SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM l0-Q (Mark One) / X / QUARTERLY REPORT PURSUANT TO SECTION l3 OR l5(d) OF THE SECURITIES EXCHANGE ACT OF l934 For the period ended December 31, 1995 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-12573 ASPEN IMAGING INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 84-0724829 (State of Incorporation) (I.R.S. Employer Identification No.) 3830 Kelley Avenue, Cleveland, Ohio 44114 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (216) 881-5300 NA (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section l3 or l5(d) of the Securities Exchange Act of l934 during the preceding l2 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 Number of Common Shares Outstanding as of February 13, 1996: 3,988,756 ASPEN IMAGING INTERNATIONAL, INC. Page Number PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets as of December 31, 1995 and June 30, 1995 . . . . . . . . 3 Consolidated Statements of Operations for the Three Months and Six Months Ended December 31, 1995 and 1994. . . . . . . . . . . . . 5 Consolidated Statements of Cash Flows for the Six Months Ended December 31, 1995 and 1994. . . . . . . . . . . . . . . . . . . . 6 Notes to Consolidated Financial Statements . . . . . 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . . . . . . 9 PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . 11 Item l. Legal Proceedings. Item 2. Changes in Securities. Item 3. Defaults Upon Senior Securities. Item 4. Submission of Matters to a Vote of Security Holders. Item 5. Other Information. Item 6. Exhibits and Reports on Form 8-K. SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2. PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited)--Note A. ASPEN IMAGING INTERNATIONAL, INC. AND SUBSIDIARIES Consolidated Balance Sheets December 31, June 30, 1995 1995 ASSETS CURRENT ASSETS Cash and cash equivalents $ 3,814,195 $ 2,870,575 Short-term investments 545,100 526,213 Marketable securities available for sale 560,000 987,900 Receivables (less allowances of $65,881 and $25,000 for doubtful accounts) -- Note C 542,486 747,644 Inventories -- Note B 679,861 725,703 Prepaid expenses and other current assets 27,333 44,385 ------------ ------------ TOTAL CURRENT ASSETS 6,168,975 5,902,420 PROPERTY AND EQUIPMENT Leasehold improvements 140,457 140,457 Machinery and equipment 1,091,902 1,091,902 Molds 2,994,750 2,994,750 Office equipment and vehicles 307,203 322,261 ------------ ------------ 4,534,312 4,549,370 Less accumulated depreciation and amortization 3,456,509 3,218,863 ------------ ------------ 1,077,803 1,330,507 NOTES RECEIVABLE 16,550 18,800 OTHER ASSETS, NET -- Note A 111,935 137,764 ------------ ------------ TOTAL ASSETS $ 7,375,263 $ 7,389,491 ============ ============ <FN> See notes to consolidated financial statements. 3. ASPEN IMAGING INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS--CONTINUED December 31, June 30, 1995 1995 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses -- Note C $ 713,596 $ 671,163 Accrued salaries and payroll expenses 275,048 428,379 ------------ ------------ TOTAL CURRENT LIABILITIES 988,644 1,099,542 STOCKHOLDERS' EQUITY Preferred Stock, $.001 Par Value; authorized, 1,000,000 shares; no shares issued -- -- Common Stock, $.001 par value; 4,192,356 shares issued and 3,988,756 shares outstanding at December 31, 1995 and 4,192,356 shares issued and 4,075,356 shares outstanding at June 30, 1995 4,192 4,192 Capital in excess of par value 4,807,151 4,807,151 Unrealized gains on investments available for sale 150,397 78,809 Retained earnings 1,589,066 1,494,140 ------------ ------------ 6,550,806 6,384,292 Treasury stock at cost, 203,600 shares at December 31, 1995 and 117,000 shares at June 30, 1995 (164,187) (94,343) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 6,386,619 6,289,949 ------------ ------------ TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 7,375,263 $ 7,389,491 ============ ============ <FN> See notes to consolidated financial statements. 4. ASPEN IMAGING INTERNATIONAL, INC. AND SUBSIDIARIES Consolidated Statements of Operations Three Months Ended Six Months Ended December 31 December 31 l995 l994 1995 1994 REVENUE Net sales -- Note C $ 1,210,414 $ 1,706,978 $ 2,698,797 $ 3,899,301 Other 81,279 54,906 189,865 127,890 ------------ ------------ ------------ ------------ 1,291,693 1,761,884 2,888,662 4,027,191 COST AND EXPENSES: Cost of products sold -- Note C 883,357 1,381,134 2,040,730 3,005,811 Selling, general and administrative -- Note C 349,452 556,126 753,006 1,101,770 Interest -- -- -- 16,483 Severance and post-employment costs from the elimination of administrative personnel -- 479,083 -- 479,083 ------------ ------------ ------------ ------------ 1,232,808 2,416,343 2,793,736 4,603,147 INCOME (LOSS) BEFORE INCOME TAXES 58,884 (654,459) 94,926 (575,956) PROVISION FOR INCOME TAXES -- -- -- -- ------------ ------------ ------------ ------------ NET INCOME (LOSS) $ 58,884 $ (654,459) $ 94,926 $ (575,956) ============ ============ ============ ============ NET INCOME (LOSS) PER COMMON SHARE $ 0.01 $ (0.16) $ 0.02 $ (0.14) ============ ============ ============ ============ WEIGHTED AVERAGE SHARES 3,988,756 4,192,356 4,013,191 4,192,356 ============ ============ ============ ============ <FN> See notes to consolidated financial statements. 5. ASPEN IMAGING INTERNATIONAL, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Six Months Ended December 31 l995 l994 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 94,926 $ (575,956) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 278,535 303,401 Provision for doubtful accounts 55,000 2,743 (Gain) from sale of investments (35,881) -- (Gain) on disposal of assets (4,076) (40,535) Changes in operating assets and liabilities: Receivables 150,158 126,347 Inventories 45,842 534,950 Prepaid expenses and other current assets (1,835) (22,996) Accounts payable and accrued expenses 42,431 188,346 Accrued salaries and payroll expenses (153,331) 335,166 ------------ ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 471,769 851,466 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property and equipment 4,076 2,259,077 Additions to property and equipment -- (187,965) Change in notes receivable 2,250 21,489 Change in other assets -- 4,685 Proceeds from sale of investments 535,369 -- ------------ ------------ NET CASH PROVIDED BY INVESTING ACTIVITIES 541,695 2,097,286 CASH FLOWS FROM FINANCING ACTIVITIES Payment of long-term debt -- (996,370) Purchase of treasury stock (69,844) -- ------------ ------------ NET CASH (USED IN) FINANCING ACTIVITIES (69,844) (996,370) NET INCREASE IN CASH AND CASH EQUIVALENTS 943,620 1,952,382 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,870,575 1,784,846 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,814,195 $ 3,737,228 ============ ============ SUPPLEMENTAL INFORMATION: Interest Paid $ -- $ 16,483 ============ ============ Taxes Paid $ -- $ -- ============ ============ <FN> See notes to consolidated financial statements. 6. ASPEN IMAGING INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995 NOTE A -- Basis Of Presentation - ------------------------------- The accompanying consolidated condensed financial statements include the accounts of Aspen Imaging International, Inc. (the "Company") and its wholly-owned subsidiaries, Aspen Ribbons International, Inc., a Domestic International Sales Corporation, and Aspen Toner Corporation, a manufacturer of laser toner. The financial statements have been prepared without audit and reflect, in the opinion of management, all adjustments necessary for fair statement of the results of the Company's operations for the periods presented. These include only normal recurring adjustments. It is recommended that these financial statements be read in conjunction with the Company's annual report for the year ended June 30, 1995. The Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities," for investments. Management determines the appropriate classification of marketable securities at the time of purchase and reevaluates such designation as of each balance sheet date. Marketable securities held as available for sale are carried at fair value with any unrealized gains or losses reported as a separate component of shareholders' equity. Realized gains and losses on marketable securities held as available for sale are included in other income. Interest and dividends on securities classified as available for sale are included in other income. Other assets include $100,598 of formulas for the production of toner, net of $224,402 accumulated amortization. The Company recognizes sales when product is shipped. Certain prior amounts have been reclassified to conform with the current year presentation. NOTE B -- Inventories - --------------------- Inventories consisted of: December 31 June 30 1995 1995 Raw materials and component parts $ 292,914 $ 324,703 Finished goods, including goods purchased for resale 386,947 401,000 $ 679,861 $ 725,703 7. ASPEN IMAGING INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995 NOTE C -- CERTAIN RELATED PARTY TRANSACTIONS - -------------------------------------------- Of the amounts shown in the accompanying Consolidated Statements of Operations, the following relate to transactions (all of which were consummated at cost) with Bobbie Brooks, Incorporated, which owns approximately 62% of the Company's Common Stock, and its affiliates, including its Buckeye Business Products, Inc. Division (collectively, "Buckeye"): Three Months Ended Six Months Ended December 31 December 31 1995 1994 1995 1994 Net sales Includes product sales by the Company to Buckeye at the Company's cost of: $ 27,262 $ 50,904 $ 57,691 $117,747 ======== ======== ======== ======== Cost of products sold Includes product purchased from Buckeye at Buckeye's cost of: $257,736 $313,571 $506,390 $637,602 ======== ======== ======== ======== Includes personnel costs for shipping and purchasing, and rental for space, utilized by the Company and provided by Buckeye at Buckeye's cost of: $ 21,028 $ 56,581 $ 44,015 $ 59,818 ======== ======== ======== ======== Selling, general and administrative Includes personnel costs for order entry, billing, legal and accounting, utilized by the Company and provided by Buckeye at Buckeye's cost of: $ 16,223 $ 30,127 $ 42,600 $ 76,219 ======== ======== ======== ======== Of the amounts shown on the accompanying Consolidated Balance Sheets, the following relate to the above transactions: December 31, 1995 June 30, 1995 Receivables Includes receivables due from Buckeye: $19,880 $ 32,119 ======= ======== Accounts payable and accrued expenses Includes accounts payable to Buckeye of: $52,303 $159,983 ======= ======== 8. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS Comparison of the Three and Six Months Ended December 31, 1995 & 1994 - --------------------------------------------------------------------- As reported in the Company's Form 10-K for the year ended June 30, 1995 and in the Company's Form 10-Q for the quarter ended September 30, 1995, the Company reduced its product offerings in order to focus on its traditional ribbon business for impact printers, particularly ribbons for which the Company has molds, and on its toner products line for laser printers. The reduction in sales and the reduction in inventory levels in the three and six month periods ended December 30, 1995 from the same periods in 1994, are primarily the result of the elimination of unprofitable products from the Company's product line and a continuing deterioration in the sales of the Company's core products. In addition, inventory levels are lower at December 31, 1995 compared to December 31, 1994 by approximately $584,000. The Company has reduced its manufacturing overhead to be more in line with its current rate of sales, which is predominantly responsible for the increase in gross profit percentage for the three and six months periods compared to the same periods in 1994. The Company reduced its selling, general and administrative costs by approximately $205,000 for the three months and approximately $350,000 for the six months, ended December 31, 1995, compared to the same periods in 1994, to be more in line with the Company's current rate of sales. Selling, general and administrative costs for the three months ended December 31, 1995 also represented a decrease of approximately $50,000 from the three months ended September 30, 1995. There was no interest expense in the three or six month periods ended December 31, 1995 due to the elimination of debt. 9. Liquidity and Capital Resources - ------------------------------- The investment in the Company by Buckeye Business Products, Inc., a Division of Bobbie Brooks, Incorporated ("Buckeye"), in 1993, allowed the Company to utilize its assets in a more productive manner in an effort to return the Company to profitability. The Company used Buckeye's investment to eliminate the Company's working capital debt and the relationship with Buckeye allowed the Company to sell its building, eliminate all long-term debt, and substantially reduce staffing levels. This has resulted in a reduction in the Company's losses and cash requirements, notwithstanding the continuing sales deterioration that began several years ago. On February 15, 1995, the Company announced that it would purchase, from time to time in the open market, up to 750,000 shares of its stock. Through February 12, 1996, the Company has repurchased 203,600 of its shares at an aggregate purchase price of $164,187. The Company's current ratio was 6.2 to 1 at December 31, 1995 compared to 5.4 to 1 at June 30, 1995. The Company has $3,814,195 in cash and cash equivalents and $1,105,100 in marketable securities and other short-term investments and no long-term debt at December 31, 1995. Accordingly, the Company believes that its capital resources are more than sufficient to support its current and planned levels of operations and its announced stock repurchase. 10. PART II - OTHER INFORMATION Item l. LEGAL PROCEEDINGS. None Item 2. CHANGES IN SECURITIES. None Item 3. DEFAULTS UPON SENIOR SECURITIES. None Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None Item 5. OTHER INFORMATION. On October 24, 1995, the Company received a proposal from Pubco Corporation ("Pubco") pursuant to which the Company would sell all of its assets to a wholly-owned Pubco subsidiary and Company's stockholders would receive one share of newly issued Pubco Common Stock for each seven shares of the Company's Common Stock owned by them. Pubco owns approximately 90% of Bobbie Brooks, Incorporated, which owns approximately 62% of the Company. The proposal must be approved by the Company's Board of Directors, which is considering the matter and has hired a financial advisor to opine as to the fairness of the proposed transaction, and by the Company's stockholders at a meeting called for such purpose. Item 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits Financial Data Schedule (b) Reports on Form 8-K None 11. 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. ASPEN IMAGING INTERNATIONAL, INC. /s/ Robert H. Kanner ----------------------------------- Robert H. Kanner Chairman of the Board and Chief Financial Officer Dated: February 13, 1996 12. EXHIBIT INDEX Financial Data Schedule