UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO.1 TO
FORM 10-QSB
x Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period endedMARCH 31, 2003
¨ Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period __________ to __________
Commission File Number 0-50119
IMAGE INNOVATIONS HOLDINGS INC.
(Exact name of small Business Issuer as specified in its charter)
| NEVADA | 91-1898414 |
| (State or other jurisdiction of | (IRS Employer Identification No.) |
| incorporation or organization) | |
| SUITE 1109, 100 PARK ROYAL | |
| WEST VANCOUVER, BRITISH COLUMBIA | |
| CANADA | V7T 1A2 |
| (Address of principal executive offices) | (Zip Code) |
| Issuer’s telephone number, including area code: | (604) 925-5283 |
BUSANDA EXPLORATIONS INC.
1550 Ostler Court
North Vancouver, British Columbia, Canada V7G 2P1
Telephone: 604-990-2072
(Former name, former address and former fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days x Yes ¨ No
State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
18,170,000 Shares of $0.001 par value Common Stock outstanding as of September 12, 2003.
Transitional Small Business Disclosure Format (check one): Yes ¨ No x
THIS AMENDMENT NO. 1 TO QUARTERLY REPORT ON FORM 10-QSB HEREBY AMENDS ITEMS 1 AND 2 OF PART I AND ITEM 6 OF PART II OF THE QUARTERLY REPORT ON FORM 10-QSB FILED BY IMAGE INNOVATIONS HOLDINGS INC. (FORMERLY BUSANDA EXPLORATIONS INC.) ON MAY 3, 2003.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The consolidated financial statements for Busanda Explorations Inc. (the Company) included herein are unaudited but reflect, in management’s opinion, all adjustments, consisting only of normal recurring adjustments, that are necessary for a fair presentation of the Company’s financial position and the results of its operations for the interim periods presented. Because of the nature of the Company’s business, the results of operations for the three months ended March 31, 2003 are not necessarily indicative of the results that may be expected for the full fiscal year. The financial statements included herein should be read in conjunction with the financial statements and notes thereto included in the Form 10KSB for the year ended December 31, 2002.
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BUSANDA EXPLORATIONS INC.
Balance Sheet
| A S S E T S | ||||||
| March 31 | December 31 | |||||
| 2003 | 2002 | |||||
| Current Assets | (Unaudited) | (Audited) | ||||
| Cash | $ | 3,274 | $ | 4,408 | ||
| Total Current Assets | 3,274 | 4,408 | ||||
| Other Assets | ||||||
| Organization Cost | ||||||
| Total Other Assets | - | - | ||||
| Total Assets | $ | 3,274 | $ | 4,408 | ||
| L I A B I L I T I E S | ||||||
| Current Liabilities | ||||||
| Accounts Payable | 850 | 4,600 | ||||
| Officer Advances | 23,750 | 20,000 | ||||
| Total Current Liabilities | 24,600 | 24,600 | ||||
| Total Liabilities | 24,600 | 24,600 | ||||
| Commitments and Contingencies | - | - | ||||
| S T O C K H O L D E R S ' EQU I T Y | ||||||
| Common Stock | 8,155 | 8,155 | ||||
| 50,000,000 authorized shares, par value $.001 | ||||||
| 8,155,000 shares issued and outstanding | ||||||
| Preffered Stock | ||||||
| 1,000,000 authorized preferred shares, par value $.01 | ||||||
| Nil shares issued and outstanding | ||||||
| Additional Paid-in-Capital | 62,145 | 62,145 | ||||
| Accumulated Deficit during the Development Period | (91,626 | ) | (90,492 | ) | ||
| Total Stockholders' Equity (Deficit) | (21,326 | ) | (20,192 | ) | ||
| Total Liabilities and Stockholders' Equity | $ | 3,274 | $ | 4,408 | ||
The accompanying notes are integral part of the consolidated financial statements.
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BUSANDA EXPLORATIONS INC.
Statements of Operations
(Unaudited)
| For the Three Months Ended | ||||||
| March 31 | ||||||
| 2003 | 2002 | |||||
| Revenues: | ||||||
| Revenues | - | - | ||||
| Total Revenues | $ | - | $ | - | ||
| Expenses: | ||||||
| Professional Fees | 1,025 | 1,716 | ||||
| Operating Expenses | 109 | 14 | ||||
| Total Expenses | 1,134 | 1,730 | ||||
| Net Income before Taxes | $ | (1,134 | ) | $ | (1,730 | ) |
| Provision for Income Taxes: | ||||||
| Income Tax Benefit | - | - | ||||
| Net Income (Loss) | $ | (1,134 | ) | $ | (1,730 | ) |
| Basic and Diluted Earnings Per Common Share | (0.00 | ) | (0.00 | ) | ||
| Weighted Average number of Common Shares | 8,155,000 | 8,155,000 | ||||
| used in per share calculations | ||||||
The accompanying notes are integral part of consolidated financial statements.
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BUSANDA EXPLORATIONS INC.
Statement of Cash Flows
(Unaudited)
| For the Three Months Ended | ||||||
| March 31 | ||||||
| 2003 | 2002 | |||||
| Cash Flows from Operating Activities: | ||||||
| Net Income (Loss) | $ | (1,134 | ) | $ | (1,730 | ) |
| Adjustments to reconcile net loss to net cash | ||||||
| provided (used) to operating activities: | ||||||
| Increase (Decrease) in Accounts Payable | - | 65 | ||||
| Total Adjustments | - | 65 | ||||
| Net Cash Used in Operating Activities | $ | (1,134 | ) | $ | (1,665 | ) |
| Cash Flows from Investing Activities: | ||||||
| Purchase of Mineral Properties | - | - | ||||
| Net Cash Used in Investing Activities | $ | - | $ | - | ||
| Cash Flows from Financing Activities: | ||||||
| Payments on Stockholder Advance | - | - | ||||
| Proceeds from Issuance of Stock | - | - | ||||
| Costs Incured to Raise Capital | - | - | ||||
| Net Cash Provided for Financing Activities | $ | - | $ | - | ||
| Net Increase (Decrease) in Cash | $ | (1,134 | ) | $ | (1,665 | ) |
| Cash Balance, Begin Period | 4,408 | 3,331 | ||||
| Cash Balance, End Period | $ | 3,274 | $ | 1,666 | ||
| Supplemental Disclosures: | ||||||
| Cash Paid for interest | $ | - | $ | - | ||
| Cash Paid for income taxes | $ | - | $ | - | ||
| Stock Issued for Option to Purchase | - | - | ||||
| Stock Issued for Repayment of Shareholder | - | - | ||||
The accompanying notes are integral part of consolidated financial statements.
F-3
BUSANDA EXPLORATIONS INC.
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies
Organization
Busanda Explorations Inc. (“the Company”) was incorporated under the laws of the State of Nevada on March 3, 1998 for the purpose to promote and carry on any lawful business for which a corporation may be incorporated under the laws of the State of Nevada. The company has a total of 50,000,000 authorized common shares with a par value of $.001 per share and with 8,155,000 common shares issued and outstanding as of March 31, 2002 and March 31, 2003. The company has a total of 1,000,000 authorized preferred shares with a par value of $.01 per share, there were no preferred shares issued and outstanding as of March 31, 2002 and March 31, 2003.
The consolidated financial statements for Busanda Explorations Inc. (the Company) included herein are unaudited but reflect, in management’s opinion, all adjustments, consisting only of normal recurring adjustments, that are necessary for a fair presentation of the Company’s financial position and the results of its operations for the interim periods presented and are necessary to ensure that the financial statements of the company are not misleading.
The Company had entered into an agreement to purchase mineral property claims in the Laird Mining Division, British Columbia, Canada, but lost the claim due to lack of funding. The Company has been mostly inactive during 2002 and 2003 and has little or no operating revenues or expenses.
Development Stage Enterprise
The Company is a development stage enterprise, as defined in Financial Accounting Standards Board No. 7. The Company is devoting all of its present efforts in securing and establishing a new business, and its planned principal operations have not commenced, and, accordingly, no revenue has been derived during the organizational period.
Fixed Assets
The Company has no fixed assets at this time.
Federal Income Tax
The Company has adopted the provisions of Financial Accounting Standards Board Statement No. 109, Accounting for Income Taxes. The Company accounts for income taxes pursuant to the provisions of the Financial Accounting Standards Board Statement No. 109, “Accounting for Income Taxes”, which requires an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure on contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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BUSANDA EXPLORATIONS INC.
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies (con’t)
Accounting Method
The Company’s financial statements are prepared using the accrual method of accounting. Revenues are recognized when earned and expenses when incurred. Fixed assets are stated at cost. Depreciation and amortization using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes.
Earnings per Common Share
The Company adopted Financial Accounting Standards (SFAS) No. 128, “Earnings Per Share,” which simplifies the computation of earnings per share requiring the restatement of all prior periods.
Basic earnings per share are computed on the basis of the weighted average number of common shares outstanding during each year.
Diluted earnings per share are computed on the basis of the weighted average number of common shares and dilutive securities outstanding. Dilutive securities having an anti-dilutive effect on diluted earnings per share are excluded from the calculation.
Comprehensive Income
Statement of Financial Accounting Standards (SFAS) No. 130, “Reporting Comprehensive Income,” establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS No.130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company does not have any assets requiring disclosure of comprehensive income.
Segments of an Enterprise and Related Information
Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and Related Information, supersedes SFAS No. 14, “Financial Reporting for Segments of a Business Enterprise.” SFAS 131 establishes standards for the way that public companies report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. SFAS 131 defines operating segments as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company has evaluated this SFAS and does not believe it is applicable at this time.
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BUSANDA EXPLORATIONS INC.
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies (con’t)
Employers’ Disclosure about Pensions and Other Postretirement Benefits
Statement of Financial Accounting Standards (SFAS) 132, "Employers' Disclosure about Pensions and Other Postretirement Benefits," revises standards for disclosures regarding pensions and other postretirement benefits. It also requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis. This statement does not change the measurement or recognition of the pension and other postretirement plans. The financial statements are unaffected by implementation of this new standard.
Accounting for Derivative Instruments and Hedging Activities
Statement of Financial Accounting Standards (SFAS) 133, "Accounting for Derivative Instruments and Hedging Activities," establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for sale security, or a foreign-currency-denominated forecasted transaction. Because the Company has no derivatives, this accounting pronouncement has no effect on the Company's financial statements.
Fair Value of Financial Instruments
The Financial Accounting Standards Board (“FASB”) Statement No. 107. “Disclosure About Fair Value of Financial Instruments” is a part of a continuing process by the FASB to improve information on financial statements. The carrying amounts reported in the balance sheets for the Company’s assets and liabilities approximate their fair values as of December 31, 2002 and March 31, 2003.
Note 2 - Common Stock
The Company issued 6,905,000 shares of common stock to various investors at $.01 per share of which 5,905,000 shares were issued for cash totaling $59,050, and 1,000,000 shares were issued at $.01 per share to the sole officer and director of the Company as repayment on a loan.
The Company issued 1,250,000 shares of common stock at $.001 per share in accordance with the Assignment of Option to Purchase Agreement.
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BUSANDA EXPLORATIONS INC.
Notes to Financial Statements
Note 3 – Other Income and Expenses – Option to Purchase Agreement
The Company entered into an Assignment of Option to Purchase Agreement on May 25, 1998, to acquire a 100% interest in mineral claims in Canada. The agreement was made with an unrelated third party, who holds the original Option to Purchase Agreement with the Seller. Under terms of the agreement, the Company has paid $50,000 in cash, and has issued 1,250,000 shares of its common stock. In addition, the terms of the agreement require the Company to make three more payments of $25,000, each due on or before December 31, 1999, 2000, and 2001.
The agreement also required the Company to pay a 2% Net Smelter Royalty to an unrelated party. In addition, the Company must fund a CDN $100,000 work program by August 1, 1999, and pay a $25,000 advance royalty to an unrelated third party commencing December 31, 2000, and payable each year thereafter on December 31.
Since the Company did not fund the work program and make the December 31, 1999 payment the agreement is in default and the deposit was written off the balance sheet as of December 31, 1999.
Note 4 – Organization Costs
The Company has incurred legal, accounting, and other formation costs. These costs were capitalized in error and reported as an asset on the financial statements. The company had intended to amortize the cost over a five-year period after the Company began its operations.
AICPA Statement of Position (SOP) 98-5, Reporting on the Cost of Start-Up Activities requires costs of start-up activities and organization costs to be expensed as incurred. The company has restated its Retained Earnings to correct this accounting error and expense these costs in the year incurred. All such costs were incurred during 1999 and 2000.
Note 5 - Related Parties
At March 31, 2003 the Officer of the company had advanced $23,750 to the company as follows: during 2003 $3,750, during 2002 $7,500, during 2001 $4,500, during 2000 $1,500 and during 1999 $6,500. All advances were used to pay general operating expenses.
Note 6 - Going Concern
The Company’s financial statements are prepared using generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company does not have significant cash or other material assets, nor does it have an established source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern that raise substantial doubt about the Company’s ability to continue as a going concern. The stockholders/officers and or directors have committed to advancing operating costs to the Company interest free.
F-7
BUSANDA EXPLORATIONS INC.
Notes to Financial Statements
Note 7 - Subsequent Events
The company issued 15,000 shares to Busanda’s lawyer who agreed to take shares for the work he performed. The issuance was completed pursuant to Section 4(2) of the Securities Act of 1933.
On June 30, 2003 the Company acquired 100% of the outstanding shares of Image Innovations Inc. The shareholders of Image Innovations exchanged all of their common shares of Image Innovations for 10,000,000 common shares of Busanda.
There were no other material subsequent events that have occurred since the balance sheet date that warrants disclosure in these financial statements.
F-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FORWARD-LOOKING STATEMENTS
The information in this Quarterly Report on Form 10-QSB contains 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. These forward-looking statements involve risks and uncertainties, including statements regarding Busanda's capital needs, business plans and expectations. Forward-looking statements are made, without limitation, in relation to operating plans, business development, availability of funds and operating costs. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential" or "continue", the negative of such terms or other comparable terminology. Actual events or results may differ materially. In evaluating these statements, you should consider various factors, including the risks outlined below, and, from time to time, in other reports Busanda files with the SEC, including Busanda’s Annual Report on Form 10-KSB for the year ended December 31, 2002. These factors may cause Busanda's actual results to differ materially from any forward-looking statement. Busanda disclaims any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements. The information constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
OVERVIEW
Image Innovations Holdings Inc., formerly Busanda Explorations Inc., (“We”, “Busanda” or the “Company”) completed the acquisition of all of the issued and outstanding shares of Image Innovations Inc. effective June 30, 2003. Image Innovations is a Delaware corporation incorporated on January 14, 2003. The acquisition was completed pursuant to offers made by us dated June 23, 2003 to all the shareholders of Image Innovations to purchase their shares in exchange for an aggregate of 10,000,000 shares of our common stock on the basis of 10,000 shares for each outstanding share of Image Innovations. It was a condition precedent of closing that all shareholders of Image Innovations accept our offer and that audited financial statements of Image Innovations had been delivered to us. We issued 10,000,000 shares of our common stock to the existing shareholders of Image Innovations in consideration of the transfer by the existing shareholders of all of their shares of Image Innovations to us. As a result of this transaction, Image Innovations is now a wholly owned subsidiary of Busanda.
Image Innovations was incorporated to engage in the business of promotional licensing and branding with the objective of adding value to a wide variety of relatively low cost, but desirable or essential products, by endorsing them with the brand logos of sports teams and/ or other recognized trademarks. On February 11, 2003, Image Innovations entered into a retail license agreement with NHL Enterprises, L.P. to market a limited range of products under the National Hockey League brand. Image Innovations has signed a letter of intent with National Football League Properties to obtain a license to market a limited range of products under the NFL brand.
The principal components of the business strategy of Image Innovations are as follows:
| 1. | To identify a range of consumer products that can be manufactured and resold for high markups with the product endorsement of recognized sports teams and leagues; |
| 2. | To enter into licensing agreements to obtain product endorsement rights for the targeted products from recognized sports teams and leagues; |
| 3. | To enter into manufacturing arrangements for the manufacture of the targeted products with the licensed product endorsements; |
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| 4. | To arrange for sale of the targeted products through established distribution channels; and |
| 5. | To market the targeted products to consumers. |
Each of the components of the Company’s business strategy is discussed below as follows:
| 1. | Targeting of Products Image Innovations plans to target relatively low cost, but desirable or essential consumer products. Image Innovations has selected alkaline batteries as its initial targeted product. Image Innovations believe that alkaline batteries and alkaline battery products satisfy the Company’s criteria of being relatively low cost products that are capable of high markup and that are either desirable or essential products used by consumers. Alkaline batteries and battery products offer a range of opportunities for branding and product endorsement. Examples of battery products include desk clocks, travel clocks, flashlights, radios, calculators, touch-lights, personal alcohol breath testers and educational items. |
| 2. | Licensing Agreements Image Innovations has entered into a license agreement with NHL Enterprises, LP for the license of the National Hockey League name and other NHL logos and indicia for use in connection with batteries and other battery related products. The license is a non-exclusive license for the United States. The license is for a term expiring December 31, 2004. Image Innovations will pay to NHL Enterprises, LP a royalty of 10% of net sales. In addition, Image Innovations will pay guaranteed annual minimum payments of $60,000 US, including an upfront fee of $15,000 US that has been paid by Image Innovations. Image Innovations has also entered into a letter of intent with NFL Properties LLC for the grant of a license to use the National Football League mark and other related marks in connection with batteries, flashlights with batteries, e-badge with batteries, radios with batteries, and universal remote controls with batteries. The arrangement requires an advance royalty payment of $100,000 US, which has been paid by Image Innovations. Image Innovations is required to pay a royalty of 11% of net sales. The license will be limited to the United States. The license will be for a term expiring March 31, 2004 and is subject to the execution of a definitive license agreement with NFL Properties LLC. We plan to pursue negotiations with further sports leagues and sports teams to obtain additional license rights. |
| 3. | Manufacturing Arrangements Image Innovations does not anticipate manufacturing any of the targeted products. Image Innovations plans to outsource manufacturing to manufacturers located primarily in the Far East. Image Innovations believes manufacturing in the Far East will offer the best price competitiveness and also the most advanced technology for batteries and battery related products. Image Innovations has begun to establish relationships with major suppliers in Asia who are believed by Image Innovations to be capable of delivering innovative products with the brand recognition colors and symbols of the licensed properties. Image Innovations plans to establish these relationships through attendance at major international trade shows and through a program of personal visits to the Far East. Image Innovations plans to work with its major suppliers in order to keep abreast of new product lines as they become available in order that its targeted products remain in demand. |
| 4. | Distribution Image Innovations plans to use in-house staff and a network of independent brokers to market its product to targeted retailers. Image Innovations believes that the key to gaining entry into major retailers will be established relationships. Image Innovations plans to establish a network of seasoned salesmen in the United States who will spearhead its marketing campaigns in North |
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| America. The targeted retail market will focus on chain stores, convenience stores, drug stores, electronic retailers and specialty distributors. | |
| 5. | Marketing Image Innovations’ marketing strategy will be to focus its licensing program on premier sports franchises and household name trademarks. By combining high profile brand names and trademarks with desirable or essential consumer products, Image Innovations believes that demand for its products will be created. Image Innovations’ overall objective is to establish itself as a specialized brand licensing and promotional merchandising company. One objective of Image Innovations will be to create brand name awareness amongst decision makers who place its targeted products into its targeted market. |
PLAN OF OPERATIONS
We anticipate that we will require approximately $2,820,000 over the next twelve months in order to carry out the plan of operations for Image Innovations. This amount is comprised of the following amounts:
| 1. | We anticipate that we will require approximately $1,478,000 over the next twelve months in connection with the acquisition of products for resale pursuant to our license arrangements. This amount includes amounts to be paid for letters of credit to fund purchases of product from manufacturers. These costs will include manufacturing costs, freight, duties, insurance and import and customs expenses. The amount that we spend on product acquisition expenses will be dependent both on the amount of financing that we are able to achieve and upon our success in establishing sales of products bearing the brand names we have licensed. We anticipate spending approximately $50,000 to develop new products under license arrangements for marketing to customers. An example of a new product that we are currently developing is a branded football helmet incorporating an AM/FM radio pursuant to a license agreement with Ridell in respect of which we have advanced $20,000 to date. We also anticipate spending approximately $50,000 to attend trade shows to display and market our products to potential customers, including retailers. |
| 2. | We anticipate that we will require approximately $990,000 to fund our operating expenses over the next twelve month period. We anticipate that this amount will also vary based on the amount of financing that we are able to achieve and based on the success of our sales efforts. If we achieve less than the necessary financing or if our sales are less than projected, then we will scale back our operating expenses accordingly. We anticipate hiring approximately 5 additional employees in order to pursue our plan of operations. |
| 3. | We require approximately $352,000 in order to repay demand loans advanced by H.E. Capital S.A. These loans have been used to fund our initial operating expenses and our obligations under our license arrangements. Mr. Clifford Wilkins, our chief executive officer and a director, is a director of H.E. Capital S.A. Mr. Christopher Smith, our chief financial officer and a director, is also a director of H.E. Capital S.A. |
Of the total amount of projected expenditures, we anticipate that approximately one-half of these expenses will be incurred over the next six month period. We are planning an equity financing in order to raise the necessary funds to proceed with the plan of operations for Image Innovations. We do not have any arrangements for any equity financing currently in place and there is no assurance that the necessary equity financing will be achieved. Accordingly, there is a risk that we will not achieve additional financing and that we will have to scale back the plan of operations of Image Innovations to reflect the actual proceeds available to us. Furthermore, there is no assurance that H.E. Capital S.A. will advance further funds to us in order to continue to fund our plan of operations. If we are not able to achieve the necessary financing, then our ability to complete our plan of operations and our business and financial condition will be adversely affected.
LIQUIDITY AND FINANCIAL CONDITION
Image Innovations is in the startup phase of its operations. Image Innovations did not earn any revenues from January 14, 2003, the date of its incorporation, to June 30, 2003. Image Innovations has not earned any
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revenues to date. In addition, Image Innovations had a working capital deficit of $218,428 as of June 30, 2003. The ability of Image Innovations to generate revenues will depend on its ability to obtain financing to fund its plan of operations and its success in implementing its plan of operations. There is no assurance that we will be able to obtain the financing required to enable Image Innovations to carry out its plan of operations.
We have been dependent upon H.E. Capital S.A., a related party in order to fund the business of Image Innovations to date. H.E. Capital agreed to advance up to $500,000 to Image Innovations in order to finance the start-up of our business operations pursuant to a loan agreement between H.E. Capital and Image Innovations dated January 14, 2003. H.E. Capital has advanced to Image Innovations a total of $351,840 as of June 30, 2003 and an amount of $351,840 was payable to H.E. Capital S.A. as of June 30, 2003. The loans bear interest at the rate of 9% per annum and are repayable upon demand. The loans are secured by a general security agreement granted by Image Innovations against all of its assets. There is no assurance that H.E. Capital S.A. will advance additional amounts in order to fund the business of Image Innovations in excess of the commitment to advance $500,000. We have no arrangement for the financing of the business of Image Innovations and there is no assurance that the required financing will be obtained.
We plan to pursue equity financings through private placements of our common stock or common stock and share purchase warrants in order to raise the funds necessary to enable us to pursue our plan of operations for the next twelve months. We do not have any arrangements in place for equity financings and there is no assurance that any equity financing will be achieved. If an equity financing is achieved, then it is anticipate that existing shareholders will suffer dilution.
The plan of operations of Image Innovations will require that Image Innovations obtain additional financing in order that it can complete purchases of targeted products from manufacturers. Manufacturers of the targeted products will require that Image Innovations have in place letters of credit in favor of manufacturers prior to the start of manufacturing. The posting of letters of credit is a standard arrangement for international manufacturing orders and is a mechanism that provides manufacturers with assurance that they will be paid for the products they manufacture. Letters of credit will only be issued by financial institutions against a deposit of either cash or against collateral of an amount sufficient to enable the financial institution to post a letter of credit. Although Image Innovations plans to only order product from manufacturers when it is in possession of firm purchase orders, manufacturers will require that letters of credit are in place at the time of ordering. Due to its current working capital deficit, Image Innovations will require additional financing before it is able to post letters of credit and start the manufacturing process.
Image Innovations anticipates that there will be a period of four months between the time that product is ordered from a manufacturer until the time payment is received from customers. This four month period includes two months for production, one month for shipping and delivery and a final ten to thirty days to receive payment from customers. Due to this time lag between posting of a letter of credit and ultimate realization of revenues, the amount of revenues that Image Innovations will be able to achieve will be dependent on the amount of upfront financing that it is able to obtain. If Image Innovations is not able to obtain financing, then it will not be able to order products from manufacturers with the result that it may not be able to achieve revenues.
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PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS REQUIRED BY ITEM 601
| Exhibit Number | Description of Exhibit | |
| 3.1 | Articles of Incorporation(1) | |
| 3.2 | Bylaws(1) | |
| 10.1 | Offer Letter dated June 23, 2003 to the shareholders of Image Innovations Inc. to acquire all of the issued and outstanding shares of Image Innovations Inc., a Delaware corporation(2) | |
| 10.2 | Loan Agreement dated January 14, 2003 between H.E. Capital SA and Image Innovations Inc.(3) | |
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(4) | |
| 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(4) | |
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(4) | |
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(4) |
| (1) | Previously filed with the Securities and Exchange Commission as an exhibit to our Form 10-SB registration statement filed on December 6, 2002, as amended. |
| (2) | Previously filed with the Securities and Exchange Commission as an exhibit to our Current Report on Form 8-K filed on July 11, 2003. |
| (3) | Previously filed with the Securities and Exchange Commission as an exhibit to Amendment No. 2 to our Current Report on Form 8-K originally filed on July 11, 2003. |
| (4) | Filed as an Exhibit to this Amendment No. 1 to Quarterly Report on Form 10-QSB. |
REPORTS ON FORM 8-K
We did not file any Current Reports on Form 8-K during the fiscal quarter ended March 31, 2003.
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SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
IMAGE INNOVATIONS HOLDINGS INC.
Date: SEPTEMBER 18, 2003
| By: | /s/Clifford Wilkins | |
| CLIFFORD WILKINS | ||
| CHIEF EXECUTIVE OFFICER, | ||
| AND DIRECTOR |
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