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 for the quarterly period ended March 31, 1998
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 33761 (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 May 4, 1998, there were 25,798,652 outstanding shares of the
Registrant's Common Stock, par value $.10 per share.
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC.
Table of Contents
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Part I - Financial information
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<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Item 1. Consolidated Balance Sheets
as of March 31, 1998 and December 31, 1997 .............................. 3
Consolidated Statements of Income
for the Three Month Periods Ended March 31, 1998 and 1997.................... 4
Consolidated Statements of Cash Flows
for the Three Month Periods Ended March 31, 1998 and 1997.................... 5
Notes to Consolidated Financial Statements................................... 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition........................................... 8
Part II - Other Information
---------------------------
Item 1. Legal Proceedings ......................................................... 11
Item 5. Other Information ......................................................... 11
Item 6. Exhibits and Reports on Form 8-K........................................... 11
</TABLE>
2
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- -----------
(Unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $87,042 $85,819
Marketable securities 5,643 4,453
Accounts receivable 17,046 11,156
Unbilled work in process 6,980 6,390
Other current assets 4,400 6,553
-------- --------
Total current assets 121,111 114,371
Property and equipment, net of accumulated depreciation 12,871 9,818
Capitalized software costs, net of accumulated amortization - 47
Deposits and other assets 1,540 960
Goodwill, net of accumulated amortization 9,870 10,157
-------- --------
Total assets $145,392 $135,353
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,792 $3,136
Accrued compensation 6,936 8,430
Deferred revenue 4,337 4,413
Other current liabilities 9,678 4,599
-------- --------
Total current liabilities 23,743 20,578
Long-term debt 693 885
Deferred tax liability 545 546
Other liabilities 130 133
-------- --------
Total liabilities 25,111 22,142
-------- --------
Minority interest 6 4
-------- --------
Shareholders' equity:
Preferred stock - -
Common stock 2,580 2,565
Additional paid-in capital 100,356 98,735
Retained earnings 17,988 12,564
Cumulative foreign currency translation adjustment (649) (657)
-------- --------
Total shareholders' equity 120,275 113,207
-------- --------
Total liabilities and shareholders' equity $145,392 $135,353
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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 March 31,
---------------------------
1998 1997
--------- ---------
<S> <C> <C>
Revenue $31,460 $14,347
Cost of revenue 16,981 8,042
--------- ----------
Gross profit 14,479 6,305
Selling, general and administrative expenses 7,574 3,921
Goodwill amortization 290 271
--------- ----------
Income from operations 6,615 2,113
Other income (expense):
Interest expense (27) (66)
Interest income and other 1,114 244
--------- ----------
Total other income (expense) 1,087 178
--------- ----------
Income before provision for income taxes and
minority interest 7,702 2,291
Provision for income taxes 2,278 852
--------- ----------
Income before minority interest 5,424 1,439
Minority interest in net income - (7)
--------- ----------
Net income $5,424 $1,432
========= ==========
Earnings per share:
Basic $0.21 $0.06
========= ==========
Diluted $0.15 $0.04
========= ==========
Shares outstanding:
Basic 25,798 21,932
========= ==========
Diluted 36,997 32,916
========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------
1998 1997
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $5,424 $1,432
Adjustment to reconcile net income to cash provided by (used in)
operating activities:
Depreciation and amortization 799 611
Deferred taxes (41) -
Tax benefit of stock options 1,499 -
Unrealized exchange losses 46 -
Minority interest in net income - 7
Changes in operating assets and liabilities:
Accounts receivable and unbilled work-in-process (6,480) (1,324)
Other current assets 2,150 177
Deposits and other assets (622) (76)
Accounts payable and other liabilities 4,207 (1,959)
Accrued compensation (1,494) 537
Income tax 559 131
Deferred revenue (77) 282
------------ -------------
Total adjustments 546 (1,614)
------------ -------------
Net cash provided by (used in) operating activities 5,970 (182)
------------ -------------
Cash flows from investing activities:
Acquisition of interest in consolidated subsidiaries - (2,704)
Investment in marketable securities, net (1,190) (6,106)
Additions to capitalized software costs - (150)
Additions to property and equipment (3,502) (2,725)
------------ -------------
Net cash provided by (used in ) investing activities (4,692) (11,685)
------------ -------------
Cash flows from financing activities:
Net (repayments) borrowings from revolving credit line - 136
Proceeds from long-term debt and notes - 931
Payments on notes and capital leases (180) (851)
Proceeds from issuance of common stock 137 392
------------ -------------
Net cash provided by (used in) financing activities (43) 608
------------ -------------
Effect of exchange rate changes (12) (6)
------------ -------------
Net increase in cash and cash equivalents 1,223 (11,265)
Cash and cash equivalents at beginning of year 85,819 24,082
------------ -------------
Cash and cash equivalents at end of year $87,042 $12,817
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(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 month period ended March 31, 1998 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, 1997, 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"), and its wholly and majority owned subsidiaries. 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 March 31, 1998. Additionally, because investments are short-term and
are generally allowed to mature, realized gains and losses have been minimal
through March 31, 1998.
Computation of Earnings per Share - Per share data and number of shares
outstanding have been adjusted to reflect the 3-for-2 stock splits in the form
of stock dividends paid by the Company on April 3, 1998 and July 10, 1997. Basic
earnings per share is computed using the weighted average of common stock
outstanding. Diluted earnings per share is computed using the treasury stock
method which is summarized as follows (in thousands):
March 31,
--------------------------
1998 1997
--------- -------
Weighted average
common stock outstanding 25,798 21,932
Weighted average
common stock equivalents 11,199 10,984
----------- -----------
Shares used in diluted earnings
per share calculation 36,997 32,916
=========== ============
6
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
3. Shareholders' Equity
On June 19, 1997 and March 9, 1998, the Company declared 3-for-2 stock
splits in the form of stock dividends payable on July 10, 1997 and April 3, 1998
to shareholders of record on June 26, 1997 and March 20, 1998, respectively. All
applicable share and per share data in the accompanying financial statements
have been retroactively adjusted to reflect these dividends.
Changes in shareholders' equity for the three months ended March 31, 1998
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, 1997 25,651 $ 2,565 $ 98,735 $ 12,564 $ (657) $ 113,207
Employee stock purchase plan 7 1 71 - - 72
Stock options exercised 142 14 51 - - 65
Tax benefit of
stock options exercised - - 1,499 - - 1,499
Net income - - - 5,424 - 5,424
Translation adjustment - - - - 8 8
--------- --------- ----------- --------- --------- ----------
Balance, March 31, 1998 25,800 $ 2,580 $ 100,356 $ 17,988 $ (649) $ 120,275
========= ========= =========== ========= ========= ==========
</TABLE>
7
<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 Annual Report on
Form 10-K for the fiscal year ended December 31, 1997, as filed with the
Securities and Exchange Commission.
Results of Operations
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Revenues. For the three months ended March 31, 1998, revenues increased
to $31.5 million representing a 119.3% increase over revenues of $14.3 million
for the three months ended March 31, 1997. Revenues from the Company's core
transitional outsourcing services (software development, application maintenance
and migration and re-engineering services) increased 88.3% over the first
quarter of 1997. First quarter revenue from the Company's Year 2000 conversion
services increased to $17.4 million, compared to $6.2 million for the first
quarter of 1997.
Cost of Revenue. Cost of revenue was $17.0 million, or 54.0% of
revenues, for the three months ended March 31, 1998, as compared to $8.0
million, or 56.1% of revenues, for the three months ended March 31, 1997. The
decrease in cost of revenue as a percentage of revenue reflects: (i) a higher
percentage of Year 2000 conversion services, application development and legacy
transformation 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; (ii) a 10.4% devaluation in the Indian Rupee
since September 30, 1997, which resulted in reduced costs at the Company's
Indian software development centers; and (iii) improved utilization of software
development personnel in India and Northern Ireland. Wage costs continue to
increase at a greater rate than general 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 $14.5 million in the first
quarter of 1998 compared to $6.3 million in the prior comparable period. As a
percentage of revenues, gross profit increased to 46.0% in the first quarter of
1998 compared to 43.9% in the first quarter of 1997.
8
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Selling, General and Administrative Expenses. For the three months
ended March 31, 1998, selling, general and administrative (SG&A) expenses
increased to $7.6 million, compared to $3.9 million for the three months ended
March 31, 1997. As a percentage of revenues, SG&A expenses for the three months
ended March 31, 1998 decreased to 24.1% from 27.3% for the same period in 1997.
This decrease as a percentage of revenue occurred due to the rapid increase in
revenue in the first quarter of 1998 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 expansion of the Company's delivery
capacity, regionalization of operations, increases in costs related to expanding
the Company's general support staff (primarily recruiting, research and
development and human resources personnel) and costs related to the
establishment of Information Management Resources (Northern Ireland) Ltd.
("IMR-N.I.") in the third quarter of 1997. The Company intends to continue to
expand its SG&A infrastructure in order to generate continued revenue growth.
Goodwill Amortization. Goodwill amortization increased to approximately
$290,000 for the three months ended March 31, 1998 from approximately $271,000
for the three months ended March 31, 1997. The additional expense reflects the
amortization of goodwill generated by the acquisition of IMR-N.I. and certain
minority stockholders interests in Information Management Resources (India)
Limited ("IMR-India") during 1997.
Income from Operations. Operating income for the first quarter of 1998
was $6.6 million compared to $2.1 million in the comparable period of 1997,
representing a 213.1% increase. As a percentage of revenue, income from
operations for the three months ended March 31, 1998 increased to 21.0% from
14.7% in the comparable period in 1997. The increase in income from operations
as a percentage of revenue reflects a four quarter trend whereby revenue has
grown at a faster rate than cost of revenue and SG&A expenses. The current
increase is a result of higher prices for the Company's services and increased
efficiencies relative to the Company's fixed costs. Due to increased
infrastructure investments management does not expect income from operations as
a percentage of revenue to increase significantly from current levels in the
near term.
Other Income (Expense). The Company realized net other income of
approximately $1.1 million in the first quarter of 1998 compared to net other
income of approximately $178,000 in the comparable period of 1997. Other income
in the first quarter of 1997 included interest expense of $66,000 and interest
and other income of $244,000. During the first quarter of 1998, the Company
recognized approximately $1.1 million in investment income primarily from the
investment of the net proceeds from its August 1997 public offering.
9
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Provision for Income Taxes. The provision for income taxes increased to
approximately $2.3 million for the three months ended March 31, 1998 from
approximately $852,000 for the three months ended March 31, 1997. This increase
is due to increased earnings in the current year. This represents an effective
tax rate of 29.6% and 37.2% for the three month periods ended March 31, 1998 and
March 31, 1997, respectively. The effective tax rate is lower in the current
period due to proportionally higher earnings of IMR-India in the current period,
which earnings are taxed at a lower rate than earnings generated in the U.S.,
and the Company's investment in tax free marketable securities in the most
recent period.
Net Income. Net income for the first quarter of 1998 is approximately
$5.4 million or $.15 per share compared to net income of approximately $1.4
million or $.04 per share in the comparable period in 1997.
Liquidity and Capital Resources
As of March 31, 1998, the Company had working capital of $97.4 million;
a current ratio of 5.1 to 1; liquid assets (cash, cash equivalents and
marketable securities) of $92.7 million; and available bank lines of credit of
approximately $10.8 million. Additionally, cash provided by operations was $6.0
million for the three months ended March 31, 1998. During August 1997, the
Company committed approximately $1.7 million for the acquisition of a facility
in New Delhi, India. The Company intends to use this facility as a software
development center. 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 development of its current business operations.
10
<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
11
<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: May 13, 1998 /s/ Satish K. Sanan
------------ ---------------------------------------
Satish K. Sanan
Chief Executive Officer
Date: May 13, 1998 /s/ Robert M. Molsick
------------ ---------------------------------------
Robert M. Molsick
Chief Financial Officer
12
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INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> $87,042
<SECURITIES> 5,643
<RECEIVABLES> 17,046
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 121,111
<PP&E> 16,776
<DEPRECIATION> 3,905
<TOTAL-ASSETS> 145,392
<CURRENT-LIABILITIES> 23,743
<BONDS> 693
0
0
<COMMON> 2,580
<OTHER-SE> 117,695
<TOTAL-LIABILITY-AND-EQUITY> 145,392
<SALES> 0
<TOTAL-REVENUES> 31,460
<CGS> 0
<TOTAL-COSTS> 16,981
<OTHER-EXPENSES> 7,864
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> 7,702
<INCOME-TAX> 2,278
<INCOME-CONTINUING> 5,424
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,424
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.15
</TABLE>
