<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number
JANUARY 31, 1998 0-15264
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 16, 1998, was 2,813,329 shares.
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<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
MANATRON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<CAPTION>
JANUARY 31, APRIL 30,
1998 1997
----------- -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 116,227 $ 457,691
Receivables, net 6,698,999 5,918,358
Revenues earned in excess of billings and
retainages on long-term contracts 3,021,393 2,772,705
Inventories 65,750 275,142
Other current assets 522,062 650,431
----------- -----------
Total current assets 10,424,431 10,074,327
----------- -----------
NET PROPERTY AND EQUIPMENT 1,241,901 1,463,577
----------- -----------
OTHER ASSETS:
Long-term receivables, less current portion 306,663 638,024
Officers' receivable 344,933 354,013
Computer software development costs, net 1,063,802 1,021,664
Goodwill, net 946,541 1,085,165
Other, net 119,830 217,498
----------- -----------
Total other assets 2,781,769 3,316,364
----------- -----------
$14,448,101 $14,854,268
=========== ===========
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<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 100,000 $ 100,000
Accounts payable 840,519 1,181,660
Billings in excess of revenues earned on
long-term contracts 1,791,332 1,749,100
Billings for future services 4,063,804 3,227,865
Accrued liabilities 2,327,416 2,240,842
----------- -----------
Total current liabilities 9,123,071 8,499,467
----------- -----------
DEFERRED INCOME TAXES 43,000 43,000
----------- -----------
LONG-TERM DEBT 150,000 1,110,000
----------- -----------
OTHER LONG-TERM LIABILITIES 212,234 376,134
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock 5,250,736 5,418,203
Retained earnings (deficit) 25,935 (149,974)
Deferred compensation (106,875) (117,562)
Unearned ESOP shares (250,000) (325,000)
----------- -----------
Total shareholders' equity 4,919,796 4,825,667
----------- -----------
$14,448,101 $14,854,268
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-3-
<PAGE>
<TABLE>
MANATRON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
---------------------------- -----------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET REVENUES $6,263,200 $5,498,981 $18,144,469 $16,467,492
COST OF REVENUES 3,826,832 3,349,968 11,376,066 10,055,844
---------- ---------- ---------- ----------
Gross profit 2,436,368 2,149,013 6,768,403 6,411,648
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,298,107 2,174,158 6,499,665 6,581,977
---------- ---------- ---------- ----------
Income (loss) from
operations 138,261 (25,145) 268,738 (170,329)
OTHER EXPENSE, net (31,231) (71,170) (92,829) (202,229)
---------- ---------- ---------- ----------
Income (loss) before
provision for federal
income taxes 107,030 (96,315) 175,909 (372,558)
PROVISION FOR FEDERAL
INCOME TAXES (Note 2) -- -- -- --
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 107,030 $ (96,315) $ 175,909 $ (372,558)
========== ========== ========== ==========
INCOME (LOSS) PER SHARE $ .04 $ (.03) $ .06 $ (.13)
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING 2,859,138 2,869,218 2,823,399 2,866,206
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-4-
<PAGE>
<TABLE>
MANATRON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
NINE MONTHS ENDED
JANUARY 31,
----------------------------
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 175,909 $ (372,558)
Adjustments to reconcile net income (loss) to net cash
and equivalents provided by operating
activities:
Depreciation and amortization 1,178,793 1,384,840
Deferred compensation expense 52,650 49,079
Decrease (increase) in assets:
Receivables, net (780,641) (381,705)
Revenues earned in excess of billings and
retainages (248,688) (272,984)
Inventories 209,392 230,930
Other current assets 128,369 (45,307)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities (254,567) (288,653)
Billings in excess of revenues earned 42,232 4,541
Billings for future services 835,939 528,926
Other long-term liabilities (163,900) (157,039)
---------- ----------
Net Cash and equivalents provided by
operating activities 1,175,488 680,070
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in long-term receivables 340,441 474,756
Decrease in other assets 3,411 --
Investments in computer software development (425,523) (341,348)
Net additions to property and equipment (340,851) (354,516)
---------- ----------
Net cash and equivalents used for investing
activities (422,522) (221,108)
---------- ----------
-5-
<PAGE>
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock (201,028) --
Purchases of common stock by stock plans 66,598 13,363
Repayments of long-term debt (960,000) (685,000)
---------- ----------
Net cash and equivalents used
for financing activities (1,094,430) (671,637)
---------- ----------
CASH AND EQUIVALENTS:
Decrease (341,464) (212,675)
Balance at beginning of period 457,691 352,074
---------- ----------
Balance at end of period $ 116,227 $ 139,399
========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-6-
<PAGE>
MANATRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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(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, 1997, as filed with the Securities and
Exchange Commission on July 29, 1997. 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, 1998, and April
30, 1997, (b) the results of its operations for the nine months ended
January 31, 1998 and 1997 and (c) cash flows for the nine months ended
January 31, 1998 and 1997.
(2) FEDERAL INCOME TAXES
During 1997 and 1996, the Company recorded valuation allowances totaling
$912,000 and $834,000, respectively, against certain of its future tax
benefits, including its tax loss carryforward due to the uncertainty of
their ultimate realization. In addition, as of April 30, 1997, the
Company had tax net operating loss carryforwards available of approxi-
mately $995,000. As a result, the Company has not recorded a provision
for federal income taxes for the three or the nine months ended January
31, 1998, because a portion of these loss carryforwards will be utilized
to offset it. These net operating loss carryforwards are available to
offset future taxable income generated through the year 2011.
(3) EARNINGS PER SHARE
In the quarter ended January 31, 1998, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 128, "Earnings per
Share." Accordingly, all prior period "earnings per share" amounts
included in this report have been restated to conform to this standard.
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<PAGE>
Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings
per share is computed by dividing net income by the weighted average
number of common shares outstanding plus all potential common shares.
Dilutive potential common shares include all shares which may become
contractually issuable. For the Company, dilutive potential common
shares primarily are comprised of shares issuable under employee stock
plans.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Net revenues of $6,263,200 for the three months ended January 31, 1998,
have increased by 14% in comparison to the $5,498,981 of net revenues that
were reported for the three months ended January 31, 1997. Net revenues of
$18,144,469 for the nine months ended January 31, 1998, are 10% higher than
the $16,467,492 of net revenues that were reported for the nine months
ended January 31, 1997. These amounts include revenues from computer
hardware and software shipments, sales of computer forms and supplies and
various related services such as mass real estate appraisal, software
support, training, hardware maintenance and forms processing and printing.
The increase in net revenues primarily can be attributed to the cyclical
nature of the Company's appraisal business. During the nine months ended
January 31, 1998, the Company has signed over $11 million in appraisal
contracts compared to approximately $5 million that had been signed during
the same period last year. In addition, the Company's backlog for appraisal
services is still approximately $12 million which was the amount reported at
October 31, 1997. Revenues from hardware, software and related services have
remained relatively flat and the Company currently expects such revenues to
remain so until additional progress is made with respect to the Company's
efforts focused on enhancing, reengineering and deploying new software
products such as property tax, appraisal, financial and MIRRS.
Cost of revenues for the three months ended January 31, 1998, increased 14%
to $3,826,832 in comparison to the $3,349,968 that was reported for the
three months ended January 31, 1997. Cost of revenues also increased by
13% from $10,055,844 for the nine months ended January 31, 1997, to
$11,376,066 for the nine months ended January 31, 1998. These increases
primarily are due to the increases in net revenues noted above, as gross
margins have only decreased by approximately 2% to 37% for the nine months
ended. Margins have decreased because a higher percentage of the Company's
revenues are from appraisal services which typically generate a lower
margin than software sales and services. The Company also is experiencing
increased costs due to annual salary adjustments and other costs associated
with attracting and retaining quality employees.
-8-
<PAGE>
Selling, general and administrative expenses have increased by 6% to
$2,298,107 for the three months ended January 31, 1998, compared to
$2,174,158 for the three months ended January 31, 1997. Selling, general
and administrative expenses have decreased 1% from $6,581,977 for the nine
months ended January 31, 1997, as compared to $6,499,665, for the nine
months ended January 31, 1998. These changes are primarily the result of
annual salary adjustments and a reclassification of second quarter selling,
general and administrative expenses to cost of revenues.
As a result of the factors noted above, the Company reported operating
income of $138,261 for the three months and $268,738 for the nine months
ended January 31, 1998. This is a significant improvement over the
operating losses of $25,145 for the three months and $170,329 for the nine
months ended January 31, 1997. In addition, interest expense, which is
included in other expense, has decreased from $251,502 for the nine months
ended January 31, 1997 to $126,868 for the nine months ended January 31,
1998, because the Company has reduced its average outstanding indebtedness
by over $1,000,000.
The Company's provision for federal income taxes generally fluctuates with
the level of pretax income. In addition, the effective tax rate generally
is impacted because of non-deductible goodwill amortization related to the
Company's acquisitions. However, as described in Note 2, the Company has
not recorded a provision for federal income taxes for the three and nine
month periods ended January 31, 1998, because a portion of its net
operating loss carryforwards available have been utilized to offset such
provision.
As a result of the factors noted above, the Company reported net income of
$107,030 or $.04 per share for the three months and $175,909 or $.06 per
share for the nine months ended January 31, 1998, as compared to net losses
of $96,315 or $.03 per share for the three months and $372,558 or $.13 per
share for the nine months ended January 31, 1997. Weighted average shares
outstanding has decreased from 2,866,206 to 2,823,426 primarily because the
Company repurchased 95,200 shares of its common stock during June, July and
August of the current fiscal year, offset by issuances of about 34,000
shares through employee stock plans.
YEAR 2000
The Company is currently in the process of addressing a potential problem
that is facing all users of automated information systems. The problem is
that many computer systems that process transactions based on two digits
representing the year of transaction may recognize a date using "00" as the
year 1900 rather than the year 2000. The problem could affect a wide variety
of automated information systems, such as mainframe applications, personal
computers and communication systems, in the form of software failure, errors
or miscalculations. By nature, the software development industry is highly
dependent upon computer systems because of a date dependency for many of its
applications.
-9-
<PAGE>
The Company has been developing and implementing plans to prepare itself and
its customers for the year 2000 for the past few years. This plan began with
the performance of an inventory of software applications, communications with
third-party vendors and suppliers and communications with customers. The
Company's plan regularly is updated and monitored by technical personnel and
regularly is reviewed by management of the Company. As of March 16, 1998, is
estimated that this plan is over 50% complete.
The Company will continue to assess the impact of, and work on, the Year 2000
issue throughout 1998. The Company's goal is to perform tests of its systems
and applications during 1998 and 1999 and to have all targeted systems and
applications compliant with the century change by June 1999, which would
allow the Company to have time to validate and test its systems.
The costs to implement the Year 2000 changes primarily will consist of
personnel expense for staff dedicated to the effort and professional fees
paid to third party providers of remedial services. It is the Company's
policy to expense such costs as incurred. The Company also may invest in new
or upgraded technology which has definable value lasting beyond 2000. In
these instances, where Year 2000 compliance is merely ancillary, the Company
may capitalize and depreciate such an asset over its estimated useful life.
Based on currently available information, management does not presently
anticipate that the costs to address the Year 2000 issues will have a
material adverse impact on the Company's financial conditions, results of
operations or liquidity. Although not material, the costs to address the
Year 2000 issue have had a negative effect on the Company's earnings and the
future costs associated with the Year 2000 issue are expected to have a
similar effect.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates.
There can be no guarantee that these estimates will be achieved and actual
results could differ from those anticipated. Specific factors that might
cause differences include, but are not limited to, the ability of other
companies on which the Company's systems rely to modify or convert their
systems to be year 2000 compliant, and the ability to locate and correct all
relevant computer codes and similar uncertainties.
FINANCIAL CONDITION AND LIQUIDITY
Working capital of $1,301,360 at January 31, 1998, has decreased 17%
compared to the April 30, 1997, amount of $1,574,860. These working
capital levels reflect current ratios of 1.14 and 1.19, respectively. The
decrease in working capital primarily is due to the reduction of long-term
debt during the current fiscal year.
Shareholders' equity at January 31, 1998, increased by $94,129 to
$4,919,796 from the balance reported at April 30, 1997, primarily because
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<PAGE>
of the $175,909 of net income, $52,650 of deferred compensation expense and
$66,598 of purchases by employee stock plans during the nine month period
ended January 31, 1998. This amount was offset by the Company's repurchase
of 95,200 shares of its common stock for $201,028. Book value per share
increased slightly to $1.75 as of January 31, 1998, from $1.68 at April 30,
1997.
The nature of the Company's business is not property or equipment
intensive. Net capital expenditures, which were $340,851 for the nine
months ended January 31, 1998, are slightly lower than the prior year
amount of $354,516. The increase in capital expenditures primarily is due
to the purchase of additional or new computer hardware and software for the
Company's technical and support personnel. Net capital expenditures for
future periods are not currently 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.
As of January 31, 1998, the Company did not have any outstanding loans
under its $5,000,000 revolving credit agreement and owed $250,000 on its
ESOP loan. It currently is anticipated that the revolving line of credit,
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 12 months.
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.
The following table reconciles the numerators and denominators used in the
calculation of basic and diluted earnings per share for each of the periods
presented:
-11-
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
---------------------------- ----------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NUMERATORS:
Net Income $ 107,030 $ (96,315) $ 175,109 $ (372,558)
========== ========== ========== ==========
DENOMINATORS:
Denominator for basic
earnings per share, average
outstanding common shares 2,810,588 2,869,218 2,823,426 2,866,206
Potential dilutive shares resulting 48,550 -- 59,973 --
---------- ---------- ---------- ----------
Denominator for diluted
earnings per share $2,859,138 $2,869,218 $2,883,399 $2,866,206
========== ========== ========== ==========
EARNINGS PER SHARE
BASIC 04 (.03) .06 (.13)
DILUTED 04 (.03) .06 (.13)
</TABLE>
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<PAGE>
PART II. - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS. The following documents are filed as exhibits to this
report on Form 10-Q:
3.1 Restated Articles of Incorporation. Previously filed as
an exhibit to the Company's Form 10-K Annual Report for
the fiscal year ended April 30, 1995, and incorporated
herein by reference.
3.2 Bylaws. Previously filed as an exhibit to the Company's
Form 10-K Annual Report for the fiscal year ended
April 30, 1995, and incorporated herein by reference.
4.1 Restated Articles of Incorporation. See Exhibit 3.1
above.
4.2 Bylaws. See Exhibit 3.2 above.
4.3 Revolving Credit Loan Agreement. Previously filed as an
exhibit to the Company's Form 8-K Current Report dated
November 11, 1994, and incorporated herein by reference.
4.4 First Amendment to Revolving Credit Agreement.
Previously filed as an exhibit to the Company's Form 10-K
Annual Report for the fiscal year ended April 30, 1996,
and incorporated herein by reference.
4.5 Second Amendment to Revolving Credit Agreement.
Previously filed as an exhibit to the Company's Form 10-K
Annual Report for the fiscal year ended April 30, 1996,
and incorporated herein by reference.
4.6 Rights Agreement dated June 2, 1997 between Manatron,
Inc. and Registrar and Transfer Company. Previously
filed as an exhibit to the Company's Form 8-A filed on
June 11, 1997, and incorporated herein by reference.
27 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the three months ended
January 31, 1998.
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<PAGE>
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 17, 1998 By /S/ PAUL R. SYLVESTER
Paul R. Sylvester
President, Chief Executive Officer
and Chief Financial Officer
(Principal Executive, Financial
and Accounting Officer)
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<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DOCUMENT
------ --------
3.1 Restated Articles of Incorporation. Previously filed as an
exhibit to the Company's Form 10-K Annual Report for the
fiscal year ended April 30, 1995, and incorporated herein by
reference.
3.2 Bylaws. Previously filed as an exhibit to the Company's
Form 10-K Annual Report for the fiscal year ended April 30,
1995, and incorporated herein by reference.
4.1 Restated Articles of Incorporation. See Exhibit 3.1 above.
4.2 Bylaws. See Exhibit 3.2 above.
4.3 Revolving Credit Loan Agreement. Previously filed as an
exhibit to the Company's Form 8-K Current Report dated
November 11, 1994, and incorporated herein by reference.
4.4 First Amendment to Revolving Credit Agreement. Previously
filed as an exhibit to the Company's Form 10-K Annual Report
for the fiscal year ended April 30, 1996, and incorporated
herein by reference.
4.5 Second Amendment to Revolving Credit Agreement. Previously
filed as an exhibit to the Company's Form 10-K Annual Report
for the fiscal year ended April 30, 1996, and incorporated
herein by reference.
4.6 Rights Agreement dated June 2, 1997 between Manatron, Inc.
and Registrar and Transfer Company. Previously filed as an
exhibit to the Company's Form 8-A filed on June 11, 1997,
and incorporated herein by reference.
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE THIRD QUARTER 1998 FORM 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 116,227
<SECURITIES> 0
<RECEIVABLES> 6,520,124
<ALLOWANCES> 772,000
<INVENTORY> 65,750
<CURRENT-ASSETS> 10,424,431
<PP&E> 5,752,072
<DEPRECIATION> 4,510,171
<TOTAL-ASSETS> 14,448,101
<CURRENT-LIABILITIES> 9,123,071
<BONDS> 0
<COMMON> 5,250,736
0
0
<OTHER-SE> (330,940)
<TOTAL-LIABILITY-AND-EQUITY> 14,448,101
<SALES> 18,144,469
<TOTAL-REVENUES> 18,144,469
<CGS> 11,376,066
<TOTAL-COSTS> 11,376,066
<OTHER-EXPENSES> 6,424,254
<LOSS-PROVISION> 75,411
<INTEREST-EXPENSE> 126,868
<INCOME-PRETAX> 175,909
<INCOME-TAX> 0
<INCOME-CONTINUING> 175,909
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 175,909
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
