,000. As of September 30, 1995, the Company had no
material commitments for capital expenditures. On May 2, 1989, the Company
announced a program to repurchase the Company's stock in the open market. The
maximum cost of the shares to be purchased was limited to $2 million. To date,
261,400 shares have been purchased at a cost of $485,000.
During fiscal 1994, the Company received a permanent waiver of financial
covenants of its outstanding Industrial Development Revenue Bonds. The Company
received a permanent wavier of financial ratio requirements which placed
restrictions on long-term lease agreements, debt agreements, and current ratio
requirements.
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,
1996. 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, 1996.
CURRENCY FLUCTUATIONS
The Company has four wholly owned subsidiaries and one branch operation. The
four subsidiaries are located in Germany, Sweden, Canada and the United Kingdom;
the branch is located in Australia. 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, Finland and Italy. These local
currency revenues and expenses are translated into dollars for U.S. reporting
purposes. A stronger U.S. dollar will decrease the level of reported U.S.
dollar revenues and expenses. Approximately $.7 million of favorable exchange
rate variance and a $3.1 million decrease in revenue volume resulted in a $2.4
million decrease in non-U.S. revenue between 1995 and 1994. These effects on
the Company's results of operations could become significant if the percentage
of revenues and expenses attributed to International operations increases and/or
if the dollar fluctuates significantly against international currencies. The
Company's International operations are also subject to certain risks inherent in
doing business abroad and may be adversely affected by government policies,
restrictions, or other factors.
The Company does not use foreign exchange contracts, interest rate swaps, or
option contracts. Foreign currency risk for the Company is limited to
outstanding debt owed to the Company by the subsidiaries. The Company invoices
its
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-(CONTINUED)
subsidiaries in their local currencies for products that are sold to the
subsidiaries' end customers. Upon receipt of payment from the subsidiaries, a
foreign currency gain or loss can occur. As of September 30, 1995, and 1994,
the Company had realized a loss of approximately $47,000 and $83,000
respectively, through payments it had received from its subsidiaries.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of (SFAS 121) was issued in
March, 1995, by the Financial Accounting Standards Board. It requires that
long-lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. SFAS 121
is required to be adopted for fiscal years beginning after December 15, 1995.
Adopting this statement by the Company is not expected to have a significant
effect on the consolidated financial statements.
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123), was issued by the Financial Accounting Standards Board
in October, 1995. SFAS 123 establishes financial accounting and reporting
standards for stock-based employee compensation plans as well as transactions in
which an entity issues its equity instruments to acquire goods or services from
non-employees. This statement defines a fair value based method of accounting
for employee stock option or similar equity instrument, and encourages all
entities to adopt that method of accounting for all of their employee stock
compensation plans. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25, Accounting for Stock Issued to
Employees. Entities electing to remain with the accounting in Opinion 25 must
make proforma disclosures of net income and, if presented, earnings per share,
as if the fair value based method of accounting defined by SFAS 123 had been
applied. SFAS 123 is applicable to fiscal years beginning after December 15,
1995. The Company currently accounts for its equity instruments using the
accounting prescribed by Opinion 25. The Company does not currently expect to
adopt the accounting prescribed by SFAS 123; however, the Company will include
the disclosures required by SFAS 123 in future consolidated financial
statements.
11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Auto-trol Technology Corporation:
We have audited the accompanying consolidated balance sheets of Auto-trol
Technology Corporation and subsidiaries as of September 30, 1995 and 1994, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the three-year period ended September 30,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 2 to the consolidated financial statements, affiliates of
the Company's President, Chairman of the Board, and majority shareholder have
provided significant financial support to the Company during 1995 and 1994 and
in prior years. The Company will continue to be economically dependent upon
financial support from the shareholder until it achieves profitable operations.
The shareholder has committed to continue providing such financial support at
least through December 31, 1996.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Auto-trol Technology
Corporation and subsidiaries as of September 30, 1995 and 1994 and the results
of their operations and their cash flows for each of the years in the three-year
period ended September 30, 1995, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Denver, Colorado
November 10, 1995
12
AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
---------------------------
ASSETS 1995 1994
(Restated-Note 9)
---------------------------
(in thousands)
Current assets:
Cash and cash equivalents.................. $ 2,388 $ 2,245
Receivables net of allowance of
$132,000 and $134,000..................... 4,325 4,898
Inventories................................ 196 291
Service parts and prepaid expenses......... 330 799
-----------------------------
Total current assets.................... 7,239 8,233
-----------------------------
Property, facilities and equipment (Note 3):
Land....................................... 355 355
Building and improvements.................. 8,098 8,099
Machinery and equipment.................... 8,574 16,663
Furniture, fixtures and leasehold
improvements.............................. 898 1,193
-----------------------------
17,925 26,310
Less accumulated depreciation and
amortization.............................. (11,421) (19,454)
-----------------------------
6,504 6,856
-----------------------------
Purchased software, net of accumulated
amortization of $991,000 and $1,403,000...... 548 912
Other assets.................................. 97 78
-----------------------------
Total assets............................ $ 14,388 $ 16,079
=============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts Payable........................... $ 1,309 $ 2,217
Current portion of long-term debt (Note 3). 240 240
Current portion of capital lease
obligations (Note 4)...................... 254 --
Accrued interest payable; related
party portion $390,000 and $559,000....... 407 578
Income taxes payable (Note 5).............. 98 32
Unearned service revenue and customer
deposits.................................. 1,188 1,356
Accrued compensation and related taxes..... 554 493
Other liabilities.......................... 1,812 1,605
-----------------------------
Total current liabilities............... 5,862 6,521
Long-term debt, related party portion
$2,900,000 and $5,988,000 (Note 3)........... 4,820 8,148
Capital lease obligations (Note 4)............ 173 --
-----------------------------
Total liabilities....................... 10,855 14,669
-----------------------------
Shareholders' equity (Note 6):
Common stock, $.01 par value;
authorized 40,000,000 shares;
issued (including treasury shares)
39,351,811 and 21,536,192 shares.......... 393 215
Additional paid-in capital................. 71,360 58,584
Cumulative currency translation
adjustments............................... (411) (357)
Accumulated deficit........................ (67,324) (56,547)
Treasury stock - 261,400 common shares at
cost...................................... (485) (485)
-----------------------------
Total shareholders' equity.............. 3,533 1,410
Commitments and contingency (Notes 2 and 4)
-----------------------------
$ 14,388 $ 16,079
=============================
See Notes to Consolidated Financial Statements.
13
AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED
SEPTEMBER 30,
--------------------------------------------
1995 1994 1993
(Restated - Note 9)
--------------------------------------------
(in thousands, except per share amounts)
Revenues:
Sales................................ $ 10,824 $16,434 $ 15,936
Service.............................. 14,767 18,612 22,399
--------------------------------------------
25,591 35,046 38,335
--------------------------------------------
Costs and expenses:
Cost of sales........................ 4,006 6,355 7,291
Cost of service...................... 6,686 9,806 10,498
Research and product development..... 8,834 7,908 8,306
Marketing, general, and
administrative...................... 16,242 17,443 22,043
--------------------------------------------
35,768 41,512 48,138
--------------------------------------------
Loss from operations.................... (10,177) (6,466) (9,803)
Interest income......................... 267 188 250
Interest expense, related party portion
$390,000, $559,000 and $572,000........ (835) (863) (991)
--------------------------------------------
Loss before income taxes................ (10,745) (7,141) (10,544)
Income tax (expense) benefit (Note 5)... (32) 418 --
--------------------------------------------
Net loss................................ $(10,777) $(6,723) $(10,544)
============================================
Loss per share.......................... $ (.35) $ (.35) $ (1.05)
============================================
Weighted average number of common
shares outstanding..................... 30,519 19,155 10,057
============================================
See Notes to Consolidated Financial Statements.
14
AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
CUMULATIVE
COMMON STOCK ADDITIONAL CURRENCY
-------------------- PAID-IN TRANSLATION ACCUMULATED TREASURY
SHARES AMOUNT CAPITAL ADJUSTMENTS DEFICIT STOCK TOTAL
----------------------------------------------------------------------------------
(in thousands, except number of shares)
----------------------------------------------------------------------------------
Balance, October 1, 1992 6,859,601 $ 69 $46,827 $ 510 $(39,280) $(356) $ 7,770
Issuances under stock option and
compensation plans.................... 4,390 8 8
Common stock issued through conversion
of related party debt................. 9,333,333 93 6,907 7,000
Acquisition of 85,000 common shares
for treasury.......................... (128) (128)
Change in cumulative currency
translation adjustments............... (861) (861)
Net loss............................... (10,544) (10,544)
--------------------------------------------------------------------------------
Balance, September 30, 1993............. 16,197,324 162 53,742 (351) (49,824) (484) 3,245
Issuances under stock option and
compensation plans.................... 5,535 4 4
Common stock issued through conversion
of related party debt................. 5,333,333 53 3,947 4,000
Acquisition of 1,200 common shares for
treasury.............................. (1) (1)
Change in cumulative currency
translation adjustments............... (6) (6)
Capital contribution to subsidiary
acquired in business combination...... 891 891
Net loss (Restated - Note 9)........... (6,723) (6,723)
--------------------------------------------------------------------------------
Balance, September 30, 1994
(Restated - Note 9)................... 21,536,192 215 58,584 (357) (56,547) (485) 1,410
Issuances under stock option and
compensation plans.................... 19,610 13 13
Common stock issued through conversion
of related party debt................. 16,584,001 166 12,272 12,438
Capital contribution to subsidiary
acquired in business combination...... 503 503
Issuance of common stock in business
combination (Note 9).................. 1,212,008 12 (12)
Change in cumulative currency
translation adjustments............... (54) (54)
Net loss............................... (10,777) (10,777)
--------------------------------------------------------------------------------
Balance, September 30, 1995............. 39,351,811 $393 $71,360 $(411) $(67,324) $(485) $ 3,533
================================================================================
See Notes to Consolidated Financial Statements.
15
AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED
SEPTEMBER 30,
------------------------------------
1995 1994 1993
------------------------------------
(Restated Note 9)
(in thousands)
Cash flows from operating activities:
Net loss................................. $(10,777) $(6,723) $(10,544)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization........ 1,830 2,168 2,630
Loss (gain) on disposal of property,
facilities, and equipment........... 180 (82) (64)
Provision for inventory
obsolescence and shrinkage.......... 4 14 15
Changes in operating assets and
liabilities:
Decrease in receivables........... 543 987 2,915
Decrease in inventories........... 90 235 222
(Increase) decrease in service
parts and prepaids............... 466 135 (163)
Increase (decrease) in accounts
payable.......................... (917) (333) 129
Increase (decrease) in accrued
interest payable................. (171) (27) 245
Increase (decrease) in income
taxes payable.................... 66 (410) (60)
Increase (decrease) in unearned
service revenue and customer
deposits......................... (168) (103) 281
Increase (decrease) in other
liabilities...................... 196 138 (118)
Increase (decrease) in accrued
compensation and related taxes... 61 (103) (261)
Settlement of Italcad note........ -- (702) --
Foreign currency transaction
gain............................. -- -- (190)
----------------------------------
Net cash used by operating activities....... (8,597) (4,806) (4,963)
Cash flows from investing activities:
Capital expenditures..................... (1,136) (1,154) (816)
Proceeds from sale of property,
facilities and equipment................ 277 217 199
(Increase) decrease in other assets...... (19) 61 144
----------------------------------
Net cash used by investing activities....... (878) (876) (473)
Cash flows from financing activities:
Proceeds from issuance of notes
payable, related party.................. 10,350 5,100 5,950
Payments on notes payable and long term
debt, related party portion $1,000,
$200 and $0............................. (1,240) (440) (240)
Proceeds from issuance of common stock... 13 4 8
Payments to acquire treasury stock....... -- (1) (128)
Capital contributions to subsidiary...... 503 891 --
----------------------------------
Net cash provided by financing activities.. 9,626 5,554 5,590
Effect of exchange rate changes on cash..... (8) (105) (6)
----------------------------------
Net increase (decrease) in cash and cash
equivalents................................ 143 (233) 148
Cash and cash equivalents at the beginning
of the year................................ 2,245 2,478 2,330
----------------------------------
Cash and cash equivalents at the end of
the year................................... $ 2,388 $ 2,245 $ 2,478
==================================
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest, related party portion of $579,
$572 and $344........................... $ 1,006 $ 962 $ 747
Non cash financing and investing activities:
During fiscal 1995, 1994 and 1993, $12,438, $4,000 and $7,000 of related
party notes payable were converted to common stock.
During fiscal 1995, $427 in computer equipment was acquired through capital
leases.
See Notes to Consolidated Financial Statements.
16
AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995, 1994, AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
- ---------------------
The consolidated financial statements include the accounts of Auto-trol
Technology Corporation and its subsidiaries, each of which is wholly owned. All
significant intercompany transactions and balances have been eliminated in
consolidation. The Company develops, integrates and supports its products and
the products of certain third party vendors for end user markets involved in:
product data management, physical network management, mapping, technical
illustration, design, engineering, drafting and manufacturing processes. These
products are designed to facilitate the creation, distribution, analysis and
management of technical information. The Company provides systems to solve
engineering and documentation problems in the traditional Computer Aided Design
and Manufacturing markets (CAD and M-CAD).
Statement of Cash Flows
- -----------------------
Cash and cash equivalents include currency on hand, demand deposits with banks
or other financial institutions, and other highly liquid securities purchased
with an original maturity of three months or less.
Inventories
- -----------
Inventories consist of completed computer hardware units and completed
components used for resale. Inventories are stated at the lower of cost (first-
in, first-out method) or market. Service parts are recorded at cost and
amortized on the straight line method over three years or the estimated useful
lives, whichever is shorter.
Property, Facilities and Equipment
- ----------------------------------
Property, facilities, and equipment, including leasehold improvements, are
recorded at cost and depreciated or amortized on the straight line method over
the estimated useful lives of the respective assets or the lease period,
whichever is shorter. Gains and losses from retirement or replacement of
property, facilities, and equipment is included in operations. Betterments and
renewals are capitalized. Maintenance and repairs are charged to operations.
The estimated useful lives of facilities and equipment used in determining
depreciation and amortization is as follows:
Building and improvements component lives of 10-35 years
Leasehold improvements lease period
Machinery and equipment 3-7 years
Furniture and fixtures 3-7 years
Foreign Currency Exchange and Translation
- -----------------------------------------
The functional currency of the Company's foreign subsidiaries is its local
currency and such assets and liabilities are translated to U.S. dollars at year
end exchange rates. The Company does not use foreign exchange contracts,
interest rate swaps, or option contracts. Translation gains and losses are not
included in operations but are accumulated in a separate component of
shareholders' equity. Foreign currency transaction gains and losses, which were
not significant, have been included in the results of operations.
Revenue Recognition
- -------------------
Revenue is derived from equipment sales, software license fees, related customer
support contracts, and other support services. Revenues from the sale of
equipment and software licenses are generally recorded at the time of delivery
to the customer. Revenues are deferred if significant future obligations are to
be fulfilled or if collection is not probable. Post-sales customer support
revenues are recognized ratably over the contract period. Included in post-
contract support costs are direct costs paid to third-party vendors, which are
expensed as incurred. In addition, labor and overhead expenses relating to
support personnel are included in cost of service and are expensed as incurred.
The Company provides a warranty for its products, generally for ninety days from
the date of installation, and establishes an allowance to cover warranty costs
during this period. Service contract revenues are recognized as the services
are performed.
17
AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Research and Development
- ------------------------
The Company accounts for its research and product development costs according to
Statement of Financial Accounting Standards No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed (SFAS 86).
Amortization of Software
- ------------------------
Purchased software acquired for use in the business includes the cost of
software acquired through acquisitions and from third-party vendors.
Amortization of these costs is included in research and product development or
marketing, general, and administrative expenses depending on the application of
the software. Such costs are amortized using the straight-line method over the
estimated useful lives ranging from three to five years. Software amortization
expense was $365,000, $351,000, and $311,000 for the years ended September 30,
1995, 1994, and 1993, respectively.
Software Royalties
- ------------------
The Company pays royalties for software licensed from third-party vendors for
sublicense to the Company's customers. Total royalty expense incurred for
third-party software was approximately $112,000, $340,000, and $537,000 for
fiscal years ended September 30, 1995, 1994, and 1993, respectively. These
costs are included in cost of sales.
Loss Per Share
- --------------
Loss per share is computed on the basis of the weighted average number of common
shares outstanding and is adjusted, if applicable, for common stock equivalent
shares. For the years ended September 30, 1995, 1994, and 1993, the weighted
average number of shares outstanding includes no weighted common stock
equivalent shares because their effect would be antidilutive.
2. ECONOMIC DEPENDENCY ON MAJORITY SHAREHOLDER:
During fiscal years 1995, 1994 and 1993, affiliates of the Company's President,
Chairman of the Board, and majority shareholder loaned the Company $10,350,000,
$5,100,000 and $5,950,000 respectively. The Company converted $12,438,000,
$4,000,000 and $7,000,000 to equity in 1995, 1994 and 1993 respectively, and
repaid $1,000,000 in 1995. The shareholder loan balance at September 30, 1995,
was $2,900,000. The notes are unsecured and are due on October 1, 1997, bearing
interest at 10% per annum. The Company borrowed a total of $2,000,000 in
October and November 1995. The Company will continue to be economically
dependent upon such financial support until it achieves profitable operations.
The shareholder has committed, in writing, to continue providing the Company
such financial support at least through December 31, 1996.
3. DEBT:
Long-term debt consists of the 1995 1994
following as of September 30, ---- ----
(in thousands)
Related party debt (see note 2)........................ $2,900 $5,988
Industrial Development Revenue Bonds(a)................ 2,160 2,400
-------------------
5,060 8,388
Less current portion of long-term debt................. (240) (240)
-------------------
$4,820 $8,148
===================
Maturities of long-term debt for each of the five years subsequent to September
30, 1995, and thereafter are as follows:
1996........................................... $ 240
1997........................................... 3,140
1998........................................... 240
1999........................................... 240
2000........................................... 240
Thereafter..................................... 960
---------
$5,060
=========
18
AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(a) The Industrial Development Revenue Bonds were issued by the City of
Thornton, Colorado, to finance the cost of the Company's corporate headquarters.
The bonds bear interest at 8%, are payable in annual installments of $240,000
through August, 2004, and are collateralized by a mortgage indenture on the
facilities. The indenture has debt covenants which place certain limitations on
the Company, including restrictions on the sale of assets, and certain common
stock transactions including payment of dividends. During fiscal 1994, the
Company received a permanent waiver of financial ratio requirements which placed
restrictions on long-term lease agreements, debt agreements, and current ratio
requirements.
4. LEASES:
The Company leases certain office facilities and equipment under operating
leases expiring at various dates through fiscal 2006. The Company also leases
computer equipment under capital leases which expire through fiscal 1997.
As of September 30, 1995, the future minimum lease payments under capital and
noncancellable operating leases (with initial or remaining lease terms in excess
of one year) are as follows:
YEAR ENDING SEPTEMBER 30, CAPITAL LEASES OPERATING LEASES
------------------------------------------------------------------------------------------
(in thousands)
1996.................................................... $ 271 $1,698
1997.................................................... 178 1,300
1998.................................................... -- 933
1999.................................................... -- 681
2000.................................................... -- 149
Thereafter.............................................. -- 308
----------------------------------
Total minimum lease payments............................ 449 $5,069
==================
Less amount representing interest....................... (22)
----------------
Present value of net minimum lease payments............. 427
Less current portion of capital lease obligations....... (254)
----------------
$ 173
================
There are no material subleases or contingent rentals related to the leases, and
the lease payments include no executory costs. Aggregate rental expense under
operating leases was $1,964,000, $2,035,000, and $1,809,000 for the years ended
September 30, 1995, 1994, and 1993, respectively.
5. INCOME TAXES:
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109),
which requires the use of the asset and liability method of accounting for
income taxes. Under the asset and liability method required by SFAS 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS 109 the effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Based on the uncertainty of future realization, a valuation allowance equal to
the deferred tax asset relating to the Company's net operating loss carry
forwards for income tax purposes of approximately $40.7 million has been
provided.
19
AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of September 30, 1993, the Company had an accrued tax liability of $232,000
relating to a dispute with the German tax authorities concerning the
subsidiary's loss carry forward for its German subsidiary. As a conservative
measure the Company had accrued the liability in the event the German tax
authorities would not accept the Company's loss carry forward calculation.
During the second quarter of 1994, the Company reached an agreement with the
German tax authorities whereby the Company's loss carry forward was accepted as
correct. As a result, the Company realized a tax benefit of $232,000 during the
second quarter of 1994.
The components of the current provisions for income taxes are as follows:
YEAR ENDED
SEPTEMBER 30,
--------------------
1995 1994 1993
---- ------ ----
(in thousands)
Foreign income tax expense (benefit) $32 $(232) $ --
United States tax expense (benefit) -- (186) --
-------------------
Total income tax expense (benefit) $32 $(418) $ --
===================
The following summarizes the amount of the Company's loss, before income taxes,
contributed by domestic and foreign operations:
YEAR ENDED
SEPTEMBER 30,
-------------------------------
1995 1994 1993
---- ---- ----
(Restated - Note 9)
(in thousands)
United States $ (8,650) $(4,878) $ (7,953)
Foreign (2,095) (2,263) (2,591)
-------------------------------
$(10,745) $(7,141) $(10,544)
===============================
The Company's effective tax rate varies from the statutory federal income tax
rate as follows:
YEAR ENDED
SEPTEMBER 30,
----------------------------------
1995 1994 1993
---- ---- ----
Expected federal income tax benefit (34.0)% (34.0)% (34.0)%
Net operating loss carryforwards for
which no benefit has been realized 34.0 31.1 34.0
Foreign income tax benefit -- (3.9) --
----------------------------------
Actual tax rate -- (6.8)% --
==================================
6. SHAREHOLDERS' EQUITY:
STOCK REPURCHASE PROGRAM - On May 2, 1989, the Company established a program to
repurchase its common stock in the marketplace from time to time depending on
market prices and other market conditions. The maximum cost of shares to be
repurchased under the program is limited to $2,000,000. As of September 30,
1995, 261,400 shares have been repurchased under this program.
20
AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STOCK OPTIONS - The Company has in effect two stock option plans: an Incentive
Stock Option Plan and a Special Purpose Plan. As amended by the shareholders in
January, 1992, the shares of the two plans were pooled resulting in 1,350,000
shares of common stock that have been authorized for issuance thereunder.
Information with respect to activity under the stock option plans is set forth
below:
YEAR ENDED
SEPTEMBER 30,
----------------------------------
1995 1994 1993
---- ---- ----
Options outstanding, beginning of year.. 421,490 433,950 377,835
Granted................................. 339,083 73,900 278,325
Canceled................................ (140,640) (85,220) (222,210)
Exercised............................... (8,650) (1,140) --
-----------------------------------
Options outstanding, end of year........ (1) 611,283 421,490 433,950
===================================
Options exercisable, end of year........ 118,640 78,830 84,580
===================================
(1) Options outstanding as of September 30, 1995, have exercise prices ranging
from $.375 to $2.00 per share with expiration through the year 2005. The
exercise price of the shares at date of grant is established as the market price
as of that date.
EMPLOYEE STOCK PURCHASE PLAN - The Company has an Employee Stock Purchase Plan,
under which 229,645 shares are available for purchase by employees as of
September 30, 1995. Employees have purchased 15,355 shares of common stock
under the Company's Employee Stock Purchase Plan through September 30, 1995.
7. EMPLOYEE RETIREMENT PLAN:
The Retirement Savings Plan (Plan) is a cash or deferred profit-sharing plan
designed to comply with the requirements of Section 401(a) and 401(k) of the
Internal Revenue Code of 1986. Substantially all employees of the Company with
six months of service are eligible to participate in the Plan; however, certain
employee groups may be made ineligible at the discretion of the Company. The
Plan's funds are invested by an independent broker into various funds as
selected by the 401(k) Committee. Plan funds may not be invested in common
stock of the Company. Under the Plan, employees may contribute ten dollars,
plus from 1% to 15% of their compensation per pay period, to a tax deferral
account subject to statutory maximums. The Company will contribute to the
account of a participant an amount equal to the employee's contribution up to
ten dollars per pay period. The Company recognized expense related to the Plan
of approximately $46,000, $53,000, and $70,000 in the years ended September 30,
1995, 1994, and 1993, respectively. The Board of Directors may, at its
discretion, terminate the plan at any time in whole or in part. Upon such
termination, the Plan provides for the distribution of the assets of the fund
for the benefit of its participants.
21
AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. FOREIGN AND DOMESTIC OPERATIONS:
Revenues, operating results before unallocated expenses, and identifiable assets
for the three years ended September 30, 1995 by geographic area are presented in
the table below. There were no significant amounts of sales or transfers
between foreign areas.
YEAR ENDED SEPTEMBER 30,
----------------------------------
1995 1994 1993
---- ---- ----
(Restated - Note 9)
(in thousands)
Revenues:
Domestic................................. $ 11,304 $18,766 $ 20,709
Europe................................... 7,192 7,557 9,606
Canada................................... 6,040 8,169 7,277
Other (1)................................ 1,055 554 743
----------------------------------
$ 25,591 $35,046 $ 38,335
==================================
Loss before income taxes:
Domestic................................. $ (5,619) $ (745) $ (4,350)
Europe................................... (3,870) (4,653) (5,029)
Canada................................... (1,006) (764) (1,132)
Other.................................... (250) (979) (33)
----------------------------------
Consolidated loss before income taxes (2)... $(10,745) $(7,141) $(10,544)
==================================
Identifiable assets at year end:
Domestic................................. $ 9,052 $10,360 $ 12,298
Europe................................... 1,978 2,865 3,487
Canada................................... 3,017 2,345 2,675
Other.................................... 341 509 366
----------------------------------
$ 14,388 $16,079 $ 18,826
==================================
(1) Export sales were made to various international distributors and through
the Company's sales office in Australia. No one customer accounted for 10% or
more of total sales for the years ended September 30, 1995, 1994 and 1993.
(2) Research and development expenses have been allocated to each geographic
area based on the revenues generated by each area from internally-developed
software products. Management believes this to be a reasonable method for
allocating research and development expenses.
Interest expense has been allocated to each geographic area based on subsidiary
assets and liabilities funded by Domestic operations.
9. BUSINESS COMBINATION WITH RELATED PARTY:
On June 30, 1995, AT Development Inc., a wholly owned subsidiary of Auto-trol
Technology Corporation, acquired a 100% interest in Metaware, Inc., doing
business as Centra 2000, Inc. The consideration for the purchase was four
shares of Auto-trol Technology Corporation common stock for each share of Centra
2000, Inc. common stock outstanding. The 1,212,008 shares of Auto-trol
Technology Corporation common stock exchanged were not registered under Federal
or State securities laws and are subject to restrictions on resale. Additional
consideration for existing Centra 2000, Inc. shareholders consists of a cash
bonus and stock in Auto-trol Technology Corporation in each of the next four
years, which is contingent upon meeting a development schedule and market
acceptance of the Centra 2000 product.
22
AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Auto-trol Technology Corporation's President and Chairman of the Board, Howard
B. Hillman, controls, through various affiliates, the majority of the
outstanding shares of capital stock of both Auto-trol Technology Corporation and
Centra 2000, Inc. (Centra).
The effect of applying the purchase method of accounting to the acquisition of
the common stock of Centra owned by the other shareholders was not significant.
Accordingly, the acquisition has been accounted for in a manner similar to a
pooling of interests of entities under common control. The accompanying
consolidated financial statements have been restated for all periods prior to
the merger to include the accounts and operations of Centra with those of the
Company from the commencement of Centra's operations of October 1, 1994. For
income tax purposes, the merger was a nontaxable transaction. Prior to the
merger, Centra's fiscal year end was December 31. In connection with the
business combination, Centra's financial statements were restated to conform to
the Company's September 30 fiscal year end. The total assets of Centra
consisted of cash, office furniture and computer equipment, and intangible
assets. The office furniture and computer equipment included in the acquisition
will continue to be used at the subsidiary in the development of software
products.
The table below sets forth the composition of the consolidated net revenues and
net losses for the years ended September 30, 1995, and 1994 prior to the merger
and as restated for the business combination.
YEAR ENDED
SEPTEMBER 30,
1995 1994
------------------------
(in thousands)
Net Revenues:
Prior to the merger:
Auto-trol Technology Corporation $ 25,494 $35,011
Centra 2000, Inc. 97 35
--------------------------
As Restated $ 25,591 $35,046
==========================
Net Loss:
Prior to the merger:
Auto-trol Technology Corporation $(10,109) $(5,742)
Centra 2000, Inc. (668) (981)
--------------------------
As Restated $(10,777) $(6,723)
==========================
The effects of restating the Company's September 30, 1994, consolidated balance
sheet for the business combination were not significant. Intercompany
transactions between Centra and the Company prior to the date of the combination
have been eliminated.
23
AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this Item is contained in the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held on January 30, 1996, under the caption
"Election of Directors" and "Executive Officers", and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The response to this Item is contained in the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held on January 30, 1996, under the caption
"Executive Compensation", and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The response to this Item is contained in the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held on January 30, 1996, under the caption
"Voting Securities and Principal Shareholders", and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this Item is contained in the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held on January 30, 1996, under the caption
"Certain Relationships and Related Transactions", and is incorporated herein by
reference.
The Company intends to file definitive copies of the Proxy Statement with the
Securities and Exchange Commission within 120 days after September 30, 1995, the
close of its last fiscal period, and pursuant to General Instruction G to Form
10-K. Information called for by these items is incorporated herein by reference
from such definitive Proxy Statement.
24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
PAGE
-----
(A) 1. FINANCIAL STATEMENTS
The following Consolidated Financial Statements of Auto-trol
Technology Corporation are included in Part II, Item 8:
Independent Auditors' Report....................................... 12
Consolidated Balance Sheets - September 30, 1995, and 1994......... 13
Consolidated Statements of Operations - years ended September 30,
1995, 1994, and 1993............................................. 14
Consolidated Statements of Shareholders' Equity - years ended
September 30, 1995, 1994, and 1993............................... 15
Consolidated Statements of Cash Flows - years ended September 30,
1995, 1994, and 1993............................................. 16
Notes to Consolidated Financial Statements......................... 17-24
2. FINANCIAL STATEMENT SCHEDULE
Independent Auditors' Report....................................... 26
Schedule II - Valuation and qualifying accounts and reserves -
years ended September 30, 1995, 1994, and 1993................... 27
All other schedules are omitted because they are inapplicable, not required
under the instructions, or the information is included in the Consolidated
Financial Statements or notes thereto.
3. EXHIBITS
Exhibit
number Description of Exhibit
------ -----------------------
3.1 Articles of Incorporation*
3.2 Amendment to Articles of Incorporation**
3.3 Bylaws*
3.4 Amendment to Bylaws**
4.1 Specimen Certificate*
4.2 Copies of Industrial Development Revenue Bond documents*
4.3 Specimen Debentures, Warrants, Royalty Agreement, and Royalty
Certificate issued to purchase Research and Development Limited
Partnership Interests+
10.1 Copy of Incentive Stock Option Plan, as amended through January
28, 1992++
10.2 Copy of Special Purpose Stock Option Plan, as amended through
January 28, 1992++
10.3 Agreement with Sun Microsystems, Inc. dated April 30, 1993+++
10.4 Agreement with HP/Apollo Computer, Inc. dated July 4, 1994+++
10.5 Agreement with Howard B. Hillman dated November 1, 1995
21 Subsidiaries of the Registrant
24 Consent of KPMG Peat Marwick LLP
* Incorporated by reference from Registration Statement No. 2-63253, filed
January 24, 1979.
** Incorporated by reference from Registration Statement No. 2-73702, filed
August 14, 1981.
+ Incorporated by reference from Form 10-K for fiscal year ended September 30,
1988, dated December 14, 1988.
++ Incorporated by reference from Form 10-K for fiscal year ended September 30,
1993, dated December 18, 1992.
+++ Incorporated by reference from Form 10-K for fiscal year ended September
30, 1994, dated December 14, 1994.
(B) REPORTS ON FORM 8-K
A Form 8-K was filed July 14, 1995, for the acquisition of Centra 2000, Inc. on
June 30, 1995.
25
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Auto-trol Technology Corporation:
Under date of November 10, 1995, we reported on the consolidated balance
sheets of Auto-trol Technology Corporation and subsidiaries as of September 30,
1995, and 1994, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the years in the three-year
period ended September 30, 1995, as contained in the Company's Annual Report on
Form 10-K for the year 1995. In connection with our audits of the
aforementioned consolidated financial statements, we have also audited the
related financial statement schedule listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
As discussed in Note 2 to the consolidated financial statements, affiliates
of the Company's President, Chairman of the Board, and majority shareholder have
provided significant financial support to the Company during 1995 and 1994 and
in prior years. The Company will continue to be economically dependent upon
financial support from the shareholder until it achieves profitable operations.
The shareholder has committed to continue providing such financial support at
least through December 31, 1996.
In our opinion, this financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth herein.
KPMG PEAT MARWICK LLP
Denver, Colorado
November 10, 1995
26
AUTO-TROL TECHNOLOGY CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SEPTEMBER 30, 1995
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- ---------- ---------- ---------- ---------
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ---------------------------------------------------------------------------------------
(in thousands)
YEAR ENDED SEPTEMBER 30, 1995:
Allowance for doubtful accounts...... $ 134 $ 61 $ 63 $ 132
Reserve for inventory obsolescence
and shrinkage....................... 22 60 24 58
Accumulated amortization of service
parts............................... 996 18 33 981
Valuation reserve for machinery and
equipment........................... 306 - - 306
Reserve for warranty and unearned
discounts........................... 100 3 48 55
-----------------------------------------------
$1,558 $142 $ 168 $1,532
===============================================
YEAR ENDED SEPTEMBER 30, 1994:
Allowance for doubtful accounts...... $ 661 $ 31 $ 558 $ 134
Reserve for inventory obsolescence
and shrinkage....................... 32 17 27 22
Accumulated amortization of service
parts............................... 1,482 39 525 996
Valuation reserve for machinery and
equipment........................... 306 - - 306
Reserve for warranty and unearned
discounts........................... 54 50 4 100
-----------------------------------------------
$2,535 $137 $1,114 $1,558
===============================================
YEAR ENDED SEPTEMBER 30, 1993:
Allowance for doubtful accounts...... $ 260 $696 $ 295 $ 661
Reserve for inventory obsolescence
and shrinkage....................... 78 25 71 32
Accumulated amortization of service
parts............................... 2,114 - 632 1,482
Valuation reserve for machinery and
equipment........................... 306 - - 306
Reserve for warranty and unearned
discounts........................... 58 - 4 54
-----------------------------------------------
$2,816 $721 $1,002 $2,535
===============================================
See accompanying independent auditors' report
27
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Auto-trol Technology Corporation
We consent to the incorporation by reference in the registration statements
Nos. 2-66611, 2-73702, 2-80142, 33-637, and 33-15533 on Form S-8 of Auto-trol
Technology Corporation of our reports dated November 10, 1995, relating to the
consolidated balance sheets of Auto-trol Technology Corporation and subsidiaries
as of September 30, 1995 and 1994, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the years in the
three-year period ended September 30, 1995, and the related financial statement
schedule, which reports appear in the September 30, 1995, annual report on Form
10-K of Auto-trol Technology Corporation.
KPMG PEAT MARWICK LLP
Denver, Colorado
December 12, 1995
28
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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
Date: DECEMBER 14, 1995 By: /s/HOWARD B. HILLMAN
---------------------------
Howard B. Hillman,
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/HOWARD B. HILLMAN Chairman of the Board President December 14, 1995
- --------------------------- (Principal Executive Officer)
Howard B. Hillman
/s/DAVID C. O'BRIEN Vice President, Treasurer December 14, 1995
- --------------------------- (Principal Financial Officer
David C. O'Brien and Principal Accounting
Officer)
/s/MAJOR GENERAL WILLIAM R. USHER,USAF (RET.) Director December 14, 1995
- ---------------------------------------------
Major General William R. Usher (Ret.)*
/s/J. RODERICK HELLER, III Director December 14, 1995
- ---------------------------
J. Roderick Heller, III*
*Howard B. Hillman is the Attorney in fact for:
MAJOR GENERAL WILLIAM R. USHER, USAF (RET.) and
- -----------------------------------------------
J. RODERICK HELLER, III
- -----------------------
29
EXHIBIT INDEX
Exhibit
number Description of Exhibit Page
------ ----------------------- ----
3.1 Articles of Incorporation*
3.2 Amendment to Articles of Incorporation**
3.3 Bylaws*
3.4 Amendment to Bylaws**
4.1 Specimen Certificate*
4.2 Copies of Industrial Development Revenue Bond documents*
4.3 Specimen Debentures, Warrants, Royalty Agreement, and Royalty Certificate issued to purchase
Research and Development Limited Partnership Interests+
10.1 Copy of Incentive Stock Option Plan, as amended through January 28, 1992++
10.2 Copy of Special Purpose Stock Option Plan, as amended through January 28, 1992++
10.3 Agreement with Sun Microsystems, Inc. dated April 30, 1993+++
10.4 Agreement with HP/Apollo Computer, Inc. dated July 4, 1994+++
10.5 Agreement with Howard B. Hillman dated November 1, 1995 31
21 Subsidiaries of the Registrant 32
24 Consent of KPMG Peat Marwick LLP 28
* Incorporated by reference from Registration Statement No. 2-63253, filed
January 24, 1979.
** Incorporated by reference from Registration Statement No. 2-73702, filed
August 14, 1981.
+ Incorporated by reference from Form 10-K for fiscal year ended September 30,
1988, dated December 14, 1988.
++ Incorporated by reference from Form 10-K for fiscal year ended September 30,
1993, dated December 18, 1992.
+++ Incorporated by reference from Form 10-K For fiscal year ended September
30, 1994, dated December 14, 1994.
30