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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2004

or

FOR THE TRANSITION PERIOD FROM              TO             

Commission File Number: 000-24373

GLOBAL IMAGING SYSTEMS, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

(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 23,469,717 shares of common stock, $.01 par value, outstanding as of February 7, 2005.

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INDEX

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PART I – FINANCIAL INFORMATION

ITEM 1. Consolidated Financial Statements

GLOBAL IMAGING SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

See accompanying notes.

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GLOBAL IMAGING SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

See accompanying notes.

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GLOBAL IMAGING SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

See accompanying notes.

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GLOBAL IMAGING SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(IN THOUSANDS)

See accompanying notes.

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GLOBAL IMAGING SYSTEMS, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)

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 unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included herein. The results of operations for the three- and nine-month periods ended December 31, 2004 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2005.

The consolidated balance sheet at March 31, 2004 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

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 Annual Report on Form 10-K for the year ended March 31, 2004.

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 Global Imaging Systems, Inc. (“Global” or the “Company”). As of December 31, 2004, options to purchase 2,058,591 shares of our common stock were outstanding under the 1998 stock option plan, and 1,139,934 shares of our common stock have been issued under the 1998 plan upon the exercise of stock options granted under the plan. There were 18,975 shares of our common stock available to be issued under the 1998 plan as of December 31, 2004. Additionally, we have issued 102,500 shares of restricted stock under the 1998 plan, but did not issue any additional restricted shares during the nine months ended December 31, 2004. During the nine months ended December 31, 2004, options to purchase an aggregate of 273,000 shares were granted under the 1998 stock option plan with exercise prices ranging from $26.78 to $33.22 per share, the market values at dates of grant.

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, 2004, options to purchase 148,655 shares were outstanding under the 2001 stock option plan, and 122,345 shares of our common stock have been issued under the 2001 plan upon the exercise of stock options granted under the plan. There were 29,000 shares of our common stock available to be issued under the 2001 stock option plan as of December 31, 2004. During the nine months ended December 31, 2004, no options were granted under the 2001 stock option plan.

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On August 16, 2004, our shareholders’ approved the Global Imaging Systems, Inc. 2004 Omnibus Long Term Incentive Plan (the “2004 Plan”) under which we may grant options to purchase up to 600,000 shares of our common stock to directors, officers, and employees of Global. As of December 31, 2004, options to purchase 10,000 shares were outstanding under the 2004 Plan, and no shares of our common stock have been issued under the 2004 Plan upon the exercise of stock options granted under the plan. There were 590,000 shares of our common stock available to be issued under the 2004 Plan as of December 31, 2004. During the nine months ended December 31, 2004, 10,000 options were granted under the 2004 Plan with an exercise price of $36.95, the market value at date of grant.

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, 2001 and 2004 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, Accounting for Stock Issued to Employees, 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 granted under those plans had an exercise price equal to the market 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.

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.

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

NOTE 4. ACQUISITIONS

Effective May 1, 2004, we acquired all the issued and outstanding stock of Imagine Technology Group, Inc. (“ITG”) pursuant to a Stock Purchase Agreement dated April 5, 2004, by and among Global, ITG Acquisition I Corporation, ITG and Imagine Technology Group, LLC and its members.

As consideration for the ITG stock, we paid ITG’s shareholder and its creditors approximately $104,800 in cash, $4,000 of which was placed in escrow and is subject to post-closing adjustments, plus 813,464 shares of Global’s common stock, par value $.01 per share, that were previously held in treasury. The common stock issued to ITG’s shareholder was registered for resale with the Securities and Exchange Commission using a registration statement on Form S-3.

The following table summarizes the estimated fair value of the ITG assets acquired and liabilities assumed at the acquisition date. During the three months ended December 31, 2004, we obtained final third-party valuations of the intangible assets acquired and have, accordingly, adjusted the fair values of customer relationships, non-compete agreements, and goodwill as shown below. During the nine months ended December 31, 2004, we recorded amortization expense of $661 associated with the allocation of the purchase price to customer relationships and non-compete agreements.

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During the nine months ended December 31, 2004, we also acquired four businesses that provide office-imaging solutions and related services. Aggregate consideration, net of cash acquired, for these acquisitions was approximately $47,352, consisting of cash paid to the sellers, acquisition related expenses, and 118,043 shares of Global’s common stock (valued at $4,200, based on the fair value of the stock). The preliminary value of liabilities assumed in connection with these acquisitions totaled approximately $3,171. The preliminary fair value of total assets acquired in these acquisitions consisted of approximately $6,606 of tangible assets and approximately $44,783 of goodwill and other intangible assets. We expect to finalize the estimated fair values and purchase price allocations prior to the end of our fiscal year. As a result, there may be material adjustments to the intangible assets (some of which may be amortizable) and hence there may also be material adjustments to amortization expense and deferred income taxes.

All of the above acquisitions were accounted for using the purchase method of accounting and, accordingly, are included in the results of operations from the date of acquisition.

The unaudited pro forma results presented below include the effects of all of our acquisitions to date in fiscal years 2005 and 2004 as if they had been consummated as of April 1, 2003. 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.

NOTE 5. COMPREHENSIVE INCOME

The following table presents a reconciliation of net income to comprehensive income:

NOTE 6. DERIVATIVES

We enter into swap and interest rate cap 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 converts $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 LIBOR rate of 1.6% and paid an average LIBOR fixed rate of 2.7% for the period from April 1, 2004 to December 31, 2004.

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During December 2004, we entered into two one-year forward swap agreements which we accounted for as cash flow hedges. The agreements effectively convert $40,000 of our variable rate debt to fixed-rate debt, reducing the exposure to changes in interest rates. Under the first swap agreement, we will pay an average LIBOR fixed rate of 3.8% and under the second swap agreement, we will pay an average LIBOR fixed rate of 3.9%. Both agreements are effective for a period of two years, beginning December 2005.

We have recognized a gain, net of tax, of approximately $264 for the nine month period ended December 31, 2004, related to the change in the fair value of the interest rate swaps, which has been recorded in comprehensive income.

Effective July 6, 2004, we entered into a two-year interest rate cap agreement in notional amount of $25,000. We also entered into three two-year interest rate cap agreements in notional amounts of $20,000 each, effective September 11, 2003 (collectively, the Caps). These Caps are not designated as hedging instruments and as such are recorded on the consolidated balance sheet at their estimated fair value, with changes in the fair value 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 additional interest expense of $112, before tax, for the nine month period ended December 31, 2004. The Caps limit our interest rate risk exposure for the related notional amounts to a 4% LIBOR rate plus the applicable margin. No payments have been received under the Caps.

NOTE 7. RECENT ACCOUNTING PRONOUNCEMENTS

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative.

Statement 123(R) must be adopted no later than July 1, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued. We expect to adopt Statement 123(R) on July 1, 2005.

As permitted by Statement 123, the company currently accounts for share-based payments to employees using Opinion 25’s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of Statement 123(R)’s fair value method will have a significant impact on our results of operations, although it will have no impact on our overall financial position. The impact of adoption of Statement 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of Statement 123 as described in the disclosure of pro forma net income and earnings per share in Note 2 to our consolidated financial statements. Statement 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While the company cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized for such excess tax deductions was $3,996 for fiscal year 2004 and $3,926 for the nine month period ended December 31, 2004.

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NOTE 8. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

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 on Form 10-K for the year ended March 31, 2004. 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:

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, 2004. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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Overview

We are one of the leading providers of office technology solutions to middle-market businesses in the United States, selling and providing contract services for automated office equipment, including copiers, facsimile machines and printers, network integration solutions and electronic presentation systems. Network integration solutions and electronic presentation systems are sometimes known as the technology side of our business. 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. Incorporating products from Konica Minolta, Canon, Ricoh, Sharp, Hewlett-Packard, IBM, Microsoft, NEC, InFocus and other leading companies, we offer solutions for our customers from a network of 180 locations in 30 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 18 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 primarily 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 we acquire. 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 systems 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 the network integration or electronic presentation systems 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 generally depreciate our rental equipment primarily over a three-year period on a straight-line basis.

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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 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 is based either on the average cost of inventory or, in the case of some specifically identified equipment inventory, the actual cost of that equipment inventory. For 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

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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 have recorded 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, and other intangible assets. We examine the carrying value of our goodwill and our other intangible assets as current events and circumstances warrant determining whether there are any impairment losses. For goodwill, we test the recorded amount for impairment as of 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 our 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 identified any event that would indicate an impairment of the value of goodwill or other intangible assets recorded in our consolidated financial statements. Other intangible assets are amortized over their estimated lives.

Contingencies

We accrue amounts for losses arising from 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.

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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. 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.

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:

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THREE MONTHS ENDED DECEMBER 31, 2004 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2003

Revenues

Total revenues for the three months ended December 31, 2004 were $233,522, which represents an increase of 24.6% over the same period in fiscal year 2004. The majority of the revenue growth was attributable to revenues from five businesses acquired during the nine months ended December 31, 2004 and two businesses acquired during the fiscal year ended March 31, 2004 that were not a part of our business for the full quarter last year. The balance of the increase in revenues was due to growth from our existing companies. Our estimated combined internal revenue growth rate for the three months ended December 31, 2004 was 4.9%. Our estimated internal growth rate for automated office equipment was 7.1%, and the technology side of our business showed a 1.2% decline. Our technology business faced a very strong prior year internal growth rate comparison of 23%.

Equipment and supplies revenues for the three months ended December 31, 2004 were $173,321, which represents an increase of 23.3% over the same period in fiscal year 2004. Equipment revenues increased 18.4% and supplies revenues increased 48.7%, with the majority of the revenue growth due to the businesses acquired during the nine months ended December 31, 2004 and fiscal year 2004.

Service and rental revenues for the three months ended December 31, 2004 were $60,201, which represents an increase of 28.2% over the same period in fiscal year 2004. Service revenues increased 30.1% and rental revenues increased 7.7%, with the majority of the revenue growth due to the businesses acquired during the nine months ended December 31, 2004 and fiscal year 2004.

Gross Profit

Gross profit for the three months ended December 31, 2004 totaled $91,462, a 27.5% increase over the same period in fiscal year 2004. This gross profit increase is primarily due to the acquisition of automated office equipment dealers during the nine months ended December 31, 2004 and fiscal year 2004.

The gross profit margin for equipment revenues for the three months ended December 31, 2004 increased 0.9 percentage points from the same period one year ago. The gross profit margin 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.

Supplies gross profit margin for the three months ended December 31, 2004 decreased 3.9 percentage points as compared to the same period one year ago. The decrease is primarily the result of the lower supplies gross profit margins of businesses acquired during the nine months ended December 31, 2004. One of the acquired businesses includes a wholesale division which generally has lower gross profit margins.

Service gross profit margin for the three months ended December 31, 2004 increased 1.2 percentage points from the same period one year ago. The gross profit margin primarily increased due to internal growth of automated office equipment service revenues, which historically have higher gross profit margins than network integration solutions revenues and electronic presentation systems revenues.

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Rental gross profit margin for the three months ended December 31, 2004 increased 2.4 percentage points from the same period last year, primarily due to an increase in automated office equipment rental revenues, which is slightly offset by an increase in rental depreciation expense as a result of new equipment rental replacements in our equipment mix versus older fully depreciated equipment.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses totaled $63,952 representing an increase of 28.6% over the prior year quarter. SG&A expenses were 27.4% of total revenues for the three months ended December 31, 2004 as compared to 26.5% of total revenues for the same period a year ago. These expenses increased in total principally due to acquisitions. Increased integration costs associated with acquisitions, increased payroll expense, and increased health and other insurance expense primarily attributed to the current quarter increase as a percentage of revenues.

Intangible Asset Amortization

Intangible asset amortization was $300 for the three months ended December 31, 2004 compared to $125 for the same period in fiscal year 2004. The increase for the current quarter is principally due to the amortization of non-compete agreements and amounts allocated to customer relationships resulting from the ITG acquisition.

Income From Operations

Income from operations was $27,210, or 11.7% of total revenues, for the three months ended December 31, 2004 compared to $21,912, or 11.7% of total revenues, for the same period in fiscal year 2004. Income from operations was positively impacted by the increase in combined revenues and gross profit as discussed above, which was offset by the increase in SG&A expenses.

Interest Expense

Interest expense increased 21.7% to $3,129 for the three months ended December 31, 2004 compared to $2,572 for the same period in fiscal year 2004. The increase in interest expense was due to a higher average level of borrowings offset slightly by 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, 2004 and our prior senior credit facilities and the 4% convertible senior subordinated notes due 2008 for the prior year period.

Income Taxes

The provision for income taxes was $9,151 for the three months ended December 31, 2004 compared to $7,504 for the same period in fiscal year 2004. The increase in income taxes was primarily due to increased pre-tax income for the three months ended December 31, 2004, slightly offset by a reduction in the effective income tax rate. The effective income tax rate was 38.0% for the three months ended December 31, 2004 and 38.8% for the same period in fiscal year 2004. The decline in the effective income tax rate is due to a lower combined state income tax rate.

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NINE MONTHS ENDED DECEMBER 31, 2004 COMPARED TO NINE MONTHS ENDED DECEMBER 31, 2003

Revenues

Total revenues for the nine months ended December 31, 2004 were $679,058, which represents an increase of 22.0% over the same period in fiscal year 2004. The majority of the revenue growth was attributable to revenues from five businesses acquired during the nine months ended December 31, 2004 and five businesses acquired during the fiscal year ended March 31, 2004 that were not a part of our business for the full nine months last year. The balance of the increase in revenues was due to growth shown from our existing companies. Our estimated combined internal growth rate for the nine months ended December 31, 2004 was 3.8%. Our estimated internal growth rate for automated office equipment was 3.3%, and the technology side of our business grew at 5.2%.

Equipment and supplies revenues for the nine months ended December 31, 2004 were $508,731, which represents an increase of 21.3% over the same period in fiscal year 2004. Equipment revenues increased 17.3% and supplies revenues increased 41.6%, with the majority of the revenue growth due to the businesses acquired during the nine months ended December 31, 2004 and fiscal year 2004.

Service and rental revenues for the nine months ended December 31, 2004 were $170,327, which represents an increase of 24.0% over the same period in fiscal year 2004. Service revenues increased 26.0% and rental revenues increased 2.3%, with the majority of the service revenue growth due to the businesses acquired during the nine months ended December 31, 2004 and fiscal year 2004.

Gross Profit

Gross profit for the nine months ended December 31, 2004 totaled $266,495, a 26.3% increase over the same period in fiscal year 2004. This gross profit increase is primarily due to the acquisition of automated office equipment dealers during the nine months ended December 31, 2004 and fiscal year 2004.

The gross profit margin for equipment revenues for the nine months ended December 31, 2004 increased 2.0 percentage points from the same period one year ago. This is primarily due to an increase in gross profit margins of automated office equipment.

Supplies gross profit margin for the nine months ended December 31, 2004 decreased 2.8 percentage points as compared to the same period one year ago. The decrease is primarily the result of the lower supplies gross profit margins of businesses acquired during the nine months ended December 31, 2004. One of the acquired businesses includes a wholesale division which generally has lower gross profit margins.

Service gross profit margin for the nine months ended December 31, 2004 increased 0.2 percentage points from the same period one year ago. Gross profit primarily increased due to internal growth of automated office equipment service revenues, which historically have higher gross profit margins than network integration solutions revenues and electronic presentation systems revenues.

Rental gross profit margin for the nine months ended December 31, 2004 increased 1.5 percentage points from the same period last year, primarily due to an increase in automated office equipment rental revenues, which is slightly offset by an increase in rental depreciation expense as a result of new equipment rental replacements in our equipment mix versus older fully depreciated equipment.

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Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses totaled $186,678 representing an increase of 26.5% over the prior year period. SG&A expenses were 27.5% of total revenues compared to 26.5% of total revenues for the nine months ended December 31, 2003. These expenses increased in total principally due to acquisitions. As a percentage of revenues, the increase for the current period was the result of integration costs associated with acquisitions, increased payroll expense, increased health and other insurance expense, and sales training expense.

Intangible Asset Amortization

Intangible asset amortization was $1,051 for the nine months ended December 31, 2004 compared to $408 for the same period in fiscal year 2004. This amortization relates to non-compete agreements and customer relationships. The increase is principally due to amortization of amounts allocated to customer relationships resulting from the ITG acquisition.

Income From Operations

Income from operations was $78,766, or 11.6% of total revenues, for the nine months ended December 31, 2004 compared to $63,030, or 11.3% of total revenues, for the same period in fiscal year 2004. 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, 2004, we incurred a loss on early extinguishment of debt in the amount of $1,655 related to the amendment of our prior credit facility.

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 10 ³/4% senior subordinated notes due 2007. The loss is made up of a prepayment premium of $5,375 for the early redemption of our 10 ³/4% 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.

Interest Expense

Interest expense decreased 7.9% to $8,623 for the nine months ended December 31, 2004 compared to $9,359 for the same period in fiscal year 2004. The decrease in interest expense was due to lower interest rates offset by a slightly higher average level of borrowings. Interest expense includes the amortization of financing fees incurred in connection with our new senior credit facility, our prior senior credit facility and the 4% convertible senior subordinated notes due 2008 for the nine months ended December 31, 2004 and our prior senior credit facilities, the 10 ³/4% senior subordinated notes due 2007 and the 4% convertible senior subordinated notes due 2008 for the prior year period.

Income Taxes

The provision for income taxes was $26,070 for the nine months ended December 31, 2004 compared to $17,722 for the same period in fiscal year 2004. The increase in income taxes was primarily due to increased pre-tax income for the nine months ended December 31, 2004, slightly offset by a reduction in the effective income tax rate. The effective income tax rate was 38.1% for the nine months ended December 31, 2004 and 39.2% for the same period in fiscal year 2004. The decline in the effective income tax rate is due to a lower combined state income tax rate.

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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 financing 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. 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 principal amount:

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

On May 10, 2004, in conjunction with our purchase of ITG, we entered into the second amendment of our senior credit facility. We refer to the second amendment of our senior credit facility as our new senior credit facility. Our new senior credit facility is with a group of banks and financial institutions, with Wachovia Bank, National Association serving as administrative agent. Our new senior credit facility is comprised of a $70,000 five-year revolving credit line and a $208,950 six-year term loan. The revolving credit line of the new senior credit facility bears interest at rates ranging from 1.50% to 2.00% over LIBOR or from .50% to 1.00% over a base rate related to the prime rate, and varies according to our ratio of total funded debt to earnings before interest, taxes, depreciation and amortization. The term loan bears interest at a rate of 2.00% over LIBOR or .75% 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 rate is .50% of the unused balance. We paid commitment fees of $300 and $461 for the nine months ended December 31, 2004 and 2003, respectively, in connection with unused balances under both our prior and new senior credit facility. 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 May 10, 2009. The terms of the new senior credit facility require strict compliance with numerous affirmative, negative, and financial covenants. Amounts borrowed under the 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, 2004, we had $69,500 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

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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, 2004, no amounts had been paid under this letter of credit.

Net cash provided by operating activities totaled $37,823 for the nine months ended December 31, 2004 as compared to $45,965 in the prior year period. The decrease was primarily attributable to increases in accounts receivable and inventory, partially offset by an increase in net income. Net cash used in investing activities of $158,677 during the nine months ended December 31, 2004 was primarily for the acquisition of ITG and other businesses, as well as purchases of property, equipment and rental equipment. Net cash provided by financing activities of $74,413 during the nine months ended December 31, 2004 was primarily for financing associated with the ITG acquisition.