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, 1998
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 2,203,019 November 6, 1998
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, 1998, and December 31, 1997 3
Statements of Operations -
for three months ended Sept. 30, 1998 and Sept. 30, 1997 4
Statements of Operations -
for nine months ended Sept. 30, 1998 and Sept. 30, 1997 5
Statements of Cash Flows -
for nine months ended Sept. 30, 1998 and Sept. 30, 1997 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
1MAGE SOFTWARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, DECEMBER 31,
1998 1997
- ------------------------------------------ ------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 72,737 $ 256,793
Trade accounts receivable, net 581,007 267,902
Inventory, at lower of cost or market 91,585 93,723
Current portion of notes receivable - -
Prepaid expenses 3,990 7,673
----------- -----------
TOTAL CURRENT ASSETS 749,319 626,091
----------- -----------
Property and equipment, net 105,335 162,410
Deferred computer software
development costs, net 799,663 813,625
Other assets 49,629 47,511
----------- -----------
TOTAL ASSETS $ 1,703,946 $ 1,649,637
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt:
Other $ - $ 150,000
Capital lease obligations 20,065 12,186
Trade accounts payable 383,622 191,538
Line of credit 150,000 150,000
Accrued expenses and other liabilities 189,849 229,595
----------- -----------
TOTAL CURRENT LIABILITIES 743,536 733,319
----------- -----------
Long-term obligations:
Capital lease obligations 6,289 8,850
Other 26,250 -
Related parties 150,000 -
----------- -----------
TOTAL LIABILITIES 926,075 742,169
SHAREHOLDERS' EQUITY:
Common stock, $.004 par value -
10,000,000 shares authorized;
shares outstanding: 1998 -
2,203,019; 1997 - 2,147,563 8,811 8,571
Additional paid-in capital 6,904,247 6,845,100
Accumulated deficit (6,135,187) (5,946,203)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 777,871 907,468
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 1,703,946 $ 1,649,637
=========== ===========
</TABLE>
1MAGE SOFTWARE, INC.
STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
-------- --------
<S> <C> <C>
REVENUE:
System sales $ 362,737 $ 134,892
Services and annual fees 258,631 253,718
--------- ---------
Total revenue 621,368 388,610
COST OF REVENUE:
System sales 221,448 110,398
Services and annual fees 90,961 75,337
--------- ---------
Total Cost of Revenue 312,409 185,735
GROSS PROFIT: 308,959 202,875
% of Revenue 50.0% 52.0%
OPERATING EXPENSES:
Selling, general and administrative 252,523 365,013
--------- ---------
Total Operating Expenses 252,523 365,013
INCOME (LOSS) FROM OPERATIONS 56,436 (162,138)
OTHER INCOME (EXPENSE):
Interest expense (6,245) (9,220)
Interest income 1,142 3,490
Merger costs (100,631) -
Other 122 (410)
--------- ---------
Total other income (expense) (105,612) (6,140)
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (49,176) (168,278)
PROVISION FOR INCOME TAXES - -
--------- ---------
NET INCOME/(LOSS) $ (49,176) $(168,278)
========= =========
Earnings/(Loss) per Common Share $(0.02) $(0.08)
========= =========
WTD. AVG. # OF COMMON SHARES OUTSTANDING 2,202,548 2,152,374
========= =========
</TABLE>
1MAGE SOFTWARE, INC.
STATEMENTS OF OPERATIONS
FOR NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
-------- --------
<S> <C> <C>
REVENUE:
System sales $ 632,414 $ 789,325
Services and annual fees 814,694 772,840
---------- ----------
Total revenue 1,447,108 1,562,165
COST OF REVENUE:
System sales 424,194 502,485
Services and annual fees 284,511 241,766
---------- ----------
Total Cost of Revenue 708,705 744,251
GROSS PROFIT: 738,403 817,914
% of Revenue 52% 58%
OPERATING EXPENSES:
Selling, general and administrative 811,773 1,037,049
---------- ----------
Total Operating Expenses 811,773 1,037,049
INCOME (LOSS) FROM OPERATIONS (73,370) (219,135)
OTHER INCOME (EXPENSE):
Interest expense (23,531) (24,689)
Interest income 3,401 10,601
Merger costs (100,631) 0
Other costs 147 119
---------- ----------
Total other income (expense) (120,614) (13,969)
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (193,984) (233,104)
PROVISION FOR INCOME TAXES - -
---------- ----------
NET INCOME (LOSS) $ (193,984) $ (233,104)
========== ==========
EARNINGS (LOSS) PER COMMON SHARE $(0.09) $(0.11)
========== ==========
WTD. AVG. # OF COMMON SHARES OUTSTANDING 2,162,558 2,152,374
========== ==========
</TABLE>
1MAGE SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
FOR NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPT. 30,
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (193,984) $ (233,104)
Adjustments to reconcile net income
(loss) to net cash provided by
(used for) operating activities:
Depreciation and amortization 256,766 306,129
Allowance for doubtful accounts 29,900 (47,672)
Issuance of stock for services/products - 8,437
Changes in operating assets
and liabilities:
Receivables (313,105) 98,447
Inventory (2,138) (9,244)
Prepaid expenses (3,683) (26,803)
Accounts payable 218,334 25,367
Accrued liabilities (39,808) 57,310
---------- ----------
Net cash provided by operating activities (47,718) 178,867
Cash Flows from Investing Activities:
Purchase of fixed assets (4,391) (16,546)
Increase in capitalized software (181,338) (303,578)
Increase in other assets (2,118) 8,577
---------- ----------
Net cash provided by (used for)
investing activities (187,847) (311,547)
Cash Flows from Financing Activities:
Repayment of line of credit (60,000) (175,000)
Additions to line of credit 60,000 174,999
Repayment of long-term debt (7,879) (5,262)
Proceeds from exercise of stock options 59,388 -
---------- ----------
Net cash provided by (used for)
financing activities 51,509 (5,263)
---------- ----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (184,056) (137,943)
Cash and cash equivalents,
beginning of period 256,793 266,599
---------- ----------
Cash and cash equivalents,
end of period $ 72,737 $ 128,656
========== ==========
</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, 1997 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, 1998 versus
- -----------------------------------------------------------------------
three months ended September 30, 1997
- -------------------------------------
1MAGE Software, Inc.'s (the "Company") revenue for the third quarter of
1998 increased 60% to $621,368, compared to $388,610 for the third quarter
of 1997. Quarterly revenue from system sales increased 169% year over
year. The Company reported third quarter 1998 operating income of $56,436
compared to a loss from operations in third quarter 1997 of ($162,138).
The Company, however, reported a net loss for the third quarter of 1998 of
($49,176) or ($.02) per share due to merger-related charges of $100,631.
This compares to a net loss for the third quarter of 1997 of ($168,278) or
($.08) per share. In addition, selling, general and administrative
("SG&A") expenses of $252,523 for the three months ended September 30,
1998 were 31% lower than expenses for the same quarter in 1997, as
management continued to trim costs across the board.
Results of Operations for nine months ended September 30, 1998 versus
- ---------------------------------------------------------------------
nine months ended September 30, 1997
- ------------------------------------
1MAGE Software, Inc.'s revenue of $1,447,108 for the nine months ended
September 30, 1998 was 7% lower than $1,562,165 reported for the same
period a year ago. This decrease was the result of a 58% downturn in low
margin hardware sales, which the Company is no longer emphasizing. Other
components of revenue increased by 6% for the comparable nine month
periods. Recurring annual software license fees accounted for $564,763
(39% of total revenue) compared to $556,901 (37% of total revenue) for
the same period in 1997. Loss from operations for the nine months ended
September 30, 1998, was ($73,370) compared to an operating loss for the
first nine months of 1997 of ($219,135). For the first nine months of
1998 the Company posted a net loss of ($193,984) versus net loss of
($233,104) for the same period in 1997. Loss per share for the nine
months ended September 30, 1998 was ($.09) compared with a loss per share
of ($.11) for the nine months ended September 30, 1997. SG&A expenses of
$811,773 were 22% lower than those incurred in the same period in 1997, as
management continued to trim costs across the board.
Liquidity and Capital Resources
- -------------------------------
As of September 30, 1998, cash on hand decreased to $72,737 from $256,793
at December 31, 1997. For the same time period, however, accounts
receivable increased $313,105. Collections from receivables generated
cash of $390,535 during the month of October, 1998. Cash on hand at
October 31, 1998 was $275,510. Additions to capitalized software used
cash of $181,338 as research and development costs were incurred to port
the imaging system to the Windows NT platform.
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 September 30,
1998, the line of credit was being fully utilized.
Year 2000 Issues
- ----------------
The Company has given serious attention to the potential problems that
could arise when the year 2000 arrives. Information technology assessment
is approximately 95% complete. The Company currently expects to have all
assessments and testing completed by the end of June, 1999.
The Company has acquired most of its computers and software in the past
three years. Accordingly, most of these products have incorporated Year
2000 compliant technology. The Company's business application software
has been certified Year 2000 compliant, provided that a current release is
installed. The Company is currently operating under this specified
release. The Company has begun to upgrade all PC software to the Windows
98 and Windows NT 4 operating system which, according to Microsoft, are
Year 2000 compliant. This project is expected to be complete by
September, 1999. The Company's document imaging software (which the
Company uses as well as markets), has been certified for the Year 2000,
provided release 5.0 or above is installed. The Company, as well as the
Company's largest business partner, have tested the software extensively
and found it to be Year 2000 compliant.
Due to the fact that the Company's hardware and software is relatively
new, the costs of Year 2000 issues have not been material. No special
expenditures have been required.
Forward Looking Statements
- --------------------------
Some of the statements made herein which are not historical facts may be
considered "forward looking statements." All 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 Inapplicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES Inapplicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On behalf of the Board of Directors, in a proxy statement dated September
30, 1998, the Company solicited the Company's shareholders to approve five
proposals in connection with a merger agreement between the Company and
SupraLife International at a special shareholders meeting to be held on
October 30, 1998. On October 13, 1998, the Company issued a press release
which announced that the Company and SupraLife International had agreed to
terminate the merger agreement signed by both parties in July 1998, and
that it had cancelled the special meeting of shareholders. On October 30
the proxies solicited for the meeting were used to establish a quorum but,
as directed by the Company's Board of Directors, no vote was taken on any
of the proposals.
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
Form 8-K reporting ITEM 5. OTHER EVENTS was filed on September 3, 1998.
Form 8-K reporting ITEM 5. OTHER EVENTS was filed on October 19, 1998.
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, 1998 /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> 9-MOS
<FISCAL-YEAR-END> DEC-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 72,737
<SECURITIES> 0
<RECEIVABLES> 581,007
<ALLOWANCES> 50,556
<INVENTORY> 91,585
<CURRENT-ASSETS> 749,319
<PP&E> 2,953,956
<DEPRECIATION> 2,848,621
<TOTAL-ASSETS> 1,703,946
<CURRENT-LIABILITIES> 743,536
<BONDS> 0
0
0
<COMMON> 8,811
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,703,946
<SALES> 1,447,108
<TOTAL-REVENUES> 1,447,108
<CGS> 708,705
<TOTAL-COSTS> 811,773
<OTHER-EXPENSES> (97,083)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,531
<INCOME-PRETAX> (193,984)
<INCOME-TAX> 0
<INCOME-CONTINUING> (193,984)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (193,984)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
