I MANY INC - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2004

¨	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: 000-30883

I-MANY, INC.

(Exact name of registrant as specified in its charter)

Delaware

01-0524931

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

399 Thornall Street

12th Floor

Edison, New Jersey 08837

(Address of principal executive offices)

(800) 832-0228

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨

On April 30, 2004, 40,889,340 shares of the registrant’s common stock, $.0001 par value, were issued and outstanding.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. Discussions containing forward-looking statements may be found in the information set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “—Certain Factors That May Affect Future Operating Results” as well as in the Form 10-Q generally. The Company uses words such as “believes,” “intends,” “expects,” “anticipates,” “plans,” “estimates,” “should,” “may,” “will,” “scheduled” and similar expressions to identify forward-looking statements. The Company uses these words to describe its present belief about future events relating to, among other things, its expected marketing plans, future hiring, expenditures and sources of revenue. This Form 10-Q may also contain third party estimates regarding the size and growth of our market, which also are forward-looking statements. Our forward-looking statements apply only as of the date of this Form 10-Q. The Company’s actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described above and elsewhere in this Form 10-Q.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. The Company is under no duty to update any of the forward-looking statements after the date of this Form 10-Q to conform these statements to actual results or to changes in our expectations, other than as required by law.

I-MANY, INC.

FORM 10-Q

TABLE OF CONTENTS


		PAGE
PART I.	UNAUDITED FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements

	Condensed Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003	4

	Condensed Consolidated Statements of Operations for the three months ended March 31, 2004 and 2003	5

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and 2003	6

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25

Item 4.	Controls and Procedures	26

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	27

Item 2.	Changes in Securities and Use of Proceeds	27

Item 3.	Defaults upon Senior Securities	27

Item 4.	Submission of Matters to a Vote of Security Holders	27

Item 5.	Other Information	27

Item 6.	Exhibits and Reports on Form 8-K	27

	Signatures	28

	Index to Exhibits	29

PART I. UNAUDITED FINANCIAL INFORMATION

ITEM 1. UNAUDITED FINANCIAL STATEMENTS

I-MANY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share-related amounts)


	March 31, 2004			December 31, 2003
ASSETS
Current assets:
Cash and cash equivalents	$	19,141		$	21,864
Restricted cash		693			871
Short-term investments		2,530			2,019
Accounts receivable, net of allowance		9,650			10,057
Prepaid expenses and other current assets		1,191			819

Total current assets		33,205			35,630
Property and equipment, net		1,433			1,879
Restricted cash		316			377
Other assets		328			330
Acquired intangible assets, net		2,490			2,822
Goodwill		8,531			8,531

Total assets	$	46,303		$	49,569

LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,923		$	1,483
Accrued expenses		5,019			5,989
Current portion of deferred revenue		7,414			7,180
Current portion of capital lease obligations		637			709

Total current liabilities		14,993			15,361
Deferred revenue, net of current portion		312			3,816
Capital lease obligations, net of current portion		65			128
Other long-term liabilities		1,370			1,109

Total liabilities		16,740			20,414

Series A redeemable convertible preferred stock, $.01 value
Authorized – 1,700 shares
Issued and outstanding—none		—			—

Stockholders’ equity:
Undesignated preferred stock, $.01 par value
Authorized - 5,000,000 shares; designated 1,700 shares
Issued and outstanding—none		—			—
Common stock, $.0001 par value—
Authorized - 100,000,000 shares
Issued and outstanding – 40,796,137 and 40,550,590 shares at March 31, 2004 and December 31, 2003, respectively		4			4
Additional paid-in capital		150,480			150,613
Deferred stock-based compensation		(1,616	)		(3,680	)
Accumulated other comprehensive income		56			43
Accumulated deficit		(119,361	)		(117,825	)

Total stockholders’ equity		29,563			29,155

Total liabilities and stockholders’ equity	$	46,303		$	49,569

See notes to condensed consolidated financial statements.

I-MANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)


	Three months ended March 31,
	2004			2003
Net revenues:
Product	$	4,908		$	4,871
Services		6,522			6,228

Total net revenues		11,430			11,099

Cost of revenues		3,902			3,705

Gross profit		7,528			7,394

Operating expenses:
Sales and marketing		2,231			5,137
Research and development		3,510			4,336
General and administrative		1,665			1,659
Depreciation		211			489
Amortization of acquired intangible assets		331			662
Restructuring and other charges		1,147			1,461

Total operating expenses		9,095			13,744

Loss from operations		(1,567	)		(6,350	)

Other income, net		31			32

Net loss	$	(1,536	)	$	(6,318	)

Basic and diluted net loss per common share	$	(0.04	)	$	(0.16	)

Weighted average shares outstanding		40,652			40,337

See notes to condensed consolidated financial statements.

I-MANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Three Months Ended March 31,
	2004			2003
Cash Flows from Operating Activities:
Net loss	$	(1,536	)	$	(6,318	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		542			1,151
Restructuring and other charges		1,147			1,461
Amortization of deferred stock-based compensation		1,863			12
Provision for doubtful accounts		70			75
Noncash marketing expense related to issuance of warrant		—			795
Changes in operating assets and liabilities:
Accounts receivable		337			1,825
Prepaid expense and other current assets		(372	)		(296	)
Accounts payable		440			751
Accrued expenses and other liabilities		(1,581	)		(1,911	)
Deferred revenue		(3,270	)		(134	)
Deferred rent		15			(4	)

Net cash used in operating activities		(2,345	)		(2,593	)

Cash Flows from Investing Activities:
Purchases of property and equipment		(53	)		—
Proceeds from disposition of property and equipment		12			—
Purchases of short-term investments		(1,510	)		—
Redemptions of short-term investments		1,000			—
(Increase) decrease in other assets		2			(3	)

Net cash used in investing activities		(549	)		(3	)

Cash Flows from Financing Activities:
Payments on capital lease obligations		(135	)		(122	)
(Decrease) increase in restricted cash		239			(247	)
Proceeds from exercise of stock options		67			4

Net cash (used in) provided by financing activities		171			(365	)

Net decrease in cash and cash equivalents		(2,723	)		(2,961	)
Cash and cash equivalents, beginning of period		21,864			35,979

Cash and cash equivalents, end of period	$	19,141		$	33,018

I-MANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(continued)


Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest	$	9		$	21

Supplemental Disclosure of Noncash Activities:
Issuance of warrant to purchase common stock	$	—		$	795

Property and equipment acquired under capital leases	$	—		$	376

Decrease in deferred stock-based compensation, net of forfeitures	$	(246	)	$	—

See notes to condensed consolidated financial statements.

I-MANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America applicable to interim financial reporting pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for reporting on Form 10-Q. It is recommended that these condensed consolidated financial statements be read in conjunction with the financial statements and the related notes of I-many, Inc. (the “Company”) for the year ended December 31, 2003 as reported in the Company’s Annual Report on Form 10-K filed with the SEC. In the opinion of management, all adjustments (consisting of normal, recurring adjustments) considered necessary for the fair presentation of these interim financial statements have been included. The results of operations for the three months ended March 31, 2004 may not be indicative of the results that may be expected for the year ending December 31, 2004, or for any other period.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition:

Software license fees are recognized upon execution of a signed license agreement and delivery of the software to customers provided there are no significant post-delivery obligations, the payment is fixed or determinable and collection is probable. If an acceptance period is required, revenues are deferred until customer acceptance. In multiple-element arrangements, the total fee is allocated to the undelivered professional services, training and maintenance and support services based on the fair value of those elements, which is defined as the price charged when those elements are sold separately. The residual amount is then allocated to the software license fee.

Service revenues include professional services, training, maintenance and support services and out-of-pocket reimbursable expenses. Professional service revenues are recognized as the services are performed. If conditions for acceptance exist, professional service revenues are recognized upon customer acceptance. For fixed fee professional service contracts, anticipated losses are provided for in the period in which the loss is probable and can be reasonably estimated. Training revenues are recognized as the services are provided. Included in training revenues are registration fees received from participants in the Company’s off-site user training conferences.

Maintenance and customer support fees are recognized ratably over the term of the maintenance contract, which is generally twelve months. When maintenance and support is included in the total license fee, a portion of the total fee is allocated to maintenance and support based upon the price paid by the customer when sold separately, generally as renewals in the second year.

Payments received from customers at the inception of a maintenance period are treated as deferred service revenues and recognized r

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