<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 MARCH 31, 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
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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 (I.R.S. Employer
of incorporation or organization) Identification Number)
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
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Class of Stock No. Shares Outstanding Date
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Common 1,938,726 May 3, 1996
Page 1 of 10
Exhibit Index Begins on Page 9
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IMAGE SOFTWARE, INC.
INDEX
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PART I. FINANCIAL INFORMATION PAGE
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Item 1 Financial Statements
Balance Sheets - March 31, 1996, and December 31, 1995 3
Statements of Operations - for three months
ended March 31, 1996 and March 31, 1995 4
Statements of Cash Flows - for three months
ended March 31, 1996 and March 31, 1995 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Items 1-5 8
Item 6 Exhibits and Reports on Form 8-K 8
Page 2
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
IMAGE SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1996 1995
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 299,584 $ 345,852
Trade accounts receivable, net 459,298 568,639
Inventory, at lower of cost or market 28,642 28,642
Current portion of notes receivable 12,164 15,210
Prepaid expenses 73,390 25,839
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TOTAL CURRENT ASSETS 873,078 984,182
Property and equipment, net 252,904 268,550
Deferred computer software development costs, net 700,857 708,360
Investment in affiliate 8,900 13,939
Other assets 29,717 28,502
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TOTAL ASSETS $ 1,865,456 $ 2,003,533
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LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt:
Other 150,000 -
Capital lease obligation 11,347 11,347
Trade accounts payable 152,668 221,401
Line of credit 102,948 100,477
Accrued expenses and other liabilities 149,387 199,211
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TOTAL CURRENT LIABILITIES 566,350 532,436
Long-term obligations:
Capital lease obligations 18,768 21,461
Other 0 150,000
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TOTAL LIABILITIES 585,118 703,897
STOCKHOLDERS' EQUITY:
Common stock, par value $.004 - 10,000,000 shares
authorized; shares outstanding: 1996, 1,936,859;
1995, 1,932,934 7,747 7,748
Paid-in capital 6,628,462 6,619,758
Accumulated deficit (5,355,871) (5,327,870)
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TOTAL STOCKHOLDERS' EQUITY 1,280,338 1,299,636
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,865,456 $ 2,003,533
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</TABLE>
Page 3
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IMAGE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
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<S> <C> <C>
REVENUE:
System sales $ 290,353 $1,082,165
Services and other 94,383 116,809
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TOTAL REVENUE 384,736 1,198,974
COST OF REVENUE:
System sales 103,566 583,358
Services and other 113,465 187,849
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TOTAL COST OF REVENUE 217,031 771,207
GROSS PROFIT 167,705 427,767
% of Revenue 43.6% 35.7%
EXPENSES:
Selling, general & administrative 307,133 474,673
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TOTAL OPERATING EXPENSES 307,133 474,673
INCOME (LOSS) FROM OPERATIONS (139,428) (46,906)
OTHER INCOME:
Equity in earnings/(loss) of affiliate (5,039) 0
Interest expense (6,961) (3,679)
Interest income 3,792 5,582
Other 119,638 0
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TOTAL OTHER INCOME (EXPENSE) 111,430 1,903
NET INCOME (LOSS) BEFORE INCOME TAXES (27,998) (45,003)
PROVISION FOR INCOME TAXES 0 0
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NET INCOME (LOSS) $ (27,998) $ (45,003)
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EARNINGS (LOSS) PER COMMON SHARE $ (0.01) $ (0.02)
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WTD AVG NUMBER OF SHARES OUTSTANDING 1,936,859 1,897,164
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</TABLE>
Page 4
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IMAGE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (27,998) $ (45,003)
Adjustments to reconcile net (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization 89,233 128,455
Equity in (earnings) loss of affiliate 5,039 0
Allowance for doubtful accounts 0 6,500
Compensation expense related to nonqualified
stock options 0 0
Issuance of stock for services 7,485 19,198
Changes in operating assets/liabilities:
Receivables 109,341 128,243
Inventory 0 (105)
Prepaid expenses 3,046 22,468
Accounts payable (68,733) 91,525
Accrued liabilities (49,824) (224,266)
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NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 67,589 127,015
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (6,494) (27,364)
Increase in capitalized software (59,590) (85,435)
Investment in affiliate 0 (50,000)
Increase in other assets (47,551) 0
Payments from notes receivable 0 4,405
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NET CASH USED FOR BY INVESTING ACTIVITIES (113,635) (158,394)
CASH FLOWS USED IN FINANCING ACTIVITIES:
Repayment of line of credit (2,979) (95,850)
Additions to line of credit 5,450 50,000
Repayment of long-term debt (2,693) (70,269)
Issuance of convertible notes 0 100,000
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NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (222) (16,119)
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INCREASE (DECREASE) IN CASH AND EQUIVALENTS (46,268) (47,498)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 345,852 648,714
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CASH AND EQUIVALENTS, END OF PERIOD $299,584 $ 601,216
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</TABLE>
Page 5
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IMAGE SOFTWARE, INC
NOTES TO CONSOLIDATE 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, 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,
include 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 weighted
average number of common and equivalent shares. Common stock equivalents were
not included in the weighted 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.
Page 6
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31, 1996
VERSUS MARCH 31, 1995
IMAGE Software, Inc.'s (the "Company") revenue of $384,736 for the first
quarter of 1996 was 68% lower than the $1,198,974 reported for the same
period a year ago. For the three months ended March 31, 1996 the Company
posted a net loss of $(27,998) versus a net loss of $(45,003) for the same
period in 1995. The net loss per share for the three months ended March 31, 1996
was $(.01) compared with net loss per share of $(.02) for the three months
ended March 31, 1995. The decrease in revenue is largely attributable to a
decline in system sales sold directly to the transportation industry, a
market which has experienced slow economic conditions. Severe weather and
increased gasoline prices has had a major impact on the trucking segment,
causing many companies to postpone capital expenditures. In addition, sales
through the Company's new reseller network were down for the first quarter of
1996, although the Company expects more positive results for the remainder
of the year. In March 1996, the Company recovered $110,838 of other income by
collecting receivables which had previously been written off as bad debt.
As a result of cost-cutting measures implemented during the second half of
1995, costs associated with providing technical support, including salaries,
were 39% lower for the three months ended March 31, 1996 compared to the same
period in 1995. Selling, general, and administrative ("SG&A") expenses of
$307,133 for the quarter ended March 31, 1996 were 35% lower than SG&A
expenses for the same quarter in 1995. This decrease in expenses is
attributable to lower costs in nearly every area as various measures were
taken by management in the second half of 1995 to reduce costs across the board
Based on the recent signing of a significant new update and annual support
contract with Reynolds & Reynolds, the Company's largest single customer in
1994, the Company believes that it will be profitable in the second quarter
of 1996 and expects the momentum created by that agreement to carry through
the rest of the year. The Company presently expects that this momentum will
result in a profit for the year. This and the other forward looking
statements in this report, however, are not, and cannot be guaranteed because
of various risks outside of the Company's control, including the risk of a
general or industry-specific economic downturn, technical product problems,
slumping sales, new technological developments, increased competition and
other business changes generally.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996, cash on hand decreased $46,268 from $345,852 at
December 31, 1995. Additions to capitalized software used cash of $59,590 as
research and development costs were incurred in order to to continue to
enhance the Company's proprietary document imaging software products.
The Company's financial resources include cash on hand, revenues from
operations, and management of 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 accounts receivable. On May 3, 1996,
there were no borrowings against the line of credit.
Page 7
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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 HOLD Inapplicable
ITEM 5. OTHER INFORMATION Inapplicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Inapplicable
(A) Exhibit Table
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FINANCIAL DATA SCHEDULE 27
(B) Reports on Form 8-K
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There were no reports filed on Form 8-K for the quarter ended March 31, 1996.
Page 8
<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.
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(REGISTRANT)
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Date: 13-May-96 /s/ Mary Anne DeYoung
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Mary Anne DeYoung
Chief Financial Officer
EXHIBIT INDEX
Exhibit Method of Filing
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27 Financial Data Schedule Filed herewith electronically
Page 9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 299,584
<SECURITIES> 0
<RECEIVABLES> 556,465
<ALLOWANCES> 97,167
<INVENTORY> 28,642
<CURRENT-ASSETS> 873,078
<PP&E> 793,874
<DEPRECIATION> 540,970
<TOTAL-ASSETS> 1,865,456
<CURRENT-LIABILITIES> 566,350
<BONDS> 0
0
0
<COMMON> 7,747
<OTHER-SE> 6,628,462
<TOTAL-LIABILITY-AND-EQUITY> 1,865,456
<SALES> 377,236
<TOTAL-REVENUES> 377,236
<CGS> 217,031
<TOTAL-COSTS> 299,633
<OTHER-EXPENSES> (118,391)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,961
<INCOME-PRETAX> (27,998)
<INCOME-TAX> 0
<INCOME-CONTINUING> (27,998)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,998)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
