[FRONT COVER]
IQ Software
Corporation
[logo - IQ Software]
1996 Annual Report
[INSIDE FRONT COVER]
To our fellow Shareholders:
During fiscal year 1996 we focused our efforts on
transitioning our Company's products to a new generation of
object-based technology. these new products have been well
received, establishing IQ Software as the clear technology leader
in decision support solutions. Throughout the year we maintained
steady revenue growth as we also transitioned our sales and
marketing organizations. We are pleased to report that these
efforts have resulted in a new record level of revenues for the
fiscal year.
Fiscal year 1996 revenues were $21.9 million up from $20.1
million for the previous year. Our net income prior to
acquisitions was $1.5 million or $.35 per share compared with
$2.7 million or $0.64 per share for fiscal year 1995. While
expenses associated with the product and sales transitions
impacted this year's earnings, initial marketplace acceptance of
our new products and record fourth quarter revenues suggest that
these key investments in our business will serve us well in the
future.
The release of IQ/Objects in September of 1995 positioned
our Company as the technology leader in query and reporting
tools. IQ/Objects is the first decision support tool to fully
leverage object capabilities and a three-tier architecture for
delivering sophisticated end-user decision support. Industry
validation of this approach has come in the form of analyst
endorsements. BYTE magazine's Editors' Choice Award, and most
importantly, enthusiastic reception of the product by our
customers.
In September 1995 we acquired Soft Systems, Ltd., a supplier
of OLAP (On-Line Analytical Processing) tools. With the
acquisition of Soft Systems, our Company has the ability to
integrate proven front-end OLAP technology with our query and
reporting tools to provide "best of breed" solutions in all
business intelligence segments.
With these industry-leading products in place, we believe it
is important to strengthen our ability to market and sell them
effectively. To this end, two new executives, David Cormack,
senior vice president of sales, and Jay Chaudhry, senior vice
president of marketing, are now in place. Both have significant
industry
[BYTE LOGO GOES ON THIS PAGE]
<PAGE>experience and are aggressively pursuing new sales and
marketing initiatives. In the U.S. we have transitioned our sales
organization from a telesales-focused operation to one with a
strong field presence under regional sales directors.
Internationally, we have installed a new management team in the
U.K. and are focusing on expanding our market presence in Canada,
Europe, Australia and the Pacific rim by partnering with strong,
established distributors.
We expect to continue to increase the size of our U.S. field
sales organization during fiscal year 1997, and to fuel this
sales force expansion by delivering additional products
that take advantage of our core competencies. The first of these
products, IQ/LiveWeb, was announced in mid-April 1996.
IQ/LiveWeb leverages our server capabilities to allow information
stored in corporate databases to be published and
accessed over the Internet. Another product, IQ/Vision, planned
for release in the second quarter of the fiscal year,
will propel our Company into the multidimensional database (MDDB)
marketplace.
With our strong product momentum and expanded sales and
marketing capabilities, IQ Software is well positioned to
exploit the rapidly growing market for end-user decision support
tools. As we pursue new opportunities for our company,
we thank our customers, employees and shareholders for their
ongoing support.
/s/CHARLES R. CHITTY
Charles R. Chitty
Chairman,President and Chief Executive Officer
/s/DAVID A CORMACK
David A. Cormack
Senior Vice President, Sales
/s/JAY S. CHAUDHRY
Jay S. Chaudhry
Senior Vice President, Marketing
<PAGE>
<TABLE>
Selected Consolidated Financial Data
(in thousands, except per share data)
Fiscal year ended January 31,
<S> <C> <C> <C> <C> <C>
Income Statement Data: 1992 1993 1994 1995 1996
Revenues $10,359 $15,211 $19,119 $20,097 $21,855
Operating income 2,223 3,780 3,289 3,503* 1,235*
Income from continuing operations 1,489 2,456 2,537 2,739* 1,503*
Net income 1,256 2,482 2,556 2,739* 1,503*
Income per share from
continuing operations $ 0.47 $ 0.69 $ 0.60 $ 0.64* $ 0.35
Net income per share $ 0.39 $ 0.70 $ 0.60 $ 0.64* $ 0.35
Weighted average number of common and
common equivalent shares outstanding 3,197 3,556 4,236 4,257 4,304
Balance Sheet Data:
Working capital $ 3,674 $12,413 $13,922 $15,267 $13,655
Total assets 7,348 17,155 19,840 22,316 22,124
Total debt 493 321 147 45 --
Total shareholders' equity 4,137 13,890 16,692 18,751 18,020
</TABLE>
[BAR CHART GOES HERE - REVENUES]
Revenues
(Dollars in Thousands)
92 $10,359
93 $15,211
94 $19,119
95 $20,097
96 $21,855
[BAR CHART GOES HERE - NET INCOME]
Net Income
(Dollars in Thousands) 3,000
92 $1,256
93 $2,482
94 $2,556
95 $2,739*
96 $1,503*
*Excludes the effect of an acquired research and development
expense of $1,002,000 related to the acquisition of Skribe
Software, Inc. in fiscal 1995. Excludes the effects of acquired
research and development expenses of $3,587,000 related to the
acquisition of Soft Systems, Ltd. and restructuring charges of
$1,282,000 related to the Company's product development
operations in fiscal 1996.
<PAGE>
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 January 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934 (NO FEE REQUIRED)
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 Dr., Suite 550, Norcross, Georgia 30092
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404)446-8880
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.00033-1/3 par value
(Title of Class)
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 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 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 held by
non-affiliates of the Registrant (assuming for these purposes,
but without conceding, that all executive officers and directors
and greater than five percent shareholders are "affiliates" of
the Registrant) as of March 31, 1996 (based on the closing sale
price of the Common Stock as quoted on the NASDAQ National
Market System on such date) was $39,445,950.
As of March 31, 1996, there were 4,560,466 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1996 Annual
Meeting of Shareholders to be held on June 11, 1996, are
incorporated by reference into Part III.
<PAGE>
PART I
ITEM 1 - BUSINESS
General
The Company offers a suite of business intelligence software
products for data access, analysis and reporting designed to
facilitate decision support. The Company has licensed
approximately 500,000 copies of its software products. The
Company has five principal software products that can be licensed
separately or in combination. INTELLIGENT QUERY is an end user
query and reporting tool that allows users to access data stored
in relational databases, datawarehouses and many legacy and
non-relational database file systems. IQ/ OBJECTS, released in
September 1995, is a client/server object-based query and
reporting tool which allows users to access relational databases,
datawarehouses and other data repositories. IQ/SMARTSERVER can
be combined with the Company's client products to provide server
based query and report processing, and scheduling. IQ/VISION,
available in the Fall of 1995, is an on-line analytical
processing ("OLAP") tool which allows users to easily organize
and view data across multiple dimensions and rapidly perform
interactive scenario analyses to facilitate business planning and
analysis.
The Company was incorporated in Georgia on August 16, 1984. The
Company's executive offices are located at 3295 River Exchange
Drive, Suite 550, Norcross, Georgia 30092. The Company's direct
sales force operates out of offices in Norcross, Georgia; Iselin,
New Jersey; Chicago, Illinois; San Jose, California; Boston,
Massachusetts; Philadelphia, Pennsylvania and Winchester,
England. The Company has software development teams located in
Norcross, Georgia; Ann Arbor, Michigan and London, England.
The term "Company" refers to IQ Software Corporation and its
subsidiaries, unless the context otherwise requires.
The Company's Common Stock is reported on NASDAQ National Markets
(Trading Symbol "IQSW").
Products
INTELLIGENT QUERY (IQ)
IQ is a data access and analysis software program referred to as
a query and reporting tool which enables non-technical users to
selectively retrieve data from a variety of application
databases, analyze and manipulate the data and generate a variety
of custom reports. IQ is designed to prevent the user from
changing the underlying database, thereby preserving the security
of the stored data. IQ utilizes a simple, intuitive "pop-up" menu
system and visual "screen painter" interface that leads even a
novice end user through report preparation quickly and easily. IQ
also has a powerful command language which offers sophisticated
users and professional programmers the ability to execute
functions in addition to those in the menu system, such as
"if-then," "if-then-else," scaling control and specifying legends
for graphs. IQ provides a number of customizing options which
allow it to be tailored for a specific user environment. IQ
provides efficient database access performance by utilizing the
native database engine. The IQ source code has been designed to
be largely hardware and operating system independent, enabling
the Company to adapt IQ to a wide range of computing
environments. The Company has ported IQ to more than 35 hardware
platforms, many operating systems and 60 DBMS and ISAM file
systems. IQ was first commercially used in 1985. The Company has
continually enhanced IQ. In fiscal 1994, the Company released
initial versions of IQ for Windows and IQ for Motif. In fiscal
1995, the Company released version 5.0 of IQ for Windows and IQ
for Motif which greatly enhanced the initial release of these
products.
IQ/OBJECTS
IQ/OBJECTS is a suite of object-based client/server query and
reporting tools. IQ/OBJECTS utilizes object oriented technology
to allow users to develop reusable query and report building
blocks. These building blocks can communicate and interact with
each other. These reusable building blocks can be assembled to
create queries and reports. IQ/OBJECTS allows users to develop
multiple queries which can be generated and executed in a single
request.
<PAGE>
Each query in the report output may access a different
datasource. The results generated by one object, called
an IQ/SmartObject, can be passed to another IQ/SmartObject which
can use and act on the information passed. IQ/OBJECTS also
allows objects to be activated or inactivated depending on
certain conditions (Conditional Objects). The output features of
IQ/OBJECTS facilitate the tasks of executing and distributing
queries required to be accessed by a number of users by allowing
the results to be shared as a document for viewing or printing,
or for e-mail distribution. IQ/OBJECTS is available for Windows
3.1 and Windows NT, and is currently being certified for Windows
95 operating systems.
IQ/VISION
IQ/VISION is a robust multi-dimensional analysis tool. It
provides an intuitive user interface which is flexible and
dynamic enough for the most complex data analysis and
presentations. These facilities, which require neither
programming nor scripting, enable users to access the data they
need, filter and sort it to identify areas requiring attention,
and then to compare and contrast across the dimensions of their
business. IQ/VISION provides flexible capabilities such as drill
up or down, rank information, variance highlighting, dimension
rotation, pre-defined charting with axis flip, and "live briefing
books" to allow the comparison of saved reports. An essential
component of successful "multi-dimensional tools" is dynamic data
analysis resulting from calculations applied to every dimension
of the base data. IQ/VISION offers three convenient ways to use
calculation functions:
- in batch, the system performs all the aggregation and
calculation required to convert raw data into the standard
information series required by most users for essential
performance monitoring
- pre-defined virtual calculations automatically perform
standard business calculations which can be selected by
users and performed on demand. This saves disk space while
extending the apparent size of the database and reducing
data load time
- ad hoc calculations are defined by users and performed "on
the fly" providing extensive facilities for detailed
analysis, allowing the definitions to be saved for future
use with automatically updated data.
IQ/VISION is available for Windows 3.1 operating systems.
IQ/SMARTSERVER
IQ/SMARTSERVER, when combined with the Company's IQ/VISION and
IQ/OBJECTS software, allows users to implement a three-tier
architecture. This allows for a "division of labor" among
clients and servers. With IQ/SMARTSERVER, query processing can
be targeted for the server, the client, or the combination of
server and client. IQ/SMARTSERVER allows the following
functions to be performed on the server:
- Query processing functions, such as searching, sorting,
data manipulation and output processing, can be partially or
completely executed on the server.
- Batch processing functions, such as batch scheduling and
production reporting, allow complex and repetitive queries
or reports to be created on the desktop and scheduled for
execution on the server.
- Repository storage for the semantic layer and the library
of queries and reports can be stored and maintained on the
server.
IQ/SMARTSERVER for IQ/OBJECTS was released in February 1996 and
is available for UNIX or Windows NT servers. Support for
IQ/VISION is planned for release in 1996.
IQ/LIVEWEB
IQ/LIVEWEB is a new package of products and enhancements
announced in April 1996 for release in mid 1996. It combines
enhanced versions of IQ/Objects, IQ/SMARTSERVER, and a new
technology, IQ/CYBERLINKS. IQ/LIVEWEB takes advantage of the
Internet infrastructure to deliver comprehensive production
reporting to a Web server. It allows corporate information to be
published on Web servers on-demand, or on a scheduled basis.
It includes:
- IQ/SMARTSERVER for scheduling and executing queries and
reports on the server and publishing HTML or PDF output on
Web servers
- IQ/OBJECTS for report creation
- IQ/CYBERLINKS for hyperlinking and intelligent navigation
among IQ/OBJECTS documents, Internet data sources, corporate
databases and personal databases.
<PAGE>
Product Research and Development
The Company's products have been developed internally and
acquired or licensed. Twenty-four full-time employees were
engaged in product research and development as of January 31,
1996. This staff is responsible for modifying, porting and
enhancing all the Company's products and for developing new
products.
In June 1994 the Company acquired SKRIBE, INC., the developer of
SKRIBE. Following the acquisition, the Company undertook a
development effort to substantially enhance and improve the
software. The resulting product, IQ/OBJECTS, was released in
September 1995.
In August 1995 the Company entered into a license agreement with
TM1Corporation ("TM1"). Under the terms of the agreement IQ can
sublicense TM1's dynamic multidimensional database (MDDB) and
various other software modules. The Company pays a royalty for
each copy of TM1's software licensed. It is anticipated that TM1
products will be released in 1996. The Company has certain rights
to the TM1 software source code but currently has not exercised
any rights thereunder.
In September 1995 the Company acquired Soft Systems, Ltd. and its
principal product, Vision. Following the acquisition, the Company
undertook a development effort to substantially enhance and
improve the software. The resulting product, IQ/VISION, was
available in the December of 1995.
In fiscal 1996, the Company incurred development expenses of $
2,727,000. In addition, the Company capitalized approximately
$1,038,000 of development costs in fiscal 1996 in accordance with
generally accepted accounting principles.
Sales and Marketing
The Company identifies prospective customers through a
combination of direct mail, seminars, telemarketing, media
advertising, trade show participation and various vendor
marketing partnership efforts. Once prospects are
identified, the Company conducts sales activities through a field
sales force or over the telephone. If requested by the
prospective customer, the Company generally provides a "date
activated version" of the software and support services for a
limited evaluation period. Fifty-eight full-time employees
were engaged in sales and marketing as of January 31, 1996.
The Company's products are marketed to users in a wide variety of
industries. End user list prices for the Company's products range
from $250-$50,000 per copy, depending on the hardware platform.
The Company offers discounts to large volume customers. The
Company's sales organization is organized to focus on three
principal marketing channels: software company resellers
("OEMs"), direct sales and international distributors. None of
the Company's customers accounted for more than ten percent of
revenues in fiscal 1994, 1995 or 1996. The Company typically
grants a 30-60 day money back guarantee to certain customers.
Historically, returns of product have been insignificant.
The Company typically realizes a larger percentage of its
revenues in the second half of each fiscal year. For financial
information on operations in geographic areas, see Note 10 to the
consolidated financial statements, page 27, which is incorporated
herein by reference.
Software Company Resellers ("OEMs")
The software company resellers market was the initial channel the
Company developed for the distribution of its products. The
Company has licensed its products to approximately 950 OEM
customers worldwide, consisting primarily of vertical application
software companies which license products across a wide range of
industries, including hospital information systems, 4GL,
manufacturing, government contracting systems, human resources,
financial systems, timekeeping, general accounting, telephone
call accounting and real estate management.
<PAGE>
The Company believes that OEMs enjoy several benefits from
incorporating its products into their existing software
applications. First, OEMs can functionally enhance their products
without expending the significant resources and many hours of
programming time necessary to develop software with capabilities
similar to the Company's products. Second, because many customers
of vertical applications consider a query and reporting tool to
be a basic requirement for a complete package, OEMs can make
their products more competitive by including the Company's
software. Finally, the Company's software affords OEMs an
opportunity for add-on business by providing new products to sell
to their existing customers.
The terms of the Company's OEM distribution agreement typically
permit the OEM to copy and distribute the Company's software only
for use with the OEM's application software. The OEM assumes the
marketing and sales responsibility and the cost for delivering
and installing the Company's product to the ultimate end user
thus allowing the Company to leverage its marketing resources.
The Company provides maintenance and support services to the OEM
and the OEM directly supports its customers.
The Company employs a pricing model which consists of a
non-refundable prepaid license fee and a per-copy license fee.
The greater the amount of the prepaid license fee selected by the
OEM, the larger the discount for the per-copy license fee. The
non-refundable license fee is credited against per-copy license
fees incurred by the OEM until fully applied; thereafter
license fees are paid monthly at the per-copy rate. The Company
may also offer certain volume discounts. Historically, this
pricing model has allowed the Company to do business with a wide
variety of OEMs with terms that are designed for each OEM
customer and allow for the specific pricing requirement
of the customer. The pricing model takes into account the sales
prices of customer's products and the industry in which the OEM
operates. The Company believes that the financial impact of the
volume discount policy to OEMs is not material inasmuch as
certain customers elect lower prepaid license fees and higher per
unit royalties while others elect larger prepaid fees in return
for a lower royalty rate. The Company believes that the
cumulative effect of the various discounts is offsetting.
Direct
The Company sells directly to certain large companies and to
federal, state and local governmental agencies. The Company has a
direct field sales force focused on selling to these
organizations. The Company's direct sales force operates out of
offices in Norcross, Georgia; Iselin, New Jersey; Chicago,
Illinois; San Jose, California; Boston, Massachusetts;
Philadelphia, Pennsylvania; and Winchester, England. Smaller
accounts are generally handled by a telesales force based in
Norcross, Georgia. The Company's direct sales organization
consists of field sales, telesales, and pre-sales technical
support personnel.
The Company's pricing methodology for direct sales is generally a
client/server model wherein a licensee fee is charged for each
server copy (independent of the number of users) plus a license
fee for each client (user) copy. The total license fee varies
depending upon the customers' specific implementation.
International
International sales are principally conducted out of the U.S.
headquarters and through the Company's subsidiary in the United
Kingdom which was established in 1990. The United Kingdom
subsidiary is responsible for selling directly to OEM customers
and end users and for establishing distributor relationships. In
territories outside those served by the international offices,
the Company's U.S. based sales personnel develop OEM, end user
and distributor relationships. The Company has appointed
approximately 50 distributors in more than 20 countries,
including Australia, Mexico, Spain and the United Kingdom. The
Company's software is designed to facilitate the translation of
screens, menus, and documentation and help files into local
languages. Various products are currently available in English,
French, German, Danish, Dutch, Spanish and Chinese versions.
<PAGE>
Customer Support and Services
The Company offers software maintenance and support, training and
consulting services to its customers. Generally, the Company's
software products include a 30-60 day warranty for end users and
a 90-day free support period for OEMs. Thereafter, maintenance
and support services are available for an additional
charge. Maintenance and support services include telephone
support, maintenance updates and discounts on releases of new
versions. The Company provides support to end users who have
licensed IQ directly from the Company and to OEMs. The Company
conducts training sessions for both end users and OEMs through
in-house, regional and on-site classes. The Company also
provides consulting services for the purpose of assisting
customers in the implementation, configuration and use of the
Company's software. Forty-seven full-time employees were engaged
in customer support, training and consulting services as of
January 31, 1996.
Competition
The computer software industry is highly competitive. In addition
to price, the Company believes that functionality, performance,
ease of use, environments supported and customer services are
primary competitive factors. Some of the Company's existing
competitors, as well as a number of potential competitors, have
larger technical staffs, more established and larger marketing
and sales organizations and greater financial resources than the
Company.
The Company faces direct competition from a number of companies
which target segments of the overall market addressed by the
Company's products. Direct competitors of the Company consist of
companies that focus on and market business intelligence
software. The Company's principal competitors are Cognos
(Impromptu and PowerPlay) and Business Objects, Inc. (Business
Objects). In addition, a number of other companies offer products
which are competitive to a lesser degree. The Company faces
indirect competition from developers of RDBMS and 4GL products
which offer ancillary development tools capable of producing
reports with their software. These products are targeted
principally at the professional programmer and often fail to
fully address the report writing needs of end users. Also, OEM
software developers who integrate the Company's software with
their products may develop their own data retrieval tools and
report writers as a replacement to the Company's products. To the
extent that OEMs or other software developers improve their
query and reporting products, demand for the Company's products
may decline.
Product Protection
The Company regards its software programs as proprietary. The
Company enters into written license agreements with its customers
which limit the use and copying of its software. "Shrink wrap"
licenses are used in connection with certain end user sales. The
Company relies principally on copyright law and trade secret
protection to protect its proprietary property and all its
products are copyrighted. The software is usually furnished in
object code only, although source code licenses are granted in a
limited number of situations. The Company has not applied for any
patents for its software and does not believe that patent laws
will be a source of protection of the Company's products.
Employees and technical consultants of the Company are
required to execute agreements providing for the non-
disclosure of information and the assignment of proprietary
property developed on behalf of the Company.
There can be no assurances that the steps taken by the Company to
protect its proprietary property will be adequate
to prevent misappropriation or unlawful copying of its technology
or software programs. Copyright and trade secret laws do not
limit the right of others to independently develop similar
technology and software programs. In addition, the laws of some
foreign countries do not protect software to the same extent
as do the laws of the United States. Furthermore, "shrink wrap"
licenses may not be enforceable in all jurisdictions. Although
the Company believes that its software products do not infringe
on any proprietary rights of others, there can be no assurances
that third parties will not assert infringement claims in the
future.
<PAGE>
Employees
As of January 31, 1996, the Company employed 156 persons,
including 58 in sales and marketing, 47 in customer support and
services, 24 in product research and development and 27 in
management, administration and finance. Of the total employees,
113 are employed in the United States and 43 internationally.
None of the Company's employees is represented by a labor
union. The Company has never experienced a work stoppage and
believes that its employee relations are good.
ITEM 2 - PROPERTIES
The Company's headquarters and principal administrative, sales
and marketing operations are located in approximately 24,700
square feet of leased office space in Norcross, Georgia, a suburb
of Atlanta. The lease for those facilities expires February 28,
1999, subject to a five-year renewal option. The 1996 fiscal year
annual rent was approximately $413,000 including the Company's
pro rata share of certain operating expenses and taxes.
The Company also has approximately 11,500 square feet of leased
space in San Antonio, Texas where it conducts product development
activities. The Company also leases smaller offices in Iselin,
New Jersey; Ann Arbor, Michigan; San Jose, California;
Burlington, Massachusetts; Chicago, Illinois: Philadelphia,
Pennslyvania and England. Aggregate rental expense for these
seven offices was approximately $393,000 for the 1996 fiscal
year.
ITEM 3 - LEGAL PROCEEDINGS
There are no significant pending legal proceedings against the
Company.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY SHAREHOLDERS
Not applicable.
ITEM 4(A)
Executive Officers of the Registrant
The following are the executive officers of the Company:
Charles R. Chitty, 44, has served as President and Chief
Executive Officer since 1988 and from its formation in 1984 until
1986. Mr. Chitty also has been a director since 1984 and served
as its Chief Financial Officer from 1984 to 1991. Mr. Chitty was
elected Chairman in December 1995.
David A. Cormack, 37, has served as Senior Vice President Sales
since December of 1995. From April 1993 to September 1995 Mr.
Cormack served as Managing Director of Soft Systems, Ltd. (a
United Kingdom corporation), which specialized in executive
information systems software. From April 1992 to April 1993, Mr.
Cormack served as UK Operations Director for Planning Sciences.
Prior to April 1992 Mr. Cormack held various sales and marketing
positions with Pilot Executive Software, Information Builders,
and Comshare.
Jay S. Chaudhry, 37, joined the Company as Senior Vice President
in January of 1995. From 1993 to 1995 Mr. Chaudhry served as
technical assistant to the president and Vice President of
Worldwide Marketing and Sales for Unisys Corporation's Software
Products Division. Prior to 1993, Mr. Chaudhry held various sales
and marketing positions with AT&T/NCR and IBM.
Robert W. Ott, 41, has served as Vice President Sales since
joining the Company in 1988.
<PAGE>
Michael J. Durnwald, 37, joined the Company in 1986 as director
of support services and has held his present position as Vice
President Product Planning since 1989.
Susan L. Welch, 32, joined the Company as a technical support
representative in 1987 and was appointed Director of Support
Services in 1988. Mrs. Welch was elected Vice President Support
Services in September 1993.
All executive officers serve at the pleasure of the Board of
Directors.
There is no family relationship between any of the executive
officers of the Company.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS
STOCK LISTING INFORMATION
IQ Software Corporation common stock is quoted on the NASDAQ
National Market System under the symbol IQSW.
MARKET PRICE INFORMATION
The table below presents the high and low closing prices for IQ
Software Corporation common stock as reported by NASDAQ for the
years ended January 31, 1996 and 1995.
<TABLE>
<S> <C> <C> <C> <C>
1996 1995
FISCAL YEAR ENDED JANUARY 31, HIGH LOW HIGH LOW
First Quarter 14-1/2 9-3/4 9-1/2 6
Second Quarter 15-1/4 10-3/4 8 6
Third Quarter 16-1/2 11-1/2 16 6-1/2
Fourth Quarter 17-3/4 9-3/4 16-1/2 8-1/2
</TABLE>
The last sale price on January 31, 1996 was $11. As of January
31, 1996, there were approximately 65 shareholders of record.
Shares of approximately 1,550 beneficial owners of the Company's
common stock are held by brokers, dealers and their nominees. The
Company has not declared or paid any cash dividends on its
capital stock. The Company currently intends to retain all
earnings for its use in its business.
TRANSFER AGENT AND REGISTRAR
Chemical Bank
450 West 33rd Street
New York, New York 10001
ANNUAL MEETING
The 1996 Annual Meeting of Shareholders will be held on June 11,
1996. A formal notice of the meeting with a proxy statement and
proxy, is scheduled to be mailed during the week of May 6, 1996.
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
<TABLE>
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED JANUARY 31,
STATEMENT OF OPERATIONS DATA: 1992 1993 1994 1995 1996
Revenues $10,359 $15,211 $19,119 $20,097 $21,855
Operating income (loss) 2,223 3,780 3,289 2,501* (3,630)*
Income (loss) from continuing operations 1,489 2,456 2,537 1,737* (2,897)*
Net income (loss) 1,256 2,482 2,556 1,737* (2,897)*
Income per share from
continuing operations $ 0.47 $ 0.69 $ 0.60 $ 0.41 $ (0.67)
Net income (loss) per share $ 0.39 $ 0.70 $ 0.60 $ 0.41 $ (0.67)
Weighted average number of
common and common equivalent
shares outstanding 3,197 3,556 4,236 4,257 4,304
</TABLE>
* Includes the effects of acquired research and development
expenses of $1,002,000 and $3,586,674 recorded in connection with
the acquisition of Skribe Software, Inc. and Soft Systems, Ltd.
in fiscal 1995 and 1996, respectively.
<TABLE>
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 3,674 $12,413 $14,554 $15,267 $13,655
Total assets 7,348 17,155 19,840 22,316 22,124
Total debt 493 321 147 45 --
Total shareholders' equity 4,137 13,890 16,692 18,751 18,020
</TABLE>
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations. The following table sets forth, for the
periods indicated, certain items from the Company's consolidated
statements of operations expressed as a percentage of total
revenues and the percentage increase (decrease) in the dollar
amount of such items as compared to the prior year for the three
years ended January 31, 1994, 1995 and 1996.
<TABLE>
Fiscal 1995 Fiscal 1996
Year ended January 31, over over
<S> <C> <C> <C> <C> <C>
Revenues: 1994 1995 1996 FISCAL 1994 FISCAL 1995
License fees 80.8% 76.2% 71.3% (0.8)% 1.7%
Maintenance and support services 19.2 23.8 28.7 30.1 31.2
Operating expenses:
Cost of license fees 2.0 3.1 4.3 65.9 51.4
Cost of maintenance and support services 7.9 9.0 11.3 20.1 35.6
Development 11.6 13.2 12.5 19.1 3.1
Selling 40.5 36.1 46.1 (6.3) 38.7
General and administrative 20.8 21.2 20.2 6.9 3.9
Restructuring charges -- -- 5.8 -- 100.0
Acquired research and development -- 5.0 16.4 100.0 258.0
Total operating expenses 82.8 87.6 16.6 11.1 44.8
Operating income (loss) 17.2 12.4 (16.6) (23.9) (245.2)
Investment income, net 1.4 1.7 2.7 31.4 69.4
Income (loss) from continuing operations
before income taxes 18.6 14.2 (13.9) (19.7) (206.4)
Income taxes 5.3 5.5 ( 0.6) 9.4 (112.4)
Income (loss) from continuing operations 13.3% 8.6% (13.3)% (31.5)% (266.7)%
</TABLE>
Revenues. The Company's total revenues were $19,119,000,
$20,097,000 and $21,855,000 in fiscal 1994, 1995 and 1996,
respectively. Revenues increased by $978,000, or 5%, from fiscal
1994 to 1995, and by $1,758,000, or 9%, from fiscal 1995 to 1996.
License fees were $15,444,000, $15,314,000 and $15,582,000 in
fiscal 1994, 1995 and 1996, respectively. License fees decreased
by $130,000, or 1%, from fiscal 1994 to 1995 and increased by
$268,000, or 2% from fiscal 1995 to 1996. License fees from
United States customers decreased by 1% from $10,524,000 in
fiscal 1994 to $10,508,000 in fiscal 1995 and increased by 3 % to
$10,809,000 in fiscal 1996. The increase in license fees from
United States customers was due principally to increased revenues
from direct sales. License fees from direct sales to customers in
the United States increased by 1% from $4,755,000 in fiscal 1994
to $4,793,000 in fiscal 1995 and by 6% to $5,098,000 in fiscal
1996. License fees from international customers decreased by 2%
from $4,920,000 in fiscal 1994 to $4,806,000 in fiscal 1995 and
decreased by 23% to $3,687,000 in fiscal 1996.
The Company added approximately 150 new OEM customers worldwide,
at an average prepaid license fee of approximately $19,500 in
fiscal 1994, approximately 120 new OEM customers worldwide, at an
average prepaid license fee of approximately $18,500 in fiscal
1995 and approximately 70 new OEM customers worldwide, at an
average prepaid license fee of approximately $20,500 in fiscal
1996. As of January 31, 1996, the Company had an installed
base of approximately 950 OEM customers worldwide.
<PAGE>
Maintenance and support services revenues were $3,675,000,
$4,783,000 and $6,273,000 in fiscal 1994, 1995 and 1996,
respectively. Maintenance and support services revenues increased
by $1,108,000, or 30%, from fiscal 1994 to 1995 and by
$1,490,000, or 31%, from fiscal 1995 to 1996. Maintenance and
support services revenues increased principally as a result of
the increase in the installed customer base and increases in
training and consulting revenues.
Cost of License Fees. Cost of license fees includes the
amortization of capitalized software costs and the costs of
magnetic media, packaging and documentation. Cost of license fees
was $373,000, $619,000 and $937,000 for fiscal 1994, 1995 and
1996, respectively. Cost of license fees as a percentage of
revenues was 2%, for fiscal year 1994, 3% for fiscal year 1995
and 4% for fiscal 1996. The increases in cost of license fees are
due primarily to increases in the amortization of capitalized
software development costs and additional documentation costs
associated with the release of new software products.
Amortization of capitalized software development costs was
$236,000, $488,000 and $765,000 in fiscal 1994, 1995
and 1996, respectively.
Cost of Maintenance and Support Services. Cost of maintenance and
support services includes the costs associated with supplying
customers with technical assistance and training and consulting
services. Cost of maintenance and support services was
$1,512,000, $1,817,000 and $2,464,000 for fiscal 1994, 1995 and
1996, respectively. Cost of maintenance and support services as a
percentage of revenues was 8%, 9% and 11% for fiscal 1994, 1995
and 1996, respectively. The increases in cost of maintenance and
support services are due principally to growth in the Company's
technical support, training and consulting staff. The Company
expects cost of maintenance and support services to continue to
increase as the Company's customer base expands.
Development Expenses. Development expenses were $2,219,000,
$2,644,000 and $2,727,000 in fiscal 1994, 1995 and 1996,
respectively. Development expenses as a percentage of revenues
were 12%, 13%, and 12% for fiscal 1994, 1995 and
1996, respectively. Development expenses increased in each of the
last three fiscal years primarily as a result of the addition of
development personnel and equipment to modify, maintain and
enhance the existing versions of the Company's software products
and to develop new software products. The Company capitalized
$828,000, $859,000 and $1,038,000 of development expenditures in
fiscal 1994, 1995, and 1996, respectively. The Company expects
development expenditures to decrease in fiscal 1997 due to the
restructuring of its product development operations.
Selling Expenses. Selling expenses were $7,753,000, $7,264,000
and $10,074,000 in fiscal 1994, 1995 and 1996, respectively.
Selling expenses as a percentage of revenues were 41%, 36% and
46% in fiscal 1994, 1995 and 1996, respectively. The decrease in
selling expenses from 1994 to 1995 was primarily due to the
decrease in trade show participation and other marketing
activities. The increase in selling expenses from 1995 to 1996
was primarily due to increased commissions, the addition of sales
and marketing personnel, and increased marketing expenses related
to the release of new products. The Company expects selling
expenses to increase as the Company expands its sales and
marketing personnel and its marketing activities in fiscal 1997.
General and Administrative Expenses. General and administrative
expenses were $3,973,000, $4,249,000 and $4,415,000 for fiscal
1994, 1995 and 1996, respectively. General and administrative
expenses as a percentage of revenues were 21%, 21% and 20% in
fiscal 1994, 1995 and 1996, respectively. The increases were due
principally to the addition of personnel to support the
growth of the Company's operations and increases in other
administrative expenses. The decrease in general and
administrative expenses as a percentage of revenues from fiscal
1995 to 1996 was due primarily to increased revenues
without a proportionate increase in general and administrative
expenses.
Restructuring Charges. As a result of recent acquisitions, the
Company made the decision in the third quarter of fiscal 1996 to
allocate a substantially greater portion of its research and
development resources towards its new products. As a result of
the transition, the Company recorded restructuring charges of
$1,282,000. These charges consisted primarily of the write-down
of capitalized software development costs of approximately
$687,000 related to the Company's older generation products and
the write-down of certain fixed assets of approximately $232,000,
as well as other costs associated with the restructuring.
<PAGE>
Acquired Research and Development Costs. On June 17, 1994 the
Company acquired the outstanding common shares of Skribe
Software, Inc. ("Skribe"). The total cost to the Company was
approximately $1,525,000 plus direct acquisition costs of
approximately $75,000 and was paid in cash. The Company used the
purchase method of accounting for the acquisition. In this
regard, the Company recorded a one-time, nontax-deductible charge
for acquired research and development costs of $1,002,000 in the
second quarter of fiscal 1995. The technological feasibility of
the acquired in-process technology had not been established and
had no alternative future use.
On September 29, 1995 the Company acquired the outstanding stock
of Soft Systems, Limited ("Soft Systems"), a United Kingdom
corporation. The total cost to the Company was approximately
$4,020,000 ($2,251,280 cash and 248,083 unregistered shares of
the Company's common stock) plus direct acquisition costs of
approximately $325,000. The Company used the purchase method of
accounting for the acquisition. In this regard, the Company
recorded a one-time, nontax-deductible charge for acquired
research and development costs of $3,587,000 in the third quarter
of fiscal 1996. The technological feasibility of the acquired
in-process technology had not been established and had no
alternative future use.
Investment Income, Net. The Company recorded net investment
income of $267,000, $351,000 and $595,000, in fiscal 1994, 1995
and 1996, respectively. The increase in net investment income is
principally due to the increase in cash and cash equivalents,
marketable securities available for investment and the high
interest-bearing note receivable from affiliate.
Income Taxes. Income tax expense (benefit) on income (loss) from
continuing operations for fiscal 1994, 1995 and 1996 was
$1,019,000, $1,115,000 and $(139,000), respectively. Research and
development credits of approximately $80,000, $160,000 and
$60,000 were utilized in fiscal 1994, 1995 and 1996,
respectively, to reduce federal income taxes. The Company's
effective tax rate on income from continuing operations was 29%,
40% and 5% in fiscal 1994, 1995 and 1996, respectively. The
Company's effective tax rate increased to 40% in fiscal 1995 due
primarily to the nontax-deductible acquired research and
development charges recorded in connection to the acquisition of
Skribe, Inc. The income tax benefit in fiscal 1996 was at an
effective rate of only 5% due principally to the
nontax-deductible acquired research and development charges
recorded in connection with the acquisition of Soft Systems, Ltd.
Income (Loss) Per Share. Net income (loss) per share was $0.60,
$0.41 and $(0.67) in fiscal 1994, 1995 and 1996, respectively.
Income per share from continuing operations decreased 32% to
$0.41 in fiscal 1995 primarily due to the one-time
nontax-deductible charge of $1,002,000 or $0.24 per share for
acquired research and development costs recorded in the second
quarter of fiscal 1995 ended July 31, 1994. Income (loss) per
share from continuing operations decreased 267% to $(0.67) in
fiscal 1996 primarily due to the one-time nontax-deductible
charge of $3,587,000 or $0.83 per share for acquired research and
development costs and the restructuring charges of $1,282,000 or
$0.19 per share, net of tax, related to the Company's
development operations recorded in the third quarter of fiscal.
<PAGE>
Quarterly Results. The following table sets forth certain
unaudited consolidated quarterly financial information for fiscal
1995 and 1996. This information has been prepared by the Company
on substantially the same basis as the audited consolidated
financial statements and includes all normal recurring
adjustments necessary for a fair presentation of the results for
such periods. This information should be read in conjunction with
the Company's consolidated financial statements and the notes
thereto.
<TABLE>
Fiscal 1995 Fiscal 1996
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
(in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $4,882 $4,734 $5,093 $5,388 $5,294 $5,259 $ 5,295 $6,007
Operating expenses:
Cost of license fees 120 117 194 188 204 199 255 279
Cost of maintenance and support
services 457 434 454 472 533 567 659 705
Development 641 543 676 785 776 813 625 513
Selling 1,887 1,741 1,777 1,859 2,246 2,465 2,486 2,877
General & administrative 939 1,176 1,121 1,013 1,003 1,083 1,136 1,193
Restructuring charges -- -- -- -- -- -- 1,282 --
Acquired research &
development -- 1,002 -- -- -- -- 3,587 --
Total operating expenses 4,044 5,013 4,222 4,317 4,762 5,127 10,030 5,567
Operating income (loss) 838 (279) 871 1,071 532 132 (4,735) 440
Investment income, net 76 88 91 96 125 169 168 133
Income (loss) before income taxes 914 (191) 962 1,167 657 301 (4,567) 573
Income taxes 287 220 251 357 187 35 (431) 70
Net income (loss) $ 627 $ (411) $ 711 $ 810 $ 470 $ 266 $(4,136) $ 503
Net income (loss) per share $ 0.15 $(0.10) $ 0.17 $ 0.19 $ 0.11 $ 0.06 $ (0.96) $ 0.11
Weighted average number of
common and common
equivalent shares outstanding 4,220 4,130 4,276 4,320 4,344 4,364 4,312 4,628
</TABLE>
The Company typically realizes a larger percentage of its
revenues in the second half of each fiscal year. This factor is
due in part to the Company's sales commission plan, which
compensates sales personnel for achieving or exceeding quarterly
and annual quotas. A high percentage of the Company's
expenses are relatively fixed, including costs of personnel, and
are not susceptible to rapid reduction. Therefore, delays in
closing significant product licensing transactions near the end
of a quarter may cause quarterly income to fall below anticipated
levels.
Liquidity and Capital Resources. Cash provided by operating
activities was $2,854,000, $4,375,000 and $2,750,000 for fiscal
1994, 1995 and 1996, respectively. The increase in fiscal 1995
from 1994 was due principally to increased income from operations
and a proportionally smaller increase in accounts receivable. The
decrease in fiscal 1996 from 1995 was due principally to
decreased income from operations before acquisition related
charges. The Company has financed capital expenditures and
acquisitions with funds from operating activities.
As of January 31, 1996, the Company had working capital of
$13,656,000, including $5,633,000 in cash and cash equivalents
and $2,601,000 in marketable securities. Aggregate operating
lease obligations as of January 31, 1996, were $3,051,000, of
which $880,000 is payable during fiscal 1997.
<PAGE>
The Company believes that the current cash and cash equivalents
and cash flow from operations will be sufficient to provide the
liquidity and capital resources to meet its long-term debt and
lease obligations and to finance operating needs, research and
development activities and planned growth for at least the next
twelve months.
Inflation. Management believes inflation has not had a material
effect on the Company's operations or on its financial condition.
Foreign Currency Transactions. Approximately 28% of revenues
generated outside of the United States are negotiated, invoiced
and paid in U.S. dollars. All other international revenues are
the result of agreements entered into by the foreign subsidiaries
of the Company and provide for payment in a foreign currency.
Gains and losses on foreign currency transactions have not been
significant. For foreign subsidiaries, the balance sheet accounts
are translated at the year-end exchange rates and income
statement items are translated at the average exchange rates for
the year. Resulting translation adjustments are recorded in a
separate component of Shareholders' Equity, "Foreign currency
translation adjustments." The adjustments were $(118,432) and
$(214,201) as of January 31, 1995 and 1996, respectively.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and schedules are set forth in Item 14.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item regarding directors is
incorporated by reference to the Company's Proxy Statement for
the 1996 Annual Meeting of Shareholders to be held on June 11,
1996. Information required by this item is included in the
section entitled "Executive Officers of the Registrant",
Item 4(A) in Part I of this Form 10-K. Information regarding
compliance with the reporting requirements of Section 16(a) of
the Securities Exchange Act of 1934 by the Company's directors
and executive officers and persons who own more than ten percent
of the Company's common stock is set forth in the Company's Proxy
Statement for the 1996 Annual Meeting of Shareholders to be
held on June 11, 1996.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this item is incorporated by
reference to the Company's Proxy Statement for the 1996 Annual
Meeting of Shareholders to be held on June 11, 1996.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated by
reference to the Company's Proxy Statement for the 1996 Annual
Meeting of Shareholders to be held on June 11, 1996.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by
reference to the Company's Proxy Statement for the 1996 Annual
Meeting of Shareholders to be held on June 11, 1996.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. Financial Statements
2. Report of Independent Auditors
<PAGE>
<TABLE>
IQ Software Corporation and Subsidiaries
Consolidated Balance Sheets
<S> <C> <C>
January 31, January 31,
ASSETS 1995 1996
Current assets:
Cash and cash equivalents $ 7,699,398 $ 5,632,580
Marketable securities (Note 3) 3,895,891 2,601,055
Accounts receivable, net of allowance for
doubtful accounts of $432,000 and $457,000
at January 31, 1995 and 1996, respectively 5,785,606 5,838,128
Prepaid expenses and other current assets 771,395 1,266,595
Note receivable from affiliate (Note 4) -- 1,800,000
Total current assets 18,152,290 17,138,358
Property and equipment:
Furniture and fixtures 937,314 1,183,692
Equipment 3,099,455 4,259,707
4,036,769 5,443,399
Allowance for depreciation (2,227,076) (3,416,027)
1,809,693 2,027,372
Capitalized software development costs, net of
accumulated amortization of $626,000 and
$936,000 at January 31, 1995 and 1996, respectively 1,553,207 1,226,123
Purchased software and related costs, net of accumulated
amortization of $99,000 and $211,000 at
January 31, 1995 and 1996, respectively 682,788 1,568,763
Other assets 118,267 163,245
Total assets $22,316,245 $22,123,861
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 569,585 $ 1,091,638
Accrued expenses 724,592 816,378
Current portion of long-term debt 45,216 --
Unearned revenue 1,049,600 1,375,449
Income taxes payable (Note 7) 287,754 --
Current portion of deferred income taxes (Note 7) 209,000 200,000
Total current liabilities 2,885,747 3,483,465
Deferred income taxes, less current portion (Note 7) 679,000 620,000
Shareholders' equity (Note 9):
Preferred stock, $0.01 par value:
Authorized shares - 5,000,000
Issued and outstanding shares - none -- --
Common stock, $0.00033 par value
Authorized shares - 30,000,000
Issued and outstanding shares - 4,177,158 at January 31,
1995 and 4,494,941 at January 31, 1996 1,379 1,484
Additional paid-in capital 9,217,120 11,404,931
Retained earnings 9,723,886 6,827,235
Net unrealized gain (loss) on marketable securities
available for sale (Note 3) (72,455) 947
Foreign currency translation adjustments (118,432) (214,201)
Total shareholders' equity 18,751,498 18,020,396
Total liabilities and shareholders' equity $22,316,245 $22,123,861
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
IQ Software Corporation and Subsidiaries
Consolidated Statements of Operations
For the years ended January 31,
1994 1995 1996
<S> <C> <C> <C>
Revenues:
License fees $15,444,222 $15,314,340 $15,582,053
Maintenance and support services 3,674,424 4,782,640 6,273,012
19,118,646 20,096,980 21,855,065
Operating expenses:
Cost of license fees 372,858 618,817 936,758
Cost of maintenance and support services 1,511,854 1,817,235 2,463,736
Development 2,218,796 2,644,454 2,727,014
Selling 7,752,817 7,264,256 10,074,045
General and administrative 3,973,090 4,249,094 4,415,481
Restructuring charges (Note 6) -- -- 1,281,812
Acquired research and development costs (Note 5) -- 1,002,000 3,586,674
Total operating expenses 15,829,415 17,595,856 25,485,520
Operating income (loss) 3,289,231 2,501,124 (3,630,455)
Investment income, net 266,965 351,055 594,804
Income (loss) from continuing operations
before income taxes 3,556,196 2,852,179 (3,035,651)
Income taxes (Note 7):
Current 1,002,000 1,165,000 112,000
Deferred 17,000 (50,000) (251,000)
1,019,000 1,115,000 (139,000)
Income (loss) from continuing operations 2,537,196 1,737,179 (2,896,651)
Gain on sale of discontinued operations (less
applicable income taxes of $11,000) 19,006 -- --
Net income (loss) $ 2,556,202 $ 1,737,179 $(2,896,651)
Net income (loss) per share: $ 0.60 $ 0.41 $ (0.67)
Weighted average number of common and common
equivalent shares outstanding 4,236,000 4,257,000 4,304,000
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
IQ Software Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity
Unrealized Foreign
Common Additional (Loss) Gain Currency Total
Stock Paid-in Retained on Marketable Translation Shareholders'
Shares Amount Capital Earnings Securities Adjustments Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 31, 1993 4,044,908 $1,335 $ 8,734,801 $ 5,430,505 $ -- $(276,614) $13,890,027
Issuance of common stock 53,125 18 37,735 -- -- 37,753
Tax benefit from exercise of
nonqualified stock options
and disqualifying dispo-
sitions of incentive stock
options -- -- 123,733 -- -- -- 123,733
Net income -- -- -- -- -- -- 2,556,202
Foreign currency
translation adjustments -- -- -- -- -- 84,055 84,055
Balances at January 31, 1994 4,098,033 1,353 8,896,269 7,986,707 -- (192,559) 16,691,770
Issuance of common stock 79,125 26 201,844 -- -- -- 201,870
Tax benefit from exercise of
nonqualified stock options
and disqualifying dispo-
sitions of incentive stock
options -- -- 119,007 -- -- -- 119,007
Net income -- -- -- 1,737,179 -- -- 1,737,179
Foreign currency
translation adjustments -- -- -- -- -- 74,127 74,127
Unrealized loss on market-
able securities available
for sale -- -- -- -- (72,455) -- (72,455)
Balances at January 31, 1995 4,177,158 1,379 9,217,120 9,723,886 (72,455) (118,432) 18,751,498
Issuance of common stock
related to stock options 317,783 23 340,355 -- -- -- 340,378
Issuance of common stock
related to acquisition of
Soft Systems, Ltd. -- 82 1,768,918 -- -- -- 1,769,000
Tax benefit from exercise of
nonqualified stock options
and disqualifying dispo-
sitions of incentive stock
options -- -- 78,538 -- -- -- 78,538
Net loss -- -- -- (2,896,651) -- -- (2,896,651)
Foreign currency
translation adjustments -- -- -- -- -- (95,769) (95,769)
Unrealized gain on market-
able securities available
for sale -- -- -- -- 73,402 -- 73,402
Balances at January 31, 1996 4,494,941 $1,484 $11,404,931 $ 6,827,235 $ 947 $ (214,201) $18,020,396
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
IQ Software Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended January 31,
1994 1995 1996
<S> <C> <C> <C>
Operating activities:
Net income (loss) $2 ,556,202 $1,737,179 $(2,896,651)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Gain on sale of discontinued operations (19,006) -- --
Depreciation and amortization 861,703 1,276,684 2,544,574
Acquired research and development costs (Note 5) -- 1,002,000 3,586,674
Deferred income taxes 17,000 (91,885) (250,496)
Changes in operating assets and liabilities:
Accounts receivable (398,525) 73,201 (21,857)
Prepaid expenses and other current assets (317,249) 50,196 (474,136)
Accounts payable 319,873 (31,281) 332,455
Accrued expenses (228,539) (32,614) (144,085)
Unearned revenue 199,888 71,683 309,608
Income taxes payable (136,877) 320,756 (235,931)
Net cash provided by operating activities 2,854,470 4,374,519 2,750,155
Investing activities:
Purchases of property and equipment (1,245,530) (977,824) (1,137,734)
Additions to capitalized software development costs (828,073) (858,783) (1,038,240)
Advances under Note receivable from
affiliate (Note 4) -- -- (1,800,000)
Payments in connection with acquisition of Soft
Systems, Ltd., less cash acquired (Note 5) -- -- (2,146,830)
Payments in connection with acquisition of Skribe
Software, Inc., less cash acquired (Note 5) -- (1,480,998) (76,873)
Purchases (sales) of marketable securities (502,500) (3,465,846) 1,368,238
Proceeds from sale of discontinued operations 30,000 -- --
Other investing activities 85,455 (10,706) (46,337)
Net cash used in investing activities (2,460,658) (6,794,157) (4,933,701)
Financing activities:
Payments on long-term debt (173,516) (101,853) (168,824)
Proceeds from issuance of common stock 37,753 201,870 340,378
Net cash provided by (used in) financing activities (135,763) 100,017 171,554
Effect of exchange rate changes on cash 20,364 73,092 (54,826)
Net increase (decrease) in cash and cash equivalents 278,413 (2,246,529) (2,066,818)
Cash and cash equivalents at beginning of period 9,667,514 9,945,927 7,699,398
Cash and cash equivalents at end of period $ 9,945,927 $7,699,398 $ 5,632,580
Supplemental disclosure of cash flow information:
Cash paid for interest $ 32,358 $ 13,903 $ 1,611
Cash paid for income taxes $ 1,099,845 $ 845,383 $ 292,250
</TABLE>
See accompanying notes.
<PAGE>
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
IQ Software Corporation (the "Company"), a Georgia corporation,
designs, develops, markets and supports a family of data access,
analysis and custom report writing software products. Principal
customers are (1) vertical market application software developers
who integrate the Company's software into their products for
license to end users, (2) large corporate customers, and (3)
federal, state and local governments. As of January 31, 1995 and
1996, the Company had a wholly-owned subsidiary located in the
United Kingdom.
Principles of Consolidation
The consolidated financial statements of the Company include the
accounts of all of its subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Revenue Recognition
The Company's revenue recognition practices are in accordance
with the AICPA Statement of Position 91-1 on Software Revenue
Recognition. Revenue from software licenses is recognized in
accordance with the provisions of each respective software
license agreement (the "Agreements"). These Agreements
between the Company and various software companies are generally
for an initial period of 12-60 months and automatically renew for
12-month periods thereafter. License fees, which are
non-refundable, are recognized as revenue when the software is
delivered and a license agreement has been accepted.
Direct sales of software are recorded as revenue when shipped.
Amounts prepaid for maintenance and support services are recorded
as unearned revenue and recognized ratably over the service
period. The Company performs periodic credit evaluations of its
customers' financial condition and generally does not require
collateral. Although due dates of receivables vary based on
contract terms, credit losses have been within management's
estimates in determining the level of allowance for doubtful
accounts. The provision for doubtful accounts is included in the
general and administrative expenses and was $1,304,000,
$1,216,000 and $862,000 for fiscal years 1994, 1995 and 1996,
respectively.
Cost of License Fees
The cost of license fees consists of the amortization of
capitalized computer software development costs, purchased
software and, to a lesser extent, the costs of magnetic media,
packaging and documentation.
Cost of Maintenance and Support Services
The cost of maintenance and support services includes the costs
associated with supplying customers with technical assistance and
training and consulting services.
Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents. The carrying amounts reported in the consolidated
balance sheets for cash and cash equivalents approximate their
fair values.
Marketable Securities
Effective February 1, 1994, the company adopted the provisions of
Statement of Financial Accounting Standards No.115("SFAS
No.115"). There was no impact of adopting SFAS No.115. SFAS No.
115 addresses the accounting and reporting for investments in
fixed maturity securities and for equity securities with readily
determinable fair values. Management determines the appropriate
classification of debt securities at the time of purchase and
reevaluates
<PAGE>
such designation as of each balance sheet date. Currently, all
debt securities with original maturity dates of greater than 90
days are classified as available-for-sale. Available-for-sale
securities are carried at fair value, with unrealized gains and
losses, net of tax, reported as a separate component of
shareholders' equity. Interest and dividends on securities
classified as available-for-sale are included in investment
income. All available-for-sale securities are classified as
current since they are available for use in the Company's current
operations.
Capitalized Software Development Costs and Purchased Software and
Related Costs
Costs related to internally developed software which are incurred
after the establishment of technological feasibility are
capitalized; costs incurred prior to that point are considered
research and development expenditures and are expensed as
incurred. Purchased software and related costs, including
goodwill, consists of costs capitalized in connection with the
Company's acquisitions of Skribe Software, Inc. and Soft Systems,
Limited (see Note 5). Such capitalized costs are generally
amortized over 3 to 10 years, the estimated lives of the assets.
The Company believes that the carrying value and the amortization
period of these costs remain appropriate based upon historical
and anticipated sales levels. Amortization expense was
approximately $236,000, $488,000 and $797,000, for the years
ended January 31, 1994, 1995 and 1996, respectively.
Property and Equipment
Property and equipment is stated at cost. Depreciation expense is
computed using the straight-line method over the estimated useful
lives of the assets.
Advertising Costs
The Company expenses advertising costs as incurred in accordance
with Statement of Position 93-7. Advertising expenses were
$611,000, $479,000, and $963,000 for fiscal 1994, 1995 and 1996,
respectively.
Foreign Currency Translation
For foreign subsidiaries, the balance sheet accounts are
translated at the year-end exchange rates and income statement
items are translated at the average exchange rates for the year.
Resulting translation adjustments are made directly to a separate
component of shareholders' equity. Exchange gains and losses are
not material.
Net Income (Loss) Per Common Share
Net income(loss) per common share is computed using the weighted
average number of common and dilutive common equivalent shares
outstanding during the period. Common equivalent shares consists
of dilutive stock options.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to
employees and non-employee directors with an exercise price equal
to the fair value of the shares at the date of grant. The Company
accounts for stock option grants in accordance with APB Opinion
No. 25, Accounting for Stock Issued to Employees, and
accordingly, recognizes no compensation expense for the stock
option grants. In 1995, the Financial Accounting Standards Board
("FASB") issued SFAS 123, "Accounting for Stock-based
Compensation," which will be effective for the Company's fiscal
year 1997. The Company intends to follow the disclosure
alternative for stock compensation.
Impact of Recently Issued Accounting Standards
In March 1995, the FASB issued Statement No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of ("SFAS No. 121"),which requires impairment losses
to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the
assets' carrying amount. Statement No. 121 also addresses the
accounting for long-lived assets that are expected to be dispose
d of. The Company will adopt Statement No. 121 in the first
quarter of fiscal 1997 and, based on current circumstances, does
not believe that the effect of adoption will be material.
<PAGE>
2. FINANCIAL INSTRUMENTS
Concentrations of credit risk
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of
cash and cash equivalents, short term investments trade accounts
and note receivable(see Note 4). The Company maintains cash and
cash equivalents and short-term investments with various
financial institutions. The Company performs periodic evaluations
of the relative credit standing of those financial institutions
that are considered in the Company's investment strategy.
Concentrations of credit risk with respect to trade accounts
receivable are limited due to the large number of entities
comprising the Company's customer base.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents - The carrying amount reported in the
balance sheet for cash and cash equivalents approximates its fair
value.
Investment securities - The fair values for marketable securities
are based on quoted market prices (see Note 3).
Accounts receivable and accounts payable - The carrying amounts
reported in the balance sheet for accounts receivable and
accounts payable approximate their fair value.
Note receivable from affiliate - The carrying amount reported in
the balance sheet for the note receivable approximates its fair
value.
3. MARKETABLE SECURITIES
The following is a summary of available-for-sale securities at
January 31, 1995 and 1996:
Gross Estimated
Unrealized Fair
January 31, 1995 Cost (Loss) Value
Municipal securities $2,011,000 $ (59,000) $1,952,000
Other debt securities 1,518,000 -- 1,518,000
Total debt securities 3,529,000 (59,000) 3,470,000
Equity securities 481,000 (55,000) 426,000
$4,010,000 $(114,000) $3,896,000
Gross Estimated
Unrealized Fair
January 31, 1996 Cost Gain(Loss) Value
Municipal securities $2,368,000 $ 28,000 $2,396,000
Equity securities 232,000 (27,000) 205,000
$2,600,000 $ 1,000 $2,601,000
The adjustment to unrealized holding gains (losses) on
available-for-sale securities included as a separate component of
shareholders' equity totaled $(72,000) and $1,000, net of
deferred taxes, as of January 31, 1995 and 1996, respectively.
<PAGE>
As of January 31, 1995 and 1996, the Company had no marketable
securities classified as held-to-maturity.The amortized cost and
estimated fair market value of debt and equity securities at
January 31, 1996 by contractual maturity, are shown below.
Estimated
Fair
Cost Value
Due in 1 year or less $1,367,000 $1,374,000
Due after one year through 3 years 407,000 410,000
Due after 3 years 594,000 612,000
Total debt securities 2,368,000 2,396,000
Equity securities 232,000 205,000
$2,600,000 $2,601,000
4. 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 is payable one year from the
date of the agreement. The Note bears interest payable monthly at
a rate of prime plus 1/2 percent adjusted quarterly and is
renewable at the end of one year. The interest rate on the
date of the agreement was 91/2%. 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 11/2 percent adjusted quarterly.
5. ACQUISITIONS
On September 29, 1995, the Company acquired all of the
outstanding capital stock of Soft Systems, Ltd. ("Soft Systems"),
a United Kingdom corporation, for approximately $4,020,000
(consisting of $2,251,000 of cash and 248,083 unregistered shares
of the Company's common stock) plus direct acquisition costs of
approximately $325,000. The acquisition was accounted for under
the purchase method and accordingly, the operating results of
Soft Systems have been included in the Company's operating
results since the date of the acquisition. The purchase price was
allocated among identifiable tangible assets and liabilities
based on their respective fair values. In addition, the purchase
price was allocated to certain intangible assets, including
existing software products which had reached technological
feasibility and acquired research and development costs of
$3,587,000 which was expensed as a one-time, nontax-deductible
charge at the acquisition date.
The following pro forma results of operations for the year ended
January 31, 1995 and 1996 assume the acquisition occurred as of
the beginning of the respective periods after giving effect to
certain adjustments, including the elimination of license fees
between the Company and Soft Systems, amortization of intangibles
and purchased software costs, decreased investment income and
related income tax effects. The pro forma results have been
prepared for comparative purposes only and do not purport to
indicate the results of operations which would actually have
occurred had the combination been in effect on the dates
indicated, or which may occur in the future.
<PAGE>
<TABLE>
(in thousands except per share data, unaudited) Year ended Year ended
January 31, 1995 January 31, 1996
<S> <C> <C>
Net revenues $21,030 $22,419
Net income (loss) 1,564 116
Net income (loss) per share $ 0.35 $ 0.03
</TABLE>
The one-time charge of $3,587,000 for purchased research and
development costs related to the acquisition is included in these
pro forma operating results in fiscal 1995.
On June 17, 1994, the Company acquired all of the outstanding
common shares of Skribe Software, Inc. ("Skribe") for
approximately $1,525,000 plus additional contingent consideration
due quarterly through fiscal 1998 and direct acquisition costs of
approximately $75,000. The contingent consideration is based upon
revenues generated by products related to the purchased
technology and is accounted for as additional goodwill. The
Company accounted for the acquisition under the purchase method
and, accordingly, the operating results of Skribe have been
included in its operating results since the date of the
acquisition. The purchase price was allocated among the
identifiable tangible assets and liabilities based on their
respective fair values. In addition, the purchase price was
allocated to certain intangible assets, including existing
software products which had reached technological
feasibility and acquired research and development costs of
$1,002,000 which was expensed as a one-time, nontax-deductible
charge in the accompanying consolidated statements of operations.
Skribe is a developer of report writing products in the Windows
operating environment.
Exclusive of the effect of the acquired research and development
expense of $1,002,000 or approximately $0.25 per share in 1995,
pro forma statement of operations information, including pro
forma revenues and pro forma net income for the Company and
Skribe for the years ended January 31, 1994 and 1995 do
not vary significantly from the accompanying consolidated
statements of operations for those same periods.
6. RESTRUCTURING CHARGES
During the third quarter of fiscal 1996, the Company began to
allocate a larger portion of its development resources to
recently acquired products resulting in a restructuring of its
product development operations. As a result, the Company recorded
a pretax restructuring charges totaling $1,282,000 during the
quarter ended October 31, 1995. The restructuring charges
consisted primarily of the write-down of certain capitalized
software development costs of approximately $687,000, write-down
of certain fixed assets of approximately $232,000 and other costs
associated with the restructuring of its product development
operations.
7. INCOME TAXES
Current income tax expense for continuing operations consists of
the following:
Year ended January 31,
1994 1995 1996
Federal $ 779,000 $ 912,000 $ 197,000
State 72,000 150,000 64,000
Foreign 151,000 103,000 (149,000)
$1,002,000 $1,165,000 $ 112,000
Research and development credits of approximately $80,000,
$160,000 and $60,000 were utilized in 1994, 1995 and 1996,
respectively, to reduce federal income taxes.
<PAGE>
Deferred income tax expense (benefit) results from timing
differences in the recognition of revenue and expense for tax and
financial reporting purposes. The sources of these timing
differences are as follows:
Year ended January 31,
1994 1995 1996
Adjustment for cash method
for tax reporting $(240,000) $(240,000) $(240,000)
Capitalized software
development costs 213,000 166,000 (108,000)
Other 44,000 24,000 (3,000)
Total $ 17,000 $ (50,000) $(251,000)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Company's
deferred tax liabilities and assets as of January 31, 1995 and
1996, are as follows:
January 31,
1995 1996
Deferred tax liabilities:
Adjustment for cash method
for tax reporting $ 241,000 $ --
Capitalized software development costs 558,000 449,000
Prepaid expenses 188,000 320,000
Purchased software development costs 152,000 283,000
Total deferred tax liabilities 1,139,000 1,052,000
Deferred tax assets:
Allowance for doubtful accounts, net 138,000 107,000
Unrealized loss on marketable securities
available for sale 50,000 1,000
Accumulated depreciation 31,000 71,000
Other, net 32,000 53,000
Total deferred tax assets 251,000 232,000
Net deferred tax liabilities $ 888,000 $ 820,000
Reconciliations of the statutory U.S. federal income tax rate of
34% to the effective tax rates are as follows:
Year ended January 31,
1994 1995 1996
Statutory tax rate 34.0% 34.0% 34.0%
State income taxes, net of
federal tax benefit 2.6 2.6 2.6
Research and development tax
credits (2.3) (5.6) 2.0
Benefit from liquidation of
German subsidiary (6.7) -- --
Foreign taxes paid -- (2.6) 5.2
Acquired research and development
costs -- 12.8 (40.2)
Other 1.1 (1.6) 1.0
Effective tax rate on income(loss)
from continuing operations 28.7 39.6 4.6
Discontinued operations 0.3 -- --
Effective tax rate reflecting
discontinued operations 29.0% 39.6% 4.6%
The Company does not provide for U.S. income taxes on
undistributed earnings considered permanently invested in its
foreign subsidiary. The amount of undistributed earnings which
would be subject to U.S. federal income tax if repatriated as of
January 31, 1995 and 1996 was approximately $556,000 and
$203,000, respectively.
<PAGE>
8. LEASES
The Company leases office space and equipment. Future minimum
lease payments under noncancelable operating leases with initial
or remaining terms of one year or more consisted of the following
at January 31, 1996:
1997 $ 880,000
1998 904,000
1999 778,000
2000 323,000
2001 72,000
Thereafter 94,000
Total minimum lease payments $3,051,000
Rental expense amounted to approximately $558,000, $598,000 and
$813,000, for all operating leases for the years ended January
31, 1994, 1995 and 1996, respectively.
9. STOCK OPTION PLANS
Under the Company's 1988 stock option plan (the "1988 Plan") the
Company may grant options to directors and key personnel for the
purchase of 400,000 shares of the Company's common stock at
prices not less than the fair market value of the shares on the
date of the grant. Options granted prior to fiscal 1992 may be
exercised not earlier than twelve months nor later than five
years from the date of the grant and vest 25% each year; options
granted after fiscal 1992 have a term of seven years. Option
prices have historically been based on fair market value of the
shares at the date of grant. Since prior to the Company's public
offering in October 1992 there was no quoted market price
available at the time of grant, the best estimate of the fair
market value of the common stock was determined by the Board of
Directors, based upon the most recent sales of stock. On June 29,
1993, the shareholders approved an additional stock option plan
(the "1993 Plan") under which the Company may grant options to
officers and key personnel for the purchase of 600,000 shares of
the Company's common stock at a price not less than the fair
market value of the shares on the date of the grant. Under the
1993 Plan, options may be exercised not earlier than twelve
months nor later than ten years from the date of grant. Options
granted may be exercised no later than seven years from the date
of grant. The vesting of options has varied; however, no options
shall vest earlier than twelve months from the date of grant.
On June 28, 1994 the shareholders approved the 1994 Non-Employee
Directors Stock Option Plan (the "1994 Plan") under which the
Company may grant options to non-employee directors of the
Company for the purchase of 30,000 shares of the Company's common
stock at a price equal to the simple average of the high
and low selling price of the shares on the date of the grant.
Under the 1994 Plan, options may be exercised not earlier than
six months after granting but not later than seven years from the
date of grant; however, the options vest immediately upon grant.
Annually each non-employee director receives an option to
purchase 1,000 shares. A summary of stock option activity for the
three years ended January 31, 1996 is as follows:
<TABLE> Option Price Year ended January 31,
Per Share 1994 1995 1996
<S> <C> <C> <C> <C>
Outstanding at February 1 $0.67 to $ 1.60 248,125 314,375 413,375
Granted 6.50 to 14.63 181,000 253,000 136,500
Exercised 0.67 to 10.75 (53,125) (79,125) (69,700)
Canceled 1.50 to 14.63 (61,625) (74,875) (88,375)
Outstanding at January 31 $0.67 to $10.75 314,375 413,375 391,800
Exercisable at January 31 105,625 87,125 124,883
Shares available for future grants 239,375 91,250 343,125
</TABLE>
<PAGE>
At January 31, 1996, the Company had 734,925 shares of common
stock reserved for future issuance under the 1988 Plan, the 1993
Plan and the 1994 Plan.
10. GEOGRAPHIC INFORMATION
Summarized data for the Company's operations in different
geographic areas are as follows:
<TABLE>
Year ended January 31,
1994 1995 1996
<S> <C> <C> <C>
Sales to unaffiliated customers
(including exports):
United States $14,741,988 $15,845,221 $16,911,619
Europe 4,376,658 4,251,759 4,943,446
Total sales to unaffiliated customers $19,118,646 $20,096,980 $21,855,065
Sales to affiliates:
United States $ 1,168,283 $ 1,247,719 $ 1,471,709
Europe 1,559 -- --
Eliminations (1,169,842) (1,247,719) (1,471,709)
Total sales to affiliates $ -- $ -- $ --
Operating income (loss):
United States $ 3,289,278 $ 2,554,108 $(4,407,205)*
Europe (47) (52,984) 776,750
Total operating income (loss) 3,289,231 2 501,124 (3,630,455)
Investment income, net 266,965 351,055 594,804
Income (loss) from continuing operations
before income taxes $ 3,556,196 $ 2,852,179 $(3,035,651)
Identifiable assets:
United States $10,821,724 $13,294,045 $15,536,024
Europe 1,393,341 1,443,975 1,219,407
Eliminations (229,787) (121,173) (264,150)
Total identifiable assets 11,985,278 14,616,847 16,491,281
Corporate assets 7,854,267 7,699,398 5,632,580
Total assets $19,839,545 $22,316,245 $22,123,861
</TABKE>
* Includes one-time charge of $3,587,000 related to the
acquisition of Soft Systems, Ltd.
In computing operating income (loss), none of the following items
have been added or deducted: general corporate expenses and
related allocations, interest income or expense, or income taxes.
All transfers between geographic areas are made at reasonable
rates for the purpose of recovering certain research and
development, marketing and general and administrative expenses
which are incurred on the behalf of other locations. Export sales
from the United States operations were $1,681,000, $2,010,000 and
$1,940,000 for fiscal 1994, 1995 and 1996, respectively.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
IQ Software Corporation
We have audited the accompanying consolidated balance sheets of
IQ Software Corporation and subsidiaries as of January 31, 1995
and 1995, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three years
in the period ended January 31, 1996. Our audits also included
the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the 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 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of IQ Software Corporation and subsidiaries at
January 31, 1996 and 1995, and the consolidated results of their
operations and their cash flows for each of the three years in
the period ended January 31, 1996, in conformity with generally
excepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
ERNST & YOUNG LLP
Atlanta, Georgia
March 1, 1996 except for the
second paragraph of Note 4 as to
which the date is April 18, 1996
<PAGE>
(a) 2. Financial Statement Schedules
The following financial statement schedules are filed
as a part of this report:
II. Valuation and Qualifying Accounts
All other schedules are omitted because they are not
required or the required information is shown in the financial
statements or notes thereto.
(a) 3. Exhibits
The following exhibits are filed herewith or are
incorporated by reference to exhibits previously filed with the
Commission. Items marked with an asterisk relate to management
contracts or compensatory plans or arrangements.
Exhibit
Number Description Filed herewith or incorporated by
reference hereto
3.1 Amended and Restated Exhibit 3(a) to the
Articles of Incorporation Company's Registration
Statement on Form S-1,
No. 33-47268
3.2 Amended and Restated Exhibit 3(b) to the
By-laws Company's Registration
Statement on Form S-1,
No. 33-47268
*10.1 Stock Option Plan, Exhibit 10(a) to the
as amended Company's Registration
Statement on Form S-1,
No. 33-47268
*10.2 Form of Incentive Exhibit 10(f) to the
Stock Option Agreement Company's Registration
Statement on Form S-1,
No. 33-47268
10.3 Form of Non-Disclosure Exhibit 10(g) to the
Agreement Company's Registration
Statement on Form S-1,
No. 33-47268
*10.4 1993 Stock Option Plan Exhibit 10.4 to the
Company's Annual Report
on Form 10K for the year
ended January 31, 1995
*10.5 1993 Incentive Stock Exhibit 10.5 to the
Option Agreement Company's Annual Report
on Form 10K for the year
ended January 31, 1995
*10.6 Non-Employee Directors Exhibit 10.6 to the
Stock Option Plan Company's Annual Report
on Form 10K for the year
ended January 31, 1995
*10.7 Form of Non-Qualified Exhibit 10.7 to the
Stock Option Plan Company's Annual Report
on Form 10K for the year
ended January 31, 1995
11.4 Statement of Computation Filed herewith
of Per Share Earnings
23.4 Consent of Independent Filed herewith
Auditors
24.4 Powers of Attorney Filed herewith
(b) Reports on Form 8-K
<PAGE>
No reports on Form 8-K were filed during the fiscal quarter ended
January 31, 1996.
Exhibits
See Item 14(a)(3) above.
(d) Financial Statement Schedules
See Item 14(a)(2) above.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
/s/ CHARLES R. CHITTY
Charles R. Chitty
Chairman, President and Chief Executive Officer
Dated: April 28, 1996
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
Signature
/s/ CHARLES R. CHITTY
Charles R. Chitty J. Leland Strange
Chairman, President and Chief Director
Executive Officer Date: April 28, 1996
(Principal Executive Officer)
Date: April 28, 1996
/s/ J. KENT ELMER UGO F. IPPOLITO *
J. Kent Elmer Ugo F. Ippolito
Controller (Principal Director
Accounting Officer) Date: April 28, 1996
Date: April 28, 1996
* By Power of Attorney
J. WILLIAM GOODHEW, III * /s/ J. KENT ELMER
J. William Goodhew, III J. Kent Elmer
Director Attorney in fact
Date: April 28, 1996 Date: April 28, 1996
RICHARD L. JACKSON *
Richard L. Jackson
Director
Date: April 28, 1996
Corporate Information
STOCK LISTING INFORMATION
IQ Software Corporation common stock is quoted on the NASDAQ
National Market System under the symbol IQSW.
MARKET PRICE INFORMATION
The table below presents the high and low closing prices for IQ
Software Corporation common stock as reported by NASDAQ for the
years ended January 31, 1996 and 1995.
1995 1994
Fiscal Year Ended January 31, High Low High Low
First Quarter 14-1\2 9-3\4 9-1\2 6
Second Quarter 15-1\4 10-3\4 8 6
Third Quarter 16-1\2 11-1\2 16 6-1\2
Fourth Quarter 17-3\4 9-3\4 16-1\2 8-1\2
The last sale price on January 31, 1996 was $11. As of
January 31, 1996, there were approximately 65 shareholders of
record. Shares of approximately 1,550 beneficial owners of the
Company's common stock are held by brokers, dealers and their
nominees. The Company has not declared or paid any cash dividends
on its capital stock. The Com-pany currently intends to retain
all earnings for its use in its business.
TRANSFER AGENT AND REGISTRAR
Chemical Bank
450 West 33rd Street
New York, New York 10001
ANNUAL MEETING
The 1996 Annual Meeting of Shareholders will be held on June 11,
1996. A formal notice of the meeting with a proxy statement and
proxy, is scheduled to be mailed during the week of May 6, 1996.
[INSIDE BACK COVER - LOGO IQ SOFTWARE]
IQ Software Corporation
3295 River Exchange Drive, Suite 550
Norcross, Georgia 30092
copyright - 1995 IQ Software Corporation
Intelligent Query, IQ Access and the IQ Software logo are registered
trademarks of IQ Software Corporation. IQ, IQ/Objects and
IQ/SmartServer are trademarks of IQ Software Corporation. All other
product names are trademarks or registered trademarks of their
respective companies.
[BACK COVER]
LOGO IQ SOFTWARE
</TABLE>
