1
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 6/30/99
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.
--------------------
(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 (Registrants telephone number,
executive offices) 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 July 30, 1999, there were 2,365,021 shares of the Registrant's
common stock outstanding.
Exhibit Index begins on Page 10
TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets -June 30, 1999, and December 31, 1998 3
Statements of Operations -for three months
ended June 30, 1999 and June 30, 1998 4
Statements of Operations -for six months
ended June 30, 1999 and June 30, 1998 5
Statements of Cash Flows -for three months
ended June 30, 1999 and June 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
------------------------------
ITEM 1. FINANCIAL STATEMENTS
1MAGE SOFTWARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 225,608 $ 229,671
Receivables:
Trade (less allowance: 1999,
$50,000; 1998, $20,849) 387,597 526,684
Related parties 1,486 7,141
Inventory 52,014 55,804
Prepaid expenses and other current
assets 28,446 9,721
----------- -----------
Total current assets 695,150 599,350
PROPERTY AND EQUIPMENT, at cost, net 83,920 93,831
OTHER ASSETS:
Software development costs, net 785,805 786,572
Other 100 100
----------- -----------
TOTAL ASSETS $ 1,564,975 $ 1,709,524
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 164,416 $ 150,000
Current portion of capital
lease obligations 4,610 4,610
Accounts payable 238,125 292,883
Convertible notes payable to
related parties 100,000 0
Accrued liabilities 194,267 185,928
----------- -----------
Total current liabilities 701,418 633,421
LONG-TERM OBLIGATIONS:
Convertible notes payable to
related parties 0 150,000
Capital lease obligations 2,181 4,379
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.004 par value -
10,000,000 shares authorized;
shares outstanding:
1999 - 2,360,021; 1998 - 2,203,019 9,439 8,811
Additional paid-in capital 6,992,355 6,904,247
Accumulated deficit (6,140,418) (5,991,334)
----------- -----------
Total shareholders' equity 861,376 921,724
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 1,564,975 $ 1,709,524
=========== ===========
</TABLE>
1MAGE SOFTWARE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended June 30,
1999 1998
------------ ------------
<S> <C> <C>
REVENUE
System sales and software licenses $ 224,440 $ 159,087
Services and annual fees 169,316 223,659
----------- -----------
Total revenue 393,756 382,746
----------- -----------
COST OF REVENUE:
System sales and software licenses 162,614 110,493
Services and annual fees 70,077 104,579
----------- -----------
Total cost of revenue 232,691 215,072
----------- -----------
GROSS PROFIT 161,065 167,674
% of Revenue 41% 44%
OPERATING EXPENSES:
Selling, general & administrative 317,410 307,159
----------- -----------
INCOME (LOSS) FROM OPERATIONS (156,345) (139,485)
----------- -----------
OTHER INCOME/(EXPENSE):
Interest income 2,121 807
Other 2,051 (10)
Interest expense (10,151) (9,445)
----------- ----------
Total other income(expense) (5,979) (8,648)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (162,324) (148,133)
PROVISION FOR INCOME TAXES -- --
----------- -----------
NET INCOME (LOSS) $ (162,324) $ (148,133)
=========== ===========
INCOME(LOSS) PER COMMON SHARE $ (0.07) $ (0.07)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,347,910 2,142,454
=========== ===========
</TABLE>
1MAGE SOFTWARE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
------------ ------------
<S> <C> <C>
REVENUE
System sales and software licenses $ 331,119 $ 269,677
Services and annual fees 549,424 556,063
----------- -----------
Total revenue 880,543 825,740
----------- -----------
COST OF REVENUE:
System sales and software licenses 269,399 202,747
Services and annual fees 175,405 193,550
----------- -----------
Total cost of revenue 444,804 396,297
----------- -----------
GROSS PROFIT 433,501 429,443
% of Revenue 50% 52%
OPERATING EXPENSES:
Selling, general & administrative 572,835 559,247
----------- -----------
INCOME (LOSS) FROM OPERATIONS (137,096) (129,804)
----------- -----------
OTHER INCOME/(EXPENSE):
Interest income 5,666 2,802
Other 2,217 307
Interest expense (19,869) (18,115)
----------- -----------
Total other income(expense) (11,986) (15,006)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (149,082) (144,810)
PROVISION FOR INCOME TAXES -- --
----------- -----------
NET INCOME (LOSS) $ (149,082) $ (144,810)
=========== ===========
INCOME/(LOSS) PER COMMON SHARE $ (0.07) $ (0.07)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,285,437 2,142,414
=========== ===========
</TABLE>
1MAGE SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings (Loss) $ (149,082) $ (144,810)
Adjustments to reconcile earnings to net
cash provided by operating activities:
Depreciation and amortization 188,982 176,681
Changes in assets and liabilities:
Receivables 153,742 (77,686)
Inventory 3,790 (399)
Prepaid expenses and other assets (18,724) (1,278)
Accounts payable (54,758) 67,521
Accrued liabilities 11,640 (1,415)
----------- -----------
Net cash provided by (used for)
operating activities 135,590 18,614
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (20,371) (4,402)
Additions to capitalized software (157,933) (110,366)
Increase in other assets 0 (22,578)
----------- -----------
Net cash used for investing
activities (178,304) (120,147)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to line of credit 64,616 11,483
Repayment of line of credit (50,000) (30,000)
Repayment of long-term obligations (2,198) (1,533)
Proceeds from exercise of common stock
options 26,233 7,364
----------- -----------
Net cash provided by (used for)
financing activities 38,651 (12,686)
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (4,063) (131,418)
CASH AND CASH EQUIVALENTS, beginning of
period 229,671 256,793
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 225,608 $ 125,375
=========== ===========
</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 June 30, 1999 versus three
months ended June 30, 1998
- -------------------------------------------------------------------------
1MAGE Software, Inc. (the "Company") reported revenue of $393,756 for the
second quarter of 1999; an increase of 3% over $382,746 posted for the
same period a year ago. All components of revenue, with the exception of
consulting services, increased significantly for the comparable quarters.
Consulting services for the second quarter of 1999 declined $89,000 when
compared to the second quarter of 1998, primarily due to services required
in 1998 to assure Y2K compliance for the software release being utilized
by the Company's largest reseller, Reynolds & Reynolds. These additional
services were not required in 1999, as their customers have upgraded to a
Y2K compliant release. Gross profit was 41% of revenue in 1999, versus 44%
in 1998. SG&A expenses increased 3% for the two comparable periods. The
Company posted a second quarter 1999 net loss of ($162,324) or ($.07) per
share, as compared to a net loss of ($148,133), or ($.07) per share, for
the same quarter last year.
During the second quarter of 1999, the Company signed a business partner
agreement with Keane, Inc. whereby Keane will market the 1MAGE(R) product
to end-users in its healthcare division. Keane ordered its first system
under the reseller agreement in the second quarter for the state of
Indiana - Department of Health. In addition, the Company formed a
marketing alliance with Geac, Inc., a Toronto-based provider of software
solutions, whereby Geac and the Company will jointly market 1MAGE(R) to
Geac's customers in the Public Safety governmental segment.
Results of Operations for six months ended June 30, 1999 versus six months
ended June 30, 1998
- -------------------------------------------------------------------------
The Company's revenue of $880,543 for the six months ended June 30, 1999
was 7% greater than the $825,740 reported for the same period a year ago.
For the six month period ended June 30, 1999, software sales and recurring
annual license fees increased 21% and 19%, respectively, over the year
earlier. Consulting services revenue, however, was down 45% for the
comparable periods as the customers are requiring less support for the Y2K
compliant product. SG&A expenses of $572,835 for the six months ended
June 30, 1999 were 2% greater than the $559,247 for the six months ended
June 30, 1998. Travel and promotional expenses associated with
cultivating new resellers in 1999 contributed to the slightly increased
SG&A expenses. Revenue from services and annual fees for the six months
was $549,424, around $23,000 short of covering SG&A expenses.
Unfortunately, revenue was not great enough to earn a profit; hence the
Company posted a net loss of ($149,082) as compared to a net loss of
($144,810) for the same period in 1998. Management is hopeful that our
new marketing initiatives will increase revenue without increasing SG&A or
unduly increasing cost of sales. Loss per share for both the six month
periods ended June 30, 1999 and June 30, 1998 were ($.07) per share.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of June 30, 1999, cash on hand decreased $4,063 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 six
months was $135,590. Total borrowings against the line of credit at June
30, 1999 were $164,419. 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
is approximately 95% complete. The Company currently expects to have all
assessments and testing completed by the end of August 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 business application software has been
certified Year 2000 compliant. 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 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 June
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: 8/12/99 /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> JUN-30-1999
<CASH> 225,608
<SECURITIES> 0
<RECEIVABLES> 439,083
<ALLOWANCES> 50,000
<INVENTORY> 52,014
<CURRENT-ASSETS> 695,150
<PP&E> 652,410
<DEPRECIATION> 568,488
<TOTAL-ASSETS> 1,564,975
<CURRENT-LIABILITIES> 701,418
<BONDS> 0
0
0
<COMMON> 9,439
<OTHER-SE> 894,139
<TOTAL-LIABILITY-AND-EQUITY> 1,564,975
<SALES> 393,756
<TOTAL-REVENUES> 393,756
<CGS> 232,691
<TOTAL-COSTS> 317,410
<OTHER-EXPENSES> (4,172)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,151
<INCOME-PRETAX> (162,324)
<INCOME-TAX> 0
<INCOME-CONTINUING> (162,324)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (162,324)
<EPS-BASIC> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
