SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(b)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 0-21359
INDUSTRI-MATEMATIK INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0374596
(State of Incorporation) (I.R.S. Employer Identification No.)
901 Market Street
Suite 475
Wilmington, DE 19801
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code:(302) 777-1608
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period than the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by this
report.
Class: Outstanding October 31, 1998:
Common Stock ($.01 par value) 32,009,931 shares
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<TABLE>
PART I. - FINANCIAL INFORMATION
INDUSTRI-MATEMATIK INTERNATIONAL CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, except per share figures)
<CAPTION>
10/31/98 4/30/98
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,849 $41,982
Short-term investments 74,650 69,416
Accounts receivable, less allowance
for doubtful accounts of $1,131
and $210 at October 31, 1998 and
April 30, 1998, respectively 33,754 24,289
Contract receivables 2,361 2,034
Prepaid expenses 2,276 2,824
Income taxes receivable 643 402
Other current assets 750 647
------- -------
Total current assets 122,283 141,594
------- -------
Non-current assets:
Property and equipment, net 7,201 5,011
Deferred income taxes 7,192 5
Goodwill 933 1,002
Other non-current assets 1,650 1,717
------ ------
Total non-current assets 16,976 7,735
------ ------
Total Assets $139,259 $149,329
======= =======
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Current portion of capital
lease obligations $ 190 $ 274
Current portion of notes payable 463 486
Accounts payable 3,496 2,439
Accrued expenses and other
current liabilities 13,159 6,016
Accrued payroll and employee benefits 6,081 5,938
Deferred revenue 6,575 5,962
------ ------
Total current liabilities 29,964 21,115
------ ------
Long-term liabilities:
Capital lease obligations 169 281
Notes payable 624 840
Accrued pension liability 2,382 2,132
Other long-term liabilities 204 388
------ ------
Total long-term liabilities 3,379 3,641
------ ------
Total liabilities 33,343 24,756
Shareholders' equity:
Common Stock; voting, $.01 par value;
62,500,000 shares authorized;
32,009,931 and 32,917,552 shares
issued and outstanding at
October 31, 1998 and April 30,
1998, respectively 320 329
Additional paid-in capital 124,077 127,886
Retained earnings (deficit) (9,451) 5,287
Cumulative translation adjustment (2,527) (2,426)
Notes receivable from stockholders (6,503) (6,503)
------- -------
Total shareholders' equity 105,916 124,573
------- -------
Total Liabilities and Shareholders' equity $139,259 $149,329
======== ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
PAGE
<PAGE>
<TABLE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share figures)
<CAPTION>
THREE MONTHS ENDED
10/31/98 10/31/97
--------------- ----------------
<S> <C> <C>
Revenues:
Licenses $ 5,984 $10,036
Service and maintenance 16,974 13,025
Other 380 173
------- -------
Total revenues 23,338 23,234
------- -------
Cost of revenues:
Licenses 223 193
Service and maintenance 22,447 9,439
Other 106 89
------- -------
Total cost of revenues 22,776 9,721
------- -------
Gross profit 562 13,513
------- -------
Operating expenses:
Product development 8,113 2,875
Sales and marketing 6,987 4,685
General and administrative 3,062 2,142
------- -------
Total operating expenses 18,162 9,702
------- -------
Income (loss)from operations (17,600) 3,811
------- -------
Other income (expense):
Interest income 1,304 267
Interest expense (35) (20)
Miscellaneous income (expense) 72 (34)
------- -------
Income (loss) before income taxes (16,259) 4,024
Provision (benefit) for income taxes (5,303) 834
------- -------
Net income (loss) (10,956) $ 3,190
======= =======
Net income (loss) per share $ (0.33) $ 0.11
======= =======
Net income (loss) per share -
assuming dilution $ (0.33) $ 0.11
======= =======
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
PAGE
<PAGE>
<TABLE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share figures)
<CAPTION>
SIX MONTHS ENDED
10/31/98 10/31/97
--------------- ---------------
<S> <C> <C>
Revenues
Licenses $ 10,339 $ 15,827
Service and maintenance 35,825 22,809
Other 666 304
------- -------
Total revenues 46,830 38,940
------- -------
Cost of revenues:
Licenses 427 281
Service and maintenance 37,514 16,934
Other 230 174
------- -------
Total cost of revenues 38,171 17,389
------- -------
Gross profit 8,659 21,551
------- -------
Operating expenses:
Product development 13,354 5,391
Sales and marketing 13,299 8,405
General and administrative 6,439 3,532
------- -------
Total operating expenses 33,092 17,328
------- -------
Income (loss) from operations (24,433) 4,223
------- -------
Other income (expense):
Interest income 2,745 507
Interest expense (75) (35)
Miscellaneous income (expense) 29 (99)
------- -------
Income (loss) before income taxes (21,734) 4,596
Provision (benefit) for income taxes (6,996) 776
------- -------
Net income (loss) (14,738) 3,820
======= =======
Net income (loss) per share (.45) $ 0.14
======= =======
Net income (loss) per share -
assuming dilution (.45) $ 0.13
======= =======
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<CAPTION>
SIX MONTHS ENDED
10/31/98 10/31/97
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (14,738) $ 3,820
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Depreciation and amortization 1,414 859
Provision for doubtful accounts 935 (167)
Deferred income taxes (7,092) 657
Accrued interest on short-term investments (336) 0
Loss on disposal of property and equipment 6 20
Changes in operating assets and liabilities:
Accounts receivable (10,288) 7,663
Accrued receivables and prepaid expenses 248 62
Income taxes (221) (258)
Other assets (41) 0
Accounts payable 1,015 (150)
Accrued expenses and other
current liabilities 7,159 1,316
Accrued payroll, employee benefits
and deferred revenue 749 183
Accrued pensions liability 271 259
------- -------
Net cash flows provided by (used in)
operating activities (20,919) 14,264
------- -------
Cash flows from investing activities:
Purchase of short-term investments (143,333) (17,250)
Proceeds from sale of short-term
investments 138,435 19,840
Additions to property and equipment (3,522) (1,493)
Payment for Ceratina (178) (1,025)
Proceeds from sale of property
and equipment 46 1,364
Proceeds from sale of other shares 1 0
Collection of notes receivable 0 361
------- -------
Net cash flows provided by (used in)
investing activities (8,551) 1,797
------- -------
Cash flows from financing activities:
Payment on notes payable (239) 0
Principal payments on capital
lease obligations (196) (179)
Issuance of Common Stock 1,053 678
Repurchase of Common Stock (4,871) 0
Other (411) (118)
------- -------
Net cash flows provided by (used in)
financing activities (4,664) 381
------- -------
Translation differences on cash and
cash equivalents 1 99
------- -------
Net increase (decrease) in cash and cash
equivalents $(34,133) $16,541
======= =======
Cash and cash equivalents at beginning
of period $ 41,982 $ 9,023
Cash and cash equivalents at end ------- -------
of period $7,849 $25,564
------- -------
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 120 $ 69
Income taxes $ 481 $ 313
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
<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. and its
subsidiaries (collectively, "Company") 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 April 30, 1998 (audited), and October 31,
1998 (unaudited), the results of operations for the three and six months
ended October 31, 1997, and 1998, and the cash flows for the six months
ended October 31, 1997, and 1998. These financial statements should be
read in conjunction with the audited consolidated financial statements of
the Company as presented in the Company's Annual Report on Form 10-K for
the fiscal year ended April 30, 1998. Results of operations and cash flows
for the periods ended October 31, 1998, are not necessarily representative
of the results that may be expected for the fiscal year ending April 30,
1999, or any other future period.
2. Revenue Recognition
In October 1997, the American Institution of Certified Public
Accountants issued Statement of Position 97-2 "Software Revenue
Recognition" ("SOP 97-2"), which provides guidance on when revenue should
be recognized and in what amounts for licensing, selling, leasing, or
otherwise marketing computer software. SOP 97-2 is effective for
transactions entered into in fiscal years beginning after December 15,
1997. The Company has adopted SOP 97-2 as of May 1, 1998, and the adoption
has not had an impact on its current revenue policies.
3. Comprehensive Income (Loss)
Effective May 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income"("SFAS 130").
SFAS 130 establishes standards for reporting and displaying comprehensive
income and its components. Total comprehensive income (loss) was
($10,900,000)and $3,273,000 for the three months ended October 31, 1998,
and October 31, 1997, respectively. Total comprehensive income (loss) was
($14,839,000) and $3,759,000 for the six months ended October 31, 1998, and
October 31, 1997, respectively. Total comprehensive income includes net
income (loss) and currency translation adjustments.
4. Net Income (Loss) per Share
Net income (loss) per share has been computed in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings per Share".
For each of the periods presented, net income (loss) per share was based on
the weighted average number of shares of Common Stock outstanding during
the period. Net income (loss) per share - assuming dilution was based on
the weighted average number of shares of Common Stock and potential shares
of Common Stock outstanding during the period. Potential shares of Common
Stock relates to stock options outstanding for which the dilutive effect is
calculated using the treasury stock method. The computation of net income
(loss) per share - assuming dilution for the three and six month periods
ended October 31, 1998, does not assume the exercise of stock options since
the effect would be antidilutive as a result of the losses for those
periods.
For each of the periods presented, income available to common
shareholders (the numerator) used in the computation of net income (loss)
per share was the same as the numerator used in the computation of net
income (loss) per share - assuming dilution. A reconciliation of the
denominators used in the computations of net income (loss) per share and
net income (loss) per share - assuming dilution is as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
October 31, October 31,
----------------------- ------------------------
1998 1997 1998 1997
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Weighted average
shares outstanding 32,873,871 28,244,145 32,924,724 28,004,059
Effect of dilutive
stock options - 715,982 - 698,892
--------- --------- --------- ---------
Adjusted weighted
average shares
outstanding assuming
dilution 32,873,871 28,960,126 32,924,724 28,702,951
========== ========== ========== ==========
</TABLE>
5. Accrued Expenses and Other Current Liabilities
<TABLE>
<CAPTION>
October 31, 1998 April 30, 1998
---------------- --------------
(unaudited)
(in thousands)
<S> <C> <C>
Accrued purchases $5,697 $1,799
Accrued consultancy 395 2,133
Accrued pension taxes 741 451
Employee withholding taxes 668 601
Value-added tax 335 431
Income tax payable 115 115
Other 5,208 486
------ ------
$13,159 $6,016
====== ======
Substantially all of the amount set forth under "Other" in the chart above
with respect to October 31, 1998, constitutes project reserves consisting
of charges to be incurred bringing projects to implementation, some of
which will not be billed and some of which will be billed at a discount.
</TABLE>
6. Accrued Payroll and Employee Benefits
<TABLE>
<CAPTION>
October 31, 1998 April 30, 1998
---------------- --------------
(unaudited)
(in thousands)
<S> <C> <C>
Accrued commissions $ 842 $ 636
Accrued payroll taxes 1,070 1,030
Accrued vacation pay 1,449 1,528
Accrued salaries and bonus 1,664 1,708
Accrued pension expenses 372 365
Accrued expenses ESPP 684 671
------ ------
$6,081 $5,938
====== ======
</TABLE>
7. Income Taxes
For the three and six month periods ended October 31, 1998, a deferred
tax asset was recognized relating to the Company's net operating loss for
the periods. At October 31, 1998, the Company had approximately $8.2
million of gross deferred tax assets. During the three and six month
periods ended October 31, 1997, 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 such net
operating loss carryforwards in offsetting future tax expense. The
valuation allowance was eliminated in the first quarter of fiscal 1999.
Estimated future earnings necessary to fully realize the net deferred tax
asset are $25.3 million. Such earnings are forecasted to be realized by
the next two fiscal 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.
8. Stock Option Plans
Under the Industri-Matematik International Corp. Stock Option Plans,
2,291,500 options were granted during the six months ended October 31,
1998. (Of these options, 275,000 were issued in replacement of options
which had been granted in a prior period at a higher exercise price.) All
options were issued at an exercise price equal to or above the closing
market price on the date of grant. During the same period, 158,879 shares
were issued pursuant to the Employee Stock Purchase Plan.
9. Subsequent Events.
In November, 1998, a licensee of System ESS (pursuant to a license
agreement with a Company partner) which is indebted to the Company for
integration services initiated an arbitration seeking cancellation of its
indebtedness and a refund of prepaid support fees and the license revenue.
Management believes that it will collect its outstanding indebtedness and
have no obligation to refund any moneys to this licensee.
PAGE
<PAGE>
ITEM 2.
INDUSTRI-MATEMATIK INTERNATIONAL COPR.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended, that involve certain risks
and uncertainties. Discussions containing such forward-looking statements
may be found in the material set forth below as well as in this Report
generally. Without limiting the foregoing, the words "believes,"
"anticipates," "plans," "expects," and similar expressions are intended to
identify forward-looking statements. The Company's actual results could
differ materially from those anticipated in such forward-looking statements
as a result of certain factors including, but not limited to, uncertainties
regarding continued market acceptance of the Company's products, delays in
the introduction of new product enhancements, hiring, training, and
retaining a rapidly increasing level of employees, and risks associated
with managing the Company's rapid growth, as well as those set forth under
"Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal
year ended April 30, 1998, which are incorporated herein by reference.
These forward-looking statements are made as of the date of this Report and
the Company assumes no obligation to update such forward-looking statements
or to update the reasons why actual results could differ materially from
those anticipated in such forward-looking statements.
OVERVIEW
The Company develops, markets, and supports client/server application
software that enables manufacturers, distributors, wholesalers, and third-
party logistics companies to manage more effectively the supply chain.
Supply chain management encompasses the execution of multiple customer-
centric order fulfillment processes, including order management, pricing
and sourcing, warehouse management, transportation management, and demand
chain planning. The Company's principal product, System ESS(R), has been
designed specifically to meet complex or high-volume supply chain
management requirements of medium and large manufacturers, distributors,
wholesalers, and third-party logistics companies. System ESS allows cus-
tomers to leverage the value of their existing systems by integrating with
legacy and new client/server manufacturing, advanced planning, and
financial management systems.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentages that selected items in the unaudited Condensed Consolidated
Statements of Operations bear to total revenues. The period to period
comparisons of financial results are not necessarily indicative of future
results.
Six Months Ended Three Months Ended
October 31, October 31,
1998 1997 1998 1997
Revenues:
Licenses 22.1 % 40.6 % 25.7 % 43.2 %
Services and maintenance 76.5 58.6 72.7 56.1
Other 1.4 0.8 1.6 0.7
------- ------- ------- -------
Total revenues 100.0 100.0 100.0 100.0
Cost of revenues:
Licenses 0.9 0.7 1.0 0.8
Services and maintenance 80.1 43.5 96.2 40.6
Other 0.5 0.4 0.4 0.4
Total cost of revenue 81.5 44.6 97.6 41.8
------- ------ ------ ------
Gross profit 18.5 55.4 2.4 58.2
------- ------ ------ ------
Operating expenses:
Product Development 28.5 13.8 34.8 12.4
Sales and marketing 28.4 21.6 29.9 20.2
General and administrative 13.8 9.1 13.1 9.2
------- ------- ------ ------
Total operating
expenses 70.7 44.5 77.8 41.8
------- ------ ------ -------
Income (loss) from
operations (52.2) 10.9 (75.4) 16.4
------- ------- ------- -------
Other income (expense):
Interest income 5.9 1.4 5.6 1.1
Interest expense (0.2) (0.1) (0.1) (0.1)
Miscellaneous
income (expense) 0.1 (0.3) 0.3 (0.1)
------- ------- ------- -------
Income (loss) before
income taxes (46.4) 11.9 (69.6) 17.3
Provision (benefit)
for income taxes (14.9) 2.0 (22.7) 3.6
------- ------- ------- -------
Net income (loss) (31.5) % 9.9 % (46.9) % 13.7 %
======= ======= ======= =======
REVENUES
The Company's revenues consist of software license revenues, service
and maintenance revenues, and other revenues. Software license revenues
consist of sales of software licenses which are recognized upon execution
of a contract and shipment of the software, provided that no significant
vendor obligations remain outstanding and collection is considered probable
by management. Service revenues are derived from fees for consulting,
training, and client-specific development services and are recognized as
services are performed. Maintenance revenues are derived from customer
support agreements generally entered into in connection with the initial
license sales and subsequent renewals. Maintenance revenues are recognized
ratably over the term of the maintenance period. Payments for maintenance
fees are generally made in advance. Other revenues are primarily third-
party hardware sales necessary to help certain customers implement System
ESS.
Total revenues increased 0.4% to $23.3 million in the quarter ended
October 31, 1998, from $23.2 million in the quarter ended October 31, 1997.
In the first six months of fiscal 1999, total revenues increased 20.3% to
$46.8 million from $38.9 million in the first six months of fiscal 1998.
The Company currently derives substantially all of its revenues from System
ESS licenses and related service and maintenance. As a result of the
Company's dependence on the continued market acceptance of System ESS,
there can be no assurance that total revenues will continue to grow at the
rates experienced in prior periods, if at all.
SOFTWARE LICENSE REVENUES. Revenues from software licenses decreased
40.4% to $6.0 million in the quarter ended October 31, 1998, from $10.0
million in the quarter ended October 31, 1997. In the first six months of
fiscal 1999, revenues from software licenses decreased 34.7% to $10.3
million from $15.8 million in the first six months of fiscal 1998. The
decrease in software license revenues was due primarily to sales delays
associated with the re-building and training the United States direct sales
force which took place, and was substantially completed, in the last two
quarters.
SERVICE AND MAINTENANCE REVENUES. Revenues from service and
maintenance increased 30.3% to $17.0 million in the quarter ended October
31, 1998, from $13.0 million in the quarter ended October 31, 1997. In the
first six months of fiscal 1999, revenues from service and maintenance
increased 57.1% to $35.8 million from $22.8 million in the first six months
of fiscal 1998. The increase in the absolute dollar amount of service and
maintenance revenues was related primarily to an increase in the number of
System ESS licenses sold during fiscal 1998 and a significant expansion of
the Company's consulting organization in the United States and Europe.
Service and maintenance revenues as a percentage of total revenues
increased to 72.7% in the quarter ended October 31, 1998, from 56.1% in the
quarter ended October 31, 1997, and increased to 76.5% in the first six
months of fiscal 1999 from 58.6% in the first six months of fiscal 1998, as
a result of the continued build-up of the services organization and the
decrease in license revenues in these periods.
OTHER REVENUES. Other revenues are primarily third-party hardware
sales to the Company's Scandinavian customer base. Other revenues
increased 119.7% to $380,000 in the quarter ended October 31, 1998, from
$173,000 in the quarter ended October 31, 1997. In the first six months of
fiscal 1999, other revenues increased 119.1% to $666,000 from $304,000 in
the first six months of fiscal 1998. Other revenues as a percentage of
total revenues increased to 1.6% in the quarter ended October 31, 1998,
from 0.7% in the quarter ended October 31, 1997, and increased to 1.4% in
the first six months of fiscal 1999 from 0.8% in the first six months of
fiscal 1998. Other revenues will vary over time as a percentage of total
revenues due to the size of specific hardware sales.
COST OF REVENUES
COST OF SOFTWARE LICENSE REVENUES. Cost of software license revenues
consists primarily of license fees paid with respect to third-party
software included with the licenses of System ESS and, occasionally, the
cost of third-party complementary software that is licensed together with
System ESS without being an integral part of System ESS. Cost of software
license revenues was $223,000 and $193,000 in the quarters ended October
31, 1998, and 1997, representing 3.7% and 1.9% of software license
revenues, respectively. Cost of software license revenues was $427,000 and
$281,000 in the first six months of fiscal 1999 and 1998, representing 4.1%
and 1.8% of software license revenues, respectively. The increase in cost
of software license revenues both in absolute dollar amount and as a
percentage of software license revenues was primarily due to increased use
of embedded third-party software that is sublicensed as part of System ESS.
COST OF SERVICE AND MAINTENANCE REVENUES. Cost of service and
maintenance revenues consists primarily of costs associated with
consulting, implementation, and training services and the use by the
Company of subcontractors to perform implementation services for the
Company's customers. Cost of service and maintenance revenues also
includes the cost of providing software maintenance to customers, such as
telephone hotline support.
Cost of service and maintenance revenues was $22.4 million and $9.4
million in the quarters ended October 31, 1998, and 1997, representing
132.2% and 72.5% of service and maintenance revenues, respectively. Cost
of service and maintenance revenues was $37.5 million and $16.9 million in
the first six months of fiscal 1999 and fiscal 1998, representing 104.7%
and 74.2% of service and maintenance revenues, respectively. The increase
in the cost of service and maintenance revenues both in absolute dollar
amounts and as a percentage of service and maintenance revenues was due to
the extensive build-up of the consulting organization, to the extensive use
of subcontractors, and with respect to the quarter ended October 31, 1998,
to the increase in certain project and bad-debt reserves.
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 $106,000 and $89,000 in the quarters ended October 31,
1998, and 1997, representing 27.9% and 51.4% of other revenues,
respectively. Cost of other revenues was $230,000 and $174,000 in the
first six months of fiscal 1999 and fiscal 1998, representing 34.5% and
57.2% of other revenues, respectively.
PRODUCT DEVELOPMENT. Product development expenses were $8.1 million
and $2.9 million in the quarters ended October 31, 1998, and 1997,
representing 34.8% and 12.4% of total revenues, respectively. These same
expenses were $13.4 million and $5.4 million in the first six months of
fiscal 1999 and 1998, representing 28.5% and 13.8% of total revenues,
respectively. The increase in product development expenses in absolute
dollar amount was due to an increase in the number of product development
personnel and other related costs related to expanding the Company's
product development department as well as the extensive use of
subcontractors in developing version 5.2 of System ESS, which was completed
in August 1998. In the quarter ended October 31, 1998, the Company also
accrued one-time costs for the expansion of System ESS functionality in the
consumer product sector. Excluding such non-recurring costs, the Company
expects that the dollar amount of product development expenses will remain
at least at the current level as the Company continues to invest in
developing new applications, product enhancements, and localization and
translation of System ESS. The Company anticipates that subcontractors
will be used to a lesser extent in the future.
In accordance with Statement of Financial Accounting Standards No. 86,
software development expenses are expensed as incurred until technological
feasibility has been established, at which time such costs are capitalized
until the product is available for general release to customers. To date,
the establishment of technological feasibility of the Company's products
and general release of such software have substantially coincided. As a
result, software development costs qualifying for capitalization have been
insignificant, and, therefore, the Company has not capitalized any software
development costs.
SALES AND MARKETING. Sales and marketing expenses include personnel
costs, commissions and related costs for sales and marketing personnel, as
well as the cost of office facilities, travel, promotional events, and
public relations programs. Sales and marketing expenses were $7.0 million
and $4.7 million in the quarters ended October 31, 1998, and 1997,
representing 29.9% and 20.2% of total revenues, respectively. These same
expenses were $13.3 million and $8.4 million in the first six months of
fiscal 1999 and 1998, representing 28.4% and 21.6% of total revenues,
respectively. The increase in sales and marketing expenses in absolute
dollar amount and as a percentage of total revenues was primarily due to
increased staffing as the Company has expanded its direct sales force as
well as its partner and marketing organization. The Company expects to
continue to increase its sales and marketing expenses in absolute dollar
amounts in order to expand its international sales operations and to enter
new vertical markets.
GENERAL AND ADMINISTRATIVE. Ongoing general and administrative
expenses consists primarily of salaries and costs of the Company's finance,
human resources, information systems, administrative, and executive staff
and the fees and expenses associated with legal, accounting, and other
requirements. General and administrative expenses were $3.1 million and
$2.1 million in the quarters ended October 31, 1998, and 1997, representing
13.1% and 9.2% of total revenues, respectively. These same expenses were
$6.4 million and $3.5 million in the first six months of fiscal 1999 and
1998, representing 13.8% and 9.1% of total revenues, respectively. The
increase in absolute dollar amounts of general and administrative expenses
was primarily the result of increased staffing of human resources and
internal system administration associated with the growth of the Company's
business during fiscal 1999 and 1998. The Company expects general and
administrative expenses to remain unchanged or decrease on a quarterly
basis in absolute dollar amounts and to decrease as a percentage of total
revenue for the remainder of this fiscal year.
OTHER INCOME (EXPENSE)
Other income comprises interest income, interest expenses, and
miscellaneous income and expenses. Interest income was $1.3 million and
$267,000 in the quarters ended October 31, 1998, and 1997, representing
5.6% and 1.1% of total revenues, respectively. Interest income was $2.7
million and $507,000 in the first six months of fiscal 1999 and 1998,
representing 5.9% and 1.4% of total revenues, respectively. The increase
is due to the Company's investment of a portion of the proceeds of its
secondary public offering in short-term investments and interest-bearing
accounts. Interest expenses were $35,000 and $20,000 in the quarters ended
October 31, 1998, and 1997, representing 0.1% and 0.1% of total revenues,
respectively. These same expenses were $75,000 and $35,000 in the first
six months of fiscal 1999 and 1998, representing 0.2% and 0.1% of total
revenues, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of October 31, 1998, the Company had $92.3 million of working
capital, including $7.8 million in cash and cash equivalents and $74.6
million in short-term investments, as compared to $120.5 million of working
capital as of April 30, 1998, including $42.0 million of cash and cash
equivalents and $69.4 in short-term investments. The decrease in working
capital was the result of the increase in accrued expenses and other
current liabilities, the operating loss for the period, and the payment of
$4.8 million to repurchase 1,077,500 shares of the Company's Common Stock
pursuant to the buy-back program announced in October 1998. Accounts
receivable increased to $33.8 million at October 31, 1998, from $24.3
million at April 30, 1998, and the average days' sales outstanding,
including contract receivables, was 139 days for the quarter ended October
31, 1998, as compared to 78 days for the year ended April 30, 1998. The
increase in average days' sales outstanding was due primarily to the late
payment of invoices for partner consulting services and other consulting
services as well as to certain license agreements being closed late in the
quarter or combined with payment plans.
The Company believes that existing cash and cash equivalent balances,
short-term investments, available borrowings under the revolving credit
agreement, and potential cash flow from operations will satisfy the
Company's working capital and capital expenditure requirements for at least
the next 12 months.
Year 2000
The Company has devoted a substantial amount of time over the last
year to validate that the standard version of its principal product, System
ESS, is Year 2000 compliant. The Company will continue to validate such
compliance through the first half of 1999 and, if necessary, will issue
releases for all supported versions of standard System ESS to insure that
all standard System ESS systems can with retained functionality store,
process, and receive date and time data for periods before and after the
turn of the century if correct date and time data are inputted. The
Company also has assessed the Year 2000 readiness of the third-party
software vendors whose products are licensed in conjunction with or as part
of standard System ESS and is satisfied that all such products are or will
be Year 2000 compliant.
With respect to customized code developed for specific customers to
address specific customer needs and to interface with legacy and other
software applications, the Company has developed a toolset to assist such
customers in assessing and renovating Year 2000 issues with respect to such
code, and the Company can perform assessment and renovation for the
customer on a time and materials basis. While the company does not warrant
the year 2000 compliance of any such customized code, it cannot be sure
that it will not have a dispute with a customer over whether particular
code is standard or customized.
The Company has taken the steps required to make its internal
management and telecommunication systems Year 2000 compliant and
anticipates that such systems will become entirely Year 2000 compliant
during the first six months of calendar 1999. The entire cost of the
Company's internal Year 2000 compliance program is not material to the
Company, and the Company does not anticipate any material adverse affect
upon its business, operating results, or financial condition with respect
to a Year 2000 issue.
<PAGE>
<PAGE>
PART II. - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of the shareholders of the Company held on October 9,
1998, Stig G. Durlow, Jeffrey A. Harris, William H. Janeway, Martin
Leimdorfer, and Geoffrey W. Squire were re-elected as directors of the
Company, the Company's 1998 Stock Option Plan was approved, and the
selection of Ohrlings Coopers & Lybrand AB as the Company's independent
public accountants for the fiscal year ending April 30, 1999, was ratified.
The tabulation of the votes is as follows:
Votes For Votes Withheld
--------- --------------
Stig G. Durlow 26,628,047 203,247
Jeffrey A. Harris 26,626,457 204,837
William H. Janeway 26,626,757 204,537
Martin Leimdorfer 26,626,817 204,477
Geoffrey W. Squire 26,626,517 204,777
Votes For Against Abstain
--------- ------- -------
Approval of 1998 Stock
Option Plan 22,328,524 1,487,499 3,015,271
Ratification of Accountants 26,727,267 15,267 88,760
ITEM 6. Exhibits and Reports on Form 8-K.
a. Exhibits
Exhibit 27. Financial Data Schedule
b. Reports on Form 8-K
No reports have been filed on Form 8-K during the quarter
ended October 31, 1998.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on it's behalf by the
undersigned thereunto duly authorized.
INDUSTRI-MATEMATIK INTERNATIONAL CORP.
BY: s/ Stig Durlow
---------------------------
Stig Durlow
Principal Executive Officer
BY: s/ Lars-Goran Peterson
---------------------------
Lars-Goran Peterson
Principal Financial Officer
DATE: December 15, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND BALANCE SHEETS OF
INDUSTRI-MATEMATIK INTERNATIONAL CORP. AND SUBSIDIARIES ANNEXED HERETO AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001016243
<NAME> INDUSTRI-MATEMATIK INTERNATIONAL CORP.
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> APR-30-1999 APR-30-1999
<PERIOD-START> AUG-1-1998 MAY-1-1998
<PERIOD-END> OCT-31-1998 OCT-31-1998
<CASH> 7,849,000 7,849,000
<SECURITIES> 74,650,000 74,650,000
<RECEIVABLES> 34,885,000 34,885,000
<ALLOWANCES> 1,131,000 1,131,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 122,283,000 122,283,000
<PP&E> 13,512,000 13,512,000
<DEPRECIATION> 6,311,000 6,311,000
<TOTAL-ASSETS> 139,259,000 139,259,000
<CURRENT-LIABILITIES> 29,964,000 29,964,000
<BONDS> 0 0
<COMMON> 320,000 320,000
0 0
0 0
<OTHER-SE> 105,596,000 105,596,000
<TOTAL-LIABILITY-AND-EQUITY> 139,259,000 139,259,000
<SALES> 22,958,000 46,164,000
<TOTAL-REVENUES> 23,338,000 46,830,000
<CGS> 22,670,000 37,941,000
<TOTAL-COSTS> 22,776,000 38,171,000
<OTHER-EXPENSES> 18,162,000 33,092,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 35,000 75,000
<INCOME-PRETAX> (16,259,000) (21,734,000)
<INCOME-TAX> (5,303,000) (6,996,000)
<INCOME-CONTINUING> (10,956,000) (14,738,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (10,956,000) (14,738,000)
<EPS-PRIMARY> (0.33) (0.45)
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