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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 December 31, 1996
--------------------------------------------------
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, Georgia 30202
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(770) 521-5600
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(Registrant's telephone number, including area code)
8601 Dunwoody Place, Suite 420, Atlanta, Georgia 30350
- --------------------------------------------------------------------------------
(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 9,611,257 shares of Common Stock outstanding as of January 31, 1997.
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IMNET SYSTEMS, INC.
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1996
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) PAGE
- ------- -------------------------------- ----
<S> <C> <C>
Consolidated Balance Sheets - December 31, 1996 and June 30, 1996 3
Consolidated Statements of Operations - Three Months Ended
December 31,1996 and 1995 and Six Months Ended
December 31, 1996 and 1995 4
Consolidated Statements of Cash Flows - Six Months Ended
December 31, 1996 and 1995 5
Notes to Interim Consolidated Financial Statements - December 31, 1996 6 - 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 7 - 15
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17 - 18
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
IMNET SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
DECEMBER 31, JUNE 30,
1996 1996
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................... $ 11,124,434 $ 16,894,711
Marketable securities................................................... 22,034,286 21,541,760
Trade accounts receivable, net.......................................... 22,873,254 15,360,291
Note receivable from related party...................................... 409,627 2,910,876
Inventories............................................................. 2,425,814 2,079,574
Prepaid expenses and other current assets............................... 1,740,889 712,204
--------------- ---------------
Total current assets................................................. 60,608,304 59,499,416
Noncurrent trade accounts receivable........................................ 611,606 1,085,927
Notes receivable from employees............................................. 250,000 105,000
Property and equipment, net................................................. 3,607,098 3,329,331
Computer software development costs, net.................................... 2,078,737 1,212,875
Acquired technology, net.................................................... 601,070 959,755
Goodwill and other intangibles, net......................................... 3,175,398 3,343,774
--------------- ---------------
$ 70,932,213 $ 69,536,078
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................ $ 2,276,019 $ 1,255,134
Accrued expenses........................................................ 4,816,321 6,653,556
Deferred revenue........................................................ 1,145,562 804,357
--------------- ---------------
Total current liabilities............................................ 8,237,902 8,713,047
Stockholders' equity:
Common stock, $.01 par value. Authorized 25,000,000 shares; 9,643,301
shares issued and 9,605,664 shares outstanding at
December 31, 1996 and 9,627,071 shares issued and 9,589,434 shares
outstanding at June 30, 1996......................................... 96,433 96,271
Additional paid-in capital.............................................. 80,926,252 80,795,841
Treasury stock, 37,637 shares, at cost.................................. (148,417) (148,417)
Accumulated deficit..................................................... (18,179,957) (19,920,664)
--------------- ---------------
Total stockholders' equity........................................... 62,694,311 60,823,031
--------------- ---------------
$ 70,932,213 $ 69,536,078
=============== ===============
</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 SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
System sales ................................ $ 8,962,138 $ 5,584,816 $ 16,656,958 $ 9,352,491
Maintenance and professional services ....... 2,148,073 743,707 4,112,527 1,410,310
------------ ------------ ------------ ------------
Total revenues ........................... 11,110,211 6,328,523 20,769,485 10,762,801
------------ ------------ ------------ ------------
Operating expenses:
Cost of system sales ........................ 2,447,088 1,357,550 4,540,579 1,988,585
Cost of maintenance and professional services 1,411,153 554,528 2,887,692 1,035,891
Sales and marketing ......................... 3,096,816 2,351,334 5,745,611 4,409,379
Research and development .................... 1,270,517 933,949 2,420,390 1,554,729
General and administrative .................. 1,588,218 1,426,770 2,975,223 2,231,438
Non-recurring charges ....................... -- 5,740,000 749,545 5,740,000
------------ ------------ ------------ ------------
Total operating expenses ................. 9,813,792 12,364,131 19,319,040 16,960,022
------------ ------------ ------------ ------------
Operating income (loss) .................. 1,296,419 (6,035,608) 1,450,445 (6,197,221)
Interest income, net ........................ 398,053 493,342 890,262 911,106
------------ ------------ ------------ ------------
Income before income taxes ............... $ 1,694,472 $ (5,542,266) $ 2,340,707 $ (5,286,115)
Income taxes ................................ -- -- -- --
------------ ------------ ------------ ------------
Net Income ............................... $ 1,694,472 $ (5,542,266) $ 2,340,707 $ (5,286,115)
============ ============ ============ ============
Net income per common share ..................... $ 0.17 $ (0.64) $ 0.23 $ (0.64)
============ ============ ============ ============
Weighted average outstanding common shares and
common share equivalents .................... 9,959,934 8,717,077 9,977,490 8,219,631
============ ============ ============ ============
</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>
SIX MONTHS ENDED
DECEMBER 31,
------------ ------------
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................................. $ 2,340,707 $ (5,286,115)
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization of property and equipment ................. 507,238 301,796
Amortization of computer software development costs,
acquired technology, and goodwill and other intangibles ............. 773,112 376,188
Provision for doubtful accounts receivable .............................. 130,171 251,346
Loss on disposal of property and equipment .............................. 16,738 --
Non-recurring charges ................................................... -- 5,740,000
(Increase) decrease in:
Trade accounts receivable ............................................... (7,206,814) (5,338,853)
Note receivable from related party ...................................... 2,501,249 --
Inventories ............................................................. (299,355) (729,748)
Prepaid expenses and other current assets ............................... (1,028,685) (651,396)
Increase (decrease) in:
Accounts payable ........................................................ 1,020,885 (345,472)
Accrued expenses ........................................................ (1,799,236) 695,658
Deferred revenue ........................................................ 341,206 293,526
------------ ------------
Net cash used in operating activities ............................... (2,702,784) (4,693,070)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash and cash equivalents acquired ...... -- (4,813,969)
Purchases of marketable securities ......................................... (11,809,469) (8,922,485)
Maturities of marketable securities ........................................ 11,316,943 --
Additions to property and equipment ........................................ (848,628) (1,402,673)
Additions to computer software development costs ........................... (976,480) (501,668)
Additions to intangible assets ............................................. (135,433) --
Issuance of notes receivable from employees ................................ (145,000) --
------------ ------------
Net cash used in investing activities ............................... (2,598,067) (15,640,795)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock ......................................... -- 37,967,349
Proceeds from exercise of stock options and warrants ....................... 130,574 255,610
Dividends paid ............................................................. (600,000) (200,000)
------------ ------------
Net cash provided by (used in) financing activities ................. (469,426) 38,022,959
------------ ------------
Net (decrease) increase in cash and cash equivalents ................ (5,770,277) 17,689,094
Cash and cash equivalents at beginning of period ............................... 16,894,711 1,856,970
------------ ------------
Cash and cash equivalents at end of period ..................................... $ 11,124,434 $ 19,546,064
============ ============
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
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IMNET SYSTEMS, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1996
(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, 1996.
On September 30, 1996, the Company issued 429,292 shares of its Common
Stock for all of the outstanding common stock of Hunter International, Inc.
("Hunter"). The merger has been accounted for as a pooling of interests and, as
a result, the Company's financial statements for all periods prior to the merger
have been restated to include the financial position and results of Hunter.
In addition, certain reclassifications have been made to prior
consolidated financial statements to conform with presentations adopted as of
and for the period ended December 31, 1996.
(2) ACQUISITION
As described in Note 1 above, IMNET acquired Hunter through a merger,
effective September 30, 1996. Hunter was a privately held company which provided
electronic report management and distribution software solutions to the
healthcare and other industries. The Company and Hunter incurred $750,000 in
non-recurring charges related to costs associated with the acquisition. The
acquisition costs were charged to the consolidated statement of operations for
the three month period ended September 30, 1996. No elimination of intercompany
transactions or other adjustments were required in combining the results of
IMNET and Hunter. The $600,000 and $200,000 in dividends paid, disclosed in the
consolidated statements of cash flows for the six months ended December 31, 1996
and 1995, respectively, represented normal stockholder distributions paid by
Hunter prior to the acquisition. IMNET has not paid dividends on its Common
Stock. Combined and separate results of IMNET and Hunter for the three month and
six month periods ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Three Months Ended December 31, 1995
IMNET Hunter Combined
----------------- ---------------- ------------------
<S> <C> <C> <C>
Revenues......................................... $ 5,638,425 $ 690,098 $ 6,328,523
Net Income....................................... $ (5,553,343) $ 11,077 $ (5,542,266)
</TABLE>
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<TABLE>
<CAPTION>
Six Months Ended December 31, 1995
IMNET Hunter Combined
----------------- ---------------- ------------------
<S> <C> <C> <C>
Revenues......................................... $ 9,489,798 $ 1,273,003 $ 10,762,801
Net Income....................................... $ (5,443,701) $ 157,586 $ (5,286,115)
</TABLE>
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 third-party hardware components which are integrated to
create electronic information and document management systems. IMNET supports
its customers through a broad range of customization, 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, the IMNET Electronic Patient Record System,
IMNET MedVision, IMNET LaserArc and the IMNET MegaSAR Microfilm Jukebox.
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, project management, custom programming 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. Certain of the Company's
relationships with its healthcare information systems ("HCIS") distribution
partners are relatively new and the Company expects that sales to and through
its HCIS distribution partners and other distribution partners will increase.
Revenues derived from sales to and through the Company's distribution partners
expressed as a percentage of total revenues were 23.2% and 34.8%, respectively,
in the three month and six month periods ended December 31, 1996 compared to
10.4% and 7.0%, respectively, in the corresponding periods in fiscal 1996.
Revenues from sales to the healthcare industry, expressed as a
percentage of total revenues, increased to 85% and 89%, respectively, in the
three month and six month periods ended December 31, 1996 from 75% and 78%,
respectively, in the corresponding periods in fiscal 1996. The Company
anticipates that sales to the healthcare industry will continue to increase as a
percentage of total annual revenues, although such sales may fluctuate from
quarter to quarter. Revenues from sales outside of North America were 9% and 6%,
respectively, of total revenues in the three month and six month periods ended
December 31, 1996 compared to 10% and 7%, respectively, for the corresponding
periods in fiscal 1996.
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 and delivery of the configured
system. The Company defers recognition of 10% of the software license fees until
completion of certain insignificant vendor
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obligations, primarily related to the site acceptance by the customer. Revenues
derived from system sales to distribution partners are recognized upon delivery,
if the contract is between the Company and the distribution partner, 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 provided that the
distribution partner meets the Company's criteria with respect to sell-through
and credit risk. Revenues derived from system sales to distribution partners in
which the contract is between the Company and the customer (the end user) of the
distribution partner are recognized in accordance with the Company's revenue
recognition policy for end user customers described above.
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 at
the Company's incremental borrowing rate.
Revenues from professional services, which may include preparation of
functional specifications, customization and programming, 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 and have not
been recognized as revenue by the Company.
At December 31, 1996, the Company had approximately $34.0 million of
signed sales contracts for systems and services which had not yet been
delivered. The amount of signed sales contracts for systems and services which
have not been delivered includes contracts for software license fees, hardware
sales and 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. Over time, the proportion of such signed
sales contracts represented by long-term contracts is expected to increase. 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 because a typical
installation requires two 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
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determined using the straight-line method over the estimated useful life of the
software, not to exceed three years. Amortization of computer software
development costs is included in research and development costs in the
accompanying consolidated statements of operations.
RECENT ACQUISITION
On September 30, 1996, the Company completed the acquisition of Hunter
International, Inc. ("Hunter"), a provider of electronic report management and
distribution software solutions to the healthcare and other industries, by
issuing 429,292 shares of IMNET Common Stock for all of the outstanding common
stock of Hunter. The merger has been accounted for as a pooling of interests
and, as a result, the Company's consolidated financial statements for all
periods prior to the merger have been restated to include the financial position
and results of Hunter.
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 SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
System sales ................................... 80.7% 88.2% 80.2% 86.9%
Maintenance and professional
services .................................... 19.3 11.8 19.8 13.1
----------- ------------ ------------ -----------
Total revenues .............................. 100.0 100.0 100.0 100.0
----------- ------------ ------------ -----------
Operating expenses:
Cost of system sales ........................... 22.0 21.5 21.9 18.5
Cost of maintenance and
professional services ....................... 12.7 8.8 13.9 9.6
Sales and marketing ............................ 27.9 37.2 27.7 41.0
Research and development ....................... 11.4 14.8 11.7 14.4
General and administrative ..................... 14.3 22.5 14.3 20.7
Non-recurring charges .......................... 0.0 90.7 3.6 53.3
----------- ------------ ------------ -----------
Total operating expenses .................... 88.3 195.5 93.1 157.5
----------- ------------ ------------ -----------
Operating income (loss) ..................... 11.7 (95.5) 6.9 (57.5)
Interest income, net ............................... 3.6 7.8 4.3 8.5
----------- ------------ ------------ -----------
Income before income taxes ..................... 15.3 (87.7) 11.2 (49.0)
Income taxes ....................................... -- -- -- --
Net income ..................................... 15.3% (87.7)% 11.2% (49.0)%
=========== ============ ============ ===========
</TABLE>
Comparison of the Three Months Ended December 31, 1996 and 1995.
Revenues. The Company's total revenues were $11.1 million for the three
month period ended December 31, 1996 compared to revenues of $6.3 million for
the three month period ended December 31, 1995, an increase of $4.8 million, or
76%. The Company's total revenues derived from sales to North American
healthcare customers were $9.4 million for the three month period
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ended December 31, 1996 compared to $4.8 million for the corresponding period in
fiscal 1996, an increase of $4.6 million, or 98%. This increase was primarily
due to a significantly larger customer base as well as $2.6 million of revenue
resulting from the Company's alliances with distribution partners. Revenues from
sales to North American general business customers were $662,000 for the three
month period ended December 31, 1996 compared to $907,000 for the three month
period ended December 31, 1995, a decrease of $245,000, or 27%. The Company
expects this trend to continue due to its strategic focus on customers in the
healthcare industry. Revenues from sales to international customers were $1.0
million for the three month period ended December 31, 1996 compared to $666,000
in the corresponding period of fiscal 1996, an increase of $361,000 or 54%.
Although revenues derived from sales to international customers increased for
the three month period ended December 31, 1996 compared to the prior period, the
Company does not expect this trend to continue due to the Company's emphasis on
customers in the United States healthcare industry. Revenues from maintenance
and professional services were $2.1 million for the three month period ended
December 31, 1996 compared to $744,000 for the three month period ended December
31, 1995, an increase of $1.4 million, or 189%. The increase in revenues from
these services is primarily attributable to an increase in healthcare
professional services and additional maintenance contracts associated with
increased system sales.
Cost of Revenues. The cost of system sales for the three month period
ended December 31, 1996 was $2.4 million compared to $1.4 million in the
corresponding period of fiscal 1996. As a percentage of system sales revenues,
the cost of system sales increased to 27.3% for the three month period ended
December 31, 1996 compared to 24.3% for the three month period ended December
31, 1995. The cost of maintenance and professional services as a percentage of
maintenance and professional service revenues decreased from 74.6% to 65.7%, due
primarily to the substantial revenue increase mentioned above. The Company's
total gross margin decreased to 65.3% from 69.8% during the prior year,
primarily due to a change in the revenue mix.
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 $3.1
million for the three month period ended December 31, 1996 from $2.4 million for
the three month period ended December 31, 1995, an increase of 32%. The increase
is primarily due to higher sales commissions from increased system sales and
higher sales salary expense associated with increases in sales personnel. Sales
and marketing expenses as a percentage of total revenues decreased to 28% for
the three month period ended December 31, 1996 compared to 37% for the three
month period ended December 31, 1995.
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 $1.3 million for the
three month period ended December 31, 1996 from $934,000 for the three month
period ended December 31, 1995, an increase of $337,000, or 36%. 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 $503,000 in software development costs for the three month
period ended December 31, 1996 related to new products expected to be released
over the next nine months. These capitalized costs represented 29% of the
Company's total research and development expenditures during this period. As a
percentage of total revenues, research and development expenses decreased to 11%
from 15% for the three month period ended December 31, 1996 as compared to the
corresponding period of fiscal 1996.
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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 $1.6 million for the three month period ended December 31, 1996
compared to $1.4 million for the three month period ended December 31, 1995, an
increase of 11%. 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 decreased to 14% for
the three month period ended December 31, 1996 from 23% for the three month
period ended December 31, 1995.
Non-recurring Charges. The Company did not incur any non-recurring
charges for the three month period ended December 31, 1996. However, for the
three month period ended December 31, 1995 the Company incurred a charge of $5.7
million related to in-process research and development expenses associated with
the Company's acquisition of Evergreen Technologies, Inc. and Quesix Software,
Incorporated.
Provision for Income Taxes. The Company had a total net operating loss
carryforward of approximately $9.4 million as of June 30, 1996 to offset some of
the taxable income in fiscal year 1997. As a result, the Company did not provide
any income tax expense for the three month period ended December 31, 1996. Due
to the increased profitability of the Company, management expects to begin
making estimated income tax payments in the second half of fiscal 1997. Although
the Company expects to pay income taxes in fiscal 1997, due to certain net
operating loss limitations, the Company believes that a reduction in its
valuation allowance for deferred income tax assets will offset all current
income tax expense.
Net Income. The Company's net income for the three month period ended
December 31, 1996 was $1.7 million, or $0.17 per share, compared to a net loss
of $5.5 million, or $0.64 per share, for the three month period ended December
31, 1995. Exclusive of the non-recurring charge mentioned above incurred during
the three month period ended December 31, 1995, net income would have been
$198,000, or $0.02 per share. The improvement in the Company's results was
primarily due to the significant growth in revenues, partially offset by
increases in operating expenses necessary to support the Company's continuing
growth.
Comparison of the Six Months Ended December 31, 1996 and 1995.
Revenues. The Company's total revenues were $20.8 million for the first
six months of fiscal 1997 compared to revenues of $10.8 million for the first
six months of fiscal 1996, an increase of $10.0 million, or 93%. The Company's
total revenues derived from sales to North American healthcare customers were
$18.5 million for the first six months of fiscal 1997 compared to $8.4 million
for the corresponding period in fiscal 1996, an increase of $10.1 million, or
121%. This increase was primarily due to a significantly larger customer base as
well as $7.2 million of revenue resulting from the Company's alliances with
distribution partners. Revenues from sales to North American general business
customers were $972,000 in the first six months of fiscal 1997 compared to $1.6
million in the first six months of fiscal 1996, a decrease of $668,000, or 41%.
The Company expects this trend to continue due to its strategic focus on
customers in the healthcare industry. Revenues from sales to international
customers were $1.3 million in the first six months of fiscal 1997 compared to
$731,000 in the corresponding six months of fiscal 1996, an increase of $537,000
or 73%. Although revenues derived from sales to international customers
increased for the first six months of fiscal 1997 compared to the prior period,
the Company does not expect this
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trend to continue due to the Company's emphasis on customers in the United
States healthcare industry. Revenues from maintenance and professional services
were $4.1 million in the first six months of fiscal 1997 compared to $1.4
million in the first six months of fiscal 1996, an increase of $2.7 million or
192%. The increase in revenues from these services is primarily attributable to
an increase in healthcare professional services and additional maintenance
contracts associated with increased system sales.
Cost of Revenues. The cost of system sales in the first six months of
fiscal 1997 was $4.5 million compared to $2.0 million in the corresponding
period of fiscal 1996. As a percentage of system sales revenue, the cost of
system sales increased to 27.3% in the first six months of fiscal 1997 compared
to 21.3% in the corresponding period of fiscal 1996. The cost of maintenance and
professional services as a percentage of maintenance and professional service
revenues decreased from 73.5% to 70.2%, due primarily to the substantial revenue
increase mentioned above. The Company's total gross margin decreased to 64.2%
from 71.9% during the prior year, primarily due to a change in the revenue mix.
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 $5.7
million in the first six months of fiscal 1997 from $4.4 million in the same
period of fiscal 1996, an increase of 30%. The increase is primarily due to
higher sales commissions from increased system sales and higher sales salary
expense associated with increases in sales personnel. Sales and marketing
expenses as a percentage of total revenues decreased to 28% in the first six
months of fiscal 1997 compared to 41% in the first six months of fiscal 1996.
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 $2.4 million in the
first six months of fiscal 1997 from $1.6 million in the first six months of
fiscal 1996, an increase of $866,000, or 56%. 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 $976,000 in
software development costs in the first six months of fiscal 1997. These
capitalized costs represented 30% of the Company's total research and
development expenditures during this period. As a percentage of total revenues,
research and development expenses decreased to 12% from 14% in the first six
months of fiscal 1997 as compared to the corresponding period in fiscal 1996.
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 $3.0 million in the first six months of fiscal 1997 compared to
$2.2 million in the first six months of fiscal 1996, an increase of 33%. 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 decreased to 14% in the first six months of
fiscal 1997 from 21% in the first six months of fiscal 1996.
Non-recurring Charges. The Company incurred a non-recurring charge of
$750,000 during the first six months of fiscal 1997 related to acquisition costs
associated with the Hunter
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<PAGE> 13
International, Inc. acquisition completed during the Company's first quarter
ended September 30, 1996. During the first six months of fiscal 1996 the Company
incurred a charge of $5.7 million related to in-process research and development
expenses associated with the Company's acquisition of Evergreen Technologies,
Inc. and Quesix Software, Incorporated.
Provision for Income Taxes. The Company had a total net operating loss
carryforward of approximately $9.4 million as of June 30, 1996 to offset some of
the taxable income in fiscal year 1997. As a result, the Company did not provide
any income tax expense for the first six months of fiscal 1997. Due to the
increased profitability of the Company, management expects to begin making
estimated income tax payments in the second half of fiscal 1997. Although the
Company expects to pay income taxes in fiscal 1997, due to certain net operating
loss limitations, the Company believes that a reduction in its valuation
allowance for deferred income tax assets will offset all current income tax
expense.
Net Income. The Company's net income for the first six months of fiscal
1997 was $2.3 million, or $0.23 per share, compared to a net loss of $5.3
million, or $0.64 per share, in the first six months of fiscal 1996. Exclusive
of the non-recurring charges recorded in the first six months of fiscal 1997 and
fiscal 1996, net income for the first six months of fiscal 1997 would have been
$3.1 million, or $0.31 per share, compared to net income of $454,000, or $0.06
per share, in the first six months of fiscal 1996. The improvement in the
Company's results was primarily due to the significant growth in revenues,
partially offset by increases in operating expenses necessary to support the
Company's continuing growth.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in 1992, the Company has funded its operations,
working capital needs and capital expenditures primarily from sales of equity
securities. 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
underwriter's discounts and offering costs, from a subsequent offering of its
Common Stock.
Cash and cash equivalents and marketable securities at December 31,
1996 were $33.2 million, a decrease of $5.3 million from June 30, 1996. During
the six months ended December 31, 1996, the Company used cash of $2.7 million
for operating activities, as compared to cash used in operating activities of
$4.7 million in the first six months of fiscal 1996. The decrease in cash used
in operating activities for the six months ended December 31, 1996 compared to
the corresponding period in the prior year is primarily due to the increased
profitability year over year. The $600,000 and $200,000 in dividends paid,
disclosed in the consolidated statements of cash flows for the six months ended
December 31, 1996 and 1995, respectively, were normal stockholder distributions
paid by Hunter prior to the acquisition. IMNET has not paid dividends on its
Common Stock.
The Company plans to continue to increase its professional staff during
fiscal 1997 and the foreseeable future to meet anticipated sales volume and to
support research and development efforts. The Company expects that its
requirements for office facilities and office equipment will grow as staffing
requirements dictate. In January 1997, the Company moved its headquarters to a
new facility. The Company entered into a ten year operating lease for 96,000
square feet at the new location. As a result, the Company will incur increased
rental expense. Management expects to sublet the 54,000 square foot facility
previously occupied and has engaged a real estate agent to
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<PAGE> 14
assist in the sublease. The Company has budgeted capital expenditures of
approximately $1.1 million for the remainder of fiscal 1997 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.
In August 1996, counsel to a competitor contacted the Company,
asserting that the Company's Electronic Information Warehouse infringed a patent
owned by it relating to systems which incorporate database management systems
and support bulk storage systems, and that other patents might also be
infringed. The Company consulted its patent counsel and met with representatives
of this competitor. The parties entered into a patent license agreement in
November 1996 pursuant to which the Company made a nominal payment and agreed to
pay a nominal royalty on certain revenues derived from the sale of certain
products. The royalty obligation expires in December 2003.
The Company has experienced significant quarterly fluctuations in
operating results which may continue in future periods. The Company's revenues
from system 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, project
management and customized programming. 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.
The Company's accounts receivable days sales outstanding ("DSO") have
fluctuated from quarter to quarter. Management believes that its willingness to
grant extended 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
customer or distributor the leverage inherent in deferred payments (thereby
demonstrating its confidence in its product), and (ii) permit the customer or
distributor (and the Company) to commit to a large order, while the payment
stream is tailored to a longer period of time (thereby providing the customer or
distributor 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 1997, due to the extended terms selling strategy.
However, the failure by one or more customers or distributors to pay the Company
significant accounts receivable balances outstanding as they become due would
have a material adverse effect on the Company's financial position and results
of operations.
The Company believes that its cash and cash equivalents and marketable
securities, along with revenue 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 ability to continue to achieve
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 expenses.
The Company will require significant funds to implement its business
strategies. Unless its revenues increase significantly, the Company may
experience losses due to the following
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<PAGE> 15
factors: (i) the Company's operating expenses are budgeted on anticipated
revenues; (ii) the Company incurs significant expenses in connection with
research and development, and more recently, the development of its direct and
indirect selling and marketing efforts; (iii) a high percentage of the Company's
expenses are fixed; and (iv) 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 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.
In addition to the information in this filing, 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) risks associated
with new distribution partners; (ix) technological changes; competition; (x)
uncertainty in healthcare industry; government healthcare reform proposals; (xi)
dependence on key personnel; (xii) dependence on proprietary rights and patents;
(xiii) product liability; (xiv) foreign operations; (xv) control by officers and
directors; (xvi) shares eligible for future sale; and (xvii) certain
anti-takeover considerations.
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.
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 or implied 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,
which is incorporated herein by reference.
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<PAGE> 16
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its annual meeting of stockholders on
December 19, 1996.
(b) On December 19, 1996, the stockholders of the Company
elected the following individuals as Directors:
<TABLE>
<CAPTION>
Shares
Nominee Voted For Authority Withheld
------- --------- ------------------
<S> <C> <C>
Kenneth D. Rardin 8,092,838 4,970
Daniel P. Howell 8,093,960 3,848
James A. Gordon 8,093,960 3,848
James A. Gilbert 8,093,850 3,958
</TABLE>
(c) On December 19, 1996, the stockholders of the Company
approved the following matters:
<TABLE>
<CAPTION>
Broker
Voting For Voting Against Abstain Non-Votes
---------- -------------- ------- ---------
<S> <C> <C> <C> <C>
Increase in the number of 5,458,943 252,342 18,918 2,367,605
shares reserved for the
IMNET Systems, Inc.
Employee Stock Option and
Rights Plan (the "1993 Plan")
Approval of Amendment to 4,580,567 1,126,122 23,514 2,367,605
Section 8 of the 1993 Plan
Approval of the Company's 5,674,030 37,718 18,455 2,367,605
Employee Discount Stock
Purchase Plan
</TABLE>
(d) None.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A)EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF EXHIBIT PAGE NUMBER
- ------ ---------------------- -----------
<S> <C> <C>
2.1(1) Agreement and Plan of Merger dated as of September 30, 1996 among the
Registrant, Hunter International, Inc., Larry C. Hunter and Paul
Sherman.
3.2.2(2) Amended and Restated Certificate of Incorporation of Registrant.
3.3.1(3) Amended and Restated ByLaws dated September 10, 1996.
10.5.1 Amendments to IMNET Systems, Inc. Employee Stock Option Rights Plan,
adopted September 9, 1996. 19 - 20
10.5.2(4) Forms of Key Employee Stock Options.
10.6.1(5) IMNET Systems, Inc. Employee Discount Stock Purchase Plan.
10.36 Employment Agreement between the Registrant and James A. Gilbert, dated 21 - 28
as of September 10, 1996.
11 Computation of Per Share Earnings - Six Months Ended December 31, 1996
and 1995. 29
27 Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------------------------
(1) Incorporated by reference to the Exhibit with the same number filed
with the Company's Form 8-K dated September 30, 1996, filed on October
15, 1996. The Company has applied for confidential treatment of
portions of this Agreement. Accordingly, portions thereof have been
omitted and filed separately with the Securities and Exchange
Commission. In addition, in accordance with Item 601(b)(2) of
Regulation S-K, the schedules have been omitted and a list briefly
describing the schedules is at the end of the Exhibit. The Registrant
will furnish supplementally a copy of any omitted schedule to the
Commission upon request.
(2) Incorporated by reference to the Exhibit with the same number in the
Registrant's Registration Statement on Form S-1 (No. 33-92130).
(3) Incorporated by reference to the same Exhibit number in the
Registrant's Annual Report on Form 10-K for the year ended June 30,
1996.
(4) Incorporated by reference to the Exhibit with same number in the
Registrant's Form S-8 (Reg. No. 333-19429).
(5) Incorporated by reference to the Exhibit with the same number in the
Registrant's Form S-8 (Reg. No. 333-19397).
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<PAGE> 18
(B) REPORTS ON FORM 8-K:
The following reports were filed during the quarter for which
this report is filed:
The Registrant filed Form 8-K on October 15, 1996 reporting
the consummation of its acquisition of Hunter International, Inc. on
September 30, 1996.
The Registrant filed a related Form 8-K/A on December 12,
1996.
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: February 13, 1996 By: /s/ Raymond L. Brown
-----------------------------------
Raymond L. Brown
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
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<PAGE> 1
EXHIBIT 10.5.1
The following changes to the IMNET Systems, Inc. Employee Stock Option and
Rights Plan ("1993 Plan") were approved by the Board of Directors, effective
September 9, 1996:
1. Section 1.(h) is hereby deleted in its entirety and the following
inserted in lieu thereof:
(h) "Disinterested Person" shall mean a "non-employee director" as
defined in Rule 16b3 as promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934 (the "Exchange Act"), as amended
effective August 15, 1996, or any successor definition of a "non-employee
director" adopted by the Commission.
2. Section 5(k) is hereby deleted in its entirety and the following
substituted in lieu thereof:
(k) Certain Recapitalizations. In general, if the Company is merged
into or consolidated with another corporation under circumstances in which the
Company is not the surviving corporation, or if the Company is liquidated, or
sells or otherwise disposes of substantially all of its assets to another
corporation (any such merger, consolidation, etc., being hereinafter referred to
as a "Non-Acquiring Transaction") while unexercised options are outstanding
under the Plan, after the effective date of a Non-Acquiring Transaction each
holder of an outstanding option shall be entitled, upon exercise of such option,
to receive such stock, or other securities as the holders of the same class of
stock as those shares subject to the option shall be entitled to receive in such
Non-Acquiring Transaction based upon the agreed upon conversion ratio or per
share distribution. However, any limitations on exercisability of options owned
by executive officers or the Company shall be waived, and options of
non-executive officers may be waived (in the discretion of the Committee), so
that all such options, from and after a date prior to the effective date of such
Non-Acquiring Transaction shall be exercisable in full. Furthermore, the right
to exercise shall, in the case of executive officers, and may (in the discretion
of the Committee), in the case of other option holders, be given to each holder
(by written notice) of an option during a 15-day period preceding the effective
date of such Non-Acquiring Transaction. Any outstanding options not exercised
within such 15-day period may be canceled by the Committee as of the effective
date of any such Non-Acquiring Transaction, as specified in the 15-day notice.
To the extent that the foregoing adjustments relate to stock or securities of
the Company, such adjustments shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive.
The following changes to the 1993 Plan were approved by the Board of Directors
on September 9, 1996, subject to stockholder approval. They were approved by the
stockholders on December 19, 1996.
1. The first paragraph of Section 3 is hereby deleted in its entirety, and
the following substituted in lieu thereof;
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 1,590,000 shares. Such shares may consist,
in whole or in part, of authorized and unissued shares or treasury shares.
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<PAGE> 2
2. Section 8 is hereby deleted in its entirety, and the following
substituted in lieu thereof;
SECTION 8. AMENDMENTS AND TERMINATION
The Board may amend, alter, or discontinue the Plan, but, except as
otherwise provided herein, no amendment, alteration, or discontinuation shall be
made which would impair the rights of an optionee or participant under a Stock
Option, Stock Appreciation Right or Other Stock-Based Award theretofore granted.
The Committee may amend the terms of any Stock Option or other award
theretofore granted, prospectively or retroactively, but, subject to Section 3
above, no such amendment shall impair the rights of any holder without the
holder's consent. The Committee may also substitute new Stock Options for
previously granted Stock Options (on a one for one or other basis), including
previously granted Stock Options having higher option exercise prices.
Subject to the above provisions, the Board shall have broad authority
to amend the Plan to take into account changes in applicable securities and tax
laws and accounting rules, as well as other developments.
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<PAGE> 1
EXHIBIT 10.36
September 10, 1996
Mr. James A. Gilbert
235 North Mill Road
Atlanta, GA 30328
Re: Employment Agreement
Dear Jim:
This letter is our agreement employing you as President and Chief Operating
Officer of IMNET Systems, Inc. (the "Company"), subject to the following terms
and conditions:
1. EFFECTIVE DATE. The effective date of this Agreement shall be
September 10, 1996. It is understood that you will join IMNET on a full-time
basis on or before September 20, 1996.
2. INITIAL TITLE AND DUTIES. Your initial title will be President and
Chief Operating Officer, and you will report directly to Kenneth D. Rardin, who
is the Chairman of the Board and Chief Executive Officer of the Company. As
such, you will be responsible for much of the day to day operations of the
Company, subject to Mr. Rardin's direction and oversight, and you will perform
such services not inconsistent with your position as are assigned to you from
time-to-time by Mr. Rardin or the Board of Directors. You will be expected to
devote your best efforts, experience, ability, talent and entire time in normal
business hours, energy and attention to the business of the Company and the
performance of your duties.
3. COMPENSATION: TERM. You will receive an annual base salary of $250,000
(the "Base Salary") paid in accordance with standard Company payroll procedures,
with annual increases determined in accordance with Exhibit A hereto. The Base
Salary payable hereunder, as may be adjusted from time to time, shall be subject
to applicable withholding and payroll taxes, and such other deductions as may be
required under the Company's employee benefit plans. The term of your employment
under this Agreement will begin on the Effective Date and shall continue until
terminated in accordance with Paragraph 8 below. Your Base Salary will begin to
accrue on September 20, 1996.
4. BONUSES. Upon reporting for your duties on September 20, 1996, you
will become eligible for a signing bonus of $100,000 to be paid in equal monthly
installments over a twelve month period commencing October 31, 1996 in
accordance with the Company's standard payroll procedure, so long as you are
employed by the Company during that period. In addition, you will be eligible to
earn an additional bonus of up to $100,000 per year based upon attainment of
specific milestones to be agreed upon by you, Kenneth D. Rardin and the
Compensation Advisory Committee. Payment of this additional bonus is conditional
upon your employment by IMNET at the end of FY 1997, and will be prorated for
fiscal 1997.
5. SHARE OPTION. You have been issued options to acquire up to 400,000
shares of the
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<PAGE> 2
Company's common stock. You agree that, absent a change in control of the
Company which causes your options to accelerate (a "Change in Control"), for a
period of five (5) years from the date of this agreement, you will not, by the
exercise of the options granted to you under your option agreement of September
10, 1996, cause IMNET to lose valuable tax deductions due to the applicability
of Section 162(m) of the Internal Revenue Code of 1986, as amended.
During such five-year period, you also agree that in the event of a Change in
Control, you will cooperate with reasonable requests of the acquiring company to
avoid the loss of valuable tax deductions due to the applicability of said
Section 162(m) to your exercise of options. This latter obligation to cooperate
does not require you to absorb unreasonable financial risk or to take other
actions disadvantageous to you.
If you are required to pay an excise tax pursuant to Section 4999 of the
Internal Revenue Code of 1986, as amended, with respect to compensation, if any,
provided by the Company under your option agreement of September 10, 1996 for
400,000 shares, then the Company will pay you an amount equal to such excise tax
which payment may in the discretion of the Board of Directors of the Company (or
its successor) be made in shares of the Company's Stock (or its successor) or
cash. To the extent you are paid in such shares, they shall be valued as of the
date of the consummation of the transaction which led to the imposition of the
excise tax (the "Valuation Date"). Furthermore, the Company's obligation to make
payments pursuant to this provision shall not exceed an amount equal to the
value of 50,000 shares of the Company's outstanding Common Stock (as adjusted
for stock splits, stock dividends, recapitalizations, and similar transactions)
at the Valuation Date.
6. EMPLOYEE BENEFITS. You will participate in all employee welfare
benefit plans of the Company applicable to senior level executives. In addition,
you shall be entitled to four (4) weeks' paid vacation per year.
7. LOAN. You are entitled to borrow up to $350,000 from the Company to
cover federal and state income taxes incurred by you in connection with your
exercise of options to acquire common stock of HBO & Company, your prior
employer. These funds will be advanced upon your certification, in writing, as
to the taxes you are or have been required to pay, and the amount thereof. The
terms of the loan and related security agreement shall be as set forth in the
promissory note and stock pledge and security agreement in the forms attached
hereto as Exhibits B and C, respectively.
8. TERMINATION AND SEVERANCE.
(a) During the term of employment hereunder, your employment may be
terminated as follows:
(i) At any time upon three (3) months' written notice by
either you or the Company. The date set forth in the notice shall be hereinafter
defined as the Termination Date.
(ii) Automatically in the event of your death.
(iii) Immediately upon written notice if such termination
is for Cause (as defined below in subparagraph 8(d)); or
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<PAGE> 3
(iv) At any time by mutual written agreement of you and
the Company.
(v) Immediately, if the Company is in default hereunder and
fails to cure any such default within thirty (30) days after you send written
notice of such default to the Company.
(b) Upon termination of your employment hereunder for any reason,
all obligations of the Company hereunder shall cease upon such termination,
except its obligations to (i) pay the compensation set forth in paragraph 3
hereof through the date of such termination, (ii) provide the benefits set forth
in paragraph 6 hereof through the date of such termination and any unpaid bonus
earned under paragraph 4 and to comply with all state and federal laws and
regulations applying to such benefits and (iii) pay the severance benefits, if
applicable, to you pursuant to the terms and conditions set forth in
subparagraph 8(c) below.
(c) In the event that your employment is terminated by the Company
for any reason other than Cause (as such term is defined below in subparagraph
8(d)), you will receive, commencing on the Termination Date, twelve (12) months'
severance pay at the monthly rate of your then current Base Salary (paid on a
bi-weekly basis over the twelve (12) month period in accordance with the
Company's standard payroll procedure). Notwithstanding the foregoing, the
obligations of the Company with respect to severance shall expire on the date
that you commence full-time employment with a subsequent employer, if such
commencement date occurs within twelve (12) months of the Termination Date. The
Company shall continue to be responsible for all severance pay obligations
accrued through the date such full-time employment commences. You agree to
notify the Company immediately upon your acceptance of an offer of full-time
employment, specifying the name of the business and your expected start date.
(d) For purposes hereof, the term "Cause" means the following: (i)
any defalcation or misappropriation of funds or property of the Company or any
affiliate by you or the commission of any dishonest or deceitful act in the
course of your employment with the Company; (ii) your conviction of a felony or
of any crime involving moral turpitude; (iii) the engaging by you in illegal
conduct which, in the reasonable judgment of the Company, places you and the
Company or any affiliate, by association with you, in disrepute; (iv) refusal to
perform your duties and responsibilities hereunder due to persistent neglect of
duty or chronic absenteeism; (v) any material breach by you of the terms and
conditions hereof, including, without limitation, those certain provisions
pertaining to inventions, confidentiality, noncompetition and related matters
set forth in paragraphs 9 through 16 hereof; or (vi) any attempt to obtain a
personal profit from any transaction in which you have an interest adverse to
the Company unless such adverse interest and the potential profit is disclosed
in writing to the Board of Directors in advance of the transaction. Any
disagreement concerning whether there has been "Cause" for termination will be
resolved by the Board of Directors in its sole discretion acting in good faith.
Notwithstanding the foregoing, in the event of a determination by the Company of
Cause pursuant to subparagraphs d(i), d(v) or d(vi) above, you will have a cure
period of five (5) days after you receive notice thereof from the Company. If
you fail to cure such default within the cure period, then the Company may
terminate you for Cause as set out above.
(e) You specifically agree not to voluntarily leave the employ of
the Company (your death or disability being "involuntary") for at least two
years from September 20, 1996. If you should leave in violation of this
agreement, you acknowledge and agree that the Company will
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<PAGE> 4
certainly suffer immediate damages. You agree to promptly reimburse the Company
for such actual damages up to $1.5 million, and you agree that the Company may
bring suit for monetary reimbursement only as to such damages.
(f) The provisions in Paragraphs 9 through 16 shall survive the
termination of the Agreement.
9. INVENTIONS. You shall treat as for the sole benefit of the Company and
promptly disclose and assign to the Company without additional compensation all
ideas, discoveries, inventions and improvements, patentable or not, which, while
you are so retained under this Agreement are made, conceived or reduced to
practice by you, alone or with others during or after usual work hours, either
on or off the job, and which are related to the products, processes, projects or
the business interests of the Company or which involve the use of the time,
material or facilities of the Company. You agree, at the expense of the Company,
at any time during or within a reasonable time after the termination of this
employment relationship, to sign all papers and do such other acts and things
you deem necessary or desirable and which may be reasonably required to protect
the rights of the Company to such ideas, discoveries, inventions and
improvements in any and all countries.
10. DEFINITIONS. For purpose of Paragraphs 11 through 16 hereof, the
following defined terms shall be applicable:
(a) "Business of the Company" as used herein means the design,
manufacture, sale, distribution, marketing and servicing of electronic
information and document management systems and related products and services
produced or promoted by the Company.
(b) "Confidential Information" as used herein means any and all
confidential information of the Company which is not generally known to or by
businesses which compete with the Company with respect to the Business of the
Company and which does not constitute a "Trade Secret" (as defined in
subparagraph (d) below). It includes, without limitation, information relating
to accounting, marketing, all information of the foregoing type relating to any
client or account of the Company, client account records, training and
operations material and memoranda, personnel, records, pricing information, and
any other information related to the Business of the Company and treated by the
Company as being confidential, including items labeled "Confidential," all of
which are hereby agreed to be the property of and confidential to the Company
hereafter. "Confidential Information" does not include any information which,
after the date hereof, becomes part of the public domain through no fault of
yours.
(c) "Territory" as used herein means the United States, Canada,
Mexico, Europe and Japan.
(d) "Trade Secret" as used herein means information including, but
not limited to, technical or non-technical data, a formula, a pattern, a
compilation, a program, a device, a method, a technique, a drawing, a process,
financial data, financial plans, product plans, or a list of actual or potential
customers or suppliers which:
(i) derives economic value, actual or potential, from not
being generally known to, and not being readily ascertainable by proper means
by, other persons who can obtain economic
Page 24
<PAGE> 5
value from its disclosure or use; and
(ii) is the subject of efforts that are reasonable under
the circumstances to maintain its secrecy.
11. CONFIDENTIAL INFORMATION. You covenant and agree that you will treat
as confidential and will not use (other than in the performance of your
designated duties for the Company), or disclose any Confidential Information
either during the term of your employment by the Company or for a period of two
years thereafter.
12. TRADE SECRETS. You covenant and agree that you will treat as
confidential and will not use (other than in the performance of your designated
duties for the Company) or disclose any Trade Secrets either during or after the
term of your employment by the Company.
13. RECORDS. All records, notes, files, memoranda, reports, price lists,
client lists, catalogues, prospect lists, drawings, plans, sketches, documents,
equipment, apparatus, physical manifestations of programs and like items, and
all copies thereof, relating to the Business of the Company, Confidential
Information or Trade Secrets, which were prepared by you or which have been
disclosed to or which have come into your possession, shall be and remain the
sole and exclusive property of the Company. You agree that upon the termination
of your employment by the Company, or at any other time upon reasonable request
from the Company, you will promptly (and in the event of your termination of
employment, no later than ten (10) days after such termination) deliver to the
Company the originals and all copies of any of the foregoing that are in your
possession, custody or control, and any other property belonging to the Company.
14. AGREEMENT NOT TO COMPETE. You covenant and agree that during your
employment by the Company and for a period of one year thereafter, you will not,
without the prior written consent of the Company, within the Territory for
yourself or as an officer, director, shareholder, owner, partner, joint
venturer, employee, promoter, consultant, manager, independent contractor, agent
or in some similar capacity, compete with the Business of the Company by
engaging in any business in which you provide services which are the same or
substantially similar to your duties and responsibilities as herein described;
provided, however, that the foregoing covenant shall not be deemed to prohibit
you from acquiring as an investment not more than 2% of the capital stock of a
business that competes with the Business of the Company whose stock is traded on
a national securities exchange or over-the-counter.
15. AGREEMENT NOT TO SOLICIT CUSTOMERS. You covenant and agree that
during the term of your employment by the Company and for a period of one year
thereafter, you will not, either on your own behalf or in the service or on
behalf of others, solicit or attempt to solicit, divert or appropriate away from
the Company, with a view to the sale or providing of any product or service
competitive or potentially competitive with the Company's products or services,
any persons and/or entities located within the Territory who are customers of
the Company with whom you had contact within the last year of your employment.
16. AGREEMENT NOT TO SOLICIT EMPLOYEES. You covenant and agree that
during the term of your employment by the Company and for a period of one year
thereafter, you will not either on your own behalf or in the service or on
behalf of others, solicit or attempt to solicit, divert or hire away to any
business competing with the Business of the Company, within the Territory, any
Page 25
<PAGE> 6
person currently employed by the Company, or hired by the Company during the
term of this Agreement, for the purpose of such employee providing services
similar to those provided by such employee to the Company.
17. REMEDIES. You acknowledge and agree that, by virtue of the duties and
responsibilities attendant to your employment by the Company and the special
knowledge of the Company's affairs, business, clients, sales techniques and
operations that you will have as a consequence of such employment, irreparable
loss and damage will be suffered by the Company if you should breach or violate
any of the covenants and agreements contained in Paragraphs 9 through 16; and
you further acknowledge and agree that each of such covenants is reasonably
necessary to protect and preserve the Business of the Company so that the
Company will receive the benefits of its bargain with you. You, therefore, agree
and consent that the remedy at law for any breach of any of your obligations
hereunder would be inadequate, and, therefore, you further agree and consent
that, in addition to any other available remedy, temporary and permanent
injunctive relief may be granted in any proceeding which may be brought to
enforce any provision of this Agreement without the necessity of proof that any
other remedy at law is adequate. You further acknowledge and agree that the
provisions of the Georgia Trade Secrets Act shall apply to any breach by you of
the covenant set forth in Paragraph 12 hereof. During the period of your
employment by the Company and for a period of one year thereafter, you shall
notify the Company prior to engaging in any business or professional activity
involving or in any way relating to the Business of the Company within the
Territory which notice shall describe the proposed activity with reasonable
specificity.
18. ACKNOWLEDGMENT. You acknowledge the restrictions contained in
Sections 9 through 16 hereof may limit your ability to earn a livelihood in a
competing business. By signing below to acknowledge your acceptance of the terms
and conditions of this Agreement, you acknowledge that you believe you will
receive sufficient consideration and other benefits as an employee of the
Company and as otherwise provided hereunder to clearly justify such restrictions
which, in any event (given your education, skills and ability and the limited
scope of the prohibited business activity in Sections 9 through 16) you do not
believe would prevent you from earning a living. By signing below, you
acknowledge that the unique nature of the Business of the Company and the fact
that significant sales have occurred and are under negotiation in the
geographical areas specified in Section 10(c) clearly justify the scope of the
restriction in Section 14.
19. BINDING EFFECT. Upon the Effective Date, the terms hereof shall be
binding upon and shall inure to the benefit of you and the Company, the
successors and assigns of the Company, and the heirs, executors, administrators,
legal representatives and assigns of you, provided that your rights and
obligations hereunder may not be delegated or assigned.
20. ENTIRE AGREEMENT. Upon the Effective Date, this Agreement shall
supersede any former oral agreement and any formal written agreement heretofore
executed relating generally to your employment with the Company, and this
Agreement can only be amended by an agreement in writing signed by you and the
Company.
21. APPLICABLE LAW: SEVERABILITY. This Agreement shall be construed and
enforced under the laws of the State of Georgia without giving effect to the
principles of conflicts of laws thereof. If any provision of this Agreement is
held invalid or unenforceable by operation of law or otherwise, such
circumstances shall not have the effect of rendering any of the other provisions
of
Page 26
<PAGE> 7
this Agreement invalid or unenforceable.
22. NOTICES. Any notice of other communication required or permitted to
be given hereunder shall be in writing and shall be deemed duly given or served
when delivered personally to the party intended, or sent by registered or
certified mail, postage prepaid, effective as of the date received, addressed to
the Company at its principal office and to you at your address then appearing on
the books of the Company.
23. ATTORNEY'S FEES. In case any one or more of the covenants and
agreements set forth in this Agreement shall be breached by any party hereto,
the non-breaching party may proceed to enforce its rights by arbitration or by
suit in equity and/or by action at law, including but not limited to, an action
for damages or specific performance. In such event, the prevailing party shall
be entitled to also receive reasonable attorney's fees and other expenses
incurred in enforcing its rights hereunder.
This Agreement supersedes our letter agreement of August 14, 1996, and the
Addendum thereto. By signing below, the Company agrees to all of the
terms and conditions of this Agreement. Please indicate your acceptance of
these terms and conditions by signing each enclosed copy of this letter where
indicated below, and return an originally executed copy of the letter to me.
Sincerely,
By: /s/ Kenneth D. Rardin
-----------------------------------------
Kenneth D. Rardin
President and
Chief Executive Officer
ACCEPTED AND AGREED
as of the 10th day of September
1996.
/s/ James A. Gilbert
- -----------------------
James A. Gilbert
Page 27
<PAGE> 8
EXHIBIT "A"
The amount of Base Salary shall increase each January 1 by the amount, if any,
calculated as of January 1, in each year commencing with January 1, 1997, equal
to $250,000 multiplied by the Annual Increase (as defined below). The "Annual
Increase" shall not be a negative number and shall mean (i) the Consumer Price
Index (as defined below) for the month of December of the year preceding the
year in which the Annual Increase is to be determined, less (ii) the Consumer
Price Index for the month next following the month during which the Effective
Date falls (the "Base CPI"), divided by (iii) the Base CPI. For purposes hereof,
the "Consumer Price Index" shall mean the All-Items portion of the Consumer
Price Index for All Urban Consumers (CPI-U) published by the Bureau of Labor
Statistics of the United States Department of Labor.
Page 28
<PAGE> 1
IMNET SYSTEMS, INC. EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
The following computations set forth the calculations of primary and fully
diluted earnings per share for the three and six month periods ended December
31, 1996 and 1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
1996 1995
------------------------------- -------------------------------
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) ........................ $ 1,694,472 $ 1,694,472 $(5,542,266) $(5,542,266)
=========== =========== =========== ===========
Weighted average outstanding common
shares ................................... 9,601,633 9,601,633 8,717,077 8,717,077
Increase due to assumed issuance of
shares related to outstanding stock
options using the treasury stock method .. 358,301 564,065 -- --
----------- ----------- ----------- -----------
Adjusted weighted average outstanding
common shares and common share
equivalents .......................... 9,959,934 10,165,698 8,717,077 8,717,077
=========== =========== =========== ===========
Net income (loss) per common share and
common share equivalent .............. $ 0.17 $ 0.17 $ (0.64) $ (0.64)
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31,
1996 1995
------------------------------- -------------------------------
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) ........................ $ 2,340,707 $ 2,340,707 $(5,286,115) $(5,286,115)
=========== =========== =========== ===========
Weighted average outstanding common
shares ............................... 9,596,779 9,596,779 8,219,631 8,219,631
Increase due to assumed issuance of
shares related to outstanding stock
options using the treasury stock method .. 380,711 486,707 -- --
----------- ----------- ----------- -----------
Adjusted weighted average outstanding
common shares and common share
equivalents .......................... 9,977,490 10,083,486 8,219,631 8,219,631
=========== =========== =========== ===========
Net income (loss)per common share and
common share equivalent .............. $ 0.23 $ 0.23 $ (0.64) $ (0.64)
=========== =========== =========== ===========
</TABLE>
Note: Net income 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 29
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE 6 MONTH PERIOD ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 11,124,434
<SECURITIES> 22,034,286
<RECEIVABLES> 23,783,093
<ALLOWANCES> 500,212
<INVENTORY> 2,425,814
<CURRENT-ASSETS> 60,608,304
<PP&E> 5,243,649
<DEPRECIATION> 1,636,550
<TOTAL-ASSETS> 70,932,213
<CURRENT-LIABILITIES> 8,237,902
<BONDS> 0
0
0
<COMMON> 96,433
<OTHER-SE> 62,597,878
<TOTAL-LIABILITY-AND-EQUITY> 70,932,213
<SALES> 20,769,485
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 19,319,040
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 130,171
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,340,707
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,340,707
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,340,707
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
