<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 0-26306
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IMNET SYSTEMS, INC.
-------------------
(Exact name of registrant as specified in its charter)
Delaware 39-1730068
- ------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3015 Windward Plaza, Windward Fairways II, Alpharetta, GA 30005
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(770) 521-5600
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(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
There were 9,760,716 shares of Common Stock outstanding as of October 31, 1997.
<PAGE> 2
IMNET SYSTEMS, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) PAGE
- ------- -------------------------------- ----
<S> <C>
Consolidated Balance Sheets - September 30, 1997 and June 30, 1997 3
Consolidated Statements of Operations - Three Months Ended
September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows - Three Months Ended
September 30, 1997 and 1996 5
Notes to Interim Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS 6 - 13
---------------------
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
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</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IMNET SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 8,304,252 $ 9,132,631
Marketable securities .............................................. 8,674,354 11,606,287
Accounts receivable, net ........................................... 30,848,597 33,858,910
Inventories ........................................................ 1,871,084 2,100,060
Refundable income taxes ............................................ 1,929,146 --
Prepaid expenses and other current assets .......................... 2,694,961 2,136,686
------------ ------------
Total current assets ............................................ 54,322,394 58,834,574
Noncurrent accounts receivable ......................................... -- 233,949
Property and equipment, net ............................................ 6,480,031 6,242,243
Computer software development costs, net ............................... 3,229,839 2,556,663
Advance royalties, net ................................................. 6,779,893 6,919,179
Other intangibles, net ................................................. 1,460,141 1,717,120
Goodwill, net .......................................................... 9,048,412 9,349,174
------------ ------------
$ 81,320,710 $ 85,852,902
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................... $ 2,355,611 $ 3,026,276
Accrued expenses ................................................... 10,040,373 9,471,314
Income taxes payable ............................................... 1,161,220 2,379,220
Deferred revenue ................................................... 839,215 1,186,388
------------ ------------
Total current liabilities ....................................... 14,396,419 16,063,198
Stockholders' equity:
Common stock, $.01 par value. Authorized 25,000,000 shares;
9,798,353 shares issued and 9,760,716 shares outstanding at
September 30, 1997 and 9,779,374 shares issued and 9,741,737
shares outstanding at June 30, 1997 ............................. 97,984 97,794
Additional paid-in capital ......................................... 83,669,202 83,378,585
Treasury stock, 37,637 shares, at cost ............................. (148,417) (148,417)
Accumulated deficit ................................................ (16,685,811) (13,538,258)
Cumulative foreign currency translation adjustment ................. (8,667) --
------------ ------------
Total stockholders' equity ...................................... 66,924,291 69,789,704
------------ ------------
$ 81,320,710 $ 85,852,902
============ ============
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
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IMNET SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
System sales ......................................... $ 5,525,652 $ 7,694,820
Maintenance and professional services ................ 2,444,351 1,964,454
------------ ------------
Total revenues .................................... 7,970,003 9,659,274
------------ ------------
Operating expenses:
Cost of system sales ................................. 3,991,274 2,093,491
Cost of maintenance and professional services ........ 1,413,428 1,476,539
Sales and marketing .................................. 3,574,290 2,648,795
Research and development ............................. 2,063,467 1,149,873
General and administrative ........................... 2,256,759 1,387,005
Non-recurring charges ................................ -- 749,545
------------ ------------
Total operating expenses .......................... 13,299,218 9,505,248
------------ ------------
Operating income (loss) ........................... (5,329,215) 154,026
Interest and other income, net ....................... 252,516 492,209
------------ ------------
Income (loss) before income taxes ................. (5,076,699) 646,235
Income taxes ......................................... 1,929,146 --
------------ ------------
Net income (loss) ................................. $ (3,147,553) $ 646,235
============ ============
Net income (loss) per common share ....................... $ (0.32) $ 0.07
============ ============
Weighted average outstanding common shares and common
share equivalents .................................... 9,756,653 9,998,714
============ ============
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
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IMNET SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ...................................................... $ (3,147,553) $ 646,235
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization of property and equipment ............. 381,849 244,099
Amortization of computer software development costs,
acquired technology, and goodwill and other intangibles ......... 691,747 377,283
Provision for doubtful accounts receivable .......................... 326,457 57,235
Loss on disposal of property and equipment .......................... -- 16,738
(Increase) decrease in:
Trade accounts receivable ........................................... 2,917,805 (6,182,783)
Note receivable from related party .................................. -- 2,501,249
Inventories ......................................................... 228,976 (845,721)
Refundable income taxes ............................................. (1,929,146) --
Prepaid expenses and other current assets ........................... (558,275) (646,423)
Increase (decrease) in:
Accounts payable .................................................... (670,665) 1,502,197
Accrued expenses .................................................... 569,059 109,537
Income taxes payable ................................................ (1,218,000) --
Deferred revenue .................................................... (347,173) (61,644)
------------ ------------
Net cash used in operating activities ........................... (2,754,919) (2,281,998)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities ..................................... (8,716,526) (7,317,039)
Maturities of marketable securities .................................... 11,648,459 1,000,000
Additions to property and equipment .................................... (619,637) (475,028)
Additions to computer software development costs ....................... (741,557) (473,183)
Adjustments to goodwill ................................................ 73,661 (46,900)
------------ ------------
Net cash provided by (used in) investing activities ............. 1,644,400 (7,312,150)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and warrants ................... 290,807 97,168
Dividends paid by Hunter prior to merger ............................... -- (600,000)
------------ ------------
Net cash provided by (used in) financing activities ............. 290,807 (502,832)
------------ ------------
Effect of exchange rate changes on cash ................................ (8,667) --
Net decrease in cash and cash equivalents ....................... (828,379) (10,096,980)
Cash and cash equivalents at beginning of period ........................... 9,132,631 16,894,711
------------ ------------
Cash and cash equivalents at end of period ................................. $ 8,304,252 $ 6,797,731
============ ============
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
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IMNET SYSTEMS, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1997
(1) BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements
represent the accounts of IMNET Systems, Inc. and its wholly owned subsidiaries
(the "Company" or "IMNET"). The consolidated financial statements have been
prepared in accordance with instructions to Form 10-Q and, therefore, do not
include all information and footnotes necessary for fair presentation of
financial position, results of operations, and cash flows in conformity with
generally accepted accounting principles. All adjustments, consisting of normal
recurring accruals, which, in the opinion of management, are necessary to a fair
statement of financial position and results of operations for the periods
covered by this report have been included. The accompanying unaudited interim
consolidated financial statements should be read in conjunction with the
Company's financial statements and related notes appearing in the Company's
Annual Report on Form 10-K for the year ended June 30, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
IMNET develops, markets, installs and services electronic information
and document management systems to meet the needs of the healthcare industry and
other document-intensive businesses. IMNET's products include proprietary and
third party software and hardware components which are integrated to create
electronic information and document management systems. IMNET supports its
customers through a broad range of systems integration, installation, training
and maintenance services.
The Company's revenues are derived primarily from the sale and support
of components of the IMNET Electronic Information Warehouse: the IMNET Image
Engine, the IMNET Workflow Engine, IMNET MedVision, the IMNET Electronic Patient
Record System (EPRS), IMNET EPRS/Web, IMNET LaserArc, and the IMNET Application
Programming Interfaces. Revenues from system sales consist of IMNET and third
party hardware and software license fees. Sources of maintenance and
professional services revenues include services for installation and training,
as well as maintenance and service contracts for software and certain hardware
support. IMNET systems are sold directly to end-users as well as through third
party distribution partners. Although the Company's relationships with its
healthcare information systems ("HCIS") Distribution Partners are relatively
new, the Company expects that sales to and through its HCIS Distribution
Partners will continue to increase.
Revenues from sales to the healthcare industry decreased to 80% of
total revenues in the three month period ended September 30, 1997 from 93% of
total revenues in the corresponding period in fiscal 1997. Although such sales
may fluctuate from quarter to quarter, the Company anticipates that sales to the
healthcare industry will increase as a percentage of total annual revenues.
Revenues from sales outside of the United States increased to 16% of total
revenues in
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the three month period ended September 30, 1997 from 3% in the corresponding
period in fiscal 1997. On June 25, 1997, the Company acquired Advisoft, a French
systems integration and consulting services company which had been its
distribution partner in France since 1993. Accordingly, the amount of revenues
derived and the percentage of total revenues from sales outside the United
States is expected to increase in fiscal 1998.
The Company's typical sale of a software license to an end-user
customer involves several milestones, beginning with the execution of the
agreement between the Company and the customer. The agreement describes the
software license terms, any hardware to be ordered, and if any services and
maintenance are to be performed. The Company and the customer mutually agree
upon functional specifications as to the operating environment, number of
terminals, response times, etc. The Company then assembles the hardware
components required to demonstrate compliance with the functional
specifications, at the Company's offices, and loads the Company's and other
third party proprietary software. The configured system is then used to
demonstrate that the system meets the functional specifications. The Company and
the customer participate in this process. When all functional specifications
have been demonstrated, the customer signs a written acknowledgment signifying
the completion of factory acceptance. The Company repackages the software and
those hardware components to be delivered to the customer, which are picked up
by common carrier and delivered to the customer. At this point, the Company
recognizes 100% of the hardware revenue and 90% of the software license revenue.
The Company assists the customer in the installation of the system at
the customer's location and assists the customer in loading the customer's
information. The Company and the customer mutually review each of the functional
specifications in the customer's environment to confirm that the configured
system meets the functional specifications. When there is mutual agreement that
all functional specifications have been met, the customer signs a written
acknowledgment signifying completion of site acceptance. The Company then
recognizes the remaining 10% of software license revenue which was deferred at
the time of factory acceptance and delivery.
On occasion, as for example when an existing end-user previously has
accepted a software product, an end-user may elect to waive the factory and site
acceptance procedures. In such instances, the end-user becomes obligated to pay
upon delivery of the software product and the Company recognizes 100% of the
revenue from the software license at such time.
As noted in the description of a typical transaction with an end-user
customer, the Company recognizes revenues derived from system sales to end-user
customers, including 90% of software license fees and 100% of hardware revenues,
upon the factory acceptance by the customer provided that acceptance is a
condition of the agreement and delivery of the configured system. The Company
defers recognition of 10% of the software license fees until completion of
certain insignificant vendor obligations primarily related to the site
acceptance by the customer. The Company recognizes 100% of revenues from
enterprise-wide licenses of software to end-users upon delivery of the software,
assuming there are no further significant vendor obligations. Revenues derived
from system sales to distribution partners are recognized 100% upon delivery, if
the payment terms are fixed with all amounts due within twelve months, there are
no other significant obligations to be performed by the Company and the
distribution partner meets the Company's criteria with respect to sell-through
and credit risk.
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Revenue recognition for system sales to end-users that have been
delivered and accepted by the customer with contractual payment terms that
extend beyond one year is determined by the Company based upon the Company's
historical experience with the customer, the customer's credit worthiness, and
an assessment of the enforceability of the contract. All revenues recognized
related to contracts with payments due in more than one year are discounted. No
such arrangements were entered into in fiscal 1997 or the first three months of
fiscal 1998.
Revenues from professional services, which may include preparation of
functional specifications, systems integration, and training, among others, are
recognized as the services are performed. Revenues derived from maintenance and
support contracts are recognized ratably over the terms of the related
contracts.
Deferred revenues represent either billings rendered to or payments
received from customers for systems prior to factory acceptance and delivery to
the customer and maintenance and support services billed in advance.
At September 30, 1997, the Company had approximately $53.7 million of
signed sales contracts for systems and services which had not yet been
delivered, of which approximately $17.0 million was expected to be recognized as
revenue in the next twelve months. The amount of signed sales contracts for
systems and services which have not been delivered includes contracts for
software license fees, hardware sales and maintenance and professional services
that may include cancellation provisions that do not pertain to IMNET's
performance, and contracts that are expected to result in revenues over periods
of as much as five years. Any significant or ongoing failure to achieve signed
contracts and subsequent customer acceptance after expending time, effort and
funds could have a material adverse effect on the Company's business. Because
the Company adjusts the timing of an installation to accommodate customers'
needs and a typical end-user installation requires from one to 12 months to
complete, the Company is unable to predict accurately the number of signed sales
contracts it expects to fill and consequently the amount of revenues it expects
to achieve in any particular period.
The Company capitalizes a portion of its computer software development
costs. These costs relate primarily to the development of new products and
enhancements to existing products to accommodate new markets or platforms using
existing technologies and programming methods. Amortization of computer software
development costs is provided by the Company on individual products or
enhancements and begins when the product or enhancement is available for use by
customers. Amortization is recorded using the greater of: (1) the amount
computed using the ratio of current product revenue to the total of current and
anticipated product revenue or (2) the amount determined using the straight-line
method over the estimated useful life of the software, not to exceed three
years.
ADVISOFT ACQUISITION
On June 25, 1997, the Company completed the acquisition of Advisoft
Consulting, S.A. ("Advisoft"), a systems integration and consulting services
company which had been the Company's distribution partner in France since 1993.
Prior to its acquisition of Advisoft, the Company recognized revenue of
$1,157,000 and $1,392,000 from Advisoft for the years ended June 30, 1997 and
1996, respectively. Aggregate consideration for the acquisition, which has been
accounted for by the purchase method, was $5.1 million in cash and 85,084 shares
of
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IMNET Common Stock having a market value of $2.0 million as of such date. The
Company has allocated $6.9 million of the purchase price to goodwill and has
included the results of operations of Advisoft in the Company's consolidated
statement of operations effective July 1, 1997. The Company expects to build
upon its established working partnership with Advisoft to begin adapting and
marketing the Company's healthcare application software products for use in
France.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage
of total revenues for each fiscal period indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
----- -----
<S> <C> <C>
Revenues:
System sales .......................................... 69.3 % 79.7 %
Maintenance and professional services ................. 30.7 20.3
----- -----
Total revenues ..................................... 100.0 100.0
----- -----
Operating expenses:
Cost of system sales .................................. 50.1 21.7
Cost of maintenance and professional services ......... 17.7 15.3
Sales and marketing ................................... 44.9 27.3
Research and development .............................. 25.9 11.9
General and administrative ............................ 28.3 14.4
Non-recurring charges ................................. -- 7.8
----- -----
Total operating expenses ........................... 166.9 98.4
----- -----
Operating income (loss) ............................ (66.9) 1.6
Interest and other income, net ............................ 3.2 5.1
----- -----
Income (loss) before income taxes ..................... (63.7) 6.7
Income taxes .............................................. 24.2 --
----- -----
Net income (loss) ..................................... (39.5)% 6.7%
===== =====
</TABLE>
Comparison of the Three Months Ended September 30, 1997 and 1996.
Revenues. The Company's total revenues were $8.0 million for the first
quarter of fiscal 1998 compared to revenues of $9.7 million for the first
quarter of fiscal 1997, a decrease of $1.7 million, or 17%. The Company's total
revenues derived from sales to North American healthcare customers were $6.4
million for the first quarter of fiscal 1998 compared to $8.9 million for the
corresponding period in fiscal 1997, a decrease of $2.5 million, or 28%. This
decrease represented a substantial shortfall over the revenues the Company had
anticipated, and reflected the inability of the Company to complete several
significant new and add-on contracts. At the present time, management considers
it unlikely that the Company will make up the revenue shortfall incurred during
the quarter over the remainder of fiscal 1998. Revenues from sales to North
American general business customers were $314,000 in the first quarter of fiscal
1998 compared to $495,000 in the first quarter of fiscal 1997, a decrease of
$181,000, or 37%. Revenues from sales to international customers were $1.3
million in the first quarter of fiscal 1998 compared to $240,000 in the
corresponding quarter of fiscal 1997, an increase of $1.0 million, reflecting
revenues derived from the Company's acquisition of Advisoft. Revenues from
maintenance and professional
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services were $2.4 million in the first quarter of fiscal 1998 compared to $2.0
million in the first quarter of fiscal 1997, an increase of $400,000, or 24%.
The increase in revenues from these services is primarily attributable to an
increase in healthcare professional services, additional maintenance contracts
and revenues derived from the Company's acquisition of Advisoft.
Cost of Revenues. The cost of system sales in the first quarter of
fiscal 1998 was $4.0 million compared to $2.1 million in the corresponding
period of fiscal 1997. As a percentage of system sales revenues, the cost of
system sales increased to 72% in the first quarter of fiscal 1998 compared to
27% in the first quarter of fiscal 1997. The percentage increase was due to
lower revenues than anticipated and increased operating expenses allocated to
cost of system sales necessary to support the Company's expected revenue growth.
The cost of maintenance and professional services in the first quarter of fiscal
1998 was $1.4 million compared to $1.5 million in the corresponding period of
fiscal 1997. The cost of maintenance and professional services as a percentage
of maintenance and professional services revenues decreased to 58% in the first
quarter of fiscal 1998 compared to 75% in the corresponding period. The
percentage decrease was primarily due to increased revenues derived from the
Company's acquisition of Advisoft.
Sales and Marketing. Sales and marketing expenses consist primarily of
sales commissions and related costs and expenses allocated to the Company's
sales and marketing personnel. Sales and marketing expenses increased to $3.6
million in the first quarter of fiscal 1998 from $2.6 million in the first
quarter of fiscal 1997, an increase of 35%. The increase is primarily due to
higher sales salary expense associated with increases in sales personnel,
partially offset by lower commissions due to lower revenues from system sales.
Sales and marketing expenses as a percentage of total revenues increased to 45%
in the first quarter of fiscal 1998 compared to 27% in the first quarter of
fiscal 1997.
Research and Development. Research and development expenditures consist
primarily of personnel costs of research and development staff and the
facilities, computing, benefits and other administrative costs allocated to such
personnel. Research and development expenses increased to $2.1 million in the
first quarter of fiscal 1998 from $1.1 million in the first quarter of fiscal
1997, an increase of $914,000, or 80%. The increase was primarily attributable
to an increase in the number of research and development personnel and
associated costs, partially offset by the capitalization of $742,000 in software
development costs in the first quarter of fiscal 1998 related to new products
expected to be released over the next nine months. These capitalized costs
represented 26% of the Company's total research and development expenditures
during this period. As a percentage of total revenues, research and development
expenses increased to 26% from 12% in the first quarter of fiscal 1998 as
compared to the corresponding quarter of fiscal 1997.
General and Administrative. General and administrative expenses include
the costs of corporate operations, finance and accounting, human resources and
other general operations of the Company. General and administrative expenses
increased to $2.3 million in the first quarter of fiscal 1998 compared to $1.4
million in the first quarter of fiscal 1997, an increase of 63%. This increase
is partially attributable to increased staffing and related costs necessary to
support the Company's growth. General and administrative expenses as a
percentage of total revenues increased to 28% in the first quarter of fiscal
1998 from 14% in the first quarter of fiscal 1997.
Non-recurring Charges. The Company did not incur any non-recurring
charges in the first fiscal quarter of 1998. However, for the first fiscal
quarter of fiscal 1997, the Company and Hunter
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International, Inc. ("Hunter") incurred $750,000, or $0.07 per share, in
non-recurring charges related to acquisition costs associated with the
acquisition of Hunter, which was completed during the first quarter of fiscal
1997.
Provision for Income Taxes. Because of operating losses experienced
through fiscal 1996, the Company had not incurred any current income tax
liabilities or provided for any income taxes through the second quarter of
fiscal 1997. Beginning in the third fiscal quarter of 1997, the Company began
providing for income tax expense due to the expected current income tax
liabilities that resulted from profitable operations in fiscal 1997 coupled with
the impact of the annual limitation on the Company's use of net operating loss
and credit carryforwards. The Company's effective income tax rate for fiscal
1998 is expected to be approximately 38%, which is lower than the statutory
federal and state income tax rates primarily because of the decrease in the
valuation allowance for deferred income tax assets of $2.0 million. The Company
recorded an income tax benefit of $1.9 million in the first quarter of fiscal
1998 as a result of incurring a pre-tax operating loss for the period. The
Company believes it likely that the net deferred income tax assets recorded at
June 30, 1997 of $1.1 million will be realized in the future and that the
effective income tax rate incurred in the future will increase if the Company's
profit targets are achieved.
Net Income. The Company's net loss for the first quarter of fiscal 1998
was $3.2 million or $0.32 per share, compared to net income of $646,000, or
$0.07 per share, in the first quarter of fiscal 1997. Exclusive of the
non-recurring charge related to the Company's acquisition of Hunter, the Company
would have recorded net income of $1.4 million, or $0.14 per share, for the
first quarter of fiscal 1997. The decline in the Company's results was primarily
due to lower revenues than anticipated, combined with increases in operating
expenses necessary to support the Company's expected growth.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in 1992, the Company has funded its operations,
working capital needs and capital expenditures primarily from revenues and sales
of equity securities. The Company was initially capitalized primarily by three
investment companies, and completed four subsequent private placements. In July
1995, the Company received approximately $37.5 million net of underwriter's
discounts and offering costs from its initial public offering. In February 1996,
the Company received an additional $18.5 million net of underwriters discounts
and offering costs from a subsequent offering of its Common Stock.
Cash and cash equivalents and marketable securities were $17.0 million
at September 30, 1997 compared to $20.7 million at June 30, 1997. The $3.7
million decrease in cash and marketable securities was largely due to: (i) the
net loss of $3.2 million incurred during the first fiscal quarter of 1998; (ii)
a decrease in income tax payable of $1.2 million, due to the payment of
estimated taxes; and (iii) an increase in refundable income tax of $1.9 million.
Partially offsetting the decrease in cash and marketable securities was a $2.9
million decrease in accounts receivable. The cash dividends paid on common stock
disclosed in the consolidated statements of stockholders' equity and cash flows
for the period ended September 30, 1997 were normal stockholder distributions
paid by Hunter prior to the merger, accounted for as a pooling of interests.
IMNET has not paid any dividends on its common stock.
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The Company plans to continue to increase its professional staff during
fiscal 1998 and the foreseeable future to meet anticipated sales volume and to
support research and development efforts. The Company also anticipates increased
costs associated with the operations of Advisoft. The Company expects that its
requirements for office facilities and office equipment will grow as staffing
requirements dictate. To accommodate its growth, the Company signed an operating
lease, effective January 1997, to increase its headquarters space to 96,000
square feet. In October 1997, the Company signed an additional operating lease
increasing the leased square footage to 118,000. As a result, the Company will
incur increased rental expense. The Company has forecast capital expenditures of
approximately $2.0 million for the remainder of fiscal 1998 for the purchase of
computer equipment for existing and new employees, furniture and fixtures, and
equipment associated with the new office facility, new training equipment, and
new equipment for customer demonstrations.
The Company's accounts receivable days sales outstanding ("DSO")
continued to increase in fiscal 1997. Management believes that its willingness
to grant extended billing and payment terms, on a negotiated, case by case
basis, provides the customer or distributor with additional incentives to commit
to large purchases, because such terms (i) demonstrate that the Company is
comfortable with providing the purchaser the leverage inherent in deferred
payments (thereby demonstrating its confidence in its product), and (ii) permit
the purchaser (and the Company) to commit to a large order, while the payment
stream is tailored to a longer period of time (thereby providing the purchaser
with a means to finance the project over one or more internal cash budgeting
cycles). Therefore, management believes the accounts receivable DSO trend will
continue in fiscal 1998 due to the extended terms selling strategy. However, the
failure by customers to pay significant amounts as they become due would have a
material adverse effect on the Company's financial position and results of
operations.
The Company has a licensing agreement which obligates the Company to
pay 1.5% of net license fee revenue from new licenses of certain of its
products. The agreement began on July 1, 1997 and continues through December 31,
2003. The Company paid $100,000 in advance to be offset against amounts due
under this agreement.
The Company believes that its cash and cash equivalents and marketable
securities, along with net cash flows provided from operations, will be
sufficient to finance expected cash requirements for operating activities and
anticipated growth for at least the next 12 months. The Company's ability to
meet its cash obligations on a long-term basis will depend on its achieving and
maintaining profitable operations and on consistent and timely collection of its
accounts receivable. To date, inflation has not had a material impact on the
Company's revenues or income.
The Company will require significant funds to implement its business
strategies. The Company may experience losses due to the following factors: (i)
the Company's operating expenses are budgeted on anticipated revenues that may
not materialize as quickly or smoothly as anticipated; (ii) the Company incurs
significant expenses in connection with research and development, as well as the
development of its direct and indirect selling and marketing efforts; and (iii)
the Company may incur charges related to acquisitions and business alliances. As
a result, there can be no assurance that the Company will be profitable in the
future or that available funds, together with any funds provided by operations,
will be sufficient to fund the Company's ongoing operations. If the Company has
insufficient funds, there can be no assurance
Page 12
<PAGE> 13
that additional financing can be obtained on acceptable terms, if at all. The
absence of such financing would have a material adverse effect on the Company's
business, including a possible reduction or cessation of operations.
The Company has experienced significant quarterly fluctuations in
operating results which may continue in future periods. The Company's revenues
from systems sales have varied significantly from quarter to quarter as a result
of the volume and timing of system sales and customer acceptance and delivery.
Professional services revenues have also fluctuated from quarter to quarter as a
result of the timing of installation of software and hardware and project
management. Revenues from maintenance services have not fluctuated significantly
from quarter to quarter and have been increasing as the number of the Company's
customers increases. Since a significant percentage of the Company's expenses
are fixed, quarterly operating results will vary with the timing and fluctuation
of total revenues. Furthermore, margins are affected by the mix of products
sold.
In addition, certain risk factors, among others, should be considered
carefully in evaluating the Company and its business. These risk factors include
the following: (i) limited operating history; lack of profitable operations;
(ii) variability in quarterly operating results; volatility of stock price;
(iii) customer concentration; (iv) product acceptance and market development;
dependence on distribution partners; (v) long sales and delivery cycle;
dependence on future system sales; (vi) ability to manage growth; (vii) risks
associated with acquisitions; (viii) technological changes; competition; (ix)
uncertainty in healthcare industry; government healthcare reform proposals; (x)
dependence on key personnel; (xi) dependence on proprietary rights and patents;
(xii) product liability; and (xiii) foreign operations.
Note regarding Private Securities Litigation Reform Act: Statements
made by IMNET which are not historical facts, including projections, statements
of plans, objectives, expectations, or future economic performance, are forward
looking statements that involve risks and uncertainties and are subject to the
safe harbor created by the Private Securities Litigation Reform Act of 1995.
Words such as "believes", "anticipates", "expects", "intends", and similar
expressions are intended to identify forward-looking statements, but are not the
exclusive means of identifying such statements. IMNET's future financial
performance could differ significantly from that set forth herein, and from the
expectations of management. Important factors that could cause IMNET's financial
performance to differ materially from past results and from those expressed in
any forward looking statements include, without limitation, the factors
discussed in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations". For further information on these and other risk
factors, please refer to IMNET's Form 10-K for the year ended June 30, 1996,
including the "Business-Risk Factors" section thereof.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None
Page 13
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF EXHIBIT PAGE NUMBER
- ------ ---------------------- -----------
<S> <C> <C>
11 Computation of Per Share Earnings - Three Months Ended
September 30, 1997 and 1996. 16
27 Financial Data Schedule (for SEC use only).
(b) REPORTS ON FORM 8-K:
</TABLE>
1. On July 10, 1997, the Company filed a report on Form 8-K
reporting its acquisition of Advisoft Consulting, S.A., which
occurred on June 25, 1997.
2. On September 9, 1997, the Company filed Form 8-K/A, amending
the Form 8-K filed on July 10, 1997.
Page 14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has caused this quarterly report on Form 10-Q to be signed on its
behalf by the undersigned thereunto duly authorized.
IMNET SYSTEMS, INC.
Dated: November 14, 1997 By: /s/ Raymond L. Brown
---------------------------------------------
Raymond L. Brown
Senior Vice President - Business Development
(Principal Financial and Accounting Officer)
Page 15
<PAGE> 1
EXHIBIT 11
IMNET SYSTEMS, INC.
COMPUTATION OF PER SHARE EARNINGS
The following computations set forth the calculations of primary and fully
diluted earnings per share for the three-month periods ended September 30, 1997
and 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
1997 1996
-------------------------- -------------------------
FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED
EARNINGS EARNINGS EARNINGS EARNINGS
PER SHARE PER SHARE PER SHARE PER SHARE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) .................................... $(3,147,553) $(3,147,553) $ 646,235 $ 646,235
=========== =========== =========== ===========
Weighted average outstanding common
shares ............................................. 9,756,653 9,756,653 9,591,748 9,591,748
Increase due to assumed issuance of shares
related to outstanding stock options using
the treasury stock method ........................ -- -- 406,966 406,966
----------- ----------- ----------- -----------
Adjusted weighted average outstanding
common shares and common share
equivalents ...................................... 9,756,653 9,756,653 9,998,714 9,998,714
=========== =========== =========== ===========
Net income (loss) per common share and
common share equivalent .............................. $ (0.32) $ (0.32) $ 0.07 $ 0.07
=========== =========== =========== ===========
</TABLE>
Note: Net income (loss) per common share and common share equivalent has been
computed based upon the weighted average outstanding common shares and
common share equivalents during each period. Common share equivalents
recognize the dilutive effects of outstanding options to acquire Common
Stock.
Page 16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM IMNET
SYSTEMS, INC.'S FORM 10-Q FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 8,304,252
<SECURITIES> 8,674,354
<RECEIVABLES> 32,290,694
<ALLOWANCES> 1,442,097
<INVENTORY> 1,871,084
<CURRENT-ASSETS> 54,322,394
<PP&E> 9,003,992
<DEPRECIATION> 2,523,961
<TOTAL-ASSETS> 81,320,710
<CURRENT-LIABILITIES> 14,396,419
<BONDS> 0
0
0
<COMMON> 97,984
<OTHER-SE> 66,826,307
<TOTAL-LIABILITY-AND-EQUITY> 81,320,710
<SALES> 7,970,003
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 13,299,218
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 326,457
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,076,699)
<INCOME-TAX> (1,929,146)
<INCOME-CONTINUING> (3,147,553)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,147,553)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
