<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997
or
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file No. 0-12641
[LOGO]
IMAGING TECHNOLOGIES CORPORATION
(Exact name of small business issuer as specified in its charter)
DELAWARE 33-0021693
(State or other jurisdiction (IRS Employer ID No.)
of incorporation or organization)
11031 VIA FRONTERA
SAN DIEGO, CALIFORNIA 92127
(Address of principal executive offices)
Issuer's Telephone Number, Including Area Code: (619) 613-1300
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class: Common Stock, $0.005 par
--------------------------------
Outstanding at February 13, 1998: 11,243,483 Shares
---------------------------------------------------
Transitional Small Business Disclosure Format (Check one):
Yes / / No /X/
<PAGE>
IMAGING TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
<CAPTION>
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INDEX
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PAGE
NO.
<S> <C>
Part I. Financial Information:
Consolidated Condensed Balance Sheet, December 31, 1997 1
Consolidated Condensed Statement of Operations
Three Months ended December 31, 1997 and 1996 2
Consolidated Condensed Statement of Operations
Six Months ended December 31, 1997 and 1996 3
Consolidated Condensed Statement of Cash Flows
Six Months ended December 31, 1997 and 1996 4
Notes to Consolidated Condensed Financial Statements 5
Management's Discussion and Analysis or Plan of Operations 6
Part II. Other Information 11
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</TABLE>
<PAGE>
IMAGING TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
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ASSETS
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<S> <C>
Current assets:
Cash $ 3,103,000
Accounts receivable, net 11,579,000
Inventories 3,139,000
Other current assets 1,184,000
-------------
Total current assets 19,005,000
Capitalized software, net 1,628,000
Prepaid licenses, net 1,021,000
Property and equipment, net 1,523,000
Goodwill 382,000
Other 299,000
-------------
$ 23,858,000
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-------------
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LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 2,764,000
Accrued expenses 1,001,000
Deferred revenues 98,000
Notes payable and capital leases 3,228,000
-------------
Total current liabilities 7,091,000
Long-term note payable 103,000
-------------
Total liabilities 7,194,000
-------------
Shareholders' equity:
5% convertible preferred stock
$1,000 PAR VALUE, 7,500 SHARES AUTHORIZED,
420.5 ISSUED AND OUTSTANDING 420,000
Series C redeemable convertible preferred stock
$1,000 PAR VALUE, $10,000 LIQUIDATION VALUE, 1,200
SHARES AUTHORIZED, 490 ISSUED AND OUTSTANDING 4,900,000
Preferred stock
$1,000 PAR VALUE, 1,183 AUTHORIZED,
NO SHARES ISSUED AND OUTSTANDING
Common stock
$.005 PAR VALUE, 100,000,000 SHARES AUTHORIZED,
11,146,835 SHARES ISSUED AND OUTSTANDING 50,000
Paid-in capital 33,405,000
Shareholder loans (135,000)
Accumulated deficit (21,976,000)
-------------
Total shareholders' equity 16,664,000
-------------
$ 23,858,000
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-------------
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</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
1
<PAGE>
IMAGING TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
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THREE MONTHS ENDED DECEMBER 31,
1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Sales of products $ 8,219,000 $ 6,108,000
Engineering fees 1,531,000 1,396,000
Royalties 10,000
------------ ------------
9,750,000 7,514,000
------------ ------------
Costs and expenses:
Cost of products sold 5,913,000 3,796,000
Selling, general and administrative 2,169,000 2,756,000
Cost of engineering fees and research and
development 572,000 697,000
------------ ------------
8,654,000 7,249,000
------------ ------------
Income from operations 1,096,000 265,000
Other income (expense):
Interest, net (16,000) (15,000)
Other 49,000
------------ ------------
(16,000) 34,000
------------ ------------
Net income before provision for income taxes 1,080,000 299,000
Provision for taxes 6,000
------------ ------------
Net income $ 1,080,000 $ 293,000
------------ ------------
------------ ------------
Primary and fully diluted income
per common share $ 0.08 $ 0.03
------------ ------------
------------ ------------
Average shares outstanding 13,561,000 8,962,000
------------ ------------
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</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
2
<PAGE>
IMAGING TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
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SIX MONTHS ENDED DECEMBER 31,
1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Sales of products $ 14,497,000 $ 12,396,000
Engineering fees 3,047,000 2,714,000
Royalties 285,000
------------ ------------
17,544,000 15,395,000
------------ ------------
Costs and expenses:
Cost of products sold 10,186,000 7,872,000
Selling, general and administrative 4,293,000 6,107,000
Cost of engineering fees and research and
development 1,169,000 1,453,000
Purchased research and development 780,000
------------ ------------
15,648,000 16,212,000
------------ ------------
Income (loss) from operations 1,896,000 (817,000)
Other income (expense):
Interest, net (42,000) (11,000)
Other (2,000) 28,000
------------ ------------
(44,000) 17,000
------------ ------------
Net income (loss) before provision for
income taxes 1,852,000 (800,000)
Provision for taxes 4,000 9,000
------------ ------------
Net income (loss) $ 1,848,000 $ (809,000)
------------ ------------
------------ ------------
Primary and fully diluted income (loss)
per common share $ 0.14 $ (0.10)
------------ ------------
------------ ------------
Average shares outstanding 13,412,000 9,069,000
------------ ------------
------------ ------------
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</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
3
<PAGE>
IMAGING TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
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SIX MONTHS ENDED DECEMBER 31,
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,848,000 $ (809,000)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO CASH USED
BY OPERATING ACTIVITIES:
Depreciation and amortization of property and equipment 298,000 628,000
Purchased research and development 780,000
Changes in assets and liabilities:
Accounts receivable (3,028,000) (1,794,000)
Inventories (497,000) 12,000
Other current assets (659,000) (403,000)
Accounts payable and accrued expenses 149,000 (798,000)
Deferred revenues (258,000) (178,000)
------------ -----------
NET CASH USED BY OPERATING ACTIVITIES (2,147,000) (2,562,000)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Prepaid licenses and royalties (323,000) (179,000)
Capitalized software development costs (1,079,000) (151,000)
Purchase of net assets by NewGen Systems Corporation (86,000)
Proceeds from certificate of deposit 50,000
Capital expenditures (104,000) (550,000)
------------ -----------
NET CASH USED BY INVESTING ACTIVITIES (1,506,000) (916,000)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of preferred stock 5,000,000
Net proceeds from exercise of stock options and warrants 581,000 176,000
Net increase line-of-credit 1,234,000 324,000
Principal payments under capital lease obligations (5,000) (13,000)
Proceeds from long term debt 96,000
Proceeds from shareholder loans 12,000
Capital contributions - NewGen 1,002,000
Repayment of notes payable (321,000) (10,000)
------------ -----------
NET CASH USED BY FINANCING ACTIVITIES 6,501,000 1,575,000
------------ -----------
Net increase (decrease) in cash 2,848,000 (1,903,000)
Cash at the beginning of the period 255,000 4,394,000
------------ -----------
Cash at the end of the period $ 3,103,000 $ 2,491,000
------------ -----------
------------ -----------
NON-CASH FINANCING ACTIVITIES:
Conversion of preferred stock into common stock $ 100,000 $ 1,371,000
------------ -----------
------------ -----------
Options exercised with loans $ 8,000 $ 22,000
------------ -----------
------------ -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 110,000 $ 87,000
------------ -----------
------------ -----------
Cash paid during the period for income taxes $ 9,000
------------ -----------
------------ -----------
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</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
4
<PAGE>
IMAGING TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - PRINCIPLES OF CONSOLIDATION
The accompanying consolidated condensed financial statements of Imaging
Technologies Corporation and Subsidiaries (the "Company" or "ITEC") have not
been audited. These financial statements reflect all adjustments (consisting
only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position,
results of operations and cash flows for the periods presented. These
financial statements should be read in conjunction with the Company's audited
financial statements which are included in the Company's annual report on
Form 10-KSB for the year ended June 30, 1997 and the Company's Form 10-QSB
for the quarter ended September 30, 1997 filed with the Securities and
Exchange Commission. Interim operating results are not necessarily indicative
of operating results for the full year.
NOTE 2 - INVENTORIES
Inventories at December 31, 1997 consisted of the following:
<TABLE>
<S> <C>
Raw materials and supplies $ 970,000
Work in process 82,000
Finished goods 2,087,000
----------
$3,139,000
----------
----------
</TABLE>
NOTE 3 - MERGERS AND ACQUISITIONS
ACQUISITION OF MCMICAN CORPORATION
Effective November 24, 1997, the Company purchased the total outstanding
shares of the privately-held McMican Corporation, doing business as New Media
Memory ("NMM") for 200,000 shares of ITEC common stock. The new operation
will be called the Digital Storage Products Division of Imaging Technologies
Corporation, producing specialized memory modules for handheld personal
computers, digital cameras, and printers.
The transaction was accounted for as a purchase; accordingly, the results of
NMM's operations have been included in consolidated operations from the date
of acquisition. The following are the unaudited pro forma results of
operations of the Company as though NMM was acquired on July 1, 1997.
<TABLE>
<CAPTION>
Quarter ended December 31, Six months ended December 31,
-------------------------- -----------------------------
1997 1996 1997 1996
----------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues $10,570,000 $7,981,000 $19,712,000 $16,754,000
Net income (loss) 1,140,000 252,000 2,035,000 (754,000)
Primary income (loss)
per common share $ .08 $ .02 $ .15 $ (.09)
</TABLE>
The fair value of the net assets acquired were $1,110,000 and the liabilities
assumed were $652,000. In conjunction with the acquisition, the Company
recorded goodwill of approximately $309,000.
MERGER OF COLOR SOLUTIONS, INC.
Effective November 30, 1997, Color Solutions, Inc. ("CSI") was merged into a
newly created, wholly-owned subsidiary of the Company. Under the terms of the
Merger Agreement, 850,000 unregistered shares of ITEC's common stock were
exchanged for all of the outstanding shares of CSI. On November 30, 1997, CSI
began operating as a wholly-owned subsidiary of the Company.
As a result of the merger, which is being accounted for as a pooling of
interests, the consolidated results of operations for the six months ended
December 31, 1997 and 1996 include pre-merger net sales of $610,000 and
$676,000, and net losses after taxes of $48,000 and $117,000, respectively.
5
<PAGE>
IMAGING TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
RESULTS OF OPERATIONS
This Form 10-QSB contains both historical and forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended, which
reflect the Company's current judgment on those issues. While management is
optimistic about the Company's long-term prospects, the historical financial
information contained herein may not be indicative of future financial
performance. In fact, future financial performance may be materially
different from the historical financial performance. Because such statements
apply to future events, they are subject to risks and uncertainties that
could cause the actual results to differ materially. Important factors which
could cause actual results to differ materially include, but are not limited
to: business conditions and growth in the electronics industry and general
economy - both domestic and international; lower than expected customer
orders; competitive factors, including pricing pressures, technological
developments and products offered by competitors; availability of components;
technological difficulties and resource constraints encountered in developing
new products; and the timely flow of competitive new products and market
acceptance of those products. Actual results may differ materially from these
statements as a result of risk factors inherent in the Company's business,
industry, customer base, or other factors. Risk factors which are applicable
to the Company may be found in the Company's various filing with the
Securities and Exchange Commission.
Users of this Form 10-QSB are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date thereof. The
Company undertakes no obligation to publicly release updates or revisions to
these statements.
RESULTS OF OPERATIONS
The Company has been in a transition period, from older technology and
products, to becoming a leading technology-based supplier of state-of-the-art
printer controllers to OEM customers. The implementation of the strategy of
the development of the new Adobe-Registered Trademark- PostScript-Registered
Trademark- Interpreter (APSI) project, which includes the Company's color
ColorImage-TM- Series controller implementation of Adobe PostScript software
for OEM customers, and its monochrome LaserImage-TM- Series controllers which
may also include HP-based (PCL) multi-function technology continues to show
promising results.
The Company has been successful in attracting several major customers, with
substantial resources and marketing capabilities, that desire to utilize the
Company's technologies which have been developed over the past few years.
Several customers have executed contracts over the past few years to adapt
Adobe PostScript software and/or the Company's software products to
controllers that will be integrated with the printer engines of various OEM
customers. These customers include or have included, but are not limited to,
Integrated Device Technology, Inc., Matsushita Electric Company, Ltd.
(Panasonic), Minolta Company, Ltd., NEC Electronics, Inc., Canon USA, Inc.,
Apple Computer, Mita Digital Design and Xerox Corporation.
6
<PAGE>
ITEC's strategy has required the Company to alter its focus away from some of
its traditional revenue sources and to make expenditures in support of these
efforts. As a result, the Company's business continues to be in a significant
transitional phase and there are important short-term operational and
liquidity challenges. Accordingly, year-to-year financial comparisons may be
of limited usefulness now and for the next several quarters due to these
important changes in the Company's business.
Effective February 14, 1997, the Company consummated its merger with NewGen
Imaging Systems, formerly NewGen Systems Acquisition Corporation ("NewGen").
Accordingly, the consolidated results of operations for the six months ended
December 31, 1996 include pre-merger net sales of $7,190,000 and a net loss
after taxes of $1,551,000.
Effective November 24, 1997, the Company consummated its acquisition of
McMican Corporation, doing business as New Media Memory ("NMM"). Accordingly,
the consolidated results of operations include NMM net sales of $370,000 and
income of $19,000 from the date of acquisition.
Effective November 30, 1997, the Company consummated its merger with Color
Solutions, Inc. ("CSI"). Accordingly, the consolidated results of operations
for the six months ended December 31, 1997 and 1996 include pre-merger net
sales of $610,000 and $676,000, and net losses after taxes of $48,000 and
$117,000, respectively.
Total ITEC revenues were $9,750,000 for the quarter ended December 31, 1997
versus $7,514,000 for the quarter ended December 31, 1996. The Company,
through its PCPI Technologies subsidiary, recognized non-recurring
engineering fees ("NRE") to adapt the Company's software products to
controllers of its OEM customers and of other related software of
approximately $1,531,000 for the quarter ended December 31, 1997 compared to
$1,396,000 for the quarter ended December 31, 1996, an increase of 10%. The
Company had net income of $1,080,000 for the quarter ended December 31, 1997
compared to net income of $293,000 for the quarter ended December 31, 1996,
an increase of 269%.
Total ITEC revenues were $17,544,000 for the six months ended December 31,
1997 versus $15,395,000 for the six months ended December 31, 1996. The
Company, through its PCPI Technologies subsidiary, recognized non-recurring
engineering fees ("NRE") to adapt the Company's software products to
controllers of its OEM customers and of other related software of
approximately $3,047,000 for the six months ended December 31, 1997 compared
to $2,714,000 for the six months ended December 31, 1996, an increase of 12%.
The Company had net income of $1,848,000 for the six months ended December
31, 1997 compared to a net loss of $809,000 for the six months ended December
31, 1996.
REVENUES
SALES OF PRODUCTS were $8,219,000 for the quarter ended December 31, 1997
versus $6,108,000 for the quarter ended December 31, 1996, an increase of
35%. For the six months ended December 31, 1997 sales of products were
$14,497,000 compared to $12,396,000 for the six months ended December 31,
1996, an increase of 17%. The Company's sales of products were derived
primarily from ITEC's wholly-owned subsidiaries Prima International
("Prima"), NewGen Imaging Systems ("NewGen"), Color Solutions ("CSI") and New
Media Memory ("NMM").
Sales of product through Prima for the quarters ended December 31, 1997 and
1996 and were $2,869,000 and $2,398,000, respectively. Such sales for the
six months ended
7
<PAGE>
December 31, 1997 and 1996 were $5,245,000 and $4,530,000, respectively. The
majority of Prima's sales were from distribution of PCMCIA-based memory
storage products. The increases in product sales during the quarter and six
months ended December 31, 1997 are attributed to an increase in Prima's
distribution sales of PCMCIA-based memory products from SanDisk Corporation
and Integral Peripherals, Inc.
Sales of product through NewGen for the quarter ended December 31, 1997 were
$4,205,000 compared to $3,429,000 for the quarter ended December 31, 1996.
Such sales for the six months ended December 31, 1997 and 1996 were
$7,420,000 and $7,190,000, respectively. The increase in these sales is the
result of a product transition from certain "older technology-based" products
which have been phased out. NewGen's sales of products are derived from high
resolution imaging and color digital proofing products, which in some cases
have been designed by NewGen or to NewGen's specifications, to customers in
the printing and graphic arts industry throughout the world.
The Company has been transitioning from older technology and products, to new
technology-based printer controller products over the past few years. It is
anticipated that certain of these new technology-based products being
developed by PCPI can be distributed into NewGen's customer base.
Sales of product through CSI for the quarter ended December 31, 1997 were
$958,000 compared to $281,000 for the quarter ended December 31, 1996. Such
sales for the six months ended December 31, 1997 and 1996 were $1,569,000 and
$676,000, respectively. The increase in these sales is the result of the
transition of CSI from the product development stage of their business to a
product being sold in the market place.
ENGINEERING FEES during the quarters ended December 31, 1997 and 1996 were
derived through the Company's PCPI Technologies subsidiary performing work on
engineering projects that were funded by OEM customers under non-recurring
engineering contracts. NRE revenue for the quarter ended December 31, 1997
and 1996 was $1,531,000 and $1,396,000, respectively, which was recognized
during the course of development based on the percentage of completion
method. Such revenues for the six months ended December 31, 1997 and 1996
were $3,047,000 and $2,714,000, respectively.
ROYALTIES through the Company's PCPI Technologies subsidiary for the quarter
and six month periods ended December 31, 1996 were $10,000 and $285,000 and
were derived primarily from "older-technology" based products. During the
quarter and six month periods ended December 31, 1997, no such revenues were
recognized. In the past, license fees and royalty revenue have shown
significant period-to-period fluctuations which may continue in future
periods. PCPI Technologies has submitted several proposals to prospective
customers in order to develop Adobe PostScript-based controllers and other
controllers based upon its ImageBase-TM-technology. While PCPI Technologies
has entered into some contracts with OEM customers for controller
development, there can be no assurance that additional contracts will be
obtained for the development of such controllers, or that the existing
contracts will be completed, or that products will be shipped by the customer
which may result in the generation of future royalties and license revenues
or that these products, once generating royalties, will continue to do so.
COST OF PRODUCTS SOLD
Cost of products sold for the quarter ended December 31, 1997 and 1996 were
$5,913,000 and $3,796,000, respectively, representing gross margins of 28%
and 38%. Cost of products sold for the six months ended December 31, 1997 and
1996 were $10,186,000 and $7,872,000, respectively, representing gross
margins of 30% and 36%.
8
<PAGE>
The decrease in the gross margin percentage is attributed to a change in the
product mix between the periods.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for the quarter ended December
31, 1997 were $2,169,000 versus $2,756,000 for the quarter ended December 31,
1996. Selling, general and administrative expenses for the six months ended
December 31, 1997 were $4,293,000 versus $6,107,000 for the six months ended
December 31, 1996. The decrease is primarily the result of the Company's
concerted effort to reduce the general and administrative expenses of the
Company over the past year through the consolidation of various
administrative functions. These decreases are partially offset by increased
selling expenses in an attempt to stimulate technology and product sales.
COST OF ENGINEERING FEES AND RESEARCH AND DEVELOPMENT
Cost of engineering fees and research and development for the quarter ended
December 31, 1997 was $572,000 versus $697,000 for the quarter ended December
31, 1996, representing technology sales gross margins of 63% and 50%. Cost of
engineering fees and research and development for the six months ended
December 31, 1997 was $1,169,000 versus $1,453,000 for the six months ended
December 31, 1996, representing technology sales gross margins of 62% and
46%. These expenditures consist of engineering expenses associated with the
development of controller technologies and designs for PCPI technology
customers. A significant component of the decreased cost of engineering fees
and research and development is attributed to reduced hardware production
costs during the quarters and a reduction in the amount of outside
consultants being used by PCPI Technologies.
During the quarter and six month periods ended December 31, 1997, the Company
capitalized certain qualified costs in the aggregate amount of $569,000 and
$1,079,000, respectively, pursuant to Financial Accounting Standard No. 86
("Accounting for Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed").
The consolidated statement of operations for the six month period ended
December 31, 1996, includes approximately $780,000 of purchased research and
development costs associated with the July 1996 purchase of the rights to
certain products lines under development by NewGen.
Over the past year, PCPI Technologies has noticed an increase in the demand
for qualified engineers in the local market. As a result of this increased
demand, the cost of hiring and maintaining engineers could continue to
increase and PCPI Technologies could experience difficulty in obtaining these
resources in the future. Should the local market not be able to supply the
required engineering talent, the Company may be required to hire individuals
from outside the market or consider establishing an engineering division in
an area of the country that could more readily support PCPI Technologies
engineering requirements.
OTHER INCOME AND LOSS
Net interest expense was $16,000 for the quarter ended December 31, 1997
compared to $15,000 for the quarter ended December 31, 1996. Net interest
expense for the six months ended December 31, 1997 and 1996 was $42,000 and
$11,000, respectively. The increase is associated with an increase in the
usage of the Company's line of credit facilities which was partially offset
by reductions in the outstanding debt at ITEC and
9
<PAGE>
interest income associated with the increased cash invested during the
quarterly and six month periods.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had working capital of $11,914,000 compared
to working capital of $5,203,000 as of June 30, 1997. The increase is
primarily attributed to the continued improvement of the Company's operations
and the initial $5,000,000 closing of the C Redeemable Convertible Preferred
Stock ("Series C Shares"). Under the terms of the Series C private placement,
subject to certain additional conditions, the Company has the right to call
for a second round of financing up to an aggregate amount of $5,000,000 and
the holders of the Series C Shares, subject to certain conditions, are
entitled to purchase additional Series C Shares up to $2,000,000. In
addition, the Company closed a $3,000,000 line of credit facility with a
commercial bank to help to finance the sales growth of PCPI Technologies and
Prima.
The Company's Adobe co-development projects present continuing liquidity
problems for PCPI Technologies because, in the short-term, these activities
are net users of working capital. Although the Company has improved its
liquidity, adequate working capital is necessary to continue the Company's
operations, develop its technology licensing business and to deliver the
resulting products to contract customers in an efficient and timely manner.
The increasing sales at Prima, New Media Memory and NewGen place additional
pressures on ITEC's working capital. In addition, as noted above, while the
Company has entered into several contracts with OEM customers for controller
development, there can be no assurance that additional contracts will be
obtained for the development of such controllers, or that the existing
contracts will be completed, or that products will be shipped by the customer
that will generate future royalty and license revenues or that once these
products are being shipped by the Company's customers that they will continue
to generate royalties.
The Company's 5% convertible preferred stock (which ranks prior to the
Company's common stock), carries cumulative dividends, when and as declared,
at an annual rate of $50.00 per share. The aggregate amount of such dividends
in arrears at December 31, 1997 was approximately $486,000.
As of December 31, 1997, the Company's wholly-owned subsidiary NewGen had
$525,000 of available borrowings under its special purpose line of credit and
ITEC had $1,534,000 of available borrowings under its special purpose line of
credit.
ITEC has no material commitments for capital expenditures.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No reportable matter.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11.1 Computation of Earnings (loss) Per Common Share
(b) Reports on Form 8-K:
None
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
IMAGING TECHNOLOGIES CORPORATION
BY: HARRY J. SAAL
--------------------------------------
DATE: February 14, 1998 Harry J. Saal
CHAIRMAN OF THE BOARD
BY: EDWARD W. SAVARESE
--------------------------------------
DATE: February 14, 1998 Edward W. Savarese
VICE CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER
BY: RALPH R. BARRY
--------------------------------------
DATE February 14, 1998 Ralph R. Barry
VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
12
<PAGE>
EXHIBIT 11.1 - COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
QUARTER ENDED DECEMBER 31,
--------------------------------
1997 1996
------------ -----------
<S> <C> <C>
PRIMARY INCOME PER COMMON SHARE:
Net income applicable to common shareholders $ 1,070,000 $ 235,000
------------ -----------
------------ -----------
Weighted average number of shares outstanding
Common stock 10,430,000 6,872,000
5% convertible preferred stock 24,000 54,000
5% Series B convertible preferred stock 221,000
Series C preferred stock 1,243,000
Common stock purchase options and warrants 2,680,000 2,848,000
Convertible notes 64,000
Assumed repurchase of common stock (880,000) (1,033,000)
------------ -----------
Weighted average number of shares outstanding 13,561,000 8,962,000
------------ -----------
------------ -----------
Primary income per common share $ 0.08 $ 0.03
------------ -----------
------------ -----------
<CAPTION>
SIX MONTHS ENDED DECEMBER 31,
--------------------------------
1997 1996
------------ -----------
<S> <C> <C>
FULLY DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Net income (loss) applicable to common shareholders $ 1,838,000 $ (867,000)
------------ -----------
------------ -----------
Weighted average number of shares outstanding
Common stock 10,111,000 6,830,000
5% convertible preferred stock 24,000 54,000
5% Series B convertible preferred stock 221,000
Series C preferred stock 1,243,000
Common stock purchase options and warrants 2,670,000 2,848,000
Convertible notes 64,000
Assumed repurchase of common stock (700,000) (884,000)
------------ -----------
Weighted average number of shares outstanding 13,412,000 9,069,000
------------ -----------
------------ -----------
Primary income (loss) per common share $ 0.14 $ (0.10)
------------ -----------
------------ -----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,103
<SECURITIES> 0
<RECEIVABLES> 12,194
<ALLOWANCES> 615
<INVENTORY> 3,139
<CURRENT-ASSETS> 19,005
<PP&E> 2,793
<DEPRECIATION> 1,270
<TOTAL-ASSETS> 19,923
<CURRENT-LIABILITIES> 7,091
<BONDS> 0
0
5,320
<COMMON> 49
<OTHER-SE> 11,294
<TOTAL-LIABILITY-AND-EQUITY> 19,923
<SALES> 14,497
<TOTAL-REVENUES> 17,544
<CGS> 10,186
<TOTAL-COSTS> 11,355
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (133)
<INTEREST-EXPENSE> 100
<INCOME-PRETAX> 1,852
<INCOME-TAX> 4
<INCOME-CONTINUING> 1,848
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,848
<EPS-PRIMARY> 0.140
<EPS-DILUTED> 0.140
</TABLE>
