___________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
___________________________________________________________________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to
________________
Commission File 0-015264
MANATRON, INC.
(Exact name of registrant as specified in its charter)
MICHIGAN 38-1983228
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2970 SOUTH 9TH STREET
KALAMAZOO, MICHIGAN 49009
(Address of principal executive offices) (Zip Code)
(616) 375-5300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes __X__. No _____.
The number of shares outstanding of registrant's common stock, no
par value, at March 15, 1996, was 2,992,921 shares.
___________________________________________________________________________
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
MANATRON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<CAPTION>
JANUARY 31, APRIL 30,
1996 1995
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 287,674 $ 437,327
Receivables, net 6,800,900 9,320,446
Revenues earned in excess of billings and
retainages on long-term contracts 2,509,311 2,354,048
Inventories 580,490 732,321
Other current assets 1,029,307 409,978
Total current assets 11,207,682 13,254,120
NET PROPERTY AND EQUIPMENT 2,143,845 2,774,141
OTHER ASSETS:
Long-term receivables, less current portion 1,590,299 1,345,821
Officers' receivable 380,711 429,965
Computer software development costs, net 1,007,065 1,090,651
Goodwill, net 1,316,204 1,454,828
Other, net 433,777 638,664
Total other assets 4,728,056 4,959,929
$ 18,079,583 $ 20,988,190
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 100,000 $ 180,000
Accounts payable 1,118,032 1,297,307
Billings in excess of revenues earned on
long-term contracts 1,610,207 1,459,054
Billings for future services 1,714,853 2,241,923
Accrued liabilities 2,332,537 1,658,421
Restructuring reserve (Note 4) 984,572 -
Total current liabilities 7,860,201 6,836,705
DEFERRED INCOME TAXES 368,000 368,000
LONG-TERM DEBT 3,945,000 4,784,000
OTHER LONG-TERM LIABILITIES (Note 4) 622,989 -
SHAREHOLDERS' EQUITY:
Common stock 5,856,821 5,703,386
Retained earnings 443,006 3,296,099
Deferred compensation (585,381) -
Other (431,053) -
Total shareholders' equity 5,283,393 8,999,485
$ 18,079,583 $ 20,988,190
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<TABLE>
MANATRON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
NET REVENUES $ 6,637,705 $ 7,196,532 $ 17,952,371 $ 17,349,929
COST OF REVENUES 4,250,513 4,494,335 11,755,412 10,341,419
Gross profit 2,387,192 2,702,197 6,196,959 7,008,510
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,533,020 2,338,559 7,366,725 6,124,559
RESTRUCTURING CHARGE (Note 4) - - 1,598,004 -
Income (loss) from operations (145,828) 363,638 (2,767,770) 883,951
OTHER EXPENSE, net (104,020) (87,502) (285,323) (131,601)
Income (loss) before provision
(credit) for federal income taxes (249,848) 276,136 (3,053,093) 752,350
PROVISION (CREDIT) FOR FEDERAL INCOME TAXES
(Note 5) - 107,000 (200,000) 302,000
NET INCOME (LOSS) $ (249,848) $ 169,136 $ (2,853,093) $ 450,350
EARNINGS (LOSS) PER SHARE $ (.08) $ .06 $ (.96) $ .15
WEIGHTED AVERAGE SHARES OUTSTANDING 2,990,318 2,935,313 2,974,544 2,932,035
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-2-
<TABLE>
MANATRON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
NINE MONTHS ENDED
JANUARY 31,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,853,093) $ 450,350
Adjustments to reconcile net income
(loss) to net cash and equivalents
provided by operating activities
Depreciation and amortization 1,512,630 1,194,296
Loss on disposition of property
and equipment 111,074 -
Decrease (increase) in assets:
Receivables, net 2,519,546 (622,365)
Revenues earned in excess of
billings and retainages (155,263) -
Inventories 154,313 537,937
Other current assets (619,329) 35,335
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 494,841 819,011
Billings in excess of revenues earned 151,153 -
Billings for future services (527,070) (279,250)
Restructuring charges 1,176,508 -
Net cash and equivalents provided
by operating activities 1,965,310 2,135,314
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and equipment 30,324 -
Net additions to property and equipment (284,788) (677,394)
Investments in computer software (265,608) (571,995)
Cash paid for the acquisition of Sabre - (4,000,000)
Decrease in long-term notes receivable (195,224) -
Increase in other assets 1,273 -
Net cash and equivalents used
for investing activities (714,023) (5,249,389)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 18,060 70,863
Purchase of common stock for ESOP (500,000) -
Net increase (decrease) in debt (919,000) 3,587,532
-3-
Net cash and equivalents
provided by (used for)
financing activities (1,400,940) 3,658,395
CASH AND EQUIVALENTS:
(Decrease) increase (149,653) 544,320
Balance at beginning of period 437,327 164,445
Balance at end of period $ 287,674 $ 708,765
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-4-
MANATRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
___________________________________________________________________________
(1) GENERAL INFORMATION
The consolidated condensed financial statements included herein have
been prepared by the Registrant, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations,
although the Registrant believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that
these consolidated condensed financial statements be read in
conjunction with the consolidated financial statements and notes
thereto included in the Registrant's Annual Report on Form 10-K for
the year ended April 30, 1995, as filed with the Securities and
Exchange Commission on July 28, 1995. There have been no significant
changes in such information since the date of such Form 10-K.
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments, consisting of
only a normal and recurring nature, necessary to present fairly (a)
the financial position of the Registrant as of January 31, 1996, and
April 30, 1995, and (b) the results of its operations for the three
and nine-months ended January 31, 1996 and 1995, and (c) cash flows
for the nine-months ended January 31, 1996 and 1995.
(2) ACQUISITION OF SABRE SYSTEMS
On July 28, 1995, the Company reached a final resolution of the
closing net asset statement related to its purchase of Sabre Systems.
As a result, the purchase price was reduced from $4,000,000 to
$3,900,000.
(3) EMPLOYEE STOCK OWNERSHIP PLAN
On June 29, 1995, the Company established a leveraged Employee Stock
Ownership Plan (the "ESOP") covering substantially all of its
employees. The ESOP purchased 142,858 common shares from Allen F. Peat
the Company's former chairman, president and chief executive officer for
$3.50 per share. The ESOP borrowed $500,000 from a bank to finance the
stock purchase. The Company has guaranteed the ESOP's loan and is
obligated to make contributions sufficient to enable the ESOP to repay
the loan, including interest. The loan is repayable in quarterly
installments of $25,000, beginning September 30, 1995, plus interest
at the bank's prime rate. As of the date of this report, two quarterly
-5-
MANATRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
___________________________________________________________________________
(3) EMPLOYEE STOCK OWNERSHIP PLAN (Continued)
installments have been made. The $450,000 balance is reflected as a
liability and a like amount, considered deferred compensation, has
been recorded as a reduction of shareholders' equity in the
accompanying consolidated condensed balance sheets.
As of January 31, 1996, 14,284 common shares have been released for
allocation to ESOP participants. As a result, the fair market value
of these shares at the time they were released, which aggregates
approximately $33,000, has been recorded as compensation expense in
the accompanying consolidated condensed statements of operations.
The difference between this amount and the original cost of these
shares, which is approximately $17,000, has been charged against
paid in capital.
(4) SEVERANCE AGREEMENT
The Company and Allen F. Peat entered into an agreement, effective as
of October 17, 1995, setting forth the terms pursuant to which Mr.
Peat retired as Chairman, President and Chief Executive Officer. The
agreement terminated Mr. Peat's five-year employment agreement and
provided for severance compensation, deferred compensation and other
payments totalling approximately $1.3 million to be paid through
December of 1999.
The present value of these payments plus legal and professional costs
associated with the restructuring of the Company, which approximates
$1.3 million, is included in the $1.6 million restructuring charge
that is reflected in the accompanying consolidated condensed
statements of operations. In addition, the Company assumed and
agreed to pay on March 15, 1996, the third and final installment
of approximately $750,000 owed by Mr. Peat to Ronald D. Stoynoff
pursuant to a stock purchase agreement between the two parties. In
exchange for assuming the obligation, the Company will be receiving
from Mr. Peat approximately 150,000 shares of Manatron common stock.
On March 15, 1996, Mr. Stoynoff was paid the final installment of
approximately $750,000 via a draw against the Company's revolving
credit agreement.
The remaining obligations under this agreement as of January 31, 1996,
have been appropriately classified as current or long-term liabilities
in the accompanying consolidated condensed financial statements. The
fair market value of the stock to be received is approximately
-6-
MANATRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
___________________________________________________________________________
$430,000 and is recorded in shareholders' equity in the accompanying
consolidated condensed balance sheets. The $320,000 difference
between the fair market value of the stock and the total assumed
obligation of $750,000 is considered compensation expense and,
accordingly, is included in the $1.6 million restructuring charge.
(5) FEDERAL INCOME TAXES
After carrying back the $3,053,093 pretax loss for the nine months
ended January 31, 1996, against taxable income in prior years, the
Company will have a net operating loss carryforward of approximately
$2.4 million that is available to offset taxable income in future
periods. The future tax benefit of approximately $800,000 related
to this net operating loss carryforward is not reflected in the
accompanying consolidated condensed financial statements because the
Company has elected to record a valuation allowance against this
amount.
-7-
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
RESULTS OF OPERATIONS
Net revenues of $6,637,705 for the three months ended January 31, 1996,
have decreased by 8% in comparison to the $7,196,532 of net revenues that
were reported for the comparable quarter in the prior year. Year to date
net revenues of $17,952,371 for the nine month period ended January 31,
1996, are 3% higher than the $17,349,929 of net revenues that were reported
in the prior year nine month period ending January 31, 1995. These amounts
include revenues from computer hardware and software shipments, revenues
from sales of computer forms and supplies, and revenues from various
related services such as mass real estate appraisal, digitizing maps,
hardware maintenance, software support, training, laser printing and
internal data processing.
While net revenues for the quarter were down 8% in comparison with the
prior year, they are approximately $1 million higher than the amounts
reported for the first and second quarters of the current year.
Approximately $4.4 million of incremental net revenues for the nine months
ended January 31, 1996, can be attributed to the contribution from the
Sabre business. Since Sabre was not acquired until November 11, 1994, the
first and second quarters of the prior year do not reflect any revenue from
that organization. Sabre provides mass real estate appraisal services for
state and local governments in addition to the traditional products and
services offered by the Company.
Sabre's contribution of additional net revenues has been mostly offset by
an $850,000 decrease in hardware sales, a $1.1 million decrease in software
sales and a $1.3 million reduction in E911 service revenues. The decreases
in hardware and software sales are due to a reduction in order volume
caused in part by increased competition, market pressures on existing
products and delays related to the introduction of the Company's new fourth
generation products. The reduction in E911 service revenues was
anticipated as the Company has completed most of these long-term projects
and has not pursued any new ones.
Cost of revenues for the three months ended January 31, 1996, decreased 5%
to $4,250,513 over the comparable prior year amount of $4,494,335. Year to
date cost of revenues have increased by 14% to $11,755,412 over the
comparable prior year amount of $10,341,419. The decrease in cost for the
quarter is primarily due to the decrease in revenues noted above. The
increase in year to date cost of revenues is due to the increase in revenues
noted above and a reduction in the Company's gross profit margin from 40% in
the prior year to 35% for the current year.
-8-
This margin reduction is primarily due to the decrease in software sales
noted above as well as the impact from the mass real estate appraisal
contracts, which typically have a much lower margin than software sales.
Additionally, the current year margins on the appraisal contracts have been
negatively impacted by higher than anticipated integration costs, a couple
of problem jobs that were a part of the acquisition and the fact that Sabre
is in the flat part of its sales cycle. Sabre signed a $1.2 million long-
term contract in January for appraisal and software services with
Orangeburg, South Carolina and is expecting an upswing in its sales cycle
during the next six to eighteen months.
Selling, general and administrative expenses have increased by 8% to
$2,533,020 for the three months ended January 31, 1996, compared to the
$2,338,559 that was incurred in the comparable quarter of the prior year.
In addition, year to date selling, general and administrative expenses are
up 20% to $7,366,725 from $6,124,559. These increases are primarily due to
the additional personnel and related expenses associated with the Sabre
acquisition since the first two quarters of the prior year do not reflect
any of these costs.
In addition to its normal operating expenses, the Company recorded a
nonrecurring management restructuring expense of approximately $1.6 million
during the three months ended October 31, 1995. This expense was related
to the retirement of Allen F. Peat as Chairman, Chief Executive Officer and
President as previously described in Note 4 of this report.
As a result of the factors noted above, the Company reported operating
losses of $145,828 for the three months and $2,767,770 for the nine months
ended January 31, 1996, verses operating income of $363,638 and $883,951
for the comparable periods in the prior year. In addition, interest
expense which is included in other expense, has increased from $192,000 to
$335,000 because of borrowings that were made to fund the acquisition of Sabre
noted in this and previous reports.
The Company's provision (credit) for federal income taxes generally
fluctuates with the level of pretax income (loss). The tax credit for the
nine month period ended January 31, 1996, does not reflect the tax effect
of the entire loss for the nine month period since the Company has not
recorded a future tax benefit related to its net operating loss
carryforward of approximately $2.4 million as described in Note 5 of this
report. In addition, the effective tax rate is impacted because of
non-deductible goodwill amortization related to the Company's acquisitions
of ATEK and Specialized Data Systems.
As a result of the factors noted above, the Company reported a net loss of
$249,848 or $.08 per share for the three months ended January 31, 1996,
verses net income of $169,136 or $.06 per share for the comparable quarter
in the prior year. In addition, the net loss for the nine months ended
January 31, 1996, is $2,853,093 or $.96 per share verses net income of
-9-
$450,350 or $.15 per share for the prior year. Weighted average shares
outstanding for both periods presented has increased slightly over the
prior year because additional shares of the Company's common stock have
been purchased or granted through employee stock plans.
FINANCIAL CONDITION AND LIQUIDITY
Working capital of $3,347,481 at January 31, 1996, has decreased
significantly compared to the April 30, 1995, amount of $6,417,415. These
levels reflect current ratios of 1.43 and 1.94, respectively. The decrease
is primarily due to the reduction in revenues noted above which has
resulted in lower receivables. In addition, the cash generated from the
collection of receivables has been used to reduce the Company's long-term
revolving credit line which is approximately $1.2 million lower at
January 31, 1996, than it was at April 30, 1995.
Shareholders' equity at January 31, 1996, decreased by $3,716,092 to
$5,283,393 from the balance reported at April 30, 1995, primarily because
of the $2,853,093 net loss. In addition, the leveraged ESOP transaction
and a portion of the severance transaction described previously have been
recorded as an offset to equity. As a result, book value per share has
decreased to $1.77 as of January 31, 1996, from $3.06 at April 30, 1995.
The nature of the Company's business is not property or equipment
intensive. Net capital expenditures which were approximately $285,000 for
the nine months ended January 31, 1996, are lower than the comparable prior
year amount of $677,000. They relate primarily to the purchase of
additional or new computer hardware and software for the Company's
technical and support personnel. The reduction is primarily due to the
current emphasis on reducing debt. Net capital expenditures for future
periods are not anticipated to be significantly different from those
incurred in the current period.
Since the Company's revenues are generated from contracts with local
governmental entities, it is not uncommon for certain of its accounts
receivable to remain outstanding for approximately three to four months.
In addition, the Company's cash and investment balances and over $5 million
of borrowings have been used to fund working capital and the purchase price
of various acquisitions. As of January 31, 1996, the Company owed
$3,595,000 on its revolving credit agreement and $450,000 the ESOP loan.
In addition, as previously described in Note 4 of this report, on March 15,
1996, the Company borrowed approximately $750,000 under its credit
agreement to pay Ronald Stoynoff's obligation that was assumed from Allen
Peat. Despite these significant uses of cash, it is anticipated that the
$5 million revolving credit agreement, together with existing cash balances,
and cash generated from future operations will be sufficient for the Company
to meet its working capital requirements for at least the next twelve months.
-10-
The Company cannot precisely determine the effect of inflation on its
business. The Company continues, however, to experience relatively stable
costs for its inventory as the computer hardware market is very
competitive. Inflationary price increases related to labor and overhead
will have a negative effect on the Company's cash flow and net income to
the extent that they cannot be offset through improved productivity and
price increases.
-11-
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
(27) Financial Data Schedule
B. On November 13, 1995, the Registrant filed a Form 8-K current
report pursuant to the Securities and Exchange Act of 1934. The
report was filed in conjunction with Mr. Allen F. Peat's
retirement as President, Chief Executive Officer and Chairman of
the Company which became effective October 17, 1995. The Form 8-K
current report included a copy of the agreement setting forth
the terms pursuant to which Mr. Peat retired.
-12-
EXHIBIT INDEX
EXHIBIT
NUMBER DOCUMENT
27 Financial Data Schedule
-13-
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 thereunto duly authorized.
Date: March 18, 1996 By /S/ PAUL R. SYLVESTER
Paul R. Sylvester
President, Chief Executive
Officer and Chief Financial
Officer (Principal Executive,
Financial and Accounting
Officer)
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE THIRD QUARTER 1996 FORM 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-START> MAY-01-1995
<PERIOD-END> JAN-31-1996
<CASH> 287,674
<SECURITIES> 0
<RECEIVABLES> 6,850,839
<ALLOWANCES> 559,800
<INVENTORY> 580,490
<CURRENT-ASSETS> 11,207,682
<PP&E> 5,266,832
<DEPRECIATION> 3,122,987
<TOTAL-ASSETS> 18,079,583
<CURRENT-LIABILITIES> 7,860,201
<BONDS> 0
<COMMON> 5,856,821
0
0
<OTHER-SE> (573,428)
<TOTAL-LIABILITY-AND-EQUITY> 18,079,583
<SALES> 17,952,371
<TOTAL-REVENUES> 17,952,371
<CGS> 11,755,412
<TOTAL-COSTS> 11,755,412
<OTHER-EXPENSES> 8,823,241
<LOSS-PROVISION> 141,488
<INTEREST-EXPENSE> 334,825
<INCOME-PRETAX> (3,053,093)
<INCOME-TAX> (200,000)
<INCOME-CONTINUING> (2,853,093)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,853,093)
<EPS-PRIMARY> (.96)
<EPS-DILUTED> (.96)
</TABLE>
