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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 14, 1997
MICROGRAFX, INC.
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(Exact name of registrant as specified in its charter)
TEXAS 0-18708 75-1952080
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(State of other jurisdiction (Commission File Number) (IRS Employer
incorporation) Identification No.)
1303 E. ARAPAHO ROAD, RICHARDSON, TEXAS 75081
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 234-1769
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(NOT APPLICABLE)
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(Former name or former address, if changed since last report)
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Item 4. Changes in Registrant's Certifying Accountant
a) At a meeting held on January 20, 1997, the Audit Committee of the
Board of Directors of Micrografx, Inc. (the "Company") approved the engagement
of Ernst & Young LLP as its independent auditors for the fiscal year ending
June 30, 1997 to replace the firm of Arthur Andersen LLP, who resigned as
auditors of the Company effective January 14, 1997.
(b) Arthur Andersen LLP had been engaged to audit the Company's
financial statements for more than the two most recent fiscal years. Neither
of Arthur Andersen LLP's reports on the Company's financial statements for each
of the past two years contained an adverse opinion or disclaimer of opinion, or
were qualified or modified as to uncertainty, audit scope or accounting
principles, except that the financial statements of Visual Software, Inc.
(Visual), a company acquired during 1996 in a transaction accounted for as a
pooling of interests were audited by other auditors in 1994 and 1995. Such
financial statements of Visual were included in the consolidated financial
statements of Micrografx, Inc. and subsidiaries and reflected total assets and
revenues of 3 percent and 6 percent, respectively, in 1995 and 1 percent of
revenue in 1994, of the related consolidated totals. Reference to such other
auditors was made in Arthur Andersen LLP's report dated August 2, 1996.
c) In connection with the audits of the Company's financial
statements for each of the two most recent fiscal years ended June 30, 1996 and
1995, respectively, and any subsequent interim periods through the date of the
resignation of Arthur Andersen LLP, there were no disagreements between the
Company and Arthur Andersen LLP on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures
which if not resolved to the satisfaction of Arthur Andersen LLP would have
caused Arthur Andersen LLP to make reference to the subject matter of the
disagreement in their report.
d) The following reportable event occurred in the interim period
subsequent to the most recent fiscal year and preceding the date of the former
accountants' resignation:
(i) Arthur Andersen LLP advised the Company that information has come
to its attention that, if further investigated and unless resolved
to the accountants' satisfaction, may have prevented it from
rendering an unqualified audit report on the Company's financial
statements for the fiscal year ending June 30, 1997. The
information relates to the judgmental assessment of the timing of
revenue to be recognized on the Company's Hallmark Connections
(TM) Card Studio (TM) software product in the quarter ended
September 30, 1996. Due to the limited nature of Arthur Andersen
LLP's involvement in the quarter ended September 30, 1996, it is
unknown whether this matter would have caused reference to be made
in the fiscal 1997 auditors report. This matter was discussed
with the audit committee in connection with its quarterly meeting
in October 1996 who concurred with management's judgment. The
Company
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has authorized Arthur Andersen LLP to respond fully to the
inquiries of the successor accountant concerning this issue.
(ii) The Company recognized revenue in the quarter ended September 30,
1996 on the Hallmark product of approximately $3.0 million. At
September 30, 1996, distributors had approximately $1.9 million of
the Hallmark product remaining in inventory and the Company had a
revenue reserve relating to sales of the Hallmark product of
approximately $.9 million. All shipments of the Hallmark product
as of September 30, 1996 were based on orders received and
requested for shipment on or prior to September 30, 1996.
Subsequent channel sell-through data for the quarter ended
December 31, 1996 reflects that approximately $1.2 million of the
Hallmark product which had been shipped as of September 30, 1996,
sold through the distribution channel, indicating that the
Company's judgmental assessment of the timing of the revenue
recognition was reasonable. However, Arthur Andersen LLP resigned
prior to reviewing any such information.
e) The Company consulted the newly engaged accountants in September
1996 on the application of accounting principles regarding the interpretation
of the SEC's Staff Accounting Bulletin No. 96. The issue related to the
ability of the Company to establish a stock buyback plan and thus reacquire
treasury stock without violating pooling-of-interests accounting rules related
to the merger with Visual Software in April 1996. The Company consulted with
Arthur Andersen LLP regarding the issues and obtained a summary of their views.
Ernst &Young LLP expressed the view, consistent with Arthur Andersen LLP, that
a new treasury stock plan cannot be implemented until a period of at least six
months has elapsed since the rescission of the previous stock reacquisition
plan. The Company has not initiated any stock repurchase plan.
f) The Company has requested that Arthur Andersen LLP furnish it
with a letter addressed to the Securities and Exchange Commission stating that
it agrees with the above statements. A copy of Arthur Andersen LLP's letter to
the Securities and Exchange Commission, dated January 22, 1997 is filed as
Exhibit 16 hereto.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Exhibit 16 - Letter from independent certified public accountants
pursuant to Item 4(f).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MICROGRAFX, INC.
(Registrant)
Date: January 22, 1997 By: /s/ LARRY G. MORRIS
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Larry G. Morris, Chief Financial
Officer
(Principal Financial Officer)
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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16 - Letter from independent certified public accountants
pursuant to Item 4(d).
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Exhibit 16
January 22, 1997
Office of the Chief Accountant
Securities and Exchange Commission
Mail Stop 9-5
450 Fifth Street, N.W.
Washington D.C. 20546
Dear Sirs:
We have read paragraphs a, b, c and d(i) of Item 4 included in the attached
Form 8-K dated January 22, 1997, of Micrografx, Inc. (the Registrant) filed
with the Securities and Exchange Commission, and are in agreement with the
statements contained therein.
Very truly yours,
/s/ Arthur Andersen LLP
Dallas, Texas
