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 9/30/2000
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
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(Commission File Number)
COLORADO 84-0866294
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(State of Incorporation) (IRS Employer Identification Numbers)
6025 S. QUEBEC ST. SUITE 300
ENGLEWOOD CO 8011 (303) 694-9180
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(Address of principal (Registrant's 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
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(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 27, 2000, there were 3,146,554 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, 2000
and December 31, 1999................................... 3
Statements of Operations
-for 3 months ended September 30, 2000
and September 30, 1999................................ 4
Statements of Operations
-for 9 months ended September 30, 2000
and September 30, 1999................................ 5
Statements of Cash Flows
-for 9 months ended September 30, 2000
and September 30, 1999............................... 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>
(Unaudited)
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 77,300 $ 253,930
Receivables:
Trade (less allowance: 481,421 204,107
2000, $10,273; 1999, $10,000)
Related parties 5,285 1,635
Inventory 40,573 49,207
Prepaid expenses and other current assets 16,523 13,428
----------- -----------
Total current assets 621,102 522,307
PROPERTY AND EQUIPMENT, at cost, net 58,705 69,263
OTHER ASSETS
Software development costs, net 736,638 771,919
Other 100 100
----------- -----------
TOTAL ASSETS $ 1,416,545 $ 1,363,589
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit $ 100,000 $ 168,235
Current portion of capital
lease obligations 2,640 3,857
Accounts payable 233,248 209,882
Deferred revenue 220,443 210,000
Accrued liabilities 106,690 116,647
----------- ----------
Total current liabilities 663,021 708,621
LONG-TERM OBLIGATIONS
Capital lease obligations 3,689 521
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.004 par value -
10,000,000 shares authorized;
shares outstanding: 2000 - 3,146,554;
1999 - 2,642,493 12,586 10,569
Additional paid-in capital 7,238,658 7,189,091
Accumulated deficit (6,501,409) (6,545,213)
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Total shareholders' equity 749,835 654,447
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TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 1,416,545 $ 1,363,589
=========== ===========
</TABLE>
See Notes to Condensed Financial Statements.
1mage Software, Inc.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
2000 1999
-------------- --------------
<S> <C> <C>
REVENUE
System sales and software licenses $ 479,472 $ 304,756
Services and annual fees 234,330 264,933
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Total revenue 713,802 569,689
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COST OF REVENUE
System sales and software licenses 235,991 115,755
Services and annual fees 102,641 109,917
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Total cost of revenue 338,632 225,672
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GROSS PROFIT 375,170 344,017
% of Revenue 53% 60%
OPERATING EXPENSES
Selling, general & administrative 331,868 306,229
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INCOME FROM OPERATIONS 43,302 37,788
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OTHER INCOME/(EXPENSE)
Interest income 2,026 1,663
Other 329 1,760
Interest expense (2,919) (5,275)
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Total other income(expense) (564) (1,852)
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INCOME BEFORE INCOME TAXES 42,738 35,936
PROVISION FOR INCOME TAXES -- --
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NET INCOME $ 42,738 $ 35,936
========== ==========
INCOME PER COMMON SHARE:
BASIC $ .01 $ .02
========== ==========
DILUTED $ .01 $ .01
========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
BASIC 3,018,826 2,363,988
========== ==========
DILUTED 3,475,293 2,721,439
========== ==========
</TABLE>
See Notes to Condensed Financial Statements.
1mage Software, Inc.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
------------ ------------
<S> <C> <C>
REVENUE
System sales and software licenses $ 852,525 $ 635,875
Services and annual fees 842,393 814,357
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Total revenue 1,694,918 1,450,232
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COST OF REVENUE:
System sales and software licenses 457,027 385,154
Services and annual fees 270,745 285,323
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Total cost of revenue 727,772 670,477
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GROSS PROFIT 967,146 779,755
% of Revenue 57% 54%
OPERATING EXPENSES
Selling, general & administrative 918,720 879,065
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INCOME (LOSS) FROM OPERATIONS 48,426 (99,310)
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OTHER INCOME/(EXPENSE):
Interest income 6,042 7,547
Other 329 1,760
Interest expense (10,993) (23,144)
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Total other income(expense) (4,622) (13,837)
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INCOME (LOSS) BEFORE INCOME TAXES 43,804 (113,147)
PROVISION FOR INCOME TAXES -- --
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NET INCOME (LOSS) $ 43,804 $ (113,147)
========== ==========
INCOME/(LOSS) PER COMMON SHARE:
BASIC $ .01 $ (.05)
========== ==========
DILUTED $ .01 $ (.04)
========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
BASIC 3,018,826 2,311,991
========== ==========
DILUTED 3,475,293 2,669,442
========== ==========
</TABLE>
See Notes to Condensed Financial Statements.
1mage Software, Inc.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings (Loss) $ 43,804 $ (113,147)
Adjustments to reconcile earnings to net
cash provided by operating activities:
Depreciation and amortization 265,721 278,291
Changes in assets and liabilities:
Receivables (299,010) 69,191
Inventory 8,634 5,518
Prepaid expenses and other assets (3,095) (16,279)
Accounts payable 23,366 (106,525)
Accrued liabilities 486 (19,650)
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Net cash provided by operating activities 39,906 97,399
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (17,113) (23,624)
Additions to capitalized software (202,769) (233,351)
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Net cash used for investing activities (219,882) (256,975)
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CASH FLOWS FROM FINANCING ACTIVITIES
Additions to line of credit 200,000 66,867
Repayment of line of credit (268,235) (50,000)
Repayment of long-term obligations 1,951 148
Proceeds from exercise of common stock options 69,630 29,658
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Net cash provided by financing activities 3,346 46,673
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DECREASE IN CASH AND CASH EQUIVALENTS (176,630) (112,903)
CASH AND CASH EQUIVALENTS,
beginning of period 253,930 229,671
CASH AND CASH EQUIVALENTS,
end of period $ 77,300 $ 116,768
========== ==========
</TABLE>
See Notes to Condensed Financial Statements.
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, 1999 as this
report incorporates the Notes to the Company's year-end financial
statements. The condensed balance sheet of the Company as of December 31,
1999 has been derived from the audited balance sheet of the Company as of
that date.
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. Maintenance
revenue is recognized ratably over the maintenance period.
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. Outstanding stock options are treated
as common stock equivalents for purposes of computing diluted 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, 2000 VERSUS
THREE MONTHS ENDED SEPTEMBER 30, 1999
1mage Software, Inc. (the "Company") reported revenue of $713,802 for the
third quarter of 2000, a 25% increase over $569,689 posted for the same
period a year ago. This gain is attributable to a 60%, or $163,885,
increase in sales of new software licenses to resellers and end-users,
including licenses for the Company's Internet products. For the quarter
ended September 30, 2000, software sales of $437,702 comprised 61% of
total revenue, as compared to $273,817, or 50% of total revenue for the
same quarter one-year ago. Selling, general and administrative ("SGA")
expenses increased $25,639 (8%) for the comparable quarters, primarily due
to increased commission expenses associated with higher revenue. The
Company posted a third quarter 2000 net income of $42,738, or $.01 per
share, as compared to earnings of $35,936, or $.02 per share, for the same
quarter last year.
RESULTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 2000 VERSUS NINE
MONTHS ENDED SEPTEMBER 30, 1999
The Company's revenue of $1,694,918 for the nine months ended September
30, 2000 was 17% or $244,686 greater than $1,450,232 reported for the same
period a year ago. This gain is primarily attributable to a 52% (or
$261,281) increase in software licenses. Software licenses and annual
license fees to resellers year to date comprise 46% of total revenue, as
compared to 37% of total revenue in 1999, as resellers increase their
number of installations. For the nine months ended September 30, 2000,
annual license fees and consulting services accounted for 50% of total
revenue. Gross profit for the same period was 57% of revenue. SG&A
expenses of $918,720 for the nine months ended September 30, 2000 was 5%
greater than $879,065 for the nine months ended September 30, 1999,
primarily due to increased sales and marketing expenses. The Company
posted a 2000 year-to-date net income of $43,804 as compared to a net loss
of ($113,147) for the same period in 1999. Management is hopeful that our
new marketing initiatives will increase revenue without increasing SG&A or
unduly increasing cost of sales. Earnings per share for the comparable
nine months periods ended September 30th were $.01 versus a net loss per
share of ($.05).
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
As of September 30, 2000, cash on hand decreased $176,630 from $253,930 at
December 31, 1999, primarily due to timing of collections on accounts
receivable. One customer accounted for 28% of the receivable balance at
September 30, 2000, and that amount has subsequently been collected.
Total borrowings against the line of credit were $100,000 at September 30,
2000, a reduction of $68,235 from December 31, 1999.
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, 2001, bears interest at prime plus 1.5% and
is secured by the Company's accounts and general intangibles.
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 8-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, 2000.
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: 11/8/00 /s/ Mary Anne DeYoung
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Mary Anne DeYoung
Chief Financial Officer
Exhibit Index:
Exhibit Method of Filing
----------------
27 Financial Data Schedule Filed electronically herewith
