<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended
June 30, 1996 Commission File No. 33-27627
- --------------------------------------------------------------------------------
3D IMAGE TECHNOLOGY, INC.
-------------------------
(Exact name of Registrant as specified in its charter)
Delaware 76-0265438
-------- ----------
(State of Incorporation) (IRS Employer Identification No.)
5172-G Brook Hollow Parkway, Norcross, Georgia 30071
- ---------------------------------------------- -----
(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)
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 PERIODS THAT
THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES XXX NO
--- ---
19,625,250 COMMON SHARES WERE OUTSTANDING AS OF JUNE 30, 1996
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INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
<S> <C>
Condensed Consolidated Balance Sheets
as of June 30, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Condensed Consolidated Statements of Operations
three months ended June 30, 1996 and 1995; six months ended June 30, 1996 and 1995 . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Cash Flows
six months ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Condensed Consolidated Financial Statements June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 2. Change In Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3. Defaults upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
Signatures
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3D IMAGE TECHNOLOGY, INC.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
(Unaudited) (Note)
--------- ----------
<S> <C> <C>
ASSETS
Currents assets:
Cash and cash equivalents $1,126,540 $ 360,571
Accounts receivable, net 908,614 754,623
Receivables from affiliates, net 1,186,852 -----
Inventories 1,770,813 1,811,806
Prepaid expenses and other current assets 181,129 146,254
---------- ----------
Total current assets 5,173,948 3,073,254
Property and equipment, at cost:
Machinery and equipment 2,090,813 1,994,757
Leasehold improvements 13,321 13,321
Furniture and fixtures 19,047 19,047
---------- ----------
2,123,181 2,027,125
Less accumulated depreciation 474,753 369,279
---------- ----------
1,648,428 1,657,846
Other assets 5,726 11,451
---------- ----------
Total assets $6,828,102 $4,742,551
========== ==========
</TABLE>
NOTE:
The balance sheet at December 31, 1995 was derived from the audited financial
statements at that date, but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
1
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3D IMAGE TECHNOLOGY, INC.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
(Unaudited) (Note)
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Trade accounts payables $1,012,204 $2,041,088
Promissory note payable 3,000,000 --
Accrued liabilities 45,301 255,706
Unearned revenue 49,041 52,057
---------- ----------
Total current liabilities 4,106,546 2,348,851
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 - 19,625,250 and
19,125,250 shares 19,625 19,125
Additional paid-capital 5,924,510 4,749,510
Accumulated deficit -3,222,579 -2,374,935
---------- ----------
Total shareholders' equity 2,721,556 2,393,700
---------- ----------
Total liabilities and shareholders' equity $6,828,102 $4,742,551
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
2
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3D IMAGE TECHNOLOGY, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------- ---------
1996 1995 1996 1995
--------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net Revenue:
Print Material $ 81,528 $ 29,553 $ 177,325 $2,060,161
Cameras 641,253 489,153 1,251,018 761,408
Printer Processors 113,087 77,000 633,875 152,000
Print Development 231,606 139,899 398,506 236,226
---------- ----------- ----------- ----------
Total Net Revenue 1,067,474 735,605 2,460,724 3,209,795
Cost of Sales
Print Material 47,268 11,427 103,260 1,269,111
Cameras 457,656 202,866 886,603 325,090
Printer Processors 67,852 48,918 358,834 98,522
Print Development 165,119 216,743 315,645 246,303
---------- ----------- ----------- ----------
Total Cost of Sales 737,895 479,954 1,664,342 1,939,026
---------- ----------- ----------- ----------
Gross Margin 329,579 255,651 796,382 1,270,769
Operating Expenses
Selling Expense 157,159 129,415 417,722 219,698
Research and Development 103,360 70,938 210,103 141,876
General and Administrative 454,042 662,137 947,618 1,324,274
---------- ----------- ----------- ----------
Total Operating expenses 714,561 862,490 1,575,443 1,685,848
---------- ----------- ----------- ----------
Operating Loss -384,982 -606,839 -779,061 -415,079
Net Interest Expense -33,578 - 36,443 -68,583 -72,884
---------- ----------- ----------- ----------
Net Loss $ -418,560 $ -643,282 $ -847,644 $ -487,963
========== =========== =========== ==========
Net loss per share $ -.02 $ -.03 $ -.04 $ -.02
========== =========== =========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
3
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3D IMAGE TECHNOLOGY, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
-------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Loss $ -847,644 $-487,963
Adjustments to reconcile net income/(loss),
to net cash used in operating activities:
Depreciation 112,205 107,032
Changes in operating assets and liabilities:
Accounts Receivable -153,991 -119,658
Inventories 40,993 7,667
Prepaid expenses and other -35,881 -2,443
Accounts payable and accrued expenses -1,028,884 1,410,209
Other liabilities and unearned revenue -213,421 -362,076
---------- ---------
Net cash (used) provided by operating activities -2,126,623 552,768
INVESTING ACTIVITIES
Purchases of property and equipment -96,056 ---
---------- ---------
Net cash used in investing activities -96,056 ---
FINANCING ACTIVITIES
Proceeds from promissory note payable 3,000,000 ---
Proceeds from common stock subscribed 1,175,500 -169,691
Net increase in receivable from affiliates -1,186,852 120,000
---------- ---------
Net cash used in financing activities 2,988,648 -49,691
Increase in cash 765,969 503,077
Cash, beginning of period 360,571 56,745
---------- ---------
Cash, end of period $1,126,540 $ 559,822
========== =========
</TABLE>
See notes to condensed consolidated financial statements.
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3D IMAGE TECHNOLOGY, INC.
Notes to Condensed Consolidated Financial Statements
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with instructions to Form 10-QSB and Article
10 of Regulation S-X. Accordingly they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month periods
ended June 30, 1996, are not necessarily indicative of results that may be
expected for the year ended December 31, 1996. Certain reclassifications have
been made in the first quarter Condensed Consolidated Statements of Operations
between cost of sales, and operating expenses (including selling expense,
research and development, and general and administrative). For further
information, refer to the consolidated financial statements and footnotes
thereto included in the 3D Image Technology, Inc. annual report on Form 10-K
for the year ended December 31, 1995.
Note B - Inventories
Inventories at June 30, are summarized as follows:
<TABLE>
<CAPTION>
1996
----
<S> <C>
Finished goods:
Consumer cameras $ 125,697
Printer processors 95,131
Print material 906,746
Raw material and component parts 643,239
----------
$1,770,813
==========
</TABLE>
Note C - Shareholders' Equity
On January 30, 1996, the Company executed a letter of intent with an Asian
investor (the "Investor"), providing 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 at a price of $2.01 per share. The initial funding agreement
(the "Agreement") provided 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.
5
<PAGE> 8
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 provisions of
Section 11 of the Agreement, agreed to redeem such initial $3 million
investment. If not redeemed in cash, such amount would 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. On August 12, 1996, the Investor gave notice of its intent to exercise
the Put Right, and the conversion of the equity investment to a promissory note
has been reflected in the financial statements for the quarter ended June 30,
1996.
In March 1996, a previous subscription agreement for 500,000 shares of common
stock of the Company was funded and the shares were issued for total
consideration of $1,175,000 received by the Company. This subscriber is not
affiliated in any way with the Company or any officer, director, or employee of
the Company.
On March 8, 1996 this same investor executed a second subscription
agreement for 500,000 share at $2.35 per share, due May 8, 1996. On May 4,
1996, this Agreement was extended to June 8, 1996, and it has now been extended
to September 8, 1996.
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 the exercise date, the Company has agreed to
register the shares and to extend the exercise date in order to complete the
registration. 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
6
<PAGE> 9
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.
Note D - Contingent Matters
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 canceled 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 was postponed because of continuing negotiations with an
Asian investor group for a significant capital investment in the Company and
continuing management discussions regarding the optimum corporate structure
after the merger. It is anticipated that the merger will be submitted to the
shareholders at the next shareholder meeting, and will be completed on December
31, 1996.
Image Technology (Hong Kong) Ltd. (ITHK), an affiliate of the Company, is
liable for legal fees estimated to be in the range of $600,000, arising out of
a lawsuit filed by ITHK on its own behalf and on behalf of two unrelated
Chinese companies seeking damages for fraud and misrepresentation. The
defendants in that suit, an individual resident of Hong Kong and companies
controlled by or affiliated with that individual, were represented by Hong Kong
Legal Aid, after claiming no assets or income to pay legal expenses. While
ITHK believes that the individual transferred and concealed assets to avoid
liability, the cost of proceeding with the lawsuit was prohibitive and
collection of any judgment was problematic. Accordingly, ITHK withdrew the
lawsuit, giving rise to liability for legal fees under the Hong Kong (British)
system of reimbursement of costs of litigation. ITHK has made formal
application for dissolution under Hong Kong law, and is in the process of
winding up. The dissolution of ITHK, which has no assets, is not expected to
have any effect on ITII or the Company. The Company has obtained a formal
opinion of independent Hong Kong legal counsel that the Company has no
liability for any legal fees or costs assessed against ITHK.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Total sales increased by $331,900, to approximately $1,067,500 for the quarter
ended June 30, 1996, from approximately $735,600 for the quarter ended June 30,
1995. This increase was a direct result of increases in sales, primarily
increases in cameras sales of $152,100 and related print development sales
increases of $91,700.
7
<PAGE> 10
For the two quarter period ended June 30, 1996 total sales decreased by
$749,000 to approximately $2,460,700 for the period ended June 30, 1996, from
approximately $3,209,800 for the period ended June 30, 1995. This decrease was
the result of one large sale of print material in the first quarter of 1995 of
$1,900,000, which was not repeated in 1996. This drop in print material sales
in 1996 sales was mitigated by increases in consumer camera sales of $489,600,
printer processor sales of $481,900, and print development sales of $162,300.
Cost of sales was $737,900 for the quarter ended June 30, 1996, an increase of
approximately $257,900, from approximately $480,000 for the quarter ended June
30, 1995. This increase was directly related to increased sales volumes of
cameras, printer processors, and print development.
Cost of sales decreased by approximately $274,700, from approximately
$1,939,000 for the two quarter period ended June 30, 1995 to approximately
$1,664,300 for the period ending June 30, 1996. This decrease was directly
related to decreased print material sales which was offset by higher sales
volumes of cameras, printer processors, and print development.
Gross margins on revenues increased from approximately $255,700 for the quarter
ended June 30, 1995 to approximately $329,600 for the quarter ended June 30,
1996, as the Company's sales increased. The gross margin percentage for the
quarter ended June 30, 1996 was 31% as compared to 35% for the quarter ended
June 30, 1995.
Gross margins on revenues decreased from approximately $1,270,800 for the two
quarter period ended June 30, 1995 to approximately $796,400 for the period
ended June 30, 1996, due to the decline in print material sales discussed
above which was offset by increases in other products. The gross margin
percentage for the two quarter period ended June 30, 1996 was 32% as compared
to 40% for the period ended June 30, 1995.
Selling expenses were approximately $157,200 for the quarter ending June 30,
1996, or 15% of total revenues, as compared to approximately $129,400 for the
quarter ending June 30, 1995, or 18% of total revenues. Selling expenses were
approximately $417,700 for the two quarter period ended June 30, 1996, or 17%
of total revenues, as compared to approximately $219,700 for the period ended
June 30, 1995, or 7% of total revenues. Additional selling expenses bear a
direct relationship to increased camera sales.
Research and development expenses increased from approximately $71,000 for the
quarter ended June 30, 1995 to approximately $103,400 for the quarter ended
June 30, 1996. For the two month period ended June 30, 1996 research and
development expenses were $210,100, an increase over the expenditure of
$141,900 for the same period ended June 30, 1995. Such expenditures are
associated with research and development of existing and potential new three
dimensional products and services.
The net loss for the quarter ended June 30, 1996 was $418,600, as compared to a
loss of $643,300 for the same period last year, a decline of $224,700. The
decline in the loss between quarters is due primarily to an increase in gross
margin of $73,900 and lower general and
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<PAGE> 11
administrative expenses of $208,100. For the six month period ended June 30,
1996 the net loss was $847,644, as compared to $488,000 for the same period in
1995. This increase in year-to-date losses of $359,700 in 1996, as compared to
1995, is a direct result of the decrease in gross margin from the decline in
print material sales.
Management is currently focused on restructuring the operations of the Company
to achieve expense reductions in light of increased sales volumes for cameras,
printer processors, and print development, and is in the process of formalizing
a plan to bring the Company to profitability by the end of this year.
Receivables from affiliates increased in 1996 due to the payment of a large
print material invoice for a related company by the Company, and payments of
intercompany expenses. Management expects this balance to be repaid by the end
of 1996. This affiliate is included in the plan of merger discussed in Note D.
Trade accounts payable decreased by $1,029,900 in 1996 due to the payment of a
large balance due to an unrelated party for print material. The increase of
$3,000,000 in promissory note payable is a result of the exercise of the Put
Right by a former investor as discussed in Note C.
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 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 has adopted Statement
121 in the first quarter of 1996 and, based on the best information available
regarding the undiscounted cash flows from future operations, no recognition of
impairment losses is required on any company assets.
Liquidity and Sources of Capital
Cash used by operations during the period ended June 30, 1996 totaled
approximately $2,126,000 as compared to cash provided by operations for the
period ended June 30, 1995 totaling approximately $552,800.
On January 30, 1996, the Company executed a letter of intent with an Asian
investor (the "Investor"), providing 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 at a price of $2.01 per share. The initial funding agreement (the
"Agreement") provided 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 provisions 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
9
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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. On August 12, 1996, the Investor gave notice of its intent to exercise
the Put Right, and the conversion of the equity investment to a promissory
note has been reflected in the financial statements for the quarter ended June
30, 1996.
Management of the Company continues to seek additional sources of capital.
Management believes that 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. A preliminary agreement has been entered into on
August 5, 1996 with another investor which will result in a total investment of
$20,000,000 for 10,000,000 shares of common stock, if completed. Management is
continuing to pursue this agreement and a meeting has been scheduled with this
investor group in Atlanta during the last half of August. No assurance can be
given that the Company will be able to obtain additional capital in order to
continue the Company's investment in marketing, distribution, and the
establishment of a print development network.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There were no material proceedings pending in 1996 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
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<PAGE> 13
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, Defendants 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 and the period for discovery has now ended, although
the Defendants engaged in no discovery. Defendants recently filed a motion to
disqualify ITII's legal counsel in the action on the grounds that he was also a
director of ITII and the Company and allegedly owned an interest in either ITII
or the Company. Defendants' theory was that, if such an interest existed and,
as Defendants further argued, ITII sought the restraining order against further
false statements by Defendants, solely as an anti-competitive device to prevent
Defendants from entering into the 3D consumer markets, then ITII's counsel
would have a conflict of interest. As a second theory, Defendants argued that
the Company, with the assistance of counsel, issued unregistered shares in 1993
to a Bahamas company, Drummend Pal, S.A., an unrelated entity, in reliance on
the Regulation S exemption from registration, but that this exemption did not
apply. This motion has been responded to on behalf of ITII, denying that any
such conflict exists, among other reasons because counsel owns no stock or
stock options either in the Company or in ITII. With respect to the alleged
Regulation S offering violation, prior to 1994, the Company was an inactive
shell company, was unaffiliated with ITII, and did not issue any shares to
Drummend Pal, S.A. or to anyone else in 1993. The Company first became
affiliated with ITII in January 1994 (after the alleged, but non-existent,
Regulation S offering), when the Company acquired all of the assets of a
subsidiary of ITII for stock. No decision has been entered yet by the Court,
although ITII is confident that the motion will be denied since there is no
basis for the motion. In addition, despite lack of any factual or legal basis
for the motion to disqualify, ITII's counsel in the lawsuit, Mr. Robert Hipple,
advised the Board of Directors of the Company that he would not stand for
re-election to the Board of the Company or ITII at the next annual shareholder
meeting, so that similar frivolous motions can be prevented. On June 5, 1996,
Defendants also filed a Motion to Dissolve the Temporary Restraining Order, on
the grounds that it had been entered without their consent and knowledge,
despite actual service on Defendants and their appearance at the last hearing
extending the restraining order. The Temporary Restraining Order which
Defendents seek to dissolve prohibits them from making additional false claims
and misstatements. This motion also has been responded to by ITII.
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<PAGE> 14
Item 2. Change in Securities
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 paid for and the shares were issued for total consideration of
$1,175,000 received by the Company. A second subscription agreement for an
additional 500,000 shares was executed by the same party at the same price on
March 8, 1996. Payment of the subscription amount was due on May 8, 1996, but
has been extended to September 8, 1996.
12
<PAGE> 15
Item 3. Defaults upon Senior Securities
None.
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 second quarter of the fiscal period covered by this report.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule (for SEC use only)
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.
August 14, 1996 /s/ ALLEN LO
- ----------------------------- ------------------------------------
Date ALLEN LO
Chairman and Chief Executive Officer
August 14, 1996 /s/ SUNNY IP
- ----------------------------- ------------------------------------
Date SUNNY IP
Director and Treasurer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF 3D IMAGE TECHNOLOGY, INC. FOR THE SIX MONTHS ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,126,540
<SECURITIES> 0
<RECEIVABLES> 2,095,466
<ALLOWANCES> 0
<INVENTORY> 1,770,813
<CURRENT-ASSETS> 5,173,948
<PP&E> 2,123,181
<DEPRECIATION> 474,753
<TOTAL-ASSETS> 6,828,102
<CURRENT-LIABILITIES> 4,106,546
<BONDS> 0
0
0
<COMMON> 19,625
<OTHER-SE> 2,701,931
<TOTAL-LIABILITY-AND-EQUITY> 6,828,102
<SALES> 2,460,724
<TOTAL-REVENUES> 2,460,724
<CGS> 1,664,342
<TOTAL-COSTS> 1,664,342
<OTHER-EXPENSES> 1,575,443
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68,583
<INCOME-PRETAX> (847,644)
<INCOME-TAX> 0
<INCOME-CONTINUING> (847,644)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (847,644)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> 0
</TABLE>
