<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM __________ TO __________.
Commission File No. 0-20747
IMAGEMATRIX CORPORATION
(Exact name of small business issuer as specified in its charter)
COLORADO 84-1313108
(State or jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 S. COLORADO BLVD. - SUITE 500, DENVER, COLORADO 80246
(Address of principal executive offices) (Zip code)
(303) 399-3700
(Issuer's telephone number)
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 X No ___
The small business issuer had 9,361,178 shares of common stock
outstanding as of October 31, 1997.
Transitional Small Business Disclosure Format:
Yes ___ No X
<PAGE>
ITEM 1 FINANCIAL STATEMENTS
<TABLE>
IMAGEMATRIX CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUE:
Licenses $ 1,048 $ 164 $ 2,984 657
Services and maintenance 162 148 844 812
Hardware and other 231 456 892 960
----- ----- ----- -----
Total revenue 1,441 768 4,720 2,429
COST OF REVENUE:
Licenses 486 143 1,447 431
Services and maintenance 325 126 884 697
Hardware and other 245 314 745 724
----- ---- ----- -----
Total cost of revenue 1,056 583 3,076 1,852
----- ---- ----- -----
GROSS PROFIT 385 185 1,644 577
SELLING, GENERAL
& ADMIN EXPENSES 1,708 1,205 4,383 2,806
----- ----- ----- -----
OPERATING LOSS (1,323) (1,020) (2,739) (2,229)
Other expense:
Interest and other 1 19 (4) (136)
----- ---- ----- -----
NET LOSS (1,322) (1,001) (2,743) (2,365)
Preferred stock dividends:
Imputed (Note 3) - - (833) -
Accrued (58) - (106) -
----- ----- ----- -----
NET LOSS APPLICABLE
TO COMMON STOCKHOLDERS $(1,380) $ (1,001) $(3,682) $(2,365)
======== ======== ======== ========
NET LOSS PER COMMON SHARE $ (0.24) $ (0.22) $ (0.71) $ (0.59)
======== ======== ======== ========
COMMON SHARES USED IN COMPUTING
NET LOSS PER COMMON SHARE 5,769 4,639 5,194 4,035
======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
IMAGEMATRIX CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<CAPTION>
(UNAUDITED)
SEPTEMBER 30,
1997
-------------
<S> <C>
ASSETS
Current assets
Cash $ 1,136
Accounts receivable, net of allowance of $7 1,582
Unbilled revenues 1,214
Inventory 355
Prepaid expenses and other current assets 212
----
Total current assets 4,499
Property and equipment at cost, less accumulated
depreciation of $345 470
Software development costs, net of accumulated
amortization of $230 185
Other assets, net of accumulated
amortization of $69 31
------
TOTAL ASSETS $5,185
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and other accrued expenses $1,278
Deferred revenue 43
Other current liabilities 315
-----
Total current liabilities 1,636
Stockholders' equity
Preferred stock, no par value,
5,000,000 shares authorized, 325,000 shares
issued and outstanding
(liquidation preference of $325,000) 372
Common stock, no par value,
20,000,000 shares authorized,
8,935,120 shares issued and outstanding 10,584
Deferred compensation, net of accumulated
amortization of $87 (13)
Accumulated deficit (7,394)
-------
Total stockholders' equity 3,549
-------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,185
======
</TABLE>
<PAGE>
<TABLE>
IMAGEMATRIX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(2,743) $(2,365)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 338 244
Changes in operating assets and liabilities:
Accounts receivable (1,259) 523
Unbilled revenues (912) (504)
Inventory (230) 154
Prepaid expenses and other current assets (85) (135)
Accounts payable and accrued expenses 788 249
Deferred revenue and
other current liabilities 145 -
Other assets (27) (2)
------- ------
NET CASH USED BY OPERATING ACTIVITIES (3,985) (1,836)
INVESTING ACTIVITIES
Software development costs - (416)
Purchases of computer equipment and furniture (106) (405)
------- -----
NET CASH USED BY INVESTING ACTIVITIES (106) (821)
FINANCING ACTIVITIES
Issuance of preferred stock,
net of offering costs of $362 2,938 -
Issuance of common stock 465 6,329
Exercise of warrants 1,500 -
Repayment of notes payable - (2,644)
Repayment of amount due to principal stockholder - (38)
------ ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,903 3,647
Net increase in cash and cash equivalents 812 990
Cash and cash equivalents at beginning of period 324 550
----- ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,136 $ 1,540
======= =======
</TABLE>
<PAGE>
IMAGEMATRIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 BASIS OF PRESENTATION
These statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-
KSB/A for the year ended December 31, 1996. The accompanying
financial statements have been prepared in accordance with
generally accepted auditing standards and in the opinion of the
Company's management, such financial statements include all
adjustments necessary to summarize fairly the Company's financial
position and results of operations. All adjustments made to the
interim financial statements presented are of a normal, recurring
nature. The results of operations for the nine months ended
September 30, 1997, may not be indicative of results that may be
expected for the year ending December 31, 1997.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SOFTWARE DEVELOPMENT COSTS
The Company recognizes software and system development expenses
at the time of occurrence for all software and system conceptual
design, writing, programming, and production prior to a Beta-site
test at a customer site. Once a product has been installed at a
customer Beta-site and functionality and conceptual design have
been proved, the Company capitalizes all expenses associated with
the development of that software until general release to the
public. Immaterial costs incurred during this time are expensed
in that period.
Amortization of computer software development costs begins when
the product is available for use by customers. Amortization is
recorded using the greater of: (1) the amount computed using the
ratio of current product revenue to the total of current and
anticipated revenue or (2) the amount determined using the
straight-line method over two years. During second quarter 1997,
management of the Company reviewed the life used in this
calculation and determined that based upon the life and history
of the related products, a two year life more accurately reflects
the remaining life of the product. The impact of this change was
immaterial to the third quarter 1997 and the nine-months ended
September 30, 1997.
NOTE 3 PREFERRED STOCK
On April 14, 1997, the Company sold 3,300,000 shares of non-
voting, Series A Preferred Stock (Preferred Stock) for gross
proceeds of $3,300,000. In connection with the sale, the Company
agreed to pay commissions of $330,000 and issue warrants to
purchase 1,550,000 shares of Common Stock to certain placement
agents. Of the 1,550,000 warrants, 1,050,000 are exercisable at
$2.25 per share and 500,000 are exercisable at $3.00 per share.
All such warrants may be exercised for a period of three years
from the date of grant. The Preferred Stock yields a 7%
dividend, which the Company can elect to pay in cash or Common
Stock. Such amounts are accrued and are included in the other
current liabilities portion of the September 30, 1997 balance
sheet. The Preferred Stock can be converted into Common Stock at
the lesser of $2.25 per share or 75% of the average closing price
for the previous eight trading days prior to conversion. The
Company can decline to convert the shares and can instead redeem
the shares by payment of 125% of the purchase price paid by the
holders and accrued but unpaid dividends on that portion. As of
September 30, 1997, 2,975,000 shares of the 3,300,000 Preferred
Stock shares had been converted to Common Shares (see Note 5).
Recently a Securities and Exchange Commission interpretation was
published whereby net loss applicable to common stockholders must
reflect as a dividend the amount of any specified discount to the
market price of Common Stock into which the Preferred Stock is
convertible. Because the Preferred Stock described above
contains a conversion feature, the net loss applicable to common
stockholders for the nine-month period was increased by $833,000
for an imputed Preferred Stock dividend recognized upon issuance
of the Preferred Stock equivalent to the discount from 75% of the
fair market value of the Common Stock for the eight trading days
prior to April 14, 1997 times the number of common shares
reserved for conversion.
<PAGE>
NOTE 4 WARRANTS
During the third quarter 1997, 1,500,000 of the warrants issued
in conjunction with the April 1997 sale of Preferred Stock were
repriced to $1.00. In connection with the repricing of the
warrants, the Company entered into an agreement with the warrant
holder pursuant to which, for each 100 shares purchased for $1.00
under the repriced warrants, the Company issued to the warrant
holder new warrants to purchase 70 shares at an exercise price of
$2.25 and 30 shares at an exercise price of $3.00. Subsequently,
the Company repriced these warrants to $2.00 per share. During
September 1997, 1,500,000 of $1.00 warrants were exercised and
1,500,000 shares of Common Stock were issued. Net proceeds to
the Company totaled $1,410,000. During October and November
1997, 506,500 of the $2.00 warrants were exercised and the same
number of shares of common stock were issued. Gross proceeds to
the Company totaled $1,013,000.
The Company also entered into an agreement whereby if the
1,500,000 $2.00 warrants are exercised before February 27, 1998,
new warrants will be issued up to 1,500,000, priced at $3.00
expiring July 31, 1998.
NOTE 5 COMMON STOCK
During the third quarter 1997, 2,975,000 shares of Preferred
Stock were converted into 2,512,286 shares of Common Stock.
During October 1997, 225,000 shares of Preferred Stock were
converted into 126,058 shares of Common Stock.
In January 1997, the Company sold 257,000 shares of Common Stock
at a price of $1.95 per share. Net proceeds to the Company
relating to this transaction totaled $465,000.
NOTE 6 IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, EARNINGS PER SHARE, which is required to be
adopted for periods ending after December 15, 1997. At that
time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock options will be
excluded. The expected impact of Statement No. 128 on these
quarters is not expected to be material.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
ImageMatrix Corporation (the Company) was incorporated in July
1995. The Company designs, sells and installs document imaging
and work flow systems which improve productivity and customer
service for health maintenance organizations (HMOs), health
insurance companies, third-party administrators (TPAs), workers
compensation organizations, dental providers and preferred
provider organizations. These organizations are collectively
known as Managed Care Organizations (MCOs). The Company's
systems utilize the Company's proprietary software as well as
components manufactured by third party software, hardware and
peripheral vendors. The Company has developed a suite of
software products including CaptureMatrix TM, ClaimMatrix TM and
ServiceMatrix TM. CaptureMatrix TM is a document capture,
storage and retrieval system. ClaimMatrix TM performs imaging-
based workflow claims processing. ServiceMatrix TM was released
on June 30, 1997 and enables customer service departments to
process customer inquiries in a rapid, cost-efficient manner.
RESULTS OF OPERATIONS
REVENUE
Total revenue for the quarter ended September 30, 1997, was
$1,441,000 an increase of $673,000 or 87.6% over the $768,000
reported for the same 1996 period. For the nine months ended
September 30, 1997, total revenue was
<PAGE>
$4,720,000 compared to $2,429,000 for the nine months ended
September 30, 1996; an increase of $2,291,000 or 94.3%.
In the first nine months of 1997, the Company has experienced
revenue growth of 94.3% when compared to the same period in 1996.
As yet, the Company does not believe that it is in a position to
reliably predict continued quarterly or annual growth. Further,
the Company believes that it will continue to experience
significant quarterly variations in revenue, either positively or
negatively, until the number of system sales increases to the
point where the presence or absence of a larger order, or the
timing of revenue recognition of portions of such orders, will
not significantly impact revenues from period to period.
Sales to the MCO industry increased $1,139,000 or 639.9% from
$178,000 in third quarter 1996 to $1,317,000 in the 1997 period.
The year-to-date period exhibited a comparable increase of
$3,560,000 or 435.2% from $818,000 in 1996 to $4,378,000 in 1997.
For the quarter and nine months ended September 30, 1997, sales
to the MCO industry as a percent of total revenue were 91.4% and
92.8%, respectively. For the same periods in 1996, these sales
represented 23.2% and 33.7%, respectively, of total revenue.
Management believes that the growth in sales to the MCO industry
is the result of the Company's extensive selling efforts in that
market.
LICENSES REVENUE
For the quarter ended September 30, 1997, revenue from the sale
of software licenses (including third party software) rose from
$164,000 to $1,048,000; an increase of $884,000 or 539.0%. For
the nine months ended September 30, 1997, revenue from the sale
of software licenses increased 354.2% or $2,327,000 to $2,984,000
over the $657,000 reported in the same period during 1996. The
single largest contributing factor to these increases is the
growth in sales volume of the Company's proprietary software and
third party software licenses. During third quarter 1997, the
Company entered into $4,155,000 of new contracts compared to
$665,000 in the third quarter of 1996. The majority of the
related revenue on these new contracts will be recorded in the
fourth quarter of 1997 and throughout 1998.
SERVICES AND MAINTENANCE REVENUE
For the three-month and nine-month periods ended September 30,
1997, revenue from services and maintenance increased slightly
over that reported in the 1996 periods. During 1997, revenue
related to services increased due to the addition of customers
discussed above. However, this increase was offset partially by
a decrease in maintenance revenue. The decline in that revenue
was caused by the Company's focus during 1997 on sales of its
proprietary software and the subsequent discontinuance of
maintenance agreements on non-proprietary software sales.
HARDWARE AND OTHER REVENUE
Revenue related to hardware and other declined in both the third
quarter and the nine-month period ended September 30, 1997 when
compared to the 1996 results. The decrease in 1997 related
primarily to the shift in sales focus from systems integration
where hardware was a sizable portion of the revenue to the
Company's proprietary software where hardware becomes a less
significant portion.
GROSS PROFIT
Gross profit for the three-months ended September 30, 1997
increased $200,000 or 108.1% to $385,000 from $185,000 recorded
in the same 1996 period. For the nine-month period, gross profit
rose to $1,644,000 in 1997 from $577,000 in 1996; an increase of
$1,067,000 or 184.9%. The increases were the result of
additional sales of the Company's proprietary software and third
party software in 1997 compared to 1996.
The Company sells its products via contracts for either complete
systems or individual components. In the case of complete
systems, the Company uses the percentage of completion
methodology for recognizing revenue. Under this scenario,
recognized revenues at any one time reflect the overall gross
profit of the total system sale. In the case of individual
component sales, revenue is recognized upon shipment of the
component to the customer. Under this
<PAGE>
method, gross profit can flucuate depending upon the timing of
the shipment of the components and the related gross profit on
those components.
GROSS MARGIN
Gross margin (gross profit as a percent of sales) for the three
months ended September 30, 1997 rose to 26.7% from 24.1%. The
increase in gross margin resulted from more sales of the
Company's proprietary software during the 1997 period. However,
this improvement in gross margin was largely offset by the longer
than anticipated project installations that continued in the
third quarter.
Gross margin for the nine-months ended September 30, 1997 was
34.8% compared to 23.8% in the 1996 period. This favorable
change was caused by added sales of the Company's proprietary
software during 1997. Once again, this increase was offset, in
part, by the extended installation time lines as discussed above.
Management of the Company feels that it has made significant
progress towards reducing the installation timelines by adding
experienced project managers. Management believes that this
effort, in combination with the completion of more installations,
should address the primary issues related to this area.
SELLING, GENERAL AND ADMINISTRATIVE COSTS
In the third quarter of 1997, selling, general and administrative
costs rose $503,000 or 41.7% from $1,205,000 in third quarter of
1996 to $1,708,000. These same costs increased $1,577,000 or
56.2% from $2,806,000 in the first nine months of 1996 compared
to $4,383,000 in the same 1997 period. Contributing the most to
the increase in both periods was the absence of capitalizable
research and development projects in 1997. This absence caused
these costs to increase $247,000 in the third quarter 1997 and
$594,000 in the first nine months of 1997. Additionally, selling
expenses rose $257,000 in the third quarter 1997 and $880,000 in
the first nine months of 1997 over 1996 levels due to the
expansion in late 1996 of the sales force and costs associated
with related office space.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity is generated from both internal and
external sources and is used to fund short-term working capital
needs. Internally generated liquidity is measured by operating
cash flow as discussed below and working capital. At September
30, 1997, net working capital was $2,863,000. In addition, the
Company received gross proceeds of $1,013,000 and $1,500,000 in
October/November 1997 and September 1997, respectively, from the
exercise of warrants and $3,300,000 in the second quarter of 1997
from the sale of 3,300,000 shares of non-voting, Series A
Preferred Stock (Preferred Stock). The Company believes that the
cash generated from the sale of the Preferred Stock, the exercise
of the warrants and its $2,000,000 line of credit (whereby the
Company is allowed to borrow up to 80% of approved accounts
receivable balances) is sufficient to finance its short-term
working capital needs for the next six months. At September 30,
1997, $373,000 was outstanding under the line of credit.
The Company's short-term and long-term capital requirements will
depend on many factors, including, but not limited to, product
revenues from operations, gross profit levels, working capital
requirements, research and development expenses, capital
expenditures, successful project management, timely system
installations and variability of quarterly operations. The
Company's market development efforts are still relatively young
and changes in the anticipated business development of the
Company which extend the Company's time to achieve profitability
could cause the Company to issue debt, additional equity or a
combination thereof. There can be no assurance that additional
financing will be available, or, if available, the terms of such
financing will be favorable to the Company or its shareholders
without substantial dilution of their ownership rights. If
adequate funds are not available, or are not available on terms
acceptable to the Company, the Company may be required to curtail
its operations significantly, forego market opportunities, or
obtain funds through arrangements with strategic partners or
others that may require the Company to relinquish material rights
to certain of its technologies or potential markets. The Company
believes that with improved project management personnel and
increased installation and project management experience, it can
shorten the installation time lines, reduce unbilled revenue
balances and thereby reduce working capital needs. However,
there can be no assurance that this will occur.
<PAGE>
Net cash used in operating activities during the nine months
ended September 30, 1997 was $3,985,000. Contributing to this
usage was the loss experienced during the first nine months of
1997 and the increase in accounts receivable and unbilled revenue
related to the increase in sales volume. These increases were
offset partially by an increase in accounts payable and deferred
revenue and other current liabilities.
"SAFE HARBOR" STATEMENT UNDER PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
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 degree of success of the Company's market
initiatives, expansion of sales in the MCO industry, the success
of the Company in forecasting demand for the ClaimMatrixT and
ServiceMatrixT system, the success of the Company in increasing
ClaimMatrixT and ServiceMatrixT 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, the risk that the Company will not be able
to achieve pricing levels or installation time lines sufficient
to increase gross margins, the risk that the long length of the
Company's sales cycle could delay revenues, the risk of
variablity of quarterly operations, the risk that the Company
will not achieve profitability and those risks and uncertainties
discussed more completely in the Company's Form 10-KSB/A for the
year ended December 31, 1996 and the Company's Form S-3
Registration Statement filed October 3, 1997.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(C) The Company sold the following unregistered securities
during the quarter ended September 30, 1997:
(1) During September 1997, the Company issued 1,500,000 shares
of common stock to Mueller Trading LP of Lakewood ("Mueller")
upon exercise of warrants to purchase common stock, for an
aggregate purchase price of $1,500,000. In connection with the
exercise of such warrants, the Company issued to Mueller
additional warrants to purchase 1,050,000 shares of common stock
at $2.25 per share and 450,000 shares of common stock at $3.00
per share.
(2) On dates between August 14 and September 15, 1997, the
Company issued 2,512,286 shares of common stock to 11 persons
upon conversion of 2,975,000 shares of the Company's Series A
Preferred Stock.
The Company believes each of these sales was private in
nature and was exempt from the registration
requirements of Section 5 of the Securities Act by
virtue of the exemption provided by Section 4(2) of the
Securities Act.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits:
3.1 Amended and Restated Articles of Incorporation. (1).
3.2 Bylaws of Registrant. (1).
3.3 Articles of Amendment to Articles of Incorporation, creating
Series A Convertible Preferred Stock. (2).
4.1 Form of Certificate for Shares of Common Stock. (1).
4.2 Form of Warrant Agreement and Redeemable Warrant. (1).
4.3 Form of Stock Purchase Warrant A. (2).
4.4 Form of Stock Purchase Warrant B. (2).
10.1 Employment Agreement dated December 29, 1995 by and
between ImageMatrix Corporation and Gerald E.
Henderson. (1).
10.2 Severance Agreement dated December 29, 1995 by and
between ImageMatrix Corporation and Dennis C. Hefter.
(1).
10.3 Letter Agreement dated December 21, 1995 by and between
ImageMatrix Corporation and Blair W. McNea. (1).
10.4 ImageMatrix Corporation Founders and Consultants Stock
Option Plan. (1).
10.5 ImageMatrix Corporation 1996 Stock Option Plan. (1).
10.6 ImageMatrix Corporation Stock Option Plan for Non-
Employee Directors. (1).
10.7 Asset Purchase Agreement dated August 30, 1995 by and
among Documatrix Acquisition Corporation, Random
Access, Inc. and Gerald E. Henderson. (1).
10.8 Authorized Reseller Agreement dated February 21, 1996
by and between ImageMatrix Corporation and Optika
Imaging Systems, Inc. (1).
10.9 Reseller Agreement dated January 8, 1996 by and between
ImageMatrix Corporation and FileNet Corporation. (1).
10.10 Asset Purchase Agreement dated February 15, 1995 by and
among Random Access, Inc., Documatrix Corporation and Gerald E.
Henderson. (1).
10.11 Change in Terms Agreement dated December 27, 1995
by and among Bank One Colorado, N.A., Gerald E.
Henderson, Carolyn Lee Henderson and Documatrix
Corporation, as amended by Change in Terms Agreement
dated February 29, 1996 by and among Bank One Colorado,
N.A., Gerald E. Henderson, Carolyn Lee Henderson,
Documatrix Corporation and ImageMatrix Corporation.
(1).
<PAGE>
10.12 Form of Securities Purchase Agreement dated April
14, 1997. (2).
10.13 Warrant Exercise Agreement dated September 4, 1997
by and between ImageMatrix Corporation and Mueller
Trading L.P. of Lakewood.
10.14 Warrant Exercise Agreement dated October 24, 1997 by
and between ImageMatrix Corporation and Mueller Trading L.P. of
Lakewood.
27 Financial Data Schedule
- ---------------------------------
(1) Incorporated by reference from the Registrant's Registration
Statement on Form SB-2 (File No. 333-1990).
(2) Incorporated by reference from the Registrant's Form 10-QSB
for the quarter ended March 31, 1997.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K for the quarter
ended September 30, 1997.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IMAGEMATRIX CORPORATION
Date: November 12, 1997 By: /s/ Gerald E. Henderson
-------------------------
Gerald E. Henderson, Chief
Executive
Officer (Principal Executive
Officer)
Date: November 12, 1997 By: /s/ Blair W. McNea
------------------------
Blair McNea, Chief Financial
Officer, Senior Vice President
- Business Development,
Treasurer, Secretary
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1136
<SECURITIES> 0
<RECEIVABLES> 1582
<ALLOWANCES> 7
<INVENTORY> 355
<CURRENT-ASSETS> 4499
<PP&E> 470
<DEPRECIATION> 345
<TOTAL-ASSETS> 5185
<CURRENT-LIABILITIES> 1636
<BONDS> 0
0
372
<COMMON> 10584
<OTHER-SE> (13)
<TOTAL-LIABILITY-AND-EQUITY> 5185
<SALES> 4720
<TOTAL-REVENUES> 4720
<CGS> 3076
<TOTAL-COSTS> 3076
<OTHER-EXPENSES> 4383
<LOSS-PROVISION> 7
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2739)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2743)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3682)
<EPS-PRIMARY> (0.71)
<EPS-DILUTED> (0.71)
</TABLE>
<PAGE>
WARRANT EXERCISE AGREEMENT
Mueller Trading L.P. of Lakewood
Lakewood, New Jersey
Gentlemen:
For good and valuable consideration, the parties agree as
follows:
1. Reference is made to 1,000,000 warrants owned by you
("Mueller") to purchase shares of common stock (`common
stock") of Imagematrix, Inc., a Colorado corporation, (the
"Company") at $2.25 per share (the "existing $2.25
warrants") and 500,000 warrants owned by Mueller to purchase
shares of common stock at $3 per share (the "existing $3
warrants"). The existing $2.25 warrants and the existing $3
warrants are referred to collectively herein as the
"Existing Warrants."
2. Concurrently herewith, Mueller is exercising 300,000
existing $3 warrants at a reduced exercise price of $1 per
share. Should Mueller exercise the 200,000 remaining
existing $3 warrants on or before October 1, 1997, then the
exercise price of such remaining existing $3 warrants shall
be similarly reduced to $1 per share, and the exercise price
of the first 650,000 to be exercised of the existing $2.25
warrants shall be reduced to $1 per share until December 31,
1997 and to $1-3/8 per share thereafter. The exercise price
of the remaining 350,000 existing $2.25 warrants shall not
be changed by this Agreement.
3. New Warrants.
(a) For each 100 Existing warrants which are exercised on
or before August 1, 1998, whether at their respective
original exercise prices or at the reduced exercise prices
aforesaid, the Company shall forthwith upon such exercise
issue to Mueller 70 warrants to purchase shares of common
stock at $2.25 (the "new $2.25 warrants") and 30 warrants to
purchase shares of common stock at $3 per share (the "new $3
warrants"). Each of the new $2.25 Warrants and the new $3
warrants (collectively the "New Warrants") shall expire
three years after issuance, or, if earlier,
(i) as to the new $2.25 Warrants, upon 30 days notice given
by the Company within 10 days after the end of ten
consecutive trading days to which the closing bid price of
the common stock on NASDAQ was not less than $4 per share,
but only if throughout such trading days and through the
date of such notice a registration statement has been in
effect for the sale of the shares issuable on exercise of
the new $2.25 Warrants; and
(ii) as to the new $3 Warrants upon 30 days notice given by
the Company within 10 days after the end of ten consecutive
trading days in which the closing bid price of the common
stock on NASDAQ was not less than $5 per share, but only if
throughout such trading days and through the date of such
notice a registration statement has been in effect for the
sale of the shares issuable on exercise of the new $3
Warrants.
(b) Except as previously set forth herein, the new $2.25
warrants and the new $3 warrants shall be in the respective
forms of the existing $2.25 warrants the existing $3
warrants.
4. Notwithstanding anything to the contrary contained
herein, Mueller shall not have the right to exercise any
warrant whatsoever so long as and to the extent that at the
time of such exercise, such exercise would cause the Mueller
then to be the "beneficial owner" of five percent (5%) or
more of the Company's then outstanding common stock. For
purposes hereof, the term "beneficial owner" shall have the
meaning ascribed to it in Section 13(d) of the Securities
Exchange Act of
<PAGE>
1934. The opinion of legal counsel to Mueller, in form
and substance satisfactory to the Company and the Company's
counsel, shall prevail in all matters relating to the
amount of Mueller's beneficial ownership.
5. Registration.
(a) The Company represents and warrants that a registration
statement is effective for the issuance of shares on
exercise of the Existing Warrants notwithstanding the
reduced exercise prices contemplated hereunder, and the
Company will use its best efforts to keep such registration
statement in effect at least until July 1, 1999.
(b) The Company shall file, on or before the 30th day after
the date of this Agreement, a registration statement on Form
S-3 (the "Registration Statement") for the public sale by
Mueller of the shares which are issuable on exercise of the
New Warrants. The shares to be covered by the Registration
Statement are collectively referred to as the "registered
shares."
(c) The Company shall use its diligent efforts to cause the
Registration Statement to become effective not later than 60
days after the date of filing, and to remain effective for
two years. The registration shall be accompanied by blue
sky clearances in such five states as Mueller may reasonably
request.
(d) The Company shall pay all expenses of the registration
hereunder, other than Mueller's underwriting discounts and
counsel or other fees incurred on a voluntary basis.
(e) The Company shall supply to Mueller a reasonable number
of copies of all registration materials and prospectuses.
The Company and Mueller shall execute and deliver to each
other indemnity agreements which are conventional in
registered offerings of this type. The Mueller shall
reasonably cooperate with the Company in the preparation and
filing of the Registration Statement and appropriate
amendments thereto.
(f) Mueller may transfer a proportionate part of its
registration rights to a limited number of permitted
transferees of the New Warrants or portions thereof. A
"permitted transferee" is a person to whom a transfer is
made in compliance with the provisions of Section 6.
(g) Once the registration statement is effective, the
Company will issue UNLEGENDED shares of common stock (in
form which can be transmitted electronically if desired by
Mueller) on exercise of the Warrants, whether or not such
shares are sold simultaneously with such conversion or
exercise. Mueller shall deliver any prospectus which it is
legally required to be delivered on the sale of such shares.
(h) Should Mueller from time to time or times give to the
Company notice that it has assigned the Warrants or any
portion thereof, the Company shall within five business days
file a supplement to the registration statement to reflect
the name(s) of the transferee(s) as a selling shareholder.
6. Securities Representations.
(a) Mueller represents and warrants that it will acquire
and may exercise any New Warrants solely for investment
solely for its own account and not with a view to or for the
resale or distribution thereof except as permitted under the
Registration Statement.
(b) Mueller understands that it may sell or otherwise
transfer the New Warrants or the shares issuable on exercise
of the New Warrants only if such transaction is duly
registered under the Securities Act of 1933, as amended,
under the Registration Statement or otherwise, or if Mueller
shall have received the favorable opinion of counsel to
Mueller, which opinion
<PAGE>
shall be reasonably satisfactory to counsel to the Company,
to the effect that such sale or other transfer may be
made in the absence of registration under the Securities
Act of 1933, as amended, and registration or qualification
in every applicable state.
The certificates representing the aforesaid securities will
be legended to reflect these restrictions, and stop transfer
instructions will apply. Mueller realizes that the New
Warrants are not a liquid investment.
(c) Mueller has not relied upon the advice of a "Purchaser
Representative" (as defined in Regulation D of the
Securities Act) in evaluating the risks and merits of this
investment. Mueller has the knowledge and experience to
evaluate the Company and the risks and merits relating
thereto.
(d) Mueller represents and warrants that Mueller is an
"accredited investor" as such term is defined in Rule 501 of
Regulation D promulgated pursuant to the Securities Act of
1933, as amended, and shall be such on the date any shares
are issued to the Mueller, Mueller acknowledges that Mueller
is able to bear the economic risk of losing Mueller's entire
investment in the shares and understands that an investment
in the Company involves substantial risks; Mueller has the
power and authority to enter into this agreement, and the
execution and delivery of, and performance under this
agreement shall not conflict with any rule, regulation,
judgment or agreement applicable to the Mueller, and Mueller
has invested in previous transactions involving restricted
securities.
7. Miscellaneous.
This agreement may not be changed or terminated
except by written agreement. It shall be binding
on the parties and on their personal
representatives and permitted assigns. It sets
forth all agreements of the parties. It shall be
enforceable by decrees of specific performance
(without posting bond or other security) as well
as by other available remedies. This Agreement
shall be governed by, and construed in accordance
with, the laws of Colorado. The federal and state
courts sitting in the City of Denver, Colorado
shall have exclusive jurisdiction over all matters
relating to this Agreement.
All notices, requests, service of process,
consents, and other communications under this
Agreement shall be in writing and shall be deemed
to have been delivered (i) on the date personally
delivered or (ii) one day after properly sent by
Federal Express, addressed to the respective
parties at their address set forth in this
agreement or (iii) on the day transmitted by
facsimile so long as a confirmation copy is
simultaneously forwarded by Federal Express, in
each case addressed to the respective parties at
their address set forth in this Agreement. Either
party hereto may designate a different address by
providing written notice of such new address to
the other party hereto as provided above.
Dated: as of September 4, 1997
Mueller Trading L.P. of Lakewood
By: /s/ Mueller Trading L.P. of Lakewood
Agreed:
IMAGEMATRIX, INC.
BY /s/ Blair McNea
<PAGE>
WARRANT EXERCISE AGREEMENT
Mueller Trading L.P. of Lakewood
Lakewood, New Jersey
Gentlemen:
For good and valuable consideration, the parties agree as
follows:
1. Reference is made to 1,500,000 warrants owned by you
("Mueller") to purchase shares of Common Stock (`Common
Stock") of ImageMatrix, Inc., a Colorado corporation, (the
"Company") at prices ranging from $2.00 to $3.00 (the
"Existing Warrants").
2. In exchange for exercising the Existing Warrants before
January 31, 1997, the Company will reduce the exercise price
to $2.00 per share on all the 1,500,000 Existing Warrants
and Mueller shall receive New Warrants ("New Warrants") as
described below.
3. New Warrants.
(1) For each 100 Existing Warrants which are exercised on
or before February 27, 1998, the Company shall forthwith
upon such exercise issue to Mueller 100 warrants to purchase
shares of Common Stock at $3.00 (the "New Warrants"). Each
of the New Warrants shall expire six months after issuance,
or, if earlier, upon 30 days notice given by the Company
within 10 days after the end of ten consecutive trading days
in which the closing bid price of the Common Stock on NASDAQ
was not less than $5 per share, but only if throughout such
trading days and through the date of such notice a
registration statement has been in effect for the sale of
the shares issuable on exercise of the New Warrants.
(2) Except as previously set forth herein, the New Warrants
shall be in the respective forms of the Existing Warrants.
4. Notwithstanding anything to the contrary contained
herein, Mueller shall not have the right to exercise any
warrant whatsoever so long as and to the extent that at the
time of such exercise, such exercise would cause the Mueller
then to be the "beneficial owner" of five percent (5%) or
more of the Company's then outstanding Common Stock. For
purposes hereof, the term "beneficial owner" shall have the
meaning ascribed to it in Section 13(d) of the Securities
Exchange Act of 1934. The opinion of legal counsel to
Mueller, in form and substance satisfactory to the Company
and the Company's counsel, shall prevail in all matters
relating to the amount of Mueller's beneficial ownership.
5. Registration.
(a) The Company represents and warrants that a registration
statement is effective for the issuance of shares on
exercise of the Existing Warrants notwithstanding the
reduced exercise prices contemplated hereunder, and the
Company will use its best efforts to keep such registration
statement in effect at least until July 1, 1999.
(b) The Company shall file, on or before the 30th day upon
receiving written notice from Mueller that it desires the
New Warrants to be registered, a registration statement on
Form S-3 (the "Registration Statement") for the public sale
by Mueller of the shares which are issuable on exercise of
the New Warrants. The shares to be covered by the
Registration Statement are collectively referred to as the
"registered shares."
<PAGE>
(c) The Company shall use its diligent efforts to cause the
Registration Statement to become effective not later than 60
days after the date of filing, and to remain effective for
two years. The registration shall be accompanied by blue
sky clearances in such five states as Mueller may reasonably
request.
(d) The Company shall pay all expenses of the registration
hereunder, other than Mueller's underwriting discounts and
counsel or other fees incurred on a voluntary basis.
(e) The Company shall supply to Mueller a reasonable number
of copies of all registration materials and prospectuses.
The Company and Mueller shall execute and deliver to each
other indemnity agreements which are conventional in
registered offerings of this type. The Mueller shall
reasonably cooperate with the Company in the preparation and
filing of the Registration Statement and appropriate
amendments thereto.
(f) Mueller may transfer a proportionate part of its
registration rights to a limited number of permitted
transferees of the New Warrants or portions thereof. A
"permitted transferee" is a person to whom a transfer is
made in compliance with the provisions of Section 6.
(g) Once the registration statement is effective, the
Company will issue UNLEGENDED shares of Common Stock (in
form which can be transmitted electronically if desired by
Mueller) on exercise of the Warrants, whether or not such
shares are sold simultaneously with such conversion or
exercise. Mueller shall deliver any prospectus which it is
legally required to be delivered on the sale of such shares
and be subject to such rules and provisions outlined in
Section 6 (a) below.
(h) Should Mueller from time to time or times give to the
Company notice that it has assigned the Warrants or any
portion thereof, the Company shall within five business days
file a supplement to the registration statement to reflect
the name(s) of the transferee(s) as a selling shareholder.
6. Securities Representations.
(a) Mueller represents and warrants that it will acquire
and may exercise any New Warrants solely for investment
solely for its own account and not with a view to or for the
resale or distribution thereof except as permitted under the
Registration Statement.
(b) Mueller understands that it may sell or otherwise
transfer the New Warrants or the shares issuable on exercise
of the New Warrants only if such transaction is duly
registered under the Securities Act of 1933, as amended,
under the Registration Statement or otherwise, or if Mueller
shall have received the favorable opinion of counsel to
Mueller, which opinion shall be reasonably satisfactory to
counsel to the Company, to the effect that such sale or
other transfer may be made in the absence of registration
under the Securities Act of 1933, as amended, and
registration or qualification in every applicable state.
The certificates representing the aforesaid securities will
be legended to reflect these restrictions, and stop transfer
instructions will apply. Mueller realizes that the New
Warrants are not a liquid investment.
(c) Mueller has not relied upon the advice of a "Purchaser
Representative" (as defined in Regulation D of the
Securities Act) in evaluating the risks and merits of this
investment. Mueller has the knowledge and experience to
evaluate the Company and the risks and merits relating
thereto.
(d) Mueller represents and warrants that Mueller is an
"Accredited Investor" as such term is defined in Rule 501 of
Regulation D promulgated pursuant to the Securities Act of
1933, as amended, and shall be such on the date any shares
are issued to the Mueller, Mueller acknowledges that Mueller
is able to bear the economic risk of losing Mueller's entire
<PAGE>
investment in the shares and understands that an investment
in the Company involves substantial risks; Mueller has the
power and authority to enter into this agreement, and the
execution and delivery of, and performance under this
agreement shall not conflict with any rule, regulation,
judgment or agreement applicable to the Mueller, and Mueller
has invested in previous transactions involving restricted
securities.
7. Miscellaneous.
This agreement may not be changed or terminated
except by written agreement. It shall be binding
on the parties and on their personal
representatives and permitted assigns. It sets
forth all agreements of the parties. It shall be
enforceable by decrees of specific performance
(without posting bond or other security) as well
as by other available remedies. This Agreement
shall be governed by, and construed in accordance
with, the laws of Colorado. The federal and state
courts sitting in the City of Denver, Colorado
shall have exclusive jurisdiction over all matters
relating to this Agreement.
All notices, requests, service of process,
consents, and other communications under this
Agreement shall be in writing and shall be deemed
to have been delivered (i) on the date personally
delivered or (ii) one day after properly sent by
Federal Express, addressed to the respective
parties at their address set forth in this
agreement or (iii) on the day transmitted by
facsimile so long as a confirmation copy is
simultaneously forwarded by Federal Express, in
each case addressed to the respective parties at
their address set forth in this Agreement. Either
party hereto may designate a different address by
providing written notice of such new address to
the other party hereto as provided above.
Dated: as of October 24, 1997
Mueller Trading L.P. of Lakewood
By: /s/ Mueller Trading L.P. of Lakewood
Agreed:
ImageMatrix Corporation
BY /s/ Blair McNea
