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 6/30/2001
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)
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 18, 2001, there were 3,146,554 shares of the Registrant's
common stock outstanding.
TABLE OF CONTENTS
PART I. Financial Information
Item 1 Financial Statements
Balance Sheets -June 30, 2001, and December 31, 2000 3
Statements of Operations -for three months ended
June 30, 2001 and June 30, 2000 4
Statements of Income -for six months ended
June 30, 2001 and June 30, 2000 5
Statements of Cash Flows -for six months ended
June 30, 2001 and June 30, 2000 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
June 30, December 31,
2001 2000
(Unaudited)
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 172,482 $ 150,457
Receivables:
Trade (less allowance: 2001,
$25,000; 2000, $10,000) 579,451 407,251
Related parties 200 --
Inventory 7,300 38,654
Prepaid expenses and other current
assets
17,868 21,233
---------- ----------
Total current assets 777,301 617,595
PROPERTY AND EQUIPMENT, at cost, net 53,289 55,177
OTHER ASSETS:
Software development costs, net 739,741 754,734
Inventory, long-term portion 32,958 --
Other 100 100
---------- ----------
TOTAL ASSETS $1,603,389 $1,427,606
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 0 $ 200,000
Current portion of capital lease
obligations 1,785 1,785
Accounts payable 235,851 185,468
Deferred revenue 224,000 213,494
Accrued liabilities 146,586 109,450
---------- ----------
Total current liabilities 608,222 710,197
LONG-TERM OBLIGATIONS:
Capital lease obligations 2,215 3,224
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.004 par
value - 10,000,000 shares authorized;
shares outstanding: 2001 - 3,146,554;
2000 - 3,146,554 12,586 12,586
Additional paid-in capital 7,238,658 7,238,658
Accumulated deficit (6,258,292) (6,537,059)
---------- ----------
Total shareholders' equity 992,952 714,185
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $1,603,389 $1,427,606
========== ==========
See Notes to Condensed Financial Statements.
1mage Software, Inc.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30,
2001 2000
-------------- -----------
REVENUE:
System sales and software
licenses $ 447,801 $ 150,705
Services and annual fees 332,645 206,218
-------------- -----------
Total revenue 780,446 356,923
-------------- -----------
COST OF REVENUE:
System sales and software
licenses 217,185 123,009
Services and annual fees 138,414 88,588
-------------- -------------
Total cost of revenue 355,599 211,597
-------------- -------------
GROSS PROFIT 424,847 145,326
% of Revenue 54% 41%
OPERATING EXPENSES:
Selling, general &
administrative 367,637 303,903
-------------- -------------
INCOME (LOSS) FROM OPERATIONS 57,210 (158,577)
-------------- -------------
OTHER INCOME/(EXPENSE):
Interest income 1,267 1,817
Interest expense (1,552) (3,545)
-------------- -------------
Total other income
(expense) (285) (1,728)
-------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES 56,925 (160,305)
PROVISION FOR INCOME TAXES -- --
-------------- -------------
NET INCOME (LOSS) $ 56,925 $ (160,305)
============= ============
INCOME(LOSS) PER COMMON SHARE:
Basic $ 0.02 $ (0.05)
============= ============
Diluted $ 0.02 $ (0.05)
============= ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
Basic 3,146,554 2,965,416
============= ============
Diluted 3,374,922 3,764,761
============= ============
See Notes to Condensed Financial Statements.
1mage Software, Inc.
STATEMENTS OF INCOME
(Unaudited)
Six Months Ended June 30,
2001 2000
----------- ----------
REVENUE:
System sales and software
licenses $ 777,010 $ 373,053
Services and annual fees 835,833 608,063
----------- -----------
Total revenue 1,612,843 981,116
----------- -----------
COST OF REVENUE:
System sales and software
licenses 305,638 221,037
Services and annual fees 263,939 168,103
----------- -----------
Total cost of revenue 569,577 389,140
----------- -----------
GROSS PROFIT 1,043,266 591,976
% of Revenue 65% 60%
OPERATING EXPENSES:
Selling, general &
administrative 758,131 587,039
----------- -----------
INCOME (LOSS) FROM OPERATIONS 285,135 4,937
----------- -----------
OTHER INCOME/(EXPENSE):
Interest income 3,022 4,305
Interest expense (9,390) (8,074)
----------- -----------
Total other income (expense) (6,368) (3,769)
----------- -----------
INCOME BEFORE INCOME TAXES 278,767 1,168
=========== ===========
PROVISION FOR INCOME TAXES -- --
----------- -----------
NET INCOME (LOSS) $ 278,767 $ 1,168
=========== ===========
INCOME/(LOSS) PER COMMON SHARE:
Basic $ 0.09 $ 0.00
=========== ===========
Diluted $ 0.08 $ 0.00
=========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
Basic 3,146,554 2,965,416
=========== ===========
Diluted 3,396,632 3,617,862
=========== ===========
See Notes to Condensed Financial Statements.
1mage Software, Inc.
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
2001 2000
-------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $ 278,767 $ 1,168
Adjustments to reconcile earnings
to net cash provided by operating
activities:
Depreciation and amortization 162,089 179,799
Changes in assets and liabilities:
Receivables (172,400) (26,653)
Inventory (1,604) 2,340
Prepaid expenses and other
assets 3,365 (12,752)
Accounts payable 50,383 (77,694)
Accrued liabilities and
deferred revenue 47,642 (16,224)
---------- ----------
Net cash provided by
operating activities 368,242 49,984
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (12,382) (8,202)
Additions to capitalized software (132,826) (145,479)
---------- ----------
Net cash used for
investing activities (145,208) (153,681)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to line of credit 135,000 135,000
Repayment of line of credit (335,000) (168,235)
Repayment of long-term obligations (1,009) (2,930)
Proceeds from exercise of common
stock options -- 69,630
---------- ----------
Net cash provided by
(used for) financing
activities (201,009) 33,465
---------- ----------
INCREASE/ (DECREASE) IN CASH AND CASH
EQUIVALENTS 22,025 (70,232)
CASH AND CASH EQUIVALENTS, beginning
of period 150,457 253,930
--------- ----------
CASH AND CASH EQUIVALENTS, end
of period $ 172,482 $ 183,698
========== ==========
See Notes to Condensed Financial Statements.
1mage Software, Inc.
NOTES TO INTERIM 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, 2000 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. 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.
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 period. 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 JUNE 30, 2001 VERSUS
JUNE 30, 2000
1mage Software, Inc. (the "Company") reported revenue of $780,446
for the second quarter ended June 30, 2001, an increase of
$423,523, or 119%, over $356,923 posted for the same period a year
ago. Second quarter revenue in 2001 was more than double the
revenue posted for Q2 2000. Revenue generated from System Sales and
Software Licenses increased $297,096 (or 197%) for the comparable
quarters while revenue from Services and Annual License Fees were
up $126,427 (or 61%). Hardware sales accounted for only $13,537 in
the second quarter of 2001, as compared to $36,105 for the same
period in 2000. Gross profit was 54% of revenue for the second
quarter of 2001, as compared to 41% for the same period a year ago.
Selling, general and administrative ("SG&A") expenses for the three
months ended June 30, 2001 of $367,637 increased by $63,734 (or
21%), primarily due to higher selling expenses associated with
increased revenue. The Company posted second quarter 2001 net
income of $56,925 or $.02 per share, as compared to a net loss of
($160,305), or ($.05) per share, for the same quarter last year.
RESULTS OF OPERATIONS FOR SIX MONTHS ENDED JUNE 30, 2001 VERSUS
JUNE 30, 2000
The Company reported revenue of $1,612,843 for the six months ended
June 30, 2001, an increase of $631,727, or 64%, over $981,116
posted for the same period a year ago. Revenue generated from
System Sales and Software Licenses increased $403,957 (or 108%) for
the comparable periods, while revenue from Services and Annual
License Fees were up $227,770 (or 38%). Sales of software licenses
to new customers for the first six months in 2001 totaled $425,533,
as compared to $146,795 for the six months ended June 30, 2000, an
increase of 190%. Hardware sales accounted for $14,186, or less
than 1% of total revenue, for the six-month period in 2001, as
compared to $50,788 (or 5% of revenue) in 2000. For the six months
ended June 30, 2001, gross profit on revenue was 65%, as compared
to 60% for the year earlier period. SG&A expenses were 29% higher
for the six months ended June 30, 2001, primarily due to costs
associated with increased sales and marketing efforts. The Company
reported net income of $278,767 or $.09 per share for the six
months ended June 30, 2001, as compared to net income of $1,168
($.00 per share) for the same period one year ago.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2001, cash on hand was up $22,025 from $150,457 at
December 31, 2000. While cash provided by operating activities
generated $368,242, the Company paid off its revolving line of
credit, using cash of $200,000. The Company continues to add new
features to its software product offerings and used cash of
$132,826 for additions to capitalized software.
There were no borrowings against the line of credit on July 18,
2001.
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, 2002 and 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 10-K
(A) Exhibit Table Inapplicable
(B) Reports on Form 8-K
There were no reports filed on Form 8-K for the quarter ended June
30, 2001.
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: 8/1/2001 /s/ Mary Anne DeYoung
Mary Anne DeYoung
Chief Financial Officer