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, 2000
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 October 31, 2000:
Common Stock ($.01 par value) 32,147,187 shares
<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>
10/31/00 04/30/00
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,466 $ 12,036
Short-term investments 15,536 19,821
Accounts receivable, less allowance
for doubtful accounts of $2,458
and $2,486 at October 31, 2000, and
April 30, 2000, respectively 16,597 20,176
Contract receivables 1,081 1,089
Prepaid expenses 2,150 2,727
Income taxes receivable 496 646
Other current assets 864 698
------ ------
Total current assets 49,190 57,193
------ ------
Non-current assets:
Property and equipment, net 6,170 6,595
Deferred income taxes 15,070 15,520
Goodwill and other intangible assets 7,502 8,359
Other non-current assets 971 1,265
------ ------
Total non-current assets 29,713 31,739
------ ------
Total assets $ 78,903 $ 88,932
======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Current portion of capital lease
obligations $ - $ -
Current portion of notes payable 18 303
Accounts payable 1,502 2,031
Accrued expenses and other
current liabilities 5,915 7,978
Accrued payroll and employee benefits 4,328 5,702
Deferred revenue 7,451 8,529
------ ------
Total current liabilities 19,214 24,543
------ ------
Long-term liabilities:
Notes payable - -
Accrued pension liability 2,818 2,930
Other long-term liabilities - -
------ ------
Total long-term liabilities 2,818 2,930
------ ------
Total liabilities 22,032 27,473
------ ------
Stockholders' equity:
Common Stock; voting, $.01 par value;
62,500,000 shares authorized;
32,147,187 and 31,839,229 shares
issued and outstanding at
October 31, 2000 and April 30,
2000, respectively 321 318
Additional paid-in capital 124,945 124,310
Accumulated deficit (56,901) (52,771)
Accumulated other comprehensive loss (5,612) (4,476)
Notes receivable from stockholders (5,882) (5,922)
------- -------
Total stockholders' equity 56,871 61,459
------- -------
Total liabilities and stockholders' equity $ 78,903 $ 88,932
======= =======
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
<CAPTION>
THREE MONTHS ENDED
10/31/00 10/31/99
--------------- ----------------
<S> <C> <C>
Revenues:
Licenses $ 3,836 $ 1,019
Services and maintenance 14,131 16,856
Other 520 413
------- -------
Total revenues 18,487 18,288
------- -------
Cost of revenues:
Licenses 178 184
Services and maintenance 9,357 12,722
Other 132 101
------- -------
Total cost of revenues 9,667 13,007
------- -------
Gross profit 8,820 5,281
------- -------
Operating expenses:
Product development 3,626 4,497
Sales and marketing 3,971 5,429
General and administrative 1,995 2,348
Amortization of goodwill and
other intangible assets 373 346
------- -------
Total operating expenses 9,965 12,620
------- -------
Loss from operations (1,145) (7,339)
------- -------
Other income (expense):
Interest income 452 568
Interest expense (5) (13)
Miscellaneous income, net 48 (66)
------- -------
Loss before income taxes (650) (6,850)
Benefit for income taxes -- --
------- -------
Net loss (650) (6,850)
======= =======
Net loss per share $ (0.02) $ (0.22)
------- -------
Net loss per share
- assuming dilution $ (0.02) $ (0.22)
======= =======
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
<CAPTION>
SIX MONTHS ENDED
10/31/00 10/31/99
--------------- ----------------
<S> <C> <C>
Revenues:
Licenses $ 7,968 $ 2,664
Services and maintenance 26,561 31,676
Other 951 624
------- -------
Total revenues 35,480 34,964
------- -------
Cost of revenues:
Licenses 496 530
Services and maintenance 18,467 24,876
Other 300 159
------- -------
Total cost of revenues 19,263 25,565
------- -------
Gross profit 16,217 9,399
------- -------
Operating expenses:
Product development 7,763 8,938
Sales and marketing 8,393 10,516
General and administrative 4,446 4,510
Amortization of goodwill and
other intangible assets 749 692
------- -------
Total operating expenses 21,351 24,656
------- -------
Loss from operations (5,134) (15,257)
------- -------
Other income (expense):
Interest income 918 1,200
Interest expense (11) (41)
Miscellaneous income (expense), net 97 (99)
------- -------
Loss before income taxes (4,130) (14,197)
Benefit for income taxes -- --
------- -------
Net loss (4,130) (14,197)
======= =======
Net loss per share $ (0.13) $ (0.45)
------- -------
Net loss per share
- assuming dilution $ (0.13) $ (0.45)
======= =======
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
INDUSTRI-MATEMATIK INTERNATIONAL CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<CAPTION>
SIX MONTHS ENDED
10/31/00 10/31/99
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(4,130) $(14,197)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 2,188 2,567
Provision for doubtful accounts (20) 621
Deferred income taxes -- --
Accrued interest on short-term
investments -- 90
Loss on disposal of property and equipment (70) (3)
Changes in operating assets and liabilities:
Accounts receivable 2,821 7,403
Contract receivables and
prepaid expenses 261 (218)
Income taxes receivable 100 (220)
Other assets 77 (430)
Accounts payable (394) (730)
Accrued expenses and other
current liabilities (1,719) (3,908)
Accrued payroll, employee benefits
and deferred revenue (1,822) (1,840)
Accrued pension liability 253 327
--------- ---------
Net cash used in operating activities (2,455) (10,538)
========= =========
Cash flows from investing activities:
Purchase of short-term investments (57,858) (84,227)
Proceeds from sale of short-term
investments 62,143 81,242
Additions to property and equipment (1,509) (1,755)
Payment for Ceratina -- (145)
Proceeds from sale of property
and equipment 14 37
Proceeds from sale of other shares 0 --
Collection of notes receivable 40 --
--------- ---------
Net cash flows provided by (used in)
investing activities 2,830 (4,848)
========= =========
Cash flows from financing activities:
Payments on notes payable (285) --
Principal payments on capital
lease obligations -- (299)
Issuance of Common Stock 638 217
Other (114) 211
--------- ---------
Net cash flows provided
by(used in)financing activities 239 129
========= =========
Translation differences on cash and
cash equivalents (184) 43
--------- ---------
Net increase (decrease)in cash and cash
equivalents $ 430 $(15,214)
========= =========
Cash and cash equivalents at beginning
of period $12,036 $29,065
Cash and cash equivalents at end --------- ---------
of period $12,466 $13,851
--------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 10 $ 37
Income taxes $ 320 $ 846
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 October 31, 2000, and the results of
operations for the three and six months and cash flows for the six months
ended October 31, 2000, and 1999. These financial statements, which include
a condensed consolidated balance sheet as of April 30, 2000 (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, 2000. Results of operations and cash flows for
the periods ended October 31, 2000, are not necessarily representative of the
results that may be expected for the fiscal year ending April 30, 2001, or
any other future period.
2. Comprehensive Loss
Total comprehensive loss was $(1,341,000) and $(6,529,000) for the
three months ended October 31, 2000, and 1999, respectively. Total
comprehensive loss was $(5,266,000) and $(13,642,000) for the six months
ended October 31, 2000, and 1999, 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 and six month periods ended
October 31, 2000, 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 Six months ended
October 31, October 31,
----------------------- -----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C>
Weighted average
shares outstanding 32,033,395 31,604,118 31,964,046 31,569,384
Effect of dilutive
stock options - - - -
--------- --------- --------- ---------
Adjusted weighted
average shares
outstanding assuming
dilution 32,033,395 31,604,118 31,964,046 31,569,384
========== ========== ========== ==========
</TABLE>
4. Accrued Expenses and Other Current Liabilities
<TABLE>
<CAPTION>
October 31, 2000 April 30, 2000
---------------- ------------------
(unaudited)
(in thousands)
<S> <C> <C>
Accrued purchases $1,850 $2,775
Project reserves 794 1,229
Accrued consultancy 887 1,334
Accrued restructuring costs 151 257
Accrued pension taxes 761 593
Restructuring cost Abalon 61 61
Value-added tax 141 259
Employee withholding taxes 529 622
Income tax payable 57 156
Additional consideration Ceratina -- 241
Accrued severance pay 90 --
Other 594 451
------ ------
$5,915 $7,978
====== ======
</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>
October 31, 2000 April 30, 2000
---------------- --------------
(unaudited)
(in thousands)
<S> <C> <C>
Accrued commissions $ 252 $ 563
Accrued payroll taxes 892 1,212
Accrued vacation pay 1,080 1,733
Accrued salaries and bonus 1,536 1,364
Accrued pension expenses 215 599
Debt for ESPP 229 219
Other 124 12
------ ------
$4,328 $5,702
====== ======
</TABLE>
6. Income Taxes
Due to its continued negative performance, the Company did not record a
benefit for income taxes for the three or six month periods ending October
31, 2000, and October 31, 1999. At October 31, 2000, the Company's
deferred tax asset amounted to $27,670,000 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
$12,600,000 was an adequate valuation allowance against the deferred
tax asset recorded at October 31, 2000. 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. 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. Segment data includes inter-segment revenues.
The table below presents information about the Company's reportable
segments:
Three Months Ended Six Months Ended
October 31, October 31,
2000 1999 2000 1999
-------- -------- -------- --------
(in thousands) (in thousands)
Revenues:
United States $ 8,123 $ 6,172 $ 16,370 $ 12,282
Sweden 6,260 9,489 12,222 16,714
United Kingdom 1,551 1,545 3,093 3,212
Netherlands 2,897 316 4,212 1,243
Germany -- 63 -- 142
France -- -- -- --
Australia 215 581 639 1,185
Finland 29 -- 90 --
Intercompany (727) -- (1,310) --
Corporate 138 122 164 186
-------- -------- -------- --------
$ 18,486 $ 18,288 $ 35,480 $ 34,964
======== ======== ======== ========
Income (loss) from operations:
United States $ 3,648 $ 432 $ 6,545 $ (832)
Sweden (440) 1,360 (850) 2,414
United Kingdom (63) (194) (83) (297)
Netherlands 1,607 (468) 1,919 (824)
Germany -- (446) -- (581)
France 4 (57) 4 (57)
Australia (204) 204 (163) 381
Canada (1) (6) (2) (22)
Finland (26) -- (35) --
Intercompany (465) (56) (874) (69)
Corporate (5,205) (8,108) (11,595) (15,370)
-------- -------- -------- --------
$ (1,145) $ (7,339) $ (5,134) $(15,257)
======== ======== ======== ========
<PAGE>
8. 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 October 31,
2000:
<TABLE>
<CAPTION>
Accrual Accrual
as of Utilization as of
April 30, of Currency October 31,
2000 accrual effect 2000
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Severance benefits $ 247 $ (91) $ (9) $ 147
Lease obligations and terminations 4 (2) -- 2
Other 6 (4) -- 2
---------- ---------- ---------- ----------
Total $ 257 $ (97) $ (9) $ 151
========== ========== ========== ==========
</TABLE>
In connection with the Company's acquisition of Abalon in fiscal 1999,
additional purchase liabilities of $549,000 were recorded for severance
and related costs and $433,000 for costs associated with the shut down and
consolidation of certain acquired facilities. As of October 31, 2000, the
remaining liabilities for these costs were $43,000 and $18,000, respectively.
The Company expects to complete the integration during the current fiscal
year.
ITEM 2.
INDUSTRI-MATEMATIK INTERNATIONAL CORP.
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, the success of the
implementation of the Company's restructuring program, 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 VIVALDI(TM), a suite of open applications
which provide full capabilities for managing and executing the global
fulfillment and customer service process. VIVALDI includes System ESS
components, Customer Relationship Management Software, Open Warehouse, and
other components. During fiscal year 2000, the Company began marketing
eCRM/eFulfillment, a pre-integrated configuration of VIVALDI components for
web-based businesses.
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.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues:
Licenses 20.8 5.6 22.4 7.6
Services and maintenance 76.4 92.2 74.9 90.6
Other 2.8 2.2 2.7 1.8
------- ------- ------- -------
Total revenues 100.0 100.0 100.0 100.0
Cost of revenues:
Licenses 1.0 1.0 1.4 1.5
Services and maintenance 50.6 69.6 52.0 71.1
Other 0.7 0.6 0.9 0.5
------- ------ ------- -------
Total cost of revenue 52.3 71.2 54.3 73.1
------- ------ ------- -------
Gross profit 47.7 28.8 45.7 26.9
------- ------ ------- -------
Operating expenses:
Product development 19.6 24.6 21.9 25.6
Sales and marketing 21.5 29.7 23.7 30.1
General and administrative 10.8 12.8 12.5 12.9
Amortization of goodwill and
other intangible assets 2.0 1.9 2.1 2.0
------- ------- ------- -------
Total operating
expenses 53.9 69.0 60.2 70.6
------- ------- ------- -------
Loss from operations (6.2) (40.2) (14.5) (43.7)
------- ------- ------- -------
Other income (expense):
Interest income 2,4 3.1 2.6 3.4
Interest expense (0.0) (0.1) (0.0) (0.1)
Miscellaneous
income (expense) 0.3 (0.4) 0.3 (0.3)
------- ------- ------- -------
Loss before income taxes (3.5) (37.6) (11.6) (40.7)
Benefit for income taxes -- -- -- --
------- ------- ------- -------
Net loss (3.5) (37.6) (11.6) (40.7)
======= ======= ======= =======
</TABLE>
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 a license exists and delivery has
occurred, the fee is fixed and determinable, collectibility is probable, and
the license is not conditioned upon 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 a
professional services agreement. Other revenues are primarily third-party
hardware sales necessary to help certain customers implement the Company's
products.
Total revenues increased 1.1% to $18.5 million in the three months ended
October 31, 2000, from $18.3 million in the three months ended October 31,
1999. In the first six months of fiscal 2001, total revenues increased 1.5%
to $35.5 million from $35.0 million in the first six months of fiscal 2000.
The Company currently derives substantially all of its revenues from
software licenses and related service and maintenance.
SOFTWARE LICENSE REVENUES. Revenues from software licenses increased
276.5% to $3.8 million in the three months ended October 31, 2000, from $1.0
million in the three months ended October 31, 1999. In the first six months
of fiscal 2001, revenues from software licenses increased 199.1% to $8.0
million from $2.7 million in the first six months of fiscal 2000. Management
believes the increase in software license revenue was due to a general
recovery in the market for client/server application software.
SERVICE AND MAINTENANCE REVENUES. Revenues from service and
maintenance decreased 16.2% to $14.1 million in the three months ended
October 31, 2000, from $16.9 million in the three months ended October 31,
1999. In the first six months of fiscal 2001, revenues from service and
maintenance decreased 16.2% to $26.6 million from $31.7 million in the first
six months of fiscal 2000. The decrease in the absolute dollar amount of
service and maintenance revenues was related primarily to the decrease in
software licenses sold during fiscal 2000 and 1999. Service and maintenance
revenues as a percentage of total revenues decreased to 76.4% in the three
months ended October 31, 2000, from 92.2% in the three months ended October
31, 1999, and decreased to 74.9% in the first six months of fiscal 2001 from
90.6% in the first six months of fiscal 2000. This decrease in service and
maintenance revenues as a percentage of total revenues was related to the
increase in software license revenues during the first half of fiscal 2001
compared to the same period in the prior fiscal year. Increases and
decreases in service and maintenance revenues tend to track fluctuations in
software license revenues in prior periods.
OTHER REVENUES. Other revenues are primarily third-party hardware
sales to the Company's Scandinavian customer base. Other revenues
increased 25.9% to $520,000 in the three months ended October 31, 2000, from
$413,000 in the three months ended October 31, 1999. In the first six months
of fiscal 2001, other revenues increased 52.4% to $951,000 from $624,000 in
the first six months of fiscal 2000. Other revenues as a percentage
of total revenues increased to 2.8% in the three months ended October 31,
2000, from 2.2% in the three months ended October 31, 1999, and increased to
2.7% in the first six months of fiscal 2001 from 1.8% in the first six months
of fiscal 2000. Other revenues vary over time as a percentage of total
revenues due to the size of specific hardware sales and to fluctuations in
software license revenues.
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 the Company's software products
and, occasionally, the cost of third-party complementary software that is
licensed together with or without being embedded into the Company's software
products. In addition, cost of software license revenues may include royalty
fees paid to partners that are directly related to license sales. Cost of
software license revenues was $178,000 and $184,000 in the three months ended
October 31, 2000, and 1999, representing 4.6% and 18.1% of software license
revenues, respectively. Cost of software license revenues was $496,000 and
$530,000 in the first six months of fiscal 2001 and 2000, representing 6.2%
and 19.9% of software license revenues, respectively. The decrease of cost
of software license revenues as a percentage of software license revenues in
the second quarter of fiscal 2001 compared to the same period in the prior
year was primarily due to the allocation of fixed costs for embedded third
party software over the lower amount of software license revenue in the prior
fiscal year. The decrease in cost of software license revenues as a
percentage of software license revenues in the first six months of fiscal
2001 compared to the same period in the prior year was due to both the
allocation of fixed costs for embedded third party software over a decreased
amount of software license revenue and higher royalty fees paid to
integration partners in fiscal 2000.
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 $9.4 million and $12.7
million in the three months ended October 31, 2000, and 1999, representing
66.2% and 75.5% of service and maintenance revenues, respectively. Cost
of service and maintenance revenues was $18.5 million and $24.9 million in
the first six months of fiscal 2001 and fiscal 2000, representing 69.5%
and 78.5% of service and maintenance revenues, respectively. The
decrease in the cost of service and maintenance revenues in absolute dollar
amounts was primarily due to a reduction in the number of employed
consultants, a reduction in the use of outside consultants, and a decrease in
the amount of service and maintenance performed. With respect to the three
month and six month periods ended October 31, 2000 and 1999, the cost of
service and maintenance revenues decreased as a percentage of service and
maintenance revenues as a result of better utilization of the employed
consultants.
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 $132,000 and $101,000 in the three months ended October
31, 2000, and 1999, representing 25.4% and 24.5% of other revenues,
respectively. Cost of other revenues was $300,000 and $159,000 in the
first six months of fiscal 2001 and fiscal 2000, representing 31.5% and
25.5% of other revenues, respectively.
PRODUCT DEVELOPMENT. Product development expenses were $3.6 million
and $4.5 million in the three months ended October 31, 2000, and 1999,
representing 19.6% and 24.6% of total revenues, respectively. These same
expenses were $7.8 million and $8.9 million in the first six months of
fiscal 2001 and 2000, representing 21.9% and 25.6% of total revenues,
respectively. The decrease in product development expenses in absolute
dollars and as a percentage of total revenues was due to a decrease in the
number of product development personnel.
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 $4.0 million
and $5.4 million in the three months ended October 31, 2000, and 1999,
representing 21.5% and 29.7% of total revenues, respectively. These same
expenses were $8.4 million and $10.5 million in the first six months of
fiscal 2001 and 2000, representing 23.7% and 30.1% of total revenues,
respectively. The decrease in sales and marketing expenses in absolute
dollar amount and as a percentage of total revenues was primarily due to
fewer sales and marketing activities during fiscal year 2001 and a reduction
in the size of the sales organization, along with other overhead items.
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
services. General and administrative expenses were $2.0 million and
$2.3 million in the three months ended October 31, 2000, and 1999,
representing 10.8% and 12.8% of total revenues, respectively. The decrease
was primarily due to a refund of amounts paid into a National Swedish pension
fund. General and administrative expenses were $4.5 million in the first six
months of both fiscal 2001 and 2000, representing 12.5% and 12.9% of total
revenues, respectively.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS. Amortization of
goodwill and other intangible assets relates to the fiscal 1998 acquisition
of Ceratina International AB and the fiscal 1999 acquisition of Abalon AB.
Goodwill and other intangible assets are amortized over a 5 to 10 year
period. Amortization of goodwill and other intangible assets was $373,000
and $346,000 in the three months ended October 31, 2000, and 1999,
representing 2.0% and 1.9% of total revenues, respectively. These same
expenses were $749,000 and $692,000 in the first six months of fiscal 2001
and 2000, representing 2.1% and 2.0% of total revenues, respectively.
OTHER INCOME (EXPENSE)
Other income comprises interest income, interest expenses, and
miscellaneous income and expenses. Interest income was $452,000 and $568,000
in the three months ended October 31, 2000, and 1999, representing
2.4% and 3.1% of total revenues, respectively. Interest income was $0.9
million and $1.2 million in the first six months of fiscal 2001 and 2000,
representing 2.6% and 3.4% of total revenues, respectively. The decrease
was 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 as a result of the Company's net loss. Interest
expenses were $5,000 and $13,000 in the three months ended October 31, 2000,
and 1999, representing 0.0% and 0.1% of total revenues, respectively. These
same expenses were $11,000 and $41,000 in the first six months of fiscal 2001
and 2000, representing 0.0% and 0.1% of total revenues, respectively. The
decrease in the absolute dollar amounts is due to repayments on a small
external credit facility during fiscal year 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of October 31, 2000, the Company had $30.0 million of working
capital, including $12.5 million in cash and cash equivalents and $15.5
million in short-term investments, as compared to $32.7 million of working
capital as of April 30, 2000, including $12.0 million of cash and cash
equivalents and $19.8 million in short-term investments. Accounts
receivable, net of allowance for doubtful accounts, decreased to $16.6
million at October 31, 2000, from $20.2 million at April 30, 2000, and the
average days' sales outstanding, including contract receivables, was 86
days for the three months ended October 31, 2000, compared to an average of
84 days for fiscal year 2000. The allowance for doubtful accounts of $2.5
million at October 31, 2000 remained at approximately the same level as at
April 30, 2000. During the three months, the Company charged approximately
$0.6 million to bad debts due to bankruptcies in the dotcom sector. The
Company does not anticipate any significant exposure to these types of bad
debt write-offs in the near future.
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.
SUBSEQUENT TRANSACTION
During November, 2000, the Company entered into a hedge transaction with
a Bank to offset potential liability under Swedish tax law upon exercise of
stock options by employees subject to Swedish taxation. The arrangement
involved the issuance by the Bank of a call to the Company settleable in cash
which the Bank elected to cover by purchasing shares of the Company's Common
Stock. The call is offset by the Bank's right to put shares of Company
Common Stock to the Company. The number of shares of Company Common Stock
subject to the call at any given time, which depends on the number of options
outstanding from time to time, is presently 450,000 and is not expected to
exceed that number. It is anticipated that the hedge transaction will be
open for several years.
YEAR 2000
The Company devoted a substantial amount of time to validate that the
standard versions of its principal products were Year 2000 compliant and
would 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 were inputted. 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 developed a toolset to
assist such customers in assessing and renovating Year 2000 issues with
respect to such code. 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 did not experience any significant disruption in its
operations as a result of the turn of the century and does not anticipate
that any such subsequent disruptions will have any material adverse effect to
its operations or financial condition. At this time, the Company 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 for all periods after December 31, 1999. While
such failures could affect important operations of the Company, either
directly or indirectly, the Company 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 October 31, 2000, 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 4. Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of the shareholders of the Company held on October 11,
2000, 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 Transferable Stock Option Plan was approved, the
increase in the number of shares authorized for issuance pursuant to the
Company's 1998 Stock Option Plan from 3,000,000 to 4,000,000 was approved, the
increase in the number of shares authorized for issuance pursuant to the
Company's 1997 Employee Stock Purchase Plan from 1,200,000 to 1,800,000 shares
was approved, and the selection of Ohrlings PricewaterhouseCoopers AB as the
Company's independent public accountants for the fiscal year ending April 30,
2001, was ratified. The tabulation of the votes is as follows:
Votes For Votes Withheld
--------- --------------
Stig G. Durlow 29,390,508 710,500
Jeffrey A. Harris 29,919,442 181,560
William H. Janeway 29,920,312 180,696
Martin Leimdorfer 29,912,233 188,785
Geoffrey W. Squire 29,921,412 179,596
Votes For Against Abstain
--------- ------- -------
Approval of increase in the
shares authorized for issuance
pursuant to the 1998 Stock
Option Plan from 3,000,000 to
4,000,000 shares 21,378,346 963,980 7,758,682
Approval of the Transferable
Stock Option Plan 21,388,748 997,280 7,764,980
Approval of increase in the
shares authorized for issuance
pursuant to the 1997 Employee
Stock Purchase Plan from
1,200,000 to 1,800,000 shares 22,158,880 180,633 7,761,495
Ratification of Selection
of Accountants 29,323,301 20,116 757,591
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 three months
ended October 31, 2000.
<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: December 15, 2000
