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 July 31, 1999
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, Delaware 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 July 31, 1999:
Common Stock ($.01 par value) 31,604,118 shares
<PAGE>
<PAGE>
<TABLE>
PART I. - FINANCIAL INFORMATION
INDUSTRI-MATEMATIK INTERNATIONAL CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, except share and per share data)
<CAPTION>
07/31/99 4/30/99
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 19,940 $ 29,065
Short-term investments 29,808 24,848
Accounts receivable, less allowance
for doubtful accounts of $5,695
and $4,883 at July 31, 1999, and
April 30, 1999, respectively 17,956 23,772
Contract receivables 987 703
Prepaid expenses 3,344 2,742
Income taxes receivable 930 733
Other current assets 822 558
------ ------
Total current assets 73,787 82,421
------ ------
Non-current assets:
Property and equipment, net 5,920 6,682
Deferred income taxes 16,162 16,042
Goodwill and other intangible assets 8,754 9,084
Other non-current assets 1,025 856
------ ------
Total non-current assets 31,861 32,664
------ ------
Total Assets $105,648 $115,085
======= =======
/TABLE
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Current portion of capital lease
obligations $ 69 $ 110
Current portion of notes payable 408 534
Accounts payable 3,843 3,177
Accrued expenses and other
current liabilities 11,132 12,853
Accrued payroll and employee benefits 4,210 6,243
Deferred revenue 5,989 5,317
------ ------
Total current liabilities 25,651 28,234
------ ------
Long-term liabilities:
Notes payable 300 303
Accrued pension liability 2,575 2,476
Other long-term liabilities 137 191
------ ------
Total long-term liabilities 3,012 2,970
------ ------
Total liabilities 28,663 31,204
Stockholders' equity:
Common Stock; voting, $.01 par value;
62,500,000 shares authorized;
31,604,118 and 31,499,348 shares
issued and outstanding at
July 31, 1999 and April 30,
1999, respectively 316 315
Additional paid-in capital 124,161 123,945
Accumulated deficit (37,319) (29,972)
Accumulated other comprehensive loss (3,280) (3,514)
Notes receivable from stockholders (6,893) (6,893)
------- -------
Total stockholders' equity 76,985 83,881
------- -------
Total Liabilities and Stockholders' equity $105,648 $115,085
======== =======
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 data)
<CAPTION>
THREE MONTHS ENDED
7/31/99 7/31/98
--------------- ----------------
<S> <C> <C>
Revenues:
Licenses $ 1,645 $ 4,355
Services and maintenance 14,820 18,851
Other 211 286
------- -------
Total revenues 16,676 23,492
------- -------
Cost of revenues:
Licenses 346 204
Services and maintenance 12,154 15,067
Other 58 124
------- -------
Total cost of revenues 12,558 15,395
------- -------
Gross profit 4,118 8,097
------- -------
Operating expenses:
Product development 4,441 5,241
Sales and marketing 5,087 6,312
General and administrative 2,162 3,349
Amortization of goodwill and
other intangible assets 346 28
------- -------
Total operating expenses 12,036 14,930
------- -------
Loss from operations (7,918) (6,833)
------- -------
Other income (expense):
Interest income 632 1,441
Interest expense (28) (40)
Miscellaneous expense, net (33) (43)
------- -------
Loss before income taxes (7,347) (5,475)
Benefit for income taxes -- (1,693)
------- -------
Net loss (7,347) (3,782)
======= =======
Net loss per share $ (0.23) $ (0.11)
------- -------
Net loss per share
- assuming dilution $ (0.23) $ (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 CASH FLOWS
(UNAUDITED)
(in thousands)
<CAPTION>
THREE MONTHS ENDED
7/31/99 7/31/98
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (7,347) $ (3,782)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 1,225 688
Provision for doubtful accounts 803 199
Deferred income taxes -- (1,724)
Accrued interest on short-term
investments (55) (366)
Gain on disposal of property and equipment (3) --
Changes in operating assets
and liabilities:
Accounts receivable 5,268 (458)
Contract receivables and
prepaid expenses (779) (314)
Income taxes receivable (197) (45)
Other assets (215) (349)
Accounts payable 451 (607)
Accrued expenses and other
current liabilities (2,454) 624
Accrued payroll, employee benefits
and deferred revenue (932) (766)
Accrued pension liability 45 136
--------- ---------
Net cash used in operating activities (4,190) (6,764)
========= =========
Cash flows from investing activities:
Purchase of short-term investments (29,626) (69,018)
Proceeds from sale of short-term
investments 24,721 69,416
Additions to property and equipment (104) (1,246)
Payment for Ceratina (145) (178)
Proceeds from sale of property
and equipment 29 --
Proceeds from sale of other shares -- 1
--------- ---------
Net cash flows used in investing activities (5,125) (1,025)
========= =========
Cash flows from financing activities:
Payments on notes payable -- (118)
Principal payments on capital
lease obligations (170) (73)
Issuance of Common Stock 217 1,053
Other 90 (118)
--------- ---------
Net cash flows provided
by financing activities 137 744
========= =========
Translation differences on cash and
cash equivalents 53 (59)
--------- ---------
Net decrease in cash and cash
equivalents $(9,125) $(7,104)
========= =========
Cash and cash equivalents at beginning
of period $29,065 $41,982
Cash and cash equivalents at end --------- ---------
of period $19,940 $34,878
--------- ---------
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 21 $ 62
Income taxes $ 770 $ 77
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 and July 31, 1999, and the results of
operations and cash flows for the three months ended July 31, 1998, and
1999. These financial statements, which include a condensed consolidated
balance sheet as of April 30, 1999 (audited), 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, 1999. Results of operations and cash flows for the periods
ended July 31, 1999, are not necessarily representative of the results that
may be expected for the fiscal year ending April 30, 2000, or any other
future period.
2. Comprehensive Income (Loss)
Total comprehensive loss was $(7,113,000) and $(3,939,000) for the
three months ended July 31, 1999, and July 31, 1998, respectively. Total
comprehensive loss includes net loss and currency translation adjustments.
3. Net Loss per Share
Net 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 loss per share was based on
the weighted average number of shares of Common Stock outstanding during
the period. Net 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 computations of net loss
per share - assuming dilution for the three month periods ended July 31,
1998 and 1999, do not assume the exercise of stock options since
the effect would be antidilutive as a result of the losses for the
periods.
For each of the periods presented, income available to common
shareholders (the numerator) used in the computation of net loss
per share was the same as the numerator used in the computation of net
loss per share - assuming dilution. A reconciliation of the
denominators used in the computations of net loss per share and
net loss per share - assuming dilution is as follows:
<TABLE>
<CAPTION>
Three months ended
July 31,
-----------------------
1999 1998
--------- ---------
<S> <C> <C>
Weighted average
shares outstanding 31,534,651 32,975,576
Effect of dilutive
stock options - -
--------- ---------
Adjusted weighted
average shares
outstanding assuming
dilution 31,534,651 32,975,576
========== ==========
</TABLE>
4. Accrued Expenses and Other Current Liabilities
<TABLE>
<CAPTION>
July 31, 1999 April 30, 1999
---------------- --------------
(unaudited)
(in thousands)
<S> <C> <C>
Accrued purchases $ 910 $3,768
Project reserves 3,903 2,283
Accrued consultancy 469 1,106
Accrued restructuring costs 1,246 2,517
Accrued pension taxes 838 616
Restructuring cost Abalon 298 682
Value-added tax (78) 674
Employee withholding taxes 830 804
Income tax payable 26 25
Other 2,690 378
------ ------
$11,132 $12,853
====== ======
</TABLE>
Project reserves consist 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.
5. Accrued Payroll and Employee Benefits
<TABLE>
<CAPTION>
July 31, 1999 April 30, 1999
---------------- --------------
(unaudited)
(in thousands)
<S> <C> <C>
Accrued commissions $ 141 $ 364
Accrued payroll taxes 1,133 1,398
Accrued vacation pay 1,332 2,052
Accrued salaries and bonus 1,069 1,819
Accrued pension expenses 298 321
Debt for ESPP 235 279
Other 2 10
------ ------
$4,210 $6,243
====== ======
</TABLE>
6. Provision for Income Taxes
Due to its continued negative performance, the Company did not record a
benefit for income taxes for the three-month period ended July 31, 1999.
For the period ended July 31, 1998, the Company recorded a benefit for
income taxes of $1,693,000. At July 31, 1999, the Company's deferred tax
asset amounted to $24,261,000 and related primarily to net operating loss
carry-forwards incurred in the United States and Sweden. Net operating
loss carry-forwards may be used to offset future income for up to 15 years
in the United States and indefinitely in Sweden. In light of the fact that
future operating results will depend on numerous factors, including the
growth of the supply chain software market generally and acceptance of the
Company's products, management determined that $8,100,000 was an adequate
valuation allowance against the net deferred tax asset recorded at July 31,
1999. The Company will continue to measure the deferred tax asset against
future performance and the related carry-forward period and may decide to
increase or decrease this valuation allowance in the future.
7. Stock Option Plans
Under the Industri-Matematik International Corp. Stock Option Plans,
5,000 options were granted during the three months ended July 31,
1999. 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, 104,770
shares were issued pursuant to the Employee Stock Purchase Plan.
8. Segment Information
The Company operates in one industry segment, the design, development,
marketing, licensing and support of client/server application software. The
Company is managed on a geographic basis and the Company's management
evaluates the performance of its segments and allocates resources to them
based upon income (loss) from operations. Income (loss) from operations for
the geographic segments excludes general corporate expenses and product
development costs. The majority of software development occurs in Sweden
although the Company maintains some development facilities in the United
States. Product development costs and general corporate expenses are
reported in the Corporate segment. Assets by reportable segment are not
disclosed since the Company's management does not review segmented balance
sheet information. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies. Segement
data includes intersegment revenues.
The table below presents information about the Company's reportable
segments:
Three Months Ended
July 31,
1999 1998
(in thousands)
Revenues:
United States ........................ $ 6,110 $ 13,355
Sweden ............................... 7,225 6,538
United Kingdom ....................... 1,667 2,793
Netherlands .......................... 927 11
Germany .............................. 79 36
France ............................... -- (30)
Australia ............................ 604 655
Corporate ............................ 64 134
-------- --------
$ 16,676 $ 23,492
======== ========
Income (loss) from operations:
United States ........................ $ (1,263) $ 1,870
Sweden ............................... 1,054 1,692
United Kingdom ....................... (103) (515)
Netherlands .......................... (357) (806)
Germany .............................. (135) (455)
France ............................... -- (256)
Australia ............................ 177 142
Canada ............................... (16) (48)
Intercompany ......................... (10) (22)
Corporate ............................ (7,265) (8,435)
-------- --------
$ (7,918) $ (6,833)
======== ========
<PAGE>
9. Restructuring
During the fourth quarter of fiscal 1999, the Company incurred a $3,522,000
one-time restructuring charge in connection with a cost realignment plan.
The following table presents the restructuring activity through July 31,
1999:
<TABLE>
<CAPTION>
Accrual Accrual
as of Utilization as of
April 30, of Currency July 31,
1999 Adjustment accrual effect 1999
------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Severance benefits $ 1,838 $ (8) $ (1,036) $ 8 $ 802
Lease obligations and terminations 535 (184) (126) -- 225
Other 144 118 (44) 1 219
------- ---------- --------- -------- --------
Total $ 2,517 $ (74) $ (1,206) 9 $ 1,246
======= ========== ========= ======== ========
</TABLE>
In connection with the Company's acquisition of Abalon, additional purchase
liabilities were recorded for anticipated integration costs. During the
three months ended July 31, 1999, $384,000 of the accrual was utilized. As
of July 31,1999, the remaining balance of the accrual was $298,000
including $79,000 for severance and related costs and $219,000 for costs
associated with the shutdown and consolidation of certain acquired
facilities. The Company expects to complete the integration during the
current fiscal year.
<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 employees, and risks associated with managing the Company's
operations, 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,
1999, 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
Industri-Matematik International Corp. develops, markets, and supports
client/server application software that enables manufacturers,
distributors, and wholesalers to more effectively manage the supply 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 System ESS(R), which was designed to meet the needs
of multinational manufacturers, distributors, and wholesalers. In May,
1999, the Company introduced the VIVALDI(TM) Suite, a suite of open
applications which provide full capabilities for managing and executing the
global fulfillment and customer service process. The VIVALDI Suite
incorporates System ESS components, the Customer Relationship Management
Software the Company recently acquired in its acquisition of Abalon AB, and
other components.
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.
Three Months Ended
July 31,
1999 1998
Revenues:
Licenses 9.8 % 18.6 %
Services and maintenance 88.9 80.2
Other 1.3 1.2
------- -------
Total revenues 100.0 100.0
Cost of revenues:
Licenses 2.1 0.9
Services and maintenance 72.9 64.1
Other 0.3 0.5
------- ------
Total cost of revenue 75.3 65.5
------- ------
Gross profit 24.7 34.5
------- ------
Operating expenses:
Product Development 26.6 22.3
Acquired In-process
research and development 0.0 0.0
Sales and marketing 30.5 26.9
General and administrative 13.0 14.3
Amortization of goodwill 2.1 0.1
------- -------
Total operating
expenses 72.7 63.6
------- -------
Income (loss) from
operations (47.5) (29.1)
------- -------
Other income (expense):
Interest income 3.8 6.2
Interest expense (0.2) (0.2)
Miscellaneous
income (expense) (0.2) (0.2)
------- -------
Income (loss) before
income taxes (44.1) (23.3)
Provision (benefit)
for income taxes 0.0 (7.2)
------- -------
Net income (loss) (44.1)% (16.1) %
======= =======
REVENUES
The Company's revenues consist of software license revenues, service and
maintenance revenues, and other revenues. Software license revenue is
recognized when persuasive evidence of an arrangement exists and delivery
has occurred, the fee is fixed and determinable, collectibility is
probable, and the arrangement does not require significant customization of
the software. Maintenance and support revenue is deferred and recognized
ratably over the term of the agreement, generally one year. Service revenue
is recognized as the Company performs the services in accordance with the
contract. Other revenues are primarily third-party hardware sales necessary
to help certain customers implement the Company's products.
Total revenues decreased 29.0% to $16.7 million in the quarter ended
July 31, 1999, from $23.5 million in the quarter ended July 31, 1998.
The Company currently derives substantially all of its revenues from
software licenses and related service and maintenance.
SOFTWARE LICENSE REVENUES. Revenues from software licenses decreased
62.2% to $1.6 million in the quarter ended July 31, 1999, from $4.4
million in the quarter ended July 31, 1998. The decrease in software
license revenues was due primarily to a worldwide slowdown in sales of
enterprise software applications and a lengthening of the sales cycle as
potential customers scrutinize their enterprise application purchases due
to concerns with issues such as Year 2000 problems and changes in global
economic conditions. The Company believes that there is an increased
interest in point solutions such as supply chain execution, customer
relationship management and e-commerce, both business-to-business and
business-to-consumer.
SERVICE AND MAINTENANCE REVENUES. Revenues from service and
maintenance decreased 21.4% to $14.8 million in the quarter ended July
31, 1999, from $18.9 million in the quarter ended July 1, 1998. The
decrease in the absolute dollar amount of service and maintenance revenues
was related primarily to a decrease in the number of System ESS licenses
sold during fiscal 1999. Service and maintenance revenues as a percentage
of total revenues increased to 88.9% in the quarter ended July 31, 1999,
from 80.2% in the quarter ended July 31, 1998 and was primarily related to
the decrease in the number of System ESS licenses sold during fiscal 1999.
Generally, service and maintenance revenues tend to track software license
transactions in prior periods.
OTHER REVENUES. Other revenues are primarily third-party hardware
sales to the Company's Scandinavian customer base. Other revenues
decreased 26.2% to $211,000 in the quarter ended July 31, 1999, from
$286,000 in the quarter ended July 31, 1998. Other revenues as a percentage
of total revenues increased to 1.3% in the quarter ended July 31, 1999,
from 1.2% in the quarter ended July 31, 1998. Other revenues 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 embedded 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 embedded into System ESS. Cost of software
license revenues was $346,000 and $204,000 in the quarters ended July
31, 1999, and 1998, representing 21.0% and 4.7% 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 royalty fees paid to an integration partner
in the quarter ended July 31, 1999.
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 third-party consultants 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 $12.2 million and $15.1
million in the quarters ended July 31, 1999, and 1998, representing
82.0% and 79.9% of service and maintenance revenues, respectively. The
decrease in the cost of service and maintenance revenues in absolute dollar
amounts was due to reductions in the workforce carried out during the
fourth quarter of fiscal 1999 in order to bring the costs in line with the
decrease in service and maintenance revenues. Cost of service and
maintenance revenues is expected to continue to decline during fiscal 2000.
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 $58,000 and $124,000 in the quarters ended July 31,
1999, and 1998, representing 27.5% and 43.4% of other revenues,
respectively.
PRODUCT DEVELOPMENT. Product development expenses were $4.4 million
and $5.2 million in the quarters ended July 31, 1999, and 1998,
representing 26.6% and 22.3% of total revenues, respectively. The decrease
in product development expenses in absolute dollar amount was due to a
decrease in the number of product development personnel and other related
costs as part of the fourth quarter 1999 restructuring program to adjust
expenses to the decline in revenues. The Company expects that product
development expenses will remain at approximately the same levels for the
remainder of fiscal 2000.
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 $5.1 million
and $6.3 million in the quarters ended July 31, 1999, and 1998,
representing 30.5% and 26.9% of total revenues, respectively. The decrease
in sales and marketing expenses in absolute dollar amount was primarily due
to measures taken in the fourth quarter of fiscal 1999 to reduce costs in
response to the slowdown in sales and increase in sales cycle referred to
above.
GENERAL AND ADMINISTRATIVE. Ongoing general and administrative
expenses consist 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 $2.1 million and
$3.3 million in the quarters ended July 31, 1999, and 1998, representing
13.0% and 14.3% of total revenues, respectively. The decrease in absolute
dollar amounts of general and administrative expenses was primarily the
result of decreased staffing of human resources and internal system
administration associated with the restructuring of the Company's business
during the fourth quarter of fiscal 1999.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of
goodwill and other intangibles relates to the fiscal 1998 acquisition of
Ceratina International AB and the fiscal 1999 acquisition of Abalon AB.
Goodwill and other intangibles is amortized over a 5 to 10 year period.
Amortization of goodwill and other intangibles was $346,000 and $28,000,
representing 2.1% and 0.1% of total revenues, in fiscal 1999 and 1998,
respectively, and the Company anticipates amortizing approximately $1.4
million from these acquisitions in fiscal 2000.
OTHER INCOME (EXPENSE)
Other income comprises interest income, interest expenses, and
miscellaneous income and expenses. Interest income was $632,000 and $1.4
million in the quarters ended July 31, 1999, and 1998, representing
3.8% and 6.2% of total revenues, respectively. The decrease is due to a
decrease in the levels of short-term investments and cash held in interest-
bearing accounts compared to the amounts invested in the same period in the
prior year. Interest expenses were $28,000 and $40,000 in the quarters
ended July 31, 1999, and 1998, representing 0.2% and 0.2% of total
revenues, respectively. The decrease in the absolute dollar amounts is due
to repayments on a minor external credit facility during fiscal year 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 1999, the Company had $48.0 million of working
capital, including $19.9 million in cash and cash equivalents and $29.8
million in short-term investments, as compared to $54.2 million of working
capital as of April 30, 1999, including $29.1 million of cash and cash
equivalents and $24.8 million in short-term investments. Accounts
receivable, net of allowance for doubtful accounts, decreased to $18.0
million at July 31, 1999, from $23.8 million at April 30, 1999, and the
average days' sales outstanding, including contract receivables, was 102
days for the quarter ended July 31, 1999, compared to an average of 114
days for fiscal year 1999. The decrease in average days' sales outstanding
was due primarily to the collection of past due accounts receivable during
the quarter. The allowance for doubtful accounts remained substantially
unchanged at July 31, 1999 compared to April 30, 1999.
The Company believes that existing cash and cash equivalent balances,
short-term investments, 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
"Year 2000" or "Y2k" compliance means the ability to process and receive,
with retained functionality, date and time data for periods before and
after the turn of the century. Certain time-sensitive computer programs
written using only two digits to define a year may recognize a date using
"00" as the year 1900 or some other year than 2000, which could result in
miscalculations and system failures. The Company has recognized that such
computer program problems could affect the Company's software products as
well as the Company's internal systems and has taken steps to address any
potential Year 2000 compliance problems in both areas.
The Company has devoted a substantial amount of time over the last two
years to validate that the standard version of its principal products,
System ESS and the VIVALDI Suite, are Year 2000 compliant. The Company will
continue to validate such compliance through 1999 and, if necessary, will
issue releases for all supported versions of its standard products to
ensure that all standard 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 its
standard products 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 software used by the Company to manage its internal systems, such as
time and billing, accounting, general ledger, and the like, was developed
by the Company and was not originally Year 2000 compliant. The Company has
updated the software to make it Year 2000 compliant and is currently
testing the updated software. The Company anticipates that the updated,
Year 2000 compliant software will be implemented by the end of October,
1999. The Company estimates that the total cost of updating its internal
computer systems, based upon the time expended by the Company's own
employees, to be approximately $175,000 to date, which amount has been paid
out of working capital. The other internal system identified by the Company
not to be Year 2000 compliant was the telephone system in its offices in
Stockholm. The Company has moved to new offices, and the telephone system
in the new offices is Year 2000 compliant. The Company will continue to
test all of its automated systems and will develop contingency plans for
all systems not expected to be Year 2000 compliant. The Company also will
continue its efforts to confirm that major third-party businesses and its
public and private providers of infrastructure services, such as utilities,
communications services, and transportation also will be prepared for the
Year 2000. The Company does not currently anticipate that internal systems
failures will result in any material adverse effect to its operations or
financial condition. At this time, the registrant believes that the most
likely "worst-case" scenario involves potential disruptions in areas in
which the Company's operations must rely on third parties whose systems may
not work properly after January 1, 2000. While such failures could affect
important operations of the registrant, either directly or indirectly, the
registrant cannot at present estimate either the likelihood or the
potential cost of such failures.
QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not believe it is exposed to market risks with respect to
any of its investments; the Company does not utilize market rate sensitive
instruments for trading of other purposes. As of July 31, 1999, the Company
had no long-term investments and its short-term investments consisted of
one Federal Agency security with a maturity of less than one year.
<PAGE>
PART II. - OTHER INFORMATION
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 July 31, 1999.
<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/ Karl Asp
---------------------------
Karl Asp
Principal Financial Officer
DATE: September 14, 1999
<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>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-1-1999
<PERIOD-END> JUL-31-1999
<CASH> 19,940,000
<SECURITIES> 29,808,000
<RECEIVABLES> 23,651,000
<ALLOWANCES> 5,695,000
<INVENTORY> 0
<CURRENT-ASSETS> 73,675,000
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<DEPRECIATION> 9,249,000
<TOTAL-ASSETS> 105,648,000
<CURRENT-LIABILITIES> 25,651,000
<BONDS> 0
<COMMON> 316,000
0
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<OTHER-SE> 76,669,000
<TOTAL-LIABILITY-AND-EQUITY> 105,648,000
<SALES> 16,465,000
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<INCOME-PRETAX> (7,347,000)
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