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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR SECTION 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR SECTION 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
COMMISSION FILE NO. 0-9247
AUTO-TROL TECHNOLOGY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
COLORADO 84-0515221
(STATE OF INCORPORATION) (IRS EMPLOYER
IDENTIFICATION NUMBER)
-----------------
12500 NORTH WASHINGTON, DENVER, COLORADO 80241-2400
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
AREA CODE (303) 452-4919
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
-----------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
COMMON STOCK, $.02 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-k or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of December 8 , 1998, was $9,307,951 based on the closing sale
price on such date. The aggregate number of shares of common stock outstanding
on December 8, 1998, was 14,892,721.
Document Incorporated by Reference: Proxy Statement and Notice of Annual
Meeting of Shareholders to be held on January 26, 1999: Part III - Items 10, 11,
12, and 13.
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AUTO-TROL TECHNOLOGY CORPORATION
REPORT ON FORM 10-K
FOR THE YEAR ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
<TABLE>
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PART I Page
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<S> <C> <C>
Item 1. Business.......................................................................... 1
Item 2. Properties........................................................................ 5
Item 3. Legal Proceedings................................................................. 5
Item 4. Submission of Matters to a Vote of Security Holders............................... 5
PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder Matters......... 6
Item 6. Selected Financial Data........................................................... 6
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 7
Item 7a. Quantitative and Qualitative Disclosures About Market Risk 11
Item 8. Financial Statements and Supplementary Data....................................... 12
Item 9. Notes to the Consolidated Financial Statements.................................... 17
PART III
Item 10. Directors and Executive Officers of the Registrant................................ 25
Item 11. Executive Compensation............................................................ 25
Item 12. Security Ownership of Certain Beneficial Owners and Management.................... 25
Item 13. Certain Relationships and Related Transactions.................................... 25
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................. 26
Signatures .................................................................................. 29
</TABLE>
<PAGE>
ITEM 1. BUSINESS
GENERAL
The following discussion contains forward-looking statements that are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those projected. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this report. Auto-trol Technology Corporation undertakes no obligation to
publicly release the results of any revisions to these forward-looking
statements that may be necessary to reflect events or circumstances after the
date of this report or to reflect the occurrence of unanticipated events.
Auto-trol Technology Corporation and its wholly-owned subsidiaries (referred to
hereafter as "Auto-trol" or the "Company") develop, integrate, market, sell, and
support its software products and the software products of certain third-party
vendors for end user markets involved in: product data management, physical
network management, mapping, technical illustration, and engineering.
Historically, the Company sold proprietary hardware products and Computer Aided
Design/Computer Aided Manufacture (CAD/CAM) software. Both the competitive
pressures and market maturity in the CAD/CAM marketplace and reduced margins on
hardware products have caused the Company to sell less Manufacturing Computer
Aided Design (MCAD) software and hardware to its customers than in past years.
The Company has had to shift its sales and support focus from hardware and
CAD/CAM software to internally developed product data management, electronic
network management, technical illustration, and systems integration. Auto-trol
believes that by offering customers a broad spectrum of information applications
and options, from analysis through implementation and ongoing support, it is
able to develop long-term relationships with its customers and expand into new
markets. The Company's business is not seasonal in nature, nor is the Company
dependent on any single individual customer.
PRODUCTS
CENTRA 2000(TM)
The CENTRA 2000 system is a product data, electronic management, document
management and workflow system specifically designed to solve the complex
problems facing engineering, manufacturing, technical publishing, petrochemical
and other operations. The product is intended for scaleable implementation from
the work group to the entire enterprise. In addition to traditional Electronic
Document Management (EDM)/Product Data Management (PDM) functions, CENTRA 2000
manages pure data environments, audio/video, and large document assemblies. The
product is designed to fit a customer's environment with a general focus on
automating configuration management and project management, as well as processes
integrated with a customer's hardware and business systems, rules and
procedures. The core CENTRA 2000 technology was used to develop the NASA
Electronic Library System, which serves as a solution for configuration
management of technical documentation and programming source code. CENTRA 2000
technology was also used to map and track the parts list for the space station.
KONFIG(TM)
The KONFIG product is advanced software for physical network, cable/wire, and
asset management of data, voice or video networks. The KONFIG software stores
and models the entire network infrastructure in Oracle's relational database
management system (RDBMS), including both active elements such as workstations,
hubs, routers, and switches, along with passive elements such as cables,
connectors, distribution frames, and patch panels. The spatial location,
topological information, connectivity, and non-graphic attributes of each
network object are stored in the Oracle RDBMS. A detailed graphical
representation of the network can be automatically generated from the database
and overlaid on a facility drawing. Auto-trol's powerful Series 5000 graphic
engine is used to generate graphic views of the network as well as create and
modify the facility drawings. The KONFIG Network Manager product provides
integration with industry-leading network management tools.
1
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TECH ILLUSTRATOR(TM)
Auto-trol's Electronic Publishing Solutions (EPS) product line, comprised of a
suite of application and converter products, embodies a standards-based "off-
the-shelf" solution set that augments illustration productivity. The EPS
product line enables compliance with important military and commercial standards
that affect contemporary publishing operations. Auto-trol's solution provides
access to a wide variety of reference material ranging from legacy hard copy and
electronic archives to current digital 3D design data, for direct use in
creating illustration views. The EPS product line provides the added advantage
of being easily and extensively customized to adhere to end user requirements.
GEOSTATION(R) GIS
The Geostation product is an integrated exploration data management and mapping
solution that allows for visualization of complex data. This product is used as
a subsurface exploration tool in oil and gas exploration and for assessment of
mineral rights associated with land. Geostation software is also used in the
mapping and cartography industry.
SOFTWARE
Approximately 25%, 33% and 26% of total revenue was comprised of software sales
for the years ended September 30, 1998, 1997 and 1996 respectively.
CUSTOMER SUPPORT
CONSULTING SERVICES
Auto-trol offers consulting services that include software needs assessments,
system configuration, implementation of its products, and third party product
integration with Auto-trol's products. Additionally, Auto-trol may develop
custom software or modify its existing software products to solve specific
customer needs. These services are sold in conjunction with product sales.
Services are billed at standard rates. Approximately 15%, 14% and 10% of total
revenue was comprised of consulting service revenue for the years ended
September 30, 1998, 1997 and 1996 respectively.
EDUCATIONAL SERVICES
Auto-trol provides comprehensive product training programs for all of the
Company's applications. Additionally, Auto-trol provides certified HP training
and offers a wide range of courses both domestically and internationally.
Approximately 10%, 9% and 8% of total revenue was comprised of educational
service revenue for the years ended September 30, 1998, 1997 and 1996
respectively.
NATIONAL CUSTOMER SUPPORT
Auto-trol believes that the quality of customer support is an important factor
in helping the customer to attain and maintain productivity levels and its
related return on investment in Auto-trol products. Post-sale customer support
services are provided on a time and materials basis or under warranties and
service contracts. Approximately 14% of Auto-trol's employees are engaged in
post-sales support functions. A technical staff offers software support
services for most problems. Approximately 49%, 36% and 39% of total revenue was
comprised of customer support revenue for the years ended September 30, 1998,
1997 and 1996 respectively.
2
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RESEARCH AND PRODUCT DEVELOPMENT
Approximately 42% of Auto-trol's employees are engaged in research and product
development activities. The Company has made and will continue to make
significant investment in product development and enhancement due to rapidly
changing technology, competitive pressures, and customer demands. During
September 1996, the Company announced that it had ceased development work on its
Mozaic suite of applications. The decision was prompted by competitive
pressures and the decision to focus the Company's development and marketing
efforts on its other products. Research and product development expenditures as
a percentage of the Company's revenues from 1996 through 1998 were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
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1998 1997 1996
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<S> <C> <C> <C>
(in thousands)
Mozaic research and product development expense........................ $ 0 $ 0 $3,274
Mozaic percent of total revenues....................................... 0% 0% 15%
Total research and product development expense......................... $6,037 $6,464 $9,176
Percent of total revenues.............................................. 43% 33% 43%
</TABLE>
MARKETING
Auto-trol's commercial customers are chiefly from the petroleum, pharmaceutical,
chemical, manufacturing, engineering, and public utility industries.
Governmental customers include federal, state and municipal agencies. The
Company markets and sells its products and services directly to end users and
third parties in the United States from its eight domestic sales offices. The
Company markets its products in Europe through wholly owned subsidiaries with
offices located in Germany and the United Kingdom. Additionally, the Company
markets its products in Canada through Auto-trol Technology (Canada) Ltd., a
wholly owned subsidiary, and in Australia through a Company sales office. Export
sales to Sweden and the Pacific Rim countries are handled by independent
distributors. The Company ships product to its distributors after the sale has
been negotiated with the end customer. The Company does not grant rights to the
distributor to return products for other merchandise, credit, or refund.
The following table presents the revenue comprised of foreign sales for the last
three fiscal years. For additional financial information about foreign or
domestic operations and export sales, see Note 8 of "Notes to the Consolidated
Financial Statements", on page 23.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
1998 1997 1996
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<S> <C> <C> <C>
(in thousands)
Foreign total revenues................................................. $6,174 $8,741 $11,034
Percent of total revenues.............................................. 44% 44% 53%
</TABLE>
Customers may purchase software systems with related services, or they may
purchase software and services independently. The Company maintains standard
pricing structures for software products. Pricing of customer service contracts
is determined based on customer needs. As is customary in the industry, the
Company licenses its software and sublicenses third-party software to protect
the ownership of such software. The Company's Software License Agreement
provides for a transfer of the product, but limits disclosure of the software to
third parties. Auto-trol offers a thirty day warranty on its software products.
Auto-trol may administer and recognize vendor warranties of third-party software
products. Payment terms are generally net thirty days from the date of
shipment.
Due to the competitive pressures in the software industry, the Company strives
to minimize the time that elapses from the approval of purchase orders to the
date of shipment of the product. Therefore, the Company routinely ships
software products to its customers within twenty-four hours after approval of
the order.
Orders in backlog may be canceled but are subject to a cancellation fee. The
Company's recorded backlog was approximately $1.4 million as of September 30,
1998, compared to $1.3 million as of September 30, 1997. The Company's backlog
at the end of a quarter only represents a portion of future sales and should not
be used solely to predict future results.
3
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COMPETITION
Within the Product Data Management market, the Company's primary competitors are
Agile Corporation, Documentum Inc., Structural Dynamic Research Company (SDRC)
and Matrix One, Inc. The Itedo GMBH Company is a competitor in the technical
illustration market. Cambio Networks, Inc., Architel Systems Corporation, and
Visionael Corporation are the primary competitors in the physical electronic
network market. The Company believes that its products in the design, drafting,
and product and network management markets uniquely leverage the Company's core
competencies in the engineering graphics and documentation areas to provide a
total solution to the customer.
Auto-trol competes primarily on the basis of quality and technical expertise.
The Company believes the functionality of its application products, short
implementation time with superior technical support, and responsiveness to
customer needs enhances its competitive position. The Company believes that,
although price is a competitive factor, customers consider product
functionality, ease of implementation, and user friendliness to be of greater
importance when selecting a vendor's product.
SOURCES OF SUPPLY
The agreement in place with Hewlett-Packard (HP) renews annually and is
currently effective through September 1999. Pursuant to this agreement, HP
provides certain hardware equipment at various discounts. This equipment must
be used with systems developed by Auto-trol, in the country where the equipment
is purchased. This agreement is international in scope.
Pursuant to an agreement with Sun Microsystems, Inc., (Sun), Sun provides
certain hardware equipment to Auto-trol at discounts based upon volume with
special discounts for certain equipment. This equipment is to be used with
systems developed by Auto-trol, in the country where the equipment is purchased.
This agreement is international in scope, and provides for marketing
cooperation. The agreement in place with Sun also renews annually and is
currently effective until September 1999.
YEAR 2000
The year 2000 has caused uncertainties about whether date-sensitive hardware or
software will appropriately recognize and process dates beyond 1999. The
Company has enlisted resources from its financial, technical and management
groups to review and identify those areas that could be affected by the Year
2000 problem, including its internal computer systems, product offerings, and
the readiness of third parties with which the Company has material
relationships.
Based on extensive testing, the Company believes that the current versions of
its primary software offerings (CENTRA 2000, KONFIG and Tech Illustrator) will
provide customers with the necessary date interpretation for proper operation
beyond the year 2000, as long as the underlying operating system of the host
machine provides full and correct date information to the software. The
Company's Geostation product is currently undergoing certification testing for
compliance.
The Company believes that, with few exceptions, the latest versions of its
legacy software products that are currently under maintenance agreements are
also Year 2000 compliant; however, there can be no assurance that the Company
has identified all Year 2000 problems in every version of software supported by
the Company, and any failure by the Company to identify any such problem could
have a material adverse effect on the Company. The Company recommends that all
users of the Company's products review the date handling logic of any
customizations and modifications that they have made to the Company's products.
The Company also has reviewed its internal business information systems, and
replaced the systems that were not Year 2000 compliant. The costs of achieving
Year 2000 compliance with respect to such internal systems did not have a
material adverse effect on the Company.
Auto-tol has also been in contact with it's major customers and suppliers to
obtain assurance letters that these entities are working toward being Year 2000
compliant, and that they have backup procedures in place to prevent any major
issues, should they not be compliant on a timely basis. Auto-trol does not have
a significant customer which contributed 10% or more of the Company's revenue
for the year ended September 30, 1998. The Company does not feel that there are
any major Year 2000 deficiencies related to Auto-trol's business systems,
products sold to customers, or it's business partners, which would cause a lapse
in business.
4
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PATENTS AND LICENSES
The Company holds three patents issued in the United States for vector drawings
and polygon display. Generally, the Company seeks to protect aspects of its
systems through trade secret protection. The Company's standard Software
License Agreement prohibits the customer from disclosing any confidential or
proprietary information. Included in the Company's purchase of vendor equipment
is the right to resell and sublicense systems software licenses under Auto-
trol's standard Software License Agreement.
The Company is also licensed to use and sublicense a limited number of graphics
and applications programs developed by others. The Company does not believe
that the manufacture and sales of its products require additional licenses from
others. If such licenses were required, the Company believes that it would not
have a materially adverse financial impact on operations.
EMPLOYEES
The Company has no collective bargaining agreements and there have been no work
stoppages due to labor difficulties. The Company believes that relations with
its employees are good. As of September 30, 1998, Auto-trol had 243 employees,
which included 102 in research and development, 35 in customer support, 42 in
administrative support, 55 in sales and support, and 9 in marketing.
ITEM 2. PROPERTIES
The Company's 127,000 square foot corporate headquarters facility is located on
a 20-acre site about 15 miles North of downtown Denver, Colorado, in the city of
Thornton. Financing for this facility was obtained primarily through the
issuance of $6 million of Industrial Development Revenue Bonds, Series 1979, by
the City of Thornton, Colorado, which mature through 2004. The Company
subleases 22,500 square feet to an unrelated party on a five year lease which
expires on January 31, 2002.
The Company also leases approximately 20,000 square feet of office space
throughout the United States, approximately 17,000 square feet in Canada,
approximately 1,600 square feet in Australia, and approximately 11,000 square
feet in Europe.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings before any
court, administrative agency or other tribunal.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders during the fourth
quarter of the fiscal year covered by this report.
5
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Part II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
Prior to October 20, 1997, the Company's common stock was traded on the Nasdaq
National Market System under the symbol ATTC. On October 20, 1997, Nasdaq
delisted the Company's common stock from the National Market System. The common
stock is now trading on the OTC Bulletin Board 7 under the symbol "ATTC". The
following table sets forth the range of high and low bid prices of the Common
stock through September 30, 1998, for the fiscal quarters indicated, as reported
by the Nasdaq or the OTC Bulletin Board as applicable. Such quotations reflect
inter-dealer prices, without retail mark-up, mark own or commission and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
FISCAL FISCAL
1998 1997
High Low High Low
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter $3 1 1/4 $6 $3
Second Quarter 1 1/4 1 1/4 3 1/2 3
Third Quarter 2 5/8 1 3/8 4 1 1/2
Fourth Quarter 1 1/4 1 4 2 1/2
</TABLE>
As of December 8, 1998, there were 670 holders of record of the Company's common
stock. The Company has never paid or declared any dividends on its common
stock. The indenture to the Industrial Development Revenue Bonds restricts the
payment of dividends to the amount of $2,000,000 minus 100% of the accumulated
deficit subsequent to December 31, 1978.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED SEPTEMBER 30,
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1998 1997 1996 1995 1994
---------- ---------- ---------- ----------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Revenues............................................ $14,093 $ 9,739 $ 21,231 $ 25,591 $35,046
Net loss............................................ (7,323) (7,786) (11,787) (10,777) (6,723)
Loss per share/1/................................... (.64) (.91) (2.32) (3.53) (3.51)
Weighted average number of common shares
outstanding/1/................................. 11,496 8,554 5,086 3,052 1,916
BALANCE SHEET DATA:
Working capital (deficit)........................... $ (413) $ 416 $ 268 $ 1,377 $ 1,712
Total assets........................................ 9,737 11,802 12,850 14,388 16,079
Current portion of long-term debt and capital
lease obligations.............................. 240 247 368 494 240
Long-term debt and capital lease obligations........ 5,325 6,415 3,588 4,993 8,148
Shareholders' equity................................ 459 553 3,685 3,533 1,410
</TABLE>
/1/ Restated to reflect the one-for-ten reverse stock split effective
January 30, 1996.
6
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the following
discussions contain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. The Company undertakes no obligation to revise any forward-
looking statements in order to reflect events or circumstances that may
subsequently arise. Some important factors, among others, that also need to be
considered are: the likelihood that actual future revenues that are realized may
differ from those inferred from existing total backlog; the ability of the
Company to attract and retain highly trained professional employees; the delay
or deferral of customer implementations; the Company's success in expanding its
direct sales force and indirect distribution channels; the timing of new product
introductions and product enhancements by the Company and its competitors; the
mix of products and services sold; levels of international sales; and the
ability of the Company to develop and market new products and control costs and
general domestic and international economic and political conditions.
RESULTS OF OPERATIONS
OVERVIEW
During fiscal 1998, the Company focused its sales efforts primarily on
internally developed software and system integration services along with the
development of alternative distribution channels. Operating losses continued for
the year, due primarily to the lack of revenue growth from products under
development internally, and significantly less hardware sales, as the Company
continued the transition of its product offerings. The PDM and network
configuration revenues were also affected in part by the delay of customer
implementations, product development delays as well as an increased complexity
of the sales cycle in these markets. The Company continues to believe that its
PDM, EPS and network configuration products in these market areas, when
complete, will present a unique complementary combination that will
differentiate the Company from its competitors.
Due to the nature of the software industry, the future operating results of the
Company depend largely on its ability to rapidly and continuously develop and
deliver new software products that are competitively priced and offer enhanced
performance. During fiscal 1997, the Company had new software product releases
for its PDM and network configuration products. These products were enhanced
during 1998, and a major sales and marketing effort was begun. The Company
believes that these products are competitive both functionally and from a
pricing perspective. However, the Company is unable to predict the impact of
new products or the effect that industry economic conditions will have on future
results of operations.
REVENUES - For the year ended September 30, 1998, total sales and service
revenue decreased $5.6 million, or 29%, from the year ended September 30, 1997.
Total sales revenue for fiscal 1998 decreased $4.3 million, or 53%, from the
year ended September 30, 1997. Hardware revenue for fiscal 1998 declined $1.3
million or 87%, as compared to fiscal 1997 as the Company continued to shift its
sales and support focus from hardware to internally developed software and
systems integration. Total software revenue decreased $3.0 million, or 46%, as
compared to fiscal 1997. The Company had a decrease in revenues from its own
proprietary software amounting to $2.7 million or 44% as compared to fiscal
1997. North American hardware sales revenue decreased $943,000, or 85%, while
software sales revenue decreased $2.9 million, or 57% during fiscal 1998.
European sales revenue decreased $201,000 or 14% from fiscal 1997. The European
revenue reduction was due to a decrease of $275,000 in hardware revenue, or 88%,
a software revenue increase of $74,000, or 7%, and a decrease in services
revenue of $444,000 or 19% as compared to fiscal 1997. Approximately 23% of
this decrease was due to unfavorable exchange rates and the remainder was due to
decreased sales volume.
7
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-(continued)
For the year ended September 30, 1997, total sales and service revenue decreased
$1.5 million, or 7%, from the year ended September 30, 1996. Total sales
revenue for fiscal 1997 decreased $1.0 million, or 11%, from the year ended
September 30, 1996. Hardware revenue for fiscal 1997 declined $2.0 million or
56%, as compared to fiscal 1996 as the Company focused its selling efforts on
proprietary software sales. Total software revenue increased $1.0 million , or
18%, as compared to fiscal 1996. This increase can be attributed primarily to
higher PDM software sales and increased sales of third party software products.
The Company had an increase in revenues from its own proprietary software
amounting to $748,000, or 14 % as compared to fiscal 1996. North American
hardware sales revenue decreased $554,000, or 33% while software revenue
increased $1.3 million, or 33%, from fiscal 1997. European Sales revenue
decreased $1.7 million or 56% from fiscal 1996. The European revenue reduction
was due to a decrease of $1.3 million in hardware revenue, or 81%, and a
software revenue decrease of $449,000, or 29%, as compared to fiscal 1996.
Approximately 10% of this decrease was due to unfavorable exchange rates and the
remainder was due to decreased sales volume. . During fiscal 1997 the Company
restructured all of its international subsidiaries and closed its Swedish
subsidiary by transferring the majority of its customers and employees to a
Swedish distributor. All these activities were a direct result of lower than
expected revenues during the first half of fiscal 1997.
Total service revenue for the year ended September 30, 1998, decreased $1.3
million, or 11%, from the year ended September 30, 1997. Hardware maintenance
revenue decreased $467,000, or 51%, while software maintenance revenue increased
$71,000, or 1% for fiscal 1998 as compared to fiscal 1997. The Company
experienced an overall decline in service revenue for all geographic locations
during fiscal 1998. Billable services revenue decreased $562,000, or 21% from
fiscal 1997. Training revenue decreased $307,000, or 17%, as compared to fiscal
1997. North American service revenue, which comprised 78% of the total
worldwide service revenue, declined $791,000 or 9%, as compared to fiscal 1997.
European service revenue declined $443,000, or 19%, as compared to fiscal 1997
Total service revenue for the year ended September 30, 1997, decreased $518,000,
or 4%, from the year ended September 30, 1996. Service revenue is comprised
maintenance, training and billable service revenue. Hardware maintenance
revenue decreased $668,000, or 42%, while software maintenance revenue decreased
$481,000, or 7% for fiscal 1997 as compared to fiscal 1996. The Company
experienced an overall decline in service revenue for all geographic locations
with the exception of the South East Asian market during fiscal 1997. As the
Company shifts from being a hardware and software solution provider to a
software, systems integration, and service provider, revenue from hardware
maintenance will continue to decline. The Company's management has made
arrangements with other parties to directly support its customers' hardware
maintenance needs. The declines in software maintenance revenue can be
attributed to a decline in older products and reduced third party software
maintenance revenues. Billable services revenue increased $528,000, or 25% from
fiscal 1996. This increase is directly related to the increased revenues
resulting from the Company's proprietary software products. Training revenue
increased $103,000, or 6%, as compared to fiscal 1996. North American service
revenue, which comprised 77% of the total worldwide service revenue, declined
$322,000, or 4%, as compared to fiscal 1996. European service revenue declined
$295,000, or 11%, as compared to fiscal 1996.
COST OF SALES AND SERVICE - The result of operations for the year ended
September 30, 1998, continued to reflect shifts in product mix from hardware to
software and services. For the year ended September 30, 1998, gross profit
margins on total revenue increased to 67% from 62% for the year ended September
30, 1997. Gross profit margins on sales revenue for the year ending September
30, 1998, increased to 88% from 71% for the year ended September 30, 1997. In
fiscal 1998, gross profit margins on hardware declined $180,000, yielding a
gross margin of 16%, as compared to a gross margin of 14% in fiscal 1997. This
decline reflects the Company's focus on selling its own software products,
rather than third party products that produce less gross profit. In fiscal
1998, gross profit margins on software sales decreased $508,000 yielding a gross
margin of 92%, as compared to a gross margin of 88% in fiscal 1997.
8
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-(continued)
Gross profit margins for total service revenue in fiscal 1998 decreased
$278,000, yielding a gross margin of 60%, as compared to a gross margin of 56%
in fiscal 1997. Gross profit margins on hardware maintenance declined $125,000
yielding gross margins of 5% in fiscal 1998 as compared to gross margins of 16%
in fiscal 1997. This reduction is attributed to the Company's growing
utilization of outside third parties for hardware maintenance services.
Software maintenance gross margins improved to 76% from 70% in fiscal 1997 due
to the Company's efforts to control costs in its delivery of support.
Gross profit margins for total service revenue in fiscal 1997 increased
$204,000, yielding a gross margin of 56%, as compared to a gross margin of 52%
in fiscal 1996. Gross margins on billable services and training in fiscal 1997
increased to 38% from 37% in fiscal 1996 due to increased revenue. Gross profit
margins on hardware maintenance declined $147,000 yielding gross margins of 16%
in fiscal 1997 as compared to gross margins of 19% in fiscal 1996. This
reduction is attributed to the Company's growing utilization of outside third
parties for hardware maintenance services. Software maintenance gross margins
improved to 72% from 68% in fiscal 1997 due to the Company's efforts to control
costs in its delivery of support.
RESEARCH AND PRODUCT DEVELOPMENT - Research and development expenses were
approximately 43% of total revenues for the year ended September 30, 1998,
compared to 33% of total revenues for the year ended September 30, 1997. The
change in research and development spending as a percentage of revenue in fiscal
1998 is due in part to a decrease of $428,000 or 7%, in spending along with a
29% decrease in total revenues as compared to fiscal 1997.
Research and development expenses were approximately 33% of total revenues for
the year ended September 30, 1997 and 43% for the years ended September 30,
1996. The change in research and development spending as a percentage of
revenue in fiscal 1997 is due in part to a decrease of $2.7 million, or 30% in
spending associated with the discontinuation of the Company's Mozaic product
line, along with a 7% decrease in total revenues as compared to fiscal 1996.
MARKETING, GENERAL AND ADMINISTRATIVE - For the year ended September 30, 1998,
marketing, general and administrative expenses decreased $2.8 million, or 22%,
from the year ended September 30, 1997. North American marketing, general and
administrative spending declined $1.9 million due to the closure of field
offices and the Company's cost containment measures. During fiscal 1998,
European marketing, general and administrative spending declined $957,000, as
compared to fiscal 1997 as occupancy and personnel costs were reduced.
For the year ended September 30, 1997, marketing, general and administrative
expenses decreased $1.2 million, or 8%, from the year ended September 30, 1996.
North American marketing general and administrative spending declined $738,000
due to closure of field offices and the Company's cost containment measures.
During fiscal 1997, European marketing, general and administrative spending
declined $469,000, as compared to fiscal 1996 as occupancy and personnel costs
were reduced.
INTEREST - In the year ended September 30, 1998, interest expense increased
$122,000 or 23% from the year ended September 30, 1997, as a result of higher
borrowings throughout the year. Interest income increased $31,000, or 44% from
fiscal 1997.
In the year ended September 30, 1997, interest expense decreased 188,000 or 26%
compared to the year ended September 30, 1996, as a result of less borrowings
and converting $4.7 million of related party debt to common stock. Interest
income decreased $133,000 or 65% from fiscal 1996.
INFLATION - The Company is affected by inflation principally through increases
in salaries and wages and by increases in prices of services, at rates
comparable to those experienced by other businesses. Historically, the impact
of inflation has been partially mitigated by general price declines in
electronic components resulting from improved technology.
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-(continued)
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL CONDITION - At September 30, 1998, the Company had approximately $1.3
million in cash and cash equivalents, which was 7% less than cash balances at
September 30, 1997. Cash used by operations during the year ended September 30,
1998 was $5.0 million compared to $7.0 million for the year ended September 30,
1997. The Company's net working capital was a deficit of approximately
$413,000 at September 30, 1998, as compared to working capital of $416,000 at
September 30, 1997. Capital expenditures were made primarily for computer
equipment and were $.9 million for the year ended September 30, 1998 compared to
$1.1 million for the year ended September 30, 1997. Cash used by investing
activities was $855,000 for the year ended September 30, 1998 compared to
$960,000 for the year ended September 30 1997. Cash generated from financing
activities was $5.9 million for the year ended September 30, 1998 compared to
$7.4 million for the year ended September 30, 1997. Cash generated from
financing activities resulted from the issuance of related party notes payable
and was used primarily to fund operations.
Other than the uncertainty of future profitability, there are no known demands,
commitments, events, or uncertainties that will result in the Company's
liquidity increasing or decreasing in any material way. As of September 30,
1998, the Company had no material commitments for capital expenditures.
During fiscal 1994, the Company received a permanent waiver of financial
covenants of its outstanding Industrial Development Revenue Bonds. The Company
received a permanent wavier of financial ratio requirements which placed
restrictions on long-term lease agreements, debt agreements, and current ratio
requirements.
The Company will require additional funds from its majority shareholder to
continue to fund future operations. The shareholder has committed, in writing,
to continue providing financial support at least through December 31, 1999. If
the Company does not achieve profitability in the near future, it will continue
to be dependent on its majority shareholder for additional funding and to
continue as a going concern. The Company has no long term viability and will be
in jeopardy if it is not able to achieve financial independence through improved
results, or should support from its majority shareholder not continue after
December 31, 1999.
CURRENCY FLUCTUATIONS
The Company has three wholly owned foreign subsidiaries and one foreign branch
operation. The three subsidiaries are located in Germany, Canada and the United
Kingdom; the branch is located in Australia. The Company does business in the
local currencies of these countries, in addition to other countries where the
subsidiaries may have customers, such as Norway, Switzerland and Italy. These
local currency revenues and expenses are translated into dollars for U.S.
reporting purposes. A stronger U.S. dollar will decrease the level of reported
U.S. dollar revenues and expenses. Approximately $545,000 of an unfavorable
exchange rate variance and a $2.1 million decrease in revenue volume resulted in
a $2.6 million decrease in non-U.S. revenue between 1998 and 1997. These
effects on the Company's results of operations could become significant if the
percentage of revenues and expenses attributed to International operations
increases and/or if the dollar fluctuates significantly against international
currencies. The Company's international operations are also subject to certain
risks inherent in doing business abroad and may be adversely affected by
government policies, restrictions, or other factors.
The Company does not use foreign exchange contracts, interest rate swaps, or
option contracts. Foreign currency risk for the Company is limited to
outstanding debt owed to the Company by the subsidiaries. The Company invoices
its subsidiaries in their local currencies for products that are sold to the
subsidiaries' end customers. Upon receipt of payment from the subsidiaries, a
foreign currency gain or loss can occur. For the years then ended September 30,
1998, and 1997, the Company had realized a loss of approximately $42,000 and a
gain of $8,000 respectively, through payments it had received from its
subsidiaries.
10
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS 130, Reporting Comprehensive Income, which
establishes standards for reporting and displaying comprehensive income and its
components (revenue, expenses, gains, and losses) in a full set of general
purpose financial statements. The Company adopted SFAS 130 during fiscal year
1998 and restated all presented prior periods. The adoption of this Statement
did not have a significant impact on the financial statements.
In June 1997, the FASB issued SFAS 131, Disclosure about Segments of an
Enterprise and Related Information. In February 1998, the FASB issued SFAS 132,
Employer's Disclosures about Pensions and Other Postretirement Benefits. In June
1998, The FASB issued SFAS 133, Accounting for Derivative Instruments and
Hedging Activities. These new Statements are required to be adopted by the
Company during fiscal year 1999, 1999 and 2000 respectively. The Company does
not expect these new pronouncements to have a significant impact on the
financial statements.
In October 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("ACSEC") issued Statement of Position
97-2 (SOP 97-2), Software Revenue Recognition. SOP 97-2 supersedes SOP 91-1.
SOP 97-2 requires companies to defer revenue and profit recognition unless four
required criteria of a sale are met. In addition, SOP 97-2 requires that
revenue recognized from software arrangements be allocated to each element of
the arrangement based on the relative fair values of the elements, such as
software products, upgrades, enhancements, post-contract customer support,
installation, or training. SOP 97-2 is effective for all transactions entered
into in fiscal years beginning after December 15, 1997. Management does not
believe that the adoption of SOP 97-2 in fiscal year 1999 will have a material
effect on the Company's financial position or results of operations.
ITEM 7 A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk exposure is the potential loss arising from changes in
interest rates and its impact on short-term investments and foreign currency
exchange rate fluctuations.
As of September 30, 1998, short-term investments of approximately $305,000 were
immaterial, and therefore, a substantial reduction in interest rates will not
have a material affect on the financial position of the Company.
Exposure to variability in foreign currency exchange rates is concern since
funding obligations and assets are both managed in the local currencies of the
subsidiaries. The Company does not use natural hedging techniques, nor does it
enter into any derivative transactions for speculative purposes. Based on the
Company's overall foreign currency rate exposure at September 30, 1998,
movements in foreign currency rates could have a material affect on the
financial position of the Company.
11
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Auto-trol Technology Corporation:
We have audited the accompanying consolidated balance sheets of Auto-trol
Technology Corporation and subsidiaries as of September 30, 1998 and 1997, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the three-year period ended September 30,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 2 to the consolidated financial statements, affiliates of
the Company's President, Chairman of the Board, and majority shareholder have
provided significant financial support to the Company during 1998, 1997, 1996
and in prior years. The Company will continue to be economically dependent upon
financial support from the shareholder until it achieves profitable operations.
The shareholder has committed, in writing, to continue providing such financial
support at least through December 31, 1999.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Auto-trol Technology
Corporation and subsidiaries as of September 30, 1998 and 1997 and the results
of their operations and their cash flows for each of the years in the three-year
period ended September 30, 1998, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Denver, Colorado
November 24, 1998
12
<PAGE>
AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------
ASSETS 1998 1997
----------------------------------------
(in thousands, except share amounts)
Current assets:
<S> <C> <C>
Cash and cash equivalents....................................................... $ 1,325 $ 1,421
Receivables, net of allowance of $128 and $153................................. 1,860 3,233
Inventories.................................................................... 50 51
Service parts and prepaid expenses............................................. 305 545
----------------------------------------
Total current assets........................................................ 3,540 5,250
----------------------------------------
Property, facilities and equipment :
Land........................................................................... 356 356
Building and improvements...................................................... 8,435 8,392
Machinery and equipment........................................................ 7,005 7,955
Furniture, fixtures and leasehold improvements................................. 920 925
----------------------------------------
16,716 17,628
Less accumulated depreciation and amortization................................. (10,948) (11,461)
----------------------------------------
5,768 6,167
----------------------------------------
Purchased software, net of accumulated amortization of $1,428 and $1,369.......... 290 322
Other assets...................................................................... 139 63
----------------------------------------
Total assets................................................................ $ 9,737 $ 11,802
========================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable............................................................... $ 402 $ 840
Current portion of long-term debt (Note 3)..................................... 240 240
Accrued interest payable, related party portion of $398 and $214............... 421 390
Unearned service revenue and customer deposits................................. 1,410 1,141
Accrued compensation and related taxes......................................... 362 470
Other liabilities.............................................................. 1,118 1,753
----------------------------------------
Total current liabilities................................................... 3,953 4,834
Long-term debt, related party portion $4,125 and $4,975 (Note 5,2 and 3).......... 5,325 6,415
----------------------------------------
Total liabilities................................................ 9,278 11,249
----------------------------------------
Shareholders' equity (Note 6):
Common stock, $ .02 par value; authorized 40,000,000 shares; issued (including
treasury stock) 14,895,093 and 9,314,347 shares............................... 298 186
Additional paid-in capital..................................................... 95,674 88,784
Other Comprehensive Loss....................................................... (808) (1,035)
Accumulated deficit............................................................ (94,220) (86,897)
Treasury stock - 26,020 common shares at cost.................................. (485) (485)
----------------------------------------
Total shareholders' equity.................................................. 459 553
Commitments and contingency (Notes 2 and 4 )
$ 9,737 $ 11,802
========================================
</TABLE>
See Notes to Consolidated Financial Statements.
13
<PAGE>
AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1998 1997 1996
(in thousands, except per share amounts)
Revenues:
<S> <C> <C> <C>
Sales................................................... $ 3,786 $ 8,112 $ 9,139
Service................................................. 10,307 11,627 12,092
------------------------------------------
14,093 19,739 21,231
------------------------------------------
Costs and expenses:
Cost of sales........................................... 457 2,335 3,248
Cost of service......................................... 4,131 5,173 5,842
Research and product development........................ 6,037 6,464 9,176
Marketing, general, and administrative.................. 10,234 13,087 14,231
------------------------------------------
20,859 27,059 32,497
------------------------------------------
Loss from operations....................................... (6,766) (7,320) (11,266)
Interest income............................................ 102 71 204
Interest expense, related party portion of $448, $356 and (659) (537) (725)
$390......................................................
------------------------------------------
Net loss................................................... $(7,323) $(7,786) $(11,787)
==========================================
------------------------------------------
Loss per share - basic and diluted......................... $ (.64) $ (.91) $ (2.32)
==========================================
Weighted average number of common shares outstanding ------------------------------------------
basic and diluted 11,496 8,554 5,086
==========================================
</TABLE>
14
<PAGE>
AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
OTHER
COMMON STOCK ADDITIONAL COMPREHENSIVE
-------------------- PAID-IN INCOME/ ACCUMULATED TREASURY
SHARES AMOUNT CAPITAL (LOSS) DEFICIT STOCK TOTAL
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(in thousands, except share amounts)
Balance, October 1, 1995 3,935,181 79 71,674 (411) (67,324) (485) 3,533
Issuances under stock option and
compensation plans.............. 1,224 - 8 - - - 8
Common stock issued through
conversion of related party debt 3,809,524 76 12,424 - - - 12,500
Change in cumulative currency
translation..................... - - - (569) - - (569)
Net loss......................... (11,787) (11,787)
---------------------------------------------------------------------------------
Balance, September 30, 1996 7,745,929 155 84,106 (980) (79,111) (485) 3,685
Issuances under stock option and
compensation plans.............. 1,751 - 9 - - - 9
Common stock issued through
conversion of related party debt 1,566,667 31 4,669 - - - 4,700
Change in cumulative currency
translation..................... (55)
- - - (55) - -
Net loss......................... (7,786) (7,786)
---------------------------------------------------------------------------------
Balance, September 30, 1997 9,314,347 $186 $88,784 $(1,035) $(86,897) $(485) $ 553
Issuances under stock option and
compensation plans.............. 1,424 - 2 - - - 2
Common stock issued through
conversion of related party debt 5,579,322 112 6,888 - - - 7,000
Change in cumulative currency
translation..................... - - - 227 - - 227
Net loss......................... (7,323) (7,323)
---------------------------------------------------------------------------------
Balance, September 30, 1998 14,895,093 $298 $95,674 $ (808) $(94,220) $(485) $ 459
=================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
15
<PAGE>
AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-----------------------------------------------
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
(in thousands)
Cash flows from operating activities:
Net loss.............................................................. $(7,323) $(7,786) $(11,787)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization.................................... 1,173 1,406 1,570
Loss (gain) on disposal of property, facilities, and equipment... 33 7 41
Changes in operating assets and liabilities:
(Increase) decrease in receivables.......................... 1,711 (516) 1,225
(Increase) decrease in inventories.......................... 10 254 (132)
(Increase) decrease in service parts and prepaids........... 86 160 (210)
Increase (decrease) in accounts payable.................... (370) (335) (206)
Increase (decrease) in accrued interest payable............. 31 (126) 109
Increase (decrease) in unearned service revenue and customer
deposits................................................ 269 (449) 402
Increase (decrease) in other liabilities.................... (583) 557 (783)
Increase (decrease) in accrued compensation and related (95) (198) 106
taxes......................................................
-----------------------------------------------
Net cash used by operating activities.................................... (5,058) (7,026) (9,665)
Cash flows from investing activities:
Capital expenditures.................................................. (920) (1,148) (1,573)
Proceeds from sale of property, facilities and equipment.............. 53 161 92
(Increase) decrease in other assets................................... 12 27 6
-----------------------------------------------
Net cash used by investing activities.................................... (855) (960) (1,475)
Cash flows from financing activities:
Proceeds from issuance of notes payable, related party................ 8,150 8,075 11,500
Payments on notes payable, capital leases, and long-term debt,
related party portion of $2,000, $300, and $0........................ (2,248) (669) (531)
Proceeds from issuance of common stock................................ 2 9 8
-----------------------------------------------
Net cash provided by financing activities............................... 5,904 7,415 10,977
Effect of exchange rate changes on cash.................................. (87) (181) (52)
-----------------------------------------------
Net increase (decrease) in cash and cash equivalents..................... (96) (752) (215)
Cash and cash equivalents at the beginning of the year................... 1,421 2,173 2,388
-----------------------------------------------
Cash and cash equivalents at the end of the year......................... $ 1,325 $ 1,421 $ 2,173
===============================================
Supplemental disclosures of cash flow information:
Cash paid during the year for interest, related party portion of $406,
$490 and $391........................................................... $ 541 $ 631 $ 563
</TABLE>
See Notes to Consolidated Financial Statements.
16
<PAGE>
AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998, 1997, AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
- ---------------------
The consolidated financial statements include the accounts of Auto-trol
Technology Corporation and its subsidiaries, each of which is wholly owned. All
significant intercompany transactions and balances have been eliminated in
consolidation. The Company develops, integrates and supports its products and
the products of certain third party vendors for end user markets involved in the
following: product data management, physical network management, mapping,
technical illustration, design, engineering, drafting and manufacturing
processes. These products are designed to facilitate the creation,
distribution, analysis and management of technical information.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Statement of Cash Flows
- -----------------------
Cash and cash equivalents include currency on hand, demand deposits with banks
or other financial institutions, and other highly liquid securities purchased
with an original maturity of three months or less.
Inventories
- -----------
Inventories consist of service parts which are recorded at cost and amortized on
the straight line method over three years or the estimated useful lives,
whichever is shorter.
Property, Facilities and Equipment
- ----------------------------------
Property, facilities, and equipment, including leasehold improvements, are
recorded at cost and depreciated or amortized on the straight line method over
the estimated useful lives of the respective assets or the lease period,
whichever is shorter. Gains and losses from retirement or replacement of
property, facilities, and equipment are included in operations. Betterments and
renewals are capitalized. Maintenance and repairs are charged to operations.
The estimated useful lives of facilities and equipment used in determining
depreciation and amortization are as follows:
Building and improvements component lives of 10-35 years
Leasehold improvements shorter of the lease period or the
useful life
Machinery and equipment 3-7 years
Furniture and fixtures 3-7 years
Foreign Currency Exchange and Translation
- -----------------------------------------
The functional currency of the Company's foreign subsidiaries is its local
currency and such assets and liabilities are translated to U.S. dollars at year
end exchange rates. The Company does not use foreign exchange contracts,
interest rate swaps, or option contracts. Translation gains and losses are not
included in operations but are accumulated in a separate component of
shareholders' equity as other comprehensive income or (loss). Foreign currency
transaction gains and losses, which were not significant, have been included in
the results of operations.
Revenue Recognition
- -------------------
Revenue is comprised of software sales, software license fees, related customer
support contracts, and other support services. Revenues from the sale of
software and software licenses are generally recorded at the time of delivery
to the customer. Revenues are deferred if significant future obligations are to
be fulfilled or if collection is not probable. Post-sales customer support
revenues are recognized ratably over the contract period. Included in post-
contract support costs are direct costs paid to third-party vendors, which are
expensed as incurred. In addition, labor and overhead expenses relating to
support personnel are included in cost of service and are expensed as incurred.
The Company provides a warranty for its products, generally for thirty days from
the date of installation, and establishes an allowance to cover warranty costs
during this period. Service contract revenues are recognized as the services
are performed.
17
<PAGE>
AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Significant Customer
- --------------------
The Company had no significant customer which contributed 10% or more of the
Company's total revenues in the year ended September 30, 1998. For the year
ended September 30, 1997, the Company had one significant customer which, in
aggregate, contributed approximately 11% of the company's total revenues.
Research and Product Development
- --------------------------------
The Company charges research and product development costs to operations as
incurred.
Amortization of Software
- ------------------------
Purchased software acquired for use in the business includes the cost of
software acquired through acquisitions and from third-party vendors.
Amortization of these costs is included in research and product development or
marketing, general and administrative expenses depending on the application of
the software. Such costs are amortized using the straight-line method over the
estimated useful lives ranging from three to five years. Software amortization
expense was $115,000, $245,000 and $132,000 for the years ended September 30,
1998, 1997, and 1996, respectively.
Software Royalties
- ------------------
The Company pays royalties for software licensed from third-party vendors for
sublicense to the Company's customers. Total royalty expense incurred for
third-party software was approximately $129,000, $171,000 and $170,000 for
fiscal years ended September 30, 1998, 1997, and 1996, respectively, and is
included in cost of sales.
Loss Per Share
- --------------
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
128, Earnings Per Share, in 1998 and in accordance with its provisions has
presented basic loss per share for all years, in place of primary and fully
diluted loss per share. Basic loss per share is computed using only the
weighted average number of shares outstanding while diluted, including the
dilutive effect of stock options and other potential common stock instruments.
All such potential common stock instruments were antidilutive in 1998, 1997, and
1996.
2. ECONOMIC DEPENDENCY ON MAJORITY SHAREHOLDER:
During fiscal years 1998, 1997 and 1996, affiliates of the Company's President,
Chairman of the Board, and majority shareholder loaned the Company $8,150,000,
$8,075,000 and $11,500,000 respectively. The Company converted approximately
$7,000,000, $4,700,000 and $12,500,000 of shareholder loans to equity in 1998,
1997 and 1996 respectively, and repaid $2,000,000 in 1998, $300,000 in 1997 and
$0 in 1996. The shareholder loan balance at September 30, 1998, was $4,125,000.
The notes are unsecured and are due on October 1, 1999, bearing interest at 10%
per annum. The Company will continue to be economically dependent upon such
financial support until it achieves profitable operations. The shareholder has
committed, in writing, to continue providing the Company such financial support
at least through December 31, 1999.
18
<PAGE>
AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED
3. DEBT:
<TABLE>
<CAPTION>
Long-term debt consists of the following as of September 30: 1998 1997
--------------- ---------------
(in thousands)
<S> <C> <C>
Related party debt (see Note 2)................................................... $4,125 $4,975
Industrial Development Revenue Bonds(a)........................................... 1,440 1,680
-------------------------------
5,565 6,655
Less current portion of long-term debt............................................ (240) (240)
$5,325 $6,415
===============================
</TABLE>
Maturities of long-term debt for each of the five years subsequent to September
30, 1998, and thereafter are as follows:
<TABLE>
<S> <C>
1999............................................................................ 240
2000............................................................................ 4,365
2001............................................................................ 240
2002............................................................................ 240
2003............................................................................ 240
Thereafter...................................................................... 240
------
$5,565
======
</TABLE>
19
<PAGE>
AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(a) The Industrial Development Revenue Bonds were issued by the City of
Thornton, Colorado, to finance the cost of the Company's corporate headquarters.
The bonds bear interest at 8%, are payable in annual installments of $240,000
through August, 2004, and are collateralized by a mortgage indenture on the
facilities. The indenture has debt covenants which place certain limitations on
the Company, including restrictions on the sale of assets, and certain common
stock transactions including payment of dividends. The Company has received a
permanent waiver of financial ratio requirements which placed restrictions on
long-term lease agreements, debt agreements, and current ratio requirements.
4. LEASES:
The Company leases certain office facilities and equipment under operating
leases expiring at various dates through fiscal 2006. As of September 30, 1998,
the future minimum lease payments under operating leases (with initial or
remaining lease terms in excess of one year) are as follows in thousands:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30, Operating Leases
----------------------------------------------------------------------------------
<S> <C>
1999............................................................. 803
2000............................................................. 504
2001............................................................. 293
2002............................................................. 186
2003............................................................. 90
Thereafter....................................................... -
--------------
Total minimum lease payments..................................... $ 1,876
==============
</TABLE>
There are no other material subleases or contingent rentals related to the
leases, and the lease payments include no executory costs. Aggregate rental
expense under operating leases was $1,163,137, $1,706,000, and $1,660,000 for
the years ended September 30, 1998, 1997, and 1996, respectively.
The Company has entered into a lease agreement to sublet 22,500 square feet of
its corporate headquarters. The aggregate rental income of $355,000, and
$149,000 for the years ended September 30, 1998, and 1997. The sublease has a
five year term and expires on January 31, 2002.
20
<PAGE>
AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED
5. INCOME TAXES:
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109),
which requires the use of the asset and liability method of accounting for
income taxes. Under the asset and liability method required by SFAS 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS 109 the effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
The Company's only significant temporary difference relates to net operating
loss carryforwards. At September 30, 1998 the Company has net operating loss
carryforwards for federal income tax purposes of approximately $63,727,000,
which are available to offset future federal taxable income, if any, through
2017. The valuation allowance for deferred tax assets as of September 30, 1998
was $21,327.000. The net change in the valuation allowance for the year ended
September 30, 1998, was an increase of $1,938,000, attributable to the net
operating loss incurred during the year.
21
<PAGE>
AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. SHAREHOLDERS' EQUITY:
STOCK OPTIONS:
- --------------
The Company has in effect two stock option plans: an Incentive Stock Option Plan
and a Special Purpose Plan, whereby 1,000,000 shares of common stock are
authorized for issuance. Under both plans, the exercise price of each option
equals the fair market value, (the average of the representative highest and
lowest prices), of the Company's stock on the date of grant, and an option's
maximum term is ten years. Options are granted at the discretion of the
Compensation Committee and vest at the rate of 20% per year through the fifth
anniversary of the grant of the stock option.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1998 and 1997, respectively: no dividend yield
for all years; expected volatility of 100 percent and 218 percent based upon
historical volatility over the last two years; risk-free interest rates of 5.70
percent and 5.98 percent; and expected lives of five years for all two years.
The risk-free rates used in the calculation represent the average U.S.
Government Security interest rates on the stock option grant date with
maturities equal to the expected term of the option. The effect of actual
forfeitures is included in the computation of compensation costs for options
granted during each of the respective years.
A summary of the status of the Company's two fixed stock options plans as of
September 30, 1998, 1997 and 1996, and changes during the years ended on those
dates, is presented below (shares in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
------------------------------------------------
1998 1997 1996
---- ---- ----
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
FIXED OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
------------- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 310,807 $2.74 193,981 $6.44 61,128 $7.00
Granted 142,689 $1.50 457,216 $2.78 175,773 $6.32
Exercised - - - $ - (254) $3.75
Forfeited (137,659) $2.29 (340,390) $4.75 (42,666) $6.78
---------- ---------- --------
Outstanding at end of year 315,837 310,807 $2.74 193,981 $6.44
========== ========== ========
Options exercisable at
year end 58,702 41,292 19,426
Weighted-average fair
value of options granted
During the year $1.20 $3.29 $4.46
</TABLE>
The following table summarizes information about fixed stock options outstanding
at September 30, 1998:
<TABLE>
<CAPTION>
NUMBER WEIGHTED-AVG. NUMBER
OUTSTANDING REMAINING EXERCISABLE
EXERCISE PRICE AT 9/30/98 CONTRACTURAL LIFE AT 9/30/98
-------------- ----------- ----------------- -----------
<S> <C> <C> <C>
$1.50 99,549 9.3 years 0
$1.56 31,900 8.7 years 6,540
$3.00 179,309 8.3 years 48,200
$3.75 2,924 4.9 years 2,924
$6.56 30 6.8 years 30
$6.88 1,495 7.4 years 598
$10.00 550 6.3 years 330
$20.00 80 2.2 years 80
----------- ----------------- -----------
$1.50 to $20.00 315,837 6.7 years 58,702
=========== ================= ===========
</TABLE>
22
<PAGE>
AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company applies APB Opinion 25 and related Interpretations in accounting for
its plans. Accordingly, since the Company grants options at fair market value,
no compensation cost has been recognized for its Incentive Stock Option Plans
and its Special Purpose Plan. Had compensation expense for the Company's plans
been determined on the fair value at the grant dates for awards under those
plans consistent with FASB Statement 123, the Company's net loss and loss per
share would have increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
1998 1997 1996
---- ---- ----
Net Loss:
<S> <C> <C> <C>
As reported $(7,323) $(7,786) $(11,787)
Pro forma (7,460) $(8,157) $(12,201)
Basic and diluted loss per share:
As reported $ (.64) $ (0.91) $ (2.32)
Pro forma $ (.65) $ (0.95) $ (2.38)
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN - The Company has an Employee Stock Purchase Plan,
under which 19,623 shares were available for purchase by employees as of
September 30, 1998. Employees have purchased 4,886 shares of common stock under
the Company's Employee Stock Purchase Plan through September 30, 1998.
7. EMPLOYEE RETIREMENT PLAN:
The Retirement Savings Plan (Plan) is a cash or deferred profit-sharing plan
designed to comply with the requirements of Section 401(a) and 401(k) of the
Internal Revenue Code of 1986. Substantially all employees of the Company with
six months of service are eligible to participate in the 401(k) Plan. The
Plan's funds are invested by a third-party fund manager into various funds as
selected by the employee. The funds offered are determined by the 401(k)
committee. Plan funds may not be invested in common stock of the Company.
Under the Plan, employees may contribute 1% to 20% of their compensation per
pay period, to a tax deferral account subject to statutory maximums. The
Company will contribute to the account of a participant an amount equal to the
employee's contribution up to ten dollars per pay period. The Company
recognized expense related to the Plan of approximately, $34,000 $32,000 and
$44,000 in the years ended September 30, 1998, 1997, and 1996, respectively.
The Board of Directors may, at its discretion, terminate the Plan at any time in
whole or in part. Upon such termination, the Plan provides for the distribution
of the assets of the fund for the benefit of its participants.
23
<PAGE>
AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. FOREIGN AND DOMESTIC OPERATIONS:
Revenues, operating results before unallocated expenses, and identifiable assets
as of and for the three years ended September 30, 1998, 1997 and 1996 by
geographic area are presented in the table below. There were no significant
sales or transfers between geographic areas.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1998 1997 1996
-------------- --------------- --------------
<S> <C> <C> <C>
(in thousands)
Revenues:
North America..................................................... $10,468 $15,137 $ 14,731
Europe............................................................ 3,053 3,698 5,729
Other/1/.......................................................... 572 904 771
----------------------------------------------
$14,093 $19,739 $ 21,231
----------------------------------------------
Net Loss :
North America..................................................... $(7,017) $(5,153) $(10,490)
Europe............................................................ (459) (2,459) (1,440)
Other............................................................. 153 (174) 143
----------------------------------------------
Consolidated net loss/2/............................................. $(7,323) $(7,786) $(11,787)
==============================================
Identifiable assets at year end:
North America..................................................... $ 8,459 $10,051 $ 10,618
Europe............................................................ 995 1,193 1,716
Other............................................................. 283 558 516
----------------------------------------------
$ 9,737 $11,802 $ 12,850
==============================================
</TABLE>
/1/ Export sales were made to various international distributors and to the
Company's Australian branch.
/2/ Research and development expenses have been allocated to each geographic
area based on the revenues generated by each area from internally-developed
software products. Management believes this to be a reasonable method for
allocating research and development expenses.
Interest expense has been allocated to each geographic area based on subsidiary
assets and liabilities funded by domestic borrowings.
24
<PAGE>
AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this Item is contained in the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held on January 26, 1999, under the caption
"Election of Directors" and "Executive Officers", and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The response to this Item is contained in the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held on January 26, 1999, under the caption
"Executive Compensation", and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The response to this Item is contained in the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held on January 26, 1999, under the caption
"Voting Securities and Principal Shareholders", and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this Item is contained in the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held on January 26, 1999, under the caption
"Certain Relationships and Related Transactions", and is incorporated herein by
reference.
The Company intends to file definitive copies of the Proxy Statement with the
Securities and Exchange Commission within 120 days after September 30, 1998, the
close of its last fiscal period, and pursuant to General Instruction G to Form
10-K. Information called for by these items is incorporated herein by reference
from such definitive Proxy Statement.
25
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
<TABLE>
<CAPTION>
Page
-------
(a) 1. Financial Statements
The following Consolidated Financial Statements of Auto-trol Technology
Corporation are included in Part II, Item 8:
<S> <C>
Independent Auditors' Report..................................................... 12
Consolidated Balance Sheets - September 30, 1998 and 1997........................ 13
Consolidated Statements of Operations - years ended September 30, 1998, 1997,
and 1996..................................................................... 14
Consolidated Statements of Shareholders' Equity - years ended September 30,
1998, 1997, and 1996......................................................... 15
Consolidated Statements of Cash Flows - years ended September 30, 1998, 1997,
and 1996..................................................................... 16
Notes to Consolidated Financial Statements....................................... 17-24
2. Financial Statement Schedule
Independent Auditors' Report..................................................... 27
Schedule II - Valuation and qualifying accounts and reserves - years ended
September 30, 1997, 1996, and 1995........................................... 28
</TABLE>
All other schedules are omitted because they are inapplicable, not required
under the instructions, or the information is included in the Consolidated
Financial Statements or notes thereto.
3. EXHIBITS
Exhibit
number Description of Exhibit
------ -----------------------
3.3 Restated Articles of Incorporation*
3.4 Bylaws**
3.5 Amendment to Bylaws***
4.1 Specimen Certificate**
4.2 Copies of Industrial Development Revenue Bond documents**
4.3 Specimen Debentures, Warrants, Royalty Agreement, and Royalty
Certificate issued to purchase Research and Development Limited
Partnership Interests+
10.1 Copy of Incentive Stock Option Plan, as amended through January 28,
1992++
10.2 Copy of Special Purpose Stock Option Plan, as amended through
January 28, 1992++
10.3 Agreement with Sun Microsystems, Inc. dated April 30, 1993+++
10.4 Agreement with HP/Apollo Computer, Inc. dated July 4, 1994+++
10.5 Agreement with Howard B. Hillman dated November 7, 1996
21 Subsidiaries of the Registrant
24 Consent of KPMG Peat Marwick LLP
* Incorporated by reference from Form 10-K for fiscal year ended September 30,
1996, dated December 10, 1996.
** Incorporated by reference from Registration Statement No. 2-63253, filed
January 24, 1979.
*** Incorporated by reference from Registration Statement No. 2-73702, filed
August 14, 1981.
+ Incorporated by reference from Form 10-K for fiscal year ended September 30,
1988, dated December 14, 1988.
++ Incorporated by reference from Form 10-K for fiscal year ended September 30,
1993, dated December 18, 1992.
+++ Incorporated by reference from Form 10-K for fiscal year ended September
30, 1994, dated December 14, 1994.
(B) REPORTS ON FORM 8-K
A Form 8-K was filed October 31, 1997 reporting the change in trading exchange.
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Auto-trol Technology Corporation:
Under date of November 24, 1998, we reported on the consolidated balance
sheets of Auto-trol Technology Corporation and subsidiaries as of September 30,
1998 and 1997, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the years in the three-year
period ended September 30, 1998, as contained in the Company's Annual Report on
Form 10-K for the year 1998. In connection with our audits of the
aforementioned consolidated financial statements, we have also audited the
related financial statement schedule listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
As discussed in Note 2 to the consolidated financial statements, affiliates
of the Company's President, Chairman of the Board, and majority shareholder have
provided significant financial support to the Company during 1998, 1997, 1996
and in prior years. The Company will continue to be economically dependent upon
financial support from the shareholder until it achieves profitable operations.
The shareholder has committed, in writing, to continue providing such financial
support at least through December 31, 1999.
In our opinion, this financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth herein.
KPMG PEAT MARWICK LLP
Denver, Colorado
November 24, 1998
27
<PAGE>
AUTO-TROL TECHNOLOGY CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- ------------- -------------- -------------- -------------
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
Description OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(in thousands)
YEAR ENDED SEPTEMBER 30, 1998:
Allowance for doubtful accounts...................... $ 153 $ -- $ 25 $ 128
Reserve for inventory obsolescence and shrinkage..... 43 -- 43 0
Accumulated amortization of service parts............ 115 115 0
Valuation reserve for computer equipment............. 306 -- -- 306
Reserve for warranty................................. 109 -- 54 55
--------------------------------------------------------------
$ 726 $ -- $237 $ 489
==============================================================
YEAR ENDED SEPTEMBER 30, 1997:
Allowance for doubtful accounts...................... $ 173 $ $ 20 $ 153
Reserve for inventory obsolescence and shrinkage..... 55 12 43
Accumulated amortization of service parts............ 996 881 115
Valuation reserve for machinery and equipment........ 306 306
Reserve for warranty and unearned discounts.......... 55 54 109
--------------------------------------------------------------
$1,585 $ 54 $913 $ 726
==============================================================
YEAR ENDED SEPTEMBER 30, 1996:
Allowance for doubtful accounts...................... $ 132 $ 170 $129 $ 173
Reserve for inventory obsolescence and shrinkage..... 58 8 11 55
Accumulated amortization of service parts............ 981 42 27 996
Valuation reserve for machinery and equipment........ 306 306
Reserve for warranty and unearned discounts.......... 55 55
--------------------------------------------------------------
$1,532 $220 $167 $1,585
==============================================================
</TABLE>
See accompanying independent auditors' report
28
<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.
AUTO-TROL TECHNOLOGY CORPORATION
Date: December 22, 1998 By: /s/HOWARD B. HILLMAN
--------------------
Howard B. Hillman,
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/HOWARD B. HILLMAN Chairman of the Board December 22, 1998
- ------------------------------------------------------------ President (Principal
Howard B. Hillman Executive Officer)
/s/MAJOR GENERAL WILLIAM R. USHER,USAF (RET.) Director December 22, 1998
- ------------------------------------------------------------
Major General William R. Usher (Ret.)*
/s/J. RODERICK HELLER, III Director December 22, 1998
- ------------------------------------------------------------
J. Roderick Heller, III*
*Howard B. Hillman is the Attorney in fact for:
MAJOR GENERAL WILLIAM R. USHER, USAF (RET.) and
- -----------------------------------------------
J. RODERICK HELLER, III
- -----------------------
</TABLE>
29
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit Page
------ ----------------------- ----
<S> <C> <C>
3.3 Restated Articles of Incorporation*
3.4 Bylaws**
3.5 Amendment to Bylaws***
4.1 Specimen Certificate**
4.2 Copies of Industrial Development Revenue Bond documents**
4.3 Specimen Debentures, Warrants, Royalty Agreement, and Royalty
Certificate issued to purchase Research and Development Limited
Partnership Interests+
10.1 Copy of Incentive Stock Option Plan, as amended through January 28,
1992++
10.2 Copy of Special Purpose Stock Option Plan, as amended through
January 28, 1992++
10.3 Agreement with Sun Microsystems, Inc. dated April 30, 1993+++
10.4 Agreement with HP/Apollo Computer, Inc. dated July 4, 1994+++
10.5 Agreement with Howard B. Hillman dated November 7, 1996 30
21 Subsidiaries of the Registrant 31
23 Consent of KPMG Peat Marwick LLP 27
27 Financial Data Schedule
</TABLE>
* Incorporated by reference from Form 10-K for fiscal year ended September 30,
1996, dated December 10, 1996.
** Incorporated by reference from Registration Statement No. 2-63253, filed
January 24, 1979.
*** Incorporated by reference from Registration Statement No. 2-73702, filed
August 14, 1981.
+ Incorporated by reference from Form 10-K for fiscal year ended September 30,
1988, dated December 14, 1988.
++ Incorporated by reference from Form 10-K for fiscal year ended September 30,
1993, dated December 18, 1992.
+++ Incorporated by reference from Form 10-K for fiscal year ended September
30, 1994, dated December 14, 1994.
<PAGE>
EXHIBIT 10.5
AGREEMENT WITH HOWARD B. HILLMAN DATED DECEMBER 9, 1998
December 9, 1998
To Whom It May Concern:
The purpose of this letter is to document my commitment of ongoing financial
support to Auto-trol Technology Corporation and its subsidiaries (the
"Company"), which support will be sufficient to enable the Company to continue
as a going concern through December 31, 1999.
Sincerely,
Howard B. Hillman
President
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Auto-trol Technology Corporation, a Colorado corporation, has the following
subsidiaries, incorporated in the jurisdictions noted and doing business under
the names indicated:
<TABLE>
<CAPTION>
SUBSIDIARY JURISDICTION OF INCORPORATION
- ---------- ------------------------------------
<S> <C>
Auto-trol International Corporation Colorado
Centra 2000, Inc. Colorado
Auto-trol Technology (Canada) Ltd. Alberta
Auto-trol Advertising, Inc. Colorado
Auto-trol Technology GmbH Germany
Centra Technology Ltd. United Kingdom
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Auto-trol Technology Corporation
We consent to the incorporation by reference in the registration statements
Nos. 2-66611, 2-73702, 2-80142, 33-637, and 33-15533 on Form S-8 of Auto-trol
Technology Corporation of our reports dated November 24, 1998, relating to the
consolidated balance sheets of Auto-trol Technology Corporation and subsidiaries
as of September 30, 1998 and 1997, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the years in the
three-year period ended September 30, 1998, and the related financial statement
schedule, which reports appear in the September 30, 1998, annual report on Form
10-K of Auto-trol Technology Corporation.
As discussed in Note 2 to the consolidated financial statements, affiliates of
the Company's President, Chairman of the Board, and majority shareholder have
provided significant financial support to the Company during 1998, 1997, 1996
and in prior years. The Company will continue to be economically dependent upon
financial support from the shareholder until it achieves profitable operations.
The shareholder has committed, in writing, to continue providing such financial
support at least through December 31, 1999.
KPMG PEAT MARWICK LLP
Denver, Colorado
December 21, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> SEP-30-1998 SEP-30-1997
<PERIOD-START> OCT-30-1997 OCT-30-1996
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 1,325 1,421
<SECURITIES> 0 0
<RECEIVABLES> 1,988 3,385
<ALLOWANCES> 128 153
<INVENTORY> 50 51
<CURRENT-ASSETS> 3,540 5,250
<PP&E> 16,716 6,167
<DEPRECIATION> 10,948 0
<TOTAL-ASSETS> 9,737 0
<CURRENT-LIABILITIES> 3,953 0
<BONDS> 1,200 0
0 0
0 0
<COMMON> 298 0
<OTHER-SE> 161 0
<TOTAL-LIABILITY-AND-EQUITY> 9,737 0
<SALES> 0 0
<TOTAL-REVENUES> 14,093 19,739
<CGS> 457 2,335
<TOTAL-COSTS> 4,555 7,508
<OTHER-EXPENSES> 16,271 19,549
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 557 537
<INCOME-PRETAX> (7,323) (7,786)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (7,323) (7,786)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,323) (7,786)
<EPS-PRIMARY> (.64) (.91)
<EPS-DILUTED> (.64) (.91)
</TABLE>
