FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
() QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the quarterly period ended 9/30/2001
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 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)
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 19, 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 -September 30, 2001 and December 31, 2000 3
Statements of Income -for 3 months ended September 30,
2001 and September 30, 2000 4
Statements of Income -for 9 months ended September 30,
2001 and September 30, 2000 5
Statements of Cash Flows -for 9 months ended September 30,
2001 and September 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
September 30,
2001 December 31,
(Unaudited) 2000
------------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 151,176 $ 150,457
Receivables:
Trade (less allowance: 2001, $15,000;
2000, $10,273) 685,240 407,251
Related parties 1,086 0
Inventory 7,584 38,654
Prepaid expenses and other current assets 14,208 21,233
------------ ------------
Total current assets 859,294 617,595
PROPERTY AND EQUIPMENT, at cost, net 56,310 55,177
OTHER ASSETS
Software development costs, net 735,533 754,734
Inventory, long-term portion 32,958 0
Other 100 100
------------ ------------
TOTAL ASSETS $ 1,684,195 $ 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 233,204 185,468
Deferred revenue 227,000 213,494
Accrued liabilities 171,896 109,450
------------ ------------
Total current liabilities 633,885 710,197
LONG-TERM OBLIGATIONS
Capital lease obligations 1,669 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 (6,202,603) (6,537,059)
------------ ------------
Total shareholders' equity 1,048,641 714,185
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,684,195 $ 1,427,606
============ ============
See Notes to Condensed Financial Statements.
1mage Software, Inc.
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended September 30,
2001 2000
------------- ------------
REVENUE
Software licenses $ 353,354 $ 479,472
Services and annual fees 362,705 234,330
------------ -----------
Total revenue 716,059 713,802
------------ -----------
COST OF REVENUE
Software licenses 119,358 235,991
Services and annual fees 173,026 102,641
------------ -----------
Total cost of revenue 292,384 338,632
------------ ------------
GROSS PROFIT 423,675 375,170
% of Revenue 59% 53%
OPERATING EXPENSES
Selling, general & administrative 368,655 331,868
------------ ------------
INCOME FROM OPERATIONS 55,020 43,302
------------ ------------
OTHER INCOME/(EXPENSE)
Interest income 1,093 2,026
Other 0 329
Interest expense (425) (2,919)
------------ ------------
Total other income(expense) 668 (564)
------------ ------------
INCOME BEFORE INCOME TAXES 55,688 42,738
PROVISION FOR INCOME TAXES -- --
------------ ------------
NET INCOME $ 55,688 $ 42,738
============ ============
INCOME PER COMMON SHARE:
BASIC $ .02 $ .01
============= ============
DILUTED $ .02 $ .01
============= ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
BASIC 3,146,554 3,018,826
============= ============
DILUTED 3,375,405 3,475,293
============= ============
See Notes to Condensed Financial Statements.
1mage Software, Inc.
STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended September 30,
2001 2000
------------- -------------
REVENUE
Software licenses $ 1,131,825 $ 852,525
Services and annual fees 1,197,077 842,393
------------ ------------
Total revenue 2,328,902 1,694,918
------------ ------------
COST OF REVENUE:
Software licenses 424,995 457,027
Services and annual fees 436,966 270,745
------------ ------------
Total cost of revenue 861,961 727,772
------------ ------------
GROSS PROFIT 1,466,941 967,146
% of Revenue 63% 57%
OPERATING EXPENSES
Selling, general & administrative 1,126,785 918,720
------------ ------------
INCOME FROM OPERATIONS 340,156 48,426
------------ ------------
OTHER INCOME/(EXPENSE):
Interest income 4,115 6,042
Other 0 329
Interest expense (9,815) (10,993)
------------ ------------
Total other income(expense) (5,700) (4,622)
------------ ------------
INCOME BEFORE INCOME TAXES 334,456 43,804
PROVISION FOR INCOME TAXES -- --
------------ ------------
NET INCOME $ 334,456 $ 43,804
============ ============
INCOME PER COMMON SHARE:
BASIC $ .11 $ .01
============= ============
DILUTED $ .10 $ .01
============= ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
BASIC 3,146,554 3,018,826
============ ============
DILUTED 3,375,514 3,475,293
============ ============
See Notes to Condensed Financial Statements.
1mage Software, Inc.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
2001 2000
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings $ 334,456 $ 43,804
Adjustments to reconcile earnings
to net cash provided by operating
activities:
Depreciation and amortization 243,685 265,721
Changes in assets and liabilities:
Receivables (279,075) (299,010)
Inventory (1,888) 8,634
Prepaid expenses and other assets 7,025 (3,095)
Accounts payable 47,736 23,366
Accrued liabilities 75,952 486
------------ -----------
Net cash provided by operating
activities 427,891 39,906
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (21,699) (17,113)
Additions to capitalized software (203,918) (202,769)
------------ -----------
Net cash used for investing
activities (225,617) (219,882)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Additions to line of credit 185,000 200,000
Repayment of line of credit (385,000) (268,235)
Repayment of long-term obligations (1,555) 1,951
Proceeds from exercise of common stock options 0 69,630
------------ ------------
Net cash provided by (used in)
financing activities (201,555) 3,346
------------ ------------
INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS 719 (176,630)
CASH AND CASH EQUIVALENTS,
beginning of period 150,457 253,930
------------ ------------
CASH AND CASH EQUIVALENTS,
end of period $ 151,176 $ 77,300
============ ============
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, 2000 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, 2000 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 Per Share -Income per share is computed by dividing net income
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, 2001
VERSUS THREE MONTHS ENDED SEPTEMBER 30, 2000
Revenue for the third quarter of 2001 was $716,059, a $2,257 increase
over revenue of $713,802 for the same quarter last year. This gain
resulted from increases in technical services and annual license fees
being nearly offset by a decrease in license revenue.
The decrease in third quarter license revenue was due to timing
differences in revenue generated by a significant channel partner.
Volume discounts given to channel partners in 2000 increased the cost
of revenue, thereby lowering quarterly gross profit. Gross profit on
revenue was 59% for the third quarter of 2001, as compared to 53% for
the same period a year ago. Selling, general and administrative
("SGA") expenses increased 11% or $36,787, for the comparable
quarters. The Company posted $55,688 net income, or $.02 per share,
for the third quarter of 2001, a 30% increase, as compared to
earnings of $42,738, or $.01 per share, for the third quarter of
2000.
RESULTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 2001 VERSUS
NINE MONTHS ENDED SEPTEMBER 30, 2000
Revenue of $2,328,902 for the nine months ended September 30, 2001
was 37% or $633,984 greater than $1,694,918 reported for the same
period a year ago. This gain was attributed to a 33% (or $279,300)
increase in software licenses, coupled with a 42% or $354,684
increase in services and annual fees. Software licenses and annual
license fees through indirect channel partners for the nine months in
2001 comprised 44% of total revenue and were 31% or $241,461 greater
than the same period a year ago. As channel partners and other
independent resellers continue to sell 1MAGE systems, monthly license
fees continue to increase.
Revenue generated from annual fees to channel partners increased 46%
or $140,902 for the comparable nine-month periods. Gross profit as a
percent of revenue increased 52% for the comparable periods. The
across-the-board increase in revenue generated a 63% gross profit on
revenue for the nine months of 2001, as compared to 57% for the same
period a year ago. SG&A expenses of $1,126,786 for the nine months
ended September 30, 2001 were $208,066 (23%) greater than $918,720
for the nine months ended September 30, 2000, primarily due to
increased sales and marketing expenditures. The Company posted a 2001
year-to-date net income of $334,456 ($.11 per share) as compared to
net income of $43,804 ($.01 per share) for the same period in 2000.
Management is hopeful that our new sales and marketing initiatives
will increase revenue without increasing SG&A or unduly increasing
cost of sales.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2001, cash on hand remained steady at
approximately $151,000 from December 31, 2000, primarily due to cash
provided by operating activities and timing of collections on
accounts receivable. In addition, the Company used $200,000 cash to
payoff the line of credit. There were no borrowings against the line
of credit at September 30, 2001.
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, 2002, 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 and Use of Proceeds 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 Inapplicable
(B) Reports on Form 8-K
There were no reports filed on Form 8-K for the quarter ended
September 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: October 30, 2001 /s/ Mary Anne DeYoung
October 30, 2001 Mary Anne DeYoung
Chief Financial Officer and
Principal Financial Officer