SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-2
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended September 30, 1995
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ------ to -----
Commission File Number 0-10902
INTERFACE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 38-1857379
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5855 Interface Drive
Ann Arbor, Michigan 48103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (313) 769-5900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock Purchase Warrants
Common Stock, par value $.10
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, and (2) has been subject to such
filing requirements for the past 90 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. [X]
The aggregate market value of the registrant's voting stock held by non-
affiliates as of December 26, 1995, computed by reference to the closing
price per share for such stock on the Nasdaq Stock Market National Market on
such date, was approximately $38,176,196 (assuming, but not admitting for
any purpose, that all executive officers and directors of the registrant may
be deemed affiliates).
The number of shares outstanding of the registrant's common stock as of
December 26, 1996 was 4,212,418.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is certain information relating to the directors and
executive officers of the Company. The Board of Directors is divided into
three classes of directors, such classes are as nearly equal in number as
possible, with the term of one class expiring each year. The term of office
of each class of directors is three years. Directors Robert Seigle and
Graber serve until the Company's 1996 annual meeting, directors Bixby,
Schupp and Horst serve until the Company's 1997 annual meeting, and
directors Handelman, David Seigle and Perrett serve until the Company's 1998
annual meeting. Except as otherwise noted, each person indicated below
exercises sole voting and investment power with respect to the shares of the
Company's Common Stock owned by him. Each of the following directors,
except Messrs. Graber, Horst, and David C. Seigle, has been engaged or
employed in the principal occupation reflected in the table for more than
five years. Mr. Graber retired in 1994, prior to which time he was Chairman
and Chief Executive Officer of Applied Dynamics International for at the
least the five years preceeding the date hereof. Mr. Horst was President of
Nematron Corporation for at least five years until he retired in May, 1994.
Mr. Seigle retired in November 1991. Prior to that time, Mr. Siegle was
Vice-President of File Net Corporation, a manufacturer of document image
processors.
December 8, 1995
Shares
Benefi- Percent
Director cially of
Name and Age Principal Occupation Since Owned(1) Class(1)
- ------------ -------------------- ----- -------- --------
Carl L. Bixby, 56 President and Chief 1969 333,500 7.7%
Executive Officer of
the Company
David O. Schupp, 59 Vice President, Chief 1969 82,602(2) 1.9%
Financial Officer and
Treasurer of the Company
David C. Seigle, 56 Retired 1969 33,406 0.2%
Robert A. Seigle, 68 President of Concord 1969 80,310 1.9%
Personnel, Inc., a
personnel recruiting
company
Garnel F. Graber, 64 Retired 1971 47,954(3) 1.4%
George W. Perrett, 58 Secretary and Vice 1985 70,847(4) 1.7%
President of Corp.
Operations of the
Company; President of
I.G.K. Industries,
Inc., a subsidiary of
the Company
G. Paul Horst, 45 Retired. 1988 146,609(5) 3.5%
Milton Handelman, 79 Independent Business 1990 5,000 0.1%
Consultant
2
<PAGE>
- ----------
(1) Includes shares which the following directors have a right to
acquire within 60 days pursuant to the exercise of stock options:
Mr. Bixby--96,000 shares; Mr. Schupp--13,000 shares; Mr. David
Seigle--9,500 shares; Mr. Robert Seigle--9,500 shares; Mr.
Graber--9,500 shares; Mr. Perrett--35,000 shares; Mr. Horst--4,000
shares and Mr. Handelman--4,000 shares. For purposes of computing
the individual percentages, the shares which can be acquired upon
the exercise of options within 60 days were added to the shares
owned beneficially or of record by such persons on December 8, 1995
and to the shares outstanding on that date.
(2) Includes 69,602 shares held by the David O. Schupp Revocable
Trustee, of which Mr. Schupp is a Trustee and beneficiary.
(3) Mr. Graber has sole voting power over 552 shares of Common Stock
beneficially owned by him, and shares investment power with his
son, Glen F. Graber, with respect to such shares. Mr. Graber also
serves on the board of directors of Nematron Corporation.
(4) Includes 2,000 shares which Mr. Perrett has the option to acquire
through the exercise of Warrants and 16,669 shares held by the
George W. Perrett, Jr. Trust, of which Mr. Perrett is a Trustee and
a beneficiary. Does not include 1,300 shares owned by Mr. Perrett's
children, as to which Mr. Perrett disclaims beneficial ownership.
(5) Mr. Horst also serves on the board of directors of Nematron
Corporation.
The executive officers of the Company are elected annually by the
Board of Directors and serve at the pleasure of the Board. David C. Seigle
and Robert A. Seigle are first cousins.
Reporting of Beneficial Ownership by Directors, Executive Officers and Ten
Percent Holders
Under the securities laws of the United States, the Company's
directors, its executive officers, and any persons holding more than ten
percent of the Company's Common Stock are required to report their ownership
of the Company's Common Stock and any changes in that ownership to the
Securities and Exchange Commission and the National Association of
Securities Dealers, Inc. Specific due dates for these reports have been
established and the Company is required to report in this annual report on
Form 10-K any failure to file by these dates during the Company's last
fiscal year. All of these filing requirements were satisfied by the
Company's officers, directors and ten percent shareholders. In making these
statements, the Company has relied on the written representations of its
directors, officers and ten percent shareholders and copies of the reports
that have been filed with the Commission.
3
<PAGE>
ITEM II. EXECUTIVE COMPENSATION.
The following table sets forth the cash compensation paid by the
Company as well as other compensation paid or accrued during the Company's
last three fiscal years ended September 30, 1995 to the Chief Executive
Officer and each of the two most highly compensated executive officers of
the Company for services rendered in all capacities to the Company:
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term Compensation
Awards
Securi-
ties
Underly-
ing
Name and Annual Compensation (1) Stock All Other
Principal Occupation Fiscal Year Salary Bonus Options Compensation (2)
<S> <C> <C> <C> <C> <C>
Carl L. Bixby........... 1995 $185,380 $ 7,248 -- $20,043
Chief Executive 1994 165,375 147,978 -- 17,166
Officer, President 1993 157,500 85,932 60,000 27,091
and Director
George W. Perrett, Jr.... 1995 85,000 3,624 -- 15,164
Secretary and Director 1994 85,000 38,150 -- 7,389
1993 85,000 55,406 7,500 8,578
David O. Schupp......... 1995 86,008 7,248 -- 16,321
Vice President, 1994 82,688 74,326 -- 10,901
Treasurer and 1993 78,750 55,406 7,500 9,854
Director
- -------------
</TABLE>
(1) Includes compensation deferred at the election of the executive in
the category and year earned.
(2) "All Other Compensation" is comprised of (i) contributions made by
the Company to the accounts of each of the named executive officers
under the Company's 401(k) Plan with respect to each of the fiscal
years ended September 30, 1995, 1994 and 1993, respectively, as
follows: Mr. Bixby $9,196, $13,860, and $12,908; Mr. Perrett
$9,684, $7,389, and $8,578; and Mr. Schupp $10,676, $9,421, and
$8,374; (ii) the dollar value of any life insurance premiums paid by
the Company in the fiscal years ended September 30, 1995, 1994 and
1993, respectively, with respect to term life insurance for the
benefit of each of the named executives as follows: Mr. Bixby
$4,217, $3,306 and $14,183; and Mr. Schupp $1,480, $1,480 and 1,480
and (iii) a car allowance paid by the Company in the fiscal year
ended September 30, 1995, respectively, as follows, for Mr. Bixby
$6,630, Mr. Perrett $5,480 and Mr. Schupp $4,165.
4
<PAGE>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year ("FY")-end Option/SAR Values
The following table provides information with respect to the named
executive officers concerning the exercise of options during 1995 and
unexercised options held as of the Company's most recent fiscal year end,
September 30, 1995. All options were granted under the Company's 1992 Stock
Option Plan or the now terminated 1982 Stock Option Plan.
Number of
securities Value of
underlying unexercised
unexercised in-the-money
options options
Share Value at FY-End (#) exercisable/
acquired on realized exercisable/ unexer-
Name exercise (#) ($)(1) unexercisable cisable (1)
- ---- ------------ -------- -------------- -------------
Carl L. Bixby...... -0- -0- 96,000/20,000 $34,372/12,500
George W. Perrett.. -0- -0- 48,750/ 2,500 7,811/ 1,563
David O. Schupp.... -0- -0- 13,000/ 2,500 7,811/ 1,563
- --------
(1) The dollar values in these columns represent the total gain which
would have been realized if such options had been exercised on
September 30, 1995 (the Company's fiscal year end) and are
calculated by determining the difference between the fair market
value of the securities underlying the options on September 30, 1995
and the exercise price of the option. The dollar values in this
table as well as all other tables contained in this proxy are
calculated on a pre-tax basis.
Director Compensation
Non-employee directors receive an annual retainer of $4,000 and a
fee of $1,000 per meeting for attendance at regular board meetings and $500
per meeting for attendance at committee meetings not held in conjunction
with a meeting of the Board. Travel and lodging expenses incurred by
directors residing outside of the metropolitan Detroit area in order to
attend meetings of the board are typically paid by the Company.
As additional consideration for their services to the Company, on
April 24, 1987, the non-employee directors were each granted options to
purchase 5,000 shares of the Company's Common Stock at the fair market value
of $7.75 per share. After adjustment for the Company's stock dividends and
stock split, Messrs. Graber, David Seigle and Robert Seigle each currently
hold options to acquire 5,500 shares at $7.04 per share. The options are
exercisable for a ten-year period from the date of grant or until the
grantee ceases to serve on the Board, whichever is earlier.
On March 26, 1993, pursuant to the Company's Non-Employee Directors
Stock Option Plan, the non-employee directors were each granted options to
purchase 6,000 shares of the Company's Common Stock at the fair market value
of $5.25 per share. The options are exercisable for a ten-year period from
the date of grant or until the grantee ceases to serve on the Board,
whichever is earlier.
5
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information as of December 8, 1995,
except as otherwise indicated, concerning all shareholders known by the
Company to be the beneficial owners of more than 5% of its outstanding
Common Stock, and all officers and directors as a group. Except as noted
below, each shareholder exercises sole voting and investment power with
respect to the shares beneficially owned.
Amount and
Nature of
Name and Address of Beneficial Percent
Benificial Owner Ownership of Class
- ------------------- ---------- --------
Carl L. Bixby
5855 Interface Drive
Ann Arbor, MI 48103(1)(2) 333,500 7.7%
All officers and directors as
a group (8 persons) (2) 800,228 18.3%
- ----------
(1) Based on information contained in Mr. Bixby's Schedule 13D dated
November 27, 1995 filed with Securities and Exchange Commission.
(2) Includes shares which certain directors and officers have a right to
acquire within 60 days pursuant to the exercise of stock options.
See the notes to table under Item 10 for information regarding stock
options and the shared voting and investment powers of officers and
directors. For purposes of computing the percentage of class, the
shares which can be acquired within 60 days pursuant to the exercise
of stock options were added to the shares owned beneficially or of
record by such persons on December 8, 1995 and to the shares
outstanding on that date.
The security ownership of the individual directors of the Company
and all persons nominated to become directors is set forth under Item 10
hereof and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In October 1995, the Board of Directors of the Company adopted the
Interface Systems, Inc. Executive Loan Program (the "Executive Loan
Program") which provides for the making of loans to the executive officers
of the Company to enable such officers to purchase shares of the Company's
Common Stock on the open market or in privately regulated sales.
The Executive Loan Program was adopted to encourage key executives
in acquiring and maintaining a significant equity interest in the Company's
Common Stock therey aligning their interests with the interests of the
Company's stockholders. The following summarizes the principal features of
the Executive Loan Program.
All senior executives of the Company are eligible to participate in
the Executive Loan Program. The maximum amount of any loan or loans
outstanding to any one executive cannot exceed Five Hundred Thousand Dollars
($500,000).
Loans under the Executive Loan Program bear interest at a rate equal
to the greater of the Applicable Federal Rate for the month in which the
loan was issued or the interest rate paid by the Company on its corporate
borrowings but shall not exceed the maximum rate permitted by law. Such
interest is payable annually. Loans under the Executive Loan Program are
required to be secured by collateral. Collateral can include among other
things, a pledge of common stock of the Company owned by the executive or a
security interest on the real or other personal property of the executive.
The Company has the right to offset from the amounts owing by the Company to
the executive any amount of the loan that remains unpaid.
6
<PAGE>
The Program is administered by Garnel F. Graber or such other
individual or entity selected by the Company's Board of Directors. The
administrator shall have the power to make all determinations needed in
connection with the Executive Loan Program, to adopt forms of loan
documents, to exercise all rights and powers allocated to the Company and to
do anything else which is helpful or necessary to the proper operation of
the Executive Loan Program.
On December 1, 1995, the Company made a loan under the Executive
Loan Program to Carl L. Bixby in the principal amount of $500,000. The loan
bears interest at an annual rate of 5.79% and is secured by shares of
Common Stock of the Company owned by Mr. Bixby. As of January 25, 1996,
$500,000 was outstanding under the loan.
On December 1, 1995, the Company advanced Mr. Bixby the sum of
$150,000 to enable Mr. Bixby to purchase shares of Common Stock of the
Company. Mr. Bixby repaid such advance on December 31, 1995.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) Financial Statements, Schedules and Exhibits
1-2. The financial statements and schedules filed herewith are set
forth in the Index to Consolidated Financial Statements (on page F-1 of the
separate financial section which follows page 8 of this report) and are
incorporated herein by reference.
3. The exhibits filed herewith are set forth in the Index to
Exhibits (on the first page of the separate exhibit section which follows
the financial section of this report) and are incorporated herein by
reference.
7
<PAGE>
Interface Systems, Inc.
and Subsidiaries
Index to Consolidated Financial Statements
Years Ended September 30, 1995, 1994 and 1993
Report of Independent Certified Public Accountants F-2
Financial Statements
Consolidated Balance Sheets F-3
Consolidated Statements of Income F-5
Consolidated Statements of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-9
Financial Statement Schedules
Report of Independent Certified Public Accountants S-2
Schedule II - Valuation and Qualifying Accounts S-3
F-1
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors
Interface Systems, Inc.
Ann Arbor, Michigan
We have audited the accompanying consolidated balance sheets of Interface
Systems, Inc. and subsidiaries as of September 30, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended September 30, 1995.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Interface Systems, Inc.
and subsidiaries at September 30, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended September 30, 1995 in conformity with generally accepted accounting
principles.
/S/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
Troy, Michigan
November 10, 1995, except for Note 15 which is as of January 16, 1996
F-2
<PAGE>
Interface Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30, 1995 1994
Assets
Current Assets:
Cash and equivalents $3,735,758 $3,347,282
Accounts receivable, less allowance for
doubtful accounts of $248,000 and $133,000 10,068,828 9,447,455
Inventories (Note 4) 7,360,204 7,735,229
Prepaid expenses and other current assets 1,115,256 495,597
Deferred income taxes (Note 7) 413,000 361,000
---------- ----------
Total Current Assets 22,693,046 21,386,563
Property and Equipment (Note 6)
Land 231,383 202,300
Buildings and improvements 2,603,851 1,757,467
Machinery and equipment 5,425,570 4,914,115
--------- ---------
8,260,804 6,873,882
Less accumulated depreciation 3,642,880 3,175,689
--------- ---------
Net Property and Equipment 4,617,924 3,698,193
--------- ---------
Other
Goodwill, less accumulated amortization of
$1,620,983 and $1,260,501 (Note 3) 3,204,694 3,546,452
Software development costs, less accumulated
amortization of $2,927,340 and $2,831,377 3,032,987 2,607,061
Miscellaneous 403,799 661,035
--------- ---------
Total Other Assets 6,641,480 6,814,548
--------- ---------
$33,952,450 $31,899,304
========== ==========
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
Interface Systems, Inc., and Subsidiaries
Consolidated Balance Sheets
September 30, 1995 1994
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable (Note 5) $4,367,318 $2,143,060
Accounts payable 6,070,074 5,680,798
Accruals
Compensation 348,147 574,515
Other 2,230 221,605
Deferred revenue 230,663 199,236
Current maturities of long-term debt (Note 6) 52,400 147,400
------- -------
Total Current Liabilities 11,070,832 8,966,614
Long-Term Debt, less current maturities (Note 6) 286,546 333,816
Deferred Income Taxes (Note 7) 1,381,000 1,178,000
---------- ----------
Total Liabilities 12,738,378 10,478,430
---------- ----------
Commitments and Contingencies (Notes 8, 9 and 15)
Stockholders' Equity (Notes 10 and 11)
Common stock, $.10 par value, shares
authorized 8,000,000; outstanding
4,212,418 and 4,153,368 421,242 415,337
Additional paid-in capital 9,114,577 8,827,685
Cumulative foreign currency translation
adjustment (198,169) (202,076)
Retained earnings 11,876,422 12,379,928
---------- ----------
Total Stockholders' Equity 21,214,072 21,420,874
---------- ----------
$33,952,450 $31,899,304
========== ==========
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
Interface Systems, Inc., and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year Ended September 30, 1995 1994 1993
<S> <C> <C> <C>
Net Revenues $70,243,216 $39,012,086 $33,781,632
Cost of Revenues 57,516,563 24,500,363 20,534,203
---------- ---------- ----------
Gross Profit 12,726,653 14,511,723 13,247,429
---------- ---------- ----------
Product Development Costs 1,453,605 1,307,523 1,478,386
Selling, General and Administrative
Expenses 10,506,062 8,786,591 8,547,548
---------- --------- ---------
11,959,667 10,094,114 10,025,934
---------- ---------- ----------
Operating Income 766,986 4,417,609 3,221,495
------- --------- ---------
Other Income (Expense)
Interest expense (263,758) (171,701) (209,583)
Dividend and interest income 186,064 131,030 39,162
Net losses and costs of spin-off
of subsidiary (Note 2) -- -- (162,539)
Miscellaneous 17,094 12,839 (6,073)
------- ------- -------
Net Other Expenses (60,600) (27,832) (339,033)
------ ------ -------
Income Before Taxes On Income and Cumulative
Effect of Change in Accounting Principle 706,386 4,389,777 2,882,462
Taxes On Income (Note 7) 540,000 1,428,000 1,177,000
------- --------- ---------
Income Before Cumulative Effect of Change
in Accounting Principle 166,386 2,961,777 1,705,462
Cumulative Effect of Change in
Accounting Principle (Note 1) -- (127,000) --
------- --------- ---------
Net Income $ 166,386 $ 2,834,777 $ 1,705,462
======= ========= =========
Earnings Per Share Before Cumulative Effect
of Change in Accounting Principle $ 0.04 $ 0.71 $ 0.41
Cumulative Effect of Change in
Accounting Principle -- (.03) --
---- ---- ----
Net Earnings Per Share $ 0.04 $ 0.68 $ 0.41
==== ==== ====
- ------------
See accompanying notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
Interface Systems, Inc., and Subsidiaries
Consolidated Statements of Stockholders' Equity
Years Ended September 30, 1995, 1994 and 1993
Cumulative
Additional Foreign Total
Common Stock Paid-In Currency Retained Stockholders'
Shares Amount Capital Translation Earnings Equity
------ ------ --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1992 4,147,882 $414,789 $8,817,604 $(153,238) $15,264,659 $24,343,814
Net income -- -- -- -- 1,705,462 1,705,462
Issuance of stock 9,009 900 29,901 -- -- 30,801
Retirement of stock (24,000) (2,400) (84,600) -- -- (87,000)
Spin-off of subsidiary
(Note 2) -- -- -- 30,601 (6,760,857) (6,730,256)
Foreign currency translation -- -- -- (124,073) -- (124,073)
-------- ------- --------- ------- ---------- ----------
Balance, September 30, 1993 4,132,891 413,289 8,762,905 (246,710) 10,209,264 19,138,748
Net income -- -- -- -- 2,834,777 2,834,777
Issuance of stock 20,477 2,048 64,780 -- -- 66,828
Cash dividends -
$.16 per share -- -- -- -- (664,113) (664,113)
Foreign currency translation -- -- -- 44,634 -- 44,634
--------- ------- --------- ------- ---------- ----------
Balance, September 30, 1994 4,153,368 415,337 8,827,685 (202,076) 12,379,928 21,420,874
Net income -- -- -- -- 166,386 166,386
Issuance of stock 59,050 5,905 286,892 -- -- 292,797
Cash dividends -
$.16 per share -- -- -- -- (669,892) (669,892)
Foreign currency translation -- -- -- 3,907 -- 3,907
--------- ------- --------- ------- ---------- ----------
Balance, September 30, 1995 4,212,418 $421,242 $9,114,577 $(198,169) $11,876,422 $21,214,072
========= ======= ========= ======= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
Interface Systems, Inc., and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended September 30, 1995 1994 1993
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 166,386 $ 2,834,777 $ 1,705,462
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization 2,972,277 2,524,367 2,065,999
Deferred income taxes 151,000 372,000 287,000
Loss on sale of fixed assets 24,727 -- 4,398
Decrease (increase) in accounts
receivable (621,373) (4,561,440) 833,606
Decrease (increase) in inventories 375,025 1,406,909 (945,386)
Decrease (increase) in prepaid
expenses and other current assets (619,659) 140,532 (127,800)
Decrease (increase) in other assets 10,591 40,955 (237,739)
Increase (decrease) in accounts
payable 389,276 3,844,025 (108,352)
Increase (decrease) in accruals (445,743) 191,844 (9,793)
Increase (decrease) in deferred
revenue 31,427 (47,504) 91,220
------- --------- --------
Net Cash Provided By Operating Activities 2,433,934 6,746,465 3,558,615
--------- --------- ---------
Cash Flows From Investing Activities
Additions to property and equipment (1,777,370) (797,863) (1,014,484)
Proceeds from disposals of property
and equipment 21,134 -- 40,395
Additions to software development costs (1,998,022) (1,991,416) (1,504,449)
Cash paid for purchase of
Mekom Distribution -- (2,017,200) --
--------- --------- ---------
Net Cash Used In Investing Activities (3,754,258) (4,806,479) (2,478,538)
--------- --------- ---------
Cash Flows From Financing Activities
Net increase in notes payable 2,224,258 207,146 248,488
Additions to long-term debt -- -- 110,000
Reduction of long-term debt (142,270) (88,963) (255,189)
Issuance of stock 292,797 66,828 30,801
Retirement of stock -- -- (87,000)
Cash dividends paid (669,892) (664,113) --
--------- ------- -------
Net Cash Provided By (Used In)
Financing Activities 1,704,893 (479,102) 47,100
--------- ------- ------
Foreign Currency Translation 3,907 44,634 (124,073)
----- ------ -------
Net Increase In Cash and Equivalents 388,476 1,505,518 1,003,104
Cash and Equivalents, beginning of year 3,347,282 1,841,764 838,660
--------- --------- ---------
Cash and Equivalents, end of year $3,735,758 $3,347,282 $1,841,764
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
Interface Systems, Inc., and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Interface Systems, Inc. (the "Company") and its wholly-owned subsidiaries,
I.G.K. Industries, Inc. ("I.G.K."), Interface Systems International, Ltd.
("ISIL"), Interface Systems International, Inc. ("FSC"), and Scitronix
Corporation. All significant intercompany transactions and balances have
been eliminated in consolidation.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash, cash equivalents
and accounts receivable. At times such cash and equivalents in banks are in
excess of the respective financial institution's FDIC insurance limit. The
Company attempts to minimize credit risk by reviewing all customers' credit
history before extending credit and by monitoring customers' credit exposure
on a continuing basis. The Company establishes an allowance for possible
losses on accounts receivable, when necessary, based upon factors
surrounding the credit risk of specific customers, historical trends and
other information.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect (1) the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities as of the date of
the financial statements, and (2) revenues and expenses during the reporting
period. Actual results could differ from those estimates which are made.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined by
the first-in, first-out (FIFO) method.
F-8
<PAGE>
Property, Equipment and Depreciation
Property and equipment are stated at cost. Depreciation is provided over the
estimated useful lives of the assets, ranging from 3 to 33 years, using
primarily the straight-line method for financial reporting purposes and
accelerated methods for tax reporting purposes.
Goodwill
Goodwill represents the excess of the cost of companies acquired over the
fair value of their net assets at dates of acquisition and is being
amortized on the straight-line method over periods not exceeding 15 years.
The Company reviews goodwill for impairment based upon undiscounted cash
flows over the remaining life of the goodwill. If necessary, impairment will
be measured based on the difference between undiscounted future cash flows
and the net book value of the related goodwill.
Software Development Costs
In compliance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed," certain computer software development costs have been
capitalized. Capitalization of computer software development costs begins
upon the establishment of technological feasibility. The establishment of
technological feasibility and the ongoing assessment of recoverability of
capitalized computer software development costs require considerable
judgment by management with respect to certain external factors, including,
but not limited to, anticipated future gross revenues, estimated economic
life and changes in software and hardware technology.
Amortization of capitalized computer software development costs is provided
on a product-by-product basis using the straight-line method over the
remaining estimated economic lives of the respective products, ranging from
two to five years. Amortization amounted to $1,572,096, $1,221,715, and
$771,374 for the years ended September 30, 1995, 1994 and 1993,
respectively, and is included in cost of revenues.
F-9
<PAGE>
Foreign Currency Translation
All assets and liabilities of foreign subsidiaries are translated at
exchange rates in effect on the balance sheet date, and revenue and expenses
are translated using a weighted average exchange rate during the period.
Cumulative adjustments resulting from translation of financial statements
are reflected as a separate component of stockholders' equity.
Revenue Recognition
Revenues from product sales are recognized upon shipment to the customer.
Lease and service revenues are recognized ratably over the contractual
period or as the services are performed. Revenues from licenses of software
products are recognized when the product is shipped and the Company has no
further obligation to the customer. Deferred revenue represents advance
billings on service contracts.
Research and Development Costs
Research and development costs, excluding the costs capitalized as computer
software development costs, are expensed in the period incurred. These
costs, representing engineering salaries, fringe benefits, other direct
expenses and a portion of the Company's overhead, are included in the
accompanying consolidated financial statements as product development costs.
Research and development expenses for the years ended September 30, 1995,
1994 and 1993 were approximately $712,000, $619,000 and $837,000,
respectively.
Taxes on Income
Deferred income taxes are recorded to reflect the future tax consequences of
temporary differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end.
F-10
<PAGE>
Effective October 1, 1993, the Company changed its method of accounting for
income taxes to the liability method required by Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Prior year
financial statements have not been restated. The cumulative effect of
adopting Statement No. 109 as of October 1, 1993 was to decrease net income
for the year ended September 30, 1994 by $127,000.
Earnings Per Share
Earnings per share amounts have been calculated using the weighted average
number of shares and common stock equivalents outstanding for the respective
periods. The antidilutive effect of outstanding options and warrants of the
Company is excluded from the earnings per share calculations presented in
the consolidated statements of income. The weighted average number of shares
outstanding were 4,238,889, 4,169,781 and 4,141,290 for fiscal years 1995,
1994 and 1993, respectively.
Consolidated Statements of Cash Flows
For the purposes of this statement, the Company considers money market funds
to be cash equivalents.
2. Common Stock Distribution
In November 1992, the Board of Directors of the Company approved the
distribution of all of the outstanding stock of Nematron to Interface's
stockholders subject to, among other things, the receipt of regulatory
approvals. In February 1993, the Company distributed all of its Nematron
stock, totaling 1,377,776 shares. The transaction was accounted for as a
spin-off and, accordingly, stockholders' equity was decreased by $6,730,256
in fiscal 1993, representing the net asset value of Nematron at the spin-off
date.
The accompanying statement of income for the year ended September 30, 1993
includes the net losses and costs of the spin-off, in excess of the prior
year estimated provision, totaling $162,539.
F-11
<PAGE>
3. Business Acquisition
In August 1994, ISIL acquired certain assets of Mekom Computer Products PLC
("Mekom"), a British company, for $2,017,200. The acquisition was accounted
for as a purchase and, accordingly, the acquired assets have been recorded
on ISIL's books at the estimated fair values at the date of acquisition. The
excess of the total purchase price over the estimated fair value of assets
acquired was $1,121,617 and is included as goodwill in the accompanying
consolidated balance sheets. The consolidated statements of income include
the operating results of Mekom from August 1994.
4. Inventories
Inventories are summarized as follows:
September 30, 1995 1994
---- ----
Purchased parts and accessories $2,853,910 $3,810,521
Finished goods 2,648,988 2,165,016
Work-in-process 1,005,203 839,574
Service parts and demo units 852,103 920,118
--------- ---------
$7,360,204 $7,735,229
========= =========
5. Lines-of-Credit and Notes Payable
The Company has a working capital credit facility with a bank, expiring
February 1996, under which the Company may borrow up to $3,500,000.
Borrowings under this agreement are unsecured and bear interest at the
bank's prime rate. There were no borrowings outstanding with respect to this
agreement at September 30, 1995 and 1994.
ISIL has a short-term credit facility with a bank, expiring February 1996,
under which it may borrow up to $4,738,500. Borrowings under this facility
are guaranteed by the Company, bear interest at LIBOR plus 2% (9.00% at
September 30, 1995 and 7.34% at September 30, 1994) and are due on demand.
Borrowings outstanding at September 30, 1995 and 1994 were $4,367,318 and
$2,143,060, respectively.
The ISIL credit facility contains a restrictive covenant requiring ISIL to
maintain positive tangible net worth. ISIL was in compliance with this
covenant at September 30, 1995 and 1994.
F-12
<PAGE>
IGK has a short-term credit facility with a bank under which it may borrow
up to $150,000. Borrowings are collateralized by accounts receivable,
inventory, and machinery and equipment and bear interest at .5% over the
bank's prime rate. There were no borrowings outstanding under this facility
at September 30, 1995 and 1994.
6. Long-Term Debt
Long-term debt consists of the following:
September 30, 1995 1994
---- ----
Installment loan payable-bank, payable
in monthly installments of $3,696
including interest at 0.25% over
the bank's prime rate (9.0% at
September 30, 1995), due March
1997, unsecured $284,247 $304,972
Installment loan payable-bank, payable
in monthly installments of $2,212
plus interest at 7.65%, through
October 1997, collateralized by
equipment 54,699 81,244
Non-compete agreement, paid in full
during 1995 -- 95,000
------- -------
338,946 481,216
Less current maturities 52,400 147,400
------- -------
$286,546 $333,816
======= =======
The aggregate amounts of long-term debt maturing in each of the next three
fiscal years are as follows: 1996 - $52,400; 1997 - $285,000; and 1998 -
$1,546.
F-13
<PAGE>
7. Taxes on Income
Provisions for taxes on income in the consolidated statements of income are
made up of the following components:
Year Ended September 30, 1995 1994 1993
---- ---- ----
Current - U.S. federal $389,000 $1,056,000 $890,000
Deferred - U.S. federal 151,000 372,000 287,000
------- --------- -------
$540,000 $1,428,000 $1,177,000
======== ========= ==========
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets
are as follows:
September 30, 1995 1994
---- ----
Deferred Tax Liabilities
Tax depreciation and amortization
greater than book amounts $1,381,000 $1,178,000
========= =========
Deferred Tax Assets
Net operating loss carryforwards
of ISIL $612,000 $322,000
Receivable and inventory reserves 248,000 195,000
Employee benefit accruals 107,000 107,000
Inventory costs under uniform
capitalization rules 43,000 47,000
Other 15,000 12,000
------- -------
1,025,000 683,000
Valuation Allowance for Deferred Tax
Assets of ISIL (612,000) (322,000)
--------- -------
Net Deferred Tax Assets $413,000 $361,000
======= =======
F-14
<PAGE>
The following reconciles the statutory federal income tax rate to the
Company's effective tax rate:
Year Ended September 30, 1995 1994 1993
---- ---- ----
Income tax based on the federal
statutory rate 34.00% 34.00% 34.00%
Increase (decrease) in taxes
resulting from:
Benefits of FSC non-taxable
income (7.29) (.40) (2.15)
Research and development
credits (4.67) (2.74) --
Amortization of goodwill 13.74 2.21 3.43
Non-deductible losses of
foreign subsidiaries 41.00 .42 4.93
Other (.34) (.96) .62
----- ---- ----
76.44% 32.53% 40.83%
===== ===== =====
The domestic and foreign components of income (loss) before taxes on income
were as follows:
Year Ended September 30, 1995 1994 1993
---- ---- ----
Domestic $1,558,281 $4,443,695 $3,299,841
Foreign (851,895) (53,918) (417,379)
--------- --------- ---------
$706,386 $4,389,777 $2,882,462
======== ========= =========
ISIL has net operating loss carryforwards totalling approximately $1,799,000
at September 30, 1995.
F-15
<PAGE>
8. Retirement Plan
The Company has established a defined contribution retirement plan for all
eligible employees. Participants may make basic contributions from 2% to 8%
of their compensation pursuant to Section 401(k) of the Internal Revenue
Code. The Company makes a basic contribution of 100% of the amount
contributed by participants, up to 4% of participant compensation, and may
make additional contributions as approved by the Board of Directors. The
Company recognized approximately $299,000, $223,000 and $251,000 of expense
related to this plan for the years ended September 30, 1995, 1994 and 1993,
respectively.
In addition, ISIL maintains a defined contribution pension plan for all
eligible employees. ISIL recognized approximately $112,000, $105,000 and
$89,000 of expense related to this plan for the years ended September 30,
1995, 1994 and 1993, respectively.
9. Commitments and Contingencies
The Company has various operating leases which require future minimum rental
payments in excess of one year as follows: 1996 - $301,000; 1997 -
$272,000; 1998 - $224,000; 1999 - $207,000; and 2000 - $207,000. Rent
expense for the years ended September 30, 1995, 1994 and 1993 was $375,000,
$243,000 and $210,000, respectively.
In August 1995, the Board of Directors authorized the acquisition by the
Company of up to 400,000 shares of its common stock at prices not to exceed
$5 per share. No common stock was acquired in 1995.
10. Stock Warrants
On August 3, 1983, the Company sold 300,000 units (consisting of two shares
of common stock and one warrant) through a public offering at $15.00 per
unit. Each warrant entitles the holder to purchase one share of common
stock. The warrants were exercisable at $6.50 per warrant and were to expire
July 1, 1995. In March 1995, the Board of Directors extended the expiration
date of the warrants to December 29, 1995. The Company may call the
warrants, upon 30 days written notice, at a price of $.63 per warrant.
During the year ended September 30, 1995, 3,350 of the warrants were
exercised at a price of $6.50 per warrant, and 296,650 warrants were
outstanding at September 30, 1995.
F-16
<PAGE>
11. Stock Options
Incentive stock options are granted to executives and key employees for a
ten-year period with the option price being at least the fair market value
at date of grant. The incentive stock options can be exercised in three
annual installments starting one year after the date of the grant.
The Company has also granted non-qualified stock options to five
non-employee directors, which expire ten years and one day from date of
grant. All non-qualified stock options are cancelled if the grantee ceases
to be a director.
The Company has reserved approximately 629,400 shares of its common stock
for issuance under the various stock option plans ("Plans"). Approximately
196,500 shares are available for grant under the Plans at September 30,
1995.
Changes in stock options outstanding, adjusted to reflect stock dividends
and splits, are summarized as follows:
Qualified Non-Qualified
Option Option
Shares Price Shares Price
------ ------ ------ ------
$ $
Balance, October 1, 1992 418,132 3.31-7.50 16,500 7.04
Granted 150,000 5.25 30,000 5.25
Exercised (9,000) 3.31-3.81 -- --
Expired or terminated (90,900) 3.31-7.50 -- --
Balance, September 30, 1993 468,232 3.31-7.50 46,500 5.25-7.04
Granted -- -- -- --
Exercised (20,477) 3.31-3.63 -- --
Expired or terminated (30,123) 3.31-7.50 -- --
Balance, September 30, 1994 417,632 3.31-7.50 46,500 5.25-7.04
Granted 78,000 5.38-7.19 -- --
Exercised (55,700) 3.31-7.50 -- --
Expired or terminated (37,033) 3.63-7.50 -- --
Balance, September 30, 1995 402,899 3.31-7.50 46,500 5.25-7.04
At September 30, 1995, 282,401 of the qualified and 36,500 of the
non-qualified options are exercisable.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123 "Accounting for Stock-Based Compensation" which is effective for years
beginning after December 15, 1994 for the proforma disclosure requirements
and after December 15, 1995 for the other disclosure requirements. This
statement allows entities to choose between a new fair value based method of
accounting for employee stock options or similar equity instruments and the
current method of accounting prescribed by Accounting Principles Board
Opinion No. 25. Entities electing to remain with the accounting in Opinion
No. 25 must make proforma disclosures of net income and earnings per share
as if the fair value method of accounting had been applied. The Company
expects to continue accounting for employee stock options in accordance with
Opinion No. 25 and has not made a calculation of the proforma effect due to
the complexity involved with such a calculation.
F-17
<PAGE>
12. Supplemental Disclosures of Cash Flow Information
1995 1994 1993
---- ---- ----
Cash Paid During The Year For
Taxes on income $712,682 $970,694 $1,232,000
Interest 263,758 171,701 218,695
======= ======= =========
Non-Cash Investing and Financing Activities
During the year ended September 30, 1994, the Company repaid $190,000 to the
former shareholders of ISIL by reducing a receivable due from these
shareholders for the same amount.
13. Segment Information and Foreign Revenues
The Company and its subsidiaries are involved in one business segment; the
development, manufacture and sale of computer peripherals and data
communications software.
Financial information, summarized by geographic area, is as follows:
<TABLE>
<CAPTION>
Year Ended
September 30, 1995 United States Europe Eliminations Consolidated
<S> <C> <C> <C> <C>
Total Revenue
Unaffiliated customers $17,108,616 $53,134,600 $ -- $70,243,216
Inter-area transfers 2,556,049 -- (2,556,049) --
---------- ---------- --------- ----------
Total $19,664,665 $53,134,600 $(2,556,049) $70,243,216
========== ========== ========= ==========
Net Income (Loss) $1,018,281 $(851,895) $ -- $166,386
========= ======= ===== =======
Total Assets $3,462,758 $12,925,606 $(2,435,914) $33,952,450
========= ========== ========= ==========
</TABLE>
F-18
<PAGE>
<TABLE>
<CAPTION>
Year Ended
September 30, 1994 United States Europe Eliminations Consolidated
------------- ------ ------------ ------------
<S> <C> <C> <C> <C>
Total Revenue
Unaffiliated customers $21,673,600 $17,338,486 $ -- $39,012,086
Inter-area transfers 2,685,930 -- (2,685,930) --
---------- ---------- --------- ----------
Total $24,359,530 $17,338,486 $(2,685,930) $39,012,086
========== ========== ========= ==========
Net Income (Loss) $2,888,695 $(53,918) $ -- $2,834,777
======== ====== ==== =========
Total Assets $22,962,685 $10,634,228 $(1,697,609) $31,899,304
========== ========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Year Ended
September 30, 1993 United States Europe Eliminations Consolidated
------------- ------ ------------ ------------
<S> <C> <C> <C> <C>
Total Revenue
Unaffiliated customers $20,136,926 $13,644,706 $ -- $33,781,632
Inter-area transfers 4,300,690 -- (4,300,690) --
---------- ---------- --------- ----------
Total $24,437,616 $13,644,706 $(4,300,690) $33,781,632
========== ========== ========= ==========
Net Income (Loss) $2,122,841 $(417,379) $ -- $1,705,462
========= ======= ==== =========
Total Assets $22,584,216 $3,671,931 $(894,517) $25,361,630
========== ========= ======= ==========
</TABLE>
United States inter-area transfers represent shipments of equipment and
parts to foreign subsidiaries. These inter-area shipments are made at
transfer prices which are discounted from prices charged to unaffiliated
customers and have been eliminated from consolidated net revenues.
14. Selected Quarterly Financial Data (Unaudited)
The following is a summary of selected quarterly financial data for the
years ended September 30, 1995 and 1994.
<TABLE>
<CAPTION> First Second Third Fourth Fiscal
1995 Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Net Revenues $15,914,761 $19,840,268 $18,612,947 $15,875,240 $70,243,216
Gross Profit, as
previously reported 3,848,965 3,736,267 3,418,863 2,222,157 13,226,252
Adjustment (43,530) (313,961) (142,108) -- (499,599)
Gross Profit, as
restated 3,805,435 3,422,306 3,276,755 2,222,157 12,726,653
Net Income (Loss),
as previously reported 757,273 692,006 (223,022) (560,272) 665,985
Adjustment (43,530) (313,961) (142,108) -- (499,599)
Net Income (Loss), as
restated 713,743 378,045 (365,130) (560,272) 166,386
Net Earnings (Loss) Per
Share, as previously
reported 0.18 0.16 (0.05) (0.13) 0.16
Adjustment (0.01) (0.07) (0.04) -- (0.12)
Net Earnings (Loss) Per
Share, as restated 0.17 0.09 (0.09) (0.13) 0.04
</TABLE>
F-19
<PAGE>
The adjustment to fiscal 1995 quarterly earnings previously reported relates
to the write-off of certain costs at ISIL that should not have been
capitalized during the year.
In addition, during the fourth quarter of fiscal 1995, the Company recorded
certain year end accounting adjustments relating to inventories and royalty
obligations under license agreements. Such adjustments decreased net income
in the fourth quarter by approximately $298,000 or $.07 per share.
<TABLE>
<CAPTION>
First Second Third Fourth Fiscal
1994 Quarter Quarter Quarter Quarter Year
------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Revenues $9,067,985 $9,961,551 $7,749,323 $12,233,227 $39,012,086
Gross Profit 3,608,699 3,749,283 3,171,241 3,982,500 14,511,723
Income Before
Cumulative Effect of
Change In Accounting
Principle 723,912 737,672 495,599 1,004,594 2,961,777
Net Income 596,912 737,672 495,599 1,004,594 2,834,777
Net Earnings Per Share .14 .18 .12 .24 .68
</TABLE>
The cumulative effect of change in accounting principle relates to the
Company's adoption of SFAS 109 during the first quarter, the effect of which
was to reduce net income by $127,000 or $.03 per share.
On November 15, 1995, a class action complaint was filed, by a shareholder
of the Company, against the Company and certain officers of the Company.
Notice of the action was provided to the Company on December 22, 1995. The
complaint alleges violations of Rule 10b-5 of the Securities Exchange Act of
1934 (the "Exchange Act"), liability under Section 20 of the Exchange Act
and claims of common law fraud and deceit and negligent misrepresentation,
based upon certain non-disclosures by the Company and certain of its
officers related to the effect of the acquistion of the Mekom distribution
business of the Company. The plaintiffs seek relief for compensatory and
punitive damages, together with pre-judment interest, and plaintiffs' costs
and disbursements, including reasonable allowances for fees for plaintiffs'
attorneys and experts. As of January 16, 1996, it is not possible to
determine an estimate of the possible loss, if any, which may result from
the described action, however, the Company believes that the action is
without merit and plans to defend the suit vigorously.
F-20
<PAGE>
FINANCIAL STATEMENT SCHEDULES
Report of Independent Certified Public Accountants
To the Board of Directors
Interface Systems, Inc.
Ann Arbor, Michigan
The audits referred to in our report dated November 10, 1995, except for
Note 15 which is as of January 16, 1996, relating to the consolidated
financial statements of Interface Systems, Inc. and subsidiaries, which is
contained in Item 8 of this Form 10-K included the audits of the financial
statement schedules listed in the accompanying index.
In our opinion, such financial statement schedules present fairly the
information set forth therein.
/S/ BDO SEIDMAN
BDO SEIDMAN
Troy, Michigan
November 10, 1995
S-2
<PAGE>
SCHEDULE II--Valuation and Qualifying Accounts
Years Ended September 30, 1995, 1994 and 1994
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance
Beginning Cost and at End
Description of Year Expenses Deductions of Year
- ----------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Year Ended September 30, 1995
Allowance for doubtful accounts
(deducted from accounts receivable) $133,000 $251,000 $136,000(1) $248,000
======= ======= ======= =======
Year Ended September 30, 1994
Allowance for doubtful accounts
(deducted from accounts receivable) 117,000 31,000 15,000(1) $133,000
======= ====== ====== =======
Year Ended September 30, 1993
Allowance for doubtful accounts
(deducted from accounts receivable) 105,000 27,000 15,000(1) $117,000
Provision for estimated losses
of and costs of spin-off of
subsidiary 400,000 155,000 555,000(2) $ --
======= ======= ======= =======
- ---------------
(1) Accounts deemed to be uncollectible.
(2) Reduced when actual losses and costs were incurred.
</TABLE>
S-3
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 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.
INTERFACE SYSTEMS, INC.
Dated: January 29, 1996 By: /S/ CARL L. BIXBY
-----------------------
Carl L. Bixby, President
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number
3(a) Certificate of Incorporation of the Company, as amended (1)
3(b) Bylaws of the Company, as amended to date (2)
4 Other instruments, notes or extracts from agreements defining the
rights of holders of long-term debt of the Registrant or its
subsidiaries have not been filed because (i) in each case the total
amount of long-term debt permitted thereunder does not exceed 10% of
the Registrant's consoli-dated assets, and (ii) the Registrant
hereby agrees that it will furnish such instruments, notes and
extracts to the Securities and Exchange Commission upon its request
10(j) 1982 Incentive Stock Option Plan, effective May 21, 1982, as
amended, with Form of Stock Option Agreement with Stock Appreciation
Rights (3)
10(1) Form of Non-Qualified Stock Option Agreement (3)
10(2) 1992 Stock Option Plan, effective May 6, 1992 (4)
10(3) Non-Employee Director Stock Option Plan (5)
21 Subsidiaries of the Registrant (6)
23 Consent of BDO Seidman (7)
___________________________________________
(1) This exhibit was filed with the Registrant's Form 10-K for the
fiscal year ended September 30, 1988 and is incorporated herein by
reference. The exhibit number used herein is identical to the
exhibit number as originally filed with the Form 10-K.
(2) This exhibit was filed with the Registrant's Form 10-K for the
fiscal year ended September 30, 1991 and is incorporated herein by
reference. The exhibit number used herein is identical to the
exhibit number as originally filed with the Form 10-K.
(3) These exhibits were filed under Item 16 of the Registrant's Form S-1
Registration Statement filed on July 15, 1986 pursuant to the
Securities Act of 1933, as amended, File No. 2-84204 and are
incorporated herein by reference. The exhibit numbers used herein
are identical to the exhibit numbers as originally filed with the
form S-1 Registration Statement.
(5) This exhibit was filed as Exhibit 19 to the Registrant's Form 10-Q
for the Quarter ended March 31, 1994 and is incorporated herein by
reference.
(6) This exhibit was filed as Exhibit 21 to the Registrant's Form 10-K
for the year ended September 30, 1994 and is incorporated herein by
reference.
(7) Filed herewith.
Consent of Independent Certified Public Accountants
Interface Systems, Inc.
5855 Interface Drive
Ann Arbor, Michigan 48103
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of the Registration Statement (Form S-8) and in the
Prospectus constituting a part of the Registration Statement (Form S-3) of
our reports dated November 10, 1995, except for Note 15 which is as of
January 16, 1996, relating to the consolidated financial statements and
schedules of Interface Systems, Inc. and subsidiaries appearing in the
Company's Annual Report on Form 10-K for the year ended September 30, 1995.
/S/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
Troy, Michigan
January 29, 1996
