<PAGE>
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 JUNE 30, 1995
OR
( ) 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 0-12535
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IMAGE SOFTWARE, INC.
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(Exact name of registrant as specified in its charter)
COLORADO 84-0866294
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6486 SOUTH QUEBEC STREET, ENGLEWOOD, COLORADO 80111
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(Address of principal executive offices)
(303) 773-1424
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former Fiscal year, 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_____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Stock No. Shares Outstanding Date
-------------- ---------------------- --------------
Common 1,925,408 August 4, 1995
Page 1 of 11
Exhibit Index Begins on Page 10
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IMAGE SOFTWARE, INC.
INDEX
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<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
Balance Sheets - June 30, 1995, and
December 31, 1994 3
Statement of Operations - for three months
ended June 30, 1995 and June 30, 1994 4
Statement of Operations - for six months
ended June 30, 1995 and June 30, 1994 5
Statement of Cash Flows - for six months
ended June 30, 1995 and June 30, 1994 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Items 1-5 9
Item 6 Exhibits and Reports on Form 8-K 10
</TABLE>
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IMAGE SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
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<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
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<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 484,496 $ 648,714
Trade accounts receivable, net 933,933 1,504,517
Current portion of notes receivable 57,579 79,608
Inventory, at lower of cost or market 68,691 57,981
Prepaid expenses 91,978 140,267
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TOTAL CURRENT ASSETS 1,636,677 2,431,087
Property and equipment, net 291,040 259,972
Deferred computer software development costs, net 698,259 679,430
Purchased computer software, net 30,790 81,710
Notes receivable, excluding current portion 66,920 100,653
Investment in affiliate 50,000 0
Other assets 21,762 25,549
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TOTAL ASSETS $ 2,795,448 $ 3,578,401
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt:
Related parties $ 35,039 $ 98,548
Capital lease obligations 13,162 26,828
Other 0 0
Trade accounts payable 291,590 392,451
Line of credit 0 45,850
Income taxes payable 9,342 0
Accrued expenses and other liabilities 210,654 487,718
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Total current liabilities 559,787 1,051,395
Capital lease obligations 28,028 32,808
Other long-term obligations 100,000 0
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Total liabilities $ 687,815 $ 1,084,203
Shareholders' Equity:
Common Stock, par value $.004 - 10,000,000 shares
authorized; shares outstanding:
1995 - 1,905,408; 1994 - 1,892,272 7,621 7,569
Additional Paid-In Capital 6,616,455 6,590,507
Accumulated Deficit (4,480,711) (4,068,146)
Treasury stock (35,732) (35,732)
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Total shareholders' equity 2,107,633 2,494,198
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,795,448 $ 3,578,401
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</TABLE>
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IMAGE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
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1995 1994
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<S> <C> <C>
Revenue:
System sales and software licenses $ 652,289 $1,993,948
Services and other 132,869 79,957
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Total revenue 785,158 2,073,905
Cost of Revenue:
System sales and software licenses 477,615 213,392
Services and other 187,599 128,535
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Total cost of revenue 665,214 341,927
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Gross Profit 119,944 1,731,978
Operating Expenses:
Selling, general & administrative 493,185 637,534
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Income (Loss) from Operations (373,241) 1,094,444
Other Income (Expense):
Interest income 8,679 6,809
Interest expense (3,498) (8,036)
Other 500 (2,598)
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Total other income (expense) 5,681 (3,825)
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Income (Loss) Before Income Taxes (367,560) 1,090,619
Provision for Income Taxes 0 0
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Net Income (Loss) $ (367,560) $1,090,619
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Earnings (Loss) Per Common Share $ (.19) $ .64
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Weighted average number of shares outstanding 1,901,250 1,708,278
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</TABLE>
<PAGE>
IMAGE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
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1995 1994
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<S> <C> <C>
Revenue:
System sales and software licenses $1,734,456 $2,568,722
Services and other 249,676 147,074
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Total revenue 1,984,132 2,715,796
Cost of Revenue:
System sales and software licenses 1,054,042 628,782
Services and other 382,379 220,126
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Total cost of revenue 1,436,421 848,908
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Gross Profit 547,711 1,866,888
Operating Expenses:
Selling, general & administrative 967,857 943,888
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Income (Loss) from Operations (420,146) 923,000
Other Income (Expense):
Gain (loss) on sale of asset 0 (647)
Interest income 14,260 8,247
Interest (expense) (7,177) (19,804)
Other 500 7,928
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Total other income (expense) 7,583 (4,276)
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Income (Loss) Before Income Taxes (412,563) 918,724
Provision for Income Taxes 0 0
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Net Income (Loss) $ (412,563) $ 918,724
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Earnings (Loss) Per Common Share $ (.22) $ .55
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Weighted average number of shares outstanding 1,899,025 1,661,480
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</TABLE>
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IMAGE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
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1995 1994
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<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $(412,563) $ 918,724
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating activities:
Depreciation and amortization 268,040 233,310
Allowance for doubtful accounts 6,500 (3,591)
Compensation expense related to non-qualified stock options 32,000 66,755
Issuance of stock for services 64,616 57,375
Write-down of notes receivable 22,574 0
Changes in operating assets/liabilities:
Receivables 570,584 (319,476)
Inventory (10,710) 39,156
Prepaid expenses 52,076 (72,869)
Accounts payable (100,861) (208,858)
Accrued liabilities (240,064) (19,172)
Income taxes payable (27,658) 0
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Net cash provided by operating activities 224,534 691,354
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Cash Flows from Investing Activities:
Purchase of fixed assets (66,677) (50,475)
Additions to capitalized software (200,340) (157,263)
Investment in affiliate (50,000) 0
Decrease in other assets 0 14,244
Payments from notes receivable 16,968 256,154
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Net cash (used for) provided by investing activities (300,049) 62,660
Cash Flows from Financing Activities:
Repayment of line of credit (145,850) (69,362)
Additions to line of credit 100,000 0
Repayment of long-term debt (142,853) (43,967)
Issuance of convertible notes 100,000 0
Proceeds from exercise of common stock options 0 162,890
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Net cash used in financing activities (88,703) 49,561
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Increase (decrease) in cash and cash equivalents (164,218) 803,575
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Cash and cash equivalents, beginning of period 648,714 8,528
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Cash and cash equivalents, end of period $ 484,496 $ 812,103
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</TABLE>
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IMAGE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GENERAL:
Management has elected to omit substantially all notes to the consolidated
unaudited interim financial statements. Reference should be made to the
Company's annual report on Form 10-K for the year ended December 31, 1994 as
this report incorporates the Notes to the Company's year-end financial
statements.
UNAUDITED INTERIM INFORMATION:
The unaudited interim financial statements contain all necessary adjustments
(consisting of only normal recurring adjustments) which, in the opinion of
Management, are necessary for a fair statement of the results for the interim
periods presented. The results of operations for the interim periods presented
are not necessarily indicative of those expected for the year.
REVENUE RECOGNITION:
Revenue from the sale of software licenses and computer equipment and existing
application software packages is recognized when the software and computer
equipment are shipped to the customer, remaining vendor obligations are
insignificant, there are no significant uncertainties about customer acceptance
and collectibility is probable. Revenue from related services, including
installation and software modifications, is recognized upon performance of
services.
INCOME TAXES:
Income Taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of depreciation, capitalized
software development cost and allowance for doubtful accounts for financial and
income tax reporting. The Company currently has substantial net operating loss,
research credit and investment tax credit carry forwards.
INCOME/LOSS PER SHARE:
Income (Loss) per share is computed by dividing net income (loss), after
deducting dividends on preferred shares, by the weighted average number of
common and equivalent shares. Common stock equivalents were not included in the
weighted average number of shares outstanding for loss periods as their effect
was anti-dilutive. Fully diluted earnings per share are either anti-dilutive or
not materially different from primary earnings per share.
COMMON STOCK:
On March 10, 1993, the Board of Directors approved a 4-for-1 reverse stock split
of the Company's common stock effective March 24, 1993. On May 17, 1993, the
shareholders of the Company's common stock ratified the reverse stock split and
approved an amendment to the Articles of Incorporation to reduce the number of
authorized shares of common stock to 10,000,000 and change the par value to
$.004. All references in the accompanying financial statements as to the number
of common shares and per share amounts have been restated to reflect the reverse
stock split and the amendment.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1995 VERSUS JUNE 30,
1994
1MAGE Software, Inc.'s (the "Company") revenue of $785,158 for the second
quarter of 1995 was 62% lower than the $2,073,905 reported for the same period a
year ago. For the three months ended June 30, 1995, the Company posted a net
loss of ($367,560) or ($.19) loss per share versus net income of $1,091,434 or
$.70 earnings per share for the same period in 1994. The decrease in revenue is
attributable to a decline in software system licenses sold, as well as overall
slower economic conditions in the transportation industry. The Company's
subsidiary, Information Solutions, Inc., met with intense competition in the
transportation marketplace, and as a result, gross profit on hardware sales
decreased 28% for the comparable quarters. Selling, general and administrative
expenses of $493,185 for the quarter ended June 30, 1995 were 22.5% lower than
$636,718 reported for the same quarter in 1994. This decrease was primarily due
to lower variable costs associated with decreased revenues.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30,1995 VERSUS JUNE 30, 1994
The Company's revenue for the six months ended June 30, 1995 was $1,984,132, a
27% decrease over $2,715,796 for the same period in 1994. Net loss year to date
at June 30, 1995 was ($412,563) or ($.22) per share, as compared to net earnings
of $918,724 or $.59 earnings per share for the six month period in 1994. The
significant decrease in net earnings resulted from lower revenue generated
through reseller software licenses sold in the six months ended June 30, 1995.
Selling, general and administrative expense of $967,859 were 2.5% higher for the
six months ended June 30, 1995 than for the same period in 1994.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1995, cash on hand decreased $164,218 from $648,714 at December
31, 1994. Repayments of long-term debt used cash of $142,853, additions to
capitalized software used cash of $200,340, while cash from operations provided
$224,534. The Company had working capital at June 30, 1995 of $1,076,889, as
compared to $1,379,692 at December 31, 1994. Shareholders' equity at the end of
the second quarter of 1995 was $2,107,633 versus $2,494,198 as of December 31,
1994.
The Company's financial resources include cash on hand, revenues from
operations, and management of funds available on its revolving line of credit.
In the Company's judgement, sufficient financial resources are available to meet
current working capital needs. The Company has a $110,000 revolving bank line
of credit which expires June 11, 1996 and bears interest at prime plus 1.0% and
is secured by the Company's notes and accounts receivable. On August 4, 1995,
there were no borrowings on the Company's line of credit.
<PAGE>
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS INAPPLICABLE
ITEM 2. CHANGES IN SECURITIES INAPPLICABLE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES INAPPLICABLE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS INAPPLICABLE
The Company's annual meeting of shareholders was held on May 15,
1995. At the meeting David R. DeYoung, Charles E. Burns, Daniel N. Warner and
Robert Wiegand II were elected as directors. The shareholders also approved the
ratification of the appointment of Karsh & Co., P.C. as the independent public
accountants of the Company's for the calendar year ending December 31, 1995.
The number of votes cast for or withheld for each director nominee was as
follows:
<TABLE>
<CAPTION>
NOMINEE FOR WITHHELD
------- --- --------
<S> <C> <C>
David R. DeYoung 1,449,053 3,760
Charles E. Burns 1,448,347 4,466
Daniel N. Warner 1,449,347 3,466
Robert Wiegand II 1,447,447 5,366
</TABLE>
The number of votes cast for, against and abstentions for the ratification of
auditors was as follows:
FOR AGAINST ABSTAIN
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1,448,147 2,141 2,525
Because the election of directors and ratification of auditors are considered
routine under the applicable rules, all shares held in the name of nominees for
which proxies were not submitted by the beneficial holders thereof were voted in
favor of the nominees for the Board of Directors and the retention of the
auditors.
ITEM 5. OTHER INFORMATION INAPPLICABLE
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBIT TABLE:
<TABLE>
<S> <C>
Plan of acquisition, reorganization, arrangement, liquidation or sucession Inapplicable
Articles of Incorporation, Bylaws Inapplicable
Instruments defining the rights of security holders, including indentures Inapplicable
Material Contracts Inapplicable
Statement regarding computation of per share earnings Inapplicable
Letter regarding unaudited interim financial information Inapplicable
Letter regarding change in accounting practices Inapplicable
Report furnished to security holders Inapplicable
Published report regarding matters submitted to vote of security holders Inapplicable
Power of Attorney Inapplicable
Financial Data Schedule Attached
Additional Exhibits Inapplicable
</TABLE>
(B) REPORTS ON FORM 8-K
There were no reports filed on Form 8-K for the quarter ended June 30, 1995.
<PAGE>
SIGNATURES
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.
IMAGE SOFTWARE, INC.
(REGISTRANT)
Date: 8/10/95 /s/ DAVID R. DEYOUNG
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David R. DeYoung
President, Chief Executive Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> JUN-30-1995
<CASH> 484,496
<SECURITIES> 0
<RECEIVABLES> 990,279
<ALLOWANCES> 56,346
<INVENTORY> 68,691
<CURRENT-ASSETS> 1,636,677
<PP&E> 721,900
<DEPRECIATION> 430,860
<TOTAL-ASSETS> 2,795,448
<CURRENT-LIABILITIES> 559,787
<BONDS> 0
<COMMON> 7,621
0
0
<OTHER-SE> 2,100,012
<TOTAL-LIABILITY-AND-EQUITY> 2,795,448
<SALES> 1,984,132
<TOTAL-REVENUES> 1,984,132
<CGS> 1,436,421
<TOTAL-COSTS> 2,404,278
<OTHER-EXPENSES> (14,760)
<LOSS-PROVISION> 57,368
<INTEREST-EXPENSE> 7,177
<INCOME-PRETAX> (412,563)
<INCOME-TAX> 0
<INCOME-CONTINUING> (412,563)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (412,563)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> 0
</TABLE>
