UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the securities
Exchange Act of 1934
For the quarterly period ended DECEMBER 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from: _____ to _____
Commission File Number 0-15949
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
(Exact name of Small business issuer in its charter)
CALIFORNIA 94-2862863
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
100 ROWLAND WAY, SUITE 300, NOVATO, CALIFORNIA 94945
(Address of principal executive offices) (Zip code)
(415) 878-4000
Issuer's telephone number
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 FEBRUARY 6, 2004, 23,447,368 Shares of Issuer's common stock, no par
value, were outstanding.
Transitional Small Business Disclosure Format: YES /_/ NO /X/
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION 3
ITEM1- CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3
CONDENSED CONSOLIDATED BALANCE SHEETS 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) 4
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 14
ITEM 3- CONTROLS AND PROCEDURES 26
PART II - OTHER INFORMATION 26
ITEM 1- LEGAL PROCEEDINGS 26
ITEM 2- CHANGES IN SECURITIES 26
ITEM 3- DEFAULTS UPON SENIOR SECURITIES 26
ITEM 4- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 26
ITEM 5- OTHER INFORMATION 27
ITEM 6- EXHIBITS AND REPORTS ON FORM 8-K 27
SIGNATURES 29
INDEX TO EXHIBITS: 30
2
PART I - FINANCIAL INFORMATION
ITEM1- CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(UNAUDITED)
----------------- -------------
DECEMBER 31, 2003 JUNE 30, 2003
----------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,249 $ 10,399
Investment in marketable securities 197 --
Receivables, less allowances for doubtful accounts,
discounts and returns of $630 and $445 1,123 734
Receivables, other (related to discontinued operations) 1,000 --
Inventories 512 268
Other current assets 484 240
-------- --------
TOTAL CURRENT ASSETS 8,565 11,641
FIXED ASSETS, NET 271 85
Intangible assets
Capitalized software, net 778 87
Domain names, net 1,419 4
Distribution rights, net -- 36
Capitalized customer lists 128 --
Goodwill 608 179
-------- --------
TOTAL INTANGIBLE ASSETS 2,933 306
Other assets
Note receivable from related party 350 --
Investment in securities 1,138 998
Assets related to discontinued operations 1,300 1,300
-------- --------
TOTAL OTHER ASSETS 2,788 2,298
======== ========
TOTAL ASSETS $ 14,557 $ 14,330
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt 786 304
Trade accounts payable 871 564
Income tax payable -- 271
Accrued and other liabilities 610 1,541
Deferred revenue 241 305
-------- --------
TOTAL CURRENT LIABILITIES 2,508 2,985
Liabilities related to discontinued operations 84 84
Long-term debt and other obligations 181 --
-------- --------
TOTAL LIABILITIES 2,773 3,069
Shareholders' equity:
Common stock, no par value; 300,000,000 authorized;
Issued and outstanding 23,347,368 and 22,818,232 shares 36,099 35,546
Accumulated deficit (24,221) (24,223)
Accumulated other comprehensive loss (94) (62)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 11,784 11,261
-------- --------
======== ========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 14,557 $ 14,330
======== ========
See Notes to Condensed Consolidated Financial Statements
3
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2003 2002 2003 2002
-------- -------- -------- --------
Net revenues $ 2,674 $ 2,466 $ 4,455 $ 4,543
Product costs 793 1,075 1,371 1,582
-------- -------- -------- --------
GROSS MARGIN 1,881 1,391 3,084 2,961
Costs and expenses:
Sales and marketing 1,065 836 1,803 1,604
General and administrative 991 499 1,675 1,442
Research and development 531 445 1,007 822
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 2,587 1,780 4,485 3,868
-------- -------- -------- --------
OPERATING LOSS (706) (389) (1,401) (907)
-------- -------- -------- --------
Other income and (expense):
Interest and other, net 60 (127) 140 (182)
Unrealized gain on marketable securities 47 -- 177 --
Gain on liquidation of foreign subsidiaries -- -- -- 42
Gain (loss) on extinguishment of debt (5) 257 76 435
-------- -------- -------- --------
LOSS BEFORE INCOME TAX (604) (259) (1,008) (612)
Income tax benefit 6 -- 10 --
-------- -------- -------- --------
LOSS FROM CONTINUING OPERATIONS (598) (259) (998) (612)
Gain from the sale of discontinued operations 1,000 -- 1,000 --
Income from discontinued operations, net of income tax -- 208 -- 425
-------- -------- -------- --------
NET INCOME (LOSS) $ 402 ($ 51) $ 2 ($ 187)
======== ======== ======== ========
Other comprehensive income (loss), net of tax:
Foreign currency translation, net of tax (28) (6) (32) (2)
-------- -------- -------- --------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX $ 374 ($ 57) ($ 30) ($ 189)
======== ======== ======== ========
BASIC EARNINGS (LOSS) PER SHARE
Loss per share from continuing operations ($ 0.02) ($ 0.01) ($ 0.04) ($ 0.03)
Gain from the sale of discontinued operations $ 0.04 -- $ 0.04 --
Income from discontinued operations, net of income tax -- $ 0.01 -- $ 0.02
Earnings (loss) per share $ 0.02 $ 0.00 $ 0.00 ($ 0.01)
DILUTED EARNINGS (LOSS) PER SHARE
Loss per share from continuing operations ($ 0.02) ($ 0.01) ($ 0.04) ($ 0.03)
Gain from the sale of discontinued operations $ 0.04 -- $ 0.04 --
Income from discontinued operations, net of income tax -- $ 0.01 -- $ 0.02
Earnings (loss) per share $ 0.02 $ 0.00 $ 0.00 ($ 0.01)
Shares used in computing basic earnings (loss) per share 23,268 22,792 23,223 22,792
information
Shares used in computing diluted earnings (loss) per share 23,268 22,792 23,223 22,792
information
See Notes to Condensed Consolidated Financial Statements
4
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Six Months ended December 31, 2003
(In thousands)
(Unaudited)
COMMON STOCK ACCUMULATED
OTHER
ACCUMULATED COMPREHENSIVE
SHARES AMOUNT DEFICIT LOSS TOTAL
--------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2003 22,818 $35,546 ($24,223) ($62) $11,261
================================================================================
Issuance of common stock related to:
Warrants exercised 305 65 65
Stock options exercised 124 71 71
Acquisitions 100 92 92
Issuance of warrants related to:
Consulting services rendered 248 248
Acquisitions 59 59
Issuance of stock options related to:
Consulting services rendered 7 7
Variable accounting adjustment related to stock 11 11
options previously issued
Net income 2 2
Comprehensive loss (32) (32)
--------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2003 23,347 $36,099 ($24,221) ($94) $11,784
================================================================================
See Notes to Condensed Consolidated Financial Statements
5
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
SIX MONTHS ENDED DECEMBER 31,
-----------------------------
2003 2002
-------- --------
Cash flows from operating activities:
NET CASH USED BY OPERATING ACTIVITIES ($ 2,507) ($ 694)
-------- --------
Cash flows from investing activities:
Acquisition of product lines (1,525) --
Acquisition of business (257) --
Loan to related party (350) --
Investment in marketable securities (160) --
Purchase of equipment and furniture (174) (11)
Purchase of software (13) (14)
Cash used by discontinued operations in investing activities -- (154)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (2,479) (179)
-------- --------
Cash flows from financing activities:
Settlement of note payable (Imageline) (160) --
Note borrowings -- 321
Note repayments (109) (558)
Warrants exercised 65 --
Options exercised 71 --
Proceeds from issuance of common stock -- 1
Repayment of capital lease obligations -- (76)
Cash used by discontinued operations in financing activities -- (95)
-------- --------
NET CASH USED BY FINANCING ACTIVITIES (133) (407)
-------- --------
Effect of exchange rate change on cash and cash equivalents (31) (2)
Net decrease in cash and cash equivalents (5,150) (1,282)
Cash and cash equivalents at beginning of period 10,399 2,455
-------- --------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 5,249 $ 1,173
-------- --------
See Notes to Condensed Consolidated Financial Statements
6
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The interim condensed consolidated financial statements have been prepared from
the records of International Microcomputer Software, Inc. and Subsidiaries
("IMSI") without audit. All significant inter-company balances and transactions
have been eliminated in consolidation. In the opinion of management, all
adjustments, which consist of only normal recurring adjustments, to present
fairly the financial position at December 31, 2003 and the results of operations
and cash flows for the three and six months ended December 31, 2003 and 2002,
have been made. The interim condensed consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto contained in our Annual Report on Form 10-KSB for the fiscal year ended
June 30, 2003. The results of operations for the three and six months ended
December 31, 2003 are not necessarily indicative of the results to be expected
for any other interim period or for the full year.
2. DISCONTINUED OPERATIONS
As previously disclosed in our annual report on Form 10-KSB for the fiscal year
ended June 30, 2003, we sold ArtToday, Inc ("ArtToday"), our wholly-owned
subsidiary based in Arizona, to Jupitermedia Corporation ("Jupiter") in June
2003. Under Generally Accepted Accounting Principles ("GAAP") in the United
States, ArtToday's operating results for the three and six months ended December
31, 2002, have been accounted for as discontinued operations.
Reclassifications have been made to the amounts reported in fiscal 2003 to
conform to the current year presentation. The amounts reported for fiscal 2003
present the results of operations for ArtToday as discontinued operations due to
the sale of ArtToday on June 30, 2003.
During the quarter ended December 31, 2003, we recorded a gain of $1.0 Million
from the sale of discontinued operations representing the successful achievement
of the first earnout from the sale of ArtToday. This earnout was contingent on
ArtToday reaching certain revenue milestones. We have received confirmation from
Jupiter that the full amount of the $1.0 Million earnout was earned and will be
paid per the stock purchase agreement by February 14, 2004.
3. RECLASSIFICATIONS
Effective for the quarter ended December 31, 2003, we revised our accounting
treatment with regard to fees paid to our third party E-commerce solution
provider, whereby we now record them as sales and marketing expenses as compared
to our prior treatment of them as an offset to revenue. The effect of this
reclassification, as of December 31, 2003, was to increase revenues and sales
and marketing expense by $138,000 and $187,000 for the three and six months
ended December 31, 2003. In order to conform our prior year's results to this
revised presentation for the three and six months ended December 31, 2002, we
have increased revenues and sales and marketing expense by $77,000 and $155,000,
respectively.
4. PRODUCT LINE AND OTHER ACQUISITIONS
PLANWORKS
On November 17, 2003, we acquired Planworks L.L.C. ("Planworks"), a leading
online provider of house plans. Planworks operates the houseplanguys.com website
that contains an extensive library of over 11,000 unique house plans and has
more than 25,000 members. We also acquired ten other domain names which will be
used to assist individuals and designers looking for house plans and related
products, further strengthening the IMSI network of online design and content
commerce sites. The total consideration for the acquisition included the
following:
o Cash: $275,000 of which $260,000 was paid upon closing with the
remaining $15,000 balance to be held in an escrow account for a
period of eight months.
o 85,000 restricted shares of IMSI common stock priced as of the
acquisition date or $1.16 per share.
7
CADSYMBOL ACQUISITION
On November 6, 2003, we entered into an asset purchase agreement with Assisto
GmbH ("Assisto"), a German company, whereby we acquired title and interest in
certain tangible and intangible assets of Assisto. The assets included certain
CAD symbol content, custom developed software and all related assets including
inventory, web sites and domain names.
The total purchase price of approximately $372,000 will be paid according to the
following schedule:
o Approximately $172,000 at closing;
o Approximately $200,000 to be held in escrow and released over the
next fifteen months.
In addition, we granted to Ane Gyldholm and Michael Heckmann, principals of
Assisto, warrants to each purchase twenty thousand (20,000) shares of IMSI's
common stock at any time within the three year period following the closing at
an exercise price of $1.21, which was the price of IMSI's common stock on the
closing date.
CADSYMBOLS ACQUISITION
On October 27, 2003, we entered into an asset license and purchase agreement
with Cardiff Consultants, Limited, a New York corporation ("Cardiff"), whereby
we acquired from Cardiff the exclusive, non-transferable right to use the
cadsymbols.com and cadsymbols.net domain names and trademarks until December 31,
2006, when Cardiff is to assign the domain names and trademark to us subject to
our payment of all amounts due Cardiff. The total consideration for the
acquisition ($845,000) is comprised of the following:
o Three Hundred Thirty-Five Thousand Dollars ($335,000) upon the
execution of the agreement;
o Two Hundred Fifty-Five Thousand Dollars ($255,000) in two payments
to be paid over the next nine months
o Royalty payments to Cardiff equal to two percent (2.0%) of the net
revenues, subject to certain minimums for the next three years based
on sales generated by the websites.
In addition, we granted to Cardiff a warrant to purchase twenty-five thousand
(25,000) shares of IMSI's common stock at any time within the three-year period
following the execution of the agreement at $1.14 per share.
Upon the execution of the agreement, Cardiff deposited in an escrow account the
assignment agreement of each domain name, and the assignment agreement of the
trademark. The escrow agreement calls for release of the assignment documents to
us on September 30, 2006 subject to the cumulative payment to Cardiff of all
amounts due.
CADKEY ACQUISITION TERMINATION
As previously disclosed, on August 22, 2003, we entered into an agreement with
CADKEY Corporation ("CADKEY") a Massachusetts corporation to purchase
substantially all of its assets. The proposed purchase price was $2,500,000 and
the assumption of CADKEY customer obligations. The acquisition was conditioned
upon court approval pursuant to Section 363 of the U.S. Bankruptcy Code after
CADKEY filed a voluntary petition under Chapter 11 of the Bankruptcy Code on
August 22, 2003 in the U.S. Bankruptcy Court in Worcester, Massachusetts.
On October 27, 2003, we terminated our bid to acquire substantially all of the
assets of CADKEY through an auction sale. As a result of the termination, we
received a break up fee of $45,000 which was recorded as a reduction of legal
expense and were reimbursed for $225,000 of professional fees advanced to CADKEY
in addition to the $250,000 that was initially held in escrow. These amounts
were initially recorded as short-term assets in the "Other current assets"
account.
8
CADALOG
On September 12, 2003, we acquired from CADalog, Inc, CADalog.com, a network of
websites that offers one of the largest mechanical parts symbols libraries
on-line and allows members access to over 8 million 2D and 3D hardware component
symbols. The acquisition also included the purchase of CADalog, Inc.'s
Partsxl.com, Partswork.com and 3DModelsharing.com websites. This acquisition
gives us the opportunity to sell additional CAD content and software plug-ins.
The total consideration for the acquisition was $295,000. A payment of $250,000
was made on September 19, 2003 and the remaining $45,000 will be held in an
escrow account with $15,000 to be released to the seller ninety days after the
closing date, and the remaining $30,000 to be released after a period of twelve
months. The escrow balance of $45,000 was fully funded on October 8, 2003.
DESIGNCAD
On July 28, 2003, we entered into an agreement to purchase the tangible and
intangible assets of Upperspace Corporation ("Upperspace"), an Oklahoma
corporation, constituting its DesignCAD line of products, several learning aids,
and various smaller design programs.
The purchase price included the following consideration:
o $700,000 cash (of which $100,000 is being held in an escrow account
for a period of twelve months)
o $300,000, 5% simple interest, promissory note payable 12 months from
the date of closing
o An earn-out based on net revenue that could result in an additional
$300,000 during the next three fiscal years
o A license pursuant to which Upperspace shall act for a period as the
exclusive distributor of the purchased products to retail outlets,
and a non-exclusive reseller of the product through direct sales
channels such as the internet, email, telephone and fax.
9
The table below documents the components of consideration paid for each
acquisition completed in the three and six months ended December 31, 2003
detailed above and the allocation of that consideration to the tangible and
intangible assets acquired.
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
PLANWORKS CADSYMBOL CADSYMBOLS CADALOG DESIGN CAD
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
DATE TRANSACTION CLOSED: NOVEMBER 17, 2003 NOVEMBER 6, 2003 OCTOBER 27, 2003 SEPTEMBER 12, 2003 JULY 28, 2003
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
CONSIDERATION
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
Cash $ 260 $ 171 $ 335 $ 250 $ 600
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
Less: Cash on hand (16) - - - -
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
Escrow - 170 - 45 100
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
Stock 77 - - - -
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
Warrants - 30 18 - -
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
Notes payable 14 - 474 - 300
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
Liabilities assumed 23 - - - -
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
Transaction fees 20 1 3 - -
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
TOTAL CONSIDERATION $ 378 $ 372 $ 830 $ 295 $ 1,000
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
ASSET ALLOCATION
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
Tangible Assets
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
Inventory - - - - 91
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
Marketing materials - - - - 2
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
Prepaid expenses 1 - - - -
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
Computer hardware - 12 - 7 12
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
Computer software - - - - 9
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
TOTAL TANGIBLE ASSETS $ 1 $ 12 $ - $ 7 $ 114
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
Intangible Assets
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
Capitalized software / content - 180 - 268 323
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
Websites and associated
domain names 315 180 830 20 50
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
Customer list 33 - - - 113
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
Goodwill 29 - - - 400
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
TOTAL INTANGIBLE ASSETS $ 377 $ 360 $ 830 $ 288 $ 886
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
TOTAL ASSETS ALLOCATED $ 378 $ 372 $ 830 $ 295 $ 1,000
---------------------------------------------------------- --------------- ------------------ --------------------- ---------------
10
5. NOTE PAYABLE TO IMAGELINE
On July 7, 2003, we repaid the note payable to Imageline in the amount of
$160,000 representing the final payment in connection with our mutual settlement
as previously disclosed in our annual report on Form 10-KSB for the fiscal year
ended June 30, 2003.
6. NOTE RECEIVABLE FROM RELATED PARTY - DCDC 15% NOTE
On September 18, 2003, we entered into a 15% one-year note with Digital Creative
Development Corporation ("DCDC") whereby we extended a loan to DCDC in the
amount of $350,000. The note is due, with interest, on September 18, 2004. The
note is secured by 400,000 shares of IMSI's stock held by DCDC. The agreement
also calls for DCDC not to sell any other IMSI common stock which it holds, with
the exception of private sales of IMSI common stock, prior to February 15, 2004.
Concurrent with this note, DCDC repaid the entire principal portion of a $50,000
note, made in favor of IMSI on February 25, 2003. That note, due on February 25,
2004, was unsecured and carried a 4% interest rate. This note had been
previously recorded as a fully reserved receivable as it was unsecured. The
reversal of the reserve upon the repayment of this note was consequently
accounted for as other income during the quarter ended September 30, 2003. The
interest payable, amounting to $1,162, is still outstanding as of the filing and
is due and payable on February 18, 2004.
7. SEGMENT INFORMATION
We have three reportable operating segments based on the sales market. Two of
these are geographic segments and generate revenues and incur expenses related
to the sale of our PC productivity software. The third segment comprises the
revenues and expenses related to Keynomics, our business applications subsidiary
which provides ergonomic and keyboard training for worker-enhanced safety,
productivity and ergonomic compliance improvements through its proprietary
software system, "The KeySoft Performance System".
The following table details segment information (in thousands). The foreign
segment refers to the operations of our German and Australian wholly owned
subsidiaries, IMSI GmbH and IMSI Australia PTY Ltd.
--------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDED DECEMBER 31, 2003 KEYNOMICS NORTH AMERICA OTHER FOREIGN ELIMINATIONS TOTAL
--------------------------------------------------------------------------------------------------------------------------------
Net Revenues $319 2,225 130 -- 2,674
Operating income (loss) (58) (672) 24 -- (706)
Identifiable assets 223 15,575 374 (1,615) 14,557
--------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDED DECEMBER 31, 2002
--------------------------------------------------------------------------------------------------------------------------------
Net Revenues $447 $1, 902 $117 $-- $2,466
Operating income (loss) 58 (400) (47) -- (389)
Identifiable assets 627 2,972 308 -- 3,907
--------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED DECEMBER 31, 2003
--------------------------------------------------------------------------------------------------------------------------------
Net Revenues $478 $3,685 $292 $-- $4,455
Operating income (loss) (201) (1,216) 16 (1,401)
Identifiable assets 223 15,575 374 (1,615) 14,557
--------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED DECEMBER 31, 2002
--------------------------------------------------------------------------------------------------------------------------------
Net Revenues $624 $3,641 $278 $-- $4,543
Operating loss (8) (870) (29) -- (907)
Identifiable assets 627 2,972 308 -- 3,907
--------------------------------------------------------------------------------------------------------------------------------
11
8. EARNINGS (LOSS) PER SHARE
Basic earnings per share are computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share are
computed using the weighted average number of common and potentially dilutive
securities outstanding during the period. Potentially dilutive securities
consist of the incremental common shares issuable upon exercise of stock options
and warrants (using the treasury stock method). Potentially dilutive securities
are excluded from the computation if their effect is anti-dilutive.
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2002 2003 2002
--------------------------------------------------------------
NUMERATOR:
Net income (loss) $402 ($51) $2 ($187)
Numerator for basic earnings (loss) per share - income (loss) $402 ($51) $2 ($187)
available to common stockholders
Numerator for diluted earnings (loss) per share - income (loss) $402 ($51) $2 ($187)
available to common stockholders after assumed conversions
DENOMINATOR:
Denominator for basic earnings (loss) per share - weighted average 23,268,099 22,792,261 23,223,488 22,792,391
shares outstanding
Effect of dilutive securities using the treasury stock method as
at December 31, 2003:
7,343,244 Warrants Outstanding -- -- -- --
2,058,644 Stock Options Outstanding -- -- -- --
Effect of dilutive securities using the treasury stock method as
at December 31, 2002:
5,366,577 Warrants Outstanding -- -- -- --
2,204,638 Stock Options Outstanding -- -- -- --
Dilutive potential common shares -- -- --
Denominator for diluted earnings (loss) per share - adjusted 23,268,099 22,792,261 23,223,488 22,792,391
weighted average shares and assumed conversion
BASIC EARNINGS (LOSS) PER SHARE $0.02 ($0.00) $0.00 ($0.01)
DILUTED EARNINGS (LOSS) PER SHARE $0.02 ($0.00) $0.00 ($0.01)
----------------------------------------------------------------------------------------------------------------------------------
9. STOCK-BASED AWARDS
Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure, an Amendment of FASB Statement No. 123,"
amends the disclosure requirements of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), to
require more prominent disclosures in both annual and interim financial
statements regarding the method of accounting for stock-based employee
compensation and the effect of the method used on reported results.
We account for stock-based compensation plans in accordance with Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," under which no compensation cost is recognized in the financial
statements for employee stock warrants and options when grants are made at an
exercise price equal to the fair market value of the Company's stock. We have
adopted the disclosure only provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation".
12
Under variable plan accounting, we recognize a charge equal to the per share
change in the share value until the underlying options expire or are exercised.
During the three and six months ended December 31, 2003 we recognized charges of
($2,069) and $12,735 respectively related to variable awards. This compares to
charges of $0 and ($5,947), respectively for the three and six months ended
December 31, 2002.
Had compensation cost for the stock-based compensation plans been determined
based upon the fair value at grant dates for awards under those plans consistent
with the method prescribed by SFAS 123, net income would have been reduced to
the pro forma amounts indicated below:
------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts) THREE MONTHS ENDED DECEMBER 31, SIX MONTHS ENDED DECEMBER 31,
---------------------------------------- ------------------------------- -----------------------------
2003 2002 2003 2002
---- ---- ---- ----
NET INCOME (LOSS), AS REPORTED $402 ($51) $2 ($187)
Intrinsic compensation charge recorded under APB 25 247 (387) 254 95
Pro Forma compensation charge under SAS 123 (614) (316) (866) (925)
------------------------------------------------------------------------------------------------------------------------------------
PRO FORMA NET INCOME (LOSS) 35 (754) (610) (1,017)
Pro Forma net income (loss) per share:
Basic--as reported $0.02 ($0.00) $0.00 ($0.01)
Basic--pro forma $0.00 ($0.03) ($0.03) ($0.04)
Diluted--as reported $0.02 ($0.00) $0.00 ($0.01)
Diluted--pro forma $0.00 ($0.03) ($0.03) ($0.04)
------------------------------------------------------------------------------------------------------------------------------------
The fair value of each option granted was estimated on the date of the grant
using the Black-Scholes option-pricing model using the following weighted
average assumptions:
-------------------------------------------------------------------------
QUARTER ENDED DECEMBER 31,
--------------------------
2003 2002
---- ----
Risk-free interest rates 2.36% - 4.18% 1.21%
Expected dividend yields -- --
Expected volatility 101.11% 126.08%
Expected option life (in years) 3 - 10 5 - 10
-------------------------------------------------------------------------
The weighted average fair value per option as of the grant date for grants made
for both the three and six months ended December 31, 2003 was $0.85. This
compares to $0.56 and $0.70, respectively for the three and six months ended
December 31, 2002.
10. NEW ACCOUNTING STANDARDS
ACCOUNTING FOR REVENUE ARRANGEMENTS WITH MULTIPLE DELIVERABLES In November 2002,
the EITF reached a consensus on Issue No. 00-21, Revenue Arrangements with
Multiple Deliverables. Issue 00-21 provides guidance on how to account for
arrangements that involve the delivery or performance of multiple products,
services and/or rights to use assets. The provisions of Issue 00-21 will apply
to revenue arrangements entered into in fiscal periods beginning after June 15,
2003. The adoption of Issue 00-21 did not have a material effect on our
consolidated financial position, results of operations or cash flows.
AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES On
April 30, 2003, the FASB issued Statement No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. Statement 149 is intended to
result in more consistent reporting of contracts as either freestanding
derivative instruments subject to Statement 133 in its entirety, or as hybrid
instruments with debt host contracts and embedded derivative features. In
addition, Statement 149 clarifies the definition of a derivative by providing
guidance on the meaning of initial net investments related to derivatives.
Statement 149 is effective for contracts entered into or modified after June 30,
2003. At December 31, 2003, we do not hold any derivative instruments. The
adoption of Statement 149 did not have an effect on our consolidated financial
position, results of operations or cash flows.
13
FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY On May
15, 2003, the FASB issued Statement No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. Statement 150
establishes standards for classifying and measuring as liabilities certain
financial instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity. Statement 150 represents a
significant change in practice in the accounting for a number of financial
instruments, including mandatory redeemable equity instruments and certain
equity derivatives that frequently are used in connection with share repurchase
programs. Statement 150 is effective for all financial instruments created or
modified after May 31, 2003, and to other instruments as of July 1, 2003. We
adopted Statement 150 on July 1, 2003 and the effect of adopting this statement
did not have an impact on our financial position, results of operations or cash
flows.
11. GOODWILL
Total goodwill at December 31, 2003 related to the acquisitions of Keynomics,
DesignCAD and Planworks was $608,000. In accordance with SFAS No. 142, Goodwill
and Intangible Assets, we will assess the underlying goodwill for impairment
annually or more frequently if circumstances indicate impairment.
12. SUBSEQUENT EVENTS (PROPOSED ACQUISITION OF ALADDIN SYSTEMS, INC.)
On January 21, 2004, we announced that we entered into a definitive agreement
with Aladdin Systems Holdings, Inc. to acquire its wholly owned subsidiary,
Aladdin Systems, Inc. ("Aladdin"), a developer and publisher of utility software
solutions in the areas of information access, removal, recovery, security and
distribution of information and data for the Windows(R), Linux(R) and
Macintosh(R) platforms.
The proposed consideration, which was based upon an in-depth analysis of
Aladdin's current and projected business results, comparable companies and
similar transactions, is a combination of cash, stock and a convertible note
with a aggregate value of approximately $8 million plus an earn-out that could
result in an additional $2 million in payments during the next three years.
We will rely on our available cash balance upon closing to fund the initial cash
payment component of this transaction.
The transaction is expected to close in March 2004 and is subject to customary
closing conditions.
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
The following information should be read in conjunction with the consolidated
financial statements and the notes thereto and in conjunction with Management's
Discussion and Analysis or Plan of Operations in our Fiscal 2003 Form 10-KSB.
This quarterly report on Form 10-QSB, and in particular this "Management's
Discussion and Analysis or Plan of Operations," may contain forward-looking
statements regarding future events or our future performance. These future
events and future performance involve certain risks and uncertainties including
those discussed in the "Other Factors That May Affect Future Operating Results"
section of this Form 10-QSB, as well as in our Fiscal 2003 Form 10-KSB, as filed
with the Securities and Exchange Commission ("SEC"). Actual events or our actual
future results may differ materially from any forward-looking statements due to
such risks and uncertainties. We assume no obligation to update these
forward-looking statements to reflect actual results or changes in factors or
assumptions affecting such forward-looking statements. This analysis is not
intended to serve as a basis for projection of future events.
CRITICAL ACCOUNTING POLICIES
In accordance with recent Securities and Exchange Commission guidance, those
material accounting policies that we believe are the most critical to an
investor's understanding of our financial results and condition have been
expanded and are discussed below. Certain of these policies are particularly
important to the portrayal of our financial position and results of operations
and require the application of significant judgment by our management to
determine the appropriate assumptions to be used in the determination of certain
estimates.
14
REVENUE RECOGNITION
Revenue is recognized in accordance with American Institute of Certified Public
Accountants Statement of Position ("SOP") 97-2, Software Revenue Recognition,
and SOP 98-9, Modification of SOP 97-2, With Respect to Certain Transactions.
Revenue is recognized when persuasive evidence of an arrangement exists
(generally a purchase order), product has been delivered, the fee is fixed and
determinable, and collection of the resulting account is probable.
o Revenue from packaged product sales to resellers and end users is recorded
at the time of the sale net of estimated returns.
o Revenue from sales to distributors is recognized when the product sells
through to retailers and end users. Sales to distributors permit limited
rights of return according to the terms of the contract.
o For software delivered via the Internet, revenue is recorded when the
customer downloads the software.
o Revenue from post contract customer support (PCS) is recognized ratably
over the contract period.
o Training fees are recognized when the service is performed.
o Subscription revenue is recognized ratably over the contract period.
o Revenue from hybrid products is allocated to the underlying components
based on the ratio of the value of each component to the total price and
each portion is recognized accordingly.
o Non-refundable advanced payments received under license agreements with no
defined terms are recognized as revenue when the customer accepts the
delivered software.
o Revenue from software licensed to developers, including amounts in excess
of non-refundable advanced payments, is recorded as the developers ship
products containing the licensed software.
o Revenue from minimum guaranteed royalties in republishing agreements is
recognized ratably over the term of the agreement. Royalties in excess of
the guaranteed minimums are recognized when collected.
o Revenue from Original Equipment Manufacturer (OEM) contracts is recognized
upon completion of our contractual obligations.
RESERVE FOR RETURNS, PRICE DISCOUNTS AND REBATES
Reserves for returns, price discounts and rebates are estimated using historical
averages, open return requests, channel inventories, recent product sell-through
activity and market conditions. Our allowances for returns, price discounts and
rebates are based upon management's best judgment and estimates at the time of
preparing the financial statements. Reserves are subjective estimates of future
activity that are subject to risks and uncertainties, which could cause actual
results to differ materially from estimates.
Our return policy generally allows our distributors to return purchased products
primarily in exchange for new products or for credit towards future purchases as
part of stock balancing programs. These returns are subject to certain
limitations that may exist in the contract with an individual distributor,
governing, for example, aggregate return amounts, and the age, condition and
packaging of returned product. Under certain circumstances, such as terminations
or when a product is defective, distributors could receive a cash refund if
returns exceed amounts owed.
INVENTORIES
Inventories are valued at the lower of cost or market and are accounted for on
the first-in, first-out basis. Management performs periodic assessments to
determine the existence of obsolete, slow moving and non-salable inventories,
and records necessary provisions to reduce such inventories to net realizable
value. As of December 31, 2003, distributors held approximately $61,000 of our
inventory under consignment arrangements.
IMPAIRMENT
Property, equipment, intangible and certain other long-lived assets are
amortized over their useful lives. Useful lives are based on management's
estimates of the period that the assets will generate revenues. Long-lived
assets are written down to fair value whenever events or changes indicate that
the carrying amount of an asset may not be recoverable. Our policy is to review
the recoverability of all long-lived assets at a minimum of once per year and
record an impairment loss when the fair value of the assets does not exceed the
carrying amount of the asset.
15
In accordance with SFAS No. 142, Goodwill and Intangible Assets, we will assess
the underlying goodwill for impairment annually or more frequently if
circumstances indicate impairment.
RECENT EVENTS
PLANWORKS
On November 17, 2003, we acquired Planworks, a leading online provider of house
plans. Planworks operates the houseplanguys.com website that contains an
extensive library of over 11,000 unique house plans and has more than 25,000
members. We also acquired ten other domain names which will be used to assist
individuals and designers looking for house plans and related products, further
strengthening the IMSI network of online design and content commerce sites. The
total consideration for the acquisition included the following:
o Cash: $275,000 of which $260,000 was paid upon closing with
the remaining $15,000 balance to be held into an escrow
account for a period of eight moths.
o 85,000 restricted shares of IMSI common stock which were
priced as of the acquisition date or $1.16 per share.
CADSYMBOL ACQUISITION
On November 6, 2003, we entered into an asset purchase agreement with Assisto,
whereby we acquired title and interest in certain tangible and intangible assets
of Assisto. The assets included certain CAD symbol content, custom developed
software and all related assets including inventory, web sites and domain names.
The total purchase price of approximately $372,000 will be paid according to the
following schedule:
o Approximately $172,000 at closing;
o Approximately $200,000 to be held in escrow and released over the
next fifteen months.
In addition, we granted to Ane Gyldholm and Michael Heckmann, principals of
Assisto, warrants to each purchase twenty thousand (20,000) shares of IMSI's
common stock at any time within the three year period following the closing at
an exercise price of $1.21, which was the price of IMSI's common stock on the
closing date.
CADSYMBOLS ACQUISITION
On October 27, 2003, we entered into an asset license and purchase agreement
with Cardiff, whereby we acquired from Cardiff the exclusive, non-transferable
right to use the cadsymbols.com and cadsymbols.net domain names and trademarks
until December 31, 2006, when Cardiff is to assign the domain names and
trademark to us subject to our payment of all amounts due Cardiff. The total
consideration for the acquisition ($845,000) is comprised of the following:
o Three Hundred Thirty-Five Thousand Dollars ($335,000) upon the
execution of the agreement;
o Two Hundred Fifty-Five Thousand Dollars ($255,000) in two payments
to be paid over the next nine months
o Royalty payments to Cardiff equal to two percent (2.0%) of the net
revenues, subject to certain minimums for the next three years based
on sales generated by the websites.
In addition, we granted to Cardiff a warrant to purchase twenty-five thousand
(25,000) shares of IMSI's common stock at any time within the three year period
following the execution of the agreement at $1.14 per share.
16
Upon the execution of the agreement, Cardiff deposited in an escrow account the
assignment agreement of each domain name, and the assignment agreement of the
trademark. The escrow agreement calls for release of the assignment documents to
us on September 30, 2006 subject to the cumulative payment to Cardiff of all
amounts due.
CADKEY ACQUISITION TERMINATION
As previously disclosed, on August 22, 2003, we entered into an agreement with
CADKEY to purchase substantially all of its assets. The proposed purchase price
was $2,500,000 and the assumption of CADKEY customer obligations. The
acquisition was conditioned upon court approval pursuant to Section 363 of the
U.S. Bankruptcy Code after CADKEY filed a voluntary petition under Chapter 11 of
the Bankruptcy Code on August 22, 2003 in the U.S. Bankruptcy Court in
Worcester, Massachusetts.
On October 27, 2003, we terminated our bid to acquire substantially all of the
assets of CADKEY through an auction sale. As a result of the termination, we
received a break up fee of $45,000 which was recorded as a reduction of legal
expense and were reimbursed for $225,000 of professional fees advanced to CADKEY
in addition to the $250,000 that was initially held in escrow. These amounts
were initially recorded as short-term assets in the "Other current assets"
account.
CADALOG
On September 12, 2003, we acquired from CADalog, Inc, CADalog.com, a network of
websites that offers one of the largest mechanical parts symbols libraries
on-line and allows members access to over 8 million 2D and 3D hardware component
symbols. The acquisition also included the purchase of CADalog, Inc.'s
Partsxl.com, Partswork.com and 3DModelsharing.com websites. This acquisition
gives us the opportunity to sell additional CAD content and software plug-ins.
The total consideration for the acquisition was $295,000. A payment of $250,000
was made on September 19, 2003 and the remaining $45,000 will be held in an
escrow account with $15,000 to be released to the seller ninety days after the
closing date, and the remaining $30,000 to be released after a period of twelve
months. The escrow balance of $45,000 was fully funded on October 8, 2003.
DESIGNCAD
On July 28, 2003, we entered into an agreement to purchase the tangible and
intangible assets of Upperspace corporation, constituting its DesignCAD line of
products, several learning aids, and various smaller design programs.
The purchase price included the following consideration:
o $700,000 cash (of which $100,000 is being held in an escrow account
for a period of twelve months)
o $300,000, 5% simple interest, promissory note payable 12 months from
the date of closing
o An earn-out based on net revenue that could result in an additional
$300,000 during the next three fiscal years
o A license pursuant to which Upperspace shall act for a period as the
exclusive distributor of the purchased products to retail outlets,
and a non-exclusive reseller of the product through direct sales
channels such as the internet, email, telephone and fax.
17
The table below documents the components of consideration paid for each
acquisition completed in the three and six months ended December 31, 2003
detailed above and the allocation of that consideration to the tangible and
intangible assets acquired.
------------------------------------------------------------------------------------------------------------------------------------
PLANWORKS CADSYMBOL CADSYMBOLS CADALOG DESIGN CAD TOTAL
------------------------------------------------------------------------------------------------------------------------------------
NOVEMBER NOVEMBER OCTOBER SEPTEMBER JULY
DATE TRANSACTION CLOSED: 17, 2003 6, 2003 27, 2003 12, 2003 28, 2003
------------------------------------------------------------------------------------------------------------------------------------
CONSIDERATION
------------------------------------------------------------------------------------------------------------------------------------
Cash $ 260 $ 171 $ 335 $ 250 $ 600 $ 1,616
------------------------------------------------------------------------------------------------------------------------------------
Less: Cash on hand (16) -- -- -- -- (16)
------------------------------------------------------------------------------------------------------------------------------------
Escrow -- 170 -- 45 100 315
------------------------------------------------------------------------------------------------------------------------------------
Stock 77 -- -- -- -- 77
------------------------------------------------------------------------------------------------------------------------------------
Warrants -- 30 18 -- -- 48
------------------------------------------------------------------------------------------------------------------------------------
Notes payable 14 -- 474 -- 300 788
------------------------------------------------------------------------------------------------------------------------------------
Liabilities assumed 23 -- -- -- -- 23
------------------------------------------------------------------------------------------------------------------------------------
Transaction fees 20 1 3 -- -- 24
------------------------------------------------------------------------------------------------------------------------------------
TOTAL CONSIDERATION $ 378 $ 372 $ 830 $ 295 $ 1,000 $ 2,875
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
ASSET ALLOCATION
------------------------------------------------------------------------------------------------------------------------------------
Tangible Assets
------------------------------------------------------------------------------------------------------------------------------------
Inventory -- -- -- -- 91 91
------------------------------------------------------------------------------------------------------------------------------------
Marketing materials -- -- -- -- 2 2
------------------------------------------------------------------------------------------------------------------------------------
Prepaid expenses 1 -- -- -- -- 1
------------------------------------------------------------------------------------------------------------------------------------
Computer hardware -- 12 -- 7 12 31
------------------------------------------------------------------------------------------------------------------------------------
Computer software -- -- -- -- 9 9
------------------------------------------------------------------------------------------------------------------------------------
TOTAL TANGIBLE ASSETS $ 1 $ 12 $ -- $ 7 $ 114 $ 134
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
INTANGIBLE ASSETS
------------------------------------------------------------------------------------------------------------------------------------
Capitalized software /
content -- 180 -- 268 323 771
------------------------------------------------------------------------------------------------------------------------------------
Websites and associated
domain names 315 180 830 20 50 1,395
------------------------------------------------------------------------------------------------------------------------------------
Customer list 33 -- -- -- 113 146
------------------------------------------------------------------------------------------------------------------------------------
Goodwill 29 -- -- -- 400 429
------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTANGIBLE ASSETS $ 377 $ 360 $ 830 $ 288 $ 886 $ 2,741
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS ALLOCATED $ 378 $ 372 $ 830 $ 295 $ 1,000 $ 2,875
------------------------------------------------------------------------------------------------------------------------------------
18
RESULTS OF OPERATIONS
The following table sets forth our results of operations for the three months
ended December 31, 2003 and 2002 in absolute dollars and as a percentage of net
revenues. It also details the changes from the prior fiscal year in absolute
dollars and in percentages.
On June 30, 2003, we sold ArtToday, our wholly owned subsidiary based in Arizona
to Jupiter. Under Generally Accepted Accounting Principles in the United States,
ArtToday's operating results for all periods presented have been accounted for
as discontinued operations.
19
THREE MONTHS ENDED DECEMBER 31,
------------------------------------------- ---------------------
$ CHANGE FROM
PREVIOUS YEAR
2003 2002
------------------- -------------------
AS % OF AS % OF $ INCREASE /
$ SALES $ SALES (DECREASE) %
------- ------- ------- ------- ----------- -------
Net revenues $ 2,674 100% $ 2,466 100% $ 208 8%
Product cost 793 30% 1,075 44% 282 26%
-------------------------------------------- ------- ------- ------- ------- ------- -------
GROSS MARGIN 1,881 70% 1,391 56% 490 35%
Operating expenses
Sales & marketing 1,065 40% 836 34% 229 27%
General & administrative 991 37% 499 20% 492 99%
Research & development 531 20% 445 18% 86 19%
-------------------------------------------- ------- ------- ------- ------- ------- -------
TOTAL OPERATING EXPENSES 2,587 97% 1,780 72% 807 45%
-------------------------------------------- ------- ------- ------- ------- ------- -------
OPERATING LOSS (706) -26% (389) -16% (317) 81%
-------------------------------------------- ------- ------- ------- ------- ------- -------
Other Income (expenses)
Interest and other, net 60 2% (127) -5% 187 -147%
Unrealized gain on marketable securities 47 2% -- -- 47 100%
Gain on liquidation of foreign subsidiaries -- -- -- -- -- --
Gain on extinguishment of debt (5) -- 257 10% (262) -102%
-------------------------------------------- ------- ------- ------- ------- ------- -------
TOTAL OTHER INCOME (EXPENSES) 102 4% 130 5% (28) -22%
-------------------------------------------- ------- ------- ------- ------- ------- -------
LOSS BEFORE INCOME TAX (604) -23% (259) -11% (345) 133%
-------------------------------------------- ------- ------- ------- ------- ------- -------
Income tax benefit 6 -- -- -- 6 100%
-------------------------------------------- ------- ------- ------- ------- ------- -------
LOSS FROM CONTINUING OPERATIONS (598) -22% (259) -11% (339) 131%
-------------------------------------------- ------- ------- ------- ------- ------- -------
Gain from the sale of discontinued operations 1,000 37% -- -- 1,000 100%
Income from discontinued operations, net of
income tax -- -- 208 8% (208) -100%
-------------------------------------------- ------- ------- ------- ------- ------- -------
NET INCOME (LOSS) $ 402 15% $ (51) -2% $ 453 -888%
-------------------------------------------- ======= ======= ======= ======= ======= =======
SIX MONTHS ENDED DECEMBER 31,
------------------------------------------- ---------------------
$ CHANGE FROM
PREVIOUS YEAR
2003 2002
------------------- -------------------
AS % OF AS % OF $ INCREASE /
$ SALES $ SALES (DECREASE) %
------- ------- ------- ------- ----------- -------
Net revenues $ 4,455 100% $ 4,543 100% $ (88) -2%
Product cost 1,371 31% 1,582 35% (211) -13%
------------------------------------------- ------- ------- ------- ------- ------- -------
GROSS MARGIN 3,084 69% 2,961 65% 123 4%
Operating expenses
Sales & marketing 1,803 40% 1,604 35% 199 12%
General & administrative 1,675 38% 1,442 32% 233 16%
Research & development 1,007 23% 822 18% 185 23%
------------------------------------------- ------- ------- ------- ------- ------- -------
TOTAL OPERATING EXPENSES 4,485 101% 3,868 85% 617 16%
------------------------------------------- ------- ------- ------- ------- ------- -------
OPERATING LOSS (1,401) -31% (907) -20% (494) 54%
------------------------------------------- ------- ------- ------- ------- ------- -------
Other Income (expenses)
Interest and other, net 140 3% (182) -4% 322 -177%
Unrealized gain on marketable securities 177 4% -- -- 177 100%
Gain on liquidation of foreign subsidiaries -- -- 42 1% (42) -100%
Gain on extinguishment of debt 76 2% 435 10% (359) -83%
------------------------------------------- ------- ------- ------- ------- ------- -------
TOTAL OTHER INCOME (EXPENSES) 393 9% 295 6% 98 33%
------------------------------------------- ------- ------- ------- ------- ------- -------
LOSS BEFORE INCOME TAX (1,008) -23% (612) -13% (396) 65%
------------------------------------------- ------- ------- ------- ------- ------- -------
Income tax benefit 10 -- -- -- 10 100%
------------------------------------------- ------- ------- ------- ------- ------- -------
LOSS FROM CONTINUING OPERATIONS (998) -22% (612) -13% (386) 63%
------------------------------------------- ------- ------- ------- ------- ------- -------
Gain from the sale of discontinued operations 1,000 22% -- -- 1,000 100%
Income from discontinued operations, net of
income tax -- -- 425 9% (425) -100%
------------------------------------------- ------- ------- ------- ------- ------- -------
NET INCOME (LOSS) $ 2 -- $ (187) -4% $ 189 -101%
------------------------------------------- ======= ======= ======= ======= ======= =======
20
NET REVENUES
Net revenues of each of our principal product categories in dollars and as a
percentage of total net revenues for the three and six months ended December 31,
2003 and 2002 are summarized in the following table (in thousands except for
percentage amounts):
-------------------------------------------------------------------------------------------------
THREE MONTHS ENDED DECEMBER 31,
----------------------------------------------------------------
2003 2002
----------------- -----------------
$ % $ % $ CHANGE % CHANGE
---------------------------- ------ ------ ------ ------ ------ ------
Precision Design $1,349 50% $ 745 30% $ 604 81%
Business Applications
and Other 1,325 50% 1,721 70% (396) -23%
---------------------------- ------ ------ ------ ------ ------ ------
NET REVENUES $2,674 100% $2,466 100% $ 208 8%
---------------------------- ------ ------ ------ ------ ------ ------
--------------------------------------------------------------------------------------------------
SIX MONTHS ENDED DECEMBER 31,
-------------------------------------------------------------------
2003 2002
----------------- -----------------
$ % $ % $ CHANGE % CHANGE
---------------------------- ------ ------ ------ ------ ------ ---------
Precision Design $2,050 46% $1,752 39% $ 298 17%
Business Applications
and Other 2,405 54% 2,791 61% (386) -14%
---------------------------- ------ ------ ------ ------ ------ ------
NET REVENUES $4,455 100% $4,543 100% $ (88) -2%
---------------------------- ------ ------ ------ ------ ------ ------
Sales of our flagship product, TurboCAD(R), increased in the three and six
months ended December 31, 2003 as compared to the same reporting periods in the
previous fiscal year, resulting in an overall increase in revenues in the
precision design category. The introduction of the "DesignCAD" line of products
during the first quarter of fiscal 2004 and the additional revenues we earned
from the acquisition of Planworks in the second quarter of fiscal 2004 accounted
for the increase in sales of the precision design products as compared to the
same period from the previous fiscal year. Revenues from Planworks amounted to
$111,000 during the quarter ended December 31, 2003.
Overall revenues in the "Business Applications and Other" segment decreased
during the three and six months ended December 31, 2003 as compared to the same
periods of the previous fiscal year. Revenues from Keynomics, our productivity
software subsidiary are included in this category and amounted to $318,000 and
$478,000 during the three and six months ended December 31, 2003, respectively
as compared to $447,000 and $625,000, respectively in the comparable periods
from the previous fiscal year. The decline in sales of our historically strong
selling products in this category like MasterClips and OrgPlus was the primary
reason for the overall decrease in the "Business Applications and Other" segment
despite the introduction of new titles during the first half of the fiscal year
(PhotoObject) in addition to the release of newer version of our existing
products (EasyLanguage and Net Accelerator).
Internationally, we distribute our products through our wholly owned German and
Australian subsidiary and republishing partners in Europe and Asia. The increase
in international sales during the three and six months ended December 31, 2003
is primarily due to our reentry into the European market by re-activating our
German subsidiary during the previous fiscal year which allowed us to sell
directly into the European Union. Total net sales from our German subsidiary
accounted for $77,000 and $260,000, respectively during the three and six months
ended December 31, 2003. The following table details the revenue breakdown
between the domestic and international markets for the periods indicated.
------------------------------------------------------------------------------------
THREE MONTHS ENDED DECEMBER 31,
------------------------------------------------------------
2003 2002
----------------- -----------------
$ % $ % $ CHANGE % CHANGE
------ ------ ------ ------ ------ ------
Domestic sales $2,296 86% $2,186 88% $ 110 5%
International sales 378 14% 280 12% 98 35%
------ ------ ------ ------ ------ ------
NET REVENUES $2,674 100% $2,466 100% $ 208 8%
------------------------ ------ ------ ------ ------ ------ ------
------------------------ ------------------------------------------------------------------
SIX MONTHS ENDED DECEMBER 31,
------------------------------------------------------------------
2003 2002
----------------- ----------------- ------ ------
$ % $ % $ CHANGE % CHANGE
------ ------ ------ ------ ------ ------
Domestic sales $3,669 82% $3,949 87% ($ 280) -7%
International sales 786 18% 594 13% 192 32%
------ ------ ------ ------ ------ ------
NET REVENUES $4,455 100% $4,543 100% $ 88 2%
------------------------ ------ ------ ------ ------ ------ ------
We are currently serving the domestic and international retail markets using
direct sales methods and republishing agreements. Low barriers to entry, intense
price competition, and business consolidations continue to characterize the
consumer software industry. Each of these factors along with the intermittent
unfavorable retail conditions, including erosion of margins from competitive
marketing and high rates of product returns, may adversely affect our revenues
in the future.
21
Our international revenues may be affected by the risks customarily associated
with international operations, including fluctuations of the U.S. dollar,
increases in duty rates, exchange or price controls, longer collection cycles,
government regulations, political instability and changes in international tax
laws.
RESERVE FOR RETURNS, PRICE DISCOUNTS AND REBATES
During the second quarter of fiscal 2004 we provided $181,000 for returns and
received actual returns of approximately $112,000. The return reserve balance as
of December 31, 2003 of $583,000 is consistent with the level of our estimate of
excess inventory in the channel.
PRODUCT COSTS
Our product costs include the costs of CD-ROM duplication, printing of manuals,
packaging and fulfillment, freight-in, freight out, license fees, royalties that
we pay to third parties based on sales of published software and amortization of
capitalized software acquisition and development costs. Costs associated with
the return of products, such as refurbishment and the write down in value of
returned goods are also included in product costs. The decrease in product costs
in absolute dollars and as a percentage of net revenues for the three and six
months ended December 31, 2003 as compared to the same periods from the previous
fiscal year was primarily attributable to decreased amortization expenses and to
a change in product mix toward the lower cost / higher margin precision design
products.
GROSS MARGIN
Gross margin improved to 70% from 56% and to 69% from 65% during the three and
six months ended December 31, 2003, respectively. This increase in gross margin
is attributable to;
o A shift in our product mix towards the "precision design" segment
from the "business application and other" segment as we increased
our direct marketing emphasis. This is demonstrated by the re-launch
of our revenue generating websites in September 2003, newly acquired
products including DesignCAD, and the launch of new high margin
services.
o A reduction in amortization expenses for software products as a
result of the products being fully amortized.
Given the uncertain product lifecycle for some of our historically high margin
products and depending on the success of newer versions launches, we may see our
gross margin decline in future reporting periods.
SALES AND MARKETING
Our sales and marketing expenses consist primarily of salaries and benefits of
sales and marketing personnel, commissions, advertising, printing and direct
mail expenses. The increase in sales and marketing expenses during the three and
six months ended December 31, 2003 was mainly attributable to the following:
o Increased direct mail expenses relative to our growing efforts to
focus on direct targeting of our customers via marketing campaigns.
o Increased commissions paid to outside service providers that help us
with their sales forces and E-commerce systems.
o The revision of our accounting treatment with regard to fees paid to
our third party E-commerce solution provider, whereby we now record
the fees as sales and marketing expenses. The effect of this
reclassification was to increase sales and marketing expense by
$61,000 and $32,000 for the three and six months ended December 31,
2003 as compared to the previous year.
GENERAL AND ADMINISTRATIVE
Our general and administrative expenses consist primarily of salaries and
benefits for employees in the legal, finance, accounting, human resources,
information systems and operations departments, fees to our professional
advisors, rent and other general operating costs.
22
The increase in general and administrative expenses during the quarter ended
December 31, 2003 as compared to the same quarter from the previous year was
primarily due to amortization expense of $237,000 from the issuance of warrants
to outside consultants mainly providing services in the area of investor
relations. The comparable period from the previous fiscal year also included the
reversal of the intrinsic value of warrants issued to Mr. Martin Wade III, our
CEO, as part of his initial employment agreement. During the second quarter of
fiscal 2003, we amended Mr. Wade's employment agreement whereby IMSI and Mr.
Wade agreed to the full and complete cancellation of all outstanding warrants
granted to Mr. Wade. Consequently, we reversed, during the six months ended
December 31, 2003, $432,000 of already incurred amortization expense of the
intrinsic value of warrants issued to Mr. Wade but were unvested.
Excluding the effect of the two transactions above, general and administrative
expenses would have declined by approximately $195,000 during the quarter ended
December 31, 2003 as compared to the same period from the previous fiscal year.
We also experienced a substantial decline in legal fees as a result of the
settlement of all outstanding legal actions from previous periods which
accounted for the majority of the decrease in the general and administrative
expenses.
RESEARCH AND DEVELOPMENT
Our research and development expenses consist primarily of salaries and benefits
for research and development employees and payments to independent contractors.
The increase in research and development expenses in the three months ended
December 31, 2003 as compared to the same period from the previous fiscal year
resulted mainly from increased personnel costs.
We continue to maintain a consistent investment in existing and new products.
The constant ratio of research and development expenses as a percentage of sales
reflects our commitment to investing in and developing our core products as well
as maintaining strong relationships with our third party development team in
Russia.
INTEREST AND OTHER, NET
Interest and other expenses, net, include interest and penalties on debt
instruments, foreign currency transaction gains and losses, and other
non-recurring items. The following table summarizes the components of interest
and other, net for the three-month period ended December 31, 2003 and 2002:
-----------------------------------------------------------------------------------------------
THREE MONTHS ENDED DECEMBER 31,
------------------------------------------------------------
2003 2002 $ CHANGE FROM PREVIOUS YEAR
------------- --------------- ------------------------------
INTEREST & OTHER EXPENSE, NET
Interest expense $ 0 $ (129) $ 129 100%
Interest income 19 2 17 1141%
Foreign exchange gain (loss) 41 - 41 100%
Other income - - - 0%
------------------------------------------------ --------------- ------------------ -----------
TOTAL $ 60 $ (127) $ 187 147%
------------------------------------------------ --------------- ------------------ -----------
---------------------------------- -------------------------------------------------------------
SIX MONTHS ENDED DECEMBER 31,
-------------------------------------------------------------
2003 2002 $ CHANGE FROM PREVIOUS YEAR
---------------- --------------- ----------------------------
INTEREST & OTHER EXPENSE, NET
Interest expense $ (3) $ (176) $ 173 98%
Interest income 45 8 37 477%
Foreign exchange gain (loss) 48 (14) 62 434%
Other income 50 - 50 100%
---------------------------------- ---------------- --------------- ---------------- -----------
TOTAL $ 140 $ (182) $ 322 177%
---------------------------------- ---------------- --------------- ---------------- -----------
UNREALIZED GAIN ON MARKETABLE SECURITIES
We recorded a $47,000 and a $177,000 gain on marketable securities during the
three and six months ended December 31, 2003, respectively as we marked to
market value our equity portfolio. The following table summarizes the net gain
on marketable securities:
------------------------------------------------------------------------------------------ --------------------------------------
DESCRIPTION QUARTER ENDED DECEMBER 31, 2003 SIX MONTHS ENDED DECEMBER 31, 2003
----------- ------------------------------- ----------------------------------
Gain (loss) on Jupitermedia common stock ($2,500) $140,000
Gain on professionally managed portfolio 49,050 36,845
------------------------------------------------------------------------------ -------------------------------------------------
TOTAL $46,550 $176,845
------------------------------------------------------------------------------ -------------------------------------------------
23
GAIN ON EXTINGUISHMENT OF DEBT
During the six months ended December 31, 2003, we recognized a gain of $76,000
from the extinguishment of debt primarily relating to the settlement of
liabilities related to assets under a capital lease.
During the six months ended December 31, 2002, we recognized a gain of $435,000
from the extinguishment of debt representing the difference between the carrying
balances and the settlement amounts payable to a variety of unsecured creditors,
of which $84,000 was attributable to the extinguishment of debt owed to Baystar
Capital.
PROVISION FOR INCOME TAXES
In the three months ended December 31, 2003, we recorded a tax benefit of $6,000
related to the refund of our estimated state income tax paid in prior fiscal
years.
We have not recorded a tax benefit for domestic tax losses because of the
uncertainty of realization. We adhere to Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes," which requires an asset and
liability approach to financial accounting and reporting for income taxes.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
GAIN FROM THE SALE OF DISCONTINUED OPERATIONS
During the quarter ended December 31, 2003, we recorded a gain of $1.0 Million
from the sale of discontinued operations representing the successful achievement
of the first earnout from the sale of ArtToday. This earnout was contingent on
ArtToday reaching certain revenue milestones. We have received confirmation from
Jupitermedia that the full amount of the $1.0 Million earnout was earned and
will be paid per the stock purchase agreement by February 14, 2004.
INCOME FROM DISCONTINUED OPERATIONS
In June 2003, we sold ArtToday, our wholly owned subsidiary based in Arizona, to
Jupitermedia. Under Generally Accepted Accounting Principles ("GAAP") in the
United States, ArtToday's operating results for the three and six months ended
December 31, 2002, totaling $208,000 and $425,000, respectively, have been
accounted for as discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2003, we had $5,249,000 in cash and cash equivalents. This
represents a $1,480,000 decline from the $6,729,000 balance at September 30,
2003 and a $5,150,000 decline from the $10,399,000 balance at June 30, 2003.
Working capital at December 31, 2003 was $6,057,000. This represents a decline
of $994,000 over the working capital at September 30, 2003 and a decline of
$2,599,000 over the working capital at June 30, 2003 of $8,656,000.
Our operating activities used net cash of $2,507,000 during the six months ended
December 31, 2003. This compares to net cash used from operations of $694,000
during the six months ended December 31, 2002. Our increased operating loss,
combined with payments we made relating to accrued taxes and other accrued
expenses and the increase in our receivables and inventories contributed to the
increased usage of cash in the six months ended December 31, 2003 as compared to
the same period from the previous fiscal year. Receivables and inventories
increased during the six months ended December 31, 2003 primarily due to a
change in the method of distribution for some of our products, including
TurboCAD(R), from licensing arrangements to selling directly to resellers and
distributors.
Our investing activities consumed net cash of $2,479,000 during the six months
ended December 31, 2003, as compared to net cash used of $179,000 during the
comparable period from the previous fiscal year. The cash was mainly used to
acquire Planworks and several new product lines. The following table details the
cash outlays for the acquisitions we made during the six months ended December
31, 2003.
24
-------------------------------------------------------------------------------------- ----------------------------------
ACQUIRED IN CASH SPENT (IN $000)
WEBSITES, CONTENT AND NEW PRODUCT LINES:
CADsymbols 2nd quarter of Fiscal 2004 $ (365)
CADsymbol 2nd quarter of Fiscal 2004 (171)
DesignCAD 1st quarter of Fiscal 2004 (700)
Cadalog 1st quarter of Fiscal 2004 (295)
Other 2nd quarter of Fiscal 2004 (35)
BUSINESS
Planworks 2nd quarter of Fiscal 2004 (260)
----------------------------------------------------- ---------------------------------
TOTAL $ (1,826)
-------------------------------------------------------------------------------------- ----------------------------------
These acquisitions are consistent with our strategy to grow our software
business with a focus on products and services that complement our direct
marketing and online distribution strengths. We expect to continue to identify
and acquire products and launch services that satisfy real customer needs and
have the combination of high growth potential and positive EBITDA. These
acquisitions, including the proposed Aladdin Systems, Inc. acquisition, will be
funded thru a combination of cash on hand, debt and the issuance of our common
stock. The divestiture of ArtToday provided us with sufficient liquidity to
continue to strengthen our product portfolio and distribution channels.
Our investing activities also included investment in marketable securities in
the amount of $160,000 during the quarter ended September 30, 2003.
Also, during the first quarter of fiscal 2004, we entered into a 15% one-year
note with DCDC whereby we extended a loan to them in the amount of $350,000. The
note is due, with interest, on September 18, 2004. The note is secured by
400,000 shares of IMSI's stock held by DCDC. The agreement also calls for DCDC
not to sell any other IMSI common stock that it holds, with the exception of
private sales of IMSI common stock, prior to February 15, 2004.
Our financing activities consumed net cash of $133,000 during the six months
ended December 31, 2003. This compares to $407,000 of net cash used by financing
activities during the comparable periods from the previous fiscal year. As
previously disclosed, we paid $160,000 to Imageline on July 7, 2003, which
represents the final payment in connection with our mutual settlement of
previous infringement claims. This payment accounted for most of the cash used
in our financing activities during the six months ended December 31, 2003 and
was in part offset by cash received from the exercise of warrants and options in
the amounts of $65,000 and $71,000, respectively.
Historically, we have financed our working capital and capital expenditure
requirements primarily from retained earnings, short-term and long-term notes
and bank borrowings, capitalized leases and sales of common stock. The sale of
ArtToday to Jupitermedia in June 2003 provided us with additional sources of
funds to support future growth. We may also seek additional equity and/or debt
financing to sustain our growth strategy. However, we believe that we have
sufficient funds to support our operations at least for the next twelve months,
based on our current cash position and equity sources. If we are successful in
continuing to improve our financial performance, we believe that we will be able
to obtain any additional financing required on competitive terms. In addition,
we will continue to seek opportunities and discussions with third parties
concerning the sale or license of certain product lines and/or the sale or
license of a portion of our assets.
To achieve our growth objectives, we are considering different strategies,
including growth through mergers and/or acquisitions. As a result, we are
evaluating and we will continue to evaluate other companies and businesses for
potential synergies that would add value to our existing operations.
The forecast period of time through which our financial resources will be
adequate to support working capital and capital expenditure requirements is a
forward-looking statement that involves risks and uncertainties, and actual
results could vary. Furthermore, any additional equity financing may be dilutive
to shareholders, and debt financing may involve restrictive covenants.
25
OTHER FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Factors that may affect operating results in the future include, but are not
limited to:
o Market acceptance of our products or those of our competitors
o Timing of introductions of new products and new versions of existing
products
o Expenses relating to the development and promotion of such new
products and new version introductions
o Intense price competition and numerous end-user rebates
o Projected and actual changes in platforms and technologies
o Accuracy of forecasts of, and fluctuations in, consumer demand
o Extent of third party royalty payments
o Rate of growth of the consumer software and Internet markets
o Timing of orders or order cancellation from major customers
o Changes or disruptions in the consumer software distribution
channels
o Economic conditions, both generally and within the software or
Internet industries
o Achievement of future earn-outs related to the sale of ArtToday,
Inc.
ITEM 3- CONTROLS AND PROCEDURES
(a) Under the supervision and with the participation of IMSI's management,
including IMSI's principal executive officer and principal financial officer, we
conducted an evaluation of our disclosure controls and procedures, as such term
is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), within 90 days of the filing date of this
report. Based on their evaluation, our principal executive officer and principal
financial officer concluded that our disclosure controls and procedures are
effective.
(b) We have evaluated our accounting procedures and control processes related to
material transactions to ensure they are recorded timely and accurately in the
financial statements. There have been no significant changes in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of the evaluation referenced in paragraph (a) above.
PART II - OTHER INFORMATION
ITEM 1- LEGAL PROCEEDINGS
Not Applicable
ITEM 2- CHANGES IN SECURITIES
Not Applicable
ITEM 3- DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 10, 2004, we filed with the Securities and Exchange Commission a
Proxy Statement on Schedule 14-A pursuant to section 14(A) of the Securities
Exchange Act Of 1934 in connection with the solicitation of proxies by the board
of directors of IMSI for use at the annual meeting of shareholders to be held on
March 17, 2004.
26
The annual meeting of the shareholders of IMSI will be held for the following
purposes:
o To elect seven directors for a term of one year.
o To approve the 2004 Incentive Stock Option Plan.
o To authorize the issuance of options aggregating up to 49.0% of the
outstanding capitalization.
o To ratify the appointment of Grant Thornton LLP as IMSI's
independent auditors for the fiscal year ending June 30, 2004.
o To consider and act on such other business as may properly come
before the meeting or any adjournment or adjournments thereof.
The Board of Directors has nominated the following persons for election:
---------------------------------- ----------------- ---------------------------------------- ---------------------
NAME AGE OCCUPATION DIRECTOR SINCE
---------------------------------- ----------------- ---------------------------------------- ---------------------
Bruce Galloway 45 Chairman of the Board of Directors 2001
---------------------------------- ----------------- ---------------------------------------- ---------------------
Martin Wade, III 54 Chief Executive Officer 2001
---------------------------------- ----------------- ---------------------------------------- ---------------------
Evan Binn 64 Director 2001
---------------------------------- ----------------- ---------------------------------------- ---------------------
Donald Perlyn 60 Director 2001
---------------------------------- ----------------- ---------------------------------------- ---------------------
Robert Mayer 49 Executive Vice President 2000
---------------------------------- ----------------- ---------------------------------------- ---------------------
Robert S. Falcone 57 Director 2002
---------------------------------- ----------------- ---------------------------------------- ---------------------
Richard J. Berman 61 Director 2002
---------------------------------- ----------------- ---------------------------------------- ---------------------
ITEM 5- OTHER INFORMATION
Not Applicable
ITEM 6- EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS AND FINANCIAL STATEMENTS:
The following documents are filed as a part of this Report:
FINANCIAL STATEMENTS
The following consolidated financial statements of International Microcomputer
Software, Inc., and Subsidiaries are incorporated by reference in Part I, Item
1:
Consolidated Balance Sheet at December 31, 2003 and June 30, 2003
Consolidated Statements of Operations for the interim periods ended
December 31, 2003 and 2002
Consolidated Statements of Shareholders' Equity for the interim period
ended December 31, 2003
Consolidated Statements of Cash Flows for the interim periods ended
December 31, 2003 and 2002
Notes to Consolidated Financial Statements
EXHIBITS
The following exhibits are filed as part of, or incorporated by reference into
this Report:
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
27
(b) REPORTS ON FORM 8-K
o On November 17, 2003 we filed a Form 8-K to announce our financial
results for the fiscal quarter ended September 30, 2003.
28
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.
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
DATE: FEBRUARY 11, 2003
BY: /S/ MARTIN WADE, III
Martin Wade, III
Director & Chief Executive Officer
BY: /S/ WILLIAM J. BUSH
William J. Bush
Chief Financial Officer (Principal Accounting Officer)
29
INDEX TO EXHIBITS:
NUMBER EXHIBIT TITLE PAGE
------ ------------- ----
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 31
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 32
32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 33
32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 34
30