SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996.
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM TO .
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Commission File No. 0-20747
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ImageMatrix Corporation
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(Exact name of registrant as specified in its charter)
Colorado 84-1313108
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(State or Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
400 S. Colorado Blvd. - Suite 500, Denver, CO 80222
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(Address of principal executive offices) (Zip Code)
(303) 399-3700
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(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes
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No X
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The registrant had 4,638,772 shares of common stock outstanding as of July 31,
1996.
Transitional Small Business Disclosure Format:
Yes No X
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IMAGEMATRIX CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(Unaudited)
June 30, December 31,
1996 1995
ASSETS ----------- ------------
Current assets:
Cash and cash equivalents $ 2,932 $ 550
Accounts receivable, less allowance for doubtful accounts 161 752
of $22 as of June 30, 1996 and $18 as of December 31, 1995
Unbilled revenue 279 -
Inventory 45 216
Prepaid expenses and other current assets 122 44
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Total current assets 3,539 1,562
Property and equipment, at cost:
Computer equipment 333 166
Office furniture and leasehold improvements 75 31
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408 197
Less: accumulated depreciation (87) (13)
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Software development costs net of accumulated amortization
of $23 as of June 30, 1996 and zero at December 31, 1995 216 -
Other assets, net of accumulated amortization of $39 as of
June 30, 1996 and $15 as of December 31, 1995 72 176
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Total assets $ 4,148 $ 1,922
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 518 $ 505
Deferred revenue - 61
Note payable to bank - 1,160
Note payable to ENTEX Information Services of Colorado, Inc. - 1,484
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Total current liabilities 518 3,210
Stockholders' equity (deficit):
Preferred Stock, no par value, 5,000,000 shares authorized,
no shares issued or outstanding - -
Common Stock, no par value 20,000,000 shares authorized,
4,638,772 shares issued and outstanding as of June 30,
1996 and 3,238,772 shares issued and outstanding as of
December 31, 1995 5,116 (1,141)
Deferred compensation, net of accum. amortization of $25 (75) (100)
Accumulated retained earnings (deficit) (1,411) (47)
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Total Stockholders' equity (deficit) 3,630 (1,288)
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Total liabilities and stockholders' equity (deficit) $ 4,148 $ 1,922
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See accompanying notes to these consolidated financial statements
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IMAGEMATRIX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
Pro Pro
Forma Forma
Three Months Three Six Months Six
Ended Months Ended Months
June 30, Ended June 30, Ended
---------------------- June 30, ---------------------- June 30,
1996 1995 1995 1996 1995 1995
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Revenue:
System sales $ 636 $ - $ 707 $ 1,433 $ 61 $ 2,308
Service contracts and other 118 - 90 228 - 106
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Total revenues 754 - 797 1,661 61 2,414
Cost of Revenues:
Cost of revenues - systems 421 - 434 883 66 1,608
Cost of revenues - service
contracts and other 88 - 44 386 - 52
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Total cost of revenues 509 - 478 1,269 66 1,660
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Gross profit 245 - 319 392 (5) 754
Selling, general and administrative
expenses 952 29 271 1,478 101 502
Depreciation and amortization 72 - 3 123 - 6
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Operating income (loss) (779) (29) 45 (1,209) (106) 246
Other income (expense):
Interest -net (61) (92) (75) (146) (123) (132)
Other nonoperating income (2) - 2 (9) - 2
Net realized gain (loss) on sale of
net assets - - - - 347 -
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Net Income (loss) before income
taxes (842) (121) (28) (1,364) 118 116
Provision for income taxes - - 13 - 18 13
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Net income (loss) $ (842) $ (121) $ (41) $ (1,364) $ 100 $ 103
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Net income (loss) per common share $ (0.22) $ (0.03) $ (0.01) $ (0.37) $ 0.03 $ 0.03
========== ========== ========== ========== ========== ==========
Common shares us ed in computing net
income (loss) per common share 3,891,000 3,575,000 3,575,000 3,733,000 3,575,000 3,575,000
========== ========== ========== ========== ========== ==========
See accompanying notes to these consolidated financial statements
2
IMAGEMATRIX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)
Six months ended
June 30,
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1996 1995
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OPERATING ACTIVITIES
Net income (loss) $ (1,364) $ 100
Adjustments to reconcile income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 146 11
Net realized gain on sale of net assets - (347)
Changes in operating assets and liabilities, net
of effect from business disposition: - -
Accounts receivable 591 114
Unbilled revenues (279) -
Inventory 171 (405)
Prepaid expenses and other current assets (78) 16
Accounts payable, accrued liabilities and
deferred income (10) 360
Other assets (2) -
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Net cash provided (used) by operating activities (825) (151)
INVESTING ACTIVITIES
Proceeds from sale to ENTEX Information Services of - 171
Co., Inc.
Purchases of computer equipment and furniture (211) -
Software development costs (239) -
Proceeds from disposal of discontinued operations - 12
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Net cash provided (used) by investing activities (450) 183
FINANCING ACTIVITIES
Increase in capital stock - net proceeds from IPO 6,339 -
Decrease in note payable to bank (1,160) -
Decrease in note payable to ENTEX Information
Services (1,484) -
Decrease in amount due to principal stockholder (38) (35)
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Net cash provided (used) by financing activities 3,657 (35)
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Net decrease in cash and cash equivalents 2,382 (3)
Cash and cash equivalents at beginning of period 550 5
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Cash and cash equivalents at end of period $ 2,932 $ 2
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Supplemental schedule of additional cash flow
information and noncash activities:
Cash paid during the period for interest $ 158 $ -
See accompanying notes to these consolidated financial statements
3
IMAGEMATRIX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
1. PRO FORMA STATEMENT OF OPERATIONS
The pro forma statement of operations for the three-month and six-month
periods ended June 30, 1995 assumes operations of the Imaging Division of
Random Access, Inc. (the "Imaging Division") had been owned by the Company
for the entire three-month and six-month periods. However, historical
combined results may not be comparable to, or indicative of, future
performance. The pro forma statement of operations for the three-month and
six-month periods ended June 30, 1995 includes adjustments to (i) eliminate
goodwill amortization expense during the period the Imaging Division was
owned and operated by Random Access, Inc.("Random"); (ii) record interest
expense during the period February 16, 1995 through June 30, 1995 on the
note payable issued in conjunction with the acquisition of the assets of
the Imaging Division by ImageMatrix Corporation on August 30, 1995; (iii)
eliminate the gain on sale of assets recorded at February 15, 1995 by
Documatrix Corporation (predecessor to ImageMatrix Corporation) as a result
of its sale to Random of the assets that became the Imaging Division; and
(iv) eliminate the alternative minimum tax (AMT) as ImageMatrix
Corporation's AMT loss carryforward would not have been used if the sale to
Random Access, Inc., had not occurred.
2. BASIS OF PRESENTATION
The Company, in its opinion, has included all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of its
financial position at June 30, 1996 and pro forma June 30, 1995 and the
results of its operations for the three-month and six-month periods ended
June 30, 1996 and pro forma June 30, 1995. The results of operations for
the periods ended June 30, 1996 are not necessarily indicative of the
results for a full year.
3. REVENUE RECOGNITION POLICY
Revenues from contracts extending over a period of time, which are being
performed on a firm price basis, are recognized on the percentage of
completion method. The Company's basis for measuring the extent of progress
toward completion is the ratio of costs incurred to total estimated costs.
Revenues from the sale of software licenses and hardware products are
recognized at the time of shipment unless significant future obligations
remain. Post-contract customer service contracts are recorded as unearned
maintenance fees and recognized as revenue ratably over the contract
period. Costs associated with post-sale obligations are accrued and
recognized as expense ratably over the contract period.
4. SOFTWARE DEVELOPMENT COSTS
The Company capitalized approximately $169,000 and $239,000 of software
development costs during the three-month and six-month periods ended June
30, 1996 related to the Company's ClaimMatrix product. These costs will be
amortized, once the product is available for general release, for a period
not to exceed 36 months.
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5. NOTES PAYABLE TO BANK
As of December 31, 1995, the Company owed $1,160,000 to Bank One, Colorado,
N.A. This note, plus accrued interest, was paid in full out of the net
proceeds of the IPO during the month of June, 1996.
6. NOTE PAYABLE TO ENTEX
As of December 31, 1995, the Company owed $1,484,000 to ENTEX Information
Services of Colorado, Inc. This note, plus accrued interest, was paid in
full out of the net proceeds of the IPO during the month of June, 1996.
7. DEFERRED OFFERING COSTS
During the six months ended June 30, 1996, the Company incurred additional
costs related to the public offering of the Company's common shares.
Offering costs, totaling $746,000 were netted against the proceeds
received from the sale of $1,400,000 common shares as a result of the IPO.
8. NEWLY IMPLEMENTED ACCOUNTING STANDARD
On January 1, 1996, the Company adopted Financial Accounting Standards
Board Statement No. 121 ("Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of") 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. The impact of the adoption of this Statement was not
material.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company designs, sells, and installs document imaging and workflow
control systems which improve productivity and customer service for health
maintenance organizations, health insurance companies, and businesses and
associations in financial, communications, engineering and other
industries.
In June of 1996, the Company raised $6,258,000, net of offering costs, from
its initial public offering of 1,400,000 shares of Common Stock.
In August 1995 the Company acquired the imaging business of Entex
Information Services of Colorado, Inc. ("ENTEX"). The imaging business had
been acquired by ENTEX from Documatrix Corporation, a company controlled by
the Company's president, on February 15, 1995. As Documatrix and the
Company had no operations from February 16, 1995 through August 30, 1995,
pro forma results of operations incorporating the financial statements of
Documatrix Corporation and the imaging division of ENTEX as predecessor
companies are being compared to 1996 actual results of operations for the
three- and the six-month period ended June 30, 1996 to clarify the readers'
understanding of the Company's business.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH PRO FORMA THREE MONTHS ENDED JUNE
30, 1995
REVENUES
Total revenues were $754,000 for the three months ended June 30, 1996
("Second Quarter 1996"), compared to $797,000 for the three months ending
pro forma June 30, 1995 ("Second Quarter 1995"), a decrease of 5.4%.
Revenues from system sales totaled $636,000 for Second Quarter 1996,
compared to $707,000 for Second Quarter 1995, representing a decrease of
10.0%. The decrease in total revenues and revenues from system sales from
quarter to quarter is due to lower sales volume in the general system
integration side of the business.
Revenues for Second Quarter 1996 included $462,000 from the sale of a
ClaimMatrix system to Standard Insurance, Inc. of Portland, Oregon.
Because the Company's marketing and sales efforts will continue to be
focused primarily on the health care industry, revenues from custom-
designed systems for the general system integration market are expected to
become a smaller portion of revenues in relation to the total.
Revenues from service contracts and other totaled $118,000 in Second
Quarter 1996 compared to $90,000 in Second Quarter 1995, representing an
increase of 31.1%. This increase in revenue was due to an increased number
of service contracts in place during the Second Quarter 1996.
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COST OF REVENUES AND RESULTING GROSS MARGIN RESULTS
Total cost of sales totaled $509,000 and $478,000 in the Second Quarter
1996 and Second Quarter 1995, respectively, an increase of 6.5%. The
increase in total cost was associated with the impact of establishing a
$40,000 valuation reserve for inventory related to the general system
integration business.
Cost of system sales totaled $421,000 and $434,000 in the Second Quarter
1996 and Second Quarter 1995, respectively, a decrease of 3.0%. The
decrease in cost of system sales was due to lower sales volume.
Cost of service contracts and other totaled $88,000 and $44,000 in the
First Quarter 1996 and First Quarter 1995, respectively, an increase of
100%. The increase was due to the impact of establishing a $40,000
valuation reserve for inventory related to the general system integration
business.
Total gross profit totaled $245,000 (32.5% of total revenue) in the Second
Quarter 1996 and $319,000 (40.0% of total revenue ) in the First Quarter
1995, respectively, a decrease of 23.2%
Gross profit from system sales totaled $215,000 (33.8% of total revenue) in
the Second Quarter 1996 and $273,000 (38.6% of total revenue) in the Second
Quarter 1995, respectively. Gross profit from service contracts and other
totaled $30,000 (25.4% of sales) and $46,000 (51.1% of sales) in the Second
Quarter 1996 and Second Quarter 1995, respectively. The decrease in gross
margin is primarily due to the impact of establishing, in the Second
Quarter of 1996, a $40,000 valuation reserve for inventory in stock related
to the general system integration business.
OPERATING EXPENSES
Selling, general and administration expenses increased 351% to $952,000 for
the Second Quarter 1996, compared to $271,000 for the Second Quarter 1995.
The increase for the Second Quarter 1996 compared to the Second Quarter
1995 is related to a proportionate increase in the number of personnel
engaged in sales, marketing and general administration activities together
with higher expenditures for marketing and sales activities. The Company
expects selling, general and administrative expenses to increase during the
remainder of 1996 as it hires additional sales personnel and increases its
marketing and sales efforts in connection with ClaimMatrix.
INTEREST EXPENSE - NET
Interest expense (net) decreased to $61,000 for the Second Quarter 1996
compared to $75,000 for the Second Quarter 1995. The decrease is primarily
related to the fact that all notes payable were paid off immediately after
completion of the IPO on June 4, 1996 and excess cash resources were
invested in interest-bearing securities. Interest expense (net) is not
expected to be significant for the remainder of 1996.
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NET INCOME (LOSS)
The Company reported a net loss of $842,000 for the Second Quarter 1996 as
compared to a net loss of $41,000 for the Second Quarter 1995, or ($.22)
and ($.01) per share, respectively. The increased loss was due to lower
revenues and higher expense levels, as noted above.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH PRO FORMA SIX MONTHS ENDED JUNE 30,
1995
REVENUES
Total revenues were $1,661,000 for the six months ended June 30, 1996
("First Half 1996") and were $2,414,000 for the six months ended pro forma
June 30, 1995 (First Half 1995"), respectively, a decrease of 31.2%.
Revenues from system sales totaled $1,433,000 and $2,308,000 for the First
Half 1996 and First Half 1995, respectively, representing a decrease of
37.9%. The decrease in system sales from First Half 1995 to First Half
1996 is primarily due to the fact that the Company was not engaged in
comparable large ongoing general systems integration contracts during the
first half of 1996. Revenues from system sales for the First Half 1995
included $1,032,000 of revenue recognized on a major contract with First
Trust Corporation, plus $1,276,000 of system sales from other projects.
Total revenues for the First Half 1996 included $462,000 of revenue
recognized from the sale of a ClaimMatrix system to Standard Insurance of
Portland, Oregon, plus $971,000 of system sales from other projects
Revenues from customer service and other totaled $228,000 and $106,000 in
the First Half 1996 and First Half 1995, respectively, representing an
increase of 115.1%. The increase in service contract revenue from First
Half 1995 to First Half 1996 is due to an increase in the number of
customer service contracts in place during the respective periods.
COST OF REVENUES AND RESULTING GROSS MARGIN RESULTS
Total cost of sales totaled $1,269,000 and $1,660,000 in the First Half
1996 and First Half 1995, respectively, a decrease of 23.6%. Cost of
system sales totaled $883,000 and $1,608,000 in the First Half 1996 and
First Half 1995, respectively, a decrease of 45.1%. The decrease in total
cost of sales and cost of system sales was related to lower revenue in the
First Half of 1996 versus the First Half of 1995.
Cost of service contracts and other totaled $386,000 and $52,000 in the
First Half 1996 and First Half 1995, respectively. The First Half of 1996
includes approximately $200,000 of labor and overhead charges relating to
idle capacity within the general systems integration technical staff. As
the Company's business focus continues to move away from the general
systems design and integration business and toward sales of ClaimMatrix
systems for HMOs and health insurance companies ("Coverage Providers"), the
costs of the Company's technical staff are being allocated to other
portions of the business as their expertise is utilized in other areas of
the business, such as sales, marketing, and product development.
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Total gross profit totaled $392,000 (23.6% of sales) in the First Half 1996
and $754,000 (31.2% of sales ) in the First Half 1995, respectively, a
decrease of 48%. Gross profit from system sales totaled $550,000 and
$700,000 in the First Half 1996 and First Half 1995, respectively, a
decrease of 21.4%, while gross margin percentages from system sales
increased to 38.4% and 30.3% over the same periods. The higher gross margin
percentage for system sales for the First Half 1996 is primarily related to
the fact that the Company sold more systems to the health care market in
the First Half of 1996 than it did in the First Half of 1995.
Gross profit (loss) from service contracts and other totaled ($158,000) and
$54,000 in the First Half 1996 and First Half 1995, respectively. The lower
gross margin from service contracts and other is partially due to the
impact of establishing a $40,000 valuation reserve for inventory in stock,
in the First Half of 1996, that was related to the general system
integration business. In addition, the First Half of 1996 includes
approximately $200,000 of labor and overhead charges relating to the
transition away from the general systems design and integration business
toward a focus on selling ClaimMatrix systems for the Coverage Provider
industry.
OPERATING EXPENSES
Selling, general and administration expenses increased 291% to $1,478,000
for the First Half 1996, compared to $502,000 for the First Half 1995. The
increase for the First Half 1996 compared to the First Half 1995 is related
to a proportionate increase in the number of personnel engaged in sales,
marketing and general administration activities together with higher
expenditures for marketing and sales activities. The totals for the First
Half 1996 are exclusive of $239,000 in software development costs
capitalized during the period.
INTEREST EXPENSE - NET
Interest expense (net) increased to $146,000 for First Half 1996, compared
to $132,000 for First Half 1995. Because the Company paid off all of its
existing debt at the closing of the IPO, interest expense is not expected
to be significant for the remainder of 1996.
NET INCOME (LOSS)
The Company reported a net loss of $1,364,000 for the First Half 1996 as
compared to a net gain of $103,000 for the First Half 1995, or ($.36) and
$.03 per share, respectively. The increased loss was due to lower revenues
and higher expense levels, as noted above.
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LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by (used in) operating activities was ($825,000) and
($151,000) in First Half 1996 and First Half 1995, respectively. In the
First Half 1996, net cash used by operating activities consisted primarily
of the net loss for the period offset by depreciation and amortization
expense and a decrease in accounts receivable balances.
Net cash provided by (used by) investing activities was ($450,000) and
$183,000 in the First Half 1996 and First Half 1995, respectively. In the
six months ended June 30, 1996, net cash used for investing activities
consisted primarily of purchases of computer equipment and furniture
related to the increase in the number of employees of the Company.
Net cash provided by (used by) financing activities was $3,657,000 and
($35,000) in the First Half 1996 and First Half 1995, respectively. In June
of 1996, the Company raised $6,258,000, net of offering costs, from its
initial public offering of 1,400,000 shares of Common Stock. The Company
has repaid all of its long-term debt obligations with the proceeds of this
offering, including $1,484,000 owed to ENTEX Information Services of
Colorado, Inc. and $1,160,000 owed to Bank One Colorado, N.A. The
Company intends to use the remaining proceeds to fund the purchase of
capital equipment and finance general working capital needs.
The statements contained in this report which are not historical facts are
forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those set forth in or
implied by forward-looking statements, including but not limited to the
risk that the market for imaging-based claims processing may not develop as
expected, the recent introduction of ClaimMatrix which is based on
client/server technology, the degree of success of the Company's market
initiatives, expansion of sales in the industries to which the Company
provides systems, the success of the Company in forecasting demand for the
ClaimMatrix system, and the success of the Company in increasing
ClaimMatrix system sales as a percentage of overall revenues to increase
gross profit margins and decrease general, administration and sales costs
as a percentage of overall gross profit, and the risk that the long length
of the Company's sales cycle could delay revenues.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11.1:
Statement re: Computation of per share earnings - Second
Quarter 1996
Exhibit 11.2:
Statement re: Computation of per share earnings - First Half
1996
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which
this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ImageMatrix Corporation
By: /S/ Gerald E. Henderson
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Gerald E. Henderson, Chief
Executive Officer
Date: August 5, 1996
By: /S/ Keith Brue
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Keith Brue, Chief Financial Officer
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