<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 September 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 November 10, 1997 was 9,218,946.
<PAGE>
INFORMATION MANAGEMENT ASSOCIATES, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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<C> <S> <C>
PART I: FINANCIAL INFORMATION
Item 1: Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1997 and 3
December 31, 1996
Condensed Consolidated Statements of Operations for the 4
Three and Nine Months Ended September 30, 1997 and 1996
Condensed Consolidated Statements of Cash Flows for the Nine 5
Months Ended September 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 17
Item 2: Changes in Securities and Use of Proceeds 17
Item 3: Defaults upon Senior Securities 19
Item 4: Submission of Matters to a Vote of Security Holders 19
Item 5: Other Information 19
Item 6: Exhibits and Reports on Form 8-K 19
Signatures 20
</TABLE>
<PAGE>
ITEM 1: FINANCIAL STATEMENTS
INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................................................... $ 24,309 $ 3,073
Accounts receivable, net .......................................................... 12,633 10,473
Other current assets .............................................................. 1,476 232
-------- --------
Total current assets .......................................................... 38,418 13,778
Equipment, net ......................................................................... 2,251 2,222
Notes receivable from officers ......................................................... - 572
Other assets, net ...................................................................... 621 709
-------- --------
$ 41,290 $ 17,281
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Bank line of credit and current maturities of long-term debt ...................... $ 243 $ 5,444
Accounts payable and accrued liabilities .......................................... 3,915 5,419
Deferred revenues ................................................................. 1,815 1,705
-------- --------
Total current liabilities ..................................................... 5,973 12,568
-------- --------
Term note payable to bank, less current maturities ..................................... - 2,417
-------- --------
Long term debt and other long-term liabilities ......................................... 661 906
-------- --------
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 $5,169
at December 31, 1996) .......................................................... - 5,145
Series B senior redeemable convertible preferred stock, $1,000 stated value; 4,350
shares authorized, issued and outstanding (liquidation value of $4,408
at December 31, 1996) .......................................................... - 4,286
-------- --------
Total preferred stock ......................................................... - 9,431
-------- --------
Redeemable common stock warrants ....................................................... - 2,865
-------- --------
Shareholders' equity (deficit):
Common stock, no par value; 9,218,946 shares outstanding at September 30, 1997 and
4,293,379 shares outstanding at December 31, 1996................................... 50,975 5,795
Cumulative translation adjustment ...................................................... (153) (9)
Accumulated deficit .................................................................... (16,166) (16,692)
-------- --------
Total shareholders' equity (deficit) .......................................... 34,656 (10,906)
-------- --------
$ 41,290 $ 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 Nine Months Ended
September 30, September 30,
----------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
License fees ............................................. $ 4,506 $ 2,451 $ 12,985 $ 8,638
Services and maintenance ................................. 4,784 3,409 12,459 10,006
------- ------- -------- --------
Total revenues ....................................... 9,290 5,860 25,444 18,644
------- ------- -------- --------
Cost of revenues:
Cost of license fees ..................................... 68 289 209 641
Cost of services and maintenance ......................... 2,532 1,842 6,791 5,475
------- ------- -------- --------
Total cost of revenues ............................... 2,600 2,131 7,000 6,116
------- ------- -------- --------
Gross profit ................................................... 6,690 3,729 18,444 12,528
------- ------- -------- --------
Operating expenses:
Sales and marketing ...................................... 3,169 1,793 8,859 5,629
Product development ...................................... 1,552 1,471 4,648 4,765
General and administrative ............................... 1,223 1,008 3,538 2,993
------- ------- -------- --------
Total operating expenses ............................. 5,944 4,272 17,045 13,387
------- ------- -------- --------
Operating income (loss) ........................................ 746 (543) 1,399 (859)
Other income (expense) ......................................... 206 (164) (261) (746)
------- ------- -------- --------
Income (loss) before provision for income taxes ................ 952 (707) 1,138 (1,605)
Provision for income taxes ..................................... 57 - 159 30
------- ------- -------- --------
Net income (loss) .............................................. 895 (707) 979 (1,635)
Accretion of preferred stock dividends ......................... (66) (99) (454) (292)
------- ------- -------- --------
Net income (loss) applicable to common shareholders ............ $ 829 $ (806) $ 525 $ (1,927)
======= ======= ======== =======
Net income (loss) per share applicable to
common shareholders ........................................ .10 (.18) .08 (.42)
======= ======= ======== =======
Shares used in net income (loss) per share calculation ......... 8,402,837 4,566,073 6,245,955 4,566,073
========= ========= ========= =========
</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>
Nine Months Ended
September 30,
------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) ...................................................................... $ 979 $ (1,635)
Adjustments to Reconcile Net Income (Loss) to Net Cash Used In
Operating Activities:
Depreciation and amortization .......................................................... 1,070 749
Changes in Operating Assets and Liabilities:
Accounts receivable, net ............................................................. (2,160) (1,555)
Other current assets ................................................................. (1,242) 121
Notes receivable from officers ....................................................... 570 (393)
Other assets, net .................................................................... 87 (327)
Accounts payable and accrued liabilities ............................................. (1,500) 626
Deferred revenues .................................................................... 109 (362)
Other long-term liabilities .......................................................... (49) (46)
-------- --------
Net Cash Used in Operations ..................................................... (2,136) (2,822)
-------- --------
Cash Flows from Investing Activities:
Acquisition of equipment ............................................................... (1,078) (686)
-------- --------
Cash Flows from Financing Activities:
Proceeds from initial public offering, net of issuance costs ........................... 32,411 -
Repayment of bank term loan ............................................................ (2,500) -
Net proceeds from (repayment of) bank line of credit ................................... (4,860) 2,360
Repayment of subordinated note payable to stockholder .................................. (252) (250)
Proceeds from sale leaseback ........................................................... - 509
Repayment of capital lease obligations ................................................. (205) (467)
-------- --------
Net Cash Provided By Financing Activities ....................................... 24,594 2,152
-------- --------
Effect of Exchange Rate Changes .......................................................... (144) (29)
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents .................................... 21,236 (1,385)
Cash and Cash Equivalents, beginning of period ........................................... 3,073 1,543
-------- --------
Cash and Cash Equivalents, end of period ................................................. $ 24,309 $ 158
======== ========
</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 Limited (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. Earnings Per Share
Primary net income (loss) per share applicable to common shareholders is
computed using the weighted average common shares outstanding. Had earnings per
share been calculated under a fully diluted methodology for the three and nine
months ended September 30, 1997, the weighted average shares and net income per
share would have been 8,980,878 and 7,652,639 shares and $0.10 and $0.13,
respectively for each such period. As the amounts calculated would have been
antidilutive, the primary earnings per share is reflected in the accompanying
consolidated statement of operations. The effect of converting the underlying
convertible securities would have been antidilutive during 1996. In addition,
pursuant to the requirements of the Securities and Exchange Commission, common
stock equivalents issued at prices below the initial public offering price have
been included in the calculation of weighted average number of shares
outstanding.
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, 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. Statements in the following discussion which express "belief",
"anticipation" or "expectation", as well as other statements which are not
historical fact, and statements as to product compatibility, design, features,
functionality and performance insofar as they may apply prospectively, are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and the Company's actual results could differ
materially from those expressed 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 nine months ended September 30, 1996 and 1997.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
License fees:
EDGE product line ............................ 48.5% 41.1% 51.0% 41.8%
Telemar product line ......................... - 0.7 - 4.5
----- ----- ----- -----
Total license fees ..................... 48.5 41.8 51.0 46.3
----- ----- ----- -----
Services and maintenance:
EDGE product line ............................ 51.5 50.7 49.0 45.1
Telemar product line ......................... - 7.5 - 8.6
----- ----- ----- -----
Total services and maintenance ......... 51.5 58.2 49.0 53.7
----- ----- ----- -----
Total revenues ..................... 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of revenues:
License fees .................................... 0.7 4.9 0.8 3.4
Services and maintenance ........................ 27.3 31.4 26.7 29.4
----- ----- ----- -----
Total cost of revenues ....................... 28.0 36.3 27.5 32.8
----- ----- ----- -----
Gross profit ......................................... 72.0 63.7 72.5 67.2
----- ----- ----- -----
Operating expenses:
Sales and marketing ............................. 34.1 30.6 34.8 30.2
Product development ............................. 16.7 25.1 18.3 25.5
General and administrative ...................... 13.2 17.2 13.9 16.1
----- ----- ----- -----
Total operating expenses ..................... 64.0 72.9 67.0 71.8
----- ----- ----- -----
Operating income (loss) .............................. 8.0 (9.2) 5.5 (4.6)
Other income (expense) ............................... 2.2 (2.8) (1.0) (4.0)
----- ----- ----- -----
Income (loss) before provision for income taxes ...... 10.2 (12.0) 4.5 (8.6)
Provision for income taxes ........................... 0.6 - 0.7 0.2
----- ----- ----- -----
Net income (loss) .................................... 9.6% (12.0)% 3.8% (8.8)%
===== ===== ===== =====
</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 Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cost of license fees ........................... 1.5% 11.8% 1.6% 7.4%
Cost of services and maintenance ................ 52.9% 54.0% 54.5% 54.7%
</TABLE>
8
<PAGE>
Three Months Ended September 30, 1996 Compared to Three Months Ended
September 30, 1997
Revenues
License Fees. License fee revenues consist of revenues from initial
licenses for the Company's software products and license upgrades to existing
customers for additional users or modules. Total license fees increased 83.8%
from $2.5 million, or 41.8% of total revenues, in the quarter ended September
30, 1996 to $4.5 million, or 48.5% of revenues, in the quarter ended September
30, 1997. EDGE license fees increased 87.0% from $2.4 million in the quarter
ended September 30, 1996 to $4.5 million in the quarter ended September 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 $42,000 in the quarter ended September 30, 1996 to $0 in the
quarter ended September 30, 1997 due to the sale of the Telemar product line in
September 1996.
Services And Maintenance. Service and maintenance revenues derive from
professional services associated with the implementation and deployment of the
Company's software products and maintenance fees for ongoing customer support.
Services and maintenance increased by 40.3% from $3.4 million, or 58.2% of total
revenues, in the quarter ended September 30, 1996 to $4.8 million, or 51.5% of
total revenues, in the quarter ended September 30, 1997. EDGE services and
maintenance increased 61.1% from $3.0 million in the quarter ended September 30,
1996 to $4.8 million in the quarter ended September 30, 1997. The increase in
EDGE services and maintenance was primarily attributable to the significant
increase in EDGE software licenses. Telemar services and maintenance fees
decreased from $439,000 in the quarter ended September 30, 1996 to $0 in the
quarter ended September 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 76.5% from $289,000, or 11.8% of the
related license revenues, in the quarter ended September 30, 1996 to $68,000, or
1.5% of the related license revenues, in the quarter ended September 30, 1997.
The decrease in the cost of license fees from 1996 to 1997 was attributable to a
decrease in the cost of third party products resold by the Company, the
elimination of certain salaries and a decrease in the use of computer supplies
relating to the Telemar product line which the Company sold 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 37.5% from
$1.8 million, or 54.0% of service and maintenance revenues, in the quarter ended
September 30, 1996 to $2.5 million, or 52.9% of service and maintenance
revenues, in the quarter ended September 30, 1997. The increase in cost of
services and maintenance in the quarter ended September 30, 1997 was primarily
attributable to the hiring of new client service staff.
Operating Expenses
Sales And Marketing. Sales and marketing expenses consist primarily of
commissions, salaries, bonuses and other related expenses for sales and
marketing personnel, as well as marketing, advertising and promotional expenses.
Sales and marketing expenses increased 76.7% from $1.8 million, or 30.6% of
revenues, in the quarter ended September 30, 1996 to $3.2 million, or 34.1% of
revenues, in the quarter ended September 30, 1997. The increase in sales and
marketing expenses 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 consist primarily of
salaries, bonuses, other related personnel expenses and consulting fees, as well
as the cost of facilities and equipment. Product development expenses increased
5.5% from $1.5 million, or 25.1% of revenues, in the quarter ended September 30,
1996 to $1.6 million, or 16.7% of revenues, in the quarter ended September 30,
1997. The increase in product development expense in the quarter ended September
30, 1997 was primarily due to the hiring of new EDGE development staff. No
further Telemar product development costs were incurred after September 1996.
General And Administrative. General and administrative expenses represent
the costs of executive, finance and administrative support personnel, the
portion of occupancy expenses allocable to administration, unallocated corporate
expenses such as fees for legal and auditing services and bad debt expense.
General and administrative expenses increased 21.3% from $1.0 million, or 17.2%
of revenues, in the quarter ended September 30, 1996 to $1.2 million, or 13.2%
of revenues, in the quarter ended September 30, 1997. The increase in general
and administrative expenses during these periods was due to the addition of
accounting and administrative staff to support the growth of the Company's
business and increase in the Company's general reserves.
9
<PAGE>
Other Income (Expense). Other income (expense) consists of interest expense
on debt and equipment financing less interest earned on cash and the promissory
note entered into in connection with the sale of Telemar and the gain on the
sale of Telemar. Other income (expense) went from an expense of $164,000 in the
quarter ended September 30, 1996 to income of $206,000 in the quarter ended
September 30, 1997 primarily due to higher interest income netted against
interest expense and gain on the sale of Telemar.
Provision For Income Taxes. Provision for income taxes consists of foreign
and state income and withholding taxes. The provision for income taxes increased
from $0 in the quarter ended September 30, 1996 to $57,000 in the quarter ended
September 30, 1997. The increase in provision for income taxes is primarily
attributable to an increase in state income taxes and federal alternative
minimum income taxes. At September 30, 1997, the Company had approximately $7.8
million of U.S. Federal net operating loss carryforwards and approximately $1.9
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 sale of common stock by the Company
and the selling shareholders in the initial public offering caused an annual
limitation on the use of net operating loss carryforwards of approximately $4.7
million pursuant to the "change in control" provisions of Section 382 of the
Internal Revenue Code.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended
September 30, 1997
Revenues
License Fees. Total license fees increased 50.3% from $8.6 million, or
46.3% of total revenues, for the nine months ended September 30, 1996 to $13.0
million, or 51.0% of total revenues, for the nine months ended September 30,
1997. EDGE license fees increased 66.6% from $7.8 million for the nine months
ended September 30, 1996 to $13.0 million for the nine months ended September
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 $843,000 for the nine months ended September 30, 1996 to $0
for the nine months ended September 30, 1997 due to the sale of the Telemar
product line in September 1996.
Services And Maintenance. Services and maintenance revenues increased 24.5%
from $10.0 million, or 53.7% of total revenues, in the nine months ended
September 30, 1996 to $12.5 million, or 49.0% of total revenues, for the nine
months ended September 30, 1997. EDGE services and maintenance revenues
increased 48.4% from $8.4 million in the nine months ended September 30, 1996 to
$12.5 million for the nine months ended September 30, 1997. The increase in EDGE
services and maintenance revenues in the nine months ended September 30, 1997
was primarily attributable to the significant increase in EDGE software
licenses. Telemar services and maintenance revenues decreased from $1.6 million
for the nine months ended September 30, 1996 to $0 for the nine months ended
September 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 67.4% from $641,000 or
7.4% of the related license revenues, in the nine months ended September 30,
1996 to $209,000 or 1.6% of the related license revenues, for the nine months
ended September 30, 1997. The decrease in the cost of license fees from 1996 to
1997 was attributable to a decrease in the cost of third party products resold
by the Company, the elimination of certain salaries and a decrease in the use of
computer supplies relating to the Telemar product line which the Company sold in
September 1996.
Cost Of Services And Maintenance. The cost of services and maintenance
increased 24.0% from $5.5 million, or 54.7% of service and maintenance revenues,
in the nine months ended September 30, 1996 to $6.8 million, or 54.5% of service
and maintenance revenues, for the nine months ended September 30, 1997. The cost
of services and maintenance increased for the nine months ended September 30,
1997 which was primarily attributable to the hiring of new client service staff.
10
<PAGE>
Operating Expenses
Sales And Marketing. Sales and marketing expenses increased by 57.4% from
$5.6 million, or 30.2% of revenues, in the nine months ended September 30, 1996
to $8.9 million, or 34.8% of revenues, for the nine months ended September 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 2.5% from $4.8
million, or 25.6% of revenues, for the nine months ended September 30, 1996, to
$4.6 million, or 18.3% of revenues, for the nine months ended September 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
18.2% from $3.0 million, or 16.1% of revenues, for the nine months ended
September 30, 1996, to $3.5 million, or 13.9% of revenues, for the nine months
ended September 30, 1997. The increase in general and administrative expenses
during these periods was due to the addition of accounting, administrative and
legal staff to support the growth of the Company's business and increase in
Company's general reserves.
Other Income (Expense). Other income (expense) consists of interest expense
on debt and equipment financing less interest earned on cash and the promissory
note entered into in connection with the sale of Telemar and the gain on the
sale of Telemar. Other expense decreased by 65.0% from $746,000 for the nine
months ended September 30, 1996 to $261,000 for the nine months ended September
30, 1997. The reduction in other expense was primarily due to higher interest
income netted against 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
430% from $30,000 for the nine months ended September 30, 1996 to $159,000 for
the nine months ended September 30, 1997. The increase in provision for income
taxes is primarily attributable to an increase in international withholding
taxes.
Liquidity And Capital Resources
At September 30, 1997, the Company had $24.3 million in cash and
$12.6 million in accounts receivable. For the nine months ended September 30,
1997, the Company used net cash of $2.1 million in operating activities, which
was primarily attributable to net income of $979,000, depreciation, amortization
and other non-cash charges of $1.1 million and a decrease in notes receivable
from officers of $570,000 offset by an increase in accounts receivable of $2.2
million, an increase in other current assets of $1.2 million and a decrease in
accounts payable and accrued expenses of $1.5 million. 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 nine months ended September 30, 1997, the Company's
primary investing activities consisted of $1.1 million of purchases of computer
and office equipment to support the Company's expanding employee base. For the
nine months ended September 30, 1997, the Company made capital equipment lease
repayments of $205,000.
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 $32.4 million. The Company used $7.4 million to repay
in full the principal indebtedness under the Loan and Security Agreement dated
October 26, 1995, as amended between the Company and People's Bank. In addition,
the Company used $252,000 of the net proceeds of the offering to repay in full a
note payable to Wand/IMA Investments, L.P. 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 September 30,
1997.
11
<PAGE>
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 foreseeable future. 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 activities, 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. Statements in this Form 10-Q which express "belief", "anticipation" or
"expectation", as well as other statements which are not historical fact, and
statements as to product compatibility, design, features, functionality and
performance insofar as they may apply prospectively, are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 and the Company's actual results could differ materially from those
expressed 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 incurred significant net operating losses in each of 1992, 1993, 1994
and 1995 and had an accumulated deficit of $16.2 million as of September 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 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;
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 is 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
three months 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 three months ending in June and December than during the three
months 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
Company's common stock would likely be materially adversely affected.
12
<PAGE>
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.
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. 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 license and consulting fees charged. 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 will be adequate or that the Company's
competitors will not independently develop similar technology. Although the
Company believes that its products and technology do not infringe on any
existing 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.
13
<PAGE>
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.
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 channels in
a manner to avoid potential conflicts, there can be no assurance that
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 and 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
14
<PAGE>
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 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 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 than 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 September 30, 1997 the Company
employed 28 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.
15
<PAGE>
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).
16
<PAGE>
PART II: OTHER INFORMATION:
Item 1: Legal Proceedings:
Not Applicable.
Item 2: Changes in Securities and Use of Proceeds:
(a) In August 1997, the Company completed its initial public
offering of 3,900,000 shares of common stock, no par value
(the "IPO"), of which 2,800,000 shares were issued and sold
by the Company and 1,100,000 shares were sold by certain
selling shareholders. In connection with the completion of
the IPO, the Company adopted a fully amended and restated
Certificate of Incorporation, effective on August 6, 1997,
and fully amended and restated By-laws, effective
immediately upon the closing of the IPO.
(b) Not Applicable.
(c) Not Applicable.
17
(d) Use of Proceeds
(1) The Company filed a Registration Statement on Form
S-1 (the "Registration Statement"), File No.
333-22923, which was declared effective by the
Securities and Exchange Commission on July 30, 1997.
(2) The offering pursuant to the Registration Statement
on July 30, 1997.
(3) (i) The offering has terminated but did not do so
before the sale of all securities registered
pursuant to the Registration Statement other
than the underwriters over-allotment option for
585,000 shares which was not exercised.
(ii) The managing underwriters of the offering were
Alex. Brown & Sons Incorporated, Robertson,
Stephens & Company LLC and SoundView Financial
Group, Inc.
(iii) Pursuant to the Registration Statement, the
Company registered its common stock, no par
value.
(iv) The Company and selling shareholders registered
and sold shares of common stock of the Company
at $13.00 per share, prior to any underwriting
discounts or commissions, as follows:
<TABLE>
<CAPTION>
Aggregate Aggregate
Offering Offering
Price of Price of
Amount Amount Amount
Name Registered Registered Amount Sold Sold
- ----------------------------- ------------ ----------------- ------------- -----------
<S> <C> <C> <C> <C>
Company 2,800,000 $36,400,000 2,800,000 $36,400,000
Wand Group 880,000 $11,440,000 600,000 $7,800,000
Albert R. Subbloie, Jr. 126,000 $1,638,000 66,000 $858,000
Gary R. Martino 126,000 $1,638,000 66,000 $858,000
Andrei Poludnewycz 82,977 $1,078,701 43,602 $566,826
Paul J. Schmidt 33,750 $438,750 15,000 $195,000
Thomas F. Hill 12,000 $156,000 6,000 $78,000
Donald P. Miller 2,500 $32,500 2,500 $32,500
Mercury Asset Management plc 66,250 $861,250 33,125 $430,625
James H. Coffman, Jr. 209,902 $2,728,726 209,902 $2,728,726
Michael Herelehy 22,500 $292,500 7,500 $97,500
Joseph Niciforo 22,500 $292,500 7,500 $97,500
Joseph R. LeMay, Jr. 11,250 $146,250 3,750 $48,750
Thomas Pedersen 28,867 $375,271 28,867 $375,271
William and Marylee Trousdale 5,625 $73,125 1,875 $24,375
Floyd Donahue 5,625 $73,125 1,875 $24,375
Charles Heller 2,250 $29,250 750 $9,750
Craig Lund 5,782 $75,166 2,877 $37,401
Robert Geissman 5,782 $75,166 2,877 $37,401
James S. Aufdemberge 15,000 $195,000 0 $0
Paul G. Frederick 8,625 $112,125 0 $0
James E. Anderson 565 $7,345 0 $0
David G. Caldeira 7,500 $97,500 0 $0
Michael P. McGroarty 3,750 $48,750 0 $0
</TABLE>
18
(v) From July 30, 1997 to September 30, 1997, the
Company incurred $4,045,000 of total expenses
in connection with the offering as follows:
1. $2,548,000 in underwriting discounts and
commissions; and
2. $1,501,000 in other expenses (not including
finders fees or expenses paid to or for the
underwriters).
All of such expenses were direct or indirect
payments to unaffiliated third parties.
(vi) The net offering proceeds to the Company after
deducting total expenses in clause (v) above
were $32,351,000.
(vii) The Company used the net offering proceeds, in
direct or indirect payments to unaffiliated
third parties, as follows:
1. approximately $7,360,000 for repayment of
indebtedness;
2. approximately $3,739,000 for working
capital;
3. approximately $21,000,000 for temporary
investments primarily in commercial paper;
and
4. approximately $142,000 for the acquisition
of equipment.
The Company used $252,000 of the net offering
proceeds to repay in full a note payable to
Wand/IMA Investments, L.P., a beneficial owner
of more than ten percent of the issued and
outstanding shares of common stock of the
Company.
Each of these amounts is a reasonable estimate
of the amount of the net offering proceeds so
applied.
(viii) The use of proceeds in clause (vii) does not
represent a material change in the use of
proceeds described in the prospectus of the
Registration Statement.
Item 3: Defaults upon Senior Securities:
Not Applicable.
Item 4: Submission of Matters to a Vote of Security Holders:
Not Applicable.
Item 5: Other Information:
Not Applicable.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Amended and Restated Certificate of Incorporation
of the Registrant, effective August 6, 1997.*
3.2 Amended and Restated By-laws of the Registrant,
effective upon the closing of the Registrant's
initial public offering of common stock.*
27.1 Financial Data Schedule.
* Incorporated herein by reference to the
Registrant's Registration Statement on Form S-1,
File No. 333-22923.
(b) Reports on Form 8-K
Not Applicable.
19
<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: November 14, 1997 /s/ Albert R. Subbloie, Jr. President, Chief Executive Officer and
------------------------------------ Director (Principal Executive Officer)
Albert R. Subbloie, Jr.
Dated: November 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>
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,136
<SECURITIES> 21,173
<RECEIVABLES> 13,408
<ALLOWANCES> 775
<INVENTORY> 0
<CURRENT-ASSETS> 38,418
<PP&E> 6,806
<DEPRECIATION> 4,555
<TOTAL-ASSETS> 41,290
<CURRENT-LIABILITIES> 5,973
<BONDS> 0
0
0
<COMMON> 50,975
<OTHER-SE> (16,166)
<TOTAL-LIABILITY-AND-EQUITY> 34,656
<SALES> 12,985
<TOTAL-REVENUES> 25,444
<CGS> 209
<TOTAL-COSTS> 7,000
<OTHER-EXPENSES> 17,045
<LOSS-PROVISION> 775
<INTEREST-EXPENSE> 709
<INCOME-PRETAX> 1,138
<INCOME-TAX> 159
<INCOME-CONTINUING> 979
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 979
<EPS-PRIMARY> .08
<EPS-DILUTED> 0
</TABLE>
