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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________________ to ___________________
Commission file number: 000-30883
I-MANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 01-0524931
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
537 Congress Street
5th Floor
Portland, Maine 04101-3353
(Address of principal executive offices)
(207) 774-3244
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ ------
On November 13, 2000, 32,047,485 shares of the registrant's common stock, $.0001
par value, were issued and outstanding.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements
that involve risks and uncertainties. Discussions containing forward-looking
statements may be found in the information set forth under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"--Certain Factors That May Affect Future Operating Results" as well as in the
Form 10-Q generally. The Company uses words such as "believes," "intends,"
"expects," "anticipates," "plans," "estimates," "should," "may," "will,"
"scheduled" and similar expressions to identify forward-looking statements. The
Company uses these words to describe its 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 Form
10-Q may also contain 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 Form 10-Q. The Company's actual results could
differ materially from those anticipated in the forward-looking statements for
many reasons, including the risks described above and elsewhere in the Form
10-Q.
Although the Company believes that the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance or achievements. The Company is under
no duty to update any of the forward-looking statements after the date of this
Form 10-Q to conform these statements to actual results or to changes in our
expectations, other than as required by law.
2
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I-MANY, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of September 30, 2000 and December 31,
1999........................................................... 4
Statements of Income for the three months and nine months ended
September 30, 2000 and 1999 ................................... 6
Statements of Cash Flows for the nine months ended
September 30, 2000 and 1999.................................... 7
Notes to Consolidated Condensed Financial Statements........... 9
Item 2. Management's Discussion and Analysis of Financial Condition... 12
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 23
Item 2. Changes in Securities and Use of Proceeds..................... 23
Item 3. Defaults upon Senior Securities............................... 24
Item 4. Submission of Matters to a Vote of Security Holders........... 24
Item 5. Other Information............................................. 24
Item 6. Exhibits and Reports of Form 8-K.............................. 24
Signatures.................................................... 25
Exhibit Index
</TABLE>
3
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PART I. FINANCIAL INFORMATION
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
I-MANY, INC.
BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 61,537 $ 15,322
Accounts receivable, net of allowance for doubtful accounts of $250 6,294 4,800
Unbilled receivables 3,642 2,454
Prepaid expenses and other current assets 646 832
--------- ---------
Total current assets 72,119 23,408
Property and Equipment, net 8,986 4,041
Other Assets 1,024 33
--------- ---------
Total assets $ 82,129 $ 27,482
====== ======
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ - $ 229
Accounts payable 2,248 2,819
Accrued expenses 5,450 5,017
Deferred service revenue 4,786 4,649
Unearned product revenue 1,234 2,038
Current portion of capital lease obligations 59 23
--------- ---------
Total current liabilities 13,777 14,775
Capital Lease Obligations, net of current portion 126 18
Commitments and Contingencies
Series C Redeemable Convertible Preferred Stock - 12,492
Stockholders' Equity:
Series A convertible preferred stock, $.01 par value -
Authorized - 0 and 2,100,000 shares at September 30, 2000 and
December 31, 1999, respectively
Issued and outstanding - 0 and 2,023,550 shares at
September 30, 2000 and December 31, 1999, respectively - 20
Series B convertible preferred stock, $.01 par value - -
Authorized - 0 and 400,000 shares at September 30, 2000 and December
31, 1999, respectively
Issued and outstanding - 0 and 400,000 shares at
4
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September 30, 2000 and December 31, 1999, respectively - 4
Undesignated preferred stock, $.01 par value
Authorized - 5,000,000 and 0 shares at September 30, 2000 and
December 30, 1999, respectively
Issued and outstanding - 0 shares - -
Common stock, $.0001 par value - -
Authorized - 100,000,000 shares
Issued and outstanding - 32,004,725 and 12,283,885 shares
at September 30, 2000 and December 31, 1999, respectively 3 1
Additional paid-in capital 93,642 5,522
Deferred stock-based compensation (158) (235)
Accumulated deficit (25,261) (5,115)
--------- ---------
Total stockholders' equity 68,226 197
--------- ---------
Total liabilities, redeemable preferred stock and
stockholders' equity $ 82,129 $ 27,482
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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I-MANY, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Revenues:
Product $ 4,658 $ 2,743 $ 9,164 $ 6,810
Services 4,757 2,528 14,892 7,216
--------- --------- --------- ---------
Total net revenues 9,415 5,271 24,056 14,026
Cost of revenues 3,953 1,566 11,787 3,488
--------- --------- --------- ---------
Gross profit 5,462 3,705 12,269 10,538
Operating expenses:
Sales and marketing 4,347 1,818 16,547 4,456
Research and development 2,723 2,206 9,976 5,136
General and administrative 1,373 827 3,331 2,572
Depreciation and amortization 1,254 200 2,846 523
--------- --------- --------- ---------
Total operating expenses 9,697 5,051 32,700 12,687
--------- --------- --------- ---------
Loss from operations (4,235) (1,346) (20,431) (2,149)
Other income, net 675 30 829 99
--------- --------- --------- ---------
Loss before income taxes (3,560) (1,316) (19,602) (2,050)
Provision for income taxes 0 0 0 281
--------- --------- --------- ---------
Net loss (3,560) (1,316) (19,602) (2,331)
Accretion of dividends on redeemable convertible
preferred stock 34 0 544 0
--------- --------- --------- ---------
Net loss applicable to common stockholders $ (3,594) $ (1,316) $ (20,146) $ (2,331)
====== ====== ====== ======
Basic and diluted net loss per share $ (0.12) $ (0.11) $ (1.09) $ (0.21)
====== ====== ====== ======
Weighted average shares outstanding 28,966 12,030 18,539 11,209
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
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I-MANY, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------
2000 1999
------- -------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (19,602) $(2,331)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 2,769 509
Deferred income taxes 0 343
Amortization of deferred stock-based compensation 78 14
Deferred rent 0 (36)
Marketing expense related to issuance of warrants 2,620 0
Interest expense related to issuance of warrants 48 0
Changes in current assets and liabilities:
Accounts receivable (1,493) (3,241)
Unbilled receivables 13 773
Prepaid expenses and other current assets (72) 6
Prepaid and refundable income taxes 257 (330)
Accounts payable (571) 1,263
Accrued expenses 434 939
Deferred service revenue 137 438
Unearned product revenue (804) 414
------------ ------------
Net cash used in operating activities (16,186) (1,239)
------------ ------------
Cash Flows from Investing Activities:
Purchases of property and equipment, net (7,542) (815)
(Increase) decrease in other assets (991) 2
------------ ------------
Net cash used in investing activities (8,533) (813)
------------ ------------
Cash Flows from Financing Activities:
Net proceeds from initial public offering and over-allotment exercise 70,709 0
Proceeds from exercise of common stock warrants 150 0
Payments on capital lease obligations (30) (25)
Proceeds from exercise of stock options 334 22
Bank overdraft (229) 0
------------ ------------
Net cash provided by (used in) financing activities 70,934 (3)
------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents 46,215 (2,055)
Cash and Cash Equivalents, beginning of period 15,322 5,129
------------ ------------
Cash and Cash Equivalents, end of period $ 61,537 $ 3,074
======== ========
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Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 44 $ 8
======== ========
Cash paid during the period for taxes $ 0 $ 354
======== ========
Supplemental Disclosure of Noncash Activities:
Conversion of preferred stock to common stock $ 13,060 $ 0
======== ========
Accretion of dividends on Series C preferred stock $ 544 $ 0
======== ========
Property and equipment acquired under capital leases $ 173 $ 0
======== ========
Issuance of warrants to purchase common stock $ 3,868 $ 0
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
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I-MANY, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited interim financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission for reporting on Form 10-Q. Accordingly,
certain information and footnote disclosures required for complete financial
statements are not included herein. It is recommended that these financial
statements be read in conjunction with the financial statements and related
notes of I-Many, Inc. (the "Company") for the year ended December 31, 1999 as
reported in the Company's Registration Statement on Form S-1 (SEC File No.
333-32346). In the opinion of management, all adjustments (consisting of normal,
recurring adjustments) considered necessary for a fair presentation of financial
position, results of operations and cash flows at the dates and for the periods
presented have been included. The balance sheet presented as of December 31,
1999 has been derived from the financial statements that have been audited by
the Company's independent public accountants. The results of operations for the
three and nine months ended September 30, 2000 may not be indicative of the
results that may be expected for the year ending December 31, 2000, or for any
other period.
Note 2. Net Loss Per Share
Basic net loss per share was determined by dividing the net loss
applicable to common stockholders by the weighted-average number of shares of
common stock outstanding during the period. Diluted net loss per share was the
same as basic net loss per share for all periods presented since the effect of
any potentially dilutive security was excluded, as they are anti-dilutive as a
result of the Company's net losses. The total number of common equivalent shares
excluded from the diluted loss per share calculation was 4,910,570 and 8,974,642
for the three months ended September 30, 2000 and 1999, respectively, and
10,181,393 and 8,974,642 for the nine months ended September 30, 2000 and 1999,
respectively.
Note 3. Initial Public Offering
On July 13, 2000, the Company completed an initial public offering of
7,500,000 shares of common stock at a per share price of $9.00. Subsequently on
August 9, 2000, our underwriters exercised an option to purchase an additional
1,125,000 shares of common stock at a per share price of $9.00 to cover
over-allotments. Net proceeds from the offering and subsequent option exercise
were approximately $70.7 million. Pursuant to the Company's initial public
offering, all outstanding shares of preferred stock were converted into
approximately 9,170,000 shares of common stock.
Note 4. Line of Credit
In April 2000, the Company entered into a revolving line-of-credit
agreement with Silicon Valley Bank under which the Company could borrow up to
80% of eligible accounts receivable as defined in the agreement, such financed
receivables not to exceed $3 million. Borrowings under the line-of-credit
agreement accrued interest at the bank's prime rate plus 2.0% per annum and were
secured by substantially all assets of the Company. At June 30, 2000, there were
borrowings of approximately $1.6 million outstanding under this agreement. In
July 2000, a portion of the net proceeds from the Company's initial public
offering was used to pay off the amount outstanding under the revolving line of
credit. The line of credit was terminated in August 2000.
As consideration for entering into the line-of-credit agreement, the
Company issued to the bank a warrant to purchase 11,111 shares of the Company's
common stock. The warrant, which was formalized in July 2000 pursuant to the
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Company's initial public offering, is exercisable for a period of two years
following July 13, 2000 and bears an exercise price of $9.00 per share. The
Company valued the warrant at $48,500 as of the date of grant, which amount was
recognized as additional interest expense during the quarter ended September 30,
2000.
Note 5. Significant Customers
The Company had certain customers whose revenues individually
represented a significant percentage of total net revenues, as follows:
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Customer A 37% * 32% *
Customer B 13% * 10% *
Customer C * 16% * *
Customer D * * * 13%
Customer E * * * 10%
</TABLE>
* Denotes revenues of less than 10% of the Company's total.
Note 6. 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 generated 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 the Company's common stock. The warrant is
exercisable for a period of two years and the exercise price of the warrant is
$9.00 (the price per share to the public in the Company's initial public
offering). In addition, the Company agreed to grant P&G warrants to purchase up
to 125,000 additional 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 of $9.00 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 $3,820,000. 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 was recorded by the Company in May 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 125,000
additional shares of common stock as P&G provides the services set forth in the
Agreement.
Note 7 Chi-Cor Acquisition
On November 3, 2000, the Company entered into an agreement to acquire
all the outstanding capital stock of Chi-Cor Information Management, Inc.
(Chi-Cor) for a purchase price of up to $14.8 million. The Company will pay
initial
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consideration of approximately $9.8 million, including cash of $4.9 million,
and shares of Company stock with a fair value of $4.9 million. In addition,
upon achievement of certain revenue and income milestones through December
31, 2001, the Chi-Cor shareholders will be entitled to additional
consideration of up to $4.6 million, one-half of which is payable in cash and
the balance payable in the form of Company stock. In connection with the
acquisition, the Company will assume Chi-Cor's liabilities of approximately
$4.9 million and expects to incur transaction costs of approximately
$450,000. The acquisition will be accounted for as a purchase business
combination in accordance with Accounting Principles Board (APB) Opinion No.
16, BUSINESS COMBINATIONS. The Company will consolidate the operations of
Chi-Cor beginning on the date of acquisition. The Company has retained an
independent appraiser for the purpose of allocating the initial consideration
of $15.3 million to the tangible and intangible assets acquired and the
liabilities assumed. Any additional consideration paid to the Chi-Cor
shareholders as a result of the earnout will be treated as additional
purchase price and recorded as goodwill.
Note 8. Recent Accounting Pronouncements
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. The Company does not expect SFAS
No. 133 to have a material impact on its 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 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. The Company expects that the
adoption of this Interpretation would not have any effect on its financial
statements.
11
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion of our financial condition and
results of operations in conjunction with our financial statements and related
notes. In addition to historical information, the following discussion and other
parts of this report contain forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those anticipated
by such forward-looking statements due to various factors, including, but not
limited to, those set forth under "Certain Factors That May Affect Our Future
Operating Results" and elsewhere in this report.
OVERVIEW
We provide software and Internet-based solutions and related
professional services that allow our clients to more effectively manage their
business-to-business relationships. 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. In February 2000, we launched our proprietary Internet portal,
imany.com, which is a website created and owned exclusively by us, as a
marketplace for trading partners in the healthcare industry. Following the
introduction of imany.com, we have broadened its scope to enhance its
applicability to all industries where contract-based and program-based sales are
the norm. Currently, we can deliver our products through a variety of means,
including software licensed for installation on our clients' computer systems,
software licensed on an application service provider basis which we host on our
servers, our proprietary imany.com portal and the licensing of technology to
enable our clients to establish their own private or public portals and
exchanges.
We have generated revenues from both products and services.
Historically, product revenues have been principally composed of software
license fees generated from our CARS software suite, which accounted for 48.6%
of net revenues in the nine months ended September 30, 1999 and 38.1% of net
revenues for the nine months ended September 30, 2000. 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 51.4% of net revenues in the nine months ended September
30, 1999 and 61.9% of net revenues for the nine months ended September 30, 2000.
Historically, software license agreements have been for a three-year
period. We generally 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. In cases where significant
post-delivery obligations exist, such as customization or enhancements to the
core software, we recognize the entire fee on a percentage-of-completion
basis, and include the entire fee in product revenues. 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 from 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
12
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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 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
and maintenance components ratably over the term of the enterprise agreement and
recognize 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. 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 during 1999 and
$756,000 in the nine months ended September 30, 2000. We have not entered into
any new enterprise agreements during the first nine months of 2000.
After being profitable in both 1997 and 1998, we increased our spending
significantly during 1999 and 2000, principally to increase the size of our
sales and marketing workforce and for development and marketing expenses related
to the development of our web-based initiatives. Our operating expenses have
increased significantly since 1997, from $4.2 million for the 12 months ended
December 31, 1997 to $32.7 million for the nine months ended September 30, 2000.
These increases are primarily due to additions to our staff, as we have expanded
all aspects of our operations. We have grown from 46 employees as of December
31, 1996 to 284 employees at September 30, 2000.
Although we have not generated significant revenues to date from our
Internet initiatives, we believe that we will generate Internet-based sales
principally from subscription fees paid by manufacturers, demand aggregators and
distributors for access to our software and the contract data which will be
hosted on our servers.
RECENT EVENTS
On May 1, 2000, in connection with the establishment of a Strategic
Relationship Agreement with The Procter & Gamble Company (P&G), we issued a
fully-exercisable warrant to purchase up to 875,000 shares of our common stock
at an exercise price of $9.00 per share. This warrant is exercisable for a
two-year period. During the second quarter of 2000, we recognized a non-cash
expense of $2.6 million for the warrant, equal to the value of the warrant,
calculated using the Black-Scholes option pricing model, less the amount to be
billed to P&G under the Agreement. In addition, we agreed to grant P&G a warrant
to purchase up to 125,000 additional shares of common stock upon the achievement
of milestones set forth in the Agreement. This additional warrant, if granted,
will expire two years after issuance and will be exercisable at the fair market
value per share of our common stock at the date of grant.
On July 13, 2000, we completed an initial public offering of 7,500,000
shares of common stock at a per share price of $9.00. Subsequently on August 9,
2000, the underwriters exercised an option to purchase an additional 1,125,000
shares of common stock to cover over-allotments. Net proceeds from the offering
and subsequent option exercise were approximately $70.7 million. In connection
with our initial public offering, all outstanding shares of preferred stock were
converted into approximately 9,170,000 shares of common stock.
On November 3, 2000, we signed an agreement to acquire Chi Cor
Information Management, Inc. for a purchase price of up to $14.8 million,
including $4.9 million of cash and common stock valued at $4.9 million, and
up to $4.6 million to be paid, subject to the satisfaction of certain
performance criteria during 2001, half in cash and half in stock. In
connection with the acquisition, the Company will assume Chi-Cor's
liabilities of approximately $4.9 million and expects to incur transaction
costs of approximately $450,000.
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RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
NET REVENUES
Net revenues increased by $4.1 million, or 79%, to $9.4 million for the
quarter ended September 30, 2000 from $5.3 million for the quarter ended
September 30, 1999. Product revenues increased by $1.9 million, or 70%, to $4.7
million for the quarter ended September 30, 2000, from $2.7 million for the
quarter ended September 30, 1999. This increase is attributable to increases in
both the number of software licenses sold and the average size of the licenses.
As a percentage of total net revenues, product revenues decreased to 49.5% for
the quarter ended September 30, 2000, from 52.0% for the quarter ended September
30, 1999. This decrease in product revenues as a percentage of total net
revenues is attributable to the expansion of our professional services business.
Service revenues increased by $2.2 million, or 88%, to $4.8 million for the
quarter ended September 30, 2000, from $2.5 million for the quarter ended
September 30, 1999. As a percentage of total net revenues, service revenues
increased to 50.5% for the quarter ended September 30, 2000, from 48.0% for the
quarter ended September 30, 1999. This increase in service revenues both in
dollars and as a percentage of total 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 our CARS
software suite.
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, and to a lesser extent, amounts due to third parties for
integrated technology. Historically, cost of product revenues has not been a
significant component of total cost of revenues. Cost of revenues increased by
$2.4 million, or 152%, to $4.0 million for the quarter ended September 30, 2000,
from $1.6 million for the quarter ended September 30, 1999. This increase is due
primarily to the increased number of employees in our professional services
group, which grew from 29 in the third quarter of 1999 to 90 in the third
quarter of 2000, as well as increased costs related to subcontractor consultants
working on our professional service engagements, which increased from $599,000
in the third quarter of 1999 to $1.4 million in the third quarter of 2000. As a
percentage of total net revenues, cost of revenues increased to 42.0% for the
quarter ended September 30, 2000, from 29.7% for the quarter ended September 30,
1999. This increase in cost of revenues as a percentage of total 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,
both internal and subcontracted, within our professional services organization.
OPERATING EXPENSES
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, expenses for trade shows and
advertising and public relations expenses. Sales and marketing expense increased
139% to $4.3 million in the three months ended September 30, 2000 from $1.8
million in the three months ended September 30, 1999. As a percentage of total
net revenues, sales and marketing expense increased to 46.2% for the quarter
ended September 30, 2000, from 34.5% for the quarter ended September 30, 1999.
This increase in sales and marketing expense both in dollars and as a percentage
of total net revenues is primarily the result of advertising, marketing and
promotional materials related to our web-based initiatives, an increase in
salaries and related costs because of an increase in the number of sales and
marketing personnel, and increased participation at trade shows.
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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. Research and
development expenses increased by $517,000, or 23%, to $2.7 million for the
quarter ended September 30, 2000, from $2.2 million for the quarter ended
September 30, 1999. As a percentage of total net revenues, research and
development expenses decreased to 28.9% for the third quarter of 2000 from 41.9%
for the third quarter of 1999. This increase in dollars is primarily due to an
increase in salary costs related to an increase in the number of research and
development personnel.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries and related costs for personnel in our administrative,
finance and human resources departments, and legal, accounting and other
professional service fees. General and administrative expenses increased by
$546,000, or 66%, to $1.4 million for the third quarter of 2000 from $827,000
for the third quarter of 1999. As a percentage of total net revenues, general
and administrative expenses decreased to 14.6% for the quarter ended September
30, 2000, from 15.7% for the quarter ended September 30, 1999. The increase in
general and administrative expenses in dollars is primarily attributable to an
increase in the number of administrative, finance and human resources employees,
and to the costs associated with being a publicly-held company. 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 $1.1 million, or 527%, from $200,000 in the third quarter of 1999
to $1.3 million in the third quarter of 2000. This increase is a result of
significant additions of computer hardware and software for our web-based
initiatives and for our increased personnel, and amortization of capitalized
internal use software development costs. In the quarter ended September 30,
2000, the amortization expense related to capitalized internal use software
development costs amounted to $837,000. There was no amortization of capitalized
internal use software development costs in the quarter ended September 30, 1999.
OTHER INCOME, NET. Other income, net increased by $645,000, or 2150%,
from $30,000 in the quarter ended September 30, 1999, to $675,000 in the quarter
ended September 30, 2000. This increase is the result of interest earned on
higher average cash balances due to the net cash proceeds from our initial
public offering.
PROVISION FOR INCOME TAXES. We have incurred operating losses for all
quarters in 1999 and 2000 and have consequently recorded a valuation allowance
for the full amount of our net deferred tax asset, which consists principally of
our net operating loss carryforwards, as the future realization of the tax
benefit is uncertain. No provision for income taxes has been recorded in the
quarter ended September 30, 2000.
COMPARISON OF THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
NET REVENUES
Net revenues increased by $10.0 million, or 72%, to $24.1 million for
the nine months ended September 30, 2000 from $14.0 million for the nine months
ended September 30, 1999. Product revenues increased by $2.4 million, or 35%, to
$9.2 million for the nine months ended September 30, 2000 from $6.8 million for
the nine months ended September 30, 1999. This increase is attributable to an
increase in the average size of licenses sold, partially offset by a decrease in
the number of software licenses sold, in the nine months ended September 30,
2000 as compared to the nine months ended September 30, 1999. As a percentage of
total net revenues, product revenues decreased to 38.1% for the nine months
ended September 30, 2000 from 48.6% for the nine months ended September 30,
1999.
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Service revenues increased by $7.7 million, or 106%, to $14.9
million for the nine months ended September 30, 2000 from $7.2 million for
the nine months ended September 30, 1999. As a percentage of total net
revenues, service revenues increased to 61.9% for the nine months ended
September 30, 2000 from 51.4% for the nine months ended September 30, 1999.
This increase in service revenues both in dollars and as a percentage of
total 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 the number and size of professional service engagements,
including implementation, business analysis and training.
COST OF REVENUES
Cost of revenues increased by $8.3 million, or 238%, to $11.8 million
for the nine months ended September 30, 2000 from $3.5 million for the nine
months ended September 30, 1999. This increase is due to the increased number of
employees in our professional services group, as well as increased costs related
to subcontractor consultants working on our professional service engagements,
which increased from $1.1 million in the nine months ended September 30, 1999 to
$5.0 million in the nine months ended September 30, 2000. As a percentage of
total net revenues, cost of revenues increased to 49.0% for the nine months
ended September 30, 2000 from 24.9% for the nine months ended September 30,
1999. This increase in cost of revenues as a percentage of total 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,
both internal and subcontracted, within our professional services organization.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses increased by $12.1
million, or 271%, to $16.5 million for the nine months ended September 30, 2000,
from $4.5 million for the nine months ended September 30, 1999. Excluding the
one-time non-cash charge related to the warrants granted to Procter & Gamble,
sales and marketing expenses increased by $9.5 million, or 213%, to $13.9
million for the nine months ended September 30. As a percentage of total net
revenues, sales and marketing expenses, excluding the warrant charge, increased
to 57.9% for the nine months ended September 30, 2000 from 31.8% for the nine
months ended September 30, 1999. This increase in sales and marketing expense
both in dollars and as a percentage of total net revenues is primarily the
result of advertising, marketing and promotional materials related to our
web-based initiatives, an increase in salaries and related costs because of an
increase in the number of sales and marketing personnel, and increased
participation at trade shows.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
by $4.8 million, or 94%, to $10.0 million for the nine months ended September
30, 2000 from $5.1 million for the nine months ended September 30, 1999. 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. Additionally, subcontractor costs
associated with the development of our Internet portal increased to $8.0 million
in the nine months ended September 30, 2000 from $455,000 in the nine months
ended September 30, 1999. Software development costs incurred to build our
Internet portal were 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. Of the $8.0 million incurred
in the nine months ended September 30, 2000, $3.4 million was expensed. As a
percentage of total net revenues, research and development expenses increased to
41.5% for the nine months ended September 30, 2000 from 36.6% for the nine
months ended September 30, 1999.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased by $759,000, or 30%, to $3.3 million for the nine months ended
September 30,
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2000 from $2.6 million for the nine months ended September 30, 1999. As a
percentage of total net revenues, general and administrative expenses
decreased to 13.8% for the nine months ended September 30, 2000 from 18.3%
for the nine months ended September 30, 1999. The increase in general and
administrative expenses in dollars is primarily related to the addition of
administrative, finance and human resources employees to support our
increased sales, marketing and development activities, and to increased costs
associated with being a publicly-held company.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased by $2.3 million, or 444%, to $2.8 million for the nine months ended
September 30, 2000 from $523,000 for the nine months ended September 30, 1999.
This increase is a result of additions of computer hardware and computer
software related to our increased personnel as well as the amortization of
capitalized internal use software development costs. In the nine months ended
September 30, 2000, the amortization expense related to capitalized internal use
software development costs amounted to $1.8 million. There was no amortization
of capitalized internal use software development costs in the nine months ended
September 30, 1999.
OTHER INCOME, NET. Other income, net increased by $730,000 to $829,000
for the nine months ended September 30, 2000 from $99,000 for the nine months
ended September 30, 1999. This increase is primarily the result of an increase
in interest income from higher cash balances in the nine months ended September
30, 2000, due to the net cash proceeds from our initial public offering.
PROVISION FOR INCOME TAXES. We have incurred operating losses for all
quarters in 1999 and 2000 and have consequently recorded a valuation allowance
for the full amount of our net deferred tax asset, as the future realization of
the tax benefit is uncertain. No provision for income taxes has been recorded in
the nine months ended September 30, 2000. The tax provision of $281,000 in the
nine months ended September 30, 1999 represents the reversal of a deferred tax
asset previously recorded in 1998.
LIQUIDITY AND CAPITAL RESOURCES
On July 13, 2000, we issued 7,500,000 shares of our common stock at an
initial public offering price of $9.00 per share. On August 9, 2000 our
underwriters exercised a 30-day option to purchase an additional 1,125,000
shares of common stock to cover over-allotments. Net cash proceeds to us from
the initial public offering and subsequent overallotment option exercise were
approximately $70.7 million.
From inception until our initial public offering, 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.
At September 30, 2000, we had cash and cash equivalents of $61.5
million and a net working capital surplus of $58.5 million. On September 30,
2000, we had no long-term or short-term debt, other than obligations under
capital lease financings. During the three-month period ended September 30,
2000, we used a portion of our initial public offering proceeds to pay off the
balance of $2.3 million owed on our revolving line-of-credit agreement with
Silicon Valley Bank.
On November 3, 2000, we signed an agreement to acquire Chi-Cor
Information Management, Inc. for a purchase price of up to $14.8 million,
including $4.9 million of cash and common stock valued at $4.9 million, and
up to $4.6 million to be paid, subject to the satisfaction of certain
performance criteria during 2001, half in cash and half in stock. In
connection with the acquisition, the Company will assume Chi-Cor's
liabilities of approximately $4.9 million and expects to incur transaction
costs of approximately $450,000. We expect the acquisition to close on or
about November 17, 2000, at which time we will use existing cash resources to
pay the cash portion of the purchase price.
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Net cash used in operating activities for the nine months ended
September 30, 2000 was $16.2 million, as compared to net cash used in operating
activities of $1.2 million in the nine months ended September 30, 1999. For the
nine months ended September 30, 2000, net cash used in operating activities
consisted primarily of our net loss of $19.6 million, as adjusted for
depreciation and amortization of $2.8 million and $2.7 million in non-cash
charges related to issuance of warrants, an increase in accounts receivable of
$1.5 million, and a $804,000 decrease in unearned product revenue.
Net cash used in investing activities was $8.5 million for the nine
months ended September 30, 2000 and $813,000 for the nine months ended September
30, 1999. Net cash used in investing activities for the nine months ended
September 30, 2000 primarily reflects purchases of property and equipment,
including approximately $4.7 million of capitalized internal use software
development costs.
Net cash provided by financing activities was $70.9 million for the
nine months ended September 30, 2000, primarily from proceeds from our initial
public offering. Net cash used in financing activities was $3,000 for the nine
months ended September 30, 1999.
We currently anticipate that our $61.5 million balance in cash and cash
equivalents will be sufficient to meet our anticipated needs for working
capital, capital expenditures, and company acquisitions 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 our current balance of cash and cash equivalents is 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.
CERTAIN FACTORS THAT MAY AFFECT OUR FUTURE OPERATING RESULTS
In addition to other information in this Form 10-Q, the following
factors that may affect our future operating results should be carefully
considered in evaluating I-many and its business because such factors currently
may have a significant impact on I-many's business, operating results and
financial condition. As a result of the risk factors set forth below and
elsewhere in this Form 10-Q, and the risks discussed in I-many's other
Securities and Exchange Commission filings, actual results could differ
materially from those projected in any forward looking statements.
WE HAVE INCURRED SUBSTANTIAL LOSSES IN 1999 AND 2000 AND OUR RETURN TO
PROFITABILITY IS UNCERTAIN
We incurred net losses of approximately $5.2 million in the year
ended December 31, 1999 and $19.6 million in the nine months ended September
30, 2000 and we had an accumulated deficit at September 30, 2000 of $25.3
million. We expect to continue spending significantly, principally for sales,
marketing and development expenses, and therefore we will need to grow our
revenues significantly before we reach profitability. Although we have been
profitable in certain 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 INTERNET INITIATIVES REPRESENT A NEW BUSINESS MODEL FOR US AND WE CANNOT BE
CERTAIN THAT THESE INITIATIVES WILL GENERATE SIGNIFICANT REVENUES
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We launched our Internet initiative 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 our 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 our Internet
initiatives has required, and will continue to require, a significant
commitment of resources, including the attention of management and
significant cash expenditures. If we cannot generate revenue on the basis we
anticipate, we may not be profitable in the future.
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 ANY 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.
OUR METHOD OF ACCOUNTING FOR THE COSTS WE INCURRED IN CONNECTION WITH THE
DEVELOPMENT OF OUR INTERNET PORTAL IS BASED ON OUR BUSINESS MODEL, AND IN THE
EVENT OUR BUSINESS MODEL CHANGES, WE MAY BE REQUIRED TO INCUR A CHARGE AGAINST
EARNINGS
In accordance with generally accepted accounting principles, we have
capitalized certain of our costs related to the development of imany.com, our
proprietary Internet portal, and we are amortizing the capitalized costs over an
estimated useful life of 24 months. In the event that our business
model changes such that our portal is no longer deemed to have sufficient value
to justify the then carrying value of the capitalized costs, we would be
required to write off all, or a portion of, these capitalized costs. In such an
event, our results of operations for the period in which we take such a charge
could be materially adversely affected.
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. In addition, as a
result of our acquisition of Chi-Cor, we will have added a facility in Chicago,
Illinois. 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
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increased from $7.5 million in the year ended December 31, 1997 to $24.1 million
in the nine months ended September 30, 2000, and the number of our employees
increased from 67 as of December 31, 1997 to 284 as of September 30, 2000. 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
Most 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. In
the first nine months of 2000, two customers, Premier, Inc. and Boehringer
Ingelheim, accounted for approximately 32 percent and 10 percent, respectively,
of our total revenues. 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. 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 market, 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.
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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.
WE MAY NOT BE SUCCESSFUL IN ACQUIRING NEW TECHNOLOGIES OR BUSINESSES AND THIS
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
We have agreed to acquire Chi-Cor, which is located in Chicago,
Illinois. Any other 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.
IF WE DO ACQUIRE NEW TECHNOLOGIES OR BUSINESSES, OUR RESULTS OF OPERATIONS
MAY BE ADVERSELY AFFECTED BY NON-CASH CHARGES
On November 3, 2000, we signed an agreement to acquire Chi-Cor. In
connection with the accounting for the acquisition of Chi-Cor or any future
acquisition, we expect to record a significant amount of intangible assets,
the amortization of which will adversely affect our results of operations in
future periods. In addition, we expect to record a significant charge for a
write-off of the purchase price of Chi-Cor as in-process research and
development.
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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 and other 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.
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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
INTEREST RATE RISK
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's investment portfolio. The Company does not
use derivative financial instruments in its investment portfolio. The primary
objective of the Company's investment activities is to preserve principal while
maximizing yields without assuming significant risk. This is accomplished by
investing in widely diversified investments, consisting primarily of short-term,
investment-grade securities. Due to the nature of our investments, we believe
there is no material risk exposure.
As of September 30, 2000, the Company's cash and cash equivalents
consisted entirely of money market investments with maturities under 30 days and
non-interest bearing checking accounts. The weighted average interest rate yield
for all cash and cash equivalents at September 30, 2000 amounted to 6.28
percent.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Modification of Constituent Instruments
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None
(b) Change in Rights
None
(c) Changes in Securities
During the quarter ended September 30, 2000, the Company issued an
aggregate of 88,417 shares of its common stock upon the exercise of outstanding
options to purchase common stock. Those shares were issued pursuant to an
exemption by reason of Rule 701 under the Securities Act of 1933.
On March 5, 2000, the Board of Directors authorized a 2.5-for-one stock
split of our common stock, to be effected in the form of a stock dividend. The
stock split was effected on July 11, 2000 by distribution to each stockholder of
record of 2.5 shares of common stock for each share of common stock held.
(d) Use of Proceeds
The Company continues to use the proceeds of its initial public
offering as set forth in its statements of cash flow.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits listed on the Exhibit Index are filed herewith.
(b) We did not file a current report on Form 8-K during the
quarter ended September 30, 2000. On November 8, 2000, we filed a current
report on Form 8-K pursuant to Item 5 thereof, reporting the agreement to
acquire Chi-Cor Information Management, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
I-MANY, INC
Date: November 14, 2000 By: /s/ Philip M. St. Germain
---------------------------------
Philip M. St. Germain
Chief Financial Officer and Treasurer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.1 Agreement and Plan of Merger and Reorganization, dated
November 3, 2000, by and among the Registrant, Cimian
Corporation, Chi-Cor Information-Management, Inc., certain
stockholders of Chi-Cor, and Karl F. Effegen, as agent for
the stockholders.
27.1 Financial Data Schedule
</TABLE>
