<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 30, 2000
REGISTRATION NO. 333-32346
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
I-MANY, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7389 01-0524931
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification Number)
incorporation or organization) Classification Code Number)
</TABLE>
537 CONGRESS STREET
5(TH) FLOOR
PORTLAND, MAINE 04101-3353
(207) 774-3244
(Address Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
A. LEIGH POWELL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
I-MANY, INC.
537 CONGRESS STREET
5(TH) FLOOR
PORTLAND, MAINE 04101-3353
(207) 774-3244
(Name, Address Including Zip Code and Telephone Number, Including Area Code, of
Agent for Service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
JEFFREY A. STEIN, ESQ. GORDON H. HAYES, JR., ESQ.
HALE AND DORR LLP TESTA, HURWITZ & THIBEAULT, LLP
60 STATE STREET 125 HIGH STREET
BOSTON, MA 02109 BOSTON, MA 02110
TELEPHONE: (617) 526-6000 TELEPHONE: (617) 248-7000
TELECOPY: (617) 526-5000 TELECOPY: (617) 248-7100
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 30, 2000.
[LOGO]
7,500,000 SHARES
COMMON STOCK
I-many, Inc. is offering 7,500,000 shares of its common stock. This is our
initial public offering and no public market currently exists for our shares. We
have applied for approval for quotation of our common stock on the Nasdaq
National Market under the symbol "IMNY." We anticipate that the initial public
offering price will be between $9.00 and $11.00 per share.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ------------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to I-many.......................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
We have granted the underwriters a 30-day option to purchase up to an
additional 1,125,000 shares of common stock to cover over-allotments.
------------------------
ROBERTSON STEPHENS
J.P.MORGAN & CO.
SG COWEN
THE DATE OF THIS PROSPECTUS IS , 2000.
<PAGE>
[Inside Front Cover Art]
The I-many logo is on top of the inside front cover page, underneath which is
a depiction of a pull-down tab from a computer screen with the words
"Powering Contract Commerce." Below that tab is a graphic of I-many's
services to customers, depicted as three adjoining spheres labeled "Make.",
"Maximize.", "Manage." These three spheres are in a shaded area which is
denoted as "I-many." A fourth sphere--"Order"--which is connected to the
"Maximize" and "Manage" spheres, is outside the shaded area. Below this
graphic are images of I-many's website page for Sellers and for Buyers. At
the bottom of the page are the words "Make. Manage. Maximize. Your
Contractual Relationships."
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. IN THIS PROSPECTUS, "I-MANY,"
"WE," "US" AND "OUR" REFER TO I-MANY, INC., A DELAWARE CORPORATION.
UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT IS IN
ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Summary..................................................... 1
Risk Factors................................................ 5
Cautionary Note Regarding Forward-Looking Statements........ 10
Use of Proceeds............................................. 11
Dividend Policy............................................. 11
Capitalization.............................................. 12
Dilution.................................................... 13
Selected Financial Data..................................... 14
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 15
Business.................................................... 27
Management.................................................. 40
Certain Transactions........................................ 50
Principal Stockholders...................................... 52
Description of Capital Stock................................ 54
Shares Eligible for Future Sale............................. 56
Plan of Distribution........................................ 58
Legal Matters............................................... 60
Experts..................................................... 60
Where You Can Find More Information......................... 60
Index to Financial Statements............................... F-1
</TABLE>
------------------------
We own or have rights to tradenames and trademarks that we use in connection
with the sale of our products and services. We own the U.S. registered trademark
CARS-Registered Trademark-, which is an acronym for our Contract Administration
and Reporting System. "CARS/Medicaid," "CARS/Analytics," "I-many.com" and
"I-many" are also our trademarks. All other trademarks and service marks
referenced in this prospectus are the property of their respective owners.
i
<PAGE>
SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION IN THIS PROSPECTUS, INCLUDING THE RISK FACTORS REGARDING I-MANY AND
THE COMMON STOCK BEING SOLD IN THIS OFFERING.
I-MANY
We provide software and Internet-based solutions and related professional
services that allow our clients to negotiate and manage complex contract
purchasing arrangements which facilitate business-to-business e-commerce. Our
proprietary applications are designed to enable our clients to:
- negotiate and structure purchase contracts and special promotions, such as
rebates and chargebacks, which are based on purchase volumes and on
increases in manufacturers' market share;
- track the achievement of goals under these contracts, establish amounts to
be paid under rebate and chargeback programs and resolve associated
disputes; and
- evaluate contracts' effect upon profitability and market share and the
effectiveness of special promotions.
We sell our products principally to parties involved in the purchase, sale
and distribution of healthcare supplies and pharmaceutical products, including
manufacturers, purchasers, group purchasing organizations, or GPOs, and
distributors.
Recently, we have also sold our products to two manufacturers in other
vertical industries, including The Procter & Gamble Company, with whom we
entered into a strategic relationship in May 2000. Procter & Gamble has
designated us as their exclusive provider of purchase contract management
software for their commercial products group, which includes food service,
office coffee service, vending and janitorial/sanitation products. Procter &
Gamble has agreed to promote our products to other participants in the
commercial products market and to assist us in licensing our Internet technology
to operators of websites that facilitate the purchase and sale of commercial
products. As part of our agreement with Procter & Gamble, we granted them
warrants to purchase our stock.
Business-to-business e-commerce is growing rapidly and, we believe, is
increasingly characterized by the use of complex purchasing contracts. Moreover,
the market for healthcare products--our principal market presently--is large and
growing. According to the Health Care Financing Administration, total healthcare
spending in the United States is expected to grow from approximately
$1.3 trillion in 2000 to approximately $2.2 trillion in 2008. The Health
Industry Group Purchasing Association, a trade association comprised of group
purchasing organizations has estimated that as much as $128 billion, or 72%, of
hospitals' medical equipment, supplies and pharmaceutical purchases are
channeled through group purchasing organizations. Group purchasing organizations
are organizations that aggregate the demand of their members, which include
hospitals and large physician groups, in order to negotiate with manufacturers
to obtain favorable product pricing. The pricing terms negotiated by group
purchasing organizations are typically contained in complex purchase contracts
which are designed to meet the varied goals of manufacturers and purchasers. In
addition, other healthcare industry participants, such as managed care
organizations, government payors and wholesale distributors, employ complex
contracts for the purchase of their medical equipment, supplies and
pharmaceuticals.
The task of administering complex purchase contracts is currently highly
labor intensive, costly and often yields unreliable results. Information about
the quantities of products purchased, which is required to determine a
purchaser's eligibility for volume discounts, is often entered manually into
legacy software systems. These legacy systems frequently lack the functionality,
flexibility, ease of modification, and interoperability with diverse data
formats required to address the wide variety of
1
<PAGE>
contracts. In addition, existing systems often have difficulties in
accommodating substantial increases in the number of concurrent users and lack
the ease of use and universal access now available through Internet-based
applications.
Our objective is to become the leading provider of contract management
solutions to organizations which utilize complex purchase contracts to buy or
sell products in large volumes. To achieve this objective, we intend to:
BUILD UPON OUR STRENGTH IN THE HEALTHCARE MARKET. As a provider of contract
management services, we have acquired extensive industry knowledge and
experience with contracting practices and the relationships among healthcare
industry participants. We believe that we will be able to build upon our
reputation as a quality provider of complex contract management services and our
extensive industry knowledge to offer additional services to our existing client
base, and to attract new clients in the healthcare industry as well as other
industries.
PROMOTE OUR INTERNET TECHNOLOGY FOR BUSINESS-TO-BUSINESS E-COMMERCE. We
intend to promote and license our technological infrastructure to other
business-to-business exchanges to enable contract purchasing through their
websites.
AGGRESSIVELY DEVELOP OUR PROPRIETARY INTERNET PORTAL, I-MANY.COM. We
launched our Internet portal, I-many.com, in February 2000 and are aggressively
promoting it as a marketplace for trading partners in the healthcare industry.
TARGET OTHER MARKETS. Based on our discussions with certain existing
customers including Procter & Gamble and a number of prospective customers in
other industries, we believe that the purchase contracting practices in many
other industries are similar to those in the healthcare market. We are exploring
these markets, and, if appropriate, expect to develop the necessary industry
expertise to support our entry into such markets.
INCREASE OUR SALES AND SUPPORT EFFORTS. We intend to increase significantly
our direct sales and support forces to facilitate our growth and promote the
awareness of the I-many brand through an aggressive advertising and marketing
campaign.
MAINTAIN A TECHNOLOGICAL LEADERSHIP POSITION. By closely partnering with
and listening to our clients, we intend to continue the development of our
products so that they deliver the highest client value.
SELECTIVELY PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES. We intend to
pursue a selective acquisition strategy as opportunities arise to complement our
product offerings, extend our service capabilities and expand the features on
our website.
Our ability to achieve our objective is subject to the risks and
uncertainties set forth in this prospectus, including those listed under "Risk
Factors."
Our software products are currently used by more than 55 clients, including
8 of the largest 10 pharmaceutical manufacturers in the world. Our clients
include Bayer, Boehringer Ingelheim and Glaxo Wellcome. None of these three
clients accounted for 10% or more of our revenues in 1999.
OUR ADDRESS
Our principal executive offices are located at 537 Congress Street,
Portland, Maine 04101. Our telephone number at that address is (207) 774-3244.
Our primary sales and marketing office is located in Edison, New Jersey. Our
website is located at WWW.IMANYINC.COM. The information contained on our website
is not part of this prospectus.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by I-many.............................. 7,500,000 shares
Common stock to be outstanding after the offering........... 30,788,607 shares
Use of proceeds............................................. For general corporate purposes,
including working capital,
capital expenditures and
possible acquisitions. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol...................... IMNY
</TABLE>
The number of shares outstanding after the offering is based on
23,288,607 shares of common stock outstanding as of May 31, 2000, assuming the
conversion of our convertible preferred stock into 9,169,687 shares of common
stock. It excludes (a) 4,460,640 shares issuable upon the exercise of
outstanding stock options as of May 31, 2000, and (b) 4,231,375 shares reserved
for issuance under our stock incentive plans as of May 31, 2000. See
"Capitalization."
Unless otherwise specifically stated, information throughout this prospectus
assumes:
- the underwriters' over-allotment option is not exercised;
- the conversion of all outstanding shares of our convertible preferred
stock into shares of common stock upon the closing of this offering;
- the effectiveness of a 2.5-for-1 stock split immediately prior to the date
of this prospectus; and
- the filing of an amended and restated certificate of incorporation prior
to the closing of the offering.
I-many was originally incorporated in Massachusetts as Systems Consulting
Company, Inc., or SCC, on June 5, 1989. On April 2, 1998, SCC
Technologies, Inc., a Delaware corporation, was formed as a holding company and
acquired all the stock of SCC. In January 2000, SCC Technologies, Inc. changed
its name to I-many, Inc. and SCC merged into I-many, Inc.
3
<PAGE>
SUMMARY FINANCIAL DATA
The summary financial data presented below have been derived from the
audited and unaudited financial statements of I-many included elsewhere in this
prospectus.
Pro forma net loss per share is computed using the weighted average number
of shares of common stock outstanding, adjusted to include the pro forma effects
of the conversion of preferred stock to common stock as if such conversion had
occurred on the original date of issuance.
The pro forma balance sheet data give effect to the conversion of all
outstanding convertible preferred stock into 9,169,687 shares of common stock.
The pro forma as adjusted balance sheet data also reflect the sale of
7,500,000 shares of common stock at an assumed initial public offering price of
$10.00 per share, after deducting the estimated underwriting discounts and
commissions and offering expenses.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total net revenues............................... $7,514 $13,542 $19,411 $4,316 $ 6,789
Cost of revenues................................. 2,249 2,062 5,354 817 3,116
------ ------- ------- ------ -------
Gross profit................................. 5,265 11,480 14,057 3,499 3,673
Total operating expenses......................... 4,209 9,760 19,142 3,591 9,514
------ ------- ------- ------ -------
Income (loss) from operations................ 1,056 1,720 (5,085) (92) (5,841)
Other income (expense), net...................... (733) (129) 147 34 139
Provision for (benefit from) income taxes........ -- (320) 281 -- --
------ ------- ------- ------ -------
Net income (loss)............................ $ 323 $ 1,911 $(5,219) $ (58) $(5,702)
====== ======= ======= ====== =======
Net income (loss) per share:
Basic........................................ $ 0.03 $ 0.19 $ (0.46) $(0.01) $ (0.47)
====== ======= ======= ====== =======
Diluted...................................... $ 0.03 $ 0.11 $ (0.46) $(0.01) $ (0.47)
====== ======= ======= ====== =======
Weighted average shares outstanding:
Basic........................................ 9,785 10,192 11,433 10,542 12,569
====== ======= ======= ====== =======
Diluted...................................... 13,422 18,317 11,433 10,542 12,569
====== ======= ======= ====== =======
Pro forma net loss per share:
Basic and diluted............................ $ (0.30) $ (0.26)
======= =======
Pro forma weighted average shares outstanding:
Basic and diluted............................ 17,500 21,738
======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 8,080 $ 8,080 $76,680
Working capital............................................. (1,065) (1,065) 67,535
Total assets................................................ 26,120 26,120 94,720
Debt, including current portion............................. 33 33 33
Redeemable convertible preferred stock...................... 12,744 -- --
Total stockholders' equity (deficit)........................ (5,410) 7,334 75,934
</TABLE>
4
<PAGE>
RISK FACTORS
ANY INVESTMENT IN OUR SHARES OF COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING INFORMATION ABOUT THESE RISKS,
TOGETHER WITH THE OTHER INFORMATION IN THIS PROSPECTUS, BEFORE YOU DECIDE TO BUY
OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS,
RESULTS OF OPERATIONS AND FINANCIAL CONDITION WOULD LIKELY SUFFER. IN THESE
CIRCUMSTANCES, THE MARKET PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY
LOSE ALL OR PART OF THE MONEY YOU PAID TO BUY OUR COMMON STOCK.
WE HAVE INCURRED SUBSTANTIAL LOSSES AND ANTICIPATE CONTINUED LOSSES AS WE
FURTHER DEVELOP OUR I-MANY.COM PORTAL.
We incurred net losses of approximately $5.2 million in the year ended
December 31, 1999 and $5.7 million in the quarter ended March 31, 2000 and we
had an accumulated deficit at March 31, 2000 of $11.1 million. We expect to
increase our spending significantly, principally for sales and marketing and
development expenses related to our I-many.com portal, and therefore expect to
continue to incur significant losses for the foreseeable future. Although we
have been profitable in certain prior years, and although our revenues have
grown, our business model is evolving and we cannot assure you that we will
achieve sufficient revenues to become profitable in the future. If our revenue
grows more slowly than we anticipate or if our operating expenses either
increase more than we expect or cannot be reduced in light of lower than
expected revenue, we may not be profitable.
OUR FUTURE GROWTH IS DEPENDENT UPON THE SUCCESS OF OUR INTERNET INITIATIVES,
WHICH WERE ONLY RECENTLY LAUNCHED, AND WE DO NOT KNOW WHETHER OUR CLIENTS WILL
UTILIZE OUR INTERNET INITIATIVES AS EXTENSIVELY AS WE ANTICIPATE.
We have not yet recognized any significant revenue from I-many.com, which we
launched in February, 2000 or from our efforts to license our Internet
technology to operators of websites. We may encounter delays or difficulties in
generating revenues from our Internet initiatives. We expect that a significant
portion of our future revenue will depend on the success of our Internet portal
as a means for healthcare manufacturers, group purchasing organizations and
other intermediaries, purchasers and distributors to enter into and manage
contract-based purchase relationships.
We believe that recognition and positive perception of the I-many.com brand
name in the healthcare industry will be important to our success. We intend to
significantly expand our advertising and publicity efforts in the near future.
However, we may not achieve our desired goal of increasing the awareness of the
I-many.com brand name. Even if recognition of our name increases, it may not
lead to an increase in the number of visitors to our Internet portal or an
increase in the number of users of our services. There can be no assurance that
I-many.com will achieve widespread customer acceptance, and if it fails to do
so, we may not be able to generate sufficient revenues to make us profitable or
to remain in business.
OUR INTERNET INITIATIVES REPRESENT A NEW BUSINESS MODEL FOR US AND WE CANNOT BE
CERTAIN THAT OUR CLIENTS WILL PAY FOR OUR PRODUCTS AND SERVICES IN THE MANNER WE
ARE ANTICIPATING.
We launched our Internet portal, I-many.com, and began to market our
Internet technology in February 2000. Until that time, our business model was
focused principally upon the licensing of software products for a one-time
license fee and providing related services to entities which maintain and manage
the data necessary for contract management within their own information systems.
Our Internet initiatives represent an extension of the existing business model
for both us and our clients and we cannot be certain that our clients will
accept our business model and the manner in which we expect to charge for our
products and services. In addition, our recent focus on I-many.com has required,
and will continue to require, a significant commitment of resources, including
the attention of
5
<PAGE>
management and significant cash expenditures. If we cannot generate revenue on
the basis we anticipate, we may not be profitable.
IT IS DIFFICULT FOR US TO PREDICT WHEN OR IF SALES WILL OCCUR AND WE OFTEN INCUR
SIGNIFICANT SELLING EXPENSES IN ADVANCE OF OUR RECOGNITION OF THE RELATED
REVENUE.
Our clients view the purchase of our software applications and related
professional services as a significant and strategic decision. As a result,
clients carefully evaluate our software products and services. The length of
this evaluation process is affected by factors such as the client's need to
rapidly implement a solution and whether the client is new or is extending an
existing implementation. The license of our software products may also be
subject to delays if the client has lengthy internal budgeting, approval and
evaluation processes which are quite common in the context of introducing large
enterprise-wide tools. We may incur significant selling and marketing expenses
during a client's evaluation period, including the costs of developing a full
proposal and completing a rapid proof of concept or custom demonstration, before
the client places an order with us. Clients may also initially purchase a
limited number of licenses before expanding their implementations. Larger
clients may purchase our software products as part of multiple simultaneous
purchasing decisions, which may result in additional unplanned administrative
processing and other delays in the recognition of our license revenues. If
revenues forecasted from a significant client for a particular quarter are not
realized or are delayed, we may experience an unplanned shortfall in revenues
during that quarter. This may cause our operating results to be below the
expectations of public market analysts or investors, which could cause the value
of our common stock to decline.
WE HAVE TWO MANAGEMENT LOCATIONS AND AS WE CONTINUE TO GROW WE MAY EXPERIENCE
DIFFICULTIES IN OPERATING FROM THESE TWO FACILITIES.
Certain members of our management team are based at our corporate
headquarters located in Portland, Maine, and other members of our management
team are based at our sales office in Edison, New Jersey. As we grow, the
geographic distance between these offices could make it more difficult for our
management and other employees to effectively communicate with each other and as
a result could place a significant strain on our managerial, operational and
financial resources. Our total revenue increased from $7.5 million in the year
ended December 31, 1997 to $19.4 million in the year ended December 31, 1999,
and the number of our employees increased from 67 as of December 31, 1997 to 167
as of December 31, 1999. To accommodate this growth, we must implement new or
upgraded operating and financial systems, procedures and controls. We may not
succeed in these efforts. Our failure to expand and integrate these systems in
an efficient manner could prevent us from successfully implementing our business
model. If we continue to grow, we will need to recruit, train and retain a
significant number of employees, particularly employees with technical,
marketing and sales backgrounds. Because these individuals are in high demand,
we may not be able to attract the staff we need to accommodate our expansion.
WE ARE HIGHLY DEPENDENT UPON THE HEALTHCARE INDUSTRY AND FACTORS WHICH ADVERSELY
AFFECT THAT MARKET COULD ALSO ADVERSELY AFFECT US.
Substantially all of our revenue to date has come from pharmaceutical
companies and a limited number of other clients in the healthcare industry, and
our future growth depends, in large part, upon increased sales to the healthcare
market. As a result, demand for our solutions could be affected by any factors
which could adversely affect the demand for healthcare products which are
purchased and sold pursuant to contracts managed through our solutions. The
financial condition of our clients and their willingness to pay for our
solutions are affected by factors which may impact the purchase and sale of
healthcare products, including competitive pressures, decreasing operating
margins within the industry, currency fluctuations, active geographic expansion
and government regulation.
6
<PAGE>
The healthcare market is undergoing intense consolidation. We cannot assure
you that we will not experience declines in revenue caused by mergers or
consolidations among our clients and potential clients.
OUR EFFORTS TO TARGET MARKETS OTHER THAN THE HEALTHCARE MARKET HAVE NOT YET
RESULTED IN SIGNIFICANT REVENUE, AND WE CANNOT BE SURE THAT OUR INITIATIVES IN
THESE OTHER MARKETS WILL BE SUCCESSFUL.
As part of our growth strategy, we have begun initiatives to sell our
products and services in markets other than the healthcare market, including the
food and beverage, commercial products, building products, electronics,
agricultural/chemical, retail and other industries. While we believe that the
contractual purchase relationships between manufacturers and customers in these
markets have similar attributes to those in the healthcare markets, we cannot
assure you that our assumptions are correct or that we will be successful in
adapting our technology to these other markets. Although we have recently
entered into a strategic relationship with Procter & Gamble, we do not yet know
how rapidly or successfully our purchase contract management software solutions
will be implemented in the commercial products industry. In connection with our
efforts in other industries, it will be necessary for us to hire additional
personnel with expertise in these other markets.
OUR BUSINESS MODEL INCLUDES HOSTING OUR SOFTWARE APPLICATIONS ON BEHALF OF OUR
CLIENTS AND MAINTAINING THEIR CRITICAL SALES DATA, AND IF OUR SYSTEMS FAIL OR
THE DATA IS LOST OR CORRUPTED, OUR CLIENTS MAY LOSE CONFIDENCE IN US.
We offer to host our software products on our computers or on computers
hosted on our behalf for access by our clients and we offer to maintain certain
of our clients' critical sales data on our computers or on computers hosted on
our behalf. Fire, floods, earthquakes, power loss, telecommunications failures,
break-ins, human error, computer viruses, intentional acts of vandalism and
similar events could damage these systems and result in loss of customer data or
a loss in the ability of our clients to access the software we are hosting for
their use. Our clients would lose confidence in us and could stop doing business
with us if our systems were affected by any of these occurrences or if any
client data were lost. Our insurance policies may not adequately compensate us
for any losses that may occur due to any failures or interruptions in our
systems or loss of data.
THE POLITICAL, ECONOMIC OR REGULATORY HEALTHCARE ENVIRONMENT REGARDING THE
PURCHASING PRACTICES AND OPERATION OF HEALTHCARE ORGANIZATIONS COULD AFFECT THE
DEMAND FOR OUR SOLUTIONS OR OUR BUSINESS MODEL.
The healthcare industry is highly regulated and is subject to changing
political, economic and regulatory influences. Factors such as changes in
reimbursement policies for healthcare expenses and general economic conditions
affect the purchasing practices and operations of healthcare organizations.
Changes in regulations or the issuance of interpretations affecting the
healthcare industry, such as any increased regulation of the purchase and sale
of our clients' products, could require us to make unplanned enhancements of our
solutions, or result in delays or cancellations of orders or reduced demand for
our solutions or affect our ability to adopt our pricing model or otherwise
implement our business strategy. The federal and state governments have
periodically considered and adopted programs to reform or amend the U.S.
healthcare system at both the federal and state level. These programs have
included laws and regulations which prohibit payments for arranging for sales of
government-reimbursed drugs and provisions to increase governmental involvement
in healthcare, lower reimbursement rates or otherwise change the environment in
which healthcare industry providers operate. Although we have received legal
advice regarding the pricing of our solutions with respect to these laws,
regulations and provisions, and believe we are operating consistently with that
advice, we would experience a decrease in our anticipated revenues if we are
required to modify our pricing model, or if our clients express a reluctance to
pay us in accordance with a given business model without more legal certainty
than we are able to give them.
7
<PAGE>
WE MAY NOT BE SUCCESSFUL IN ACQUIRING NEW TECHNOLOGIES OR BUSINESSES WHICH COULD
HINDER OUR EXPANSION EFFORTS.
We intend in the future to consider acquisitions of or investments in
complementary businesses, products, services or technologies. We cannot assure
you that we will be able to identify appropriate acquisition or investment
candidates. Even if we do identify suitable candidates, we cannot assure you
that we will be able to make such acquisitions or investments on commercially
acceptable terms. Furthermore, we may incur debt or issue equity securities to
pay for any future acquisitions. The issuance of equity securities could be
dilutive to our existing stockholders.
IF WE DO ACQUIRE NEW TECHNOLOGIES OR BUSINESSES, WE MAY HAVE DIFFICULTY
INTEGRATING THOSE NEW TECHNOLOGIES OR BUSINESSES.
Any company that we acquire is likely to be distant from our headquarters in
Portland, Maine and will have a culture different from ours as well as
technologies, products and services that our employees will need to understand
and integrate with our own. We will have to assimilate those employees,
technologies and products and that effort is difficult, time-consuming and may
be unsuccessful. If we are not successful, our investment in the acquired entity
may be lost, and even if we are successful, the process of integrating an
acquired entity may divert our attention from our core business.
OUR FIXED COSTS MAY LEAD TO FLUCTUATIONS IN OPERATING RESULTS IF OUR REVENUES
ARE BELOW EXPECTATIONS WHICH COULD RESULT IN A DECLINE OF OUR STOCK PRICE.
A significant percentage of our expenses, particularly personnel costs and
rent, are fixed costs and are based in part on expectations of future revenues.
We may be unable to reduce spending in a timely manner to compensate for any
significant fluctuations in revenues. Accordingly, shortfalls in revenues may
cause significant variations in operating results in any quarter. If our
quarterly results do not meet the expectations of market analysts or investors,
our stock price is likely to decline.
WE HAVE MANY COMPETITORS AND POTENTIAL COMPETITORS AND WE MAY NOT BE ABLE TO
COMPETE EFFECTIVELY.
The market for our products and services is competitive and subject to rapid
change. We encounter significant competition for the sale of our contract
management software from the internal information systems departments of
existing and potential clients, software companies that target the contract
management markets, professional services organizations and Internet-based
merchants offering healthcare products through online catalogs. In addition, we
encounter competition for our contracting portal from other Internet-based
exchanges, including exchanges established by manufacturers of healthcare
products. Our competitors vary in size and in the scope and breadth of products
and services offered. We anticipate increased competition for market share and
pressure to reduce prices and make sales concessions, which could materially and
adversely affect our revenues and margins.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than we do. Such competitors may also engage in more extensive
research and development, undertake more far-reaching marketing campaigns, adopt
more aggressive pricing policies and make more attractive offers to existing and
potential employees and strategic partners. We cannot assure you that our
competitors will not develop products or services that are equal or superior to
our solutions or that achieve greater market acceptance than our solutions. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties. We cannot
assure you that we will be able to compete successfully or that competitive
pressures will not require us to make concessions that will adversely affect our
revenues and our margins, or reduce the demand for our products and services.
8
<PAGE>
WE RELY SIGNIFICANTLY UPON CERTAIN KEY INDIVIDUALS AND OUR BUSINESS WILL SUFFER
IF WE ARE UNABLE TO RETAIN THEM.
We depend on the services of our senior management and key technical
personnel. In particular, our success depends on the continued efforts of A.
Leigh Powell, our Chief Executive Officer, and other key employees. The loss of
the services of any key employee could have a material adverse effect on our
business, financial condition and results of operations.
CONCENTRATION OF OWNERSHIP MAY GIVE SOME STOCKHOLDERS SUBSTANTIAL INFLUENCE AND
MAY PREVENT OR DELAY A CHANGE IN CONTROL WHICH COULD DEPRESS THE PRICE OF OUR
STOCK.
After the offering, executive officers, directors and their affiliates will,
in the aggregate, own approximately 41.9% of our outstanding common stock. As a
result, these stockholders will be able to influence significantly all matters
requiring approval by our stockholders, including the election of directors and
the approval of significant corporate transactions. This concentration of
ownership may also delay, deter or prevent a change in control of I-many and may
make some transactions more difficult or even impossible without the support of
these stockholders and could depress the price of our common stock.
OUR CHARTER AND BYLAWS COULD DISCOURAGE ACQUISITION PROPOSALS, DELAY A CHANGE IN
CONTROL OR PREVENT TRANSACTIONS THAT ARE IN YOUR BEST INTERESTS.
Our certificate of incorporation and bylaws state that any action that can
be taken by stockholders must be done at an annual or special meeting and may
not be done by written consent, and require reasonable advance notice of a
stockholder proposal or director nomination. Furthermore, the chairman of the
board, the president, the board of directors and the holders of at least 30% of
the shares of our capital stock are the only people who may call a special
meeting. The amended and restated certificate of incorporation and amended and
restated bylaws also provide that members of the board of directors may only be
removed by the vote of the holders of a majority of the shares entitled to vote
for that director. In addition, the board of directors has the authority,
without further action by the stockholders, to fix the rights and preferences of
and issue 5,000,000 shares of preferred stock. These provisions may have the
effect of deterring hostile takeovers or delaying or preventing changes in
control of management, including transactions in which you might otherwise
receive a premium for your shares. In addition, these provisions may limit your
ability to approve other transactions that you find to be in your best
interests. See "Description of Capital Stock" and "--Delaware Anti-Takeover Law
and Certain Charter and Bylaw Provisions."
OUR STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE AND COULD DROP UNEXPECTEDLY.
The market price of our common stock is likely to be highly volatile and may
fluctuate substantially. As a result, investors in our common stock may
experience a decrease in the value of their shares regardless of our operating
performance or prospects. In addition, the stock market has, from time to time,
experienced significant price and volume fluctuations that have affected the
market prices for the securities of technology companies. In the past, following
periods of volatility in the market price of a particular company's securities,
securities class action litigation was often brought against that company. Many
technology-related companies have been subject to this type of litigation. We
may also become involved in this type of litigation. Litigation is often
expensive and diverts management's attention and resources.
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY AFFECT OUR
STOCK PRICE.
The availability of a large number of shares for sale could result in the
need for sellers to accept a lower price in order to complete a sale. This would
result in a lower market price of our common
9
<PAGE>
stock. After this offering, there will be outstanding approximately
30,788,607 shares of our common stock, or 31,913,607 shares if the underwriters'
over-allotment option is exercised in full. Of these shares, the
7,500,000 shares sold in this offering will be freely tradable except for any
shares purchased by our "affiliates" as defined in Rule 144 under the Securities
Act. Of the remaining 23,288,607 shares of common stock held by existing
stockholders, 22,667,808 are subject to 180-day lock-up agreements and are
eligible for sale only if registered or if they qualify for an exemption from
registration under Rules 144 or 701 under the Securities Act. Subject to the
provisions of Rules 144 and 701, at least 16,724,997 shares will be available
for sale in the public market 180 days after the date of this prospectus,
subject in the case of shares held by affiliates to compliance with applicable
volume restrictions.
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price per share will significantly exceed the
net tangible book value per share. If we were to liquidate immediately after the
offering, investors purchasing shares in this offering would receive a per share
amount of tangible assets net of liabilities that would be less than the initial
public offering price per share. Investors purchasing shares in this offering
will suffer dilution of approximately $7.69 per share from their investment.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Discussions containing forward-looking statements may be found in
the information set forth under "Risk Factors," "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" as
well as in the prospectus generally. We use words such as "believes," "intends,"
"expects," "anticipates," "plans," "estimates," "should," "may," "will,"
"scheduled" and similar expressions to identify forward-looking statements. We
have used these words to describe our present belief about future events
relating to, among other things, our changing business model, our expected
marketing plans, future hiring, expenditures, and sources of revenue. This
prospectus also contains third party estimates regarding the size and growth of
our market which also are forward-looking statements. Our forward-looking
statements apply only as of the date of this prospectus. Our actual results
could differ materially from those anticipated in the forward-looking statements
for many reasons, including the risks described above and elsewhere in this
prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus to conform these
statements to actual results or to changes in our expectations, other than as
required by law.
10
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from sale of the common stock will be
$68.6 million, after deducting the underwriting discount and estimated offering
expenses. If the underwriters' over-allotment option is exercised in full, we
estimate that the net proceeds will be $79.1 million. The primary purposes of
the offering are to create a public market for our common stock and to
facilitate our future access to public equity markets.
We intend to use a portion of the net proceeds from this offering for
general corporate purposes, including working capital and capital expenditures.
We also may use a portion of the net proceeds to acquire or invest in
complementary businesses or products or to obtain the right to use complementary
technologies. We currently have no specific understanding, commitment or
agreement with any party with respect to any potential such acquisition or
investment. Pending these uses, the net proceeds of this offering will be
invested in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future. Payment of future cash dividends, if any, will be at the
discretion of our board of directors after taking into account various factors,
including our financial condition, operating results, current and anticipated
cash needs and plans for expansion and any credit facilities or other agreements
which may restrict the payment of dividends.
11
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000:
- on an actual basis, after giving effect to the 2.5-for-1 common stock
split and after the filing of amended and restated articles of
incorporation to authorize 5,000,000 shares of undesignated preferred
stock;
- on a pro forma basis to reflect the conversion of all of our convertible
preferred stock into 9,169,687 shares of common stock; and
- on a pro forma as adjusted basis to reflect the conversion of all of our
convertible preferred stock into common stock and the application of the
net proceeds from this offering at an assumed initial public offering
price of $10.00 per share, after deducting the underwriting discounts and
offering expenses. See "Use of Proceeds."
The capitalization information set forth in the table below is qualified by
the more detailed financial statements and notes thereto included elsewhere in
this prospectus and should be read in conjunction with such financial statements
and notes. The actual, pro forma and pro forma as adjusted information presented
below is unaudited.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
-------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------- -------------- ----------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents............................... $ 8,080 $ 8,080 $ 76,680
Debt, including current portion......................... $ 33 $ 33 $ 33
Series C redeemable convertible preferred stock......... 12,744 -- --
Stockholders' equity (deficit):
Series A convertible preferred stock, par value $0.01;
2,100,000 shares authorized; 2,023,550 shares issued
and outstanding (actual); no shares issued and
outstanding (pro forma and pro forma as adjusted)..... 20 -- --
Series B convertible preferred stock, par value $0.01;
400,000 shares authorized, issued and outstanding
(actual); no shares issued and outstanding (pro forma
and pro forma as adjusted)............................ 4 -- --
Preferred stock, par value $0.01; 5,000,000 shares
authorized; no shares issued and outstanding (actual,
pro forma and pro forma as adjusted).................. -- -- --
Common stock, par value $0.0001; 100,000,000 shares
authorized; 13,995,535 shares issued and outstanding
(actual); 23,165,222 shares issued and outstanding
(pro forma); 30,665,222 shares issued and outstanding
(pro forma as adjusted)(1)............................ 2 3 3
Additional paid-in capital.............................. 5,853 18,620 87,220
Deferred stock-based compensation....................... (219) (219) (219)
Accumulated deficit..................................... (11,070) (11,070) (11,070)
------- ------- --------
Total stockholders' equity (deficit).................. (5,410) 7,334 75,934
------- ------- --------
Total capitalization.............................. $ 7,367 $ 7,367 $ 75,967
======= ======= ========
</TABLE>
--------------------------
(1) Assumes no exercise of the underwriters' over-allotment option and excludes
(a) 4,607,838 shares of common stock issuable upon the exercise of stock
options outstanding at March 31, 2000, and (b) 1,900,952 shares reserved for
issuance under our stock incentive plans at March 31, 2000. See
"Management--Benefit Plans" and Note 5 to our financial statements.
12
<PAGE>
DILUTION
As of March 31, 2000, our pro forma net tangible book value was
approximately $2.3 million, or $0.10 per share of common stock. Pro forma net
tangible book value per share represents the amount of our total tangible assets
less total liabilities, divided by the 23,165,222 shares of common stock
outstanding after giving effect to the conversion of our convertible preferred
stock into 9,169,687 shares of common stock.
After giving effect to the receipt of the proceeds from the sale of
7,500,000 shares of our common stock in this offering and after deducting the
estimated underwriting discount and offering expenses, our pro forma net
tangible book value as of March 31, 2000 would have been approximately
$70.9 million, or $2.31 per share of common stock. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $10.00
Pro forma net tangible book value per share as of March
31, 2000................................................ $0.10
Increase per share attributable to new investors.......... 2.21
-----
Pro forma net tangible book value per share after this
offering.................................................. 2.31
Dilution per share to new investors......................... $ 7.69
======
</TABLE>
The following table summarizes as of March 31, 2000, on the pro forma basis
described above, the number of shares of common stock purchased from us, the
total cash consideration paid to us and the average price per share paid by
existing stockholders and by new investors purchasing shares of common stock in
the offering, before deducting the underwriting discount and estimated offering
expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................... 23,165,222 75.5% $22,690,943 23.2% $ 0.98
New investors............................ 7,500,000 24.5 75,000,000 76.8 $10.00
---------- ----- ----------- -----
Total.................................. 30,665,222 100.0% $97,690,943 100.0%
========== ===== =========== =====
</TABLE>
13
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below as of and for each of the years
in the five-year period ended December 31, 1999 are derived from our financial
statements. The financial statements as of and for each of the years in the
three-year period ended December 31, 1999 are included elsewhere in this
prospectus and have been audited by Arthur Andersen LLP, independent public
accountants. The financial statements as of and for the years ended
December 31, 1995 and 1996, as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 are unaudited, but have been prepared on substantially
the same basis as the audited financial statements and include, in the opinion
of our management, all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of the information set forth
therein. Historical results are not necessarily indicative of future results.
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and notes to those statements and other
financial information included elsewhere in this prospectus.
Pro forma net loss per share is computed using the weighted average number
of shares of common stock outstanding, adjusted to include the pro forma effects
of the conversion of convertible preferred stock to common stock as if such
conversion had occurred on the original date of issuance.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Product........................................ $ 321 $2,101 $5,043 $8,526 $ 9,228 $2,306 $ 1,546
Service........................................ 886 1,252 2,471 5,016 10,183 2,010 5,243
------- ------ ------ ------ ------- ------ -------
Total net revenues........................... 1,207 3,353 7,514 13,542 19,411 4,316 6,789
Cost of revenues................................. 910 1,040 2,249 2,062 5,354 817 3,116
------- ------ ------ ------ ------- ------ -------
Gross profit................................. 297 2,313 5,265 11,480 14,057 3,499 3,673
Operating expenses:
Sales and marketing.......................... 268 448 1,223 3,676 6,613 1,278 2,712
Research and development..................... 1,039 1,325 1,523 2,339 8,222 1,249 5,227
General and administrative................... 576 479 1,302 3,379 3,556 918 1,124
Depreciation and amortization................ 77 85 161 366 751 146 451
------- ------ ------ ------ ------- ------ -------
Total operating expenses................... 1,960 2,337 4,209 9,760 19,142 3,591 9,514
------- ------ ------ ------ ------- ------ -------
Income (loss) from operations.................... (1,663) (24) 1,056 1,720 (5,085) (92) (5,841)
Other income (expense), net...................... (581) (428) (733) (129) 147 34 139
Provision for (benefit from) income taxes........ -- -- -- (320) 281 -- --
------- ------ ------ ------ ------- ------ -------
Net income (loss)............................ $(2,244) $ (452) $ 323 $1,911 $(5,219) $ (58) $(5,702)
======= ====== ====== ====== ======= ====== =======
Net income (loss) per share:
Basic........................................ $ (0.21) $(0.04) $ 0.03 $ 0.19 $ (0.46) $(0.01) $ (0.47)
======= ====== ====== ====== ======= ====== =======
Diluted...................................... $ (0.21) $(0.04) $ 0.03 $ 0.11 $ (0.46) $(0.01) $ (0.47)
======= ====== ====== ====== ======= ====== =======
Weighted average shares outstanding:
Basic........................................ 10,500 10,500 9,785 10,192 11,433 10,542 12,569
======= ====== ====== ====== ======= ====== =======
Diluted...................................... 10,500 10,500 13,422 18,317 11,433 10,542 12,569
======= ====== ====== ====== ======= ====== =======
Pro forma basic and diluted net loss per share... $ (0.30) $ (0.26)
======= =======
Pro forma basic and diluted weighted average
shares outstanding............................. 17,500 21,738
======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, MARCH 31,
---------------------------------------------------- ---------
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 290 $ 282 $ 1,872 $ 5,129 $ 15,322 $ 8,080
Working capital (deficit)............................. (4,216) (2,499) (736) 4,518 8,850 (1,065)
Total assets.......................................... 809 2,281 4,705 11,609 27,482 26,120
Debt, including current portion....................... 2,358 2,800 5,869 75 41 33
Redeemable convertible preferred stock................ -- -- -- -- 12,492 12,744
Total stockholders' equity (deficit).................. (4,340) (4,791) (6,335) 5,331 197 (5,410)
</TABLE>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH OUR FINANCIAL
STATEMENTS AND NOTES TO THOSE STATEMENTS AND OTHER FINANCIAL INFORMATION
APPEARING ELSEWHERE IN THIS PROSPECTUS. IN ADDITION TO HISTORICAL INFORMATION,
THE FOLLOWING DISCUSSION AND OTHER PARTS OF THIS PROSPECTUS CONTAIN
FORWARD-LOOKING INFORMATION THAT INVOLVES RISKS AND UNCERTAINTIES. OUR ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED BY SUCH FORWARD-LOOKING
INFORMATION DUE TO VARIOUS FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE SET
FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We provide software and Internet-based solutions and related professional
services that allow our clients to negotiate and manage complex purchasing
arrangements which facilitate business-to-business e-commerce. In
February 2000, we launched our proprietary Internet portal, I-many.com, which is
a website created and owned exclusively by us, which we expect will serve as a
marketplace for trading partners in the healthcare industry. Our historical
financial statements include minimal revenues from our I-many.com service
offering and from our efforts to license our Internet technology to operators of
websites. Prior to February 2000, our business model was focused principally
upon licensing software products and providing related services to entities
which maintain and manage the data necessary for contract management within
their own information systems. Our Contract Administration and Reporting System,
or CARS, software suite is used by 8 of the largest 10 and 15 of the largest 20
pharmaceutical manufacturers ranked according to annual revenues.
We have generated revenues from both products and services. Historically,
product revenues have been principally comprised of software license fees
generated from our CARS software suite, which accounted for 47.5% of net
revenues in 1999. Service revenues include maintenance and support fees directly
related to our CARS software suite and professional service fees derived from
consulting, installation, business analysis and training services related to our
software products. Service revenues accounted for 52.5% of net revenues in 1999.
In 1999, one customer, Pfizer, Inc., accounted for approximately 10.5% of our
net revenues and in the first three months of 2000, one customer, Premier, Inc.,
accounted for approximately 37.0% of our net revenues.
Historically, software license agreements have been for a three-year period.
We recognize software license fees upon execution of a signed license agreement
and delivery of the software, provided that there are no significant
post-delivery obligations, the payment is fixed or determinable and collection
is probable. We provide an allowance for sales returns at the time of revenue
recognition based on historical experience. To date, such returns have not been
significant.
We recognize revenue for professional services as the services are performed
for time and materials contracts and we use the percentage-of-completion method
for fixed fee contracts. However, if customer acceptance is required, we
recognize revenue for professional services upon client acceptance. We recognize
training revenues as the services are provided. We recognize maintenance and
client support fees ratably over the term of the maintenance contract on a
straight-line basis. When maintenance and support is included in the total
license fee, we allocate a portion of the total fee to maintenance and support
based upon the price paid by the client to purchase maintenance and support in
the second year.
In the latter part of 1999, we started offering our clients an enterprise
agreement that includes the software license, maintenance and support and a
fixed number of days of professional services. Clients opting for this
enterprise agreement will enter into a three-year, fixed-fee, all-inclusive
agreement payable in three equal annual installments commencing upon the
execution of the agreement. Due to the extended payment terms, we recognize the
software license component and the maintenance and support component ratably
over the term of the enterprise agreement and recognize the professional
15
<PAGE>
service component as the related services are performed, provided that the
aggregate revenue recognized under the enterprise agreement does not exceed the
total cash received. During the year ended December 31, 1999, we entered into
two enterprise agreements totaling $2.9 million. Of that amount, we recognized
$200,000 in net revenues, resulting in deferred revenue related to these
enterprise agreements of $2.7 million at December 31, 1999. We expect that
enterprise agreements will represent a more significant component of our total
revenues in the future.
Our business model for our Internet initiatives contemplates that we will
generate future revenues in the following ways:
- administrative fees for establishing contracts through the portal, based
on a percentage of the revenue derived by the manufacturer from sales of
its products pursuant to these contracts;
- subscription fees paid by manufacturers, intermediaries and distributors
for access to our software and the contract data which will be hosted on
our servers; and
- license fees for our Internet technology infrastructure paid by operators
of websites;
- fees paid by manufacturers and distributors for the opportunity to place
advertising or other promotional information on our website, which we
believe will be accessed by contract administrators, purchasing managers
and other persons responsible for healthcare purchase decisions.
We cannot assure you that we will be successful in generating revenues using
this business model.
16
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth statement of operations data for the periods
indicated expressed as a percentage of total net revenues for each period
indicated. The historical results are not necessarily indicative of the results
to be expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------------------- ----------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Product...................... 26.6% 62.7% 67.1% 63.0% 47.5% 53.4% 22.8%
Service...................... 73.4 37.3 32.9 37.0 52.5 46.6 77.2
------ ----- ----- ----- ----- ----- -----
Total net revenues......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues............... 75.4 31.0 29.9 15.2 27.6 18.9 45.9
------ ----- ----- ----- ----- ----- -----
Gross profit............... 24.6 69.0 70.1 84.8 72.4 81.1 54.1
Operating expenses:
Sales and marketing.......... 22.2 13.4 16.3 27.1 34.1 29.6 39.9
Research and development..... 86.1 39.5 20.3 17.3 42.4 28.9 77.0
General and administrative... 47.7 14.3 17.3 25.0 18.3 21.3 16.6
Depreciation and
amortization............... 6.4 2.5 2.1 2.7 3.9 3.4 6.6
------ ----- ----- ----- ----- ----- -----
Total operating expenses... 162.4 69.7 56.0 72.1 98.7 83.2 140.1
------ ----- ----- ----- ----- ----- -----
Income (loss) from
operations............... (137.8) (0.7) 14.1 12.7 (26.3) (2.1) (86.0)
Other income (expense):
Interest income (expense),
net........................ (45.9) (12.4) (8.9) (0.6) 0.9 1.0 2.3
Other expense, net........... (2.2) (0.3) (0.9) (0.3) (0.1) (0.2) (0.3)
------ ----- ----- ----- ----- ----- -----
Total other income
(expense)................ (48.1) (12.7) (9.8) (0.9) 0.8 0.8 2.0
------ ----- ----- ----- ----- ----- -----
Income (loss) before income
taxes.................... (185.9) (13.4) 4.3 11.8 (25.5) (1.3) (84.0)
Provision for (benefit from)
income taxes................. 0.0 0.0 0.0 (2.4) 1.4 0.0 0.0
------ ----- ----- ----- ----- ----- -----
Net income (loss).......... (185.9)% (13.4)% 4.3% 14.2% (26.9)% (1.3)% (84.0)%
====== ===== ===== ===== ===== ===== =====
</TABLE>
17
<PAGE>
QUARTER ENDED MARCH 31, 2000 COMPARED TO QUARTER ENDED MARCH 31, 1999
NET REVENUES. Net revenues increased by $2.5 million, or 57.3%, to
$6.8 million for the quarter ended March 31, 2000, from $4.3 million for the
quarter ended March 31, 1999. This increase in total net revenues is principally
a result of the increase in professional services revenues of $3.2 million.
Product revenues decreased by $800,000, or 33%, to $1.5 million for the
quarter ended March 31, 2000, from $2.3 million for the quarter ended March 31,
1999. This decrease is attributable to the decrease in the number of software
licenses sold from 12 in the first quarter of 1999 to 5 in the first quarter of
2000. As a percentage of net revenues, product revenues decreased to 22.8% for
the quarter ended March 31, 2000, from 53.4% for the quarter ended March 31,
1999. This decrease in product revenues as a percentage of net revenues is
mainly attributable to the decrease in the number of licenses sold and the
expansion of our professional services business.
Service revenues increased by $3.2 million, or 160.9%, to $5.2 million for
the quarter ended March 31, 2000, from $2.0 million for the quarter ended
March 31, 1999. As a percentage of total revenues, service revenues increased to
77.2% for the quarter ended March 31, 2000, from 46.6% for the quarter ended
March 31, 1999. This increase in service revenues both in dollars and as a
percentage of total revenues is attributable to an increase in the number of
employees in our professional services group in response to the growing demand
on the part of our clients for more services related to our CARS software suite.
We expect that service revenues, and revenues from consulting and business
analysis services in particular, are likely to increase both in dollars and as a
percentage of total revenues for the foreseeable future.
COST OF REVENUES. Cost of revenues consists primarily of payroll and
related costs and subcontractor costs for providing professional services and
maintenance and support services. Historically, cost of product revenues has not
been a significant component of total cost of revenues. Cost of revenues
increased by $2.3 million, or 281.5%, to $3.1 million for the quarter ended
March 31, 2000, from $800,000 for the quarter ended March 31, 1999. This
increase is due to the increased number of employees in our professional
services group, which grew from 32 in the first quarter of 1999 to 57 in the
first quarter of 2000, as well as increased costs related to subcontractor
consultants working on our professional service engagements, which increased
from $85,000 in the first quarter of 1999 to $1.4 million in the first quarter
of 2000. As a percentage of net revenues, cost of revenues increased to 45.9%
for the quarter ended March 31, 2000, from 18.9% for the quarter ended
March 31, 1999. This increase in cost of revenues as a percentage of net
revenues is attributable to the increased level of service revenues, which
typically generate lower margins than product revenues, and an increase in the
personnel within our professional services organization.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
payroll and related benefits for sales and marketing personnel, commissions for
sales personnel, travel costs, recruiting fees, and expenses for trade shows.
Sales and marketing expenses increased by $1.4 million, or 112.1%, to
$2.7 million for the first quarter of 2000 from $1.3 million for the first
quarter of 1999. As a percentage of net revenues, sales and marketing expenses
increased to 39.9% for the quarter ended March 31, 2000, from 29.6% for the
quarter ended March 31, 1999. This increase in sales and marketing expense both
in dollars and as a percentage of net revenues is primarily the result of
activity at trade shows, which increased by $185,000, advertising, marketing and
promotional materials related to our Internet portal, which increased by
$1.2 million, and costs related to sales and marketing personnel, which
increased by $170,000.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of payroll and related costs for development personnel and external
consulting costs associated with the development of our products and services.
Research and development costs, including the costs of developing computer
software, are charged to operations as they are incurred. Software development
costs
18
<PAGE>
incurred to build I-many.com, our Internet portal, are accounted for in
accordance with Statement of Position No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." Under this Statement
of Position, costs incurred during the preliminary project stage are expensed as
incurred, and costs incurred during the application development stage are
capitalized. In the first quarter of 2000 we incurred $4.4 million of costs for
our Internet portal, of which $3.3 million was capitalized and $1.1 million was
expensed. Research and development expenses increased by $4.0 million, or
318.6%, to a total of $5.2 million for the quarter ended March 31, 2000, from
$1.2 million for the quarter ended March 31, 1999. As a percentage of net
revenues, research and development expenses increased to 77.0% for the first
quarter of 2000 from 28.9% for the first quarter of 1999. This increase in both
dollars and as a percentage of net revenues is primarily due to external
consulting costs incurred to build our Internet portal, which increased by
$1.1 million, and an increase in costs related to research and development
personnel, which increased by $1.0 million.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of payroll and related benefits for personnel in our administrative,
finance and human resources departments. General and administrative expenses
also include legal and accounting professional service fees. General and
administrative expenses increased by $200,000, or 22.3%, to $1.1 million for the
first quarter of 2000 from $900,000 for the first quarter of 1999. As a
percentage of net revenues, general and administrative expenses decreased to
16.6% for the quarter ended March 31, 2000, from 21.3% for the quarter ended
March 31, 1999. The increase in general and administrative expenses in dollars
is primarily due to an increase in travel expenses of $54,000, an increase of
$13,000 for temporary help, professional fees of $50,000 and an increase of
$50,000 for salaries associated with an increased head count. We expect general
and administrative costs to increase in absolute dollars as we continue to
expand our infrastructure and incur costs as a public company.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased by $300,000, or 209.5%, from $146,000 in the first quarter of 1999 to
$451,000 in the first quarter of 2000. This increase is a result of significant
additions of computer hardware and software for our Internet portal and for our
increased personnel. In the quarter ended March 31, 2000, we began to amortize
the capitalized costs associated with the development of I-many.com, resulting
in amortization expense of $207,000 for the quarter.
OTHER INCOME (EXPENSE), NET. Other income (expense), net increased by
$104,000, or 303.7% from $34,000 in the quarter ended March 31, 1999, to
$139,000 in the quarter ended March 31, 2000. This increase is the result of
interest earned on higher average cash balances.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
NET REVENUES. Net revenues increased by $5.9 million, or 43.3%, to
$19.4 million for the year ended December 31, 1999 from $13.5 million for the
year ended December 31, 1998. This increase in net revenues is principally a
result of the increase in service revenues, including consulting services
performed during the year.
Product revenues increased by $700,000, or 8.2%, to $9.2 million for the
year ended December 31, 1999 from $8.5 million for the year ended December 31,
1998. This increase is attributable to an increase in the number of software
licenses sold. As a percentage of net revenues, product revenues decreased to
47.5% for the year ended December 31, 1999 from 63.0% for the year ended
December 31, 1998. This decrease in product revenues as a percentage of net
revenues is mainly attributable to the expansion of our professional services
business.
Service revenues increased by $5.2 million, or 103.0%, to $10.2 million for
the year ended December 31, 1999 from $5.0 million for the year ended
December 31, 1998. As a percentage of net revenues, service revenues increased
to 52.5% for the year ended December 31, 1999 from 37.0% for
19
<PAGE>
the year ended December 31, 1998. This increase in service revenues both in
dollars and as a percentage of net revenues is attributable to an increase in
the number of employees in our professional services group in response to the
growing demand on the part of our clients for more services related to the
implementation of our CARS software suite. Prior to 1999, most of our clients
who purchased our CARS software solutions relied on third party integrators. We
expect that service revenues, and revenues from consulting services in
particular, are likely to increase both in dollars and as a percentage of net
revenues for the foreseeable future.
COST OF REVENUES. Historically, cost of product revenues has not been a
significant component of total cost of revenues. Cost of revenues increased by
$3.3 million, or 159.6%, to $5.4 million for the year ended December 31, 1999
from $2.1 million for the year ended December 31, 1998. This increase is due to
the increased number of employees in our professional services group, which
increased from 20 employees at December 31, 1998 to 37 employees at
December 31, 1999, as well as increased costs related to subcontract consultants
working on our professional service engagements, which increased from $167,000
in 1998 to $1.5 million in 1999. As a percentage of net revenues, cost of
revenues increased to 27.6% for the year ended December 31, 1999 from 15.2% for
the year ended December 31, 1998. This increase in cost of revenues as a
percentage of net revenues is attributable to the increased level of service
revenues, which typically generate lower margins than product revenues, and an
increase in the personnel within our professional services organization.
SALES AND MARKETING. Sales and marketing expenses increased by
$2.9 million, or 79.9%, to $6.6 million for the year ended December 31, 1999
from $3.7 million for the year ended December 31, 1998. As a percentage of net
revenues, sales and marketing expenses increased to 34.1% for the year ended
December 31, 1999 from 27.1% for the year ended December 31, 1998. This increase
in sales and marketing expense both in dollars and as a percentage of net
revenues is primarily a result of our efforts to build our internal sales force
in anticipation of the I-many.com site launch and in support of our CARS
software suite. The increase in sales and marketing expenses is also
attributable to an increase in commission expense as a result of the increase in
net revenues. The number of employees in our sales and marketing departments
increased from 15 at December 31, 1998, to 33 at December 31, 1999 and to 27 at
March 31, 2000. Our commission expense, which is a function of revenue,
increased from $572,000 in 1998 to $1.5 million in 1999.
RESEARCH AND DEVELOPMENT. Research and development expenses increased by
$5.9 million, or 251.5%, to $8.2 million for the year ended December 31, 1999
from $2.3 million for the year ended December 31, 1998. As a percentage of net
revenues, research and development expenses increased to 42.4% for the year
ended December 31, 1999 from 17.3% for the year ended December 31, 1998. This
increase in both dollars and as a percentage of net revenues is primarily due to
an increase in research and development personnel and external consulting costs
incurred to build I-many.com and new software products within the CARS software
suite. The number of employees in our research and development group increased
from 53 at December 31, 1998 to 66 at December 31, 1999, and our external
consulting costs incurred to build I-many.com and new software products within
the CARS software suite increased from $0 in 1998 to $1.6 million in 1999.
During the year ended December 31, 1999, we incurred approximately $3.0 million
of software development costs related to building I-many.com, of which
approximately $2.0 million was capitalized and the remainder was charged to
research and development expense. We expect to incur significant additional
expenses related to the further development of I-many.com, including
approximately $12.1 million in software development expenses in 2000. Of this
amount, we believe that approximately $9.1 million will be spent with third
party consultants and the balance will be the cost of our employees.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by $200,000, or 5.2%, to $3.6 million for the year ended December 31, 1999 from
$3.4 million for the year ended December 31, 1998. As a percentage of net
revenues, general and administrative expenses decreased to
20
<PAGE>
18.3% for the year ended December 31, 1999 from 25.0% for the year ended
December 31, 1998. The increase in general and administrative expenses in
dollars is primarily related to increased costs associated with legal and
accounting professional fees and additional administrative personnel to support
our increased sales, marketing and development activities. We expect general and
administrative costs to increase in absolute dollars as we continue to expand
our infrastructure and incur costs as a public company.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased by $400,000, or 105.2%, to $800,000 for the year ended December 31,
1999 from $400,000 for the year ended December 31, 1998. This increase is a
result of significant additions of computer hardware and computer software
related to our increased personnel and our Internet initiatives.
OTHER INCOME (EXPENSE), NET. Other income (expense), net increased by
$276,000, or 214.0% to other income, net of $147,000 for the year ended
December 31, 1999 from an expense of $129,000 for the year ended December 31,
1998. This increase is primarily the result of interest earned in 1999 on higher
average cash balances combined with a decrease in interest expense as a result
of reduced borrowings in 1999.
PROVISION FOR (BENEFIT FROM) INCOME TAXES. During the year ended
December 31, 1999, we recorded a provision for income taxes of $300,000,
compared to a benefit from income taxes of $300,000 for the year ended
December 31, 1998. Upon our inception, we elected to be treated as an S
corporation for income tax purposes. Since income taxes related to the income of
S corporations are the responsibility of the individual stockholders, no
provision for income taxes was recorded for the period during which we were an S
corporation. On April 2, 1998, we re-incorporated as a Subchapter C corporation
and our S corporation status was terminated. On that date, we recorded a
deferred tax asset, and a corresponding tax benefit, for certain future tax
deductions for which it was deemed more likely than not that the asset would be
realized due to actual and expected future taxable income. Due to the incurrence
of a net loss in 1999, the deferred tax asset was deemed to not be recoverable
and, therefore, was expensed, resulting in a provision for income taxes.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
NET REVENUES. Net revenues increased by $6.0 million, or 80.2%, to
$13.5 million for the year ended December 31, 1998 from $7.5 million for the
year ended December 31, 1997. This increase in net revenues is a result of an
increase in both product and service revenues related to our CARS software
suite.
Product revenues increased by $3.5 million, or 69.1%, to $8.5 million for
the year ended December 31, 1998 from $5.0 million for the year ended
December 31, 1997. This increase is attributable to an increase in the number of
software licenses sold from 11 in the year ended December 31, 1997 to 38 in the
year ended December 31, 1998. In 1998, we introduced several new modules and
enhancements to the CARS software suite. As a percentage of net revenues,
product revenues decreased to 63.0% for the year ended December 31, 1998 from
67.1% for the year ended December 31, 1997.
Service revenues increased by $2.5 million, or 103.0%, to $5.0 million for
the year ended December 31, 1998 from $2.5 million for the year ended
December 31, 1997. As a percentage of net revenues, service revenues increased
to 37.0% for the year ended December 31, 1998 from 32.9% for the year ended
December 31, 1997. This increase in service revenues both in dollars and as a
percentage of net revenues is attributable to the increase in software licenses
for which maintenance and support fees are being earned, and to an overall
increase in professional services, including implementation and training.
21
<PAGE>
COST OF REVENUES. Cost of revenues decreased by $200,000, or 8.3%, to
$2.1 million for the year ended December 31, 1998 from $2.3 million for the year
ended December 31, 1997. As a percentage of net revenues, cost of revenues
decreased to 15.2% for the year ended December 31, 1998 from 29.9% for the year
ended December 31, 1997. This decrease in cost of revenues is attributable to
greater efficiencies in our customer support group resulting from our
reorganization of the customer support department in early 1998, including our
decision to transfer the responsibility for customer support to specific product
development teams that were most familiar with a particular product and our
installation of an automated customer call tracking system.
SALES AND MARKETING. Sales and marketing expenses increased by
$2.5 million, or 200.6%, to $3.7 million for the year ended December 31, 1998
from $1.2 million for the year ended December 31, 1997. As a percentage of net
revenues, sales and marketing expenses increased to 27.1% for the year ended
December 31, 1998 from 16.3% for the year ended December 31, 1997. This increase
in sales and marketing expense both in dollars and as a percentage of net
revenues is primarily a result of an increase in sales and marketing personnel,
which increased from 13 employees at December 31, 1997 to 15 employees at
December 31, 1998, and increased sales commissions as a result of the increase
in net revenues. Commission expense increased as a result of higher revenues
from $127,000 in 1997 to $572,000 in 1998.
RESEARCH AND DEVELOPMENT. Research and development expenses increased by
$800,000, or 53.5%, to $2.3 million for the year ended December 31, 1998 from
$1.5 million for the year ended December 31, 1997. This increase is primarily
due to an increase in research and development personnel and associated
recruiting and training costs incurred to develop new software products within
the CARS software suite. As a percentage of net revenues, research and
development expenses decreased to 17.3% for the year ended December 31, 1998
from 20.3% for the year ended December 31, 1997.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by $2.1 million, or 159.6%, to $3.4 million for the year ended December 31, 1998
from $1.3 million for the year ended December 31, 1997. As a percentage of net
revenues, general and administrative expenses increased to 25.0% for the year
ended December 31, 1998 from 17.3% for the year ended December 31, 1997. The
increase in general and administrative expenses both in dollars and as a
percentage of total net revenues is primarily related to the addition of
administrative, finance and human resources employees to support our increased
sales, marketing and development activities, recruiting fees and also to
increased costs associated with legal and accounting professional fees. The
number of employees in our administrative group increased from 11 at
December 31, 1997 to 14 at December 31, 1998. In addition, our legal and
accounting expenses rose 17% to $123,000 as a result of costs associated with a
private placement and the need for audited financial statements.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased by $200,000, or 128.0%, to $400,000 for the year ended December 31,
1998 from $200,000 for the year ended December 31, 1997. This increase is a
result of additions of computer hardware and computer software related to our
increased personnel.
OTHER EXPENSE, NET. Other expense, net decreased by $600,000 to $100,000
for the year ended December 31, 1998 from $700,000 for the year ended
December 31, 1997. This decrease is primarily the result of the conversion of
notes payable to common and preferred stock which resulted in a decrease in
interest expense of $500,000 combined with an increase in interest income from
higher cash balances in 1998.
BENEFIT FROM INCOME TAXES. During the year ended December 31, 1998, we
recorded a benefit from income taxes of $300,000, compared to no provision or
benefit for the year ended December 31, 1997. Upon our inception, we elected to
be treated as an S corporation for income tax purposes. Since
22
<PAGE>
income taxes related to the income of S corporations are the responsibility of
the individual stockholders, no provision for income taxes was recorded for the
period during which we were an S corporation. On April 2, 1998, we became a
subchapter C corporation and our S corporation status was terminated. On that
date, we recorded a deferred tax asset, and a corresponding tax benefit, for
certain future tax deductions for which it was deemed more likely than not that
the asset would be realized due to actual and expected future taxable income.
QUARTERLY OPERATING RESULTS
The following tables present our unaudited statement of operations data for
each of the nine quarters in the period ended March 31, 2000 and such operating
results expressed as a percentage of net revenues. The information for each of
these quarters is unaudited, but has been prepared on the same basis as the
audited financial statements appearing elsewhere in this prospectus. In our
opinion, all necessary adjustments, consisting only of normal recurring
adjustments, have been made to present fairly the unaudited quarterly results
when read in conjunction with our audited financial statements and the notes
thereto appearing elsewhere in this prospectus. These operating results are not
necessarily indicative of the results of operations that may be expected for any
future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1998 1998 1998 1998 1999 1999 1999 1999 2000
--------- -------- --------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Product................. $1,959 $ 592 $1,811 $4,164 $2,306 $1,761 $ 2,743 $ 2,418 $ 1,546
Service................. 1,031 1,089 1,619 1,277 2,010 2,678 2,528 2,967 5,243
------ ------ ------ ------ ------ ------ ------- ------- -------
Total net revenues.... 2,990 1,681 3,430 5,441 4,316 4,439 5,271 5,385 6,789
Cost of revenues.......... 330 393 489 850 817 1,105 1,566 1,866 3,116
------ ------ ------ ------ ------ ------ ------- ------- -------
Gross profit.......... 2,660 1,288 2,941 4,591 3,499 3,334 3,705 3,519 3,673
Operating expenses:
Sales and marketing..... 991 1,009 746 930 1,278 1,360 1,818 2,157 2,712
Research and
development........... 349 321 664 1,005 1,249 1,681 2,206 3,086 5,227
General and
administrative........ 732 766 771 1,110 918 827 827 984 1,124
Depreciation and
amortization.......... 74 88 95 109 146 177 200 228 451
------ ------ ------ ------ ------ ------ ------- ------- -------
Total operating
expenses............ 2,146 2,184 2,276 3,154 3,591 4,045 5,051 6,455 9,514
------ ------ ------ ------ ------ ------ ------- ------- -------
Income (loss) from
operations.......... 514 (896) 665 1,437 (92) (711) (1,346) (2,936) (5,841)
Other income (expense),
net..................... (343) 194 12 8 34 35 30 48 139
Provision for (benefit
from) taxes............. -- (320) -- -- -- 281 -- -- --
------ ------ ------ ------ ------ ------ ------- ------- -------
Net income (loss)....... $ 171 $ (382) $ 677 $1,445 $ (58) $ (957) $(1,316) $(2,888) $(5,702)
====== ====== ====== ====== ====== ====== ======= ======= =======
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1998 1998 1998 1998 1999 1999 1999 1999 2000
--------- -------- --------- -------- --------- -------- --------- -------- ---------
(AS A PERCENTAGE OF TOTAL NET REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Product................. 65.5% 35.2% 52.8% 76.5% 53.4% 39.7% 52.0% 44.9% 22.8%
Service................. 34.5 64.8 47.2 23.5 46.6 60.3 48.0 55.1 77.2
----- ----- ----- ----- ----- ----- ----- ----- -----
Total net revenues.... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues.......... 11.0 23.4 14.3 15.6 18.9 24.9 29.7 34.7 45.9
----- ----- ----- ----- ----- ----- ----- ----- -----
Gross profit.......... 89.0 76.6 85.7 84.4 81.1 75.1 70.3 65.3 54.1
Operating expenses:
Sales and marketing..... 33.1 60.0 21.7 17.1 29.6 30.6 34.5 40.1 39.9
Research and
development........... 11.7 19.1 19.4 18.5 28.9 37.9 41.9 57.3 77.0
General and
administrative........ 24.5 45.6 22.5 20.4 21.3 18.6 15.7 18.3 16.6
Depreciation and
amortization.......... 2.5 5.2 2.8 2.0 3.4 4.0 3.8 4.2 6.6
----- ----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses............ 71.8 129.9 66.4 58.0 83.2 91.1 95.9 119.9 140.1
----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from
operations.......... 17.2 (53.3) 19.3 26.4 (2.1) (16.0) (25.6) (54.6) (86.0)
Other income (expense),
net..................... (11.5) 11.5 0.3 0.1 0.8 0.8 0.6 0.9 2.0
Provision for (benefit
from) taxes............. 0.0 (19.0) 0.0 0.0 0.0 6.3 0.0 0.0 0.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)..... 5.7% (22.8)% 19.6% 26.5% (1.3)% (21.5)% (25.0)% (53.7)% (84.0)%
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital and liquidity needs historically have related to the
development of new products and services, our sales and marketing activities,
our investments in infrastructure and general capital needs. Our capital and
liquidity needs have been met, in large part, with the net proceeds from the
private placement of debt and equity securities, cash flows generated from
operations and through equipment lease financings.
As of March 31, 2000, we had cash and cash equivalents of $8.1 million and a
working capital deficit of $1.1 million, primarily as a result of the private
placement of Series C redeemable convertible preferred stock on December 30,
1999 which generated net proceeds of $12.5 million. On March 31, 2000, we had no
long-term debt, other than obligations under capital lease financings. In
addition, as of March 31, 2000, we had no existing line of credit facility with
a bank. In April 2000, we entered into a revolving line-of-credit agreement with
a bank under which we may borrow up to $3.0 million, limited to 80% of eligible
accounts receivable, as defined in the agreement. Borrowings bear interest at
the bank's prime rate (9.0% at March 31, 2000) plus 2.0%.
Net cash used in operating activities for the three months ended March 31,
2000 was $3.7 million. Our net loss of $5.7 million and increases in unbilled
receivables of $2.8 million were offset by a decrease in accounts receivable of
$1.4 million and an increase in accounts payable of $3.1 million. Net cash
provided by operating activities was $1.2 million in 1999. For the year ended
December 31, 1999, our net loss of $5.2 million and increases in accounts
receivable of $2.3 million and prepaid expenses and income taxes of $800,000
were offset by non-cash charges totaling $1.1 million and increases in accounts
payable of $2.4 million, accrued expenses of $3.0 million, deferred service
revenue of $1.6 million and unearned product revenue of $1.4 million.
Net cash used in investing activities for the three months ended March 31,
2000 was $5.1 million and consisted of purchases of property and equipment of
$4.5 million, including approximately $3.3 million of capitalized software
development costs incurred related to the building of I-many.com, our
proprietary Internet portal. The net cash used in investing activities for the
three months ended March 31, 2000 also included $622,000 of increases in other
assets principally related to deferred financing costs related to this offering.
Net cash used in investing activities was $3.8 million in 1999 and
24
<PAGE>
consisted of purchases of property and equipment of $3.8 million, including
approximately $2.0 million of capitalized software development costs incurred in
1999 and $3.3 million in 2000 related to the building of I-many.com.
Net cash provided by financing activities for the three months ended
March 31, 2000 was $1.6 million, including a bank overdraft of $1.3 million and
$181,000 of proceeds from the exercise of stock options. Net cash provided by
financing activities for the year ended December 31, 1999 was $12.8 million and
consisted of net proceeds of $12.5 million from the private placement of
Series C redeemable convertible preferred stock, a bank overdraft of $200,000
and $100,000 of proceeds from the exercise of stock options.
At March 31, 2000, we had approximately $15.3 million of net operating loss
carryforwards to offset future taxable income. Due to the uncertainty related to
the realization of such benefits, we have placed a full valuation allowance
against this otherwise recognizable deferred tax asset.
We currently anticipate that the net proceeds of this offering, together
with our available funds, will be sufficient to meet our anticipated needs for
working capital and capital expenditures for at least the next 12 months. Our
future long-term capital needs will depend significantly on the rate of growth
of our business, the timing of expanded product and service offerings and the
success of these offerings once they are launched. Any projections of future
long-term cash needs and cash flows are subject to substantial uncertainty. If
the net proceeds of this offering, together with our available funds and cash
generated from operations, are insufficient to satisfy our long term liquidity
needs, we may seek to sell additional equity or debt securities to raise funds,
and those securities may have rights, preferences or privileges senior to those
of the rights of our common stock. In connection with such a sale of stock, our
stockholders may experience dilution. In addition, we cannot be certain that
additional financing will be available to us on favorable terms when required,
or at all.
IMPACT OF YEAR 2000
As of the date of this filing, we have not incurred any significant business
disruptions as a result of year 2000 issues. However, while no such occurrence
has developed, year 2000 issues may arise related to key suppliers, clients,
service providers and information systems that have not become readily apparent.
As a result, we will continue to monitor our year 2000 compliance and the year
2000 compliance of our suppliers and customers. We do not expect to incur any
material costs in the future in connection with year 2000 computer issues.
However, we can provide no assurance that we will not be adversely affected by
the non-compliance of our suppliers, clients, service providers and information
systems in the future.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 is effective
for financial statements for the years beginning after December 15, 1998. SOP
98-1 provides guidance regarding accounting for computer software developed or
obtained for internal use, including the requirement to capitalize specified
costs and amortize such costs. The Company adopted SOP 98-1 beginning
January 1, 1999.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 is effective for fiscal years beginning after
December 15, 1998, and provides guidance on the financial reporting of start-up
activities and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. Because we expensed these costs
as incurred, the adoption of this standard had no impact on our results of
operations, financial position or cash flows.
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In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts and for hedging activities.
SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000. We do not expect SFAS No. 133 to
have a material impact on our financial statements.
In March 2000, the FASB issued Interpretation No. 44. ACCOUNTING FOR CERTAIN
TRANSACTIONS INVOLVING STOCK COMPENSATION--AN INTERPRETATION OF APB OPINION
NO. 25. The Interpretation clarifies the application of APB Opinion No. 25 in
certain situations, as defined. The interpretation is effective July 1, 2000,
but covers certain events occurring during the period after December 15, 1998,
but before the effective date. To the extent that events covered by this
interpretation occur during the period after December 15, 1998, but before the
effective date, the effects of applying this Interpretation would be recognized
on a prospective basis from the effective date. Accordingly, upon initial
application of the final Interpretation, (a) no adjustments would be made to the
financial statements for periods before the effective date and (b) no expense
would be recognized for any additional compensation cost measured that is
attributable to periods before the effective date. We expect that the adoption
of this interpretation would not have any effect on our financial statements.
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BUSINESS
I-MANY
We provide software and Internet-based solutions and related professional
services that allow our clients to negotiate and manage complex contract
purchasing arrangements which facilitate business-to-business e-commerce. Our
proprietary applications enable our clients to:
- negotiate and structure purchase contracts and special promotions,
including rebates and chargebacks based upon purchase volume and on
increases in manufacturers' market share;
- track the achievement of goals under those contracts, establish amounts to
be paid under rebate and chargeback programs, and resolve associated
disputes by automating the process of retrieving and isolating sales and
pricing data and making that data accessible to all contract parties; and
- evaluate contracts' effect upon profitability and market share and the
effectiveness of special promotions.
We sell our products principally to parties involved in the purchase, sale
and distribution of healthcare supplies and pharmaceutical products, including
manufacturers, purchasers, group purchasing organizations and distributors.
Recently, we have sold our products to two manufacturers in other vertical
industries, including The Procter & Gamble Company, with whom we entered into a
strategic relationship agreement in May 2000, pursuant to which Procter & Gamble
has designated us as their exclusive provider of purchase contract management
software for their commercial products group, which includes food service,
office coffee service, vending and janitorial/sanitation products, and has
agreed to promote our products to other participants in the commercial products
market. As part of our agreement with Procter & Gamble, we granted them warrants
to purchase our stock.
Prior to the introduction of our Internet initiatives, including I-many.com,
in February 2000, our business model was based principally on licensing software
products for installation on our clients' computer systems and providing
maintenance, support and professional services. With the launch of our Internet
initiatives in February 2000, we are broadening our solutions and target
customer base to include an Internet-based environment which we expect will
serve as a marketplace for trading partners that utilize complex contracts for
purchasing. We believe that our Internet portal will enable our clients and
their customers to access historical sales volume and pricing data on a
real-time basis, permitting them to make timely and informed decisions about the
effectiveness of their purchasing contracts and the eligibility of purchasers
for rebates, chargebacks and other pricing incentives.
To date, we have sold our products and services principally to healthcare
companies. Our products are currently used by more than 55 clients, including 8
of the largest 10 and 15 of the largest 20, pharmaceutical manufacturers, ranked
according to annual revenues. Our healthcare industry clients include Bayer,
Boehringer Ingelheim and Glaxo Wellcome. None of these three clients accounted
for 10% or more of our revenues in 1999. We believe that our strategic
relationship with Procter & Gamble will provide us with opportunities to expand
our traditional client base and increase our sales in the food service, office
coffee service, vending and janitorial/sanitation markets. We also believe that
our agreement with Procter & Gamble will lead to opportunities for us to license
our software to operators of websites.
In 1995 and 1996, we derived substantially all of our revenues from the sale
of limited software products, and our operations were consequently affected by
limited capital. During 1995 and 1996, we focused on developing software
products and on establishing our office in Portland, Maine. In 1997, we
increased our sales force, hired our first Chief Financial Officer, as well as
our President and our Vice President of Sales, and received funding to expand
our operations. In 1998, we opened our office in Edison, New Jersey in order to
be closer to the offices of many of our clients in the pharmaceutical industry
and experienced a dramatic increase in our professional services business. We
also hired our
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Vice President of Professional Services in 1998. In 1999, we began to invest
substantially in Internet technologies and we began our efforts to sell our
products and services to clients outside of the healthcare industry.
INDUSTRY BACKGROUND
While existing e-commerce solution providers have focused on automating
various aspects of the purchasing process, including developing inventory and
supply chain management software and establishing connectivity between
purchasers and sellers of goods, we believe that existing solutions are limited
in their ability to facilitate the purchasing of goods and services pursuant to
complex contracts. These complex contracts are agreements among manufacturers,
distributors, intermediaries such as buying groups and the end users of goods
and services. These contracts allow purchasers to receive lower prices,
discounts, volume rebates, training, maintenance and other non-price incentives
based upon multiple factors, including:
- total volume of products purchased;
- overall sales of particular products;
- duration of the contract;
- number of parties to the contract;
- number of products covered by the contract; and
- the purchaser's demographic characteristics.
We believe that business-to-business purchasing will increasingly be
characterized by complex contractual relationships that provide for price and
non-price incentives based on diverse factors rather than purchasing based
solely on purchase orders. In addition, we have seen a proliferation of websites
which attempt to enable users to employ Internet technology to more efficiently
purchase and sell goods and services pursuant to complex contracts.
The task of administering these contracts, which often includes manual data
entry and the use of existing enterprise resource planning software, is highly
labor intensive, costly and often yields unreliable results. Existing legacy
software products, including enterprise resource planning solutions, are often
difficult to implement and maintain. Often, these systems do not have the
functionality, flexibility, ease of modification, and interoperability with
diverse data formats required to address a wide variety of contracts and to
respond to frequent changes in these contracts. In addition, users of these
systems often find it difficult to configure the systems rapidly enough to
permit their use during the negotiation of a contract. Finally, existing systems
often lack the ease of use and universal access available from modern Internet
applications.
In addition, we believe that due to the high initial cost of software
licenses for existing enterprise resource planning software, many manufacturers
avoid the use of contract purchasing altogether, placing them at a disadvantage
relative to their competitors.
THE HEALTHCARE MARKETPLACE
INDUSTRY SIZE
The market for healthcare products is large and growing. According to the
Health Care Financing Administration, total healthcare spending in the United
States is expected to grow from approximately $1.3 trillion in 2000 to
approximately $2.2 trillion in 2008. The Health Industry Group Purchasing
Association, or HIGPA, estimates that as much as $128 billion, or 72%, of
hospitals' medical equipment, supplies and pharmaceutical purchases are
channeled through group purchasing organizations. Group purchasing organizations
are organizations that aggregate the demand of their members, which include
hospitals and large physician groups, in order to negotiate with manufacturers
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to obtain favorable product pricing. The pricing negotiated by group purchasing
organizations is often contained in complex purchase contracts, which are
designed to meet the varied goals of manufacturers and purchasers. Other
healthcare industry participants, such as managed care organizations, government
payors and wholesale distributors, also employ complex contracts for the
purchase of their medical equipment, supplies and pharmaceuticals.
INDUSTRY PARTICIPANTS
Parties involved in the purchase, sale and distribution of goods in the
healthcare industry include:
- MANUFACTURERS of pharmaceuticals, medical and surgical equipment and other
healthcare products that wish to use the contracting process to establish
favorable prices, assure a reliable channel of distribution and offer
incentives to achieve their marketing goals;
- GROUP PURCHASING ORGANIZATIONS AND OTHER INTERMEDIARIES representing
groups of purchasers, including hospitals, physician practice groups,
nursing homes, health maintenance organizations, pharmacy benefits
managers and integrated delivery networks. Group purchasing organizations
aggregate their members' demand for products to obtain favorable pricing
terms for them;
- PURCHASERS such as hospitals, clinics, physicians, and long-term care
providers that purchase products under contracts negotiated on their
behalf by group purchasing organizations or other intermediaries; and
- DISTRIBUTORS that purchase goods for resale and sell to group purchasing
organization members according to the terms of the contracts negotiated
between manufacturers and group purchasing organizations.
Group purchasing organizations negotiate long-term purchase contracts with
manufacturers to obtain pricing concessions for the benefit of group purchasing
organization members. Once these contracts are in place, hospitals and other
group purchasing organization members issue purchase orders against the
contracts. Typically, these orders are then filled by distributors acting on the
manufacturers' behalf.
COMPLEXITY OF HEALTHCARE CONTRACT PURCHASING
In addition to the general factors affecting business-to-business
contractual relationships, healthcare purchasing contracts typically contain
pricing incentives designed to meet the particular goals of healthcare
manufacturers and purchasers. The price of any particular product purchased
under these contracts may vary substantially, depending upon, among other
things, external factors such as a manufacturer's market share and a purchaser's
demographic characteristics; and quantities of a manufacturer's products used in
individual surgical procedures.
Like contract purchasing in general, contracts in the healthcare and
pharmaceutical industries are often negotiated on behalf of a large number of
purchasers and include pricing incentives which often result in different prices
for otherwise similarly-situated purchasers, based on the purchasers'
achievement of, or failure to achieve, certain volume-related goals under the
contract.
While many purchase contract variations exist, there are two fundamental
types of pricing incentives in the healthcare purchase environment: chargebacks
and rebates. Chargebacks are generally used in connection with contracts between
manufacturers and group purchasing organizations. Eligible group purchasing
organization members order products either directly from the manufacturer or,
more commonly, through a large distributor. When a product is ordered through a
distributor, the distributor must sell the item at the price which is negotiated
between the manufacturer and the group purchasing organization. Often, the
distributor is asked by the manufacturer to sell to the group purchasing
organization member at a price which is lower than the price the distributor
paid the manufacturer. In these cases, the distributor attempts to verify the
eligibility of the group purchasing organization
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member to receive the lower contract price and if the purchaser is eligible, the
distributor seeks to recoup, or chargeback, from the manufacturer, the
difference between the distributor's cost and the lower contract price. Given
the large volume of purchases under these contracts, constantly changing
membership in group purchasing organizations, complicated eligibility
requirements and disparate information systems involved, it is not uncommon for
manufacturers, purchasers, group purchasing organizations, and distributors to
calculate significantly different chargebacks, resulting in disputes among the
parties.
The second type of pricing incentive is a rebate. Typically, rebate
provisions entitle a purchaser to a return of a portion of the purchase price
based on the volume of product purchased. Rebate provisions are common in
contracts between manufacturers and intermediaries such as managed care
organizations, pharmacy benefits managers and integrated delivery networks.
Manufacturers generally adopt this kind of agreement in order to further their
marketing objectives. For example, manufacturers often pay rebates based on
increases in their market share. In order to determine the applicability of that
kind of provision, the parties must refer to external market share data. As with
chargeback contracts, the complicated task of administering rebate-based
contracts often results in high administrative costs and disputes involving
substantial amounts of money.
The Omnibus Budget Reform Act of 1990 added further complexity to the
process by requiring manufacturers of certain outpatient drugs to provide
rebates to ensure that federally-funded state Medicaid agencies receive the
"best price" as compared to the net prices available to most other U.S.
purchasers, or approximately 15% off the average manufacturer price, whichever
is lower. Lesser rebates are required for other drugs. Without automated
solutions, it is difficult and costly for manufacturers to constantly monitor
the data necessary to ensure compliance with these and other requirements.
OTHER MARKETS
According to industry sources, business-to-business e-commerce sales in the
consumer goods and food products markets are estimated to increase from
approximately $35.7 billion in 2000 to approximately $244.6 billion in 2003.
Within these markets, our business development personnel, through their industry
knowledge and discussions with potential customers, have identified
opportunities for the use of our products in the beverage distribution, food
service, office coffee service, vending and janitorial/sanitation products
submarkets. Each of these submarkets is characterized by the use of complex
contracts for determining purchasing incentives, and includes highly specific
criteria for availability of incentives such as product placement, co-promotion
with other products, and the specific brands of products purchased. For example,
in the restaurant market, a purchaser may receive incentives such as food
service equipment, training, marketing research or volume discounts. The
purchaser's eligibility for these incentives depends on factors such as volume
of products purchased, co-placement of the vendor's advertising with the
restaurant's advertising and the purchase of multiple products from the same
vendor. As in the healthcare market, determining the availability of incentives
under these complex contracts is done often using paper-based or legacy computer
systems which are unsuitable for managing the volume and complexity of
purchasing. In addition, these other industries employ pricing mechanisms
similar to chargebacks and rebates to adjust amounts paid by the purchaser.
Administering these chargebacks and rebates results in high administrative costs
and disputes involving substantial amounts of money. In 1999, approximately 5%
of our revenues were generated by sales to a single customer in the beverage
distribution submarket. To date, we have not recognized revenues in any of the
other submarkets referred to above.
In addition to the healthcare and other markets, we believe that similar
complex contract purchasing arrangements such as rebates and chargebacks exist
in the electronics, bulk chemicals, building products and agricultural-chemical
sectors. We are currently developing marketing programs
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that are customized to purchasing practices in these sectors, but have not
realized revenues from sales from these programs.
ADMINISTRATIVE DEMANDS OF CONTRACT PURCHASING
As a result of the intricacies of contract purchasing, the administration of
purchase contracts is difficult and expensive. Among other things, each
participant in the supply chain must be able to:
- monitor the impact of different pricing strategies;
- process enormous volumes of data related to invoices, inventory, shipments
and market share;
- validate purchasers' eligibility for agreed-upon rebates and distributors'
eligibility for chargebacks; and
- integrate pricing, inventory, market share and other data relevant to the
contract with existing enterprise resource planning and other management
systems.
THE I-MANY SOLUTION
We provide software and Internet-based solutions and related professional
services that allow our clients to manage complex contract purchasing
arrangements.
Key components of our solution include:
COMPLETE OFFERING OF CONTRACT MANAGEMENT CAPABILITIES. Our solutions
provide our clients with the broad range of features they need to efficiently
negotiate, manage and analyze their purchase contracts, including:
- Internet capabilities, including our Internet portal, which enable
manufacturers to promote their products, allow purchasers to become
knowledgeable about their product options and facilitate the matching of
manufacturers with intermediaries, purchasers and distributors for the
negotiation of contracts;
- comprehensive software which provides real-time access to relevant
contract data, thereby enabling users to better understand the impact of
contract terms and their purchase decisions; and
- sophisticated analysis tools which enable contracting parties to see the
effects of their special promotions.
By providing this broad functionality, we eliminate the need for the users
of our solutions to combine often incompatible software from multiple vendors,
thereby decreasing costs and implementation time and enhancing reliability.
I-MANY.COM. Through our proprietary Internet portal, I-many.com, we offer a
comprehensive web-hosted contract management service. We provide our solutions
on an application service provider basis, for which we will charge our clients a
subscription fee. Through I-many.com, manufacturers, purchasers, intermediaries
and distributors can access key contract data, such as quantities purchased and
the contract pricing structure, in real-time using standard Internet browsers.
We believe that I-many.com will benefit our clients by reducing their initial
capital investment and by giving all users access to the same data, thereby
helping to reduce disputes regarding the amount of rebates and chargebacks owed
under the contract.
INTERNET-BASED SOLUTIONS. We provide technology infrastructure that will
allow other business-to-business exchanges to enable contract purchasing and
contractual relationship management through
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their websites. With our proprietary technology, business-to-business e-commerce
sites can enable their customers to:
- define the scope and fundamental terms of the contract and identify
potential partners;
- track the achievement of performance goals under the contract; and
- analyze performance and share key contract information among partners to
optimize their relationships.
Our robust technology infrastructure is capable of providing these contract
purchasing and relationship management tools to existing order-only, auction and
reverse auction sites. To date, we have not recognized any revenues from
technology licenses.
ENHANCED TRANSACTIONAL EFFICIENCY. Our solutions help reduce transaction
costs and increase the efficiency and reliability of the purchasing process. By
using our solutions:
- manufacturers may accurately evaluate the effectiveness of their pricing
initiatives on a real-time basis;
- distributors may calculate and process chargebacks more quickly, improving
their cash flow;
- purchasers may evaluate their eligibility for rebate programs; and
- intermediaries can more readily obtain product and pricing information
from participating manufacturers, thereby enabling them to negotiate
contracts on behalf of their members more efficiently.
This increased efficiency enables all parties to increase the quality of the
purchasing process and redeploy personnel and other resources currently
allocated to contract administration. In addition, by simplifying and
accelerating the processing of chargeback and rebate transactions, our solutions
promote more predictable cash flow and proper accounting treatment.
BROADER ACCESS TO THE BENEFITS OF CONTRACT PURCHASING. Our
subscription-based pricing model permits smaller manufacturers and distributors
to enjoy the benefits of contract-based pricing without large up-front cash
outlays for license fees. Because we offer centralized data storage on our
servers, our clients do not need to purchase expensive, maintenance-intensive
servers and data storage equipment or to hire additional staff to maintain that
equipment.
BUSINESS STRATEGY
Our objective is to become the leading provider of contract management
solutions to organizations which utilize complex purchase contracts to buy or
sell products in large volumes. To achieve this objective, we are pursuing the
following strategies:
BUILD UPON OUR STRENGTH IN THE HEALTHCARE MARKET. We provide contract
management solutions and services to many of the largest pharmaceutical
manufacturers and other healthcare companies. As a result of our experience in
this market, we have acquired extensive industry knowledge of and experience
with contracting practices and the relationships among healthcare industry
participants. We believe that we have a reputation as a quality provider of
complex contract management services and that we will be able to build upon that
reputation and our extensive industry knowledge to offer additional services to
our existing client base, and to attract new clients in the healthcare industry
as well as other industries.
PROMOTE OUR INTERNET TECHNOLOGY FOR BUSINESS-TO-BUSINESS E-COMMERCE. We
intend to promote and license our technology infrastructure to other
business-to-business exchanges to enable contract purchasing through their
websites. This will enable us to expand our client base to include clients in
markets with which we are currently not well acquainted.
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AGGRESSIVELY DEVELOP OUR PROPRIETARY INTERNET PORTAL, I-MANY.COM. We
launched our Internet portal, I-many.com, in February 2000 and intend to
aggressively promote it as a marketplace for trading partners in the healthcare
industry. We are seeking to increase the number of manufacturers that list their
product offerings through I-many.com and attract hospitals, retail pharmacies,
group purchasing organizations and other intermediaries and other purchasers of
these products. As of April 30, 2000, 31 manufacturers have signed contracts to
list their product offerings through I-many.com.
TARGET OTHER MARKETS. We believe that the purchase contracting practices in
many other industries are similar to those in the healthcare market. Other
industries with similar practices include food and beverage, building products,
electronics, agricultural/chemical products and retail. We believe that our
solutions are readily adaptable to these additional markets. For example, in May
2000, we entered into a strategic relationship with Procter & Gamble to
introduce our solutions to the commercial products market. We are exploring
additional markets, and, if appropriate, expect to develop the necessary
industry expertise to support our entry into such markets.
INCREASE SALES AND SUPPORT EFFORTS. We intend to increase significantly our
direct sales and support forces to facilitate our growth, particularly with
respect to our website. We are seeking to promote the awareness of the I-many
brand through an aggressive advertising and marketing campaign, including
participation in trade shows and the placement of advertisements in key industry
publications.
MAINTAIN A TECHNOLOGICAL LEADERSHIP POSITION. We seek constant feedback
from our clients to understand their needs during both the implementation and
post-implementation stages. Following implementation, we meet with our clients
to identify their needs. The feedback from these focus groups serves as a basis
for product upgrades. We believe that, by closely partnering with and listening
to our clients, we will continue to develop our products so that they deliver
the highest value.
SELECTIVELY PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES. We intend to
pursue a selective acquisition strategy as opportunities arise to complement our
product offerings, extend our service capabilities and expand the features on
our website. In addition, we intend to enter into strategic relationships as
opportunities arise, to help us develop and market our products and services
more effectively.
PRODUCTS AND SERVICES
The components and features of our products are designed to address
particular business areas, but all share our core technology. To date,
substantially all of our revenues have been derived from the sale of software
licenses to healthcare manufacturers and from the provision of related
professional services. Our license fees are based on a number of factors,
including the nature and number of modules being licensed, the number of users
and the size of the client. In 1999, our clients paid us license fees ranging
from approximately $28,000 to approximately $1,000,000.
HEALTHCARE PRODUCTS
I-MANY.COM is our proprietary Internet-based portal which enables
manufacturers, group purchasing organizations and other intermediaries,
distributors and purchasers to share information relating to healthcare products
and to negotiate and manage contracts relating to the purchase and sale of those
products. Through I-many.com, manufacturers may, for a fee, post promotional
material about their products and seek information from group purchasing
organizations and other intermediaries, distributors and other purchasers who
have indicated an interest in entering into a contract to purchase their
products. Through I-many.com, the various parties may license our CARS contract
management software for a monthly fee through our application hosting service,
and may utilize our servers to store contract data, which may then be accessed
by all licensed users which are party to the contract.
The following is a list of our principal healthcare contract management
software products. They may be licensed on a stand-alone basis for use on our
clients' own computer systems or on a web-hosted basis through our I-many.com
portal.
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CONTRACT ADMINISTRATION AND REPORTING SYSTEM, OR CARS/IS is a suite of
software products that enables businesses to model the terms of their purchasing
contracts, process data to determine pricing and evaluate contract performance,
and manage the overall adjudication of rebates and chargebacks due under the
contracts. CARS/IS allows users to manage a wide variety of contract pricing
mechanisms, including rebates, chargebacks, and promotions. CARS/IS is used by
15 of the largest 20 pharmaceutical manufacturers, ranked according to annual
revenues.
CARS/MEDICAID is a ready-to-install software solution that automates the
management and clerical tasks of the federally-mandated Medicaid Drug Rebate
Law. The system processes data and calculates rebates and payments for both
federal and state rebate programs. CARS/Medicaid provides the capability to
track and resolve disputes, and is designed to assist users to comply with
applicable federal and state government regulations.
CARS/ANALYTICS provides sophisticated analyses and reporting across a
spectrum of sales and contract management processes. CARS/Analytics uses the
information generated by CARS/IS and third party information sources through a
specific data application in CARS/IS to generate analyses and reports which are
designed to enable users to determine the estimated profitability of contract
business strategies and to examine key contract and sales performance
measurements and trends.
CONSUMER GOODS PRODUCTS
In addition to our healthcare industry products, we offer the Enterprise
Promotions Manager, which is a solution for the management and reporting of
critical and complex trade promotion and sales management activities in consumer
goods industries. We are also in the process of building additional modules and
products for the consumer goods market, including a module which will facilitate
the management and reconciliation of advances and accruals, as well as an
analytical product designed to quickly create reports on key performance drivers
such as trade promotion effectiveness, customer profitability and brand
performance.
PROFESSIONAL SERVICES
Our professional services group provides implementation and deployment
services, training and customer support and consulting services. At March 31,
2000 this group was comprised of 72 I-many employees and is augmented by outside
consultants whom we have trained.
CONSULTING SERVICES. We work with our clients during and after installation
of our solution to optimize the functionality of the system. These services
include project planning and management, business process analysis, integration
with clients' enterprise resource planning systems and quality assurance. Our
goal is to empower our clients with the knowledge and confidence to
independently operate, refine and develop their systems.
DEPLOYMENT SERVICES. Our deployment services include pre-installation
planning, on-site installation, upgrade services, system testing, database
administration support and professional service support.
EDUCATIONAL SERVICES. We offer training programs and business analysis
services for those persons within the client organization responsible for
utilizing our solutions, such as contract administrators. In addition, we offer
user group meetings to enable customers to learn about product directions and
influence our future products.
CUSTOMER SUPPORT. We offer comprehensive maintenance and support services
and 24 hours a day, 7 days a week customer service, documentation updates and
new software releases.
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LICENSES OF OUR INTERNET TECHNOLOGY
We are exploring opportunities to license the technology underlying our
I-many.com portal to other Internet-based business-to-business exchanges in
order to enable us to reach new markets. To date, we have not recognized
revenues from such licenses.
REVENUE MODEL
To date, we have generated revenues from both products and services related
to our CARS software suite. Product revenues are comprised of software license
fees, which have historically been recognized upon execution of a signed license
agreement and delivery of the software, provided there are no significant
post-delivery obligations, the payment is fixed and determinable and collection
is probable. Historically, software license agreements have been for a
three-year period. Service revenues are comprised of maintenance and support
fees directly related to our CARS software suite and professional service fees
derived from consulting, installation, business analysis and training services
related to our software products.
In the latter part of 1999, we started offering our clients an enterprise
agreement that includes a software license, maintenance and support and a fixed
number of days of professional services. Clients opting for this enterprise
agreement will enter into a three-year, fixed-fee, all-inclusive agreement
payable in three equal annual installments commencing upon the execution of the
agreement.
Although we have not generated significant revenues to date from our
Internet initiatives, we expect that Internet-based sales will differ from our
historical sales model. We expect that these revenues will be generated from:
- administrative fees for establishing contracts through the portal, based
on a percentage of the revenue derived by the manufacturer from sales of
its products pursuant to these contracts;
- subscription fees paid by manufacturers, intermediaries and distributors
for access to our software and the contract data which will be hosted on
our servers; and
- fees paid by manufacturers and distributors for the opportunity to place
advertising or other promotional information on our website, which we
believe will be repeatedly and frequently accessed by contract
administrators, purchasing managers and other persons responsible for
healthcare purchase decisions.
In addition, to the extent that we identify opportunities to license our
Internet technology to other business-to-business exchanges, we expect to be
paid in the form of license and transaction fees paid by the operators of these
websites.
CUSTOMERS
Our primary market has been enterprises within the healthcare industry. We
have approximately 55 clients, over 90% of which are pharmaceutical and/or
medical products companies. We also have recently sold our solutions to other
participants in the healthcare purchasing process, including a major group
purchasing organization, wholesale distributors, and managed care organizations.
Moreover, we have sold our products to a beverage manufacturer and a
manufacturer of consumer products. During 1999, approximately 10.5% of our
revenue was derived from a single client, Pfizer, Inc. and during the first
three months of 2000, approximately 37% of our revenues were derived from a
single client, Premier, Inc. Other than the foregoing, none of our clients
accounted for more than 10% of our revenues in 1999 or in the first three months
of 2000. For the year ended December 31, 1999, our revenues were approximately
$19.4 million, and our net loss was approximately $5.2 million. For the three
months ended March 31, 2000, our revenues were approximately $6.8 million, and
our net loss was approximately $5.7 million.
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Our clients include the following:
MANUFACTURERS
<TABLE>
<S> <C>
3M Pharmaceuticals, a division of Minnesota Genentech, Inc.
Mining and Manufacturing Co. Glaxo Wellcome Inc.
Agouron Pharmaceuticals, a division of Halsey Drug Company, Inc.
Warner-Lambert Co. Immunex Corporation
Alcon Laboratories, Inc. Knoll Pharmaceutical Company
Allergan Inc. Mallinckrodt, Inc.
Alpharma, Inc. Mylan Pharmaceuticals, Inc.
Altana Inc. Novo Nordisk Pharmaceuticals, Inc.
Aventis Pharmaceutical Inc. Nycomed-Amersham, Inc.
Aventis Pharmaceutical Products Inc. Parke-Davis, a division of Warner-Lambert Co.
Bausch & Lomb Pharmaceutical, a division of PepsiCo., Inc.
Bausch & Lomb Inc. Pharmacia & Upjohn Co.
Baxter Healthcare Corporation The Procter & Gamble Company
Bayer Corporation Purdue Pharma, L.P.
Boehringer Ingelheim Corporation Roche Laboratories Inc.
Centocor, Inc. Sanofi Synthelabo, Inc.
CIBA Vision Corporation G.D. Searle & Co.
DuPont Pharmaceuticals Company Sepracor Inc.
Dura Pharmaceuticals, Inc. Solvay Pharmaceuticals, Inc.
Faulding Inc. UCB Pharma, Inc.
Galderma Laboratories, Inc. Whitehall-Robins Healthcare, a division of
American Home Products Corp.
</TABLE>
DISTRIBUTORS, PURCHASERS AND GROUP PURCHASING ORGANIZATIONS
Abbott Laboratories, Inc.
Bergen Brunswig Corporation
California Physician Services, d/b/a/ Blue Shield of California
TDI Managed Care Services, Inc., d/b/a/ Eckerd Health Services
Integrated Pharmaceutical Services
Premier, Inc.
PROCTER & GAMBLE AGREEMENT
In May 2000, we entered into a strategic relationship with The Procter &
Gamble Company, pursuant to which Procter & Gamble has designated us for a
period of three years as their exclusive provider of purchase contract
management software for their commercial products group, which includes food
service, office coffee service, vending and janitorial/sanitation products, and
has agreed to promote our products to other participants in the commercial
products market. Procter & Gamble Pharmaceuticals, Inc. entered into an
agreement to license our CARS/IS, CARS/Medicaid, CARS/ Analytics, and other
products; and the Procter & Gamble Commercial Products Group has licensed our
Enterprise Promotion Manager product for use in the food service,
janitorial/sanitation, vending and office coffee markets.
In addition, pursuant to a strategic relationship agreement, Procter &
Gamble has agreed to provide us with industry knowledge about the food service,
janitorial/sanitation, vending and office coffee markets in order to assist us
to adapt our Enterprise Promotion Manager product, which is currently used
mainly in the consumer goods industry, into the food service,
janitorial/sanitation,
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vending and office coffee markets. Procter & Gamble has agreed to serve as a
reference for third parties considering our products for use in the food
service, janitorial/sanitation, vending and office coffee markets, and has
agreed to assist us in licensing our Internet technology for third-party
websites directed to these markets.
In connection with the agreement, we will share with Procter & Gamble up to
10% of the revenue received by us from business within the commercial product
market. In addition, we granted Procter & Gamble warrants to purchase an
aggregate of 875,000 shares of our common stock. The exercise price of the
warrants is equal to the price per share to the public in this offering. In
addition, we have agreed to grant Procter & Gamble warrants to purchase up to an
additional 125,000 shares of our common stock, exercisable at the then current
fair market value per share on the date of grant, upon the achievement of
milestones set forth in the agreement. As of May 31, 2000, we had not begun to
recognize revenues from our agreement with Procter & Gamble.
SALES AND MARKETING
We market our software and services primarily through a direct sales force.
As of March 31, 2000, our sales force consisted of a total of 24 salespersons,
including 8 national account executives, 6 sales support professionals and 10
e-commerce sales and support professionals. We intend to continue to increase
substantially the size of our sales force as we seek to expand the market for
our Internet portal. In addition, we are seeking to enhance the productivity of
our direct sales force by hiring additional support personnel. Competition for
qualified sales personnel is intense and there can be no assurance that we will
be able to attract such personnel. If we are unable to hire additional qualified
sales personnel on a timely basis our business, operating results and financial
condition could be materially and adversely affected.
TECHNOLOGY AND PRODUCT DEVELOPMENT
Since our inception, we have made substantial investments in product
development. We believe that our future financial performance depends on our
ability to maintain and enhance our current products and develop new products.
Our research and development expenses were approximately $1.5 million in 1997,
$2.3 million in 1998, $8.2 million in 1999, and $5.2 million in the three months
ended March 31, 2000.
As of March 31, 2000, we employed 54 people in our product development
organization who are responsible for the design, development and release of our
products. The group is organized into four disciplines: development, quality
assurance, documentation and project management. Members from each discipline,
along with a product marketing manager from our marketing department, form
separate product teams to work closely with our sales, marketing, services,
client and prospects organizations to better understand market needs and user
requirements. Each product team also hosts a series of user focus groups and
attends our yearly user conference. When appropriate, we also utilize third
parties to expand the capacity and technical expertise of our internal product
development organization. Periodically, we have licensed third-party technology.
We believe this approach shortens our time to market without compromising our
competitive position or product quality, and we plan to continue to draw on
third-party resources as needed in the future.
We utilize a well-defined software development methodology that emphasizes
quality assurance throughout the process. Our methodology involves specifying
and reviewing business requirements, functional requirements, prototypes,
technical designs, test plans and documentation plans. We perform quality
assurance testing throughout our iterative development of code and
modifications. In addition, we perform functional, component, systems,
integration, performance and stress testing on all software before release.
Our CARS family of applications is designed as a client/server application,
supporting Windows 95, 98 and NT-based clients, Microsoft NT or any Unix based
server operating systems and Oracle
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relational database software. The CARS software provides standard interfaces for
integration with a wide variety of computer systems utilized by our clients.
Our Internet technology is based on well-established components from
Microsoft, Oracle and a number of other software vendors. The architecture, or
technology framework, for our Internet technology allows us to continuously
enhance the features and functionality of our offerings to meet our clients'
evolving requirements. The architecture of our technology enables us to add
capacity as the number of users and transactions increase on our system.
Our platform contains a variety of features to ensure the secure
transmission of business information among multiple trading partners. We use an
Internet security technology for all confidential information transmitted by our
website. User and confidential information is always encrypted during
transmission from our website. Our employees do not have access to our website,
except as necessary to perform customer service functions. We use an
authentication system so that only authorized users can access our website.
Moreover, our systems are designed to ensure that users can access only that
information for which they are authorized.
COMPETITION
The contract management software market is subject to rapid change.
Competitors vary in size and in the scope and breadth of the products and
services offered. We encounter competition primarily from internal information
systems departments of potential or current customers that develop custom
software, software companies that target the contract management markets,
professional services organizations and Internet-based merchants offering
healthcare products through on-line catalogs.
Similarly, the market for the Internet-based solutions we offer is subject
to rapid change and competition. We may encounter competition from the operators
of Internet portals now in existence or from buying and selling consortiums that
develop their own web-based exchanges, including buyers and sellers of
healthcare products.
We believe that the principal competitive factors affecting our market
include product reputation, functionality, ease-of-use, ability to integrate
with other products and technologies, quality, performance, price, customer
service and support and the vendors' reputation. Although we believe that our
products currently compete favorably with regard to such factors, we cannot
assure you that we can maintain our competitive position against current and
potential competitors. Increased competition may result in price reductions,
less beneficial contract terms, reduced gross margins and loss of market share,
any of which could materially and adversely affect our business, operating
results and financial condition.
Many of our competitors, and potential competitors, have greater resources
than we do, and may be able to respond more quickly and efficiently to new or
emerging technologies, programming languages or standards, or to changes in
customer requirements or preferences. Many of our competitors can devote greater
managerial or financial resources than we can to develop, promote and distribute
contract management software products and provide related consulting, training
and support services. We cannot assure you that our current or future
competitors will not develop products or services which may be superior in one
or more respects to ours or which may gain greater market acceptance. Some of
our competitors have established or may establish cooperative arrangements or
strategic alliances among themselves or with third parties, thus enhancing their
abilities to compete with us. It is likely that new competitors will emerge and
rapidly acquire market share. We cannot assure you that we will be able to
compete successfully against current or future competitors or that the
competitive pressures faced by us will not materially and adversely affect our
business, operating results and financial condition. See "Risk Factors--We have
many competitors and potential competitors and we may not be able to compete
effectively."
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INTELLECTUAL PROPERTY AND LICENSES
We rely primarily on a combination of copyright, trademark and trade secrets
laws, as well as confidentiality agreements to protect our proprietary rights.
We presently do not have, and we have not applied for, any patents on our
products. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products or to obtain the use of
information that we regard as proprietary. In addition, the laws of some foreign
countries do not protect our proprietary rights to as great an extent as do the
laws of the United States. We cannot assure you that our means of protecting our
proprietary rights will be adequate or that our competitors will not
independently develop similar technology.
We are not aware that any of our products infringe the proprietary rights of
third parties. We cannot assure you, however, that third parties will not claim
infringement by us with respect to current or future products. We expect that
software product developers will increasingly be subject to infringement claims
as the number of products and competitors in our industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require us to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may not
be available on terms acceptable to us or at all, which could have a material
adverse effect upon our business, operating results and financial condition.
From time to time, we license software from third parties for use with our
products. We believe that no such license agreement to which we are presently a
party is material and that if any such license agreement were to terminate for
any reason, we would be able to obtain a license or otherwise acquire other
comparable technology or software on terms and on a timetable that would not be
materially adverse to us.
EMPLOYEES
As of April 30, 2000, we had a total of 245 employees, of whom 138 were
based in Portland, Maine, 58 were based at our sales and marketing headquarters
in Edison, New Jersey and 49 worked at remote locations. Of the total, 98 were
in operations and development, 62 were in sales and marketing, 56 were in
professional services, and 29 were in administration and finance. Our future
performance depends in significant part upon the continued service of our key
technical, sales and marketing and senior management personnel and our
continuing ability to attract and retain highly qualified technical, sales and
marketing and managerial personnel. Competition for such personnel is intense
and we cannot assure you that we will be successful in attracting or retaining
such personnel in the future. None of our employees is represented by a labor
union or is subject to a collective bargaining agreement. We have not
experienced any work stoppages and consider our relations with our employees to
be good. See "Risk Factors--We rely significantly on certain key individuals and
our business will suffer if we are unable to retain them."
FACILITIES
Our executive, administrative and operating offices are located in
approximately 38,000 square feet of leased office space located in Portland,
Maine under leases expiring in October 2003 and October 2004. We also maintain
approximately 6,000 square feet of office space for our sales, marketing and
e-commerce personnel in Edison, New Jersey, and have recently leased an
additional 11,000 square feet in Edison.
LEGAL PROCEEDINGS
We are not a party to any material pending litigation or other legal
proceedings.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding our directors and
executive officers as of April 30, 2000:
<TABLE>
<CAPTION>
DIRECTORS AND EXECUTIVE OFFICERS AGE POSITION(S)
-------------------------------- -------- ------------------------------------------------------------
<S> <C> <C>
William F. Doyle (1)(2)(3) 37 Chairman of the Board of Directors
A. Leigh Powell (2) 38 President, Chief Executive Officer and Director
Philip M. St. Germain 63 Director, Chief Financial Officer and Treasurer
Jeffrey Horing (1) 36 Director
John C. Phelan (1)(2)(3) 34 Director
Terrence M. Nicholson 45 General Manager and Vice President
Timothy P. Curran 33 General Manager and Vice President, Corporate Development
Stephen Liscovitz 45 Vice President, Development
Steven I. Hirschfeld 37 Vice President, Sales
Thomas Mucher 42 Vice President, Professional Services
Glenn J. Wira 34 Vice President, Marketing
Michael C. Pinto 31 Vice President, Business Development
</TABLE>
------------------------
(1) Member of the audit committee.
(2) Member of the compensation committee.
(3) Member of the stock plans subcommittee.
WILLIAM F. DOYLE has served as a director and as chairman of our board since
December 1999. He has been a partner of Insight Capital Partners, a venture
capital firm, since June 1999. From November 1995 to November 1999, Mr. Doyle
was vice president, licensing & acquisition and a member of the Consumer
Pharmaceutical and Professional Group Operating Committee of Johnson & Johnson.
From June 1996 to November 1999, Mr. Doyle served as a director of Johnson &
Johnson Development Corporation, Johnson & Johnson's venture capital subsidiary.
From 1992 to 1995, Mr. Doyle was a manager at McKinsey & Co., a management
consulting firm. Mr. Doyle holds an M.B.A. from Harvard Business School and a
S.B. from the Massachusetts Institute of Technology.
A. LEIGH POWELL has served as our president and chief executive officer
since July 1999. From February 1998 to July 1999, Mr. Powell served as our vice
president of marketing and as our chief operating officer. From January 1997 to
February 1998, he served as vice president of business alliances for Think
Systems/I2 Technologies, a supply-chain software company. From January 1996 to
January 1997, Mr. Powell worked as a vice president for American Software, a
supply-chain software company. From March 1985 to December 1995, Mr. Powell
worked as a business consultant for Andersen Consulting, a management consulting
firm. Mr. Powell received his M.B.A. and B.S. from Virginia Polytechnic
Institute and State University.
PHILIP M. ST. GERMAIN has served as our chief financial officer since
September 1997, and as a director since July 1999. From 1986 until joining
I-many, Mr. St. Germain worked as an independent consultant for, and provided
financial management services to, early stage high technology companies.
Mr. St. Germain received a J.D. from Boston College Law School and a B.A. from
Boston College.
JEFFREY HORING has served as a director since September 1997. Since
January 1995, Mr. Horing has been a partner at Insight Capital Partners. From
February 1990 to August 1994, Mr. Horing served as a senior investment
professional at E. M. Warburg Pincus funds. Mr. Horing received an M.B.A. from
the Sloan School of Management at the Massachusetts Institute of Technology, and
a B.S./B.S.E. from
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the Wharton School and School of Engineering at the University of Pennsylvania.
Mr. Horing serves on the boards of directors of Exchange Applications, Inc., a
software company, and SLMsoft.com, a maker of electronic commerce to financial
institutions.
JOHN C. PHELAN has served as a director since January 2000. Since
April 1998, Mr. Phelan has been a Managing Principal of MSD Capital LLP, a
private investment firm for Michael S. Dell. Mr. Phelan is a co-founder of that
firm. From April 1992 to January 1998, Mr. Phelan worked as a principal and a
limited partner in the general partnership of ESL Investments, a Greenwich,
Connecticut-based investment firm. Mr. Phelan received his M.B.A. from Harvard
Business School in 1990 and graduated CUM LAUDE from Southern Methodist
University in 1986 with a B.A. in Economics and Political Science.
TERRENCE M. NICHOLSON has served as our vice president and general manager
since August 1999. From February 1996 to August 1999, Mr. Nicholson served as
director of information technology at Mallinckrodt, Inc, a manufacturer of
medical devices. From February 1995 to February 1996, Mr. Nicholson served as
program executive of NCR Corp., a manufacturer of automated teller machines, in
their data warehousing systems division. Mr. Nicholson received a M.S.C.E. from
Rensselaer Polytechnic Institute and a B.S.E.E. from the University of Notre
Dame.
TIMOTHY P. CURRAN has served as vice president and general manager of
corporate development since July 1999. From June 1998 to July 1999, Mr. Curran
served as director, sales and marketing for our vertical markets line of
business. From March 1997 to May 1998, Mr. Curran served as manager, internal
consulting at EMC(2) Corporation, a manufacturer of computer storage devices.
Prior to March 1997, Mr. Curran was employed for eight years with Andersen
Consulting, a management consulting firm, beginning as a staff consultant in
Andersen's systems development practice and ending as a senior manager focusing
on business process re-engineering and management consulting. Mr. Curran
received an M.B.A. from the University of Chicago and a B.S. in chemical
engineering from Case Western Reserve University.
STEPHEN LISCOVITZ has served as vice president, development and operations
since June 1999. From March 1998 to June 1999, he served as project manager for
our CARS/Analytics product. From May 1995 to March 1998, he served as project
manager for our CARS/IS product. From November 1992 to May 1995, he served in
various project management roles at I-many. Mr. Liscovitz holds a B.A. from
Rutgers University.
STEVEN I. HIRSCHFELD has served as our vice president, sales since January
1999. From July 1994 to January 1999, Mr. Hirschfeld held various positions with
Janis Group, Inc., a company that distributes enterprise resource planning
software, including general manager of several business units. He received his
B.S. in Business Administration and Marketing from the University of Delaware.
THOMAS MUCHER has served as our vice president, professional services since
February 1998. From December 1996 to February 1998, he served as vice president,
professional services with AnswerSoft, Inc., a help-desk software company. From
June 1994 to December 1996, he served as director, professional services and
later as vice president, professional services for North America with Tivoli
Systems Inc., a provider of products and services for information technology
security and data storage. Mr. Mucher received an AAS certificate in Electronic
Engineering Technology from Control Data Corporation, Institute for Computer
Studies.
GLENN J. WIRA has served as our vice president, marketing since April 1999.
From November 1995 through March 1999, Mr. Wira managed our national account
executives and business consultants. From July 1992 through October 1995,
Mr. Wira was the manager, hospital sales administration and national account
executive for McNeil Consumer Healthcare, a division of Johnson & Johnson.
Mr. Wira holds an M.B.A. in marketing and a B.S. in management information
systems, both from Drexel University.
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MICHAEL C. PINTO has served as vice president of business development since
February 2000. Prior to his role as vice president, Mr. Pinto served as I-many's
director of business development/strategic alliances from February 1999 to
February 2000. From July 1997 to February 1999 he served in business planning
and development at Bristol-Myers Squibb Company, a pharmaceutical company. From
June 1995 to July 1997 he was a management consultant at American Home Products
Corporation working within its Medical/Surgical and Pharmaceutical Divisions.
Mr. Pinto holds an M.B.A. in marketing and finance from New York University's
Leonard Stern School of Business, and a B.A. from Lafayette College.
BOARD OF DIRECTORS AND COMMITTEES
Following this offering, our board of directors will consist of five
directors. The terms of the directors will expire upon the election and
qualification of successor directors at each annual meeting of stockholders.
The board of directors has a compensation committee and an audit committee.
The compensation committee, which is composed of Messrs. Powell, Doyle and
Phelan, makes recommendations concerning salaries and incentive compensation for
our employees and administers and grants stock options under our stock option
plans. The stock plan subcommittee, comprised of Messrs. Doyle and Phelan, of
the compensation committee makes recommendations regarding the grant of stock
options to our executive officers and Mr. Powell's compensation. The audit
committee, which is composed of Messrs. Doyle, Horing and Phelan, reviews the
results and scope of the audit and other services provided by our independent
public accountants and otherwise addresses matters set forth in a charter
adopted in compliance with rules adopted by the Securities and Exchange
Commission and Nasdaq.
DIRECTOR COMPENSATION
Under the 2000 non-employee director stock option plan, each non-employee
director is entitled to receive 62,500 options upon his or her initial election
to the board (or with respect to current non-employee directors, on the date of
this offering) and 25,000 options annually. Such options vest in three equal
annual installments commencing on the first anniversary of the date of grant. We
also reimburse directors for reasonable expenses incurred in attending board
meetings. See "Management--Benefit Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee is comprised of Messrs. Powell, Doyle and Phelan.
Mr. Powell is our chief executive officer. Neither Mr. Doyle nor Mr. Phelan has
been an employee of I-many at any time. Prior to the formation of the
compensation committee in March 2000, all decisions regarding executive
compensation were made by the full board. No interlocking relationship exists
between our board of directors or compensation committee and the board of
directors or compensation committee of any other company, nor has any such
interlocking relationship existed in the past.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
Our amended and restated certificate of incorporation limits the liability
of our directors to the maximum extent permitted by Delaware law. Delaware law
provides that directors will not be personally liable for monetary damages for
breach of their fiduciary duties as directors, except liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
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- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
This provision has no effect on any non-monetary remedies that may be
available to us or our stockholders, nor does it relieve us or our officers or
directors from compliance with federal or state securities laws.
Our amended and restated certificate of incorporation also generally
provides that we will indemnify, to the fullest extent permitted by Section 145
of the Delaware General Corporation Law, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit, investigation, administrative hearing or any other proceeding by reason of
the fact that he or she is or was a director or officer of ours, or is or was
serving at our request as a director, officer, employee or agent of another
entity, against expenses incurred by him or her in connection with that
proceeding. An officer or director will not be entitled to indemnification by us
if:
- the officer or director did not act in good faith and in a manner
reasonably believed to be in, or not opposed to, our best interests; or
- with respect to any criminal action or proceeding, the officer or director
had reasonable cause to believe his or her conduct was unlawful.
In addition, we plan to enter into indemnification agreements with our
directors containing provisions which may require us, among other things, to
indemnify our directors against various liabilities that may arise by virtue of
their status or service as directors and to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified.
Our amended and restated certificate of incorporation also permits us to
secure insurance on behalf of any officer or director for any liability arising
out of his or her actions in such capacity. We intend to obtain directors' and
officers' insurance providing indemnification for our directors and officers. We
believe that these provisions, agreements and insurance are necessary to attract
and retain qualified directors and officers.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
A. LEIGH POWELL. Under our employment letter agreement dated July 27, 1999,
and currently in effect, Mr. Powell received a base annual salary of $200,000
through December 31, 1999, and a bonus of not less than $100,000 based on
achieving certain minimum performance goals. If we terminate Mr. Powell's
employment for any reason other than for cause, Mr. Powell will be entitled to
receive his then current salary for six months or until he commences employment
with another employer, whichever occurs earlier. If we terminate his employment
for disability, he will be entitled to receive his then current salary for one
year or until he commences employment with another employer, whichever occurs
earlier. Upon a sale or merger of I-many, 50% of the options granted to
Mr. Powell prior to July 1999 which are then unvested will vest upon such sale
or merger.
PHILIP M. ST. GERMAIN. In December 1997, we entered into an employment
agreement with Mr. St. Germain, our chief financial officer. Under the
agreement, Mr. St. Germain was entitled to receive $125,000 for fiscal year 1997
and a minimum of $140,000 per year for each succeeding year of the agreement.
The term of the employment agreement is three years. Under the employment
agreement, Mr. St. Germain is prohibited from working for any other company that
competes, directly or indirectly, with us for a period of one year from
termination of his employment with us. Mr. St. Germain is also entitled to
severance pay equal to 12 months of his base salary if he is terminated
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other than for cause and he shall receive one additional year of vesting of any
previously granted options. Also, all of his unvested options will become
immediately vested upon a merger or change of control of I-many or a sale of
substantially all of its assets, or if Mr. St. Germain's employment is
terminated and we are sold to or merged with another company within 6 months of
such termination.
STEVEN I. HIRSCHFELD. Under our employment letter dated December 26, 1998,
and currently in effect, Mr. Hirschfeld received a base salary of $180,000 for
fiscal year 1999, as well as participation in a bonus and commission plan. If we
terminate Mr. Hirschfeld's employment for any reason other than for cause within
the first 24 months of his employment, he will receive 12 months of his base pay
as severance. We will also pay this severance if he resigns following a change
of control of I-many which alters his duties or responsibilities. Upon a sale of
I-many or substantially all of its assets, or a merger or change of control of
I-many, 50% of his then unvested options will vest at that time, and the
remainder will vest within 12 months of such event, provided that the board of
directors may prevent such acceleration in certain circumstances.
THOMAS MUCHER. Under our employment letter dated January 6, 1998, which is
currently in effect, Mr. Mucher is entitled to a base annual salary of at least
$147,000 and a bonus based upon achieving goals and objectives mutually
established by Mr. Mucher and Mr. Powell. Mr. Mucher received a base salary of
$158,769 for fiscal year 1999, as well as a bonus of $43,231. Pursuant to the
employment letter, Mr. Mucher received options for 150,000 shares of our common
stock at an exercise price of $1.20 per share over a five-year vesting schedule.
Also, if I-many merges with, or is acquired by, another company, 50% of his then
unvested options will vest at that time.
TERRENCE NICHOLSON. Under our employment letter dated July 23, 1999, which
is currently in effect, Mr. Nicholson is entitled to a base annual salary of
$160,000 and a non-guaranteed bonus of 35% of his base salary, depending on
I-many's performance. Mr. Nicholson received a base salary of $55,385 for the
period from August 23, 1999 to December 31, 1999. Pursuant to the employment
letter, Mr. Nicholson received options for 75,000 shares of our common stock at
an exercise price of $3.00 per share over a four-year vesting schedule. The
letter also provides that Mr. Nicholson receive additional options for up to
50,000 shares of our common stock based upon achieving certain individual
performance goals defined by Mr. Powell.
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EXECUTIVE COMPENSATION
The following table provides information concerning compensation that we
paid during the year ended December 31, 1999 for services rendered during 1999,
to our chief executive officer, our former chief executive officer and our four
most highly compensated executive officers whose salary and bonus exceeded
$100,000 during such fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) ---------------------
----------------------- SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS(#) COMPENSATION
--------------------------- -------- -------- --------------------- ------------
<S> <C> <C> <C> <C>
Gerald O'Connell,
Former Chief Executive Officer(2)..... $230,000(3) $111,905 -- --
A. Leigh Powell,
Chief Executive Officer(4)............ 182,692 152,873 841,375 $ 8,505(5)
Mark Tilly,
Executive Vice President.............. 150,000 68,610 -- 9,485(5)
Philip M. St. Germain,
Chief Financial Officer............... 172,885 73,419 234,375 13,408(5)
Steven I. Hirschfeld,
Vice President of Sales............... 173,077 93,128 500,000 5,769(6)
Glenn J. Wira,
Vice President of Marketing........... 109,769 113,227 25,000 8,604(7)
</TABLE>
------------------------
(1) Excludes certain perquisites and other benefits, the amount of which did not
exceed either $50,000 or 10% of the employees' total salary and bonus.
(2) Mr. O'Connell served as our Chief Executive Officer until June 1999.
(3) Includes six-month's salary paid as severance in accordance to his
employment agreement.
(4) Mr. Powell became our Chief Executive Officer in July 1999.
(5) Consists of compensation for unused vacation time.
(6) Consists of car allowance.
(7) Consists of car allowance ($4,290), compensation for unused vacation time
($3,959) and excess 401(k) deferred ($355).
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information with respect to stock
options granted during the fiscal year ended December 31, 1999 to each of the
executive officers named in the Summary Compensation Table above, including the
potential realizable value over the remainder of the ten-year term of the
options, based on assumed rates of stock appreciation from May 31, 2000 of 5%
and 10% from $10.00, the mid-point of the estimated price range of this
offering, compounded annually. These assumed rates of appreciation comply with
the rules of the Securities and Exchange Commission and do not represent our
estimate of our future stock price. Actual gain, if any, on stock options that
are exercised will depend on the future performance of our common stock.
We granted the options listed below at an exercise price equal to the fair
market value of our common stock, as determined by our board of directors, on
the date of grant. The options become
45
<PAGE>
exercisable as to 25% of the underlying shares upon the first anniversary of the
date of grant and an additional 25% per year thereafter. The options expire on
the earlier of 10 years from the date of grant or three months after termination
of employment.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE VALUE
-------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF OF STOCK PRICE APPRECIATION
SECURITIES % OF TOTAL FOR
UNDERLYING OPTIONS EXERCISE OPTION TERM
OPTIONS GRANTED TO PRICE EXPIRATION ----------------------------
NAME GRANTED(#) EMPLOYEES(2) PER SHARE DATE 5% 10%
---- ---------- ------------ --------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Gerald O'Connell............ -- -- -- -- -- --
A. Leigh Powell............. 312,500 10.5% $3.00 05/03/09 3,891,515 6,375,116
500,000 16.8 3.00 07/27/09 6,286,976 10,379,977
28,875 1.0 3.00 09/23/09 366,818 610,650
Mark Tilly.................. -- -- -- -- -- --
Philip M. St. Germain....... 87,500 2.9 3.00 05/03/09 1,089,624 1,785,033
21,875 0.7 3.00 09/23/09 277,893 462,614
125,000 4.2 3.80 12/01/09 1,504,307 2,592,815
Steven I. Hirschfeld........ 500,000 16.8 1.52 01/11/09 6,841,311 10,569,113
Glenn J. Wira............... 25,000 0.8 3.80 12/01/09 300,861 518,563
</TABLE>
------------------------
(1) For disclosure regarding the terms of the options, see "--Benefit Plans."
(2) The percentage of total options granted to employees during the fiscal year
ending December 31, 1999 is based upon options to purchase an aggregate of
2,965,688 shares of common stock granted under our option plans.
AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND YEAR-END OPTION VALUES
The following table provides information concerning the exercise of options
to purchase common stock by our named executive officers during fiscal 1999 and
the number and value of unexercised stock options held by these executive
officers as of December 31, 1999. The value of unexercised in-the-money options
is based on a value of $10.00, the mid-point of the estimated price range of
this offering less the applicable per share exercise price, multiplied by the
number of shares issued upon exercise of the option.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT MONEY OPTIONS AT
SHARES DECEMBER 31, 1999(#) DECEMBER 31, 1999
ACQUIRED ON VALUE --------------------------- ----------------------------
NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE
---- ----------- ---------- ----------- ------------- ----------------------------
<S> <C> <C> <C> <C> <C>
Gerald O'Connell............. -- -- -- -- --
A. Leigh Powell.............. 37,500 $ 311,250 -- 991,375 --
Mark Tilly................... -- -- -- -- --
Philip M. St. Germain........ 218,138 2,177,890 107,320 362,855 $ 997,483
Steven I. Hirschfeld......... -- -- -- 500,000 --
Glenn J. Wira................ -- -- 153,125 59,375 1,528,800
<CAPTION>
VALUE OF UNEXERCISED IN-THE-
MONEY OPTIONS AT
DECEMBER 31, 1999
----------------------------
NAME UNEXERCISABLE
---- ----------------------------
<S> <C>
Gerald O'Connell............. --
A. Leigh Powell.............. $ 7,209,625
Mark Tilly................... --
Philip M. St. Germain........ 2,712,369
Steven I. Hirschfeld......... 4,242,000
Glenn J. Wira................ 498,200
</TABLE>
46
<PAGE>
BENEFIT PLANS
1994 STOCK OPTION PLAN
Our 1994 stock option plan was adopted by our board of directors and
approved by our stockholders in May 1994. The 1994 plan provides for the grant
of incentive stock options intended to qualify under Section 422 of the Internal
Revenue Code, non-statutory stock options, restricted stock awards and other
stock-based awards. As of May 31, 2000, options to purchase an aggregate of
123,260 shares of common stock at a weighted average exercise price of $0.02 per
share were outstanding under the 1994 plan and an aggregate of 3,454,600 shares
of common stock had been issued upon exercise of options previously granted
under the 1994 plan. In the event of a merger or other acquisition event, all
outstanding options will become exercisable immediately before the merger or
acquisition and our board of directors or the board of directors of any entity
assuming the obligations of I-many shall, as to outstanding options either:
- make appropriate provision for the continuation of such options by
substituting for the shares then subject to such options the consideration
payable with respect to the outstanding shares of common stock in
connection with the acquisition; or
- upon written notice to the optionee, provide that all options must be
exercised within a specified number of days of the date of such notice, at
the end of which period the options shall terminate;
- terminate all options in exchange for a cash payment equal to the excess
of the fair market value of the shares subject to such options over the
exercise price.
The board of directors terminated the 1994 plan in conjunction with the
stockholders' approval of the 2000 stock incentive plan. Therefore, no further
awards will be granted under the 1994 plan.
1997 STOCK OPTION PLAN
Our 1997 stock option plan was adopted by our board of directors and
approved by our stockholders in April 1997. The 1997 plan provides for the grant
of incentive stock options intended to qualify under Section 422 of the Internal
Revenue Code, non-statutory stock options, restricted stock awards and other
stock-based awards. As of May 31, 2000, options to purchase an aggregate of
4,256,255 shares of common stock at a weighted average exercise price of $2.87
per share were outstanding under the 1997 plan and an aggregate of
784,995 shares of common stock had been issued upon exercise of options
previously granted under the 1997 plan. In the event of a merger, liquidation or
other acquisition event, our board of directors, or the board of directors of
any corporation assuming the obligations of I-many, shall, in its discretion,
take any one or more of the following action, as to outstanding options:
- provide that such options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation;
- upon written notice to the optionees, provide that any and all outstanding
options shall become exercisable in full (to the extent not otherwise so
exercisable) as of a specified date or time prior to the consummation of
such transaction, and that all unexercised options shall terminate as of a
specified date or time following that date unless exercised by the
optionee;
- in the event of a merger under the terms of which stockholders will
receive a cash payment for each share surrendered in the merger, terminate
each outstanding option in exchange for a payment equal in amount to the
excess, if any, of the merger price over the per-share exercise price of
each such option, times the number of shares of common stock subject to
the option; or
47
<PAGE>
- terminate each outstanding option in exchange for a cash payment equal in
amount to the product of the excess, if any, of the fair market value of a
share of common stock over the per-share exercise price of each such
option, times the number of shares subject to such option.
The board of directors terminated the 1997 plan in conjunction with the
stockholders' approval of the 2000 stock incentive plan. Therefore, no further
awards may be granted under the 1997 plan.
2000 STOCK INCENTIVE PLAN
Our 2000 stock incentive plan was adopted by our board of directors in
March 2000 and approved by our stockholders in May 2000. As of May 31, 2000,
options to purchase an aggregate of 81,125 shares of common stock were
outstanding under the 2000 stock incentive plan, an aggregate of
2,500,000 shares of common stock at a weighted average exercise price of $10.00
per share were reserved for issuance upon the exercise of stock options and no
options to purchase shares had been issued upon the exercise of options
previously granted under the 2000 stock incentive plan. The 2000 plan provides
for the grant of incentive stock options intended to qualify under Section 422
of the Internal Revenue Code, non-statutory stock options, restricted stock
awards and other stock-based awards.
All of our officers, employees, directors, consultants and advisors are
eligible to receive awards under the 2000 stock incentive plan. Under present
law, however, incentive stock options may only be granted to employees. The
maximum number of shares which may be granted to any participant is 500,000 per
calendar year.
We may grant options at an exercise price less than, equal to or greater
than the fair market value of the common stock on the date of grant. Under
present law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue Code
may not be granted at an exercise price less than the fair market value of the
common stock on the date of grant or less than 110% of the fair market value in
the case of incentive stock options granted to optionees holding more than 10%
of the voting power of our company. The 2000 stock incentive plan permits the
board of directors to determine how optionees may pay the exercise price of
their options, including by cash, check or in connection with a "cashless
exercise" through a broker, by surrender of shares of common stock, by delivery
to us of a promissory note, or by any combination of the permitted forms of
payment.
Our board of directors administers the 2000 stock incentive plan. The board
of directors has the authority to adopt, amend and repeal the administrative
rules, guidelines and practices relating to the plan and to interpret its
provisions. It may delegate authority under the plan to one or more committees
of the board of directors. The board of directors has authorized the
compensation committee to administer the 2000 stock incentive plan, and the
stock plan subcommittee of the compensation committee administers the granting
of options to executive officers. Subject to any applicable limitations
contained in the 2000 stock incentive plan, the board of directors, the
compensation committee or any other committee or executive officer to whom the
board of directors delegates authority, as the case may be, selects the
recipients of awards and determines:
- the number of shares of common stock covered by options and the dates upon
which such options become exercisable;
- the exercise price of options;
- the duration of options; and
- the number of shares of common stock subject to any restricted stock or
other stock-based awards and the terms and conditions of such awards,
including the conditions for repurchase, issue price and repurchase price.
48
<PAGE>
In the event of a merger, liquidation or other acquisition event, our board
of directors is authorized to provide for outstanding options or other
stock-based awards to be assumed or substituted for by the acquiror or to
accelerate the vesting schedule of awards; provided that in the event an
optionee is terminated without cause within 12 months following any such event,
the unvested options then held by such optionee shall automatically vest.
No award may be granted under the 2000 stock incentive plan after
March 2010, but the vesting and effectiveness of awards previously granted may
extend beyond that time. The board of directors may at any time amend, suspend
or terminate the 2000 stock incentive plan, except that no award granted after
an amendment of the 2000 stock incentive plan and designated as subject to
Section 162(m) of the Internal Revenue Code by the board of directors shall
become exercisable, realizable or vested, to the extent the amendment was
required to grant the award, unless and until the amendment is approved by our
stockholders.
2000 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
Our 2000 non-employee director stock option plan was adopted by our board of
directors in March 2000 and approved by our stockholders in May 2000. Under the
director stock option plan, directors who are not our employees will be eligible
to receive non-statutory options to purchase shares of our common stock. A total
of 562,500 shares of our common stock may be issued upon the exercise of options
granted under the director stock option plan.
Under the terms of the 2000 non-employee director stock option plan, each
non-employee director will be granted an option to purchase 62,500 shares of our
common stock on the date of his or her initial election to the board of
directors (or with respect to current non-employee directors, on the date of
this offering). These options vest in three equal annual installments beginning
on the first anniversary of the option grant date. In addition, each
non-employee director will receive an option to purchase 25,000 shares of our
common stock on the date of each annual meeting of our stockholders commencing
with the 2001 annual meeting of stockholders, other than a director who was
initially elected to the board of directors at any such annual meeting or, if
previously, at any time after the prior year's annual meeting. These options
vest in three equal annual installments, beginning on the first anniversary of
the option grant date. The exercise price per share of all options will equal
the fair market value per share of our common stock on the option grant date.
Each grant under the 2000 non-employee director stock option plan will have a
maximum term of ten years, subject to earlier termination following the
optionee's cessation of service.
2000 EMPLOYEE STOCK PURCHASE PLAN
Our 2000 employee stock purchase plan was adopted by our board of directors
in March 2000 and approved by our stockholders in May 2000. The purchase plan
will become effective upon the completion of this offering and authorizes the
issuance of up to a total of 1,250,000 shares of our common stock to
participating employees.
All of our employees, including our directors who are employees, whose
customary employment is more than 20 hours per week for more than five months in
any calendar year, are eligible to participate in the 2000 employee stock
purchase plan. Employees who would immediately after an option grant own 5% or
more of the total combined voting power or value of our stock or any subsidiary
are not eligible to participate in the 2000 employee stock purchase plan.
We will make one or more offerings to our employees to purchase stock under
the 2000 employee stock purchase plan. Offerings will begin on dates established
by our board of directors, provided that our first offering will commence as
soon as practicable after the date on which the trading of our common stock
commences on the Nasdaq National Market in connection with this offering. Each
offering commencement date will begin a six-month period (less, in the case of
the first offering
49
<PAGE>
period) during which payroll deductions will be made and held for the purchase
of our common stock at the end of the purchase period.
On the first day of a designated payroll deduction period, or offering
period, we will grant to each eligible employee who has elected to participate
in the 2000 employee stock purchase plan an option to purchase shares of our
common stock as follows: the employee may authorize between 1% and 10% of his or
her pay to be deducted by us during the offering period. On the last day of the
offering period, the employee is deemed to have exercised the option, at the
option exercise price, to the extent of accumulated payroll deductions. Under
the terms of the 2000 employee stock purchase plan, the option price is an
amount equal to 85% of the closing price (as defined) per share of our common
stock on either the first day or the last day of the offering period, whichever
is lower. In no event may an employee purchase in any one offering period a
number of shares which exceeds the number of shares determined by dividing
(a) the product of $2,083 and the number or fraction of months in the offering
period by (b) the closing price of a share of our common stock on the
commencement date of the offering period. Our board of directors may, in its
discretion, choose an offering period of 12 months or less for each offering and
may choose a different offering period for each offering.
An employee who is not a participant on the last day of the offering period
is not entitled to exercise any option, and the employee's accumulated payroll
deductions will be refunded. An employee's rights under the 2000 employee stock
purchase plan terminate upon voluntary withdrawal from the purchase plan at any
time, or when the employee ceases employment for any reason, except that upon
termination of employment because of death, the employee's beneficiary has
certain rights to elect to exercise the option to purchase the shares that the
accumulated payroll deductions in the employee's account would purchase at the
date of death.
Because participation in the purchase plan is voluntary, we cannot now
determine the number of shares of our common stock to be purchased by any
particular current executive officer, by all current executive officers as a
group or by non-executive employees as a group.
CERTAIN TRANSACTIONS
On December 30, 1999, we issued an aggregate of 1,244,325 Series C
convertible preferred shares to a number of investors at a purchase price of
$10.05 per share for a total cash consideration to us of approximately
$12,505,466. In this transaction, we sold 895,914 shares to MSD Portfolio
Investments, LP, 124,433 shares to Imprimis SB, LP, 92,493 shares to Insight
Capital Partners III - Coinvestment, LP, 49,773 shares to each of Black Marlin
Investments LLC and Vermeer Investments, LLC, 19,495 shares to Insight Capital
Partners (Cayman) III, LP and 12,444 shares to Insight Capital Partners III, LP.
William Doyle, the chairman of our board of directors, is a partner of Insight
Capital Partners. Jeffrey Horing, a director of I-many, is also a partner of
Insight Capital Partners. John Phelan, a director of I-many, is a partner of MSD
Portfolio L.P. - Investments.
On September 19, 1997, we issued to Insight Capital Partners II, L.P. and WI
Software Investors LLC $6,000,000 in principal amount of our senior notes due
August 31, 1998, bearing interest at 6% per year, an option to purchase
2,023,550 Series A convertible preferred shares and warrants to purchase up to
400,000 Series B convertible preferred shares. Insight Capital Partners II, L.P.
and WI Software Investors paid an aggregate purchase price of $6,000,000. On
April 15, 1998, the note holders exercised their option to convert all principal
and accrued interest into 2,023,550 Series A convertible preferred shares.
Insight Capital Partners II, L.P. and WI Software Investors LLC each received
1,011,775 Series A convertible preferred shares. In December 1998, Insight
Capital Partners II, L.P. and WI Software Investors LLC each exercised their
warrants and each received 200,000 Series B convertible preferred shares.
On September 19, 1997, we also redeemed an aggregate of 2,529,438 common
shares at $1.18 per share for an aggregate purchase price of $3,000,000, of
which 1,517,688 common shares were purchased
50
<PAGE>
from Alan Hyman and 1,011,750 common shares were purchased from Mark Tilly.
Messrs. Hyman and Tilly are the founders of I-many and served on our board of
directors until March 2000.
On May 27, 1997, we issued convertible notes in the aggregate principal
amount of $150,000 with interest payable at 12% per annum and warrants to
purchase 223,200 common shares, with an exercise price of $0.67 per share.
BayView Ventures purchased for $100,000 a $100,000 note and warrants for 148,812
common shares. On June 30, 1998 BayView Ventures converted its note into 148,795
common shares. BayView Ventures exercised its warrant on January 10, 2000 for
148,812 common shares. Philip M. St. Germain holds a 50% stake in BayView
Ventures.
On various dates between January 1, 1997 and May 31, 2000, we issued to our
present officers and directors options to purchase an aggregate of 3,303,500
common shares at an average exercise price of $2.34 per share.
51
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as adjusted to reflect
the sale of the common stock in this offering, concerning beneficial ownership
of our common stock as of May 31, 2000 by:
- each shareholder that we know is the beneficial owner of more than 5% of
our common stock;
- each of our directors;
- each executive officer named in the Summary Compensation Table; and
- all directors and executive officers as a group.
Percentages of the outstanding shares of common stock are based on
23,288,607 shares outstanding as of May 31, 2000 plus all shares of common stock
issuable on exercise of options within 60 days of May 31, 2000 held by the
particular beneficial owner, assuming the conversion of all shares of
convertible preferred stock.
All percentages assume no exercise of the underwriters' over-allotment
option. The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to which
the individual or entity has voting power or investment power and any shares
which the individual has the right to acquire within 60 days of April 30, 2000
through the exercise of any stock option or other right. Except pursuant to
applicable community property laws or as indicated in the footnotes to this
table, to our knowledge, each stockholder identified in the table possesses sole
voting and investment power with respect to all shares of common stock shown as
beneficially owned by such stockholder. The inclusion herein of any shares
deemed beneficially owned does not constitute an admission of beneficial
ownership of such shares.
Unless otherwise indicated, the principal address of each of the
stockholders below is c/o I-many, Inc., 537 Congress Street, Portland, Maine
04101.
<TABLE>
<CAPTION>
SHARES OWNED PERCENTAGE BENEFICIALLY OWNED
PRIOR TO --------------------------------
NAME OF BENEFICIAL OWNER OFFERING BEFORE OFFERING AFTER OFFERING
------------------------ ------------ --------------- --------------
<S> <C> <C> <C>
Jeffrey Horing (1).................................... 7,556,038 32.4% 24.5%
Entities related to WI Software Investors, LLC (2).... 3,778,020 16.2 12.3
Entities related to Insight Capital Partners (3)...... 3,778,018 16.2 12.3
Entities related to MSD Capital, L.P. (4)............. 3,363,650 14.4 10.9
John C. Phelan (5).................................... 3,239,218 13.9 10.5
Alan Hyman............................................ 3,050,858 13.1 9.9
Mark Tilly (6)........................................ 2,579,000 11.1 8.4
A. George Gitter Trust (7)............................ 1,878,063 8.1 6.1
Gerald F. O'Connell................................... 1,238,625 5.3 4.0
William F. Doyle (8).................................. 748,580 3.2 2.4
Philip M. St. Germain (9)............................. 530,858 2.3 1.7
A. Leigh Powell (10).................................. 278,125 1.2 *
Steven I. Hirschfeld (11)............................. 125,000 * *
Glenn Wira (12)....................................... 175,000 * *
Michael Pinto (13).................................... 9,375 * *
All directors and executive officers as a group
(12 people) (14).................................... 12,895,005 54.1 41.9
</TABLE>
------------------------
* Indicates less than 1%
52
<PAGE>
(1) Includes 3,778,018 shares held by entities affiliated with Insight Capital
Partners (see note 3 below). Mr. Horing is a member of the general partners
of these funds. Also includes 3,778,020 shares held by entities affiliated
with WI Software Investors, LLC (see note 2 below). Mr. Horing is an owner
of Insight Venture Management, Inc. which, by contract, has limited voting
power over the shares held by WI Software Investors, LLC and Imprimis SB,
L.P. Mr. Horing disclaims beneficial ownership of all such shares except to
the extent of his pecuniary interest in such shares.
(2) Consists of 3,466,938 shares held by WI Software Investors, LLC and 311,083
shares held by Imprimis SB, L.P. The address of these entities is 411 West
Putnam Avenue, Suite 125, Greenwich, CT 06830.
(3) Consists of 2,726,493 shares held by Insight Capital Partners II, L.P.,
302,945 shares held by Insight Capital Partners (Cayman) II, L.P., 526,055
shares held by Insight Capital Partners III, L.P., 92,213 shares held by
Insight Capital Partners III - Coinvestors, L.P. and 130,313 shares held by
Insight Capital Partners (Cayman) III, L.P. The address of these entities is
527 Madison Avenue, 10th Floor, New York, NY 10022.
(4) Consists of 2,239,785 shares held by MSD Portfolio L.P. - Investments,
875,000 shares held by DBV Investments, L.P., 124,433 shares held by Black
Marlin Investments, LLC, and 124,433 shares held by Vermeer Investments,
LLC. The address of these entities is 780 Third Avenue, 43rd Floor, New
York, NY 10017.
(5) Includes 2,239,785 shares held by MSD Portfolio L.P. - Investments and
875,000 shares held by DBV Investments, L.P., over which Mr. Phelan shares
investment power. Also includes 124,433 shares held by Black Marlin
Investments, LLC.
(6) Includes 320,000 shares held in trust for the benefit of Mr. Tilly's
children, as to which he disclaims beneficial ownership.
(7) The address of the A. George Gitter Trust is c/o Archelon Partners, Inc.,
411 South Wells Avenue, Suite 500, Chicago, IL 60607.
(8) Consists of 526,055 shares held by Insight Capital Partners III, L.P.,
92,213 shares held by Insight Capital Partners III - Coinvestors, L.P. and
130,313 shares held by Insight Capital Partners (Cayman) III, L.P. Mr. Doyle
is a member of the general partner of these entities. Mr. Doyle disclaims
beneficial ownership of all such shares except to the extent of his
pecuniary interest in such shares.
(9) Includes 79,940 shares held by Toni St. Germain, Mr. St. Germain's spouse.
Includes 51,643 shares issuable upon exercise of stock options exercisable
within 60 days of May 31, 2000.
(10) Includes 240,625 shares issuable upon exercise of stock options exercisable
within 60 days of May 31, 2000.
(11) Consists of 125,000 shares issuable upon exercise of stock options
exercisable within 60 days of May 31, 2000.
(12) Includes 15,625 shares issuable upon exercise of stock options exercisable
within 60 days of May 31, 2000.
(13) Consists of 9,375 shares issuable upon exercise of stock options
exercisable within 60 days of May 31, 2000.
(14) Includes 535,080 shares of common stock issuable upon exercise of stock
options exercisable within 60 days of May 31, 2000.
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The total number of shares of all classes of stock which we have authority
to issue is 105,000,000 shares, consisting of (i) 100,000,000 shares of common
stock, $0.0001 par value per share and (ii) 5,000,000 shares of preferred stock,
par value $0.01 per share.
COMMON STOCK
As of May 31, 2000, there were 23,288,607 shares of common stock outstanding
and held of record by 105 stockholders, including 9,169,687 shares issuable upon
the conversion of outstanding preferred stock. Subject to preferences that may
apply to shares of preferred stock outstanding at the time, the holders of
outstanding shares of common stock are entitled to receive dividends out of
assets legally available at the times and in the amounts as our board of
directors may determine. Each holder of common stock is entitled to one vote for
each share of common stock held on all matters submitted to a vote of
stockholders. Cumulative voting for the election of directors is not provided
for in our amended and restated certificate of incorporation. As a result, at
each election of directors, the holders of a majority of the shares voted can
elect all of the directors then standing for election.
Our common stock is not entitled to preemptive rights and is not subject to
conversion or redemption. Upon our liquidation, dissolution or winding-up, the
holders of our common stock are entitled to share ratably with holders of any
participating preferred stock in all assets remaining after payment of all
liabilities and the liquidation preferences of any outstanding preferred stock.
PREFERRED STOCK
Under the terms of our amended and restated certificate of incorporation,
the board of directors is authorized to issue up to 5,000,000 shares of
preferred stock in one or more series without stockholder approval. The board
has discretion to determine the rights, preferences, privileges and
restrictions, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences of each series of preferred
stock. The purpose of authorizing the board of directors to issue preferred
stock and determine its rights and preferences is to eliminate delays associated
with a stockholder vote on specific issuances. The issuance of preferred stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could make it more difficult for a third party to
acquire, or could discourage a third party from acquiring, a majority of our
outstanding voting stock. We have no present plans to issue any shares of
preferred stock.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
We are subject to the provisions of Section 203 of the General Corporation
Law of Delaware. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a business combination with an interested
stockholder for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination" is
defined as including mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an "interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
Our amended and restated certificate of incorporation provides that any
vacancy on the board of directors, including a vacancy resulting from an
enlargement of the board of directors, may only be filled by vote of a majority
of the directors then in office. The limitation on the removal of directors and
filling of vacancies could make it more difficult for a third party to acquire,
or discourage a third party from acquiring, control of us.
54
<PAGE>
Our amended and restated bylaws also provide that after this offering, any
action required or permitted to be taken by our stockholders at an annual
meeting or special meeting of stockholders may only be taken if it is properly
brought before such meeting and may not be taken by written action in lieu of a
meeting. Our amended and restated bylaws further provide that special meetings
of the stockholders may only be called by the chairman of the board, the
president, the board of directors or the holders of at least 30% of the shares
of the capital stock of the corporation. In order for any matter to be
considered "properly brought" before a meeting, a stockholder must comply with
certain requirements regarding advance notice and provide certain information to
I-many. These provisions could have the effect of delaying until the next
stockholders' meeting stockholder actions which are favored by the holders of a
majority of our outstanding voting securities. These provisions could also
discourage a third party from making a tender offer for our common stock,
because even if it acquired a majority of our outstanding voting securities, it
would be able to take action as a stockholder (such as electing new directors or
approving a merger) only at a duly called stockholders' meeting and not by
written consent.
REGISTRATION RIGHTS
As a result of a registration rights agreement between I-many and some of
our stockholders, the holders of approximately 9,169,687 shares of common stock
are entitled to rights with respect to the registration of such shares under the
Securities Act, as described below.
REQUIRED REGISTRATION RIGHTS.
At any time after the completion of this offering, the holders of at least
20% of the shares of common stock issued upon conversion of our preferred stock
can request that we register all or a portion of their shares. The registration
rights agreement requires us to file up to two registration statements in
response to such demands for registration and no more than one registration
statement within any consecutive 360-day period. However, we are not obligated
to file any registration statement during any period in which we have already
filed any other registration statement which has not been withdrawn or has not
been declared effective for over 90 days. Also, we may postpone the filing of a
registration statement for up to 180 days once in any 12-month period if we
determine that an earlier filing would be seriously detrimental to us or our
stockholders.
PIGGYBACK REGISTRATION RIGHTS.
If we register any securities for public sale, the holders of the shares of
common stock issued upon conversion of our preferred stock will have the right
to include their shares in the registration statement. The managing underwriter
of any underwritten offering will have the right to limit the number of shares
registered by these holders due to marketing reasons.
We will pay all expenses incurred in connection with the registrations
described above, except for underwriters' and brokers' discounts and
commissions, and the fees and expenses of any special audit for any registration
initiated pursuant to the required registration rights, which will be paid by
the selling stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer and Trust Company. Its address is 40 Wall Street, New York, NY 10005
and its telephone number is 212-936-5100.
55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect the prevailing market price from time to time. Furthermore,
because only a limited number of shares will be available for sale shortly after
this offering as a result of contractual and legal restrictions on resale, sales
of substantial amounts of common stock in the public market after the
restrictions lapse could cause the prevailing market price of our common stock
to fall and impede our ability to raise equity capital in the future.
Upon completion of the offering, we will have outstanding an aggregate of
30,788,607 shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options after May 31, 2000.
Of these outstanding shares, the 7,500,000 shares sold in the offering will be
freely tradable without restriction or further registration under the Securities
Act of 1933 unless purchased by "affiliates" of I-many as that term is defined
in Rule 144 under the Securities Act. The remaining 23,288,607 shares of common
stock outstanding upon completion of the offering will be "restricted shares,"
as that term is defined in Rule 144 under the Securities Act. Restricted shares
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144 or 701 promulgated under the
Securities Act, which rules are summarized below, or another exemption. Sales of
the restricted shares in the public market, or the availability of such shares
for sale, could adversely affect the market price of our common stock.
We have agreed not to sell or otherwise dispose of any shares of common
stock or any securities convertible into or exercisable or exchangeable for
common stock, or enter into any swap or similar agreement that transfers, in
whole or in part, the economic risk of ownership of the common stock, for a
period of 180 days after the date of this prospectus, without the prior written
consent of FleetBoston Robertson Stephens Inc. In addition, each executive
officer and director and substantially all of our other shareholders have
entered into contractual "lock-up" agreements providing that, subject to
specified exceptions, they will not offer, sell, contract to sell or grant any
option to purchase or otherwise dispose of shares of common stock owned by them
or that could be purchased by them through the exercise of options for a period
of 180 days after the date of this prospectus without the prior written consent
of FleetBoston Robertson Stephens Inc. As a result of these contractual
restrictions, notwithstanding possible earlier eligibility for sale under the
provisions of Rules 144 and 701, additional shares will be available for sale in
the public market as follows:
- 308,086 shares of common stock will be eligible for sale as of the
effective date of the offering;
- 312,716 shares will be eligible for sale from time to time beginning
90 days after the effective date of the offering subject in some cases to
certain volume limitations;
- 16,104,195 shares will be eligible for sale from time to time beginning
180 days after the effective date of the offering, subject in some cases
to certain volume limitations.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately 307,886 shares immediately after this offering; or
- the average weekly trading volume of our common stock on the Nasdaq Stock
Market's National Market during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to such sale.
56
<PAGE>
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
generally including the holding period of any prior owner other than an
affiliate, is entitled to sell such shares without complying with the manner of
sale, notice filing, volume limitation or notice provisions of Rule 144.
Therefore, unless otherwise restricted, "144(k) shares" may be sold immediately
upon the completion of this offering.
RULE 701
Rule 701 provides that, beginning 90 days after the date of this prospectus,
persons other than affiliates may sell shares of common stock acquired from us
in connection with written compensatory benefit plans, including our 1994 stock
plan, 1997 stock plan and, subject only to the manner of sale provisions of
Rule 144. Beginning 90 days after the date of this prospectus, affiliates may
sell these shares of common stock subject to all provisions of Rule 144 except
the one-year minimum holding period.
REGISTRATION ON FORM S-8
We intend to file a registration statement under the Securities Act covering
the shares of common stock subject to outstanding options or reserved for
issuance under our 1994 stock plan, 1997 stock plan, 2000 stock incentive plan,
2000 employee stock purchase plan and our 2000 director stock option plan. This
registration statement is expected to be filed as early as the effectiveness of
the registration statement covering the shares of common stock offered in this
offering and will automatically become effective upon filing. Shares registered
under this registration statement will, subject to Rule 144 volume limitations
applicable to affiliates and the expiration of any 180-day contractual lockup
period, be available for sale in the open market, except to the extent that
these shares are subject to vesting restrictions.
57
<PAGE>
PLAN OF DISTRIBUTION
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., J.P. Morgan Securities Inc. and SG Cowen
Securities Corporation, have severally agreed with us, subject to the terms and
conditions set forth in the underwriting agreement, to purchase from us the
number of shares of common stock set forth opposite their respective names. The
underwriters are committed to purchase and pay for all shares if any are
purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
FleetBoston Robertson Stephens Inc..........................
J.P. Morgan Securities Inc..................................
SG Cowen Securities Corporation.............................
---------
Total..................................................... 7,500,000
---------
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the public offering price set forth
on the cover page of this prospectus and to certain dealers at that price less a
concession of not in excess of $ per share, of which $ may be
reallowed to other dealers. After this offering, the public offering price,
concession and reallowance to dealers may be reduced by the representatives. No
such reduction shall change the amount of proceeds to be received by us as set
forth on the cover page of this prospectus. The common stock is offered by the
underwriters as stated herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part.
Prior to this offering, there has been no public market for our common
stock. Consequently, the public offering price for the common stock offered
under this prospectus will be determined through negotiations among the
representatives and us. Among the factors to be considered in such negotiations
will be prevailing market conditions, certain of our financial information,
market valuations of other companies that we and the representatives believe to
be comparable to us, estimates of our business potential, the present state of
our development and other factors deemed relevant.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
OVER-ALLOTMENT OPTION
We have granted to the underwriters an option, exercisable during the 30-day
period after the date of this prospectus, to purchase up to 1,125,000 additional
shares of common stock to cover over-allotments, if any, at the public offering
price less the underwriting discount set forth on the cover page of this
prospectus. If the underwriters exercise their over-allotment option to purchase
any of the additional 1,125,000 shares of common stock, the underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof as the number of shares to be purchased by each of them
bears to the total number of shares of common stock offered in this offering. If
purchased, these additional shares will be sold by the underwriters on the same
terms as those on which the shares offered hereby are being sold. We will be
obligated, pursuant to the over-allotment option, to sell shares to the
underwriters to the extent the over-allotment option is exercised. The
underwriters may exercise such over-allotment option only to cover
over-allotments made in connection with the sale of the shares of common stock
offered in this offering.
The following table summarizes the compensation to be paid to the
underwriters:
<TABLE>
<CAPTION>
TOTAL
-------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting Discounts and Commissions
Payable by I-many..................... $ $ $
</TABLE>
58
<PAGE>
We estimate expenses payable by us in connection with this offering, other
than the underwriting discounts and commissions referred to above, will be
approximately $1,150,000.
INDEMNITY
The underwriting agreement contains covenants of indemnity among the
underwriters and us against certain civil liabilities, including liabilities
under the Securities Act, and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
LOCK-UP AGREEMENTS
Each executive officer and director of I-many and substantially all of our
other shareholders have agreed, subject to specified exceptions, not to offer to
sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant any
rights with respect to any shares of common stock or any options or warrants to
purchase any shares of common stock, or any securities convertible into or
exchangeable for shares of common stock owned as of the date of this prospectus
or thereafter acquired directly by those holders or with respect to which they
have the power of disposition, without the prior written consent of FleetBoston
Robertson Stephens Inc. This restriction terminates after the close of trading
of the shares on the 180(th) day of (and including) the day the shares commenced
trading on the Nasdaq National Market. However, FleetBoston Robertson
Stephens Inc. may, in its sole discretion and at any time or from time to time
before the termination of the 180-day period, without notice, release all or any
portion of the securities subject to lock-up agreements. There are no existing
agreements between the representatives and any of our shareholders who have
executed a lock-up agreement providing consent to the sale of shares prior to
the expiration of the lock-up period.
In addition, we have agreed that during the lock-up period, we will not,
subject to certain exceptions, without the prior written consent of FleetBoston
Robertson Stephens Inc.:
- consent to the disposition of any shares held by shareholders subject to
lock-up agreements prior to the expiration of the lock-up period; or
- issue, sell, contract to sell, or otherwise dispose of, any shares of
common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable
for shares of common stock other than our sale of shares in this offering,
the issuance of our common stock upon the exercise of outstanding options
or warrants, and the issuance of options under existing stock option and
incentive plans provided that those options do not vest prior to the
expiration of the lock-up period. See "Shares Eligible For Future Sale."
LISTING
We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "IMNY."
STABILIZATION
The representatives have advised us that, pursuant to Regulation M under the
Securities Act of 1933, some persons participating in this offering may engage
in transactions, including stabilizing bids, syndicate covering transactions or
the imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the shares of common stock at a level above that
which might otherwise prevail in the open market. A "stabilizing bid" is a bid
for or the purchase of common stock on behalf of the underwriters for the
purpose of fixing or maintaining the price of the common stock. A "syndicate
covering transaction" is the bid for or the purchase of common stock on behalf
of the underwriters to reduce a short position incurred by the underwriters in
connection with the offering. A "penalty bid" is an arrangement permitting the
representatives to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with the offering if the common
stock originally sold by such underwriter or syndicate member purchased by the
representatives in a syndicate covering transaction and has therefore not been
effectively placed by such
59
<PAGE>
underwriter or syndicate member. The representatives have advised us that such
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
DIRECTED SHARE PROGRAM
At our request, certain of the underwriters have reserved up to 5% of the
shares of common stock for sale at the initial public offering price, to persons
who are directors, officers or employees of I-many or who are otherwise
associated with us and our affiliates, and who have advised us of their desire
to purchase such shares. The number of shares of common stock available for sale
to the general public will be reduced to the extent of sales of the directed
shares to any of the persons for whom they have been reserved. Any shares not so
purchased will be offered by the underwriters on the same basis as all other
shares offered hereby. We have agreed to indemnify those certain underwriters
against certain liabilities and expenses, including liabilities under the
Securities Act, in connection with the sales of directed shares.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Hale and Dorr LLP, Boston, Massachusetts. Legal matters in
connection with this offering will be passed upon for the underwriters by Testa,
Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The financial statements as of December 31, 1998 and 1999, and for each of
the three years in the period ended December 31, 1999 included in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, under the Securities Act of 1933, a registration statement on Form S-1
relating to the common stock we are offering. This prospectus does not contain
all of the information set forth in the registration statement and the exhibits
and schedules filed with it. For further information with respect to I-many and
the shares we are offering pursuant to this prospectus you should refer to the
registration statement, including the exhibits and schedules filed with it. You
may inspect a copy of the registration statement without charge at the Public
Reference Section of the Securities and Exchange Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 or at the Securities and Exchange
Commission's regional offices at 5670 Wilshire Boulevard, 11(th) Floor,
Los Angeles, California 90036. The Securities and Exchange Commission maintains
an Internet site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Securities and Exchange Commission. The Securities and Exchange Commission's
world wide web address is www.sec.gov. The Securities and Exchange Commission's
phone number is 1-800-SEC-0330.
We intend to furnish holders of our common stock annual reports containing,
among other information, audited financial statements certified by an
independent public accounting firm and quarterly reports containing unaudited
condensed financial information for the first three quarters of each fiscal
year. We intend to furnish such other reports as we may determine or as may be
required by law.
60
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Public Accountants.................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Redeemable Preferred Stock and Stockholders'
Equity (Deficit).......................................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
After the 2.5-for-1 stock split discussed in Note 10 to I-many, Inc.'s financial
statements is effected, we expect to render the following audit report.
/s/ Arthur Andersen LLP
Boston, Massachusetts
June 28, 2000
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
I-many, Inc.:
We have audited the accompanying balance sheets of I-many, Inc. (a Delaware
corporation) as of December 31, 1998 and 1999 and the related statements of
operations, redeemable preferred stock and stockholders' equity (deficit) and
cash flows for the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of I-many, Inc. as of
December 31, 1998 and 1999 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.
Boston, Massachusetts
February 11, 2000
(except for the matters discussed in
Note 10, as to which the date is
May 1, 2000)
F-2
<PAGE>
I-MANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------------- MARCH 31, MARCH 31,
1998 1999 2000 2000
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................ $ 5,129,339 $15,322,149 $ 8,079,655 $ 8,079,655
Accounts receivable, net of allowance for
doubtful accounts of $100,000, $250,000,
$250,000 and $250,000, respectively............ 2,468,778 4,800,316 3,372,556 3,372,556
Unbilled receivables............................. 2,504,241 2,453,817 5,243,479 5,243,479
Prepaid expenses and other current assets........ 56,548 350,668 383,545 383,545
Prepaid and refundable income taxes.............. -- 481,438 289,349 289,349
Deferred tax asset (Note 6)...................... 312,999 -- -- --
----------- ----------- ----------- -----------
Total current assets....................... 10,471,905 23,408,388 17,368,584 17,368,584
Property and Equipment, net (Note 2)............... 1,008,553 4,040,467 8,097,023 8,097,023
Deferred Tax Asset (Note 6)........................ 93,951 -- -- --
Other Assets....................................... 35,046 32,751 654,325 654,325
----------- ----------- ----------- -----------
Total assets............................... $11,609,455 $27,481,606 $26,119,932 $26,119,932
=========== =========== =========== ===========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Bank overdraft................................... $ -- $ 228,873 $ 1,521,315 $ 1,521,315
Accounts payable................................. 441,531 2,818,892 5,935,147 5,935,147
Accrued expenses................................. 2,064,795 5,016,724 4,510,024 4,510,024
Current portion of deferred service revenue...... 2,766,033 4,432,512 4,639,833 4,639,833
Unearned product revenue......................... 647,668 2,038,075 1,804,375 1,804,375
Current portion of capital lease obligations..... 33,756 23,073 23,073 23,073
----------- ----------- ----------- -----------
Total current liabilities.................. 5,953,783 14,558,149 18,433,767 18,433,767
Deferred Service Revenue, net of current portion... 243,936 216,496 341,735 341,735
Capital Lease Obligations, net of current
portion............................................ 41,147 18,338 10,337 10,337
Deferred Rent...................................... 39,468 -- -- --
Commitments and Contingencies (Note 7)
Series C Redeemable Convertible Preferred Stock
(Note 4)......................................... -- 12,491,663 12,744,118 --
Stockholders' Equity (Deficit):
Series A convertible preferred stock, $.01 par
value--
Authorized--2,100,000 shares
Issued and outstanding--2,023,550 shares at
December 31, 1998 and 1999 and March 31,
2000, respectively; no shares pro forma
(liquidation value of $5,868,295)............ 20,236 20,236 20,236 --
Series B convertible preferred stock, $.01 par
value--
Authorized--400,000 shares
Issued and outstanding--400,000 shares at
December 31, 1998 and 1999 and March 31,
2000, respectively; no shares pro forma
(liquidation value of $2,000,000)............ 4,000 4,000 4,000 --
Common stock, $.0001 par value
Authorized--100,000,000 shares
Issued and outstanding--11,946,450, 12,283,885
and 13,995,535 shares at December 31, 1998
and 1999 and March 31, 2000, respectively;
23,165,222 shares pro forma.................. 1,195 1,229 1,400 2,317
Additional paid-in capital....................... 5,264,715 5,521,960 5,853,019 18,620,456
Deferred stock-based compensation................ (66,406) (235,156) (218,750) (218,750)
Accumulated deficit.............................. 107,381 (5,115,309) (11,069,930) (11,069,930)
----------- ----------- ----------- -----------
Total stockholders' equity (deficit)....... 5,331,121 196,960 (5,410,025) 7,334,093
----------- ----------- ----------- -----------
Total liabilities, redeemable preferred
stock and stockholders' equity
(deficit)................................ $11,609,455 $27,481,606 $26,119,932 $26,119,932
=========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
<PAGE>
I-MANY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------- -------------------------
1997 1998 1999 1999 2000
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Revenues:
Product........................... $5,042,989 $ 8,526,435 $ 9,227,860 $ 2,305,832 $ 1,546,704
Service........................... 2,470,870 5,016,085 10,183,552 2,009,982 5,243,084
---------- ----------- ----------- ----------- -----------
Total net revenues.............. 7,513,859 13,542,520 19,411,412 4,315,814 6,789,788
Cost of Revenues.................... 2,248,677 2,062,327 5,354,333 816,774 3,116,293
---------- ----------- ----------- ----------- -----------
Gross profit.................... 5,265,182 11,480,193 14,057,079 3,499,040 3,673,495
---------- ----------- ----------- ----------- -----------
Operating Expenses:
Sales and marketing............... 1,223,028 3,676,286 6,613,343 1,278,868 2,712,096
Research and development.......... 1,523,463 2,338,738 8,222,307 1,248,691 5,227,047
General and administrative........ 1,301,631 3,378,695 3,555,734 918,152 1,123,651
Depreciation and amortization..... 160,568 366,024 751,152 145,844 451,438
---------- ----------- ----------- ----------- -----------
Total operating expenses........ 4,208,690 9,759,743 19,142,536 3,591,555 9,514,232
---------- ----------- ----------- ----------- -----------
Income (loss) from operations... 1,056,492 1,720,450 (5,085,457) (92,515) (5,840,737)
Other Income (Expense):
Interest income................... 42,314 97,749 184,729 47,648 157,307
Interest expense.................. (707,482) (184,867) (10,604) (3,199) (730)
Other expense, net................ (67,698) (42,240) (27,537) (10,126) (18,006)
---------- ----------- ----------- ----------- -----------
Total other (expense) income.... (732,866) (129,358) 146,588 34,323 138,571
---------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes........................... 323,626 1,591,092 (4,938,869) (58,192) (5,702,166)
Provision for (Benefit from) Income
Taxes............................. -- (320,695) 281,075 -- --
---------- ----------- ----------- ----------- -----------
Net income (loss)............... $ 323,626 $ 1,911,787 $(5,219,944) $ (58,192) $(5,702,166)
========== =========== =========== =========== ===========
Accretion of dividends on
redeemable convertible preferred
stock........................... -- -- 2,746 -- 252,455
---------- ----------- ----------- ----------- -----------
Net income (loss) applicable to
common stockholders........... $ 323,626 $ 1,911,787 $(5,222,690) $ (58,192) $(5,954,621)
========== =========== =========== =========== ===========
Net Income (Loss) per Share:
Basic............................. $ 0.03 $ 0.19 $ (0.46) $ (0.01) $ (0.47)
========== =========== =========== =========== ===========
Diluted........................... $ 0.03 $ 0.11 $ (0.46) $ (0.01) $ (0.47)
========== =========== =========== =========== ===========
Weighted Average Shares Outstanding:
Basic............................. 9,784,824 10,192,404 11,432,945 10,541,513 12,568,677
========== =========== =========== =========== ===========
Diluted........................... 13,422,112 18,316,989 11,432,945 10,541,513 12,568,677
========== =========== =========== =========== ===========
Pro Forma Net Loss per Share:
Basic and Diluted (unaudited)..... $ (0.30) $ (0.26)
=========== ===========
Pro Forma Weighted Average Shares
Outstanding:
Basic and Diluted (unaudited)..... 17,500,366 21,738,364
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
I-MANY, INC.
STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
CONVERTIBLE PREFERRED STOCK
-------------------------------------------
SERIES C REDEEMABLE
PREFERRED STOCK SERIES A SERIES B COMMON
------------------------ --------------------- ------------------- STOCK
REDEMPTION $.01 PAR $.01 PAR ----------
SHARES VALUE SHARES VALUE SHARES VALUE SHARES
---------- ----------- ---------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996............... -- $ -- -- $ -- -- $ -- 10,500,000
Exercise of stock options.............. -- -- -- -- -- -- 307,375
Gain on extinguishment of debt with a
related party........................ -- -- -- -- -- -- --
Purchase of treasury stock............. -- -- -- -- -- -- --
Issuance of warrants to purchase Series
B preferred stock.................... -- -- -- -- -- -- --
Net income............................. -- -- -- -- -- -- --
---------- ----------- ---------- ------- -------- ------ ----------
Balance, December 31, 1997............... -- -- -- -- -- -- 10,807,375
Issuance of treasury stock upon the
exercise of stock options............ -- -- -- -- -- -- --
Exercise of stock options.............. -- -- -- -- -- -- 104,875
Sale of restricted common stock........ -- -- -- -- -- -- 93,750
Issuance of treasury stock and common
stock upon the sale of restricted
common stock......................... -- -- -- -- -- -- 681,000
Deferred stock-based compensation
associated with the sale of
restricted common stock.............. -- -- -- -- -- -- --
Amortization of deferred stock-based
compensation......................... -- -- -- -- -- -- --
Conversion of promissory notes and
accrued interest into Series A
preferred stock...................... -- -- 2,023,550 20,236 -- -- --
Conversion of promissory notes into
common stock......................... -- -- -- -- -- -- 223,200
Exercise of warrants to purchase Series
B preferred stock.................... -- -- -- -- 400,000 4,000 --
Net issuance of common stock for
services............................. -- -- -- -- -- -- 36,250
Reclassification of accumulated losses
of S corporation..................... -- -- -- -- -- -- --
Net income............................. -- -- -- -- -- -- --
---------- ----------- ---------- ------- -------- ------ ----------
Balance, December 31, 1998............... -- -- 2,023,550 20,236 400,000 4,000 11,946,450
Issuance of Series C redeemable
preferred stock, net of issuance
costs of $16,549..................... 1,244,325 12,488,917 -- -- -- -- --
Accretion of dividends on Series C
redeemable preferred stock........... -- 2,746 -- -- -- -- --
Exercise of stock options.............. -- -- -- -- -- -- 337,435
Deferred stock-based compensation
associated with the issuance of stock
options.............................. -- -- -- -- -- -- --
Amortization of deferred stock-based
compensation......................... -- -- -- -- -- -- --
Net loss............................... -- -- -- -- -- -- --
---------- ----------- ---------- ------- -------- ------ ----------
Balance, December 31, 1999............... 1,244,325 12,491,663 2,023,550 20,236 400,000 4,000 12,283,885
Exercise of stock options.............. -- -- -- -- -- -- 1,488,463
Accretion of dividends on Series C
redeemable preferred stock........... -- 252,455 -- -- -- -- --
Amortization of deferred stock-based
compensation......................... -- -- -- -- -- -- --
Exercise of warrants to purchase common
stock................................ -- -- -- -- -- -- 223,187
Net loss............................... -- -- -- -- -- -- --
---------- ----------- ---------- ------- -------- ------ ----------
Balance, March 31, 2000 (unaudited)...... 1,244,325 12,744,118 2,023,550 20,236 400,000 4,000 13,995,535
Pro forma conversion of redeemable and
convertible preferred stock to common
stock................................ (1,244,325) (12,744,118) (2,023,550) (20,236) (400,000) (4,000) 9,169,687
---------- ----------- ---------- ------- -------- ------ ----------
Pro forma balance, March 31, 2000
(Unaudited)............................ -- $ -- -- $ -- -- $ -- 23,165,222
========== =========== ========== ======= ======== ====== ==========
<S> <C> <C> <C> <C> <C> <C>
SERIES B PREFERRED
STOCK TREASURY
---------- ADDITIONAL WARRANTS DEFERRED STOCK
$.0001 PAR PAID-IN -------------------- STOCK-BASED ----------
VALUE CAPITAL NUMBER VALUE COMPENSATION SHARES
---------- ----------- -------- --------- ------------- ----------
Balance, December 31, 1996............... $1,050 $ 150 -- $ -- $ -- --
Exercise of stock options.............. 31 1,590 -- -- -- --
Gain on extinguishment of debt with a
related party........................ -- 576,891 -- -- -- --
Purchase of treasury stock............. -- -- -- -- -- 2,529,438
Issuance of warrants to purchase Series
B preferred stock.................... -- -- 16,000 563,724 -- --
Net income............................. -- -- -- -- -- --
------ ----------- ------- --------- --------- ----------
Balance, December 31, 1997............... 1,081 578,631 16,000 563,724 -- 2,529,438
Issuance of treasury stock upon the
exercise of stock options............ -- (577,696) -- -- -- (1,878,063)
Exercise of stock options.............. 10 31,268 -- -- -- --
Sale of restricted common stock........ 10 74,990 -- -- -- --
Issuance of treasury stock and common
stock upon the sale of restricted
common stock......................... 68 773,424 -- -- -- (651,375)
Deferred stock-based compensation
associated with the sale of
restricted common stock.............. -- 75,000 -- -- (75,000) --
Amortization of deferred stock-based
compensation......................... -- -- -- -- 8,594 --
Conversion of promissory notes and
accrued interest into Series A
preferred stock...................... -- 5,848,222 -- -- -- --
Conversion of promissory notes into
common stock......................... 22 149,978 -- -- -- --
Exercise of warrants to purchase Series
B preferred stock.................... -- 2,559,724 (16,000) (563,724) -- --
Net issuance of common stock for
services............................. 4 57,996 -- -- -- --
Reclassification of accumulated losses
of S corporation..................... -- (4,306,822) -- -- -- --
Net income............................. -- -- -- -- -- --
------ ----------- ------- --------- --------- ----------
Balance, December 31, 1998............... 1,195 5,264,715 -- -- (66,406) --
Issuance of Series C redeemable
preferred stock, net of issuance
costs of $16,549..................... -- -- -- -- -- --
Accretion of dividends on Series C
redeemable preferred stock........... -- -- -- -- -- --
Exercise of stock options.............. 34 69,745 -- -- -- --
Deferred stock-based compensation
associated with the issuance of stock
options.............................. -- 187,500 -- -- (187,500) --
Amortization of deferred stock-based
compensation......................... -- -- -- -- 18,750 --
Net loss............................... -- -- -- -- -- --
------ ----------- ------- --------- --------- ----------
Balance, December 31, 1999............... 1,229 5,521,960 -- -- (235,156) --
Exercise of stock options.............. 149 181,079 -- -- -- --
Accretion of dividends on Series C
redeemable preferred stock........... -- -- -- -- -- --
Amortization of deferred stock-based
compensation......................... -- -- -- -- 16,406 --
Exercise of warrants to purchase common
stock................................ 22 149,980 -- -- -- --
Net loss............................... -- -- -- -- -- --
------ ----------- ------- --------- --------- ----------
Balance, March 31, 2000 (unaudited)...... 1,400 5,853,019 -- -- (218,750) --
Pro forma conversion of redeemable and
convertible preferred stock to common
stock................................ 917 12,767,437 -- -- -- --
------ ----------- ------- --------- --------- ----------
Pro forma balance, March 31, 2000
(Unaudited)............................ $2,317 $18,620,456 -- $ -- $(218,750) --
====== =========== ======= ========= ========= ==========
<S> <C> <C> <C>
TOTAL
STOCKHOLDERS'
------------ ACCUMULATED EQUITY
COST DEFICIT (DEFICIT)
------------ ------------ ------------
Balance, December 31, 1996............... $ -- $(4,800,708) $(4,799,508)
Exercise of stock options.............. -- -- 1,621
Gain on extinguishment of debt with a
related party........................ -- -- 576,891
Purchase of treasury stock............. (3,000,000) -- (3,000,000)
Issuance of warrants to purchase Series
B preferred stock.................... -- -- 563,724
Net income............................. -- 323,626 323,626
------------ ------------ -----------
Balance, December 31, 1997............... (3,000,000) (4,477,082) (6,333,646)
Issuance of treasury stock upon the
exercise of stock options............ 2,212,142 (1,634,146) 300
Exercise of stock options.............. -- -- 31,278
Sale of restricted common stock........ -- -- 75,000
Issuance of treasury stock and common
stock upon the sale of restricted
common stock......................... 787,858 -- 1,561,350
Deferred stock-based compensation
associated with the sale of
restricted common stock.............. -- -- --
Amortization of deferred stock-based
compensation......................... -- -- 8,594
Conversion of promissory notes and
accrued interest into Series A
preferred stock...................... -- -- 5,868,458
Conversion of promissory notes into
common stock......................... -- -- 150,000
Exercise of warrants to purchase Series
B preferred stock.................... -- -- 2,000,000
Net issuance of common stock for
services............................. -- -- 58,000
Reclassification of accumulated losses
of S corporation..................... -- 4,306,822 --
Net income............................. -- 1,911,787 1,911,787
------------ ------------ -----------
Balance, December 31, 1998............... -- 107,381 5,331,121
Issuance of Series C redeemable
preferred stock, net of issuance
costs of $16,549..................... -- -- --
Accretion of dividends on Series C
redeemable preferred stock........... -- (2,746) (2,746)
Exercise of stock options.............. -- -- 69,779
Deferred stock-based compensation
associated with the issuance of stock
options.............................. -- -- --
Amortization of deferred stock-based
compensation......................... -- -- 18,750
Net loss............................... -- (5,219,944) (5,219,944)
------------ ------------ -----------
Balance, December 31, 1999............... -- (5,115,309) 196,960
Exercise of stock options.............. -- -- 181,228
Accretion of dividends on Series C
redeemable preferred stock........... -- (252,455) (252,455)
Amortization of deferred stock-based
compensation......................... -- -- 16,406
Exercise of warrants to purchase common
stock................................ -- -- 150,002
Net loss............................... -- (5,702,166) (5,702,166)
------------ ------------ -----------
Balance, March 31, 2000 (unaudited)...... -- (11,069,930) (5,410,025)
Pro forma conversion of redeemable and
convertible preferred stock to common
stock................................ -- -- 12,744,118
------------ ------------ -----------
Pro forma balance, March 31, 2000
(Unaudited)............................ $ -- $(11,069,930) $ 7,334,093
============ ============ ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
I-MANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------- ------------------------
1997 1998 1999 1999 2000
----------- ---------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)......................................... $ 323,626 $1,911,787 $(5,219,944) $ (58,192) $(5,702,166)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities--
Depreciation and amortization........................... 160,568 357,430 732,402 141,155 435,031
Deferred income taxes................................... -- (406,950) 406,950 (254,210) --
Amortization of debt discount........................... 171,568 98,039 -- -- --
Compensation expense related to common stock issued for
services.............................................. -- 58,000 -- -- --
Amortization of deferred stock-based compensation....... -- 8,594 18,750 4,688 16,406
Deferred rent........................................... 40,388 (9,043) (39,468) (11,841) --
Changes in assets and liabilities--
Accounts receivable................................... 667,630 (1,942,344) (2,331,538) 182,894 1,427,760
Unbilled receivables.................................. (1,295,250) (654,241) 50,424 (875,146) (2,789,662)
Prepaid expenses and other current assets............. 21,234 (36,814) (294,120) (20,034) (32,877)
Prepaid and refundable income taxes................... -- -- (481,438) -- 192,089
Accounts payable...................................... 61,595 257,021 2,377,361 415,673 3,116,255
Accrued expenses...................................... 867,525 1,027,760 2,951,929 (376,652) (506,700)
Deferred service revenue.............................. (1,339,027) 1,114,163 1,639,039 152,524 332,560
Unearned product revenue.............................. 1,310,000 (1,195,332) 1,390,407 238,994 (233,700)
----------- ---------- ----------- ---------- -----------
Net cash provided by (used in) operating
activities........................................ 989,857 588,070 1,200,754 (460,147) (3,745,004)
----------- ---------- ----------- ---------- -----------
Cash Flows from Investing Activities:
Purchases of property and equipment....................... (326,999) (939,115) (3,764,316) (408,871) (4,491,587)
Decrease (increase) in other assets....................... (721) (25,088) 2,295 -- (621,574)
----------- ---------- ----------- ---------- -----------
Net cash used in investing activities............... (327,720) (964,203) (3,762,021) (408,871) (5,113,161)
----------- ---------- ----------- ---------- -----------
Cash Flows from Financing Activities:
Net proceeds from sale of Series C redeemable convertible
preferred stock......................................... -- -- 12,488,917 -- --
Proceeds from sale of restricted common stock............. -- 1,636,350 -- -- --
Proceeds from exercise of Series B preferred stock
warrants................................................ -- 2,000,000 -- -- --
Proceeds from exercise of common stock warrants........... -- -- -- -- 150,002
Payments on capital lease obligations..................... (31,023) (36,060) (33,492) (8,942) (8,001)
Proceeds from convertible promissory notes................ 6,150,000 -- -- -- --
Payments on long-term debt................................ (1,981,750) -- -- -- --
Proceeds from exercise of stock options................... 33 33,166 69,779 22,240 181,228
Payment on loans from stockholders........................ (209,001) -- -- -- --
Bank overdraft............................................ -- -- 228,873 -- 1,292,442
Purchase of treasury stock................................ (3,000,000) -- -- -- --
----------- ---------- ----------- ---------- -----------
Net cash provided by financing activities........... 928,259 3,633,456 12,754,077 13,298 1,615,671
----------- ---------- ----------- ---------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents........ 1,590,396 3,257,323 10,192,810 (855,720) (7,242,494)
Cash and Cash Equivalents, beginning of period.............. 281,620 1,872,016 5,129,339 5,129,339 15,322,149
----------- ---------- ----------- ---------- -----------
Cash and Cash Equivalents, end of period.................... $ 1,872,016 $5,129,339 $15,322,149 $4,273,619 $ 8,079,655
=========== ========== =========== ========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest.................. $ 436,028 $ 26,828 $ 10,604 $ 3,199 $ 730
=========== ========== =========== ========== ===========
Cash paid during the period for taxes..................... $ -- $ -- $ 353,835 $ -- $ --
=========== ========== =========== ========== ===========
Supplemental Disclosure of Noncash Investing and Financing
Activities:
Accretion of dividends on Series C redeemable convertible
preferred stock......................................... $ -- $ -- $ 2,746 $ -- $ 252,455
=========== ========== =========== ========== ===========
Deferred stock-based compensation associated with the
issuance of stock options............................... $ -- $ -- $ 187,500 $ -- $ --
=========== ========== =========== ========== ===========
Conversion of promissory notes and accrued interest into
Series A preferred stock................................ $ -- $5,868,458 $ -- $ -- $ --
=========== ========== =========== ========== ===========
Conversion of promissory notes into common stock.......... $ -- $ 150,000 $ -- $ -- $ --
=========== ========== =========== ========== ===========
Issuance of warrants to purchase Series B preferred
stock................................................... $ 563,724 $ -- $ -- $ -- $ --
=========== ========== =========== ========== ===========
Gain on extinguishment of debt with a related party....... $ 576,891 $ -- $ -- $ -- $ --
=========== ========== =========== ========== ===========
Property and equipment acquired under capital lease
obligations............................................. $ 60,469 $ -- $ -- $ -- $ --
=========== ========== =========== ========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-6
<PAGE>
I-MANY, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
I-many, Inc. (the Company), formerly SCC Technologies, Inc., provides
solutions and related professional services that allow clients to manage complex
contract purchasing arrangements. Historically, the Company's primary customer
base includes parties involved in the sale and distribution of pharmaceutical
and other healthcare products, including manufacturers, purchasers, groups of
purchasers and distributors. The Company was originally incorporated in 1989 in
the Commonwealth of Massachusetts as a Subchapter S corporation. On April 2,
1998, the Company reorganized and reincorporated in the State of Delaware as a
Subchapter C corporation.
The Company's financial statements reflect the application of certain
accounting policies, as described below and elsewhere in these notes to
financial statements.
(A) INTERIM FINANCIAL STATEMENTS
The accompanying balance sheet as of March 31, 2000 and the statements of
operations, cash flows and stockholders' equity (deficit) for the three months
ended March 31, 1999 and 2000 are unaudited, but, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of results for these interim periods. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been omitted, although the Company believes that the
disclosures included are adequate to make the information presented not
misleading. The results of operations for the three months ended March 31, 2000
are not necessarily indicative of the results to be expected for the entire
fiscal year or any other interim period.
(B) REVENUE RECOGNITION
The Company recognizes revenue in accordance with Statement of Position
(SOP) No. 97-2, SOFTWARE REVENUE RECOGNITION and SOP 98-9, SOFTWARE REVENUE
RECOGNITION, WITH RESPECT TO CERTAIN ARRANGEMENTS. The Company generates
revenues from licensing its software and providing professional services,
training and maintenance and support services. Historically, product revenues
have been principally comprised of software license fees generated from the
Company's Contract Administration and Reporting System, or CARS, software suite.
The Company sells software, professional services, training and maintenance
and support services. In multiple-element arrangements, the Company allocates
the total fee to professional services, training and maintenance and support
services based on the fair value of those elements, which is defined as the
price charged when those elements are sold separately. The residual amount is
then allocated to the software license fee.
The Company recognizes software license fees upon execution of a signed
license agreement and delivery of the software, provided there are no
significant post-delivery obligations, the payment is fixed or determinable and
collection is probable. If an acceptance period is required, revenues are
recognized upon customer acceptance. The Company provides for sales returns at
the time of revenue recognition based on historical experience. To date, such
returns have not been significant.
Service revenues include professional services, training and maintenance and
support services. Professional service revenues are recognized as the services
are performed for time and materials contracts and using the
percentage-of-completion method for fixed fee contracts. If conditions for
F-7
<PAGE>
I-MANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
acceptance exist, professional service revenues are recognized upon customer
acceptance. For fixed fee professional service contracts, the Company provides
for anticipated losses when the loss becomes known and can be reasonably
estimated. To date, losses incurred on fixed fee contracts have not been
significant. Training revenues are recognized as the services are provided.
Maintenance and customer support fees are recognized ratably over the term of
the maintenance contract on a straight-line basis. When maintenance and support
is included in the total license fee, the Company allocates a portion of the
total fee to maintenance and support based upon the price paid by the customer
to purchase maintenance and support in the second year.
In the latter part of 1999, the Company started offering its clients an
enterprise agreement that includes a software license, maintenance and support
and a fixed number of days of professional services. Clients opting for this
enterprise agreement will enter into a three-year, fixed-fee, all-inclusive
agreement payable in three equal annual installments commencing upon the
execution of the agreement. Due to the extended payment terms, the Company
recognizes the software license and maintenance and support component ratably
over the term of the enterprise agreement and recognizes the professional
service component as the related services are performed, provided that the
aggregate revenue recognized under the enterprise agreement does not exceed the
total cash received.
Payments received from customers at the inception of a maintenance period
are treated as deferred service revenues and recognized straight-line over the
maintenance period. Payments received from customers in advance of product
shipment or revenue recognition are treated as unearned product revenues and
recognized when the product is shipped to the customer or when earned.
Substantially all of the amounts included in cost of revenues represent direct
costs related to the delivery of professional services, training and maintenance
and customer support. To date, cost of product revenues have not been
significant. The company has recorded minimal historical revenues related to its
e-commerce solution.
(C) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(D) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid securities purchased with original
maturities of 90 days or less to be cash equivalents. Cash equivalents are
stated at cost, which approximates market value, and primarily consist of money
market funds and overnight investments that are readily convertible to cash.
F-8
<PAGE>
I-MANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(E) DEPRECIATION AND AMORTIZATION
The Company provides for depreciation and amortization using the
straight-line method over the following estimated useful lives:
<TABLE>
<CAPTION>
ESTIMATED USEFUL
DESCRIPTION LIVES
------------------------------------------------------------ ----------------
<S> <C>
Computer software........................................... 2-3 years
Computer hardware........................................... 5 years
Furniture and equipment..................................... 7 years
Equipment under capital leases.............................. 5 years
</TABLE>
(F) LONG-LIVED ASSETS
The Company assesses the realizability of long-lived assets in accordance
with Statement of Financial Accounting Standards (SFAS) No. 121, ACCOUNTING FOR
THE IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF. The
Company reviews its long-lived assets for impairment as events and circumstances
indicate the carrying amount of an asset may not be recoverable. The Company
evaluates the realizability of its long-lived assets based on profitability and
cash flow expectations for the related asset. As a result of its review, the
Company does not believe that any impairment currently exists related to its
long-lived assets.
(G) RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations as incurred. SFAS
No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR
OTHERWISE MARKETED, requires capitalization of certain software development
costs subsequent to the establishment of technological feasibility. Based on the
Company's product development process, technological feasibility is established
upon completion of a working model. Costs incurred by the Company between
completion of the working model and the point at which the product is ready for
general release have not been material. As such, for the years ended
December 31, 1997, 1998, 1999, and the three months ended March 31, 1999 and
2000, all research and development costs have been expensed as incurred.
(H) COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE
Beginning in the second half of 1999, the Company has incurred significant
expenditures related to the design and development of an Internet website. The
Company accounts for internal-use software, including software development costs
related to the website, in accordance with SOP 98-1, ACCOUNTING FOR THE COSTS OF
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. In accordance with
this statement, costs incurred during the preliminary project stage and costs
incurred for data conversion, training and maintenance are expensed as incurred.
Once the preliminary project stage is completed, external direct costs incurred
during the application development stage are capitalized and amortized on a
straight-line basis over two years, which is the estimated useful life of the
software. For the years ended December 31, 1997 and 1998, no software
development costs related to the website were incurred or capitalized. For the
year ended December 31, 1999 and the three months ended March 31, 2000, the
Company incurred approximately $2,978,000 and $4,426,000, respectively, of
software
F-9
<PAGE>
I-MANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
development costs related to the web site, of which $2,000,000 and $3,283,000,
respectively, was capitalized based on costs incurred with a third party and the
remainder was charged to research and development expense. Capitalized software
development related to the web site are included in computer software as part of
property and equipment in the accompanying balance sheets.
(I) CONCENTRATIONS OF CREDIT RISK
SFAS No. 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT
RISK, requires disclosure of any significant off-balance-sheet risk and
concentrations of credit risk. The Company does not have any significant
off-balance-sheet risk. Financial instruments that potentially expose the
Company to concentrations of credit risk consist of cash equivalents and
accounts receivable. Concentration of credit risk with respect to cash
equivalents is limited because the Company places its investments in highly
rated institutions. Concentration of credit risk with respect to accounts
receivable is limited to certain customers to whom the Company makes substantial
sales. To reduce risk, the Company routinely assesses the financial strength of
its customers and, as a consequence, believes that its accounts receivable
credit risk exposure is limited. The Company maintains an allowance for
potential credit losses but historically has not experienced any significant
losses related to individual customers or groups of customers in any particular
industry or geographic area.
The Company had certain customers whose accounts receivable balances
individually represented a significant percentage of total accounts receivable
at period-end, as follows:
<TABLE>
<CAPTION>
THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------- -------------------
1998 1999 1999 2000
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Customer A.................................................. * 25% * *
Customer B.................................................. * 12% * *
Customer C.................................................. * 12% * *
Customer D.................................................. 27% * * 45%
Customer E.................................................. * * 18% *
Customer F.................................................. * * 14% *
Customer G.................................................. * * 10% *
Customer H.................................................. * * * 14%
Customer I.................................................. * * * 23%
</TABLE>
F-10
<PAGE>
I-MANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company had certain customers whose revenues individually represented a
significant percentage of total net revenues, as follows:
<TABLE>
<CAPTION>
THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Customer J................................................ * * 11% * *
Customer K................................................ 16% * * * *
Customer C................................................ 12% * * * *
Customer M................................................ 10% * * * *
Customer H................................................ * * * 22% *
Customer D................................................ * * * * 37%
</TABLE>
------------------------
* Was less than 10% of the Company's total
(J) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's cash and cash equivalents, accounts
receivable, accounts payable and capital lease obligations approximate fair
value due to the short-term nature of these instruments.
(K) NET INCOME (LOSS) PER SHARE
In accordance with SFAS No. 128, EARNINGS PER SHARE, basic and diluted net
income (loss) per share is computed by dividing the net income (loss) available
to common stockholders for the period by the weighted average basic and diluted
number of shares of common stock outstanding during the period. The calculation
of basic weighted average shares outstanding excludes unvested restricted common
stock (see Note 5(a)). For periods in which a net loss has been incurred, the
calculation of diluted net loss per share excludes potential common stock, as
their effect is antidilutive. Potential common stock is composed of
(i) incremental shares of common stock issuable upon the exercise of outstanding
stock options and warrants; (ii) shares of common stock issuable upon the
exchange or conversion of preferred stock and convertible debt; and
(iii) unvested restricted common stock subject to repurchase by the Company. In
accordance with the Securities and Exchange Commission's Staff Accounting
Bulletin No. 98, EARNINGS PER SHARE IN AN INITIAL PUBLIC OFFERING, the Company
determined that there were no nominal issuances of common stock prior to the
Company's initial public offering (IPO).
F-11
<PAGE>
I-MANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A reconciliation between the shares used to compute basic and diluted net
income (loss) per share is as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------ -----------------------
1997 1998 1999 1999 2000
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Weighted average common shares
outstanding...................... 9,784,824 11,011,984 12,137,097 11,967,638 12,709,302
Less--Weighted average unvested
common shares outstanding........ -- 819,580 704,151 1,426,125 140,625
---------- ---------- ---------- ---------- ----------
Basic weighted average shares
outstanding...................... 9,784,824 10,192,404 11,432,945 10,541,513 12,568,677
Add--Incremental effect of the
following:
Unvested restricted common
stock.......................... -- 819,580 -- -- --
Convertible preferred stock...... -- 1,555,766 -- -- --
Convertible debt................. 1,572,528 3,613,482 -- -- --
Stock options.................... 2,064,760 2,083,889 -- -- --
Stock warrants................... -- 51,868 -- -- --
---------- ---------- ---------- ---------- ----------
Diluted weighted average shares
outstanding...................... 13,422,112 18,316,989 11,432,945 10,541,513 12,568,677
========== ========== ========== ========== ==========
</TABLE>
The calculation of diluted net income (loss) per share excludes the
following potential shares of common stock:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------- -----------------------
1997 1998 1999 1999 2000
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Unvested restricted common stock..... -- -- 704,151 1,426,125 140,625
Convertible preferred stock.......... -- -- 6,067,421 6,058,875 9,169,688
Stock options........................ -- 1,819,563 2,543,594 2,054,054 4,732,319
Stock warrants....................... 1,223,188 -- 164,780 124,255 --
--------- --------- ---------- ---------- ----------
1,223,188 1,819,563 9,479,946 9,663,309 14,042,632
========= ========= ========== ========== ==========
</TABLE>
In computing diluted net income per share for the years ended December 31,
1997 and 1998, approximately $113,000 and $60,000, respectively, has been added
back to net income applicable to common stockholders related to interest expense
on convertible debt that is assumed to have been converted to common stock.
(L) UNAUDITED PRO FORMA BALANCE SHEET
Upon the closing of the IPO, each outstanding share of convertible preferred
stock and redeemable convertible preferred stock will be converted into common
stock at the applicable
F-12
<PAGE>
I-MANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
conversion ratios, as defined. This conversion has been reflected in the
unaudited pro forma balance sheet as of March 31, 2000.
(M) PRO FORMA NET LOSS PER SHARE (UNAUDITED)
The Company's capital structure at March 31, 2000 is not indicative of its
capital structure after the closing of the IPO due to the anticipated conversion
of all shares of convertible preferred stock and redeemable convertible
preferred stock into common stock concurrent with the closing of the Company's
IPO. Accordingly, pro forma net loss per share is presented for the year ended
December 31, 1999 and the three months ended March 31, 2000 assuming (i) the net
loss before the accretion of preferred stock dividends and (ii) the conversion
of all outstanding shares of convertible preferred stock into common stock using
the as-converted method from their respective dates of issuance, but excluding
shares to be issued in the IPO.
(N) RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, ACCOUNTING FOR THE COSTS OF
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1 is effective
for financial statements for the years beginning after December 15, 1998. SOP
98-1 provides guidance regarding accounting for computer software developed or
obtained for internal use, including the requirement to capitalize specified
costs and amortization of such costs. The Company adopted SOP 98-1 beginning
January 1, 1999.
In April 1998, the AICPA issued SOP 98-5, REPORTING ON THE COSTS OF START-UP
ACTIVITIES. SOP 98-5 is effective for fiscal years beginning after December 15,
1998 and provides guidance on the financial reporting of start-up activities and
organization costs. It requires costs of start-up activities and organization
costs to be expensed as incurred. As the Company historically expensed these
costs as incurred, the adoption of this standard had no impact on the Company's
results of operations, financial position or cash flows.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This
statement establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts and
for hedging activities. SFAS No. 133, as amended by SFAS No. 137, is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS
No. 133 is not expected to have a material impact on the Company's financial
statements.
(O) COMPREHENSIVE INCOME (LOSS)
SFAS No. 130, REPORTING COMPREHENSIVE INCOME, requires disclosure of all
components of comprehensive income on an annual and interim basis. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. For the years ended December 31, 1997, 1998, 1999 and the three months
ended March 31, 1999 and 2000, the Company had no items of other comprehensive
income; therefore, comprehensive income (loss) for all periods presented is the
same as reported net income (loss).
F-13
<PAGE>
I-MANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(P) RECLASSIFICATIONS
Certain prior year account balances have been reclassified to be consistent
with the current year's presentation.
(2) DETAILS OF FINANCIAL STATEMENT COMPONENTS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------- ----------
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Property and Equipment:
Computer software...................................... $ 268,408 $2,705,700 $6,063,512
Computer hardware...................................... 1,017,778 1,986,251 2,885,435
Furniture and equipment................................ 272,326 465,025 699,616
Equipment under capital leases......................... 150,798 116,571 116,571
---------- ---------- ----------
1,709,310 5,273,547 9,765,134
Less--Accumulated depreciation and amortization........ 700,757 1,233,080 1,668,111
---------- ---------- ----------
$1,008,553 $4,040,467 $8,097,023
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------- ----------
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Accrued Expenses:
Accrued software development costs..................... $ -- $1,375,000 $ 455,000
Accrued payroll and benefits........................... 1,360,946 1,301,896 1,235,362
Accrued consulting..................................... -- 892,930 1,103,167
Accrued commissions.................................... 359,146 810,534 559,561
Accrued professional fees.............................. 158,448 90,000 360,000
Accrued other.......................................... 186,255 546,364 796,934
---------- ---------- ----------
$2,064,795 $5,016,724 $4,510,024
========== ========== ==========
</TABLE>
F-14
<PAGE>
I-MANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(3) CONVERTIBLE PROMISSORY NOTES
In May 1997, the Company issued convertible promissory notes (the 12% Notes)
in a private placement in the principal amount of $150,000. The 12% Notes bore
interest at a rate of 12% per annum, payable upon maturity (June 30, 1998) or
upon conversion of the notes. At the option of the note holders, the 12% Notes
were convertible at any time on or prior to June 30, 1998 into an aggregate of
223,200 shares of common stock. In June 1998, the note holders exercised their
option to convert all principal outstanding under the 12% Notes into common
stock. In conjunction with the 12% Notes, the Company also issued to the note
holders warrants to purchase an aggregate of 223,187 shares of common stock at
an exercise price of $0.67 per share. The Company has calculated the value of
these warrants using the Black-Scholes option pricing model. As the calculated
value was immaterial, the Company has recorded no value for the warrants. In
January 2000, the warrant holders exercised all warrants then outstanding for
total proceeds to the Company of approximately $150,000.
In September 1997, the Company issued convertible promissory notes (the 6%
Notes) in a private placement in the principal amount of $6,000,000. The 6%
Notes bore interest at a rate of 6% per annum, payable upon maturity
(August 31, 1998) or upon conversion of the notes. At the option of the note
holders, the 6% Notes and accrued interest were convertible into an aggregate of
2,023,550 shares of Series A preferred stock. In March 1998, the note holders
exercised their option to convert all principal and accrued interest then
outstanding into Series A preferred stock. In conjunction with the 6% Notes, the
Company also issued to the note holders warrants to purchase an aggregate of
400,000 shares of Series B preferred stock at an exercise price of $5.00 per
share and with an expiration date of December 31, 1998. At the time of issuance,
the fair market value of the warrants, calculated using the Black-Scholes option
pricing model, was recorded as an original issuance discount on the 6% Notes in
the amount of $563,724. The discount was being amortized as additional interest
expense over the term of the 6% Notes. In December 1998, the warrant holders
exercised all Series B preferred stock warrants then outstanding for total
proceeds to the Company of $2,000,000.
(4) REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company has authorized 1,250,000 shares of redeemable convertible
preferred stock, all of which have been designated Series C redeemable
convertible preferred stock (the Series C). On December 30, 1999, the Company
sold 1,244,325 shares of the Series C for aggregate proceeds of approximately
$12,505,000. The rights, preferences and privileges of the Series C are as
follows:
DIVIDENDS
The holders of the Series C preferred stock are entitled to a cumulative 8%
dividend, compounded daily, on the Series C preferred stock issuance price
($10.05 per share). Such dividends will be paid either in cash or in shares of
the Series C preferred stock, at the option of the holder upon the occurrence of
certain dilutive events, as defined.
VOTING
The holders of the Series C preferred stock are entitled to a number of
votes on all corporate matters equal to the number of shares of common stock
into which the preferred stock is then convertible. The holders of the Series C
preferred stock are entitled to elect one representative to the Board of
Directors.
F-15
<PAGE>
I-MANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(4) REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
CONVERSION
Subsequent to the effectiveness of the 2.5-for-1 stock split described in
Note 10 to the financial statements, each share of the Series C preferred stock
is convertible at the option of the holder into 2.5 shares of voting common
stock. The conversion ratio is subject to further adjustment upon the occurrence
of certain dilutive events, as defined. Upon (i) the consent of at least 67% of
all outstanding series of preferred stock; or (ii) the consummation of a
qualified public offering, all outstanding shares of Series C preferred stock
will be converted to common stock. For the purposes of this provision, a
qualified public offering is one in which the offering price per share is
greater than $12.06 and the aggregate proceeds to the corporation are greater
than $25,000,000.
LIQUIDATION
Upon the occurrence of a liquidity event, as defined, the Series C
liquidation amount will be the original Series C issue price per share ($10.05)
plus all accrued and unpaid dividends thereon. After liquidation payments are
made to the holders of the Series A, the Series B and the Series C preferred
stock, the holders of the Series C preferred stock will share with the common
stockholders in the remaining assets for distribution in proportion to the
number of shares of common stock into which the Series C preferred stock is then
convertible, up to an amount per share equal to the Series C issue price ($10.05
per share).
REDEMPTION
The Series C preferred stock is redeemable in an amount equal to the
Series C issue price ($10.05 per share) plus all accrued and unpaid dividends
thereon. Because the Series C preferred stock is redeemable at the option of the
holder, the Series C is being carried at its redemption value and is classified
outside of stockholders' equity (deficit) in the accompanying financial
statements. The Series C redemption shall occur as follows:
- On the fifth anniversary of the original issuance date (December 30,
2004), 33% of the outstanding Series C preferred stock shall be redeemed
at the option of the holder.
- On the sixth anniversary of the original issuance date (December 30,
2005), 50% of the then outstanding Series C preferred stock shall be
redeemed at the option of the holder.
- On the seventh anniversary of the original issuance date (December 30,
2006), all of the remaining outstanding shares of the Series C preferred
stock shall be redeemed at the option of the holder.
(5) STOCKHOLDERS' EQUITY (DEFICIT)
(A) COMMON STOCK
In March 2000, the Company approved the amendment of its certificate of
incorporation and approved a 2.5-for-1 stock split effective prior to the
closing of the IPO. The number of authorized shares of common stock with a par
value of $.0001 per share was increased to 100,000,000 shares. Upon its
re-incorporation in March 1998, the Company effected a 25-for-1 stock split. All
share and per share amounts in the accompanying financial statements have been
retroactively adjusted to reflect
F-16
<PAGE>
I-MANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(5) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
the reorganization and stock splits. At March 31, 2000, the Company had reserved
the following shares of common stock for issuance upon the conversion of
preferred stock and upon the exercise of options:
<TABLE>
<S> <C>
Conversion of Series A preferred stock...................... 5,058,875
Conversion of Series B preferred stock...................... 1,000,000
Conversion of Series C redeemable preferred stock........... 3,110,813
Exercise of stock options................................... 6,508,790
----------
15,678,478
==========
</TABLE>
During 1998, the Company sold at fair market value 1,238,625 shares of
restricted common stock to an officer of the Company. The restricted common
stock vested over four years. Upon the termination of this officer in 1999, all
unvested shares became fully vested in accordance with the terms of the original
restricted stock purchase agreement. During 1998, the Company sold at less than
fair market value 187,500 shares of restricted common stock to a director of the
Company, for which the Company recorded deferred compensation of $75,000 that is
being amortized over the vesting period of the restricted stock. The restricted
stock vests over four years.
During 1999, the Company granted 187,500 options to purchase common stock at
less than fair market value to a director of the Company, for which the Company
recorded deferred compensation of $187,500 that is being amortized over the
vesting period of the options. These options vest over four years.
(B) CONVERTIBLE PREFERRED STOCK
The Company has authorized 2,500,000 shares of convertible preferred stock
with a par value of $.01 per share, of which 2,100,000 shares have been
designated Series A preferred stock (the Series A) and 400,000 shares have been
designated Series B preferred stock (the Series B) (collectively, the
Convertible Preferred Stock). The Convertible Preferred Stock is subject to the
following rights and preferences:
DIVIDENDS
The holders of the Series A and the Series B preferred stock shall be
entitled to share in any dividends declared and paid on the common stock pro
rata in accordance with the number of shares of common stock into which the
Convertible Preferred Stock is then convertible.
VOTING
The holders of Convertible Preferred Stock are entitled to a number of votes
on all corporate matters equal to the number of shares of common stock into
which the Convertible Preferred Stock is then convertible.
F-17
<PAGE>
I-MANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(5) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
CONVERSION
Subsequent to the effectiveness of the 2.5-for-1 stock split described in
Note 10 to the financial statements, each share of Convertible Preferred Stock
is convertible at the option of the holder into 2.5 shares of voting common
stock. The conversion ratio is subject to further adjustment upon the occurrence
of certain dilutive events, as defined. Upon (i) the consent of at least 67% of
the outstanding Convertible Preferred Stock or (ii) the consummation of a
qualified public offering, all outstanding shares of Convertible Preferred Stock
will be converted to common stock at the applicable conversion ratio, as
defined. For the purposes of this provision, a qualified public offering is one
in which the offering price per share is greater than $12.06 and the aggregate
proceeds to the corporation are greater than $25,000,000.
LIQUIDATION
Upon the occurrence of a liquidity event, as defined, the Series A and the
Series C preferred stock have preference in liquidation over the Series B
preferred stock and the Series B preferred stock has preference in liquidation
over common stock. The Convertible Preferred Stock liquidation amounts are
subject to adjustment, as defined, to prevent dilution.
In the event that the liquidation amount per share is less than $11.86 (four
times the Series A purchase price of $2.90 per share), then the Series A
liquidation amount will be the sum of (i) $2.90 per share; (ii) a pro rata share
of the remaining proceeds calculated based on the number of common shares into
which the Series A is then convertible; and (iii) all declared but unpaid
dividends thereon. In the event that the liquidation amount per share is greater
than $11.86, then the Series A liquidation amount will be the sum of (i) a pro
rata share of the proceeds available for distribution calculated based on the
number of common shares into which the Series A is then convertible; and
(ii) all declared but unpaid dividends thereon.
The Series B liquidation amount is equal to $5.00 per share plus all
declared but unpaid dividends thereon.
REDEMPTION
The Series A and Series B preferred stock are not redeemable.
(C) STOCK OPTION PLANS
In May 1994, the Company adopted the 1994 Stock Plan (the 1994 Plan), for
which 4,375,000 shares of common stock have been reserved. Under the terms of
the 1994 Plan, the Company may grant nonqualified or incentive stock options,
make awards of stock or authorize stock purchases by directors, officers,
employees or consultants of the Company. The exercise price for option grants
shall be determined by the Board of Directors but in no event shall be less than
(i) the fair market value of the common stock, in the case of incentive stock
options, or (ii) the lesser of (a) the book value per share of the Company or
(b) 10% of the fair market value of the common stock, in the case of
nonqualified stock options. Option grants under the 1994 Plan generally vest
over a period of five years and terminate 10 years from the date of grant.
F-18
<PAGE>
I-MANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(5) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
In April 1997, the Company adopted the 1997 Stock Option/Stock Issuance Plan
(the 1997 Plan), for which 6,250,000 shares of common stock have been reserved.
Under the terms of the 1997 Plan, the Company may grant nonqualified or
incentive stock options, make awards of stock or authorize stock purchases by
directors, officers, employees or consultants of the Company. The exercise price
for option grants shall be determined by the Board of Directors but in no event
shall be less than (i) the fair market value of the common stock in the case of
incentive stock options or (ii) the lesser of (a) the book value per share of
the Company or (b) 30% of the fair market value of the common stock in the case
of nonqualified stock options. Option grants under the 1997 Plan generally vest
over a period of four to five years, as determined by the Board of Directors,
and expire 10 years from the date of grant.
The following table summarizes stock option activity under all of the
Company's stock option plans:
<TABLE>
<CAPTION>
WEIGHTED
RANGE OF AVERAGE
NUMBER OF EXERCISE EXERCISE
SHARES PRICES PRICE
---------- --------------------- --------
<S> <C> <C> <C>
Balance, December 31, 1996............................. 3,511,188 $ 0.002--0.016 $0.008
Granted.............................................. 998,500 0.016 0.016
Exercised............................................ (307,375) 0.002--0.016 0.004
Canceled............................................. (125,000) 0.016 0.016
---------- --------------------- ------
Balance, December 31, 1997............................. 4,077,313 0.002--0.016 0.008
Granted.............................................. 1,819,563 1.200--1.516 1.248
Exercised............................................ (1,982,938) 0.002--1.200 0.016
Canceled............................................. (803,750) 0.016--1.200 0.872
---------- --------------------- ------
Balance, December 31, 1998............................. 3,110,188 0.016--1.516 0.504
Granted.............................................. 3,153,188 1.516--3.800 2.704
Exercised............................................ (337,435) 0.016--1.200 0.208
Canceled............................................. (370,078) 0.016--1.516 1.412
---------- --------------------- ------
Balance, December 31, 1999............................. 5,555,863 0.016--3.800 1.712
Granted (unaudited).................................. 552,938 4.200--10.800 6.036
Exercised (unaudited)................................ (1,488,463) 0.016--1.516 0.160
Canceled (unaudited)................................. (12,500) 3.000--4.200 3.600
---------- --------------------- ------
Balance, March 31, 2000 (unaudited).................... 4,607,838 $ 0.016--10.800 $2.724
========== ===================== ======
Exercisable, December 31, 1997......................... 3,276,498 $ 0.002--0.016 $0.008
========== ===================== ======
Exercisable, December 31, 1998......................... 1,648,500 $ 0.016--1.516 $0.048
========== ===================== ======
Exercisable, December 31, 1999......................... 1,698,020 $ 0.016--3.800 $0.156
========== ===================== ======
Exercisable, March 31, 2000 (unaudited)................ 561,920 $ 0.016--1.516 $0.936
========== ===================== ======
</TABLE>
F-19
<PAGE>
I-MANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(5) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Additional information regarding options outstanding and exercisable as of
March 31, 2000 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF REMAINING NUMBER OF
RANGE OF OPTIONS CONTRACTUAL OPTIONS
EXERCISE PRICES OUTSTANDING LIFE EXERCISABLE
-------------------- ----------- ----------- -----------
<S> <C> <C> <C>
$ 0.016 254,620 6.31 181,545
1.200--1.516 1,510,718 8.48 380,375
2.800--3.000 1,833,313 9.31 --
3.800--4.200 855,313 9.73 --
10.800 153,874 9.93 --
--------- ---- -------
4,607,838 8.97 561,920
========= ==== =======
</TABLE>
The Company applies Accounting Principles Board (APB) Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, in accounting for its stock
compensation plans. In cases where options are granted or stock is issued at a
price below fair market value, the Company calculates compensation as the
difference between the fair market value, as determined by the Board of
Directors, and the exercise or issuance price. The Company recognizes
compensation expense over the vesting term of the related option or common
share. Had compensation expense for stock options been determined based on the
fair values at the grant dates for awards under the plans consistent with the
method of accounting prescribed by SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, the Company's net income (loss) would have been decreased
(increased) to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------- -------------------------
1997 1998 1999 1999 2000
-------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net income (loss)--
As reported..................... $323,626 $1,911,787 $(5,219,944) $ (58,192) $(5,702,166)
Pro forma....................... 322,949 1,909,712 (5,377,609) (97,608) (5,763,708)
Basic net income (loss) per
share--
As reported..................... $ 0.03 $ 0.19 $ (0.46) $ (0.01) $ (0.47)
Pro forma....................... 0.03 0.19 (0.47) (0.01) (0.48)
Diluted net income (loss) per
share--
As reported..................... $ 0.03 $ 0.11 $ (0.46) $ (0.01) $ (0.47)
Pro forma....................... 0.03 0.11 (0.47) (0.01) (0.48)
</TABLE>
F-20
<PAGE>
I-MANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(5) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
The Company's calculations for the grants under its stock option plans were
made using the Black-Scholes option pricing model with the following
assumptions:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Risk-free interest rates......................... 6% 6% 6% 6% 6%
Dividend yield................................... -- -- -- -- --
Volatility....................................... -- -- -- -- --
Expected term.................................... 7 years 7 years 7 years 7 years 7 years
Weighted average fair value of options granted
during the period.............................. $0.02 $1.07 $2.32 $1.30 $5.18
</TABLE>
(D) WARRANTS
In May 1997, the Company issued warrants to purchase 223,187 shares of
common stock at an exercise price of $0.67 per share to investors in connection
with a private placement of the Company's convertible promissory notes (see
Note 3). The Company had 223,187 warrants outstanding at December 31, 1998 and
1999. In January 2000, the warrant holders exercised all warrants then
outstanding for total proceeds to the Company of approximately $150,000.
In September 1997, the Company issued 400,000 warrants to purchase Series B
preferred stock at an exercise price of $5.00 per share in conjunction with a
private placement of the Company's convertible promissory notes (Note 3). In
December 1998, the warrant holders exercised all Series B preferred stock
warrants then outstanding for total proceeds to the Company of $2,000,000.
(6) INCOME TAXES
At its inception, the Company elected to be treated as a Subchapter S
corporation for income tax purposes. Since income taxes related to the income of
Subchapter S corporations are the responsibility of the individual stockholders,
no provision for income taxes was recorded in the accompanying financial
statements for the year ended December 31, 1997 or for the period from
January 1, 1998 through April 2, 1998. On April 2, 1998, the Company
re-incorporated as a Subchapter C corporation and the Company's Subchapter S
corporation status was terminated. On that date, the accumulated losses incurred
during the period in which the Company was a Subchapter S corporation were
reclassified to additional paid-in capital. As such, the Company's results of
operations were taxed as a Subchapter C corporation for the period from April 3
through December 31, 1998, for which period a benefit for income taxes was
recorded in the accompanying financial statements related to recording a
deferred tax asset for certain future tax deductions for which it was deemed at
the time more likely than not that the assets would be realized, due to actual
and expected taxable income. Due to a change in the Company's profitability in
1999, the deferred tax asset was deemed not to be recoverable and, therefore,
was expensed in the 1999 tax provision.
For the year ended December 31, 1997 and the period from January 1, 1998
through April 2, 1998, a pro forma income tax adjustment is required to adjust
the Company's net income as if the Company were a Subchapter C corporation for
all periods presented. However, the Company generated sufficient
F-21
<PAGE>
I-MANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(6) INCOME TAXES (CONTINUED)
losses from operations in the years ended December 31, 1995 and 1996 to offset
such taxable income. Therefore, no pro forma income tax adjustment has been
presented.
The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109, ACCOUNTING FOR INCOME TAXES. Under SFAS No. 109, a deferred tax
asset or liability is recorded for all temporary differences between book and
tax reporting of assets and liabilities. A deferred tax valuation allowance is
required if it is more likely than not that all or a portion of any deferred tax
assets will not be realized. During the year ended December 31, 1999, the
Company generated a net operating loss (NOL) carryforward of approximately
$6,302,000 that is available to offset future taxable income through 2019. Due
to the uncertainty surrounding the Company's ability to realize this NOL and the
Company's other deferred tax assets, a full valuation allowance has been placed
against the otherwise recognizable net deferred tax asset.
The components of the (benefit from) provision for income taxes for the
years ended December 31, 1997, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- --------- --------
<S> <C> <C> <C>
Current--
Federal................................................... $ -- $ 66,818 $(94,406)
State..................................................... -- 19,437 (31,469)
------ --------- --------
-- 86,255 (125,875)
------ --------- --------
Deferred--
Federal................................................... -- (315,249) 305,213
State..................................................... -- (91,701) 101,737
------ --------- --------
-- (406,950) 406,950
------ --------- --------
Total (benefit) provision............................... $ -- $(320,695) $281,075
====== ========= ========
</TABLE>
The approximate income tax effect of each type of temporary difference and
carryforwards is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1999
-------- ----------
<S> <C> <C>
Net operating loss carryforwards............................ $ -- $2,538,000
Cash to accrual adjustment.................................. 406,950 305,000
Nondeductible reserves and accruals......................... -- 337,000
Capitalized website development costs....................... -- (799,000)
Less--Valuation allowance................................... -- (2,381,000)
-------- ----------
Net deferred tax asset.................................. $406,950 $ --
======== ==========
</TABLE>
F-22
<PAGE>
I-MANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(6) INCOME TAXES (CONTINUED)
A reconciliation of the federal statutory rate to the effective rate for the
years ended December 31, 1997, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Federal statutory rate...................................... --% 34.0% (34.0)%
State taxes, net of federal benefit......................... -- 6.3 (8.0)
Increase in valuation allowance............................. -- -- 48.2
Income allocable to Subchapter S corporation................ -- (10.6) --
Conversion from Subchapter S to Subchapter C corporation.... -- (48.4) --
Other....................................................... -- (1.4) (0.5)
---- ------ -----
Effective rate.......................................... --% (20.1)% 5.7%
==== ====== =====
</TABLE>
(7) COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company leases its facilities under operating lease agreements and
certain of its equipment under noncancelable capital and operating lease
agreements through 2004. Future minimum lease commitments under all
noncancelable leases at December 31, 1999 are approximately as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- --------
<S> <C> <C>
Year ended December 31,
2000........................................................ $ 495,000 $28,602
2001........................................................ 235,000 15,054
2002........................................................ 226,000 5,938
2003........................................................ 159,000 --
2004........................................................ 17,000 --
---------- -------
Total minimum lease payments.............................. $1,132,000 49,594
==========
Less--Amount representing interest.......................... 8,183
-------
Present value of minimum lease payments................... 41,411
Less--Current portion of capital lease obligations.......... 23,073
-------
Capital lease obligations, net of current portion......... $18,338
=======
</TABLE>
Total rent expense was approximately $219,000, $278,000 and $409,000 for the
years ended December 31, 1997, 1998 and 1999, respectively, and approximately
$129,000, and $152,000 for the quarters ended March 31, 1999 and 2000,
respectively.
(B) CONTINGENCIES
From time to time, the Company may have certain contingent liabilities that
arise in the ordinary course of its business activities. The Company accrues for
contingent liabilities when it is probable or
F-23
<PAGE>
I-MANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(7) COMMITMENTS AND CONTINGENCIES (CONTINUED)
likely that future expenditures will be made and such expenditures can be
reasonably estimated. In the opinion of management, there are no pending claims
of which the outcome is expected to result in a material adverse effect to the
financial position or results of operations of the Company.
(8) SEGMENT DISCLOSURE
The Company measures operating results as a single reportable segment, which
provides multiple products and services that allow manufacturers, purchasers and
intermediaries to manage their complex contracts for the purchase and sale of
goods. To date, all of the Company's revenues have been derived from customers
located within the United States and all of the Company's assets and operations
are located within the United States.
(9) VALUATION AND QUALIFYING ACCOUNTS
A summary of the valuation and qualifying accounts of the Company related to
the allowance for doubtful accounts for the years ended December 31, 1998 and
1999 and the three months ended March 31, 2000 is as follows:
<TABLE>
<S> <C>
Allowance for doubtful accounts at December 31, 1997........ $ --
Additions................................................. 205,000
Write-offs................................................ (105,000)
---------
Allowance for doubtful accounts at December 31, 1998........ 100,000
Additions................................................. 362,250
Write-offs................................................ (212,250)
---------
Allowance for doubtful accounts at December 31, 1999........ 250,000
Additions................................................. --
Write-offs................................................ --
---------
Allowance for doubtful accounts at March 31, 2000
(unaudited)............................................... $ 250,000
=========
</TABLE>
(10) SUBSEQUENT EVENTS
(A) STRATEGIC RELATIONSHIP AGREEMENT
In May 2000, the Company entered into a Strategic Relationship Agreement
(the Agreement) with The Procter & Gamble Company (P&G), pursuant to which P&G
has designated the Company for a period of at least three years as their
exclusive provider of purchase contract management software for their commercial
products group. In addition, P&G has agreed to provide the Company with certain
strategic marketing and business development services over the term of the
Agreement. P&G also entered into an agreement to license certain software and
technology from the Company.
As consideration for entering into the Agreement, the Company will pay P&G a
royalty of up to 10% of the revenue derived from the commercial products market,
as defined. In addition, the Company granted to P&G a fully exercisable warrant
to purchase 875,000 shares of common stock. The warrant is exercisable for a
period of two years and the exercise price of the warrant is equal to either
(a) the price per share to the public in the IPO, or, (b) if the IPO does not
close prior to August 1,
F-24
<PAGE>
I-MANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(10) SUBSEQUENT EVENTS (CONTINUED)
2000, then the fair market value per share of common stock of the Company on
August 1, 2000. In addition, the Company agreed to grant P&G warrants to
purchase up to an additional 125,000 shares of common stock, exercisable at the
then current fair market value per share, upon the achievement of milestones set
forth in the Agreement, as defined.
Using the Black-Scholes option pricing model and based upon an exercise
price equal to the assumed IPO price of $10.00 per share and a volatility factor
of 85%, the Company has calculated the fair value of the fully exercisable
warrant to purchase 875,000 shares of common stock as approximately $4,200,000.
In accordance with Emerging Issues Task Force Issue No. 96-18, ACCOUNTING FOR
EQUITY INSTRUMENTS THAT ARE ISSUED TO OTHER THAN EMPLOYEES FOR ACQUIRING, OR IN
CONJUNCTION WITH SELLING, GOODS OR SERVICES, this amount will be recorded by the
Company in the second quarter of 2000 as, first, a reduction of the revenue
derived from the license agreement with P&G, and, second, a component of sales
and marketing expense. The Company will calculate and record the fair value of
the warrants to purchase up to an additional 125,000 shares of common stock as
P&G provides the services set forth in the Agreement.
(B) STOCK SPLIT
In March 2000, the Board of Directors voted to approve a 2.5-for-1 stock
split, which will be effected prior to the closing of the IPO. The Board also
voted to amend its authorized capital stock to include 105,000,000 shares of
capital stock of which 100,000,000 shares are designated as common stock,
$0.0001 par value and 5,000,000 shares are undesignated preferred stock, $0.01
par value per share. All share and per share amounts in the accompanying
financial statements and notes have been retroactively adjusted in all periods
presented to reflect this stock split.
(C) STOCK INCENTIVE PLANS
In March 2000, the Board of Directors voted to approve the 2000 Stock
Incentive Plan, the 2000 Employee Stock Purchase Plan and the 2000 Non-Employee
Director Stock Option Plan. The 2000 Stock Incentive Plan provides for the grant
of up to 2,500,000 shares of common stock in the form of incentive stock
options, non-statutory stock options, restricted stock awards and other
stock-based awards. All of the Company's officers, employees, directors,
consultants and advisors are eligible to receive awards under the 2000 Stock
Incentive Plan. The 2000 Employee Stock Purchase Plan authorizes the issuance of
up to a total of 1,250,000 shares of common stock to participating employees at
85% of the closing price of the common stock on the first day or last day of
each offering period, whichever is lower. The 2000 Non-Employee Director Stock
Option Plan provides for the grant of up to 562,500 shares of common stock in
the form of non-statutory stock options to directors who are not employees. Each
non-employee director will initially be granted an option to purchase 62,500
shares of common stock; in addition, each non-employee director will receive an
option to purchase 25,000 shares of common stock on the date of each annual
meeting of stockholders.
LINE-OF-CREDIT AGREEMENT
In April 2000, the Company entered into a revolving line-of-credit agreement
with a bank whereby the Company may borrow up to $3,000,000, limited to 80% of
eligible accounts receivable, as defined in the agreement. Borrowings under the
line-of-credit agreement bear interest at the bank's prime rate
F-25
<PAGE>
I-MANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(10) SUBSEQUENT EVENTS (CONTINUED)
(9.0% at March 31, 2000) plus 2.0% per annum and are secured by substantially
all assets of the Company. The line-of-credit agreement terminates on April 25,
2001.
As consideration for entering into the line-of-credit agreement, the Company
issued to the bank a warrant to purchase 100,000 shares of the Company's common
stock. The warrant is exercisable for a period of two years following the
earlier to occur of (a) the closing of the Company's initial public offering or
(b) August 1, 2000. The exercise price of the warrant is equal to either
(a) $9.00 per share in the event that the warrant becomes exercisable as a
result of the initial public offering, or (b) the fair market value per share of
the Company's common stock on August 1, 2000.
F-26
<PAGE>
[Inside Back Cover Art]
The inside back cover is a graphic: the I-many logo sits at the center of the
graphic, with the market participants--manufacturers, distributors, buyers and
intermediaries--as spokes of a wheel coming from the I-many center.
<PAGE>
[LOGO]
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
[SEPARATE COVER FOR PRELIMINARY INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION, DATED JUNE 30, 2000.
[LOGO]
7,500,000 SHARES
COMMON STOCK
I-many, Inc. is offering 7,500,000 shares of its common stock. This is our
initial public offering and no public market currently exists for our shares. We
have applied for approval for quotation of our common stock on the Nasdaq
National Market under the symbol "IMNY." We anticipate that the initial public
offering price will be between $9.00 and $11.00 per share.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ------------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to I-many.......................................... $ $
</TABLE>
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
We have granted the underwriters a 30-day option to purchase up to an
additional 1,125,000 shares of common stock to cover over-allotments.
------------------------
ROBERTSON STEPHENS INTERNATIONAL
J.P. MORGAN SECURITIES LTD.
SG COWEN
THE DATE OF THIS PROSPECTUS IS , 2000.
<PAGE>
[SEPARATE TABLE FOR PLAN OF DISTRIBUTION SECTION IN PRELIMINARY INTERNATIONAL
PROSPECTUS]
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
FleetBoston Robertson Stephens Inc..........................
J.P. Morgan Securities Inc..................................
SG Cowen Securities Corporation.............................
INTERNATIONAL UNDERWRITER
FleetBoston Robertson Stephens International Limited........
J.P. Morgan Securities Ltd..................................
SG Cowen Securities Corporation.............................
---------
Total..................................................... 7,500,000
=========
</TABLE>
[SEPARATE TABLE FOR PLAN OF DISTRIBUTION SECTION IN FINAL INTERNATIONAL
PROSPECTUS]
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
FleetBoston Robertson Stephens Inc. and FleetBoston
Robertson Stephens International Limited..................
J.P. Morgan Securities Inc. and J.P. Morgan Securities
Ltd. .....................................................
SG Cowen Securities Corporation.............................
---------
Total..................................................... 7,500,000
=========
</TABLE>
57
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses (other than underwriting discounts and commissions)
payable in connection with the sale of the common stock offered hereby are as
follows:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 22,770
NASD filing fee............................................. 9,125
Nasdaq National Market listing fee.......................... 95,000
Printing and engraving expenses............................. 200,000
Legal fees and expenses..................................... 400,000
Accounting fees and expenses................................ 400,000
Blue Sky fees and expenses (including legal fees)........... 10,000
Transfer agent and registrar fees and expenses.............. 10,000
Miscellaneous............................................... 3,105
----------
Total....................................................... $1,150,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article SEVENTH of the Registrant's Amended and Restated Certificate of
Incorporation provides that no director of the Registrant shall be personally
liable to the Registrant or its stockholders for any monetary damages for any
breach of fiduciary duty as a director, except to the extent that the Delaware
General Corporation Law prohibits the elimination or limitation of liability of
directors for breach of fiduciary duty.
Article EIGHTH of the Registrant's Amended and Restated Certificate of
Incorporation sets forth procedures for the indemnification of the officers and
directors of the Registrant. Article EIGHTH further provides that the
indemnification provided therein is not exclusive, and provides that in the
event that the Delaware General Corporation Law is amended to expand the
indemnification permitted to directors or officers the Registrant must indemnify
those persons to the fullest extent permitted by such law as so amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
Under Section 7 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement to be
filed as Exhibit 1 hereto.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth in chronological order is information regarding unregistered
securities issued and options granted by the Registrant during the three years
prior to the date of this Registration Statement.
1. On January 10, 2000, Goulder Investments Ltd. exercised warrants to
purchase 74,375 common shares at $0.67 per share. On January 4, 2000, Bayview
Ventures exercised warrants to purchase 148,812 common shares at $0.67 per
share. These securities were offered and sold in reliance upon exemptions from
the Securities Act registration requirements set forth in Rule 506 under the
Securities Act, and in the alternative, under Section 4(2) of the Securities
Act.
On May 3, 1999 and July 27, 1999, we granted Leigh A. Powell options to
purchase an aggregate of 812,500 common shares with an exercise price of $3.00
per share. On September 23, 1999, we granted Mr. Powell an option to purchase
28,875 common shares at an exercise price of $3.00 per share. On May 3, 1999 and
September 23, 1999, we granted Philip M. St. Germain options for 87,500 and
21,875 common shares, respectively, with an exercise price of $3.00 per share.
On December 1, 1999, we also granted Mr. St. Germain an option for 125,000
common shares with an exercise price of $3.80 per share. These securities were
offered and sold in reliance upon the exemption provided under Section 4(2) of
the Securities Act.
On December 30, 1999, we issued and sold 1,244,325 shares of Series C
preferred shares to certain accredited investors for aggregate consideration of
$12,505,466. These securities were offered and sold in reliance upon exemptions
from the Securities Act registration requirements set forth in Rule 506 under
the Securities Act, and in the alternative, under Section 4(2) of the Securities
Act.
On April 29, 1998, we granted Leigh A. Powell and Philip M. St. Germain
options to purchase 187,500 and 156,250 common shares, respectively, each with
an exercise price of $1.20 per share. These securities were offered and sold in
reliance upon the exemption provided under Section 4(2) of the Securities Act.
On December 28, 1998, Insight Capital Partners II, L.P. exercised warrants
to purchase 200,000 Series B preferred shares at $5.00 per share. On
December 30, 1998, WI Software Investors LLC exercised warrants to purchase
200,000 Series B preferred shares at $5.00 per share. These securities were
offered and sold in reliance upon exemptions from the Securities Act
registration requirements set forth in Rule 506 under the Securities Act, and in
the alternative, under Section 4(2) of the Securities Act.
On September 19, 1997, we issued and sold $6.0 million of senior notes due
August 31, 1998 and an option to purchase 2,023,550 Series A preferred shares
and warrants to purchase 400,000 Series B preferred shares to certain accredited
investors for aggregate consideration of $6.0 million. On April 15, 1998, we
issued and sold 2,023,550 shares of Series A preferred shares and warrants to
purchase 400,000 shares of Series B preferred shares to certain accredited
investors for aggregate consideration of $6.0 million, pursuant to the exercise
of the aforementioned option and warrants. These securities were offered and
sold in reliance upon exemptions from the Securities Act registration
requirements set forth in Rule 506 under the Securities Act, and in the
alternative, under Section 4(2) of the Securities Act.
On May 27, 1997, we issued and sold $150,000 of 12% convertible notes due
June 30, 1998 and warrants to purchase 223,187 shares (on a split-adjusted
basis) of common stock to certain accredited investors for aggregate
consideration of $150,000. On June 30, 1998, these notes were converted into an
aggregate of 223,187 shares of common stock and the warrants were exercised.
These securities were offered and sold in reliance upon exemptions from the
Securities Act registration requirements set forth in Rule 506 under the
Securities Act, and in the alternative, under Section 4(2) of the Securities
Act.
II-2
<PAGE>
2. The Registrant from time to time has granted stock options to employees,
directors and consultants. The following table sets forth certain information
regarding such grants:
<TABLE>
<CAPTION>
RANGE OF
NUMBER OF EXERCISE
SHARES PRICES
--------- -------------------
<S> <C> <C>
January 1, 1997 to December 31, 1997................. 998,500 $ 0.02
January 1, 1998 to December 31, 1998................. 1,819,563 $ 1.20-1.52
January 1, 1999 to December 31, 1999................. 3,153,188 $ 1.52-3.80
January 1, 2000 to May 31, 2000...................... 634,063 $ 4.20-10.80
</TABLE>
The stock options issued in the foregoing transactions were made in reliance
upon an exemption from registration under Rule 701 of the Securities Act. No
underwriters were involved in the foregoing sales of securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- ------------------------------------------------------------
<S> <C>
1 Form of Underwriting Agreement
3.1+ Certificate of Incorporation of the Registrant, as amended
3.2+ Form of Amended and Restated Certificate of Incorporation
3.3+ Bylaws
3.4+ Form of Amended and Restated Bylaws
4.1 Specimen certificate for shares of common stock
4.2+ Description of capital stock (contained in the Certificate
of Incorporation filed as Exhibit 3.1)
5 Opinion of Hale and Dorr LLP
10.1+ 1994 Stock Plan
10.2+ 1997 Stock Option/Stock Issuance Plan
10.3+ 2000 Stock Incentive Plan
10.4+ 2000 Non-Employee Director Stock Option Plan
10.5+ Amended and Restated Registration Rights Agreement, dated
December 30, 1999 by and among Registrant and the
stockholders named therein
10.5.1 Amendment No. 1 to Amended and Restated Registration Rights
Agreement, dated December 30, 1999 by and among Registrant
and the stockholders named therein
10.5.2 Amendment No. 2 to Amended and Restated Registration Rights
Agreement, dated December 30, 1999 by and among Registrant
and the stockholders named therein
10.6+ Amended and Restated Stockholders' Agreement, dated December
30, 1999, by and among Registrant and the stockholders named
therein
10.7+ Form of sublease agreement, dated February 11, 2000, between
Registrant and PXRE Corporation regarding premises at 399
Thornall Street, Edison, New Jersey
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- ------------------------------------------------------------
<S> <C>
10.8+ Lease agreement, dated September 30, 1998, between
Registrant and Metro Four Associates Limited Partnership
regarding premises at 379 Thornall Street, Suite 406,
Edison, New Jersey
10.9+ Lease agreement, dated September 25, 1997, between
Registrant and Hega Realty Trust regarding premises at 537
Congress Street, Portland, Maine
10.10+ Lease agreement, dated May 24, 1996, between Registrant and
Hega Realty regarding premises at 537 Congress Street,
Suites 500, 501 and 504, Portland, Maine
10.11+ First Amendment, dated February 8, 1999, to lease agreement,
dated May 24, 1996, for premises at 537 Congress Street,
Suites 500, 501 and 504, Portland, Maine
10.12+ Second Amendment, dated May 27, 1999, to lease agreement,
dated May 24, 1996, for premises at 537 Congress Street,
Suites 500, 501 and 504, Portland, Maine
10.13+ Third Amendment, dated March 13, 2000, to lease agreement,
dated May 24, 1996, for premises at 537 Congress Street,
Suites 500, 501 and 504, Portland, Maine
10.14+ Fourth Amendment, dated April 5, 2000, to lease agreement,
dated May 24, 1996, for premises at 537 Congress Street,
Suites 500, 501 and 504, Portland, Maine
10.15+ Employment letter, dated July 27, 1999, between Registrant
and A. Leigh Powell
10.16+ Employment agreement, dated December 23, 1997, between
Registrant and Philip St. Germain
10.17+ Employment letter, dated December 26, 1998, between
Registrant and Steven I. Hirschfeld
10.18+ Employment letter, dated January 6, 1998, between Registrant
and Thomas Mucher
10.19+ Employment letter, dated July 23, 1999, between Registrant
and Terry Nicholson
10.20+ Employment agreement, dated April 27, 1998, between
Registrant and Gerald O'Connell
10.21+ Form of Indemnification Agreement between the Registrant and
each of its directors and officers
10.22+ Master Services Agreement, dated November 15, 1999, between
Registrant and Sapient Corporation
10.23 Strategic Relationship Agreement with The Procter and Gamble
Company, dated May 1, 2000
10.24 Warrant issued to The Procter and Gamble Company, dated
May 1, 2000
10.25 Accounts Receivable Financing Agreement, dated as of April
26, 2000, between Registrant and Silicon Valley Bank
10.26 Warrant issued to Silicon Valley Bank, dated April 26, 2000
10.27 Assignment of Lease, dated May 5, 2000, by and between
Registrant and GoFish.com, Inc. regarding premises at 511
Congress Street, sixth floor, Portland, Maine
23.1 Consent of Hale and Dorr LLP (contained in Exhibit 5)
23.2 Consent of Arthur Andersen LLP
24+ Power of Attorney of directors
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- ------------------------------------------------------------
<S> <C>
27+ Financial Data Schedule
</TABLE>
------------------------
* To be filed by amendment.
+ Previously filed.
(b) Financial Statement Schedules.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser; (2) that for
purposes of determining any liability under the Securities Act, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective; and (3) that for the purpose of determining any liability
under the Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 3 TO REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN PORTLAND,
MAINE ON JUNE 30, 2000.
<TABLE>
<S> <C> <C>
I-MANY, INC.
By: /s/ A. LEIGH POWELL
-----------------------------------------
A. Leigh Powell
President and Chief Executive Officer
</TABLE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<S> <C> <C>
/s/ A. LEIGH POWELL
--------------------------------- Chief Executive Officer, President and June 30, 2000
A. Leigh Powell Director (Principal Executive Officer)
/s/ PHILIP M. ST. GERMAIN Chief Financial Officer, Treasurer and
--------------------------------- Director (Principal Financial and June 30, 2000
Philip M. St. Germain Accounting Officer)
*/s/ WILLIAM DOYLE
--------------------------------- Chairman of the Board of Directors June 30, 2000
William Doyle
*/s/ JEFFREY HORING
--------------------------------- Director June 30, 2000
Jeffrey Horing
*/s/ JOHN C. PHELAN
--------------------------------- Director June 30, 2000
John C. Phelan
*By: /s/ A. LEIGH POWELL
---------------------------------
A. Leigh Powell
Attorney-in-fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- ------------------------------------------------------------
<S> <C>
1 Form of Underwriting Agreement
3.1+ Certificate of Incorporation of the Registrant, as amended
3.2+ Form of Amended and Restated Certificate of Incorporation
3.3+ Bylaws
3.4+ Form of Amended and Restated Bylaws
4.1 Specimen certificate for shares of common stock
4.2+ Description of capital stock (contained in the Certificate
of Incorporation filed as Exhibit 3.1)
5 Opinion of Hale and Dorr LLP
10.1+ 1994 Stock Plan
10.2+ 1997 Stock Option/Stock Issuance Plan
10.3+ 2000 Stock Incentive Plan
10.4+ 2000 Non-Employee Director Stock Option Plan
10.5+ Amended and Restated Registration Rights Agreement, dated
December 30, 1999 by and among Registrant and the
stockholders named therein
10.5.1 Amendment No. 1 to Amended and Restated Registration Rights
Agreement, dated December 30, 1999 by and among Registrant
and the stockholders named therein
10.5.2 Amendment No. 2 to Amended and Restated Registration Rights
Agreement, dated December 30, 1999 by and among Registrant
and the stockholders named therein
10.6+ Amended and Restated Stockholders' Agreement, dated December
30, 1999, by and among Registrant and the stockholders named
therein
10.7+ Form of sublease agreement, dated February 11, 2000, between
Registrant and PXRE Corporation regarding premises at 399
Thornall Street, Edison, New Jersey
10.8+ Lease agreement, dated September 30, 1998, between
Registrant and Metro Four Associates Limited Partnership
regarding premises at 379 Thornall Street, Suite 406,
Edison, New Jersey
10.9+ Lease agreement, dated September 25, 1997, between
Registrant and Hega Realty Trust regarding premises at 537
Congress Street, Portland, Maine
10.10+ Lease agreement, dated May 24, 1996, between Registrant and
Hega Realty regarding premises at 537 Congress Street,
Suites 500, 501 and 504, Portland, Maine
10.11+ First Amendment, dated February 8, 1999, to lease agreement,
dated May 24, 1996, for premises at 537 Congress Street,
Suites 500, 501 and 504, Portland, Maine
10.12+ Second Amendment, dated May 27, 1999, to lease agreement,
dated May 24, 1996, for premises at 537 Congress Street,
Suites 500, 501 and 504, Portland, Maine
10.13+ Third Amendment, dated March 13, 2000, to lease agreement,
dated May 24, 1996, for premises at 537 Congress Street,
Suites 500, 501 and 504, Portland, Maine
10.14+ Fourth Amendment, dated April 5, 2000, to lease agreement
dated May 24, 1996, for premises at 537 Congress Street,
Suites 500, 501 and 504, Portland, Maine
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- ------------------------------------------------------------
<S> <C>
10.15+ Employment letter, dated July 27, 1999, between Registrant
and A. Leigh Powell
10.16+ Employment agreement, dated December 23, 1997, between
Registrant and Philip St. Germain
10.17+ Employment letter, dated December 26, 1998, between
Registrant and Steven I. Hirschfeld
10.18+ Employment letter, dated January 6, 1998, between Registrant
and Thomas Mucher
10.19+ Employment letter, dated July 23, 1999, between Registrant
and Terry Nicholson
10.20+ Employment agreement, dated April 27, 1998, between
Registrant and Gerald O'Connell
10.21+ Form of Indemnification Agreement between the Registrant and
each of its directors and officers
10.22+ Master Services Agreement, dated November 15, 1999 between
Registrant and Sapient Corporation
10.23 Strategic Relationship Agreement with The Procter and Gamble
Company, dated May 1, 2000
10.24 Warrant issued to The Procter and Gamble Company, dated
May 1, 2000
10.25 Accounts Receivable Financing Agreement, dated as of
April 26, 2000, between Registrant and Silicon Valley Bank
10.26 Warrant issued to Silicon Valley Bank, dated April 26, 2000
10.27 Assignment of Lease, dated May 5, 2000, by and between
Registrant and GoFish.com, Inc. regarding premises at 511
Congress Street, sixth floor, Portland, Maine
23.1 Consent of Hale and Dorr LLP (contained in Exhibit 5)
23.2 Consent of Arthur Andersen LLP
24+ Power of Attorney of directors
27+ Financial Data Schedule
</TABLE>
------------------------
* To be filed by amendment.
+ Previously filed.
