FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

(X)   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
      ACT OF 1934. For the fiscal year ended 12/31/2003
                                       OR
(  )  TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934. For the transition period from ________ to ________.

                              1MAGE SOFTWARE, INC.
                              --------------------
             (Exact name of Registrant as specified in its charter)
                                     0-12535
                            (Commission File Number)

               COLORADO                                  84-0866294
               --------                                  ----------
      (State of Incorporation)              (IRS Employer Identification Number)

6025 S. QUEBEC ST. #300 - ENGLEWOOD CO 80111              (303) 694-9180
--------------------------------------------              --------------
(Address of principal executive offices)         (Registrant's telephone number,
                                                         including area code)

Securities Registered Pursuant to Section 12(b) of the Act:
                NONE                                            NONE
                ----                                            ----
          (Title of Class)                               (Name of Exchange)

Securities Registered Pursuant to Section 12(g) of the Act:
                         COMMON STOCK - $.004 PAR VALUE
                         ------------------------------
                                (Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and, (2) has been subject to such filing
requirements for the past 90 days.  Yes X   No
                                       ---    ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy statements or any amendment
of this Form10-K.   X
                   ---

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).  Yes   .  No
                                       ---     ---

State the aggregate market value of the voting and nonvoting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
March 15, 2004:  $1,698,901.

As of March 15, 2004, there were 3,287,597 shares of the Registrant's Common
Stock outstanding.

Certain information required by Part III of this report (Items 10, 11, 12, 13
and 14) is incorporated by reference from the Registrant's proxy statement
relating to the Registrant's 2004 Annual Meeting of shareholders.

                         Exhibit Index begins on Page 40

                                       1

<PAGE>

                                TABLE OF CONTENTS


PART I

1.   Business.................................................................3

2.   Properties...............................................................9

3.   Legal Proceedings........................................................9

4.   Submission of Matters to a Vote of Security Holders ....................10


PART II

5.   Market for Registrant's Common Equity and Related
     Stockholders Matters....................................................11

6.   Selected Financial Data.................................................12

7.   Management's Discussion and Analysis of Financial
     Condition and Results of Operations.....................................13

8.   Financial Statements and Supplementary Data.............................16

9.   Changes in and Disagreements with Accountants on
     Accounting and Financial Disclosure  ...................................35

9A.  Controls and Procedures.................................................35


PART III

10.  Directors and Executive Officers of the Registrant......................36

11.  Executive Compensation..................................................36

12.  Security Ownership of Certain Beneficial Owners and Management..........36

13.  Certain Relationships and Related Transactions..........................36

14. Principal Accounting Fees and Services...................................36


PART IV

15.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.........36

                                       2

<PAGE>

                                     PART I
ITEM 1.   BUSINESS

INTRODUCTION

1mage Software, Inc., (the "Company") develops and markets computer-based
document imaging systems that capture, store and display electronic files and
paper documents as graphical images. Document management systems like 1MAGE(R)
(pronounced "one image") offer organizations of every size the ability to
deliver the information embedded in millions of documents to their workers
across their existing computing infrastructure, as well as the tools to
efficiently manage the proliferation of digital documents for eBusiness
deployment. The modular 1MAGE system captures entire documents from a variety of
sources. Memos, letters, source documents, contracts, purchase orders, word
processing files, e-mail, fax, industry and market studies, spreadsheets,
databases, multimedia, maps and regulatory forms are examples of documents that
are automatically converted into secure, permanent digital images that are
indexed for instantaneous retrieval. Using an open, client/server architecture
design, 1MAGE provides a comprehensive solution for scanning, indexing, storing
and retrieving document images so that they may be viewed, printed, faxed,
e-mailed or made available for eBusiness or eCommerce applications. The 1MAGE
system is designed to integrate easily with existing IT infrastructure, using an
extensive library of multi-platform APIs (Application Programming Interfaces),
rather than forcing expensive investments in re-engineered or new computing
hardware and software.

Today's workplace is dramatically changing with the advent of eBusiness,
eCommerce, and affordable electronic document imaging. During 2003, the Company
concentrated its efforts on selling document imaging software to its niche
markets. This market includes users that prefer a choice of (1) operating
platforms, such as RedHat Linux, Windows, and Unix, or (2) application software
developers that wish to offer a document imaging solution as part of their
portfolio. The Company also continued to make progress toward its goal of
establishing a broad-based Value Added Reseller ("VAR") network for its imaging
software. In addition to VARs, the Company seeks to partner with software
developers, consultants, and other businesses, which provide software to their
targeted vertical markets.

IMAGING SOFTWARE MARKET

      The Company markets its products through its direct sales force and its
indirect channel partners. The Company targets VARs, systems integrators,
developers, consultants, and other companies that market complementary software,
services, or other products. 1MAGE software has an established presence in a
multitude of industries, including retail, distribution, education, state and
local government, healthcare, manufacturing, energy, automotive, public safety,
transportation and utilities.

      The Company offers a comprehensive reseller program, which provides, in
the context of a cooperative marketing effort, a broad range of sales,
marketing, and technical support. The program includes technical training and
assistance, marketing communications, sales training and assistance, excellent
support and training, lead referral services, customized product literature, and
a discounted demonstration/development system.

PRODUCTS

      As noted above, the Company's flagship product is 1MAGE(R), its
proprietary document imaging software package. The Company is continually
enhancing this product in order to improve its performance and expand its
possible uses.

                                       3

<PAGE>

      1MAGE(R) DOCUMENT MANAGEMENT - 1MAGE is a powerful electronic image
management system created to operate the same on Linux, Windows(TM) and
Unix-based computer systems. It provides a comprehensive solution for the
scanning, indexing, storage and retrieval of images and is designed to file,
route, track, archive, and manage an organization's incoming and outgoing
documents and electronic files.

Additional products include the following:
o 1API for image-enabling an application using a toolkit
o 1SCAN for scanning, pre-indexing, and bar code reading
o 1FAX for inbound and outbound fax or e-mail and cover sheet management
o 1COLD/ERM for storing computer-generated formatted data
o 1FORM for business form template administration
o 1RENDITION for merging spooled data with supporting images for billing or
  other needs
o 1WORKFLOW for electronically moving a document from one task to another
o 1OCR/OMR for automatic indexing and data capture via optical and mark
  character recognition
o 1SUITE for bringing images to Windows-based PC clients
o 1SERVER for accessing documents via the Internet
o 1VIEW for using standard browsers to access images over the Intranet and
  Internet
o 1APPROVE for electronically approving invoices and other document related
  business functions
o 1ACCESS for bringing images to computers that support JAVA programming
  languages
o 1SEARCH for full text/keyword retrieval of documents
o 1PUBLISH for selecting and recording images on output media such as CD or DVD

A key element of the Company's product line is its open systems technology,
namely:
o Open Systems compliant with Linux, Unix, and Windows Operating Systems.
  Supports file formats in TIFF, JPEG, PCX, PCL, PDF, HTML or HPGL. The
  server software (1MAGE) operates on Linux, Unix, and Windows servers.
  Supporting clients include Microsoft Windows, X-Windows, ASCII, JAVA and
  browser clients
o Device connectivity via Ethernet or token ring networks using TCP/IP
  communication protocol or over the Internet
o Compatibility with IBM AIX, HP-UX, Sun Solaris, SCO Unix, RedHat Linux and
  Windows
o Recognition technology and scanning tasks run on Microsoft Windows
o UniVerse and UniData ("U2") Relational Database software from IBM

      1MAGE includes several distinguishing features: the ability to use many
different types of workstations, the ability to quickly and easily integrate
with the existing business application software using application programming
interfaces ("APIs"), and the scalability to handle the needs of companies of all
sizes economically. Through the use of the Linux, Unix, and Windows operating
systems and open systems technology, the Company seeks to offer its customers an
imaging solution at a reasonable cost. Because 1MAGE is a server-based product,
the Linux operating system ("O/S") has become very popular with end users of the
Company's software. In 2003, the majority of imaging systems sold through the
direct sales force were installed on servers running the Linux O/S.

       During 2003, sales of 1MAGE software licenses (excluding annual license
fees) accounted for $815,000 (39% of total revenue); in 2002, revenue from sales
of software licenses accounted for $765,000 (34% of total revenue). 1MAGE
utilizes the Linux, Unix, and Windows operating systems and IBM's U2 database
software. The Company's open systems technology makes its software transportable
to numerous hardware products from varying manufacturers. Because of the number
of hardware manufacturers using the Linux, Unix, and Windows operating systems,
the Company's software customers are rarely restricted in their choice of
hardware manufacturers.

                                       4

<PAGE>

      The Company also recommends hardware and related products and sells
specialized complex peripheral products, such as high-end scanners, at the
customer's request. Computer hardware and peripheral products are purchased only
upon request to fill specific customer orders, no inventory is maintained.
Hardware is generally shipped directly from the manufacturer to the customer. In
2003, revenue from hardware sales accounted for $205,000 (10%) of the Company's
total revenue, as compared to $181,000 (7%) for 2002.

SERVICES AND ANNUAL FEES

      The Company licenses its 1MAGE software to its customers and charges an
annual license and maintenance fee, which must be paid to continue receiving
support for the use of the software. During 2003 and 2002, annual license fees
accounted for $786,000 (37%) and $978,000 (44%), respectively, of the Company's
net sales. The Company believes recurring annual license fees from new and
existing customers will contribute to the long-term stability of the Company.
The Company also provides professional services to its customers. These services
include preparation of image management plans ("IMP"), installation, training,
image enabling existing software, and consulting services for customers. For the
years ended December 31, 2003 and 2002, the revenues from these services
accounted for $299,000 (14%), and $318,000 (14%), of the Company's net sales.
The Company does not provide service for hardware; rather, service for computer
hardware sold by the Company is provided directly by the manufacturer or the
manufacturer's authorized dealer.

MARKETING AND DISTRIBUTION

      To date, the Company has signed VAR agreements for 1MAGE with resellers
specializing in a variety of industries, including health care, construction,
collection services, and distribution/manufacturing. In addition, the Company
licenses its software and certain other products and services through agreements
with an Application Service Provider (ASP) in the healthcare industry. The
Company sells its software to independent software integrators (resellers), who
in turn market products, including or featuring 1MAGE, to each of their
individual markets. The Company's overall marketing objective is to support the
current business partners and to continue to enroll new software integrators and
consultants in the program. The Company provides training aids, an Internet
demonstration site, user instruction manuals and other documentation, and a
newsletter to keep its resellers, as well as prospective resellers and
customers, informed of new product applications and developments.

      The Company also markets 1MAGE through its direct sales force. The general
strategy is to (1) help customers define the goals for their system, (2) provide
the means of achieving those goals through our document management software and
appropriately configured computer systems, and (3) help assure the ongoing
success of this collaborative process by providing continuing support, including
on-site training and educational programs. The Company also markets its products
and services over the Internet on its website at www.1mage.com.

CUSTOMERS

      The Company sells its 1MAGE software to businesses in a wide variety of
industries and markets, facilitated through the use of VARs and its direct sales
force.

      During the years 2003 and 2002, the Company generated .1% and 20%,
respectively, of its revenue from one customer, Reynolds & Reynolds
("Reynolds"). Reynolds is a Fortune 500 company headquartered in Dayton, Ohio.
In May 1994, the Company signed a software license agreement with Reynolds for
the exclusive right to sublicense certain modules of 1MAGE (without payment of
further license fees to the Company) to businesses primarily engaged in retail
sales of new or used automobiles, trucks, or tractors. In 1996, the Company
signed a subscription

                                       5

<PAGE>

and maintenance agreement with Reynolds. Under that agreement, fees are to be
paid to the Company for certain products, including but not limited to the
Company's desktop client software.

      On January 18, 2002, Reynolds notified the Company of its intent to
terminate the 1996 subscription and maintenance agreement effective April 22,
2002. Reynolds had installed the 1MAGE document management software in
approximately 1,000 of its customer sites in the United States and Canada. As a
result of various disputes arising out of the termination of the 1996 agreement,
including Reynolds' decision to continue sublicensing the Company's software
notwithstanding such termination, the Company and Reynolds are currently
involved in litigation. (See "Legal Proceedings".) While it is conceivable that
the Company could enter into new agreements with Reynolds to govern
future-licensing arrangements, as of the date hereof, no such new agreement is
planned or likely. The loss of Reynolds as a customer has already had a
significantly adverse impact on the Company. (See "Management's Discussion and
Analysis of Results of Operations and Financial Condition".) While the Company
has now nearly replaced the bulk of the revenue lost as a result of the wrongful
termination of the 1996 contract by Reynolds and Reynolds' subsequent actions
the Company's opportunity for growth has been severely damaged. It is possible
that some portion of the revenue lost by the Company will be awarded to the
Company in the ongoing litigation between the Company and Reynolds. Naturally,
the Company cannot predict the outcome of that litigation nor can there be any
assurance that the Company will ever obtain a meaningful recovery from Reynolds.

SOURCES OF SUPPLY

      The Company has an OEM Software Agreement with IBM Corp. to sublicense
their UniVerse and UniData database programs. The agreement authorizes the
Company to include certain IBM database programs as part of their imaging
solution. This agreement currently runs until September 28, 2004 and it may be
renewed for additional one (1) year terms. The Company has designed its product
such that, through the use of its Application Program Interfaces ("API"s), third
party software can be easily integrated into the core products with minimal
difficulty and effort.

POSSIBLE FLUCTUATIONS IN OPERATING RESULTS

      The Company's sales cycle, which generally commences at the time a
prospective customer issues a request for proposal or otherwise demonstrates a
serious interest in purchasing a system or software license and ends upon
execution of a sales contract, is lengthy and not predictable with any degree of
certainty. Prior sales and implementation cycles are not necessarily an
indication of future cycles. Operating results could vary from period to period
as a result of the length of the sales cycle, the timing of individual system
sales, resellers' performance and conditions in the target markets and the
economy in general.

      It has been the Company's expectation that its recent focus on offering
its proprietary imaging software to a broader range of customers, through its
reseller network and its direct sales force, would lessen the historical
quarterly fluctuations in the Company's operating results. Unfortunately, larger
events, such as Reynolds's termination of the 1996 contract and subsequent
actions, as well as the downturn in the national economy, especially in the
technology sector, have continued to cause significant variations in those
results. In addition, large volume sales or groups of sales of 1MAGE licenses
may cause significant variances in quarterly results that may be difficult to
predict.

                                       6

<PAGE>

TRADE SECRET AND COPYRIGHT LAWS

      The Company regards its software as proprietary and relies for protection
upon trade secret and copyright laws and non-disclosure agreements with its
employees as well as restrictions on disclosure and transferability contained in
its software license agreements with its customers. Despite these restrictions,
it may be possible for competitors or customers to copy, or reverse compile,
aspects of the Company's products or obtain information that the Company regards
as proprietary. Furthermore, there can be no assurance that others will not
independently develop software products similar to those developed or planned by
the Company.

      Although the Company believes its software does not infringe on the
proprietary rights of others and has not received any notice of claimed
infringement, it is possible that portions of the software marketed by the
Company could be claimed to infringe on existing proprietary rights. In the
unlikely event that any such infringements are found to exist, there can be no
assurance that any necessary licenses or rights could be obtained, or could be
obtained on terms satisfactory to the Company. Further, in such event, the
Company could be required to modify the infringing software. There can be no
assurance that the Company would be able to do so in a timely manner, upon
acceptable terms and conditions, or at all; even though the failure to do so
could have a material adverse effect on the Company.

      The Company has brought suit against Reynolds & Reynolds for, among other
things, copyright infringement. (See "Legal Proceedings".)

BACKLOG

      As a practical matter, the Company's business has evolved to the point
where the Company has minimal backlog at any given point in time. With respect
to software license sales, because there is no significant time delay between
receipt of an order and delivery of the software, electronically or otherwise,
there is effectively no backlog. For hardware, because of direct delivery of the
hardware by the manufacturer, hardware sales have such short lead times that
unfilled firm orders seldom, if ever, build up to significant levels.

      The Company normally receives a deposit of between 25% and 50% of the
hardware and software price when an order is placed. This deposit may or may not
be returned upon cancellation, depending on the circumstances of the
cancellation.

COMPETITION

      The Company experiences intense competition in its business from
competitors who target one or more of the same markets or market segments as the
Company. Software and systems that perform many of the same functions as the
Company's systems and software are also available from a number of competitors
of the Company. Some of these competitors are larger and have longer operating
histories, significantly greater financial, technical, marketing and other
resources, significantly greater name recognition and a larger installed base
than we do. As a result, these competitors may be able to respond more quickly
to emerging technologies and changes in customer requirements, or to devote
greater resources to the development, promotion and sale of their products than
we can.

      The Company believes that usage of the popular Linux and Windows operating
systems and the IBM U2 databases has strengthened the Company's competitive
position by making the Company's software compatible with more types of hardware
and with the IBM U2 application software offered by software developers and
system integrators. The Company further believes that its principal advantage
over its competitors is the Company's ability

                                       7

<PAGE>

to give its customers a choice in selecting a Linux, Unix, or Windows-based open
systems architecture and the IBM U2 database that can be offered at lower
prices.

LIMITED MARKETS

      The Company's reseller program targets complementary markets and allows
the Company to draw from a variety of industries with respect to its imaging
software products. As noted above, the Company's strategy has been to expand the
domestic and international markets for its imaging software by engaging
resellers for various industries and markets.

      The Company's experience has been that economic downturns or increased
competitive pressures in its niche markets sometimes result in reduction or
deferral of capital expenditures by potential customers. Certain adverse
conditions can sometimes lead to opportunities as potential customers downsize
to smaller, more cost-efficient computer systems or replace custom designed
systems that require higher levels of support and maintenance.

PRODUCT DEVELOPMENT

      The software and services market in which we compete is characterized by
(1) rapid technological change, (2) frequent introduction of new products and
enhancements, and (3) changing customer needs. Our future success depends on our
ability to support existing products and develop new products. The Company
capitalizes software development costs once technological feasibility is
established. During 2003, the Company developed a new release of 1MAGE(C) which
employs new technologies, including Application Service Provider (ASP)
requirements and two JAVA systems (i.e. 1APPROVE and 1ACCESS) which will operate
on most platforms. In addition, improvements were made to the hardware/software
compatibility offerings available for Linux users. During 2003 and 2002, the
Company spent $261,000 and $297,000, respectively, for computer software
development.

EMPLOYEES

      As of February 28, 2004, the Company employed twenty-one persons, twenty
of whom serve on a full-time basis and one on a part-time basis.
Responsibilities are divided as follows: eight persons in sales and marketing,
ten in technical support and programming functions, and three in administrative
positions.

      The Company provides incentive compensation packages to many of its
employees, including its executive officers. The Company's chief executive
officer, David R. DeYoung, receives a quarterly bonus equal to 5% of the
Company's pretax profits. The Company's chief financial officer receives a
quarterly bonus equal to 4% of the Company's pretax profits. Sales personnel
receive a commission based upon sales. The Company has a policy of encouraging
the effort and loyalty of all of its employees by making all employees eligible
for the grant of stock options under its Equity Incentive Plan, subject to
vesting schedules. The Company believes that these incentive programs are
important in attracting and retaining skilled personnel. The future success of
the Company will depend in large part upon the quality of its employees and the
efforts they expend on behalf of the Company.

      None of the Company's employees are represented by a labor union, and the
Company has experienced no work stoppage. The Company believes that its employee
relations are good.

                                       8

<PAGE>

ITEM 2.   PROPERTIES

      The Company's executive offices consist of approximately 5,464 square feet
at Plaza Quebec, 6025 South Quebec Street, Suite 300, Englewood, Colorado, 80111
and are occupied pursuant to a lease agreement between the Company and Trammel
Crow, Inc. with monthly rental payments of $5,226, initially, and scaling to
$7,741 by the end of the lease term. The term of the lease commenced May 1, 2003
and will terminate on August 31, 2008. The landlord is responsible for property
taxes, utilities, janitorial services, repairs, and maintenance. The Company
believes that its facilities and equipment are in good condition and are
satisfactory for their present uses.

ITEM 3.   LEGAL PROCEEDINGS

      On June 21, 2002, the Company filed a civil action seeking monies owed by
The Reynolds and Reynolds Company under its 1996 subscription and maintenance
agreement with the Company in the District Court for the City and County of
Denver, Colorado, 1MAGE SOFTWARE, INC. V. THE REYNOLDS AND REYNOLDS CO. Case
No.: 02-CV-4701 ("the "Collection Action"). In its complaint in the Collection
Action, the Company demands immediate payment of $193,611 currently due under
that contract plus interest and costs. Reynolds deposited the $193,611 with the
court clerk, pending order of the court as to its disposition and has filed an
answer denying liability. The Company filed a Motion for Summary Judgment to
which Reynolds has responded, denying liability and stating that in all events,
the amount due is $166,741. The Court then referred the matter to arbitration
which is pending (see below).

      A lawsuit was filed by the Company in the United States District Court for
the District of Colorado, 1MAGE SOFTWARE, INC. V. THE REYNOLDS AND REYNOLDS CO.,
ET AL., No. 02-K-1688 (OES), (the "Infringement Action"), in which 1mage is
seeking damages for copyright infringement resulting from continuing use of
1mage software without any license or authority by Reynolds and Reynolds and
approximately 1,000 automobile dealers throughout the United States. The
Infringement Action has now been referred to arbitration, along with the
Collection Action, which arbitration is pending. In the arbitration, Reynolds
has asserted a counterclaim for $580,000, alleging that 1mage, without
justification or privilege, advised customers and/or prospects of Reynolds that
Reynolds no longer had a license to distribute 1mage software. 1mage does
contend that Reynolds has no such rights but denies it improperly informed
Reynolds' dealers. To 1mage's knowledge, no dealer has terminated its
relationship with Reynolds because of the licensing dispute.

      The arbitration is scheduled for hearing commencing on May 24, 2004 for
one week in Cleveland, Ohio, at which time a determination whether Reynolds has
any perpetual license will be made. In the event it is found that Reynolds has
no license, 1mage seeks to recover as damages all profits earned by Reynolds and
Reynolds as a result of infringing use of its software, as provided by the
Copyright Infringement Act of 1976, which profits are believed to be
substantial. In any event, 1mage will seek an award for amounts now due under
the 1996 agreement, as described above. The damages hearing is scheduled to
commence October 11, 2004.

      The Company cannot predict the results of any litigation or arbitration
with Reynolds but the burden imposed by these legal proceedings, including the
direct and indirect costs and the diversion of the Company's other limited
resources, may continue to have an adverse effect on the Company's results of
operations. This burden may prove to be material to the Company's financial
condition or results of operation in future reporting periods. It is also
possible, however, that the litigation could result in a substantial judgment in
favor of the Company, or a significant settlement, which could positively affect
the Company's financial condition. (See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".)

                                       9

<PAGE>

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      The Company did not submit any matters to a vote of security holders
through the solicitation of proxies or otherwise during the fourth quarter of
the Company's calendar year ended December 31, 2003.

                                       10

<PAGE>

                                     PART II
                                     -------

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
          STOCKHOLDER MATTERS

MARKET INFORMATION

      The Company's Common Stock is quoted in the OTC Bulletin Board under the
symbol ISOL. The following table sets forth, for the fiscal quarters indicated,
the high and low bid prices per share for the Common Stock as reported on the
OTC Bulletin Board.

            2003
         -------------------------------------------
                            High            Low
         -------------------------------------------
         First Quarter   $     0.51      $     0.23
         -------------------------------------------
         Second Quarter        0.56            0.21
         -------------------------------------------
         Third Quarter         0.40            0.21
         -------------------------------------------
         Fourth Quarter        0.55            0.25
         -------------------------------------------

            2002
         -------------------------------------------
                            High            Low
         -------------------------------------------
         First Quarter   $     0.80      $     0.54
         -------------------------------------------
         Second Quarter        0.66            0.30
         -------------------------------------------
         Third Quarter         0.48            0.30
         -------------------------------------------
         Fourth Quarter        1.00            0.35
         -------------------------------------------


      These quotations reflect interdealer prices, without retail mark-up, mark
down or commission and may not necessarily represent actual transactions.

      On February 27, 2004, the closing bid price per share for the Common Stock
was $.85 as reported on OTCBB. On that same date, there were approximately 985
holders of record of the Common Stock.

DIVIDENDS

      The Company has never declared or paid cash dividends on its Common Stock
and has no present intention to do so. For the foreseeable future, any earnings
will be retained to finance the development and expansion of the Company's
business. The declaration and payment of future dividends will be determined by
the Company's Board of Directors in light of conditions then existing, including
the Company's earnings, financial condition and capital requirements.

ISSUER REPURCHASES OF REGISTERED EQUITY SECURITIES

      There were no shares repurchased during the fourth quarter of 2003.

                                       11

<PAGE>

ITEM 6.   SELECTED FINANCIAL DATA

      The following table sets forth, for the periods indicated, selected
financial data of the Company. This table should be read in conjunction with the
financial statements and notes included in Item 8 of this Form 10-K and the
section entitled "Management's Discussion and Analysis of Results of Operations
and Financial Condition" following this section.

<TABLE>
<CAPTION>
Statements of Operations                                Years Ended December 31,
--------------------------------------------------------------------------------------
In thousands, except for per share data:      2003    2002     2001    2000    1999
--------------------------------------------------------------------------------------
<S>                                           <C>     <C>      <C>     <C>     <C>
Net Sales                                     $2,104  $2,242   $2,776  $2,163  $1,806
Cost of Sales                                    915   1,153    1,109     934     987
Gross Profit                                   1,189   1,089    1,667   1,229     819
Gross Profit (as a % of Net Sales)               57%     49%      60%     57%     45%
Selling, General & Administrative expenses     1,215   1,365    1,500   1,211   1,163
Income (Loss) before Income Taxes                 86   (282)      161      11   (365)
Net Income (Loss)                                 96   (282)      211       8   (367)
Net Income (Loss) Per Share                      .03   (.09)      .07     .00   (.16)
Weighted Average Number of Outstanding         3,237   3,146    3,146   3,056   2,330
Shares
--------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Balance Sheets                                          Years Ended December 31,
--------------------------------------------------------------------------------------
In thousands:                                 2003    2002     2001    2000    1999
--------------------------------------------------------------------------------------
<S>                                           <C>     <C>      <C>     <C>     <C>
Working Capital/(Deficit)                     $  175    $ 28    $ 140   $(93)  $(186)
Total Assets                                   1,674   1,562    1,496   1,428   1,364
Long Term Obligations                            201     207        1       3       1
Total Stockholders Equity                        789     643      925     714     654
--------------------------------------------------------------------------------------
</TABLE>

                                       12

<PAGE>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

                          CRITICAL ACCOUNTING POLICIES

      In preparing financial statements, management must make estimates and
judgments that effect the carrying values of the Company's assets and
liabilities as well as recognition of revenue and expenses. Management's
estimates and judgments are based on the Company's historical experience and
management's knowledge and understanding of current facts and circumstances. The
policy discussed below is considered by management to be critical to an
understanding of the Company's financial statements. The application of this
policy places significant demands on management's judgment, with financial
reporting results relying on estimations about the effect of the matter that is
inherently uncertain. For this policy, management cautions that future events
rarely develop as a forecast, and estimates routinely require adjustment and may
require material adjustment. There have been no significant changes in critical
accounting policies in the past year.

Software Development Costs are capitalized when technological feasibility is
established. Such costs are stated at the lower of unamortized cost or net
realizable value. Amortization is computed using either the straight-line method
based on estimated economic lives of the products (five years) or the ratio that
current product revenues bear to the total of current and anticipated future
product revenues, whichever is greater. It is reasonably possible that those
estimates of anticipated future gross revenues, the remaining estimated economic
life of the products, or both will be reduced significantly in the near term due
to competitive pressure. As a result, the carrying amount of the capitalized
software costs may be reduced materially in the near term. The net realizable
value of such capitalized costs is reviewed by management on a periodic basis,
and costs in excess of net realizable value, if any, are charged to operations.

                                    OVERVIEW

      Management believes that sales for the first three quarters of 2003 were
negatively affected by the general economic slowdown in the technology sector.
On the other hand, fourth quarter revenue increased 64% over the year earlier
corresponding quarter, which may signal the beginning of a rebound for this type
of business. Because our customers typically make a discretionary decision to
implement our products based upon their individual resources and budget
constraints, however, it is possible that the fourth quarter 2003 improvement in
sales will ultimately prove to be a one-time or seasonal event that is not
carried into future periods. Moreover, as a small company which receives only a
few relatively large orders in a given quarter, the loss or delay of individual
orders could have a significant impact on quarterly operating results and
revenue. Thus, discerning trends in the Company's performance is especially
difficult. While interest in the Company's products remains relatively strong,
there can be no assurance that the Company's software sales for the first
quarter of 2004 will keep pace with the fourth quarter of 2003. The Company
believes that, with revenues from operations and its lines of credit with U.S.
Bank and DEMALE, LLC, it has sufficient resources to fund its operations for the
foreseeable future without a significant infusion of capital. Naturally,
however, considering the Company's size and the tumultuous political and
financial events of the past few years, there can be no assurance that the
Company will continue to generate sufficient cash from these sources or that, if
the Company does seek additional capital, any such capital will be made
available to it.

                                       13

<PAGE>

                              RESULTS OF OPERATIONS
      YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002

      The Company's total revenue was $2.1 million for the year ended
December 31, 2003, compared to $2.2 million for the year ended December 31,
2002, representing a decrease of $138,000 (6%). The Company's revenue
decreased $428,000 as a result of the loss of the Company's largest customer,
Reynolds and Reynolds, during the year as total revenue from Reynolds declined
from $441,000 to $13,000. The Company does not anticipate any significant
revenue from Reynolds in 2004.

      The Company's revenue is derived from four sources: software licenses,
annual maintenance/license fees, consulting services, and hardware sales.

      In 2003, software license revenue increased 6%, or $49,000 from 2002
levels, of which a decrease of $121,000 was attributable to the loss of this
single customer. Without the loss of this large customer, software license
revenue would have increased $170,000. Annual license fees decreased 20%, or
$192,000 of which a decrease of $307,000 was attributable to the loss of
business from this large customer. Without the loss of this large customer,
annual license fees would have increased $115,000. The professional service
group's revenue decreased by $20,000 (6%) for the year primarily due to
decreased consulting programming services provided due to the timing of year-end
contracts. Hardware sales of $205,000 increased $24,000 (13%) over $181,000 for
2002.

      Gross profit on revenue for the year ended 2003 was 57%, as compared to
49% for 2002, primarily due to the increase in software sales. In 2003, selling,
general and administrative expenses decreased $151,000 (11%) due to tight
expense controls across all departments of the Company. In addition, during
2003, the Company settled a payable of $138,000 that was due to a vendor in
connection with a software purchase for an earlier period. For the year ended
December 31, 2003, the Company reported net income of $96,000 or $.03 per share,
an improvement of $378,000 over a net loss of $282,000 or $(.09) per share for
the previous year.

      See the discussion of the effect of the loss of Reynolds and Reynolds in
"Liquidity and Capital Resources" below.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
                               Year Ended     Year Ended     Increase/ Increase/
                                12/31/03       12/31/02      (Decrease)(Decrease)
                                                                 $         %
----------------------------------------------------------------------------------
<S>                         <C>             <C>            <C>            <C>
Revenue, as reported         $ 2,104,367    $ 2,242,089    $ (137,722)     (6%)
----------------------------------------------------------------------------------
Less:  Reynolds Revenue           13,318        441,152      (427,834)    (97%)
----------------------------------------------------------------------------------
Revenue excluding Reynolds   $ 2,091,049    $ 1,800,937    $  290,112      16%
----------------------------------------------------------------------------------
</TABLE>


     YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001.

      The Company's total revenue was $2.2 million for the year ended
December 31, 2002 compared to $2.8 million for the year ended December 31, 2001,
representing a decrease of $534,000 (19%). The Company's revenue decreased
$547,000 as a result of the loss of the Company's largest customer, Reynolds and
Reynolds, during the year as total revenue from Reynolds declined from $988,000
to $441,000. In addition, continued slow economic conditions worldwide,
particularly in the technology sector contributed to slower than anticipated
revenue growth.

      The Company's revenue is derived from four sources: software licenses,
annual maintenance/license fees, consulting services, and hardware sales.

                                       14

<PAGE>

      In 2002, software license revenue decreased 35%, or $391,000, from 2001
levels, of which $301,000 was attributable to the loss of this single customer.
Annual license fees decreased 15%, or $167,000, of which a decrease of $223,000
was attributable to the loss of business from this large customer. Without the
loss of this large customer, annual license fees would have increased $56,000.
The professional service group's revenue decreased by $89,000 (22%) for the year
primarily due to decreased consulting/programming services provided to existing
customers. Hardware sales of $181,000 increased $113,000 (168%) over $68,000 for
2001.

      Gross profit on revenue for the year 2002 was 49%, as compared to 60% for
2001, primarily due to the decrease in software license revenue. In 2002,
selling, general and administrative expenses decreased $135,000 (9%). This
decrease resulted from tight expense controls throughout the Company; offset by
a $94,000 increase in legal fees as a result of the legal proceedings with
Reynolds. For the year ended December 31, 2002 the Company reported a net loss
of $282,000, or $.09 per share, as compared to net income of $211,000, or $.07
per share, for the previous year.

      See the discussion of the effect of the loss of Reynolds and Reynolds in
"Liquidity and Capital Resources" below.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
                               Year Ended    Year Ended     Increase/ Increase/
                                12/31/02      12/31/01      (Decrease)(Decrease)
                                                                $         %
---------------------------------------------------------------------------------
<S>                          <C>           <C>            <C>           <C>
Revenue, as reported         $ 2,242,089   $ 2,775,931    $ (533,842)   (19%)
---------------------------------------------------------------------------------
Less:  Reynolds Revenue          441,152       988,649      (547,497)   (55%)
---------------------------------------------------------------------------------
Revenue excluding Reynolds   $ 1,800,937     1,787,282        13,655     (1%)
---------------------------------------------------------------------------------
</TABLE>

                                       15

<PAGE>

                         LIQUIDITY AND CAPITAL RESOURCES

      The Company's cash and cash equivalents decreased approximately $6,000
during the twelve months ended December 31, 2003 as compared to December 31,
2002. During 2003, the Company used cash of $261,000 for deferred development
expenses. The Company had working capital of $175,000 as of December 31, 2003.
Included in current liabilities is $287,000 for Deferred Revenue, which will be
earned throughout 2004. The Company had drawn $139,000 on its bank line of
credit at December 31, 2003, as compared to $200,000 drawn at December 31, 2002.
The line is collateralized by all accounts receivable and general intangibles of
the Company. The Company's line of credit agreement with a prior bank expired on
February 24, 2004. The Company changed its banking relationship and has
established a similar new banking relationship with U.S. Bank, including a new
$200,000 line of credit that is secured by accounts receivable and general
intangibles of the Company.

      In April, 2004 the Company established an additional line of credit with
DEMALE, LLC, a partnership comprised of three principal shareholders of the
Company. The line provides for borrowings of up to $300,000 and is secured by
substantially all of the Company's assets and is subordinate to the bank line of
credit. At December 31, 2003, DEMALE had advanced $55,000, leaving a balance
available of $245,000.

      As noted above in "Results of Operations", the termination by Reynolds and
Reynolds ("Reynolds") of its 1996 Subscription and Maintenance Agreement and the
resulting loss of Reynolds as a customer has already had a significantly adverse
impact on the Company's revenue in 2003. The Company has nearly replaced the
bulk of the revenue lost as a result of the termination of the 1996 contract by
Reynolds and Reynolds' subsequent actions but it is possible that some portion
of that lost revenue will be awarded to the Company in the ongoing litigation
between the Company and Reynolds. Naturally, the Company cannot predict the
outcome of that litigation nor can there be any assurance that the Company will
ever obtain a meaningful recovery from Reynolds.

      The Company made significant progress in its ongoing efforts to replace
the lost revenue and cash flow previously provided by Reynolds during the year
ended December 31, 2003. Nevertheless, if the Company ultimately fails to
recover significant damages from its claims in the pending arbitration
proceeding against Reynolds, there could still be a significantly adverse effect
on the long-term cash flow and liquid resources of the Company.

      The Company receives its revenues from software licenses, recurring annual
maintenance/license fees, consulting services and hardware sales. The Company
maintains minimal inventory balances of third party software products.
Notwithstanding the burdens imposed by Reynolds' actions, the Company believes
that its existing cash, and the cash flows generated from operations, will be
sufficient however, to meet its anticipated cash needs for working capital for
at least the next twelve months.

      The Company has no material commitments for capital expenditures for 2004.

      Contractual obligations at December 31, 2003 are as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
                 Lines of Credit (1)      Capital Lease (2)   Operating Lease        Total
----------------------------------------------------------------------------------------------
Year
----------------------------------------------------------------------------------------------
<C>                      <C>                       <C>              <C>              <C>
2004                     $139,314                  $5,010           $82,871          $227,195
----------------------------------------------------------------------------------------------
2005                       54,600                   5,010            85,602           145,212
----------------------------------------------------------------------------------------------
2006                            -                   4,593            88,335            92,928
----------------------------------------------------------------------------------------------
2007                            -                       -            91,067            91,067
----------------------------------------------------------------------------------------------
2008                            -                       -            61,925            61,925
----------------------------------------------------------------------------------------------
Thereafter                      -                       -                 -                 -
                          -------                  ------           -------           -------
----------------------------------------------------------------------------------------------
                         $193,914                 $14,613          $409,800          $618,327
                          =======                  ======           =======           =======
----------------------------------------------------------------------------------------------
</TABLE>

                                       16

<PAGE>

    (1)  Lines of credit consist of two revolving line of credit agreements
         expiring in 2004 and 2005 with monthly payments of interest and the
         outstanding principal balance due at maturity.
    (2)  Amounts shown under capital lease arise under a lease for office
         equipment expiring in 2006 with monthly lease payments of approximately
         $418.

Risks to Future Financial Performance
VARIABLE OPERATING RESULTS. Our future operating results may vary significantly
and are difficult to predict due to a number of factors, of which many are
beyond our control. These factors include:
o  Demand for our products;
o  The level of product and price competition;
o  The length of our sales cycle;
o  The size and timing of individual license transactions;
o  The delay or deferral of customer implementations;
o  Our success in expanding our customer support organization, direct sales
   force and indirect distribution channels;
o  The timing of new product introductions and product enhancements;
o  Changes in our pricing policy;
o  The mix of products and services sold;
o  Our ability to develop and market new products and control costs;
o  Current economic and political conditions; and
o  The outcome of the pending litigation against Reynolds & Reynolds

CURRENT ECONOMIC AND POLITICAL CONDITIONS MAY AFFECT RESULTS. The general
economic slowdown may persist for some time into the future. The slowdown has
increased the risk to our revenue stream. Additionally, the political landscape
has significantly changed and could have a material impact on results going
forward. We also believe that there has been an industry-wide slowdown in
spending, or at least for the imaging software and systems category. Due to the
discretionary nature of our customers' budget and purchase cycles and the
absence of long-term customer purchase commitments, it is expected to remain
difficult to avoid significant fluctuations in quarterly operating results.

FORWARD LOOKING STATEMENTS

Some of the statements made herein are not historical facts and may be
considered "forward looking statements." All forward-looking statements are, of
course, subject to varying levels of uncertainty. In particular, statements
which suggest or predict future events or state the Company's expectations or
assumptions as to future events may prove to be partially or entirely
inaccurate, depending on any of a variety of factors, such as adverse economic
conditions, new technological developments, competitive developments, results of
pending litigation, competitive pressures, changes in the management, personnel,
financial condition or business objectives of one or more of the Company's
customers, increased governmental regulation or other actions affecting the
Company or its customers as well as other factors.

                                       17

<PAGE>







ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

1MAGE SOFTWARE, INC.
--------------------
INDEX TO FINANCIAL STATEMENTS                                               PAGE
--------------------------------------------------------------------------------

INDEPENDENT ACCOUNTANTS' REPORT.............................................. 19

BALANCE SHEETS - December 31, 2003 and 2002.................................. 20

STATEMENTS OF OPERATIONS - For the Years Ended
  December 31, 2003, 2002 and 2001........................................... 21

STATEMENTS OF SHAREHOLDERS' EQUITY - For the Years Ended
  December 31, 2003, 2002 and 2001........................................... 22

STATEMENTS OF CASH FLOWS - For the Years Ended
  December 31, 2003, 2002, and 2001.......................................... 23

NOTES TO FINANCIAL STATEMENTS................................................ 25

INDEPENDENT ACCOUNTANTS' REPORT ON FINANCIAL STATEMENT SCHEDULES............. 38

SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS............................ 39

                                       18

<PAGE>

                         INDEPENDENT ACCOUNTANTS' REPORT
                         -------------------------------


To the Board of Directors and Stockholders of
1mage Software, Inc.
Englewood, Colorado


We have audited the accompanying balance sheets of 1mage Software, Inc. as of
December 31, 2003 and 2002, and the related statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 2003. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of 1mage Software, Inc. as of
December 31, 2003 and 2002, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2003, in conformity
with accounting principles generally accepted in the United States of America.

                                                                 BKD, LLP


Denver, Colorado
January 22, 2004, except for Note 4.

                                       19

<PAGE>

<TABLE>
<CAPTION>
1MAGE SOFTWARE, INC.
BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
------------------------------------------------------------------------------------------
                                                              2003               2002
------------------------------------------------------------------------------------------
<S>                                                      <C>               <C>
ASSETS
CURRENT ASSETS:
   Cash and cash equivalents                             $     143,505     $      149,738
   Receivables:
      Trade  (less  allowance: 2003, $20,000; 2002,            609,216            549,455
      $10,000)
   Inventory                                                    11,517             16,500
   Prepaid expenses and other current assets                    55,457             16,374
   Employee advances                                            19,631              7,029
   Deferred tax asset                                           20,000                 --
                                                         --------------    ---------------
       Total current assets                                    859,326            739,096

PROPERTY AND EQUIPMENT, at cost, net                            43,465             48,577

OTHER ASSETS:
   Software development costs, net                             694,262            720,916
   Loan costs, net                                              25,929                 --
   Deferred tax asset                                           40,000             50,000
   Rent/Security deposit                                         7,841                100
   Inventory                                                     2,958              2,958
                                                         --------------    ---------------
TOTAL ASSETS                                             $   1,673,781     $    1,561,647
                                                         ==============    ===============

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
   Current portion of capital lease obligations          $       3,663     $        3,903
   Deferred revenue                                            287,000            281,000
   Accounts payable                                            162,255            278,174
   Accrued liabilities                                         230,958            148,260
                                                         --------------    ---------------
       Total current liabilities                               683,876            711,337
                                                         --------------    ---------------

LONG-TERM OBLIGATIONS:
   Capital lease obligations                                     7,105              7,325
   Line of credit - Bank                                       139,314            200,000
   Line of credit - Related Parties                             54,600                 --
                                                         --------------    ---------------
                                                               201,019            207,325
                                                         --------------    ---------------

SHAREHOLDERS' EQUITY:

   Common Stock, $.004 par value - 10,000,000
      shares authorized; shares outstanding:
      2003 and 2002-3,287,597 and 3,146,554                     13,150             12,586
   Additional paid-in capital                                7,288,455          7,238,658
   Accumulated deficit                                      (6,512,719)        (6,608,259)
                                                         --------------    ---------------
      Total shareholders' equity                               788,886            642,985
                                                         --------------    ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY               $   1,673,781     $    1,561,647
                                                         ==============    ===============
</TABLE>

See notes to financial statements.

                                       20

<PAGE>

<TABLE>
<CAPTION>
1MAGE SOFTWARE, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
--------------------------------------------------------------------------------------------
                                                   2003             2002            2001
--------------------------------------------------------------------------------------------
<S>                                           <C>               <C>             <C>
REVENUE:
   System sales and software licenses         $  1,019,708     $    946,071     $ 1,224,057
   Services and annual fees                      1,084,659        1,296,018       1,551,874
                                              -------------    -------------    ------------
      Total revenue                              2,104,367        2,242,089       2,775,931
                                              -------------    -------------    ------------

COST OF REVENUE:
   System sales and software licenses              537,623          623,242         520,299
   Services and annual fees                        377,380          529,791         589,122
                                              -------------    -------------    ------------
      Total cost of revenue                        915,003        1,153,033       1,109,421
                                              -------------    -------------    ------------

GROSS PROFIT                                     1,189,364        1,089,056       1,666,510

OPERATING EXPENSES:
   Selling, general & administrative             1,214,577        1,365,214       1,500,038
                                              -------------    -------------    ------------

INCOME/(LOSS) FROM OPERATIONS                      (25,213)        (276,158)        166,472
                                              -------------    -------------    ------------

OTHER INCOME/(EXPENSE):
   Interest income                                   1,701            3,396           4,891
   Interest expense                                (29,467)          (9,595)        (10,206)
   Other Income                                    138,519               --              --
                                              -------------    -------------    ------------
      Total other income (expense)                 110,753           (6,199)         (5,315)
                                              -------------    -------------    ------------

INCOME/(LOSS) BEFORE INCOME TAXES                   85,540         (282,357)        161,157

PROVISION/(CREDIT) FOR INCOME TAXES
                                                   (10,000)              --         (50,000)
                                              -------------    -------------    ------------

NET INCOME/(LOSS)                             $     95,540     $   (282,357)    $   211,157
                                              =============    =============    ============

BASIC AND DILUTED INCOME
(LOSS) PER COMMON SHARE                       $        .03     $       (.09)    $       .07
                                              =============    =============    ============

WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING                        3,236,610        3,146,554       3,146,554
                                              =============    =============    ============
</TABLE>

See notes to financial statements.

                                       21

<PAGE>

<TABLE>
<CAPTION>
1MAGE SOFTWARE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
------------------------------------------------------------------------------------------------------------------------------------
                                                               Common Stock              Additional
                                                      -------------------------------      Paid-In       Accumulated
                                                             Shares    Amount              Capital         Deficit        Total
                                                      ------------------------------------------------------------------------------
<S>                                                   <C>              <C>              <C>             <C>              <C>
Balances, January 1, 2001                                 3,146,554    $      12,586       7,238,658     (6,537,059)     $  714,185
                                                      ------------------------------------------------------------------------------
   Net income                                                    --               --              --        211,157         211,157
                                                      ------------------------------------------------------------------------------
Balances, December 31, 2001                               3,146,554    $      12,586       7,238,658     (6,325,902)     $  925,342
                                                      ------------------------------------------------------------------------------
    Net loss                                                     --               --              --       (282,357)       (282,357)
                                                      ------------------------------------------------------------------------------
Balances, December 31, 2002                               3,146,554    $      12,586       7,238,658     (6,608,259)     $  642,985
                                                      ------------------------------------------------------------------------------
    Issuance of stock for services                           38,043              152           6,848                          7,000
                                                      ------------------------------------------------------------------------------
    Issuance of stock for loan origination fee               90,000              360          20,340                         20,700
                                                      ------------------------------------------------------------------------------
    Issuance of warrants for loan origination fee                 0                0          18,189                         18,189
                                                      ------------------------------------------------------------------------------
    Issuance of stock for exercise of stock options          13,000               52           4,420                          4,472
                                                      ------------------------------------------------------------------------------
    Net income                                                                                               95,540          95,540
                                                      ------------------------------------------------------------------------------
Balances, December 31, 2003                               3,287,597    $      13,150       7,288,455     (6,512,719)     $  788,886
                                                      ==============================================================================
</TABLE>

          See notes to financial statements.

                                       22

<PAGE>

<TABLE>
<CAPTION>
1MAGE SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
--------------------------------------------------------------------------------------------------------------------
                                                                       2003             2002               2001
--------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                 <C>                <C>                <C>
Net earnings/(loss)                                                 $  95,540          $(282,357)         $ 211,157
Adjustments to reconcile earnings/(loss) to net cash
provided by operating activities:
   Depreciation and amortization                                      319,252            323,096            327,663
   Settlement of payable                                             (138,375)                --                 --
   Deferred revenue                                                     6,000             48,000            19,506
   Deferred tax asset                                                 (10,000)                --            (50,000)
   Issuance of stock options for services                               7,000                 --                 --
   Changes in assets and liabilities:
     Receivables                                                      (59,761)          (127,478)           (14,726)
     Inventory                                                          4,983             (7,430)            26,626
     Prepaid expenses and other assets                                (59,426)            (7,806)             5,636
     Accounts payable                                                  22,456             90,296              2,410
     Accrued liabilities                                               82,698              1,750             37,060
                                                                    ----------         ----------         ----------
           Net cash provided by operating activities                  270,367             38,071            565,332
                                                                    ----------         ----------         ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment                                    (13,180)            (6,103)           (30,263)
Additions to capitalized software                                    (261,346)          (292,015)          (270,973)
                                                                    ----------         ----------         ----------
           Net cash used for investing activities                    (274,526)          (298,118)          (301,236)
                                                                    ----------         ----------         ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to line of credit                                            54,600            200,000            185,000
Repayment of line of credit                                           (60,686)                --           (385,000)
Repayment of long-term obligations                                       (460)            (2,636)            (2,132)
Proceeds from exercise of Common Stock options                          4,472                 --                 --
                                                                    ----------         ----------         ----------
           Net cash provided by (used for) financing activities        (2,074)           197,364           (202,132)
                                                                    ----------         ----------         ----------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                                                                       (6,233)           (62,683)            61,964
CASH AND CASH EQUIVALENTS, beginning of year                          149,738            212,421            150,457
                                                                    ----------         ----------         ----------
CASH AND CASH EQUIVALENTS, end of year                              $ 143,505          $ 149,738          $ 212,421
                                                                    ==========         ==========         ==========

SUPPLEMENTAL CASH FLOWS INFORMATION
     Issuance of stock and stock purchase warrants
        for deferred loan origination fees related to the
        DEMALE, LLC line of credit                                  $  38,889          $      --          $      --
</TABLE>

See notes to financial statements

                                       23

<PAGE>

<TABLE>
<CAPTION>
1MAGE SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001

----------------------------------------------------------------------------------------------------------------
                                                                        2003            2002               2001
----------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>             <C>              <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

                                         Cash paid for interest     $   14,774      $    9,595       $   10,206
                                                                    ===========     ===========      ===========
                                              Income taxes paid     $    2,500      $    2,500       $    2,500
                                                                    ===========     ===========      ===========

SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:

    Acquisition of property and equipment by assuming capital
                                            lease obligations       $       --      $   10,987               --
                                                                    ===========     ===========      ===========
</TABLE>



                                       24

<PAGE>

1MAGE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002, AND 2001
---------------------------------

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
      ORGANIZATION AND NATURE OF BUSINESS - 1mage Software, Inc. (the "Company")
      was incorporated in Colorado in December 1981.

      The Company develops and markets a Linux, Unix, and Windows-based
      electronic document image management and retrieval system. The Company
      earns the majority of its revenues in the United States.

      CASH EQUIVALENTS - The Company considers all highly liquid debt
      instruments purchased with an original maturity of three months or less to
      be cash equivalents.

      INVENTORIES consist of third party software and are stated at the lower of
      cost (specific identification method) or market (net realizable value).
      This software is ultimately integrated into the Company's products.

      PROPERTY AND EQUIPMENT is stated at cost. Depreciation and amortization
      are computed using the straight-line method over the estimated useful
      lives (generally five years) of the assets or the lease term, if shorter.
      The Company capitalizes all expenditures for property and equipment in
      excess of $500. For the years ended December 31, 2003, 2002 and 2001,
      depreciation expense totaled $18,292, $21,896 and $27,562, respectively.

      ADVERTISING COSTS are expensed as incurred. Advertising expenses totaled
      $63,552, $118,373, and $121,718, in 2003, 2002 and 2001, respectively.

      SOFTWARE DEVELOPMENT COSTS are capitalized when technological feasibility
      is established. Such costs are stated at the lower of unamortized cost or
      net realizable value. Amortization is computed using either the
      straight-line method based on estimated economic lives of the products
      (five years) or the ratio that current product revenues bear to the total
      of current and anticipated future product revenues, whichever is greater.
      It is reasonably possible that those estimates of anticipated future gross
      revenues, the remaining estimated economic life of the products, or both
      will be reduced significantly in the near term due to competitive
      pressure. As a result, the carrying amount of the capitalized software
      costs may be reduced materially in the near term. The amounts capitalized
      for the years ended December 31, 2003, 2002, and 2001 were $261,346,
      $296,510, and $270,973, respectively. Amortization of these costs totaled
      $288,000, $301,200, and $300,101, respectively. The net realizable value
      of such capitalized costs is reviewed by management on a periodic basis,
      and costs in excess of net realizable value, if any, are charged to
      operations.

      LOAN COSTS are amortized using the effective interest method over the term
      of the debt agreement.

      REVENUE RECOGNITION - Revenue from the sale of software licenses, computer
      equipment, and existing application software packages is recognized when
      the software and computer equipment are shipped to the customer, remaining
      vendor obligations are insignificant, there are no significant
      uncertainties about customer acceptance and collectibility is probable.
      Revenue from related services, including installation and software
      modifications, is recognized upon performance of services. Maintenance
      revenue is recognized ratably over the maintenance period.

                                       25

<PAGE>

      A single customer, Reynolds and Reynolds, accounted for .1%, 20%, and 36%
      of revenues in 2003, 2002, and 2001, respectively. No other customer
      accounted for more than 10% of revenue for 2003, 2002 or 2001.

      ACCOUNTS RECEIVABLE - Accounts receivable are stated at the amount billed
      to customers. The Company provides an allowance for doubtful accounts,
      which is based upon a review of outstanding accounts receivable,
      historical collection information and existing economic conditions. The
      Company performs credit evaluations of its customers' financial condition
      and generally does not require collateral. The Company retains a security
      interest in the equipment and software sold until they are paid in full.
      Accounts receivable are ordinarily due 30 days after the issuance of the
      invoice, with those customers not meeting those requirements being subject
      to stricter credit policies. Delinquent receivables are written off based
      on individual credit evaluation and specific circumstances of the
      customer.

      One customer accounted for 31% of accounts receivable at December 31,
      2003. Three different customers accounted for 32%, 12% and 11% of accounts
      receivable at December 31, 2002. Two different customers accounted for 18%
      and 10% of accounts receivable at December 31, 2001.

      EARNINGS (LOSS) PER SHARE is computed by dividing net income (loss) by the
      weighted average number of common and equivalent shares outstanding during
      the year. The potential dilution from Common Stock equivalents is not
      material. Fully diluted earnings per share are either anti-dilutive or not
      materially different from basic earnings per share.

      INCOME TAXES The Company follows the liability method of accounting for
      income taxes in accordance with Statement of Financial Accounting
      Standards (SFAS) No. 109. Under this method, deferred income taxes are
      recorded based upon differences between the financial reporting and tax
      bases of assets and liabilities and are measured using enacted tax rates
      and laws that will be in effect when the underlying assets or liabilities
      are received or settled.

      The Company has recorded a valuation allowance against the deferred tax
      assets due to the uncertainty of ultimate realizability.

      STOCK-BASED COMPENSATION At December 31, 2003, the Company has three
      stock-based employee compensation plans, which are described more fully in
      Note 5. The Company accounts for these plans under the recognition and
      measurement principles of APB Opinion No. 25, Accounting for Stock Issued
      to Employees, and related Interpretations. No stock-based employee
      compensation cost is reflected in net income, as all options granted under
      those plans had an exercise price equal to the market value of the
      underlying common stock on the grant date. The following table illustrates
      the effect on net income and earnings per share if the company had applied
      the fair value provisions of FASB Statement No. 123, Accounting for
      Stock-Based Compensation, to stock-based employee compensation.

                                       26

<PAGE>

<TABLE>
<CAPTION>
                                                            Year Ended December 31
                                                       2003           2002         2001
                                                       ----           ----         ----

          <S>                                     <C>           <C>          <C>
           Net income (loss), as reported          $ 95,540      $(282,357)   $ 211,157
           Less:  Total stock-based employee
             compensation cost determined
             under the fair value based
             method, net of income taxes           (105,885)       (97,166)     (98,808)
                                                   --------        -------      -------
           Pro forma net income (loss)             $ 10,345      $(379,523)   $ 112,349
                                                   ========        =======      =======
           Earnings per share:
           Basic and Diluted - as reported         $   0.03      $   (0.09)   $    0.07
                                                   ========        =======      =======
           Basic and Diluted - pro forma           $     --      $   (0.12)   $    0.04
                                                   ========        =======      =======
</TABLE>

      ESTIMATES -The preparation of financial statements in conformity with
      accounting principles generally accepted in the United States of America
      requires management to make estimates and assumptions that affect the
      reported amounts of assets and liabilities and disclosures of contingent
      assets and liabilities at the date of the financial statements and the
      reported amounts of income and expenses during the reporting periods.
      Actual results could differ from those estimates.

      RECLASSIFICATION -The Company has reclassified certain amounts from prior
      years to conform to the current year presentation. These reclassifications
      had no effect on net income.

2.    PROPERTY AND EQUIPMENT
      Property and equipment at December 31 consists of the following:
                                                  2003             2002
                                                  ----             ----
         Equipment                          $   666,277      $    656,748
         Furniture                               57,088            56,078
         Leasehold improvements                  10,903             8,262
                                            -----------      ------------
                                                734,268           721,088
         Less: accumulated depreciation        (690,803)         (672,511)
                                            -----------      ------------
                                            $    43,465      $     48,577
                                            ===========      ============


3.    ACCRUED LIABILITIES
      Accrued liabilities at December 31 consists of the following:
                                                  2003             2002
                                                  ----             ----
            Sales tax payable                $   73,770      $     40,458
            Accounting and audit fees             9,521            10,575
            Accrued compensation                 80,873            37,695
            Other                                66,794            59,532
                                            -----------      ------------
                                             $  230,958      $    148,260
                                            ===========      ============

4.    LINES OF CREDIT
      BANKS
      The Company has a $200,000 annual revolving bank line of credit which
      expires on February 24, 2004 and bears interest at the greater of 7% or
      prime plus 1.5% (total rate of 7.0% at December 31, 2003) not to

                                       27

<PAGE>

      exceed 18%, and is collateralized by all accounts receivable and general
      intangibles of the Company. Total borrowings outstanding under the line of
      credit were $139,314 and $200,000 at December 31, 2003 and 2002,
      respectively.

      The bank line of credit expired on February 24, 2004 and was not renewed.
      On February 24, 2004, the Company entered into a $200,000 annual revolving
      line-of-credit agreement with U.S. Bank, which expires February 24, 2005
      and bears interest at prime plus 1.75% not to exceed 18%, and is
      collateralized by all accounts receivable and general intangibles of the
      Company. The proceeds from the new line of credit were used to pay-off the
      line of credit existing at December 31, 2003.

      RELATED PARTIES
      On April 1, 2003, the Company entered into a $300,000 revolving
      line-of-credit agreement (the Agreement) which expires June 30, 2005, with
      DEMALE, LLC, an entity owned by certain stockholders of the Company. In
      connection with the Agreement, the Company issued 90,000 shares of
      restricted common stock and stock purchase warrants to purchase an
      additional 90,000 shares of restricted common stock as payment for loan
      origination costs. The line expires on June 30, 2005 and requires the
      Company, among other things, to maintain certain financial conditions. At
      December 31, 2003, there was $54,600 borrowed against this line. The line
      is secured by substantially all of the Company's assets and is subordinate
      to the bank line of credit. Interest is accrued and payable quarterly at
      the greater of 7% or prime plus 1.5% (total interest rate of 7.0% at
      December 31, 2003).

5.    SHAREHOLDERS' EQUITY
      STOCK COMPENSATION PLANS
      At December 31, 2003, the Company has three stock-based compensation
      plans, which are described below. The Company applies Accounting
      Principles Board (APB) Opinion 25 and related interpretations in
      accounting for its plans. Accordingly, no compensation cost has been
      recognized. Had compensation cost for the Company's three stock-based
      compensation plans been determined based on the fair value at the dates of
      awards under those plans consistent with the method of FASB Statement 123,
      the Company's net income (loss) and earnings (loss) per share would have
      been as indicated below:

<TABLE>
<CAPTION>
      Net Income (Loss):                                   2003         2002          2001
                                                           ----         ----          ----
<S>                                      <C>           <C>          <C>          <C>
                                         As Reported   $  95,540    $ (282,357)  $  211,157
                                         Pro Forma     $ (10,345)   $ (379,523)  $  112,349
      Earnings (Loss) Per Common Share:
                                         As Reported   $   0.03     $  (0.09)    $    0.07
                                         Pro Forma     $    --      $  (0.12)    $    0.04
</TABLE>

      The fair value of each option grant is estimated on the date of grant
      using the Black-Scholes option-pricing model with the following
      weighted-average assumptions for grants in 2003, 2002, and 2001:

<TABLE>
<CAPTION>
                                                2003         2002        2001
                                                ----         ----        ----
                  <S>                        <C>            <C>           <C>
                  Dividend Yield                0%             0%            0%
                  Expected Volatility         132%           128%          124%
                  Risk-Free Interest Rate    4.25%          4.25%         4.75%
                  Expected Lives              9.0 years      8.8 years     8.4 years
</TABLE>

                                       28

<PAGE>

      The Black-Scholes option-pricing model was developed for use in estimating
      the fair value of traded options, which have no vesting restrictions and
      are freely transferable. In addition, option valuation models require the
      input of highly subjective assumptions, including the expected stock price
      volatility. Because the Company's employee stock options have
      characteristics significantly different from those of traded options, and
      because changes in the subjective input assumptions can materially affect
      the fair value estimate, in management's opinion, the existing models do
      not necessarily provide a reliable single measure of the fair value of its
      employee stock options.

      1996 EQUITY INCENTIVE PLAN
      In September 1996, the Board of Directors authorized 1,000,000 shares of
      Common Stock for issuance under its 1996 Equity Incentive Plan ("1996
      Plan") as incentive stock options ("ISOs") or non-qualified stock options
      ("NQSOs"). The Company grants ISOs only to employees. The Company grants
      NQSOs and restricted stock to persons who are employees of the Company and
      to non-employee directors under the 1996 Plan.

      The options are granted to purchase Common Stock at the fair market value
      on the grant date or at other prices as determined by the Board of
      Directors. The option-vesting period is determined at the time of each
      grant, and all options expire five to ten years from the grant date.

<TABLE>
<CAPTION>
      A summary of the 1996 Plan stock option activity follows:
      --------------------------------- -------------- -------------- ---------------
                                         Outstanding     Exercise     Weighted Avg.
                                           Shares          Price      Exercise Price
      --------------------------------- -------------- -------------- ---------------
<S>                                           <C>       <C>               <C>
      Balances, January 1, 2001               633,500                      .59
      Granted                                 145,000   $.56 - $.75        .60
      Canceled                                (8,500)   $.63 - $.66       (.65)
                                        --------------
      Balances, December 31, 2001             770,000                      .59
      Granted                                   8,000      $.51            .51
      Canceled                               (13,500)   $.56 - $.70       (.66)
                                        --------------
      Balances, December 31, 2002             764,500                      .59
      Granted                                 112,000   $.31-$.39          .34
      Canceled                               (74,500)   $.51-$1.43        (.67)
                                        --------------
      Balances, December 31, 2003             802,000                      .55
                                        ==============
</TABLE>

      The following table summarizes information about stock options under the
      plan at December 31, 2003:
<TABLE>
<CAPTION>
                                   Outstanding                       Exercisable
                    ----------------------------------------    -------------------------
                                    Weighted
                                     Average       Weighted                     Weighted
        Range of                    Remaining       Average                      Average
        Exercise       Number      Contractual     Exercise       Number        Exercise
         Prices      Outstanding      Life           Price      Exercisable       Price
      -----------   ------------  ------------   -----------    -----------   -----------
<S>           <C>       <C>          <C>                <C>         <C>              <C>
      0.31 to 0.44      347,000      5.3 years          0.41        321,500          0.41
      0.51 to 0.84      443,000      6.1 years          0.64        421,165          0.64
      1.29 to 1.44       12,000      5.8 years          1.34         12,000          1.34
</TABLE>

      At December 31, 2003, options for 754,665 shares were exercisable under
      the 1996 Plan. There were no shares available for future grant.

                                       29

<PAGE>

      The weighted-average grant-date fair value of options granted during 2003,
      2002, and 2001 were $.34, $.51, and $.60, respectively.

      In addition, options for 20,000 shares exercisable at $.34 per share were
      granted outside of the 1996 Plan by the Board of Directors on December 31,
      2003. Those options are treated in all respects as to terms and conditions
      as if they were granted under the 1996 Plan.

                                       30

<PAGE>

      1994 STOCK OPTION AND GRANT PLAN
      In April 1994, the Company authorized 700,000 shares of Common Stock for
      issuance under its 1994 Stock Option and Grant Plan ("1994 Plan") to
      employees, consultants and contractors of the Company. The Plan was
      amended in 2002 to permit grants to employees who were also members of the
      board of directors.

      The options are granted to purchase Common Stock at the fair market value
      on the date of grant or at other prices as determined by the Board of
      Directors ("the Board"). Options issued under the 1994 Plan become
      exercisable in one or more installments during its term and the right to
      exercise may be cumulative, as determined by the Board. Options expire as
      determined by the Board, but not more than 10 years after the date of
      grant.

<TABLE>
<CAPTION>
      Details of activity under the 1994 Plan are as follows:
      -------------------------------- ---------------- ----------------- ---------------------
               Stock Options             Outstanding    Exercise Price      Weighted Average
                                                                             Exercise Price
      -------------------------------- ---------------- ----------------- ---------------------
<S>                                           <C>          <C>                   <C>
      Balances, January 1, 2001               317,250                            $ .52
        Granted                                 4,500        $.56                  .56
        Canceled                               (1,000)       $.63                 (.63)
                                       ----------------
      Balances, December 31, 2001             320,750                              .52
         Granted                               34,000        $.35                  .35
         Canceled                             (96,500)       $.63                 (.63)
                                       ----------------
      Balances, December 31, 2002             258,250                              .46
         Granted                               78,849      $.31-$.35               .34
         Exercised                            (13,000)       $.34                 (.34)
         Canceled                             (34,250)     $.34-$.66              (.51)
                                       ----------------
      Balances, December 31, 2003              289,849                             .43
                                       ================
</TABLE>

<TABLE>
<CAPTION>
      -------------------------------- ---------------- ----------------- ---------------------
               Stock Grants                               Grant Price       Weighted Average
                                                                             Exercise Price
      -------------------------------- ---------------- ----------------- ---------------------
<S>                                     <C>               <C>                    <C>
      Balances, January 1, 2001                83,166     $.84 - $1.13           $1.66
         Granted/Canceled                          --         --                    --
                                       ----------------
      Balances, December 31, 2001              83,166                             1.66
         Granted/Canceled                          --         --                    --
                                       ----------------
      Balances, December 31, 2002              83,166                             1.66
         Granted/Canceled                          --         --                    --
                                       ----------------
      Balances, December 31, 2003              83,166                             1.66
                                       ================
</TABLE>

                                       31

<PAGE>

      The following table summarizes information about stock options under the
      1994 Plan at December 31, 2003:

<TABLE>
<CAPTION>
                                      Outstanding                       Exercisable
                       ----------------------------------------    ------------------------
                                       Weighted
                                        Average       Weighted                     Weighted
           Range of                    Remaining       Average                      Average
           Exercise       Number      Contractual     Exercise       Number        Exercise
            Prices      Outstanding      Life           Price      Exercisable       Price
         -----------   ------------  ------------   -----------    -----------   ------------
         <S>               <C>          <C>                <C>         <C>              <C>
         0.31 to 0.35      211,349      5.6 years          0.34        115,960          0.34
         0.56 to 0.66       78,500      4.3 years          0.65         75,750          0.65
</TABLE>

         The weighted-average grant-date fair value of options granted during
      2003, 2002, and 2001 were $.34, $.35, and $.56, respectively.

         At December 31, 2003, options to purchase 191,710 shares of Common
      Stock were exercisable and no shares were available for future grant under
      the 1994 Plan.

      1993 STOCK OPTION PLAN

          In May 1994, the Company authorized 235,000 shares of Common Stock for
      issuance under its 1993 Stock Option Plan ("1993 Plan") as incentive or
      non-qualified stock options. The Company grants nonqualified stock options
      to officers, directors and employees and incentive stock options may be
        granted to employees under the 1993 Plan.

         The options are granted to purchase Common Stock at the fair market
      value on the grant date or at other prices as determined by the Board of
      Directors. The option-vesting period is determined at the time of each
      grant, and all options expire two to ten years from the grant date.

<TABLE>
<CAPTION>
      A summary of the 1993 Plan stock option activity follows:
      -----------------------------------------------------------------------------
                                    Outstanding                     Weighted Avg.
                                       Shares      Exercise Price   Exercise Price
      -----------------------------------------------------------------------------
<S>                                     <C>                               <C>
      Balances, January 1, 2001         76,300                            .47
                                    -------------
         Granted                         3,500          $.56              .56
                                    -------------
      Balances, December 31, 2001       79,800                            .47
      Granted/Canceled/Exercised             0          $ -                --
                                    -------------
      Balances, December 31, 2002       79,800                            .47
         Granted                        11,675          $.31              .31
         Canceled                      (11,675)         $.44-$2.06       (.52)
                                    -------------                   ---------------
      Balances, December 31, 2003       79,800                           $.44
                                    =============
</TABLE>

                                       32

<PAGE>

The following table summarizes information about stock options under the plan at
December 31, 2003.

<TABLE>
<CAPTION>
                                   Outstanding                       Exercisable
                    ----------------------------------------    -------------------------
                                    Weighted
                                     Average       Weighted                     Weighted
        Range of                    Remaining       Average                      Average
        Exercise       Number      Contractual     Exercise       Number        Exercise
         Prices      Outstanding      Life           Price      Exercisable       Price
      -----------   ------------  ------------   -----------    -----------   -----------
<S>                      <C>         <C>                <C>          <C>             <C>
      0.31 to 0.44       74,800      3.2 years          0.41         63,125          0.43
      0.56 to 0.75        4,500      3.6 years          0.73          4,500          0.73
      1.38 to 2.06          500      2.0 years          1.72            500          1.72
</TABLE>

      There were 11,675 options granted during 2003. At December 31, 2003,
      options for 68,125 shares were exercisable under the 1993 Plan. There are
      no shares available for future grant under the 1993 Plan.


      COMMON STOCK WARRANTS

      On April 1, 2003, in connection with obtaining the line of credit -
      related party, the Company issued warrants to the owners of the lender to
      purchase 90,000 shares of Common Stock at an exercise price of $0.18 per
      share, that price being equal to 80% of the fair market value of the
      Common Stock on March 31, 2003. These warrants expire on April 1, 2008.

      COMMON STOCK RESERVED

      Common Stock reserved at December 31, 2003 was as follows:
         1996 Equity Incentive Plan             822,000
         1994 Stock Option and Grant Plan       289,849
         1993 Stock Option Plan                  79,800
                                            ============
                                              1,191,649
                                            ============

6.    INCOME TAXES

      The provisions (credit) for income taxes for the years ended December 31,
      consists of:
<TABLE>
<CAPTION>
                  Current:                  2003          2002          2001
                                            ----          ----          ----
<S>                                       <C>          <C>          <C>
                                Federal   $      --    $      --    $       --
                                  State          --           --            --

                                          ---------    ---------    ----------
                          Total current          --           --            --
                                          ---------    ---------    ----------
                 Deferred:

                                Federal    (10,000)           --       (50,000)
                                  State          --           --            --

                                          ---------    ---------    ----------
                         Total deferred     (10,000)          --       (50,000)
                                          ---------    ---------    ----------
                                          $ (10,000)   $      --    $  (50,000)
                                          =========    =========    ==========
</TABLE>

                                       33

<PAGE>

       The following is a reconciliation of statutory federal income taxes to
the actual provision (credit) for income taxes:
<TABLE>
<CAPTION>
                                                         2003           2002             2001
                                                         ----           ----             ----
<S>                                                     <C>          <C>              <C>
           Federal income taxes at statutory rate       29,000       $ (96,000)       $  65,000
                          Non-deductible expenses        7,000           7,000               --
          Increase (decrease) in taxes resulting
                          from state income taxes        3,000          (9,000)           6,300
       Increase (decrease) in deferred tax asset
                             valuation allowance      (52,000)         101,000         (141,000)
               Expiration of business tax credits         --                --           14,000
                                       Other, net        3,000          (3,000)           5,700
                                                     ----------     ------------     ------------
              Provision/(credit) for income taxes      (10,000)      $      --        $ (50,000)
                                                     ==========     ============     ============
</TABLE>

      The components of the net deferred tax (liability) asset recognized in the
      accompanying balance sheets are as follows:

                                              2003            2002
                                              ----            ----
               Deferred tax liability   $   (12,000)     $     (2,000)
                   Deferred tax asset     2,156,000         2,188,000
                  Valuation allowanc     (2,084,000)       (2,136,000)
                                        ------------     --------------
                                        $    60,000      $     50,000
                                        ============     ==============

      The types of temporary differences between the tax bases of assets and
      liabilities and their financial reporting amounts that give rise to a
      significant portion of the deferred tax asset and their approximate tax
      effects are as follows:

                                                 2003             2002
                                                 ----             ----
                 Future income (deductions):
                          Net operating loss   $  2,147,000    $ 2,174,000
             Allowance for doubtful accounts          8,000          4,000
                                Depreciation          1,000         10,000
                                  Other, net       (12,000)         (2,000)
                                               -------------   ------------
                                               $  2,144,000    $ 2,186,000
                                               =============   ============

      The Company has net operating loss carry forwards for federal income tax
      purposes of approximately $5,540,000. These carry forwards expire on
      varying dates from 2006 through 2022.


7.    EMPLOYEE BENEFIT PLAN

      The Company has a Cash or Deferred Profit Sharing Plan ("the 401(k)
      Plan"). The 401(k) Plan is designed to qualify under Section 401(k) of the
      Internal Revenue Code and allows the Company to make discretionary
      contributions as determined by the Company's Board of Directors. For the
      years ended December 31, 2003, 2002, and 2001, the Company contributed
      $3,225, $4,923, and $4,650 to the 401(k) Plan.

                                       34

<PAGE>

8.    COMMITMENTS AND CONTINGENCIES

      At December 31, 2003 and 2002, equipment with a net book value of $7,436
      and $9,072, net of accumulated amortization of $19,827 and $18,191,
      respectively, has been leased under capital leases.

      The Company leases its executive offices under a noncancelable-operating
      lease, which expires in August 2008. Total rent expense for the years
      ended December 31, 2003, 2002 and 2001 was $76,352, $89,306 and $89,306,
      respectively.

<TABLE>
<CAPTION>
      Future minimum payments for lease obligations are as follows:

                                                                      Capital     Operating
                                                                   ------------   ----------
<S>               <C>                                       <C>    <C>            <C>
                                                            2004   $   5,010      $  82,871
                                                            2005       5,010         85,602
                                                            2006       4,593         88,335
                                                            2007          --         91,067
                                                            2008          --         61,925
                                                                   ------------   ----------
                   Total minimum lease payments                       14,613      $ 409,800
                                                                                  ==========
                   Amount representing interest                       (3,845)
                                                                   ------------
                   Present value of min. lease payments              10,768
                   Current portion                                    (3,663)
                                                                   ------------
                   Long-term portion                               $   7,105
                                                                   ============
</TABLE>

      The Company has bonus agreements with two officers that provide for
      quarterly bonuses of 5% and 4%, respectively, of the Company's pre-tax
      profits. The Company expensed bonuses of $9,449, $0, and $33,352, under
      these agreements for the years ended December 31, 2003, 2002, and 2001,
      respectively.

      The Company is currently engaged in various legal proceedings involving
      one of its former customers. Included in the legal proceedings is
      litigation pertaining to accounts receivable owed to the Company, of
      which, approximately $194,000 is held in escrow by the court and is
      included in accounts receivable at December 31, 2003.


9.    FINANCIAL INSTRUMENTS

      All financial instruments are held for purposes other than trading. The
      following methods and assumptions were used to estimate the fair value of
      each financial instrument for which it is practicable to estimate that
      value:

      CASH AND CASH EQUIVALENTS

      The carrying amount approximates fair value because of the short maturity
      of those instruments.

      DEBT

      The fair value of the Company's debt is estimated based on borrowing rates
      currently available to the Company for bank loans with similar terms and
      maturities.

                                       35

<PAGE>

      The estimated fair values of the Company's financial instruments at
      December 31, 2003 are as follows:
<TABLE>
<CAPTION>
                                                 Carrying Amount         Fair Value
                                                ------------------     --------------
<S>                                              <C>                   <C>
                                     Assets:
                   Cash and cash equivalents     $    143,505          $    143,505
                                 Receivables     $    628,848          $    628,848

                                Liabilities:
                            Accounts Payable     $    162,255          $    162,255
                         Line of Credit-bank     $    139,314          $    139,314
            Line of Credit-related parties       $     54,600          $     54,600
</TABLE>


      The estimated fair values of the Company's financial instruments at
      December 31, 2002 are as follows:

<TABLE>
<CAPTION>
                                                 Carrying Amount         Fair Value
                                                ------------------     --------------
<S>                                            <C>                      <C>
                                   Assets:
                 Cash and cash equivalents       $    149,738          $    149,738
                               Receivables       $    556,484          $    556,484

                              Liabilities:
                          Accounts Payable       $    278,174          $    278,174
                            Line of Credit       $    200,000          $    200,000
</TABLE>


10. SEGMENT INFORMATION

      The Company operates in one industry segment consisting of the development
      and marketing of electronic document image management and retrieval
      systems. The Company's technologies are managed as one segment because it
      offers similar products in similar markets and the factors determining
      strategic decisions are comparable for all products and markets.

      Sales to foreign markets totaled $35,556, $38,197, and $67,846 for the
      years ending December 31, 2003, 2002, and 2001, respectively.

                                       36

<PAGE>

11.   LIQUIDITY

      The Company's cash and cash equivalents decreased $6,233 during the year
      ended December 31, 2003 to approximately $144,000 at December 31, 2003.
      During 2003, the Company incurred cash expenditures for deferred
      development costs of approximately $261,000. As of December 31, 2003, the
      Company had working capital of approximately $175,000. At December 31,
      2003, current liabilities included deferred revenue of approximately
      $287,000, which will be earned throughout calendar year 2004 and does not
      require additional direct cash flow needs to be earned.

       At December 31, 2003, the Company's line of credit with a bank had a
      balance of $139,314 and the Company's line of credit with a related party
      had a balance of $54,600. Subsequent to December 31, 2003, the bank
      notified the Company that it would not be renewing the line of credit in
      February, 2004. The line is collateralized by accounts receivable and
      general intangibles of the Company. Subsequent to December 31, 2003, the
      Company obtained a $200,000 annual revolving line of credit from a new
      bank, which expires on February 24, 2005 and bears interest at prime plus
      1.75% not to exceed 18%, and is collateralized by all accounts receivable
      and general intangibles of the Company. As of December 31, 2003, the
      Company had no material commitments for capital expenditures to be made
      during calendar 2004.

                                       37

<PAGE>

                         INDEPENDENT ACCOUNTANTS' REPORT
                        ON FINANCIAL STATEMENT SCHEDULES


To the Board of Directors and Shareholders of
1mage Software, Inc.
Englewood, Colorado



In connection with our audit of the financial statements of 1mage Software, Inc.
for each of the three years in the period ended December 31, 2003, we have also
audited the following financial statement schedule. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits of the basic financial statements. The schedule is presented for purposes
of complying with the Securities and Exchange Commission's rules and regulations
and is not a required part of the financial statements.
      .
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included herein.

                                                                  BKD, LLP





Denver, Colorado
January 22, 2004



                                       38

<PAGE>

<TABLE>
<CAPTION>
1MAGE SOFTWARE, INC.

SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
----------------------------------------------------------------------------------------------

                                                         Additions    Deductions
                                            Balance       charged     Accounts
                                            at           to: Costs    charged       Balance
                                            beginning       and          to:        at end of
                                            of period    expenses     Allowance      period
                                           -----------  -----------  -----------   -----------
<S>                                         <C>         <C>          <C>           <C>
  For the Year Ended December 31, 2003:
     Allowance for Doubtful Accounts        $ 10,000    $  43,450    $   33,450    $  20,000
  For the Year Ended December 31, 2002
     Allowance for Doubtful Accounts        $ 10,000    $  34,850    $   34,850    $  10,000
  For the Year Ended December 31, 2001:
     Allowance for Doubtful Accounts        $ 10,000    $  62,888    $   62,888    $  10,000
</TABLE>



ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

               There were no disagreements with accountants on accounting and
         financial disclosure.

ITEM 9A. CONTROLS AND PROCEDURES

               As of the end of the period reported on in this report, the
         Company has undertaken an evaluation under the supervision and with
         the participation of management, including the Company's Chief
         Executive Officer and Chief Financial Officer, of the effectiveness
         of the design and operation of the Company's disclosure controls and
         procedures pursuant to Rule 13a-15 of the Securities Exchange Act of
         1934. Based upon that evaluation, the Chief Executive Officer and
         Chief Financial Officer concluded that the Company's disclosure
         controls and procedures were effective, in all material respects,
         with respect to the recording, processing, summarizing and
         reporting, within the time periods specified in the SEC's rules and
         forms, of information required to be disclosed by the Company in the
         reports that it files or submits under the Exchange Act.

               There have been no significant changes in the Company's
         internal controls during the quarter ended December 31, 2003, or in
         other factors that could significantly affect internal controls
         subsequent to the date of the evaluation described above.

                                       39

<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
         The information required herein is incorporated by reference from the
Company's definitive proxy statement for the 2004 annual meeting of
shareholders.

ITEM 11. EXECUTIVE COMPENSATION
         The information required herein is incorporated by reference from the
Company's definitive proxy statement for the 2004 annual meeting of
shareholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
         The information required herein is incorporated by reference from the
Company's definitive proxy statement for the 2004 annual meeting of
shareholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
         The information required herein is incorporated by reference from the
Company's definitive proxy statement for the 2004 annual meeting of
shareholders.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
         The information required herein is incorporated by reference from the
Company's definitive proxy statement for the 2004 annual meeting of
shareholders.


                                     PART IV

ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

       (a)  1. Financial Statements
               See Financial Statement Index on Page 13
            2. Financial Statement Schedules
               See Financial Statement Index on Page 13
            3. List of Exhibits

Exhibit Number   Description and Incorporation by Reference
--------------   ------------------------------------------
  3.1*       - Restated Articles of Incorporation of the Company, as amended.
  3.2*       - Bylaws of the Company, as amended.
  3.3*       - Articles of Amendment to the Articles of Incorporation of the
               Company dated April 18, 1991
  3.4**      - Articles of Amendment to the Articles of Incorporation dated
               May 21, 1993.
  3.4**      - Articles of Amendment to the Articles of Incorporation dated
               June 28, 1994.
 10.5*       - UniVerse(TM)Distributor Agreement between INFORMIX SOFTWARE, INC.
               and the Company dated May 15, 1991
 10.14*******- President Employment Agreement between David R. DeYoung and the
               Company dated November 1, 1999.
 10.15*******- Chief Financial Officer Employment Agreement between Mary Anne
               DeYoung and the Company dated September 1, 1999.
 10.21****   - Software License Agreement between Reynolds+Reynolds and the
               Company. The grant of confidential treatment for this exhibit
               filed separately with the Securities and Exchange Commission has
               been agreed to.

                                       40

<PAGE>

 10.22***    - 1994 Stock Option and Grant Plan.
 10.23**     - 1993 Stock Option Plan.
 10.24****** - Equity Incentive Plan
 10.25       - Revolving Credit
 10.25A.       Revolving Credit Note and Business Security and Corporate
               Resolution for Borrowing with U.S. Bank, N.A. dated February 24,
               2004
 23          - Consent of BKD, LLP
 31.1        - Certificate of Chief Executive Officer pursuant to Section 302 of
               the Sarbanes-Oxley Act of 2002
 31.2        - Certificate of Chief Financial Officer pursuant to Section 302 of
               the Sarbanes-Oxley Act of 2002
 32          - Certificate of CEO and CFO pursuant to Section 906 of the
               Sarbanes-Oxley Act of 2002


               See Index to Financial Statements on Page 13
*       Filed as an Exhibit to Form S-1 Registration Statement No. 33-44717, on
        December 23, 1991.

**      Filed as an Exhibit to Form S-8 Registration Statement No. 33-86760, on
        November 29, 1994

***     Filed as an Exhibit to Form S-8 Registration Statement No. 33-78096, on
        April 22, 1994.

****    Filed as an Exhibit to Form 10-K for the period ended December 31, 1994.

******  Filed as an Exhibit to Form S-3 Registration Statement No. 333-35265, on
        September 10, 1997.

******* Filed as an Exhibit to Form 10-K for the period ended December 31, 2001

(b) There were no reports filed on Form 8-K for the quarter ended December 31,
    2003.

                                       41

<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

1MAGE SOFTWARE, INC.
By:   /s/ DAVID R. DEYOUNG                            Date:  MARCH 29, 2004
      --------------------                                   --------------
      David R. DeYoung
      President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.

By:   /s/ DAVID R. DEYOUNG                            Date:  MARCH 29 2004
      --------------------                                   -------------
      David R. DeYoung, President
      and Principal Chief Executive Officer


By:   /s/ MARY ANNE DEYOUNG                           Date:  March 29, 2004
       --------------------                                  --------------
      Mary Anne DeYoung
      Vice President, Finance
      Principal and Accounting Officer


By:   /s/ ROBERT WIEGAND, II                          Date:  March 29, 2004
      ----------------------                                ---------------
      Robert Wiegand, II
      Director and Secretary


By:   /s/ JOHN G. MAZZA                               Date:  March 29, 2004
      -----------------                                      --------------
      John G. Mazza
      Director


By:   /s/ SPENCER D. LEHMAN                           Date:  March 29, 2004
      ---------------------                                  --------------
      Spencer D. Lehman
      Director


                                       42