10QSB 1 v01530_10qsb.txt 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
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