UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2001
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________________ to ___________________
Commission file number: 000-30883
I-MANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 01-0524931
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
537 Congress Street
5th Floor
Portland, Maine 04101-3353
(Address of principal executive offices)
(207) 774-3244
(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
------ ------
On May 11, 2001, 34,428,299 shares of the registrant's common stock, $.0001 par
value, were issued and outstanding.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements
that involve risks and uncertainties. Discussions containing forward-looking
statements may be found in the information set forth under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"--Certain Factors That May Affect Future Operating Results" as well as in the
Form 10-Q generally. The Company uses words such as "believes," "intends,"
"expects," "anticipates," "plans," "estimates," "should," "may," "will,"
"scheduled" and similar expressions to identify forward-looking statements. The
Company uses these words to describe its present belief about future events
relating to, among other things, our expected marketing plans, future hiring,
expenditures and sources of revenue. This Form 10-Q may also contain third party
estimates regarding the size and growth of our market which also are
forward-looking statements. Our forward-looking statements apply only as of the
date of this Form 10-Q. The Company's actual results could differ materially
from those anticipated in the forward-looking statements for many reasons,
including the risks described above and elsewhere in the Form 10-Q.
Although the Company believes that the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance or achievements. The Company is under
no duty to update any of the forward-looking statements after the date of this
Form 10-Q to conform these statements to actual results or to changes in our
expectations, other than as required by law.
I-MANY, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2001 and
December 31, 2000..............................................4
Consolidated Statements of Operations for the three months
ended March 31, 2001 and 2000..................................5
Consolidated Statements of Cash Flows for the three months
ended March 31, 2001 and 2000..................................6
Notes to Consolidated Condensed Financial Statements...........8
Item 2. Management's Discussion and Analysis of Financial Condition...12
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk....20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................21
Item 2. Changes in Securities and Use of Proceeds.....................21
Item 3. Defaults upon Senior Securities...............................21
Item 4. Submission of Matters to a Vote of Security Holders...........21
Item 5. Other Information.............................................21
Item 6. Exhibits and Reports of Form 8-K..............................21
Signatures....................................................22
Exhibit Index.................................................23
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
I-MANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
2001 2000
---- ----
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 48,629 $ 50,639
Accounts receivable, net of allowance 11,358 10,051
Unbilled receivables 3,851 4,475
Prepaid expenses and other current assets 849 459
--------- ---------
Total current assets 64,687 65,624
Property and Equipment, net 8,272 8,625
Other Assets 1,192 1,059
Goodwill and Other Purchased Intangibles 14,877 10,080
--------- ---------
Total assets $ 89,028 $ 85,388
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,800 $ 3,644
Accrued expenses 5,476 4,598
Current portion of deferred service revenue 7,388 7,050
Unearned product revenue 1,867 1,220
--------- ---------
Total current liabilities 17,531 16,512
--------- ---------
Capital Lease Obligations, net of current portion 102 115
--------- ---------
Commitments and Contingencies
Stockholders' Equity:
Undesignated preferred stock, $.01 par value
Authorized - 5,000,000 shares
Issued and outstanding - 0 shares - -
Common stock, $.0001 par value - -
Authorized - 100,000,000 shares
Issued and outstanding - 33,352,906 and 32,940,767 shares
at March 31, 2001 and December 31, 2000, respectively 3 3
Additional paid-in capital 101,878 98,746
Deferred stock-based compensation (129) (154)
Stock subscription receivable 766 -
Accumulated deficit (31,123) (29,834)
--------- ---------
Total stockholders' equity 71,395 68,761
--------- ---------
Total liabilities and stockholders' equity $ 89,028 $ 85,388
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
4
I-MANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
Three months
ended March 31,
2001 2000
---- ----
Net Revenues:
Product $ 8,481 $ 1,546
Services 6,784 5,243
--------- ---------
Total net revenues 15,265 6,789
Cost of revenues 4,356 3,244
--------- ---------
Gross profit 10,909 3,545
Operating expenses:
Sales and marketing 5,142 4,391
Research and development 3,497 3,712
General and administrative 1,966 832
Depreciation 1,366 451
Amortization of goodwill and other purchased intangible assets 847 -
--------- ---------
Total operating expenses 12,818 9,386
--------- ---------
Loss from operations (1,909) (5,841)
Other income, net 620 139
--------- ---------
Loss before income taxes (1,289) (5,702)
Provision for income taxes - -
--------- ---------
Net loss (1,289) (5,702)
Accretion of dividends on redeemable convertible
Preferred stock - 253
--------- ---------
Net loss applicable to common stockholders $ (1,289) $ (5,955)
========= =========
Basic and diluted net loss per common share $ (0.04) $ (0.47)
========= =========
Weighted average shares outstanding 33,095 12,569
========= =========
The accompanying notes are an integral part of these consolidated financial
statements
5
I-MANY, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31,
-----------------------------
2001 2000
------- -------
Cash Flows from Operating Activities:
Net loss $ (1,289) $ (5,702)
Adjustments to reconcile net loss to cash provided by
(used in) operating activities:
Depreciation and amortization 2,188 435
Amortization of deferred stock-based compensation 25 16
Changes in current assets and liabilities:
Accounts receivable (1,243) 1,428
Unbilled receivables 754 (2,789)
Prepaid expense and other current assets (380) (33)
Prepaid and refundable income taxes (10) 192
Accounts payable (861) 3,116
Accrued expenses 752 (507)
Deferred service revenue 22 333
Unearned product revenue 647 (234)
-------- --------
Net cash provided by (used in) operating activities 605 (3,745)
-------- --------
Cash Flows from Investing Activities:
Purchases of property and equipment, net (963) (4,492)
Additional cash paid to acquire Chi-Cor Information Management, Inc. (766) -
Cash paid to acquire Vintage Software, Inc. (731) -
Cash paid to acquire Intersoft International, Inc. (591) -
(Increase) decrease in other assets (133) (621)
-------- --------
Net cash used in investing activities (3,184) (5,113)
-------- --------
Cash Flows from Financing Activities:
Proceeds from exercise of common stock warrants - 150
Payments on capital lease obligations (12) (8)
Proceeds from exercise of stock options 581 181
Bank overdraft - 1,293
-------- --------
Net cash provided by financing activities 569 1,616
-------- --------
Net Decrease in Cash and Cash Equivalents (2,010) (7,242)
Cash and Cash Equivalents, beginning of period 50,639 15,322
-------- --------
Cash and Cash Equivalents, end of period $ 48,629 $ 8,080
======== ========
6
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 7 $ 1
======== ========
Cash refunded during the period for income taxes $ - $ (188)
======== ========
Supplemental Disclosure of Noncash Activities:
Accretion of dividends on Series C preferred stock $ - $ 252
======== ========
As of March 31, 2001, the Company recorded additional purchase price related
to its acquisition of Chi-Cor Information Management, Inc. on November 16,
2000, as follows:
Fair value of additional assets acquired $ (1,453) $ -
Additional cash paid 766 -
Additional common stock to be issued 677 -
-------- --------
Additional liabilities assumed $ (10) $ -
======== ========
On January 25, 2001, the Company acquired Vintage Software, Inc. as follows:
Fair value of assets acquired $ (1,168) $ -
Cash paid for acquisition 731 -
Common stock issued 400 -
-------- --------
Liabilities assumed $ (37) $ -
======== ========
On March 2, 2001, the Company acquired Intersoft International, Inc. as follows:
Fair value of assets acquired $ (3,242) $ -
Cash paid for acquisition 591 -
Common stock issued 2,240 -
-------- --------
Liabilities assumed $ (411) $ -
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
7
I-MANY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission for reporting on Form 10-Q. Accordingly,
certain information and footnote disclosures required for complete financial
statements are not included herein. It is recommended that these financial
statements be read in conjunction with the financial statements and related
notes of I-Many, Inc. (the "Company") for the year ended December 31, 2000 as
reported in the Company's Annual Report on Form 10-K. In the opinion of
management, all adjustments (consisting of normal, recurring adjustments)
considered necessary for a fair presentation of financial position, results of
operations and cash flows at the dates and for the periods presented have been
included. The consolidated balance sheet presented as of December 31, 2000 has
been derived from the financial statements that have been audited by the
Company's independent public accountants. The results of operations for the
three months ended March 31, 2001 may not be indicative of the results that may
be expected for the year ending December 31, 2001, or for any other period.
NOTE 2. NET LOSS PER SHARE
Basic net loss per share was determined by dividing the net loss
applicable to common stockholders by the weighted-average number of shares of
common stock outstanding during the period. Diluted net loss per share was the
same as basic net loss per share for all periods presented since the effect of
any potentially dilutive security was excluded, as they are anti-dilutive as a
result of the Company's net losses. The total numbers of common equivalent
shares excluded from the diluted loss per share calculation were 3,336,022 and
12,954,540 for the three months ended March 31, 2001 and 2000, respectively.
NOTE 3. INITIAL PUBLIC OFFERING
On July 13, 2000, the Company completed an initial public offering of
7,500,000 shares of common stock at a per share price of $9.00. Subsequently on
August 9, 2000, our underwriters exercised an option to purchase an additional
1,125,000 shares of common stock at a per share price of $9.00 to cover
over-allotments. Net proceeds from the offering and subsequent option exercise
were approximately $70.7 million. Pursuant to the Company's initial public
offering, all outstanding shares of preferred stock were converted into
approximately 9,170,000 shares of common stock.
NOTE 4. SIGNIFICANT CUSTOMERS
The Company had one customer whose revenues individually represented
14% and 37% of total net revenues for the three month periods ended March 31,
2001 and 2000, respectively.
NOTE 5 ACQUISITIONS
CHI-COR INFORMATION MANAGEMENT, INC.
On November 16, 2000, the Company acquired in a merger transaction all
of the outstanding capital stock of Chi-Cor Information Management, Inc.
(ChiCor) for an initial purchase price of $13.5 million, which consisted of cash
of $5.7 million, a portion of which was used to pay off ChiCor's outstanding
bank loan of $754,000, 251,601 shares of Company common stock with a fair value
at the date of closing of $4.9 million, assumed liabilities of $2.5 million and
transaction costs of $458,000. In addition, upon achievement of certain
quarterly revenue and income milestones through December 31, 2001, the ChiCor
shareholders are entitled to additional
8
consideration of up to $6.9 million, one-half of which is payable in cash and
the balance payable in the form of Company stock. The acquisition was
accounted for as a purchase business combination in accordance with
Accounting Principles Board (APB) Opinion No. 16, BUSINESS Combinations. The
Company has consolidated the operations of ChiCor beginning on the date of
acquisition. The Company retained an independent appraiser for the purpose of
allocating the initial consideration of $13.5 million to the tangible and
intangible assets acquired and the liabilities assumed.
Based on the revenue and income levels realized by ChiCor during the
three month period ended March 31, 2001, the ChiCor shareholders will receive
additional consideration of $1.6 million to be paid in cash and stock no later
than May 15, 2001. At March 31, 2001, the one-half stock portion of this amount
was recorded as Stock Subscription Receivable and the cash portion was recorded
in Accrued Expenses, with the entire amount treated as additional purchase price
and recorded as goodwill. Any additional consideration paid to the ChiCor
shareholders as a result of future quarterly earnouts will likewise be treated
as additional purchase price and recorded as goodwill.
VINTAGE SOFTWARE, INC.
On January 25, 2001, the Company acquired all of the outstanding
capital stock of Vintage Software, Inc. (Vintage), a software company which
marketed a competing product to the Company's CARS software suite of products to
mid-market pharmaceutical companies. The aggregate purchase price of $1.1
million included cash of $433,000, 34,096 shares of Company common stock with a
fair value of $400,000, $200,000 in earnout bonuses, and transaction costs of
$98,000. The acquisition was accounted for as a purchase business combination in
accordance with APB Opinion No. 16, BUSINESS COMBINATIONS and the Company has
consolidated the operations of Vintage beginning on the date of acquisition. No
proforma information for the period ended March 31, 2001 has been presented as
this purchase was not material.
INTERSOFT INTERNATIONAL, INC.
On March 2, 2001, the Company acquired all of the outstanding capital stock of
Intersoft International, Inc. (Intersoft), a supplier of sales and marketing
automation products for the foodservice broker industry. The initial purchase
price of $2.8 million included cash of $500,000, 115,733 shares of Company
common stock with a fair value of $2.2 million and transaction costs of $99,000.
In addition, upon achievement of certain quarterly revenue and income milestones
through March 31, 2002, the Intersoft shareholders are entitled to additional
consideration of up to $1.25 million, payable in the form of Company stock. The
acquisition was accounted for as a purchase business combination in accordance
with APB Opinion No. 16, BUSINESS COMBINATIONS and the Company has consolidated
the operations of Intersoft beginning on the date of acquisition. Any additional
consideration paid to the Intersoft shareholders as a result of future quarterly
earnouts will be treated as additional purchase price and recorded as goodwill.
No proforma information for the period ended March 31, 2001 has been presented
as this purchase was not material.
BCL VISION LTD.
On April 9, 2001, the Company acquired all of the outstanding
capital stock of BCL Vision Ltd. (BCL), a provider of collection and dispute
management software and services based in London, United Kingdom. The initial
purchase price of $12.0 million consists of cash of $4.0 million, 690,000
shares of Company common stock with a fair value of $6.9 million, assumed
liabilities of approximately $800,000 and estimated transaction costs of
$300,000. In addition, upon achievement of a certain revenue milestone
through June 30, 2001, the BCL shareholders are entitled to additional
consideration of up to $1.0 million, payable in the form of Company stock.
The acquisition will be accounted for as a purchase business combination in
accordance with APB Opinion No. 16, BUSINESS COMBINATIONS and the Company
will consolidate the operations of BCL beginning on the date of acquisition.
The Company has retained an independent appraiser for the purpose of
allocating the
9
initial consideration of approximately $12.0 million to the tangible and
intangible assets acquired and the liabilities assumed. Any additional
consideration paid to the BCL shareholders as a result of the future earnout
will be treated as additional purchase price and recorded as goodwill.
PROVATO, INC.
On April 18, 2001, the Company entered into an agreement to acquire
all the outstanding capital stock of Provato, Inc. In connection with the
merger, the Company has agreed to issue up to 3,158,016 shares of the
Company's common stock to the shareholders of Provato. The Company will
assume Provato's liabilities of approximately $1.0 million and expects to
incur transaction costs of approximately $300,000. Using the closing price of
the Company's stock at May 11, 2001 of $16.06 per share, the purchase price
of the merger transaction would be valued at up to $52.0 million. The
acquisition will be accounted for as a purchase business combination in
accordance with Accounting Principles Board (APB) Opinion No. 16, BUSINESS
COMBINATIONS and the Company will consolidate the operations of Provato
beginning on the date of acquisition. The Company has retained an independent
appraiser for the purpose of allocating the value of the merger consideration
to the tangible and intangible assets acquired and the liabilities assumed.
The Company expects this transaction to be closed around June 30, 2001.
NOTE 6. STRATEGIC RELATIONSHIP AGREEMENTS
PROCTER & GAMBLE COMPANY
In May 2000, the Company entered into a Strategic Relationship
Agreement (the Agreement) with the Procter & Gamble Company (P&G), pursuant to
which P&G has designated the Company for a period of at least three years as
their exclusive provider of purchase contract management software for their
commercial products group. In addition, P&G has agreed to provide the Company
with certain strategic marketing and business development services over the term
of the Agreement. P&G also entered into an agreement to license certain software
and technology from the Company.
As consideration for entering into the Agreement, the Company will pay
P&G a royalty of up to 10% of the revenue generated from the commercial products
market, as defined. To date, no such royalties have been earned or paid. In
addition, the Company granted to P&G a fully exercisable warrant to purchase
875,000 shares of the Company's common stock. The warrant, which was exercisable
for a period of two years at an exercise price of $9.00 per share, was converted
into 561,960 shares of common stock via a cashless exercise during 2000. In
addition, the Company agreed to grant P&G warrants to purchase up to 125,000
additional shares of common stock, exercisable at the then current fair market
value per share, upon the achievement of milestones set forth in the Agreement,
as defined.
Using the Black-Scholes option pricing model and based upon an exercise
price of $9.00 per share and a volatility factor of 85%, the Company has
calculated the fair value of the fully exercisable warrant to purchase 875,000
shares of common stock as approximately $3,820,000. In accordance with Emerging
Issues Task Force Issue No. 96-18, ACCOUNTING FOR EQUITY INSTRUMENTS THAT ARE
ISSUED TO OTHER THAN EMPLOYEES FOR ACQUIRING, OR IN CONJUNCTION WITH SELLING,
GOODS OR SERVICES, this amount was recorded by the Company in May of 2000 as,
first, a reduction of the revenue derived from the license agreement with P&G,
and, second, a component of sales and marketing expense. The Company will
calculate and record the fair value of the warrants to purchase up to 125,000
additional shares of common stock as P&G provides the services set forth in the
Agreement.
ACCENTURE
In April 2001, the Company entered into a Marketing Alliance Agreement
(the Agreement) with Accenture LLP, pursuant to which Accenture has designated
the Company for a period of at least one year as their preferred provider of
automated contract management solutions. In addition, Accenture has agreed to
provide the Company with
10
certain strategic marketing and business development services at no charge
over the term of the Agreement.
As consideration for entering into the Agreement, the Company has
designated Accenture as its preferred business integration provider for the
Company's CARS suite of products. In addition, the Company granted to
Accenture a fully exercisable warrant to purchase 124,856 shares of the
Company's common stock. The warrant is exercisable for a period of three
years at an exercise price of $9.725 per share. In addition, the Company has
agreed to grant Accenture additional future warrants, each with a value equal
to 10% of any revenues generated from certain future software licenses to
Accenture's clients and prospects.
NOTE 7. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This statement establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts and for hedging activities.
SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000. The Company does not expect SFAS
No. 133 to have a material impact on its financial statements.
In March 2000, the FASB issued Interpretation No. 44, ACCOUNTING FOR
CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION - AN INTERPRETATION OF APB
OPINION NO. 25. The Interpretation clarifies the application of APB No. 25 in
certain situations, as defined. The Interpretation is effective July 1, 2000,
but covers certain events occurring during the period after December 15, 1998,
but before the effective date. To the extent that events covered by this
interpretation occur during the period after December 15, 1998, but before the
effective date, the effects of applying this Interpretation would be recognized
on a prospective basis from the effective date. Accordingly, upon initial
application of the final Interpretation, (a) no adjustments would be made to the
financial statements for periods before the effective date, and (b) no expense
would be recognized for any additional compensation cost measured that is
attributable to periods before the effective date. The Company expects that the
adoption of this Interpretation would not have any effect on its financial
statements.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion of our financial condition and
results of operations in conjunction with our financial statements and related
notes. In addition to historical information, the following discussion and other
parts of this report contain forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those anticipated
by such forward-looking statements due to various factors, including, but not
limited to, those set forth under "Certain Factors That May Affect Our Future
Operating Results" and elsewhere in this report.
OVERVIEW
We provide software and Internet-based solutions and related
professional services that allow our clients to more effectively manage their
business-to-business relationships. Our products and services were originally
developed to manage complex contract purchasing relationships in the healthcare
industry. Our Contract Administration and Reporting System, or CARS, software
suite is used by 8 of the largest 10 and 16 of the largest 20 pharmaceutical
manufacturers, ranked according to annual revenues. We are seeking to expand our
products and services to new vertical markets, particularly the consumer
packaged goods and foodservice industries. Our acquisitions of Chi-Cor
Information Management, Inc. (ChiCor) in November 2000 and Intersoft
International, Inc. (Intersoft) in March 2001 have provided us with accepted
products, customers and expertise in these new vertical markets.
Currently, we can deliver our products through a variety of means,
including software licensed for installation on our clients' computer systems,
software licensed on an application service provider basis which we host on our
servers, our proprietary imany.com portal and the licensing of technology to
enable our clients to establish their own private or public portals and
exchanges.
We have generated revenues from both products and services. Product
revenues, which have been principally comprised of software license fees
generated from our CARS software suite, accounted for 22.8% of net revenues in
the three months ended March 31, 2000 and 55.6% of net revenues for the three
months ended March 31, 2001. Service revenues include maintenance and support
fees directly related principally to our CARS software suite and professional
service fees derived from consulting, installation, business analysis and
training services related to our software products. Service revenues accounted
for 77.2% of net revenues in the three months ended March 31, 2000 and 44.4% of
net revenues for the three months ended March 31, 2001.
Historically, software license agreements have been for a three-year
period. We generally recognize software license fees upon execution of a signed
license agreement and delivery of the software, provided that there are no
significant post-delivery obligations, the payment is fixed or determinable, and
collection is probable. In cases where significant post-delivery obligations
exist, such as customization or enhancements to the core software, we recognize
the entire fee on a percentage-of-completion basis, and include the entire fee
in product revenues. We provide an allowance for sales returns at the time of
revenue recognition based on historical experience. To date, such returns have
not been significant.
We recognize revenue from professional services as the services are
performed for time and materials contracts and we use the
percentage-of-completion method for fixed fee contracts. However, if customer
acceptance is required, we recognize revenue for professional services upon
client acceptance. We recognize training revenues as the services are provided.
We recognize maintenance and client support fees ratably over the term of the
maintenance contract on a straight-line basis. When maintenance and support is
included in the total license fee, we allocate a portion of the total fee to
maintenance and support based upon the price paid by the client to purchase
maintenance and support in the second year.
12
After being profitable in both 1997 and 1998, we increased our spending
significantly during 1999 and the first half of 2000, principally to increase
the size of our sales and marketing workforce and for development and marketing
expenses related to the development of our web-based initiatives. Our operating
expenses have increased significantly since 1997, from $4.2 million for the 12
months ended December 31, 1997 to $46.2 million for the 12 months ended December
31, 2000 and $12.8 million for the three months ended March 31, 2001. These
increases are primarily due to additions to our staff, including through
acquisitions, as we have expanded all aspects of our operations. We have grown
from 46 employees as of December 31, 1996 to 393 employees at March 31, 2001.
RECENT EVENTS
On November 16, 2000, we acquired all the outstanding capital stock of
ChiCor in a merger transaction for a purchase price of up to $20.3 million. The
initial consideration of $13.5 million consisted of $5.7 million of cash, a
portion of which was used to pay off ChiCor's outstanding bank loan of $754,000,
251,601 shares of Company common stock with a fair value of $4.9 million,
assumed liabilities of $2.5 million and transaction costs of $458,000. As of
March 31, 2001, the ChiCor shareholders had become entitled to additional
consideration of $1.6 million, out of a total earnout potential of $1.7 million,
based on the revenue and income levels realized by the ChiCor operation during
the three month period ended March 31, 2001. In addition, upon achievement of
certain additional quarterly revenue and income milestones through December 31,
2001, the ChiCor shareholders are entitled to additional consideration of up to
$5.2 million, one-half of which is payable in cash and the balance payable in
the form of Company stock.
On January 25, 2001, we acquired all of the outstanding capital stock
of Vintage Software, Inc. (Vintage) for a purchase price of $1.1 million,
consisting of cash of $433,000, 34,096 shares of Company common stock with a
fair value of $400,000, accrued earnout bonuses of $200,000 and transaction
costs of $98,000. The results of Vintage are included since the date of
acquisition in the accompanying March 31, 2001 financial statements.
On March 2, 2001, we acquired all of the outstanding capital stock
of Intersoft for a purchase price of up to $4.1 million. The initial
consideration of $2.8 million consisted of cash of $500,000, 115,733 shares
of Company common stock with a fair value of $2.2 million and transaction
costs of $99,000. In addition, upon achievement of certain quarterly revenue
and income milestones through March 31, 2002, the Intersoft shareholders are
entitled to additional consideration of up to $1.25 million, payable in the
form of Company stock. The results of Intersoft are included since the date
of acquisition in the accompanying March 31, 2001 financial statements.
On April 9, 2001, we acquired all of the outstanding capital stock of
BCL Vision Ltd. (BCL) for a purchase price of up to $13.0 million. The initial
consideration of $12.0 million consisted of cash of $4.0 million, 690,000 shares
of Company common stock with a fair value of $6.9 million, assumed liabilities
of approximately $800,000 and estimated transaction costs of $300,000. In
addition, upon achievement of a certain revenue milestone through June 30, 2001,
the BCL shareholders are entitled to additional consideration of up to $1.0
million, payable in the form of Company stock. This acquisition will be
recorded in the quarter ended June 30, 2001, and the BCL operating results
from the date of acquisition (4/9/2001) will be included in the June 30, 2001
financial statements.
On April 11, 2001, in connection with the establishment of a
Marketing Alliance Agreement (the Agreement) with Accenture LLP, we issued a
fully exercisable warrant to purchase 124,856 shares of the Company's common
stock. The warrant is exercisable for a period of three years at an exercise
price of $9.725 per share. During the second quarter of 2001, we will record
the financial statement impact of this warrant. In addition, the Company has
agreed to grant Accenture additional future warrants, each with a value equal
to 10% of the revenue generated from certain future software licenses to
Accenture clients.
On April 18, 2001, we signed an agreement to acquire Provato, Inc.
in a merger transaction. In connection with the merger, we have agreed to
issue up to 3,158,016 shares of the Company's common stock to the
shareholders of Provato and will assume Provato's liabilities of
approximately $1.0 million. We expect to incur transaction costs of
approximately $300,000. Using the closing price of the Company's stock at May
11, 2001
13
of $16.06 per share, the purchase price of this merger transaction would be
valued at up to $52.0 million. We expect this transaction will close around
June 30, 2001.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTH PERIODS ENDED MARCH 31, 2001 AND 2000
NET REVENUES
Net revenues increased by $8.5 million, or 125%, to $15.3 million for
the quarter ended March 31, 2001 from $6.8 million for the quarter ended March
31, 2000. Product revenues increased by $6.9 million, or 449%, to $8.5 million
for the quarter ended March 31, 2001, from $1.5 million for the quarter ended
March 31, 2000. This increase is attributable to a significant increase in the
number of software licenses sold, due in part to the contribution of the ChiCor
subsidiary subsequent to its acquisition in November 2000.
As a percentage of total net revenues, product revenues increased to
55.6% for the quarter ended March 31, 2001, from 22.8% for the quarter ended
March 31, 2000 and 51.9% for the quarter ended December 31, 2000. This increase
in product revenues as a percentage of total net revenues is attributable to the
significant expansion of our software licensing activity, as compared to the
more modest growth rate of our professional services business. Service revenues
increased by $1.5 million, or 29%, to $6.8 million for the quarter ended March
31, 2001, from $5.2 million for the quarter ended March 31, 2000.
COST OF REVENUES
Cost of revenues consists primarily of payroll and related costs and
subcontractor costs for providing professional services and maintenance and
support services, and to a lesser extent, amounts due to third parties for
royalties related to integrated technology. Historically, cost of product
revenues has not been a significant component of total cost of revenues. Cost
of revenues increased by $1.1 million, or 34%, to $4.4 million for the
quarter ended March 31, 2001, from $3.2 million for the quarter ended March
31, 2000. This increase is due primarily to the increased number of employees
in our professional services group, which grew from 71 in the first quarter
of 2000 to 110 in the first quarter of 2001, partially offset by a decrease
in subcontractor consulting costs from $1.4 million in the first quarter of
2000 to $1.2 million in the first quarter of 2001.
As a percentage of total net revenues, cost of revenues decreased to
28.5% for the quarter ended March 31, 2001, from 47.8% for the quarter ended
March 31, 2000 and 33.2% for the quarter ended December 31, 2000. This decrease
in cost of revenues as a percentage of total net revenues is attributable to the
smaller level of service revenues as a percent of total revenues. Service
revenues typically generate lower margins than product revenues.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses consist primarily of
payroll and related benefits for sales and marketing personnel, commissions for
sales personnel, travel costs, recruiting fees, expenses for trade shows and
advertising and public relations expenses. Sales and marketing expense increased
by $751,000, or 17%, to $5.1 million in the three months ended March 31, 2001
from $4.4 million in the three months ended March 31, 2000. This increase in
sales and marketing expense is primarily the result of an increase in headcount
levels from 52 at March 31, 2000 to 109 at March 31, 2001 and significantly
higher commission costs attributable to the increase in product revenues,
partially offset by significant reductions in spending for advertising,
marketing and promotional materials related to our web-based initiatives, and
decreases in travel expenses. As a percentage of total net revenues, sales and
marketing expense decreased to 33.7% for the quarter ended March 31, 2001,
14
from 64.7% for the quarter ended March 31, 2000 and 40.8% for the quarter
ended December 31, 2000.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of payroll and related costs for development personnel and external
consulting costs associated with the development of our products and services.
Research and development costs, including the costs of developing computer
software, are charged to operations as they are incurred. Research and
development expenses decreased by $215,000, or 5%, to $3.5 million for the
quarter ended March 31, 2001, from $3.7 million for the quarter ended March 31,
2000. This decrease in research and development expenses is attributable to
significant subcontractor costs associated principally with the development of
our Internet portal incurred during the first half of 2000. In the quarter ended
March 31, 2000, subcontractor costs amounting to $2.4 million were expensed as
incurred, as compared to $280,000 in the quarter ended March 31, 2001. The
decrease in subcontractor costs was partially offset by an increase in salary
costs related to an increase in the number of research and development personnel
from 67 at March 31, 2000 to 133 at March 31, 2001. As a percentage of total net
revenues, research and development expense decreased to 22.9% for the quarter
ended March 31, 2001, from 54.7% for the quarter ended March 31, 2000 and 23.0%
for the quarter ended December 31, 2000.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries and related costs for all senior executives and personnel
in our administrative, finance and human resources departments, and legal,
accounting and other professional service fees. General and administrative
expenses increased by $1.1 million, or 136%, to $2.0 million for the first
quarter of 2001 from $832,000 for the first quarter of 2000. As a percentage of
total net revenues, general and administrative expenses increased to 12.9% for
the quarter ended March 31, 2001, from 12.3% for the quarter ended March 31,
2000. The increase in general and administrative expenses both in dollars and as
a percentage of total net revenues is primarily attributable to an increase in
headcount from 30 at March 31, 2000 to 41 at March 31, 2001, higher legal fees,
and to the costs associated with being a publicly-held company.
DEPRECIATION. Depreciation includes amortization of capitalized
internal- use software development costs related to the company's Internet
portal. Depreciation expense increased by $915,000, or 203%, from $451,000 in
the first quarter of 2000 to $1.4 million in the first quarter of 2001. This
increase is a result of significant additions of computer hardware and
software for our web-based initiatives and amortization of capitalized
internal-use software development costs, which consist entirely of
subcontractor costs. In the quarter ended March 31, 2001, the amortization
expense related to capitalized internal-use software development costs
amounted to $834,000, as compared to $207,000 of amortization in the quarter
ended March 31, 2000.
AMORTIZATION OF GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS.
Amortization of purchased intangibles, related to our acquisitions of ChiCor
in November 2000, Vintage in January 2001 and Intersoft in March 2001,
amounted to $847,000 in the quarter ended March 31, 2001. There was no
amortization of purchased intangibles in the quarter ended March 31, 2000.
OTHER INCOME, NET. Other income, net increased by $481,000, or 346%,
from $139,000 in the quarter ended March 31, 2000, to $620,000 in the quarter
ended March 31, 2001. This increase is the result of interest earned on higher
average cash balances due to the net cash proceeds from our initial public
offering.
PROVISION FOR INCOME TAXES. We have incurred operating losses for all
quarters in 2000 and the first quarter of 2001 and have consequently recorded a
valuation allowance for the full amount of our net deferred tax asset, which
consists principally of our net operating loss carryforwards, as the future
realization of the tax benefit is uncertain. No provision for income taxes has
been recorded in the quarters ended March 31, 2001 and March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
15
On July 13, 2000, we issued 7,500,000 shares of our common stock at an
initial public offering price of $9.00 per share. On August 9, 2000 our
underwriters exercised a 30-day option to purchase an additional 1,125,000
shares of common stock to cover over-allotments. Net cash proceeds to us from
the initial public offering and subsequent overallotment option exercise were
approximately $70.7 million.
From inception until our initial public offering, our capital and
liquidity needs have been met, in large part, with the net proceeds from the
private placement of debt and equity securities, cash flows generated from
operations and through equipment lease financings.
At March 31, 2001, we had cash and cash equivalents of $48.6 million
and a net working capital surplus of $47.2 million. On March 31, 2001, we had no
long-term or short-term debt, other than obligations under capital lease
financings.
On April 9, 2001, we acquired BCL Vision Ltd. for a purchase price of
up to $13.0 million, including $4.0 million of cash, common stock valued at $6.9
million, $800,000 of assumed liabilities, $300,000 of transaction costs, and up
to $1.0 million to be paid, subject to the satisfaction of certain performance
criteria during 2001, in stock. At closing, we used existing cash resources to
pay the cash portion of the purchase price.
Net cash provided by operating activities for the three months ended
March 31, 2001 was $605,000, as compared to net cash used in operating
activities of $3.7 million in the three months ended March 31, 2000. For the
three months ended March 31, 2001, net cash provided by operating activities
consisted primarily of our net loss of $1.3 million, as adjusted for
depreciation and amortization of $2.2 million. Increases in accounts receivable
of $1.2 million and $380,000 in prepaid expense, and a $861,000 decrease in
accounts payable were largely offset by a $754,000 decrease in unbilled
receivables and increases of $752,000 and $647,000 in accrued expenses and
unearned product revenue, respectively. Net cash used in operating activities
for the three months ended March 31, 2000 consisted principally of our net loss
of $5.7 million and a $2.8 million increase in unbilled receivables, partially
offset by a $1.4 million decrease in accounts receivable and a $3.1 million
increase in accounts payable.
Net cash used in investing activities was $3.2 million for the three
months ended March 31, 2001 and $5.1 for the three months ended March 31, 2000.
Net cash used in investing activities for the three months ended March 31, 2001
primarily reflects $963,000 in purchases of property and equipment and $2.1
million related to the acquisitions of ChiCor, Vintage and Intersoft. Net cash
used in investing activities for the three months ended March 31, 2000 consisted
primarily of purchases of property and equipment, including $3.3 million of
capitalized internal-use software development costs.
Net cash provided by financing activities was $569,000 for the three
months ended March 31, 2001, primarily from proceeds from stock option
exercises. Net cash provided by financing activities was $1.6 million for the
three months ended March 31, 2000, consisting of a $1.3 million bank
overdraft and $331,000 in exercises of warrants and options.
We currently anticipate that our $44.6 million balance in cash and cash
equivalents, net of the $4.0 million in cash paid on April 9, 2001 for the
acquisition of BCL Vision Ltd., will be sufficient to meet our anticipated needs
for working capital, capital expenditures, and acquisitions for at least the
next 12 months. Our future long-term capital needs will depend significantly on
the rate of growth of our business, the timing of expanded product and service
offerings and the success of these offerings once they are launched. Any
projections of future long-term cash needs and cash flows are subject to
substantial uncertainty. If our current balance of cash and cash equivalents is
insufficient to satisfy our long-term liquidity needs, we may seek to sell
additional equity or debt securities to raise funds, and those securities may
have rights, preferences or privileges senior to those of the rights of our
common
16
stock. In connection with such a sale of stock, our stockholders may
experience dilution. In addition, we cannot be certain that additional
financing will be available to us on favorable terms when required, or at all.
CERTAIN FACTORS THAT MAY AFFECT OUR FUTURE OPERATING RESULTS
In addition to other information in this Form 10-Q, the following
factors could cause actual results to differ materially from those indicated by
forward-looking statements made in this Form 10-Q and presented elsewhere by
management from time to time.
WE HAVE INCURRED SUBSTANTIAL LOSSES IN 1999 AND 2000 AND FOR THE THREE MONTHS
ENDED MARCH 31, 2001 AND OUR RETURN TO PROFITABILITY IS UNCERTAIN
We incurred net losses of approximately $5.2 million in the year
ended December 31, 1999 and $24.2 million in the year ended December 31, 2000
and we had an accumulated deficit at March 31, 2001 of $31.1 million. Even
though our net loss narrowed significantly in the quarter ended March 31,
2001 to $1.3 million, we expect to continue spending significantly,
principally for sales, marketing and development expenses, and therefore we
will need to grow our revenues significantly before we reach profitability.
Although we have been profitable in certain years, our business model is
evolving and we cannot assure you that we will achieve sufficient revenues to
become profitable in the future. If our revenue grows more slowly than we
anticipate or if our operating expenses either increase more than we expect
or cannot be reduced in light of lower than expected revenue, we may not be
profitable.
IT IS DIFFICULT FOR US TO PREDICT WHEN OR IF SALES WILL OCCUR AND WE OFTEN INCUR
SIGNIFICANT SELLING EXPENSES IN ADVANCE OF OUR RECOGNITION OF ANY RELATED
REVENUE
Our clients view the purchase of our software applications and related
professional services as a significant and strategic decision. As a result,
clients carefully evaluate our software products and services. The length of
this evaluation process is affected by factors such as the client's need to
rapidly implement a solution and whether the client is new or is extending an
existing implementation. The license of our software products may also be
subject to delays if the client has lengthy internal budgeting, approval and
evaluation processes which are quite common in the context of introducing large
enterprise-wide tools. We may incur significant selling and marketing expenses
during a client's evaluation period, including the costs of developing a full
proposal and completing a rapid proof of concept or custom demonstration, before
the client places an order with us. Clients may also initially purchase a
limited number of licenses before expanding their implementations. Larger
clients may purchase our software products as part of multiple simultaneous
purchasing decisions, which may result in additional unplanned administrative
processing and other delays in the recognition of our license revenues. If
revenues forecasted from a significant client for a particular quarter are not
realized or are delayed, we may experience an unplanned shortfall in revenues
during that quarter. This may cause our operating results to be below the
expectations of public market analysts or investors, which could cause the value
of our common stock to decline.
OUR METHOD OF ACCOUNTING FOR THE COSTS WE INCURRED IN CONNECTION WITH THE
DEVELOPMENT OF OUR INTERNET PORTAL IS BASED ON OUR BUSINESS MODEL, AND IN THE
EVENT OUR BUSINESS MODEL CHANGES, WE MAY BE REQUIRED TO INCUR A CHARGE AGAINST
EARNINGS
In accordance with generally accepted accounting principles, we have
capitalized certain of our costs related to the development of imany.com, our
proprietary Internet portal, and we are amortizing the capitalized costs over an
estimated useful life of twenty-four months. In the event that our business
model changes such that our portal is no longer deemed to have sufficient value
to justify the then carrying value of the capitalized costs, we would be
required to write off all, or a portion of, these capitalized costs. In such an
event, our results of operations for the period in which we take such a charge
could be materially adversely affected.
17
WE HAVE TWO MANAGEMENT LOCATIONS AND OTHER FACILITIES AND AS WE CONTINUE TO
GROW WE MAY EXPERIENCE DIFFICULTIES IN OPERATING FROM THESE FACILITIES
Certain members of our management team are based at our corporate
headquarters located in Portland, Maine, and other members of our management
team are based at our sales office in Edison, New Jersey. In addition, as a
result of our acquisitions, we have added additional facilities, including an
office in London, United Kingdom. As we grow, the geographic distance between
these offices could make it more difficult for our management and other
employees to effectively communicate with each other and, as a result, could
place a significant strain on our managerial, operational and financial
resources. Our total revenue increased from $7.5 million in the year ended
December 31, 1997 to $36.5 million in the year ended December 31, 2000, and to
$15.3 million in the quarter ended March 31, 2001, and the number of our
employees increased from 67 as of December 31, 1997 to 393 as of March 31, 2001.
To accommodate this growth, we must implement new or upgraded operating and
financial systems, procedures and controls. We may not succeed in these efforts.
Our failure to expand and integrate these systems in an efficient manner could
prevent us from successfully implementing our business model. If we continue to
grow, we will need to recruit, train and retain a significant number of
employees, particularly employees with technical, marketing and sales
backgrounds. Because these individuals are in high demand, we may not be able to
attract the staff we need to accommodate our expansion.
WE ARE HIGHLY DEPENDENT UPON THE HEALTHCARE INDUSTRY AND FACTORS WHICH ADVERSELY
AFFECT THAT MARKET COULD ALSO ADVERSELY AFFECT US
Most of our revenue to date has come from pharmaceutical companies and
a limited number of other clients in the healthcare industry, and our future
growth depends, in large part, upon increased sales to the healthcare market. In
the first three months of 2001, one customer, Premier, Inc., accounted for
approximately 14 percent of our total revenues. As a result, demand for our
solutions could be affected by any factors which could adversely affect the
demand for healthcare products which are purchased and sold pursuant to
contracts managed through our solutions. The financial condition of our clients
and their willingness to pay for our solutions are affected by factors which may
impact the purchase and sale of healthcare products, including competitive
pressures, decreasing operating margins within the industry, currency
fluctuations, active geographic expansion and government regulation. The
healthcare market is undergoing intense consolidation. We cannot assure you that
we will not experience declines in revenue caused by mergers or consolidations
among our clients and potential clients.
OUR EFFORTS TO TARGET MARKETS OTHER THAN THE HEALTHCARE MARKET HAVE NOT YET
RESULTED IN SIGNIFICANT REVENUE, AND WE CANNOT BE SURE THAT OUR INITIATIVES IN
THESE OTHER MARKETS WILL BE SUCCESSFUL
As part of our growth strategy, we have begun initiatives to sell our
CARS software suite of products and services in markets other than the
healthcare market, including the consumer packaged goods, foodservice and other
industries. While we believe that the contractual purchase relationships between
manufacturers and customers in these markets have similar attributes to those in
the healthcare market, we cannot assure you that our assumptions are correct or
that we will be successful in adapting our technology to these other markets.
Although we have entered into a strategic relationship with Procter & Gamble, we
do not yet know how rapidly or successfully our purchase contract management
software solutions will be implemented in the commercial products industry. In
connection with our efforts in other industries, it may be necessary for us to
hire additional personnel with expertise in these other markets.
OUR BUSINESS MODEL INCLUDES HOSTING OUR SOFTWARE APPLICATIONS ON BEHALF OF OUR
CLIENTS AND MAINTAINING THEIR CRITICAL SALES DATA, AND IF OUR SYSTEMS FAIL OR
THE DATA IS LOST OR CORRUPTED, OUR CLIENTS MAY LOSE CONFIDENCE IN US
18
We offer to host our software products on our computers or on computers
hosted on our behalf for access by our clients and we offer to maintain certain
of our clients' critical sales data on our computers or on computers hosted on
our behalf. Fire, floods, earthquakes, power loss, telecommunications failures,
break-ins, human error, computer viruses, intentional acts of vandalism and
similar events could damage these systems and result in loss of customer data or
a loss in the ability of our clients to access the software we are hosting for
their use. Our clients would lose confidence in us and could stop doing business
with us if our systems were affected by any of these occurrences or if any
client data were lost. Our insurance policies may not adequately compensate us
for any losses that may occur due to any failures or interruptions in our
systems or loss of data.
WE MAY NOT BE SUCCESSFUL IN ACQUIRING NEW TECHNOLOGIES OR BUSINESSES AND THIS
COULD HINDER OUR EXPANSION EFFORTS
We intend in the future to consider additional acquisitions of or new
investments in complementary businesses, products, services or technologies. We
cannot assure you that we will be able to identify appropriate acquisition or
investment candidates. Even if we do identify suitable candidates, we cannot
assure you that we will be able to make such acquisitions or investments on
commercially acceptable terms. Furthermore, we may incur debt or issue equity
securities to pay for any future acquisitions. The issuance of equity securities
could be dilutive to our existing stockholders.
IF WE DO ACQUIRE NEW TECHNOLOGIES OR BUSINESSES, WE MAY HAVE DIFFICULTY
INTEGRATING THOSE NEW TECHNOLOGIES OR BUSINESSES
We have acquired ChiCor, Intersoft and BCL Vision Ltd., which are
located in Chicago, Illinois, Cleveland, Ohio and London, U.K., respectively.
Any other company that we acquire is likely to be distant from our headquarters
in Portland, Maine and will have a culture different from ours as well as
technologies, products and services that our employees will need to understand
and integrate with our own. We will have to assimilate those employees,
technologies and products and that effort is difficult, time-consuming and may
be unsuccessful. If we are not successful, our investment in the acquired entity
may be lost, and even if we are successful, the process of integrating an
acquired entity may divert our attention from our core business.
IF WE DO ACQUIRE NEW TECHNOLOGIES OR BUSINESSES, OUR RESULTS OF OPERATIONS MAY
BE ADVERSELY AFFECTED
In connection with our acquisitions of ChiCor, Vintage and
Intersoft, we have recorded $18.6 million of intangible assets, the
amortization of which will adversely affect our results of operations in
future periods. In addition, we recorded a $2.4 million charge during the
fourth quarter of 2000 for a write-off of the purchase price of ChiCor as
in-process research and development. We expect to record a significant amount
of intangibles assets and a write-off of in-process research and development
in connection with our April 9, 2001 acquisition of BCL Vision Ltd., and with
respect to any future acquisition.
OUR FIXED COSTS MAY LEAD TO FLUCTUATIONS IN OPERATING RESULTS IF OUR REVENUES
ARE BELOW EXPECTATIONS WHICH COULD RESULT IN A DECLINE OF OUR STOCK PRICE
A significant percentage of our expenses, particularly personnel costs
and rent, are fixed costs and are based in part on expectations of future
revenues. We may be unable to reduce spending in a timely manner to compensate
for any significant fluctuations in revenues. Accordingly, shortfalls in
revenues may cause significant variations in operating results in any quarter.
If our quarterly results do not meet the expectations of market analysts or
investors, our stock price is likely to decline.
WE HAVE MANY COMPETITORS AND POTENTIAL COMPETITORS AND WE MAY NOT BE ABLE TO
COMPETE EFFECTIVELY
19
The market for our products and services is competitive and subject to
rapid change. We encounter significant competition for the sale of our contract
management software from the internal information systems departments of
existing and potential clients, software companies that target the contract
management markets, professional services organizations and Internet-based
merchants offering healthcare and other products through online catalogs. In
addition, we encounter competition for our contracting portal from other
Internet-based exchanges, including exchanges established by manufacturers of
healthcare products. Our competitors vary in size and in the scope and breadth
of products and services offered. We anticipate increased competition for market
share and pressure to reduce prices and make sales concessions, which could
materially and adversely affect our revenues and margins.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than we do. Such competitors may also engage in more extensive
research and development, undertake more far-reaching marketing campaigns, adopt
more aggressive pricing policies and make more attractive offers to existing and
potential employees and strategic partners. We cannot assure you that our
competitors will not develop products or services that are equal or superior to
our solutions or that achieve greater market acceptance than our solutions. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties. We cannot
assure you that we will be able to compete successfully or that competitive
pressures will not require us to make concessions that will adversely affect our
revenues and our margins, or reduce the demand for our products and services.
WE RELY SIGNIFICANTLY UPON CERTAIN KEY INDIVIDUALS AND OUR BUSINESS WILL SUFFER
IF WE ARE UNABLE TO RETAIN THEM
We depend on the services of our senior management and key technical
personnel. In particular, our success depends on the continued efforts of A.
Leigh Powell, our Chief Executive Officer, and other key employees. The loss of
the services of any key employee could have a material adverse effect on our
business, financial condition and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
INTEREST RATE RISK
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's investment portfolio. The Company does not
use derivative financial instruments in its investment portfolio. The primary
objective of the Company's investment activities is to preserve principal while
maximizing yields without assuming significant risk. This is accomplished by
investing in widely diversified investments, consisting primarily of short-term,
investment-grade securities. Due to the nature of our investments, we believe
there is no material risk exposure.
As of March 31, 2001, the Company's cash and cash equivalents consisted
entirely of money market investments with maturities under 30 days and
non-interest bearing checking accounts. The weighted average interest rate yield
for all cash and cash equivalents at March 31, 2001 amounted to 5.16 percent.
20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Modification of Constituent Instruments
None
(b) Change in Rights
None
(c) Changes in Securities
On January 25, 2001, the Company issued 34,096 shares of its
unregistered common stock pursuant to its acquisition of Vintage Software, Inc.
On March 2, 2001, the Company issued 115,733 shares of its unregistered common
stock pursuant to its acquisition of Intersoft International, Inc. On April 9,
2001, the Company issued 690,000 shares of its unregistered common stock
pursuant to its acquisition of BCL Vision, Ltd. These shares were issued
pursuant to an exemption from the Securities Act registration requirements set
forth in Rule 506 under the Securities Act and, in the alternative, under
Section 4(2) of the Securities Act.
(d) Use of Proceeds
The Company has continued to use the proceeds of its initial public
offering in the manner and for the purposes described elsewhere in this Report
on Form 10-Q.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits listed on the Exhibit Index are filed herewith.
(b) We did not file a current report on Form 8-K during the quarter
ended March 31, 2001. On April 24, 2001, we filed a current report on Form 8-K
pursuant to Items 2 and 5 thereof, reporting the acquisition of BCL Vision, Ltd.
and the agreement to acquire Provato, Inc.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
I-MANY, INC
Date: May 15, 2001 By: /s/ Philip M. St. Germain
---------------------------------
Philip M. St. Germain
Chief Financial Officer and Treasurer
/s/ Philip M. St. Germain
---------------------------------
Philip M. St. Germain
Chief Financial Officer
May 15, 2001
22
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.1 Employment Agreement, dated October 13, 2000, between Registrant and A.
Leigh Powell
23