ACCELR8 TECHNOLOGY CORPORATION
1,000,000 Shares of Common Stock
Accelr8 Technology Corporation ("Accelr8" or the "Company") is hereby
offering 1,000,000 shares of its Common Stock. The Company's Common Stock is
traded in the over-the-counter market on the Nasdaq Electronic Bulletin Board
under the symbol "ACLY." On November 18, 1996, the closing bid and ask prices as
reported on the Nasdaq Electronic Bulletin Board were $2.00 and $2.03,
respectively, before giving effect to the one-for-four reverse stock split of
the Company's outstanding Common Stock. The Company's Common Stock has been
approved for inclusion in the Nasdaq National Market under the symbol "ACLYD"
effective upon commencement of this offering. The public offering price of the
Common Stock has been determined by negotiations between the Company and the
Underwriter, based in part upon the most recent bid price of the Company's
Common Stock. See "Underwriting" and "Price Range of Common Stock."
See "Risk Factors" beginning on page 4 for information
prospective investors should consider.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===================================================================================================
Price to Underwriting Proceeds to the
Public Commissions(1) Company(2)(3)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share $7.00 $0.49 $6.5
- ---------------------------------------------------------------------------------------------------
Total $7,000,000 $490,000 $6,510,000
===================================================================================================
</TABLE>
(1) Excludes a non-accountable expense allowance equal to 1.5% of the gross
proceeds of this offering payable to the Underwriter, and the value of
warrants to purchase up to 34,500 shares of Common Stock to be issued to
the Underwriter. The Company has agreed to indemnify the Underwriter
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended (the "Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $318,572
including the Underwriter's non-accountable expense allowance.
(3) Certain employees of the Company holding options and warrants to purchase
the Company's Common Stock have granted to the Underwriter a 45-day option
to purchase up to 150,000 additional shares solely to cover
over-allotments, if any. The Company will not receive any proceeds from the
sale of such shares. See "Underwriting."
The shares of Common Stock are offered by the Underwriter subject to prior
sale when, as and if delivered to and accepted by it, and subject to the right
of the Underwriter to withdraw, cancel or modify such offer and reject any
orders in whole or in part, and subject to certain other conditions as set forth
in the Underwriting Agreement between the Company and the Underwriter. It is
expected that delivery of the certificates for such shares will be made against
payment therefor at the offices of Janco Partners, Inc. in Denver, Colorado on
or about November 25, 1996. JANCO PARTNERS, INC.
The date of this Prospectus is November 18, 1996.
<PAGE>
[GRAPHIC OMITTED HERE
OF INDUSTRY GRAPH AND MIGRATION DIAGRAM]
The Company intends to furnish to its shareholders, annual reports
which include audited financial statements reported on by its independent
accountants for each fiscal year, and quarterly reports containing unaudited
financial information for the first three quarters of each year. The Company
will continue to comply with the periodic reporting requirements imposed under
the Securities Exchange Act of 1934, as amended (the "Exchange Act").
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
ii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Unless otherwise indicated, all share and per share data in
this Prospectus gives effect to a one-for-four reverse stock split of the
outstanding Common Stock which became effective at the close of business on
November 18, 1996, and assume no exercise of the Underwriter's over-allotment
option or options granted or reserved under the Company's stock option plans or
warrants currently outstanding. Certain terms used in this Prospectus are
defined in the Glossary beginning at page 37.
The Company
Accelr8 Technology Corporation (the "Company" or "Accelr8") is a leading
provider of software tools and consulting services for the conversion of Digital
Equipment Corporation's ("DEC") VAX/VMS Legacy Systems to UNIX open
Client/Server environments. VAX/VMS Legacy Systems use a Proprietary computer
operating system which is not compatible with other manufacturers' hardware and
software applications. In contrast, UNIX is a powerful, open architecture system
which is compatible with a wide range of hardware platforms and software
applications, including commercial off-the-shelf software ("COTS"). The Company
believes that UNIX has become the most widely used Client/Server operating
system, and that the trend to Client/Server Open Systems such as the system
offered by UNIX and Microsoft Corporation's Windows NT operating system ("NT")
will continue for the foreseeable future. In order to attain the advantages of
UNIX while preserving their investment in existing software applications, many
VAX/VMS users will undertake complex conversions to the UNIX operating system.
The Company's consulting services and software conversion tools enable the
Company's clients to analyze and implement their UNIX conversions in a
predictable and cost-effective manner.
Based on information published by DEC and other industry sources,
management estimates that over 600,000 VAX/VMS Legacy Systems have been
installed and that at least 450,000 of such systems are currently in use. The
Company's clients have consisted primarily of Fortune 1000 companies and
governmental agencies that utilize one or more VAX/VMS Legacy Systems. These
organizations typically have significant technology budgets and recurring
systems development and maintenance needs which the Company addresses through
its software tools and consulting services. The Company's clients include, among
others, Electronic Data Systems Corp., Proctor & Gamble, Kellogg Co., McDonnell
Douglas Corp., Delta Air Lines Corp., Daimler Benz AG, the United States Army
and the United States Navy.
The Company's total revenues have increased from $688,885 in fiscal 1994 to
$2,097,011 in fiscal 1996, and net income increased from a loss of ($261,750) in
fiscal 1994 to $1,192,780 in fiscal 1996. The growth in revenues and net income
reflects the Company's decision in fiscal 1994 to develop specialized consulting
services which can be delivered with the Company's software tools as an
integrated solution to clients' conversion needs. The Company's consulting
services accounted for approximately 51% of 1996 revenues. The growth in
revenues and net income also reflects the Company's success in establishing
international sales, which accounted for approximately 15% of total revenues in
fiscal 1996 as compared to approximately 7% of total revenues in fiscal 1995.
The Company is currently engaged in the development of additional software
tools which will complement its existing suite of conversion tools and services.
The Company has commenced development of software tools that are to be used in
converting VAX/VMS Legacy Systems to the NT operating system, running on DEC
Alpha servers. The Company has also completed preliminary development of a
software tool that identifies "Year 2000 Problems" in the VAX/VMS environment.
The Year 2000 Problem is expected to create widespread system failures due to
the use of computer programs that rely on two-digit date codes to perform
computations and other decision-making functions. The Company expects to use a
portion of the net proceeds from this offering to complete and introduce those
products during the second calendar quarter of 1997.
The Company's objective is to enhance its position as a leading provider of
software tools and consulting services which are targeted to VAX/VMS Legacy
System conversions and related Re-engineering services. The Company's strategy
for achieving its objectives includes: (i) continuing to emphasize the
integration of specialized consulting services with the Company's suite of
software tools, including the establishment of up to ten three-person
"conversion teams" in order to staff the anticipated increase in conversion
projects to be performed by the Company; (ii) developing and introducing new
software tools and services, such as those relating to the Year 2000 Problem and
conversion from VAX/VMS Legacy Systems to NT running on DEC Alpha servers; (iii)
development of relationships with significant providers of outsourcing services
for an entity's information technology needs; (iv) expanding the Company's
international marketing programs, particularly in Europe and Asia; (v) securing
additional consulting projects from existing and future clients; (vi) continuing
to target large corporations and government agencies which require integrated
solutions to their Legacy System conversion needs; and (vii) investing in or
acquiring complementary businesses, technologies or product lines.
1
<PAGE>
The Company was incorporated in the State of Colorado in 1982. The
Company's executive offices are located at 303 East 17th Avenue, Suite 108,
Denver, Colorado, and its telephone number is (303) 863-8088.
The Offering
Common Stock offered by the
Company 1,000,000 shares
Common Stock Outstanding after
the Offering 6,492,500 shares(1)
Use of Proceeds For (i) creation of additional technical
teams to work on Legacy Code conversion
projects; (ii) completion of a Year 2000
Problem audit and analysis tool for the
VAX/VMS customer base and the related
expansion of technical and marketing staff;
(iii) development of products to capitalize
on the VAX/VMS to NT conversion opportunity
and the related expansion of technical and
marketing staff; (iv) acquisition of or
investment in complementary businesses,
technologies or product lines; and (v)
general corporate purposes, including working
capital and hiring of additional managerial
and technical personnel.
Nasdaq National Market Symbol ACLYD(2)
- ---------------------------------------
(1) Excludes 475,000 shares of Common Stock issuable upon exercise of employee
stock options and 1,200,000 shares of Common Stock issuable upon the
exercise of warrants and options held by an affiliate. The Underwriter has
agreed to cover over-allotments from the exercise of 90,000 employee
options and 60,000 warrants. See "Management--Compensation Pursuant to
Plans."
(2) Prior to the commencement of this offering the Company's Common Stock was
traded on the Electronic Bulletin Board under the symbol ACLY.
2
<PAGE>
Summary Financial Information
(In thousands of dollars, except share data)
<TABLE>
<CAPTION>
Year Ended July 31,
-------------------------------------------
Statement of Operations Data: 1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Revenue:
Consulting fees $ 41 $ 294 $ 1,075
Product license and customer support fees 415 751 684
Resale of purchased software 150 338 338
Other revenues 83 - -
Total revenue 689 1,383 2,097
Income (loss) from operations (269) 370 1,114
Net income (loss) (262) 382 1,193
Net income (loss) per share (.048) .058 .177
Weighted average shares outstanding 5,492,500 6,591,000 6,733,877
</TABLE>
July 31, 1996
-----------------------------
Actual As Adjusted(1)
------ --------------
Balance Sheet Data:
Working capital $ 1,704 $ 7,895
Total assets 2,317 8,508
Total liabilities 377 377
Shareholders' equity 1,940 8,131
- --------------------------------------
(1) Adjusted to reflect the sale of 1,000,000 shares of Common Stock offered by
the Company hereby, at a public offering price of $7.00 per share, after
deducting the estimated underwriting discount and offering expenses, and
after giving effect to the one-for-four Common Stock reverse split.
3
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should carefully consider the following risk factors prior to making
an investment in the Common Stock offered hereby.
Dependence on Key Employees. The Company's success depends to a significant
extent upon a number of key management and technical personnel, the loss of one
or more of whom could have a material adverse effect on the Company's results of
operations. The Company carries key man life insurance on seven of its key
employees, including Thomas V. Geimer, Harry J. Fleury, Franz Huber and Timothy
Fitzpatrick, in the amount of $250,000 for each individual. The Board of
Directors has adopted resolutions under which one-half of the proceeds of any
such insurance will be dedicated to a beneficiary designated by the insured.
There can be no assurance that the proceeds from such life insurance policies
would be sufficient to compensate the Company for the loss of any of these
employees, and these policies do not provide any benefits to the Company if
these employees become disabled or are otherwise unable to render services to
the Company. Further, the Company does not currently have employment agreements
with any of its officers or key employees, and does not currently intend to have
such employment agreements in the future. The Company believes that its
continued success will depend in large part upon its ability to attract and
retain highly-skilled technical, managerial, sales and marketing personnel.
There can be no assurance that the Company will be successful in attracting and
retaining the personnel it requires to develop and market new and enhanced
products and to conduct its operations successfully. See "Management."
Management of Growth. The Company's rapid growth in business in recent
quarters has placed and may continue to place a significant strain on the
Company, particularly on its customer services organization. Any failure by the
Company to respond quickly to the service needs of its customers could cause the
loss of customers and have a material adverse effect on the Company's results of
operations. The Company's future operating results will depend on its ability to
expand its services organization and infrastructure commensurate with its
expanding base of customers and on its ability to attract, hire and retain
skilled employees. There can be no assurance that the Company will be able to
effectively manage any future growth. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Dependence on Conversion of DEC VAX/VMS Legacy Systems. The Company's
principal software products and services are designed for conversion from
VAX/VMS Legacy Systems to UNIX open Client/Server environments. To date
substantially all of the Company's revenues have been derived from sales of
these products and services. Future revenues from sales of products and services
are therefore dependent upon users of VAX/VMS Legacy Systems electing to convert
their data and applications to UNIX or NT environments. To the extent that users
of VAX/VMS Legacy Systems elect to abandon their VAX/VMS applications and data,
and to rewrite their information technology systems entirely in UNIX or NT
environments without conversion, the Company's revenues and future prospects
could be materially and adversely affected. See "Business."
Concentration of Revenues. A significant portion of the Company's revenues
have been derived from substantial orders placed by a small number of customers.
As a result, the Company's revenues have been concentrated among a relatively
small number of customers. In fiscal 1996 revenues from the Company's three
largest customers amounted to 42% of the Company's total revenues, and in fiscal
1995 only one customer accounted for revenues in excess of 10% (i.e., 11% of
total revenues). The Company expects that it will continue to be dependent upon
a limited number of customers for significant portions of its revenues in future
periods. Generally, the Company is hired for a specific project that will be
completed within a fixed period of time. Once a project has been completed,
customers generally will not require significant services in the future.
However, during particular periods, certain customers may be significant. There
can be no assurance that revenues from customers that accounted for significant
revenues in past periods, individually or as a group, will continue, or if
continued will reach or exceed historical levels in any future period. The
Company's operating results may in the future be subject to substantial
period-to-period fluctuations as a consequence of such customer concentration.
Reliance on Existing Products. Substantially all of the Company's software
license fee revenues and its consulting revenues are derived from the Company's
4
<PAGE>
VAX/VMS conversion activities. If license sales, consulting revenues or pricing
levels of Accelr8's products were to decline materially, whether as a result of
technological change, competition or any other factors, the Company's business,
results of operations and financial condition would be adversely affected.
Ability to Respond to Technological Change. The Company's future success
will depend significantly on its ability to enhance its current products and
develop or acquire and market new products which keep pace with technological
developments and evolving industry standards as well as respond to changes in
customer needs. There can be no assurance that the Company will be successful in
developing or acquiring product enhancements or new products to address changing
technologies and customer requirements adequately, that it can introduce such
products on a timely basis, or that any such products or enhancements will be
successful in the marketplace. The Company's delay or failure to develop or
acquire technological improvements or to adapt its products to technological
change would have a material adverse effect on the Company's business, results
of operations and financial condition.
Dependence Upon Proprietary Technology; Intellectual Property Rights. The
Company relies primarily on a combination of copyright, trademark and trade
secret laws, employee and third party disclosure agreements, license agreements
and other intellectual property protection methods to protect its Proprietary
rights. The Company's Proprietary software products are generally licensed to
customers on a "right to use" basis pursuant to a perpetual, nontransferable
license that generally restricts use to the customer's internal purposes and to
a specific computer platform that has been assigned a "key code." However, it
may be possible for unauthorized third parties to copy or reverse engineer
certain portions of the Company's products or obtain and use information the
Company regards as Proprietary. The Company currently has no patents and
existing trade secret and copy right laws provide only limited protection. The
Company's competitive position and operations may be adversely affected by
unauthorized use of its Proprietary information, and there can be no assurance
that the protections put in place by the Company will be adequate.
There can be no assurance that third parties will not assert infringement
or other claims against the Company with respect to any existing or future
products, or that licenses would be available if any Company technology were
successfully challenged by a third party, or if it became desirable to use any
third-party technology to enhance the Company's products. Litigation to protect
the Company's Proprietary information or to determine the validity of any
third-party claims could result in significant expense to the Company and divert
the efforts of the Company's technical and management personnel, whether or not
such litigation is determined in favor of the Company. See "Business --
Intellectual Property."
Competition. The market for the Company's products and services is
competitive and subject to rapid change. Further, the Company's products
currently compete primarily in the conversion of VAX/VMS Legacy Systems to UNIX.
Management believes that there are only two companies that compete directly with
the Company in conversion from VAX/VMS Legacy Systems to UNIX Operating Systems.
However, management believes that the Company offers a broader range of products
and services than either of these competitors, and is therefore able to compete
successfully against them. Although DEC does not offer its own products for
conversion from its VAX/VMS Legacy Systems to UNIX, should DEC choose to do so,
the Company could be materially and adversely affected. There can be no
assurance that competitors will not develop products or alternative technologies
that: (i) are superior to the Company's products; (ii) achieve greater market
acceptance; or (iii) make the Company's products obsolete. Further, there can be
no assurance that the Company will be able to compete successfully with its
present or potential competition, or that competition will not have a material
adverse effect on the Company's results of operations and financial condition.
See "Business -- Competition."
Possible Volatility of Stock Price; Dividend Policy. Although the Common
Stock is expected to be approved for quotation on the Nasdaq National Market
upon notice of issuance, there can be no assurance that an active trading market
will develop. The market price of the Common Stock could be subject to
significant fluctuations in response to variations in actual and anticipated
quarterly operating results, changes in earnings estimates by analysts,
announcements of new products or technological innovations by the Company or its
competitors, and other events or factors. In addition, the stocks of many
technology companies have experienced extreme price and volume fluctuations that
have often been unrelated to the companies' operating performance. The Company
does not intend to pay any cash dividends on its Common Stock in the foreseeable
future. See "Dividend Policy."
5
<PAGE>
Control by Management. After completion of this offering, the officers,
directors and key employees of the Company will own approximately 26% of the
outstanding shares of Common Stock, and if they exercise all of the options and
warrants that they currently hold, they will own approximately 40% of the
Company's outstanding shares of Common Stock. Due to their stock ownership, the
officers, directors and key employees may be in a position to elect the Board of
Directors and, therefore, control the business and affairs of the Company,
including certain significant corporate actions such as acquisitions, the sale
or purchase of assets and the issuance and sale of the Company's securities. See
"Principal Shareholders" and "Description of Securities--Common Stock."
Shares Eligible for Future Sale; Rights to Acquire Shares. At the date of
this Prospectus, the Company has reserved 475,000 shares of Common Stock for
issuance on exercise of options granted under its stock option plan, of which
options to purchase 475,000 shares were outstanding at July 31, 1996 ("Employee
Options"). Warrants and options to purchase an additional 1,200,000 shares also
were outstanding at July 31, 1996 ("Affiliate's Warrants"). The exercise prices
of the Employee Options and Affiliate's Warrants range from $0.24 per share to
$0.36 per share, with a weighted average exercise price per share of $0.27.
Sales of Common Stock underlying Employee Options or Affiliate's Warrants may
adversely affect the price of the Common Stock. The existence of such options
and warrants may adversely affect the terms on which the Company may obtain
additional equity capital in the future. In addition, the Board of Directors has
adopted resolutions establishing an incentive stock option plan and a
non-qualified stock option plan, which will be submitted to the shareholders for
their approval. An aggregate of 1,000,000 additional shares of Common Stock have
been reserved for issuance under these two new plans.
Short History of Profitability. Although the Company has been profitable in
each of the last two fiscal years, it had an accumulated deficit of $72,703 as
of July 31, 1996. There can be no assurance that revenue growth or profitable
operations can be sustained in the future. See " Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Immediate Substantial Dilution. As of July 31, 1996, the Company's net
tangible book value per share was $0.35. Based on certain assumptions,
purchasers of shares of Common Stock in this offering will experience immediate
substantial dilution of $5.75 per share. See "Dilution."
Important Factors Related to Forward-Looking Statements and Associated
Risks. This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Act and Section 21E of the Exchange Act and the
Company intends that such forward-looking statements be subject to the safe
harbors created thereby. These forward-looking statements include the plans and
objectives of management for future operations, including plans and objectives
relating to the products and future economic performance of the Company. The
forward-looking statements and associated risks set forth in this Prospectus
include or relate to (i) the successful development and marketing of the Year
2000 Problem audit and analysis tool for the DEC-installed customer base; (ii)
increasing sales through the creation of ten three-person conversion field
teams; (iii) success of additional marketing initiatives to be undertaken by the
Company; (iv) increases in international sales as a result of the execution of
distribution agreements in Australia and Southeast Asia; (v) expansion of sales
to the DEC-installed customer base; (vi) success of the Company's development of
its VAX/VMS conversion tool for NT users; (vii) success in diversifying the
Company's market through increasing sales to non-DEC customers; (viii)
achievement of high gross profit margins by targeting larger conversion projects
in government and commercial enterprises; and (ix) success of the Company in
achieving increases in net sales such that cost of goods sold and selling,
general and administrative expenses decrease as a percentage of net sales.
The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. These
forward-looking statements are based on assumptions that the Company will
continue to provide services and develop, market and ship products on a timely
basis, that competitive conditions within the software industry will not change
materially or adversely, that demand for the Company's products and services
will remain strong, that the Company will retain existing independent sales
representatives and key management personnel, that the Company's forecasts will
accurately anticipate market demand and that there will be no material adverse
change in the Company's operations or business. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. Although the Company believes that the
6
<PAGE>
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could prove inaccurate and, therefore, there can be no assurance
that the results contemplated in forward-looking information will be realized.
In addition, as disclosed elsewhere under other risk factors, the business and
operations of the Company are subject to substantial risks which increase the
uncertainty inherent in such forward-looking statements. In light of the
significant uncertainties inherent in the forward-looking information included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,000,000 shares of Common Stock offered by the Company are estimated to be
approximately $6,191,428. If the Underwriter's over-allotment option is fully
exercised, the Company will not receive any proceeds from the sale of those
shares by the Selling Warrantholder and the Selling Optionholders. However, the
Company will receive the exercise price for all options and warrants exercised.
The Company expects to use $2,000,000 of the net proceeds to finance the
creation of ten three-person conversion teams which will permit the Company to
staff projects for larger Legacy Code conversions. Such proceeds will also be
used to purchase computer equipment and related software, furniture and fixtures
and leasehold improvements required to support the conversion teams. In
addition, the Company expects to use $2,000,000 of the net proceeds to finance
completion of the Year 2000 Problem audit and analysis tool for the DEC
installed customer base, to expand the Company's technical and marketing staff
to pursue expected growth in the services portion of the Company's business as
it relates to the Year 2000 Problem, and for advertising and promotion of the
Company's Year 2000 capabilities. The Company also expects to use approximately
$2,000,000 of the net proceeds to develop products that relate to the VAX/VMS to
NT conversion opportunity, to hire the consultants who have been developing the
Company's NT conversion products as employees rather than consultants, and to
expand the technical and marketing staff to pursue the expected growth in this
area. See " Business." The balance of the proceeds will be used for working
capital and general corporate purposes, including hiring additional personnel
and the possible investment in, strategic acquisition of or joint ventures with,
complementary businesses, technologies or product lines. As of the date of this
Prospectus the Company has no plans, arrangements, understandings or commitments
with respect to any such material investments, acquisitions or joint ventures,
nor is the Company engaged in negotiations with respect to any such matter.
There can be no assurance that any such investments, acquisitions or joint
ventures will become available on terms acceptable to the Company. See
"Business--Business Strategy."
The foregoing represents the Company's best estimate of the use of the
net proceeds to be received in this offering based on current planning and
business conditions. The Company reserves the right to change such uses when and
if market conditions or unexpected changes in operating conditions or results
occur. The amounts actually expended for each use may vary significantly
depending upon a number of factors, including future sales growth and the amount
of cash generated by the Company's operations. Net proceeds not immediately
required for the purposes described above will be invested principally in U.S.
government securities, short-term certificates of deposit, money market funds or
other short-term, interest-bearing securities.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Company plans to retain all future earnings (if any) for use in its business
and, therefore, does not anticipate paying any cash or stock dividends in the
foreseeable future. Any payment of cash dividends in the future will be
dependent upon the Company's financial condition and results of operations, as
well as other factors that the Board of Directors deems relevant.
7
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded in the over-the-counter market on the
Nasdaq Electronic Bulletin Board under the symbol "ACLY." Effective upon
commencement of this offering, the Common Stock has been approved for inclusion
on the Nasdaq National Market under the symbol "ACLYD."
The table set forth below presents the range, on a quarterly basis, of high
and low bid prices per share of Common Stock as reported by the National
Quotation Bureau, Inc. The prices have been adjusted to reflect the one-for-four
reverse stock split that was effected at the close of business on November 18,
1996. The quotations represent prices between dealers and do not include retail
markup, markdown or commissions and may not necessarily represent actual
transactions.
Quarter Ended High Bid Low Bid
Fiscal 1995
October 31, 1994 .25 .08
January 31, 1995 .16 .08
April 30, 1995 .22 .08
July 31, 1995 .56 .08
Fiscal 1996
October 31, 1995 .56 .48
January 31, 1996 .64 .44
April 30, 1996 1.50 .80
July 31, 1996 4.00 1.40
The closing bid price of the Common Stock as of November 18, 1996, was
$2.00 per share ($8.00 as adjusted for the one-for-four reverse stock split).
The Company had approximately 141 shareholders of record as of July 31, 1996,
which does not include shareholders whose shares are held in street or nominee
names.
8
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DILUTION
The net tangible book value of the Company's Common Stock at July 31, 1996,
was $1,939,716 or $0.35 per share. Based upon the offering price of $7.00 per
share, the net tangible book value per share will increase as a result of this
offering to approximately $1.25 (without adjustment for other changes in net
tangible book value subsequent to July 31, 1996), resulting in an immediate
substantial dilution to new shareholders of $5.75 per share (82.11%). Dilution
is the reduction in value of the investor's investment measured by the
difference between the price per share in the public offering and the net
tangible book value per share at July 31, 1996, plus the increase attributable
to purchases by shareholders in this offering. "Net tangible book value per
share" represents the amount of total tangible assets, less total liabilities,
divided by the number of shares of Common Stock outstanding. The following table
illustrates the per share effect of this dilution on purchasers in this
offering. See "Description of Securities" and "Financial Statements."
Public Offering Price Per Share $7.00
Net Tangible Book Value Per
Share at July 31, 1996(1) $0.35
Increase Per Share Attributable
to Purchases by New Shareholders $ .90
-----
Pro Forma Net Tangible Book Value
Per Share After Offering(2) $1.25
-----
Dilution to New Shareholders $5.75
=====
Percent of Offering Price 82.11%
=====
- --------------------------------------
(1) Amount results from subtracting the total liabilities and intangible assets
of the Company from its total assets and dividing the remainder by the
number of shares of Common Stock outstanding.
(2) Includes the net tangible book value of $1,939,716 at July 31, 1996, plus
estimated net proceeds of this offering, after payment of expenses and
underwriting discounts and commissions, of $6,191,428 Does not include: (i)
34,500 shares underlying the Underwriter's Warrants; or (ii) the shares
included in the over-allotment option.
Based upon the sale of 1,000,000 shares at the offering price of $7.00 per
share to the investors in this offering, investors in this offering will own
approximately 15.4% of the issued and outstanding Common Stock (approximately
17.3% of the issued and outstanding Common Stock if the over-allotment option is
exercised in full). This compares with 5,492,500 shares of Common Stock held by
existing shareholders of the Company, for which the Company was paid an
aggregate consideration of $2,012,419 upon initial issuance, or an average of
approximately $0.366 per share, and which will constitute approximately 84.6% of
the issued and outstanding Common Stock following this offering (approximately
82.7% if the over-allotment option is exercised in full). Except as otherwise
stated, the foregoing information assumes no exercise of the over-allotment
option, no exercise of outstanding options or warrants and no exercise of the
Underwriter's Warrants. To the extent that currently outstanding options or
warrants are exercised, there will be further dilution to new investors.
9
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of July
31, 1996, as adjusted to give effect to the sale of 1,000,000 shares of Common
Stock at the offering price of $7.00 per share (and after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company).
<TABLE>
<CAPTION>
July 31, 1996
--------------------------------
Actual As adjusted
------ -----------
<S> <C> <C>
Shareholders' equity:
Common Stock, without par value;
11,000,000 shares authorized; 5,492,500
shares issued and outstanding at July 31, 1996;
6,492,500 issued and outstanding, as adjusted(1) $1,970,970 $8,162,398
Contributed capital 41,449 41,449
Accumulated deficit (72,703) (72,703)
---------- ----------
Total shareholders' equity $1,939,716 $8,131,144
========== ==========
Total capitalization $1,939,716 $8,131,144
========== ==========
</TABLE>
- -------------------------------------------
(1) Excludes (i) 475,000 shares of Common Stock issuable upon exercise of the
Employee Options; and (ii) 1,200,000 shares of Common Stock issuable upon
exercise of the Affiliate's Warrants. See "Management--Compensation
Pursuant to Plans ." Gives effect to the one-for-four reverse split of the
issued and outstanding shares of the Company's Common Stock that was
effected at the close of business on November 18, 1996.
10
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the financial statements and related notes thereto appearing elsewhere in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The selected financial data as of July 31, 1995 and 1996
and for each of the three years in the period ended July 31, 1996 have been
derived from the financial statements of the Company which have been audited by
the Company's independent auditors and are included elsewhere in this
Prospectus. The selected financial data for each of the two years in the period
ended July 31, 1993 have been derived from the audited financial statements of
the Company not included herein. The selected financial data provided below is
not necessarily indicative of the future results of operations or financial
performance of the Company.
<TABLE>
<CAPTION>
Year Ended July 31,
-------------------------------------------------------------------------
Statement of Operations Data: 1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Revenue:
Product license and customer support fees $ 626 $ 769 $ 415 $ 751 $ 684
Resale of purchased software -- 37 150 338 338
Consulting fees -- 71 41 294 1,075
Other revenues -- -- 83 -- --
Total revenue 626 877 689 1,383 2,097
Income (loss) from operations (225) (20) (269) 370 1,114
Net income (loss) (218) (10) (262) 382 1,193
Net income (loss) per share $(.044) $(.002) $(.048) $.058 $.177
======= ======= ======= ===== =====
Weighted average shares outstanding 4,956,667 5,492,500 5,492,500 6,591,000 6,733,877
</TABLE>
July 31
--------------------------------
1995 1996
---- ----
Balance Sheet Data:
Working capital $ 500 $ 1,704
Current assets 731 2,011
Current liabilities 231 307
Total assets 978 2,317
Total liabilities 231 377
Shareholders' equity 747 1,940
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company began to develop software conversion tools for VAX/VMS users to
convert to UNIX environments in 1987. The Company's total revenues have
increased from $688,885 in fiscal 1994 to $2,097,011 in fiscal 1996, and net
income has increased from a loss of ($261,750) in fiscal 1994 to $1,192,780 in
fiscal 1996. The growth in revenues and net income reflects the Company's
decision in fiscal 1994 to develop specialized consulting services which can be
delivered with the Company's software tools as an integrated solution to
clients' conversion needs. The Company's consulting services accounted for
approximately 51% of 1996 revenues. The growth in revenues and net income also
reflects the Company's success in establishing international sales, which
accounted for approximately 15% of total revenues in fiscal 1996 as compared to
7% of total revenues in fiscal 1995. Future revenues from sales of the Company's
products and services are dependent upon users of VAX/VMS Legacy Systems
continuing to elect to convert their data and applications to UNIX or NT
environments. For further information concerning the Company's dependence upon
conversion of DEC VAX/VMS Legacy Systems, please see "Risk Factors -- Dependence
on Conversion of DEC VAX/VMX Legacy Systems."
The Company derives its revenue primarily from software license fees,
software maintenance fees and professional service fees. The Company's software
is licensed to primarily Fortune 1000 companies and governmental organizations
worldwide. Professional services are provided in conjunction with software
products and also are sold separately if required by the customer. In addition,
the Company realizes license revenue from sales of software by licensees who
have embedded the Company's software in their software pursuant to run time
licenses. The Company's products and services are marketed through its sales
force, both domestically and internationally.
Revenue is recognized for consulting services as services are
performed. Revenue is recognized on product licensing agreements when the
Company substantially completes its obligations under the agreement and the
customer has accepted the product. Revenue is recognized for customer support
services on maintenance agreements using the straight-line method over the term
of the agreement. In connection with its software business, the Company
functions as a value-added reseller of computer software, in that it licenses
certain software from unaffiliated third parties that is included within certain
of its software products. The Company recognizes revenue when the computer
software is delivered.
Results of Operations
The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain items included in the Company's Statements
<TABLE>
<CAPTION>
of Operations:
Fiscal year ended July 31,
----------------------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Total revenues 100.00% 100.00% 100.00%
Cost of services 19.40 10.69 14.86
Cost of software purchased for resale 10.17 7.32 5.61
General and administrative 43.94 19.12 9.34
Marketing and advertising 43.37 26.70 15.50
Research and development 22.10 9.40 1.57
----- ------ ------
Income (loss) from operations (38.98) 26.77 53.12
Interest income 0.98 0.89 2.07
Income tax benefit 0.00 0.00 1.69
------ ------ ------
Net income (loss) (38.00%) 27.66% 56.88%
======= ====== ======
</TABLE>
12
<PAGE>
Year Ended July 31, 1996 Compared to Year Ended July 31, 1995
Total revenues for the year ended July 31, 1996, were $2,097,011, an
increase of $714,475, or 51.68%, as compared to the year ended July 31, 1995.
Consulting fees for the year ended July 31, 1996, were $1,074,744, an increase
of $780,614, or 265.40% as compared to the year ended July 31, 1995, and
represented 51.25% of total revenues. This increase primarily resulted from
management's continued emphasis in fiscal 1996 on marketing of consulting
services with less emphasis on marketing of products alone. Management expects
this trend to continue in the future. Product license and customer support fees
for the year ended July 31, 1996, were $683,997, a decline of $66,587, or 8.87%,
as compared to the year ended July 31, 1995. This decline is consistent with the
emphasis on consulting noted above. Revenues from the resale of purchased
software for the year ended July 31, 1996, were $338,270, an increase of $448,
or 0.13%, as compared to the year ended July 31, 1995.
During the year ended July 31, 1996, sales to the Company's three largest
customers were $239,025, $282,100 and $353,075, representing 11.40%, 13.45% and
16.84% of the Company's revenues, respectively. In comparison, sales to a single
customer represented 10.88% of total revenues for the year ended July 31, 1995.
The loss of a major customer could have a significant impact on the Company's
financial performance in any given year.
Cost of services for the year ended July 31, 1996, was $311,534, an
increase of $163,791, or 110.86%, as compared to the year ended July 31, 1995.
Cost of services as a percentage of revenues from both consulting fees and
product license and customer support fees increased from 14.14% for the year
ended July 31, 1995 to 17.71% for the year ended July 31, 1996. This increase
occurred principally because of the increased concentration of Company resources
and personnel in delivery of consulting services.
Cost of software purchased for resale for the year ended July 31, 1996, was
$117,737, an increase of $16,471 or 16.27%, as compared to the year ended July
31, 1995. This increase was directly related to the increased sales of products
and related consulting services.
General and administrative expenses for the year ended July 31, 1996 were
$195,802, a decrease of $68,563, or 25.93%, as compared to the year ended July
31, 1995. This decrease was principally due to reduced salary cost that resulted
from the departure of a senior executive who was not replaced.
Marketing and advertising expenses for the year ended July 31, 1996 were
$324,962, a decrease of $44,203, or 11.97%, as compared to the year ended July
31, 1995. This decrease was principally due to decreased advertising in trade
publications and termination of direct mail advertising. Management believes
that advertising the Company's services and products electronically on the
Company's web page is a more cost efficient and effective method to reach the
Company's target markets.
Research and development expenses for the year ended July 31, 1996 were
$33,038, a decrease of $96,921, or 74.58%, as compared to the year ended July
31, 1995. This decrease resulted because technical personnel normally involved
in research and development provided a substantial amount of technical
assistance in connection with the Company's consulting services. For the year
ended July 31, 1996, $193,621 of cost of service represented assistance from
these technical personnel with consulting projects.
Interest income for the year ended July 31, 1996, was $43,342, an increase
of 250.78%, as compared to the year ended July 31, 1995. This increase resulted
from increased cash flows from operations, that could be invested in interest
bearing instruments.
As a result of these factors, operating income for the year ended July 31,
1996, was $1,113,938, an increase of $743,900, or 201.03%, as compared to the
year ended July 31, 1995. Net income for the year ended July 31, 1996, was
$1,192,780, an increase of $810,386, or 211.92%, as compared to the year ended
July 31, 1995.
Year Ended July 31, 1995 Compared to Year Ended July 31, 1994
Total revenues for the year ended July 31, 1995, were $1,382,536, an
increase of $693,651, or 100.69%, as compared to the year ended July 31, 1994.
13
<PAGE>
Consulting fees for the year ended July 31, 1995, were $294,130, an increase of
$252,980, or 614.78% as compared to the year ended July 31, 1994, and
represented 21.27% of total revenues. This increase primarily resulted from
management's emphasis in fiscal 1995 on marketing of consulting services with
less emphasis on marketing of products alone. Product license and customer
support fees for the year ended July 31, 1995, were $750,584, an increase of
$335,577, or 80.86%, as compared to the year ended July 31, 1994. Revenues from
the resale of purchased software for the year ended July 31, 1995, were
$337,822, an increase of $188,129, or 125.68%, as compared to the year ended
July 31, 1994.
During the year ended July 31, 1995, 10.88% of the Company's revenues were
derived from sales to a single customer. In comparison, sales to a single
customer represented 14.96% of total revenues for the year ended July 31, 1994.
The termination or loss of a single large customer could have a significant
impact on the Company's financial performance in any given year.
Cost of services for the year ended July 31, 1995, was $147,743, an
increase of $14,108, or 10.56%, as compared to the year ended July 31, 1994.
Cost of services as a percentage of revenues from both consulting fees and
product license and customer support fees decreased to 14.14% for the year ended
July 31, 1995 from 29.30% for the year ended July 31, 1994.
Cost of software purchased for resale for the year ended July 31, 1995, was
$101,266, an increase of $31,182 or 44.49%, as compared to the year ended July
31, 1994. This increase was directly related to the increased sales of products
and related consulting services.
General and administrative expenses for the year ended July 31, 1995 were
$264,365, a decrease of $38,298, or 12.65%, as compared to the year ended July
31, 1994. This decrease was largely due to reduced salary costs.
Marketing and advertising expenses for the year ended July 31, 1995 were
$369,165, an increase of $70,405, or 23.57%, as compared to the year ended July
31, 1994. This increase was principally due to increased advertising in trade
publications, increased use of specific product literature and direct mail
advertising.
Research and development expenses for the year ended July 31, 1995 were
$129,959, a decrease of $22,286, or 14.64%, as compared to the year ended July
31, 1994. This decrease resulted because technical personnel normally involved
in research and development provided a substantial amount of technical
assistance in connection with the Company's consulting services. For the year
ended July 31, 1995, $21,187 of cost of service represented assistance from
these technical personnel with consulting projects.
Interest income for the year ended July 31, 1995, was $12,356, an increase
of 83.00% as compared to the year ended July 31, 1994. This increase resulted
from increased cash flow from operations, that could be invested in interest
bearing instruments.
As a result of these factors, operating income for the year ended July 31,
1995, was $370,038, an increase of $638,540, or 237.82%, as compared to the year
ended July 31, 1994. Net income for the year ended July 31, 1995, was $382,394,
an increase of $644,144, or 246.09%, as compared to the year ended July 31,
1994.
Liquidity and Capital Resources
The Company has relied principally upon internally generated funds to
finance its operations and growth. During the year ended July 31, 1996, the
liquidity of the Company improved significantly because of a substantial
increase in revenues while expenses remained relatively stable from 1995 to
1996. During the year ended July 31, 1996, cash and cash equivalents increased
221.66% from $437,425 to $1,407,026. The Company generated $1,075,515 cash from
operations during the year ended July 31, 1996, compared to $460,610 cash from
operations generated during the year ended July 31, 1995. Shareholders' equity
increased 159.69% from $746,936 at July 31, 1995, to $1,939,716 at July 31,
1996. The primary reasons for the Company's increased liquidity and
shareholders' equity positions is the increased cash flow from operations. At
July 31, 1996, the Company had working capital of $1,703,605 and cash
equivalents of $1,407,026. The net proceeds to the Company from the sale of
securities in this offering are estimated to be $6,191,428. The Company expects
that the internally generated funds and funds from this offering will be
sufficient to satisfy its needs for at least the 12 months following completion
of the offering.
14
<PAGE>
BUSINESS
Introduction
Accelr8 Technology Corporation is a leading provider of software tools and
consulting services for the conversion from DEC's VAX/VMS Legacy Systems to UNIX
open Client/Server environments. VAX/VMS Legacy Systems use a Proprietary
computer operating system which is not compatible with other manufacturers'
hardware and software. In contrast, UNIX is a powerful, open architecture system
which is compatible with a wide range of hardware platforms and software
applications, including COTS. The Company believes that UNIX has become the most
widely used Client/Server operating system, and that the trend to Client/Server
Open Systems such as the systems offered by UNIX and NT will continue for the
foreseeable future.
In order to attain the advantages of the UNIX operating system while
preserving their investment in existing software applications, many VAX/VMS
users will undertake complex conversions to the UNIX operating system. The
Company's consulting services and software conversion tools enable the Company's
clients to analyze and implement their UNIX conversions in a predictable and
cost-effective manner. The Company's clients include a number of Fortune 1000
companies and government agencies, including Electronic Data Systems Corp.
("EDS"), Proctor & Gamble, Kellogg Co., McDonnell Douglas Corp., Delta Air Lines
Corp., Daimler Benz AG, the United States Army and the United States Navy.
The Company is currently engaged in the development of additional software
tools which will complement its existing suite of conversion tools and services.
The Company has commenced development of software tools that are to be used in
converting VAX/VMS Legacy Systems to Microsoft Corporation's Windows NT
operating system running on DEC Alpha servers. The Company has also completed
preliminary development of a software tool that identifies Year 2000 Problems in
the VAX/VMS environment. The Year 2000 Problem is expected to create widespread
system failures due to the use of computer programs that rely on two-digit date
codes to perform computations and other decision-making functions. The Company
expects to use a portion of the net proceeds from this offering to complete and
introduce those products during the second calendar quarter of 1997.
Background
In the 1970's many businesses and governmental organizations relied on
mainframe and minicomputers for critical business functions. Each hardware
manufacturer sought to establish a competitive advantage by developing "closed"
environments which were compatible only with the manufacturer's Proprietary
equipment and software applications. Thus a customer was locked into a mission
critical application environment which would only operate on a closed
Proprietary system, which ultimately became known as "Legacy Systems."
Management believes that there has been a trend away from purchasing all of
a company's hardware and software from one vendor. This trend was originally
started by the federal government as a means to ensure competitive pricing among
vendors, and is now being followed by most commercial/private sector entities.
Under this approach bids are obtained from many suppliers, and one company
generally acts as the primary contractor.
Management believes that large hardware manufacturers, like IBM and DEC,
can no longer control the entire purchasing decision for large computer
enterprises without including an element of competitive price and offering
access to open architecture systems such as UNIX or NT. Further, end users have
realized that dependence on a single supplier is non-economic in terms of
performance increases at reasonable prices. In more recent years the trend away
from a single vendor has been accelerated by technological advances which make
possible widely distributed Client/Server environments. Local area Network
servers or "LANS" can be installed on a variety of equipment and allow for
application development in standard languages such as UNIX.
Mid-range computers are either older Legacy Systems or newer "Open Systems"
servers. Legacy Systems are almost always provided by a single vendor and
feature a Proprietary operating system, while the newer, Open Systems servers
15
<PAGE>
are supplied by numerous vendors and usually specify one of several different
versions of the UNIX operating system. One of the most popular legacy computers
has been manufactured by DEC and is called the VAX hardware system. The VAX
Proprietary operating system is called VMS. While many different hardware
manufacturers have licensed the right to resell the UNIX operating system from
AT&T, the major suppliers of hardware that feature UNIX as their operating
system are HP, SUN, SGI, IBM and DEC.
Management believes that within the computer user community Open Systems
are considered more desirable than VAX/VMS systems for the following reasons:
(i) UNIX systems offer significant upgraded power at lower cost
(price/performance) than older VAX/VMS systems; (ii) UNIX systems are viewed as
being "open" since they are compatible with a variety of hardware types
(Interoperability); (iii) Industry-wide standards allow UNIX supported software
applications to run unchanged across a wide variety of hardware platforms; (iv)
UNIX has become the new de-facto development environment for new applications;
and (v) significant savings can be realized from reduced maintenance overhead.
As a result of these UNIX characteristics, VAX/VMS users requiring
increased performance from their older, existing Proprietary system, may
consider the Company's conversion services to UNIX for: (i) preserving the
already sizable investment in existing VAX/VMS applications; (ii) a cost
effective approach to maintaining user productivity; (iii) avoiding expensive
user re-training on a new operating system; (iv) allowing competitive bidding of
hardware and software for best price and service from several vendors; and (v)
extending the usable life of older systems.
The Company believes that the primary deterrent to switching from a VAX/VMS
Legacy System to a newer UNIX system is the cost/risk of rewriting a critical,
dependable legacy application program to run in a new and different environment.
Uncertainty as to outcome, lack of available personnel to undertake the task, as
well as the costly re-training process associated with learning a new operating
system, have contributed to users and information technology managers delaying
the decision to make the transition to faster, less expensive, Open Systems
hardware platforms. Adding to the crisis, in many cases, the original developers
of the code are no longer available for consultation as to design goals and/or
specifications. It therefore becomes necessary to evaluate, condense and convert
old code to new operating system environments. While most users, given the
option, would elect to re-host their familiar software application to the faster
environment of UNIX, the uncertainty of a conversion causes slow decision
making.
The Company has sought to address VAX/VMS users' conversion concerns by
offering a service called "Situational Analysis" that provides the user an
accurate assessment of code (line count, system calls, etc.) and gives the user
a rating of "Portability" as to the degree of difficulty in moving critical
legacy applications in advance of doing the conversion. This service assists
customers with the conversion decision, and allows the Company to become
sufficiently familiar with the customer's application to offer a fixed price bid
for the conversion.
In general, the limited functionality of many existing tools, together with
the inability of some organizations to fully utilize available technology, has
created increasing demand for integrated software development tools and
professional services to help organizations fully utilize available technology
and improve their own maintenance and redevelopment processes. The Company
believes that the developing Client/Server market will create additional demand
for software tools and professional services that enable organizations to reduce
the cost of maintenance and redevelopment of existing systems and redeploy these
resources for Client/Server implementation. In addition, the Company believes
that organizations will seek to reuse existing DEC VAX/VMS applications in
Client/Server environments to leverage their existing systems investment.
Market Opportunity
Based on published data from DEC and related industry analysts, the Company
estimates that there were in excess of 600,000 VAX/VMS systems installed at over
60,000 sites. Recent figures from DEC suggest that over 450,000 VAX/VMS systems
remain in operation today. Most computer manufacturers, employing the latest
advances in "reduced instruction set computing" ("RISC") chip technology are
selling UNIX Operating Systems. UNIX systems are less costly and provide greater
Interoperability than DEC's VAX/VMS Legacy Systems. For this reason, UNIX
platforms are gaining substantial market share in DEC's traditional markets,
including the engineering and scientific industry segments. The Company's
software products are designed to meet the needs of those industry segments
16
<PAGE>
wishing to convert their existing software and data from VAX/VMS systems to UNIX
systems. The Company has also completed preliminary development of a conversion
tool set that will provide for conversion from VAX/VMS systems to the NT system
running on DEC Alpha servers.
Additionally, many third-party software application solution providers,
driven by market demand to offer their solutions on UNIX Operating Systems, have
utilized the Company's tools to convert their old VAX/VMS software applications
to the UNIX environment.
The Company has targeted several segments of the engineering and commercial
sectors. These include aerospace, telecommunications, banking and financial
services, defense and government contractors, pharmaceutical firms, large
manufacturers, oil and gas producers and distribution and warehousing for
consumer goods. Major UNIX hardware vendors, including DEC, Hewlett Packard
("HP"), IBM, SUN Micro Systems ("SUN") and Silicon Graphics, Inc. ("SGI"),
include the Company's products in their materials for UNIX systems. DEC lists
the Company's products in its price book as well as in the General Services
Administration ("GSA") and Software Enterprise Workstation Program ("SEWP")
schedules.
In February 1992, DEC introduced a new generation of computers named Alpha.
Alpha runs DEC's Proprietary operating system VMS as well as an industry version
of UNIX called DEC UNIX and Microsoft Corporation's Windows NT operating system.
While this system provides VMS on a RISC platform, many industry analysts
believe that current DEC customers will want to move to DEC UNIX or NT running
on Alpha. In order to preserve their VAX/VMS applications, these users will need
to convert VAX/VMS applications to either DEC UNIX or NT. DEC is not currently
providing products to convert from VAX/VMS systems to Alpha. Accordingly,
management believes that Alpha presents a significant market opportunity for the
Company.
Business Strategy
The Company's objective is to enhance its position as a leading provider of
integrated solutions which will meet the conversion needs of VAX/VMS users. Key
elements of the Company's strategy include:
Continue Emphasis on Consulting Services and Establishment of UNIX/NT
Conversion Teams. The Company intends to continue to emphasize the sale of its
integrated consulting services in conjunction with its suite of conversion
software tools. The Company will establish up to ten three-man conversion teams
in order to perform UNIX and NT conversion projects. The conversion teams will
be comprised of software engineers to be recruited following the completion of
this offering. The conversion teams will allow the Company to effectively staff
conversion projects as the Company achieves its anticipated growth (of which
there can be no assurance).
Develop New Products and Services. The Company intends to continue to
develop software tools and consulting services which address the needs and
problems encountered in conversion of VAX/VMS Legacy Systems as well as other
information technology environments. The Company has allocated a portion of the
proceeds of this offering to the completion and introduction of software tools
to be used in converting VAX/VMS Legacy Systems to NT environments running on
DEC's Alpha, as well as software solutions to the Year 2000 Problem for VAX/VMS
users. Management believes that the successful development of complementary
products and services will allow the Company to leverage its products and
services into new and significantly larger markets.
Outsourcing. The Company intends to position its software so that it may be
licensed by large outsourcing providers such as EDS, Lockheed Martin Corp., ISSC
and others, thereby increasing its license fees and consulting service fees.
Outsourcing offers organizations a complete information technology system on a
contract basis. Many larger corporations have undertaken this approach in order
to reduce personnel costs and operating overhead. The outsourcing provider is
generally able to provide the services on a more cost effective basis because of
economies of scale and volume purchases that are not available to the typical
17
<PAGE>
user. The Company assists the outsourcing provider (EDS and others) in obtaining
such cost savings by providing a quick and efficient assessment of the presence
of Proprietary systems, and the opportunity for efficient conversion from those
systems. The Company can enable the rapid transition to Open Systems thereby
reducing hardware and software maintenance costs for the outsourcing provider.
Expand International Marketing Activities. In fiscal 1995 and 1996,
revenues derived from international clients totaled approximately $96,547 and
$318,393, respectively. The Company's international clients have included
Daimler Benz, Renault V.I. and Alcatel. The Company will continue to expand its
international marketing activities to increase its market penetration in Europe
and Asia.
Secure Additional Consulting Projects. In the course of performing UNIX
conversion services, the Company's software engineers and technical support
staff establish close relationships with the information technology personnel of
client organizations. Through these relationships, the Company will attempt to
secure additional consulting projects which are within the expertise of the
Company's staff. Such projects may, but need not, be related to the client's
UNIX conversion needs. The Company believes that this strategy will enhance
client relationships while generating profitable consulting fees.
Target Large Corporations and Government Agencies. The Company believes
that there are in excess of 450,000 VAX/VMS systems currently in operation.
These systems are generally operated by large corporations and government
agencies. The Company will continue to identify and direct its marketing efforts
to organizations which have extensive information technology environments
supported by substantial budgets.
Investment in or Acquisition of Complementary Businesses, Technologies or
Product Lines. The Company intends to evaluate opportunities for growth or
expansion of its business through investment in or acquisition of complementary
businesses, technologies or product lines. Management believes that
opportunities to expand will be available to the Company and intends to
investigate opportunities that are consistent with the Company's core business
and its expertise.
Services and Products
Services. The Company historically focused its marketing and sales efforts
on selling its various software conversion tools on a "stand-alone" basis. Since
fiscal 1995, the Company has focused its efforts on selling an integrated
package consisting of both software tools and the consulting services of its
highly trained and experienced personnel. Management believes that this change
in strategy better addressed clients needs for conversion services. Management
believes that the dramatic increase in revenues in fiscal 1995 and 1996, as
compared to fiscal 1994, is directly attributable to this change in strategy and
the Company intends to continue this strategy in the future.
The Company now offers a full spectrum of services that are carried out by
the Company's personnel, who are experts in both the VAX/VMS and UNIX
environments. The Company's personnel use Accelr8 tools that automatically
identify and diagnose difficult areas in porting an application. This enables
them to implement conversion techniques that ensure successful conversions and
porting. The Company offers the following services:
1) Situational Analysis: The Company's personnel use automated tools and their
expertise to scan the customer's code while on-site at the customer's
facility. Within four weeks, a written report is provided to the customer
identifying the porting issues and their solution options. The code is
rated on a scale of one to five as to its Portability. If requested by the
customer, a bid to conduct the conversion on a fixed-price basis is also
provided.
2) Implementation Planning: The Company's analysts work with the customer to
select the appropriate solutions for their conversion issues. These answers
are assembled into a project plan that is used by the project manager to
control and synchronize the conversion effort as well as measure progress.
3) Application Port: The Company's analysts perform the code conversion. Where
suitable, the Company performs automatic conversion using the Company's
tools, as well as engineering of modules which must be redesigned to work
on UNIX. This is followed by complete testing and certification. The
Company's service can be contracted as a turnkey port or as part of a
cooperative team effort with the customer's personnel.
18
<PAGE>
4) Implementation Assistance: In addition to industry standard support and
update contracts, the Company offers both on-site and off-site porting
assistance agreements. A foreign customer may contract for off-site
telephone support.
5) Custom Programming: Programming is done on either a fixed price or time and
materials basis for the purpose of Re-engineering and modernizing old
Legacy Code or for porting custom applications that run in front of or
after COTS applications.
6) Training: Including VMS Users Introduction to UNIX, Application Conversion
using Tools and existing systems investments.
7) Code Audit Measurement and Analysis: The Company measures adherence to
external and internal coding standards as a means to prevent significant
deviation from standard coding practices.
Products. Accelr8's products are part of a sophisticated tool set that
assists in the following tasks: (i) comprehensive analysis of Legacy Code to
determine Portability to Open Systems; (ii) thorough analysis and planning for
conversion; (iii) performance of actual conversion, if required by the customer;
(iv) creation of quality assurance models for the enforcement of external and
internal standards applicable to new target environments; and (v) planning and
implementation for modernization and Re-engineering databases and user
interfaces.
The Company has developed a unique analyzer tool called Open NAVIG8, that
quickly and accurately examines large quantities of Legacy Code, eventually
organizing and prioritizing the individual modules that need to be moved. This
porting process is then performed using the actual porting tools that automate
up to 95% of the conversions.
The Company's conversion process relies on Company owned and developed
tools to provide a level of "transparency" to both VAX/VMS and UNIX users, thus
preserving user productivity while accessing the higher power/lower cost of
UNIX. Additionally, the conversion tools support users as they learn UNIX at
their own pace and enable large batch jobs to be moved to the new, faster UNIX
platform, thereby freeing up the VAX to perform other tasks more efficiently.
Other Company software features include the ability to share information
between UNIX and VAX/VMS systems and to transfer files and records over a
Network. The Company's conversion offerings are available on a wide range of
UNIX systems, including SGI, HP, Sun, DEC and IBM. Features are discussed in
greater detail below as each of the Company's products and services is
individually described.
While Open NAVIG8 tools introduce the client to the Company's competencies,
the rendering of conversion services is the core business that generates
revenues. The Company believes that clients experience greater value from the
modernization and Re-engineering process if their personnel are involved in
understanding what has been done to change the computer environment. Therefore,
various phases of the conversion process are deployed at the customer site with
client personnel as observers. Additionally, the Company conducts training
classes for the client end user groups in the operation of the new environment.
Ongoing training and software updates are a component of gross revenue in each
services contract.
After delivery of a new environment, the Company will offer a service that
measures, on a regular interval, the adherence to either external or internal
coding standards. This "code auditor" service has been driven by the United
States Defense Department objective of prevention of future Legacy Code chaos.
The Company believes that private industry will also move to this objective.
Accelr8's products-Open NAVIG8, Open LIBR8 and Open ACCLIM8-embody the core
technological advantages and competencies of Accelr8; however, the following
groups of tools are integral to all conversion projects.
19
<PAGE>
User Productivity
Tools ............ are designed to provide the user with familiar screen
formats and command scripts thereby preserving productivity
while learning a new operating system (UNIX/NT). The
Company's User Productivity Tools include:
Open DCL ....... VMS command line interface (recall/editing); login shell
nu TPU ......... VAX-style editor for UNIX (TPU, EDT, WPS modes)
Open SUBMIT .... VAX to UNIX batch submission utility
-------------------------------------------------
Porting Tools .... are designed to move and support old Legacy Code
applications in UNIX or NT environments, providing the same
original functionality on the new target platform. The
Company's Porting Tools include:
Open COBOL .... VAX COBOL source code converter and linker
Open ACCLIM8 .. Pre-compiler for VAX Fortran; indexed file support
Open BASIC .... Re-targetable BASIC to C Compiler; VAX BASIC compatibility
Open PASCAL ... VAX Pascal to C Translator
C/Fix ......... Translator for VMS specific C constructs (sold with LIBR8)
Ada Bindings .. Source code interface routines for all Ada Compilers and
LIBR8
Open LIBR8 .... VMS runtime library support (ast, qio, event flags,
mailboxes, etc)
Open RMS ...... UNIX equivalent of VMS I/O calls. (sold with LIBR8)
Open SMG ...... VAX compatible Screen Management facility for Open Systems
FMS/UNIX ...... FMS for UNIX; FMS Editor (100% compatibility) sold
separately
Open DCL ...... Command language interpreter; VMS-style error handling
-------------------------------------------------
Analysis &
Programming
Standards Tools .. are designed to provide analysis and code auditing standards
and capabilities in a work bench environment, Legacy Code is
easily examined and reconstructed to meet any user stated
rules. The Company's Analysis & Programming Standards Tools
include:
Open NAVIG8 .... Analyzer - Documents conversion barriers
Auditor - Guidance and standards for portability
2000 - Year 2000 impact analysis for VMS users.
New Product Offerings
In addition to VAX/VMS to UNIX conversions, the Company believes that there
is a large opportunity in both the government and commercial sector to provide
two additional services: Year 2000 Impact Analysis for the DEC installed
computer base and conversion services/tools for VAX/VMS to NT conversions
running on Alpha servers.
The Year 2000 Problem arises from the widespread use of computer programs
that rely on two-digit date codes to perform computations and decision making
functions. Many of these computer programs may fail due to an inability to
interpret date codes properly. For example, such programs may misinterpret "00"
as the year 1900 rather than 2000. While DEC claims that VAX minicomputers and
other computers using the VMS operating system are designed to use four digits
to express dates, DEC customers may be using third party software packages that
do not use four digit dates. The Company intends to provide Year 2000 Impact
Analysis services by using a Company owned and developed tool to identify the
variables in the code that are most likely to hold date information. A prototype
of this tool is under development, and $2,000,000 of the proceeds of this
offering has been allocated to: (i) complete development of the tool; (ii) hire
additional technical and marketing personnel to support sales of this product
and related consulting services; and (iii) market, advertise and promote this
product and service.
20
<PAGE>
Microsoft Corporation's Windows NT operating system is the newest operating
system from Microsoft Corporation. DEC has announced a strategic partnership
with Microsoft to offer its VAX minicomputer customers a seamless environment
where Open VMS, DEC UNIX and NT will be supported on DEC's Alpha platform.
Management believes that DEC has no plans to assist users of its older VAX
minicomputers in moving their VAX applications to the new NT operating
environment. The Company plans to port all of its UNIX conversion tools to the
NT environment, thus enabling VAX/VMS users to operate their existing VAX
applications on an NT operating system. The Company has begun to develop the
software tools for the NT conversion opportunity; however, a substantial amount
of work remains to be done to complete this project. Management has allocated
$2,000,000 of the proceeds of this offering to: (i) complete development of the
conversion system; (ii) hire additional technical and marketing personnel to
support sales of this conversion service; and (iii) market, advertise and
promote this product and service.
Customers
The Company's software tools have been sold to over 600 customers. The
Company's customers are principally users of VAX/VMS Legacy Systems that are
either commercial enterprises or government or quasi-government agencies. Set
forth below is a partial list of the Company's customers.
<TABLE>
<CAPTION>
Commercial Enterprises United States Government
- ------------------------------------------------------------------- ------------------------
<S> <C> <C>
Lockheed Martin Corp. McDonnell Douglas Corp. NASA
Delta Air Lines Inc. Proctor & Gamble U.S. Army
Kellogg Co. General Instrument Corp. U.S. Air Force
Alcatel Alsthom Cie Generale Europe Daimler Benz AG U.S. Navy
Union Carbide Corp. Telos Corp.
RGTI Loral Corp.
Renault V.I. Electronic Data Systems Corp.
Mack Trucks
</TABLE>
Union Carbide Corp. & RGTI (sellers of warehouse distribution software)
have embedded the Company's software in their UNIX solutions, thereby yielding
the potential for substantial run-time license fees for the Company during the
current fiscal year.
Marketing and Distribution
The Company has historically utilized several marketing approaches
including direct advertising, press releases, trade shows, Company sponsored
seminars, speaking engagements and independent software vendor catalog listings.
The Company's sales personnel contact the leads generated by these activities.
Recently, the Company decreased its advertising in trade publications and
terminated direct mail advertising. Management believes that advertising the
Company's services and products electronically on the Company's web page is a
more cost effective and efficient method of reaching the Company's target
market. The Company will continue to emphasize attendance at trade shows,
Company and vendor sponsored seminars, press releases, speaking engagements and
independent software vendor catalog listings in its marketing efforts. The
Company's international sales represented 15% of the Company's total revenues in
fiscal 1996 as compared to 7% of fiscal 1995 revenues. Management intends to
direct a significant portion of its marketing efforts toward further market
penetration in international markets, with its primary emphasis upon Europe and
Asia.
The Company's on-site personnel often have the opportunity to market
additional Company services to existing customers. The Company's conversion
teams have and will continue to focus upon educating customers as to the full
range of the Company's products and services, and to providing solutions to the
customers' problems.
The Company also attends hardware vendor sales events, such as those
sponsored by HP and DEC, for industry group segments, including TELCOS
(telecommunication companies), government entities, and pharmaceutical
companies. Company representatives follow-up on contacts made at these events,
21
<PAGE>
and where appropriate schedule on-site visits with potential customers. While
on-site with customers and potential customers Accelr8's representatives work
closely with technical personnel in Denver for instant and direct help in
addressing the customers' problems and needs. Management believes that this
coordinated approach between the field sales persons and the technical personnel
in Denver has led to greater sales, and the Company intends to continue this
practice.
Research and Development
The Company conducts its research and development at its headquarters in
Denver, Colorado. The Company believes that the continued development of new
products and enhancement of existing products is essential to maintaining a
competitive position in the marketplace. The Company expended $33,038 on Company
sponsored research and development during fiscal 1996, and $129,959 during
fiscal 1995. This decrease occurred because technical personnel normally
involved in research and development also provided a substantial amount of
technical assistance in connection with the Company's consulting services. For
the year ended July 31, 1996, $193,621 of cost of service represented assistance
from these technical personnel with consulting projects. Management is committed
to a strong research and development program, and intends to continue these
expenditures at levels necessary to allow the Company to maintain a strong
competitive position.
Production
The Company's production facilities are located at its headquarters in
Denver, Colorado, and are primarily used for software development and extensive
testing and quality control of software products. The Company has a verbal
understanding relating to expansion of its facilities and anticipates hiring
additional technical, marketing, sales and managerial personnel during the 12
months following completion of this offering. See "Business -- Employees" and
"Business -- Facilities."
The Company does not believe that, for the foreseeable future, the
Company's products will be subject to any significant fluctuations in supply
costs. Componentry and systems used to develop products and the actual tape
cassettes on which software is placed can be obtained from a variety of vendors,
none of which holds a controlling position within the market. The Company
believes that it has the ability to fill any anticipated future sales orders
received.
Competition
Management is aware of two companies that compete directly with the
Company. BBC of Boston, Massachusetts, has a product available that directly
competes with the Company's Open DCL product. Sector 7, formerly known as
Software Translations, of Austin, Texas, offers a limited software conversion
tool set for moving from VMS to UNIX. While Sector 7 has focused on moving VAX
BASIC applications to UNIX, its technology overlaps with the Company's Open DCL
and Open LIBR8 products. Management believes that the Company offers a broader
range of products and services than either of these competitors, and is
therefore able to compete successfully against them. Although DEC does not offer
its own products for conversion from its VAX/VMS Legacy Systems to UNIX, should
DEC choose to do so, the Company could be materially and adversely affected. At
this point, DEC has not announced any products that compete directly with the
Company's products. However, DEC offers all of the Company's tools in the
Digital Price Book and as a specification in the SEWP contract to NASA, as well
as the GSA federal purchasing schedule.
Intellectual Property
The Company relies on a combination of copyright, trademark and trade
secret laws, employee and third party disclosure agreements, license agreements
and other intellectual property protection methods to protect its Proprietary
rights. The Company protects the source code version of its products as a trade
secret and as an unpublished copyrighted work. The Company's Proprietary
software products are generally licensed to customers on a "right to use" basis
pursuant to a perpetual, nontransferable license that generally restricts use to
the customer's internal purposes and to a specific computer platform that has
been assigned a "key code." However, it may be possible for unauthorized parties
22
<PAGE>
to copy or reverse engineer certain portions of the Company's products or obtain
and use information the Company regards as Proprietary. The Company currently
has no patents and existing copyright and trade secret laws offer only limited
protection. Further, the laws of some foreign countries do not protect the
Company's Proprietary rights to the same extent as do the laws of the United
States. The Company has been and may be required from time to time to enter into
source code escrow agreements with certain customers, providing for release of
source code in the event the Company files bankruptcy or ceases to continue
doing business. Although the Company's competitive position may be adversely
affected by unauthorized use of its Proprietary information, the Company
believes that the ability to fully protect its intellectual property is less
significant to the Company' s success than are other factors, such as the
knowledge, ability and experience of its employees and its ongoing product
development and customer support activities. There can be no assurance that the
protections put in place by the Company will be adequate.
There can be no assurance that third parties will not assert infringement
or other claims against the Company with respect to any existing or future
products, or that licenses would be available if any Company technology were
successfully challenged by a third party, or if it became desirable to use any
third-party technology to enhance the Company's products. Litigation to protect
the Company's Proprietary information or to determine the validity of any
third-party claims could result in significant expense to the Company and divert
the efforts of the Company's technical and management personnel, whether or not
such litigation is determined in favor of the Company.
While the Company has no knowledge that it is infringing the Proprietary
rights of any third party, there can be no assurance that such claims will not
be asserted in the future with respect to existing or future products. Any such
assertion by a third party could require the Company to pay royalties, to
participate in costly litigation and defend licensees in any such suit pursuant
to indemnification agreements, or to refrain from selling an alleged infringing
product or service.
Employees
The Company has 15 full-time employees at its facilities in Denver,
Colorado, including one administrative employee, three sales and administrative
employees and eleven scientific and technical employees. The Company anticipates
hiring up to 30 additional employees to staff its conversion teams, additional
sales and marketing personnel and a senior accounting/financial manager during
the 12 months following completion of the offering. There are no collective
bargaining agreements, and the Company considers its relations with its
employees to be good.
Facilities
The Company currently leases approximately 3,796 square feet of office and
research facility space at 303 E. 17th Avenue, Suite 108, Denver, Colorado 80203
at a monthly rental of approximately $3,385. The Company has a verbal
understanding to lease an additional 2,400 square feet of office space that is
immediately adjacent to its present space at a monthly rental of approximately
$2,140 for a 36-month term. Management anticipates entering into a lease
agreement for this space before the end of the calendar year. Management also
anticipates extending the lease on its existing space for 36 months at the same
rental cost that it currently pays at that time. The additional space will be
needed to provide office space for the additional technical and sales personnel
that the Company anticipates hiring during the next 12 months. The Company's
existing facility is adequate for the present number of employees and the
additional 2,400 square feet of space is expected to be adequate to accommodate
the projected increase in personnel.
Legal Proceedings
The Company is not a party to any legal proceedings, nor does management
believe that any such proceedings are contemplated.
23
<PAGE>
MANAGEMENT
Directors, Executive Officers and Key Employees
Set forth below is certain information concerning the directors, executive
officers and key employees of the Company as of the date hereof.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Directors and Executive Officers
Thomas V. Geimer 49 Chairman of the Board of Directors,
Secretary, Chief Financial Officer,
Chief Executive Officer
Harry J. Fleury 49 President
David C. Wilhelm(1) 77 Director
A. Alexander Arnold III(1) 54 Director
Key Employees
Timothy Fitzpatrick 41 Vice President Sales and Marketing
Dr. Franz Huber 51 Chief Scientist
</TABLE>
- ----------------------------------
(1) Members of the Audit and Compensation Committees
Officers are appointed by and serve at the discretion of the Board of
Directors. Each director holds office until the next annual meeting of
shareholders or until a successor has been duly elected and qualified. All of
the Company's officers devote their full-time to the Company's business and
affairs. There are no family relationships between any directors, executive
officers or key employees.
Thomas V. Geimer has been the Chairman of the Board of Directors and a
director of the Company since 1984. He currently serves as the Chief Executive
Officer, Chief Financial Officer and Secretary of the Company. Mr. Geimer is
responsible for development of the Company's business strategy, day to day
operations, the accounting and finance functions and federal government sales
relationships. Before assuming full-time responsibilities at the Company, Mr.
Geimer founded and operated an investment banking firm.
Harry J. Fleury has served as President of the Company since June 1995. Mr.
Fleury is responsible for engineering activities and strategies of the Company,
and for international sales. From March 1993 until June 1995, Mr. Fleury was
Vice President of International Sales of the Company with responsibility for
developing and directing international sales. Prior to joining the Company in
1993, Mr. Fleury was employed by Digital Equipment Corporation serving in a
variety of engineering and management positions for over 26 years. Mr. Fleury
managed DEC's European, Asian and Pacific corporate engineering groups that were
responsible for service capability world wide, for internal and external
products and for strategic, operational and tactical direction. Mr. Fleury
received an electrical engineering degree in 1967 from Vermont Technical
Engineering College.
David C. Wilhelm has been a director of the Company since June 1988. For
the past 30 years, Mr. Wilhelm has been President of Wilhelm Co., an
agribusiness company principally engaged in the cattle feeding and commodity
business, located in Denver, Colorado. Since 1972, Mr. Wilhelm has been a
director of Colorado National Bank located in Denver, Colorado. Mr. Wilhelm is a
member of the International Executive Service Corp., and was formerly the
Director of the Colorado Cattlemen's Association. Mr. Wilhelm received a
Bachelor of Arts in American History from Yale University in 1942.
24
<PAGE>
A. Alexander Arnold III has served as a director of the Company since
September 1992. For the past 25 years, Mr. Arnold has served as a Managing
Director of Trainer, Wortham & Co., Inc., a New York City-based investment
counselor firm, which Mr. Arnold co-founded. Mr. Arnold received a Bachelor of
Arts degree from Rollins College in 1964 and a Masters of Business
Administration from Boston University in 1966.
Timothy Fitzpatrick has served as Vice President of Sales and Marketing of
the Company since 1992. Mr. Fitzpatrick is responsible for domestic marketing
and sales of the Company's products and services. From 1989 to 1992, Mr.
Fitzpatrick was employed as Vice President of Software Translations, Inc. He
also was General Manager of Datavision (UK) Ltd. from 1987 to 1989. Mr.
Fitzpatrick received a Bachelor of Arts Degree in City Planning from Michigan
State University.
Dr. Franz Huber has served as Chief Scientist of the Company since 1988.
Dr. Huber is responsible for the design and development of the Company's
software products. Prior to joining the Company, Dr. Huber (i) taught Computer
Science at the University of Colorado; (ii) taught Computer Applications in
Biomedical Research at the University of Colorado Medical Center; and (iii)
worked for several technology companies in various research and development,
scientific and technical positions. Dr. Huber received his Ph.D. in Physics from
the University of Vienna, Austria in 1968.
Board Committees
The Board of Directors maintains a Compensation Committee and an Audit
Committee. The Compensation Committee is composed of Messrs. Arnold and Wilhelm,
the Company's non-management directors. The primary function of the Compensation
Committee is to review and make recommendations to the Board with respect to the
compensation, including bonuses, of the Company's officers and to administer the
Company's stock option plan. The Audit Committee is comprised of Messrs. Arnold
and Wilhelm. The function of the Audit Committee is to review and approve the
scope of audit procedures employed by the Company's independent auditors, to
review and approve the audit reports rendered by the Company's independent
auditors and to approve the audit fee charged by the independent auditors. The
Audit committee reports to the Board of Directors with respect to such matters
and recommends the selection of independent auditors.
25
<PAGE>
Executive Compensation
Summary Compensation Table. The following table sets forth the annual and
long-term compensation for services in all capacities to the Company in the
three fiscal years ended July 31, 1996, of Thomas V. Geimer and Harry J. Fleury,
who are the Company's most highly compensated executive officers, and Timothy
Fitzpatrick a key employee of the Company.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
-------------------------------------------------------- ------------
Other Number of
Name and Fiscal Annual Options
Principal Position Year Salary Bonus Compensation Awarded
- ------------------ ---- ------ ----- ------------ -------
<S> <C> <C> <C> <C> <C>
Thomas V. Geimer 1996 $70,458 $37,500(1) $ -- 1,200,000(2)
Chief Executive Officer 1995 $64,250 $ -- $ -- --
and Chief Financial 1994 $63,361 $ -- $ -- --
Officer
Harry J. Fleury 1996 $61,000 $10,860(3) $ -- --
President 1995 $50,000 $ 6,685(3) 100,000(4)
1994 $20,961 $ 755(3)
Timothy Fitzpatrick 1996 $57,885 $44,030(5) $ --
Vice President 1995 $55,000 $23,657(5)
Sales and Marketing 1994 $55,000 $17,832(5)
</TABLE>
- ----------------------------
(1) Represents deferred compensation for Mr. Geimer pursuant to the Company's
deferred compensation plan, $37,500 of which vested during the last fiscal
year, and $37,500 of which will vest during the current fiscal year.
(2) Represents stock options and warrants to purchase an aggregate of 1,200,000
shares at an exercise price of $0.24 per share that were extended until
December 31, 1997.
(3) Includes sales commissions earned by Mr. Fleury on revenues from certain
international sales.
(4) Grant of employee stock option to purchase 100,000 shares at an exercise
price of $0.36 per share, 50,000 of which vested prior to this offering and
the remaining 50,000 of which will vest subject to completion of this
offering.
(5) Represents sales commissions earned by Mr. Fitzpatrick on revenues from
certain domestic sales.
Option/Warrant Values. The following table provides certain information
concerning the fiscal year end value of unexercised options or warrants held by
Mr. Fleury and Mr. Geimer, each of whom served as the Company's chief executive
officer during a portion of 1996, and for Mr. Fitzpatrick.
26
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option Exercises in 1996 Fiscal Year
and Fiscal Year End Option Values
Shares Number of Unexercised Value of Unexercised
Acquired on Value Options at Fiscal Year In-the-Money Options
Name Exercise Realized End at Fiscal Year End(1)
- ---- -------- -------- ----------------------- ----------------------
Exer- Unexer- Exer- Unexer-
cisable cisable cisable cisable
<S> <C> <C> <C> <C>
Harry J. Fleury __ __ 50,000(2) 50,000(2) $ 332,000 $332,000
Thomas V. Geimer __ __ 1,200,000 0 $ 8,112,000 0
Timothy Fitzpatrick __ __ 125,000 0 $ 830,000 0
</TABLE>
- ------------------------------------
(1) Value calculated by determining the difference between the offering price
of $7.00 per share and the exercise price of the options or warrants. Fair
market value was not discounted for restricted nature of any stock
purchased on exercise of these options or warrants.
(2) Mr. Fleury's options were granted on June 1, 1995. A total of 50,000 (or
50%) of the options have vested and, subject to his continued employment
with the Company, the remainder of his options will vest upon completion of
this offering.
Compensation Pursuant to Plans
Employee Retirement Plan. During fiscal year 1996, the Company established
a SARSEP-IRA employee pension plan that covers substantially all full-time
employees. Under the plan, employees have the option to contribute up to the
lesser of 15% of their compensation or $9,240. The Company may make
discretionary contributions to the plan based on recommendations from the Board
of Directors. For the year ended July 31, 1996, the Board did not authorize any
contributions.
Deferred Compensation Plan. In January of 1996, the Company established a
deferred compensation plan for the Company's employees. The Company may make
discretionary contributions to the plan based upon recommendations from the
Board of Directors.
Options and Warrants. A total of 475,000 shares of the Company's Common
Stock, no par value, have been issued and reserved for issuance to employees
pursuant to the Company's existing non-qualified stock option plan. Options
currently outstanding held by certain of the Company's current and former
employees allow for the purchase of the Company's restricted Common Stock at a
price of $.36 per share (as adjusted for the one-for-four reverse split).
According to the governing option agreements, the options vest every 12 months
in one-quarter increments of the total amount granted, over a four year period
beginning on the date they are granted, and remain exercisable for three years
following the original date they vest. Notwithstanding the foregoing, the
Company's Board of Directors during the 1994 fiscal year adopted a resolution
providing that for so long as a recipient of an option grant remains in the
employ of the Company, the options held will not expire and if the recipient's
employment is terminated, the holder will have up to 90 days after termination
to exercise any vested but previously unexercised options. All of the currently
outstanding options have vested, except 50,000 options held by Mr. Fleury, the
Company's current president, and 12,500 options held by Joseph Steger, which
will fully vest upon effectiveness of the Registration Statement of which this
Prospectus is a part. The Board of Directors agreed to permit Messrs.
Fitzpatrick and Huber and three other employees to register an aggregate of
90,000 shares underlying their options to satisfy a portion of the Underwriter's
over-allotment option. All options previously granted are administered by the
Company's Board of Directors. The options provide for adjustment of the number
of shares issuable in the case of stock dividends or stock splits or
combinations and adjustments in the case of recapitalization, merger or sale of
assets. See "Selling Warrantholders and Selling Optionholders."
27
<PAGE>
The Company currently has outstanding an aggregate of 1,200,000 warrants
and options held by Thomas V. Geimer, Chairman of the Board of Directors of the
Company ("Affiliate's Warrants"). The Affiliate's Warrants are exerciseable at
an exercise price of $.24 per share (as adjusted for the one-for-four reverse
split). The Affiliate's Warrants, which were originally scheduled to expire at
the close of calendar 1995, were extended for two years and, accordingly, they
are exercisable until December 31, 1997. The Board of Directors has agreed to
permit Mr. Geimer to register 60,000 of the Affiliate's Warrants (including the
shares issuable upon exercise thereof) to satisfy a portion of the Underwriter's
over-allotment option. The Affiliate's Warrants are not redeemable. The exercise
price of the Affiliate's Warrants and the number of shares of Common Stock to be
obtained upon exercise of the Affiliate's Warrants are subject to adjustment in
certain circumstances including (i) the payment of a stock dividend; (ii) a
forward or reverse stock split; (iii) a consolidation or combination involving
the Common Stock; and (iv) a reclassification or recapitalization involving the
Common Stock. See "Selling Warrantholders and Selling Optionholders."
The Company has adopted an incentive stock option plan (the "Qualified
Plan") which provides for the grant of options to purchase an aggregate of not
more than 700,000 shares of the Company's Common Stock. The purpose of the
Qualified Plan is to make options available to management and employees of the
Company in order to provide them with a more direct stake in the future of the
Company and to encourage them to remain with the Company. The Qualified Plan
provides for the granting to management and employees of "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986
(the "Code").
The Company has adopted a non-qualified stock option plan (the
"Non-Qualified Plan") which provides for the grant of options to purchase an
aggregate of not more than 300,000 shares of the Company's Common Stock. The
purpose of the Non-Qualified Plan is to provide certain key employees,
independent contractors, technical advisors and directors of the Company with
options in order to provide additional rewards and incentives for contributing
to the success of the Company. These options are not incentive stock options
within the meaning of Section 422 of the Code.
The Qualified Plan and the Non-Qualified Plan (the "Stock Option Plans")
will be administered by a committee (the "Committee") appointed by the Board of
Directors which determines the persons to be granted options under the Stock
Option Plans and the number of shares subject to each option. No options granted
under the Stock Option Plans will be transferable by the optionee other than by
will or the laws of descent and distribution and each option will be
exercisable, during the lifetime of the optionee, only by such optionee. Any
options granted to an employee will terminate upon his ceasing to be an
employee, except in limited circumstances, including death of the employee, and
where the Committee deems it to be in the Company's best interests not to
terminate the options.
The exercise price of all incentive stock options granted under the
Qualified Plan must be equal to the fair market value of such shares on the date
of grant as determined by the Committee, based on guidelines set forth in the
Qualified Plan. The exercise price may be paid in cash or (if the Qualified Plan
shall meet the requirements of rules adopted under the Securities Exchange Act
of 1934) in Common Stock or a combination of cash and Common Stock. The term of
each option and the manner in which it may be exercised will be determined by
the Committee, subject to the requirement that no option may be exercisable more
than 10 years after the date of grant. With respect to an incentive stock option
granted to a participant who owns more than 10% of the voting rights of the
Company's outstanding capital stock on the date of grant, the exercise price of
the option must be at least equal to 110% of the fair market value on the date
of grant and the option may not be exercisable more than five years after the
date of grant.
As of the date of this Prospectus, no options have been granted under
either the Qualified Plan or the Non-Qualified Plan.
28
<PAGE>
Certain Transactions
During fiscal year 1996, the Company established a deferred compensation
plan for the Company's employees. The Company may make discretionary
contributions to the plan based on recommendations from the Board of Directors.
As of July 31, 1996, the deferred compensation agreement was funded in the
amount of $75,000 for Thomas V. Geimer, and Mr. Geimer was vested in $37,500 of
this amount. The balance of $37,500 will vest during the current fiscal year.
There were no other transactions or series of transactions for the fiscal
year ended July 31, 1996 nor are there any currently proposed transactions, or
series of the same to which the Company is a party, in which the amount involved
exceeds $60,000 and in which, to the knowledge of the Company, any director,
executive officer, nominee, five percent shareholder or any member of the
immediate family of the foregoing persons, have or will have a direct or
indirect material interest.
Compliance with Section 16(a) of the Exchange Act
Mr. Wilhelm, a director of the Company, failed to file Forms 4 for the
months of April, May and July to report purchases of an aggregate of 85,300
shares (not adjusted for the one-for-four reverse stock split) in the open
market. The Company has received representations from each other person that
served during fiscal 1996 as an officer or director of the Company confirming
that there were no transactions that occurred during the Company's most recent
fiscal year end which required the filing of a Form 5.
29
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table gives effect to a one-for-four reverse split of the
Company's Common Stock that was effected at the close of business on November
18, 1996, and sets forth certain information regarding beneficial ownership of
the Company's Common Stock as of July 31, 1996, as adjusted to reflect the sale
of Common Stock offered by this Prospectus by (i) each person who is known by
the Company to own beneficially more than 5% of the Company's outstanding Common
Stock; (ii) each of the Company's executive officers, directors and key
employees; and (iii) all executive officers and directors as a group. Common
Stock not outstanding but deemed beneficially owned by virtue of the right of an
individual to acquire shares within 60 days is treated as outstanding only when
determining the amount and percentage of Common Stock owned by such individual.
Except as noted, each person or entity has sole voting and sole investment power
with respect to the shares shown.
<TABLE>
<CAPTION>
Shares Beneficially Shares to be Beneficially
Name and Address Owned Prior to Offering Owned After Offering
Name and Address -------------------------- -----------------------------
of Beneficial Owner Number Percent Number Percent
- ------------------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Thomas V. Geimer(2), (3) 1,250,000 18.68% 1,250,000 16.25%
Harry J. Fleury(2), (4) 193,750 3.46% 193,750 2.94%
Timothy Fitzpatrick(2),(5) 125,000 2.22% 125,000 1.89%
Dr. Franz Huber(2),(5) 125,000 2.22% 125,000 1.89%
A. Alexander Arnold III(6) 1,225,000 22.30% 1,225,000 18.87%
845 Third Ave., 6th Flr
New York, NY 10021
David C. Wilhelm(7) 323,750 5.89% 323,750 4.99%
3130 E. Exposition Street
Denver, CO 80209
Solar Satellite(8) 527,650 9.60% 527,650 8.13%
Communication, Inc.
5650 Greenwood Plaza
Boulevard #107
Englewood, CO 80111
Officers and Directors 2,992,500 44.06% 2,992,500 38.40%
as a Group (4 persons)
</TABLE>
- -------------------------------
(1) Excludes (i) 34,500 shares of Common Stock issuable upon exercise of the
Underwriter's Warrants to be issued in conjunction with this offering; and
(ii) the exercise of options and warrants to satisfy the Underwriter's
over-allotment option.
(2) The address for Messrs. Geimer, Fleury, Fitzpatrick and Huber is 303 E.
17th Ave., #108, Denver, CO 80203.
(3) Includes 1,200,000 shares which may be purchased by Mr. Geimer upon
exercise of his warrants and options.
(4) Includes options to purchase 100,000 shares, 50,000 of which vested prior
to this offering and 50,000 of which will vest upon completion of this
offering.
(5) Represents shares which may be acquired by Messrs. Fitzpatrick and Huber
upon exercise of their options.
(6) Represents 1,225,000 shares held by four trusts. Mr. Arnold merely serves
as trustee for each of those trusts but is not a beneficiary of and has no
pecuniary interest in any of those trusts.
(7) Represents 323,750 shares held by the Jean C. Wilhelm Trust, of which Mr.
Wilhelm is the lifetime beneficiary and trustee.
(8) Solar Satellite Communications, Inc. is not affiliated with any of the
Company's officers, directors, key employees, or other principal
shareholders. Based upon its review of certain reports filed with the
Securities and Exchange Commission and certain other inquiries, management
believes that Solar Satellite is an inactive company that is controlled by
certain Japanese Nationals and a company controlled by those persons.
30
<PAGE>
SELLING WARRANTHOLDER AND SELLING OPTIONHOLDERS
Thomas V. Geimer is offering for sale 60,000 warrants (or 60,000 shares of
Common Stock issuable upon exercise of the warrants) owned by him as described
below. The exercise price is $.24 per share. The Company has agreed to register
on this Registration Statement the 60,000 warrants and the 60,000 shares of
Common Stock issuable upon exercise of the warrants and to pay all expenses in
connection therewith (other than brokerage commissions and fees and expenses of
the counsel of the holder of the warrants). The Company will not receive any
proceeds from the sale of Mr. Geimer's Warrants or the shares of Common Stock
underlying the warrants, and all of these shares will be subject to the
Underwriter's over-allotment option, if such option is exercised by the
Underwriter. However, the Company will receive the exercise price for any of
these options or warrants that are exercised. See "Management
Compensation--Pursuant to Plans."
Five of the Company's key employees, the Selling Optionholders, are
offering for sale 90,000 Employee Options (or 90,000 shares of Common Stock
issuable upon exercise of the Employee Options) owned by them as described
below. The Employee Options were granted to each of the individuals identified
in the table below at an exercise price of $.36 per share. All of these options
have vested. The Company will not receive any proceeds from the sale of the
Employee Options or the shares of Common Stock underlying the Employee Options
and all of these shares will be subject to the Underwriter's over-allotment
option, if such option is exercised by the Underwriter. However, the Company
will receive the exercise price for any of these options that are exercised.
The following table sets forth the number of Employee Options (and the
shares of Common Stock underlying the same) and the Affiliate's Warrants (and
the shares of Common Stock underlying the same) being registered hereby and the
number of shares that each of the following persons has agreed will be subject
to the Underwriter's over-allotment option if such option is exercised by the
Underwriter.
<TABLE>
<CAPTION>
Number of Employee Shares
Number of Subject to Underwriter's
Name of Employee Employee Options/Warrants Over-Allotment
Optionholder/Warrantholder Registered Option (1)
-------------------------- ------------------------- -------------------------
<S> <C> <C>
Thomas V. Geimer 60,000 60,000
Franz Huber 30,000 30,000
Timothy M. Fitzpatrick 30,000 30,000
James Reiss 12,000 12,000
Norman Rullo 12,000 12,000
Joseph Steger 6,000 6,000
-------- --------
Total 150,000 150,000
</TABLE>
- --------------------------
(1) These figures assume that the Underwriter's over-allotment option is
exercised for the entire 150,000 shares. Should the option be exercised for
an amount less than 150,000 shares, these figures would decrease
proportionately. Any shares not purchased by the Underwriter will be
eligible for resale under the Registration Statement of which this
Prospectus is a part 90 days after the effective date of this Registration
Statement.
31
<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
The Company's Amended Articles of Incorporation authorize the issuance of
11,000,000 shares of Common Stock with no par value. Each record holder of
Common Stock is entitled to one vote for each share held on all matters properly
submitted to the stockholders for their vote. Cumulative voting for the election
of directors is not permitted by the Articles of Incorporation.
Holders of outstanding shares of Common Stock are entitled to those
dividends declared by the Board of Directors out of legally available funds;
and, in the event of liquidation, dissolution or winding up of the affairs of
the Company, holders are entitled to receive, ratably, the net assets of the
Company available to stockholders after distribution is made to the preferred
stockholders, if any, who are given preferred rights upon liquidation. Holders
of outstanding shares of Common Stock have no preemptive, conversion or
redemptive rights. All of the issued and outstanding shares of Common Stock are,
and all unissued shares when offered and sold will be, duly authorized, validly
issued, fully paid and nonassessable. To the extent that additional shares of
the Company's Common Stock are issued, the relative interests of then existing
stockholders may be diluted.
Transfer Agent
American Securities Transfer, Inc., 938 Quail Street, Suite 101, Lakewood,
Colorado 80215, serves as the transfer agent and registrar for the Company's
Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
After completion of this offering but without giving effect to the exercise
of the Underwriter's Warrants or the issuance of any shares of Common Stock
reserved for issuance under the Company's Stock Option Plans or any other
options or warrants, the Company will have 6,492,500 shares of Common Stock
outstanding (6,642,500 shares if the Underwriter's over-allotment option is
exercised in full). Of these, 4,032,662 shares (4,182,662 shares if the
Underwriter's over-allotment option is exercised in full) will be freely
tradeable without restriction or further registration under the Securities Act.
Included in this amount are 256,250 shares which would be freely tradeable if
the holders of these shares were not affiliates of the Company. The remaining
2,459,838 shares of Common Stock are "restricted securities," as that term is
defined under Rule 144 promulgated under the Securities Act and may only be sold
in the public market pursuant to an effective registration statement or in
accordance with Rule 144. An aggregate of 1,436,250 of the restricted securities
and 256,250 of the freely tradable shares, which are held by officers, directors
and certain key employees of the Company, will be subject to a lock-up agreement
with the Underwriter (the "Lock-Up") restricting their transfer for a period of
up to three months from the date of this Prospectus except with the consent of
the Underwriter. The Underwriter has no present intention and has no plans,
arrangements, understandings or commitments with respect to the early release of
the Lock-Up; however, investors are cautioned that the Underwriter in its sole
discretion may elect to release all or part of the shares subject to the Lock-Up
prior to the expiration of the Lock-Up." The Company has been advised by the
Underwriter that it has no general policy with respect to granting releases from
Lock-Up agreements. The Underwriter may in its discretion and without notice to
the public waive the Lock-Ups and permit the sale of all or any portion of the
shares of Common Stock that are subject to the Lock-Up prior to the expiration
of the Lock-Up period. The early releases of the Lock-Ups and subsequent sale of
those shares could have a depressive effect upon the trading price of the Common
Stock. Following the expiration of the Lock-Up, all of the 1,436,250 restricted
securities and the 256,250 shares of "free trading" stock held by affiliates
will be eligible for resale pursuant to Rule 144 promulgated pursuant to the
Securities Act, subject in some cases to compliance with certain volume
limitations imposed pursuant to Rule 144 and to applicable state securities
laws.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned his or
her shares for at least two years, including affiliates of the Company, would be
32
<PAGE>
entitled to sell within any three-month period a number of shares equal to the
greater of 1% of the then outstanding shares of Common Stock of the Company
(approximately 649,250 shares immediately after this offering) or the average
weekly trading volume of the Company's Common Stock during the four calendar
weeks preceding the filing of the required notice of such sale. Sales under Rule
144 are also subject to certain waiver of sale restrictions, notice requirements
and the availability of current public information about the Company. Sales of
substantial numbers of shares of Common Stock pursuant to a registration
statement, Rule 144 or otherwise could adversely affect the market price of the
Common Stock, should such a market develop.
The Company has reserved 1,475,000 shares of Common Stock for issuance upon
exercise of options which may be granted pursuant to the Company's stock option
plans, 1,200,000 shares of Common Stock for issuance upon exercise of certain
other warrants and options, and 34,500 shares of Common Stock for issuance to
the Underwriter upon exercise of the Underwriter's Warrants. The Underwriter's
Warrants are exercisable at 120% of the initial price to the public per share
for a period of two years commencing one year from the date of this Prospectus.
The Underwriter's Warrants carry certain registration rights. The exercise
prices of the Underwriter's Warrants are subject to adjustment under certain
circumstances. If the holders of the Underwriter's Warrants exercise their
warrants and their registration rights relating to the underlying Common Stock,
they will own registered shares which will be freely transferable and tradeable
without restriction or further registration under the Securities Act. See
"Underwriting."
33
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, Janco
Partners, Inc. (the "Underwriter"), has agreed to purchase from the Company the
1,000,000 shares of Common Stock offered hereby. The Underwriter will purchase
the shares at the price to the public less underwriting discounts and
commissions set forth on the cover page of this Prospectus.
The Underwriting Agreement provides that the Underwriter's obligations are
subject to conditions precedent and that the Underwriter is committed to
purchase all shares of Common Stock offered hereby (other than those covered by
the over-allotment option described below) if the Underwriter purchases any
shares.
The Underwriter has advised the Company that the Underwriter proposes to
offer the shares of Common Stock in part directly to the public at the price to
the public set forth on the cover page of this Prospectus, and in part to
certain dealers at the price to the public less a concession not exceeding $.29
per share. After the shares of Common Stock are released for sale to the public,
the Underwriter may change the initial price to the public and other selling
terms. No change in such terms shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus. The
Underwriter will also receive a non-accountable allowance equal to 1.5% of the
gross proceeds of the offering (including the over-allotment option, if
exercised), of which $35,000 has been paid.
Certain individuals holding options and warrants to purchase shares of
Common Stock of the Company have granted to the Underwriter an option,
exercisable no later than 45 days after the date of this Prospectus, to purchase
up to 150,000 additional shares of Common Stock at the public offering price,
less the underwriting discount, set forth on the cover page of this Prospectus.
To the extent that the Underwriter exercises this option, the Underwriter will
have a firm commitment to purchase, and the Selling Optionholders and Selling
Warrantholder will be obligated, pursuant to the option, to sell such shares to
the Underwriter. The Underwriter may exercise its option only to cover
over-allotments made in connection with the sale of shares of Common Stock
offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriter and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriter reserves the right
to reject an order for the purchase of the shares in whole or in part.
The Underwriting Agreement provides that the Company, the Selling
Optionholders and Selling Warrantholder, if any, and the Underwriter will
indemnify each other against certain liabilities under the Act. Insofar as
indemnification for liabilities arising under the Act may be permitted to
directors, officers or persons controlling the Company pursuant to the
Underwriting Agreement or otherwise, the Company has been informed that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
The Company's officers, directors and key employees, who beneficially own
in the aggregate 3,242,500 shares of Common Stock (including 1,550,000 currently
exercisable options and warrants), have agreed not to offer, sell or otherwise
dispose of any shares of Common Stock for a period of 90 days after the date of
this Prospectus without the prior written consent of the Underwriter. However,
certain optionholders and a warrantholder may be required by the Underwriter,
subject to a 45 day option, to sell up to 150,000 shares issuable upon the
exercise of the options and warrants to the Underwriter to cover
over-allotments, if any, and the Company may grant additional options under
certain Stock Option Plans without the prior written consent of the Underwriter,
provided that such options shall not be exercisable during the 90-day lock-up
period.
The Company has also agreed to sell to the Underwriter, for nominal
consideration, warrants (the "Underwriter's Warrants") to purchase 34,500 shares
of Common Stock. The Underwriter's Warrants will be exercisable, at a price per
share equal to 120% of the initial price to the public, commencing one year from
the date hereof and for a period of two years thereafter. During the exercise
period, holders of the Underwriter's Warrants are entitled to certain demand and
34
<PAGE>
incidental registration rights with respect to the securities issuable upon
exercise of the Underwriter's Warrants. The shares of Common Stock issuable on
exercise of the Underwriter's Warrants are subject to adjustment in certain
events to prevent dilution. The Underwriter's Warrants cannot be transferred,
assigned or hypothecated for a period of one year from the date of issuance
except to officers of the Underwriter, selling group members and their officers
or partners.
The rules of the Commission generally prohibit the Underwriter and other
members of the selling group from making a market in the Company's Common Stock
during the "cooling off" period immediately preceding the commencement of sales
in the offering. The Commission has, however, adopted an exemption from these
rules that permits passive market making under certain conditions. These rules
permit an Underwriter or other member of the selling group to continue to make a
market in the Company's Common Stock subject to the conditions, among others,
that its bid not exceed the highest bid by a market maker not connected with the
offering and that its net purchases on any one trading day not exceed prescribed
limits. Pursuant to these exemptions, the Underwriter and other members of the
selling group intend to engage in passive market making in the Company's Common
Stock during the cooling off period.
New Underwriter
The Underwriter was formed in December 1995 and became registered as a
securities broker-dealer in February 1996. Since that time, the Underwriter has
acted as an underwriter in three public offerings and as a selected dealer in
seven additional public offerings. The Underwriter has not previously served as
the managing underwriter of a public offering. Although the Underwriter's
principals have extensive experience in the securities industry, there can be no
assurance that the Underwriter's limited operating history will not have an
adverse effect on the offering or the market for the Company's securities. See
"Underwriting."
LEGAL MATTERS
The Company has been represented, and the legality of the securities being
offered hereby has been passed upon, by Schlueter & Associates, P.C., 1050 17th
Street, Suite 1700, Denver, Colorado 80265. Certain legal matters will be passed
upon for the Underwriters by Berliner Zisser Walter & Gallegos, P.C., Denver,
Colorado.
EXPERTS
The balance sheets of the Company as of July 31, 1996 and 1995, and the
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended July 31, 1996 included in this prospectus, have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein, and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
35
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement
(together with all amendments thereto, the "Registration Statement") under the
Act with respect to the Common Stock of the Company offered hereby. This
Prospectus, filed as part of the Registration Statement, omits certain
information contained in the Registration Statement in accordance with the rules
and regulations of the Commission. For further information, reference is hereby
made to the Registration Statement. Statements contained herein concerning the
provisions of any document are not necessarily complete and in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
The Company is subject to the reporting and other informational
requirements of the Exchange Act and, in accordance therewith, files reports and
other information with the Commission. Such reports, proxy statements and other
information filed by the Company, including the Registration Statement and
exhibits thereto, may be inspected and copied at the public reference facilities
maintained by the Commission at the offices of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549, and at the
Commission's regional offices at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, New
York, New York 10048. Copies of such materials can also be obtained by written
request to the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, NW, Washington, D.C. 20549, at prescribed rates.
36
<PAGE>
<TABLE>
<CAPTION>
GLOSSARY OF TERMS
<S> <C>
Client/Server The model of interaction in distributed data processing in which a program at one site sends a request to
a program at another site and awaits a response. The requesting program is called a client, and the answering
program is called a server.
COTS Acronym for "Commercial Off The Shelf" which means hardware and/or software that is readily available for
purchase.
Compiler A program that converts another program from some source language (or programming language) to machine language
(object code).
DEC Acronym for "Digital Equipment Corporation."
Interoperability The ability of software and hardware, on multiple machines, from multiple vendors to communicate.
Legacy Code Existing software, including proprietary applications, out-dated commercial vendor applications, data bases and
element relationships, that have been in use for an extended period of time, thus accumulating the "legacy" of
corporate memory, files and information system functionality that may no longer adequately satisfy the owner.
Legacy System Existing hardware and network systems, especially proprietary, closed mainframe environments or out-dated
architectures that have been in use for an extended period of time, typically with limited functionality and
limited or no compatibility with more modern systems. DEC's VMS operating system is an example of a Legacy
System.
Network Hardware and software data communication systems.
NT Refers to the Windows NT operating system which is the latest open system architecture for Windows developed by
Microsoft Corporation.
Open Systems Computer and communications environments based on formal and de facto interface standards. Such interfaces
should not be controlled by a single vendor and must be freely available. Systems built using these standard
interfaces provide portability of software across standard computer platforms, Interoperability between systems
and much greater choice and flexibility in systems procurement.
Operating System The software which schedules tasks, allocates storage, handles the interface to hardware and presents a default
interface to the user when no application program is running.
Portability The ease with which a software application can be made to run in a new environment.
Porting The process or ability to electronically "port" or move data, files and software from one computer or Network
environment to another computer or Network environment.
Proprietary A product not conforming to open system standards, that was typically developed by a particular hardware
manufacturer for its own computers.
Re-engineering The examination and modification of a system to reconstitute it in a new form and the subsequent implementation
of the new form.
37
<PAGE>
RISC Acronym for reduced instruction set computing.
UNIX A widely used multi-user, general purpose operating system. A trademark of X/Open Company Limited, for an
operating system originally developed at the Bell Laboratories of AT&T in the late 1960's and early 1970's and
subsequently enhanced by the University of California at Berkeley, AT&T, the Open Software Foundation (OSF) and
others.
VAX Virtual Address eXtension. Digital Equipment Corporation's proprietary 32-bit minicomputer, considered one of
the most successful designs in industry history.
VAX/VMS As used in this Prospectus shall refer to DEC's VAX minicomputers, which utilize DEC's VMS operating system.
VMS The brand name of the proprietary multi-user, multi-tasking, virtual memory operating system provided by DEC
with its VAX minicomputers.
Workstation A general purpose computer designed to be used by one person at a time and which offers higher performance than
normally found in a personal computer, especially with respect to graphics, processing power and the ability to
carry out several tasks at the same time.
Year 2000 Problem The Year 2000 Problem arises from the widespread use of computer programs that rely on two-digit date codes to
perform computations and decision making functions. Many of these computer programs may fail due to an
inability to properly interpret date codes. For example, such programs may misinterpret "00" as the year 1900
rather than 2000.
</TABLE>
38
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors Report F-1
Balance Sheets -- July 31, 1996 and 1995 F-2
Statements of Operations -- For the fiscal years ended
July 31, 1996, 1995 and 1994 F-3
Statements of Shareholders' Equity -- For the fiscal
years ended July 31, 1996, 1995 and 1994 F-4
Statements of Cash Flows -- For the fiscal
years ended July 31, 1996, 1995 and 1994 F-5
Notes to Financial Statements F-6 to F-11
39
<PAGE>
INDEPENDENT AUDITORS' REPORT
Accelr8 Technology Corporation:
We have audited the accompanying balance sheets of Accelr8 Technology
Corporation as of July 31, 1996 and 1995, and the related statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended July 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of July 31, 1996 and 1995,
and the results of its operations and its cash flows for each of the three years
in the period ended July 31, 1996 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
September 4, 1996
F-1
<PAGE>
<TABLE>
<CAPTION>
ACCELR8 TECHNOLOGY CORPORATION
BALANCE SHEETS
JULY 31, 1996 AND 1995
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,407,026 $ 437,425
Accounts receivable 431,252 292,536
Prepaid expenses and other 49,695 1,170
Deferred tax assets (Note 6) 123,223
----------- -----------
Total current assets 2,011,196 731,131
----------- -----------
PROPERTY AND EQUIPMENT:
Computer equipment 209,735 248,620
Furniture and fixtures 11,231 11,231
----------- -----------
Total property and equipment 220,966 259,851
Less accumulated depreciation (150,453) (189,346)
----------- -----------
Net property and equipment 70,513 70,505
----------- -----------
SOFTWARE DEVELOPMENT COSTS, less accumulated
amortization: 1996, $746,260; 1995, $650,023 160,321 176,015
OTHER ASSETS (Note 7) 75,000
----------- -----------
TOTAL $ 2,317,030 $ 977,651
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 52,091 $ 60,141
Income taxes payable 18,000
Salaries and payroll taxes 20,316 30,773
Product development advance payable (Note 2) 50,000 50,000
Deferred consulting revenue 91,724
Deferred maintenance revenue 75,460 89,801
----------- -----------
Total current liabilities 307,591 230,715
----------- -----------
DEFERRED TAX LIABILITIES (Note 6) 69,723
----------- -----------
COMMITMENTS (Note 7)
SHAREHOLDERS' EQUITY (Note 3):
Common stock, no par value; 55,000,000 shares
authorized; 21,970,000 shares issued and outstanding 1,970,970 1,970,970
Contributed capital 41,449 41,449
Accumulated deficit (72,703) (1,265,483)
----------- -----------
Shareholders' equity - net 1,939,716 746,936
----------- -----------
TOTAL $ 2,317,030 $ 977,651
=========== ===========
See notes to financial statements
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
ACCELR8 TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31,1996, 1995 AND 1994
1996 1995 1994
<S> <C> <C> <C>
REVENUES (Note 4):
Consulting fees $ 1,074,744 $ 294,130 $ 41,150
Product license and customer support fees 683,997 750,584 415,007
Resale of purchased software 338,270 337,822 149,693
Other (Note 5) 83,035
----------- ---------- ---------
Total revenues 2,097,011 1,382,536 688,885
----------- ---------- ---------
COSTS AND EXPENSES:
Cost of services 311,534 147,743 133,635
Cost of software purchased for resale 117,737 101,266 70,084
General and administrative 195,802 264,365 302,663
Marketing and advertising 324,962 369,165 298,760
Research and development 33,038 129,959 152,245
----------- ---------- ---------
Total expenses 983,073 1,012,498 957,387
----------- ---------- ---------
INCOME (LOSS) FROM OPERATIONS 1,113,938 370,038 (268,502)
INTEREST INCOME 43,342 12,356 6,752
----------- ---------- ---------
INCOME (LOSS) BEFORE INCOME
TAXES 1,157,280 382,394 (261,750)
----------- ---------- ---------
INCOME TAX (PROVISION) BENEFIT
(Note 6):
Current (18,000)
Deferred 53,500
--------- ---------- ---------
Total benefit 35,500
--------- ---------- ---------
NET INCOME (LOSS) $1,192,780 $ 382,394 $(261,750)
========== ========== =========
WEIGHTED AVERAGE SHARES
OUTSTANDING 26,935,508 26,364,000 21,970,000
========== ========== ==========
NET INCOME (LOSS) PER SHARE $0.04 $0.01 $(0.01)
===== ===== ======
</TABLE>
See notes to financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
ACCELR8 TECHNOLOGY CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JULY 31,1996, 1995 AND 1994
Common Stock
---------------------------------- Contributed Accumulated Shareholders'
Shares Amount Capital Deficit Equity - Net
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 31, 1993 21,970,000 $ 1,970,970 $ 41,449 $(1,386,127) $ 626,292
Net loss (261,750) (261,750)
---------- ---------- -------- ------------ -----------
BALANCE, JULY 31, 1994 21,970,000 1,970,970 41,449 (1,647,877) 364,542
Net income 382,394 382,394
---------- ---------- -------- ------------ -----------
BALANCE, JULY 31, 1995 21,970,000 1,970,970 41,449 (1,265,483) 746,936
Net income 1,192,780 1,192,780
---------- ---------- -------- ------------ -----------
BALANCE, JULY 31, 1996 21,970,000 $1,970,970 $ 41,449 $ (72,703) $1,939,716
========== ========== ======== ============= ==========
See notes to financial statements
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACCELR8 TECHNOLOGY CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31,1996, 1995 AND 1994
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,192,780 $ 382,394 $ (261,750)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
marketing credits (71,506)
Depreciation and amortization 121,600 139,072 150,821
Deferred income tax benefit (53,500)
Net change in assets and liabilities:
Accounts receivable (138,716) (108,984) (59,701)
Prepaid expenses and other (48,525) 6,705 525
Other assets (75,000)
Accounts payable (8,050) 30,599 21,959
Income taxes payable 18,000
Salaries and payroll taxes (10,457) 8,001 18,267
Deferred consulting revenue 91,724
Deferred maintenance revenue (14,341) 2,823 28,871
Other payables ______ ______ (10,365)
-----------
Net cash provided by (used in) operating activities 1,075,515 460,610 (182,879)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Software development costs (80,543) (108,510) (83,853)
Purchase of computer equipment (25,371)
Purchase of furniture and fixtures ______ _______ (3,931)
-----------
Net cash used in investing activities (105,914) (108,510) (87,784)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 969,601 352,100 (270,663)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 437,425 85,325 355,988
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 1,407,026 $ 437,425 $ 85,325
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES -
In 1994, marketing credits earned and equipment valued at $71,506 were received
in connection with a marketing program of a major customer (Note 5)
See notes to financial statements.
F-5
</TABLE>
<PAGE>
ACCELR8 TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - Accelr8 Technology Corporation ("Accelr8" or the "Company) is a
provider of software tools and consulting services for the conversion of Digital
Equipment Corporation ("DEC") legacy systems to UNIX open client/server
environments. The Company's consulting services and software conversion tools
enable the Company's customers to analyze and implement their UNIX conversions
in a predictable and cost-effective manner. The Company's clients include a
number of Fortune 1000 companies and government agencies.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents - All highly liquid investments with an original
maturity of three months or less at time of purchase are considered to be
equivalent to cash.
Concentration of Credit Risk - Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of cash
equivalents and accounts receivable. The Company places its cash equivalents
with a high credit quality financial institution. The Company grants credit to
domestic and international clients in various industries. Exposure to losses on
accounts receivable is principally dependent on each client's financial
position. The Company performs ongoing credit evaluations of its client's
financial condition.
Property and Equipment - Property and equipment are recorded at cost.
Maintenance and repairs are charged to expense as incurred and expenditures for
major improvements are capitalized. Gains and losses from retirement or
replacement are included in operations.
Depreciation - Depreciation of property and equipment is computed using the
straight-line method over the estimated useful life of the assets ranging from
five to seven years.
Software Development Costs - Costs incurred internally to develop computer
software products and the costs to acquire externally developed software
products (which have no alternative future use) to be sold, leased or otherwise
marketed are charged to expense until the technological feasibility of the
product has been established. After technological feasibility has been
established and until the product is available for general release, software
development, product enhancements and acquisition costs are capitalized.
Amortization of capitalized costs is computed on a product-by-product basis over
(a) the period equal to the future revenue stream of the product using the ratio
that current revenues bear to the total of current and future anticipated
revenues of the product, or (b) the remaining estimated economic life of the
product (three years) using the straight-line method, whichever method results
in the greater amount. Amortization expense relating to software development
costs for the years ended July 31, 1996, 1995 and 1994 was $96,237, $113,396 and
$130,762, respectively.
Revenue Recognition - Revenue is recognized for consulting services as services
are performed. Revenue is recognized on product licensing agreements when the
Company substantially completes its obligations under the agreement and the
customer has accepted the product. Revenue is recognized for customer support
services on maintenance agreements using the straight-line method over the term
of the agreement.
F-6
<PAGE>
In connection with its software business, the Company functions as a value-added
reseller of computer software. The Company recognizes revenue when the computer
software is delivered.
Deferred Revenue - Deferred consulting revenues represent amounts received but
not earned under consulting agreements. Deferred maintenance revenue represents
amounts received but not earned under maintenance agreements.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." The standard generally requires that deferred income taxes be
recognized on temporary differences between the financial statements and income
tax basis of assets and liabilities using currently enacted tax rates.
Earnings (Loss) Per Share - Earnings (loss) per share is computed using the
weighted average number of common and common equivalent shares outstanding
during the period. Common stock equivalents include stock options and warrants.
Common stock equivalents were excluded from the earnings per share calculation
for the year ended July 31, 1994 because they were anti-dilutive.
Reclassifications - Certain amounts in 1995 and 1994 have been reclassified to
conform to the 1996 presentation.
Stock Based Compensation - During 1995, the Financial Accounting Standards Board
issued SFAS No. 123, "Accounting for Stock Based Compensation." SFAS No. 123
requires that stock based compensation be either recognized or disclosed in the
financial statements. The Company is required to adopt SFAS No. 123 in its 1997
fiscal year. Because the Company intends to elect only the disclosure provisions
of SFAS No. 123, adoption of SFAS No. 123 is not expected to have a material
effect on the financial position or results of operations of the Company.
2. PRODUCT DEVELOPMENT ADVANCE PAYABLE
On September 4, 1991, the Company entered into an assistance agreement with
another company wherein the Company received an advance of $50,000 to assist in
the development of a specific software product which the Company was to own
exclusively. Development of the software product was completed and the advance
of $50,000 became payable as of July 31, 1995. As of July 31, 1996 the amount
remains outstanding and although the other company has the option of converting
the outstanding balance to a note bearing interest at 11% payable quarterly over
a two-year period from date of conversion, they have not exercised the option.
3. SHAREHOLDERS' EQUITY
Option Plan - The Company has reserved 3,900,000 shares of its common stock for
issuance to employees under an employee stock option plan. The options vest 25%
each year over a four-year period and are exercisable for three years after the
date of vestiture. As of July 31, 1995, 1,900,000 options at $.07 per share were
held by a former President of the Company which expired unexercised in December
1995.
As of July 31, 1995, the Chairman of the Board held other options to purchase
4,800,000 shares of the Company's common stock at $.06 per share which were to
expire as of December 31, 1995. The term of the options was extended to December
31, 1997 in December 1995. As of July 31, 1995, a former President of the
Company held other options to purchase 1,000,000 shares of the Company's common
stock at $.07 per share which expired unexercised in December 1995.
Warrants outstanding to purchase 150,000 shares of common stock expired unused
in 1995.
F-7
<PAGE>
Change in options and warrants outstanding for the three years ended July 31,
1996, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
Other
Exercise Employee Exercise Options and
Price Options Price Warrants
<S> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1993 $.07-.09 3,925,000 $.06-.15 5,950,000
Expired/Cancelled $.09 (87,500)
----------- ----------
Balance, July 31, 1994 $.07-.09 3,837,500 $.06-.15 5,950,000
Issued $.09 400,000
Expired/Cancelled $.09 (387,500) $.15 (150,000)
----------- ----------
Balance, July 31, 1995 $.07-.09 3,850,000 $.06-.07 5,800,000
Issued $.09 50,000 $.06 4,800,000
Expired/Cancelled $.07-.09 (2,000,000) $.06-.07 (5,800,000)
---------- ----------
Balance July 31, 1996 $.09 1,900,000 $.06 4,800,000
========== =========
Vested, July 31, 1996 $.09 1,662,500 $.06 4,800,000
========== =========
</TABLE>
4. REVENUES
Revenue of $239,025 (11%), $282,100 (13%), and $353,075 (17%) in 1996 was
derived from sales to three separate customers. Revenue of $150,381 (11%) in
1995 and $103,064 (15%) in 1994 was derived from sales to a single customer. The
Company's operations are located entirely within the United States. However, in
1996, $318,393 (15%) of the Company's revenues were to foreign customers.
5. MARKETING CREDITS
In connection with a marketing program of a major customer, the Company was
awarded marketing credits which can be used for cooperative advertising or the
purchase of computer equipment. When marketing credits are exchanged for
computer equipment, other revenue is recognized to the extent of the fair value
of the equipment received. Other revenue relating to marketing credits was
$83,035 for the year ended July 31, 1994. No marketing credits were awarded to
the Company in 1995 or 1996.
6. INCOME TAXES
During the year ended July 31, 1994, the Company changed its method of
accounting for income taxes to comply with the provisions of SFAS No. 109,
"Accounting for Income Taxes." Adoption of this standard did not have a
significant impact on the Company's financial statements and a cumulative effect
adjustment was not required. Prior to adoption of the new standard, the Company
accounted for income taxes using the provisions of Statement of Financial
Accounting Standards No. 96.
F-8
<PAGE>
The following items comprise the Company's net deferred tax assets as of July
31:
1996 1995
Deferred tax assets:
Deferred income $ 63,530 $ 57,848
Net operating loss (NOL) carryforward 41,693 491,197
Alternative minimum (AMT) tax credit carryforwards 18,000
-------- --------
Total 123,223 549,045
Valuation allowance (472,889)
-------- --------
Total 123,223 76,156
Deferred tax liabilities - Depreciation and amortization (69,723) (76,156)
-------- --------
Net deferred tax assets $ 53,500 $ 0
======== =======
As of July 31, 1995, the Company concluded that based on available evidence,
realization of existing net operating loss carryforwards was uncertain, and
accordingly, a valuation allowance was recorded. During fiscal 1996, the
Company's valuation allowance decreased $472,889 as the result of utilization of
NOL carryforwards.
A reconciliation of the expected income tax benefit at the federal statutory
income tax rate to the Company's actual income tax expense at its effective
income tax rate for the year ended July 31 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Federal statutory income tax rate 34% 34% 34%
Computed expected income taxes $ 393,475 $ 130,014 $(91,291)
Increase in taxes resulting from:
State income taxes, net of federal tax benefit 38,190 12,237 (13,425)
Change in valuation allowance (472,889) (142,251) 104,716
Other 5,724
---------- ---------- --------
Income tax provision (benefit) $ (35,500) $ 0 $ 0
========== ========== ========
</TABLE>
As of July 31, 1996, the Company has net operating loss carryforwards of
$112,000 available to offset future taxable income expiring in 2010. Pursuant to
the Tax Reform Act of 1986, net operating losses utilized in future income tax
returns will be subject to alternate minimum tax and change in ownership
regulations which may limit the net operating loss carryforward utilized in a
given fiscal year. The Company also has AMT credit carryforwards of $18,000
available to offset future regular taxable income that may be carried forward
indefinitely.
7. COMMITMENTS
Operating Leases - The Company has an operating lease agreement for office space
through July 31, 1996. Total rent expense was $42,989, $40,141 and $39,014 in
1996, 1995 and 1994, respectively.
F-9
<PAGE>
Employee Retirement Plan - During the year ended July 31, 1996, the Company
established a SARSEP-IRA employee pension plan that covers substantially all
full-time employees. Under the plan, employees have the option to contribute up
to the lesser of 15% of their compensation or $9,240 annually to the Plan. The
Company may make discretionary contributions to the Plan based on recommendation
s from the Board of Directors. For the year ended July 31, 1996, the Board did
not authorize any contributions.
Deferred Compensation Arrangement - During the year ended July 31, 1996, the
Company established a deferred compensation plan for key employees of the
Company using a "Rabbi" Trust. The Company may make discretionary contributions
to the plan based on recommendations from the Board of Directors. During fiscal
1996, the Company funded deferred compensation of $75,000 awarded to the
Chairman of the Board with a deposit of $75,000 with the "Rabbi" Trust. The
Chairman vests in the $75,000 over the service period of January 1, 1996 through
January 31, 1997. The funds are subject to the general claims of creditors and
are included in other assets.
8. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The disclosure of estimated fair value of financial instruments is made in
accordance with the requirements of SFAS No. 107, "Disclosures about Fair Value
of Financial Instruments."
The carrying amounts at July 31, 1996 for cash and cash equivalents, accounts
receivable, other assets, accounts payable, product development advance payable,
accrued expenses and deferred revenue approximate their fair values due to the
short maturity of these instruments.
9. SUBSEQUENT EVENTS
Stock Option Plans - The Company has proposed, subject to stockholder approval,
a decrease in the number of common shares reserved for issuance from 3,900,000
to 1,900,000 under its existing stock option plan and the adoption of an
incentive stock option plan for employees and a non-qualified stock option plan
for key employees, directors and others.
Authorized Shares and Reverse Stock Split - The Company has received stockholder
authorization to decrease the number of authorized common shares from 55,000,000
to 11,000,000 and to effect a reverse stock split of its common stock ranging
from one-for-three to one-for-seven. The Company has proposed a one-for-four
reverse stock split of its common stock, which is to be effected on or about
November 18, 1996.
The following is a pro forma presentation of the effects of the one-for-four
reverse stock split on the number of common shares issued and outstanding and
all option, warrant, and earnings (loss) per share information:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Common Stock - issued and outstanding 5,492,500
Common Stock reserved for issuance:
Existing stock Option plan 475,000
Proposed stock option plans:
Incentive stock option plan 700,000
Non-qualified stock option plan 300,000
1996 1995 1994
Earnings (loss per share:
Weighted average shares outstanding 6,733,877 6,591,000 5,492,500
========== ========== ==========
Net income (loss) per share $ 0.18 $ 0.06 $ (0.05)
========== ========== ==========
</TABLE>
F-10
<PAGE>
<TABLE>
<CAPTION>
Change in options and warrants outstanding
for the three years ended July 31, 1996, 1995
and 1994 are summarized as follows:
Other
Exercise Employee Exercise Options and
Price Options Price Warrants
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1993 $.28-.36 981,250 $.24-.60 1,487,500
Expired/Cancelled $.36 (21,875)
------- ---------
Balance, July 31, 1994 $.28-.36 959,375 $.24-.60 1,487,600
Issued $.36 100,000
Expired/Cancelled $.36 (96,875) $.60 (37,500)
------- ---------
Balance, July 31, 1995 $.28-.36 962,500 $.24-.28 1,450,000
Issued $.36 12,500 $.24 1,200,000
Expired/Cancelled $.28-36 (500,000) $.24-.28 (1,450,000)
------- ---------
Balance, July 31, 1996 $.36 475,000 $.24 1,200,000
======= =========
Vested July 31, 1996 $.36 415,625 $.24 1,200,000
======= =========
</TABLE>
F-11
<PAGE>
======================================== ====================================
No dealer, salesman or other person has
been authorized to give any information
or to make any representationnot
contained in this Prospectus, and if 1,000,000 Shares
given or made, such information or
representations must not be relied upon
as having been authorized by the Accelr8
Company, any Selling Shareholder or the Technology
Underwriter. This Prospectus does not Corporation
constitute an offer to sell or a
solicitation of an offer to buy, any of
the securities offered hereby in any
jurisdiction to any person to whom it is
unlawful to make such offer in such
jurisdiction. Neither the delivery of
this Prospectus nor any sale hereunder
shall, under any circumstances, create
any implication that the information
contained herein or that there has been Common Stock
no change in the affairs of the Company
subsequent to such date.
----------
TABLE OF CONTENTS
Page
----
Prospectus Summary .............. 1
Risk Factors .................... 4
Use of Proceeds ................. 7 ---------------
Dividend Policy ................. 7
Price Range of Common Stock ..... 8 PROSPECTUS
Dilution ........................ 9
Capitalization .................. 10 ---------------
Selected Financial Data ......... 11
Management's Discussion and
Analysis of Financial Condition
and Results of Operations ..... 12
Business ........................ 15
Management ...................... 24
Principal Stockholders .......... 30
Selling Warrantholder and
Selling Optionholders ......... 31
Description of Securities ....... 32
Shares Eligible for Future Sale . 32
Underwriting .................... 34
Legal Matters ................... 35 Janco Partners, Inc.
Experts ......................... 35
Additional Information .......... 36
Glossary of Terms ............... 37
Financial Statements ............ F-1
November 18, 1996
======================================== ====================================
