<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 SEPTEMBER 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
IMAGE SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
COLORADO 84-0866294
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
6486 SOUTH QUEBEC STREET, ENGLEWOOD, COLORADO 80111
(Address of principal executive officers)
(303) 773-1424
(Registrant's telephone number, including area code)
N/A
(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 1,932,934 November 10, 1995
Page 1 of 11
Exhibit Index Begins on Page 10
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IMAGE SOFTWARE, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1 Financial Statements
Balance Sheets - September 30, 1995, and
December 31, 1994 3
Statement of Operations - for three months
ended September 30, 1995 and September 30, 1994 4
Statement of Operations - for nine months
ended September 30, 1995 and September 30, 1994 5
Statement of Cash Flows - for nine months
ended September 30, 1995 and September 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 10
Item 6 Exhibits and Reports on Form 8-K 10
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
IMAGE SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 251,670 $ 648,714
Trade accounts receivable, net 608,291 1,504,517
Inventory, at lower of cost or market 68,691 57,981
Current portion of notes receivable 53,086 79,608
Prepaid expenses 57,479 140,267
---------- ----------
TOTAL CURRENT ASSETS 1,039,217 2,431,087
Property and equipment, net 278,622 259,972
Deferred computer software development costs, net 721,851 679,430
Purchased computer software, net 5,330 81,710
Investment in affiliate 37,605 0
Notes receivable, excluding current portion 66,920 100,653
Other assets 22,424 25,549
---------- ----------
TOTAL ASSETS $2,171,969 $3,578,401
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt:
Related parties $ 0 $ 98,548
Other 0 26,828
Trade accounts payable 224,838 392,451
Line of credit 77,840 45,850
Accrued expenses and other liabilities 196,098 487,718
---------- ----------
TOTAL CURRENT LIABILITIES 498,776 1,051,395
Long-term obligations:
Capital lease obligations 25,514 32,808
Other 150,000 0
---------- ----------
TOTAL LIABILITIES 674,290 1,084,203
STOCKHOLDERS' EQUITY:
Common stock, par value $.004 - 10,000,000
shares authorized; shares outstanding:
1995, 1,932,934; 1994, 1,892,272 7,731 7,569
Paid-in capital 6,640,095 6,590,507
Accumulated deficit (5,114,415) (4,068,146)
Treasury stock (35,732) (35,732)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 1,497,679 2,494,198
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $2,171,969 $3,578,401
========== ==========
</TABLE>
3
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IMAGE SOFTWARE INC.
STATEMENT OF OPERATIONS
FOR THREE MONTHS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
9/30/95 9/30/94
------- -------
<S> <C> <C>
Revenue:
System sales $ 236,436 $1,204,222
Services and other 79,169 99,201
--------- ----------
Total Revenue 315,605 1,303,423
Cost of Revenue:
System sales 211,414 595,319
Services and other 158,184 129,766
--------- ----------
Total cost of revenue 369,598 725,085
Gross Profit (53,993) 578,338
% OF REVENUE (17.1)% 44.4%
Expenses:
Selling, general & administrative (528,521) (466,216)
--------- ----------
Income (Loss) from Operations (582,514) 112,122
Other Income:
Equity in earnings/(loss) of affiliate (62,395) 0
Interest expense (5,602) (5,872)
Interest income 9,155 9,354
Other 7,652 0
--------- ----------
Total other income (expense) (51,190) 3,482
Net Income (Loss) Before Income Taxes (633,704) 115,604
Provision for Income Taxes 0 0
--------- ----------
Net Income (Loss) $(633,704) $ 115,604
========= ==========
Earnings (Loss) per Common Share $ (0.33) $ 0.06
========= ==========
Weighted Average Number of Shares
Outstanding 1,910,110 1,878,029
========= ==========
</TABLE>
4
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IMAGE SOFTWARE INC.
STATEMENT OF OPERATIONS
FOR NINE MONTHS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
9/30/95 9/30/94
------- -------
<S> <C> <C>
Revenue:
System sales $ 1,970,892 $ 3,772,944
Services and other 328,846 246,275
----------- -----------
Total Revenue 2,299,738 4,019,219
Cost of Revenue:
System sales 1,265,455 1,223,763
Services and other 540,563 351,215
----------- -----------
Total cost of revenue 1,806,018 1,574,978
Gross Profit 493,720 2,444,241
% OF REVENUE 21.5% 60.8%
Expenses:
Selling, general & administrative (1,496,378) (1,409,119)
----------- -----------
Income (Loss) from Operations (1,002,658) (1,035,122)
Other Income:
Equity in earnings/(loss) of affiliate (62,395) 0
Gain on sale of asset 0 (647)
Interest expense (12,779) (25,677)
Interest income 23,415 17,601
Other 8,150 7,929
----------- -----------
Total other income (expense) (43,609) (794)
Net Income (Loss) Before Income Taxes (1,046,267) 1,034,328
Provision for Income Taxes 0 0
----------- -----------
Net Income (Loss) $(1,046,267) $ 1,034,328
=========== ===========
Earnings (Loss) per Common Share $ (0.55) $ 0.60
=========== ===========
Wtd. Avg. Number of Shares Outstanding 1,905,713 1,732,087
=========== ===========
</TABLE>
5
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IMAGE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1995 1994
--------------- ---------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) ($1,046,267) $1,034,328
Adjustments to reconcile net (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization 399,671 355,054
Equity in (earnings) loss of affiliate 62,395 0
Allowance for doubtful accounts 1,408 (7,846)
Compensation expense related to
nonqualified stock options 32,000 119,368
Issuance of stock for services 60,938 65,376
Write-down of notes receivable 22,574 0
Changes in operating assets/liabilities:
Receivables 896,226 (857,266)
Inventory (10,710) 39,182
Prepaid expenses 26,522 (63,891)
Accounts payable (167,613) 8,876
Accrued Liabilities (291,620) 65,953
--------------- ---------------
Net cash provided (used) by operating activities (14,476) 759,134
Cash Flows from Investing Activities:
Purchase of fixed assets (69,599) (96,797)
Increase in capitalized software (314,763) (254,168)
Investment in affiliate (100,000) 0
Decrease in other assets 82,788 14,244
Payments from notes receivable 21,461 212,934
--------------- ---------------
Net cash provided (used for) by investing activities (380,113) (123,787)
Cash Flows used in Financing Activities:
Repayment of line of credit (148,010) (69,362)
Additions to line of credit 180,000
Repayment of long-term debt (184,445) (53,164)
Issuance of convertible notes 150,000
Proceeds from exercise of common stock options 0 218,458
--------------- ---------------
Net cash provided by (used for) financing activities (2,455) 95,932
--------------- ---------------
Increase (Decrease) in cash and equivalents (397,044) 731,279
Cash and equivalents, beginning of period 648,714 8,528
--------------- ---------------
Cash and equivalents, end of period $251,670 $739,807
============== ===============
</TABLE>
6
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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.
7
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED SEPTEMBER 30, 1995 VERSUS
SEPTEMBER 30, 1994
IMAGE Software, Inc.'s (the "Company") revenue of $315,605 for the third quarter
of 1995 was 76% lower than the $1,303,423 reported for the same period a year
ago. For the three months ended September 30, 1995, the Company posted a net
loss of $(633,704) versus net income of $115,604 for the same period in 1994.
The net loss per share for the three months ended September 30, 1995, was $(.33)
compared with net earnings per share of $.06 for the three months ended
September 30, 1994. The decrease in revenue is largely attributable to a
decline in system licenses sold directly to the transportation industry, a
market which has experienced slower economic conditions. While the Company has
been attempting to change the focus of its marketing efforts for IMAGE-TM- to a
broader market, the continuing weakness of the narrower market has accentuated
the cost; in terms of lost sales, of making that change in focus. In addition,
short-term revenue was impacted by a continuing transition to selling primarily
through reseller channels, which generally requires greater lead time from start
up to final sale. The Company is confident, however, that over the longer term,
the revenue stream will become more consistent, and produce less cyclical
results for the Company.
Selling, general, and administrative expenses of $528,521 for the quarter ended
September 30, 1995 were 13.4% higher than similar expenses for the same quarter
in 1994. This increase in expenses is primarily due to an increase in bad debt
expense for customers in the transportation industry who have experienced
economic hardship or have filed for protection under bankruptcy laws.
The Company recognized an expense of $62,395 for its share in the losses of its
newly formed affiliate, ScanUSA, LLC. This joint venture with Truckload
Management, Inc., a company engaged in the business of providing various
services to trucking companies, was formed in order to provide large volume
document scanning services to customers in the transportation and other
industries. Once fully operational, the Company expects to receive recurring
software license royalties based upon the total number of documents scanned.
The Company expects ScanUSA, LLC to provide a portion of the more stable revenue
and cash flow which it anticipates in 1996.
RESULTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 1995 VERSUS
SEPTEMBER 30, 1994
The Company's revenue of $2,299,738 for the nine months ended September 30,
1995 was 43% lower than $4,019,219 reported for the same period a year ago. Net
loss for the nine month period ended September 30, 1995 was $(1,046,267), as
compared to net income of $1,034,328 for the comparable period in 1994. The
Company reported a loss per share of $(.55) for the nine months ended September
30, 1995, as compared to earnings per share of $.60 for the same period in 1994.
The results for nine months ended September 30, 1994 included a single
transaction to a major IMAGE reseller which accounted for 44% of the year to
date revenue. Because the Company has not duplicated that large sale in the
first three quarters of 1995, its total revenue is down sharply.
Selling, general and administrative expenses of $1,496,378 were 6% higher than
$1,409,119 reported for the first nine months of 1994 due to the fixed nature of
these expenses. In view of the financial results, management has implemented a
cost reduction plan in order to bring expenses more in line with revenues.
During the nine months ended September 30, 1995, the Company incurred an expense
of $62,395 for its equity position in the startup of a joint venture, ScanUSA,
LLC. This limited liability partnership was not formed until early 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1995, cash on hand decreased $397,044 from $648,714 at
December 31, 1994. Additions to capitalized software used cash of $314,763 as
research and development was increased
8
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in order to create a new and enhanced release of the document imaging software.
In addition, cash was used to invest in ScanUSA, LLC's business of providing
document imaging services to truck lines and other commercial entities
outside the transportation industry. Cash of $150,000 was provided through
the issuance of convertible promissory notes. Repayment of long-term debt used
cash of $184,445. Cash on hand at November 8, 1995 was $430,644.
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 judgment, sufficient financial resources are available to meet
current working capital needs. The Company has a $110,000 revolving line of
credit which expires July 11, 1996 and bears interest at Prime +1% and is
secured by the Company's notes and accounts receivable. On November 8, 1995,
borrowings against the line of credit were $51,907.
9
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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
ITEM 5. OTHER INFORMATION INAPPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBIT TABLE
Plan of acquisition, reorganization, arrangement, liquidation Inapplicable
or succession
Instruments defining the rights of security holders, including Inapplicable
indentures
Statement regarding computation of per share earnings Inapplicable
Letter regarding change in accounting principles Inapplicable
Previously unfiled documents Inapplicable
Report furnished to security holders Inapplicable
Published report regarding matters submitted to vote of Inapplicable
security holders
Power of Attorney Inapplicable
Additional Exhibits Inapplicable
(B) REPORTS ON FORM 8-K
There were no reports filed on Form 8-K for the quarter ended September 30,
1995.
10
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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 the
undersigned thereunto duly authorized.
IMAGE SOFTWARE, INC.
(REGISTRANT)
Date: 11/9/95 /s/ Mary Anne DeYoung
------------------------------ -----------------------------------
Mary Anne DeYoung
Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1995
<CASH> 251,670
<SECURITIES> 0
<RECEIVABLES> 608,291
<ALLOWANCES> 199,087
<INVENTORY> 68,691
<CURRENT-ASSETS> 1,039,217
<PP&E> 668,757
<DEPRECIATION> 390,135
<TOTAL-ASSETS> 2,171,969
<CURRENT-LIABILITIES> 498,776
<BONDS> 0
<COMMON> 7,731
0
0
<OTHER-SE> 6,640,095
<TOTAL-LIABILITY-AND-EQUITY> 2,171,969
<SALES> 2,299,738
<TOTAL-REVENUES> 2,299,738
<CGS> 1,806,018
<TOTAL-COSTS> 3,302,396
<OTHER-EXPENSES> 30,830
<LOSS-PROVISION> 202,686
<INTEREST-EXPENSE> 12,779
<INCOME-PRETAX> (1,046,267)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,046,267)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,046,267)
<EPS-PRIMARY> (0.55)
<EPS-DILUTED> 0
</TABLE>
