SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
or
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file No. 0-12641
[GRAPHIC OMITTED]
IMAGING TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 33-0021693
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
15175 INNOVATION DRIVE
SAN DIEGO, CALIFORNIA 92128
(Address of principal executive offices)
Registrant's Telephone Number, Including Area Code: (619) 613-1300
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the 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 |_|
The number of shares outstanding of the registrant's common stock as of November
10, 1999, was 49,221,823
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PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
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Consolidated Balance Sheets
September 30, 1999 (unaudited) and June 30, 1999 (audited) 2
Consolidated Statements of Operations
Three months ended September 30, 1999 and 1998 (unaudited) 3
Consolidated Statements of Cash Flows
Three months ended September 30, 1999 and 1998 (unaudited) 4
Notes to Consolidated Financial Statements. 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 6
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 17
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 17
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18
ITEM 5. OTHER INFORMATION 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURES 20
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PART I. - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
SEPT. 30, JUNE 30,
1999 1999
Current assets
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Cash $ 6 $ 75
Accounts receivable 1,413 1,959
Inventories 439 552
Prepaid expenses and other 366 577
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Total current assets 2,224 3,163
Property and equipment, net 927 986
Capitalized software, net 2,853 2,851
Other 223 250
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$ 6,227 $ 7,250
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Borrowings under bank note payable $ 7,518 $ 6,469
Short-term debt 3,960 5,010
Current portion of long-term debt - -
Accounts payable 5,400 5,532
Accrued expenses 2,421 2,671
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Total current liabilities 19,299 19,682
Long-term debt, less current portion - -
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Total liabilities 19,299 19,682
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Stockholders' equity (deficit)
Series A preferred stock, $1,000 par value, 7,500 shares
authorized, 420.5 shares issued and outstanding 420 420
Series C preferred stock, $1,000 par value, 1,200 shares
authorized, 236 shares issued and outstanding - -
Series D preferred stock, $2,000 stated value, 1,200
shares authorized, 930 shares issued and outstanding 1,860 1,800
Series E preferred stock, $5,000 stated value, 1,250
shares authorized, 459 shares issued and outstanding 2,295 4,655
Common stock, $0.005 par value, 100,000,000 shares
Authorized; 41,942,860 shares issued and outstanding 217 110
Paid-in capital 45,182 39,804
Shareholder loans (105) (105)
Accumulated deficit (62,941) (59,116)
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Total shareholders' equity (deficit) (13,072) (12,432)
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$ 6,227 $ 7,250
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See Notes to Consolidated Financial Statements.
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IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
1999 1998
Revenues
<S> <C> <C>
Sales of products $ 940 $ 6,721
Engineering fees 25 395
Licenses and royalties 88 163
------------ -----------
1,053 7,279
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Costs and expenses
Cost of products sold 693 4,047
Selling, general, and administrative 3,378 3,640
Cost of engineering fees, research, and development 649 585
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4,720 8,272
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Income (loss) from operations (3,667) (993)
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Other income (expense):
Interest, net (138) (208)
Other (20) -
------------ -----------
(158) (1,201)
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Income (loss) before income taxes (3,825) (1,205)
Net income (loss) $ (3,825) $ (1,205)
============= ===========
Earnings (loss) per common share
Basic $ (0.12) $ (0.10)
============== =============
Diluted $ (0.12) $ (0.10)
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Weighted average common shares 30,889 12,642
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Weighted average common shares - assuming dilution 30,889 12,642
============= =============
See Notes to Consolidated Financial Statements.
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IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
1999 1998
Cash flows from operating activities
<S> <C> <C>
Net income (loss) $ (3,825) $ (1,205)
Adjustments to reconcile net income (loss) to
net
cash from operating activities
Non-cash special charges
Depreciation and amortization 59 160
Amortization of capitalized software 356 -
Stock issued for services 326 -
Changes in operating assets and liabilities
Accounts receivable 546 (1,665)
Inventories 140 1,181
Prepaid expenses and other 211 (415)
Accounts payable and accrued expenses 543 (378)
Deferred revenue - -
----------- -----------
Net cash from operating activities (1,644) (2,322)
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Cash flows from investing activities
Prepaid licenses - -
Capitalized software (358) (881)
Capital expenditures - (71)
Other - -
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Net cash from investing activities (358) (952)
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Cash flows from financing activities
Net borrowings under bank lines of credit 1,049 (1,041)
Net borrowings under short-term notes payable - 2,752
Net proceeds from issuance of common stock 884 1,250
Net proceeds from issuance of preferred stock - -
Redemption of preferred stock - (2,228)
Issuance of long-term debt - 675
Repayment of long-term debt - (137)
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Net cash from financing activities 1,933 1,271
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Net increase (decrease) in cash (69) (2,003)
Cash, beginning of period 75 3,023
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Cash, end of period $ 6 $ 1,020
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Supplemental disclosure of cash flow information $ 192 $ 130
Cash paid during the period for interest - 4
Cash paid during the period for income taxes
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See Notes to Consolidated Financial Statements.
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IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements of
Imaging Technologies Corporation and Subsidiaries (the "Company" or "ITEC") have
been prepared pursuant to the rules of the Securities and Exchange Commission
(the "SEC") for quarterly reports on Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. These financial statements and notes herein are Unaudited, but in
the opinion of management, include all the adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the Company's
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 and notes thereto for the years ended
June 30, 1999, 1998, and 1997 included in the Company's annual report on Form
10-K filed with the SEC. Interim operating results are not necessarily
indicative of operating results for any future interim period or for the full
year.
NOTE 2. GOING CONCERN CONSIDERATIONS
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. At September 30, 1999, and for the
three months then ended, the Company had a net loss, negative working capital,
and a decline in net worth which raise substantial doubt about its ability to
continue as a going concern. The Company's losses have resulted primarily from
an inability to achieve product sales targets due to insufficient working
capital, a sharp decline in contract revenue, and relatively high operating
costs in relation to current sales levels. The Company is taking a new strategic
direction whereby it will manufacture imaging products under its own name.
ITEC's ability to continue operations will depend on positive cash flow, if any,
from future operations and on the Company's ability to raise additional funds
through equity or debt financing. The Company could be required to cut back or
stop operations if it is unable to raise or obtain needed funding. On August 20,
1999, at the request of Imperial Bank, the primary lender to the Company, the
Court appointed an operational receiver for the Company. On August 23, 1999, the
operational receiver took control of the day-to-day operations of the Company.
To date, through further equity infusion into the Company, primarily in the form
of the exercise of warrants to purchase the common stock of the Company,
operations have continued. Without additional funding, sufficient to satisfy
Imperial Bank and the other creditors of the Company, as well as providing
working capital for the Company, there can be no assurances that such operations
can continue. The Company continues to actively work with entities capable of
providing such funding. Management has continued to implement its restructuring
plan including reductions of personnel, consolidation of facilities, disposal of
subsidiaries, and the elimination of product lines. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
NOTE 3. EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share ("Basic EPS") excludes dilution and is
computed by dividing net income (loss) available to common shareholders (the
"numerator") by the weighted average number of common shares outstanding (the
"denominator") during the period. Diluted earnings (loss) per common share
("Diluted EPS") is similar to the computation of Basic EPS except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if the dilutive potential common shares had been
issued. In addition, in computing the dilutive effect of convertible securities,
the numerator is adjusted to add back the after-tax amount of interest
recognized in the period associated with any convertible debt. The computation
of Diluted EPS does not assume exercise or conversion of securities that would
have an antidilutive effect on net earnings (loss) per share. The following is a
reconciliation of Basic EPS to Diluted EPS:
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EARNINGS (LOSS) SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
SEPTEMBER 30, 1998
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Net loss $(1,205)
Preferred dividends (6)
-------
Basic and diluted EPS $(1,211) 12,642 $(0.10)
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SEPTEMBER 30, 1999
Net loss $(3,825)
Preferred dividends (6)
-------
Basic and diluted EPS $(3,831) 33,889 $(0.12)
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NOTE 4. INVENTORIES
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SEPTEMBER 30, JUNE 30,
1999 1999
Inventories
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Materials and supplies $ 40 $ 50
Finished goods 399 502
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$ 439 $ 552
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NOTE 5. BANK LINES OF CREDIT; LONG-TERM DEBT
The Company is in default under its credit agreements with Imperial Bank. The
bank is demanding immediate payment of all outstanding loan balances, including
the term loan which has been reclassified as a current liability. Borrowings
bear interest at the bank's prime interest rate plus 0.75% plus 5% penalty
default interest and are collateralized by substantially all assets of the
Company.
The Company is in default on its long-term debt obligations and, accordingly,
all outstanding balances have been classified as current obligations.
NOTE 6. SERIES D AND E WARRANTS
On October 1, 1999, the Company requested a reduction in the exercise of the
Series D and E Warrants for a limited period of time in an effort to induce such
exercise by the holders of Series D and E Warrants at the reduced exercise price
and, as a result, the Company would receive additional capital from the proceeds
of such exercise.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto appearing elsewhere in
this Quarterly Report on Form 10-Q. The discussion of the Company's business
contained in this Quarterly Report on Form 10-Q may contain certain projections,
estimates and other forward-looking statements that involve a number of risks
and uncertainties, including those discussed below at "Risks and Uncertainties."
While this outlook represents management's current judgment on the future
direction of the business, such risks and uncertainties could cause actual
results to differ materially from any future performance suggested below. The
Company undertakes no obligation to release publicly the results of any
revisions to these forward-looking statements to reflect events or circumstances
arising after the date hereof.
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OVERVIEW
Imaging Technologies Corporation develops, manufactures, and distributes
high-quality digital imaging solutions. The Company produces a wide range of
printer and imaging products for use in graphics and publishing, digital
photography and other niche business and technical markets. Beginning with a
core technology in the design and development of controllers for non-impact
printers and multifunction peripherals, the Company has expanded its product
offerings to include monochrome and color printers, external print servers,
digital image storage devices, and software to improve the accuracy of color
reproduction.
ITEC has made several strategic acquisitions during the past two years that
have expanded the Company's strategic position in the digital imaging market.
The Company's business continues to be in a significant transitional phase and
there are important short-term operational and liquidity challenges.
Accordingly, quarter-to-quarter financial comparisons may be of limited
usefulness now and for the next several quarters due to these important changes
in the Company's business.
Historically, a portion of the Company's income was derived from
non-recurring engineering fees and royalty income from a relatively small number
of original equipment manutacturing ("OEM") customers. Over the past three
years, the Company has experienced shortfalls in income as a result of
engineering contracts with OEM manufacturers for products that were never
completed by the OEM, were never introduced into the market and shipped or were
cancelled by the customer before ITEC completed the deliverables portion of the
contract. Failure of these OEMs to achieve significant sales of products
incorporating the Company's technology and fluctuations in the timing and volume
of such sales had a materially adverse effect on the Company.
The Company's current strategy is to develop and commercialize its own
technology. The Company intends to continue to develop its target markets and to
pursue clearly defined commercial market opportunities in order to leverage its
core technologies.
To successfully execute its current strategy, the Company will need to
improve its working capital position. The report of the Company's independent
auditors accompanying the Company's June 30, 1999 financial statements includes
an explanatory paragraph indicating there is a substantial doubt about the
Company's ability to continue as a going concern, due primarily to the decreases
in the Company's working capital and net worth. At September 30, 1999, and for
the three months then ended, the Company had a net loss, negative working
capital, and a decline in net worth which continue to raise substantial doubt
about its ability to continue as a going concern.
The Company needs to raise additional funds to operate its business
effectively and has been actively pursuing solutions to its liquidity
difficulties. There can be no assurance, however, that the Company will be able
to complete any additional debt or equity financing on favorable terms or at
all, or that any such financings, if completed, will be adequate to meet the
Company's capital requirements. Any additional equity or convertible debt
financings could result in substantial dilution to the Company's stockholders.
If adequate funds are not available, the Company may be required to delay,
reduce or eliminate some or all of its planned activities. The Company's
inability to fund its capital requirements would have a material adverse effect
on the Company. See "Liquidity and Capital Resources" and "Risks and
Uncertainties -- Future Capital Needs."
RESULTS OF OPERATIONS NET REVENUES
Revenues were $1.05 million and $7.3 million for the quarters ended
September 30, 1999 and 1998, respectively. Sales of product were $940 thousand
and $6.7 million for the quarters ended September 30, 1999 and 1998,
respectively. The decrease in product sales from 1998 to 1999 was due primarily
to a decrease in sales of printer products. The Company's lack of sufficient
working capital has had a negative adverse effect on printer product sales in
particular, and overall revenues in general. Engineering fees were $25 thousand
and $400 thousand for the quarters ended September 30, 1999 and 1998,
respectively. The decrease in 1999 compared to 1998 was primarily the result of
the Company's change in strategic direction, focusing more on internal product
development and sales and less on engineering for third parties. License fees
were $88 thousand and $200 thousand for the quarter ended September 30, 1999 and
1998, respectively. The amount for 1998 was due primarily to the sales of a
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license to a Korean customer. Licensing fees are expected to continue their
decline due to the Company's focus on product sales as opposed to technology
licensing activities.
COST OF PRODUCTS SOLD
Cost of products sold were $693 thousand or 73% of product sales and $4.0
million or 60% of product sales for the quarters ended September 30, 1999 and
1998, respectively. The percentage increase in 1999 as compared to 1998 was
primarily due to declining margins on products that had to be discounted in
order to accelerate cash flow.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $2.6 million or 242% of
total revenue and $3.6 million or 50% of total revenues for the quarters ended
September 30, 1999 and 1998, respectively. Selling, general and administrative
expenses consisted primarily of salaries and commissions of sales and marketing
personnel, salaries and related costs for general corporate functions, including
finance, accounting, facilities and legal, advertising and other marketing
related expenses, and fees for professional services. The decrease in absolute
dollars in selling, general and administrative expenses in the quarter ended
September 30, 1999 as compared to the quarter ended September 30, 1998 was due
primarily to a decrease in administrative and personnel expenses. The increase
in these expenses as a percentage of net revenues is attributable primarily to
shortfalls in revenue expectations, which did not support the then-existing
expenses of the Company.
COST OF ENGINEERING
Engineering costs were $649 thousand million and $585 thousand for the
quarters ended September 30, 1999 and September 30, 1998, respectively. The
Company has been phasing out its engineering and licensing activities.
Engineering costs have been re-directed toward the development of the Company's
branded products, including printers and associated digital imaging products.
New products from these activities are expected to begin being shipped to
customers during fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations primarily through
cash generated from operations, debt financing, and from the sale of equity
securities.
The Company has received and anticipates that it will continue to receive
the majority of its cash from collections of accounts receivable from its
customers, distributors, and OEMs. These groups generally have a history of
timely payments; however, an increasing amount of international sales can
increase accounts receivable balances due to traditionally slower payments by
international customers. Any failure of the Company's customers, distributors or
OEMs to pay, or any significant delay in the payment of, a material portion of
the amounts owing to the Company could have a material adverse effect on the
Company.
As of September 30, 1999, the Company had negative working capital of
approximately $17.1 million, an increase of approximately $0.6 million as
compared to June 30, 1999. The increase is primarily due decreased short-term
debt.
The Company's other principal source of liquidity at September 30, 1999,
were lines of credit with Imperial Bank, which, at September 30, 1999, totaled
$7.5 million. The applicable interest rate at September 30, 1999, was 11%. The
Company's obligations under the lines of credit are secured by all of the
Company's accounts receivable, inventories, and other assets.
On August 20, 1999, at the request of Imperial Bank, the primary lender to
the Company, the Court appointed an operational receiver for the Company. On
August 23, 1999, the operational receiver took control of the day-to-day
operations of the Company. To date, through further equity infusion into the
Company, primarily in
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the form of the exercise of warrants to purchase the common stock of the
Company, operations have continued. Without additional funding in the near
future, sufficient to satisfy Imperial Bank and the other creditors of the
Company, as well as providing working capital for the Company, the Company will
cease to operate. The Company continues to actively work with entities capable
of providing such funding.
Net cash used in operating activities decreased to $1.6 million during the
quarter ended September 30, 1999, from $2.3 million during the quarter ended
September 30, 1998, due primarily to an increase in the Company's net loss.
Net cash used in investing activities decreased to $358 thousand during the
quarter ended September 30, 1999, from $952 thousand during the quarter ended
September 30, 1998, due primarily to decreases in capitalized software and
capital expenditures.
Net cash from financing activities increased to $1.9 million during the
quarter ended September 30, 1999, from $1.3 million during the year-earlier
quarter, due to changes in the Company's debt structure. Additionally, in the
year-earlier period, the Company redeemed $2.2 million of its preferred stock.
No such redemptions were made in the period ended September 30, 1999.
The Company has no material commitments for capital expenditures. 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
September 30, 1999, was approximately $0.6 million.
The Company's capital requirements depend on numerous factors, including
market acceptance of the Company's products, the scope and success of the
Company's product development efforts, the resources the Company devotes to
marketing and selling its products, and other factors. The Company anticipates
that its capital requirements will increase in future periods as it continues to
develop new products and increases its sales and marketing efforts. The report
of the Company's independent auditors accompanying the Company's June 30, 1999
financial statements includes an explanatory paragraph indicating there is a
substantial doubt about the Company's ability to continue as a going concern,
due primarily to the decreases in the Company's working capital and net worth.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "year 2000 problem"
is pervasive and complex as virtually every computer operation will be affected
in some way by the rollover of the two-digit year value to 00. The issue is
whether computer systems will properly recognize date sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail.
Management does not anticipate that the Company will incur significant
operating expenses or be required to invest heavily in other computer systems
improvements to be year 2000 compliant. The Company plans to devote the
necessary resources to resolve significant year 2000 issues in a timely manner;
however, if the Company, its customers, vendors or others with whom it does
significant business are unable to resolve external processing issues in a
timely manner, it could result in material adverse effect on the Company.
The Company has performed an analysis of all of its products manufactured
after January 1, 1997 and has determined that all such products are year 2000
compliant. This analysis covered the Company's printer controller technology,
laser and dye-sublimation printers, as well as software products and computer
and digital camera memory modules. The Company's printers do not currently
contain any internal clock devises that monitor or recognize the change of the
date and therefore the change of year from 1999 to 2000 should not effect their
operation.
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RISKS AND UNCERTAINTIES
FUTURE CAPITAL NEEDS
There can be no assurance with respect to the Company's future
profitability or revenue growth. Losses may occur on a quarterly or annual basis
for a number of reasons outside the Company's control. See "Potential
Fluctuation in Quarterly Performance." The growth of the Company's business will
require the commitment of substantial capital resources. If funds are not
available from operations, the Company will need additional funds. The Company
may seek such additional funding through public and private financing, including
debt or equity financing. Adequate funds for these purposes, whether through
financial markets or from other sources, may not be available when needed or, if
available, not on terms acceptable to the Company. Insufficient funds may
require the Company to delay, reduce or eliminate some or all of its planned
activities.
ITEC's ability to continue operations will depend on positive cash flow, if
any, from future operations and on the Company's ability to raise additional
funds through equity or debt financing. The Company could be required to cut
back or stop operations if it is unable to raise or obtain needed funding.
As of September 30, 1999, the Company had accumulated losses of
approximately $62.2 million. Management anticipates incurring additional losses
until the Company can successfully market and distribute its products and
develop new technologies and commercially viable future products. If it is
unable to do so, ITEC will continue to have losses and might not be able to
continue operations.
The report of the Company's independent accountants on the consolidated
financial statements contains an explanatory paragraph regarding ITEC's ability
to continue as an ongoing business. The independent accountants cited a
significant decline in working capital and net worth that has raised substantial
doubt as to the Company's ability to continue as an ongoing business. The "going
concern" qualification may reduce the Company's ability to obtain necessary
financing in the future to run its business.
Appointment of Operational Receiver
On August 20, 1999, at the request of Imperial Bank, the primary lender to
the Company, the Superior Court, San Diego appointed an operational receiver for
the Company. On August 23, 1999, the operational receiver took control of the
day-to-day operations of the Company. To date, through further equity infusion
into the Company, primarily in the form of the exercise of warrants to purchase
the common stock of the Company, operations have continued. Without additional
funding in the near future, sufficient to satisfy Imperial Bank and the other
creditors of the Company, as well as providing working capital for the Company,
the Company will cease to operate. The Company continues to actively work with
entities capable of providing such funding. If such funding is not obtained, the
Company will need to reduce or suspend operations.
Fluctuation of Quarterly Performance
The Company's quarterly operating results tend to fluctuate depending on a
number of factors. These include: (1) the timing of product announcements and
introductions of products by the Company and its competitors; (2) availability
and cost of components; (3) timing of shipments of the Company's products; (4)
product mix; (5) market acceptance of new products; (6) seasonality; (7)
currency fluctuations; (8) changes in prices by the Company and its competitors;
and (9) price protection for selling price reductions offered to distributors
and OEM customers. Accordingly, the timing of expenditures for staffing and
related support costs, advertising, trade show attendance, promotion, research
and development expenditures, and, changes in general economic conditions impact
quarterly performance. Any one of these factors could have a material adverse
effect on the Company's results of operations.
The Company may experience significant quarterly fluctuations in total
revenues as well as operating expenses with respect to future new product
introductions. In addition, the Company's component purchases, production, and
spending levels are based upon forecast demand for the Company's products.
Accordingly, any
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inaccuracy in forecasting could adversely affect the Company's financial
condition and results of operations. Demand for the Company's products could be
adversely affected by a slowdown in the overall demand for computer systems,
printer products, or digitally printed images. The Company's failure to complete
shipments during a quarter could have a material adverse effect on the Company's
results of operations for that quarter. Quarterly results are not necessarily
indicative of future performance for any particular period.
Competitive Industry
The markets for the Company's products are highly competitive and tend to
change rapidly. Some of the Company's current and prospective competitors have
significantly greater financial, technical, manufacturing and marketing
resources than the Company. The Company's ability to compete in its markets
depends on a number of factors within and outside its control, including the
success and timing of product introductions by the Company and its competitors,
selling prices, product performance, product distribution, marketing ability,
and customer support. A key element of the Company's strategy is to provide
competitively priced, quality products. There can be no assurance that the
Company's products will continue to be competitively priced. The Company has
reduced prices on certain of its products in the past and will likely continue
to do so in the future. Price reductions, if not offset by similar reductions in
product costs, will affect gross margins and may adversely affect the Company's
financial condition and results of operations.
The success of the Company will depend on its ability to market current
products, including digital printers and hardware and software products used in
digital imaging, and to rapidly introduce and market additional products. The
Company does not have control over the demand for digital imaging products,
including the preferences of users and the capability of personal computers to
run the Company's digital imaging software and hardware products and to use ITEC
printers. There can be no assurance that the products introduced by the Company
will achieve acceptance, or that other digital imaging products companies will
not develop and market products which render ITEC products obsolete or less
competitive. Failure to obtain significant customer satisfaction or market share
for ITEC products will significantly and negatively affect the Company's
revenues. Also see "Short Product Lives and Technological Change."
Short Product Lives and Technological Change
The markets for the Company's products are characterized by rapidly
evolving technology, frequent new product introductions, and significant price
competition. Consequently, short product life cycles and reductions in unit
selling prices due to competitive pressures over the life of a product are
common. The Company's future success will depend on its ability to continue to
develop and manufacture competitive products and achieve cost reductions for its
existing products.
In addition, the Company monitors new technology developments and
coordinates with suppliers, distributors and dealers to enhance existing
products and lower costs. Advances in technology will require increased
investment to maintain the Company's market position. The Company's financial
condition and results of operations could be adversely affected if the Company
is unable to develop and manufacture new, competitive products in a timely
manner.
Developing Markets and Applications
The markets for the Company's products are relatively new and are still
developing. The Company believes that there has been growing market acceptance
for color printers and related technologies and supplies. There can be no
assurance, however, that such markets will continue to grow. Other technologies
are constantly evolving and improving. There can be no assurance that products
based on these other technologies will not have a material adverse effect on the
demand for the Company's products.
The success of ITEC products in the marketplace depends on many factors,
including product performance, price, ease of use, support of industry
standards, and customer support and service. There can be no assurance that the
Company will be able to compete successfully given these factors. Competitors
may develop products
11
<PAGE>
comparable or superior to those of the Company and may adapt more quickly than
ITEC to new technologies, evolving industry trends, and customer requirements.
Therefore, the Company may have to spend more money to effectively compete for
market share, including funds to expand its infrastructure, which is a capital-
and time-intensive process. In addition, if other companies aggressively compete
against ITEC, the Company may have to spend more money on advertising,
promotion, trade shows, product development, marketing and overhead expenses,
hiring and retaining personnel, and developing new technologies. These higher
expenses may have a negative effect on net income and profits.
The development of sophisticated digital imaging products is a lengthy and
intensive process and is subject to unforeseen risks, delays, problems and
costs. Unanticipated technical or other problems may occur which would result in
delays in our development program. If we fail to complete development of new
products or enhance existing products, we could suffer complete loss of the
funds committed by us to those products or enhancements. The losses could be
substantial.
Dependence on Adobe Relationship
The Company's relationship with Adobe as an authorized "Co-development
Partner" to implement the inclusion of Adobe's PostScript language on printer
controllers and in software products is an integral part of its business
strategy. There can be no assurance that this relationship will be successful or
that it will remain in force for some time to come. Loss of the Adobe
relationship could have a substantial negative effect on future revenues.
Dependence Upon Suppliers
At present, many of the Company's products use technology licensed from
outside suppliers. The Company relies heavily on Adobe for upgrades and support
of the PostScript language. In the case of its font products, the Company
licenses such fonts from outside suppliers, including Adobe, who also own the
intellectual property rights to such fonts. The reliance on third-party
suppliers involves risk, including limited control over potential hardware and
software incompatibilities with the Company's products. There can be no
assurance that all of the suppliers of products marketed by the Company will
continue to license their products to the Company indefinitely, or that these
suppliers will not license to other companies simultaneously.
The Company presently out-sources the production of most of its
manufactured products through one vendor located in California. This vendor
assembles products, using components purchased by the Company from other sources
or from its own inventory. If this manufacturer does not have sufficient
capacity to meet projected market demand for ITEC products, production will stop
and replacement of the manufacturer could take several months and cause
substantial disruption to Company operations.
While most components are available locally from multiple vendors, certain
components used in the Company's products are only available from single
sources. Although alternate suppliers are available for many of these
components, the process of qualifying replacement suppliers, replacing tooling
or ordering and receiving replacement some components could take several months
and cause substantial disruption to the Company's operations. Any significant
increase in component prices or decrease in component availability could have a
material adverse effect on the Company.
Acquisitions
In order to grow its business, the Company may continue to acquire
businesses that it believes are complementary. The successful implementation of
this strategy depends on the Company's ability to identify suitable acquisition
candidates, acquire such companies on acceptable terms, integrate their
operations and technology successfully with those of the Company, retain
existing customers, and maintain the goodwill of the acquired business. There
can be no assurance that the Company will be able to identify suitable
acquisition candidates, acquire any such candidates on acceptable terms,
integrate their operations or technology successfully, retain customers, or
maintain the goodwill of the acquired business. Moreover, in pursuing
acquisition opportunities, the Company may compete for acquisition targets with
other companies with similar growth
12
<PAGE>
strategies. Some of these competitors may be larger and have greater financial
and other resources than the Company. Competition for these acquisition targets
could also result in increased prices of acquisition targets and a diminished
pool of companies available for acquisition. If the Company is unable to manage
internal or acquisition-based growth effectively, the Company will be materially
and adversely affected.
Acquisitions involve a number of risks, including: (1) the integration of
acquired products and technologies in a timely manner; (2) the integration of
businesses and employees with the Company's business; (3) the management of
geographically-dispersed operations; (4) adverse effects on the Company's
reported operating results from acquisition-related charges and amortization of
goodwill; (5) potential increases in stock compensation expense and increased
compensation expense resulting from newly-hired employees; (6) the diversion of
management attention; (7) the assumption of unknown liabilities; (8) potential
disputes with the sellers of one or more acquired entities; (9) the inability of
the Company to maintain customers or goodwill of an acquired business; (10) the
need to divest unwanted assets or products; and (11) the possible failure to
retain key acquired personnel. Client satisfaction or performance problems with
an acquired business could also have a material adverse effect on the reputation
of the Company as a whole, and any acquired business could significantly under
perform relative to the Company's expectations. The Company is currently facing
all of these challenges and its ability to meet them over the long term has not
been established. As a result, there can be no assurance that the Company will
be able to integrate acquired businesses, products or technologies successfully
or in a timely manner in accordance with its strategic objectives, which could
have a material adverse effect on the Company.
Due to all of the foregoing, the Company's execution of an acquisition
strategy or any individual completed or future acquisition may have a material
adverse effect on the Company. In addition, if the Company issues equity
securities as consideration for any future acquisitions, existing stockholders
will experience further ownership dilution and such equity securities could have
rights, preferences, privileges, or other rights superior to those of the Common
Stock. See "Future Capital Needs," and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Dependence on Key Personnel
The success of the Company is dependent, in part, on its ability to attract
and retain qualified management and technical personnel. Competition for such
personnel is intense, and the inability to attract additional key employees or
the loss of one or more key employees could adversely affect the Company. There
can be no assurance that the Company will retain its key personnel.
Component Availability and Cost; Dependence on Single Sources of Supply
ITEC presently out-sources the manufacturing and production of most of its
manufactured products to InCirT Technologies ("InCirT"). InCirT utilizes
components that it purchases from other sources or from its own internal
inventory; and assembles and packages ITEC products. The terms of supply
contracts are negotiated separately in each instance. The Company believes that
this vendor has sufficient capacity to meet projected market demand for the
Company's products or that alternate production sources are available without
undue disruption. ITEC has not experienced any difficulty over the past several
years in engaging contractors or in purchasing components. InCirT will perform
multi-step quality control testing prior to shipping the Company's products into
the Company's distribution channels.
In addition to buying such items as printed circuit boards and other
components from outside vendors, ITEC purchases and/or licenses software
programs, including operating systems and intellectual property modules
(pre-written software code to execute a specifically defined operation). ITEC
purchases these products from vendors who have licenses to sell such software to
the Company from the originators of such software, and has, from time to time,
directly licensed system software that is either embedded or otherwise
incorporated in certain ITEC products.
13
<PAGE>
While most components are available locally from multiple vendors, certain
components used in the Company's products are only available from single
sources. Although alternate suppliers are readily available for many of these
components, for some selected components, the process of qualifying replacement
suppliers, replacing tooling, or ordering and receiving replacement components
could take several months and cause substantial disruption to the Company's
operations. Any significant increase in component prices or decrease in
component availability could have a material adverse effect on the Company.
Potential Challenge to Products or Intellectual Property Rights
The Company's software products, hardware designs, and circuit layouts are
copyrighted. However, copyright protection does not prevent other companies from
emulating the features and benefits provided by the Company's software, hardware
designs or the integration of the two. The Company protects its software source
code as trade secrets and makes its Company proprietary source code available to
OEM customers only under limited circumstances and specific security and
confidentiality constraints. In many product hardware designs, the Company
develops ASICs, which encapsulate proprietary technology and are installed on
the circuit board. This can serve to significantly reduce the risk of
duplication by competitors, but in no way ensures the complete lack of potential
for a competitor to replicate a feature or the benefit in a similar product. The
Company currently holds no patents. Because computer and printer imaging
technology is such a rapidly changing business environment, the Company believes
the effectiveness of patents, trade secrets, and copyright protection are less
important in influencing long term success than the experience of the Company's
technical team, contractual relationships, and a continuous focus on technical
advancement.
The Company has obtained U.S. registration for several of its trade names
or trademarks, including PCPI, NewGen, ColorBlind, LaserImage, ColorImage,
ImageScript, ImageFont, and ImageNet. These trade names are used to distinguish
the Company's products in the marketplace. Pending trademarks for which
registration is currently being sought include NewGen, Xtinguisher, and
DealSeekers.
From time-to-time, certain competitors have asserted patent rights relevant
to the Company's business. The Company expects that this will continue. The
Company carefully evaluates each assertion relating to its products. If the
Company is not successful in establishing that asserted rights have not been
violated, the Company could be prohibited from marketing the products that
incorporate such technology. The Company could also incur substantial costs to
redesign its products or to defend any legal action taken against the Company.
If the Company's products should be found to infringe upon the intellectual
property rights of others, the Company could be enjoined from further
infringement and be liable for any damages. The Company relies on a combination
of trade secret, copyright and trademark protection and non-disclosure
agreements to protect its proprietary rights. There can be no assurance,
however, that the measures adopted by the Company for the protection of its
intellectual property will be adequate to protect its interests, or that the
Company's competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technologies.
International Operations
The Company conducts business globally. Accordingly, the Company's future
results could be adversely affected by a variety of uncontrollable and changing
factors including foreign currency exchange rates; regulatory, political or
economic conditions in a specific country or region; trade protection measures
and other regulatory requirements; government spending patterns; and natural
disasters, among other factors. Any or all of these factors could have a
material adverse impact on the Company's future international business in these
or other countries and on the Company's financial condition and results of
operations.
Dependence On Export Sales
The Company intends to pursue international markets for growth. The Company
expects export sales to continue to represent a portion of its sales.
International sales and operations are subject to risks such as the imposition
of governmental controls, export license requirements, restrictions on the
export of critical technology,
14
<PAGE>
currency exchange fluctuations, political instability, trade restrictions,
changes in tariffs, difficulties in staffing and managing international
operations, and collecting accounts receivable. In addition, the laws of certain
countries do not protect the Company's products and intellectual property rights
to the same extent as do the laws of the United States. As the Company continues
to expand its international business, there can be no assurance that these
factors will not have an adverse effect on the Company.
Reliance Upon Indirect, Independent Distribution Channels
ITEC products are marketed and sold through established relationships with
OEM's, distributors, value-added resellers, manufacturers' representatives,
retail vendors, and systems integrators. The Company has a network of dealers
and distributors in the United States, Canada, and Europe. Additionally, the
Company has a growing number of resellers in Africa, Asia, the Middle East,
Latin America, and Australia, which we support through centralized
manufacturing, distribution and repair operations in San Diego and London. The
sales of the Company's products are principally made through distributors who
may carry competing product lines. These distributors could reduce or
discontinue sales of ITEC products, and they may not devote the resources
necessary to provide effective sales and marketing support, which could
materially and adversely affect the Company's sales. The Company believes that
its future growth and success will continue to depend in large part upon its
distribution channels.
The Company is dependent upon the continued viability and financial
stability of its distributors, many of which are small organizations with
limited capital who are substantially dependent on general economic conditions
and specific factors affecting digital imaging markets. ITEC's business could be
materially adversely affected if its distributors fail to pay amounts to the
Company that exceed reserves that have been established. To expand its
distribution channels, the Company has entered into select OEM arrangements that
allow it to address specific market segments or geographic areas. In order to
prevent inventory write-downs, to the extent that OEM customers do not purchase
products as anticipated the Company may need to convert such products to make
them salable to other customers.
Impact of Asian Financial Crisis
The financial crisis in Asia resulted in the cancellation of orders and
substantial losses, and ITEC's other international operations and export sales
may be effected by future trends and foreign restrictions.
The Company conducts business globally and intends to continue its pursuit
of international markets. In the past, the Company experienced contract
cancellations and write-offs of significant accounts receivable related to the
economic crisis in Asia. There can be no assurance that the Company's overall
financial performance will not be further negatively affected by this situation.
Volatility of Stock Price
The market price of the Company's Common Stock has historically fluctuated
significantly. The Company believes that a number of factors could cause further
significant fluctuations in the price of the Company's Common Stock. These
factors include: (1) general stock market trends; (2) announcements of
developments related to the Company's business; (3) fluctuations in the
Company's operating results; (4) general conditions in the computer peripheral
market and the markets served by the Company or in the worldwide economy; (5) a
shortfall in revenue or earnings from securities analysts' expectations; (6)
announcements of technological innovations or new products or enhancements by
the Company or its competitors; (7) developments in patents or other
intellectual property rights; and (8) developments in the Company's
relationships with its customers and suppliers.
In recent years, the stock market in general, and the market for shares of
technology stocks in particular, have experienced extreme price fluctuations,
which have often been unrelated to the operating performance of affected
companies. There can be no assurance that the market price of the Company's
Common Stock will not experience significant fluctuations that are unrelated to
the Company's operating performance.
15
<PAGE>
Dilution of Stockholder Interests
The issuance of the Company's reserved shares would dilute the equity
interest of existing stockholders and could have a significant adverse effect on
the market price of ITEC common stock. As of November 10, 1999, the Company had
49,221,823 shares of common stock reserved for possible future issuances upon,
among other things, conversion of preferred stock and exercise of outstanding
options and warrants.
The Company expects to seek additional financing, which would result in the
issuance of additional shares of our capital stock and/or rights to acquire
additional shares of the Company's capital stock. Additional issuances of
capital stock would result in a reduction of current shareholders' percentage
interest in the Company. Furthermore, if the exercise price of any outstanding
or issuable options or warrants or the conversion ratio of any preferred stock
is lower than the dollar value per share of common stock at the time of the
exercise or conversion, then the dollar value per share of common stock would
decrease because the number of shares of common stock outstanding would increase
without a corresponding increase in the dollar amount assigned to shareholders'
equity.
The addition of a substantial number of shares of common stock into the
market or by the registration of any other of our securities under the
Securities Act may significantly and negatively affect the prevailing market
price for the Company's common stock. Furthermore, future sales of shares of
common stock issuable upon the exercise of outstanding warrants and options may
have a depressive effect on the market price of the common stock, as these
warrants and options would be more likely to be exercised at a time when the
price of the common stock is in excess of the applicable exercise price.
The sale or issuance of any shares of preferred stock having rights
superior to those of the common stock may result in a decrease in the value or
market price of the common stock. The issuance of preferred stock could have the
effect of delaying, deferring or preventing a change of ownership without
further vote or action by the stockholders and may adversely affect the voting
and other rights of the holders of common stock.
The Company's board of directors currently is authorized to issue up to
100,000 shares of preferred stock. The board has the power to establish the
dividend rates, preferential payments on our liquidation, voting rights,
redemption and conversion terms and privileges for any series of preferred
stock.
Nasdaq Listing and Liquidity of Common Stock
The Company currently does not meet the listing maintenance requirements of
the Nasdaq SmallCap Market and Nasdaq rules, which include, among other things,
a minimum bid price for our common stock of $1.00. Since the Company has not met
these requirements, it is currently being reviewed by Nasdaq. If the Company
were no longer in compliance with Nasdaq rules and was unable to receive a
waiver or to achieve compliance, and if the Company's common stock were to be
de-listed from the SmallCap market, shareholders may find it more difficult to
sell their ITEC common stock. This lack of liquidity also may make it more
difficult for the Company to raise capital in the future.
In the event that ITEC securities are not listed on Nasdaq SmallCap,
trading of the Company's common stock would likely be conducted over-the-counter
through the NASD Electronic Bulletin Board and covered by Rule 15g-9 under the
Securities Exchange Act of 1934. Under this rule, broker/dealers who recommend
these securities to persons other than established customers and accredited
investors must make a special written suitability determination for the
purchaser and receive the purchaser's written agreement to a transaction prior
to sale. Securities are exempt from this rule if the market price is at least
$5.00 per share.
Although the Securities and Exchange Commission adopted regulations that
generally define a "penny stock" as any equity security that has a market price
of less than $5.00 per share, ITEC common stock, albeit currently less than
$5.00 per share, does not constitute a penny stock when our common stock is
quoted on Nasdaq and our net tangible assets exceed $2.0 million. If, in the
future, ITEC common stock falls within the definition of penny stock, these
regulations would require the delivery, prior to any transaction involving ITEC
common stock, of a disclosure schedule explaining the penny stock market and the
risks associated with it. Furthermore, the ability
16
<PAGE>
of broker/dealers to sell the common stock and the ability of shareholders to
sell their securities in the secondary market would be limited. As a result, the
market liquidity for ITEC common stock would be severely and adversely affected.
We can provide no assurance that trading in ITEC securities will not be subject
to these or other regulations in the future, which would negatively affect the
market for the Company's securities.
Year 2000 Compliance (Y2K)
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "year 2000 problem"
is pervasive and complex as virtually every computer operation will be affected
in some way by the rollover of the two-digit year value to 00. The issue is
whether computer systems will properly recognize date sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail.
Management does not anticipate that the Company will incur significant
operating expenses or be required to invest heavily in other computer systems
improvements to be year 2000 compliant. The Company plans to devote the
necessary resources to resolve significant year 2000 issues in a timely manner;
however, if the Company, its customers, vendors or others with whom it does
significant business are unable to resolve external processing issues in a
timely manner, it could result in material adverse effect on the Company.
The Company has performed an analysis of all of its products manufactured
after January 1, 1997 and has determined that all such products are year 2000
compliant. This analysis covered the Company's printer controller technology,
laser and dye-sublimation printers, as well as software products and computer
and digital camera memory modules. The Company's printers do not currently
contain any internal clock devises that monitor or recognize the change of the
date and therefore the change of year from 1999 to 2000 should not effect their
operation.
ABSENCE OF DIVIDENDS
No cash dividends have been paid on the Company's Common Stock to date and
the Company does not anticipate paying cash dividends in the foreseeable future.
There can be no assurance with respect to the Company's future
profitability or revenue growth. Losses may occur on a quarterly or annual basis
for a number of reasons outside the Company's control. See "Potential
Fluctuation in Quarterly Performance." The growth of the Company's business will
require the commitment of substantial capital resources. If funds are not
available from operations, the Company will need additional funds. The Company
may seek such additional funding through public and private financing, including
debt or equity financing. Adequate funds for these purposes, whether through
financial markets or from other sources, may not be available when needed or, if
available, not on terms acceptable to the Company. Insufficient funds may
require the Company to delay, reduce or eliminate some or all of its planned
activities. See "Item 2 -- Liquidity and Capital Resources."
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about February 2, 1999, American Industries, Inc., Ellison Carl
Morgan and entities related to Ellison Carl Morgan (the "Plaintiffs") served the
Company and certain officers and directors of the Company (the "Defendants")
with a lawsuit filed in the Circuit Court of the State of Oregon for the County
of Multnomah,
17
<PAGE>
alleging that the Defendants violated certain Oregon Securities Laws in
connection with the Plaintiffs' investments in the Company, breached the
contracts with the Plaintiffs and committed fraud in connection with such
contracts. In this action, the plaintiffs are seeking reimbursement for their
investments and lost profits in an amount to be determined at trial. On or about
February 22, 1999, the Plaintiffs served Defendants with an Amended Complaint
seeking approximately $1.3 million for added allegations regarding alleged
breaches of agreements between the Company and American Industries providing the
Company with letters of credit. On or about September 1, 1999 American
Industries obtained a judgment on the issues in the case relating to the letters
of credit. Trial on the remaining securities law claims is currently scheduled
for late November, 1999. The Company believes these claims are without merit and
intends to vigorously defend against them on its own behalf as well as on behalf
of the other Defendants.
On or about July 9, 1999, Imperial Bank (the "Plaintiff") served the
Company and its various operating units with a lawsuit filed in the Superior
Court of the State of California for the County of San Diego, alleging breach of
credit agreements and seeking foreclosure of personal property security
interest, appointment of a receiver, and injunctive relief. At the same time,
the Plaintiff filed a motion asking the Court for the appointment of an
operational receiver. On August 20, 1999, the Court granted the Plaintiff's
request and, on August 23, 1999, an operational receiver assumed control of the
day-to-day operations of the Company (see discussion, supra, under Management's
Discussion and Analysis). The Company has filed an answer to the complaint and
the case is progressing through normal procedures.
On or about October 7, 1999, Nahid Nazariaqn Behfarin filed a lawsuit on
behalf of herself and others similarly situated against the Company and certain
present and past officers and directors of the Company alleging violations of
Federal laws between the dates of April 21, 1998, and October 9, 1998. The
lawsuit was served on the company on November 18, 1999. The Company has not yet
had an opportunity to evaluate the allegations of the lawsuit or to discuss it
with legal counsel; however, based upon the information currently available to
it, the Company believes the allegations are untrue and without merit and
intends to vigorously defend against them on its own behalf and on behalf of the
other defendants.
Throughout Fiscal Year 1999, and through the date of this filing, various
creditors of the Company have made claims and/or served the Company with
lawsuits alleging the failure of the Company to pay its obligations to them in a
total amount exceeding $2.5 million. The lawsuits are in various stages. Some
have resulted in judgments being entered against the Company. Should the Company
be required to pay the full amount demanded in each of these claims and
lawsuits, such a requirement would have a material adverse impact on the
operations of the Company. However, the superior security interest held by
Imperial Bank has prevented these creditors from collecting on their judgments.
Furthermore, from time to time, the Company may be involved in litigation
relating to claims arising out of its operations in the normal course of
business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
18
<PAGE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Sheet
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the quarter
ended September 30, 1999.
One report on Form 8-K was filed during the quarter ended September 30,
1999. Such report was filed on August 20, 1999 in connection with the
appointment of a receiver to run the Company's day-to-day operations.
<PAGE>
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.
Dated: November 19, 1999
IMAGING TECHNOLOGIES CORPORATION (Registrant)
By: /s/ BRIAN BONAR
- --------------------
Brian Bonar
Chief Executive Officer
and Principal Financial and Accounting Officer
<PAGE>
EXHIBIT INDEX
27.1....................................................Financial Data Sheet
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<NAME> IMAGING TECHNOLOGIES COPRORATION
<S> <C>
<PERIOD-TYPE> 4-Mos
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-1-1999
<PERIOD-END> SEP-30-1999
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<RECEIVABLES> 1,413,000
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<INVENTORY> 439,000
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<CURRENT-LIABILITIES> 19,299,000
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4,575,000
<COMMON> 217,000
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<TOTAL-LIABILITY-AND-EQUITY> 6,227,000
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<CGS> 693,000
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<INTEREST-EXPENSE> 138,000
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