<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20549
                                  FORM 10-QSB/A


     [X]     Quarterly Report Pursuant to Section 13 or 15(d) of the
             Securities Exchange Act of 1934

             For the quarter ended                    DECEMBER 31, 2001
                                                      -----------------

     [ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
                         SECURITIES EXCHANGE ACT OF 1934

             For the transition period from               to
                                             -------------  ------------

                       Commission File Number     0-15949
                   INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
             (Exact name of registrant as specified in its charter)


             California                                      94-2862863
    (State or other jurisdiction of                       (I.R.S. Employer
   incorporation or organization)                         identification No.)

            75 Rowland Way, Novato, CA                         94945
   (Address of principal executive offices)                  (Zip code)

                                 (415) 878-4000
               (Registrant's telephone number including area code)


Indicate by check mark whether 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, and (2) has been subject to such filing requirements
                              for the past 90 days.

                                YES          NO X
                                                -


As  of December 27, 2002, 22,794,232 shares of Registrant's common stock, no par
value,  were  outstanding.


<PAGE>
           INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. AND SUBSIDIARIES
                                      INDEX

                                 Explanatory Note

This  filing  on  Form  10-QSB/A  is  amending  our original Form 10-QSB for the
interim period ended December 31, 2001 as filed with the Securities and Exchange
Commission  on  February  14,  2002.  In  consideration  of further interpretive
guidance,  we  are  restating our interim condensed financial statements for the
same  period  to account for our acquisition of Keynomics, Inc., as disclosed in
Notes  1, 8 and 10 to the financial statements, using fair values as compared to
the  previous  accounting  which  accounted  for  the  transaction as a transfer
between  entities  under  common  control.

This  Quarterly  Report on Form 10-QSB/A does not reflect events occurring after
the  filing  of  the registrant's Quarterly Report on Form 10-QSB for the fiscal
quarter  ended  December  31,  2001,  or modify  or  update  those disclosures,
except  as  discussed  above.

<TABLE>
<CAPTION>



<S>                                                                                            <C>
PART I - FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . .   3

   CONDENSED CONSOLIDATED BALANCE SHEETS. . . . . . . . . .  . . . . . . . . . . . . . . . . .  3

   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS and COMPREHENSIVE INCOME. . . . . . . . . .  4

   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS. . .  . . . . . . . . . . . . . . . . . . .  5

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . .   6

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 17

ITEM 3.  CONTROLS AND PROCEDURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  33

PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34

ITEM 1.  LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . .  34

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . .  34

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . . . . . . . . . . . . .  34

ITEM 5.  OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . .  34

SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35

EXHIBIT 99.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  36

EXHIBIT 99.2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  37

EXHIBIT 99.3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  38

EXHIBIT 99.4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  39

</TABLE>


                                        2
<PAGE>

                         PART I - FINANCIAL INFORMATION
                         ------------------------------

ITEM  1.  CONDENSED  CONSOLIDATED  FINANCIAL  STATEMENTS

           INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                    (In thousands, except per share amounts)
<TABLE>
<CAPTION>


                                                         ------------  -------------
                                                         December 31,  June 30, 2001
                                                         2001
                                                         ------------  -------------
                                                         (Unaudited)   (Restated)
                                                         ------------  -------------
                                                          (Restated)
ASSETS
<S>                                                      <C>           <C>
Current assets:
Cash and cash equivalents:                               $     1,183   $       1,230
Receivables, less allowances for doubtful
accounts, discounts and returns of $221 and $182               1,140             940
Inventories                                                      310             113
Prepaid royalties and licenses                                    83             229
Other current assets                                             325             362
                                                         ------------  -------------
Total current assets                                           3,041           2,874

Fixed assets, net                                                461             580

Capitalized software development costs, net                    1,284           1,305
Other assets, net                                              1,247           1,229
                                                         -----------   -------------
Total assets                                             $     6,033   $       5,988
                                                         ===========   =============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current portion long-term debt                           $     2,188   $      11,682
Note payable to related party                                  3,730              --
Trade accounts payable                                         2,191           2,353
Accrued interest and penalties payable                            42           2,293
Accrued and other liabilities                                  2,669           2,717
Accrued arbitration award-current                                119             131
Deferred revenue                                               1,600           1,178
                                                         -----------   -------------
Total current liabilities                                     12,539          20,354


Accrued arbitration award                                        696             702
Long term debt and other obligations                             371             179
                                                         ------------  -------------
Total liabilities                                             13,606          21,235

Shareholders' deficit:
Common stock, no par value; 300,000,000 authorized;
Issued and outstanding 10,212,328 and 9,695,740 shares        29,286          28,754
Accumulated deficit                                          (36,855)        (44,008)
Accumulated other comprehensive income (loss)                     (4)              7
                                                         ------------  -------------
Total shareholders' deficit                                  ($7,573)       ($15,247)
                                                         ------------  -------------
Total liabilities and shareholders' deficit              $     6,033   $       5,988
                                                         ============  =============
</TABLE>

            See Notes to Condensed Consolidated Financial Statements
                                        3
<PAGE>
           INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                    (In thousands, except per share amounts)
                                   (Unaudited)
<TABLE>
<CAPTION>


                                                             Three  Months Ended       Six  Months Ended
                                                             December  31,             December  31,
                                                             -----------------------   ------------------------
                                                             2001         2000         2001         2000
                                                             (Restated)   (Restated)   (Restated)   (Restated)
                                                             -----------------------   ------------------------
<S>                                                          <C>          <C>          <C>          <C>
Net revenues                                                 $    3,149   $    3,234   $    5,724   $    6,292
Product costs                                                       809          845        1,518        1,810
                                                             ------------------------  ------------------------
Gross margin                                                      2,340        2,389        4,206        4,491


Costs and expenses:
Sales and marketing                                                 668          654        1,193        1,171
General and administrative                                        1,246        1,030        2,319        1,982
Research and development                                            537          684        1,145        1,357
                                                             ------------------------  ------------------------
Total operating expenses                                          2,451        2,368        4,657        4,510
                                                             ------------------------  ------------------------
Operating income (loss)                                            (111)          21         (451)         (19)


Gain on product line sale                                            20           --           20          285
Interest and other, net                                             (61)        (534)        (466)       (1,08)
Gain (loss) on disposition of fixed assets                            8            1            1           (4)
Other income                                                        104           --           79           --
Gain on extinguishment of debt                                    2,243           --        7,970           --
Settlement of fee agreement                                          --           --           --         (187)
                                                             ------------------------  ------------------------
Income (Loss) before income tax and cumulative effect of
 change in accounting principle                                   2,203         (512)       7,153       (1,012)

Income tax provision (benefit)                                        1            2            3           (6)
                                                             ------------------------  ------------------------
Income (Loss) before cumulative effect of change in
accounting principle                                              2,202         (514)       7,150       (1,006)

Cumulative effect of change in accounting principle                  --         (285)          --         (285)
                                                             ------------------------  ------------------------
                                                             ------------------------  ------------------------
Net income (loss)                                            $    2,202   $     (799)  $    7,150   $   (1,291)
                                                             ========================  ========================

Other comprehensive income (loss), net of tax:
    Foreign currency translation, net of tax                        (16)           1          (12)           4
    Other comprehensive income (loss), net of tax            $    2,186   $     (798)  $    7,138   $   (1,287)
                                                             ========================  ========================

Basic earnings (loss) per share                              $     0.22   $    (0.08)  $     0.73   $    (0.13)

Diluted earnings (loss) per share                            $     0.21   $    (0.08)  $     0.68   $    (0.13)

Shares used in computing basic earnings (loss) per share
information                                                       9,810        9,694        9,860        9,680

Shares used in computing diluted earnings (loss) per share
information                                                      10,417        9,694       10,467        9,680
</TABLE>

            See Notes to Condensed Consolidated Financial Statements
                                        4
<PAGE>

           INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>


                                                                        Six Months Ended December 31,
                                                                        -----------------------------
                                                                        2001           2000
                                                                        (Restated)     (Restated)
                                                                        -------------  --------------
<S>                                                                     <C>            <C>
Cash flows from operating activities:
Net cash provided by operating activities                               $         733  $          447

Cash flows from investing activities:
Proceeds from product line and domain name sales                                   20             285
Purchase of equipment and furniture                                               (24)           (309)
Software development costs                                                         (5)             --
Acquisition of subsidiary from affiliated company                                (266)             --
Other                                                                              (3)             --
                                                                        -------------  --------------
Net cash used by investing activities                                            (278)            (24)
                                                                        -------------  --------------

Cash flows from financing activities:
Credit line borrowings                                                             65              --
Increase in notes payable                                                         150              --
Repayment of term loans                                                          (550)            (20)
Repayment of capital lease obligations                                           (158)            (98)
Proceeds from issuance of common stock                                              2              11
                                                                        -------------  --------------
Net cash used by financing activities                                            (491)           (107)
                                                                        -------------  --------------

Effect of exchange rate change on cash and cash equivalents                       (11)              3
Net increase (decrease) in cash and cash equivalents                              (47)            319
Cash and cash equivalents at beginning of period                                1,230           1,477
                                                                        -------------  --------------
Cash and cash equivalents at end of the period                          $       1,183  $        1,796
                                                                        =============  ==============




Supplemental disclosure of non-cash investing and financing activities

Note payable arising from acquisition of Keynomics                      $         150

</TABLE>
            See Notes to Condensed Consolidated Financial Statements

                                        5
<PAGE>
          INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.  AND SUBSIDIARIES

NOTES  TO  CONDENSED  CONSOLIDATED  FINANCIAL  STATEMENTS

1.  BASIS  OF  PRESENTATION
---------------------------

On  November  29,  2001,  we entered into an agreement to acquire all issued and
outstanding  shares  of  the  capital  stock  of  Keynomics,  Inc., a California
corporation  focused  on  productivity  enhancement  software.  Keynomics  was a
wholly  owned  subsidiary  of Digital Creative Development Corporation ("DCDC").
We  originally  accounted  for  this  acquisition as a transfer between entities
under  common  control because at the time of the acquisition, the IMSI board of
directors  was  identical  to the DCDC board of directors, with the exception of
Mr.  Robert Mayer, who was a board member of IMSI only. Additionally, Mr. Martin
Wade  and  Mr. Vincent DeLorenzo served as the Chief Executive Officer and Chief
Financial  Officer,  respectively,  of  both  companies.  Using the guidance for
accounting  for  entities  under  common  control, we had restated the financial
statements  for  all  prior  periods  similar  to  a  pooling  of  interests.

However,  in consideration of further interpretive guidance, we have revised our
treatment  of  this  transaction  to account for it using the purchase method of
accounting.  We  are  hereby  amending  our original form 10-QSB for the interim
period  ended  December  31,  2001  as  filed  with  the Securities and Exchange
Commission on February 14, 2002 and restating our interim condensed consolidated
financial statements for the same period to account for the change in accounting
treatment  relative  to  the  Keynomics'  acquisition.

This  amended  filing  has  not  been  updated  for  events  which have occurred
subsequent  to  the  initial filing of the Form 10-QSB on February 14, 2002 with
the  exception of the modification for the accounting treatment of the Keynomics
acquisition as disclosed in Note 8 and 10 and the termination of the merger with
DCDC  as  disclosed  in  Note  9.

The  originally  filed  Form  10-QSB  for  the  quarter  ended December 31, 2001
presented  restated  historical financial statements as of June 30, 2001 and for
the  three  and  six  months  ended  December  31, 2001 to reflect the Keynomics
transaction  as  a transfer among entities under common control.  This treatment
required us to present our financial information as if Keynomics had been a part
of  IMSI  in  all  periods  presented.  As  a  result of revising the accounting
treatment  to  reflect  the  business  combination  as a purchase, the financial
statements  as  of June 30, 2001 and for the three and six months ended December
31,  2001  have  been adjusted to include the results of Keynomics only from the
date  of  acquisition.

The  interim condensed consolidated financial statements have been prepared from
the  records  of  International  Microcomputer  Software,  Inc. and Subsidiaries
("IMSI")  without  audit.  In  the opinion of management, all adjustments, which
consist  only  of  normal recurring adjustments, necessary to present fairly the
financial  position  at December 31, 2001 and the results of operations and cash
flows  as  of  and for the three and six months ended December 31, 2001 and 2000
have  been made.  The interim condensed consolidated financial statements should
be  read  in  conjunction  with  the consolidated financial statements and notes
thereto  contained  in  our Annual Report on Form 10-K for the fiscal year ended
June  30,  2001.  The  results  of operations for the three and six months ended
December  31,  2001 are not necessarily indicative of the results to be expected
for  any  other  interim  period  or  for  the  full  year.


2.  REALIZATION  OF  ASSETS
---------------------------

The  financial  statements  have  been prepared on a basis that contemplates our
continuation as a going concern and the realization of assets and liquidation of
liabilities  in  the ordinary course of business. We have an accumulated deficit
of  $36,855  and  negative  working  capital of $ 9,498 as of December 31, 2001.

Our  large accumulated losses and the negative amount of shareholders' equity as
of December 31, 2001 make it difficult for us to obtain new debt financing or to

                                        6
<PAGE>

obtain equity financing at attractive prices.  In addition, it is likely that we
will  require  additional  capital,  through  equity  or financing arrangements.
The  financial  statements  do  not  include  any  adjustments  relating  to the
recoverability  or classification of assets or the amounts and classification of
liabilities  that  might  result  from  the  outcome  of  this  uncertainty.

3.  SIGNIFICANT  CHANGES  IN  OTHER  ASSETS
-------------------------------------------

We  reached  a  settlement with Broderbund during the quarter ended December 31,
2001  for  the outstanding issues related to our acquisition of OrgPlus from The
Learning Company (predecessor of Broderbund). Simultaneously, we entered into an
agreement  with  Human  Concepts in which we transferred ownership of OrgPlus in
exchange  for royalties based on a percentage of their revenues and distribution
rights.  As  a  consequence  of  these  agreements, we recorded a new intangible
asset, Capitalized Distribution Rights, in the amount of $755,000. The basis for
Capitalized  Distribution  Rights  is  composed  of  the  following:
<TABLE>
<CAPTION>



<S>                                                                                               <C>
                                                                                                  Effect on Capitalized
Description of transaction                                                                        Distribution Rights

Reclassification of remaining basis in OrgPlus from Goodwill and Capitalized
Brand                                                                                             $675,000
Agreement to pay advances to Human Concepts for rights to distribute OrgPlus                      270,000
Grant to Broderbund of credit against future royalties                                            250,000
Agreement to pay settlement for all amounts owed (four quarterly payments
beginning August 2002)                                                                            160,000
Grant to Broderbund of 800,000 names to use for 4 mailings                                        76,000
Broderbund return of 200,000 shares of IMSI common stock at $0.26 per share
previously issued for the acquisition of OrgPlus                                                  (52,000)
Release of liabilities on our books to Broderbund and its predecessors                            (624,000)
                                                                                                  --------------
                                                                                                  $755,000
                                                                                                  ==============
</TABLE>



Capitalized  Distribution Rights are being amortized over a period of 48 months,
the  initial  period  of  the  distribution  agreement  with  Human  Concepts.

4.  SEGMENT  INFORMATION
------------------------

We  have  four  reportable operating segments based on the sales market.  Two of
these  are  geographic segments and generate revenues and incur expenses related
to  the  sale  of  our  PC  productivity software.  The third and forth segments
comprise  the  revenues and expenses related to ArtToday.com, our graphic design
Internet  subsidiary  and  to Keynomics our newly acquired business applications
subsidiary.  The  following  table  details  segment  information as follows (in
thousands):

                                        7
<PAGE>
<TABLE>
<CAPTION>
<S>                                     <C>             <C>          <C>              <C>              <C>            <C>
                                                                     North            Other
RESTATED                                ArtToday.com    Keynomics    America          Foreign          Eliminations   Total
                                        --------------  -----------  ---------------  ---------------  -------------  -------
                                                        Restated                                                      Restated

Three Months  Ended
December 31, 2001

Net Revenues-external                   $1,043          $81          $1,887           $138             --             $3,149
                                        --------------  -----------  ---------------  ---------------  -------------  -------
Operating income (loss)                 327             (19)         (432)            13               --             (111)
                                        --------------  -----------  ---------------  ---------------  -------------  -------
Identifiable assets                     1,394           252          4,548            (123)            (38)           6,033
                                        --------------  -----------  ---------------  ---------------  -------------  -------

Three Months Ended December 31, 2000

Net Revenues-external                   $722            --           $2,439           $73              --             $3,234
                                        --------------  -----------  ---------------  ---------------  -------------  -------
Operating income (loss)                 (42)            --           53               10               --             21
                                        --------------  -----------  ---------------  ---------------  -------------  -------
Identifiable assets                     1,125           --           6,681            (12)             --             7,794
                                        --------------  -----------  ---------------  ---------------  -------------  -------

Six months Ended December 31, 2001

Net Revenues-external                   $1,930          $81          $3,432           $281             --             $5,724
                                        --------------  -----------  ---------------  ---------------  -------------  -------
Operating income (loss)                 606             (19)         (1,069)          32               --             (450)
                                        --------------  -----------  ---------------  ---------------  -------------  -------
Identifiable assets                     1,394           252          4,548            (123)            (38)           6,033
                                        --------------  -----------  ---------------  ---------------  -------------  -------

Six months Ended December 31, 2000

Net Revenues-external                   1,531                        4,576            185              --             6,292
                                        --------------  -----------  ---------------  ---------------  -------------  -------
Operating income (loss)                 44                           (89)             25               --             (20)
                                        --------------  -----------  ---------------  ---------------  -------------  -------
Identifiable assets                     1,125                        6,832            (12)             --             7,945
                                        --------------  -----------  ---------------  ---------------  -------------  -------
</TABLE>



5.  EARNINGS  (LOSS)  PER  SHARE
--------------------------------

Basic  earnings  per  share  are  computed  using the weighted average number of
common  shares  outstanding  during  the  period. Diluted earnings per share are
computed  using  the  weighted average number of common and potentially dilutive
securities  outstanding  during  the  period.  Potentially  dilutive  securities
consist  of  the  incremental  common  shares issuable upon on exercise of stock
options  and  warrants  (using  the treasury stock method). Potentially dilutive
securities  are  excluded from the computation if their effect is anti-dilutive.

The  following  tables  set  forth the computation of basic and diluted earnings
(loss)  per  share  (in  thousands,  except  per  share  amounts):

                                        8
<PAGE>
<TABLE>
<CAPTION>


                                                                                 Three  months  ended
                                                                                 ---------------------------------------

                                                                                 December 31,         December 31,
                                                                                 2001                 2000
                                                                                 ------------------  -------------------
Numerator:
<S>                                                                              <C>                 <C>
 Net income (loss)                                                                          $ 2,202              $ (799)

 Numerator for basic earnings per share (loss) available to common
 stockholders                                                                                 2,202                (799)

 Numerator for diluted earnings per share (loss) available to common
stockholders after assumed conversions                                                        2,202                (799)

Denominator:

Denominator for basic earnings per share - weighted average shares outstanding            9,809,876           9,693,892

 Effect of dilutive securities using the treasury stock method as at
 December 31, 2000
664,291 Warrants Outstanding                                                                     --                  --
2,123,271 Stock Options Outstanding                                                              --                  --
Effect of dilutive securities using the treasury stock method as at
December 31, 2001
 2,821,791Warrants Outstanding                                                              428,214                  --
1,800,162 Stock Options Outstanding                                                         178,670                  --

 Dilutive potential common shares                                                           606,884                  --

 Denominator for diluted earnings per share                                              10,416,760           9,693,892

 Basic earnings (loss) per share                                                             $ 0.22             $ (0.08)

 Diluted earnings (loss) per share                                                           $ 0.21             $ (0.08)
</TABLE>



                                        9
<PAGE>
<TABLE>
<CAPTION>
                                                                       Six  months  ended
                                                                       ---------------------------------------
                                                                       December 31, 2001   December 31,
                                                                                           2000
                                                                       ------------------  -------------------
Numerator:
<S>                                                                    <C>                 <C>
 Net income (loss)                                                                $ 7,150            $ (1,291)

 Numerator for basic earnings per share (loss) available to
 common stockholders                                                                7,150              (1,291)

 Numerator for diluted earnings per share (loss) available to
common stockholders after assumed conversions                                       7,150              (1,291)

Denominator:

Denominator for basic earnings per share- weighted average
shares outstanding                                                              9,860,325           9,680,040

 Effect of dilutive securities using the treasury stock method as at
 December 31, 2000
664,291 Warrants Outstanding                                                           --                  --
2,123,271 Stock Options Outstanding                                                    --                  --
Effect of dilutive securities using the treasury stock method as at
 December 31, 2001
 2,821,791Warrants Outstanding                                                    428,214                  --
1,800,162 Stock Options Outstanding                                               178,670                  --

 Dilutive potential common shares                                                 606,884                  --

 Denominator for diluted earnings per share                                    10,467,209           9,680,040

 Basic earnings (loss) per share                                                   $ 0.73             $ (0.13)

 Diluted earnings (loss) per share                                                 $ 0.68             $ (0.13)
</TABLE>


6.  NEW  ACCOUNTING  STANDARDS
------------------------------

In  June  2001,  the  Financial  Accounting Standards Board adopted SFAS No. 142
Goodwill  And  Intangible  Assets.  SFAS  No.  142 addresses the methods used to
amortize  intangible  assets and to assess impairment of those assets, including
goodwill  resulting  from business combinations accounted for under the purchase
method.  SFAS No. 142 is effective for fiscal years beginning after December 15,
2001,  except  for  the  non-amortization provisions of the statement, which are
effective  for business combinations completed after June 30, 2001.  Included in
our  assets  at  December  31,  2001,  is goodwill with a net carrying values of
$133,000  and  $179,000  relating  to  the  acquisitions  of  ArtToday.com  and
Keynomics,  respectively.  OrgPlus goodwill, which was included in this category
prior  to  this  quarter,  was transferred to capitalized distribution rights in
conjunction  with the settlement of a dispute regarding our software license and
distribution  agreement  with  Broderbund  and  concurrent  software assignment,
license  and  distribution  agreements  with  Human  Concepts.

Upon  adoption  of  SFAS No. 142, we will no longer amortize goodwill related to
ArtToday.com, decreasing amortization expense by approximately $81,000 in fiscal
2003.  We  are  required  to  assess this goodwill for impairment in the year of
adoption.   We  do  not  expect  the adoption of SFAS No. 142 to have a material

                                       10
<PAGE>

effect  on  our  financial  condition  or  results  of  operation.  Since we are
restating  our  accounting of the Keynomics' acquisition to account for it using
the  purchase  methodology,  and  since  the acquisition occurred after June 30,
2001,  we  will not record any amortization relating to the Keynomics' goodwill,
instead we will assess this goodwill for impairment and will adjust the carrying
value  accordingly  if  such  impairment  exists.

In  2001, the FASB issued SFAS 143, Accounting for Asset Retirement Obligations.
SFAS 143 applies to all entities that have legal obligations associated with the
retirement  of  a tangible long-lived asset.  SFAS 143 requires that a liability
for  an  asset  retirement  obligation be recognized if the obligation meets the
definition  of  a  liability in FASB Concepts Statement 6, Elements of Financial
Statements,  and  if  the  amount  of the liability can be reasonably estimated.
When  a retirement obligation is initially recognized, the asset retirement cost
is capitalized by increasing the carrying amount of the related long-lived asset
by  an  amount  equal to the liability.  The initial recording of the obligation
should  be  at  fair  market  value.  SFAS  143  is  effective  for fiscal years
beginning  after  June  15,  2002,  but  earlier application is encouraged   The
Company  does  not  expect  this  statement  to  have  a  material effect on its
financial  statements.

In  2001, the FASB issued SFAS 144, Accounting for the Impairment or Disposal of
Long-Lived  Assets.  SFAS 144 supersedes SFAS 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of, as well as the
provisions  of  APB  Opinion 30, Reporting the Results of Operations - Reporting
the  Effects  of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions, that address the disposal of
a  business.  SFAS 144 also amends ARB 51, Consolidated Financial Statements, to
eliminate  the exception to consolidate a subsidiary for which control is likely
to  be  temporary.  SFAS  144  carries  over  the  recognition  and  measurement
provisions  of  SFAS 121, but differs from SFAS 121 in that it provides guidance
for estimating future cash flows to test recoverability.  SFAS 144 also includes
criteria  that  have  to  be met for an entity to classify a long-lived asset or
asset  group  as  held  for  sale,  and extends the presentation of discontinued
operations  permitted  by  Opinion  30 to include disposals of a component of an
entity.  SFAS  144  is  effective  for fiscal years beginning after December 15,
2001, except for the disposal provisions, which are immediately effective. We do
not  expect  the  adoption  of  SFAS  No.  144  to have a material effect on our
financial  condition  or  results  of  operation.

7.  GAIN  ON  EXTINGUISHMENT  OF  DEBT
--------------------------------------

During the fiscal quarter ended December 31, 2001, we recognized $2,243,000 gain
from  extinguishment  of  debt.  $2,062,000  was related to the forgiveness of a
portion  of  the principal and accrued interest on the Silicon Valley Bank note.
$140,000  was related to the forgiveness of amounts payable to Light Work Design
and  $40,500  was  related  to  the forgiveness of amounts payable to Microsoft.
Light  Work  Design  and  Microsoft  are  two unsecured creditors that were owed
royalties.

In  the  quarter  ended  September  30, 2001, we recognized a gain of $5,727,000
related  to  the  extinguishment  of  debt  to  BayStar  Capital  and  DelRay
Technologies.  BayStar  Capital  agreed  to  settle for 10% of the principal and
accrued  interest  and  penalties  outstanding.  Payments are to be made in four
quarterly  installments  beginning September 30, 2002, with interest accruing at
the  rate  of  8%  per  annum  from  August  31,  2001  to the date of the first
installment.  Thereafter,  the  interest rate is 12% per annum until the note is
paid  in  full  on  or  before  June  30, 2003.  DelRay Technologies agreed to a
one-time  payment  of  $20,000  as  settlement in full of its outstanding claim.

These  combined transactions resulted into an aggregate forgiveness of debt gain
of  $7,970,000  for  the  six-month  period  ended  December  31,  2001.

                                       11
<PAGE>

8.  KEYNOMICS  ACQUISITION
--------------------------

On  November  29,  2001,  we entered into an agreement to acquire all issued and
outstanding  shares  of  the  capital  stock  of  Keynomics,  Inc., a California
corporation  focused  on  productivity  enhancement  software.  Keynomics  was a
wholly  owned  subsidiary of DCDC.  We originally accounted for this acquisition
as  a  transfer between entities under common control because at the time of the
acquisition,  the  IMSI  board  of  directors was identical to the DCDC board of
directors with the exception of Mr. Robert Mayer, who was a board member of IMSI
only.  Additionally,  Mr.  Martin  Wade  and Mr. Vincent DeLorenzo served as the
Chief  Executive  Officer  and  Chief  Financial  Officer, respectively, of both
companies.  Using the guidance for accounting for entities under common control,
we  had  restated  the  financial  statements for all prior periods similar to a
pooling  of  interests.

However,  in consideration of further interpretive guidance, we have revised our
treatment  of  this  transaction  to account for it using the purchase method of
accounting.  This  change  in  accounting  treatment  has  been reflected in our
financial  statements  as  of  November  29,  2001.

The  aggregate purchase price was $300,000 and we assumed approximately $566,000
of  liabilities  from  Keynomics.  The  consideration  was  comprised  of  three
components;  i) $50,000 in cash paid at closing, ii) $100,000 in management fees
and  iii)  a $150,000 note payable.  As of June 30, 2002, $300,000 had been paid
to  DCDC  and  the  note  in  favor  of  DCDC  has  been  canceled.

The  agreement  also called for contingent consideration depending on Keynomics'
performance.  These  amounts,  payable  60  days after the end of the next three
fiscal  years,  consist  of  50%  of Keynomics' net operating income, if any, in
excess  of:

     $500,000  in  the  fiscal  year  ending  June  30,  2003
     $1,000,000  in  the  fiscal  year  ending  June  30,  2004
     $1,500,000  in  the  fiscal  year  ending  June  30,  2005

Furthermore,  potential  payments  would  have  been  due  DCDC  if  we had sold
substantially  all  of  the  capital stock or substantially all of the assets of
Keynomics  before  June 2002. Such payments would have been fifty percent of any
amount  in  excess  of  $1.2  million.  No  payments  were  due  or earned as no
transaction to sell substantially all of the assets of Keynomics occurred before
June  2002  .

As  of  the  date  of  the  purchase, Keynomics had $245,000 of promissory notes
outstanding.  Subsequent  to the acquisition of Keynomics by IMSI, holders of an
aggregate  $225,000 of the outstanding notes agreed to convert them into 661,765
shares  of  IMSI's  capital  stock  at  $0.34  per  share.  Gordon  Landies, our
president,  and  Paul  Jakab,  our Chief Operating Officer, received 192,079 and
10,232  shares  of  IMSI's  capital  stock,  respectively, in exchange for their
outstanding  promissory notes from Keynomics. Joe Abrams, an IMSI related party,
received  287,389  shares  in  exchange  for  his outstanding promissory note to
Keynomics.  Mr.  Abrams  holds  IMSI  stock  options  and  warrants,  which  if
exercised,  would  result  in  ownership  exceeding  5%  of  the  total  shares
outstanding.


                                       12
<PAGE>

The  allocation  of  the  purchase  price  is  as  follows  (in  thousands):
<TABLE>
<CAPTION>



<S>                                    <C>    <C>
Consideration Paid
Cash                                   $  50
Note Payable                             150
Management Fees                          100
Total Consideration                           $               300
                                              ===================
Allocation of Consideration to Assets
Current Assets                           379
Long Term Assets                          73
Liabilities Assumed                     (566)
Identifiable Intangibles                 235
Assumed Goodwill                         179
Allocated Assets                              $               300
                                              ====================
</TABLE>



The  identifiable intangibles consist of software development costs that will be
amortized  over  3  years.  At December 31, 2001, we had amortized approximately
$7,000  with  a  remaining  balance  of  approximately  $228,000.

We  began  to  consolidate  Keynomics  from  the  date  of  the acquisition. The
following  unaudited  condensed  balance sheets as of December 31, 2001 and June
30,  2001 and unaudited condensed income statements for the three and six months
ended  December  31, 2001 and 2000 reflect our pro forma financial results as if
we  had  completed  the  acquisition  of  Keynomics  effective  July  1,  2000.
<TABLE>
<CAPTION>


                                               December 31, 2001    June 30, 2001

BALANCE SHEET (in thousands)
<S>                                           <C>                  <C>
ASSETS
Current assets                                            $3,033           $3,311
Long term assets                                           2,585            3,180
Total assets                                              $5,618           $6,491

LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities                                       12,554           21,128
Long term liabilities                                      1,120              933
Total liabilities                                         13,674           22,061

Total shareholders' deficit                               (8,056)         (15,570)

Total liabilities and shareholders' deficit               $5,618           $6,491
</TABLE>


                                       13

<PAGE>
<TABLE>
<CAPTION>


STATEMENTS  OF OPERATIONS                                                 Three months ended      Three  months  ended
AND COMPREHENSIVE INCOME  (in thousands)                                  December 31,2001        December31,2000

<S>                                                                       <C>                      <C>
Net revenues                                                                              $3,656                   $3,370
Product costs                                                                                812                      851
Gross margin                                                                               2,844                    2,519

Total operating expenses                                                                   2,675                    2,706

Operating income (loss)                                                                      169                    (187)

Other Income / Expense                                                                     (234)                    (533)
Gain on extinguishment of debt                                                             2,243                        -

Income (Loss) before income tax and cumulative
effect of change in accounting principle                                                   2,178                    (720)

Income tax provision (benefit)                                                                 1                        2

Income (Loss) before cumulative effect of change in
accounting principle                                                                        2179                    (722)

Cumulative effect of change in accounting principle                                            -                    (285)

Net income (loss)                                                                         $2,179                 $(1,007)

Diluted Earnings (Loss) per Share                                                          $0.22                  $(0.10)

</TABLE>

                                       14
<PAGE>
<TABLE>
<CAPTION>


STATEMENTS  OF OPERATIONS                                                  Six months ended       Six  months  ended
AND COMPREHENSIVE INCOME  (in thousands)                                   December 31,2001       December31,2000

<S>                                                                       <C>                      <C>
Net revenues                                                                              $6,320                   $6,630
Product costs                                                                              1,521                    1,810
Gross margin                                                                               4,799                    4,820

Total operating expenses                                                                   5,220                    5,223

Operating income (loss)                                                                    (421)                    (403)

Other Income / Expense                                                                     (669)                    (994)
Gain on extinguishment of debt                                                             7,970                        -

Income (Loss) before income tax and
 cumulative effect of change in accounting
 principle                                                                                 6,880                  (1,397)

Income tax provision (benefit)                                                                 3                      (6)

Income (Loss) before cumulative effect of
 change in accounting principle                                                            6,877                  (1,391)

Cumulative effect of change in accounting
 principle                                                                                     -                    (285)

Net income (loss)                                                                         $6,877                 $(1,676)

Diluted Earnings (Loss) per Share                                                          $0.70                  $(0.17)

</TABLE>


9.  SUBSEQUENT  EVENT  (RESTATED)
---------------------------------

As  of  March  1,  2002,  we  entered  into  a "Mutual Termination Agreement and
Release"  with  DCDC  whereby  the  Merger Agreement between the companies dated
August  31,  2001  was terminated and each company was released from all duties,
rights, claims, obligations and liabilities arising from, in connection with, or
relating  to,  the  Merger  Agreement.

The  two  companies  agreed to enter into an agreement entitled "Promissory Note
Conversion  and  General  Release"  pursuant  to which DCDC agreed to cancel the
entire outstanding principal amount of $3.58 million and all interest due on the
promissory  note that DCDC had acquired in return for 9,000,000 shares of common
stock  of  IMSI  and  cash  in  the  amount  of  $250,000  to be paid in monthly
installments  over  15  months  as  follows:

$10,000  per  month  for  the  first  five  installments  starting March 1, 2002
$20,000  per  month  for  ten  months  thereafter

Consistent  with the Keynomics transaction, we had previously accounted for this
transaction  as  an  arrangement between entities under common control, and as a
result  did  not  record  any  gain  or  loss on the extinguishment of the note.

                                       15
<PAGE>

However,  in consideration of further interpretive guidance, we have revised our
treatment  of this transaction to account for it using fair values.  This change
has  resulted  in  our  recognizing a loss on the transaction of $495,000 in the
quarter  ended  March  31,  2002.  The  loss on extinguishment was determined as
follows  (dollars  in  thousands,  except  per  share  amounts):
<TABLE>
<CAPTION>
<S>                            <C>       <C>        <C>          <C>
Book Value of Debt                                                $       3,580
                                                                  =============
FMV of Stock
    Shares Issued                        9,000,000
    Market Value per Share     $              0.425
    Total Value of Stock                            $    3,825

 Cash Paid                                          $      250

 Total Consideration                                              $       4,075
                                                                  =============

 Loss from Stock Issuance                                         $       (495)
                                                                  =============
</TABLE>



The effect of this transaction will be recorded in our amended Form 10-QSB/A for
the  interim  period  ended  March  31,  2002  as  filed with the Securities and
Exchange  Commission.

10.  UNAUDITED  QUARTERLY  FINANCIAL  INFORMATION  (RESTATED)
-------------------------------------------------------------

This  filing  on  form  10-QSB/A  is  amending  our original form 10-QSB for the
interim period ended December 31, 2001 as filed with the Securities and Exchange
Commission.  We  are  restating  our  interim  condensed  consolidated financial
statements for the same period to account for the change in accounting treatment
relative  to  the  Keynomics'  acquisition  from DCDC. This transaction had been
accounted  for  under the assumption that the two companies, DCDC and IMSI, were
under  common control. This resulted in the Keynomics transaction being recorded
using  the  "pooling  of  interests"  methodology.

Since this transaction was initially disclosed in our Form 10-QSB for the period
ended  December  31, 2001, in consideration of further interpretive guidance and
we  have  revised our treatment of this transaction to account for it using fair
values.  The  effect  of  this  restatement  is  as  follows:

<PAGE>
CONSOLIDATED STATEMENT OF INCOME
in thousands, except per share data
<TABLE>
<CAPTION>
all amounts unaudited                     UNAUDITED                         UNAUDITED                          UNAUDITED
                              Quarter Ended September 30, 2001   Quarter Ended December 31, 2001 Six Months Ended December 31, 2002
                                 As                                 As                                  As
                               Reported  Restated  Difference     Reported  Restated  Difference      Reported  Restated Difference
                            -----------  --------  ----------     --------  --------  ----------      --------  -------- ---------

<S>                         <C>           <C>       <C>            <C>       <C>       <C>             <C>       <C>       <C>
Net Revenues                   $2,664    $2,575    ($89)(1)       $ 3,656   $3,149      ($507)(1)     $6,320    $5,724       ($596)

Product Costs                     709       709       -               812      809          3 (2)      1,521     1,518          (3)
                            -----------  --------  ----------      -------- --------  ----------      --------  --------  ---------
Gross Margin                    1,955     1,866     (89)            2,844    2,340       (504)         4,799     4,206        (593)
                            -----------  --------  ----------      -------- --------  ----------      --------  --------  ---------
Costs and Expenses:
  Sales and Marketing             697       524     173 (1)           811      668        143 (1)      1,508     1,193        (315)
  General and
    Administrative              1,206     1,073     133 (1)         1,298    1,246         52 (1)&3)   2,504     2,319        (185)
  Research and
    Development                   641       608      33 (1)           566      537         29 (1)      1,207     1,145         (67)
                            -----------  --------  ----------      -------- --------  ----------      --------  --------  ---------
Total Operating Expenses        2,544     2,205     339             2,675    2,451        224          5,219     4,657         562
                            -----------  --------  ----------      -------- --------  ----------      --------  --------  ---------

                            -----------  --------  ----------      -------- --------  ----------      --------  --------  ---------
Operating Income (Loss)          (589)     (339)    250               169     (111)      (280)          (420)     (451)        (31)
                            ===========  ========  ==========      ======== ========  ==========      ========  ========  =========


Other Income (Expense)
  Interest and Other
    Expense                      (437)     (431)      6 (1)          (262)      44        306 (1)&4)    (699)     (387)        312
  Loss on the early
    Extinguishment of
    Debt                          -         -         -               -         -         -              -                     -
  Gain (Loss) Disposal
    of Assets                     -          (5)     (5)                8        8        -                8         1          (7)
  Gain on Sales of
    Product Lines                 -         -         -                20       20        -               20        20         -
  Gain from Forgiveness
    of Debt                     5,727     5,727       -             2,243    2,243        -            7,970     7,970         -
                           -----------  --------  ----------      -------- --------  ----------      --------  --------  ----------
Income (Loss) Before Taxes      4,701     4,952     251             2,178    2,204        26           6,879     7,153         274
                           -----------  --------  ----------      -------- --------  ----------      --------  --------  ----------

Income Tax Expense
  (Benefit)                         1         1       -                 1        1        -                2         3           1

                           -----------  --------  ----------      -------- --------  ----------      --------  --------  ----------
Net Income                     $4,700    $4,951    $251           $ 2,177    2,203       $26          $6,877    $7,150        $273
                           ===========  ========  ==========      ======== ========  ==========      ========  ========  ==========


Diluted Income (loss) per
  Share                    $     0.48   $  0.50    $0.02          $  0.21  $  0.21  $   0.00        $   0.70   $  0.73   $    0.03

Shares Used in Computing
  earnings (loss)               9,858     9,858   9,858            10,409   10,409    10,049          9,760      9,760       9,760
  per share information

</TABLE>


INDEX  TO  ADJUSTMENTS:
-----------------------

1)  Reflects  the  reversal of revenue and expense amounts that were included in
our  results  when  recording  the transaction as entities under common control.
The  amounts  are  excluded  from  our  results  using  purchase  accounting.
2)  Reflects  the amortization of the intangible software asset of $235,000.  We
will  amortize  this  asset  over  3 years in accordance with our normal policy;
quarterly  amortization  is  approximately  $20,000.
3)  We  initially expensed $100,000 of management fees paid to DCDC.  As part of
our  revised  accounting we have treated this amount as a component of the total
consideration  paid  to  DCDC.
4)  We initially expensed $200,000 related to amounts payable to DCDC as part of
the  acquisition.  As part of our revised accounting we have treated this amount
as  a  component  of  the  total  consideration  paid  to  DCDC.

                                       17
<PAGE>
ITEM  2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF  OPERATIONS

The  following  information  should be read in conjunction with the consolidated
financial  statements and the notes thereto and in conjunction with Management's
Discussion  and Analysis of Financial Condition and Results of Operations in our
Fiscal  2001  Form  10-K.  This  quarterly  report  on  Form  10-QSB/A,  and  in
particular this "Management's Discussion and Analysis of Financial Condition and
Results  of Operations," may contain forward-looking statements regarding future
events  or  our  future performance.  These future events and future performance
involve  certain risks and uncertainties including those discussed in the "Other
Factors That May Affect Future Operating Results" section of this Form 10-QSB/A,
as  well  as  in  our  Fiscal  2001  Form 10-K, as filed with the Securities and
Exchange  Commission  ("SEC").  Actual  events  or our actual future results may
differ  materially  from  any  forward-looking  statements due to such risks and
uncertainties.  We  assume  no  obligation  to  update  these  forward-looking
statements  to  reflect  actual  results  or  changes  in factors or assumptions
affecting  such  forward-looking  statements.  This  analysis is not intended to
serve  as  a  basis  for  projection  of  future  events.

This  filing  on  Form  10-QSB/A  is  amending  our original Form 10-QSB for the
interim period ended December 31, 2001 as filed with the Securities and Exchange
Commission  on  February  14,  2002.  We  are  restating  our  interim condensed
consolidated  financial  statements  for  the  same  period  to  reflect  the
modification  of  our accounting treatment relative to the Keynomics acquisition
that was effective on November 29, 2001.  All other subsequent events, including
the  termination  of  the  merger  agreement with DCDC, effective as of March 1,
2002,  and  their  effect on our financial conditions have not been reflected in
this  form  10-QSB/A.

CRITICAL  ACCOUNTING  POLICIES
------------------------------

In  accordance  with  recent  Securities and Exchange Commission guidance, those
material  accounting  policies  that  we  believe  are  the  most critical to an
investor's  understanding  of  our  financial  results  and  condition have been
expanded  and  are  discussed  below. Certain of these policies are particularly
important  to  the portrayal of our financial position and results of operations
and  require  the  application  of  significant  judgment  by  our management to
determine the appropriate assumptions to be used in the determination of certain
estimates.

REVENUE  RECOGNITION

Revenue  is recognized in accordance with American Institute of Certified Public
Accountants  Statement  of  Position ("SOP") 97-2, Software Revenue Recognition,
and  SOP  98-9,  Modification of SOP 97-2, With Respect to Certain Transactions.
Revenue  is  recognized  when  persuasive  evidence  of  an  arrangement  exists
(generally  a  purchase order), product has been delivered, the fee is fixed and
determinable  and  collection  of  the  resulting  account  is  probable.

     *    Revenue  from  packaged  product  sales  to resellers and end users is
          recorded  at  the  time  of  the  sale  net  of  estimated  returns.
     *    Revenue  from  sales  to  distributors  is recognized when the product
          sells through to retailers and end users. Sales to distributors permit
          limited  rights  of  return  according  to  the terms of the contract.
     *    For  software delivered via the Internet, revenue is recorded when the
          customer  downloads  the  software.
     *    Subscription  revenue  is recognized ratably over the contract period.
     *    Revenue from hybrid products is allocated to the underlying components
          based  on  the ratio of the value of each component to the total price
          and  each  portion  is  recognized  accordingly.
     *    Non-refundable  advanced  payments  received  under license agreements
          with  no  defined  terms  are  recognized as revenue when the customer
          accepts  the  delivered  software.

                                       17
<PAGE>

     *    Revenue  from  software  licensed  to developers, including amounts in
          excess  of  non-refundable  advanced  payments,  is  recorded  as  the
          developers  ship  products  containing  the  licensed  software.
     *    Revenue  from  minimum guaranteed royalties in republishing agreements
          is  recognized  ratably  over  the term of the agreement. Royalties in
          excess  of  the  guaranteed  minimums  are  recognized when collected.
     *    Revenue  from  Original  Equipment  Manufacturer  (OEM)  contracts  is
          recognized upon completion of our contractual obligations. The purpose
          of  OEM  contracts  is  to  increase  our customer base by seeding the
          marketplace  with  older  versions of our software, bundled with other
          manufacturers'  products.

RESERVE  FOR  RETURNS,  PRICE  DISCOUNTS  AND  REBATES

Reserves for returns, price discounts and rebates are estimated using historical
averages, open return requests, channel inventories, recent product sell-through
activity  and market conditions. Our allowances for returns, price discounts and
rebates  are  based upon management's best judgment and estimates at the time of
preparing  the financial statements. Reserves are subjective estimates of future
activity  that  are subject to risks and uncertainties, which could cause actual
results  to  differ  materially  from  estimates.

Our return policy generally allows our distributors to return purchased products
primarily in exchange for new products or for credit towards future purchases as
part  of  stock  balancing  programs.  These  returns  are  subject  to  certain
limitations  that  may  exist  in  the  contract with an individual distributor,
governing,  for  example,  aggregate  return amounts, and the age, condition and
packaging of returned product. Under certain circumstances, such as terminations
or  when  a  product  is  defective, distributors could receive a cash refund if
returns  exceed  amounts  owed.

INVENTORIES

Inventories  are  valued at the lower of cost or market and are accounted for on
the  first-in,  first-out  basis.  Management  performs  periodic assessments to
determine  the  existence  of obsolete, slow moving and non-salable inventories,
and  records  necessary  provisions to reduce such inventories to net realizable
value.

GOODWILL,  INTANGIBLE  AND  OTHER  LONG  LIVED  ASSETS

Property,  equipment,  intangible  and  certain  other  long-lived  assets  are
amortized  over  their  useful  lives.  Useful  lives  are based on management's
estimates  of  the  period  that  the  assets will generate revenues. Long-lived
assets  and  goodwill  are written down to fair value whenever events or changes
indicate that the carrying amount of an asset may not be recoverable. Our policy
is to review the recoverability of all long-lived assets including goodwill at a
minimum  of  once  per year and record an impairment loss when the fair value of
the  assets  does  not  exceed  the  carrying  amount  of  the  asset.

RECENT  EVENTS
--------------

                              KEYNOMICS ACQUISITION

On  November  29,  2001,  we entered into an agreement to acquire all issued and
outstanding  shares  of  the  capital  stock  of  Keynomics,  Inc., a California
corporation  focused  on  productivity  enhancement  software.  Keynomics  was a
wholly  owned  subsidiary of DCDC.  We originally accounted for this acquisition
as  a  transfer between entities under common control because at the time of the
acquisition,  the  IMSI  board  of  directors was identical to the DCDC board of
directors with the exception of Mr. Robert Mayer, who was a board member of IMSI
only.  Additionally,  Mr.  Martin  Wade  and Mr. Vincent DeLorenzo served as the
Chief  Executive  Officer  and  Chief  Financial  Officer, respectively, of both
companies.  Using the guidance for accounting for entities under common control,
we  had  restated  the  financial  statements for all prior periods similar to a
pooling  of  interests.

                                       18
<PAGE>

However,  in consideration of further interpretive guidance, we have revised our
treatment  of  this  transaction  to account for it using the purchase method of
accounting.  This  change  in  accounting  treatment  has  been reflected in our
financial  statements  as  of  November  29,  2001.

The  aggregate purchase price was $300,000 and we assumed approximately $566,000
of  liabilities  from  Keynomics.  The  consideration  was  comprised  of  three
components;  i) $50,000 in cash paid at closing, ii) $100,000 in management fees
and  iii) a $150,000 note payable.  As of June 30, 2002, the entire $300,000 had
been  paid  to  DCDC.

The  agreement  also called for contingent consideration depending on Keynomics'
performance.  These  amounts,  payable  60  days after the end of the next three
fiscal  years,  consist  of  50%  of Keynomics' net operating income, if any, in
excess  of:

   *     $500,000  in  the  fiscal  year  ending  June  30,  2003
   *     $1,000,000  in  the  fiscal  year  ending  June  30,  2004
   *     $1,500,000  in  the  fiscal  year  ending  June  30,  2005

Furthermore,  potential  payments  would  have  been  due  DCDC  if  we had sold
substantially  all  of  the  capital stock or substantially all of the assets of
Keynomics  before  June 2002. Such payments would have been fifty percent of any
amount  in  excess  of  $1.2  million.  No  payments  were  due  or earned as no
transactions  to  sell  substantially  all  of  the assets of Keynomics occurred
before  June  2002.

As  of  the  date  of  the  purchase, Keynomics had $245,000 of promissory notes
outstanding.  Subsequent  to the acquisition of Keynomics by IMSI, holders of an
aggregate  $225,000 of the outstanding notes agreed to convert them into 661,765
shares  of  IMSI's  capital  stock  at  $0.34  per  share.  Gordon  Landies, our
president,  and  Paul  Jakab,  our Chief Operating Officer, received 192,079 and
10,232  shares  of  IMSI's  capital  stock,  respectively, in exchange for their
outstanding  promissory notes from Keynomics. Joe Abrams, an IMSI related party,
received  287,389  shares  in  exchange  for  his outstanding promissory note to
Keynomics.  Mr.  Abrams  holds  IMSI  stock  options  and  warrants,  which  if
exercised,  would  result  in  ownership  exceeding  5%  of  the  total  shares
outstanding.

                                       19
<PAGE>

The  allocation  of  the  purchase  price  is  as  follows  (in  thousands):
<TABLE>
<CAPTION>



Consideration Paid

<S>                                    <C>     <C>
Cash                                   $  50
Note Payable                             150
Management Fees                          100
Total Consideration                             $            300
                                                ================
ALLOCATION OF CONSIDERATION TO ASSETS
Current Assets                           379
Long Term Assets                          73
Liabilities Assumed                     (566)
Identifiable Intangibles                 235
Assumed Goodwill                         179
Allocated Assets                                $            300
                                                ================

</TABLE>



The  identifiable intangibles consist of software development costs that will be
amortized  over  3  years.  At December 31, 2001, we had amortized approximately
$7,000  with  a  remaining  balance  of  approximately  $228,000.


                              BRODERBUND SETTLEMENT

On  October  31,  2001,  we entered into a termination agreement with Broderbund
(The  Learning  Company's  successor)  whereby we, collectively with Broderbund,
terminated  the  October  1998  software  license  agreement of Org Plus and all
related amendments and released each other from all obligations and liabilities.
We  agreed  to  pay  Broderbund  $160,000  payable  in  four  equal  quarterly
installments  commencing  on  August  15,  2002  for  this  settlement.  We  had
previously  accrued  $400,000  in  relation  to  the  dispute.  The  termination
agreement  also  called  for  Broderbund to transfer back to us ownership of the
200,000  shares  of  IMSI's capital stock issued to them pursuant to the January
1999  amendment.

Furthermore,  we  executed  two additional agreements with Broderbund on October
31,  2001:

An  assignment of copyrights and trademark rights, whereby Broderbund transfers,
grants,  conveys, assigns and relinquishes to us, exclusively and in perpetuity,
all  its  right,  title  and  interest  in  the  Org  Plus  product.

A  software license and distribution agreement, whereby we grant to Broderbund a
three-year,  worldwide,  non-exclusive  license  to  sell  Lumiere,  Flow,
TurboProject,  Hijaak  standard and FormTool through direct mail and to OEMs for
royalty  payments.  This  agreement  also  calls for us to grant to Broderbund a
perpetual,  worldwide,  non-exclusive  license  to  the  source code of FormTool
Express  for  limited use, as well as the right to email names from our customer
database  and  a  perpetual,  worldwide,  non-exclusive  license  to PrintMaster
content  for  a  limited  use.

20
<PAGE>

  ASSIGNMENT, LICENSE AND DISTRIBUTION AGREEMENTS OF ORG PLUS TO HUMAN CONCEPTS

During  the month of November 2001, we executed an agreement with Human Concepts
(a  software republisher), whereby we transferred to Human Concepts ownership of
the  Org  Plus  software  product  in  exchange  for  royalties  (Agreement  for
Assignment  of  Software).

During  the  same period we also executed a second agreement with Human Concepts
(Software  License  and  Distribution  Agreement) whereby we licensed from Human
Concepts rights to distribute the Org Plus product to end users and resellers in
North  America,  Australia  and  New  Zealand.  This  contract calls for royalty
payments ranging from 25% to 50% of our net revenues to Human Concepts; however,
minimum royalties of $30,000 per month for nine months are due starting February
2002.  Consequently,  upon  executing  the agreement, we recorded a liability of
$270,000  representing  the  minimum  royalties due Human Concepts. In addition,
this  agreement  provides  for  a  buy  out clause, whereby this agreement shall
terminate  if,  HC pays IMSI (i) $400,000 at any time from June 30, 2003 to June
30,  2005,  and  in addition HC has simultaneously bought out the royalty in the
Assignment  Agreement  for  an additional $100,000, or (ii) $600,000 at any time
from  July  1,  2005 to June 30, 2008, or (iii) $900,000 at any time on or after
July  1,  2008.  HC shall determine, in its sole discretion, if and when to make
such  payment  to  IMSI and if such a payment is made by HC this agreement shall
terminate  on  the  date  such  payment  is  made.

Human  Concepts  is  owned in its entirety by Mr. Martin Sacks, a former officer
and  board  member  of IMSI.  At the present time, Mr. Sacks owns 320,925 of the
outstanding  shares  of  IMSI.

                    DEBT RESTRUCTURING AND MERGER (RESTATED)

On  August  31,  2001,  we  signed  a  merger  agreement  with  Digital Creative
Development  Corporation  ("DCDC")  a  publicly traded company on the Nasdaq OTC
Bulletin  Board  (Nasdaq OTC/BB: DCDCE) pursuant to which we are to issue shares
of our common stock totaling 51% of our outstanding shares to DCDC shareholders,
in  exchange for all the common stock of DCDC and cancellation of a $3.6 million
note  payable  by  us  to  Union Bank of California purchased from Union Bank by
DCDC.  The  merger  agreement  was  approved by all of the directors of DCDC and
IMSI.  Also, 52% of our outstanding shareholders have agreed to vote in favor of
the  merger.   The  merger  is  subject to formal shareholder approval and other
customary  conditions.

DCDC  has  yet  to file its annual report on form 10-K for the fiscal year ended
June  30, 2001.  This delay in meeting its filing requirements and the resulting
failure  to issue a proxy statement and solicit approval of its shareholders for
the  merger  has  delayed and could prevent the merger of the two companies.  As
March  1,  2002, the DCDC merger was terminated.  Discussion of the terms of the
agreement terminating the merger contained in the amended Form 10-QSB filing for
the  third  quarter  of  fiscal  2002  filed  contemporaneously  herewith,  are
incorporated  herein  by  reference.

Along  with  the  execution  of  the  merger agreement, we are in the process of
restructuring  our  outstanding  debt  as  follows:

     *    On October 9, 2001 we signed an agreement with Silicon Valley Bank for
          a  settlement  of  its  existing  secured  note,  which  had a balance
          (including  penalties and interest) of approximately $3.2 million. The
          settlement provides for a new secured promissory note for $1.2 million
          with 12 monthly payments of $100,000 plus interest at 12% interest per
          annum  beginning  October  20,  2001. The first four installments have
          been  paid.

     *    On  July  27,  2001, and as subsequently amended on September 24, 2001
          and October 5, 2001, IMSI and Imageline agreed on the settlement of a)
          an arbitration award issued in January 2000 in favor of Imageline; and
          b)  a  variety  of  on  going issues between the parties involving the
          intellectual  property  rights  of Imageline. The agreement, effective
          September  30,  2001,  calls  for us to provide Imageline a variety of

                                       21
<PAGE>
          considerations  including  the  following:

     *    The  dismissal  of  any  further appeals of the award (which dismissal
          occurred  on  October  11,  2001).
     *    Cash  installments over a 12-year period, starting October 2001. These
          payments are to be made as follows: twelve monthly payments of $11,500
          beginning on October 5, 2001; four equal quarterly payments of $78,750
          beginning  on  September  30, 2002 and, 132 monthly payments of $6,500
          thereafter. These payments had a net present value at June 30, 2001 of
          approximately  $833,000  assuming  a  12%  discount  rate.
     *    Rights  to  royalties,  licenses,  and  inventories  pertaining to our
          MasterClips  line  of  products.
     *    A percentage of any net recovery we obtain from indemnification claims
          we  have  against  third  parties  associated  with  the  original
          circumstances  leading  to  the  arbitration  award.

*    On  July 30, 2001 we entered into an agreement with Baystar wherein Baystar
     agreed to accept $626,000 as settlement of all obligations due and totaling
     $6,260,000.  Payments  are  to be made in four quarterly payments beginning
     September  30,  2002. Interest is to accrue at 8% per annum from August 31,
     2001  until  the  September  2002  payment, and at 12% per annum thereafter
     until  the  claim  is  paid  in  full  on  or  before  June  30,  2003.

*    We  negotiated an agreement with many of our remaining unsecured creditors,
     which  provides  for the discounting to 10% of all outstanding amounts owed
     to  them (plus the payment of interest from February 1, 2000 at the rate of
     8%  per  annum).  These  payments  are to be made in quarterly installments
     beginning August 15, 2002. These unsecured creditors comprise approximately
     $3,800,000  of  debt on our balance sheet. We estimate the total settlement
     on  this debt to be approximately $450,000; and, when settled, we expect to
     record  a  gain  on  forgiveness  of  debt  of  approximately  $3,350,000.

We  believe  that  the  reduction in our liabilities under planned and completed
settlements,  will  allow  us  to  become profitable in the future and provide a
remedy to our working capital needs.  In addition, we will continue to engage in
discussions  with  third  parties  concerning  the  sale  or license of non-core
product lines; the sale or license of part of our assets; and raising additional
capital  investment  through  the  issuance of stock and short or long term debt
financing.

                                       22
<PAGE>

                      SUBSEQUENT EVENT - MERGER TERMINATION

As  of  March  1,  2002,  we  entered  into  a "Mutual Termination Agreement and
Release"  with  DCDC  whereby  the  Merger Agreement between the companies dated
August  31,  2001  was terminated and each company was released from all duties,
rights, claims, obligations and liabilities arising from, in connection with, or
relating  to,  the  Merger  Agreement.

The  two  companies  agreed to enter into an agreement entitled "Promissory Note
Conversion  and  General  Release"  pursuant  to which DCDC agreed to cancel the
entire outstanding principal amount of $3.58 million and all interest due on the
promissory  note that DCDC had acquired in return for 9,000,000 shares of common
stock  of  IMSI  and  cash  in  the  amount  of  $250,000  to be paid in monthly
installments  over  15  months  as  follows:

     *    $10,000  per  month  for the first five installments starting March 1,
          2002
     *    $20,000  per  month  for  ten  months  thereafter

Consistent  with the Keynomics transaction, we had previously accounted for this
transaction  as  an  arrangement between entities under common control, and as a
result  did  not  record  any  gain  or  loss on the extinguishment of the note.

However,  in consideration of further interpretive guidance, we have revised our
treatment  of this transaction to account for it using fair values.  This change
has resulted in our recognizing a loss on the transaction of $495,000 in quarter
ended  March  31,  2002.  The  loss  on extinguishment was determined as follows
(dollars  in  thousands,  except  per  share  amounts):

<TABLE>
<CAPTION>


<S>                                 <C>                 <C>           <C>
Book Value of Debt                                                     $               3,580
                                                                       =====================
FMV of Stock
    Shares Issued                             9,000,000
    Market Value per Share           $             0.425
    Total Value of Stock                                 $    3,825

 Cash Paid                                               $      250

 Total Consideration                                                   $               4,075
                                                                       =====================

 Loss from Stock Issuance                                              $                (495)
                                                                       =====================
</TABLE>


RESULTS  OF  OPERATIONS
-----------------------

The  following  tables  set  forth  our  results of operations for the three and
six-month  periods ended December 31, 2001 and 2000 in absolute dollars and as a
percentage  of  net  revenues. It also details the changes from the prior fiscal
year  in  absolute  dollars  and  in  percentages:

                                       23
<PAGE>

<TABLE>
<CAPTION>

                                                        Three  Months  ended  December  31,
                                                        -----------------------------------------------
                                                        2001(Restated)                2000 (Restated)
                                                        ----------------------------  -----------------   ----------------------
                                                                                                          $Change    % Change
                                                                                                          From       from
                                                                           As % of              As % of   previous   previous
                                                        $                  sales      $         sales     year       year
<S>                                                     <C>               <C>         <C>      <C>        <C>        <C>
                                                        ----------------------------  -----------------   ----------------------
Net Revenues                                            $         3,149      100.00%  $  3,234  100.00%   $     (85)    -2.63%

Product Cost                                                        809       25.69%       845   26.13%         (36)    -4.26%


Gross Margin                                                      2,340       74.31%     2,389   73.87%         (49)    -2.05%

Operating Expenses
Sales & Marketing                                                   668       21.21%       654   20.22%          14      2.14%
General & Administrative                                          1,246       39.57%     1,030   31.85%         216     20.97%
Research & Development                                              537       17.05%       684   21.15%        (147)   -21.49%
Total Operating Expenses                                          2,451       77.83%     2,368   73.22%          83      3.51%

Operating Income/ (Loss)                                           (111)      -3.52%        21    0.65%        (132)  -628.57%

Other Income (Expenses)
Interest expense                                                    (65)      -2.06%      (533) -16.48%         468    -87.80%
Interest income                                                       4        0.13%         -    0.00%           4    100.00%
Foreign exchange gain                                                12        0.38%         -    0.00%          12    100.00%
Other expense income                                                 92        2.95%         -    0.00%          92    100.00%
Gain on disposal of fixed assets                                      8        0.25%         -    0.00%           8    100.00%
Gain on sales of product line                                        20        0.64%         -    0.00%          20    100.00%
Gain from extinguishment of debt                                  2,243       71.23%         -    0.00%       2,243    100.00%
Total other income/(expense)                                      2,315       73.52%      (533) -16.48%       2,847   -534.33%

Income (loss) before tax and cumulative effect of
change in accounting principles                                   2,203       69.96%      (512) -15.83%       2,715   -530.27%

Income tax expense                                                    1        0.03%         2    0.06%          (1)   -50.00%

Income (loss) before cumulative effect of change in
accounting principles                                             2,202       69.93%      (514)  -15.89%      2,716   -528.40%

Cumulative effect of change in accounting principles
                                                                      -        0.00%      (285)   -8.81%        285   -100.00%

Net income (loss)                                       $         2,202       69.93%  $   (799)  -24.71%  $   3,001   -375.59%

</TABLE>

                                       24
<PAGE>
<TABLE>
<CAPTION>

                                                        Six  Months  ended  December  31,
                                                        -----------------------------------------------
                                                        2001(Restated)                2000 (Restated)
                                                        ----------------------------  -----------------   ----------------------
                                                                                                          $Change    % Change
                                                                                                          From       from
                                                                           As % of              As % of   previous   previous
                                                        $                  sales      $         sales     year       year
<S>                                                     <C>               <C>         <C>      <C>        <C>        <C>
                                                        ----------------------------  -----------------   ----------------------
Net Revenues                                            $         5,724      100.00%  $  6,292  100.00%   $    (568)    -9.03%

Product Cost                                                      1,518       26.52%     1,801   28.62%        (283)   -15.71%

Gross Margin                                                      4,206       73.48%     4,491   71.38%        (285)    -6.35%

Operating Expenses
Sales & Marketing                                                 1,193       20.83%     1,171   18.61%          22      1.88%
General & Administrative                                          2,319       40.51%     1,982   31.50%         337     17.00%
Research & Development                                            1,145       20.00%     1,357   21.57%        (212)   -15.62%
Total Operating Expenses                                          4,657       81.36%     4,510   71.68%         147      3.26%

Operating Loss                                                     (451)      -7.88%       (19)  -0.30%        (432)  2273.68%

Other Income (Expenses)
Interest expense                                                   (472)      -8.25%    (1,087) -17.28%         615    -56.58%
Interest income                                                       6        0.10%         -    0.00%           6    100.00%
Foreign exchange gain                                                 1        0.02%         -    0.00%           1    100.00%
Other income                                                         78        1.36%         -    0.00%          78    100.00%
Gain (loss) on disposal of fixed assets                               1        0.02%        (4)  -0.06%           5   -125.00%
Gain on sales of product line                                        20        0.35%       285    4.53%        (265)   -92.98%
Settlement costs                                                     --        0.00%      (187)  -2.97%         187   -100.00%
Gain from extinguishment of debt                                  7,970      139.24%         -    0.00%       7,970    100.00%
Total other income/(expense)                                      7,604      132.84%      (993) -15.78%       8,597   -865.76%

Income (loss) before tax and cumulative effect of
 change in accounting principles                                  7,153      124.97%    (1,012) -16.08%       8,165   -806.82%

Income tax expense (benefit)                                          3        0.05%        (6)  -0.10%           9   -150.00%

Income (loss) before cumulative effect of change in
 accounting principles                                            7,150      124.91%    (1,006) -15.99%       8,156   -810.74%

Cumulative effect of change in accounting principles
                                                                      -        0.00%      (285)  -4.53%         285   -100.00%

Net income (loss)                                                $7,150      124.91%   $(1,291) -20.52%  $    8,441   -653.83%
</TABLE>

                                       25
<PAGE>

                                  NET REVENUES

Net  revenues  of  each  of our principal product categories in dollars and as a
percentage  of  total  net  revenues  for  the three and six-month periods ended
December  31,  2001 and 2000 are summarized in the following table (in thousands
except  for  percentage  amounts):

<TABLE>
<CAPTION>


                                           Three  Months  Ended  December  31,        Six  Months  Ended  December  31,
                                           ------------------------------------------ --------------------------------------------

                                            2001          2000          Changes       2001          2000            Changes
                                           (Restated)     (Restated)                  (Restated)    (Restated)
                                           -------------  -------------  ------------  ------------- -------------- --------------
                                           $        %     $        %     $      %      $        %     $       %     $      %
<S>                                        <C>      <C>   <C>      <C>   <C>     <C>   <C>      <C>   <C>      <C>   <C>     <C>
Precision Design                           $1,128    36%  $1,346    42%  $(218)  -16%  $1,943    34%  $2,288    36%  $(345)  -15%
Graphic Design                              1,246    40%   1,052    33%    194    18%   2,257    39%   2,576    41%   (319)  -12%
Business Application                          632    20%     557    17%     75    14%   1,349    24%     836    13%    513    61%
Utilities                                      20     1%     254     8%   (234)  -92%      48     1%     861    14%   (813)  -94%
Other Products                                133     4%      41     1%     92   223%     144     3%      65     1%     79   121%

Provision for returns
and rebates not yet
received                                       (9)    0%     (16)    0%      7   -44%  $  (16)    0%    (334)   -5%    318   -95%
----------------------------------------   -------------  -------------  ------------  ------------- -------------- --------------
Net Revenues                               $3,149   100%  $3,234   100%  $ (85)   -3%  $5,724   100%  $6,292   100%  $(568)   -9%
========================================   =============  =============  ============  ============= ============== ==============
</TABLE>




Sales of FloorPlan and IMSI's flagship product, TurboCAD, decreased in the three
and  the  six  month  periods  ended  December  31, 2001 as compared to the same
reporting  periods in the previous fiscal year, resulting in an overall decrease
in  revenues in the precision design category.  The inability to adequately fund
a  strong  marketing  strategy,  the  intense competition that characterizes the
computer-aided  design  market and the delays in introducing the new version 8.0
of  TurboCAD  negatively  impacted  sales  of  the  precision  design  category.

In  the  three  and six month periods December 31, 2001, revenues in the graphic
design  category  consisted  in  majority  of  subscription revenues for graphic
content from our wholly owned subsidiary ArtToday.com. When compared to the same
periods  in  the  previous  fiscal  year,  ArtToday.com's sales increased in the
quarter  ended December 31, 2001 from $722,000 to $1,043,000 and from $1,531,000
to $1,930,000 for the six-month period ended December 31, 2001. This increase is
the  direct  result of higher average subscription prices paid by customers as a
result  of  a  wider  range  of  subscription  choices.  Because  ArtToday.com's
revenues  are  based  on subscriptions, these amounts are initially deferred and
then  amortized over the subscription periods, which extend up to twelve months.
As  of  December  31,  2001,  approximately  $1,077,000  of  revenue  related to
ArtToday.com  remained  deferred.  The  following table details the amortization
schedule  of  these  deferred  revenues  for  the  upcoming  year:

                                       26
<PAGE>

<TABLE>
<CAPTION>



                            ArtToday.com Deferred revenues to be recognized

<S>                         <C>
3rd Quarter of Fiscal 2002  $566,000
4th Quarter of Fiscal 2002  $315,000
1st Quarter of Fiscal 2003  $156,000
2nd Quarter of Fiscal 2003  $40,000
--------------------------  -----------------------------------------------
Total                       $1,077,000
--------------------------  -----------------------------------------------
</TABLE>



The  decrease  in  overall  revenues  in  the  graphic  design  category for the
six-month period ended December 31, 2001 is attributable to the steep decline in
the revenues from the historically most important revenue producing product line
within  this  category,  MasterClips.  The  significant decrease in Masterclips'
revenues  was  the  result  of  decreased sales from our republisher Vivendi who
acquired  the  rights  to  the  product  during  the  previous  fiscal year. The
republishing  agreement  with  Vivendi expired according to its own terms and we
subsequently  released  new  versions of Masterclips in December 2001. Also, the
recent settlement agreement we entered into with Imageline on July 27, 2001, and
as  subsequently amended on September 24, 2001 and October 5, 2001 allowed us to
regain full control over the Masterclips line of products. We intend to continue
publishing  new  versions  of  Masterclips  in  the  future.
Future  sales  of  Masterclips  along  with the increasing trend of ArtToday.com
sales  should  contribute  to  higher revenues in the graphic design category in
future  reporting  periods.

During  the  quarter  ended  December 31, 2001, we acquired Keynomics, a company
focused  on  productivity  enhancement  software.  Sales  of Keynomics' products
contributed  $81,000  to  the  business  application category during this fiscal
quarter.  Keynomics' increased contribution explains the increase in revenues in
this  category  as  compared  to  the  same quarter of the previous fiscal year.

Prior  to  September  30,  2000,  our  focus  had been primarily on our Internet
business  and  our graphic and precision design products, and because we did not
spend  as  much on marketing non-core products as during previous periods, sales
of  Flow!,  FormTool,  Maplinx,  MasterPublisher, OrgPlus, People Scheduler, Web
Business  Builder,  Hijaak  and  TurboProject  all  declined as of December 2000
bringing  revenues  from  the  business application category to an all time low.
During the six month period ended December 31, 2001, however, demand for some of
our  non-core  products  in this category such as Flow! and FormTool  increased.
This  increased  demand  was  able to offset the slight decrease in the sales of
OrgPlus  and  further  contribute  to  the  overall  increase in revenues in the
business  application  category  as compared to the same reporting period of the
previous  fiscal  year.

The  decrease  in revenues in the utilities category for the three and six month
periods  ended  December 31, 2001 as compared to the same periods of fiscal 2001
resulted  from  the  sales of Net Accelerator and WinDelete declining during the
first two quarters of fiscal 2002. These products have not been updated recently
nor  have  we  put  many  resources  into  promoting  and  selling  them.

Revenues  in  the  other  products  category for the three and six month periods
ended  December  31,  2001  were  not  material and the slight increase over the
comparable periods in the previous fiscal year was primarily due to the sales of
non-core,  third-party  products.

Net  revenues  from domestic sales decreased by $232,000 or 8% to $2,781,000 and
were  88%  of  total  net revenues for the three-month period ended December 31,
2001.  This  compares  to net revenues from domestic sales of $3,013,000, or 93%
of  total  net  revenues, for the comparable period in the previous fiscal year.
For  the  six  month  period ended December 31, 2001, net revenues from domestic
sales  decreased  $695,000  or  12%  to  $5,057,000  and  were  88% of total net
revenues.  This  compares  to  $5,752,000  or 91% of total net revenues, for the
comparable  period  in  the  previous  fiscal  year.

                                       27
<PAGE>

Net  revenues  from  international  sales increased by $147,000 or 67%, and were
$368,000  or  12%  of net revenues for the three-month period ended December 31,
2001.  This  compares  to  $221,000  or  7% of net revenues for the three months
ended  December 31, 2000.  For the six month period ended December 31, 2001, net
revenues from international sales increased $127,000 or 24% to $667,000 and were
12%  of  total  net  revenues.  This  compares  to  $540,000  or 9% of total net
revenues,  for  the  comparable  period  in  the  previous  fiscal  year.

Our  financial problems were the primary cause of our overall decreased revenues
over  the  six  months  period ended December 31, 2001 when compared to the same
period  in the previous fiscal year. We have not been able to implement the kind
of  effective  advertising  programs  necessary  to maintain unit sales volumes,
share  of  the  market,  and  shelf  space  in  distribution.

We  currently  serve  the domestic retail and international markets using direct
sales methods and republishing agreements.  Low barriers to entry, intense price
competition,  and  continuing  business consolidations characterize the consumer
software  industry.  Any  one  of these factors may adversely affect revenues in
the  future.  We  believe,  however, that our decision to reduce our reliance on
the  retail  market  has  provided  some  insulation  from  unfavorable  retail
conditions,  including  erosion  of  margins from competitive marketing and high
rates  of  product  returns.

                                  PRODUCT COSTS

Our product costs include the costs of diskette and CD-ROM duplication, printing
of  manuals,  packaging  and fulfillment, freight-in, freight out, license fees,
royalties  that we pay to third parties based on sales of published software and
amortization  of  capitalized software acquisition and development costs.  Costs
associated with the return of products, such as refurbishment and the write down
in  value of returned goods are also included in product costs.  The decrease in
product  costs  in  absolute  dollars and as a percentage of net revenues in the
three  and  six-month  periods  ended  December 31, 2001 as compared to the same
periods  from  the  previous  fiscal  year  was  primarily attributable to lower
amortization  costs.

We  amortize  capitalized  software  development  costs  and  license  fees on a
product-by-product  basis.  The  amortization for each product is the greater of
the  amount  computed using (a) the ratio of current gross revenues to the total
of  current  and  anticipated  future  gross revenues for the product or (b) the
economic  life  of such product.  During the first six months of fiscal 2002, we
capitalized  $235,000  of  software  development  cost relating to the Keynomics
acquisition  of  which we amortized approximately $7,000 during the same period.
Total  amortization of software development costs and license fees was $369,000,
and  $750,000  in the six-month periods ended December 31, 2001 and December 31,
2000,  respectively.

                                       28
<PAGE>

                               SALES AND MARKETING

Our  sales  and marketing expenses consist primarily of salaries and benefits of
sales  and  marketing  personnel,  commissions, advertising, printing and direct
mail  expenses.  Additional  sales  and  marketing  expenses  related  to  the
Keynomics'  business,  in part offset by decreased commissions paid to our sales
force  along  with reduced advertising expenses were the primary reasons for the
slight  increase  in  sales  and  marketing expenses in the three and six months
ended  December  31,  2001.

                           GENERAL AND ADMINISTRATIVE

Our  general  and  administrative expenses consist primarily of the salaries and
benefits  for  employees  in  the  legal,  finance, accounting, human resources,
information  systems  and  operations  departments  and fees to our professional
advisors.  For the six-month period ended December 31, 2001 a one time charge of
$211,000  relating  to  issuance  of  warrants  to outside consultants, totaling
785,000  warrants  with an average exercise price of $0.27 and terms of three to
ten  years  and  the  severance  cost  of  $60,000  payable to one of our former
executives combined with additional general and administrative expenses relating
to  the  Keynomics'  business were the primary causes of the increase in general
and  administrative  expense.  For  the  three  months  ended December 31, 2001,
outside  consulting  fees  increased  by  approximately  $25,000.

                            RESEARCH AND DEVELOPMENT

Our research and development expenses consist primarily of salaries and benefits
for  research and development employees and payments to independent contractors.
Research  and  development  costs  decreased  in the three and six-month periods
ended  December  31,  2001  as  compared  to  the  same reporting periods in the
previous  fiscal  year. This decrease is mainly due to lower payroll charges and
outside  consulting fees relating to the Design.Net division, which was spun off
effective  October  1, 2001, and to the decrease in the number of products under
development  in  part  offset  by  additional  research and development expenses
relating  to  Keynomics'  business.  The  steady  ratio  as  a percentage of net
revenues  reflects  our  commitment  to  sustain  our investment in research and
development for our core products as well as for our subsidiaries by maintaining
strong  relationships  with  our  development  team  in  Russia.

                                       29
<PAGE>

                             INTEREST AND OTHER, NET

Interest  and  other  expenses,  net,  include  interest  and  penalties on debt
instruments,  foreign  currency  transaction  gains  and  losses,  and  other
non-recurring  items.  The following table summarizes the components of interest
and  other,  net for the three and six-month periods ended December 31, 2001 and
2000:
<TABLE>
<CAPTION>


                                                Three  months  ended  December  31,
                                                       2001               2000
<S>                                                       <C>             <C>
                                                   $                 $
Interest and other, net
Interest expense                                   $  (65)           $      (398)
Interest income                                         4                      -
Foreign exchange gain                                  12                      -
Penalties                                                                   (135)
Other income                                           93                      -

Total                                              $   44            $      (533)


                                                    Six months ended December 31,
                                                       2001               2000
                                                   $                 $
Interest and other, net
Interest expense                                   $  (317)          $      (817)
Interest related to warrants issued                    (65)
Interest income                                          6                     -
Foreign exchange gain                                    1                     -
Penalties                                              (90)                 (270)
Other income                                            78                     -

Total                                             $   (387)          $    (1,087)
</TABLE>



Interest and other expense, net, decreased substantially in the six-month period
ended  December  31,  2001,  as  compared to the same reporting period in fiscal
2001.  This decrease is mainly the result of our debt restructuring and the plan
of  merger  we signed with DCDC on August 31, 2001.  We did not accrue penalties
on  the Baystar note after August 2001, and interest expenses of 8% per annum on
the  new  negotiated balance of the Baystar is substantially reduced as compared
to  the  same period from the previous year. We saved on the interest previously
paid to Union Bank of California since the note was acquired by DCDC. The merger
agreement  provides that the note is not to bear interest except in the event of
the  termination  of  the  plan  of  merger

                          GAIN ON SALES OF PRODUCT LINE

During  the  second quarter of fiscal 2002 we sold the rights to the Visual Cadd
software  product  to  TriTools Partners, a California company, for $20,000. The
entire  amount  of  the sale was recorded as a gain since the product had a zero
book  value  at  the  time  of  the  transaction.  This was the only transaction
involving  a  gain  or loss on sales of product line during the six-month period
ended  December  31,  2001.

During  the six-month period ended December 31, 2000, we collected the remaining
$200,000  pertaining  to  the  sale  of  the  Easy  Language line of product and
recognized  that amount as a one-time gain on product line sale. During the same
period, ArtToday.com sold the domain name "Caboodles" for $85,000 and recorded a
one-time  gain  for  the  same  amount.

                                       30
<PAGE>

                         GAIN ON EXTINGUISHMENT OF DEBT

During the fiscal quarter ended December 31, 2001, we recognized $2,243,000 gain
from forgiveness of debt. $2,062,000 was related to the forgiveness of a portion
of  the principal and accrued interest on the Silicon Valley Bank note. $140,000
was  related  to  the  forgiveness  of  amounts payable to Light Work Design and
$40,500  was  related  to the forgiveness of amounts payable to Microsoft. Light
Work  Design and Microsoft are two unsecured creditors that were owed royalties.

In  the  quarter  ended September 30, 2001, we recorded an extraordinary gain of
$5,727,000  related  to  the  forgiveness  of debt to BayStar Capital and DelRay
Technologies.  BayStar  Capital  agreed  to  settle for 10% of the principal and
accrued  interest  and  penalties  outstanding.  Payments are to be made in four
quarterly  installments  beginning September 30, 2002, with interest accruing at
the  rate  of  8%  per  annum  from  August  31,  2001  to the date of the first
installment.  Thereafter,  the  interest rate is 12% per annum until the note is
paid  in  full  on  or  before  June  30, 2003.  DelRay Technologies agreed to a
one-time  payment  of  $20,000  as  settlement in full of its outstanding claim.

These  combined transactions resulted into an aggregate forgiveness of debt gain
of  $7,970,000  for  the  six-month  period  ended December 31, 2001. No similar
transactions occurred in the same reporting periods of the previous fiscal year.

                                SETTLEMENT COSTS

We  recorded  a charge of $187,490 during the fiscal quarter ended September 30,
2000  relating to the issuance of 185,005 shares of common stock in July 2000 as
a  settlement of the ArtToday.com Fee Agreement.  We had no similar transactions
neither  in  the  current  or  previous  quarters  of  fiscal  2002.

                           PROVISION FOR INCOME TAXES

We  did  not  record  a  tax benefit in the quarter ending December 31, 2001 for
domestic  tax  losses  because  of the uncertainty of realization.  We adhere to
Statement  of  Financial  Accounting  Standards  No.  109 "Accounting for Income
Taxes,"  which  requires an asset and liability approach to financial accounting
and  reporting  for  income  taxes.  Valuation  allowances  are established when
necessary  to  reduce deferred tax assets to the amount expected to be realized.

LIQUIDITY  AND  CAPITAL  RESOURCES
----------------------------------

As  of  December 31, 2001, we had $1,183,000 in cash and cash equivalents.  This
represents  a  $47,000  decline  from  the  $1,230,000 balance at June 30, 2001.
Working  capital at December 31, 2001 was a negative $9,498,000. This represents
an  improvement  over  the  negative  working  capital  at  June  30,  2001  of
$17,480,000.  The  improvement in working capital over the past six-month period
is  mainly  the  result  of  the  decline  in  current liabilities following our
restructuring  of  debt.

The  slight  decline  in  cash  and cash equivalents from June 30, 2001 resulted
mainly  from payments we made to meet our obligations to financial creditors and
payments  we  made  to  acquire Keynomics in part offset by net positive cash of
$733,000  generated  by  our  operating  activities.

We  had a net income of $7.2 million during the first six months of fiscal 2002.
Excluding one-time non-cash items of approximately $8.0 million representing the
gain  from  the  forgiveness  of debt, we would have had a net loss in excess of
$0.8  million.  Despite  this  loss,  our operating activities generated cash of
$733,000.  The  main  items  that  helped  reconcile  this  loss to the net cash
provided  by operating activities during the six-month period ended December 31,
2001  included  depreciation and amortization expenses of $715,000, increases of
accrued  interest expenses of $267,000 and a non cash charge of $310,000 related

                                       31
<PAGE>

to  warrants  issued  to  outside  consultants  and  other  third  parties.

Our  investing activities during the six months ended December 31, 2001 consumed
$278,000  in  cash  used  mainly  in  acquiring  Keynomics.

Our  financing activities consumed net cash of $491,000 for the six-month period
ended  December  31,  2001.  During  this period, we decreased our obligation to
Union  Bank  by  $350,000 bringing the balance of all amounts due to the bank to
$3,580,000.  Subsequent  to  these payments and pursuant to our merger agreement
with  DCDC,  DCDC acquired the Union Bank's note in August 2001. Also during the
same  period  of  fiscal  2002,  we  made  payments  relating  to  capital lease
obligations  of  $158,000, we repaid $200,000 to Silicon Valley Bank pursuant to
the  new  $1.2  million  secured  promissory  note.
If  we  fail  to raise additional capital, the negative working capital position
could  have  a  material  adverse  effect  on  our liquidity in the future.  The
financial  statements  have  been  prepared  on  a  basis  that contemplates our
continuation  as  a  going  concern  and  the  realization  of  our  assets  and
liquidation  of  our  liabilities in the ordinary course of business. We have an
accumulated  deficit  of  $36.9  million  and  negative  working capital of $9.5
million  at  December  31,  2001.  We  also lack sustained profitability for our
recent  history.  All  these issues raise substantial doubt about our ability to
be  a  going concern for a reasonable period of time and the auditors' report on
our  financial  statements  filed within our fiscal 2001 Form 10-K reflects such
doubt.  The  financial statements do not include any adjustments relating to the
recoverability  or classification of assets or the amounts and classification of
liabilities  that  might  result  from  the  outcome  of  this  uncertainty. Our
continued  existence  is  dependent  on  our  ability  to  complete  the  debt
restructuring and obtain additional financing sufficient to allow us to meet our
obligations  as  they  become  due  and  to  achieve  profitable  operations.

Historically,  we  financed  our  working  capital  and  capital  expenditure
requirements  primarily  from  retained  earnings, short-term and long-term bank
borrowings,  capitalized  leases  and  sales  of  common stock.  We will require
additional  working  capital  to meet our ongoing operating expenses, to develop
new  products, and to properly conduct business activities.  We believe that the
reduction in our liabilities under planned and completed settlements, will allow
us  to  continue as a going concern, become profitable in the future, and remedy
our  working  capital  needs.  In  addition,  we  will  continue  to  engage  in
discussions  with  third  parties  concerning  the  sale or licensing of product
lines;  the  sale  or  licensing  of  part of our assets; and raising additional
capital  investment  through  the  issuance of stock and short or long term debt
financing.

The  forecast  period  of time through which the our financial resources will be
adequate  to  support  working capital and capital expenditure requirements is a
forward-looking  statement  that  involves  risks  and uncertainties, and actual
results  could  vary.  The  factors described in "Risk Factors", as filed in our
fiscal  2001 Form 10-K, will affect future capital requirements and the adequacy
of  available  funds.  We can provide no assurance that needed financing will be
available.  Furthermore,  any  additional equity financing, if available, may be
dilutive  to  shareholders,  and  debt  financing,  if  available,  may  involve
restrictive  covenants.  Failure  to  raise  capital  when  needed  will  have a
material  adverse effect on our business, operating results, financial condition
and  ability  to  continue  as  a  going  concern.

We  have  no  material  commitments  for future capital expenditures or material
long-term  debt  at  December  31, 2001 except as previously disclosed under the
heading  "Debt  restructuring  and  Merger"  regarding  long term obligations to
Silicon  Valley  Bank, Imageline, Baystar Capital and other unsecured creditors.

OTHER  FACTORS  THAT  MAY  AFFECT  FUTURE  OPERATING  RESULTS
-------------------------------------------------------------

Other  factors  that  may  cause  fluctuations  of,  or a continuing decline in,
operating  results  in  the  future  include  the market factors and competitive
factors  described  in  our Fiscal 2001 Form 10-K, under "Future Performance and
Additional  Risk  Factors."   Factors  that  may affect operating results in the
future  include,  but  are  not  limited  to:
                                       32
<PAGE>

     *    Market  acceptance  of  our  products  or  those  of  our  competitors
     *    Timing  of  introductions of new products and new versions of existing
          products
     *    Expenses  relating  to  the  development  and  promotion  of  such new
          products  and  new  version  introductions
     *    Intense  price  competition  and  numerous  end-user  rebates
     *    Projected  and  actual  changes  in  platforms  and  technologies
     *    Accuracy  of  forecasts  of,  and  fluctuations  in,  consumer  demand
     *    Extent  of  third  party  royalty  payments
     *    Rate  of  growth  of  the  consumer  software  and  Internet  markets
     *    Timing  of  orders  or  order  cancellation  from  major  customers
     *    Changes  or disruptions in the consumer software distribution channels
     *    Failure  of  a  proper  integration  of  Keynomics  operations
     *    Economic  conditions,  both  generally  and  within  the  software  or
          Internet  industries

ITEM  3.  CONTROLS  AND  PROCEDURES

(a)  Under  the  supervision  and  with  the  participation  of  the  Company's
management,  including  the  Company's principal executive officer and principal
financial  officer,  the  Company  conducted  an  evaluation  of  its disclosure
controls  and  procedures,  as  such  term  is  defined  under  Rule  13a-14(c)
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"),  within  90  days  of  the  filing  date  of  this report. Based on their
evaluation,  our  principal  executive  officer  and principal financial officer
concluded  that  our  disclosure  controls  and  procedures  are  effective.

(b)  The  Company  has evaluated its accounting procedures and control processes
related  to  material  transactions  to  ensure  they  are  recorded  timely and
accurately  in the financial statements.  There have been no significant changes
in  the Company's internal controls or in other factors that could significantly
affect  these  controls  subsequent  to the date of the evaluation referenced in
paragraph  (a)  above.

                                       33
<PAGE>

                           PART II - OTHER INFORMATION
                           ---------------------------

ITEM  1.  LEGAL  PROCEEDINGS

Not  Applicable

ITEM  2.  CHANGES  IN  SECURITIES  AND  USE  OF  PROCEEDS

Not  Applicable

ITEM  3.  DEFAULTS  UPON  SENIOR  SECURITIES

Not  Applicable

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

Not  Applicable

ITEM  5.  OTHER  INFORMATION

On  November  29,  2001,  we  entered into an agreement with DCDC to acquire all
issued  and  outstanding  shares  of  capital  stock  of Keynomics, a California
corporation  wholly owned and controlled by DCDC. The transaction was originally
accounted  for  as a transfer between entities under common control. However, in
consideration of further interpretive guidance, we have revised our treatment of
this  transaction  to  account  for  it using the purchase method of accounting.
This  change  in  accounting  treatment  has  been  reflected  in  our financial
statements  as  of  November  29, 2001. As a result of this modification, we are
required to file the audited financial statements of Keynomics on Form 8-K.  The
company  will  file  the  appropriate documents on Form 8-K as soon as possible.

ITEM  6.  EXHIBITS  AND  REPORTS  ON  FORM  8-K

Exhibits

DOCUMENTS  INCORPORATED  BY REFERENCE (as originally filed with the Security and
Exchange  Commission  on  February  14, 2002 on our original Form 10-QSB for the
interim  period  ended  December  31,  2001):

     *    Keynomics  Stock  Purchase  Agreement
     *    Broderbund  Termination  Agreement
     *    Broderbund  Assignment  of  Copyrights  and  Trademark  Rights
     *    Human  Concepts  Agreement  for  Assignment  of  Software
     *    Human  Concepts  Software  License  and  Distribution  Agreement

                                       34
<PAGE>

The  following  documents  are  filed  as  a  part  of  this  Report:


Exhibit                                                                     Page
Number  Exhibit Title

99.1    Certification of Chief Executive Officer -Internal controls
99.2    Certification of Chief Financial Officer -Internal controls
99.3    Certification of Chief Executive Officer Pursuant to Section 906, of
        the Sarbanes-Oxley Act of 2002
99.4    Certification of Chief Financial Officer Pursuant to Section 906 of
        the Sarbanes-Oxley Act of 2002


Reports  on  Form  8-K

None


                                   SIGNATURES
                                   ----------

Pursuant  to  the  requirements  of  the  Securities  Exchange  Act of 1934, the
Registrant  has  duly  caused  this  report  to  be  signed on its behalf by the
undersigned  thereunto  duly  authorized.

Date:  December  27,  2002     INTERNATIONAL  MICROCOMPUTER  SOFTWARE,  INC.


By:  /s/  Martin  Wade,  III
Martin  Wade,  III
Director  &  Chief  Executive  Officer


By:  /s/  William  J.  Bush
William  J.  Bush
Chief  Financial  Officer  (Principal  Accounting  Officer)


                                       35

<PAGE>