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, 1996
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 2,127,563 November 8, 1996
Page 1 of 12
Exhibit Index Begins on Page 10
<PAGE>
1MAGE SOFTWARE, INC.
INDEX
-------
PART I. FINANCIAL INFORMATION PAGE
ITEM 1 FINANCIAL STATEMENTS
Balance Sheets - September 30, 1996, and December 31, 1995 3
Statements of Operations - for three months ended
September 30, 1996 and September 30, 1995 4
Statements of Operations - for nine months ended
September 30, 1996 and September 30, 1995 5
Statements of Cash Flows - for nine months ended
September 30, 1996 and September 30, 1995 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
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
1MAGE SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
Assets 1996 1995
------------ -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $469,863 $345,852
Trade accounts receivable, net 501,066 568,639
Inventory, at lower of cost or market 128,238 28,642
Current portion of notes receivable 156,709 15,210
Prepaid expenses 30,600 25,839
------------- ------------
TOTAL CURRENT ASSETS 1,286,476 984,182
------------- ------------
Property and equipment, net 229,589 268,550
Deferred computer software
development costs, net 775,249 708,360
Investment in affiliate 0 13,939
Other assets 30,295 28,502
------------- ------------
TOTAL ASSETS $2,321,609 $2,003,533
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt:
Other 150,000 -
Capital lease obligations 5,687 11,347
Trade accounts payable 261,095 221,401
Line of credit 147,502 100,477
Accrued expenses and other liabilities 142,706 199,211
------------- ------------
TOTAL CURRENT LIABILITIES 706,990 532,436
------------- ------------
Long-term obligations:
Capital lease obligations 18,768 21,461
Other 0 150,000
------------- ------------
TOTAL LIABILITIES 725,758 703,897
STOCKHOLDERS' EQUITY:
Common stock, par value
$.004 - 10,000,000 shares
authorized; shares outstanding:
1996, 2,127,563; 1995, 1,932,934 8,510 7,748
Paid-in capital 6,829,635 6,619,758
Accumulated deficit (5,242,294) (5,327,870)
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 1,595,851 1,299,636
------------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $2,321,609 $2,003,533
============= ============
</TABLE>
<PAGE>
1MAGE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
1996 1995
------------ -------------
<S> <C> <C>
REVENUE:
System sales $460,353 $236,436
Services and other 104,551 79,169
------------ ------------
Total Revenue 564,904 315,605
COST OF REVENUE:
System Sales 162,315 211,414
Services and Other 66,392 158,185
------------ ------------
Total Cost of Revenue 228,707 369,599
GROSS PROFIT 336,197 (53,992)
% of Revenue 59.5% -17.1%
Expenses:
Selling, general & administrative 321,535 528,521
------------ ------------
Total Operating Expenses 321,535 528,521
Income (Loss) from Operations 14,662 (582,514)
Other Income:
Equity in earnings/(loss) of affiliate 0 (62,395)
Interest expense (6,667) (5,602)
Interest income 7,498 9,155
Other (8,756) 7,652
------------ ------------
Total other income (expense) (7,925) (51,190)
------------ ------------
Net Income (Loss) Before Income Taxes 6,737 (633,704)
Provision for Income Taxes 0 0
------------ ------------
Net Income (Loss) $ 6,737 $ (633,704)
============ ============
Earnings (Loss) per Common Share $0.00 ($0.33)
============ ============
Wgd Number of Shares Outstanding 2,129,563 1,1910,110
============ ============
</TABLE>
<PAGE>
IMAGE SOFTWARE INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1996 1995
------------- ---------------
<S> <C> <C>
Revenue:
System sales $ 1,267,777 $ 1,970,892
Services and other 267,086 328,846
-------------- ------------
Total Revenue 1,534,863 2,299,738
Cost of Revenue:
System sales 369,890 1,265,456
Services and other 274,234 540,562
-------------- ------------
Total Cost of Revenue 644,124 1,806,018
Gross Profit 890,739 493,720
% of Revenue 58.0% 21.5%
Operating Expenses:
Selling, general & administrative 896,630 1,496,378
-------------- ------------
Total Operating Expenses 896,630 1,496,378
Income (Loss) from Operations (5,891) (1,002,658)
Other Income:
Equity in earnings/(loss) of affiliate (13,939) (62,395)
Interest expense (20,151) (12,779)
Interest income 14,403 23,415
Other 111,154 8,150
-------------- ------------
Total other income (expense) 91,467 (43,609)
-------------- ------------
Net Income (Loss) Before Income Taxes 85,576 (1,046,267)
Provision for Income Taxes 0 0
-------------- ------------
Net Income (Loss) $ 85,576 $(1,046,267)
Earnings (Loss) per Common Share $0.04 ($0.55)
============== ============
Wtd Avg Number of Shares Outstanding 2,023,763 1,905,713
============== ============
</TABLE>
<PAGE>
1MAGE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1996 1995
-------------- ----------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 85,576 ($1,046,267)
Adjustments to reconcile net
income (loss) to net
cash provided by (used for)
operating activities:
Depreciation and amortization 218,103 399,671
Equity in (earnings) loss of
affiliate 13,939 62,395
Allowance for doubtful accounts (4,603) 1,408
Compensation expense related to
nonqualified stock options 0 32,000
Issuance of stock for services/products 7,667 60,938
Write-down of notes receivable 0 22,574
Changes in operating assets/liabilities:
Receivables 67,573 896,226
Inventory (17,846) (10,710)
Prepaid expenses (16,005) 26,522
Accounts payable 39,694 (167,613)
Accrued liabilities (69,437) (291,620)
------------- ------------
Net cash provided (used) by
operating activities 324,661 (14,476)
Cash Flows from Investing Activities:
Purchase of fixed assets (16,982) (69,599)
Increase in capitalized software (229,049) (314,763)
Investment in affiliate 0 (100,000)
Increase in other assets (1,793) 82,788
Payments from notes receivable 8,501 21,461
------------- ------------
Net cash provided (used for) by
investing activities (239,323) (380,113)
Cash Flows used in Financing Activities:
Repayment of line of credit (227,152) (148,010)
Additions to line of credit 274,177 180,000
Repayment of long-term debt (8,353) (184,445)
Issuance of convertible notes 0 150,000
------------- ------------
Net cash provided by (used for)
financing activities 38,672 (2,455)
------------- ------------
Increase (Decrease) in cash
and equivalents 124,010 (397,044)
Cash and equivalents,
beginning of period 345,852 648,714
------------- ------------
Cash and equivalents, end of period $469,862 $251,670
============= ============
</TABLE>
<PAGE>
1MAGE 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 From 10-K for the year ended December 31, 1995
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) 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.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations for three months ended September 30, 1996 versus
three months ended September 30, 1995
1MAGE Software, Inc.'s (the "Company") revenue of $564,904 for the third
quarter of 1996 was 79% greater than $315,605 reported for the same period
one year ago. This increase in revenue was primarily due to a 261%
increase in sales of 1MAGE software, including substantial increases in
both direct sales and sales by value-added resellers ("VARs"). Revenue
generated from recurring annual software license fees accounted for
$118,997 for the three months ended September 30, 1996, a 115% increase
over $55,290 reported for the same period one year ago, which the Company
attributes to its increased emphasis in providing continuous support and
updates to its existing customers. Costs associated with providing
technical support, primarily salaries and fees paid to outside
contractors, were reduced by $90,056 (58% decrease) for the third quarter
of 1996 compared to the third quarter of 1995. The Company believes that
these lower expenses are the direct result of the intense cost-cutting
campaign begun by the Company in 1995. Gross profit for the three months
ended September 30, 1996 was $336,197 (or 60% of revenue) as compared to
negative $53,992 or (-17% of revenue) for the three months ended September
30, 1995. In addition, selling, general and administrative expenses
("SG&A") of $321,535 for the third quarter of 1996 were down $206,986
(39%) over $528,521 incurred for the same period a year ago, which the
Company likewise attributes to its cost-cutting efforts. Net income for
the third quarter 1996 was $6,737 versus a net loss of $633,704 for the
third quarter of 1995. On an earnings per share basis, the Company broke
even in the quarter ended September 30, 1996, compared to a net loss per
share of ($.33) for the comparable quarter a year ago. While the Company
posted modest earnings for this quarter, management believes that the
Company's overhead is now properly sized for its current business level.
As the Company's sales increase, the Company will carefully consider any
increases to its existing overhead burden.
Results of Operations for nine months ended September 30, 1996 versus nine
months ended September 30, 1995.
1MAGE Software, Inc.'s revenue of $1,534,863 for the nine months ended
September 30, 1996 was 33% lower than $2,299,738 reported for the same
period a year ago.
The revenue decrease of $764,875 was primarily comprised of $748,392 less
revenue from the sale of computer hardware. The Company has changed its
focus to concentrate on high margin proprietary software sales, as opposed
to large volume, low-margin hardware sales. Recurring annual license fees
increased 112% for the nine months ended September 30, 1996, accounting
for $528,474 (34% of total revenue), compared to $249,047 (12% of total
revenue) for the same period in 1995.
As a result of cost-cutting measures implemented during 1995, costs
associated with providing technical support, primarily salaries and fees
paid to outside contractors, were reduced by 49% for the nine months ended
September 30, 1996.
In addition, SG&A expenses of $896,630 were $599,748 (40%) lower for the
nine months ended September 30, 1996 as compared to $1,496,378 incurred
during the same period in 1995.
The Company has also recorded $110,838 of other income in the first nine
months of 1996 by collecting receivables which had previously been written
off as bad debt expense. The Company has posted net income of $85,576 for
the nine months ended September 30, 1996 versus a net loss of ($1,046,267)
for the same period in 1995, a positive turnaround of $1,131,843. Earnings
per share for the nine months ended September 30, 1996 were $.04 compared
with a net loss per share of ($.55) for the nine months ended September
30, 1995, a $.59 difference. The Company believes that its increased
profitability is directly attributable to the success of its new VAR sales
program, the cost-cutting program initiated last year and the increased
emphasis on continuing license fees, service and support for existing
customers as a source of recurring revenues.
Liquidity and Capital Resources
For the nine months ended September 30, 1996, cash on hand increased
$124,010 to $469,862, primarily due to cash provided by operating
activities. Additions to capitalized software used cash of $229,049 as
research and development costs were incurred in order to continue to
enhance the document imaging software product offerings.
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. In July, 1996 the
Company's revolving line of credit was increased to $150,000 and continues
to bear interest at Prime +1% and is secured by the Company's notes and
accounts receivable. On November 13, 1996, there were $47,500 borrowings
against the line of credit.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS Inapplicable
ITEM 2. CHANGES IN SECURITIES Inapplicable
On April 2, 1996, the Company's Board of Directors approved the
contribution of 1,867 restricted shares of the Company's Common Stock to
the Company's 401(k) Plan & Trust as the employer matching contribution
for the year ended December 31, 1995, which stock was valued by the Board
of Directors at $1,867.00. On May 30, 1996, the Board of Directors
approved the sale of 31,304 restricted shares of the Company's Common
Stock to a vendor of the Company, Devcom Mid-America, Inc., in exchange
for products valued by the Board of Directors at $45,000.00. On May 31,
1996, the Board of Directors approved the sale of 75,000 restricted shares
to each of two accredited investors for a total of $150,000.00 in cash.
With respect to the sales described above, the Company relied on Section
4(2) of the Securities Act of 1933, as amended. All of the securities
sold were offered for investment only and not for the purpose of resale or
distribution, and the transfer thereof was appropriately restricted by the
Company.
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
Financial Data Schedule 27
(B) Reports on Form 8-K
There were no reports filed on Form 8-K for the quarter ended September
30, 1996.
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.
1MAGE SOFTWARE, INC.
--------------------
(REGISTRANT)
------------
/s/ Mary Anne DeYoung
-------------------------------
Date: 11/14/96 Mary Anne DeYoung
Chief Financial Officer
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
- ------- ----------------
27 Financial Data Schedule Filed herewith electronically
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 469,862
<SECURITIES> 0
<RECEIVABLES> 715,775
<ALLOWANCES> 58,000
<INVENTORY> 128,238
<CURRENT-ASSETS> 1,286,476
<PP&E> 804,363
<DEPRECIATION> 574,771
<TOTAL-ASSETS> 2,321,609
<CURRENT-LIABILITIES> 706,990
<BONDS> 0
0
0
<COMMON> 8,510
<OTHER-SE> 6,829,635
<TOTAL-LIABILITY-AND-EQUITY> 2,321,609
<SALES> 564,904
<TOTAL-REVENUES> 564,904
<CGS> 228,707
<TOTAL-COSTS> 321,535
<OTHER-EXPENSES> (1,258)
<LOSS-PROVISION> (4,603)
<INTEREST-EXPENSE> 6,737
<INCOME-PRETAX> 6,737
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,737
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,737
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
