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
March 31, 1997 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, including area code: (770) 416-8848
(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 _____
21,117,788 COMMON SHARES WERE OUTSTANDING AS OF MARCH 31, 1997
INDEX
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
as of March 31, 1997 and December 31, 1996 1
Condensed Consolidated Statements of Operations
three months ended March 31, 1997 and 1996 3
Condensed Consolidated Statements of Cash Flows
three months ended March 31, 1997 and 1996 4
Notes to Condensed Consolidated Financial Statements March 31, 1997 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Part II. Other Information
Item 1. Legal Proceedings 9
Item 2. Change In Securities 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
Signatures
3D Image Technology, Inc.
Condensed Consolidated Balance Sheets
March 31, December 31
1997 1996
(Unaudited) (Note)
ASSETS
Currents assets:
Cash and cash equivalents $ 36,888 $ 55,138
Accounts receivable, net 751,793 1,339,228
Inventories 1,683,639 1,813,976
Prepaid expenses and other current assets 83,309 72,147
Total current assets 2,555,629 3,280,489
Property and equipment, at cost:
Machinery and equipment 2,119,441 2,094,973
Leasehold improvements 12,852 16,514
Furniture and fixtures 20,068 19,807
2,152,361 2,131,294
Less accumulated depreciation (596,473) (541,490)
Net property and equipment 1,555,888 1,589,804
Total assets $4,111,517 $4,870,293
Note:
The balance sheet at December 31, 1996 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.
3D Image Technology, Inc.
Condensed Consolidated Balance Sheets
March 31 December 31
1997 1996
(Unaudited) (Note)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Promissory note in default $3,000,000 $3,000,000
Trade accounts payable 770,182 816,251
Payable to affiliates 428,104 428,104
Accrued liabilities 346,742 285,594
Other current liabilities 8,243 -------
Total current liabilities 4,553,271 4,529,949
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 - 21,117,788(including
1,492,538 shares of redeemable common stock) 19,625 19,625
Additional paid-capital 5,806,510 5,806,510
Accumulated deficit (4,207,745) (3,698,804)
Less: Receivables from affiliates (2,060,144) (1,786,987)
Total shareholders' equity (441,754) 340,344
Total liabilities and shareholders' equity $4,111,517 $4,870,293
See notes to condensed consolidated financial statements.
3D Image Technology, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31,
1997 1996
Net Revenue:
Print Material $ 31,298 $ 95,797
Cameras 207,180 609,765
Printer Processors ------- 520,788
Print Development 286,505 166,900
Total Net Revenue 524,983 1,393,250
Cost of Sales
Print Material 20,312 55,992
Cameras 118,797 359,099
Printer Processors ------- 290,982
Print Development 171,159 81,619
Total Cost of Sales 310,268 787,692
Gross Margin 214,715 605,558
Operating Expenses
Selling Expense 107,250 315,349
Research and Development 72,751 37,780
General and Administrative 444,783 646,508
Total Operating expenses 624,784 999,637
Operating (Loss)/Income (410,069) (394,079)
Net Interest Expense (98,871) ( 35,005)
Net (Loss)/Income $(508,940) $(429,084)
Loss per common share $ (.03) $ (.03)
Weighted average shares outstanding 19,500,250 19,500,250
See notes to condensed consolidated financial statements.
3D Image Technology, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
OPERATING ACTIVITIES March 31,
1997 1996
Net (Loss)/Income $(508,940) $(429,084)
Adjustments to reconcile net income/(loss),
to net cash used in operating activities:
Depreciation 54,983 51,329
Changes in operating assets and liabilities:
Accounts Receivable 587,435 (26,147)
Inventories 130,337 155,664
Prepaid expenses and other assets (11,162) (10,431)
Accounts payable and accrued expenses (46,069) 2,899,291
Other liabilities and unearned revenue 69,390 --------
Net cash provided by operating activities 275,974 2,640,622
INVESTING ACTIVITIES
Purchases of property and equipment (21,067) (89,150)
Net cash used in investing activities (21,067) ( 89,150)
FINANCING ACTIVITIES
Net increase in receivable from affiliates (273,157) (1,083,617)
Proceeds from common stock subscribed ---------- 1,057,500
Net cash used in financing activities (273,157) (26,117)
Increase (decrease) in cash (18,250) 2,525,355
Cash, beginning of quarter 55,138 360,571
Cash, end of quarter $36,888 $2,885,926
See notes to condensed consolidated financial statements.
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 ended March 31, 1997, are not necessarily indicative of results that may
be expected for the year ended December 31, 1997. 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, 1996.
Note B - Inventories
The components of inventory consist of the following:
March 31 December 31
1997 1996
Finished good
Consumer cameras $ 110,151 $ 108,249
Printer processors 302,972 271,126
Print material 534,737 684,127
Raw material and component parts 735,779 750,474
$1,683,639 $1,813,976
Note C - Shareholders' Equity
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 warrants 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. Since the shares underlying the initial warrants have
not been included in an effective registration statement, the one year warrant
exercise period has not yet commenced.
In September 1996, the Company issued warrants for the sales of 60,000
shares of $.001 par value common stock to Legacy Investments Group, Inc.,
a contractor for the Company, at a price of $2.63 per share. The warrants
expire on September 13, 2001.
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.
Note D - Contingent Matters
Included in accounts payable at March 31, 1997 is approximately
$615,000 payable to a vendor for print material. This balance is past due
and accrues interest at the rate of 24% per annum, beginning on June 1, 1996,
payable monthly. For the three months ended March 31, 1996 and 1997, interest
paid and incurred on such indebtedness totaled approximately $0 and $37,000,
respectively.
The Company is a named defendant in a legal proceeding filed by a former
employee of the parent of the company and a Dutch corporation in which that
former employee is a shareholder. The litigation arises out of a proposed
acquisition of the Dutch corporation by the parent of the company.
Management of the Company does not believe that such actions will result in
material adverse judgments against the Company and has obtained an opinion
of counsel to that effect.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
In the first quarter of 1997, the Company increased print development
sales. Print material sales were approximately the same percentage as
compared to the first quarter of 1996. Sales by product type in 1997 as
compared to 1996 were as follows:
Revenues 1997 % 1996 %
Print Materials $ 31,298 6 % $95,797 6%
Cameras $207,180 40% $609,765 44%
Printer Processors --------- ------ $520,788 38%
Print Development $286,506 54% $166,900 12%
Total sales decreased by $868,000, to approximately $525,000 for the quarter
ended March 31, 1997, from approximately $1,393,000 for the quarter ended
March 31, 1996. This decrease was the result of the sale of six printer
processors in the first quarter of 1996, which was not repeated in the first
quarter of 1997.
Cost of sales decreased by approximately $478,000 from approximately $788,000
for the quarter ended March 31, 1996, to approximately $310,000 for the quarter
ended March 31, 1997. This decrease was directly related to the decrease in
printer processors and camera sales.
Gross margins on revenues decreased from approximately $606,000 for the
quarter ended March 31, 1996 to approximately $215,000 for the quarter ended
March 31, 1997, as the Company sold fewer cameras and printer processors in
the first quarter of 1997 compared to the first quarter in 1996. The gross
margin percentage for the quarter ended March 31, 1997 was 41% as compared to
43% for the quarter ended March 31, 1996.
Selling expenses decreased from approximately $315,000 for the quarter ended
March 31, 1996, to approximately $107,000 for the quarter ended
March 31, 1997.
Research and development expenses were approximately $73,000 for the quarter
ended March 31, 1997, or 14% of total revenues, as compared to
approximately $38,000 for the quarter ended March 31, 1996, or 3% of total
revenues. Such expenditures are associated with research and development of
existing and potential new three dimensional products and services.
Interest expense was up in 1997 due primarily to the interest on the
$3,000,000 promissory note and interest paid on a past due accounts payable .
The net loss increased by approximately $80,000 from approximately $429,000 to
approximately $509,000 for the quarter ended March 31, 1996 and 1997,
respectively. The increase in the 1997 loss as compared to 1996 is primarily a
result of a decrease in sales, netted against decrease in selling, research and
development and general and administrative expenses , and increases in interest
expense.
Receivables from affiliates increased in 1997 due to payments made by the
Company during the first quarter in the amount of $247,000 to satisfy an
outstanding bank loan of an affiliate which is responsible for commercial 3D
market development. This affiliate is a wholly owned subsidiary of the Parent,
ITII.
Accounts payable decreased by approximately $46,000, from approximately
$816,000 for the year ended December 31, 1996 to approximately $770,000 for the
quarter ended March 31, 1997. This decrease is attributable to a significant
reduction in amounts due to a trade creditor for purchases of print material.
Payables to affiliates was $428,000 for the quarter ended March 31, 1997, and
$428,000 for the year ended December 31, 1996 due to the purchase of print
material.
Liquidity and Sources of Capital
Cash provided by operations during the period ended March 31, 1997 totaled
approximately $276,000 as compared to cash provided by operations for the
period ended December 31, 1996 totaling approximately $2,340,000. This change in
cash provided resulted primarily from a decrease in accounts payable to a
trade vendor for print material.
As shown in the accompanying financial statements, the Company has incurred
recurring losses from operations which has also resulted in a working capital
deficiency. These factors raise substantial doubt about the Company's ability
to continue as a going concern.
On January 30, 1996, the Company executed a letter of intent with an Asian
investor (the "Investor"), providing for equity financing in an amount up to
$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 would determine whether to contribute an
additional $17 million for an additional 8,457,711 shares of common stock.
On May 21,1996, the Company and the Investor amended certain sections of the
Agreement and extended the due diligence period 90 days. If the Investor
then 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 certain assets of the Company, and the parent, due 120 days
thereafter, with interest at prime plus 2%.
The investor determined not to make the additional investment and, as
agreed, the shares were redeemed for a promissory note for $3 million, secured
by fixed assets of the Company and its parent, as well as the shares. After
several extensions of the due date of the promissory note, the Investor called
the note during the quarter and the $3 million note is reflected as past due.
Management continues to work with the Investor regarding this liability.
On May 16, 1997, the Company approved a restructuring of the management and
operations of the Company and accepted a proposed investment of $3.8 million
in the Company by Olajuwon Venture Capital, Inc. of Houston, Texas. Under
the proposed restructuring plan, the Company will terminate the direct
manufacturing operation now conducted in China and will contract with
independent camera manufacturers in China to manufacture cameras for the
Company. Initially, the Company will contract with Image Technology
International ( Far East), Ltd., a subsidiary of the parent of the Company
which has acted as manager of the Company's manufacturing facilities.
The Company intends to negotiate a fixed delivered price per camera and
will no longer directly support the China operations. Management anticipates
substantial savings from this restructure . This operational savings,
together with further reductions in operating costs in Europe and United
States, are expected to return the Company to profitable status by the end of
the year. The new investment by Olajuwon Venture Capital Inc. of $3.8 million
for 7.6 million shares of common stock of the Company, will be contributed in
installments as needed for operations over the remainder of the year,
by December 31,1997.
In conjunction with the restructuring of the Company and the investment by
Olajuwon Venture Capital, Inc. the parent of the Company also has granted
Olajuwon Venture Capital, Inc. an option to acquire 6,500,000 shares of the
Company's common stock now held by it, and has given Olajuwon Venture Capital,
Inc. an irrevocable proxy to vote the option shares during the two year term
of the option. As a result of the additional investment in the Company and
the option arrangement, Olajuwon Venture Capital, Inc. will acquire control
of the company.
Part II. Other Information
Item 1. Legal Proceedings
On February 21, 1997, Image Technology International, Inc., parent of the
Company, filed a Declaratory Judgment action in the Superior Court of
Gwinnett County against Andrew Joel, ND3D B.V., Ruud Kallenbach and Marc
Wolters, seeking to declare that an Acquisition and Cooperation Agreement
dated June 21, 1995 between Image Technology International, Inc., ND3D BV and
ElectroGig Netherlands BV was not an enforceable contract and that the terms
of the agreement had never been satisfied. The Agreement proposed the
acquisition by Image Technology International, Inc. of either the Assets or
the stock of ND3D, with the form of the acquisition to be determined at
a later date, and also proposed the formation of a joint marketing and
distribution venture with ElectroGig and the delivery to Image Technology of
500 copies of new ElectroGig 3D software, represented to have a retail value
of $10,000 per copy.
The proposed transaction was subject to a number of conditions, including
approval by the Boards of Directors of all three entities, agreement on
the actual structure of the proposed acquisition and the delivery of a
detailed asset list by ND3D, all of which were required to be completed by
July 15, 1995. The proposed acquisition was never submitted to the Board of
Image Technology for approval because none of the conditions was met by
either ND3D or ElectroGig. One of the named defendants, Andrew Joel, who was an
officer and indirectly, a minority shareholder of M\ND3D BV, a Dutch company,
became an employee of Image Technology, Inc. on July 17, 1995 after the
Agreement had expired. Ruud Kallenbach was another minority shareholder of
ND3D BV, and ElectroGig, another Dutch company, held the majority interest.
Marc Wolters is the court appointed administrator of the bankruptcy estate
of ElectroGig, which filed for bankruptcy in the Netherlands in the summer
of 1996. Had the proposed transactions in the Agreement been carried out,
then the consideration payable on July 15, 1995 by Image Technology
International, Inc. for either the ND3D stock or assets, the 500 copies of
ElectroGig software and the joint venture
elationship with EletroGig, would have been 3.25 percent of the shares of the
parent company estimated to be outstanding after the completion of the
merger of the Company into Image Technology International, Inc., which was
then under discussion. The Agreement estimated that the number of shares
would be 1,300,000 shares, but that estimate assumed that an equity
investment in Image Technology then under discussion, and which would have
involved the issuance of an additional 10 million shares, was completed.
Nither the merger nor the investment was in fact completed and the merger of
the Company and Technology International, Inc. scheduled for December 31, 1995,
was postponed indefinitely for unrelated reasons and has now been canceled.
The action also sought a determination that Mr. Joel, who was indicted on
January 23, 1997 by a federal grand jury in Colorado for RICO, RICO
conspiracy, money laundering and conspiracy to distribute cocaine, had
breached his employment agreement with Image Technology International, Inc.
Mr. Joel was suspended from his employment effective January 27, 1997 and was
terminated on February 25, 1997. Mr. Joel's indictment was based on
allegations predating his employment by Image Technology International, Inc.,
and prior to his relocation from United States to the Netherlands, and Image
Technology had no knowledge of the matter prior to the return of the
indictment. The action also sought an injunction against the defendants to
restrain them from contacting Image Technology's officers, directors, employees,
agents, customers and clients, each of which they had threatened unless
Image Technology International, Inc. delivered 1,300,000 shares of common
stock to defendants. Image Technology International, Inc. considered these
threats to be extortionate, since it had received no consideration under
the expired Agreement, and refused the demands.
On February 27, 1997, one day before a scheduled hearing on Image
Technology's request for a temporary restraining order, Mr. Wolters removed
the case from the state court to the federal court in Atlanta on the theory
that, as a Dutch court appointed administrator of the ElectroGig bankruptcy
estate, he was a "sovereign foreign state". Simultaneously, ND3D BV filed
a separate action in the Atlanta federal court seeking unspecified damages,
including delivery of the shares provided for in the expired Agreement and
damages for alleged delivery by ND3D of its assets to Image Technology without
compensation. The new lawsuit named Image Technology International, Inc., the
Company, Allen Lo, President of the Company, and Robert Hipple, Secretary of
the Company, as defendants, although only Image Technology International,
Inc. was a party to the expired Agreement on the basis of which ND3D filed
its suit, and only Image Technology International, Inc. allegedly
received any benefit from the relationship with ND3D. All of the named
defendants in the second action filed a Motion to Dismiss the case on
multiple grounds, including failure to state a cause of action and lack of
jurisdiction in federal court. The Motion is
still pending along with a Motion to Remand the original case filed by
Image Technology International, Inc., seeking to return the case to the
State court so that Image Technology can pursue its declaratory judgment
request that the Agreement on which ND3D is claiming recovery is null and
void. The Company has obtained an opinion of independent counsel that the
claim by ND3D against the Company is completely without merit and appears to
have been filed against it primarily as leverage in an attempt to extort a
settlement from Image Technology International, Inc. The Company intends to
vigorously defend against the unsupported claims of ND3D and will pursue
frivolous litigation damages against ND3D, Joel, and their respective legal
counsel, once the claims against the Company have been dismissed.
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 Kalim for 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.
On May 16, 1997, Olajuwon Venture Capital, Inc. executed a subscription
agreement for 7.6 million new shares for a total consideration of $3.8
million payable in full by December 31, 1997
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 first quarter of the fiscal period covered by this report.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
On May 9, 1997, Ernst & Young LLP ("Ernst & Young") resigned as auditors of
the Company.The report of Ernst & Young on the Company's financial
statements for the year ended December 31, 1996 stated that the Company's
financial statements had been prepared assuming that the Company would
continue as a going concern, but contained an uncertainty paragraph stating
that there was substantial doubt about the Company's ability to continue as a
going concern based upon the deficiency in working capital and recurring
operating losses, without any committed sources of equity capital.
In connection with the audits of the Company's financial statements for each
of the two fiscal years ended December 31, 1996, and in the subsequent
interim period, there were no disagreements between Ernst & Young and the
Registrant on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope and procedures which, if
not resolved to the satisfaction of Ernst & Young would have caused Ernst &
Young to make reference to the matter in their report.
Ernst & Young issued a material weakness letter to the Company for the year
ended December 31, 1996 due to internal control deficiencies in the
following areas: recording of accounts payable, assessing the allowance for
doubtful accounts, and ensuring proper sales cut-offs.
The Company has requested Ernst & Young to furnish a letter addressed to the
Commission stating whether it agrees with the above statements, and
Ernst & Young has confirmed its agreement by letter. With the agreement by
Olajuwon Venture Capital Inc. to invest $3.8 million in the Company,
Management now believes that there is no longer a risk regarding the
Company's ability to continues as going concern. Management also has
implemented steps to eliminate the deficiencies noted by Ernst & Young and
is engaged in a complete reorganization of the management and operation. Ernst
& Young was neither advised nor consulted with respect to the steps by
management to correct the noted deficiencies and to reorganize the Company
and the statements regarding the investment by Olajuwon Venture Capital Inc,.
and the letter confirming its agreement with the above statements made no
reference to such matters.
(b) Exhibits
Exhibit No. Description of Exhibit
1 Former 8K filed May 9, 1997
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 20, 1997
Date ALLEN LO
Chairman and Chief Executive Officer
May 20, 1997
Date SUNNY IP
Director and Treasurer
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) MAY 9, 1997
3D IMAGE TECHNOLOGY, INC.
-------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 33-27627 76-0265438
- --------------- ------------ ----------------
(State or Other (Commission (I.R.S. Employer
Jurisdiction File Number) Identification No.)
of Incorporation)
5172-G Brook Hollow Parkway, Norcross, Georgia 30071
------------------------------------------------------------- -------
(Address of Principal Executive Offices) (Zip Code)
(770) 416-8848
-------------------
Registrant's telephone number, including area code
(Former Name or Former Address, If Changed Since Last Report)
ITEM 4. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
On May 9, 1997, Ernst & Young LLP ("Ernst & Young") resigned as auditors of
the Company.
The report of Ernst & Young on the Company's financial statements for
the year ended December 31, 1996 stated that the Company's financial statements
had been prepared assuming that the Company would continue as a going
concern, but contained an uncertainty paragraph stating that there was
substantial doubt about the Company's ability to continue as a going concern
based upon the deficiency in working capital and recurring operating losses,
without any committed sources of equity capital.
In connection with the audits of the Company's financial statements for each
of the two fiscal years ended December 31, 1996, and in the subsequent interim
period, there were no disagreements between Ernst & Young and the
Registrant on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope and procedures which,
if not resolved to the satisfaction of Ernst & Young would have caused
Ernst & Young to make reference to the matter in their report.
Ernst & Young issued a material weakness letter to the Company for the year
ended December 31, 1996 due to internal control deficiencies in the following
areas: recording of accounts payable, assessing the allowance for doubtful
accounts, and ensuring proper sales cut-offs.
The Company has requested Ernst & Young to furnish a letter addressed to the
Commission stating whether it agrees with the above statements.
A copy of that letter dated May 9, 1997 is filed as Exhibit 1 to this Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(b) Exhibits.
Exhibit No. Description of Exhibit
1 Letter from Ernst & Young LLP to the
Securities and Exchange Commission
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
3D Image Technology, Inc.
--------------------------------
(Registrant)
Date: May 9, 1997 /s/ALLEN LO
--------------------
ALLEN LO
Chairman and Chief Executive
Officer
Date: May 9, 1997 /s/ SUNNY IP
--------------------
SUNNY IP
Director and Treasurer
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
1 Letter from Ernst & Young LLP to the
Securities and Exchange Commission
ERNST &
YOUNG
Ernst & Young LLP
Suite 2800
600 Peachtree Street, N.E.
Atlanta, GA 30308-2215
404 874-8300<PAGE>
May 9, 1997
Office of the Chief Accountant
SECPS Letter File
Securities and Exchange Commission
Mail Stop 9-5
450 Fifth Street, N.W.
Washington, D.C. 20549
We have read Item 4 included in the attached Form 8-K dated May 9, 1997 of
3D Image Technology, Inc. to be filed with the Securities and Exchange
Commission and are in agreement with the statements contained therein.
Very truly yours,
/s/ Ernst & Young LLP
Copy to: Mr. Allen Lo, 3D Image Technology, Inc.
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<PERIOD-END> MAR-31-1997
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<COMMON> 19,625
<OTHER-SE> (461,379)
<TOTAL-LIABILITY-AND-EQUITY> 4,111,517
<SALES> 524,983
<TOTAL-REVENUES> 524,983
<CGS> 310,268
<TOTAL-COSTS> 310,268
<OTHER-EXPENSES> 624,784
<LOSS-PROVISION> 410,069
<INTEREST-EXPENSE> 98,871
<INCOME-PRETAX> (508,940)
<INCOME-TAX> 0
<INCOME-CONTINUING> (508,940)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (508,940)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> 0
</TABLE>
