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 January 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 January 31, 2000:
Common Stock ($.01 par value) 31,689,417 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>
1/31/00 4/30/99
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,268 $ 29,065
Short-term investments 24,765 24,848
Accounts receivable, less allowance
for doubtful accounts of $2,503
and $4,883 at January 31, 2000, and
April 30, 1999, respectively 11,442 23,772
Contract receivables 1,645 703
Prepaid expenses 2,349 2,742
Income taxes receivable 1,014 733
Other current assets 660 558
------ ------
Total current assets 58,143 82,421
------ ------
Non-current assets:
Property and equipment, net 8,039 6,682
Deferred income taxes 15,691 16,042
Goodwill and other intangible assets 8,006 9,084
Other non-current assets 1,066 856
------ ------
Total non-current assets 32,802 32,664
------ ------
Total assets $ 90,945 $115,085
======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Current portion of capital lease
obligations $ 2 $ 110
Current portion of notes payable 441 534
Accounts payable 2,320 3,177
Accrued expenses and other
current liabilities 9,610 12,853
Accrued payroll and employee benefits 5,023 6,243
Deferred revenue 5,815 5,317
------ ------
Total current liabilities 23,211 28,234
------ ------
Long-term liabilities:
Notes payable - 303
Accrued pension liability 2,863 2,476
Other long-term liabilities 616 191
------ ------
Total long-term liabilities 3,479 2,970
------ ------
Total liabilities 26,690 31,204
------ ------
Stockholders' equity:
Common Stock; voting, $.01 par value;
62,500,000 shares authorized;
31,689,417 and 31,499,348 shares
issued and outstanding at
January 31, 2000 and April 30,
1999, respectively 317 315
Additional paid-in capital 123,901 123,945
Accumulated deficit (50,062) (29,972)
Accumulated other comprehensive loss (3,819) (3,514)
Notes receivable from stockholders (6,082) (6,893)
------- -------
Total stockholders' equity 64,255 83,881
------- -------
Total liabilities and stockholders' equity $ 90,945 $115,085
======= =======
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
1/31/00 1/31/99
--------------- ----------------
<S> <C> <C>
Revenues:
Licenses $ 4,344 $ 4,128
Services and maintenance 14,109 15,353
Other 426 588
------- -------
Total revenues 18,879 20,069
------- -------
Cost of revenues:
Licenses 877 910
Services and maintenance 12,175 15,336
Other 106 407
------- -------
Total cost of revenues 13,158 16,653
------- -------
Gross profit 5,721 3,416
------- -------
Operating expenses:
Product development 4,656 5,033
Acquired in-process research and
development -- 2,500
Sales and marketing 4,969 7,068
General and administrative 2,317 2,768
Amortization of goodwill and
other intangible assets 346 137
------- -------
Total operating expenses 12,288 17,506
------- -------
Loss from operations (6,567) (14,090)
------- -------
Other income (expense):
Interest income 651 976
Interest expense (14) (37)
Miscellaneous income, net 37 --
------- -------
Loss before income taxes (5,893) (13,151)
Benefit for income taxes -- (4,225)
------- -------
Net loss (5,893) (8,926)
======= =======
Net loss per share $ (0.19) $ (0.28)
------- -------
Net loss per share
- assuming dilution $ (0.19) $ (0.28)
======= =======
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>
NINE MONTHS ENDED
1/31/00 1/31/99
--------------- ----------------
<S> <C> <C>
Revenues:
Licenses $ 7,008 $ 14,467
Services and maintenance 45,785 51,178
Other 1,050 1,254
------- -------
Total revenues 53,843 66,899
------- -------
Cost of revenues:
Licenses 1,407 1,337
Services and maintenance 37,051 52,850
Other 265 637
------- -------
Total cost of revenues 38,723 54,824
------- -------
Gross profit 15,120 12,075
------- -------
Operating expenses:
Product development 13,594 18,387
Acquired in-process research
and development -- 2,500
Sales and marketing 15,485 20,367
General and administrative 6,827 9,151
Amortization of goodwill and
other intangible assets 1,038 193
------- -------
Total operating expenses 36,944 50,598
------- -------
Loss from operations (21,824) (38,523)
------- -------
Other income (expense):
Interest income 1,851 3,721
Interest expense (55) (112)
Miscellaneous income (expense), net (62) 29
------- -------
Loss before income taxes (20,090) (34,885)
Benefit for income taxes -- (11,221)
------- -------
Net loss (20,090) (23,664)
======= =======
Net loss per share $ (0.64) $ (0.73)
------- -------
Net loss per share
- assuming dilution $ (0.64) $ (0.73)
======= =======
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>
NINE MONTHS ENDED
1/31/00 1/31/99
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(20,090) $(23,664)
Adjustments to reconcile net loss
to net cash used in operating activities:
Acquired in-process research and development -- 2,500
Depreciation and amortization 3,937 2,351
Provision for doubtful accounts 2,822 2,978
Deferred income taxes -- (11,375)
Accrued interest on short-term
investments 6 (170)
Gain on disposal of other shares (6) --
Loss on disposal of property and equipment 74 10
Changes in operating assets and liabilities:
Accounts receivable 9,180 643
Contract receivables and
prepaid expenses (682) 489
Income taxes receivable (345) (78)
Other assets (194) 280
Accounts payable (1,147) 429
Accrued expenses and other
current liabilities (3,881) 3,288
Accrued payroll, employee benefits
and deferred revenue (167) 713
Accrued pension liability 546 406
--------- ---------
Net cash used in operating activities (9,947) (21,200)
========= =========
Cash flows from investing activities:
Purchase of short-term investments (108,870) (163,079)
Proceeds from sale of short-term
investments 108,948 212,749
Additions to property and equipment (3,364) (4,109)
Payment for Ceratina (275) (178)
Payment for Abalon -- (9,500)
Proceeds from sale of property
and equipment 68 67
Proceeds from sale of other shares 6 1
Collection of notes receivable 336 0
--------- ---------
Net cash flows provided by (used in)
investing activities (3,151) 35,951
========= =========
Cash flows from financing activities:
Repayments of lines of credit -- (828)
Payments on notes payable (396) (362)
Principal payments on capital
lease obligations (59) (395)
Issuance of Common Stock 433 1,850
Repurchase of Common Stock - (4,871)
Other 597 (318)
--------- ---------
Net cash flows provided
by(used in)financing activities 575 (4,924)
========= =========
Translation differences on cash and
cash equivalents (274) (39)
--------- ---------
Net increase (decrease)in cash and cash
equivalents $(12,797) $9,788
========= =========
Cash and cash equivalents at beginning
of period $29,065 $41,982
Cash and cash equivalents at end --------- ---------
of period $16,268 $51,770
--------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 52 $ 177
Income taxes $1,016 $ 563
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 January 31, 2000, and the results of
operations for the three and nine months and cash flows for the nine months
ended January 31, 1999, and 2000. 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 January 31, 2000, 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 Loss
Total comprehensive loss was $(6,753,000) and $(9,345,000) for the
three months ended January 31, 2000 and 1999, respectively. Total
comprehensive loss was $(20,395,000) and $(24,184,000) for the nine months
ended January 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 nine month periods ended
January 31, 1999 and 2000, 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 Nine months ended
January 31, January 31,
----------------------- -----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C>
Weighted average
shares outstanding 31,635,732 32,041,928 31,591,500 32,630,458
Effect of dilutive
stock options - - - -
--------- --------- --------- ---------
Adjusted weighted
average shares
outstanding assuming
dilution 31,635,732 32,041,928 31,591,500 32,630,458
========== ========== ========== ==========
</TABLE>
4. Accrued Expenses and Other Current Liabilities
<TABLE>
<CAPTION>
January 31, 2000 April 30, 1999
---------------- --------------
(unaudited)
(in thousands)
<S> <C> <C>
Accrued purchases $4,056 $3,768
Project reserves 1,508 2,283
Accrued consultancy 1,128 1,106
Accrued restructuring costs 362 2,517
Accrued pension taxes 1,055 616
Restructuring cost Abalon 76 682
Value-added tax 127 674
Employee withholding taxes 631 804
Income tax payable 24 25
Other 643 378
------ ------
$ 9,610 $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>
January 31, 2000 April 30, 1999
---------------- --------------
(unaudited)
(in thousands)
<S> <C> <C>
Accrued commissions $ 298 $ 364
Accrued payroll taxes 1,149 1,398
Accrued vacation pay 1,634 2,052
Accrued salaries and bonus 1,633 1,819
Accrued pension expenses 215 321
Debt for ESPP 94 279
Other -- 10
------ ------
$5,023 $6,243
====== ======
</TABLE>
6. Income Taxes
Due to its continued negative performance, the Company did not record a
benefit for income taxes for the nine month period ended January 31, 2000.
For the nine month period ended January 31, 1999, the Company recorded a
benefit for income taxes of $11,221,000. At January 31, 2000, the Company's
deferred tax asset amounted to $28,058,000 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
$12,367,000 was an adequate valuation allowance against the deferred
tax asset recorded at January 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 Nine Months Ended
January 31, January 31,
2000 1999 2000 1999
-------- -------- -------- --------
(in thousands) (in thousands)
Revenues:
United States $ 5,842 $ 7,796 $ 18,124 $ 34,132
Sweden 7,470 8,886 24,184 21,758
United Kingdom 1,205 2,253 4,417 7,779
Netherlands 3,641 460 4,884 967
Germany 168 77 310 360
France -- (111) -- (344)
Australia 416 545 1,601 1,712
Corporate 137 163 323 535
-------- -------- -------- --------
$ 18,879 $ 20,069 $ 53,843 $ 66,899
======== ======== ======== ========
Income (loss) from operations:
United States $ (210) $ (2,840) $ (1,042) $ (6,071)
Sweden 200 1,345 2,614 4,235
United Kingdom (650) (64) (946) (613)
Netherlands 2,020 (432) 1,196 (1,618)
Germany 28 (312) (553) (1,024)
France -- (340) (57) (1,039)
Australia 7 (124) 388 (261)
Canada (1) (406) (23) (510)
Intercompany (33) (1) (98) (45)
Corporate (7,928) (10,916) (23,303) (31,577)
-------- -------- -------- --------
$ (6,567) $(14,090) $(21,824) $(38,523)
======== ======== ======== ========
<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 January 31,
2000:
<TABLE>
<CAPTION>
Accrual Accrual
as of Utilization as of
April 30, of Currency January 31,
1999 Adjustment accrual effect 2000
------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Severance benefits $ 1,838 $ (8) $ (1,578) $ (6) $ 246
Lease obligations and terminations 535 (184) (299) -- 52
Other 144 118 (198) -- 64
------- ---------- --------- -------- --------
Total $ 2,517 $ (74) $ (2,075) $ (6) $ 362
======= ========== ========= ======== ========
</TABLE>
In connection with the Company's acquisition of Abalon in fiscal 1999,
additional purchase liabilities of $982,000 were recorded for anticipated
integration costs which included $549,000 for severance and related costs
and $433,000 for costs associated with the shut down and consolidation of
certain acquired facilities. As of January 31, 2000, the remaining
balance of the accrual was $76,000 including $44,000 for severance and
related costs and $32,000 for costs associated with the shutdown and
consolidation of facilities. 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 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
includes System ESS components, the Customer Relationship Management
Software, Open Warehouse, 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.
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
January 31, January 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues:
Licenses 13.0 21.6 23.0 20.6
Services and maintenance 85.0 76.5 74.7 76.5
Other 2.0 1.9 2.3 2.9
------- ------- ------- -------
Total revenues 100.0 100.0 100.0 100.0
Cost of revenues:
Licenses 2.6 2.0 4.6 4.5
Services and maintenance 68.8 79.0 64.5 76.4
Other 0.5 1.0 0.6 2.1
------- ------ ------- -------
Total cost of revenue 71.9 82.0 69.7 83.0
------- ------ ------- -------
Gross profit 28.1 18.0 30.3 17.0
------- ------ ------- -------
Operating expenses:
Product development 25.2 27.5 24.7 25.1
Acquired in-process research
and development -- 3.7 -- 12.5
Sales and marketing 28.8 30.4 26.3 35.2
General and administrative 12.7 13.7 12.3 13.7
Amortization of goodwill and
other intangible assets 1.9 0.3 1.8 0.7
------- ------- ------- -------
Total operating
expenses 68.6 75.6 65.1 87.2
------- ------- ------- -------
Loss from operations (40.5) (57.6) (34.8) (70.2)
------- ------- ------- -------
Other income (expense):
Interest income 3.4 5.6 3.5 4.9
Interest expense (0.1) (0.2) (0.1) (0.2)
Miscellaneous
income (expense) (0.1) -- 0.2 --
------- ------- ------- -------
Loss before income taxes (37.3) (52.2) (31.2) (65.5)
Benefit for income taxes - (16.8) - (21.1)
------- ------- ------- -------
Net loss (37.3) (35.4) (31.2) (44.4)
======= ======= ======= =======
</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.
aintenance 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 decreased 5.9% to $18.9 million in the quarter ended
January 31, 2000, from $20.1 million in the quarter ended January 31, 1999.
In the first nine months of fiscal 2000, total revenues decreased 19.5% to
$53.8 million from $66.9 million in the first nine months of fiscal 1999.
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
5.2% to $4.3 million in the quarter ended January 31, 2000, from $4.1
million in the quarter ended January 31, 1999. In the first nine months of
fiscal 2000, revenues from software licenses decreased 51.6% to $7.0
million from $14.5 million in the first nine months of fiscal 1999. Management
believes the decrease in software license revenue was due to a general
contraction in the market for large enterprise-wide solutions and the reluctance
of customers to commence large-scale implementations near the turn of the
century due to general concerns regarding Year 2000 compliance problems.
SERVICE AND MAINTENANCE REVENUES. Revenues from service and
maintenance decreased 8.1% to $14.1 million in the quarter ended January
31, 2000, from $15.4 million in the quarter ended January 31, 1999. In the
first nine months of fiscal 2000, revenues from service and maintenance
decreased 10.5% to $45.8 million from $51.2 million in the first nine months
of fiscal 1999. The decrease in the absolute dollar amount of service and
maintenance revenues was related primarily to the decrease in software
licenses sold during fiscal 1999. Service and maintenance revenues as a
percentage of total revenues decreased to 74.7% in the quarter ended
January 31, 2000, from 76.5% in the quarter ended January 31, 1999 and
increased to 85.0% in the first nine months of fiscal 2000 from 76.5% in the
first nine months of fiscal 1999. This increase in service and maintenance
revenues as a percentage of total revenues was related to the decrease in
software license revenues during fiscal 2000 compared to the prior fiscal year.
Generally, 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
decreased 27.6% to $426,000 in the quarter ended January 31, 2000, from
$588,000 in the quarter ended January 31, 1999. In the first nine months of
fiscal 2000, other revenues decreased 16.3% to $1,050,000 from $1,254,000 in
the first nine months of fiscal 1999. Other revenues as a percentage
of total revenues decreased to 2.3% in the quarter ended January 31, 2000,
from 2.9% in the quarter ended January 31, 1999, and increased to 2.0% in
the first nine months of fiscal 2000 from 1.9% in the first nine months of
fiscal 1999. 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 $877,000 and $910,000 in the quarters ended
January 31, 2000, and 1999, representing 20.2% and 22.0% of software license
revenues, respectively. Cost of software license revenues was $1,407,000 and
$1,337,000 in the first nine months of fiscal 2000 and 1999, representing 20.1%
and 9.2% of software license revenues, respectively. The decrease of cost of
software license revenues as a percentage of software license revenues in the
third quarter of fiscal 2000 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
increase in cost of software license revenues as a percentage of software
license revenues in the first nine months of fiscal 2000 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 $12.2 million and $15.3
million in the quarters ended January 31, 2000, and 1999, representing
86.3% and 99.9% of service and maintenance revenues, respectively. Cost
of service and maintenance revenues was $37.1 million and $52.9 million in
the first nine months of fiscal 2000 and fiscal 1999, representing 80.9%
and 103.3% 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 initiated during the fourth
quarter of fiscal 1999 in order to bring the costs in line with an expected
decrease in service and maintenance revenues, a reduction in the use
of outside consultants, and a decrease in the amount of service and maintenance
performed. With respect to the nine month periods ended January 31, 2000 and
1999, the cost of service and maintenance revenues decreased as a percentage of
service and maintenance revenues as a result of significant one-time charges
related to increases in project reserves and reserves for doubtful accounts in
the prior year.
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 $407,000 in the quarters ended January 31,
2000, and 1999, representing 24.9% and 69.2% of other revenues,
respectively. Cost of other revenues was $265,000 and $637,000 in the
first nine months of fiscal 2000 and fiscal 1999, representing 25.2% and
50.8% of other revenues, respectively. The cost reduction reflected the cost of
the hardware supplied.
PRODUCT DEVELOPMENT. Product development expenses were $4.7 million
and $5.0 million in the quarters ended January 31, 2000, and 1999,
representing 24.7% and 25.1% of total revenues, respectively. These same
expenses were $13.6 million and $18.4 million in the first nine months of
fiscal 2000 and 1999, representing 25.2% and 27.5% 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 restructuring program
initiated in fourth quarter 1999. In addition, the comparable nine month
period in the prior year included high external costs related to specific
product development initiatives.
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.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT. Acquired in-process research
and development consists of one-time charges for acquisitions accounted for as
purchases. The acquisition of Abalon AB in fiscal 1999 resulted in the write-off
of acquired in-process research and development of $2.5 million. The $2.5
million related to in-process research and development, as determined by an
independent third-party appraisal, was charged against income in fiscal 1999
as the underlying research and development projects had not reached
technological feasibility for Abalon's intended purpose and had no alternative
future uses for the Company. The Company did not have any related write-off of
acquired research and development in fiscal 2000.
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 $5.0 million
and $7.1 million in the quarters ended January 31, 2000, and 1999,
representing 26.3% and 35.2% of total revenues, respectively. These same
expenses were $15.5 million and $20.4 million in the first nine months of
fiscal 2000 and 1999, representing 28.8% and 30.4% 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
measures initiated in the fourth quarter of fiscal 1999 to reduce costs in
response to the reduction in software license revenues.
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 $2.3 million and
$2.8 million in the quarters ended January 31, 2000, and 1999, representing
12.3% and 13.7% of total revenues, respectively. These same expenses were
$6.8 million and $9.2 million in the first nine months of fiscal 2000 and
1999, representing 12.7% and 13.7% 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 program
initiated in the fourth quarter of fiscal 1999.
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 $346,000 and $137,000
in the quarters ended January 31, 2000, and 1999, representing 1.8% and 0.7%
of total revenues, respectively. These same expenses were $1,038,000 and
$193,000 in the first nine months of fiscal 2000 and 1999, representing 1.9%
and 0.3% of total revenues, respectively.
OTHER INCOME (EXPENSE)
Other income comprises interest income, interest expenses, and
miscellaneous income and expenses. Interest income was $651,000 and $976,000
million in the quarters ended January 31, 2000, and 1999, representing
3.5% and 4.9% of total revenues, respectively. Interest income was $1.9
million and $3.7 million in the first nine months of fiscal 2000 and 1999,
representing 3.4% and 5.6% 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 $14,000 and $37,000 in the quarters ended January 31, 2000, and
1999, representing 0.1% and 0.2% of total revenues, respectively. These same
expenses were $55,000 and $112,000 in the first nine months of fiscal 2000 and
1999, representing 0.1% and 0.2% of total revenues, respectively. The decrease
in the absolute dollar amounts is due to repayments on a small external credit
facility during fiscal year 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of January 31, 2000, the Company had $34.9 million of working
capital, including $16.3 million in cash and cash equivalents and $24.8
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 $11.4
million at January 31, 2000, from $23.8 million at April 30, 1999, and the
average days' sales outstanding, including contract receivables, was 62
days for the quarter ended January 31, 2000, 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
fiscal 2000. The allowance for doubtful accounts decreased to $2.5 million at
January 31, 2000, from $4.9 million at April 30, 1999. The decrease was
primarily the result of netting certain allowances for doubtful accounts
against the corresponding receivables due to the settlement of various
disputes including an arbitration with a customer. The decrease in
accounts receivable in total dollars is attributable to the decline in
revenues.
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
The Company devoted a substantial amount of time over the last two years to
validate that the standard version of its principal products, the VIVALDI Suite
including System ESS, are Year 2000 compliant and 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 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 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 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
began a project to update its internal systems to make them Year 2000
compliant during fiscal year 1999 and completed testing of the updated
software during the second quarter of fiscal year 2000. Implementation
of the year 2000 upgrade of the internal accounting systems took place
during November 1999 and did not cause any significant problems. 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, which amount was 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. When the
Company moved of its Stockholm office to a new location in September 1999,
the telephone system was upgraded to be Year 2000 compliant. 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 January 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 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 January 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: March 15, 2000
<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 9-MOS
<FISCAL-YEAR-END> APR-30-2000 APR-30-2000
<PERIOD-START> NOV-01-1999 MAY-01-1999
<PERIOD-END> JAN-31-2000 JAN-31-2000
<CASH> 16,268,000 16,268,000
<SECURITIES> 24,765,000 24,765,000
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