<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended April 30, 1998
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
--------- ---------
Commission file number 0-26238
-------
THE SOURCE INFORMATION MANAGEMENT COMPANY
(Exact Name of Small Business Issuer as Specified in Its Charter)
MISSOURI 43-1710906
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
11644 LILBURN PARK ROAD
ST. LOUIS, MISSOURI 63146
(Address of Principal Executive Offices)
(314) 995-9040
(Issuer's Telephone Number, Including Area Code)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 8,023,289 (as of June 1,
1998)
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE> 2
THE SOURCE INFORMATION MANAGEMENT COMPANY
INDEX
PART I - FINANCIAL INFORMATION
Page
----
ITEM 1. Financial Statements
Unaudited Balance Sheet as of April 30, 1998 1
Unaudited Statements of Operations for the three
months ended April 30, 1998 and 1997 3
Unaudited Statements of Cash Flows for the three
months ended April 30, 1998 and 1997 4
Notes to Financial Statements 5
ITEM 2. Management's Discussion and Analysis 9
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 13
<PAGE> 3
THE SOURCE INFORMATION MANAGEMENT COMPANY
UNAUDITED BALANCE SHEET
<TABLE>
<CAPTION>
April 30, 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS (NOTE 3)
CURRENT
Cash $ 114,249
Trade receivables (net of allowance for doubtful accounts of $460,898) (Note 5) 21,047,222
Income tax receivable 217,063
Notes receivable - officer (Note 2) 7,351
Other current assets 120,066
- --------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 21,505,951
====================================================================================================================
Office equipment and furniture 2,377,194
Less accumulated depreciation and amortization 1,511,586
- --------------------------------------------------------------------------------------------------------------------
NET OFFICE EQUIPMENT AND FURNITURE 865,608
====================================================================================================================
OTHER ASSETS
Notes receivable - officer (Note 2) 14,742
Goodwill (net of accumulated amortization of $308,410) 3,169,524
Other 178,862
- --------------------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 3,363,128
====================================================================================================================
$ 25,734,687
====================================================================================================================
</TABLE>
1 See accompanying notes
to financial statements
<PAGE> 4
THE SOURCE INFORMATION MANAGEMENT COMPANY
UNAUDITED BALANCE SHEET
<TABLE>
<CAPTION>
April 30, 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Checks issued against future deposits $ 579,526
Accounts payable and accrued expenses 1,117,720
Due to retailers (Note 6) 559,221
Deferred income taxes (Note 7) 845,000
Current maturities of long-term debt (Note 3) 14,918
- --------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 3,116,385
====================================================================================================================
LONG-TERM DEBT, LESS CURRENT MATURITIES (Note 3) 9,310,283
====================================================================================================================
DEFERRED INCOME TAXES (Note 7) 75,000
====================================================================================================================
TOTAL LIABILITIES 12,501,668
====================================================================================================================
COMMITMENTS AND CONTINGENCIES
- --------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common Stock, $.01 par - shares authorized, 16,528,925; outstanding 8,021,490 80,214
Additional paid-in capital 10,525,557
Retained earnings 2,627,248
- --------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 13,233,019
====================================================================================================================
$ 25,734,687
====================================================================================================================
</TABLE>
2 See accompanying notes
to financial statements
<PAGE> 5
THE SOURCE INFORMATION MANAGEMENT COMPANY
UNAUDITED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended April 30, 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Service Revenues $ 3,595,202 $ 2,527,879
Cost of Service Revenues 1,566,407 1,293,946
- --------------------------------------------------------------------------------------------------------------------
Gross Profit 2,028,795 1,233,933
Selling, General and Administrative Expense 666,674 527,786
- --------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) 1,362,121 706,147
- --------------------------------------------------------------------------------------------------------------------
Other Income (Expense)
Interest income 588 6,258
Interest expense (120,243) (202,136)
Other (2,819) (19,142)
- --------------------------------------------------------------------------------------------------------------------
Total Other Income (Expense) (122,474) (215,020)
- --------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 1,239,647 491,127
Income Tax Expense (Note 7) 513,000 235,000
- --------------------------------------------------------------------------------------------------------------------
Net Income $ 726,647 $ 256,127
====================================================================================================================
Earnings per Share
Basic $ .09 $ .04
- --------------------------------------------------------------------------------------------------------------------
Diluted $ .09 $ .04
====================================================================================================================
Weighted Average of Shares Outstanding
Basic 8,017,828 5,823,777
- --------------------------------------------------------------------------------------------------------------------
Diluted 8,499,070 5,823,777
====================================================================================================================
</TABLE>
3 See accompanying notes
to financial statements
<PAGE> 6
THE SOURCE INFORMATION MANAGEMENT COMPANY
UNAUDITED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended April 30, 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 726,647 $ 256,127
Adjustments to reconcile net income
to cash used in operating activities:
Depreciation and amortization 124,411 77,165
Provision for losses on accounts receivable - (10,647)
Impairment of investment in limited partnership 5,000 5,000
Deferred income taxes 48,000 (32,000)
Changes in assets and liabilities:
Increase in accounts receivable (2,172,458) (626,159)
Decrease in other assets 341,185 119,365
Increase (decrease) in checks issued against future deposits
447,337 (2,432,310)
Increase (decrease) in accounts payable and accrued expenses
437,665 (15,798)
Decrease in amounts due customers (434,625) (11,272)
- --------------------------------------------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES (476,838) (2,670,529)
====================================================================================================================
INVESTMENT ACTIVITIES
Capital expenditures (127,506) (115,079)
Loan to affiliate - (9,843)
Increase in cash surrender value of life insurance (14,668) (21,027)
Proceeds from surrender of life insurance policies - 83,959
- --------------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (142,174) (61,990)
====================================================================================================================
FINANCING ACTIVITIES
Borrowings under credit facility 10,750,000 9,740,000
Principal payments on credit facility (10,042,000) (7,168,000)
Repayments under short-term debt agreements (17,853) (16,035)
Preferred Stock dividends - (3)
Proceeds from exercise of stock options 11,659 -
Registration costs - (29,548)
- --------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 701,806 2,526,414
====================================================================================================================
INCREASE (DECREASE) IN CASH 82,794 (206,105)
CASH, beginning of period 31,455 284,921
- --------------------------------------------------------------------------------------------------------------------
CASH, end of period $ 114,249 $ 78,816
====================================================================================================================
</TABLE>
4 See accompanying notes
to financial statements
<PAGE> 7
THE SOURCE INFORMATION MANAGEMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. UNAUDITED FINANCIAL In the opinion of management, the unaudited
STATEMENTS financial information as of April 30, 1998
contained herein reflects all
adjustments (consisting only of normal
recurring adjustments) necessary to fairly
present such information in accordance with
generally accepted accounting principles. The
results of operations for the three months
ended April 30, 1998 are not necessarily
indicative of the results to be expected for
the entire year.
2. RELATED PARTY The Company currently leases certain office
TRANSACTIONS space from businesses controlled by
stockholders of the Company. Amounts paid for
the office space were approximately $63,600
and $57,300 for the three months ended April
30, 1998 and 1997, respectively.
Certain officers of the Company, have from
time to time, received cash advances from the
Company. The officers executed promissory
notes in favor of the Company in the aggregate
amount of $295,293. Collections on these notes
totaled $273,200 through April 30, 1998,
leaving a balance outstanding of $22,093. The
remaining notes bear interest at rates varying
from 6.96% to 7.34% per annum.
3. LONG-TERM Long-term debt consists of:
DEBT AND REVOLVING
CREDIT FACILITY
<TABLE>
<CAPTION>
April 30, 1998
-------------------------------------------------------------
<S> <C>
Revolving Credit Facility $9,306,000
Term note payable in monthly installments of $629
through November 1999, collateralized by an
automobile 11,165
Obligations under capital lease 8,036
-------------------------------------------------------------
Total Long-term Debt 9,325,201
Less current maturities 14,918
-------------------------------------------------------------
Long-term Debt $9,310,283
=============================================================
</TABLE>
The Company has an agreement providing for a
revolving loan up to $15,000,000. The bank has
the right to terminate the agreement upon not
less than thirteen months prior written
notice. Borrowings bear interest at a rate
related to the monthly LIBOR index rate plus a
percentage ranging from 2.5% to 3.5%,
depending upon the ratio of funded debt to
earnings before interest, taxes, depreciation
and amortization (effectively 8.4375% at April
30, 1998). Borrowings are secured by a
security interest in substantially all the
Company's assets including receivables,
inventory, equipment, goods and fixtures,
software, contract rights, notes, and general
intangibles.
5
<PAGE> 8
THE SOURCE INFORMATION MANAGEMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
The revolving loan agreement requires the
Company to maintain certain ratios and a
specified level of net worth, restricts
payment of dividends, and limits additional
indebtedness. The Company was in compliance
with such ratios at April 30, 1998.
4. SUPPLEMENTAL CASH FLOW Supplemental information on interest and
INFORMATION income taxes paid is as follows:
<TABLE>
<CAPTION>
Three Months Ended April 30, 1998 1997
-----------------------------------------------------------------------------------
<S> <C> <C>
Interest Paid $ 121,000 $ 173,000
Income Taxes Paid (Refunded) $ 189,000 $ (59,000)
===================================================================================
</TABLE>
On February 28, 1997, 7,721 shares of Common
Stock were issued as a dividend to the
Preferred Stockholders as of that date.
5. ADVANCE PAY The Company has established an Advance Pay
PROGRAM Program. Under this program the Company
advances an agreed upon percentage of the
incentive payments otherwise due the retailer
from magazine publishers upon quarterly
submission of claims for such payments. The
claims otherwise due the retailer become due
the Company. Included in trade receivables at
April 30, 1998 is $16,343,000 due the Company
under the Advance Pay Program (net of
$4,798,000 due the program participants).
Income from the program was approximately
$1,618,000 and $809,000 during the three
months ended April 30, 1998 and 1997,
respectively.
6. DUE TO RETAILERS The Company has arrangements with certain of
its customers whereby the Company is
authorized to collect and deposit in its own
accounts, checks payable to its customers for
incentive payments. The Company retains the
commission related to such payments and pays
the customer the difference. The Company owes
retailers $559,221 at April 30, 1998 under
such arrangements.
6
<PAGE> 9
THE SOURCE INFORMATION MANAGEMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
7. INCOME TAXES Provision for federal and state income taxes
in the statements of operations consist of the
following components:
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 30, 1998 1997
-----------------------------------------------------------------------
<S> <C> <C>
Current
Federal $ 370,000 $ 213,000
State 95,000 54,000
-----------------------------------------------------------------------
Total Current 465,000 267,000
=======================================================================
Deferred
Federal 38,000 (26,000)
State 10,000 (6,000)
-----------------------------------------------------------------------
Total Deferred 48,000 (32,000)
=======================================================================
TOTAL INCOME TAX EXPENSE $ 513,000 $ 235,000
=======================================================================
</TABLE>
Deferred income taxes reflect the net tax
effects of temporary differences between the
carrying amount of the assets and liabilities
for financial reporting purposes and the
amounts used for income tax purposes. The
sources of the temporary differences and their
effect on deferred taxes are as follows:
<TABLE>
<CAPTION>
APRIL 30, 1998
-----------------------------------------------------------------------------------
<S> <C>
Deferred Tax Assets
Allowance for doubtful accounts $ 169,000
Deferred compensation 39,000
Other 17,000
-----------------------------------------------------------------------------------
Total Deferred Tax Assets 225,000
===================================================================================
Deferred Tax Liabilities
Book/Tax differences in accounts receivable 825,000
Income not previously taxed under cash
basis of accounting for income tax purposes 261,000
Depreciation 29,000
Other 30,000
-----------------------------------------------------------------------------------
Total Deferred Tax Liabilities 1,145,000
===================================================================================
-----------------------------------------------------------------------------------
Net Deferred Tax Liability 920,000
-----------------------------------------------------------------------------------
Classified as:
Current 845,000
Non-current 75,000
-----------------------------------------------------------------------------------
NET DEFERRED TAX LIABILITY $ 920,000
===================================================================================
</TABLE>
7
<PAGE> 10
THE SOURCE INFORMATION MANAGEMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
The following summary reconciles income taxes
at the maximum federal statutory rate with the
effective rate for the first three months of
fiscal 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 30, 1998 1997
-----------------------------------------------------------------------------------
<S> <C> <C>
Income tax expense at statutory rate $ 421,000 $ 167,000
State income tax expense, net of federal
income tax benefit 65,000 36,000
Non-deductible goodwill amortization 20,000 10,000
Non-deductible meals and entertainment 9,000 10,000
Non-deductible officers' life insurance 3,000 4,000
Other, net (5,000) 8,000
-----------------------------------------------------------------------------------
INCOME TAX EXPENSE $ 513,000 $ 235,000
===================================================================================
</TABLE>
8. EARNINGS PER SHARE A reconciliation of the denominators of the
basic and diluted earnings per share
computations are as follows:
<TABLE>
<CAPTION>
Quarter Ended April 30, 1998 1997
------------------------------------------------------------------------------------
<S> <C> <C>
Weighted average number of common shares outstanding 8,017,828 5,823,777
Effect of dilutive securities - stock options and
warrants 481,243 -
------------------------------------------------------------------------------------
Weighted average number of common shares outstanding
- as adjusted 8,499,070 5,823,777
------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THE INFORMATION CONTAINED IN THIS QUARTERLY REPORT TO SHAREHOLDERS INCLUDES
STATEMENTS REGARDING MATTERS WHICH ARE NOT HISTORICAL FACTS (INCLUDING
STATEMENTS REGARDING THE PLANS, BELIEFS OR EXPECTATIONS OF THE SOURCE
INFORMATION MANAGEMENT COMPANY (THE "COMPANY")) WHICH ARE FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE FEDERAL SECURITIES LAW. WHEN USED IN THIS
QUARTERLY REPORT, THE WORDS "BELIEVES," "ANTICIPATES," "INTENDS," "EXPECTS," AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. BECAUSE
SUCH FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES, THE
COMPANY'S ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE
TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, INCREASED COMPETITION,
SIGNIFICANT CHANGES IN THE MARKETING STRATEGIES OF PUBLISHERS, THE INABILITY OF
THE COMPANY TO SUCCESSFULLY MANAGE ITS EXPANSION AND THE AVAILABILITY OF
SUITABLE ACQUISITION CANDIDATES. INVESTORS ARE ALSO DIRECTED TO CONSIDER OTHER
RISKS AND UNCERTAINTIES DISCUSSED IN OTHER REPORTS PREVIOUSLY AND SUBSEQUENTLY
FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION. READERS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS, WHICH SPEAK
ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY
RELEASE THE RESULTS OF ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS WHICH
MAY BE MADE TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO
REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
OVERVIEW
For more than 20 years, the Company and its predecessors have provided
information gathering, consulting and other information based services to
operators of mass merchandise, grocery, convenience and pharmacy stores located
throughout the United States and eastern Canada. Currently, the Company provides
monitoring and documentation services to more than 725 retailers, such as
Wal-Mart Stores, Inc., Kmart Corporation, Target Stores, Inc., Food Lion, Inc.,
and W. H. Smith, Inc., in connection with processing and collection of incentive
payments from magazine publishers on single copy sales of approximately 6,000
magazine titles offered in approximately 65,000 stores. As an extension of this
service, the Company established its Advance Pay Program, under which the
Company advances an agreed upon percentage of the incentive payments due to the
retailer from magazine publishers. It then directly collects from the publishers
the claims due to the retailer. In fiscal 1998 and 1997, the Company advanced
approximately $38,900,000 and $15,000,000 under the Advance Pay Program,
respectively. In October 1996, the Company expanded its services and potential
client base with the introduction of the Periodical Information Network ("PIN"),
an information service in which the Company provides subscribing magazine
publishers with industry-wide, single copy magazine sales information in a user
friendly format. Based on discussions with representatives of magazine
publishers, the Company believes that publishers and advertisers perceive that
PIN provides a valuable basis on which to formulate marketing, distribution,
advertising and other policies.
A majority of the Company's revenues are derived from service fees
earned in connection with the collection of incentive payments owed to the
Company's retailer clients from magazine publishers. Most incentive payment
programs offer the retailer a cash rebate, equal to a percentage of the
retailer's net sales of the publisher's titles, which is payable quarterly upon
submission of a properly documented claim. Under agreements with its retailer
clients, the Company gathers sales data, submits claims for payment, collects
payments and receives a percentage of the aggregate payments collected on the
retailers' behalf. Claims for incentive payments are generally submitted to the
publishers quarterly based on net sales of the publishers' titles recorded in
the previous calendar quarter. Except in connection with its Advance Pay
Program, the Company does not guarantee to its retailer clients any payments due
to the client from magazine publishers, and accordingly, does not assume any
credit risk associated with such incentive payments. In substantially all the
contracts under the Advance Pay Program, which is continuing to represent an
increasing percentage of payments collected, the Company bears the risk of
uncollectibility associated with collecting payments from publishers. To date,
management believes that the reserve maintained by the Company as an allowance
for doubtful accounts in the amount of approximately 2% of accounts receivable
is adequate to satisfy any losses incurred by the Company from uncollectible
accounts receivable.
9
<PAGE> 12
Under both the standard arrangement and the Advance Pay Program
commission revenue is recognized at the time claims for incentive payments are
substantially completed for submission to the publishers based on the amount
claimed, less an estimated reserve necessary to maintain an allowance for
doubtful accounts of approximately 2% of trade accounts receivable. However,
under the standard arrangement, invoices for services provided by the Company in
connection with the claim process are not issued until the Company receives
settlement of the claim. Under the Advance Pay Program, the revenue recognized
by the Company represents the difference between the amount advanced to the
retailer customer and the amount claimed against the publisher.
RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, certain
information relating to the operations of the Company expressed as a percentage
of Service Revenues:
<TABLE>
<CAPTION>
Three Months Ended April 30,
1998 1997
---- ----
<S> <C> <C>
Service Revenues 100.0% 100.0%
Cost of Service Revenues 43.6% 51.2%
Gross Profit 56.4% 48.8%
Selling, General & Administrative Expense 18.5% 20.9%
Operating Income 37.9% 27.9%
Interest Expense, Net (3.3)% (7.7)%
Other Income (Expense), Net (0.1)% (0.8)%
Income Before Income Taxes 34.5% 19.4%
Net Income 20.2% 10.1%
</TABLE>
SERVICE REVENUES
Increased retailer participation in the Advance Pay Program, the
acquisition of Mike Kessler and Associates, Inc. and the growth in subscriptions
to PIN contributed to an increase in Service Revenues during the quarter ended
April 30, 1998 of approximately $1,067,000, or 42%, over the comparable period
in fiscal 1998. Of the total, claims, PIN and Advance Pay Program revenues
increased approximately $809,000, or 36%, over the comparable period in fiscal
1998. Revenue from front-end management services increased from $310,000 for the
quarter ended April 30, 1997 to $568,000 for the quarter ended April 30, 1998,
or 83%, resulting from an increase in the number of reconfiguration programs
undertaken by the Company on behalf of its retailer clients. Historically,
front-end management revenues have fluctuated as a result of a variety of
factors including the number and magnitude of reconfiguration programs
undertaken by the Company's retailer clients and the timely shipping of
front-end merchandising fixtures by manufacturers. Consequently, variations in
the timing and amounts of front-end management revenues could have a material
positive or negative effect on the Company's operating results of any given
quarter. In June 1998, the Company introduced its proprietary SOURCEPRO
software, which enables retailers to visualize alternative checkout
configurations in a three-dimensional graphic environment and analyze the
relative profit potential which can be achieved by the retailer from alternative
configurations.
10
<PAGE> 13
COST OF SERVICE REVENUES AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSE ("TOTAL
COSTS")
Despite a 42% increase in Service Revenues, Total Costs increased only
$411,000, or 23%, over the first quarter of the prior year. The acquisition of
Mike Kessler and Associates, Inc. (MKA) led to increased costs, including wages,
amortization and rent of approximately $173,000. Wages, other than MKA's
employees, increased approximately $45,000 over the same period of last
year, due primarily to increases in employee compensation. Consulting expenses
increased approximately $60,000 over the comparable period of the prior year
due to valuation services utilized and for fees paid to financial and business
consultants. Approximately $34,000 more bonus expense was accrued during the
first quarter of this year than last year. Travel and entertainment expenses
increased $17,000 and $13,000, respectively, over the first quarter of the
prior year. Bad debt also increased approximately $14,000 over the prior year.
Lastly, expenses related to seminars and meetings increased approximately
$14,000 due to the Company's sponsorship of several seminars as well as
increased participation in seminars by the sales representatives.
INTEREST EXPENSE
Interest Expense decreased for the quarter ended April 30, 1998 by
$82,000 compared to the quarter ended April 30, 1997. Because the net proceeds
of the offering will be temporarily applied to reduce the amounts due under the
Company's credit facility, interest expense is expected to decrease further next
quarter.
INCOME TAX EXPENSE
The effective income tax rate for the three months ended April 30, 1998
was 41.4%. This rate varied from the statutory rate due to expenses not
deductible for income tax purposes. Such non-deductible expenses include meals
and entertainment, goodwill amortization, and officers' life insurance premiums.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are for funding the Advance Pay
Program and selling, general and administrative expenses (particularly salaries,
travel and entertainment) incurred in connection with the maintenance of
existing accounts and the solicitation of new clients. Historically, the Company
has financed its business activities through borrowings under available lines of
credit, cash flow from operations and through the issuance of equity securities.
Net cash used by operating activities decreased from $2,671,000 during
the three months ended April 30, 1997 to $477,000 during the three months ended
April 30, 1998. If, and so long as, the Advance Pay Program continues to grow at
the rate experienced in fiscal 1998, management anticipates cash used by
operations will continue to exceed cash provided by operations. However, if and
when the conversion of existing and new customer accounts to the Advance Pay
Program has been substantially completed, management anticipates, based on its
existing operations, that cash provided by operations will exceed cash used by
operations.
The average collection period for the three months ended April 30, 1998
was 125 days compared to 127 days for the three months ended April 30, 1997. The
collection periods were calculated as follows: 365 days/(Revenues/Average
Accounts Receivable), where accounts receivable includes all trade accounts
receivable, but only the commission portion of amounts due from publishers in
association with the Advance Pay Program.
The Company is primarily engaged in the business of providing services
to its retailer clients; therefore, its capital expenditure requirements are
minimal. At April 30, 1998, the Company had no outstanding material commitments
for capital expenditures.
11
<PAGE> 14
The Company has a credit agreement that provides for a revolving loan
of up to $15,000,000 with Wachovia Bank, N.A. Wachovia Bank has the right to
terminate the agreement upon not less than thirteen months prior written notice.
Borrowings bear interest at a rate related to the monthly LIBOR index rate plus
a percentage ranging from 2.5% to 3.5% depending upon the ratio of funded debt
to earnings before interest, taxes, depreciation and amortization. Borrowings
are secured by a security interest in substantially all of the Company's assets
including receivables, inventory, equipment, goods and fixtures, software,
contract rights, notes, and general intangibles. Under the Credit Agreement, the
Company is required to maintain certain financial ratios. At April 30 1998, the
Company was in compliance with all financial ratios imposed by the Credit
Agreement. At April 4, 1998, the Company was in compliance with all financial
ratios imposed by the Credit Agreement.
At April 30, 1998, the Company's total long-term debt obligations were
$9,325,201. Of such amount, $14,918 matures in the next 12 months. The Company
anticipates that the funds necessary to satisfy these obligations will be
derived from cash flows from operations.
On June 15, 1999, the Company commenced a public offering of 1,500,000
shares of Common Stock, which is expected to result in net proceeds to the
Company of approximately $7,922,500. Such proceeds are intended to be used
primarily to fund expansion of the Company's advance pay program.
12
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
See Exhibit Index.
(b) No current reports on Form 8-K have been filed during the three months
ended April 30, 1998.
13
<PAGE> 16
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THE SOURCE INFORMATION MANAGEMENT COMPANY
Date: June 15, 1998 /S/ W. BRIAN RODGERS
--------------------
W. Brian Rodgers
Chief Financial Officer
14
<PAGE> 17
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
27.1 Financial Data Schedule (Filed in EDGAR version only)
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT APRIL 30, 1998 (UNAUDITED) AND THE STATEMENT OF INCOME FOR THE THREE
MONTHS ENDED APRIL 30, 1998 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> APR-30-1998
<CASH> 114,249
<SECURITIES> 0
<RECEIVABLES> 21,047,222
<ALLOWANCES> (460,898)
<INVENTORY> 0
<CURRENT-ASSETS> 21,505,951
<PP&E> 2,377,194
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0
0
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</TABLE>
