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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
| For the Quarter Ended | Commission File Number |
| July 31, 1999 | 0-15264 |
| 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) |
The number of shares outstanding of registrant's common stock, no par value, at September 10, 1999, was 3,354,538 shares.
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED CONDENSED BALANCE SHEETS
| July 31, | April 30, | ||
| 1999 |
1999 |
||
| ASSETS | |||
| CURRENT ASSETS: | |||
| Cash and equivalents | $ 2,960,931 | $ 6,511,266 | |
| Receivables, net | 6,564,035 | 5,427,331 | |
| Revenues earned in excess of billings and | |||
| retainages on long-term contracts | 3,780,812 | 3,920,928 | |
| Inventories | 362,237 | 415,341 | |
| Other current assets | 2,037,958 |
2,097,124 |
|
| Total current assets | 15,705,973 |
18,371,990 |
|
| NET PROPERTY AND EQUIPMENT | 2,588,702 |
1,207,140 |
|
| OTHER ASSETS: | |||
| Long-term receivables, less current portion | 1,371,179 | 1,080,037 | |
| Officers' receivable | 225,441 | 232,969 | |
| Computer software development costs, net | 1,633,217 | 1,507,178 | |
| Goodwill, net | 3,554,721 | 715,503 | |
| Other, net | 174,741 |
113,612 |
|
| Total other assets | 6,959,299 |
3,649,299 |
|
| $25,253,974 |
$23,228,429 |
||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||
| CURRENT LIABILITIES: | |||
| Current portion of long-term debt | $ 155,000 | $ 155,000 | |
| Accounts payable | 1,754,452 | 1,726,397 | |
| Billings in excess of revenues earned on | |||
| long-term contracts | 3,684,071 | 3,308,140 | |
| Billings for future services | 5,923,388 | 5,914,071 | |
| Accrued liabilities | 4,428,136 |
5,290,976 |
|
| Total current liabilities | 15,945,047 |
16,394,584 |
|
| LONG-TERM DEBT | 25,000 |
50,000 |
|
| SHAREHOLDERS' EQUITY: | |||
| Common stock | 7,789,284 | 5,672,530 | |
| Retained earnings | 1,864,518 | 1,468,367 | |
| Deferred compensation | (269,875) | (232,052) | |
| Unearned ESOP shares | (100,000) |
(125,000) |
|
| Total shareholders' equity | 9,283,927 |
6,783,845 |
|
| Total liabilities and shareholders' equity | $25,253,974 |
$23,228,429 |
|
| Three Months Ended | |||
| July 31, |
|||
| 1999 |
1998 |
||
| NET REVENUES | $10,466,364 | $8,083,056 | |
| COST OF REVENUES | 7,311,890 |
5,252,964 |
|
| Gross profit | 3,154,474 | 2,830,092 | |
| SELLING, GENERAL AND ADMINISTRATIVE | |||
| EXPENSES | 2,673,139 |
2,627,353 |
|
| Income from operations | 481,335 | 202,739 | |
| OTHER INCOME, net | 64,815 |
349 |
|
| Income before provision for | |||
| federal income taxes | 546,150 | 203,088 | |
| PROVISION FOR FEDERAL INCOME | |||
| TAXES (Note 2) | 150,000 |
-- |
|
| NET INCOME | $ 396,150 |
$ 203,088 |
|
| BASIC EARNINGS PER SHARE | $ .12 |
$ .07 |
|
| DILUTED EARNINGS PER SHARE | $ .11 |
$ .06 |
|
| BASIC WEIGHTED AVERAGE SHARES | |||
| OUTSTANDING | 3,208,163 |
2,852,279 |
|
| DILUTED WEIGHTED AVERAGE SHARES | |||
| OUTSTANDING | 3,513,352 |
3,128,965 |
|
| Three Months Ended | |||
| July 31, |
|||
| 1999 |
1998 |
||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||
| Net income | $ 396,150 | $ 203,088 | |
| Adjustments to reconcile net income to net cash | |||
| and equivalents used for operating activities: | |||
| Depreciation and amortization expense | 530,142 | 511,231 | |
| Deferred compensation expense | 59,838 | 38,401 | |
| Decrease (increase) in current assets: | |||
| Receivables, net | (971,216) | (1,529,608) | |
| Revenues earned in excess of billings and | |||
| retainages on long-term contracts | 140,116 | (541,354) | |
| Inventories | 53,104 | 119,702 | |
| Other current assets | 120,221 | 21,363 | |
| Increase (decrease) in current liabilities: | |||
| Accounts payable and accrued liabilities | (895,135) | 12,083 | |
| Billings in excess of revenues earned on | |||
| long-term contracts | 375,931 | 610,366 | |
| Billings for future services | (82,628) | (882,878) | |
| Restructuring reserve | (62,049) |
-- |
|
| Net cash and equivalents used for operating activities | (335,526) |
(1,437,606) |
|
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||
| Net additions to property and equipment | (1,497,212) | (182,590) | |
| Net acquisition of ProVal Corporation | (1,235,596) | -- | |
| Decrease (increase) in long-term receivables | (280,471) | 16,047 | |
| Investments in computer software | (198,635) | (385,701) | |
| Other, net | (77,992) |
-- |
|
| Net cash and equivalents used for investing | |||
| activities | (3,289,906) |
(552,244) |
|
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||
| Issuance of common stock | 100,097 | 94,424 | |
| Borrowings (repayments) under line of credit | (25,000) | 800,000 | |
| Decrease in long-term liabilities | -- |
(61,353) |
|
| Net cash and equivalents provided by | |||
| financing activities | 75,097 |
833,071 |
|
| CASH AND EQUIVALENTS: | |||
| (Decrease) | (3,550,335) | (1,156,779) | |
| Balance at beginning of period | 6,511,266 |
1,613,669 |
|
| Balance at end of period | $ 2,960,931 |
$ 456,890 |
|
| Supplemental disclosures of cash flow information: | |||
| Interest paid on debt | $ 5,711 | $ 13,556 | |
| Income taxes paid | 1,111,750 | 10,021 | |
| (1) | GENERAL INFORMATION |
| The consolidated condensed financial statements included in this Form 10-Q 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, 1999, as filed with the Securities and Exchange Commission on July 29, 1999, except as discussed relative to the acquisition of ProVal Corporation in Note 5. | |
| 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 July 31, 1999 and April 30, 1999, (b) the results of its operations for the three-months ended July 31, 1999 and 1998, and (c) cash flows for the three-months ended July 31, 1999 and 1998. | |
| (2) | FEDERAL INCOME TAXES |
| As of April 30, 1997, the Company recorded a valuation allowance totaling $912,000 against certain of its future tax benefits, including its tax loss carryforwards, due to the uncertainty of their ultimate realization. Approximately $166,000 and $527,000 of this valuation allowance was utilized in fiscal 1998 and 1999, respectively, to offset the provision for federal income taxes. As of April 30, 1999, the Company had a valuation allowance of approximately $219,000 remaining which will be utilized to reduce the provision for federal income taxes in fiscal 2000. As a result, the Company estimates that its effective tax rate for fiscal year 2000 will be approximately 30% and accordingly, has recorded a provision for federal income tax expense using this rate. | |
| (3) | COMPREHENSIVE INCOME |
| In July 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for reporting and display of comprehensive income and its components in a full set of financial statements. The objective of SFAS 130 is to report a measure of all changes in equity of an enterprise that result from transactions and other economic events of the period other than transactions with owners. Comprehensive income is the total of net income and all other non-owner changes in equity. The Company adopted this standard effective May 1, 1998. Total comprehensive income was the same as net income for the three month periods ended July 31, 1999 and 1998. | |
| (4) | BUSINESS REPORTABLE SEGMENTS |
| Under the provisions of SFAS No. 131, the Company has two reportable segments: Information Software, Systems and Services and Property Mass Appraisal Services. The Company's reportable segments are separately managed, as each business requires different marketing and distribution strategies. | |
| The following table summarizes information regarding the Reportable Segments' profit for the quarters ended and the Reportable Segments' assets as of July 31, 1999 and 1998: | |
| For the Quarter Ended July 31, 1999 |
|||||||
| Information | Property | Unallocated | |||||
| Software, | Mass | Corporate | Total | ||||
| Systems and | Appraisal | Overhead | Combined | ||||
| Services |
Services |
(1) |
Company |
||||
| Revenues | $ 6,054,966 | $4,411,398 | $ -- | $10,466,364 | |||
| Unallocated amounts | -- | -- | (839,420) | (839,420) | |||
| Amortization and | |||||||
| depreciation expense | (393,648) | (41,380) | (95,114) | (530,142) | |||
| EBITDA | 1,277,384 | 543,217 | (809,124) | 1,011,477 | |||
| Capital expenditures | 1,463,431 | -- | -- | 1,497,212 | |||
| Segment assets | 18,408,880 | 6,845,094 | -- | 25,253,974 | |||
| (4) | BUSINESS REPORTABLE SEGMENTS (Continued) |
| For the Quarter Ended July 31, 1998 |
|||||||
| Information | Property | Unallocated | |||||
| Software, | Mass | Corporate | Total | ||||
| Systems and | Appraisal | Overhead | Combined | ||||
| Services |
Services |
(1) |
Company |
||||
| Revenues | $ 4,824,526 | $3,258,530 | $ -- | $ 8,083,056 | |||
| Unallocated amounts | -- | -- | (935,012) | (935,012) | |||
| Amortization and | |||||||
| depreciation expense | (388,785) | (76,238) | (46,208) | (511,231) | |||
| EBITDA | 814,290 | 788,833 | (889,153) | 713,970 | |||
| Capital expenditures | 126,630 | 55,960 | -- | 182,590 | |||
| Segment assets | 9,647,971 | 7,029,236 | -- | 16,677,207 | |||
___________________
(1) Unallocated amounts consist of general corporate expenses, interest expense, and interest
income.
| (5) | ACQUISITION OF PROVAL CORPORATION |
| Effective June 1, 1999, the Company acquired 100% of the outstanding capital stock of ProVal Corporation, a provider of computer assisted mass appraisal software to local governments. The aggregate purchase price of approximately $3.45 million consisted of $1.5 million in cash and 300,000 shares of the Company's common stock valued at $1.95 million. The acquisition has been accounted for under the purchase method of accounting. The excess of the aggregate purchase price over the fair value of the net assets acquired of approximately $2.9 million has been recognized as goodwill and will be amortized over a 10-year period. Additional payments of cash and shares of common stock may be required over the next four fiscal years if ProVal Corporation achieves certain revenue and operating income targets. The operating results of ProVal Corporation have been included in the Company's consolidated results of operations from the date of acquisition. | |
| (6) | EARNINGS PER SHARE |
| The following table reconciles the numerators and denominators used in the calculation of basic and diluted earnings per share for the each of the periods presented: | |
| Three Months Ended | |||
| July 31, |
|||
| 1999 |
1998 |
||
| Numerators: | |||
| Net Income | $ 396,150 | $ 203,088 | |
| Denominators: | |||
| Denominator for basic earnings per share, | |||
| weighted average outstanding common shares | 3,208,163 | 2,852,279 | |
| Potential dilutive shares | 305,189 |
276,686 |
|
| Denominator for diluted earnings per share | 3,513,352 |
3,128,965 |
|
| Earnings per share: | |||
| Basic | $ 0.12 | $ 0.07 | |
| Diluted | $ 0.11 | $ 0.06 | |
| Options to purchase 67,000 shares of common stock at prices ranging from $6.81 to $7.00 per share were outstanding during the first quarter of 2000, but were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common stock. | |
| Options to purchase 72,454 shares of common stock at prices ranging from $4.63 to $5.25 per share were outstanding during the first quarter of 1999, but were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common stock. | |
Results of Operations
Net revenues of $10,466,364 for the three months ended July 31, 1999 have increased by 29.5% in comparison to the $8,083,056 of net revenues that were reported for the comparable period in the prior fiscal year. 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 appraisals (revaluations), software support, training, hardware maintenance, and forms processing and printing.
Appraisal service revenues have increased by 35.4% over the prior year primarily because of the new revaluation contracts totaling approximately $30 million that were signed with Allegheny County (Pittsburgh), Pennsylvania, and Hamilton County (Cincinnati), Ohio, during fiscal 1998. In addition, as previously reported, the Company signed a new contract with Dauphin County (Harrisburg), Pennsylvania, in June of 1998 which includes approximately $3.6 million of revaluation services. The Company's backlog for appraisal services at July 31, 1999 decreased $4.2 million to $19 million at July 31, 1999 compared to $23.2 million at April 30, 1999. The reduction in backlog for appraisal services is primarily due to the continued execution of the Allegheny County contract (approximately $2,800,000), the Dauphin County contract ($396,000), and various other contracts.
Revenues from hardware, software, support, and supply sales have increased by 25% over the prior year primarily because of additional software license fees from new and legacy products and the recognition of increased support revenue. Of the approximate $1,200,000 increase in revenues, approximately $318,000 is attributable to new revenue produced by ProVal Corporation in June and July 1999.
As a result of the increase in net revenues, cost of revenues for the three months ended July 31, 1999 also increased 39.2% to $7,311,890 versus the comparable prior year amount of $5,252,964. Margins have decreased from 35% in the prior year quarter to 30.1% in the current quarter because of the increase in service revenues. Service revenues typically generate a lower margin than software sales. In addition, cost of revenues increased due to salary adjustments, additional personnel associated with the acquisition of ProVal Corporation and other costs associated with year 2000 compliance work.
Selling, general and administrative expenses have increased by 1.7% to $2,673,139 for the three months ended July 31, 1999, compared to $2,627,353 for the same period in the prior fiscal year. This increase primarily is due to annual salary adjustments.
As a result of the factors noted above, the Company had a 137.4% increase in its operating income to $481,335 for the three months ended July 31, 1999, versus $202,739 for the three months ended July 31, 1998. In addition, interest expense, which is included in other expense, has decreased from $13,421 to $5,566 because the Company has reduced its average outstanding indebtedness in the last 12 months.
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 of ATEK Information Services, Specialized Data Systems, and ProVal Corporation. However, as described in Note 2, the Company has available certain remaining unrecorded future tax benefits which will be utilized to reduce its provision for future income taxes. As a result, the Company recorded a tax provision for the quarter ended July 31, 1999 using an effective tax rate of approximately 30%. The Company has not recorded a provision in the comparable quarter for the prior year because the available unrecorded future tax benefits were sufficient to offset it.
As a result of the factors noted above, the Company reported net income of $396,150 or $.11 per share for the three months ended July 31, 1999, versus $203,088 or $.06 per share for the comparable period in the prior fiscal year. This represents a significant improvement over the prior year.
Year 2000 Readiness Disclosure
This Year 2000 Readiness Disclosure is based upon and partially repeats information provided by the Company's outside consultants and others regarding the Year 2000 readiness of the Company and its customers, suppliers, financial institutions, and other parties. Although the Company believes this information to be accurate, it has not independently verified such information.
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 and applications process dates using only two digits for the year. These systems 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 failures, errors or miscalculations. By nature, the software industry is highly dependent upon computer systems. The year 2000 issue is especially important to software vendors because most business applications have date dependencies as an integral part of their logic.
The Company has developed and is implementing plans to prepare itself and its customers for the year 2000. The Company's plan is regularly updated and monitored by technical personnel and is reviewed by management of the Company on a periodic basis. Specifically, the plan addresses the Company's internal data processing systems, its software products, its third party products, and communications with its customers as follows:
Internal Data Processing
The Company's internal data processing systems include hardware and software that facilitates its business operations. The internal systems include:
The Company's Technical Services department has spearheaded the effort to manage these systems through a smooth year 2000 conversion. Currently, the Company's internal hardware and operating systems have been inventoried and are substantially year 2000 compliant. Projects are currently underway to replace the financial system, customer information system, customer support system and time tracking system. These projects are in varying stages of execution and are expected to be completed before the end of calendar year 1999. Where appropriate, the Company has established contingency plans to mitigate the risk of implementation delays.
The Company's Software Products
A core strategy of the Company is to develop and market turnkey software systems for local government. Most of these products have some dependency on dates. As such, the Company has been working to update them to properly handle years after 1999. Of the Company's 93 major products, only 71 are targeted for compliance. The others are either being discontinued or replaced by more modern products. As of July 31, 1999, this effort is approximately 95% complete. For comparison, as of January 31, 1998, this effort was estimated to be approximately 13% complete, and as of July 31, 1998 approximately 60% complete. As of July 31, 1999, the breakdown is as follows:
Third Party Hardware and Software
The Company's software products run on industry standard hardware and operating systems. To facilitate the deployment of its software, the Company acts as a value-added reseller for a wide variety of hardware manufacturers, installing and supporting both the hardware and software for its customers. The Company's technical services department is spearheading the effort to document the year 2000 compliance status third party hardware and software and to identify those products that need to be upgraded or replaced. This identification effort is also substantially complete; however, this information changes as vendors release more information about and options for managing the year 2000 issue.
Significant third parties with which the Company interfaces with regard to the year 2000 problem include those identified above and other customers, technology vendors and service providers, financial institutions, and companies that provide utility infrastructure (power, delivery services, telecommunications). Unreadiness by these third parties would expose the Company to the potential for loss and impairment of business processes and activities. The Company is assessing these risks and is considering the need for contingency plans intended to address perceived risks. The Company cannot predict what effect the failure of such a third party to address, in a timely manner, the year 2000 problem would have on the Company.
Communication with Customers
Another important aspect of the Company's year 2000 strategy is to coordinate its efforts with those of its customers. Communication of the Company's strategy to its customers also has been substantially completed. The communication includes the compliance plans for specific software products and the year 2000 services offered by the Company. This communication will continue throughout calendar year 1999 as the Company works with its customer base to upgrade or replace those software and hardware systems. To support this effort, the Company has launched a year 2000 area on its web site to make relevant information available to both Company personnel and customers.
Contingency Plan
The Company believes its plans will support the year 2000 rollover both internally and for its installed customer base. However, the Company presently is preparing contingency plans to further reduce the risk associated with year 2000 issues. Internally, the Company has purchased year 2000 compliant capacity for its current financial software even though it intends to implement a new system before the end of calendar year 1999.
For both internal and external purposes, the Company is planning staffing levels and resource commitments, so that adequate technical resources will be available to quickly address issues that may arise. This staffing plan will be comprehensive with the objective of addressing customer issues and internal staff support requirements.
The Company will continue to assess the impact of, and work on, the year 2000 issues throughout calendar year 1999. The Company's goal is to upgrade its customers' systems and applications during 1999 and to have all remaining targeted systems and applications compliant with the century change by September 1999, which would allow the Company time to address any last minute issues.
The Company has spent between approximately $550,000 and $750,000 in connection with year 2000 issues to date and expects that it will spend approximately $50,000 to $170,000 during the remainder of calendar 1999. The costs to implement the year 2000 changes primarily consist of personnel expenses for staff dedicated to identifying, assessing, remediating and testing year 2000 issues 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. However, the extent to which the computer operations and other systems of the Company's important third parties are adversely affected could, in turn, affect the Company's ability to communicate with such third parties and could materially affect the Company's results of operations in any period or periods. The costs 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, the ability of all third parties who have business relationships with the Company to continue their businesses without interruption and the ability to locate and correct all relevant computer codes and similar uncertainties. As a result, the Company is in the process of evaluating possible internal and external scenarios that might have an adverse affect on the Company, as well as the need for contingency plans to address these scenarios.
Financial Condition and Liquidity
At July 31, 1999 the Company had working capital of ($239,074) compared to the April 30, 1999 amount of $1,977,406. These levels reflect current ratios of 0.99 at July 31, 1999 and 1.12 at April 30, 1999. The decrease in working capital primarily is due to the decrease in cash which is a result of the acquisition of ProVal Corporation, purchase of a new corporate office facility, and payment of fiscal year 1999 income taxes.
Shareholders' equity at July 31, 1999 increased by $2,500,082 to $9,283,927 from the balance reported at April 30, 1999, because of $100,097 of employee stock purchases, $1,943,997 for the issuance of stock in relation to the acquisition of ProVal Corporation, $396,150 of net income, and $59,838 of deferred compensation expense that occurred during the first quarter. As a result, book value per share has increased to $2.78 as of July 31, 1999, from $2.28 at April 30, 1999.
The nature of the Company's business is not property or equipment intensive. Net capital expenditures, which were approximately $1,500,000 for the three months ended July 31, 1999, are significantly higher than the approximate $183,000 of capital expenditures reported for the comparable period in the prior fiscal year primarily because of the purchase of a new 25,000 square foot corporate office, including furniture and fixtures, in July of 1999 for approximately $1,300,000. The remaining net capital expenditures relate primarily to the purchase of additional or new computer hardware and software for the Company's technical and support personnel.
As 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, thereby having a negative impact upon cash flow. On October 9, 1998, the
Company entered into a new loan agreement with Comerica Bank which provides for a
$3,000,000 line of credit at prime through November 1, 2000. As of July 31, 1999, no
borrowings were outstanding under this line of credit. In addition, the Company owed $80,000
on acquisition related debt and $100,000 on its ESOP loan. The Company anticipates 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.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995
Certain information contained in this Form 10-Q may constitute or include forward-looking statements including information related to the Company's state of year 2000 readiness and costs to address the year 2000 issue and the Company's ability to meet its working capital requirements. Such forward-looking information involves important known and unknown risks and uncertainties and other factors that may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, uncertainties relating to economic conditions; possible future acquisitions and divestitures; technological changes and developments in the competitive environment in which the Company operates; the effect of the year 2000 on the Company's business; spending patterns of the Company's customers; success of the Company in negotiations with its lenders; size, timing, and recognition of revenue from significant orders; ability of the Company to successfully implement its business strategy of developing and licensing client/server decision support applications software designed to address specific industry markets; new product introductions and announcements by the Company's competitors; changes in Company strategy; product life cycles, cost and continued availability of third party software and technology incorporated into the Company's products; cancellations of maintenance and support agreements; potential obsolescence of the Company's existing products or services; pricing and availability of equipment, materials, inventories, and programming; success in and expense associated with the development, production, testing, marketing, and shipping of products, including a failure to ship new products and technologies when anticipated, failure of customers to accept these products and technologies when planned, and any defects in products; perceived absolute or relative overall value of the Company's products by the Company's customers, including features, quality, and pricing compared to other competitive products; amount, and rate of growth in, the Company's selling,
general and administrative expenses; occurrence of any expenditures and expenses, including depreciation and research and development expenses; costs and other effects of legal and administrative cases and proceedings (whether civil or criminal), settlements, and investigators, claims, and changes in those items; developments or assertions by or against the Company relating to intellectual property rights; adoption of new, or changes in, accounting policies and practices and the application of such policies and practices; and effects or changes within the Company's organization or in compensation and benefit plans. Since the purchase of the Company's products is relatively discretionary and generally involves a significant commitment of capital, in the event of any downturn in any potential customer's business or the economy in general, purchases of the Company's products may be deferred or canceled. Further, the Company's expense levels are based, in part, on its expectations as to future revenue and a significant portion of the Company's expenses do not vary with revenue. As a result, if revenue is below expectations, results of operations are likely to be materially adversely affected. Shareholders are cautioned not to place undue reliance on the forward-looking statements made in this Form 10-Q, which speak only as of the date hereof.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company's primary market risk exposure is a potential change in interest rates in connection with its line of credit. As of July 31, 1999, no borrowings were outstanding under this line of credit. Accordingly, the Company's market risk sensitive instruments did not subject the Company to market risk exposures as of July 31, 1999.
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, 1999, 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 | 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. | |
| 10.1 | Manatron, Inc. 1989 Stock Option Plan.* 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. | |
| 10.2 | Manatron, Inc. 1995 Long-Term Incentive Plan.* 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. | |
| 10.3 | Executive Employment Agreement with Randall L. Peat.* 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. | |
| 10.4 | Manatron, Inc. Employee Stock Ownership and Salary Deferral Plan.* 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. | |
| 10.5 | ATEK Information Services, Inc. Stock Purchase Agreement. 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. | |
| 10.6 | Stock Purchase Agreement between Ronald D. Stoynoff and Allen F. Peat dated March 15, 1994. 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. | |
| 10.7 | Agreement between Manatron, Inc. and Ronald D. Stoynoff effective as of April 1, 1994. 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. | |
| 10.8 | Asset Purchase Agreement between Manatron, Inc. and Moore Business Forms, Inc. dated November 11, 1994. 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. | |
| 10.9 | Manatron, Inc. 1994 Long-Term Incentive Plan.* 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. | |
| 10.10 | Agreement between Manatron, Inc. and Allen F. Peat dated October 17, 1995.* 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. | |
| 10.11 | Employment Agreement with Douglas A. Peat dated October 10, 1996.* 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. | |
| 10.12 | Employment Agreement with Jane M. Rix dated October 10, 1996.* 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. | |
| 10.13 | Employment Agreement with James W. Sanderbeck dated October 10, 1996.* 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. | |
| 10.14 | Employment Agreement with Paul R. Sylvester dated October 10, 1996.* 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. | |
| 10.15 | Employment Agreement with J. Wayne Moore dated May 28, 1999.* Previously filed as an exhibit to the Company's Form 10-K Annual Report for the fiscal year ended April 30, 1999, and incorporated herein by reference. | |
| 10.16 | Manatron, Inc. Executive Incentive Plan for 1999.* Previously filed as an exhibit to the Company's Form 10-Q Quarterly Report for the period ended October 31, 1998, and here incorporated by reference. | |
| 10.17 | Form of Indemnity Agreement.* Previously filed as an exhibit to the Company's Form 10-K Annual Report for the fiscal year ended April 30, 1998, and incorporated herein by reference. | |
| 10.18 | Property Revaluation Articles of Agreement for Allegheny County, Pennsylvania dated May 20, 1998. Previously filed as an exhibit to the Company's Form 10-Q Quarterly Report for the period ended July 31, 1998, and here incorporated by reference. | |
| 10.19 | Restricted Stock Plan of 1998.* Previously filed as an exhibit to the Company's Definitive Proxy Statement for its Annual Meeting of Shareholders held October 8, 1998, and here incorporated by reference. | |
| 10.20 | Employee Stock Purchase Plan of 1998.* Previously filed as an exhibit to the Company's Definitive Proxy Statement for its Annual Meeting of Shareholders held October 8, 1998, and here incorporated by reference. | |
| 10.21 | Letter Loan Agreement between Comerica Bank and Manatron, Inc., dated October 9, 1998. Previously filed as an exhibit to the Company's Form 10-Q Quarterly Report for the period ended January 31, 1999, and here incorporated by reference. | |
| 10.22 | Promissory Note between Comerica Bank and Manatron, Inc., dated October 9, 1998. Previously filed as an exhibit to the Company's Form 10-Q Quarterly Report for the period ended January 31, 1999, and here incorporated by reference. | |
| 10.23 | Guaranty between Comerica Bank and Manatron, Inc., dated October 9, 1998 regarding indebtedness of Manatron, Inc. Employee Stock Option and Salary Deferral Plan. Previously filed as an exhibit to the Company's Form 10-Q Quarterly Report for the period ended January 31, 1999, and here incorporated by reference. | |
| 10.24 | Guaranty between Comerica Bank and Specialized Data Systems, Inc., dated October 9, 1998 regarding indebtedness of Manatron, Inc. Previously filed as an exhibit to the Company's Form 10-Q Quarterly Report for the period ended January 31, 1999, and here incorporated by reference. | |
| 10.25 | Guaranty between Comerica Bank and Atek Information Systems, Inc., dated October 9, 1998 regarding indebtedness of Manatron, Inc. Previously filed as an exhibit to the Company's Form 10-Q Quarterly Report for the period ended January 31, 1999, and here incorporated by reference. | |
| 10.26 | Security Agreement between Comerica Bank and Manatron, Inc., dated October 9, 1998. Previously filed as an exhibit to the Company's Form 10-Q Quarterly Report for the period ended January 31, 1999, and here incorporated by reference. | |
| 10.27 | Security Agreement between Comerica Bank and Specialized Data Systems, Inc., dated October 9, 1998. Previously filed as an exhibit to the Company's Form 10-Q Quarterly Report for the period ended January 31, 1999, and here incorporated by reference. | |
| 10.28 | Security Agreement between Comerica Bank and Atek Information Systems, Inc., dated October 9, 1998. Previously filed as an exhibit to the Company's Form 10-Q Quarterly Report for the period ended January 31, 1999, and here incorporated by reference. | |
| 10.29 | Offer to Purchase dated as of April 30, 1999. | |
| 10.30 | Agreement and Plan of Merger by and among ProVal Corporation, Manatron, Inc., and ProVal Acquisition Corporation and joined in by J. Wayne Moore, dated May 28, 1999. Previously filed as an exhibit to the Company's Form 8-K Current Report filed on June 18, 1999, and here incorporated by reference. | |
| 27 | Financial Data Schedule. | |
_______________________
*Management contract or compensatory plan or arrangement.
| (b) | Report on Form 8-K. The Company filed a Form 8-K Current Report on June 18, 1999 relating to the Company's purchase of ProVal Corporation. |
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: September 14, 1999 | By /s/ Paul R. Sylvester |
| Paul R. Sylvester | |
| President, Chief Executive Officer and | |
| Treasurer (Principal Executive | |
| Officer) | |
| Date: September 14, 1999 | By /s/ Joseph Zalewski |
| Joseph Zalewski | |
| Vice President-Finance and Chief Financial | |
| Officer (Principal Financial and Accounting | |
| Officer) | |
| 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, 1999, 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 | 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. | |
| 10.1 | Manatron, Inc. 1989 Stock Option Plan.* 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. | |
| 10.2 | Manatron, Inc. 1995 Long-Term Incentive Plan.* 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. | |
| 10.3 | Executive Employment Agreement with Randall L. Peat.* 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. | |
| 10.4 | Manatron, Inc. Employee Stock Ownership and Salary Deferral Plan.* 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. | |
| 10.5 | ATEK Information Services, Inc. Stock Purchase Agreement. 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. | |
| 10.6 | Stock Purchase Agreement between Ronald D. Stoynoff and Allen F. Peat dated March 15, 1994. 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. | ||
| 10.7 | Agreement between Manatron, Inc. and Ronald D. Stoynoff effective as of April 1, 1994. 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. | |
| 10.8 | Asset Purchase Agreement between Manatron, Inc. and Moore Business Forms, Inc. dated November 11, 1994. 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. | |
| 10.9 | Manatron, Inc. 1994 Long-Term Incentive Plan.* 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. | |
| 10.10 | Agreement between Manatron, Inc. and Allen F. Peat dated October 17, 1995.* 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. | |
| 10.11 | Employment Agreement with Douglas A. Peat dated October 10, 1996.* 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. | |
| 10.12 | Employment Agreement with Jane M. Rix dated October 10, 1996.* 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. | |
| 10.13 | Employment Agreement with James W. Sanderbeck dated October 10, 1996.* 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. | |
| 10.14 | Employment Agreement with Paul R. Sylvester dated October 10, 1996.* 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. | |
| 10.15 | Employment Agreement with J. Wayne Moore dated May 28, 1999.* Previously filed as an exhibit to the Company's Form 10-K Annual Report for the fiscal year ended April 30, 1999, and incorporated herein by reference. | |
| 10.16 | Manatron, Inc. Executive Incentive Plan for 1999.* Previously filed as an exhibit to the Company's Form 10-Q Quarterly Report for the period ended October 31, 1998, and here incorporated by reference. | |
| 10.17 | Form of Indemnity Agreement.* Previously filed as an exhibit to the Company's Form 10-K Annual Report for the fiscal year ended April 30, 1998, and incorporated herein by reference. | |
| 10.18 | Property Revaluation Articles of Agreement for Allegheny County, Pennsylvania dated May 20, 1998. Previously filed as an exhibit to the Company's Form 10-Q Quarterly Report for the period ended July 31, 1998, and here incorporated by reference. | |
| 10.19 | Restricted Stock Plan of 1998.* Previously filed as an exhibit to the Company's Definitive Proxy Statement for its Annual Meeting of Shareholders held October 8, 1998, and here incorporated by reference. | |
| 10.20 | Employee Stock Purchase Plan of 1998.* Previously filed as an exhibit to the Company's Definitive Proxy Statement for its Annual Meeting of Shareholders held October 8, 1998, and here incorporated by reference. | |
| 10.21 | Letter Loan Agreement between Comerica Bank and Manatron, Inc., dated October 9, 1998. Previously filed as an exhibit to the Company's Form 10-Q Quarterly Report for the period ended January 31, 1999, and here incorporated by reference. | |
| 10.22 | Promissory Note between Comerica Bank and Manatron, Inc., dated October 9, 1998. Previously filed as an exhibit to the Company's Form 10-Q Quarterly Report for the period ended January 31, 1999, and here incorporated by reference. | |
| 10.23 | Guaranty between Comerica Bank and Manatron, Inc., dated October 9, 1998 regarding indebtedness of Manatron, Inc. Employee Stock Option and Salary Deferral Plan. Previously filed as an exhibit to the Company's Form 10-Q Quarterly Report for the period ended January 31, 1999, and here incorporated by reference. | |
| 10.24 | Guaranty between Comerica Bank and Specialized Data Systems, Inc., dated October 9, 1998 regarding indebtedness of Manatron, Inc. Previously filed as an exhibit to the Company's Form 10-Q Quarterly Report for the period ended January 31, 1999, and here incorporated by reference. | |
| 10.25 | Guaranty between Comerica Bank and Atek Information Systems, Inc., dated October 9, 1998 regarding indebtedness of Manatron, Inc. Previously filed as an exhibit to the Company's Form 10-Q Quarterly Report for the period ended January 31, 1999, and here incorporated by reference. | |
| 10.26 | Security Agreement between Comerica Bank and Manatron, Inc., dated October 9, 1998. Previously filed as an exhibit to the Company's Form 10-Q Quarterly Report for the period ended January 31, 1999, and here incorporated by reference. | |
| 10.27 | Security Agreement between Comerica Bank and Specialized Data Systems, Inc., dated October 9, 1998. Previously filed as an exhibit to the Company's Form 10-Q Quarterly Report for the period ended January 31, 1999, and here incorporated by reference. | |
| 10.28 | Security Agreement between Comerica Bank and Atek Information Systems, Inc., dated October 9, 1998. Previously filed as an exhibit to the Company's Form 10-Q Quarterly Report for the period ended January 31, 1999, and here incorporated by reference. | |
| 10.29 | Offer to Purchase dated as of April 30, 1999. | |
| 10.30 | Agreement and Plan of Merger by and among ProVal Corporation, Manatron, Inc., and ProVal Acquisition Corporation and joined in by J. Wayne Moore, dated May 28, 1999. Previously filed as an exhibit to the Company's Form 8-K Current Report filed on June 18, 1999, and here incorporated by reference. | |
| 27 | Financial Data Schedule. | |
_______________________
*Management contract or compensatory plan or arrangement.
|
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