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 MARCH 31, 2004
[_] 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 (I.R.S. Employer Identification No.)
of incorporation or organization)
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 APRIL 29, 2004, 23,727,953 Shares of Issuer's common stock, no par value,
were outstanding.
Transitional Small Business Disclosure Format: YES __ NO X
1
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION 3
ITEM 1- 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 PLAN OF OPERATIONS 16
ITEM 3- CONTROLS AND PROCEDURES 25
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 28
INDEX TO EXHIBITS 29
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)
--------------
MARCH 31, 2004 JUNE 30, 2003
-------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,905 $ 10,399
Investment in marketable securities 1,752 --
Receivables, less allowances for doubtful accounts,
discounts and returns of $734 and $445 1,187 734
Inventories 451 268
Other current assets 624 240
-------- --------
TOTAL CURRENT ASSETS 8,919 11,641
FIXED ASSETS, NET 412 85
Intangible assets
Capitalized software, net 934 87
Domain names, net 1,643 4
Distribution rights, net -- 36
Capitalized customer lists 262 --
Goodwill 611 179
-------- --------
TOTAL INTANGIBLE ASSETS 3,450 306
Other assets
Note receivable from related party 350 --
Investment in securities 1,436 998
Assets related to discontinued operations 1,300 1,300
-------- --------
TOTAL OTHER ASSETS 3,086 2,298
======== ========
TOTAL ASSETS $ 15,867 $ 14,330
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 986 $ 304
Trade accounts payable 1,051 564
Income tax payable 1 271
Accrued and other liabilities 633 1,541
Deferred revenue 268 305
-------- --------
TOTAL CURRENT LIABILITIES 2,939 2,985
Liabilities related to discontinued operations 84 84
Long-term debt and other obligations 471 --
-------- --------
TOTAL LIABILITIES 3,494 3,069
Shareholders' equity:
Common stock, no par value; 300,000,000 authorized;
Issued and outstanding 23,653,835 36,148 35,546
and 22,818,232 shares
Accumulated deficit (23,673) (24,223)
Accumulated other comprehensive loss (102) (62)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 12,373 11,261
-------- --------
======== ========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 15,867 $ 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 MARCH 31,
2004 2003
----------------- ----------------------
Net revenues $2,784 $2,625
Product costs 1,045 1,096
----------------- ----------------------
GROSS MARGIN 1,739 1,529
Costs and expenses:
Sales and marketing 1,467 874
General and administrative 864 803
Research and development 648 358
----------------- ----------------------
TOTAL OPERATING EXPENSES 2,979 2,035
----------------- ----------------------
OPERATING LOSS (1,240) (506)
----------------- ----------------------
Other income and (expense):
Interest and other, net 58 (199)
Realized gain on marketable securities 76 --
Unrealized gain on marketable securities 1,688 --
Gain on liquidation of foreign subsidiaries -- 4
Gain on extinguishment of debt -- 134
----------------- ----------------------
INCOME (LOSS) BEFORE INCOME TAX 582 (567)
Income tax benefit (provision) (34) 45
----------------- ----------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 548 (522)
Gain from the sale of discontinued operations -- --
Income from discontinued operations, net of income tax -- 419
----------------- ----------------------
NET INCOME (LOSS) $548 ($103)
================= ======================
Other comprehensive loss, net of tax:
Foreign currency translation, net of tax (9) (10)
----------------- ----------------------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX $539 ($113)
================= ======================
BASIC EARNINGS (LOSS) PER SHARE
Income (loss) per share from continuing operations $0.02 ($0.02)
Gain per share from the sale of discontinued operations $-- $--
Income per share from discontinued operations, net of income tax $-- $0.02
Earnings (loss) per share $0.02 $0.00
DILUTED EARNINGS (LOSS) PER SHARE
Income (loss) per share from continuing operations $0.02 ($0.02)
Gain per share from the sale of discontinued operations $-- $--
Income per share from discontinued operations, net of income tax $-- $0.02
Earnings (loss) per share $0.02 $0.00
Shares used in computing basic earnings (loss) per share information 23,475 22,807
Shares used in computing diluted earnings (loss) per share information 27,324 22,807
-----------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED MARCH 31,
2004 2003
------------------- --------------------
Net revenues $7,239 $7,168
Product costs 2,417 2,678
------------------- --------------------
GROSS MARGIN 4,822 4,490
Costs and expenses:
Sales and marketing 3,270 2,478
General and administrative 2,538 2,185
Research and development 1,655 1,181
------------------- --------------------
TOTAL OPERATING EXPENSES 7,463 5,844
------------------- --------------------
OPERATING LOSS (2,641) (1,354)
------------------- --------------------
Other income and (expense):
Interest and other, net 198 (381)
Realized gain on marketable securities 76 --
Unrealized gain on marketable securities 1,865 --
Gain on liquidation of foreign subsidiaries -- 46
Gain on extinguishment of debt 76 569
------------------- --------------------
INCOME (LOSS) BEFORE INCOME TAX (426) (1,120)
Income tax benefit (provision) (24) 45
------------------- --------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS (450) (1,075)
Gain from the sale of discontinued operations 1,000 --
Income from discontinued operations, net of income tax -- 785
------------------- --------------------
NET INCOME (LOSS) $550 ($290)
=================== ====================
Other comprehensive loss, net of tax:
Foreign currency translation, net of tax (40) (12)
------------------- --------------------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX $510 ($302)
=================== ====================
BASIC EARNINGS (LOSS) PER SHARE
Income (loss) per share from continuing operations ($0.02) ($0.05)
Gain per share from the sale of discontinued operations $0.04 $--
Income per share from discontinued operations, net of income tax $-- $0.04
Earnings (loss) per share $0.02 ($0.01)
DILUTED EARNINGS (LOSS) PER SHARE
Income (loss) per share from continuing operations ($0.02) ($0.05)
Gain per share from the sale of discontinued operations $0.04 $--
Income per share from discontinued operations, net of income tax $-- $0.04
Earnings (loss) per share $0.02 ($0.01)
Shares used in computing basic earnings (loss) per share information 23,332 22,800
Shares used in computing diluted earnings (loss) per share information 23,332 22,800
----------------------------------------------------------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements
4
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Nine Months ended March 31, 2004
(In thousands)
(Unaudited)
---------------------------------------------------------------------------------------------------------------------------
COMMON STOCK
SHARES AMOUNT ACCUMULATED DEFICIT
----------------------------------------------------------------
BALANCE AT JUNE 30, 2003 22,818 $35,546 ($24,223)
================================================================
Issuance of common stock related to:
Warrants exercised 505 96
Stock options exercised 276 111
Acquisitions 100 92
Issuance of warrants related to:
Consulting services rendered 255
Acquisitions 76
Issuance of stock options related to:
Consulting services rendered 10
Retirement of common stock (45) (59)
Variable accounting adjustment related to stock options 21
previously issued
Net income 550
Comprehensive loss
================================================================
BALANCE AT MARCH 31, 2004 23,654 $36,148 ($23,673)
================================================================
-------------------------------------------------------------------------------------------------------
ACCUMULATED OTHER
COMPREHENSIVE LOSS TOTAL
--------------------------------------------
BALANCE AT JUNE 30, 2003 ($62) $11,261
============================================
Issuance of common stock related to:
Warrants exercised 96
Stock options exercised 111
Acquisitions 92
Issuance of warrants related to:
Consulting services rendered 255
Acquisitions 76
Issuance of stock options related to:
Consulting services rendered 10
Retirement of common stock (59)
Variable accounting adjustment related to stock options 21
previously issued
Net income 550
Comprehensive loss (40) (40)
============================================
BALANCE AT MARCH 31, 2004 ($102) $12,373
============================================
See Notes to Condensed Consolidated Financial Statements
5
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
NINE MONTHS ENDED MARCH 31,
------------------------------
2004 2003
---------- ----------
Cash flows from operating activities:
NET CASH USED BY OPERATING ACTIVITIES ($ 2,450) ($ 395)
---------- ----------
Cash flows from investing activities:
Acquisition of product lines (1,815) --
Acquisition of business (260) --
Loan to related party (350) --
Investment in marketable securities (367) --
Proceeds from sale of marketable securities 116 --
Purchase of equipment and furniture (347) (36)
Purchase of software and domain names (66) --
Cash used by discontinued operations in investing activities -- (197)
---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (3,089) (233)
---------- ----------
Cash flows from financing activities:
Settlement of note payable (Imageline) (160) --
Note borrowings 350 684
Note repayments (312) (1,291)
Warrants exercised 96 4
Options exercised 111 --
Proceeds from issuance of common stock -- 1
Repayment of capital lease obligations -- (19)
Cash used by discontinued operations in financing activities -- (140)
---------- ----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 85 (761)
---------- ----------
Effect of exchange rate change on cash and cash equivalents (40) (12)
Net decrease in cash and cash equivalents (5,494) (1,401)
Cash and cash equivalents at beginning of period 10,399 2,455
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 4,905 $ 1,054
========== ==========
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 March 31, 2004 and the results of operations
and cash flows for the three and nine months ended March 31, 2004 and 2003, 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 nine months ended March 31,
2004 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 nine months ended March
31, 2003, 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 earn-out from the sale of ArtToday. This earn-out was contingent on
ArtToday reaching certain revenue milestones. The full amount of the $1.0
million earn-out was earned during the quarter ended December 31, 2003 and was
paid per the stock purchase agreement on February 13, 2004.
As part of the sale of ArtToday, Inc., a portion of the consideration received
was placed in an escrow account to offset potential indemnity claims against
ArtToday, Inc. which were unknown at the close of the transaction. The escrowed
amounts consisted of $1,300,000 in cash and 250,000 shares of Jupitermedia
Corporation common stock. The cash was recorded as "Assets related to
discontinued operations" and was subject to claims of $84,000 of certain
minority shareholders of ArtToday which was recorded as "Liabilities related to
discontinued operations". Net of any indemnity claims the cash escrow is
scheduled to be released as follows; 50% at June 30, 2004 and 50% at December
31, 2004. The stock escrow, which is classified as "Investment in Securities",
is scheduled to be released net of any claims on December 31, 2005. At the
Company's option, we are allowed to sell the shares in escrow at any time during
the escrow period but are required to maintain a $1.0 million balance of cash or
securities in the account. As part of an amended escrow agreement with
Jupitermedia, 125,000 of the shares were released from the escrow account in
February 2003. Those shares have been classified as "Investment in Marketable
Securities". At March 31, 2004, we had sold 10,000 of the Jupitermedia shares.
7
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 March 31, 2004, was to increase revenues and sales and
marketing expense by $92,000 and $249,000 for the three and nine months ended
March 31, 2004. In order to conform our prior year's results to this revised
presentation for the three and nine months ended March 31, 2003, we have
increased revenues and sales and marketing expense by $93,000 and $248,000,
respectively.
4. PRODUCT LINE AND OTHER ACQUISITIONS
The table below documents the components of consideration paid for each
significant acquisition completed in the nine months ended March 31, 2004 and
the allocation of that consideration to the tangible and intangible assets
acquired.
------------------------------------------------------------------------------------------------------------------------------------
HOUSEEPLANS.COM PLANWORKS CADSYMBOL CADSYMBOLS CADALOG DESIGN CAD
FEBRUARY 23, NOVEMBER 17, NOVEMBER 6, OCTOBER 27, SEPTEMBER 12, JULY 28,
DATE TRANSACTION CLOSED: 2004 2003 2003 2003 2003 2003
------------------------------------------------------------------------------------------------------------------------------------
CONSIDERATION
Cash $ 270 $ 260 $ 171 $ 335 $ 250 $ 600
Less: Cash on hand -- (16) -- -- -- --
Cash paid to fund Escrow Account(s) 30 -- 170 -- 45 100
Stock -- 77 -- -- -- --
Warrants 17 -- 30 18 -- --
Notes payable 313 14 -- 474 -- 300
Liabilities assumed -- 23 -- -- -- --
Transaction fees 20 20 1 3 -- --
------------------------------------------------------------------------------------------------------------------------------------
TOTAL CONSIDERATION $ 650 $ 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 200 -- 180 -- 268 323
Websites and associated domain names 300 315 180 830 20 50
Customer lists 150 33 -- -- -- 113
Goodwill -- 29 -- -- -- 400
TOTAL INTANGIBLE ASSETS $ 650 $ 377 $ 360 $ 830 $ 288 $ 886
------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS ACQUIRED $ 650 $ 378 $ 372 $ 830 $ 295 $1,000
------------------------------------------------------------------------------------------------------------------------------------
8
HOUSEPLANS.COM
On February 23, 2004 we entered, through our wholly owned subsidiary, Homeplan,
Inc., into an asset purchase and license agreement with ULTRYX, Inc ("ULTRYX")
whereby we acquired certain assets of ULTRYX. The assets included the
homeplans.com domain name, related web site assets including house plans images
and related on-line and print content in addition to customers' profiles. The
total consideration for the acquisition was $650,000 (including fees of
$20,000). Included in the agreement was a warrant to purchase twenty thousand
(20,000) shares of IMSI's common stock at any time within the three-year period
following the execution of the agreement at $1.24 per share.
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 are 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 was $378,000.
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 was
approximately $372,000 including warrants which were granted to Ane Gyldholm and
Michael Heckmann, principals of Assisto, 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 was $830,000. As part of the agreement, 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.
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.
9
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.
In addition to the purchase price of $1,000,000, the agreement calls for an
earn-out based on net revenue that could result in an additional $300,000 to be
paid to Upperspace during the next three fiscal years and 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.
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.
5. NOTE RECEIVABLE FROM RELATED PARTY - DCDC 15% NOTE
On September 18, 2003, we received a 15% one-year note from 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 called for DCDC not to sell any IMSI common stock which it held, 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.
10
6. DEBT
The following table details our outstanding debt as of March 31, 2004:
DEBT AS OF
MARCH 31, 2004
------------------------------------------------------------------------------------------
SHORT-TERM
Short-term financing (secured by selected accounts receivable) $322
CADsymbol Escrow 141
Acquisition related notes
DesignCAD Acquisition 300
CADsymbols.com Acquisition 142
Planworks Acquisition 14
Houseplans.com Acquisition 62
Other 6
------------------------------------------------------------------------------------------
SUBTOTAL SHORT-TERM 986
------------------------------------------------------------------------------------------
LONG-TERM
Liabilities related to discontinued operations 84
Acquisition related notes
Houseplans.com Acquisition 281
CADsymbols.com Acquisition 187
Other 3
------------------------------------------------------------------------------------------
SUBTOTAL LONG TERM 555
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
GRAND TOTAL $1,541
------------------------------------------------------------------------------------------
7. REALIZED GAIN ON MARKETABLE SECURITIES
During the quarter ended March 31, 2004, we realized a $76,000 gain on
marketable securities as we sold 10,000 shares of Jupitermedia common stock that
we received as part of the consideration related to the sale of ArtToday on June
30, 2003.
8. UNREALIZED GAIN ON MARKETABLE SECURITIES
We recorded a $1.7 million and a $1.9 million gain on marketable securities
during the three and nine months ended March 31, 2004, respectively reflecting
the increase in market value of our equity portfolio. The following table
summarizes the net gain on marketable securities:
-----------------------------------------------------------------------------------------------------------------------
DESCRIPTION THREE MONTHS ENDED MARCH 31, 2004 NINE MONTHS ENDED MARCH 31, 2004
Gain on Jupitermedia common stock $ 1,660,000 $ 1,800,000
Gain on professionally managed portfolio 27,681 64,526
-----------------------------------------------------------------------------------------------------------------------
TOTAL $ 1,687,681 $ 1,864,526
-----------------------------------------------------------------------------------------------------------------------
11
9. 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.
--------------------------------------------------------------------------------------------------------------------------
KEYNOMICS NORTH AMERICA OTHER FOREIGN ELIMINATIONS TOTAL
--------------------------------------------------------------------------------------------------------------------------
QUARTER ENDED MARCH 31, 2004
--------------------------------------------------------------------------------------------------------------------------
Net Revenues $71 $2,582 $131 $-- $2,784
Operating loss (225) (925) (90) -- (1,240)
Identifiable assets 136 15,591 360 (220) 15,867
--------------------------------------------------------------------------------------------------------------------------
QUARTER ENDED MARCH 31, 2003
--------------------------------------------------------------------------------------------------------------------------
Net Revenues 442 1903 280 -- 2,625
Operating loss 65 (547) (24) -- (506)
Identifiable assets 232 2,374 350 (490) 2,466
--------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED MARCH 31, 2004
--------------------------------------------------------------------------------------------------------------------------
Net Revenues 549 6,267 423 -- 7,239
Operating loss (426) (2,142) (73) -- (2,641)
Identifiable assets 136 15,591 360 (220) 15,867
--------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED MARCH 31, 2003
--------------------------------------------------------------------------------------------------------------------------
Net Revenues 1,066 5,545 557 -- 7,168
Operating loss 57 (1,359) (52) -- (1,354)
Identifiable assets $232 $2,374 $350 ($490) $2,466
--------------------------------------------------------------------------------------------------------------------------
10. 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.
12
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
-----------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------------------------------------------
MARCH 31, 2004 MARCH 31, 2003 MARCH 31, 2004 MARCH 31, 2003
----------------------------------------------------------------
NUMERATOR:
Net income (loss) $548 ($103) $550 ($290)
Numerator for basic earnings (loss) per share -
income (loss) available to common stockholders 548 (103) 550 (290)
Numerator for diluted earnings (loss) per share -
income (loss) available to common stockholders
after assumed conversions 548 (103) 550 (290)
DENOMINATOR:
Denominator for basic earnings (loss) per share
- weighted average shares outstanding 23,475,424 22,806,882 23,331,526 22,799,624
Effect of dilutive securities using the treasury
stock method as at March 31, 2004:
7,163,244 Warrants Outstanding -- -- -- --
2,101,198 Stock Options Outstanding -- -- -- --
Effect of dilutive securities using the treasury
stock method as at March 31, 2003:
5,254,077 Warrants Outstanding 2,867,241 -- -- --
2,223,321 Stock Options Outstanding 981,647 -- -- --
Dilutive potential common shares -- -- -- --
Denominator for diluted earnings (loss) per share -
adjusted weighted average shares and assumed conversion 27,324,312 22,806,882 23,331,526 22,799,624
BASIC EARNINGS (LOSS) PER SHARE $0.02 $0.00 $0.02 ($0.01)
DILUTED EARNINGS (LOSS) PER SHARE $0.02 $0.00 $0.02 ($0.01)
-----------------------------------------------------------------------------------------------------------------------------
11. 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".
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 nine months ended March 31, 2004 we recognized charges of
$10,000 and $21,000 respectively related to variable awards. This compares to
charges of $0 and ($5,000), respectively for the three and nine months ended
March 31, 2003.
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 MARCH 31, NINE MONTHS ENDED MARCH 31,
2004 2003 2004 2003
NET INCOME (LOSS), AS REPORTED $548 ($103) $550 ($290)
Intrinsic compensation charge recorded under APB 25 11 72 265 75
Pro Forma compensation charge under SAS 123 (404) (467) (1,271) (1,395)
-----------------------------------------------------------------------------------------------------------------------------
PRO FORMA NET INCOME (LOSS) $155 ($498) ($456) ($1,610)
Pro Forma net income (loss) per share:
Basic--as reported $0.02 $0.00 $0.02 ($0.01)
Basic--pro forma $0.01 ($0.02) ($0.02) ($0.07)
Diluted--as reported $0.02 $0.00 $0.02 ($0.01)
Diluted--pro forma $0.01 ($0.02) ($0.02) ($0.07)
-----------------------------------------------------------------------------------------------------------------------------
13
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:
-----------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
----------------------------
2004 2003
---- ----
Risk-free interest rates 2.21% - 2.80% 1.17%
Expected dividend yields -- --
Expected volatility 98.47% 101.1%
Expected option life (in years) 5 5
-----------------------------------------------------------------------------
The weighted average fair value per option as of the grant date for grants made
during the three and nine months ended March 31, 2004 were $1.08 and $1.08,
respectively. This compares to $0.43 and $0.63, respectively for the three and
nine months ended December 31, 2002.
12. 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 March 31, 2004, 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.
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.
13. SUBSEQUENT EVENT: ACQUISITION OF ALADDIN SYSTEMS, INC.
On April 19, 2004 (the "Closing Date"), we consummated the acquisition of all
the stock of Aladdin Systems, Inc. ("Aladdin"), pursuant to a Stock Purchase
Agreement (the "Stock Purchase Agreement"), dated January 20, 2004, between
Aladdin Systems Holdings, Inc, the parent company of Aladdin, and IMSI.
Aladdin is 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 and Macintosh(R) platforms.
14
The consideration paid in the Acquisition (which was determined as a result of
arms'-length negotiations and which was based upon an in depth analysis of
Aladdin's current and projected business activity in addition to comparable
companies and transactions) consists of a combination of cash in the amount of
$1,500,000, subject to a 10% escrow, 2,317,881 unregistered shares of IMSI
common stock (which are required to be registered within 90 days of the Closing
Date) and two three-year convertible notes in the aggregate amount of
$3,000,000. Additional cash earn-out payments may be earned, up to an aggregate
of $2,000,000, based on net revenues derived from Aladdin for the three
consecutive twelve month periods following the Closing Date. Additionally,
eligible employees of Aladdin will be given the opportunity to convert their
existing Aladdin Systems Holdings Inc. stock options into IMSI stock options
priced at market as of the date of the closing. The newly granted options will
be subject to vesting as set forth in our 2004 Incentive Stock Option Plan. The
conversion ratio was calculated using the Black-Scholes valuation methodology.
We relied on our available cash balances to honor the payment related to the
cash component of this transaction.
We are in the process of obtaining a third party valuation of certain intangible
assets and as a result the allocation of the purchase price relating to the
Aladdin Acquisition is not available at the time of this filing. On April 21,
2004, we filed a current report on Form 8-K disclosing the details of this
acquisition. The audited annual financial statements of Aladdin Systems, Inc.,
the unaudited interim financial statements and the pro forma financial
statements required in accordance with item 310 (c) and 310 (d) of regulation
S-B and the purchase price allocation will be filed by an amendment to the above
referenced current report on Form 8-K as soon as practicable but not later than
July 5, 2004.
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
OPERATIONS
OVERVIEW
IMSI is a developer and publisher of consumer software in the precision design
and business applications and other categories. We offer a wide variety of
application software that we market through an array of distribution channels
including retail, direct to consumer and online. We are committed to being a
leading provider of these applications and services to the Architectural,
Engineering and Construction (AEC) and Mechanical market.
We believe that consistent growth of both the revenues and operating earnings
can be achieved through internally developed products and services and through
acquisition. Management believes that good value target companies are present in
the marketplace and that business combinations with these entities would help us
achieve our growth potential in addition to providing synergies that would
improve profitability.
FORWARD LOOKING STATEMENT
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.
RESULTS OF OPERATIONS
The following table sets forth our results of operations for the three and nine
months ended March 31, 2004 and 2003 in thousands of dollars and as a percentage
of net revenues. It also details the changes from the prior fiscal year in
thousands of dollars and in percentages.
On June 30, 2003, we sold ArtToday, our wholly owned subsidiary based in Arizona
to Jupitermedia Corporation. Under Generally Accepted Accounting Principles in
the United States, ArtToday's operating results for all periods presented have
been accounted for as discontinued operations.
15
THREE MONTHS ENDED MARCH 31,
---------------------------------- ---------- -------
CHANGE FROM
PREVIOUS YEAR
2004 2003
--------------- ---------------
$ AS % $ AS % $ %
OF OF INCREASE/
SALES SALES (DECREASE)
-------- ------ ------- ------- ---------- -------
Net revenues $2,784 100% $2,625 100% $159 6%
Product costs 1,045 38% 1,096 42% (51) -5%
-------------------------------------------------- -------- ------ ------- ------- ---------- -------
GROSS MARGIN 1,739 62% 1,529 58% 210 14%
Operating expenses
Sales & marketing 1,467 53% 874 33% 593 68%
General & administrative 864 31% 803 31% 61 8%
Research & development 648 23% 358 14% 290 81%
-------------------------------------------------- -------- ------ ------- ------- ---------- -------
TOTAL OPERATING EXPENSES 2,979 107% 2,035 78% 944 46%
-------------------------------------------------- -------- ------ ------- ------- ---------- -------
OPERATING LOSS (1,240) -45% (506) -19% (734) 145%
-------------------------------------------------- -------- ------ ------- ------- ---------- -------
Other Income (expenses)
Interest and other, net 58 2% (199) -8% 257 -129%
Realized gain on marketable securities 76 3% - 0% 76 100%
Unrealized gain on marketable securities 1,688 61% - 0% 1,688 100%
Gain on liquidation of foreign subsidiaries - 0% 4 0% (4) -100%
Gain on extinguishment of debt - 0% 134 5% (134) -100%
-------------------------------------------------- -------- ------ ------- ------- ---------- -------
TOTAL OTHER INCOME (EXPENSES) 1,822 66% (61) -2% 1,883 3087%
-------------------------------------------------- -------- ------ ------- ------- ---------- -------
INCOME (LOSS) BEFORE INCOME TAX 582 21% (567) -22% 1,149 203%
-------------------------------------------------- -------- ------ ------- ------- ---------- -------
Income tax benefit (provision) (34) -1% 45 2% (79) -176%
-------------------------------------------------- -------- ------ ------- ------- ---------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS 548 20% (522) -20% 1,070 -205%
-------------------------------------------------- -------- ------ ------- ------- ---------- -------
Gain from the sale of discontinued operations - 0% - 0% - --
Income from discontinued operations, net of
income tax - 0% 419 16% (419) -100%
-------------------------------------------------- -------- ------ ------- ------- ---------- -------
NET INCOME (LOSS) $548 20% ($103) -4% $651 632%
================================================== ======== ====== ======= ======= ========== =======
NINE MONTHS ENDED MARCH 31,
---------------------------------- ---------- -------
CHANGE FROM
PREVIOUS YEAR
2004 2003
--------------- ---------------
$ AS % $ AS % $ %
OF OF INCREASE/
SALES SALES (DECREASE)
-------- ------ ------- ------- ---------- -------
Net revenues $7,239 100% $7,168 100% $71 1%
Product costs 2,417 33% 2,678 37% (261) -10%
-------------------------------------------------- -------- ------ ------- ------- ---------- -------
GROSS MARGIN 4,822 67% 4,490 63% 332 7%
Operating expenses
Sales & marketing 3,270 45% 2,478 35% 792 32%
General & administrative 2,538 35% 2,185 30% 353 16%
Research & development 1,655 23% 1,181 16% 474 40%
-------------------------------------------------- -------- ------ ------- ------- ---------- -------
TOTAL OPERATING EXPENSES 7,463 103% 5,844 82% 1,619 28%
-------------------------------------------------- -------- ------ ------- ------- ---------- -------
OPERATING LOSS (2,641) -36% (1,354) -19% (1,287) 95%
-------------------------------------------------- -------- ------ ------- ------- ---------- -------
Other Income (expenses)
Interest and other, net 198 2% (381) -5% 579 -152%
Realized gain on marketable securities 76 1% - 0% 76 100%
Unrealized gain on marketable securities 1,865 26% - 0% 1,865 100%
Gain on liquidation of foreign subsidiaries - 0% 46 1% (46) -100%
Gain on extinguishment of debt 76 1% 569 8% (493) -87%
-------------------------------------------------- -------- ------ ------- ------- ---------- -------
TOTAL OTHER INCOME (EXPENSES) 2,215 30% 234 3% 1,981 847%
-------------------------------------------------- -------- ------ ------- ------- ---------- -------
INCOME (LOSS) BEFORE INCOME TAX (426) -6% (1,120) -16% 694 -62%
-------------------------------------------------- -------- ------ ------- ------- ---------- -------
Income tax benefit (provision) (24) 0% 45 1% (69) -153%
-------------------------------------------------- -------- ------ ------- ------- ---------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS (450) -5% (1,075) -15% 625 -58%
-------------------------------------------------- -------- ------ ------- ------- ---------- -------
Gain from the sale of discontinued operations 1,000 14% - 0% 1,000 100%
Income from discontinued operations, net of
income tax - 0% 785 11% (785) -100%
-------------------------------------------------- -------- ------ ------- ------- ---------- -------
NET INCOME (LOSS) $550 8% ($290) -4% $840 290%
================================================== ======== ====== ======= ======= ========== =======
16
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 nine months ended March 31,
2004 and 2003 are summarized in the following table (in thousands except for
percentage amounts):
-------------------------------------------- -----------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------------------------------
2004 2003
---------------------- -----------------------
$ % $ % $ CHANGE % CHANGE
---------- ---------- ----------- ---------- --------------- -----------------
Precision Design $1,823 65% $1,233 47% $590 48%
Business Applications and Other 961 35% 1,392 53% (431) -31%
-------------------------------------------- ---------- ---------- ----------- ---------- --------------- -----------------
NET REVENUES $2,784 100% $2,625 100% $159 6%
-------------------------------------------- ---------- ---------- ----------- ---------- --------------- -----------------
-------------------------------------------- -----------------------------------------------------------------------------------
NINE MONTHS ENDED MARCH 31,
-----------------------------------------------------------------------------------
2004 2003
---------------------- -----------------------
$ % $ % $ CHANGE % CHANGE
---------- ---------- ----------- ---------- --------------- -----------------
Precision Design $3,873 54% $2,985 42% $888 30%
Business Applications and Other 3,366 46% 4,183 58% (817) -20%
-------------------------------------------- ---------- ---------- ----------- ---------- --------------- -----------------
NET REVENUES $7,239 100% $7,168 100% $71 1%
-------------------------------------------- ---------- ---------- ----------- ---------- --------------- -----------------
Concurrent with the introduction our the newest release of our flagship product,
TurboCAD(R) 10.0 in March 2004 and the full quarter effect of our wholly owned
subsidiary Homeplan, Inc, sales of precision design products and services
increased in the three and nine months ended March 31, 2004 as compared to the
same reporting periods in the previous fiscal year. Additionally the
introduction of the "DesignCAD" and the "Instant Series" line of products during
the first quarter of fiscal 2004 contributed to 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 $467,000 and $579,000 during
the quarter and the nine months ended March 31, 2004. As we completed the
acquisition of Planworks, LLC on November 18, 2003, we did not have similar
revenues to report for the comparable period from the previous fiscal year.
Despite the introduction of new titles (PhotoObject) and the release of newer
version of our existing products (EasyLanguage and Net Accelerator), the decline
in sales of our historically strong selling products in the "Business
Applications and Other" products like MasterClips and OrgPlus, and the decline
in revenues from Keynomics, our productivity software subsidiary, resulted into
an overall decrease in this segment during the three and nine months ended March
31, 2004 as compared to the same periods of the previous fiscal year. Revenues
from Keynomics amounted to $71,000 and $549,000 during the three and nine months
ended March 31, 2004, respectively as compared to $441,000 and $1,066,000,
respectively in the comparable periods from the previous fiscal year. Keynomics
produces ergonomic and keyboard training applications for worker-enhanced
safety, productivity and ergonomic compliance improvements. Keynomics markets
its applications mainly to call and data processing centers that have seen their
activities increasingly outsourced to foreign competitors and therefore
negatively affecting the Company's revenues.
Internationally, we distribute our products through our wholly owned German and
Australian subsidiaries and republishing partners in Europe and Asia.
International revenues during the quarter ended March 31, 2004 decreased
slightly despite increased European business. This was the result of the
decrease in the revenues recognized from our Australian subsidiary after we
licensed the distribution rights of some of our products in Australia to a third
party publisher in exchange for royalty payments. The increase in international
sales during the nine months ended March 31, 2004, is primarily due to our
reentry into the European market by re-activating our German subsidiary during
the previous fiscal year. Total net sales from our German subsidiary accounted
for $104,000 and $354,000, respectively during the three and nine months ended
March 31, 2004. The following table details the revenue breakdown between the
domestic and international markets for the periods indicated.
---------------------- ------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
------------------------------------------------------
2004 2003
--------------- ---------------
$ % $ % $ CHANGE % CHANGE
------- ------- -------- ------ ----------- ----------
Domestic sales $2,300 83% $2,125 81% $175 8%
International
sales 484 17% 500 19% (16) -3%
---------------------- ------- ------- -------- ------ ----------- ----------
NET REVENUES $2,784 100% $2,625 100% $159 6%
---------------------- ------- ------- -------- ------ ----------- ----------
----------------------- ------------------------------------------------------
NINE MONTHS ENDED MARCH 31,
------------------------------------------------------
2004 2003
--------------- ---------------
$ % $ % $ CHANGE % CHANGE
------- ------- ------- ------- ---------- -----------
Domestic sales $5,969 82% $6,074 85% ($105) -2%
International
sales 1,270 18% 1,094 15% 176 16%
---------------------- ------- ------- ------- ------- ---------- -----------
NET REVENUES $7,239 100% $7,168 100% $71 1%
----------------------- ------- ------- ------- ------- ---------- -----------
We are currently serving the domestic and international retail markets using a
combination of direct sales 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.
17
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.
PRODUCT COSTS AND GROSS MARGIN
Our product costs include license fees, royalties that we pay to third parties
based on sales of published software, amortization of capitalized software
acquisition and development costs, the costs of CD-ROM duplication, printing of
manuals, packaging and fulfillment, and freight. 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.
Our gross margin improved to 62% from 58% and to 67% from 63%, respectively
during the three and nine months ended March 31, 2004. This improvement was due
to our increased direct marketing emphasis on the higher margin precision design
products. These products carry a lower cost as compared to others in our product
mix as we own the majority of their underlying technology. In addition, we have
experienced a significant reduction in amortization expenses for software
products as a result of the products being fully amortized. Future business and
product line acquisitions, however, will increase our basis in certain
intangible assets (i.e. capitalized software development costs), the
amortization of which may negatively affect our gross margin in the future.
Given the uncertain product lifecycle for some of our historically high margin
products and depending on the success of the release of newer software versions,
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
nine months ended March 31, 2004 was mainly attributable to the following:
o The additional sales and marketing expenses we incurred relating to
the Planworks business that we acquired during the second quarter of
fiscal 2004.
o Increased payroll and related wage expenses due to increases in
headcount in order to strengthen our direct marketing presence.
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.
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.
Our general and administrative expenses slightly increased during the quarter
ended March 31, 2004 as compared to the same quarter from the previous year.
This increase is primarily due to additional IT and investors relation expenses
in part offset by a decrease in legal costs.
The increase in general and administrative expenses during the nine months ended
March 31, 2004 as compared to the same reporting period from the previous fiscal
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
nine months ended March 31, 2003, $432,000 of already incurred amortization
expense of the intrinsic value of warrants issued to Mr. Wade which were
unvested.
18
Excluding the effect of the two transactions above, general and administrative
expenses would have declined by approximately $316,000 during the nine months
ended March 31, 2004 as compared to the same period from the previous fiscal
year. This decrease is mainly attributable to the decline of general and
administrative expenses related to our Australian subsidiary as we switch their
business model to a licensing mode and to a substantial decline in our legal
fees as a result of the settlement of all outstanding legal actions from
previous periods.
RESEARCH AND DEVELOPMENT
Our research and development expenses consist primarily of salaries and benefits
for research and development employees and payments to independent contractors.
Our management believes that investment in research and development is essential
to respond to ever-evolving customers demands. The increased ratio of research
and development expenses as a percentage of sales reflects our commitment to
investing in and developing our core products. We continue to maintain a strong
partnership with our third party development team in Russia at competitive
costs.
The increase in research and development expenses in the three and nine months
ended March 31, 2004 as compared to the same period from the previous fiscal
year resulted mainly from increased personnel and consulting costs. These costs
related to the development of our web properties including houseplans.com and
the development of new versions of our software products including the recently
released TurboCAD Professional Version 10 and OrgChart Professional.
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 and nine months ended March 31, 2004 and 2003:
-------------------------------------------------------------------------------- -----------------------------------------------
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31,
------------------------------------------------- -----------------------------------------------
$ CHANGE FROM $ CHANGE FROM
PREVIOUS YEAR PREVIOUS YEAR
------------------------ ----------------------
2004 2003 2004 2003
------------ ----------- ------------------------ ------------ ----------- ----------------------
$ $ $ INCREASE % $ $ $INCREASE/ %
/ (DECREASE) (DECREASE)
------------ ----------- -------------- --------- ------------ ----------- ------------ ---------
Interest & Other, net
Interest (expense) ($23) ($128) $105 -82% ($26) ($304) $278 -91%
Interest income 24 1 23 2300% 69 9 60 667%
Foreign exchange gain (loss) (1) 37 (38) -103% 47 23 24 104%
Other income (Expenses) 58 (109) 167 -153% 108 (109) 217 -199%
------------------------------------------- ----------- -------------- --------- ------------ ----------- ------------ ---------
TOTAL INTEREST & OTHER, NET $58 ($199) $257 -129% $198 ($381) $579 -152%
------------------------------------------- ----------- -------------- --------- ------------ ----------- ------------ ---------
As previously disclosed in our annual report for the fiscal year ended June 30,
2003, in September 2001 we undertook an intensive reassessment of the current
costs and future potential financial benefits of the Design.NET project, an
online design and visualization tool allowing users to design homes and offices
on the Internet. We concluded it would be in our best interest to spin off the
Design.NET project. Consequently, we entered into an agreement with Michael
Gariepy (a former Vice president of IMSI) to transfer the majority of the
ownership of the project (80.01%) to employees (including Mr. Gariepy) who were
key to its continued development while we retained a 19.99% ownership interest
in the new venture. Based on our understanding of the project and the risks
associated with its technical feasibility, we recorded the value of our
ownership with a zero book value. Pursuant to that agreement, the employees
resigned from IMSI and established Plan3D, Inc. to pursue the development of the
technology. During the quarter ended March 31, 2004, we sold our ownership in
Plan3D to Mr. Gariepy in exchange for 45,000 shares of IMSI common stock that he
held. As a result, of this transaction, we recognized a gain of $58,000.
19
REALIZED GAIN ON MARKETABLE SECURITIES
During the quarter ended March 31, 2004 we realized a $76,000 gain on marketable
securities as we sold 10,000 shares of Jupitermedia common stock that we
received as part of the consideration related to the sale of ArtToday on June
30, 2003.
UNREALIZED GAIN ON MARKETABLE SECURITIES
We recorded a $1.7 million and a $1.9 million gain on marketable securities
during the three and nine months ended March 31, 2004, reflecting the increase
in the market value of our equity portfolio. The following table summarizes the
net gain on marketable securities:
--------------------------------------------------------------------------------- --------------------------------------
DESCRIPTION THREE MONTHS ENDED MARCH 31, 2004 NINE MONTHS ENDED MARCH 31, 2004
----------- --------------------------------- --------------------------------
Gain on Jupitermedia common stock $ 1,660,000 $ 1,800,000
Gain on professionally managed portfolio 27,681 64,526
--------------------------------------------------------------------------------- --------------------------------------
TOTAL $ 1,687,681 $ 1,864,526
--------------------------------------------------------------------------------- --------------------------------------
GAIN ON EXTINGUISHMENT OF DEBT
During the nine months ended March 31, 2004, 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 nine months ended March 31, 2003, we recognized a gain of $569,000
from the extinguishment of debt representing the difference between the carrying
balances and the settlement amounts payable to a variety of unsecured creditors.
PROVISION FOR STATE AND FEDERAL INCOME TAXES
In the three months ended March 31, 2004, we recorded tax expense of $34,000
arising from state income tax incurred from the prior fiscal year.
We have not recorded a tax benefit for current 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.
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 nine months ended
March 31, 2003, totaling $419,000 and $785,000, respectively, have been
accounted for as discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2004, we had $4,905,000 in cash and cash equivalents. This
represents a $344,000 decline from the $5,249,000 balance at December 31, 2003
and a $5,494,000 decline from the $10,399,000 balance at June 30, 2003. Working
capital at March 31, 2004 was $6,032,000. This represents a decline of $24,000
from the working capital at December 31, 2003 and a decline of $2,624,000 from
the working capital at June 30, 2003 of $8,656,000.
20
Our operating activities used net cash of $2,450,000 during the nine months
ended March 31, 2004. This compares to net cash used in operations of $395,000
during the nine months ended March 31, 2003. 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 nine months ended March 31, 2004 as compared to
the same period from the previous fiscal year. Receivables and inventories
increased during the nine months ended March 31, 2004 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.
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 earn-out from the sale of ArtToday. This earn-out was contingent on
ArtToday reaching certain revenue milestones. The full amount of the $1.0
Million earn-out was earned during the second quarter of fiscal 2004 and was
paid per the stock purchase agreement on February 13, 2004.
Our investing activities consumed net cash of $3,089,000 during the nine months
ended March 31, 2004, as compared to net cash used of $233,000 during the
comparable period from the previous fiscal year. The cash was mainly used to
acquire Planworks and several new product lines and assets. The following table
details the cash outlays for the significant acquisitions we made during the
nine months ended March 31, 2004 (including transaction fees).
-------------------------------------------------------------------------------- -------------------------
ACQUIRED IN CASH SPENT (IN $000)
WEBSITES, CONTENT AND NEW PRODUCT LINES:
Homeplans.com 3rd quarter of Fiscal 2004 ($290)
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 ($2,116)
-------------------------------------------------------------------------------- -------------------------
These acquisitions are consistent with our strategy to grow our software and
services businesses 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 Aladdin Systems, Inc. acquisition that we
consummated subsequent to this fiscal quarter end, will be funded through 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 $367,000 during the nine months ended March 30, 2004 in part
offset by proceeds of $116,000 we collected from the sale of marketable
securities.
Also, during the first quarter of fiscal 2004, we received a 15% one-year note
from DCDC when 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 called for DCDC not to sell
any IMSI common stock that it held with the exception of private sales of IMSI
common stock, prior to February 15, 2004.
Our financing activities provided net cash of $85,000 during the nine months
ended March 31, 2004. This compares to $761,000 of net cash used by financing
activities during the comparable periods from the previous fiscal year. During
the quarter ended March 31, 2004 we issued a short term note secured by selected
accounts receivable in the amount of $350,000 to one of our financing partners
and paid off $28,000 prior to period end. We also received cash from the
exercise of warrants and options in the amounts of $96,000 and $111,000,
respectively in the nine months ended March 31, 2004. 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. In addition, we partially repaid notes related to the businesses we
acquired in the aggregate amount of $220,000 during the nine months ended March
31, 2004.
Historically, we have financed our working capital and capital expenditure
requirements primarily from 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.
21
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.
CRITICAL ACCOUNTING POLICIES
In accordance with recent Securities and Exchange Commission guidance, those
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.
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.
22
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 March 31, 2004, distributors held approximately $18,000 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.
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.
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.
o Market value fluctuations related to our investments.
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.
23
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 23, 2004, we filed with the Securities and Exchange Commission a
Definitive 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 the
shareholders.
The annual meeting of the shareholders of IMSI was held on March 17, 2004 and
the following proposals were approved by the shareholders:
o The election of seven directors for a term of one year:
------------------------ -------- -------------------------------------- ----------------- ---------------- -----------------
NAME AGE OCCUPATION DIRECTOR SINCE VOTES CAST FOR VOTES WITHHELD
------------------------ -------- -------------------------------------- ----------------- ---------------- -----------------
Bruce Galloway 45 Chairman of the Board of Directors 2001 18,430,101 28,729
------------------------ -------- -------------------------------------- ----------------- ---------------- -----------------
Martin Wade, III 54 Chief Executive Officer 2001 18,435,351 23,479
------------------------ -------- -------------------------------------- ----------------- ---------------- -----------------
Evan Binn 64 Director 2001 17,677,611 781,219
------------------------ -------- -------------------------------------- ----------------- ---------------- -----------------
Donald Perlyn 60 Director 2001 17,677,161 781,669
------------------------ -------- -------------------------------------- ----------------- ---------------- -----------------
Robert Mayer 49 Executive Vice President 2000 17,673,911 784,919
------------------------ -------- -------------------------------------- ----------------- ---------------- -----------------
Robert S. Falcone 57 Director 2002 18,443,051 15,779
------------------------ -------- -------------------------------------- ----------------- ---------------- -----------------
Richard J. Berman 61 Director 2002 18,442,901 15,929
------------------------ -------- -------------------------------------- ----------------- ---------------- -----------------
o The approval of the 2004 Incentive Stock Option Plan. This proposal was
approved according to the votes as cast below:
o For: 17,980,913
o Against: 197,951
o Abstain: 279,966
o The authorization of the issuance of options aggregating up to 49.0% of
the outstanding capitalization. This proposal was approved according to
the votes as cast below:
o For: 17,877,261
o Against: 321,777
o Abstain: 259,792
24
o The ratification of the appointment of Grant Thornton LLP as IMSI's
independent auditors for the fiscal year ending June 30, 2004. This
proposal was approved according to the votes as cast below:
o For: 18,329,509
o Against: 5,266
o Abstain: 124,055
ITEM 5- OTHER INFORMATION
Not Applicable
ITEM 6- EXHIBITS AND REPORTS ON FORM 8-K
(A) 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:
Condensed Consolidated Balance Sheet at March 31, 2004 and June 30, 2003
Condensed Consolidated Statements of Operations for the interim periods
ended March 31, 2004 and 2003
Condensed Consolidated Statements of Shareholders' Equity for the interim
period ended March 31, 2004
Condensed Consolidated Statements of Cash Flows for the interim periods
ended March 31, 2004 and 2003
Notes to Condensed 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
(B) REPORTS ON FORM 8-K
o On February 11, 2004 we furnished a report on Form 8-K to announce
our financial results for the fiscal quarter ended December 31,
2003.
o On January 23, 2004 we filed a Form 8-K to announce that we had
entered into a definitive agreement with Aladdin Systems Holding,
Inc. to acquire its wholly owned subsidiary, Aladdin Systems, Inc.
25
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: MAY 13, 2004
/S/ MARTIN WADE, III
--------------------
Martin Wade, III
Director & Chief Executive Officer
/S/ WILLIAM J. BUSH
-------------------
William J. Bush
Chief Financial Officer (Principal Accounting Officer)
26
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 30
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31
32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32
32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 33
27