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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, 1997
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, $.02 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 9, 1997, was $20,945,619 based on the closing sale
price on such date. The aggregate number of shares of common stock outstanding
on December 9, 1997, was 9,309,164.
Document Incorporated by Reference: Proxy Statement and Notice of Annual
Meeting of Shareholders to be held on January 27, 1998: 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, 1997
TABLE OF CONTENTS
PAGE
PART I ----
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 11
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 23
PART III
Item 10. Directors and Executive Officers of the Registrant 23
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial Owners and Management 23
Item 13. Certain Relationships and Related Transactions 23
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 24
Signatures 28
ITEM 1. BUSINESS
GENERAL
The following discussion contains forward-looking statements that are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those projected. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
of this report. Auto-trol Technology Corporation undertakes no obligation to
publicly release the results of any revisions to these forward-looking
statements that may be necessary to reflect events or circumstances after the
date of this report or to reflect the occurrence of unanticipated events.
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 software products and the software products of certain
third-party vendors for end user markets involved in: product data
management, physical network management, mapping, technical illustration, and
engineering. Historically, the Company sold proprietary hardware products and
Manufacturing Computer Aided Design (MCAD) software. Both the competitive
pressures and market maturity in the MCAD marketplace and reduced margins on
hardware products have caused the Company to sell less MCAD software and
hardware to its customers than in past years. The Company continues to shift
its sales and support focus from hardware and MCAD software to internally
developed data management, network communications, graphics software and
systems integration. Auto-trol believes that by offering customers a broad
spectrum of applications and options, from analysis through implementation
and ongoing support, it 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.
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 Engineering Data
Management (EDM)/Product Data Management (PDM) functions, CENTRA 2000 manages
pure data environments, audio/video, and large document assemblies. The product
is designed to fit a customer's environment with a general focus on automating
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,
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-Registered Trademark-'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.
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 the
Company's flagship product for more than a dozen years, Series 5000 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.
1
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
"off-the-shelf" solution set that augments illustration productivity. 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-Registered Trademark- 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.
SOFTWARE
Approximately 33%, 26% and 23% of total revenue was comprised of software sales
for the years ended September 30, 1997, 1996 and 1995 respectively. During the
year ended September 30, 1997, revenues from Hutchinson Technology, Inc.
represented approximately 11% of total revenues, which include software and
services.
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 regarding the Company's suppliers, see
subheading "Sources of Supply" under Item 1. Approximately 8%, 17% and 19% of
total revenue was comprised of hardware sales for the years ended September 30,
1997, 1996 and 1995 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 are billed at standard rates. Approximately 14%, 10%, and 8% of total
revenue was comprised of consulting service revenue for the years ended
September 30, 1997, 1996 and 1995 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
internationally. Approximately 9%, 8%, and 7% of total revenue was comprised of
educational service revenue for the years ended September 30, 1997, 1996 and
1995 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 16% 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 36%, 39% and 43%
of total revenue was comprised of customer support revenue for the years ended
September 30, 1997, 1996 and 1995 respectively.
2
RESEARCH AND PRODUCT DEVELOPMENT
Approximately 37% of Auto-trol's employees are engaged in research and product
development activities. The Company has made and will continue to make
significant investment in product development and enhancement due to rapidly
changing technology, competitive pressures, and customer demands. During
September 1996, the Company announced that it had ceased development work on its
Mozaic suite of applications. The decision was prompted by competitive
pressures and the decision to focus the Company's development and marketing
efforts on its other products. Research and product development expenditures as
a percentage of the Company's revenues from 1995 through 1997 were as follows:
YEAR ENDED SEPTEMBER 30,
-----------------------------
1997 1996 1995
---- ---- ----
(in thousands)
Mozaic research and product development expense $0 $3,274 $3,762
Mozaic percent of total revenues 0% 15% 15%
Total research and product development expense $6,464 $9,176 $8,834
Percent of total revenues 33% 43% 35%
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 and third parties in
the United States from its eight domestic sales offices. The Company markets
its products in Europe through wholly owned subsidiaries with offices located in
Germany 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 Sweden 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 presents the revenue comprised of 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,
-----------------------------
1997 1996 1995
---- ---- ----
(in thousands)
Foreign total revenues $8,741 $11,034 $14,287
Percent of total revenues 44% 53% 56%
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 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 Software License
Agreement provides for a transfer of the product, but limits disclosure of the
software to third parties. Auto-trol offers a thirty day warranty on its
software products. Auto-trol will administer and recognize vendor warranties of
third-party software products. Payment terms are generally net thirty 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.
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 $1.3 million as of September 30, 1997,
compared to $1.7 million as of September 30, 1996.
3
COMPETITION
Within the Product Data Management market, the Company's primary competitors are
Sherpa Corporation, Documentum Inc., Structural Dynamic Research Company (SDRC)
and Matrix One, Inc. Intergraph Corporation and The IsoDraw Company are
competitors in the technical illustration market. Cambio Networks, Inc. and
Accugraph Corporation are the primary competitors in the physical electronic
network market. 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 application products, short
implementation time with superior 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 or third party software
products 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 renews annually and is currently effective
through September 1998. Pursuant to this 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 agreement in place with Sun also renews annually and is currently
effective until September 1998. Pursuant to this 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.
YEAR 2000 COMPLIANCE
Pursuant to maintenance agreements with certain of its customers with respect
to Company-developed products, the Company is obligated to provide such
customers with program updates, error correction and other technical support.
These maintenance agreements generally expire at the time the Company
notifies its customers that it will no longer provide technical support for a
Company-developed product. Maintenance agreements currently in effect also
require the Company to correct substantial defects in the software, which may
include the program's inability to interpret properly, dates for the year
2000 and beyond (the "year 2000 problem"). With the exception of the
Geostation product, the Company believes that all of the software products
that are the subject of existing maintenance agreements are year 2000
compliant. However, there can be no assurance that the Company has
identified all year 2000 problems in the software that is currently supported
by the Company, and any failure by the Company to identify any such problem
could have a material adverse effect on the Company. The Company is
currently developing solutions to the year 2000 problem for its Geostation
product.
The Company also has reviewed its internal business information systems to
determine whether such systems are year 2000 compliant. Auto-trol does not
believe that the costs of achieving year 2000 compliance with respect to such
internal systems will have a material adverse effect on the Company.
4
PATENTS AND LICENSES
The Company holds three patents issued in the United States for vector
drawings and polygon display. Generally, the Company seeks to protect
aspects of its systems through trade secret protection. The Company's
standard Software 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 Software 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.
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, 1997, Auto-trol had 246 employees,
which includes 91 in research and development, 40 in customer support, 41 in
administrative support, 69 in sales and support, and 5 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
subleases 22,500 square feet to an unrelated party on a five year lease which
expires on January 31, 2002.
The Company also leases approximately 27,000 square feet of office space
throughout the United States, approximately 28,000 square feet in Canada,
approximately 1,600 square feet in Australia, and approximately 11,000 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
Prior to October 20, 1997, the Company's common stock was traded on the NASDAQ
National Market System under the symbol ATTC. On October 20, 1997, NASDAQ
delisted the Company's common stock from the National Market System and accepted
the common stock from trading on the Over The Counter Market System. The
Company's common stock is traded on the NASDAQ Over The Counter 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 through October 17,
1997 and the National Over The Counter Market System from October 20, 1997 for
the common stock for the fiscal quarters indicated, as reported by NASDAQ.
(Restated to reflect the one-for-ten reverse stock split effective January
30,1996.)
FISCAL FISCAL
1997 1996
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HIGH LOW HIGH LOW
---- --- ---- ---
First Quarter $6 $3 $11-2/3 $5
Second Quarter 3-1/2 3 $6-7/8 3-1/2
Third Quarter 4 1-1/2 8 1
Fourth Quarter 4 2-1/2 6-1/4 3
As of December 9, 1997, there were 668 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,
----------------------------------------------------
1997 1996 1995 1994(1) 1993
---- ---- ---- ---- ----
(in thousands, except per share data)
OPERATIONS DATA:
Revenues $19,739 $ 21,231 $ 25,591 $35,046 $ 38,335
Net loss (7,786) (11,787) (10,777) (6,723) (10,544)
Loss per share(2) (.91) (2.32) (3.53) (3.51) (10.48)
Weighted average number of
common shares outstanding(2) 8,554 5,086 3,052 1,916 1,006
BALANCE SHEET DATA:
Working capital $ 416 $ 268 $ 1,377 $ 1,712 $ 1,893
Total assets 11,802 12,850 14,388 16,079 18,826
Current portion of long-term
debt and capital lease
obligations 247 368 494 240 869
Long-term debt and capital lease
obligations 6,415 3,588 4,993 8,148 7,488
Shareholders' equity 552 3,685 3,533 1,410 3,245
(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.
(2) Restated to reflect the one-for-ten reverse stock split effective January
30, 1996.
6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the following
discussions contain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from
those discussed here. The Company undertakes no obligation to revise any
forward-looking statements in order to reflect events or circumstances that
may subsequently arise. Some additional factors, among others, that also
need to be considered are: the likelihood that actual future revenues that
are realized may differ from those inferred from existing total backlog; the
ability of the Company to attract and retain highly trained professional
employees; the delay or deferral of customer implementations; the Company's
success in expanding its direct sales force and indirect distribution
channels; the timing of new product introductions and product enhancements by
the Company and its competitors; the mix of products and services sold;
levels of international sales; and the ability of the Company to develop and
market new products and control costs and general domestic and international
economic and political conditions.
RESULTS OF OPERATIONS
OVERVIEW
During fiscal 1997, the Company focused its sales efforts primarily on
internally developed software and system integration services along with the
development of alternative distribution channels. Operating losses continued for
the ninth consecutive year due primarily to the lack of revenue growth from
products under development in the EPS and network configuration markets; slower
than expected penetration in the PDM market; the reduction of the maintenance
income stream from legacy software products and significantly less hardware
sales. However, the Company had a profitable fourth quarter in fiscal 1997 due
to a $1.0 million sale to a significant customer in September 1997. Although
the Company's PDM and network configuration software sales and maintenance
revenue increased during fiscal 1997, it was not sufficient to offset expenses.
The PDM and network configuration revenues were also affected in part by the
delay of customer implementations, product development delays as well as an
increased complexity of the sales cycle in these markets. The Company continues
to believe that its PDM, EPS and network configuration products in these market
areas, when complete, will present a unique complementary combination that will
differentiate the Company from its competitors. Mid-year the Company
restructured its operations in Europe by liquidating its subsidiary in Sweden,
while developing a Swedish distributor relationship, and reduced operating
expenses in its subsidiaries in Germany and England. The liquidation of the
Swedish operations did not result in a significant loss to the Company.
Additionally, North American operational expenses were reduced to match the
Company's main focus.
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 1997, the Company had new software product releases
for its PDM 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.
REVENUES - For the year ended September 30, 1997, total sales and service
revenue decreased $1.5 million, or 7%, from the year ended September 30, 1996.
Total sales revenue for fiscal 1997 decreased $1.0 million, or 11%, from the
year ended September 30, 1996. Hardware revenue for fiscal 1997 declined $2.0
million or 56%, as compared to fiscal 1996 as the Company continued to shift its
sales and support focus from hardware to internally developed software and
systems integration. Total software revenue increased $1.0 million, or 18%, as
compared to fiscal 1996. This increase can be attributed primarily to higher
PDM software sales and increased sales of third party software products. The
Company had an increase in revenues from its own proprietary software amounting
to $748,000 or 14% as compared to fiscal 1996. North American hardware sales
revenue decreased $554,000, or 33%, while software sales revenue increased $1.3
million, or 33% during fiscal 1997. European sales revenue decreased $1.7
million or 56% from fiscal 1996. The European revenue reduction was due to a
decrease of $1.3 million in hardware revenue, or 81%, and a software revenue
decrease of $449,000, or 29%, as compared to fiscal 1996. Approximately 10% of
this decrease was due to unfavorable exchange rates and the remainder was due to
decreased sales volume. During fiscal 1997 the Company restructured all of its
international subsidiaries and closed its Swedish subsidiary by transferring the
majority of its customers and employees to a Swedish distributor. All these
activities were a direct result of lower than expected revenues during the first
half of fiscal 1997.
7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-(CONTINUED)
For the year ended September 30, 1996, total sales and service revenue
decreased $4.4 million, or 17%, from the year ended September 30, 1995.
Total sales revenue for fiscal 1996 decreased $1.7 million, or 16%, from the
year ended September 30, 1995. Hardware revenue for fiscal 1996 declined
$1.3 million or 27%, as compared to fiscal 1995 as the Company focused its
selling efforts on proprietary software sales. Total software revenue
declined $367,000, or 6%, as compared to fiscal 1995. The decline can be
attributed primarily to a revenue reduction of $923,000 for sales of third
party software products. The Company had an increase in revenues from its
own proprietary software amounting to $556,000, or 12% as compared to fiscal
1995. North American hardware sales revenue decreased $1.2 million, or 41%,
while North American software sales revenue increased $234,000, or 6% during
fiscal 1996. European sales revenue decreased $1.0 million or 25% from
fiscal 1995. The European revenue reduction was due to a decrease of
$434,000 in hardware revenue, or 21%, and a software revenue decrease of
$582,000, or 28%, as compared to fiscal 1995. Approximately 43% of this
decrease was due to unfavorable exchange rates and the remainder was due to
decreased sales volume.
Total service revenue for the year ended September 30, 1997, decreased $518,000,
or 4%, from the year ended September 30, 1996. Service revenue is comprised of
hardware and software maintenance, training and billable service revenue.
Hardware maintenance revenue decreased $668,000, or 42%, while software
maintenance revenue decreased $481,000, or 7% for fiscal 1997 as compared to
fiscal 1996. The Company experienced an overall decline in service revenue for
all geographic locations with the exception of the South East Asian market
during fiscal 1997. As the Company shifts from being a hardware and software
solution provider to a software, systems integration, and service provider,
revenue from hardware maintenance will continue to decline. The Company's
management has made arrangements with other parties to directly support its
customers' hardware maintenance needs. The declines in software maintenance
revenue can be attributed to a decline in older products and reduced third party
software maintenance revenues. Billable services revenue increased $528,000, or
25% from fiscal 1996. This increase is directly related to the increased
revenues resulting from the Company's proprietary software products. Training
revenue increased $103,000, or 6%, as compared to fiscal 1996. North American
service revenue, which comprised 77% of the total worldwide service revenue,
declined $322,000, or 4%, as compared to fiscal 1996. European service revenue
declined $295,000, or 11%, as compared to fiscal 1996.
Total service revenue for the year ended September 30, 1996, decreased $2.7
million, or 18%, from the year ended September 30, 1995. Hardware maintenance
revenue decreased $1.3 million, or 46%, while software maintenance revenue
decreased $1.4 million, or 17% for fiscal 1996 as compared to fiscal 1995. The
Company experienced an overall decline in service revenue for all geographic
locations during fiscal 1996. The declines in software maintenance revenue can
be attributed to a decline in older products and reduced third party software
maintenance revenues. Billable services revenue increased $144,000, or 7% from
fiscal 1995. Training revenue decreased $45,000, or 3%, as compared to fiscal
1995. North American service revenue, which comprised 76% of the total
worldwide service revenue, declined $2.2 million, or 19%, as compared to fiscal
1995. European service revenue declined $448,000, or 15%, as compared to fiscal
1996.
COST OF SALES AND SERVICE - The result of operations for the year ended
September 30, 1997, continued to reflect shifts in product mix from hardware to
software and services. For the year ended September 30, 1997, gross profit
margins on total revenue increased to 62% from 57% for the year ended September
30, 1996. Gross profit margins on sales revenue for the year ending September
30, 1997, increased to 73% from 64% for the year ended September 30, 1996. In
fiscal 1997, gross profit margins on hardware declined $586,000, yielding a
gross margin of 14%, as compared to a gross margin of 23% in fiscal 1996. This
decline reflects the Company's focus on selling its own software product sales
rather than third party products that produce less gross profit. In fiscal
1997, gross profit margins on software sales increased $610,000 yielding a gross
margin of 87%, as compared to a gross margin of 91% in fiscal 1996.
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-(CONTINUED)
Gross profit margins for total service revenue in fiscal 1997 increased $67,000,
yielding a gross margin of 54%, as compared to a gross margin of 52% in fiscal
1996. Gross margins on billable services and training in fiscal 1997 increased
to 38% from 37% in fiscal 1996 due to increased revenue. Gross profit margins
on hardware maintenance declined $147,000 yielding gross margins of 16% in
fiscal 1997 as compared to gross margins of 19% in fiscal 1996. This reduction
is attributed to the Company's growing utilization of outside third parties for
hardware maintenance services. Software maintenance gross margins improved to
72% from 68% in fiscal 1997 due to the Company's efforts to control costs in its
delivery of support.
Gross profit margins for total service revenue in fiscal 1996 decreased $1.8
million, yielding a gross margin of 52%, as compared to a gross margin of 55% in
fiscal 1995. Gross margins on billable services and training in fiscal 1996
decreased to 37% from 50% in fiscal 1995 due to increased costs to provide
billable services and fixed training expenses. Gross profit margins on hardware
maintenance declined $554,000 yielding gross margins of 19% in fiscal 1996 as
compared to gross margins of 29% in fiscal 1995. Software maintenance gross
margins improved to 68% from 67% in fiscal 1996 due to increased sales of the
Company's proprietary support and cost containment efforts.
RESEARCH AND PRODUCT DEVELOPMENT - Research and development expenses were
approximately 33% of total revenues for the year ended September 30, 1997,
compared to 43% of total revenues for the year ended September 30, 1996. The
change in research and development spending as a percentage of revenue in fiscal
1997 is due in part to a decrease of $2.7 million, or 30%, in spending
associated with the discontinuation of the Company's Mosaic product line, along
with a 7% decrease in total revenues as compared to fiscal 1996.
Research and development expenses were approximately 43% of total revenues for
the year ended September 30, 1996 and 35% for the years ended September 30,
1995. The change in research and development spending as a percentage of
revenue in fiscal 1996 is due in part to a decrease of $342,000, or 4%, in
spending along with a 17% decrease in total revenues as compared to fiscal 1995.
In September 1996, the Company ceased development of its Mozaic product due to
competitive pressures and the Company's focus on developing its other
proprietary software products. Approximately $3.2 million in research and
development expenditures were expended during fiscal 1996 for the Mozaic product
development. As a consequence of discontinuing this product development a
workforce reduction of 35 employees occurred in September 1996.
MARKETING, GENERAL AND ADMINISTRATIVE - For the year ended September 30, 1997,
marketing, general and administrative expenses decreased $1.2 million, or 8%,
from the year ended September 30, 1996. North American marketing, general and
administrative spending declined $738,000 due to the closure of field offices
and the Company's cost containment measures. During fiscal 1997, European
marketing, general and administrative spending declined $469,000, as compared to
fiscal 1996 as occupancy and personnel costs were reduced.
For the year ended September 30, 1996, marketing, general and administrative
expenses decreased $2.0 million, or 12%, from the year ended September 30, 1995.
In fiscal 1996, North American marketing, general and administrative spending
declined $1.1 million, as compared to fiscal 1995. European marketing, general
and administrative spending declined $841,000, as compared to fiscal 1995.
During fiscal 1996, the Company implemented cost containment measures to
streamline operations worldwide.
INTEREST - In the year ended September 30, 1997, interest expense decreased
$188,000 or 26% from the year ended September 30, 1996, as a result of less
borrowings and the conversion of $4.7 million of related party debt to common
stock. Interest income decreased $134,000, or 65% from fiscal 1996.
In the year ended September 30, 1996, interest expense decreased 13% compared to
the year ended September 30, 1995, as a result of converting $11.5 million of
related party debt to common stock. Interest income decreased 24% from fiscal
1995.
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.
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL CONDITION - At September 30, 1997, the Company had approximately $1.4
million in cash and cash equivalents, which was 35% less than cash balances at
September 30, 1996. Cash used in operations during the year ended September 30,
1997 was $7.0 million compared to $9.7 million for the year ended September 30,
1996. The Company's net working capital was approximately $416,000 at September
30, 1997, as compared to $268,000 at September 30, 1996. Capital expenditures
were made primarily for computer equipment and were $1.1 million for the year
ended September 30, 1997 compared to $1.6 million for the year ended September
30, 1996. Cash used in investing activities was $1.0 million for the year ended
September 30, 1997 compared to $1.5 million for the year ended September 30,
1996. Cash generated from financing activities was $7.4 million for the year
ended September 30, 1997 compared to $11.0 million for the year ended September
30, 1996. Cash generated from financing activities resulted from the issuance
of related party notes payable and was used primarily to fund operations.
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. As of September 30,
1997, the Company had no material commitments for capital expenditures.
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,
1998. 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, 1998.
CURRENCY FLUCTUATIONS
The Company has three wholly owned foreign subsidiaries and one foreign branch
operation. The three subsidiaries are located in Germany, Canada and the United
Kingdom; the branch is located in Australia. The Company does business in the
local currencies of these countries, in addition to other countries where the
subsidiaries may have customers, such as Norway, Switzerland 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 $303,000 of an unfavorable
exchange rate variance and a $1.7 million decrease in revenue volume resulted in
a $2.0 million decrease in non-U.S. revenue between 1997 and 1996. These
effects on the Company's results of operations could become significant if the
percentage of revenues and expenses attributed to International operations
increases and/or if the dollar fluctuates significantly against international
currencies. The Company's international operations are also subject to certain
risks inherent in doing business abroad and may be adversely affected by
government policies, restrictions, or other factors.
The Company does not use foreign exchange contracts, interest rate swaps, or
option contracts. Foreign currency risk for the Company is limited to
outstanding debt owed to the Company by the subsidiaries. The Company invoices
its subsidiaries in their local currencies for products that are sold to the
subsidiaries' end customers. Upon receipt of payment from the subsidiaries, a
foreign currency gain or loss can occur. For the years then ended September 30,
1997, and 1996, the Company had realized a gain of approximately $8,000 and a
loss of $27,000 respectively, through payments it had received from its
subsidiaries.
10
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, 1997 and 1996, 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,
1997. 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 1997, 1996, 1995
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, in writing, to continue providing such financial
support at least through December 31, 1998.
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, 1997 and 1996 and the results
of their operations and their cash flows for each of the years in the three-year
period ended September 30, 1997, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Denver, Colorado
November 6, 1997
11
AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
-------------------------
ASSETS 1997 1996
-------------------------
(in thousands, except share amounts)
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . $ 1,421 $ 2,173
Receivables, net of allowance of $153 and $173 . . . . . . . . . . . 3,233 2,846
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 304
Service parts and prepaid expenses . . . . . . . . . . . . . . . . . 545 522
-------------------------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . 5,250 5,845
-------------------------
Property, facilities and equipment (Note 1):
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356 356
Building and improvements. . . . . . . . . . . . . . . . . . . . . . 8,392 8,204
Machinery and equipment. . . . . . . . . . . . . . . . . . . . . . . 7,955 9,560
Furniture, fixtures and leasehold improvements . . . . . . . . . . . 925 906
-------------------------
17,628 19,026
Less accumulated depreciation and amortization . . . . . . . . . . . (11,461) (12,572)
-------------------------
6,167 6,454
-------------------------
Purchased software, net of accumulated amortization of $1,369
and $1,123 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322 461
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 90
-------------------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,802 $ 12,850
-------------------------
-------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 840 $ 1,195
Current portion of long-term debt (Note 3) . . . . . . . . . . . . . 240 240
Current portion of capital lease obligations (Note 4). . . . . . . . 7 128
Accrued interest payable, related party portion $214 and $490. . . . 390 516
Unearned service revenue and customer deposits . . . . . . . . . . . 1,141 1,590
Accrued compensation and related taxes . . . . . . . . . . . . . . . 470 673
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 1,746 1,235
-------------------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 4,834 5,577
Long-term debt, related party portion $4,975 and $1,900 (Note 3). . . 6,415 3,580
Capital lease obligations (Note 4). . . . . . . . . . . . . . . . . . -- 8
-------------------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 11,249 9,165
-------------------------
Shareholders' equity (Note 6):
Common stock, $.02 par value; authorized 40,000,000 shares;
issued (including treasury stock) 9,314,347 and 7,745,929
shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186 155
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 88,784 84,106
Cumulative currency translation adjustments. . . . . . . . . . . . . (1,035) (980)
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . (86,897) (79,111)
Treasury stock - 26,140 common shares at cost. . . . . . . . . . . . (485) (485)
-------------------------
Total shareholders' equity. . . . . . . . . . . . . . . . . . . . . 553 3,685
Commitments and contingency (Notes 2 and 4 )
-------------------------
$ 11,802 $ 12,850
-------------------------
-------------------------
See Notes to Consolidated Financial Statements.
12
AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED
SEPTEMBER 30,
------------------------------------
1997 1996 1995
------------------------------------
(in thousands, except per share amounts)
Revenues:
Sales. . . . . . . . . . . . . . . . . . . . . . . . . $ 8,112 $ 9,139 $ 10,824
Service. . . . . . . . . . . . . . . . . . . . . . . . 11,627 12,092 14,767
------------------------------------
19,739 21,231 25,591
------------------------------------
Costs and expenses:
Cost of sales. . . . . . . . . . . . . . . . . . . . . 2,335 3,248 4,006
Cost of service. . . . . . . . . . . . . . . . . . . . 5,173 5,842 6,686
Research and product development . . . . . . . . . . . 6,464 9,176 8,834
Marketing, general, and administrative . . . . . . . . 13,085 14,271 16,242
------------------------------------
27,057 32,537 35,768
------------------------------------
Loss from operations. . . . . . . . . . . . . . . . . . (7,318) (11,306) (10,177)
Interest income. . . . . . . . . . . . . . . . . . . . . 71 204 267
Interest expense, related party portion $490, $390
and $559 . . . . . . . . . . . . . . . . . . . . . . . (537) (725) (835)
------------------------------------
Loss before income taxes . . . . . . . . . . . . . . . . (7,784) (11,827) (10,745)
Income tax benefit (expense) (Note 5). . . . . . . . . . (2) 40 (32)
------------------------------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . $(7,786) $(11,787) $(10,777)
------------------------------------
------------------------------------
Loss per share. . . . . . . . . . . . . . . . . . . . . $ (.91) $ (2.32) $ (3.53)
------------------------------------
------------------------------------
Weighted average number of common shares outstanding . . 8,554 5,086 3,052
------------------------------------
------------------------------------
See Notes to Consolidated Financial Statements.
13
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 share amounts)
Balance, September 30, 1994. . . . . . . . . . . 2,153,619 $ 44 $58,755 $ (357) $(56,547) $(485) $ 1,410
Issuances under stock option
and compensation plans. . . . . . . . . . . . 1,961 - 13 13
Common stock issued through conversion
of related party debt . . . . . . . . . . . . 1,658,400 33 12,405 12,438
Capital contribution to subsidiary
acquired in business combination. . . . . . . 503 503
Issuance of common stock in business
combination (Note 9). . . . . . . . . . . . . 121,201 2 (2) -
Change in cumulative currency translation
adjustments . . . . . . . . . . . . . . . . . (54) (54)
Net loss . . . . . . . . . . . . . . . . . . . (10,777) (10,777)
------------------------------------------------------------------------------
Balance, September 30, 1995. . . . . . . . . . . 3,935,181 79 71,674 (411) (67,324) (485) 3,533
Issuances under stock option and
compensation plans. . . . . . . . . . . . . . 1,224 - 8 8
Common stock issued through conversion of
related party debt. . . . . . . . . . . . . . 3,809,524 76 12,424 12,500
Change in cumulative currency translation
adjustments . . . . . . . . . . . . . . . . . (569) (569)
Net loss . . . . . . . . . . . . . . . . . . . (11,787) (11,787)
------------------------------------------------------------------------------
Balance, September 30, 1996. . . . . . . . . . . 7,745,929 155 84,106 (980) (79,111) (485) 3,685
Issuances under stock option and
compensation plans. . . . . . . . . . . . . . 1,751 - 9 9
Common stock issued through conversion of
related party debt. . . . . . . . . . . . . . 1,566,667 31 4,669 4,700
Change in cumulative currency
translation adjustments . . . . . . . . . . . (55) (55)
Net loss . . . . . . . . . . . . . . . . . . . (7,786) (7,786)
------------------------------------------------------------------------------
Balance, September 30, 1997. . . . . . . . . . . 9,314,347 $186 $88,784 $(1,035) $(86,897) $(485) $ 553
------------------------------------------------------------------------------
------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
14
AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED
SEPTEMBER 30,
-------------------------------
1997 1996 1995
-------------------------------
(in thousands)
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . $ (7,786) $(11,787) $(10,777)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization . . . . . . . . . . . . . 1,406 1,570 1,830
Loss (gain) on disposal of property, facilities,
and equipment . . . . . . . . . . . . . . . . . . . . 7 41 184
Changes in operating assets and liabilities:
(Increase) decrease in receivables. . . . . . . . . . (516) 1,225 543
(Increase) decrease in inventories. . . . . . . . . . 254 (132) 90
(Increase) decrease in service parts and prepaids . . 160 (210) 466
Increase (decrease) in accounts payable. . . . . . . (335) (206) (917)
Increase (decrease) in accrued interest payable . . . (126) 109 (171)
Increase (decrease) in unearned service
revenue and customer deposits . . . . . . . . . . . (449) 402 (168)
Increase (decrease) in other liabilities 557 (783) 262
Increase (decrease) in accrued compensation and
related taxes . . . . . . . . . . . . . . . . . . . (198) 106 61
-------------------------------
Net cash used by operating activities . . . . . . . . . . . (7,026) (9,665) (8,597)
Cash flows from investing activities:
Capital expenditures. . . . . . . . . . . . . . . . . . . (1,148) (1,573) (1,136)
Proceeds from sale of property, facilities and
equipment . . . . . . . . . . . . . . . . . . . . . . . 161 92 277
(Increase) decrease in other assets . . . . . . . . . . . 27 6 (19)
-------------------------------
Net cash used by investing activities . . . . . . . . . . . (960) (1,475) (878)
Cash flows from financing activities:
Proceeds from issuance of notes payable,
related party . . . . . . . . . . . . . . . . . . . . . 8,075 11,500 10,350
Payments on notes payable, capital leases, and
long-term debt, related party portion $300,
$0 and $1,000 . . . . . . . . . . . . . . . . . . . . . (669) (531) (1,240)
Proceeds from issuance of common stock. . . . . . . . . . 9 8 13
Capital contributions to subsidiary . . . . . . . . . . . - - 503
-------------------------------
Net cash provided by financing activities. . . . . . . . . 7,415 10,977 9,626
Effect of exchange rate changes on cash . . . . . . . . . . (181) (52) (8)
-------------------------------
Net increase (decrease) in cash and cash equivalents. . . . (752) (215) 143
Cash and cash equivalents at the beginning of the year. . . 2,173 2,388 2,245
-------------------------------
Cash and cash equivalents at the end of the year. . . . . . $ 1,421 $ 2,173 $ 2,388
-------------------------------
-------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for interest, related party
portion of $490, $391 and $391. . . . . . . . . . . . . . $ 631 $ 563 $ 1,006
See Notes to Consolidated Financial Statements.
15
AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
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 preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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 are 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 are 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 comprised of 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 thirty 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.
16
AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SIGNIFICANT CUSTOMER
The Company had one significant customer which, in the aggregate, contributed
approximately 11% of the Company's total revenues in the year ended September
30, 1997 from its core product CENTRA 2000 and related products and ancillary
services.
RESEARCH AND PRODUCT DEVELOPMENT
The Company charges research and product development costs to operations as
incurred.
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 $245,000, $132,000, and $365,000 for the years ended September 30,
1997, 1996, and 1995, 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 $171,000, $170,000, and $112,000 for
fiscal years ended September 30, 1997, 1996, and 1995, 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 equivalent shares,
which for the years ended September 30, 1997, 1996, and 1995, were antidilutive.
2. ECONOMIC DEPENDENCY ON MAJORITY SHAREHOLDER:
During fiscal years 1997, 1996 and 1995, affiliates of the Company's President,
Chairman of the Board, and majority shareholder loaned the Company $8,075,000,
$11,500,000 and $10,350,000 respectively. The Company converted $4,700,000,
$12,500,000 and $12,438,000 of shareholder loans to equity in 1997, 1996 and
1995 respectively, and repaid $300,000 in 1997 and $1,000,000 in 1995. The
shareholder loan balance at September 30, 1997, was $4,975,000. The notes are
unsecured and are due on October 1, 1999, bearing interest at 10% per annum.
The Company will continue to be economically dependent upon such financial
support until it achieves profitable operations. The shareholder has committed,
in writing, to continue providing the Company such financial support at least
through December 31, 1998.
3. DEBT:
Long-term debt consists of the following as of September 30: 1997 1996
---- ----
(in thousands)
Related party debt (see Note 2). . . . . . . . . . . . . . . .$ 4,975 $ 1,900
Industrial Development Revenue Bonds(a). . . . . . . . . . . . 1,680 1,920
----------------
6,655 3,820
Less current portion of long-term debt . . . . . . . . . . . . (240) (240)
----------------
$ 6,415 $ 3,580
----------------
----------------
Maturities of long-term debt for each of the five years subsequent to September
30, 1997, and thereafter are as follows:
1998. . . . . . . . . . . . . . . . . . . . $ 240
1999. . . . . . . . . . . . . . . . . . . . 5,215
2000. . . . . . . . . . . . . . . . . . . . 240
2001. . . . . . . . . . . . . . . . . . . . 240
2002. . . . . . . . . . . . . . . . . . . . 240
Thereafter. . . . . . . . . . . . . . . . . 480
------
$6,655
------
------
17
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. The Company has 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. As of September 30, 1997,
the future minimum lease payments under 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)
1998. . . . . . . . . . . . . . . . $ 7 $ 991
1999. . . . . . . . . . . . . . . . -- 521
2000. . . . . . . . . . . . . . . . -- 278
2001. . . . . . . . . . . . . . . . -- 85
2002. . . . . . . . . . . . . . . . -- 63
Thereafter. . . . . . . . . . . . . -- 145
----------------------------
Total minimum lease payments. . . . 7 $2,083
-----------
-----------
Less amount representing interest . (1)
----------
Present value of net minimum
lease payments. . . . . . . . . . 6
Less current portion of capital
lease obligations . . . . . . . . (6)
$ 0
----------
----------
There are no other material subleases or contingent rentals related to the
leases, and the lease payments include no executory costs. Aggregate rental
expense under operating leases was $1,706,000, $1,660,000, and $1,964,000 for
the years ended September 30, 1997, 1996, and 1995, respectively.
The Company has entered into a lease agreement to sublet 22,500 square feet of
its corporate headquarters. The aggregate rental income for the year ended
September 30, 1997 was $149,000. The sublease has a five year term and expires
on January 31, 2002.
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 $50.4 million has been
provided. Accordingly, no tax benefit has been recorded in 1997, 1996 and 1995.
18
AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of the current provisions for income taxes are as follows:
YEAR ENDED
SEPTEMBER 30,
----------------------
1997 1996 1995
---- ---- ----
(in thousands)
Total income tax expense (benefit) $ 2 $ (40) $ 32
United States tax expense (benefit) - - -
----------------------
Total income tax expense (benefit) $ 2 $ (40) $ 32
----------------------
----------------------
The following summarizes the amount of the Company's loss, before income taxes,
contributed by domestic and foreign operations:
YEAR ENDED
SEPTEMBER 30,
-------------------------------------
1997 1996 1995
---- ---- ----
(in thousands)
United States $ (5,986) $ (9,997) $ (8,650)
Foreign (1,798) (1,830) (2,095)
-------------------------------------
$ (7,784) $ (11,827) $(10,745)
-------------------------------------
-------------------------------------
The Company's effective tax rate varies from the statutory federal income tax
rate as follows:
YEAR ENDED
SEPTEMBER 30,
---------------------------
1997 1996 1995
---- ---- ----
Expected federal income tax benefit (34.0)% (34.0)% (34.0)%
Increase in valuation allowance for
deferred tax asset 34.0 34.0 34.0
---------------------------
Actual tax rate - - -
---------------------------
---------------------------
19
AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. SHAREHOLDERS' EQUITY:
STOCK OPTIONS:
The Company has in effect two stock option plans: an Incentive Stock Option Plan
and a Special Purpose Plan, whereby 400,000 shares of common stock are
authorized for issuance. Under both plans, the exercise price of each option
equals the fair market value, (the average of the representative highest and
lowest prices), of the Company's stock on the date of grant, and an option's
maximum term is ten years. Options are granted at the discretion of the
Compensation Committee and vest at the rate of 20% per year through the fifth
anniversary of the grant of the stock option.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1997 and 1996, respectively: no dividend yield
for all years; expected volatility of 150 percent and 218 percent based upon
historical volatility over the last three years; risk-free interest rates of
5.98 percent and 5.98 percent; and expected lives of five years for all two
years. The risk-free rates used in the calculation represent the average U.S.
Government Security interest rates on the stock option grant date with
maturities equal to the expected term of the option. The effect of actual
forfeitures is included in the computation of compensation costs for options
granted during each of the respective years.
A summary of the status of the Company's two fixed stock options plans as of
September 30, 1995, 1996 and 1997, and changes during the years ended on those
dates, is presented below (shares in thousands):
YEAR ENDED
SEPTEMBER 30,
--------------------------------------
1997 1996
---- ----
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
FIXED OPTIONS SHARES PRICE SHARES PRICE
- ------------- ------ ----- ------ -----
Outstanding at beginning of year 193,981 $6.44 61,128 $7.00
Granted 457,216 $2.78 175,773 $6.32
Exercised - $ - (254) $3.75
Forfeited (340,390) $4.75 (42,666) $6.78
-------- -------
Outstanding at end of year 310,807 $2.74 193,981 $6.44
-------- -------
-------- -------
Options exercisable at year end 41,292 19,426
Weighted-average fair value of
options granted during the year $3.29 $4.46
The following table summarizes information about fixed stock options outstanding
at September 30, 1997:
NUMBER WEIGHTED-AVG. NUMBER
OUTSTANDING REMAINING EXERCISABLE
EXERCISE PRICE AT 9/30/97 CONTRACTURAL LIFE AT 9/30/97
- -------------- ---------- ----------------- ----------
$1.56 71,700 9.7 years 0
$3.00 234,004 9.3 years 38,333
$3.75 2,924 5.9 years 2,340
$6.56 50 7.8 years 20
$6.88 1,495 8.4 years 299
$10.00 550 7.3 years 220
$20.00 80 3.2 years 80
$1.56 to $20.00 310,803 9.3 years 41,292
20
AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company applies APB Opinion 25 and related Interpretations in accounting for
its plans. Accordingly, since the Company grants options at fair market value,
no compensation cost has been recognized for its Incentive Stock Option Plans
and its Special Purpose Plan. Had compensation expense for the Company's plans
been determined on the fair value at the grant dates for awards under those
plans consistent with the method of FASB Statement 123, the Company's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below:
(in thousands, except
per share amounts)
1997 1996
---- ----
Net Income:
As reported $(7,786) $(11,787)
Pro forma $(8,157) $(12,201)
Primary earnings per share:
As reported $ (0.91) $ (2.32)
Pro forma $ (0.95) $ (2.38)
Full diluted earnings per share:
As reported $ (0.91) $ (2.32)
Pro forma $ (0.95) $ (2.40)
EMPLOYEE STOCK PURCHASE PLAN - The Company has an Employee Stock Purchase Plan,
under which 21,047 shares are available for purchase by employees as of
September 30, 1997. Employees have purchased 3,462 shares of common stock under
the Company's Employee Stock Purchase Plan through September 30, 1997.
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 an additional 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 $32,000, $44,000, and $46,000 in the years ended September
30, 1997, 1996, and 1995, 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
as of and for the three years ended September 30, 1997, 1996 and 1995 by
geographic area are presented in the table below. There were no significant
amounts of sales or transfers between geographic areas.
YEAR ENDED SEPTEMBER 30,
-----------------------------
1997 1996 1995
---- ---- ----
(in thousands)
Revenues:
North America $15,137 $ 14,731 $ 17,344
Europe 3,698 5,729 7,192
Other (1) 904 771 1,055
-----------------------------
$19,739 $ 21,231 $ 25,591
-----------------------------
Loss before income taxes:
North America $(5,151) $(10,530) $ (6,625)
Europe (2,459) (1,440) (3,870)
Other (174) 143 (250)
-----------------------------
Consolidated loss before income taxes (2) $(7,784) $(11,827) $(10,745)
-----------------------------
-----------------------------
Identifiable assets at year end:
North America $10,051 $ 10,618 $ 12,069
Europe 1,193 1,716 1,978
Other 558 516 341
-----------------------------
$11,802 $ 12,850 $ 14,388
-----------------------------
-----------------------------
(1) Export sales were made to various international distributors and to the
Company's Australian branch.
(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 borrowings.
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 stock in
Auto-trol Technology Corporation and a cash bonus in each of the succeeding four
years, which is contingent upon meeting a development schedule and market
acceptance of the CENTRA 2000 product.
Auto-trol Technology Corporation's President and Chairman of the Board, Howard
B. Hillman, controlled, 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 was accounted for in a manner similar to a pooling
of interests of entities under common control. For income tax purposes, the
merger was a nontaxable transaction.
22
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 27, 1998, 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 27, 1998, 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 27, 1998, 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 27, 1998, 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, 1997,
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.
23
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 11
Consolidated Balance Sheets - September 30, 1997 and 1996 12
Consolidated Statements of Operations - years ended September 30,
1997, 1996, and 1995 13
Consolidated Statements of Shareholders' Equity - years ended
September 30, 1997, 1996, and 1995 14
Consolidated Statements of Cash Flows - years ended September 30,
1997, 1996, and 1995 15
Notes to Consolidated Financial Statements 16-22
2. FINANCIAL STATEMENT SCHEDULE
Independent Auditors' Report 25
Schedule II - Valuation and qualifying accounts and reserves -
years ended September 30, 1997, 1996, and 1995 26
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
------- ----------------------
3.3 Restated Articles of Incorporation*
3.4 Bylaws**
3.5 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 6, 1997
21 Subsidiaries of the Registrant
24 Consent of KPMG Peat Marwick LLP
* Incorporated by reference from Form 10-K for fiscal year ended
September 30, 1996, dated December 10, 1996.
** 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 October 31, 1997 reporting the change in trading exchange.
24
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Auto-trol Technology Corporation:
Under date of November 6, 1997, we reported on the consolidated balance
sheets of Auto-trol Technology Corporation and subsidiaries as of September
30, 1997 and 1996, 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, 1997, as contained in the Company's Annual Report
on Form 10-K for the year 1997. 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
1997, 1996, 1995 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, in writing, to
continue providing such financial support at least through December 31, 1998.
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 6, 1997
25
AUTO-TROL TECHNOLOGY CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SEPTEMBER 30, 1997
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, 1997:
Allowance for doubtful accounts $ 173 $ -- $ 20 $ 153
Reserve for inventory obsolescence and shrinkage 55 -- 12 43
Accumulated amortization of service parts 996 -- 881 115
Valuation reserve for machinery and equipment 306 -- -- 306
Reserve for warranty and unearned discounts 55 54 -- 109
-------------------------------------------
$1,585 $ 12 $1,016 $ 557
-------------------------------------------
-------------------------------------------
YEAR ENDED SEPTEMBER 30, 1996:
Allowance for doubtful accounts $ 132 $170 $ 129 $ 173
Reserve for inventory obsolescence and shrinkage 58 8 11 55
Accumulated amortization of service parts 981 42 27 996
Valuation reserve for machinery and equipment 306 -- -- 306
Reserve for warranty and unearned discounts 55 -- -- 55
-------------------------------------------
$1,532 $220 $ 167 $1,585
-------------------------------------------
-------------------------------------------
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
-------------------------------------------
-------------------------------------------
See accompanying independent auditors' report
26
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 22, 1997 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 December 22, 1997
- ----------------------------------------------- President (Principal
Howard B. Hillman Executive Officer)
/s/ MARY L. SCHWAB Vice President, December 22, 1997
- ----------------------------------------------- Treasurer
Mary L. Schwab (Principal Financial
Officer and Principal
Accounting Officer)
/s/ MAJOR GENERAL WILLIAM R. USHER, USAF (RET.) Director December 22, 1997
- -----------------------------------------------
Major General William R. Usher (Ret.)*
/s/ J. RODERICK HELLER, III Director December 22, 1997
- -----------------------------------------------
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
- -----------------------
28
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ----
3.3 Restated Articles of Incorporation*
3.4 Bylaws**
3.5 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 6, 1997
21 Subsidiaries of the Registrant
24 Consent of KPMG Peat Marwick LLP
* Incorporated by reference from Form 10-K for fiscal year ended
September 30, 1996, dated December 10, 1996.
** 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.
29