<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 1995 Commission File No. 33-27627
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3D IMAGE TECHNOLOGY, INC.
-------------------------
(Exact name of Registrant as specified in its charter)
Delaware 76-0265438
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(State of incorporation) (IRS Employer
Identification No.)
5172-G Brook Hollow Parkway, Norcross, Georgia 30071
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (770) 416-8848
including area code: --------------
(Former name, former address and former
fiscal year, if changed since last report)
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock (Par Value $.001 Per Share)
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES XXXX NO
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Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
Issuer's revenues for its most recent fiscal year: $5,329,933
Aggregate market value of the voting stock held by nonaffiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: $4,157,200 as of May 9, 1996.
19,125,250 Common Shares were outstanding as of December 31, 1995
DOCUMENTS INCORPORATED BY REFERENCE
Transitional Small Business Disclosure Format (check one)
Yes No X
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TABLE OF CONTENTS
<TABLE>
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Page
<S> <C> <C>
PART I
Item 1. Description of Business 1
Item 2. Description of Property 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote
of Security Holders 5
PART II
Item 5. Market for Common Equity
and Related Stockholder Matters 5
Item 6. Management's Discussion and Analysis
or Plan of Operation 6
Item 7. Consolidaated Financial Statements 10
Item 8. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 10
PART III
Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act 10
Item 10. Executive Compensation 12
Item 11. Security Ownership and Certain
Beneficial Owners and Management 12
Item 12. Certain Relationships and Related Transactions 12
Item 13. Exhibits and Reports on Form 8-K 12
</TABLE>
<PAGE> 4
Item 1. Description of Business
A. Business Development
3D Image Technology, Inc. ("the Company") was incorporated on December 8,
1988, as American Eagle Investment Corp., under the laws of the State of
Delaware.
Effective January 1, 1994, the Company changed its name to 3D Image
Technology, Inc. to reflect the Company's current operations. The Company
manufactures and markets three-dimensional photographic products to the amateur
consumer photographic markets world-wide, including 3D amateur cameras, printer
processors and print material.
During 1994, the Company began active marketing of the one-time-use "3D
Magic" camera in the United States, Japan and Europe, either directly or
through distributors. In Japan, the one-time-use technology was licensed by
Image Technology Japan, a joint venture company in which Image Technology
International, Inc., parent of the Company, has a forty percent interest, to
Konica Company and Kodak Japan, Ltd. for manufacture and sale in
Japan only. The 3D one-time-use camera began marketing in Japan in 1994 under
the Konica and Kodak labels through this license agreement and the Company
received print material sales revenues from the Japanese market in 1994 and
1995 as a result.
During 1995, as in 1994, the Company incurred considerable direct sales
expenses, including trade shows in the United States and Europe. The Company
continues to expand its U.S. and worldwide distribution channels for the 3D
Magic, and now has distribution agreements in place, or under negotiation, in
France, the Middle East, Singapore, Thailand, Malaysia, Hong Kong, the
Netherlands, Canada and other areas. Total 1995 sales, including sales of
print material, totaled in excess of $5,300,000 million, an increase of 33%
over 1994 sales of approximately $4,000,000. The primary components of the
sales increase were camera sales and related print development revenue
increases.
The Company had a net loss of $1,371,500 for 1995. However, the 1995 loss
included charges of $700,000 in additional general and administrative expenses
resulting from the write off of uncollectible receivables from affiliates and
closing of part of the Hong Kong operations as discussed further in Item 6,
Management's Discussion and Analysis.
The net loss for 1995 and 1994 also included non-cash transactions of $0
and $344,500, respectively, in compensation expenses and consulting fees paid
by the issuance of stock and $145,768 and $111,197, respectively, of interest
expense accrued on officer loans.
The Japanese market currently is licensed through Image Technology Japan
(ITJ) , a joint venture in which the parent of the
1.
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Company holds a 40 percent interest. The other two venture partners are
Noritsu Koki Company, Ltd., the world's largest manufacturer of one-hour
printer processors, with 40 percent, and Photo Craft Company, Ltd., the largest
commercial photographic laboratory in Japan, with 20 percent. ITJ has licensed
the sale of the 3D Magic one-time-use camera in Japan only to Kodak Japan, Ltd.
and Konica, which are distributing the one-time-use 3D camera in Japan under
their own packaging and trademarks.
In October 1994, the Company acquired its Netherlands distributor and
photofinisher and established 3D Image Europe B.V. in Amsterdam as a
wholly-owned subsidiary to act as a central laboratory for the European market.
The Company plans to use this location initially for processing of prints from
all of Europe.
Until April 1, 1995, the Company manufactured 3D consumer cameras and
printer processing equipment through the Parent's Hong Kong-based subsidiary,
Image Technology (Hong Kong) Ltd., a Hong Kong corporation ("ITHK").
On July 1, 1995, the Company entered into separate Manufacturing and
Distribution Agreements (the "Agreements") with Image Technology International
(Far East) Ltd. ("ITFE"), a Hong Kong limited company and wholly-owned
subsidiary of the parent of the Company which operates in premises owned by
Allen Lo, Chairman and Chief Executive Officer of the Company. In conjunction
with the Agreements, the Company appointed and licensed ITFE to act as its
agent in Hong Kong and the Far East, including China, to supervise and assist
in the manufacture and distribution of 3D consumer products, including
supervision of and technical assistance in the manufacturing processes in China
and in Hong Kong, as well as the photo finishing facility.
The 3D Magic camera currently is being distributed in the United States
through a number of outlets, including Ritz Camera, Wolf Camera and Eckerd
Drugs, Walgreen's and other retail pharmacy chains. The Company has an
arrangement with Kodak's photofinishing network, Qualex, to collect the 3D
Magic camera for processing, forward the cameras to the Company and return the
prints through its retail outlet to its customers. The Company has another
agreement with the Ritz Camera chain to perform photo processing at its
Washington D.C. metro laboratory.
A significant relationship has been formed with Kalimar, Inc. Kalimar is
one of the leading distributors of cameras to mass merchandisers and catalogue
retailers in the United States. Kalimar will market the 3D cameras under its
own label to key mass merchants. Placement of Kalimar branded cameras will
occur in the second quarter of 1996.
The Company has identified direct response marketing as a potentially
strong distribution channel. Initial testing with Home Shopping Network has
yielded positive results. At this time negotiations are underway to form a
joint venture to market a midpriced camera specifically through direct response
television. This camera has been designed from conception for direct response
marketing and management anticipates it will result in a higher yield than
current camera sales.
2.
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Further inroads have been made in the Premium/Incentive market. In 1995
the Company tested the 3D Magic camera as a promotional item in Europe with REA
Juice and Unilever. Both promotions ran with strong redemption rates. Orders
have been taken for 1996 promotions with a cigarette manufacturer, a
pharmaceutical manufacturer, a leading brewery and a hair care manufacturer.
Confidentiality agreements preclude identifying the promotional partner prior
to the commencement of the promotion.
Although the Company is registered with the Securities and Exchange
Commission, there was no active trading market in the Company's stock through
the quarter ending June 30, 1994. The Company's shares began trading over the
counter on the NASD Bulletin Board under the symbol "TDIT" during the quarter
ended September 30, 1994. High and low stock prices and dividends since that
point are noted below:
<TABLE>
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1995 1994
Sales Price Cash Sales Price Cash
-------------- Dividends --------------- Dividends
Quarter Ended High Low Declared High Low Declared
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<S> <C> <C> <C> <C> <C> <C>
March 31 $2.31 $1.88 $0.00 N/A N/A $0.00
June 30 $2.38 $2.00 $0.00 N/A N/A $0.00
September 30 $4.88 $2.13 $0.00 N/A N/A $0.00
December 31 $4.63 $2.25 $0.00 $2.31 $2.06 $0.00
</TABLE>
B. Business of Issuer
The Image Tech 3D system utilizes standard color film and conventional
photographic processes which provide the advantages of simplicity, high quality
and low cost. The flexibility of product design and system integration offers
numerous applications that will expand the global photographic industry. The
principal products and services of the Company are:
The Image Tech 3D One-Time-Use Cameras (3D Magic without flash and 3D Magic
Plus with flash) are 3-lens one-time-use cameras preloaded with 24-exposure
400 ISO high speed color film. These cameras are fully recyclable, which
reduces manufacturing costs as well as meeting environmental concerns.
The Image Tech 3D Reloadable Camera (3D Wizard) is a 3-lens reusable 3D
camera, manufactured in manufacturing facilities in China.
The Company also manufactures the same basic line of cameras under the
Kalimar brand name under an agreement with Kalimar, Inc. Kalimar is a
manufacturer and distributor of low cost cameras.
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The Image Tech 3D Integrated Printer/Processor is a one-hour mini-lab
designed 3D consumer printer with built-in processor for printing of consumer
3D prints taken by the Company's 3-lens consumer cameras. These printers are
designed to print 3-1/2" x 4-1/2", 5" x 7", or 8" x 10" size 3D prints.
The Image Tech High Definition 3D Color Print Material employs a newly
developed plastic extrusion technology to produce a single polymer base for
maximum transmission and sharpness. This base then is coated by Eastman Kodak
Company with its newest RA-4 emulsion and Ti02 reflective layer under an
exclusive arrangement with the Company.
On November 17, 1993, the recyclable 3D Magic one-time-use camera received
the prestigious 1993 annual "THE BEST OF WHAT'S NEW" Award for the best
photography product in "The Year's 100 Greatest Achievements in Science and
Technology" competition by Popular Science Magazine. The 3D Magic amateur
camera was also chosen as "Innovation of the Year" for 1993 by Amateur
Photographer Magazine.
Demand for the Company's one-time-use 3D Magic and 3D Magic Plus remains
strong and enthusiastic. In fact, preliminary market studies indicate
significant repeat business. A major goal of the Company in 1995 was capital
raising in order to build inventories of cameras, printers and print material,
expand the marketing effort and undertake advertising and promotion of its
products. As a result of these efforts, an agreement was entered into early in
1996 with an Asian group providing for equity funding of $20,000,000 plus
additional consideration relating to the establishment of new manufacturing
facilities, subject to due diligence, to be completed by May 6, 1996. A total
of $3,000,000 has been received to date under this agreement. On May 21, 1996,
the Company and the Investor amended certain sections of the Agreement, which
revoked the Investor's May 6 notice pertaining to the Put Right and extended
the due diligence period 90 days. This is discussed in greater detail in Item
6, Liquidity and Services of Capital.
In 1994 and 1995, little effort was placed on advertising and promotion
other than to the trade and distribution networks. Limited working capital to
build inventories of cameras, printers and print material restricted maximum
potential growth which could be attained through large volume orders from major
U.S. discount department stores and similar large volume retailers.
The Company has the exclusive right to develop, manufacture, market and
distribute 3D amateur consumer products using the unique 3D technology
developed by Image Technology International, Inc., parent of the Company. The
Company has the rights to the amateur camera and technology pursuant to a
number of patents which have already been granted and a number of additional
patent applications which are in process, all by license from its parent, Image
Technology International, Inc. The Company has received opinions of patent
counsel that the patents and pending patent applications represent unique,
non-infringing proprietary technology.
4.
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Item 2. Description of Property
The Company's property consists primarily of manufacturing equipment,
laboratory equipment, film processing and printing equipment. The equipment is
maintained at the manufacturing facilities in China and Hong Kong, and at the
Company's facilities in Atlanta and Amsterdam.
Item 3. Legal Proceedings
There were no material proceedings pending in 1995 in which the Registrant
was named as a party.
On March 13, 1995, Image Technology International, Inc. ("ITII"), parent
of the Registrant, filed a Complaint against Jerry C. Nims, NimsTec, LLC,
LenTec Imaging, Inc., and Thomas J. Steimer in the Superior Court of Fulton
County, Georgia. Subsequently, the case was transferred to the Superior court
of Walton County, Georgia. The Complaint alleges that commencing in
approximately February, 1994, Defendant engaged in a course of conduct and
conspiracy to injure and destroy the business and reputation of ITII, including
the 3D camera business operated by the Company, in order to gain unfair and
unlawful competitive advantage, by making and disseminating false statements
and false claims regarding ITII and its principal officers and directors.
ITII was granted a temporary restraining order against Defendants on March
14, 1995. This restraining order was extended indefinitely on April 14, 1995
and remains in effect. ITII is also seeking damages for Defendants'
intentional interference with ITII's business and contractual relations, and
for exemplary damages to deter similar fraudulent and unlawful conduct, in an
amount to be determined at trial. Defendants filed answers to the Complaint
generally denying the allegations. No claims have been filed in the case by
any Defendant against the Company or ITII. The case is still pending.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of the Company's security
holders during the fourth quarter of the fiscal period covered by this report.
Item 5. Market for Common Equity and Related Stockholder Matters
The Company's shares are traded over the counter on the NASD Bulletin
Board under the symbol "TDIT". The Company applied for full listing under the
NASDAQ Small Cap system in September 1995, but later withdrew the application.
The Company plans to refile the application on completion of the 1995 audit and
satisfaction of the other Small Cap listing requirements.
5.
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The number of shares issued of record as of December 31, 1995, is
19,125,250. No dividends of cash or stock have been paid by the Company in the
past. The payment of dividends will depend entirely upon the Company's ability
to generate sufficient earnings, its financial needs and other unpredictable
factors. It is not anticipated that common dividends will be paid in the
foreseeable future.
During 1995, an installment Subscription Agreement for 500,000 shares of
common stock of the Company at a price of $2.00 per Share, executed by
Drummend Pal, S.A. on August 30, 1994 and amended on October 21, 1994, was
fulfilled and the 500,000 shares were issued to Drummend Pal in 1995. These
shares are restricted by agreement and cannot be transferred or sold for a
period of two years from the date of issue. Drummend Pal S.A. is not
affiliated in any way with any officer, director or employee of the Company.
In January 1996, the Company issued a warrant for the purchase of 400,000
shares of common stock at $2.40 per share, exercisable until June 30, 1997 or
one year after the effective date of a registration statement including the
shares underlying the warrant, whichever is later, to Kalimar, Inc., a
manufacturer and distributor of cameras and photographic supplies, as part of
a distribution agreement between the Company and Kalimar. On exercise of the
initial warrant, a second warrant will be issued to Kalimar for an additional
400,000 shares at a price equal to ten percent less than the average trading
price of the shares when the warrant was issued, plus $0.15.
In March 1996, a Subscription Agreement for 500,000 shares of common stock
of the Company was executed and the shares were issued for total consideration
of $1,175,000 received by the Company. A second subscription agreement for the
same price and number of shares has also been signed and is due June 6, 1996.
This subscriber is not affiliated in any way with the Company or any officer,
director, or employee of the Company.
Item 6. Management's Discussion and Analysis of Plan of Operation
Results of Operations
The Company was successful in increasing sales by over $1,300,000, or
33%, from approximately $4,002,000 in the year ended December 31, 1994, to
approximately $5,330,000 for the year ended December 31, 1995. This increase
resulted from increases in sales of consumer cameras totaling approximately
$941,000, which is partially attributable to the yearly 1995 introduction of
the 3D Magic Plus, a one-time-use 3D camera with built-in flash, and related
increases in print development revenues totaling approximately $354,000.
Cost of sales increased by approximately $481,000, or 19%, from
6.
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approximately $2,550,000 for the year ended December 31, 1994 to approximately
$3,030,000 for the year ended December 31, 1995. Such increases were directly
related to increases in sales of consumer cameras and related print development
costs.
Gross margins on revenues increased from approximately $1,453,000, or 36%,
for the year ended December 31, 1994 to approximately $2,300,000, or 43% for
the year ended December 31, 1995. The percentage increases in gross margins
were primarily a result of improved margins on the sale of print materials.
Selling expenses were approximately $594,000 for the year ended
December 31, 1995, or 11% of total revenues, as compared to approximately
$567,000 for the year ended December 31, 1994, or 14% of total revenues.
Research and development expenses increased from approximately $66,000 for
the year ended December 31, 1994 to approximately $284,000 for the year ended
December 31, 1995. Such expenditures are associated with research and
development of existing and potential new three dimensional products and
services.
General and administrative expenses increased by approximately
$1,168,000 to approximately $2,649,000 for the year ended December 31, 1995.
This increase resulted from increases in professional fees of approximately
$150,000, salaries and benefits of approximately $200,000, costs associated
with the start-up of the European operations of approximately $120,000, and
the write-off of uncollectible advances to the Company's Asian affiliates
related to certain general, administrative, and operating costs incurred by
them on behalf of the Company totaling approximately $700,000.
The Company's parent company, ITII, has restructured the Hong Kong
marketing, print development and research office in efforts to reduce operating
costs. Management believes this restructuring will reduce the costs associated
with maintaining the Company's manufacturing and marketing operations in Asia
which are presently administered by ITFE, an affiliate.
The net loss increased by approximately $375,000 from approximately
$997,000 to approximately $1,372,000 for the years ended December 31, 1994 and
1995 respectively. The increase in the 1995 loss as compared to 1994 is
primarily a result of increases in the general and administrative expenses
discussed above which offset 1995 increases in sales and gross margins.
Accounts receivable increased by approximately $495,000, from
approximately $260,000 at December 31, 1994 to approximately $755,000 at
December 31, 1995 as a result of increases in 1995 fourth quarter sales of
consumer cameras.
Accounts payable increased by approximately $1,455,000, from approximately
$587,000 at December 31, 1994 to approximately $2,041,000 at December 31, 1995.
This increase is primarily
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attributable to an increase in amounts due to a trade creditor for purchases of
print material. A substantial amount of these balances were paid during the
first quarter of 1996.
Unearned revenue decreased by approximately $397,000 from approximately
$448,000 at December 31, 1994 to approximately $52,000 at December 31, 1995.
Such decrease is primarily attributable to shipments of print material in the
first quarter of 1995 for which certain payments had been collected in advance
at December 31, 1994.
No significant additional product research or development work is expected
during the next twelve months, and there are no plans to purchase or sell any
plant or significant equipment. There are no expected significant changes in
the number of employees of the Company in the next twelve months, except as
required to support increased sales volume.
On October 5, 1995, the Board of Directors of the Company approved the
merger of the Company with its parent, Image Technology International, Inc.,
with the Company being the surviving entity. The purpose of the merger was to
simplify the corporate structure and to combine all of the 3D photographic and
digital technologies into a single entity. The merger was planned to take
effect on December 31, 1995, however, due to continuing negotiations with
potential investors, and continued evaluation
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of the optimum corporate and management structure of the company and its
affiliate, the merger was postponed.
In March 1995, the FASB issued Statement No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by
Liquidity and Sources of Capital
Cash used in operations during the year ended December 31, 1995 totaled
approximately $459,000 as compared to cash provided by operations for the year
ending December 31, 1994 totaling approximately $119,000. Such use of cash is
primarily related to the 1995 loss and other changes in operating assets and
liabilities.
On January 30, 1996, the Company executed a letter of intent with an Asian
investor (the "Investor"), prividing for equity financing in an amount equal to
or less than $20 million. On February 6, 1996, the Company received $3 million
as part of this financing agreement, and in exchange issued 1,492,537 common
shares as a price of $2.01 per share. The initial funding agreement (the
"Agreement") privided for a 90 day due diligence period, ending May 6, 1996, at
the conclusion of which, the Investor was to contribute an additional $17
million for an additional 8,457,711 shares of common stock. In the event that
the Investor determined not to make an additional investment, the Company,
pursuant to the Investor's exercise of the Put Right provision s of Section 11
of the Agreement, agreed to redeem such initial $3 million investment. If not
redeemed in cash, such amount was to be converted to a promissory note secured
by certain assets of the Company, and the Parent, due 120 days thereafter, with
interest thereon at prime plus 2%. On May 2, 1996, the Investor requested an
extension of the 90 day due diligence period. No extension was granted thus on
May 6, 1996, the Investor gave notice of their intention not to proceed with
the transaction and exercise the Put Right.
On May 21, 1996, the Company and the Investor amended certain sections of
the Agreement, which revoked the Investor's May 6 notices pertaining to the Put
Right and extended the due diligence period 90 days. In connection with the
amendment, the Company and the Investor agreed that in the event that the
Investor determines not to make an additional investment, the Put Right may be
exercisable during the period August 6, 1996 to August 13,1996 (including such
dates). If the Put Right is exercised but is not redeemed in cash, the unpaid
portion of the Put Right will be converted to a promissory note secured by
certain assets of the Company, and the Parent, due 60 days thereafter (on or
about October 6, 1996), with interest thereon at prime plus 2%. In addition,
the amendment removed provisions whereby the Investor had rights of first
refusal and anti-dilution provisions related to other issuances by the Company,
except that the Company is required to apply the proceeds of any such issuance
to repay any amounts which may be outstanding resulting from the Investor's
exercise of the Put Right. As a result, negotiations with other funding
sources, suspended under the original terms of the agreement, have been
resumed. The company has also delayed the plan of merger described in Note 8
of the financial statements.
Management of the Company continues to seek additional sources of capital
including the completion of the financing discussed above. Management
believes that such additional capital is necessary to enable the Company to
effectively market and distribute its 3D cameras, as well as establish an
adequate print development infrastructure in the markets in which the Company
plans to increase distribution. No assurance can be given that the Company
will be able to obtain such capital in order to continue the Company's
investment in marketing, distribution, and the
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development of a print development network.
Impact of Inflation
The impact of inflation upon the Company in 1995 and 1994 was
not significant, and is not expected to have a significant impact in the
foreseeable future.
Item 7. Consolidated Financial Statements
<TABLE>
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Index to Consolidated Financial Statements
Report of Independent Auditors F-1
Consolidated Balance Sheets as of December 31, 1995 and
December 31, 1994 F-2
Consolidated Statements of Operations for the years ended
December 31, 1995 and December 31, 1994 F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1995 and December 31, 1994 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1995 and December 31, 1994 F-6
Notes to consolidated financial statements F-7
</TABLE>
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
Item 9. Directors. Executive Officers, Promoters and Control Persons
The following persons were the directors and executive officers of the
Company on December 31, 1995:
<TABLE>
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Name Acre Position or Office
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Allen K.W. Lo 58 Director and President
Robert J. Hipple 52 Director, Secretary and General
Counsel
Sunny Ip 56 Director, Vice President and
Treasurer
Bruce Herstowski 43 Vice President, Sales and
Marketing
</TABLE>
Mr. Lo and Mr. Hipple have served in their current positions since
September 14, 1992. Mr. Ip has served as a director since December, 1993.
The business experience of the principal executive officers is as
follows:
ALLEN K.W. LO, a founder of Image Technology International, serves as
Chairman of the Board of Directors and President of the Company. He is also a
principal shareholder, President and Chairman of Image Technology
International, Inc. Mr. Lo is responsible for the overall administration of
the Company's operations, strategic planning, marketing, and sales. In 1965,
Mr. Lo cofounded 3D Arts Industrial Ltd. (Hong Kong), and was involved in the
development of a 3D mass production lithographic process. In
10.
<PAGE> 14
1967, 3D Arts Industrial was purchased by The Asahi Group, a Japanese
conglomerate. Mr. Lo served as a Director of an Ashahi affiliate until 1970,
during which time he also directed research in 3D images. After leaving
Ashahi, Mr. Lo came to the United States and formed Dimensional Development
Corporation, which later became Nimslo Technology, Inc. From 1971 until 1983,
Mr. Lo served as Vice Chairman and Director of Technology for Nimslo. From
1984 to the present, Mr. Lo has been involved in the development of the new
generation of 3D technology now owned by Image Technology International, Inc.
Mr. Lo currently holds 415,000 shares of stock in the Company. Mr. Lo's salary
for 1995 was $110,000.
ROBERT J. HIPPLE, serves as a Director, Secretary and General Counsel
for the Company. He is also a Director and Secretary of Image Technology
International, Inc. Mr. Hipple is the principal of an Atlanta-based law firm
specializing in taxation, business, and securities law. The firm has an
extensive international practice. Mr. Hipple served as an attorney with the
Tax Division of the United States Department of Justice, Washington, D.C.,
under the Attorney General's Program for Honor Law Graduates; served as an
adjunct professor in the Graduate Tax Law Program of Georgetown University Law
Center; and was a professor of law at Emory University before returning to
private practice in 1978. Mr. Hipple holds degrees from Wesleyan University in
Connecticut, and from Georgetown University Law Center. Mr. Hipple holds no
stock in the Company or in its parent, Image Technology International, Inc. and
receives no salary or other compensation from the Company. Mr. Hipple's law
firm provides legal advice and service to the Company on a regular basis and is
paid for the actual work performed.
SUNNY L.P. IP, Vice President and Treasurer of Image Technology
International, Inc. currently serves as a Director and Vice President of the
Company and as Director of the Print Material Division. Mr. Ip was one of the
original members of the Nimslo Technology, Inc. research and development group.
Mr. Ip became an officer of ITII in 1984 and currently oversees general
corporate management, budget management, print material production development
and research for the improvement of 3D image quality. Mr. Ip has extensive
knowledge of 3D image processing and photography and has directed many
professional photographers in the field of 3D photography. Mr. Ip holds
190,000 shares of common stock in the Company. Mr. Ip's salary for 1995 was
$66,000.
BRUCE HERSTOWSKI, Vice President of Sales and Marketing, is responsible
for creating and implementing the Company's multinational marketing plan. Mr.
Herstowski has been directly involved in sales and marketing in the
photographic industry since 1976. From 1982 to 1986, Mr. Herstowski served as
Vice President of Pallas Photo Labs, a national chain of photo labs based in
Chicago. He left Pallas in 1986 to concentrate on the increasing demand for
his services as an international consultant to the photo industry. Mr.
Herstowski came to Image Technology in 1988 as the Company's Marketing Director
and became Vice President of Sales and marketing
11.
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for the Company on January 1, 1994. Mr. Herstowski holds 15,000 shares of
common stock in the Company. Mr. Herstowski's salary for 1995 was $96,000.
Item 10. Executive Compensation
Mr. Lo, Mr. Ip, and Mr. Herstowski received salaries of $110,000,
$66,000, and $96,000 respectively from the Company in 1995. None of the other
officers and directors received any compensation directly from the Company in
connection with their activities on behalf of the Company during the fiscal
year ending December 31, 1995. Twenty five percent of the salary expense for
Mr. Lo and Mr. Ip has been allocated to the parent company in 1995. Mr.
Hipple's law firm received a total of $76,577 in legal fees from the Company in
1995. Mr. Hipple received no compensation personally from the Company in 1995
or 1994, directly or indirectly through the parent.
Item 11. Security Ownership of Certain Beneficial owners and
Management
As of December 31, 1995, Image Technology International, Inc. was the
only stockholder owning 5% or more of the common stock of 3D Image Technology,
Inc. Subsequently, an Asian investor acquired 1,492,537 shares of common
stock, representing more than five percent of the shares then outstanding.
Item 12. Certain Relationships and Related Transactions
Mr. Allen K.W. Lo, President and Chairman of the Board of Directors, is
also an officer, director and stockholder of Image Technology International,
Inc.
Mr. Robert Hipple, Secretary and Director, is Secretary of Image
Technology International, Inc.
Mr. Sunny Ip, Vice President, Treasurer and Director, is also an
officer, director and stockholder of Image Technology international, Inc.
Mr. Bruce Herstowski, Vice President, is also a stockholder of Image
Technology International, Inc.
Item 13. Exhibits and Reports on Form 8-K
None.
12.
<PAGE> 16
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 hereunto duly authorized.
3D IMAGE TECHNOLOGY, INC.
May 24, 1996 /s/ ALLEN LO
- ------------------------ ----------------------------------------
Date ALLEN LO
Chairman and Chief Executive Officer
May 24, 1996 /s/ SUNNY IP
- ------------------------ ---------------------------------------
Date SUNNY IP
Director and Treasurer
13.
<PAGE> 17
3D Image Technology Inc.
Consolidated Financial Statements
Years ended December 31, 1995 and 1994
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors ................... F-1
Audited Consolidated Financial Statements
Consolidated Balance Sheets....................... F-2
Consolidated Statements of Operations............. F-4
Consolidated Statements of Shareholders' Equity... F-5
Consolidated Statements of Cash Flows............. F-6
Notes to Consolidated Financial Statements........ F-7
</TABLE>
<PAGE> 18
Report of Independent Auditors
Board of Directors
3D Image Technology, Inc.
We have audited the accompanying consolidated balance sheets of 3D Image
Technology, Inc. (the Company) as of December 31, 1995 and 1994 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of 3D Image
Technology, Inc. at December 31, 1995 and 1994, and the consolidated results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
Ernst & Young LLP
May 10, 1996,
except for paragraph 3 of Note 9, as to which the date is
May 21, 1996
F-1
<PAGE> 19
3D Image Technology, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
----------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 360,571 $ 56,745
Accounts receivable (net of allowance
for doubtful accounts of $29,000 and
$24,000 in 1995 and 1994, respectively) 754,623 260,466
Receivables from affiliates, net - 119,523
Inventories 1,811,806 1,894,328
Prepaid expenses and other current
assets 146,254 3,200
----------------------
Total current assets 3,073,254 2,334,262
Property and equipment, at cost:
Machinery and equipment 1,994,757 1,835,986
Leasehold improvements 13,321 11,697
Furniture and fixtures 19,047 19,047
----------------------
2,027,125 1,866,730
Less accumulated depreciation 369,279 183,355
----------------------
Net property and equipment 1,657,846 1,683,375
Other assets 11,451 12,759
----------------------
$4,742,551 $4,030,396
======================
</TABLE>
F-2
<PAGE> 20
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
--------------------------
<C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $2,041,088 $ 586,584
Accrued liabilities 255,706 212,491
Unearned revenue 52,057 448,618
Other current liabilities - 17,503
--------------------------
Total current liabilities 2,348,851 1,265,196
Shareholders' equity:
Preferred stock, par value $.001 per share:
Authorized - 5,000,000 shares
Issued and outstanding - none - -
Common stock, par value $.001 per share:
Authorized - 35,000,000 shares
Issued and outstanding - 19,125,250 and
18,625,250 shares 19,125 18,625
Additional paid-in capital 4,749,510 4,750,010
Stock subscription receivable - (1,000,000)
Accumulated deficit (2,374,935) (1,003,435)
--------------------------
Total shareholders' equity 2,393,700 2,765,200
--------------------------
Total liabilities and shareholders' equity $4,742,551 $ 4,030,396
==========================
</TABLE>
See accompanying notes.
F-3
<PAGE> 21
3D Image Technology, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
--------------------------
<S> <C> <C>
Net revenues:
Print material $ 2,161,276 $ 2,166,600
Cameras 1,902,930 961,695
Printer processors 561,400 521,800
Print development 671,570 317,196
Other 32,757 34,520
--------------------------
Total net revenues 5,329,933 4,001,811
Cost of sales:
Print material 1,295,495 1,556,834
Cameras 835,953 430,247
Printer processors 341,572 321,894
Print development 556,732 240,262
--------------------------
Total cost of sales 3,029,752 2,549,237
--------------------------
Gross margin 2,300,181 1,452,574
Operating expenses:
Selling expenses 593,614 566,924
Research and development 283,750 66,265
General and administrative 2,648,549 1,480,623
Consulting fee - 225,000
--------------------------
3,525,913 2,338,812
--------------------------
Operating loss (1,225,732) (886,238)
Net interest expense (145,768) (111,197)
--------------------------
Net loss $ (1,371,500) $ (997,435)
==========================
Loss per common share $ (.07) $ (.06)
==========================
Weighted average shares outstanding 18,625,256 18,102,189
==========================
</TABLE>
See accompanying notes.
F-4
<PAGE> 22
3D Image Technology, Inc.
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL STOCK
--------------------- PAID-IN SUBSCRIPTION ACCUMULATED
SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT TOTAL
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 1,250,000 $ 1,250 $ 4,750 $ - $ (6,000) $ -
Issuance of common stock
for net assets 15,456,000 15,456 1,702,179 - - 1,717,635
Issuance of common stock
for outstanding debt 850,250 850 1,699,650 - - 1,700,500
Issuance of common stock
for services 1,069,000 1,069 343,431 - - 344,500
Subscription of common
stock - - 1,000,000 (1,000,000) - -
Net loss - - - - (997,435) (997,435)
------------------------------------------------------------------------------------------
Balance, December 31, 1994 18,625,250 18,625 4,750,010 (1,000,000) (1,003,435) 2,765,200
Issuance of common stock
subscribed 500,000 500 (500) 1,000,000 - 1,000,000
Net loss - - - - (1,371,500) (1,371,500)
------------------------------------------------------------------------------------------
Balance, December 31, 1995 19,125,250 $19,125 $4,749,510 $ - $(2,374,935) $ 2,393,700
==========================================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 23
3D Image Technology, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,371,500) $(997,435)
Adjustment to reconcile net loss to net cash used
in operating activities:
Depreciation 212,204 183,355
Loss on disposal of property and equipment 19,222 -
Changes in operating assets and liabilities:
Accounts receivable (494,157) (230,887)
Inventories 82,522 (193,827)
Prepaid expenses and other assets (141,746) (15,959)
Accounts payable and accrued expenses 1,648,802 907,912
Other liabilities and unearned revenue (414,064) 466,121
------------------------
Net cash (used in) provided by operating activities (458,717) 119,280
INVESTING ACTIVITIES
Purchases of property and equipment (205,897) (213,618)
------------------------
Net cash used in investing activities (205,897) (213,618)
FINANCING ACTIVITIES
Net decrease in receivables from affiliates 119,523 -
Proceeds from common stock subscribed 848,917 151,083
------------------------
Net cash provided by financing activities 968,440 151,083
------------------------
Increase in cash 303,826 56,745
Cash, beginning of year 56,745 -
------------------------
Cash, end of year $ 360,571 $ 56,745
========================
</TABLE>
See accompanying notes.
F-6
<PAGE> 24
3D Image Technology, Inc.
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND PURPOSE
3D Image Technology, Inc. (the "Company") was incorporated on December 8, 1988,
under the laws of the State of Delaware as American Eagle Investment Corp. The
Company is a subsidiary of Image Technology International, Inc. ("ITII" or the
"Parent"). ITII owns 83% of the Company's outstanding stock at December 31,
1995.
On March 23, 1992, effective with an amendment to the Company's certificate of
incorporation, the Company's name was changed from American Eagle Investment
Corp. to Wang-Tripp Laboratory, Inc. Effective January 1, 1994, the Company
changed its name from Wang-Tripp Laboratory, Inc. to 3D Image Technology, Inc.
to reflect the Company's current operations.
NATURE OF OPERATIONS
On January 1, 1994 the Company acquired the net assets of Infinite Dimensions,
Inc. ("IDI"). Infinite Dimensions, Inc. was a Georgia corporation formed in
December 1987 for the original purpose of engaging in the development,
production, and marketing of amateur consumer 3D photographic systems on a
worldwide basis. IDI obtained an exclusive license to utilize the unique,
proprietary three-dimensional photographic technology in the amateur consumer
markets and transferred this exclusive license and other assets to the Company
on January 1, 1994. See Note 2.
F-7
<PAGE> 25
3D Image Technology, Inc.
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
NATURE OF OPERATIONS (continued)
The 3D consumer camera (primarily the 3D Magic) currently is being distributed
in the United States through a number of outlets, including certain specialty
camera stores, national retail pharmacy and department store chains, and
television direct marketing programs. The Company has an arrangement with
Kodak's photofinishing network, Qualex, to collect and forward the 3D Magic
camera to the Company for processing and returning the prints through its
retail outlets to its customers.
Substantially all manufacturing related to the Company's line of 3D consumer
cameras is carried out in the People's Republic of China and Hong Kong. See
Note 6.
Until April 1, 1995, the Company manufactured 3D consumer cameras and printer
processing equipment through the Parent's Hong Kong-based subsidiary, Image
Technology (Hong Kong) Ltd., a Hong Kong corporation ("ITHK").
On July 1, 1995, the Company entered into separate Manufacturing and
Distribution Agreements (the "Agreements") with Image Technology International
(Far East) Ltd. ("ITFE"), a Hong Kong limited company and wholly-owned
subsidiary of ITII. In conjunction with the Agreements, the Company appointed
and licensed ITFE to act as its agent in Hong Kong and the Far East, including
China, to supervise and assist in the manufacture and distribution of 3D
consumer products, including supervision of and technical assistance in the
manufacturing processes in China and in Hong Kong, as well as the photo
finishing facility.
As compensation for the services rendered by ITFE under the Agreements, ITFE
receives a commission or fee equivalent to 10% of the gross sales price of all
3D consumer products sold in Asia through the efforts of ITFE, reduced by any
commissions due on any such sale to any other authorized agent participating in
the sale, and a fee of 4% of the manufactured cost of all 3D consumer products
manufactured in China or Hong Kong for acting as shipping, purchasing and
disbursing agent for the Company.
F-8
<PAGE> 26
3D Image Technology, Inc.
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
NATURE OF OPERATIONS (continued)
The Company agreed to provide initial financial and other ongoing assistance to
ITFE at the commencement of and during the term of the Agreements. The
Agreements may be terminated with written notice by either party.
In October 1994, the Company acquired its Netherlands distributor and
photofinisher and established 3D Image Technology Europe B.V. ("3DEU") in
Amsterdam as a wholly-owned subsidiary to act as a central laboratory for the
European market. The Company utilizes this location as a marketing center and
film processing laboratory for the European market.
The Company serves the Japanese market through a licensing agreement with Image
Technology Japan ("ITJ"), a joint venture in which the Parent owns a 40%
interest. The Parent granted licensing rights to ITJ in exchange for its
interest in the joint venture, in addition to $1,000,000 as payment of an
advance royalty and $1,000,000 for printer processing equipment. The other two
venture partners, which contributed cash and other assets, are Noritsu Koki
Company, Ltd., a manufacturer of one-hour printer processors, with 40%, and
Photo Craft Company, Ltd., operator of a commercial photographic laboratory in
Japan, owning 20%. ITJ has licensed the sale of the 3D Magic one-time-use
camera in Japan only to Kodak Japan, Ltd. and Konica, which are
distributing the 3D Magic camera in Japan under their own packaging and
trademarks. See Note 7.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned Netherlands subsidiary, 3D Image Technology Europe B.V.
("3DEU"). Intercompany accounts and transactions have been eliminated in
consolidation.
F-9
<PAGE> 27
3D Image Technology, Inc.
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues are recognized when the products are shipped or services are provided
to customers.
CASH EQUIVALENTS
The Company considers all investments purchased with a maturity of three months
or less to be cash equivalents.
INVENTORIES
Inventories of finished goods and work-in-process are stated at the lower of
cost or market. The First-In, First-Out (FIFO) method of determining cost is
used for valuing inventories.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
expense is calculated over the estimated useful lives of the related assets (5
to 10 years) using the straight line method for financial reporting purposes.
In March 1995, the FASB issued Statement No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by
F-10
<PAGE> 28
3D Image Technology, Inc.
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
PROPERTY AND EQUIPMENT (continued)
those assets are less than the assets' carrying amount. Statement 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. The Company will adopt Statement 121 in the first quarter of 1996 and,
has not yet evaluated the impact of adoption.
RESEARCH AND DEVELOPMENT
Research and development expenditures are expensed when incurred.
CONCENTRATION OF CREDIT RISK
Approximately 36% and 50% of the Company's 1995 and 1994 revenues were derived
through related and affiliated parties, respectively.
INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes. Such amounts are measured
using enacted tax rates and laws that are expected to be in effect when such
amounts reverse.
FOREIGN CURRENCY TRANSLATION
3DEU's assets and liabilities are translated at year-end rates of exchange and
revenues and expenses are translated at the average rates of exchange during
the year. The operations of 3DEU are not significant for the years ended
December 31, 1995 and 1994.
ADVERTISING COSTS
Advertising costs are expensed when incurred. Total advertising expense was
$84,403 and $130,511 for the years ended December 31, 1995 and 1994,
respectively.
F-11
<PAGE> 29
3D Image Technology, Inc.
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
NET LOSS PER COMMON SHARE
Net loss per common share is computed by dividing the net loss by the weighted
average number of common shares outstanding during the year.
SUPPLEMENTAL DISCLOSURE FOR STATEMENT OF CASH FLOWS
The exchange of common stock for assets (Note 2), various stock transactions
other than subscribed stock (Note 4), and unearned revenue (Note 7) are non
cash items that are not reflected in the Statement of Cash Flows.
2. ACQUISITION
Effective January 1, 1994, the Company issued 15,456,000 shares of its $.001
par value common stock in exchange for the net assets of Infinite Dimensions,
Inc., a wholly-owned subsidiary of ITII at that time. The transaction was
accounted for using the purchase method of accounting. The net assets of
$1,717,635 were exchanged at the historical basis, as follows:
<TABLE>
<S> <C>
Cash $ 12,051
Accounts receivable 149,102
Property, plant and equipment 1,640,621
Accounts payable (84,139)
----------
Net assets $1,717,635
==========
</TABLE>
F-12
<PAGE> 30
3D Image Technology, Inc.
Notes to Consolidated Financial Statements (continued)
3. INVENTORIES
Inventories at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------
<S> <C> <C>
Finished goods:
Consumer cameras $ 192,137 $ 384,543
Printer processors 201,152 253,620
Print material 919,462 492,103
Print material in process - 764,062
Raw materials and component parts 499,055 -
------------------------
$1,811,806 $1,894,328
========================
</TABLE>
4. SHAREHOLDERS' EQUITY
On January 1, 1994, the Company issued 919,000 shares of $.001 par value,
common stock primarily to certain former shareholders and employees of the
Parent. The shares are restricted based upon continued employment with the
Company. Of the total shares, 869,000 were issued in consideration for the
former shareholders making unsecured loans previously to IDI, and 50,000 shares
were issued as bonuses to employees. Total expense recorded for these
transactions was $113,000 and $6,500, respectively.
On June 30, 1994, the Company issued 850,250 shares of $.001 par value, common
stock in exchange for the cancellation of $1,700,500 of indebtedness. This
debt represented amounts owed by the Company to the Parent, and was for print
material production costs paid for by ITII on behalf of the Company.
On August 30, 1994, the Company entered into a subscription agreement with
Drummend Pal S.A. for the purchase of 500,000 shares at $2.00 per share of
$.001 par value, common stock. On October 21, 1994, this agreement was amended
to provide for the stock to be purchased in installments through December 31,
1995, at which point the stock would be issued.
F-13
<PAGE> 31
3D Image Technology, Inc.
Notes to Consolidated Financial Statements (continued)
4. SHAREHOLDERS' EQUITY (CONTINUED)
At December 31, 1994, $151,083 was received and included in accrued
liabilities, and no stock was issued. In 1995, the remaining subscription
amount was received and the related stock was issued. Such shares are
restricted and may not be sold for a period of two years from the date of the
subscription completion.
On September 1, 1994, the Company issued 150,000 shares of $.001 par value,
common stock in exchange for consulting services of an independent contractor.
The Company recorded compensation expense in 1994 totalling $225,000 in
conjunction with the services performed.
On September 10, 1994, the Company issued a warrant to a third party to
purchase 50,000 shares of $.001 per value common stock. The warrant carries
an exercise price of $1.50 per share and is exercisable at any time during the
five year period following the date of issuance.
5. INCOME TAXES
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109. The Company was included in ITII's consolidated tax return,
thus, the Company's net operating losses have been included with the net
operating losses of ITII. Under a separate return computation, there is no
current provision for income taxes.
The Company does not have a formal tax sharing agreement with the Parent.
F-14
<PAGE> 32
6. GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
1995 1994
-------------------------
<S> <C> <C>
Net Revenues:
Asia $ 3,084,334 $3,124,000
United States 1,515,779 612,811
Other 729,820 265,000
-------------------------
Total $ 5,329,933 $4,001,811
=========================
Net Loss:
Asia $ (567,527) $ (691,838)
United States (348,586) (135,712)
Other (309,619) (58,688)
-------------------------
Operating loss (1,225,732) (886,238)
Net interest expense (145,768) (111,197)
-------------------------
Net loss $(1,371,500) $ (997,435)
=========================
Identifiable Assets:
Asia $ 1,877,043 $1,098,379
United States 2,612,379 2,750,195
Other 253,129 181,822
-------------------------
Total $ 4,742,551 $4,030,396
=========================
</TABLE>
1995
Depreciation expense of $123,188, $82,321 and $6,695 for Asia, the United
States and Other, respectively, is included in the 1995 net loss
above. Capital expenditures amounted to $3,384, $180,747 and $21,766 for Asia,
the United States and Other, respectively.
1994
Depreciation expense of $126,495 and $56,860 for Asia and the United States,
respectively, is included in the 1994 net income (loss) above. Capital
expenditures amounted to $1,856 and $211,762 for Asia and the United States,
respectively.
F-15
<PAGE> 33
3D Image Technology, Inc.
Notes to Consolidated Financial Statements (continued)
7. RELATED PARTY TRANSACTIONS
The Company had transactions with ITII, the parent company, ITII's wholly-owned
subsidiary, Image Technology, Inc. ("ITT"), and Image Technology Japan ("ITJ"),
a 40%-owned joint venture of ITII. Transactions with affiliates consist of
direct sales through affiliates and collections from customers on sales by
affiliates, on the Company's behalf, in the Asian market. Such transactions
also consist of the allocation of general and administrative, research and
development, and selling expenses incurred by the Parent on the Company's
behalf and amounts charged to the Company by ITII for the supply of cameras
and printer processors on behalf of the Company. At December 31, 1995 and
1994, the net receivable from affiliates in accompanying balance sheets
totalled $0 and $119,523.
1994 unearned revenue represents a $448,618 deposit from ITJ for the future
delivery of print material. Total print material sales to ITJ were
approximately $1,972,000 and $1,992,000 for the years ended December 31, 1995
and 1994, respectively.
The Parent allocates approximately 75% of its general and administrative
expenses, including interest on officer loans described below, to the Company.
Several officers have advanced funds to the Parent representing cash advances,
unpaid salaries, and accrued interest thereon. These advances accrue interest
at prime rate plus 2%. The total outstanding amount due officers at December
31, 1995 and 1994 totalled approximately $2,141,000 and $1,977,000,
respectively. The Company is not a guarantor for the payment
of such advances. However, the Company's allocable portion of interest
totalled approximately $162,000 and $111,000 for the years ended December 31,
1995 and 1994, respectively.
F-16
<PAGE> 34
3D Image Technology. Inc.
Notes to Consolidated Financial Statements (continued)
8. COMMITMENTS AND CONTINGENCIES
On October 5, 1995, ITII and the Company approved a plan of merger of the
affiliated companies. Subsequent to the completion of this merger, the Company
will survive as the parent company of the affiliated group. Under the plan of
merger, each share of ITII common stock and Class A preferred stock will be
redeemed and cancelled by ITII. Such redemption will be effected through the
issuance of common shares of the Company, the survivor, in proportion
to the pre-merger ITII ownership. This plan of merger has been postponed.
See Note 9.
An affiliate of the Company, ITHK, is liable for unpaid legal fees totalling
approximately $600,000. Such legal fees were incurred by ITHK in connection
with an action taken as plaintiff in a Hong Kong court. ITHK ceased action
against the defendent.
F-17
<PAGE> 35
3D Image Technology, Inc.
Notes to Consolidated Financial Statements (continued)
8. COMMITMENTS AND CONTINGENCIES (continued)
No accrual for such legal fees have been made in the accompanying financial
statements. Counsel has advised the Company that such fees are a liability
solely of ITHK and such liabilities do not extend to the Company.
9. SUBSEQUENT EVENTS
On January 1, 1996, the Company issued warrants for the sale of 400,000
shares of $.001 par value common stock to Kalimar, Inc. (the "Warrant holder")
at a price of $2.40 per share. Such warrants have a term of one year and the
Warrant holder or its successors may sell, assign, exchange or transfer these
warrants in accordance with applicable securities laws. If the shares
underlying the warrants are not included in an effective registration statement
filed by the Company prior to registration, the Company has agreed to register
the shares. If the warrant is exercised according to its terms, the Company
also has agreed to issue a second warrant on similar terms, for 400,000 shares
at a price equal to 10% less the average trading price for the shares plus $.15
per share. In exchange for these warrants and in a separate agreement dated
January 30, 1996, Kalimar, Inc. agreed to market and distribute consumer
cameras to certain customers on behalf of the Company up to December 31, 1998.
On January 30, 1996, the Company executed a letter of intent with an Asian
investor (the "Investor"), prividing for equity financing in an amount equal to
or less than $20 million. On February 6, 1996, the Company received $3 million
as part of this financing agreement, and in exchange issued 1,492,537 common
shares as a price of $2.01 per share. The initial funding agreement (the
"Agreement") privided for a 90 day due diligence period, ending May 6, 1996, at
the conclusion of which, the Investor was to contribute an additional $17
million for an additional 8,457,711 shares of common stock. In the event that
the Investor determined not to make an additional investment, the Company,
pursuant to the Investor's exercise of the Put Right provision s of Section 11
of the Agreement, agreed to redeem such initial $3 million investment. If not
redeemed in cash, such amount was to be converted to a promissory note secured
by certain assets of the Company, and the Parent, due 120 days thereafter, with
interest thereon at prime plus 2%. On May 2, 1996, the Investor requested an
extension of the 90 day due diligence period. No extension was granted thus on
May 6, 1996, the Investor gave notice of their intention not to proceed with
the transaction and exercise the Put Right.
On May 21, 1996, the Company and the Investor amended certain sections of
the Agreement, which revoked the Investor's May 6 notices pertaining to the Put
Right and extended the due diligence period 90 days. In connection with the
amendment, the Company and the Investor agreed that in the event that the
Investor determines not to make an additional investment, the Put Right may be
exercisable during the period August 6, 1996 to August 13,1996 (including such
dates). If the Put Right is exercised but is not redeemed in cash, the unpaid
portion of the Put Right will be converted to a promissory note secured by
certain assets of the Company, and the Parent, due 60 days thereafter (on or
about October 6, 1996), with interest thereon at prime plus 2%. In addition,
the amendment removed provisions whereby the Investor had rights of first
refusal and anti-dilution provisions related to other issuances by the Company,
except that the Company is required to apply the proceeds of any such issuance
to repay any amounts which may be outstanding resulting from the Investor's
exercise of the Put Right. As a result, negotiations with other funding
sources, suspended under the original terms of the agreement, have been
resumed. The company has also delayed the plan of merger described in Note 8.
In March 1996, a subscription agreement for 500,000 shares of common stock
of the Company was executed and the shares were issued for total consideration
of $1,175,000 received by the Company. A second subscription agreement for the
same price and number of shares has also been signed and is due June 6, 1996.
This subscriber is not affiliated in any way with the Company or any officer,
director, or employee of the Company.
F-18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF 3D IMAGE TECHNOLOGY FOR THE YEAR ENDED DECEMBER 31,
1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 360,571
<SECURITIES> 0
<RECEIVABLES> 783,623
<ALLOWANCES> 29,000
<INVENTORY> 1,811,806
<CURRENT-ASSETS> 3,073,254
<PP&E> 2,027,125
<DEPRECIATION> 369,279
<TOTAL-ASSETS> 4,742,551
<CURRENT-LIABILITIES> 2,348,851
<BONDS> 0
0
0
<COMMON> 19,125
<OTHER-SE> 2,374,575
<TOTAL-LIABILITY-AND-EQUITY> 4,742,551
<SALES> 5,329,933
<TOTAL-REVENUES> 5,329,933
<CGS> 3,029,752
<TOTAL-COSTS> 3,029,752
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 145,768
<INCOME-PRETAX> (1,371,500)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,371,500)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,371,500)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
