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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A-2
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended SEPTEMBER 30, 1997
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 Number: 0-21142
NEMATRON CORPORATION
(Name of small business issuer in its charter)
<TABLE>
<S> <C>
MICHIGAN 38-2483796
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
5840 INTERFACE DRIVE, ANN ARBOR, MICHIGAN 48103
(Address of principal executive offices) (Zip Code)
(734) 994-0501
(Issuer's telephone number)
Securities registered under Section 12(b) of
the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, NO PAR VALUE
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. [X] Yes [ ] No
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $20,875,397
The aggregate market value of the voting stock held by non-affiliates
as of December 20, 1997, computed by reference to the closing price of such
stock on such date as quoted on the Nasdaq Stock Market National Market, was
approximately $17,220,000. For purposes of this computation only, all executive
officers, directors and beneficial owners of more than 5% of the outstanding
Common Stock are assumed to be affiliates.
The number of shares outstanding of the issuer's Common Stock on
December 20, 1997 was 5,339,538.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT [ ] Yes [ X ] No
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The Registrant hereby amends its Form 10-KSB for the fiscal year ended September
30, 1997 to change Item 7 as set forth below:
ITEM 7 FINANCIAL STATEMENTS.
NEMATRON CORPORATION AND SUBSIDIARIES
Table of Contents
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Independent Auditors' Report 1
Consolidated Balance Sheet as of September 30, 1997 2
Consolidated Statements of Operations for the years ended
September 30, 1996 and 1997 3
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1996 and 1997 4
Consolidated Statements of Cash Flows for the years ended
September 30, 1996 and 1997 5
Notes to Consolidated Financial Statements 6-25
</TABLE>
2
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Nematron Corporation
We have audited the accompanying consolidated balance sheet of Nematron
Corporation and subsidiaries as of September 30, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended September 30, 1996 and 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Nematron Corporation
and subsidiaries as of September 30, 1997, and the results of their operations
and their cash flows for the years ended September 30, 1996 and 1997, in
conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
July 13, 1998
(except for Note 14, as to
which the date is July 31, 1998)
Detroit, Michigan
3
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NEMATRON CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
September 30, 1997
<TABLE>
<S> <C>
Assets (Notes 7 and 8)
Current assets:
Cash and cash equivalents $ 1,142,988
Accounts receivable, net of allowance for doubtful accounts of $410,000 4,205,196
Inventories (note 6) 4,399,426
Prepaid expenses and other current assets 528,471
-------------
Total current assets 10,276,081
Property and equipment:
Land 117,000
Building and improvements 2,279,598
Equipment 5,732,795
-------------
8,129,393
Less accumulated depreciation (3,865,092)
-------------
Net property and equipment 4,264,301
Other assets:
Software and related development costs, net of accumulated amortization of $1,619,919 (note 4) 2,724,819
Other intangible assets, net of accumulated amortization of $516,168 (note 4) 3,008,547
-------------
Net other assets 5,733,366
-------------
Total assets $ 20,273,748
=============
Liabilities and Stockholders' Equity
Current liabilities:
Note payable to bank (note 7) $ 1,141,000
Current maturities of long-term debt (note 8) 681,231
Accounts payable 1,711,936
Other accrued liabilities 1,818,138
-------------
Total current liabilities 5,352,305
Long-term debt, less current maturities (note 8) 3,595,378
Deferred tax liability 1,000,000
-------------
Total liabilities 9,947,683
Stockholders' equity:
Common stock, no par value; 15,000,000 shares authorized, 5,329,938 shares issued and
outstanding (notes 10 and 11) 21,589,413
Foreign currency translation adjustment (7,571)
Accumulated deficit (11,255,777)
-------------
Total stockholders' equity 10,326,065
-------------
Commitments and contingencies (note 12)
Total liabilities and stockholders' equity $ 20,273,748
=============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
NEMATRON CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended September 30, 1996 and 1997
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Net revenues $ 20,923,613 $ 20,875,397
Cost of revenues, including non-recurring charges of $4,768,687
in 1997 (note 4) 12,190,759 17,668,774
------------- --------------
Gross profit 8,732,854 3,206,623
Operating expenses:
Product development costs 1,448,540 2,151,698
Selling, general, and administrative expenses 6,379,718 9,357,460
Non-recurring charges (note 4) 727,582
Write-off of in-process research and development costs relating to the
Intec Controls Corp. acquisition (note 3) 1,655,000
Write-off of in-process research and development costs relating to the
Virtual-Time Software, Inc., acquisition (note 3) 400,000
------------- --------------
Total operating expenses 7,828,258 14,291,740
------------- --------------
Operating income (loss) 904,596 (11,085,117)
------------- --------------
Other income (expense):
Interest and other income, net 70,189 103,659
Interest expense (512,896) (361,894)
Foreign currency loss (10,199) (155,027)
------------- --------------
Total other expense (452,906) (413,262)
------------- --------------
Income (loss) before income taxes 451,690 (11,498,379)
Income taxes (note 9) 0 0
------------- --------------
Net income (loss) $ 451,690 $ (11,498,379)
============= ==============
Income (loss) per share:
Primary $ 0.13 $ (2.33)
============= ==============
Fully diluted $ 0.12
=============
Weighted average shares outstanding - primary 3,580,057 4,933,939
============= ==============
Weighted average shares outstanding - fully diluted 3,797,490
=============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
NEMATRON CORPORATION AND SUBSIDIARIES Consolidated
Statements of Stockholders' Equity For the years ended
September 30, 1996 and 1997
<TABLE>
<CAPTION>
Retained
Common Stock Foreign Earnings
------------------------- Currency (Accumulated
Shares Amount Translation Deficit) Total
------ ------ ----------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, October 1, 1995 2,869,613 $ 6,796,193 $ (50,947) $ (209,088) $ 6,536,158
Net income for the year ended
September 30, 1996 451,690 451,690
Foreign currency translation effect (34,571) (34,571)
Shares issued pursuant to secondary
stock offering, net of expenses 1,200,000 9,551,604 9,551,604
Exercise of options 13,416 36,968 36,968
Exercise of warrants 475,219 1,188,049 1,188,049
--------- ------------- ---------- -------------- --------------
Balance, September 30, 1996 4,558,248 17,572,814 (85,518) 242,602 17,729,898
Net loss for the year ended
September 30, 1997 (11,498,379) (11,498,379)
Foreign currency translation effect 77,947 77,947
Shares issued pursuant to merger with
Intec Controls Corp. (note 3) 587,594 3,305,205 3,305,205
Shares issued pursuant to merger with
Virtual-Time Software, Inc.
(note 3) 67,301 403,806 403,806
Exercise of options, net of 13,083
shares redeemed 72,148 136,667 136,667
Exercise of warrants 44,647 170,921 170,921
--------- ------------- ---------- -------------- --------------
Balance, September 30, 1997 5,329,938 $ 21,589,413 $ (7,571) $ (11,255,777) $ 10,326,065
========= ============= ========== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
6
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NEMATRON CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended September 30, 1996 and 1997
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 451,690 $ (11,498,379)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization 837,666 6,179,918
Write-off of in-process research and development costs (note 3) 2,055,000
Debt retirement expense 122,340
Changes in assets and liabilities that provided (used) cash:
Accounts receivable (2,828,082) 2,535,869
Inventories (397,915) 143,617
Prepaid expenses and other current assets (481,638) 248,403
Accounts payable (1,083,280) (157,326)
Other accrued liabilities (376,418) (224,832)
-------------- --------------
Net cash used in operating activities (3,877,977) (595,390)
-------------- --------------
Cash flows from investing activities:
Acquisition of Intec Controls Corp. (note 3) 281,058
Acquisition of Virtual-Time Software, Inc., net of $6,327 cash acquired
(note 3) (93,673)
Additions to capitalized software development costs and other intangible
assets (1,171,827) (2,512,111)
Additions to property and equipment (929,730) (827,861)
-------------- --------------
Net cash used in investing activities (2,101,557) (3,152,587)
-------------- --------------
Cash flows from financing activities:
Borrowings under long-term debt agreements 2,266,081 1,800,000
Net proceeds (repayments) of note payable to bank (2,450,000) 1,141,000
Proceeds from sale of common stock and exercise of options and warrants 10,776,621 307,588
Repayments of long-term debt (540,245) (2,264,350)
Additions to deferred financing fees (173,647) (39,211)
-------------- --------------
Net cash provided by financing activities 9,878,810 945,027
-------------- --------------
Foreign currency translation effect on cash (34,571) 2,975
-------------- --------------
Net increase (decrease) in cash and cash equivalents 3,864,705 (2,799,975)
Cash and cash equivalents at beginning of year 78,258 3,942,963
-------------- --------------
Cash and cash equivalents at end of year $ 3,942,963 $ 1,142,988
============== ==============
Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized $ 519,456 $ 344,551
Cash paid for income taxes 0 0
Supplemental disclosures of noncash financing and investing activities:
Acquisition of equipment under capital lease obligations (notes 8 and 12) $ 544,014
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
NEMATRON CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1996 and 1997
(1) BUSINESS
--------
Nematron Corporation (the "Company") designs, manufactures, and markets
environmentally ruggedized computers and computer displays known as
industrial workstations, and designs, develops, and markets software for
worldwide use in factory automation and control and in test and
measurement environments.
(2) SUMMARY OF ACCOUNTING PRINCIPLES
--------------------------------
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries--Nematron Europa BV
("NEBV"), an inactive Netherlands corporation; Nematron Ltd., a United
Kingdom corporation acquired in the Intec acquisition; and NemaSoft, Inc.
("NemaSoft"), and Imagination Systems, Inc. ("ISI"), Michigan
corporations formed in 1995 and 1996, respectively. All significant
intercompany transactions and balances have been eliminated in
consolidation.
During the fiscal year ended September 30, 1997, the Company acquired two
software design and manufacturing companies. Intec Controls Corp.
("Intec"), a Massachusetts corporation, was acquired on March 31, 1997,
and Virtual-Time Software, Inc. ("VTS"), a California corporation, was
acquired on June 20, 1997. The consolidated operations of the Company for
1997 include the results of Intec and VTS since the dates of their
respective acquisitions (see note 3).
Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less at the date of purchase to be cash
equivalents.
Inventories
Inventories are carried at the lower of cost or market. Cost is
determined by the first in, first out method. Provision is made to reduce
inventories (including demonstration units) to net realizable value for
excess and/or obsolete inventories based upon an item-by-item review of
quantities on hand compared to estimated future usage for sales and
service.
8
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NEMATRON CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) SUMMARY OF ACCOUNTING PRINCIPLES, CONTINUED
-------------------------------------------
Property and Equipment
Property and equipment are stated at cost. Capital leases are recorded at
the present value of future minimum lease payments and are amortized over
their primary term. Depreciation is provided over the estimated useful
lives of the assets, ranging from 3 years for certain factory and office
equipment to 33 years for the Company's manufacturing facility.
Depreciation is computed using the straight-line method for financial
reporting purposes and accelerated methods as promulgated by the IRS for
tax reporting purposes.
Software and Related Development Costs
In accordance with Statement of Financial Accounting Standards No. 86,
Accounting for the Costs of Computer Software To Be Sold, Leased or
Otherwise Marketed, certain computer software development costs and
purchased software technology have been capitalized. Capitalization of
computer software development costs begins upon establishment of
technological feasibility. The establishment of technological feasibility
and the ongoing assessment of recoverability of capitalized computer
software development costs requires considerable judgment by management
with respect to certain external factors, including, but not limited to,
anticipated future gross revenues, estimated economic life, and changes
in software and hardware technology. The Company continually reviews the
recoverability of capitalized software costs based on estimated cash
flows. Software costs are written off, as amortization expense, at the
time a determination has been made that the amounts are not recoverable.
During the year ended September 30, 1996, capitalized software and
related development costs, net of amortization, increased by
approximately $1,125,000, primarily relating to salaries and other costs
incurred during the year, offset by approximately $47,000 of amortization
of capitalized costs. During the year ended September 30, 1997,
capitalized software and related development costs, net of amortization,
decreased by approximately $1,701,000. The decrease was due to the
capitalization of approximately $2,435,000 of salaries and other costs
incurred during the year, the acquisition of approximately $478,000 of
costs pursuant to the Intec and VTS acquisitions, offset by approximately
$553,000 of amortization of capital costs, and the write-off of
approximately $4,061,000 related to abandoned software projects (see
notes 3 and 4).
9
<PAGE> 10
NEMATRON CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) SUMMARY OF ACCOUNTING PRINCIPLES, CONTINUED
-------------------------------------------
Software and Related Development Costs, Continued
Amortization of capitalized computer software development costs is
provided on a product-by-product basis using the greater of the amount
computed using (a) the ratio that current gross revenues for each product
bear to the total of current and anticipated future gross revenues for
that product, or (b) the straight-line method over the remaining
estimated economic lives of the respective products, ranging from two to
five years. Amortization for ongoing software projects amounted to
approximately $47,000 and $553,000 for the years ended September 30, 1996
and 1997, respectively, and is included in cost of revenues in the
accompanying consolidated statements of operations.
Intangible Assets
Other intangible assets are carried at cost less accumulated
amortization, which is calculated on a straight-line basis over the
estimated useful lives of the assets, ranging from five to ten years.
Amortization was approximately $100,500 and $636,900 for the years ended
September 30, 1996 and 1997, respectively.
The carrying value of intangible assets is periodically reviewed, and
impairments are recognized when the expected future cash flows derived
from such intangible assets are less than their carrying value.
Stock Option Plan
Prior to October 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense was recorded on the date
of grant only if the current market price of the underlying stock
exceeded the exercise price. On October 1, 1996, the Company adopted
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS 123"), which permits entities to
recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of APB Opinion No. 25
and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has elected
to continue to apply the provisions of APB Opinion No. 25 and provide the
pro forma disclosure provisions of SFAS No. 123.
10
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NEMATRON CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) SUMMARY OF ACCOUNTING PRINCIPLES, CONTINUED
-------------------------------------------
Foreign Currency Translation
In accordance with Statement of Financial Accounting Standards No. 52,
Foreign Currency Translation, the assets and liabilities of the Company's
foreign subsidiaries, NEBV and Nematron Ltd., denominated in foreign
currency, are translated at exchange rates in effect on the balance sheet
date, and revenue and expenses are translated using a weighted average
exchange rate during the year. Gains or losses resulting from translating
foreign currency financial statements are recorded in a separate
component of stockholders' equity. Gains or losses resulting from foreign
currency transactions are included in net income (loss).
Revenue Recognition
Revenues from product sales are recognized upon shipment. Revenues from
service and repair of computers are recognized as the services are
performed. Revenues from software and engineering development are
recognized as the Company performs the services, in accordance with the
contract terms. Revenues from extended warranty agreements covering
software are recognized ratably over the terms of the agreement with the
customer. Revenues from license agreements are recognized upon delivery
of the software and performance of all obligations under the applicable
agreement. The Company has established programs which, under specified
terms and limited conditions, enable its distributors to return limited
amounts of product. The effect of these programs is estimated, and
current-period revenues and cost of revenues are reduced accordingly.
Research and Development Costs
Research and development costs are expensed when incurred. These costs,
representing engineering salaries, fringe benefits, and a portion of the
Company's overhead, are included in the accompanying consolidated
statements of operations as a component of product development costs.
Research and development costs expensed were approximately $1,087,000 and
$1,615,000 for the years ended September 30, 1996 and 1997, respectively.
Warranty Costs
The Company provides for estimated warranty costs as products are
shipped. Estimated warranty reserves are adjusted currently based upon
projected levels of warranty repairs and estimated costs of materials,
labor, and overhead costs to be incurred in meeting warranty obligations.
11
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NEMATRON CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) SUMMARY OF ACCOUNTING PRINCIPLES, CONTINUED
-------------------------------------------
Income Taxes
Income taxes are accounted for under the asset-and-liability method.
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the
future. Such deferred income tax asset-and-liability computations are
based on enacted tax laws and rates. A valuation allowance is established
when necessary to reduce deferred income tax assets to the amount
expected to be realized.
Earnings (Loss) Per Share
Earnings (loss) per share are calculated using the weighted average
number of common shares outstanding during the year, adjusted for the
assumed conversion of dilutive stock options and warrants. Since a net
loss was incurred in 1997, no conversion of dilutive stock options and
warrants was assumed in the loss per share calculation in 1997. In
computing the per-share effect of assumed conversion in 1996, funds which
would have been received from the exercise of options and warrants are
considered to have been used to purchase common shares at an average
market price for primary earnings per share and at the year-end market
price for fully diluted earnings per share. The resulting net additional
common shares are included in the calculation of average shares
outstanding.
Fair Value
Financial instruments of the Company, consisting principally of cash,
accounts receivable, accounts payable, and debt, are recorded at
estimated fair value. The estimated fair value amounts have been
determined by the Company, using available market information and
available valuation methodologies.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates. Estimates are used in
the determination of allowance for doubtful accounts, obsolete and slow
moving inventory, capitalized software and related development costs,
intangible assets, and warranty costs.
12
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NEMATRON CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) SUMMARY OF ACCOUNTING PRINCIPLES, CONTINUED
-------------------------------------------
Other Recent Pronouncements
In 1997, Statement of Financial Accounting Standards No. 128 ("SFAS
128"), Earnings Per Share, was issued, and is effective for fiscal years
commencing after December 15, 1997. The future adoption of SFAS 128 is
not expected to have a material effect on the Company's reported earnings
per share.
In 1997, Statement of Financial Accounting Standards No. 130 ("SFAS
130"), Reporting Comprehensive Income, was issued, and is effective for
fiscal years commencing after December 15, 1997. The Company will comply
with the requirements of SFAS 130 in fiscal year 1999.
In 1997, Statement of Financial Accounting Standards No. 131 ("SFAS
131"), Disclosures About Segments of an Enterprise and Related
Information, was issued, and is effective for fiscal years commencing
after December 15, 1997. The Company will comply with the requirements of
SFAS 131 in fiscal year 1999.
On October 27, 1997, the AICPA Accounting Standards Executive Committee
issued Statement of Position 97-2 (SOP 97-2), Software Revenue
Recognition. SOP 97-2 is effective for fiscal years commencing after
December 15, 1997, and is not expected to impact the Company's financial
position or results of operations.
(3) ACQUISITIONS
------------
Merger with Intec Controls Corp.
On March 31, 1997, the Company completed a merger of its wholly owned
subsidiary, NemaSoft, Inc., with Intec Controls Corp. ("Intec"), a
Walpole, Massachusetts-based developer of high-performance regulatory
control software solutions used primarily by process industries. The
Company recorded this transaction using the purchase method. The total
purchase price was approximately $3,735,000, including expenses of
approximately $430,000. Under terms of the merger agreement, the Company
issued 587,594 shares of its common stock to the former Intec
shareholders in exchange for 100 percent of the outstanding common stock
of Intec. The Intec stock was retired, and NemaSoft is the surviving
entity.
In addition to the common stock issued, the Company issued warrants to
the former Intec shareholders to purchase an additional 124,998 shares of
Company common stock at $6.73 per share. The warrants expire February 20,
2000.
13
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NEMATRON CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) ACQUISITIONS, CONTINUED
-----------------------
Merger with Virtual-Time Software, Inc.
On June 20, 1997, the Company completed a merger of its wholly owned
subsidiary, Imagination Systems, Inc., with Virtual-Time Software, Inc.
("VTS"), a Santa Clara, California-based developer of real-time operating
system products which provide high-speed deterministic performance to
MicroSoft's Windows (R) operating systems. The Company recorded this
transaction using the purchase method. The total purchase price was
approximately $694,000, including expenses of approximately $190,000.
Under terms of the merger agreement, the Company issued 67,301 shares of
its common stock and $100,000 to the former VTS shareholders in exchange
for 100 percent of the outstanding common stock of VTS. The VTS stock was
retired, and ISI is the surviving entity. In connection with the merger,
ISI also entered into two-year employment and noncompetition agreements
with VTS's president, who became an employee of ISI as a result of the
merger.
The allocation of total purchase price to assets acquired and liabilities
assumed as of the respective purchase dates was as follows:
<TABLE>
<CAPTION>
Intec VTS
----- ---
<S> <C> <C>
Current assets $ 1,005,000 $ 6,000
Software and related development costs 2,058,000 475,000
Other intangible assets 2,352,000 216,000
Property and equipment 305,000 16,000
Deferred tax liability (1,000,000)
Other liabilities (985,000) (19,000)
--------------- -------------
Total purchase price $ 3,735,000 $ 694,000
=============== =============
</TABLE>
Software and related development costs include acquired in-process
research and development (R&D). Acquired in-process R&D includes the
value of products in the development stage and not considered to have
reached technological feasibility. In accordance with applicable
accounting rules, acquired in-process R&D is required to be expensed.
Accordingly, charges of $1,655,000 and $400,000 were recorded at the
acquisition dates related to the acquisitions of Intec and VTS,
respectively.
14
<PAGE> 15
NEMATRON CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) ACQUISITIONS, CONTINUED
-----------------------
The following unaudited pro forma information presents a summary of
consolidated results of operations for fiscal 1996 and 1997 of the
Company, Intec, and VTS as if the acquisitions had occurred as of the
beginning of 1996, with pro forma adjustments to give effect to
amortization of software, interest expense on additional borrowings, and
certain other adjustments, together with related income tax effects.
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1996 1997
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Net revenues $ 25,317,404 $ 22,825,183
Net loss $ (2,034,301) $ (9,200,075)
Net loss per share $ (0.51) $ (1.74)
</TABLE>
(4) NON-RECURRING CHARGES
---------------------
Non-recurring charges consist of the following:
<TABLE>
<S> <C>
Charged to cost of revenues:
Write-down of software and related development costs $ 4,061,304
Write-down of inventories 707,383
---------------
$ 4,768,687
===============
Charged to operating expenses:
Write-down of other intangible assets $ 359,406
Loss on closing of Netherlands office 245,836
Debt retirement expense 122,340
---------------
$ 727,582
===============
</TABLE>
In September 1997, the Company wrote down certain software and related
development costs, inventories and other intangible assets. In
conjunction with the Company's strategic planning process, analyses were
prepared to determine if any asset impairment existed as a result of
changes to the Company's long-term strategic plan. These analyses
indicated impairment existed due to lower or no planned revenues from
certain products, and accordingly, assets related to these products were
written off.
15
<PAGE> 16
NEMATRON CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) NON-RECURRING CHARGES, CONTINUED
--------------------------------
In September 1997, the Company wrote down certain purchased parts and
accessories and finished goods inventories related to discounted product
models, pursuant to results of the Company's strategic planning process.
During the second quarter of fiscal 1997, the Company elected to close
its Netherlands office and incurred closure costs of $245,836. Also in
the second quarter, the Company obtained bank financing in order to repay
its higher cost subordinated debt. A noncash charge of $122,340 was
recorded, which relates to the write-off of deferred financing fees on
the refinanced subordinated debt.
(5) RELATED PARTY TRANSACTIONS
--------------------------
The Company leases its Virginia Beach, Virginia, office building from a
partnership in which the president and CEO of the Company is a partner.
Total lease payments made for the years ended September 30, 1996 and
1997, under the terms of the lease were $77,600 and $79,600,
respectively.
(6) INVENTORIES
-----------
Inventories are summarized as follows:
<TABLE>
<CAPTION>
September 30,
1997
----
<S> <C>
Purchased parts and accessories $ 2,928,277
Finished goods 320,671
Work-in-process 349,069
Demonstration units 532,099
Service stock 269,310
---------------
Total inventories $ 4,399,426
===============
</TABLE>
16
<PAGE> 17
NEMATRON CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) NOTE PAYABLE TO BANK
--------------------
The Company has a credit facility with a bank providing for a maximum
amount available of $6,000,000. A total of $1,141,000 was outstanding on
this facility as of September 30, 1997. The amount available under this
facility is limited by a borrowing formula which allows for advances up
to a maximum of the sum of 80 percent of eligible domestic accounts
receivable plus a maximum of $2,000,000 of eligible foreign receivables,
plus a maximum of $2,500,000 against certain inventory categories. Based
upon the borrowing formula, approximately $3,500,000 of the available
line was eligible for advance at September 30, 1997. The line of credit
is secured by substantially all assets of the Company and a second
mortgage on the Company's Ann Arbor facility. The note bears interest at
the bank's prime interest rate (8.5 percent at September 30, 1997). The
line of credit includes various affirmative and negative covenants. The
Company was in violation of certain covenants as of September 30, 1997,
and obtained a waiver of such violations from the bank.
(8) LONG-TERM DEBT
--------------
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30,
1997
----
<S> <C>
Mortgage loan payable to a bank, interest at 9.5% per annum; payable in
monthly installments of $29,900 through September 2001, at which
time the remaining principal and any interest thereon is due. The
loan is collateralized by a first mortgage of the Company's land
and building in Ann Arbor, Michigan $ 2,156,481
Term note payable to a bank, interest at LIBOR plus 2.5% per annum; payable in
monthly installments of $30,000 plus interest through February 2002. The note
is collateralized by substantially all assets, other than real property, and a
third mortgage on the Company's real estate 1,590,000
Capitalized lease obligations - computer equipment (note 12) 474,265
Capitalized lease obligations - production equipment (note 12) 26,536
Other notes 29,327
---------------
Total long-term debt 4,276,609
Less current maturities (681,231)
---------------
Total long-term debt, less current maturities $ 3,595,378
===============
</TABLE>
17
<PAGE> 18
NEMATRON CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8) LONG-TERM DEBT, CONTINUED
-------------------------
The mortgage loan agreement contains a covenant that requires the Company
to maintain a minimum tangible net worth and a minimum debt-to-equity
ratio. The loan agreement with the bank regarding the term note and two
equipment notes includes various affirmative and negative covenants, the
most restrictive of which are (1) the prohibition of dividend payments,
and (2) requirements to maintain (a) a specified ratio of current assets
to current liabilities, (b) a specified ratio of liabilities to tangible
net worth, (c) a specified debt coverage ratio, and (d) a specified level
of tangible worth. The Company was in violation of certain of these
covenants at September 30, 1997, and obtained a waiver of such violations
from the bank.
The aggregate amounts of long-term debt maturities at September 30, 1997,
are as follows:
<TABLE>
<CAPTION>
Year ended September 30:
<S> <C>
1998 $ 681,231
1999 686,213
2000 697,804
2001 2,061,361
2002 150,000
----------
Total long-term debt $4,276,609
==========
</TABLE>
18
<PAGE> 19
NEMATRON CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) TAXES ON INCOME
---------------
The provisions for taxes on income in fiscal 1996 and 1997, including
both the current and deferred portions, are zero. The following
reconciles the statutory federal income tax rate to the Company's
effective tax rate:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1996 1997
---- ----
<S> <C> <C>
Income tax expense (benefit) based on the federal statutory
rate 34.0% (34.0)%
Generation (utilization) of net operating loss carryforwards (34.0)% 34.0%
---- ----
Effective tax rate 0.0% 0.0%
===== =====
</TABLE>
The domestic and foreign components of income (loss) before taxes on
income are as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1996 1997
---- ----
<S> <C> <C>
Domestic $ (9,100) $ (11,220,617)
Foreign 460,790 (277,762)
------------- ----------------
Total income (loss) before taxes on
income $ 451,690 $ (11,498,379)
============= ================
</TABLE>
Deferred income taxes result from temporary differences in the
recognition of income and expenses for financial and income tax reporting
purposes. Deferred income taxes are primarily due to the use of
accelerated methods of depreciation for tax purposes versus principally
straight-line methods for financial reporting purposes, the
capitalization of software development costs for financial reporting
purposes versus the expensing of these items as incurred for tax
purposes, the required capitalization of certain inventory items for tax
purposes, inventory reserves deductible for tax purposes when disposed of
versus directly expensing them for financial reporting purposes, employee
benefit accruals deductible for tax purposes when paid, and net operating
loss carryforwards.
19
<PAGE> 20
NEMATRON CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) TAXES ON INCOME, CONTINUED
--------------------------
Temporary differences and carryforwards which give rise to the net
deferred tax position at September 30, 1997, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Inventories $ 374,000
Property and equipment 101,000
Other 219,000
Net operating loss carryforwards 3,934,000
----------------
Total deferred tax assets 4,628,000
Less: Valuation allowance (4,172,000)
----------------
Net deferred tax assets 456,000
Deferred tax liability - capitalized software development costs
and other intangible assets (1,456,000)
----------------
Net deferred tax position $ (1,000,000)
================
</TABLE>
During the years ended September 30, 1996 and 1997, the valuation
allowance decreased by $18,000 and increased by $3,786,000, respectively.
At September 30, 1997, the Company has net operating loss carryforwards
of approximately $11,570,000, which expire at various dates between 2003
and 2012. Utilization of these carryforwards is subject to annual
limitations under current IRS regulations. The Company has established a
valuation allowance for the estimated amount of the total limitation on
the utilization of the net operating loss carryforwards. Realization of
net deferred tax assets associated with the net operating loss
carryforwards is dependent upon generating sufficient taxable income
prior to their expiration. Although realization is not assured for the
net deferred tax assets, management believes it is more likely than not
that they will be realized through future taxable earnings or alternative
tax strategies. However, the net deferred tax assets could be reduced in
the near term if management's estimates of future taxable income are no
longer viable.
20
<PAGE> 21
NEMATRON CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) EMPLOYEE BENEFIT PLANS
----------------------
Restricted Stock Plan
The Company has a Restricted Stock Plan which provides for the granting
of up to 75,000 shares of the Company's common stock to key employees. In
July 1993, all 75,000 shares were granted by action of the Compensation
Committee of the Board of Directors, and no further grants will be made
under this plan. Under terms of the plan, upon change in control all
shares subject to an award shall automatically vest. The merger of the
Company with ISI in 1995 constituted a change in control. By action of
the Board of Directors, the restricted stock not previously vested as of
August 16, 1995, was 100 percent vested as of that date.
1993 Stock Option Plan
The Company's 1993 Stock Option Plan (the "1993 Plan") provides for the
granting of options to purchase a total of 950,000 shares of common stock
to key employees. The exercise price for each option granted under the
1993 Plan cannot be less than the fair market value of the common stock
on the date of the grant.
The plan gives the Compensation Committee of the Board of Directors
latitude in deciding the vesting period. Options generally vest one third
immediately and one third on each successive anniversary date of the
award, or are exercisable at the rate of one third per year beginning on
the day after the first anniversary of the date of the award. Under
provisions of the 1993 Plan, shares subject to an option award will
become immediately exercisable upon a change in control of the Company. A
"change in control" has the same definition in the 1993 Stock Option Plan
as in the Restricted Stock Plan. Options remaining unexercised on the
tenth anniversary of the date of the grant will expire. No options may be
granted after February 26, 2003.
During fiscal 1996, the Company granted 225,500 options at exercise
prices of $4.50 to $9.00 per share, 151,448 options became exercisable,
and 18,300 options were forfeited. During fiscal 1997, 412,500 options
were granted at option prices of $5.00 to $7.12 per share, 101,980
options became exercisable, and 80,219 options were forfeited. As of
September 30, 1997, an additional 127,419 options may be issued under the
1993 Plan.
21
<PAGE> 22
NEMATRON CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) EMPLOYEE BENEFIT PLANS, CONTINUED
---------------------------------
Directors Option Plan
The Company's 1993 Directors Stock Option Plan (the "Directors Option
Plan") provides for the granting of options to purchase a total of
120,000 shares of common stock. The exercise price for each option
granted beginning April 1997 under the Directors Option Plan is equal to
110 percent of the closing price of the stock on the grant date. The
exercise price for options granted prior to April 1997 was the greater of
the fair market value or book value of the Company's common stock on the
date of the grant.
The Directors Option Plan provides that beginning April 1997, each
qualified director will be granted annually an option to purchase 4,500
shares of common stock. Prior to April 1997, each qualified director was
granted annually an option to purchase 1,000 shares of common stock.
Options granted in April 1997 or thereafter will be exercisable in
one-third increments beginning on the date of the grant. Options granted
prior to April 1997 are exercisable at any time beginning six months
after the date of the grant. Options expire five years from the date of
the grant. During fiscal 1996, the Company granted options to purchase
3,000 shares of common stock at an exercise price of $8.75 per share, and
in fiscal 1997, the Company granted options to purchase 84,320 shares of
common stock at exercise prices of $5.00 to $7.00 per share. As of
September 30, 1997, an additional 23,680 options may be issued under the
Directors Option Plan.
Special Option Grants
The Board of Directors has awarded special option awards to its former
chairman and a former Board member. As of September 30, 1997, these
awards total 34,750 options to purchase common stock at $2.50 to $8.75
per share, which per share price equaled or exceeded the fair value of
the common stock at the date of the award. The awards totaled 20,000 and
4,750 option is in 1996 and 1997, respectively. The awards were made
separate from either of the two qualified plans specified above.
22
<PAGE> 23
NEMATRON CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) EMPLOYEE BENEFIT PLANS, CONTINUED
---------------------------------
Information with respect to options under the 1993 Stock Option Plan, the
1993 Directors Option Plan, and special option grants for the two years
ended September 30, 1997, is as follows:
<TABLE>
<CAPTION>
Option Price Available
Per Share Outstanding Exercisable for Grant
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Balance, October 1, 1996 $1.87 - $4.89 305,100 97,300 179,900
Increase in authorized shares - 1993 Plan
295,000
Special option grant $8.75 20,000
Granted $4.50 - $9.00 225,500 (225,500)
Exercisable $2.50 - $8.75 187,448
Exercised $1.87 - $2.50 (13,416) (13,416)
Forfeited $2.50 (18,300) (18,300) 18,300
------- ------- ----------
Balance, September 30, 1996 $1.87 - $8.75 518,884 253,032 267,700
Increase in authorized shares:
1993 Plan 200,000
Directors option plan 100,000
Special option grant $4.75 4,750
Granted $5.00 - $7.12 496,820 (496,820)
Exercisable $2.50 - $9.00 101,980
Exercised $2.12 - $5.00 (85,231) (85,231)
Forfeited $2.50 - $9.00 (80,219) (80,219) 80,219
------- ------- ----------
Balance, September 30, 1997 855,004 189,562 151,099
======= ======= =======
</TABLE>
23
<PAGE> 24
NEMATRON CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) EMPLOYEE BENEFIT PLANS, CONTINUED
---------------------------------
The Company applies APB Opinion 25 in accounting for its stock option
plans. Accordingly, no compensation cost has been recognized in the
Company's financial statements. Had compensation cost been determined
based on the fair value of such awards at the date of grant consistent
with the provisions of SFAS No. 123, the Company's total and per share
net income (loss) would have been as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Net income (loss)
As reported $ 451,690 $ (11,498,379)
Pro forma $ 328,302 $ (12,029,150)
Net income (loss) per share
As reported $ 0.13 $ (2.33)
Pro forma $ 0.09 $ (2.44)
</TABLE>
The fair values of options granted during 1996 and 1997 were determined
using the Black-Scholes option-pricing model based on the following
assumptions:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Risk-free interest rate 6.1% 6.6%
Dividend yield 0 0
Expected life 6 years 3 to 6 years
Expected volatility 6.25% 61.7%
</TABLE>
401(k) Plan and Trust
The Company has established a defined-contribution retirement plan for
all eligible employees. Participants may make basic contributions of up
to 15 percent of their compensation, pursuant to section 401(k) of the
Internal Revenue Code. Under terms of the 401(k) plan, effective October
1, 1996, the Company makes a basic contribution of 100 percent of each
employee's contribution up to the first 5 percent of the employee's base
salary contributed by the employee. Prior to October 1, 1996, the Company
made a basic contribution of 50 percent of each employee's contribution
up to the first 4 percent of the employee's base salary contributed by
the employee. The Company may also make additional contributions as
approved by the Board of Directors. A participant becomes vested in the
Company's contribution on his or her behalf at a rate of 20 percent for
each year of service after the effective date of the 401(k) plan.
Notwithstanding the foregoing, a
24
<PAGE> 25
NEMATRON CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) EMPLOYEE BENEFIT PLANS, CONTINUED
---------------------------------
participating employee will be fully vested in the Company's
contributions to his or her account in the event of death, or in the
event of disability or normal retirement, as those terms will be defined
in the 401(k) plan. The Company's contributions to the 401(k) plan were
approximately $68,000 and $158,000 for the years ended September 30, 1996
and 1997, respectively.
(11) WARRANTS
--------
The Company has outstanding warrants for the purchase of its common stock
as follows:
<TABLE>
<CAPTION>
ISI UAI Subordinated Intec
Acquisition Acquisition Debt Acquisition Total
----------- ----------- ---- ----------- -----
<S> <C> <C> <C> <C> <C>
Exercise price $2.50 $4.81 $4.00 $6.73
Expiration date 3/03/98 11/20/97 10/31/02 2/20/00
Balance, October 1, 1995 485,258 137,000 622,258
Issued in connection with
subordinated debt 237,214 237,214
Exercised (475,219) (475,219)
------- ------- -------- ------- -------
Balance, September 30, 1996 10,039 137,000 237,214 384,253
Issued in connection with
the Intec acquisition 124,998 124,998
Exercised (5,111) (39,536) (44,647)
-------- ------- -------- ------- -------
Balance September 30, 1997 4,928 137,000 197,678 124,998 464,604
======== ======= ======== ======= =======
</TABLE>
25
<PAGE> 26
NEMATRON CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(12) LEASE COMMITMENTS
-----------------
The Company leases its Virginia, Massachusetts, Ohio, United Kingdom, and
certain regional facilities, as well as certain vehicles and office
equipment, under operating leases, and leases certain computer and
production equipment under capital leases. The leases on the facilities
expire at various dates through August 1999, and the equipment operating
leases expire at various dates through June 2001.
The Company leases certain production equipment from finance companies
under two capital leases. The leases had an initial term of three years
beginning in 1995 and collectively require monthly payments, including
interest, of $2,642 through August 1998. The unpaid balance of these
capital leases was $26,536 at September 30, 1997 (note 8). The net book
value of equipment leased under the two capital leases is approximately
$26,000 at September 30, 1997.
The Company leases certain computer equipment under two capital leases
from a finance company. The leases have an initial term of four years
beginning March 1997 and collectively require monthly payments, including
interest, of $13,267 through February 2001. The unpaid balance of these
capital leases totaled $474,265 at September 30, 1997 (note 8). The net
book value of equipment leased under the two capital leases is
approximately $479,000 at September 30, 1997.
A summary of commitments under noncancelable leases as of September 30,
1997, is as follows:
<TABLE>
<CAPTION>
Capital Leases Operating Leases Total
-------------- ---------------- -----
<S> <C> <C> <C>
1998 $ 188,000 $ 258,400 $ 446,400
1999 159,200 180,700 340,100
2000 159,200 15,800 175,000
2001 69,100 8,400 77,300
-------------- ------------- ----------------
Total minimum lease obligation $ 575,500 $ 463,300 $ 1,038,800
============= ================
Less amounts representing interest (74,700)
--------------
Present value of minimum lease payments $ 500,800
==============
</TABLE>
Total rental expense in fiscal 1996 and 1997 was $172,500 and $308,000,
respectively.
26
<PAGE> 27
NEMATRON CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(13) FOREIGN REVENUES AND MAJOR CUSTOMERS
------------------------------------
Net revenues include export sales to various countries. A summary of both
foreign and domestic revenues is as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1996 1997
---- ----
<S> <C> <C>
Foreign:
France $ 2,019,177 $ 1,687,171
Other European countries 1,307,856 2,395,361
Canada 670,832 1,363,529
South America 285,892 182,442
Asia and South Pacific 471,539 309,701
Africa 22,061 45,172
----------------- -----------------
Total foreign revenues 4,777,357 5,983,376
Domestic revenues 16,146,256 14,892,021
----------------- -----------------
Total $ 20,923,613 $ 20,875,397
================= =================
</TABLE>
Approximately 30 percent and 23 percent of revenues were from three
unaffiliated customers during the years ended September 30, 1996 and
1997, respectively. Accounts receivable from these customers were
approximately $1,700,500 and $1,148,500 at September 30, 1996 and 1997,
respectively.
27
<PAGE> 28
NOTE 14 - SUBSEQUENT EVENTS
CONTRACTS
During April and May 1998, management and representatives of one of its
significant customers finalized certain of the provisions of an existing supply
agreement under which the Company provided certain bundled hardware/software
products. The result of the finalization of the agreement did not have a
material impact on the estimates utilized by the Company in the preparation of
the accompanying consolidated financial statements.
LEGAL PROCEEDING
On May 8, 1998, the Company, certain of its officers and others were named as
defendants in a lawsuit filed by a shareholder in the United States District
Court for the Southern District of New York. The plaintiff seeks to represent
a class of shareholders, which purchased the Company's common stock in the open
market during the period from January 31, 1996 through April 28, 1998 and seeks
to recover unspecified damages purportedly caused by defendants' alleged
violations of federal securities laws and common law. The Company denies any
liability in this action and intends to vigorously defend this litigation.
LINE OF CREDIT AGREEMENT
The Company's line of credit facility with a bank, providing for a maximum
available line of credit of $6 million but limited by a borrowing formula,
expired on February 28, 1998. The facility was initially renewed through
May 29, 1998 and subsequently renewed through January 15, 1999. As of June 30,
1998, the Company was in an out-of-formula position under the borrowing
arrangement and expects to be in a similar position until August 31, 1998. The
bank has agreed not to require that the Company comply with limits set by the
borrowing formula until August 31, 1998. The bank has also adjusted the
borrowing formula for the period from November 30, 1998 to January 15, 1999.
Under the adjusted borrowing formula, the amount of credit available to the
Company is expected to be reduced by $40,000 on November 30, 1998 and by an
additional $80,000 on December 31, 1998.
SECURITIES TRADING HALT
Following the Company's announcement that its previous auditors resigned and
withdrew their opinions on the Company's 1996 and 1997 financial statements and
that it had discovered potential adjustments to its fiscal 1996 and 1997
financial statements, The Nasdaq Stock Market ("Nasdaq") halted trading of the
Company's common stock on the Nasdaq National Market System effective April 28,
1998. The trading has been halted since that date pending Nasdaq's receipt and
review of additional information, including the issuance of audited statements
for the fiscal years ended September 30, 1996 and 1997. The Company is in the
process of responding to Nasdaq's informational requests.
28
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment to this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
NEMATRON CORPORATION
By: /s/ DAVID P. GIENAPP Dated: JULY 31, 1998
--------------------------------------- -------------
David P. Gienapp,
Executive Vice President - Finance and
Administration, Secretary and Treasurer
29
