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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, 2003



or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
|- | --------------------------------------------------------------------------------------------



FOR THE TRANSITION PERIOD FROM
 TO



Commission File Number: 000-24373



GLOBAL IMAGING SYSTEMS, INC.

(EXACT
NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 59-3247752                          
|(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) |  | (I.R.S. EMPLOYER IDENTIFICATION NO.)



|                                                    |  |           
|--------------------------------------------------- |  | ----------
|3820 Northdale Boulevard, Suite 200A Tampa, Florida |  | 33624     
|(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)            |  | (ZIP CODE)



REGISTRANTS
TELEPHONE NUMBER, INCLUDING AREA CODE: 813-960-5508





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(FORMER NAME OR FORMER ADDRESS, 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 ̈



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



The registrant had 21,932,758 shares of common stock, $.01 par value, outstanding as of February 9, 2003.



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##### Table of Contents

INDEX



|                                                                                                        |  |     
|------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                        |  | Page
|                                                                                                        | 
|PART I  FINANCIAL INFORMATION                                                                          |  |     
|                                                                                                        | 
|ITEM 1  Consolidated Financial Statements                                                              |  |     
|                                                                                                        | 
|Consolidated Balance Sheets as of December 31, 2003 (Unaudited) and March 31, 2003                      |  | 3   
|                                                                                                        | 
|Consolidated Statements of Operations for the three months ended December 31, 2003 and 2002 (Unaudited) |  | 4   
|                                                                                                        | 
|Consolidated Statements of Operations for the nine months ended December 31, 2003 and 2002 (Unaudited)  |  | 5   
|                                                                                                        | 
|Consolidated Statements of Cash Flows for the nine months ended December 31, 2003 and 2002 (Unaudited)  |  | 6   
|                                                                                                        | 
|Consolidated Statement of Stockholders Equity for the nine months ended December 31, 2003 (Unaudited)  |  | 7   
|                                                                                                        | 
|Notes to Consolidated Financial Statements (Unaudited)                                                  |  | 8   
|                                                                                                        | 
|ITEM 2  Managements Discussion and Analysis of Financial Condition and Results of Operations          |  | 12  
|                                                                                                        | 
|ITEM 3  Quantitative and Qualitative Disclosures about Market Risk                                     |  | 22  
|                                                                                                        | 
|ITEM 4  Controls and Procedures                                                                        |  | 22  
|                                                                                                        | 
|PART II  OTHER INFORMATION                                                                             |  |     
|                                                                                                        | 
|ITEM 2  Changes In Securities, Use Of Proceeds and Issuer Purchases of Equity Securities               |  | 22  
|                                                                                                        | 
|ITEM 6  Exhibits and Reports on Form 8-K                                                               |  | 22  
|                                                                                                        | 
|SIGNATURE                                                                                               |  | 23  
|                                                                                                        | 
|EXHIBIT INDEX                                                                                           |  | 24  





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##### Table of Contents

PART I  FINANCIAL INFORMATION



|ITEM 1. | Consolidated Financial Statements
|------- | ---------------------------------



GLOBAL IMAGING SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)



|                                                                                                                                                                                                          |  |                   |         |   |                |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | -------------- | - | ------- | -
|                                                                                                                                                                                                          |  | December 31, 2003 |         |   | March 31, 2003 |  
|                                                                                                                                                                                                          |  | (Unaudited)       |         |   |                |  
|ASSETS                                                                                                                                                                                                    |  |                   |         |   |                |   |         |  
|Current assets:                                                                                                                                                                                           |  |                   |         |   |                |   |         |  
|Cash and cash equivalents                                                                                                                                                                                 |  | $                 | 21,297  |   |                | $ | 11,343  |  
|Accounts receivable, net of allowance for doubtful accounts ($2,644 and $2,671 at December 31, 2003 and March 31, 2003,
respectively)                                                                     |  |                   | 77,539  |   |                |   | 74,248  |  
|Inventories                                                                                                                                                                                               |  |                   | 69,891  |   |                |   | 80,810  |  
|Deferred income taxes                                                                                                                                                                                     |  |                   | 6,036   |   |                |   | 5,749   |  
|Prepaid expenses and other current assets                                                                                                                                                                 |  |                   | 2,968   |   |                |   | 2,388   |  
|                                                                                                                                                                                                          |  |                   |         |   |                |   |         |  
|Total current assets                                                                                                                                                                                      |  |                   | 177,731 |   |                |   | 174,538 |  
|Rental equipment, net                                                                                                                                                                                     |  |                   | 16,006  |   |                |   | 12,897  |  
|Property and equipment, net                                                                                                                                                                               |  |                   | 10,582  |   |                |   | 11,364  |  
|Other assets                                                                                                                                                                                              |  |                   | 1,067   |   |                |   | 912     |  
|Related party notes receivable                                                                                                                                                                            |  |                   | 400     |   |                |   | 400     |  
|Intangible assets, net:                                                                                                                                                                                   |  |                   |         |   |                |   |         |  
|Goodwill                                                                                                                                                                                                  |  |                   | 354,742 |   |                |   | 327,948 |  
|Noncompete agreements                                                                                                                                                                                     |  |                   | 660     |   |                |   | 633     |  
|Financing fees                                                                                                                                                                                            |  |                   | 5,523   |   |                |   | 3,346   |  
|                                                                                                                                                                                                          |  |                   |         |   |                |   |         |  
|Total assets                                                                                                                                                                                              |  | $                 | 566,711 |   |                | $ | 532,038 |  
|                                                                                                                                                                                                          |  |                   |         |   |                |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                      |  |                   |         |   |                |   |         |  
|Current liabilities:                                                                                                                                                                                      |  |                   |         |   |                |   |         |  
|Accounts payable                                                                                                                                                                                          |  | $                 | 27,267  |   |                | $ | 39,916  |  
|Accrued liabilities                                                                                                                                                                                       |  |                   | 10,712  |   |                |   | 11,258  |  
|Accrued compensation and benefits                                                                                                                                                                         |  |                   | 15,919  |   |                |   | 14,945  |  
|Accrued interest                                                                                                                                                                                          |  |                   | 508     |   |                |   | 1,660   |  
|Current maturities of long-term debt                                                                                                                                                                      |  |                   | 1,528   |   |                |   | 878     |  
|Deferred revenue                                                                                                                                                                                          |  |                   | 23,714  |   |                |   | 22,617  |  
|Income taxes payable                                                                                                                                                                                      |  |                   | 10,866  |   |                |   | 5,886   |  
|                                                                                                                                                                                                          |  |                   |         |   |                |   |         |  
|Total current liabilities                                                                                                                                                                                 |  |                   | 90,514  |   |                |   | 97,160  |  
|Deferred income taxes                                                                                                                                                                                     |  |                   | 14,259  |   |                |   | 10,924  |  
|Long-term debt, less current maturities                                                                                                                                                                   |  |                   | 195,558 |   |                |   | 193,873 |  
|                                                                                                                                                                                                          |  |                   |         |   |                |   |         |  
|Total liabilities                                                                                                                                                                                         |  |                   | 300,331 |   |                |   | 301,957 |  
|Stockholders equity:                                                                                                                                                                                     |  |                   |         |   |                |   |         |  
|Preferred stock, $.01 par value:10,000,000 shares authorized: no shares issued                                                                                                                            |  |                   |        |   |                |   |        |  
|Common stock, $.01 par value:50,000,000 shares authorized: 22,733,387 and 22,247,243 shares issued and 21,847,622 and 21,264,923 shares
outstanding at December 31, 2003 and March 31, 2003, respectively |  |                   | 227     |   |                |   | 223     |  
|Common stock held in treasury, at cost: 885,765 and 982,320 shares at December 31, 2003 and March 31, 2003, respectively                                                                                  |  |                   | (7,785  | ) |                |   | (8,638  | )
|Additional paid-in capital                                                                                                                                                                                |  |                   | 143,883 |   |                |   | 136,355 |  
|Retained earnings                                                                                                                                                                                         |  |                   | 131,450 |   |                |   | 103,934 |  
|Unearned stock-based compensation                                                                                                                                                                         |  |                   | (1,217  | ) |                |   | (1,570  | )
|Accumulated other comprehensive loss                                                                                                                                                                      |  |                   | (178    | ) |                |   | (223    | )
|                                                                                                                                                                                                          |  |                   |         |   |                |   |         |  
|Total stockholders equity                                                                                                                                                                                |  |                   | 266,380 |   |                |   | 230,081 |  
|                                                                                                                                                                                                          |  |                   |         |   |                |   |         |  
|Total liabilities and stockholders equity                                                                                                                                                                |  | $                 | 566,711 |   |                | $ | 532,038 |  
|                                                                                                                                                                                                          |  |                   |         |   |                |   |         |  



See accompanying notes.



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GLOBAL IMAGING SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



|                                               |  |                                 |         |      |   |        
|---------------------------------------------- |  | ------------------------------- | ------- | ---- | - | -------
|                                               |  | Three Months Ended December 31,
|                                               |  | 2003                            |         | 2002
|Revenues:                                      |  |                                 |         |      |   |        
|Equipment and supplies sales                   |  | $                               | 140,534 |      | $ | 125,496
|Service and rentals                            |  |                                 | 46,950  |      |   | 43,680 
|                                               |  |                                 |         |      |   |        
|Total revenues                                 |  |                                 | 187,484 |      |   | 169,176
|Costs and operating expenses:                  |  |                                 |         |      |   |        
|Cost of equipment and supplies sales           |  |                                 | 91,143  |      |   | 80,860 
|Service and rental costs                       |  |                                 | 24,587  |      |   | 22,557 
|Selling, general and administrative expenses   |  |                                 | 49,717  |      |   | 46,224 
|Intangible asset amortization                  |  |                                 | 125     |      |   | 143    
|                                               |  |                                 |         |      |   |        
|Total costs and operating expenses             |  |                                 | 165,572 |      |   | 149,784
|                                               |  |                                 |         |      |   |        
|Income from operations                         |  |                                 | 21,912  |      |   | 19,392 
|Interest expense                               |  |                                 | 2,572   |      |   | 4,517  
|                                               |  |                                 |         |      |   |        
|Income before income taxes                     |  |                                 | 19,340  |      |   | 14,875 
|Income taxes                                   |  |                                 | 7,504   |      |   | 5,964  
|                                               |  |                                 |         |      |   |        
|Net income                                     |  | $                               | 11,836  |      | $ | 8,911  
|                                               |  |                                 |         |      |   |        
|Net income per common share:                   |  |                                 |         |      |   |        
|Basic                                          |  | $                               | .55     |      | $ | .42    
|                                               |  |                                 |         |      |   |        
|Diluted                                        |  | $                               | .50     |      | $ | .41    
|                                               |  |                                 |         |      |   |        
|Weighted average number of shares outstanding: |  |                                 |         |      |   |        
|Basic                                          |  |                                 | 21,715  |      |   | 21,236 
|Diluted                                        |  |                                 | 24,715  |      |   | 21,833 



See accompanying notes.



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GLOBAL IMAGING SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



|                                               |  |                                |         |      |   |        
|---------------------------------------------- |  | ------------------------------ | ------- | ---- | - | -------
|                                               |  | Nine Months Ended December 31,
|                                               |  | 2003                           |         | 2002
|Revenues:                                      |  |                                |         |      |   |        
|Equipment and supplies sales                   |  | $                              | 419,386 |      | $ | 369,343
|Service and rentals                            |  |                                | 137,337 |      |   | 126,905
|                                               |  |                                |         |      |   |        
|Total revenues                                 |  |                                | 556,723 |      |   | 496,248
|Costs and operating expenses:                  |  |                                |         |      |   |        
|Cost of equipment and supplies sales           |  |                                | 274,604 |      |   | 241,038
|Service and rental costs                       |  |                                | 71,125  |      |   | 64,010 
|Selling, general and administrative expenses   |  |                                | 147,556 |      |   | 134,356
|Intangible asset amortization                  |  |                                | 408     |      |   | 493    
|                                               |  |                                |         |      |   |        
|Total costs and operating expenses             |  |                                | 493,693 |      |   | 439,897
|                                               |  |                                |         |      |   |        
|Income from operations                         |  |                                | 63,030  |      |   | 56,351 
|Loss on early extinguishment of debt           |  |                                | 8,433   |      |   |       
|Interest expense                               |  |                                | 9,359   |      |   | 14,457 
|                                               |  |                                |         |      |   |        
|Income before income taxes                     |  |                                | 45,238  |      |   | 41,894 
|Income taxes                                   |  |                                | 17,722  |      |   | 16,799 
|                                               |  |                                |         |      |   |        
|Net income                                     |  | $                              | 27,516  |      | $ | 25,095 
|                                               |  |                                |         |      |   |        
|Net income per common share:                   |  |                                |         |      |   |        
|Basic                                          |  | $                              | 1.28    |      | $ | 1.19   
|                                               |  |                                |         |      |   |        
|Diluted                                        |  | $                              | 1.19    |      | $ | 1.16   
|                                               |  |                                |         |      |   |        
|Weighted average number of shares outstanding: |  |                                |         |      |   |        
|Basic                                          |  |                                | 21,498  |      |   | 21,084 
|Diluted                                        |  |                                | 24,019  |      |   | 21,693 



See accompanying notes.



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GLOBAL IMAGING SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(IN THOUSANDS)



|                                                                                                        |  |                                |          |   |      |   |         |  
|------------------------------------------------------------------------------------------------------- |  | ------------------------------ | -------- | - | ---- | - | ------- | -
|                                                                                                        |  | Nine Months Ended December 31, |         
|                                                                                                        |  | 2003                           |          |   | 2002 |  
|OPERATING ACTIVITIES:                                                                                   |  |                                |          |   |      |   |         |  
|Net income                                                                                              |  | $                              | 27,516   |   |      | $ | 25,095  |  
|Adjustments to reconcile net income to net cash provided by operating activities:                       |  |                                |          |   |      |   |         |  
|Depreciation                                                                                            |  |                                | 11,189   |   |      |   | 10,348  |  
|Amortization                                                                                            |  |                                | 408      |   |      |   | 493     |  
|Amortization of financing fees                                                                          |  |                                | 916      |   |      |   | 914     |  
|Non-cash portion of loss on early extinguishment of debt                                                |  |                                | 3,058    |   |      |   |        |  
|Deferred income tax expense                                                                             |  |                                | 3,047    |   |      |   | 2,369   |  
|Unearned stock-based compensation expense                                                               |  |                                | 353      |   |      |   | 260     |  
|Changes in operating assets and liabilities, net of amounts acquired in purchase business combinations: |  |                                |          |   |      |   |         |  
|Accounts receivable                                                                                     |  |                                | (790     | ) |      |   | (1,195  | )
|Inventories                                                                                             |  |                                | 12,632   |   |      |   | (13,790 | )
|Prepaid expenses and other current assets                                                               |  |                                | (530     | ) |      |   | 1,328   |  
|Other assets                                                                                            |  |                                | (139     | ) |      |   | 457     |  
|Accounts payable                                                                                        |  |                                | (14,282  | ) |      |   | 6,178   |  
|Accrued liabilities, compensation and benefits and interest                                             |  |                                | (1,547   | ) |      |   | 4,671   |  
|Deferred revenue                                                                                        |  |                                | (795     | ) |      |   | (833    | )
|Income taxes payable                                                                                    |  |                                | 4,929    |   |      |   | 2,719   |  
|                                                                                                        |  |                                |          |   |      |   |         |  
|Net cash provided by operating activities                                                               |  |                                | 45,965   |   |      |   | 39,014  |  
|INVESTING ACTIVITIES:                                                                                   |  |                                |          |   |      |   |         |  
|Purchase of property, equipment and rental equipment                                                    |  |                                | (13,148  | ) |      |   | (8,273  | )
|Payment for purchase of businesses, net of cash acquired                                                |  |                                | (24,818  | ) |      |   | (28,246 | )
|                                                                                                        |  |                                |          |   |      |   |         |  
|Net cash used in investing activities                                                                   |  |                                | (37,966  | ) |      |   | (36,519 | )
|FINANCING ACTIVITIES:                                                                                   |  |                                |          |   |      |   |         |  
|Net (payments) borrowings on revolving line of credit                                                   |  |                                | (26,558  | ) |      |   | 6,255   |  
|Net payments on other long-term debt                                                                    |  |                                | (68,607  | ) |      |   | (562    | )
|Proceeds from issuance of long-term debt                                                                |  |                                | 140,000  |   |      |   |        |  
|Redemption and retirement of notes                                                                      |  |                                | (100,000 | ) |      |   |        |  
|Issuance of convertible notes                                                                           |  |                                | 57,500   |   |      |   |        |  
|Financing fees paid                                                                                     |  |                                | (6,151   | ) |      |   | (163    | )
|Stock options exercised                                                                                 |  |                                | 5,771    |   |      |   | 762     |  
|                                                                                                        |  |                                |          |   |      |   |         |  
|Net cash provided by financing activities                                                               |  |                                | 1,955    |   |      |   | 6,292   |  
|                                                                                                        |  |                                |          |   |      |   |         |  
|Net increase in cash and cash equivalents                                                               |  |                                | 9,954    |   |      |   | 8,787   |  
|Cash and cash equivalents, beginning of period                                                          |  |                                | 11,343   |   |      |   |        |  
|                                                                                                        |  |                                |          |   |      |   |         |  
|Cash and cash equivalents, end of period                                                                |  | $                              | 21,297   |   |      | $ | 8,787   |  
|                                                                                                        |  |                                |          |   |      |   |         |  
|Supplemental disclosure of non-cash financing activities:                                               |  |                                |          |   |      |   |         |  
|Issuance of restricted stock                                                                            |  | $                              |         |   |      | $ | 1,947   |  
|                                                                                                        |  |                                |          |   |      |   |         |  



See accompanying notes.



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GLOBAL IMAGING SYSTEMS, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (Unaudited)

(IN THOUSANDS, EXCEPT FOR
SHARE AMOUNTS)



|                                                       |  |                 |  |           |     |                          |   |                            |  |                   |         |                                 |   |                                   |  |       |         |  |   |       |  |   |        
|------------------------------------------------------ |  | --------------- |  | --------- | --- | ------------------------ | - | -------------------------- |  | ----------------- | ------- | ------------------------------- | - | --------------------------------- |  | ----- | ------- |  | - | ----- |  | - | -------
|                                                       |  | Common Stock    |  |           |     |                          |   |                            |  |                   |         |                                
|                                                       |  | Number ofShares |  | Par Value |     | Held inTreasury, at Cost |   | Additional Paid-in Capital |  | Retained Earnings |         | UnearnedStock-basedCompensation |   | AccumulatedOtherComprehensiveLoss |  | Total
|Balances at March 31, 2003                             |  | 21,264,923      |  | $         | 223 |                          | $ | (8,638)                    |  | $                 | 136,355 |                                 | $ | 103,934                           |  | $     | (1,570) |  | $ | (223) |  | $ | 230,081
|Comprehensive income:                                  |  |                 |  |           |     |                          |   |                            |  |                   |         |                                 |   |                                   |  |       |         |  |   |       |  |   |        
|Net income                                             |  |                |  |           |    |                          |   |                           |  |                   |        |                                 |   | 27,516                            |  |       |        |  |   |      |  |   | 27,516 
|Unrealized gain on derivative instrument               |  |                |  |           |    |                          |   |                           |  |                   |        |                                 |   |                                  |  |       |        |  |   | 45    |  |   | 45     
|                                                       |  |                 |  |           |     |                          |   |                            |  |                   |         |                                 |   |                                   |  |       |         |  |   |       |  |   |        
|Total comprehensive income                             |  |                 |  |           |     |                          |   |                            |  |                   |         |                                 |   |                                   |  |       |         |  |   |       |  |   | 27,561 
|Stock options exercised                                |  | 486,144         |  |           | 4   |                          |   |                           |  |                   | 5,767   |                                 |   |                                  |  |       |        |  |   |      |  |   | 5,771  
|Treasury stock issued in conjunction with acquisitions |  | 96,555          |  |           |    |                          |   | 853                        |  |                   | 1,761   |                                 |   |                                  |  |       |        |  |   |      |  |   | 2,614  
|Amortization of unearned stock-based compensation      |  |                |  |           |    |                          |   |                           |  |                   |        |                                 |   |                                  |  |       | 353     |  |   |      |  |   | 353    
|                                                       |  |                 |  |           |     |                          |   |                            |  |                   |         |                                 |   |                                   |  |       |         |  |   |       |  |   |        
|Balances at December 31, 2003                          |  | 21,847,622      |  | $         | 227 |                          | $ | (7,785)                    |  | $                 | 143,883 |                                 | $ | 131,450                           |  | $     | (1,217) |  | $ | (178) |  | $ | 266,380
|                                                       |  |                 |  |           |     |                          |   |                            |  |                   |         |                                 |   |                                   |  |       |         |  |   |       |  |   |        



See accompanying notes.



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GLOBAL IMAGING SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE AMOUNTS)



NOTE 1. BASIS OF PRESENTATION



The accompanying consolidated balance sheet as of December
31, 2003, consolidated statements of operations for the three and nine months ended December 31, 2003 and 2002, consolidated statements of cash flows for the nine months ended December 31, 2003 and 2002, and the consolidated statement of
stockholders equity for the nine months ended December 31, 2003 are unaudited. In the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of operations for the
interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results which may be expected for the entire fiscal year. The consolidated financial statements should be
read in conjunction with the consolidated financial statements and the notes thereto included in Global Imaging Systems, Inc.s (together with its subsidiaries, Global or the Company) Annual Report for the year ended
March 31, 2003. Certain prior year amounts have been reclassified to conform to the current year presentation.



NOTE 2. STOCK OPTION PLANS



In 1998, the Board of Directors adopted a stock option plan under which, as amended to date, 3,320,000 shares of our common stock may be issued pursuant
to stock options granted or sold as restricted stock to directors, officers, and employees of and consultants to the Company. As of December 31, 2003, options to purchase 1,887,802 shares of our common stock were outstanding under the 1998 stock
option plan, and 542,823 shares of our common stock have been issued under the 1998 plan upon the exercise of stock options granted under the plan. Additionally, as of December 31, 2003, we have issued 102,500 shares of restricted stock under the
1998 plan and have issued no additional restricted shares during the nine months ended December 31, 2003. During the nine months ended December 31, 2003, options to purchase an aggregate of 308,000 shares were granted under the 1998 stock option
plan with exercise prices ranging from $18.55 to $29.31 per share.



On January 25, 2001, the Board of Directors adopted the Global Imaging Systems, Inc. 2001 Stock Option Plan under which we may grant options to purchase up to 300,000 shares of our common stock to employees of and service providers to
Global, except for our executive officers and directors. Stock options granted under the 2001 stock option plan have the same terms as those granted under the 1998 plan. As of December 31, 2003, options to purchase 201,160 shares were outstanding
under the 2001 stock option plan, and 75,440 shares of our common stock have been issued under the 2001 plan upon the exercise of stock options granted under the plan. During the nine months ended December 31, 2003, no options were granted under the
2001 stock option plan.



In addition to options outstanding
under our stock option plans, 10,000 shares of our common stock are issuable upon the exercise of an option granted outside of our 1998 or 2001 stock option plans. This option is exercisable at a price of $12.00 per share.



We have adopted the disclosure provisions of Statement of Financial
Accounting Standards (SFAS) No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure  an amendment of FASB Statement No. 123. SFAS No. 148 allows for continued use of recognition and measurement principles of
Accounting Principles Board (APB) Opinion No. 25 and related interpretations in accounting for grants to directors, officers and employees under plans. We apply the intrinsic value recognition and measurement principles of APB Opinion No. 25 and
related interpretations in accounting for those grants. No stock-based employee compensation expense is reflected in net income related to our stock option grants as all options



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granted under those plans had an exercise price equal to the fair value of the underlying common stock on the date of grant.



The following table illustrates the effect on net income and earnings per
share if we had applied the fair value recognition provisions to stock-based employee compensation. Such disclosure is not necessarily indicative of the fair value of stock options that could be granted by us in future fiscal years or of the value
of all options currently outstanding.



|                                                                                                                                            |  |                                     |        |   |                                    |   |       |      |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------- | ------ | - | ---------------------------------- | - | ----- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                                                            |  | For Three Months Ended December 31, |        |   | For Nine Months Ended December 31, |  
|                                                                                                                                            |  | 2003                                |        |   | 2002                               |   |       | 2003 |  |   | 2002   |  
|Net income, as reported                                                                                                                     |  | $                                   | 11,836 |   |                                    | $ | 8,911 |      |  | $ | 27,516 |   |  | $ | 25,095 |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                     | (651   | ) |                                    |   | (687  | )    |  |   | (1,987 | ) |  |   | (1,759 | )
|                                                                                                                                            |  |                                     |        |   |                                    |   |       |      |  |   |        |   |  |   |        |  
|Pro forma net income                                                                                                                        |  | $                                   | 11,185 |   |                                    | $ | 8,224 |      |  | $ | 25,529 |   |  | $ | 23,336 |  
|                                                                                                                                            |  |                                     |        |   |                                    |   |       |      |  |   |        |   |  |   |        |  
|Earnings per share:                                                                                                                         |  |                                     |        |   |                                    |   |       |      |  |   |        |   |  |   |        |  
|Basic  as reported                                                                                                                         |  | $                                   | .55    |   |                                    | $ | .42   |      |  | $ | 1.28   |   |  | $ | 1.19   |  
|                                                                                                                                            |  |                                     |        |   |                                    |   |       |      |  |   |        |   |  |   |        |  
|Basic  pro forma                                                                                                                           |  | $                                   | .52    |   |                                    | $ | .39   |      |  | $ | 1.19   |   |  | $ | 1.11   |  
|                                                                                                                                            |  |                                     |        |   |                                    |   |       |      |  |   |        |   |  |   |        |  
|Diluted  as reported                                                                                                                       |  | $                                   | .50    |   |                                    | $ | .41   |      |  | $ | 1.19   |   |  | $ | 1.16   |  
|                                                                                                                                            |  |                                     |        |   |                                    |   |       |      |  |   |        |   |  |   |        |  
|Diluted  pro forma                                                                                                                         |  | $                                   | .47    |   |                                    | $ | .38   |      |  | $ | 1.11   |   |  | $ | 1.08   |  
|                                                                                                                                            |  |                                     |        |   |                                    |   |       |      |  |   |        |   |  |   |        |  



NOTE
3. EARNINGS PER SHARE



Basic earnings per share is computed by
dividing net income by the weighted average number of shares outstanding for the period. Diluted earnings per share reflects the potential dilution from the exercise of stock options, as well as the conversion of convertible notes into common stock.



The following table reconciles the numerators and denominators
of the basic and diluted earnings per share computations (shares in thousands):



|                                           |  |                                     |        |                                    |   |        |  |      |        |  |   |       
|------------------------------------------ |  | ----------------------------------- | ------ | ---------------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                                           |  | For Three Months Ended December 31, |        | For Nine Months Ended December 31,
|                                           |  | 2003                                |        | 2002                               |   | 2003   |  | 2002
|Numerator:                                 |  |                                     |        |                                    |   |        |  |      |        |  |   |       
|Numerator for basic earnings per share     |  | $                                   | 11,836 |                                    | $ | 8,911  |  | $    | 27,516 |  | $ | 25,095
|Effect of dilutive securities:             |  |                                     |        |                                    |   |        |  |      |        |  |   |       
|4% convertible notes                       |  |                                     | 439    |                                    |   |       |  |      | 1,085  |  |   |      
|                                           |  |                                     |        |                                    |   |        |  |      |        |  |   |       
|Numerator for diluted earnings per share   |  | $                                   | 12,275 |                                    | $ | 8,911  |  | $    | 28,601 |  | $ | 25,095
|                                           |  |                                     |        |                                    |   |        |  |      |        |  |   |       
|Denominator:                               |  |                                     |        |                                    |   |        |  |      |        |  |   |       
|Denominator for basic earnings per share   |  |                                     | 21,715 |                                    |   | 21,236 |  |      | 21,498 |  |   | 21,084
|Effect of dilutive securities:             |  |                                     |        |                                    |   |        |  |      |        |  |   |       
|4% convertible notes                       |  |                                     | 2,407  |                                    |   |       |  |      | 2,004  |  |   |      
|Employee stock options                     |  |                                     | 593    |                                    |   | 597    |  |      | 517    |  |   | 609   
|                                           |  |                                     |        |                                    |   |        |  |      |        |  |   |       
|Denominator for diluted earnings per share |  |                                     | 24,715 |                                    |   | 21,833 |  |      | 24,019 |  |   | 21,693
|                                           |  |                                     |        |                                    |   |        |  |      |        |  |   |       



NOTE
4. ACQUISITIONS



During the nine months ended December 31,
2003, we acquired four businesses that provide office-imaging solutions and related services. Aggregate consideration, net of cash acquired, for these acquisitions was approximately $27,574, consisting of cash, 96,555 shares of our common stock



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(valued at $2,614, based on the fair value of the stock) and acquisition related expenses. Liabilities assumed in connection with these acquisitions totaled
approximately $4,211. Fair value of total assets acquired in these acquisitions consisted of approximately $6,764 of tangible assets and approximately $27,096 of goodwill and other intangible assets. These acquisitions were accounted for using the
purchase method of accounting and, accordingly, are included in the results of operations from the date of acquisition.



Under the terms of one of our acquisition agreements entered into during the nine months ended December 31, 2003, we committed to make a contingent
payment of up to $500 in cash to the former owners of the acquired company on or before February 28, 2005. These contingent payments are based on the future profitability, specifically earnings before interest and taxes, of the acquired company.



The unaudited pro forma results presented below include the
effects of our acquisitions for fiscal years 2004 and 2003 as if they had been consummated as of April 1, 2002. The unaudited pro forma financial information below is not necessarily indicative of either future results of operations or results that
might have been achieved had the acquisitions been consummated at the beginning of the year prior to acquisition.



|                             |  |                                                    |         |      |   |        
|---------------------------- |  | -------------------------------------------------- | ------- | ---- | - | -------
|                             |  | Unaudited Pro Forma Nine Months Ended December 31,
|                             |  | 2003                                               |         | 2002
|Revenues                     |  | $                                                  | 572,959 |      | $ | 536,671
|Net income                   |  | $                                                  | 28,012  |      | $ | 26,185 
|                             |  |                                                    |         |      |   |        
|Net income per common share: |  |                                                    |         |      |   |        
|Basic                        |  | $                                                  | 1.30    |      | $ | 1.23   
|Diluted                      |  | $                                                  | 1.21    |      | $ | 1.20   



NOTE
5. COMPREHENSIVE INCOME



The following table presents a
reconciliation of comprehensive income, comprised of net income and the unrealized gain (loss) on cash flow hedges.



|                                                       |  |                                 |        |      |                                |       |      |  |      |        |  |   |       
|------------------------------------------------------ |  | ------------------------------- | ------ | ---- | ------------------------------ | ----- | ---- |  | ---- | ------ |  | - | ------
|                                                       |  | Three Months Ended December 31, |        |      | Nine Months Ended December 31,
|                                                       |  | 2003                            |        | 2002 |                                |       | 2003 |  | 2002
|Net income                                             |  | $                               | 11,836 |      | $                              | 8,911 |      |  | $    | 27,516 |  | $ | 25,095
|Unrealized gain (loss) on cash flow hedges, net of tax |  |                                 | 88     |      |                                | (160  | )    |  |      | 45     |  |   | 695   
|                                                       |  |                                 |        |      |                                |       |      |  |      |        |  |   |       
|Total comprehensive income                             |  | $                               | 11,924 |      | $                              | 8,751 |      |  | $    | 27,561 |  | $ | 25,790
|                                                       |  |                                 |        |      |                                |       |      |  |      |        |  |   |       



NOTE
6. DERIVATIVES



We enter into interest rate caps and swap
agreements to hedge the fluctuations in variable interest rates and do not use derivative instruments for speculative purposes. Effective November 12, 2002, we entered into a three-year swap agreement. This agreement effectively converted $20,000 of
our variable-rate debt to fixed-rate debt, reducing the exposure to changes in interest rates. Under this swap agreement, we received an average variable rate of 1.2% and paid an average fixed rate of 2.7% for the period from March 31, 2003 to
December 31, 2003. We have recognized a gain, net of tax, of approximately $45 for the nine month period ended December 31, 2003 related to the change in the fair value of the interest rate swap, which has been recorded in comprehensive income.



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Effective September 11, 2003, we entered into three interest rate cap agreements (caps) in the notional
amounts of $20,000 each. These caps are not designated as a hedging instrument and as such are recorded on the balance sheet at fair value, with changes in the fair value of the caps being recorded in the consolidated statement of operations as
interest expense during the period of change. The change in the caps fair value resulted in our recognizing interest expense of $116, before tax, for the nine month period ended December 31, 2003. The caps limit our interest rate risk exposure to 4%
for the related notional amounts. No payments have been received under the caps, which expire September 2005.



NOTE 7. RECENT ACCOUNTING PRONOUNCEMENTS



In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51. Interpretation No. 46, which was revised in December 2003, addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. Interpretation No. 46 is effective for
interests in structures that are commonly referred to as special-purpose entities for periods ending after December 15, 2003. Interpretation No. 46 is also effective for all other types of variable interest entities for periods ending after March
15, 2004. We do not currently have any interests that would change any of the entities currently included in our consolidation or require additional disclosures required by Interpretation No. 46.



NOTE 8. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION



Effective May 16, 2003, we have issued $57,500 of 4%
convertible senior subordinated notes that are fully and unconditionally guaranteed on a joint and several basis by all our existing subsidiaries (the Guarantors), each of which we wholly own, directly or indirectly. We are a holding company and all
of our operations are conducted by the Guarantors, we have no operations or assets separate from our investment in our subsidiaries.



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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

| | (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
| | -----------------------------------------------



The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and related notes included
elsewhere in this Report on Form 10-Q and our Annual Report for the year ended March 31, 2003. The discussion in this section contains forward-looking statements, including statements relating to the pace of our future acquisitions and overall
growth, the benefits that will be realized by businesses we have acquired or may acquire, our future product and service offerings, pace of borrowings and future cash flows. These forward-looking statements are based largely on managements
current expectations and projections about future events and financial trends affecting the financial condition of our business. These forward-looking statements are subject to risks, uncertainties and assumptions, which could cause our actual
results to differ materially from the results suggested by these forward-looking statements. Some factors that may cause our results to differ materially from these statements are:



| |  | the departure of one or more of our executive officers or a substantial number of our core company presidents could disrupt our operations, divert the attention of our management,
or otherwise adversely affect our revenues.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the highly competitive nature of the markets we serve may result in changes in our competitive climate, which could require us to lower prices and therefore would reduce our
revenues with no corresponding reduction in cost.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | our significant debt service obligations may exacerbate the affect on our cash flow if downturns in economic and business conditions hinder our ability to adjust to rapidly changing
market conditions.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | covenants in our new senior credit facility impose operating and financial restrictions that limit our discretion on some business matters, which may affect our future financing
plans or our ability to enter into certain types of strategic transactions.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | our dependence on our vendor relationships, the availability of products and our lease financing partners.
| | - | ----------------------------------------------------------------------------------------------------------



| |  | some or all of our substantial amount of goodwill may become impaired, which would adversely affect our operating results.
| | - | --------------------------------------------------------------------------------------------------------------------------



| |  | fewer than expected acquisition opportunities could slow our growth.
| | - | --------------------------------------------------------------------



| |  | recognition of unanticipated costs and delays associated with ongoing integration efforts.
| | - | ------------------------------------------------------------------------------------------



| |  | increases in borrowing rates and costs which could limit our acquisitions, cause us to reduce our pace of acquisitions or growth, or accelerate the time in which we need to obtain
new financing.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | technological developments that may reduce demand for the products and services we sell or result in us facing increased competition to sell those products and services.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Information regarding many of these factors and
other factors that may cause our actual results to differ materially from those contained in the forward-looking statements is presented in the Risk Factors section of our Annual Report on Form 10-K for the year ended March 31, 2003. We
undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.



Overview



We are a leading provider of office technology solutions to middle-market businesses in the United States. We sell and provide contract services for
automated office equipment, including



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copiers, facsimile machines and printers, network integration solutions and electronic presentation systems. We believe that the markets for our products and
services are converging as technology advancements and innovation produce increases in automated office equipment functionality and networking capabilities. We offer solutions incorporating products from Konica, Canon, Ricoh, Sharp, Hewlett-Packard,
IBM, Microsoft, InFocus, Sony and other leading companies from a network of 149 locations in 28 states and the District of Columbia. The contractual nature of our service and supply business, tailored lease financing programs, high level of repeat
equipment purchases and our emphasis on superior customer service generate stable and recurring revenue streams. Since our founding in June 1994, we have acquired more than 60 businesses, all within the United States, which we have organized as a
network of 16 core companies with corresponding satellite businesses. We believe the businesses we have acquired and the businesses we acquire in the future will benefit from our various programs and operating strategies. These benefits include
increased operating efficiencies, the support of experienced and professional senior management, expansion of the types of office imaging products and services offered, increased access to capital and enhanced financial management.



Our revenues come from two sources: sales of equipment and related supplies;
and sales of complementary services and equipment rentals. The growth of our revenues depends on the demand for the equipment we offer, our reputation for providing timely and reliable service, our competitors actions in the marketplace and
general economic conditions. Sales of complementary supplies, parts and services are affected by equipment sales and rental volumes. Most of our service revenue is generated by contractual arrangements to service automated office equipment.



Our gross profit as a percentage of revenues varies from
period to period depending on a number of variables including the mix of revenues from equipment, supplies, service and rentals; the mix of revenues among the markets served by us; and the mix of revenues of the businesses acquired by us. As we
acquire businesses, the percentage of our revenues that come from sales of equipment and supplies, as opposed to service and rentals, fluctuates depending on whether the businesses acquired are primarily automated office equipment dealers or are
network integrators or electronic presentation systems dealers. Automated office equipment dealers typically derive a higher percentage of their revenues from service and rentals and a lower percentage from sales of equipment and supplies than do
network integrators or electronic presentation system dealers. Generally, sales of equipment and supplies have lower gross profit margins than revenues from service and rentals. In addition, equipment sales in the automated office equipment market
generally have higher gross profit margins than equipment sales in the network integration or electronic presentation systems markets. To the extent these markets grow faster than the automated office equipment market, over time a larger percentage
of our revenues and gross profits may be derived from sales that have lower gross profit margins than our current gross profit margins.



Cost of goods sold consists primarily of the cost of new equipment, cost of supplies and parts, labor costs to provide services, rental equipment
depreciation and other direct operating costs. We depreciate our rental equipment primarily over a three-year period on a straight-line basis.



Critical Accounting Policies and Estimates



Managements discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosures. On an ongoing basis, we evaluate these estimates, including those related to accounts receivable, inventories, vendor incentives, intangible assets and contingencies. Our estimates and
judgments are based on currently available



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information, historical results and other assumptions we believe to be reasonable. Actual results could differ materially from these estimates. We believe
the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements.



Accounts Receivable



We maintain allowances for doubtful accounts for estimated losses arising from the inability of our customers to make required payments. We evaluate the
need for adjustments to our allowance for doubtful accounts at least quarterly. Our estimate of losses is based upon prior collection experience, a review of specific customers and their ability to pay, and an overall appraisal of current economic
conditions. If the financial condition of our customers were to deteriorate, resulting in a reduced ability to make payments, additional allowances may be required which would reduce net income.



Inventories



Inventories are valued at the lower of cost or market value. For equipment, cost equals either the average cost of inventory
or, in the case of some specifically identified equipment inventory, the actual cost of that equipment inventory. For related parts and supplies, cost equals the average cost of inventory. We evaluate the need for adjustments to our reserve for
excess and slow-moving inventory at least quarterly. We write-down our inventories for estimated obsolescence by an amount equal to the difference between the cost of the inventories and their estimated market values based upon an aging analysis of
the inventories on hand, specifically known inventory-related risks and assumptions about future demand and market conditions. These write-downs are reflected in our cost of sales. If actual market conditions are less favorable than those projected
by management, additional write-downs may be required which could have an adverse effect on our financial results.



Vendor Incentives



We receive incentives from some of our vendors related to volume rebates, cooperative advertising allowances and other programs or agreements. These
incentive programs are generally for quarterly periods and do not vary significantly from quarter to quarter. There are a limited number of annual volume rebate programs offered periodically by some of our vendors. The potential rebate amounts
offered by these annual programs is significantly less than the quarterly rebate programs. We do not record any volume rebate until it is probable that it will be earned and the amount can be reasonably estimated. We record unrestricted volume
rebates received as a reduction of inventories and recognize the incentives as a reduction to cost of sales when the related inventories are sold. Cooperative advertising allowances are generally required by the vendor to be used by us exclusively
for advertising or other marketing programs. These restricted cooperative advertising allowances are recognized as a reduction to selling, general and administrative expenses as the related marketing expenses are incurred. Amounts received or
receivable from vendors that are not yet earned are deferred in the consolidated balance sheets. In addition, we receive early payment discounts from certain vendors. We record early payment discounts received as a reduction of inventories and
recognize the discount as a reduction to cost of sales when the related inventories are sold.



Intangible Assets



As a
result of our acquisition activity, we carry a substantial amount of goodwill, which is the excess of the cost of our acquired businesses over the fair value of the acquired net assets. We examine the carrying value of our goodwill and our other
intangible assets as current events and circumstances warrant to determine whether there are any impairment losses. For goodwill, we test the



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recorded amount on the first day of the fourth quarter of our fiscal year, or more frequently if conditions change, by comparing the recorded value to
estimated fair value. If indicators of impairment were present relating to other intangible assets and future cash flows were not expected to be sufficient to recover the assets carrying amount, an impairment loss would be charged to expense
in the period identified. To date, we have not recognized any impairment loss in the value of goodwill or other intangible assets recorded in our consolidated financial statements.



Contingencies



We accrue amounts for contingent obligations, including estimated legal costs, when the obligations are probable and the amounts are reasonably estimable.
As facts concerning contingencies become known, we reassess our position and make appropriate adjustments to the consolidated financial statements. Estimates that are particularly sensitive to future charges include tax, legal and other regulatory
matters which are subject to change as events evolve and as additional information becomes available during the administrative and litigation process.



RESULTS OF OPERATIONS



The following table sets forth our total revenues, revenues by type and our estimated internal growth rates for all revenues during the periods indicated.
We calculate the internal growth rate for each period by comparing total revenues earned by businesses that were part of our company during the entire subject period and the entire corresponding period in the prior year to the total revenues earned
by those same businesses during the corresponding period in the prior year when the businesses were also part of our company. The internal growth rates provided are our best estimates of changes in total revenues that are not the result of business
acquisitions during a particular period.



|                                             |  |                                 |         |                                |   |         |  |      |         |  |   |        
|-------------------------------------------- |  | ------------------------------- | ------- | ------------------------------ | - | ------- |  | ---- | ------- |  | - | -------
|                                             |  | Three Months Ended December 31, |         | Nine Months Ended December 31,
|                                             |  | 2003                            |         | 2002                           |   | 2003    |  | 2002
|Revenues:                                    |  |                                 |         |                                |   |         |  |      |         |  |   |        
|Equipment revenues                           |  | $                               | 117,562 |                                | $ | 103,761 |  | $    | 350,875 |  | $ | 306,290
|Supplies revenues                            |  |                                 | 22,972  |                                |   | 21,735  |  |      | 68,511  |  |   | 63,053 
|                                             |  |                                 |         |                                |   |         |  |      |         |  |   |        
|Equipment and supplies revenues              |  |                                 | 140,534 |                                |   | 125,496 |  |      | 419,386 |  |   | 369,343
|                                             |  |                                 |         |                                |   |         |  |      |         |  |   |        
|Service revenues                             |  |                                 | 43,073  |                                |   | 40,135  |  |      | 126,118 |  |   | 116,410
|Rental revenues                              |  |                                 | 3,877   |                                |   | 3,545   |  |      | 11,219  |  |   | 10,495 
|                                             |  |                                 |         |                                |   |         |  |      |         |  |   |        
|Service and rental revenues                  |  |                                 | 46,950  |                                |   | 43,680  |  |      | 137,337 |  |   | 126,905
|                                             |  |                                 |         |                                |   |         |  |      |         |  |   |        
|Total revenues                               |  | $                               | 187,484 |                                | $ | 169,176 |  | $    | 556,723 |  | $ | 496,248
|                                             |  |                                 |         |                                |   |         |  |      |         |  |   |        
|Estimated internal growth rates for revenues |  |                                 | 7.5%    |                                |   | 2.1%    |  |      | 7.5%    |  |   | (0.7%) 



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The following table sets forth our gross profit by revenue type and gross profit by revenue type as a
percentage of revenue during the periods indicated:



|                                                         |  |                                 |        |                                |   |        |  |      |         |  |   |        
|-------------------------------------------------------- |  | ------------------------------- | ------ | ------------------------------ | - | ------ |  | ---- | ------- |  | - | -------
|                                                         |  | Three Months Ended December 31, |        | Nine Months Ended December 31,
|                                                         |  | 2003                            |        | 2002                           |   | 2003   |  | 2002
|Gross profit by revenue type:                            |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Equipment                                                |  | $                               | 37,693 |                                | $ | 33,787 |  | $    | 110,219 |  | $ | 96,884 
|Supplies                                                 |  |                                 | 11,698 |                                |   | 10,849 |  |      | 34,563  |  |   | 31,421 
|Service                                                  |  |                                 | 20,991 |                                |   | 19,714 |  |      | 62,433  |  |   | 58,719 
|Rental                                                   |  |                                 | 1,372  |                                |   | 1,409  |  |      | 3,779   |  |   | 4,176  
|                                                         |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Total gross profit                                       |  | $                               | 71,754 |                                | $ | 65,759 |  | $    | 210,994 |  | $ | 191,200
|                                                         |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Gross profit by revenue type as a percentage of revenue: |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Equipment                                                |  |                                 | 32.1%  |                                |   | 32.6%  |  |      | 31.4%   |  |   | 31.6%  
|Supplies                                                 |  |                                 | 50.9%  |                                |   | 49.9%  |  |      | 50.4%   |  |   | 49.8%  
|Service                                                  |  |                                 | 48.7%  |                                |   | 49.1%  |  |      | 49.5%   |  |   | 50.4%  
|Rental                                                   |  |                                 | 35.4%  |                                |   | 39.7%  |  |      | 33.7%   |  |   | 39.8%  
|                                                         |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Total gross profit as a percentage of revenue            |  |                                 | 38.3%  |                                |   | 38.9%  |  |      | 37.9%   |  |   | 38.5%  
|                                                         |  |                                 |        |                                |   |        |  |      |         |  |   |        



THREE
MONTHS ENDED DECEMBER 31, 2003 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2002



Revenues



Total
revenues for the three months ended December 31, 2003 were $187,484, which represents an increase of 10.8% over the same period in fiscal year 2003. The majority of the revenue growth was attributable to internal growth in automated office equipment
revenues, electronic presentation systems and network integration solutions revenues. Our estimated combined internal growth rate for the three months ended December 31, 2003 was 7.5%. Additionally, revenues from four businesses acquired during the
nine months ended December 31, 2003 and one business acquired in the fiscal year ended March 31, 2003, that were not a part of our business for the full quarter last year, added to the revenue increase.



Equipment and supplies revenues for the three months ended December 31, 2003
were $140,534, which represents an increase of 12.0% over the same period in fiscal year 2003. Equipment revenues increased 13.3% and supplies revenues increased 5.7%, with the majority of the revenue growth due to the internal revenue growth of the
existing businesses.



Service and rental revenues for the three
months ended December 31, 2003 were $46,950, which represents an increase of 7.5% over the same period in fiscal year 2003. Service revenues increased 7.3% and rental revenues increased 9.4%, with the majority of the revenue growth due to the
internal revenue growth of the automated office equipment business.



Gross Profit



Gross profit of $71,754 for the
three months ended December 31, 2003 reflected a 9.1% increase over the same period in fiscal year 2003. This is partially due to internal growth of automated office equipment revenues, which historically have higher gross profit margins than
network integration solutions revenues and electronic presentation systems revenues. In addition, gross profit increased due



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to the acquisition of automated office equipment dealers in the nine months ended December 31, 2003 and fiscal year 2003.



The gross profit margin for equipment revenues for the three months ended
December 31, 2003 decreased 0.5 percentage points from the same period one year ago. This is primarily due to declines in gross profit margins of electronic presentation systems that were slightly offset by the increase in gross profit margins of
automated office equipment and network integration solutions.



Supplies gross profit margin for the three months ended December 31, 2003 increased 1.0 percentage point as compared to the same period one year ago, which is primarily due to an increase in automated office equipment supply gross profit
margins.



Service gross profit margin for the three months
ended December 31, 2003 decreased 0.4 percentage points from the same period one year ago, which is primarily due to a decline in automated office equipment service gross profit margins.



Rental gross profit margin for the three months ended December 31, 2003 decreased 4.3 percentage points from the same period
last year, primarily due to increased rental depreciation expense as a result of an increase in new equipment in our equipment mix versus older fully depreciated equipment that resulted from an increase in new customer accounts and existing customer
contract renewals.



Selling, General and Administrative
Expenses



Selling, general and administrative expenses, or
SG&A expenses, increased 7.6% to $49,717 for the three months ended December 31, 2003. This amount was 26.5% of total revenues compared to 27.3% of total revenues for the three months ended December 31, 2002. These expenses increased principally
due to the acquisition of four businesses in the nine months ended December 31, 2003 and one business acquired in fiscal year 2003 that was not a part of our business for the full quarter last year. In addition to the increase from acquisitions,
payroll and commissions and insurance expenses also increased. The decrease in expense as a percentage of revenues was primarily the result of higher revenues in fiscal year 2004 as compared to the same period in fiscal year 2003.



Intangible Asset Amortization



Intangible asset amortization was $125 for the three months ended December
31, 2003, compared to $143 for the same period in fiscal year 2003. This amortization relates to non-compete agreements and customer lists. The decline is due to certain agreements being fully amortized during the three months ended December 31,
2003.



Income From Operations



Income from operations was $21,912, or 11.7% of total revenues, for the
three months ended December 31, 2003, compared to $19,392 or 11.5% of total revenues for the same period in fiscal year 2003. Income from operations was positively impacted by the increase in combined revenues and gross profit as discussed above.



Interest Expense



Interest expense decreased 43.1% to $2,572 for the three months ended
December 31, 2003, compared to $4,517 for the same period in fiscal year 2003. The decrease in interest expense was due



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to a lower average level of borrowings and lower interest rates. Interest expense includes the amortization of financing fees incurred in connection with our
new senior credit facility and the 4% convertible senior subordinated notes due 2008 for the three months ended December 31, 2003 and our prior credit facility and the 103⁄4% senior subordinated notes due 2007 for the prior year.



Income Taxes



The provision for income taxes was $7,504 for the three months ended
December 31, 2003, compared to $5,964 for the same period in fiscal year 2003. The increase in income taxes was primarily due to increased pre-tax income for the three months ended December 31, 2003, slightly offset by a reduction in the effective
income tax rate. The effective income tax rate was 38.8% for the three months ended December 31, 2003 and 40.1% for the same period in fiscal year 2003. The decline in the effective income tax rate is due to a lower state taxes rate. The effective
income tax rate was higher than the federal statutory rate of 35% due to state and local taxes.



NINE MONTHS ENDED DECEMBER 31, 2003 COMPARED TO NINE MONTHS ENDED DECEMBER 31, 2002



Revenues



Total revenues for the nine months ended December 31, 2003 were $556,723,
which represents an increase of 12.2% over the same period in fiscal year 2003. The majority of the revenue growth was attributable to internal growth in automated office equipment revenues as well as in electronic presentation systems and network
integration solutions revenues. Our estimated combined internal growth rate for the nine months ended December 31, 2003 was 7.5%. Additionally, revenues from four businesses acquired during the nine months ended December 31, 2003 and five businesses
acquired in fiscal year 2003, that were not a part of our business for the full period last year, added to the revenue increase.



Equipment and supplies revenues for the nine months ended December 31, 2003 were $419,386, which represents an increase of 13.5% over the same period in
fiscal year 2003. Equipment revenues increased 14.6% and supplies revenues increased 8.7%, with the majority of the revenue growth due to the internal revenue growth of our existing businesses.



Service and rental revenues for the nine months ended December 31, 2003 were
$137,337, which represents an increase of 8.2% over the same period in fiscal year 2003. Service revenues increased 8.3% and rental revenues increased 6.9%, with the majority of the revenue growth due to the internal revenue growth of the automated
office equipment business.



Gross Profit



Gross profit of $210,994 for the nine months ended December 31, 2003
reflected a 10.4% increase over the same period in fiscal year 2003. Gross profit primarily increased due to internal growth of automated office equipment revenues, which historically have higher gross profit margins than network integration
solutions revenues and electronic presentation systems revenues. Additionally, gross profit increased due to the acquisition of automated office equipment dealers in the nine months ended December 31, 2003 and fiscal year 2003.



The gross profit margin for equipment revenues for the nine months ended
December 31, 2003 remained flat from the same period one year ago.



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Supplies gross profit margin for the nine months ended December 31, 2003 increased 0.6 percentage points
from the same period one year ago, which is primarily due to an increase in automated office equipment supply gross profit margins.



Service gross profit margin for the nine months ended December 31, 2003 decreased 0.9 percentage points from the same period one year ago, which is
primarily due to a decline in automated office equipment service gross profit margins.



Rental gross profit margin for the nine months ended December 31, 2003 decreased 6.1 percentage points from the same period last year, primarily due to increased rental depreciation expense as a result of an increase
in new equipment in our equipment mix versus older fully depreciated equipment that resulted from an increase in new customer accounts and existing customer contract renewals.



Selling, General and Administrative Expenses



Selling, general and administrative expenses, or SG&A expenses, increased 9.8% to $147,556 for the nine months ended
December 31, 2003. This amount was 26.5% of total revenues compared to 27.1% of total revenues for the nine months ended December 31, 2002. These expenses increased principally due to the acquisition of four businesses in the nine months ended
December 31, 2003 and five businesses in fiscal year 2003 that were not a part of our business for the full period last year. In addition to the increase from acquisitions, payroll and commissions, insurance expenses and occupancy expenses also
increased. The decrease in expense as a percentage of revenues was primarily the result of higher revenues in fiscal year 2004 as compared to the same period in fiscal year 2003.



Intangible Asset Amortization



Intangible asset amortization was $408 for the nine months ended December 31, 2003, compared to $493 for the same period in
fiscal year 2003. This amortization relates to non-compete agreements and customer lists. The decline is due to certain agreements being fully amortized during the nine months ended December 31, 2003.



Income From Operations



Income from operations was $63,030, or 11.3% of total revenues, for the nine
months ended December 31, 2003, compared to $56,351 or 11.4% of total revenues for the same period in fiscal year 2003. Income from operations was positively impacted by the increase in combined revenues and gross profit as discussed above.



Loss on Early Extinguishment of Debt



During the nine months ended December 31, 2003 we incurred a loss on early
extinguishment of debt in the amount of $8,433 related to the refinancing of our prior senior credit facility and the redemption of our 103⁄4% senior subordinated notes due 2007. The loss is made up of a prepayment premium of $5,375 for the early
redemption of our 103⁄4% notes and a $3,058 non-cash charge for the write-off of the unamortized portion of financing fees related to those notes and the prior senior credit facility.



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Interest Expense



Interest expense decreased 35.3% to $9,359 for the nine months ended December 31, 2003, compared to $14,457 for the same
period in fiscal year 2003. The decrease in interest expense was due to a lower average level of borrowings and lower interest rates. Interest expense includes the amortization of financing fees incurred in connection with our new senior credit
facility and the 4% convertible senior subordinated notes due 2008, both entered into during the first quarter of this year, as well as our prior credit facility and the 103⁄4% senior subordinated notes due 2007.



Income Taxes



The provision for income taxes was $17,722 for the nine months ended
December 31, 2003, compared to $16,799 for the same period in fiscal year 2003. The increase in income taxes was primarily due to increased pre-tax income for the nine months ended December 31, 2003, slightly offset by a reduction in the effective
income tax rate. The effective income tax rate was 39.2% for the nine months ended December 31, 2003 and 40.1% for the same period in fiscal year 2003. The effective income tax rate was higher than the federal statutory rate of 35% due to state and
local taxes.



LIQUIDITY AND CAPITAL RESOURCES



Historically, we have financed our operations primarily
through internal cash flow, sales of equity and debt securities and bank financing, including the credit facility described below. These sources of funds have been used to fund our growth both internally and through acquisitions. We are pursuing an
acquisition strategy and expect to acquire more businesses. As we continue to acquire more businesses, we may incur additional debt and seek additional equity capital.



On May 16, 2003, we issued $57,500 of 4% convertible senior subordinated notes in a private placement to institutional
investors. The issuance of our convertible notes was the first part of a plan to refinance our long-term indebtedness. We used the net proceeds of approximately $55,500 from the offering to repay a portion of the amount outstanding under our prior
senior credit facility. The convertible notes bear interest at 4%, payable semi-annually, and are convertible into our common stock at any time at the conversion rate of approximately 41.8550 shares per one thousand principal amount of the
convertible notes. This is equivalent to a conversion price of $23.892 per share. The convertible notes may be redeemed on or after May 20, 2006, in whole or in part, at the following redemption prices expressed as percentages of the outstanding
principal amount:



|                                  |  |            |  
|--------------------------------- |  | ---------- | -
|Redemption Period                 |  | Percentage |  
|May 20, 2006 through May 14, 2007 |  | 101.6      | %
|May 15, 2007 through May 14, 2008 |  | 100.8      | %
|May 15, 2008 and thereafter       |  | 100.0      | %



The convertible notes
are jointly and severally guaranteed by our current and certain of our future subsidiaries on a senior subordinated basis.



On June 25, 2003, we refinanced our prior senior credit facility by amending and restating the credit agreement for our prior senior credit facility. We
refer to the amended and restated senior credit facility as our new senior credit facility. A portion of the available funds under our new senior credit facility was used to fully repay amounts outstanding under our prior senior credit facility. Our
new senior credit facility is with a syndicate of banks and financial institutions, with Wachovia Bank, National Association serving as administrative agent. Our new senior credit facility is comprised of a $90,000 five-year revolving credit line
and a $140,000 six-year term loan. The revolving credit line of



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the new senior credit facility bears interest at rates ranging from 2.25% to 2.75% over LIBOR or from 1.00% to 1.50% over a base rate related to the prime
rate, and will vary according to our ratio of total funded debt to earnings before interest, taxes, depreciation and amortization. The term loan initially bore interest at a rate of 3.00% over LIBOR or 2.00% over a base rate related to the prime
rate. The new senior credit facility provides for an unused commitment fee payable to the lenders and certain other fees payable by us and our material subsidiaries. The commitment fee rates range from .50% to .75% of the unused balance. We paid
commitment fees of $461 and $324 for the nine months ended December 31, 2003 and 2002, respectively, in connection with unused balances under both our prior and new senior credit facilities. Amounts borrowed under the revolving credit line of the
new senior credit facility may be repaid and borrowed over the life of the new senior credit facility, with a final maturity date of June 25, 2008. The terms of the new senior credit facility include various affirmative, negative, and financial
covenants. Amounts borrowed under the new senior credit facility may be used to fund working capital and general corporate purposes, including acquisitions, subject to the lenders approval in the case of acquisitions with a cash purchase price
of over $50,000 or an aggregate purchase price (cash, stock or other consideration) of over $75,000. As of December 31, 2003, we had $89,500 of additional borrowing availability under the revolving credit portion of our new senior credit facility.
This amount has been reduced by $500 to reflect the aggregate amount of an outstanding standby letter of credit issued under the new senior credit facility to support our obligations incurred in the ordinary course of business. As of December 31,
2003, no amounts had been paid under this letter of credit.



The final part of our plan to refinance our long-term indebtedness was completed on June 26, 2003, when we redeemed the entire $100,000 aggregate principal amount outstanding under the 103⁄4% notes. We paid approximately $109,300 to
redeem the 103⁄4% notes, which amount represents the redemption price of $105,400 plus all accrued and unpaid interest through the redemption date of approximately $3,900. We paid the redemption price using a portion of the proceeds from our new
senior credit facility.



On December 10, 2003, we amended the
new senior credit facility to reduce the term loan interest rates to 2.50% over LIBOR or 1.50% over a base rate related to the prime rate. These new term loan interest rates are effective for six months, then adjust based on our debt ratings with
Standard & Poors and Moodys debt rating agencies. At our current debt ratings, the interest rates would not change, while any debt rating increases would allow us to reduce either our margin over LIBOR or base rate by .25%.



Under the terms of one of our acquisition agreements, we may
be required to make an additional payment of up to $500 in cash, on or before February 28, 2005, to the former owners of the acquired business based on the profitability of that business since we acquired it.



Net cash provided by operating activities of $45,965 for the nine months
ended December 31, 2003 was primarily attributable to net income and decreases in inventory, partially offset by decreases in accounts payable. Net cash used in investing activities of $37,966 during the nine months ended December 31, 2003 was
primarily for the acquisition of four businesses as well as the purchase of rental equipment. Net cash provided by financing activities of $1,955 during the nine months ended December 31, 2003 was primarily for transactions related to our
refinancing activities discussed above.



We believe that cash
flows from future operations, together with funds available under our new senior credit facility, will be sufficient to fund our current and foreseeable operational needs and acquisition growth strategy.



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|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------



Our market risk is primarily limited to fluctuations in interest rates as it pertains to our borrowings under our new senior credit facility. There have
been no material changes, other than those described below, to the information in the Item 7A disclosure made in our Annual Report on Form 10-K for the fiscal year ended March 31, 2003.



Effective September 11, 2003, we entered into three interest rate cap agreements (caps) in the notional amounts of $20,000
each. These caps are not designated as a hedging instrument and as such are recorded on the balance sheet at fair value, with changes in the fair value of the caps being recorded in the consolidated statement of operations during the period of
change. The caps limit our interest rate risk exposure to 4% for the related notional amounts. No payments have been received under the caps, which expire September 2005.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------



(a) Disclosure controls and procedures. We maintain disclosure controls and procedures designed to ensure that we are able to collect and record the information we are required to disclose in the reports we file with the Securities and
Exchange Commission (SEC), and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. Based on their evaluation of our disclosure controls and procedures, the chief executive
officer and chief financial officer believe that these controls and procedures were effective, as of the end of the period covered by this report, to ensure that we are able to collect, process and disclose the information we are required to
disclose in the reports we file with the SEC within the required time periods.



(b) Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.



PART II-OTHER INFORMATION



|ITEM 2. | CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- | --------------------------------------------------------------------------------



(c) On November 13, 2003, we issued 79,769 shares of our common stock to the stockholders of Advanced Business Systems, Inc. (Advanced) as
payment for approximately 15% of the outstanding stock of Advanced. The offer and sale of the common stock was made to accredited investors and was exempt from registration under the Securities Act of 1933, as amended, pursuant to Rule 506
thereunder.



|ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K
|------- | --------------------------------



| | (a) | Exhibits
| | --- | --------



The Exhibit Index filed herewith is incorporated herein by reference.



| | (b) | Reports on Form 8-K.
| | --- | --------------------



On October 23, 2003, we filed with the SEC a current report on Form 8-K to announce the financial results for the quarter ended September 30, 2003.



On November 25, 2003, we filed with the SEC a current report
on Form 8-K to announce the acquisition of Advanced Business Systems.



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SIGNATURE



Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



| |  |  |  |                             
| |  |  |  | ----------------------------
| |  | 
| |  |  |  | Global Imaging Systems, Inc.
| |  |  |  | (Registrant)                



|                      |  |  |                                                                                                                                                                                   |                      
|--------------------- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------
|                      |  | 
|February 10, 2004Date |  |  |                                                                                                                                                                                   | /s/ Raymond Schilling
|                      |  |  |                                                                                                                                                                                  
|                      |  |  | Raymond Schilling On behalf of Global Imaging Systems and as Senior Vice President, Chief Financial Officer, Secretary and Treasurer (Principal Financial and Accounting Officer)



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EXHIBIT INDEX

(Pursuant to Item 601 of Regulation S-K)



|       |  |                                                                                                                                                          
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Exhibit                                                                                                                                                  
|       | 
|3.1    |  | Amended and Restated Certificate of Incorporation of Global Imaging Systems, Inc.(1)                                                                     
|       | 
|3.2    |  | Amended and Restated Bylaws of Global Imaging Systems, Inc.(1)                                                                                           
|       | 
|3.3    |  | Amendment to Amended and Restated Bylaws of Global Imaging Systems, Inc.(2)                                                                              
|       | 
|4.1    |  | Form of 4% Convertible Senior Subordinated Notes Due 2008.(2)                                                                                            
|       | 
|4.2    |  | First Amendment to Second Amended and Restated Credit Agreement, dated as of December 10, 2003.                                                          
|       | 
|4.3    |  | Third Supplemental Indenture between Global Imaging Systems, Inc., its subsidiaries and The Bank of New York, dated as of November 26, 2003.             
|       | 
|31.1   |  | Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                  
|       | 
|31.2   |  | Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                  
|       | 
|32.1   |  | Written Statement of Chief Executive Officer and Chief Financial Officer furnished (not filed) pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

---

|(1) | Incorporated by reference to Globals Registration Statement on Form S-1, No. 333-48103,
as filed with the SEC on May 8, 1998.
|--- | ------------------------------------------------------------------------------------------------------------------------------



|(2) | Incorporated by reference to Globals Registration Statement on Form S-3/A, No.
333-107948, as filed with the SEC on October 7, 2003.
|--- | -------------------------------------------------------------------------------------------------------------------------------------



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