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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO _____________
Commission File Number 1-12909
INTERNATIONAL COMPUTEX, INC.
(Exact name of small business issuer as specified in its charter)
GEORGIA 58-1938206
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5500 INTERSTATE NORTH PARKWAY, SUITE 507
ATLANTA, GA 30328
(Address of principal executive offices)
(770) 953-1464
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of August 10, 1998, there were 3,577,380 shares of common stock, $0.001 par
value, outstanding.
Transitional Small Business Disclosure Format
(Check one):
Yes [ ] No [X]
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INTERNATIONAL COMPUTEX, INC.
FORM 10-QSB
INDEX
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
Balance Sheets
December 31, 1997 and June 30, 1998
Statements of Income
Three Months and Six Months Ended June 30, 1997 and June 30,
1998
Statements of Cash Flows
Six Months Ended June 30, 1997 and June 30, 1998
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations
PART II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INTERNATIONAL COMPUTEX, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,943,351 $ 7,434,936
Accounts receivable, net 1,146,483 1,120,420
Investments available for sale 1,046,562 2,093,477
Prepaid expenses 197,956 274,935
------------ -----------
Total current assets 9,334,352 10,923,768
Property and equipment, net 548,209 753,258
Software development costs, net 422,333 333,401
Other assets 10,305 9,055
------------ -----------
$10,315,199 $12,019,482
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 76,077 $ 144,415
Deferred revenue 117,187 88,918
S Corporation distribution payable 123,003 0
Current portion of long-term debt 3,775 3,500
------------ ------------
Total current liabilities 320,042 236,833
Long-term liabilities:
Long-term debt, net of current portion 14,834 12,065
Deferred income taxes 45,202 45,202
------------ ------------
60,036 57,267
Total liabilities 380,078 294,100
------------ ------------
Stockholders' equity
Common stock, $.001 par value,
20,000,000 shares authorized;
3,250,690 and 3,577,380 shares issued and
outstanding at December 31, 1997 and
June 30, 1998, respectively 3,251 3,577
Additional paid in capital 9,530,283 11,222,140
Retained earnings 401,587 499,665
------------ ------------
Total stockholders' equity 9,935,121 11,725,382
------------ ------------
$ 10,315,199 $ 12,019,482
============ ============
See accompanying notes to financial statements.
</TABLE>
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INTERNATIONAL COMPUTEX, INC.
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended June 30, Six Months ended June 30,
1997 1998 1997 1998
<S> <C> <C> <C> <C>
Revenues
Services and other [Note 6] $1,368,872 $1,370,745 $2,647,191 $2,697,120
Software 143,000 175,076 223,000 467,576
---------- ---------- ---------- ----------
Total revenues 1,511,872 1,545,821 2,870,191 3,164,696
---------- ---------- ---------- ----------
Operating expenses
Direct costs - services 358,639 566,297 683,358 1,118,484
Direct costs - software 0 44,466 0 88,932
Selling and marketing 135,314 440,296 240,824 864,519
General and administrative 179,688 375,976 330,928 815,997
Depreciation 34,500 41,000 59,700 78,220
Research and development 0 153,841 0 297,648
Non-cash charge for compensation 0 0 442,382 0
---------- ---------- ---------- ----------
Total operating expenses 708,141 1,621,876 1,757,192 3,263,800
---------- ---------- ---------- ----------
Income (loss) from operations 803,731 (76,055) 1,112,999 (99,104)
---------- ---------- ---------- ----------
Other income (expense)
Investment income 65,183 128,327 68,359 256,534
Interest expense (436,775) 0 (472,325) 0
---------- ---------- ---------- ----------
Total other income (expense) (371,592) 128,327 (403,966) 256,534
---------- ---------- ---------- ----------
Income before income taxes 432,139 52,272 709,033 157,430
Provision for income taxes [Note 2] 45,000 19,707 45,000 59,352
---------- ---------- ---------- ----------
Net income 387,139 32,565 664,033 98,078
Pro forma provision
for income taxes [Note 2] 117,916 0 222,305 0
---------- ---------- ---------- ----------
Pro forma net income $ 269,223 $ 32,565 $ 441,728 $ 98,078
========== ========== ========== ==========
Earnings per share (Pro forma for 1997):
Basic $ .09 $ .01 $ .16 $ .03
Diluted $ .09 $ .01 $ .16 $ .03
========== ========== ========== ==========
Weighted average common and
common equivalent shares
outstanding:
Basic: 2,875,000 3,573,320 2,500,000 3,508,963
Diluted: 3,112,596 3,688,504 2,737,596 3,649,112
========= ========= ========= =========
See accompanying notes to financial statements.
</TABLE>
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INTERNATIONAL COMPUTEX, INC.
STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended June 30,
1997 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net Income $ 664,033 $ 98,078
-------------- --------------
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 59,700 167,152
Non-cash charge: options 442,382 0
Non-cash charge: warrants 319,241 0
Changes in assets and liabilities
[Increase] decrease in accounts receivable (397,653) 26,063
Decrease [Increase] in prepaid expenses 5,467 (76,979)
Decrease in other assets 344 1,250
Increase in accounts payable 66,333 68,338
Decrease in deferred revenue 0 (28,269)
-------------- --------------
Total adjustments 495,814 157,555
-------------- --------------
Net cash provided by operating activities 1,159,847 255,633
-------------- --------------
Cash flows from investing activities
Acquisition of property and equipment (248,521) (283,269)
Software development costs capitalized (280,615) 0
Increase in investments 0 (1,046,915)
-------------- --------------
Net cash used in investing activities (529,136) (1,330,184)
-------------- --------------
Cash flows from financing activities
Principal payments on long-term debt (1,898) (3,044)
Stockholder distributions paid (1,796,124) (123,003)
Initial public offering proceeds, net 9,353,382 0
Proceeds from private placement, net 0 1,674,498
Proceeds from exercise of options 0 17,685
-------------- --------------
Net cash provided by financing activities 7,555,360 1,566,136
-------------- --------------
Net increase in cash 8,186,071 491,585
Cash and cash equivalents, beginning of period 119,750 6,943,351
-------------- --------------
Cash and cash equivalents, end of period $ 8,305,821 $ 7,434,936
============== ==============
See accompanying notes to financial statements.
</TABLE>
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INTERNATIONAL COMPUTEX, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by
International CompuTex, Inc. (the "Company") in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements and should be read in conjunction with the
financial statements and notes thereto for the year ended December 31, 1997
included in the Company's Annual Report on Form 10-KSB. The financial
information included herein is unaudited; however, the information reflects all
adjustments that are, in the opinion of management, necessary to a fair
presentation of the financial position, results of operations, and cash flows
for the interim periods. Operating results for the six months ended June 30,
1998 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998.
2. INCOME TAXES
During part of the prior period, the Company had elected to be treated
as an S Corporation pursuant to the Internal Revenue Code for federal and state
income tax purposes, with income taxable and distributable to the individual
stockholders without any further tax consequences to the Company. The
stockholders revoked the S Corporation status on April 30, 1997, immediately
prior to the closing of the Company's initial public offering (see Note 4,
Termination of S Corporation Status, and Note 5, Initial Public Offering), and
the Company became taxable as a C Corporation from that date forward. A pro
forma provision for income taxes has been presented for January 1 through April
30, 1997 that represents income taxes that would have been provided had the
Company operated as a C Corporation during that period.
3. 1997 SENIOR DEBENTURES
In January 1997, the Company received proceeds from the sale of Senior
Debentures in the amount of $1,115,000 at 6% interest per annum, payable semi-
annually, with the principal amount 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 60% of the
initial public offering price. As a result of its initial public offering and
the terms of the Senior Debentures, the Company prepaid the Senior Debentures
principal with accrued interest of $19,795 in whole on May 5, 1997, and the
stockholders issued 117,368 Warrants at an exercise price of $5.70 per share, or
60% of the initial public offering price of $9.50 per share. The issuance of the
Warrants resulted in the Company taking a non-cash non-recurring charge to
interest expense of $319,241 in 1997. The prepayment of the Senior Debentures
resulted in the Company recognizing interest expense of $132,650 in 1997 related
to financing costs of the Senior Debentures, primarily sales commissions.
4. TERMINATION OF S CORPORATION STATUS
On April 30, 1997, the Company's shareholders, in accordance with the
Company's S Corporation Termination, Tax Allocation and Indemnification
Agreement (the "Agreement") dated March 24, 1997 and amended March 24, 1998,
elected to terminate the Company's status as an S corporation, and the Company
became subject to federal and state income taxes. Under the Agreement,
$2,418,765 was distributed to the S Corporation stockholders by an assignment of
accounts receivable and cash equaling the Company's Stockholders' Equity as of
April 30, 1997.
5. INITIAL PUBLIC OFFERING
The Company completed its initial public offering of 1,125,000 shares of
Common Stock at $9.50 per share on May 5, 1997. Net proceeds to the Company
amounted to $9,287,063.
6. 1998 PRIVATE PLACEMENT
On February 2, 1998, the Company issued and sold to Thybo New Ventures
Limited (a Bermuda corporation), an affiliate of IHS Group, Inc. ("IHS") of
Denver, Colorado, 300,000 shares of common stock of the Company. No commissions
or finders fees were payable. The net proceeds from the transaction were
$2,823,498, of which $1,674,498 was allocated to the sale of common stock based
on a fair market valuation of the unregistered,
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non-voting stock on the date of issuance of $5.67 per share. The balance of the
proceeds was allocated to deferred services revenues under the terms and
conditions of the related Strategic Business Alliance entered into by the
Company with IHS on January 23, 1998, of which $574,500 was recognized under the
percentage of completion basis in the first quarter of 1998, and $574,500 was
recognized in the second quarter of 1998.
7. PENDING LITIGATION
The Company is a party in pending litigation between the Company and
Aspect Development and CADIS, Inc., discussed in Part II, Item 1 of the
Company's 10-QSB for the quarter ended March 31, 1998. There can be no assurance
that the outcome of this case will be favorable to the Company, or that it will
not have a material adverse impact on the business, operations, and financial
condition of the Company.
8. RECENT ACCOUNTING PRONOUNCEMENTS
Revenue Recognition
On January 1, 1998, the Company adopted Statement of Position 97-2,
Software Revenue Recognition, issued by the Accounting Standards Executive
Committee in October 1997, effective for financial statements for fiscal years
beginning after December 15, 1997. The implementation of this statement has not
had a material impact on the Company's unaudited condensed financial statements.
Comprehensive Income
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income, issued by the
Financial Accounting Standards Board ("FASB") in June 1997, effective for the
years beginning after December 15, 1997. Comprehensive income includes all
changes in equity during a period except those resulting in investments by
owners and distributions to owners. The implementation of this statement has had
no impact on the Company's unaudited condensed financial statements.
Other
The Company continues to evaluate the requirements of Statement of
Financial Accounting Standards No. 131, Disclosure about Segments of an
Enterprise and Related Information, issued by the FASB in June 1997, effective
for fiscal years beginning December 15, 1997. The provisions of this standard do
not apply to interim periods in the year of adoption.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This discussion and analysis of financial condition and results of
operations should be read in conjunction with the unaudited financial statements
and the related notes as of and for the six months ended June 30, 1998 included
elsewhere herein and Management's Discussion and Analysis included as part of
the Company's Annual Report on Form 10-KSB for the year ended December 31, 1997.
FORWARD LOOKING STATEMENTS
The discussion in this Report contains forward-looking statements that
are subject to substantial risks and uncertainties. The Company's actual results
could differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in this section and elsewhere in this Report, and the risks discussed in the
"Business Risk Factors" section in the Company's Form 10-KSB.
OVERVIEW
International CompuTex, Inc. ("ICI" or the "Company") is a software
technology and services company that develops, markets and supports enterprise-
wide client/server solutions for discrete manufacturing companies world-wide.
The Company provides consulting and implementation services for the engineering
and manufacturing
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industries in the areas of Component and Supplier Management ("CSM") and Product
Data Management ("PDM"). From the time of its incorporation in 1991 through mid-
1996, all Company revenues resulted from computer software-related services with
a primary focus in the area of PDM software applications. Among other
applications, CSM is a major part of a PDM solution.
Throughout its history, 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. Through December 1997, ICI derived the great majority
of its revenues from consulting and implementation services rendered directly to
IBM or as a subcontractor to IBM customers.
Beginning in 1995, the Company has developed ItemQuest, an object-
oriented CSM solution, that allows users in design engineering and procurement
to search, select and re-use product data design and manufacturing information
based on engineering and manufacturing attributes. ItemQuest, which has the
flexibility to be integrated into existing software or to operate as a stand-
alone system, provides economic and strategic benefits to discrete manufacturing
companies by improving design, productivity, rationalization of parts, and the
implementation of strategic supplier relationships. It enables manufacturers to
reduce design and development costs, increase procurement efficiencies, and
shorten new products time to market. Management believes that the basis for the
Company's next stage of growth will be the further development, delivery,
support and evolution of ItemQuest. The Company is continuing to make the
transition from a services oriented business to a solutions oriented business
combining products and services. To be successful with ItemQuest, the Company
plans over the next six to twelve months to invest approximately $4 million of
the total $9.3 million proceeds of its initial public offering to develop and
implement a strategy for distribution, customer service, maintenance, pricing,
marketing and sales, in addition to the approximately $3.2 million invested
since the Company's initial public offering.
ICI began development work on ItemQuest in April 1995. In the last
quarter of 1996, the Company began generating ItemQuest revenues from four
customers in a "controlled availability program". The product became generally
available in April 1997, but was not actively marketed. The
ProductManager/ItemQuest Integration ("PM/IQ") became generally available in
July 1997. The Company's ItemWeb product, part of the ItemQuest product suite,
is currently under development. Using the same architecture as ItemQuest (which
"pulls" components data), ItemWeb will allow a manufacturer to "push" internal
parts and component data to its customers by a secured Web client search
interface schema. Management anticipates that, beginning in the second half of
1998, there will be a gradual increase in revenues generated by ItemQuest
license fees as well as implementation and customization services revenues from
ItemQuest customers. There can be no assurance, however, that the efforts to
develop, implement and market ItemQuest will be successful or profitable.
Furthermore, even if the development and marketing of ItemQuest is successful,
there can be no assurance as to when, if ever, ItemQuest results will represent
a substantial portion of the Company's revenues or net income.
RESULTS OF OPERATIONS
REVENUES
Revenues increased $294,505, or 10%, from $2,870,191 for the six months
ended June 30, 1997 to $3,164,696 for the same period in 1998. Software revenue
increased $244,576, or 110%, from $223,000 in 1997 to $467,576 in 1998 due
primarily to the increased marketing and development efforts begun by the
Company in late 1997, as part of the transition to a software solutions-based
company. Software services and other revenue increased $49,929, or 2%, from
$2,647,191 in the six months ended June 30, 1997 to $2,697,120 in 1998.
Revenues increased $33,949, or 2%, from $1,511,872 for the three months
ended June 30, 1997 to $1,545,821 for the same period in 1998, reflecting
increases in the Company's software revenues. Software revenue increased
$32,076, or 22% from $143,000 in second quarter 1997 to $175,076 in second
quarter 1998. Services and other revenue in second quarter 1998 were
substantially unchanged from the same period in 1997. The relative levels of
software revenues and services and other revenue for the second quarter can be
attributed to the same factors as discussed above for the six-month periods.
One-time revenues in the amount of $1,149,000, or 43% of the services
and other revenue, were related to services performed under the Strategic
Business Alliance entered into with IHS Group, Inc. (IHS) of Denver, Colorado,
in January 1998, arising from the investment by Thybo New Ventures Limited, an
affiliate of IHS, in common stock of the Company in February 1998. The revenue
was recognized using the percentage of completion
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method with $574,500 recognized for each of the first and second quarters of
1998. The Thybo/IHS revenue offset a decline in PDM services revenue of
approximately $570,000 in second quarter 1998 and $1,100,000 for the six months
ended June 30, 1998 compared to prior year amounts. This decline in PDM services
revenue was part of the Company's planned transition from a PDM services
oriented business.
Revenue consists primarily of consulting services, licensing fees, and
post contract customer support. The Company accounts for such revenue in
accordance with the AICPA Statement of Position 97-2, Software Revenue
Recognition. Revenue from the license of software is recognized after shipment
of the product and fulfillment of acceptance terms, provided collection of
resulting receivable is deemed probable. Services revenue is recognized when
services are provided. Support revenue is recognized ratably over the life of
the contract from the effective date. Deferred revenue represents payments
received from customers or billings invoiced to customers for software and
services billed in advance of revenue recognition.
DIRECT COSTS
Direct costs for services consisting of payroll-related expenses
increased $435,126, or 64%, from $683,358, or 26% of services and other
revenues, for the six months ended June 30, 1997 to $1,118,484, or 41% of
services and other revenues, for the six months ended June 30, 1998. Direct
costs were lower as a percentage of revenues in 1997 because of certain fixed
bid contracts which resulted in higher than normal margins. There were no direct
costs for software revenues in the 1997 period because amortization of software
development costs had not begun due to the software products not yet reaching
general availability. Direct costs for software revenues in the six months ended
June 30, 1998 were $88,932, or 19% of software revenues, comprised of
amortization of software development costs.
Direct costs for services consisting of payroll-related expenses
increased $207,658, or 58%, from $358,639, or 26% of services and other
revenues, in second quarter 1997, to $566,297, or 41% of services and other
revenues, in second quarter 1998. As in the six-month periods, direct costs were
lower as a percentage of revenues in 1997 because of certain fixed bid contracts
which resulted in higher than normal margins. There were no direct costs for
software revenues in second quarter 1997 because amortization of software
development costs had not begun due to the software products not yet reaching
general availability. Direct costs for software revenues in second quarter 1998
were $44,466, or 25% of software revenues, comprised of amortization of software
development costs.
SELLING AND MARKETING
Selling and marketing expenses increased $623,695, or 259%, from
$240,824, or 8% of total revenues, in the six months ended June 30, 1997 to
$864,519, or 27% of total revenues, in the six months ended June 30, 1998.
Payroll-related selling and marketing expenses increased $343,410, or 264%, from
$130,211 in 1997 to $473,621 in 1998 as a result of increased sales, marketing,
and sales management personnel. Other selling and marketing expenses, including
marketing, travel, trade shows and collateral materials, increased $280,285, or
253%, from $110,613 in 1997 to $390,898 in 1998 as the Company continued the
planned implementation of its marketing program related to ItemQuest.
Selling and marketing expenses increased $304,982, or 225%, from
$135,314, or 9% of total revenues, in second quarter 1997 to $440,296, or 28% of
revenues, in second quarter 1998. Payroll-related selling and marketing expenses
increased $177,449, or 281%, from $63,248 in second quarter 1997 to $240,697 in
second quarter 1998 as a result of increased sales, marketing, and sales
management personnel. Other selling and marketing expenses, including marketing,
travel, trade shows, and collateral materials, increased $127,533, or 177%, from
$72,066 in second quarter 1997 to $199,599 in second quarter 1998 as the Company
continued the planned implementation of its marketing program related to
ItemQuest.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $330,928, or 12% of revenues,
for the six months ended June 30, 1997, compared to $815,997, or 26% of
revenues, for the six months ended June 30, 1998, an increase of $485,069, or
147%. Payroll-related expenses increased $55,110, or 43%, from $127,348 in 1997
to $182,458 in 1998 as administrative personnel were added to accommodate the
increase in the Company's revenues and assets and the additional demands related
to being a public company. Other general and administrative expenses increased
$429,958, or 211%, from $203,580 in the six months ended 1997 to $633,539 in the
six months ended June 30, 1998.
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The largest increases were in legal and accounting expenses, primarily due to
the legal proceedings between the Company and Aspect Development, Inc. and
CADIS, Inc. (see Part II, Item 1 "Legal Proceedings"), insurance expenses,
primarily due to directors' and officers' insurance made necessary by the
Company's initial public offering, and rent, due to the Company's move to new,
larger office facilities in Charlotte in June 1997 and expanding its Atlanta
location in June 1997.
General and administrative expenses were $179,688, or 12% of revenues,
in second quarter 1997 compared to $375,976, or 24% of revenues, in second
quarter 1998, an increase of $196,288, or 109%. Payroll-related expenses
increased $35,840, or 50%, from $71,836 in the 1997 period to $107,676 in the
1998 period. Other general and administrative expenses increased $160,448, or
149%, from $107,852 in 1997 to $268,300 in 1998. The same factors affecting the
six-month period expenses accounted for the increases in second quarter
expenses.
DEPRECIATION
Depreciation increased $18,520, or 31%, from $59,700, or 2% of revenues,
in the six months ended June 30, 1997 to 78,220, or 2% of revenues, in the six
months ended June 30, 1998. Depreciation increased $6,500, or 19%, from $34,500,
or 2% of revenues, in second quarter 1997 to $41,000, or 3% of revenues, in
second quarter 1998. The contributing factor for these increases was additional
fixed assets purchases in 1998 versus 1997.
RESEARCH AND DEVELOPMENT
The Company expended $280,615, or 10% of total revenues, for research
and development in the six months ended June 30, 1997, compared to $297,648, or
9% of revenues, in the six months ended June 30, 1998, an increase of $17,033,
or 1%. Of the amounts expended, the entire $280,615 was capitalized in 1997, and
the entire $297,648 was expensed in 1998. The Company began expensing research
and development expenditures in July 1997, after the Company's ItemQuest product
became generally available.
The Company expended $151,235, or 10% of total revenues, for research
and development in second quarter 1998 compared to $153,841 or 10% of revenues,
for second quarter 1997, an increase of $2,606. Of the amounts expended, the
entire $151,235 was capitalized in 1997, and the entire $153,841 was expensed in
1998. The Company began expensing research and development expenditures in July
1997, after general availability of the Company's products.
OTHER INCOME (EXPENSE)
Other income (expense) net changed from $403,966 (net interest expense)
related to the Company's Senior Debentures in the six months ended June 30, 1997
to $256,534 (investment income) in 1998. Other income (expense) net changed from
$371,592 (net interest expense) related to the Company's Senior Debentures in
second quarter 1997 to $128,327 (investment income) in first quarter 1998. These
changes were the net result of the Company paying off the Senior Debentures in
May 1997, and earning investment income on the Company's cash and investments
accounts resulting from proceeds of the Company's initial public offering in
April 1997 and private placement in January 1998. Included in the 1997 interest
expense amounts was a non-recurring non-cash charge of $319,241 (six-month
period) and $297,071 (three-month period) that was a result of warrants issued
by the Company's original stockholders in connection with the Senior Debentures.
The Company determined that the warrants had a fair market value of $2.72 per
warrant or an aggregate of $319,241 based upon 117,368 warrants granted. As a
result of the Company's initial public offering, the Senior Debentures were
prepaid in May 1997, and the balance of the non-cash charge ($297,071) was
recognized in second quarter 1997. This value ascribed to the warrants was
deemed to be a contribution to capital by the original stockholders of the
Company and treated as additional interest paid to the holders of the Senior
Debentures. An additional non-recurring charge to interest expense of $132,650
was recognized in the three months ended June 30, 1997 related to financing
costs, primarily underwriting expenses, recognized when the Senior Debentures
were prepaid.
PROVISION FOR INCOME TAXES
Prior to its initial public offering, 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
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individual stockholders and is distributable to the stockholders without any
further tax consequences. The stockholders revoked the S Corporation status on
April 30, 1997 immediately prior to the closing of the Company's initial public
offering, and the Company became taxable as a C Corporation from that date
forward. A pro forma provision for income taxes has been presented for January
through April 1997, which represents income taxes that would have been provided
had the Company operated as a C Corporation throughout its history. An
effective income tax rate of 37.7% has been used for financial statement
purposes both before and after the S Corporation termination. The 1998 results
are actual because the Company was a C corporation during the period.
NET INCOME AND EARNINGS PER SHARE
The Company realized pro forma net income of $441,728, or $.16 per share
(diluted), for the six months ended June 30, 1997 compared to net income of
$98,078, or $.03 per share (diluted) for the 1998 period.
The Company realized pro forma net income of $269,223, or $.09 per share
(diluted), for second quarter 1997 compared to net income of $32,565, or $.01
per share (diluted) for second quarter 1998. Net income declined in 1998 for the
three and six month periods primarily due to significant increases in
administrative, sales and marketing, and product development expenses related to
the development and enhancement of ItemQuest and ItemWeb, and the focus of
marketing efforts on those products.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased $1,672,625 from $9,014,310 as of
December 31, 1997 to $10,686,935 as of June 30, 1998. This increase principally
reflects proceeds received from the Company's private equity placement in
January 1998. In the six months ended June 30, 1997, the Company had cash
provided from operations of $1,159,847 as compared to cash provided from
operations of $255,633 in the six months ended June 30, 1998. In the six months
ended June 30, 1998, the Company used net cash in investing activities of
$1,330,184 as compared to $529,136 in the six months ended June 30, 1997. Cash
used in investing activities for the six months ended June 30, 1998 resulted
from an increase in short-term investments of $1,046,915 and acquisition of
fixed assets totaling $283,269. Cash provided by financing activities of
$1,566,136 in the six months ended June 30, 1998 resulted primarily from
proceeds received from the Company's private equity placement in first quarter
1998. Cash provided by financing activities for the six months ended June 30,
1997 totaled $7,555,360 primarily as a result of the Company's initial public
offering in second quarter 1997.
The Company's management anticipates that it will have adequate cash to
fund operations for at least the next twelve months, although there can be no
assurance that such funds will be adequate to fully implement the Company's long
term expansion plans.
PRIVATE PLACEMENT
On February 2, 1998, Thybo New Ventures Limited, an affiliate of IHS
Group, Inc. ("IHS") of Denver, Colorado, purchased 300,000 shares of the
Company's Common Stock. No commissions or finders fees were payable. The gross
proceeds from the transaction were $2,850,000, or $9.50 per share. For
accounting purposes, based on a valuation performed as of the date of issuance,
the Company determined that the fair market value of the unregistered, non-
voting restricted stock was $5.67 per share, with resultant par value and paid
in capital of $1,674,498, net of closing costs. The purchaser obtained certain
limited registration rights with respect to a portion of these shares. Emil
Dahan, CEO of the Company, received exclusive voting rights with respect to such
shares for a two-year period. The 300,000 shares represent approximately 8.4% of
the outstanding stock of the Company.
The balance of the proceeds ($1,149,000) was treated as deferred
services revenue related to the Strategic Business Alliance entered into with
IHS on January 23, 1998. $574,500 of the services revenue was recognized in
first quarter 1998, and the remaining $574,500 of services revenue was
recognized in second quarter 1998.
11
<PAGE>
YEAR 2000 COMPLIANCE
The latest versions of the Company's products are designed to be Year
2000 compliant. Regardless of whether the Company's products are Year 2000
compliant, there can be no assurance that customers will not assert Year 2000
related claims against the Company.
The Company believes that Year 2000 issues may affect the purchasing
patterns of customers and potential customers in a variety of ways. Many
companies are expending significant resources to correct or patch their current
software systems for Year 2000 compliance. These expenditures may result in
reduced funds available to purchase software products such as those offered by
the Company. Potential customers may also choose to defer purchasing Year 2000
compliant products until they believe it is absolutely necessary, thus resulting
in potentially stalled market sales within the industry. Conversely, Year 2000
issues may cause other companies to accelerate purchases, thereby causing an
increase in short-term demand and a consequent decrease in long-term demand for
software products. Additionally, Year 2000 issues could cause a significant
number of companies, including current Company customers and prospects, to
reevaluate their current software needs, and as result switch to alternative
systems and suppliers. Any of the foregoing could result in a material adverse
impact on the Company's business, operating results and financial condition.
RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 1998, the Company adopted Statement of Position 97-2,
Software Revenue Recognition, issued by the Accounting Standards Executive
Committee, and Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income, issued by the Financial Accounting Standards Board. The
Company continues to evaluate the requirements of Statement of Financial
Accounting Standard No. 131, Disclosures about Segments of an Enterprise and
Related Information, which does not apply to interim periods in the year of
adoption.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings:
The only pending litigation to which the Company is a party is
litigation between the Company and Aspect Development, Inc. and CADIS,
Inc., discussed in Part II, Item 1 of the Company's Form 10-QSB for
the quarter ended March 31, 1998.
Item 2. Changes in Securities and Use of Proceeds
(a) Initial Public Offering
Effective Date of Registration Statement: April 29, 1997
SEC File Number: 333-21647
Date Offering Commenced: April 30, 1997
Unsold Securities: Underwriter's option to purchase 168,750 shares for
over-allotment was not exercised
Managing Underwriter: H.J. Meyers & Co., Inc.
Title of Securities:
Common stock, par value $0.001 per share
Warrant to purchase common stock
Common stock issuable upon exercise of warrant
12
<PAGE>
<TABLE>
<CAPTION>
Securities sold:
Title: Common stock
<S> <C>
Amount registered: 1,293,750
Aggregate price registered: $12,290,625
Amount sold: 1,125,000
Aggregate sold: $10,687,500
Expenses:
Underwriting discounts and commissions: $ 961,875
Expenses paid to underwriters: 226,862
Other expenses: 211,700
Total expenses $ 1,400,437
Net Offering proceeds: $ 9,287,063
Use of proceeds to date:
Construction of facilities: $ 121,409
Purchase of equipment: 535,110
Repayment of indebtedness: 1,134,795
Marketing and sales 1,440,000
Working capital 6,055,749
Net Offering proceeds $ 9,287,063
</TABLE>
There were no direct or indirect payments to directors or officers of the issuer
or their associates; to persons owning ten percent or more of any class of
equity securities of the issuer; or to affiliates of the issuer.
(b) February 2, 1998 Private Placement
Date of Offering: February 2, 1998
Title of Securities: Common stock, par value $0.001 per share
Securities sold:
Amount sold: 300,000
Aggregate Proceeds: $2,850,000
<TABLE>
<CAPTION>
Expenses:
<S> <C> <C>
Underwriting discounts and commissions: None
Expenses paid to underwriters: None
Other expenses: $26,502
Total expenses: $26,502
Net Offering proceeds: $2,823,498
Use of proceeds to date:
Construction of facilities: $0
Purchase of equipment: $0
Repayment of indebtedness: $0
Marketing and sales: $0
Working capital: $2,823,498
</TABLE>
There were no underwriters or finders fees associated with this private
placement.
13
<PAGE>
Shares were offered and sold solely to Thybo New Ventures Limited, a Bermuda
corporation. The Company relied upon Rules 505 and 506, promulgated under
Sections 3(b) and 4(2) of the Securities Act of 1933, for an exemption from the
registration requirements of such Act, as well as reliance upon Sections 4(2)
and 4(6). The basis for this reliance was the accredited status of the sole
investor and the limited nature of the offering to a single, highly
sophisticated investor. A Form D was filed with respect to this offering, on a
timely basis.
Item 3. Defaults Upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders: None
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Computation of Earnings Per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K dated April 28, 1998 reporting under Item 4 the
Company's change in independent auditors to KPMG Peat Marwick
LLP effective April 21, 1998 to commence with the fiscal year
ending December 31, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERNATIONAL COMPUTEX, INC.
By: /s/ Haim E. Dahan
-------------
Haim E. Dahan
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Ralph E. Walter
---------------
Ralph E. Walter
Chief Financial Officer
(Principal Financial Officer)
August 14, 1998
14
<PAGE>
EXHIBIT 11.1
INTERNATIONAL COMPUTEX, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months ended June 30, Six Months ended June 30,
1997 1998 1997 1998
----------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Net income (Pro forma for 1997) $ 269,223 $ 32,565 $ 441,728 $ 98,078
=========== =========== ========== ==========
Weighted average number
of common and common
equivalent shares:
Weighted average common
shares outstanding 2,875,000 3,573,320 2,500,000 3,508,963
Shares issued from assumed exercise
of common stock equivalents (1) 237,596 115,184 237,596 140,149
----------- ----------- ----------- ----------
Weighted average number
of common and common equivalent
shares outstanding 3,112,596 3,688,504 2,737,596 3,649,112
=========== =========== =========== ===========
Earnings per share (Pro forma for 1997):
Basic $ .09 $ .01 $ .16 $ .03
=========== =========== ========== ==========
Diluted: $ .09 $ .01 $ .16 $ .03
=========== =========== ========== ==========
</TABLE>
(1) Shares issued from assumed exercise of common stock equivalents include the
number of incremental shares which would result from applying the treasury
stock method.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 7,434,936
<SECURITIES> 2,093,477
<RECEIVABLES> 1,120,420
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,923,768
<PP&E> 983,862
<DEPRECIATION> 230,604
<TOTAL-ASSETS> 12,019,482
<CURRENT-LIABILITIES> 236,833
<BONDS> 0
0
0
<COMMON> 3,577
<OTHER-SE> 11,721,805
<TOTAL-LIABILITY-AND-EQUITY> 12,019,482
<SALES> 467,576
<TOTAL-REVENUES> 3,164,696
<CGS> 0
<TOTAL-COSTS> 1,207,416
<OTHER-EXPENSES> 2,056,384
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 157,430
<INCOME-TAX> 59,352
<INCOME-CONTINUING> 98,078
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 98,078
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
