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, 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
incorporation or organization) Identification Number)
6486 South Quebec Street, Englewood, Colorado 80111
---------------------------------------------------
(Address of principal executive office)
(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 2,142,374 November 7, 1997
Page 1 of 12
Exhibit Index Begins on Page 10
1MAGE SOFTWARE, INC.
INDEX
------
PART I. FINANCIAL INFORMATION Page
----
Item 1 Financial Statements
Balance Sheets -September 30, 1997, and December 31, 1996 3
Statements of Operations -for three months ended
Sept. 30, 1997 and Sept. 30, 1996 4
Statements of Operations -for nine months ended
Sept. 30, 1997 and Sept. 30, 1996 5
Statements of Cash Flows -for nine months ended
Sept. 30, 1997 and Sept. 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 10
Item 6 Exhibits and Reports on Form 8-K 10
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
1MAGE SOFTWARE, INC.
BALANCE SHEETS
SEPTEMBER DECEMBER
ASSETS 30, 1997 31, 1996
- ------------------------------------ ---------- ----------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 128,656 $ 266,599
Trade accounts receivable, net 488,313 540,491
Inventory, at lower of cost or market 94,988 104,232
Current portion of notes receivable 149,400 -
Prepaid expenses 62,867 24,814
---------- ----------
Total current assets 924,224 936,136
---------- ----------
Property and equipment, net 180,034 244,617
Deferred computer software
development costs, net 867,943 789,365
Other assets 39,626 48,203
---------- ----------
TOTAL ASSETS $2,011,827 $2,018,321
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt:
Other $ 150,000 $ 150,000
Capital lease obligations 20,324 12,983
Trade accounts payable 250,708 225,341
Line of credit 149,999 150,000
Accrued expenses and other liabilities 290,039 232,729
---------- -----------
Total current liabilities 861,070 771,053
---------- -----------
Long-term obligations:
Capital lease obligations 4,346 8,489
Other - -
---------- -----------
TOTAL LIABILITIES 865,416 779,542
Shareholders' equity:
Common stock, $.004 par value -
10,000,000 shares authorized;
shares outstanding: 1997 -
2,142,374; 1996 - 2,147,563 8,609 8,590
Additional paid-in capital 6,841,853 6,850,533
Notes receivable for common stock - (149,400)
Accumulated deficit (5,704,051) (5,470,944)
----------- -----------
Total shareholders' equity 1,146,411 1,238,779
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,011,827 $ 2,018,321
=========== ===========
</TABLE>
1MAGE SOFTWARE, INC.
STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
-------- --------
REVENUE:
<S> <C> <C>
System sales $ 134,892 $ 341,356
Services and annual fees 253,718 223,548
--------- ----------
Total revenue 388,610 564,904
COST OF REVENUE:
System sales 110,398 152,872
Services and annual fees 75,337 75,835
--------- ----------
Total Cost of Revenue 185,735 228,707
GROSS PROFIT: 202,875 336,197
% of Revenue 52.2% 59.5%
OPERATING EXPENSES:
Selling, general and administrative 365,013 321,535
--------- ---------
Total Operating Expenses 365,013 321,535
INCOME (LOSS) FROM OPERATIONS (162,138) 14,662
OTHER INCOME (EXPENSE):
Interest expense (9,220) (6,667)
Interest income 3,490 7,498
Other (410) (8,756)
--------- ---------
Total other income (expense) (6,140) (7,925)
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (168,278) 6,737
PROVISION FOR INCOME TAXES - -
--------- ---------
NET INCOME /(LOSS) $(168,278) $ 6,737
========= =========
EARNINGS/(LOSS) PER COMMON SHARE $ (0.08) $ 0.00
========= =========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 2,149,400 2,129,563
========= =========
</TABLE>
1MAGE SOFTWARE, INC.
STATEMENTS OF OPERATIONS
FOR NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
-------- --------
<S> <C> <C>
REVENUE:
System sales 789,325 $739,303
Services and annual fees 772,840 795,560
--------- ---------
Total revenue 1,562,165 1,534,863
COST OF REVENUE:
System sales 502,485 356,631
Services and annual fees 241,766 287,493
--------- ---------
Total Cost of Revenue 744,251 644,124
GROSS PROFIT: 817,914 890,739
% of Revenue 52.4% 58.0%
OPERATING EXPENSES:
Selling, general and administrative 1,037,049 896,630
--------- ---------
Total Operating Expenses 1,037,049 896,630
INCOME (LOSS) FROM OPERATIONS (219,135) (5,891)
OTHER INCOME (EXPENSE):
Equity in earnings/(loss) of affiliate - (13,939)
Interest expense (24,689) (20,151)
Interest income 10,601 14,403
Other 119 111,154
--------- ---------
Total other income (expense) (13,969) 91,467
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (233,104) 85,576
PROVISION FOR INCOME TAXES - -
--------- ---------
NET INCOME (LOSS) $(233,104) $85,576
========= =========
EARNINGS (LOSS) PER COMMON SHARE $(0.11) $0.04
========= =========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 2,148,178 2,023,763
========= =========
</TABLE>
1MAGE SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
FOR NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPT. 30,
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ (233,104) $ 85,576
Adjustments to reconcile net income
(loss) to net cash provided
by (used for) operating activities:
Depreciation and amortization 306,129 218,103
Equity in (earnings)loss of
affiliate - 13,939
Allowance for doubtful accounts (47,672) (4,603)
Issuance of stock for
services/products 8,437 7,667
Changes in operating assets
and liabilities:
Receivables 98,447 67,573
Inventory (9,244) (17,846)
Prepaid expenses (26,803) (16,005)
Accounts payable 25,367 39,694
Accrued liabilities 57,310 (69,437)
--------- ---------
Net cash provided by operating
activities 178,867 324,661
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (16,546) (16,982)
Increase in capitalized software (303,578) (229,049)
Increase in other assets 8,577 (1,793)
Payments from notes receivable - 8,501
--------- ---------
Net cash provided by (used for)
investing activities (311,547) (239,323)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of line of credit (175,000) (227,152)
Additions to line of credit 174,999 274,177
Repayment of long-term debt (5,262) (8,353)
--------- ---------
Net cash provided by (used for)
financing activities (5,263) 38,672
--------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (137,943) 124,010
Cash and cash equivalents,
beginning of period 266,599 345,852
--------- ---------
Cash and cash equivalents,
end of period $ 128,656 $ 469,862
========= =========
</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 SEPTEMBER 30, 1997 VERSUS
THREE MONTHS ENDED SEPTEMBER 30, 1996
1MAGE Software, Inc.'s (the "Company") revenue of $388,610 for the third
quarter of 1997 was 31% lower than $564,904 reported for the same period a
year ago. For the three months ended September 30, 1997, the Company
posted a net loss of ($168,278) versus net income of $6,737 for the same
period in 1996. Loss per share for the three months ended September 30,
1997 was ($.08) compared to $.00 per share for the three months ended
September 30, 1996. The Company's disappointing revenue was primarily due
to postponement of several orders. System sales were down 60% for the
comparable periods. However, recurring revenue generated from annual
license fees increased 28% over the third quarter last year due to a
growing customer base. Reseller software sales for the third quarter of
1997 exceeded direct software sales. Sales to resellers are reported net
of all discounts. Selling, general and administrative ("SG&A") expenses
of $365,013 for the three months ended September 30, 1997 were 13% higher
than expenses for the same quarter in 1996, due to increased sales and
marketing expenses, higher depreciation charges, as well as legal fees
associated with the filing of a registration statement.
RESULTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 1997 VERSUS
NINE MONTHS ENDED SEPTEMBER 30, 1996
1MAGE Software, Inc.'s revenue of $1,562,165 for the nine months ended
September 30, 1997 was slightly higher than $1,534,863 reported for the
same period a year ago. For the nine months ended September 30, 1997, the
Company posted a net loss of ($233,104) versus net income of $85,576 for
the same period in 1996. Loss per share for the nine months ended
September 30, 1997 was ($.11) compared with net earnings per share of $.04
for the nine months ended September 30, 1996. Revenue from system sales
accounted for 51% of total revenue for the nine months ended September 30,
1997, compared to 48% 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 nine months ended September 30, 1997, the Company has
signed up six resellers, each of which target different vertical markets.
While there may not be immediate results from the signing of these
resellers, management believes that this is essential to the long-term
growth of the Company. Recurring annual license fees continue to grow
each year. For the nine months ended September 30, 1997, recurring annual
license fees accounted for $556,901 (36% of total revenue) compared to
$528,474 (35% of total revenue) for the same period in 1996. SG&A
expenses of $1,037,049 were 15.7% higher than those incurred in the same
period in 1996. A portion of the increased SG&A expenses resulted from
the hiring of a national sales manager, along with a new compensation
program for the Company's sales personnel. This program has since been
modified to more heavily emphasize and reward revenue generation by sales
personnel. In addition, the Company has eliminated the cost associated with the
the position of national sales manager. Bad debt expense and increased
depreciation charges accounted for $64,000 of this increase. 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 September 30, 1997, cash on hand decreased $137,943 from $266,599 at
December 31, 1996. Additions to capitalized software used cash of
$303,578 as research and development costs were incurred to hasten the
release of the new WIN Client software offering.
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 bears interest at Prime +1% and is
secured by the Company's notes and accounts receivable. On October 31,
1997, the line of credit was being fully utilized.
FORWARD LOOKING STATEMENTS
Some of the statements made herein which are not historical facts may be
considered "forward looking statements." Any forward looking statements
are, of course, subject to varying levels of uncertainty. In particular,
statements which suggest or predict future events or state the Company's
expectations or assumptions as to future events may prove to be partially
or entirely inaccurate, depending on any of a variety of factors, such as
adverse economic conditions, new technological developments, competitive
pressures, changes in the management, personnel, financial condition or
business objectives of one or more of the Company's customers, increased
governmental regulation or other actions affecting the Company or its
customers as well as other factors.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings Inapplicable
Item 2. Changes in Securities
On July 28, 1997, the Company entered into an agreement
with BurchMont Equities Group, Inc. ("BurchMont") to provide investor
relations, corporate finance and other similar services to the Company.
As payment for the services, the Company issued BurchMont's designees (a)
common stock purchase warrants to purchase up to 500,000 shares of the
Company's Common Stock for a period of six (6) months (the "Six Month
Warrants") exercisable at the lower of (I) the average closing bid price
reported on Nasdaq for the five days preceding the date of the issuance of
the warrants (which was, based on August 14, 1997 issuance date, $1.34 per
share), and (b) common stock purchase warrants to purchase an additional
50,000 Shares at a price of $1.50 per share for a period of two (2) years
(the "Two Year Warrants"). Further, the Company agreed that, upon
exercise of any of the Six Month Warrants, it will issue additional shares
of its Common Stock equal to seven percent (7%) of the number of shares
purchased pursuant to the Six Month Warrants to BurchMont. Both the Six
Month Warrants and the Two Year Warrants contain terms and provisions
regarding limitations on exercisability under certain circumstances. The
offering was made to the two accredited investors only pursuant to the
Securities Act of 1933 (the "Act") Regulation D. The shares underlying
all of the warrants have been registered for resale under the Act on Form
S-3.
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
27 Financial Data Schedule
(B) Reports on Form 8-K
There were no reports filed on Form 8-K for the quarter ended September
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: November 13, 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> SEP-30-1997
<CASH> 128,656
<SECURITIES> 0
<RECEIVABLES> 500,312
<ALLOWANCES> 12,000
<INVENTORY> 94,988
<CURRENT-ASSETS> 924,224
<PP&E> 1,698,042
<DEPRECIATION> 861,876
<TOTAL-ASSETS> 2,011,827
<CURRENT-LIABILITIES> 861,070
<BONDS> 0
0
0
<COMMON> 8,609
<OTHER-SE> 1,146,411
<TOTAL-LIABILITY-AND-EQUITY> 2,011,827
<SALES> 388,610
<TOTAL-REVENUES> 388,610
<CGS> 185,735
<TOTAL-COSTS> 365,013
<OTHER-EXPENSES> (410)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,220
<INCOME-PRETAX> (168,278)
<INCOME-TAX> 0
<INCOME-CONTINUING> (168,278)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (168,278)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
