UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(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, 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.
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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 officers)
(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
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 August 12, 1998
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, 1998, and December 31, 1997 3
Statements of Operations -for three months ended
June 30, 1998 and June 30, 1997 4
Statements of Operations -for six months ended
June 30, 1998 and June 30, 1997 5
Statements of Cash Flows -for six months ended
June 30, 1998 and June 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 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>
June 30, December 31,
Assets 1998 1997
- ----------------------------------------- ------------ ------------
Current Assets:
- ---------------
<S> <C> <C>
Cash and cash equivalents $ 125,375 $ 256,793
Trade accounts receivable, net 345,588 267,902
Inventory, at lower of cost or market 94,122 93,723
Prepaid expenses 8,951 7,673
----------- -----------
Total current assets 574,036 626,091
----------- -----------
Property and equipment, net 120,331 162,410
Deferred computer software development
costs, net 793,791 813,625
Other assets 70,089 47,511
----------- -----------
TOTAL ASSETS $ 1,558,247 $ 1,649,637
=========== ===========
Liabilities and Shareholders' Equity
- ------------------------------------
Current Liabilities:
- --------------------
Current portion of long-term debt:
Capital lease obligations $ 21,325 $ 12,186
Trade accounts payable 259,059 191,538
Line of credit 131,483 150,000
Accrued expenses and other liabilities 219,041 229,595
----------- -----------
Total current liabilities 630,908 583,319
----------- -----------
Long-term obligations:
Capital lease obligations 7,317 8,850
Other 150,000 150,000
----------- -----------
Total liabilities 788,225 742,169
Shareholders' equity:
Common stock, $.004 par value -
10,000,000 shares authorized;
shares outstanding: 1998 -
2,150,019; 1997 - 2,147,563 8,599 8,571
Additional paid-in capital 6,852,435 6,845,100
Accumulated deficit (6,091,012) (5,946,203)
----------- -----------
Total shareholders' equity 770,022 907,468
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 1,558,247 $ 1,649,637
=========== ===========
</TABLE>
1MAGE SOFTWARE, INC.
STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
Three Months Ended June 30,
1998 1997
----------- -----------
<TABLE>
<CAPTION>
Revenue:
- --------
<S> <C> <C>
System sales $ 159,087 $ 335,780
Services and annual fees 223,659 306,257
----------- -----------
Total revenue 382,746 642,037
Cost of Revenue:
- ----------------
System sales 110,493 177,547
Services and annual fees 104,579 80,044
----------- -----------
Total Cost of Revenue 215,072 257,591
Gross Profit: 167,674 384,446
- -------------
% of Revenue 43.8% 59.9%
Operating Expenses:
- -------------------
Selling, general and administrative 307,159 335,911
----------- -----------
Total Operating Expenses 307,159 335,911
Income (Loss) from Operations (139,485) 48,535
Other Income (Expense):
- -----------------------
Interest expense (9,445) (6,939)
Interest income 807 3,465
Other (10) (1,371)
----------- -----------
Total other income (expense) (8,648) (4,845)
----------- -----------
Income (Loss) Before Income Taxes (148,133) 43,690
Provision for Income Taxes - -
----------- -----------
Net Income (Loss) $ (148,133) $ 43,690
=========== ===========
Earnings (Loss) per Common Share $ (0.07) $ 0.02
=========== ===========
Weighted Average Number of Common
Shares Outstanding 2,142,454 2,147,563
=========== ===========
</TABLE>
1MAGE SOFTWARE, INC.
STATEMENTS OF OPERATIONS
FOR SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
----------- -----------
Revenue:
- --------
<S> <C> <C>
System sales $ 269,677 $ 654,433
Services and annual fees 556,063 519,122
----------- -----------
Total revenue 825,740 1,173,555
Cost of Revenue:
- ----------------
System sales 202,747 392,087
Services and annual fees 193,550 166,429
----------- -----------
Total Cost of Revenue 396,297 558,516
Gross Profit: 429,443 615,039
- -------------
% of Revenue 52.0% 52.4%
Operating Expenses:
- -------------------
Selling, general and administrative 559,247 672,036
----------- -----------
Total Operating Expenses 559,247 672,036
INCOME (LOSS) FROM OPERATIONS (129,804) (56,997)
Other Income (Expense):
- -----------------------
Interest expense (18,115) (15,468)
Interest income 2,802 7,111
Other 307 528
----------- -----------
Total other income (expense) (15,006) (7,829)
----------- -----------
Income (Loss) Before Income Taxes (144,810) (64,826)
Provision for Income Taxes - -
----------- -----------
Net Income (Loss) $ (144,810) $ (64,826)
=========== ===========
Earnings (Loss) per Common Share $ (0.07) $ (0.03)
=========== ===========
Weighted Average Number of Common
Shares Outstanding 2,142,414 2,003,481
=========== ===========
</TABLE>
1MAGE SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
FOR SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
----------- -----------
Cash Flows From Operating Activities:
- -------------------------------------
<S> <C> <C>
Net income (loss) $ (144,810) $ (64,826)
Adjustments to reconcile net income
(loss) to net cash provided by
(used for) operating activities:
Depreciation and amortization 176,681 208,432
Allowance for doubtful accounts 10,000 14,310
Issuance of stock for services - 5,625
Changes in operating assets and
liabilities:
Receivables (87,686) (30,670)
Inventory (399) (471)
Prepaid expenses (1,278) (49,078)
Accounts payable 67,521 49,107
Accrued liabilities (1,415) 49,094
----------- -----------
Net cash provided (used) by
operating activities 18,614 181,523
Cash Flows from Investing Activities:
- -------------------------------------
Purchase of fixed assets (4,402) (5,056)
Increase in capitalized software (110,366) (209,926)
Increase in other assets (22,578) (1,851)
----------- -----------
Net cash provided by (used for)
investing activities (137,346) (216,833)
Cash Flows from Financing Activities:
- -------------------------------------
Repayment of line of credit (30,000) (175,000)
Additions to line of credit 11,483 174,219
Repayment of long-term debt (1,533) (5,470)
Proceeds from exercise of common
stock options 7,364 -
----------- -----------
Net cash provided (used) by
financing activities (12,686) (6,251)
----------- -----------
Increase (Decrease) in cash and
cash equivalents (131,418) (41,561)
Cash and cash equivalents,
beginning of period 256,793 266,599
----------- -----------
Cash and cash equivalents,
end of period $ 125,375 $ 225,038
=========== ===========
</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 June 30, 1998 versus three
months ended June 30, 1997
- --------------------------------------------------------------------------
1MAGE Software, Inc.'s (the "Company") revenue of $382,746 for the second
quarter of 1998 was $259,291 (40%) lower than $642,037 reported for the
same period a year ago. For the three months ended June 30, 1998, the
Company posted a net loss of ($148,133) versus net income of $43,690 for
the same period in 1997. Loss per share for the three months ended June
30, 1998 was ($.07) compared to earnings per share of $.02 for the three
months ended June 30, 1997. System sales were lower for the three months
ended June 30, 1998, as compared to the same period in 1997, primarily due
to weaker than anticipated economic conditions, including a specific large
contract postponed because of the GM strike. While shipments of an
enhanced version of the Company's newest software release (Release 5.5) to
the Company's largest distributor were originally scheduled to commence in
second quarter 1998, those shipments did not begin until July 5, 1998 and
are expected to contribute to third quarter 1998 revenue. Services and
annual fees for the quarter ended June 30, 1998 were lower primarily due
to changes in the customer billing cycles (i.e., quarterly vs. annual).
Gross profit as a percent of revenue was 44% and 60%, respectively, for
the quarters ended June 30, 1998 and June 30, 1997. Selling, general and
administrative expenses of $307,159 for the three months ended June 30,
1998 were $28,752 (9%) lower than expenses for the same quarter in 1997,
as management continued to trim costs across the board.
Results of Operations for six months ended June 30, 1998 versus six months
ended June 30, 1997
- --------------------------------------------------------------------------
1MAGE Software, Inc.'s revenue of $825,740 for the six months ended June
30, 1998 was $347,815 (30%) lower than the $1,173,555 reported for the
same period a year ago. For the six months ended June 30, 1998, the
Company posted a net loss of ($144,810) versus a net loss of ($64,826) for
the same period in 1997. Loss per share for the six months ended June 30,
1998 was ($.07) compared with a net loss per share of ($.03) for the six
months ended June 30, 1997. As stated above, system sales were lower due
to weaker than anticipated economic conditions and the delay in shipping
the Company's newest software release to its largest distributor. Service
revenue and annual fees grew by 7% for the six months ended June 30, 1998,
as compared to the same period one year ago. Recurring annual license
fees for the six months ended June 30, 1998 accounted for $379,464 (46% of
total revenue) compared to $405,003 (35% of total revenue) for the same
period in 1997.
Liquidity and Capital Resources
- -------------------------------
As of June 30, 1998, cash on hand decreased $131,418 from $256,793 at
December 31, 1997. Additions to capitalized software used cash of
$110,366 as research and development costs were incurred in order to
continually enhance the document imaging software product offerings.
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, 1998 and
bears interest at Prime +1% and is secured by the Company's notes and
accounts receivable. On June 30, 1998, there was $131,483 outstanding
against the line of credit.
STATEMENTS EXPRESSING THE BELIEFS AND EXPECTATIONS OF MANAGEMENT REGARDING
FUTURE PERFORMANCE ARE FORWARD-LOOKING AND INVOLVE RISKS AND
UNCERTAINTIES, INCLUDING, BUT NOT LIMITED TO, QUARTERLY FLUCTUATIONS IN
RESULTS AND OTHER RISKS. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
MANAGEMENT'S EXPECTATIONS.
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 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
Form 8-K reporting ITEM 5. OTHER EVENTS was filed on June 30, 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: August 14, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 125,375
<SECURITIES> 0
<RECEIVABLES> 376,264
<ALLOWANCES> 30,676
<INVENTORY> 94,122
<CURRENT-ASSETS> 574,036
<PP&E> 868,418
<DEPRECIATION> 748,087
<TOTAL-ASSETS> 1,558,247
<CURRENT-LIABILITIES> 630,908
<BONDS> 0
0
0
<COMMON> 8,599
<OTHER-SE> 770,022
<TOTAL-LIABILITY-AND-EQUITY> 1,558,247
<SALES> 825,740
<TOTAL-REVENUES> 825,740
<CGS> 396,297
<TOTAL-COSTS> 559,247
<OTHER-EXPENSES> 3,109
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (18,115)
<INCOME-PRETAX> (144,810)
<INCOME-TAX> 0
<INCOME-CONTINUING> (144,810)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (144,810)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
