<PAGE>
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
Washington D.C. 20549
(Mark One) FORM 10-K
X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1995 or
Transition report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934 (No Fee Required)
For the transition period from to
-------------------- ---------------------
Commission file number 0-9699
------
TECHNALYSIS CORPORATION
-----------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-0918564
- ----------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6700 France Avenue South
Minneapolis, Minnesota 55435
- ----------------------------------- --------------------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (612) 925-5900
--------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
None
- ----------------------------------- --------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $.10 per share
--------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
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 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
-----
Aggregate market value of the voting stock held by non-affiliates of the
registrant: 1,638,674 common shares X $13.375 = $21,917,265 (as of March 15,
1996).
Number of shares of common stock outstanding: 2,202,803 (as of March 15,
1996).
Documents incorporated by reference: None.
Exhibit Index is on Page 34.
1
<PAGE>
TECHNALYSIS CORPORATION
INDEX
PAGE
----
PART I.
Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to 6
a Vote of Security Holders
PART II.
Item 5. Market for the Registrant's Common Equity 7
and Related Stockholder Matters
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of 9
Financial Condition and Results of
Operations
Item 8. Financial Statements and Supplementary Data 12
Item 9. Changes in and Disagreements with Accountants 23
on Accounting and Financial Disclosure
PART III.
Item 10. Directors and Executive Officers of the Registrant 24
Item 11. Executive Compensation 26
Item 12. Security Ownership of Certain Beneficial Owners and 30
Management
Item 13. Certain Relationships and Related Transactions 31
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and 32
Reports on Form 8-K
2
<PAGE>
PART I
ITEM 1. BUSINESS.
Technalysis Corporation (the "Company"), incorporated under Minnesota law
in 1967, provides computer software analysis, design and programming services to
computer users and manufacturers. These services are provided on either an
hourly rate or fixed price basis. Opportunities for both types of contracts are
developed by calling on potential customers, by repeat business and by
referrals. Customer considerations in selecting personnel for hourly rate
contracts include rate, availability of personnel, and personnel qualifications
per resumes and interviews. Customer considerations for fixed price contracts
include price, delivery date, personnel to be assigned and reputation of the
Company. Most of the Company's revenue is generated from analysis, design and
programming contracts in the development of general business applications and
governmental applications on an hourly-rate basis. Revenues increased in 1995
reversing a downward trend since 1992. (See Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operation.)
On January 10, 1996, the Company entered into an agreement to be acquired
by Compuware Corporation for $14.00 per share in cash, subject to shareholder
approval. The closing date is tentatively scheduled for April 30, 1996.
PRINCIPAL PRODUCTS, MARKET AREAS AND DISTRIBUTION METHODS
During 1995, the Company provided computer software services through
offices located in four geographic areas - Minneapolis, Minnesota; Southfield,
Michigan; Falls Church, Virginia; and Cincinnati, Ohio. The Minneapolis office
contributed approximately 78% of the total revenue for 1995, and the remaining
22% split between the other three offices.
3
<PAGE>
Service fees from two major customers were 18% (3M) and 19% (State of
Minnesota) of total revenues in 1995. These fees were derived from contracts
with several different divisions of each customer. Each division is marketed
independently of the other divisions with separate purchase orders obtained from
each division. It is highly unlikely that all purchase orders with all
divisions would be canceled unexpectedly at the same time. If this happened, it
would have an adverse effect on the Company's revenues and earnings until such
time as the Company could find additional revenues from other customers.
The Company contracts primarily on a time and material basis at a
negotiated hourly rate which varies depending on the skill of the technical
personnel assigned to a given project and the customer rates prevailing in the
area. The contract term generally runs from two to six months although, in some
cases, the contract can run for more than one year. Fees for services rendered
on a time and material basis are payable monthly.
The Company also contracts on a fixed price basis to provide specified
computer software systems. Fees for services rendered on a fixed price basis
are payable on a negotiated basis over the term of the project with final
payment being made after customer acceptance of the completed systems.
Services are provided primarily at the customer's location, utilizing the
customer's computer system.
BACKLOG
Since the Company generally has very few long term fixed price contracts,
the backlog of orders at any one time does not present a useful projection of
anticipated contracts and revenues for the entire year. Most time and material
contracts have a 15 to 30 day cancellation clause. As of December 31, 1995 and
December 31, 1994, however, the Company's backlog, which consists primarily of
estimated revenue under existing time and material contracts, was approximately
$7,000,000 and $8,000,000 respectively.
4
<PAGE>
EMPLOYEES
At December 31, 1995, the Company had 250 employees. Of that number, 217
were systems analysts/programmers who directly provide systems and programming
services to customers.
Continued growth depends in part on the availability of experienced
technical personnel. The Company has not experienced significant difficulties
in obtaining additional technical employees at its current staffing levels.
COMPETITION
The Company competes with software divisions of many large computer
companies, as well as other independent software companies. With the exception
of the Minneapolis branch, these other independent software companies are
generally much larger in terms of sales and personnel than the other branch
offices.
Principal means of competing include extensive marketing, quality of
service, referrals, responsiveness to customers' needs, reputation, credibility
and price. The Company emphasizes its marketing efforts by (1) stressing
personal calls to customers by its salespersons and managers; (2) providing the
qualified person for the job; and (3) maintaining a follow through with the
customer to assure that the job is being done in a timely and professional
manner.
5
<PAGE>
ITEM 2. PROPERTIES.
The principal executive offices and the Minneapolis branch office of the
Company are located in leased space at 6700 France Avenue South, Minneapolis,
Minnesota 55435. The other three branch offices are located at 26211 Central
Park Blvd., Southfield, Michigan 48076; 7700 Leesburg Pike, Falls Church,
Virginia 22043; and 4675 Cornell Road, Cincinnati, Ohio 45241. All four
locations occupy an aggregate of approximately 20,000 square feet of office
space under leases with expiration dates ranging from 6 to 45 months. The
Company believes that the total space now occupied is adequate for its uses and
believes that additional office space, if required, will be available for the
Company's purposes.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which the Company is a
party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders.
6
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Since February 19, 1985, the Common Stock of the Company has traded on the
NASDAQ National Market System under the symbol TECN. The information contained
in the following table was derived from NASDAQ's National Market System
Statistical Reports. The price ranges set forth the low and high prices of
transactions as reported for the quarters indicated.
PRICE RANGE
-----------
LOW HIGH
--- ----
1994 1st Quarter 10-1/2 12-1/4
2nd Quarter 11 12-1/2
3rd Quarter 10-3/4 11-3/4
4th Quarter 10-1/4 11-3/4
1995 1st Quarter 10-1/4 12-1/4
2nd Quarter 11-1/2 12
3rd Quarter 11 12-3/4
4th Quarter 12 12-3/4
1996 1st Quarter 12 13-9/16
(through March 15)
The approximate number of record holders of Common Stock as of March 15,
1996 was 320.
Annual dividends on the Common Stock of the Company have been paid since
1972. Payment of semi-annual dividends began for fiscal year 1989. The total
dividends paid for 1994 and 1995 were $.57 per share and $.39 per share,
respectively.
7
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $18,855,270 $16,844.569 $17,886,361 $19,144,082 $18,420,849
Earnings
Before Taxes 1,452,365 2,054,942 2,494,779 1,969,108 3,148,104
Net Earnings 864,865 1,222,942 1,484,779 1,214,608 1,888,104
Total Assets 8,525,808 8,919,767 9,061,158 8,933,870 8,619,952
Long-Term
Obligations -0- -0- -0- -0- -0-
Per Common Share:
Net Earnings $.39 $.56 $.68 $.56 $.87
Cash Dividends .39 (1) .57 .55 .53 .51
</TABLE>
(1) Includes a $.10 per share dividend declared in January, 1996 relating to
1995 earnings.
8
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
BACKGROUND OF MATERIAL CONTRACT
In April, 1993, the Company was awarded a fixed-price contract to develop a
large information system for the State of Minnesota. The original contract
price was in excess of $4.1 million with a completion date of October 1, 1994.
The development included functional specifications, general systems design,
detailed program specifications, programming, training, documentation and
implementation. It was originally bid utilizing normal billing rates with a
time estimate that seemed reasonable to accomplish all of the tasks identified
by the scheduled due dates. The functional specifications and general systems
design were completed on time and within budget. As the general systems design
was nearing completion and the detailed program specifications were being
developed, it became apparent the original contract was not sufficient to
complete the project, when considering the many change orders being requested by
the customer. A total of an additional $2.7 million was added to the contract
in May, 1995 to cover change orders.
In 1994, a reduction in revenue of $363,000 occurred in the fourth quarter
due to change orders for the State of Minnesota contract that were expected to
be approved in 1994, but which were not approved until 1995. This resulted in a
reduction in earnings in 1994 of approximately $220,000 after taxes. In July,
1995, the customer decided to change the hardware/software platforms and the
database definitions for the entire project. The customer and the Company could
not agree on the fees for implementing these changes and, as a result,
negotiations began to terminate the contract. After long discussions concerning
the status of the portions of the contract which were partially completed, a
settlement agreement was agreed upon which allowed the Company to terminate the
contract. The settlement, which Management believes was in the best interest of
the Company, resulted in a reduction in accrued revenue of $841,000 in the third
quarter of 1995, and a one-time
9
<PAGE>
adjustment to earnings of $550,000 after taxes. In conjunction with these two
specific reductions in revenue, the effective billings rates on the contract
were significantly less than normal rates.
RESULTS OF OPERATIONS
Revenues increased in 1995 reversing a downward trend since 1992. The
decrease in revenues from 1992-1994 was the result of a very competitive
environment at a time when the economy was in a recovery mode. The number of
billable analysts and programmers decreased in all offices and especially in the
branch offices. The Company was not able to increase hourly billing rates.
Changes in senior management personnel at the Company were not effective and the
branch offices, in particular, were not able to grow as anticipated. Additional
expenses were incurred in the branch offices in hope of increasing revenue by
specifically adding additional sales and recruiting personnel. The impact of
this investment has not yet resulted in increased revenues. The significant
decrease in the Unbilled Work on Contracts in Process in 1995 as compared to
1994 was due to the final billing and subsequent payment of the State of
Minnesota fixed price contract described above. The increase in Unbilled Work
on Contracts in Process between 1994 and 1993 was due to revenue accrued, but
not billable for the same fixed-price contract. There are no material positive
or negative trends and uncertainties which are reasonably likely to impact
future results of operations and financial position.
Revenues increased overall approximately 12% for 1995 as compared to 1994
due primarily to an increase in billing rates and the number of billable
personnel, even though approximately $841,000 was recorded as a reduction in
revenue in the third quarter of 1995 as discussed above. Expenses increased
approximately 18% primarily due to the increase in personnel necessary for the
fixed price contract described above. Salaries and contracted services
increased approximately 19% and employee benefits increased 20% due to the
increase in personnel company-wide. Selling, administrative, and other
operating costs
10
<PAGE>
increased 12% due to adding additional sales and recruiting personnel, along
with corresponding administrative expenses, in the remote branch offices. As a
result, net earnings for the year ended December 31, 1995 decreased
approximately 29% compared to the year ended December 31, 1994.
Revenues decreased approximately 6% for 1994 as compared to 1993 due to a
reduction in revenue in the Company's remote offices and because of the
unrecognized revenues for certain change orders awaiting approval on the State
of Minnesota contract as discussed above. Expenses decreased approximately 4%
due to the monthly average number of personnel being less for 1994 as compared
to 1993 even though the number of personnel at the end of 1994 was higher than
at the end of 1993. As a result, net earnings for the year ended December 31,
1994 decreased approximately 18% compared to the year ended December 31, 1993.
Although revenues increased for 1995, primarily due to the increase in the
number of analysts and programmers in the Minneapolis office and an increase in
billing rates on contracts other than the State of Minnesota contract, it is
anticipated that 1996 revenues will not increase significantly.
LIQUIDITY AND CAPITAL RESOURCES
The Company's source of funding to meet liquidity requirements, capital
expenditures, and dividends over the past three years has been cash flow from
operations. Net cash provided from operating activities increased to $1,734,167
in 1995 from $257,207 in 1994. This increase was primarily related to the
termination of the fixed-price contract with the State of Minnesota which
allowed the billing and collection of the unbilled work on contracts in process
that existed at December 31, 1994. Management believes the Company's current
cash position and the cash flow generated by operating activities will continue
to be adequate for short-term and long-term liquidity and future dividend
requirements for the next year.
11
<PAGE>
On January 10, 1996, the Company entered into an agreement to be acquired
by Compuware Corporation for $14.00 per share in cash, subject to shareholder
approval. The closing date is tentatively scheduled for April 30, 1996.
IMPLEMENTATION OF NEW ACCOUNTING STANDARD
In October, 1995, the FASB issued Statement No. 123, Accounting for Stock-
Based Compensation, which is effective for the year ending December 31, 1996.
The Company does not intend to adopt Statement No. 123 in measuring expense,
however they must present the pro forma disclosures and those pro forma amounts
will likely be less than the amounts shown in future statements of earnings.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
(See the following pages 13-22)
12
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Technalysis Corporation
Minneapolis, Minnesota
We have audited the accompanying balance sheets of Technalysis Corporation as of
December 31, 1995 and 1994, and the related statements of earnings, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. 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 Technalysis Corporation as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
As discussed in Note 8 to the financial statements, on January 9, 1996, the
Company agreed to be merged into Compuware Corporation.
McGladrey & Pullen, LLP
Minneapolis, Minnesota
February 2, 1996
13
<PAGE>
TECHNALYSIS CORPORATION
BALANCE SHEETS
December 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $3,734,459 $4,156,239
Investment in available-for-sale securities (Note 2) 1,982,739 1,057,255
Trade accounts receivable (Note 7) 2,488,455 2,254,825
Unbilled work on contracts in process (Note 7) 33,479 1,056,513
Refundable income tax deposits 68,109 105,347
Other current assets 64,486 96,299
Deferred income taxes (Note 5) 12,100 35,500
------------------------------
Total current assets 8,383,827 8,761,978
------------------------------
Equipment, Office Furniture, and Leasehold Improvements,
at cost, less accumulated amortization and depreciation of
$652,533 in 1995 and $658,955 in 1994 141,981 157,789
------------------------------
$8,525,808 $8,919,767
------------------------------
------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------
Current Liabilities
Accounts payable $ 180,300 $ 210,757
Salaries, wages and commissions 120,357 105,462
Accrued vacation pay 119,487 80,482
Advance billings on contracts in process 62,172 154,273
Dividend payable -- 637,218
------------------------------
Total current liabilities 482,316 1,188,192
------------------------------
Commitments and Contingencies (Notes 4, 5, and 8)
Stockholders' Equity (Note 3)
Common stock, $.10 par value; authorized 5,000,000 shares;
issued and outstanding 2,202,803 shares in 1995
and 2,197,303 shares in 1994 220,280 219,730
Additional paid-in capital 1,021,958 973,446
Retained earnings 6,819,393 6,591,746
Unrealized loss on available-for-sale securities (Note 2) (18,139) (53,347)
------------------------------
8,043,492 7,731,575
------------------------------
$8,525,808 $8,919,767
------------------------------
------------------------------
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
TECHNALYSIS CORPORATION
STATEMENTS OF EARNINGS
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Service fees (Note 7) $18,855,270 $16,844,569 $17,886,361
-----------------------------------------
Expenses
Salaries and contracted services 11,798,012 9,940,226 10,874,471
Selling, administrative and other operating costs 3,420,370 3,056,237 2,737,533
Employee benefits 2,461,442 2,045,255 1,982,190
-----------------------------------------
17,679,824 15,041,718 15,594,194
-----------------------------------------
Revenue over expenses 1,175,446 1,802,851 2,292,167
Interest Income 276,919 252,091 202,612
-----------------------------------------
Earnings before income taxes 1,452,365 2,054,942 2,494,779
Income Taxes (Note 5)
Federal 493,000 632,000 772,000
State 94,500 200,000 238,000
-----------------------------------------
587,500 832,000 1,010,000
-----------------------------------------
Net earnings $ 864,865 $ 1,222,942 $ 1,484,779
-----------------------------------------
-----------------------------------------
Net Earnings Per Common and
Common Equivalent Share $ 0.39 $ 0.56 $ 0.68
-----------------------------------------
-----------------------------------------
Weighted Average Number of Common and
Common Equivalent Shares Outstanding 2,199,340 2,202,832 2,199,034
-----------------------------------------
-----------------------------------------
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
TECHNALYSIS CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Unrealized
Additional Loss on
Common Paid-In Retained Investment Stockholders'
Stock Captial Earnings Securities Equity
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $218,443 $ 864,774 $ 6,341,722 $ -- $ 7,424,939
Dividend on 1993 earnings, $.55 per share -- -- (1,205,235) -- (1,205,235)
Common stock issued under employee stock option
plans, 5,750 shares 575 56,394 -- -- 56,969
Net earnings -- -- 1,484,779 -- 1,484,779
--------------------------------------------------------------------
Balance, December 31, 1993 219,018 921,168 6,621,266 -- 7,761,452
Dividend on 1994 earnings, $.57 per share -- -- (1,252,462) -- (1,252,462)
Common stock issued under employee stock option
plans, 12,040 shares 1,204 112,671 -- -- 113,875
Common stock repurchased, 4,920 shares (492) (60,393) -- -- (60,885)
Net change in unrealized holding losses on
available-for-sale securities, net of
deferred taxes -- -- -- (53,347) (53,347)
Net earnings -- -- 1,222,942 -- 1,222,942
--------------------------------------------------------------------
Balance, December 31, 1994 219,730 973,446 6,591,746 (53,347) 7,731,575
Dividend on 1995 earnings, $.29 per share -- -- (637,218) -- (637,218)
Common stock issued under employee stock option
plans, 5,500 shares 550 48,512 -- -- 49,062
Net change in unrealized holding losses on
available-for-sale securities, net of
deferred taxes -- -- -- 35,208 35,208
Net earnings -- -- 864,865 -- 864,865
--------------------------------------------------------------------
Balance, December 31, 1995 $220,280 $1,021,958 $6,819,393 $(18,139) $8,043,492
--------------------------------------------------------------------
--------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
TECHNALYSIS CORPORATION
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Cash received from customers $ 19,552,572 $ 16,055,342 $ 18,620,356
Cash paid for salaries, wages, and benefits (14,203,731) (12,062,627) (12,900,057)
Cash paid for selling, administrative, and other
operating costs (3,326,954) (3,015,099) (2,783,964)
Interest received 262,542 240,221 209,769
Income taxes paid (550,262) (960,630) (986,717)
------------------------------------------------
Net cash provided by operating activities 1,734,167 257,207 2,159,387
------------------------------------------------
Cash Flows from Investing Activities
Capital expenditures (63,698) (149,266) (28,998)
Purchases of available-for-sale securities (866,875) (54,095) (48,913)
------------------------------------------------
Net cash used in investing activities (930,573) (203,361) (77,911)
------------------------------------------------
Cash Flows from Financing Activities
Dividends paid (1,274,436) (1,230,210) (1,180,066)
Proceeds from issuance of common stock 49,062 52,990 56,969
------------------------------------------------
Net cash used in financing activities (1,225,374) (1,177,220) (1,123,097)
------------------------------------------------
Increase (decrease) in cash and
cash equivalents (421,780) (1,123,374) 958,379
Cash and Cash Equivalents:
Beginning 4,156,239 5,279,613 4,321,234
------------------------------------------------
Ending $ 3,734,459 $ 4,156,239 $ 5,279,613
------------------------------------------------
------------------------------------------------
Reconciliation of Net Earnings to Net Cash Provided by Operating Activities
- ------------------------------------------------------------------------------------------------------------
Net earnings $ 864,865 $ 1,222,942 $ 1,484,779
------------------------------------------------
Adjustments to reconcile net earnings to net cash pro-
vided by operating activities:
Depreciation and amortization 79,506 48,853 29,574
Change in assets and liabilities:
Trade accounts receivable (233,630) 318,417 548,679
Unbilled work on contracts in process 1,023,034 (1,047,079) 328,082
Refundable income tax deposits 37,238 (105,347) -
Other current assets 31,813 (46,812) 2,666
Accounts payable (30,457) 24,904 (70,267)
Accrued expenses 53,900 (74,823) (44,643)
Income taxes payable - (23,283) 23,283
Advance billings on contracts in process (92,102) (60,565) (142,766)
------------------------------------------------
Total adjustments 869,302 (965,735) 674,608
------------------------------------------------
Net cash provided by operating activities $ 1,734,167 $ 257,207 $ 2,159,387
------------------------------------------------
------------------------------------------------
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
TECHNALYSIS CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUES: The Company provides computer systems and programming services on a
credit basis throughout the United States on terms it establishes with
individual customers.
Revenues on the majority of systems and programming service contracts are
recognized as the services are rendered, although the customer may be billed in
advance or when the work is substantially complete. Charges at normal hourly
billing rates are included in unbilled work in process. Revenues on fixed fee
contracts are recorded on the basis of the Company's estimate of the percentage
of completion of individual contracts. Provisions are made for all anticipated
losses.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS: At December 31, 1995,
the Company implemented FASB No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS. The following methods and assumptions were used to estimate the
fair value of each class of financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amount approximates fair value
because of the short maturity of those instruments.
AVAILABLE-FOR-SALE SECURITIES: The fair values of investments are
estimated based on quoted market prices.
CASH EQUIVALENTS: The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents. At
December 31, 1995, cash equivalents include approximately $3,111,000 of
short-term commercial paper.
The Company maintains its cash in bank deposit accounts and financial
institution money market funds which, at times, may exceed federally insured
limits. The Company has not experienced any losses in such accounts.
INVESTMENT IN DEBT SECURITIES AND ACCOUNTING CHANGE: The Company follows the
provisions of the FASB Statement No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES. Statement No. 115 requires that management
determine the appropriate classification of securities at the date of adoption,
and thereafter at the date individual investment securities are acquired, and
that the appropriateness of such classification be reassessed at each balance
sheet date. Since the Company neither buys investment securities in
anticipation of short-term fluctuations in market prices nor can commit to
holding debt securities to their maturities, the investment in debt securities
has been classified as available-for-sale in accordance with Statement No. 115.
Available-for-sale securities are stated at fair value, and unrealized holding
gains and losses, net of the related deferred tax effect, are reported as a
separate component of stockholders' equity (see Note 2). Realized gains and
losses, including losses from declines in value of specific securities
determined by management to be other-than-temporary, are included in income.
Realized gains and losses are determined on the basis of the specific securities
sold.
DEPRECIATION: Depreciation is being provided on equipment and office furniture
using straight-line and accelerated methods over the estimated useful lives of
three to eight years.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported
18
<PAGE>
TECHNALYSIS CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 period. Actual results could differ
from those estimates.
INCOME TAXES: Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
deferred tax liabilities are recognized for taxable temporary differences. The
effect of deferred tax assets and liabilities does not have a material impact on
the Company's financial position or operations.
NET EARNINGS PER SHARE: Net earnings per share is computed by dividing net
earnings by the average number of shares of common stock and common stock
equivalents outstanding during the year. Common stock equivalents consist of
the dilutive effect of common shares which may be issued upon exercise of stock
options.
ISSUED BUT NOT YET ADOPTED STANDARD: In October, 1995, the FASB issued
Statement No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. Statement No. 123
establishes financial accounting and reporting standards for stock-based
compensation plans. Statement No. 123 encourages the adoption of a FAIR VALUE
BASED METHOD of accounting for stock-based compensation plans, but also allows
entities to continue to measure compensation cost using the INTRINSIC VALUE
BASED METHOD of accounting prescribed by APB Opinion No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES. Entities electing to remain with the accounting in
Opinion No. 25 must make pro forma disclosures of net income and earnings per
share as if the fair value based method had been applied.
Statement No. 123 is effective for the year ending December 31, 1996. The
Company does not intend to adopt Statement No. 123 in measuring expense, however
they must present the pro forma disclosures and those pro forma amounts will
likely be less than the amounts shown in future statements of earnings.
NOTE 2. INVESTMENT IN AVAILABLE-FOR-SALE SECURITIES
The following is a summary of the Company's investment in available-for-sale
securities as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
----------------------------------------------------------------------
<S> <C> <C>
Amortized cost $ 2,012,978 $ 1,146,102
Gross unrealized gains - -
Gross unrealized losses (30,239) (88,847)
-------------------------------
Fair value $ 1,982,739 $ 1,057,255
-------------------------------
-------------------------------
</TABLE>
At December 31, 1995, the Company's available-for-sale securities consisted of
$1,000,944 invested in a mutual fund of mortgage-backed securities and $981,795
invested in commercial paper that matures in February, 1996. At December 31,
1994, the Company's available-for-sale securities consisted entirely of a mutual
fund invested in mortgage-backed securities.
19
<PAGE>
TECHNALYSIS CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. STOCKHOLDERS' EQUITY
The Company has a 1992 Incentive Stock Option Plan and has reserved 250,000
shares of common stock for future grants. The Company also had a 1982 Incentive
Stock Option Plan which expired in 1992, and no further grants may be made under
this plan.
The options generally become exercisable in 25 percent increments on the four
anniversary dates following such options' date of grant. A summary of stock
option activity under the Plans during the three years ended December 31, 1995
follows:
<TABLE>
<CAPTION>
Average Options
Price Outstanding
--------------------------------------------------------------------
<S> <C> <C>
Balance, December 31, 1992 $ 10.74 164,115
Granted - -
Exercised 9.91 (5,750)
Cancelled 10.62 (42,575)
----------------------------
Balance, December 31, 1993 10.83 115,790
Granted 10.68 28,000
Exercised 9.46 (12,040)
Cancelled 11.19 (11,000)
----------------------------
Balance, December 31, 1994 10.90 120,750
Granted 11.62 76,000
Exercised 8.92 (5,500)
Cancelled 11.28 (65,500)
----------------------------
Balance, December 31, 1995 $ 11.22 125,750
----------------------------
----------------------------
</TABLE>
Options outstanding at December 31, 1995, consist of 64,750 options granted
under the 1982 Plan and 61,000 options granted under the 1992 Plan.
The options granted are to purchase common stock at not less than 100 percent of
market price as of the date of grant ($10.38 to $11.88 per share as of December
31, 1995). At December 31, 1995, options for 65,250 shares are exercisable.
Upon consummation of the merger, an additional 3,500 options granted under the
1992 plan will become immediately exercisable. There are 189,000 shares of
common stock reserved for future grants.
20
<PAGE>
TECHNALYSIS CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. COMMITMENTS AND CONTINGENCIES
LEASES: The Company leases office space under non-cancellable operating leases.
Certain leases require additional payments for a proportionate share of real
estate taxes and operating expenses. Approximate future minimum rental payments
under operating leases for the next five years are as follows:
<TABLE>
<CAPTION>
Years ending December 31,
-------------------------------------------------------------
<S> <C>
1996 $ 173,000
1997 53,000
1998 37,000
1999 27,000
</TABLE>
Total rent expense for the years ended December 31, 1995, 1994, and 1993 was
approximately $326,000, $301,000, and $341,000, respectively.
EMPLOYMENT AGREEMENT: The Company has an employment agreement with the Chairman
and CEO of the Company. The agreement calls for the CEO to continue with the
Company through December 31, 1996, as CEO or, upon terminating his employment,
as a consultant. His salary as CEO is to be not less than $135,000, plus any
bonuses. As a consultant, he is to receive annually 60 percent of his average
salary and bonus of the highest five of the previous ten years. The CEO
resigned as an employee effective February, 1996, but will continue as Chairman
and a consultant for the duration of the agreement.
NOTE 5. INCOME TAXES
The effective tax rate was 40 percent for 1995, 1994, and 1993. State income
taxes, net of the federal benefit, are the only significant items in reconciling
from the expected statutory federal income tax rate of 34 percent to the actual
rate provided.
Deferred income tax assets consist solely of the tax effects of the unrealized
holding losses on the Company's investment in available-for-sale securities.
NOTE 6. EMPLOYEE BENEFIT PLAN
The Company maintains a savings plan for employees, which conforms to IRS
provisions for 401(k) plans. The Company, at its discretion, may match employee
contributions in an amount not to exceed 20 percent of the employees' contribu-
tions and $1,000 per employee. Operations have been charged for the matching
contributions to the plan of $51,459, $30,600, and $0 for the years ended
December 31, 1995, 1994, and 1993, respectively.
21
<PAGE>
TECHNALYSIS CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7. MAJOR CUSTOMERS
The Company had revenues from major customers as follows:
<TABLE>
<CAPTION>
December 31,
Percent of Revenues 1995
------------------------------ Receivable
Customer 1995 1994 1993 Balance
----------------------------------------------------------------
<S> <C> <C> <C> <C>
A * 19% 22% 18% $ 370,421
B 18% 18% 19% 219,143
----------------------------------------------
37% 40% 37% $ 589,564
----------------------------------------------
----------------------------------------------
</TABLE>
* During 1994, the Company recognized revenues on one of its contracts
with this customer based on the expectation that certain change orders
would be approved at or near year end. However, the change orders
were not approved by the customer as of December 31, 1994 and, as a
result, the Company recorded a reduction of revenues on this contract
totalling $363,000 in the fourth quarter of 1994. This resulted in a
reduction in net earnings in 1994 of approximately $220,000, or $0.10
per share. In the third quarter of 1995, the customer significantly
changed the scope of the contract which resulted in the Company and
the customer agreeing to terminate the above mentioned contract. In
conjunction with the contract settlement, the Company recorded a
reduction of revenues of approximately $841,000 and certain other
settlement costs in the third quarter. This resulted in a reduction in
net earnings in 1995 of approximately $550,000, or $0.25 per share.
NOTE 8. MERGER
On January 9, 1996, the Company agreed to be merged into Compuware Corporation
(Compuware). Closing of the transaction is subject to completion of due
diligence, receipt of a fairness opinion, the approval of Technalysis sharehold-
ers, and the receipt of regulatory approvals.
Upon closing of the transaction, Compuware will pay a cash price of $14.00 per
share for each outstanding share of Technalysis stock. Additionally, the
Company will pay a $.10 per share dividend on February 8, 1996 to shareholders
of record on January 25, 1996.
22
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
23
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
a) The names and ages of the Company's directors, their current positions
with the Company, their principal occupations for the past five years, and their
years of election are as follows:
Principal Occupation
Name and Age For Past Five Years Director Since
- ------------ ------------------- --------------
Victor A. Rocchio, 68 Chairman and Treasurer of the 1967
Company since 1967; CEO from
1967-1996; President from
1967-1993, 1995
Milan L. Elton, 56 CEO & President of the 1988
Company since 1996; Vice President
from 1983-1995; Secretary since 1987;
Controller from 1977-1995
Robert S. Erickson, 75 Private Investor 1967
Edward D. Zimmer, 70 Consulting Engineer 1967
John M. Schulzetenberg, 49 Chairman, Geneva Group of Companies, 1992
since 1993, a manufacturer of audio,
video and computer accessories;
Executive Vice President of the
Company from 1992-1993;
Private investor and consultant
from 1990 to 1992; Managing
Partner, Touche Ross & Co.,
Denver, CO 1986-1990
Franklin E. Triplett, 62 Business Consultant since 1993
1993; Vice President,
Stillwater Systems, Inc.
from 1992-1993; Management
Consultant from 1988-1992;
Management, Control Data
Corporation from 1966-1988
Directors serve until the next annual meeting of the stockholders at which
time their successors are elected and qualified, or until their prior
resignation or removal, unless the merger is approved. See Item 1. Business.
24
<PAGE>
(b) The names and ages of the executive officers of the Company, their
current positions with the Company, their principal occupations for the past
five years, and their years of appointment are as follows:
Name and Age Principal Occupation for Past Five Years
- ------------ ----------------------------------------
Victor A. Rocchio, 68 Chairman and Treasurer of the Company since 1967
CEO from 1967-1996
President from 1967-1993, 1995
Milan L. Elton, 56 CEO and President of the Company since 1996
Vice President from 1983-1995
Secretary since 1987
Controller from 1977-1995
Officers serve until their successors are appointed by the Board, or until
their prior resignation or removal.
25
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION. The following table contains summary information
concerning the annual compensation paid by the Company for the past three years
to the Company's Chief Executive Officer, and to each of the other executive
officers whose combined salary and bonus for the year ended December 31, 1995
was in excess of $100,000:
<TABLE>
<CAPTION>
All
Name and Principal Options Other
Position Year Salary Bonus Granted Comp. (401k match)
- ------------------ ---- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C>
Victor A. Rocchio 1995 $176,280 -0- -0- -0-
Chairman and 1994 $171,280 -0- -0- -0-
Treasurer 1993 $167,280 -0- -0- -0-
Milan L. Elton 1995 $106,350 -0- -0- $924
President, CEO, 1994 $ 82,995 -0- -0- -0-
and Secretary 1993 $ 91,355 -0- -0- -0-
</TABLE>
In January, 1985, the Company entered into an employment and consulting
agreement with Mr. Rocchio, providing for his continued services until December
31, 1996, either as an employee or as a consultant. On February 15, 1996, Mr.
Rocchio resigned as CEO and President, but continues as Chairman and Treasurer.
Pursuant to his agreement, he receives an annual base salary of not less than
$135,000, plus a bonus computed in a manner similar to that of the bonuses paid
during recent years. As a consultant, he will receive compensation equal to 60
percent of his average salary and bonus of the highest five of the previous ten
years of employment, will perform certain consulting services, and will refrain
from competitive activities for two years following his termination.
26
<PAGE>
STOCK OPTION PLANS. The Company maintains the 1982 Incentive Stock Option
Plan and the 1992 Incentive Stock Option Plan (the "Plans") for the purpose of
attracting, retaining and motivating key employees and to encourage stock
ownership by key employees. The 1982 Plan expired in 1992 and no additional
options can be granted under the 1982 Plan, although previously-granted options
remain exercisable until they are exercised or expire according to their terms.
The Plans are administered by the Compensation Committee whose members are
ineligible to receive options under the Plans. The exercise price for options
granted under the Plans cannot be less than the fair market value of the Common
Stock on the date the options are granted. Options are not exercisable until
one year after the date of grant and then become exercisable to the extent of 25
percent of the underlying shares on each of the first four anniversaries of the
date of grant, although most options granted under the 1992 Plan become
immediately exercisable in the event the Company is acquired.
The following table contains information concerning the grant of options
under the plans during the year ended December 31, 1995, for the executive
officers named in the Summary Compensation table:
Potential Realizable
Value at Assumed
Percent Rates of Stock Price
of Total Appreciation for
Grants Expir- Option Term
Options To All Exercise ation --------------------
Name Granted Employees Price Date 10% 5%
- ---- ------- --------- -------- ---- --- --
Victor A. -0- - - - - -
Rocchio
Milan L. -0- - - - - -
Elton
27
<PAGE>
The following table contains information concerning options exercised in
1995, and options held at December 31, 1995, for the executive officers named in
the Summary Compensation table:
Number of Securities Value of Unexercised
Shares Underlying Unexercised in-the-Money
Acquired Options at Fiscal Options at Fiscal
on Value Year-End (#) Year-End (#)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- ---- -------- -------- ---------------------- --------------------
Victor A. 0 0 0/0 0/0
Rocchio
Milan L. 0 0 0/0 0/0
Elton
The outside directors are paid a fee of $1,500 for each meeting attended,
$750 for each committee meeting held on a day other than a board meeting day,
and an annual retainer of $100 for each year of service on the Board.
28
<PAGE>
SAVINGS PLAN. The Company maintains a Savings Plan for its employees which
is qualified under Section 401(k) of the Internal Revenue Code. Employees can
contribute a percentage of their regular salary or wages to the plan on a pre-
tax basis. In 1995, the Company matched employee contributions at the rate of
10% to a maximum of $1,000 per employee. Future matching contributions are
subject to approval by the Company. Any matching contributions are made in the
form of the Company's Common Stock and vest in stages over seven years.
Officers, directors and other key employees are also eligible to receive
matching contributions effective January 1, 1995.
29
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the number of shares of Common Stock of the
Company beneficially owned as of March 15, 1996 by each person known to the
Company to be the beneficial owner of five percent or more of the Company's
Common Stock, by each director and executive officer, and by all directors and
executive officers as a group, and the percentage of outstanding shares so owned
at that time:
Percentage
Name Shares Owned Owned
- ---- ------------ ----------
T. Rowe Price Associates, Inc. 190,000 (1) 8.6%
100 East Pratt Street
Baltimore, MD 21202
Victor A. Rocchio, 338,525 (2) 15.4%
Chairman, Treasurer and
Director
Milan L. Elton, 114,750 5.2%
President and CEO, Secretary
and Director
Robert S. Erickson, 59,347 2.7%
Director
Edward D. Zimmer, 39,100 1.8%
Director
John M. Schulzetenberg, 1,000 *
Director
Frank E. Triplett, 11,407 *
Director
All directors and officers 564,129 (2) 25.7%
as a group (6 in number)
* Less than one percent.
(1) Includes shares owned by various individual and institutional investors
(including T. Rowe Price Small Cap Value Fund, Inc., which owns 160,000
shares), for which T. Rowe Price Associates, Inc. serves as investment
advisor.
(2) Includes 35,025 shares owned by Mr. Rocchio's spouse.
30
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
31
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report.
Page
----
1. Financial Statements 12
Independent Auditor's Report 13
Balance Sheets 14
Statements of Earnings 15
Statements of Stockholders' Equity 16
Statements of Cash Flows 17
Notes to Financial Statements 18
2. Financial Statement Schedules - None
All schedules are omitted because they
are not applicable or because the
required information is included in
the financial statements or notes
thereto.
3. Exhibits
(10) Contract Settlement Agreement 35
with State of Minnesota
(11) Statement recomputation of 38
per share earnings
(23) Independent Auditors' Consent 39
(b) Reports on Form 8-K filed during the last quarter of the period
covered - None
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant) Technalysis Corporation
-------------------------------------------------------------
By (Signature and Title /s/Milan L. Elton, CEO
---------------------------------------------------
Milan L. Elton, CEO
--------------------------------------------------------
(Date) 3/18/96
-----------------------------------------------------------------------
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.
Signature Title Date
- --------- ----- ----
Chairman
- ------------------------- Treasurer and Director ------------
Victor A. Rocchio
/s/ Milan L. Elton President, CEO 3/18/96
- ------------------------- Secretary and Director ------------
Milan L. Elton (Principal Accounting Officer)
Director
- ------------------------- ------------
Robert S. Erickson
/s/ Edward D. Zimmer Director 3/18/96
- ------------------------- ------------
Edward D. Zimmer
/s/ John Schulzetenberg Director 3/18/96
- ------------------------- ------------
John Schulzetenberg
/s/ F. E. Triplett Director 3/18/96
- ------------------------- ------------
Frank E. Triplett
33
<PAGE>
EXHIBIT INDEX
EXHIBIT NO.
10 Contract Settlement Agreement
with State of Minnesota
11 Statement recomputation of per share
earnings
23 Independent Auditors' Consent
27 Financial Data Schedule
34
<PAGE>
Exhibit 10.
SETTLEMENT AGREEMENT
IN RE CONTRACT NO. 55000-51517-01 BETWEEN
THE MINNESOTA DEPARTMENT OF HUMAN SERVICES
AND
TECHNALYSIS CORPORATION
FOR THE MODIFICATION OF THE
MINNESOTA CHILD SUPPORT ENFORCEMENT SYSTEM
As provided in Paragraphs 1 through 11, below, this Agreement (hereinafter
"Agreement") between the State of Minnesota, Department of Human Services
(hereinafter "the DEPARTMENT"), and Technalysis Corporation, (hereinafter
"CONTRACTOR"), constitutes a complete and final settlement of all claims,
demands and rights, including all derivative claims and causes of action, of
both the DEPARTMENT and CONTRACTOR, with respect to any and all matters related
to, or arising out of, Contract No. 55000-51517-01 and the amendments thereto
(hereinafter, "the Contract").
RECITALS
WHEREAS, the DEPARTMENT and CONTRACTOR entered into that certain Contract
for the Modification of the Minnesota Child Support enforcement System,
effective July 14, 1993, whereby CONTRACTOR agreed to provide certain computer
software planning, analysis, design, programming, testing, installation and
related services for modification of the State's Child Support Enforcement
System (the "Project"); and
WHEREAS, the original contract was amended by Supplement No. 1 to Contract
No. 55000-51517-01, effective July 11, 1995, and the original contract and the
Supplement No. 1 thereto are referred to herein as the "Contract"; and
WHEREAS, certain disputes regarding the Contract have arisen between
CONTRACTOR and the DEPARTMENT. The DEPARTMENT has sent CONTRACTOR a notice of
deficiency under the Contract, dated September 5, 1995. CONTRACTOR does not
admit responsibility for any deficiencies; and
WHEREAS, the parties, in an effort to avoid litigation of this matter, wish
to enter into an agreement providing for (a) termination of any further
obligations of CONTRACTOR under the Contract, (b) certain payments by the
DEPARTMENT to CONTRACTOR for services performed pursuant to the Contract, (c) a
mutual release of both parties, and (d) certain other matters.
NOW THEREFORE, IT IS AGREED BY AND BETWEEN THE PARTIES HERETO:
1. SUSPENSION OF CONTRACTOR'S OBLIGATIONS UNDER THE CONTRACT.
Effective September 29, 1995, all of CONTRACTOR's obligations under the
Contract, including the obligation to perform any services, are suspended
pending assignment of the contract pursuant to section 7, herein. All work
product relating to services performed by CONTRACTOR pursuant to the
Contract, including work product of any subcontractors, shall be delivered to
the DEPARTMENT and shall become the property of the DEPARTMENT promptly upon
the execution of this Agreement by the parties.
2. FUTURE SERVICES. Any services performed by CONTRACTOR for the
DEPARTMENT in connection with the Project on and after September 30, 1995, shall
be compensated on a time and materials basis, at CONTRACTOR's standard rates,
under the DEPARTMENT's Overload Contract. CONTRACTOR employees performing such
services shall be designated by the DEPARTMENT. The DEPARTMENT estimates that
the amount of such services shall be approximately $150,000.
<PAGE>
3. RECOGNITION OF PRIOR PAYMENT. CONTRACTOR and the DEPARTMENT agree
that CONTRACTOR has received payment under the Contract in the amount of
$972,331 for deliverables completed by CONTRACTOR and accepted by the
DEPARTMENT, exclusive of invoices referenced in Section 4.
4. PAYMENT OF PRIOR INVOICES. Any of the following invoices that have
not been paid shall be paid by the DEPARTMENT to CONTRACTOR as soon as possible,
but no later than within 15 business days of the date of this Agreement:
#89016363 for $23,604, #89016167 for $110,936, #89016541 for $57,202, and
#89016542 for $4,022.
5. ADDITIONAL PAYMENT. In addition to the payments required by Section
4, the DEPARTMENT shall pay CONTRACTOR $1,400,000 as soon as possible, but no
later than within 15 business days of the date of this Agreement, in full
payment for all services performed by CONTRACTOR and any subcontractors under
the contract that have not been previously paid or invoiced. All payments
pursuant to Sections 4 and 5 shall be without restriction and not in escrow.
6. SOFTWARE ORDER. Immediately upon execution of this Agreement
Contractor shall order the S-Designer Enterprise Software, product #SE00101OV4,
on behalf of the DEPARTMENT, and will arrange for delivery to the DEPARTMENT as
soon as practicable. The DEPARTMENT shall, not later than 15 business days
after receipt of the Software and invoice, pay CONTRACTOR $3,495 for the selling
price (without markup by CONTRACTOR) and shall also pay any taxes and any
handling, shipping and delivery charges.
7. ASSIGNMENT OF THE CONTRACT. On or before November 1, 1995,
CONTRACTOR agrees to execute an assignment of the Contract to a party
approved in advance by the DEPARTMENT provided that CONTRACTOR shall not be
required to execute the assignment unless the assignee and the DEPARTMENT
both agree in the assignment that CONTRACTOR has no remaining obligations
under the Contract and that the assignment shall not create any obligations
or liabilities on the part of CONTRACTOR to the DEPARTMENT, the assignee, or
their successors and assigns. If no assignment is made by CONTRACTOR on or
before November 1, 1995, the Contract shall automatically terminate and have
no further force or effect on that date.
8. MUTUAL RELEASE. The DEPARTMENT hereby releases, discharges and
agrees not to sue the CONTRACTOR, and the CONTRACTOR's shareholders,
directors, officers, employees, agents and representatives, from any and all
claims, demands, debts, liabilities, obligations, complaints, and causes of
action relating to the Contract or the Project, known or unknown, and now
existing or hereafter arising, except for any arising under this Agreement or
the Overload Contract subsequent to the date hereof.
The CONTRACTOR hereby releases, discharges and agrees not to sue the
DEPARTMENT, the DEPARTMENT's officers, employees, agents and representatives,
from any and all claims, demands, debts, liabilities, obligations, complaints,
and causes of action relating to the Contract or the Project, known or unknown,
and now existing or hereafter arising, except for any arising under this
Agreement or the Overload Contract subsequent to the date hereof.
9. NON DISPARAGEMENT. Each party agrees not to disparage the other
party, or the other party's officers, employees, agents or representatives,
regarding any matter relating to the contract or the Project. Each party
shall instruct its officers, employees, agents and representatives associated
with the Contract or the Project to comply with the provisions of this section.
CONTRACTOR agrees that the DEPARTMENT is exempted from this provision with
respect to communications with other State of Minnesota entities including state
agencies, the legislative auditor's office and the state legislature and with
respect to communications with any federal agencies including any communications
that occur at meetings open to the public. CONTRACTOR further agrees that all
information relevant to this contract on file with the Department, and
communications with the above-referenced public entities is public information
and that the Department may release such information as required by law, without
violating this section.
<PAGE>
10. MISCELLANEOUS. This Agreement shall be interpreted in accordance
with Minnesota law. This Agreement constitutes the entire agreement between the
parties on the subject matter hereof, superseding any prior oral or written
agreements, including the Standstill Agreement dated September 18, 1995. This
Agreement may only be amended in a writing signed by both parties. This
Agreement is binding upon, and shall inure to the benefit of, each of the
parties and their respective successors and assigns.
11. EFFECTIVE DATE. This Agreement shall be effective after the final
approval required by Minn. Stat. Section 16B.06, subd. 2 has been obtained.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, intending to be bound thereby.
TECHNALYSIS CORPORATION APPROVED AS TO FORM AND EXECUTION BY
THE OFFICE OF THE ATTORNEY GENERAL
By: /s/ Milan L. Elton By: /s/ Scott Wilensky
Title: Vice President Title: Asst. Attorney General
Date: 10/6/95 Date: 10-9-95
STATE OF MINNESOTA COMMISSIONER OF ADMINISTRATION
DEPARTMENT OF HUMAN SERVICES
By: /s/ John Petraborg By: /s/ Gerald Joyce
Title: Deputy Commissioner Title: Contract Administrator
Date: 10/6/95 Date: 10/9/95
COMMISSIONER OF FINANCE
By: /s/ Mary Burian
Title:
Date: 10/9/95
<PAGE>
EXHIBIT 11
TECHNALYSIS CORPORATION
EARNINGS PER SHARE
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
CALCULATION OF PRIMARY EARNINGS PER SHARE
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
----------------------------------------------------------
<S> <C> <C> <C>
Net earnings $ 864,865 $ 1,222,942 $ 1,484,779
----------------------------------------------------------
----------------------------------------------------------
Weighted average number of common shares outstanding 2,199,340 2,196,995 2,185,805
Dilutive effect of stock options outstanding
after application of treasury stock method 6,691 5,837 13,229
----------------------------------------------------------
2,206,031 2,202,832 2,199,034
----------------------------------------------------------
----------------------------------------------------------
Net earnings per common and common equivalent
share, based upon weighted average number of
shares and equivalent shares outstanding $ 0.39 $ 0.56 $ 0.68
----------------------------------------------------------
----------------------------------------------------------
CALCULATION OF FULLY-DILUTED EARNINGS PER SHARE
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
----------------------------------------------------------
Net earnings $ 864,865 $ 1,222,942 $ 1,484,779
----------------------------------------------------------
----------------------------------------------------------
Weighted average number of common shares outstanding 2,199,340 2,196,995 2,185,805
Dilutive effect of stock options outstanding
after application of treasury stock method 6,691 6,332 19,225
----------------------------------------------------------
2,206,031 2,203,327 2,205,030
----------------------------------------------------------
----------------------------------------------------------
Net earnings per common and common equivalent
share, based upon weighted average number of
shares and equivalent shares outstanding $ 0.39 $ 0.56 $ 0.67
----------------------------------------------------------
----------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITOR'S CONSENT
We hereby consent to the incorporation by reference in the Registration State-
ment on Form S-8 related to the 1982 Incentive Stock Option Plan dated April 15,
1983, and the 1992 Incentive Stock Option Plan dated February 14, 1992, of our
report dated February 2, 1996, with respect to the financial statements of
Technalysis Corporation, appearing in this Annual Report on Form 10-K for the
year ended December 31, 1995.
McGladrey & Pullen, LLP
Minneapolis, Minnesota
March 19, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
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