ITEM 1. BUSINESS GENERAL
The following discussion contains forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Auto-trol Technology Corporation undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be necessary to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.
Auto-trol Technology Corporation and its wholly-owned subsidiaries (referred to hereafter as "Auto-trol" or the "Company") develop, integrate, market, sell, and support its software products and the software products of certain third-party vendors for end user markets involved in: product data management, physical network management, mapping, technical illustration, and engineering. Historically, the Company sold proprietary hardware products and Computer Aided Design/Computer Aided Manufacture (CAD/CAM) software. Both the competitive pressures and market maturity in the CAD/CAM marketplace and reduced margins on hardware products have caused the Company to sell less Manufacturing Computer Aided Design (MCAD) software and hardware to its customers than in past years. The Company has had to shift its sales and support focus from hardware and CAD/CAM software to internally developed product data management, electronic network management, technical illustration, and systems integration. Auto-trol believes that by offering customers a broad spectrum of information applications and options, from analysis through implementation and ongoing support, it is able to develop long-term relationships with its customers and expand into new markets. The Company's business is not seasonal in nature, nor is the Company dependent on any single individual customer.
PRODUCTS
CENTRA 2000(TM) The CENTRA 2000 system is a product data, electronic management, document management and workflow system specifically designed to solve the complex problems facing engineering, manufacturing, technical publishing, petrochemical and other operations. The product is intended for scaleable implementation from the work group to the entire enterprise. In addition to traditional Electronic Document Management (EDM)/Product Data Management (PDM) functions, CENTRA 2000 manages pure data environments, audio/video, and large document assemblies. The product is designed to fit a customer's environment with a general focus on automating configuration management and project management, as well as processes integrated with a customer's hardware and business systems, rules and procedures. The core CENTRA 2000 technology was used to develop the NASA Electronic Library System, which serves as a solution for configuration management of technical documentation and programming source code. CENTRA 2000 technology was also used to map and track the parts list for the space station.
KONFIG(TM) The KONFIG product is advanced software for physical network, cable/wire, and asset management of data, voice or video networks. The KONFIG software stores and models the entire network infrastructure in Oracle's relational database management system (RDBMS), including both active elements such as workstations, hubs, routers, and switches, along with passive elements such as cables, connectors, distribution frames, and patch panels. The spatial location, topological information, connectivity, and non-graphic attributes of each network object are stored in the Oracle RDBMS. A detailed graphical representation of the network can be automatically generated from the database and overlaid on a facility drawing. Auto-trol's powerful Series 5000 graphic engine is used to generate graphic views of the network as well as create and modify the facility drawings. The KONFIG Network Manager product provides integration with industry-leading network management tools.
TECH ILLUSTRATOR(TM) Auto-trol's Electronic Publishing Solutions (EPS) product line, comprised of a suite of application and converter products, embodies a standards-based "off- the-shelf" solution set that augments illustration productivity. The EPS product line enables compliance with important military and commercial standards that affect contemporary publishing operations. Auto-trol's solution provides access to a wide variety of reference material ranging from legacy hard copy and electronic archives to current digital 3D design data, for direct use in creating illustration views. The EPS product line provides the added advantage of being easily and extensively customized to adhere to end user requirements.
GEOSTATION(R) GIS The Geostation product is an integrated exploration data management and mapping solution that allows for visualization of complex data. This product is used as a subsurface exploration tool in oil and gas exploration and for assessment of mineral rights associated with land. Geostation software is also used in the mapping and cartography industry.
SOFTWARE
Approximately 25%, 33% and 26% of total revenue was comprised of software sales for the years ended September 30, 1998, 1997 and 1996 respectively.
CUSTOMER SUPPORT
CONSULTING SERVICES Auto-trol offers consulting services that include software needs assessments, system configuration, implementation of its products, and third party product integration with Auto-trol's products. Additionally, Auto-trol may develop custom software or modify its existing software products to solve specific customer needs. These services are sold in conjunction with product sales. Services are billed at standard rates. Approximately 15%, 14% and 10% of total revenue was comprised of consulting service revenue for the years ended September 30, 1998, 1997 and 1996 respectively.
EDUCATIONAL SERVICES Auto-trol provides comprehensive product training programs for all of the Company's applications. Additionally, Auto-trol provides certified HP training and offers a wide range of courses both domestically and internationally. Approximately 10%, 9% and 8% of total revenue was comprised of educational service revenue for the years ended September 30, 1998, 1997 and 1996 respectively.
NATIONAL CUSTOMER SUPPORT Auto-trol believes that the quality of customer support is an important factor in helping the customer to attain and maintain productivity levels and its related return on investment in Auto-trol products. Post-sale customer support services are provided on a time and materials basis or under warranties and service contracts. Approximately 14% of Auto-trol's employees are engaged in post-sales support functions. A technical staff offers software support services for most problems. Approximately 49%, 36% and 39% of total revenue was comprised of customer support revenue for the years ended September 30, 1998, 1997 and 1996 respectively.
RESEARCH AND PRODUCT DEVELOPMENT Approximately 42% of Auto-trol's employees are engaged in research and product development activities. The Company has made and will continue to make significant investment in product development and enhancement due to rapidly changing technology, competitive pressures, and customer demands. During September 1996, the Company announced that it had ceased development work on its Mozaic suite of applications. The decision was prompted by competitive pressures and the decision to focus the Company's development and marketing efforts on its other products. Research and product development expenditures as a percentage of the Company's revenues from 1996 through 1998 were as follows:
MARKETING Auto-trol's commercial customers are chiefly from the petroleum, pharmaceutical, chemical, manufacturing, engineering, and public utility industries. Governmental customers include federal, state and municipal agencies. The Company markets and sells its products and services directly to end users and third parties in the United States from its eight domestic sales offices. The Company markets its products in Europe through wholly owned subsidiaries with offices located in Germany and the United Kingdom. Additionally, the Company markets its products in Canada through Auto-trol Technology (Canada) Ltd., a wholly owned subsidiary, and in Australia through a Company sales office. Export sales to Sweden and the Pacific Rim countries are handled by independent distributors. The Company ships product to its distributors after the sale has been negotiated with the end customer. The Company does not grant rights to the distributor to return products for other merchandise, credit, or refund.
The following table presents the revenue comprised of foreign sales for the last three fiscal years. For additional financial information about foreign or domestic operations and export sales, see Note 8 of "Notes to the Consolidated Financial Statements", on page 23.
Customers may purchase software systems with related services, or they may purchase software and services independently. The Company maintains standard pricing structures for software products. Pricing of customer service contracts is determined based on customer needs. As is customary in the industry, the Company licenses its software and sublicenses third-party software to protect the ownership of such software. The Company's Software License Agreement provides for a transfer of the product, but limits disclosure of the software to third parties. Auto-trol offers a thirty day warranty on its software products. Auto-trol may administer and recognize vendor warranties of third-party software products. Payment terms are generally net thirty days from the date of shipment.
Due to the competitive pressures in the software industry, the Company strives to minimize the time that elapses from the approval of purchase orders to the date of shipment of the product. Therefore, the Company routinely ships software products to its customers within twenty-four hours after approval of the order.
Orders in backlog may be canceled but are subject to a cancellation fee. The Company's recorded backlog was approximately $1.4 million as of September 30, 1998, compared to $1.3 million as of September 30, 1997. The Company's backlog at the end of a quarter only represents a portion of future sales and should not be used solely to predict future results.
COMPETITION Within the Product Data Management market, the Company's primary competitors are Agile Corporation, Documentum Inc., Structural Dynamic Research Company (SDRC) and Matrix One, Inc. The Itedo GMBH Company is a competitor in the technical illustration market. Cambio Networks, Inc., Architel Systems Corporation, and Visionael Corporation are the primary competitors in the physical electronic network market. The Company believes that its products in the design, drafting, and product and network management markets uniquely leverage the Company's core competencies in the engineering graphics and documentation areas to provide a total solution to the customer.
Auto-trol competes primarily on the basis of quality and technical expertise. The Company believes the functionality of its application products, short implementation time with superior technical support, and responsiveness to customer needs enhances its competitive position. The Company believes that, although price is a competitive factor, customers consider product functionality, ease of implementation, and user friendliness to be of greater importance when selecting a vendor's product.
SOURCES OF SUPPLY The agreement in place with Hewlett-Packard (HP) renews annually and is currently effective through September 1999. Pursuant to this agreement, HP provides certain hardware equipment at various discounts. This equipment must be used with systems developed by Auto-trol, in the country where the equipment is purchased. This agreement is international in scope.
Pursuant to an agreement with Sun Microsystems, Inc., (Sun), Sun provides certain hardware equipment to Auto-trol at discounts based upon volume with special discounts for certain equipment. This equipment is to be used with systems developed by Auto-trol, in the country where the equipment is purchased. This agreement is international in scope, and provides for marketing cooperation. The agreement in place with Sun also renews annually and is currently effective until September 1999.
YEAR 2000 The year 2000 has caused uncertainties about whether date-sensitive hardware or software will appropriately recognize and process dates beyond 1999. The Company has enlisted resources from its financial, technical and management groups to review and identify those areas that could be affected by the Year 2000 problem, including its internal computer systems, product offerings, and the readiness of third parties with which the Company has material relationships.
Based on extensive testing, the Company believes that the current versions of its primary software offerings (CENTRA 2000, KONFIG and Tech Illustrator) will provide customers with the necessary date interpretation for proper operation beyond the year 2000, as long as the underlying operating system of the host machine provides full and correct date information to the software. The Company's Geostation product is currently undergoing certification testing for compliance.
The Company believes that, with few exceptions, the latest versions of its legacy software products that are currently under maintenance agreements are also Year 2000 compliant; however, there can be no assurance that the Company has identified all Year 2000 problems in every version of software supported by the Company, and any failure by the Company to identify any such problem could have a material adverse effect on the Company. The Company recommends that all users of the Company's products review the date handling logic of any customizations and modifications that they have made to the Company's products.
The Company also has reviewed its internal business information systems, and replaced the systems that were not Year 2000 compliant. The costs of achieving Year 2000 compliance with respect to such internal systems did not have a material adverse effect on the Company.
Auto-tol has also been in contact with it's major customers and suppliers to obtain assurance letters that these entities are working toward being Year 2000 compliant, and that they have backup procedures in place to prevent any major issues, should they not be compliant on a timely basis. Auto-trol does not have a significant customer which contributed 10% or more of the Company's revenue for the year ended September 30, 1998. The Company does not feel that there are any major Year 2000 deficiencies related to Auto-trol's business systems, products sold to customers, or it's business partners, which would cause a lapse in business.
PATENTS AND LICENSES The Company holds three patents issued in the United States for vector drawings and polygon display. Generally, the Company seeks to protect aspects of its systems through trade secret protection. The Company's standard Software License Agreement prohibits the customer from disclosing any confidential or proprietary information. Included in the Company's purchase of vendor equipment is the right to resell and sublicense systems software licenses under Auto- trol's standard Software License Agreement.
The Company is also licensed to use and sublicense a limited number of graphics and applications programs developed by others. The Company does not believe that the manufacture and sales of its products require additional licenses from others. If such licenses were required, the Company believes that it would not have a materially adverse financial impact on operations.
EMPLOYEES The Company has no collective bargaining agreements and there have been no work stoppages due to labor difficulties. The Company believes that relations with its employees are good. As of September 30, 1998, Auto-trol had 243 employees, which included 102 in research and development, 35 in customer support, 42 in administrative support, 55 in sales and support, and 9 in marketing.
ITEM 2.
ITEM 2. PROPERTIES
The Company's 127,000 square foot corporate headquarters facility is located on a 20-acre site about 15 miles North of downtown Denver, Colorado, in the city of Thornton. Financing for this facility was obtained primarily through the issuance of $6 million of Industrial Development Revenue Bonds, Series 1979, by the City of Thornton, Colorado, which mature through 2004. The Company subleases 22,500 square feet to an unrelated party on a five year lease which expires on January 31, 2002.
The Company also leases approximately 20,000 square feet of office space throughout the United States, approximately 17,000 square feet in Canada, approximately 1,600 square feet in Australia, and approximately 11,000 square feet in Europe.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings before any court, administrative agency or other tribunal.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders during the fourth quarter of the fiscal year covered by this report.
Part II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Prior to October 20, 1997, the Company's common stock was traded on the Nasdaq National Market System under the symbol ATTC. On October 20, 1997, Nasdaq delisted the Company's common stock from the National Market System. The common stock is now trading on the OTC Bulletin Board 7 under the symbol "ATTC". The following table sets forth the range of high and low bid prices of the Common stock through September 30, 1998, for the fiscal quarters indicated, as reported by the Nasdaq or the OTC Bulletin Board as applicable. Such quotations reflect inter-dealer prices, without retail mark-up, mark own or commission and may not necessarily represent actual transactions.
As of December 8, 1998, there were 670 holders of record of the Company's common stock. The Company has never paid or declared any dividends on its common stock. The indenture to the Industrial Development Revenue Bonds restricts the payment of dividends to the amount of $2,000,000 minus 100% of the accumulated deficit subsequent to December 31, 1978.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
/1/ Restated to reflect the one-for-ten reverse stock split effective January 30, 1996.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the following discussions contain forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed here. The Company undertakes no obligation to revise any forward- looking statements in order to reflect events or circumstances that may subsequently arise. Some important factors, among others, that also need to be considered are: the likelihood that actual future revenues that are realized may differ from those inferred from existing total backlog; the ability of the Company to attract and retain highly trained professional employees; the delay or deferral of customer implementations; the Company's success in expanding its direct sales force and indirect distribution channels; the timing of new product introductions and product enhancements by the Company and its competitors; the mix of products and services sold; levels of international sales; and the ability of the Company to develop and market new products and control costs and general domestic and international economic and political conditions.
RESULTS OF OPERATIONS
OVERVIEW
During fiscal 1998, the Company focused its sales efforts primarily on internally developed software and system integration services along with the development of alternative distribution channels. Operating losses continued for the year, due primarily to the lack of revenue growth from products under development internally, and significantly less hardware sales, as the Company continued the transition of its product offerings. The PDM and network configuration revenues were also affected in part by the delay of customer implementations, product development delays as well as an increased complexity of the sales cycle in these markets. The Company continues to believe that its PDM, EPS and network configuration products in these market areas, when complete, will present a unique complementary combination that will differentiate the Company from its competitors.
Due to the nature of the software industry, the future operating results of the Company depend largely on its ability to rapidly and continuously develop and deliver new software products that are competitively priced and offer enhanced performance. During fiscal 1997, the Company had new software product releases for its PDM and network configuration products. These products were enhanced during 1998, and a major sales and marketing effort was begun. The Company believes that these products are competitive both functionally and from a pricing perspective. However, the Company is unable to predict the impact of new products or the effect that industry economic conditions will have on future results of operations.
REVENUES - For the year ended September 30, 1998, total sales and service revenue decreased $5.6 million, or 29%, from the year ended September 30, 1997. Total sales revenue for fiscal 1998 decreased $4.3 million, or 53%, from the year ended September 30, 1997. Hardware revenue for fiscal 1998 declined $1.3 million or 87%, as compared to fiscal 1997 as the Company continued to shift its sales and support focus from hardware to internally developed software and systems integration. Total software revenue decreased $3.0 million, or 46%, as compared to fiscal 1997. The Company had a decrease in revenues from its own proprietary software amounting to $2.7 million or 44% as compared to fiscal 1997. North American hardware sales revenue decreased $943,000, or 85%, while software sales revenue decreased $2.9 million, or 57% during fiscal 1998. European sales revenue decreased $201,000 or 14% from fiscal 1997. The European revenue reduction was due to a decrease of $275,000 in hardware revenue, or 88%, a software revenue increase of $74,000, or 7%, and a decrease in services revenue of $444,000 or 19% as compared to fiscal 1997. Approximately 23% of this decrease was due to unfavorable exchange rates and the remainder was due to decreased sales volume.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-(continued)
For the year ended September 30, 1997, total sales and service revenue decreased $1.5 million, or 7%, from the year ended September 30, 1996. Total sales revenue for fiscal 1997 decreased $1.0 million, or 11%, from the year ended September 30, 1996. Hardware revenue for fiscal 1997 declined $2.0 million or 56%, as compared to fiscal 1996 as the Company focused its selling efforts on proprietary software sales. Total software revenue increased $1.0 million , or 18%, as compared to fiscal 1996. This increase can be attributed primarily to higher PDM software sales and increased sales of third party software products. The Company had an increase in revenues from its own proprietary software amounting to $748,000, or 14 % as compared to fiscal 1996. North American hardware sales revenue decreased $554,000, or 33% while software revenue increased $1.3 million, or 33%, from fiscal 1997. European Sales revenue decreased $1.7 million or 56% from fiscal 1996. The European revenue reduction was due to a decrease of $1.3 million in hardware revenue, or 81%, and a software revenue decrease of $449,000, or 29%, as compared to fiscal 1996. Approximately 10% of this decrease was due to unfavorable exchange rates and the remainder was due to decreased sales volume. . During fiscal 1997 the Company restructured all of its international subsidiaries and closed its Swedish subsidiary by transferring the majority of its customers and employees to a Swedish distributor. All these activities were a direct result of lower than expected revenues during the first half of fiscal 1997.
Total service revenue for the year ended September 30, 1998, decreased $1.3 million, or 11%, from the year ended September 30, 1997. Hardware maintenance revenue decreased $467,000, or 51%, while software maintenance revenue increased $71,000, or 1% for fiscal 1998 as compared to fiscal 1997. The Company experienced an overall decline in service revenue for all geographic locations during fiscal 1998. Billable services revenue decreased $562,000, or 21% from fiscal 1997. Training revenue decreased $307,000, or 17%, as compared to fiscal 1997. North American service revenue, which comprised 78% of the total worldwide service revenue, declined $791,000 or 9%, as compared to fiscal 1997. European service revenue declined $443,000, or 19%, as compared to fiscal 1997
Total service revenue for the year ended September 30, 1997, decreased $518,000, or 4%, from the year ended September 30, 1996. Service revenue is comprised maintenance, training and billable service revenue. Hardware maintenance revenue decreased $668,000, or 42%, while software maintenance revenue decreased $481,000, or 7% for fiscal 1997 as compared to fiscal 1996. The Company experienced an overall decline in service revenue for all geographic locations with the exception of the South East Asian market during fiscal 1997. As the Company shifts from being a hardware and software solution provider to a software, systems integration, and service provider, revenue from hardware maintenance will continue to decline. The Company's management has made arrangements with other parties to directly support its customers' hardware maintenance needs. The declines in software maintenance revenue can be attributed to a decline in older products and reduced third party software maintenance revenues. Billable services revenue increased $528,000, or 25% from fiscal 1996. This increase is directly related to the increased revenues resulting from the Company's proprietary software products. Training revenue increased $103,000, or 6%, as compared to fiscal 1996. North American service revenue, which comprised 77% of the total worldwide service revenue, declined $322,000, or 4%, as compared to fiscal 1996. European service revenue declined $295,000, or 11%, as compared to fiscal 1996.
COST OF SALES AND SERVICE - The result of operations for the year ended September 30, 1998, continued to reflect shifts in product mix from hardware to software and services. For the year ended September 30, 1998, gross profit margins on total revenue increased to 67% from 62% for the year ended September 30, 1997. Gross profit margins on sales revenue for the year ending September 30, 1998, increased to 88% from 71% for the year ended September 30, 1997. In fiscal 1998, gross profit margins on hardware declined $180,000, yielding a gross margin of 16%, as compared to a gross margin of 14% in fiscal 1997. This decline reflects the Company's focus on selling its own software products, rather than third party products that produce less gross profit. In fiscal 1998, gross profit margins on software sales decreased $508,000 yielding a gross margin of 92%, as compared to a gross margin of 88% in fiscal 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-(continued)
Gross profit margins for total service revenue in fiscal 1998 decreased $278,000, yielding a gross margin of 60%, as compared to a gross margin of 56% in fiscal 1997. Gross profit margins on hardware maintenance declined $125,000 yielding gross margins of 5% in fiscal 1998 as compared to gross margins of 16% in fiscal 1997. This reduction is attributed to the Company's growing utilization of outside third parties for hardware maintenance services. Software maintenance gross margins improved to 76% from 70% in fiscal 1997 due to the Company's efforts to control costs in its delivery of support.
Gross profit margins for total service revenue in fiscal 1997 increased $204,000, yielding a gross margin of 56%, as compared to a gross margin of 52% in fiscal 1996. Gross margins on billable services and training in fiscal 1997 increased to 38% from 37% in fiscal 1996 due to increased revenue. Gross profit margins on hardware maintenance declined $147,000 yielding gross margins of 16% in fiscal 1997 as compared to gross margins of 19% in fiscal 1996. This reduction is attributed to the Company's growing utilization of outside third parties for hardware maintenance services. Software maintenance gross margins improved to 72% from 68% in fiscal 1997 due to the Company's efforts to control costs in its delivery of support.
RESEARCH AND PRODUCT DEVELOPMENT - Research and development expenses were approximately 43% of total revenues for the year ended September 30, 1998, compared to 33% of total revenues for the year ended September 30, 1997. The change in research and development spending as a percentage of revenue in fiscal 1998 is due in part to a decrease of $428,000 or 7%, in spending along with a 29% decrease in total revenues as compared to fiscal 1997.
Research and development expenses were approximately 33% of total revenues for the year ended September 30, 1997 and 43% for the years ended September 30, 1996. The change in research and development spending as a percentage of revenue in fiscal 1997 is due in part to a decrease of $2.7 million, or 30% in spending associated with the discontinuation of the Company's Mozaic product line, along with a 7% decrease in total revenues as compared to fiscal 1996.
MARKETING, GENERAL AND ADMINISTRATIVE - For the year ended September 30, 1998, marketing, general and administrative expenses decreased $2.8 million, or 22%, from the year ended September 30, 1997. North American marketing, general and administrative spending declined $1.9 million due to the closure of field offices and the Company's cost containment measures. During fiscal 1998, European marketing, general and administrative spending declined $957,000, as compared to fiscal 1997 as occupancy and personnel costs were reduced.
For the year ended September 30, 1997, marketing, general and administrative expenses decreased $1.2 million, or 8%, from the year ended September 30, 1996. North American marketing general and administrative spending declined $738,000 due to closure of field offices and the Company's cost containment measures. During fiscal 1997, European marketing, general and administrative spending declined $469,000, as compared to fiscal 1996 as occupancy and personnel costs were reduced.
INTEREST - In the year ended September 30, 1998, interest expense increased $122,000 or 23% from the year ended September 30, 1997, as a result of higher borrowings throughout the year. Interest income increased $31,000, or 44% from fiscal 1997.
In the year ended September 30, 1997, interest expense decreased 188,000 or 26% compared to the year ended September 30, 1996, as a result of less borrowings and converting $4.7 million of related party debt to common stock. Interest income decreased $133,000 or 65% from fiscal 1996.
INFLATION - The Company is affected by inflation principally through increases in salaries and wages and by increases in prices of services, at rates comparable to those experienced by other businesses. Historically, the impact of inflation has been partially mitigated by general price declines in electronic components resulting from improved technology.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-(continued)
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL CONDITION - At September 30, 1998, the Company had approximately $1.3 million in cash and cash equivalents, which was 7% less than cash balances at September 30, 1997. Cash used by operations during the year ended September 30, 1998 was $5.0 million compared to $7.0 million for the year ended September 30, 1997. The Company's net working capital was a deficit of approximately $413,000 at September 30, 1998, as compared to working capital of $416,000 at September 30, 1997. Capital expenditures were made primarily for computer equipment and were $.9 million for the year ended September 30, 1998 compared to $1.1 million for the year ended September 30, 1997. Cash used by investing activities was $855,000 for the year ended September 30, 1998 compared to $960,000 for the year ended September 30 1997. Cash generated from financing activities was $5.9 million for the year ended September 30, 1998 compared to $7.4 million for the year ended September 30, 1997. Cash generated from financing activities resulted from the issuance of related party notes payable and was used primarily to fund operations.
Other than the uncertainty of future profitability, there are no known demands, commitments, events, or uncertainties that will result in the Company's liquidity increasing or decreasing in any material way. As of September 30, 1998, the Company had no material commitments for capital expenditures.
During fiscal 1994, the Company received a permanent waiver of financial covenants of its outstanding Industrial Development Revenue Bonds. The Company received a permanent wavier of financial ratio requirements which placed restrictions on long-term lease agreements, debt agreements, and current ratio requirements.
The Company will require additional funds from its majority shareholder to continue to fund future operations. The shareholder has committed, in writing, to continue providing financial support at least through December 31, 1999. If the Company does not achieve profitability in the near future, it will continue to be dependent on its majority shareholder for additional funding and to continue as a going concern. The Company has no long term viability and will be in jeopardy if it is not able to achieve financial independence through improved results, or should support from its majority shareholder not continue after December 31, 1999.
CURRENCY FLUCTUATIONS
The Company has three wholly owned foreign subsidiaries and one foreign branch operation. The three subsidiaries are located in Germany, Canada and the United Kingdom; the branch is located in Australia. The Company does business in the local currencies of these countries, in addition to other countries where the subsidiaries may have customers, such as Norway, Switzerland and Italy. These local currency revenues and expenses are translated into dollars for U.S. reporting purposes. A stronger U.S. dollar will decrease the level of reported U.S. dollar revenues and expenses. Approximately $545,000 of an unfavorable exchange rate variance and a $2.1 million decrease in revenue volume resulted in a $2.6 million decrease in non-U.S. revenue between 1998 and 1997. These effects on the Company's results of operations could become significant if the percentage of revenues and expenses attributed to International operations increases and/or if the dollar fluctuates significantly against international currencies. The Company's international operations are also subject to certain risks inherent in doing business abroad and may be adversely affected by government policies, restrictions, or other factors.
The Company does not use foreign exchange contracts, interest rate swaps, or option contracts. Foreign currency risk for the Company is limited to outstanding debt owed to the Company by the subsidiaries. The Company invoices its subsidiaries in their local currencies for products that are sold to the subsidiaries' end customers. Upon receipt of payment from the subsidiaries, a foreign currency gain or loss can occur. For the years then ended September 30, 1998, and 1997, the Company had realized a loss of approximately $42,000 and a gain of $8,000 respectively, through payments it had received from its subsidiaries.
NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued SFAS 130, Reporting Comprehensive Income, which establishes standards for reporting and displaying comprehensive income and its components (revenue, expenses, gains, and losses) in a full set of general purpose financial statements. The Company adopted SFAS 130 during fiscal year 1998 and restated all presented prior periods. The adoption of this Statement did not have a significant impact on the financial statements.
In June 1997, the FASB issued SFAS 131, Disclosure about Segments of an Enterprise and Related Information. In February 1998, the FASB issued SFAS 132, Employer's Disclosures about Pensions and Other Postretirement Benefits. In June 1998, The FASB issued SFAS 133, Accounting for Derivative Instruments and Hedging Activities. These new Statements are required to be adopted by the Company during fiscal year 1999, 1999 and 2000 respectively. The Company does not expect these new pronouncements to have a significant impact on the financial statements.
In October 1997, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants ("ACSEC") issued Statement of Position 97-2 (SOP 97-2), Software Revenue Recognition. SOP 97-2 supersedes SOP 91-1. SOP 97-2 requires companies to defer revenue and profit recognition unless four required criteria of a sale are met. In addition, SOP 97-2 requires that revenue recognized from software arrangements be allocated to each element of the arrangement based on the relative fair values of the elements, such as software products, upgrades, enhancements, post-contract customer support, installation, or training. SOP 97-2 is effective for all transactions entered into in fiscal years beginning after December 15, 1997. Management does not believe that the adoption of SOP 97-2 in fiscal year 1999 will have a material effect on the Company's financial position or results of operations.
ITEM 7 A.
ITEM 7 A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk exposure is the potential loss arising from changes in interest rates and its impact on short-term investments and foreign currency exchange rate fluctuations.
As of September 30, 1998, short-term investments of approximately $305,000 were immaterial, and therefore, a substantial reduction in interest rates will not have a material affect on the financial position of the Company.
Exposure to variability in foreign currency exchange rates is concern since funding obligations and assets are both managed in the local currencies of the subsidiaries. The Company does not use natural hedging techniques, nor does it enter into any derivative transactions for speculative purposes. Based on the Company's overall foreign currency rate exposure at September 30, 1998, movements in foreign currency rates could have a material affect on the financial position of the Company.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders Auto-trol Technology Corporation:
We have audited the accompanying consolidated balance sheets of Auto-trol Technology Corporation and subsidiaries as of September 30, 1998 and 1997, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended September 30, 1998. 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.
As discussed in Note 2 to the consolidated financial statements, affiliates of the Company's President, Chairman of the Board, and majority shareholder have provided significant financial support to the Company during 1998, 1997, 1996 and in prior years. The Company will continue to be economically dependent upon financial support from the shareholder until it achieves profitable operations. The shareholder has committed, in writing, to continue providing such financial support at least through December 31, 1999.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Auto-trol Technology Corporation and subsidiaries as of September 30, 1998 and 1997 and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 1998, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Denver, Colorado November 24, 1998
AUTO-TROL TECHNOLOGY CORPORATION CONSOLIDATED BALANCE SHEETS
See Notes to Consolidated Financial Statements.
AUTO-TROL TECHNOLOGY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
AUTO-TROL TECHNOLOGY CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
See Notes to Consolidated Financial Statements.
AUTO-TROL TECHNOLOGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
See Notes to Consolidated Financial Statements.
AUTO-TROL TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998, 1997, AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation - --------------------- The consolidated financial statements include the accounts of Auto-trol Technology Corporation and its subsidiaries, each of which is wholly owned. All significant intercompany transactions and balances have been eliminated in consolidation. The Company develops, integrates and supports its products and the products of certain third party vendors for end user markets involved in the following: product data management, physical network management, mapping, technical illustration, design, engineering, drafting and manufacturing processes. These products are designed to facilitate the creation, distribution, analysis and management of technical information.
The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Statement of Cash Flows - ----------------------- Cash and cash equivalents include currency on hand, demand deposits with banks or other financial institutions, and other highly liquid securities purchased with an original maturity of three months or less.
Inventories - ----------- Inventories consist of service parts which are recorded at cost and amortized on the straight line method over three years or the estimated useful lives, whichever is shorter.
Property, Facilities and Equipment - ---------------------------------- Property, facilities, and equipment, including leasehold improvements, are recorded at cost and depreciated or amortized on the straight line method over the estimated useful lives of the respective assets or the lease period, whichever is shorter. Gains and losses from retirement or replacement of property, facilities, and equipment are included in operations. Betterments and renewals are capitalized. Maintenance and repairs are charged to operations.
The estimated useful lives of facilities and equipment used in determining depreciation and amortization are as follows: Building and improvements component lives of 10-35 years Leasehold improvements shorter of the lease period or the useful life Machinery and equipment 3-7 years Furniture and fixtures 3-7 years
Foreign Currency Exchange and Translation - ----------------------------------------- The functional currency of the Company's foreign subsidiaries is its local currency and such assets and liabilities are translated to U.S. dollars at year end exchange rates. The Company does not use foreign exchange contracts, interest rate swaps, or option contracts. Translation gains and losses are not included in operations but are accumulated in a separate component of shareholders' equity as other comprehensive income or (loss). Foreign currency transaction gains and losses, which were not significant, have been included in the results of operations.
Revenue Recognition - ------------------- Revenue is comprised of software sales, software license fees, related customer support contracts, and other support services. Revenues from the sale of software and software licenses are generally recorded at the time of delivery to the customer. Revenues are deferred if significant future obligations are to be fulfilled or if collection is not probable. Post-sales customer support revenues are recognized ratably over the contract period. Included in post- contract support costs are direct costs paid to third-party vendors, which are expensed as incurred. In addition, labor and overhead expenses relating to support personnel are included in cost of service and are expensed as incurred. The Company provides a warranty for its products, generally for thirty days from the date of installation, and establishes an allowance to cover warranty costs during this period. Service contract revenues are recognized as the services are performed.
AUTO-TROL TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Significant Customer - -------------------- The Company had no significant customer which contributed 10% or more of the Company's total revenues in the year ended September 30, 1998. For the year ended September 30, 1997, the Company had one significant customer which, in aggregate, contributed approximately 11% of the company's total revenues.
Research and Product Development - -------------------------------- The Company charges research and product development costs to operations as incurred.
Amortization of Software - ------------------------ Purchased software acquired for use in the business includes the cost of software acquired through acquisitions and from third-party vendors. Amortization of these costs is included in research and product development or marketing, general and administrative expenses depending on the application of the software. Such costs are amortized using the straight-line method over the estimated useful lives ranging from three to five years. Software amortization expense was $115,000, $245,000 and $132,000 for the years ended September 30, 1998, 1997, and 1996, respectively.
Software Royalties - ------------------ The Company pays royalties for software licensed from third-party vendors for sublicense to the Company's customers. Total royalty expense incurred for third-party software was approximately $129,000, $171,000 and $170,000 for fiscal years ended September 30, 1998, 1997, and 1996, respectively, and is included in cost of sales.
Loss Per Share - -------------- The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share, in 1998 and in accordance with its provisions has presented basic loss per share for all years, in place of primary and fully diluted loss per share. Basic loss per share is computed using only the weighted average number of shares outstanding while diluted, including the dilutive effect of stock options and other potential common stock instruments. All such potential common stock instruments were antidilutive in 1998, 1997, and 1996.
2. ECONOMIC DEPENDENCY ON MAJORITY SHAREHOLDER: During fiscal years 1998, 1997 and 1996, affiliates of the Company's President, Chairman of the Board, and majority shareholder loaned the Company $8,150,000, $8,075,000 and $11,500,000 respectively. The Company converted approximately $7,000,000, $4,700,000 and $12,500,000 of shareholder loans to equity in 1998, 1997 and 1996 respectively, and repaid $2,000,000 in 1998, $300,000 in 1997 and $0 in 1996. The shareholder loan balance at September 30, 1998, was $4,125,000. The notes are unsecured and are due on October 1, 1999, bearing interest at 10% per annum. The Company will continue to be economically dependent upon such financial support until it achieves profitable operations. The shareholder has committed, in writing, to continue providing the Company such financial support at least through December 31, 1999.
AUTO-TROL TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED
3. DEBT:
Maturities of long-term debt for each of the five years subsequent to September 30, 1998, and thereafter are as follows:
AUTO-TROL TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(a) The Industrial Development Revenue Bonds were issued by the City of Thornton, Colorado, to finance the cost of the Company's corporate headquarters. The bonds bear interest at 8%, are payable in annual installments of $240,000 through August, 2004, and are collateralized by a mortgage indenture on the facilities. The indenture has debt covenants which place certain limitations on the Company, including restrictions on the sale of assets, and certain common stock transactions including payment of dividends. The Company has received a permanent waiver of financial ratio requirements which placed restrictions on long-term lease agreements, debt agreements, and current ratio requirements.
4. LEASES:
The Company leases certain office facilities and equipment under operating leases expiring at various dates through fiscal 2006. As of September 30, 1998, the future minimum lease payments under operating leases (with initial or remaining lease terms in excess of one year) are as follows in thousands:
There are no other material subleases or contingent rentals related to the leases, and the lease payments include no executory costs. Aggregate rental expense under operating leases was $1,163,137, $1,706,000, and $1,660,000 for the years ended September 30, 1998, 1997, and 1996, respectively.
The Company has entered into a lease agreement to sublet 22,500 square feet of its corporate headquarters. The aggregate rental income of $355,000, and $149,000 for the years ended September 30, 1998, and 1997. The sublease has a five year term and expires on January 31, 2002.
AUTO-TROL TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED
5. INCOME TAXES:
The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109), which requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method required by SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS 109 the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company's only significant temporary difference relates to net operating loss carryforwards. At September 30, 1998 the Company has net operating loss carryforwards for federal income tax purposes of approximately $63,727,000, which are available to offset future federal taxable income, if any, through 2017. The valuation allowance for deferred tax assets as of September 30, 1998 was $21,327.000. The net change in the valuation allowance for the year ended September 30, 1998, was an increase of $1,938,000, attributable to the net operating loss incurred during the year.
AUTO-TROL TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. SHAREHOLDERS' EQUITY: STOCK OPTIONS: - -------------- The Company has in effect two stock option plans: an Incentive Stock Option Plan and a Special Purpose Plan, whereby 1,000,000 shares of common stock are authorized for issuance. Under both plans, the exercise price of each option equals the fair market value, (the average of the representative highest and lowest prices), of the Company's stock on the date of grant, and an option's maximum term is ten years. Options are granted at the discretion of the Compensation Committee and vest at the rate of 20% per year through the fifth anniversary of the grant of the stock option.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1998 and 1997, respectively: no dividend yield for all years; expected volatility of 100 percent and 218 percent based upon historical volatility over the last two years; risk-free interest rates of 5.70 percent and 5.98 percent; and expected lives of five years for all two years. The risk-free rates used in the calculation represent the average U.S. Government Security interest rates on the stock option grant date with maturities equal to the expected term of the option. The effect of actual forfeitures is included in the computation of compensation costs for options granted during each of the respective years.
A summary of the status of the Company's two fixed stock options plans as of September 30, 1998, 1997 and 1996, and changes during the years ended on those dates, is presented below (shares in thousands):
The following table summarizes information about fixed stock options outstanding at September 30, 1998:
AUTO-TROL TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company applies APB Opinion 25 and related Interpretations in accounting for its plans. Accordingly, since the Company grants options at fair market value, no compensation cost has been recognized for its Incentive Stock Option Plans and its Special Purpose Plan. Had compensation expense for the Company's plans been determined on the fair value at the grant dates for awards under those plans consistent with FASB Statement 123, the Company's net loss and loss per share would have increased to the pro forma amounts indicated below:
EMPLOYEE STOCK PURCHASE PLAN - The Company has an Employee Stock Purchase Plan, under which 19,623 shares were available for purchase by employees as of September 30, 1998. Employees have purchased 4,886 shares of common stock under the Company's Employee Stock Purchase Plan through September 30, 1998.
7. EMPLOYEE RETIREMENT PLAN:
The Retirement Savings Plan (Plan) is a cash or deferred profit-sharing plan designed to comply with the requirements of Section 401(a) and 401(k) of the Internal Revenue Code of 1986. Substantially all employees of the Company with six months of service are eligible to participate in the 401(k) Plan. The Plan's funds are invested by a third-party fund manager into various funds as selected by the employee. The funds offered are determined by the 401(k) committee. Plan funds may not be invested in common stock of the Company. Under the Plan, employees may contribute 1% to 20% of their compensation per pay period, to a tax deferral account subject to statutory maximums. The Company will contribute to the account of a participant an amount equal to the employee's contribution up to ten dollars per pay period. The Company recognized expense related to the Plan of approximately, $34,000 $32,000 and $44,000 in the years ended September 30, 1998, 1997, and 1996, respectively. The Board of Directors may, at its discretion, terminate the Plan at any time in whole or in part. Upon such termination, the Plan provides for the distribution of the assets of the fund for the benefit of its participants.
AUTO-TROL TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. FOREIGN AND DOMESTIC OPERATIONS:
Revenues, operating results before unallocated expenses, and identifiable assets as of and for the three years ended September 30, 1998, 1997 and 1996 by geographic area are presented in the table below. There were no significant sales or transfers between geographic areas.
/1/ Export sales were made to various international distributors and to the Company's Australian branch.
/2/ Research and development expenses have been allocated to each geographic area based on the revenues generated by each area from internally-developed software products. Management believes this to be a reasonable method for allocating research and development expenses.
Interest expense has been allocated to each geographic area based on subsidiary assets and liabilities funded by domestic borrowings.
AUTO-TROL TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this Item is contained in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on January 26, 1999, under the caption "Election of Directors" and "Executive Officers", and is incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The response to this Item is contained in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on January 26, 1999, under the caption "Executive Compensation", and is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this Item is contained in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on January 26, 1999, under the caption "Voting Securities and Principal Shareholders", and is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this Item is contained in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on January 26, 1999, under the caption "Certain Relationships and Related Transactions", and is incorporated herein by reference.
The Company intends to file definitive copies of the Proxy Statement with the Securities and Exchange Commission within 120 days after September 30, 1998, the close of its last fiscal period, and pursuant to General Instruction G to Form 10-K. Information called for by these items is incorporated herein by reference from such definitive Proxy Statement.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
All other schedules are omitted because they are inapplicable, not required under the instructions, or the information is included in the Consolidated Financial Statements or notes thereto.
3. EXHIBITS Exhibit number Description of Exhibit ------ ----------------------- 3.3 Restated Articles of Incorporation* 3.4 Bylaws** 3.5 Amendment to Bylaws*** 4.1 Specimen Certificate** 4.2 Copies of Industrial Development Revenue Bond documents** 4.3 Specimen Debentures, Warrants, Royalty Agreement, and Royalty Certificate issued to purchase Research and Development Limited Partnership Interests+ 10.1 Copy of Incentive Stock Option Plan, as amended through January 28, 1992++ 10.2 Copy of Special Purpose Stock Option Plan, as amended through January 28, 1992++ 10.3 Agreement with Sun Microsystems, Inc. dated April 30, 1993+++ 10.4 Agreement with HP/Apollo Computer, Inc. dated July 4, 1994+++ 10.5 Agreement with Howard B. Hillman dated November 7, 1996 21 Subsidiaries of the Registrant 24 Consent of KPMG Peat Marwick LLP
* Incorporated by reference from Form 10-K for fiscal year ended September 30, 1996, dated December 10, 1996. ** Incorporated by reference from Registration Statement No. 2-63253, filed January 24, 1979. *** Incorporated by reference from Registration Statement No. 2-73702, filed August 14, 1981. + Incorporated by reference from Form 10-K for fiscal year ended September 30, 1988, dated December 14, 1988. ++ Incorporated by reference from Form 10-K for fiscal year ended September 30, 1993, dated December 18, 1992. +++ Incorporated by reference from Form 10-K for fiscal year ended September 30, 1994, dated December 14, 1994.
(B) REPORTS ON FORM 8-K A Form 8-K was filed October 31, 1997 reporting the change in trading exchange.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders Auto-trol Technology Corporation:
Under date of November 24, 1998, we reported on the consolidated balance sheets of Auto-trol Technology Corporation and subsidiaries as of September 30, 1998 and 1997, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended September 30, 1998, as contained in the Company's Annual Report on Form 10-K for the year 1998. In connection with our audits of the aforementioned consolidated financial statements, we have also audited the related financial statement schedule listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.
As discussed in Note 2 to the consolidated financial statements, affiliates of the Company's President, Chairman of the Board, and majority shareholder have provided significant financial support to the Company during 1998, 1997, 1996 and in prior years. The Company will continue to be economically dependent upon financial support from the shareholder until it achieves profitable operations. The shareholder has committed, in writing, to continue providing such financial support at least through December 31, 1999.
In our opinion, this financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth herein.
KPMG PEAT MARWICK LLP
Denver, Colorado November 24, 1998
AUTO-TROL TECHNOLOGY CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES SEPTEMBER 30, 1997
See accompanying independent auditors' report
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.
AUTO-TROL TECHNOLOGY CORPORATION
Date: December 22, 1998 By: /s/HOWARD B. HILLMAN -------------------- Howard B. Hillman, President
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:
EXHIBIT INDEX
* Incorporated by reference from Form 10-K for fiscal year ended September 30, 1996, dated December 10, 1996. ** Incorporated by reference from Registration Statement No. 2-63253, filed January 24, 1979. *** Incorporated by reference from Registration Statement No. 2-73702, filed August 14, 1981. + Incorporated by reference from Form 10-K for fiscal year ended September 30, 1988, dated December 14, 1988. ++ Incorporated by reference from Form 10-K for fiscal year ended September 30, 1993, dated December 18, 1992. +++ Incorporated by reference from Form 10-K for fiscal year ended September 30, 1994, dated December 14, 1994.