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 9/30/99
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
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(Exact name of Registrant as specific in its charter)
0-12535
-----------------------
(Commission File Number)
Colorado 84-0866294
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(State of Incorporation) (IRS Employer Identification Number)
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
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(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 October 22, 1999, there were 2,365,021 shares of the Registrant's
common stock outstanding.
Exhibit Index begins on Page 10
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets -September 30, 1999 and December 31, 1998........... 3
Statements of Operations -for 3 months ended
September 30, 1999 and September 30, 1998........................ 4
Statements of Operations -for 9 months ended
September 30, 1999 and September 30, 1998........................ 5
Statements of Cash Flows -for 9 months ended
September 30, 1999 and September 30, 1998........................ 6
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
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ITEM 1. FINANCIAL STATEMENTS
1MAGE SOFTWARE, INC.
BALANCE SHEETS
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<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 116,768 $ 229,671
Receivables:
Trade (less allowance: 1999, $40,128;
1998, $20,849) 471,828 526,684
Related parties 1,783 7,141
Inventory 50,286 55,804
Prepaid expenses and other current assets 26,000 9,721
----------- -----------
Total current assets 666,665 599,350
PROPERTY AND EQUIPMENT, at cost, net 77,214 93,831
OTHER ASSETS:
Software development costs, net 781,873 786,572
Other 100 100
----------- -----------
TOTAL ASSETS $ 1,525,852 $ 1,709,524
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 166,867 $ 150,000
Current portion of capital lease
obligations 4,462 4,610
Accounts payable 186,358 292,883
Convertible notes payable to related
parties 100,000 0
Accrued liabilities 166,278 185,928
----------- -----------
Total current liabilities 623,965 633,421
LONG-TERM OBLIGATIONS:
Convertible notes payable to related parties 0 150,000
Capital lease obligations 1,151 4,379
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.004 par value - 10,000,000
shares authorized; shares outstanding:
1999 - 2,365,021; 1998 - 2,203,019 9,459 8,811
Additional paid-in capital 6,995,760 6,904,247
Accumulated deficit (6,104,483) (5,991,334)
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Total shareholders' equity 900,736 921,724
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,525,852 $ 1,709,524
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</TABLE>
1MAGE SOFTWARE, INC.
STATEMENTS OF OPERATIONS
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<TABLE>
<CAPTION>
Three Months Ended
September 30,
1999 1998
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<S> <C> <C>
REVENUE
System sales and software licenses $ 304,756 $ 362,737
Services and annual fees 264,933 258,631
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Total revenue 569,689 621,368
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COST OF REVENUE:
System sales and software licenses 115,755 221,448
Services and annual fees 109,917 90,961
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Total cost of revenue 225,672 312,409
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GROSS PROFIT 344,017 308,959
% of Revenue 60% 50%
OPERATING EXPENSES:
Selling, general & administrative 306,229 252,523
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INCOME (LOSS) FROM OPERATIONS 37,788 56,436
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OTHER INCOME/(EXPENSE):
Interest income 1,663 1,142
Other 1,760 (100,509)
Interest expense (5,275) (6,245)
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Total other income(expense) (1,852) (105,612)
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INCOME (LOSS) BEFORE INCOME TAXES 35,936 (49,176)
PROVISION FOR INCOME TAXES -- --
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NET INCOME (LOSS) $ 35,936 $ (49,176)
=========== ===========
INCOME(LOSS) PER COMMON SHARE $ 0.02 $ (0.02)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,363,988 2,202,548
=========== ===========
</TABLE>
1MAGE SOFTWARE, INC.
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
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<S> <C> <C>
REVENUE
System sales and software licenses $ 635,875 $ 632,414
Services and annual fees 814,357 814,694
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Total revenue 1,450,232 1,447,108
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COST OF REVENUE:
System sales and software licenses 385,154 424,194
Services and annual fees 285,323 284,511
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Total cost of revenue 670,477 708,705
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GROSS PROFIT 779,755 738,403
% of Revenue 54% 52%
OPERATING EXPENSES:
Selling, general & administrative 879,065 811,773
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INCOME (LOSS) FROM OPERATIONS (99,310) (73,370)
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OTHER INCOME/(EXPENSE):
Interest income 7,547 3,401
Other 1,760 (100,484)
Interest expense (23,144) (23,531)
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Total other income(expense) (13,837) (120,614)
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INCOME (LOSS) BEFORE INCOME TAXES (113,147) (193,984)
PROVISION FOR INCOME TAXES -- --
----------- -----------
NET INCOME (LOSS) $ (113,147) $ (193,984)
=========== ===========
INCOME/(LOSS) PER COMMON SHARE $ (0.05) $ (0.09)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,311,991 2,162,558
=========== ===========
</TABLE>
1MAGE SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
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<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings (Loss) $ (113,147) $ (193,984)
Adjustments to reconcile earnings to net
cash provided by operating activities:
Depreciation and amortization 278,291 256,766
Changes in assets and liabilities:
Receivables 69,191 (283,205)
Inventory 5,518 (2,138)
Prepaid expenses and other assets (16,279) (3,683)
Accounts payable (106,525) 218,334
Accrued liabilities (19,650) (39,808)
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Net cash provided by (used for)
operating activities 97,399 (47,718)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (23,624) (4,391)
Additions to capitalized software (233,351) (181,338)
Increase in other assets 0 (2,118)
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Net cash used for investing
activities (233,351) (60,722)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to line of credit (50,000) 60,000
Repayment of line of credit 66,867 (60,000)
Repayment of long-term obligations 148 (7,879)
Proceeds from exercise of common stock options 29,658 59,388
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Net cash provided by (used for)
financing activities 46,673 51,509
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DECREASE IN CASH AND CASH EQUIVALENTS (112,903) (184,056)
CASH AND CASH EQUIVALENTS, beginning of period 229,671 256,793
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CASH AND CASH EQUIVALENTS, end of period $ 116,768 $ 72,737
=========== ===========
</TABLE>
1MAGE SOFTWARE, INC.
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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 September 30, 1999 versus
three months ended September 30, 1998
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1MAGE Software, Inc. (the "Company") reported revenue of $569,689 for the
third quarter of 1999; a decrease of 8% over $621,368 posted for the same
period a year ago. Although total revenue was down, gross profit on
revenue increased 11% due to the substantial increase in software sales to
end users. For the quarter ended September 30, 1999, software sales to
end-users were $114,000, more than double the $55,000 reported for the
same quarter one year ago. Selling, general and administrative ("SGA")
expenses increased $53,706 for the comparable quarters, due to moderate
increases across the board. During the third quarter of 1998, merger
expenses of $100,631 were written off in connection with an abandoned
merger attempt. The Company posted a third quarter 1999 net income of
$35,936 or $.02 per share, as compared to a net loss of ($49,176), or
($.02) per share, for the same quarter last year.
Results of Operations for nine months ended September 30, 1999 versus nine
months ended September 30, 1998
- -------------------------------------------------------------------------
The Company's revenue of $1,450,232 for the nine months ended September
30, 1999 was $3,000 greater than $1,447,108 reported for the same period a
year ago. For the nine-month period ended September 30, 1999, a $52,000
increase in recurring annual license fees was offset by a $52,000 decrease
in consulting services revenue. The decrease in revenue from consulting
services for 1999 was primarily due to elevated service revenues in 1998
that were created by customers obtaining Y2K compliance. Amortization of
software increased $42,750 (or 22%) for the comparable periods. SG&A
expenses of $879,065 for the nine months ended September 30, 1999 were 8%
greater than $811,773 for the nine months ended September 30, 1998.
Travel and promotional expenses associated with cultivating new resellers
in 1999 contributed to the increase in SG&A expenses. An addition to the
reserve for bad debts, marketing expenses associated with trade shows, and
advertising costs accounted for higher SGA expenses. Unfortunately,
revenue was not great enough to earn a profit; hence the Company posted a
1999 year-to-date net loss of ($113,147) as compared to a net loss of
($193,984) for the same period in 1998. Management is hopeful that our
new marketing initiatives will increase revenue without increasing SG&A or
unduly increasing cost of sales. Loss per share for the comparable nine
months periods ended September 30th were ($.05) and ($.07) per share.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of September 30, 1999, cash on hand decreased $112,903 from $229,671 at
December 31, 1998, primarily due to non-cash items such as depreciation
and amortization nearly offsetting cash required for additions to
capitalized software costs. Cash provided by operations for the nine
months was $97,399. One customer accounted for 28% of the receivable
balance at September 30, 1999, and that amount was subsequently
collected. Cash on hand at November 8, 1999 was $208,000. Total
borrowings against the line of credit at September 30, 1999 were $166,867.
Two convertible notes payable totaling $100,000 were reclassified to
"Current liabilities" in light of their expiration dates of February 2000.
In March 1999, these same noteholders converted $50,000 of debt into
102,502 shares of common stock.
The Company's financial resources include cash on hand, revenues from
operations, and management of funds available on its $200,000 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
has been completed. The Company currently believes that all assessments
and testing are completed.
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 business application software has been
certified Year 2000 compliant. The Company has upgraded all PC software
to the Windows 98 and Windows NT 4 operating systems, which, according to
Microsoft Corporation, are Year 2000 compliant. 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 hardware and software used by the Company are
relatively new, the costs of Year 2000 issues have not been material. No
special expenditures have been required. For its own software, Year 2000
issues had a beneficial effect in fiscal 1998, as Year 2000 compliance
issues led to higher consulting revenues.
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 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 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
September 30, 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: 11/9/99 /s/ Mary Anne DeYoung
------------------------------
Mary Anne DeYoung
Chief Financial Officer
Exhibit Index
Exhibit Method of Filing
- ------- ----------------
27 Financial Data Schedule Filed electronically herewith
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 116,768
<SECURITIES> 0
<RECEIVABLES> 513,739
<ALLOWANCES> 40,128
<INVENTORY> 50,286
<CURRENT-ASSETS> 666,665
<PP&E> 655,661
<DEPRECIATION> 578,447
<TOTAL-ASSETS> 1,525,852
<CURRENT-LIABILITIES> 623,965
<BONDS> 0
0
0
<COMMON> 9,459
<OTHER-SE> 900,736
<TOTAL-LIABILITY-AND-EQUITY> 1,525,852
<SALES> 569,689
<TOTAL-REVENUES> 569,689
<CGS> 225,672
<TOTAL-COSTS> 306,229
<OTHER-EXPENSES> (3,423)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,275
<INCOME-PRETAX> 35,936
<INCOME-TAX> 0
<INCOME-CONTINUING> 35,936
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,936
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
