<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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: 001-13211
INFORMATION MANAGEMENT ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
Connecticut 06-1289928
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
One Corporate Drive, Suite 414
Shelton, Connecticut 06484
(203) 925-6800
(Address and telephone number of principal executive offices)
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
------ ------
The number of shares of the Registrant's Common Stock, no par value, outstanding
on August 11, 1997, was 9,209,946.
This report consists of 18 pages.
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INFORMATION MANAGEMENT ASSOCIATES, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C> <C>
PART I: FINANCIAL INFORMATION
Item 1: Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1997 and 3
December 31, 1996
Condensed Consolidated Statements of Operations for the 4
Three and Six Months Ended June 30, 1997 and 1996
Condensed Consolidated Statements of Cash Flows for the Six 5
Months Ended June 30, 1997 and 1996
Notes to Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial Condition 7
and Results of Operations
PART II: OTHER INFORMATION
Item 1: Legal Proceedings 16
Item 2: Changes in Securities 16
Item 3: Defaults upon Senior Securities 16
Item 4: Submission of Matters to a Vote of Security Holders 16
Item 5: Other Information 17
Item 6: Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
<PAGE>
ITEM 1: FINANCIAL STATEMENTS
INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 1,568 $ 3,073
Accounts receivable, net................................................................. 12,156 10,473
Other current assets..................................................................... 618 232
-------- --------
Total current assets.................................................................. 14,342 13,778
Equipment, net............................................................................. 2,390 2,222
Notes receivable from officers............................................................. 721 572
Other assets, net.......................................................................... 1,007 709
-------- --------
$ 18,460 $ 17,281
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Bank line of credit and current maturities of long-term debt............................. $ 5,691 $ 5,444
Accounts payable and accrued liabilities................................................. 6,099 5,419
Deferred revenues........................................................................ 2,371 1,705
-------- --------
Total current liabilities............................................................. 14,161 12,568
-------- --------
Term note payable to bank, less current maturities......................................... 2,167 2,417
-------- --------
Other long-term liabilities................................................................ 741 906
-------- --------
Preferred stock, undesignated, no par value, 500,000 shares authorized:
Series A senior redeemable convertible preferred stock, $1,000 stated value; 4,500
shares authorized, issued and outstanding (liquidation value of $5,378 and $5,169
at June 30, 1997 and December 31, 1996)................................................ 5,354 5,145
Series B senior redeemable convertible preferred stock, $1,000 stated value; 4,350
shares authorized, issued and outstanding (liquidation value of $4,587 and $4,408
at June 30, 1997 and December 31, 1996)................................................ 4,465 4,286
-------- --------
Total preferred stock................................................................. 9,819 9,431
-------- --------
Redeemable common stock warrants........................................................... 2,865 2,865
-------- --------
Shareholders' equity (deficit):
Common stock, no par value; 4,293,379 shares outstanding at June 30, 1997 and
December 31, 1996........................................................................ 5,800 5,795
Cumulative translation adjustment.......................................................... (98) (9)
Accumulated deficit........................................................................ (16,995) (16,692)
-------- --------
Total shareholders' equity (deficit).................................................. (11,293) (10,906)
-------- --------
$ 18,460 $ 17,281
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
License fees........................................................... $ 4,677 $ 3,258 $ 8,479 $ 6,187
Services and maintenance............................................... 4,021 3,437 7,676 6,597
---------- ---------- ---------- ----------
Total revenues....................................................... 8,698 6,695 16,155 12,784
---------- ---------- ---------- ----------
Cost of revenues:
Cost of license fees................................................... 70 186 141 352
Cost of services and maintenance....................................... 2,307 1,811 4,259 3,633
---------- ---------- ---------- ----------
Total cost of revenues............................................... 2,377 1,997 4,400 3,985
---------- ---------- ---------- ----------
Gross profit.............................................................. 6,321 4,698 11,755 8,799
---------- ---------- ---------- ----------
Operating expenses:
Sales and marketing.................................................... 3,042 1,964 5,690 3,836
Product development.................................................... 1,564 1,741 3,096 3,294
General and administrative............................................. 1,223 961 2,315 1,985
---------- ---------- ---------- ----------
Total operating expenses............................................. 5,829 4,666 11,101 9,115
---------- ---------- ---------- ----------
Operating income (loss)................................................... 492 32 654 (316)
Interest expense.......................................................... (210) (301) (467) (582)
---------- ---------- ---------- ----------
Income (loss) before provision for income taxes........................... 282 (269) 187 (898)
Provision for income taxes................................................ 12 30 102 30
---------- ---------- ---------- ----------
Net income (loss)......................................................... 270 (299) 85 (928)
Accretion of preferred stock dividends.................................... (197) (97) (388) (193)
Increase in fair market value of redeemable common
stock warrants........................................................... - - - (385)
---------- ---------- ---------- ----------
Income (loss) applicable to common shareholders........................... $ 73 $ (396) $ (303) $ (1,506)
========== ========== ========== ==========
Pro forma net income (loss) per share..................................... .04 (.05) .01 (.15)
========== ========== ========== ==========
Pro forma shares used in net income (loss) per share
calculation.............................................................. 6,703,540 6,059,413 6,703,540 6,059,413
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1997 1996
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)........................................................................ $ 85 $( 928)
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided By
Operating Activities:
Depreciation and amortization............................................................ 719 605
Changes in Operating Assets and Liabilities
Accounts receivable, net................................................................ (1,683) (1,708)
Other current assets.................................................................... (386) (219)
Notes receivable from officers.......................................................... (149) (433)
Other assets, net....................................................................... (298) (297)
Accounts payable and accrued liabilities................................................ 680 801
Deferred revenues....................................................................... 666 548
Other long-term liabilities............................................................. (32) (83)
------- -------
Net Cash Used in Operations.......................................................... (398) (1,714)
------- -------
Cash Flows from Investing Activities:
Acquisition of equipment................................................................. (882) (457)
------- -------
Cash Flows from Financing Activities:
Proceeds from bank term loan............................................................. - 1,450
Repayment of subordinated note payable to stockholder.................................... - (250)
Proceeds from (repayment of) capital lease obligations................................... (136) 98
------- -------
Net Cash Provided By (Used In) Financing Activities.................................. (136) 1,298
------- -------
Effect of Exchange Rate Changes........................................................... (89) (40)
------- -------
Net Decrease in Cash and Cash Equivalents................................................. (1,505) (913)
Cash and Cash Equivalents, beginning of period............................................ 3,073 1,543
------- -------
Cash and Cash Equivalents, end of period.................................................. $ 1,568 $ 630
======= =======
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest.................................................................. $ 422 $ 352
Supplemental Disclosure of Noncash Activities:
Accretion of Series A preferred stock in lieu of dividends............................. 209 193
Accretion of Series B preferred stock in lieu of dividends............................. 179 -
Increase in fair market value of redeemable common stock warrants...................... - 385
Equipment acquired pursuant to capital lease obligation................................ - 509
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. Basis of Presentation
The accompanying condensed consolidated financial statements have been
prepared by Information Management Associates, Inc. and its wholly owned
subsidiary Information Management Associates, Ltd. (together the "Company),
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. However, the Company believes that the disclosures are adequate to
make the information presented not misleading. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's Form S-1
Registration Statement which became effective July 30, 1997 and included in the
Company's July 30, 1997 Prospectus related to its initial public offering.
The unaudited information has been prepared on the same basis as the annual
financial statements, and in the opinion of the Company's management, reflects
all normal recurring adjustments necessary for a fair presentation of the
information for the periods presented. Operating results for any quarter are
not necessarily indicative of the results for any future periods.
2. Pro Forma Net Loss Per Common Share
The accompanying pro forma net loss per common share reflects the
completion of the Company's initial public offering (see Note 3), and the
associated conversion of the Company's redeemable convertible preferred stock,
the cashless exercise of the redeemable warrants to purchase common stock and
the exercise of certain options in connection with such offering. In addition,
pursuant to the requirements of the Securities and Exchange Commission, common
stock equivalents issued at prices below the offering price have been included
in the calculation of weighted average number of shares outstanding.
3. Subsequent Event
In August 1997, the Company completed its initial public offering of
3,900,000 shares of its common stock, of which 2,800,000 shares were issued and
sold by the Company and 1,100,000 shares were sold by certain selling
shareholders, which provided net proceeds to the Company, after underwriting
discounts and expenses, of approximately $32.7 million. The Company used
approximately $7.8 million of the net proceeds to repay in full the outstanding
indebtedness under its credit facility and $250,000 to repay in full its
outstanding indebtedness to a shareholder.
6
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The Company develops, markets and supports customer interaction software
designed to increase the productivity and revenue-generating capabilities of
mid-size to large-scale telephone call centers. The Company's EDGE TeleBusiness
software ("EDGE") is a suite of applications and tools that enable businesses to
automate telebusiness activities (telemarketing, telesales, account management,
customer service and customer support) on an enterprise-wide basis. The Company
complements its EDGE products by offering its clients professional consulting,
technical support and maintenance services.
Until September 1996, the Company marketed a telemarketing software
application for IBM mid-range computers called Telemar. Due to the substantial
growth in EDGE software license fees and client/server open system software
market opportunities, the Company elected to focus exclusively on its EDGE
products and sold Telemar and certain related assets and liabilities on
September 1, 1996. Currently, substantially all of the Company's revenues are
attributable to the licensing of EDGE products and the provision of professional
consulting, technical support and maintenance services relating to EDGE. The
Company currently expects that the licensing of EDGE products and the provision
of such related services will account for substantially all of the Company's
revenues for the foreseeable future.
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the Condensed
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Form 10-Q. The following discussion contains forward-looking statements and
the Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including those
set forth under "Factors That May Affect Future Results" and elsewhere in this
Form 10-Q.
7
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentages of total revenues for
certain items in the Company's Condensed Consolidated Statement of Operations
for the three months and six months ended June 30, 1996 and 1997.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
License fees:
EDGE product line......................................... 53.8% 43.9% 52.5% 42.1%
Telemar product line...................................... - 4.8 - 6.3
----- ----- ----- -----
Total license fees.................................... 53.8 48.7 52.5 48.4
----- ----- ----- -----
Services and maintenance:
EDGE product line......................................... 46.2 42.0 47.5 42.4
Telemar product line...................................... - 9.3 - 9.2
----- ----- ----- -----
Total services and maintenance........................ 46.2 51.3 47.5 51.6
----- ----- ----- -----
Total revenues.................................... 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of revenues:
License fees.................................................. 0.8 2.8 0.9 2.8
Services and maintenance...................................... 26.5 27.0 26.4 28.4
----- ----- ----- -----
Total cost of revenues.................................... 27.3 29.8 27.3 31.2
----- ----- ----- -----
Gross profit....................................................... 72.7 70.2 72.7 68.8
----- ----- ----- -----
Operating expenses:
Sales and marketing........................................... 35.0 29.3 35.2 30.0
Product development........................................... 18.0 26.0 19.2 25.8
General and administrative.................................... 14.0 14.4 14.3 15.5
----- ----- ----- -----
Total operating expenses.................................. 67.0 69.7 68.7 71.3
----- ----- ----- -----
Operating income (loss)............................................ 5.7 0.5 4.0 (2.5)
Interest expense................................................... (2.5) (4.5) (2.9) (4.6)
----- ----- ----- -----
Income (loss) before provision for income taxes.................... 3.2 (4.0) 1.1 (7.1)
Provision for income taxes......................................... 0.1 0.5 0.6 0.2
----- ----- ----- -----
Net income (loss).................................................. 3.1% (4.5)% 0.5% (7.3)%
===== ===== ===== =====
</TABLE>
The following table sets forth for each component of revenue, the cost of
such revenue expressed as a percentage of such revenue for the periods
indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cost of license fees........................................... 1.5% 5.7% 1.7% 5.7%
Cost of services and maintenance............................... 57.4% 52.7% 55.5% 55.1%
</TABLE>
8
<PAGE>
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1997
Revenues
License Fees. Total license fees increased 43.6% from $3.3 million, or 48.7%
of total revenues, in the quarter ended June 30, 1996 to $4.7 million, or 53.8%
of revenues, in the quarter ended June 30, 1997. EDGE license fees increased
59.2% from $2.9 million in the quarter ended June 30, 1996 to $4.7 million in
the quarter ended June 30, 1997. The increase in EDGE license fees was primarily
attributable to an increase in the average size of customer licenses, increased
market awareness and acceptance of the EDGE products and increased productivity
resulting from expansion of the Company's sales and marketing organization.
Telemar license fees decreased from $321,000 in the quarter ended June 30, 1996
to $0 in the quarter ended June 30, 1997 due to the sale of the Telemar product
line in September 1996.
Services And Maintenance. Services and maintenance revenues increased by
17.0% from $3.4 million, or 51.3% of total revenues, in the quarter ended June
30, 1996 to $4.0 million, or 46.2% of total revenues, in the quarter ended June
30, 1997. EDGE services and maintenance revenues increased 42.9% from $2.8
million in the quarter ended June 30, 1996 to $4.0 million in the quarter ended
June 30, 1997. The increase in EDGE services and maintenance revenues was
primarily attributable to the significant increase in EDGE software licenses.
Telemar services and maintenance revenues decreased from $624,000 in the quarter
ended June 30, 1996 to $0 in the quarter ended June 30, 1997 due to the sale of
the Telemar product line in September 1996.
Cost Of Revenues
Cost Of License Fees. Cost of license fees consists primarily of the costs of
media packaging, documentation, third party software and software production
personnel. Cost of license fees decreased 62.4% from $186,000, or 5.7% of the
related license revenues, in the quarter ended June 30, 1996 to $70,000, or 1.5%
of the related license revenues, in the quarter ended June 30, 1997. The higher
cost of license fees in 1996 as compared to 1997 was attributable to the cost of
vendors' products resold by the Company in connection with the Telemar product
line. The Company sold the Telemar product line in September 1996.
Cost Of Services And Maintenance. Cost of services and maintenance consists
primarily of salaries, wages, benefits and other costs related to the
installation, implementation, training and maintenance support of the Company's
software products. The cost of services and maintenance increased 27.4% from
$1.8 million, or 52.7% of service and maintenance revenues, in the quarter ended
June 30, 1996 to $2.3 million, or 57.4% of service and maintenance revenues, in
the quarter ended June 30, 1997. The increase in cost of services and
maintenance in the quarter ended June 30, 1997 was primarily attributable to the
hiring of new client service staff.
Operating Expenses
Sales And Marketing. Sales and marketing expenses increased 54.9% from $2.0
million, or 29.3% of revenues, in the quarter ended June 30, 1996 to $3.0
million, or 35.0% of revenues, in the quarter ended June 30, 1997. The increase
in sales and marketing expense was primarily related to the hiring of additional
sales and marketing personnel, increased commissions expense as a result of
higher sales levels and increased marketing activities, including advertising,
trade shows and promotional expenses.
Product Development. Product development expenses decreased 10.2% from $1.7
million, or 26.0% of revenues, in the quarter end June 30, 1996 to $1.6 million,
or 18.0% of revenues, in the quarter ended June 30, 1997. The reduction of
product development expense was primarily attributable to the sale of the
Telemar product line in September 1996 after which date no Telemar product
development costs were incurred.
General And Administrative. General and administrative expenses increased
27.3% from $961,000, or 14.4% of revenues, in the quarter ended June 30, 1996 to
$1.2 million, or 14.0% of revenues, in the quarter ended June 30, 1997. The
increase in general and administrative expenses during these periods was
primarily due to the addition of accounting and administrative staff to support
the growth of the Company's business during these periods.
Interest Expense. Interest expense consists of interest on debt and
equipment financing less interest earned on cash, notes receivable from officers
and the promissory note entered into in connection with the sale of Telemar. Net
interest expense decreased 29.9% from $301,000 in the quarter ended June 30,
1996 to $210,000 in the quarter ended June 30, 1997. The reduction in net
interest expense was primarily due to higher interest income netted against an
increase in interest expense.
9
<PAGE>
Provision For Income Taxes. Provision for income taxes consists of foreign
and state income and withholding taxes. The provision for income taxes decreased
from $30,000 in the quarter ended June 30, 1996 to $12,000 in the quarter ended
June 30, 1997. The decrease in provision for income taxes is primarily
attributable to a decrease in state income taxes. At June 30, 1997, the Company
had approximately $7.4 million of U.S. Federal net operating loss carryforwards
and approximately $1.8 million of state net operating loss carryforwards, which
can be used, subject to certain limitations, to offset future taxable income.
The U.S. Federal net operating loss carryforwards expire through 2011 and the
state net operating loss carryforwards expire through 2001. The Company believes
the sale of common stock by the Company and the selling shareholders in its
initial public offering completed in August 1997 may cause an annual limitation
on the use of its net operating loss carryforwards pursuant to the "change in
control" provisions of Section 382 of the Internal Revenue Code. However, the
Company does not anticipate that the limitation will materially impact its
utilization of its net operating loss carryforwards in the near term.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1997
Revenues
License Fees. Total license fees increased 37.0% from $6.2 million, or 48.4%
of total revenues, for the six months ended June 30, 1996 to $8.5 million, or
52.5% of total revenues, for the six months ended June 30, 1997. EDGE license
fees increased 57.4% from $5.4 million for the six months ended June 30, 1996 to
$8.5 million for the six months ended June 30, 1997. The increase in EDGE
license fees was primarily attributable to an increase in the average size of
customer licenses, increased market awareness and acceptance of the EDGE
products and increased productivity resulting from expansion of the Company's
sales and marketing organization. Telemar license fees decreased from $801,000
for the six months ended June 30, 1996 to $0 for the six months ended June 30,
1997 due to the sale of the Telemar product line in September 1996.
Services And Maintenance. Services and maintenance revenues increased 16.4%
from $6.6 million, or 51.6% of total revenues, in the six months ended June 30,
1996 to $7.8 million, or 47.5% of total revenues, for the six months ended June
30, 1997. EDGE services and maintenance revenues increased 41.5% from $5.4
million in the six months ended June 30, 1996 to $7.7 million for the six months
ended June 30, 1997. The increase in EDGE services and maintenance revenues in
the six months ended June 30, 1996 was primarily attributable to the
significant increase in EDGE software licenses. Telemar services and
maintenance revenues decreased from $1.2 million for the six months ended June
30, 1996 to $0 for the six months ended June 30, 1997 due to the sale of the
Telemar product line in September 1996.
Cost Of Revenues
Cost Of License Fees. Cost of license fees decreased 59.9% from $352,000, or
5.7% of the related license revenues, in the six months ended June 30, 1996 to
$141,000, or 1.7% of the related license revenues, for the six months ended June
30, 1997. The higher cost of license fees in 1996 as compared to 1997 was
attributable to the cost of vendors' products resold by the Company in
connection with the Telemar product line. The Company sold the Telemar product
line in September 1996.
Cost Of Services And Maintenance. The cost of services and maintenance
increased 17.2% from $3.6 million, or 55.1% of service and maintenance revenues,
in the six months ended June 30, 1996 to $4.3 million, or 55.5% of service and
maintenance revenues, for the six months ended June 30, 1997. The cost of
services and maintenance increased slightly for the six months ended June 30,
1997 as a result of mid-year hiring of new client service staff.
Operating Expenses
Sales And Marketing. Sales and marketing expenses increased by 48.3% from
$3.8 million, or 30.0% of revenues, in the six months ended June 30, 1996 to
$5.7 million, or 35.2% of revenues, for the six months ended June 30, 1997. The
increase in sales and marketing expense was primarily related to hiring of
additional sales and marketing personnel, increased commissions expense as a
result of higher sales levels and increased marketing activities, including
advertising, trade shows and promotional expenses.
Product Development. Product development expenses decreased 6.0% from $3.3
million, or 25.8% of revenues, for the six months ended June 30, 1996, to $3.1
million, or 19.2% of revenues, for the six months ended June 30, 1997. The
reduction of product development expense was primarily attributable to the sale
of the Telemar product line in September 1996 after which date no Telemar
product development costs were incurred.
10
<PAGE>
General And Administrative. General and administrative expenses increased
16.6% from $2.0 million, or 15.5% of revenues, for the six months ended June 30,
1996, to $2.3 million, or 14.3% of revenues, for the six months ended June 30,
1997. The increase in general and administrative expenses during these periods
was primarily due to the addition of accounting, administrative and legal staff
to support the growth of the Company's business during these periods.
Interest Expense. Interest expense consists of interest on debt and equipment
financing less interest earned on cash, notes receivable from officers and the
promissory note entered into in connection with the sale of Telemar. Net
interest expense decreased 19.6% from $582,000 for the six months ended June 30,
1996 to $467,000 for the six months ended June 30, 1997. The reduction in net
interest expense was primarily due to higher interest income netted against an
increase in interest expense.
Provision For Income Taxes. Provision for income taxes consists of foreign
and state income and withholding taxes. The provision for income taxes
increased 240% from $30,000 for the six months ended June 30, 1996 to $102,000
for the six months ended June 30, 1997. The increase in provision for income
taxes is primarily attributable to an increase in international withholding
taxes. At June 30, 1997, the Company had approximately $7.4 million of U.S.
Federal net operating loss carryforwards and approximately $1.8 million of state
net operating loss carryforwards, which can be used, subject to certain
limitations, to offset future taxable income. The U.S. Federal net operating
loss carryforwards expire through 2011 and the state net operating loss
carryforwards expire through 2001.
Liquidity And Capital Resources
At June 30, 1997, the Company had $1.6 million in cash and $12.2
million in accounts receivable. For the six months ended June 30, 1997, the
Company used net cash of $398,000 in operating activities, which was primarily
attributable to net income of $85,000, offset by changes in operating assets and
liabilities which used cash of $1.2 million and by depreciation, amortization
and other non-cash charges of $719,000. The fluctuations in operating assets
and liabilities were due primarily to the timing of operating activities,
including the timing of orders, collections of accounts receivable and the
payment of accounts payable.
For the first six months ended June 30, 1997, the Company's primary
investing activities consisted of $882,000 of purchases of computer and office
equipment to support the Company's expanding employee base. For the first six
months ended June 30, 1997, the Company made capital equipment lease repayments
of $136,000.
In August 1997, the Company completed its initial public offering of
3,900,000 shares of its common stock, of which 2,800,000 shares were issued and
sold by the Company and 1,100,000 shares were sold by certain selling
shareholders, which provided net proceeds to the Company, after underwriting
discounts and expenses, of approximately $32.7 million. The Company used
approximately $7.8 million to repay in full the outstanding indebtedness under
the Loan and Security Agreement dated October 26, 1995, as amended (the "Loan
and Security Agreement"), between the Company and People's Bank. The Loan and
Security Agreement provides for a $6.0 million Line of Credit which expires on
February 1, 1998 and bears interest at a floating rate which was 9.5% per annum
at June 30, 1997. In addition, the Company used $250,000 of the net proceeds
of the offering to repay in full a note payable to Wand/IMA Investments, L.P.
The Company anticipates that the proceeds from its initial public
offering, together with other existing sources of working capital, will be
sufficient to meet the Company's projected working capital and other cash
requirements for the next eighteen months. The Company's future operating and
capital requirements will depend on numerous factors, including the Company's
internal research and development programs, the level of resources the Company
devotes to marketing and sales capabilities, advances in technology and the
successful development and introduction of new products.
Factors That May Affect Future Results
In addition to the other information in this Form 10-Q, readers should
carefully consider the following factors in evaluating the Company and its
business. This Form 10-Q contains forward-looking statements and the Company's
actual results could differ materially from those anticipated in these forward-
looking statements as a result of numerous factors, including those set forth
below and elsewhere in this Form 10-Q.
History Of Operating Losses; Uncertainty Of Future Operating Results. The
Company has incurred significant net operating losses in each of 1992, 1993,
1994 and 1995 and had an accumulated deficit of $17.0 million as of June 30,
1997. The Company's operating history makes the prediction of future operating
results difficult or impossible. Accordingly, although the Company has recently
experienced revenue growth, such growth should not be considered indicative of
future revenue growth, if any, or of future
11
<PAGE>
operating results. There can be no assurance that any of the Company's business
strategies will be successful or that the Company will be able to achieve or
sustain profitability on a quarterly or annual basis in the future.
Fluctuations In Quarterly Performance. The Company's quarterly operating
results have varied significantly in the past and may vary significantly in the
future depending upon a number of factors, many of which are beyond the
Company's control. These factors include, among others, the ability of the
Company to develop, introduce and market new and enhanced versions of its
products on a timely basis; the demand for the Company's products; the lengthy
sales cycle for full implementation of its products; the size, timing and
contractual terms of significant orders; the timing and significance of product
enhancements and new product announcements by the Company or its competitors;
changes in the Company's business strategies; budgeting cycles of its potential
customers; customer order deferrals in anticipation of enhancements or new
products; changes in the mix of products and services sold; changes in the
amount of revenue attributable to domestic and international sales; changes in
foreign currency exchange rates; the level of product and price competition; the
cancellations or non-renewals of licenses or maintenance agreements; investments
to develop marketing and distribution channels; or changes in the level of
operating expenses. The Company is dependent upon obtaining orders in any given
quarter for delivery in that quarter in order to achieve its quarterly revenue
objectives. The timing of revenue recognition can be affected by many factors,
including the timing of contract execution and delivery, post-delivery
obligations and customer acceptance. A significant portion of the Company's
revenues in any quarter are typically derived from non-recurring, large license
fees received from a relatively small number of customers. Although particular
customers may vary from quarter to quarter, the Company expects that sales to a
limited number of customers will continue to account for a significant
percentage of its revenue in any quarter for the foreseeable future. Therefore,
the loss, deferral or cancellation of a contract, or a failure of a customer to
honor its contractual obligations (and for which the Company's reserves and
allowances may be inadequate), could have a significant impact on the Company's
operating results in a particular quarter. Conversely, to the extent that
significant sales occur earlier than expected, operating results for subsequent
quarters may be adversely affected. In addition, the Company's business has
experienced and is expected to continue to experience seasonality, with stronger
demand during the quarters ending in June and December than during the quarters
ending in March and September, and a substantial portion of orders being
received in the last month or weeks of any given quarter.
Due to the foregoing factors, quarterly revenues and operating
results are not predictable with any significant degree of accuracy. The
Company's expense levels are based in significant part on the Company's
expectations as to future revenues and are therefore relatively fixed for the
short term. If revenue levels are below expectations, the Company's business,
operating results, and financial condition are likely to be materially adversely
affected. As a result, the Company believes that period-to-period comparisons
of its results of operations are not necessarily meaningful and should not be
relied upon as indications of future performance. There can be no assurance
that the Company will be able to achieve or sustain profitability on a quarterly
or annual basis in the future. Due to all of the foregoing factors, it is
likely that in some future quarter the Company's total revenues or operating
results will be below the expectations of public market analysts and investors.
In such event, or in the event that adverse conditions prevail or are perceived
to prevail generally or with respect to the Company's business, the price of the
common stock would likely be materially adversely affected.
Product Concentration. Substantially all of the company's revenues are
attributable to the licensing of EDGE and the provision of professional
consulting, technical support and maintenance services relating to EDGE. The
Company currently expects that the licensing of EDGE products and the provision
of such related services will account for significantly all of its revenues for
the foreseeable future. As a result, factors adversely affecting the pricing of
or demand for EDGE products and services, such as competition or technological
changes, could have a material adverse effect on the Company's business,
operating results and financial condition. The Company's future financial
performance will depend, in significant part, on the continued market acceptance
of its EDGE products and the successful development, introduction and client
acceptance of new and enhanced versions of EDGE products. There can be no
assurance that the Company will continue to be successful in developing and
marketing EDGE.
Lengthy Sales And Implementation Cycles; Post Delivery Obligations. The
licensing and implementation of the Company's products generally involves a
significant commitment of resources by customers and often requires the Company
to provide a significant level of education to prospective customers regarding
the use of the Company's products. As a result, the Company's sales process is
often subject to delays associated with lengthy customer approval processes that
typically accompany significant capital expenditures. For these and other
reasons, the sales cycle associated with the license of the Company's products
is often lengthy and may be subject to a number of significant delays over which
the Company has little or no control. In addition, the time required to
implement the Company's products can vary significantly with the needs of its
customers and generally extends for several months or, for larger, more complex
implementations, multiple quarters.
12
<PAGE>
Depending on the contract terms and conditions, licensing fees are
recognized upon delivery of the product if no customer acceptance conditions or
significant post-delivery obligations remain and collection of the resulting
receivable is probable. However, if post-delivery obligations exist, or if the
product is subject to customer acceptance, revenue will be deferred until no
significant Company obligations exist or acceptance has occurred. When the
Company has provided consulting services to implement certain larger projects,
in the past some customers have failed to honor their contractual obligations by
delaying payments of a portion of license fees until implementation was complete
and in some cases have disputed the consulting fees charged for implementation.
There can be no assurance that the Company will not experience delays,
cancellations or disputes regarding payment in the future, which could have a
material adverse effect on the Company's business, operating results and
financial condition and cause its quarterly operating results to vary
significantly in the future.
Dependence On Proprietary Technology. The Company's success and ability to
compete is dependent in part upon proprietary technology. The Company relies
primarily on a combination of copyright and trademark laws, trade secrets,
nondisclosure agreements and technical measures to protect its proprietary
rights. The Company typically enters into confidentiality or license agreements
with its employees, distributors, clients and potential clients, and limits
access to and distribution of its software, documentation and other proprietary
information. There can be no assurance that these steps will be adequate to
deter misappropriation or independent third-party development of its technology
or to prevent an unauthorized third party from obtaining or using information
that the Company regards as proprietary. In addition, the laws of some foreign
countries do not protect or enforce proprietary rights to the same extent as do
the laws of the United States. Policing unauthorized use of the Company's
products is difficult and, while the Company is unable to determine the extent
to which piracy of its software product exists, software piracy can be expected
to be a persistent problem. There can be no assurance that the Company's means
of protecting its proprietary rights of others, the use of patents to protect
software has increased, and there can be no assurance that third parties will
not assert infringement claims in the future or, if infringement claims are
asserted, that such claims will be resolved in the Company's favor. The Company
expects that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in the Company's
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
the Company to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms favorable to
the Company or at all, which could have a material adverse effect on the
Company's business, operating results and financial condition. Any infringement
claims resolved against the Company could have a material adverse effect upon
the Company's business, operating results and financial condition. In addition,
litigation may be necessary in the future to protect the Company's trade secrets
or other intellectual property rights, or to determine the validity and scope of
the proprietary rights of others. Such litigation could result in substantial
costs and diversion of resources and could have a material adverse effect on the
Company's business, operating results and financial condition.
The Company has entered into agreements with a small number of its
customers requiring the Company to place its source code in escrow. These
escrow agreements typically provide that customers have a limited, non-exclusive
right to use such code in the event that there is a bankruptcy proceeding by or
against the Company, if the Company ceases to do business or if the Company
fails to meet its support obligations. The escrow agreements, and any that the
Company may enter into in the future, may increase the possibility of
misappropriation by third parties. In addition, the Company utilizes a third-
party contractor for selected product development projects which may also
increase the possibility of misappropriation by third parties.
Dependence On Indirect Marketing And Distribution Channels; Potential
Conflicts. The Company maintains co-marketing relationships with consulting and
systems integration companies to expand the visibility of its products in the
United States and internationally and distributes its products outside the
United States through remarketers and distributors. Such co-marketers,
remarketers and distributors are not under the direct control of the Company and
install and support the product lines of a number of companies. In addition, the
co-marketers, remarketers and distributors are not subject to any minimum
purchase requirements and can discontinue marketing the Company's products at
any time without cause. The consulting and systems integration companies may
also sell or co-market potentially competitive products. Accordingly, the
Company must compete for the focus and sales efforts of these third party
entities. Additionally, selling through indirect channels may limit the
Company's contacts with its customers, potentially hindering its ability to
accurately forecast sales and revenue, evaluate customer satisfaction and
recognize emerging customer requirements. There can be no assurance that co-
marketers, remarketers and distributors will continue to distribute or recommend
the Company's products or do so successfully, or that the Company will succeed
in increasing the use of these indirect channels profitably. There can also be
no assurance that one or more of these companies will not begin to market
products in competition with the Company. The termination of one or more of
these relationships or the failure of the Company to establish additional
relationships could adversely affect the Company's business, operating results
and financial condition.
13
<PAGE>
The Company's strategy of marketing its products directly to end-users
and indirectly through remarketers and distributors may result in distribution
channel conflicts. The Company's direct sales efforts may compete with those of
its indirect channels and, to the extent different resellers target the same
customers, resellers may also come into conflict with each other. Although the
Company has attempted to manage its distribution channel conflicts will not
materially adversely affect its relationships with existing remarketers and
distributors or adversely affect its ability to attract new remarketers and
distributors.
Need To Expand Marketing And Distribution Channels. The Company sells its
products both through its direct sales organization and through remarketers and
distributors. Part of the Company's strategy is to increase its use of
remarketers and distributors to sell its products internationally and to expand
its existing co-marketing relationships and establish new relationships with
other consulting and systems integration companies. The Company is also seeking
to expand its existing international direct sales force in order to take
advantage of international growth opportunities. The Company's ability to
achieve revenue growth in the future will depend on its success in recruiting
and training sufficient direct sales personnel and attracting and retaining
qualified remarketers and distributors. The Company has at times experienced and
continues to experience difficulty in recruiting qualified personnel, and there
can be no assurance that the Company will be able to expand successfully its
direct sales force or other remarketing and distribution channels or that any
such expansion will result in an increase in revenues. Any failure by the
Company to expand its direct sales force or other remarketing and distribution
channels could materially and adversely affect the Company's business, operating
results and financial condition.
Emerging Markets For Call Center Customer Interaction Software; Dependence On
Increased Use Of Products By Existing Customers. The market for call center
customer interaction software is relatively new and is characterized by ongoing
technological developments, frequent new product announcements and
introductions, evolving industry standards and changing customer requirements.
The Company's future financial performance will depend in large part on
continued growth in the number of organizations adopting call center customer
interaction software products on an enterprise-wide basis on the number of
applications and software components developed for such use. There can be no
assurance that the call center customer interaction software market will
continue to grow. If this market fails to grow, or grows more slowly than the
Company currently anticipates, the Company's business, operating results and
financial condition could be materially and adversely affected.
In addition, certain of the Company's larger customers have licensed
the Company's software on an incremental basis and there can be no assurance
that the Company's customers will expand their use of the Company's software on
an enterprise-wide basis or license new or enhanced software products introduced
by the Company. The failure of the Company's software to perform according to
customer expectations or otherwise to be deployed on an enterprise-wide basis
could have a material adverse effect on the ability of the Company to increase
revenues from existing customers.
Rapid Technological Change. The call center customer interaction software
market is characterized by rapid technological change, frequent introductions of
new products, changes in customer demands and evolving industry standards, any
of which can render existing products obsolete and unmarketable. As a result,
the Company's position in its existing markets or other markets that it may
enter could diminish rapidly by product advancements. The life cycles of the
Company's products are difficult to estimate. The Company's product development
and testing efforts are expected to require, from time to time, substantial
investments by the Company and there can be no assurance that it will have
sufficient resources to make the necessary investments. The Company's customers
have adopted a wide variety of hardware, software, database and networking
platforms, and as a result, to gain broad market acceptance, the Company must
continue to support and maintain its products on a variety of such platforms.
The Company's future success will depend on its ability to address the
increasingly sophisticated needs of its customers by supporting existing and
emerging hardware, software, database and networking platforms and by developing
and introducing enhancements to its existing products and new products on a
timely basis that keep pace with technological developments, changing customer
requirements and evolving industry standards. The success of the Company's
products may also depend, in part, on its ability to introduce products which
are compatible with the Internet, and on the broad acceptance of the Internet.
Management Of Growth. The Company is currently experiencing a period of rapid
growth that could place a significant strain on its management and other
resources. The Company's senior management has not had experience in managing
publicly traded companies. The Company anticipates that continued growth, if
any, will require it to recruit, hire, train and retain a substantial number of
new and highly skilled product development, managerial, finance, sales and
marketing and support personnel. Competition for such personnel is intense and
the Company expects that such competition will continue for the foreseeable
future. There can be no assurance that the Company will be successful at hiring
or retaining such personnel. The Company's ability to compete effectively and to
manage future growth, if any, will depend on its ability to continue to
implement and improve operational, financial and management information systems
on a timely basis and to expand, train, motivate and manage its work force.
There can be no assurance that the Company's personnel, systems, procedures and
controls will be adequate to support the Company's
14
<PAGE>
operations. If the Company's management is unable to manage growth effectively,
the quality of the Company's products and its business, operating results and
financial condition could be materially adversely affected.
Competition. The market for telemarketing, telesales and customer service
software is intensely competitive, rapidly evolving and highly sensitive to new
product introductions or enhancements and marketing efforts by industry
participants. The Company competes with a large number of competitors ranging
from internal information systems departments to packaged software application
vendors. The Company believes that as the United States and international
software markets continue to grow, a number of new vendors will enter the market
and existing competitors and new market entrants will attempt to develop
applications targeting additional markets. Competitors have established and may
in the future establish cooperative relationships or alliances which may
increase their ability to provide superior software solutions or services. In
addition, consolidation within the call center customer interaction software
industry could create new or stronger competitors.
Increased competition resulting from new entrants, consolidation of
the call center customer interaction software industry, cooperative
relationships or alliances could result in price reductions, reduced operating
income or loss of market share, any of which could materially adversely affect
the Company's business, operating results or financial condition. Many of the
Company's current and potential competitors have significantly greater
financial, technical, marketing, service, support and other resources, generate
higher revenues and have greater name recognition than the Company. There can
be no assurance that the Company's current or potential competitors will not
develop products comparable or superior to those developed by it or adapt more
quickly that the Company to new technologies, evolving industry trends or
changing client requirements. There can be no assurance that the Company will
be able to compete effectively against current or future competitors or that
competitive pressures faced by the Company would not materially and adversely
affect its business, operating results or financial condition.
Risks Associated With International Operations. International operations
accounted for approximately 28%, 38% and 26% of total revenues for 1994, 1995
and 1996, respectively. The Company intends to expand its international sales
activity, which will require significant management attention and financial
resources and will require the Company to establish additional foreign
operations and hire additional personnel. As of June 30, 1997 the Company
employed 25 employees who are based in Europe. The Company has an office
located in London, England. There can be no assurance that the Company will be
able to maintain or increase international market demand for its products and,
to the extent the Company is unable to do so, its business, operating results or
financial condition could be materially adversely affected. The Company's
international sales are currently denominated in U.S. dollars with respect to
sales outside of the United Kingdom and Europe, and generally in pounds sterling
with respect to sales in the United Kingdom and Europe. An increase in the
value of the U.S. dollar or pound sterling relative to other currencies could
make the Company's products more expensive and, therefore, potentially less
competitive in foreign markets. Currently, the Company does not employ currency
hedging strategies to reduce this risk. In addition, the Company's
international business may be subject to a variety of other risks, including
potentially longer payment cycles and difficulties in collecting international
accounts receivable, difficulties in enforcement of contractual obligations and
intellectual property rights, potentially adverse tax consequences, increased
costs associated with maintaining international marketing efforts, costs of
localizing products for foreign markets, tariffs, duties and other trade
barriers, adverse changes in regulatory requirements, possible recessionary
economies outside of the United States and political and economic instability.
There can be no assurance that such factors will not have a material adverse
effect on the Company's future international sales and, consequently, on its
business, operating results or financial condition.
Increased Use Of Third-Party Development Tools. The Company's EDGE products
include application development tools which are used to build and modify
applications. If third-party application development tools become more widely
used as a result of technological advances or customer requirements, the Company
could be required to make greater use of third-party tools in the future, and to
enter into license arrangements with such third parties, which could result in
higher royalty payments, a loss of product differentiation and delays. Such
effects or the inability of the Company to enter into commercially reasonable
licenses could have a material adverse effect on the Company's business,
operating results or financial condition.
In addition to the "Factors That May Affect Future Results" mentioned
above, the Company's business entails a variety of additional risks, which are
set forth in the "Risk Factors" section of the Company's Form S-1 Registration
Statement filed with the Securities and Exchange Commission, which became
effective July 30, 1997 (Registration No. 333-22923).
15
<PAGE>
PART II: OTHER INFORMATION
Item 1: Legal Proceedings:
Not Applicable.
Item 2: Changes in Securities:
Not Applicable.
Item 3: Defaults upon Senior Securities:
Not Applicable.
Item 4: Submission of Matters to a Vote of Security Holders:
The 1997 Annual Meeting of Shareholders of the Company was held on
April 2, 1997 (the "Annual Meeting"). The following matters were
submitted for shareholder approval at the Annual Meeting with the
voting results as indicated:
<TABLE>
<CAPTION>
1. Election of Directors:
Name of Nominee Votes For Votes Against
--------------- --------- -------------
<S> <C> <C>
Albert R. Subbloie, Jr. 2,204,624 0
Gary R. Martino 2,204,624 0
Andrei Poludnewycz 2,204,624 0
Paul J. Schmidt 2,204,624 0
Donald P. Miller 2,204,624 0
Thomas F. Hill 2,204,624 0
David J. Callard 2,204,624 0
</TABLE>
2. Adoption of the proposed amendment to the Certificate of
Incorporation to increase the number of authorized shares of
common stock from 5,000,000 shares to 20,000,000 shares:
Votes For Votes Against Abstentions
--------- ------------- -----------
2,204,624 - 0 - - 0 -
3. Adoption of the Amended and Restated Certificate of
Incorporation to become effective following the closing of
the Company's initial public offering of common stock:
Votes For Votes Against Abstentions
--------- ------------- -----------
2,204,624 - 0 - - 0 -
4. Adoption of the Information Management Associates, Inc.
Employee Stock Purchase Plan:
Votes For Votes Against Abstentions
--------- ------------- -----------
2,204,624 - 0 - - 0 -
16
<PAGE>
5. Adoption of the proposed amendments to each of the Amended
and Restated Information Management Associates, Inc. 1991
Stock Option Plan; the Information Management Associates,
Inc. 1996 Employee and Consultant Stock Option Plan; and the
Information Management Associates, Inc. 1996 Non-Employee
Directors Stock Option Plan:
Votes For Votes Against Abstentions
--------- ------------- -----------
2,204,624 - 0 - - 0 -
6. Ratification of the appointment of Arthur Andersen LLP as
independent public accountants for fiscal year 1997.
Votes For Votes Against Abstentions
--------- ------------- -----------
2,204,624 - 0 - - 0 -
Item 5: Other Information:
Not Applicable.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Statement re: Computation of Per Share Earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Not Applicable.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
Dated: August 14, 1997 /s/ Albert R. Subbloie, Jr. President, Chief Executive Officer and
---------------------------------- Director (Principal Executive Officer)
Albert R. Subbloie, Jr.
Dated: August 14, 1997 /s/ Gary R. Martino Chairman of the Board of Directors,
---------------------------------- Chief Financial Officer, Treasurer
Gary R. Martino and Director (Principal Financial
and Accounting Officer)
</TABLE>
18
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C>
11.1 Statement re: Computation of Per Share Earnings
27.1 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 11.1
INFORMATION MANAGEMENT ASSOCIATES, INC.
CALCULATION OF SHARES USED IN DETERMINING PRO FORMA NET INCOME (LOSS) PER COMMON
SHARE
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1997
------------- -------------
<S> <C> <C>
Weighted average common stock
outstanding during the year................. 4,255,197 4,293,379
Convertible preferred stock (1)................ 920,433 1,532,161
Redeemable common stock
warrants (1) ............................... 416,699 416,699
Stock options (1).............................. 154,934 154,934
Dilutive effect of common and
Common stock equivalents
Issued subsequent to March 6,
1996 (2).................................... 312,150 306,367
Shares used in computing pro
Forma net loss per common --------- ---------
Share....................................... 6,059,413 6,703,540
========= =========
</TABLE>
- --------------------------------------------------------------------------------
(1) The numbers of shares issuable upon conversion of exercise of the Series A
convertible preferred stock, redeemable common stock warrants and stock
options are shown as if such conversion or exercise occurred on January 1,
1996. The number of shares issuable upon conversion of the Series B
convertible preferred stock is shown as if such conversion occurred upon
issuance of such stock on November 1, 1996.
(2) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, common stock options and warrants issued at prices below the
initial public offering price of $13.00 per share ("cheap stock") during
the 12-month period immediately preceding the initial filing date of the
Company's Registration Statement for its initial public offering have been
included as outstanding for all periods presented. The dilutive effect of
the common and common share equivalents was computed in accordance with the
treasury stock method.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,568
<SECURITIES> 0
<RECEIVABLES> 12,779
<ALLOWANCES> 623
<INVENTORY> 0
<CURRENT-ASSETS> 14,342
<PP&E> 6,623
<DEPRECIATION> 4,233
<TOTAL-ASSETS> 18,460
<CURRENT-LIABILITIES> 14,161
<BONDS> 2,402
9,819
0
<COMMON> 5,800
<OTHER-SE> (16,995)
<TOTAL-LIABILITY-AND-EQUITY> 18,460
<SALES> 8,479
<TOTAL-REVENUES> 16,155
<CGS> 141
<TOTAL-COSTS> 4,400
<OTHER-EXPENSES> 11,101
<LOSS-PROVISION> 185
<INTEREST-EXPENSE> 467
<INCOME-PRETAX> 187
<INCOME-TAX> 102
<INCOME-CONTINUING> 85
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
