##### Table of Contents



UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2005
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission
file number: 000-30883
 I-MANY, INC.
  Delaware
    
    01-0524931(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)
 
 
  þ o
  þ o
  o þ




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2




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PAGEPART I. UNAUDITED FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial StatementsCondensed Consolidated Balance Sheets as of September 30, 2005
and December 31, 2004
    
    
    4Condensed Consolidated Statements of Operations for the three months
and nine months ended September 30, 2005 and 2004
    
    
    5Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2005 and 2004
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    29PART II. OTHER INFORMATIONItem 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 4. Submission of Matters to a Vote of Security Holders
    
    
    30Item 6. Exhibits
    
    
    30Signatures
    
    
    30Index to Exhibits
    
    
    31EX-31.1 SECTION 302 CERTIFICATION OF C.E.O.EX-31.2 SECTION 302 CERTIFICATION OF C.F.O.EX-32.1 SECTION 906 CERTIFICATION OF C.E.O. AND C.F.O.
  3




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##### Table of Contents



PART I. UNAUDITED FINANCIAL INFORMATION
 
 ITEM 1. UNAUDITED FINANCIAL STATEMENTS
 I-MANY, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share-related amounts)
 September 30,
    
    
    December 31,2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    17,501
    
    
    $
    6,098Restricted cash
    
    
    21
    
    
    
    161Short-term investments and securities held for sale
    
    
    
    
    
    
    14,610Accounts receivable, net of allowance
    
    
    7,564
    
    
    
    9,964Prepaid expenses and other current assets
    
    
    1,174
    
    
    
    518Total current assets
    
    
    26,260
    
    
    
    31,351Property and equipment, net
    
    
    1,339
    
    
    
    1,300Restricted cash
    
    
    641
    
    
    
    663Other assets
    
    
    121
    
    
    
    120Acquired intangible assets, net
    
    
    1,056
    
    
    
    2,097Goodwill
    
    
    8,667
    
    
    
    8,667Total assets
    
    $
    38,084
    
    
    $
    44,198LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,650
    
    
    $
    2,372Accrued expenses
    
    
    3,550
    
    
    
    4,199Current portion of deferred revenue
    
    
    11,338
    
    
    
    9,975Capital lease obligations
    
    
    21
    
    
    
    160Total current liabilities
    
    
    16,559
    
    
    
    16,706Deferred revenue, net of current portion
    
    
    187
    
    
    
    275Other long-term liabilities
    
    
    1,105
    
    
    
    1,347Total liabilities
    
    
    17,851
    
    
    
    18,328Series A redeemable convertible preferred stock, $.01 par valueAuthorized
 1,700 sharesIssued and outstanding  none
    
    
    
    
    
    
    Stockholders equity:Undesignated preferred stock, $.01 par valueAuthorized
 5,000,000 shares; designated 1,700 sharesIssued and outstanding  none
    
    
    
    
    
    
    Common stock, $.0001 par value Authorized
 100,000,000 sharesIssued and
outstanding  46,274,264 and 42,720,060 shares
at September 30, 2005 and December 31, 2004, respectively
    
    
    5
    
    
    
    4Additional paid-in capital
    
    
    152,620
    
    
    
    151,014Deferred stock-based compensation
    
    
    (29
    )
    
    
    (91
    )Accumulated other comprehensive income
    
    
    3
    
    
    
    58Accumulated deficit
    
    
    (132,366
    )
    
    
    (125,115
    )Total stockholders equity
    
    
    20,233
    
    
    
    25,870Total liabilities, redeemable preferred stock and stockholders equity
    
    $
    38,084
    
    
    $
    44,198
  4




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I-MANY, INC.





CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)


Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net revenues:Product
    
    $
    567
    
    
    $
    2,393
    
    
    $
    4,124
    
    
    $
    8,341Services
    
    
    6,483
    
    
    
    6,914
    
    
    
    20,226
    
    
    
    20,551Total net revenues
    
    
    7,050
    
    
    
    9,307
    
    
    
    24,350
    
    
    
    28,892Cost of revenues
    
    
    3,888
    
    
    
    3,788
    
    
    
    11,659
    
    
    
    11,757Gross profit
    
    
    3,162
    
    
    
    5,519
    
    
    
    12,691
    
    
    
    17,135Operating expenses:Sales and marketing
    
    
    1,961
    
    
    
    1,964
    
    
    
    6,177
    
    
    
    6,335Research and development
    
    
    2,795
    
    
    
    2,759
    
    
    
    8,727
    
    
    
    8,879General and administrative
    
    
    1,320
    
    
    
    1,068
    
    
    
    3,613
    
    
    
    3,921Depreciation
    
    
    204
    
    
    
    233
    
    
    
    591
    
    
    
    664Amortization of acquired intangible assets
    
    
    343
    
    
    
    378
    
    
    
    1,041
    
    
    
    1,087In-process research and development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    290Restructuring and other charges (credits)
    
    
    8
    
    
    
    62
    
    
    
    (25
    )
    
    
    1,371Total operating expenses
    
    
    6,631
    
    
    
    6,464
    
    
    
    20,124
    
    
    
    22,547Loss from operations
    
    
    (3,469
    )
    
    
    (945
    )
    
    
    (7,433
    )
    
    
    (5,412
    )Other income, net
    
    
    110
    
    
    
    107
    
    
    
    182
    
    
    
    167Loss before income taxes
    
    
    (3,359
    )
    
    
    (838
    )
    
    
    (7,251
    )
    
    
    (5,245
    )Benefit from income taxes
    
    
    
    
    
    
    (82
    )
    
    
    
    
    
    
    (82
    )Net loss
    
    $
    (3,359
    )
    
    $
    (756
    )
    
    $
    (7,251
    )
    
    $
    (5,163
    )Basic and diluted net loss per common share
    
    $
    (0.07
    )
    
    $
    (0.02
    )
    
    $
    (0.16
    )
    
    $
    (0.13
    )Weighted average shares outstanding
    
    
    45,348
    
    
    
    41,575
    
    
    
    43,951
    
    
    
    41,076


5




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I-MANY, INC.





CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)


Nine Months EndedSeptember 30,2005
    
    
    2004Cash Flows from Operating Activities:Net loss
    
    $
    (7,251
    )
    
    $
    (5,163
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    1,632
    
    
    
    1,751In-process research and development
    
    
    
    
    
    
    290Restructuring
and other charges (credits)
    
    
    (25
    )
    
    
    1,371Amortization of deferred stock-based compensation
    
    
    123
    
    
    
    2,791Provision for doubtful accounts
    
    
    150
    
    
    
    170Changes in operating assets and liabilities, net of acquisitions:Restricted cash
    
    
    162
    
    
    
    262Accounts receivable
    
    
    2,194
    
    
    
    858Prepaid expense and other current assets
    
    
    (656
    )
    
    
    (211
    )Accounts payable
    
    
    (722
    )
    
    
    414Accrued expenses
    
    
    (600
    )
    
    
    (2,578
    )Deferred revenue
    
    
    1,275
    
    
    
    (2,790
    )Deferred rent
    
    
    (14
    )
    
    
    3Other assets
    
    
    (1
    )
    
    
    162Net cash used in operating activities
    
    
    (3,733
    )
    
    
    (2,670
    )Cash Flows from Investing Activities:Purchases of property and equipment
    
    
    (630
    )
    
    
    (451
    )Proceeds from disposition of property and equipment
    
    
    
    
    
    
    35Cash paid to acquire Pricing Analytics, Inc.
    
    
    (248
    )
    
    
    (633
    )Purchases of short-term investments and securities held for sale
    
    
    (2,694
    )
    
    
    (11,859
    )Redemptions of short-term investments and securities held for sale
    
    
    17,304
    
    
    
    11,750Net cash provided by (used in) investing activities
    
    
    13,732
    
    
    
    (1,158
    )Cash Flows from Financing Activities:Payments on capital lease obligations
    
    
    (140
    )
    
    
    (497
    )Proceeds from exercises of stock options
    
    
    828
    
    
    
    322Proceeds from exercises of warrant
    
    
    600
    
    
    
    Proceeds from Employee Stock Purchase Plan
    
    
    116
    
    
    
    73Net cash provided by (used in) financing activities
    
    
    1,404
    
    
    
    (102
    )Net increase (decrease) in cash and cash equivalents
    
    
    11,403
    
    
    
    (3,930
    )Cash and cash equivalents, beginning of period
    
    
    6,098
    
    
    
    8,914Cash and cash equivalents, end of period
    
    $
    17,501
    
    
    $
    4,984Supplemental Disclosure of Cash Flow Information:Cash paid during the period for interest
    
    $
    6
    
    
    $
    25Cash refunded during the period for income taxes
    
    $
    
    
    
    $
    82Supplemental Disclosure of Noncash Activities:Increase (decrease) in deferred stock-based compensation, net of forfeitures
    
    $
    62
    
    
    $
    (419
    )


6




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I-MANY, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)








Revenue Recognition:












7



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Stock Options:
    Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(Amounts in thousands)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss, as reported
    
    $
    (3,359
    )
    

    $
    (756
    )
    
    $
    (7,251
    )
    
    $
    (5,163
    )Add: stock-based compensation recorded
    
    
    14
    
    
    
    348
    
    
    
    123
    
    
    
    2,791Deduct: Total stock-based employee
compensation determined under fair
value based method for all awards,
net of related tax effects
    
    
    (3
    )
    
    
    (666
    )
    
    
    (525
    )
    
    
    (4,729
    )Pro forma net loss
    

    $
    (3,348
    )
    
    $
    (1,074
    )
    
    $
    (7,653
    )
    
    $
    (7,101
    )Basic & Diluted net loss per share:As reported
    
      $
    (0.07
    )
    
    $
    (0.02
    )
    
    $
    (0.16
    )
    
    $
    (0.13
    )Pro forma
    
    $
    (0.07
    )
    
    $
    (0.03
    )
    
    $
    (0.17
    )
    
    $
    (0.17
    )
    8




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2005
    
    
    2004Risk-free interest rates
    
    
    4.05-4.33 %
    
    
    
    3.9 %Dividend yield
    
    

    
    
    
    
   Volatility
    
    
    70-80 %
    
    
    
    105 %Expected term
    
    6.25 years
    
    7 yearsWeighted average fair value of options
granted during the period
    
    

    $ 1.08
    
    

    

    $ 1.05
  Short-term investments and securities held for sale:
   9




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September 30,
    
    
    December 31,(Amounts in thousands)
    
    2005
    
    
    2004Auction rate securities held-for-sale
    
    $
    
    
    
    $
    11,600Held-to-maturity short-term investments:Corporate bonds
    
    
    
    
    
    
    1,010US Government agency securities
    
    
    
    
    
    
    2,000$
    
    
    
    $
    14,610
 Acquired Intangible Assets and Goodwill:
   Deferred Tax Assets:
  Product Indemnification:
  10




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Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Customer A
    
    
    *
    
    
    
    *
    
    
    
    12
    %
    
    
    *Customer B
    
    
    *
    
    
    
    *
    
    
    
    11
    %
    
    
    *Customer C
    
    
    *
    
    
    
    15
    %
    
    
    *
    
    
    
    25
    %
  September 30,2005
    
    2004Customer A
    
    
    17
    %
    
    
    *Customer C
    
    
    *
    
    
    
    27
    %Customer D
    
    
    13
    %
    
    
    *
 
 *
    
    was less than 10% of the Companys total 11




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Acquired intangible assets
    
    $
    740In-process research and development
    
    
    290Goodwill
    
    
    136Total assets acquired
    
    
    1,166Less current liabilities
    
    
    36Net assets acquired
    
    $
    1,130
  12




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Health and Life
    
    
    Industry(Amounts in thousands)
    
    Sciences
    
    
    Solutions
    
    
    Undesignated
    
    
    TotalsAt and for the three months ended September 30, 2005:Revenues
    
    $
    5,223
    
    
    $
    1,827
    
    
    $
    
    
    
    $
    7,050Segment loss
    
    
    (274
    )
    
    
    (2,929
    )
    
    
    (156
    )
    
    
    (3,359
    )Segment assets
    
    
    28,365
    
    
    
    3,455
    
    
    
    6,264
    
    
    
    38,084Goodwill
    
    
    2,716
    
    
    
    
    
    
    
    5,951
    
    
    
    8,667For the nine months ended September 30, 2005:Revenues
    
    $
    18,329
    
    
    $
    6,021
    
    
    $
    
    
    
    $
    24,350Segment income (loss)
    
    
    970
    
    
    
    (7,752
    )
    
    
    (469
    )
    
    
    (7,251
    )At and for the three months ended September 30, 2004:Revenues
    
    $
    6,590
    
    
    $
    2,717
    
    
    $
    
    
    
    $
    9,307Segment income (loss)
    
    
    1,431
    
    
    
    (2,031
    )
    
    
    (156
    )
    
    
    (756
    )Segment assets
    
    
    33,830
    
    
    
    2,994
    
    
    
    6,888
    
    
    
    43,712Goodwill
    
    
    2,716
    
    
    
    
    
    
    
    5,951
    
    
    
    8,667
 13




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Health and Life
    
    
    Industry(Amounts in thousands)
    
    Sciences
    
    
    Solutions
    
    
    Undesignated
    
    
    TotalsFor the nine months ended September 30, 2004:Revenues
    
    $
    21,483
    
    
    $
    7,409
    
    
    $
    
    
    
    $
    28,892Segment income (loss)
    
    
    3,070
    
    
    
    (7,764
    )
    
    
    (469
    )
    
    
    (5,163
    )
      Lease costsand asset(Amounts in thousands)
    
    impairmentsBalance at December 31, 2004
    
    $
    1,341Activity in nine months ended September 30, 2005:Restructuring credits
    
    
    (25
    )Payments
    
    
    (160
    )Balance at September 30, 2005
    
    $
    1,156Current
portion  included in accrued expenses
    
    $
    199Noncurrent
portion  included in other long-term
liabilities
    
    $
    957
 14




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(Amounts in thousands)
    
    2005
    
    
    2004Balance at January 1,
    
    $
    402
    
    
    $
    588Provisions
    
    
    150
    
    
    
    170Write offs
    
    
    (9
    )
    
    
    (373
    )Currency translation adjustments
    
    
    (7
    )
    
    
    0Balance at September 30,
    
    $
    536
    
    
    $
    385
     
     15




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Revenue Recognition
   16




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Allowance for Doubtful Accounts
  Short-term investments and securities held for sale
  17




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Acquired Intangible Assets
  Goodwill
  Deferred Tax Assets
  Product Indemnification
      18




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Reconciliation of Value of License Transactions to Reportable Product Revenue
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(AMOUNTS IN THOUSANDS)Gross value of license contracts sold:Health and Life Sciences
    
    $
    1,209
    
    
    $
    2,004
    
    
    $
    7,220
    
    
    $
    4,591Industry Solutions
    
    
    1,405
    
    
    
    224
    
    
    
    2,326
    
    
    
    1,4542,614
    
    
    
    2,228
    
    
    
    9,546
    
    
    
    6,045Add product revenue recorded in current
period from contracts sold in prior periods:Health and Life Sciences  subscriptions
    
    
    239
    
    
    
    34
    
    
    
    600
    
    
    
    34Health and Life Sciences  other deferrals
    
    
    
    
    
    
    
    
    
    
    1,476
    
    
    
    3,139Industry Solutions  other deferrals
    
    
    
    
    
    
    550
    
    
    
    
    
    
    
    794239
    
    
    
    584
    
    
    
    2,076
    
    
    
    3,967Less value of license contracts sold in
current period and deferred to future
periods:Health and Life Sciences
    
    
    904
    
    
    
    419
    
    
    
    5,933
    
    
    
    1,121Industry Solutions
    
    
    1,382
    
    
    
    
    
    
    
    1,565
    
    
    
    5502,286
    
    
    
    419
    
    
    
    7,498
    
    
    
    1,671Product revenue recorded:Health and Life Sciences
    
    
    544
    
    
    
    1,619
    
    
    
    3,363
    
    
    
    6,643Industry Solutions
    
    
    23
    
    
    
    774
    
    
    
    761
    
    
    
    1,698$
    567
    
    
    $
    2,393
    
    
    $
    4,124
    
    
    $
    8,341
   19




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Payments due by Period
 Amounts in $000sLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsCapital Lease Obligations
    
    $
    21
    
    
    $
    21
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating Leases
    
    
    8,669
    
    
    
    1,718
    
    
    
    3,657
    
    
    
    2,369
    
    
    
    925Severance Obligations
    
    
    296
    
    
    
    296
    
    
    
    
    
    
    
    
    
    
    
    Total Contractual Obligations
    
    $
    8,986
    
    
    $
    2,035
    
    
    $
    3,657
    
    
    $
    2,369
    
    
    $
    925
      25




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(a) Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Control.
 29




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NUMBER OF SHARES OF COMMON STOCKElection of members
    
    
    
    
    
    
    
    BROKERof Board of Directors:
    
    FOR
    
    AGAINST
    
    WITHHELD
    
    NON-VOTESYorgen H. Edholm
    
    41,916,820
    
    
    
    660,307
    
    Steven L. Fingerhood
    
    41,914,229
    
    
    
    662,898
    
    Murray B. Low
    
    41,839,264
    
    
    
    737,863
    
    Mark A. Mitchell
    
    41,797,739
    
    
    
    779,388
    
    Karl E. Newkirk
    
    41,837,829
    
    
    
    739,298
    
    John A. Rade
    
    41,916,529
    
    
    
    660,598
    
    Ratified selection of BDO
Seidman, LLP
    
    42,533,674
    
    11,689
    
    32,764
    
    
 
   
   I-MANY, INCDate: November 7, 2005
    
    By:
    
    /s/ Kevin M. HarrisKevin M. HarrisChief Financial Officer and Treasurer/s/ Kevin M. HarrisKevin M. HarrisChief Financial Officer
 30




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EXHIBITNO.
    
    DESCRIPTION31.1
    
    Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the
Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the
Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certifications pursuant to 18 U.S.C. sec. 1350.
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