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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File Number: 0-15264
MANATRON, INC.
(Exact Name of Registrant as Specified in Its Charter)
MICHIGAN 38-1983228
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2970 SOUTH 9TH STREET
KALAMAZOO, MICHIGAN 49009
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (616) 375-5300
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(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]
The aggregate market value of the Common Stock held by nonaffiliates of the
Registrant based on the last sale price on July 24, 1998, was
approximately $5.7 million.
As of July 24, 1998, 2,858,083 shares of the Registrant's Common
Stock, no par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Registrant's annual
shareholders' meeting to be held October 8, 1998, are incorporated by
reference into Part III of this report.
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PART I
ITEM 1. BUSINESS.
GENERAL
Manatron, Inc. ("Manatron" or the "Company") originally was organized
in 1969 as a partnership and later was incorporated in Michigan in 1972.
Manatron initially provided in-house data processing services for local
governmental units located in Michigan. Subsequently, the Company expanded
its business into Indiana in 1972, into Illinois in 1975, and into Missouri
in 1981. In 1982, Manatron's business was extended further to include
advanced microcomputer-based "turn-key" data processing systems for
governments. These "turn-key" data processing systems used both general
purpose computer hardware produced by leading manufacturers and proprietary
software developed or purchased by the Company.
In 1990, Manatron acquired PC-based tax and vehicle registration
software developed for use in Georgia from Charter Micro Applications,
Inc., of Savannah, Georgia. Enhanced versions of this software still are
being used by a number of customers in Georgia. In March of 1992,
Manatron acquired by merger all of the outstanding stock of Specialized
Data Systems, Inc. ("SDS"), a then 10-year old computer software company
located in Greenville, North Carolina. SDS had installed its PC-based
software (primarily fund accounting, payroll, property tax billing, and
utility billing) in approximately 300 cities and 50 counties in the
Southeastern United States. Today, the Company still is serving 330
customers with enhanced versions of SDS software and with software products
that Manatron and Sabre Systems and Service ("Sabre") have developed.
In July of 1993, Manatron acquired all of the outstanding stock of
ATEK Information Services, Inc. ("ATEK"), a then 25-year old computer
software company located in Canton, Ohio and Indianapolis, Indiana. Like
Manatron, ATEK served local governments with a similar suite of products
and services; however, ATEK's software primarily operated on Digital
Equipment Corporation ("DEC") VAX or Alpha computers. ATEK, which had been
Manatron's largest competitor in Indiana and Ohio prior to its acquisition,
installed software in approximately 50 counties in Indiana and 20
counties in Ohio to perform various functions such as financial accounting,
property tax billing, child support accounting, and court accounting.
Today, 78 out of 92 counties in Indiana and 70 out of 88 counties in Ohio
are utilizing enhanced versions of ATEK software in addition to the
software products that Manatron and Sabre have developed.
In December of 1993, Manatron acquired substantially all of the assets
of City Computer Solutions, Inc. ("CCS"), a small computer software company
located in Birmingham, Alabama. CCS had marketed its software and services
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to 81 cities and counties in Alabama and other surrounding Southern states.
CCS's software primarily operated on BTOS and UNIX based computers. Because
of continued financial losses in this territory, Manatron sold CCS back to
its original owner in January of 1998. As a result of a dealer agreement
executed in connection with this sale, CCS' customers are still potential
upgrade targets for new Manatron products and services.
In May of 1994, Manatron acquired substantially all of the assets of
Horizon Systems and Software, Inc. of Farmington Hills, Michigan
("Horizon"), a small computer software company which focused on the
judicial information system services business. At the time of acquisition,
Horizon had 18 customer sites in Eastern Michigan and Indiana. The Company
has discontinued support of the Horizon software and few of these customers
have elected to upgrade to Manatron's judicial information system.
In November of 1994, Manatron acquired substantially all of the assets
of the Ohio-based Real Estate Services Division from Moore Business Forms,
Inc., known as Sabre, which had been another major competitor of the
Company. At that time, Sabre was the second largest provider of mass
appraisal services to local governments in the country with a strong
presence in Indiana and Ohio, one of Manatron's major market areas. In
addition to Indiana and Ohio, Sabre also has had a presence in Connecticut,
Massachusetts, New Hampshire, New York, Pennsylvania, Rhode Island, and
more recently, South Carolina and Virginia. In addition, Sabre has
developed property tax and appraisal software which it markets along with
property mapping services, hardware, and support services. Sabre's
software primarily functions on DEC VAX or Alpha hardware, although recent
developmental efforts have been focused on providing appraisal systems
which function in a client server environment.
In February of 1995, Manatron acquired substantially all of the assets
of MSL Business Computers, Inc. of Harrisburg, Illinois ("MSL"), a small
software company with approximately 10 county installations. MSL's
software, which primarily consisted of fund accounting, payroll, taxes, and
appraisal, operated on International Business Machine Corporation ("IBM")
System 36 and AS/400 computers. In addition to expanding the Company's
presence in Southern Illinois, this acquisition provided Manatron with
three additional employees and the opportunity to sell Manatron and Sabre
software to this new base of customers.
As a result of all of these acquisitions, the Company has been
focusing its efforts on upgrading its large customer base and consolidating
the common software products into a single "Open Window" series of products
that utilize emerging client/server standards, including Microsoft Windows,
relational databases, component based standards such as Microsoft DCOM and
that fully embrace the Internet. Currently, the Company serves over 1,686
customers in 29 states with concentration in the Midwest, Northeastern, and
Southeastern regions of the United States.
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PRODUCTS
The Company designs, markets, installs, and maintains advanced
computer-based "turn-key" data processing systems primarily for city,
county, and township governmental units. Manatron's data processing
systems employ general purpose computer hardware produced by leading
manufacturers in connection with proprietary software developed or
purchased by the Company. The Company specializes in keeping its
application software in compliance with the varying requirements of state
statutes. A significant feature of the Company's software is that the
applications are tied together, thus eliminating duplication of functions.
For example, assessed values computed in either the land information system
or the appraisal system are updated automatically in the property tax
system.
The Company's software systems provide simplified data entry through
the display of information on monitors and prompting messages. The
security features of the software systems permit selected user access and
generate user reports on demand.
The following is a general description of the features and
functionality of the Company's major software product groups that it has
developed or acquired. The Company anticipates providing additional
capabilities as the products are enhanced. In connection with these
anticipated enhancements, the Company is focused on combining similar
products within each group that originally were developed by the companies
that Manatron acquired.
PROPERTY TAX BILLING, COLLECTION, AND APPRAISAL WITH MAPPING AND IMAGING
The Company has developed a unique approach to property tax billing,
collection, and appraisal, which allows government officials to update
property tax values and follow up with assessment rolls, tax rolls, tax
bills, and tax distribution in conformance with applicable state laws. The
Company works closely with state, county, and local officials to assure
compliance with legislative changes at various levels. Manatron's computer
assisted mass appraisal product ("CAMA") values property using various
valuation methods, including market, cost, and income. CAMA also
incorporates sketch, video imaging, and pen-based computers for field
appraisers. The product has advanced features that allow it to be used in
many states, thereby reducing the need for multiple appraisal products.
This software, which can be integrated with imaging, facilitates the
storage of photographs. In addition, the software permits reading of bar
codes on property tax bills. Finally, when integrated with the Company's
land information systems, the software allows for a visual inventory of
land and improvements that are taxed by the governmental unit.
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FINANCIAL MANAGEMENT
The Company has developed a comprehensive fund accounting system
consisting of subsystems such as general ledger, accounts payable, accounts
receivable, cost allocation, receipt processing, purchase order, cash
information management, payroll, human resources, inventory control, fixed
assets, equipment and vehicle maintenance, and report writer. The system,
which meets established national accounting standards, offers double or
single entry and features a flexible user defined account number structure
and chart of accounts.
UTILITY BILLING
The Company has developed utility billing software which encompasses
an integrated system from engineering through meter reading, billing, and
accounting. The system accommodates water, sewer, gas, electric, garbage
collection, and other related services. Utility billing also allows for an
unlimited number of services per customer and can accommodate complicated
electric rate tables. This software also supports hand-held reading
devices, peak-to-peak billing, budget billing, and demand meters. The
system can be used by small rural districts which tend to bill few
services, as well as larger municipal customers that bill many types of
services.
JUDICIAL INFORMATION
The Company has developed judicial information systems which are
available for all levels of government and consist of the following
modules: (i) Case Management; (ii) Court Accounting; (iii) Prosecution
Management; (iv) Probation Tracking; (v) Jury Management; (vi) Child
Support; and (vii) Voter Registration. In addition, the Company has
integrated bar coding into this suite of software to assist in capturing
data, easing production processes, and reducing errors. The Case
Management module encompasses civil, criminal, traffic fine, and court
docket functions. The Court Accounting module tracks all fines, court
costs, and bonds in addition to providing necessary reports to a
governmental unit. The Prosecution Tracking module is a management record
keeping and financial module for prosecutors in trial courts. The
Probation Tracking module is a case tracking, record keeping, and financial
system for probation departments. The Jury Management module facilitates
the selection of jurors as well as payments to jurors for jury duty. The
Child Support module provides for a complete financial accounting of
divorce, paternity, and alimony cases, including Title IV-D reporting. The
Voter Registration module oversees the legal record keeping requirements,
jury selection, and maintenance of an unlimited voting history and can be
integrated with imaging which facilitates the storage of signatures. Each
module can be used alone or can be interfaced with the other modules to
produce a complete and thorough court management system.
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MANATRON INDEXING, RECORDING, AND RETRIEVAL (MIRRS)
Manatron's indexing, recording, and retrieval system is a software
solution developed for recording information from numerous types of
documents, including deeds, mortgages, UCC financing statements, liens,
vital records, and soldiers' discharges. The software allows immediate
access to all database information and includes integrated microfilming and
imaging, automatic receipting, index printing, and statistical reports. In
addition, the software offers remote access which allows applicable
documents to be faxed from the database to abstractors and title companies.
LAND INFORMATION
The Company's land information system allows governmental agencies to
create and maintain their own electronic maps, which replace time consuming
manual maps. Overlay maps can be plotted in a matter of minutes
incorporating, for example, property ownership, zoning, and land use,
either individually or collectively. Data from a variety of sources,
including aerial photographs, census files, and detailed soil surveys, is
utilized with information from existing manual maps which are computerized
by a digitizer. In addition, textual and graphic data can be displayed and
analyzed. The textual data may be resident on the host or remote computers
with connections made through interactive record level or file transfer.
Although the Company historically has developed and maintained its own land
information system, it is now a reseller of Environmental Systems Research
Institute's land information systems known as ARC View and ARC/INFO GIS.
Many of the software packages described above can be used in
conjunction with software enhancement options, such as the use of a laser
pen to decipher bar coding for efficient storage and retrieval of
information. In addition, laser printing and CD-Rom storage services are
provided by the Company and through alliances with other companies.
Laser printing and CD-Rom services reduce the amount of paper
needed to store documents and, accordingly, save storage space. Laser
printing produces copies that look like originals because data is printed
electronically from magnetic computer tape onto paper which results in
improved print quality, and offers the option of multiple fonts and
graphics. Through the use of laser printing and CD-Rom storage, Manatron's
customers are able to keep historical data in a user's department, which
permits retrieval and printing, often within seconds of command.
Most of the above described Manatron systems originally were written
in COBOL and installed at customer sites using the BTOS/CTOS operating
system and network desktop microcomputers manufactured by Unisys
Corporation ("Unisys"). Most of the ATEK and Sabre systems originally were
written in BASIC, DIBOL, and ADMINS utilizing the VMS operating system and
VAX minicomputers manufactured by DEC. Sabre also has a number of
installations utilizing its FoxPro PC CAMA product. The SDS systems were
written in CLIPPER and function on IBM compatible personal computers.
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With the Company's movement toward open architecture capabilities,
many of the above described systems are now installed at customer sites
using MicroSoft Windows, Novell Netware, or Windows NT in a stand alone or
client server environment using a variety of personal computers
manufactured by DEC, IBM, Unisys, or Concentric Systems. The new Open
Window series products also utilize the scalable, client server
architecture which makes use of industry standard relational databases. In
addition, a number of the Company's larger software installations are now
functioning in a UNIX environment in which the IBM RS6000 Series, DEC Alpha
Series, and Unisys U6000 Series computers are utilized.
SERVICES
In connection with the installation of its "turn-key" systems, the
Company provides ongoing hardware integration and maintenance, software
support, training, and other customer services through regional offices
described under the caption "Properties" below. The Company has
established a regional office in each state where it has a significant
nucleus of customers to respond to its customers' needs. Each regional
office includes customer service personnel who are able to assist with the
installation of the Company's "turn-key" systems and provide technical
support on site before and after installation. In addition, Company
personnel respond on a daily basis to customer telephone inquiries
regarding the use of Manatron systems. A number of regional offices also
are staffed with employees who are trained to identify and respond to
customers' hardware and other technical problems.
With the acquisition of Sabre, Manatron now provides mass real estate
services to local governments. The real estate services are a natural
product extension for the Company, as many Manatron "turn-key" systems
customers also contract periodically for mass appraisal services. Sabre is
one of the two largest vendors of mass appraisal services in the United
States. A typical mass appraisal engagement is performed under a fixed-price
contract over an 18- to 24-month time frame. Using the advanced
technology of its appraisal software products, Sabre has developed a
flexible methodology for appraisal delivery, which enables Sabre to service
jurisdictions of any size and accommodate the specific requirements of an
individual client. Through physical inspection, computer analysis, and
sound judgment of professional appraisers, Sabre assesses a value to each
parcel of property in a jurisdiction. Sabre supports these values on
behalf of the jurisdiction through the hearings process and finalizes the
tax rolls to enable the jurisdiction to create tax bills.
In April of 1998, the Company received a contract to reappraise every
property in Allegheny County (Pittsburgh), Pennsylvania over the next two and
a half years. The contract was valued at approximately $24 million, making it
the largest ever for the Company and one of the largest for the assessment
services industry. Under the terms of the agreement, the Company's appraisal
division (Sabre) will locate and appraise approximately 600,000 parcels of
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residential, agricultural, commercial, industrial, and exempt properties and
install its CAMA system to maintain and access the information. The Company
will also assist in supporting these new appraised values to the public
through a hearing process.
The Company also provides services for governments at its Illinois,
Michigan, and Ohio facilities, such as the creation of digital
maps, and preparation and/or printing of property tax bills.
MARKETING AND SALES
The Company primarily markets its products through its regional
offices in Alabama, Georgia, Illinois, Indiana, Michigan, Missouri, North
Carolina, Ohio, and Rhode Island. Manatron plans the opening of each new
office based on a review of marketing opportunities and financial analysis
within a particular region. The Company also markets its products through
nonexclusive dealer arrangements.
The Company's sales and marketing personnel approach various
governments with Manatron-specific solutions to their data processing and
property valuation needs and also respond to governments' proposal
requests. The Company's customer service personnel also assist with
product demonstrations in connection with these sales efforts.
Manatron's marketing efforts involve, among other things, developing
and distributing product brochures and a bimonthly newsletter, direct
mailings, telemarketing, attending conventions and conferences, forming
user groups for the purpose of determining customer needs and expectations,
conducting seminars for the purpose of demonstrating products and services,
and advertising in trade journals.
The Company is also a value-added reseller for a number of leading
hardware manufacturers such as DEC, IBM, and Unisys. In turn, the sales
forces of these manufacturers often work closely with the Company's sales
and marketing personnel in an effort to promote sales of the Company's
services and products in conjunction with sales of the hardware.
CUSTOMER BASE
The Company's customers are primarily city, township, and county
governments. The Company's sales are highly dependent on city, township,
and county governments' demand for its products and services. Although the
Company does not believe that the loss of any single customer, other than the
April 1998 contract with Allegheny County (Pittsburgh), Pennsylvania, would
have a materially adverse effect on the Company, a material decline in the
Company's sales to various governments could have such an effect.
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COMPETITION
Competition for the Company's data processing systems, related
services, and mass appraisal services is intense. The Company competes
primarily on the basis of name recognition, financial stability, range of
products, and reputation for providing good customer service.
The Company's major competitors for data processing systems and
related services are generally small local software and service firms,
which often are able to offer less expensive solutions or to develop long-
term relationships with key governmental officials. Generally, these
smaller firms can sell hardware and services at reduced amounts because of
their small amount of overhead. The Company also competes with national
software developers such as Business Records and Systems and Computer
Technologies which have greater financial, technical, and human resources
than the Company. The manufacturers of the computer hardware distributed
by the Company may begin to expand the marketing of their applications
software to compete with the Company. Manatron could be adversely affected
if a large computer manufacturer associates itself solely with a third-party
software supplier and targets the local government data processing
market.
Furthermore, applications software also is developed periodically by
or for public agencies for use by governments. If the funding and
distribution of governmentally developed or funded software becomes more
widespread, such products could compete with the Company's products.
Competition in mass appraisal services comes from a number of small
local firms and one large firm, Cole Layer and Trumble of Dayton, Ohio, a
division of Day & Zimmerman, Inc. As the largest seller of mass appraisal
services in the United States, Cole Layer and Trumble has total sales and
greater financial and other resources than the Company. Small local firms
often can offer less expensive mass appraisal services and products than
the Company or can develop long-term relationships with key governmental
officials.
Although state and local governments traditionally have lagged behind
both the federal government and the private sector in computer automation,
the application of microcomputer and personal computer technology to local
governmental units recently has been subject to rapid development and
change. The ability of the Company to develop new applications software
programs utilizing modern technology is critical to its ability to compete
successfully. Manatron reviews and updates its software programs to meet
the needs of its customers and to ensure that the programs can be utilized
on newer models of personal computers, minicomputers, and UNIX computers.
The most significant barriers to entry into the Company's market are
time, expense, expertise, and personnel needed to develop software. As
software development and the sale of mass appraisal services are not highly
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capital intensive, barriers to entry into these industries are
comparatively low. In addition, since software products have a relatively
low manufacturing cost, increased price competition may be expected in the
future.
RESEARCH AND DEVELOPMENT
Manatron's success depends on its ability to respond quickly to
changing technology, market demands, and the needs of its customers.
Manatron emphasizes research and development and commits significant
resources to support and further its role as a leader in the markets it
serves. The Company's research and development expenditures relate
primarily to computer software development costs. Systems programming and
support expenses were approximately $3.3 million, $2.6 million, and $2.0
million for the fiscal years ended April 30, 1998, 1997, and 1996,
respectively. Certain of these expenses are capitalized in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed" as
described in the Notes to Consolidated Financial Statements contained in
this Form 10-K.
During fiscal 1998, the Company continued to focus on the development of
its Open Window[REGISTERED] series financial and payroll product. The Company
shipped the second major release of this product during fiscal 1998.
Version 2 contains significant functionality enhancements, new modules, and
numerous technical improvements including a robust end-user reporting
environment. These products run on the latest 32-bit MicroSoft Windows
operating systems and support the Company's effort to replace its many legacy
financial products with a state of the art, client/server suite to meet the
market demand and improve efficiency. The products contain additional
features gleaned from the Company's substantial customer base, existing
products, and other financial packages and represent a significant improvement
for the Company's customers. More importantly, as these products are
introduced to its customers, the Company will strive to reduce some of the
redundancies which currently occur because its support staff has often been
supporting multiple financial and payroll systems previously developed and sold
by the different companies the Company has acquired.
During fiscal 1998, the Company continued a major retooling effort for
its product development. MiRiAD, the Company's product development
methodology, represents a shift to component-based development based upon
industry standards such as Microsoft Distributed Component Object Model (DCOM).
This new methodology is expected to reduce software development costs and
support costs while resulting in "best-in-class" products. The Company
completed development of its first product, Visual Tax[REGISTERED] for
Illinois Mobile Homes, using this new methodology. In addition, significant
progress was made on the Company's new, MVP (Manatron Visual Property) Tax
product. Initially, this product is targeted for customers in Indiana and
Ohio. Subsequent releases are expected to focus on additional states. The
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component-based architecture will allow the Company's customers to integrate
its products with other tools such as word processors, spreadsheets, and GIS
(mapping) applications specifically due to the Company's adherence to industry
standards.
In fiscal 1998, the Company released its first "Connect Series,"
Internet-based products. MVP-Connect is a completely web-centric public
inquiry product for the Company's property tax and appraisal software customers.
The first customer went live on the Internet during the third quarter
experiencing over 1,000 distinct users per day during the initial weeks. This
product continues to generate tremendous excitement both as an Internet site
and as an Intranet site for customers who want a web-based public inquiry
product but are not ready to support Internet users. The Company also
emphasized development of its SMDA 2000 appraisal software during fiscal 1998,
particularly with respect to making the product functional in new market
territories and to support the Allegheny county and Hamilton County contracts.
Also, the Company invested significantly in its MIRRS product supporting a
commitment to providing the industry's best recording and indexing product and
to support marketing efforts in new territories.
During fiscal 1999, the Company will continue its focus on building
industry-leading products based on component-based technology. Specifically,
the Company expects to release MIRRS 3, a significantly enhanced version of its
recording and indexing software. MIRRS 3 will contain substantial functional
improvements, functionality for new territories such as North Carolina, and
significant architectural improvements expected to pay dividends over the
coming years. MIRRS[REGISTERED] 3 also will introduce the Company's second
major Internet-based product, MIRRS[REGISTERED]-Connect. The Company expects
to release version 2 of its MVP-Connect Internet product which will add GIS
(mapping) and other functionality to the product. The Company will continue
the development of MVP Tax for Indiana and Ohio and will begin the migration
of SMDA 2000 into a component-based product. These efforts ultimately will
form a completely integrated property management system, MVP, comprised of
property tax, appraisal, recording/indexing, and other modules. Finally, the
Company expects to complete the year 2000 coding for its legacy products in
fiscal 1999. This process has been underway for much of the past 18 months
and has seen substantial progress.
SUPPLIERS
The Company generally maintains a minimum of three alternate
suppliers. All computers, peripherals, disks, printers, plotters,
digitizers, operating system software, office automation software, and
other equipment required by the Company presently are available from at
least three sources. Hardware is purchased on original equipment
manufacturer or distributor terms at discounts from retail. The Company
has not experienced any significant supply problems.
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BACKLOG
At April 30, 1998, the Company's backlog of orders for hardware,
software, and services (including mass real estate appraisal) was
approximately $39 million, compared with approximately $15.5 million at
April 30, 1997. This increase was due primarily to the award of the Allegheny
County Revaluation contract previously noted. Backlog can fluctuate
significantly from quarter to quarter primarily because of the seasonality of
government ordering patterns. Accordingly, a comparison of backlog from
quarter to quarter is not necessarily instructive and may not be indicative of
eventual actual shipments.
PATENTS AND TRADEMARKS
The Company currently does not have patent protection for its products
or services. While Manatron in the future may apply for a patent or
patents to protect its rights to certain software and related products, no
assurance can be given that such patents would be granted. The Company
treats certain proprietary materials as trade secrets, and employs and will
continue to employ procedures, techniques, and contractual arrangements to
help protect such confidential matters.
Management may seek to obtain copyright registration of its software
programs. However, these copyrights, if applied for and granted, would
provide only limited practical protection against duplication of the media
embodying the programs and related user manuals. The Company has
registered certain of its trade names, has a trade name registration
currently pending, and may apply for registration of additional trade names
and trademarks at appropriate times in the future. No assurance can be
given that the applications for such registration will be granted.
The Company incorporates programming on software disks to make
unauthorized duplication of the software more difficult.
EMPLOYEES
As of July 1, 1998, the Company had 307 full-time employees, 120
duration employees, 32 temporary, and seven part-time employees. For
assistance on specific mass appraisal projects, the Company hires duration
and temporary employees, whose employment generally lasts for the duration of
a project. Duration and temporary employees generally do not receive the same
benefits as regular full-time employees.
The majority of the Company's employees are not represented by a labor
union. There are, however, approximately 60 employees working on the
Allegheny County project who are represented by the Service Employers
International Union, AFL-CIO. No work stoppages have been experienced and
management presently considers its relations with employees to be positive.
An approximate breakdown of the Company's employees is as follows:
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Executive 4%
Administrative 9%
Development 11%
Sale and Marketing 5%
Service and Support 26%
Appraisal 45%
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Total 100%
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ITEM 2. PROPERTIES.
The principal executive and administration offices are located in a
building owned by Manatron in Kalamazoo, Michigan, which consists of
approximately 12,300 square feet. The Company also rents office and/or
warehouse space in Georgia, Illinois, Indiana, Michigan, Missouri,
New York, North Carolina, Ohio, Pennsylvania, Rhode Island, and South
Carolina. Rental payments for the Company's leased office and warehouse space
for the fiscal year ended April 30, 1998, amounted to approximately $714,000.
The Company currently leases its Greenville, North Carolina, office
from Richard J. Holloman, a director of the Company. See "Certain
Relationships and Related Transactions."
Management considers all of its offices to be well maintained, in good
operating condition, and suitable and adequate for their intended purposes.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any pending legal proceedings other than
routine litigation incidental to its business. In the opinion of
management, the outcome of any litigation currently pending will not
materially affect the Company's financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of the fiscal year
covered by this Annual Report to a vote of security holders, through the
solicitation of proxies or otherwise.
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.
Executive officers of the Company are elected by the Board of
Directors at its organizational meeting following the annual meeting of
shareholders and serve until their successors are elected and qualified.
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The following information includes the names and ages of the executive
officers of the Company who are not directors as of the date of this Annual
Report on Form 10-K, the officers' present position with the Company, and
the business experience of the officers during the past five years.
Daniel P. Muthard (age 49) joined the Company in 1994 when the Company
acquired Sabre. Mr. Muthard was Vice President of the Company's appraisal
operations until June of 1998, at which time he was named President of the
Appraisal Division following the death of Melvin J. Trumble, the Company's
previous leader of the Appraisal Division.
James W. Sanderbeck (age 48) joined the Company in 1993 when the
Company acquired ATEK. Mr. Sanderbeck was President of ATEK before its
acquisition by the Company and from 1993 to 1996, Mr. Sanderbeck was
involved in sales management. In April of 1996, Mr. Sanderbeck was named
Chief Operating Officer of the Company and is primarily responsible for
overseeing the national sales and delivery of services to the Company's
customers through its regional offices.
Early L. Stephens (age 35) joined the Company in 1986 and worked as a
programmer/analyst. From 1988 until July 1997, Mr. Stephens was Project
Manager-Management Information Systems at Western Michigan University and
was responsible for the implementation of client server applications in LAN
environments. In June 1996, Mr. Stephens returned to the Company and was
named Chief Technology Officer and is responsible for software product
development, establishment of technology standards for the Company's
products and services, and development of strategic plans.
Larry L. Terhune (age 42) joined the Company in 1992 and held the
position of Vice President-Software Development from 1993 until May 1997.
From 1995 until May 1997, Mr. Terhune was the Southeastern Regional Vice
President of the Company. Mr. Terhune currently holds the position of Vice
President-Marketing and Product Research and is primarily responsible for
marketing and setting the direction and determining the features and
functionality of the Company's new products. Before 1992, Mr. Terhune was
employed by Unisys as a software and systems manager.
-14-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS.
Manatron's Common Stock is traded over-the-counter and is regularly
quoted on The Nasdaq SmallCap Market under the symbol "MANA."
The following table shows the range of high and low sales price
quotations reported by The Nasdaq Stock Market for the years ended
April 30, 1998 and 1997:
1998 1997
---- ----
QUARTER LOW HIGH LOW HIGH
------- --- ---- --- ----
May - July $ 1 1/2 $ 2 1/4 $ 1 1/4 $ 2 1/4
August - October 1 13/16 2 1/8 7/8 2 3/8
November - January 1 1/2 2 1/16 1 3/8 2 1/8
February - April 1 7/16 7 1/2 1 1/2 2 13/16
The Company historically has not paid cash dividends. The Company
has, however, paid 5% stock dividends in 1992, 1993 and 1994. The Company
currently does not anticipate paying cash dividends on its Common Stock in
the foreseeable future, but instead intends to retain earnings, if any, for
the operation and expansion of the Company's business.
As of July 1, 1998, the Company's Common Stock was held by
approximately 1,200 shareholders.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial data of the Company
for the periods indicated and has been derived from and should be read in
connection with the Company's Consolidated Financial Statements, the
related notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing elsewhere in this Form 10-K.
The annual income statement and balance sheet data set forth below for the
-15-
years 1994 through 1998 have been derived from the Consolidated Financial
Statements of the Company audited by Arthur Andersen LLP, independent
auditors.
FIVE-YEAR OPERATING AND
FINANCIAL SUMMARY
---------------------------------------------------------------------------
YEARS ENDED APRIL 30,
---------------------
1998 1997 1996 1995 1994
---------------------------------------------------------------------------
Operating Results:
Net revenues $24,791,881 $22,016,988 $23,946,243 $24,768,515 $18,203,653
=========== =========== =========== =========== ===========
Gross profit 9,473,074 8,636,635 8,427,625 9,564,453 8,634,917
=========== =========== =========== =========== ===========
Income (loss) from
operations 402,840 (160,000) (2,870,606) 1,010,162 548,331
=========== =========== =========== =========== ===========
Other income
(expense), net (89,069) (246,659) (368,808) (245,755) 10,554
=========== =========== =========== =========== ===========
Net income (loss) 313,771 (406,659) (3,039,414) 437,407 334,175
=========== =========== =========== =========== ===========
Basic earnings (loss) per
share .11 (.14) (1.03) .15 .12
=========== =========== =========== =========== ===========
Diluted earnings (loss)
per share .11 (.14) (1.03) .15 .12
=========== =========== =========== =========== ===========
-16-
At Year-end:
Cash and equivalents 1,613,669 457,691 352,074 437,327 164,445
=========== =========== =========== =========== ===========
Total assets 15,863,076 14,854,268 16,583,187 20,988,190 14,644,452
=========== =========== =========== =========== ===========
Long-term debt 125,000 1,110,000 3,500,000 4,784,000 130,000
=========== =========== =========== =========== ===========
Book value per share $ 1.80 $ 1.68 $ 1.80 $ 3.06 $ 2.91
=========== =========== =========== =========== ===========
- ---------------------------
The 1996 results include a one-time $1.6 million management
restructuring charge, or $.54 per share, primarily related to the
retirement of Allen F. Peat, the Company's former Chairman, President, and
Chief Executive Officer, as further discussed in the accompanying Notes to
Consolidated Financial Statements.
The 1994 per-share amount has been retroactively restated for the
effect of the 5% stock dividend that was declared on September 16, 1994,
for shareholders of record on October 14, 1994.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following section provides a narrative discussion about Manatron's
financial condition and results of operations. The comments that follow
should be read in conjunction with the Company's Consolidated Financial
Statements and related notes thereto appearing elsewhere in this Annual
Report on Form 10-K.
RESULTS OF OPERATIONS: FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997
Net revenues of $6,647,412 for the three months ended April 30, 1998,
have increased by 20% compared to the $5,549,496 of net revenues that were
reported for the fourth quarter in the prior fiscal year. Annual net
revenues of $24,791,881 for fiscal 1998 are 13% higher than the $22,016,988
of net revenues that were reported for the prior fiscal year. These
amounts include revenues from computer hardware and software shipments,
sales of computer forms and supplies, and various related services such as
mass real estate appraisal, software support, training, hardware
maintenance, and forms processing and printing.
-17-
Service revenues have increased by 14% over the prior year primarily
because of the new revaluation contracts that were signed with Allegheny
County (Pittsburgh), Pennsylvania, and Hamilton County (Cincinnati), Ohio,
during fiscal 1998. Both of these contracts which totaled approximately
$30 million will require a substantial amount of effort during fiscal 1999
and 2000. As a result, the Company's backlog for appraisal services at
April 30, 1998 is more than twice the amount it was at April 30, 1997.
Revenues from hardware, software and supply sales have increased by 7%
over the prior year primarily because of additional software license fees
from new and legacy products. Hardware sales have decreased because of
increased competition and reduced prices industry wide. While software
license fees have increased, the Company expects its revenues in this area
to be relatively flat until it has made further efforts toward the
development, reengineering and deployment of the new property tax,
appraisal, financial, and MIRRS products.
Cost of revenues for the three months ended April 30, 1998, increased
19% to $3,942,741 compared to $3,324,509 for the fourth period in the prior
fiscal year. Annual cost of revenues increased by 14% from $13,380,353 in
the prior fiscal year to $15,318,807 for the year ended April 30, 1998.
These increases primarily are due to the improvement in net revenues noted
above. The prior fiscal year gross margins were approximately 40% for the
fourth quarter and 39% for the year while the current fiscal year margins
were 41% and 38%, respectively. These margin fluctuations are due to
changes in the mix of revenues.
Selling, general, and administrative expenses have increased by 16% to
$2,570,569 for the three months ended April 30, 1998, compared to
$2,214,658 for the comparable period in the prior fiscal year. Annual
selling, general, and administrative expenses have increased 3% from
$8,796,635 in fiscal 1997 to $9,070,234 in fiscal 1998. These increases
primarily are due to annual salary adjustments and additional software
development staff.
As a result of the factors noted above, the Company reported operating
income of $134,102 for the three months ended and $402,840 for the year
ended April 30, 1998. This reflects significant improvement over the
comparable prior year operating income of $10,329 for the three months ended
and an operating loss of $160,000 for the year ended April 30, 1997.
Interest expense which is included in other expense, has decreased
from $305,632 in fiscal 1997 to $140,794 in fiscal 1998 because the
Company's average borrowings under its line of credit were approximately $2
million lower in fiscal 1998 than they were in fiscal 1997.
The Company's provision for federal income taxes generally fluctuates
with the level of pretax income. In addition, the effective tax rate
-18-
generally is impacted because of non-deductible goodwill amortization
related to the Company's acquisitions of ATEK and SDS. However, as
described in the accompanying Notes to Consolidated Financial Statements,
the Company has not recorded a provision for federal income taxes for the
three months and the year ended April 30, 1998, because a portion of its
net operating loss carryforwards available have been utilized to offset
them.
As a result of the factors noted above, the Company reported net
income of $137,862 or $.05 per share for the three months ended and
$313,771 or $.11 per share for the year ended April 30, 1998, versus net
losses of $34,101 or $.01 per share and $406,659 or $.14 per share for the
comparable periods in the prior fiscal year. Weighted average shares
outstanding has decreased from 2,867,711 to 2,821,547 primarily because the
Company repurchased 95,200 shares of its common stock in fiscal 1998 and
purchases were made by employee stock plans throughout the year.
YEAR 2000
The Company is currently in the process of addressing a potential
problem that is facing all users of automated information systems. The
problem is that many computer systems that process transactions based on
two digits representing the year of transaction may recognize a date using
"00" as the year 1900 rather than the year 2000. The problem could affect
a wide variety of automated information systems, such as mainframe
applications, personal computers, and communication systems, in the form of
software failure, errors, or miscalculations. By nature, the software
development industry is highly dependent upon computer systems because of a
date dependency for many of its applications.
The Company has been developing and implementing plans to prepare
itself and its customers for the year 2000 for the past few years. This
plan began with the performance of an inventory of its software
applications, communications with third-party vendors and suppliers and
communications with customers. The Company's plan is regularly updated and
monitored by technical personnel and is reviewed by management of the
Company on a periodic basis. As of July 1, 1998, it is estimated that this
plan is over 65% complete.
The Company will continue to assess the impact of, and work on, the
Year 2000 issue throughout fiscal 1998. The Company's goal is to perform tests
of its systems and applications during 1998 and 1999 and to have all targeted
systems and applications compliant with the century change by June 1999,
which would allow the Company to have time to address last minute issues.
The costs to implement the Year 2000 changes primarily consist of
personnel expense for staff dedicated to the effort and professional fees
paid to third party providers of remedial services. It is the Company's
-19-
policy to expense such costs as incurred. The Company also may invest in
new or upgraded technology which has definable value lasting beyond 2000.
In these instances, where Year 2000 compliance is merely ancillary, the
Company may capitalize and depreciate such an asset over its estimated
useful life.
Based on currently available information, management does not
presently anticipate that the costs to address the Year 2000 issues will
have a material adverse impact on the Company's financial conditions,
results of operations, or liquidity. Although not material, the costs to
address the Year 2000 issue have had, however, a negative effect on the
Company's earnings and the future costs associated with the Year 2000 issue are
expected to have a similar effect.
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates. There can be no guarantee that these estimates will be achieved
and actual results could differ from those anticipated. Specific factors
that might cause differences include, but are not limited to, the ability
of other companies on which the Company's systems rely to modify or convert
their systems to be year 2000 compliant, and the ability to locate and
correct all relevant computer codes and similar uncertainties.
RESULTS OF OPERATIONS: FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
Net revenues of $5,549,496 for the three months ended April 30, 1997,
decreased by 7% compared to the $5,993,872 of net revenues that were
reported for the fourth quarter in fiscal 1996. Annual net revenues of
$22,016,988 for fiscal 1997 were 8% lower than the $23,946,243 of net
revenues that were reported for fiscal 1996. The components of revenue and
the nature of the Company's business for these two years is similar to the
previous description for fiscal 1998.
The year-to-date decrease in revenues primarily was attributed to two
factors: delays in the completion of the Company's new Windows-based
appraisal, financial, and payroll products and the cyclical nature of the
Company's market for appraisal services in Indiana and Ohio. The Company
started to release its new appraisal, financial, and payroll software to a
number of customers for their review and testing in fiscal 1997. In
addition, the Company increased its backlog for appraisal services near the
end of fiscal 1997 to approximately $12 million which provided for the
revenue growth in fiscal 1998.
Cost of revenues for the three months ended April 30, 1997, decreased
12% to $3,324,509 compared to $3,763,206 for the fourth period in fiscal
1996. Annual cost of revenues decreased by 14% from $15,518,618 in fiscal
1996 to $13,380,353 for the year ended April 30, 1997. These decreases
primarily were due to the reduction in net revenues noted above and an
-20-
improvement in the Company's gross profit margins which was attributed to a
favorable change in the mix of revenues. Fiscal 1996 gross margins were
approximately 37% for the fourth quarter and 35% for the year while the
1997 fiscal year margins improved to 40% and 39%, respectively. Sales of
software generally yielded a much higher margin than sales of the Company's
other products and services.
Selling, general, and administrative expenses decreased by 5% to
$2,214,658 for the three months ended April 30, 1997, compared to
$2,333,502 for the comparable period in fiscal 1996. Annual selling,
general, and administrative expenses decreased 9% from $9,700,227 in fiscal
1996 to $8,796,635 in fiscal 1997. This decrease primarily was due to the
Company's efforts to reduce costs without effecting the level of customer
service that the Company historically has provided.
As a result of the factors noted above, the Company reported operating
income of $10,329 for the three months ended and an operating loss of $160,000
for the year ended April 30, 1997. This was a substantial improvement over
the comparable fiscal 1996 operating losses of $102,836 for the three
months ended and $2,870,606 for the year ended April 30, 1996, even after
the $1.6 million nonrecurring charge related to the retirement of Allen F.
Peat, the Company's former Chairman, Chief Executive Officer, and
President, is excluded from the fiscal 1996 amount.
Interest expense which is included in other expense, decreased from
$429,116 in fiscal 1996 to $305,632 in fiscal 1997 because the Company
reduced its average outstanding indebtedness by approximately $1.5 million.
The Company's provision (credit) for federal income taxes generally
fluctuates with the level of pretax income (loss). In addition, the
effective tax rate generally is impacted because of non-deductible goodwill
amortization related to the Company's acquisitions of ATEK and SDS.
However, as described in the accompanying Notes to Consolidated Financial
Statements, the Company established a valuation reserve of $912,000 against
certain of its future tax benefits including its tax loss carryforward, due to
the uncertainty of their ultimate realization. As a result, only $200,000 of
tax credits were reflected in the accompanying Statements of Operations for
the years ended April 30, 1997 and 1996.
As a result of the factors noted above, the Company reported net
losses of $34,101 or $.01 per share for the three months ended and $406,659
or $.14 per share for the year ended April 30, 1997, versus net losses of
$186,321 or $.06 per share and $3,039,414 or $1.03 per share for the
comparable periods in the prior fiscal year. Weighted average shares
outstanding decreased from 2,961,139 to 2,867,711 primarily because the
Company purchased approximately 150,000 shares of its common stock in March
of 1996 from Allen F. Peat in connection with his retirement.
-21-
QUARTERLY RESULTS
The following table sets forth selected unaudited quarterly financial
data for the eight quarters ended April 30, 1998:
QUARTER ENDED
FISCAL 1998 FISCAL 1997
-----------------------------------------------------------------------------------------------------
JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, APRIL 30,
1997 1997 1998 1998 1996 1996 1997 1997
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net revenues $5,963,985 $5,917,284 $6,263,200 $6,647,412 $5,277,249 $5,691,262 $5,498,981 $5,549,496
Gross profit 2,141,435 2,190,600 2,436,368 2,704,671 2,095,470 2,167,165 2,149,013 2,224,987
Operating income (loss) 56,475 74,002 138,261 134,102 (84,790) (60,394) (25,145) 10,329
Other income
(expense), net (35,884) (25,714) (31,231) 3,760 (64,511) (66,548) (71,170) (44,430)
Net income (loss) 20,591 48,288 107,030 137,862 (149,301) (126,942) (96,315) (34,101)
Basic earnings (loss)
per share .01 .02 .04 .05 (.05) (.04) (.03) (.01)
Diluted earnings (loss)
per share .01 .02 .04 .05 (.05) (.04) (.03) (.01)
-22-
FINANCIAL CONDITION AND LIQUIDITY
Working capital of $795,891 at April 30, 1998, has decreased compared
to $1,574,860 at April 30, 1997. These levels reflect current ratios of
1.08 and 1.19, respectively. The decrease in working capital is due
primarily to the use of cash for software development and the repayment of
the Company's long-term debt.
Shareholders' equity at April 30, 1998, increased by $284,948 to
$5,110,615 from the balance reported at April 30, 1997, primarily because
of the $313,771 of net income for the year. As a result, book value per share
has increased to $1.80 as of April 30, 1998, from $1.68 at April 30, 1997.
The nature of the Company's business is not property or equipment
intensive. Net capital expenditures, which were approximately $542,000 for
the year ended April 30, 1998, are 33% higher than the comparable
prior fiscal year amount of $408,000. These expenditures relate primarily
to the purchase of additional or new computer hardware and software for the
Company's technical and support personnel. Capital expenditures for future
periods are not anticipated to be significantly different from those
incurred in the current period.
Since the Company's revenues are generated from contracts with local
governmental entities, it is not uncommon for certain of its accounts
receivable to remain outstanding for approximately three to four months.
As of April 30, 1998, the Company did not have any outstanding loans due
under its $5 million revolving credit agreement and only owed $225,000 on its
ESOP loan. It is anticipated that the revolving credit agreement, together
with existing cash balances, and cash generated from future operations will
be sufficient for the Company to meet its working capital requirements for
at least the next 12 months.
The Company cannot determine precisely the effect of inflation on its
business. The Company continues, however, to experience relatively stable
costs for its inventory as the computer hardware market is very
competitive. The Company anticipates that inflationary price increases
related to labor and overhead will have a negative effect on cash flow and
net income to the extent that the increases cannot be offset through
improved productivity and price increases.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
Certain information included under "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
may constitute or include forward-looking statements. Such forward-looking
information involves important known and unknown risks and uncertainties
and other factors that may cause the actual results, performance, or
-23-
achievements of the Company to be materially different from any future
results, performance, or achievements expressed or implied by such forward-
looking statements. These risks and uncertainties include, but are not
limited to, uncertainties relating to economic conditions; possible future
acquisitions and divestitures; technological changes and developments in
the competitive environment in which the Company operates; spending
patterns of the Company's customers; success of the Company in negotiations
with its lenders; size, timing, and recognition of revenue from significant
orders; ability of the Company to successfully implement its business
strategy of developing and licensing client/server decision support
applications software designed to address specific industry markets; new
product introductions and announcements by the Company's competitors;
changes in Company strategy; product life cycles, cost and continued
availability of third party software and technology incorporated into the
Company's products; cancellations of maintenance and support agreements;
potential obsolescence of the Company's existing products or services;
pricing and availability of equipment, materials, inventories, and
programming; success in and expense associated with the development,
production, testing, marketing, and shipping of products, including a
failure to ship new products and technologies when anticipated, failure of
customers to accept these products and technologies when planned, and any
defects in products; perceived absolute or relative overall value of the
Company's products by the Company's customers, including features, quality,
and pricing compared to other competitive products; amount, and rate of
growth in, the Company's selling, general and administrative expenses;
occurrence of any expenditures and expenses, including depreciation and
research and development expenses; costs and other effects of legal and
administrative cases and proceedings (whether civil or criminal),
settlements, and investigators, claims, and changes in those items;
developments or assertions by or against the Company relating to
intellectual property rights; adoption of new, or changes in, accounting
policies and practices and the application of such policies and practices;
and effects or changes within the Company's organization or in compensation
and benefit plans. Since the purchase of the Company's products is
relatively discretionary and generally involves a significant commitment of
capital, in the event of any downturn in any potential customer's business
or the economy in general, purchases of the Company's products may be
deferred or canceled. Further, the Company's expense levels are based, in
part, on its expectations as to future revenue and a significant portion of
the Company's expenses do not vary with revenue. As a result, if revenue
is below expectations, results of operations are likely to be materially
adversely affected. Shareholders are cautioned not to place undue reliance
on the forward-looking statements made in this Form 10-K, which speak only
as of the date hereof.
-24-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this Item is set forth in Appendix A of this Annual
Report on Form 10-K and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information regarding directors of the Company contained under the
captions "Board of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in the definitive Proxy Statement of the Company for
its annual meeting of shareholders to be held October 8, 1998, is
incorporated by reference. The information regarding executive officers is
provided in the Supplemental Item following Item 4 in Part I of the Annual
Report.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the captions "Compensation of
Directors," "Executive Compensation," and "Compensation Committee
Interlocks and Insider Participation" in the definitive Proxy Statement of
the Company for its annual meeting of shareholders to be held October 8,
1998, is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the caption "Voting Securities,"
"Ownership of Common Stock," and "Securities Ownership of Management" in
the definitive Proxy Statement of the Company for its annual meeting of
shareholders to be held October 8, 1998, is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under the captions "Compensation Committee Interlocks
and Insider Participation" and "Certain Relationships and Related
Transactions" in the definitive Proxy Statement of the Company for its
annual meeting of shareholders to be held October 8, 1998, is incorporated
by reference.
-25-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
ITEM 14(A)(1). LIST OF FINANCIAL STATEMENTS. The following report,
Consolidated Financial Statements of the Company, and notes thereto are
filed as a part of this report:
- Report of Arthur Andersen LLP, Independent Public Accountants,
dated July 24, 1998
- Consolidated Balance Sheets as of April 30, 1998 and April 30,
1997
- Consolidated Statements of Operations for the years ended April
30, 1998, 1997, and 1996
- Consolidated Statements of Shareholders' Equity for the years
ended April 30, 1998, 1997, and 1996
- Consolidated Statements of Cash Flows for the years ended April
30, 1998, 1997, and 1996
- Notes to Consolidated Financial Statements
ITEM 14(A)(2). FINANCIAL STATEMENT SCHEDULES. Not applicable.
ITEM 14(A)(3). LIST OF EXHIBITS. The following exhibits are filed as a
part of this report:
EXHIBIT
NUMBER
3.1 Restated Articles of Incorporation. This exhibit is
incorporated by reference to the Registrant's Form 10-K
Annual Report for the fiscal year ended April 30, 1995.
3.2 Bylaws. This exhibit is incorporated by reference to the
Registrant's Form 10-K Annual Report for the fiscal year
ended April 30, 1995.
4.1 Revolving Credit Loan Agreement. This exhibit is
incorporated by reference to the Registrant's Form 8-K
Current Report dated November 11, 1994.
4.2 First Amendment to Revolving Credit Agreement. This exhibit
is incorporated by reference to the Registrant's Form 10-K
Annual Report for the fiscal year ended April 30, 1996.
-26-
4.3 Second Amendment to Revolving Credit Agreement. This
exhibit is incorporated by reference to the Registrant's
Form 10-K Annual Report for the fiscal year ended April 30,
1996.
9 Buy and Sell and Voting Trust Agreement Concerning Stock of
Manatron, Inc. This exhibit is incorporated by reference to
the Registrant's Form 10-K Annual Report for the fiscal year
ended April 30, 1995.
10.1 Manatron, Inc. 1986 Incentive Stock Option Plan. This
exhibit is incorporated by reference to the Registrant's
Form 10-K Annual Report for the fiscal year ended April 30,
1995.
10.2 Manatron, Inc. 1989 Stock Option Plan. This exhibit is
incorporated by reference to the Registrant's Form 10-K
Annual Report for the fiscal year ended April 30, 1995.
10.3 Manatron, Inc. 1995 Long-Term Incentive Plan. This
exhibit is incorporated by reference to the Registrant's
Definitive Proxy Statement for its Annual Meeting of
Shareholders held October 12, 1995.
10.4 Buy and Sell and Voting Trust Agreement Concerning Stock of
Manatron, Inc. See Exhibit 9 above.
10.5 Executive Employment Agreement with Randall L. Peat.
This exhibit is incorporated by reference to the
Registrant's Form 10-K Annual Report for the fiscal year
ended April 30, 1995.
10.6 Form of Stock Purchase Warrant with Brent R. Nicklas, as
amended. This exhibit is incorporated by reference to
the Registrant's Form 10-K Annual Report for the fiscal year
ended April 30, 1995.
10.7 Manatron, Inc. Employee Stock Ownership and Salary Deferral
Plan. This exhibit is incorporated by reference to the
Registrant's Form 10-K Annual Report for the fiscal year
ended April 30, 1995.
10.8 Manatron, Inc. Employee Stock Purchase Plan. This
exhibit is incorporated by reference to the Registrant's
Form 10-K Annual Report for the fiscal year ended April 30,
1993.
-27-
10.9 ATEK Information Services, Inc. Stock Purchase Agreement.
This exhibit is incorporated by reference to the
Registrant's Form 8-K Current Report dated July 28, 1993.
10.10 Stock Purchase Agreement between Ronald D. Stoynoff and
Allen F. Peat dated March 15, 1994. This exhibit is
incorporated by reference to the Registrant's Form 8-K
Current Report dated March 15, 1994.
10.11 Agreement between Manatron, Inc. and Ronald D. Stoynoff
effective as of April 1, 1994. This exhibit is incorporated
by reference to the Registrant's Form 8-K Current Report
dated March 15, 1994.
10.12 Asset Purchase Agreement between Manatron, Inc. and Moore
Business Forms, Inc. dated November 11, 1994. This exhibit
is incorporated by reference to the Registrant's Form 8-K
Current Report dated November 11, 1994.
10.13 Manatron, Inc. 1994 Long-Term Incentive Plan. This
exhibit is incorporated by reference to the Registrant's
Definitive Proxy Statement for its Annual Meeting of
Shareholders held October 6, 1994.
10.14 Agreement between Manatron, Inc. and Allen F. Peat dated
October 17, 1995. This exhibit is incorporated by
reference to the Registrant's Form 8-K Current Report dated
November 13, 1995.
10.15 Employment Agreement with Douglas A. Peat dated October 10,
1996. This exhibit is incorporated by reference to the
Registrant's Form 10-K Annual Report for the fiscal year ended
April 30, 1997.
10.16 Employment Agreement with Jane M. Rix dated October 10,
1996. This exhibit is incorporated by reference to the
Registrant's Form 10-K Annual Report for the fiscal year ended
April 30, 1997.
10.17 Employment Agreement with James W. Sanderbeck dated October
10, 1996. This exhibit is incorporated by reference to the
Registrant's Form 10-K Annual Report for the fiscal year ended
April 30, 1997.
10.18 Employment Agreement with Paul R. Sylvester dated October
10, 1996. This exhibit is incorporated by reference to the
Registrant's Form 10-K Annual Report for the fiscal year ended
April 30, 1997.
-28-
10.19 Employment Agreement with Larry L. Terhune dated October 10,
1996. This exhibit is incorporated by reference to the
Registrant's Form 10-K Annual Report for the fiscal year ended
April 30, 1997.
10.20 Manatron, Inc. Executive Incentive Plan for 1997. This
exhibit is incorporated by reference to the Registrant's
Form 10-K Annual Report for the fiscal year ended
April 30, 1997.
10.21 Manatron, Inc. Executive Incentive Plan for 1998.
This exhibit is incorporated by reference to the Registrant's
Form 10-K Annual Report for the fiscal year ended
April 30, 1997.
10.22 Form of Indemnity Agreement.
10.23 Indemnity Agreement of Daniel P. Muthard.
21 Subsidiaries of Registrant. This exhibit is incorporated by
reference to the Registrant's Form 10-K Annual Report for
the fiscal year ended April 30, 1996.
23 Consent of Independent Public Accountants.
24 Powers of Attorney.
27 Financial Data Schedule.
- ----------------------------
Management contract or compensatory plan or arrangement.
The Company will furnish a copy of any exhibit listed above to any
shareholder of the Company without charge upon request to Jane M. Rix, 2970
South 9th Street, Kalamazoo, Michigan 49009.
ITEM 14(b) REPORTS ON FORM 8-K.
No current reports on Form 8-K were filed by the Company during the
last quarter of the period covered by this report.
-29-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
MANATRON, INC.
Dated: July 29, 1998 By /S/ PAUL R. SYLVESTER
Paul R. Sylvester
President, Chief Executive Officer
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
/s/Paul R. Sylvester Date: July 29, 1998
Paul R. Sylvester
President, Chief Executive Officer,
and Chief Financial Officer
(Principal executive, financial, and
accounting officer)
*/s/Randall L. Peat Date: July 29, 1998
Randall L. Peat, Vice President
and Director
*/s/Richard J. Holloman Date: July 29, 1998
Richard J. Holloman, Director
*/s/Douglas A. Peat Date: July 29, 1998
Douglas A. Peat, Vice President -
Marketing and Director
-30-
*/s/Jane M. Rix Date: July 29, 1998
Jane M. Rix, Secretary and
Director
*/s/Stephen C. Waterbury Date: July 29, 1998
Stephen C. Waterbury, Director
*/s/Harry C. Vorys Date: July 29, 1998
Harry C. Vorys, Director
*Gene Bledsoe Date: July 29, 1998
Gene Bledsoe, Director
*/s/Allen F. Peat Date: July 29, 1998
Allen F. Peat, Director
*By /s/Paul R. Sylvester Date: July 29, 1998
Paul R. Sylvester
Attorney-in-Fact
-31-
APPENDIX A
MANATRON, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
TOGETHER WITH AUDITORS' REPORT
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Manatron, Inc.:
We have audited the accompanying consolidated balance sheets of MANATRON,
INC. (a Michigan corporation) and Subsidiaries as of April 30, 1998 and
1997, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended
April 30, 1998. 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 Manatron, Inc. and
Subsidiaries as of April 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended April 30, 1998, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Grand Rapids, Michigan
July 24, 1998
MANATRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF APRIL 30,
ASSETS 1998 1997
------ ---- ----
CURRENT ASSETS:
Cash equivalents $ 1,613,669 $ 457,691
Accounts receivable, less allowances of
$720,000 in 1998 and $775,000 in 1997 5,017,523 4,917,325
Revenues earned in excess of billings and
retainages on long-term contracts 2,723,571 2,772,705
Current portions of notes receivable:
Installment notes receivable 610,898 703,667
Net investment in sales type leases 281,202 297,366
Inventories 296,420 275,142
Deferred tax assets 414,000 330,000
Other current assets 262,255 320,431
----------- -----------
Total current assets 11,219,538 10,074,327
----------- -----------
NET PROPERTY AND EQUIPMENT 1,310,096 1,463,577
----------- -----------
OTHER ASSETS:
Notes receivable, less current portions:
Installment notes receivable 424,222 515,024
Net investment in sales type leases 143,000 123,000
Officers' receivable 343,724 354,013
Computer software development costs
net of accumulated amortization 1,461,437 1,021,664
Goodwill, net of accumulated amortization 900,334 1,085,165
Other, net 60,725 217,498
----------- -----------
3,333,442 3,316,364
----------- -----------
Total other assets $15,863,076 $14,854,268
=========== ===========
A-2
MANATRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF APRIL 30,
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997
------------------------------------ ---- ----
CURRENT LIABILITIES:
Current portion of long-term debt $ 100,000 $ 100,000
Accounts payable 1,099,365 1,181,660
Billings in excess of revenues earned
on long-term contracts 1,343,490 1,749,100
Billings for future services 4,747,231 3,227,865
Restructuring reserve 250,834 237,728
Accrued liabilities:
Payroll and employee benefits 1,748,514 1,248,152
Accrued commissions 438,484 208,517
Other 614,729 546,445
----------- -----------
Total current liabilities 10,342,647 8,499,467
----------- -----------
DEFERRED INCOME TAXES 124,000 43,000
----------- -----------
LONG-TERM DEBT, less current portion 125,000 1,110,000
----------- -----------
OTHER LONG-TERM LIABILITIES 160,814 376,134
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value,
2,000,000 shares authorized, none
issued -- --
Common stock, no par value 7,500,000
shares authorized, 2,831,941 and
2,874,327 shares issued and
outstanding at April 30, 1998
and 1997, respectively 5,275,130 5,418,203
Retained (deficit) earnings 163,797 (149,974)
Deferred compensation (103,312) (117,562)
Unearned ESOP shares (225,000) (325,000)
----------- -----------
A-3
Total shareholders' equity 5,110,615 4,825,667
----------- -----------
$15,863,076 $14,854,268
=========== ===========
The accompanying notes are an integral part of these consolidated
balance sheets.
A-4
MANATRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED APRIL 30,
1998 1997 1996
---- ---- ----
NET REVENUES:
Hardware, software, and supply sales $ 5,894,325 $ 5,508,705 $ 5,699,247
Service fees 18,897,556 16,508,283 18,246,996
----------- ----------- -----------
Total net revenues 24,791,881 22,016,988 23,946,243
----------- ----------- -----------
COST OF REVENUES:
Hardware, software and supplies 3,561,354 3,719,763 4,133,310
Services 11,757,453 9,660,590 11,385,308
----------- ----------- -----------
Total cost of revenues 15,318,807 13,380,353 15,518,618
----------- ----------- -----------
Gross profit 9,473,074 8,636,635 8,427,625
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES 9,070,234 8,796,635 9,700,227
RESTRUCTURING CHARGE (Note 10) -- -- 1,598,004
----------- ----------- -----------
Income (loss) from operations 402,840 (160,000) (2,870,606)
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (140,794) (305,632) (429,116)
Other 51,725 58,973 60,308
----------- ----------- -----------
(89,069) (246,659) (368,808)
----------- ----------- -----------
A-5
Income (loss) before provision
(credit) for federal income
taxes 313,771 (406,659) (3,239,414)
----------- ----------- -----------
PROVISION (CREDIT) FOR FEDERAL
INCOME TAXES (Note 6) -- -- (200,000)
----------- ----------- -----------
NET INCOME (LOSS) $ 313,771 $ (406,659) $(3,039,414)
=========== =========== ===========
BASIC EARNINGS (LOSS) PER SHARE $ .11 $ (.14) $ (1.03)
=========== =========== ===========
DILUTED EARNINGS (LOSS) PER SHARE $ .11 $ (.14) $ (1.03)
=========== =========== ===========
The accompanying notes are an integral part of these
consolidated statements.
A-6
MANATRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 30, 1998, 1997, AND 1996
RETAINED TOTAL
COMMON (DEFICIT) DEFERRED UNEARNED SHAREHOLDERS'
STOCK EARNINGS COMPENSATION ESOP SHARES EQUITY
---------- -------- ------------ ----------- -------------
BALANCE AT APRIL 30, 1995 5,703,386 3,296,099 -- -- 8,999,485
Net loss -- (3,039,414) -- -- (3,039,414)
Establishment of Employee Stock
Ownership Plan -- -- -- (500,000) (500,000)
Issuance of 57,664 shares
under employee stock plans 175,874 -- (142,500) -- 33,374
Issuance of 15,849 shares for
payment of services 25,755 -- -- -- 25,755
Purchase of 149,930 shares in
connection with the restructuring
charge (Note 10) (431,053) -- -- -- (431,053)
Compensation expense (29,465) -- 10,688 75,000 56,223
---------- ---------- --------- --------- ----------
BALANCE AT APRIL 30, 1996 5,444,497 256,685 (131,812) (425,000) 5,144,370
Net loss -- (406,659) -- -- (406,659)
Issuance of 11,806 shares under
employee stock plans 18,796 -- -- -- 18,796
Compensation expense (45,090) -- 14,250 100,000 69,160
---------- ---------- --------- --------- ----------
BALANCE AT APRIL 30, 1997 $5,418,203 $ (149,974) $(117,562) $(325,000) $4,825,667
Net income -- 313,771 -- -- 313,771
Repurchase of 95,200 shares by
the Company (201,027) -- -- -- (201,027)
Issuance of 52,814 shares under
employee stock plans 98,134 -- -- -- 98,134
Compensation expense (40,180) -- 14,250 100,000 74,070
---------- ---------- --------- --------- ----------
BALANCE AT APRIL 30, 1998 $5,275,130 $ 163,797 $(103,312) $(225,000) $5,110,615
========== ========== ========= ========= ==========
The accompanying notes are an integral part of these
consolidated statements.
A-7
MANATRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED APRIL 30,
1998 1997 1996
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 313,771 $ (406,659) $(3,039,414)
Adjustments to reconcile net income (loss)
to net cash and equivalents
provided by operating activities:
Depreciation and amortization 1,583,855 1,819,512 1,954,125
Deferred income taxes (3,000) (130,000) (227,000)
Deferred compensation expense 74,070 69,160 56,223
Decrease (increase) in current assets:
Accounts and notes receivable 8,735 589,319 2,812,769
Revenues earned in excess of billings
and retainages 49,134 (306,500) (112,157)
Inventories (21,278) 111,838 345,341
Other current assets 58,176 (138,264) (70,189)
Increase (decrease) in current liabilities:
Accounts payable and accrued
liabilities 716,318 728,553 115,962
Billings in excess of revenues
earned (405,610) 61,539 228,507
Billings for future services 1,519,366 506,298 (135,825)
Restructuring reserve 13,106 19,434 218,294
----------- ----------- -----------
Net cash and equivalents provided
by operating activities 3,906,643 2,924,230 2,146,636
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in long-term receivables 81,091 661,116 122,633
Net additions to property and equipment (542,089) (408,363) (336,105)
Investments in computer software development (1,010,188) (492,758) (439,655)
Net cash received for acquisition -- -- 100,000
Decrease (increase) in other assets 23,734 (3,364) 6,453
----------- ----------- -----------
Net cash and equivalents used
for investing activities (1,447,452) (243,369) (546,674)
----------- ----------- -----------
A-8
MANATRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED APRIL 30,
(CONTINUED)
1998 1997 1996
---- ---- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (985,000) (2,390,000) (1,364,000)
Repurchase of common stock (201,027) -- --
Purchases of common stock by stock plans 98,134 18,796 29,664
Purchase of common stock in restructuring -- -- (431,053)
Purchase of common stock for ESOP -- -- (500,000)
Increase (decrease) in other long-term liabilities (215,320) (204,040) 580,174
----------- ----------- -----------
Net cash and equivalents used for
financing activities (1,303,213) (2,575,244) (1,685,215)
----------- ----------- -----------
CASH AND EQUIVALENTS:
Increase (decrease) 1,155,978 105,617 (85,253)
Balance at beginning of year 457,691 352,074 437,327
----------- ----------- -----------
Balance at end of year $ 1,613,669 $ 457,691 $ 352,074
=========== =========== ===========
The accompanying notes are an integral part of these
consolidated statements.
A-9
MANATRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Manatron, Inc. and its subsidiaries (the "Company" or "Manatron")
design, market, install, and maintain advanced computer-based "turn-key"
data processing systems primarily for local governments, using general
purpose computer hardware produced by leading manufacturers and proprietary
software developed or purchased by Manatron. The Company also provides
mass real estate appraisal and mapping services for local governments. The
Company's business primarily is concentrated in the Midwest and Southeast
regions of the United States.
PRINCIPLES OF CONSOLIDATION
The accompanying Consolidated Financial Statements include the
accounts of Manatron and its wholly-owned subsidiaries, ATEK Information
Services, Inc. ("ATEK") and Specialized Data Systems, Inc. ("SDS"). In
addition, the accompanying Consolidated Financial Statements include the
accounts of Sabre Systems and Service ("Sabre") which is a division of the
Company. All significant intercompany accounts and transactions have been
eliminated.
REVENUE RECOGNITION
Revenue and costs related to sales of computer hardware and supplies
are recognized when title passes, which is normally the shipping or
installation date. Revenue from software licensing fees is recognized when
the license agreements are consummated, which generally is also the
shipping or installation date. The Company's contracts typically do not
contain a right of return. As of April 30, 1998 and 1997, the reserve for
returns was not significant.
Revenue and costs related to leases of computer hardware are
recognized in accordance with Statement of Financial Accounting Standards
No. 13, "Accounting for Leases" (see Note 2).
Revenue from in-house data processing, maintenance contracts, and
software support services normally is billed in advance on a monthly,
quarterly, or annual basis. These billings are recognized as revenue on a
straight-line basis over the periods covered by the agreements. At the end
of a reporting period, the balance of billings not yet recognized as
revenue are reflected as "Billings for Future Services" in the Company's
consolidated balance sheets. Costs related to these services are expensed
as incurred.
A-10
MANATRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Revenue and costs under long-term mass real estate appraisal, mapping,
and software development contracts, which typically range from one to three
years, are recognized on a percentage of completion basis. Losses on these
contracts, if any, are recognized when they become known. As of April 30,
1998 and 1997, the reserve for contract losses was not significant.
CASH AND EQUIVALENTS
Cash and equivalents consist of money market funds and short-term time
deposits.
INVENTORIES
The Company values its inventories at the lower of cost or market.
Cost is determined using the first-in, first-out method. The Company's
inventories consist of the following at April 30:
1998 1997
---- ----
Computer hardware and repair parts $111,867 $ 42,442
Data processing supplies and
purchased software products 184,553 232,700
-------- --------
$296,420 $275,142
======== ========
PROPERTY AND EQUIPMENT, AT COST
Net property and equipment consists of the following at April 30:
A-11
MANATRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
1998 1997
---- ----
Land $ 25,650 $ 25,650
Building and improvements 465,767 460,945
Furniture and fixtures 657,113 619,674
Rental equipment 403,216 428,401
Office equipment and software 3,913,741 3,658,845
Vehicles 338,795 291,122
---------- ----------
5,804,282 5,484,637
Less-Accumulated depreciation (4,494,186) (4,021,060)
---------- ----------
$1,310,096 $1,463,577
========== ==========
Depreciation of property and equipment is computed over the estimated
useful lives of the related assets using primarily the straight-line method
for financial reporting and accelerated methods for tax purposes.
Maintenance and repair costs which do not add to the economic useful lives
of the related assets are expensed as incurred.
The estimated useful lives of the assets used to compute depreciation
expense are as follows:
ASSET DESCRIPTION YEARS
----------------- -----
Building and improvements 5-25
Furniture and fixtures 4-7
Rental equipment 3
Office equipment and software 3-7
Vehicles 3-5
A-12
MANATRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
OFFICERS' RECEIVABLE
At April 30, 1998 and 1997, the Company had $343,724 and $354,013 in
receivables from certain of its officers and directors, as a result of
certain stock purchases from Allen F. Peat in 1994. These receivables are
non-interest bearing and are scheduled to start being repaid in fiscal
1999.
SOFTWARE DEVELOPMENT COSTS
The Company capitalized approximately $1,010,000, $493,000, and
$435,000 of computer software development costs during fiscal 1998, 1997,
and 1996 respectively.
Amortization of software development costs is computed using the
straight-line method over the estimated economic lives of the products
which approximate five years. Accumulated amortization was approximately
$3,497,000 and $2,926,000 as of April 30, 1998 and 1997, respectively.
Amortization expense was approximately $570,000, $531,000, and $465,000 in
fiscal 1998, 1997, and 1996, respectively, and is included in cost of
revenues in the accompanying consolidated statements of operations.
Research and development costs incurred to establish technological
feasibility were insignificant for fiscal 1998, 1997, and 1996,
respectively, and have been expensed. Substantially all of the Company's
research and development costs relate to computer software development.
GOODWILL
In connection with certain acquisitions, the Company has recorded
total goodwill of approximately $1,848,000. Goodwill is being amortized
over 10-year periods starting with the acquisition dates, using the
straight line method. Accumulated amortization was approximately $948,000
and $763,000 as of April 30, 1998 and 1997, respectively.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic
value method presented in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, compensation cost
for stock options is measured as the excess, if any, of the quoted market
price of the Company's stock at the date of grant over the amount the
A-13
MANATRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
employee must pay to acquire the stock. The Company has provided pro forma
disclosure of the fair value at the date of grant of stock options granted
during fiscal 1998 and 1997 in Note 7 in accordance with the requirements
of Statement of Financial Accounting Standards Board No. 123 "Accounting
for Stock-Based Compensation" ("SFAS 123").
EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted the provisions of State-
ment of Financial Accounting Standards No. 128, "Earnings per Share." Accord-
ingly, all prior period "earnings per share" amounts included in this report
have been restated to conform to this standard. Basic earnings per share is
computed by dividing net income by the weighted average number of common shares
outstanding. Diluted earnings per share is computed by dividing net income by
the weighted average number of common shares outstanding plus all potential
common shares. Dilutive potential common shares include all shares which may
become contractually issuable. For the Company, dilutive potential common
shares primarily are comprised of shares issuable under employee stock plans.
The following table reconciles the numerators and denominators used in
the calculation of basic and diluted earnings per share for each of the
periods presented:
1998 1997 1996
---- ---- ----
Numerators:
Net income (loss) $ 313,771 $ (406,659) $ (3,039,414)
Denominators:
Denominator for basic earnings
(loss) per share, weighted
average outstanding
common shares 2,821,547 2,867,711 2,961,139
Potential dilutive shares 82,408 -- --
---------- ---------- --------------
Denominator for diluted earnings
(loss) per share 2,903,955 2,867,711 2,961,139
========== ========== ==============
Earnings Per Share
Basic $ 0.11 $ (0.14) $ (1.03)
Diluted $ 0.11 $ (0.14) $ (1.03)
A-14
MANATRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of revenues and expenses for
the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year statements to
conform to the current year presentation.
(2) SALES TYPE LEASES AND OPERATING LEASES
Certain of the Company's leases meet the criteria of sales type leases
as defined by Statement of Financial Accounting Standards No. 13,
"Accounting for Leases." As a result, the difference between the normal
selling price of the equipment and the cost is recognized as profit at the
inception of the lease. The sum of the aggregate rental payments to be
received plus the unguaranteed residual value, if any, minus the selling
price of the equipment at the inception of a lease is amortized to income
over the respective lease terms using the effective interest method.
Residual values generally are not significant given that the computer
hardware market is subject to rapid technological change.
The following are components of the net investment in sales type
leases as reflected in the accompanying consolidated balance sheets at
April 30:
1998 1997
---- ----
Future minimum rentals receivable $493,925 $476,284
Less- Unamortized unearned income (69,723) (55,918)
-------- --------
Net investment in sales type leases $424,202 $420,366
======== ========
A-15
MANATRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(2) SALES TYPE LEASES AND OPERATING LEASES, continued
Substantially all future minimum rentals receivable on sales type leases
are due in the next three to four fiscal years.
The Company also leases computer equipment to customers under
operating lease agreements with various terms through fiscal 2001. The
accumulated depreciation on rental equipment was $332,000 and $301,000 at
April 30, 1998 and 1997, respectively.
Future minimum lease payments to be received under noncancelable
operating leases at April 30, 1998, are approximately as follows:
FISCAL YEAR AMOUNT
----------- ------
1999 $290,000
2000 127,000
2001 23,000
The Company also offers its hardware and software solutions for sale
on an installment basis and, as a result, has notes receivable totaling
$1,035,120 and $1,218,691 at April 30, 1998 and 1997, respectively. The
notes have various payment terms, generally bear interest at rates
approximating prime, and have various maturity dates through 2001.
(4) LONG-TERM DEBT
The Company has a $5 million long-term revolving line of credit with a
bank secured by substantially all the assets of the Company, which matures
on December 1, 1999. There were no borrowings outstanding under this
agreement at April 30, 1998. As of April 30, 1997, the Company owed
$885,000 under this agreement. Interest on borrowings is payable monthly
at the bank's prime rate which was 8.5% at April 30, 1998.
Under this agreement, the Company is required to, among other things,
collect specified levels of past due receivables, generate minimum levels
of cash flow from operations, maintain a certain level of tangible net
worth, a minimum debt-to-equity ratio, and minimum working capital. The
Company was either in compliance with these provisions of the debt
agreement as of April 30, 1998 or had obtained appropriate waivers.
A-16
MANATRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(4) LONG-TERM DEBT, continued
Cash paid for interest for fiscal 1998, 1997, and 1996 is
approximately equal to the amounts shown as interest expense in the
accompanying consolidated statements of operations.
(5) RENTAL COMMITMENTS
The Company leases the majority of its office and warehouse space
under agreements with various terms through fiscal 2001. Total rent
expense reflected in the accompanying consolidated statements of operations
was approximately $714,000, $656,000, and $750,000 for fiscal 1998, 1997,
and 1996, respectively.
Future minimum rental payments under noncancelable operating leases at
April 30, 1998, are approximately as follows:
FISCAL YEAR AMOUNT
----------- ------
1999 $495,000
2000 282,000
2001 36,000
(6) FEDERAL INCOME TAXES
The provision (credit) for federal income taxes consists of the
following:
1998 1997 1996
---- ---- ----
Currently payable $ 3,000 $130,000 $ 27,000
Deferred credit (3,000) (130,000) (227,000)
----------- -------- ---------
$ 0 $ 0 $(200,000)
=========== ======== =========
A-17
MANATRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(6) FEDERAL INCOME TAXES, continued
A reconciliation of the amounts computed by applying the statutory
federal income tax rate of 34% to pretax income and the provision (credit)
for federal income taxes as reflected in the accompanying consolidated
statements of operations is as follows:
1998 1997 1996
---- ---- ----
Computed tax expense (credit)
using the 34% statutory rate $ 107,000 $(138,000) $(1,101,000)
Change in valuation allowance (166,000) 78,000 834,000
Tax-exempt interest income (9,000) (17,000) (18,000)
Non-deductible goodwill
amortization 63,000 63,000 63,000
Non-deductible meals and
entertainment 32,000 30,000 34,000
Other (27,000) (16,000) (12,000)
--------- --------- -----------
$ 0 $ 0 $ (200,000)
========= ========= ===========
The tax effect and type of significant temporary differences which gave
rise to the future tax benefits and deferred income taxes as of April 30,
1998 and 1997, are approximately as follows:
1998 1997
---- ----
Deferred tax assets:
Valuation reserves not currently deductible $ 424,000 $ 412,000
Net operating loss carryforward 72,000 338,000
Accrued liabilities not currently deductible 526,000 390,000
Restructuring reserves not currently deductible 121,000 193,000
Alternative minimum tax credit carryforward 99,000 99,000
Property and equipment depreciation
and basis differences 16,000 --
Other 187,000 210,000
--------- ----------
1,445,000 1,642,000
--------- ----------
A-18
MANATRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(6) FEDERAL INCOME TAXES, continued
Valuation Allowance (746,000) (912,000)
--------- ----------
699,000 730,000
--------- ----------
Deferred tax liabilities:
Software development costs expensed
for tax purposes (353,000) (311,000)
Lease accounting method differences (56,000) (132,000)
--------- ----------
(409,000) (443,000)
--------- ----------
Net deferred tax asset $ 290,000 $ 287,000
========= ==========
As of April 30, 1997 and 1996, the Company recorded valuation allowances
totaling $912,000 and $834,000, respectively, against certain of its future
tax benefits, including its tax loss carryforward, due to the uncertainty of
their ultimate realization. Approximately $166,000 of this valuation allowance
was utilized in fiscal 1998 to offset the provision for federal income taxes
related to the pre-tax income for the year. As of April 30, 1998, the
Company had tax net operating loss carryforwards of approximately
$211,000 remaining. These net operating loss carryforwards are available
to offset future taxable income through 2011. Federal income tax refunds
were approximately $261,000 and $178,000 during fiscal 1997 and 1996,
respectively. There were no federal income tax refunds or payments during
fiscal 1998.
(7) EMPLOYEE STOCK PLANS
The Manatron, Inc. Employee Stock Purchase Plan (the "Plan") provides
for eligible employees to authorize the Company to withhold up to 10% of
their base compensation for the purchase of shares of Manatron common
stock. Approximately 26 or 6% of the Company's employees participate in the
Plan. The Plan terminated as of March 31, 1998. The Board of Directors
adopted, subject to shareholder approval at the 1998 annual meeting of
shareholders, the Employee Stock Purchase Plan (the "New Plan") of 1998, at
its March 26, 1998 meeting. The terms of the New Plan are substantially
similar to those described below for the Plan. The purchase price for each
share is equal to 85% of the market value on the day of the purchase.
A-19
MANATRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(7) EMPLOYEE STOCK PLANS, continued
Shares are purchased on the last day of each calendar quarter. No more
than 5,000 shares may be purchased in any one quarter. In addition, the
market value of shares purchased by a participant cannot exceed $25,000 in
any one year. No amounts are charged to operations related to the Plan.
Since the inception of the Company's stock purchase plan in 1987, and
through April 30, 1998, a total of 95,609 shares have been purchased by
participants at prices ranging from $1.27 to $6.27 per share. As of April
30, 1998, 100,000 shares of Company common stock are available for purchase
under the New Plan.
The Manatron, Inc. Restricted Stock Plan of 1987 (the "Restricted
Plan") is intended to assist the Company in attracting, rewarding, and
retaining well-qualified directors, executive personnel, and other key
employees by offering them additional incentives to contribute to the
long-term interests of the Company. The Restricted Plan provides for a
committee appointed by the Board of Directors to grant up to 50,000 shares
of common stock subject to certain restrictions. As of April 30, 1998,
41,300 shares remain available for issuance under the Restricted Plan.
The Company has four stock option plans: the Manatron, Inc. 1986
Incentive Stock Option Plan, the Manatron, Inc. 1989 Stock Option Plan, the
Manatron, Inc. 1994 Long-Term Incentive Plan, and the Manatron, Inc. 1995
Long-Term Incentive Plan (the "Option Plans"). Under the Option Plans,
1,025,000 shares of common stock were reserved for issuance. The Option
Plans provide for a committee appointed by the Board to grant to directors,
officers, and other key employees up to 100,000 shares of common stock
subject to certain restrictions and up to 925,000 options to purchase
shares of the Company's common stock at a price which is at least equal to
the fair market value of such shares on the date of grant. For employees
of the Company owning stock with more than 10% of the voting rights, the
exercise price of incentive stock options must be at least 110% of the fair
market value of the shares on the date of grant. The aggregate fair market
value of options granted to any employee in any calendar year cannot exceed
$100,000. Options granted under the Option Plans generally are exercisable
within limits specified at the time of grant and expire five to 10 years
from the date of grant.
The Company accounts for these plans under APB Opinion No. 25. As a
result, no compensation cost has been recognized with respect to the
authorization, grant, or exercise of these options. Had compensation costs
for these plans been determined consistent with SFAS 123, the Company's net
A-20
MANATRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(7) EMPLOYEE STOCK PLANS, continued
income and earnings per share would have been reduced to the following pro
forma amounts:
1998 1997 1996
-------- ---------- --------
NET INCOME (LOSS)
As Reported $313,771 $(406,659) $(3,039,414)
Pro Forma 174,091 (525,697) (3,062,709)
EPS
As Reported $ .11 $ (.14) $ (1.03)
Pro Forma .06 (.18) (1.03)
Because the SFAS 123 method of accounting has not been applied to
options granted before May 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years.
A summary of the status of the Company's Option Plans at April 30,
1998, 1997, and 1996 and changes during the years then ended is presented
in the table below.
A-21
MANATRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(7) EMPLOYEE STOCK PLANS, continued
1998 1997 1996
---------------------------------- ------------------------------------ -----------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE EXERCISE EXERCISE
SHARES PRICE PRICES SHARES PRICE PRICES SHARES PRICE PRICES
---------------------------------------------------------------------------------------------------------------
Outstanding at
Beginning of
Year 544,073 $ 2.07 $1.5625-$5.25 585,156 $ 2.31 $ 1.625-$5.25 348,032 $ 3.76 $ 2.50-$5.25
Granted 64,000 $ 1.93 $1.8124-$2.00 40,000 $ 1.67 $1.5625-$2.3375 408,500 $ 1.65 $1.625-$2.875
Exercised (18,500) $1.625 $ 1.625 (1,000) $1.625 $ 1.625 (9,258) $ 2.59 $ 2.50-$2.875
Forfeited -- -- -- (80,083) $ 3.65 $ 1.625-$5.125 (161,540) $ 3.76 $ 3.00-$5.25
Expired (45,978) $ 3.51 $ 1.625-$3.85 -- $ -- -- (578) $2.875 $ 2.875
------- ------- --------
Outstanding at
End of Year 543,595 $ 1.95 $1.5625-$5.25 544,073 $ 2.07 $ 1.5625-$5.25 585,156 $ 2.31 $ 1.625-$5.25
======= ======= ========
Exercisable at
End of Year 496,595 $ 1.95 -- 396,323 $ 2.22 306,156 $ 2.78
======= ======= ========
Weighted Average
of Fair Value
of Options
Granted $0.695 $ 1.27 $ 1.24
A-22
MANATRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(7) EMPLOYEE STOCK PLANS, continued
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 fiscal 1998 and 1997, respectively:
risk-free interest rates ranging from 5.65% to 6.04%; expected dividend
yields of 0 and 0%; expected lives ranging from 3 to 10 years;
expected volatility ranging from 56.22% to 66.24%.
The Board of Directors also adopted, subject to shareholder approval
at the 1998 annual meeting of shareholders, the Restricted Stock Plan of
1998, at its March 26, 1998, meeting. This Restricted Stock Plan provides
for a committee appointed by the Board of Directors to grant up to 100,000
shares of common stock under the three-year vesting schedule to key
software developers and technical employees of the Company to assist in the
attraction, rewarding and retention of such employees. During fiscal 1996,
40,000 shares of restricted stock were granted that vest over a 10-year
period at a market price of $3.50. No restricted shares were granted in
fiscal 1998 or 1997. As of April 30, 1998, 60,000 shares of restricted
common stock are available for issuance and 266,446 stock options may be
granted under the Option Plans.
(8) STOCK WARRANTS
As of April 30, 1998, the Company had outstanding 25,000 warrants for
the purchase of its common stock which expired on May 3, 1998. These
warrants were issued to a public relations firm retained during 1995 and
were exercisable at $3.50 per share.
(9) EMPLOYEE BENEFIT PLANS
The Company has an Employee Stock Ownership Plan ("ESOP"), profit
sharing, and 401(k) plan covering substantially all of its employees. The
Company's contribution to the profit sharing plan is subject to the
discretion of the Board of Directors. No contributions were approved for
the years ended April 30, 1998, 1997, and 1996, due to the reduced
profitability levels of the Company.
The 401(k) plan allows eligible employees to withhold up to 15% of
their pay on a pretax basis, subject to certain IRS limitations. This
money is deposited into a trust in which the employee has a number of
investment alternatives. The Company provides a matching contribution
A-23
MANATRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(9) EMPLOYEE BENEFIT PLANS, continued
equal to 25% of employee contributions not to exceed 1.25% of an employee's
gross pay. Company matching contributions charged to expense for the years
ended April 30, 1998, 1997, and 1996, were approximately $81,000, $74,000,
and $83,000, respectively.
On June 29, 1995, the ESOP purchased 142,858 common shares from
Allen F. Peat, the Company's former Chairman, President, and Chief
Executive Officer, for $3.50 per share. The ESOP borrowed $500,000 from a
bank to finance the stock purchase. The Company has guaranteed the ESOP's
loan and is obligated to make contributions sufficient to enable the ESOP
to repay the loan, including interest. The loan is repayable in quarterly
installments of $25,000 plus interest at the bank's prime rate. As of
April 30, 1998, 11 quarterly installments have been made. The $225,000
balance is reflected as a liability and a like amount, considered deferred
compensation, has been recorded as a reduction of shareholders' equity in
the accompanying consolidated balance sheets.
As of April 30, 1998, 78,562 common shares have been committed to be
released for allocation to ESOP participants. Allocations occur on
December 31 of each year. The fair market value of these shares at the
time they were committed for release, which aggregated approximately
$60,000, $55,000, and $46,000 in 1998, 1997, and 1996, respectively, has been
recorded as compensation expense in the accompanying consolidated statements
of operations. The difference between these amounts and the original cost of
the shares, which was approximately $40,000, $45,000, and $29,000 for 1998,
1997, and 1996, respectively, has been charged against common stock. The
fair value of the unearned ESOP shares as of April 30, 1998 approximated
$249,000.
The Board of Directors approved additional contributions of $50,000
to the ESOP for the years ended April 30, 1998 and 1997. The fiscal 1997
contribution was used to purchase 23,731 shares of Manatron common stock
that were allocated to ESOP participants as of December 31, 1997. The
fiscal 1998 contribution and related stock purchase will be made before
December 31, 1998. No such contributions were approved for the year ended
April 30, 1996 due to the reduced profitability levels of the Company.
The Company is self-insured for all employees' medical expenses
incurred to a level of $30,000 per individual or family per year.
Employees' medical expenses incurred beyond the $30,000 level are insured
under a stop-loss coverage insurance plan. The Company does not provide
health care or other post-employment benefits to retired employees.
A-24
MANATRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(10) SEVERANCE AGREEMENT
The Company and Allen F. Peat entered into an agreement, effective as
of October 17, 1995, setting forth the terms pursuant to which Mr. Peat
retired as Chairman, President, and Chief Executive Officer. The Agreement
terminated Mr. Peat's five-year employment agreement and provided for
severance compensation, deferred compensation, and other payments totaling
approximately $1.3 million to be paid through December of 1999.
The present value of these payments plus legal and professional costs
associated with the restructuring of the Company are included in the
$1.6 million restructuring charge that is reflected in the accompanying
consolidated statements of operations. In addition, the Company assumed
and paid on March 15, 1996, the third and final installment of
approximately $750,000 owed by Mr. Peat to Ronald D. Stoynoff pursuant to a
stock purchase agreement between the two parties. In exchange for meeting
this obligation, the Company received approximately 150,000 shares of
Manatron common stock from Mr. Peat.
The fair market value of the stock received from Mr. Peat was
approximately $431,000 and was recorded as a reduction to common stock in
the accompanying consolidated balance sheets. The $319,000 difference
between the fair market value of the stock and the total assumed obligation
of $750,000 was considered compensation expense and, accordingly, also was
included in the $1.6 million restructuring charge for fiscal 1996. The
remaining obligations under this agreement as of April 30, 1998, have been
appropriately classified as current or long-term liabilities in the
accompanying Consolidated Financial Statements.
(11) SHAREHOLDER RIGHTS PLAN
On March 11, 1997, the Board of Directors declared a dividend
distribution of one preferred stock purchase right ("Right") on each
outstanding share of common stock of the Company. Each Right will, under
certain circumstances, entitle the holder to buy one one-hundredth (1/100)
of a share of Series A preferred stock, no par value ("Preferred Stock"),
at an exercise price of $20 per share, subject to adjustment. Each share
of Preferred Stock purchasable upon exercise of the Rights will have a
minimum preferential quarterly dividend of $1 per share and will be
entitled to an aggregate dividend of 100 times the dividend declared on the
shares of common stock. In the event of liquidation, the holders of
Preferred Stock will receive a minimum preferred liquidation payment of $10
A-25
MANATRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(11) SHAREHOLDER RIGHTS PLAN, continued
per share and will be entitled to receive an aggregate liquidation payment
equal to 100 times the payment made per share of common stock. Each share
of Preferred Stock will have 100 votes, voting together with the common
stock.
The Rights will be exercisable and transferable separately from the
common stock only if a person or group who does not hold 15% or more of
Manatron's outstanding common stock as of June 16, 1997, subsequently
acquires 15% or more of Manatron's outstanding common stock or if a holder
of 15% or more of Manatron's outstanding common stock as of June 16, 1997,
subsequently acquires 20% or more of Manatron's outstanding common stock or
if any person or group commences or announces an intention to commence a
tender or exchange offer the consummation of which would give such person
or group beneficial ownership of 30% or more of Manatron's outstanding
common stock.
Additionally, if the Company subsequently engages in a merger or other
business combination transaction in which the Company is not the surviving
corporation, or in which the outstanding shares of the Company's common
stock are changed or exchanged, or if 50% or more of the Company's assets
or earning power is sold, proper provision shall be made so that each
holder of a Right shall thereafter have the right to receive, upon exercise
thereof at the then current exercise price of the Right, that number of
shares of common stock of the acquiring company which at the time of such
transaction would have a market value of two times the exercise price of
the Right. Alternatively, in the event that, anytime following exercise of
the Rights, an Acquiring Person (as defined in the Rights Agreement between
the Company and Registrar and Transfer Company (the "Rights Agreement"))
were to acquire the Company by means of a reverse merger in which the
Company and its stock survive, or were to engage in certain "self-dealing"
transactions, or were to acquire 30% of the then outstanding shares of
common stock (except pursuant to an offer for all outstanding shares of
common stock deemed fair by the Company's Board of Directors as provided in
the Rights Agreement), each Right not owned by such Acquiring Person (whose
Rights would thereafter be void) would become exercisable for the number of
shares of common stock which, at that time, would have a market value of
two times the then exercise price of the Right. Prior to a person becoming
an Acquiring Person, the Rights may be redeemed at a redemption price of
$.01 per Right, subject to adjustment. The Rights are subject to amendment
by the Board and will expire on June 15, 2007. As of April 30, 1998, no
rights have become exercisable.
A-26
MANATRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments included in
current assets and current liabilities approximate their fair value due to
their short-term nature. The fair value of the notes receivable is
estimated by discounting expected future cash flows using current interest
rates at which similar loans would be made to customers with similar credit
ratings and remaining maturities. As of April 30, 1998 and 1997, the fair
value of the notes receivable approximated the carrying value. The
Company's long-term debt reprices frequently at the then-prevailing market
interest rates. As of April 30, 1998 and 1997, the carrying value
approximated the fair value of the Company's long-term debt.
A-27
EXHIBIT INDEX
NUMBER ITEM
3.1 Restated Articles of Incorporation. This exhibit is
incorporated by reference to the Registrant's Form 10-K
Annual Report for the fiscal year ended April 30, 1995.
3.2 Bylaws. This exhibit is incorporated by reference to
the Registrant's Form 10-K Annual Report for the fiscal
year ended April 30, 1995.
4.1 Revolving Credit Loan Agreement. This exhibit is
incorporated by reference to the Registrant's Form 8-K
Current Report dated November 11, 1994.
4.2 First Amendment to Revolving Credit Agreement. This
exhibit is incorporated by reference to the
Registrant's Form 10-K Annual Report for the fiscal
year ended April 30, 1996.
4.3 Second Amendment to Revolving Credit Agreement. This
exhibit is incorporated by reference to the
Registrant's Form 10-K Annual Report for the fiscal
year ended April 30, 1996.
9 Buy and Sell and Voting Trust Agreement Concerning
Stock of Manatron, Inc. This exhibit is incorporated
by reference to the Registrant's Form 10-K Annual
Report for the fiscal year ended April 30, 1995.
10.1 Manatron, Inc. 1986 Incentive Stock Option Plan.
This exhibit is incorporated by reference to the
Registrant's Form 10-K Annual Report for the fiscal
year ended April 30, 1995.
10.2 Manatron, Inc. 1989 Stock Option Plan. This
exhibit is incorporated by reference to the
Registrant's Form 10-K Annual Report for the fiscal
year ended April 30, 1995.
10.3 Manatron, Inc. 1995 Long-Term Incentive Plan. This
exhibit is incorporated by reference to the
Registrant's Definitive Proxy Statement for its Annual
Meeting of Shareholders held October 12, 1995.
10.4 Buy and Sell and Voting Trust Agreement Concerning
Stock of Manatron, Inc. See Exhibit 9 above.
10.5 Executive Employment Agreement with Randall L.
Peat. This exhibit is incorporated by reference to
the Registrant's Form 10-K Annual Report for the fiscal
year ended April 30, 1995.
10.6 Form of Stock Purchase Warrant with Brent R. Nicklas,
as amended. This exhibit is incorporated by
reference to the Registrant's Form 10-K Annual Report
for the fiscal year ended April 30, 1995.
10.7 Manatron, Inc. Employee Stock Ownership and Salary
Deferral Plan. This exhibit is incorporated by
reference to the Registrant's Form 10-K Annual Report
for the fiscal year ended April 30, 1995.
10.8 Manatron, Inc. Employee Stock Purchase Plan. This
exhibit is incorporated by reference to the
Registrant's Form 10-K Annual Report for the fiscal
year ended April 30, 1993.
10.9 ATEK Information Services, Inc. Stock Purchase
Agreement. This exhibit is incorporated by reference
to the Registrant's Form 8-K Current Report dated July
28, 1993.
10.10 Stock Purchase Agreement between Ronald D. Stoynoff and
Allen F. Peat dated March 15, 1994. This exhibit is
incorporated by reference to the Registrant's Form 8-K
Current Report dated March 15, 1994.
10.11 Agreement between Manatron, Inc. and Ronald D. Stoynoff
effective as of April 1, 1994. This exhibit is
incorporated by reference to the Registrant's Form 8-K
Current Report dated March 15, 1994.
10.12 Asset Purchase Agreement between Manatron, Inc. and
Moore Business Forms, Inc. dated November 11, 1994.
This exhibit is incorporated by reference to the
Registrant's Form 8-K Current Report dated November 11,
1994.
10.13 Manatron, Inc. 1994 Long-Term Incentive Plan. This
exhibit is incorporated by reference to the
Registrant's Definitive Proxy Statement for its Annual
Meeting of Shareholders held October 6, 1994.
-2-
10.14 Agreement between Manatron, Inc. and Allen F. Peat
dated October 17, 1995. This exhibit is
incorporated by reference to the Registrant's Form 8-K
Current Report dated November 13, 1995.
10.15 Employment Agreement with Douglas A. Peat dated
October 10, 1996. This exhibit is incorporated by
reference to the Registrant's Form 10-K Annual Report for
the fiscal year ended April 30, 1997.
10.16 Employment Agreement with Jane M. Rix dated October 10,
1996. This exhibit is incorporated by reference to
the Registrant's Form 10-K Annual Report for
the fiscal year ended April 30, 1997.
10.17 Employment Agreement with James W. Sanderbeck dated
October 10, 1996. This exhibit is incorporated by
reference to the Registrant's Form 10-K Annual Report for
the fiscal year ended April 30, 1997.
10.18 Employment Agreement with Paul R. Sylvester dated
October 10, 1996. This exhibit is incorporated by
reference to the Registrant's Form 10-K Annual Report for
the fiscal year ended April 30, 1997.
10.19 Employment Agreement with Larry L. Terhune dated
October 10, 1996. This exhibit is incorporated by
reference to the Registrant's Form 10-K Annual Report for
the fiscal year ended April 30, 1997.
10.20 Manatron, Inc. Executive Incentive Plan for 1997.
This exhibit is incorporated by reference to the
Registrant's Form 10-K Annual Report for the fiscal
year ended April 30, 1997.
10.21 Manatron, Inc. Executive Incentive Plan for 1998.
This exhibit is incorporated by reference to the
Registrant's Form 10-K Annual Report for the fiscal
year ended April 30, 1997.
10.22 Form of Indemnity Agreement.
10.23 Indemnity Agreement of Daniel P. Muthard.
21 Subsidiaries of Registrant. This exhibit is
incorporated by reference to the Registrant's Form 10-K
Annual Report for the fiscal year ended April 30, 1996.
-3-
23 Consent of Independent Public Accountants.
24 Powers of Attorney.
27 Financial Data Schedule.
- -----------------------------
Management contract or compensatory plan or arrangement.
-4-