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These notes are the first on a company I was asked to get specific feedback from from someone reading my notes here on CoSy . In fact , A very extensive set of questions was asked by a clearly knowledgable individual . Given the extent , I just gave copies of the questions to Garry Murphy ( and Bob Flaherty ) before the first session so that Gerry could incorporate their general concerns into his comments . I asked just 1 question . See also Gerry`s lunch time comments .
Skip to Equity970925 notes
  ============================: WED.SEP,970917 :============================
Date:  16-Sep-97 18:25 EDT     
Subject: RE: Questions for Gerry Murphy/ATSM

Here are more questions than you ever wanted to ask...

1. In regard to the Dayton Hudson Software License contract dated 4/15/97,
 1) has ATSM software met specifications in D-H's test environment,
 2) if so, have you installed this "Pilot Software" into all 14 Dayton Hudson
  stores yet and/or will you meet the October 1, 1997 deadline to do so,
 3) is everything on target for a February 1998 "Roll-Out" to all Dayton
  Hudson stores, i.e. both Target and Mervyn stores.
   (Bob, you can see this Software License contract via
   , Exhibit 10 of Form 10-Q dated August 13, 1997 if you want).

2. From Form 10-K, it is stated "a large potential customer will normally
  place a small order for the Company's products for testing in one or several
  locations.  If testing meets the customer's criteria, the customer will
  generally order a large quantity of product for installation throughout its
 Thus, it appears ATSM has Dayton and Carson-Pirie in the testing stage and
  that "large quantity of product" installations should occur in the first 2
  quarters of 1998. Further, my understanding is that almost all of these
  roll-out sales to Dayton are  SOFTWARE INTENSIVE  with very little hardware.
 Thus, ATSM's profit margin/EPS will be very high in these first 2 quarters
  with only sales commissions and normal software amortization being expensed
  besides ATSM's normal G&A expenses.

3. ATSM's 5/21/97 press release values the Dayton Software License and support
 "in excess of $1 million".
 Does this value reflect installation in both Target and Mervyn stores?
  (This is a tricky way to determine store license sales price, which ATSM
   seems careful to avoid disclosing).
 If both Target and Mervyn, then ask:
  Since Dayton has about 1,000 stores, is your Site License about $1,000 per
 If just Target, then ask:
  Since Target has about 750 stores, is your Site License about $1,350 per
   (This $1,000 to $1,350 price seems way too low per my recollection, I
   recall it being about $8,000 but this included computer hardware).
 Verify whether this "in excess of $1 million" value includes the "Progress
  Payments" Dayton made to ATSM for developing this Windows NT based software.
  My understanding is Dayton is paying all/most of the cash for ATSM to
  enhance/develop its software for the Windows NT Platform and is also paying
  $1 million for the Site Licenses at all its stores. Please verify.
 Also, please verify that  future Site Licenses will be higher priced
  (i.e. higher than $1,000-$1350 per store), since e.g. Carson Pirie and
  others will not be paying for the development of the Windows NT platform.
 Try to determine what the sales price is for the Site License alone (no
  hardware) on the Windows NT Platform.

4. Have Gerry describe Carson Pirie contract, especially the ATS-601 product
  which performs currency, coin, and slip counting. Gerry is very keen on
  this new product, find out why.
 My understanding is that Carson is getting the ultimate ATS integrated
  system, with all the bells and whistles. See how this gold plated system
  differs from the Dayton system
 and identify what the value added is to Carson.
  That is, how soon will each piece pay for itself in labor savings.

5. The problem with this company is sales.  Why can't ATSM sell much, much
  more of its software?
 It's a great product, it pays for itself within months, and everyone should
  be beating the doors down asking for a site license!
 Have Gerry discuss the Retail store segment of the business (as opposed to
  banking segments).
 (Retail store and possibly grocery store segments will be where the greatest
  sales potential is; historically retail stores have been ATSM greatest
  revenue producer).
 What are trends of retail store chains in adopting cash/office management
  software such as ATSM's.
  Note: there is a very long lead time in making ATSM Software License Sales.
  You not only have to convince the Chief Information Officer that it is good
  and viable software,but you also have to convince him to schedule the
  software implementation within the overall scope of his Chain Store's
  computer software enhancements for the year. There seems to always be more
  computer software improvements that need to get implemented each year than
  there is chain store computer staff to get it done. Per my understanding,
  herein lies the problem?
  ATSM software can pay for itself within 12 months, but ATSM still finds it
  difficult to sell the software because the Chain Store CIO/Computer Staff
  is too busy with other software and system improvements.
 What is/can ATSM do to make the sell to busy computer departments?
 What are the current retail trends in automating their cash
  settlement/accounting departments?
 Why aren't they adopting it in mass, NOW?!
 What will lead them to so in the future?

 Per my "hoped for understanding", I think the recent inking of Dayton Hudson
 and Carson Pirie contracts are precursors that chain stores are gettingmore
 interested in adopting ATSM technology. Here's hoping..., I own a bunch of

Bob: General Background Info :
* ATSM's cash/office management software generally pays for itself within 1
year, primarily through labor savings.  This software automates cash counting
, balancing register receipts, reconciling bank deposits, and preparing store
cash reports.  Estimates indicate that over 90% of US retailers still use
manual cash settlement methods.  ATSM's software is viable for any retail
store that has 5 or more cash registers.  My understanding is that once a
retail store adopts ATSM software, they can reduce payroll costs associated
with their accounting-cash settlement department by 25% to 60%.

* ATSM has a nice existing customer base including Dayton-Hudson, TJ Maxx,
Home Depot, Lowes, Saks Fifth Avenue,  Kohls, Chemical Bank, Chase Bank.
* ATSM has $0 debt.
* Insiders in total own 41% of the company (of which Gerry Murphy owns 20%)
* You may want to read Robert Flaherty's , Equity Magazines, Special
Situation brochure dated August 25, 1997 which highlights ATSM in a 7 page
article. If you do not have access, I can fax it to you.
* Forget about asking questions on ATSM's subsidiary, Innovative Electronics,
Inc. (IEI).  ATSM alone makes this stock attractive.  Gerry negotiated and
purchased IEI for less money than the underlying value of its receivables and
other tangible assets (i.e. negative goodwill generated from the transaction).
* Forget about asking about ATSM's technology/software.  They are leaps and
bounds ahead of anyone else.  I have met with their technical staff and was
impressed with their expertise in this cash settlement niche market. Per my
understanding, some retail chain stores have tried to implement software
similar to ATSM in-house, with much higher cost  and difficulty than if they
had just bought from ATSM.  There are many subtleties in the software design,
and ATSM knows cash.
* I am curious about present and future customer payment trends.  Namely, are
cash sales going down or up as % of store retail sales.  Will SmartCard and
debit card transactions replace cash over the long term?  How does Gerry view
customer payment trends, i.e. cash sales as % of total sales.
I appreciate your wading through all these questions and comments and hope you
find some relevant questions to ask.  I look forward to reading your notes on
this upcoming Equities Conference.     

Subject: RE: ATSM Questions
   Date: Fri, 19 Sep 97 17:56:17 UT    

Do you have any questions or comments on my list of questions E-Mailed to
you on 9/16/97?
As noted, I really would like to nail down the unit price of future Site
License sales with no hardware.  From reviewing my prior year notes,
historically the unit price was $7,800 or so which included computer
 I want to better gage the upside potential if ATSM inks a contract with
Sears, Walmart , Penney, etc. Per Equities Special Situation dated 8/25/97:
"ATSM is in the late stages of negotiations with 14 other top 100 [in sales]
companies indcluding two in the top ten".

To be in the top 10, you are talking about 1,000+ stores and at say a $4,000
per unit  site license you are looking at $4 million added revenue.  Given
existing cost of goods sold, assuming most G&A is fixed and adding historic
sales commision %, such a "top 10" sale  alone would generate $.18 EPS by my
calculations.  But without a good number for per unit Site License, this is
just a guess.  (Such a sale would also create annual, recurring software
maintenance revenue that equals 20-25% of the Site License sale).
Thanks for your time in this matter.
6. It will be interesting to see how he responds to these questions, and
giving these to him in writing is probably best.   While you are at it, why
not ask Bob Flaherty whether his EPS projections in 1998 include the inking of
a contract with a top 10 retailer who "ATS in the late stages of negotiations
with" .  (I am confident his projections do not include such a top 10
contract).  Then ask him what impact such a contract would have on EPS.

  ============================: TUE.SEP,970923 :============================
 To: _______             | DDT   |>| TUE.SEP,970923,23:48-4

 I`m approximately whelmed by the extent of your questions . You clearly have
 been studying the business thoroughly .

 What is your background and ( a matter of curiosity ) where are you located ?

|9709240106| I just scaned Bob`s August writeup on ATSM . That and your
 material is all I know about it . but looks interesting .
 ( I agree  Identix  has interested me for a number of years . Was that bias
  visible in my notes ? )

 Are you familiar with The Silicon Investor ?
  Check out their thread on ATSM :

 Given the volume of your notes and questions , I think what I`ll do is hand
 Gerry Murphy a copy ( I've restructured it to start each question on a
 separate line ) first thing in the morning so he can consider your questions
 in his half hour . Then , perhaps I can catch him later to flesh out any
 gaps .

 This is going to be an interesting first .
 You know , my main motivation in this activity is just to show the utility
 of my CoSy notebook environment .

 -- BobA --            |WED.SEP,970924,2:7-4
  ============================: WED.SEP,970924 :============================
Date:  24-Sep-97 11:31 EDT
Subject: RE: ATSM @ Equities Conference

In response to your E-Mail:
1. My background is a CPA with undergraduate Finance from Univ of Tennessee
and MBA from SMU.  Am located in Dallas, TX,  have my own CPA practice, and
an entrepreneur in several ventures that I am minority shareholder with
2. I recall no bias in your notes on Identix.  It just seemed to have a good
product and an identifiable market that both needs it and would buy it.
3. When doing an Internet search 3 months or so ago, I came across this
Silicon Investor thread.  One of the posters, Joe Schmidt, is with MH
Meyerson, the investment banker handling certain acquisition consulting and
PR for ATSM. Joe is very knowledgeable on ATSM in many aspects.
4. I prefer you not to hand Gerry Murphy a copy with my name on it. Feel free
to hand him the list of questions without my name. I talk to Gerry about once
each quarter following each earnings release and do not want to jeopardize my
relationship and communications access with him.  On the other hand, I want
someone to ask him good, relevant, and challenging questions!
5. I figured your key motivation was in evaluating CoSy, but hoped you could
ask some questions while you were at it...
6. It will be interesting to see how he responds to these questions, and
giving these to him in writing is probably best.   While you are at it, why
not ask Bob Flaherty whether his EPS projections in 1998 include the inking of
a contract with a top 10 retailer who "ATS in the late stages of negotiations
with" .  (I am confident his projections do not include such a top 10
contract).  Then ask him what impact such a contract would have on EPS.
Thanks,     ----- 
  Equity Conference Notes 
  ============================: THU.SEP,970925 :============================
|11:24|  Pub since `88 , conservative . 1st in niche - coin scales , counters
 What we do ?  Count Money : PC based for processing of currency coin chks
                cred cds , & other media .
   Margins on hardware declining . `85 PC software revolution developed
    counter & recorded how many of each , w reports . Were selling info &
    communications as well as counting . Must count in time for armord car .
  1st PC DOS Cash Office Sys .
  1st UNIX Cash Office ( multitasking on ISP ( In Store Processor ) ( K-Mart
   saw DOS could save 15K$ % store % yr . ROI 6-7 mo . but not part of
   Stratigic UNIX plan ) .
  1s WinNT . w deliver to Dayton-Hudson w/i Mo ( w outside source )
 Company we keep : HomeDepot 563 roi < yr . ( replaced 4-5 competition
  Target  475 + department stores     | NT nxt cpl wks
  TJ Maxx 475 stores | 10-15 registers counted 2x % day - match w tape .
  correct catagorization - cash , chk etc . communication w register .
  correct register immediately
 Lowes Co . replaced 14 yr relationship competitor because of better softwr
 Kohl`s w Morgan Stanley . saved .750M$ in yr .
 Metropolitan Art 2 machines .
 Chase .
  To grow fastest would run losses for couple of yrs . Not in plan .

 Why we selected : 753K $ saving in K | Burdine`s 36 store ROI 4 mo | micro
  encoding chks in house . get .04 .05 % chk saving frm Bank |
  Most advanced Tek : .4 staff in software . modifiable w/o tremendous cost.
   Wachovia FL : 'where equip ' ? . 1st ' what`s problem ? ' project ROI .
  Service . never been asked to leave a customer . Havent been able to sell
   enough . Now Java . DaytonHudson going MS all way . Y2k nervousness . can
   prove already have solns.
  Power Chk Encoder w UniSys . micro encoding @ time of entering . saving
  25hr % wk @ D.H. New scale prod : to weigh money . have 15 acnts w 17k
  stores - if sold them - would . AutoZone - 2k stores . CVS
  Marshalls 150 stores .
  Maintanance Rev . 8k pieces of eq out . VanStar 3-5k tekys trained to svc
   equip .  Rev : > 2.3M$ by Jan-Feb . w .9 retention .
  Supermkts fro Power Encode . - small margins . utilizing their existing eqp
   Retail mkt in great flux . what mu | 340 - 400 registers in Sax 5th Av
   store .  of top 100 retails . close to 26 not counting Super mkts .
  ATS Tek resources : .06 Rev spent on Sys devel in `96 | .12 in `97 .
 What w drive growth

 Why Invest ? Strong Niche - internal IS feels like doing self , but ATS
  experienced , have tek for present & future .
  Grow w Solid Cust base |
  Margins : ~ .5 , higher on scale | Growth AutoZone Mennards . substantial
   over nxt few yrs . now seeing many more custs .
  Looking @ external growth . acq software co to add to rev .
  Been w Deliote for 18 yrs . same bank thru 3 of bank`s name changes .
  0 debt .
|11:59| Selling is consultive approach . 9 salesmen out of 55 people .
 | Revs now ~ 11 M profitable for last 5 yr . were looking at acq which cost
  .04 % share . buy Unit 6-8k - 12 k % unit . Customers may growing > .2 % yr
  other way license . over all store  payed up fron
  Sol MataHara Dept Store In Indonesia thru A.Andersen & IBM . + Mex .
 5.9M shares out . 15%16 | float .6 | mngt holds .41

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