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1MAGE SOFTWARE, INC.
1,200,158 Shares
Common Stock
$0.004 Par Value
This Prospectus relates to the offer and sale of 1,200,158 shares of
common stock, par value $0.004 per share (the "Shares") of 1MAGE Software,
Inc. (the "Company") by certain warrant holders and shareholders of the
Company (the "Selling Shareholders"). The Shares may be sold from time to
time by the Selling Shareholders, through ordinary brokerage transactions
in negotiated transactions or otherwise, at fixed prices which may be
changed, at market prices prevailing at the time of sale or at negotiated
prices. See- "Selling Shareholders" and "Plan of Distribution."
The Company will not receive any of the proceeds from the sale of the
Shares. The Company has agreed to bear certain expenses in connection
with the registration of the Shares being offered and sold by the Selling
Shareholders. See- "Selling Shareholders."
The Company's Common Stock, $0.004 par value per share (the "Common
Stock") is quoted on The Nasdaq Stock Market - SmallCap Market under the
symbol "ISOL" On September 26, 1997, the last reported sale price of the
Company's Common Stock was $1.3125.
THESE ARE SPECULATIVE SECURITIES.
SUCH SECURITIES INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" AT PAGE 4
==========================================================================
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
==========================================================================
No person has been authorized to give any information or to make any
representation other than those contained in the Prospectus in connection
with the offering made hereby, and if given or made, such information or
representation must not be relied upon as having been authorized by the
Company or by the Selling Shareholders. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that the information herein is correct as of any
time subsequent to the date hereof.
----------------------------
The date of this Prospectus is September 26, 1997.
AVAILABLE INFORMATION
1MAGE Software, Inc. (the "Company") has filed with the Securities
and Exchange Commission (the "Commission") a Registration Statement on
Form S-3 (the "Registration Statement" ) under the Securities Act of 1933,
as amended (the "Securities Act"), with respect to the Common Stock
offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth
in the Registration Statement and the exhibits and schedules thereto or
incorporated by reference therein. Such information, including exhibits
and schedules to the Registration Statement incorporated by reference
therein, can be inspected and copied at the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Room 1024, Judiciary Plaza,
Washington, D.C 20549. Statements made in this Prospectus as to the
contents of any contract or any other document referred to are not
necessarily complete, and, in each instance, reference is made to the copy
of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports, proxy statements and other information
with the Commission. All such information may be inspected and copied at
the public reference facilities maintained by the Commission at its
principal office at 450 Fifth Street, N.W., Room 1024, Judiciary Plaza,
Washington, D.C. 20549, and at the following regional offices of the
Commission: 1801 California Street, Suite 4800, Denver, Colorado 80202-
2648; Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511; and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material can also be obtained from
the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission also maintains a site on the World Wide Web at
http://www.sec.gov/edgarhp.htm that contains reports, proxy and
information statements and other information concerning registrants that
file electronically with the Commission. The Common Stock is traded on
the National Association of Securities Dealers, Inc., Automated Quotation
System ("Nasdaq"). Information filed by the Company with Nasdaq may be
inspected at the offices of Nasdaq at 1735 K Street, N.W., Washington,
D.C. 20006.
This Prospectus incorporates by reference documents which are not
presented herein or delivered herewith. Copies of these documents (other
than exhibits to such documents unless such exhibits are specifically
incorporated by reference) are available to any person, including any
beneficial owner, to whom this Prospectus is delivered, on written or oral
request, without charge, directed to David R. DeYoung, President and Chief
Executive Officer, 1MAGE Software, Inc., 6486 S. Quebec St., Englewood,
Colorado 80111, telephone number 303/694-9180.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission
pursuant to the Exchange Act are incorporated herein by reference
(Commission File No. 0-12535):
1. Annual Report on Form 10-K for the year ended December 31, 1996,
filed March 26, 1997;
2. Form 8-A (Commission File No. 0-12535) filed October 7, 1993
3. Form 10-Q for the quarter ended March 31, 1997, filed May 14,
1997.
4. Form 10-Q for the quarter ended June 30, 1997, filed July 11,
1997.
All reports and other documents subsequently filed by the Company
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after
the date of this Prospectus and prior to the termination of the offering
shall be deemed to be incorporated by reference herein and to be a part
hereof from the date of filing of such reports and documents. Any
statement contained in a document incorporated or deemed to be
incorporated by reference herein prior to the date hereof shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference
herein, modifies or supersedes such statement. Any statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
A copy of the documents incorporated by reference other than exhibits
to such documents (unless such exhibits are specifically incorporated by
reference in the information contained in this Prospectus), may be
obtained upon request without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus has been delivered
upon the written or oral request of such person. Requests for such copies
should be made to David R. DeYoung, President and Chief Executive Officer,
1MAGE Software, Inc. 6486 S. Quebec Street, Englewood, CO 80111, telephone
number 303/694-9180. In addition, those materials which were filed
electronically by the Company with the Commission are available at the
Commission's World Wide Web site at http://www.sec.gov/edgarhp.htm.
THE COMPANY
1MAGE Software, Inc., (the "Company") develops and markets a software
product called 1MAGE(R), a UNIX-based electronic document image management
and retrieval system. Electronic imaging systems like 1MAGE(R) allow any
paper document to be converted to electronic form for magnetic storage.
Magnetic storage drastically reduces the physical space needed for paper-
based filing systems and offers computer access to handwritten or non-
computer generated documents within seconds, a dramatic improvement over
traditional paper filing systems. The software has the ability to file,
route, track, archive and manage the flow of incoming and outgoing
documents throughout an organization. Using an open, client/server
architecture design, 1MAGE(R) provides a comprehensive solution for
scanning, indexing, storing and retrieving document images so that these
may be viewed, printed and faxed.
The Company targets the Multi-Value Relational Data Base Management
Systems ("RDBMS") market for 1MAGE(R) through Multi-Value RDBMS VARs,
systems integrators, and other companies which market complementary
software or other products. Significant Multi-Value RDBMS target markets
identified to date are manufacturing, insurance, government,
transportation, and health care. The Company has contracts in place with
VARs for the financial services, government, manufacturing, distribution,
health care, transportation and systems integration markets and is
actively seeking to expand its independent sales network.
The Company offers a comprehensive reseller program which provides,
in the context of a cooperative marketing effort, a broad range of sales,
marketing, and technical support. The program includes technical training
and assistance, marketing communications, sales training and assistance,
excellent support and training, lead referral services, customized product
literature, and a discounted demonstration/development program.
RISK FACTORS
An investment in the Company involves a high degree of risk. In
addition to the other information set forth in this Prospectus,
prospective investors should carefully consider the following risk factors
when evaluating an investment in the Company.
RELIANCE ON TRADE SECRET AND COPYRIGHT LAWS. The Company regards its
software as proprietary and relies for protection upon trade secret and
copyright laws and non-disclosure agreements with its employees as well as
restrictions on disclosure and transferability contained in its software
license agreements with its customers. Despite these restrictions, it may
be possible for competitors or customers to copy aspects of the Company's
products or obtain information that the Company regards as proprietary.
Furthermore, there can be no assurance that others will not independently
develop software products similar to those developed or planned by the
Company. Although the Company believes its software does not infringe on
the proprietary rights of others and has not received any notice of
claimed infringement, it is possible that portions of the software
marketed by the Company could be claimed to infringe on existing
proprietary rights. In the unlikely event that any such infringements are
found to exist, there can be no assurance that any necessary licenses or
rights could be obtained, or could be obtained on terms satisfactory to
the Company. Further, in such event, the Company could be required to
modify the infringing software. There can be no assurance that the Company
would be able to do so in a timely manner, upon acceptable terms and
conditions, or at all; the failure to do so could have a material adverse
effect on the Company.
DEPENDENCE ON SUPPLIERS. The success of the business of the Company
may depend in part upon the reliability of the Company's suppliers of
subcomponents and raw materials. The Company is subject to the risks of
shortages and delays in delivery of subcomponents and such materials.
There can be no assurance that the Company will continue to be able to
locate reliable secondary sources of these subcomponents and materials.
DEPENDENCE ON KEY MANAGEMENT AND EMPLOYEES. The Company is highly
dependent upon the efforts of its management for its success. The loss of
the services of one or more of its key officers, particularly David R.
DeYoung, President and Chief Executive Officer, could have a material
adverse effect on the Company's business. Mr. DeYoung is employed
pursuant to an employment agreement which expires October 31, 1999. The
Company maintains "key man" life insurance on the life of Mr. DeYoung in
the amount of $1,000,000. The success of the Company also depends upon
the Company's ability to attract and retain other qualified personnel.
The competition for qualified personnel in the computer software industry
is intense. Accordingly, there can be no assurance that the Company will
be able to continue to hire or retain such personnel.
TECHNOLOGICAL OBSOLESCENCE. The computer software industry has been
characterized by significant and rapid technological changes. The ability
of the Company to compete successfully in the future will depend in large
part on its ability to adapt to technological changes in the industry and
develop products that meet the changing needs of its customers. While the
Company believes that its software products are currently competitive,
future demand for the Company's software products will depend on its
ability to enhance and improve existing products and successfully develop
and market new products. There can be no assurance that competitors will
not develop technology or introduce software or systems that render the
Company's systems and software products obsolete or less marketable or
that the Company will be able to successfully enhance its existing
products or develop new products.
COMPETITION. The Company experiences competition in its business
from competitors who target one or more of the same markets or market
segments as the Company. Software and systems that perform many of the
same functions as the Company's systems and software are readily available
from a number of competitors of the Company, some of which are larger and
have greater financial, technical, marketing and other resources than the
Company. The Company believes that the principal factors affecting a
prospective customer's choice of a system are the database it uses,
performance, service and price. The Company believes that usage of the
popular UNIX based operating system and the Multi-Value RDBMS has
strengthened the Company's competitive position by making the Company's
software compatible with more types of hardware and Multi-Value
application software offered by Multi-Value software developers and system
integrators. The Company further believes that its principal advantage
over its competitors is the Company's utilization of a UNIX based open
systems architecture and the Multi-Value RDBMS which can be offered at
lower prices. Nevertheless, the Company's estimation of its own technical
and marketing advantages over its competitors may prove inaccurate and its
efforts to compete in the computer software industry may ultimately be
unsuccessful.
LIMITED MARKETS. The reseller program targets complementary markets
and allows the Company to draw from a much larger market with respect to
its imaging software products than its traditional markets of the trucking
and transportation industries. As noted above, the Company's strategy has
been to expand the domestic and international markets for its imaging
software by engaging VARs for various industries and markets. The
Company's experience has been that economic downturns or increased
competitive pressures in its niche markets sometimes result in reduction
or deferral of capital expenditures by potential customers. While such
adverse conditions can sometimes lead to opportunities as potential
customers downsize to smaller, more cost-efficient computer systems or
replace custom designed systems that require higher levels of support and
maintenance, the Company believes that both a strong national economy and,
to a lesser extent, a strong transportation industry are important to the
success of its sales efforts. Accordingly, purchasers of the Shares need
to be cognizant of the Company's potential dependence on such general
economic conditions.
POSSIBLE FLUCTUATIONS IN OPERATING RESULTS. The Company's sales
cycle, which generally commences at the time a prospective customer issued
a request for proposal or otherwise demonstrates to the Company a serious
interest in purchasing a system and ends upon execution of a sales
contract, typically ranges from two to six months. The Company's
operating results could vary from period to period as a result of the
length of the Company's sales cycle, the timing of individual systems
sales and conditions in the Company's target markets and the economy in
general.
NASDAQ MAINTENANCE STANDARDS. The National Association of Securities
Dealers, Inc. ("NASD") has recently increased its standards for companies
to remain listed on the Nasdaq SmallCap Market. These new standards which
were adopted August 25, 1997, now require the Company to maintain a
minimum of (i) net tangible assets greater than $2,000,000, market
capitalization greater than $35,000,000 or net income greater than
$500,000 for two of the last three years; (ii) a public float of at least
500,000 shares; (iii) a market value of the public float of at least
$1,000,000; (iv) a minimum bid price of $1.00 per share; (v) at least two
market makers in the Company's Common Stock; (vi) at least 300
shareholders; and (vii) certain corporate governance standards in order to
remain listed on Nasdaq. While the NASD has announced that non-complying
companies will have six (6) months from the August 25, 1997 adoption date
to meet the new standards, failure to meet these maintenance standards
could result in delisting from the Nasdaq system and that would adversely
affect the liquidity and value of the Company's Common Stock. The Company
does not presently meet these new requirements but is making substantial
efforts to increase its net tangible assets and meet the other
requirements by the February 25, 1998 deadline. There can be no
assurance, however, that the Company will be able to meet the NASD
maintenance standards at that time.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares
of Common Stock by the Selling Shareholders. The Selling Shareholders
have agreed to pay all commissions and other compensation to any
securities broker-dealers through whom they sell any of the Shares.
SELLING SHAREHOLDERS
The following table sets forth certain information regarding the
Selling Shareholders and the Shares offered by the Selling Shareholders
pursuant to this Prospectus. None of the Selling Shareholders within the
past three years has had any material relationship with the Company or any
of its affiliates except as described below.
<TABLE>
<CAPTION>
No. of No. of Shares to be
Shares Shares Beneficially Owned
Name of Selling Beneficially Being on Completion of the
Shareholder Owned Offered Offering
- ------------------------- ------------ ------- --------------------
Number % of Class
------- ----------
<S> <C> <C> <C> <C>
David R. DeYoung 504,331 100,000(1) 404,331 17.0%
Transition Partners,
Limited 53,689 53,689(2) 0 0%
Copeland Consulting Group,
Inc. 53,689 53,689(2) 0 0%
C. Maylena Burchfield 275,000 275,000(3) 0 0%
Dean S. Dumont 275,000 275,000(3) 0 0%
BurchMont Equities Group,
Inc. 35,000 35,000(4) 0 0%
Spencer D. Lehman 209,459 203,890(5) 5,569 *
John G. Mazza 243,890 203,890(5) 40,000 *
</TABLE>
* Less than one percent.
(1) Consists of Warrants to purchase Shares.
(2) Consists of a Warrant to purchase Shares issued in connection with a
corporate development and financial advice agreement.
(3) Consists of Warrants to purchase Shares issued in connection with an
agreement with BurchMont Equities Group, Inc. for certain financial
advice.
(4) Consists of Shares issuable upon exercise of Warrants issued to C.
Maylena Burchfield and Dean S. Dumont.
(5) Includes two convertible promissory notes, plus accrued interest,
which are convertible into 128,890 shares of Common Stock as of the
dates of their maturity, February 18, 1998. The two notes are not
convertible until that date.
- ----------------------
David R. DeYoung is President and Chief Executive Officer of the
Company. Spencer D. Lehman and John G. Mazza each own more than 5% of the
Company's outstanding shares of Common Stock and therefore are considered
"affiliates" of the Company within the meaning of Rule 144 of the
Securities Act of 1933. Other than as described, the Company has no
relationship with the Selling Shareholders.
In connection with an agreement between the Company and Transition
Partners, Limited ("Transition") whereby Transition provides corporate
development and financial advice, the Company granted a warrant to
purchase 53,689 shares of the Company's Common Stock to each of Transition
and Copeland Consulting Group, Inc. on December 16, 1996 (the "Transition
Warrants"). The Warrants are exercisable at $1.00 per share. The
purchase right for 25,000 of the Shares contained in the Transition
Warrants is exercisable until December 16, 1999. The purchase right for
the remaining 28,689 shares will vest upon the successful completion of a
capital transaction arranged by Transition. The Warrants grant the
holders "piggyback" registration rights to be included in the registration
by the Company of shares of its Common Stock. The Company has agreed to
bear the expenses of such registration. The Company pays $6,000 per month
to Transition throughout the duration of the contract, which expires
January 31, 1998. The Company will be charged a contingent advisory fee
of 5% of the total capital or debt procured as a result of the agreement.
On July 28, 1997, the Company entered into an agreement with BurchMont
Equities Group, Inc. ("BurchMont") to provide investor relations,
corporate finance and the similar services to the Company. In exchange
for the services, the Company issued to each of C. Maylena Burchfield and
Dean S. Dumont (a) a common stock purchase warrant to purchase up to
250,000 shares of the Company's Common Stock for a period of six (6)
months (the "Six Month Warrants") exercisable at the lower of (i) $1.25
per Share (the closing price of the Company's Common Stock on July 27,
1997) or (ii) 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 the August 14, 1997 issuance date, $1.34 per Share), and (b) a
common stock purchase warrant to purchase 25,000 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, that it will issue Shares 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. Pursuant to the terms of the Six Month and Two Year
Warrants, the holders thereof are entitled to demand registration of the
shares of Common Stock issuable upon exercise of the Warrants and they
have exercised that right. In accordance with the Warrants, the Company
has agreed to bear the expenses of such registration.
On January 28, 1994, the Board of Directors granted a total of
100,000 warrants to David R. DeYoung to purchase shares of the Company's
Common Stock at an exercise price of $1.5625 per Share until January 31,
1999. The Company agreed to let Mr. DeYoung "piggyback" his Shares on the
registration of the Shares being registered hereunder. The Company has
agreed to bear the expenses of such registration.
In connection with a Convertible Note Purchase Agreement dated
January 5, 1995, the Company issued $50,000 promissory notes to each of
PaineWebber for the Benefit of Spencer D. Lehman and John G. Mazza,
Trustee of the John G. Mazza Loving Trust. The notes are convertible into
shares of the Company's Common Stock at $.75 per share. The Company also
issued $25,000 promissory notes to each of the same persons in connection
with a Convertible Note Purchase Agreement dated August 21, 1995 between
the Company and the holders which are also convertible into shares of the
Company's Common Stock at $.75 per share. The notes are all due on
February 18, 1998 and are not convertible until that date. The Shares
into which the notes are convertible are being registered pursuant to
"piggyback" registration rights in the aforesaid agreements permitting
them to be included in the registration by the Company of shares of its
Common Stock. The Company has agreed to bear the expenses of such
registration.
PLAN OF DISTRIBUTION
All of the Shares offered hereby are being sold by the Selling
Shareholders. The Shares will be offered by the Selling Shareholders from
time to time at market prices prevailing at the time of offer and sale, at
prices related to such prevailing market prices, at negotiated prices, or
at fixed prices which may be changed. The Selling Shareholders may effect
such transactions by offering and selling the Shares directly to or
through securities broker-dealers, and such broker-dealers may receive
compensation in the form of discounts, concessions, or commissions from
the Selling Shareholders and/or the purchasers of the Shares for whom such
broker-dealers may act as agent or to whom the Selling Shareholders may
sell as principal, or both (which compensation as to a particular broker-
dealer might be in excess of customary commissions)
The Selling Shareholders and any broker-dealers who act in connection
with the sale of the Shares hereunder may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act of 1933 (the
"Securities Act") and any commissions received by them and profit on any
resale of the Shares as principal might be deemed to be underwriting
discounts and commissions under the Securities Act. The Company has
agreed to indemnify the Selling Shareholders against certain liabilities,
including liabilities under the Securities Act as underwriters or
otherwise. The Company has advised the Selling Shareholders that they and
any securities broker- dealers or others who may be deemed to be statutory
underwriters will be subject to the Prospectus delivery requirements under
the Securities Act.
Under applicable rules and regulations under the Securities and
Exchange Act of 1934, as amended (the "Exchange Act") any person engaged
in a distribution of any of the Shares may not simultaneously engage in
market activities with respect to the Common Stock for the applicable
period under Regulation M prior to the commencement of such distribution.
In addition and without limiting the foregoing, the Selling Shareholders
will be subject to applicable provisions of the Exchange Act and the rules
and regulations thereunder, including without limitation Rules 10b-5 and
Regulation M, which provisions may limit the timing of purchases and sales
of any of the Shares by the Selling Shareholders. All of the foregoing
may affect the marketability of the Common Stock.
In the absence of this Prospectus, those of the Selling Shareholders
who are executive officers, Directors and other "affiliates" of the
Company, would be able to sell their Shares only subject to the
limitations of Rule 144, promulgated under the Securities Act ("Rule
144"). In general, under Rule 144 as currently in effect, an "affiliate"
of the Company or a person who has beneficially owned shares which are
"restricted securities" as defined in Rule 144 for at least one year, is
entitled to sell within any three-month period a number of shares that
does not exceed the greater of: (i) one percent (1%) of the then
outstanding shares of Common Stock of the Company, or (ii) the average
weekly trading volume of the Common Stock during the four calendar weeks
preceding a sale by such person. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. Under Rule
144, however, a person who is not, and for the three months prior to the
sale of such shares has not been, an affiliate of the Company is free to
sell shares which are not "restricted securities," or "restricted
securities" which have been held for at least two years, without regard to
the limitations contained in Rule 144. The executive officers, Directors
or other "affiliates of the Company will not be subject to the foregoing
restrictions.
Under Section 16 of the Securities Exchange Act of 1934, Mr. DeYoung
and any other executive officer, Directors, and 10% or greater
shareholders of the Company will be liable to the Company for any profit
realized from any purchase and sale (or any sale and purchase) of Common
Stock within a period of less than six months.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the shares of Common Stock is
American Securities Transfer & Trust, Inc., 1825 Lawrence Street, #444,
Denver, Colorado, 80202.
LEGAL MATTERS
The validity of the securities to be offered hereby will be passed
upon for the Company by Gorsuch Kirgis L.L.C., Denver, Colorado, counsel
for the Company.
EXPERTS
The financial statements of 1MAGE Software, Inc. as of December 31,
1996 and 1995 and for the years then ended have been incorporated by
reference herein and in the registration statement in reliance upon the
report of Karsh & Company, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
INDEMNIFICATION OF DIRECTORS
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
