SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
or
TRANSITION REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file No. 0-12641
[GRAPHIC OMITED]
IMAGING TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-0021693
(State or other jurisdiction of incorporation or organization) (IRS Employer ID No.)
17075 Via Del Campo
San Diego, California 92127
(Address of principal executive offices)
Registrant's Telephone Number, Including Area Code: (858) 451-6120
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
The number of shares outstanding of the registrant's common stock as of November
22, 2002 was 93,777,896.
This amendment to the Registrant's Form 10-Q includes adjustments related to
revenue recognition for its professional employer organization (PEO) business
segment. Accordingly, the document includes changes on its consolidated
statements of operations, the applicable notes to the financial statements, and
management's discussion and analysis of operations.
The effect of the reported changes is a reduction in PEO revenues and changes in
the allocation of costs. Operating and net loss for the Company are not affected
by these changes.
IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001
(in thousands, except share data)
(unaudited)
2002 2001
--------------- ---------------
Revenues
Sales of products. . . . . . . . . . . . . . . . . . . $ 486 $ 1,057
Software, licenses and royalties . . . . . . . . . . . 138 21
PEO services (gross billings of $2,822, less worksite
employee payroll costs of $2,430). . . . . . . . . . 392 -
--------------- ---------------
1,016 1,078
--------------- ---------------
Costs and expenses
Cost of products sold. . . . . . . . . . . . . . . . . 235 598
Cost of licenses and royalties . . . . . . . . . . . . 21 -
Cost of PEO services . . . . . . . . . . . . . . . . . 142 -
--------------- ---------------
Total cost of revenues . . . . . . . . . . . . . . . . . . 398 598
--------------- ---------------
Operating expenses:
Selling, general, and administrative . . . . . . . . . 2,053 1,413
Research and development. . . . . . . . . . . . . . . - 72
--------------- ---------------
2,053 1,485
--------------- ---------------
Loss from operations. . . . . . . . . . . . . . . . . . . . (1,435) (1,005)
--------------- ---------------
Other income (expense):
Interest and finance costs, net. . . . . . . . . . . . (621) (177)
Other. . . . . . . . . . . . . . . . . . . . . . . . . 4 -
--------------- ---------------
(617) (177)
--------------- ---------------
Loss before income taxes. . . . . . . . . . . . . . . . . . (2,052) (1,182)
Income tax benefit (expense). . . . . . . . . . . . . . . . - -
--------------- ---------------
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,052) $ (1,182)
=============== ===============
Earnings (loss) per common share
Basic. . . . . . . . . . . . . . . . . . . . . . . . . $ (0.08) $ (0.14)
=============== ===============
Diluted. . . . . . . . . . . . . . . . . . . . . . . . $ (0.08) $ (0.14)
=============== ===============
Weighted average common shares. . . . . . . . . . . . . . . 24,662 8,549
=============== ===============
Weighted average common shares - assuming dilution. . . . . 24,662 8,549
=============== ===============
See Notes to Consolidated Financial Statements.
IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
(unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements of
Imaging Technologies Corporation and Subsidiaries (the "Company" or "ITEC") have
been prepared pursuant to the rules of the Securities and Exchange Commission
(the "SEC") for quarterly reports on Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. These financial statements and notes herein are unaudited, but in
the opinion of management, include all the adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the Company's
financial position, results of operations, and cash flows for the periods
presented. These financial statements should be read in conjunction with the
Company's audited financial statements and notes thereto for the years ended
June 30, 2002, 2001, and 2000 included in the Company's Annual Report on Form
10-K filed with the SEC. Interim operating results are not necessarily
indicative of operating results for any future interim period or for the full
year.
NOTE 8. SEGMENT INFORMATION
During the period ended September 30, 2002, the Company managed and internally
reported the Company's business as four (4) reportable segments: (1) imaging
products and accessories; (2) imaging software; (3) e-commerce; and (4)
professional employer organization
PERIOD ENDED. . . . . . PEO IMAGING IMAGING
SEPT. 30, 2002. . . . . BUSINESS PRODUCTS SOFTWARE E-COMMERCE TOTAL
Revenues. . . . . . $ 392,000 $ 486,000 $ 138,000 $ - $ 1,016,000
Cost of revenues. . 142,000 235,000 21,000 - 398,000
Operating expenses. 588,000 1,141,000 324,000 2,053,000
Operating (loss). . (338,000) (890,000) (207,000) - (1,435,000)
Additional information regarding revenue by products and service groups is not
presented for the prior fiscal year period ended September 30, 2001 because it
is currently impracticable to do so due to various reorganizations of the
Company's accounting systems. A comprehensive accounting system was implemented
during fiscal 2002 that enables the Company to report such information in the
future.
As of and during the period ended September 30, 2002, no customer accounted for
more than 10% of consolidated accounts receivable or total consolidated
revenues.
NOTE 10 REVENUE RECOGNITION - PEO SEGMENT
The Company recognizes its revenues associated with its PEO business pursuant to
EITF 99-19 "Reporting Revenue Gross as a Principal versus Net as an Agent."
Previously, the Company reported its worksite employees as a component of direct
costs, The Company's revenues are now reported net of worksite employee payroll
cost (net method). To conform to the net method, the Company reclassified
worksite employee payroll costs of $2.43 million for the three months ended
September 30, 2002 from direct costs to revenues. This reclassification had no
effect on gross profit, operating loss, or net loss.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto appearing elsewhere in
this Quarterly Report on Form 10-Q. The discussion of the Company's business
contained in this Quarterly Report on Form 10-Q may contain certain projections,
estimates and other forward-looking statements that involve a number of risks
and uncertainties, including those discussed below at "Risks and Uncertainties."
While this outlook represents management's current judgment on the future
direction of the business, such risks and uncertainties could cause actual
results to differ materially from any future performance suggested below. The
Company undertakes no obligation to release publicly the results of any
revisions to these forward-looking statements to reflect events or circumstances
arising after the date hereof.
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
We believe the following accounting policies are critical and/or require
significant judgments and estimates used in the preparation of our consolidated
financial statements:
Revenue and direct cost recognition - We account for our revenues in accordance
with EITF 99-19. Our PEO segment revenues are derived from our gross billings,
which are based on (i) the payroll cost of our worksite employees; and (ii) a
markup computed as a percentage of the payroll cost. The gross billings are
invoiced concurrently with each periodic payroll of our worksite employees.
Revenues are recognized ratably over the payroll period as worksite employees
perform their service at the client worksite. Revenues that have been recognized
but not invoiced are included in unbilled accounts receivable on our
Consolidated Balance Sheets.
Previously, we included both components of our gross PEO billings in revenues
(gross method) due primarily to the assumption of significant contractual rights
and obligations associated with being an employer, including the obligation for
the payment of the payroll costs of our worksite employees. We assume our
employer obligations regardless of whether we collect our gross billings. After
discussions with the Securities and Exchange Commission staff, we have changed
our presentation of revenues from the gross method to an approach that presents
our revenues net of worksite employee payroll costs (net method) primarily
because we are not generally responsible for the output and quality of work
performed by the worksite employees.
In determining the pricing of the markup component of the gross billings, we
take into consideration estimates of the costs directly associated with our
worksite employees, including payroll taxes, benefits and workers' compensation
costs, plus an acceptable gross profit margin. As a result, our operating
results are significantly impacted by our ability to accurately estimate,
control and manage our direct costs relative to the revenues derived from the
markup component of our gross billings.
To conform to the net method, we reclassified worksite employee payroll costs of
$2.43 million for the three months ended September 30, 2002 from direct costs to
revenues. This reclassification had no effect on gross profit, operating loss,
or net loss.
Consistent with our revenue recognition policy, our direct costs do not include
the payroll cost of our worksite employees. Our direct costs associated with our
PEO revenue generating activities are comprised of all other costs related to
our worksite employees, such as the employer portion of payroll-related taxes,
employee benefit plan premiums and workers' compensation insurance premiums.
RESULTS OF OPERATIONS NET REVENUES
Revenues were $1.0 million and $1.1 million for the quarters ended
September 30, 2002 and 2001, respectively. The (10%) decrease in sales was due
primarily substantial reduction in product sales.
PEO Services
-------------
PEO revenues were $392 thousand (derived from gross billings of $2.8
million less employee payroll costs of $2.4 million) for the quarter ended
September 30, 2002. The Company entered this business segment through
acquisitions in November 2001. Consequently, there were no reported PEO revenues
in the prior year period.
COST OF PRODUCTS SOLD
PEO Services
-------------
Costs of PEO services were $142 thousand (36% of PEO revenues) for the
period ended September 30, 2002. The Company began providing these services
pursuant to acquisitions in the current fiscal year. Accordingly, there are no
comparative results for the prior year periods. (Also see "Risk Factors" related
to the Company's PEO business.)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $2.1 million (202% of total
revenues) and $ 1.4 million (131% of total revenues) for the quarters ended
September 30, 2002 and 2001, respectively. While such expenses increased by
$700,000 (50%) for the period ended September 30, 2002 as compared to the
previous year, they have decreased as a percentage of total revenues. Selling,
general and administrative expenses consisted primarily of general corporation
functions, salaries, facilities, and fees for professional services, including
legal expenses. The increase in selling, general and administrative expenses in
the period ended September 30, 2002 as compared to the year-earlier period was
due primarily to costs associated with the Company's PEO business, including
promotional costs and salaries. However, management continues to pare its
overall operating expenses, including reductions in personnel and facilities.
RISKS AND UNCERTAINTIES
-------------------------
IF OUR FOREIGN ACCOUNTS RECEIVABLE ARE NOT COLLECTIBLE, A NEGATIVE IMPACT ON OUR
CONTINUED OPERATIONS AND OVERALL FINANCIAL PERFORMANCE COULD RESULT.
We conduct business globally. Accordingly, our future results could be adversely
affected by a variety of uncontrollable and changing factors including: (1)
foreign currency exchange fluctuations; (2) regulatory, political or economic
conditions in a specific country or region; (3) the imposition of governmental
controls; (4) export license requirements; (5) restrictions on the export of
critical technology; (6) trade restrictions; (7) changes in tariffs; (8)
government spending patterns; (9) natural disasters; (10) difficulties in
staffing and managing international operations; and (11) difficulties in
collecting accounts receivable.
In addition, the laws of certain countries do not protect our products and
intellectual property rights to the same extent as the laws of the United
States.
We intend to pursue international markets as key avenues for growth and to
increase the percentage of sales generated in international markets. In our
2002, 2001 and 2000 fiscal years, product, software, and licensing sales outside
the United States represented approximately 12%, 22%, and 4% of our net sales,
respectively. We expect product sales outside the United States to continue to
represent a significant portion of our sales. As we continue to expand our
international sales and operations, our business and overall financial
performance may be adversely affected by the factors stated above.
PART II - OTHER INFORMATION
-------------------------------
ITEM 6. EXHIBITS
(a) Exhibits:
99.1 - Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (18 U.S.C. Section 1350)
99.2 - Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: July1, 2003
IMAGING TECHNOLOGIES CORPORATION (Registrant)
By: /s/
_____________________________________
Brian Bonar
Chairman and Chief Executive Officer,
and Chief Accounting Officer
By: /s/
_____________________________________
James R. Downey, Jr.
Chief Accounting Officer