SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 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, CA 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 February
12, 2003 was 144,073,122.
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.
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
2002 2001
-------------- -------------
Revenues
Sales of products . . . . . . . . . . . . . . . . . . . . $ 94 $ 891
Software sales, licenses and royalties. . . . . . . . . . 41 145
PEO services (gross billings of $2,139 and $7,074,
respectively; less worksite employee payroll costs of
$1,877 and $5,988, respectively) . . . . . . . . . . . 262 1,086
-------------- -------------
397 2,122
-------------- -------------
Cost of revenues
Cost of products sold . . . . . . . . . . . . . . . . . . 82 646
Cost of software sales, licenses and royalties. . . . . . 29 24
Cost of PEO services. . . . . . . . . . . . . . . . . . . 1 807
-------------- -------------
112 1,477
-------------- -------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . 285 645
-------------- -------------
Operating
Selling, general, and administrative. . . . . . . . . . . 1,124 2,137
Research and development. . . . . . . . . . . . . . . . . - 64
-------------- -------------
1,124 2,201
-------------- -------------
Loss from operations . . . . . . . . . . . . . . . . . . . . . (839) (1,556)
-------------- -------------
Other income (expense):
Interest and financing costs, net . . . . . . . . . . . . (490) (298)
Extinguishment of debt. . . . . . . . . . . . . . . . . . 656 -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 21 -
-------------- -------------
187 (298)
-------------- -------------
Loss before income taxes . . . . . . . . . . . . . . . . . . . (652) (1,854)
Income tax expense . . . . . . . . . . . . . . . . . . . . . . - -
-------------- -------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (652) $ (1,854)
============== =============
Loss per common share
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.01) $ (0.19)
============== =============
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.01) $ (0.19)
============== =============
Weighted average common shares . . . . . . . . . . . . . . . . 66,284 9,952
============== =============
Weighted average common shares - assuming dilution . . . . . . 66,284 9,952
============== =============
See Notes to Consolidated Financial Statements.
IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
2002 2001
------------- -------------
Revenues
Sales of imaging products. . . . . . . . . . . . . . . . $ 580 $ 1,764
Sales of software, licenses and royalties. . . . . . . . 179 350
PEO services (gross billings of $4,961 and $7,074,
respectively; less worksite employee payroll costs of
$4,307 and $5,988, respectively) . . . . . . . . . . . 654 1,086
------------- -------------
1,413 3,200
------------- -------------
Costs and expenses
Cost of products sold. . . . . . . . . . . . . . . . . . 317 1,214
Cost of software, licenses and royalties . . . . . . . . 62 54
Cost of PEO services . . . . . . . . . . . . . . . . . . 143 807
------------- -------------
522 2,075
------------- -------------
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . 891 1,125
------------- -------------
Operating
Selling, general, and administrative . . . . . . . . . . 3,165 3,586
Research and development . . . . . . . . . . . . . . . . - 136
------------- -------------
3,165 3,722
------------- -------------
Loss from operations. . . . . . . . . . . . . . . . . . . . . (2,274) (2,597)
------------- -------------
Other income (expense):
Interest and financing costs, net . . . . . . . . . . . (1,111) (1,018)
Extinguishment of debt. . . . . . . . . . . . . . . . . 656 -
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 25 -
------------- -------------
(430) (1,018)
------------- -------------
Loss before income taxes. . . . . . . . . . . . . . . . . . . (2,704) (3,615)
Income tax expense. . . . . . . . . . . . . . . . . . . . . . - -
------------- -------------
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,704) $ (3,615)
============= =============
Loss per common share
Basic. . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.06) $ (0.39)
============= =============
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . $ (0.06) $ (0.39)
============= =============
Weighted average common shares. . . . . . . . . . . . . . . . 45,473 9,251
============= =============
Weighted average common shares - assuming dilution. . . . . . 45,473 9,251
============= =============
See Notes to Consolidated Financial Statements.
IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2002
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated 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 accounting principles generally
accepted in the United States of America. These consolidated 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 consolidated
financial statements should be read in conjunction with the Company's audited
consolidated 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 December 31, 2002, the Company managed and internally
reported the Company's business as three (3) reportable segments: (1) imaging
products and accessories; (2) imaging software; and (3) professional employer
organization
(in thousands). . . . . . PEO BUSINESS IMAGING PRODUCTS IMAGING SOFTWARE TOTAL
2002 2001 2002 2001 2002 2001 2002 2001
-------------- ----------------- ------------------ -------- ------ ----- -------- --------
Three months:
-------------------------
Revenues. . . . . . . . $ 262 $ 1,086 $ 94 $ 891 $ 41 $ 145 $ 397 $ 2,122
Cost of revenues. . . . 1 807 82 646 29 24 112 1,477
Operating expenses. . . 253 116 780 2,061 91 24 1,124 2,201
Operating profit (loss) 8 163 (768) (1,816) (79) 97 (839) (1,556)
Six months :
-------------------------
Revenues. . . . . . . . $ 654 $ 1,086 $ 580 $ 1,764 $ 179 $ 350 $ 1,413 $ 3,200
Cost of revenues. . . . 143 807 317 1,214 62 54 522 2,075
Operating expenses. . . 1,337 116 1,625 3,546 203 60 3,165 3,722
Operating profit (loss) (826) 163 (1,362) (2,996) (86) 236 (2,274) (2,597)
As of and during the period ended December 31, 2002, no customer accounted for
more than 10% of consolidated accounts receivable or total consolidated
revenues.
NOTE 12 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, we reclassified worksite
employee payroll costs by reducing PEO service revenue and cost of PEO services
by $4.3 and 6.0 million for the six months ended December 31, 2002 and 2001,
respectively. This reclassification had no effect on gross profit, operating
loss, or net loss previously reported.
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/A. The statements contained in this Report on
Form 10-Q/A that are not purely historical are forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including
statements regarding our expectations, hopes, intentions or strategies regarding
the future. Forward-looking statements include statements regarding: future
product or product development; future research and development spending and our
product development strategies, and are generally identifiable by the use of the
words "may", "should", "expect", "anticipate", "estimates", "believe", "intend",
or "project" or the negative thereof or other variations thereon or comparable
terminology. Forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
or achievements (or industry results, performance or achievements) expressed or
implied by these forward-looking statements to be materially different from
those predicted. The factors that could affect our actual results include, but
are not limited to, the following: general economic and business conditions,
both nationally and in the regions in which we operate; competition; changes in
business strategy or development plans; our inability to retain key employees;
our inability to obtain sufficient financing to continue to expand operations;
and changes in demand for products by our customers.
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 by reducing PEO service revenue and cost of PEO services by $4.3 and 6.0
million for the six months ended December 31, 2002 and 2001, respectively. This
reclassification had no effect on gross profit, operating loss, or net loss
previously reported.
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 $397 thousand and $2.1 million for the three-month period
ended December 31, 2002 and 2001, respectively, a decrease of $1.7 million or
81%. Revenues were $1.4 million and $3.2 million for the six-month period ended
December 31, 2002 and 2001, respectively, a decrease of $1.8 million or 56%. The
decrease in revenues was due primarily to changes in the customer structure of
the Company's PEO activities in SourceOne Group (SOG). Since the acquisition of
SOG, the Company has lost several customers due to changes in rates for
services, particularly workers' compensation insurance. Additionally, management
elected to terminate certain customers due to profitability concerns. New
customers are anticipated pursuant to signed agreements, which will begin to
produce revenues in the third quarter of the current fiscal year. Additional PEO
contracts are being negotiated by ExpertHR, a wholly-owned subsidiary of
Greenland Corporation, controlling interest of which was acquired by the Company
in January 2003.
For the three-month period ended December 31, 2002 and 2001, PEO segment
revenues were $262 thousand and $1.1 million, respectively (derived from gross
billings of $2.1 million and $7.1 million, respectively; less worksite payroll
costs of $1.9 million and $6.0 million, respectively). For the six-month period
ended December 31, 2002 and 2001, PEO segment revenues were $654 thousand and
$1.1 million, respectively (derived from gross billings of $5.0 million and $7.1
million, respectively; less worksite payroll costs of $4.3 million and $6.0
million, respectively).
On a comparative basis, for the three month period ended December 31, PEO
segment revenues decreased $824 thousand (76%) in 2002 from 2001; and PEO
segment revenues for the six month period ended December 31 decreased $432
thousand (40%). The primarily reason for this decrease is described above.
COST OF PRODUCTS SOLD
For the three-month period ended December 31, 2002 and 2001, cost of PEO
services were $1 thousand (less than 1%) and $807 thousand (74%), respectively.
The increase in margin is primarily due to our election to self-insure PEO
clients related to workers' compensation for the three-month period ended
December 31, 2002. We no longer self-insure clients' workers compensation
insurance and use third-party insurance companies to provide such coverage.
For the six-month period ended December 31, 2002 and 2001, cost of PEO
services were $143 thousand (22%) and $807 thousand (74%), respectively.
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: July 1, 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