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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Fiscal Year ended June 30, 1996
or
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from _____ to _____
Commission File No. 0-15949
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2862863
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
1895 FRANCISCO BLVD. EAST., SAN RAFAEL, CALIFORNIA 94901
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (415) 257-3000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, no par value
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in the definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.[ ]
The aggregate market value of the voting stock of the registrant by
non-affiliates of the registrant as of September 16, 1996 was
approximately $28,200,000
As of September 16, 1996, 3,273,258 shares of Registrant's Common
Stock, no par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: None
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INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business 2
Item 2. Properties and Facilities 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 14
PART III
Item 10. Directors and Executive Officers of the Registrant 15
Item 11. Executive Compensation 17
Item 12. Security Ownership of Certain Beneficial Owners and Management 18
Item 13. Certain Relationships and Related Transactions 19
PART IV
Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K 20
Signatures 38
Exhibit Index 39
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
International Microcomputer Software, Inc. (the "Company") was incorporated in
California in November 1982. The Company's corporate headquarters are in San
Rafael, California, and subsidiary offices are maintained in the United Kingdom,
Germany, Australia, South Africa and France. The Company develops and publishes
computer software and manufactures input devices for microcomputers.
Any forward looking statements contained in the following discussion or
elsewhere in this document involve risks and uncertainties which may cause
actual results to differ materially from those discussed. A wide range of
factors could contribute to those differences, including those discussed in this
document.
PRODUCTS
The Company has over 20 software products operating on the Microsoft Windows and
Apple Macintosh operating platforms, for the small office and consumer markets.
The products are organized into four main product groups: CAD (Computer Aided
Design) Group; Office Automation; Desktop Publishing and Consumer products. IMSI
owns the technology and controls development of its key products, and works with
a network of other development companies to provide a stream of new products
which the Company publishes, on both an exclusive and non-exclusive basis.
COMPUTER AIDED DESIGN
IMSI's flagship product, TurboCAD 2D/3D is a professional, mid-range Computer
Aided Design (CAD) software product. TurboCAD 2D/3D addresses the design needs
for architectural, electrical, mechanical, illustration, and landscape designs
in 2D. TurboCAD 2D/3D also includes a full 3D modeler plus over 10,000 CAD
symbols. Currently priced at an estimated street price of $99.95, the product
has sold over 750,000 units to date and was ranked the best selling mid-range
CAD product in terms of unit sales in the U.S. market according to PC Data, as
of June 1996. The product is offered in both Windows and Macintosh formats.
TurboCAD Designer 2D/3D for Windows is positioned for entry level users to learn
and use CAD. Priced at an estimated street price of $29.95, TurboCAD Designer
2D/3D can be used for remodeling projects, CAD instruction, and hobby and house
plan designs. The product includes an instruction book for learning and using
CAD, over 2,000 CAD symbols, powerful 2D TurboCAD design features, a full 3D
modeler, and over 100 HomeStyles plans.
FloorPlan Plus 3D for Windows (acquired by the Company in September 1995) allows
users to design their homes and gardens with ease. The product can be used for
designing home and office layouts, landscaping, decks, kitchens and more in 2D,
and can also be used to "view" and walk through their design in full 3D. Priced
at an estimated street price of $49.95, FloorPlan Plus 3D also includes over
1,000 home plans, a home design book, a stand alone garden designer, and
Internet access to on-line home and garden resources. Over 500,000 units of
FloorPlan Plus 3D have been sold in the past few years.
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OFFICE AUTOMATION AND PROJECT MANAGEMENT
TurboProject 2.0 is a full featured, easy to use project management application
that leads one intuitively through the process of establishing goals and
building project plans. The user can choose from a gallery of 28 standard
tabular reports or customize one for a specific industry or project.
Windelete is an uninstaller software product that allows safe, accurate, and
effective removal of programs and files for computers running on Windows. Priced
at an estimated street price of $29.95, WinDelete includes Internet management
features and full award winning virus protection software.
FormTool is the best selling forms automation software product in the U.S.
retail market, according to PC Data. FormTool's powerful, easy-to-use design and
editing tools enables the user to create professional looking forms in a very
short time. It assists businesses to organize and standardize written
communication.
DESKTOP PUBLISHING AND ART
MasterClips Premium Image Collections are a collection of high quality images
featuring a wide variety of hand-picked clip art, fonts, and photos for desktop
publishing documents as well as web page designs. MasterClips 35,000 shipped in
February 1996 and has grown to approximately 15% of the clip art market by May
1996, and was currently ranked as the world's third best selling clip art
product by the end of fiscal 1996.
IMSI released MasterClips 101,000 in the first quarter of fiscal 1997.
Masterclips 101,000 includes 33,000 vector-based color clip images, 40,000
classic black and white Dover images, 22,500 ink-jet ready photos, 3,500 high
resolution photos, 2,000 true type fonts, and 500 sound effects, video and
animation clips. MasterClips 101,000 includes the powerful MediaPaq Browser to
easily locate these images. The estimated street price for MasterClips 101,000
is $59.95.
Master Publisher Premium Publishing Suite for Windows is a new desktop
publishing suite for the small office or home. Targeted for release in the first
half of fiscal 1997, MasterPublisher can be used for high-quality newsletters,
brochures, logos, greeting cards, and more. The suite includes TurboPublisher as
a layout tool, TurboDraw as a drawing, design and effects tool, 20,000 clip art
images, 2,000 fonts, and a browser and image reference catalog. Master Publisher
is targeted for an estimated street price of $29.95.
MasterPhotos 22,000 Premium Photo Collection is a unique photo library designed
to enhance multimedia, desktop or Internet projects. Master Photos will be
available for Windows and includes 5,000 BMP high resolution photographs in over
33 categories and 22,500 ink-jet ready photos. The product is expected to ship
in the first half of fiscal 1997 with an estimated street price of $29.95.
CONSUMER
EZ Language allows users to learn their choice of Spanish, French, Russian,
German, Italian, Japanese, or English. It is designed for business and leisure
travelers as well as language students and enthusiasts to learn the most
important words and phrases in another language. The newest version shipped in
March 1996 and included more words and phrases than previous versions, plus
multimedia tours of the native regions and access to an exclusive Internet site
with a wide variety of travel and language Internet links. EZ Language sells for
a targeted street price of $49.95 and is available both for Windows and
Macintosh in the same package.
The Company has sold several hundred thousand input devices over the past few
years, and the trend in the computer industry is towards greater use of
graphical devices, such as mice, as a means of input. The Company expects its
hardware products to make up a smaller percentage of overall revenues during the
1997 fiscal year.
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The Company's primary software products have been internally developed, acquired
from independent third parties or developed for the Company by software
development companies and individual programmers, in exchange for a development
fee. In cases where the Company has publishing rights for a product, the Company
generally has exclusive marketing arrangements for the products it sells, as
well as ownership of the product name.
BACKGROUND AND GROWTH STRATEGY
The Company completed its initial public offering in July 1987, raising net
proceeds of approximately $2,600,000. In August 1988, the Company acquired Milan
Systems America, Inc. and the rights to TurboCAD, the Company's best selling
product. In August 1993, the Company acquired the rights to FormTool, and raised
approximately $1,300,000 in a private placement. In January 1995, the Company
acquired the rights to ViewPoint, a project management software product. In
September 1995, the Company acquired the rights to the FloorPlan Plus product
line from Forte/ComputerEasy International, Inc.
The Company has consistently expanded its line of software products during the
last few years. The Company's long term goal is to continue to grow during the
next several years, and to either become a major competitor in the markets in
which it competes, or consolidate with a strategic partner in the software or
information industry.
Even if the Company is successful in its goal of increasing revenues and
profits, the Company's plans regarding future growth involve several risks to
the Company, including among others, increased financing needs, capital and cash
flow requirements, changing facilities requirements, the possibility that
revenues will not grow at a rate commensurate with increased expenditure levels,
and the need to add additional management and other personnel to manage the
growth. There can be no assurance that the Company will successfully grow in the
future.
In the past, expansion of the Company's product line has resulted from
acquisition of products, or the right to publish products, from third parties.
The Company significantly increased the level of research and development
expenses in fiscal 1995 and fiscal 1996 from previous levels and expects such
expenses to remain at a high level in fiscal 1997 compared with fiscal 1996.
(See "International Subsidiaries")
SALES AND MARKETING
Sales of the Company's products are divided between sales to companies for
resale, such as software distributors, computer dealers, and retail outlets
(collectively, "retail channel sales"), and sales direct to end-users ("direct
sales"). The majority of the Company's channel sales are to distributors, which
in turn resell the products to computer dealers nationally and internationally.
Major distributors of the Company's products include Merisel, Ingram Micro and
Tech Data, among others. The Company also sells directly to a limited number of
computer resellers.
The Company's focus in channel sales is to increase sales through its current
distributor network, primarily through the introduction of new products. The
Company markets products through a combination of telephone sales, advertising,
direct mail, trade shows and sales promotion activities. The Company has opened
the following international sales offices: London, England in April 1992;
Sydney, Australia in April 1993; Munich, Germany in October 1993; Johannesburg,
South Africa in November 1994 and Paris, France in April 1995.
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During fiscal 1996, the Company continued its sales transition away from direct
mail in favor of the retail channel, which typically has higher profit margins.
An outside sales force has been employed to manage key retail and distribution
accounts directly and solidify and expand these relationships, all of which
broadened IMSI's overall product distribution. IMSI's direct mail strategy
remains focused on mining the Company's substantial user database through
cost-effective upgrade and crossgrade mailings. Additionally, new product
successes, with products such as TurboCAD 2D/3D and TurboProject have afforded
expansion opportunities into the corporate market, which the Company plans to
target in fiscal 1997. Nonetheless, the Company depends on direct mail
distribution for a significant portion of its sales (approximately 32.8%, 39.9%
and 65.9% of total net revenues in fiscal 1996, 1995 and 1994, respectively).
The rate at which potential customers respond to the Company's direct mail
solicitations has fluctuated from time to time in the past fiscal year and could
also change in the future. A relatively small decline in historical response
rates has adversely affected and could continue to adversely affect the
Company's profitability. In addition, competitors offer competing products
through direct mail distribution and other distribution methods to the same
persons who receive the Company's direct mailings, reducing the Company's
revenues and profits.
COMPETITION
The microcomputer software and hardware industries are highly competitive and
are characterized by rapid changes in technology and customer requirements. The
Company competes both in the acquisition of new products and in the marketing
and sale of its existing products. Important factors in consumer software
marketing include product features, quality, ease of understanding and
operation, brand recognition, advertising and dealer merchandising, access to
distribution channels, hardware compatibility, pricing, and availability and
quality of support services.
The Company competes for new and innovative products primarily on the basis of
brand-name reputation, the terms offered to software developers, and the ability
to market new products successfully as demonstrated by past success and current
presence in distribution channels.
The Company faces competition from a large number of sources. The Company's
competitors vary in size from small companies with limited resources to large
corporations, including manufacturers of microcomputers, with substantially
greater financial and management resources than the Company and with the
technical ability to develop or acquire products similar to those offered by the
Company. The Company's relatively small size could adversely affect its ability
to compete with larger companies for sales to dealers, distributors, and retail
outlets, to obtain shelf space for its products in retail outlets, and to
acquire products from third parties (who may desire to have their products sold
or published by larger entities) to be sold or published by the Company.
Moreover, competition in the Windows applications segment and the multimedia
segment from major software publishers is intensifying, and the competitive
upgrade price discounting between the major firms is eroding traditional price
segmentation that had previously existed in the software industry. There can be
no assurance that price and market share competition will not intensify, or that
software or hardware manufacturers will not market products that may adversely
affect the Company's revenues and income.
Currently, a significant portion of the Company's revenues depends upon sales of
the TurboCAD and MasterClips product lines. A significant decline in sales of
one or more of these products could adversely affect the Company's results of
operations. Thus, the Company is more vulnerable to market declines and
competition in the markets for such products than companies with more
diversified sources of revenues.
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CHANGES IN TECHNOLOGY FOR PRODUCTS
Changes in technology, product obsolescence, and advances in computer software
and hardware will require the Company to develop or acquire new products and to
enhance its products in a timely manner. There can be no assurance that the
Company will be successful in such efforts or that the Company will have the
resources required to respond to technological changes or to compete
successfully in the future. Because of the Company's small size and capital
resources relative to some of its competitors, its ability to avoid
technological obsolescence through acquisition or development of new products or
upgrades of existing products may be more limited than companies with greater
funds. In addition, there can be no assurance that upgrades or new releases of
the Company's products will be free from program defects, which might reduce
sales of such upgrades or new versions.
Several major microcomputer software companies have continued to reduce the
prices of their products. The Company may be required to reduce the prices of
its products in the future to remain competitive. If the Company significantly
reduced the prices of one or more of its products, there can be no assurance
that such price reductions would result in an increase in unit sales volume or
that prices would not continue to decline in the future, which would result in a
decrease in the revenues from, and gross profits on, sales of such products.
RESEARCH AND DEVELOPMENT
Improvements in microcomputer software products are important to keep the
products competitive in the rapidly changing technological markets for the
Company's products. The Company has significantly increased its expenditures on
research and development to upgrade its existing products and allow its products
to operate in new environments. Research and development costs for the fiscal
years ended June 30, 1996, 1995 and 1994, were $3,170,937, $2,151,069, and
$1,152,382 respectively.
INTERNATIONAL SUBSIDIARIES
In April 1992, the Company formed IMSI (UK) Limited as a wholly-owned
subsidiary, with an office and warehouse located in London, England. In April
1993, the Company formed IMSI Australia (PTY) Ltd. as a wholly-owned subsidiary,
with an office and warehouse located in Sydney. In October 1993, the Company
formed IMSI Germany (GmbH) as a wholly owned subsidiary with an office and
warehouse located in Munich. In November 1994, the Company formed IMSI South
Africa Ltd. as a wholly-owned subsidiary, with an office and a warehouse located
in Johannesburg, South Africa. In April 1995, the Company formed IMSI France as
a wholly-owned subsidiary, with an office located in Paris, France.
EMPLOYEES
As of June 30, 1996, the Company had 144 full-time employees, including
approximately 57 marketing and sales employees, 46 administrative, including
accounting, MIS and operations personnel, and approximately 41 research and
development personnel. The Company also utilizes the services of independent
contractors on an as-needed basis.
The Company's ability to market, sell, and support its products and establish
and maintain its competitive position will depend, in part, on its ability to
attract and retain qualified personnel. While the Company believes that it has,
to date, been able to attract and retain such personnel, there can be no
assurance that it will continue to be able to do so in the future. The Company
is not a party to any collective bargaining agreements with its employees and
considers its relations with its employees to be satisfactory.
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ITEM 2. PROPERTIES AND FACILITIES
The Company's primary facilities include leased corporate office space and
warehouse space located in Northern California. The Company leases offices
consisting of approximately 15,239 square feet of office space at 1895 Francisco
Blvd. East, San Rafael, California and approximately 34,000 square feet of
warehouse space in Richmond, California at a combined rate of $32,843 per month.
The Company also leases smaller office and warehouse space in the greater
metropolitan areas of London, England; Munich, Germany; Sydney, Australia;
Johannesburg, South Africa and Paris, France. The Company expects that its
current leased facilities will be sufficient to meet its needs for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a party
to or to which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fiscal
year ended June 30, 1996 other than the election of nominees to the Company's
Board of Directors and approval of an amendment to the 1993 Incentive Plan,
increasing by 300,000 the number of shares of Common Stock issuable under the
plan.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Presently, the Common Stock is traded on the NASDAQ Small Cap Market under the
symbol "IMSI." Historically, trading volume of the Common Stock has been very
small and the market for the Common Stock has been materially less liquid than
that of most other publicly traded companies. Significant sales of Common Stock
by officers and directors or other shareholders could have an adverse effect on
the market price of the Common Stock.
The following table sets forth the quarterly high bid and low asked prices of
the Common Stock for fiscal 1995 and fiscal 1996, as quoted on the NASDAQ
Bulletin Board and NASDAQ. Such prices represent prices between dealers and do
not include retail mark-ups, mark-downs or commissions and may not represent
actual transactions.
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CLOSING SALES PRICES
High Bid Low Asked
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Fiscal Year 1995
First Quarter $ 5.00 $3.42
Second Quarter 5.67 4.00
Third Quarter 6.00 5.33
Fourth Quarter 6.17 5.83
Fiscal Year 1996
First Quarter 6.83 5.50
Second Quarter 9.00 6.67
Third Quarter 8.75 6.00
Fourth Quarter 12.00 8.50
</TABLE>
There were approximately 1,092 holders of record of the Common Stock as of
September 16, 1996. The Company believes that additional beneficial owners of
its Common Stock hold their shares in street names.
The Company has not paid any cash dividends on its Common Stock and does not
plan to pay any such dividends in the foreseeable future. The Company's future
dividend policy will be determined by its Board of Directors on the basis of
many factors, including results of operations, capital requirements and general
business conditions.
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ITEM 6. SELECTED FINANCIAL DATA
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STATEMENT OF OPERATIONS DATA: (Amounts in thousands except share and per share amounts)
Year ended June 30, 1996 1995 1994 1993 1992
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Net Revenues $25,679 $20,300 $23,118 $13,193 $7,764
Total costs and
expenses 23,878 20,670 22,565 12,254 7,242
Operating income (loss) 1,801 (370) 553 939 522
Income (loss) before
income taxes, cumulative
effect of accounting
change and extraordinary
items 1,539 (424) 573 857 455
Cumulative effect of
accounting change -- -- 800 -- --
Extraordinary items:
Utilization of income
tax carry forward -- -- -- 274 139
Net income (loss) 954 (435) 1,120 760 412
Net income (loss) per share:
Primary $ .26 ($ .14) $ .35 (a) $ .31 (b) $ .19 (c)
Fully-diluted $ .26 ($ .14) $ .35 (a) $ .30 (b) $ .19 (c)
Weighted average common and common equivalent shares outstanding:
Primary 3,614,963 3,146,124 3,219,705 2,439,897 2,140,439
Fully diluted 3,614,963 3,146,124 3,219,705 2,534,178 2,140,439
BALANCE SHEET DATA:
As of June 30, 1996 1995 1994 1993 1992
-------------- ---- ---- ---- ---- ----
Working capital $ 3,092 $ 1,967 $ 1,918 $ 375 $ 72
Total assets 11,058 7,470 6,752 3,845 2,198
Current liabilities 5,972 3,971 2,968 2,826 1,885
Capital lease and other
obligations-long term 565 103 110 -- --
Shareholders' equity 4,522 3,397 3,674 1,019 314
</TABLE>
(a) Includes cumulative effect of accounting change of $.25 per share.
(b) Includes extraordinary gain of $.11 per share.
(c) Includes extraordinary gain of $.06 per share.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SUMMARY
Net revenues in fiscal 1996 were $25,679,017, an increase of 26% from net
revenues of $20,300,361 for fiscal 1995. Net revenues increased primarily due to
increased sales into the retail channel as a result of the Company's increased
emphasis on selling in the retail channel. The fiscal 1995 revenues decreased
12% from $23,118,193 in fiscal 1994. This decrease was primarily due to lower
direct mail sales, resulting from the Company's transition towards an operating
model focused increasingly upon retail sales. The Company recorded operating
income of $1,801,182 in fiscal 1996 compared with an operating loss in the
fiscal year ended June 30, 1995 of $370,360, and operating income of $553,241 in
fiscal 1994. The Company attributes the increase of operating income to the
increased revenue in 1996 while the 1995 operating loss was attributable to
several non-recurring charges recorded during the year. In the fiscal year ended
June 30, 1995, the Company incurred charges of approximately $1,000,000 for the
write-off of software acquisition costs and the write off of software
development costs as a result of reducing the amortization period for such
internally developed software from 36 months to 18 months. Additionally, during
fiscal 1995, the Company increased its allowances for doubtful accounts and
returns as the Company transitioned towards an operating model focused
increasingly upon retail sales, resulting in approximately $614,000 of
additional expense for the year.
RESULTS OF OPERATIONS
NET REVENUES
Net revenues were $25,679,017, $20,300,361 and $23,118,193 in fiscal 1996, 1995,
and 1994 respectively. Increased sales in fiscal 1996 compared to fiscal 1995
were primarily the result of a 41% increase in retail channel sales coupled with
an increase of 4% increase in direct mail sales. The decreased sales in fiscal
1995 compared with fiscal 1994 was primarily due to a 47% decrease in direct
mail sales, partially offset by an increase of 55% in retail channel sales.
Net revenues from retail channel sales accounted for $17,265,000 of total net
revenues in fiscal 1996 or 67.2% of total net revenue, compared to $12,202,000
or 60.1% and $7,887,000 or 34.1% in fiscal 1995 and 1994, respectively. Net
revenues from direct mail sales were $8,414,000 or 32.8% of total net revenues
in fiscal 1996, compared to $8,098,000 or 39.9%, and $15,231,000 or 65.9% in
fiscal 1995 and 1994, respectively.
The rate at which potential customers respond to the Company's direct mail
solicitations could change in the future. A relatively small decline in
historical response rates could affect the Company's profitability. In addition,
competitors might offer competing products through direct mail distribution or
other distribution methods to the same persons who receive the Company's direct
mailings, reducing the Company's revenues and net income.
Approximately 64.9% and 48.2% of the Company's total net revenues in fiscal 1996
and fiscal 1995, respectively, were comprised of the TurboCAD and MasterClips
product lines.
International net revenues accounted for $8,614,000, or 33.5% of total net
revenues in fiscal 1996, compared to $6,780,000 or 33.4%, and $5,417,000 or
23.4% in fiscal 1995 and 1994, respectively. The increases in international net
revenues over the previous periods were primarily the result of increased sales
through distribution channels and successful direct mail promotions, as well as
continued penetration into international markets where the Company had no prior
presence.
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PRODUCT COSTS
Product costs include the direct costs of production (manuals, diskettes,
compact disks, duplication, packaging materials and assembly), labor, freight,
supplies, royalties, inventory spoilage, reserves for obsolete inventory, and
amortization of capitalized software development costs.
Product costs were $8,261,583, $7,143,795 and $7,745,258 for fiscal 1996, 1995
and 1994, respectively. Product costs decreased as a percentage of net revenues
to 32.2% in fiscal 1996 from approximately 35.2% and 33.5% in fiscal 1995 and
1994. Product costs decreased as a percent of net revenues in fiscal 1996 as a
result of decreased software amortization compared to fiscal 1995, coupled with
improved costs associated with higher volume purchases. During fiscal 1995, the
Company reevaluated and changed the economic lives of capitalized software
acquisition and development costs. Beginning with the quarter ending March 31,
1995, the Company reduced the amortization period from 36 months to 18 months,
resulting in additional amortization of approximately $500,000 during fiscal
1995. For the period from fiscal 1994 to fiscal 1995, product costs as a
percentage of net revenue increased primarily due to increased amortization of
capitalized software development costs, freight cost and production labor. As a
result of the above factors, gross margins increased to 67.8% in fiscal 1996,
compared to 64.8% and 66.5% in fiscal 1995 and 1994, respectively. Amortization
of capitalized software development costs and software acquisition costs charged
to product costs were $375,206, $939,507 and $341,866 for fiscal 1996, 1995 and
1994, respectively.
SALES AND MARKETING
Sales and marketing expenses include salaries and benefits for retail channel,
direct mail and marketing personnel, commissions, advertising, trade show,
design and direct mail promotional costs (design, postage, printing, fulfillment
and list rentals).
Sales and marketing expenses increased in fiscal 1996 to $9,888,558 from
$8,918,867 in 1995, and decreased in fiscal 1995 from $11,039,664 in fiscal
1994. As a percentage of net revenues, sales and marketing expenses were 38.5%,
44.0% and 47.8% in fiscal 1996, 1995 and 1994, respectively. The decrease in
fiscal 1996 sales and marketing expenses as a percent of net revenues was
primarily a result of decreased direct mail personnel and direct mail
promotional activities. The absolute dollar increase in sales and marketing
expenses for fiscal 1996 is attributable to increased sales activity in the
retail channel. The decrease in fiscal 1995 sales and marketing expenses and the
decrease as a percentage of net revenues was primarily a result of decreased
direct mail personnel and direct mail promotional activities from fiscal 1994.
There were 57, 35 and 59 sales and marketing personnel at June 30, 1996, 1995
and 1994. Direct mail sales expenses comprised 46%, 61%, and 76% of total sales
and marketing expenses in fiscal 1996, 1995 and 1994, respectively. The decrease
in direct mail sales expense was primarily a result of the Company's decision to
focus its operations more upon retail channel sales and less upon direct mail
sales. Direct mail costs are relatively variable, as most of the costs consist
of mailing, printing and list rental costs.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $2,556,757, $2,456,990 and $2,627,649
for fiscal 1996, 1995 and 1994, respectively, representing 10.0%, 12.1% and
11.4% of net revenues for those years. General and administrative expenses
remained relatively consistent from the 1996 fiscal year to 1995 fiscal year
resulting in a reduced percentage of net revenue due to growth in the Company's
net revenue. General and administrative expenses decreased in fiscal 1995 as a
result of personnel reductions, partially offset by increased bad debt reserves.
There were 32, 31 and 34 administrative personnel at June 30, 1996, 1995 and
1994, respectively.
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RESEARCH AND DEVELOPMENT
Research and development expenses are comprised primarily of personnel costs and
costs required to conduct the Company's development effort and third-party
software development costs. Research and development costs were $3,170,937,
$2,151,069 and $1,152,382 for fiscal 1996, 1995 and 1994, respectively,
representing 12.3%, 10.6%, and 5.0% of net revenues for those years. These
increases resulted primarily from personnel additions related to the development
and expansion of the Company's products. Fiscal 1995 research and development
costs included approximately $500,000 of in process research and development
charges related to the acquisition of various software products.
At June 30, 1996, 1995 and 1994 the Company had 41, 28 and 16 research and
development employees, respectively. In addition, the Company had independent
research and development contractors located in Russia at June 30, 1996, 1995
and 1994. The additional personnel hired in fiscal 1996, 1995 and 1994 were
primarily engaged both in enhancing and modifying products that the Company has
acquired from third parties as well as developing new products internally. For
fiscal 1996, 1995 and 1994, the Company capitalized software acquisition and
development costs of $402,469, $191,460 and $992,398, respectively. The
amortization of such costs are included in product costs.
OTHER INCOME (EXPENSE), NET
Other income (expense) was ($262,374),($53,925) and $20,118 for fiscal 1996,
1995 and 1994, respectively. Other income (expense) is comprised primarily of
interest expense on short and long-term borrowings and foreign currency
transaction gains and losses. In fiscal 1996 there was $81,879 of foreign
exchange losses and $180,495 of net interest expense.
PROVISION FOR INCOME TAXES
The Company's provision for income tax was $585,236, $10,548 and $253,169 for
fiscal 1996, 1995 and 1994, respectively. The Company's effective income tax
rate was 38% and 44% in fiscal 1996 and 1994, respectively. The Company's
effective income tax rate for fiscal 1995 was reduced due to the
non-deductibility of significant charges in 1995 for write-offs.
See Note 7 to the Consolidated Financial Statements.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
During the fiscal year ended June 30, 1994, the Company adopted Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), which resulted in an
$800,000 or $.25 per share cumulative effect benefit in net income in that
period.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its business primarily from cash flows from operations,
short-term bank borrowings, and proceeds from the sale of stock. Working capital
increased to $3,092,310 at June 30, 1996 from $1,967,042 at June 30, 1995,
resulting primarily from growth in receivables and inventories related to
increased retail channel sales, offset by an increase in accounts payable and
other accrued liabilities and current income taxes payable.
The Company has used cash generated from operations and short-term borrowings to
fund its working capital requirements and to acquire software products and
furniture and equipment. The Company's operating activities provided net cash of
$716,657, $277,553 and $579,655 in fiscal 1996, 1995 and 1994, respectively. The
increase in fiscal 1996 cash flows from operations was due to increased
operating revenues. The Company's capital expenditures totaled $1,089,135,
$598,339 and $1,435,800 in fiscal 1996, 1995 and 1994, respectively. These
capital expenditures were primarily for the acquisition and development of
software,
12
<PAGE> 14
trademarks and the purchase of additional office equipment. At June 30, 1996,
the Company had no material commitments for capital expenditures. Net cash
proceeds provided by financing activities was $236,649, $322,674 and $1,187,956
in fiscal 1996, fiscal 1995 and fiscal 1994, respectively. Net repayments on the
line of credit used cash of $400,000 in the year ended June 30, 1996. Proceeds
from the issuance of common stock provided cash of $109,074, $40,885 and
$1,443,222 in the fiscal years ended June 30, 1996, 1995 and 1994, respectively.
As of June 30, 1996, the Company had a credit agreement with a bank under which
it can borrow the lesser of $1,500,000 or 25% of eligible inventory up to a cap
of $500,000 and 80% of eligible accounts receivable, at the bank's index rate
plus 1/2%. Under terms of the agreement, all assets not subject to liens of
other financial institutions have been pledged as collateral against the line of
credit. As of June 30, 1996 the Company did not have any outstanding balance
under this line of credit. The credit line availability at June 30, 1996 was
$1,500,000. On September 9, 1996, the bank credit agreement was amended to
increase the maximum borrowings to $2,000,000; therefore the amended credit line
availability was $ 950,000 at September 9, 1996. (See Note 5 to Consolidated
Financial Statements).
The Company's business is extremely seasonal. Accordingly, the Company's
operating results and cash flow requirements may fluctuate greatly during the
year. Historically, the Company's borrowing under its bank credit line have
approached the maximum available borrowings during periods of peak cash needs.
Such conditions may occur in the future.
The Company has experienced, and expects to continue to experience, significant
fluctuations in operating results due to a variety of factors, including the
size and rate of growth of the consumer software market, market acceptance of
the Company's products and those of its competitors, development and promotional
expenses relating to the introduction of new products or new versions of
existing products, projected and actual changes in computing platforms, the
timing and success of product introductions, product returns, changes in pricing
policies by the Company and its competitors, difficulty in securing retail shelf
space for the Company's products, the accuracy of retailer's forecasts of
consumer demand, the timing of orders from major products, order cancellations
and delays in shipment. In response to competitive pressures, the Company may
take certain pricing or marketing actions that could materially adversely affect
the Company's business, operating results and financial condition. The Company
may be required to pay fees in advance or to guarantee royalties, which may be
substantial, or to obtain licenses to intellectual properties from third parties
before such properties have been introduced or achieved market acceptance. A
significant portion of the Company's operating expenses are relatively fixed,
and planned expenditures are based in part on sales forecasts. If net sales do
not meet the Company's expectations, the Company's business, operating results
and financial condition could be materially adversely affected.
The Company believes that cash flow from operations, together with existing
sources of liquidity, will satisfy the Company's working capital (including
payment of income tax liabilities, which were approximately $1,000,000 as of
June 30, 1996) and capital expenditure requirements for at least the next twelve
months. The Company believes that these sources will also be sufficient to
satisfy its working capital and capital expenditure requirements beyond the next
12 months at the Company's current level of operations. The Company's long term
goal, however, is to grow substantially. Expansion of the Company's current
business may involve significant financial risk and require significant capital
investment. Significant expansion of the Company's operations, future
acquisitions of products or companies, unexpected increases in expenses or other
factors might lead the Company to seek additional debt or equity financing.
While the Company believes it will be able to raise any necessary funds, there
can be no assurances that the Company will be able to do so, and failure to
obtain sufficient capital could have a material adverse effect on the Company or
adversely affect the Company's ability to continue to grow. In order to finance
future growth or for other reasons, the Company may consider an offering of its
equity securities within the next year or thereafter. The decision to undertake
such an offering, and the size of such an offering, would depend upon many
factors, such as the market price of the Common
13
<PAGE> 15
Stock, the working capital and capital expenditure needs of the Company, the
availability of alternative sources of capital, and general market conditions.
NEW ACCOUNTING STANDARDS
The Company is required to adopt Statement of Financial Accounting Standards
(SFAS) No. 123,"Accounting for Stock Based Compensation" in fiscal 1997. SFAS
No. 123 establishes accounting and disclosure requirements using a fair value
based method of accounting for stock based employee compensation plans. Under
SFAS 123, the Company may either adopt the new fair value based accounting
method or continue the intrinsic value based method and provide pro forma
disclosures of net income and earnings per share as if the accounting provisions
of SFAS No. 123 had been adopted. The Company plans to adopt only the disclosure
requirements of SFAS No. 123, and therefore, such adoption will have no effect
on the Company's reported net earnings or cash flows.
The Company is required to adopt SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of" in fiscal 1997. SFAS
No. 121 establishes recognition and measurement criteria for impairment losses
whenever events or changes in circumstances indicate that the carrying value of
assets may not be recoverable. The Company does not expect the adoption of SFAS
No. 121 to have a material effect on its financial statements.
QUARTERLY TRENDS
The Company's consolidated results of operations to date have not been
materially affected by seasonal trends. However, the Company believes that in
the future its results may be impacted by such factors as order deferrals in
anticipation of new product releases, delays in shipments of new products, a
slower growth rate in the software markets in which the Company operates, or
adverse general economic and industry conditions in any of the countries in
which the Company does business. In addition, with significant portions of net
revenues contributed by international operations, fluctuations of the U.S.
dollar against foreign currencies and the seasonality of the European,
Asia/Pacific, and other international markets could impact the Company's results
of operations and financial position in a particular quarter. Rapid
technological change and the Company's ability to develop, manufacture, and
market products that successfully adapt to the change may also impact results of
operations. Further, increased market competition from competitors either known
or unknown to the Company could also negatively impact the Company's results of
operations. Due to these factors, the Company's future earnings and stock price
may by subject to significant volatility, particularly on a quarterly basis. Any
shortfall in revenues or earnings from anticipated levels could have an
immediate and adverse effect on the trading price of the Company's common stock.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements and the financial statement schedule are attached as an
exhibit at Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On December 20, 1995, the Company terminated Coopers & Lybrand LLP as
independent auditors for the Company. Coopers & Lybrand provided the Company
with a letter dated November 1, 1995 which explained that because of
independence concerns arising from the recent hiring by the Company of a new
employee who had a family relationship to a member of Coopers & Lybrand's San
Francisco office, it was transferring responsibility for the audit of the
Company from the San Francisco office to the Portland office. Coopers &
Lybrand's reports on the consolidated financial statements of the Company as of
and for the fiscal years ended June 30, 1994 and 1995 did not contain an adverse
opinion or a disclaimer of opinion and the reports were not
14
<PAGE> 16
qualified or modified as to uncertainty, audit scope or accounting principles.
The decision to change accountants was approved by the Company's Board of
Directors. During the Company's two prior fiscal years (June 30, 1994 and 1995)
and subsequent interim period (through December 20, 1995), there have been no
disagreements with Coopers & Lybrand on any matter of accounting principles or
practice, financial statement disclosure, or auditing scope or procedure, which,
if not resolved to the satisfaction of Coopers & Lybrand, would have caused
Coopers & Lybrand to make a reference to the subject matter of the disagreement
in connection with its report. During the Company's two prior fiscal years (June
30, 1994 and 1995) and subsequent interim period (through December 20, 1995),
there did not occur any kind of event listed in paragraphs (a)(1)(v)(A) through
(D) of Regulation S-K, Item 304.
Effective December 20, 1995, the Company engaged Deloitte & Touche LLP as
independent auditors to audit the Company's financial statements for the fiscal
year ended June 30, 1996. During the Company's two prior fiscal years (1994 and
1995) and subsequent interim period (through December 20, 1995), neither the
Company nor any person acting on behalf of the Company consulted Deloitte &
Touche regarding (i) either: the application of accounting principles to a
specified transaction, either completed or proposed; or the type of audit
opinion that might be rendered on the Company's financial statements; or (ii)
any matter that was either the subject of a disagreement (as defined in
paragraph (a)(1)(iv) of Regulation S-K, Item 304 and the related instructions)
or a reportable event (as described in paragraph (a)(1)(v) of Regulation S-K,
Item 304).
15
<PAGE> 17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company are as follows:
Name Age Position
---- --- --------
Mark H. Cosmez II 45 Vice President of Finance and CFO
Charles Federman 39 Director
Geoffrey Koblick 42 Chairman of the Board of
Directors, Secretary, General Counsel
Robert Mayer 42 Vice President, Director
Earl Hamlin 57 Director
Gordon Landies 40 Director
Martin Sacks 36 President and CEO, Director
Directors are elected at the annual meeting of shareholders and hold office
until the next annual meeting and until their successors are elected and
qualified. During fiscal 1996, one new director, Charles Federman, joined the
Board. Directors employed by the Company do not receive any monetary fees for
director services performed for the Company; directors are however, eligible to
participate in the Company's stock option plans. The Company may pay monetary
fees to other directors in the future. Officers serve at the pleasure of the
Board of Directors.
Mr. Mark H. Cosmez II began serving as the Company's Vice President of Finance
and Chief Financial Officer on August 1, 1994. Mr. Cosmez has over 20 years of
financial management experience. Prior to joining the Company, he was Corporate
Controller for The Software Toolworks, a publicly traded software company. From
1988 to 1994, Mr. Cosmez, who is a CPA, was the Corporate Controller of
ShareBase Corporation. He attended California State University, Hayward, where
he received a Bachelor of Arts degree in Chemistry in 1973 and a Master of
Business degree in Accounting in 1976.
Mr. Charles Federman became a director in May 1996. Mr. Federman is the Chairman
of the Executive Committee and a Managing Director of Broadview Associates of
Fort Lee, New Jersey. Broadview is an information and technology mergers &
acquisitions firm. Federman holds a Bachelor of Science degree from the
University of Pennsylvania's Wharton School of Business.
Mr. Geoffrey Koblick has been the Chairman of the Board of Directors, Secretary
and General Counsel of the Company since its inception and served as the
Company's President from its inception through September 15, 1987, and then
again from July 1, 1988 to June 30, 1990. From 1981 to 1982, Mr. Koblick was
legal counsel at MicroPro International Corporation (which later changed its
name to WordStar International Incorporated). Between 1979 and 1981, he
practiced law in San Francisco with Gunheim & Yturbide.
Mr. Robert Mayer has served as the Company's Vice President of Sales since 1990
and as a director since 1985. Prior to 1990 he served as Vice President of
Operations. Before joining the Company, Mr. Mayer
16
<PAGE> 18
worked at Gundlach Bundschu Winery in Sonoma from 1980 to 1983, where he was the
assistant wine maker and oversaw day-to-day operations.
Mr. Earl Hamlin became a director in 1995. Mr. Hamlin is a private investor.
From 1989 to 1994, he was a portfolio manager at Volpe, Welte and Company, an
investment banking firm. From 1973 to 1989, he was employed at Hambrect & Quist,
where he held several positions, including financial analyst. He has been a
director of 800 Software, a distributor of personal computer software and
hardware, and is currently a director of Data Storage Systems, Inc. and National
Employment Wire Service, Inc., which are both private companies.
Mr. Gordon Landies became a director in 1995. Mr. Landies has held several
managerial positions with Mindscape (formerly known as The Software Toolworks)
since 1989, most recently as Executive Vice President of Domestic Sales. Between
1984 and 1989, Mr. Landies was the President and founder of Design Software.
Prior to founding Design Software, he was employed by several firms in various
financial management capacities.
Mr. Martin Sacks has been a director of the Company since 1988 and the Company's
President and Chief Executive Officer since June 30, 1990. He was the founder of
Milan Systems America, Inc. which was acquired by the Company in 1988. Mr. Sacks
served as a consultant for Arthur Young and Company. Mr. Sacks also founded a
software training company in 1984 and received a Bachelor of Commerce and a
Bachelor of Accounting degree from the University of Witwatersrand, South Africa
in 1981.
17
<PAGE> 19
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth all compensation awarded, earned or paid for
services rendered in all capacities to the Company and its subsidiaries during
each of the fiscal years ended June 30, 1996, 1995 and 1994 to the Company's
Chief Executive Officer and the Company's most highly compensated executive
officers other than the Chief Executive Officer who were serving as executive
officers at the end of the fiscal year ending June 30, 1995 whose compensation
exceeded $100,000 for the most recently completed fiscal year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------- -----------------------------------------------
Name & Principal Position Year Salary ($) Bonus ($) Other Annual Stock All Other
- ------------------------- ---- ---------- --------- ------------- ------ ---------
Compensation(1) Options (#) Compensation($)
------------ - ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Martin Sacks, 1996 182,000 5,178 5,412 50,000 --
President and 1995 166,375 28,609 5,324 75,000 --
Chief Executive 1994 160,000 -- 4,300 -- --
Officer
Geoff Koblick, 1996 111,665 3,178 5,412 35,000
Chairman of the 1995 94,997 229 5,324 52,500
Board and General 1994 47,833 9,005 4,404 --
Counsel
Robert Mayer, 1996 120,000 6,728 5,412 15,000 --
Vice President 1995 120,229 12,790 5,324 15,000 --
1994 121,005 -- 4,300 -- --
Mark H. Cosmez II 1996 110,001 -- -- -- --
Vice President of 1995 100,834 -- -- 22,500 --
Finance and Chief 1994 -- -- -- -- --
Financial Officer
</TABLE>
(1) Consists of payment of medical premiums by the Company.
There are no employment agreements between the Company and any of the named
executive officers.
OPTION GRANTS IN FISCAL 1996
The following table sets forth further information regarding individual grants
of options to acquire the Company's Common Stock during fiscal 1996 to each
person named in the Summary Compensation Table above.
<TABLE>
<CAPTION>
Individual Grants
-----------------
% of Total Options
Granted To
Name Options Employees In Exercise Or Base Expiration
Granted Fiscal Year Price ($/Shr) Date
---- ------- ----------- ------------- -------
<S> <C> <C> <C> <C>
Martin Sacks 50,000 15.8% 6.25 2/12/06
Geoff Koblick 35,000 11.0% 6.25 2/12/06
Robert Mayer 15,000 4.7% 6.25 2/12/06
</TABLE>
18
<PAGE> 20
The following table sets forth information with respect to the options exercised
during fiscal 1996 by the executive officers named in the Summary Compensation
Table, including the aggregate value of gains on the date of exercise. In
addition, this table includes the number of shares covered by both exercisable
and non-exercisable stock options as of June 30, 1996. Also reported are the
values for "in-the-money" options which represent the positive spread between
the exercise price of any such existing stock options and the year-end price of
the Common Stock.
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options/SARs In-The-Money Options At
Shares Acquired At June 30, 1996 (#) June 30, 1996 ($)
Exercisable/ Exercisable/
Name Exercise (#) Value Realized Unexercisable Unexercisable
- ---- ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Martin Sacks 0 0 108,848/50,000 (1) $668,494/$131,250 (2)
Geoff Koblick 0 0 52,500/35,000 (1) $282,188/$91,875 (2)
Robert Mayer 0 0 68,424/15,000 (1) $491,865/$39,375 (2)
Mark Cosmez 0 0 4,500/18,000 (1) $27,188/$108,751 (2)
</TABLE>
(1) These options which have a five year vesting period become exercisable over
time based on continuous employment with the Company.
(2) Based on the difference between the market price of the Common Stock at June
30, 1996 ($8.875 per share) and the aggregate exercise prices of options shown
in the table.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors and executive
officers, and persons who own more than ten percent of a registered class of the
Company's equity securities, to file with the Commission initial reports of
ownership and reports of changes in ownership of the Company's Common Stock and
other equity securities of the Company. Officers, directors and greater than ten
percent shareholders are required by the Commission's regulations to furnish the
Company with copies of all Section 16(a) forms they filed.
To the Company's knowledge, based solely on review of the copies of such reports
furnished to the Company, during the last fiscal year all Section 16(a) filing
requirements applicable to the Company's officers, directors, and greater than
ten percent beneficial owners were complied with.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 16, 1996 the ownership of the
Company's Common Stock by (i) each person who is known by the Company to be
owners of record or beneficially own more than 5% of the Company's Common Stock,
(ii) each of the Company's directors (or nominees to be directors) and (iii) all
directors and executive officers as a group. Except as otherwise indicated, the
shareholders listed in the table have sole voting and investment powers with
respect to the shares indicated, subject to community property laws where
applicable.
19
<PAGE> 21
Name and Address Number of Shares Percentage of
of Beneficial Owner Beneficially Owned Common Stock(1)
------------------- ------------------ ---------------
Geoffrey Koblick (2)
P.O. 776
Ross, CA 94957 300,692 9.04%
Robert Mayer(3)
1895 Francisco Blvd. East
San Rafael, CA 94901 308,576 9.23%
Martin Sacks(4)
1895 Francisco Blvd. East
San Rafael, CA 94901 514,914 15.22%
Earl Hamlin (5)
1895 Francisco Blvd. East
San Rafael, CA 94901 14,088 0.43%
Gordon Landies (6)
1895 Francisco Blvd. East
San Rafael, CA 94901 41,000 1.25%
Charles Federman
1 Bridge Plaza
Fort Lee, NJ 07024 15,750 0.48%
Tudor Investment Corporation (7)
One Liberty Plaza, 51st floor
New York, NY 10006 223,350 6.82%
All directors and executive officers
as a group (7 persons) 1,208,520 34.23%
(1) Does not give effect to the exercise of outstanding options held by persons
other than the named individuals of the group.
(2) Includes 52,500 shares issuable upon the exercise of stock options held by
Mr. Koblick.
(3) Includes 68,424 shares issuable upon the exercise of stock options held by
Mr. Mayer.
(4) Includes 108,848 shares issuable upon the exercise of stock options held by
Mr. Sacks.
(5) Includes 3,000 shares issuable upon the exercise of stock options held by
Mr. Hamlin.
(6) Includes 11,000 shares issuable upon the exercise of stock options held by
Mr. Landies.
(7) Based solely on a Schedule 13D filed on July 11, 1994.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company previously leased office and warehouse space from a partnership
which is partially owned by Geoffrey and Phyllis Koblick (25% interest), the
Company's Chairman, and Maury and Jane Koblick (25% interest), Mr. Koblick's
parents. The Company terminated its lease with the above mentioned partnership
in fiscal 1995. The Company believes that the terms of said lease were as
favorable as those that the Company could have obtained from unaffiliated third
parties.
20
<PAGE> 22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS ANNUAL REPORT ON FORM 10-K:
1. Financial Statements
<TABLE>
<S> <C>
Independent Auditors' Reports 22
Consolidated Balance Sheets at June 30, 1996 and 1995 24
Consolidated Statements of Operations for
the years ended June 30, 1996, 1995 and 1994 25
Consolidated Statements of Shareholders' Equity
for the years ended June 30, 1996, 1995 and 1994 26
Consolidated Statements of Cash Flows for the years
ended June 30, 1996, 1995 and 1994 27
Notes to Consolidated Financial Statements 28
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years ended
June 30, 1996, 1995 and 1994 38
(B) REPORTS ON FORM 8-K: NONE.
(C) EXHIBITS: SEE EXHIBIT INDEX 40
</TABLE>
21
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
International Microcomputer Software, Inc.
We have audited the accompanying consolidated balance sheet of International
Microcomputer Software, Inc. and subsidiaries (the "Company") as of June 30,
1996 and the related consolidated statements of operations, shareholders'
equity, and of cash flows for the fiscal year then ended. Our audit also
included the consolidated financial statement schedule for the fiscal year ended
June 30, 1996 listed in the Index at Item 14(a)2. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of International Microcomputer
Software, Inc. and subsidiaries as of June 30, 1996, and the results of their
operations and their cash flows for the fiscal year then ended in conformity
with generally accepted accounting principles. Also, in our opinion, the 1996
consolidated financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
- ---------------------------
San Francisco, California
August 16, 1996 (September 9,1996 as to the third sentence of Note 5)
22
<PAGE> 24
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
International Microcomputer Software, Inc.
San Rafael, California
We have audited the accompanying consolidated financial statements and financial
statement schedule of International Microcomputer Software, Inc. and
Subsidiaries as of June 30, 1995 and for the years ended June 30, 1995 and 1994.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 consolidated financial position of International
Microcomputer Software, Inc. and Subsidiaries as of June 30, 1995, and the
consolidated results of their operations and their cash flows for the years
ended June 30, 1995 and 1994 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be included therein.
/s/ COOPERS & LYBRAND L.L.P.
- -------------------------------
Coopers & Lybrand L.L.P.
San Francisco, California
August 28, 1995, except for note 10, for
which the date is September 21, 1995
23
<PAGE> 25
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 387,406 $ 523,235
Receivables, less allowances for doubtful
accounts and returns of $1,301,509 and $777,718 4,121,210 2,590,322
Inventories, net 2,538,093 1,625,631
Prepaid royalties and licenses 746,677 336,053
Deferred direct mail costs 217,513 358,398
Deferred tax assets, net 791,301 321,362
Other current assets 262,108 182,637
----------- ----------
Total current assets 9,064,308 5,937,638
Furniture and equipment, net 1,101,306 836,610
Deferred tax assets, net 344,067 411,721
Capitalized software development costs, net 272,102 244,839
Intangibles and other assets, net 276,595 39,583
----------- ----------
Total assets $11,058,378 $7,470,391
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Credit line payable $ -- $ 400,000
Accounts payable and accrued expenses 4,395,461 3,139,059
Income taxes payable 1,011,118 245,008
Current portion of notes payable 333,778 --
Current portion of capital lease obligations 231,641 186,529
----------- ----------
Total current liabilities 5,971,998 3,970,596
Capital lease and other long-term obligations 283,321 102,570
Notes payable 281,250 --
----------- ----------
Total liabilities 6,536,569 4,073,166
----------- ----------
Commitments and contigencies
Shareholders' equity:
Preferred stock, no par value;
20,000,000 shares authorized;
none issued or outstanding -- --
Common stock, no par value;
300,000,000 shares authorized;
Issued and outstanding - 3,223,125
and 3,173,304 shares, respectively 5,972,850 5,863,776
Accumulated deficit (1,223,797) (2,177,369)
Cumulative translation adjustment 66,214 (23,724)
Notes receivable from shareholders (293,458) (265,458)
----------- ----------
Total shareholders' equity 4,521,809 3,397,225
----------- ----------
Total liabilities and shareholders' equity $11,058,378 $7,470,391
=========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
24
<PAGE> 26
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net revenues $25,679,017 100.0% $20,300,361 100.0% $23,118,193 100.0%
Product costs 8,261,583 32.2% 7,143,795 35.2% 7,745,258 33.5%
----------- ----- ----------- ----- ----------- -----
Gross margin 17,417,434 67.8% 13,156,566 64.8% 15,372,935 66.5%
----------- ----- ----------- ----- ----------- -----
Costs and expenses:
Sales and marketing 9,888,558 38.5% 8,918,867 44.0% 11,039,663 47.8%
General and administrative 2,556,757 10.0% 2,456,990 12.1% 2,627,649 11.4%
Research and development 3,170,937 12.3% 2,151,069 10.6% 1,152,382 5.0%
----------- ----- ----------- ----- ----------- -----
15,616,252 60.8% 13,526,926 66.6% 14,819,694 64.1%
----------- ----- ----------- ----- ----------- -----
Operating income (loss) 1,801,182 7.0% (370,360) (1.8)% 553,241 2.4%
Other income (expense), net (262,374) (1.0)% (53,925) (0.3)% 20,118 0.1%
----------- ----- ----------- ----- ----------- -----
Income (loss) before taxes and
cumulative effect of accounting
change 1,538,808 6.0% (424,285) (2.1)% 573,359 2.5%
Provision for income taxes 585,236 2.3% 10,548 0.1% 253,169 1.1%
----------- ----- ----------- ----- ----------- -----
Income (loss) before cumulative
effect of accounting change 953,572 3.7% (434,833) (2.1)% 320,190 1.4%
Cumulative effect of accounting
change -- -- -- -- 800,000 3.5%
----------- ----- ----------- ----- ----------- -----
Net income (loss) $953,572 3.7% $(434,833) (2.1)% $1,120,190 4.8%
=========== ===== =========== ===== =========== =====
</TABLE>
<TABLE>
<S> <C> <C> <C>
Net income (loss) per common and common equivalent share:
Primary and Fully diluted
Income (loss) before cumulative
effect of accounting change $ 0.26 $ (0.14) $ 0.10
Cumulative effect of
accounting change 0.00 0.00 0.25
$ 0.26 $ (0.14) $ 0.35
Weighted average common and common
equivalent shares used to compute income (loss) per share:
Primary and Fully diluted 3,614,963 3,146,124 3,219,705
</TABLE>
See Notes to Consolidated Financial Statements
25
<PAGE> 27
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended June 30, 1996, 1995, and 1994
<TABLE>
<CAPTION>
Notes
Cumulative Receivable from
Common Stock Accumulated Translation
------------
Shares Amount Deficit Adjustment Shareholders
------ ------ ------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1993 2,688,298 $4,233,528 $(2,862,726) $(52,009) $(299,500)
Issuance of common
stock for cash 301,695 1,338,345 -- -- --
Issuance of common
stock for inventory
and prepaid royalties 15,287 100,000 -- -- --
Loan to shareholder -- -- -- -- (43,908)
Issuance of common
stock under stock
bonus plan 36,844 39,501 -- -- --
Issuance of common
stock for options
exercised 73,760 77,375 -- -- --
Repurchase and
cancellation of
stock (16,500) (17,000) -- -- 10,000
Payment of principal
on notes receivable 40,450
Net income -- -- 1,120,190
Foreign currency
translation -- -- -- (9,881) --
--------- ---------- ----------- ------- ---------
Balance at
June 30, 1994 3,099,384 5,771,749 (1,742,536) (61,890) (292,958)
Issuance of common
stock under stock
bonus plan 3,321 11,629 -- -- --
Issuance of common
stock for options
exercised 70,599 80,398 -- -- --
Forgiveness of
principal on
notes receivable -- -- -- -- 27,500
Net loss -- -- (434,833) -- --
Foreign currency
translation -- -- -- 38,166 --
--------- ---------- ----------- ------- ---------
Balance at
June 30, 1995 3,173,304 5,863,776 (2,177,369) (23,724) (265,458)
Issuance of common
stock under stock
bonus plan 3,059 14,607 -- -- --
Stock issued for
note receivable 2,222 20,000 -- -- (20,000)
Issuance of common
stock for options
exercised 44,540 74,467 -- -- --
Net income -- -- 953,572 -- --
Foreign currency
translation -- -- -- 89,938 --
Loan to shareholder -- -- -- -- (8,000)
--------- ---------- ----------- ------- ---------
Balance at
June 30, 1996 3,223,125 $5,972,850 $(1,223,797) $66,214 $(293,458)
========= ========== =========== ======= =========
</TABLE>
See Notes to Consolidated Financial Statements
26
<PAGE> 28
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 953,572 $ (434,833) $ 1,120,190
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Cumulative effect of accounting change -- -- (800,000)
Depreciation 363,445 351,822 292,925
Amortization 482,035 975,641 362,431
Compensation expense -- 78,642 --
Deferred taxes (402,285) (225,721) 260,433
Loss on equipment write-offs -- 37,279 --
Changes in: -- -- --
Receivables, net (1,530,888) (934,551) (498,056)
Inventories (912,462) (337,863) (365,754)
Prepaid royalties and licenses (410,624) (102,547) (171,006)
Deferred direct marketing costs 140,885 333,849 187,978
Other current assets (79,471) (24,912) (50,146)
Accounts payable and accrued expenses 1,256,402 262,124 325,935
Income taxes payable/receivable, net 766,110 260,457 (71,068)
Foreign currency translation 89,938 38,166 (14,207)
----------- ----------- -----------
Net cash provided by operating activities 716,657 277,553 579,655
----------- ----------- -----------
Cash flows from investing activities:
Purchases of furniture and equipment (342,826) (356,969) (465,795)
Floor Plan acquisition (687,500) -- --
Capitalized software development costs (58,719) (191,460) (992,399)
Other (90) (49,910) 22,394
----------- ----------- -----------
Net cash (used) by investing activities (1,089,135) (598,339) (1,435,800)
----------- ----------- -----------
Cash flows from financing activities:
Credit line borrowings 1,525,000 2,245,000 --
Credit line repayments (1,925,000) (1,845,000) (205,000)
Borrowings through term loan and other obligations 768,750 -- --
Repayments on capital lease and other obligations (241,175) (118,211) (51,808)
Other -- -- 1,542
Proceeds from issuance of common stock-net 109,074 40,885 1,443,222
----------- ----------- -----------
Net cash provided by financing activities 236,649 322,674 1,187,956
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (135,829) 1,888 331,811
Cash and cash equivalents at beginning of period 523,235 521,347 189,536
----------- ----------- -----------
Cash and cash equivalents at end of the period $ 387,406 $ 523,235 $ 521,347
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 180,484 $ 53,958 $ 19,999
Income taxes paid $ 165,000 $ 7,619 $ 82,953
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING AND
INVESTING ACTIVITIES
Equipment acquired through capital lease obligations $ 401,263 $ 206,291 $ 252,828
Issuance of common stock for inventory and prepaid
royalties -- -- $ 100,000
Other -- $ 78,642 $ 5,000
</TABLE>
See Notes to Consolidated Financial Statements
27
<PAGE> 29
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
International Microcomputer Software, Inc. (IMSI or the Company) was
incorporated in California in November 1982. The Company has wholly-owned
subsidiaries located in Munich, Germany; Sydney, Australia; London, England;
Johannesburg, South Africa and Paris, France.
The Company develops, publishes and markets a diversified line of personal
computer software and sells complementary computer hardware for use in homes and
small businesses. The Company sells its products primarily through a network of
dealers and distributors and by direct sales to end users.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of IMSI and its
wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
USE OF 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 assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Significant estimates used in the consolidated financial statements include the
estimates of (i) anticipated future gross revenues from products for which
software development costs have been capitalized, (ii) provision for income
taxes, (iii) the life of identifiable intangible assets from acquisitions, and
(iv) realizability of the deferred tax asset. The amounts the Company will
ultimately incur or recover could differ materially from the Company's current
estimates. The underlying assumptions and facts supporting these estimates
could change in fiscal 1997 or thereafter.
REVENUE RECOGNITION
The Company recognizes revenue, net of estimated returns and allowances, upon
shipment of a product and only when no significant obligations remain and
collectability is probable. Certain of the Company's sales are made to customers
under agreements permitting rights of return for stock balancing.
CONCENTRATIONS OF CREDIT RISK
The Company sells its products principally through a network of distributors and
on a direct customer basis. The Company performs ongoing credit evaluations of
its distributors and customers' financial condition and generally requires no
collateral.
ROYALTY AGREEMENTS
The Company has entered into certain agreements whereby it is obligated to pay
royalties on software published. Software royalties are expensed as product
costs during the period in which related revenues are recorded.
28
<PAGE> 30
DEFERRED DIRECT MAIL COSTS
Deferred direct mail advertising costs consist primarily of design, printing,
postage and material costs. Costs are deferred which have been determined to
benefit future product sales based on specific response data from customers.
Deferred costs are amortized at the earlier of revenue recognition (on a ratable
basis) or over a period of approximately two months on the straight line basis.
Direct mail costs deferred for the fiscal years ended June 30, 1996, 1995 and
1994, were $3,819,189, $3,961,234 and $6,816,773 respectively.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a original
maturity of 90 days or less to be cash equivalents.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Costs incurred in the initial design phase of software development are expensed
as incurred as research and development. Once the point of technological
feasibility is reached, direct production costs (programming and testing) are
capitalized. Costs associated with acquired software are capitalized. Total
capitalized software development costs at June 30, 1996, 1995 and 1994 were
$2,012,607, $1,610,138 and $1,418,678, respectively, less accumulated
amortization of $1,740,505, $1,365,299 and $425,791, respectively. Capitalized
costs are being amortized ratably as revenues are recognized, but not less than
on the straight line basis over an eighteen month period.
During the fiscal year ended June 30, 1995, due to rapid technology
enhancements, the Company reevaluated the economic lives of products for which
it capitalized software acquisition or development costs. As a result, beginning
with the quarter ending March 31, 1995, the Company reduced the amortization
period from 36 to 18 months. Amortization expense, charged to product costs, was
$375,206, $939,507 and $341,866 in fiscal years 1996, 1995 and 1994,
respectively. The Company evaluates the estimated net realizable value of each
software product at each balance sheet date and records writedowns to net
realizable value for any products for which the carrying value is in excess of
the net estimated realizable value.
INVENTORIES
Inventories, consisting primarily of diskettes, manuals, hardware, freight in,
production costs and packing supplies, are valued at the lower of cost or market
and are accounted for on the first-in, first-out basis.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Depreciation of furniture and
equipment is computed using accelerated depreciation methods over the estimated
useful lives of the respective assets of 5 to 7 years. Depreciation of software
and computer equipment is computed using the straight line method over an
estimated useful life of 3 years.
INCOME TAXES
Effective July 1, 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109 "Accounting for Income Taxes," which requires an asset
and liability approach to financial accounting and reporting for income taxes.
Adoption of SFAS No. 109 resulted in a cumulative effect benefit of $800,000 or
$.25 per share in fiscal 1994. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax basis
of assets and liabilities that will result in taxable or deductible amounts in
the future, based on enacted tax laws and rates applicable to the periods in
which the differences are
29
<PAGE> 31
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
FOREIGN CURRENCY TRANSLATION
The asset and liability accounts of foreign subsidiaries are translated from
their respective functional currencies at the rates in effect at the balance
sheet date, and revenue and expense accounts are translated at weighted average
rates during the periods. Foreign currency translation adjustments are reflected
as a separate component of shareholders' equity. Losses resulting from foreign
currency transactions were $81,879 in fiscal 1996 and were not material in
fiscal 1995 or 1994.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed based on the weighted average number of
common stock and dilutive common stock equivalents outstanding during the
periods. In October 1995, the Company's Board of Directors announced a 3 for 2
stock split to shareholders of record as of October 20, 1995 which was effected
as a stock dividend distributed to shareholders on November 3, 1995. The
accompanying consolidated financial statements have been restated to give
retroactive recognition to the stock split.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes the carrying amount of its financial instruments, which
consists primarily of cash and investments, receivables, payables and notes
payable, approximates their fair value due to the short term maturity of these
instruments.
NEW ACCOUNTING STANDARDS
The Company is required to adopt Statement of Financial Accounting Standards
(SFAS) No.123, "Accounting for Stock-Based Compensation" in fiscal 1997. SFAS
No. 123 establishes accounting and disclosure requirements using a fair value
based method of accounting for stock based employee compensation plans. Under
SFAS No. 123 the Company may either adopt the new fair value based accounting
method or continue the intrinsic value based method and provide pro forma
disclosures of the net income and earnings per share as if the accounting
provisions of SFAS No. 123 had been adopted. The Company plans to adopt only the
disclosure requirements of SFAS No.123, therefore, such adoption will have no
effect on the Company's net earnings or cash flows.
The Company is required to adopt SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of" in fiscal 1997. SFAS
No.121 establishes recognition and measurement criteria for impairment loses
whenever events or changes in circumstances indicate that the carrying value of
assets may not be recoverable. The Company does not expect the adoption of SFAS
No. 121 to have a material effect on its financial statements.
RECLASSIFICATIONS
Certain fiscal 1995 and 1994 amounts have been reclassified to conform with the
method of presentation in fiscal 1996.
30
<PAGE> 32
2. INFORMATION ABOUT FOREIGN OPERATIONS
Total assets, net revenues and net income (loss) of U.S., United Kingdom (UK),
Australia, Germany, South Africa (SA), France and Rest of World (which includes
Japan, the Pacific rim and Latin America) as of and for the years ended June 30
were as follows:
<TABLE>
<CAPTION>
Total Assets: 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
U.S. $ 8,901,078 $ 5,545,653 $ 5,129,929
U.K. 789,591 667,294 822,140
Australia 541,245 335,335 448,032
Germany 276,074 425,539 352,218
South Africa 243,768 145,221 --
France 82,391 33,750 --
Rest of World 224,231 317,599 --
------------ ------------ ------------
$ 11,058,378 $ 7,470,391 $ 6,752,319
============ ============ ============
Net Revenues:
U.S. $ 17,064,530 $ 12,900,924 $ 17,700,957
U.K. 2,911,292 2,894,521 3,202,636
Australia 1,891,285 1,798,258 1,370,620
Germany 2,095,072 1,864,341 843,980
South Africa 481,388 222,729 --
France 119,350 -- --
Rest of World 1,116,100 619,588 --
------------ ------------ ------------
$ 25,679,017 $ 20,300,361 $ 23,118,193
============ ============ ============
Net income (loss):
U.S. $ 1,021,305 $ (323,446) $ 1,087,292
U.K. (3,673) 16,383 6,301
Australia (29,465) (694) (1,853)
Germany 74,892 (12,306) 28,450
South Africa (136,890) (63,121) --
France (59,769) (36,461) --
Rest of World 87,172 (15,188) --
------------ ------------ ------------
$ 953,572 $ (434,833) $ 1,120,190
============ ============ ============
</TABLE>
3. INVENTORIES
At June 30, inventories consist of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Raw materials $ 775,026 $ 771,162
Finished goods 1,959,248 1,040,793
----------- -----------
2,734,274 1,811,955
Reserves for Obsolescence (196,181) (186,324)
----------- -----------
$ 2,538,093 $ 1,625,631
=========== ===========
</TABLE>
31
<PAGE> 33
4. FURNITURE AND EQUIPMENT
At June 30, furniture and equipment consist of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Computer and office equipment $1,912,873 $1,487,135
Software 173,707 167,990
---------- ----------
2,086,580 1,655,125
Less accumulated depreciation 985,274 818,515
---------- ----------
$1,101,306 $ 836,610
========== ==========
</TABLE>
Included in computer and office equipment at June 30, 1996 and 1995 is equipment
acquired under capital leases of $401,263 and $459,119, respectively, with
accumulated depreciation of $234,419 and $141,567, respectively.
5. CREDIT LINE AND NOTE PAYABLE
As of June 30, 1996, the Company had a credit agreement with a bank under which
it can borrow the lesser of $1,500,000 or 25% of eligible inventory up to a cap
of $500,000 and 80% of eligible accounts receivable, at the bank's index rate
plus 1/2% (8.75% at June 30, 1996). The amount of the unused credit line at June
30, 1996 was $ 1,500,000. On September 9, 1996 the bank credit agreement was
amended to increase the maximum borrowing to $2,000,000. The line of credit
agreement requires the Company to maintain certain financial ratios including
net worth and working capital. Under terms of the agreement, all assets not
subject to liens of other financial institutions have been pledged as collateral
against the line of credit. The credit line expires October 31, 1996. Management
believes that the Company will be able to renew or replace such credit agreement
with the bank or another financial institution on substantially similar terms.
In September 1995, the Company entered into a term loan for $675,000 payable
over a three year period in equal monthly installments at an annual rate of 1
percent over the bank's prime rate (9.25% at June 30, 1996)(See Note 10).
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at June 30:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Trade accounts payable $3,803,690 $2,831,626
Sales tax and VAT payable 194,083 120,517
Wages, vacation, and bonus payable 375,952 111,916
Contracts payable 21,736 75,000
---------- ----------
$4,395,461 $3,139,059
========== ==========
</TABLE>
32
<PAGE> 34
7. INCOME TAXES
Taxes on income are based on income (loss) before taxes as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Domestic $ 1,382,808 $(394,239) $540,461
Foreign 156,000 (30,406) 32,898
----------- --------- --------
$ 1,538,808 $(424,285) $573,359
=========== ========= ========
</TABLE>
The provision for taxes on income for the years ended June 30, 1996, 1995 and
1994 comprised the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 821,104 $ 123,026 $ 16,723
State 132,417 57,341 (44,987)
Foreign 34,000 55,947 21,000
--------- --------- ---------
987,521 236,314 (7,264)
--------- --------- ---------
Deferred
Federal (334,454) (170,834) 245,689
State (67,831) (54,932) 14,744
--------- --------- ---------
(402,285) (225,766) 260,433
--------- --------- ---------
Total tax provision $ 585,236 $ 10,548 $ 253,169
========= ========= =========
</TABLE>
33
<PAGE> 35
Deferred tax balances consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
1996 1995
---- ----
<S> <C> <C>
Current assets
Package design cost $ 19,199 $ 15,485
Allowance for inventory 164,906 63,824
Capitalized inventory costs 113,319 63,922
Allowance for doubtful
accounts and returns 455,079 265,743
Other 126,042 42,744
----------- ---------
878,545 451,718
Noncurrent assets
Package design costs 76,796 61,942
NOL carryforward 280,039 265,118
Purchased intangibles 116,771 133,788
Other 25,585 71,812
----------- ---------
499,191 532,660
----------- ---------
Total assets 1,377,736 984,378
----------- ---------
Current liabilities
Deferred direct mail costs (54,566) (98,107)
Noncurrent liabilities
Capitalized software
development costs (50,100) (89,110)
----------- ---------
Total liabilities (104,666) (187,217)
----------- ---------
Net assets, before allowance 1,273,070 797,161
Valuation allowance (137,702) (64,078)
----------- ---------
Net deferred tax assets $ 1,135,368 $ 733,083
=========== =========
</TABLE>
The Company has recorded a valuation allowance for foreign deferred tax assets
due to the uncertainty of the realization of the assets during the ultimate
benefit period.
At June 30, 1996, the Company had an operating loss carryforward of
approximately $515,000 for federal tax purposes which expires in various amounts
in 2000 - 2005.
34
<PAGE> 36
The effective tax rate differs from the federal statutory rate of 34% for the
years ended June 30 as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Federal tax at statutory rate on
net income (loss) before taxes
and cumulative effect of
accounting change $ 523,260 34.0% $(144,257) (34.0%) $194,942 34.0%
State tax provision, net of
federal benefit 94,464 6.1% (2,409) (0.6%) 35,193 6.1%
Change in valuation allowance 73,624 4.8% 64,078 15.1% -- --
Foreign -- -- (34,947) (8.2%) 21,000 3.7%
Unrecognized benefit from
foreign losses -- -- 34,159 8.0% -- --
Amortization of intangibles
and other 39,888 2.6% 17,174 4.0% -- --
Federal & state research and
experimentation credits (146,000) (9.5%)
Adjustment to prior years'
estimated net assets -- -- 76,750 18.1% 2,034 0.3%
--------- ---- --------- ---- -------- ----
Total $ 585,236 38.0% $ 10,548 2.4% $253,169 44.1%
========= ==== ========= ==== ======== ====
</TABLE>
8. STOCK OPTIONS AND EMPLOYEE STOCK INCENTIVE PLANS
The Company has a qualified and non-qualified employee stock option plans, as
amended, that reserves shares of common stock for issuance to employees and
consultants. Under the terms of the Plan, the Board may grant stock options to
purchase common stock of the Company over a period of ten years at the fair
market value at the time of grant.
Incentive stock options generally become exercisable on the grant date, although
the Board may establish a vesting schedule at the time the options are granted.
Unexercised stock options expire in ten years, in the case of incentive stock
options, and ten years and two days, in the case of non-qualified stock options,
from the date of grant.
On April 27, 1987, the Plan was amended to allow the issuance of nonqualified
options to purchase common stock at a minimum exercise price of 85% of the fair
market value of the common stock on the date of grant. Incentive stock options
granted under the revised plan will expire three months after an employee's
termination and nonqualified options will expire between three and seven months
after an employee's termination.
On April 21, 1992, the shareholders approved the 1992 Stock Option Plan,
authorizing the issuance of up to 600,000 shares of common stock under the Plan.
On November 18, 1993, the Company filed a Form S-8 with the Securities and
Exchange Commission registering 37,500 shares of common stock for issuance to
employees pursuant to the 1993 Employee Incentive Plan and
35
<PAGE> 37
1993 Profit Sharing Plan. The Company issued 36,845 shares of common stock to
employees pursuant to the plan in fiscal year 1994.
On April 30, 1994, the shareholders approved the 1993 Incentive Plan which
increased by 300,000 the number of shares eligible for the Plan.
On April 1, 1995, the stockholders approved an amendment to the Company's 1993
Incentive Plan which increased by 150,000 the number of shares eligible for the
Plan.
On January 19, 1996, the stockholders approved an amendment to the Company's
1993 Incentive Plan which increased by 300,000 the number of shares eligible for
the Plan.
The following summarizes the activity under the Plans for the fiscal years ended
June 30, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
Options outstanding
-------------------
Qualified Non-qualified
--------- -------------
Price per Price per
Shares Share Shares Share
------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding on
July 1, 1993 268,091 $0.33 -$12.33 42,443 $0.72 - $2.33
Granted 63,750 $4.00 - $8.00 15,000 $6.17
Canceled (38,166) $0.54 - $7.00 (15,000) $0.33
Exercised (53,970) $0.54 - $4.00 (23,255) $0.72 - 1.80
------- ------------- ------- -------------
Outstanding on
June 30, 1994 239,705 $0.33 -$12.33 19,188 $0.72 - $1.80
======= ============= ======== =============
Granted 283,500 $2.83 - $5.33 82,500 $3.50 - 6.00
Canceled (6,000) $3.50 (18,000) $3.50
Exercised (66,099) $0.54 - $3.50 (4,500) $3.50
Outstanding on
June 30, 1995 451,106 $0.33 -$12.33 79,188 $0.72 - $6.00
======= ============= ======= =============
Granted 318,911 $5.50 - $8.50 176,044 $6.25 - $9.50
Canceled (24,630) $0.54- $12.33 (73,638) $0.72 - $3.50
Exercised (28,373) $0.54 - $3.50 (16,167) $0.72 - $1.80
------- ------------- ------- -------------
Outstanding on
June 30, 1996 717,014 $0.33 - $8.50 165,427 $1.80 - $9.50
======= ============= ======= =============
Exercisable at
June 30, 1996 180,072 $0.33 - $4.00 18,177 $1.80 - $9.00
======= ============= ======= =============
</TABLE>
The Company has several notes receivable from officers and directors which are
collateralized by shares of common stock and bear interest at rates ranging from
5.34% to 7.91%, and are due in various amounts through fiscal year 2005. The
principal balances on these notes are shown as a reduction to shareholders'
equity in the consolidated balance sheets.
36
<PAGE> 38
9. COMMITMENTS
The Company leases its facilities and certain equipment under various
noncancelable operating lease agreements. The Company also leases equipment
under capital equipment leases which expire at various dates through 2001. The
Company is required to pay property taxes, insurance, and normal maintenance
costs on certain leases. Future minimum payments for capital leases and other
obligations and rental commitments for noncancelable operating leases with
remaining terms of over one year at June 30, 1996 are as follows:
Year ending June 30:
<TABLE>
<CAPTION>
Capital Lease
Obligations Operating Leases
<S> <C> <C>
1997 $261,734 $418,553
1998 188,049 106,437
1999 97,118 30,136
2000 21,703 41,346
2001 10,851 41,333
-------- --------
Total minimum lease payments 579,455 $637,805
========
Less amount representing interest 64,493
--------
Capital lease obligations 514,962
Less current portion 231,641
--------
Long term portion $283,321
========
</TABLE>
Total rent expense for all operating leases was $467,214, $402,124 and $261,175
for the fiscal years ended June 30, 1996, 1995, and 1994 respectively.
The Company previously leased a building from a partnership in which certain
shareholders, including the Chairman of the Company, are partners. The Company
terminated its lease with the above mentioned partnership in fiscal 1995. Total
rent expense under this lease was $47,786 and $129,018 for the years ended June
30, 1995 and 1994.
10. ACQUISITION
In September 1995 the Company entered into an agreement with Forte/ComputerEasy
International, Inc. to acquire certain assets including the software assets
known as FloorPlan, FloorPlan 3D, and 3D Design for approximately $687,500 (see
Note 5 regarding related term loan). The acquisition was accounted for as a
purchase with $343,750 allocated to capitalized software development costs and
$343,750 allocated to intangibles (amortized over three years).
37
<PAGE> 39
SCHEDULE II
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
Balance at charged to Balance at
beginning of costs and end of period
Description period Expenses Deductions
<S> <C> <C> <C> <C>
Year ended June 30, 1996:
Allowance for doubtful
accounts and returns $777,718 $4,016,890 $3,493,099 $1,301,509
-------- ---------- ---------- ----------
Year ended June 30, 1995:
Allowance for doubtful
accounts and returns $163,437 $3,172,028 $2,557,747 $ 777,718
-------- ---------- ---------- ----------
Year ended June 30, 1994:
Allowance for doubtful
accounts and returns $125,180 $1,537,575 $1,499,318 $ 163,437
-------- ---------- ---------- ----------
</TABLE>
38
<PAGE> 40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Rafael,
State of California on September 20, 1996.
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
By: /s/ MARTIN SACKS
-----------------------------------
Martin Sacks
Chief Executive Officer, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on September 20, 1996.
By: /s/ MARTIN SACKS
-----------------------------------
Martin Sacks
Chief Executive Officer, President and Director
By: /s/ GEOFFREY KOBLICK
-----------------------------------
Geoffrey Koblick
Chairman of the Board of Directors, Secretary and General Counsel
By: /s/ ROBERT MAYER
-----------------------------------
Robert Mayer
Vice President Sales and Director
By: /s/ MARK H. COSMEZ II
-----------------------------------
Mark H. Cosmez II
Vice President Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
By: /s/ CHARLES FEDERMAN
-----------------------------------
Charles Federman
Director
By: /s/ EARL HAMLIN
-----------------------------------
Earl Hamlin
Director
By: /s/ GORDON LANDIES
-----------------------------------
Gordon Landies
Director
39
<PAGE> 41
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
1996 FORM 10-K ANNUAL REPORT
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number EXHIBIT TITLE Page
- -------------- ------------- -----
<S> <C> <C>
3.1 Restated Articles of Incorporation of the Company. (1) -
3.2 Bylaws, as amended. (1) -
10.1 Commercial Lease and Deposit Receipt between the
Registrant and Miracle Mile Partners, a California Limited
Partnership, dated November 11, 1992. (3) -
10.2 Software Sale Agreement, dated August 11, 1993
between the Company and Bloc Development Corporation,
a Florida corporation and Bloc Publishing Corporation. (3) -
10.3 Software Development and Technology License Agreement,
dated August 4, 1993 between the Company
and Media Cybernetics. (3) -
10.4 1993 Stock Option Plan (2) -
10.5 Loan Agreement between the Registrant and Westamerica Bank,
dated November 14, 1994. (4)
10.6 Promissory Note and Commercial Security Agreement between
the Registrant and Westamerica Bank, dated September 21, 1995. (4)
10.7 Commercial Sublease Agreement between the Registrant and
Headlands Mortgage Company, dated September 28, 1994. (4)
10.8 Commercial Lease Agreement between the Registrant and
Price Enterprises, Inc., dated December 12, 1994. (4)
10.9 Amendments to Loan Agreement between the Registrant and
Westamerica Bank, dated October 30, 1995 and September 9, 1996.
21.1 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
</TABLE>
40
<PAGE> 42
- ------------------
(1) Incorporated by reference to exhibits to the Company's registration
statement on Form S-3 filed on September 22, 1993, file no. 33-69206.
(2) Incorporated by reference to Exhibits to the Company's registration
statement on Form S-8 filed on August 11, 1993.
(3) Incorporated by reference to exhibits to the Company's Annual Report on
Form 10-K for the year ended June 30, 1993, as amended.
(4) Incorporated by reference to exhibits to the Company's Annual Report on
Form 10-K for the year ended June 30, 1995.
41
<PAGE> 1
CHANGE IN TERMS AGREEMENT
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,500,000.00 10-31-1996 501-61065
- ----------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular plan
or item.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BORROWER: INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
1895 EAST FRANCISCO BOULEVARD
SAN RAFAEL, CA 94901-5568
LENDER: WESTAMERICA BANK
MARIN CREDIT ADMINISTRATION
1177 EAST FRANCISCO BOULEVARD SUITE B
SAN RAFAEL, CA 94901
================================================================================
PRINCIPAL AMOUNT: $1,500,000.00 DATE OF AGREEMENT: OCTOBER 30, 1995
DESCRIPTION OF EXISTING INDEBTEDNESS.
THAT CERTAIN NOTE DATED JANUARY 13, 1994 IN THE ORIGINAL AMOUNT OF $750,000.00,
WHICH WAS SUBSEQUENTLY INCREASED TO $1,500,000.00, CURRENTLY MATURING ON
OCTOBER 31, 1995 WITH AN OUTSTANDING BALANCE AS OF THIS DATE OF $350,000.00.
DESCRIPTION OF COLLATERAL.
THIS NOTE IS SECURED BY THAT CERTAIN COMMERCIAL SECURITY AGREEMENT DATED APRIL
19, 1993.
DESCRIPTION OF CHANGE IN TERMS.
EFFECTIVE THE DATE OF THIS AGREEMENT THE MATURITY DATE IS CHANGED FROM OCTOBER
31, 1995 TO OCTOBER 31, 1996.
EFFECTIVE THE DATE OF THIS AGREEMENT THE INTEREST RATE IS CHANGED FROM
WESTAMERICA BANK'S INDEX RATE PLUS 0.75% TO WESTAMERICA BANK'S INDEX RATE PLUS
0.50% FLOATING DAILY.
ACCRUED INTEREST SHALL BE PAYABLE ON THE LAST DAY OF EACH MONTH BEGINNING
NOVEMBER 30, 1995 AND ON OCTOBER 31, 1996 ALL OUTSTANDING PRINCIPAL PLUS ALL
ACCRUED BUT UNPAID INTEREST SHALL BE DUE AND PAYABLE.
EFFECTIVE THE DATE OF THIS AGREEMENT THE FOLLOWING PROVISION IN THAT CERTAIN
LOAN AGREEMENT DATED NOVEMBER 14, 1994 IS AMENDED AS FOLLOWS:
** BORROWER SHALL MAINTAIN A MAXIMUM RATIO OF TOTAL LIABILITIES TO TANGIBLE NET
WORTH OF 2.25:1.00.
BORROWER AGREES THAT UPON EXECUTION OF THIS AGREEMENT TO PAY A LOAN FEE OF
$3,750.00 PLUS A DOCUMENTATION FEE OF $100.00.
CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms
of the original obligation or obligations, including all agreements evidenced
or securing the obligation(s), remain unchanged and in full force and effect.
Consent by Lender to this Agreement does not waive Lender's right to strict
performance of the obligation(s) as changed, nor obligate Lender to make any
future change in terms. Nothing in this Agreement will constitute a
satisfaction of the obligation(s). It is the intention of Lender to retain as
liable parties all makers and endorsers of the original obligation(s), including
accommodation parties, unless a party is expressly released by Lender in
writing. Any maker or endorser, including accommodation makers, will not be
released by virtue of this Agreement. If any person who signed the original
obligation does not sign this Agreement below, then all persons signing below
acknowledge that this Agreement is given conditionally, based on the
representation to Lender that the non-signing party consents to the changes
and provisions of this Agreement or otherwise will not be released by it. This
waiver applies not only to any initial extension, modification or release, but
also to all such subsequent actions.
PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS AGREEMENT, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS.
BORROWER AGREES TO THE TERMS OF THE AGREEMENT AND ACKNOWLEDGES RECEIPT OF A
COMPLETED COPY OF THE AGREEMENT.
BORROWER:
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
By: /s/ Martin Sacks
----------------------------------------
MARTIN SACKS, PRESIDENT
================================================================================
<PAGE> 2
CORPORATE RESOLUTION TO BORROW
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$2,000,000.00 10-31-1996 501-61065
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
BORROWER: INTERNATIONAL MICROCOMPUTER LENDER: WESTAMERICA BANK
SOFTWARE, INC. MARIN CREDIT ADMINISTRATION
1895 EAST FRANCISCO BOULEVARD 1177 EAST FRANCISCO BOULEVARD
SAN RAFAEL, CA 94901 SUITE B
SAN RAFAEL, CA 94901
================================================================================
I, the undersigned Secretary or Assistant Secretary of INTERNATIONAL
MICROCOMPUTER SOFTWARE, INC. (the "Corporation"), HEREBY CERTIFY that the
Corporation is organized and existing under and by virtue of the laws of the
State of California as a corporation for profit, with its principal office at
1895 EAST FRANCISCO BOULEVARD, SAN RAFAEL, CA 94901, and is duly authorized to
transact business in the State of California.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation, duly
called and held on SEPTEMBER 9, 1996, at which a quorum was present and voting,
or by other duly authorized corporate action in lieu of a meeting, the
following resolutions were adopted:
BE IT RESOLVED, that any one (1) of the following named officers, employees, or
agents of this Corporation, whose actual signatures are shown below:
NAME POSITION ACTUAL SIGNATURE
---- -------- ----------------
GEOFFREY KOBLICK CHAIRMAN OF THE BOARD X /s/ Geoffrey Koblick
-----------------------
acting for and on behalf of the Corporation and as its act and deed be, and he
or she hereby is, authorized and empowered:
BORROW MONEY. To borrow from time to time from WESTAMERICA BANK
("Lender"), on such terms as may be agreed upon between the Corporation
and Lender, such sum or sums of money as in his or her judgment should
be borrowed; however, not exceeding at any one time the amount of TWO
MILLION SEVEN HUNDRED THOUSAND & 00/100 DOLLARS ($2,700,000.00), in
addition to such sum or sums of money as may be currently borrowed by
the Corporation from Lender.
EXECUTE NOTES. To execute and deliver to Lender the promissory note or
notes, or other evidence of credit accommodations and/or revision
agreement or other evidence of obligation of the Corporation, on
Lender's forms, as such rates of interest and on such terms as may be
agreed upon, evidencing the sums of money so borrowed or any
indebtedness of the Corporation to Lender, and also to execute and
deliver to Lender one or more renewals, extensions, modifications,
refinancings, consolidations, or substitutions for one or more of the
notes, any portion of the notes, or any other evidence of credit
accommodations.
GRANT SECURITY. To mortgage, pledge, transfer, endorse, hypothecate, or
otherwise encumber and deliver to Lender, as security for the payment of
any loans or credit accommodations so obtained, any promissory notes so
executed (including any amendments to or modifications, renewals, and
extensions of such promissory notes), or any other or further
indebtedness of the Corporation to Lender at any time owing, however the
same may be evidenced, any property now or hereafter belonging to the
Corporation or in which the Corporation now or hereafter may have an
interest, including without limitation all real property and all
personal property (tangible or intangible) of the Corporation. Such
property may be mortgaged, pledged, transferred, endorsed, hypothecated,
or encumbered at the time such loans are obtained or such indebtedness
is incurred, or at any other time or times, and may be either in
addition to or in lieu of any property theretofore mortgaged, pledged,
transferred, endorsed, hypothecated, or encumbered.
EXECUTE SECURITY DOCUMENTS. To execute and deliver to Lender the forms
of mortgage, deed of trust, pledge agreement, hypothecation agreement,
and other security agreements and financing statements which may be
required by Lender, and which shall evidence the terms and conditions
under and pursuant to which such liens and encumbrances, or any of them,
are given; and also to execute and deliver to Lender any other written
instruments, any chattel paper, or any other collateral, of any kind or
nature, which Lender may deem necessary or proper in connection with or
pertaining to the giving of the liens and encumbrances.
NEGOTIATE ITEMS. To draw, endorse, and discount with Lender all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness
payable to or belonging to the Corporation in which the Corporation may
have an interest, and either to receive cash for the same or to cause
such proceeds to be credited to the account of the Corporation with
Lender, or to cause such other disposition of the proceeds derived
therefrom as they may deem advisable.
FURTHER ACTS. In the case of lines of credit, to designate additional
or alternate individuals as being authorized to request advances
thereunder, and in all cases, to do and perform such other acts and
things, to pay any and all fees and costs, and to execute and deliver
such other documents and agreements, INCLUDING AGREEMENTS WAIVING THE
RIGHT TO A TRIAL BY JURY, as he or she may in his or discretion deem
reasonably necessary or proper in order to carry into effect the
provisions of these Resolutions. The following person or persons
currently are authorized to request advances and authorize payments
under the line of credit until Lender receives written notice of
revocation of their authority: MARTIN SACKS, PRESIDENT; MARK H. COSMEZ
II, VICE PRESIDENT/CFO; and ROBIN NEHASIL, CONTROLLER.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
Resolutions and performed prior to the passage of these Resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Lender may rely on these Resolutions until written notice of his or
her revocation shall have been delivered to and received by Lender. Any such
notice shall not affect any of the Corporation's agreements or commitments in
effect at the time notice is given.
BE IT FURTHER RESOLVED, that the Corporation will notify Lender in writing at
Lender's address shown above (or such other addresses as Lender may designate
from time to time) prior to any (a) change in the name of the Corporation, (b)
change in the assumed business name(s) of the Corporation, (c) change in the
management of the Corporation, (d) change in the authorized signer(s) or (e)
change in any other aspect of the Corporation that directly or indirectly
relates to any agreements between the Corporation and the Lender. No change in
the name of the Corporation will take effect until after Lender has been
notified.
I FURTHER CERTIFY that the officer, employee, or agent named above is duly
elected, appointed, or employed by or for the Corporation, as the case may be,
and occupies the position set opposite the name; that the foregoing Resolutions
now stand of record on the books of the Corporation; and that the Resolutions
are in full force and effect and have not been modified or revoked in any
manner whatsoever. The Corporation has no corporate seal, and therefore, no
seal is affixed to this certificate.
<PAGE> 3
CHANGE IN TERMS AGREEMENT
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,000,000.00 10-31-1996 501-61065
- -----------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this
document to any particular loan or item.
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Borrower: INTERNATIONAL MICROCOMPUTER SOFTWARE, Lender: WESTAMERICA BANK
INC. MARIN CREDIT ADMINISTRATION
1895 EAST FRANCISCO BOULEVARD 1177 EAST FRANCISCO BOULEVARD SUITE B
SAN RAFAEL, CA 94901 SAN RAFAEL, CA 94901
====================================================================================================
Principal Amount: $2,000,000.00 Date of Agreement: September 9, 1996
</TABLE>
DESCRIPTION OF EXISTING INDEBTEDNESS.
THAT CERTAIN NOTE DATED JANUARY 13, 1994 IN THE ORIGINAL AMOUNT OF $750,000.00,
WHICH WAS SUBSEQUENTLY INCREASED TO $1,500,000.00, CURRENTLY MATURING ON OCTOBER
31, 1996 WITH AN OUTSTANDING BALANCE AS OF THIS DATE OF $850,000.00.
DESCRIPTION OF COLLATERAL.
THIS NOTE IS SECURED BY THAT CERTAIN COMMERCIAL SECURITY AGREEMENT DATED APRIL
19, 1993.
DESCRIPTION OF CHANGE IN TERMS.
EFFECTIVE THE DATE OF THIS AGREEMENT THE FACE AMOUNT OF THE NOTE IS INCREASED
FROM $1,500,000.00 TO $2,000,000.00.
ACCRUED INTEREST SHALL BE PAYABLE ON THE LAST DAY OF EACH MONTH BEGINNING
SEPTEMBER 30, 1996, AND ON OCTOBER 31, 1996 ALL OUTSTANDING PRINCIPAL PLUS ALL
ACCRUED BUT UNPAID INTEREST SHALL BE DUE AND PAYABLE.
EFFECTIVE THE DATE OF THIS AGREEMENT THE FOLLOWING PROVISION IN THAT CERTAIN
LOAN AGREEMENT DATED NOVEMBER 14, 1994 IS HEREBY AMENDED AS FOLLOWS:
BORROWING BASE. THE WORDS "BORROWING BASE" MEAN, AS DETERMINED FROM TIME TO
TIME, THE LESSER OF (a) $2,000,000.00; OR (b) THE SUM OF (i) 80% OF THE
AGGREGATE AMOUNT OF ELIGIBLE ACCOUNTS, PLUS (ii) 25.000% OF THE AGGREGATE AMOUNT
OF ELIGIBLE INVENTORY, UP TO A CAP OF $500,000.00.
EFFECTIVE THE DATE OF THIS AGREEMENT THAT CERTAIN CORPORATE RESOLUTION TO BORROW
DATED JANUARY 29, 1996 IN THE AMOUNT OF $2,500,000.00 EXECUTED BY THE BORROWER
IS REPLACED BY A CORPORATE RESOLUTION TO BORROW DATED SEPTEMBER 9, 1996 IN THE
AMOUNT OF $2,700,000.00 WHICH SHALL BE EXECUTED BY THE BORROWER.
EFFECTIVE THE DATE OF THIS AGREEMENT, THE OFFICERS AUTHORIZED TO REQUEST
ADVANCES ARE: MARTIN SACKS, PRESIDENT, MARK H. COSMEZ II, VICE PRESIDENT/CFO AND
GEOFFREY KOBLICK, CHAIRMAN OF THE BOARD.
BORROWER AGREES THAT UPON EXECUTION OF THIS AGREEMENT TO PAY A LOAN FEE OF
$100.00 AND A DOCUMENTATION FEE OF $100.00.
CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of
the original obligation or obligations, including all agreements evidenced or
securing the obligation(s), remain unchanged and in full force and effect.
Consent by Lender to this Agreement does not waive Lender's right to strict
performance of the obligation(s) as changed, nor obligate Lender to make any
future change in terms. Nothing in this Agreement will constitute a satisfaction
of the obligation(s). It is the intention of Lender to retain as liable parties
all makers and endorsers of the original obligation(s), including accommodation
parties, unless a party is expressly released by Lender in writing. Any maker or
endorser, including accommodation makers, will not be released by virtue of this
Agreement. If any person who signed the original obligation does not sign this
Agreement below, then all persons signing below acknowledge that this Agreement
is given conditionally, based on the representation to Lender that the
non-signing party consents to the changes and provisions of this Agreement or
otherwise will not be released by it. This waiver applies not only to any
initial extension, modification or release, but also to all such subsequent
actions.
PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS AGREEMENT. BORROWER AGREES TO THE TERMS OF THE AGREEMENT AND
ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE AGREEMENT.
BORROWER:
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
COPY
By: /s/ Geoffrey Koblick
----------------------------------------
GEOFFREY KOBLICK, CHAIRMAN OF THE BOARD
================================================================================
Variable Rate. Line of Credit. LASER PRO, Reg. U.S. Pat. & T.M. Off.,
Ver. 3.22(c) 1994 CFI ProServices, Inc. All rights reserved.
[0200161085.LNC2.OVL]
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
IMSI (UK) Limited
IMSI Australia (PTY) Ltd.
IMSI Germany (GmbH)
IMSI South Africa Pty Ltd.
IMSI France
42
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration statements of
International Microcomputer Software, Inc. and Subsidiaries on Form S-8 (No.
33-67208, 33-52480 and 33-71872) and Form S-3 (No. 33-69206 and 33-80394) of our
report dated August 16, 1996 (September 9, 1996 as to the third sentence of Note
5) appearing the Annual Report on Form 10-K of International Microcomputer
Software, Inc. and Subsidiaries for the year ended June 30, 1996.
DELOITTE & TOUCHE LLP
San Francisco, California
September 26, 1996
43
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
International Microcomputer Software, Inc. and Subsidiaries on Form S-3 (File
No. 33-69206 and 33-80394) and Form S-8 (File No. 33-67208, 33-52480 and
33-71872) of our report dated August 28, 1995, except for note 10 for which the
date is September 21, 1995, on our audits of the consolidated financial
statements and financial statement schedule of International Microcomputer
Software, Inc. and Subsidiaries as of June 30, 1995, and for the years ended
June 30, 1995 and 1994, which report is included in this Annual Report on Form
10-K.
/s/ COOPERS & LYBRAND L.L.P.
- -------------------------------
Coopers & Lybrand L. L. P.
San Francisco, California
September 26, 1996
44
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 387,406
<SECURITIES> 0
<RECEIVABLES> 4,121,210
<ALLOWANCES> 1,607,338
<INVENTORY> 2,538,093
<CURRENT-ASSETS> 8,876,058
<PP&E> 1,101,306
<DEPRECIATION> 985,274
<TOTAL-ASSETS> 11,058,378
<CURRENT-LIABILITIES> 5,971,998
<BONDS> 0
0
0
<COMMON> 5,972,850
<OTHER-SE> (1,351,041)
<TOTAL-LIABILITY-AND-EQUITY> 11,058,378
<SALES> 25,679,017
<TOTAL-REVENUES> 25,679,017
<CGS> 8,261,583
<TOTAL-COSTS> 8,261,583
<OTHER-EXPENSES> 15,616,252
<LOSS-PROVISION> 203,033
<INTEREST-EXPENSE> 262,374
<INCOME-PRETAX> 1,538,808
<INCOME-TAX> 585,236
<INCOME-CONTINUING> 953,572
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 953,572
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
