<PAGE>
FILED PURSUANT TO
RULE 424 (b)(4)
FILE NO: 333-21647
[LOGO OF INTERNATIONAL COMPUTEX, INC. APPEARS HERE]
COMMON STOCK
1,125,000 SHARES
Except as set forth herein, the shares of common stock, $.001 par value per
share ("Common Stock"), offered hereby are being sold by International
CompuTex, Inc., a Georgia corporation ("ICI" or the "Company"). Prior to this
offering (this "Offering"), there has been no public market for the Common
Stock and there can be no assurance that an active market will develop. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price. The Common Stock has been approved for
quotation on the Nasdaq National Market under the symbol "ICIQ."
----------------
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" COMMENCING ON PAGE 6 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO COMMISSIONS PROCEEDS TO SELLING
PUBLIC (1) COMPANY (2) STOCKHOLDERS
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share......... $9.50 $0.86 $8.64 -0- (3)
- ------------------------------------------------------------------------------
Total (3)......... $10,687,500 $961,875 $9,725,625 -0- (3)
</TABLE>
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- -------------------------------------------------------------------------------
(1) Does not include additional compensation to be received by the
Representative in the form of (i) a non-accountable expense allowance of
$213,750 (or $245,812 if the Underwriters' over-allotment option described
in footnote (3) is exercised in full); and (ii) warrants to purchase up to
112,500 shares of Common Stock at $11.40 per share (120% of the assumed
initial public offering price), exercisable over a period of four years,
commencing one year from the date of this Prospectus ("Representative's
Warrants"). In addition, the Company and the Selling Stockholders have
agreed to indemnify the Underwriters against certain liabilities. See
"Underwriting."
(2) Before deducting expenses of this Offering, including the Representative's
nonaccountable expense allowance, estimated at $450,000.
(3) The Company and the Selling Stockholders have granted the Underwriters a
30-day option to purchase up to 168,750 additional shares of Common Stock
solely to cover over-allotments, if any. Of the 168,750 additional shares
of Common Stock that may be purchased by the Underwriters pursuant to such
option, 50% (or up to 84,375 shares) would be sold by the Company and 50%
(or up to 84,375 shares) would be sold by the Selling Stockholders. The
Company will not receive any of the proceeds from the sale of shares by
the Selling Stockholders. If the option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions, Proceeds to
Company and Proceeds to Selling Stockholders will be $12,290,625,
$1,106,157, $10,455,046 and $729,422, respectively. See "Underwriting."
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale when, as and if delivered to and accepted by them, and subject
to certain conditions. It is expected that delivery of the shares of Common
Stock will be made at the offices of H. J. Meyers & Co., Inc., Rochester, New
York, on or about May 5, 1997.
H. J. MEYERS & CO., INC.
The date of this Prospectus is April 29, 1997
<PAGE>
[ARTWORK DEPICTING ITEMQUEST TOOL SET]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and must be read in
conjunction with, the more detailed information and the Financial Statements
and Notes thereto, appearing elsewhere in this Prospectus. Investors should
consider carefully the information set forth under "Risk Factors." Unless
otherwise indicated, (i) the information set forth in this Prospectus assumes
no exercise of the Underwriters' over-allotment option and (ii) all share and
per share data gives effect to stock splits effected during 1996. Certain
information contained in this Prospectus Summary and elsewhere in this
Prospectus, including information with regard to the Company's strategy for
expanding operations and related financing requirements, are forward looking
statements. For a discussion of important factors that could affect such
matters, see "Risk Factors."
THE COMPANY
International CompuTex, Inc. ("ICI" or the "Company") was incorporated in
Georgia in January 1991. The Company's principal executive offices are located
at 5500 Interstate North Parkway, Suite 507, Atlanta, Georgia 30328-4662, and
its telephone number at that address is (770) 953-1464.
ICI is a software technology company that develops, markets and supports
enterprise-wide client/server solutions and provides consulting and
implementation services for the engineering and manufacturing industries. ICI
specializes in helping companies improve competitiveness through the
application of information technology. The Company is active in the areas of
systems analysis and design, cross platform software development, object-
oriented technology and client/server architecture. In addition to its
technical expertise, ICI has built strong skills in industry applications for
manufacturing and product data management ("PDM"). PDM is a software technology
which allows management and control of product-related data from product
development and design to manufacturing and post-production maintenance. The
Company has focused its product development efforts on information
classification and management ("ICAM"). Among other applications, ICAM is one
of the major components of a PDM solution. Management believes that ICAM
applications are underdeveloped in the marketplace and hold great potential for
future development and sales.
ICI's virtual object warehouse and classification system, ItemQuest(TM), was
in the controlled availability stage until late April 1997, with a limited
number of licensees. Management believes that ItemQuest supplies an important
missing component of a PDM solution by addressing one of the most elementary
but costly problems of the manufacturing and engineering industries--how to
quickly identify, search and retrieve existing parts information, design
elements and their relevant components for re-use throughout the enterprise.
ItemQuest is based on a sophisticated object oriented classification and search
engine which enables users to search, select and re-use product data design and
manufacturing information based on engineering or manufacturing attributes.
This, in turn, enables manufacturers to reduce product development costs and
shorten time to market, factors which increase their competitiveness.
ICI, through ItemQuest and through its services, intends to become a leading
solution provider in the ICAM and PDM markets, and to be known for its
expertise and success in helping companies improve their competitiveness
through the implementation of ICAM and PDM technology. Management expects that
the Company's focus on information classification and management through the
delivery of ItemQuest will help the Company achieve a leadership position in
these markets.
3
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
---------- ---------- ----------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C>
Operating revenues............................. $1,246,414 $2,875,872 $3,891,034
Income from operations......................... 424,747 1,114,107 1,817,317
Net income..................................... 427,295 1,118,905 1,820,384
Pro forma provision for income taxes (1)....... 161,000 422,000 686,000
Pro forma net income (1)....................... 266,295 696,905 1,134,384
Pro forma earnings per share................... $ 0.50
Shares used in per share computation (2)....... 2,287,855
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- ---------------------------------------
ACTUAL PRO FORMA(3) AS ADJUSTED (4)
---------- ----------- ---------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............. $ 80,969 $ 119,750 $ 119,750 $ 9,395,750
Working capital
(deficit)............... 859,262 1,104,358 (446,144) 8,852,280
Total assets............ 982,080 1,621,011 1,621,011 10,874,587
Stockholders' equity(5). 947,460 1,552,627 2,125 9,278,125
</TABLE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............ 1,125,000 shares
Common Stock offered by the Selling
Stockholders................................... -0- (6)
Shares of Common Stock to be outstanding after
this Offering.................................. 3,250,000 shares (7)
Use of proceeds by the Company................. General corporate purposes,
including repayment of Senior
Debentures, funding of a
portion of final S corporation
distribution, infrastructure
investment and equipment
purchases, product development,
sales and marketing and working
capital. See "Use of Proceeds."
Nasdaq National Market Symbol.................. ICIQ
</TABLE>
- --------
(1) These pro forma amounts are based upon the assumption that the Company had
been treated for income tax purposes as a C corporation during each of
these fiscal years, using a combined 37.7% federal and state income tax
rate. Since inception, the Company has been treated for income tax purposes
as an S corporation under Subchapter S of the Internal Revenue Code of
1986, as amended (the "Code"), and under Georgia income tax laws. Earnings
of the Company have been taxed for federal and State of Georgia tax
purposes directly to the stockholders of the Company, rather than the
Company. The Company's S corporation status will be terminated immediately
prior to the closing of this Offering. Upon the termination of the
Company's S corporation status, in addition to becoming subject to
corporate tax at the federal and state levels, the Company will, for future
periods, be required to provide for deferred federal and state income
taxes, calculated in accordance with Financial Accounting Standards Board
Statement 109 ("FAS 109") for the cumulative temporary differences between
the financial reporting and income tax bases of the Company's assets and
liabilities.
(2) See Note A of Notes to Financial Statements for an explanation of the
method used to determine the number of shares used to compute the per share
amount.
4
<PAGE>
(3) The pro forma balance sheet data as of December 31, 1996 gives effect to an
additional estimated provision of approximately $21,600 for deferred income
taxes, which would have been required as a charge against retained earnings
had the Company terminated its S corporation status at December 31, 1996.
It also reflects the liability for the distribution of $1,528,902 as of
December 31, 1996 to current stockholders of the Company from the proceeds
of this Offering. See "Prior S Corporation Status and Distributions" and
Note A of the Notes to Financial Statements.
(4) Adjusted to reflect the sale of 1,125,000 shares of Common Stock offered by
the Company hereby at the initial public offering price of $9.50 per share
(and after deducting underwriting discounts and commissions and estimated
offering expenses, including $22,424 of previously deferred offering
expenses) and the application of the estimated net proceeds therefrom. See
"Use of Proceeds" and "Capitalization."
(5) See "Prior S Corporation Status and Distributions" for a discussion of the
proposed distribution to current stockholders of all or substantially all
of the undistributed S corporation earnings of the Company through the day
prior to the closing of this Offering. As a result of that proposed
distribution, prospective investors should assume that current
stockholders' equity of the Company is a negligible amount. See "Risk
Factors--Planned Distribution of Accumulated Earnings in Connection with
Conversion to C Corporation Status."
(6) Two of the current stockholders of the Company (the "Selling Stockholders")
will, however, participate in 50% of any shares of Common Stock sold in the
event the Underwriters exercise their over-allotment option.
(7) Based upon the number of shares outstanding as of December 31, 1996.
Excludes 173,311 shares of Common Stock issuable upon exercise of
outstanding options at December 31, 1996, and 326,689 shares of Common
Stock reserved for future grant under the Company's 1996 Stock Option Plan
as of that date. Also excludes 112,500 shares of Common Stock subject to
warrants to be issued to the Representative of the Underwriters in
connection with this Offering (the "Representative's Warrants"). See
"Capitalization," "Management-- Stock Option Plans" and Notes A and F of
Notes to Financial Statements.
----------------
Except as otherwise noted herein, information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option.
5
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD, PRIOR TO ANY PURCHASE OF COMMON STOCK,
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, AS WELL AS THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-
LOOKING STATEMENTS, AND ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF NUMEROUS FACTORS,
INCLUDING THE FACTORS SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS.
INTRODUCTION OF NEW PRODUCT; CHANGE OF BUSINESS FOCUS. ICI currently derives
the great majority of its revenue from its services business, primarily from
project management, implementation and customization services for the PDM
product of International Business Machines Corporation ("IBM"), called
ProductManager(TM), and from custom development services in cross platform,
client/server and object oriented software and consulting. Management believes
that the basis for the Company's next stage of growth will be the development,
delivery, support and evolution of ItemQuest. While the Company is experienced
in software development as part of custom development contracts, it has no
previous experience in the distribution and maintenance of its own product. To
be successful with ItemQuest, Management believes that the Company must invest
in and develop a strategy for distribution, customer service, maintenance,
pricing, marketing and sales. Functions including training and defect support
must be developed, staffed and maintained.
There can be no assurance that ItemQuest will achieve broad market
acceptance or that the Company will be successful in marketing ItemQuest or
enhancements to that product. In the event that the Company's current or
future competitors release new products that have more advanced features,
offer better performance or are more price competitive than ItemQuest, demand
for ItemQuest may decline or may fail to materialize. Lack of demand for
ItemQuest due to competition, technological change or other factors would have
a material adverse affect on the Company's business, financial condition and
results of operations.
RELIANCE ON IBM; LACK OF VISIBILITY IN THE MARKET. To date, most of ICI's
revenue has been derived from services rendered directly to IBM or as a
subcontractor to IBM customers. Overall, IBM has accounted, directly or
indirectly, for 75% of ICI's 1993 revenues, 65% of 1994 revenues, 81% of 1995
revenues and 68% of 1996 revenues. Management believes that IBM benefits from
utilizing ICI's skill and experience to enhance the success of ProductManager.
However, there can be no assurance that such utilization will continue.
While there has been an increase in the number of direct customer contracts
relating to IBM's ProductManager, the predominant existing relationship of the
Company as a subcontractor to IBM has thus far limited the Company's exposure
and opportunities to form direct relationships with customers. In those
instances where ICI has dealt directly with customers, it has been known
primarily for its skill and expertise in providing implementation and
customization services for PDM software systems, particularly for IBM's
ProductManager.
The Company has only extremely limited name recognition for its virtual
object warehouse and classification system (ItemQuest) and has not yet fully
developed production reference sites through the ItemQuest controlled
availability program. Management proposes to diversify and increase the
Company's client base by establishing and expanding a sales and marketing
organization and by attending PDM industry conferences, placing articles in
industry journals and aggressively marketing its services and ItemQuest to
industry consultants. However, there can be no assurance that the proposed
marketing plans will be carried out, or if carried out, will result in
favorable reviews or lead to anticipated results.
Prior to 1996, IBM used ICI's skills primarily in product development. In
1996 ICI expanded beyond internal product development and began to provide
product implementation and customization for IBM customers. Maintaining and
growing this revenue stream depends both on IBM's continued confidence in ICI
and IBM's success in the PDM market. While IBM's PDM product has shown
increasing market acceptance, there can be no assurance that other competing
PDM suppliers will not introduce PDM solutions more technologically advanced
than IBM's ProductManager, or that ProductManager will continue to be a leader
in the PDM market. The failure of ProductManager to sustain or increase its
share of the PDM solutions market would have a material adverse affect on the
Company's business, financial condition and results of operations.
6
<PAGE>
Management anticipates that the development of ItemQuest will have a
beneficial effect on the relationship between ICI and IBM, in that Management
believes that ItemQuest will enhance the effectiveness of IBM's ProductManager
product. ICI's experience in working with IBM and IBM's customers has allowed
ICI to develop expertise in providing services relative to ProductManager and
in understanding how to optimize the compatibility between ItemQuest and
ProductManager. Even though ICI also intends to market ItemQuest to users of
other PDM software products, ICI will continue to place a high priority on
maintaining a strong relationship with IBM. Nevertheless, there can be no
assurance that this close relationship will continue or that ICI's efforts in
expanding its scope to other PDM products will not adversely affect ICI's
relationship with IBM.
The relationship of ICI to IBM is governed by subcontractor agreements with
IBM and by a series of project subcontracts and work orders. None of these
agreements provide for services to be rendered over a long term and each of
them is subject to termination on relatively short notice. Accordingly, ICI's
prospects for providing continued IBM-related services depend primarily on
ICI's relationship with IBM and IBM's customers, rather than on long-term
contractual relationships. There can be no assurance that these relationships
will continue.
MANAGEMENT OF EXPANDING OPERATIONS. ICI has experienced significant growth
in recent periods, with operating revenues increasing from approximately
$355,000 in 1993 to approximately $3,891,000 in 1996. In addition, the Company
has experienced significant growth in the number of its employees, the scope
of its operating and financial systems, and the geographic area of its
operations. That growth has placed a significant strain upon its management
systems and resources. The Company's ability to compete effectively and to
manage future growth, if any, will require the Company to continue to improve
its financial and management controls, reporting systems and procedures on a
timely basis and to expand, train and manage its employee base. It is
anticipated that additional experienced management will need to be added to
meet the demands of expanded operations. There can be no assurance that such
additional management will be attracted and retained, or that the existing and
new management will be able to implement such systems effectively or on a
timely basis or to manage future expansion successfully. The failure or
inability to do so could have a material adverse affect on the Company's
business, financial condition and results of operations.
RISK OF PRODUCT DEFECTS. The Company has only recently begun to install and
implement test sites of ItemQuest with major manufacturers. As a result, the
Company has only limited experience with the installation, implementation and
operation of ItemQuest at customer sites. There can be no assurance that
ItemQuest will not require substantial modifications to satisfy performance
requirements or to fix previously undetected errors. If customers were to
experience significant problems with ItemQuest, or if the Company's customers
were dissatisfied with the product's functionality, performance or support,
the Company's business, financial condition and results of operations would be
materially adversely affected.
DISTRIBUTION RISKS; NEED TO ESTABLISH SALES CHANNELS. Until the recent
limited introduction of ItemQuest, the Company's business operations consisted
of providing services, primarily on a subcontracting basis. As a result, ICI
has not previously needed to maintain an extensive sales organization. With
the introduction of ItemQuest, Management believes that the Company must
establish sales channels and marketing, selling and consulting relationships,
both domestically and internationally. There can be no assurance that the
Company will be able to attract sufficient direct sales personnel, hardware
and software vendors, systems integrators or other marketing and selling
partners, or that the Company's actions to develop such channels will not
adversely affect its relationship with IBM. See "Reliance on IBM; Lack of
Visibility in the Market." There can also be no assurance that the cost of the
Company's investment in direct and indirect sales channels will not exceed the
revenues, if any, generated from that investment or that the Company's sales
and marketing organization will successfully compete against the sales and
marketing organizations of competitors.
COMPETITION. In providing software services, both related to ProductManager
and otherwise, ICI faces competition from numerous services providers. Many of
those competing services providers, both large and small, may have technical
skills that match or exceed those offered or intended to be offered by ICI in
the computer services industry. Barriers to entry in providing computer
services are very low, resulting in downward pricing pressures and competition
for skilled technicians. There can be no assurance that ICI will be able to
continue its growth in services revenues in the face of these competitive
factors.
7
<PAGE>
In its efforts to market ItemQuest, ICI will face direct competition from at
least two significant vendors of ICAM-related software: Aspect Development,
Inc. and CADIS, Inc. Those vendors, each of which has significantly greater
financial resources than the Company, have established customer bases, giving
them a significant advantage in the marketing of ICAM products. Additionally,
IBM may in the future decide to develop its own ICAM product integrated with
its ProductManager software. Such a product would significantly affect the
Company's software revenues from the licensing of ItemQuest as well as
ProductManager-related services revenue.
Because the barriers to entry in the software industry are relatively low,
the Company could experience additional competition for ItemQuest from other
established or emerging companies in the client/server application software
market. The Company's competitors may be able to respond more quickly to new
or emerging technologies and changes in customer requirements, or to devote
greater resources to the development, promotion and sale of their products. In
the future, products offered by PDM vendors and vendors of other complementary
products may provide ICAM functions that are highly specific to their core
technologies, making it more difficult for an independent company such as ICI
to promote its product to customers of those vendors. Many of these potential
competitors have well-established relationships with the Company's current and
potential customers, extensive knowledge of the client/server industry, better
name recognition and significantly greater financial, technical, sales,
marketing and other resources than ICI and may offer single vendor solutions
which span multiple industries. In addition, new competitors, or alliances
among competitors may emerge and rapidly acquire significant market share. The
Company also expects that competition will increase as a result of software
industry consolidations.
Increased competition could result in price reductions, reduced gross
margins and loss of market share, any of which could materially adversely
affect the Company's business, financial condition and results of operations.
There can be no assurance that the Company will be able to compete
successfully against current or future competitors or that competitive
pressures will not materially and adversely affect its business, financial
condition and results of operations. See "Business--Competition."
NEED FOR QUALIFIED PERSONNEL. Management believes that the future success of
ICI will depend to a significant extent upon its ability to attract, train and
retain highly skilled technical, management, marketing and consulting
personnel. In particular, the Company has identified an immediate need for a
full-time chief accounting officer. Competition for such personnel is intense,
and the Company expects that such competition will continue for the
foreseeable future. The Company has from time to time experienced difficulty
in locating candidates with appropriate qualifications. There can be no
assurance that the Company will be successful in attracting or retaining such
personnel, and the failure to attract such personnel could have a material
adverse affect on the Company's business, financial condition and results of
operations.
RELIANCE ON ACCEPTANCE OF PDM SOLUTIONS. ICI's revenues are derived
predominantly from services related to IBM's ProductManager. The Company's
future financial performance will depend to a large extent on the growth in
the number of organizations adopting client/server software and reference data
products for PDM solutions generally, and IBM's ProductManager in particular,
as the users of these solutions engage outside vendors to implement, maintain,
customize and enhance such solutions. If the PDM market does grow, the
Company's future growth will depend upon the extent to which PDM users select
ItemQuest and use ICI's PDM services. There can be no assurance that the
market for PDM products and services will continue to grow or that the
Company's complementary products or PDM services will achieve market
acceptance. If the PDM market develops more slowly than expected, or if
ItemQuest does not gain acceptance within the PDM market, the Company's
business, financial condition and results of operations could be materially
adversely affected.
FURTHER DEVELOPMENT OF ITEMQUEST. Management believes that ItemQuest
currently offers effective and comprehensive information classification and
management capability. However, as a new product, there are areas where
further development of ItemQuest would assist in achieving broad-based market
acceptance. In particular, in order to achieve such market acceptance
ItemQuest may need further development to include standard classification
schemas and a pre-packaged component reference database, Internet and World
Wide Web applications, advanced tools to support legacy systems and migration
of data and support for capabilities to manage component suppliers. There is
no assurance that further development in those areas will be accomplished, or
that any such further development will be effective in achieving market
acceptance. See "Business--Competition."
8
<PAGE>
DEPENDENCE ON RELATIONSHIPS WITH COMPLEMENTARY VENDORS. The Company expects
that its relationship with IBM will lead to beneficial relationships with
ProductManager customers. However, the Company intends to build additional
alliances with complementary PDM vendors and vendors of computer aided design
(CAD) and enterprise resource planning (ERP) products to exploit the growing
market and promote future growth. There can be no assurance, however, that the
Company will be able to successfully build such relationships with such
vendors, or that the Company's attempt to build such relationships will not
negatively affect its relationship with IBM. Failure to build and maintain
relationships with other vendors, or the loss of the IBM relationship, could
materially and adversely affect the Company's business, financial condition
and results of operations.
PRODUCT LIFE CYCLE; NEED TO DEVELOP NEW PRODUCTS AND ENHANCEMENTS. The
markets for PDM and ICAM products are new and emerging. As such, these markets
are characterized by rapid technological change, evolving requirements,
developing industry standards and new product introductions. The dynamic
nature of these markets can render existing products obsolete and unmarketable
within a short period of time. Accordingly, the life cycle of ItemQuest is
difficult to estimate. The Company's future success will depend in large part
upon its ability to enhance ItemQuest and to develop and introduce, on a
timely basis, new products that keep pace with technological developments and
emerging industry standards. The success of the Company's software development
efforts will depend on various factors, including its ability to integrate
these products with third-party products.
INTERNATIONAL SALES. ItemQuest and ICI's services are targeted primarily to
large multinational companies, many of which are based outside of the United
States or have installation requirements outside of the United States,
primarily in Europe and Asia. To service the needs of such companies and take
advantage of the opportunities outside the United States, the Company must
provide worldwide sales and product support services. There can be no
assurance that the Company will be able to expand its existing operations
outside the United States or create an effective presence in Europe and in
Asia.
In addition, there are a number of risks inherent in international
expansion, including increased risk of software piracy, unexpected changes in
regulatory requirements, tariffs, and other trade barriers, costs and risks of
localizing products for foreign countries, longer accounts receivable payment
cycles and increased collection risks, potentially adverse tax consequences,
difficulty of repatriation of earnings and the burdens of complying with a
wide variety of foreign laws. International sales may be denominated and
collected in both U. S. dollars and international currency. Accordingly, a
portion of the Company's international sales may be subject to currency
fluctuation risks which could adversely affect the Company's business,
financial condition and results of operations. Furthermore, an increase in the
value of the U. S. dollar relative to foreign currencies could make the
Company's products more expensive and potentially less competitive in those
markets where the Company's sales are denominated in U.S. dollars.
FLUCTUATIONS IN OPERATING RESULTS. The Company's revenues and results of
operations have varied on a quarterly and an annual basis in the past and are
expected to vary significantly in the future. This will be particularly true
as the Company attempts to derive increasing revenue from licenses of
ItemQuest. The Company's revenues and results of operations are difficult to
forecast and could be materially adversely affected in any given period by
many factors, some of which are outside the control of the Company. These
include, among other factors, the relatively long sales and implementation
cycles for the Company's products and services; the size and timing of
individual license transactions; seasonality of revenues; changes in the
Company's operating expenses; changes in the mix of products and services
sold; timing of introduction or enhancement of products by the Company or its
competitors; market acceptance of new products; technological changes in
software and hardware; personnel changes and difficulties in attracting and
retaining qualified sales, marketing, technical and consulting personnel;
changes in customers' budgeting cycles; foreign currency exchange rates;
quality control of products sold; and economic conditions generally and in
specific industry segments.
LENGTHY SALES AND IMPLEMENTATION CYCLES. Marketing of ItemQuest is expected
to require the Company to engage in a sales cycle typically lasting up to six
months, during which the Company will need to educate prospective customers
about the use and benefits of ItemQuest. In addition, the implementation of
ItemQuest typically will involve a significant commitment of resources by the
customer over an extended period of time,
9
<PAGE>
due to the customer's need to re-engineer its product development processes.
For these reasons, sales and customer implementation cycles will be subject to
significant delays over which the Company may have little or no control.
Accordingly, any delay in the sale or customer implementation of a large
project or a number of smaller projects could have a material adverse affect
on the Company's business, financial condition and results of operations and
may cause the Company's operating results to vary significantly from quarter
to quarter.
LIMITED OPERATING HISTORY. The Company was founded in 1991 and, until the
recent introduction of ItemQuest, was chiefly a supplier of services to IBM
and to ProductManager customers. As the Company's business expanded from 1993
through 1996, it has been able to manage its expenses (primarily the cost of
technical personnel) in line with revenues, generating substantial profit
margins. Nevertheless, the Company has only a limited operating history upon
which to base an evaluation of its business and prospects. As the Company
undergoes a significant change in its business with the introduction of
ItemQuest and expands its operations to meet the expected demand for services
and for that product, there can be no assurance that the Company will be able
to realize or sustain such growth or that the Company will remain profitable
in the future.
CONCENTRATION OF SHARE OWNERSHIP AND VOTING POWER. Based upon the number of
shares of Common Stock that will be outstanding upon the completion of this
Offering, the executive officers and directors of the Company, as a group,
will beneficially own approximately 63.4% of the Company's outstanding Common
Stock, after giving effect to the exercise of all outstanding options held by
such individuals as of December 31, 1996. As a result, the executive officers
and directors as a group will be able to elect at least a majority of the
Board of Directors and will retain the voting power to approve all matters
requiring approval by the stockholders of the Company. In addition, subject to
certain limitations imposed by applicable law, the executive officers and
directors of the Company will be able to, among other things, amend the
Company's Articles of Incorporation and By-Laws and effect or preclude
fundamental corporate transactions involving the Company, including the
acceptance or rejection of any proposals relating to a merger of the Company
or an acquisition of the Company by another entity, in each case without the
approval of any of the Company's other stockholders. See "Principal and
Selling Stockholders" and "Description of Capital Stock."
DEPENDENCE ON SENIOR MANAGEMENT AND OTHER KEY EMPLOYEES. The Company's
success depends to a significant extent upon members of senior management and
other key employees, none of whom have agreements for a particular term of
employment or providing for future compensation. The Company does not maintain
key man life insurance on any of its employees, but has applied for such
coverage for its Chief Executive Officer, Haim E. Dahan. The loss of the
services of any one of the key employees could have a material adverse affect
on the Company. See "Management--Officers and Key Employees."
DEPENDENCE ON PROPRIETARY AND LICENSED TECHNOLOGY. The Company's success
depends in great measure on its proprietary technology. The Company will rely
primarily on a combination of copyrights, trade secrets, confidentiality
procedures and contractual provisions with its employees, consultants and
business partners and on its license agreements to protect its proprietary
rights. The Company will attempt to protect its software, published data,
documentation and other written materials under trade secret and copyright
laws, which afford only limited protection. In addition, the Company will
consider technical procedures to further protect against unauthorized copying
and use, as deemed necessary. There can be no assurance that the Company will
be successful in protecting its proprietary technology or that unauthorized
parties will not attempt to or be successful in copying aspects of the
Company's products or obtain and use the Company's proprietary information.
Management believes that ItemQuest may be particularly vulnerable to
unauthorized use in certain countries due to the ability of users of ItemQuest
to implement this product in a limited mode without the assistance of ICI.
There can be no assurance that steps taken by the Company to deter this
misappropriation will be adequate. In the event of such misappropriation, the
laws of certain foreign countries may not protect the Company's rights to its
proprietary technology to the same extent as the laws of the United States.
10
<PAGE>
The Company may submit patent applications with respect to ItemQuest in the
future. If and when submitted, there can be no assurance that any patent
covering ItemQuest will be issued, or that any patent, if issued, will provide
sufficient protection or prove enforceable in actions against alleged
infringements. The Company is not aware that ItemQuest infringes the
proprietary rights of third parties, but there can be no assurances that third
parties will not claim infringement by the Company with respect to current or
future products. Any such claims, with or without merit, could be time
consuming, result in costly litigation, cause product shipment delays, or
require the Company to enter into royalty or licensing agreements with the
third party claiming ownership. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company or at all,
which could have a material adverse affect on the Company's business,
financial condition and results of operations.
In addition, the Company relies on certain software that it licenses from
third parties, including software that is used in ItemQuest. There can be no
assurance that such firms will remain in business, that they will continue to
support their products, that their products will continue to be suitable for
ICI's needs or that their products will otherwise continue to be available to
the Company, and if so, on commercially reasonable terms. The loss of or
inability to maintain any of these software licenses or the failure to obtain
suitable substitutes could result in delays or cancellations in product
shipments, which could materially adversely affect the Company's business,
financial condition and results of operations.
PLANNED DISTRIBUTION OF ACCUMULATED EARNINGS IN CONNECTION WITH CONVERSION
TO C CORPORATION STATUS. Since its formation, the Company has elected S
corporation status for federal and state income tax purposes. The Company
intends to convert from an S corporation to a C corporation concurrently with
the closing of this Offering. As a result, effective on the day preceding such
closing, the Company intends to distribute accumulated S corporation earnings
to the five existing stockholders in the amount of approximately $2,400,000.
The Company will distribute certain receivables and cash to effect this
distribution. It is not currently anticipated that any portion of the cash
distribution will be funded out of the proceeds of this Offering, although
there is no assurance that Offering proceeds will not be required for that
purpose. As a result of this planned distribution, prospective investors in
the Company should make their investment decision on the basis of their
evaluation of future prospects of the Company, rather than the current
financial condition of the Company. See "Certain Transactions," "Prior S
Corporation Status and Distributions" and "Use of Proceeds."
As a result of the proposed stockholder distribution in connection with the
Company's conversion to a C corporation, the Company's cash reserves as of
December 31, 1996 will not be available to the Company for operational and
other purposes. Management believes, although no assurance can be provided,
that the net proceeds of this Offering, combined with anticipated cash flow
resulting from pending projects, will provide adequate cash for operations for
at least the next 24 months. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
NEED FOR ADDITIONAL FINANCING. Management believes that the proceeds of this
Offering will be adequate to address the near-term capital needs of the
Company. Over the longer term, however, it is anticipated that additional
capital will be required as the Company continues its expansion program. The
amount of additional capital that will be needed cannot be determined at this
time. The source of this capital may be further public or private equity or
debt financings, collaborative arrangements with corporate partners or funds
from other sources. No assurance can be given that funds to finance this
further development will be available to the Company on acceptable terms, if
at all. Moreover, such additional financing may involve substantial dilution
to the Company's stockholders or may require that the Company relinquish
rights to certain of its technologies or products. If adequate funds are not
available from operations or additional sources of financing, the Company's
ability to continue to expand its business may be adversely affected.
NO PRIOR MARKET; POSSIBLE VOLATILITY. Prior to this Offering there has been
no public market for the Common Stock of the Company. The initial public
offering price was determined by negotiations among the Company, the Selling
Stockholders and the Representative. See "Underwriting" for a discussion of
the factors considered in determining the initial public offering price. There
can be no assurance that an active public market will develop or be sustained
after this Offering or that the market price of the Common Stock will not
decline
11
<PAGE>
below the initial public offering price. Future announcements concerning the
Company or its competitors, quarterly or annual variations in results of
operations, announcements of technological innovations, the introduction of
new products or changes in pricing policies by the Company or its competitors,
proprietary rights, litigation, changes in earnings estimates by analysts and
other factors could cause the market price of the Common Stock to fluctuate
substantially. In addition, stock prices for many technology companies
fluctuate widely for reasons that may be unrelated to results of operations.
These fluctuations, as well as general economic, market and political
conditions such as recessions or military conflicts, may materially and
adversely affect the market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Immediately upon the
effectiveness of this Offering, the 1,125,000 shares offered hereby will be
freely tradeable. The sale of substantial amounts of Common Stock in the
public market following this Offering could have a material adverse effect on
the price of the Common Stock. Beginning one year after the date of this
Offering, approximately 2,125,000 shares will become eligible for sale upon
the expiration of agreements not to sell such shares, subject to compliance
with Rule 144 under the Securities Act. The Representative may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to such agreements.
As of April 29, 1997, there were outstanding stock options covering an
aggregate of 323,271 shares of Common Stock granted to Company employees under
ICI's employee stock option plans. Of those option shares, 159,511 shares that
may be acquired upon exercise of certain of these options are restricted from
being transferred for a period of one year following the closing date of this
Offering. Nevertheless, beginning one year after the closing date of this
Offering, options outstanding on April 29, 1997 covering 126,706 shares will
be exercisable, and the Common Stock acquired upon the exercise of those
options would be eligible for sale, subject in some cases to compliance with
Rule 144. Sale of a substantial portion of those shares could have a material
adverse affect on the price of the Common Stock.
Purchasers of Senior Debentures sold by the Company in January 1997 received
warrants from the stockholders of the Company (the "Stockholder Warrants") to
purchase 117,368 shares of Common Stock held by these stockholders. Those
warrants are exercisable following the closing date of this Offering and
continuing through the third anniversary date of the issuance of the
Stockholder Warrants. Holders of the Stockholder Warrants who exercise their
Warrants will receive restricted Common Stock, which will be eligible for
resale under Rule 144 (unless they are affiliates of the Company) after a one-
year holding period. In addition, these persons will have certain piggyback
registration rights in a Company-initiated registration with respect to such
Common Stock. If such holders, by direct market sales or by exercising their
piggyback registration rights, cause a large number of shares to be sold in
the public market, such sales could have a material adverse affect on the
market price for the Common Stock. In addition, inclusion of such shares in a
Company-initiated registration may have an adverse affect on the Company's
ability to raise needed capital. See "Shares Eligible for Future Sale" and
"Description of Capital Stock."
IMMEDIATE AND SUBSTANTIAL DILUTION TO NEW INVESTORS. The initial public
offering price is substantially higher than the price per share paid by
current stockholders, which was a negligible amount. Investors purchasing
Common Stock in this Offering will, therefore, incur immediate dilution from
the initial public offering price and will incur additional dilution upon the
exercise of outstanding stock options. See "Dilution."
FORWARD-LOOKING STATEMENTS. Although not applicable as a safe harbor to
limit the Company's liability for sales made in this Offering, this Prospectus
contains certain forward-looking statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Securities Exchange Act of 1934.
Such forward-looking statements may be deemed to include marketing plans, the
Company's expectations concerning growth in the market, certain financial
projections and the Company's planned use of proceeds. Actual results could
differ from those projected in any forward-looking statements. The forward-
looking statements are made as of the date of this Prospectus and the Company
assumes no obligation to update such forward-looking statements, or to update
the reasons why actual results may differ from those projected in the forward-
looking statements. Numerous factors, including without limitation factors
mentioned in this Risk Factors section, many of which are beyond the control
of Management of ICI, could cause future results to differ substantially from
those contemplated in such forward-looking statements.
12
<PAGE>
RISKS ASSOCIATED WITH EMERGING INTERNET MARKET. A portion of the Company's
strategy is to utilize the Internet and the World Wide Web to enable ItemQuest
to be better utilized as an enterprise-wide solution for item classification
and maintenance. ICI intends to extend ItemQuest's potential user community by
allowing web browser access to ItemQuest's information search and maintenance
features. The Company may devote substantial resources to developing products
designed for use with the Internet and the World Wide Web, and there can be no
assurance that the revenues generated, if any, from the use of the Internet
and the World Wide Web will be greater than the costs of developing and
modifying products for such use. See "Use of Proceeds." Further, the Company's
solutions may be rendered obsolete by or less valuable in comparison to
competitive solutions made possible by future development of the Internet and
the World Wide Web. If this were to occur, the Company's business, financial
condition and results of operations would be materially adversely affected.
PRIOR S CORPORATION STATUS AND DISTRIBUTIONS
Since its inception, the Company has elected to operate under Subchapter S
of the Code and comparable provisions of the Georgia corporate income tax
laws. An S corporation generally is not subject to income tax at the corporate
level (with certain exceptions under state income tax laws). Instead, the S
corporation's income generally passes through to the shareholders and is taxed
on their personal income tax returns.
Concurrently with the closing date of this Offering, the Company will elect
to terminate its S corporation status. As a result, the Company's earnings
through the date of termination of the Company's S corporation status
generally will be taxed for federal and state income tax purposes directly to
those persons who were stockholders of the Company prior to the closing of
this Offering (the "Pre-Offering Stockholders"). Subsequent to the termination
of its S corporation status, the Company will be subject to federal and state
income taxes on its earnings.
Effective the day preceding the closing date of this Offering, the Company
will declare a distribution to the Pre-Offering Stockholders in an amount
equal to the Company's undistributed S corporation earnings from its formation
through the date immediately preceding the date of termination of the
Company's S corporation status. If the Company's S corporation status had
terminated as of December 31, 1996, the amount of the additional distribution
would have been $1,528,902. The amount of this distribution is estimated to be
approximately $2,400,000, reflecting undistributed earnings through the date
preceding the anticipated closing date of this Offering. This distribution
will consist of accounts receivable and cash. It is not currently anticipated
that it will be necessary to fund any portion of the cash payments out of the
proceeds of this Offering. See "Risk Factors--Planned Distribution of
Accumulated Earnings in Connection with Conversion to C Corporation Status,"
"Use of Proceeds" and "Certain Transactions."
Purchasers of Common Stock in this Offering will not receive any of this
final distribution.
The Company has entered into an S corporation termination, tax allocation
and indemnification agreement with the Pre-Offering Stockholders relating to
the distribution of undistributed S corporation earnings to such Stockholders
and indemnification arrangements among such Stockholders and the Company for
certain tax liabilities.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,125,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$9,276,000 (approximately $10,005,000 if the Underwriters' over-allotment
option is exercised in full) after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company. The
anticipated uses of the net proceeds are subject to change due to the actual
circumstances of operating the Company's business. The Company will not
receive any proceeds from the sale of shares by the Selling Stockholders,
which will occur, if at all, only to the extent of 50% of the Underwriters'
over-allotment option. Moreover, none of the net proceeds of this Offering
will be paid, in the aggregate, to NASD members, affiliates, associated
persons or related persons.
The principal purposes of this Offering are to increase the Company's equity
capital, to create a public market for the Common Stock, to facilitate future
access by the Company to public equity markets and to provide increased
visibility of the Company.
13
<PAGE>
The Company currently intends to allocate the net proceeds of this Offering
over the next 24 months approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE PERCENT OF
APPLICATION OF NET PROCEEDS DOLLAR AMOUNT NET PROCEEDS
- --------------------------- ------------- ------------
<S> <C> <C>
Repayment of Senior Debentures(1).................... $1,135,000 12.2%
Marketing and sales.................................. 800,000 8.6%
Product development(2)............................... 2,000,000 21.6%
Capital investment(3)................................ 750,000 8.1%
Working capital...................................... 4,591,000 49.5%
---------- -----
Total.............................................. $9,276,000 100.0%
========== =====
</TABLE>
- --------
(1) The Senior Debentures were issued in January 1997 in a private placement
to 17 investors, in the aggregate principal amount of $1,115,000. That
offering was for the purpose of funding infrastructure and equipment
purchases, expansion of marketing and sales capacity, and for working
capital and general corporate purposes. The $1,135,000 amount includes an
estimated $20,000 in interest, which accrues on the Senior Debentures at
6% per annum, payable semi-annually. The principal amount is due and
payable in January 2000, subject to the Company's obligation to prepay the
Senior Debentures upon completion of an initial public offering of equity
securities in the amount of at least $5,000,000.
(2) This represents the current estimate of Management as to the proceeds to
be used in the development of new technologies to be incorporated within
the ItemQuest product, including, among other areas of development, the
development of Internet and World Wide Web capabilities and technological
improvements that help to position ItemQuest in market segments in
addition to the PDM market.
(3) This represents the estimated amount of proceeds to be used for
infrastructure and equipment purchases and upgrades.
A portion of the proceeds from this Offering may also be used to acquire or
invest in complementary businesses or products or to obtain the right to use
complementary technologies. While from time to time the Company evaluates
potential acquisitions of such businesses, products and technologies, there
are no present commitments or agreements with respect to any such acquisition.
It is currently anticipated that there will be adequate cash and accounts
receivable available at the time this Offering is completed to fund the entire
amount of the distribution to the current stockholders in connection with the
Company's conversion from an S corporation to a C corporation. If that is not
the case, a portion of the proceeds of this Offering would be used for that
purpose. See "Prior S Corporation Status and Distributions."
Pending such uses, the Company currently plans to invest the net proceeds in
investment grade, short-term, interest-bearing debt securities.
The Company believes, based upon its current plans, that its existing
capital resources, including the net proceeds of this Offering, will be
sufficient to meet its cash needs for at least 24 months after this Offering.
See, however, "Risk Factors--Need for Additional Financing."
DIVIDEND POLICY
The Company made aggregate distributions to its stockholders of $137,903,
$678,706, $1,215,217 and $150,000 in 1994, 1995, 1996 and 1997 year to date,
respectively. These dividends were paid by the Company while it maintained
subchapter S status for income tax purposes. The Company expects to change
this election to C corporation status concurrently with the closing of this
Offering, and in connection with that change declare a dividend to its current
stockholders, in an amount estimated at approximately $2,400,000. See "Prior
S Corporation Status and Distributions."
Following this Offering, it will be the policy of the Company to retain
earnings to finance the business. Accordingly, other than final Subchapter S
distribution, as described in "Prior S Corporation Status and Distributions,"
the Company does not anticipate paying cash dividends on its Common Stock in
the foreseeable future. Future dividends, if any, will be determined by the
Board of Directors of the Company and will depend on the Company's earnings,
capital requirements, financial condition, level of indebtedness and other
factors deemed relevant by the Board of Directors.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
December 31, 1996; (ii) on a pro forma basis after giving effect to the
payment of a distribution to the current stockholders of the Company; and
(iii) the capitalization at December 31, 1996 as adjusted to reflect the sale
of 1,125,000 shares of Common Stock offered by the Company hereby, at the
initial public offering price of $9.50 per share, and after deducting
underwriting discounts and commissions and estimated offering expenses and the
application of the net proceeds therefrom, as set forth in "Use of Proceeds."
This table should be read in conjunction with the Financial Statements and the
Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
---------- ------------ --------------
<S> <C> <C> <C>
Long-term debt.......................... $ 18,935 $18,935 $ 18,935
---------- ------- ----------
Stockholders' equity
Common Stock, $0.001 par value per
share:
Authorized: 20,000,000
Issued and outstanding: 2,125,000
actual (3,250,000 issued and
outstanding as adjusted).............. 2,125 2,125 3,250
Paid-in Capital........................ -0- -0- 9,274,875
Retained Earnings...................... 1,550,502 -0- -0-
---------- ------- ----------
Stockholders' equity.................. 1,552,627 2,125 9,278,125
---------- ------- ----------
Total capitalization.................. $1,571,562 $21,060 $9,297,060
========== ======= ==========
</TABLE>
- --------
(1) Because of certain temporary differences between income for financial and
tax reporting purposes (which are primarily attributable to the Company's
election to claim accelerated depreciation in computing its taxable
income), an additional provision for deferred income taxes will be
required as a charge against Retained Earnings as of the date upon which
the S corporation status of the Company is terminated. See Note A of the
Notes to Financial Statements. The "Pro Forma" column gives effect to an
additional estimated provision of approximately $21,600 for deferred
income taxes which would have been required as a charge against retained
earnings had the Company terminated its S corporation status at December
31, 1996. It also reflects the payment of the final distribution to the
current stockholders of the Company. As of December 31, 1996, the amount
of the final distribution would have totalled $1,528,902. The actual
amount of the final distribution will depend upon the Company's results of
operations through the date of termination of S corporation status. See
"Prior S Corporation Status and Distributions." This column does not
reflect the issuance of $1,115,000 in Senior Debentures by the Company in
January 1997, to be repaid out of the net proceeds of this Offering. See
"Use of Proceeds."
(2) The "As Adjusted" column gives effect to the adjustments described in Note
(1) above, the receipt of $9,276,000 estimated net proceeds of this
Offering and the application of net proceeds as set forth under "Use of
Proceeds." As adjusted outstanding Common Stock excludes 173,311 shares of
Common Stock issuable upon exercise of outstanding options at December 31,
1996, each at an exercise price of $.543 per share, 149,960 shares of
Common Stock issuable upon exercise of outstanding options granted
subsequent to December 31, 1996 each at an exercise price of $4.80 per
share, and 176,729 shares of Common Stock reserved for future grant under
the Company's 1996 Stock Option Plan. Also excludes 112,500 shares of
Common Stock issuable upon exercise of the Representative's Warrants to be
granted in connection with this Offering. See "Management--Stock Option
Plans," "--Compensation of Directors," "Description of Capital Stock--
Options to Purchase Common Stock," "Underwriting" and Note F of Notes to
Financial Statements.
DILUTION
The following table sets forth, as of December 31, 1996, the differences
between the existing stockholders and the new investors with respect to the
number of shares of Common Stock purchased from the Company, the
15
<PAGE>
total consideration paid to the Company and the average price per share paid
before deducting underwriting discounts and commissions and estimated offering
expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
--------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders... 2,125,000 65.4% $ 770 * *
New Investors........... 1,125,000 34.6% 10,687,500 100.0% $9.50
--------- ------ ----------- ------
Total................. 3,250,000 100.0% $10,688,270 100.0%
========= ====== =========== ======
</TABLE>
- --------
* Negligible.
The above computations assume no exercise of stock options after December
31, 1996 and no exercise of the Underwriters' over-allotment option in this
Offering (in which 50% of the option shares would be sold by the Selling
Stockholders and 50% by the Company). As of December 31, 1996, there were
outstanding employee stock options to purchase 173,311 shares of Common Stock
each with an exercise price of $0.543 per share. In connection with this
Offering, the Representative will receive warrants to purchase up to 112,500
shares of Common Stock at a price equal to $11.40 per share (120% of the
initial public offering price), as described in "Underwriting." To the extent
outstanding options or warrants are exercised, there will be further dilution
to new investors. See "Capitalization," "Management--Stock Option Plans," "--
Compensation of Directors," "Description of Capital Stock--Options to Purchase
Common Stock" and Note F of Notes to Financial Statements.
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Financial Statements and Notes thereto and other financial
information included elsewhere in this Prospectus. The statement of operations
data set forth below for the years ended December 31, 1994, 1995 and 1996 and
the balance sheet data as of December 31, 1995 and 1996 have been derived from
and are qualified by reference to the audited Financial Statements of the
Company included elsewhere in this Prospectus. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
---------- ---------- ----------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C>
Operating Revenues.......................... $1,246,414 $2,875,872 $3,891,034
---------- ---------- ----------
Expenses:
Research and development................... 13,491 111,242 3,365(1)
Operating.................................. 681,300 1,499,824 1,830,574
General and administrative................. 126,876 150,699 239,778
---------- ---------- ----------
Total expenses............................. 821,667 1,761,765 2,073,717
---------- ---------- ----------
Income from operations...................... 424,747 1,114,107 1,817,317
Interest income............................. 2,548 4,798 3,067
---------- ---------- ----------
Net Income.................................. $ 427,295 $1,118,905 $1,820,384
========== ========== ==========
Pro forma income data:
Net income as reported (2)................. $ 427,295 $1,118,905 $1,820,384
Pro forma provision for income taxes (2)... 161,000 422,000 686,000
---------- ---------- ----------
Pro Forma Net Income....................... $ 266,295 $ 696,905 $1,134,384
========== ========== ==========
Pro Forma Net income per share (3)......... $ .50
==========
Shares used in per share computation (3)... 2,287,855
==========
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
DECEMBER 31, ---------------------
1995 ACTUAL PRO FORMA
------------ ---------- ----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash........................................ $ 80,969 $ 119,750 $ 119,750
Property and equipment...................... 86,709 168,178 168,178
Other Assets................................ 814,402 1,333,083 1,333,083
-------- ---------- ----------
Total Assets................................ $982,080 $1,621,011 $1,621,011
======== ========== ==========
Current Liabilities (4)..................... $34 ,620 $ 49,449 $1,599,951
Long-term liabilities, net of current
liabilities................................. 0 18,935 18,935
Stockholders' equity (5).................... 947,460 1,552,627 2,125
-------- ---------- ----------
Liabilities and Stockholders' Equity........ $982,080 $1,621,011 $1,621,011
======== ========== ==========
</TABLE>
- --------
(1) Commencing in the year ended December 31, 1996, the Company capitalized
certain costs related to product development. See Notes A and I of Notes
to Financial Statements.
(2) Through December 31, 1996 the Company had elected Subchapter S status and,
as a result, was not subject to payment of federal or state income tax on
its net income. Pro forma income data reflects federal and state income
taxes (assuming a 37.7% effective tax rate) as if the Company had been
taxed as a C Corporation rather than as an S Corporation during each of
these fiscal years. See Note A of Notes to Financial Statements.
(3) See Note A of Notes to Financial Statements.
(4) The "Pro Forma" column gives effect to an additional estimated provision
of $21,600 for deferred income taxes which would have been required as a
charge against retained earnings had the Company terminated its S
Corporation status at December 31, 1996. It also reflects the payment of
the final distribution to the current stockholders of the Company. As of
December 31, 1996, the amount of the final distribution would have
totalled $1,528,902. The actual amount of the final distribution will
depend upon the Company's results of operations through the date of
termination of S corporation status. See "Prior S Corporation Status and
Distributions."
(5) See "Prior S Corporation Status and Distributions" for a description of
the Company's plan to distribute accumulated earnings in connection with
its conversion from S corporation status to C corporation status under
federal and state income tax laws.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto.
OVERVIEW
From the time of its incorporation in 1991 through mid-1996, all Company
revenues resulted from computer software-related services. To date, ICI has
focused its primary efforts in the area of PDM software applications. ICI has
provided a wide variety of services to IBM, including product development and,
on a subcontract basis, customer installation, implementation and
customization services relating to IBM's PDM product, ProductManager.
ICI also has applied its expertise in client/server software development by
providing specialized software services directly to customers other than IBM,
in some cases relating to IBM's ProductManager and in other cases unrelated to
IBM.
Commencing in April 1995, ICI began development work on its own product,
ItemQuest, which is intended to address the ICAM market, and which includes
PDM-related applications. Among other potential applications, ItemQuest
provides virtual object warehouse and classification capabilities to
manufacturing or engineering customers, enabling them to shorten and reduce
the cost of the new product development cycle. Although
17
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research and development costs began to be incurred in the second quarter of
1995, the first limited revenues from licenses of ItemQuest were not received
until the last quarter of 1996. Initial licenses of ItemQuest have been
offered on a limited basis to a selected group of customers. As of late April
1997, when ItemQuest became generally available, contracts had been signed
with four customers in the "controlled availability program." As ICI begins to
license ItemQuest on an increased scale, Management anticipates that
substantial service revenues will be generated by customer implementation and
customization of ItemQuest, as well as from ItemQuest license fees. There can
be no assurance, however, that efforts to license ItemQuest will be
successful, or that substantial services revenues would result from any such
licenses. See "Risk Factors--Introduction of New Product; Change of Business
Focus."
RELIANCE ON IBM
The Company's business currently is heavily reliant on IBM in two ways.
First, a substantial portion of services revenues are derived directly or
indirectly from IBM, either for (i) product development services rendered
directly to IBM, (ii) services rendered to IBM ProductManager customers on a
subcontract basis through IBM, or (iii) services rendered directly to IBM
customers under contracts to provide implementation or customization services
with respect to IBM's ProductManager. Second, although Management believes
that ItemQuest will be compatible with a wide variety of PDM software products
and with a number of other types of complementary applications, as well as
being useful in stand-alone applications, the strongest initial market for
ItemQuest is expected to be IBM customers currently using ProductManager. See
"Risk Factors--Reliance on IBM; Lack of Visibility in the Market."
SENIOR DEBENTURES, WARRANTS AND EMPLOYEE STOCK OPTIONS
In January 1997, the Company issued an aggregate of $1,115,000 in Senior
Debentures, bearing interest at 6% per annum, with interest being payable
semi-annually and the principal amount payable in January 2000. The principal
and accrued interest are required to be prepaid out of the proceeds of this
Offering. The Senior Debentures are held by 17 purchasers, who acquired them
in a private placement. See "Use of Proceeds." The Company has determined,
that for purposes of financial statement presentation, the Warrants issued in
connection with the Senior Debentures will have an assigned value of $2.72 per
Warrant or an aggregate of $319,241, based upon 117,368 Warrants granted.
Accordingly, the results of operations for the first and second quarters of
fiscal 1997 would be adversely affected by a $319,241 non-cash charge against
earnings for interest because this value ascribed to the Warrants will be
deemed to be a contribution to capital by the current stockholders of the
Company, and treated as additional interest paid to the holders of the Senior
Debentures. See "Shares Eligible for Future Sale."
In January 1997, the Company granted stock options to 32 employees, covering
an aggregate of 163,200 shares of Common Stock, at an exercise price of $4.80
per share, under the Company's 1996 Stock Option Plan. 149,960 of those
options remain outstanding. See "Management--Stock Option Plans." For
financial statement purposes, the Company has determined that these options
will be treated as being granted at $2.95 less than the then current value of
the Common Stock. Accordingly, the results of operations for the first quarter
of 1997 will be adversely affected by a non-cash charge for compensation of
$442,382.
PLANNED DISTRIBUTION OF ACCUMULATED EARNINGS
As discussed in "Prior S Corporation Status and Distributions," in
connection with the conversion of the Company from S corporation status to C
corporation status for federal and state income tax purposes, the Company
intends to distribute to its five current stockholders an amount equal to the
accumulated, undistributed subchapter S earnings of the Company through the
date prior to the closing date of this Offering. This distribution will be
effected by transfer of accounts receivable and by cash payments, a portion of
which may be derived from the proceeds of this Offering.
INCOME TAX MATTERS
Since its inception, the Company has elected to operate as an S corporation
under the Code. An S corporation generally is not subject to income tax at the
corporate level (with certain exceptions under state
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income tax laws). Accordingly, the Financial Statements do not include a
provision for federal and state income taxes, except on a pro forma basis.
Effective the date prior to the closing date of this Offering, the Company
will terminate its S corporation status and, thereafter, will be subject to
federal and state income taxes on its earnings. See "Prior S Corporation
Status and Distributions."
In connection with this Offering, the Company's S corporation status will be
terminated. Pursuant to SFAS No. 109, "Accounting for Income Taxes," the
Company will be required to record deferred income taxes upon the termination
of its S corporation status. This will result in a non-cash, non-recurring
charge to earnings during the quarter in which this Offering is completed.
Such charge would have been approximately $21,600 had the S corporation status
of the Company terminated at December 31, 1996. See "Prior S Corporation
Status and Distributions."
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of gross
revenues for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Total Revenues............................................. 100.0% 100.0% 100.0%
===== ===== =====
Expenses
Operating................................................. 55.7% 56.0% 47.1%
General and Administrative................................ 10.2% 5.2% 6.2%
----- ----- -----
Total Expenses............................................ 65.9% 61.2% 53.3%
----- ----- -----
Income from Operations..................................... 34.1% 38.8% 46.7%
Other Income--Interest Income.............................. -- -- --
----- ----- -----
Net income (1)............................................. 34.1% 38.8% 46.7%
===== ===== =====
Pro forma income data:
Net income as reported.................................... 34.1% 38.8% 46.7%
Pro forma provision for income taxes...................... 12.9% 14.7% 17.6%
----- ----- -----
Pro forma net income....................................... 21.2% 24.1% 29.1%
===== ===== =====
</TABLE>
- --------
(1) Net income for each of these fiscal years does not reflect a provision for
federal and state income taxes, as a consequence of the Company's S
corporation status prior to this Offering.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995.
Operating Revenues. The revenues of the Company during the year ended
December 31, 1996 consisted primarily of revenues from software services, with
revenues from licenses and related services in connection with the Company's
ItemQuest product constituting approximately $270,000, or less than 10% of
revenues. Revenues for the year ended December 31, 1995 consisted entirely of
revenues from software services. Operating revenues increased 35% to
approximately $3,891,000 in 1996, compared to approximately $2,876,000 in
1995. This increase resulted from a number of factors. The most important
factor was increased sales of ProductManager by IBM in 1996, resulting in
increased demand for ICI's software services, as a substantial portion of
those services are provided, both directly and on a subcontract basis, to IBM
ProductManager customers.
Increased operating revenues in 1996 over 1995 also were due to increased
overall demand for the Company's software services, including a major project
for the Eastman Kodak Company in 1996. Another factor contributing to
increased operating revenues was an increase in the proportion of projects
undertaken
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<PAGE>
directly with IBM customers, rather than on a subcontract basis. Finally,
there were approximately $270,000 in license fees and related services from
ItemQuest in 1996, compared to no such license fees in 1995.
Software services revenues in 1996 increased in comparison to 1995 with no
significant increases in software services personnel. This was due to more
efficient management of personnel and an increase in the proportion of
software services projects conducted on a fixed bid basis, as compared to an
hourly basis. The factors leading to an increase in operating revenues in 1996
were partially offset by a substantial increase in the amount of personnel
time devoted to the development of the ItemQuest product in 1996, as compared
to 1995.
Operating and Research and Development Expenses. Operating and research and
development expenses increased by approximately $223,000, or 14%, in 1996
compared to 1995. This increase in operating expenses was substantially less
than the increase in operating revenues between the two years, due to the
increased efficiencies referred to above. This rate of increase was reduced
also by the capitalization of approximately $276,000 in ItemQuest development
costs in 1996, compared to 1995, in which no such costs were capitalized, but
instead were expensed as research and development expenses. Increases in
operating expenses were attributable primarily to the addition of the North
Carolina office, and payroll associated with additional management personnel
and sales personnel.
General and Administrative Expenses. General and administrative expenses
increased by $89,000, or 59%, in 1996 as compared to 1995. This increase was
due to increased business activity in general, and in particular as a result
of increases in legal and accounting expenses, underwriting expenses
associated with the offering of senior debentures, which commenced in December
1996, and payment of license fees to third-party software vendors.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994.
Operating Revenues. Operating revenues in 1995 increased by approximately
$1,630,000, or 131%, compared to the year ended December 31, 1994. This
increase in operating revenues was due primarily to the increase in demand for
ICI's software services, particularly related to product development efforts
for IBM's ProductManager, and the increase in billing volume generated by
additional personnel hired to provide those services. In 1995, the Company
commenced a substantial product development project for IBM relating to the
IBM ProductManager software product. In addition, there was a substantial
increase in revenues relating to the provision of training services to IBM
ProductManager customers.
Operating and Research and Development Expenses. Operating and research and
development expenses during 1995 increased by approximately $916,000, or 132%,
as compared to 1994. This increase was due primarily to general increases in
business activity and increased personnel required to provide the increased
level of software services. Research and development expense increased by
approximately $98,000 in 1995 over 1994, as a result of ItemQuest product
development efforts. In addition, there was a substantial increase in the
level of infrastructure expenses relating to increases in personnel, as well
as expansion of office space in Atlanta, Georgia.
General and Administrative Expenses. General and administrative expenses
increased in 1995 by approximately $25,000, or 19%, as compared to 1994. This
increase was due to growth in personnel and business activity, and the
corresponding increased demand for general and administrative services.
LIQUIDITY AND CAPITAL RESOURCES
The primary source of the Company's cash has been operations. As of December
31, 1996, the Company had approximately $120,000 in cash. Net cash provided by
operating activities was approximately $300,000, $680,000 and $1,640,000 for
1994, 1995 and 1996, respectively, and was primarily due to net income of
approximately $427,000, $1,119,000 and $1,820,000, respectively. The sources
of cash from operations were
20
<PAGE>
partially offset by increases in accounts receivable of $132,000, $483,000 and
$237,000 in 1994, 1995 and 1996, respectively, and other working capital
changes.
In 1994, 1995 and 1996, approximately $37,000, $59,000 and $365,000,
respectively, were used for investing activities, including purchases of
property and equipment, and, in 1996, $276,000 was used for capitalized
software development costs related to the development of ItemQuest, compared
to no such capitalized costs in 1994 or 1995. Cash used for investing
activities was substantially less in 1995 and 1994, as ItemQuest development
costs substantially increased in 1996.
The Company made distributions to its stockholders, amounting to
approximately $138,000, $679,000 and $1,215,000, in 1994, 1995 and 1996,
respectively. As discussed in "Dividends," such distributions are not expected
to continue after the Company converts to C corporation status.
As of December 31, 1996, the Company's principal commitments consisted of
obligations under operating leases for office space. Rent expense for the
1994, 1995 and 1996 totaled $17,063, $57,497 and $79,496, respectively. Future
minimum lease commitments total $110,000 through the year 2000. Future lease
commitments are expected to increase substantially when new leases are
executed for the Atlanta and North Carolina operations. There was no material
long-term debt as of December 31, 1996.
Upon receipt of the proceeds from this Offering, and after such proceeds are
applied as described in "Use of Proceeds," Management anticipates that it will
have adequate cash to fund operations for at least the next twenty-four
months, although these funds may not be adequate to fully implement the
Company's long-term expansion plans. See "Risk Factors--Need for Additional
Financing."
FLUCTUATIONS IN QUARTERLY RESULTS
The Company's operating results may fluctuate from period to period as a
result of, among other things, the timing of software services agreements and
ItemQuest license agreements, as well as the somewhat seasonal nature of
customers' capital budgets. Given the limited experience of the Company in
licensing the ItemQuest product, Management cannot predict the extent or
nature of sales fluctuations or the impact of cyclical factors.
INFLATION
Management does not believe that inflation has had a material effect on the
Company's operations during the past several years. Management anticipates
that the Company generally will be able to modify its pricing structure for
services and products to substantially offset future increases in its
operating costs.
BUSINESS
GENERAL
ICI is a software technology company that develops, markets and supports
client/server software and implementation services for the engineering and
manufacturing industries. ICI provides services in the areas of system
analysis and design, object-oriented technology, cross platform development,
and client/server architecture. Since its inception in 1991, ICI has built
strong skills in industry applications for manufacturing and product data
management ("PDM"). ICI's virtual object warehouse and classification system
(ItemQuest), which until late April 1997 was in the controlled availability
stage, enables manufacturers to reduce product development costs and time-to-
market by allowing them to create and manage their own standardized repository
for information regarding all items used throughout the enterprise. ItemQuest
is based on a sophisticated object oriented classification and search engine
used to classify objects, such as parts and assemblies, documents and
drawings, and to retrieve references to those objects. These capabilities
enable ItemQuest to complement and enhance the effectiveness of PDM software,
as well as other systems.
21
<PAGE>
Currently, ICI's revenues are derived primarily from its services business,
which is comprised principally of PDM-related services and custom software
development. The demand for these services, especially in the PDM application
area, is strong and exceeds ICI's current capacity. Management expects that
this demand will increase, although this cannot be assured. See "Risk
Factors--Management of Expanding Operations."
In late April 1997, it was announced that ItemQuest is generally available
to the marketplace. In addition to generation of license fee revenue,
Management anticipates that ItemQuest will add significantly to the Company's
core services business. Management expects the ratio of services to license
fee revenue for ItemQuest to be roughly two to one. While ItemQuest has become
generally available, no assurances can be given that ItemQuest will be well
received in the marketplace or that its introduction will be successfully
completed. See "Risk Factors--Introduction of New Product; Change of Business
Focus."
ICI is closely associated with IBM Manufacturing Industry Solutions Unit,
based in Charlotte, North Carolina, where ICI maintains an office. Because of
the Company's relationship with that Unit, which is responsible for the
development and support of ProductManager, a large portion of ICI's customer
base consists of manufacturing companies that are users of ProductManager.
ProductManager customers for which ICI has provided services directly or
through IBM include, among others, Pratt & Whitney, Lockheed Martin, Space
Systems/Loral, IVECO, SPS Technologies, Hyundai, Daewoo Motor Co. and Siemens.
It is anticipated that this customer base will continue to grow as IBM
experiences success in the PDM market. See "Risk Factors--Dependence on IBM;
Lack of Visibility in the Market."
The Company's primary objective is to be a leader in the information
classification and management (ICAM) marketplace, both in terms of products
and services. To achieve that objective, the Company's business strategy
includes a roll-out of ItemQuest into the PDM marketplace and in other
applications; increasing technical personnel available to provide ICAM and
PDM-related services; leveraging its existing customer relationships to
capture new customers; increasing exposure to customers using PDM products;
increasing advertising and marketing to build awareness for ItemQuest and ICI
services; and expanding into international markets. Management believes that
the Company can substantially implement these strategies with the proceeds
from this Offering. See, however, "Risk Factors--Need for Additional
Financing."
INDUSTRY BACKGROUND
Manufacturing and process companies face intense competitive pressure on a
global basis. Their response is to increase focus on bringing products to
market faster and at lower cost, with increasingly higher levels of quality.
To achieve those enhancements, these companies have re-engineered their
processes and continue to make significant investments in information
technology. One such technology is PDM. PDM is software technology that allows
companies to manage and control product related data from the product
development and design stages through manufacturing and post-production
maintenance stages. By managing and sharing this data more effectively,
manufacturing companies can improve the efficiency of their entire product
development process and reduce time-to-market, thereby increasing their
competitiveness.
A major component within a PDM application is information classification and
management, or ICAM. ICAM allows companies to classify and group data by its
characteristics, thereby providing the capability for quick and easy access to
data. Management believes that this access frequently is integral to a
successful PDM implementation. The primary objective of information
classification and management is to reduce time-to-market of new products.
22
<PAGE>
[CHART DEPICTING PARTS CLASSIFICATION PROBLEMS APPEARS HERE]
It is typical in modern manufacturing for even the least complex products to
be composed of numerous parts, some supplied by third party vendors and some
manufactured within the enterprise. Purchase or development of these parts can
represent a substantial portion of new product cost. The search for or
development of the right parts or the optimal combination of parts can create
significant delays. Thus, selection of the optimal set of parts early in the
design process can greatly reduce the cost and improve the efficiency of new
product development.
A major factor contributing to delays in product development is the
inability of design engineers to quickly locate existing parts or acceptable
substitutes that meet design requirements. Since designing new parts is an
expensive and time-consuming process, manufacturers prefer to re-use existing
parts or acceptable substitutes, whether manufactured internally or by a third
party. Most large manufacturing systems are not equipped with a classification
and search facility that allows the design engineer to easily and definitively
determine whether a part exists or a new one needs to be designed.
Design engineers generally know the particular component they need and the
specific characteristics of that component. However, because traditional
systems do not allow parts to be located based on characteristics or
attributes that a design engineer is familiar with, they are not always
helpful. Parts typically are located by part numbers or coded descriptions.
However, design engineers usually are not familiar with the thousands of part
numbers or coded descriptions that may exist in a large and often
geographically dispersed enterprise. Without a system that provides an
effective information classification and management capability, finding an
existing part can be extremely difficult and time-consuming.
Since searching for an existing part often can take longer than designing a
new part, engineers often take the "easier" approach of designing a new part,
which in most instances is much more expensive than re-using an existing part.
This added cost stems not only from the longer design and manufacturing
process, but also in the lost time in bringing the new product to market. If
the delay is long enough, the manufacturer's ability to effectively compete in
the marketplace can be greatly hindered.
23
<PAGE>
To reduce product development costs and shorten time-to-market, several
capabilities must be provided. Vast amounts of information related to either
custom components internally designed or provided by suppliers currently exist
in some form within a manufacturing enterprise. This information, commonly
referred to as "legacy data," must be organized and managed to provide optimal
value. To achieve this, legacy data first must be standardized (i.e. multiple
names for the same component reduced to a single reference) and mapped from
diverse formats and sources to a single part definition in the classification
system. Next, the enterprise must be provided with the ability to have new
parts data added to the legacy data to form one complete system. Once all of
the data is mapped to the company's data system, powerful search and retrieval
capabilities with an intuitive user interface are required for the selection
of the optimal components.
Management believes that there will be an active market for an effective
ICAM system on a stand-alone basis. Moreover, a system that provides ICAM
features, and which is also integrated with a PDM system, would greatly
enhance the effectiveness of the PDM system. Information classification and
management provides an important missing component to a PDM system by creating
a combined system that organizes product data and enables it to be retrieved
with speed and effectiveness.
PDM INDUSTRY ANALYSIS
OVERVIEW. The PDM market is growing at a rapid rate. According to CIMdata,
Inc., a PDM industry analyst, worldwide revenues for PDM software and services
were $684 million in 1995, representing a 43% increase over 1994. CIMdata has
reported that it expects the market for PDM software to continue its current
growth and approach $2 billion in annual revenues by 2000. Industry analysts
attribute this trend to several factors:
. Continued investment in technology by manufacturing companies to improve
competitiveness
. Increased familiarity with and maturing of PDM technology, leading to
broader market acceptance
. Increased number of successful PDM implementations
IBM has participated in this market growth with the success of
ProductManager Version 3.0. In an attempt to accelerate the growth of its
software revenues, IBM has established relationships with independent software
services companies, such as ICI, to supplement its own skills in providing
customers with implementation and customization services. The ability to
deliver these services effectively is one of the most important factors in a
successful PDM project. ICI intends to capitalize on its relationship with
IBM, which dates back to 1993, to continue to capture a substantial portion of
these services revenues.
Major PDM vendors have focused attention and resources in the first three
PDM application areas: Document Management, Workflow, and Product Structure
Management. This has created an opportunity to supply the fourth application
of PDM: Information Classification and Management (ICAM). Presently, it is
believed that there are only two companies, Aspect Development, Inc. and
CADIS, Inc., with broad market exposure that offer ICAM products and services
to satisfy this market need. See "Competition, Dependence on Relationships
with Complementary Vendors," and "Risk Factors--Introduction of New Product;
Change of Business Focus." Management believes that the market for PDM, and
specifically ICAM software, is experiencing substantial growth worldwide.
Expertise in PDM software technology, combined with the introduction of
ItemQuest for information classification and management, has positioned ICI to
take advantage of this market growth.
MARKET SEGMENTS. The industry view of PDM and ICAM systems falls into
traditional lines of segmentation. To date, the discrete manufacturing
segments of aerospace, automotive and electronics have led in implementation
of PDM systems. Opportunity also exists in other discrete segments, process
industries and utilities. ICI expects to continue to derive revenues from
providing services to users of PDM systems in all industry segments and
intends to market ItemQuest to all industry segments. See "Risk Factors--
Introduction of New Product; Change of Business Focus."
ICI MARKET POSITION. Management believes ICI's current market position as a
services provider for IBM's ProductManager provides a strong base to launch
ItemQuest. The synergy between the services the Company provides and the
ItemQuest product, and the opportunity to use ICI's skills across these two
areas of business, are expected to be significant factors in ICI's future
growth. In combining these skills and experience,
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<PAGE>
Management believes that ICI offers a unique set of capabilities to help
manufacturing companies improve their competitiveness through the application
of ICAM and PDM technology to their business. However, ICI's current close
relationship to, and reliance on IBM creates certain risks. See "Risk
Factors--Reliance on IBM; Lack of Visibility in the Market."
ITEMQUEST SOLUTION
ITEMQUEST FEATURES. Management believes that the information classification
and management capabilities of ItemQuest provide a solution to one of the most
costly problems of manufacturing and engineering industries--how to quickly
and reliably identify, classify and retrieve existing data for re-use
throughout the enterprise. Management also believes that ItemQuest is based on
the PDM industry's most sophisticated search and classification engine for
parts, assemblies, documents, drawings and other relevant items. This,
combined with ItemQuest's power and flexibility, allows ItemQuest to serve as
a complete classification and management system. In a manufacturing
enterprise, ItemQuest provides quick access to data by classifying it in terms
of recognizable attributes. Such classification enables the data to be
retrieved with speed and effectiveness, thereby decreasing a new product's
time to market and increasing the competitiveness of the user of ItemQuest.
ItemQuest is an object-oriented search and classification system that is
structured using a three-tiered client/server architecture, consisting of a
data layer, an application layer, and a presentation layer. ItemQuest allows
for any combination of these tiers to coexist on a single machine or across
multiple machines. This allows for a scalable implementation, permitting the
use of additional and more powerful hardware to cope with increasing numbers
of users.
[CHART DEPICTING ITEMQUEST THREE-TIERED CLIENT-SERVER ARCHITECTURE
APPEARS HERE]
ItemQuest provides an intuitive process for describing an item using a
Graphical User Interface (GUI) that does not require a user to have special
computer expertise. The user interface is cross-platform, allowing it to run
on several of the popular client operating systems. The data server is
database independent to allow the application direct access to almost any
database that can be accessed with Structured Query Language (SQL). Server
objects in both the application server and database server have CORBA
compliant interfaces to allow for easy integration and maximum flexibility and
scalability at customer sites.
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Item attributes used within ItemQuest can be any of the basic types:
numeric, character, boolean or string. ItemQuest also supports user defined
types, called extended types, which allow the definition of functional
routines to manipulate the data when it is retrieved and stored.
In addition to the basic search and classification capabilities that are
available in other classification systems, ItemQuest provides the following
capabilities that are expected to position it favorably in the market:
. INTEGRATED ARCHITECTURE STRATEGY. ItemQuest is designed to be integrated
with other product offerings. This does not preclude it from being
packaged as a stand-alone system, but does offer a product that is
generally suited to be licensed by vendors of PDM or similar systems.
Management anticipates that these vendors would be interested in
licensing ItemQuest because it would enable them to provide more robust
and competitive functionality within their product offerings. Management
believes that this opportunity is not currently being adequately
addressed in the market by other providers of ICAM systems.
. DATABASE INDEPENDENCE. ItemQuest is developed with a database-independent
layer that supports different Relational Database Management Systems.
According to a report prepared by CIMdata, this level of support is more
effective than other currently available systems. In addition, ItemQuest
is capable of maintaining multiple simultaneous connections to different
databases. These capabilities enhance ItemQuest's flexibility and ease of
implementation into an organization's existing information technology
environment.
. ABILITY TO MAINTAIN ACCESS TO LEGACY SYSTEMS. ItemQuest allows on-line
connection and mapping to legacy systems during the initial
implementation and loading of ItemQuest. In addition, ItemQuest has the
capability of maintaining this on-line link to existing data systems of
the enterprise. Management believes this capability distinguishes
ItemQuest from its competitors because it allows data to be retrieved
from the enterprise's existing database using ad-hoc queries rather than
requiring costly bulk loading of all legacy data and the subsequent data
clean-up that is often required in connection with such bulk loading
activities. As a result, the enterprise is able to implement the data
classification and retrieval system immediately and bulk load the legacy
data and new data to a single system at a subsequent time.
. PRODUCTMANAGER INTEGRATION. ItemQuest has been integrated with the
current version of ProductManager. This illustrates ItemQuest's ability
to be integrated and licensed for classification, search and retrieval
functions within a PDM system. Management believes that currently no
other information classification and management system has achieved this
degree of integration with ProductManager.
. BUILT-IN TOOL APPROACH FOR IMPLEMENTATION. ItemQuest offers the basic
built-in tools and capabilities required to implement the system at a
customer site. This eliminates the need for the customer to purchase
basic implementation tools from the vendor. It is expected that this will
reduce the initial implementation costs and total cost of ownership of
ItemQuest. Management believes that currently most vendors do not
routinely provide these tools directly to their customers.
. MAINSTREAM TECHNOLOGY. ItemQuest employs mainstream technologies,
including multiple platform client support, CORBA (Common Object Request
Broker Architecture), C++, three-tiered client-server architecture, as
well as a defined Web strategy. This is consistent with customer's
strategies for new technology acquisitions. Use of mainstream technology
decreases the likelihood of the technology becoming rapidly outdated and
enables ItemQuest to easily integrate with other software products.
ICI intends to develop an ItemQuest client application that can be executed
by persons using World Wide Web browsers such as Netscape(R) Navigator(R).
This client application will allow users within an enterprise or external
users such as customers or suppliers to use ItemQuest technology to perform
queries. There can be no assurance, however, that this application will be
developed on a timely basis or that it will achieve market acceptance. See
"Risk Factors--Further Development of ItemQuest."
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<PAGE>
[CHART DEPICTING ITEMQUEST CLIENT/SERVER ENVIRONMENT APPEARS HERE]
ITEMQUEST BENEFITS. Implementation of ItemQuest for information
classification and management applications will provide benefits to
manufacturing and engineering companies that will contribute to the
achievement of the following goals, leading to improved competitiveness:
. BRING PRODUCTS TO MARKET FASTER. ItemQuest's easy to use system helps
improve productivity of design engineers, allowing a more rapid design
process. Also, re-use of existing parts minimizes the need to develop new
parts, significantly cutting product cycle time and time to market.
. LOWER COSTS. ItemQuest enables manufacturers to generate savings through
improvements in productivity and improved return on investment in
existing parts, by extending the useful life of existing parts. ItemQuest
also helps companies avoid costly development of new parts when
inventoried parts may be used.
. HIGHER LEVELS OF QUALITY. Re-use of parts capitalizes on proven
reliability and experience in the market. This in turn takes advantage of
maintenance and support systems already in place for current parts and
designs.
ICI SERVICES
PDM-RELATED SERVICES. ICI currently offers a range of implementation and
programming services that capitalize on its PDM industry knowledge and
expertise in object oriented, cross-platform and client/server application
development. Implementation support and customization services for IBM's
ProductManager are delivered by ICI on a subcontract basis through IBM, as
well as on a direct contract basis with ProductManager customers. Currently, a
substantial number of Company employees work under an ICI contract with IBM
Charlotte and provide a wide range of services to IBM and its customers,
including:
. Program development
. Defect support
. Implementation
. Customization
. Integration
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A significant portion of a PDM solution is the implementation services that
apply PDM technology to a company's specific business. With its intimate
knowledge of PDM systems, ICI is well positioned to provide the following PDM
services:
. Project management
. Installation
. Workshops
. Solution architecture
. Customization
. Integration
CUSTOM DEVELOPMENT. Apart from its ICAM and PDM-related services, ICI offers
programming skills to companies whose business needs require a custom
development solution. Currently, ICI is providing development services for
Eastman Kodak Company. The resulting product is expected to provide
significant productivity enhancements for laboratory personnel, and in turn
produce reduction in research and development cycle times and improvement in
manufacturing effectiveness.
CUSTOMERS
SERVICES. For 1996 the Company's largest customers were IBM, Eastman Kodak
Company, Lockheed Martin, Pratt & Whitney and Space Systems/Loral. The
Company's revenues in any period are substantially dependent upon a relatively
small number of large projects and this trend is expected to continue for the
foreseeable future. In 1994, services to IBM for development and
implementation work and to Kodak for custom development work accounted for 65%
and 10%, respectively, of total revenue. In 1995, services to IBM and Lockheed
Martin accounted for 81% and 4%, respectively, of total revenues. In 1996,
sales and services to IBM, Kodak and Pratt & Whitney accounted for 68%, 13%
and 8%, respectively, of total revenues. The 68% revenues received from IBM in
1996 consisted of 58.0% from IBM United States (primarily under subcontracts
for a variety of IBM customers), 5.8% from IBM Italy, 0.2% from IBM England,
3.4% from IBM Korea and 0.6% from IBM Japan. In 1994, 1995 and 1996, ICI had
approximately 10, 10 and 15 direct customers, respectively.
ITEMQUEST. ICI has entered into agreements with four customers, Space
Systems/Loral, SPS Technologies, Black & Decker and Sony for the ItemQuest
controlled availability program. These companies are manufacturers embarking
on PDM implementations and focusing within their engineering divisions on
consolidation of standard parts and re-use of existing parts. ICI's strategy
in the controlled availability program was to work closely with these
companies in order to validate ItemQuest's function and establish an
implementation methodology.
With ItemQuest released generally into the marketplace in late April 1997,
the Company will provide this product to customers under standard non-
exclusive, non-transferable license agreements. As is customary in the
software industry, in order to protect its intellectual property rights, the
Company will not sell or transfer title to its products to its customers. The
Company's standard license agreement will provide that the licensed software
may be used solely for the customer's internal operations.
Although Management expects that ItemQuest will be well received, there can
be no assurance that this will be the case. See "Risk Factors--Introduction of
New Product; Change of Business Focus."
COMPETITION
ITEMQUEST. In the information classification and management market, ICI
currently faces competition principally from Aspect Development, Inc. and
CADIS, Inc. These two companies have targeted their solutions mainly to the
engineering and manufacturing industries.
28
<PAGE>
Aspect Development, Inc. Aspect Development is a publicly-owned, worldwide
provider of enterprise-wide component and supplier management (CSM) systems
for preferred parts and supplier management, parts selection, and design re-
use. Aspect's customers include 50 of the world's leading electronics and
mechanical manufacturing companies.
CADIS, Inc. CADIS is a privately owned software and services company that
provides new technology solutions for information access. CADIS provides
multi-national manufacturing corporations the opportunity to achieve
substantial cost savings through the elimination of part redundancy and
standardization of new parts using the CADIS parts management system. The
parts management system addresses the problem of controlling parts and vendor
proliferation across the enterprise through the implementation and application
of its technology and services.
As summarized in "ItemQuest Solution," above, Management believes, based on
its own comparative analysis and based on CIMdata's review, that ItemQuest can
compete favorably with the products offered by Aspect and CADIS. See "Risk
Factors--Introduction of New Product; Change of Business Focus" and "--
Competition."
SERVICES. ICI faces competition from numerous providers of services related
to the PDM market and services related to custom development. Large national
consulting firms, such as Andersen Consulting, Keane, Inc. and Decision
Consultants, Inc., as well as regional and local services providers, compete
against the Company both for customers and for qualified personnel. While
conditions in these markets are extremely competitive, Management believes
that the PDM market, as well as custom software development, are growing
services markets. Although barriers to entry in these markets are low for
competitors of the Company, Management believes that the impact of new
entrants to the market will be more than offset by the growth of the overall
market. There can be no assurance, however, that this growth will continue for
any particular period, if at all, or that the Company will be able to attract
and retain a sufficient number of qualified personnel. Management believes
that in the services area the Company competes primarily on the basis of its
skilled personnel, its reputation in the industry and its relationship with
customers, and to a lesser extent on the basis of price. See "Risk Factors--
Competition"; "--Need for Qualified Personnel."
MARKETING STRATEGY
GENERAL. ICI's marketing strategy is to promote and convey the message that
ICI's services and ItemQuest will help manufacturing companies improve
competitiveness by reducing time to market, reducing costs and improving
quality. Sales of ICI services will be based upon continued and expanded
promotion of ICI's established skills and customer reputation and in
conjunction with ItemQuest. Management believes that ItemQuest sales will be
driven by the following fundamentals:
. The integration between ItemQuest and IBM ProductManager is currently a
strong differentiator, creating significant opportunity in the existing
ProductManager installed base, as well as highlighting integration
potential with other PDM vendors.
. Manufacturing companies will continue to invest in PDM technology to
improve competitiveness due to the significant return on investment
generated by such investment.
. Implementation services capability is critical if a PDM project is to be
successful. Management believes that this capability currently is in
short supply. Management believes that ICI is a leader in PDM
implementation services for ProductManager and will continue to build on
that capability.
. Opportunities for information classification and management solutions
continue to grow. The number of offerings on the market is limited and
expensive, ranging from $50,000 to several million dollars. In spite of
the high cost, Management believes that prospective customers will
realize that an effective ICAM solution can deliver an attractive return
on investment due to the high proportion of new product cost comprised of
part and component costs.
29
<PAGE>
Initially, the Company intends to market and sell its products and services
primarily through a direct sales force hired using a portion of the proceeds
raised in this Offering, as well as through strategic relationships and other
distribution channels.
However, with the anticipated broader introduction of ItemQuest, the Company
intends to establish sales channels either through relationships it has
developed with its customers or through its own direct resources to establish
marketing, selling and consulting relationships both domestically and
internationally. In addition, the Company intends to use its relationships
with hardware and software vendors and systems consultants to encourage these
parties to recommend or distribute the Company's products. To support its
sales force, the Company intends to conduct a number of marketing programs,
including public relations, telemarketing, seminars, trade shows and user
groups.
The Company's marketing strategy contains several assumptions, including but
not limited to its ability to successfully introduce ItemQuest within the PDM
marketplace. There can be no assurance that this will occur on a timely basis,
if at all. See "Risk Factors--Introduction of New Product; Change of Business
Focus."
In general, pricing for ItemQuest will follow the industry standard of a
one-time charge for each concurrent user license. In addition, there will be
an annual maintenance charge for each license. Site licenses will be available
on a special bid basis giving unrestricted use at a given company site. Volume
purchase discounts for both ItemQuest and services will be offered on a
special bid basis as well. ItemQuest pricing strategy will focus on capturing
market share and establishing a solid base of customer references.
RESEARCH AND DEVELOPMENT
The Company has committed, and expects to continue to commit in the future,
substantial resources to product development, particularly to ItemQuest.
During 1995 and 1996, ICI's investment in ItemQuest was approximately $111,000
and $280,000, respectively. Research and development efforts are directed at
increasing product functionality, improving product performance and expanding
compatibility with third party software. The Company's investment in the
research and development of ItemQuest represented a significant percentage of
its operating costs during 1995 and 1996.
The Company intends to supplement its product development efforts by
reviewing customer feedback on ItemQuest and working with customers and
potential customers to anticipate future functionality requirements. To assist
in this effort, the Company intends to host a customer advisory board made up
of representatives from key customers who would meet periodically to provide
feedback to the Company's current and future product offerings.
The Company's future success will depend in part upon its ability to enhance
its current products and to develop and introduce new products on a timely
basis that keep pace with technological developments, emerging industry
standards and the increasingly sophisticated needs of its customers. If the
Company is unable, however, for technological or other reasons, to develop and
introduce new products or enhancements, the Company's business, financial
condition or results of operations could be materially adversely affected. See
"Risk Factors--Product Life Cycle; Need to Develop New Products and
Enhancements."
In addition, products as complex as ItemQuest frequently contain undetected
errors or failures when first introduced or when new versions are released.
The Company may discover errors in certain of its products and enhancements,
both before and after initial shipments, which may lead to delays or lost
revenues during the period required to correct these errors. See "Risk
Factors--Risk of Product Defects."
EMPLOYEES
As of March 20, 1997, the Company employed 40 persons, of whom 18 were based
in Charlotte, North Carolina and 22 were based in Atlanta, Georgia. Of the
total, three were engaged in sales and marketing, 34 were primarily in product
development and software services and three were primarily in finance and
administration. No current employee of the Company is represented by a labor
union with respect to his or her
30
<PAGE>
employment by the Company. The Company has experienced no organized work
stoppage and believes its relationship with its employees to be good. The
Company believes that its future success will depend to a significant extent
upon its ability to attract, train and retain highly skilled technical,
management, sales, marketing and consulting personnel. Competition for such
personnel in the computer software industry is intense. The Company has from
time to time experienced difficulty in locating candidates with appropriate
qualifications. There can be no assurance that the Company will be successful
in attracting or retaining such personnel, and the failure to attract or
retain such personnel could have a material adverse affect on the Company's
business or results of operations. See "Risk Factors--Management of Expanding
Operations" and "--Dependence on Key Personnel."
FACILITIES
The Company's principal administrative, sales, marketing, support and
software research and development facility is located in approximately 6,000
square feet of leased space in Atlanta, Georgia. The Company also subleases a
1700-square-foot office outside of Charlotte, North Carolina. The terms of
those leases expire in March 2002 and May 2000, respectively. The Company
currently is negotiating lease terms for an alternative location for the North
Carolina offices, as its current office space in that location is not expected
to be large enough to accommodate expected growth in personnel and equipment.
The Company believes that, should the need arise, suitable additional or
alternative space will be available in the future on commercially reasonable
terms.
The Company currently owns no real estate or real estate investments and has
no plans to acquire any real estate or investments in real estate.
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
Executive officers, directors and key employees of the Company and their
age, as of the date of this Prospectus, along with their business experience
for at least the past five years, are as follows:
<TABLE>
<CAPTION>
YEAR IN WHICH
NAME AGE POSITION DIRECTORSHIP COMMENCED
---- --- -------- ----------------------
<C> <C> <S> <C>
Haim E. Dahan 36 Chairman of the Board, 1993
Chief Executive Officer and
Chief Financial Officer
Charles J. Giarratana 41 President
Ron Friedman 36 Vice President of
Operations
Michael J. Galvin 31 Director and Vice President 1993
of Research and Development
Patricia Tuxbury Salem 33 Director and Treasurer 1993
</TABLE>
Mr. Dahan founded the Company in 1991 and has served as Chairman of the
Board of Directors and Chief Executive Officer of the Company since January
1993. Prior to such time, from November 1989 to October 1992, Mr. Dahan was a
technical specialist for AGS Information Services, Inc. Mr. Dahan received his
M.Sc. in Mathematics and Computer Science from Ben-Gurion University, Israel
in 1986.
Mr. Giarratana joined the Company in March 1996 as President. Prior to that
time, from March 1993 to February 1996, Mr. Giarratana served as World-Wide
Director of Marketing and Services for IBM's ProductManager. From January 1991
to February 1993, Mr. Giarratana was a business unit executive with IBM. Mr.
Giarratana received a Bachelor of Science degree in Mathematics and Computer
Science from the University of New Hampshire in 1977.
Mr. Friedman joined the Company as Vice President of Operations in October
1995. Prior to such time, from January 1993 to September 1995, Mr. Friedman
served as Program Manager and Technical Liaison at Elbit Fort Worth, a defense
system development and integration provider. From January 1983 to January
1993, Mr. Friedman served in various technical and managerial positions at
Elbit Defense System, Ltd., a defense system
31
<PAGE>
solution provider. Mr. Friedman received a B.A. degree in Mathematics and
Computer Science from the University of Haifa, Israel in 1988.
Mr. Galvin joined the Company in August 1993 as Technical Director and is
currently the Vice-President of Research and Development. Prior to joining the
Company, Mr. Galvin was a Senior Analyst with Worldspan from March 1991 to
August 1993. Prior to such time, from January 1989 to March 1991, Mr. Galvin
worked as a consultant for AGS Information Services, Inc., where he worked on
the development of IBM's ProductManager. Mr. Galvin received a Bachelor of
Science degree in Computer Science from the Southern College of Technology in
1988.
Ms. Salem joined the Company in June 1993 as Systems Analyst and has served
as Treasurer of the Company since that time. From February 1990 to May 1993,
Ms. Salem worked as a consultant for AGS Information Services, Inc., where she
focused on the development of software for the manufacturing sector and
specialized in product data management (PDM). Ms. Salem graduated from the
University of Vermont in 1985 with a Bachelor of Science degree in Electrical
Engineering.
Members of the Board of Directors serve for one-year terms. No director of
the Company is a director of any other company filing reports under the
Securities Exchange Act of 1934.
It is the intention of the Board of Directors to identify and select at
least two qualified persons, independent from the Company, to become directors
of the Company within 90 days from the date of this Prospectus. See "Stock
Option Plans" for a description of stock options that will be granted to
"outside directors" of the Company. In addition, the Company has identified a
need for a full-time chief accounting officer.
COMMITTEES
The Company currently has no committees of its Board of Directors. Upon the
selection and election of qualified independent directors, the Board of
Directors expects to establish both an audit committee and a compensation
committee, all of which is expected to occur within 90 days from the date of
this Prospectus.
Once created, the audit committee will be responsible for making
recommendations to the Board of Directors regarding the selection of
independent auditors, reviewing the results and scope of the audit and other
services provided by the Company's independent accountants and reviewing and
evaluating the Company's audit and control functions.
The compensation committee will make recommendations regarding the Company's
employee stock option plan and decisions concerning salaries and incentive
compensation for employees and consultants of the Company.
The Board of Directors may also create other committees, including an
executive committee and a nominating committee.
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the compensation paid by
the Company during the year ended December 31, 1996 to the Company's chief
executive officer. The Company has no executive officers whose total annual
salary and bonus exceeded $100,000 during that year.
SUMMARY COMPENSATION TABLE
FOR YEAR 1996
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------------
NAME AND PRINCIPAL OTHER ANNUAL STOCK OPTIONS
POSITION SALARY BONUS COMPENSATION AWARDED
------------------ ------- ----- ------------ -------------
<S> <C> <C> <C> <C>
Haim E. Dahan, $60,000 $-0- $1,500(1) None
Chief Executive Officer
</TABLE>
- --------
(1) Includes matching payments made on behalf of the executive officer into
the Company's 401(k) Plan account for such executive officer during 1996,
with respect to 1995. Excludes personal benefits the aggregate value of
which was less than 10% of the annual salary of Mr. Dahan.
32
<PAGE>
Mr. Dahan does not currently hold and has never received any options to
purchase the Company's Common Stock.
No compensation intended to serve as incentive for performance to occur over
a period longer than one year was paid pursuant to a long-term incentive plan
during 1996 to Mr. Dahan or any other officer of the Company. The Company does
not have any defined benefit or actuarial plan under which benefits are
determined primarily by final compensation or average final compensation and
years of service.
None of the officers of the Company have entered into employment contracts
with the Company covering employment compensation terms other than current
salaries and standard employee benefits.
CHANGE OF CONTROL ARRANGEMENTS
As of April 29, 1997, the Company has granted options to purchase an
aggregate of 323,271 shares of Common Stock to employees of the Company
pursuant to the Company's employee stock option plans. The agreements for
these options provide that the options vest over a four-year period beginning
on the date the option was granted. In the event that the Company is acquired
by another entity, or other events occur that meet the definition of a change
of control or threatened change of control in the option agreement, the
vesting of the options accelerates prior to that event.
STOCK OPTION PLANS
The Board of Directors has reserved a total of 500,000 shares of Common
Stock for issuance under the Company's 1996 Stock Option Plan (the "1996
Option Plan") and the Company's 1995 Restricted Nonqualified Incentive Stock
Option Plan (the "1995 Option Plan"), which has been terminated. At April 29,
1997, 323,271 shares of Common Stock were subject to outstanding options at a
weighted average exercise price of $2.56 per share. Of the 500,000 total
authorized shares, 176,729 shares remain available for future grant under the
1996 Option Plan, which was adopted effective December 20, 1996. Options may
be granted to employees (including officers), consultants, advisors and
directors, although only employees and directors and officers who are also
employees may receive "incentive stock options" intended to qualify for
certain tax treatment. The exercise price of incentive stock options must be
no less than the fair market value of the Common Stock on the date of grant.
The exercise price of nonqualified stock options is not subject to any
limitation. Options granted under the Option Plans generally vest over a four-
year period and have a term of ten years.
The 1996 Option Plan provides for the automatic grant of stock options to
directors of the Company who are not employees of the Company or any parent or
subsidiary corporation of the Company ("Outside Directors"). Under the 1996
Option Plan, each Outside Director (of which there are none as of the date of
this Prospectus) will be granted, automatically on the effective date of his
or her election to the Board, an option to purchase 3,000 shares of Common
Stock, and an additional option to purchase 1,000 shares of Common Stock on
each subsequent anniversary of that date. The exercise price of each such
option will equal the fair market value of the Common Stock on the date of
grant, and the term of each option will be ten years.
Options granted under the 1996 Option Plan are nontransferable. Options
generally are exercisable only while the option holder remains employed or
otherwise affiliated with the Company, and for a limited period of time after
termination of employment or affiliation. Options held by Messrs. Giarratana,
Friedman and Peter Jeng also contain a provision restricting them from selling
shares acquired upon exercise of those options for a period of one year
following the closing date of this Offering.
COMPENSATION OF DIRECTORS
Directors of the Company currently do not receive any payment for services
provided as a director. On an annual basis, directors who are not employees of
the Company will receive grants of options to purchase the
33
<PAGE>
Company's Common Stock, as described in "Stock Option Plans," above. The
Company currently does not pay additional amounts for committee participation
or special assignments of the Board of Directors.
LIMITATION OF LIABILITY/INDEMNIFICATION
The Company's Articles of Incorporation contain certain provisions permitted
under the Georgia Business Corporation Code ("GBCC") which eliminate the
personal liability of directors for monetary damages for a breach of
director's duty of care or other duty as a director, except for: (i) breach of
a director's duty of loyalty, (ii) acts or omissions which involve intentional
misconduct or a knowing violation of law, (iii) the unlawful payment of
dividends, stock purchase or stock redemption, or (iv) any transaction from
which the director derives any improper personal benefit. The Articles of
Incorporation provide that a director's liability shall be eliminated or
limited to the fullest extent permitted by the GBCC, as amended from time to
time. The Articles of Incorporation and the Company's By-laws also contain
provisions indemnifying the Company's directors and officers to the fullest
extent permitted by the GBCC. The Company has also entered into agreements to
indemnify its directors and executive officers. A copy of the form of such
indemnification agreement has been attached as an exhibit to the Registration
Statement of which this Prospectus is a part. The Company believes that these
provisions and agreements will assist the Company in attracting and retaining
qualified individuals to serve as directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or others pursuant to the foregoing
provisions, the Company has been advised that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
CERTAIN TRANSACTIONS
Since January 1, 1995, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which the Company was or
is to be a party in which the amount involved exceeds $60,000 and in which any
director, executive officer or holder of more than 5% of the Common Stock of
the Company had or will have a direct or indirect material interest other than
the transactions described below.
On two occasions since January 1, 1995, the Company has borrowed funds from
its stockholders for working capital purposes. In each case the Company paid
no interest to the stockholders and the loans were repaid on or before
schedule. The maximum aggregate amount outstanding at any time since January
1, 1995 under these funding programs was $178,706.
The Board of Directors has indicated its intention to distribute to its
current Stockholders, effective the day immediately preceding the date of the
closing of this Offering, an amount equal to the accumulated undistributed S
corporation earnings of ICI as of that date. It is anticipated that the
distribution will be in the amount of approximately $2,400,000, to be effected
in the form of an assignment of all accounts receivable as of that date and
the balance in cash, a portion of which may, but is not expected to, be paid
out of the proceeds of this Offering. See "Prior S Corporation Status and
Distributions." Purchasers of Common Stock in this Offering will not receive
any of this final distribution.
The Company believes that all transactions with affiliates described above
were made or will be made on terms no less favorable to the Company than could
have been obtained from unaffiliated third parties.
34
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of April 29, 1997, assuming no
exercise of the Underwriters' over-allotment option, (i) by each person who is
known by the Company to own beneficially more than 5% of the Company's Common
Stock, (ii) by each of the executive officers named in the tables under
"Executive Compensation" and by each of the Company's directors, and (iii) by
all executive officers and directors as a group. Currently, there are five
stockholders of the Company, three of whom are also directors and executive
officers. Except as indicated in the footnotes to this table, each stockholder
identified in the table possesses sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by each
stockholder. The address for each of the individuals listed below is: c/o
International CompuTex, Inc., 5500 Interstate North Parkway, Suite 507,
Atlanta, Georgia 30328-4662.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
BENEFICIAL -------------------------------------------------------------
OWNER NUMBER PERCENT BEFORE OFFERING(1) PERCENT AFTER OFFERING(1)
---------- --------- ------------------------- ------------------------
<S> <C> <C> <C>
Haim E. Dahan 1,407,468 66.2% 43.3%
Michael J.
Galvin 331,171 15.6% 10.2%
Patricia
Tuxbury Salem 275,973 13.0% 8.5%
All executive
officers and
directors as a
group (five
persons)(2) 2,046,901 94.9% 62.4%
</TABLE>
- --------
(1) Percent ownership is based on: (i) before this Offering, 2,125,000 shares
of Common Stock outstanding on April 29, 1997, plus any shares issuable
pursuant to options held by the person or group in question which may be
exercised within 60 days of April 29, 1997 and (ii) after this Offering
3,250,000 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option), plus any shares issuable pursuant to
options held by the person or group in question that may be exercised
within 60 days of April 29, 1997.
(2) Includes 32,289 shares subject to employee stock options that are
exercisable within 60 days of April 29, 1997.
Each of the stockholders of the Company has granted to the holders of Senior
Debentures warrants to purchase shares of Common Stock. The number of shares
subject to the warrants is based upon the $1,115,000 aggregate principal
amount of the Senior Debentures, divided by the initial public offering price
of the Common Stock offered and sold in this Offering. The warrant exercise
price will be 60% of the initial public offering price. Based upon the $9.50
initial public offering price, a total of 117,368 shares of Common Stock may
be purchased from the current stockholders at $5.70 per share. These warrants
will be exercisable commencing the closing date of this Offering and
continuing through January 2000. See "Shares Eligible for Future Sale."
The number of warrant shares that may be purchased from each of the current
stockholders is as follows:
<TABLE>
<CAPTION>
CURRENT STOCKHOLDER WARRANT SHARES
------------------- --------------
<S> <C>
Haim E. Dahan 77,736
Michael J. Galvin 18,291
Patricia Tuxbury Salem 15,243
James L. McAlarney, III 3,049
Peter W. Jeng 3,049
-------
Total 117,368
=======
</TABLE>
The above amounts are proportionate to the number of shares of Common Stock
currently held by the current stockholders of the Company.
35
<PAGE>
In addition, two of the current stockholders, Haim E. Dahan and Michael J.
Galvin, have agreed to participate in 50% of the Underwriters' over-allotment
option in this Offering. If exercised in full, those stockholders would sell
an aggregate of 84,375 shares of Common Stock, allocated among them as
follows:
<TABLE>
<CAPTION>
SELLING MAXIMUM NUMBER OF SHARES
STOCKHOLDER SUBJECT TO OVER-ALLOTMENT OPTION
----------- --------------------------------
<S> <C>
Haim E. Dahan 68,304
Michael J.
Galvin 16,071
</TABLE>
If the 117,368 shares of Common Stock are sold pursuant to the warrants held
by holders of the Senior Debentures and if the maximum number of shares of
Common Stock are purchased pursuant to the Underwriters' over-allotment
option, as of April 29, 1997 the number and percentage of shares of Common
Stock that would be beneficially owned by the directors and current beneficial
owners of 5% or more of the Common Stock, and by all executive officers and
directors as a group, following this Offering, would be as follows:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
----------------------
BENEFICIAL OWNER NUMBER PERCENT(1)
---------------- --------- ---------
<S> <C> <C>
Haim E. Dahan 1,261,428 37.8%
Michael J. Galvin 296,809 8.9%
Patricia Tuxbury Salem 260,730 7.8%
All executive officers and directors as a
group (five persons) (2) 1,851,256 55.5%
</TABLE>
- --------
(1) Percent ownership is based on 3,334,375 shares of Common Stock outstanding
after this Offering (including 84,375 shares issued by the Company
pursuant to the Underwriters' over-allotment option), plus any shares
issuable pursuant to options held by the person or group in question that
may be exercised within 60 days of April 29, 1997.
(2) Includes 32,289 shares subject to options that are exercisable within 60
days of April 29, 1997.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares of
a single class of Common Stock with a par value of $.001 per share. The
following summary of certain provisions of the Common Stock of the Company
does not purport to be complete and is subject to, and qualified in its
entirety by, the Articles of Incorporation and By-Laws of the Company, which
are included as exhibits to the registration statement of which this
Prospectus forms a part, and by the provisions of applicable law.
COMMON STOCK
As of April 29, 1997, there were 2,125,000 shares of Common Stock
outstanding and held of record by five stockholders. The holders of Common
Stock are entitled to one vote for each share held of record on each matter
voted on at a stockholders' meeting and are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. In the event of a liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to share ratably in
all assets remaining after payment of any outstanding indebtedness. Holders of
Common Stock have no preemptive or subscription rights, and there are no
redemption or conversion rights with respect to such shares. All outstanding
shares of Common Stock are fully paid and nonassessable, and the shares of
Common Stock to be issued upon completion of this Offering will be fully paid
and nonassessable.
OPTIONS TO PURCHASE COMMON STOCK
As described in "Management--Stock Option Plans," the Company has reserved
an aggregate of 500,000 shares for issuance pursuant to the 1996 Option Plan
and the 1995 Option Plan. Of these shares, 323,271 were
36
<PAGE>
subject to outstanding options on April 29, 1997 and the remaining 176,729
shares are available for future option grants under the 1996 Option Plan.
REGISTRATION RIGHTS
In connection with the sale of the Senior Debentures by the Company in
January 1997, the stockholders of the Company granted to the purchasers of the
Senior Debentures warrants to purchase Common Stock from those stockholders
(the "Debenture Holder Warrants"), exercisable until January 2000, commencing
after the closing of this Offering, subject to certain restrictions. The
holders of the Debenture Holder Warrants will have certain rights to register
under the Securities Act shares of Common Stock that may be transferred to
them upon exercise of the Debenture Holder Warrants. If the Company registers
any of its Common Stock either for its own account or for the account of other
security holders, the holders of such Common Stock are entitled to include
those shares of Common Stock in the registration, subject to the ability of
the underwriters to limit the number of shares included in this Offering. All
fees, costs and expenses of such registrations (other than underwriting
discounts and commissions) will be borne by the Company. See "Shares Eligible
for Future Sale."
Upon completion of this Offering, the firm of H. J. Meyers & Co., Inc., as
Representative of the Underwriters (the "Representative"), will receive
warrants (the "Representative's Warrants") to acquire up to 112,500 shares of
Common Stock. See "Underwriting" for a description of the registration rights
associated with the Common Stock that may be acquired upon exercise of the
Representative's Warrants.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for shares of Common
Stock of the Company. Future sales of substantial amounts of Common Stock in
the public market could adversely affect market prices prevailing from time to
time. See "Risk Factors--No Prior Market; Possible Volatility."
Upon completion of this Offering, the Company will have outstanding
approximately 3,250,000 shares of Common Stock, assuming the Underwriters'
over-allotment option is not exercised. Of these shares, the 1,125,000 shares
sold in this Offering will be freely tradable without restriction under the
Securities Act, unless purchased by "affiliates" of the Company as that term
is defined in Rule 144 under the Securities Act. The remaining 2,125,000
shares of Common Stock will be held by the five existing stockholders of the
Company and were issued and sold by the Company in reliance on exemptions from
registration requirements of the Securities Act. These shares may be sold in
the public market only if registered or pursuant to an exemption from
registration such as Rule 144 or 144(k) under the Securities Act. The
Company's current stockholders, who following this Offering together will own
an aggregate of 2,125,000 shares of the Common Stock, have executed lockup
agreements with the Underwriters providing that they will not directly or
indirectly sell, contract to sell, grant any option to purchase or otherwise
transfer or dispose of any securities of the Company until one year after the
effective date of this Offering. The Representative may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to lockup agreements. Further, stock option agreements held
by Messrs. Giarratana, Friedman and Jeng contain a provision restricting them
from selling shares that they may acquire upon exercise of such options for a
period of one year from the date this Offering is closed.
As a result of the foregoing agreements, only the 1,125,000 shares of Common
Stock being offered hereby will be eligible for resale without restriction on
the effective date of this Offering. The remaining outstanding shares will be
eligible for resale, pursuant to Rule 144, beginning one year after the
effective date of this Offering.
37
<PAGE>
The holders of the Debenture Holder Warrants may elect to exercise those
Warrants, and to purchase an aggregate of 117,368 shares of Common Stock from
the current stockholders of the Company, commencing after the closing of this
Offering. These shares will be subject to a one-year lock-up period from the
date of this Prospectus, as well as the one-year holding period under Rule
144, assuming the purchasers are not "affiliates" of the Company. The
purchasers also will have certain limited registration rights, as described in
"Description of Capital Stock--Registration Rights."
In general, under Rule 144, as currently in effect, beginning 90 days after
the date of this prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned restricted shares for at least one year (including
the holding period of any prior owner except an affiliate) is entitled to
sell, within any three-month period, a number of shares that does not exceed
the greater of (i) one percent of the number of shares of Common Stock then
outstanding (which will equal approximately 32,500 shares immediately after
this Offering) or (ii) the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the filing of the Form 144 with
respect to such sale. Sales under Rule 144 are also subject to certain manner
of sale provisions and notice requirements and to the availability of current
public information about the Company. Under Rule 144(k), a person who is not
deemed to have been an affiliate of the Company at any time during the 90 days
preceding a sale, and who has beneficially owned the shares to be sold for at
least two years (including the holding period of any prior owner except an
affiliate), is entitled to sell such shares without complying with the manner
of sale, public information, volume limitation or notice provisions of Rule
144.
Shortly after this Offering, the Company intends to file a registration
statement under the Securities Act covering shares of Common Stock subject to
outstanding options under the 1995 and 1996 Option Plans of the Company or
reserved for issuance under future options granted under the 1996 Option Plan.
As of April 29, 1997, there were outstanding options to purchase 323,271
shares under these option plans. Based upon the number of shares subject to
outstanding options at April 29, 1997 and reserved for future issuance under
the 1996 Option Plan, such registration would cover 500,000 shares. This
registration statement will automatically become effective upon filing.
Accordingly, shares registered under such registration statement will, subject
to Rule 144 volume limitations applicable to affiliates of the Company, be
available for sale in the open market immediately following the expiration of
any applicable lockup agreements. See "Management--Stock Option Plans."
As described in "Underwriting" below, the Company will issue to the
Representative warrants to purchase 112,500 shares of Common Stock at $11.40
per share (120% of the initial public offering price), exercisable 12 months
after the date of this Prospectus. See "Underwriting" for a description of
registration rights that the Representative will receive in connection with
the Common Stock that may be acquired upon exercise of the Representative's
Warrants.
38
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representative,
H. J. Meyers & Co., Inc., have severally agreed to purchase from the Company,
on a "firm commitment" basis, the following respective numbers of shares of
Common Stock at the initial public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
H.J. Meyers & Co., Inc...................................... 725,000
Brean Murray & Co., Inc..................................... 50,000
Frederick & Company, Inc.................................... 50,000
Hoefer & Arnett, Inc........................................ 50,000
Lasalle St. Securities Inc.................................. 50,000
LT Lawrence & Company, Inc.................................. 50,000
Neidiger, Tucker, Bruner, Inc............................... 50,000
PHD Capital................................................. 50,000
Smith, Moore & Co........................................... 50,000
---------
Total....................................................... 1,125,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of Common Stock offered hereby if any such shares are
purchased.
The Underwriters have advised the Company that they propose to offer the
shares of Common Stock to the public at the public offering price set forth on
the cover page of this Prospectus and to certain dealers who are members of
the National Association of Securities Dealers, Inc. at such price less a
concession not in excess of $.43 per share. The Underwriters may allow, and
such dealers may re-allow, a concession not in excess of $.10 per share to
certain other dealers. After the initial public offering contemplated hereby,
the offering price and other selling terms may be changed by the Underwriters.
The Company and the Selling Stockholders have granted the Underwriters an
over-allotment option, exercisable not later than 30 days after the date of
this Prospectus, to purchase up to 168,750 additional shares of Common Stock
at the public offering price less the underwriting discounts and commissions
set forth on the cover page of this Prospectus. Fifty percent of such shares
will be sold by the Company and 50% of such shares will be sold by the Selling
Stockholders. To the extent that the Underwriters exercise such option, each
of the Underwriters will have a firm commitment to purchase the same
percentage thereof that the number of shares of Common Stock to be purchased
by it shown in the above table bears to 1,125,000, and the Company and the
Selling Stockholders will be obligated, pursuant to such option, to sell such
shares to the Underwriters. The Underwriters may exercise such option only to
cover over-allotments made in connection with the sale of the Common Stock
offered hereby. If purchased, the Underwriters will offer such additional
shares on the same terms as those on which the 1,125,000 shares are being
offered.
The Company has agreed to pay to the Representative a non-accountable
expense allowance equal to 2% of the total proceeds of this Offering, or
$213,750 (and 2% of the total proceeds from the sale of any shares of Common
Stock pursuant to the exercise of the over-allotment option, or $245,812 if
the Underwriters exercise the over-allotment option in full). In addition to
the Underwriters' commissions and the Representative's expense allowance, the
Company is required to pay the costs of qualifying the shares of Common Stock
under federal and state securities laws, together with legal and accounting
fees, printing and other costs in connection with this Offering.
At the closing of this Offering, the Company will issue to the
Representative, for nominal consideration, the Representative's Warrants to
purchase up to 112,500 shares of Common Stock of the Company. The shares
39
<PAGE>
of Common Stock subject to the Representative's Warrants are identical to the
shares of Common Stock sold to the public, except for the purchase price and
certain registration rights. The Representative's Warrants will be exercisable
for a four-year period commencing one year from the date of this Prospectus, at
an exercise price of $11.40 per share of Common Stock (that being 120% of the
initial public offering price per share of Common Stock). The Representative's
Warrants will not be transferable prior to their initial exercise date except
to successors in interest to the Representative and directors and officers of
the Representative.
The Representative's Warrants will contain anti-dilution provisions providing
for appropriate adjustment in the event of any recapitalization,
reclassification, stock dividend, stock split or similar transactions. The
Representative's Warrants will not entitle the Representative to any rights as
a stockholder of the Company until such warrants are executed and the shares of
Common Stock are purchased thereunder.
The Representative's Warrants and the shares of Common Stock issuable
thereunder may not be offered for sale to the public except in compliance with
the applicable provisions of the Securities Act. The Company has agreed that if
it causes a post-effective amendment to the Registration Statement of which
this Prospectus is a part, or a new registration statement to be filed with the
Securities and Exchange Commission, the Representative shall have the right
during the life of the Representative's Warrants to include therein for
registration the Representative's Warrants and/or the shares of Common Stock
issuable upon their exercise at no expense to the Representative (other than
the proportional share of underwriting discounts, commissions and related
expenses). Additionally, the Company has agreed that, upon demand by the
holder(s) of at least 50% of the (i) total unexercised Representative's
Warrants and (ii) shares of Common Stock issued upon the exercise of the
Representative's Warrants, made on no more than two separate occasions during
the exercise period of the Representative's Warrants, the Company shall use its
best efforts to register the Representative's Warrants and/or any of the shares
of Common Stock issuable upon the exercise thereof, provided that the Company
has available current financial statements, the initial such registration to be
at the Company's expense (other than the proportional share of underwriting
discounts, commissions and related expenses) and the second at the expense of
the holder(s).
For the period during which the Representative's Warrants are exercisable,
the holder(s) will have the opportunity to profit from a rise in the market
value of the Company's Common Stock, with a resulting dilution in the interests
of the other stockholders of the Company. The holder(s) of the Representative's
Warrants can be expected to exercise the warrants at a time when the Company
would, in all likelihood, be able to obtain any needed capital from an offering
of its unissued Common Stock on terms more favorable to the Company than those
provided for in the Representative's Warrants. Such facts may materially
adversely affect the terms on which the Company can obtain additional
financing. To the extent that the Representative realizes any gain from the
resale of the Representative's Warrants or the shares of Common Stock issuable
thereunder, such gain may be deemed additional underwriting compensation under
the Securities Act.
Pursuant to the Underwriting Agreement between the Company and the
Representative of the Underwriters, the Company has agreed that for a period of
three years after this Offering an individual to be designated by the
Representative will be entitled to attend meetings of the Board of Directors of
the Company in the capacity of unofficial observer. If a designee of the
Representative is elected to the Board of Directors, this observer requirement
will be deemed to be satisfied. The Representative has not yet identified the
individual to be so designated.
The Underwriting Agreement provides for reciprocal indemnification between
the Company, the Selling Stockholders and the Underwriters against certain
liabilities, including liabilities under the Securities Act.
The Representative of the Underwriters has advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
The Company and all of its current stockholders have agreed that for a period
of one year from the date of this Prospectus, each of them will not, without
the prior written consent of the Representative of the
40
<PAGE>
Underwriters, which shall not be unreasonably withheld, sell, assign,
hypothecate, pledge or otherwise dispose of any shares of Common Stock or any
options, warrants or other rights with respect to any Common Stock, subject to
certain limited exceptions (including the issuance of shares by the Company in
connection with an acquisition). The Company also has agreed that for a period
of 24 months from the date of this Prospectus, the Company will not sell or
issue any securities pursuant to Regulation S under the Securities Act without
the Representative's consent, which shall not be unreasonably withheld.
Prior to this Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock was determined through negotiations among the Company, representatives of
the Selling Stockholders and the Representative of the Underwriters. Among the
factors considered in such negotiations were history of and the prospects for
the industry in which the Company competes, the prevailing securities market
conditions, the price-earnings ratios of publicly traded companies that the
Company, the Selling Stockholders and the Representative of the Underwriters
believed to be comparable to the Company, the ability of the Company's
management, revenues and earnings of the Company in recent periods, estimates
of the business potential of the Company and the present state of the Company's
business operations. See "Risk Factors--No Prior Market; Possible Volatility."
The Company has agreed that it will engage a public relations firm acceptable
to the Representative and the Company. The Company also has agreed to maintain
a relationship with such public relations firm for a minimum period of two
years and on such other terms as are acceptable to the Representative.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed upon
for the Company and the stockholders by Gambrell & Stolz, L.L.P., Atlanta,
Georgia. Harter, Secrest & Emery, Rochester, New York, is acting as counsel for
the Underwriters in connection with certain legal matters relating to the sale
of the Common Stock offered hereby.
EXPERTS
The financial statements of International CompuTex, Inc. at December 31, 1996
and 1995, and for each of the three years in the period ended December 31, 1996
appearing in this Prospectus have been audited by Habif, Arogeti & Wynne, P.C.,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement (which term shall include any amendments thereto) on
Form SB-2 (File No. 333-21647) under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement. Certain items are omitted from this Prospectus and
are contained in exhibits to the Registration Statement as permitted by the
rules and regulations of the Commission. For further information with respect
to the Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any document
referred to herein are not necessarily complete. With respect to each such
document filed with the Commission as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved. The Registration Statement and the exhibits and schedules thereto,
may be inspected without charge at the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of all or
any part thereof may be obtained from the Commission at prescribed rates. The
Commission also maintains a Web site at http://www.sec.gov which contains
reports, proxy statements and other information regarding registrants that file
electronically with the Commission.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent auditors.
41
<PAGE>
GLOSSARY
Certain terms or phrases used in this Prospectus have technical meanings, as
set forth below, in addition to other terms defined elsewhere in this
Prospectus:
"CAD"--Computer Aided Design; CAD is the process whereby computers are
utilized to facilitate the design of manufactured goods. Typically run on high
speed workstations, CAD systems are often integrated with Computer Aided
Manufacturing (CAM) systems. This allows for the automation of the manufacture
of products by computers or robots using design information originating from a
CAD system.
"CORBA"--Common Object Request Broker Architecture; CORBA is an industry
standard that defines a higher level facility for distributed computing. CORBA
allows applications to communicate with one another without regard to the
hardware or software systems or the location of the application.
"ERP"--Enterprise Resource Planning; ERP is an application with an
enterprise-wide focus on customer order management, financial information,
personnel and availability of materials.
"ICAM"--Information Classification And Management; ICAM is a software
technology which serves a dual function. The first function is the ability to
read and classify information based on attributes with which end-users are
familiar. The second function allows for the maintenance and retrieval of this
information. ICAM provides a mechanism for retrieval of stored information
through user defined queries. ICAM also allows the user to add, change and
remove information.
"Legacy systems"--Applications and databases maintained by an enterprise
consisting of previously developed or acquired data or other information.
"Migration of data"--The process whereby data or information is moved from
one database to another, or from one system to another. The Company's software
product, ItemQuest(TM) "Symbol", permits a customer to "migrate" legacy data
from that customer's existing database to its ItemQuest database and classify
the data based on attributes specified by the customer.
"Object oriented"--Object oriented programming is a form of software
development that models real world entities through a representation of
"objects" that contain data as well as instructions that work upon the data.
With objects, a system can be designed using familiar business entities (such
as a person or an account), and the design can be carried all the way down to
the programming level. Object technology assists users by providing solutions
that more closely resemble the business processes with which they are
familiar.
"PDM"--Product Data Management; PDM is a system of software applications,
used principally by manufacturing and design companies, which allow management
and control of product-related data from development and design stages through
the manufacturing and post-production marketing phases of a product.
"Virtual object warehouse"--Most large companies keep their data in various
disparate databases associated with several applications. With a data
warehouse, a company periodically extracts data from its various application
databases and consolidates it centrally. Object warehouses store business
objects rather than the simple relational data typically found in data
warehouses, greatly simplifying access to the information. In a virtual
warehouse, data is not physically copied to a central database, but is instead
transparently accessed from the native disparate databases. A virtual object
warehouse allows easy access to business objects and their information without
requiring a centralized repository.
"Virtual object warehouse and classification system"--A virtual object
warehouse and classification system combines the power and flexibility of
virtual object warehousing and information classification and management
systems. (See above definitions.) In a virtual object warehouse and
classification system, enterprise-wide business objects can be accessed
without requiring them to be located in one centralized database.
42
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report............................................... F-2
Balance Sheets dated December 31, 1996 and 1995............................ F-3
Statements of Income for the Years Ended December 31, 1996, 1995, and 1994. F-4
Statements of Changes in Stockholders' Equity for the Years Ended December
31, 1996, 1995, and 1994.................................................. F-5
Statements of Cash Flows for the Years Ended December 31, 1996, 1995, and
1994...................................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
International CompuTex, Inc.
We have audited the accompanying balance sheets of INTERNATIONAL COMPUTEX,
INC. [an S corporation] as of December 31, 1996 and 1995, and the related
statements of income, changes in stockholders' equity, and cash flows for the
years ended December 31, 1996, 1995, and 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of INTERNATIONAL COMPUTEX,
INC. as of December 31, 1996 and 1995 and the results of its operations and
its cash flows for the years ended December 31, 1996, 1995, and 1994 in
conformity with generally accepted accounting principles.
HABIF, AROGETI & WYNNE, P.C.
Atlanta, Georgia
January 24, 1997, except for the first and second paragraphs of Note J, as to
which the date is April 29, 1997
F-2
<PAGE>
INTERNATIONAL COMPUTEX, INC.
BALANCE SHEETS
DECEMBER 31,
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
1996 1996 1995
----------- ---------- --------
[UNAUDITED]
<S> <C> <C> <C>
CURRENT ASSETS
Cash......................................... $ 119,750 $ 119,750 $ 80,969
Accounts receivable, net of allowance for
doubtful accounts of $24,082 for 1996 and $-
0- for 1995................................. 1,020,319 1,020,319 807,370
Prepaid expenses............................. 13,738 13,738 5,543
---------- ---------- --------
Total current assets........................ 1,153,807 1,153,807 893,882
PROPERTY AND EQUIPMENT, net................... 168,178 168,178 86,709
OTHER ASSETS
<CAPTION>
Software development costs................... 276,372 276,372
<S> <C> <C> <C>
Deferred offering costs...................... 22,424 22,424
Miscellaneous assets......................... 230 230 1,489
---------- ---------- --------
$1,621,011 $1,621,011 $982,080
========== ========== ========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
<TABLE>
<CAPTION>
Accounts payable................................. $ 45,260 $ 45,260 $ 34,620
<S> <C> <C> <C>
Current portion of long-term debt................ 4,189 4,189
Accrued distribution of S corporation earnings... 1,528,902
Deferred income taxes............................ 21,600
---------- ---------- --------
Total current liabilities....................... 1,599,951 49,449 34,620
<CAPTION>
LONG-TERM DEBT, net of current portion............ 18,935 18,935
<S> <C> <C> <C>
---------- ---------- --------
Total liabilities............................... 1,618,886 68,384 34,620
---------- ---------- --------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 20,000,000 shares
authorized; 2,125,000 shares issued and
outstanding..................................... 2,125 2,125 2,125
Retained earnings................................ -0- 1,550,502 945,335
---------- ---------- --------
Total stockholders' equity...................... 2,125 1,552,627 947,460
---------- ---------- --------
$1,621,011 $1,621,011 $982,080
========== ========== ========
</TABLE>
See auditors' report and accompanying notes.
F-3
<PAGE>
INTERNATIONAL COMPUTEX, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Operating revenues........................... $ 3,891,034 $2,875,872 $1,246,414
----------- ---------- ----------
Expenses
Operating................................... 1,833,939 1,611,066 694,791
General and administrative.................. 239,778 150,699 126,876
----------- ---------- ----------
2,073,717 1,761,765 821,667
----------- ---------- ----------
Income from operations..................... 1,817,317 1,114,107 424,747
Other income
Interest income............................. 3,067 4,798 2,548
----------- ---------- ----------
Net income--historical..................... 1,820,384 1,118,905 427,295
Pro forma provision for income taxes [Note
A].......................................... 686,000 422,000 161,000
----------- ---------- ----------
Pro forma net income......................... $ 1,134,384 $ 696,905 $ 266,295
=========== ========== ==========
Pro forma earnings per share [Note A]........ $ .50
===========
Weighted average shares outstanding.......... 2,287,855
===========
</TABLE>
See auditors' report and accompanying notes
F-4
<PAGE>
INTERNATIONAL COMPUTEX, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
COMMON RETAINED TREASURY
STOCK EARNINGS STOCK
------ ----------- --------
<S> <C> <C> <C>
Balances, December 31, 1993...................... $2,355 $ 217,814 $[2,300]
Net income...................................... 427,295
Retirement of treasury stock.................... [ 230] [ 2,070] 2,300
Distributions paid.............................. [ 137,903]
------ ----------- -------
Balances, December 31, 1994...................... 2,125 505,136 -0-
Net income...................................... 1,118,905
Distributions paid.............................. [ 678,706]
------ ----------- -------
Balances, December 31, 1995...................... 2,125 945,335 -0-
Net income...................................... 1,820,384
Distributions paid.............................. [1,215,217]
------ ----------- -------
Balances, December 31, 1996...................... 2,125 1,550,502 -0-
Pro Forma Distribution of S corporation
earnings........................................ [ 1,528,902]
Pro Forma deferred income taxes................. [ 21,600]
------ ----------- -------
Pro Forma Balances, December 31, 1996............ $2,125 $ -0- $ -0-
====== =========== =======
</TABLE>
See auditors' report and accompanying notes
F-5
<PAGE>
INTERNATIONAL COMPUTEX, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
Increase [Decrease] In Cash
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................. $1,820,384 $1,118,905 $427,295
---------- ---------- --------
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization............ 31,518 20,007 6,261
Provision for bad debt................... 24,082
Changes in assets and liabilities
Increase in accounts receivable......... [ 237,031] [ 483,252] [132,388]
Decrease [Increase] in prepaid expenses. [ 8,195] 3,225 [ 7,756]
Decrease [Increase] in miscellaneous
assets.................................. 1,029 [ 1,029]
Increase in accounts payable............ 10,640 21,979 8,352
---------- ---------- --------
Total adjustments...................... [ 177,957] [ 439,070] [125,531]
---------- ---------- --------
Net cash provided by operating
activities............................ 1,642,427 679,835 301,764
---------- ---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment....... [ 88,257] [ 59,228] [ 36,553]
Software development costs capitalized...... [ 276,372]
---------- ---------- --------
Net cash used by investing activities..... [ 364,629] [ 59,228] [ 36,553]
---------- ---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Stockholder distributions paid.............. [1,215,217] [ 678,706] [137,903]
Principal payments on long-term debt........ [ 1,376]
Deferred offering costs..................... [ 22,424]
---------- ---------- --------
Net cash used by financing activities..... [1,239,017] [ 678,706] [137,903]
---------- ---------- --------
Net increase [decrease] in cash.......... 38,781 [ 58,099] 127,308
Cash, beginning of year...................... 80,969 139,068 11,760
---------- ---------- --------
Cash, end of year........................ $ 119,750 $ 80,969 $139,068
========== ========== ========
NON-CASH FINANCING AND INVESTING ACTIVITIES
Acquisition of property and equipment by
long-term debt.............................. $ 24,500
</TABLE>
See auditors' report and accompanying notes
F-6
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL:
INTERNATIONAL COMPUTEX, INC., a Georgia corporation, was formed for the
purpose of development and sale of computer software and computer consulting
services.
REVENUE RECOGNITION:
Revenue consists primarily of computer consulting services. Revenue is
primarily recognized as the services are performed and invoiced.
PROPERTY AND EQUIPMENT:
Property and equipment are carried at cost. Expenditures for maintenance and
repairs are expensed currently, while renewals and betterments that materially
extend the life of an asset are capitalized. The cost of assets sold, retired,
or otherwise disposed of, and the related allowance for depreciation, are
eliminated from the accounts, and any resulting gain or loss is recognized.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets, which are as follows:
<TABLE>
<S> <C>
Leasehold improvements 5 years
Computer equipment 5 years
Business office equipment 5 years
Vehicle 5 years
</TABLE>
OTHER ASSETS:
Organization costs are recorded at cost and amortized on a straight-line
basis over a five-year period.
INCOME TAXES:
The Company had elected to be treated as an S Corporation pursuant to the
Internal Revenue Code for federal and state income tax purposes. The income of
an S Corporation is taxable to the individual stockholders. Such income is
distributable to the stockholders without any further tax consequences. The
stockholders will revoke the S Corporation status immediately prior to the
closing of the proposed public offering, and the Company will be taxable as a
C corporation from that date forward. The Company will account for income
taxes using the liability method and will accrue deferred tax assets and
liabilities for differences in the timing of income and expense items between
financial statement and tax return reporting.
A pro forma provision for income taxes has been presented which represents
income taxes which would have been provided had the Company operated as a C
Corporation.
ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of certain assets, liabilities,
and disclosures. Accordingly, the actual amounts could differ from those
estimates. Any adjustments applied to estimated amounts are recognized in the
year in which such adjustments are determined.
F-7
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
PRO FORMA BALANCE SHEET AS OF DECEMBER 31, 1996:
The "Pro Forma" column on the balance sheet gives effect to an additional
estimated provision of $21,600 for deferred income taxes which would have been
required as a charge against retained earnings had the Company terminated its
S corporation status at December 31, 1996. It also reflects payment of an
assumed final distribution in the amount of $1,528,902 to the current
stockholders of the Company as of December 31, 1996. The actual amount of the
final distribution will depend upon the Company's results of operations
through the date of termination of S corporation status.
PRO FORMA EARNINGS PER SHARE:
Pro forma earnings per share is computed using the weighted average number
of shares outstanding during the period including common stock equivalents
which are accounted for using the treasury stock method. Common stock
equivalents granted by the Company at a price below the proposed public
offering price per common share have been included in the common shares
outstanding as if they were outstanding for all periods presented using the
treasury stock method, and the proposed public offering price, anticipated at
a range of $8 to $10 per share.
Historical earnings per share data has not been presented.
FINANCIAL INSTRUMENTS:
The carrying value of cash, accounts payable and notes payable approximates
fair value because of the short-term maturity of those instruments. For other
debt instruments, the carrying value approximates fair value based on stated
interest rates.
SOFTWARE DEVELOPMENT COSTS:
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed," initial costs are charged to operations as research prior
to the development of a detailed program design or a working model.
Thereafter, the Company capitalizes the direct costs and allocated overhead
associated with the development of software products. Costs incurred
subsequent to the product release, and research and development performed
under contract, are charged to operations.
Capitalized costs are amortized over the estimated product life (seven
years) on the straight-line basis. Amortization will begin when the product is
available for general release to customers. Unamortized costs are carried at
the lower of book value or net realizable value.
B. CASH--CONCENTRATION OF CREDIT RISK:
As of December 31, 1996, the Company maintained deposits in one institution
which exceeded the Federal Deposit Insurance Corporation limit by
approximately $600,000. The difference between this amount and the amount of
cash per the Company's records is primarily due to stockholder distributions
paid in December 1996 that were outstanding as of December 31, 1996.
F-8
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
C. PROPERTY AND EQUIPMENT, NET:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
Leasehold improvements................................ $ 5,785 $ -0-
Computer equipment.................................... 177,649 102,677
Business office equipment............................. 11,317 11,317
Vehicle............................................... 32,000 -0-
-------- --------
226,751 113,994
Accumulated depreciation.............................. [ 58,573] [ 27,285]
-------- --------
Net................................................. $168,178 $ 86,709
======== ========
</TABLE>
Depreciation expense for the years ended December 31, 1996, 1995, and 1994
amounted to $31,288, $19,777 and $6,031, respectively.
D. LEASES AND COMMITMENTS AND CONTINGENCIES:
The Company maintains operating leases for office space. Rent expense for
the years ended December 31, 1996, 1995, and 1994 totaled $79,496, $57,497,
and $17,063, respectively. Leases expire in March, 1997 and May, 2000.
The future minimum lease commitments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AMOUNT
------------ --------
<S> <C>
1997............................................................. $ 41,701
1998............................................................. 27,985
1999............................................................. 28,710
2000............................................................. 11,962
--------
$110,358
========
</TABLE>
E. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Note payable, due in monthly installments of $507 including
principal and interest at 8.75% per annum through September
2001, secured by vehicle.................................... $ 23,124
Less amount due within one year.............................. [4,189]
--------
$ 18,935
========
</TABLE>
Maturity of long-term debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AMOUNT
------------ -------
<S> <C>
1997.............................................................. $ 4,189
1998.............................................................. 4,571
1999.............................................................. 4,987
2000.............................................................. 5,441
2001.............................................................. 3,936
-------
$23,124
=======
</TABLE>
F-9
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
F. EMPLOYEE BENEFIT PLANS:
Effective July 1, 1995, the Company adopted a qualified deferred
compensation plan, under Section 401(k) of the Internal Revenue Code. Under
the plan, employees may elect to defer up to fifteen percent (15%) of their
salary, subject to Internal Revenue Service limits. The Company contributes a
matching fifty percent (50%) of the first five percent (5%) of employee
contributions, totaling $29,143 for 1996 and $11,982 for 1995. In addition,
the plan allows for the Company to make discretionary contributions based on
the participant's salary. The Company made discretionary contributions of $-0-
for 1996 and $27,000 for 1995.
The Company adopted the 1995 Restricted Nonqualified Incentive Stock Option
Plan (the "1995 Plan"), effective August 1, 1995, for officers and key
employees, which provided for non-qualified stock options. Options to purchase
173,311 shares of common stock have been granted at $.543 per share and are
outstanding under the 1995 Plan.
The Company adopted the 1996 Stock Option Plan, effective December 20, 1996
(the "1996 Plan"). Under the 1996 Plan, which provides for issuance of either
incentive stock options or nonqualified stock options, the maximum number of
shares of common stock for which options may be granted is 500,000 shares
reduced by the number of shares outstanding under or issued pursuant to stock
options granted under the 1995 Plan. As of December 31, 1996, no options had
been granted under the 1996 Plan. The 1995 Plan was terminated, prospectively,
effective December 20, 1996.
Options may be granted to employees [including officers], consultants,
advisors and directors, although only employees and directors and officers who
are also employees may receive "incentive stock options" intended to qualify
for certain tax treatment. The exercise price of stock options at the grant
date is determined by management. Options granted under the Option Plans
generally vest over a four-year period and have a term of ten years, expiring
in 2005 and 2006. No compensation expense has been charged to operations. The
fair value of the options granted at a price of $.543 was determined by
management. The following is a summary of transactions:
<TABLE>
<CAPTION>
SHARES UNDER OPTION
--------------------------------
1996 1995
---------------- ---------------
WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE
------- -------- ------ --------
<S> <C> <C> <C> <C>
Outstanding, beginning of year................. 74,511 .543 -0- --
==== ====
Granted during the year........................ 98,800 .543 74,511 .543
------- ==== ------ ====
Outstanding, end of year....................... 173,311 .543 74,511 .543
======= ==== ====== ====
Eligible, end of year for exercise currently... 18,628 .543 -0- --
======= ==== ====== ====
</TABLE>
At December 31, 1996 and 1995, there were 326,689 and 425,489 shares,
respectively, reserved for future grants. See Note J for employee stock
options granted in January 1997.
F-10
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
G. STOCK SPLITS:
Effective January 23, 1996, the Board of Directors authorized a 1,000 for 1
forward stock split of the Company's common stock, to be effected in the form
of a stock dividend. Effective December 20, 1996, the Board of Directors
authorized a 2.7597 for 1 forward stock split to be effected in the form of a
stock dividend. After these splits, a total of 2,125,000 shares of common
stock was issued and outstanding. Retroactive effect has been given to these
splits.
H. MAJOR CUSTOMER INFORMATION:
During the years ended December 31, 1996, 1995, and 1994, revenue from one
major customer totaled approximately $2,740,000, $2,340,000, and $810,000,
respectively. These amounts accounted for 68%, 81% and 65% of total revenues,
respectively. The amount due from the customer, included in accounts
receivable, totaled approximately $600,000 and $703,000 at December 31, 1996
and 1995, respectively.
I. SOFTWARE DEVELOPMENT COSTS:
<TABLE>
<S> <C>
Unamortized balance, January 1, 1996........................... $ -0-
Current year (1996):
Total expenditures........................................... 279,737
Less research and development expense........................ 3,365
--------
Net capitalized costs......................................... $276,372
========
</TABLE>
In management's opinion, the net realizable value of future sales exceeds
the carrying value of unamortized software development costs; therefore, no
adjustment to carrying value is required. Research and development costs for
1995 and 1994 totaled approximately $111,000 and $13,000, respectively.
J. SUBSEQUENT EVENTS:
In January, 1997, the Company received proceeds from the sale of Senior
Debentures in the amount of $1,115,000. Interest accrues at 6% per annum,
payable semi-annually, and the principal amount is due in January 2000.
Purchasers of the Senior Debentures received Warrants from the stockholders of
the Company to purchase 117,368 shares of common stock held by these
stockholders at an exercise price of 60% of the initial public offering price.
The Company is required to prepay the Senior Debentures in whole, without
penalty, if the Company receives at least $5,000,000 gross proceeds from a
public offering or a private placement of its common stock. As part of the
issuance of the Senior Debentures, the Company incurred a closing cost of
approximately $133,000 which has been capitalized and will be written off over
the life of the loan.
F-11
<PAGE>
INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
J. SUBSEQUENT EVENTS: (CONTINUED)
The Company has determined that for purposes of financial statement
presentation the Warrants issued in connection with the Senior Debentures have
a fair market value of $2.72 per Warrant or an aggregate of $319,241, based
upon 117,368 Warrants granted. Accordingly, the results of operations for the
first and second quarters of fiscal 1997 would be adversely affected by a
$319,241 non-cash charge against earnings for interest because this value
ascribed to the Warrants will be deemed to be a contribution to capital by the
current stockholders of the Company, and treated as additional interest paid
to the holders of the Senior Debentures.
In January 1997, the Company granted stock options to 32 employees, covering
an aggregate of 163,200 shares of Common Stock, at an exercise price of $4.80
per share, under the Company's 1996 Stock Option Plan. For financial statement
purposes, the Company has determined that the current value of the Common
Stock at the grant date totaled $7.75, which results in a $2.95 per option
charge to compensation expense. Accordingly, the results of operations for the
first quarter of 1997 will be adversely affected by a non-cash charge for
compensation expense of $481,440.
K. STOCK-BASED COMPENSATION:
The Company intends to adopt the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." The Company will continue to apply
Accounting Principles Board Opinion No. 25 and related interpretations in
accounting for its stock option plans. There was no compensation expense
recognized in 1996 or 1995 with respect to the stock option plans. As required
by SFAS No. 123, the Company will be required to disclose pro forma net income
and earnings per share determined as if the fair value based method had been
applied in measuring stock option compensation expense. The pro forma amounts
shall reflect the difference between compensation expense included in net
income under APB 25 and the related expense measured by the fair value based
method had it been used.
F-12
<PAGE>
[ARTWORK TO BE ADDED HERE--INSIDE BACK COVER]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No person has been authorized in connection with the offering made hereby to
give any information or to make any representations not contained in this Pro-
spectus and, if given or made, such information or representations must not be
relied upon as having been authorized by the Company, any Selling Stockholder
or any Underwriter. This Prospectus does not constitute an offer to sell or a
solicitation of any offer to buy any of the securities offered hereby to any
person or by anyone in any jurisdiction in which it is unlawful to make such
offer or solicitation. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that
there has been no change in the affairs of the Company or that the information
contained herein is correct as of any time subsequent to the date hereof.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................... 3
Risk Factors............................................................... 6
Prior S Corporation Status
and Distributions......................................................... 13
Use of Proceeds............................................................ 13
Dividend Policy............................................................ 14
Capitalization............................................................. 15
Dilution................................................................... 15
Selected Financial Data.................................................... 16
Management's Discussion and
Analysis of Financial Condition
and Results of Operations................................................. 17
Business................................................................... 21
Management................................................................. 31
Certain Transactions....................................................... 34
Principal and Selling Stockholders......................................... 35
Description of Capital Stock............................................... 36
Shares Eligible for Future Sale............................................ 37
Underwriting............................................................... 39
Legal Matters.............................................................. 41
Experts.................................................................... 41
Additional Information..................................................... 41
Glossary................................................................... 42
Index to Financial Statements.............................................. F-1
</TABLE>
------------------
Until May 24, 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1,125,000 SHARES
COMMON STOCK
---------------
PROSPECTUS
---------------
H. J. MEYERS & CO., INC.
APRIL 29, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
EXHIBIT 23.2
[LETTERHEAD OF HABIF, AROGETI & WYNNE APPEARS HERE]
April 30, 1997
INDEPENDENT AUDITORS' CONSENT
We consent to the use of our report dated January 24, 1997, except for the
first and second paragraphs of Note J, as to which the date is April 29, 1997,
appearing in the Prospectus dated April 29, 1997, which is part of Registration
Statement No. 333-21647 on Form SB-2, of International CompuTex, Inc. We also
consent to the reference to us under the headings "Selected Financial Data" and
"Experts" in such Prospectus.
Very truly yours,
HABIF, AROGETI & WYNNE, P.C.
