-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ONHPIq8xvHxHfCJme2M3SAVJAFI/FLwYcQ0bF/5xr2zCQW5Fh4rF4yTcVBEbai4F HfdKXaVg52qdOZboLNdy/g== 0000950133-98-002451.txt : 19980630 0000950133-98-002451.hdr.sgml : 19980630 ACCESSION NUMBER: 0000950133-98-002451 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980629 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMNET CORP CENTRAL INDEX KEY: 0000023055 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 520852578 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-06355 FILM NUMBER: 98656612 BUSINESS ADDRESS: STREET 1: 4200 PARLIMENT PLACE STREET 2: SUITE 600 CITY: LANHAM STATE: MD ZIP: 20706-1860 BUSINESS PHONE: 3019180400 MAIL ADDRESS: STREET 2: 4200 PARLIAMENT PLACE, SUITE 600 CITY: LANHAM STATE: MD ZIP: 20706 FORMER COMPANY: FORMER CONFORMED NAME: COMPUTER NETWORK CORP DATE OF NAME CHANGE: 19851117 10-K405 1 FORM 10-K RE: COMNET CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) ----- OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) ----- OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --- --- Commission file number 0-6355 COMNET CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 52-0852578 (State or other jurisdiction (IRS Employer Identification No.) of incorporation or organization) 4200 Parliament Place, Suite 600, Lanham, MD 20706-1860 (Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: (301) 918-0400 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock $0.50 par value
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 the 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 voting stock held by non-affiliates of the Registrant on June 23, 1998, was $39,633,938. The number of shares of the Registrant's Common Stock outstanding on June 23, 1998, was 3,279,040. DOCUMENTS INCORPORATED BY REFERENCE: Definitive proxy statement to be filed with the Securities and Exchange Commission relating to Company's 1998 Annual Meeting of Shareholders (Part III of Form 10-K). 2 PART I ITEM 1. BUSINESS THE COMPANY COMNET Corporation ("COMNET" or "Company") through its subsidiary, Group 1 Software, Inc. ("Group 1") develops, manufactures, licenses, sells and supports specialized marketing and mail management software. COMNET owns approximately 81.2% of Group 1's issued and outstanding shares of common stock, with the remaining 18.8% or 809,109 shares held by others. The trading of the common stock of Group 1 is reported on the NASDAQ National Market System under the symbol GSOF. During the fiscal year ended March 31, 1998, Group 1's common stock price ranged from a high of $11.00 to a low of $6.00. Based on the closing price of Group 1's common stock on June 23, 1998, of $13.13, COMNET's holdings in Group 1 represented a market value of approximately $45.7 million. COMNET Corporation is incorporated under the laws of the state of Delaware. Unless otherwise indicated, the term "Company" shall refer to COMNET and its subsidiaries, exclusive of discontinued operations. The executive offices of COMNET are located at 4200 Parliament Place, Suite 600, Lanham, MD 20706-1860, and the telephone number at that location is (301) 918-0400. Group 1 Software, Inc. and its wholly and majority owned subsidiaries ("Group 1") develops, manufactures, licenses, sells and supports software products for specialized marketing and mail management applications. Group 1 markets a broad range of software solutions in each of three major categories: Database Marketing, Electronic Document Systems and Mailing Efficiency. The operating systems utilized for Group 1's products vary as to category. Database Marketing products operate in a client/server architecture with server support for UNIX or Windows NT (NT) and with client support in Windows 3.x, 95 and NT. Electronic Document Systems run under MVS and OS/400, as well as under UNIX, IBM OS/2 and NT. Mailing Efficiency products run on IBM and IBM compatible mainframe computers, IBM AS/400, Digital, UNIX, NT and IBM OS/2 platforms. Group 1's Electronic Document Systems support Kodak, IBM and Xerox print architectures (AFP and Metacode) for high-speed, high-volume production laser printing. Group 1 distributes all of its products in North America and certain of its products throughout the world. Group 1 believes it is a leading vendor of Mailing Efficiency and Electronic Document System software products in North America. Group 1's software products serve the needs of a wide variety of clients, including those in the financial, insurance, utility, telecommunications, manufacturing, retailing, hospitality, publishing and mail order industries, plus service bureaus, associations and various activities of educational institutions and governmental agencies. In general, Group 1's software systems are designed to minimize the costs and maximize the opportunity to sell products and services to existing and potential customers by obtaining maximum postal discounts, ensuring name and address data integrity, targeting marketing campaigns, and printing high impact customer correspondence. On its own and through its wholly owned subsidiary, Group 1 Europe, Ltd., Group 1 provides systems for highly effective document preparation of customized forms or personalized correspondence. This is achieved through the use of advanced document design workstation software coupled with sophisticated host-based document composition software, resulting in highly targeted and individualized documents (e.g., statements, invoices, policies, direct mail). Group 1 believes that the continuing growth of database marketing, data warehousing and targeted, direct communication, together with increased postal rates and postage discounts for coded and/or sorted mail, can expand the market potential for Group 1's existing and future products. 1 3 Group 1 also offers a broad variety of professional services to its clients, including systems and business analysis, installation assistance, operations support, programming services, technical education and training and operational reviews. These services are designed to assist clients in obtaining maximum utilization from their Group 1 products and/or in improving the efficiency and effectiveness of their business operations. Group 1 markets its Mailing Efficiency and Database Marketing products through a direct sales force in the United States and Canada, and, where appropriate, through distributors in Europe and South America. Electronic Document Systems Products are marketed directly to its clients in North America, the United Kingdom, and Scandinavia and through distributors in the remainder of Europe. MARKETS SERVED Group 1 markets its products within a broad span of industries to fulfill database marketing, database publishing/electronic printing and mailing efficiency requirements. Included among the industry groups served by Group 1 are banking, insurance, credit card companies and financial institutions, retailers, hospitality and gaming, catalog mailers, publishers, manufacturers, telecommunication companies, non-profit associations, educational institutions, fund raisers and governmental agencies. All of these industry groups use Group 1's mailing efficiency systems, although use by retailers, catalog mailers and publishers is particularly significant due to the large volume of heavy and expensive mail pieces typically involved. Associations, educational institutions and fundraisers are also extensive users of Group 1's list management and personalization products. The banking and insurance segments, while requiring address correction products, additionally use Group 1's products to build and maintain Customer Information Systems (CIS's) and to clean transaction based, operational data prior to loading into a data warehouse. Both CIS's and data warehouses are being built by these organizations primarily to provide a more complete picture of their customers and their business. Geographic and demographic overlays may be used to gauge market penetration, demographic targets and competitive position. Cross-selling opportunities among groups can also be identified. While banking and insurance organizations have led in the CIS applications of Group 1 products, such applications have potential within many other market segments as well. Banking and insurance organizations also have increasing need for software tools to assist in certain record keeping and analysis used to demonstrate compliance with government regulations. These industry segments use Group 1's geocoding and demographic coding products for Credit Reporting Act and Home Mortgage Disclosure Act compliance. Many industries that have adopted database marketing utilize Group 1 products that append demographic and geographic data to provide enhancements to existing customer databases. Use of Group 1's modeling products provides automated predictive modeling to identify more precise buying patterns, or by clustering, identify differences in behavioral characteristics across product lines or over time allowing more effective, targeted marketing campaigns. Group 1's DataDesigns system extracts raw customer data from existing client systems for conversion into a useful marketing database. Meticulous filtering, correcting and consolidating of large amounts of operational data from multiple sources create a highly accurate database. The system provides the capability to query for relevant customer information and to prepare target market profiles and market segmentation analysis, to help plan more effective media and direct mail programs. Organizations are able to discover the lifetime value of each customer, as a guide to the development of stronger relationships with the more profitable customers. Group 1's DataDesigns system currently addresses the hospitality and gaming industries, but the product recently has been applied to other industry segments. Information-intensive organizations are seeking automated solutions that combine their customer data with today's advanced printing technology to produce individualized, well-designed business documents. These organizations, which include banks, credit card processors, insurance companies, public utilities, health care providers, telecommunication companies and others, use Group 1's electronic document composition software and in many instances, Group 1's consulting services to generate and manage customized statements using conditional statement logic. The format, content and language of each statement may be individually structured relative to specific information contained in each customer record; individualized marketing messages can also be 2 4 incorporated. Increasing numbers of organizations are integrating complete marketing strategies with automated document design and composition systems to improve sales and customer satisfaction. PRODUCTS AND SERVICES As of March 31, 1998, Group 1 offered approximately 60 software products. The multi-platform electronic document composition system is offered with enhanced PC-based WYSIWYG technology. The system directly converts and imports IBM and Xerox laser printing resources such as fonts, images and overlays. DOC 1 can operate in centralized, or distributed, departmental or desktop environments. The DOC 1 workstation runs under OS/2 and Windows NT and the DOC 1 production engines can run under MVS, OS/2, MS-DOS, OS/400, UNIX and NT operating systems. The system is printer independent and supports AFP, Metacode and PCL output. Most of the mailing efficiency products are offered in an Open Systems format that enables the specific application to operate on all major computer systems from NT to mainframe. This approach allows the user to migrate from one platform to another without lost productivity or added training. The database marketing products are offered for a variety of operating systems. The DataDesigns database marketing system with a proprietary database operates in a client/server environment. The server software, Oracle 7, runs under Windows 3.x, 95, or NT, OS/2 and Novell NetWare; the client utilizes Windows 3.x, 95 or NT. Support for SQLRouters is available to access Oracle, SYBASE and SQLBASE databases. The Model 1 predictive modeling system utilizes all traditional predictive techniques and selects the best fit to your data. Model 1 runs under Windows 95 or NT. Demographic and geographic coding products operate in most open system operating environments. NADIS products are offered in open systems format compatible with most mainframe and mid size operating systems. Group 1's software products can each operate on a stand-alone basis or in conjunction with other Group 1 products to create an integrated system tailored to a client's requirements. Group 1 professional services include data migration, integration with other systems, document analysis, consultation and design, installation and training, file conversion and operational review. ELECTRONIC DOCUMENT SYSTEMS Group 1's Electronic Document system (DOC 1) makes possible advanced electronic preparation of high volumes of individualized documents for worldwide markets. The software supports all major printing architectures and can operate in centralized, distributed or desktop environments under NT, OS/2, OS/400, MVS, and UNIX operating systems. DOC 1 produces individualized statements, insurance policies, invoices, medical bills, letters, etc. that allow one-on-one targeted communication with the recipient. The system is a truly visual application that allows the user to extract information from multiple systems, and place text, images and graphics on the page in a dynamic WYSIWYG process. The Portable Document Format (PDF) supported by DOC 1 permits on-line document delivery over the Internet. DOC 1 can be integrated with Group 1's MailStream Plus system to produce output documents in a sequence that qualifies for USPS presorting discounts. Group 1's EZ- Letter Plus and PRES Products offer a complete system to create, print and manage individualized business documents. The systems use conditional statement logic and variable processing to generate customized documents such as statements, invoices, and policies, all based on customer-unique information. The EZ-Letter Plus system is a tailored solution for IBM and IBM-compatible mainframes, while the PRES product offers a PC based solution. EZ-Letter features a menu-driven interface that lets users define documents interactively, as well as manage printer resources and documents within a secure environment. The system supports all major printing architectures. 3 5 EZ- Letter Plus and PRES are used to create, compose, edit and produce direct mail, mass correspondence and other forms of written material on a highly individualized basis. Specific information for each individual can be extracted from computer databases for incorporation into a mail piece. Words, sentences and/or entire paragraphs can be automatically added, changed or deleted based upon the target recipient's information file and the creative wishes of the user. The resulting personalized letters, forms, coupons, reports, labels and other correspondence can be produced economically on high-speed laser, impact or ink-jet printers. MAILING EFFICIENCY Group 1's postal mailing efficiency software products provide a fully automated means for clients to take advantage of significant postal discounts offered in both the United States and Canada for presorted and coded mail. Within this group of software products are also the tools to improve lettershop efficiency, palletize mail, speed mail delivery, allow in-plant truck loading, print barcodes and produce the necessary United States Postal Service (USPS) reports and Canada Post Corporation (CPC) statements of mailing. Group 1's U.S. mailing efficiency products include Code-1 Plus, MailStream Plus, Palletization Plus, POSTNET Barcoding Plus, Barcoded Bag/Tray, Manifest Reporting, Line of Travel, and MOVEforward. Group 1's Code-1 Plus and MailStream Plus products are Coding Accuracy Support System (CASS) and Presort Accuracy Validation and Evaluation (PAVE) certified by the USPS. These products allow mailers to qualify for enhanced carrier route, presort and automation postal discounts and to optimize discounts among various postal rate categories. Clients can currently save nearly 28% of the cost of first-class mail and up to 48% of the cost of Standard mail by presorting and coding. Significant savings can also be achieved with other classes of mail. Similar benefits are provided to Canadian mailers using Group 1's products accepted under the Software Evaluation and Recognition Program (SERP) of CPC. Canadian clients can avoid the $0.05 per piece surcharge by demonstrating an address accuracy level of at least 95%, and can qualify for certain other postal rate incentives. Group 1's list management products, Merge/Purge Plus, Generalized Selection, List Manager, SmartMatch and List Conversion Plus, allow clients to convert name and address lists into desired formats, to standardize address information, to identify and/or eliminate duplicates on business and consumer mailing files, add gender codes and to make targeted demographic selections. Group 1's recently released Code-1 Plus International product validates and corrects address elements to the street level for approximately 31 countries worldwide; validates and corrects address elements to the city, province (or state) level for approximately 41 countries and formats address data to comply with the formats of all 195 countries recognized by the United Nations. DATABASE MARKETING Group 1's DataDesigns database marketing system allows the user to develop a composite profile of its best customers and prospects. Raw customer data is extracted from existing client systems for conversion into a useful marketing database. Meticulous filtering, correcting and consolidating of the large amounts of operational data from multiple sources creates a highly accurate database. The system provides the capability to query for relevant customer information, and to prepare target market profiles and market segmentation analysis, to help plan more effective media and direct mail programs. Organizations are able to discover the lifetime value of each customer as a guide to the development of stronger relationships with the most profitable customers. Group 1's demographic and geographic systems allow census-based information and longitude and latitude information compiled by R.L. Polk & Company and the U.S. Bureau of the Census to be appended to the customer or prospect database. The Generalized Selection System provides a flexible method of target marketing and mailing list manipulation. The GeoTAX system offers taxing entities great improvement in accurately assigning sales use tax to customer addresses. The Model 1 automated predictive modeling system permits the analysis of volumes of data quickly, to identify buying patterns of individuals for more precise, profitable targeted marketing. This sophisticated, easy to 4 6 use system utilizes all traditional predictive modeling techniques including RFM, linear regression, logistic regression, CHAID, neural networks and genetic algorithms. The system selects the best fit with your data. Other Group 1 products provide data analysis and decision support tools to identify motivational behavioral characteristic and changes across products or over time. To process name and address data for Customer Information Files (CIF's), Group 1 offers the NADIS System (Name and Address Data Integrity Software). An expert system technology, NADIS offers capabilities to verify data integrity and to identify relationships within and across files. PROFESSIONAL SERVICES AND CUSTOMER SUPPORT SERVICES Professional services are available including operations support, systems analysis, data migration, system integration, document design, file conversion, technical education and training, and operational reviews. These services are designed to assist clients in obtaining maximum utilization from their Group 1 products and in improving other areas of their operations. Group 1 offers with its product licenses an annual service agreement that provides telephone support and continuing updates and enhancements, as available, to its products and documentation. Educational and training seminars specific to Group 1 products are offered as part of the initial product licensing agreement at no additional charge; thereafter, such seminars, together with a variety of more general educational seminars, are available for a fee. PRICING The Database Marketing software products offered by Group 1 carry one-time perpetual license fees of $5,000 to $175,000 except for the Demographic Coding System for which a full national package is currently priced on an annual license basis at $50,500 (regional editions are available). A complete Group 1 mail and list management system would have a list price of more than $136,000 The DOC 1 software product carries a one-time perpetual license fee ranging from $50,000 to over $400,000 depending on platform chosen, number of workstations and number of composition systems licensed. Enterprise-wide corporate licenses of DOC 1 are available at additional costs generally exceeding $250,000. License agreements and products sold to distributors generally call for payment in full, 30 days after execution, although extended payment terms may be granted. Alternatively, a customer may elect an installment payment program (typically from one to three years) with a minimum down payment of 20% of the license and first year maintenance fees, and an interest charge of 10% to 12% per annum depending on credit-worthiness. Actual prices and terms charged by Group 1 for its products and services may reflect volume and other discounts. To receive maintenance, enhancements and telephone support for Group 1's software products, a customer must pay an annual fee in advance which is presently 16.5% (currently 15% in the U.K. and the European marketplace) of the then-current license fee for the product. U.S. and Canadian postal master files are available for an additional fee. Professional services are provided on hourly or daily rates. The list price for professional services is $1,500 per day plus out-of-pocket expenses. Group 1's Code-1 Plus and MailStream products are subject to annual subscription fees ranging from $585 to $8,800 annually in order for customers to receive the required bimonthly database updates. LICENSING With the exception of the Demographic Coding System, Group 1's products are licensed on a perpetual "right to use" basis pursuant to non-exclusive license agreements. The Demographic Coding System is licensed on 5 7 an annual basis. Group 1 does not sell or transfer title to its software products to clients. A client is generally entitled to use a product only for internal purposes on a single computer at a single location. Multi-site, multi-computer corporate license agreements are available as well. Certain postal products are required by the USPS and CPC regulations ("CASS" and "SERP", respectively) to have an expiration date (quarterly or monthly) and must be under subscription or re-licensing arrangements with Group 1 in order to be used for postal discounts or price qualification. Group 1 warrants that its products will perform substantially in accordance with their standard documentation for the defined warranty period or as long as a service agreement is in effect, whichever is longer. The software is generally licensed in conjunction with a first year maintenance agreement to provide an initial warranty for twelve months from the date of the license agreement. CUSTOMERS Group 1's customer base includes approximately 2,650 clients who have licensed one or more of its large software systems. Group 1's clients range from small businesses to a large number and broad variety of the foremost businesses and other organizations in North America and internationally. Included are utilities such as Pacific Gas and Electric, Scottish Power, Kansas City Power & Light and PEPCO, telecommunication companies such as AT&T, Iridium, LCI International and MCI; major banks such as Citibank, National Westminster Bank, Bank One, Chase Manhattan Bank, ABN AMRO and Banque Nationale du Canada; insurance companies such as The Hartford Insurance Group, American International Group, Scottish Widows and Metropolitan Life; publishers such as Time, Inc., McGraw-Hill and Encyclopedia Britannica; computer services companies such as EDS and Neodata; financial services companies such as Prudential Securities, Charles Schwab and General Electric Credit; retailers such as Nordstrom, J.C. Penney, May Department Stores and Wal-Mart; manufacturers such as GTE, Caterpillar, Eastman Kodak, Lucent Technologies, General Mills and Xerox; governmental bodies such as the U.S. Senate, U.S. Customs, the Internal Revenue Service and U.S. Government Printing Office; credit companies such as GE Data Services and TRW Information Services; direct marketers such as Publishers Clearing House, Lands End and L.L. Bean; service companies such as American Express, Avis, Terminix and Tru Green Chem Lawn; educational institutions such as The Johns Hopkins University, Duke University Medical Center and MIT; health and leisure companies such as Nordic Track; non-profit service groups such as The Girl Scouts of America, National Geographic Society and AARP; cultural organizations such as the Metropolitan Museum of Art and Metropolitan Opera Association; and hospitality and entertainment companies such as Marriott, Mirage Resorts and Westin Hotels. The United States Postal Service is also a client of Group 1. All of Group 1's operations are in the one business segment broadly defined as marketing support software; during the fiscal year ended March 31, 1998, 4 customers individually accounted for more than 1% of Group 1's revenue. No customer accounted for 3% or more of revenue. Traditionally, Group 1 does not have a material order backlog for its software products at any given time. Group 1 recognizes maintenance and enhancement revenue over the life of the service agreement, usually from one to five years. SALES AND MARKETING Group 1 markets all of its software products in North America and Europe through a direct sales and sales support organization of 90 employees located in the U.S., Canada, Scandinavia and the United Kingdom. To serve existing clients and to solicit new additions to the client base, Group 1 has two sales and support offices in the Washington, D.C. area and eight other regional offices in the New York City, Chicago, Los Angeles, Las Vegas, Atlanta, Dallas, Minneapolis, and Toronto metropolitan areas. European offices are located in the London, England and Copenhagen, Denmark metropolitan areas. The Group 1 sales organization is supported by a comprehensive marketing program administered from Group 1's Lanham, Maryland headquarters. Marketing is conducted through direct mail, print advertising, trade 6 8 show exhibitions and speaking engagements, product training seminars, telemarketing and a broad variety of public relations activities including the Group 1 Report and the annual Group 1 Software Users Conference. Through its Group 1 Europe subsidiary, Group 1 has entered into software distribution and support agreements for the DOC 1 product with companies throughout Europe. These agreements provide for a royalty payment to Group 1, with the distributor performing sales and marketing, customer service and support activities. Group 1 continues to pursue additional international sales and marketing opportunities for its products. Group 1 has entered into joint marketing agreements with a number of business partners including IBM, Xerox, Data General Corp., R.L. Polk, Campaign Mail & Data, MapInfo, Software Pursuits, Mastersoft International Pty., Geographic Data Technology, Claritas/NPDC, AMS, UNICA Technologies, PrintSoft, Bell & Howell and OBIMD International, InterTrak Corporation and Data Tech Business Enterprises. Generally, the agreements provide for distribution of Group 1 products in conjunction with the business partner's products. A sale may arise from either sales organization, and territories are non-exclusive. The agreements provide for a commission payment to Group 1 when it has contributed to a sale of the other company's products. Conversely, Group 1 may pay a commission when a partner contributes to a sale of Group 1 products or services. SUPPORT Group 1 believes that effective support of its customers and products has been a substantial factor in its success to date and will continue to be so in the future. Customer support for these software products is provided by telephone for assistance in product installation and problem resolution during normal business hours. Automated call tracking, client-specific call routing and on-line bulletin board services are also provided for maintenance customers. Customer support is provided by telephone and, if necessary for large systems, on-site by qualified Company personnel. Group 1 Europe also has modem links with many of its worldwide customers to provide even higher levels of mission-critical support. In the fiscal years ended March 31, 1998, 1997 and 1996, maintenance and enhancement fees represented approximately 35%, 33% and 37%, respectively, of Group 1's revenue. Professional services, including operations support, business analysis, programming services, technical education and training, and operational reviews, are provided at the client's location and at Group 1 training facilities throughout the U.S., Canada and the U.K. PRODUCT DEVELOPMENT The computer industry is characterized by rapid change in hardware and software technology and in user needs, requiring a continuing expenditure for product development. It is likely that such circumstances will continue in the future. Accordingly, Group 1 must be able to provide new products and to modify and to enhance existing products on a continuing basis to meet the requirements of its customers and of regulatory agencies, particularly the US Postal Service and the Canada Post Corporation. Group 1 may also have to adapt its products to accommodate future changes in hardware and operating systems. To date, Group 1 has been able to adapt its products to such changes and believes that it will be able to do so in the future. Most of the company's products are developed internally. The company also purchases technology, licenses intellectual property rights and oversees third party development of certain products. Quality assurance testing of Group 1's new or enhanced products is conducted by teams of experienced individuals drawn from all segments of Group 1's organization under the direction of testing specialists. Whether the product is developed internally or acquired from another company, Group 1 considers it important to control the marketing, distribution, enhancement and evolution of each of its products. Significant investment was made during the year in new software development for migration of products to the Open Systems platform. Additionally, extensive work was performed on enhancing existing mainframe, midrange and open system products. 7 9 During 1998, additional enhancements and new product releases including a new release of Code 1 Plus, were made to help mailing efficiency customers meet the expanding requirements of the U.S. Postal Service in order to qualify for postal discounts. Other major product enhancements begun in FY 1998 include substantial enhancements to Canadian postal products. Doc 1 version 3.0 was released in the second quarter of FY 1998 including support for Windows NT, as well as Internet connectivity. During 1998 a new version of the Data Designs product was released allowing for application into new vertical market places. Group 1 continued development of its enhanced Code-1 Plus International system during FY 1998, including the second-generation product released during the fourth quarter of FY 1998. COMPETITION The computer software and service industry is highly competitive, and no published data are available regarding Group 1's relative position in the markets in which it operates. Although no major competitor currently competes against Group 1 across its entire product line, competitive products offer many similar features. Group 1's existing and potential competitors include companies having greater financial, marketing and technical resources than Group 1. Group 1 believes that there are at least thirty-four companies that offer products competitive with one or more of Group 1's products. Group 1 believes at least twelve companies offer database marketing systems. At least four competitors are in the document composition and production marketplace. For mailing efficiency products, at least two competitors offer products that compete with Group 1 on open system and mainframe platforms. During the year, Group 1 continued to experience strong competition in the market for postal coding and presorting software from these competitors. There can be no assurance that one or more of these competitors will not develop products that are equal or superior to the products Group 1 expects to market. In addition, many potential clients for which Group 1's products are targeted have in-house capability to develop computer software programs. Group 1 believes that the principal, distinguishing competitive factors in the selection of its software products are price/performance characteristics, marketing and sales expertise, ease of use, product features and functions, reliability and quality of technical support, integration of the product line and the financial strength of the publisher. Group 1 believes that it competes favorably with regard to these factors including pricing and credit terms. Group 1's primary strengths are the technical capabilities of its personnel and products, marketing and sales expertise, service and support, and industry product leadership. PRODUCT PROTECTION Group 1 regards its software, in source and object code, as proprietary and relies upon a combination of contract, trade secret and copyright laws to protect its products and related manuals and documentation. The license agreements under which clients use Group 1's products generally restrict the client's use to its own operations and always prohibit unauthorized disclosure to third persons. Notwithstanding these restrictions, it may be possible for other persons to obtain copies of Group 1's products. Group 1 believes that because of the rapid pace of technological change in the computer industry and, in addition, changes in postal regulations that affect several core products, copyright and trade secret protection are less significant than factors such as the knowledge and experience of Group 1's management and other personnel and their ability to develop, enhance, market and acquire new products. 8 10 TRADEMARKS Group 1 Software (name and logo), MailStream Plus, CODE-1 Plus, CODE-1 Canada, CODE-1, EZ Letter and Mail Canada are registered trademarks of Group 1 Software, Inc. CODE-1 Plus International, SmartMatch, List Manager, Palletization Plus, POSTNET Barcoding, Bar Code Bag/Tray, Manifest Reporting, Merge/Purge Plus and List Conversion Plus are trademarks of Group 1 Software, Inc. The trademark applications for registration of Model 1, MOVEforward, DOC1, DataDesigns and GeoTax are pending. All other trademarks referenced herein are the property of their respective owners. EMPLOYEES As of March 31, 1998, the Company employed 296 persons on a full-time basis. Of those employees, 139 were in management, professional and technical positions, 106 in marketing, sales and support and 51 in administrative positions. None of the Company's employees is represented by a labor union and the Company has experienced no work stoppages. The Company believes its employee relations are satisfactory. COM-MED SYSTEMS COM-MED Systems, a wholly owned subsidiary of the Company, provided the long-term health care industry with computer software systems for management and operations support. As of March 31, 1995, the Company sold the assets of COM-MED Systems for up to $4.5 million, to be paid as a percentage of the acquiring company's future revenues. Additionally, the Company was issued warrants to acquire up to 25% of the acquiring company's common stock. In September, 1995 the acquiring company ceased operations, whereupon the Company repossessed the assets and sold them, in turn, to another entity for up to $4.5 million, to be paid as a percentage of that company's future earnings. As of March 31, 1998 all amounts currently due or contingent were settled in exchange for a note receivable of $75,000 payable over eighteen months. Reserves in the amount of $27,450 have been established to cover disposition cost and contingencies associated with the sale of the assets.. ITEM 2. PROPERTIES The Company's executive and administrative offices are located in Lanham, Maryland, a Washington, DC suburb, where the Company leases 51,900 square feet under a lease that expires in 2004. These facilities also include Group 1's headquarters and principal operations base. COMNET has options to lease additional space at specified periods during the term and to extend its lease. Group 1 leases additional sales and support offices in the Chicago, Dallas, Los Angeles, Las Vegas, Atlanta, New York City, Herndon Virginia, Minneapolis, San Juan Puerto Rico, London England and Toronto Canada metropolitan areas. See Note 14 of notes to consolidated financial statements. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any legal proceedings, which in its belief, after review by legal counsel, could have a material adverse effect on the consolidated financial position or results of operations of the Company. COMNET, Group 1 and certain of Group 1's directors have been named as defendants in a purported shareholder class action filed on April 28, 1998 in the Court of Chancery of the State of Delaware (CA. No. 16349), Brickell Partners, Individually and on Behalf of All Others Similarly Situated v. Robert S. Bowen, et al. The suit alleges breaches of fiduciary duties in that COMNET, as majority stockholder of Group 1, "has greater knowledge of Group 1 than the public shareholders and has timed the merger transaction to take advantage of Group 1's increased efficiency and prospects of profitability", to the unfair disadvantage of Group 1's public shareholders. Both COMNET and Group 1 believe that the complaint is meritless and are actively pursuing dismissal of all the claims made by Plaintiff in the lawsuit. 9 11 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE 10 12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The trading of the common stock of the Company is reported on the National Market System under the symbol CNET. The table below sets forth the highest and lowest closing prices between dealers for the quarter indicated. These prices, as reported by NASDAQ, do not include retail markup, markdown or commissions and may not necessarily represent actual transactions.
CLOSING COMMON STOCK PRICES --------------------------- 1998 HIGH LOW 1997 HIGH LOW - ---- ---------------------------- ---- --------------------------- First - June 30, 1997 $11.00 $ 7.50 First - June 30, 1996 $15.00 $10.00 Second - September 30, 1997 $ 9.75 $ 7.13 Second - September 30, 1996 $16.50 $ 8.00 Third - December 31, 1997 $ 9.25 $ 6.50 Third - December 31, 1996 $15.50 $ 8.00 Fourth - March 31, 1998 $ 8.75 $ 6.00 Fourth - March 31, 1997 $11.00 $ 8.50
No cash dividends have been paid on the Company's common stock. The Company pays dividends on the 6% Cumulative Convertible Preferred Stock discussed in Note 9. The Board of Directors intends to retain, for the foreseeable future, the Company's remaining earnings for use in the development of the business. At June 15, 1998, there were approximately 1,608 holders of record of the Company's common stock, including persons who wish to be identified as having an interest in shares held or recorded in "street name" with broker-dealers. ITEM 6. SELECTED FINANCIAL DATA
(In thousands except per share amounts) Year Ending March 31, --------------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- Statement of Earnings Data: (1) Revenue $ 61,004 $ 54,547 $ 45,873 $ 37,883 $ 31,370 Earnings (loss) from continuing operations $ 2,335 $ (2,710) $ 5,472 $ 5,241 $ 3,303 Net earnings (loss) from continuing operations $ 1,150 $ (1,600) $ 2,832 $ 2,658 $ 1,776 Net loss from discontinued operations $ - - - - - - $ - - - $ (282) $ (1,571) Net earnings (loss) $ 1,150 $ (1,600) $ 2,832 $ 2,376 $ 204 Basic earnings (loss) per share from continuing Operations $ 0.30 $ (0.54) $ 0.85 $ 0.82 $ 0.54 Basic loss from discontinued operations per Share $ - - - $ - - - $ - - - $ (0.09) $ (0.53) Basic net earnings (loss) per share $ 0.30 $ (0.54) $ 0.85 $ 0.73 $ 0.01 Basic weighted average number of shares 3,274 3,263 3,140 3,016 2,978 Diluted earnings (loss) per share from continuing Operations $ 0.29 $ (0.54) $ 0.79 $ 0.78 $ 0.47 Diluted loss from discontinued operations per share $ - - - $ - - - $ - - - $ (0.09) $ (0.46) Diluted net earnings (loss) per share $ 0.29 $ (0.54) $ 0.79 $ 0.69 $ 0.01 Diluted weighted average number of shares 3,299 3,263 3,340 3,164 3,386 Balance Sheet Data: Working capital $ 6,692 $ 4,491 $ 6,829 $ 6,787 $ 8,958 Total assets $ 70,630 $ 75,856 $ 67,192 $ 57,148 $ 49,047 Long-term debt $ 389 $ 304 $ 320 $ 561 $ 719 - ---------------------------------------------------------------------------------------------------------------------------------
11 13 Stockholders' equity $ 27,158 $ 26,212 $ 27,433 $ 24,881 $ 20,337 - ---------------------------------------------------------------------------------------------------------------------------------
(1) Restated to report separately, as a discontinued operation, the results of operations of COM-MED Systems. (2) See Note 1 of notes to Consolidated Financial Statements. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS 1998 as Compared with 1997 Any statements in this annual report on Form 10-K concerning the Company's business outlook or future economic performance; anticipated profitability, revenues, expenses or other financial items; together with other statements that are not historical facts, are "forward-looking statements" as that term is defined under the Federal Securities Laws. Forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from those stated in such statements. Such risks, uncertainties and factors include, but are not limited to, changes in currency exchange rates, changes and delays in new product introduction, customer acceptance of new products, changes in government regulations, changes in pricing or other actions by competitors and general economic conditions, as well as other risks detailed in the Company's filings with the Securities and Exchange Commission. The Company derives its earnings from Group 1 Software, Inc., its 81% owned subsidiary, which develops, acquires, markets and supports specialized marketing and mail management software. For the year ended March 31, 1998, the Company's revenue was $61.0 million compared with $54.5 million the prior year. The Company had net earnings of $1.1 million or $0.29 per share compared with a net loss of $1.6 million or $0.54 per share the prior year. The increase in profitability is primarily attributed to write downs in the net realizable value of certain capitalized software products taken during 1997. For the year ended March 31, 1998, Group 1's revenue was $61.0 million compared with $54.5 million for the prior year. Group 1 had net earnings for the year of $1.4 million compared with a net loss of $1.6 million for fiscal 1997. The increase in profitability is primarily attributed to write downs in the net realizable value of certain capitalized software products taken during 1997. All of Group 1's operations are in the one business segment broadly defined as marketing support software. Traditionally, Group 1 does not have a material order backlog for its software products at any given time. Group 1 recognizes maintenance and enhancement revenue over the life of the service agreement, usually from one to five years. International revenues account for 15.4% of Group 1's total revenue in fiscal 1998 and 15.7% in fiscal 1997. That 1998 percentage is expected to increase with the continued growth of European revenue. Software license fees and related revenue of $32.8 million represented an increase of 7% over the prior year attributable primarily to increased sales of the Doc 1 product offset by lower sales of the mailing efficiency products as well as World Trak and PC Postal Products which were licensed on a long term basis to third parties for distribution during 1998. As a percent of total revenue, software license and related revenue was 54% and 56% for fiscal years 1998 and 1997, respectively. Licensing of Electronic Document Systems increased by 40% over the prior fiscal year. Sales of the DOC 1 system continue to grow both in North America and Europe. The Company's core Mailing Efficiency software license fees for fiscal 1998 decreased 34% over the prior year. The decreases were in both mainframe and open systems platforms resulting from price competition on the open systems platform. License fees from Database Marketing Systems increased 138% for the fiscal year. The increase resulted from higher sales in the Geocoding, Model 1 and NADIS products. The increases were offset by lower sales in the Data Designs product along with lower sales in other coding products. 12 14 License fees for Customer Information Management Systems decreased 94% in fiscal 1998 due to lower sales of the World Trak products which were licensed on a long term basis to a third party for distribution during 1998. Maintenance and other revenue of $28.2 million for the year increased 18% over the prior year. Maintenance and other revenue accounted for 46% of total revenue in 1998 and 44% of total revenue in 1997. Recognized maintenance fees were $21.2 million in 1998 and $18.2 million in 1997, an increase of 16%. Professional service and educational training revenues of $7.0 million in 1998 and $5.7 million in 1997 represented an increase of 23%. The maintenance renewal rate was 84% for fiscal year 1998 compared with 83% in fiscal 1997. Group 1 expects maintenance renewal revenue to grow at a lower percentage than in prior years due to the high rate of conversion to Open System products, which conversion typically includes multi-year maintenance agreements and increased sales of certain third party products for which maintenance is provided by the third party. It is anticipated that the other service revenues will continue to increase as a percentage of Group 1's total revenue, resulting from the growth of DOC 1 and Data Designs products whose customers typically request more consulting and professional services than do the Company's customers for traditional products. Total operating costs of $58.2 million amounted to 95% of revenue in 1998 compared with $56.8 million or 104% of revenue during 1997. Software license expense decreased to $10.5 million in fiscal 1998 representing 32% of software license and related revenues compared with $12.5 million in 1997 representing 41% of software license and related revenues. The decrease was due to the write-downs of software at the end of fiscal 1997 offset by increases in royalty expense in 1998 from the sale of third party products. Excluding the write-downs, software license expense in 1997 was $8.3 million or 27% of software license revenue. The Company believes these costs, as a percentage of revenue will remain at approximately the current levels. Maintenance and service expense decreased to $12.5 million in 1998 from $12.9 million in 1997, 44% and 54% of maintenance and service revenue, respectively. The decrease in expense is due to the new distribution agreements for the WorldTrak and PC Postal products along with other cost saving measures taken during the year partially offset by higher costs of professional service and education training related to these services. Included in maintenance and service expense above are professional service and educational training costs of $5.1 million which were 73% of professional services revenue during 1998 and $4.6 million and 81% of professional services revenue for the prior year. Costs of maintenance were $7.4 million for 1998 representing 35% of maintenance revenue compared with costs of $8.3 million and 45% of revenue in 1997. The decreased costs as a percentage of maintenance revenue were primarily due to increased maintenance revenue along with the new licensing agreements for the WorldTrak and PC Postal product lines, which shifted the support costs for these products to the respective licensees. The company anticipates these costs to remain relatively close to their current levels. Research, development and indirect support expenses (after capitalization of certain development costs) totaled $2.9 million in 1998 and $2.7 million in 1997, representing 5% of total revenue for both periods. The company anticipates these costs to remain relatively close to their current levels. Selling and marketing expenses totaled $20.9 million or 34% of revenue in 1998 and $20.2 million or 37% of total revenue in 1997. The decrease in costs as a percentage of revenue are primarily due to lower costs associated with the WorldTrak and PC licensing agreements along with other cost saving measures taken during the year. These savings were offset by slightly higher marketing costs in fiscal 1998. The company expects these costs to remain relatively close to current levels as a percentage of revenue. 13 15 General and administrative expenses were $7.9 million or 13% of total revenue in 1998 compared with $6.6 million or 12% for 1997. The increase in the current year is primarily due to higher executive compensation accruals. The provision for doubtful accounts was $3.5 million or 5.8% of revenue in fiscal 1998 as compared with $2.0 million or 3.6% of revenue in fiscal year 1997. The increase in the current year provision is primarily based upon increased reserves for WorldTrak and PC accounts receivables. Net non-operating expense was $0.5 million in 1998 compared to net non-operating expense of $0.4 million in 1997. The difference primarily reflects higher expense from loss on disposal of assets offset by lower net interest expense. The company expects this expense to decrease due to lower short-term borrowing requirements. The Company's effective tax rate was 39% in 1998 and 30% in 1997. The current year's rate is the net effect of a 10% domestic tax benefit on taxable loss combined with a 33% foreign tax rate on taxable net income. The Year 2000 Issue The year 2000 issue affects virtually all companies and organizations. Many existing computer programs and digital systems used by, and sold by, Group 1 Software, use only two digits to identify a year in the data field. These programs and systems were designed and developed without considering the impact of the upcoming change in the century. In 1997, the Company formed two special task forces: The first task force was established to identify and evaluate our internal systems and applications that may be affected by the year 2000 issue; modify or replace those systems and applications so they will work properly in the year 2000, and communicate with our suppliers to make sure they are prepared for the year 2000. The second task force was established to evaluate the products sold by us, to ensure they will function as designed after the Year 2000. The Company has identified and evaluated all of our systems and applications that may be affected by the Year 2000 issue, and have developed plans to ready these systems and applications for the century change. Modification and replacement projects are currently under way. We plan to have our internal systems and applications ready for the year 2000 by mid-1999 and to have all of the products sold by us Year 2000 compliant by December 1998. We do not expect the costs to address the year 2000 issue to be material 1997 as Compared with 1996 The Company derives its earnings from Group 1 Software, Inc., its 81% owned subsidiary, which develops, acquires, markets and supports specialized marketing and mail management software. For the year ended March 31, 1997, the Company's revenue was $54.5 million compared with $45.9 million the prior year. The Company had a net loss from continuing operations of $1.6 million or $0.54 per share compared with net earnings of $2.8 million or $0.79 per share the prior year. The decline in profitability is primarily attributed to write-downs in the net realizable value of certain capitalized software products. The write downs result from decisions to de-emphasize certain products, principally DOS based PC products which are being replaced with Windows based products and certain mainframe products which are being replaced with new Open Systems products. Additionally, Group 1 incurred additional costs associated with implementation of the United States Postal Service's new mail classification regulations that became effective July 1, 1996. For the year ended March 31, 1997, Group 1's revenue was $54.5 million compared with $45.9 million for the prior year. Group 1 had a net loss for the year of $1.6 million compared with net earnings of $3.7 million for fiscal 1996. The decline in profitability is primarily attributed to write downs in the net realizable value of 14 16 certain capitalized software products. The write downs result from decisions to de-emphasize certain products, principally DOS based PC products that are being phased out and replaced with Windows based products and certain mainframe products which are being replaced with new Open Systems products. Additionally, Group 1 incurred additional costs associated with implementation of the United States Postal Service's new mail classification regulations that became effective July 1, 1996. All of Group 1's operations are in the one business segment broadly defined as marketing support software. Traditionally, Group 1 does not have a material order backlog for its software products at any given time. Group 1 recognizes maintenance and enhancement revenue over the life of the service agreement, usually from one to five years. International revenues account for 15.7% of Group 1's total revenue. That percentage is expected to increase with the continued growth of European revenue. Software license fees and related revenue of $30.6 million represented an increase of 19% over the prior year attributable primarily to new product licenses. As a percent of total revenue, software license and related revenue was 56% for fiscal years 1997 and 1996. Licensing of Electronic Document Systems increased by 38% over the prior fiscal year. Sales of the DOC 1 system continue to grow both in North America and Europe. The Company's core Mailing Efficiency software license fees for fiscal 1997 increased 20% over the prior year. The increases were primarily due to continued growth of the Open Systems product suite and the new international postal software introduced in the third quarter of fiscal 1997, partially offset by declines in PC product revenue. Mainframe revenue also increased during the period. License fees from Database Marketing Systems increased 12% for the fiscal year. The increase resulted from higher revenues from DataDesigns products (acquired in August 1995) and also increased sales of traditional Database Marketing products. These increases were offset by lower sales of the NADIS product. During most of fiscal 1997 the NADIS product was sold through a direct sales force. The NADIS product continues to be sold through a direct sales; however, it is now sold by the Mailing Efficiency sales force, rather than a dedicated sales force. During the third quarter, the Company completed an exclusive product licensing agreement with Unica Technologies to market its predictive modeling software under the trademark "Model 1." Sales of these products during the fourth quarter also contributed to the increases in this category. License fees from Customer Information Management Systems software decreased by $0.1 million for fiscal year 1997 compared with the prior year. As a result of the decrease in sales of the WorldTrak product acquired in November 1995, the Company has revised its distribution strategy for this product line. The market for the WorldTrak product changed significantly during fiscal 1997. Several competitors with greater resources emerged during the year. In order to address the changing market, Group 1 has entered into distribution agreements with business partners for this product and has discontinued its direct sales effort. Maintenance and other revenue of $23.9 million for the year increased 19% over the prior year. Maintenance and other revenue accounted for 44% of total revenue in 1997 and 1996. Recognized maintenance fees were $18 million in 1997 and $17.1 million in 1996, an increase of 5%. Professional service and educational training revenues of $5.9 million in 1997 and $3 million in 1996 represented an increase of 97%. The maintenance renewal rate was 83% for fiscal year 1997 compared with 85% in fiscal 1996. Group 1 expects maintenance renewal revenue to grow at a lower percentage than in prior years due to the high rate of conversion to Open System products, which conversion typically includes multi-year maintenance agreements. In addition, as a result of the delay in releasing certain software that fully complied with all new United States Postal Service reclassification regulations, the Company extended maintenance contracts by six months for users of its MailStream products. It is anticipated that the other service revenues will continue to increase as a percentage of Group 1's total revenue, resulting from the growth of DOC 1, WorldTrak and Data Designs products whose customers typically request more consulting and professional services than do the Company's traditional customers. 15 17 Total operating costs of $56.8 million amounted to 104% of revenue in 1997 compared with $40.6 million or 89% of revenue during 1996. Of the increase in cost, approximately $3.1 million was related to DataDesigns, WorldTrak and Latin American operations which were $0.8 million in the prior and $4.2 million was attributed to the write downs to net realizable value of capitalized software. Excluding the capitalized software write downs, total operating costs represented 96% of revenue during 1997. Software license expense increased to $12.5 million in 1997 (including the write-downs) representing 41% of software license and related revenues compared with $6.1 million or 24% in 1996. Excluding the write-downs to capitalized software, software license expense increased to $8.3 million in 1997 representing 27% of software license and related revenues. Maintenance and service expense increased to $12.9 million in 1997 from $8.1 million in 1996, 54% and 40% of maintenance and service revenue, respectively. The increase in expense as a percent of maintenance and service revenue reflects the proportionately higher percentage of lower margin revenue derived from service versus maintenance, as well as the costs of distribution and service of Group 1's software associated with the implementation of the United States Postal Service's new mail classification regulations effective July, 1, 1996. Included in maintenance and service expense above are professional service and educational training costs of $4.6 million which were 79% of professional services revenue during 1997 and $2.3 million and 77% of professional services revenue for the prior year. Costs of maintenance were $8.3 million for 1997 representing 46% of maintenance revenue compared with costs of $5.4 million and 32% of maintenance revenue in 1996. The increased cost as a percentage of maintenance revenue was primarily due to continued higher distribution costs and technical support expenses for its mail classification software stemming from the United States Postal Service's postal reclassification regulations which became effective July 1, 1996. The Company anticipates the cost as a percentage of revenue to decline as the incremental cost associated with the new postal regulations declines. Research, development and indirect support expenses (after capitalization of certain development costs) totaled $2.7 million in 1997 and $1.8 million in 1996, representing 5% and 4% of total revenue, respectively. The increases are due to increased support requirements for Group 1's expanded computer platforms and internal network systems, as well as expenses for DataDesigns and WorldTrak for which there were no material amounts in the prior year. The Company anticipates that these costs as a percentage of revenue will increase due to expanded product offerings. Selling and marketing expenses totaled $20.2 million or 37% of revenue in 1997 and $17 million in 1996 which also represented 37% of revenue. The current year expenses include $2.1 million for DataDesigns, WorldTrak and Latin America, which were $0.7 million in the prior year. Additionally, the current year expenses reflect higher sales compensation expense associated with the increased revenue, as well as increased staffing and marketing for the DOC 1, NADIS and Open System products. The Company believes these costs, as a percentage of revenue, will remain at approximately these levels. General and administrative expenses were $6.6 million or 12% of total revenue in 1997 compared with $6.1 million or 13% for 1996. The decrease in the current year as a percent of revenue is primarily due to lower executive compensation accruals and economies of scale achieved with costs spread over a larger revenue base. The provision for doubtful accounts was $2 million or 3.6% of revenue in fiscal 1997 as compared with $1.6 million or 3.5% in fiscal year 1996. The increase in the current year provision is based upon the larger accounts receivable balances at March 31, 1997 as compared with the same period the prior year. Net non-operating expense was $0.4 million for 1997 compared to net non-operating income of $0.2 million for 1996. These differences primarily reflect higher net interest expense. 16 18 The Company's effective tax rate was <30%> in 1997 and 36% in 1996. The current year's rate is the net effect of a <37%> domestic tax benefit on taxable loss combined with a 33% foreign tax rate on taxable income. SEASONALITY AND INFLATION Group 1 in the past has experienced greater sales and earnings in the January-March quarter, the fourth quarter of its fiscal year, however, there can be no certainty that this will occur in the future. This seasonal factor is believed to be attributable to buying patterns of major accounts and also to a fiscal year incentive program for Group 1's sales representatives. Group 1's revenue and resultant earnings have shown substantial variation on a quarter-to-quarter basis. A substantial portion of revenue in any given quarter is comprised of a relatively limited number of high-value software license agreements. These license agreements represent the culmination of a sales cycle averaging three to six months. Any significant lengthening in the sales cycle can have the effect of moving revenue from one quarter into the next, contributing to quarter-to-quarter variations. Prices remain stable for Group 1's products. Inflation directly affects Group 1's cost structure principally in the areas of employee compensation and benefits, occupancy and support services and supplies. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital was $6.7 million at March 31, 1998 as compared with $4.5 million in the prior year. The current ratio was 1.2 to 1 at March 31, 1998, compared with 1.1 to 1 at March 31, 1997. Note that the current portion of deferred revenue related to maintenance and enhancement contracts is included in current liabilities. Accordingly, working capital and current ratios may not be directly comparable to such data for companies in other industries where similar revenue deferrals are not typical. The Company provides for its cash requirements through cash funds generated from operations. Additionally, its Group 1 Software, Inc. subsidiary maintains a line of credit facility. At March 31, 1998, Group 1 maintained a 2-year $10,000,000 bank line of credit arrangement with Crestar bank expiring August 31, 1998. The line of credit bears interest at the bank's prime rate (8.5% at March 31, 1998) or Libor plus 175 basis points at Group 1's option. The line of credit arrangement is collateralized by trade accounts receivable and maintenance and renewal accounts receivable (excluding installment accounts receivable) and among other things requires Group 1, to maintain an EBIT to interest expense ratio of at least 1.5 to 1 through March 31, 1998 and at least 2.0 to 1 thereafter. The arrangement also requires Group 1 to maintain a total liabilities to EBITDA ( earnings before interest, taxes, depreciation and amortization ratio of no more than 5.0 to 1 through March 31, 1998 and no more than 4.0 to 1 thereafter. At March 31, 1998, there were no borrowings under the facility, at March 31, 1997, borrowings under the line of credit were $7.1 million. During fiscal 1998 net income of $1.1 million along with non-cash expenses of $11.3 million provided a total of $ 12.4 million cash from operating activities. A decrease in accounts receivables added $4.1 million cash during the year from operating activities.. This decrease was due to improved collections during the year. Deferred revenues increased cash by $0.3 million, other working capital items increased cash by $2.0 million. Cash flows from investing activities consist of expenditures for investments in software development and capital equipment of $9.5 million. Short-term borrowings decreased by $7.1 million while long-term debt increased $0.1 million. Group 1's practice of accepting license agreements under installment payment arrangements substantially increases its working capital requirements. Generally, these arrangements are for a period of one to three years after a minimum down payment of 20% of the principal amount of the contract. Interest currently ranges from 10% to 12%. In the years ended March 31, 1998, 1997, and 1996, the principal amount of installment agreements entered into during the year represented 3%, 10%, and 15% of the Company's revenue, respectively. Installment receivables included in accounts receivable are $8.0 million and $11.9 million at March 31, 1998 and 1997, respectively. The Company continues to experience a significant interest in financing of software purchases by a broad range of customers, in every industry segment served. The installment receivable balance, in addition to the Company's policy of offering competitive trade terms of payment, make it difficult to accurately portray a relationship between the outstanding accounts receivable balance and the current year revenues. 17 19 Group 1 continually evaluates the credit and market risks associated with outstanding receivables. In the course of this review, Group 1 considers many factors specific to the individual client as well as to the concentration of receivables within industry groups. Group 1's installment receivables are predominately with clients (service bureaus) who provide computer services to the direct marketing industry. Many of these clients have limited capital and insufficient assets to secure their liability with the Group 1. The service bureaus are highly dependent on Group 1's software and services to offer their customers the economic benefit of postal discounts and mailing efficiency. To qualify for the U.S. Postal Service and Canada Post Corporation postal discounts, service bureaus require continuous regulatory product updates from the Company. The service bureau industry is also highly competitive and subject to general economic cycles, as they impact advertising and direct marketing expenditures. The Company is aware of no current market risk associated with the installment receivables. Service bureaus represent approximately $5.1 million or 63 %, of the installment receivables at March 31, 1998. As of March 31, 1998, the Company's capital resource commitments consisted primarily of non-cancelable operating lease commitments for office space and equipment. The Company believes that its current debt services, minimum lease obligations and other short-term and long-term liquidity needs can be met from cash flows from operations and current credit facility. The Company believes that its long-term liquidity needs are minimal and no large capital expenditures are anticipated, except for the continuing investment in capitalized software development costs, which the Company believes can be funded from operations. Historically, the Company has been able to negotiate capital leases for its acquisition of equipment. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See pages 19 through 39. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 18 20 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors COMNET Corporation We have audited the accompanying consolidated balance sheets of COMNET Corporation (COMNET) and Subsidiaries as of March 31, 1998 and 1997, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended March 31, 1998. These financial statements are the responsibility of COMNET'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 consolidated financial position of COMNET Corporation and Subsidiaries as of March 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 1998, in conformity with generally accepted accounting principles. COOPERS & LYBRAND, L.L.P. McLean, Virginia June 12, 1998 19 21 COMNET CORPORATION CONSOLIDATED BALANCE SHEETS
MARCH 31, ----------------------------- 1998 1997 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 3,683,398 $ 1,628,552 Trade and installment accounts receivable, less allowance of $3,603,400 and $3,208,000 27,232,842 32,460,267 Deferred income taxes 3,408,086 2,385,099 Prepaid expenses and other current assets 3,085,453 4,532,748 ------------ ------------ Total current assets 37,409,779 41,006,666 Installment accounts receivable, long-term 3,810,279 6,169,987 Property and equipment, net 3,543,502 3,666,782 Computer software, net 23,358,862 21,870,529 Other assets 2,507,090 3,142,336 ------------ ------------ Total assets $ 70,629,512 $ 75,856,300 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings $ - - - $ 7,096,854 Accounts payable 2,098,820 3,168,485 Current portion of long-term debt 157,017 163,748 Accrued expenses 6,278,611 5,932,607 Accrued compensation 4,699,110 3,984,139 Current deferred revenues 17,484,138 16,169,758 ------------ ------------ Total current liabilities 30,717,696 36,515,591 Long-term debt, net of current portion 389,144 303,504 Deferred revenues, long-term 3,653,055 4,605,606 Deferred income taxes 3,029,299 2,801,078 Minority interest in net earnings of consolidated subsidiary 5,682,486 5,418,731 ------------ ------------ Total liabilities 43,471,680 49,644,510 ------------ ------------ Commitments and contingent liabilities Stockholders' equity: 6% cumulative convertible preferred stock (Note 9) 2,845,857 2,845,857 Common stock $0.50 par value; 10,000,000 shares authorized; 3,593,690 and 3,587,990 issued and outstanding 1,796,845 1,793,995 Capital contributed in excess of par value 17,763,064 17,728,151 Retained earnings 6,480,530 5,507,940 Cumulative foreign currency translation 286,886 351,197 ------------ ------------ 29,173,182 28,227,140 Less treasury stock at cost, 316,244 shares (2,015,350) (2,015,350) ------------ ------------ Total stockholders' equity 27,157,832 26,211,790 ------------ ------------ Total liabilities and stockholders' equity $ 70,629,512 $ 75,856,300 ============ ============
See notes to consolidated financial statements. 20 22 COMNET CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended March 31, ---------------------------------------------- 1998 1997 1996 ------------ ------------ ------------ Revenue: Software license and related revenues $ 32,786,215 $ 30,620,800 $ 25,785,598 Maintenance and other revenue 28,217,682 23,926,149 20,087,224 ------------ ------------ ------------ Total revenue 61,003,897 54,546,949 45,872,822 ------------ ------------ ------------ Costs and expenses: Software license expense 10,491,100 12,511,000 6,107,200 Maintenance and service expense 12,544,100 12,914,285 8,109,000 Research, development and indirect support 2,857,700 2,654,500 1,770,100 Selling and marketing 20,893,408 20,243,908 16,952,140 General and administrative 7,913,233 6,551,044 6,083,501 Provision for doubtful accounts 3,505,000 1,956,403 1,617,637 ------------ ------------ ------------ Total costs and expenses 58,204,541 56,831,140 40,639,578 ------------ ------------ ------------ Operating earnings (loss) 2,799,356 (2,284,191) 5,233,244 Non-operating income (expense), net (464,651) (425,627) 238,871 ------------ ------------ ------------ Earnings (loss) from operations before provision for income taxes 2,334,705 (2,709,818) 5,472,115 Provisions (benefit) for income taxes 921,360 (799,630) 1,985,000 Minority interest in net earnings (loss) of consolidated subsidiary 263,755 (309,882) 655,578 ------------ ------------ ------------ Net earnings (loss) 1,149,590 (1,600,306) 2,831,537 Preferred stock dividend requirements (177,000) (177,000) (177,000) ------------ ------------ ------------ Net earnings (loss) available to common stockholders $ 972,590 $ (1,777,306) $ 2,654,537 ============ ============ ============ Basic earnings (loss) per share of common stock $ 0.30 $ (0.54) $ 0.85 Diluted earnings (loss) per share of common stock $ 0.29 $ (0.54) $ 0.79 ============ ============ ============ Basic Weighted average common shares outstanding 3,273,826 3,262,749 3,139,863 ============ ============ ============ Diluted Weighted average common and common Equivalent shares outstanding 3,299,285 3,262,749 3,340,126 ============ ============ ============
See notes to consolidated financial statements. 21 23 COMNET CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended March 31, 1998, 1997 and 1996 Common Stock
6% Capital Cumulative $0.50 Contributed In Convertible Par Excess of Par Retained Preferred Stock Value Value Earnings --------------- ------------ ------------- ------------ Balance, March 31, 1995 $2,845,857 $1,691,874 $15,738,644 $4,630,709 Dividends to preferred stockholders - - - - - - - - - (177,000) Issuance of stock upon exercise of options - - - 89,471 1,733,217 - - - Gain on foreign currency translation - - - - - - - - - - - - Unrealized gain on investments - - - - - - - - - - - - Net earnings - - - - - - - - - 2,831,537 ------------- ------------ ------------- ------------ Balance, March 31, 1996 2,845,857 1,781,345 17,471,861 7,285,246 Dividends to preferred stockholders - - - - - - - - - (177,000) Issuance of stock upon exercise of options - - - 12,650 256,290 - - - Gain on foreign currency translation - - - - - - - - - - - - Unrealized gain on investments - - - - - - - - - - - - Net loss - - - - - - - - - (1,600,306) ------------- ------------ ------------- ------------ Balance, March 31, 1997 2,845,857 1,793,995 17,728,151 5,507,940 Dividends to preferred stockholders - - - - - - - - - (177,000) Issuance of stock upon exercise of options - - - 2,850 34,913 - - - Gain on foreign currency translation - - - - - - - - - - - - Net earnings - - - - - - - - - 1,149,590 ============= ============ ============= ============ Balance, March 31, 1998 $2,845,857 $1,796,845 $17,763,064 $6,480,530 ============= ============ ============= ============
Unrealized Cumulative Treasury Gain (Loss) Foreign Total Stock from Currency Stockholders' at Cost Investments Translation Equity ------------ ------------ ------------- ------------ Balance, March 31, 1995 $(2,015,350) $(44,720) $18,486 $22,865,500 Dividends to preferred stockholders - - - - - - - - - (177,000) Issuance of stock upon exercise of options - - - - - - - - - 1,822,688 Gain on foreign currency translation - - - - - - 47,801 47,801 Unrealized gain on investments - - - 42,545 - - - 42,545 Net earnings - - - - - - - - - 2,831,537 ------------ ------------ ------------- ------------ Balance, March 31, 1996 (2,015,350) (2,175) 66,287 27,433,071 Dividends to preferred stockholders - - - - - - - - - (177,000) Issuance of stock upon exercise of options - - - - - - - - - 268,940 Gain on foreign currency translation - - - - - - 284,910 284,910 Unrealized gain on investments - - - 2,175 - - - 2,175 Net loss - - - - - - - - - (1,600,306) ------------ ------------ ------------- ------------ Balance, March 31, 1997 (2,015,350) - - - 351,197 26,211,790 Dividends to preferred stockholders - - - - - - - - - (177,000) Issuance of stock upon exercise of options - - - - - - - - - 37,763 Gain on foreign currency translation - - - - - - (64,311) (64,311) Net earnings - - - - - - - - - 1,149,590 ============ ============ ============= ============ Balance, March 31, 1998 $(2,015,350) - - - $286,886 $27,157,832 ============ ============ ============= ============
See notes to consolidated financial statements. 22 24 COMNET CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31, ---------------------------------------------- 1998 1997 1996 ------------ ------------ ------------ Cash flows from operating activities: Net earnings (loss) $ 1,149,590 $ (1,600,306) $ 2,831,537 Adjustments to reconcile net earnings (loss) from operations to net cash provided by operating activities: Amortization expense 7,159,139 10,849,115 5,165,487 Depreciation expense 1,151,354 986,284 861,499 Provision for doubtful accounts receivable 3,505,000 1,956,403 1,634,638 Net loss on disposal of assets 51,306 - - - - - - Deferred income taxes (801,637) (807,875) 1,511,172 Minority interest in earnings of consolidated subsidiary 263,755 (309,882) 655,578 Changes in assets and liabilities: (Increase) decrease in accounts receivable 4,070,387 (10,472,721) (9,620,017) (Increase) decrease in other current assets 1,290,940 (556,073) (64,651) (Increase) decrease in other assets 89,657 (441,139) 299,317 Increase in deferred revenues 292,385 2,640,269 3,580,187 Increase (decrease) in accounts payable (1,068,385) 676,928 (320,329) Increase (decrease) in accrued expenses 1,596,964 (56,069) 388,735 ------------ ------------ ------------ Net cash provided by operating activities 18,750,455 2,864,934 6,923,153 ------------ ------------ ------------ Cash flows from investing activities: Purchase and development of computer software (8,328,238) (10,614,891) (8,733,446) Purchase of equipment and improvements (1,150,602) (1,255,531) (1,317,307) Purchase of marketable securities - - - - - - (18,067,097) Sale of marketable securities - - - 1,981,341 19,910,100 ------------ ------------ ------------ Net cash used in investing activities (9,478,840) (9,889,081) (8,207,750) ------------ ------------ ------------ Cash flows from financing activities: Proceeds from short-term borrowings 11,853,526 20,961,666 8,384,995 Reduction of short-term borrowings (18,950,380) (13,864,812) (8,384,995) Proceeds from exercise of stock options 37,763 268,940 1,822,688 Proceeds from exercise of subsidiary stock options - - - - - - 4,967 Increase of long-term-debt 199,511 559,295 - - - Reduction of long-term debt (120,600) (976,124) (331,251) Dividend paid on preferred stock (177,000) (177,000) (177,000) ------------ ------------ ------------ Net cash provided by (used in) financing activities (7,157,180) 6,771,965 1,319,404 ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents 2,114,435 (252,182) 34,807 Effect of currency translation on cash (59,589) 36,213 (129,082) Cash and cash equivalents at beginning of period 1,628,552 1,844,521 1,938,796 ------------ ------------ ------------ Cash and cash equivalents at end of period $ 3,683,398 $ 1,628,552 $ 1,844,521 ============ ============ ============
See notes to consolidated financial statements. 23 25 COMNET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 1998, 1997 AND 1996 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization COMNET Corporation ("COMNET" through its majority owned subsidiary, Group 1 Software, Inc. ("Group 1") develops, acquires, markets and supports specialized marketing and mail management software. The Company distributes all of its products in North America and its Electronic Document Systems throughout the World. Principles of Consolidation The consolidated financial statements of the Company include the accounts of COMNET Corporation and its wholly and majority owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. 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 disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition The Company recognizes revenue in accordance with the American Institute of Certified Public Accountants' Statement of Position 91-1 on Software Revenue Recognition. Revenue from perpetual licenses and the portion of royalty revenues not subject to future obligations is generally recognized after execution of a licensing agreement and shipment of the product provided that no significant vendor obligations remain and the resulting receivable is deemed collectible by management. Maintenance and enhancement (post contract support) revenues are deferred and recognized ratably over the life of each contract. Costs related to performance under post-contract support agreements are expensed as incurred. The amount of deferred revenue at March 31, 1998, to be recognized during the subsequent years is: 1999 $ 17,484,138 2000 2,477,433 2001 831,003 2002 234,517 2003 7,087 2004 & beyond 103,015 -------------- $ 21,137,193 ==============
Contracts for professional services are negotiated individually and are non-cancelable. The Company generally recognizes revenues from professional service contracts on a time and materials basis as the work is performed. Fixed price professional service contracts are recognized using the percentage-of-completion method as work is performed, measured primarily by the ratio of labor hours incurred to total estimated labor hours for 24 26 each specific contract. When the total estimated cost of a contract is expected to exceed the contract price, the total estimated loss is charged to expense in the period when the information is known. Cash Equivalents Cash equivalents consist of investments with original maturities of 90 days or less, which are readily convertible into cash. Installment Accounts Receivable License agreements may be executed under installment contracts, which provide for interest charges and monthly payments, with terms up to three years. Interest income from such contracts, which is included in software licenses and related revenue, was $462,000, $468,000, and $440,000, in 1998, 1997, and 1996, respectively. Property and Equipment Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives, ranging from three to ten years. Leasehold improvements are amortized on a straight-line basis over the shorter of their useful lives or the lives of the respective leases. Research and Product Development Research and product development costs not subject to Financial Accounting Standards Board ("FASB") Statement No. 86, "Accounting for the Cost of Computer Software to be Sold, Leased, or Otherwise Marketed," are expensed as incurred and relate mainly to the development of new products and on-going maintenance of existing products. Software development costs incurred subsequent to establishment of the software's technological feasibility are capitalized. Capitalization ceases when the software is available for general release to customers. All costs not meeting the requirements for capitalization are expensed in the period incurred. Capitalized software development costs are amortized by the greater of (a) the ratio that current gross revenues for the product bear to the total of current and anticipated future gross revenues for that product or (b) the straight-line method over the remaining estimated economic life of the product including the period being reported on. At the balance sheet date, the Company evaluates the net realizable value of the capitalized costs and adjusts the current period amortization for any impairment of the capitalized asset value. Costs for research and development incurred in 1998, 1997, and 1996 were approximately $11,493,000, $11,986,000, and $9,445,000, respectively. Under FASB Statement No. 86, software development costs amounting to $8,635,000, $9,331,000, and $7,675,000, respectively, were capitalized. During the years ended March 31, 1998, 1997, and 1996, amortization of capitalized internally developed computer software costs, based on an estimated economic life of no more than five years, was $6,068,000, $8,540,000, and $4,010,000, respectively. Goodwill The Company has classified as goodwill the cost in excess of fair value of the net assets of companies acquired in purchase transactions. Goodwill is being amortized on a straight-line basis over periods not exceeding 9 years. Amortization charged to operations amounted to $251,000, $171,000, and $71,000, for 1998, 1997, and 1996, respectively. At each balance sheet date, the Company evaluates the net realizable value of goodwill based upon expectations of non-discounted cash flows and operating income. Based upon its most recent analysis, Group 1 believes that no impairment of goodwill existed at March 31, 1998. 25 27 Foreign Currency Translation Assets and liabilities of the Company's foreign operation are translated into U.S. dollars using rates of exchange in effect at the balance sheet date. Revenues and expenses are translated at the monthly average exchange rate. Gains and losses from foreign currency transactions are included in the results of operations currently, while those resulting from translation of financial statement amounts are included as a separate component of stockholders' equity. Income Taxes The Company uses the liability method of accounting for income taxes. Under the liability method, deferred income taxes are recognized for the tax consequences of temporary differences by applying currently enacted statutory tax rates applicable to future years to differences between the financial statements carrying amounts and the tax bases of existing assets and liabilities. Minority Interest Minority interest of approximately 18.8% for each of the years ending March 31, 1998, 1997, and 1996, is reflected in consolidation and is the portion of Group 1 Software, Inc. ("Group 1") that is not owned by the Company. Earnings (loss) per Share of Common Stock The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 128, issued by the Financial Accounting Standards Board ("FASB") in February 1997, requiring dual presentation of basic and diluted per share earnings on the face of the income statement. Basic earnings per share is based on the weighted average number of shares of common stock outstanding. On a diluted basis, earnings and shares outstanding are adjusted for stock options for each year presented. The adoption of SFAS No. 128 did not have a material effect on the Company's financial statements. Prior years' presentations of earnings per share have been restated to conform to the guidelines of SFAS No. 128. Calculation of diluted earnings per share:
Year Ended March 31, ----------------------------------------- Reconciliation of Denominator: 1998 1997 1996 - ------------------------------ --------- --------- --------- Weighted shares outstanding - basic 3,273,826 3,262,749 3,139,863 Effect of dilutive securities: Stock options 25,459 - - - 200,263 --------- --------- --------- Adjusted denominator - diluted 3,299,285 3,262,749 3,340,126 ========= ========= =========
There were additional potentially dilutive stock options of 163,992 in 1997 which were not included in the loss per share calculation due to their anti-dilutive effect. There were additional potentially dilutive convertible securities of 147,500 in 1998, 1997 and 1996 which were not included in the earnings (loss) per share calculation due to their anti-dilutive effect. Concentration of Credit Risk The Company designs, develops, manufactures, markets and supports computer software systems to customers in diversified industries. The Company performs ongoing credit evaluations of its customers' financial condition and generally requires no collateral. The Company's installment receivables are predominately with clients (service bureaus) who provide computer services to the direct marketing industry. Certain of these service 26 28 bureau clients may have limited capital and insufficient assets to secure their liability to the Company. The service bureau industry is also highly competitive and subject to general economic cycles as they impact advertising and direct marketing expenditures. These clients represent approximately $5.0 million or 63% of the installment receivables at March 31, 1998 versus $9.2 million or 78 % the prior year. Impairment of Long-Lived Assets FAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, specifies circumstances in which certain long-lived assets must be reviewed for impairment. If such review indicates that the carrying amount of an asset exceeds the sum of its expected future cash flows, the asset's carrying value must be written down to fair value. Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income", which establishes standards for reporting and displaying comprehensive income and its components in a full set of general-purpose financial statements and is required to be adopted by the Company beginning in fiscal 1999. Additionally, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", which establishes standards for the way that public business enterprises report information in annual statements and interim financial reports regarding operating segments, products and services, geographic areas and major customers. SFAS 131 will be effective for the Company for fiscal 1999 and will apply to both annual and interim financial reporting. The Company will adopt the required disclosures in conjunction with these statements. In October 1997, the Accounting Standards Executive Committee issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition," as amended by SOP 98-4, which provide guidance on applying generally accepted accounting principles in recognizing revenue on software and are effective for the Company's transactions entered into beginning April 1, 1998. The Company does not expect the adoption of the SOP's to have a material impact on the Company's financial condition or results of operations. Fair Value of Financial Instruments The Company estimates the fair value of its notes and extended term receivables by discounting the required future cash flows using borrowing rates at which similar types of borrowing arrangements could be currently obtained by the Company. Since the Company's notes payable and Line of Credit are short term, carrying value approximates fair value in nature. Reclassification Certain prior year amounts have been reclassified to conform with the current year presentation. (2) ACCOUNTS RECEIVABLE Accounts receivable are comprised of the following: 27 29
March 31, ----------------------------------- 1998 1997 ------------ ------------ Trade $ 26,610,092 $29,974,239 Installment accounts receivable, interest typically at 8.5% to 13% 8,036,429 11,864,015 Allowance for doubtful accounts (3,603,400) (3,208,000) ------------ ------------ 31,043,121 38,630,254 Less non-current portion of installment accounts receivable 3,810,279 6,169,987 ------------ ------------ Current portion $ 27,232,842 $32,460,267 ============ ============
(3) PREPAID EXPENSE AND OTHER ASSETS Prepaid expenses and other current assets are comprised of the following:
March 31, ----------------------------------- 1998 1997 ------------ ------------ Prepaid expense $ 956,947 $1,095,771 Prepaid commission 932,764 1,046,266 Prepaid royalty 425,919 545,495 Other assets 769,823 1,845,216 ============ ------------ $3,085,453 $4,532,748 ============ ============
Prepaid commissions and royalties primarily relate to amounts paid, as of the balance sheet date, on initial maintenance and enhancement revenues deferred into future periods. (4) PROPERTY AND EQUIPMENT Property and equipment is comprised of the following:
March 31, ----------------------------------- 1998 1997 ------------ ------------ Data processing equipment $5,134,781 $5,983,096 Furniture and fixtures 2,478,222 2,558,849 Leasehold improvements 926,617 618,483 ------------ ------------ 8,539,620 9,160,428 Less accumulated depreciation and amortization (4,996,118) (5,493,646) ------------ ------------ $3,543,502 $3,666,782 ============ ============
28 30 (5) COMPUTER SOFTWARE Computer software is comprised of the following:
March 31, ----------------------------------- 1998 1997 ------------ ------------ Developed software $50,367,557 $41,858,190 Acquired software 5,877,290 5,708,419 Software purchased for internal use 3,841,354 3,536,870 ------------ ------------ 60,086,201 51,103,479 Less accumulated amortization (36,727,339) (29,232,950) ------------ ------------ $23,358,862 $21,870,529 ============ ============
(6) ACCRUED EXPENSES Accrued expenses are as follows:
March 31, ----------------------------------- 1998 1997 ------------ ------------ Accrued sales and other taxes $ 926,013 $1,084,772 Accrued royalties 1,738,371 1,228,770 Accrued sales incentives 343,882 326,418 Accrued rent abatements 86,927 106,424 Accrued dividends 44,250 44,250 Income taxes payable 1,149,105 446,943 Other accrued expenses 1,925,419 2,591,221 Accrued expense for disposition of AIM operations 37,191 28,283 Accrued expense for disposition of COM-MED operations 27,453 75,526 ------------ ------------ $6,278,611 $5,932,607 ============ ============
(7) SHORT-TERM BORROWINGS At March 31, 1998, the Company's Group 1 Software, Inc. Subsidiary, maintained a 2-year $10,000,000 bank line of credit arrangement with Crestar bank expiring August 31, 1998. The line of credit bears interest at the bank's prime rate (8.5% at March, 31 1998) or Libor plus 175 basis points at Group 1's option. The line of credit arrangement is collateralized by trade accounts recievable and maintenance and renewal accounts recievable (excluding installment accounts recievable) and among other things requires Group 1, to maintain an EBIT to interest expense ratio of at least 1.5 to 1 through March 31, 1998 and at least 2.0 to 1 thereafter. The arrangement also requires Group 1 to maintain a total liabilities to EBITDA (earnings before interest, taxes, depreciation and amortization) ratio of no more than 5.0 to 1 through March 31, 1998 and no more than 4.0 to 1 thereafter. At March 31, 1998, there were no borrowings under the facility, at March 31, 1997, borrowings under the line of credit were $7.1 million. 29 31 (8) LONG-TERM DEBT Long-term debt consists of the following:
March 31, ----------------------------------- 1998 1997 ------------ ------------ Installment notes payable $122,339 $363,505 Capitalized lease obligations 423,822 103,747 ------------ ------------ Sub-total 546,161 467,252 Less current portion 157,017 163,748 ------------ ------------ Long-term portion $389,144 $303,504 ============ ============
Installment notes and capital lease obligations are payable monthly and bear interest at rates ranging from 6% to 10%. The notes are collateralized by certain furniture and equipment with a net book value that approximates the outstanding loan balance. These lease obligations were entered into at then current market rates. The aggregate maturities of the long-term debt during the years subsequent to March 31, 1998 are: 1999 $157,017 2000 148,929 2001 131,627 2002 94,579 2003 and beyond 14,009 ---------- $546,161 ==========
The Company believes that there are no material differences between carrying amounts and market value of its long-term obligations. (9) STOCKHOLDERS' EQUITY Preferred Stock On January 22, 1993, the Company issued a series of Preferred Stock par value $0.25 per share, to be designated "6% Cumulative Convertible Preferred Stock" consisting of 147,500 shares. Dividends have been paid semi-annually in January and July since July, 1993. The 6% Preferred Stock shall be convertible at any time at the sole option of the holder into fully paid and non-assessable Common Stock, at the rate of one share of Common Stock for each share of preferred stock, subject to a specified adjustment rate. The Company shall have the right to redeem the outstanding 6% Preferred Stock, in whole or in part, at any time and from time to time after March 31, 1993, by paying to the holders thereof in cash the redemption price per share, 110% through March 31, 1994, and decreasing 2% per year through April 1, 1998, together with all accrued and unpaid dividends thereon through the Redemption Date. Stock Option Plans The Company has five stock option programs currently in effect, and two predecessor plans for which option grants are still outstanding. 30 32 The COMNET Corporation Stock Option Plan of 1995 authorizes the grant of incentive stock options, non-qualified stock options and stock appreciation rights, at the sole discretion of the Compensation Committee of the Board of Directors, to officers and other employees of the Company, and reserved 600,000 shares of common stock for issuance on exercise of options under the Plan. The option and rights vest over five years; however, all options and rights expire ten years after the date of the grant. No stock appreciation rights have been granted under this Plan. The plan activity was as follows:
Option Shares Shares under option March 31, 1995 - - Options Granted - 1995 exercise price of $10.00 316,200 Options cancelled - 1996 (1,000) ------ Shares under option, March 31, 1996 315,200 Options granted - 1997 - exercise prices of $9.00 - $13.00 92,500 Options cancelled - 1997 (47,960) ------- Shares under option, March 31, 1997 - exercise prices of $9.00 - $13.00 359,740 Options granted - 1998 - exercise price of $8.00 17,500 Options cancelled - 1998 (59,860) ------- Shares under option, March 31, 1998 - exercise prices of $8.00 - $10.25 317,380 ============
At March 31, 1998 options for 109,540 shares were exercisable at $9.00 - $13.00. Options outstanding at March 31, 1998, expire in years ending March 31, 2006 through 2008. Options for 85,240 shares become exercisable in the year ending March 31, 1999, 367,976 shares were available for future grants of options. The COMNET Corporation Stock Option and Stock Appreciation Unit Plan of 1986 for employees permitted the grant of options to purchase common stock of the Company, or stock appreciation rights redeemable in cash or common stock at the sole discretion of the Compensation Committee of the Board of Directors, at prices not less than fair market value on the date of grant. The options and rights vest over five years; however, all options and rights expire ten years after the grant date. The plan's activity was as follows:
Option Shares ------------ Shares under option, March 31, 1995 - exercise prices of $6.625 - $30.25 647,254 Options granted - 1996 - exercise prices of $10.00 78,216 Options exercised - 1996 - exercise prices $5.375 - $14.00 (78,983) Options canceled - 1996 (34,730) ------------ Shares under option, March 31, 1996 - exercise prices of $6.625 - $30.25 611,757 Options exercised - 1997 - exercise prices of $6.625 - $8.25 (25,300) Options canceled - 1997 (30,890) ------------ Shares under option, March 31, 1997 - exercise prices of $6.625 - $30.25 555,567 Options exercised - 1998 - exercise price of $6.25 (5,700) Options cancelled - 1998 (109,306) ------------ Shares under option, March 31, 1998 440,561 ============
31 33 As of March 31, 1998, options for 380,938 shares were exercisable at prices ranging from $6.625 to $30.25. Options outstanding at March 31, 1998 expire in years ending March 31, 1999 through 2006. Options for 37,953 shares become exercisable in the year ending March 31, 1999. No stock appreciation units have been granted under the plan. As of March 31, 1996, the 1986 Stock Option and Stock Appreciation Unit Plan had terminated and no future grants of options will be made under the plan. The COMNET Corporation Stock Option Plan for Non-Employee Directors of 1995 provides for annual automatic grants of non-qualified stock options to non-employee directors of the Company, at an exercise price set by the market price of the stock under conditions defined by the plan. The options vest over five years and expire fifteen years after the date of the grant. The plan activity was as follows:
Option Shares ------------ Shares under option, March 31, 1996 - - - Options granted - 1997 - exercise price of $10.00 25,000 ------------ Shares under option, March 31, 1997 - exercise price of $10.00 25,000 Options granted 1998 - exercise price of $8.00 - $8.50 Options cancelled 1998 35,000 ------------ Shares under option March 31, 1998 60,000 ------------
At March 31, 1998, 5,000 shares under option were vested and exercisable. Options for 12,000 shares became exercisable in the year ending March 31, 1999. At March 31, 1998, 90,000 shares were available for future options. The Company's 1986 Stock Option Plan for Non-Employee Directors provided for annual automatic grants of non-qualified stock options to non-employee directors of the Company who served from 1986 to 1992, under conditions defined by the plan. The options vest over five years and expire ten years after the grant date. On January 22, 1993, the shareholders approved an amendment to eliminate restrictions on vesting of stock options granted to the plan so that options will become fully exercisable in whole or in part, upon resignation as a director. The plan's activity was as follows:
Option Shares ------------ Shares under option March 31, 1995 - exercise prices of $5.375 - $30.00 146,834 Options exercised - 1996 - exercise price of $5.375 - $11.00 (99,959) ------------ Shares under option March 31, 1996, 1997, and 1998 Exercise price of $16.50 - $30.00 46,875 ============
As of March 31, 1998, 46,875 shares under option were vested and exercisable. Options outstanding at March 31, 1998 expire in years ending March 31, 2001 through 2002. The plan has issued options to the full extent of the number of shares of common stock reserved for issuance; no further grants will be made thereafter. In 1991, the Company granted options to purchase an aggregate of 465,000 shares of common stock at an exercise price of $21.75 per share to the individuals then serving on the reconstituted Board of Directors, as an inducement to such individuals to serve on the board. Currently options to purchase 210,000 shares remain granted. The options are exercisable for 10 years from the date of grant and vest 20% per year, subject to potential acceleration as defined in the stock option agreements. As of March 31, 1998, 210,000 shares were vested and exercisable. 32 34 In 1992, the Company granted options to purchase an aggregate of 15,000 shares of common stock at an exercise price of $30.25 per share to the individuals serving on the Advisory Committee. The options are exercisable for ten years from the date of grant and vest 20% per year. As of March 31, 1998, 15,000 shares were vested and exercisable. The Company's 1992 Stock Option Plan for Non-Employee Directors provides for annual automatic grants of non-qualified stock options to non-employee directors of the Company, under conditions defined by the plan, and reserves 120,000 shares of common stock for issuance on exercise of options under the plan. The options vest progressively over five years and expire fifteen years after the grant date. The plan's activity was as follows:
Option Shares ------------ Shares under option, March 31, 1995 - exercise price of $8.75 - $30.50 60,000 Options granted - 1996 - exercise price of $10.125 30,000 Options canceled - 1996 (20,000) ------------ Shares under option, March 31, 1996, 1997, and 1998 - exercise prices of $8.75 - $24.25 70,000 ============
As of March 31, 1998, 42,000 options were exercisable. Options outstanding at March 31, 1998, expire in the years ending March 31, 2003 through 2004. Options for 14,000 shares become exercisable in the year ending March 31, 1999. At March 31, 1996 the 1992 Stock Option Plan for Non-Employee Directors had terminated and no future grants of options will be made under the plan. A summary of the status of the Plans is presented below:
Year Ended March 31 ----------------------- ----------------------- ----------------------- 1998 1997 1996 ----------------------- ----------------------- ----------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ----------------------- ----------------------- ----------------------- Options outstanding beginning of period 1,282,182 12.97 1,268,832 $13.05 1,079,938 $13.61 Options exercised (5,700) 6.63 (25,300) $ 7.39 (178,942) $8.48 Options canceled (169,166) 10.20 (78,850) $11.62 (49,100) $14.16 Options granted 52,500 8.09 117,500 $10.04 414,333 $10.01 Options outstanding end of period 1,159,816 13.19 1,282,182 $12.97 1,266,229 $13.06 Options exercisable at end of period 809,353 14.50 802,226 $14.28 731,531 $12.71 Weighted-average fair value of options granted during the Period $8.09 $10.04 $7.08
As of March 31, 1998, the weighted average remaining contractual life of the options that range from $9.00 to $10.25 is 5.41 years. As of March 31, 1998, 1997 and 1996, the pro forma tax effects under SFAS 109 are not material to the Company's Financial Statements. 33 35 The Company accounts for the activity under the Plans in accordance with APB 25. Accordingly, no compensation expense has been recognized for the Plans. Had compensation expense been determined based on the fair value of the stock options for awards under the Plans in accordance with SFAS 123, the Company's net earnings (loss) and earnings (loss) per common share would have been increased to the pro forma amounts indicated below:
1998 1997 1996 -------------- -------------- -------------- Net earnings (loss) As reported $ 972,590 $(1,777,306) $2,654,537 Pro forma $ 481,114 $(2,613,126) $2,300,574 Earnings (loss) per common share As reported $0.29 $(0.54) $0.79 Pro forma $0.15 $(0.80) $0.69
The fair value of each option is estimated on the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions used for grants during the years ended March 31, 1998, 1997 and 1996 respectively; dividend yield of 0%, expected volatility of 111%, 107% and 95% respectively, a risk-free interest rate of 6.30%, 6.34% and 5.68% respectively, and an expected term of 7 years. (10) INCOME TAXES The provision for income taxes for continuing operations consists of the following components:
Year Ended March 31, ------------------------------------------------------------------- 1998 1997 1996 -------------- -------------- -------------- Federal: Current $ - - - $ (764,302) $ 244,000 Deferred (202,448) (751,613) 945,000 -------------- -------------- -------------- (202,448) (1,515,915) 1,189,000 -------------- -------------- -------------- State: Current 123,000 68,000 76,000 Deferred 24,701 3,088 73,000 -------------- -------------- -------------- 147,701 71,088 149,000 -------------- -------------- -------------- Foreign: Current 989,508 694,926 362,000 Deferred (13,401) (49,729) 285,000 -------------- -------------- -------------- 976,107 645,197 647,000 -------------- -------------- -------------- $ 921,360 $ (799,630) $ 1,985,000 ============== ============== ==============
34 36 The provision for income taxes for continuing operations varied from that computed using the statutory federal income tax rate as follows:
Year Ended March 31, --------------------------------- 1998 1997 1996 ------ ------ ------ Statutory tax rate 34.0% (34.0)% 34.0% State income taxes, net of federal income tax benefit 4.2 1.7 1.9 Research and development tax credits - - - - - - (0.9) Foreign taxes 0.2 (0.7) 1.5 Other, net 1.1 3.5 (0.2) ------ ------ ------ Effective tax rate 39.5 (29.5)% 36.3% ====== ====== ======
The significant components of the current deferred tax asset and the long-term deferred tax liabilities are:
March 31, ------------------------------------ 1998 1997 ----------- ----------- Current: Deferred maintenance revenue $ 530,974 $ 530,974 Allowance for doubtful accounts 1,278,444 1,329,597 Reserve for the disposition of AIM 12,645 9,616 Net operating loss carryforward 534,372 --- Accrued compensation 1,108,627 678,992 Other, net (56,976) (164,080) ----------- ----------- Total current deferred tax assets $ 3,408,086 $2,385,099 =========== =========== Long-term: Deferred maintenance revenue - long-term $ (624,767) $(1,134,164) Allowance for doubtful accounts (20,400) (500,963) Capitalized software 6,257,903 5,854,463 Depreciation (440,978) (426,313) Net operating loss carryforward (635,581) --- Research and development tax credits (1,555,116) (1,244,486) Other, net 48,238 252,541 ----------- ----------- Total long-term deferred tax liabilities $ 3,029,299 $ 2,801,078 =========== ===========
The Company has consolidated research and development tax credit carry forwards of $1,555,116 which will expire in 2001 through 2013 and consolidated net operating loss carry forwards of $3,441,040 expiring 2012 through 2013. (11) BENEFIT PROGRAMS The Company maintains a 401(k) retirement savings plan and trust for the benefit of the Company's employees which provides for a contribution to be made by the Company out of current operating earnings based upon the contributions made by participating Company employees with established limits. Company contributions for the years ended March 31, 1998, 1997 and 1996 were, $259,893, $254,000, and $226,000, respectively. 35 37 (12) INCOME DATA (UNAUDITED) Quarterly financial information for the years ended March 31, 1998 and 1997 was as follows:
First Second Third Fourth Quarter Quarter Quarter Quarter Year --------- --------- --------- --------- --------- (Dollars in thousands except earnings per share) Fiscal Year 1998: Revenue $11,870 $15,364 $15,859 $17,911 $61,004 Earnings (loss) before taxes (1,649) 937 911 2,136 2,335 Net Earnings (loss) (909) 481 423 1,155 1,150 Basic earnings (loss) per share $(0.29) $0.13 $0.12 $0.34 $0.30 Diluted earnings (loss) per share $(0.29) $0.13 $0.11 $0.34 $0.29 Fiscal Year 1997: Revenue $10,720 $13,059 $14,631 $16,137 $54,547 Earnings (loss) before taxes (234) 246 640 (3,362) (2,710) Net Earnings (loss) (165) 154 316 (1,905) (1,600) Basic earnings (loss) per share $(0.06) $0.03 $0.08 $(0.60) $(0.54) Diluted earnings (loss) per share $(0.06) $0.03 $0.08 $(0.60) $(0.54)
(13) NON-OPERATING INCOME (EXPENSE) AND SUPPLEMENTAL INFORMATION Non-operating income and expense is comprised of the following:
Year Ended March 31, ------------------------------------------- 1998 1997 1996 --------- --------- --------- Interest income $ 118,289 $ 130,435 $ 209,422 Interest expense (469,983) (554,237) (125,809) Gain on sales of investment - - - 14,332 109,595 Loss on sale of assets (51,555) - - - - - - Other income (expense), net (61,402) (16,157) 45,663 ========= ========= ========= Total non-operating income (expense), net $(464,651) $(425,627) $ 238,871 ========= ========= =========
36 38 The following supplemental information summarizes the disclosure pertaining to the Statement of Cash Flows:
Year Ended March 31, -------------------------------------- 1998 1997 1996 -------- -------- -------- Cash paid during the year for: Interest $534,891 $553,673 $145,176 Income taxes 132,496 190,597 165,251 Non-cash investing and financing activities: Notes payable incurred in connection with the purchase of the assets of Data Designs, Inc. - - - - - - 180,000 Notes payable incurred in connection with the purchase of the assets of WorldTrak, Inc. - - - - - - 100,000 Capital lease obligations incurred 238,289 249,378 47,102
(14) COMMITMENTS AND CONTINGENCIES Purchased Services Effective April 6, 1994, Group 1 entered a three-year contract with a supplier of computer time-sharing services. Effective April 6, 1997, the agreement was extended for two additional years. The agreement requires Group 1 to purchase all of its internal IBM mainframe computer requirements, from this supplier. The Agreement provides for a fixed monthly fee. Group 1's actual costs of services with this vendor for the years ended March 31, 1998, 1997, and 1996 were $1,183,600 , $1,273,000, and $1,056,000, respectively. Leasing Arrangements The Company leases its office facilities and some of its equipment under operating and capital lease arrangements, some of which contain renewal options and escalation clauses for operating expenses and inflation. The Company is obligated for the following minimum operating and capital lease rental payments that have initial and remaining non-cancelable lease terms in excess of one year:
Operating Capital -------------------- ------------------ 1999 $ 2,944,250 $ 124,125 2000 2,609,182 124,125 2001 2,495,936 124,125 2002 2,149,989 84,346 2003 and beyond 3,896,042 14,201 -------------------- ------------------ Total minimum lease payments $ 14,095,399 $ 470,922 ==================== Amount representing interest 47,099 ------------------ Net minimum lease payments 423,823 Current portion of capital lease obligations 97,017 ------------------ Long-term portion of capital lease obligations $ 326,806 ==================
The Company entered into capital lease transactions aggregating, $238,289, $249,378, and $47,102 for the years ended 1998, 1997 and 1996, respectively. As of March 31, 1998, the book value of assets recorded under capital leases was $437,791. Total rent expense, under operating leases for fiscal years ended March 31, 1998, 1997, and 1996 was $3,479,128, $3,080,774, and $2,462,000, respectively. Legal COMNET, Group 1 and certain of Group 1's directors have been named as defendants in a purported shareholder class action filed on April 28, 1998 in the Court of Chancery of the State of Delaware (CA. No. 16349), Brickell Partners, Individually and on Behalf of All Others Similarly Situated v. Robert S. Bowen, et al. The suit alleges breaches of fiduciary duties in that COMNET, as majority stockholder of Group 1, "has greater knowledge of Group 1 than the public shareholders and has timed the merger transaction to take advantage of Group 1's increased efficiency and prospects of profitability", to the unfair disadvantage of Group 1's public shareholders. Both COMNET and Group 1 believe that the complaint is meritless and are actively pursuing dismissal of all the claims made by Plaintiff in the lawsuit. 37 39 (15) GEOGRAPHIC INFORMATION
Year Ended March 31, ------------------------------------------------------------------------- 1998 1997 1996 -------------------- -------------------- -------------------- Net Revenue U.S. operations $ 53,778,625 50,110,423 $ 43,142,750 European operations 9,677,885 6,676,498 4,429,531 Eliminations (2,452,613) (2,239,972) (1,699,459) -------------------- -------------------- -------------------- Total net revenue $ 61,003,897 54,546,949 $ 45,872,822 ==================== ==================== ==================== Operating Income U.S. operations $ (215,329) $ (4,431,019) $ 3,403,932 European operations 3,014,685 2,146,828 1,829,312 Eliminations --- --- --- -------------------- -------------------- -------------------- Total operating income (loss) $ 2,799,356 $ (2,284,191) $ 5,233,244 ==================== ==================== ==================== Identifiable Assets U.S. operations $ 62,541,644 $ 70,027,026 $ 63,601,807 European operations 9,986,268 8,433,004 6,528,514 Eliminations (1,898,400) (2,603,730) (2,938,500) -------------------- -------------------- -------------------- Total identifiable assets $ 70,629,512 $ 75,856,300 $ 67,191,821 ==================== ==================== ====================
It is management's belief that the Company's intercompany sales between geographic areas are accounted for at prices consistent with market conditions with unaffiliated transactions. "U.S. operations" include shipments to customers in the United States, licensing to OEMs, and exports of finished goods directly to international customers, primarily in Canada. International revenue which includes European operations, U.S. operations and exports, were 15.4%, 15.7%, and 13% of total revenue in 1998, 1997, and 1996. (16) SUBSEQUENT EVENT 38 40 In December 1997, COMNET and Group 1 announced their intent to merge the two companies through the issuance of COMNET common stock to Group 1's minority shareholders in exchange for their Group 1 common stock. In April 1998, the companies announced that the exchange ratio of 1.15 shares of COMNET for each share of Group 1 stock had been agreed to by the independent committees of the respective boards of directors. The merger is subject to approval by the boards of both COMNET and Group 1 as well as the shareholders of each company. The merger will be accounted for under purchase accounting and approximately $4.0 million of identifiable intangible assets will be recorded. 39 41 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Directors and executive officers of the Company are as follows:
Name Age Position - ---- --- -------- James V. Manning 51 Chairman of the Board of Directors Robert S. Bowen 60 President, Chief Executive Officer and Director Ronald F. Friedman 54 President, Group 1 Software, Inc. and Director Mark D. Funston 38 Vice President, Chief Financial Officer and Director Edward Weiss 47 Secretary and General Counsel Richard H. Eisenberg 60 Director James P. Marden 44 Director Charles A. Mele 41 Director Charles J. Sindelar 61 Director
The Company knows of no family relationships between any of the above. The Board of Directors is divided into three classes. One class of the Directors will be elected annually, and Directors serve until the annual meeting of stockholders three years following their election and until their successors are elected and qualified. The terms of Messrs. Sindelar, Marden and Mele will expire at the next shareholder's meeting. The terms of Messrs. Eisenberg and Manning will expire in 1998 and the terms of Messrs. Bowen, Friedman and Funston will expire in 1999. Each of the officers shall continue in his capacity until his successor is appointed and qualified. Mr. James V. Manning has been Chairman of the Board of the Company since February, 1994 and a Director since 1992. He is Chief Executive Officer of Synetic, Inc. and has been a director of Synetic since May, 1989. Mr. Robert S. Bowen has been a Director, President and Chief Executive Officer of the Company for more than five years and a Director, Chairman of the Board and Chief Executive Officer of Group 1 since January, 1984. Mr. Ronald F. Friedman has been a Director of the Company and President and Chief Operating Officer and a Director of Group 1 and its predecessor, Group 1 Software Division of Group 1, for more than five years. Mr. Mark D. Funston has been Vice President, Chief Financial Officer of the Company since September 1996 and a Director since December 1996. Mr. Funston also serves as Director and Chief Financial Officer of Group 1. Mr. Edward Weiss has been Secretary and General Counsel of the Company since 1990. He has been Secretary and General Counsel of Group 1 for more than five years. Mr. Richard H. Eisenberg has been a Director of the Company since February, 1994. Mr. Eisenberg is currently Vice President, Great Northern Brokerage Corporation, and prior to that Senior Vice President of Kaye Insurance Association, L.P. since September 1992. He has also been President of APCO Corporation, an insurance brokerage firm, Vice President of Amalgamated Programs Corporation and President of Great Northern Brokerage Corporation for more than five years. 40 42 Mr. James Marden has been a Director of the Company since 1992. Mr. Marden is currently serving as Chairman of The Entertainment Connection, Inc., a privately held electronic retailer of audio and video products. He was Vice President - Acquisitions for Medco Containment Services, Inc. from 1991 to 1994 and held a similar position for Synetic, Inc. from 1993 to 1994. Prior to that time, Mr. Marden was a private investor for more than five years. Mr. Charles A. Mele has been a Director of the Company since 1992. Mr. Mele is Vice President/General Counsel and a director of Synetic, Inc. Prior to April 1994, he was Executive Vice President and General Counsel of Medco Containment Services, Inc., for more than five years. He is also a Director of Group 1 Software, Inc. Mr. Charles J. Sindelar has been a Director of the Company since 1992. Mr. Sindelar has been Staff Vice President - Business Development of Zenith Electronics Corporation since September 1994. From April, 1994 to September 1994 he was also President of the Display Division, Zenith Electronics Corporation. From November 1990 to April 1994, Mr. Sindelar was President of the Display Division, Zenith Electronics Corporation. Mr. Sindelar was Executive Director of Color Display Operations of Zenith from April 1990 through November 1990. ITEM 11. EXECUTIVE COMPENSATION The information required in response to this item is contained in the registrant's definitive proxy statement, to be filed pursuant to Regulation 14A, under the caption, "Executive Compensation" and such information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required in response to this item is contained in the registrant's definitive proxy statement, to be filed pursuant to Regulation 14A, under introductory paragraphs and under the captions "Principal Stockholders" and "Election of Directors" and such information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required in response to this item is contained in the registrant's definitive proxy statement, to be filed pursuant to Regulation 14A, under the caption, "Executive Compensation - Certain Transactions," and such information is incorporated herein by reference. 41 43 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page Number ----------- 1. Financial Statements: The following financial statements are submitted in Item 8: Report of Independent Accountants on Financial Statements 19 Consolidated Balance Sheets as of March 31, 1998 and 1997 20 Consolidated Statements of Earnings for the years ended March 31, 1998, 1997 and 1996 21 Consolidated Statements of Stockholders' Equity for the years ended March 31, 1998, 1997 and 1996 22 Consolidated Statements of Cash Flows for the years ended March 31, 1998, 1997 and 1996 23 Notes to Consolidated Financial Statements for the years ended March 31, 1998, 1997 and 1996 24 - 39 2. Financial Statement Schedules The following financial statement schedule is filed as part of this report: Report of Independent Accountants on Financial Statement Schedule 48 Schedule II: Valuation and Qualifying Accounts for the Years Ended March 31, 1998, 1997 and 1996 49
Schedules other than those listed above have been omitted since they are either not required or the information is included elsewhere in the financial statements or notes thereto. 42 44 3. List of Exhibits. 3.01 Articles of Incorporation and Bylaws, as amended - 1985, (incorporated by reference to Exhibit 3.7 to Group 1's Annual Report on Form 10-K for the year ended March 31, 1991). 3.02 Bylaws - Amended as of January 22, 1992, (incorporated by reference to Exhibit 3.8 to Group 1's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991). 3.03 Amendments to Certificate of Incorporation filed January 22, 1993. 4.01 Purchase Agreement between the Company and Medco Containment Services, Inc., dated as of January 28, 1992 (incorporated by reference to Exhibit 4.47 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991). 4.02 Agreement Regarding Satisfaction of Debt, Release of Pledge and Issuance of Stock between Group 1 and Robert S. Bowen, dated as of January 28, 1992, (incorporated by reference to Exhibit 4.48 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991). 4.03 Agreement Regarding Satisfaction of Debt, Release of Pledge and Issuance of Stock between Group 1 and Dr. Milton Kaplan, dated as of January 28, 1992, (incorporated by reference to Exhibit 4.49 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 991). 4.04 Agreement Regarding Satisfaction of Debt, Release of Pledge and Issuance of Stock between Group 1 and John Spohler, dated as of January 28, 1992, (incorporated by reference to Exhibit 4.50 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991). 4.05 Agreement Regarding Satisfaction of Debt, Release of Pledge and Issuance of Stock between the Company and Leonard J. Smith, dated as of January 28, 1992, (incorporated by reference to Exhibit 4.51 to Group 1's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991). 4.06 Stock Option Agreement between the Company and James V. Manning, dated as of August 16, 1991, (incorporated by reference to Exhibit 4.53 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991). 4.07 Stock Option Agreement between the Company and James Marden, dated as of August 16, 1991, (incorporated by reference to Exhibit 4.55 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991). 4.08 Stock Option Agreement between the Company and Robert S. Bowen, dated as of August 16, 1991, (incorporated by reference to Exhibit 4.56 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991). 4.09 Stock Option Agreement between the Company and Ronald F. Friedman, dated as of August 16, 1991, (incorporated by reference to Exhibit 4.57 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991). 4.10 Stock Option Agreement between the Company and Charles A. Crew, dated as of August 16, 1991, (incorporated by reference to Exhibit 4.58 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991).
43 45 4.11 Stock Option Agreement between the Company and Charles J. Sindelar, dated as of August 16, 1991, (incorporated by reference to Exhibit 4.59 to the Company's Quarterly Report on From 10-Q for the quarter ended December 31, 1991). 4.12 Agreement among the Company and Robert S. Bowen, Milton Kaplan, Leonard J. Smith and John Spohler regarding certain registration rights, dated as of January 28, 1992, (incorporated by reference to Exhibit 4.60 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991). 4.13 Certificate of Designation of 6% Convertible Preferred Stock, filed January 22 1993. 4.14 1995 Incentive Stock Option, Non-Qualified Stock Option and Stock Appreciation Unit Plan 4.15 1995 Non-Employee Directors' Stock Option Plan 10.01 Technology Purchase Agreement between COMNET Corporation and Andy Bellinghieri - 1985, as amended and restated in May, 1994, (incorporated by reference to Exhibit 10.52 to the Company's Annual Report on Form 10-K for the year ended March 31, 1991). 10.02 Intentionally deleted. 10.03 Employment Agreement between Ronald F. Friedman and Group 1 Software, Inc. dated October 31, 1990, (incorporated by reference to Exhibit 10.94 to the Company's Annual Report on Form 10-K for the year ended March 31, 1991). 10.04 Management and Services Agreement between Group 1 Software, Inc. and COMNET Corporation dated April 1, 1994. 10.05 Tax Sharing Agreement among Group 1 Software, Inc., COM-MED Systems, Inc., ADMS, Inc. and COMNET Corporation, dated April 1, 1991, (incorporated by reference to Exhibit 10.97 to the Company's Annual Report on Form 10-K for the year March 31, 1991). 10.06 First Amendment to Employment Agreement by and between Group 1 Software, Inc. and Ronald F. Friedman dated June 24, 1991, (incorporated by reference to Exhibit 10.96 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 3, 1991). 10.07 Amendment to the Management and Services Agreement as of August 1, 1991 by and between Group 1 Software, Inc. and COMNET Corporation (incorporated by reference to Exhibit 10.98 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 31, 1991). 10.08 Amended and Restated Employment Agreement dated January 28, 1992 by and between Group 1 Software, Inc. and Robert S. Bowen (incorporated by reference to Exhibit 10.25 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991). 10.08 Fee Agreement between the Company and James V. Manning, dated as of January 28, 1992, (incorporated by reference to Exhibit 10.100 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991). 10.09 Fee Agreement between the Company and Robert S. Bowen, dated as of January 28, 1992, (incorporated by reference to Exhibit 10.102 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991). 10.10 Fee Agreement between the Company and Ronald F. Friedman, dated as of January 28, 1992,
44 46 (incorporated by reference to Exhibit 10.103 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991). 10.11 Indemnification Agreement between the Company and James V. Manning, (incorporated by reference to Exhibit 10.105 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991). 10.12 Indemnification Agreement between the Company and James P. Marden, (incorporated by reference to Exhibit 10.107 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991). 10.13 Indemnification Agreement between the Company and Ronald F. Friedman , (incorporated by reference to Exhibit 10.108 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991). 10.14 Indemnification Agreement between the Company and Charles A. Crew, (incorporated by reference to Exhibit 10.109 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991). 10.15 Indemnification Agreement between the Company and Robert S. Bowen, (incorporated by reference to Exhibit 10.110 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991). 10.16 Stockholder Voting Agreement among Medco Containment Services, Inc. and Robert S. Bowen, Charles A. Crew, Ronald F. Friedman, Milton Kaplan, Perry E. Morrison, Leonard J. Smith and John Spohler, dated as of January 28, 1992, (incorporated by reference to Exhibit 10.111 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991). 10.17 Advisory Committee Agreement between the Company and Leonard J. Smith, dated as of January 28, 1992, (incorporated by reference to Exhibit 10.112 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991). 10.18 Advisory Committee Agreement between the Company and Milton Kaplan, dated as of January 28, 1992, (incorporated by reference to Exhibit 10.113 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991). 10.19 Advisory Committee Agreement between the Company and Perry E. Morrison, dated as of January 28, 1992, (incorporated by reference to Exhibit 10.114 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991). 10.20 Agreement between the Company and Robert S. Bowen, dated as of January 23, 1992, (incorporated by reference to Exhibit 10.115 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991). 10.21 Loan Agreement and three notes in the amount of $78,334 each between the Company as Holder and Robert S. Bowen as Maker, dated as of January 23, 1992, (incorporated by reference to Exhibit 10.117 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991). 10.22 Amended and Restated Employment Agreement between Robert S. Bowen and the Company, dated as of January 28, 1992, (incorporated by reference to Exhibit 10.118 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991). 10.23 Amended and Restated Employment Agreement between Robert S. Bowen and Group 1 Software,
45 47 Inc., dated as of January 28, 1992, (incorporated by reference to Exhibit 10.119 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991). 10.24 Indemnification Agreement, dated January 22, 1993, between COMNET Corporation and Carl I. Kanter. 10.25 Loan Agreement, dated March 1, 1993, between COMNET Corporation and Ronald F. Friedman. 10.26 Indemnification Agreement, dated February 24, 1992, between COMNET Corporation and Charles A. Mele. 10.27 Indemnification Agreement between COMNET Corporation and Charles J. Sindelar. 10.28 Lease covering Company office facilities in Lanham, MD - 1993. 10.29 Intentionally deleted. 10.30 Agreement between Group 1 Software, Inc. and Archetype Systems, Ltd. for acquisition of the entire share capital of Archetype Systems, Ltd., dated as of December 30, 1994. 10.31 Fourth Amendment to Employment Agreement, dated as of March 1, 1994, by and between Group 1 Software, Inc., and Ronald F. Friedman. 10.32 Sublease, dated March 1, 1994, by and between COMNET Corporation and Group 1 Software, Inc. 10.33 Agreement to Extend Management and Services Agreement, dated April 1, 1994, by and between COMNET Corporation and Group 1 Software, Inc. 10.34 Sales agreement for COM-MED Systems, Inc. 10.35 Letter of Agreement between Group 1 and MEDCOM Acquisition Corporation, dated May 8, 1995. 10.36 Amended Letter of Agreement between Group 1 and MEDCOM Acquisition Corporation, dated June 9, 1995. 10.37 Bill of Sale between Group 1 and MEDCOM Acquisition Corporation, dated March 31, 1995, for the sale of substantially all of the assets of COM-MED Systems, Inc. and CMEDS, Inc. 10.38 Line of Credit Agreement between Group 1 and MEDCOM Acquisition Corporation, dated March 31, 1995. 10.39 Fifth Amendment to Employment Agreement, dated as of April 1, 1995, by and between Group 1 Software, Inc. and Ronald F. Friedman. 10.40 COMNET Corporation, Deferred Compensation Plan 10.41 Definitive Agreement for purchase of assets of DataDesigns, Inc., dated August 23, 1995 (incorporated by reference to Exhibit 10.42 to the Company's Annual Report on Form 10-K for the year ended March 31, 1997). 10.42 Definitive Agreement for purchase of assets of Premier One Consultants, Inc., dated November 22, 1995 (incorporated by reference to Exhibit 10.43 to the Company's Annual Report on Form 10-K for the year ended March 31, 1997).
46 48 10.43 Agreement between Sidco, Inc., and CMEDS, Inc., dated November 14, 1995 (incorporated by reference to Exhibit 10.44 to the Company's Annual Report on Form 10-K for the year ended March 31, 1997). 10.44 Third Amendment to Lease, dated April 15, 1994, by and between COMNET Corporation and Quadrangle Development Corporation (incorporated by reference to Exhibit 10.45 to the Company's Annual Report on Form 10-K for the year ended March 31, 1997). 10.45 First Amendment to Sublease, dated April 15, 1994, by and between COMNET Corporation and Group 1 Software, Inc. (incorporated by reference to Exhibit 10.46 to the Company's Annual Report on Form 10-K for the year ended March 31, 1997). 10.46 First Amendment to Loan Agreement with Ronald F. Friedman, dated as of January 15, 1996. 10.47 Line of Credit Loan Agreement with Crestar Bank, dated October 10, 1996. 10.48 Agreement to Extend Management and Services Agreement, dated April 1, 1997, by and between the Company and Group 1 Software, Inc. *10.49 First Amendment to Employment Agreement by and between Robert S. Bowen and COMNET Corporation, dated August 15, 1997. *10.50 Second Amendment to Employment Agreement by and between Robert S. Bowen and COMNET Corporation, dated January 12, 1998. *10.51 Third Amendment to Employment Agreement by and between Robert S. Bowen and Group 1 Software, Inc., dated August 15, 1997. *10.52 Fourth Amendment to Employment Agreement by and between Robert S. Bowen and Group 1 Software, Inc. dated January 12, 1998. *10.53 Fifth Amendment to Employment Agreement by and between Robert S. Bowen and Group 1 Software, Inc. dated May 11, 1998. *10.54 Agreement for Purchase and Sale of Assets by and between Intertrak Corporation and Group 1 Software, Inc. dared September 4, 1997. *22.0 Subsidiaries of COMNET Corporation. *23.0 Consent of Independent Accountants.
- ------------------------------- * Filed herewith. 47 49 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE ----------------- To the Stockholders and Board of Directors COMNET Corporation Our report on the consolidated financial statements of COMNET Corporation and Subsidiaries is included elsewhere in this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule, as listed in the index to the financial statement schedule of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. McLean, Virginia June 12, 1998 48 50 SCHEDULE II COMNET Corporation Valuation and Qualifying Accounts For the Years Ended March 31, 1998, 1997, and 1996
Column A Column B Column C Additions Column D Column E - ------------------------- ------------------ ----------------------------------------- ---------------- ----------- Balance at Charged to Charged to Balance Beginning Costs and Other Deductions at end Description of Year Expenses Accounts(1) Describe(2) of year ----------- ------- -------- ----------- ----------- ------- Year ended March 31, 1998 $3,208,000 $3,505,000 - - - $(3,109,600) $3,603,400 Allowance for doubtful accounts Year ended March 31, 1997 Allowance for doubtful accounts $2,409,000 $1,956,403 - - - $(1,157,403) $3,208,000 Year ended March 31, 1996 Allowance for doubtful accounts $1,703,000 $1,617,637 $281,400 $(1,193,037) $2,409,000
- ----------------------------- (1) Items charged to other accounts were for the recoveries of prior year accounts receivable written off during the year. (2) The decrease in allowance for doubtful accounts is the result of accounts receivable written off during the year. 49 51 Exhibit 22. Subsidiaries of COMNET Corporation Group 1 Software, Inc., a Delaware corporation Group 1 Software Europe, Ltd., a United Kingdom corporation Group 1 FSC, Ltd., a Barbados corporation Group 1 Software Latin America, Inc., a Puerto Rico corporation Gruco, Inc., a Delaware corporation Seanet, Inc., a Delaware corporation CMEDS, Inc., a Delaware corporation ARCU, Inc., a Delaware corporation Promco, Inc., a Delaware corporation 50 52 CONSENT OF INDEPENDENT ACCOUNTANTS --------------- We consent to the incorporation by reference in the registration statement of COMNET Corporation on Form S-8 (File No. 2-62254) of our reports, dated June 12, 1998, on our audits of the consolidated financial statements and financial statement schedule of COMNET Corporation and Subsidiaries as of March 31, 1998 and 1997 and for each of the three years in the period ended March 31, 1998, which reports are included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. McLean, Virginia June 26, 1998 51 53 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. COMNET CORPORATION (Registrant) Date: June 26, 1998 By: ----------------------------------------------- President and Chief Executive 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.
Signature Title Date - --------- ----- ---- - ---------------------------------------- Robert S. Bowen President, Chief Executive June 26, 1998 Officer and Director ------------- (Principal Executive Officer) - ---------------------------------------- Mark D. Funston Vice President June 26, 1998 Chief Financial Officer ------------- Treasurer and Director (Principal Accounting Officer) - ---------------------------------------- Ronald F. Friedman President, Chief Operating Officer Group 1 June 26, 1998 Software, Inc., and Director ------------- - ---------------------------------------- James V. Manning Chairman of the Board June 26, 1998 ------------- - ---------------------------------------- Charles J. Sindelar Director June 26, 1998 ------------- - ---------------------------------------- James Marden Director June 26, 1998 ------------- - ---------------------------------------- Charles A. Mele Director June 26, 1998 ------------- - ---------------------------------------- Richard H. Eisenberg Director June 26, 1998 -------------
52 54
Index of Exhibits - ----------------- PAGE NUMBER *10.49 First Amendment to Employment Agreement by and between Robert S. Bowen and COMNET Corporation, dated August 15, 1997. *10.50 Second Amendment to Employment Agreement by and between Robert S. Bowen and COMNET Corporation, dated January 12, 1998. *10.51 Third Amendment to Employment Agreement by and between Robert S. Bowen and COMNET Corporation, dated August 14, 1997. *10.52 Fourth Amendment to Employment Agreement by and between Robert S. Bowen and Group 1 Software, Inc. dated January 12, 1998. *10.53 Fifth Amendment to Employment Agreement by and between Robert S. Bowen and Group 1 Software, Inc. dated May 11, 1998. *10.54 Agreement for Purchase and Sale of Assets by and between Intertrak Corporation and Group 1 Software, Inc. dared September 4, 1997. *22.0 Subsidiaries of COMNET Corporation. *23.0 Consent of Independent Accountants.
- ------------------------------- * Filed herewith. 53 EX-10.49 2 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT 1 EXHIBIT 10.49 AMENDMENT TO EMPLOYMENT AGREEMENT THIS FIRST AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "First Amendment") is made and entered into as of August 15, 1997, by and between COMNET Corporation, a Delaware corporation ("Company") and Robert S. Bowen, a Maryland resident (Employee"). WHEREAS, Company and Employee entered into that certain Amended Restated Employment Agreement dated as of January 28, 1992 (the "Agreement"), regarding various terms and conditions of employment of Employee with respect to Company; and WHEREAS, Company and Employee wish to amend the Agreement, but only with respect to the terms set out herein; and WHEREAS, Company and Employee are mutually desirous that such satisfactory employment relationship should continue under the terms and conditions of the Agreement, as amended. NOW THEREFORE, in consideration of mutual promises contained herein, and other good and valuable consideration (including the issuance to Employee of an option to purchase 15,000 shares of common stock of COMNET), the receipt and sufficiency of which are hereby acknowledged, Company and Employee intending to be legally bound hereby agree to amend the Agreement as follows: 1. Section 4 of the Agreement is hereby modified to include the following new Subsection (d): d. Notwithstanding the provisions set out in Section 4(a), above, Bowen shall be entitled to a base salary of One Hundred and Seventy Thousand, Fifty-Two Dollars ($170,052), constituting one-half (1/2) of the base salary identified in Section 4(a), above, as adjusted pursuant to Section 4(b), above. The reduced salary level shall remain in effect from the effective date of this First Amendment until such time as Bowen has determined in his sole discretion that the financial performance of the Company has materially improved and Bowen has so notified the Compensation Committee of the Board of Directors of the Company. 2. Group 1 and Bowen hereby affirm that the Agreement, as amended hereby, remains in full force and effect, and is not further modified hereby. 2 IN WITNESS WHEREOF, the parties have executed and delivered this First Amendment as of the date first written above. COMNET Corporation By: [SIG] ------------------------ Its: Chief Financial Officer ---------------------- /s/ROBERT S. BOWEN ---------------------------- Robert S. Bowen, Individually EX-10.50 3 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT 1 EXHIBIT 10.50 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT THIS SECOND AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Second Amendment") is made and entered into as of January 12, 1998, by and between COMNET Corporation, a Delaware corporation ("Company") and Robert S. Bowen, a Maryland resident (Employee"). WHEREAS, Company and Employee entered into that certain Amended Restated Employment Agreement dated as of January 28, 1992, and the First Amendment thereto, dated August 15, 1997 (the "Agreement"), regarding various terms and conditions of employment of Employee with respect to Company; and WHEREAS, Company and Employee wish to amend the Agreement, but only with respect to the terms set out herein; and WHEREAS, Company and Employee are mutually desirous that such satisfactory employment relationship should continue under the terms and conditions of the Agreement, as amended. NOW THEREFORE, in consideration of mutual promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Company and Employee intending to be legally bound hereby agree to amend the Agreement as follows: 1. Section 4 of the Agreement is hereby modified to include the following new Subsection (d): d. Notwithstanding the provisions set out in Section 4(a), above, Bowen shall be entitled to a base salary of Three Hundred and Forty Thousand, One Hundred Four Dollars ($340,104), as the base salary identified in Section 4(a), above, as adjusted pursuant to Section 4(b), above. This salary level shall take effect from the effective date of this Second Amendment, as Bowen has determined in his sole discretion that the financial performance of the Company has materially improved and Bowen has so notified the Compensation Committee of the Board of Directors of the Company. 2. Group 1 and Bowen hereby affirm that the Agreement, as amended hereby, remains in full force and effect, and is not further modified hereby. 2 IN WITNESS WHEREOF, the parties have executed and delivered this First Amendment as of the date first written above. COMNET Corporation By: [SIG] ------------------------ Its: Chief Financial Officer ------------------------ /s/ROBERT S. BOWEN ---------------------------- Robert S. Bowen, Individually EX-10.51 4 THIRD AMENDMENT TO EMPLOYMENT AGREEMENT 1 EXHIBIT 10.51 THIRD AMENDMENT TO EMPLOYMENT AGREEMENT THIS THIRD AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Third Amendment") is made and entered into as of August 15, 1997, by and between Group 1 Software, Inc., a Delaware corporation ("Company") and Robert S. Bowen, a Maryland resident ("Employee"). WHEREAS, Company and Employee entered into that certain Amended Restated Employment Agreement dated as of January 28, 1992, as amended (collectively the "Agreement"), regarding various terms and conditions of employment of Employee with respect to Company; and WHEREAS, Company and Employee wish to amend the Agreement, but only with respect to the terms set out herein; and WHEREAS, Company and Employee are mutually desirous that such satisfactory employment relationship should continue under the terms and conditions of the Agreement, as amended. NOW THEREFORE, in consideration of mutual promises contained herein, and other good and valuable consideration (including the issuance to Employee of an option to purchase 15,000 shares of COMNET common stock), the receipt and sufficiency of which are hereby acknowledged, Company and Employee intending to be legally bound hereby agree to amend the Agreement as follows: 1. Section 4 of the Agreement is hereby modified to include the following new Subsection (f): f. Notwithstanding the provisions set out in Section 4(a), above, determined pursuant to Sections 4(a) and (b), above. This reduced salary level shall remain in effect from the effective date of this Third Amendment until such time as Bowen has determined in his sole discretion that the financial performance of the Company has materially improved and Bowen has so notified the Compensation Committee of the Board of Directors of the Company. 2. Group 1 and Bowen hereby affirm that the Agreement, as amended hereby, remains in full force and effect, and is not further modified hereby. 2 IN WITNESS WHEREOF, the parties have executed and delivered this Third Amendment as of the date written above. Group 1 Software, Inc. By: [SIG] ------------------------ Its: Chief Financial Officer ---------------------- /s/ROBERT S. BOWEN ---------------------------- Robert S. Bowen, Individually < EX-10.52 5 FOURTH AMENDMENT TO EMPLOYMENT AGREEMENT 1 EXHIBIT 10.52 FOURTH AMENDMENT TO EMPLOYMENT AGREEMENT THIS FOURTH AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Fourth Amendment") is made and entered into as of January 12, 1998, by and between Group 1 Software, Inc., a Delaware corporation ("Company") and Robert S. Bowen, a Maryland resident ("Employee"). WHEREAS, Company and Employee entered into that certain Amended Restated Employment Agreement dated as of January 28, 1992, as amended (collectively the "Agreement"), regarding various terms and conditions of employment of Employee with respect to Company; and WHEREAS, Company and Employee wish to amend the Agreement, but only with respect to the terms set out herein; and WHEREAS, Company and Employee are mutually desirous that such satisfactory employment relationship should continue under the terms and conditions of the Agreement, as amended. NOW THEREFORE, in consideration of mutual promises contained herein, and other good and valuable consideration (including the issuance to Employee of an option to purchase 15,000 shares of COMNET common stock), the receipt and sufficiency of which are hereby acknowledged, Company and Employee intending to be legally bound hereby agree to amend the Agreement as follows: 1. Section 4 of the Agreement is hereby modified to include the following new Subsection (f): f. Notwithstanding the provisions set out in Section 4(a), above, Bowen shall be entitled to One Hundred Percent (100%) of the base salary determined pursuant to Sections 4(a) and (b), above. This salary level shall take effect from the effective date of this Fourth Amendment, as Bowen has determined in his sole discretion that the financial performance of the Company has materially improved and Bowen has so notified the Compensation Committee of the Board of Directors of the Company. 2. Group 1 and Bowenhereby affirm that the Agreement, as amended hereby, remains in full force and effect, and is not further modified hereby. 2 IN WITNESS WHEREOF, the parties have executed and delivered this Fourth Amendment as of the date written above. Group 1 Software, Inc. By: [SIG] ------------------------ Its: Chief Financial Officer ---------------------- /s/ROBERT S. BOWEN ---------------------------- Robert S. Bowen, Individually EX-10.53 6 FIFTH AMENDMENT TO EMPLOYMENT AGREEMENT 1 EXHIBIT 10.53 FIFTH AMENDMENT TO EMPLOYMENT AGREEMENT THIS FIFTH AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Fifth Amendment") is made and entered into as of May 11, 1998, by and between Group 1 Software, Inc., a Delaware corporation ("Company") and Robert S. Bowen, a Maryland resident ("Employee"). WHEREAS, Company and Employee entered into that certain Amended Restated Employment Agreement dated as of January 28, 1992, as amended by the First, Second, Third, and Fourth Amendments, of various dates (collectively the "Agreement"), regarding various terms and conditions of employment of Employee with respect to Company; and WHEREAS, Company and Employee wish to amend the Agreement, but only with respect to the terms set out herein; and WHEREAS, Company and Employee are mutually desirous that such satisfactory employment relationship should continue under the terms and conditions of the Agreement, as amended. NOW THEREFORE, in consideration of mutual promises contained herein, and other good and valuable consideration (including the issuance to Employee of an option to purchase 15,000 shares of COMNET common stock), the receipt and sufficiency of which are hereby acknowledged, Company and Employee intending to be legally bound hereby agree to amend the Agreement as follows: 1. Section 2 of the Agreement is hereby modified so that the term of the Agreement shall extend through March 31, 2001. 2. Group 1 and Employee hereby affirm that the Agreement, as amended hereby, remains in full force and effect, and is not further modified hereby. 2 IN WITNESS WHEREOF, the parties have executed and delivered this Fifth Amendment as of the date written above. Group 1 Software, Inc. By: [SIG] ------------------------ Its: Chief Financial Officer ---------------------- /s/ROBERT S. BOWEN ---------------------------- Robert S. Bowen, Individually EX-10.54 7 AGREEMENT FOR PURCHASE AND SALE OF ASSETS 1 EXHIBIT 10.54 AGREEMENT FOR PURCHASE AND SALE OF ASSETS THIS AGREEMENT FOR PURCHASE AND SALE OF ASSETS (the "Agreement") is made and entered into effective as of the 4th day of September, 1997 ("the date of this Agreement"), by and between Intertrak Corporation, a Minnesota corporation ("Intertrak"), Mr. Clark Dircz, a Minnesota resident and principal of Intertrak, and Group 1 Software, Inc., a Delaware corporation and Gruco, Inc., a Delaware corporation and wholly-owned subsidiary of Group 1 Software, Inc. (Group 1 Software, Inc. and Gruco, Inc., collectively "Group 1"), regarding the acquisition by Intertrak of certain of the assets of Group 1 and other transactions described below. In consideration of the premises and the mutual promises, representations, warranties and covenants hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Intertrak, Dircz and Group 1 intending to be legally bound hereby agree as follows. 1. The Assets. a) Intertrak acquires all of Group 1's right, title and interest, free and clear of any and all claims, liens, encumbrances, security interests, pledges or any other clouds on title of any nature known to Group 1 (except the licenses and other rights granted to third parties with respect to copying and use) to the following: (i) the list of all current customers of the Software including those identified in Exhibit 3.1; (ii) the trademark WorldTrak (the "Trademark"); (iii) all of Group 1's right, title and interest in the contracts identified in Exhibit 3.1, hereto (the "Assigned Agreements"); (iv) all of Group 1's inventory, including documentation and media, used to supply copies of the Software and Documentation to customers; and (v) the WorlTrak trade show exhibit booth for the Software. b) Group 1 hereby grants to Intertrak a worldwide, full copyright license to the computer programming and its derivative works, customizations, supplemental works, interim works, works in progress and all other intellectual property rights and portions thereof, whether or not fixed in a tangible medium of expression (including without limitation all copyrights and applications for such, rights with respect to patents and applications for such, moral rights, inventions, original works of authorship, discoveries, concepts, data, processes, ideas and 1 2 know-how contained therein or associated therewith), with respect to all computer platforms and configurations known or unknown (e.g., - PC, midrange, LAN, WAN, client server, mini, mainframe) for the computer programs referred to by Group 1 as "WorldTrak" (i.e. - "AMC", "FSA" and "SMA") and the development tools for such software (collectively the "Software"); (Software excludes, however, any development tools to which Group 1 only has a license; as to these licenses - which are identified on Exhibit 1.4, hereto, Group 1 shall use reasonable efforts to assign to Intertrak promptly after the execution of this Agreement any license for development tools for which Group 1 has a current right). The license to the Software includes the right to all of Group 1's concomitant installation, technical, functional or user documentation or specifications for the Software (the "Documentation"). The license to the Software and the Documentation granted in this Section includes the rights to use, reproduce, make derivative works of, modify, enhance, license, sublicense, display, exhibit, perform, transmit and otherwise exploit the Software in, on or through any medium or means now known or hereafter developed, including without limitation the Internet and/or satellite transmission; provided, however, that at the end of the first thirty six (36) months from the date of this Agreement and if Intertrak and Dircz have fully performed under this Agreement, Group 1 shall transfer and assign to Intertrak all of Group 1's right, title and interest in the Software and Documentation (by executing and delivering the Bill of Sale and Assignment of Copyrights attached hereto as Exhibits 1.1 and 1.2), whereupon the aforesaid copyright license shall merge into the title then so transferred. Notwithstanding the foregoing, Intertrak acknowledges that Group 1 shall retain a perpetual, world wide, unlimited site and seat, fully paid license to copy, operate and use the Software and the Documentation for its own internal purposes. b) The Software is delivered in object code and source code. The Software includes all of the definition of files, fields of files, variables, details, installation and maintenance specifications, inputs and outputs (including codes and acronyms), program descriptions, file descriptions, formats and layouts, report descriptions and layouts, screen descriptions and layouts, graphical and non-graphical user interfaces, input documents, data elements, paper processing flowcharts, computer processing flowcharts, processing narratives, editing rules, password development and protection rules, telecommunications requirements, glossaries and manual procedures with respect to the aforesaid computer programming. The Documentation is delivered in hard copy and electronic media to the extent recorded on each. Intertrak shall replace all references to Group 1 in the Documentation with Intertrak. 2. Purchase Price. The total purchase price for the Software, Documentation and Trademark and consideration for the other transactions to be consummated hereunder, is as follows: 2 3 a) Intertrak shall purchase the Software, Documentation and Trademark for: i) One Dollar ($1.00) paid upon full execution of this Agreement; plus ii) Thirty percent (30%) of all Revenue (as defined below) received by, or due and owing to, Intertrak through the first thirty-six (36) months from the date of this Agreement. One-Half (1/2) of the aforesaid thirty percent (30%) of Revenue shall be due and payable to Group 1 within twenty (20) days of Intertrak's receipt of payment from the customer and payment of the remaining One-Half (1/2) of the aforesaid thirty percent (30%) of Revenue may be deferred so that it shall be paid to Group 1 by Intertrak no later than thirty (30) days after the end of such 36-month period, together with interest on the unpaid balance at the prime rate charged by Group 1's primary commercial lender. Notwithstanding the foregoing, Intertrak shall promptly forward to Group 1 any payments made by customers under any of the Assigned Agreements (defined below) for any renewal maintenance of the current version of the Software (i.e., 3.4) or any prior versions of the Software to be provided up through July 31, 1999. b) Revenue shall consist of all of the license fees (or other payments that enable a party to use the Software but in any event not to include fees paid to Intertrak for professional services, training or custom computer programming) received by, or then due and owing to, Intertrak from any party so that such party may copy, operate or otherwise use any of the Software, Documentation or Trademark for the benefit of that party or of any other party. Revenue, however, shall be: (i) net of payments made to third parties (e.g. VAR'S./OEMs) through Intertrak for goods or services of such third parties but in conjunction with the Software, (ii) net of returns, refunds and discounts, (iii) exclude costs paid by Intertrak (and not reimbursed by Group 1) for freight, shipping and handling the Software and Documentation to customers and (iv) exclude taxes, customs and other charges imposed by any governmental authority and directly related to the sale of licenses for the Software or Documentation. c) Intertrak agrees that Group 1 shall have the right, upon adequate prior notice to Intertrak and from time to time, to allow Group 1 to inspect the relevant books and records of Intertrak with respect to the calculation of Revenue and payments to be made hereunder. Intertrak agrees that Group 1 may also conduct a final audit of all payments due to it hereunder no later than the end of the thirty eighth (38th) month after the date of this Agreement. 3. Assigned Agreements and Other Obligations Assumed. a) Intertrak shall assume all of Group 1's obligations and liabilities on and after the date of this Agreement for the Assigned Agreements assigned to Intertrak on such date. For any 3 4 Assigned Agreement assigned to Intertrak after such date, Intertrak shall assume all of Group 1's obligations and liabilities under each such agreement when each agreement is assigned to Intertrak. The obligations of Intertrak under the Assigned Agreements include those set out in Exhibit 3.1, hereto. b) Among the other provisions set out hereby for which Intertrak agrees to indemnify and hold Group 1 harmless, Intertrak agrees to indemnify and hold Group 1 harmless against any claim arising out of any of the Assigned Agreements, once assigned to Intertrak, arising out of or related to Intertrak's failure to perform thereunder. c) Group 1 warrants and represents to Intertrak that, to its knowledge, for the period from November 22, 1995 through September 2, 1997: (i) there are not now any liabilities, accrued or accruable for federal, state, county or local income, sales, use, excise, property, goods and services, ad valorem or other taxes, assessments or charges arising out of or attributable to the licensing to end users of the Software or Documentation and (ii) there have been no stamp, sales, transfer or other taxes imposed in respect to any of the transactions to be consummated hereunder. Intertrak acknowledges that much of Group 1's knowledge upon which the foregoing representations and warrantees of this Section 3(c) are made is based on information supplied to Group 1 by Dircz. d) Intertrak agrees, as a part of its acceptance of the transfer and assignment of the Software, Documentation and Trademark, to assume Group 1's payment obligations under Sections 2(a) and 2(b) of that certain Agreement for Purchase and Sale of Assets by and among, inter alia, Group 1 Software, Inc., Premier One Consultants Inc. and WorldTrak Corporation (the "1995 Sale Agreement"). Payments to be made with respect to Sections 2(a) and 2(b) of the 1995 Sale Agreement are as follow: (A) The Fifty Thousand Dollar ($50,000) payment pursuant to Section 2(a)(i) was made; (B) The One Hundred Thousand Dollar ($100,000) payment is to be made pursuant to Section 2(a)(ii) on November 21, 1998; Intertrak agrees to make this payment timely and in full; provided, however that Group 1 shall simultaneously make a payment to Intertrak of One Hundred Thousand Dollars ($100,000); (C) With respect to Section 2(b), thereof, Revenue (as defined in 1995 Sale Agreement) as of July 31, 1997 was One Million, Two-Hundred Fifty-Three Thousand, Eight Hundred Dollars ($1,253,800). No payment accrues under Section 2(b) until Revenue (under the 1995 Sale Agreement) exceeds $2.5 million, whereupon One Percent of Revenue (under the 1995 Sale Agreement) accrues on the next $1 million of Revenue (under the 1995 Sale Agreement), and so on as set out the 1995 Sale Agreement. 4 5 Sections 2(a) and (b) of the 1995 Sale Agreement are hereby incorporated herein by reference. 4. Condition of the Software. a) Intertrak acknowledges that, based on Dircz's involvement with the Software prior to and after November 22, 1995, it is fully aware of the right of Group 1 to develop the Software, Documentation and the Trademark, as well as the development and operating condition of the Software. Intertrak, accordingly, consummates the transactions set out in this Agreement taking the Software, Documentation and Trademark on an AS IS and WHERE IS basis as of September 2, 1997, and relying on no representations, warranties, covenants, agreements or assurances from Group 1 in any of these regards except those expressly set out in this Agreement. b) Group 1 represents and warrants to Intertrak that, to the best knowledge of its officers after due inquiry, Group 1 has not received any notice of any violations of, and is not violating, the rights of others in any trademark, trade name, service mark, copyright, patent, license, trade secret, know-how (application thereto, as applicable) or other intangible asset arising out of its development, marketing, licensing or sale of the Software, Documentation or Trademark. c) Group 1 agrees that the rights granted by Group 1 to Intertrak herein include Intertrak's right, without interference of Group 1, to use the whole of the Software, any part of parts thereof, or none of the work, as Intertrak sees fit; to alter the Software, add to it, combine it with any other work or works, at its sole discretion. 5. Office Facilities. a) Group 1 agrees to provide to Intertrak from September 2, 1997 through July 31, 1999 (i) office space for ten people, and reasonable access to conference room, training room, kitchen and reception area; (ii) "Office Equipment" consisting of desks/cubicles, chairs, lamps, telephones, and other small office equipment for up to ten (10) persons, as such equipment was found in Group 1's Minneapolis, Minnesota office on August 29, 1997; (iii) desktop computers and production equipment identified on Exhibit 5.1; (iv) Office Facilities consisting of access to the telephone equipment and the equipment to be shared by Intertrak and Group 1 identified on Exhibit 5.2; and (v) for use solely in support of the Assigned Agreements, local and long distance telephone service, copier, telefax,and overnight delivery services (FedEx/UPS). Access to and use of the above items shall remain available to Intertrak only so long as the foregoing is generally available to Group 1's operations in Group 1's current (8/31/97) Minneapolis, Minnesota office location, and only through July 31, 1999. Intertrak agrees to promptly 5 6 reimburse Group 1 for any use of Office Facilities, other than as authorized herein or approved by Group 1. b) If Intertrak wishes access to additional Office Equipment or Office Facilities, Group 1 and Intertrak shall negotiate in good faith to determine whether such additional Office Equipment and Office Facilities are available and if so at what, if any, additional cost to Intertrak. c) Intertrak acknowledges that Group 1 shall not be required, pursuant to its obligations under this Section 5, to purchase any additional facilities in order to meet these obligations. d) Intertrak's resort to the space rented to Group 1 in its Minneapolis, Minnesota office is subject to Group 1 obtaining consent from its landlord to effect such sublease. Group 1 shall use its best efforts to obtain such consent. Group 1 shall not charge Intertrak any additional fee in connection with Group 1's obtaining such consent. 6. Various Group 1 and Intertrak Performances. a) Group 1 shall complete the professional services identified in Exhibit 6.1 (with respect to the Assigned Agreements) and develop version 3.4 of the Software as provided therein using the services of the persons identified in Exhibit 6.1, hereto. The employment with Group 1 of each person identified in Exhibit 6.1 shall terminate (the "Individual's End Date") on the date set out therein. Until the Individual's End Date, Group 1 shall assume responsibility for such person's salary and fringe benefits; Intertrak may, however, assume daily supervision of such person's prior to the Individual's End Date, subject to Intertrak complying with all applicable laws, rules and regulations. Upon each Individual's End Date, Intertrak may employ any or all such persons and after October 16, 1997 Intertrak shall assume all obligations related to version 3.4 of the Software, including, but not limited to, all additional development efforts which may be necessary to complete such new version of the Software, testing and installation of the Software and developing Software documentation. a-1) Group 1 shall pay AMS for the activity described in Exhibit 6.2, hereto. b) Intertrak agrees that it shall perform the support and maintenance work (primarily - bug fixing, answering customer calls and the other programming services offered as annual contracted for maintenance to customers under the Assigned Agreements) at: Eight Thousand Dollars per month ($8,000/month) for months 1-6 from the date of this Agreement (with the first payment due to Intertrak on September 15, 1997 for Four Thousand Dollars, ($4,000.00) representing a pro rata monthly payment, with each subsequent payment to be made on the first day of each 6 7 month thereafter, commencing October 1, 1997); Six Thousand, Five Hundred Dollars per month ($6,500/month) for months 7-18 and Three Thousand, Five Hundred Dollars per month ($3,500/per month) for months 19 through July 31, 1999; provided, however, that Intertrak may cease to perform the aforesaid support and Group 1 shall no longer be obligated to pay for the aforesaid support if all of the customers under the Assigned Agreements have terminated maintenance under the Assigned Agreements. c) Intertrak agrees to complete the Campaign Management Module to Group 1's reasonable satisfaction, for the total price of Sixty Thousand Dollars ($60,000). Thirty Thousand Dollars ($30,000) thereof shall be payable upon delivery of the Module to Group 1 and Thirty Thousand Dollars ($30,000) upon acceptance by Group 1, which acceptance shall not be unreasonably conditioned, delayed or denied. Group 1's reasonable satisfaction shall be based solely upon completion of such work in accordance with the specification set out in Exhibit 6.3, hereto, as such specifications may be modified upon the agreement of the parties. Group 1 acknowledges and agrees that it shall not claim title to the Campaign Management Module created by Intertrak and resulting from such efforts; provided, however, that Intertrak hereby agrees to grant to Group 1, immediately upon the rendering to physical form of the Campaign Management Module, a perpetual, fully paid, worldwide, full copyright license to the Campaign Management Module and all portions of it so that Group 1 may, inter alia, make an unlimited number of copies, enhance, modify, display, alter and distribute for consideration from others or otherwise, the Campaign Management Module and all portions of it, for any uses or purposes that Group 1 may wish, all without further consent of or payment to Intertrak. d) Intertrak agrees to make an announcement upon Group 1's reasonable request and containing text acceptable to Group 1 that informs all customers under the Assigned Agreements that Intertrak has assumed the support and maintenance obligations for such products as described herein. e) Any agreement entered into by Intertrak and any of the customers under the Assigned Agreements for the delivery of a new release of the Software and/or for which Intertrak charges the customer an additional license or maintenance/support fee shall expressly replace any preexisting Group 1 maintenance or support agreement and relieve Group 1 of any further maintenance or support obligations to that customer. 7. Employment Matters; Non-Compete Covenants. Group 1, Intertrak and Dircz agree as follows. a) Dircz's employment with Group 1 Software is hereby terminated. Dircz, Intertrak and Group 1 hereby enter into a consulting agreement in the form set forth in Exhibit 7.1 which assures Group 1 that Dircz will provide his services to Intertrak or Group 1 with respect to the Assigned Agreements. Dircz's 7 8 obligations under that certain Covenant Not to Compete with Group 1 Software, dated November 22, 1995, are hereby deemed terminated. b) Group 1 shall reimburse Intertrak for salary not to exceed Twenty Five Hundred Dollars per month ($2,500/month), through November 21, 1998, to be paid to one (1) additional full time Intertrak professional. (The initial payment shall be pro rated, with additional payments to be made on the first day of each month). This employee's responsibility shall consist primarily of providing support and maintenance (primarily first level) to all of the customers under the Assigned Agreements. c) So long as Dircz and Intertrak fully perform their obligations to maintain and support the Software and the customers under the Assigned Agreements, Group 1 covenants and agree that for thirty-six (36) months following the date of this Agreement it shall refrain from engaging directly or indirectly in any of the following activities in the U.S. or in Canada: (i) competing with Intertrak in the development, sale, licensing or other distribution of "sales and marketing control" software and (ii) hiring or engaging or soliciting for employment or engagement as a contractor any of Intertrak's employees or contractors. d) Group 1 shall make the following services of David Marsh available to Intertrak and compensate him for those services. He shall, at Group 1's direction, be available to Intertrak for up to twenty (20) hours per month upon seventy-two (72) hours prior notice to assist Intertrak in the support and maintenance of customers on versions 3.0 - 3.4 of the Software under the Assigned Agreements. e) So long as Group 1 fully performs its obligations set forth in the Agreement, Dircz and Intertrak each covenants and agrees that for thirty-six (36) months following the date of this Agreement each shall refrain from engaging directly or indirectly in any of the following activities in the U.S. or Canada or any other country in which Group 1 is conducting sales efforts: (i) competing with any Group 1 product or any related service (excluding the "sales and marketing control" software) and (ii) hiring or engaging or soliciting for employment or engagement as a contractor any of Group 1's employees or contractors except those persons who were in the WorldTrak Division as of July 31, 1997. f) Group 1 shall pay to Dircz within seven (7) days from the date of this Agreement all accrued, but un-used vacation earned as a Group 1 employee, as of the date of this Agreement. 8. Intertrak Corporate Ownership. Dircz and Intertrak hereby warrant and represent to Group 1 that Dircz is the sole holder of all of the issued and outstanding shares of voting securities of Intertrak, or in the alternative, Dircz currently 8 9 holds all of the issued and outstanding voting securities of Intertrak. Dircz and Intertrak agree that for the first thirty-six (36) months following the date of this Agreement, Intertrak shall maintain its charter documents and/or Dircz shall hold sufficient shares of the voting securities of Intertrak so that upon written request of Group 1 made during this 36-month period, Intertrak and/or Dircz shall promptly offer to issue/sell to Group 1 Thirty Percent (30%) of the combined total of the authorized shares of voting securities of Intertrak. In exchange for these shares of the voting securities of Intertrak, Group 1 shall pay Seventy-Five Thousand Dollars ($75,000). 9. Security Interest; Sale of the Software. a) Intertrak grants to Group 1 a first lien, security interest in any and all of the derivative works of the Software and the Documentation created by or on the behalf of Intertrak, together with all customizations, supplemental works, interim works, works in progress and all other intellectual property rights and portions thereof, whether or not fixed in a tangible medium of expression (including without limitation all copyrights and applications for such, rights with respect to patents and applications for such, and moral rights) with respect to such works (the "New Works"). Intertrak agrees not to permit any lien or encumbrance or other cloud on title to be filed or exist against any of the New Works. In the event of any breach under this Agreement or any agreement entered into with respect hereto, which breach is not cured within the applicable cure period (if any), Intertrak agrees that Group 1, as a secured party with respect to the New Works, shall have and may exercise any and all rights and remedies with respect to the New Works available to a secured party under applicable law. Intertrak agrees to file any and all financing statements and other documents that Group 1 reasonably requests (provided, Group 1 pays all filing fees), to further establish, maintain, protect or perfect the security interests granted herein. This security interest shall terminate, and Group 1 agrees to deliver to Intertrak termination statements suitable for filing in the appropriate jurisdiction, upon Group 1's receipt of all payments to be made to it pursuant to Section 2, above. Group 1 agrees to subordinate its security interest in the New Works upon the written request of Intertrak in order for Intertrak to obtain capital financing so long as Intertrak has paid all amounts to Group 1 that are due and owing, and Intertrak and Dircz are not in default under this Agreement or any agreement entered into pursuant hereto, as of the date of its request to Group 1. b) Intertrak hereby agrees that Group 1 may retain a copy of any and all of New Works with an escrow agent reasonably acceptable to Intertrak and Group 1, or if none can be promptly agreed upon, in escrow at Group 1's premises. Resort to escrow shall constitute an additional remedy to Group 1 in the event that Group 1 seeks to enforce any of its rights or remedies as a secured party with respect to the New Works. 9 10 c) Intertrak may sell or transfer its title in the Software and Documentation directly (or indirectly as for example by a sale of all or substantially all of its assets or a controlling block of its voting securities) in a transaction or series of transactions only if: (i) Intertrak demonstrates to Group 1's reasonable satisfaction that: (A) the obligations and responsibilities of Intertrak and Dircz with respect to performance under the Assigned Agreements shall be discharged in a professional and workman like manner and (B) all of the other obligations and liabilities of Dircz and Intertrak under this Agreement shall be discharged in full either prior to or after any proposed transfer or sale and (ii) Intertrak shall pay to Group 1 Sixty-Five Percent (65%) of the gross proceeds from such transaction paid or payable to Intertrak, Dircz (or any affiliate of either) within the first twelve (12) months after the date of this Agreement, Fifty Percent (50%) of such gross proceeds with respect to the second twelve months, and Thirty Percent (30%) of such gross proceeds with respect to the third twelve months. 10. Finder's Fee. If Group 1 provides Intertrak with any leads for any of Intertrak's products or services (a "Lead"), and any Lead purchases any products or services from Intertrak, Intertrak shall pay to Group 1 a finder's fee of fifteen percent (15%) of all of the payments (excluding any Software license fees for which a 30%-fee is paid to Group 1 pursuant to Section 2(a)(ii), above) made or payable to Intertrak by a Lead within the first twelve (12) months after the initial agreement between a Lead and Intertrak. All such fees shall be paid to Group 1 within thirty (30) days after Intertrak has received payment from the respective Lead. 11. New Agreements. a) Group 1 shall inform Presbyterian Church promptly upon the execution of this Agreement of the transfer of operations with respect to the Software and that all fees for the Software shall be paid to Intertrak. Group 1 will use its best efforts to assist Intertrak in securing an agreement directly with Presbyterian Church for the Software and related services. Fees received by Intertrak from Presbyterian shall be included as Revenue; provided, however that Intertrak shall pay Group 1 the full 30% of Revenue from this contract within thirty (30) days of Intertrak's receipt of payment. Further, Intertrak shall reimburse the Group 1 salespersons and sales management involved in such transaction as of July 31, 1997 in accordance with their incentive compensation in effect on July 31, 1997-. b) Group 1 shall inform Tony Stone, Inc. promptly upon the execution of this Agreement of the transfer of operations with respect to the Software. Group 1 agrees to then use its best efforts to assist Intertrak in closing current negotiations with Tony Stone with respect to a prospective license agreement for the Software and/or other agreement solely with respect to the 10 11 Software and/or related services. Fees received by Intertrak solely with respect to the Software shall be included as Revenue; provided, however that Intertrak shall pay Group 1 the full 30% of Revenue from this contract within thirty (30) days of Intertrak's receipt of payment. Further, Intertrak shall reimburse the Group 1 salespersons and sales management involved in such transaction as of August 25, 1997 in accordance with their incentive compensation in effect on August 25, 1997-. 12. Taxes and Governmental Royalties Licenses and Permits and Compliance with Laws. a) Group 1 represents and warrants to Intertrak that it has filed all returns required of it with respect to any governmental entity as to licenses of the Software, the filing of which returns or the failure to do so may affect the Software. b) Group 1 represents and warrants to Intertrak that it has held all licenses, certificates, permits, franchises and rights from all appropriate federal, state, local and other public authorities necessary for the conduct by Group 1 of its business related to the Software. 13. Authority and Status. a) Group 1 represents and warrants that it is a corporation in good standing under the laws of the state of its incorporation and it has the capacity and authority to execute and deliver this Agreement, to perform hereunder and to consummate the transactions contemplated hereby without the necessity of any act or consent of any other person whomsoever. This Agreement, and each and every other agreement, document and instrument to be executed, delivered and performed by Group 1 in connection herewith, constitutes or will, when executed and delivered, constitute the valid and legally binding obligation of Group 1, enforceable against Group 1 in accordance with their respective terms, except as enforceability may be limited by applicable equitable principles or judicial discretion, or by bankruptcy, insolvency, reorganization, moratorium, or similar laws from time to time in effect affecting the enforcement of creditors' rights generally. b) Intertrak represents and warrants that it is a corporation in good standing under the laws of the state of its incorporation and it has the capacity and authority to execute and deliver this Agreement, to perform hereunder and to consummate the transactions contemplated hereby without the necessity of any act or consent of any other person whomsoever. This Agreement, and each and every other agreement, document and instrument to be executed, delivered and performed by Intertrak in connection herewith, constitutes or will, when executed and delivered, constitute the valid and legally binding obligation of Intertrak, enforceable against Intertrak in accordance with their respective terms, except as enforceability may be limited by 11 12 applicable equitable principles or judicial discretion, or by bankruptcy, insolvency, reorganization, moratorium, or similar laws from time to time in effect affecting the enforcement of creditors' rights generally. 14. Indemnification. a) Intertrak and Group 1 each agrees to indemnify, defend and hold harmless the other and their respective current and past officers, directors, employees, agents and representatives from all losses, damages, liabilities, costs (including reasonable attorneys' and experts' fees and expenses) (collectively, the "Losses") incurred by the party being indemnified (the "Indemnified Party") from any claim by the other party hereto or any third party arising from or related to any material breach by the respective party hereto of this Agreement. Notwithstanding the foregoing, Group 1 does not hereby agree to indemnify Dircz, as a former employee, for any breach of his or that of Intertrak under this Agreement. b) The Indemnified Party shall have the right to approve the selection of any counsel selected by the indemnifying party to defend hereunder, which approval shall not be unreasonably conditioned, delayed or denied. The indemnifying party shall not enter into any settlement with respect to the matters indemnified hereunder which may adversely affect any interest of the Indemnified Party without first obtaining the written consent of the Indemnified Party, which consent shall not be unreasonably conditioned, delayed or denied. The indemnifying party agrees to reimburse the Indemnified Party promptly for all such Losses as they are incurred by the Indemnified Party; provided, however, that with respect to any expenses reimbursed to the Indemnified Party in advance of the final disposition of any such proceeding covered by this indemnification, the Indemnified Party shall have delivered to the indemnifying party an undertaking to repay to the indemnifying party the amounts so advanced if it shall ultimately be determined that the Indemnified Party is not entitled to be indemnified hereunder. c) If the indemnification provided for in this Section 14 from the indemnifying party is unavailable to an Indemnified Party, in respect of any Losses referred to therein, the indemnifying party, in lieu of indemnifying such persons, shall contribute to the amount paid or payable by such persons as a result of such Losses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the Indemnified Party in connection with the actions that resulted in such Losses, as well as any other relative equitable considerations. The amount paid or payable by a party as a result of the Losses shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with any investigation, lawsuit or legal or administrative action or proceeding. 12 13 15. Survival of Representations and Warranties. a) All representations, warranties, agreements, covenants and obligations made or undertaken by Group 1 in this Agreement shall survive indefinitely its execution and shall not merge in the performance of any obligation by any party hereto. b) All representations, warranties, agreements, indemnities and covenants made or undertaken by Intertrak or Dircz in this Agreement shall survive indefinitely their execution and shall not merge in the performance of any obligations by any party hereto. 16. Payment of Fees and Expenses. Intertrak, Dircz and Group 1 each agrees that regardless of whether the transactions contemplated hereunder close, to pay its own fees and expenses, including the fees and expenses of its respective counsel, accountants, brokers, advisors, employees and other agents, if any, incurred in connection with the transactions contemplated here, unless expressly agreed to otherwise in the Agreement. 17. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be delivered by hand or mailed by registered or certified mail, return receipt requested, first class postage prepaid, addressed or telefax as follows: a) If to Intertrak or Dircz: Intertrak Corporation 8009 34th Avenue South, Suite 1550 Bloomington, Minnesota 55425-1608 Attention: Mr. Clark Dircz Telefax: 612/_______ or George L. Fricker, Esq. Johnson & Sands 7600 Parklawn Avenue, Suite 444 Minneapolis, Minnesota 55435 Telefax: 612/831-7358 If to Group 1: Group 1 Software, Inc. 4200 Parliament Place Suite 600 Lanham, Maryland 20706-1488 Attention: Ronald F. Friedman, President Telefax: (301) 731-0360 b) If delivered personally or by telefax, the date on which a notice, request, instruction or document is delivered shall be the date on which such delivery is made and, if 13 14 delivered by mail, the date on which such notice, request, instruction or document is received shall be the date of delivery. c) Any party hereto may change its address specified for notices herein by designating a new address by notice in accordance with this Section 17. 18. Termination. This Agreement constitutes the binding and irrevocable agreement of the parties to consummate the transactions contemplated hereby, the consideration for which is, inter alia, the covenants set forth herein and the expenditures and obligations incurred and to be incurred by Intertrak, Dircz and Group 1 in respect of this Agreement. This Agreement may be terminated if any material breach has occurred hereunder, which breach is not cured within fifteen (15) days of written notice from the non-breaching party to the breaching party. 19. Further Assurances. Each party covenants that at no additional expense, at any time, and from time to time, it will execute and deliver (or cause to be so done) such additional instruments and take such actions as may be reasonably requested by the other parties to confirm or perfect or otherwise to carry out the intent and purposes of this Agreement. 20. No Third Party Beneficiaries. Nothing contained herein shall be construed to afford any rights or benefits to any person except the parties to this Agreement. Any implication of rights granted to any such party is hereby expressly disclaimed. 21. Miscellaneous. a) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, executors and administrators, and permitted successors and assigns. Except as provided herein no delegation, transfer or assignment of any rights or obligations under this Agreement is permitted by Intertrak or Dircz, and any attempted transfer or assignment shall be void. b) This Agreement together with the documents executed concurrently herewith or referred to herein constitute the entire agreement among the parties hereto with respect to the transactions contemplated hereby and supersedes and cancels any prior agreements representations, warranties, or communications, whether oral or written, among the parties hereto relating to the transactions described herein. c) This Agreement shall be governed by and enforced in accordance with the laws of the State of Maryland, principles of conflicts of law notwithstanding. d) Any failure on the part of any party hereto to comply with any of its obligations, agreements or conditions hereunder 14 15 may be waived by any other party to whom such compliance is owed. No waiver of any provision of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, but only by an agreement in writing signed by the party against whom or which the enforcement of such change, waiver, discharge or termination is sought. e) The Agreement shall be construed without reference to any presumption or rules of construction operating against the "draftsman" of the document, the intent of the parties being that any such presumption or rule is inapplicable in this instance because both parties have reviewed and negotiated this document in the manner that each viewed as most advantageous to its own interests. f) All Exhibits attached hereto are incorporated herein by reference, and all blanks in such Exhibits or the Agreement, if any, will be filled in as required in order to consummate the transactions contemplated herein and in accordance with this Agreement. g) In the event that any provision of this Agreement or any word, phrase, clause, sentence or other portion thereof shall be held to be unenforceable or invalid for any reason, such provision or portion thereof shall be modified or deleted in such a manner so as to effect the agreement of the parties under this Agreement, as modified, to the fullest extent permitted under law. 15 16 IN WITNESS WHEREOF, each party hereto has executed and delivered, or caused this Agreement to be executed and delivered on its behalf by its authorized representatives, effective the day and year first above written. Attest: Intertrak Corporation /s/KIRSTEN MATTI By: /s/CLARK DIRCZ - --------------------------- -------------------------- Its: CEO ------------------------- /s/CLARK DIRCZ Witness: ----------------------------- By: Clark Dircz, Individually /s/KIRSTEN MATTI - --------------------------- Attest: Group 1 Software, Inc. /s/KAREN FAUCETTE By: [SIG] - --------------------------- -------------------------- Its: Executive V.P. ------------------------- Attest: Gruco, Inc. [SIG] - --------------------------- By: [SIG] Secretary -------------------------- Its: President ------------------------- 16 17 IN WITNESS WHEREOF, the parties hereto have executed this Covenant as of the date first written above. INTERTRAK CORPORATION By: -------------------------- Title ------------------------ GROUP 1 SOFTWARE, INC. By: -------------------------- Title ------------------------ BY: -------------------------- Clark Dircz, Individually 35 EX-27.1 8 FINANCIAL DATA SCHEDULE
5 YEAR MAR-31-1998 APR-01-1997 MAR-31-1998 3,683,398 0 27,232,842 3,603,400 0 37,409,779 3,543,502 4,996,118 70,629,512 30,717,696 0 0 2,845,857 1,796,845 22,515,130 70,629,512 61,003,897 61,003,897 58,204,541 58,204,541 464,651 3,505,000 469,983 2,334,705 921,360 972,590 0 0 0 972,590 0.30 0.29
EX-27.2 9 RESTATED FINANCIAL DATA SCHEDULE DATED 9/30/97
5 3-MOS MAR-31-1998 APR-01-1997 SEP-30-1997 792 0 31,557 3,174 0 35,461 9,585 6,130 69,973 31,543 0 0 2,846 1,795 20,769 69,973 15,364 15,364 14,282 14,427 0 725 120 937 342 481 0 0 0 437 0.13 0.13 Earnings per share have been restated to comply with Statement of Financial Accounting Standards (SFAS) No. 128. The quarters ending September 30 and June 30, 1997 and fiscal years 1997 and 1996 have been restated for the effects of SFAS No. 128. EPS-PRIMARY reflects EPS-BASIC for all periods presented.
EX-27.3 10 RESTATED FINANCIAL DATA SCHEDULE DATED 6/30/97
5 3-MOS MAR-31-1998 APR-01-1997 JUN-30-1997 992,000 0 30,900,000 2,950,000 0 35,482,000 9,451,030 5,862,030 70,072,000 31,725,000 0 0 2,846,000 1,794,000 22,597,000 70,072,000 11,870,000 11,870,000 5,977,000 13,350,000 0 380,000 169,000 1,649,000 534,000 909,000 0 0 0 953,000 (0.29) (0.29) Earnings per share have been restated to comply with Statement of Financial Accounting Standards (SFAS) No. 128. The quarters ending September 30 and June 30, 1997 and fiscal years 1997 and 1996 have been restated for the effects of SFAS No. 128. EPS-PRIMARY reflects EPS-BASIC for all periods presented.
EX-27.4 11 RESTATED FINANCIAL DATA SCHEDULE DATED 3/31/97
5 YEAR MAR-31-1997 APR-01-1996 MAR-31-1997 1,628,552 0 41,838,254 3,208,000 0 41,006,666 9,268,008 5,601,226 75,856,300 36,515,591 0 0 2,845,857 1,793,995 21,571,938 75,856,300 54,546,949 54,546,949 49,853,835 56,831,140 0 1,956,403 425,627 (2,709,818) (799,630) (1,600,306) 0 0 0 (1,777,306) (0.54) (0.54) Earnings per share have been restated to comply with Statement of Financial Accounting Standards (SFAS) No. 128. The quarters ending September 30 and June 30, 1997 and fiscal years 1997 and 1996 have been restated for the effects of SFAS No. 128. EPS-PRIMARY reflects EPS-BASIC for all periods presented.
EX-27.5 12 RESTATED FINANCIAL DATA SCHEDULE DATED 12/31/96
5 3-MOS MAR-31-1997 OCT-01-1996 DEC-31-1996 1,962,000 0 27,667,000 3,474,000 0 36,070,000 3,240,000 0 73,870,000 30,300,000 0 0 2,846,000 1,752,000 20,324,000 73,870,000 14,631,000 14,631,000 6,448,000 13,853,000 138,000 475,000 138,000 640,000 234,000 316,000 0 0 0 272,000 0.08 0.08 Earnings per share have been restated to comply with Statement of Financial Accounting Standards (SFAS) No. 128. The quarters ending September 30 and June 30, 1997 and fiscal years 1997 and 1996 have been restated for the effects of SFAS No. 128. EPS-PRIMARY reflects EPS-BASIC for all periods presented.
EX-27.6 13 RESTATED FINANCIAL DATA SCHEDULE DATED 9/30/96
5 3-MOS MAR-31-1997 JUL-01-1996 SEP-30-1996 1,157,000 0 26,160,000 3,016,000 0 33,634,000 3,304,000 0 70,198,000 27,863,000 0 0 2,846,000 1,791,000 22,840,000 70,198,000 13,059,000 13,059,000 5,973,000 12,644,000 169,000 456,000 135,000 246,000 41,000 154,000 0 0 0 110,000 0.03 0.03 Earnings per share have been restated to comply with Statement of Financial Accounting Standards (SFAS) No. 128. The quarters ending September 30 and June 30, 1997 and fiscal years 1997 and 1996 have been restated for the effects of SFAS No. 128. EPS-PRIMARY reflects EPS-BASIC for all periods presented.
EX-27.7 14 RESTATED FINANCIAL DATA SCHEDULE DATED 6/30/96
5 3-MOS MAR-31-1997 APR-01-1996 JUN-30-1996 554,000 2,000,000 32,009,000 2,740,000 0 32,208,000 8,038,000 4,818,000 66,739,000 26,817,000 0 0 2,846,000 1,749,000 22,698,000 66,739,000 10,720,000 10,720,000 5,287,000 4,308,000 1,023,000 380,000 25,700 (234,000) (37,000) (165,000) 0 0 0 (209,000) (0.06) (0.06) Earnings per share have been restated to comply with Statement of Financial Accounting Standards (SFAS) No. 128. The quarters ending September 30 and June 30, 1997 and fiscal years 1997 and 1996 have been restated for the effects of SFAS No. 128. EPS-PRIMARY reflects EPS-BASIC for all periods presented.
EX-27.8 15 RESTATED FINANCIAL DATA SCHEDULE DATED 3/31/96
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR MAR-31-1996 MAR-31-1996 1,845 1,979 30,474 2,409 0 33,029 7,433 4,199 67,192 26,200 0 1,781 0 2,846 24,821 67,192 45,873 45,873 40,640 40,640 (239) 1,617 125 5,472 2,832 2,832 0 0 0 2,832 .85 .79 Earnings per share have been restated to comply with Statement of Financial Accounting Standards (SFAS) No. 128. The quarters ending September 30 and June 30, 1997 and fiscal years 1997 and 1996 have been restated for the effects of SFAS No. 128. EPS-PRIMARY reflects EPS-BASIC for all periods presented.
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