FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the quarterly period ended 3/31/99
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the transition period from to .
1MAGE Software, Inc.
(Exact name of Registrant as specific in its charter)
0-12535
(Commission File Number)
Colorado 84-0866294
----------------------- ------------------------
(State of Incorporation) (IRS Employer
Identification Numbers)
6025 S. Quebec St. Suite 300 Englewood CO 80111 (303) 694-9180
- ----------------------------------------------- ----------------------
(Address of principal executive offices) (Registrant's telephone
number, including area
code)
Securities Registered Pursuant to Section 12(b) of the Act:
NONE NONE
---------------- ------------------
(Title of Class) (Name of Exchange)
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock - $.004 par value
------------------------------
(Title of Class)
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 [ ]
As of April 19, 1999, there were 2,335,521 shares of the Registrant's
common stock outstanding.
Exhibit Index begins on Page 8
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets - March 31, 1999, and December 31, 1998 3
Statements of Operations - for three months ended March 31, 1999 and
March 31, 1998 4
Statements of Cash Flows -for three months ended March 31, 1999 and
March 31, 1998 5
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. Other Information
Items 1-5 8
Item 6 Exhibits and Reports on Form 8-K 8
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
1MAGE SOFTWARE, INC.
BALANCE SHEETS
- -------------------------------------------------------------------------
March 31, December 31,
1999 1998
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<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 258,028 $ 229,671
Receivables:
Trade (less allowance: 1999,
$15,000; 1998, $20,849) 390,388 526,684
Related parties 1,741 7,141
Inventory 56,210 55,804
Prepaid expenses and other current assets 36,275 9,721
----------- -----------
Total current assets 742,642 829,021
PROPERTY AND EQUIPMENT, at cost, net 93,127 93,831
OTHER ASSETS:
Software development costs, net 778,003 786,572
Other 100 100
----------- -----------
TOTAL ASSETS $ 1,613,872 $ 1,709,524
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 78,869 $ 150,000
Current portion of capital lease
obligations 4,610 4,610
Accounts payable 201,936 292,883
Accrued liabilities 214,554 185,928
----------- -----------
Total current liabilities 499,969 633,421
LONG-TERM OBLIGATIONS:
Convertible notes payable to related
parties 100,000 150,000
Capital lease obligations 3,305 4,379
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.004 par value - 10,000,000
shares authorized; shares outstanding:
1999 - 2,335,521; 1998 - 2,203,019 9,341 8,811
Additional paid-in capital 6,979,351 6,904,247
Accumulated deficit (5,978,094) (5,991,334)
----------- -----------
Total shareholders' equity 1,010,598 921,724
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,613,872 $ 1,709,524
=========== ===========
</TABLE>
1MAGE SOFTWARE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
----------- -----------
<S> <C> <C>
REVENUE
System sales and software licenses $ 107,127 $ 110,580
Services and annual fees 379,660 332,414
----------- -----------
Total revenue 486,787 442,994
----------- -----------
COST OF REVENUE:
System sales and software licenses 27,435 27,123
Services and annual fees 184,679 154,103
----------- -----------
Total cost of revenue 212,114 181,226
----------- -----------
GROSS PROFIT 274,673 261,768
% of Revenue 56% 59%
OPERATING EXPENSES:
Selling, general & administrative 255,423 252,088
----------- -----------
INCOME FROM OPERATIONS 19,250 9,680
----------- -----------
OTHER INCOME/(EXPENSE):
Interest income 3,545 1,938
Other 165 275
Interest expense (9,718) (8,570)
----------- -----------
Total other income(expense) (6,008) (6,357)
----------- -----------
INCOME BEFORE INCOME TAXES 13,242 3,323
PROVISION FOR INCOME TAXES -- --
----------- -----------
NET INCOME $ 13,242 $ 3,323
=========== ===========
INCOME PER COMMON SHARE $ 0.01 $ 0.00
=========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,221,699 2,142,845
=========== ===========
</TABLE>
1MAGE SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $ 13,242 $ 3,323
Adjustments to reconcile earnings to net
cash provided by operating activities:
Depreciation and amortization 94,354 88,290
Changes in assets and liabilities:
Receivables 141,696 (224,602)
Inventory (406) (925)
Prepaid expenses and other assets 26,554 (823)
Accounts payable (90,947) 15,454
Accrued liabilities 27,704 (23,514)
----------- -----------
Net cash provided by (used for)
operating activities 212,197 (142,797)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (14,300) 0
Additions to capitalized software (70,781) (52,482)
Increase in other assets (26,554) 526
----------- -----------
Net cash used for investing
activities (111,635) (51,956)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to line of credit 0 0
Repayment of line of credit (71,131) 0
Repayment of long-term obligations (1,074) (652)
----------- -----------
Net cash used for financing
activities (72,205) (652)
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS 28,357 (195,405)
CASH AND CASH EQUIVALENTS, beginning of period 229,671 256,793
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 258,028 $ 61,388
=========== ===========
</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, 1998 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 The Company follows the liability method of accounting for
income taxes in accordance with Statement of Financial Accounting
Standards (SFAS) No. 109. Under this method, deferred income taxes are
recorded based upon differences between the financial reporting and tax
bases of assets and liabilities and are measured using enacted tax rates
and laws that will be in effect when the underlying assets or liabilities
are received or settled.
The Company has recorded a full valuation allowance against all deferred
tax assets due to the uncertainty of ultimate realizability. Accordingly,
no income tax expense/benefit has been recorded for the current period.
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 outstanding during the year. The potential dilution from common
stock equivalents is not material. 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 MARCH 31, 1999 VERSUS MARCH
31, 1998
1MAGE Software, Inc. (the "Company") reported revenue of $486,787 for the
first quarter of 1999, an increase of 10% over $442,994 posted for the
same period a year ago. Services and annual fees comprised 78% of total
revenue for the first quarter and have increased $47,246 (14%) over the
same quarter last year. Revenue from services and recurring annual fees
of $379,660 was $124,237 (or 149%) greater than selling, general and
administrative ("SG&A") expenses for the first quarter of 1999. Gross
profit was 56% of revenue in 1999, versus 59% in 1998, primarily due to a
22% increase in amortization (non-cash) expense of software development
costs for the first quarter of 1999. SG&A expenses increased just 1% for
the two comparable periods. The Company posted first quarter 1999 net
earnings of $13,242 or $.01 per share, as compared to net earnings of
$3,323, or $.00 per share, for the same quarter last year.
The Company added new resellers during first quarter of 1999 in the
healthcare and distribution markets in order to increase sales via
indirect channels.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, cash on hand increased $28,357 from $229,671 at
December 31, 1998, primarily due to collections from accounts receivable.
The Company used cash of $71,131 to pay down the line of credit and
$70,781 was spent for additions to capitalized software.
On February 19, 1999, the Company entered into a $200,000 line of credit
agreement with a bank, increasing the former limit by $50,000. Total
borrowings against the line of credit at March 31, 1999 were $78,869.
In March 1999, the Company offered to repay $50,000 plus accrued interest
on the convertible notes payable to related parties. The noteholders, at
their option, elected to convert their promissory notes into shares of
common stock at $.625 per common share. In connection with this
transaction, 102,502 shares of common stock were issued to the
noteholders.
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's line of
credit expires February 24, 2000 and bears interest at prime plus 1.5% and
is secured by the Company's accounts and general intangibles.
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 systems, which, according to Microsoft
Corporation, are Year 2000 compliant. This project is expected to be
complete by September 30, 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 are not historical facts and 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
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 March 31, 1999, each of the two holders of convertible promissory
notes dated August 21, 1995 elected to convert their notes into 51,251
shares of the Company's Common Stock at $0.625 per share. The Company
relied on the exemption from registration in Section 4(2) of the
Securities Act of 1933, as amended, for the conversions by these two
accredited investors. The certificates for the shares carry a restrictive
legend, but the shares have been previously registered on the Company's
Form S-3 Registration Statement (No. 333-35265) dated effective September
26, 1997, which is still currently effective.
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 10-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 March
31, 1999.
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: 4/29/99 /s/ Mary Anne DeYoung
--------------------------------
Mary Anne DeYoung
Chief Financial Officer
Exhibit Index
Exhibit Method of Filing
-----------------
27 Financial Data Schedule Filed electronically herewith
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 258,028
<SECURITIES> 0
<RECEIVABLES> 407,129
<ALLOWANCES> 15,000
<INVENTORY> 56,210
<CURRENT-ASSETS> 742,642
<PP&E> 770,208
<DEPRECIATION> 677,081
<TOTAL-ASSETS> 1,613,872
<CURRENT-LIABILITIES> 499,969
<BONDS> 0
0
0
<COMMON> 9,341
<OTHER-SE> 1,010,598
<TOTAL-LIABILITY-AND-EQUITY> 1,613,872
<SALES> 486,787
<TOTAL-REVENUES> 486,787
<CGS> 212,114
<TOTAL-COSTS> 255,423
<OTHER-EXPENSES> (6,008)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,718
<INCOME-PRETAX> 13,242
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,242
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,242
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
