FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [FEE REQUIRED]
For the Fiscal Year ended: July 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-11485
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ACCELR8 TECHNOLOGY CORPORATION
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(Name of small business issuer in its charter)
Colorado 84-1072256
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
303 East Seventeenth Avenue, Suite 108
Denver, Colorado 80203
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(Mailing Address of principal executive offices)
Registrant's telephone number, including area code: (303) 484-1900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of class)
Indicate by check mark whether the Registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the issuer was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes _X_ No ____
Indicate by check mark if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained in this form, and no disclosure
will be contained, to the best of issuer'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. Yes _____ No X
As of October 31, 1996, the aggregate market value for the 11,655,650 shares of
the Common Stock, no par value per share, held by non-affiliates was
approximately $20,397,388.
The number of shares of common stock of the registrant outstanding as of October
31, 1996, were 21,970,000.
Documents incorporated by reference
None
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TABLE OF CONTENTS
PART I ............................................................ PAGE
Item 1. Business ............................................... 1
Item 2. Properties ............................................. 11
Item 3. Legal Proceedings ...................................... 11
Item 4. Submission of Matters to a Vote of Security Holders .... 11
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ..................................... 11
Item 6. Selected Financial Data ................................. 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 12
Item 8. Financial Statements and Supplementary Data ............ 16
Item 9. Changes in and Disagreements With
Accountants on Accounting and Financial Disclosure ...... 16
PART III
Item 10. Directors and Executive Officers of the Registrant ...... 16
Item 11. Executive Compensation .................................. 18
Item 12. Security Ownership of Certain
Beneficial Owners and Management ........................ 21
Item 13. Certain Relationships and Related Transactions ......... 22
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K .................................. 22
GLOSSARY ............................................................ 23
SIGNATURES .......................................................... 25
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PART I
CERTAIN TERMS USED IN THIS FORM 10-K ARE DEFINED IN THE
GLOSSARY BEGINNING AT PAGE 23
Item 1 - Business
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Introduction
Accelr8 Technology Corporation is a leading provider of software tools and
consulting services for the conversion from DEC's VAX/VMS Legacy Systems to UNIX
open Client/Server environments. VAX/VMS Legacy Systems use a Proprietary
computer operating system which is not compatible with other manufacturers'
hardware and software. In contrast, UNIX is a powerful, open architecture system
which is compatible with a wide range of hardware platforms and software
applications, including COTS. The Company believes that UNIX has become the most
widely used Client/Server operating system, and that the trend to Client/Server
Open Systems such as the systems offered by UNIX and NT will continue for the
foreseeable future.
In order to attain the advantages of the UNIX operating system while
preserving their investment in existing software applications, many VAX/VMS
users will undertake complex conversions to the UNIX operating system. The
Company's consulting services and software conversion tools enable the Company's
clients to analyze and implement their UNIX conversions in a predictable and
cost-effective manner. The Company's clients include a number of Fortune 1000
companies and government agencies, including Electronic Data Systems Corp.
("EDS"), Proctor & Gamble, Kellogg Co., McDonnell Douglas Corp., Delta Air Lines
Corp., Daimler Benz AG, the United States Army and the United States Navy.
The Company is currently engaged in the development of additional software
tools which will complement its existing suite of conversion tools and services.
The Company has commenced development of software tools that are to be used in
converting VAX/VMS Legacy Systems to Microsoft Corporation's Windows NT
operating system running on DEC Alpha servers. The Company has also completed
preliminary development of a software tool that identifies Year 2000 Problems in
the VAX/VMS environment. The Year 2000 Problem is expected to create widespread
system failures due to the use of computer programs that rely on two-digit date
codes to perform computations and other decision-making functions.
Background
In the 1970's many businesses and governmental organizations relied on
mainframe and minicomputers for critical business functions. Each hardware
manufacturer sought to establish a competitive advantage by developing "closed"
environments which were compatible only with the manufacturer's Proprietary
equipment and software applications. Thus a customer was locked into a mission
critical application environment which would only operate on a closed
Proprietary system, which ultimately became known as "Legacy Systems."
Management believes that there has been a trend away from purchasing all of
a company's hardware and software from one vendor. This trend was originally
started by the federal government as a means to ensure competitive pricing among
vendors, and is now being followed by most commercial/private sector entities.
Under this approach bids are obtained from many suppliers, and one company
generally acts as the primary contractor.
Management believes that large hardware manufacturers, like IBM and DEC,
can no longer control the entire purchasing decision for large computer
enterprises without including an element of competitive price and offering
access to open architecture systems such as UNIX or NT. Further, end users have
realized that dependence on a single supplier is non-economic in terms of
performance increases at reasonable prices. In more recent years the trend away
from a single vendor has been accelerated by technological advances which make
possible widely distributed Client/Server environments. Local area Network
servers or "LANS" can be installed on a variety of equipment and allow for
application development in standard languages such as UNIX.
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Mid-range computers are either older Legacy Systems or newer "Open Systems"
servers. Legacy Systems are almost always provided by a single vendor and
feature a Proprietary operating system, while the newer, Open Systems servers
are supplied by numerous vendors and usually specify one of several different
versions of the UNIX operating system. One of the most popular legacy computers
has been manufactured by DEC and is called the VAX hardware system. The VAX
Proprietary operating system is called VMS. While many different hardware
manufacturers have licensed the right to resell the UNIX operating system from
AT&T, the major suppliers of hardware that feature UNIX as their operating
system are HP, SUN, SGI, IBM and DEC.
Management believes that within the computer user community Open Systems
are considered more desirable than VAX/VMS systems for the following reasons:
(i) UNIX systems offer significant upgraded power at lower cost
(price/performance) than older VAX/VMS systems; (ii) UNIX systems are viewed as
being "open" since they are compatible with a variety of hardware types
(Interoperability); (iii) Industry-wide standards allow UNIX supported software
applications to run unchanged across a wide variety of hardware platforms; (iv)
UNIX has become the new de-facto development environment for new applications;
and (v) significant savings can be realized from reduced maintenance overhead.
As a result of these UNIX characteristics, VAX/VMS users requiring
increased performance from their older, existing Proprietary system, may
consider the Company's conversion services to UNIX for: (i) preserving the
already sizable investment in existing VAX/VMS applications; (ii) a cost
effective approach to maintaining user productivity; (iii) avoiding expensive
user re-training on a new operating system; (iv) allowing competitive bidding of
hardware and software for best price and service from several vendors; and (v)
extending the usable life of older systems.
The Company believes that the primary deterrent to switching from a VAX/VMS
Legacy System to a newer UNIX system is the cost/risk of rewriting a critical,
dependable legacy application program to run in a new and different environment.
Uncertainty as to outcome, lack of available personnel to undertake the task, as
well as the costly re-training process associated with learning a new operating
system, have contributed to users and information technology managers delaying
the decision to make the transition to faster, less expensive, Open Systems
hardware platforms. Adding to the crisis, in many cases, the original developers
of the code are no longer available for consultation as to design goals and/or
specifications. It therefore becomes necessary to evaluate, condense and convert
old code to new operating system environments. While most users, given the
option, would elect to re-host their familiar software application to the faster
environment of UNIX, the uncertainty of a conversion causes slow decision
making.
The Company has sought to address VAX/VMS users' conversion concerns by
offering a service called "Situational Analysis" that provides the user an
accurate assessment of code (line count, system calls, etc.) and gives the user
a rating of "Portability" as to the degree of difficulty in moving critical
legacy applications in advance of doing the conversion. This service assists
customers with the conversion decision, and allows the Company to become
sufficiently familiar with the customer's application to offer a fixed price bid
for the conversion.
In general, the limited functionality of many existing tools, together with
the inability of some organizations to fully utilize available technology, has
created increasing demand for integrated software development tools and
professional services to help organizations fully utilize available technology
and improve their own maintenance and redevelopment processes. The Company
believes that the developing Client/Server market will create additional demand
for software tools and professional services that enable organizations to reduce
the cost of maintenance and redevelopment of existing systems and redeploy these
resources for Client/Server implementation. In addition, the Company believes
that organizations will seek to reuse existing DEC VAX/VMS applications in
Client/Server environments to leverage their existing systems investment.
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Market Opportunity
Based on published data from DEC and related industry analysts, the Company
estimates that there were in excess of 600,000 VAX/VMS systems installed at over
60,000 sites. Recent figures from DEC suggest that over 450,000 VAX/VMS systems
remain in operation today. Most computer manufacturers, employing the latest
advances in "reduced instruction set computing" ("RISC") chip technology are
selling UNIX Operating Systems. UNIX systems are less costly and provide greater
Interoperability than DEC's VAX/VMS Legacy Systems. For this reason, UNIX
platforms are gaining substantial market share in DEC's traditional markets,
including the engineering and scientific industry segments. The Company's
software products are designed to meet the needs of those industry segments
wishing to convert their existing software and data from VAX/VMS systems to UNIX
systems. The Company has also completed preliminary development of a conversion
tool set that will provide for conversion from VAX/VMS systems to the NT system
running on DEC Alpha servers.
Additionally, many third-party software application solution providers,
driven by market demand to offer their solutions on UNIX Operating Systems, have
utilized the Company's tools to convert their old VAX/VMS software applications
to the UNIX environment.
The Company has targeted several segments of the engineering and commercial
sectors. These include aerospace, telecommunications, banking and financial
services, defense and government contractors, pharmaceutical firms, large
manufacturers, oil and gas producers and distribution and warehousing for
consumer goods. Major UNIX hardware vendors, including DEC, Hewlett Packard
("HP"), IBM, SUN Micro Systems ("SUN") and Silicon Graphics, Inc. ("SGI"),
include the Company's products in their materials for UNIX systems. DEC lists
the Company's products in its price book as well as in the General Services
Administration ("GSA") and Software Enterprise Workstation Program ("SEWP")
schedules.
In February 1992, DEC introduced a new generation of computers named Alpha.
Alpha runs DEC's Proprietary operating system VMS as well as an industry version
of UNIX called DEC UNIX and Microsoft Corporation's Windows NT operating system.
While this system provides VMS on a RISC platform, many industry analysts
believe that current DEC customers will want to move to DEC UNIX or NT running
on Alpha. In order to preserve their VAX/VMS applications, these users will need
to convert VAX/VMS applications to either DEC UNIX or NT. DEC is not currently
providing products to convert from VAX/VMS systems to Alpha. Accordingly,
management believes that Alpha presents a significant market opportunity for the
Company.
Business Strategy
The Company's objective is to enhance its position as a leading provider of
integrated solutions which will meet the conversion needs of VAX/VMS users. Key
elements of the Company's strategy include:
Continue Emphasis on Consulting Services and Establishment of UNIX/NT
Conversion Teams. The Company intends to continue to emphasize the sale of its
integrated consulting services in conjunction with its suite of conversion
software tools. The Company will establish up to ten three-man conversion teams
in order to perform UNIX and NT conversion projects. The conversion teams will
be comprised of software engineers to be recruited. The conversion teams will
allow the Company to effectively staff conversion projects as the Company
achieves its anticipated growth (of which there can be no assurance).
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Develop New Products and Services. The Company intends to continue to
develop software tools and consulting services which address the needs and
problems encountered in conversion of VAX/VMS Legacy Systems as well as other
information technology environments. To accomplish the foregoing, the Company
intends to allocate substantial resources to the completion and introduction of
software tools to be used in converting VAX/VMS Legacy Systems to NT
environments running on DEC's Alpha, as well as software solutions to the Year
2000 Problem for VAX/VMS users. Management believes that the successful
development of complementary products and services will allow the Company to
leverage its products and services into new and significantly larger markets.
Outsourcing. The Company intends to position its software so that it may be
licensed by large outsourcing providers such as EDS, Lockheed Martin Corp., ISSC
and others, thereby increasing its license fees and consulting service fees.
Outsourcing offers organizations a complete information technology system on a
contract basis. Many larger corporations have undertaken this approach in order
to reduce personnel costs and operating overhead. The outsourcing provider is
generally able to provide the services on a more cost effective basis because of
economies of scale and volume purchases that are not available to the typical
user. The Company assists the outsourcing provider (EDS and others) in obtaining
such cost savings by providing a quick and efficient assessment of the presence
of Proprietary systems, and the opportunity for efficient conversion from those
systems. The Company can enable the rapid transition to Open Systems thereby
reducing hardware and software maintenance costs for the outsourcing provider.
Expand International Marketing Activities. In fiscal 1995 and 1996,
revenues derived from international clients totaled approximately $96,547 and
$318,393, respectively. The Company's international clients have included
Daimler Benz, Renault V.I. and Alcatel. The Company will continue to expand its
international marketing activities to increase its market penetration in Europe
and Asia.
Secure Additional Consulting Projects. In the course of performing UNIX
conversion services, the Company's software engineers and technical support
staff establish close relationships with the information technology personnel of
client organizations. Through these relationships, the Company will attempt to
secure additional consulting projects which are within the expertise of the
Company's staff. Such projects may, but need not, be related to the client's
UNIX conversion needs. The Company believes that this strategy will enhance
client relationships while generating profitable consulting fees.
Target Large Corporations and Government Agencies. The Company believes
that there are in excess of 450,000 VAX/VMS systems currently in operation.
These systems are generally operated by large corporations and government
agencies. The Company will continue to identify and direct its marketing efforts
to organizations which have extensive information technology environments
supported by substantial budgets.
Investment in or Acquisition of Complementary Businesses, Technologies or
Product Lines. The Company intends to evaluate opportunities for growth or
expansion of its business through investment in or acquisition of complementary
businesses, technologies or product lines. Management believes that
opportunities to expand will be available to the Company and intends to
investigate opportunities that are consistent with the Company's core business
and its expertise.
Services and Products
Services. The Company historically focused its marketing and sales efforts
on selling its various software conversion tools on a "stand-alone" basis. Since
fiscal 1995, the Company has focused its efforts on selling an integrated
package consisting of both software tools and the consulting services of its
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highly trained and experienced personnel. Management believes that this change
in strategy better addressed clients needs for conversion services. Management
believes that the dramatic increase in revenues in fiscal 1995 and 1996, as
compared to fiscal 1994, is directly attributable to this change in strategy and
the Company intends to continue this strategy in the future.
The Company now offers a full spectrum of services that are carried out by
the Company's personnel, who are experts in both the VAX/VMS and UNIX
environments. The Company's personnel use Accelr8 tools that automatically
identify and diagnose difficult areas in porting an application. This enables
them to implement conversion techniques that ensure successful conversions and
porting. The Company offers the following services:
1) Situational Analysis: The Company's personnel use automated tools and their
expertise to scan the customer's code while on-site at the customer's
facility. Within four weeks, a written report is provided to the customer
identifying the porting issues and their solution options. The code is
rated on a scale of one to five as to its Portability. If requested by the
customer, a bid to conduct the conversion on a fixed-price basis is also
provided.
2) Implementation Planning: The Company's analysts work with the customer to
select the appropriate solutions for their conversion issues. These answers
are assembled into a project plan that is used by the project manager to
control and synchronize the conversion effort as well as measure progress.
3) Application Port: The Company's analysts perform the code conversion. Where
suitable, the Company performs automatic conversion using the Company's
tools, as well as engineering of modules which must be redesigned to work
on UNIX. This is followed by complete testing and certification. The
Company's service can be contracted as a turnkey port or as part of a
cooperative team effort with the customer's personnel.
4) Implementation Assistance: In addition to industry standard support and
update contracts, the Company offers both on-site and off-site porting
assistance agreements. A foreign customer may contract for off-site
telephone support.
5) Custom Programming: Programming is done on either a fixed price or time and
materials basis for the purpose of Re-engineering and modernizing old
Legacy Code or for porting custom applications that run in front of or
after COTS applications.
6) Training: Including VMS Users Introduction to UNIX, Application Conversion
using Tools and existing systems investments.
7) Code Audit Measurement and Analysis: The Company measures adherence to
external and internal coding standards as a means to prevent significant
deviation from standard coding practices.
Products. Accelr8's products are part of a sophisticated tool set that
assists in the following tasks: (i) comprehensive analysis of Legacy Code to
determine Portability to Open Systems; (ii) thorough analysis and planning for
conversion; (iii) performance of actual conversion, if required by the customer;
(iv) creation of quality assurance models for the enforcement of external and
internal standards applicable to new target environments; and (v) planning and
implementation for modernization and Re-engineering databases and user
interfaces.
The Company has developed a unique analyzer tool called Open NAVIG8, that
quickly and accurately examines large quantities of Legacy Code, eventually
organizing and prioritizing the individual modules that need to be moved. This
porting process is then performed using the actual porting tools that automate
up to 95% of the conversions.
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The Company's conversion process relies on Company owned and developed
tools to provide a level of "transparency" to both VAX/VMS and UNIX users, thus
preserving user productivity while accessing the higher power/lower cost of
UNIX. Additionally, the conversion tools support users as they learn UNIX at
their own pace and enable large batch jobs to be moved to the new, faster UNIX
platform, thereby freeing up the VAX to perform other tasks more efficiently.
Other Company software features include the ability to share information
between UNIX and VAX/VMS systems and to transfer files and records over a
Network. The Company's conversion offerings are available on a wide range of
UNIX systems, including SGI, HP, Sun, DEC and IBM. Features are discussed in
greater detail below as each of the Company's products and services is
individually described.
While Open NAVIG8 tools introduce the client to the Company's competencies,
the rendering of conversion services is the core business that generates
revenues. The Company believes that clients experience greater value from the
modernization and Re-engineering process if their personnel are involved in
understanding what has been done to change the computer environment. Therefore,
various phases of the conversion process are deployed at the customer site with
client personnel as observers. Additionally, the Company conducts training
classes for the client end user groups in the operation of the new environment.
Ongoing training and software updates are a component of gross revenue in each
services contract.
After delivery of a new environment, the Company will offer a service that
measures, on a regular interval, the adherence to either external or internal
coding standards. This "code auditor" service has been driven by the United
States Defense Department objective of prevention of future Legacy Code chaos.
The Company believes that private industry will also move to this objective.
Accelr8's products-Open NAVIG8, Open LIBR8 and Open ACCLIM8-embody the core
technological advantages and competencies of Accelr8; however, the following
groups of tools are integral to all conversion projects.
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User Productivity
Tools ............ are designed to provide the user with familiar screen
formats and command scripts thereby preserving productivity
while learning a new operating system (UNIX/NT). The
Company's User Productivity Tools include:
Open DCL ....... VMS command line interface (recall/editing); login shell
nu TPU ......... VAX-style editor for UNIX (TPU, EDT, WPS modes)
Open SUBMIT .... VAX to UNIX batch submission utility
_________________________________________________
Porting Tools .... are designed to move and support old Legacy Code
applications in UNIX or NT environments, providing the same
original functionality on the new target platform. The
Company's Porting Tools include:
Open COBOL ..... VAX COBOL source code converter and linker
Open ACCLIM8 ... Pre-compiler for VAX Fortran; indexed file support
Open BASIC ..... Re-targetable BASIC to C Compiler; VAX BASIC compatibility
Open PASCAL .... VAX Pascal to C Translator
C/Fix .......... Translator for VMS specific C constructs(sold with LIBR8)
Ada Bindings ... Source code interface routines for all Ada Compilers and
LIBR8
Open LIBR8 ..... VMS runtime library support (ast, qio, event flags,
mailboxes, etc)
Open RMS ....... UNIX equivalent of VMS I/O calls. (sold with LIBR8)
Open SMG ....... VAX compatible Screen Management facility for Open Systems
FMS/UNIX ....... FMS for UNIX; FMS Editor (100% compatibility) sold
separately
Open DCL ........ Command language interpreter; VMS-style error handling
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Analysis &
Programming
Standards Tools are designed to provide analysis and code auditing standards
and capabilities in a work bench environment, Legacy Code is
easily examined and reconstructed to meet any user stated
rules. The Company's Analysis & Programming Standards Tools
include:
Open NAVIG8 .... Analyzer - Documents conversion barriers Auditor - Guidance
and standards for portability 2000 - Year 2000 impact
analysis for VMS users.
New Product Offerings
In addition to VAX/VMS to UNIX conversions, the Company believes that there
is a large opportunity in both the government and commercial sector to provide
two additional services: Year 2000 Impact Analysis for the DEC installed
computer base and conversion services/tools for VAX/VMS to NT conversions
running on Alpha servers.
The Year 2000 Problem arises from the widespread use of computer programs
that rely on two-digit date codes to perform computations and decision making
functions. Many of these computer programs may fail due to an inability to
interpret date codes properly. For example, such programs may misinterpret "00"
as the year 1900 rather than 2000. While DEC claims that VAX minicomputers and
other computers using the VMS operating system are designed to use four digits
to express dates, DEC customers may be using third party software packages that
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do not use four digit dates. The Company intends to provide Year 2000 Impact
Analysis services by using a Company owned and developed tool to identify the
variables in the code that are most likely to hold date information. A prototype
of this tool is under development.
Microsoft Corporation's Windows NT operating system is the newest operating
system from Microsoft Corporation. DEC has announced a strategic partnership
with Microsoft to offer its VAX minicomputer customers a seamless environment
where Open VMS, DEC UNIX and NT will be supported on DEC's Alpha platform.
Management believes that DEC has no plans to assist users of its older VAX
minicomputers in moving their VAX applications to the new NT operating
environment. The Company plans to port all of its UNIX conversion tools to the
NT environment, thus enabling VAX/VMS users to operate their existing VAX
applications on an NT operating system. The Company has begun to develop the
software tools for the NT conversion opportunity; however, a substantial amount
of work remains to be done to complete this project. The Company intends to (i)
complete development of the conversion system; (ii) hire additional technical
and marketing personnel to support sales of this conversion service; and (iii)
market, advertise and promote this product and service.
Customers
The Company's software tools have been sold to over 600 customers. The
Company's customers are principally users of VAX/VMS Legacy Systems that are
either commercial enterprises or government or quasi-government agencies. Set
forth below is a partial list of the Company's customers.
Commercial Enterprises United States Government
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Lockheed Martin Corp. McDonnell Douglas Corp. NASA
Delta Air Lines Inc. Proctor & Gamble U.S. Army
Kellogg Co. General Instrument Corp. U.S. Air Force
Alcatel Alsthom Cie
Generale Europe Daimler Benz AG U.S. Navy
Union Carbide Corp. Telos Corp.
RGTI Loral Corp.
Renault V.I. Electronic Data Systems Corp.
Mack Trucks
Union Carbide Corp. & RGTI (sellers of warehouse distribution software)
have embedded the Company's software in their UNIX solutions, thereby yielding
the potential for substantial run-time license fees for the Company during the
current fiscal year.
Marketing and Distribution
The Company has historically utilized several marketing approaches
including direct advertising, press releases, trade shows, Company sponsored
seminars, speaking engagements and independent software vendor catalog listings.
The Company's sales personnel contact the leads generated by these activities.
Recently, the Company decreased its advertising in trade publications and
terminated direct mail advertising. Management believes that advertising the
Company's services and products electronically on the Company's web page is a
more cost effective and efficient method of reaching the Company's target
market. The Company will continue to emphasize attendance at trade shows,
Company and vendor sponsored seminars, press releases, speaking engagements and
independent software vendor catalog listings in its marketing efforts. The
Company's international sales represented 15% of the Company's total revenues in
fiscal 1996 as compared to 7% of fiscal 1995 revenues. Management intends to
direct a significant portion of its marketing efforts toward further market
penetration in international markets, with its primary emphasis upon Europe and
Asia.
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The Company's on-site personnel often have the opportunity to market
additional Company services to existing customers. The Company's conversion
teams have and will continue to focus upon educating customers as to the full
range of the Company's products and services, and to providing solutions to the
customers' problems.
The Company also attends hardware vendor sales events, such as those
sponsored by HP and DEC, for industry group segments, including TELCOS
(telecommunication companies), government entities, and pharmaceutical
companies. Company representatives follow-up on contacts made at these events,
and where appropriate schedule on-site visits with potential customers. While
on-site with customers and potential customers Accelr8's representatives work
closely with technical personnel in Denver for instant and direct help in
addressing the customers' problems and needs. Management believes that this
coordinated approach between the field sales persons and the technical personnel
in Denver has led to greater sales, and the Company intends to continue this
practice.
Research and Development
The Company conducts its research and development at its headquarters in
Denver, Colorado. The Company believes that the continued development of new
products and enhancement of existing products is essential to maintaining a
competitive position in the marketplace. The Company expended $33,038 on Company
sponsored research and development during fiscal 1996, and $129,959 during
fiscal 1995. This decrease occurred because technical personnel normally
involved in research and development also provided a substantial amount of
technical assistance in connection with the Company's consulting services. For
the year ended July 31, 1996, $193,621 of cost of service represented assistance
from these technical personnel with consulting projects. Management is committed
to a strong research and development program, and intends to continue these
expenditures at levels necessary to allow the Company to maintain a strong
competitive position.
Production
The Company's production facilities are located at its headquarters in
Denver, Colorado, and are primarily used for software development and extensive
testing and quality control of software products. The Company has a verbal
understanding relating to expansion of its facilities, and anticipates hiring
additional technical, marketing, sales and managerial personnel during the next
12 months.
The Company does not believe that, for the foreseeable future, the
Company's products will be subject to any significant fluctuations in supply
costs. Componentry and systems used to develop products and the actual tape
cassettes on which software is placed can be obtained from a variety of vendors,
none of which holds a controlling position within the market. The Company
believes that it has the ability to fill any anticipated future sales orders
received.
Competition
Management is aware of two companies that compete directly with the
Company. BBC of Boston, Massachusetts, has a product available that directly
competes with the Company's Open DCL product. Sector 7, formerly known as
Software Translations, of Austin, Texas, offers a limited software conversion
tool set for moving from VMS to UNIX. While Sector 7 has focused on moving VAX
BASIC applications to UNIX, its technology overlaps with the Company's Open DCL
and Open LIBR8 products. Management believes that the Company offers a broader
range of products and services than either of these competitors, and is
therefore able to compete successfully against them.
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Although DEC does not offer its own products for conversion from its
VAX/VMS Legacy Systems to UNIX, should DEC choose to do so, the Company could be
materially and adversely affected. At this point, DEC has not announced any
products that compete directly with the Company's products. However, DEC offers
all of the Company's tools in the Digital Price Book and as a specification in
the SEWP contract to NASA, as well as the GSA federal purchasing schedule.
Intellectual Property
The Company relies on a combination of copyright, trademark and trade
secret laws, employee and third party disclosure agreements, license agreements
and other intellectual property protection methods to protect its Proprietary
rights. The Company protects the source code version of its products as a trade
secret and as an unpublished copyrighted work. The Company's Proprietary
software products are generally licensed to customers on a "right to use" basis
pursuant to a perpetual, nontransferable license that generally restricts use to
the customer's internal purposes and to a specific computer platform that has
been assigned a "key code." However, it may be possible for unauthorized parties
to copy or reverse engineer certain portions of the Company's products or obtain
and use information the Company regards as Proprietary. The Company currently
has no patents and existing copyright and trade secret laws offer only limited
protection. Further, the laws of some foreign countries do not protect the
Company's Proprietary rights to the same extent as do the laws of the United
States. The Company has been and may be required from time to time to enter into
source code escrow agreements with certain customers, providing for release of
source code in the event the Company files bankruptcy or ceases to continue
doing business. Although the Company's competitive position may be adversely
affected by unauthorized use of its Proprietary information, the Company
believes that the ability to fully protect its intellectual property is less
significant to the Company' s success than are other factors, such as the
knowledge, ability and experience of its employees and its ongoing product
development and customer support activities. There can be no assurance that the
protections put in place by the Company will be adequate.
There can be no assurance that third parties will not assert infringement
or other claims against the Company with respect to any existing or future
products, or that licenses would be available if any Company technology were
successfully challenged by a third party, or if it became desirable to use any
third-party technology to enhance the Company's products. Litigation to protect
the Company's Proprietary information or to determine the validity of any
third-party claims could result in significant expense to the Company and divert
the efforts of the Company's technical and management personnel, whether or not
such litigation is determined in favor of the Company.
While the Company has no knowledge that it is infringing the Proprietary
rights of any third party, there can be no assurance that such claims will not
be asserted in the future with respect to existing or future products. Any such
assertion by a third party could require the Company to pay royalties, to
participate in costly litigation and defend licensees in any such suit pursuant
to indemnification agreements, or to refrain from selling an alleged infringing
product or service.
Employees
The Company has 13 full-time employees at its facilities in Denver,
Colorado, including one administrative employee, three sales and administrative
employees and nine scientific and technical employees. The Company anticipates
hiring up to 30 additional employees to staff its conversion teams, additional
sales and marketing personnel and a senior accounting/financial manager during
the 12 months. There are no collective bargaining agreements, and the Company
considers its relations with its employees to be good.
-10-
<PAGE>
Item 2 - Properties
- -------------------
The Company currently leases approximately 3,796 square feet of office and
research facility space at 303 E. 17th Avenue, Suite 108, Denver, Colorado
80203, at a monthly rental of approximately $3,385. The Company has a verbal
understanding to lease approximately 2,400 additional square feet of office
space that is immediately adjacent to its present space at a monthly rental of
approximately $2,150 for a 36-month term. Management anticipates entering into a
lease agreement for this space before the end of the calendar year. Management
also anticipates extending the lease on its existing space for 36 months at the
same rental cost that it currently pays at that time. The additional space will
be needed to provide office space for the additional technical and sales
personnel that the Company anticipates hiring during the next 12 months. The
Company's existing facility is adequate for the present number of employees and
the additional 2,400 square feet of space is expected to be adequate to
accommodate the projected increase in personnel.
Item 3 - Legal Proceedings
- --------------------------
The Company is not a party to any legal proceedings, nor does management
believe that any such proceedings are contemplated.
Item 4 - Submission of Matters To a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted by the Company to a vote of the Company's
shareholders through the substitution of proxies or otherwise, during the fourth
quarter of the fiscal year covered by this report.
PART II
-------
Item 5 - Market For Registrant's Common Equity and Related Stockholder Matters
- ------------------------------------------------------------------------------
The Company's Common Stock is traded in the over-the-counter market on the
Nasdaq Electronic Bulletin Board under the symbol "ACLY."
The table set forth below presents the range, on a quarterly basis, of high
and low bid prices per share of Common Stock as reported by the National
Quotation Bureau, Inc. The quotations represent prices between dealers and do
not include retail markup, markdown or commissions and may not necessarily
represent actual transactions.
Quarter Ended High Bid Low Bid
------------- -------- -------
Fiscal 1995
-----------
October 31, 1994 .0625 .02
January 31, 1995 .04 .02
April 30, 1995 .055 .02
July 31, 1995 .14 .02
Fiscal 1996
-----------
October 31, 1995 .14 .12
January 31, 1996 .16 .11
April 30, 1996 .375 .20
July 31, 1996 1.00 .35
-11-
<PAGE>
The closing bid price of the Common Stock as of October 28, 1996, was
$1.9375 per share. The Company had approximately 141 shareholders of record as
of July 31, 1996, which does not include shareholders whose shares are held in
street or nominee names.
Holders of common stock are entitled to receive dividends as may be
declared by the Board of Directors out of funds legally available therefore. No
dividends have been declared to date by the Company, nor does the Company
anticipate declaring and paying cash dividends in the foreseeable future.
Item 6 - Selected Financial Data
- --------------------------------
The following selected financial data should be read in conjunction with
the financial statements and related notes thereto appearing elsewhere in this
Form 10-K and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The selected financial data as of July 31, 1995 and 1996
and for each of the three years in the period ended July 31, 1996 have been
derived from the financial statements of the Company which have been audited by
the Company's independent auditors and are included elsewhere in this Form 10-K.
The selected financial data for each of the two years in the period ended July
31, 1993 have been derived from the audited financial statements of the Company
not included herein. The selected financial data provided below is not
necessarily indicative of the future results of operations or financial
performance of the Company.
<TABLE>
<CAPTION>
Year Ended July 31,
--------------------------------------------------------------------------
Statement of Operations Data: 1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Revenue:
Product license and customer support fees $ 626 $ 769 $ 415 $ 751 $ 684
Resale of purchased software -- 37 150 338 338
Consulting fees -- 71 41 294 1,075
Other revenues -- -- 83 -- --
Total revenue 626 877 689 1,383 2,097
Income (loss) from operations (225) (20) (269) 370 1,114
Net income (loss) (218) (10) (262) 382 1,193
Net income (loss) per share (.011) (.000) (.012) .015 .044
Weighted average shares outstanding 19,826,668 21,970,000 21,970,000 26,364,000 26,935,508
</TABLE>
July 31,
-----------------------
1995 1996
---- ----
Balance Sheet Data:
Working capital $500 $1,704
Current assets 731 2,011
Current liabilities 231 307
Total assets 978 2,317
Total liabilities 231 377
Shareholders' equity 747 1,940
Item 7 - Management's Discussion and Analysis of FinancialCondition and Results
of Operations
- --------------------------------------------------------------------------------
Overview
The Company began to develop software conversion tools for VAX/VMS users to
convert to UNIX environments in 1987. The Company's total revenues have
increased from $688,885 in fiscal 1994 to $2,097,011 in fiscal 1996, and net
income has increased from a loss of ($261,750) in fiscal 1994 to $1,192,780 in
-12-
<PAGE>
fiscal 1996. The growth in revenues and net income reflects the Company's
decision in fiscal 1994 to develop specialized consulting services which can be
delivered with the Company's software tools as an integrated solution to
clients' conversion needs. The Company's consulting services accounted for
approximately 51% of 1996 revenues. The growth in revenues and net income also
reflects the Company's success in establishing international sales, which
accounted for approximately 15% of total revenues in fiscal 1996 as compared to
7% of total revenues in fiscal 1995. Future revenues from sales of the Company's
products and services are dependent upon users of VAX/VMS Legacy Systems
continuing to elect to convert their data and applications to UNIX or NT
environments.
The Company derives its revenue primarily from software license fees,
software maintenance fees and professional service fees. The Company's software
is licensed to primarily Fortune 1,000 companies and governmental organizations
worldwide.
Professional services are provided in conjunction with software products
and also are sold separately if required by the customer. In addition, the
Company realizes license revenue from sales of software by licensees who have
embedded the Company's software in their software pursuant to run time licenses.
The Company's products and services are marketed through its sales force, both
domestically and internationally.
Revenue is recognized for consulting services as services are performed.
Revenue is recognized on product licensing agreements when the Company
substantially completes its obligations under the agreement and the customer has
accepted the product. Revenue is recognized for customer support services on
maintenance agreements using the straight-line method over the term of the
agreement. In connection with its software business, the Company functions as a
value-added reseller of computer software, in that it licenses certain software
from unaffiliated third parties that is included within certain of its software
products. The Company recognizes revenue when the computer software is
delivered.
Results of Operations
The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain items included in the Company's Statements
of Operations:
Fiscal year ended July 31,
---------------------------
1994 1995 1996
------ ------ ------
Total revenues 100.00% 100.00% 100.00%
Cost of services 19.40 10.69 14.86
Cost of software purchased for resale 10.17 7.32 5.61
General and administrative 43.94 19.12 9.34
Marketing and advertising 43.37 26.70 15.50
Research and development 22.10 9.40 1.57
------ ------ ------
Income (loss) from operations (38.98) 26.77 53.12
Interest income 0.98 0.89 2.07
Income tax benefit 0.00 0.00 1.69
------ ------ ------
Net income (loss) (38.00%) 27.66% 56.88%
====== ====== ======
Year Ended July 31, 1996 Compared to Year Ended July 31, 1995
Total revenues for the year ended July 31, 1996, were $2,097,011, an
increase of $714,475, or 51.68%, as compared to the year ended July 31, 1995.
Consulting fees for the year ended July 31, 1996, were $1,074,744, an increase
of $780,614, or 265.40% as compared to the year ended July 31, 1995, and
represented 51.25% of total revenues. This increase primarily resulted from
management's continued emphasis in fiscal 1996 on marketing of consulting
-13-
<PAGE>
services with less emphasis on marketing of products alone. Management expects
this trend to continue in the future. Product license and customer support fees
for the year ended July 31, 1996, were $683,997, a decline of $66,587, or 8.87%,
as compared to the year ended July 31, 1995. This decline is consistent with the
emphasis on consulting noted above. Revenues from the resale of purchased
software for the year ended July 31, 1996, were $338,270, an increase of $448,
or 0.13%, as compared to the year ended July 31, 1995.
During the year ended July 31, 1996, sales to the Company's three largest
customers were $239,025, $282,100 and $353,075, representing 11.40%, 13.45% and
16.84% of the Company's revenues, respectively. In comparison, sales to a single
customer represented 10.88% of total revenues for the year ended July 31, 1995.
The loss of a major customer could have a significant impact on the Company's
financial performance in any given year.
Cost of services for the year ended July 31, 1996, was $311,534, an
increase of $163,791, or 110.86%, as compared to the year ended July 31, 1995.
Cost of services as a percentage of revenues from both consulting fees and
product license and customer support fees increased from 14.14% for the year
ended July 31, 1995 to 17.71% for the year ended July 31, 1996. This increase
occurred principally because of the increased concentration of Company resources
and personnel in delivery of consulting services.
Cost of software purchased for resale for the year ended July 31, 1996, was
$117,737, an increase of $16,471 or 16.27%, as compared to the year ended July
31, 1995. This increase was directly related to the increased sales of products
and related consulting services.
General and administrative expenses for the year ended July 31, 1996 were
$195,802, a decrease of $68,563, or 25.93%, as compared to the year ended July
31, 1995. This decrease was principally due to reduced salary cost that resulted
from the departure of a senior executive who was not replaced.
Marketing and advertising expenses for the year ended July 31, 1996 were
$324,962, a decrease of $44,203, or 11.97%, as compared to the year ended July
31, 1995. This decrease was principally due to decreased advertising in trade
publications and termination of direct mail advertising. Management believes
that advertising the Company's services and products electronically on the
Company's web page is a more cost efficient and effective method to reach the
Company's target markets.
Research and development expenses for the year ended July 31, 1996 were
$33,038, a decrease of $96,921, or 74.58%, as compared to the year ended July
31, 1995. This decrease resulted because technical personnel normally involved
in research and development provided a substantial amount of technical
assistance in connection with the Company's consulting services. For the year
ended July 31, 1996, $193,621 of cost of service represented assistance from
these technical personnel with consulting projects.
Interest income for the year ended July 31, 1996, was $43,342, an increase
of 250.78%, as compared to the year ended July 31, 1995. This increase resulted
from increased cash flows from operations, that could be invested in interest
bearing instruments.
As a result of these factors, operating income for the year ended July 31,
1996, was $1,113,938, an increase of $743,900, or 201.03%, as compared to the
year ended July 31, 1995. Net income for the year ended July 31, 1996, was
$1,192,780, an increase of $810,386, or 211.92%, as compared to the year ended
July 31, 1995.
Year Ended July 31, 1995 Compared to Year Ended July 31, 1994
Total revenues for the year ended July 31, 1995, were $1,382,536, an
increase of $693,651, or 100.69%, as compared to the year ended July 31, 1994.
Consulting fees for the year ended July 31, 1995, were $294,130, an increase of
-14-
<PAGE>
$252,980, or 614.78% as compared to the year ended July 31, 1994, and
represented 21.27% of total revenues. This increase primarily resulted from
management's emphasis in fiscal 1995 on marketing of consulting services with
less emphasis on marketing of products alone. Product license and customer
support fees for the year ended July 31, 1995, were $750,584, an increase of
$335,577, or 80.86%, as compared to the year ended July 31, 1994. Revenues from
the resale of purchased software for the year ended July 31, 1995, were
$337,822, an increase of $188,129, or 125.68%, as compared to the year ended
July 31, 1994.
During the year ended July 31, 1995, 10.88% of the Company's revenues were
derived from sales to a single customer. In comparison, sales to a single
customer represented 14.96% of total revenues for the year ended July 31, 1994.
The termination or loss of a single large customer could have a significant
impact on the Company's financial performance in any given year.
Cost of services for the year ended July 31, 1995, was $147,743, an
increase of $14,108, or 10.56%, as compared to the year ended July 31, 1994.
Cost of services as a percentage of revenues from both consulting fees and
product license and customer support fees decreased to 14.14% for the year ended
July 31, 1995 from 29.30% for the year ended July 31, 1994.
Cost of software purchased for resale for the year ended July 31, 1995, was
$101,266, an increase of $31,182 or 44.49%, as compared to the year ended July
31, 1994. This increase was directly related to the increased sales of products
and related consulting services.
General and administrative expenses for the year ended July 31, 1995 were
$264,365, a decrease of $38,298, or 12.65%, as compared to the year ended July
31, 1994. This decrease was largely due to reduced salary costs.
Marketing and advertising expenses for the year ended July 31, 1995 were
$369,165, an increase of $70,405, or 23.57%, as compared to the year ended July
31, 1994. This increase was principally due to increased advertising in trade
publications, increased use of specific product literature and direct mail
advertising.
Research and development expenses for the year ended July 31, 1995 were
$129,959, a decrease of $22,286, or 14.64%, as compared to the year ended July
31, 1994. This decrease resulted because technical personnel normally involved
in research and development provided a substantial amount of technical
assistance in connection with the Company's consulting services. For the year
ended July 31, 1995, $21,187 of cost of service represented assistance from
these technical personnel with consulting projects.
Interest income for the year ended July 31, 1995, was $12,356, an increase
of 83.00% as compared to the year ended July 31, 1994. This increase resulted
from increased cash flow from operations, that could be invested in interest
bearing instruments.
As a result of these factors, operating income for the year ended July 31,
1995, was $370,038, an increase of $638,540, or 237.82%, as compared to the year
ended July 31, 1994. Net income for the year ended July 31, 1995, was $382,394,
an increase of $644,144, or 246.09%, as compared to the year ended July 31,
1994.
Liquidity and Capital Resources
The Company has relied principally upon internally generated funds to
finance its operations and growth. During the year ended July 31, 1996, the
liquidity of the Company improved significantly because of a substantial
increase in revenues while expenses remained relatively stable from 1995 to
1996. During the year ended July 31, 1996, cash and cash equivalents increased
221.66% from $437,425 to $1,407,026. The Company generated $1,075,515 cash from
-15-
<PAGE>
operations during the year ended July 31, 1996, compared to $406,610 cash from
operations generated during the year ended July 31, 1995. Shareholders' equity
increased 159.69% from $746,936 at July 31, 1995, to $1,939,716 at July 31,
1996. The primary reasons for the Company's increased liquidity and
shareholders' equity positions is the increased cash flow from operations. At
July 31, 1996, the Company had working capital of $1,703,605 and cash
equivalents of $1,407,026. The Company is planning a public offering of its
Common Stock in order to generate additional funds for expansion of the
Company's business.
Item 8 - Financial Statements and Supplementary Data
- ----------------------------------------------------
The response to this item is submitted as a separate section of this report
beginning on page F-1.
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
- --------------------------------------------------------------------------------
The Company has not had any reported or material disagreement with its
accountants on any matter of accounting principles, practices or financial
statement disclosure.
PART III
Item 10 - Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
Set forth below is certain information concerning the directors, executive
officers and key employees of the Company as of the date hereof.
Name Age Position
---- --- --------
Directors and Executive Officers
Thomas V. Geimer 49 Chairman of the Board of
Directors,
Secretary, Chief Financial
Officer,
Chief Executive Office
Harry J. Fleury 49 President
David C. Wilhelm(1) 77 Director
A. Alexander Arnold III(1) 54 Director
Key Employees
Timothy Fitzpatrick 41 Vice President Sales and
Marketing
Dr. Franz Huber 51 Chief Scientist
- ---------------
(1) Members of the Audit and Compensation Committees
Officers are appointed by and serve at the discretion of the Board of
Directors. Each director holds office until the next annual meeting of
shareholders or until a successor has been duly elected and qualified. All of
the Company's officers devote their full-time to the Company's business and
affairs. There are no family relationships between any directors, executive
officers or key employees.
Thomas V. Geimer has been the Chairman of the Board of Directors and a
director of the Company since 1984. He currently serves as the Chief Executive
Officer, Chief Financial Officer and Secretary of the Company. Mr. Geimer is
responsible for development of the Company's business strategy, day to day
operations, the accounting and finance functions and federal government sales
relationships. Before assuming full-time responsibilities at the Company, Mr.
Geimer founded and operated an investment banking firm.
-16-
<PAGE>
Harry J. Fleury has served as President of the Company since June 1995. Mr.
Fleury is responsible for engineering activities and strategies of the Company,
and for international sales. From March 1993 until June 1995, Mr. Fleury was
Vice President of International Sales of the Company with responsibility for
developing and directing international sales. Prior to joining the Company in
1993, Mr. Fleury was employed by Digital Equipment Corporation serving in a
variety of engineering and management positions for over 26 years. Mr. Fleury
managed DEC's European, Asian and Pacific corporate engineering groups that were
responsible for service capability world wide, for internal and external
products and for strategic, operational and tactical direction. Mr. Fleury
received an electrical engineering degree in 1967 from Vermont Technical
Engineering College.
David C. Wilhelm has been a director of the Company since June 1988. For
the past 30 years, Mr. Wilhelm has been President of Wilhelm Co., an
agribusiness company principally engaged in the cattle feeding and commodity
business, located in Denver, Colorado. Since 1972, Mr. Wilhelm has been a
director of Colorado National Bank located in Denver, Colorado. Mr. Wilhelm is a
member of the International Executive Service Corp., and was formerly the
Director of the Colorado Cattlemen's Association. Mr. Wilhelm received a
Bachelor of Arts in American History from Yale University in 1942.
A. Alexander Arnold III has served as a director of the Company since
September 1992. For the past 25 years, Mr. Arnold has served as a Managing
Director of Trainer, Wortham & Co., Inc., a New York City-based investment
counselor firm, which Mr. Arnold co-founded. Mr. Arnold received a Bachelor of
Arts degree from Rollins College in 1964 and a Masters of Business
Administration from Boston University in 1966.
Timothy Fitzpatrick has served as Vice President of Sales and Marketing of
the Company since 1992. Mr. Fitzpatrick is responsible for domestic marketing
and sales of the Company's products and services. From 1989 to 1992, Mr.
Fitzpatrick was employed as Vice President of Software Translations, Inc. He
also was General Manager of Datavision (UK) Ltd. from 1987 to 1989. Mr.
Fitzpatrick received a Bachelor of Arts Degree in City Planning from Michigan
State University.
Dr. Franz Huber has served as Chief Scientist of the Company since 1988.
Dr. Huber is responsible for the design and development of the Company's
software products. Prior to joining the Company, Dr. Huber (i) taught Computer
Science at the University of Colorado; (ii) taught Computer Applications in
Biomedical Research at the University of Colorado Medical Center; and (iii)
worked for several technology companies in various research and development,
scientific and technical positions. Dr. Huber received his Ph.D. in Physics from
the University of Vienna, Austria in 1968.
Board Committees
The Board of Directors maintains a Compensation Committee and an Audit
Committee. The Compensation Committee is composed of Messrs. Arnold and Wilhelm,
the Company's non-management directors. The primary function of the Compensation
Committee is to review and make recommendations to the Board with respect to the
compensation, including bonuses, of the Company's officers and to administer the
Company's stock option plan. The Audit Committee is comprised of Messrs. Arnold
and Wilhelm. The function of the Audit Committee is to review and approve the
scope of audit procedures employed by the Company's independent auditors, to
review and approve the audit reports rendered by the Company's independent
auditors and to approve the audit fee charged by the independent auditors. The
Audit committee reports to the Board of Directors with respect to such matters
and recommends the selection of independent auditors.
-17-
<PAGE>
Item 11 - Executive Compensation
- --------------------------------
Summary Compensation Table. The following table sets forth the annual and
long-term compensation for services in all capacities to the Company in the
three fiscal years ended July 31, 1996, of Thomas V. Geimer and Harry J. Fleury,
who are the Company's most highly compensated executive officers, and Timothy
Fitzpatrick a key employee of the Company.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
---------------------------------------------------- ------------
Other Number of
Name and Fiscal Annual Options
Principal Position Year Salary Bonus Compensation Awarded
- ------------------ ---- ------ ----- ------------ -------
<S> <C> <C> <C> <C> <C>
Thomas V. Geimer 1996 $ 70,458 $ 37,500(1) $ -- 4,800,000(2)
Chief Executive Officer 1995 $ 64,250 $ -- $ -- --
and Chief Financial 1994 $ 62,130 $ -- $ -- --
Officer
Harry J. Fleury 1996 $ 61,000(3) $ 10,331 $ -- --
President 1995 $ 50,846(3) $ 6,685 400,000(4)
1994 $ 20,961 $ 755
Timothy Fitzpatrick 1996 $ 57,885 $ 44,030(5) $ --
Vice President 1995 $ 55,000 $ 23,657
Sales and Marketing 1994 $ 55,000 $ 17,832
</TABLE>
- -------------
(1) Represents deferred compensation for Mr. Geimer pursuant to the Company's
deferred compensation plan, $37,500 of which vested during the last fiscal
year, and $37,500 of which will vest during the current fiscal year.
(2) Represents stock options and warrants to purchase an aggregate of 4,800,000
shares at an exercise price of $0.06 per share that were extended until
December 31, 1997.
(3) Includes sales commissions earned by Mr. Fleury on revenues from certain
international sales.
(4) Grant of employee stock option to purchase 400,000 shares at an exercise
price of $0.09 per share, 200,000 of which previously vested and the
remaining 200,000 of which will vest in the future.
(5) Represents sales commissions earned by Mr. Fitzpatrick on revenues from
certain domestic sales.
Option/Warrant Values. The following table provides certain information
concerning the fiscal year end value of unexercised options or warrants held by
Mr. Fleury and Mr. Geimer, each of whom served as the Company's chief executive
officer during a portion of 1996, and for Mr. Fitzpatrick.
-18-
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option Exercises in 1996 Fiscal Year
and Fiscal Year End Option Values
Shares Number of Unexercised Value of Unexrcised
Acquired on Value Options at Fiscal Year In-the-Money Options
Name Exercise Realized End at Fiscal Year End(1)
- ---- -------- -------- -------------------------- -----------------------
Exer- Unexer- Exer- Unexer-
cisable cisable cisable cisable
------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Harry J. Fleury __ __ 200,000(2) 200,000(2) $ 194,000 $ 194,000
Thomas V. Geimer __ __ 4,800,000 0 $4,656,000 0
Timothy Fitzpatrick __ __ 500,000 0 $ 485,000 0
</TABLE>
- ------------
(1) Value calculated by determining the difference between closing average
price on July 31, 1996, of $1.03 per share and the exercise price of the
options or warrants. Fair market value was not discounted for restricted
nature of any stock purchased on exercise of these options or warrants.
(2) Mr. Fleury's options were granted on June 1, 1995. A total of 200,000 (or
50%) of the options have vested and, subject to his continued employment
with the Company, the remainder of his options will vest in the future.
Compensation Pursuant to Plans
Employee Retirement Plan. During fiscal year 1996, the Company established
a SARSEP-IRA employee pension plan that covers substantially all full-time
employees. Under the plan, employees have the option to contribute up to the
lesser of 15% of their compensation or $9,240. The Company may make
discretionary contributions to the plan based on recommendations from the Board
of Directors. For the year ended July 31, 1996, the Board did not authorize any
contributions.
Deferred Compensation Plan. In January of 1996, the Company established a
deferred compensation plan for the Company's employees. The Company may make
discretionary contributions to the plan based upon recommendations from the
Board of Directors.
Options and Warrants. A total of 1,900,000 shares of the Company's Common
Stock, no par value, have been issued and reserved for issuance to employees
pursuant to the Company's existing non-qualified stock option plan. Options
currently outstanding held by certain of the Company's current and former
employees allow for the purchase of the Company's restricted Common Stock at a
price of $.09 per share. According to the governing option agreements, the
options vest every 12 months in one-quarter increments of the total amount
granted, over a four year period beginning on the date they are granted, and
remain exercisable for three years following the original date they vest.
Notwithstanding the foregoing, the Company's Board of Directors during the 1994
fiscal year adopted a resolution providing that for so long as a recipient of an
option grant remains in the employ of the Company, the options held will not
expire and if the recipient's employment is terminated, the holder will have up
to 90 days after termination to exercise any vested but previously unexercised
options. All of the currently outstanding options have vested, except 200,000
options held by Mr. Fleury, the Company's current president, and 50,000 options
held by Joseph Steger, which will fully vest in the future. All options
previously granted are administered by the Company's Board of Directors. The
options provide for adjustment of the number of shares issuable in the case of
stock dividends or stock splits or combinations and adjustments in the case of
recapitalization, merger or sale of assets.
-19-
<PAGE>
The Company currently has outstanding an aggregate of 4,800,000 warrants
and options held by Thomas V. Geimer, Chairman of the Board of Directors of the
Company ("Affiliate's Warrants"). The Affiliate's Warrants are exerciseable at
an exercise price of $.06 per share. The Affiliate's Warrants, which were
originally scheduled to expire at the close of calendar 1995, were extended for
two years and, accordingly, they are exercisable until December 31, 1997. The
Affiliate's Warrants are not redeemable. The exercise price of the Affiliate's
Warrants and the number of shares of Common Stock to be obtained upon exercise
of the Affiliate's Warrants are subject to adjustment in certain circumstances
including (i) the payment of a stock dividend; (ii) a forward or reverse stock
split; (iii) a consolidation or combination involving the Common Stock; and (iv)
a reclassification or recapitalization involving the Common Stock.
The Company has an incentive stock option plan (the "Qualified Plan") which
provides for the grant of options to purchase an aggregate of not more than
700,000 shares (whether a reverse stock split is effected or not) of the
Company's Common Stock. The purpose of the Qualified Plan is to make options
available to management and employees of the Company in order to provide them
with a more direct stake in the future of the Company and to encourage them to
remain with the Company. The Qualified Plan provides for the granting to
management and employees of "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986 (the "Code").
The Company has a non-qualified stock option plan (the "Non-Qualified
Plan") which provides for the grant of options to purchase an aggregate of not
more than 300,000 (whether a reverse stock split is effected or not)shares of
the Company's Common Stock. The purpose of the Non-Qualified Plan is to provide
certain key employees, independent contractors, technical advisors and directors
of the Company with options in order to provide additional rewards and
incentives for contributing to the success of the Company. These options are not
incentive stock options within the meaning of Section 422 of the Code.
The Qualified Plan and the Non-Qualified Plan (the "Stock Option Plans")
will be administered by a committee (the "Committee") appointed by the Board of
Directors which determines the persons to be granted options under the Stock
Option Plans and the number of shares subject to each option. No options granted
under the Stock Option Plans will be transferable by the optionee other than by
will or the laws of descent and distribution and each option will be
exercisable, during the lifetime of the optionee, only by such optionee. Any
options granted to an employee will terminate upon his ceasing to be an
employee, except in limited circumstances, including death of the employee, and
where the Committee deems it to be in the Company's best interests not to
terminate the options.
The exercise price of all incentive stock options granted under the
Qualified Plan must be equal to the fair market value of such shares on the date
of grant as determined by the Committee, based on guidelines set forth in the
Qualified Plan. The exercise price may be paid in cash or (if the Qualified Plan
shall meet the requirements of rules adopted under the Securities Exchange Act
of 1934) in Common Stock or a combination of cash and Common Stock. The term of
each option and the manner in which it may be exercised will be determined by
the Committee, subject to the requirement that no option may be exercisable more
than 10 years after the date of grant. With respect to an incentive stock option
granted to a participant who owns more than 10% of the voting rights of the
Company's outstanding capital stock on the date of grant, the exercise price of
the option must be at least equal to 110% of the fair market value on the date
of grant and the option may not be exercisable more than five years after the
date of grant.
No options have been granted to date under either the Qualified Plan or the
Non-Qualified Plan. The Stock Option Plans were approved by the Company's
shareholders at a Special Shareholders Meeting held on November 8, 1996.
-20-
<PAGE>
Compliance with Section 16(a) of the Exchange Act
Mr. Wilhelm, a director of the Company, failed to file Forms 4 for the
months of April, May and July to report purchases of an aggregate of 85,300
shares in the open market. The Company has received representations from each
other person that served during fiscal 1996 as an officer or director of the
Company confirming that there were no transactions that occurred during the
Company's most recent fiscal year end which required the filing of a Form 5.
Item 12 - Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
Shares Beneficially Owned
Name and Address -------------------------
of Beneficial Owner Number Percent
- ------------------- ------ -------
Thomas V. Geimer(1), (2) 5,000,000 18.68%
Harry J. Fleury(1), (3) 775,000 3.46%
Timothy Fitzpatrick(1),(4) 500,000 2.22%
Dr. Franz Huber(1),(4) 500,000 2.22%
A. Alexander Arnold III(5) 4,900,000 22.30%
845 Third Ave., 6th Flr
New York, NY 10021
David C. Wilhelm(6) 1,295,000 5.89%
3130 E. Exposition Street
Denver, CO 80209
Solar Satellite (7) 2,110,600 9.60%
Communication, Inc.
5650 Greenwood Plaza
Boulevard #107
Englewood, CO 80111
Officers and Directors 11,970,000 44.06%
as a Group (4 persons)
- -------------
(1) The address for Messrs. Geimer, Fleury, Fitzpatrick and Huber is 303 E.
17th Ave., #108, Denver, CO 80203.
(2) Includes 4,800,000 shares which may be purchased by Mr. Geimer upon
exercise of his warrants and options.
(3) Includes options to purchase 400,000 shares, 200,000 of which vested prior
to this offering and 200,000 of which will vest in the future.
(4) Represents shares which may be acquired by Messrs. Fitzpatrick and Huber
upon exercise of their options.
(5) Represents 4,900,000 shares held by four trusts. Mr. Arnold merely serves
as trustee for each of those trusts but is not a beneficiary of and has no
pecuniary interest in any of those trusts.
(6) Represents 1,295,000 shares held by the Jean C. Wilhelm Trust, of which Mr.
Wilhelm is the lifetime beneficiary and trustee.
(7) Solar Satellite Communications, Inc. is not affiliated with any of the
Company's officers, directors, key employees, or other principal
shareholders. Based upon its review of certain reports filed with the
Securites and Exchange Commission and certain other inquiries, management
believes that Solar Satellite is an inactive company that is controlled by
certain Japanese Nationals and a company controlled by those persons.
-21-
<PAGE>
Item 13 - Certain Relationships and Related Transactions
- --------------------------------------------------------
Certain Transactions
During fiscal year 1996, the Company established a deferred compensation
plan for the Company's employees. The Company may make discretionary
contributions to the plan based on recommendations from the Board of Directors.
As of July 31, 1996, the deferred compensation agreement was funded in the
amount of $75,000 for Thomas V. Geimer, and Mr. Geimer was vested in $37,500 of
this amount. The balance of $37,500 will vest during the current fiscal year.
There were no other transactions or series of transactions for the fiscal
year ended July 31, 1996 nor are there any currently proposed transactions, or
series of the same to which the Company is a party, in which the amount involved
exceeds $60,000 and in which, to the knowledge of the Company, any director,
executive officer, nominee, five percent shareholder or any member of the
immediate family of the foregoing persons, have or will have a direct or
indirect material interest.
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) and (d) Financial Statements and Schedules
The financial statements listed by the Registrant on the accompanying
Financial Statements (see pages F-1 through F-10) are filed as part of this
Annual Report.
(b) Reports on Form 8-K: The Company has not filed a report on
Form 8-K.
(c) Exhibits - None.
-22-
<PAGE>
GLOSSARY OF TERMS
Client/Server The model of interaction in distributed data processing in
which a program at one site sends a request to a program
at another site and awaits a response. The requesting
program is called a client, and the answering program is
called a server.
COTS Acronym for "Commercial Off The Shelf" which means
hardware and/or software that is readily available for
purchase.
Compiler A program that converts another program from some source
language (or programming language) to machine language
(object code).
DEC Acronym for "Digital Equipment Corporation."
Interoperability The ability of software and hardware, on multiple
machines, from multiple vendors to communicate.
Legacy Code Existing software, including proprietary applications,
out-dated commercial vendor applications, data bases and
element relationships, that have been in use for an
extended period of time, thus accumulating the "legacy" of
corporate memory, files and information system
functionality that may no longer adequately satisfy the
owner.
Legacy System Existing hardware and network systems, especially
proprietary, closed mainframe environments or out-dated
architectures that have been in use for an extended period
of time, typically with limited functionality and limited
or no compatibility with more modern systems. DEC's VMS
operating system is an example of a Legacy System.
Network Hardware and software data communication systems.
NT Refers to the Windows NT operating system which is the
latest open system architecture for Windows developed by
Microsoft Corporation.
Open Systems Computer and communications environments based on formal
and de facto interface standards. Such interfaces should
not be controlled by a single vendor and must be freely
available. Systems built using these standard interfaces
provide portability of software across standard computer
platforms, Interoperability between systems and much
greater choice and flexibility in systems procurement.
Operating System The software which schedules tasks, allocates storage,
handles the interface to hardware and presents a default
interface to the user when no application program is
running.
Portability The ease with which a software application can be made to
run in a new environment.
Porting The process or ability to electronically "port" or move
data, files and software from one computer or Network
environment to another computer or Network environment.
Proprietary A product not conforming to open system standards, that
was typically developed by a particular hardware
manufacturer for its own computers.
Re-engineering The examination and modification of a system to
reconstitute it in a new form and the subsequent
implementation of the new form.
23
<PAGE>
RISC Acronym for reduced instruction set computing.
UNIX A widely used multi-user, general purpose operating
system. A trademark of X/Open Company Limited, for an
operating system originally developed at the Bell
Laboratories of AT&T in the late 1960's and early 1970's
and subsequently enhanced by the University of California
at Berkeley, AT&T, the Open Software Foundation (OSF)
and others.
VAX Virtual Address eXtension. Digital Equipment
Corporation's proprietary 32-bit minicomputer,
considered one of the most successful designs in industry
history.
VAX/VMS As used in this Prospectus shall refer to DEC's VAX
minicomputers, which utilize DEC's VMS operating system.
VMS The brand name of the proprietary multi-user, multi-
tasking, virtual memory operating system provided by DEC
with its VAX minicomputers.
Workstation A general purpose computer designed to be used by one
person at a time and which offers higher performance than
normally found in a personal computer, especially with
respect to graphics, processing power and the ability to
carry out several tasks at the same time.
Year 2000 Problem The Year 2000 Problem arises from the widespread use of
computer programs that rely on two-digit date codes to
perform computations and decision making functions. Many
of these computer programs may fail due to an inability
to properly interpret date codes. For example, such
programs may misinterpret "00" as the year 1900 rather
than 2000.
24
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Accelr8 Technology Corporation:
We have audited the accompanying balance sheets of Accelr8 Technology
Corporation as of July 31, 1996 and 1995, and the related statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended July 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of July 31, 1996 and 1995,
and the results of its operations and its cash flows for each of the three years
in the period ended July 31, 1996 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
September 4, 1996
F-l
<PAGE>
ACCELR8 TECHNOLOGY CORPORATION
BALANCE SHEETS
JULY 31, 1996 AND 1995
- --------------------------------------------------------------------------------
ASSETS 1996 1995
CURRENT ASSETS:
Cash and cash equivalents $ 1,407,026 $ 437,425
Accounts receivable 431,252 292,536
Prepaid expenses and other 49,695 1,170
Deferred tax assets (Note 6) 123,223
----------- ---------
Total current assets 2,011,196 731,131
----------- ---------
PROPERTY AND EQUIPMENT:
Computer equipment 209,735 248,620
Furniture and fixtures 11,231 11,231
----------- ---------
Total property and equipment 220,966 259,851
Less accumulated depreciation (150,453) (189,346)
----------- ---------
Net property and equipment 70,513 70,505
----------- ---------
SOFTWARE DEVELOPMENT COSTS, less accumulated
amortization: 1996, $746,260; 1995, $650,023 160,321 176,015
OTHER ASSETS (Note 7) 75,000
----------- ---------
TOTAL $2,317,030 $ 977,651
---------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 52,091 $ 60,141
Income taxes payable 18,000
Salaries and payroll taxes 20,316 30,773
Product development advance payable (Note 2) 50,000 50,000
Deferred consulting revenue 91,724
Deferred maintenance revenue 75,460 89,801
----------- ---------
Total current liabilities 307,591 230,715
----------- ---------
DEFERRED TAX LIABILITIES (Note 6) 69,723
----------- ---------
COMMITMENTS (Note 7)
SHAREHOLDERS' EQUITY (Note 3):
Common stock, no par value; 55,000,000
shares authorized; 21,970,000 shares
issued and outstanding 1,970,970 1,970,970
Contributed capital 41,449 41,449
Accumulated deficit (72,703) (1,265,483)
----------- ---------
Shareholders' equity - net 1,939,716 746,936
----------- ---------
TOTAL $ 2,317,030 $ 977,651
=========== =========
See notes to financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
ACCELR8 TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31,1996, 1995 AND 1994
- ------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
REVENUES (Note 4):
Consulting fees $ 1,074,744 $ 294,130 $ 41,150
Product license and customer
support fees 683,997 750,584 415,007
Resale of purchased software 338,270 337,822 149,693
Other (Note 5) 83,035
----------- --------- ---------
Total revenues 2,097,011 1,382,536 688,885
----------- --------- ---------
COSTS AND EXPENSES:
Cost of services 311,534 147,743 133,635
Cost of software purchased for resale 117,737 101,266 70,084
General and administrative 195,802 264,365 302,663
Marketing and advertising 324,962 369,165 298,760
Research and development 33,038 129,959 152,245
----------- --------- ---------
Total expenses 983,073 1,012,498 957,387
----------- --------- ---------
INCOME (LOSS) FROM OPERATIONS 1,113,938 370,038 (268,502)
INTEREST INCOME 43,342 12,356 6,752
----------- --------- ---------
INCOME (LOSS) BEFORE INCOME
TAXES 1,157,280 382,394 (261,750)
----------- --------- ---------
INCOME TAX (PROVISION) BENEFIT
(Note 6):
Current (18,000)
Deferred 53,500
----------- --------- ---------
Total benefit 35,500
----------- --------- ---------
NET INCOME (LOSS) $ 1,192,780 $ 382,394 $(261,750)
=========== ========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING 26,935,508 26,364,000 21,970,000
========== ========== ==========
NET INCOME (LOSS) PER SHARE $ 0.04 $ 0.01 $ (0.01)
=========== ========= =========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
ACCELR8 TECHNOLOGY CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JULY 31,1996, 1995 AND 1994
- --------------------------------------------------------------------------------
Common Stock
----------------------- Contributed Accumulated Shareholders'
Shares Amount Capital Deficit Equity-Net
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 31, 1993 21,970,000 $1,970,970 $41,449 $(1,386,127) $ 626,292
Net loss (261,750) (261,750)
---------- ---------- ------- ----------- ----------
BALANCE, JULY 31, 1994 21,970,000 1,970,970 41,449 (1,647,877) 364,542
Net income 382,294 382,394
---------- ---------- ------- ----------- ----------
BALANCE, JULY 31, 1995 21,970,000 1,970,970 41,449 (1,265,483) 746,936
Net income 1,192,780 1,192,780
---------- ---------- ------- ----------- ----------
BALANCE, JULY 31, 1996 21,970,000 $1,970,970 $41,449 $ (72,703) $1,939,716
========== ========== ======= =========== ==========
</TABLE>
See notes to financial statements
F-4
<PAGE>
<TABLE>
<CAPTION>
ACCELR8 TECHNOLOGY CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31,1996, 1995 AND 1994
- --------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,192,780 $382,394 $(261,750)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Marketing credits (71,506)
Depreciation and amortization 121,600 139,072 150,821
Deferred income tax benefit (53,500)
Net change in assets and liabilities:
Accounts receivable (138,716) (108,984) (59,701)
Prepaid expenses and other (48,525) 6,705 525
Other assets (75,000)
Accounts payable (8,050) 30,599 21,959
Income taxes payable 18,000
Salaries and payroll taxes (10,457) 8,001 18,267
Deferred consulting revenue 91,724
Deferred maintenance revenue (14,341) 2,823 28,871
Other payables (10,365)
----------- ---------- ----------
Net cash provided by (used in)
operating activities 1,075,515 460,610 (182,879)
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Software development costs (80,543) (108,510) (83,853)
Purchase of computer equipment (25,371)
Purchase of furniture and fixtures (3,931)
----------- ---------- ---------
Net cash used in investing activities (105,914) (108,510) (87,784)
----------- ---------- ----------
NET INCREASE (DECREASED) IN CASH
AND CASH EQUIVALENTS 969,601 352,100 (270,663)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 437,425 85,325 355,988
----------- --------- --------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 1,407,026 $437,425 $ 85,325
=========== ======== ========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES -
In 1994, marketing credits earned and equipment valued at $71,506 were
received in connection with a marketing program of a major customer (Note 5).
See notes to financial statements.
F-5
<PAGE>
ACCELR8 TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - Accelr8 Technology Corporation ("Accelr8" or the "Company") is a
provider of software tools and consulting services for the conversion of
Digital Equipment Corporation ("DEC") legacy systems to UNIX open
client/server environments. The Company's consulting services and software
conversion tools enable the Company's customers to analyze and implement
their UNIX conversions in a predictable and cost-effective manner. The
Company's clients include a number of Fortune 1000 companies and government
agencies.
Use of Estimates - The preparation of 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 as of 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.
Cash and Cash Equivalents - All highly liquid investments with an original
maturity of three months or less at time of purchase are considered to be
equivalent to cash.
Concentration of Credit Risk - Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of
cash equivalents and accounts receivable. The Company places its cash
equivalents with a high credit quality financial institution. The Company
grants credit to domestic and international clients in various industries.
Exposure to losses on accounts receivable is principally dependent on each
client's financial position. The Company performs ongoing credit
evaluations of its client's financial condition.
Property and Equipment - Property and equipment are recorded at cost.
Maintenance and repairs are charged to expense as incurred and expenditures
for major improvements are capitalized. Gains and losses from retirement or
replacement are included in operations.
Depreciation - Depreciation of property and equipment is computed using the
straight-line method over the estimated useful life of the assets ranging
from five to seven years.
Software Development Costs - Costs incurred internally to develop computer
softsware products and the costs to acquire externally developed software
products (which have no alternative future use) to be sold, leased or
otherwise marketed are charged to expense until the technological
feasibility of the product has been established. After technological
feasibility has been established and until the product is available for
general release, software development, product enhancements and acquisition
costs are capitalized. Amortization of capitalized costs is computed on a
product-by-product basis over (a) the period equal to the future revenue
stream of the product using the ratio that current revenues bear to the
total of current and future anticipated revenues of the product, or (b) the
remaining estimated economic life of the product (three years) using the
straight-line method, whichever method results in the greater amount.
Amortization expense relating to software development costs for the years
ended July 31, 1996, 1995 and 1994 was $96,237, $113,396 and $130,762,
respectively.
F-6
<PAGE>
Revenue Recognition - Revenue is recognized for consulting services as
services are performed. Revenue is recognized on product licensing
agreements when the Company substantially completes its obligations under
the agreement and the customer has accepted the product. Revenue is
recognized for customer support services on maintenance agreements using
the straight-line method over the term of the agreement.
In connection with its software business, the Company functions as a
value-added reseller of computer software. The Company recognizes revenue
when the computer software is delivered.
Deferred Revenue - Deferred consulting revenues represent amounts received
but not earned under consulting agreements. Deferred maintenance revenue
represents amounts received but not earned under maintenance agreements.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." The standard generally requires that deferred income taxes
be recognized on temporary differences between the financial statements and
income tax basis of assets and liabilities using currently enacted tax
rates.
Earnings (Loss) Per Share - Earnings (loss) per share is computed using the
weighted average number of common and common equivalent shares outstanding
during the period. Common stock equivalents include stock options and
warrants. Common stock equivalents were excluded from the earnings per
share calculation for the year ended July 31,1994 because they were
anti-dilutive.
Reclassifications - Certain amounts in 1995 and 1994 have been reclassified
to conform to the 1996 presentation.
Stock Based Compensation - During 1995, the Financial Accounting Standards
Board issued SFAS No.123, "Accounting for Stock Based Compensation." SFAS
No. 123 requires that stock based compensation be either recognized or
disclosed in the financial statements. The Company is required to adopt
SFAS No.123 in its 1997 fiscal year. Because the Company intends to elect
only the disclosure provisions of SFAS No. 123, adoption of SFAS No.123 is
not expected to have a material effect on the financial position or results
of operations of the Company.
2. PRODUCT DEVELOPMENT ADVANCE PAYABLE
On September 4, 1991, the Company entered into an assistance agreement with
another company wherein the Company received an advance of $50,000 to
assist in the development of a specific software product which the Company
was to own exclusively. Development of the software product was completed
and the advance of $50,000 became payable as of July 31, 1995. As of July
31, 1996 the amount remains outstanding and although the other company has
the option of converting the outstanding balance to a note bearing interest
at 11% payable quarterly over a two-year period from date of conversion,
they have not exercised the option.
3. SHAREHOLDERS' EQUITY
Option Plan - The Company has reserved 3,900,000 shares of its common stock
for issuance to employees under an employee stock option plan. The options
vest 25% each year over a four-year period and are exercisable for three
years after the date of vestiture. As of July 31,1995,1,900,000 options at
$.07 per share were held by a former President of the Company which expired
unexercised in December 1995.
F-7
<PAGE>
As of July 31, 1995, the Chairman of the Board held other options to
purchase 4,800,000 shares of the Company's common stock at $.06 per share
which were to expire as of December 31, 1995. The term of the options was
extended to December 31, 1997 in December 1995. As of July 31, 1995, a
former President of the Company held other options to purchase 1,000,000
shares of the Company's common stock at $.07 per share which expired
unexercised in December 1995.
Warrants outstanding to purchase 150,000 shares of common stock expired
unused in 1995.
Change in options and warrants outstanding for the three years ended July
31, 1996, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
Exercise Employee Exercise Other Options
Price Options Price and Warrants
<S> <C> <C> <C> <C>
Balance, July 31, 1993 $.07-.09 3,925,000 $.06-.15 5,950,000
Expired/Cancelled $.09 (87,500)
--------- ---------
Balance, July 31, 1994 $.07-.09 3,837,500 $.06-.15 5,950,000
Issued $.09 400,000
Expired/Cancelled $.09 (387,500) $.15 (150,000)
--------- ---------
Balance, July 31, 1995 $.07-.09 3,850,000 $.06-.07 5,800,000
Issued $.09 50,000 $.06 4,800,000
Expired/Cancelled $.07-.09 (2,000,000) $.06-.07 (5,800,000)
--------- ---------
Balance, July 31, 1996 $.09 1,900,000 $.06 4,800,000
========= =========
Vested, July 31, 1996 $.09 1,662,500 $.06 4,800,000
========= =========
</TABLE>
4. REVENUES
Revenue of $239,025 (11%), $282,100 (13%), and $353,075 (17%) in 1996 was
derived from sales to three separate customers. Revenue of $150,381 (11%)in
1995 and $103,064 (15%) in 1994 was derived from sales to a single
customer. The Company's operations are located entirely within the United
States. However, in 1996, $318,393 (15%) of the Company's revenues were to
foreign customers.
5. MARKETING CREDITS
In connection with a marketing program of a major customer, the Company was
awarded marketing credits which can be used for cooperative advertising or
the purchase of computer equipment. When marketing credits are exchanged
for computer equipment, other revenue is recognized to the extent of the
fair value of the equipment received. Other revenue relating to marketing
credits was $83,035 for the year ended July 31, 1994. No marketing credits
were awarded to the Company in 1995 or 1996.
6. INCOME TAXES
During the year ended July 31, 1994, the Company changed its method of
accounting for income taxes to comply with the provisions of SFAS No. 109,
"Accounting for Income Taxes." Adoption of this standard did not have a
significant impact on the Company's financial statements and a cumulative
F-8
<PAGE>
effect adjustment was not required. Prior to adoption of the new standard,
the Company accounted for income taxes using the provisions of Statement of
Financial Accounting Standards No. 96.
The following items comprise the Company's net deferred tax assets as of
July 31:
1996 1995
Deferred tax assets:
Deferred income $ 63,530 $ 57,848
Net operating loss (NOL) carryforwards 41,693 491,197
Alternative minimum (AMT) tax credit
carryforwards 18,000
-------- --------
Total 123,223 549,045
Valuation allowance (472,889)
-------- --------
Total 123,223 76,156
Deferred tax liabilities -
Depreciation and amortization (69,723) (76,156)
-------- --------
Net deferred tax assets $ 53,500 $ 0
======== ========
As of July 31, 1995, the Company concluded that based on available
evidence, realization of existing net operating loss carryforwards was
uncertain, and accordingly, a valuation allowance was recorded. During
fiscal 1996, the Company's valuation allowance decreased $472,889 as the
result of utilization of NOL carryforwards.
A reconciliation of the expected income tax benefit at the federal
statutory income tax rate to the Company's actual income tax expense at its
effective income tax rate for the year ended July 31 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Federal statutory income tax rate 34 % 34 % 34 %
Computed "expected" income taxes $ 393,475 $ 130,014 $ (91,291)
Increase in taxes resulting from:
State income taxes, net of federal
tax benefit 38,190 12,237 (13,425)
Change in valuation allowance (472,889) (142,251) 104,716
Other 5,724
--------- --------- ---------
Income tax provision (benefit) $ (35,500) $ 0 $ 0
========= ========= =========
</TABLE>
As of July 31, 1996, the Company has net operating loss carryforwards of
$112,000 available to offset future taxable income expiring in 2010.
Pursuant to the Tax Reform Act of 1986, net operating losses utilized in
future income tax returns will be subject to alternate minimum tax and
change in ownership regulations which may limit the net operating loss
carryforward utilized in a given fiscal year. The Company also has AMT
credit carryforwards of $ 18,000 available to offset future regular taxable
income that may be carried forward indefinitely.
F-9
<PAGE>
7. COMMITMENTS
Operating Leases - The Company has an operating lease agreement for office
space through July 31, 1996. Total rent expense was $42,989, $40,141 and
$39,014 in 1996, 1995 and 1994, respectively.
Employee Retirement Plan - During the year ended July 31, 1996, the
Company established a SARSEP-IRA employee pension plan that covers
substantially all full-time employees. Under the plan, employees have the
option to contribute up to the lesser of 15% of their compensation or
$9,240 annually to the Plan. The Company may make discretionary
contributions to the Plan based on recommendations from the Board of
Directors. For the year ended July 31, 1996, the Board did not authorize
any contributions.
Deferred Compensation Arrangement - During the year ended July 31, 1996,
the Company established a deferred compensation plan for key employees of
the Company using a "Rabbi" Trust. The Company may make discretionary
contributions to the plan based on recommendations from the Board of
Directors. During fiscal 1996, the Company funded deferred compensation of
$75,000 awarded to the Chairman of the Board with a deposit of $75,000 with
the "Rabbi" Trust. The Chairman vests in the $75,000 over the service
period of January 1, 1996 through January 31, 1997. The funds are subject
to the general claims of creditors and are included in other assets.
8. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The disclosure of estimated fair value of financial instruments is made in
accordance with the requirements of SFAS No. 107, "Disclosures about Fair
Value of Financial Instruments. "
The carrying amounts at July 31, 1996 for cash and cash equivalents,
accounts receivable, other assets, accounts payable, product development
advance payable, accrued expenses and deferred revenue approximate their
fair values due to the short maturity of these instruments.
9. SUBSEQUENT EVENTS
Stock Option Plans - The Company has proposed, subject to stockholder
approval, a decrease in the number of common shares reserved for issuance
from 3,900,000 to 1,900,000 under its existing stock option plan and the
adoption of an incentive stock option plan for employees and a
non-qualified stock option plan for key employees, directors and others.
Authorized Shares and Reverse Stock Split - The Company has received
stockholder authorization to decrease the number of authorized common
shares from 55,000,000 to 11,000,000 and to effect a reverse stock split of
its common stock ranging from one-for-three to one-for-seven. The Company
has proposed and a one-for-four reverse stock split of its common stock,
which is to be effected on or about November 18, 1996.
F-10
<PAGE>
The following is a pro forma presentation of the effects of the proposed
one-for-four reverse stock split on the number of common shares issued and
outstanding and all option, warrant, and earnings (los) per share
information:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Common stock - issued and outstanding 5,492,500
Common stock reserved for issuance:
Existing stock option plan 475,000
Proposed stock option plans:
Incentive stock option plan 700,000
Non-qualified stock option plan 300,000
1996 1995 1994
Earnings (loss) per share:
Weighted average shares outstanding 6,733,877 6,591,000 5,492,500
========= ========= =========
Net income (loss) per share $ 0.18 $ 0.06 $ (0.05)
========= ========= =========
</TABLE>
Change in options and warrants
outstanding for the three years
ended July 31, 1996, 1995 and 1994
are summarized as follows:
<TABLE>
<CAPTION>
Exercise Employee Exercise Other Options
Price Options Price and Warrants
<S> <C> <C> <C> <C>
Balance, July 1993 $.28-.36 981,250 $.24-.60 1,487,500
Expired/Cancelled $.36 (21,875)
------- ---------
Balance, July 31, 1994 $.28-.36 959,375 $.24-.60 1,487,600
Issued $.36 100,000
Expired/Cancelled $.36 (96,875) $.60 (37,500)
------- ---------
Balance,July 31, 1995 $.28-.36 962,500 $.24-.28 1,450,000
Issued $.36 12,500 $.24 1,200,000
Expired/Cancelled $.28-.36 (500,000) $.24-.28 (1,450,000)
------- ---------
Balance, July 31, 1996 $.36 475,000 $.24 1,200,000
======= =========
Vested, July 31, 1996 $.36 415,625 $.24 1,200,000
======= ==========
* * * * *
F- 11
</TABLE>
<PAGE>
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.
ACCELR8 TECHNOLOGY CORPORATION
Date: By:
---------------------------- -------------------------------
Harry J. Fleury, 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.
Date:
------------------------ ------------------------------------
Thomas V. Geimer, Secretary, Chief
Executive Officer and Chief
Financial Officer
Date:
------------------------ -----------------------------------
A. Alexander Arnold III
Date:
----------------------- -----------------------------------
David C. Wilhelm
-25-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-K FOR THE YEAR ENDED JULY 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JUL-31-1996 JUL-31-1995
<PERIOD-END> JUL-31-1996 JUL-31-1995
<CASH> 1,407,026 437,425
<SECURITIES> 0 0
<RECEIVABLES> 431,252 292,536
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,011,196 731,131
<PP&E> 220,966 259,851
<DEPRECIATION> (150,453) (189,346)
<TOTAL-ASSETS> 2,317,030 977,651
<CURRENT-LIABILITIES> 307,591 230,715
<BONDS> 0 0
0 0
0 0
<COMMON> 1,970,970 1,970,970
<OTHER-SE> (31,254) (1,224,034)
<TOTAL-LIABILITY-AND-EQUITY> 2,317,030 977,651
<SALES> 338,270 337,822
<TOTAL-REVENUES> 2,097,011 1,382,536
<CGS> 117,737 101,266
<TOTAL-COSTS> 429,271 249,009
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 1,157,280 382,394
<INCOME-TAX> (35,500) 0
<INCOME-CONTINUING> 1,192,780 382,394
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,192,780 382,394
<EPS-PRIMARY> .04 .01
<EPS-DILUTED> .04 .01
</TABLE>
