<PAGE>
Filed Pursuant to Rule 424(b)(1)
Registration No: 333-5495
4,400,000 Shares
LOGO INDUSTRI-MATEMATIK
Common Stock
------------
Of the 4,400,000 shares of Common Stock offered hereby, 3,200,000 shares are
being sold by Industri-Matematik International Corp. ("IMI" or the "Company")
and 1,200,000 shares are being sold by Martin Leimdorfer, a stockholder and
director of the Company (the "Selling Stockholder"). See "Principal and
Selling Stockholders." Following completion of this offering, the Company's
executive officers and directors, and their affiliates in the aggregate will
own beneficially 70.4% of the Company's voting Common Stock. See "Risk
Factors--Control by Management and Current Shareholders; Indemnification of
Officers and Directors." The Company will not receive any proceeds from the
sale of shares by the Selling Stockholder. Prior to this offering, there has
been no public market for the Common Stock of the Company. The Company's
Common Stock has been approved for quotation on the Nasdaq National Market
under the symbol "IMIC."
------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" COMMENCING ON PAGE 5.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDER(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................ $10.00 $0.70 $9.30 $9.30
- --------------------------------------------------------------------------------
Total(3)................. $44,000,000 $3,080,000 $29,760,000 $11,160,000
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1)See "Underwriting" for information relating to indemnification of the
Underwriters and other matters.
(2)Before deducting expenses of the offering payable by the Company, estimated
to be $1,600,000.
(3) Warburg, Pincus Investors, L.P. (together with the Selling Stockholder,
the "Selling Stockholders") has granted to the Underwriters a 30-day
option to purchase up to 660,000 additional shares of Common Stock solely
to cover over-allotments, if any. To the extent that the option is
exercised, the Underwriters will offer the additional shares at the Price
to Public shown above. If the option is exercised in full, the total Price
to Public, Underwriting Discounts and Commissions, and Proceeds to Selling
Stockholders will be $50,600,000, $3,542,000, and $17,298,000
respectively. See "Underwriting."
------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale when, as and if delivered to and accepted by them, and subject
to the right of the Underwriters to reject any order in whole or in part and
certain other conditions. It is expected that delivery of the shares of Common
Stock will be made at the offices of Alex. Brown & Sons Incorporated,
Baltimore, Maryland, on or about October 1, 1996.
Alex. Brown & Sons
INCORPORATED
UBS Securities
SoundView Financial Group, Inc.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 25, 1996
<PAGE>
IMI develops, markets, and supports client/server application software that
enables manufacturers, distributors and wholesalers to more effectively manage
the demand chain
System Ess
Demand Chain Management
[GRAPH APPEARS HERE]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
In this Prospectus, references to "krona", "kronor" and "SEK" are to Swedish
kronor, the lawful currency of the Kingdom of Sweden, and references to
"dollars" and "$" are to United States dollars.
Industri-Matematik and System ESS are trademarks of the Company. All other
trademarks or service marks appearing in this Prospectus are trademarks or
registered trademarks of the respective companies that utilize them.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including information under "Risk Factors," and Consolidated
Financial Statements and notes thereto, appearing elsewhere in this Prospectus.
IMI develops, markets, and supports client/server application software that
enables manufacturers, distributors and wholesalers to more effectively manage
the "demand chain." Demand chain management encompasses the execution of
multiple customer-centric order fulfillment processes, including order
management, distribution logistics, inventory replenishment and demand
planning. The Company's principal product, System ESS, has been designed
specifically to meet the complex or high-volume demand chain management
requirements of manufacturers, distributors and wholesalers. System ESS allows
customers to leverage the value of their existing systems by integrating with
legacy and new client/server manufacturing, planning and financial information
systems.
The Company's target customers are multinational manufacturers, distributors
and wholesalers in the consumer packaged goods, health care, electronics,
automotive parts, and industrial products sectors, as well as other high-volume
wholesalers. The Company sells and supports its products through direct sales
and support organizations in the United States, Sweden and the United Kingdom,
as well as through third party systems integrators. Current customers of IMI
include large manufacturers such as Bristol-Myers Squibb Company, Campbell Soup
Company, Canon U.S.A., Inc., Dannon Company, Inc., Eastman Kodak Company,
Kellogg Company, Matsushita Electrical Corporation of America and Unisys
Corporation, as well as several retail and wholesale distributors.
In recent years, there has been a fundamental shift in market power from
manufacturers and distributors to retailers and consumers. Historically,
manufacturers dictated the terms of trade with retailers and consumers and,
consequently, organized their businesses and utilized their information systems
primarily to increase manufacturing efficiency and output. Today, customers
increasingly are choosing suppliers based on their ability to match product
flow to actual customer demand. As a result, manufacturers and distributors are
reengineering their businesses and redirecting their information systems to
focus on satisfying customer demand through effective order fulfillment. System
ESS has been designed specifically for the sophisticated order fulfillment
requirements of manufacturers, distributors and wholesalers, enabling them to
better match product flow to actual customer demand, thereby enhancing revenue
opportunities and reducing administrative and logistics/distribution costs.
System ESS serves as an infrastructure to enable companies to implement the
"virtual enterprise" by synchronizing internal systems with external
participants in the demand chain.
System ESS is an open systems, client/server demand chain management solution
that provides full capabilities for managing and executing the entire order
fulfillment process. In addition, it provides interfaces to other complementary
applications to provide customers with an integrated solution. The Company
supports System ESS with a range of software tools developed by the Company or
by third parties and provides its customers with a full range of software
maintenance and support, training, and consulting services.
The Company's objective is to be the leading global supplier of demand chain
management software solutions to manufacturers, distributors and wholesalers.
The key elements of the Company's strategy to achieve this leading position
are: (i) to target specific vertical markets for System ESS; (ii) to expand its
worldwide sales, support, service and marketing organizations; (iii) to expand
usage of System ESS within its existing customer base; (iv) to enhance the core
functionality of System ESS; (v) to continue to integrate System ESS with
complementary products; and (vi) to establish partnerships to assist in
developing customer relationships and implementing System ESS.
3
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company............. 3,200,000 shares
Common Stock offered by the Selling Stockholder. 1,200,000 shares
Common Stock to be outstanding after the offer-
ing............................................ 27,694,253 shares(1)
Use of proceeds................................. For general corporate
purposes and working capital,
including the expansion of
the Company's sales, support,
service and marketing
organizations, and reduction
of certain indebtedness. See
"Use of Proceeds."
Nasdaq National Market symbol................... IMIC
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED APRIL 30, JULY 31,
------------------------- ----------------
1994 1995 1996 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERA-
TIONS DATA:
Total revenues................... $18,780 $27,744 $40,009 $ 4,725 $ 9,217
Gross profit..................... 7,198 10,896 19,532 939 3,943
Income (loss) from operations.... (5,063) (6,025) 1,385 (2,642) (1,592)
Net income (loss)................ (5,670) (6,388) 1,750 (2,357) (1,062)
Pro forma net income (loss) per
share(2)........................ $ 0.07 $ (0.04)
Pro forma shares used in per
share calculation(2)............ 25,223 24,502
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 1996
-----------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 282 $21,807
Working capital(4).................................... (3,412) 24,748
Total assets.......................................... 19,806 41,332
Capital lease obligations, less current portion....... 778 778
Total stockholders' equity............................ (887) 27,274
</TABLE>
- --------
(1) Based on the number of shares outstanding as of July 31, 1996. Excludes
options outstanding as of September 15, 1996 to purchase 1,209,975 shares
of Common Stock at a weighted average exercise price per share of $3.56.
(2) See Note 2 of Notes to Consolidated Financial Statements and Note 2 of
Notes to Condensed Consolidated Financial Statements for an explanation of
the determination of shares used in calculating pro forma net income per
share.
(3) Adjusted to reflect the sale of 3,200,000 shares of Common Stock offered by
the Company hereby (at an initial public offering price of $10.00 per share
and after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by the Company) and the expected
application of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Capitalization."
(4) The Company's working capital position is due, in part, to the
classification of the Company's credit facilities as short-term borrowings.
See Note 7 of Notes to Consolidated Financial Statements.
----------------
Except as otherwise indicated, all information in this Prospectus (i)
reflects the conversion of all of the Company's currently outstanding shares of
Preferred Stock into Common Stock and Class B Common Stock upon the closing of
this offering, (ii) reflects a three-for-one stock split effected in July 1996,
(iii) reflects the filing of an Amended and Restated Certificate of
Incorporation upon the closing of this offering, (iv) assumes that the
Underwriters' over-allotment option is not exercised, and (v) includes as
Common Stock 12,088,200 shares of non-voting Class B Common Stock. See
"Description of Capital Stock" and "Underwriting."
4
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
shares of Common Stock offered by this Prospectus. The discussion in this
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," as well as those discussed elsewhere in this
Prospectus.
No Assurance of Profitability; Accumulated Deficit. The Company has incurred
significant net losses at various times since its inception, including losses
of $5.7 million and $6.4 million for fiscal 1994 and 1995, respectively, and a
loss of $1.1 million for the three months ended July 31, 1996. At
July 31, 1996, the Company had an accumulated deficit of $11.9 million.
Although the Company achieved net income of $1.8 million for the year ended
April 30, 1996, there can be no assurance that the Company will continue to be
profitable in any future period and recent operating results should not be
considered indicative of future financial performance. The Company plans to
increase expenditures in order to fund the continued expansion of its
worldwide operations, including greater levels of product development and
larger and more geographically dispersed sales, support, service and marketing
organizations. Although the Company believes such expenditures ultimately will
improve the Company's operating results, to the extent such expenditures are
incurred and revenues do not correspondingly increase, the Company's operating
results will be materially and adversely affected. Future operating results
will depend on many factors, including the growth of the demand chain
management software market, market acceptance of System ESS or enhanced
versions thereof, competition, the success of the Company's expansion of its
sales, support, service and marketing organizations, general economic
conditions and other factors. No assurance can be given that the Company will
be profitable in future periods. See "Selected Consolidated Financial Data"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Significant Fluctuations in Quarterly Operating Results and Seasonality;
Potential Quarterly Losses. The Company has experienced, and expects to
continue to experience, significant fluctuations in quarterly operating
results that may be caused by many factors, including, among others: the size
and timing of orders for the Company's products; the lengthy sales and
implementation cycle for the Company's products, and delays in the
implementation process; introduction or enhancement of products by the Company
or its competitors; changes in pricing policy of the Company or its
competitors; increased competition; technological changes in computer systems
and environments; the ability of the Company to timely develop, introduce and
market new products and new versions of existing products; quality control of
products sold; market readiness to deploy demand chain management products for
distributed computing environments; market acceptance of new products and
product enhancements; seasonality of revenue; customer order deferrals in
anticipation of new products and product enhancements; the Company's success
in expanding its sales, support, service and marketing organizations;
personnel changes; fluctuations in foreign currency exchange rates; mix of
licence and service and maintenance revenues and general economic conditions.
Because a significant portion of the Company's revenues has been, and the
Company believes will continue to be, derived from large orders, the timing of
orders and their fulfillment has caused, and is expected to continue to cause,
material fluctuations in the Company's operating results, particularly on a
quarterly basis. In addition, the Company intends to continue to expand its
direct sales force, and the timing of such expansion and the rate at which new
sales people become productive could also cause material fluctuations in the
Company's quarterly operating results. As a result of these and other factors,
the Company believes that period-to-period quarterly comparisons of its
results of operations are not necessarily meaningful and should not be relied
upon as indications of future performance.
5
<PAGE>
The Company's quarterly operating results are also subject to certain
seasonal fluctuations. The Company's revenues, particularly its license
revenues, are typically strongest in its third and fourth fiscal quarters
ended January 31 and April 30, respectively, and weakest in its first and
second fiscal quarters ended July 31 and October 31, respectively. The
Company's revenues and operating results in its third fiscal quarter typically
benefit from purchase decisions made by the large concentration of customers
with calendar year-end budgeting rules, while revenues and operating results
in its fourth fiscal quarter typically benefit from the efforts of the
Company's sales force to meet fiscal year-end sales quotas. Like many
enterprise application software vendors with large average order sizes, the
Company's revenues and operating results are typically lower in its first and
second fiscal quarters, as the Company's sales force initiates sales activity
directed to achieving fiscal year-end goals. In addition, the Company's first
and second fiscal quarters include the months of July and August, when both
sales and billable customer services activity, as well as customer purchase
decisions, are reduced, particularly in Europe, due to summer vacation
schedules. As a result of these seasonal factors, the Company historically has
experienced operating losses in its first and/or second fiscal quarters and
may continue to experience losses in such quarters in the future.
The Company's future quarterly revenues are difficult to forecast in part
because the demand chain management software market is an emerging market that
is subject to rapid change. Further, because the Company generally ships
software products within a short period after receipt of an order, it
typically does not have a material backlog of unfulfilled orders. License
revenues in any quarter are substantially dependent on orders booked and
shipped in that quarter and cannot be predicted with any degree of certainty.
In addition, the Company typically recognizes a significant portion of license
revenue in the last two weeks of a quarter. Any significant shortfall of
license revenues in relation to the Company's expectations or any material
delay of customer orders would have an immediate adverse effect on its
business, operating results and financial condition. Due to the foregoing
factors, it is possible that in future periods the Company's revenues and thus
its operating results may be below the expectations of public market analysts
and investors. In such event, the price of the Company's Common Stock could be
materially and adversely affected. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Quarterly Financial
Results."
Lengthy Sales and Implementation Cycle; Increasing Size of Orders. The sale
and implementation of the Company's products generally involves a significant
commitment of resources by prospective customers. During fiscal 1996, license
fees for System ESS generally ranged from $0.5 million to $3.0 million, and
averaged $1.5 million. The Company expects that license fees will continue to
increase in size and the implementation of the Company's products will become
more complex as System ESS is used to manage larger and more geographically
dispersed installations. As a result, the Company's sales process often is
subject to delays associated with lengthy approval processes attendant to
significant capital expenditures. For these and other reasons, the sales cycle
associated with the license of the Company's products varies substantially
from customer to customer and typically lasts between six and 12 months,
during which time the Company may devote significant time and resources to a
prospective customer, including costs associated with multiple site visits,
product demonstrations and feasibility studies, and experience a number of
significant delays over which the Company has no control. Any significant or
ongoing failure by the Company to ultimately achieve such sales could have a
material adverse effect on the Company's business, operating results and
financial condition. In addition, following license sales, the implementation
of System ESS typically involves six to 12 months for customer training and
integration of System ESS with the customer's other existing systems. The
Company may provide such post delivery implementation services pursuant to a
separate service agreement. A successful implementation requires a close
working relationship between the Company, the customer and, generally, third
party consultants and systems integrators who assist in the process. There can
be no assurance that delays in the implementation process of System ESS for
any given customer will not have a material adverse effect on the Company's
business, operating results and financial condition. See "Managements
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business--Products and Services" and "--Sales and Marketing."
6
<PAGE>
Dependence upon Successful Expansion of Sales, Support, Service and
Marketing Organizations. The Company's future success depends upon the
successful expansion of its sales, support, service and marketing
organizations and its ability to establish indirect distribution channels,
including resellers, systems solution vendors, application software vendors
and systems integrators. The Company currently plans to increase significantly
its expenditures, to expand its direct sales force in the United States,
Europe and Asia Pacific and elsewhere, to develop additional indirect
distribution channels and to expand significantly its customer service and
support organizations which are required to support increased license sales.
Although the Company believes that such expenditures ultimately will improve
the Company's operating results, to the extent such expenditures are incurred
and revenues do not correspondingly increase, the Company's operating results
will be materially and adversely affected. Further, if the Company is unable
to expand its sales, support, service and marketing organizations and develop
additional distribution channels on a timely basis, the Company's business,
operating results and financial condition could be materially and adversely
affected. See "Business--Sales and Marketing."
Risks Associated with Expanding United States Operations; Implementation
Risks. In fiscal 1995 the Company commenced a major investment program in the
United States, establishing a management team and increasing the number of
sales, support, service and marketing personnel in the United States, which
grew from 37 people at April 30, 1995 to 70 people at July 31, 1996, and which
is expected to continue to grow substantially in the remainder of fiscal 1997.
Due to the lengthy sales and implementation cycles of System ESS, such
investment program has resulted to date in a limited number of fully
operational installations of its System ESS products at customer sites in the
United States, and therefore only a limited number of reference customers in
the United States. The Company recently entered into major license agreements
with several United States customers, including Kellogg Company, Canon U.S.A.,
Inc. and Hormel Foods Corporation, many of which are continuing to implement
the Company's products, and some of these customers are only in the early
stage of implementation. If the Company were to experience significant
implementation problems at these or other customer sites, it could
significantly and adversely impact future sales and operating results. In
addition, in order to support the anticipated growth of the Company's business
in the United States market, the Company is incurring significant costs to
build a corporate infrastructure ahead of anticipated revenues. This includes
developing experienced resources, through both internal hiring and
establishing relationships with third party implementation providers, which
are necessary to support customer installations of System ESS and provide
other customer services. Most of the Company's senior management and customer
service and support, product development and finance and administration
personnel and related activities are located in Sweden. As a result of this
expansion in the United States, the Company, particularly its Swedish-based
management team, must continue to implement and improve its operational and
financial control systems and expand, train and manage its employee base and
relationships with third party implementation services. These factors have
placed, and are expected to continue to place, a significant strain on the
Company's management and operations. There can be no assurance that the
Company's United States operations will be successful or that the Company will
be able to manage effectively an increased level of operations in the United
States. Any lack of success in the United States market or inability to manage
these activities effectively could have a material adverse effect on the
Company's business, operating results and financial condition. See "Business--
Sales and Marketing."
Risks Associated with Multinational Operations. The Company's products
currently are marketed in the United States, Sweden, the United Kingdom and
approximately 15 other countries world-wide. During fiscal 1996, approximately
66% of the Company's total revenues were derived from sales outside of Sweden,
principally in the United States and, to a lesser extent, the United Kingdom,
and the Company expects that sales in the United States, the United Kingdom
other European countries, Asia Pacific and elsewhere outside of Sweden will
continue to be significant in the future as the Company expands the
implementation of its products across multinational companies. Such
international expansion may require that the Company establish additional
offices and hire additional personnel outside Sweden and recruit additional
international resellers. This may require significant management attention and
financial resources and could adversely affect the Company's operating margins
and ability to achieve and sustain profitability. To the extent the Company is
unable to effect these additions efficiently and in a timely manner, its
growth, if any, in
7
<PAGE>
international sales will be limited, and the Company's business, operating
results and financial condition could be materially and adversely affected.
Further, the Company intends to expand its international operations by
increasing the number of direct customer support personnel in existing markets
and additional international markets. Accordingly, the Company's business, and
its ability to expand its operations internationally, is subject to risks
inherent in international business activities, including, in particular,
general economic conditions in each country, foreign currency exchange rate
fluctuations, overlap of different tax structures, management of an
organization spread over various countries, unexpected changes in regulatory
requirements, compliance with a variety of foreign laws and regulations, and
longer accounts receivables payment cycles in certain countries. Other risks
associated with international operations include import and export licensing
requirements, trade restrictions and changes in tariff rates. There can be no
assurance that any of the foregoing factors will not have a material adverse
effect on the Company's ability to expand its international operations and, in
general, its business, operating results and financial condition. See
"Exchange Rates" and "Business--Sales and Marketing."
Management of Growth. The Company currently is experiencing a period of
rapid growth that has placed and is expected to continue to place a strain on
the Company's administrative, financial and operational resources. The Company
increased the size of its direct sales force from 18 people at April 30, 1995
to 31 people at July 31, 1996 and the number of customer service and support
personnel from 131 people at April 30, 1995 to 177 people at July 31, 1996.
The Company plans to continue to expand internationally and to continue to
increase the number of its sales, support, service and marketing and customer
support personnel significantly in the remainder of fiscal 1997, which planned
expansion, if achieved, would place a further strain on the Company's
resources and increase operating costs. The Company's ability to manage its
staff and growth effectively will require it to continue to improve its
operations, financial and management controls, reporting systems and
procedures, to train, motivate and manage its employees and, as required,
install new management information and control systems. There can be no
assurance that the Company will implement improvements to such management
information and control systems in an efficient and timely manner or that, if
implemented, such improved systems will be adequate to support the Company's
operations. Any inability of the Company to successfully manage future
expansion, if any, could have a material adverse effect on the Company's
business, financial condition or operating results.
Dependence on and Need to Hire Additional Personnel in All Areas. The
Company's future performance depends in part upon the continued service of its
key members of management, as well as sales, support, service and marketing
and product development personnel. The Company does not have, and does not
intend to obtain, key man life insurance on any of its executive management
personnel. The loss of one or more of the Company's key personnel could have a
material adverse effect on the Company's business, operating results and
financial condition. The Company believes its future success will depend in
part upon its ability to attract and retain highly skilled management, sales,
support, service and marketing and product development personnel. Competition
for such personnel is intense, and there can be no assurance that the Company
will be able to retain its key employees or that it will be successful in
attracting, assimilating and retaining such personnel in the future. Failure
to attract, assimilate and retain key personnel could have a material adverse
effect on the Company's business, operating results and financial condition.
See "Business--Employees" and "Management--Executive Officers and Directors."
Reliance on and Need to Develop Additional Relationships with Third
Parties. The Company relies on informal arrangements with a number of
consulting and systems integration firms to enhance its sales, support,
service and marketing efforts, particularly with respect to implementation and
support of its products as well as lead generation and assistance in the sale
process. Such firms include Computer Sciences Corporation, Computer Task Group
Limited and SHL Systemshouse, Inc. in the United States and Hoskyns Group plc,
Unisys Norge A/S and ECsoft Group plc in Europe. The Company expects to
continue to rely significantly upon such third parties for marketing and
sales, lead generation, product implementation, customer support services and
end user training. The Company will need to expand its relationships with
these parties and enter into relationships with additional third parties in
order to support revenue growth. Many such firms have similar, and often more
established, relationships with the Company's principal competitors. There can
be no assurance that these and other third parties will
8
<PAGE>
provide the level and quality of service required to meet the needs of the
Company's customers, that the Company will be able to maintain an effective,
long term relationship with such third parties, or that such third parties
will continue to meet the needs of the Company's customers. If the Company is
unable to develop and maintain effective relationships with these and other
third parties, or if such parties fail to meet the needs of the Company's
customers, the Company's business, operating results and financial condition
could be adversely affected. Further, there can be no assurance that these
third party implementation providers, many of which have significantly greater
financial, technical, personnel and marketing resources than the Company, will
not market software products in competition with the Company in the future or
will not otherwise reduce or discontinue their relationships with or support
of the Company and its products. See "Business--Products and Services" and "--
Sales and Marketing."
Relationship with Oracle Corporation. The Company has an informal joint
marketing and sales arrangement with Oracle Corporation ("Oracle") pursuant to
which the two companies jointly market to potential customers in the consumer
packaged goods market. Pursuant to this arrangement, the Company pays to
Oracle a percentage of the Company's license revenue from customers in the
consumer packaged goods market to whom licenses are jointly marketed by Oracle
and the Company. This fee is not payable with respect to certain specified
customers or potential customers with whom the Company has had previous
contact. For the fiscal year ended April 30, 1996, 58% of the Company's
license revenues and 24% of the Company's total revenues was derived from six
customers introduced to the Company by Oracle pursuant to this arrangement.
Because the Company does not have a formal written agreement with Oracle,
neither party is legally bound to maintain the arrangement on its current
terms, or at all. As such, the Company's operating results depend to a large
extent upon the effectiveness of Oracle's efforts under such arrangement,
which the Company cannot control. Accordingly, there can be no assurance that
Oracle will not market software products (including software applications
developed by Oracle) in competition with the Company either currently or in
the future or that Oracle will not otherwise curtail or discontinue its
relationship with the Company or cease recommending the Company and its
products to potential customers, any of which could have a material adverse
effect on the business, operating results and financial condition of the
Company. The Company believes that its relationship with Oracle is beneficial
to the Company, and the parties have commenced discussions concerning the
formalization of their relationship in a written contract. The Company
anticipates that, if concluded, such written contract may provide for Oracle
to receive, in certain geographic markets, a higher proportion of license
revenue from System ESS if Oracle's responsibility for sales and marketing
activities in such geographic markets increases. The Company intends to limit
such arrangement, if formalized, to the consumer packaged goods market, in
which Oracle would market System ESS as part of a suite of Oracle and other
third party applications. There can be no assurance that the Company will
successfully conclude a formal agreement with Oracle or that such formal
agreement, if concluded, will be on terms favorable to the Company. See
"Business--Sales and Marketing."
Competition. The Company's products are targeted at the emerging market for
demand chain management software products, which is intensely competitive and
characterized by rapid technological change. The Company's competitors are
diverse and offer a variety of solutions directed at various segments of the
supply and demand chain as well as the enterprise as a whole. These
competitors include (i) enterprise application software vendors, such as SAP
AG ("SAP"), which currently offer sophisticated client/server enterprise
resource planning ("ERP") solutions, (ii) companies offering standardized or
customized products on mainframe and/or mid-range computer systems, (iii)
internal development efforts by corporate information technology departments,
(iv) smaller independent companies which have developed or are attempting to
develop advanced logistics and execution software which complement or compete
with the Company's software solutions and (v) other business application
software vendors who may broaden their product offerings by internally
developing, or by acquiring or partnering with independent developers of,
advanced logistics and execution software. In connection with specific
customer evaluations, certain ERP and other application software vendors have
from time to time jointly marketed the Company's products as a complement to
their own systems. To the extent such vendors develop or acquire systems with
functionality comparable or superior to System ESS, their significant
9
<PAGE>
installed customer base, long-standing customer relationships and ability to
offer a broader solution could provide a significant competitive advantage
over the Company. In addition, many of the Company's competitors have longer
operating histories, significantly greater financial, technical, marketing and
other resources, greater name recognition and a larger installed base of
customers than the Company. In order to be successful in the future, the
Company must continue to respond promptly and effectively to the challenges of
technological change and competitors' innovations. The Company's competitors
may be able to respond more quickly to new or emerging technologies and
changes in customer requirements or devote greater resources to the
development, promotion and sale of their products than the Company. The
Company also expects to face additional competition as other established and
emerging companies enter the market for order fulfillment software and new
products and technologies are introduced. In addition, current and potential
competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with third parties, thereby increasing the
ability of their products to address the needs of the Company's prospective
customers. Accordingly, it is possible that new competitors or alliances among
current and new competitors may emerge and rapidly gain significant market
share, resulting in price reductions, fewer customer orders and reduced gross
margins, any one of which could materially adversely affect the Company's
business, operating results and financial condition. There can be no assurance
that the Company will be able to compete successfully with existing or new
competitors or that competition will not have a material adverse effect on the
Company's business, operating results and financial condition. See "Business--
Competition."
Dependence on Principal Product. The Company derived approximately 68%, 74%
and 84% of its total revenues in fiscal 1994, 1995 and 1996, respectively,
from the licensing of the Company's System ESS software and providing
complementary services. License and service and maintenance revenues related
to System ESS are expected to continue to represent a significant percentage
of the Company's revenues in the future. The Company's success depends on
continued market acceptance of System ESS software and services as well as the
Company's ability to introduce new versions of System ESS or other products to
meet the evolving needs of its customers. There can be no assurance that
System ESS will continue to achieve market acceptance or that the Company will
introduce enhanced versions of System ESS on a timely basis, or at all, to
meet the evolving needs of its customers. Any reduction in demand for System
ESS, increased competition in the market for demand chain management software,
technological change or other factors could have a material adverse effect on
the Company's business, operating results and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Products and Services."
Dependence on Emerging Market for Demand Chain Management Software. The
Company currently derives, and is expected to continue to derive,
substantially all of its revenues from licenses and services related to System
ESS, a client/server demand chain management software product. Although demand
for System ESS has grown in recent periods, the market for enterprise-wide
management software in general, and for demand chain management software in
particular, is still emerging and there can be no assurance that it will
continue to grow or that, even if the market does grow, businesses will
continue to adopt System ESS. The Company has spent, and intends to continue
to spend, considerable resources educating potential customers generally about
demand chain management, about the need for order fulfillment software
solutions and specifically about System ESS. However, there can be no
assurance that such expenditures will enable System ESS to achieve any
additional degree of market acceptance. If the demand chain management
software market fails to grow or grows more slowly than the Company currently
anticipates, the Company's business, operating results and financial condition
could be materially and adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--
Products and Services."
Rapid Technological Change and Requirement for Frequent Product
Transitions. The market for the Company's products is characterized by rapid
technological developments, evolving industry standards and rapid changes in
customer requirements. The introduction of products embodying new
technologies, the emergence of new industry standards or changes in customer
requirements could render the
10
<PAGE>
Company's existing products obsolete and unmarketable. As a result, the
Company's success depends upon its ability to continue to enhance existing
products, respond to changing customer requirements and develop and introduce
in a timely manner new or enhanced products that keep pace with technological
developments and emerging industry standards. Customer requirements include,
but are not limited to, operability across distributed and changing
heterogeneous hardware platforms, operating systems, relational databases and
networks. The System ESS client operates on Windows 3.1, Windows 95 and
Windows NT platforms. System ESS provides support for six languages. System
ESS can currently operate on server platforms for Hewlett-Packard Corporation,
IBM, Digital Equipment Corporation and Sequent Corporation. The Company to
enhance its System ESS products to operate on such platforms in order to meet
these customers' requirements. The Company is currently developing a new
version of System ESS that operates on a Windows NT server platform, supports
Internet-based electronic commerce and supports five additional languages,
which the Company currently plans to introduce during the quarter ending April
30, 1997. However, there can be no assurances that the Company will be
successful in developing this enhanced version of System ESS or new products
on a timely basis, or that such enhancements or new products, when introduced,
will achieve market acceptance or will adequately address the changing needs
of the marketplace. If the Company is unable to develop and introduce new
products, or enhancements to existing products, in a timely manner in response
to changing market conditions or customer requirements, the Company's
business, operating results and financial condition could be materially and
adversely affected. See "Business--Product Development."
Risk of Software Defects. Software products as complex as those offered by
the Company frequently contain errors or defects, especially when first
introduced or when new versions or enhancements are released. Despite product
testing, the Company has in the past released products with defects,
discovered software errors in certain of its new versions after introduction
and experienced delays or lost revenue during the period required to correct
these errors. The Company regularly introduces new releases and periodically
introduces new versions of System ESS. There can be no assurance that, despite
testing by the Company and by its customers, defects and errors will not be
found in existing products or in new products, releases, versions or
enhancements after commencement of commercial shipments. Any such defects and
errors could result in adverse customer reactions, negative publicity
regarding the Company and its products, harm to the Company's reputation, loss
of or delay in market acceptance or require product changes, any of which
could have a material adverse effect upon the Company's business, operating
results and financial condition. See "Business--Products and Services."
Product Liability. The Company's license agreements with customers typically
contain provisions designed to limit the Company's exposure to potential
product liability claims. The limitation of liability provisions contained in
such license agreement may not be effective. The Company's products are
generally used to manage data critical to large organizations, and, as a
result, the sale and support of products by the Company may entail the risk of
product liability claims. A successful liability claim brought against the
Company could have a material adverse effect upon the Company's business,
operating results and financial condition. See "Business--Products and
Services."
Dependence on Proprietary Technology; Risks of Infringement. The Company's
success depends, in part, upon the protection of its proprietary technology.
The Company relies on a combination of copyright, trademark and trade secret
laws, confidentiality procedures, and license arrangements to establish and
protect its proprietary rights. As part of its confidentiality procedures, the
Company licenses its software pursuant to signed license agreements that
impose restrictions on the licensee's ability to utilize the software and
generally enters into non-disclosure agreements with its employees,
distributors and corporate partners, and limits access to and distribution of
its software, documentation and other proprietary information. Despite these
precautions, it may be possible for a third party to copy the Company's. In
addition, the laws of certain countries do not protect the Company's
proprietary rights to the same extent as do the laws of the United States or
Sweden. Accordingly, products or otherwise obtain and use the Company's
proprietary technology without authorization. There can be no assurance that
the Company's protection of its proprietary rights will be adequate or that
the Company's competitors will not independently develop similar technology or
duplicate illegally the Company's products.
11
<PAGE>
The Company is not aware that any of its products infringe the proprietary
rights of third parties. There can be no assurance, however, that third
parties will not claim such infringement by the Company with respect to
current or future products. The Company expects that software product
developers increasingly will be subject to such claims as the number of
products and competitors in the Company's industry segment grows and the
functionality of products in the industry segment overlaps. Any such claims,
with or without merit, could result in costly litigation that could absorb
significant management time, which could have a material adverse effect on the
Company's business, operating results and financial condition. Such claims
might require the Company to enter into royalty or license agreements. Such
royalty or license agreements, if required, may not be available on terms
acceptable to the Company or at all, which could have a material adverse
effect upon the Company's business, operating results and financial condition.
See "Business--Proprietary Rights."
Exposure to Currency Fluctuations. A significant portion of the Company's
business is conducted in currencies other than the U.S. dollar (the currency
in which its financial statements are stated), primarily the Swedish krona
and, to a lesser extent, the U.K. pound sterling. The Company incurs a
significant portion of its expenses in Swedish kronor, including all of its
product development expenses and a substantial portion of its general and
administrative expenses. As a result, appreciation of the value of the Swedish
krona relative to the other currencies in which the Company generates
revenues, particularly the U.S. dollar, could adversely affect operating
results. The financial statements of the Company are translated from the
functional currency of the operating subsidiaries into U.S. dollars, the
Company's reporting currency, utilizing the current rate method. Accordingly,
assets and liabilities are translated at exchange rates in effect at the end
of the reporting period, and revenues and expenses are translated at the
average exchange rate during the period. All translation gains or losses from
the translation into the Company's reporting currency are included as a
separate component of stockholders' equity. Fluctuations in the Swedish krona
and other currencies relative to the U.S. dollar will effect period to period
comparison of the Company's reported results of operations. Due to the
constantly changing currency exposures and the volatility of currency exchange
rates, there can be no assurance that the Company will not experience currency
losses in the future, nor can the Company predict the effect of exchange rate
fluctuations upon future operating results . The Company does not currently
undertake hedging transactions and has limited lines of credit to cover its
currency exposure. The Company may choose to hedge a portion of its currency
exposure in the future as it deems appropriate. For additional information
regarding the effects of currency fluctuations on the Company's results, see
"Exchange Rates" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Uncertainty of Realizability of Deferred Tax Asset. At July 31, 1996, the
Company had approximately $6.0 million of gross deferred tax assets comprised
primarily of net operating loss carryforwards in Sweden. Such net operating
loss carryforwards are available for an indefinite period of time. The Company
believes that, based upon a number of factors, the available objective
evidence creates sufficient uncertainty regarding the realizability of the
deferred tax asset such that a valuation allowance has been recorded. These
factors include the Company's history of net losses, the Company's limited
profitability in recent periods, the fact that the market in which the Company
competes is intensely competitive and characterized by rapidly changing
technology, and the uncertainty regarding market acceptance of new versions of
the Company's System ESS. Accordingly, the Company has recorded a valuation
allowance with respect to a portion of such deferred tax asset. The Company
will continue to assess the realizability of the deferred tax assets based
upon actual and forecasted operating results. Estimated future earnings
necessary to fully realize the net deferred tax asset are $9.5 million. Such
earnings are currently forecasted to be realized within approximately three
years. There can be no assurance that future earnings, if any, will meet
currently forecasted levels, however it is management's opinion that the
realization of such earnings in the future is more likely than not. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Holding Company Structure. All of the operations of the Company are and will
be conducted through direct and indirect subsidiaries. The Company's cash flow
will depend upon the operating results
12
<PAGE>
and cash flow of its subsidiaries and the payment of funds by those
subsidiaries to the Company in the form of loans, dividends or otherwise. The
subsidiaries are separate and distinct legal entities and have no obligation,
contingent or otherwise, to make funds available to the Company, whether in
the form of loans, dividends or otherwise. Applicable law in certain countries
may limit the ability of a subsidiary to pay dividends in the absence of
sufficient distributable reserves or for other reasons. The Company's Swedish,
United Kingdom and United States subsidiaries are not subject to any current
exchange controls. However, future exchange controls in these counties, or the
existence of such controls in other countries in which the Company establishes
subsidiaries could limit or restrict the ability of the Company to obtain
loans, dividends or otherwise access financial resources in such subsidiary.
In addition, the Company's subsidiaries may from time to time in the future
become parties to financing arrangements which may contain limitations on the
ability of such subsidiaries to pay dividends or to make loans or advances to
the Company. In the event of any insolvency, bankruptcy or similar
proceedings, creditors of the subsidiaries would generally be entitled to
priority over the stockholders of the Company with respect to assets of the
affected subsidiary. See "The Company," "Dividend Policy" and "Certain
Transactions."
No Prior Public Market; Determination of Public Offering Price; Possible
Volatility of Stock Price. Prior to this offering, there has been no public
market for shares of the Common Stock, and there can be no assurance that an
active public trading market will develop following completion of this
offering or, if developed, that such market will be sustained. The initial
public offering price of the shares of Common Stock has been determined by
negotiation between the Company, the Selling Stockholders and the
Representatives of the Underwriters and will not necessarily reflect the
market price of the Common Stock following this offering. See "Underwriting"
for a discussion of the factors to be considered in determining the initial
public offering price.
The market price for the Common Stock following this offering will be
affected by a number of factors, including the announcement of new products or
product enhancements by the Company or its competitors, quarterly variations
in the Company's results of operations or results of operations of its
competitors or companies in related industries, changes in earnings or revenue
estimates or recommendations by securities analysts, developments in the
Company's industry, general market conditions and other factors, including
factors unrelated to the operating performance of the Company or its
competitors. In addition, stock prices for many companies in the technology
and emerging growth sectors have experienced wide fluctuations that have often
been unrelated to the operating performance of such companies. Such factors
and fluctuations, as well as general economic, political and market
conditions, such as recessions, could materially and adversely affect the
market price of the Company's Common Stock.
Control by Management and Current Stockholders; Indemnification of Officers
and Directors. Following completion of this offering, the Company's executive
officers and directors, and their affiliates, in the aggregate, will own
beneficially 70.4% of the Company's Common Stock outstanding with full voting
rights and will own beneficially 83.3% of the Company's outstanding Common
Stock. In particular, Warburg, Pincus Investors, L.P. ("Warburg") will own
beneficially 44.1% of the Company's Common Stock outstanding with full voting
rights and will own beneficially 68.5% of the Company's outstanding Common
Stock. As a result, Warburg will be able to exercise significant influence
over all matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. The voting power
of Warburg and the Company's officers and directors under certain
circumstances could have the effect of delaying, deferring or preventing a
change in control of the Company, and making certain transactions more
difficult or impossible absent the support of such stockholders, including
proxy contests, mergers involving the Company, tender offers, open-market
purchase programs or other purchases of Common Stock that could give
stockholders of the Company the opportunity to realize a premium over the then
prevailing market price for shares of Common Stock. The Company has entered
into agreements with its officers and directors indemnifying them against
losses they may incur in legal proceedings arising from their service to the
Company. See "Principal and Selling Stockholders" and "Description of Capital
Stock."
13
<PAGE>
Effect of Certain Charter Provisions; Antitakeover Effects of the Company's
Charter, Bylaws and Delaware Law. The Company's Board of Directors has the
authority to issue up to 15,000,000 shares of Preferred Stock and to determine
the price, preferences, privileges and restrictions, including voting rights,
of those shares without any further vote or action by the stockholders. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be
issued in the future. The issuance of Preferred Stock could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. In addition, the Company is subject
to the antitakeover provisions of Section 203 of the Delaware General
Corporation Law (the "GCL"), which prohibits the Company from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. The application of Section 203 also could have the effect
of delaying, deferring or preventing a change of control of the Company.
Further, certain provisions of the Company's Certificate of Incorporation and
Bylaws may have the effect of discouraging, delaying or preventing a merger,
tender offer or proxy contest involving the Company, which could adversely
affect the market price of the Company's Common Stock. See "Description of
Capital Stock--Preferred Stock" and "--Antitakeover Effects of Provisions of
the Certificate of Incorporation, Bylaws and Delaware Law."
Shares Eligible for Future Sale; Registration Rights. Sales of a substantial
number of shares of Common Stock in the public market following this offering
could adversely affect the market price for the Company's Common Stock. The
holders of shares of the Common Stock are subject to restrictions upon resale
in the public market under the Securities Act of 1933, as amended (the
"Securities Act"), and restrictions in lock-up agreements under which each
director, executive officer and stockholder has agreed not to sell or
otherwise dispose of any of their shares for a period of 180 days after the
effective date of this offering without the prior written consent of Alex.
Brown & Sons Incorporated. Following completion of this offering, the
4,400,000 shares offered hereby will be eligible for sale without restriction.
The 23,294,253 remaining shares held by existing stockholders will be eligible
for sale pursuant to Rule 144 under the Securities Act upon the expiration of
their respective two-year holding periods, subject to the volume, manner of
sale and other limitations of Rule 144. In addition, the Company intends to
register pursuant to a registration statement on Form S-8/S-3 1,209,975 shares
of Common Stock subject to outstanding options and 1,790,025 shares reserved
for future issuance under the Company's Stock Option Plan and 1,256,985 shares
issued under the Restricted Stock Program. Such shares of Common Stock (to the
extent issued) will be eligible for sale upon expiration of the lock-up
agreements, subject to vesting and exercisability restrictions. The lock-up
agreements may be waived by Alex. Brown and Sons Incorporated in its sole
discretion at any time without notice. Furthermore, all 22,037,268 shares of
Common Stock held in the aggregate by the Selling Stockholders will be
entitled to certain registration rights. If such holders, by exercising their
registration rights, cause a large number of shares to be registered and sold
in the public market, the sale of such shares could have a material adverse
effect on the market price for the Company's Common Stock and could materially
adversely affect the Company's ability to raise additional capital when or if
required. See "Shares Eligible for Future Sale."
Immediate and Substantial Dilution. The initial public offering price is
substantially higher than the book value per share of Common Stock. Investors
purchasing shares of Common Stock in this offering will experience immediate
and substantial dilution in net tangible book value of $9.11 per share. The
Company has issued options at prices significantly below the public offering
price. To the extent outstanding options to purchase share of Common Stock are
exercised, there will be further dilution in net tangible book value. See
"Dilution."
Enforceability of U.S. Judgments against Non-U.S. Officers and Directors. A
substantial portion of the Company's assets are located outside the United
States. In addition, members of the Board of Directors of the Company and
certain experts named herein are residents of countries other than the United
States.
14
<PAGE>
As a result, it may not be possible for investors to effect service of process
within the United States upon such persons or to enforce against such persons
judgments of courts of the United States predicated upon civil liabilities
under the United States federal securities laws. There can be no assurance
that United States investors will be able to enforce against the members of
the Board of Directors or certain experts named herein who are residents of
Sweden or countries other than the United States, any judgments in civil and
commercial matters, including judgments under the federal securities laws. In
addition, there is doubt as to whether a Swedish court would impose civil
liability on the members of the Board of Directors of the Company in an
original action predicated solely upon the federal securities laws of the
United States brought in a court of competent jurisdiction in Sweden against
the Company or such members.
Significant Unallocated Net Proceeds. The Company has not yet identified
specific uses for the substantial majority of the net proceeds to be received
by it from this offering, and pending such uses, the Company expects to invest
such net proceeds in investment grade, short-term, interest-bearing debt
securities. The Company will have discretion over the use and investment of
such proceeds. See "Use of Proceeds."
15
<PAGE>
THE COMPANY
The Company was incorporated in the State of Delaware in 1995 and conducts
its business through its domestic and international subsidiaries. The
Company's business was founded in 1967 and incorporated in Sweden as Industri-
Matematik AB ("IMAB"). In May 1995, the then shareholders of IMAB exchanged
all of their IMAB shares for shares of the Company's capital stock and IMAB
became a wholly-owned subsidiary of the Company. See "Certain Transactions."
Unless the context otherwise requires, references in this Prospectus to the
"Company" refer to IMI, its predecessors and its subsidiaries. The Company's
principal executive offices are located at Kungsgatan 12-14, Box 7733, 103 95
Stockholm, Sweden, telephone number (46) (8) 676-5000 and its principal U.S.
office is located at Five Greentree Center, Suite 201, Marlton, New Jersey
08053, telephone number (1) (609) 988-3922.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,200,000 shares of
Common Stock being offered by the Company are estimated to be $28.2 million,
after deducting estimated underwriting discounts and commissions and offering
expenses payable by the Company. The principal purposes of this offering are
to obtain additional working capital, establish a public market for the
Company's Common Stock and facilitate future access by the Company to the
public capital markets. The Company expects to use $6.6 million of the net
proceeds to repay a substantial portion of the outstanding principal
indebtedness, plus accrued interest thereon, under the Company's bank lines of
credit. The balance of the net proceeds will be used for working capital and
general corporate purposes, including the expansion of its sales, support,
service and marketing organizations. The Company may also use a portion of the
net proceeds to fund acquisitions of complementary technologies, products or
businesses, although there are no current agreements or negotiations with
respect to any such transaction. Pending such uses, the Company currently
plans to invest the net proceeds in investment grade, short-term, interest-
bearing debt securities. The Company will not receive any proceeds from the
sale of Common Stock by either of the Selling Stockholders.
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Common Stock and
does not intend to do so in the foreseeable future. It is the present
intention of the Company to retain any future earnings to provide funds for
the operation and expansion of its business. In addition, the payment of
dividends is restricted under the terms of the Company's existing credit
facilities. The Swedish Company Act imposes certain limitations on the ability
of IMAB to pay dividends to the Company. See "Risk Factors--Holding Company
Structure."
16
<PAGE>
CAPITALIZATION
The following table sets forth as of July 31, 1996 (i) the actual
capitalization of the Company, (ii) the capitalization of the Company on a pro
forma basis giving effect to the conversion of all outstanding shares of
Preferred Stock into Common Stock and Class B Common Stock, and (iii) the
capitalization of the Company as adjusted to reflect the sale of the 3,200,000
shares of Common Stock offered by the Company hereby (at an initial offering
price of $10.00 per share and after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company and the
expected application of the estimated net proceeds therefrom). See "Use of
Proceeds."
<TABLE>
<CAPTION>
JULY 31, 1996
--------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term borrowings and current portion of
capital lease obligations (1)(2).............. $ 6,985 $ 6,985 $ 350
======== ======== ========
Capital lease obligations, less current portion
(1)........................................... $ 778 $ 778 $ 778
Stockholders' equity:
Preferred Stock; $.01 par value; 15,000,000
shares authorized; 14,630,250 shares issued
and outstanding (pro forma and as adjusted:
no shares outstanding)...................... 146 -- --
Common Stock; voting, $.01 par value;
62,500,000 shares authorized; 9,480,003
shares issued and outstanding
(pro forma and as adjusted: 12,406,053 and
15,606,053 shares issued and outstanding)
(3)......................................... 94 124 156
Class B Common Stock; non-voting, $.01 par
value; 12,500,000 shares authorized; 384,000
shares issued and outstanding (pro forma and
as adjusted: 12,088,200 shares issued and
outstanding)................................ 4 120 120
Additional paid-in capital..................... 15,323 15,323 43,452
Accumulated deficit............................ (11,932) (11,932) (11,932)
Cumulative translation adjustment.............. (1,896) (1,896) (1,896)
Notes receivable from stockholders............. (2,626) (2,626) (2,626)
-------- -------- --------
Total stockholders' equity ................ (887) (887) 27,274
-------- -------- --------
Total capitalization .................... $ (109) $ (109) $ 28,052
======== ======== ========
</TABLE>
- --------
(1) See Note 11 of Notes to Consolidated Financial Statements.
(2)See Note 7 of Notes to Consolidated Financial Statements.
(3) Excludes 1,209,975 shares of Common Stock issuable upon the exercise of
stock options outstanding as of September 15, 1996, at a weighted average
exercise price of $3.56 per share. See "Management--Stock Option Plan."
17
<PAGE>
DILUTION
The pro forma net tangible book value of the Company at July 31, 1996 was
$(3.6) million, or $(0.15) per share. Pro forma net tangible book value per
share represents the amount of total tangible assets (which excludes deferred
tax assets) less total liabilities, divided by the number of shares of Common
Stock outstanding after giving effect to the conversion of all outstanding
shares of Preferred Stock into Common Stock and Class B Common Stock upon the
closing of this offering.
After giving effect to the sale of the 3,200,000 shares of Common Stock
offered by the Company hereby (at an initial offering price of $10.00 per share
and after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company) and the expected application of the
estimated net proceeds therefrom, the pro forma net tangible book value of the
Company at July 31, 1996, would have been $24.6 million, or $0.89 per share.
This represents an immediate increase in net tangible book value of $1.04 per
share to existing stockholders and an immediate dilution in net tangible book
value of $9.11 per share to purchasers of Common Stock in this offering. The
following table illustrates the dilution in net tangible book value per share
to new investors:
<TABLE>
<S> <C> <C>
Initial public offering price per share......................... $10.00
Pro forma net tangible book value per share at July 31, 1996.. $(0.15)
Increase per share attributable to new investors.............. 1.04
------
Pro forma net tangible book value per share after offering...... 0.89
------
Pro forma net tangible book value dilution per share to new in-
vestors........................................................ $ 9.11
======
</TABLE>
The following table summarizes, on a pro forma basis, as of July 31, 1996,
the number of shares of Common Stock purchased from the Company, the total cash
paid to the Company and the average price paid per share by existing
stockholders and by new investors purchasing shares at an initial public
offering price of $10.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED
(1) TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 24,494,253 88.4% $15,567,000 32.7% $ 0.64
New investors.............. 3,200,000 11.6 32,000,000 67.3 10.00
---------- ----- ----------- -----
Total.................... 27,694,253 100.0% $47,567,000 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) Sales by the Selling Stockholder in this offering will reduce the number of
shares held by existing stockholders to 23,294,253 shares, or 84.1% of the
total number of shares of Common Stock to be outstanding after the
offering, and will increase the number of shares held by the new investors
to 4,400,000 shares, or 15.9% of the total number of shares of Common Stock
to be outstanding after this offering. See "Principal and Selling
Stockholders."
The above tables exclude 1,209,975 shares issuable upon the exercise of
outstanding stock options at a weighted average exercise price of $3.56 per
share. To the extent outstanding options are exercised, new investors will
experience further dilution. See "Management--Stock Option Plan."
18
<PAGE>
EXCHANGE RATES
A significant portion of the Company's business is conducted in currencies
other than the U.S. dollar (the currency in which its financial statements are
stated), primarily the Swedish krona and, to a lesser extent the U.K. pound
sterling. The Company incurs a significant portion of its expenses in Swedish
kronor, including all of its product development expenses and a substantial
portion of its general and administrative expenses. As a result, appreciation
of the value of the Swedish krona relative to the other currencies in which
the Company generates revenues, particularly the U.S. dollar, could adversely
affect operating results. The financial statements of the Company are
translated from the functional currency of the operating subsidiaries into
U.S. dollars, the Company's reporting currency, utilizing the current rate
method. Accordingly, assets and liabilities are translated at exchange rates
in effect at the end of the reporting period, and revenues and expenses are
translated at the average exchange rate during the period. All translation
gains or losses from the translation into the Company's reporting currency are
included as a separate component of stockholders' equity. Fluctuations in the
Swedish krona and other currencies relative to the U.S. dollar will effect
period to period comparison of the Company's reported results of operations.
Due to the constantly changing currency exposures and the volatility of
currency exchange rates, there can be no assurance that the Company will not
experience currency losses in the future, nor can the Company predict the
effect of exchange rate fluctuations upon future operating results. The
Company does not currently undertake hedging transactions and has limited
lines of credit to cover its currency exposure. The Company may choose to
hedge a portion of its currency exposure in the future as it deems
appropriate.
The table below sets forth, for the periods and dates indicated, the
exchange rate for the U.S. dollar against the Swedish krona based on the noon
buying rate in New York City for cable transfers in Swedish kronor as
certified for customs purposes by the Federal Reserve Bank of New York (the
"Noon Buying Rate"). On September 25, 1996, the Noon Buying Rate was $1.00 =
SEK 6.60.
KRONA/DOLLAR EXCHANGE RATES
(KRONOR PER DOLLAR)
<TABLE>
<CAPTION>
AT END
OF AVERAGE
PERIOD RATE (1) HIGH LOW
------ -------- ---- ----
<S> <C> <C> <C> <C>
May 1, 1993 to April 30, 1994......................... 7.66 7.95 8.48 7.17
May 1, 1994 to April 30, 1995......................... 7.27 7.52 7.96 7.06
May 1, 1995 to April 30, 1996......................... 6.79 6.94 7.44 6.50
May 1, 1996 to August 31, 1996........................ 6.63 6.65 6.87 6.55
</TABLE>
- --------
(1) The average of the Noon Buying Rates on the last day of each month during
the relevant period.
Prior to May 17, 1991, the position of the krona was measured by an index in
which the currencies of each of Sweden's 15 most important trading partners
had a specific weight related to each country's average portion of Swedish
foreign trade during the preceding five years. On May 17, 1991, the Bank of
Sweden unilaterally pegged the Swedish krona to the European Currency Unit
("ECU"). However, as a result of instability in the currency system during the
fall of 1992, a number of countries withdrew from the European Monetary
System. During this time, there was speculation against the krona, forcing the
Bank of Sweden to intervene heavily in the foreign exchange market to support
the krona. As this intervention proved insufficient to stabilize the krona,
the Bank of Sweden let the krona exchange rate float against other currencies
from November 19, 1992, leading to depreciation of the krona against several
other currencies during 1992 and 1993, before stabilizing in 1994. During the
first six months of 1995, the Swedish krona depreciated approximately 6%
against the ECU, while it appreciated approximately 11% against the ECU in the
last six months of 1995, with the effect that the average Swedish krona
exchange rate in relation to the ECU in 1995 was 2% lower than the
corresponding rate in 1994. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Risk Factors--Exposure to
Currency Fluctuations."
There are currently no Swedish foreign exchange control restrictions on the
conduct of the Company's operations.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data is qualified by reference
to, and should be read in conjunction with, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Consolidated
Financial Statements and Notes thereto and the other financial information
included elsewhere in this Prospectus. The statement of operations for the
years ended April 30, 1994, 1995, and 1996, and the balance sheet data at
April 30, 1995, and 1996, are derived from and should be read in conjunction
with the Consolidated Financial Statements of the Company and the Notes
thereto included elsewhere in this Prospectus which have been audited by
Ohrlings Coopers & Lybrand AB, independent auditors. The consolidated
statement of operations data for the three-month periods ended July 31, 1995
and 1996 and the consolidated balance sheet data at July 31, 1996 are derived
from unaudited condensed consolidated financial statements that include, in
the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the information
set forth therein.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED APRIL 30, ENDED JULY 31,
------------------------------------------- ----------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues:
Licenses.............. $ 3,433 $ 5,698 $ 5,254 $10,661 $15,474 $ 197 $ 2,296
Services and
maintenance.......... 17,107 15,648 11,950 14,543 23,103 4,272 6,779
Other................. 5,369 2,450 1,576 2,540 1,432 256 142
------- ------- ------- ------- ------- ------- -------
Total revenues...... 25,909 23,796 18,780 27,744 40,009 4,725 9,217
Cost of revenues:
Licenses.............. 220 1,136 721 2,172 2,717 3 100
Services and
maintenance.......... 15,829 11,854 10,030 12,424 16,813 3,579 5,078
Other................. 5,653 2,417 831 2,252 947 204 96
------- ------- ------- ------- ------- ------- -------
Total cost of
revenues........... 21,702 15,407 11,582 16,848 20,477 3,786 5,274
------- ------- ------- ------- ------- ------- -------
Gross profit........ 4,207 8,389 7,198 10,896 19,532 939 3,943
Operating expenses:
Product development... 3,976 3,593 5,517 7,009 6,822 1,368 1,956
Sales and marketing... 3,503 2,693 3,056 5,720 7,746 1,385 2,593
General and
administrative....... 2,510 4,431 3,688 4,192 3,579 828 986
------- ------- ------- ------- ------- ------- -------
Total operating
expenses........... 9,989 10,717 12,261 16,921 18,147 3,581 5,535
------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations............ (5,782) (2,328) (5,063) (6,025) 1,385 (2,642) (1,592)
Other income (expense):
Gain on sale of
subsidiary(1)........ -- 1,291 -- -- -- -- --
Interest income....... 46 8 40 15 13 4 13
Interest expense...... (371) (584) (229) (689) (744) (189) (127)
Miscellaneous income
(expense)............ 11 82 (227) (384) (12) (16) (63)
------- ------- ------- ------- ------- ------- -------
Income (loss) from
continuing operations
before income taxes... (6,096) (1,531) (5,479) (7,083) 642 (2,843) (1,769)
Provision (benefit) for
income taxes.......... 202 122 40 (941) (781) (564) (705)
------- ------- ------- ------- ------- ------- -------
Income (loss) from
continuing operations. (6,298) (1,653) (5,519) (6,142) 1,423 (2,279) (1,064)
Income (loss) from
discontinued
operations............ (432) (156) (151) (246) 327 (78) 2
------- ------- ------- ------- ------- ------- -------
Net income (loss)...... $(6,730) $(1,809) $(5,670) $(6,388) $ 1,750 $(2,357) $(1,062)
======= ======= ======= ======= ======= ======= =======
Pro forma net income
(loss) per share
data(2):
Income (loss) from
continuing operations. $ 0.06 $ (0.04)
Income from
discontinued
operations............ 0.01 --
------- -------
Pro forma net income
(loss) per share...... $ 0.07 $ (0.04)
======= =======
Pro forma shares used
in per share
calculation........... 25,223 24,502
======= =======
<CAPTION>
APRIL 30,
------------------------------------------- JULY 31,
1992 1993 1994 1995 1996 1996
------- ------- ------- ------- ------- ----------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash equiva-
lents................. $ 286 $ 99 $ 75 $ 160 $ 558 $ 282
Working capital (3).... 4,125 3,714 174 (3,478) (1,364) (3,412)
Total assets........... 18,550 15,630 13,364 15,508 21,324 19,806
Capital lease obliga-
tions, less current
portion............... -- -- 18 267 624 778
Total stockholders' eq-
uity.................. 6,349 5,513 1,779 (2,097) 502 (887)
</TABLE>
- --------
(1) During the fiscal year ended April 30, 1993, the Company sold all of its
interest in Systecon AB, a wholly-owned subsidiary. The gain recognized on
the sale represents the excess of the sales price over the Company's book
basis. During fiscal 1993, Systecon AB generated revenues of $3.1 million.
(2) See Note 2 of Notes to Consolidated Financial Statements for an
explanation of the determination of shares used in calculating pro forma
net income per share.
(3) The Company's working capital position is due, in part, to the
classification of the Company's credit facilities as short-term
borrowings. See Note 7 of Notes to Consolidated Financial Statements.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and other parts of this Prospectus contain forward-
looking statements that involve risks and uncertainties. The Company's actual
results may differ significantly from the results discussed in the forward-
looking statements. Factors that might cause such a difference include, but
are not limited to, those discussed in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Risk Factors" and
"Business."
OVERVIEW
IMI develops, markets and supports client/server application software that
enables manufacturers, distributors and wholesalers to more effectively manage
the demand chain. The Company was founded in 1967 as a custom software
development and consulting services organization. The Company developed and
delivered its first distribution logistics software in 1974, its first UNIX-
based version in 1984 and its first Oracle-based client/server version in
1991. In 1993, the Company introduced its current generation product, System
ESS, which was designed to meet the needs of multinational manufacturers,
distributors and wholesalers. Since that time, the Company's operating
expenses have increased substantially as the Company has made significant
investments outside Sweden in sales and marketing, customer support and
product development related to System ESS. As a result of these investments,
greater market acceptance of System ESS and expansion of its business outside
Sweden, the Company's revenues have grown in recent years, increasing from
$18.8 million in fiscal 1994 to $40.0 million in fiscal 1996. The Company
reached profitability in the most recent fiscal year ended April 30, 1996.
There can be no assurance that the Company will sustain profitability on a
quarterly or annual basis in the future. See "Quarterly Financial Results" and
"Risk Factors--No Assurance of Profitability; Accumulated Deficit" and "--
Significant Fluctuations in Quarterly Operating Results and Seasonality;
Potential Quarterly Losses."
A substantial majority of the Company's revenues in the last three years
have been attributable to license fees and related services, including
software maintenance and support, implementation, consulting and training.
Recently, the Company has experienced an increase in license revenues as a
percentage of total revenues due to an increase in individual licenses of
System ESS to multinational manufacturers, distributors and wholesalers. The
Company expects that license and services revenues related to System ESS will
continue to constitute predominantly all of the Company's total revenues in
the foreseeable future. License revenues are recognized upon the signing of
the license agreement and shipment of the product if no significant vendor
obligations remain and collection of the resulting receivable is probable.
Annual maintenance and support revenues consist of ongoing support and product
updates and are recognized ratably over the term of the maintenance agreement.
Revenues from implementation, training and consulting services are recognized
when the relevant services are performed. The Company recognized revenues, in
all periods presented, in accordance with the American Institute of Certified
Public Accountants Statement of Position 91-1, "Software Revenue Recognition."
Revenues from sales outside Sweden increased significantly from $5.0 million
in fiscal 1994 to $26.4 million in fiscal 1996 as the Company established and
expanded its direct sales activities in the United States and the United
Kingdom. Revenues from sales in the United States increased from $4.1 million
in fiscal 1994 to $18.0 million in fiscal 1996 and revenues from sales in the
United Kingdom increased from $0.2 million to $5.2 million over the same
period, reflecting the general trend of increasing license sales outside
Sweden. Revenues from sales in Sweden decreased from $13.8 million in fiscal
1994 to $13.5 million in fiscal 1996.
The Company plans to increase expenditures in order to fund the continued
expansion of its worldwide operations, including greater levels of product
development and larger and more geographically dispersed sales, support,
service and marketing organizations. Although the Company believes such
expenditures will ultimately improve the Company's operating results, to the
extent such expenditures are incurred and revenues do not correspondingly
increase, the Company's operating results
21
<PAGE>
will be materially adversely affected. Future operating results will depend on
many factors, including the growth of the demand chain management software
market, market acceptance of the Company's products, competition, the success
of the Company's expansion of its sales, support, service and marketing
organizations, general economic conditions and other factors. See "Risk
Factors--No Assurance of Profitability; Accumulated Deficit," "--Significant
Fluctuations in Quarterly Operating Results and Seasonality; Potential
Quarterly Losses" "--Dependence on Principal Product," "--Dependence on
Emerging Market for Demand Chain Management Software" and "--Dependence upon
Successful Expansion of Sales, Support, Service and Marketing Organizations."
A significant portion of the Company's business is conducted in currencies
other than the U.S. dollar (the currency in which its financial statements are
stated), primarily the Swedish krona and, to a lesser extent the U.K. pound
sterling. The Company incurs a significant portion of its expenses in Swedish
kronor, including all of its product development expenses and a substantial
portion of its general and administrative expenses. As a result, appreciation
of the value of the Swedish krona relative to the other currencies in which
the Company generates revenues, particularly the U.S. dollar, could adversely
affect operating results. The financial statements of the Company are
translated from the functional currency of the operating subsidiaries into
U.S. dollars, the Company's reporting currency, utilizing the current rate
method. Accordingly, assets and liabilities are translated at exchange rates
in effect at the end of the reporting period, and revenues and expenses are
translated at the average exchange rate during the period. All translation
gains or losses from the translation into the Company's reporting currency are
included as a separate component of stockholders' equity. Fluctuations in the
Swedish krona and other currencies relative to the U.S. dollar will affect
period to period comparison of the Company's reported results of operations.
Due to the constantly changing currency exposures and the volatility of
currency exchange rates, there can be no assurance that the Company will not
experience currency losses in the future, nor can the Company predict the
effect of exchange rate fluctuations upon future operating results. The
Company does not currently undertake hedging transactions and has limited
lines of credit to cover its currency exposure. The Company may choose to
hedge a portion of its currency exposure in the future as it deems
appropriate. See "Risk Factors--Exposure to Currency Fluctuations" and
"Exchange Rates."
22
<PAGE>
RESULTS OF OPERATIONS
For the fiscal periods indicated, the following table sets forth the
percentage of total revenues represented by certain items reflected in the
Company's consolidated statements of operations:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED APRIL 30, ENDED JULY 31,
------------------------------------- -----------------
1992 1993 1994 1995 1996 1995 1996
----- ----- ----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Licenses.............. 13.3 % 23.9 % 28.0 % 38.4 % 38.7 % 4.2 % 24.9 %
Services and mainte-
nance................ 66.0 65.8 63.6 52.4 57.7 90.4 73.6
Other................. 20.7 10.3 8.4 9.2 3.6 5.4 1.5
----- ----- ----- ----- ----- ------- -------
Total revenues...... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ------- -------
Cost of revenues:
Licenses.............. 0.8 4.8 3.8 7.8 6.8 0.1 1.1
Services and mainte-
nance................ 61.1 49.8 53.4 44.8 42.0 75.7 55.1
Other................. 21.8 10.2 4.4 8.1 2.4 4.3 1.0
----- ----- ----- ----- ----- ------- -------
Total cost of reve-
nues............... 83.7 64.8 61.6 60.7 51.2 80.1 57.2
----- ----- ----- ----- ----- ------- -------
Gross profit........ 16.3 35.2 38.4 39.3 48.8 19.9 42.8
Operating expenses:
Product development... 15.3 15.1 29.4 25.3 17.1 29.0 21.2
Sales and marketing... 13.5 11.3 16.3 20.6 19.4 29.3 28.1
General and adminis-
trative.............. 9.7 18.6 19.6 15.1 8.9 17.5 10.7
----- ----- ----- ----- ----- ------- -------
Total operating ex-
penses............. 38.5 45.0 65.3 61.0 45.4 75.8 60.0
----- ----- ----- ----- ----- ------- -------
Income (loss) from oper-
ations................. (22.2) (9.8) (26.9) (21.7) 3.4 (55.9) (17.2)
Other income (expense):
Gain on sale of sub-
sidiary(1)........... -- 5.4 -- -- -- -- --
Interest income....... 0.2 0.0 0.2 0.1 0.0 0.1 0.1
Interest expense...... (1.4) (2.5) (1.2) (2.5) (1.9) (4.0) (1.4)
Miscellaneous income
(expense)............ 0.0 0.3 (1.2) (1.4) 0.0 (0.4) (0.7)
----- ----- ----- ----- ----- ------- -------
Income (loss) from
continuing operations
before income taxes.. (23.4) (6.6) (29.1) (25.5) 1.5 (60.2) (19.2)
Provision (benefit) for
income taxes........... 0.8 0.5 0.2 (3.4) (2.0) (12.0) (7.7)
----- ----- ----- ----- ----- ------- -------
Income (loss) from con-
tinuing operations..... (24.2) (7.1) (29.3) (22.1) 3.5 (48.2) (11.5)
Income (loss) from dis-
continued operations... (1.7) (0.7) (0.8) (0.9) 0.8 (1.7) 0.0
----- ----- ----- ----- ----- ------- -------
Net income (loss)....... (25.9)% (7.8)% (30.1)% (23.0)% 4.3 % (49.9)% (11.5)%
===== ===== ===== ===== ===== ======= =======
</TABLE>
- --------
(1) During the fiscal year ended April 30, 1993, the Company sold all of its
interest in Systecon AB, a wholly-owned subsidiary. The gain recognized on
the sale represents the excess of the sales price over the Company's book
basis.
COMPARISON OF FISCAL YEARS 1996, 1995 AND 1994
Revenues
Total revenues consist of revenues derived from sales of software licenses
and related services, including software maintenance and support,
implementation, consulting and training. Total revenues increased 44.2% to
$40.0 million in fiscal 1996 from $27.7 million in fiscal 1995, and increased
47.7% in fiscal 1995 from $18.8 million in fiscal 1994. The increase in
revenues during these periods was primarily due to increased license fees from
the Company's System ESS product and related service and maintenance fees.
23
<PAGE>
Licenses. License revenues increased 45.1% to $15.5 million in fiscal 1996
from $10.7 million in fiscal 1995, and increased 102.9% in fiscal 1995 from
$5.3 million in fiscal 1994. License revenues constituted 38.7%, 38.4% and
28.0% of total revenues in fiscal 1996, 1995 and 1994, respectively. The
significant increases in license revenues were primarily due to growing market
acceptance of the Company's software products and continued expansion of the
Company's sales and marketing organization, particularly into new geographical
areas and new vertical markets. This is evidenced by the increase in the
percentage of license revenues from the market outside Sweden to 93.1% of
license revenues in fiscal 1996 from 64.8% in fiscal 1995 and 90.6% in fiscal
1994. The majority of such license revenues outside Sweden were from the
United States and the United Kingdom. The Company expects to continue to
expand into new geographical areas and vertical markets; however, there can be
no assurance that market acceptance of the Company's products will continue to
grow or that the Company will be able to expand its direct sales, service,
support and marketing organizations successfully. See "Risk Factors--
Dependence upon Successful Expansion of Sales, Support, Service and Marketing
Organizations."
Service and Maintenance. Service and maintenance revenues increased 58.9% to
$23.1 million in fiscal 1996 from $14.5 million in fiscal 1995, and increased
21.7% from $12.0 million in fiscal 1994. Service and maintenance revenues
constituted 57.7%, 52.4% and 63.6% of total revenues in fiscal 1996, 1995 and
1994, respectively. The significant increases in the dollar amount of service
and maintenance revenues were primarily due to the increase in services
related to a greater number of System ESS licenses sold, as well as the high
percentage of maintenance agreement renewals for licenses sold in prior years.
The Company expects service and maintenance revenues as a percentage of total
revenues to continue to fluctuate on a period to period basis. The Company's
sales and marketing strategy is to increase its utilization of third-party
implementation services to enable it to more rapidly penetrate its target
markets. To the extent that such efforts are successful, the Company believes
that service and maintenance revenues could decline as a percentage of total
revenues. See "Risk Factors--Reliance on and Need to Develop Additional
Relationships with Third Parties."
Other. Other revenues are primarily third-party hardware sales to help
certain customers implement System ESS. Other revenues decreased 43.6% to $1.4
million in fiscal 1996 from $2.5 million in fiscal 1995 and increased 61.2% in
fiscal 1995 from $1.6 million in fiscal 1994. Other revenues constituted 3.6%,
9.2% and 8.4% of revenues in fiscal 1996, 1995 and 1994 respectively.
Commencing in fiscal 1993 the Company deliberately reduced its emphasis on
providing third-party hardware and support, and its strategy is to minimize
its efforts in this area except on an as needed basis. The Company expects
other revenues to fluctuate on a period to period basis, to generally decrease
in absolute dollars and to decline significantly as a percentage of total
revenues.
Cost of Revenues
Cost of revenues was $20.5 million, $16.8 million and $11.6 million in
fiscal 1996, 1995 and 1994, representing 51.2%, 60.7% and 61.6% of total
revenues, respectively. As a percentage of total revenues, cost of revenues
remained relatively flat from fiscal 1994 to fiscal 1995, but declined from
fiscal 1995 to fiscal 1996. This decrease was primarily due to an increase in
the gross margin of service and maintenance revenues and a decrease in other
revenues as a percentage of total revenues. The Company anticipates that if
revenues from licenses of System ESS continue to increase as a percentage of
total revenues, then costs of revenues may continue to decline as a percentage
of total revenues, because the gross margin on license revenues is higher than
the gross margin on all other revenues.
24
<PAGE>
The following table sets forth, for the periods indicated, the cost of
revenues for each revenue category and the cost of revenues represented as a
percentage of each revenue category:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------------------------------------
1994 1995 1996
----------------- ----------------- -----------------
COST % OF COST % OF COST % OF
OF REVENUE OF REVENUE OF REVENUE
REVENUES CATEGORY REVENUES CATEGORY REVENUES CATEGORY
-------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Licenses................ $ 721 13.7% $ 2,172 20.4% $ 2,717 17.6%
Services and
maintenance............ 10,030 83.9 12,424 85.4 16,813 72.8
Other................... 831 52.7 2,252 88.7 947 66.1
------- ------- -------
Total cost of revenues. $11,582 61.6% $16,848 60.7% $20,477 51.2%
======= ======= =======
</TABLE>
Cost of License Revenues. Cost of license revenues consists primarily of
commissions and license fees paid to third parties in fiscal years 1995 and
1996, particularly fees paid to Oracle pursuant to an informal joint marketing
and sales arrangement. Cost of license revenues was $2.7 million, $2.2 million
and $0.7 million in fiscal 1996, 1995 and 1994, and 17.6%, 20.4% and 13.7% of
license revenues, respectively. The increase in the absolute dollar amount of
the cost of license revenues was principally related to the higher level of
software licenses sold. In fiscal 1996, 58% of the Company's license revenues
and 24% of the Company's total revenues was derived from six customers
introduced to the Company by Oracle pursuant to such arrangement. The parties
have commenced discussions concerning the formalization of their relationship
in a written contract. The Company anticipates that, if concluded, such
written contract may provide for Oracle to receive, in certain geographic
markets, a higher proportion of license revenues from System ESS if Oracle's
responsibility for sales and marketing activities in such geographic markets
increases. There can be no assurance that the Company will successfully
conclude a formal agreement with Oracle or that such formal agreement, if
concluded, will be on terms favorable to the Company. See "Risk Factors--
Relationship with Oracle Corporation."
Cost of Service and Maintenance Revenues. Cost of service and maintenance
revenues consists primarily of costs associated with consulting,
implementation, training and ongoing support. Cost of service and maintenance
revenues was $16.8 million, $12.4 million and $10.0 million in fiscal 1996,
1995 and 1994, representing 72.8%, 85.4% and 83.9% of service and maintenance
revenues, respectively. The increase in cost of service and maintenance
revenues in absolute dollars was primarily due to the increase in the number
of personnel providing consulting and training services to customers. Although
the Company intends to continue to enter into informal joint marketing
arrangements with third parties, including systems integrators, who might
provide services to the Company's customers, the Company expects to continue
to increase the number of its service personnel in the future as the number of
licensees of System ESS increases.
Cost of Other Revenues. Cost of other revenues consists primarily of the
cost of third party hardware supplied to certain customers. Cost of other
revenues was $0.9 million, $2.3 million and $0.8 million in fiscal 1996, 1995
and 1994, representing 66.1%, 88.7% and 52.7% of other revenues, respectively.
Commencing in fiscal 1993, the Company deliberately reduced its emphasis on
providing third-party hardware and support, and its strategy is to minimize
its efforts in this area except on an as needed basis. The Company expects
cost of other revenues to fluctuate on a period to period basis, to generally
decrease in absolute dollars and to decline significantly as a percentage of
total cost of revenues.
Product Development. Product development expenses consist primarily of
salaries and other related costs for the Company's engineering staff. Product
development expenses were $6.8 million, $7.0 million and $5.5 million in
fiscal 1996, 1995 and 1994, representing 17.1%, 25.3% and 29.4% of total
revenues, respectively. The increase in fiscal 1995 in product development
expenses in absolute dollars was primarily due to the increased headcount of,
and associated support for, product engineers to assist with the completion of
Release 4.1 of System ESS, and the hiring of third party consultants. The
decrease in
25
<PAGE>
fiscal 1996 in product development expenses in absolute dollars was due
primarily to a decline in the Company's use of third party consultant
engineers. As a percentage of total revenues, product development expenses
declined in fiscal 1995 and 1996, primarily due to an increase in revenues
related to System ESS. The Company believes that a significant level of
investment for product development is required to remain competitive and,
accordingly, the Company anticipates that product development expenses will
increase in the future, both in absolute dollars and as a percentage of total
revenues.
In accordance with the Financial Accounting Standards Board (the "FASB")
Statement of Financial Accounting Standards ("SFAS") No. 86, software
development costs are expensed as incurred until technological feasibility has
been established, after which time such costs are capitalized until the
product is available for general release to customers. To date, costs incurred
after establishment of technological feasibility have been immaterial and, as
a result, all product development costs have been expensed as incurred.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses, and other related costs for sales and
marketing personnel. Sales and marketing expenses were $7.7 million, $5.7
million and $3.1 million in fiscal 1996, 1995 and 1994, representing 19.4%,
20.6% and 16.3% of total revenues, respectively. The increase in sales and
marketing expenses in absolute dollars from fiscal 1994 to fiscal 1996 was
primarily due to increased headcount as the Company established and expanded
new sales offices in the United States and the United Kingdom. The Company
intends to continue the expansion of its sales and marketing efforts and
anticipates that sales and marketing expenses will increase in absolute
dollars and as a percentage of total revenues in the future. See "Risk
Factors--Dependence upon Successful Expansion of Sales, Support, Service and
Marketing Organizations."
General and Administrative. General and administrative expenses consist
primarily of salary expenses and related expenses for administrative and
executive staff. General and administrative expenses were $3.6 million, $4.2
million and $3.7 million in fiscal 1996, 1995 and 1994, representing 8.9%,
15.1% and 19.6% of total revenues, respectively. General and administrative
expenses increased from fiscal 1994 to fiscal 1995 due primarily to severance
benefits incurred relating to changes in management and costs incurred
relating to obsolete computer equipment. An accrual for a loss contract was
made during fiscal 1995 to reserve for obsolete software that was part of an
operating lease contract for computer hardware. The amount accrued represents
the software portion of the future minimum lease payments based on the fair
value of the software in relation to the fair value of both the hardware and
software provided under the lease contract. Accruals for contract expenses are
primarily license fees to third parties for software included in the sale of
System ESS. The Company believes that general and administrative expenses will
generally increase in absolute dollars but should decrease as a percentage of
total revenues.
Discontinued Operations. In fiscal 1996, the Company adopted a plan to
divest its 55% owned subsidiary, Pargon AB ("Pargon"), whose business was
focused on microprocessor compiler software and systems consulting services,
and therefore did not fit the Company's strategy of focusing on System ESS. In
connection with the discontinued Pargon operations, the Company recorded
income of $0.3 million, losses of $0.2 million and losses of $0.2 million in
fiscal 1996, 1995 and 1994, respectively. It is not yet possible to estimate
the prospective gain or loss on the disposition of the discontinued
operations; however, the Company does not expect that such disposition will
have a material effect on the Company's financial condition and results of
operations.
Provision for Income Taxes. In fiscal 1996 and 1995, the Company recorded a
benefit for income taxes of $0.8 million and $0.9 million, respectively. The
benefits related primarily to the reduction of the Company's valuation
allowance on deferred tax assets. At April 30, 1996, the Company had
approximately $5.3 million of gross deferred tax assets comprised primarily of
net operating loss carryforwards in Sweden. Such net operating loss
carryforwards are available for an indefinite period of time. The Company has
recorded a valuation allowance with respect to a portion of such deferred tax
asset. The Company will continue to assess the realizability of the deferred
tax assets based upon actual and forecasted
26
<PAGE>
operating results. See "Risk Factors--Uncertainty of Realizability of Deferred
Tax Asset" and "Three Months Ended July 31, 1996 Compared to Three Months
Ended July 31, 1995."
THREE MONTHS ENDED JULY 31, 1996 COMPARED TO THREE MONTHS ENDED JULY 31, 1995
Revenues
Total revenues increased 95.1% to $9.2 million in the three months ended
July 31, 1996 from $4.7 million in the three months ended July 31, 1995.
License revenues increased to $2.3 million in the three months ended July 31,
1996 from $0.2 million in the three months ended July 31, 1995, primarily due
to a significant license in the three months ended July 31, 1996. Services and
maintenance revenues increased 58.7% to $6.8 million in the three months ended
July 31, 1996 from $4.3 million in the three months ended July 31, 1995,
primarily due to revenues from service and maintenance contracts with a
greater number of existing customers. Other revenues decreased 44.5% to $0.1
million in the three months ended July 31, 1996 from $0.3 million in the three
months ended July 31, 1995.
Cost of Revenues
Total cost of revenues increased 39.3% to $5.3 million in the three months
ended July 31, 1996 from $3.8 million in the three months ended July 31, 1995,
in line with the provision of services and maintenance to a greater number of
existing customers. As a percentage of total revenues, total cost of revenues
declined to 57.2% of total revenues in the three months ended July 31, 1996
from 80.1% of total revenues in the three months ended July 31, 1995,
primarily due to a higher proportion of license revenues with minimal related
costs.
Operating Expenses
Total operating expenses increased 54.6% to $5.5 million in the three months
ended July 31, 1996 from $3.6 million in the three months ended July 31, 1995.
As a percentage of total revenues, total operating expenses declined to 60.0%
of total revenues in the three months ended July 31, 1996 from 75.8% of total
revenues in the three months ended July 31, 1995, primarily due to overall
revenue growth, particularly with respect to license revenues, which outpaced
increased total operating expenses. Product development expenses increased
43.0% to $2.0 million in the three months ended July 31, 1996 from $1.4
million in the three months ended July 31, 1995, due to an increase in
computer leasing costs, an increase in headcount and an increase in employee
salaries. Sales and marketing expenses increased 87.2% to $2.6 million in the
three months ended July 31, 1996 from $1.4 million in the three months ended
July 31, 1995, due to increased headcount as the Company established and
expanded new sales offices in the United States and the United Kingdom.
General and administrative expenses increased 19.1% to $1.0 million in the
three months ended July 31, 1996 from $0.8 million in the three months ended
July 31, 1995, due to increased headcount in the United States and the United
Kingdom.
Provision (Benefit) for Income Taxes
The income tax benefit for the three months ended July 31, 1995 and the
three months ended July 31, 1996 was $0.6 million and $0.7 million,
respectively. In each of such periods, a deferred tax asset was recognized
relating to the Company's net operating loss results for such period. At July
31, 1996, the Company had approximately $6.0 million of gross deferred tax
assets comprised primarily of net operating loss carryforwards in Sweden. The
Company continues to assess the realizability of the deferred tax assets based
upon actual and forecasted operating results. During each of such periods, the
Company reduced its valuation allowance relating to its net operating loss
carryforwards based upon positive evidence indicating an increased likelihood
of the utilization of net operating loss carryforwards in offsetting future
tax expense. Estimated future earnings necessary to fully realize the net
deferred tax asset are $9.5 million. Such earnings are forecasted to be
realized within approximately three years. There can be no assurance that
future earnings, if any, will meet currently forecasted levels, however it is
management's opinion that the realization of such earnings in the future is
more likely than not. See "Risk Factors--Uncertainty of Realizability of
Deferred Tax Asset."
27
<PAGE>
QUARTERLY FINANCIAL RESULTS
The following table sets forth unaudited consolidated statement of
operations data for each of the quarters in the fiscal years ended April 30,
1995 and 1996 and the quarter ended July 31, 1996. This information has been
derived from unaudited interim consolidated financial statements that, in the
opinion of the Company, have been prepared on a basis consistent with the
Consolidated Financial Statements contained elsewhere herein, and include all
adjustments necessary for a fair presentation of such information when read in
conjunction with the Consolidated Financial Statements and the Notes thereto.
The operating results for any quarter are not necessarily indicative of
results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------
JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31,
1994 1994 1995 1995 1995 1995 1996 1996 1996
-------- -------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Licenses......................... $ 63 $3,862 $ 3,438 $ 3,298 $ 197 $ 1,536 $ 6,258 $ 7,483 $ 2,296
Services and maintenance......... 3,218 3,271 3,910 4,144 4,272 5,770 6,149 6,912 6,779
Other............................ 456 783 658 643 256 506 396 274 142
-------- ------ ------- -------- -------- ------- ------- ------- -------
Total revenues.................. 3,737 7,916 8,006 8,085 4,725 7,812 12,803 14,669 9,217
Cost of revenues:
Licenses......................... 8 685 890 589 3 152 1,016 1,546 100
Services and maintenance......... 2,654 2,926 3,386 3,458 3,579 3,908 4,029 5,297 5,078
Other............................ 378 627 506 741 204 369 220 154 96
-------- ------ ------- -------- -------- ------- ------- ------- -------
Total cost of revenues.......... 3,040 4,238 4,782 4,788 3,786 4,429 5,265 6,997 5,274
-------- ------ ------- -------- -------- ------- ------- ------- -------
Gross profit.................... 697 3,678 3,224 3,297 939 3,383 7,538 7,672 3,943
Operating expenses:
Product development.............. 1,178 1,556 2,163 2,112 1,368 1,557 1,716 2,181 1,956
Sales and marketing.............. 812 1,201 1,232 2,475 1,385 1,629 2,121 2,611 2,593
General and administrative....... 563 585 444 2,600 828 907 886 958 986
-------- ------ ------- -------- -------- ------- ------- ------- -------
Total operating expenses........ 2,553 3,342 3,839 7,187 3,581 4,093 4,723 5,750 5,535
-------- ------ ------- -------- -------- ------- ------- ------- -------
Income (loss) from operations..... (1,856) 336 (615) (3,890) (2,642) (710) 2,815 1,922 (1,592)
Other income (expense):
Interest income.................. 0 0 7 8 4 0 5 4 13
Interest expense................. (132) (169) (193) (195) (189) (196) (188) (171) (127)
Miscellaneous income (expense)... (20) (23) 45 (386) (16) 258 (259) 5 (63)
-------- ------ ------- -------- -------- ------- ------- ------- -------
Income (loss) from continuing
operations before income taxes... (2,008) 144 (756) (4,463) (2,843) (648) 2,373 1,760 (1,769)
Provision (benefit) for income
taxes............................ (249) (120) (175) (397) (564) (301) 62 22 (705)
-------- ------ ------- -------- -------- ------- ------- ------- -------
Income (loss) from continuing
operations....................... (1,759) 264 (581) (4,066) (2,279) (347) 2,311 1,738 (1,064)
Income (loss) from discontinued
operations....................... (117) (148) 24 (5) (78) 134 189 82 2
-------- ------ ------- -------- -------- ------- ------- ------- -------
Net income (loss)................. $ (1,876) $ 116 $ (557) $ (4,071) $ (2,357) $ (213) $ 2,500 $ 1,820 $(1,062)
======== ====== ======= ======== ======== ======= ======= ======= =======
</TABLE>
28
<PAGE>
The following table sets forth, as a percentage of total revenues, certain
line items in the Company's consolidated statement of operations for the
periods indicated:
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31,
1994 1994 1995 1995 1995 1995 1996 1996 1996
-------- -------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Licenses............... 1.7% 48.8% 43.0% 40.7% 4.2% 19.7% 48.9% 51.0% 24.9%
Services and
maintenance........... 86.1 41.3 48.8 51.3 90.4 73.8 48.0 47.1 73.6
Other ................. 12.2 9.9 8.2 8.0 5.4 6.5 3.1 1.9 1.5
----- ----- ----- ----- ----- ----- ----- ----- -----
Total revenues........ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Cost of revenues:
Licenses............... 0.2 8.6 11.1 7.2 0.1 1.9 7.9 10.5 1.1
Services and
maintenance........... 71.0 37.0 42.3 42.8 75.7 50.0 31.5 36.2 55.1
Other.................. 10.1 7.9 6.3 9.2 4.3 4.8 1.7 1.0 1.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Total cost of
revenues............. 81.3 53.5 59.7 59.2 80.1 56.7 41.1 47.7 57.2
----- ----- ----- ----- ----- ----- ----- ----- -----
Gross profit.......... 18.7 46.5 40.3 40.8 19.9 43.3 58.9 52.3 42.8
Operating expenses:
Product development.... 31.5 19.6 27.0 26.1 28.9 19.9 13.4 14.9 21.2
Sales and marketing.... 21.7 15.2 15.4 30.6 29.4 20.9 16.6 17.8 28.1
General and
administrative........ 15.1 7.4 5.6 32.2 17.5 11.6 6.9 6.5 10.7
----- ----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses............. 68.3 42.2 48.0 88.9 75.8 52.4 36.9 39.2 60.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from
operations............. (49.6) 4.3 (7.7) (48.1) (55.9) (9.1) 22.0 13.1 (17.2)
Other income (expense):
Interest income........ 0.0 0.0 0.1 0.1 0.1 0.0 0.0 0.0 0.1
Interest expense....... (3.6) (2.2) (2.4) (2.4) (4.0) (2.5) (1.5) (1.1) (1.4)
Miscellaneous income
(expense)............. (0.5) (0.3) 0.6 (4.8) (0.4) 3.3 (2.0) 0.0 (0.7)
----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from
continuing operations
before income taxes.... (53.7) 1.8 (9.4) (55.2) (60.2) (8.3) 18.5 12.0 (19.2)
Provision (benefit) for
income taxes........... (6.6) (1.5) (2.1) (4.9) (12.0) (3.9) 0.4 0.1 (7.7)
----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from
continuing operations.. (47.1) 3.3 (7.3) (50.3) (48.2) (4.4) 18.1 11.9 (11.5)
Income (loss) from
discontinued
operations............. (3.1) (1.8) 0.3 (0.1) (1.7) 1.7 1.4 0.5 0.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)....... (50.2)% 1.5% (7.0)% (50.4)% (49.9)% (2.7)% 19.5% 12.4% (11.5)%
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
In fiscal 1996, total revenues increased throughout the year from $4.7
million in the quarter ended July 31, 1995 to $14.7 million in the quarter
ended April 30, 1996. Total revenues increased from $4.7 million in the
quarter ended July 31, 1995 to $9.2 million in the quarter ended July 31,
1996. This growth reflects continued geographic expansion of the Company's
operations, growth of large customer account license sales and greater market
acceptance of the Company's products and related services. The decrease in
other revenues is generally attributable to lower sales of hardware products
by the Company.
The Company's quarterly operating results are subject to certain seasonal
fluctuations. The Company's revenues, particularly its license revenues, are
typically strongest in its third and fourth fiscal quarters ended January 31
and April 30, respectively, and weakest in its first and second fiscal
quarters ended July 31 and October 31, respectively. The Company's revenues
and operating results in its third fiscal quarter typically benefit from
purchase decisions made by the large concentration of customers with calendar
year-end budgeting rules, while revenues and operating results in its fourth
fiscal quarter typically
29
<PAGE>
benefit from the efforts of the Company's sales force to meet fiscal year-end
sales quotas. The Company's revenues and operating results are typically lower
in its first and second fiscal quarters, as the Company's sales force
initiates sales activity directed to achieving fiscal year-end goals. In
addition, the Company's first and second fiscal quarters include the months of
July and August, when both sales and billable customer services activity, as
well as customer purchase decisions, are reduced, particularly in Europe, due
to summer vacation schedules. As a result of these seasonal factors, the
Company has historically experienced operating losses in its first and/or
second fiscal quarters and may continue to experience losses in such quarters
in the future.
The Company has experienced, and expects to continue to experience,
significant fluctuations in quarterly operating results that may be caused by
many factors, including, among others: the size and timing of orders for the
Company's products; the lengthy sales and implementation cycle for the
Company's products and delays in the implementation process; introduction or
enhancement of products by the Company or its competitors; changes in pricing
policy of the Company or its competitors; increased competition; technological
changes in computer systems and environments; the ability of the Company to
timely develop, introduce and market new products and new versions of existing
products; quality control of products sold; market readiness to deploy demand
chain management products for distributed computing environments; market
acceptance of new products and product enhancements; seasonality of revenues;
customer order deferrals in anticipation of new products and product
enhancements; the Company's success in expanding its sales, support, service
and marketing organizations; personnel changes; fluctuations in foreign
currency exchange rates; mix of license and service and maintenance revenues
sold and general economic conditions. As a result of these and other factors,
the Company believes that period-to-period quarterly comparisons of its
results of operations are not necessarily meaningful and should not be relied
upon as indications of future performance.
The Company's future quarterly revenues are difficult to forecast in part
because the demand chain management software market is an emerging market that
is subject to rapid change. Further, because the Company generally ships
software products within a short period after receipt of an order, it
typically does not have a material backlog of unfulfilled orders. License
revenues in any quarter are substantially dependent on orders booked and
shipped in that quarter and cannot be predicted with any degree of certainty.
In addition, the Company typically recognizes a significant portion of license
revenues in the last two weeks of a quarter. Any significant shortfall of
license revenues in relation to the Company's expectations or any material
delay of customer orders would have an immediate adverse effect on its
business, operating results and financial condition. Due to the foregoing
factors, it is possible that in future periods the Company's revenues, and
thus its operating results, may be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
would be materially and adversely affected. See "Risk Factors--Significant
Fluctuations in Quarterly Operating Results and Seasonality; Potential
Quarterly Losses."
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed and met its capital
expenditure requirements through cash flows from operations and short-term
borrowings. Since 1993, the Company has also financed its operations through
the issuance of capital stock to the principal stockholders for aggregate
proceeds of $8.4 million. In the three months ended July 31, 1996, net cash
provided by operating activities of $0.9 million was utilized in reducing the
Company's lines of credit and short-term borrowings by $1.0 million. In fiscal
1996, net cash provided by operating activities of $1.0 million in addition to
cash proceeds from the issuance of Common Stock of $1.2 million was partly
utilized in reducing the Company's short-term borrowings by $0.5 million. In
fiscal 1995 and 1994, the Company's cash used in operating activities was
financed primarily through the issuance of preferred stock and long-term debt.
See "Certain Transactions."
Accounts receivable, net of allowance for doubtful accounts, decreased to
$10.2 million at July 31, 1996, from $13.1 million at July 31, 1995, primarily
due to collections of significant receivables in the three months ended July
31, 1996. Accounts receivable, net of allowance for doubtful accounts,
increased
30
<PAGE>
to $13.1 million at April 30, 1996, from $7.6 million at April 30, 1995,
primarily due to significant license agreements signed near the end of fiscal
1996.
The additions to property and equipment in fiscal 1994 related primarily to
furnishing new office space in Sweden and the United States while the
corresponding additions in fiscal 1996 relating to furnishing new office space
in the United Kingdom.
The Company finances working capital in part through a bank credit
agreement. Under the terms of such agreement, the Company's current line of
credit allows for borrowings of up to the equivalent of $9.9 million,
available in Swedish kronor, U.S. dollars and British pounds sterling. As of
July 31, 1996, the Company had cash and cash equivalents of $0.3 million,
working capital of $(3.4) million and $6.6 million outstanding under its lines
of credit. Working capital at the end of fiscal years 1994, 1995 and 1996 was
$0.2 million, $(3.5) million and $(1.4) million, respectively. The Company's
negative working capital position as of April 30, 1995, April 30, 1996 and
July 31, 1996 resulted from, among other things, the classification of the
Company's credit facilities as short-term debt. Although the Company's
revolving line of credit is classified as short-term debt, the Company expects
that such facilities will be renewed by the lending banks, consistent with
past practices. The Company currently has no significant capital spending or
purchase commitments other than normal commitments under facilities and
capital leases. The agreements with respect to the Company's credit facilities
contain a financial covenant requiring that the equity ratio (total
stockholders' equity as a percentage of total assets) of IMAB, on a Swedish
statutory basis, be a minimum of 25%. As of July 31, 1996, and for the three
fiscal years ended April 30, 1996, IMAB was in compliance with such financial
covenant.
The Company believes that the net proceeds from this offering, together with
its current cash balances, its lines of credit and the cash flows generated
from operations, if any, will be sufficient to meet its anticipated cash needs
for working capital and capital expenditures for at least the next 12 months.
The Company intends to invest the Company's cash in excess of current
operating requirements in investment grade, short-term, interest-bearing debt
securities. See "Use of Proceeds" and Note 7 of Notes to Consolidated
Financial Statements.
EFFECT OF RECENT PRONOUNCEMENTS
Accounting for Impairment of Long-Lived Assets
In March 1995, the FASB issued SFAS No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which
requires impairment losses to be recorded on long-lived assets used in
operations when indications of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The Company will adopt SFAS 121 in the
first quarter of the financial year ending April 30, 1997 and, based on
current circumstances, does not believe the effect of adoption will be
material.
Accounting for Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 is effective for fiscal years beginning on or
after December 15, 1995. SFAS No. 123 requires that the compensation cost of
issuing stock options be measured at fair value using an option-pricing model.
The Company can either recognize the compensation cost in its consolidated
financial statements or, if the recognition option is not chosen, disclose the
pro forma effects in the notes to the consolidated financial statements. The
Company plans to adopt the disclosure option, commencing in the fiscal year
ending April 30, 1997. Therefore, SFAS No. 123 will have no effect on the
Company's net earnings, stockholders' equity or cash flows.
31
<PAGE>
BUSINESS
IMI develops, markets and supports client/server application software that
enables manufacturers, distributors and wholesalers to more effectively manage
the "demand chain." Demand chain management encompasses the execution of
multiple customer-centric order fulfillment processes, including order
management, distribution logistics, inventory replenishment and demand
planning. The Company's principal product, System ESS, has been designed
specifically to meet the complex or high-volume demand chain management
requirements of large manufacturers, distributors and wholesalers. System ESS
allows customers to leverage the value of their existing systems by
integrating with legacy and new client/server manufacturing, planning, and
financial information systems. Current customers of IMI include large
manufacturers, such as Bristol-Myers Squibb Company, Campbell Soup Company,
Canon U.S.A., Inc., Dannon Company, Inc., Eastman Kodak Company, Kellogg
Company, Matsushita Electrical Corporation of America, and Unisys Corporation,
as well as several retail and wholesale distributors.
INDUSTRY BACKGROUND
In recent years, there has been a fundamental shift in market power from
manufacturers and distributors to retailers and consumers. This shift has
resulted from the convergence of a number of trends, including the rapid
proliferation in the number and variety of product offerings, shorter product
life cycles, the emergence of more informed and demanding consumers, and the
evolution of the retailing industry from local stores to large national and
regional chains of department stores, "superstores" and specialty category
stores. These trends have continued to change the way manufacturers,
distributors and wholesalers must conduct their businesses to compete
effectively. Historically, manufacturers dictated the terms of trade with
retailers and consumers and, consequently, organized their businesses
primarily to increase manufacturing efficiency and output. Today, customers
increasingly are choosing suppliers based on their ability to match product
flow to actual customer demand. As a result, manufacturers and distributors
are reorganizing their businesses to focus on satisfying customer demand
through effective order fulfillment.
Effective order fulfillment is a complex logistics challenge, requiring
manufacturers and distributors to manage broadening product portfolios,
multinational distribution, reduced delivery response times, frequent and
customer-specific product promotions, lower inventory levels, rapidly changing
consumer behavior, and more complex manufacturing strategies, involving global
sourcing and assembly from a network of internal and outsourced manufacturers
and suppliers. To compete more effectively, manufacturers, distributors and
wholesalers must synchronize their internal planning and execution functions
with external participants in the demand chain, including consumers,
retailers, distributors, manufacturing subcontractors and suppliers. The
efficient management and operation of this "virtual enterprise" (see example
below) requires capturing information from customer orders--most effectively
by using electronic commerce to facilitate communication to and from
customers--and delivering it to support manufacturing resource planning
("MRP"), financial reporting and decision support systems. Managing the flow
of this complex order information is critical to monitoring such variables as
product profitability across customers and geographies, planning the timing
and impact of promotional activities, and meeting demand on a customer-by-
customer and product-by-product basis.
32
<PAGE>
MANAGING THE VIRTUAL ENTERPRISE
Timely/Accurate Information Flow
Planning/Execution Processes
[ARTWORK APPEARS HERE]
Smooth Continual Product Flow
Matched to Consumption
In order to cope with the logistics challenges of delivering the right
product to the right location at the right time and at the right price,
manufacturers, distributors and wholesalers, as well as industry consultants
and enterprise application software vendors, have in recent years emphasized
the need to integrate and more effectively manage what is commonly known as
the "supply chain." The supply chain refers to the movement of products from
raw material suppliers to manufacturers, to distributors, to wholesalers, to
retailers, and ultimately to consumers. In an attempt to achieve the effective
integration and management of their supply chains, many companies began to
replace their legacy manufacturing and distribution systems with client/server
ERP systems which support MRP, financial reporting, and some degree of
logistics management functionality. These software solutions traditionally
focus on manufacturing efficiency and financial reporting.
Existing ERP systems tend to focus on supply chain management from a
manufacturer-centric, or supply-driven, point of view and, in attempting to
meet the changing requirements of today's customer-centric or demand-driven
environment, fail to achieve many of the following fundamental strategic
objectives for manufacturers, distributors and wholesalers:
. Automating the Order Fulfillment Process. A high level of system
functionality is required for effective fulfillment of orders placed by
hundreds or thousands of customers regarding specialized products under
differing promotional and packaging schemes. Typically, integrated ERP
systems are not optimized to meet these complex needs, leading to
delayed shipments or added administrative costs. In particular, existing
ERP systems typically cannot disaggregate large orders into their
individual components, or "order lines."
. Management of a Heterogeneous Customer Base. As market power has shifted
to retailers and consumers, manufacturers, distributors and wholesalers
now are forced to accommodate highly specific customer order fulfillment
procedures and other requirements that are dictated by the retailer or
consumer. Integrated ERP systems have been designed to maximize the
output efficiency of the manufacturer and supplier and typically lack
the capabilities necessary to track customer demand and respond
efficiently to highly variable order requirements.
. Scalability. The volume and complexity of customer orders necessitates a
highly scalable order fulfillment solution. The Company believes that
the leading integrated ERP systems do not meet the transaction volume
requirements of many manufacturers, distributors and wholesalers, which
can require a solution capable of efficiently processing in excess of 10
million complex order lines per year.
33
<PAGE>
. Globalized Logistics. Worldwide enterprises must manage their businesses
across multiple legal entities, in multiple currencies and multiple
languages, with product sourcing from a variety of physical locations,
including company-owned manufacturing facilities and warehouses, public
warehouses and third-party suppliers. In order to support logistics
across this type of global network, ERP systems typically require
redundant systems in multiple locations.
. Adaptability for Electronic Commerce. The virtual enterprise concept can
only be implemented successfully if there is compatibility between
internal and external information systems. Increasingly, electronic data
interchange ("EDI") and other modes of electronic communication, such as
the Internet, may provide links between an enterprise and its customers
and suppliers. ERP systems often lack the ease of connectivity required
for electronic commerce.
. Timely Implementation. The order fulfillment process is a complex and
mission-critical application. Companies require high-performance
functionality 24 hours per day, seven days per week. Many buyers of ERP
systems have spent one or more years, and considerable resources,
attempting to implement a client/server solution without significant
success.
THE IMI SOLUTION
IMI develops, markets and supports client/server application software that
enables manufacturers, distributors and wholesalers to more effectively manage
the demand chain. The Company believes demand chain management is the next
stage in the evolution of logistics management, linking the various elements
of the supply chain from a customer-centric, or demand-driven, perspective.
System ESS has been designed specifically for the sophisticated order
fulfillment requirements of manufacturers, distributors and wholesalers,
enabling them to match product flow to actual customer demand, thereby
enhancing revenue opportunities and reducing administrative and
logistics/distribution costs. The key strengths of System ESS include the
following:
. Order Line Independence. System ESS was designed to allow the automation
and tracking of complex orders by treating each line of an order
independently. This "order line independence" allows a customer order to
be serviced automatically by any number of sales organizations, from any
number of dispersed inventory locations, for any number of customer
destinations. Moreover, order line independence allows the individual
order lines in a customer order to be fulfilled simultaneously or
sequentially. With System ESS, a customer can place a single order that
mixes supply modes, shipping dates and destinations, pricing structures,
discount schedules, special promotions, and terms of payment. In
addition, System ESS enables companies to automate the order fulfillment
process, reducing order cycle time and administrative costs, and
presents information in a form which is optimized for detailed
measurement and planning.
. Customer-driven Software Architecture. Each business process function
within System ESS is highly flexible, accommodating a heterogeneous mix
of customer attributes, including pricing structures, delivery methods,
order placement and billing procedures, and promotional activities.
Robust customer definition processes in System ESS enable companies to
manage diverse customer accounts efficiently and deliver tailored
services for maximum customer satisfaction.
. Scalability. System ESS is based on a three-tier distributed
architecture that provides for enterprise-wide scalability. Currently,
System ESS is scaled in some implementations to 800 or more simultaneous
users. Its efficient use of distributed computing also has enabled users
of System ESS to execute and manage over 10 million complex order lines
annually. The Company believes that the current version of System ESS is
capable of executing substantially higher volumes without significant
loss of efficiency.
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. Globalized Logistics. System ESS enables companies to manage more
efficiently the complexities of global sales and distribution from a
single enterprise database. System ESS allows a company to implement a
system for customer order fulfillment on a global basis, while
maintaining business structure flexibility with respect to order
execution procedures, such as warehousing and distribution. Moreover,
the functionality of System ESS supports the complexities of cross-
border transactions, such as multiple currencies, import/export laws and
documentation requirements.
. Integration with Complementary Products and Technologies. System ESS has
been designed specifically to maximize the value of existing and new
complementary systems performing manufacturing, finance or decision
support functions as well as to integrate with EDI systems to facilitate
electronic commerce with customers and suppliers. System ESS currently
uses the Oracle relational database management system as its database
server and supports the leading UNIX-based servers and Windows clients.
The Company currently is developing support for Windows NT servers.
System ESS has been designed to allow customers the freedom to choose
the most functional and advanced component applications for creating
complete, robust enterprise business systems.
. Timely Implementation. The Company has designed its product and service
offerings to enable customers to configure and implement the Company's
software solution on a timely basis, usually within six to 12 months,
depending on the required amount of integration with legacy systems,
thereby reducing costs and increasing the customer's return on
investment. System ESS implementation assistance is provided for
customers through the Company's existing service organization and from
leading systems integrators.
STRATEGY
The Company's objective is to be the leading global supplier of demand chain
management software solutions to manufacturers, distributors and wholesalers.
The key elements of IMI's strategy to achieve this leading position are as
follows:
Target Vertical Markets. The Company has to date focused its marketing,
sales and product development efforts towards establishing quality reference
customers in specific vertical markets, particularly the consumer packaged
goods market and the high-volume wholesale industry. The Company is
increasingly targeting other vertical markets which are characterized by a
need for highly flexible solutions that can support large and complex
transaction volumes, including the health care, automotive parts, electronics
and industrial products sectors.
Expand Sales, Support, Service and Marketing Organizations. IMI currently
sells and supports System ESS through direct sales and support organizations
in North America and Europe. IMI plans to continue to invest significantly in
expanding its sales, support, service and marketing organizations in North
America, Europe and Asia Pacific. As IMI increasingly targets large,
multinational customers and as existing customers migrate their System ESS
installations to other divisions internationally, the Company intends to
provide sales and support services on a worldwide basis.
Expand Usage Within Existing Customer Base. A substantial majority of the
Company's customers are large multinational enterprises that initially have
licensed System ESS for use within one or more specific divisions. IMI
believes that a significant opportunity exists within its established customer
base to expand usage of its software by licensing new sites and additional
users.
Enhance Core Product Functionality. The Company intends to continue to focus
its product development resources on the development and enhancement of demand
chain management software solutions. IMI has over 20 years of experience in
developing logistics management software. The Company
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intends to continue to increase product functionality. IMI currently is
funding development efforts to increase order volume throughput, support
Windows NT servers, support Internet and Intranet applications, and introduce
object-oriented technology.
Integrate with Complementary Products. The Company believes that the ability
to offer a software product that can integrate seamlessly with selected third
party components to provide a comprehensive solution tailored for a particular
vertical market is a key competitive advantage. The Company intends to
continue to integrate System ESS with complementary planning, manufacturing,
finance and decision support systems developed by others, including Oracle,
Manugistics, Inc., Business Objects S.A., and Datalogix, Inc.
Establish Partnerships to Leverage Third Party Strengths. In addition to its
direct sales and support organizations, the Company has and will continue to
establish partnerships with third parties to assist the Company in developing
customer relationships and in successfully customizing and implementing System
ESS.
PRODUCTS AND SERVICES
IMI provides a solution for developing demand chain management systems:
System ESS, a client/server integrated order fulfillment system and a set of
robust development tools. In addition, the Company and its third party systems
integrator partners provide a complete range of customer services, including
training, consulting and maintenance.
System ESS
Demand Chain Management
[ARTWORK APPEARS HERE]
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SYSTEM ESS
System ESS is an open systems, client/server demand chain management
solution that provides full capabilities for managing and executing the entire
order fulfillment process, including order management, physical logistics,
demand replenishment, price and promotion, demand chain monitoring, global
organization, electronic commerce and decision support. System ESS can
currently operate on server platforms from Hewlett-Packard Corporation, IBM,
Digital Equipment Corporation and Sequent Corporation. The Company is
currently developing a new version of System ESS that operates on a Windows NT
server platform, supports Internet-based electronic commerce and supports five
additional languages, which the Company plans to introduce during the quarter
ending January 31, 1997. The System ESS client operates on the Windows 3.1,
Windows 95 and Windows NT platforms. System ESS provides support for six
languages. System ESS makes full use of relational database technology,
storing each field in its own column, using descriptive column names and
identifying Primary Key/Foreign Key relations. Because System ESS makes
optimal use of relational database technology, additional third party tools
and complementary applications are easily integrated with System ESS. At the
time System ESS is delivered to a client and installed on a customer's system,
System ESS is fully capable, without additional modification, of providing the
functionality described below. In general, relatively little modification to,
or customization of, the standard System ESS software is required in order for
the software to meet the basic functionality requirements of individual
customers.
System ESS solution components include:
Order Management. System ESS performs the core customer interaction
functions, including customer order receipt, validation, pricing and
invoicing. The order management process initiates and concludes the entire
integrated order fulfillment process and enables users to monitor,
troubleshoot and proactively expedite order exceptions throughout the order
cycle. System ESS flexibly manages a diverse set of order types, including
standard orders, samples, templates, export, assemble to order, stock
transfers and quotes.
Physical Logistics. System ESS manages the transactional processes involving
inbound and outbound product movement. The physical logistics management
process defines the configuration and interaction of all components in the
distribution network, such as warehouses and finished goods. Through tight
integration with order management and sophisticated product
reservation/allocation methods, System ESS physical logistics management
enables companies to efficiently manage the logistics of fulfilling a customer
order. In addition to a comprehensive outbound (pick-pack-ship) and inbound
(finished goods receipt and putaway) logistics solution, System ESS provides a
solution for customer returns, cross-docking, cycle count/physical inventory,
and transportation scheduling.
Demand Replenishment. System ESS performs detailed inventory management
functions involving the sourcing and replenishment of goods in the
distribution network. System ESS establishes a "pull-driven" environment which
optimizes inventory levels and shipment of goods precisely when a customer
needs them. Its inventory and replenishment features are tightly integrated
with the order management process, synchronizing inventory replenishment with
customer demand. The System ESS demand replenishment process integrates with
the physical logistics process to automatically trigger and execute stock
transfers throughout the distribution network, and replenishment orders and
drop shipments from outside suppliers. Demand replenishment also supports
vendor managed inventory and continuous replenishment programs.
Price and Promotion. System ESS administers and executes all product pricing
and promotion strategies. Specifically, the System ESS price management
process manages the product price list according to geography, customer
classification or other user-defined parameters, as well as executing and
tracking a wide variety of product discounts, surcharges, accruals and
rebates. System ESS automates business-critical promotion transactions among
manufacturers, field sales organizations and customers to maximize invoice
accuracy and minimize administrative costs due to invoice inaccuracies.
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Demand Chain Monitoring. System ESS defines and monitors the attributes of
all customers and products to support the order fulfillment process. A
customer definition consists of all relevant information needed for fulfilling
orders for a highly variable customer base, ranging from nationwide chains
such as Wal-Mart and Kmart to independent, single store operations. Typical
System ESS customer definitions include information such as order placement,
handling and invoice procedures, packaging and delivery requirements, credit
and terms and conditions. Product definitions include information necessary
for automating fulfillment of orders relating to a wide variety of goods.
Typical product profiles include information such as product variation and
packaging, replacement/substitution of goods, lot control, kit and assembly
information and product restrictions.
Global Organization. System ESS allows a company to define its enterprise
sales and distribution structures, and manage multiple legal entities,
regardless of where they are physically located. It enables companies to
maintain flexible business structures that support product flow to global
customers, while efficiently handling business transactions worldwide.
Electronic Commerce. System ESS provides a complete electronic messaging
architecture that is integrated with all requisite business processes between
customers and suppliers, including orders, order changes and acknowledgments,
as well as shipping confirmations and invoices. In addition, through its
recently introduced Internet Workbench, System ESS provides order status and
tracking for participants in the demand chain, such as buyers, field
representatives and customers. System ESS also supports ISO/Edifact,
ANSI/X.12, and UCS EDI standards. The Company currently is developing
capabilities for Internet-based order placement.
Decision Support. System ESS continuously captures highly detailed data
regarding every customer purchase and related events and stores such data in
an information repository suitable for decision support processes. System ESS
provides decision support capabilities through a set of Microsoft Windows-
based client/server tools called the Customer Service Workbench, which
provides tight integration between the System ESS information repository and
electronic mail, spreadsheets, and event-trigger facilities. Other functions
include integration with Business Objects and the Company's proprietary
Economic Value Analyzer, a decision support tool that continuously monitors
the return on working capital and contains functions for volume, price and
capital simulations.
SYSTEM ESS PRICING
The license price for System ESS is determined based upon the number of
servers and defined users in the customer's system. During fiscal 1996 license
fees for System ESS generally ranged from $0.5 million to $3.0 million, and
averaged $1.5 million. The Company expects that license fees will continue to
increase in size as the Company's products become more sophisticated and
manage larger and more geographically dispersed locations. See "Risk Factors--
Lengthy Sales and Implementation Cycle; Increasing Size of Orders."
The Company derived approximately 68%, 74% and 84% of its total revenue in
fiscal 1994, 1995 and 1996, respectively, from the licensing of System ESS and
providing complementary services, and the Company expects to derive a
substantial percentage of its total revenues from licenses of System ESS in
future periods. See "Risk Factors--Dependence on Principal Product."
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SYSTEM ESS TOOLS
The Company supports System ESS with a range of software tools developed by
the Company or by third parties. These tools are used by the Company to
develop, deliver and maintain System ESS and by the Company's customers to
implement, develop extensions to and support System ESS.
TRIM. TRIM is a 4GL application development tool which is optimized for
applications involving large transaction volumes and large numbers of
concurrent users. TRIM is licensed by the Company from Trifox, Inc. and was
used by the Company to develop System ESS. TRIM is also sold as an
applications development tool to customers requiring the ability to develop
custom applications. See "Proprietary Rights."
SDCM. The Software Development and Configuration Manager ("SDCM") tool
allows the Company to develop, deliver and maintain System ESS. SDCM also
allows customers to develop customized System ESS functionality in a multi-
user environment, control the modification of programs, documentation and
databases, as well as manage data security and system integrity in the
implementation of System ESS upgrades.
Event Manager and Event Express. Event Manager and Event Express allow
customers to easily integrate System ESS with other management information
systems, such as financial reporting and manufacturing resource planning
systems.
CUSTOMER SERVICE AND SUPPORT
The Company believes that providing a high level of customer service and
technical support is essential to customer satisfaction and timely
implementation of System ESS. As of July 31, 1996, IMI had 177 employees in
its customer service and support organization providing software maintenance
and support, training, and consulting services.
IMI provides the following services and support to its customers:
Implementation and Technical Services. The Company offers its customers
certain post delivery professional services, consisting primarily of training
and implementation services. The Company provides post delivery services
pursuant to a separate service agreement. Customers who purchase training
services receive training in the use of System ESS, particularly in the use of
some of the software's more advanced features. Customers often purchase
training services as a means of efficiently introducing those staff members
who will be users of the software to the basic operation of the system. Such
training services are not, however, necessary to allow System ESS to function.
Customers also have the option of purchasing implementation services for
System ESS. These implementation services typically involve assistance with
the integration of System ESS with other existing software applications and
databases currently used by the customer. Such existing software applications
and databases will vary from customer to customer, but may often include
legacy management support, logistics or enterprise resource planning
applications. The integration of System ESS with a customer's existing
applications allows the customer to more efficiently utilize System ESS by
linking data flows between System ESS and various existing applications. Such
integration is not, however, a prerequisite to the basic functionality of
System ESS. In addition, the Company has established its Demand Chain Alliance
("DCA") Program, which trains and certifies third party providers. DCA
participants include: Computer Sciences Corporation, Computer Task Group
Limited, and SHL Systemhouse, Inc. in the United States; and Hoskyns Group
plc, Unisys Norge A/S, and ECsoft Group plc in Europe. These companies provide
systems integration and expertise to IMI customers and aid in the
implementation and ongoing technical consulting of System ESS software
solutions. The implementation of System ESS, which, depending on the customer,
may include the integration of System ESS with existing customer software and
customer training, typically requires six to 12 months. There can be no
assurance that delays in the implementation process of System ESS for any
given customer will not have a material adverse effect on the Company's
business, operating results and financial condition. See "Risk Factors--
Lengthy Sales and Implementation Cycles; Increasing Size of Orders" and "--
Reliance on and Need to Develop Additional Relationships with Third Parties."
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Training Services. IMI customers can receive, for a fee, training either at
the customer's premises or at one of IMI's offices. Course offerings are
divided into four primary blocks: System ESS, Oracle Financials, System
Administration and System Development.
Customer Support. The Company has fully-staffed support centers in the
United States, the United Kingdom and Sweden. IMI provides 24 hour support
through telephone and electronic mail, and uses logging/tracking systems for
quality assurance.
CUSTOMERS
The Company's target customers are multinational manufacturers, distributors
and wholesalers in the consumer packaged goods, health care, electronics,
automotive parts, and industrial products sectors, as well as other high-
volume wholesalers. As of May 31, 1996, the Company licensed the current
version of System ESS to 28 customers, representing over 8,300 licensed users
worldwide. The following table sets forth the license date and territory with
respect to each of the Company's customers as of April 30, 1996:
<TABLE>
<CAPTION>
1993 AND PRIOR FISCAL YEARS FISCAL 1994 FISCAL 1995 FISCAL 1996
- --------------------------- ----------------------------- ---------------------- ------------------------------------
<S> <C> <C> <C>
Ahlsell (Sweden) Bristol-Myers Squibb (USA) Alpina (Columbia) Alko (Finland)
Eastman Kodak (Nordic) Matsushita (USA) Campbell Soup (USA) Canon (USA)
EMMA Healthcare (Sweden) Norsk Medisinaldepot (Norway) Coats & Clark (USA) Carlton United Breweries (Australia)
Granges Metall (Sweden) United Tiles (Nordic) Dannon (USA) First Brands (USA)
Tour & Andersson SLL Healthcare (Sweden) Hartz Mountain (USA)
(Sweden)
SLO (Finland) Hormel Foods (USA)
Kellogg (worldwide)
Kiiltoo (Finland)
MoDo Merchants (UK)
Posten Logistik (Sweden)
Unisys (worldwide)
</TABLE>
New license sales are often for large dollar amounts, typically ranging from
$0.5 million to $3.0 million, and averaging $1.5 million and, therefore,
individual customers have often accounted for more than 10% of total revenues
in particular quarterly periods. For the year ended April 30, 1994, the
Company recorded revenues from two customers which comprised 27% and 11% of
total revenues, respectively. For the year ended April 30, 1995, the Company
recorded revenues from two customers which comprised 13% and 12% of total
revenues, respectively. For the year ended April 30, 1996, the Company had no
single customer representing more than 10% of total revenues. The Company
believes that the loss of any of these customers would not have a material
adverse effect upon the Company's business, operating results or financial
condition. Although the Company does not expect any of its current customers
to account for 10% or more of its total revenues in 1997, the Company expects
that individual customers (the identity of which will likely change on a
quarterly basis) will continue to account for 10% or more of the Company's
total quarterly revenues in future periods.
The following case studies describe how certain customers have adopted and
are implementing System ESS. Each of these customers is seeking to implement
customer-centric order fulfillment systems to enhance revenues through more
responsive customer service and reduce costs through improved operational
efficiency. In each case, the customer selected System ESS after a competitive
evaluation. There can be no assurance that new or existing customers will
achieve any of the potential benefits described below.
Eastman Kodak Company. Eastman Kodak Company ("Kodak") is engaged primarily
in developing, manufacturing, and marketing consumer and commercial imaging
products. In Europe, Kodak maintained separate distribution systems for each
of its business units in Sweden, Norway, Finland and Denmark. It operated four
warehouses and sourced products for distribution from five manufacturing
facilities throughout Europe. Kodak wanted to improve its level of customer
service while at the same time rationalizing its distribution network and
lowering total distribution and administrative costs. It decided to migrate to
client/server technology, while maintaining interfaces to legacy systems
providing
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financial and manufacturing information. To achieve its objectives Kodak had
to coordinate these activities across separate legal entities in each country,
utilizing multiple currencies and different languages. After a competitive
evaluation, Kodak licensed System ESS from IMI in 1991. The system was
operational in 12 months and has enabled Kodak to improve its customer service
levels while reducing distribution-based headcount by approximately 30% and
lowering inventory carrying and warehousing costs (three of an original total
of four warehouses have been closed). Using System ESS, Kodak can now source
products for individual order lines on the same customer purchase order from
central or local warehouses, different manufacturing facilities in different
countries or from external suppliers. The system handles over 450,000 complex
order lines per year and serves 200 users in eight different entities in four
different countries using four different languages.
Campbell Soup Company. The Campbell Soup Company ("Campbell") is a leading
manufacturer of high quality, branded convenience food products, including
Campbell's Soup, Pace (Mexican foods) and Pepperidge Farm (baked goods and
convenience foods). In its North American business units, Campbell recognized
that its customer service and product replenishment systems were not
effectively coping with the growing demands of retailers. Existing
administrative and control systems could not handle the increasing complexity
of the order fulfillment process, including order control, pricing, promotion,
invoicing, settlement and product returns, resulting in higher administrative
and operational costs. After a competitive evaluation Campbell selected System
ESS as the core of its new customer service solution. The Company believes
that System ESS, when implemented, will allow Campbell to (i) improve and
streamline its order fulfillment process; (ii) reduce average order cycle
time; (iii) increase the percentage of error free invoices; and (iv) reduce
the annual number of transactions with customer deductions.
Ahlsell AB. Ahlsell AB ("Ahlsell"), a member of the Trelleborg Group, is a
leading Swedish wholesaler serving the building industry with products for
plumbing/heating, electrical and refrigeration. Ahlsell serves 35,000 small
business customers, operates 70 retail stores, and has annual revenues of
approximately $500 million. In the late 1980's, Ahlsell wanted to improve
customer service levels while reducing distribution and administrative costs.
However, Ahlsell operated on a decentralized basis, both geographically
throughout Sweden and internally, without integration of its logistics and
financial information systems. Its challenge was compounded by extremely large
order processing demands, requiring it to process an average of approximately
9 million order lines per year. System ESS was fully operational in fiscal
1992, and currently handles over 800 concurrent users operating on one of the
world's largest commercial UNIX Oracle application databases. Following the
implementation of System ESS, Ahlsell has reduced its warehouses from 10 to 1,
which stocks 50,000 different items. In addition, it offers its customers
50,000 items which are not held in inventory, but can be purchased from third
party suppliers, mixed with stock orders and drop-shipped. Ahlsell has
improved product availability and achieved 24-hour in-country delivery while
reducing administrative costs by approximately 75% and lowering inventory
levels.
SALES AND MARKETING
The Company sells and supports its products through direct sales and support
organizations in Sweden, the United States and the United Kingdom. The Company
maintains corporate headquarters in Stockholm, Sweden and has sales and/or
support services offices in Tarrytown, New York; Boston, Massachusetts;
Marlton, New Jersey; Chicago, Illinois; Houston, Texas; Los Angeles,
California; London, United Kingdom; and Gothenburg and Linkoping, Sweden. As
of July 31, 1996, the Company employed 36 sales and marketing personnel. The
Company intends to increase expenditures to expand its direct sales and
marketing organizations in the United States, Europe and Asia Pacific. To
support its direct sales force, the Company conducts marketing programs that
include public relations, direct mail, trade shows, product seminars, user
group conferences and ongoing customer communication programs. See "Risk
Factors--Dependence upon Successful Expansion of Sales, Support, Service and
Marketing Organizations." For certain geographic information relating to the
Company's revenues by customer location and income (loss) from operations and
identifiable assets by operating subsidiary location, see Note 17 of Notes to
Consolidated Financial Statements.
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The Company also relies on informal arrangements with a number of consulting
and systems integration firms to enhance its marketing, sales and customer
support efforts, particularly with respect to implementation and support of
its products as well as lead generation and assistance in the sale process.
The Company expects to continue to rely significantly upon such third parties
for marketing and sales, lead generation, product implementation, customer
support services and end user training. See "Risk Factors--Reliance on and
Need to Develop Additional Relationships with Third Parties."
In addition, the Company has an informal joint marketing and sales
arrangement with Oracle pursuant to which the two companies jointly market to
potential customers in the consumer packaged goods market. The Company
believes that its relationship with Oracle increases the Company's opportunity
in this market because of Oracle's extensive penetration with consumer
packaged goods companies and its large sales, marketing, service and support
organizations. Under this arrangement, the Company pays to Oracle a percentage
of the Company's license revenue from customers in the consumer packaged goods
market to whom licenses are jointly marketed by Oracle and the Company. This
fee is not payable with respect to certain specified customers or potential
customers with whom the Company has had previous contact. The Company believes
that its relationship with Oracle is beneficial to the Company and the parties
have commenced discussions concerning the formalization of their relationship.
See "Risk Factors-- Relationship with Oracle Corporation."
Because the licensing of the Company's products generally involves a
significant capital expenditure by the customer, the Company's sales process
is subject to the delays and lengthy approval processes that are typically
involved in such expenditures. For these and other reasons, the sales cycle
associated with the licensing of the Company's products varies substantially
from customer to customer and typically lasts between six and 12 months,
during which time the Company may devote significant time and resources to a
prospective customer, including costs associated with multiple site visits,
product demonstrations and feasibility studies, and experience a number of
significant delays, over which the Company has no control. See "Risk Factors--
Lengthy Sales and Implementation Cycle; Increasing Size of Orders." In
addition the Company's quarterly operating results are subject to certain
seasonal fluctuations. See "Risk Factors--Significant Fluctuations in
Quarterly Operating Results and Seasonality; Potential Quarterly Losses" and
"Management's Discussion and Analysis of Financial Conditions--Results of
Operations."
PRODUCT DEVELOPMENT
The Company has devoted significant resources to product development since
its inception and has increased such investments in recent years. The
Company's product development expenses for the year ended April 30, 1994, 1995
and 1996 were $5.5 million, $7.0 million and $6.8 million, respectively, and
for the three months ended July 31, 1996 were $2.0 million. As of July 31,
1996, the Company employed 81 people in product development. The Company
intends to increase its investments in product development in future periods.
The Company believes that its future success depends upon its ability to
continue to enhance existing products, respond to changing customer
requirements and develop and introduce new or enhanced products that keep pace
with technological developments and emerging industry standards. Customer
requirements include, but are not limited to, operability across distributed
and changing heterogeneous hardware platforms, operating systems, relational
databases and networks. For example, as certain of the Company's customers
start to utilize Windows NT or other operating platforms, it will be necessary
for the Company to enhance its System ESS products to operate on such
platforms in order to meet these customers' requirements. The Company is
currently developing a new version of System ESS that operates on the Windows
NT server platform, supports Internet-based electronic commerce and supports
five additional languages. However, there can be no assurance that the Company
will be successful in developing this enhanced version of System ESS or new
products on a timely basis, or that such enhancements or new products, when
introduced, will achieve market acceptance or will adequately address the
changing needs of the marketplace. See "Risk Factors--Rapid Technological
Change and Requirement for Frequent Product Transitions."
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COMPETITION
The Company's products are targeted at the emerging market for demand chain
management software, which is intensely competitive and characterized by rapid
technological change. The Company's competitors are diverse and offer a
variety of solutions directed at various segments of the supply and demand
chain as well as the enterprise as a whole. These competitors include
(i) enterprise application software vendors, such as SAP, which currently
offer sophisticated client/server ERP solutions, (ii) companies offering
standardized or customized products on mainframe and/or mid-range computer
systems, (iii) internal development efforts by corporate information
technology departments, (iv) smaller independent companies which have
developed or are attempting to develop advanced logistics and execution
software which complement or compete with the Company's software solutions,
and (v) other business application software vendors who may broaden their
product offerings by internally developing, or by acquiring or partnering with
independent developers of, advanced logistics and execution software. In
connection with specific customer evaluations, certain ERP and other
application software vendors have from time to time jointly marketed the
Company's products as a complement to their own systems. To the extent such
vendors develop or acquire systems with functionality comparable or superior
to System ESS, their significant installed customer base, long-standing
customer relationships and ability to offer a broad solution could provide a
significant competitive advantage over the Company. In addition, many of the
Company's competitors have longer operating histories, significantly greater
financial, technical, marketing and other resources, greater name recognition
and a larger installed base of customers than the Company. In order to be
successful in the future, the Company must continue to respond promptly and
effectively to the challenges of technological change and competitors'
innovations. The Company's competitors may be able to respond more quickly to
new or emerging technologies and changes in customer requirements or devote
greater resources to the development, promotion and sale of their products
than the Company. The Company also expects to face additional competition as
other established and emerging companies enter the market for demand chain
management software and new products and technologies are introduced. In
addition, current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their products to address the needs of the
Company's prospective customers. Accordingly, it is possible that new
competitors or alliances among current and new competitors may emerge and
rapidly gain significant market share. Increased competition could result in
price reductions, fewer customer orders, reduced gross margins and loss of
market share, any one of which could materially adversely affect the Company's
business, operating results and financial condition.
The principal competitive factors affecting the market for the Company's
products include vendor and product reputation, architecture, functionality
and features, speed, costs and ease of implementation, quality of support and
product quality, price and performance. Based on these factors, the Company
believes that it has competed effectively to date. There can be no assurance
that the Company will be able to compete successfully against current and
future competitors, and the failure to do so could have a material adverse
effect upon the Company's business, operating results and financial condition.
See "Risk Factors--Competition."
PROPRIETARY RIGHTS
The Company relies on a combination of copyright, trademark and trade secret
laws, confidentiality procedures and license arrangements to establish and
protect its proprietary rights. As part of its confidentiality procedures, the
Company licenses its software pursuant to signed license agreements that
impose restrictions on the licensee's ability to utilize the software and
generally enters into non-disclosure agreements with its employees,
distributors and corporate partners, and limits access to and distribution of
its software, documentation and other proprietary information. Despite these
precautions, it may be possible for a third party to copy the Company's
products or otherwise obtain and use the Company's
43
<PAGE>
proprietary technology without authorization. Policing unauthorized use of the
Company's products is difficult, and, while the Company is unable to determine
the extent to which piracy of its software products exists, software piracy
can be expected to be a persistent problem. In addition, the laws of certain
countries do not protect the Company's proprietary rights to the same extent
as do the laws of the United States or Sweden. Accordingly, there can be no
assurance that the Company's protection of its proprietary rights will be
adequate or that the Company's competitors will not independently develop
similar technology or duplicate the Company's products.
The Company is not aware that any of its products infringe the proprietary
rights of third parties. There can be no assurance, however, that third
parties will not claim such infringement by the Company with respect to
current or future products. The Company expects that software product
developers increasingly will be subject to such claims as the number of
products and competitors in the Company's industry segment grows and the
functionality of products in the industry segment overlaps. Any such claims,
with or without merit, could result in costly litigation that could absorb
significant management time, which could have a material adverse effect on the
Company's business, operating results and financial condition. Such claims
might require the Company to enter into royalty or license agreements. Such
royalty or license agreements, if required, may not be available on terms
acceptable to the Company or at all, which could have a material adverse
effect upon the Company's business, financial condition or results of
operations. See "Risk Factors--Dependence on Proprietary Technology; Risks of
Infringement."
EMPLOYEES
As of July 31, 1996, the Company employed a total of 317 full-time
employees, including 206 in Sweden, 75 in the United States and 36 in the
United Kingdom. The Company believes its future success will depend in part
upon its ability to attract and retain highly skilled management, marketing,
sales, consulting and product development personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will be
able to retain its key employees or that it will be successful in attracting,
assimilating and retaining such personnel in the future. Of the Company's 317
full-time employees, 36 are in sales and marketing, 177 are in technical
support and maintenance, 81 are in product development and 23 are in general
administrative functions. IMAB voluntarily complies with the Swedish Act of
Board Representation for Employees, which provides employees of certain
companies the right to elect representatives to the board of directors of such
companies. Two employees (and two deputy employee representatives) are elected
as representatives to IMAB's board of directors. The Company does not have any
collective bargaining agreements with its employees and believes that its
employee relations are good. See "Risk Factors--Dependence on and Need to Hire
Additional Personnel in All Areas."
FACILITIES
The Company's principal administrative, sales, marketing, product
development and support facilities are located in Stockholm, Sweden, where the
Company leases approximately 50,000 square feet under a lease agreement that
expires in September 1997. The Company also leases office space for its six
sales and service offices in the United States, two in Sweden and one in the
United Kingdom. Substantially all of the Company's office space in Sweden is
being utilized and the Company currently plans to obtain additional office
space in Sweden in fiscal 1997. The Company's offices in the United States and
the United Kingdom are adequate to allow the Company to expand according to
its plans for the next several fiscal years. See Note 14 of Notes to
Consolidated Financial Statements for information regarding the Company's
obligations under its facilities leases.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceeding that would have a
material adverse effect on the Company's business, operating results or
financial condition.
44
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS; CERTAIN SIGNIFICANT EMPLOYEES
The following table sets forth certain information as of the date of this
Prospectus with respect to each person who is an executive officer, director
or significant employee of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stig G. Durlow (1)...... 45 Chairman of the Board, President and Chief Executive Officer
Carl Joelsson........... 52 Vice President, World Wide Services
Mats Lillienberg........ 35 Vice President, Product Development
Lars-Goran Peterson..... 51 Vice President, Finance, Chief Financial Officer and Secretary
Jeffrey A. Harris
(1)(2)................. 40 Director
William H. Janeway...... 53 Director
Martin Leimdorfer
(1)(2)................. 60 Director
Geoffrey W. Squire (2).. 49 Director
CERTAIN SIGNIFICANT EM-
PLOYEES
Martyn Richards ........ 37 Vice President, Sales and Marketing, United Kingdom
David Simbari .......... 41 Vice President, Sales and Marketing, The Americas
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Stig G. Durlow joined the Company as Vice President, Nordic Operations in
1994 and in February 1995 was promoted to President and Chief Executive
Officer of the Company. Mr. Durlow has served as a director of the Company and
as Chairman of the Board since May 1996. Mr. Durlow started his professional
career at IBM Sweden in 1974 as a Systems Engineer. He held various sales and
marketing positions in Sweden and in 1991 became the Director of Systems
Strategies for IBM Europe in Paris. Most recently he was responsible for the
Industrial Sector for IBM in the Nordic countries as well as the Public Sector
in Sweden. Mr. Durlow holds a M.Sc. degree in Electrical Engineering from
Chalmers University of Technology, Gothenburg, Sweden.
Carl Joelsson joined the Company in 1988 as President of Industri-Matematik
Projektledning AB, a subsidiary of the Company which provides implementation
services and support for the Company's customers. Mr. Joelsson was also the
project leader for developing System ESS and installing the system at Ahlsell
AB. Mr. Joelsson is currently Vice President, World Wide Services. From 1980
to 1988, Mr. Joelsson was President of Joeldata AB, a software consulting
company.
Mats Lillienberg joined the Company in 1984 as a System Analyst responsible
for development of enhancements to System ESS products and currently is Vice
President, Product Development. Before joining the Company, Mr. Lillienberg
worked for Kommun Data AB as a Programmer Analyst for two years. Mr.
Lillienberg holds a U.C. degree in Automatic Data Processing and Economics
from Stockholm University.
Lars-Goran Peterson joined the Company in February 1992 and has served as
its Chief Financial Officer since January 1994 and as its Secretary since May
1996. Mr. Peterson served in various other capacities with the Company between
February 1992 and January 1994. Before joining the Company, Mr. Peterson was
Chief Financial Officer of AB Calvert & Co., a wholesale distributor of tube
and steel, from 1982 to 1992. Prior to joining AB Calvert & Co., Mr. Peterson
served as Chief Financial Officer of Nordiska Industri AB, a manufacturer and
wholesale distributor of textiles, from 1972 to 1982.
45
<PAGE>
Jeffrey A. Harris has served as a director of IMAB since 1991 and as a
director of the Company since 1995. Mr. Harris has been a Managing Director of
E.M. Warburg, Pincus & Co., Inc. ("E.M. Warburg") since 1988, where he has
been employed since 1983. Mr. Harris is a director of Newfield Exploration
Company, Comcast UK Cable Partners Limited, Knoll, Inc. and several privately
held companies.
William H. Janeway has served as a director of IMAB since 1991 and of the
Company since May 1995. Mr. Janeway has been a Managing Director of E.M.
Warburg since 1988. Prior to joining E.M. Warburg, Mr. Janeway was the Vice
President and Director of Corporate Finance from 1979 to 1988 at F. Eberstadt
& Co., Inc. Mr. Janeway is a director of Vanstar Corporation, Maxis, Inc.,
OpenVision Technologies, Inc., Zilog, Inc. and several privately-held
companies.
Martin Leimdorfer founded IMAB in 1967. Dr. Leimdorfer was President and
Chief Executive Officer of IMAB from 1967 to 1995. He has been a director of
IMAB since its formation and a director of the Company since its formation in
1995. Dr. Leimdorfer is a member of the Royal Swedish Academy of Engineering
Sciences and serves on the boards of the Swedish Trade Council and the Swedish
Institute for Industrial and Economics Research. He holds a M.Sc. degree from
the Royal Institute of Technology, Stockholm, Sweden, and a Ph.D. from
Chalmers University of Technology, Gothenburg, Sweden.
Geoffrey W. Squire has served as a director of IMAB since 1994 and as a
director of the Company since May 1996. Mr. Squire is a director and Chief
Executive Officer of OpenVision Technologies, Inc. From 1984 to 1987, Mr.
Squire was Managing Director and Senior Vice President of Oracle and from 1987
to 1990, Chief Executive Officer of Oracle Europe. In 1990, he was promoted to
Executive Vice President of Oracle and President of Worldwide Operations. In
1992, he was appointed to Oracle's five-person Executive Committee with
responsibility as Chief Executive, International Operations. Mr. Squire has
sat on the Council of the United Kingdom Computing Services and Software
Association since 1990. In 1995, Mr. Squire was elected as the founding
President of the European Information Services Association.
Martyn Richards joined the Company in 1994 as Sales Director, United
Kingdom. Mr. Richards previously worked for Oracle for seven years as a Senior
Business Manager and as a Salesman. Mr. Richards holds a degree in Computer
Science from Gwent College.
David Simbari joined the Company in 1993 as Sales Director, United States.
Before joining the Company, Mr. Simbari worked at Ross Systems, Inc. from 1986
to 1993, where he served most recently as Vice President of North American
Sales. Mr. Simbari holds a B.A. degree in Accounting from Siena College.
All directors hold office until the next annual meeting of the shareholders
or until their successors have been elected and qualified. All officers hold
office for one year or until their successors are elected and qualified.
COMPENSATION OF DIRECTORS
Non-employee directors are paid $10,000 per year plus $1,000 for each board
meeting they attend. The Company does not pay additional amounts for committee
participation. All directors are reimbursed for their reasonable out-of-pocket
expenses incurred in attending the meetings of the Board of Directors and
committees thereof. Non-employee directors are eligible to receive non-
statutory options under the Company's Stock Option Plan. See "Management--
Stock Option Plan."
AUDIT AND COMPENSATION COMMITTEES
The Company's Board of Directors appointed its Audit Committee in May 1996.
The Audit Committee consists of Messrs. Harris and Squire and Dr. Leimdorfer.
The Audit Committee makes recommendations to the Board of Directors regarding
the selection of independent auditors, reviews the result and scope of the
audit and other services provided by the Company's independent accountants and
reviews and
46
<PAGE>
evaluates the Company's audit and control functions. Prior to May 1996, the
Company's Board of Directors undertook the responsibilities of the Audit
Committee. During fiscal 1996, the Compensation Committee consisted of Mr.
Harris and Dr. Leimdorfer. The Compensation Committee makes recommendations
regarding the Company's Option Plan and Restricted Stock Plan and makes
decisions concerning salaries and incentive compensation for employees of the
Company.
COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION
During fiscal 1996, the Compensation Committee of the Company's Board of
Directors consisted of Mr. Harris and Dr. Leimdorfer. No executive officer of
the Company serves as a member of the Board of Directors or Compensation
Committee of any entity which has one or more executive officers serving as a
member of the Company's Board of Directors or Compensation Committee. During
fiscal 1996, Mr. Harris served as the Secretary of the Company and Dr.
Leimdorfer served as President of the Company. Dr. Leimdorfer has a consulting
arrangement with the Company under which he was paid approximately $306,000 in
fiscal 1996 for services rendered. See "Certain Transactions."
EXECUTIVE COMPENSATION
The following tables set forth summary information regarding compensation
paid by the Company for services during the fiscal year ended April 30, 1996,
to the Company's Chief Executive Officer and Chief Financial Officer (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION (1) COMPENSATION AWARDS
------------------------------------- -------------------
OTHER ANNUAL RESTRICTED
NAME SALARY ($) BONUS ($) COMPENSATION (2) STOCK (3)
---- ---------- --------- ---------------- -------------------
<S> <C> <C> <C> <C>
Stig G. Durlow, Chairman
of the Board, President
and Chief Executive
Officer................ $187,579 $86,214 -- 600,000
Lars-Goran Peterson,
Vice President,
Finance, Chief
Financial Officer and
Secretary.............. $101,353 -- -- 192,000
</TABLE>
- --------
(1) Amounts reflect Swedish kronor converted into U.S. dollars at an exchange
rate of $1.00 = SEK 6.94. See "Exchange Rates."
(2) Excludes certain perquisites and other benefits, the amount of which did
not exceed 10% of the Named Executive Officer's total annual salary and
bonus.
(3) Represents shares of Common Stock purchased under the Company's Restricted
Stock Program. See "Management--Restricted Stock Program."
EMPLOYMENT AGREEMENTS
The Company is party to employment agreements with Stig G. Durlow and Lars-
Goran Peterson that provide for an annual salary and other provisions that are
customary in the Swedish labor market. In addition, Mr. Durlow's employment
agreement provides for a bonus based upon the Company's fiscal year
profitability. Each of Messrs. Durlow and Peterson receive a car allowance and
Mr. Durlow is entitled to contributions to a pension plan. Copies of such
employment agreements have been attached as exhibits to the Registration
Statement of which this Prospectus is a part.
STOCK OPTION PLAN
In May 1995, the Company adopted the Industri-Matematik International Corp.
Stock Option Plan (the "Option Plan"), under which 3,000,000 shares of Common
Stock were reserved for issuance upon
47
<PAGE>
exercise of options granted to key employees, members of the Company's Board
of Directors, consultants and other advisors of the Company. The Option Plan
provides for grants of incentive stock options to key employees (including
officers and employee directors) and nonstatutory stock options for members of
the Board of Directors, consultants and other advisors of the Company who are
not employees of the Company. The Option Plan is administered by a Committee
appointed by the Board of Directors of the Company which determines recipients
and types of awards to be granted, including the exercise price, number of
shares subject to the award, vesting and other conditions.
The terms of stock options granted under the Option Plan may not exceed 10
years. The exercise price of options granted under the Option Plan is
determined by the Committee; provided, however, that the exercise price of an
incentive stock option cannot be less than equal to the fair market value of
the Common Stock on the date the option is granted. The exercise price of any
incentive stock option granted to a recipient who owns more than 10% of the
voting power of all classes of the Company's stock cannot be less than equal
to 110% of the fair market value of the Common Stock on the date the option is
granted.
Options outstanding under the Option Plan generally vest and become
exercisable assuming continued services as an employee, director or consultant
at the rate of 20% of the shares subject to an option on the first anniversary
of the Option Agreement and 20% every year thereafter for four years.
Shares subject to options which have lapsed or terminated may again be
subject to options granted under the Option Plan. Furthermore, the Committee
may amend an option to accelerate the dates after which an option may be
exercised in whole on in part. Upon any change of control in the Company,
including (a) the merger or consolidation of the Company with any other
corporation, the sale of substantially all of the assets of the Company, the
sale by the shareholders of the Company of a majority of the voting stock of
the Company, or the liquidation or dissolution of the Company, or (b) any
action taken by the Company's shareholders or by the Company's Board which the
Board determines to constitute a change of control, each option or portion
thereof which is not yet exercisable vests and becomes exercisable in full and
the termination date for each option which has a termination date falling
within 90 days after a change of control is extended until the earlier of the
90th day after the change of control or the day before the tenth anniversary
of the date such option was granted.
The Committee, in its discretion, may in connection with the grant of any
option under the Option Plan, grant to the optionee a stock appreciation right
(an "SAR"). Such SAR allows the optionee to receive, in the sole discretion of
the Committee, shares and/or cash equal to the excess of the fair market value
of an option on the date of exercise over the exercise price on the date of
the exercise of the option. Neither options nor SARs may be transferred by the
optionee other than by will or the laws of descent and distribution.
As of September 15, 1996, options to purchase an aggregate of 1,209,975
shares of Common Stock were outstanding and held by 24 people, and 1,790,025
shares of Common Stock remained available for future grant. The Option Plan
will terminate April 30, 2005, unless terminated sooner by the Board of
Directors.
RESTRICTED STOCK PROGRAM
In May 1995, the Company instituted a restricted stock program (the
"Restricted Stock Program") whereby shares of the Company's Common Stock were
purchased by certain key employees of the Company's operating subsidiary in
Sweden in exchange for nonrecourse promissory notes. The shares were issued
through a wholly owned subsidiary of the Company, Software Finance Corporation
("SFC"). Principal on the promissory notes is due either nine or ten years
after issuance with interest being due and payable annually, generally at the
beginning of each fiscal year.
Under the terms of the restricted stock program, SFC has an option to
repurchase the shares issued to each employee provided it pays the annual
option price. The exercise price to be paid by SFC upon
48
<PAGE>
exercise of a purchase option shall be the fair market value, provided that if
the option to purchase is exercised prior to the end of a stated period, then
the exercise price shall be the initial purchase price for a percentage of the
shares after the first anniversary of the option agreement, decreasing by 20%
each subsequent year, until the exercise price is the fair market value. SFC
pays an annual option premium to the restricted stock shareholders at a rate
substantially equal to the interest due on the non-recourse promissory note.
SFC has the right and obligation to apply against the payment of any
principal due on the promissory note any amounts payable by SFC to the
recipient of the Shares as the exercise price under the Option Agreement. The
Company has the ability and intent to prevent the recipients from selling the
purchased securities. The Company has not recognized any compensation expense
in respect of the restricted stock in its statements of operations since the
purchase price of the restricted stock did not differ from the estimated fair
market value of the Common Stock on the date of issuance. The restricted stock
shares issued under this program and dividends paid are subject to a pledge
and security interest held by SFC.
Under the Restricted Stock Program, as of September 15, 1996, a total of
1,256,985 shares have been purchased by eight people at an average price of
$2.09 per share for total proceeds of $2,626,000.
EMPLOYEE BENEFIT PLANS
The Company provides retirement benefits for substantially all employees in
the United States and in other locations outside of Sweden. In the United
States and the United Kingdom, the Company sponsors defined contribution
plans. The Company's Swedish subsidiary, IMAB, has a supplemental defined
contribution plan for certain key management. IMAB also participates in
several pension plans (non-contributory for employees), which cover
substantially all employees of its Swedish operations. The plans are
administered by a national organization, Pensionsregistreringsinstitutet, in
which most companies in Sweden participate. The level of benefits and
actuarial assumptions are established by the national organization and,
accordingly, IMAB may not change benefit levels or actuarial assumptions.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation contains certain provisions
permitted under the GCL which eliminate the personal liability of directors
for monetary damages for a breach of director's fiduciary duty, except for:
(i) breach of a director's duty of loyalty, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) the unlawful payment of dividends, stock purchase or stock redemption,
or (iv) any transaction from which the director derives any improper personal
benefit. The Certificate of Incorporation provides that a director's liability
shall be eliminated or limited to the fullest extent permitted by the GCL, as
amended from time to time. The Certificate of Incorporation and the Company's
By-laws also contain provisions indemnifying the Company's directors and
officers to the fullest extent permitted by the GCL. The Company has also
entered into agreements to indemnify its directors and executive officers. A
copy of the form of such indemnification agreement has been attached as an
exhibit to the Registration Statement of which this Prospectus is a part. The
Company believes that these provisions and agreements will assist the Company
in attracting and retaining qualified individuals to serve as directors and
officers.
49
<PAGE>
CERTAIN TRANSACTIONS
Warburg became an IMAB stockholder in 1991 in connection with a transaction
in which IMAB, then a public company in Sweden, became privately owned and
delisted its shares from the Stockholm Stock Exchange.
In June 1992, IMAB issued a term promissory note to Warburg in the principal
amount of $2.5 million (the "1992 Note"). In April 1993, the principal amount
of the 1992 Note was converted into 1,355,250 additional shares of IMAB
capital stock.
In June 1993, IMAB issued a second term promissory note to Warburg in the
principal amount of $2 million (the "1993 Note"). In January 1994, the
principal amount of the 1993 Note was converted into 1,471,875 shares of IMAB
capital stock.
In July 1994, IMAB issued a third term promissory note to Warburg in the
principal amount of $2.5 million (the "1994 Note"). In April 1995, the
principal amount of the 1994 Note, together with accrued interest thereon, was
converted into 1,319,265 shares of IMAB capital stock.
In May 1995, the then shareholders of IMAB exchanged all of their IMAB
shares for shares of the Company's capital stock (the "Exchange"). No cash
consideration was paid to or by the Company in connection with the Exchange.
Following the Exchange, IMAB became a wholly-owned subsidiary of the Company.
In October 1995, the same shareholders acquired a total of 612,468 shares of
the Company's Common Stock for an aggregate purchase price of $1,224,936.
At various times during 1995 and 1996 certain employees of the Company
(including certain of its executive officers) purchased an aggregate of
1,256,985 shares of the Company's Common Stock under the Company's Restricted
Stock Program for an aggregate consideration of $2,626,000, or an average
purchase price of $2.09 per share. In July 1996, the Company granted options
under the Company's Option Plan to Geoffrey Squire to purchase 50,000 shares
of the Company's Common Stock at an exercise price of $9.00 per share. See
"Management--Stock Option Plan," "--Restricted Stock Program" and "--Executive
Compensation."
The Company has a consulting arrangement with Dr. Leimdorfer which expires
on October 31, 1996. Pursuant to this arrangement, Dr. Leimdorfer earns base
compensation plus contingent compensation based on the Company achieving
certain financial performance targets. Dr. Leimdorfer received $306,000 in
fiscal 1996 pursuant to this arrangement.
In September 1996, Dr. Martin Leimdorfer and Warburg entered into a
registration and expenses agreement with the Company under which the Company
agreed to include certain of their shares of Common Stock in this Registration
Statement. In addition, Dr. Leimdorfer and Warburg are entitled to certain
registration rights in the future. See "Description of Capital Stock--
Registration Rights."
The Company has entered into indemnification agreements with its directors
and officers. See "Management--Limitation on Liability and Indemnification
Matters."
All future transactions between the Company and its officers, directors,
principal stockholders and their affiliates will be approved by a majority of
the Board of Directors, including a majority of the independent and
disinterested outside directors on the Board of Directors.
50
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The table below sets forth certain information regarding the beneficial
ownership of the voting Common Stock of the Company as of the date of this
Prospectus and as adjusted to reflect the sale of the shares of Common Stock
offered hereby, by (i) each person known by the Company to own beneficially 5%
or more of the outstanding shares of Common Stock, (ii) the Selling
Stockholders, (iii) each director of the Company who beneficially owns shares
of Common Stock, (iv) each Named Executive Officer and (v) all directors and
executive officers as a group and as adjusted to reflect the sale of the
Common Stock offered hereby. Except as otherwise indicated, the persons or
entities listed below have sole voting and investment power with respect to
all shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED NUMBER BENEFICIALLY OWNED
PRIOR TO OF AFTER
OFFERING (1)(2) SHARES OFFERING (1)(2)(5)
------------------ BEING ------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
------------------------ ---------- ------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Warburg, Pincus Investors,
L.P.(1)(3)(5)................. 6,882,051 55.5% 6,882,051 44.1%
Martin Leimdorfer.............. 4,267,017 34.4% 1,200,000 3,067,017 19.7%
William H. Janeway(1)(4)(5).... 6,882,051 55.5% 6,882,051 44.1%
Jeffrey A. Harris(1)(4)(5)..... 6,882,051 55.5% 6,882,051 44.1%
Stig G. Durlow(6).............. 600,000 4.8% 600,000 3.8%
Lars-Goran Peterson(6)......... 192,000 1.5% 192,000 1.2%
All executive officers and
directors as a group
(8 persons)(7)................ 12,181,068 98.2% 10,981,068 70.4%
</TABLE>
- --------
(1) Based on 12,406,053 shares of voting Common Stock outstanding prior to
this offering, assuming conversion of outstanding Preferred Stock into
Common Stock. Does not include 12,088,200 shares of nonvoting Class B
Common Stock owned by Warburg, which represents all outstanding Class B
Common Stock. Including such shares, Warburg will hold 68.5% of the
Company's outstanding stock, and Stig G. Durlow, Lars-Goran Peterson, Dr.
Martin Leimdorfer and all executive officers and directors as a group will
hold 2.2%, 0.7%, 11.1% and 83.3%, respectively, of the Company's
outstanding stock after this offering. See "Description of Capital Stock."
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options or warrants held by that
person which are currently exercisable or exercisable within 60 days of
the date of this Prospectus are deemed outstanding. Such shares, however,
are not deemed outstanding for the purposes of computing the percentage
ownership of each other person.
(3) The sole General Partner of Warburg is Warburg, Pincus & Co. ("WP"), a New
York general partnership. Lionel I. Pincus is the managing partner of WP
and may be deemed to control WP. E.M. Warburg, Pincus & Company ("EMWP &
Co."), a New York general partnership that has the same general partners
as WP, manages Warburg. WP has a 20% interest in the profits of Warburg
and, through its wholly-owned subsidiary, E.M. Warburg, EMWP & Co. owns
1.13% of the limited partnership interests in Warburg. Mr. Janeway and Mr.
Harris, directors of the Company, are Managing Directors of E.M. Warburg
and General Partners of WP and EMWP & Co. As such, Mr. Janeway and Mr.
Harris may be deemed to have an indirect pecuniary interest (within the
meaning of Rule 16a-1 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) in an indeterminate portion of the shares
beneficially owned by Warburg, EMWP & Co. and WP. See footnote (2) above.
The named person's address is 466 Lexington Avenue, 10th Floor, New York,
New York, 10017.
(4) All of the shares indicated are owned of record by Warburg and are
included because of Mr. Janeway's and Mr. Harris' affiliation with
Warburg. Messrs. Janeway and Harris disclaim beneficial ownership of these
shares, except to the extent of their respective pecuniary interests
therein. Messrs. Janeway and Harris's address is 466 Lexington Avenue,
10th Floor, New York, New York 10017. See footnotes (2) and (3) above.
(5) Assumes that the Underwriters' over-allotment option is not exercised. If
the over-allotment option were exercised in full, Warburg would own
6,222,051 shares, or 39.9% of the Company's outstanding voting Common
Stock after this offering.
(6) Represents shares of Common Stock purchased under the Restricted Stock
Program, "See Management--Restricted Stock Program."
(7) Includes 60,000 shares of Common Stock purchased by Carl Joelsson and
180,000 shares purchased by Mats Lillienberg under the Restricted Stock
Program. "See Management--Restricted Stock Program."
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
After giving effect to the filing of an Amended and Restated Certificate of
Incorporation upon the closing of this offering, the authorized capital stock
of the Company consists of 75,000,000 shares of Common Stock, $.01 par value,
12,500,000 of which are designated Class B Common Stock, $.01 par value, and
15,000,000 shares of Preferred Stock, $.01 par value.
The following summary which sets forth all material provisions of the Common
Stock and Preferred Stock is subject to, and qualified in its entirety by, the
provisions of the Company's Certificate of Incorporation, which is included as
an exhibit to the Registration Statement of which this Prospectus is a part,
and by the provisions of applicable law.
COMMON STOCK
As of July 31, 1996, there were 12,406,053 shares of Common Stock
outstanding held of record by 10 stockholders. There will be 27,694,253 shares
of Common Stock outstanding, including 12,088,200 shares of Class B Common
Stock, after giving effect to the sale of Common Stock offered hereby.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Subject to
preferences that may be applicable to any outstanding shares of Preferred
Stock, the holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available for the payment of dividends. In the event of a liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
and liquidation preferences of any outstanding shares of Preferred Stock.
Holders of Common Stock have no preemptive rights or rights to convert their
Common Stock into any other securities. There are no redemption or sinking
fund provisions applicable to the Common Stock. See "Dividend Policy."
CLASS B COMMON STOCK
Following the completion of this offering, 12,088,200 shares of Class B
Common Stock will be outstanding and held by Warburg. The Class B Common Stock
has the same rights, preferences, privileges and restrictions as the Common
Stock, except that the Class B Common Stock has no voting rights. The shares
of Class B Common Stock will, upon any transfer of such shares by Warburg, be
automatically converted into a like number of shares of Common Stock, subject
to adjustment upon certain events with respect to the Common Stock. In
addition the holder of Class B Common Stock has the right to convert such
shares to Common Stock at any time, provided that after conversion, such
holder may not control more than 49% of the Common Stock.
PREFERRED STOCK
Pursuant to the Company's Certificate of Incorporation, the Board of
Directors has the authority, without further action by the stockholders, to
issue up to 15,000,000 shares of Preferred Stock in one or more series and to
determine or alter the designation, powers, preferences, privileges and
relative participating, optional or special rights and the qualifications,
limitations or restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption and liquidation preferences, any or
all of which may be greater than the rights of the Common Stock. The Board of
Directors, without stockholder approval, can issue Preferred Stock with
voting, conversion or other rights that could adversely affect the voting
power and other rights of the holders of Common Stock. Preferred Stock could
thus be issued quickly with terms calculated to delay or prevent a change in
control of the Company or make removal of management more difficult.
Additionally, the issuance of Preferred Stock may have the effect of
decreasing the market price of the Common Stock and may adversely affect the
voting rights of the holders of Common Stock. Following completion of this
offering, there will be no shares of Preferred Stock outstanding, and the
Company has no plans to issue any of the Preferred Stock.
52
<PAGE>
REGISTRATION RIGHTS
After this offering, the holders of 22,037,268 shares of Common Stock will
be entitled to certain rights with respect to the registration of such shares
under the Securities Act. Under the terms of the agreement between the Company
and the holders of such registrable securities, if the Company proposes to
register any of its securities under the Securities Act, such holders are
entitled to notice of such registration and are entitled to include shares of
such Common Stock therein. Such stockholders benefitting from these rights may
also require the Company to file registration statements under the Securities
Act at the Company's expense with respect to their shares of Common Stock, and
the Company is required to use its reasonable efforts to effect such
registration. Further, holders may require the Company to file additional
registration statements on Form S-3 at the Company's expense. These rights are
subject to certain conditions and limitations, among them the right of the
underwriters of an offering to limit the number of shares included in such
registration in certain circumstances.
ANTITAKEOVER EFFECTS OF PROVISIONS OF CERTIFICATE OF INCORPORATION, BYLAWS AND
DELAWARE LAW
The Company's Certificate of Incorporation and Bylaws, as applicable, among
other things, (i) permit vacancies on the Board of Directors that may occur
between annual meetings and any newly created seats to be filled only by the
Board of Directors and not by the stockholders, subject to any rights of
holders of the Preferred Stock that may be granted by the Board of Directors
in the future, (ii) limit the rights of stockholders to call special meetings
of stockholders and (iii) provide that the Board of Directors, without action
by the stockholders, may issue and fix the rights and preferences of shares of
Preferred Stock. These provisions may have the effect of delaying, deferring
or preventing a change of control of the Company without further action by the
stockholders, may discourage bids for the Common Stock at a premium over the
market price of the Common Stock, may adversely affect the market price of,
and the voting and other rights of, the holders of the Common Stock and could
have the effect of discouraging certain attempts to acquire the Company or
remove incumbent management, including incumbent members of the Company's
Board of Directors, even if some or a majority of the Company's stockholders
deemed such an attempt to be in their best interests.
The Company is subject to Section 203 of the GCL ("Section 203"). Section
203 prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
interested stockholder, unless (i) prior to such date, the board of directors
of the corporation approves either the business combination of the transaction
that resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
outstanding voting stock, excluding certain shares held by employee directors
and employee stock plans, or (iii) on or after the consummation date the
business combination is approved by the board of directors and by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that is
not owned by the interested stockholder. For purposes of Section 203, a
"business combination" includes, among other things, a merger, asset sale or
other transaction resulting in a financial benefit to the interested
stockholder, and an "interested stockholder" is generally a person who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of the corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is Boston
Equiserve Limited Partnership.
LISTING
The Company's Common Stock has been approved for quotation and trading on
the Nasdaq National Market under the symbol "IMIC."
53
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices prevailing from time to time.
RESTRICTED SHARES
Upon completion of this offering, the Company will have 27,694,253 shares of
Common Stock outstanding. Of these shares, the 4,400,000 shares sold in this
offering will be freely tradable without restriction or further registration
under the Securities Act, except that any shares purchased by "affiliates" of
the Company, as that term is defined in Rule 144 under the Securities Act
("Affiliates"), may generally only be sold in compliance with the limitations
of Rule 144 described below. The remaining 23,294,253 shares of outstanding
Common Stock held by existing stockholders are deemed "Restricted Shares"
under Rule 144 of the Securities Act and will be eligible for sale without
restriction or further registration pursuant to Rule 144 upon the expiration
of their respective two-year holding periods, subject to the volume, manner of
sale and other limitations of Rule 144.
The Company intends to register pursuant to a registration statement on Form
S-8/S-3 1,209,975 shares of Common Stock subject to outstanding options and
1,790,025 shares reserved for future issuance under the Company's Stock Option
Plan and 1,256,985 shares issued pursuant to the Company's Restricted Stock
Program. Such shares of Common Stock (to the extent issued) will be eligible
for sale upon expiration of the lock-up agreements described below, subject to
vesting and exercisability restrictions. The Company expects to file this
registration statement as soon as practicable after the closing of this
offering, and such registration statement is expected to become effective upon
filing. Shares covered by these registration statements will thereupon be
eligible for sale in the public markets, subject to the lock-up agreements, if
applicable.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially
owned Restricted Shares for at least two years is entitled to sell, within any
three-month period, a number of such shares that does not exceed the greater
of 1% of the then outstanding shares of Common Stock, or the average weekly
trading volume in the Common Stock in the Nasdaq National Market during the
four calendar weeks preceding the date on which notice of such sale is filed
under Rule 144. In addition, under Rule 144(k), a person who is not an
Affiliate and has not been an Affiliate for at least three months prior to the
sale, and who has beneficially owned Restricted Shares for at least three
years may resell such shares without compliance with the foregoing
requirements. In calculating the two and three year holding periods described
above, a holder of Restricted Shares can include the holding periods of a
prior owner who was not an Affiliate. Rule 701 under the Securities Act
provides that shares of Common Stock acquired on the exercise of outstanding
options or under employee stock plans may be resold by persons other than
Affiliates, beginning 90 days after the date of this Prospectus, subject only
to the manner of sale provisions of Rule 144, and by Affiliates under Rule 144
without compliance with its two-year minimum holding period, subject to
certain limitations.
LOCK-UP AGREEMENTS
The Company and each of the directors, executive officers and stockholders
of the Company have agreed not to offer, sell or otherwise dispose of any
shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of Alex. Brown & Sons
Incorporated, except that the Company may issue, and may grant options to
purchase shares of Common Stock under its Stock Option Plan and sell shares
pursuant to the Restricted Stock Program and may issue shares of stock upon
the exercise of currently outstanding stock options. Alex. Brown & Sons
Incorporated may, in its sole discretion and at any time without notice,
release all or any portion of the shares subject to lock-up agreements.
54
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated, UBS Securities LLC and SoundView Financial
Group, Inc., have severally agreed to purchase from the Company and the
Selling Stockholders the following respective numbers of shares of Common
Stock at the initial public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Alex. Brown & Sons Incorporated................................... 693,334
UBS Securities LLC................................................ 693,333
SoundView Financial Group, Inc.................................... 693,333
Bear, Stearns & Co. Inc. ......................................... 120,000
Donaldson, Lufkin & Jenrette Securities Corporation............... 120,000
Goldman, Sachs & Co. ............................................. 120,000
Hambrecht & Quist LLC............................................. 120,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated................ 120,000
Montgomery Securities............................................. 120,000
Morgan Stanley & Co. Incorporated................................. 120,000
Oppenheimer & Co., Inc. .......................................... 120,000
Robertson, Stephens & Company LLC................................. 120,000
SBC Warburg....................................................... 120,000
Arnhold and S. Bleichroeder, Inc. ................................ 80,000
William Blair & Company, L.L.C. .................................. 80,000
The Chicago Corporation........................................... 80,000
Cowen & Company................................................... 80,000
Everen Securities, Inc. .......................................... 80,000
Hampshire Securities Corporation.................................. 80,000
Janney Montgomery Scott Inc. ..................................... 80,000
Josephthal Lyon & Ross Incorporated............................... 80,000
Needham & Company, Inc. .......................................... 80,000
Prime Charter Ltd. ............................................... 80,000
The Seidler Companies Incorporated................................ 80,000
Unterberg Harris.................................................. 80,000
Van Kasper & Company.............................................. 80,000
Wessels, Arnold & Henderson....................................... 80,000
---------
Total........................................................... 4,400,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the Common Stock offered hereby if any of such shares
are purchased.
The Company and the Selling Stockholders have been advised by the
Representatives of the Underwriters that the Underwriters propose to offer the
shares of Common Stock to the public at the initial public offering price set
forth on the cover page of this Prospectus, and to certain dealers at such
price less a concession not in excess of $0.10 per share. The Underwriters may
allow, and such dealers may re-allow, a concession not in excess of $0.10 per
share to certain other dealers. After the initial public offering, the public
offering price and other selling terms may be changed by the Representatives
of the Underwriters.
55
<PAGE>
One of the Selling Stockholders has granted to the Underwriters an option,
exercisable not later than 30 days after the date of this Prospectus, to
purchase up to 660,000 additional shares of Common Stock at the same price per
share as the Company and the Selling Stockholder will receive for the
4,400,000 shares of Common Stock that the several Underwriters have agreed to
purchase. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by it shown in the above table bears to 4,400,000, and such Selling
Stockholder will be obligated, pursuant to the option, to sell such shares to
the Underwriters. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the Common Stock offered
hereby. If purchased, the Underwriters will offer such additional shares on
the same terms as those on which the 4,400,000 shares are being offered. See
"Principal and Selling Stockholders."
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act.
The Company and each of its directors, executive officers and stockholders
have agreed not to offer, sell or otherwise dispose of any such shares of
Common Stock for a period of 180 days after the date of this Prospectus,
without the prior written consent of Alex. Brown & Sons Incorporated except
that the Company may issue, and may grant options to purchase shares of Common
Stock under its current Stock Option Plan and sell shares pursuant to the
Restricted Stock Program and may issue shares of stock pursuant to currently
outstanding employee stock options. See "Shares Eligible For Future Sale."
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock has been determined by negotiations between the Company, the Selling
Stockholders and the Representatives of the Underwriters. Among the factors
considered in such negotiations were prevailing market conditions, the results
of operations of the Company in recent periods, the market capitalizations,
market prices of securities and stages of development of other companies which
the Company and the Representatives of the Underwriters believe to be
comparable to the Company, estimates of the business potential of the Company
and its industry in general and the present state of the Company's
development.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Brobeck Hale and Dorr
International, London, England. The Company is being represented as to certain
matters of Swedish law by Advokatfirman Vinge KB, Stockholm, Sweden. Certain
legal matters will be passed upon for the Underwriters by Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Palo Alto, California.
EXPERTS
The consolidated balance sheets as of April 30, 1996 and 1995, and the
consolidated statements of operations, changes in stockholders' equity and
cash flows for each of the three years in the period ended April 30, 1996
included in this Prospectus, have been included herein in reliance on the
report by Ohrlings Coopers & Lybrand AB, independent accountants, given upon
the authority of that firm as experts in accounting and auditing.
56
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (File No. 333-5495) under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information contained in the
Registration Statement, certain portions of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is
made to the Registration Statement, including the exhibits and schedules
thereto. Statements contained in this Prospectus as to the contents of any
contract or any other document referred to herein are not necessarily complete
and, in each instance, reference is made to the copy of such contract or
document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. The Registration
Statement and the exhibits and schedules thereto may be inspected without
charge at the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549. Copies of all or any part
thereof may be obtained from the Commission at prescribed rates. The
Commission also maintains a Web site at http://www.sec.gov which contains
reports, proxy statements and other information regarding registrants that
file electronically with the Commission.
The Company intends to furnish to its stockholders annual reports containing
financial statements audited by an independent public accounting firm and
quarterly reports containing unaudited financial statements for the first
three quarters of each fiscal year.
57
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
YEAR-END CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets as of April 30, 1995 and 1996................ F-3
Consolidated Statements of Operations for the years ended April 30, 1994,
1995 and 1996........................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the years
ended April 30, 1994, 1995 and 1996..................................... F-5
Consolidated Statements of Cash Flows for the years ended April 30, 1994,
1995 and 1996........................................................... F-6
Notes to the Consolidated Financial Statements........................... F-7
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of April 30, 1996 and July 31,
1996.................................................................... F-22
Condensed Consolidated Statements of Operations for the three months
ended July 31, 1995 and 1996............................................ F-23
Condensed Consolidated Statements of Cash Flows for the three months
ended July 31, 1995 and 1996............................................ F-24
Notes to the Condensed Consolidated Financial Statements................. F-25
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders of
Industri-Matematik International Corp.
We have audited the accompanying consolidated balance sheets of Industri-
Matematik International Corp. and subsidiaries as of April 30, 1995 and 1996,
and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended April 30, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. 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 Industri-
Matematik International Corp. and subsidiaries as of April 30, 1995 and 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended April 30, 1996 in conformity with
generally accepted accounting principles in the United States.
Ohrlings Coopers & Lybrand AB
Stockholm, Sweden
June 6, 1996
F-2
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
APRIL 30,
------------------
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 160 $ 558
Accounts receivable, less allowance for doubtful accounts
of $205 and $321 at April 30, 1995 and 1996,
respectively............................................. 7,646 13,067
Accrued receivables....................................... 2,836 1,190
Prepaid expenses.......................................... 973 1,160
Net assets of discontinued operations (Note 18)........... 725 1,111
Income taxes receivable................................... 249 48
Other current assets...................................... 106 169
-------- --------
Total current assets.................................... 12,695 17,303
Non current assets:
Property and equipment, net............................... 1,663 1,873
Deferred income taxes..................................... 978 1,988
Other non current assets.................................. 172 160
-------- --------
Total non current assets................................ 2,813 4,021
-------- --------
Total assets............................................ $ 15,508 $ 21,324
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings..................................... $ 7,791 $ 7,424
Current portion of capital lease obligations.............. 79 251
Accounts payable.......................................... 1,229 1,464
Accrued expenses and other current liabilities............ 3,207 3,777
Accrued payroll and employee benefits..................... 2,611 3,365
Deferred revenue.......................................... 1,256 2,386
-------- --------
Total current liabilities............................... 16,173 18,667
Long-term liabilities:
Capital lease obligations................................. 267 624
Accrued pension liability................................. 1,165 1,482
Deferred income taxes..................................... -- 49
-------- --------
Total long-term liabilities............................. 1,432 2,155
-------- --------
Total liabilities....................................... 17,605 20,822
-------- --------
Commitments and contingencies (Note 14)
Stockholders' equity:
Convertible Preferred Stock; $.01 par value; 15,000,000
shares authorized; 14,630,250 shares issued and
outstanding ............................................. 146 146
Common Stock; voting, $.01 par value; 35,000,000 shares
authorized; 7,610,550 and 9,480,003 issued and
outstanding ............................................. 76 94
Class B Common Stock; non-voting, $.01 par value;
12,500,000 shares authorized; 384,000 shares issued and
outstanding ............................................. 4 4
Additional paid-in capital................................ 11,490 15,323
Accumulated deficit....................................... (12,620) (10,870)
Cumulative translation adjustment......................... (1,193) (1,569)
Notes receivable from stockholders (Note 13).............. -- (2,626)
-------- --------
Total stockholders' equity.............................. (2,097) 502
-------- --------
Total liabilities and stockholders' equity.............. $ 15,508 $ 21,324
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Revenues:
Licenses........................................... $ 5,254 $10,661 $15,474
Services and maintenance........................... 11,950 14,543 23,103
Other.............................................. 1,576 2,540 1,432
------- ------- -------
Total revenues................................... 18,780 27,744 40,009
Cost of revenues:
Licenses........................................... 721 2,172 2,717
Services and maintenance........................... 10,030 12,424 16,813
Other.............................................. 831 2,252 947
------- ------- -------
Total cost of revenues........................... 11,582 16,848 20,477
------- ------- -------
Gross profit..................................... 7,198 10,896 19,532
Operating expenses:
Product development................................ 5,517 7,009 6,822
Sales and marketing................................ 3,056 5,720 7,746
General and administrative......................... 3,688 4,192 3,579
------- ------- -------
Total operating expenses......................... 12,261 16,921 18,147
------- ------- -------
Income (loss) from operations....................... (5,063) (6,025) 1,385
Other income (expense):
Interest income.................................... 40 15 13
Interest expense................................... (229) (689) (744)
Miscellaneous income (expense)..................... (227) (384) (12)
------- ------- -------
Income (loss) from continuing operations before
income taxes....................................... (5,479) (7,083) 642
Provision (benefit) for income taxes................ 40 (941) (781)
------- ------- -------
Income from continuing operations................... (5,519) (6,142) 1,423
Income from discontinued operations (Note 18)....... (151) (246) 327
------- ------- -------
Net income (loss)................................... $(5,670) $(6,388) $ 1,750
======= ======= =======
Pro forma net income per share data: (Note 2)
Income from continuing operations................... $ 0.06
Income from discontinued operations................. 0.01
-------
Pro forma net income per share...................... $ 0.07
=======
Pro forma shares used in per share calculation...... 25,223
=======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOTES
CONVERTIBLE CLASS B ADDITIONAL CUMULATIVE RECEIVABLE TOTAL
PREFERRED COMMON COMMON PAID-IN ACCUMULATED TRANSLATION FROM STOCKHOLDERS'
STOCK STOCK STOCK CAPITAL DEFICIT ADJUSTMENT STOCKHOLDERS EQUITY
----------- ------ ------- ---------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of 11,839,110
shares of Convertible
Preferred Stock,
7,610,550 shares of
Common Stock and
384,000 shares of Class
B Common Stock in
exchange for common
stock of IMAB, as if
exchange occurred on
May 1, 1993............ $119 $76 $ 4 $ 6,879 $ (562) $(1,003) $ 5,513
Issuance of 1,471,875
shares of Convertible
Preferred Stock........ 14 1,986 2,000
Currency translation
adjustment............. (64) (64)
Net loss............... (5,670) (5,670)
---- --- --- ------- -------- ------- ------- -------
Balance as of April
30, 1994............. 133 76 4 8,865 (6,232) (1,067) -- 1,779
Issuance of 1,319,265
shares of Convertible
Preferred Stock........ 13 2,625 2,638
Currency translation
adjustment............. (126) (126)
Net loss............... (6,388) (6,388)
---- --- --- ------- -------- ------- ------- -------
Balance as of April
30, 1995............. 146 76 4 11,490 (12,620) (1,193) -- (2,097)
Issuance of 1,256,985
shares of Common Stock
under Restricted Stock
Program................ 12 2,614 (2,626) 0
Issuance of 612,468
shares of Common Stock. 6 1,219 1,225
Currency translation
adjustment............. (376) (376)
Net income............. 1,750 1,750
---- --- --- ------- -------- ------- ------- -------
Balance as of April
30, 1996............. $146 $94 $ 4 $15,323 $(10,870) $(1,569) $(2,626) $ 502
==== === === ======= ======== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss)................................... $(5,670) $(6,388) $ 1,750
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization....................... 691 814 1,063
Provision for doubtful accounts..................... (2) 175 99
Deferred income taxes............................... -- (977) (876)
Gain (loss) on disposal of property and equipment... (4) 3 (3)
Write-down of property and equipment................ -- 655 --
Changes in operating assets and liabilities:
Accounts receivable................................ 674 (4,209) (5,070)
Accrued receivables and prepaid expenses........... (920) 2,361 1,789
Income taxes....................................... (259) (717) 224
Other assets....................................... 1,466 632 (36)
Accounts payable................................... (248) 310 135
Accrued expenses and other current liabilities..... 1,932 (977) 361
Accrued payroll and employee benefits and deferred
revenue........................................... 304 2,755 1,626
Accrued pension liability.......................... 172 192 214
------- ------- -------
Net cash provided by (used in) continuing
operations........................................ (1,864) (5,371) 1,276
Net cash provided by (used in) discontinued
operations........................................ 103 248 (322)
------- ------- -------
Net cash flows provided by (used in) operating
activities....................................... (1,761) (5,123) 954
------- ------- -------
Cash flows from investing activities:
Additions to property and equipment................. (997) (787) (1,269)
Proceeds from sale of property and equipment........ 45 11 17
------- ------- -------
Net cash flows provided by (used in) investing
activities....................................... (952) (776) (1,252)
------- ------- -------
Cash flows from financing activities:
Net borrowings (payments) under lines of credit..... (2,141) 627 5,281
Proceeds from short-term borrowings................. 2,509 2,665 --
Payments on short-term borrowings................... (167) (178) (5,994)
Principal payments on capital lease obligations..... -- (190) (305)
Proceeds from related party debt.................... 2,000 2,638 --
Issuance of Common Stock............................ -- -- 1,229
Other............................................... 493 420 480
------- ------- -------
Net cash flows provided by financing activities... 2,694 5,982 691
------- ------- -------
Translation differences on cash and cash equivalents. (6) 2 5
------- ------- -------
Net increase (decrease) in cash and cash equivalents. (25) 85 398
Cash and cash equivalents at beginning of year....... 100 75 160
------- ------- -------
Cash and cash equivalents at end of year............. $ 75 $ 160 $ 558
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest............................................ $ 211 $ 432 $ 621
======= ======= =======
Income taxes........................................ $ 341 $ 572 $ (40)
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND ORGANIZATION
Industri-Matematik International Corp., a Delaware corporation, (the
"Company") and its subsidiaries (collectively, the "Companies"), develop,
market, implement and support client/server demand chain management software.
The Companies' primary software product, System ESS, has been designed to
provide for the complex and high throughput order fulfillment requirements of
manufacturers, distributors and wholesalers. The Company's three operating
subsidiaries are located and primarily conduct business in the United States,
Sweden and the United Kingdom.
The Company was formed on May 1, 1995 as the parent of Industri-Matematik AB
("IMAB"), a company domiciled in Sweden, pursuant to a corporate
reorganization. The reorganization was effected by issuing all the shares of
the Company's stock to the stockholders of IMAB based upon the number and
class of shares of IMAB owned by each in exchange for all of the outstanding
stock of IMAB. The reorganization was accounted for in a manner similar to a
pooling-of-interests. The consolidated accounts comprise the accounts of the
Companies as if they had been owned by the Company throughout the entire
reporting period.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
In fiscal 1996, the Company adopted plans for the sale of its business
segments operated by its 55% owned subsidiary, Pargon AB ("Pargon"), a company
domiciled in Sweden. In accordance with Accounting Principles Board Opinion
("APB") No. 30, the segments of Pargon have been presented as discontinued
operations in the accompanying consolidated financial statements. (See Note 18
for further discussion and disclosure).
Revenue Recognition
License revenues represent sales of the Companies' System ESS software.
Service revenues represent sales from consulting implementation and training
services. Annual maintenance and support revenues consist of ongoing support
and product updates. Other revenues primarily represent hardware sales.
The Companies recognize revenue in accordance with the American Institute of
Certified Public Accountants Statement of Position ("SOP") 91-1, Software
Revenue Recognition. Software license fees are recognized upon the signing of
the license agreement and shipment to the customer of the product provided
that no significant vendor obligations remain and collection of the resulting
receivables is probable. Revenues relating to services are recognized as
services are performed. Annual payments for maintenance agreements are
generally received in advance and are non-refundable. Maintenance revenues are
recognized ratably over the term of the contract. Other revenues are
recognized when made available through shipment to the customer. Unrecognized
revenue relating to maintenance contracts are reflected as deferred revenue in
the accompanying consolidated balance sheets.
Under the terms of the Company's License Agreements, the only warranty
provided is that the software will function in accordance with the operation
documentation by a specified date. As this warranty is for a very limited time
period and historically the Company has had no warranty claims, the Company's
policy is to record no warranty provision upon the recognition of license
revenues. In addition, due to the Companies' insignificant product returns and
price adjustments in the past, no provision is provided for product returns
and price adjustments upon recognition of software license revenues.
Insignificant vendor obligations are recorded at the time products are
shipped.
F-7
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Product Development Costs
Software development costs are accounted for in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed."
Costs incurred in the product development of new software products are
expensed as incurred until technological feasibility has been established. To
date, the establishment of technological feasibility of the Company's products
and general release substantially coincide. As a result, the Companies have
not capitalized any software development costs since such costs have been
immaterial.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation and amortization are computed using the
straight-line method based upon estimated useful lives of the assets ranging
from 3 to 5 years. Equipment purchased under capital leases is amortized on a
straight-line basis over the lesser of the estimated useful life of the asset
or the lease term.
Upon retirement or sale of property and equipment, cost and accumulated
depreciation on such assets are removed from the accounts and any gains or
losses are reflected in the statement of operations. Maintenance and repairs
are charged to expense as incurred.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiaries in Sweden and
the United Kingdom is the applicable local currency. The translation from the
respective foreign currencies to U.S. dollars is performed for balance sheet
accounts using current exchange rates in effect at the balance sheet date and
for income statement accounts using a weighted average exchange rate during
the period. Gains or losses resulting from such translation are included as a
separate component of stockholders' equity. Gains or losses resulting from
foreign currency transactions are included in miscellaneous income (expense).
For the fiscal years ended April 30, 1994, 1995 and 1996 foreign exchange
gains (losses) of $162,000, ($105,000) and $65,000, respectively, were
recorded by the Companies.
Concentration of Credit Risk
Financial instruments which potentially subject the Companies to
concentrations of credit risk consist principally of accounts receivable with
customers. This risk, however, is limited due to the number of customers
comprising the Companies' customer base and their dispersion across the United
States, Scandinavia and the United Kingdom. The Companies' customers are
generally multi-national companies in the food and beverage, pharmaceutical,
consumer electronics, automotive parts and industrial sector industries. The
Companies perform ongoing credit evaluations of their customers and do not
require collateral. The Companies maintain allowances for potential credit
losses and such losses have been within management's expectations.
Cash and Cash Equivalents
The Companies consider all highly liquid, low risk debt instruments with
purchased maturity dates of three months or less from date of purchase to be
cash equivalents.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and contingent
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting years. Actual results could
differ from those estimates.
F-8
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pro Forma Net Income Per Share
For the year ended April 30, 1996, pro forma net income per share was based
on the weighted average number of common and common stock equivalents
outstanding during the period, computed in accordance with the treasury stock
method. The pro forma weighted average number of common shares assumes the
conversion of all Convertible Preferred stock into Common Stock and Class B
Common Stock and the three-for-one stock split upon the closing of the
Company's initial public offering using the if-converted method as of the
beginning of the year. Historical net income (loss) per share data has not
been presented as such information is not considered to be relevant or
meaningful. Pursuant to the Securities and Exchange Commission Staff
Accounting Bulletins, common and common equivalent shares issued at prices
below the anticipated public offering price during the twelve months
immediately preceding the initial filing date have been included in the
calculation as outstanding for all periods presented (using the treasury stock
method and the anticipated initial public offering price).
Cash Flow Information
Cash flows in foreign currencies have been converted to U.S. dollars at an
approximate weighted average exchange rate or the exchange rates in effect at
the time of the cash flows, where determinable.
Fair Value of Financial Instruments
During 1994, the Financial Accounting Standards Board issued SFAS No. 107,
"Disclosure about Fair Value of Financial Instruments." This statement
requires the disclosure of estimated fair values for all financial instruments
for which it is practicable to estimate fair value. Financial instruments
including cash and cash equivalents, receivables and payables, deferred
revenue, and current portions of long-term debt are deemed to approximate fair
value due to their short maturity. The carrying amount of long-term debt with
banks and capitalized lease obligations are also deemed to approximate their
fair values.
Income taxes
Effective May 1, 1991, the Companies adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under
SFAS 109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured by applying enacted
statutory tax rates that are applicable to the future years in which deferred
tax assets or liabilities are expected to be settled or realized, to the
differences between the financial statement carrying amount and the tax bases
of existing assets and liabilities. Under SFAS 109, the effect of a change in
tax rates on deferred tax assets and liabilities is recognized in net income
in the period in which the tax rate change is enacted. The statement also
requires a valuation allowance against net deferred tax assets if, based upon
the available evidence, it is more likely than not that some or all of the
deferred tax assets may not be realized.
Effect of Recent Pronouncements
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," which requires impairment losses to be recorded on long-
lived assets used in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. SFAS 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Companies will
adopt SFAS 121 in the first quarter of the fiscal year ending April 30, 1997,
and based on current circumstances, do not believe the effect of adoption will
be material.
In October 1995, the Financial Accounting Standard Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 is effective for
fiscal years beginning on or after December 15,
F-9
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1995. SFAS No. 123 requires that the compensation cost of issuing stock
options be measured at fair value using an option-pricing model. The Companies
can either recognize the compensation cost in the consolidated financial
statements or, if the recognition option is not chosen, disclose the proforma
effects in the notes to the consolidated financial statements. The Companies
plan to adopt the disclosure option in the fiscal year ending April 30, 1997.
Therefore, SFAS No. 123 will have no effect on the Companies' net earnings,
stockholders' equity or cash flows.
3. ACCOUNTS RECEIVABLE ALLOWANCE FOR DOUBTFUL ACCOUNTS
The following table provides a summary of the activity in the accounts
receivable allowance for doubtful accounts for the years ended April 30, 1995
and 1996:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------
1995 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of period.................... $ 29 $ 205
Charged to expense................................ 210 265
Deductions........................................ (34) (149)
---------- ----------
Balance at end of period.......................... $ 205 $ 321
========== ==========
</TABLE>
4. PREPAID EXPENSES
<TABLE>
<CAPTION>
APRIL 30,
---------------
1995 1996
---------------
(IN THOUSANDS)
<S> <C> <C>
Prepaid rent............................................. $ 260 $ 251
Prepaid leasing costs.................................... 206 205
Prepaid insurance costs.................................. 133 108
Other.................................................... 374 596
------ --------
$ 973 $ 1,160
====== ========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost, less accumulated depreciation.
Property and equipment consists of:
<TABLE>
<CAPTION>
APRIL 30,
----------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment...................................... $ 2,285 $ 2,877
Furniture and fixtures.................................. 768 1,272
Automobiles............................................. 334 571
------- -------
3,387 4,720
Less: accumulated depreciation and amortization......... (1,724) (2,847)
------- -------
$ 1,663 $ 1,873
======= =======
</TABLE>
F-10
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Included in property and equipment are assets leased under capital lease
obligations as follows:
<TABLE>
<CAPTION>
APRIL 30,
----------------
1995 1996
------- --------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment...................................... $ -- $ 250
Furniture and fixtures.................................. 111 312
Automobiles............................................. 249 510
------ --------
360 1,072
Less accumulated amortization........................... (42) (255)
------ --------
$ 318 $ 817
====== ========
</TABLE>
The amortization expense on capital leases amounted to $42,000 and $214,000
for the years ended April 30, 1995 and 1996, respectively.
6. INCOME TAXES
Income (loss) from continuing operations before income taxes was distributed
geographically as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------
1994 1995 1996
------- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic.......................................... $ 72 $(1,583) $ 87
Foreign........................................... (5,551) (5,500) 555
------- ------- -----
Total........................................... $(5,479) $(7,083) $ 642
======= ======= =====
Components of the provision (benefit) for income taxes are as follows:
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------
1994 1995 1996
------- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
CURRENT:
Federal........................................... $ -- $ -- $ --
State............................................. 15 5 5
Foreign........................................... 25 33 100
------- ------- -----
Total current provision......................... 40 38 105
------- ------- -----
DEFERRED:
Federal........................................... $ -- $ (10) $ 58
State............................................. -- -- 2
Foreign........................................... -- (969) (946)
------- ------- -----
Total deferred provision (benefit).............. -- (979) (886)
------- ------- -----
Total provision (benefit) for income taxes..... $ 40 $ (941) $(781)
======= ======= =====
</TABLE>
F-11
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The approximate tax effects of temporary differences which give rise to net
deferred taxes are:
<TABLE>
<CAPTION>
APRIL 30,
----------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred income taxes, noncurrent asset
Net operating loss carryforwards........................ $ 3,207 $ 5,260
Capitalization of product development costs............. 2,292 --
Alternative Minimum Tax Credits......................... 153 --
Depreciation............................................ (27) --
Deferred revenue........................................ (724) --
Other................................................... (12) (290)
------- -------
Total deferred income taxes, noncurrent asset........... 4,889 4,970
Valuation allowance..................................... (3,911) (2,982)
------- -------
Total net deferred income taxes, noncurrent asset....... 978 1,988
------- -------
Deferred income taxes, long-term liability
Net operating loss carryforwards........................ -- 43
Alternative Minimum Tax Credits......................... -- 153
Depreciation............................................ -- (32)
Deferred revenue........................................ -- (213)
------- -------
Total deferred income taxes, long-term liability........ -- (49)
------- -------
Total net deferred tax asset............................ $ 978 $ 1,939
======= =======
</TABLE>
A reconciliation of the provision (benefit) for income taxes to the amount
computed by applying the statutory rates is as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------------------------
1994 1995 1996
------------ ------------ ------------
$ % $ % $ %
------- --- ------- --- ------ ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Statutory rate................. $(1,918) 35% $(2,479) 35% $ 224 35%
Benefit of utilization of net
operating loss and tax credit
carryforwards................. -- -- -- -- (542) (85)
Valuation of temporary
differences................... 1,544 (28) 1,104 (16) (1,176) (183)
Deferred revenues.............. (62) 1 (267) 4 620 96
Foreign taxes.................. 389 (7) 376 (5) (33) (5)
Other.......................... 87 (1) 325 (5) 126 20
------- --- ------- --- ------ ----
Effective tax rate............. $ 40 0 % $ (941) 13% $ (781) (122)%
======= === ======= === ====== ====
</TABLE>
As of April 30, 1996, the Companies had net operating loss carryforwards of
approximately $18,912,000 available to offset future taxable income of which
$18,786,000 is related to net operating loss carryforwards in IMAB. Net
operating loss carryforwards available to offset alternative minimum taxable
income do not differ significantly from those available to offset regular
taxable income. The majority of these carryforwards are available for an
indefinite period.
F-12
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The deferred tax asset was reduced by a valuation allowance of $2,585,000 as
of April 30, 1994. The valuation allowance increased to $3,911,000 as of April
30, 1995. During the fiscal year ended April 30, 1996, the Companies, based on
their operating results and the strong market acceptance of the System ESS
product, reduced its valuation allowance by $929,000 to $2,982,000. This
change in judgment regarding the realizability of certain net operating losses
has been reflected in the benefit for income taxes for the year ended April
30, 1996. Realization of the residual tax asset of $1,939,000 as of April 30,
1996 is dependent on generating sufficient taxable income and corresponding
taxes in the future to offset the net operating loss carryforwards. Estimated
future earnings necessary to fully realize the net deferred tax asset are
$7,100,000. Such earnings currently are forecasted to be realized within
approximately three years. There can be no assurance that future earnings, if
any, will meet currently forecasted levels, however it is management's opinion
that the realization of such earnings in the future is more likely than not.
The amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.
The Companies have not recorded deferred income taxes applicable to
undistributed earnings of foreign subsidiaries that are indefinitely
reinvested in foreign operations.
7. SHORT-TERM BORROWINGS
The Companies have various revolving credit agreements in effect with a
Swedish bank with available borrowings aggregating $3,976,000 and $9,900,000
as of April 30, 1995 and 1996, respectively. During the fiscal year ended
April 30, 1996, the Company converted its bank loan due November 30, 1995 into
two additional lines of credit facilities denominated in U.S. dollars and
British pounds sterling. Classification of the Companies' credit facilities as
long-term debt is not allowed under U.S. GAAP due to formal banking
requirements in Sweden. However, based on past practice and general banking
practice in Sweden, management believes that the credit facilities will be
renewed on a revolving basis. The unused lines totalled $2,048,000 and
$2,562,000 at April 30, 1995 and 1996, respectively.
Approximately $5,893,000 of the Companies' assets in Sweden have been
pledged as collateral. The Companies pay a floating charge of 0.5% per annum
on the unused portion of their credit facilities. The agreements with respect
to the Companies' credit facilities contain a financial covenant requiring
that the equity ratio (total stockholders' equity as a percentage of total
assets) of IMAB, on a Swedish statutory basis, be a minimum of 25%. As of, and
for the three fiscal years ended, April 30, 1996, IMAB was in compliance with
such financial covenant. In addition, the payment of dividends is restricted
under the Companies' credit agreements.
F-13
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following provides a summary of the terms and balances outstanding
relating to the Companies' short-term borrowings:
<TABLE>
<CAPTION>
APRIL 30,
---------------
DESCRIPTION 1995 1996
----------- ------- -------
(IN THOUSANDS)
<S> <C> <C>
Bank loan due November 30, 1995, Swedish Prime Rate plus 1%
(9.5% at April 30, 1995)..................................... $ 5,536 $ --
SEK 15,000,000 Revolving Line of Credit Facility renewable
November 28, 1996 and SEK 6,500,000 Facility due September 8,
1996, Swedish Prime Rate plus 1% (weighted average interest
rate of 7.69% and 7.88% at April 30, 1995 and 1996,
respectively)................................................ 1,328 3,003
US $2,700,000 Revolving Line of Credit Facility renewable June
27, 1996, U.S. Prime Rate plus 1.75% (weighted average
interest rate of 7.30% at April 30, 1996).................... -- 319
GB (Pounds)2,000,000 Revolving Line of Credit Facility
renewable December 8, 1996, British Prime Rate plus 1.75%
(weighted average interest rate of 7.88% at April 30, 1996).. -- 3,005
US $1,000,000 Facility renewable May 31, 1997, U.S. Prime Rate
plus .25% (weighted average interest rate of 8.87% and 8.27%
at April 30, 1995 and 1996, respectively).................... 600 1,000
Finance company loan due September 1996, Swedish Market "K1"
plus 2.5% (11.61% and 8.81% at April 30, 1995 and 1996,
respectively), unsecured..................................... 277 97
Other financing, at various rates with varying scheduled
maturities in 1996........................................... 50 --
------- -------
Total short-term borrowings................................. $ 7,791 $ 7,424
======= =======
</TABLE>
8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
APRIL 30,
---------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued purchases........................................ $ 1,418 $ 1,731
Accrued royalty.......................................... -- 1,372
Accrual for loss contract................................ 556 237
Accruals for contract expenses........................... 916 153
Value-added tax.......................................... 303 131
Other.................................................... 14 153
------- -------
$ 3,207 $ 3,777
======= =======
</TABLE>
The accrual for loss contract was established during fiscal 1995 and relates
to a reserve for obsolete software that was part of an operating lease
contract for computer hardware. The amount accrued represents the software
portion of the future minimum lease payments based on the fair value of the
software in relation to the fair value of both the hardware and software
provided under the total lease contract. Accruals for contract expenses are
primarily license fees to third parties for software included in the sale of
System ESS.
F-14
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. ACCRUED PAYROLL AND EMPLOYEE BENEFITS
<TABLE>
<CAPTION>
APRIL 30,
---------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued commissions...................................... $ 275 $ 776
Accrued payroll taxes.................................... 913 960
Accrued vacation pay..................................... 685 750
Accrued salaries and bonus............................... 738 879
------- -------
$ 2,611 $ 3,365
======= =======
</TABLE>
10. EMPLOYEE BENEFIT PLANS
The Companies provide retirement benefits for substantially all employees in
the United States and in foreign locations. In the U.S. and the U.K., the
Companies sponsor defined contribution plans. In addition, IMAB has a
supplemental defined contribution plan for certain key management.
The Companies' Swedish subsidiary, IMAB, participates in several pension
plans (non-contributory for employees), which cover substantially all
employees of its Swedish operations. The plans are administered by a national
organization, Pensionsregistreringsinstitutet ("PRI"), in which most companies
in Sweden participate. The level of benefits and actuarial assumptions are
established by the national organization and, accordingly, IMAB may not change
benefit levels or actuarial assumptions. The Company accounts for pensions in
accordance with SFAS No. 87, "Employers' Accounting for Pensions" using the
projected unit credit cost method.
The net periodic pension cost related to continuing operations is comprised
of the following:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------
1994 1995 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost...................................... $ 97 $ 106 $ 164
Interest cost..................................... 54 72 85
Amortization of actuarial net loss or gain........ (7) (3) (9)
Amortization of transition obligation............. 3 3 3
------ ------ ------
Net periodic pension cost......................... $ 147 $ 178 $ 243
====== ====== ======
</TABLE>
The following table shows the plans funded status and amounts recognized in
the consolidated balance sheet:
<TABLE>
<CAPTION>
APRIL 30,
----------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation............................... $ 824 $ 1,316
Additional benefits due to salary increases............. 142 673
------- -------
Projected benefit obligation ("PBO").................... 966 1,989
Fair value of plan assets............................... -- --
------- -------
Unfunded PBO............................................ 966 1,989
Unrecognized actuarial (gain) or loss................... 227 (481)
Unrecognized transition obligation...................... (28) (26)
------- -------
Accrued pension liability............................... $ 1,165 $ 1,482
======= =======
</TABLE>
F-15
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The actuarial assumptions used in computing the pension amounts above were:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
---------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Discount rate................................. 9.0% 8.5% 8.0%
Salary increase............................... 5.5% 5.0% 5.0%
Inflation..................................... 5.0% 4.0% 4.0%
</TABLE>
Defined Contribution Plans
Contributions by the Companies relating to their defined contribution plans
for the years ended April 30, 1994, 1995 and 1996 were $139,000, $149,000 and
$208,000 respectively.
11. CAPITAL LEASE OBLIGATIONS
<TABLE>
<CAPTION>
APRIL 30,
----------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Obligations under capital leases, imputed interest rates of
11.0%-14.0% and 13.2%-20.8% in 1995 and 1996, respectively,
terms vary from 36 to 60 months, collateralized by the
underlying assets........................................... $ 346 $ 875
Less current portion......................................... (79) (251)
------- -------
Capital lease obligations.................................... $ 267 $ 624
======= =======
</TABLE>
Future minimum payments, by year and in the aggregate, under noncancellable
capital leases consist of the following as of April 30, 1996.
<TABLE>
<CAPTION>
FUTURE MINIMUM
PAYMENTS ON
CAPITAL LEASES
--------------
(IN THOUSANDS)
Fiscal Year Ending April 30,
- ----------------------------
<S> <C>
1997............................................................. $251
1998............................................................. 312
1999............................................................. 271
2000............................................................. 33
2001............................................................. 8
Thereafter....................................................... 0
----
Total future minimum lease payments.............................. 875
====
</TABLE>
12. STOCKHOLDERS' EQUITY
The Company's Restated Certificate of Incorporation as in effect as of April
30, 1996 authorizes (i) 30,000,000 shares of preferred stock ("Preferred
Stock") at par value of $0.01 of which 15,000,000 shares are designated
Convertible Preferred Stock ("Convertible Preferred Stock") and 15,000,000
have no conversion rights ("Non-Convertible Preferred Stock"), (ii) 35,000,000
shares designated as Common Stock at par value of $0.01 and (iii) 12,500,000
shares designated as Class B Common Stock. Holders of Common Stock and
Preferred Stock are entitled to one vote for each share held. Holders of Class
B Common Stock have no voting rights. All classes of stock are entitled to
receive dividends in the same amount per share.
F-16
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Holders of Convertible Preferred Stock have the right, at any time upon
written notice to the Company, to elect to convert each share of Convertible
Preferred Stock held by them into Common Stock and Class B Common Stock. Such
conversion will take place automatically on the date of a completed public
offering of the Common Stock or Class B Common Stock. Upon any (a)
liquidation, dissolution or winding up of the Company or (b) transaction in
which any party acquires a controlling portion of the voting stock of the
Company or substantially all of the assets of the Company, the holders of
Convertible Preferred Stock are entitled, prior to any distribution to holders
of Common Stock, to a payment per share of Convertible Preferred Stock equal
to its pro rata portion of such distribution, but not less than $4.50 plus a
7% accrual compounding annually, up to October 1, 1996. (See Note 19)
As of April 30, 1996, the Company had no outstanding shares of Non-
Convertible Preferred Stock.
Total stockholders' equity includes an amount of SEK 40,800,000
(approximately U.S. $6,000,000) in IMAB which is restricted as to usage
according to Swedish Company Law. The amount can only be used to cover a net
deficit, for an increase in share capital, or for other uses as agreed by the
courts.
13. STOCK OPTION PLAN AND RESTRICTED STOCK PROGRAM
Stock Option Plan
In May 1995, the Company adopted the Industri-Matematik International Corp.
Stock Option Plan (the "U.S. plan"). The U.S. plan provides for grants of
incentive stock options to key employees (including officers and employee
directors) of the Companies and non-incentive stock options to members of the
Company's Board of Directors, consultants and other advisors of the Company
who are not employees. The maximum term for either form of option is ten
years.
Under the U.S. Plan, 1,014,975 options were granted during the fiscal year
ended April 30, 1996. Of such options, 939,975 options were granted on May 1,
1995, while 75,000 options were granted on August 31, 1995 and were cancelled
prior to April 30, 1996. Each of these options was granted with an exercise
price of $2.00 per share of Common Stock, which was equal to the estimated
fair market value on the date of grant. Accordingly, no compensation expense
was recorded. None of these options were exercised or forfeited in the fiscal
year ended April 30, 1996. As of April 30, 1996, options to purchase 939,975
shares were outstanding and a total of 2,060,025 shares of Common Stock were
reserved for future issuance under the U.S. Plan.
Restricted Stock Program
In May 1995, the Company instituted a restricted stock program whereby
shares of the Company's Common Stock were purchased by certain key employees
of the Company's operating subsidiary in Sweden in exchange for nonrecourse
promissory notes. The shares were issued through a wholly owned subsidiary of
the Company, Software Finance Corporation ("SFC"). Principal on the promissory
notes is due either nine or ten years after issuance with interest being due
and payable annually, generally at the beginning of each fiscal year.
Under the Restricted Stock Program the total number of shares issued were
1,256,985 at a weighted average price of $2.09 per share for total proceeds of
$2,626,000.
Under the terms of the restricted stock program, SFC has an option to
repurchase the shares issued to each employee provided it pays the annual
option price. The exercise price to be paid by SFC upon exercise of a purchase
option shall be the fair market value, provided that if the option to purchase
is exercised prior to the end of a stated period, then the exercise price
shall be the initial purchase price for a percentage of the shares after the
first anniversary of the option agreement, generally decreasing by 20% each
subsequent year, such that the exercise price is the fair market value.
F-17
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under the terms of the Restricted Stock Program SFC pays an annual option
premium to the restricted stock shareholders. Such premium is at a rate
substantially equal to the interest due on the non-recourse promissory note.
Pursuant to the terms of the Restricted Stock Program, the option premiums are
to be offset against the interest due on the promissory note.
The restricted stock shares are included within Common Stock and additional
paid-in capital in Stockholders' equity while the non-recourse promissory
notes are classified as a contra-account as notes receivable from
Stockholders, also in Stockholders' equity.
SFC has the right and obligation to apply against the payment of any
principal due on the promissory note any amounts payable by SFC to the
recipient of the Shares as the exercise price under the Option Agreement. The
Company has the ability and intent to prevent the recipients from selling the
purchased securities. The Company has not recognized any compensation expense
in respect of the restricted stock in the statements of operations since the
purchase price of the restricted stock did not differ from the estimated fair
market value of the Common Stock on the date of issuance. The restricted stock
shares issued under this program and dividends paid are subject to a pledge
and security interest held by SFC.
14. COMMITMENTS AND CONTINGENCIES
Operating leases
The Companies lease office facilities and certain office equipment under
various noncancelable operating lease agreements.
Aggregate future minimum lease payments under noncancelable operating leases
are as follows as of April 30, 1996:
<TABLE>
<CAPTION>
FUTURE MINIMUM PAYMENTS
FISCAL YEAR ENDING APRIL 30, ON OPERATING LEASES
---------------------------- -----------------------
(IN THOUSANDS)
<S> <C>
1997................................................ $1,762
1998................................................ 1,341
1999................................................ 909
2000................................................ 574
2001................................................ 440
Thereafter.......................................... 0
------
Total future minimum lease payments................. $5,026
======
</TABLE>
Total rent expense under the leases was $604,000, $1,455,000 and $973,000
for the years ended April 30, 1994, 1995, and 1996, respectively.
Litigation
The Company has not had a record of material disputes. There is currently
one dispute that is unresolved and for which a formal complaint has been
filed. The Company believes that the allegations of this customer have no
merit and plans to vigorously defend the action. While the outcome of this
matter cannot be determined with certainty, the Company does not believe that
the resolution of this claim will have a material adverse effect on the
Company's business, operating results, liquidity or financial condition. The
Company is not a party to any litigation that would have a material adverse
effect on the Company's business, operating results, liquidity or financial
condition.
F-18
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. RELATIONSHIP WITH ORACLE
The Companies have an informal joint marketing and sales arrangement with
Oracle Corporation ("Oracle") pursuant to which the two companies jointly
market to potential customers in the consumer packaged goods market. Pursuant
to this arrangement, the Companies pay to Oracle a percentage of the Company's
license revenue from customers in the consumer packaged goods market to whom
licenses are jointly marketed by Oracle and the Companies. For the fiscal year
ended April 30, 1996, 58% of the Companies' license revenue and 24% of the
Companies' total revenue were derived from six customers introduced to the
Companies by Oracle pursuant to this arrangement. The Companies paid Oracle
approximately $1,500,000 in royalties for the fiscal year ended April 30,
1996.
16. RELATED PARTY TRANSACTIONS
During the fiscal years ended April 30, 1994 and 1995, the Company issued
two promissory notes to the Company's majority stockholder of $2.0 and $2.5
million, respectively. Such notes, together with accrued interest thereon were
converted into shares of the Company's Convertible Preferred Stock within the
same fiscal years as originally issued.
The Companies have entered into a consulting arrangement with a shareholder
of the Company which expires on October 31, 1996. Pursuant to this
arrangement, the shareholder received $306,000 from the Companies during the
year ended April 30, 1996.
17. GEOGRAPHIC INFORMATION
The Companies' operations are located primarily in the United States, Sweden
and the United Kingdom.
The following table sets forth information relating to revenues, income
(loss) from operations and identifiable assets by geographic location of
subsidiaries:
<TABLE>
<CAPTION>
INTER-
YEAR ENDED UNITED UNITED DISCONTINUED COMPANY TOTAL
APRIL 30, STATES SWEDEN KINGDOM OPERATIONS AND OTHER CONSOLIDATED
---------- -------- ------- ------- ------------ --------- ------------
REVENUES (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1996 $ 12,805 $25,439 $2,955 -- $(1,190) $40,009
======== ======= ====== ====== ======= =======
1995 $ 7,068 $23,117 $1,482 -- $(3,923) $27,744
======== ======= ====== ====== ======= =======
1994 $ 2,219 $18,569 $ -- -- $(2,008) $18,780
======== ======= ====== ====== ======= =======
YEAR ENDED
APRIL 30,
----------
INCOME (LOSS) FROM
OPERATIONS (IN THOUSANDS)
1996 $ 214 $ 1,098 $ 73 -- -- $ 1,385
======== ======= ====== ====== ======= =======
1995 $ (1,348) $(4,545) $ (132) -- -- $(6,025)
======== ======= ====== ====== ======= =======
1994 $ 135 $(5,198) -- -- -- $(5,063)
======== ======= ====== ====== ======= =======
APRIL 30,
---------
IDENTIFIABLE ASSETS
1996 $ 11,420 $13,209 $2,725 $1,111 $(7,141) $21,324
======== ======= ====== ====== ======= =======
1995 $ 5,901 $12,280 $2,206 $ 725 $(5,604) $15,508
======== ======= ====== ====== ======= =======
</TABLE>
F-19
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's export sales are less than 10 percent of total revenue. The
disclosure of export sales by geographic area, therefore, is not required
according to SFAS No. 14 "Financial Reporting for Segments of a Business
Enterprise." The following table is presented to show revenues by customer
location:
<TABLE>
<CAPTION>
YEAR
ENDED INTER-
APRIL UNITED UNITED COMPANY TOTAL
30, STATES SWEDEN KINGDOM NORWAY FINLAND AND OTHER CONSOLIDATED
----- ------- ------- ------- ------ ------- --------- ------------
REVENUES (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
1996 $20,163 $13,516 $3,081 2,153 1,096 $-- $40,009
======= ======= ====== ===== ===== === =======
1995 $ 8,550 $17,040 $ -- 1,673 481 $-- $27,744
======= ======= ====== ===== ===== === =======
1994 $ 4,122 $13,765 $ 226 674 -- $(7) $18,780
======= ======= ====== ===== ===== === =======
</TABLE>
Major customers
For the year ended April 30, 1994, the Companies recorded revenues from two
customers which comprised 27% and 11% of total revenues, respectively. For the
year ended April 30, 1995, the Companies recorded revenues from two customers
which comprised 13% and 12% of total revenues, respectively. No major customer
for fiscal 1994 was also a major customer for fiscal 1995. For the year ended
April 30, 1996, the Companies had no single customers with sales comprising
more than 10% of total revenues.
18. DISCONTINUED OPERATIONS
As discussed in Note 2, during fiscal 1996 the Company adopted plans for the
sale of its 55% owned subsidiary, Pargon AB, which operates in two segments
constituting the production and sale of microprocessor compilers and
consultancy services for relational data base management systems ("RDBMS").
The Microprocessor compiler segment includes the development and supply
through direct sale of compilers for microprocessors used by manufacturers of
domestic appliances and cellular communications equipment. The RDBMS
consultancy segment relates to the supply of RDBMS consultancy services to
public sector institutions in Sweden.
These business segments are accounted for as discontinued operations in
accordance with APB No. 30 and therefore, their operations have been
separately presented in the consolidated financial statements. Revenues, cost
of revenues, operating expenses, other income and expense and provisions for
income taxes for the fiscal year 1994, 1995 and 1996 have been reclassified
for amounts associated with the discontinued operations.
Summary operating results associated with the discontinued operations of
Pargon AB for the years ended April 30, 1994, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------
1994 1995 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues............................................ $4,855 $6,080 $8,149
====== ====== ======
Gross profit........................................ $2,192 $2,578 $3,826
====== ====== ======
Operating expenses.................................. $2,133 $2,693 $2,928
====== ====== ======
Minority interest................................... $ 136 $ 63 $ 275
====== ====== ======
Income (loss) from discontinued operations before
income taxes....................................... $ (42) $ (168) $ 590
Provision for income taxes.......................... 109 78 263
------ ------ ------
Income (loss) from discontinued operations after
provision for income taxes......................... $ (151) $ (246) $ 327
====== ====== ======
</TABLE>
F-20
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The net assets of the discontinued operations excluding intercompany
balances as of April 30, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
APRIL 30,
-------------
1995 1996
------ ------
<S> <C> <C>
Current assets............................................... $2,065 $2,899
Property and equipment....................................... 382 460
Other assets................................................. 18 14
------ ------
Total assets............................................... 2,465 3,373
------ ------
Current liabilities.......................................... 1,001 1,212
Other noncurrent liabilities................................. 84 152
Minority interest............................................ 655 898
------ ------
Total liabilities and minority interest.................... 1,740 2,262
------ ------
Net assets................................................. $ 725 $1,111
====== ======
</TABLE>
Management's plan, as approved by the Company's board of directors, sets
forth the Company's intent to divest itself of the entire operation as it
relates to Pargon, including all of its assets and liabilities, through the
sale of all of Pargon's common stock. Management is currently in negotiations
with prospective buyers and believes it will consummate the sale prior to the
end of fiscal year 1997.
Although, it is not yet possible to estimate the prospective gain or loss on
the disposition of the discontinued operations, the Company does not
anticipate a loss on the disposition and therefore does not expect that such
disposition will have a material adverse effect on the Company's financial
condition and results of operations. Income from discontinued operations for
the period between the measurement date and April 30, 1996 was approximately
$379,000.
19. SUBSEQUENT EVENT
In May 1996, the Company's Board of Directors approved a three-for-one stock
split of its issued and outstanding Common Stock, Class B Common Stock and
Convertible Preferred Stock. The par value of the Company's Common Stock,
Class B Common Stock and Convertible Preferred Stock remains unchanged. All
per share, weighted average shares outstanding and option data presented in
the consolidated financial statements have been retroactively adjusted to
reflect the effects of the split unless otherwise indicated.
F-21
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
APRIL 30, JULY 31, EQUITY AT
1996 1996 JULY 31, 1996
--------- ----------- -------------
(UNAUDITED)
(UNAUDITED) (NOTE 7)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $ 558 $ 282
Accounts receivable, less allowance for
doubtful accounts of $321 and $300 at
April 30, 1996 and July 31, 1996,
respectively............................. 13,067 10,216
Accrued receivables....................... 1,190 828
Prepaid expenses.......................... 1,160 1,875
Net assets of discontinued operations..... 1,111 1,137
Income taxes receivable................... 48 28
Other current assets...................... 169 495
------- -------
Total current assets.................... 17,303 14,861
Non current assets:
Property and equipment, net............... 1,873 2,073
Deferred income taxes..................... 1,988 2,695
Other non current assets.................. 160 177
------- -------
Total non current assets................ 4,021 4,945
------- -------
Total assets............................ $21,324 $19,806
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings..................... $ 7,424 $ 6,635
Current portion of capital lease
obligations.............................. 251 350
Accounts payable.......................... 1,464 1,694
Accrued expenses and other current
liabilities.............................. 3,777 2,616
Accrued payroll and employee benefits..... 3,365 2,314
Deferred revenue.......................... 2,386 4,664
------- -------
Total current liabilities............... 18,667 18,273
Long-term liabilities:
Capital lease obligations................. 624 778
Accrued pension liability................. 1,482 1,642
Deferred income taxes..................... 49 0
------- -------
Total long-term liabilities............. 2,155 2,420
------- -------
Total liabilities....................... 20,822 20,693
------- -------
Stockholders' equity:
Convertible Preferred Stock; $.01 par
value; 15,000,000 shares authorized;
14,630,250 shares issued and outstanding
(pro forma: no shares outstanding)....... 146 146 --
Common Stock; voting, $.01 par value;
35,000,000 shares authorized; 9,480,003
issued and outstanding (pro forma:
12,406,053 shares issued and
outstanding)............................. 94 94 124
Class B Common Stock; nonvoting, $.01 par
value; 12,500,000 shares authorized;
384,000 shares issued and outstanding
(pro forma: 12,088,200 shares issued and
outstanding).............................. 4 4 120
Additional paid-in capital................ 15,323 15,323 15,323
Accumulated deficit....................... (10,870) (11,932) (11,932)
Cumulative translation adjustment......... (1,569) (1,896) (1,896)
Notes receivable from stockholders........ (2,626) (2,626) (2,626)
------- ------- --------
Total stockholders' equity.............. 502 (887) (887)
------- ------- --------
Total liabilities and stockholders'
equity................................. $21,324 $19,806 $ 19,806
======= ======= ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-22
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JULY 31,
--------------------
1995 1996
--------- ---------
(UNAUDITED)
<S> <C> <C>
Revenues:
Licenses............................................... $ 197 $ 2,296
Services and maintenance............................... 4,272 6,779
Other.................................................. 256 142
--------- ---------
Total revenues....................................... 4,725 9,217
Cost of Revenues:
Licenses............................................... 3 100
Services and maintenance............................... 3,579 5,078
Other.................................................. 204 96
--------- ---------
Total cost of revenues............................... 3,786 5,274
--------- ---------
Gross profit......................................... 939 3,943
--------- ---------
Operating expenses:
Product development.................................... 1,368 1,956
Sales and marketing.................................... 1,385 2,593
General and administrative............................. 828 986
--------- ---------
Total operating expenses............................. 3,581 5,535
--------- ---------
Loss from operations..................................... (2,642) (1,592)
--------- ---------
Other income (expense):
Interest income........................................ 4 13
Interest expense....................................... (189) (127)
Miscellaneous expense.................................. (16) (63)
--------- ---------
Loss from continuing operations before income taxes...... (2,843) (1,769)
Benefit for income taxes................................. (564) (705)
--------- ---------
Loss from continuing operations.......................... (2,279) (1,064)
Income (loss) from discontinued operations............... (78) 2
--------- ---------
Net loss ................................................ $ (2,357) $ (1,062)
========= =========
Pro forma net loss per share data (Note 2):
Loss from continuing operations.......................... $ (0.04)
Income from discontinued operations...................... --
---------
Pro forma net loss per share............................. $ (0.04)
=========
Pro forma shares used in per share calculation........... 24,502
=========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-23
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JULY 31,
--------------------
1995 1996
--------- ---------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities
Net loss................................................ $ (2,357) $ (1,062)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization.......................... 223 220
Provision for doubtful accounts........................ (10) (32)
Deferred income taxes.................................. 113 (688)
Gain (loss) on disposal of property and equipment...... -- (2)
Write-down of property and equipment................... -- 3
Changes in operating assets and liabilities:
Accounts receivable................................... 3,806 3,008
Accrued receivables and prepaid expenses.............. 911 (271)
Income taxes.......................................... (493) 22
Other assets.......................................... (45) (331)
Accounts payable...................................... (469) 571
Accrued expenses and other current liabilities........ (693) (1,685)
Accrued payroll and employee benefits and deferred
revenue.............................................. (35) 1,026
Accrued pension liability............................. (43) 108
--------- ---------
Net cash provided by continuing operations............ 908 887
Net cash provided by discontinued operation........... 88 13
--------- ---------
Net cash provided by operating activities............ 996 900
--------- ---------
Cash flows from investing activities:
Additions to property and equipment..................... (59) (208)
Proceeds from sale of property and equipment............ 7 7
--------- ---------
Net cash flows used in investing activities.......... (52) (201)
--------- ---------
Cash flows from financing activities:
Net borrowings (payments) under lines of credit......... 2,024 (913)
(Payments) on short-term borrowings..................... (2,791) (97)
Principal payments on capital lease obligations......... (33) (88)
Other................................................... (162) 103
--------- ---------
Net cash flows used in financing activities.......... (962) (995)
--------- ---------
Translation differences on cash and cash equivalents..... 5 20
--------- ---------
Net decrease in cash and cash equivalents................ (13) (276)
Cash and cash equivalents at beginning of period......... 160 558
--------- ---------
Cash and cash equivalents at end of period............... $ 147 $ 282
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest................................................ $ 191 $ 155
========= =========
Income taxes............................................ $ -- $ 4
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-24
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. INTERIM FINANCIAL STATEMENTS
The unaudited condensed consolidated financial statements included herein
have been prepared by Industri-Matematik International Corp. (the "Company")
and its subsidiaries (collectively, the "Companies") pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do
not contain all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of the Company's
financial condition at July 31, 1996 and the results of operations and cash
flows for the three months ended July 31, 1995 and 1996. These financial
statements should be read in conjunction with the audited consolidated
financial statements of the Company as presented herein, commencing on page F-
2. Results of operations and cash flows for the period ending July 31, 1996
are not necessarily representative of the results that may be expected for the
fiscal year ended April 30, 1997 or any other future period.
2. PRO FORMA NET LOSS PER SHARE
For the three months ended July 31, 1996, pro forma net loss per share was
based on the weighted average number of common and common stock equivalents
outstanding during the period, computed in accordance with the treasury stock
method. The pro forma weighted average number of common shares assumes the
conversion of all Convertible Preferred stock into Common Stock and Class B
Common Stock and the three-for-one stock split effected in July 1996 using the
if-converted method as of the beginning of the year. Historical net loss per
share data has not been presented as such information is not considered to be
relevant or meaningful. Pursuant to the Securities and Exchange Commission
Staff Accounting Bulletins, common and common stock equivalents issued at
prices below the anticipated public offering price during the twelve months
immediately preceding the initial filing date have been included in the
calculation as outstanding for all periods presented (using the treasury stock
method and the anticipated initial public offering price).
3. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
APRIL 30, 1996 JULY 31, 1996
-------------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Accrued purchases............................... $1,731 $1,213
Accrued royalty................................. 1,372 930
Accrual for loss contract....................... 237 156
Accruals for contract expenses.................. 153 116
Value-added tax................................. 131 23
Other........................................... 153 178
------ ------
$3,777 $2,616
====== ======
</TABLE>
The accrual for loss contract relates to a reserve for obsolete software
that was part of an operating lease contract for computer hardware. The amount
accrued represents the software portion of the future minimum lease payments
based on the fair value of the software in relation to the fair value of both
the hardware and software provided under the total lease contract. Accruals
for contract expenses are primarily license fees to third parties for software
included in the sale of System ESS.
F-25
<PAGE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
4. ACCRUED PAYROLL AND EMPLOYEE BENEFITS
<TABLE>
<CAPTION>
APRIL 30, 1996 JULY 31, 1996
-------------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Accrued commissions......................... $ 776 $ 377
Accrued payroll taxes....................... 960 844
Accrued vacation pay........................ 750 370
Accrued salaries and bonus.................. 879 723
------ ------
$3,365 $2,314
====== ======
</TABLE>
5. INCOME TAXES
For the three month periods ended July 31, 1995 and 1996, a deferred tax
asset was recognized relating to the Company's net operating loss results for
the period. At July 31, 1996, the Company had approximately $6.0 million of
gross deferred tax assets comprised primarily of net operating loss
carryforwards in Sweden. During the three month periods ended July 31, 1995
and 1996, the Company reduced its valuation allowance relating to its net
operating loss carryforwards based upon positive evidence indicating an
increased likelihood of the utilization of net operating loss carry forward in
offsetting future tax expense. Estimated future earnings necessary to fully
realize the net deferred tax asset are $9.5 million. Such earnings are
forecasted to be realized within approximately three years. There can be no
assurance that future earnings, if any, will meet currently forecasted levels,
however it is management's opinion that the realization of such earnings in
the future is more likely than not.
6. STOCK OPTIONS
Under the Industri-Matematik International Corp. Stock Option Plan, 85,000
options were granted during the three months ended July 31, 1996 at an
exercise price of $10.00 per share of Common Stock. Such exercise price was
equal to the estimated fair market value at the date of grant.
7. PRO FORMA STOCKHOLDERS' EQUITY
Upon the completion of the Company's initial public offering, all of the
Company's Convertible Preferred Stock outstanding as of the date hereof under
the Company's Restated Certificate of Incorporation as currently in effect,
will be converted to Common Stock and Class B Common Stock at a rate of 20%
and 80%, respectively. The pro forma stockholders' equity reflects such
conversion of the Convertible Preferred Stock.
F-26
<PAGE>
GLOSSARY
Client/server--Client/server is a computer system architecture which divides
computing tasks among multiple computer software programs that reside on
separate computers. One computer (the "client"), which is in need of having a
particular task performed, will request that task to be carried out by another
computer (the "server"). Three-tier client/server refers to a specific
structure of implementing client/server, typically using shared databases,
local and wide area networks, and personal computers.
Distributed Computing--Distributed computing is a style of designing and/or
configuring a computer system to allocate the task of the system among
multiple computers that generally coordinate their activities by exchanging
messages and data across an electronic communications network. Distributed
computing frequently utilizes client/server techniques.
Electronic Data Interchange ("EDI")--Electronic data interchange refers to
the transfer of information electronically between the computer systems of
separate parties and typically replaces certain paper-based processes, such as
the purchase order and invoicing processes.
Enterprise Resource Planning ("ERP")--Enterprise resource planning software
is designed to manage the flow of information, products and resources
throughout an entire business enterprise, including suppliers, manufacturers
and customers.
4GL--A 4GL is a common, highly sophisticated, fourth generation language for
writing software applications.
Legacy Systems--Legacy systems refers to pre-existing computer systems that
have been used by a particular enterprise, usually for a long period of time
and are often costly to replace. See mainframe.
Mainframe--A mainframe computer is one that falls within a class of
computers that generally include the greatest processing power and data
storage capacities.
Manufacturing Resource Planning ("MRP")--Manufacturing resource planning
software is used by manufacturers to efficiently manage the manufacturing
process.
Mid-range--A mid-range computer is one which falls within a class of
computers which are generally of moderate processing power and data storage
capabilities.
Operating platform--an operating platform is the particular combination of
computer hardware, operating system(s) and other system software which is
sufficient or necessary to install and use an application software product.
Open Systems--Open systems are software systems which are generally adept at
running on multiple operating platforms and interacting with other software.
Relational Database Management System--A relational database management
system is a formal methodology for storing and retrieving data in a computer
system by structuring the data in a tabular form. An RDBMS is implemented in
the form of system software.
G-1
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING
STOCKHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
The Company............................................................... 16
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 16
Capitalization............................................................ 17
Dilution.................................................................. 18
Exchange Rates............................................................ 19
Selected Consolidated Financial Data...................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 21
Business.................................................................. 32
Management................................................................ 45
Certain Transactions...................................................... 50
Principal and Selling Stockholders........................................ 51
Description of Capital Stock.............................................. 52
Shares Eligible for Future Sale........................................... 54
Underwriting.............................................................. 55
Legal Matters............................................................. 56
Experts................................................................... 56
Additional Information.................................................... 57
Index to Consolidated Financial Statements................................ F-1
Glossary.................................................................. G-1
</TABLE>
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UNTIL OCTOBER 20, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
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4,400,000 Shares
LOGO INDUSTRI-MATEMATIK
Common Stock
------------
PROSPECTUS
------------
Alex. Brown & Sons
INCORPORATED
UBS Securities
SoundView Financial Group, Inc.
September 25, 1996
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<PAGE>
GRAPHICS ON PAGES TX]2 & 36
Description of Graphic: Graphic entitled "System ESS" with a sub-heading of
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"Demand Chain Management" depicts a cluster of seven hexagons in a "honeycomb"
configuration. Six of the hexagons are situated around a center hexagon
which contains an eighth, centered and internal hexagon. The internal hexagon
contains the word "CUSTOMER". The word "ELECTRONIC" appears above the internal
hexagon and the word "COMMERCE" appears below the internal hexagon. Within each
of the six outside hexagons are the words, in clock-wise order, "Order
Management," "Demand Replenishment," "Price & Promotion," "Physical Logistics,"
"Demand Chain Monitoring," and "Global Organization." Encircling and orbiting
the cluster are six spheres, two of each are labeled "Execution," "Planning" and
"Decision Support," respectively, linking the hexagons.
<PAGE>
GRAPHICS ON PAGE TX]33
Description of Graphic: Graphic entitled "Managing The Virtual Enterprise." The
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graphic depicts the following six images in a horizontal line: a supplier
(depicted as an industrial factory); a manufacturer (depicted as a small
factory); a distributor (depicted as a man driving a forklift); a wholesaler
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(depicted as a warehouse); a retailer (depicted as a store-front window); and a
consumer (depicted as a shopping cart). Circling this line of images are two
arrows: the first arrow commences from the top of the images and, in a counter-
clockwise direction, points from the language above the images that states
"Timely/Accurate Information Flow" and "Planning/Execution Processes" to
language below the images that states "Smooth Continual Product Flow" and
"Matched to Consumption." The second arrow commences from the bottom of the
images and, in a counter-clockwise direction, points from the language below the
images to the language above the images.
