<PAGE> 1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________________ TO _______________________
COMMISSION FILE NO. 0-20189
EQUITRAC CORPORATION(R)
(Exact name of registrant as specified in its charter.)
FLORIDA 59-1797862
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
836 PONCE DE LEON BOULEVARD, CORAL GABLES, FLORIDA 33134
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (305) 442-2060
Securities Registered Pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, $.01 PAR VALUE NASDAQ NATIONAL MARKET SYSTEM
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed under 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
At May 10, 1996, the aggregate market value of common stock held by
non-affiliates of the registrant was $14,127,200, based on the closing sales
price ($8.00) of such common stock on the NASDAQ National Market System on such
date.
The number of shares outstanding of the registrant's Common Stock, par
value $.01, as of May 10, 1996 was 3,392,900.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement to be filed in connection with
the registrant's annual stockholders' meeting are incorporated by reference
into Part III of this report.
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I
ITEM 1. BUSINESS 2
ITEM 2. PROPERTIES 9
ITEM 3. LEGAL PROCEEDINGS 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 12
ITEM 6. SELECTED FINANCIAL DATA 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 20
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 36
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 36
ITEM 11. EXECUTIVE COMPENSATION 36
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 36
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS
ON FORM 8-K 37
SIGNATURES 39
</TABLE>
-1-
<PAGE> 3
PART I
ITEM 1. BUSINESS
Equitrac Corporation ("Equitrac" or the "Company") is the leading provider
of computer system solutions to professional service firms for automated cost
recovery and expense management of office equipment. Equitrac designs,
develops, manufactures, markets and supports a fully integrated computer
hardware and software communications network designed to automatically track,
record and report usage of photocopy machines, facsimile machines, laser
printers, word processing terminals, telephones, postage meters and other
office equipment. The Company's systems allow users to bill incurred costs,
maximize office equipment efficiency and contain overhead costs. Equitrac's
cost recovery and expense management systems are installed at over 6,000
4,000client sites worldwide.
The Company also provides maintenance service on a wide range of computer
equipment through its Equitrac Computer Services ("ECS") division. ECS
supports many major equipment manufacturers, including IBM, Hewlett-Packard,
Epson and Synoptics. This multi-vendor support covers a variety of services
including installation, preventive maintenance and on-site repair service.
COST RECOVERY AND EXPENSE MANAGEMENT MARKET OVERVIEW
Equitrac's primary market focus for its systems is cost recovery
applications for law firms, and to a lesser extent, engineering, architectural
design, accounting, advertising and other professional service firms (the
"professional market") that bill their clients for office-related expenses in
order to recover incurred costs. Billable office- related costs generally
represent an important source of revenue to law and other professional service
firms. Office equipment acquisition and maintenance costs represent a
significant portion of a professional service firm's overhead expenses. As a
result, professional service firms have required more sophisticated technology
as a means of tracking and recovering office overhead costs from their clients.
Equitrac's systems provide professional service firms with a highly automated
means of tracking and accounting for a wide variety of office equipment and
services at a cost which can be recovered in a relatively short period of time.
Large corporations, governmental entities and other organizations (the
"commercial market") incur significant capital outlays acquiring and
maintaining photocopiers, facsimile machines, laser printers and other office
equipment. Equitrac also markets its systems to commercial and governmental
entities for use in controlling and reducing office expenses and allocating
departmental costs.
-2-
<PAGE> 4
PRODUCT FEATURES AND TECHNOLOGY
Equitrac's systems, which are comprised of system software, control
terminals and application software, are designed to allow customers flexibility
in configuring a system to match their own particular needs. Continued product
development efforts have resulted in advanced terminal designs and system
software, data security features, advanced communication technology and
computer networking capabilities for Equitrac's cost recovery and expense
management systems.
SYSTEM SOFTWARE
Equitrac's system software is designed primarily for terminal
communications, database maintenance, report generation, host system
communications, remote system polling and transaction costing. Each system
software package is designed to match specific customer requirements.
System 4, a Windows NT based application is Equitrac's most advanced system
and is designed for large to mid-size customers. Utilizing Microsoft's Access
SQL database engine, System 4 provides extensive report generation, transaction
costing and host interface capabilities. System 4 supports all Equitrac
applications such as photocopy control, facsimile control and telephone call
accounting.
System 3, a DOS based system originally introduced in 1988, provides
customers with a simple turn-key, fully automated cost recovery system. System
3 provides many advanced capabilities such as multi-site support, concurrent
processing and integrated telephone call accounting.
DisburseMate(TM) is a simplified software package designed for the needs of
smaller firms. DisburseMate(TM) supports many of the same applications as
System 3 but does not offer many of the advanced features such as automated
data collection, LAN integration and multi-site support.
CONTROL TERMINALS
Equitrac's control terminals are data entry devices used to accurately
track the use of photocopy machines, facsimile machines, postage meters, other
office equipment and miscellaneous disbursements.
Equitrac's AlphaCopy(TM) and AlphaFax(TM) control terminals are designed
with an advanced feature set and intuitive user interface created to greatly
simplify the process of data entry. The Alpha Terminal allows users to access
billing codes by searching for the correct code by name or description. Other
features include Recall of previous transactions and User Defined Speed Codes.
The features of the Alpha Terminal are designed to increase the accuracy of
tracking disbursement expenses. The Alpha Terminal incorporates a large
600x240 pixel display, 80 megabyte hard drive and is capable of storing up to
600,000 billing codes and up to 400,000 transactions as back-up. The terminal
can be connected directly to a Local Area Network and is capable of controlling
up to three separate office devices at the same time. The Alpha Terminals are
compatible with both System 3 and System 4 system software.
-3-
<PAGE> 5
Equitrac's Distributed Control Terminals (DCT's) and Fax Control Terminals
(FCT's) provide simple data entry capabilities for the control of photocopy
machines and facsimile machines. The terminals restrict user access and can be
custom configured to prompt users for a variety of information. The DCT and
FCT are transaction based and continuously store the last 2,000 transactions in
memory even after downloading to the central system. Transaction information
includes user identification, billing or project information, page counts, time
of day and length of transaction. The DCT and FCT are compatible with both the
System 3 and System 4.
APPLICATION SOFTWARE
Teletrac(TM) - monitors telephone call usage and automatically records and
prices all local, long distance and international calls based on carrier
charges or customer-created pricing tables. Teletrac(TM) generates
comprehensive reports identifying calls made by account number and extension
and validates account codes against stored validation tables to ensure the
accuracy of call records before posting to the customer's accounting system.
Printlog(TM) - tracks PC and printer activity on stand-alone or network
DOS- or Windows- based personal computers to control and monitor terminal
and/or printer activity associated with document preparation. Forced account
code entry can be used to restrict laser printer usage to jobs containing
proper user and/or client identification information. The Printlog(TM)
application software integrates with Word Perfect 5.1, Windows 3.X as well as
other leading word processing and document management programs.
SALES AND MARKETING
Equitrac currently markets its systems and services principally through its
own sales personnel and to a lesser extent through independent dealers. As of
February 29, 1996, Equitrac's direct sales force in the United States totaled
30 sales representatives in 19 locations in or near major metropolitan areas.
The Company's sales offices are staffed with customer service personnel who
provide technical assistance to the Company's sales staff and customers. The
Company's sales representatives are responsible for an assigned geographical
territory. Additionally, Equitrac markets its systems in the United States
through two independent dealers.
Equitrac also markets its systems domestically through facilities
management organizations, which contract with businesses to manage specific
office equipment such as photocopiers, facsimile machines and postage meters.
These organizations market the Company's products with their own products and
services. The Company currently markets its systems through Xerox Business
Services, Pitney Bowes Management Services, ALCO Management Services and
International Legal Copies.
Equitrac's systems are marketed and serviced internationally through
independent dealers and through its own sales personnel. In the United Kingdom
the Company has a direct sales office and employs two sales representatives and
in Canada the Company has three direct sales offices and employs three sales
representatives. Independent dealers currently represent the Company in
Europe, the Far East, Australia, South America and Central America.
International revenues (including export sales) accounted for approximately
11.8%, 11.3%, and 9.1% of the Company's total revenues in fiscal 1996, 1995 and
1994, respectively.
-4-
<PAGE> 6
The Company's believes that it has the largest market share of installed
cost recovery systems within the legal industry. Future sales of the Company's
products will result primarily from sales of upgraded products to existing and
acquired customers. Additional growth is expected to be attained through sales
of new products and services, as they are developed and offered by the Company.
The Company markets its computer services principally through three sales
representatives in its ECS division. The Company plans to expand the ECS
division to include additional sales and service representatives during the
next fiscal year.
The Company's Marketing Department is responsible for new product planning
and specifications and coordination of product development in conjunction with
the Product Development Department. Equitrac continually solicits information
and input with respect to new product ideas and enhancements from its customers
and sales personnel.
LEASE AND MAINTENANCE AGREEMENTS
Equitrac's customers may purchase a system or the Company will lease a
system pursuant to an operating lease (the term of which is typically for 36
months or longer) which includes all maintenance and software support services.
The Company enters into separate lease agreements for add-ons and upgrades.
The Company's system leases generally contain clauses that automatically extend
the lease term unless the customer chooses to terminate the lease by providing
the Company at least 60 days' notice prior to the expiration of the lease term.
In the Company's experience, a substantial portion of its customers either
renew their leases, enter into new leases with the Company or purchase a new
system from the Company at the end of their initial lease terms. The Company
offers its purchase customers maintenance agreements (the terms of which are
typically for 36 months or longer) which provide for maintenance and software
support services during the term of the agreement. Systems that are not
purchased in conjunction with a maintenance or software support agreement are
serviced by the Company on a time-and-materials basis.
ECS customers enter into service agreements (the terms of which are
generally for 12 months) with the Company to provide maintenance service on
specified computer equipment. ECS service contracts provide a wide range of
support services during the term of the agreement. ECS also provides support
services to customers on a time-and-materials basis.
BACKLOG
The Company historically has not had a large backlog of system sales orders
since customer orders are generally shipped and installed within a short period
of time after an order is received. Consequently, order backlog represents
only a limited percentage of the system sales anticipated by the Company in any
given fiscal period and is not indicative of the Company's actual sales for any
future fiscal period. Manufacturing plans and expenditure levels are based
primarily on sales forecasts. This absence of significant scheduled backlog
could lead to fluctuations in quarterly operating results. To support its
ability to configure and deliver systems rapidly, the Company generally
maintains at least one month's supply of CPU's and assembled control terminals.
Although the Company's backlog of system sales is not significant, at
February 29, 1996, the minimum future payments due to the Company during the
next four fiscal years under its existing non-cancelable lease and maintenance
agreements aggregated approximately $39.6 million, compared to approximately
$33.3 million at February 28, 1995.
-5-
<PAGE> 7
CUSTOMER SERVICE AND TECHNICAL SUPPORT
Equitrac believes that the quality and reliability of its systems and its
on-going support of such systems are important elements in its business
strategy. Equitrac provides most of its product service and support through
its own extensive network of service personnel. The Company maintains service
technicians in every major metropolitan area in which the Company's systems are
installed, providing the Company with the ability to offer service in such
areas generally within two to four hours' response time.
Equitrac generally provides a 90-day warranty on its systems, and maintains
and services its systems on a contractual basis after the initial warranty
period. Equitrac's policy is to replace, rather than repair, malfunctioning
terminals at a customer location to minimize system down-time and customer
inconvenience.
ECS believes that the quality and responsiveness of its service
representatives are primary considerations in its business strategy. ECS Field
Technicians receive extensive in-house technical training, as well as various
industry certifications.
PRODUCT DEVELOPMENT
Equitrac works closely with its customers and its sales and marketing
personnel to develop new systems and enhancements to existing systems.
Constant changes in technology, including ongoing developments in computer
operating systems, networks and communications protocols, require the Company
to engage in an ongoing program of product development.
Substantially all product development is performed internally. As of
February 29, 1996, 15 employees of the Company were engaged in product
development. From time to time, the Company also employs independent
contractors for specific development products. Equitrac expensed $1,282,000,
$1,288,000 and $1,835,000 in fiscal 1996, 1995 and 1994, respectively, on
product development. All product development expenses are charged to
operations during the period in which they are incurred.
Current development efforts are focused on enhancements to existing
products as well as several new products. New development efforts include a
joint development agreement between Xerox Corporation and Equitrac for the
Xerox Document Centre series of digital office systems. The new application,
based on Equitrac's cost recovery software, will permit jobs performed on the
Xerox Document Centre Systems 20 and 35 and potential future models to be
tracked and automatically assigned to specific client or project codes for
billing and resource management purposes.
Other new products under development include the Equitrac Professional
Internet Client ("E.P.I.C."), a full-featured Internet browser tailored
specifically to the needs of professionals. E.P.I.C. is designed to control
Internet access and track on-line research and e-mail for billing and
management purposes.
-6-
<PAGE> 8
MANUFACTURING AND QUALITY ASSURANCE
Equitrac assembles substantially all of the hardware and software for its
systems. Equitrac's assembly and manufacturing operations consist primarily of
procurement, assembly, testing and quality control of components and assembled
products. The Company generally uses standard parts and components which are
available from multiple sources; however, certain components, such as terminal
cases, displays, keypads and power supplies, are purchased from limited sources
due to price, quality, availability and other considerations. To date, the
Company has not experienced any significant problems obtaining timely
deliveries from its suppliers. The Company maintains significant additional
quantities of certain key components and continually evaluates alternative
sources of supply. The Company purchases directly all of the components
utilized to assemble circuit boards for its control terminals and packages such
components in complete kits for insertion by circuit board assembly
subcontractors. The Company's quality control program includes inspecting all
incoming parts, inspecting assembled parts and final testing under simulated
operating conditions of all systems prior to shipping.
ACQUISITIONS
Equitrac continually reviews opportunities to add complementary systems and
distribution capabilities through acquisitions. During the past three fiscal
years, the Company has completed the following acquisitions:
In March 1993, the Company acquired substantially all of the assets and
customer base of Transaction Recording Systems ("TRS"), a manufacturer and
distributor of cost recovery products headquartered in Portland, Oregon.
In September 1993, the Company acquired substantially all of the assets and
customer base of Systems Auditing, Inc. ("Systems Auditing"), a distributor of
cost recovery products based on the West Coast of the United States.
In March 1994, the Company acquired substantially all of the assets and
customer base of Delstar Technical Services, Inc. ("Delstar"), a distributor of
cost recovery products headquartered in Montreal, Canada.
In November 1994, the Company acquired substantially all of the assets and
customer base of BCG Ontario, Inc. ("BCG"), a distributor of cost recovery
products based in Ontario, Canada.
In January 1995, the Company acquired substantially all of the assets and
customer base of Interphase Marketing Limited ("Interphase"), a distributor of
cost recovery products based in Toronto, Canada. Prior to being acquired by
the Company, Interphase was a dealer of Equitrac products in Canada.
In March 1996, the Company acquired the cost recovery customer base of ISI,
Inc. ("ISI"), a distributor of cost recovery and telemanagement products based
in Schaumburg, Illinois. This acquisition included the hiring of 10 sales and
22 service and support employees. As a result of this acquisition, the Company
created a new division, The Infortext Group ("Infortext"). The Company plans
to expand the sales, service and support staffs of this division to market cost
recovery and expense management products to the acquired customers, as well as
other potential customers.
-7-
<PAGE> 9
Infortext will market its own cost recovery product line and will provide
maintenance services on those products. Infortext will market its products
primarily to law and other professional services firms through its own sales
force and will compete directly with Equitrac's United States sales division.
Infortext's products will also be marketed by four independent dealers.
COMPETITION
The market for cost recovery and expense management products is
competitive. Equitrac believes that it has the largest market share of
installed cost recovery systems within the legal industry. Equitrac and its
competitors also compete in the sale of cost recovery systems to other
professional service firms, facilities management organizations and
manufacturers of equipment controlled by cost recovery and expense management
systems. Future competitors in the Company's existing and potential markets
might include manufacturers of equipment controlled by cost recovery and
expense management systems, software development companies and facilities
management organizations.
Competition in the Company's markets is based on a number of factors,
including price, service and support, system software capability, product
quality and reliability and compatibility. Equitrac believes that it is
competitive with respect to each of these factors and that its principal
competitive advantages are its emphasis on customer service and support, its
product quality, its system compatibility, which allows the Company's systems
to integrate easily into a customer's existing computer system, and its
continued development efforts on product enhancements and new systems.
The market for computer services is very competitive. Competitors include
other third party service organizations, as well as original equipment
manufacturers ("OEM's"). Competition in the computer services market is based
on a number of factors, including price, quality of service, equipment serviced
and responsiveness. ECS believes that it is competitive with respect to each
of these factors.
PROPRIETARY RIGHTS
Equitrac does not hold any patents relating to its systems or the
technology or software incorporated thereon. Equitrac relies on its know-how,
trademarks and copyright laws to develop and maintain its competitive position
and protect its proprietary hardware and software.
EMPLOYEES
At February 29, 1996 Equitrac had a total of 301 full-time employees, of
which 27 were engaged in manufacturing, 15 were engaged in research and
development, 48 were engaged in sales and marketing, 151 were engaged in
customer service and support and 60 were engaged in administrative and finance
positions. None of the Company's employees are represented by a labor union.
The Company has not experienced any work stoppages and considers its relations
with its employees to be good.
-8-
<PAGE> 10
ITEM 2. PROPERTIES
At February 29, 1996, Equitrac's corporate headquarters and research and
development facilities were located in approximately 20,000 square feet of
leased office space in Coral Gables, Florida. The Company leases such space
from related parties and the lease expires on September 30, 2000. See Note 7
to the Company's Financial Statements, included in Item 8 hereof. The
Company's manufacturing and distribution operations are located in
approximately 10,000 square feet of leased space near its corporate
headquarters. Equitrac sales and support staff (including ECS and Infortext)
operate in leased space in 29 locations in the United States, two locations in
the United Kingdom and three locations in Canada. The Company believes that
its existing facilities are adequate to meet its current and anticipated
requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in legal proceedings incident to
the normal course of its business. Management believes that adverse decisions
in any pending or threatened proceedings would not have a material adverse
effect on the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1996.
-9-
<PAGE> 11
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
John T. Kane 52 Chairman of the Board of Directors
George P. Wilson 52 President, Chief Executive Officer and
Director
Scott J. Modist 35 Vice President - Finance, Treasurer and
Chief Financial Officer
Cid Yousefi 39 Vice President - Product Development and Management
Information Services
Christopher Rickborn 32 Vice President - Marketing and Product Planning
Patrick J. Raftery 46 Vice President - Sales, U.S. Sales Division
John P. Jones 54 Vice President - Sales, International
</TABLE>
JOHN T. KANE is the founder of the Company, has served as the Company's
Chairman of the Board since its inception in January 1978 and was President of
the Company from its inception until October 1989.
GEORGE P. WILSON has been the President and Chief Executive Officer and a
Director of the Company since October 1989. Mr. Wilson served as Executive
Vice President of the Company from 1978 through October 1989.
SCOTT J. MODIST, a certified public accountant, has been Vice President -
Finance, Treasurer and Chief Financial Officer of the Company since April 1992.
From November 1983 through April 1992, Mr. Modist was employed by KPMG Peat
Marwick, and was a senior manager from July 1989 to April 1992.
CID YOUSEFI has been Vice President - Product Development and Management
Information Services since May 1993. Mr. Yousefi has served the Company in
various data processing and management information capacities since 1982. Mr.
Yousefi was the Company's Director of Data Processing from 1987 through April
1992, at which time he was appointed Vice President - Software Development and
Management Information Services.
CHRISTOPHER RICKBORN was named Vice President - Marketing and Product
Planning in April 1996. Mr. Rickborn served as Director of Marketing from
January 1995 to April 1996 and as a Product Manager prior to being named as
Director of Marketing.
-10-
<PAGE> 12
PATRICK J. RAFTERY has been Vice President - Sales, U.S. Sales Division
since September 1993. Mr. Raftery joined the Company in July 1989 as the
Company's Vice President - Sales, Eastern Division.
JOHN P. JONES has served as the Company's Vice President - Sales,
International Division since November 1990. Mr. Jones served as the Company's
Director of Dealer and National Account Sales from June 1987 to November 1990
and as a Regional Sales Manager from July 1982 to June 1987.
-11-
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded in the over-the-counter market on the
NASDAQ National Market System under the symbol ETRC. The following table sets
forth, for the periods indicated, the range of high and low closing sale prices
for the Common Stock, as reported by NASDAQ.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal year ended February 29, 1996
Fourth Quarter 7 3/4 5 1/4
Third Quarter 5 1/2 4 5/8
Second Quarter 5 1/8 4 1/2
First Quarter 5 4 1/4
Fiscal year ended February 28, 1995
Fourth Quarter 5 4 1/4
Third Quarter 5 1/2 4 1/8
Second Quarter 5 5/8 4 3/4
First Quarter 6 4 3/4
</TABLE>
On May 15, 1996, there were approximately 830 holders of record, including
security position listings, of the Company's Common Stock.
The Company has never declared nor paid any cash dividends on its capital
stock. The Company currently intends to retain any future earnings to finance
its operations and the expansion of its business. Any future determination to
pay cash dividends will be at the discretion of the Board of Directors and will
be dependent upon the Company's earnings, capital requirements, financial
condition and other factors deemed relevant to the Board of Directors.
-12-
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data of the
Company for each of the years in the five-year period ended February 29, 1996.
The selected financial data as of and for each of the years in the five-year
period ended February 29, 1996 have been derived from the Company's financial
statements, which have been audited by Coopers & Lybrand L.L.P., independent
public accountants. The selected financial data should be read in conjunction
with the Company's financial statements and the notes thereto for the
three-year period ended February 29, 1996 and "Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(in thousands, except earnings per share)
<S> <C> <C> <C> <C> <C>
Total revenues $ 33,718 $ 31,224 $ 29,122 $ 27,475 $ 23,732
Operating income 2,805 1,754 1,897 3,783 3,004
Net income 1,882 1,287 1,357 2,444 1,750
Earnings per share $ 0.52 $ 0.34 $ 0.36 $ 0.70 $ 0.66
Weighted average common and
common equivalent shares outstanding 3,597 3,770 3,770 3.495 2,649
========== ========== ========== ========== ==========
BALANCE SHEET DATA (END OF YEAR):
Working capital $ 12,366 $ 12,343 $ 11,873 $ 12,314 $ 1,358
Total assets 25,646 25,436 22,848 21,990 12,439
Current liabilities 3,671 3,535 2,137 2,692 4,247
Long-term debt, net of current portion - - - 125 1,307
Stockholders' equity $ 21,824 $ 21,491 $ 20,273 $ 18,844 $ 6,501
</TABLE>
-13-
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company's revenues are derived from two principal sources: (1) monthly
revenues from leases of its systems and from maintenance and software support
agreements and (2) sales of new systems, upgrades and add-ons of equipment or
software. Revenues are also derived from installation and fees for custom
software development, repairs and other services. The Company offers its
customers the option of purchasing a system or leasing a system pursuant to an
operating lease (the term of which is typically 36 months or longer), which
includes all maintenance and software support services. The Company offers its
purchase customers maintenance and software support agreements (the terms of
which are typically for 36 months or longer). Systems that are not purchased
in conjunction with a maintenance agreement are serviced by the Company on a
time-and-materials basis. The Company's computer service division offers its
customers maintenance agreements (the terms of which are typically for 12
months) and also provides maintenance on a time-and-materials basis.
The Company's total revenues and system rental and maintenance revenues
have increased every year since the Company's inception in 1978. Historically,
system rental and maintenance revenues have accounted for a majority of the
Company's revenues. At February 29, 1996, the minimum future payments due
under the Company's existing non-cancelable lease and maintenance agreements
aggregated $39.6 million over the next four fiscal years.
-14-
<PAGE> 16
The following table sets forth, for the periods presented, certain income
statement data of the Company, expressed as a percentage of total revenues.
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE
TOTAL REVENUES INCREASE (DECREASE)
FOR FISCAL YEARS FROM PRIOR YEAR
------------------------------ ----------------------
1996 1995 1994 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
System rental and maintenance 59.6% 58.6% 58.8% 9.8% 6.8%
System sales 35.3 35.7 34.8 6.7 10.0
Installation and other 5.1 5 .7 6.4 (2.5) (4.5)
-------- --------- --------
Total revenues 100.0% 100 .0% 100.0% 8.0 7.2
-------- --------- --------
Expenses:
Cost of system rental, maintenance
and installation 24.1 22.6 24.7 15.0 (1.9)
Cost of system sales 12.8 12.7 10.5 9.2 30.2
Product development 3.8 4 .1 6.3 (0.5) (29.8)
Selling, general and administrative 51.0 55.0 52.0 0.1 13.2
--------- ---------- ---------
Total expenses 91.7 94.4 93.5 4.9 8.2
--------- ---------- ---------
Operating income 8.3 5 .6 6.5 59.9 (7.5)
Interest income, net 1.0 0 .8 0.7 33.5 37.7
--------- ---------- ---------
Income before income taxes 9.3 6 .4 7.2 56.5 (3.4)
Income taxes 3.7 2 .3 2.5 74.5 (0.1)
--------- ---------- ---------
Net income 5.6% 4 .1% 4.7% 46.2 (5.2)
======== ========= ========
</TABLE>
-15-
<PAGE> 17
RESULTS OF OPERATIONS
Comparison of Fiscal Years 1996, 1995 and 1994
Revenues. Total revenues increased 8% to $33,718,000 in fiscal 1996 from
$31,224,000 in fiscal 1995, which in turn represented a 7% increase over fiscal
1994 revenues of $29,122,000. The Company's total revenues increased in fiscal
1996 and 1995 as a result of increases in system rental and maintenance
revenues and system sales revenues. System rental and maintenance revenues in
each year were comprised primarily of recurring revenues from existing and new
lease and maintenance agreements. System sales revenues in each year were
comprised primarily of revenues from sales of new systems to existing customers
and, to a lesser extent, from sales of new systems to new customers and from
sales of add-on equipment to existing customers.
System rental and maintenance revenues. In fiscal 1996, system rental and
maintenance revenues increased 10% to $20,090,000 from $18,297,000 in fiscal
1995. This increase resulted primarily from incremental revenues derived in
fiscal 1996 from acquired customer bases and continued penetration of the cost
recovery market (primarily law and other professional service firms). System
rental and maintenance revenues increased 7% in fiscal 1995 compared to fiscal
1994 primarily as a result of system rental and maintenance revenues derived
from customers acquired through acquisitions. Maintenance revenues comprised
25% of total revenues in fiscal 1996 compared to 24% of total revenues in
fiscal 1995 and 1994, as a result of maintenance revenues from acquired
customers, as well as increased emphasis on obtaining maintenance agreements
from customers who purchased systems.
System sales revenues. In fiscal 1996, system sales revenues increased 7%
to $11,892,000 from $11,146,000 in fiscal 1995. The increase in system sales
revenues in fiscal 1996 and 1995 was derived primarily from sales of the
Company's newest control terminal, the Alpha Terminal, to existing and acquired
customers. These revenues were partially offset by a decline in the system
sales revenues derived from the Company's older product lines.
Installation and other. Installation and other revenues decreased 3% to
$1,736,000 in fiscal 1996 from $1,781,000 in fiscal 1995. Installation and
other revenues decreased 5% in fiscal 1995 compared to fiscal 1994. These
decreases have resulted from lower revenues derived from custom programming and
other data processing functions as the Company's systems have become more
functionally advanced.
Cost of system rental, maintenance and installation. Cost of system
rental, maintenance and installation is comprised primarily of (i) payroll and
other expenses related to customer service and support personnel, (ii)
depreciation of rental units, (iii) the cost of hardware and system components
used for repairs and (iv) amortization of acquired system software. Cost of
system rental, maintenance and installation does not include software
development costs which have been expensed as research and development expenses
in the period incurred. Cost of system rental, maintenance and installation as
a percentage of total system rental and maintenance and installation and other
revenues was 37% in fiscal 1996 compared to 35% in fiscal 1995 and 38% in
fiscal 1994. The increase in the cost of system rental, maintenance and
installation as a percentage of total system rental and maintenance and
installation and other revenues in fiscal 1996 is primarily attributable to
higher expenses as a percentage of related revenue in the Company's ECS
division than in the cost recovery divisions of the Company. The decrease in
the cost of system rental, maintenance and installation as a percentage of
total system rental and maintenance and installation and other revenues in
fiscal 1995 was primarily attributable to the decrease in system software
amortization expense as certain acquired system
-16-
<PAGE> 18
software became fully amortized during the year. Cost of system rental,
maintenance and installation in fiscal 1995 included $218,000 of amortization
of acquired system software compared to $390,000 in fiscal 1994. Depreciation
of rental units increased to $1,580,000 in fiscal 1996 from $1,333,000 and
$1,244,000 in fiscal 1995 and 1994, respectively. Management believes that
cost of system rental and maintenance and installation and other revenues as a
percentage of total system rental and maintenance and installation and other
revenues may increase in the future if the ECS division contributes a higher
percentage of total revenues.
Cost of system sales. Cost of system sales is comprised of the cost of
hardware and system components and payroll and other expenses related to system
assembly and testing. Cost of system sales does not include software
development costs, which have been expensed as research and development
expenses in the period incurred. Cost of system sales as a percentage of
system sales was 36% in fiscal 1996 and 1995 compared to 30% in fiscal 1994.
Cost of system sales as a percentage of system sales revenues increased in
fiscal 1996 and 1995 compared to fiscal 1994 as a result of the higher cost of
manufacturing the Alpha Terminal compared to previous product lines and
increased price competition in the cost recovery market.
Product development expenses. Product development expenses decreased
slightly to $1,282,000, or 4% of total revenues in fiscal 1996 from $1,288,000,
or 4% of total revenues in fiscal 1995. Product development expenses decreased
30% in fiscal 1995 compared to fiscal 1994. Product development expenses
decreased in fiscal 1995 due primarily to the completion of development
activities associated with the Alpha Terminal which the Company released in
April 1994. The Company does not capitalize any of its product development
costs since development costs incurred subsequent to attainment of
technological feasibility of a new product line are not deemed to be
significant; accordingly, product development expenses for each period include
all hardware and software development costs incurred during the period.
Selling general and administrative expenses. Selling, general and
administrative expenses increased slightly to $17,179,000 in fiscal 1996 from
$17,154,000 in fiscal 1995, which in turn represented a 13% increase over
fiscal 1994 selling, general and administrative expenses of $15,148,000.
Increases in selling, general and administrative expenses in fiscal 1996
included (i) a $200,000 increase in amortization expenses related to intangible
assets recorded in connection with acquisitions compared to fiscal 1995, (ii) a
$162,000 increase in rent and other office expenses compared to fiscal 1995,
and (iii) increases in other selling, general and administrative expenses
associated with the Company's increased sales activities and increased
revenues. These increases in selling, general and administrative expenses in
fiscal 1996 were partially offset by a $725,000 decrease in expenses associated
with the commercial market division compared to fiscal 1995. As a percentage
of revenues, selling, general and administrative expenses decreased to 51% in
fiscal 1996, compared to 55% and 52% in fiscal 1995 and 1994, respectively.
Selling, general and administrative expenses decreased as a percentage of
revenues during fiscal 1996 as a result of an increase in revenues without a
corresponding increase in selling, general and administrative expenses.
Selling, general and administrative expenses increased in fiscal 1995 due
to (i) increases in marketing and selling activities, (ii) increases in
administrative and other personnel to support the Company's growth, (iii)
increases in commissions and other expenses related to increased system rental
and maintenance revenues and increased system sales revenues. The increase in
selling, general and administrative expenses during fiscal 1995 also resulted
from (i) $382,000 in incremental expenses associated with the Commercial
division compared to fiscal 1994, (ii) a $122,000 increase in amortization
expense related to the Company's acquisitions compared to fiscal 1994, (iii)
$494,000 in
-17-
<PAGE> 19
selling, general and administrative expenses in fiscal 1995 related to new
acquisitions, (iv) a $202,000 increase in depreciation expense compared to
fiscal 1994 and (v) a $135,000 increase in health insurance premiums compared
to fiscal 1994, due to increased health care costs and the increase in the
number of employees. Selling, general and administrative expenses increased as
a percentage of revenues in fiscal 1995 primarily as a result of $382,000 of
expenses associated with the Commercial division without related revenues,
$202,000 of incremental depreciation expense during fiscal 1995 and a $135,000
increase in health insurance premiums.
Interest income, net. The Company earned interest income of $351,000 in
fiscal 1996 compared to $263,000 in fiscal 1995 and $191,000 in fiscal 1994.
The increase in interest income resulted primarily from higher interest rates
earned on invested cash.
Income taxes. The Company's effective income tax rate for fiscal 1996 was
40% compared to 36% and 35% in fiscal 1995 and 1994 respectively. The increase
in the Company's effective tax rate in fiscal 1996 resulted primarily from the
reduction of the Company's research and development tax credit as a percentage
of income and a reduction in tax exempt interest income as the Company moved a
portion of its investment portfolio out of municipal bonds.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations over the past several years
principally from cash flow from operations. The Company generated $6,966,000,
$3,528,000 and $2,408,000 in cash flow from operating activities in fiscal
1996, 1995 and 1994, respectively. Cash flows used in investing activities in
fiscal 1996 included the acquisition of $1,982,000 of property and equipment,
primarily system rental units which are leased to customers.
On March 1, 1996, the Company acquired the cost recovery customer base of
ISI Infortext, Inc., a distributor of cost recovery and telemanagement products
based in Schaumburg, Illinois. The transaction was financed by $1,450,000 of
cash restricted for that purpose as of February 29, 1996, and the assumption of
a liability of approximately $610,000 to fulfill maintenance agreements.
Additional consideration is contingent upon the results of the acquisition
during fiscal 1997.
The Board of Directors has authorized the Company to spend up to $2,000,000
to repurchase shares of the Company's issued and outstanding common stock,
based upon consideration of the Company's current cash position, management's
expectations of future cash flows from operating activities and the level of
cash required to fund future growth opportunities. Through February 29, 1996,
the Company repurchased 330,800 shares of its outstanding common stock at an
aggregate purchase price of $1,653,000. Future purchases will be made from
time to time subject to prevailing market conditions in open market or
privately negotiated transactions.
The Company anticipates that its cash and cash equivalents and investment
securities and cash flow from operating activities will be adequate to meet the
Company's cash requirements for the foreseeable future. A principal source of
cash flow from operations will be payments received under the Company's lease
and maintenance agreements. At February 29, 1996, the future minimum payments
due to the Company under its existing non-cancelable lease and maintenance
agreements aggregate $39.6 million, of which $16.6 million is due in fiscal
1997. The Company has no material commitments for capital expenditures.
-18-
<PAGE> 20
SEASONALITY AND INFLATION
Historically, the Company's business has not been seasonal. However,
although the Company's rental and maintenance revenues from installed systems
do not fluctuate greatly from quarter to quarter, fluctuations in the amount of
system sales may result in quarterly variations in the Company's total revenues
and net income. Accordingly, interim results of operations may not be an
accurate measure of the annual performance of the Company. The Company
believes that inflation has not had a material impact on the results of
operations.
FOREIGN OPERATIONS
In fiscal 1996, revenue from foreign operations (including export sales)
increased 13% to $3,980,000 from $3,521,000 in fiscal 1995, which in turn
represented a 31% increase over revenue from foreign operations (including
export sales) of $2,642,000 in fiscal 1994. These increases in revenues from
foreign operations (including export sales) resulted primarily from revenues
derived from customers acquired from regional distributors of cost recovery and
expense management products in Canada. As a percentage of total revenues,
revenue from foreign operations (including export sales) increased to 11.8%, in
fiscal 1996 compared to 11.3% and 9.1% in fiscal 1995 and 1994, respectively,
as a result of the increase in foreign revenues (including export sales).
Equitrac's foreign revenue is subject to the normal risks of foreign
operations, such as protective tariffs, export and import controls and
transportation delays and interruptions. The Company's direct international
sales are billed in foreign currencies and are subject to currency exchange
fluctuations.
Since Equitrac's systems are manufactured in the United States, the
Company's foreign operations could be affected by fluctuations in the relative
value of the U.S. dollar to foreign currencies. In fiscal years 1996, 1995 and
1994, the effect of foreign currency exchange fluctuations was not significant
to the Company.
-19-
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Equitrac Corporation
We have audited the accompanying balance sheets of Equitrac Corporation as
of February 29, 1996 and February 28, 1995, and the related statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended February 29, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Equitrac Corporation as of
February 29, 1996 and February 28, 1995 and the results of its operations and
its cash flows for each of the three years in the period ended February 29,
1996 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Miami, Florida
April 12, 1996
-20-
<PAGE> 22
EQUITRAC CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
February 29, February 28,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,581 $ 2,187
Restricted cash 1,450 0.00
Investment securities 4,031 5,196
Accounts receivable, net of allowance of $350 4,330 5,871
Inventories 1,780 1,879
Deferred income taxes 499 187
Other current assets 366 558
------- -------
Total current assets 16,037 15,878
Investment securities 1,361 -
Property and equipment, net 6,034 6,116
Intangible assets, net 2,067 3,287
Other assets 147 155
------- -------
Total assets $25,646 $25,436
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $622 $1,005
Accrued expenses 2,965 1,570
Unearned income and other current liabilities 84 960
------- -------
Total current liabilities 3,671 3,535
Deferred income taxes 151 410
------- -------
Total liabilities 3,822 3,945
------- -------
Stockholders' equity:
Common stock, $.01 par value; 15,000,000 shares
authorized 3,717,750 and 3,696,750 shares issued in
1996 and 1995, respectively 37 37
Additional paid-in capital 10,390 10,356
Retained earnings 13,058 11,176
Cumulative translation adjustment (25) (29)
Unrealized gain (loss) on investment securities, net 17 (49)
Treasury stock, at cost (330,800 shares at February (1,653) -
------- -------
Total stockholders' equity 21,824 21,491
------- -------
Total liabilities and stockholders' equity $25,646 $25,436
======= =======
</TABLE>
See accompanying notes to financial statements.
-21-
<PAGE> 23
EQUITRAC CORPORATION
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
February 29, February 28, February 28,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
System rental and maintenance $20,090 $18,297 $17,125
System sales 11,892 11,146 10,133
Installation and other 1,736 1,781 1,864
------- ------- -------
Total revenues 33,718 31,224 29,122
------- ------- -------
Expenses:
Cost of system rental, maintenance
and installation 8,123 7,065 7,199
Cost of system sales 4,329 3,963 3,043
Product development 1,282 1,288 1,835
Selling, general and administrative 17,179 17,154 15,148
------- ------- -------
Total expenses 30,913 29,470 27,225
------- ------- -------
Operating income 2,805 1,754 1,897
Interest income, net 351 263 191
------- ------- -------
Income before income taxes 3,156 2,017 2,088
Income taxes 1,274 730 731
------- ------- -------
Net income $1,882 $1,287 $1,357
======= ======= =======
Earnings per share $0.52 $0.34 $0.36
======= ======= =======
Weighted average common and common
equivalent shares outstanding 3,597 3,770 3,770
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
-22-
<PAGE> 24
EQUITRAC CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
Common Stock Additional
-------------------- Paid-In Retained
Shares Amount Capital Earnings
--------- ------- ------- --------
<S> <C> <C> <C>
Balance, February 28, 1993 3,643,200 $36 $10,276 $8,532
Exercise of employee stock options 48,650 1 71 -
Net income for the year ended
February 28, 1994 - - - 1,357
--------- ------- ------- --------
Balance, February 28, 1994 3,691,850 37 10,347 9,889
Unrealized loss on investment
securities, net of tax - - - -
Translation adjustment - - - -
Exercise of employee stock options 4,900 - 9 -
Net income for the year ended
February 28, 1995 - - - 1,287
--------- ------- ------- --------
Balance, February 28, 1995 3,696,750 37 10,356 11,176
Purchase of treasury stock -
330,800 shares - - - -
Unrealized gain on investment
securities, net of tax - - - -
Translation adjustment - - - -
Exercise of employee stock options 21,000 - 34 -
Net income for the year ended
February 29, 1996 - - - 1,882
--------- ------- ------- --------
Balance, February 29, 1996 3,717,750 $37 $10,390 $13,058
========= ======= ======= ========
<CAPTION>
Unrealized
gain(loss) on
Cumulative Investment Total
Translation Securities, Treasury Stockholders'
Adjustment Net of Tax Stock Equity
----------- ------------ -------- -------------
<S> <C> <C> <C> <C>
Balance, February 28, 1993 - - - $ 18,844
Exercise of employee stock options - - - 72
Net income for the year ended
February 28, 1994 - - - 1,357
----------- ------------ -------- -------------
Balance, February 28, 1994 - - - 20,273
Unrealized loss on investment
securities, net of tax - (49) - (49)
Translation adjustment (29) - - (29)
Exercise of employee stock options - - - 9
Net income for the year ended
February 28, 1995 - - - 1,287
------------ ------------- -------- -------------
Balance, February 28, 1995 (29) (49) - 21,491
Purchase of treasury stock -
330,800 shares - - (1,653) (1,653)
Unrealized gain on investment
securities, net of tax - 66 - 66
Translation adjustment 4 - - 4
Exercise of employee stock options
- - - 34
Net income for the year ended
February 29, 1996 - - - 1,882
------------ ------------- -------- -------------
Balance, February 29, 1996 $ (25) $ 17 $ (1,653) $ 21,824
============ ============= ======== =============
</TABLE>
See accompanying notes to financial statements.
-23-
<PAGE> 25
EQUITRAC CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
February 29, February 28, February 28,
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $1,882 $1,287 $1,357
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 2,064 1,890 1,601
Amortization 1,125 1,013 1,067
Termination of capital leases - - 55
Provision for doubtful accounts - 25 100
Deferred income taxes (616) (20) (53)
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable 1,541 (1,278) (1,117)
Inventories 99 (437) (22)
Other current assets 192 48 (219)
Other assets 8 (18) 38
Increase (decrease) in:
Accounts payable (383) 352 (239)
Accrued expenses 1,395 591 (172)
Unearned income (341) 75 12
--------- --------- --------
Net cash provided by operating activities 6,966 3,528 2,408
--------- --------- --------
Cash flows from investing activities:
Purchase of property and equipment (1,982) (2,510) (3,130)
Acquisitions of intangible assets (225) (621) (1,245)
Sales and maturities of investment securities 5,223 2,559 3,125
Purchase of investment securities (5,308) (1,249) (5,574)
Restricted cash (1,450) - -
--------- --------- --------
Net cash used in investing activities (3,742) (1,821) (6,824)
--------- --------- --------
Cash flows from financing activities:
Repayment of acquisition obligations (215) (94) (521)
Proceeds from issuance of common stock 34 9 72
Purchase of treasury stock (1,653) - -
--------- --------- --------
Net cash used in financing activities (1,834) (85) (449)
--------- --------- --------
Exchange rate effect on cash 4 (29) -
--------- --------- --------
Net increase (decrease) in cash and cash equivalents 1,394 1,593 (4,865)
Cash and cash equivalents at beginning of year 2,187 594 5,459
--------- --------- --------
Cash and cash equivalents at end of year $3,581 $2,187 $594
========= ========= ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $ 948 $ 545 $ 1,107
Interest $ - $ - $ 45
</TABLE>
Non-cash investing and financing activities during fiscal 1996 consisted of
$40,000 of assets and liabilities recorded in connection with an acquisition
and a $360,000 reduction in intangible assets resulting from the reduction of
liabilities in connection with contingent consideration adjustments related to
acquisitions. Non-cash investing and financing activities during fiscal 1995
consisted of $575,000 of assets and liabilities recorded in connection with
acquisitions and a $101,000 reduction in intangible assets resulting from the
reduction of a note payable in connection with a contingent consideration
adjustment related to an acquisition. Non-cash investing and financing
activities during fiscal 1994 consisted of $240,000 of assets and liabilities
recorded in connection with acquisitions.
See accompanying notes to financial statements.
-24-
<PAGE> 26
EQUITRAC CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Equitrac Corporation (the "Company") designs, develops, manufactures,
markets and supports a fully integrated computer hardware and software
communications network designed to automatically track, record and report usage
of various office equipment such as photocopy machines, facsimile machines,
laser printers, word processing terminals, telephones and postage meters. The
Company primarily markets its systems to law firms and other professional
service firms. The Company offers its systems by sale or lease in the United
States, the United Kingdom and Canada through direct sales offices. The
Company's systems are also available through independent dealers.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
SYSTEM RENTAL, MAINTENANCE AND SALES
System rentals are billed primarily on a monthly basis and include
maintenance services. Revenue is recognized ratably over the term of the
respective lease, which is consistent with the period in which maintenance is
provided. The Company accounts for its system leases as operating leases.
System sales revenue is recognized upon customers' acceptance of installed
systems. Cost of system sales consists primarily of the cost of hardware and
system components, including payroll relating to assembly and testing prior to
delivery to customers. The cost of software has been expensed as research and
development in the period incurred.
CASH AND CASH EQUIVALENTS
Cash equivalents include all highly liquid investments with maturities of
three months or less when purchased. The Company maintains cash and cash
equivalent balances with high quality financial institutions. The Company
periodically evaluates the relative credit risk of these financial
institutions.
RESTRICTED CASH
Restricted cash consists of cash held in trust and committed for the
acquisition of the Infortext Group. The cash held in trust was used as the
initial payment for the Infortext acquisition on March 1, 1996. (See Note 12.)
-25-
<PAGE> 27
INVESTMENT SECURITIES
Investment securities generally consist of municipal bonds, U.S. Treasury
obligations and investment grade corporate bonds with maturities generally
ranging from one to twenty-five years. The Company adopted the provisions of
Statements of Financial Accounting Standards No. 115 ("SFAS No. 115")
Accounting for Certain Investments in Debt and Equity Securities, on March 1,
1994. Under SFAS No. 115, the Company classifies its investment securities as
available-for-sale.
Available-for-sale securities are reported at fair value, with unrealized
gains and losses excluded from earnings and reported in a separate component of
stockholders' equity. Interest income is recognized when earned. At February
29, 1996, the amortized cost of these investments closely approximated fair
market value and accordingly, unrealized gains and losses were not material.
PROPERTY AND EQUIPMENT
Property and equipment consist primarily of systems rented to customers and
are carried at cost less accumulated depreciation. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets,
principally over five years.
INVENTORIES
Inventories comprised primarily of system components, parts and supplies
are carried at the lower of weighted-average cost or market. The weighted
average cost of inventories approximates the "first in-first out" ("FIFO")
method.
INTANGIBLE ASSETS
Intangible assets represent costs allocated to specifically identifiable
assets and the excess of cost over the fair value of tangible and identifiable
intangible assets arising from acquisitions ("goodwill"). The costs of all
identifiable assets are amortized on a straight-line basis over their
respective estimated useful lives, ranging from three to seven years. Goodwill
is amortized over fifteen years.
PRODUCT DEVELOPMENT COSTS
Product development costs are expensed as incurred.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's foreign operations are translated
into U.S. dollars in accordance with Statement of Financial Accounting
Standards No. 52, Foreign Currency Translation. Translation of foreign
currencies into U.S. dollars is computed for revenue and expense accounts using
average exchange rates during the year. Net assets of the Company's Canadian
operations, whose "functional currency" is the Canadian dollar are translated
at current rates of exchange, with the resulting translation adjustment
recorded directly into a separate component of stockholder's equity. The
functional currency for the Company's other foreign operations is the U.S.
dollar. Net assets of these operations are translated at current rates of
exchange, with the resulting translation gains and losses included in the
statement of income. In fiscal years 1996, 1995 and 1994, the effect of
foreign currency exchange fluctuations was not significant to the Company.
-26-
<PAGE> 28
INCOME TAXES
The Company utilizes the asset and liability method of accounting for
deferred income taxes. Under this method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period of enactment.
EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
period. Outstanding stock options are considered common stock equivalents and
are included in the calculation using the treasury stock method.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, is
effective for fiscal years beginning after December 15, 1995. This statement
requires that long lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. This
pronouncement is not expected to have a material impact on the financial
statements of the Company.
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
Accounting for Stock-Based Compensation, is effective for transactions entered
into in fiscal years that begin after December 15, 1995. The pronouncement
established financial accounting and reporting standards for stock-based
employee compensation plans. It encourages, but does not require, companies to
recognize compensation expense for grants of stock, stock options and other
equity instruments to employees based on new fair value accounting rules.
Companies that choose not to adopt the new fair value accounting rules will be
required to disclose pro-forma net income and earnings per share under the new
method. The Company anticipates adopting the disclosure provisions of SFAS No.
123.
RECLASSIFICATIONS
Certain prior year balance sheet items have been reclassified to conform
with the fiscal year 1996 presentation.
-27-
<PAGE> 29
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
February 29, February 28,
1996 1995
------------- -------------
<S> <C> <C>
System rental units $ 9,195 $ 8,758
Equipment, furniture and fixtures 2,106 1,849
Leasehold improvements 1,002 988
--------- --------
12,303 11,595
Less accumulated depreciation and
amortization (including $4,784 in 1996
and $4,395 in 1995 relating to system
rental units) (6,269) (5,479)
--------- --------
$ 6,034 $ 6,116
========= ========
</TABLE>
3. INTANGIBLE ASSETS:
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
February 29, February 28,
1996 1995
------------ -------------
<S> <C> <C>
Covenants not to compete $ 2,300 $ 2,300
System software 130 1,180
Customer lists 1,825 1,645
Service contracts 383 1,081
Goodwill 479 394
--------- --------
5,117 6,600
Less accumulated amortization (3,050) (3,313)
--------- --------
$ 2,067 $ 3,287
========= ========
</TABLE>
-28-
<PAGE> 30
4. ACCRUED EXPENSES:
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
February 29, February 28,
1996 1995
------------ ------------
<S> <C> <C>
Compensation and benefits $ 1,183 $ 1,154
Federal, state and local taxes 1,049 201
Other 733 215
--------- ----------
$ 2,965 $ 1,570
========= ==========
</TABLE>
5. LEASING TRANSACTIONS AND MAINTENANCE AGREEMENTS:
The Company's operations include leasing its systems. All of the Company's
leases are classified as operating leases. The Company's existing leases
generally expire over the next four years and include all maintenance services.
The lessee is responsible for risk of loss, theft or damage to the equipment.
The lessee pays the lease amount in monthly installments and is liable for its
full contractual obligation upon cancellation. Customers who purchase a system
may obtain a separate maintenance agreement.
The following is a schedule of minimum future rentals under these
non-cancelable operating leases and maintenance agreements as of February 29,
1996 (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1997 $ 16,592
1998 11,757
1999 6,918
2000 4,291
----------
$ 39,558
==========
</TABLE>
6. RETIREMENT PLAN:
The Company has a 401(K) plan covering all eligible employees. Under the
plan, eligible employees may contribute up to 15% of their salary. The Company
matches 100% of the employee contributions up to 5% of their gross pay and may
make discretionary contributions in amounts determined by the Board of
Directors. The Company accrued and contributed approximately $460,000,
$464,000 and $456,000 to the plan for fiscal years 1996, 1995 and 1994,
respectively.
-29-
<PAGE> 31
7. COMMITMENTS:
The Company's corporate headquarters is leased from related parties at a
monthly rental of approximately $33,000 plus insurance. The lease, which
expires on September 30, 2000, provides for annual increases based on the
percentage increase in the Consumer Price Index. Under this agreement, the
related parties hold a $50,000 security deposit. Additionally, the Company
leases other office space and office equipment from unrelated parties. Total
rent expense for fiscal years 1996, 1995 and 1994, was approximately
$1,324,000, $1,286,000 and $1,247,000 respectively, including rent expense to
related parties of approximately $418,000 in fiscal 1996 and 1995 and $541,000
in fiscal 1994.
At February 29, 1996, future minimum rental obligations under
non-cancelable operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1997 $ 1,341
1998 1,132
1999 978
2000 735
2001 159
Thereafter 450
---------
$ 4,795
=========
</TABLE>
8. INCOME TAXES:
The Company uses the asset and liability approach which requires
recognition of deferred tax assets and liabilities with respect to the expected
future tax consequence of events that have been recorded in the financial
statements and tax returns.
-30-
<PAGE> 32
Income tax expense is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
------------------------------------------------
February 29, February 28, February 28,
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Current:
Federal $ 1,380 $ 537 $ 590
State 510 213 194
-------- --------- --------
1,890 750 784
======== ========= ========
Deferred:
Federal (450) (14) (39)
State (166) (6) (14)
-------- --------- --------
(616) (20) (53)
--------- --------- --------
$ 1,274 $ 730 $ 731
======== ========= =========
</TABLE>
Deferred tax assets and liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
February 29, February 28,
1996 1995
------------- -------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 149 $ 149
Inventories 95 -
Intangible assets 66 -
Accrued expenses 267 -
Other - 38
--------- ---------
577 187
========= =========
Deferred tax liabilities:
Property and equipment (217) (356)
Other (12) (54)
-------- --------
(229) (410)
======== ========
Net deferred tax asset (liability) $ 348 $ (223)
========= ========
</TABLE>
-31-
<PAGE> 33
A reconciliation between the actual income tax expense and income taxes
computed by applying the statutory federal income tax rate of 34% to income
before income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
------------------------------------------------
February 29, February 28, February 28,
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Expected income taxes $ 1,073 $ 686 $ 710
State income taxes, net of federal benefit 234 127 128
Research and development tax credit (66) (72) (118)
Other 33 (11) 11
--------- ------ -------
Total income tax expense $ 1,274 $ 730 $ 731
========= ======= =======
</TABLE>
Certain aspects of the Company's fiscal 1992, 1993 and 1994 federal income
tax returns are currently under examination by the Internal Revenue Service.
(See Note 10.)
9. COMMON STOCK:
The Company has a 1992 Stock Option Plan (the "Plan"), as amended July 20,
1994, under which 400,000 shares of common stock are reserved for issuance upon
exercise of stock options. The Plan provides for the granting of incentive
stock options (as defined under the Internal Revenue Code) and nonstatutory
stock options at prices determined by the Stock Option Committee of the Board
of Directors. Under the Company's prior stock option plan, which terminated in
April 1992, options to acquire 93,450 shares of common stock remain exercisable
through May 6, 2001.
The Company also has a 1992 Directors Stock Option Plan (the "Directors
Plan") under which 40,000 shares of common stock were reserved for issuance
upon exercise of stock options. The Directors Plan provides for an automatic
grant of an option to purchase 5,000 shares of common stock to each nonemployee
director of the Company upon election as a director of the Company and an
automatic grant of an option to purchase 1,000 shares upon re-election as a
director of the Company, in both instances at an exercise price equal to the
fair market value of the common stock on the date of grant.
During fiscal 1994, the Company repriced options to purchase an aggregate
of 45,000 shares of common stock to executive officers and an option to
purchase 5,000 shares of common stock to an employee who is not an executive
officer, in each instance from an exercise price of $11.00 per share to $6.25
per share, the fair market value of the Company's common stock on the date of
repricing. During fiscal 1994, the Company also repriced options to purchase
an aggregate of 15,000 shares of common stock to nonemployee directors, from
exercise prices ranging from $10.00 to $11.00 per share to $6.25 per share, the
fair market value of the Company's common stock on the date of repricing.
The Board of Directors has authorized the Company to spend up to $2,000,000
to repurchase shares of the Company's issued and outstanding common stock,
based upon consideration of the Company's current cash position, management's
expectations of future cash flows from operating activities and the level of
cash required to fund future growth opportunities. Through February 29, 1996,
the Company repurchased 330,800 shares of its outstanding common stock at an
aggregate purchase price of $1,653,000, including 34,000 shares from a director
for an aggregate purchase price
-32-
<PAGE> 34
of $189,125. Future purchases will be made from time to time subject to
prevailing market conditions in open market or privately negotiated
transactions.
Stock Option Plan Summary:
<TABLE>
<CAPTION>
Year Ended
------------------------------------------------
February 29, February 28, February 28,
1996 1995 1994
--------------- --------------- --------------
<S> <C> <C> <C>
Options outstanding at beginning of year 289,350 288,450 245,600
Granted 102,500 13,000 102,000
Canceled (6,900) (7,200) (10,500)
Exercised (21,000) (4,900) (48,650)
---------- --------- ---------
Options outstanding at end of year 363,950 289,350 288,450
========== ========= =========
Available for issuance under 1992 Plan and
Directors Plan 169,500 260,000 73,000
========== ========= =========
Per share range of prices of options exercised
during the year $0.73 - $1.78 $1.78 $0.73 - $1.78
Per share range of exercise prices of outstanding
options at the end of year $1.78 - $7.25 $0.73 - $7.25 $0.73 - $7.25
Shares subject to exercisable options at end of year 261,450 284,350 272,450
</TABLE>
10. CONTINGENCIES:
The Company is involved from time to time in legal proceedings incident to
the normal course of its business. Management believes that adverse decisions
in any pending or threatened proceedings would not have a material adverse
effect on the Company's financial position or results of operations.
Certain aspects of the Company's fiscal 1992, 1993 and 1994 federal income
tax returns are currently under examination by the Internal Revenue Service
("IRS"). The IRS is reviewing the characterization and useful lives of certain
intangible assets of the Company. A report previously issued by the IRS
assessing additional taxes, penalties and interest for the 1992 fiscal year has
been rejected by the IRS appeals division and the case has been returned to the
initial examiner. A revised report has not been received regarding the
Company's 1992 tax return and no report has been received regarding the
Company's 1993 and 1994 tax return. If the IRS prevails, the Company may be
required to make payments relating to the timing of tax deductions taken on
these federal income tax returns. The Company may also be assessed interest
and penalties. Although management and its tax advisors believe that the
Company has a meritorious position, the ultimate outcome of this matter cannot
presently be determined and therefore, no liability has been recorded at this
time. The Company intends to vigorously defend its position.
-33-
<PAGE> 35
11. QUARTERLY FINANCIAL DATA (UNAUDITED):
Unaudited summarized financial data by quarter for fiscal 1996 and 1995 is
as follows (in thousands, except earnings per share):
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------
May 31 August 31 November 30 February 29
------ --------- ----------- -----------
<S> <C> <C> <C> <C>
Fiscal 1996
Revenues $8,384 $8,265 $8,373 $8,696
Operating income 645 567 611 982
Net income 449 402 428 603
Earnings per share $ 0.12 $ 0.11 $ 0.12$0.17
May 31 August 31 November 30 February 28
------ --------- ----------- -----------
Fiscal 1995
Revenues $7,886 $7,812 $7,700 $7,826
Operating income 688 524 327 215
Net income 469 370 246 202
Earnings per share $ 0.12 $ 0.10 $ 0.07 $ 0.05
</TABLE>
12. SUBSEQUENT EVENT:
On March 1, 1996, the Company acquired the cost recovery customer base of
ISI Infortext, Inc. ("ISI"), a distributor of cost recovery and telemanagement
products based in Schaumburg, Illinois. The transaction was financed by
$1,450,000 of cash restricted for that purpose as of February 29, 1996, and the
assumption of a liability of approximately $610,000 to fulfill maintenance
agreements. Additional consideration is contingent upon the results of the
acquisition during fiscal 1997.
-34-
<PAGE> 36
13. GEOGRAPHIC INFORMATION:
The Company operates exclusively in one business segment. Geographic
information related to revenues, operating income and assets (at year end) is
as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------
February 29, February 28, February 28,
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
U.S. $ 30,340 $ 28,413 $ 27,225
Foreign, principally United Kingdom and Canada 3,378 2,811 1,897
------------- ------------- -------------
Total $ 33,718 $ 31,224 $ 29,122
============= ============= =============
Operating income (loss):
U.S. $ 3,105 $ 1,669 $ 1,748
Foreign, principally United Kingdom and Canada (300) 85 149
------------- ------------- -------------
Total $ 2,805 $ 1,754 $ 1,897
============= ============= =============
Assets (at end of year):
U.S. $ 24,503 $ 23,080 $ 22,241
Foreign, principally United Kingdom and Canada 1,143 2,356 607
------------- ------------- -------------
Total $ 25,646 $ 25,436 $ 22,848
============= ============= =============
</TABLE>
-35-
<PAGE> 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item with respect to directors of the Company
will be included in the Company's definitive Proxy Statement in connection with
its 1996 Annual Meeting of Stockholders (the "1996 Proxy Statement") which will
be filed with the Securities and Exchange Commission, and is incorporated
herein by reference. Information with respect to executive officers of the
Company is presented in Part I, above, under the caption "Executive Officers of
the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be contained in the 1996 Proxy
Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item will be contained in the 1996 Proxy
Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The information required by this item will be contained in the 1996 Proxy
Statement and is incorporated herein by reference.
-36-
<PAGE> 38
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(A) 1. INDEX TO FINANCIAL STATEMENTS
The following financial statements of Equitrac Corporation are filed as
part of this report on Form 10-K:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants 20
Balance Sheets - February 29, 1996 and February 28, 1995 21
Statements of Income - Years ended February 29, 1996, February 28, 1995
and February 28, 1994 22
Statements of Stockholders' Equity - Years ended February 29, 1996
February 28, 1995 and February 28, 1994 23
Statements of Cash Flows - Years ended February 29, 1996,
February 28, 1995 and February 28, 1994 24
Notes to Financial Statements 25
2. SUPPLEMENTAL SCHEDULE
Report of Independent Accountants S-1
Schedule II - Valuation and Qualifying Accounts S-2
</TABLE>
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or required under the
related instructions or is included in the Financial Statements or notes
thereto.
(B) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE OR
NUMBER DESCRIPTION METHOD OF FILING
-------- ------------- ----------------
<S> <C>
3.1 Amended and Restated Articles Incorporated by reference to Exhibit No. 3.1
of Incorporation to the Company's Registration Statement
on Form S-1 (No. 33-47367) (the "S-1")
3.2 Bylaws Incorporated by reference to Exhibit 3.2 to
the Company's S-1
4 Form of Common Stock Incorporated by reference to Exhibit 4 to
Certificate the Company's S-1
10.1 Executive Compensation Plan and Arrangements
10.1 (a) 1992 Stock Option Plan, as amended Incorporated by reference to the Company's S-8
</TABLE>
-37-
<PAGE> 39
<TABLE>
<S> <C> <C>
10.1 (b) Directors Stock Option Plan Incorporated by reference to Exhibit 10.2 to
the Company's S-1
10.1 (c) Employment Agreement, dated Incorporated by reference to Exhibit 10.3 to
as of April 17, 1992 between the Company's S-1
the Company and John T. Kane
10.1 (d) Employment Agreement, dated Incorporated by reference to Exhibit 10.4 to
as of April 17, 1992 between the the Company's S-1
Company and George P. Wilson
10.2 Form of Indemnification Incorporated by reference to Exhibit 10.5 to
Agreement between the Company the Company's S-1
and each of its Executive Officers
and Directors
10.3 Lease Agreement dated September Incorporated by reference to Exhibit 10.8 to
17, 1990, between the Company the Company's S-1
and 3200 Ponce de Leon Associates
11 Statement re: computation of
earnings per share
22 Subsidiaries Incorporated by reference to Exhibit 22.1 to
the Company's S-1
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule(for SEC use only)
</TABLE>
(C) REPORTS ON FORM 8-K.
No reports were filed on Form 8-K during the three months ended February 29,
1996.
-38-
<PAGE> 40
SIGNATURES
Pursuant to the requirements of Section 13 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, in the City of Coral Gables,
Florida on May 23, 1996.
EQUITRAC CORPORATION
By /s/ George P. Wilson
-------------------------------------
George P. Wilson
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John T. Kane Chairman of the Board of Directors May 23, 1996
- ------------------------------
John T. Kane
/s/ George P. Wilson President, Chief Executive Officer May 23, 1996
- ------------------------------ and Director
George P. Wilson
/s/ Scott J. Modist Vice President - Finance, Treasurer May 23, 1996
- ------------------------------ and Chief Financial Officer (Principal
Scott J. Modist Financial Officer)
/s/ Richard S. Staveley, Jr. Controller (Principal Accounting Officer) May 23, 1996
- ------------------------------
Richard S. Staveley, Jr.
/s/ James F. Courbier Director May 23, 1996
- ------------------------------
James F. Courbier
/s/ Marc M. Watson Director May 23, 1996
- ------------------------------
Marc M. Watson
/s/ Peter Marx Director May 23, 1996
- ------------------------------
Peter Marx
</TABLE>
-39-
<PAGE> 41
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Equitrac Corporation
Our report on the financial statements of Equitrac Corporation is
included on page 20 of this Form 10-K. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule listed in the index on page 37 of this Form 10-K.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Miami, Florida
April 12, 1996
<PAGE> 42
SCHEDULE II
EQUITRAC CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED FEBRUARY 29, 1996, FEBRUARY 28, 1995 AND FEBRUARY 28, 1994
(in thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -------- -------- -------- -------- -------- --------
ADDITIONS
-------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COST AND OTHER DEDUC- AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS TIONS OF YEAR
- ----------- ------- -------- -------- ----- -------
<S> <C> <C> <C> <C> <C>
Year ended
February 29, 1996
Allowance for doubtful
accounts (deducted from
accounts receivable) $350 - $100 $100 $ 350
Year ended
February 28, 1995
Allowance for doubtful
accounts (deducted from
accounts receivable) $325 $ 25 - - $ 350
Year ended
February 28, 1994
Allowance for doubtful
accounts (deducted from
accounts receivable) $325 $100 - $100 $ 325
</TABLE>
<PAGE> 1
EXHIBIT 11
EQUITRAC CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except earnings per share)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1996 1995 1994 1993 1992
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Weighted average number of
common shares outstanding 3,537 3,694 3,670 3,343 2,598
Common share equivalents
arising from dilutive options(1) 60 76 100 152 51
------ ------ ------ ------ -----
3,597 3,770 3,770 3,495 2,649
====== ====== ====== ====== =====
Earnings per share $ .52 $ .34 $ .36 $ .70 $ .66
====== ====== ====== ====== =====
</TABLE>
(1) Computed under the "treasury stock" method.
Primary and fully diluted earnings per share are essentially the same.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of Equitrac Corporation on Form S-8 (File No. 33-49656) of our
reports dated April 12, 1996, on our audits of the financial statements and
financial statement schedule of Equitrac Corporation as of February 29, 1996
and February 28, 1995 and for the years ended February 29, 1996 and February
28, 1995 and 1994, which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Miami, Florida
May 23, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EQUITRAC CORPORATION FOR THE ELEVEN MONTHS ENDED
FEBRUARY 29, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> MAR-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 5,031
<SECURITIES> 4,031
<RECEIVABLES> 4,680
<ALLOWANCES> 350
<INVENTORY> 1,780
<CURRENT-ASSETS> 16,037
<PP&E> 12,303
<DEPRECIATION> 6,269
<TOTAL-ASSETS> 25,646
<CURRENT-LIABILITIES> 3,671
<BONDS> 0
0
0
<COMMON> 37
<OTHER-SE> 21,787
<TOTAL-LIABILITY-AND-EQUITY> 25,646
<SALES> 11,892
<TOTAL-REVENUES> 33,718
<CGS> 4,329
<TOTAL-COSTS> 12,452
<OTHER-EXPENSES> 18,461
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,156
<INCOME-TAX> 1,274
<INCOME-CONTINUING> 1,882
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,882
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.52
</TABLE>
