-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, KRDFSNuPduPycvussMFLup603osgaSXifjuNeayGn6vqkMeGy4myZodFNPI3e3/d ysWV3eP2MsjRPI17wzsFKQ== 0000950131-95-001732.txt : 19950626 0000950131-95-001732.hdr.sgml : 19950626 ACCESSION NUMBER: 0000950131-95-001732 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19950402 FILED AS OF DATE: 19950623 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: APERTUS TECHNOLOGIES INC CENTRAL INDEX KEY: 0000351139 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 411349953 STATE OF INCORPORATION: MN FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-12378 FILM NUMBER: 95548964 BUSINESS ADDRESS: STREET 1: 7275 FLYING CLOUD DR CITY: EDEN PRAIRIE STATE: MN ZIP: 55344 BUSINESS PHONE: 6128280300 MAIL ADDRESS: STREET 1: 7275 FLYING CLOUD DRIVE CITY: EDEN PRAIRIE STATE: MN ZIP: 55344 FORMER COMPANY: FORMER CONFORMED NAME: LEE DATA CORP DATE OF NAME CHANGE: 19900815 10-K405 1 FORM 10-K Securities and Exchange Commission Washington, D.C. 20549 Form 10-K (Mark One) [x] Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1933 for the fiscal year ended April 2, 1995, or Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1933 for the period from ______________________ to ______________________ Commission file number 0-12378 APERTUS TECHNOLOGIES INCORPORATED --------------------------------- (Exact name of registrant as specified in its charter) Minnesota 41-1349953 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 7275 Flying Cloud Drive Eden Prairie, Minnesota 55344 ------------------------------- ---------- (Address of principal executive offices) (ZIP Code) Registrant's telephone number, including area code: (612) 828-0300 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.05 per share Common Stock purchase rights 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 ----- ----- The aggregate market value of voting stock held by non-affiliates of the registrant as of June 5, 1995 was approximately $128,589,150 (based on the last sale price of such stock as reported by The NASDAQ Stock Market - National Market System, Inc.). As of June 5, 1995, 13,535,700 shares of the registrant's Common Stock, par value $.05 per share, were issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE Part II incorporates information by reference to the Annual Report to Shareholders for the fiscal year ended April 2, 1995 (the "Annual Report to Shareholders"). Part III incorporates information by reference to the Proxy Statement dated June 14, 1995 for the 1995 Annual Meeting of Shareholders (the "Proxy Statement"). [ X ] Indicate by checkmark 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. PART I - ----------------- ITEM 1. BUSINESS Apertus Technologies Incorporated ("Apertus" or the "Company") provides computer communications products that enable customers to successfully integrate traditional large scale systems (referred to as "legacy systems") with open systems computing environments. Open systems are typically characterized by powerful processors running the UNIX operating system and industry-standard communications topologies such as TCP/IP. Specifically, the Company provides network gateways that facilitate interoperability between local area networks ("LANs") and legacy systems, server-based tools that integrate legacy system data and applications into client/server applications, and system management applications for the centralized management of distributed networks and applications. In December 1993, the Company acquired all of the stock of Systems Strategies, Inc. ("SSI"), a wholly-owned subsidiary of AGS Computers, Inc., a NYNEX company. SSI provides communications software products for linking UNIX, IBM mainframe, AS/400, and DEC systems, as well as multi-vendor messaging/ queuing solutions. The purchase price for SSI was $14 million, with $10 million paid in cash at closing and $4 million in the form of promissory notes payable over a three-year period. During fiscal 1995 Apertus and NYNEX reached a settlement whereby the purchase price of SSI was reduced by $1.68 million. The settlement, along with a cash payment of $2.06 million made in the fourth quarter, relieved the Company of any future obligations to NYNEX. Since the acquisition, the Company markets three broad categories of products for enterprise-strength communications. Its Network Integration products provide solutions for linking the new, open networks with IBM's SNA, legacy computing environments. Its Data Integration products enable legacy data to be integrated and/or migrated from mainframe centric environments to open systems computing. Its Management Integration products provide management applications for the centralized management of distributed networks. The Company, a Minnesota corporation, was incorporated in March 1979. MARKET MARKET FOCUS: The computer industry has undergone dramatic changes over the past decade, and this revolution has centered largely on bringing more computing power to the desktop. The problem with desktop systems, however, was that while they were designed to provide open (non-proprietary) computing, they were generally isolated from information on other systems. This resulted in a costly and inefficient computing enterprise. Over the past few years, connectivity between desktop, server, midrange, and mainframe systems has become a priority for most large organizations. Today's desktop systems and applications are often called upon to share information and resources with departmental, branch and corporate data, which may be across the office or across the world. As organizations reengineer their information systems' infrastructure from traditional mainframe-oriented environments, where older, legacy applications are housed, to a new distributed style of computing characterized by client/server configurations, they need solutions to facilitate this integration. Apertus provides products and services that address the emerging requirements for bridging legacy and open systems environments. TARGET MARKET: The Apertus product lines are horizontal in nature. As a result, products provide solutions for the entire spectrum of industries, including, but not limited to, telecommunications, retail, manufacturing, finance/banking and healthcare. Apertus' target customer base is Fortune 1000 corporations in the commercial marketplace, major telephone and interchange companies, original equipment manufacturers (OEMs), value added resellers (VARs), and systems integrators. Its products are sold in the United States and internationally. Telecommunications Industry: Historically, the Company has been successful in marketing its products to the Regional Bell Operating Companies ("RBOCs"), which require significant communications capabilities for sharing data across large, complex databases contained in multiple mainframes. Such customers include Ameritech and Bell Atlantic. Recently, the Company also has been successful selling to large independent telephone companies. Over the last fiscal year, companies within the telecommunications industry have made significant purchases of the Company's products, with GTE, MCI and Bell South each buying products from the Company with an aggregate purchase price in excess of $1 million. Worldwide, Commercial Marketplace: Apertus recently broadened its market reach to include commercial customers outside the telecommunications industry. Through its own domestic sales force, the Company has sold products to customers such as Chicago Board of Trade, Northwestern Mutual Life, Hughs Aircraft, Norwest Financial, State Of Maryland, and American Presidents Lines. With the acquisition of SSI, the Company has moved more broadly into the Fortune 1000 market, is expanding into the European market with major strategic wins this year at the German and Italian Finance Ministries, and now has a significant base of prominent international OEMs reselling the Company's products, including Bull, ICL, and Motorolla. PRODUCT OFFERINGS: NETWORK INTEGRATION PRODUCTS IBM computing environments continue to dominate most large corporations. In recent years, many of these organizations have begun migrating from IBM's proprietary computing environments and investing in more open computing solutions. The challenge for the information systems manager is to find a way to integrate the IBM legacy environment with new, open networks and systems. Apertus addresses this need for integration with its Datastar product line, which is sold directly to end user organizations, and its EXPRESS product line, which is marketed primarily to OEMs, systems integrators and VARs. THE DATASTAR PRODUCT LINE: The Datastar product line, consisting of a number of gateway products, provides high-performance communications links between diverse network environments and IBM mainframe and midrange host computers. Network Gateways: The Datastar Data Center Hub is a high-performance, channel-attached gateway system that assists major corporations in solving a variety of challenges related to the integration of IBM proprietary technology with more open, multi-protocol LANs. Available in three sizes to meet a range of network needs, the product features a modular architecture and switch-based backplane. These features permit end users to customize the Datastar to meet their unique networking requirements. Datastar gateway configurations include: Offload TCP/IP Gateway, which allows users on TCP/IP networks to transparently access IBM SNA and BiSync hosts; TCP/IP Interconnect Controller, providing a high performance connection between TCP/IP networks and IBM hosts running TCP/IP. NetWare for SAA Gateway, which allows Novell's NetWare users to access channel- attached IBM host resources; SNA DSPU Gateway, which allows users on Ethernet and Token-Ring SNA-based LANs to access IBM host resources; the Universal Access Gateway, which provides a "virtual" gateway complex across multiple Datastars and guarantees access through its innovative load balancing and fault tolerant features. A new higher-capacity Datastar is planned for release in fiscal year 1996. 3270 Terminal Servers: The Company's terminal server products allow corporations to connect their large installed base of 3270 terminals to bridge/router internetworks. These terminal server products are marketed under the name Datastar/3270 Access Hub. By providing access to both IBM SNA resources and UNIX resources across LAN environments (Ethernet and Token Ring), the 3270 Access Hub allows users to continue to use their investment in 3270 terminals and participate in open computing environments. Peripheral Products: The Company supplements its Datastar line with a series of complementary products marketed under third-party agreements. These products principally include networking software and terminal emulation software. EXPRESS ADVANCED SNA PRODUCT LINE: The Company markets Apertus EXPRESS products: a broad range of software products for connecting systems on TCP/IP networks with mainframes and AS/400s operating in an IBM SNA environments. EXPRESS software provides enterprise-wide connectivity between multivendor UNIX systems and IBM mainframes and AS/400s. With Apertus EXPRESS, users are provided with advanced SNA capabilities, built on the latest technology standards, resulting in a high speed, flexible network integration solution. EXPRESS provides: terminal emulation (3270 and TN3270, 5250 and TN5250), file transfer (SNA/RJE and LU6.2), and a Telnet-to-SNA gateway solution. It also provides programmers with the tools they need to develop application programs for UNIX systems so they can communicate with applications on IBM mainframes and AS/400s. This enables the development of EHLLAPI, CPI-C/APPC, LUA and network management applications. EXPRESS also offers an X.25 solution for linking UNIX systems across a packet-switched data network. As an extension of the EXPRESS product, the Company also markets its Data Transfer Services product line. Data Transfer Services provides a series of applications for data exchange, including file transfer and printer sharing between UNIX, VAX, IBM mainframe AS/400 utilizing IBM's LU6.2 programming interface. PRODUCT OFFERINGS: DATA INTEGRATION PRODUCTS Increasingly, new applications are being written in a distributed computing environment, where systems are spread throughout corporate locations. Typically, a database resides on a high-performance server, with user interaction driven by a graphical user interface. These new applications often need to access and update information contained in legacy computing environments. Apertus addresses this need with Enterprise/Access/TM/ and Enterprise/Integrator/TM/. ENTERPRISE/ACCESS product is a development toolkit that allows users to transparently access data residing in legacy applications. It is being sold in the commercial market as an enterprise-strength solution for integrating new applications with mainframe-based legacy systems and providing a smooth migration to open systems environments. Enterprise/Access product was selected as a finalist in the "Best of Show" Applications Development Tool category at Networld + Interop, one of the industry's largest trade shows. ENTERPRISE/INTEGRATOR technology is the fundamental technology in the Company's strategic alliance with GTE. This contract with GTE is valued at $10 million. The Enterprise/Integrator product permits data to be integrated from multiple source databases to a single target database. During the integration process, the Enterprise/Integrator product performs a data cleansing and consistency function that ensures a high level of accuracy for the newly created databases. Enterprise/Integrator is used by major telecommunication companies to synchronize and integrate heterogeneous databases. In fiscal 1996, the Company will begin marketing a new version of Enterprise/Integrator to the commercial market. PRODUCT OFFERINGS: MANAGEMENT INTEGRATION PRODUCTS Apertus is engaged in a strategic relationship with IBM relating to the development of MQSeries software. MQSeries software provides a standard way of sending messages in real-time between distributed applications, while assuring that no messages are lost, duplicated or delivered out of order. It enables applications to communicate with applications distributed across other multi- platform environments. Apertus is focusing its current development efforts on systems management products that complement MQSeries software. The first systems management product, MQView, is expected to be generally available in fiscal 1996 and will provide a centralized management application for the configuration, monitoring and management of MQ networks. The Company intends to expand its effort in fiscal 1996 through the addition of other system management products. MARKETING AND CUSTOMERS Domestically, Apertus uses a direct sales force, located throughout the United States, to market to its end user customers. For small orders, the Company uses an in-house telesales group that completes sales without involvement from the direct sales force. The Company is organized around four business units, each of which is responsible for implementing its own strategy which is based on the Company's mission. The primary marketing communications vehicles used to generate leads include advertising, direct mail, press relations, vendor relations, seminars, and trade shows. The Company's European operations, based in an office in a suburb of London, England, and in Stuttgart, Germany, which opened in April 1995, markets and distributes all of the Company's products. It sells directly to end users and indirectly through OEMs, distributors and VARs. The Company is also expanding outside of Europe with strategic distribution partners. In fiscal 1995 the Company added Samsung in Korea and CPM in Brazil as key new partners. In addition, the Company uses manufacturers' representatives and distributors on a selective basis. BACKLOG The Company attempts to ship orders to end-user customers within 30 days. Because of this short delivery cycle, the Company does not believe backlog is a meaningful indicator of future revenues. CUSTOMER SERVICE The Company works directly with customers on a direct service basis out of Minneapolis, New York and London to provide prompt and reliable support for products installed at end-user facilities. Company employees provide software product maintenance worldwide. Generally, hardware maintenance is provided through third-party vendors providing first-line service. Customers may chose either self-maintenance programs where the customers' personnel provide first- line repair, or direct service programs where the Company or third-party vendors provide first-line repair. In either case, more advanced technical support is provided by the Company's field specialists and technical support groups located in Minneapolis, New York and London. PRODUCT DEVELOPMENT Because of rapidly changing technology in the communications software market, the Company is committed to ongoing research and development. The Company spent approximately $6.0 million (10.9 percent of revenues), $4.2 million (16.0 percent of revenues) and $2.9 million (10.5 percent of revenues) during fiscal years 1995, 1994 and 1993, respectively, on research and development, all of which was sponsored by the Company. Due to the expanding range of products and features available in the communications software marketplace, management recognizes that the capability to interface the Company's products with other available or installed products has increasing significance. During the 1995 fiscal year, the Company continued to develop enhancements to the Datastar architecture. Also, the Company became involved with the development of the EXPRESS product line, including UNIX-to-IBM connectivity software and extension of the EXPRESS Data Transfer Services software product to the mainframe environment. Software research and development for Enterprise/Access and Enterprise/Integrator product include enhancements to existing products as well as new product development. The Company believes that copyright protection is important to its business. Accordingly, the Company copyrights software source code modules. The Company also relies on trade secrets, proprietary know-how and continuing product innovation to maintain its competitive position. COMPETITION Apertus' product lines each have their own distinct significant competitors: NETWORK INTEGRATION SOLUTIONS The Datastar products primarily compete with mainframe-dependant products manufactured by IBM, Cicso and Interlink, and off-load products manufactured by OpenConnect, Novell, Microsoft, CNT/Brixton. The EXPRESS products' primary competition comes from OEMs, including Sun, Hewlett Packard and IBM. While most of these manufacturers offer an IBM communications solution, they typically are platform-specific (as opposed to multi-platform). EXPRESS products also compete with products manufactured by companies such as Cleo, OpenConnect and Brixton. DATA INTEGRATION SOLUTIONS The Enterprise/Access and Enterprise/Integrator products compete in an emerging segment of the information systems marketplace providing enabling technologies for development of client/server applications. Both products compete with internal development initiatives. The Enterprise/Access product also competes with desktop tools (as opposed to server based tools) from Wall Data, Attachmate, DCA, and Easel Corp. and is complementary to database gateway products from companies such as Sybase, Oracle and Information Builders. The Enterprise/Integrator competes with an MVS mainframe-based data integrity tool manufactured by Vality Corporation and market data extraction tools manufactured by Prism and Evolutionary Technologies, Inc. MANAGEMENT INTEGRATION The MQSeries product line's competition comes primarily from development efforts launched within organizations. In addition, companies that have products that compete with the MQSeries include Covia, DEC and Momentum. SERVICE AND MAINTENANCE The Company's service and maintenance programs compete with comparable programs offered by AT&T, Memorex-Telex, IBM, and other competitors that have substantially more locations and personnel than the Company. The Company's products support industry network management standards (SNMP, NetView) and have extensive remote diagnostic capabilities. As hardware has become more reliable, the Company has relied on third-party vendors for hardware support and its own regional service organization for software support. MANUFACTURING AND SUPPLY For its communications software products, the Company has a central production facility (at its headquarters in Minneapolis) that adheres to uniform manufacturing policies and procedures. For the Datastar communications product, the Company performs final assembly and final test, with the majority of components (including the printed circuit boards) purchased from suppliers. Emphasis is placed on ensuring a quality product through such means as Statistical Process Control (SPC), Cellular Management, Just In Time (JIT) concepts and a suppliers' certification program. A computerized system is used to manage purchasing, production scheduling, order entry, and inventory management functions. Most of the components used in the Company's products are available from a number of suppliers. However, a number of parts, including certain integrated circuits and monitors, are generally available only from single sources of supply. In some cases, if the Company were to be deprived of these single- source items, the Company would be required to obtain an alternative supplier, manufacture the items itself or redesign certain products, all of which could cause delays in product shipments. The Company has never experienced significant production delays because of the failure of a supplier to provide component parts. EMPLOYEES As of June 7, 1995, the Company employed 297 persons, including 126 in product development, 41 in manufacturing, 74 in marketing, 29 in customer service, and 27 in finance and administration. None of the employees are covered by collective bargaining agreements, and the Company believes its employee relations are good. - ---------------------- ITEM 2. PROPERTIES In July 1990 the Company moved its principle office and manufacturing facility to 60,000 square feet of leased space in a building located in Eden Prairie, Minnesota. The lease has a six-year term and requires total lease payments of $3.3 million over the term of the lease. Additionally, SSI's corporate headquarters is located in New York, New York. SSI has a 10-year lease which began on November 1, 1991, on this 11,729 square foot facility. Annual rent for fiscal year 1994 was approximately $300,000. SSI subleased approximately one-half of the space commencing February 6, 1995. The Company sold its previous headquarters facility to a major retail electronics company located in Minneapolis, Minnesota. The facility is a 262,000 square foot office and manufacturing building located on a 28-acre site in Eden Prairie, Minnesota. It was purchased in June 1986 for $12,890,000. Under the terms of the transaction, the Company will carry a contract for deed for three years. In return, the purchaser will make interest payments for three years, with a final balloon payment in June 1996 for $8.7 million. The Company has assumed liability for the purchaser's former headquarters through April 1995. - ---------------------- ITEM 3. LEGAL PROCEEDINGS The Company has no pending legal proceedings which the Company believes are material. - ---------------------- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None EXECUTIVE OFFICERS OF THE REGISTRANT The following sets forth certain information regarding the executive officers of the Company: Robert D. Gordon has been Chairman of the Board and Chief Executive Officer of the Company since April 1990 and President of the Company since December 1988. He was first employed by the Company as Senior Vice President in July 1987, and subsequently he served as Chief Financial Officer from August 1987 to May 1988, Secretary from January 1988 to September 1988, and Group Vice President, Sales and Marketing from April 1988 to December 1988. From April 1984 to July 1987, Mr. Gordon was Executive Vice President of First Bank System, Inc. He has been a director of the Company since August 1987. Julie Cummins Brady has held the position of Secretary and General Counsel since April 1990. Prior to joining the Company, Ms. Brady held legal positions with various divisions of Control Data Corporation, most recently as Corporate Counsel for Imprimus Technology Incorporated. Sue A. Hogue has held the position of Chief Financial Officer of the Company since August 1993. Prior to her current position, she served as Corporate Controller of the Company for three years. Ms. Hogue has been employed by the Company since August 1989. Martin G. Hahn has been General Manager, Network Integration Group of the Company, since January 1994. Prior to his current position, he served as Vice President of Marketing for the Internetworking Solutions Group for three years. Mr. Hahn has been employed by the Company since July 1987. William Fell has served as General Manager of the Company's United Kingdom operations since March 1994. Prior to joining the Company, Mr. Fell was employed by McData Corporation in the United Kingdom as Director of European Operations. Leslie Yeamans has served as General Manager, Management Integration Group of the Company, since January 1994. Prior to joining SSI in 1985, Mr. Yeamans held positions with Andersen Consulting in Boston and later at Powerbase Systems. Norman Friedman has served as General Manager, Express Group of the Company, since January 1994. Mr. Friedman has over 14 years of experience with SSI and is responsible for the Core Technology Group which manufactures the EXPRESS product line. Prior to joining SSI, he was employed by Warner Computer Systems in New York City. Lizabeth Converse Wilson has served as General Manager, Data Integration Group of the Company, since May 1993. Ms. Wilson has been employed by the Company for 11 years. Prior to her current position, she served as Director of Sales and Marketing for the Enterprise Systems Group and previously as a Regional Account Manager. PART II ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - ------------------------------------------------------------------------------ The information contained under the heading "Dividend Policy and Price Range of Common Stock" on page 13 of the portions of Annual Report to Shareholders is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA - -------------------------------- The information contained under the heading "Selected Financial Data" on page 12 of the portions of Annual Report to Shareholders is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - -------------------------------------------------------------------------------- OF OPERATIONS - ------------- The information contained under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 1 and 2 of the portions of Annual Report to Shareholders is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------- The independent auditors' report, consolidated financial statements, and notes to consolidated financial statements on pages 3 through 10 of the portions of Annual Report to Shareholders 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 contained under the heading "Election of Directors" on pages 2 and 3 of the Proxy Statement is incorporated herein by reference. The information contained under the heading "Executive Officers of the Registrant" in Part I hereof is also incorporated into this Item 10 by reference. ITEM 11. EXECUTIVE COMPENSATION - -------------------------------- The information contained under the heading "Executive Compensation" on pages 4 through 11 of the Proxy Statement is incorporated herein by reference, except that the information set forth under the captions "Report of Compensation Committee on Annual Compensation" and the "Comparative Stock Performance" chart are not incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------------------------------- The information contained under the heading "Security Ownership of Certain Beneficial Owners and Management" on pages 12 and 13 of the Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- None. Part IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. Financial Statements Page Reference in Exhibit 13 to -------------------- this Annual Report to Shareholders ----------------------------------- Consolidated Statements of Operations for the Years Ended April 2, 1995, April 3, 1994 and March 28, 1993................................................... 3 Consolidated Balance Sheets at April 2, 1995 and April 3, 1994........................................................ 4 Consolidated Statements of Cash Flows for the Years Ended April 2, 1995, April 3, 1994 and March 28, 1993................................................... 5 Consolidated Statements of Shareholders' Equity for the Years Ended April 2, 1995, April 3, 1994 and March 28, 1993................................................... 6 Notes to Consolidated Financial Statements............................. 6 through 9 Report of Independent Auditors......................................... 10
The report on the Company's previous indepedent auditors with respect to the above financial statements appears on page 17 of this Annual Report. The financial statements listed above are included in Exhibit 13 and are hereby incorporated by reference.
2. Financial Statement Schedules Page Number in This ----------------------------- Annual Report -------------------- Independent Auditors' Report on Supplemental Financial Schedule...................................... 16 Schedule II Valuation and Qualifying Accounts and Reserves for the Years Ended April 2, 1995, April 3, 1994 and March 28, 1993....................................................... 17
All other schedules are omitted since the required information is not represented or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and notes thereto. 3. Exhibits --------
Exhibit Number Description - ------- ----------- 3.1 Restated Articles of Incorporation, as amended./5/ 3.2 Bylaws, as amended./5/ 4 Shareholder Rights Plan./4/ 10.1 *Amended 1990 Long Term Incentive Plan./9/ 10.2 Office Warehouse Lease, dated May 10, 1990, between the Company and Real Estate Income Partners III, A Limited Partnership./2/ 10.3 (a)Purchase Agreement, dated April 23, l986, between Byte Investment Partnership 1 and the Company./4/ (b)Promissory Note, dated June 12, l986, from the Company to The Prudential Insurance Company of America ("Prudential")./4/ (c)Assignment of Leases and Rents, dated June 12, l986, between the Company and Prudential./4/ (d)Combination Mortgage, Security Agreement and Fixture Financing Statement, dated June 12, l986, between the Company and Prudential./4/ 10.4 (a)Contract for Deed, dated as of October 1, 1993, between the Company and Best Buy Co., Inc./7/ (b)Collection and Disbursement Agreement, dated as of October 1, 1993, among the Company, The Prudential Insurance Company of America and First Trust National Association./7/ (c)Lease Payment Agreement, dated as of October 1, 1993, between the Company and Best Buy Co., Inc./7/ 10.5 (a)Distribution Agreement, dated March 30, 1990, between IIS Inc., as Manufacturer, and the Company, as Distributor./1/
(b)Distribution Agreement, dated March 30, 1990, between the Company, as Manufacturer, and IIS Inc., as Distributor./1/ (c)Software Support Agreement, dated March 30, 1990, between the Company and IIS Inc./1/ (d)Manufacturing Agreement, dated March 30, 1990, between the Company and IIS Inc./1/ (e)Amendment to the Software Support Agreement, dated as of March 30, 1990 between the Company and IIS Inc./3/ 10.6(a) *1994 Management Bonus Plan description./5/ 10.6(b) *1995 Management Bonus Plan description./6/ 10.6(c) *1996 Management Bonus Plan description. 10.7 Stock Purchase Agreement dated December 31, 1993 between Apertus Technologies Incorporated and NYNEX Worldwide Services Group, Inc./8/ 10.8(a) *Stock Acquisition Loan Assistance Program./5/ 10.8(b) *1993 Stock Acquisition Loan Assistance Program./9/ 10.9 Office Lease Agreement, dated June 1991, between Mid City Associated and Systems Strategies, Inc./6/ 13 Portions of Annual Report to Shareholders for the fiscal year ended April 2, 1995. 21 Subsidiaries of the registrant. 23.1 Consent of Ernst & Young LLP. 23.2 Consent of Deloitte & Touche LLP. 24 Powers of Attorney. 27 Financial Data Schedule. - ------------------- *Denotes management contracts and compensatory plans, contracts, and arrangements. /1/Incorporated by reference to the Company's Report on Form 8K filed April 16, 1990. /2/Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended April 1, 1990. /3/Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1991. /4/Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended March 29, 1992. /5/Incorporated by reference to the Company's Annual Report on Form 10-K for fiscal year ended March 28, 1993. /6/Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended April 3, 1994. /7/Incorporated by reference to the Company's Report on Form 8-K filed November 5, 1993. /8/Incorporated by reference to the Company's Report on Form 8-K/A filed March 15, 1994. /9/Incorporated by reference to the Company's Registration Statement on Form S- 8 filed March 31, 1994. /10/Incorporated by reference to the Company's Registration Statement on Form S- 8 filed January 27, 1995. 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. Date: June 23, 1995 APERTUS TECHNOLOGIES INCORPORATED By: /s/ Robert D. Gordon ----------------------------------- Robert D. Gordon Chairman of the Board, Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Robert D. Gordon Chairman of the Board, ) Chief Executive Officer, ) President (principal ) executive officer) and ) Director ) ) Sue A. Hogue* Chief Financial ) Officer (principal ) By: /s/ Robert D. Gordon financial officer ) ----------------------- and principal ) Robert D. Gordon accounting officer) ) Pro Se and ) Attorney-in-Fact Nicholas J. Covatta, Jr.* Director ) ) Date: June 23, 1995 ) Robert W. Fischer* Director ) ) Arch J. McGill* Director ) ) Clarence W. Spangle* Director )
____________ *Executed on behalf of the indicated persons by Robert D. Gordon pursuant to the Power of Attorney included as Exhibit 24 to this annual report. INDEPENDENT AUDITORS' REPORT To the Shareholders of Apertus Technologies Incorporated: We have audited the accompanying consolidated statements of operations, changes in shareholders' equity, and cash flows of Apertus Technologies Incorporated for the year ended March 28, 1993. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 audit provides a reasonable basis for our opinion. In our opinion, such 1993 consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the year ended March 28, 1993 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Minneapolis, Minnesota May 11, 1993 APERTUS TECHNOLOGIES INCORPORATED SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEARS ENDED APRIL 2, 1995, APRIL 3, 1994 AND MARCH 28, 1993 (DOLLARS IN THOUSANDS) ALLOWANCE FOR DOUBTFUL ACCOUNTS:/(A)/
Column A Column B Column C Column D Column E Balance Charged to Balance at Beginning Costs and at End Description of Period Expenses/(B)/ Deductions of Period - -------------------------------------------------------------------------------------------------------------------------------- Year Ended: April 2, 1995 $931 $1,288/(D)/ $1,354/(E)/ $865 April 3, 1994 $365 $1,004/(C)/ $ 438 $931
__________________________ /(A)/ The allowance has been netted against accounts receivable as of the respective balance sheet dates. /(B)/ Write-offs net of recoveries. /(C)/ Includes $511 of allowance for doubtful accounts acquired in the Systems Strategies, Inc. acquisition. /(D)/ Includes approximately $1.1 million of NYNEX settlement. This settlement released NYNEX of any liability connected with the collection of outstanding receivables guaranteed by NYNEX under the original contract. /(E)/ Includes approximately $1.3 million of receivables written off against the NYNEX settlement discussed in footnote (D) as well as the $511 noted in footnote (C). APERTUS TECHNOLOGIES INCORPORATED INDEX OF EXHIBITS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED APRIL 2, 1995 EXHIBIT PAGE NUMBER DESCRIPTION NUMBER - ----------------------------------------------------------------------------- 10.6(d) 1996 Management Bonus Plan Description 19 13 Portions of Annual Report to Shareholders for the fiscal year ended April 2, 1995 20 21 Subsidiaries of the registrant 33 23.1 Consent of Ernst & Young LLP 34 23.2 Consent of Deloitte & Touche LLP 35 24 Powers of Attorney 36 27 Financial Data Schedule 37 EX-10.6D 2 1996 MANAGEMENT BONUS PLAN Exhibit 10.6(d) 1996 Management Bonus Plan Under the 1996 Management Bonus Plan, key employees of the Company (including executive officers of the Company) may be entitled to receive amounts ranging from 17.5% to 130% of their base pay, in the form of cash bonuses. Payment of bonuses will depend upon achievement of quarterly incentive plan and annual incentive plan operating targets. If quarterly objectives and goals are achieved, a portion of the bonus will be paid after the end of the quarter and the remainder of the quarterly bonus will be paid after the end of the 1996 fiscal year. EX-13 3 ANNUAL REPORT [LOGO OF APERTUS TECHNOLOGIES INCORPORATED] MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS During the fiscal year ended April 2, 1995, the Company pursued its strategy of providing enterprise-strength solutions for helping organizations integrate traditional, large-scale computer systems with networked computing environments. This strategic direction is driven by the proliferation of new, powerful computing applications that are being built by corporations throughout the world to take advantage of the new, distributed, client/server computing technology. Apertus markets the following products: Datastar and EXPRESS (network integration products), Enterprise/Access and Enterprise/Integrator (data integration products) and MQView (middleware applications). The Datastar is a high-capacity, channel-attached gateway that provides a wide range of LAN-to-IBM mainframe solutions, while EXPRESS is a suite of communications software products for linking computers running the UNIX operating system with IBM mainframes and AS/400s. Enterprise/Access provides client/server access to mainframe systems, while Enterprise/Integrator is a tool for transforming, cleansing, matching, merging and synchronizing data from databases that are stored on different types of mainframes. MQView (currently in the final stages of development) is the Company's first product in a family of software tools for developing, managing and maintaining enterprise-wide applications built upon IBM's multi-platform messaging and queuing product family, MQSeries. With these products and the now unified efforts of Apertus and Systems Strategies, Inc. (SSI), significant progress was made in achieving the Company's strategic business initiatives, which include: expanding its presence in the Fortune 1000 commercial marketplace, increasing the international customer base and generating new telecommunication company accounts. During this next year, the Company anticipates the release of several new products: a higher-capacity Datastar, the next release of the Enterprise/Integrator product and MQView. It will also introduce numerous product enhancements throughout the year. By capitalizing on the momentum generated during the current year and the anticipated new product releases and enhancements in the coming year, the Company is expecting improved revenue and profitability in fiscal 1996. Fiscal 1995 Compared to Fiscal 1994 Net revenues from operations in fiscal 1995 increased approximately $28.4 million, 108% over fiscal 1994 revenues. The increase in revenues resulted primarily from the following: a full year of SSI revenues (SSI was acquired in January 1994) versus only a quarter of revenue activity in the prior year, strong revenue growth in its international, commercial and telecommunication marketplaces and increased maintenance revenue due to the expanded installation base of products. 1 The cost of revenues as a percentage of revenues decreased to 30% in fiscal 1995 from 43% in fiscal 1994. This decrease resulted principally from a continued shift toward sales of products that contain a larger portion of software and thus result in higher margins. Research, development and engineering costs as a percentage of revenues decreased to 20% in fiscal 1995 as compared to 23% in fiscal 1994. This decrease principally reflects the increase in revenue noted above. Selling, general and administrative costs as a percentage of revenues decreased to 34% in fiscal 1995 from 37% in fiscal 1994. This change also reflects the increased revenues noted above. Interest income remained relatively static as rising interest rates have offset a lower average cash and marketable securities balance. The lower cash and marketable securities balance principally resulted from a $10 million payment made to NYNEX in December 1993 related to the acquisition of SSI as well as to a $2 million settlement of notes payable with NYNEX in the fourth quarter of fiscal 1995. Fiscal 1994 Compared to Fiscal 1993 Net revenues from continuing operations in fiscal 1994 decreased approximately $1.5 million (5%) over fiscal 1993 revenues. This decrease in revenues is principally the result of a decline in the sales of the Company's older peripheral products, which resulted in an approximate $6 million reduction in revenue between fiscal 1993 and fiscal 1994. Offsetting this decline were increases in the sales of the Company's gateway products, continued revenue growth in the data integration products resulting from further sales growth within various telecommunication companies, as well as in other independent telephone companies, and the introduction of revenues associated with the acquisition of SSI. The cost of revenues as a percentage of revenues decreased to 43% in fiscal 1994 from 50% in fiscal 1993. This decrease continues the trend noted in the prior year as product sales continue to shift toward sales of products that contain a larger portion of software and thus result in higher margins. Research, development and engineering costs as a percentage of revenues increased to 23% in fiscal 1994 as compared to 17% in fiscal 1993. This increase reflects the Company's ongoing commitment to new product generation, as well as to the decrease in revenue noted above. Selling, general and administrative costs as a percentage of revenues increased to 37% in fiscal 1994 from 28% in fiscal 1993. This change reflects the added costs associated with the expansion into the commercial and international marketplaces, as well as the decreased sales noted above. During fiscal 1994, the Company recorded other charges of approximately $9 million. These charges relate principally to the sale of the Company's former headquarters and the acquisition of SSI. The company does not anticipate any negative impact on future operations or liquidity as a result of these charges. No interest expense was incurred in fiscal 1994 as a result of the elimination of debt related to the non-recourse financing of installment receivables in fiscal 1993. Interest income was lower due to a $10 million payment made to NYNEX in December 1993 related to the acquisition of SSI, as well as to lower interest rates earned on securities invested in general. Impact of Inflation The Company has not experienced any significant impact from inflation. Liquidity and Capital Resources The Company had working capital of $24 million and $16.3 million on April 2, 1995 and April 3, 1994, respectively. This increase was primarily due to the net income earned in the current year. Cash, cash equivalents and marketable securities were approximately $20.3 million and $9.2 million on April 2, 1995 and April 3, 1994, respectively. This increase was also due primarily to the net income earned in the current year. The Company currently anticipates making capital expenditures of approximately $2 million during fiscal 1996. This amount includes the purchase of research and development equipment, data processing equipment and software. The Company believes that cash on hand will be adequate to meet its anticipated cash needs for working capital and capital expenditures for 1996. The Company does not have any post-retirement benefits and is not liable for any payments to retirees. 2 APERTUS TECHNOLOGIES INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts)
For the Fiscal Years Ended ------------------------------------ April 2 April 3 March 28 1995 1994 1993 - ------------------------------------------------------------------------------ REVENUES Sales................................. $45,713 $20,719 $22,611 Rentals and services.................. 8,913 5,487 5,107 ------- ------- ------- Total............................... 54,626 26,206 27,718 ------- ------- ------- COSTS AND EXPENSES Cost of sales......................... 12,794 7,424 10,363 Cost of rentals and services.......... 3,474 3,729 3,509 Research, development and engineering. 10,674 5,986 4,747 Selling, general and administrative... 18,407 9,801 7,852 Other charges......................... - 9,029 - ------- ------- ------- Total............................... 45,349 35,969 26,471 ------- ------- ------- Income (Loss) from Operations........... 9,277 (9,763) 1,247 ------- ------- ------- OTHER INCOME (EXPENSE) Interest expense...................... - - (10) Investment income..................... 712 747 1,248 ------- ------- ------- Total............................... 712 747 1,238 ------- ------- ------- Income (Loss) From Operations Before Income Taxes.................... 9,989 (9,016) 2,485 Income Tax Expense...................... (150) - - ------- ------- ------- Net Income (Loss)....................... $ 9,839 $(9,016) $ 2,485 ======= ======= ======= Income (Loss) per Common and Common Equivalent Share................ $ .69 $ (.70) $ .19 ======= ======= ======= Weighted Average Number of Common and Common Equivalent Shares Outstanding............................ 14,266,000 12,884,000 12,999,072 ========== ========== ==========
See Accompanying Notes to Financial Statements. 3 APERTUS TECHNOLOGIES INCORPORATED CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
For the Years Ended ------------------- April 2 April 3 1995 1994 - ------------------------------------------------------------------------------ ASSETS Current Assets Cash and cash equivalents.............................. $ 13,140 $ 2,040 Cash in escrow - current portion....................... 106 106 Marketable securities.................................. 6,310 6,213 Accounts receivable, less allowance for doubtful accounts of $865 in 1995 and $931 in 1994...................................... 14,067 12,159 Inventories............................................ 3,126 3,092 Installment receivables - current portion.............. 150 881 Other.................................................. 453 529 -------- -------- Total current assets................................. 37,352 25,020 Property and Equipment Property and equipment................................. 12,606 10,821 Less accumulated depreciation.......................... 8,897 7,798 -------- -------- Net property and equipment........................... 3,709 3,023 Other Assets Cash in escrow - net of current portion................ 757 849 Note receivable........................................ 8,700 8,700 Capitalized software................................... 3,917 4,894 Installment receivables - net of current portion....... 49 196 Other.................................................. 842 881 -------- -------- Total other assets................................... 14,265 15,520 Total................................................ $ 55,326 $ 43,563 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable....................................... $ 2,932 $ 3,300 Accrued expenses....................................... 6,437 4,086 Deferred revenue....................................... 3,863 1,216 Current portion of long-term debt...................... 151 138 -------- -------- Total current liabilities............................ 13,383 8,740 Long-term Debt - net of current portion.................. 8,976 9,142 Notes Payable............................................ - 3,740 Shareholders' Equity Common stock - authorized 30,000,000 shares at $.05 par value, shares outstanding of 13,526,800 in 1995 and 12,941,875 in 1994............. 676 647 Additional paid-in capital............................. 53,231 52,047 Accumulated deficit.................................... (20,747) (30,586) Unearned compensation.................................. (193) (167) -------- -------- Total shareholders' equity........................... 32,967 21,941 -------- -------- Total................................................ $ 55,326 $ 43,563 ======== ========
See accompanying Notes to Financial Statements. 4 APERTUS TECHNOLOGIES INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
For the Fiscal Years Ended ------------------------------ April 2 April 3 March 28 1995 1994 1993 - -------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income (loss)..................................... $ 9,839 $(9,016) $ 2,485 Adjustments to reconcile net income (loss) to net cash from (used in) operating activities net of the effects from the purchase of the company: Depreciation and amortization....................... 4,187 934 291 Non-current portion of other charges................ - 7,829 - Net assets/provision for discontinued operations.... - 208 (193) Accounts receivable................................. (3,132) (559) (192) Installment receivables............................. 878 76 416 Inventories......................................... (34) 116 1,591 Other assets........................................ 218 (7) (123) Accounts payable, accrued expenses and deferred income................................ 4,504 (920) (1,325) ------- ------- ------- Net cash flows from (used in) operating activities.. 16,460 (1,339) 2,950 INVESTING ACTIVITIES Purchase of company (net of cash acquired).......... - (9,549) - Purchases of marketable securities.................. (1,228) - - Sales and maturities of marketable securities....... 1,131 - - Net sales (purchases) of marketable securities...... - 14,775 (2,608) Purchases of property and equipment................. (1,785) (557) (444) Capitalized software................................ (2,484) (1,387) - Reduction in carrying value of property held for sale...................................... - 638 398 Change in cash held in escrow....................... 92 (955) - ------- ------- ------- Net cash flows from (used in) investing activities.. (4,274) 2,965 (2,654) FINANCING ACTIVITIES Debt transactions: Repayments........................................ (2,213) (115) (522) Capital transactions: Stock options exercised........................... 1,213 393 316 Net change in restricted stock.................... (86) - 8 ------- ------- ------- Net cash flows from (used in) financing activities......................................... (1,086) 278 (198) ------- ------- ------- Net increase in cash and cash equivalents............. 11,100 1,904 98 Beginning cash and cash equivalents................... 2,040 136 38 ------- ------- ------- Ending cash and cash equivalents...................... $13,140 $ 2,040 $ 136 ======= ======= ======= Supplemental disclosures of cash flow information: Cash paid for interest.............................. $ 828 $ 840 $ 852 Cash paid (received) for income taxes............... 0 (39) (180)
See Accompanying Notes to Financial Statements. 5 APERTUS TECHNOLOGIES INCORPORATED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in thousands)
Common Stock ------------------- Additional Number of Paid-in Accumulated Unearned Shares Amount Capital Deficit Compensation - ---------------------------------------------------------------------------------------------------------- 1993 Balance, March 29, 1992.................. 12,520,041 $626 $51,237 $(24,055) $(121) Options exercised........................ 158,359 8 308 - - Net change in restricted stock........... (2,500) - 8 - - Compensation earned...................... - - - - 31 Net income............................... - - - 2,485 - ---------- ---- ------- -------- ----- Balance, March 28, 1993.................. 12,675,900 634 51,553 (21,570) (90) ---------- ---- ------- -------- ----- 1994 Options exercised........................ 229,475 11 382 - - Net change in restricted stock........... 36,500 2 112 - (114) Compensation earned...................... - - - - 37 Net loss................................. - - - (9,016) - ---------- ---- ------- -------- ----- Balance, April 3, 1994................... 12,941,875 647 52,047 (30,586) (167) ---------- ---- ------- -------- ----- 1995 Options exercised........................ 577,425 29 1,098 - - Net change in restricted stock........... 7,500 - 86 - (86) Compensation earned...................... - - - - 60 Net income............................... - - - 9,839 - ---------- ---- ------- -------- ----- Balance, April 2, 1995................... 13,526,800 $676 $53,231 $(20,747) $(193) ========== ==== ======= ======== =====
See Accompanying Notes to Financial Statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 2, 1995 (Dollars in thousands, except per share amounts) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation The consolidated financial statements include the accounts of Apertus Technologies Incorporated and its wholly owned subsidiary Systems Strategies, Inc. (together "the Company"). All inter-company accounts and transactions have been eliminated in consolidation. Fiscal Year The Company's fiscal year ends on the Sunday nearest March 31. Fiscal 1995 was a 52-week year. Fiscal 1994 and 1993 were 53- and 52-week years, respectively. Revenue Recognition Sales include direct sales to distributors and customers, sales-type lease contracts and commitment contracts. Sales are generally recorded when the product is shipped, except that sales-type lease contracts are recorded as sales when the products are accepted by the customer. Under commitment contracts, the revenue attributable to the current fiscal year is recognized when the product is shipped to the distributor. Any related costs are accrued at this time. Equipment under all other lease contracts is accounted for under the operating method, and rental income is recognized during the period the equipment is on lease. Service revenues are recognized over the period covered by the service contract. Cash Equivalents Securities which are readily convertible to cash with original maturities of three months or less when purchased are considered cash equivalents. Marketable Securities As of April 4, 1994 the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Investments in marketable equity securities and debt securities are classified as available-for-sale. Available-for-sale securities are carried at fair value with the unrealized gains and losses, net of tax, reported as a separate component of shareholders' equity. Realized gains and losses and declines in value judged to be other than temporary are included in investment income along with interest and dividends. 6 Capitalized Software The Company, in accordance with Statement of Financial Accounting Standards (SFAS) No. 86, capitalizes software development costs by project. These capitalized costs are amortized on a straight line basis over a period of three to five years or the expected life of the product, whichever is less. Research and development costs are charged to expense as incurred. Major Customers Sales to the following customers have accounted for a significant percentage of sales for the three year period ended April 2, 1995. The following table outlines these percentages:
Fiscal Years Ended Ameritech Bell Atlantic GTE - ------------------------------------------------------- April 2, 1995 9% 3% 26% April 3, 1994 10% 5% 15% March 28, 1993 28% 12% 4%
Inventories Inventories are valued at the lower of cost or market with cost determined on a first-in, first-out basis. Inventories are as follows:
Years Ended - ------------------------------------------------- 1995 1994 - ------------------------------------------------- Raw material $ 499 $ 479 Work-in-process 1,161 1,060 Finished goods 1,466 1,553 - ------------------------------------------------- Total $3,126 $3,092 - -------------------------------------------------
Property and Equipment Property and equipment is recorded at cost and depreciated on a straight- line basis. Property and equipment consists of the following:
Years Ended - --------------------------------------------------------------------- Depreciable 1995 1994 Lives in Years - --------------------------------------------------------------------- Machinery and equipment $ 9,208 $ 7,554 3-6 Furniture and fixtures 3,287 3,156 4-10 Tooling 111 111 4-5 - --------------------------------------------------------------------- Property and equipment $12,606 $10,821 - ---------------------------------------------------------------------
Income (Loss) per Common and Common Equivalent Share Income (loss) per common and common equivalent share is based on the weighted average number of common shares outstanding plus common share equivalents resulting from dilutive stock options. Primary and fully diluted income per share are approximately the same. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Reclassification Certain reclassifications have been made to prior year amounts to conform to the current year presentation. 2. CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES Cash, cash equivalents and marketable securities at April 2, 1995 consist of the following:
Cash and Cash Short Long Type Equivalents Term Term Total - ----------------------------------------------------------- Bonds $ - $4,816 $ $ 4,816 Commercial paper 7,196 1,494 - 8,690 Cash in escrow - 106 757 863 Other 5,944 - - 5,944 - ----------------------------------------------------------- Total $13,140 $6,416 $757 $20,313 - -----------------------------------------------------------
All marketable securities mature in fiscal 1996 except for the cash held in escrow which will be relieved in fiscal 1997. At April 2, 1995, the cost of marketable securities approximated market value. 3. PURCHASE OF SYSTEMS STRATEGIES, INC. Effective the close of business on December 31, 1993, the Company acquired the stock of Systems Strategies, Inc. (SSI), a wholly owned subsidiary of AGS Computers, Inc., a NYNEX Company. The total purchase price was $14 million which included a $10 million payment on December 31, 1993 and promises to pay to NYNEX the principal sum of $1 million, without interest, on June 30, 1995 and the principal sum of $3 million, without interest, on June 30, 1996. The present value of the payments due June 30, 1995 and 1996 of $3,740 were included on the balance sheet as "Notes Payable" at April 3, 1994. The acquisition was accounted for under the purchase method of accounting and, accordingly, the operating results of SSI have been included in the consolidated operating results since the date of acquisition. A portion of the purchase price amounting to approximately $5.5 million was allocated to purchased research and development. This was charged against earnings in the third quarter of fiscal 1994 and was included in "Other charges." 7 The following table shows the pro forma consolidated results of operations as if SSI had been acquired as of the beginning of the periods presented:
Unaudited - ------------------------------------------------ Fiscal Fiscal 1994 1993 - ------------------------------------------------ Revenues $37,445 $42,064 Net income (loss) $(5,591) $ 3,754 Net income (loss) per share $ (.43) $ .29
The pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been in effect for the entire periods presented. In addition, they are not intended to be a projection of future results and do not reflect any synergies that might be achieved from combined operation. During fiscal 1995 Apertus and NYNEX reached a settlement whereby the purchase price of SSI was reduced by $1,680. In return, the Company released NYNEX of any liability connected with the collection of outstanding receivables guaranteed by NYNEX under the original contract. This settlement, along with a cash payment of $2,060 made in the fourth quarter, relieved the Company of any future obligations to NYNEX. 4. SALE OF FORMER HEADQUARTERS On October 26, 1993, the Company sold its former headquarters property, consisting of land and a building, to Best Buy Co., Inc., a Minnesota corporation, for $8,700. Payment for the building is evidenced by a note receivable due on June 12, 1996 for the same amount. Additionally, the sales agreement required that Best Buy make interest payments of $287 on January 31, 1994 and $430 on the business day immediately preceding each of August 1, 1994, February 1, 1995 and August 1, 1995. On June 12, 1996 the note receivable and $745 in additional accrued interest will be due and payable. The property is subject to a mortgage securing a loan to the Company from The Prudential Insurance Company of America ("Prudential.") The Company and Prudential have contracted with First Trust National Association ("First Trust") whereby First Trust will receive all amounts due from Best Buy under the sales agreement and make the required payments to Prudential under the Company's current loan obligation. The Company had deposited the sum of $999 with First Trust to be held in escrow and used to cover the difference between the payments due from Best Buy and the payments due to Prudential. The cash held in escrow at First Trust on April 2, 1995 is approximately $863, of which $106 is classified as current. The current 9% mortgage loan with Prudential will mature as follows: $200 in fiscal 1996 and $8,900 due on maturity in fiscal 1997. The sale of the former headquarters resulted in a one time charge of $2,250 to operations in fiscal 1994. This amount was included in "Other charges." 5. CAPITALIZED SOFTWARE Capitalized software costs are as follows:
Fiscal Years Ended - ------------------------------------------------------------------------ 1995 1994 - ------------------------------------------------------------------------ Capitalized software costs-beginning of year $ 4,894 $ 0 Capitalized software acquired through the acquisition of SSI 0 3,833 Software capitalized 2,484 1,387 Less amortization expense (3,461) (326) - ------------------------------------------------------------------------ Capitalized software - end of year $ 3,917 $4,894 - ------------------------------------------------------------------------
6. INSTALLMENT RECEIVABLES Installment receivables are as follows:
Years Ended - ------------------------------------------------------------------------ 1995 1994 - ------------------------------------------------------------------------ Payments to be received under sales-type leases $ 211 $1,125 Less: Unearned income (12) (48) Current portion (150) (881) - ------------------------------------------------------------------------ Total $ 49 $ 196 - ------------------------------------------------------------------------
7. INCOME TAXES As of April 2, 1995, the Company has operating loss carryforwards of approximately $47,000 available to offset taxable income. These operating loss carryforwards expire at various times through the year 2009. The provision for federal and state income tax expense consisted of:
Years Ended - ------------------------------------------------------------------------ 1995 1994 1993 - ------------------------------------------------------------------------ Current Federal $ - $ - $ - State 32 - - Alternative Minimum Tax 118 - - - ------------------------------------------------------------------------ Total $150 $ - $ - - ------------------------------------------------------------------------
The effective income tax expense differed from the federal statutory rates as follows:
Fiscal Years Ended - ------------------------------------------------------------------------ 1995 1994 1993 - ------------------------------------------------------------------------ Taxes at statutory rate 34% (34%) 34% State income taxes 1% - - Alternative Minimum Tax 1% - - Impact of net operating loss carryforward (34%) 34% 34%) - ------------------------------------------------------------------------ Effective tax rate 2% - - - ------------------------------------------------------------------------
8 The components of deferred tax assets and liabilities were as follows:
Fiscal Years Ended - ----------------------------------------------------------------- 1995 1994 - ------------------------------------------------------------------ Deferred tax assets Net operating loss carryforwards $ 18,740 $ 21,294 Research and development credit 1,081 1,081 Purchased research and development 2,233 2,233 Inventory reserve 731 751 Allowance for doubtful accounts 346 373 AMT credit carryforward 127 -- Other 1,621 1,846 -------- -------- Total deferred tax assets $ 24,879 $ 27,578 Deferred tax liabilities Capitalized software $ (1,567) $ (1,958) Depreciation and amortization (1,161) (1,246) -------- -------- Total deferred tax liabilities $ (2,728) $ (3,204) -------- -------- Net deferred tax assets $ 22,151 $ 24,374 Valuation allowance (22,151) (24,374) -------- -------- Total net deferred tax assets $ 0 $ 0 ======== ========
8. STOCK OPTIONS, WARRANTS AND RESTRICTED STOCK Under the Company's stock option plans, certain officers, directors and employees may be granted options to purchase the Company's common stock at prices equal to the fair market value of the stock at the date of the grant. Following is a summary of stock options under these plans:
Fiscal Years Ended - -------------------------------------------------------------- 1995 1994 1993 - -------------------------------------------------------------- Granted Number of shares 75,000 891,250 255,000 Price per share $3-$12 $2-$3 $1-$2 - -------------------------------------------------------------- Exercised and cancelled Number of shares 602,275 372,300 391,700 Price per share $1-$5 $1-$6 $1-$3 - -------------------------------------------------------------- Outstanding at year end Number of shares 1,451,400 1,978,675 1,459,725 Price per share $1-$12 $1-$3 $1-$6 - --------------------------------------------------------------
At April 2, 1995, options to purchase approximately 623,000 shares of common stock at exercise prices ranging from $1 to $12 were exercisable and 1,253,000 shares are reserved for future issuance. During fiscal 1995, an amendment was proposed which would allow for an additional 1,200,000 shares to be reserved for future issuance. This amendment was approved by the shareholders and the 1,200,000 shares are included in the above reserved for future issuance figure. Subsequent to the approval of the additional shares to the plan, approximately 650,000 additional shares which were to be granted contingent upon approval were issued. These shares have been included in the fiscal 1994 granted amount. The Company has entered into restricted stock agreements with various employees. The agreements call for issuance of the Company's common stock to these employees and provides for vesting over a 5-year employment period. As of April 2, 1995, 242,000 shares have been granted and 58,000 shares are reserved for future issuance. The value of the stock at the time of grant is deferred and is amortized over the term of the agreements. 9. OTHER CHARGES In the third quarter of fiscal 1994, the Company recorded non-recurring charges of $9,029. These charges related primarily to the purchase of SSI (see note 3) and the sale of the former headquarters (see note 4). 10. COMMITMENTS AND CONTINGENCIES The Company has various operating lease agreements which expire through the year 2014 for its facilities principally located in Minnesota, New York and the United Kingdom. The Company is responsible for real estate taxes, maintenance and utilities. Future minimum lease payments as of April 2, 1995 are $1,600 in 1996, $950 in 1997, $500 in 1998, $500 in 1999 and $2,450 for the years 2000 through 2014. Rental expense for property and equipment under operating leases for fiscal 1995, 1994, and 1993 was $1,800, $1,000 and $900, respectively. The Company is involved in various claims and proceedings which, in the opinion of management, based upon opinions of counsel, do not involve amounts material to the financial position of the Company. 11. EMPLOYEE BENEFIT PLANS Since 1984, Apertus Technologies Incorporated has maintained a 401(k) Savings and Investment Plan for its eligible employees. Employees are eligible to enroll quarterly provided they are in the employ of Apertus for a minimum of six months continuous service and are scheduled to work at least 1,000 hours in their first year. Employees' contributions can range from 1% to 15% of their compensation. Apertus currently matches 25% of the first 4% of employee contributions. Company contributions were $121 toward 401(k) employer contributions in fiscal 1995. 9 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders of Apertus Technologies Incorporated We have audited the accompanying consolidated balance sheets of Apertus Technologies Incorporated as of April 2, 1995 and April 3, 1994, and the related consolidated statements of operations, shareholders' equity, and cash flows for the years then ended. 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. The financial statements of Apertus Technologies Incorporated for the year ended March 28, 1993 were audited by other auditors whose report dated May 11, 1993 expressed an unqualified opinion on those statements. 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 consolidated financial position of Apertus Technologies Incorporated at April 2, 1995 and April 3, 1994, and the consolidated results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Minneapolis, MN May 5, 1995 10 COMPANY REPORT ON FINANCIAL STATEMENTS To the Shareholders of Apertus Technologies Incorporated: The management of Apertus Technologies Incorporated has prepared and is responsible for all information and representations contained in the financial statements and other sections of this Annual Report. The Company's financial statements have been prepared in conformity with generally accepted accounting principles. Apertus maintains a system of internal accounting controls designed to provide reasonable assurance that transactions are executed in accordance with the proper authorization, that all such transactions are properly recorded and summarized to produce reliable financial records and reports, that assets are safeguarded, and that the accountability for assets is maintained. The Company maintains high standards when selecting, training, and developing personnel, to insure that management's objectives of maintaining strong, effective internal controls and unbiased, uniform reporting standards are attained. Ernst & Young LLP, independent auditors, have audited the Company's financial statements in accordance with generally accepted auditing standards and their report is included herein. The Audit Committee of the Board of Directors, which is composed solely of directors who are not officers or employees, meets regularly and on special occasions, as needed, with corporate financial management and the independent auditors to review their activities. The independent auditors have access to the Audit Committee without management being present to discuss the results of their audit work, the adequacy of internal financial controls, and the quality of financial reporting. May 5, 1995 11
SELECTED FINANCIAL DATA (Dollars in thousands, except per share amounts) Fiscal Years Ended - -------------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS DATA Revenues $54,626 $26,206 $27,718 $22,763 $26,263 - -------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations 9,839 (9,016) 2,485 (375) 2,694 - -------------------------------------------------------------------------------------------------------- Net income (loss) 9,839 (9,016) 2,485 (2,361) 1,547 - -------------------------------------------------------------------------------------------------------- Income (loss) per share: Income (loss) from continuing operations .69 (.70) .19 (.03) .21 - -------------------------------------------------------------------------------------------------------- Net income (loss) .69 (.70) .19 (.19) .12 - -------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA Working capital 23,969 16,280 26,283 23,304 24,041 - -------------------------------------------------------------------------------------------------------- Total assets 55,326 43,563 43,868 42,875 47,304 - -------------------------------------------------------------------------------------------------------- Long-term debt / notes payable 8,976 12,882 9,270 9,359 9,509 - -------------------------------------------------------------------------------------------------------- Shareholders' equity 32,967 21,941 30,527 27,687 29,938 - -------------------------------------------------------------------------------------------------------- SELECTED QUARTERLY FINANCIAL DATA For the Year Ended April 2, 1995 (Dollars in thousands, except per share amounts) - -------------------------------------------------------------------------------------------------------- FIRST SECOND THIRD FOURTH FISCAL (Unaudited) QUARTER QUARTER QUARTER QUARTER YEAR 1995 - -------------------------------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS DATA Revenues $13,027 $13,894 $13,709 $13,996 $54,626 - -------------------------------------------------------------------------------------------------------- Net income 2,317 2,152 2,613 2,757 9,839 - -------------------------------------------------------------------------------------------------------- Net income per share .17 .15 .18 .19 .69 - -------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA Working capital 18,762 20,926 23,451 23,969 23,969 - -------------------------------------------------------------------------------------------------------- Total assets 50,770 52,520 55,911 55,326 55,326 - -------------------------------------------------------------------------------------------------------- Long-term debt / notes payable 12,848 11,214 11,180 8,976 8,976 - -------------------------------------------------------------------------------------------------------- Shareholders' equity 24,271 26,793 29,783 32,967 32,967 - --------------------------------------------------------------------------------------------------------
12 DIVIDEND POLICY AND PRICE RANGE OF COMMON STOCK (UNAUDITED) The Company has not declared any cash dividends on its common stock, and the Board of Directors intends to retain all earnings for use in its business for the foreseeable future. At April 2, 1995, the Company had 1,349 shareholders of record. The Company's common stock is traded on NASDAQ under the symbol APTS. The following table sets forth the high and low, end-of-the-day sale prices for the common stock reported on NASDAQ for the period indicated.
High Low - ------------------------------------------------- Fiscal 1995 First Quarter 4-1/8 2-13/16 Second Quarter 8-7/8 4 Third Quarter 12-3/8 7-3/4 Fourth Quarter 13-3/4 8-7/8 - ------------------------------------------------- Fiscal 1994 First Quarter 3-5/16 3-1/16 Second Quarter 2-7/8 2-7/8 Third Quarter 3-7/8 3-1/4 Fourth Quarter 3-1/8 2-7/8
Board of Directors Robert D. Gordon Chairman of the Board, Chief Executive Officer, President Apertus Technologies Incorporated Nicholas J. Covatta Chairman Atlantis Group, Inc. Robert W. Fischer President Robert W. Fischer & Co., Inc. Arch J. McGill President Chardonnay, Inc. Clarence W. Spangle Independent Consultant Corporate Officers Robert D. Gordon Chairman of the Board, Chief Executive Officer, President Julie Cummins Brady Secretary and General Counsel Sue Hogue Chief Financial Officer Martin Hahn General Manager Internetworking Solutions Group Lizabeth Converse Wilson General Manager Enterprise Systems Group Leslie Yeamans General Manager Messaging Group Norman Friedman General Manager Express Group William Fell General Manager European Operations Auditors Ernst & Young LLP Transfer Agent Norwest Bank Minnesota, N.A. Founded in 1979, Apertus Technologies Incorporated is headquartered in suburban Minneapolis, Minnesota, with major offices in New York, NY and London, England. The Company has sales and service offices throughout North America and Europe. A copy of the Company's annual report or Form 10-K (excluding exhibits) filed with the Securities and Exchange Commission may be obtained without charge to shareholders upon written request to: Director, Investor Relations Apertus Technologies Incorporated 7275 Flying Cloud Drive Eden Prairie, MN 55344 EX-21 4 SUBSIDIARIES Exhibit 21 Percentage of Voting Securities State or Country Directly or Indirectly of Incorporation Owned by the or Organization Registrant ------------------ ---------------------- Registrant: Apertus Technologies Incorporated Minnesota Subsidiaries: Systems Strategies, Inc. New York 100% Datanex, Inc. Oregon 100% Systems Strategies Limited United Kingdom 100% Lee Data Export Limited Jamaica 100% Lee Data Far East Pte. Ltd. Singapore 100% Apertus Inc. GMBH Germany 100% EX-23.1 5 CONSENT OF ERNST & YOUNG EXHIBIT 23.1 Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of Apertus Technologies Incorporated of our report dated May 5, 1995, included in the 1995 Annual Report to Shareholders of Apertus Technologies Incorporated. Our audit also included the financial statement schedule of Apertus Technologies Incorporated listed in Item 14(a) related to information as of April 2, 1995 and for the year then ended. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statement (Form S-8 No. 2-91060) pertaining to the Lee Data Corporation Savings and Investment Plan, in the Registration Statement (Form S-8 No. 33-50648) pertaining to the Apertus Technologies Incorporated Stock Acquisition Loan Assistance Program, in the Registration Statement (Form S-8 No. 33-77176) pertaining to the Apertus Technologies Incorporated 1993 Stock Acquisition Loan Assistance Program, and in the Registration Statement (Form S-8 No. 33-88884) pertaining to the Apertus Technologies Incorporated 1990 Amended Long-Term Incentive Plan, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) of Apertus Technologies Incorporated. /s/ ERNST & YOUNG LLP Minneapolis, Minnesota June 23, 1995 EX-23.2 6 CONSENT OF DELOITTE Exhibit 23.2 ------------ INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the Registration Statement (File No. 33-88884) of Apertus Technologies Incorporated on Form S-8 (File No. 33- 88884) of our report dated May 11, 1993, appearing in the Annual Report on Form 10-K of Apertus Technologies Incorporated for the year ended April 2, 1995. /s/ Deloitte & Touche LLP Minneapolis, Minnesota June 23, 1995 EX-24 7 POWERS OF ATTORNEY EXHIBIT 24 POWERS OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Robert D. Gordon, Sue A. Hogue and Julie Cummins Brady and each of them, their true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for them and in their name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of Apertus Technologies Incorporated for the fiscal year ended April 2, 1995 and all amendments to such Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in- fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as they might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.
Signatures Date ---------- ---- /s/ Robert D. Gordon _____________________________________________________________ ___________, 1995 Robert D. Gordon, Chairman of the Board, Chief Executive Officer, President (Principal Executive Officer) and Director /s/ Sue A. Hogue _____________________________________________________________ ___________, 1995 Sue A. Hogue, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) /s/ Nicholas J. Covatta _____________________________________________________________ ___________, 1995 Nicholas J. Covatta Jr., Director /s/ Robert W. Fischer _____________________________________________________________ ___________, 1995 Robert W. Fischer, Director /s/ Arch J. McGill _____________________________________________________________ ___________, 1995 Arch J. McGill, Director /s/ Clarence W. Spangle _____________________________________________________________ ___________, 1995 Clarence W. Spangle, Director
EX-27 8 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS APR-02-1995 APR-04-1994 APR-02-1995 13,246 6,310 14,067 0 3,126 37,352 3,709 0 55,326 13,383 8,976 676 0 0 32,291 55,326 45,713 54,626 12,794 45,349 0 0 0 9,989 150 9,839 0 0 0 9,839 .69 .69
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