SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-22970
NETWORK IMAGING CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 54-1590649
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500 Huntmar Park Drive, Herndon, Virginia 22070
(Address of principal executive offices)
(703) 478-2260
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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] [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of outstanding shares of the issuer's Common Stock, $.0001 par value,
as of April 28, 1997 was 24,841,929
<PAGE>
NETWORK IMAGING CORPORATION
Form 10-Q
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1997
(unaudited) and December 31, 1995 2
Consolidated Statements of Operations (unaudited)
for the three months ended March 31, 1997 and 1996 3
Consolidated Statement of Changes in Stockholders' Equity
(unaudited) for the three months ended March 31, 1997 4
Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
<PAGE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,058 $ 7,601
Accounts and notes receivable, net 13,442 13,243
Inventories 1,533 1,503
Prepaid expenses and other 2,472 2,362
--------- ---------
Total current assets 22,505 24,709
Fixed assets, net 2,447 2,887
Long-term notes receivable, net 1,977 1,979
Software development costs and
purchased technology, net 3,656 3,813
Goodwill, net 2,793 3,237
Other assets 143 153
--------- ---------
Total assets $ 33,521 $ 36,778
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current debt maturities and
obligations under capital leases $ 1,431 $ 2,063
Accounts payable 3,199 3,185
Accrued compensation and related
expenses 2,138 1,891
Deferred revenue 5,386 3,789
Other accrued expenses 3,617 3,888
--------- ---------
Total current liabilities 15,771 14,816
Long-term debt and obligations
under capital leases 3,555 88
Deferred income taxes 290 300
--------- ---------
Total liabilities 19,616 15,204
Commitments
Redeemable Series F
preferred stock, 1,792,186 and
792,000 shares issued and
outstanding 6,357 9,857
Stockholders' equity:
Preferred stock, $.0001 par
value, 20,000,000 shares
authorized; 1,605,185 and
1,605,675 shares issued and
outstanding
Common stock, $.0001 par value,
50,000,000 shares authorized;
24,835,263 and 22,896,612
shares issued and outstanding 2 2
Additional paid-in-capital 123,552 124,429
Accumulated deficit (115,780) (113,098)
Translation adjustment (226) 384
--------- ---------
Total stockholders' equity 7,548 11,717
--------- ---------
Total liabilities and stockholders' equity $ 33,521 $ 36,778
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
------------ -------------
<S> <C> <C>
Revenue:
Products $ 4,259 $ 5,996
Services 4,860 4,546
------------ ------------
9,119 10,542
------------ ------------
Costs and expenses:
Cost of products sold 1,958 3,440
Cost of services provided 3,882 3,804
Sales and marketing 3,612 3,969
General and administrative 1,611 2,425
Product development 1,042 1,734
Gain from extinguishment of debt (267) --
Exchange fee and gain on
sale of asset, net -- 619
Restructuring costs -- (156)
------------
11,838 15,835
------------ ------------
Loss before investment and
interest income and income taxes (2,719) (5,293)
Investment and interest income, net 31 59
------------ ------------
Loss before income taxes (2,688) (5,234)
Income tax (benefit) provision (6) 102
------------ ------------
Net loss (2,682) (5,336)
------------ ------------
Preferred stock preferences (976) (1,020)
------------ ------------
Net loss applicable to
common shares $ (3,658) $ (6,356)
============ ============
Net loss per common share $ (0.15) $ (0.34)
============ ============
Weighted average shares outstanding 24,463,511 18,911,235
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the three months ended March 31, 1997
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
Shares Amt. Shares Amt.
---------------------------------------------------
<S> <C> <C> <C> <C>
Balance December 31, 1996 1,605,675 $ -- 22,896,612 $ 2
Issuance of common stock
upon exercise of warrants 9,999
Conversion of preferred
stock (490) 1,928,652
Offering costs on issuance
of preferred stock
Issuance of warrants
Dividends on preferred
stock
Translation adjustment
Net loss
---------- ---------- ---------- ----------
Balance March 31, 1997 1,605,185 -- 24,835,263 $ 2
========== ========== ========== ==========
Additional
paid-in Accumulated
capital Deficit
------------ ------------
<S> <C> <C>
Balance December 31, 1996 $ 124,429 ($113,098)
Issuance of common stock upon
exercise of warrants 10
Conversion of preferred stock
Offering costs on issuance of
preferred stock (25)
Issuance of warrants 114
Dividends on preferred stock (976)
Translation adjustment
Net loss (2,682)
--------- ---------
Balance March 31, 1997 123,552 (115,780)
========= =========
Translation
Adjustment Total
--------------------------
<S> <C> <C>
Balance December 31, 1996 $ 384 $ 11,717
Issuance of common stock upon
exercise of warrants 10
Conversion of preferred stock 0
Offering costs on issuance of
preferred stock (25)
Issuance of warrants 114
Dividends on preferred stock (976)
Translation adjustment (610) (610)
Net loss (2,682)
-------- --------
Balance March 31, 1997 (226) $ 7,548
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months Ended March 31,
1997 1996
----------- -----------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,682) $(5,336)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 1,338 1,485
Gain on sale of asset -- (111)
Restructuring costs -- (156)
Changes in assets and liabilities:
Accounts and notes receivable (797) 895
Inventories (66) (208)
Prepaid expenses and other (165) (293)
Accounts payable 309 603
Accrued compensation and
related expenses 343 (333)
Accrued expenses, other (754) (37)
Deferred revenues 2,298 173
Deferred income taxes 15 71
------- -------
Net cash used in operating activities (161) (3,247)
------- -------
Cash flows from investing activities:
Capitalized software development
and license costs (436) (412)
Purchases of fixed assets (231) (307)
------- -------
Net cash used in investing activities (667) (719)
------- -------
Cash flows from financing activities:
Proceeds from issuance of common
and preferred stocks, net 99 4,654
Cash dividends paid on Series A
preferred stock (803) (803)
Cash dividends paid on Series F
preferred stock (174) --
Payments on Mandatory Redeemable
Preferred Stock (3,500) --
Proceeds from borrowings and
short-term investments 3,500 --
Proceeds from sale and leaseback
of fixed assets -- 196
Proceeds from Notes Receivable
related to business divestitures 42 --
Principal payments on capital
lease obligations (250) (207)
Principal payments on debt (532) (329)
------- -------
Net cash (used in) provided by
financing activities (1,618) 3,511
------- -------
Effect of exchange rate changes on
cash and cash equivalents (97) (39)
Net decrease in cash and cash
equivalents (2,543) (494)
Cash and cash equivalents at
beginning of year 7,601 9,359
------- -------
Cash and cash equivalents at March 31, $ 5,058 $ 8,865
======= =======
Supplemental Cash Flow Information:
Interest paid $ 72 $ 137
Income taxes paid $ 112 $ 14
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997 and 1996
1. BASIS OF PRESENTATION
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q and should be read in conjunction
with the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 which include
information and note disclosures not included herein. In the opinion of
management all adjustments, which include only those of a normal recurring
nature, necessary to fairly present the Company's financial position, results of
operations and cash flows have been made to the accompanying financial
statements. The results of operations for the three month period ended March 31,
1997 may not be indicative of the results that may be expected for the year
ending December 31, 1997.
Net loss per common share is computed using the weighted average number of
common shares outstanding during the year. Common share equivalents, which
consist of common stock purchase warrants, stock options and preferred stock,
are only included in the weighted average number of common shares outstanding if
dilutive.
Certain reclassifications have been made to the prior period financial
statements to conform to the current period presentation.
2. REDEEMABLE PREFERRED STOCK AND BORROWINGS
During the first quarter of 1997, the Company redeemed 1,000,000 shares of
Series F Preferred Stock for $3,500,000. The Company used proceeds from its line
of credit to finance the Series F Preferred share buy back.
-6-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 (the "Reform Act")
provides a "safe harbor" for forward-looking statements to encourage companies
to provide prospective information about their companies, so long as those
statements are identified as forward-looking and are accompanied by meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those discussed in the statement. The Company
desires to take advantage of the "safe harbor" provisions of the Reform Act.
Except for the historical information contained herein, the matters discussed in
this Form 10-Q quarterly report are forward-looking statements which involve
risks and uncertainties. Although the Company believes that the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, it can give no assurance that its expectations will be achieved.
Important factors that could cause actual results to differ materially from the
Company's expectations are disclosed in conjunction with the forward-looking
statements or elsewhere herein.
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and related notes included herein.
Results of Operations - Three months ended March 31, 1997 and 1996
Revenues. Total revenues were $9.1 million and $10.5 million
for the three months ended March 31, 1997 and 1996, respectively. The $1.4
million decrease in revenue was the result of decreases in product revenue of
$1.7 million, or 29%, offset by an increase in service revenue of $314,000, or
7%. The decrease in product revenue was primarily attributable to the
disposition in 1996 of Symmetrical Technologies, Inc. ("STI"), which reduced the
Company's revenues by $1.2 million. The increase in service sales of $314,000
was the result of a $372,000 increase in comparative company revenues offset by
a decrease of $78,000 due to the disposition of STI.
Profit Margins. Profit margins for product sales increased 11
percentage points in the first quarter of 1997 over the same period in 1996 as
cost of products decreased from 57% to 46% of sales. The increase in product
sales margins was primarily due to the increased sales mix of the Company's
internally developed products and the disposition during 1996 of STI. Profit
margins for service sales increased 4 percentage points for the three months
ended March 31, 1997 as compared to 1996 as the cost of services decreased from
84% to 80% of sales. The increase in service sales margins from 16% to 20% was
due to the Company increasing emphasis on its custom development services.
-7-
<PAGE>
Sales and marketing. Sales and marketing expenses were $3.6
million or 40% of revenue, for the three months ended March 31, 1997 compared to
$4.0 million, or 38% of revenue in 1996. The decrease of $357,000, or 9%, was
primarily the result of the Company's dispositions of STI during 1996.
General and administrative. G&A expenses were $1.6 million or
18% of revenue, for the three months ended March 31, 1997 compared to $2.4
million, or 23% of revenue in 1996. The decrease of $814,000, or 34%, was
primarily the result of the Company's efforts in cost reductions in the
Company's continuing operations.
Product development. The Company's expenditures on software
research and development activities in the three months ended March 31, 1997
were $1.5 million, of which $0.5 million was capitalized and $1.0 million was
expensed. Software research and development expenditures for the 1996 period
were $2.1 million, of which $0.4 million was capitalized and $1.7 million was
expensed. The $600,000 decrease in research and development expenditures is
attributable to the Company's 1996 plan to consolidate the various 1View product
development groups into a common product development organization operating
under a single senior manager. During 1996, the Company consolidated it's COLD
product development groups from three separate locations to one, and vacated the
excess office space. The Company's disposition of STI also resulted in a
reduction of $90,000 in research and development expenditures.
Gain on extinguishement of debt. The Company's French
subsidiary realized a $267,000 gain in connection with the partial forgiveness
of a grant made from a French government agency.
Income taxes. The Company's income tax benefit for the three
months ended March 31, 1997 of $6,000 resulted from losses generated by the
Company's French operations. The Company had income tax expense for the three
months ended March 31, 1996 of $102,000 which was primarily the result of
taxable income generated by the Company's French operations which could not be
offset by operating losses or carryforwards available in other jurisdictions.
Net loss. The Company's net loss for the three months ended
March 31, 1997 was $2.7 million as compared to $5.3 million for the comparable
period of 1996. The net loss decrease of $2.6 million in the first quarter of
1997 as compared to the same period in 1996 is due primarily to the $1.1 million
reduction in G&A expenses, $700,000 reduction in product development expenses
and the exchange fee incurred in 1996.
-8-
<PAGE>
Net loss applicable to Common Stock. The net loss applicable
to common shares includes adjustments for dividends and accretion amounts
related to the Company's preferred stock. The net loss applicable to common
shares was $3.7 million, or ($.15) per share, for the three months ended March
31, 1997 as compared to $6.4 million or ($.34) per share, for the comparable
period of 1996. The decrease is attributable to the decrease in net loss
described above.
Liquidity and Capital Resources
As of March 31, 1997, the Company had $5.1 million in cash
and cash equivalents, as compared to $7.6 million in cash and cash equivalents
at December 31, 1996. Net working capital was $6.7 million at March 31, 1997 and
$9.9 million at December 31, 1996.
During the first quarter of 1997, the Company redeemed
1,000,000 shares of Series F Preferred Stock for $3,500,000 by using proceeds
from its line of credit.
For the three months ended March 31, 1997, the $2.5 million
decrease in cash and cash equivalents resulted from the use of $161,000 in cash
to fund operating activities, $667,000 to fund investing activities and $1.6
million in cash to fund financing activities.
The $161,000 funding of operating activities arose primarily
with respect to a net loss in operations. The $667,000 to fund investing
activities arose with respect to capitalized software development costs and the
purchase of fixed assets. The $1.6 million in cash used by financing activities
arose primarily from the $977,000 payment of Preferred Stock dividends and the
principle payments on debt and capital lease obligations.
The adverse results of operations which the Company has
experienced has been declining and is expected to reverse in 1997. The Company
believes that its existing cash, together with the line of credit established in
the fourth quarter of 1996 and the anticipated cash flows from 1997 operations,
should provide sufficient resources to fund its activities until the trend
completely reverses.
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<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any legal proceedings, other than the
routine litigation incidental to the business.
Item 6. Exhibits
(a) Exhibits
None
(b) 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 hereunto duly authorized.
NETWORK IMAGING CORPORATION
(Registrant)
Date: April 30, 1997 By /s/ James Leto
--------------
James J. Leto
President and Chief Executive Officer
Date: April 30, 1997 By /s/ Jorge R. Forgues
--------------------
Jorge R. Forgues
Senior Vice President of Finance and
Administration, Chief Financial Officer
and Treasurer
