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, 1997
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
1MAGE SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
COLORADO 84-0866294
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) 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 2,147,563 July 10, 1997
Page 1 of 12
Exhibit Index Begins on Page 9
1MAGE SOFTWARE, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1 Financial Statements
Balance Sheets - June 30, 1997, and December 31, 1996 3
Statements of Operations - for three months ended
June 30, 1997 and June 30, 1996 4
Statements of Operations - for six months ended
June 30, 1997 and June 30, 1996 5
Statements of Cash Flows - for six months ended
June 30, 1997 and June 30, 1996 6
Notes to 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
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
1MAGE SOFTWARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS JUNE 30, DECEMBER
1997 31, 1996
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 225,038 $ 266,599
Trade accounts receivable, net 571,161 540,491
Inventory, at lower of cost or market 103,761 104,232
Prepaid expenses 62,648 24,814
----------- -----------
TOTAL CURRENT ASSETS 962,608 936,136
----------- -----------
Property and equipment, net 191,241 244,617
Deferred computer software
development costs, net 849,291 789,365
Other assets 50,054 48,203
----------- -----------
TOTAL ASSETS$ $ 2,053,194 $ 2,018,321
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt:
Other $ 150,000 $ 150,000
Capital lease obligations 6,700 12,983
Trade accounts payable 274,448 225,341
Line of credit 149,219 150,000
Accrued expenses and other liabilities 284,763 232,729
----------- ----------
TOTAL CURRENT LIABILITIES 865,130 771,053
----------- ----------
Long-term obligations:
Capital lease obligations 8,489 8,489
Other - -
----------- ----------
TOTAL LIABILITIES 873,619 779,542
SHAREHOLDERS' EQUITY:
Common stock, $.004 par value
10,000,000 shares authorized;
shares outstanding: 1997
2,147,563; 1996 - 2,147,563 8,590 8,590
Additional paid-in capital 6,856,155 6,850,533
Notes receivable for common stock (149,400) (149,400)
Accumulated deficit (5,535,770) (5,470,944)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 1,179,575 1,238,779
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 2,053,194 $ 2,018,321
=========== ===========
</TABLE>
1MAGE SOFTWARE, INC.
STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
1997 1996
-------- --------
<S> <C> <C>
REVENUE:
System sales $ 335,780 $ 221,558
Services and annual fees 306,257 363,665
---------- ----------
Total revenue 642,037 585,223
COST OF REVENUE:
System sales 177,547 100,632
Services and annual fees 80,044 97,755
---------- ----------
Total Cost of Revenue 257,591 198,387
GROSS PROFIT: 384,446 386,836
% of Revenue 59% 66%
OPERATING EXPENSES:
Selling, general and administrative 335,911 267,935
---------- ----------
Total Operating Expenses 335,911 267,935
INCOME (LOSS) FROM OPERATIONS 48,535 118,901
OTHER INCOME (EXPENSE):
Equity in earnings/(loss) of affiliate - (8,900)
Interest expense (6,939) (6,667)
Interest income 3,465 3,569
Other (1,371) (66)
---------- ----------
Total other income (expense) (4,845) (12,064)
---------- ----------
INCOME BEFORE INCOME TAXES 43,690 106,837
PROVISION FOR INCOME TAXES - -
---------- ----------
NET INCOME $ 43,690 $ 106,837
========== ==========
EARNINGS PER COMMON SHARE $ 0.02 $0.05
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 2,147,563 1,969,986
========== ==========
</TABLE>
1MAGE SOFTWARE, INC.
STATEMENTS OF OPERATIONS
FOR SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 1996
------- -------
<S> <C> <C>
REVENUE:
System sales $ 654,433 $ 397,947
Services and annual fees 519,122 572,012
----------- ----------
Total revenue 1,173,555 969,959
COST OF REVENUE:
System sales 392,087 203,759
Services and annual fees 166,429 211,659
----------- ----------
Total Cost of Revenue 558,516 415,418
GROSS PROFIT: 615,039 554,541
% of Revenue 52% 57%
OPERATING EXPENSES:
Selling, general and administrative 672,036 575,483
----------- ----------
Total Operating Expenses 672,036 575,483
INCOME (LOSS) FROM OPERATIONS (56,997) (20,942)
OTHER INCOME (EXPENSE):
Equity in earnings/(loss) of affiliate - (13,939)
Interest expense (15,468) (13,628)
Interest income 7,111 7,360
Other 528 119,988
----------- -----------
Total other income (expense) (7,829) 99,781
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (64,826) 78,839
PROVISION FOR INCOME TAXES - -
----------- -----------
NET INCOME (LOSS) $ (64,826) $ 78,839
=========== ===========
EARNINGS (LOSS) PER COMMON SHARE $ 0.03) $ 0.04
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 2,147,563 2,003,481
=========== ===========
</TABLE>
1MAGE SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
FOR SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 1996
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (64,826) $ 78,839
Adjustments to reconcile net income
(loss) to net cash provided by
(used for) operating activities:
Depreciation and amortization 208,432 178,467
Equity in (earnings) loss of
affiliate - 13,939
Allowance for doubtful accounts 14,310 (35,000)
Issuance of stock for services 5,625 28,568
Changes in operating assets
and liabilities:
Receivables (30,670) 50,146
Inventory (471) (15,000)
Prepaid expenses (49,078) (29,581)
Accounts payable 49,107 (60,261)
Accrued liabilities 49,094 (66,116)
----------- -----------
Net cash provided (used) by
operating activities 181,523 144,001
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (5,056) (15,772)
Increase in capitalized software (209,926) (138,885)
Increase in other assets (1,851) (765)
Payments from notes receivable - 10,674
----------- -----------
Net cash provided by (used for)
investing activities (216,833) (144,748)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of line of credit (175,000) (155,927)
Additions to line of credit 174,219 164,450
Repayment of long-term debt (5,470) (5,470)
----------- -----------
Net cash provided by financing
activities (6,251) 3,053
----------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (41,561) 2,306
Cash and cash equivalents,
beginning of period 266,599 345,852
----------- -----------
Cash and cash equivalents,
end of period $ 225,038 $ 348,158
=========== ===========
</TABLE>
1MAGE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
GENERAL:
Management has elected to omit substantially all notes to the unaudited interim
financial statements. Reference should be made to the Company's annual report
on Form 10-K for the year ended December 31, 1996 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, 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.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED JUNE 30, 1997 VERSUS THREE MONTHS
ENDED JUNE 30, 1996
1MAGE Software, Inc.'s (the "Company") revenue of $642,037 for the second
quarter of 1997 was 10% higher than $585,223 reported for the same period a year
ago. For the three months ended June 30, 1997, the Company posted net income of
$43,690 versus net income of $106,837 for the same period in 1996. Earnings per
share for the three months ended June 30, 1997 were $.02 compared to earnings
per share of $.05 for the three months ended June 30, 1996. The increase in
revenue is attributable to a 51% increase in system sales for the comparable
periods. Revenue generated from system sales accounted for 52% of total revenue
for the second quarter of 1997, as compared to 38% of revenue for the second
quarter of 1996. Reseller software sales for the second quarter of 1997
exceeded direct software sales. Sales to resellers are reported net of all
discounts. Service and annual fees comprised 48% and 62% of total revenue for
the comparable periods. Gross profit as a percent of revenue was 60% and 66%,
respectively, for the quarters ended June 30, 1997 and June 30, 1996. Gross
profit (dollars) changed less than 1% from the second quarter of 1996 to the
second quarter of 1997. Selling, general and administrative ("SG&A") expenses
of $335,911 for the three months ended June 30, 1997 were $68,000 higher than
expenses for the same quarter in 1996, due in part to increased sales and
marketing campaigns.
RESULTS OF OPERATIONS FOR SIX MONTHS ENDED JUNE 30, 1997 VERSUS SIX MONTHS ENDED
JUNE 30, 1996
1MAGE Software, Inc.'s revenue of $1,173,555 for the six months ended June 30,
1997 was 21% greater than $969,959 reported for the same period a year ago. For
the six months ended June 30, 1997, the Company posted a net loss of ($64,826)
versus net income of $78,839 for the same period in 1996. Loss per share for
the six months ended June 30, 1997 was ($.03) compared with net earnings per
share of $.04 for the six months ended June 30, 1996. Revenue from system sales
accounted for 55% of total revenue for the six months ended June 30, 1997,
compared to 41% of total revenue for the same period in 1996. Management's goal
is to have a balance between recurring revenues and new business. In the six
months ended June 30, 1997, the Company has signed up four resellers each of
which target different vertical markets. Recurring annual license fees for the
six months ended June 30, 1997 accounted for $405,003 (35% of total revenue)
compared to $409,476 (42% of total revenue) for the same period in 1996. Net
income was greater in 1996 primarily due to the recovery of a previously written
off bad debt (in the amount of $110,838) during the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, cash on hand decreased $41,561 from $266,599 at December
31, 1996. Additions to capitalized software used cash of $209,926 as research
and development costs were incurred in order to continually enhance the document
imaging software product offerings. Current liabilities include a $150,000 note
payable to the same related party as the note receivable for common stock that
is shown in the Stockholder Equity section of the Balance Sheet.
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 $150,000 revolving line of
credit which expires September 5, 1997 and bears interest at Prime +1% and is
secured by the Company's notes and accounts receivable. On July 10, 1997, there
was $149,219 outstanding against the line of credit.
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
The Registrant's annual meeting of stockholders was held on May 12, 1997. At
the meeting, David R. DeYoung, Charles E. Burns, Robert Wiegand II, Mary Anne
DeYoung and Richard A. Knapp were elected as directors. The stockholders
approved and ratified the Company's 1996 Equity Incentive Plan and they ratified
the appointment of Karsh & Co., P.C. as the Company's independent public
accountants for the year ending December 31, 1997
The number of votes cast for or withheld for each director was as follows:
NOMINEE FOR WITHHELD
David R. DeYoung 1,922,019 11,318
Charles E. Burns 1,922,426 10,911
Robert Wiegand II 1,923,547 9,790
Mary Anne DeYoung 1,921,047 12,290
Richard A. Knapp 1,922,547 10,790
The number of votes cast for, against and abstentions for approval and
ratification of the Company's 1996 Equity Incentive Plan was as follows:
FOR AGAINST ABSTAIN NOT VOTED
723,029 40,895 19,065 1,150,348
The number of votes cast for, against and abstentions for ratification of the
auditors was as follows:
FOR AGAINST ABSTAIN
1,920,450 8,498 4,389
Because the election of directors and ratification of auditors were considered
routine under applicable stock exchange rules, all proxy shares held in the
names of brokers as nominees which were not voted at the meeting by the
beneficial holders thereof were voted by the brokers in favor of the nominees
for the Board of Directors and the retention of the auditors.
ITEM 5. OTHER INFORMATION INAPPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibit Table
27 Financial Data Schedule
(B) Reports on Form 8-K
There were no reports filed on Form 8-K for the quarter ended June 30, 1997.
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)
Date: July 11, 1997 /s/ Mary Anne DeYoung
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 225,038
<SECURITIES> 0
<RECEIVABLES> 599,232
<ALLOWANCES> 28,071
<INVENTORY> 103,761
<CURRENT-ASSETS> 962,608
<PP&E> 847,461
<DEPRECIATION> 656,220
<TOTAL-ASSETS> 2,053,194
<CURRENT-LIABILITIES> 865,130
<BONDS> 0
0
0
<COMMON> 8,590
<OTHER-SE> 1,170,985
<TOTAL-LIABILITY-AND-EQUITY> 2,053,194
<SALES> 642,037
<TOTAL-REVENUES> 642,037
<CGS> 257,591
<TOTAL-COSTS> 335,911
<OTHER-EXPENSES> (2,094)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,939
<INCOME-PRETAX> 43,690
<INCOME-TAX> 43,690
<INCOME-CONTINUING> 43,690
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,690
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
