SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarter Ended April 30, 1996
Commission file number 0-20085
IQ SOFTWARE CORPORATION
(Exact name of registrant as specified in its charter)
GEORGIA 58-1614492
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3295 River Exchange Drive, Suite 550
Norcross, Georgia
30092
Address of principal executive office)
(Zip Code)
(770) 446-8880
Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
NUMBER OF SHARES
CLASS OUTSTANDING AT JUNE 5, 1996
Common 4,582,632
FORM 10-Q
Page 1 of 10
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IQ SOFTWARE CORPORATION
Form 10-Q
Quarter Ended April 30, 1996
Table of Contents
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - April 30,
1996 (unaudited) and January 31, 1996 3
Condensed Consolidated Statements of Income
(unaudited) - Three months ended April 30, 1996
and 1995 4
Condensed Consolidated Statements of Cash Flows
(unaudited) - Three months ended April 30, 1996
and 1995 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 9
FORM 10-Q
Page 2 of 10
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
IQ SOFTWARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, 1996 January 31, 1996
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................................... $ 4,465,774 $ 5,632,580
Marketable securities.......................................... 3,973,756 2,601,055
Accounts receivable, net of allowance for doubtful accounts of
$427,000 at April 30, 1996 and $457,000 at January 31, 1996.. 6,243,243 5,838,128
Note receivable from affiliate (Note 2)........................ 1,800,000 1,800,000
Prepaid expenses and other current assets...................... 1,274,771 1,266,595
Total current assets............................................... 17,757,544 17,138,358
Property and equipment:
Furniture and fixtures......................................... 1,170,492 1,183,692
Equipment...................................................... 4,311,265 4,259,707
5,481,757 5,443,399
Allowance for depreciation......................................... (3,634,378) (3,416,027)
1,847,379 2,027,372
Capitalized software development costs, net of accumulated
amortization of $1,106,000 at April 30, 1996 and $936,000 at
January 31, 1996............................................... 1,299,297 1,226,123
Purchased software and other intangible assets, net of accumulated
amortization of $326,000 as of April 30, 1996 and $267,000 at
January 31, 1996............................................... 1,599,439 1,568,763
Other assets....................................................... 162,076 163,245
Total assets................................................... $22,665,735 $22,123,861
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................... $ 642,037 $ 1,091,638
Accrued expenses............................................... 897,977 816,378
Unearned revenue............................................... 1,253,043 1,375,449
Income taxes payable........................................... 120,889 --
Current portion of deferred income taxes....................... 206,000 200,000
Total current liabilities.......................................... 3,119,946 3,483,465
Deferred income taxes, less current portion........................ 583,000 620,000
Shareholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 5,000,000 - Issued and outstanding shares - none -- --
Common Stock, $.00033 par value:
Authorized shares - 30,000,000
Issued and outstanding shares - 4,566,132 at April 30, 1996
and 4,494,941 at January 31, 1996.............................. 1,507 1,484
Additional paid-in capital......................................... 11,761,243 11,404,931
Retained earnings.................................................. 7,419,051 6,827,235
Net unrealized (loss) gain on marketable securities available for sale (633) 947
Foreign currency translation adjustments........................... (218,379) (214,201)
Total shareholders' equity..................................... 18,962,789 18,020,396
Total liabilities and shareholders' equity..................... $22,665,735 $22,123,861
</TABLE>
See Notes to Condensed Consolidated Financial Statements
FORM 10-Q
Page 3 of 10
<PAGE>
Item 1. Financial Statements (continued)
<TABLE>
IQ SOFTWARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended
April 30,
1996 1995
<S> <C> <C>
Revenues:
License fees...................................................... $4,108,457 $3,794,750
Maintenance and support services.................................. 1,798,230 1,498,570
5,906,687 5,293,320
Operating expenses:
Cost of license fees.............................................. 282,871 203,763
Cost of maintenance and support services.......................... 751,526 525,932
Development....................................................... 497,935 776,502
Selling........................................................... 2,597,151 2,241,071
General and administrative........................................ 1,069,334 1,013,526
Total operating expenses........................................ 5,198,817 4,760,794
Operating income...................................................... 707,870 532,526
Investment income, net................................................ 107,946 124,593
Income before income taxes............................................ 815,816 657,119
Income tax expense.................................................... 224,000 186,000
Net income............................................................ $ 591,816 $ 471,119
Net income per common share........................................... $ 0.13 $ 0.11
Weighted average number of common and
common equivalent shares outstanding................................ 4,648,000 4,344,000
</TABLE>
See Notes to Condensed Consolidated Financial Statements
FORM 10-Q
Page 4 of 10
<PAGE>
Item 1. Financial Statements (continued)
<TABLE>
IQ SOFTWARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
April 30,
1996 1995
<S> <C> <C>
Operating activities:
Net income............................................................... $ 591,816 $ 471,119
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization........................................ 509,614 400,885
Deferred income taxes................................................ (31,505) --
Gain on disposal of equipment........................................ (9,854) --
Changes in operating assets and liabilities:
Accounts receivable................................................ (405,303) 444,688
Prepaid expenses and other current assets.......................... (8,811) (287,510)
Accounts payable................................................... (293,328) 169,469
Accrued expenses................................................... (94,727) (279,087)
Unearned revenue................................................... (121,982) 10,907
Income taxes payable............................................... 61,879 164,009
Net cash provided by operating activities................................ 197,799 1,094,480
Investing activities:
Purchases of property and equipment...................................... (60,027) (438,221)
Additions of capitalized software development costs...................... (243,533) (138,775)
Advance under note receivable (Note 2)................................... -- (1,800,000)
(Purchase) sale of marketable securities, net............................ (1,374,281) 530,453
Payments in connection with acquisition of Skribe Software, Inc.......... (119,640) --
Other investing activities............................................... -- (19,500)
Net cash used in investing activities.................................... (1,797,481) (1,866,043)
Financing activities:
Payments on long-term debt............................................... -- (26,881)
Proceeds from issuance of common stock................................... 434,873 55,361
Net cash provided by financing activities................................ 434,873 28,480
Effect of exchange rate changes on cash.................................. (1,997) 5,092
Net decrease in cash and cash equivalents................................ (1,166,806) (737,991)
Cash and cash equivalents at beginning of period......................... 5,632,580 7,699,398
Cash and cash equivalents at end of period............................... $4,465,774 $6,961,407
Supplemental disclosure of cash flow information:
Cash paid during the period for interest................................. $ 3,790 $ 1,002
Cash paid during the period for income taxes............................. $ 64,162 $ 10,000
</TABLE>
See Notes to Condensed Consolidated Financial Statements
FORM 10-Q
Page 5 of 10
<PAGE>
IQ SOFTWARE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
April 30, 1996
(unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation of the results of operations have been included.
2. Note Receivable From Affiliate
On April 18, 1995, the Company loaned $1.8 million to
Daystar Digital, Inc. pursuant to a note receivable (the "Note").
Under the terms of the agreement, the Note was payable one year
from the date of the agreement. The Note bore interest payable
monthly at a rate of prime plus 1/2 percent adjusted quarterly.
The interest rate on the date of the agreement was 9 1/2%. The
Note is guaranteed by Intelligent Systems Corporation and is
secured by 240,163 shares of the Company's common stock held by
Intelligent Systems Corporation.
On April 18, 1996, the Company renewed the original
agreement with Daystar Digital, Inc. for an additional nine
months. Under the terms of the renewal, the Note bears interest
payable monthly at a rate of prime plus 1 1/2 percent, adjusted
quarterly.
FORM 10-Q
Page 6 of 10
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
The Company's working capital increased $983,000 to
$14,638,000 as of April 30, 1996 from $13,655,000 as of January
31, 1996. This increase was due primarily to increases in
working capital provided from operations partially offset by
additions to capitalized software development cost of $244,000
and property and equipment additions of $60,000.
The Company believes that the current cash, cash
equivalents and cash flow from operations will be sufficient to
provide the liquidity and capital resources to meet its lease
obligations and to finance operating needs, research and
development activities and planned growth for at least the next
twelve months.
Results of Operations
Revenues
Revenues were $5,907,000 for the quarter ended April 30,
1996 and $5,293,000 for the quarter ended April 30, 1995, an
increase of $614,000 or 12%. License fees were $4,108,000 for the
quarter ended April 30, 1996 and $3,795,000 for the quarter ended
April 30, 1995, an increase of $313,000 or 8%.
Maintenance and support services revenues were $1,798,000
for the quarter ended April 30, 1996 compared to $1,499,000 for
the quarter ended April 30, 1995, an increase of $299,000 or 20%.
Maintenance and support services revenues increased principally
as a result of the increase in the installed based of the
Company's software products and increases in training and
consulting revenues.
Cost of License Fees
Cost of license fees includes the amortization of
capitalized software development costs, royalties related to
licensed software products and the costs of magnetic media,
packaging and documentation. Cost of license fees was $283,000
or 5% of revenues for the quarter ended April 30, 1996. For the
comparable quarter of the prior year, cost of license fees was
$204,000 or 4% of revenues. The increase in cost of license fees
in dollars and as a percentage of revenue for the quarter ended
April 30, 1996 is due primarily to increases in amortization and
royalties related to licensed software products. Amortization of
capitalized software development costs was $230,000 and $171,000
for the quarters ended April 30, 1996 and 1995, respectively.
Cost of Maintenance and Support Services
Cost of maintenance and support services consists of the
costs associated with supplying customers with technical
assistance and training and consulting services. Cost of
maintenance and support services was $752,000 or 13% of revenues
for the quarter ended April 30, 1996. Cost of maintenance and
support services was $526,000 or 10% of revenues for the quarter
ended April 30, 1995. The increase in cost of maintenance and
support services in dollars is due principally to increases in
the Company's training and consulting staff. The Company expects
costs of maintenance and support services to continue to increase
in dollars as the Company's customer base expands.
FORM 10-Q
Page 7 of 10
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Development Expenses
Development expenses were $498,000 or 8% of revenues for
the quarter ended April 30, 1996 and $777,000 or 15% of revenues
for the quarter ended April 30, 1995. Development expenses for
the quarter ended April 30, 1996 decreased due to the
restructuring of the Company's product development operations in
the third quarter of fiscal 1996 and increased capitalization
of software development costs. The Company capitalized $244,000
and $139,000 of development expenditures for the quarters ended
April 30, 1996 and 1995, respectively.
Selling Expenses
Selling expenses were $2,597,000 for the quarter ended
April 30, 1996 and $2,241,000 for the quarter ended April 30,
1995, an increase of 16%. Selling expenses as a percentage of
revenues were 44% for the quarter ended April 30, 1996 and 42%
for the quarter ended April 30, 1995. The increase in selling
expenses in dollars and as a percentage of revenues is due
principally to the addition of sales and marketing personnel and
increased marketing expenses.
General and Administrative Expenses
General and administrative expenses were $1,069,000 for
the quarter ended April 30, 1996 and $1,014,000 for the quarter
ended April 30, 1995, an increase of 5%. General and
administrative expenses were 18% of revenues for the quarter
ended April 30, 1996 and 19% of revenues for the quarter ended
April 30, 1995. The decrease in general and administrative
expenses as a percentage of revenues for the quarter ended April
30, 1996 reflects increased revenues without a proportionate
increase in general and administrative expenses.
Income Taxes
The Company's effective tax rate on pretax income was 28%
for the quarters ended April 30, 1996 and 1995. Income tax
expense was $224,000 and $186,000 for the quarters ended April
30, 1996 and 1995, respectively. The increase in income tax
expense for the quarter ended April 30, 1996 was due principally
to an increase in operating income.
The Company does not provide for U.S. federal income
taxes on undistributed earnings of foreign subsidiaries as such
earnings are considered to be permanently reinvested. The amount
of undistributed earnings which would be subject to U.S. federal
income tax if repatriated as of April 30, 1996 was approximately
$376,000. The tax liability on these earnings, if repatriated,
would not be material.
Income Per Share
Net income per share increased to $0.13 from $0.11 for the
quarters ended April 30, 1996 and 1995, respectively. This
increase was due primarily to increased income from operations.
FORM 10-Q
Page 8 of 10
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11. Computation of Primary and Fully
Diluted Per Share Earnings
(b) Reports on Form 8-K
None
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
IQ SOFTWARE CORPORATION
..................................
(Registrant)
June 14, 1996
Date:..........................
/s/ Charles R. Chitty
By:..............................
Charles R. Chitty
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
/s/ J. Kent Elmer
By:..............................
J. Kent Elmer
Controller
(Principal Accounting Officer)
FORM 10-Q
Page 9 of 10
<PAGE>
EXHIBIT 11
<TABLE>
IQ SOFTWARE CORPORATION AND SUBSIDIARIES
COMPUTATION OF PRIMARY AND FULLY DILUTED PER SHARE EARNINGS
Three Months Ended
April 30,
1996 1995
<S> <C> <C>
PRIMARY
Weighted average Common Stock outstanding............................... 4,535,000 4,201,000
Net effect of dilutive stock options -
based on the treasury stock method.................................... 113,000 143,000
Total................................................................... 4,648,000 4,344,000
Net income.............................................................. $ 591,816 $ 471,119
Net income per share.................................................... $ 0.13 $ 0.11
FULLY DILUTED
Weighted average Common Stock outstanding............................... 4,535,000 4,201,000
Net effect of dilutive stock options -
based on the treasury stock method.................................... 123,000 143,000
Total................................................................... 4,658,000 4,344,000
Net income.............................................................. $ 591,816 $ 471,119
Net income per share.................................................... $ 0.13 $ 0.11
</TABLE>
FORM 10-Q
Page 10 of 10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> APR-30-1996
<CASH> 4,465,774
<SECURITIES> 3,973,756
<RECEIVABLES> 8,470,243
<ALLOWANCES> (427,000)
<INVENTORY> 0
<CURRENT-ASSETS> 17,757,544
<PP&E> 5,481,757
<DEPRECIATION> (3,634,378)
<TOTAL-ASSETS> 22,665,735
<CURRENT-LIABILITIES> 3,119,946
<BONDS> 0
0
0
<COMMON> 1,507
<OTHER-SE> 18,961,282
<TOTAL-LIABILITY-AND-EQUITY> 22,665,735
<SALES> 4,108,457
<TOTAL-REVENUES> 5,906,687
<CGS> 282,871
<TOTAL-COSTS> 5,198,817
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 815,816
<INCOME-TAX> 224,000
<INCOME-CONTINUING> 591,816
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 591,816
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
