================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
for the quarterly period ended September 30, 1997
Commission File Number 0-28840
INFORMATION MANAGEMENT RESOURCES, INC.
(Exact name of Registrant as specified in its charter)
Florida 59-2911475
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
26750 U.S. Highway 19 North, Suite 500, Clearwater, Florida 34621
(Address of principal executive offices and zip code)
813-797-7080
(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
------ ------
As of November 4, 1997, there were 17,042,663 outstanding shares of the
Registrant's Common Stock, par value $.10 per share.
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC.
Table of Contents
-----------------
Part I - Financial information
------------------------------
Page
----
Item 1. Consolidated Balance Sheets
as of September 30, 1997 and December 31, 1996..... 3
Consolidated Statements of Income
for the Three Month and Nine Month Periods Ended
September 30, 1997 and 1996......................... 4
Consolidated Statements of Cash Flows
for the Nine Month Periods Ended
September 30, 1997 and 1996......................... 5
Notes to Consolidated Financial Statements.......... 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.................. 9
Part II - Other Information
---------------------------
Item 1. Legal Proceedings.................................. 14
Item 5. Other Information.................................. 14
Item 6. Exhibits and Reports on Form 8-K................... 14
2
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................. $ 24,082 $ 63,951
Marketable securities .................................. 5,644 21,481
Accounts receivable .................................... 5,670 11,124
Unbilled work in process ............................... 1,074 3,766
Accounts receivable, affiliate ......................... 646 --
Notes receivable, affiliate ............................ 533 --
Income tax receivable .................................. -- 875
Deferred income taxes .................................. -- 2,320
Other current assets ................................... 890 1,566
--------- ---------
Total current assets ............................. 38,539 105,083
Property and equipment, net of accumulated depreciation ... 3,703 8,402
Capitalized software costs, net of accumulated amortization 720 459
Note receivable, affiliate ................................ 159 --
Deposits and other assets ................................. 438 647
Goodwill, net of accumulated amortization ................. 5,394 10,298
--------- ---------
Total assets ..................................... $ 48,953 $ 124,889
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit loans ................................. $ -- $ 281
Accounts payable ....................................... 1,364 2,768
Accrued expenses ....................................... 2,878 7,300
Income tax payable ..................................... 477 16
Deferred income taxes .................................. 258 --
Current portion of long-term debt ...................... -- 295
Current maturities of capital lease obligations ........ 55 63
Current portion of notes payable-shareholders .......... 814 --
Deferred revenue ....................................... 1,965 4,770
--------- ---------
Total current liabilities ........................ 7,811 15,493
Long-term debt ............................................ -- 885
Deferred income taxes ..................................... 634 373
Other liabilities ......................................... 85 111
--------- ---------
Total liabilities ................................ 8,530 16,862
--------- ---------
Minority interest ......................................... 67 39
--------- ---------
Shareholders' equity:
Preferred stock ........................................ -- --
Common stock ........................................... 1,447 1,704
Additional paid-in capital ............................. 38,359 98,389
Retained earnings ...................................... 669 8,043
Cumulative foreign currency translation adjustment ..... (119) (148)
--------- ---------
Total shareholders' equity ....................... 40,356 107,988
--------- ---------
Total liabilities and shareholders' equity ....... $ 48,953 $ 124,889
========= =========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited and in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1996 1997 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues ................................... $ 7,048 $ 23,044 $ 19,445 $ 56,158
Cost of revenues ........................... 3,917 12,613 10,928 31,026
-------- -------- -------- --------
Gross profit ...................... 3,131 10,431 8,517 25,132
Selling, general and administrative expenses 1,974 5,668 5,249 14,339
Goodwill amortization ...................... 31 283 60 830
-------- -------- -------- --------
Total operating expense ........... 2,005 5,951 5,309 15,169
-------- -------- -------- --------
Income from operations ............ 1,126 4,480 3,208 9,963
Other income (expense):
Interest expense .................. (62) (36) (222) (172)
Interest income and other ......... 26 552 58 1,073
-------- -------- -------- --------
Total other income (expense) ...... (36) 516 (164) 901
-------- -------- -------- --------
Income before provision for income taxes and
minority interest ................. 1,090 4,996 3,044 10,864
Provision for income taxes ................. 42 1,509 157 3,443
-------- -------- -------- --------
Income before minority interest ... 1,048 3,487 2,887 7,421
Minority interest in net income ............ (167) (22) (497) (47)
-------- -------- -------- --------
Net income ........................ $ 881 $ 3,465 $ 2,390 $ 7,374
======== ======== ======== ========
Net income per share $0.15 $0.33
===== =====
Pro forma income data:
Historical net income....................... $ 881 $ 2,390
Pro forma adjustment to income tax expense.. 290 855
-------- --------
Pro forma net income........................ $ 591 $ 1,535
======== ========
Pro forma net income per share.............. $0.03 $0.09
===== =====
Weighted average common and
common equivalent shares........... 16,883 23,489 17,004 22,621
====== ====== ====== ======
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
4
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income ......................................................... $ 2,390 $ 7,374
Adjustment to reconcile net income to cash provided by (used in)
operating activities:
Depreciation and amortization ................................... 414 2,583
Unrealized exchange losses (gains) .............................. 8 (11)
(Gain) loss in equity investment ................................ (16) --
Minority interest in net income ................................. 496 47
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable and unbilled work-in-process ............. (1,767) (4,799)
Other current assets ......................................... (338) 50
Deposits and other assets .................................... (164) (209)
Accounts payable ............................................. 866 637
Accrued expenses ............................................. 284 1,720
Income taxes payable ......................................... -- (530)
Deferred income taxes ........................................ 34 --
Deferred revenue ............................................. 1,129 2,427
Other liabilities ............................................ (4) 34
-------- --------
Total adjustments ............................................ 942 1,949
-------- --------
Net cash provided by operating activities .................... 3,332 9,323
-------- --------
Cash flows from investing activities:
Investment in marketable securities ................................ -- (15,837)
Additions to capitalized software costs ............................ (141) (763)
Additions to property and equipment ................................ (1,913) (4,679)
Increase in equity investment and loans to affiliate ............... (392) --
Acquisition of interest in consolidated subsidiary ................. (1,790) --
Acquisition of subsidiaries, net of cash received
and liabilities assumed ......................................... -- (3,287)
-------- --------
Net cash used in investing activities ........................ (4,236) (24,566)
-------- --------
Cash flows from financing activities:
Net (reductions) borrowings from revolving credit line ............. 1,003 (654)
Proceeds from long-term debt ....................................... 900 1,180
Payments on long-term debt ......................................... (1,561) --
Payments on notes payable-shareholder .............................. (350) (822)
Payments on capital lease obligations .............................. (117) (57)
Payment of dividends ............................................... (22) --
Proceeds from issuance of common stock ............................. 10 53,142
Proceeds from exercise of stock options ............................ -- 2,341
Purchase of treasury stock at cost ................................. (217) --
-------- --------
Net cash provided by (used in) financing activities .......... (354) 55,130
-------- --------
Effect of exchange rate changes ....................................... (11) (18)
-------- --------
Net (decrease) increase in cash and cash equivalents .................. (1,269) 39,869
Cash and cash equivalents at beginning of year ........................ 1,621 24,082
-------- --------
Cash and cash equivalents at end of period ............................ $ 352 $ 63,951
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
5
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles and include all adjustments, consisting only of all normal recurring
adjustments, necessary for a fair presentation. The results of operations for
the three and nine month periods ended September 30, 1997 are not necessarily
indicative of the results to be expected for the full year. These interim
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements for the year ended December 31, 1996, which
are contained in the Company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Information Management Resources, Inc. ("IMR" or the "Company"),
its wholly owned subsidiaries and its effectively controlled foreign subsidiary.
All significant intercompany balances and transactions have been eliminated.
MARKETABLE SECURITIES - The Company currently invests in only high quality,
short-term investments which are classified as available-for-sale as defined by
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." As such there were no
significant differences between amortized cost and estimated fair value at
September 30, 1997. Additionally, because investments are short-term and are
generally allowed to mature, realized gains and losses have been minimal through
September 30, 1997.
The following table presents the estimated fair value of marketable
securities by category:
September 30, 1997
(In thousands)
-----------------
Municipal debt securities...................... $ 20,990
Certificates of deposit - foreign.............. 64
Interest income receivable..................... 427
-----------------
$ 21,481
=================
The maturity of the above marketable securities at September 30, 1997,
is between four months and one year.
6
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPUTATION OF NET INCOME PER SHARE - Net income per common and common
equivalent shares has been computed using the weighted average number of common
and dilutive common equivalent shares outstanding during each period presented.
Shares of stock issuable pursuant to stock options have been included where
their effect is dilutive. Fully diluted earnings per common share are not
presented as they are not materially different from primary earnings per share.
Dilutive common equivalent shares consist of stock options (using the treasury
stock method).
RECLASSIFICATION - Recruiting expenses have been reclassified from cost of
revenues to selling, general and administrative expenses for the three and nine
month periods ended September 30, 1996 to conform to the new classification of
these expenses for the three and nine month periods ended September 30, 1997.
3. PRO FORMA NET INCOME
Prior to November 1996, the Company elected to be taxed as an S Corporation
under the provisions of the Internal Revenue Code whereby taxable income is
generally reported by the shareholders on their individual income tax returns.
In connection with the Company's initial public offering, the S Corporation
election was terminated on November 11, 1996 and subsequently the Company became
subject to U.S. federal and state income taxes as a C Corporation.
To properly reflect the Company's results of operations, the provision for
income taxes is presented on a pro forma basis, as if the Company had been a
taxable entity subject to federal and state income taxes at the marginal rates
for the three and nine month periods ended September 30, 1996 as a C
Corporation.
4. ACQUISITIONS
LINK GROUP HOLDINGS LIMITED AND INFORMATION MANAGEMENT RESOURCES (U.K.)
LIMITED ("IMR-U.K. Acquisition") - On February 10, 1997 (effective January 8,
1997), the Company acquired 100% of the outstanding stock of Link Group Holdings
Limited ("Link"), a United Kingdom limited liability company. Link provides
transitional software outsourcing solutions to the information technology
departments of large businesses located in the U.K. In exchange for Link's
common stock, Link's shareholders received $2.1 million in cash and 107,562
shares of the Company's common stock. In addition, $1.6 million in cash is
payable to Link's former shareholders one year from closing (included in accrued
expenses). The Link acquisition is accounted for as a purchase pursuant to the
provisions of APB Opinion No. 16. The purchase price was allocated to the assets
acquired and liabilities assumed based on their estimated fair values. The
excess of the purchase price over the net assets acquired (goodwill) will be
amortized over a period not to exceed ten years.
Coincident with the above acquisition, the Company also acquired 10.5% of
Information Management Resources (U.K.) Limited ("IMR-U.K.") from the Company's
majority shareholder and his spouse for $520,000 in cash. The purchase price was
determined through negotiations between the Company and the shareholder and his
spouse. The excess of the $520,000 purchase price over the net assets acquired
was charged as a reduction in equity.
7
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
4. ACQUISITIONS (CONTINUED)
Prior to the above acquisitions, the Company owned 39.5% of IMR-U.K. and
Link owned 50% of IMR- U.K. After the above acquisitions the Company effectively
owns 100% of both Link and IMR-U.K.
MOVITONE ELECTRONICS LIMITED. - In March 1997, the Company acquired 100% of
the outstanding stock of Movitone Electronics Limited (an Indian limited
liability company) for approximately $1.7 million in cash. Movitone Electronics
Limited has no significant ongoing activities and its only significant asset is
a building located in India's Santacruz Electronics Export Processing Zone in
Mumbai, India. The acquisition is recorded as a purchase pursuant to the
provisions of APB Opinion No. 16. The entire purchase price was allocated to the
building as it approximated its fair value.
5. SHAREHOLDERS' EQUITY
On June 19, 1997, the Company declared a 3-for-2 stock split in the form of
a stock dividend payable on July 10, 1997 to shareholders of record on June 26,
1997. All applicable share and per share data in the accompanying financial
statements have been retroactively adjusted to reflect this dividend.
On August 5, 1997, the Company completed a public offering of 1,725,000
shares (including shares issued pursuant to the exercise of the underwriters'
over-allotment option) of its authorized but unissued Common Stock, par value
$0.10 per share. Net proceeds to the Company from this offering were
approximately $52.5 million after deducting the underwriters' discount and
expenses payable by the Company in connection with the offering.
Changes in shareholders' equity for the nine months ended September 30, 1997
is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Common Stock
------------------- Paid-in Retained Translation
Shares Amount Capital Earnings Adjustment Total
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 14,474 $ 1,447 $ 38,359 $ 669 $ (119) $ 40,356
Link acquisition 108 11 1,078 - - 1,089
Employee stock purchase 69 7 587 - - 594
Stock options exercised 660 66 118 - - 184
Tax benefit of stock options exercised - - 5,872 - - 5,872
Public offering 1,725 173 52,375 - - 52,548
Net income - - - 7,374 - 7,374
Translation adjustment - - - - (29) (29)
------ -------- -------- -------- -------- ---------
Balance, September 30, 1997 17,036 $ 1,704 $ 98,389 $ 8,043 $ (148) $ 107,988
====== ======== ======== ======== ======== =========
</TABLE>
8
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for historical information contained herein, some matters discussed
in this report, including but not limited to statements relating to the
Company's anticipation of an increase in business volume during 1998, constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. The Company notes that a variety of risk factors could cause the
Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the Company's
forward-looking statements. Reference is made in particular to the discussion
set forth below in this report and set forth in the Company's Registration
Statement on Form S-1 (Registration No. 333-30741) and its Annual Report on Form
10-K for the fiscal year ended December 31, 1996, as filed with the Securities
and Exchange Commission.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
REVENUES. For the three months ended September 30, 1997, revenues
increased to $23.0 million representing a 227.0% increase over revenues of $7.0
million for the three months ended September 30, 1996. The Company's acquisition
of a 100% interest in IMR-U.K. in January 1997 (see Note 4 of Notes to
Consolidated Financial Statements) and the consolidation of revenues realized by
IMR-U.K. accounted for $4.9 million of the revenue increase. In addition,
revenues from the Company's core transitional outsourcing services (software
development, application maintenance and migration and re-engineering services)
increased 113.5% over the third quarter of 1996. Third quarter revenues from the
Company's Year 2000 conversion service increased to $12.8 million (including
IMR-U.K. revenues), compared to $2.2 million for the third quarter of 1996.
COST OF REVENUES. Cost of revenues was $12.6 million, or 54.7% of
revenues, for the three months ended September 30, 1997, as compared to $3.9
million, or 55.6% of revenues, for the three months ended September 30, 1996.
The decrease in cost of revenues as a percentage of revenues reflects: (i) the
Company's implementation of better controls over project pricing and margins;
(ii) a higher percentage of Year 2000 conversion services projects in the most
recent quarter, which generally have resulted in higher margins than contracts
for the Company's professional service and maintenance service offerings; and
(iii) improved utilization of software development and personnel in India. This
improved utilization reflected the benefits associated with the expansion and
training of the Company's India-based personnel. Wage costs continue to increase
at a greater rate than inflation in each of the countries in which IMR has
operations, and the Company anticipates that this trend will continue in the
near term. The Company has been able to pass these wage increases on to its
customers in the form of increased prices for its service offerings. However,
there can be no assurance that the Company will be able to continue to increase
prices to its customers to offset future wage increases.
GROSS PROFIT. Gross profit increased to $10.4 million in the third quarter
of 1997 compared to $3.1 million in the prior comparable period. As a percentage
of revenues, gross profit increased to 45.3% in the third quarter of 1997
compared to 44.4% in the third quarter of 1996. The Company's gross profit
margin increased for the U.S. and India operations; however, the U.K. operations
partially offset this increase as the U.K. operations derived a substantial
portion of its revenues from professional services which generally result in
lower profit margins.
9
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the three months ended
September 30, 1997, selling, general and administrative (SG&A) expenses
increased to $5.7 million, compared to $2.0 million for the three months ended
September 30, 1996. As a percentage of revenues, SG&A expenses for the three
months ended September 30, 1997 decreased to 24.6% from 28.0% for the same
period in 1996. This decrease as a percentage of revenue occurred due to the
rapid increase in revenues in the third quarter of 1997 compared to the rate of
increase in SG&A in the same period. The dollar increase in SG&A expenses is
attributable to the addition of SG&A expenses resulting from the acquisition of
a 100% interest in IMR-U.K., expansion of the Company's delivery capacity,
regionalization of operations, additional costs associated with being a public
company, increases in costs related to expanding the Company's general support
staff (primarily recruiting, research and development and human resources) and
start-up costs related to the establishment of Information Management Resources
(Northern Ireland) Ltd. ("IMR-N.I."). The Company expects to continue to
increase its SG&A expenses in anticipation of a potential increase in business
volume during 1998.
GOODWILL AMORTIZATION. Goodwill amortization increased to approximately
$283,000 for the three months ended September 30, 1997 from approximately
$31,000 for the three months ended September 30, 1996. This increase reflects
the goodwill resulting from the acquisition of 64.0% of IMR-India in the second
half of 1996, the acquisition of a 100% interest in IMR-U.K. in January 1997 and
the establishment of IMR-N.I.
INCOME FROM OPERATIONS. Operating income for the third quarter of 1997 was
$4.5 million compared to $1.1 million in the comparable period of 1996,
representing a 297.9% increase. As a percentage of revenues, income from
operations for the three months ended September 30, 1997 increased to 19.4% from
16.0% in the comparable period in 1996.
OTHER INCOME (EXPENSE). The Company realized net other income of
approximately $516,000 in the third quarter of 1997 compared to net other
expense of approximately $36,000 in the comparable period of 1996. Other expense
in the third quarter of 1996 included interest expense of $62,000, interest and
other income of $10,000 and a gain related to the Company's equity investment in
IMR-U.K. of approximately $16,000. During the third quarter of 1997, the Company
recognized approximately $552,000 in investment income from the investment of
the remaining net proceeds from its public offerings in November 1996 and August
1997. Investment income was partially offset by approximately $62,000 of
interest expense related primarily to credit facilities in India and the U.K.
PROVISION FOR INCOME TAXES. The provision for income taxes increased to
approximately $1.5 million for the three months ended September 30, 1997 from
approximately $42,000 for the three months ended September 30, 1996. This
increase is due to increased earnings and the Company's termination of its S
Corporation tax status in conjunction with its initial public offering in
November 1996. Prior to this termination the provision for income taxes only
reflected taxes related to IMR-India. On a pro forma basis,
10
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
giving effect to the Company's termination of its S Corporation tax status as of
November 11, 1996, the income tax provision for the third quarter of 1996 would
have been approximately $332,000. This represents an effective pro forma tax
rate of 30.2% and 30.5% for the three month periods ended September 30, 1997 and
September 30, 1996, respectively.
MINORITY INTEREST IN NET INCOME. Minority interest in net income decreased
to approximately $22,000 for the three months ended September 30, 1997 from
approximately $167,000 in the comparable period in 1996. This represents the
portion of IMR-India's net income which is allocated to IMR-India's minority
shareholders. This decrease was a result of the acquisition of 64.0% of
IMR-India by the Company during late 1996.
NET INCOME. Net income for the third quarter of 1997 is approximately $3.5
million or $.15 per share compared to pro forma net income of approximately
$591,000 or $.03 per share in the comparable period in 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
REVENUES. For the nine months ended September 30, 1997, revenues increased
to $56.2 million representing a 188.8% increase over revenues of $19.4 million
for the nine months ended September 30, 1996. The Company's acquisition of a
100% interest in IMR-U.K. in January 1997 (see Note 4 of Notes to Consolidated
Financial Statements) accounted for $12.7 million of the revenue increase. In
addition, revenues from the Company's core transitional outsourcing services
(software development, application maintenance and migration and re-engineering
services) and, to a greater extent, revenues from the Company's Year 2000
conversion services continued to expand. For the first nine months of 1997
revenues from the Company's Year 2000 conversion services increased to $29.4
million (including IMR-U.K. revenues), compared to approximately $3.7 million
for the first nine months of 1996.
COST OF REVENUES. Cost of revenues was $31.0 million, or 55.2% of
revenues, for the nine months ended September 30, 1997, as compared to $10.9
million, or 56.2% of revenues, for the nine months ended September 30, 1996. The
decrease in cost of revenues as a percentage of revenues reflects: (i) the
Company's implementation of better controls over project pricing and margins;
(ii) a higher percentage of Year 2000 conversion services projects in the most
recent quarter, which generally have resulted in higher margins than contracts
for the Company's professional service and maintenance service offerings; and
(iii) improved utilization of software development and personnel in India. This
improved utilization reflected the benefits associated with the expansion and
training of the Company's India-based personnel. Wage costs continue to increase
at a greater rate than inflation in each of the countries in which IMR has
operations, and the Company anticipates that this trend will continue in the
near term. The Company has been able to pass these wage increases on to its
customers in the form of increased prices for its service offerings. However,
there can be no assurance that the Company will be able to continue to increase
prices to its customers to offset future wage increases.
11
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
GROSS PROFIT. Gross profit increased to $25.1 million in the first nine
months of 1997 compared to $8.5 million in the prior comparable period. As a
percentage of revenues, gross profit increased to 44.8% in the first nine months
of 1997 compared to 43.8% in the first nine months of 1996. The Company's gross
profit margin increased for the U.S. and India operations; however, operations
of IMR-U.K. partially offset this increase as IMR-U.K. derived a substantial
portion of its revenues from professional services which generally result in
lower profit margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the nine months ended
September 30, 1997, SG&A expenses increased to $14.3 million, compared to $5.2
million for the nine months ended September 30, 1996. As a percentage of
revenues, SG&A expenses for the nine months ended September 30, 1997 decreased
to 25.5% from 27.0% for the same period in 1996. While as a percentage of
revenues SG&A expenses decreased slightly, the increase in real terms is
attributable to the inclusion of SG&A expenses of IMR-U.K., expansion of the
Company's delivery capacity, regionalization of operations, additional costs
associated with being a public company, increases in costs related to expanding
the Company's general support staff (primarily recruiting, research and
development and human resources) and the start-up costs related to IMR-N.I. The
Company expects to continue to increase SG&A expenses in anticipation of a
potential increase in business volume in 1998.
GOODWILL AMORTIZATION. Goodwill amortization increased to approximately
$830,000 for the nine months ended September 30, 1997 from approximately $60,000
for the nine months ended September 30, 1996. This increase reflects the
goodwill resulting from the acquisition of 64.0% of IMR-India in the second half
of 1996, the acquisition of a 100% interest in IMR-U.K. in January 1997 and the
establishment of IMR-N.I.
INCOME FROM OPERATIONS. Operating income for the first nine months of 1997
was $10.0 million compared to $3.2 million in the prior comparable period,
representing a 210.6% increase. As a percentage of revenues, income from
operations for the nine months ended September 30, 1997 increased to 17.7% from
16.5% in the comparable period in 1996. As a percentage of revenues, 1.4% of
this change was attributable to expanded goodwill amortization described above,
offset by the effect of revenues increasing more rapidly than operating
expenses.
OTHER INCOME (EXPENSE). The Company realized net other income of
approximately $901,000 in the first nine months of 1997 compared to net other
expense of approximately $164,000 in the comparable period of 1996. Other
expense in the first nine months of 1996 included interest expense of $222,000
offset by interest and other income of $42,000 and a gain related to the
Company's equity investment in IMR-U.K. of approximately $16,000. During the
first nine months of 1997, the Company recognized approximately $1.1 million in
investment income from the investment of the remaining net proceeds from its
public offerings in November 1996 and August 1997, and incurred approximately
$172,000 of interest expense related primarily to credit facilities in India and
the U.K. and shareholder notes payable.
12
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
PROVISION FOR INCOME TAXES. The provision for income taxes increased to
approximately $3.4 million for the nine months ended September 30, 1997 from
approximately $157,000 for the nine months ended September 30, 1996. This
increase is due to increased earnings and the Company's termination of its S
Corporation tax status in conjunction with its initial public offering in
November 1996. Prior to this termination the provision for income taxes only
reflected taxes related to IMR-India. On a pro forma basis, giving effect to the
Company's termination of its S Corporation tax status as of November 11, 1996,
the income tax provision for the first nine months of 1996 would have been
approximately $1.0 million. This represents an effective pro forma tax rate of
31.7% and 33.2% for the nine month periods ended September 30, 1997 and
September 30, 1996, respectively. The decrease in the effective tax rate
reflects a greater portion of profits generated by the operations in India which
has favorable tax rates and the investment of excess liquid assets into tax
exempt investments.
MINORITY INTEREST IN NET INCOME. Minority interest in net income decreased
to approximately $47,000 for the nine months ended September 30, 1997 from
approximately $497,000 in the comparable period in 1996. This represents the
portion of IMR-India's net income which is allocated to IMR-India minority
shareholders. This decrease was a result of the acquisition of 64.0% of
IMR-India by the Company during late 1996.
NET INCOME. Net income for the first nine months of 1997 is approximately
$7.4 million or $.33 per share compared to pro forma net income of approximately
$1.5 million or $.09 per share in the comparable period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company had working capital of $89.6
million, a current ratio of 6.8 to 1, liquid assets (cash, cash equivalents and
marketable securities) of $85.4 million and available bank lines of credit of
approximately $11.4 million. Additionally, cash provided by operations was $9.3
million for the nine months ended September 30, 1997. The Company has committed
approximately $1.8 million for the acquisition of a facility in New Delhi,
India. The Company intends to use this facility as a software development
center. Management estimates that an additional investment of $2.0 million for
renovating and equipment acquisitions will be required. The Company has no other
material financial commitments. The Company continuously reviews its future cash
requirements, together with its available bank lines of credit and internally
generated funds. The Company believes it has adequate capital resources to meet
all working capital obligations and fund further development of its business for
at least the next 12 months.
OTHER MATTERS
During June 1997, the Company established IMR-N.I. and initiated
operations in Belfast, Northern Ireland which will serve as a software
development center. Initial operations will include establishing an
infrastructure, recruiting resources and training project personnel.
13
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
Part II. Other Information
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any pending material litigation.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
14
<PAGE>
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.
INFORMATION MANAGEMENT RESOURCES, INC.
Date November 12, 1997 /s/ Satish K. Sanan
------------------- ------------------------------------
Satish K. Sanan
Chief Executive Officer
Date November 12, 1997 /s/ John R. Hindman
------------------- -----------------------------------
John R. Hindman
Chief Financial Officer
15
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Description Page
- ------ ----------- ----
11 Computation of earnings per common share for the three month
and nine month periods ended September 30, 1997 and 1996....... 17
27 Financial Data Schedule........................................ 18
16
EXHIBIT NUMBER 11
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(Unaudited and in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- -----------------
1996(1) 1997 1996(1) 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income ..................................... $ 591 $ 3,465 $ 1,535 $ 7,374
======= ======= ======= =======
Shares:
Weighted average number of common shares
outstanding .............................. 9,606 16,472 9,606 15,688
Assuming conversion of options issued and
outstanding .............................. 7,277 7,017 7,398 6,933
------- ------- ------- -------
Weighted average common and
common stock equivalent shares outstanding 16,883 23,489 17,004 22,621
======= ======= ======= =======
Net income per share............................ $0.03 $0.15 $0.09 $0.33
===== ===== ===== =====
(1) Net income and net income per share have been presented on a pro forma basis as if
the Company had been fully subject to federal and state income taxes for all
periods presented.
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES FOR THE
PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 63,951
<SECURITIES> 21,481
<RECEIVABLES> 11,124
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 105,083
<PP&E> 10,893
<DEPRECIATION> 2,491
<TOTAL-ASSETS> 124,889
<CURRENT-LIABILITIES> 15,493
<BONDS> 885
0
0
<COMMON> 1,704
<OTHER-SE> 106,284
<TOTAL-LIABILITY-AND-EQUITY> 124,889
<SALES> 0
<TOTAL-REVENUES> 56,158
<CGS> 0
<TOTAL-COSTS> 31,026
<OTHER-EXPENSES> 15,169
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 172
<INCOME-PRETAX> 10,864
<INCOME-TAX> 3,443
<INCOME-CONTINUING> 7,374
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,374
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
