<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996
----------------------------------
[ ] 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 0-19340
GMIS Inc.
-------------------------------------------------------------
Exact name of Registrant as specified in its charter
Delaware 23-2311601
- - ------------------------------ -------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
5 Country View Road
Malvern, PA 19355 (610) 296-3838
- - ------------------------------ -------------------------------
(Address of principal (Registrant's telephone number)
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
----------- -----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 1, 1996
- - ---------------------- ---------------------------------
Common Stock, $.01 par value 8,176,250 shares
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GMIS INC.
FORM 10-Q JUNE 30, 1996
CONTENTS
<TABLE>
<CAPTION>
PART I. CONSOLIDATED FINANCIAL INFORMATION Page No.
--------
<S> <C>
Consolidated Balance Sheets -
June 30, 1996 (Unaudited) and December 31, 1995 2
Consolidated Statements of Operations -
Three Months Ended June 30, 1996 and 1995 (Unaudited) 3
Consolidated Statements of Operations -
Six Months Ended June 30, 1996 and 1995 (Unaudited) 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1995 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-10
PART II. OTHER INFORMATION 11
</TABLE>
<PAGE>
GMIS Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
- - --------------------------------------------------------------------------------------------------------
Assets (Unaudited)
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 7,394,564 $ 4,692,812
Investments available-for-sale 5,543,879 5,158,928
Trade accounts receivable, less allowance:
1996 - $400,000; 1995 - $400,000 12,279,159 14,094,199
Receivables from related parties 643,438 542,209
Prepaid expenses 614,300 384,796
- - --------------------------------------------------------------------------------------------------------
Total Current Assets 26,475,340 24,872,944
Property and Equipment, at cost
Furniture and fixtures 1,796,493 1,701,489
Computer equipment and software 6,358,482 6,173,576
Leasehold improvements 855,513 751,198
- - --------------------------------------------------------------------------------------------------------
9,010,488 8,626,263
Accumulated depreciation and amortization (5,106,643) (4,165,391)
- - --------------------------------------------------------------------------------------------------------
3,903,845 4,460,872
Capitalized Software Costs, less accumulated amortization:
1996 - $ 11,535,347; 1995 - $ 9,987,219 14,734,538 14,222,193
Goodwill and Other Intangibles, less accumulated amortization:
1996 - $ 2,118,646; 1995 - $ 1,638,952 14,637,014 15,116,708
Investments in Affiliates, at cost 2,302,563 1,949,812
- - --------------------------------------------------------------------------------------------------------
Total Assets $ 62,053,300 $ 60,622,529
========================================================================================================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 1,209,747 $ 1,962,501
Accrued expenses 3,776,746 4,993,845
Deferred income taxes 1,009,164 527,401
Deferred revenue 633,854 722,310
- - --------------------------------------------------------------------------------------------------------
Total Current Liabilites 6,629,511 8,206,057
Deferred Income Taxes 1,484,162 1,002,399
Stockholders' Equity
Preferred Stock, $.01 par value, 2,000,000 shares authorized;
no shares issued - -
Common Stock, $.01 par value, 30,000,000 shares authorized; issued
and outstanding: 1996 - 8,176,250 shares; 1995 - 8,092,866 shares 81,763 80,929
Additional paid-in capital 46,673,167 45,682,459
Retained earnings 7,184,697 5,650,685
- - --------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 53,939,627 51,414,073
- - --------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 62,053,300 $ 60,622,529
========================================================================================================
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE>
GMIS Inc.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
- - -------------------------------------------------------------------------------
1996 1995
- - -------------------------------------------------------------------------------
<S> <C> <C>
Operating Revenue $ 8,802,777 $7,065,045
Operating Expenses
Cost of revenue 2,278,493 2,239,094
Marketing and sales 1,366,965 1,576,143
Research and development 2,079,505 2,119,649
General and administrative 1,702,507 2,231,473
- - -------------------------------------------------------------------------------
Total operating expenses 7,427,470 8,166,359
- - -------------------------------------------------------------------------------
Operating Income (Loss) 1,375,307 (1,101,314)
Investment Income 129,827 162,824
- - -------------------------------------------------------------------------------
Income (Loss) Before Income Taxes 1,505,134 (938,490)
Provision (Benefit) for Income Taxes 602,100 (357,000)
- - -------------------------------------------------------------------------------
Net Income (Loss) $ 903,034 ($581,490)
===============================================================================
Per Common Share
Net Income (Loss) $ 0.11 ($0.07)
===============================================================================
Weighted average shares outstanding 8,339,539 7,982,844
===============================================================================
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
GMIS Inc.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
- - --------------------------------------------------------------------------------
1996 1995
- - --------------------------------------------------------------------------------
<S> <C> <C>
Operating Revenue $ 16,941,200 $ 16,156,262
Operating Expenses
Cost of revenue 4,641,571 4,590,016
Marketing and sales 2,611,758 2,913,238
Research and development 4,004,344 4,272,316
General and administrative 3,387,984 3,776,036
- - --------------------------------------------------------------------------------
Total operating expenses 14,645,657 15,551,606
- - --------------------------------------------------------------------------------
Operating Income 2,295,543 604,656
Investment Income 261,169 344,082
- - --------------------------------------------------------------------------------
Income Before Income Taxes 2,556,712 948,738
Provision for Income Taxes 1,022,700 360,000
- - --------------------------------------------------------------------------------
Net Income $ 1,534,012 $588,738
================================================================================
Per Common Share
Net Income $ 0.19 0.07
================================================================================
Weighted average shares outstanding 8,282,595 8,689,721
================================================================================
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
GMIS Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
- - --------------------------------------------------------------------------------------------------------
1996 1995
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities
Net income $ 1,534,012 $ 588,738
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Deferred income tax provision 1,022,700 360,000
Compensation expense 199,137 244,038
Amortization of goodwill and other intangibles 479,694 479,694
Depreciation and amortization 2,494,372 2,487,834
(Accretion) amortization of investment
(discounts) premiums (113,813) 31,851
Changes in operating assets and liabilities:
Trade accounts receivable 1,815,040 1,365,564
Receivables from related parties (101,229) (238,603)
Prepaid expenses (229,504) (196,931)
Accounts payable (752,754) (841,961)
Accrued expenses (1,276,273) (8,268,509)
Deferred revenue (88,456) 370,772
- - --------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 4,982,926 (3,617,513)
Investing activities
Expenditures for property and equipment (389,217) (1,433,578)
Software costs capitalized (2,060,473) (2,559,378)
Proceeds from sale or maturity of investments 5,551,310 3,022,000
Purchase of investments (5,822,448) (4,451,957)
Investment in affiliates (352,751) -
- - --------------------------------------------------------------------------------------------------------
Net cash used in investing activities (3,073,579) (5,422,913)
Financing activities
Proceeds from exercise of stock options and
employee stock purchases 792,405 1,062,210
- - --------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 792,405 1,062,210
- - --------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 2,701,752 (7,978,216)
Cash and cash equivalents at beginning of period 4,692,812 15,544,677
- - --------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 7,394,564 $ 7,566,461
========================================================================================================
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(Unaudited)
Note 1: Basis of Presentation
------------------------------
The financial information presented as of any date other than December 31
has been prepared from the books and records without audit. Financial
information as of December 31 has been derived from the audited financial
statements of GMIS Inc. (the Company), but does not include all disclosures
required by generally accepted accounting principles. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial information for the periods
indicated have been included. For further information regarding the Company's
accounting policies, refer to the consolidated financial statements and
related notes included in the Company's annual report on Form 10-K for the
year ended December 31, 1995.
Note 2: Net Income Per Common Share
------------------------------------
Net income per common share is determined by dividing net income by the
weighted average number of common shares outstanding during the interim
period. The weighted average common shares outstanding include the effect of
stock options if dilutive.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The matters discussed in this report as well as the news releases issued
from time to time by the Company contain certain forward-looking statements
that involve risks and uncertainties, including timing of consummation of
contracts with customers and delivery of products, the timely availability and
acceptance of new products, the impact of competitive products and pricing and
the ability of the Company to expand its customer base for its existing
products.
Operating Revenue
The Company derives substantially all of its revenue from its data
quality (Autocoder/(R)/ and ClaimCheck/(R)/) and decision support (Provider
Insight/(R)/ and ICAS/(TM)/) product lines. Its products are licensed
primarily pursuant to multi-year agreements that, in general, provide for
payment of equal annual license fees over their terms. The initial license fee
is recognized at the time of new product delivery and subsequent annual fees
are recognized on the contract anniversary date. Revenue from services is
recognized as the work is performed.
The Company believes the seasonality of its revenue can be attributed to
concentration in the fourth quarter of new product deliveries, contract
anniversary dates under multi-year license agreements and renewal dates of
existing agreements. Although the Company has taken certain steps to moderate
this historical seasonality, it expects the trend of recognizing greatest
revenue in the fourth quarter to continue in the foreseeable future.
Operating revenue for the second quarter of 1996 increased 25% to
$8,803,000 from $7,065,000 in the corresponding quarter of the prior year.
The increase can be attributed to strong data quality revenues including
revenues from a new module (ClaimReview) released in late 1995 and increased
penetration into the dental market. Operating revenue for the first half of
1996 increased 5% to $16,941,000 from $16,156,000 in the corresponding period
of the prior year. The increase is the result of an increase of 28% of the
decision support product line and a decrease of 5% of data quality products
caused by a planned deemphasis of the data quality product for the Worker's
Compensation market partially offset by new data quality revenues generated in
1996.
-7-
<PAGE>
Operating Expenses
Cost of revenue for the three months ended June 30, 1996 increased to
$2,278,000 from $2,239,000, but decreased to 26% of operating revenue from 32%
of operating revenue for the same period in 1995. The decrease as a
percentage of revenue is primarily due to the sharper increase in operating
revenue in the second quarter compared to expenses. Increased costs in 1996
can be attributed primarily to slight increases in payroll and software
amortization. Cost of revenue for the six months ended June 30, 1996
increased to $4,642,000 from $4,590,000 but decreased to 27% of operating
revenue from 28% of operating revenue for the same period in 1995. The
decrease as a percentage of revenue is primarily due to the increase in
operating revenue.
Marketing and sales expense was $1,367,000 or 16% of operating revenue
for the second quarter of 1996 compared to 1,576,000 or 22% of operating
revenue the same period in 1995. The decrease is due to lower payroll and
related expenses, recruiting and travel expense partially offset by increased
sales incentives. The decrease on a percent of revenue basis was driven by
the aforementioned expense reductions and increased revenues in the second
quarter of 1996. For the six months ended June 30, 1996 and 1995, marketing
and sales expense was $2,612,000 or 15% of operating revenue and $2,913,000 or
18% of operating revenue, respectively. The decrease was the result of lower
payroll, recruiting, lodging and travel expenses partially offset by increased
sales incentives in 1996.
Research and development expenditures, before software capitalization,
decreased by $236,000 or 7% for the second quarter of 1995 and $770,000 or 11%
for the six months ended June 30, 1996 compared to the same periods in 1995.
The decrease results from lower payroll and related expenses partially offset
by increases in consulting and programming services. Capitalized software
costs decreased by $195,000, or 15% for the three months ended June 30, 1996
and $499,000, or 19% for the first half of 1996 compared to the same periods
in 1995. The amount of capitalized product development costs as a percentage
of total product development costs were 34% for both the second quarter and
first six months of 1996, compared to 38% and 37%, respectively, for the
comparable periods in 1995. The product development costs capitalized in the
first half of 1996 were 1.3 times the amortized amount as compared to 1.7
times in the first half of 1995. The following table summarizes the Company's
research and
-8-
<PAGE>
development expenditures for the periods indicated below:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
(In thousands) ---- ---- ---- ----
<S> <C> <C> <C> <C>
Total research and development cost $3,170 $3,406 $6,061 $6,831
Amount capitalized 1,091 1,286 2,060 2,559
------ ------ ------ ------
Amount expensed $2,079 $2,120 $4,001 $4,272
</TABLE>
General and administrative costs for the second quarter of 1996 were
$1,703,000 or 19% of operating revenue as compared to $2,231,000 or 32% of
operating revenue for the second quarter in 1995. The decrease as a percentage
of revenue is due to both an increase in operating revenue and decrease in
costs in the 1996 second quarter. Decreased costs in the second quarter were
primarily due to lower payroll and related expenses, legal and depreciation
expenses. General and administrative costs for the first half of 1996
decreased to $3,388,000 or 20% of operating revenue compared to $3,776,000 or
23% for the same period in 1995. The decrease in costs were due to decreases
in payroll and related expenses and legal expense partially offset by
increases in consulting and recruiting expenses.
Investment Income
Investment income was $261,000 in the first half of 1996 compared to
$344,000 for the first half of 1995. The decrease in investment income is
attributed to both a decrease in investment balances and a decrease in
interest rates.
Income Taxes
The effective tax rate was 40% for the six months ended June 30, 1996.
The effective tax rate was 38% for the six months ended June 30, 1995. The
increase in the effective tax rate is primarily due to the federal research
and development tax credit not being reinstated and to increased state rates.
Net Income
Net income increased to $903,000 or $0.11 per share and $1,534,000 or $0.19
per share for the quarter and six months ended June 30, 1996, respectively,
from a net loss of $581,000 or $0.07 per share and to net income of $589,000
or $0.07 per share for the same periods in 1995.
Liquidity and Capital Resources
The Company had working capital as of June 30, 1996 of $19,846,000
(including cash and investments of $12,938,000) as compared to $16,667,000
-9-
<PAGE>
(including cash and investments of $9,852,000) as of December 31, 1995. The
increase in working capital is primarily a result of significant collections
of accounts receivable.
The Company does not have significant commitments for capital
expenditures; however, expansion will continue to increase the Company's
utilization of working capital. The Company expects to fund future working
capital requirements, including the remaining cash outflows related to the
restructuring, from existing cash balances and cash to be generated from
operations. The Company anticipates that these resources will be sufficient
to fund future operating and capital expenditure requirements for the
foreseeable future.
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<PAGE>
GMIS INC.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings - None.
Item 2. Changes in Securities - None.
Item 3. Defaults Upon Senior Securities - None.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Stockholders' of the Company was held on
May 7, 1996, and the following matters were considered:
1. To re-elect Dr. Robert Becker, M.D. and Mr. Eugene L. Step
directors of the Company for terms of three years (expiring at
the 1999 Annual Meeting) and until their respective successors
are duly elected and qualified.
This proposal was approved by 7,337,405 affirmative votes and
798,041 votes were withheld.
The following persons are directors whose term of office as a
director continued after the meeting:
Walter Channing, Jr.
John F. Kenny
Kenneth G. Langone
Alan B. Miller
Thomas R. Owens
2. To approve the appointment of Ernst & Young LLP as independent
auditors of the Company to serve for the fiscal year ending
December 31, 1996.
The proposal was approved by 7,336,393 affirmative votes and
8,132 votes against. There were 500 abstentions.
Item 5. Other Information - None.
Item 6. Exhibits and Reports on Form 8-K - None.
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<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.
GMIS Inc.
by:
/s/ Timothy M. Leonard
----------------------
Timothy M. Leonard
Vice President, Finance, Treasurer & Chief
Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
Date: August 1, 1996
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 7,394,564
<SECURITIES> 5,543,879
<RECEIVABLES> 12,679,159
<ALLOWANCES> 400,000
<INVENTORY> 0
<CURRENT-ASSETS> 26,475,340
<PP&E> 9,010,488
<DEPRECIATION> 5,106,643
<TOTAL-ASSETS> 62,053,300
<CURRENT-LIABILITIES> 6,629,511
<BONDS> 0
0
0
<COMMON> 81,763
<OTHER-SE> 53,857,864
<TOTAL-LIABILITY-AND-EQUITY> 62,053,300
<SALES> 16,941,200
<TOTAL-REVENUES> 16,941,200
<CGS> 4,641,571
<TOTAL-COSTS> 4,641,571
<OTHER-EXPENSES> 10,004,086
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,556,712
<INCOME-TAX> 1,022,700
<INCOME-CONTINUING> 1,534,012
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,534,012
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
