SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
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 0-25413
INTERNATIONAL IMAGING SYSTEMS, INC.
(Exact name of Small Business Issuer as Specified in its Charter)
DELAWARE 65-0854589
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
6689 N.W. 16th Terrace, Fort Lauderdale, FL 33309
(Address of Principal Executive Offices)
(954) 978-9090
(Issuer's Telephone Number, Including Area Code)
A.M.S. MARKETING, INC. 7040 W. PALMETTO PARK ROAD, BUILDING 4, # 572
BOCA RATON, FL 33433
(Former Name and Former Address of Issuer Since Last Report)
Check whether the issuer (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 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: As of October 31, 2003 the Registrant
had 5,856,200 shares of Common Stock outstanding.
Transmittal Small Business Disclosure Format (check one)
Yes [ ] No [X]
INTERNATIONAL IMAGING SYSTEMS, INC.
FORM 10-QSB
For the Quarter Ended September 30, 2003
Page
Index Number
PART I FINANCIAL INFORMATION
Item 1 Consolidated Balance Sheet at September 30, 2003 3
Consolidated Statements of Operations for the nine months and three months
ended September 30, 2003 and September 30, 2002 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2003 and September 30, 2002 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis or Plan of Operation 14
Item 3 Controls and Procedures 17
PART II
Item 1 Legal Proceedings 18
Item 2 Changes in Securities 18
Item 3 Defaults Upon Senior Securities 18
Item 4 Submission of Matters to a Vote of Security Holders 19
Item 5 Other Information 19
Item 6 Exhibits and Reports on Form 8-K 19
Signatures 19
Certifications 20
Exhibit 99.1 Certification of Principal Executive and Financial Officer 21
INTERNATIONAL IMAGING SYSTEMS, INC.
(SUCCESSOR TO A.M.S. MARKETING, INC.)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2003
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 39,020
Accounts Receivable - Trade 386,568
Inventories 349,947
--------
TOTAL CURRENT ASSETS 775,535
PROPERTY AND EQUIPMENT 182,464
OTHER ASSETS:
Security Deposits 3,700
--------
TOTAL ASSETS $961,699
========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes and Loans Payable - Current Portion $149,769
Accounts Payable - Trade 319,133
Accrued Expenses 26,477
Income Taxes Payable 2,397
Customer Deposits 10,321
--------
TOTAL CURRENT LIABILITIES 508,097
NOTES AND LOANS PAYABLE - Non-Current 354,252
--------
TOTAL LIABILITIES 862,349
--------
SHAREHOLDERS' EQUITY:
Preferred Stock - $.001 Par Value - 1,000,000 Shares
Authorized; -0- Shares Issued and Outstanding --
Common Stock - $.001 Par Value - 29,000,000 Shares
Authorized; 5,856,200 Shares Issued and Outstanding 5,856
Additional Paid-In Capital 82,484
Retained Earnings 11,010
--------
TOTAL SHAREHOLDERS' EQUITY 99,350
--------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $961,699
========
See accompanying notes to consolidated financial statements.
-3-
INTERNATIONAL IMAGING SYSTEMS, INC.
(SUCCESSOR TO A.M.S. MARKETING, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
2003 2002(1) 2003 2002
------------ ----------- ------------ -----------
NET SALES $ 2,541,439 $ 140,588 $ 865,244 $ 140,588
COST OF GOODS SOLD 1,650,040 113,938 567,839 92,626
----------- ----------- ----------- -----------
GROSS PROFIT 891,399 26,650 297,405 47,962
GENERAL AND ADMINISTRATIVE
EXPENSES 878,326 94,161 319,528 63,510
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES 13,073 (67,511) (22,123) (15,548)
INCOME TAXES 2,397 -- (5,253) --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 10,676 $ (67,511) $ (16,870) $ (15,548)
=========== =========== =========== ===========
BASIC EARNINGS (LOSS)
PER SHARE $ .002 $ (.012) $ (.003) $ (.003)
=========== =========== =========== ===========
DILUTED EARNINGS (LOSS)
PER SHARE $ .002 $ (.012) $ (.003) $ (.003)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING:
Basic 5,856,200 5,813,900 5,856,200 5,813,900
----------- ----------- ----------- -----------
Diluted 6,446,230 5,813,900 5,856,200 5,813,900
----------- ----------- ----------- -----------
(1) Amounts represent activity from inception (June 7, 2002) through September
30, 2002.
See accompanying notes to consolidated financial statements.
-4-
INTERNATIONAL IMAGING SYSTEMS, INC.
(SUCCESSOR TO A.M.S. MARKETING, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
SEPTEMBER 30,
-----------------------
2003 2002(1)
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 10,676 $ (67,511)
Adjustments to Reconcile Net Income (Loss)
to Net Cash (Used) by Operating Activities:
Depreciation and Amortization 32,161 10,000
Change in Operating Assets and Liabilities:
Accounts Receivable - Trade (168,398) (34,898)
Loans Receivable - Officers 2,769 (12,662)
Inventories (185,240) (54,238)
Security Deposits -- (3,700)
Accounts Payable - Trade 36,987 73,111
Accrued Expenses 3,057 16,200
Customer Deposits (784) 48,971
Income Taxes Payable 2,397 --
--------- ---------
NET CASH (USED) BY OPERATING
ACTIVITIES (266,375) (24,727)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for Property and Equipment (20,203) (156,855)
--------- ---------
NET CASH (USED) BY INVESTING
ACTIVITIES (20,203) (156,855)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Equity Contributions from Members -- 85,106
Proceeds from Borrowings 982,436 97,934
Repayment from Borrowings (660,700) --
--------- ---------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 321,736 183,040
--------- ---------
NET INCREASE IN CASH 35,158 1,458
CASH AND CASH EQUIVALENTS - Beginning of Period 3,862 --
--------- ---------
CASH AND CASH EQUIVALENTS - End of Period $ 39,020 $ 1,458
========= =========
(1) Amounts represent activity from inception (June 7, 2002) through September
30, 2002.
See accompanying notes to consolidated financial statements.
-5-
INTERNATIONAL IMAGING SYSTEMS, INC.
(SUCCESSOR TO A.M.S. MARKETING, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
Nature of Operations:
A.M.S. Marketing, Inc. was incorporated in the State of Delaware on
July 23, 1998. In October, 2003 the Company filed a Certificate of
Amendment to change its name to International Imaging Systems, Inc.
The Company, through its wholly-owned subsidiary, Advanced Imaging
Systems, LLC ("AIS"), is principally engaged in the manufacture and
sale of telephone credit cards, check cashing cards and security
cards of all types. The Company markets such products domestically
and abroad. The Company also markets pre-owned, brand name
photocopier machines for an unrelated party.
Basis of Presentation:
The consolidated financial statements include the accounts of the
Company and its subsidiaries. Intercompany transactions and accounts
have been eliminated.
On July 31, 2003, A.M.S. Marketing, Inc, ("AMS") acquired 100%
ownership of "AIS" in exchange for 1,200,000 shares of its
previously unissued common stock. Prior to the execution of the
exchange agreement, the members (owners) of "AIS" purchased directly
from an existing "AMS" shareholder 3,600,000 shares of "AMS" common
stock. The combined result of the foregoing transactions is that the
previous owners of "AIS" own 81.96% of the outstanding common stock
of "AMS".
For accounting purposes, "AIS" is considered to be the acquirer and
"AMS" the acquired entity. The business combination is considered to
be a "reverse merger" since the former owners of "AIS" now control
more than 50% of "AMS" as a result of the merger. The effect of this
transaction reflects historical values of assets and liabilities of
the combined entities with a recapitalization of "AMS" shareholders'
equity.
-6-
INTERNATIONAL IMAGING SYSTEMS, INC.
(SUCCESSOR TO A.M.S. MARKETING, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued) -
Unaudited Financial Statements:
The financial statements as of September 30, 2003 and for the
periods ended September 30, 2003 and 2002 included herein are
unaudited. However, such information reflects all adjustments
consisting of normal recurring adjustments which are in the opinion
of management necessary for a fair presentation of the information
for such periods. In addition, the results of operations for the
interim periods are not necessarily indicative of results for the
entire year. The accompanying financial statements should be read in
conjunction with the Company's Form 10-K for the year ended December
31, 2002 and with the 2002 audited financial statements of Advanced
Imaging Systems, LLC included in the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission on August
15, 2003.
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 of 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.
Financial Instruments:
The carrying values of cash, accounts receivable, accounts payable,
and notes payable approximate fair value at September 30, 2003.
Cash and Cash Equivalents:
Holdings of highly liquid investments with maturities of three
months or less when purchased are considered to be cash equivalents.
Accounts Receivable:
All accounts receivable were considered to be collectible.
Accordingly, no allowance for bad debts is presented.
Inventories:
Inventories are valued at the lower of the first-in, first-out cost
or market with respect to direct material costs. Capitalized
overhead costs are determined on the basis of average costs.
-7-
INTERNATIONAL IMAGING SYSTEMS, INC.
(SUCCESSOR TO A.M.S. MARKETING, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued) -
Property and Equipment:
Property and equipment are recorded at cost, less depreciation and
amortization. The carrying value of property and equipment is
assessed when factors indicating impairment is present. The Company
determines fair value by obtaining market quotes for replacement
property. If impairment is present, the assets are reported at the
lower of carrying value or fair value. Depreciation and amortization
is primarily accounted for on the straight-line method based on
estimated useful lives. The amortization of leasehold improvements
is based on the shorter of the lease term or the life of the
improvement. Betterments and renewals, which extend the life of the
asset, are capitalized whereas maintenance and repairs are expensed
as incurred.
Sales:
Revenue is recognized in the financial statements when materials are
shipped from stock. Reported sales are arrived at by deducting
discounts and return allowances.
Advertising:
Advertising costs are expensed as incurred.
Income Taxes:
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". This
statement requires an asset and liability approach to account for
income taxes. Deferred taxes are provided for temporary differences
that will result in taxable or deductible amounts in future years
based on the reporting of certain costs in different periods for
financial statement and income tax purposes.
Earnings (Loss) Per Common Share:
Basic earnings per common share is calculated by dividing net income
by the weighted average number of common shares outstanding during
the period. Diluted earnings per common share is calculated by
adjusting weighted average outstanding shares, assuming conversion
of all of the Company's "Exchangeable Notes" (see note) as if
conversion to common shares had occurred at the beginning of the
current period. Interest expense applicable to the notes is added
back to net income for purposes of computing diluted earnings per
share. The additional shares contingently issuable to holders of the
exchangeable notes were not considered for the three months ended
September 30, 2003 because their effect would have been
anti-dilutive.
-8-
INTERNATIONAL IMAGING SYSTEMS, INC.
(SUCCESSOR TO A.M.S. MARKETING, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE B - INVENTORIES -
Inventories consists of the following at September 30, 2003:
Raw Materials $ 45,357
Work in Process 157,122
Finished Goods 147,468
-----------
$ 349,947
===========
NOTE C - PROPERTY AND EQUIPMENT -
Property and equipment consists of the following at September
30, 2003:
Furniture and Fixtures $ 19,834
Machinery and Equipment 159,728
Leasehold Improvements 55,375
-----------
234,937
Accumulated Depreciation and Amortization (52,473)
-----------
$ 182,464
===========
NOTE D - STOCK OPTION PLAN -
The Company's 2003 Equity Incentive Program (the "Program") was
adopted by the Board of Directors and approved by shareholders in
August, 2003. The "Program" provides for the grant of incentive
stock options, nonqualified stock options, and restricted stock
awards. Certain awards under the plan are intended to qualify as
"incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code (the "Code"). Other awards granted under the
"Program" are not intended to qualify as incentive stock options
under the "Code".
The total number of shares of the Company's common stock that may be
issued during the first year under the "Program" may not exceed
6,000,000 shares, of which 1,000,000 shares will be available for
issuance as incentive stock option grants and 5,000,000 shares will
be available for issuance as nonqualified stock option grants. The
total number of shares may be increased annually based upon the
total number of common shares outstanding of the Company's common
stock in subsequent years.
At September 30, 2003 no options or shares were issued under the
Program.
-9-
INTERNATIONAL IMAGING SYSTEMS, INC.
(SUCCESSOR TO A.M.S. MARKETING, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE E - COMMON AND PREFERRED STOCK -
Pursuant to a resolution by the Board of Directors and ratification
by a majority of the shareholders, in October 2003 the Company
amended its Certificate of Incorporation to increase the total
number of authorized shares to 30,000,000 consisting of 1,000,000
shares of ($.001) preferred stock and 29,000,000 shares of ($.001)
common stock.
At September 30, 2003 no shares of preferred stock were issued or
outstanding. Additionally, the Board of Directors has not designated
any voting powers, preferences, participation rights or other
special rights relating to the preferred stock.
NOTE F - CONCENTRATION OF RISK -
Suppliers:
The Company is dependent upon a number of major suppliers. If a
supplier had operational problems or ceased making material
available to the Company, operations could be adversely affected.
Customers:
During 2003, approximately 50% of the Company's total sales revenues
resulted from four customers. One customer accounted for
approximately 35% of sales during the three months ended September
30, 2003, and 28% of the September 30, 2003 accounts receivable
balance.
NOTE G - COMMITMENTS -
Rent:
The Company leases its general office and production facilities.
Rental expense amounted to $35,047 for the nine months ended
September 30, 2003. The Company is committed to total minimal annual
rental payments as follows:
2003 $45,185
2004 $45,185
2005 $18,125
-10-
INTERNATIONAL IMAGING SYSTEMS, INC.
(SUCCESSOR TO A.M.S. MARKETING, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE G - COMMITMENTS - continued -
Consulting Agreement:
On April 1, 2003, "AIS" entered into a three year management
services contract with a shareholder of "AMS". The agreement
provides for monthly payments of $5,000 through October 31, 2003 and
$6,300 thereafter.
Employment Agreements:
In July, 2003, "AIS" entered into three year employment contracts
with five individuals considered to be key employees. The contracts
provide for annual remuneration aggregating approximately $372,000
with cost of living increases in the last two years of the
contracts. In addition, the contracts provide for expense account
allowances aggregating to $30,000 annually.
NOTE H - PRO FORMA MERGER INFORMATION -
Unaudited pro forma operating results for the Company, assuming the
merger of International Imaging Systems, Inc. (successor to A.M.S.
Marketing, Inc.) and Advanced Imaging Systems, LLC occurred at the
beginning of each period presented are as follows:
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2003 2002
---------- ---------
Net Sales $2,545,939 $ 143,588
---------- ---------
Net Income (Loss) $ 6,548 $ (64,842)
---------- ---------
Earnings per share information is not presented because the effect on
basic and diluted earnings per share is immaterial.
NOTE I - RELATED PARTY TRANSACTIONS -
Prior to July 31, 2003, "AIS" purchased prepaid telephone time in the
amount of $18,955 from an entity owned by the chief executive officer
of "AIS" (who became the Company's chief executive officer on July 31,
2003) which entity, in turn, purchased such time for the same amount
from unrelated telecom providers on more favorable terms than AIS could
have obtained if it purchased such time directly.
-11-
INTERNATIONAL IMAGING SYSTEMS, INC.
(SUCCESSOR TO A.M.S. MARKETING, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE J - NOTES PAYABLE -
Notes payable consist of the following at September 30, 2003:
12% Note Payable - Officer - Due in monthly installments
of $3,500, including interest through August, 2004 $40,123
12% Note Payable - Officer - Due in monthly installments
of $2,335, including interest through November, 2004 27,488
6% Note Payable - Shareholder - Due in monthly
installments of $1,500, including interest through
August, 2007 63,493
Demand Loans Payable - Shareholders - Working capital
advances bearing no interest and expected to be repaid
within one year 77,917
6% Exchangeable Notes Payable - Maturing at various
times through September, 2005. The notes may be
exchanged for common stock at maturity, at the
discretion of the lenders based upon an exchange price
of $.50 per common share for each dollar owed. Included
in this amount are notes to shareholders amounting to
$95,000. 295,000
--------
504,021
Deduct Current Portion (149,769)
--------
$354,252
========
The Company has pledged substantially all production machinery and
equipment as collateral on the notes owing to officers and
shareholders.
-12-
INTERNATIONAL IMAGING SYSTEMS, INC.
(SUCCESSOR TO A.M.S. MARKETING, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE J - NOTES PAYABLE - continued -
The maturities of notes and loans payable for each of the succeeding
five years subsequent to the current year are as follows:
2004 $ 146,796
2005 310,720
2006 16,690
2007 12,710
2008 17,105
-13-
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
Historically, the Company's principal business has been the marketing
of pre-owned, brand name photocopiers for an unrelated party. On July
31, 2003, the Company acquired all of the issued and outstanding
limited liability company interests (the "Interests") of Advanced
Imaging Systems, LLC, a Delaware limited liability company ("AIS")
engaged in the business of designing, manufacturing and marketing of
plastic and paper card products, including credit cards, pre-paid
telephone cards, value storage cards, access entry cards, identity
cards and business cards. The acquisition of AIS was effected by an
exchange reorganization (the "Exchange") whereby the Company acquired
all of the Interests of AIS in exchange for the issuance of an
aggregate of 1,200,000 shares of the Company's Common Stock (the
"Shares") to the members of AIS, Laura Palisa Mujica, Lara Nicole
Sarafianos, Sarah Cinnante and Michael D'Angelo (the "Members").
Immediately prior to the Exchange, each of the Members purchased
900,000 shares of the Company's Common Stock (3,600,000 shares in the
aggregate) from Alfred M. Schiffrin, the Company's former President and
sole director, for $.05 per share, payable partly in cash and the
balance by a recourse promissory note secured by the purchased shares.
Each note is repayable in monthly installments of varying amounts
commencing on August 1, 2003 and ending on May 1, 2006, subject to
acceleration upon the happening of certain events (each an "Event of
Default"), including without limitation, failure of such Member to make
payment of principal when due within three business days following
written notice to such Member, the dissolution, winding-up, suspension
of the usual business activities or complete or partial liquidation of
the business of the Company, the bankruptcy of such Member or the
Company, the commencement of a voluntary bankruptcy by such Member or
the Company or the death of such Member. Each note is non-interest
bearing except upon the happening and during the continuation of an
Event of Default, in which case each note bears interest at the rate of
15% per annum or the maximum rate of interest permissible in the State
of Florida, whichever is lower. The Shares, together with the shares
purchased by the Members from Mr. Schiffrin, represented approximately
82% of the total then issued and outstanding shares of the Company's
Common Stock. Accordingly, the Exchange has been treated as a reverse
acquisition.
During the next twelve months and for the foreseeable future, the
Company expects that the business of its wholly-owned subsidiary AIS
will constitute the principal business activity of the Company and to
which it intends to devote substantially all of its resources. The
Company also plans to continue its pre-existing marketing business and
has agreed with Mr. Schiffrin that he will operate such business in
exchange for 25% of the profits thereof. Management is also considering
its strategic alternatives for the pre-existing business, including the
sale or spin-off thereof.
-14-
As discussed below, the three-month period ended September 30, 2003,
was characterized by a substantial increase in sales offset by
substantial increases in costs of goods sold and general and
administrative expenses, resulting in a net loss for the period of $16,
870 as compared to a net loss of $15,548 during the same period in the
prior year.
Results of Operations
Net sales for the three-month period ended September 30, 2002 (the
"2002 Third Quarter") of $140,588 increased to $865,244 for the
three-month period ended September 30, 2003 (the 2003 Third Quarter), a
515% increase. Such increase is primarily attributable to the 2002
Third Quarter constituting the initial start-up quarter of AIS.
Substantially all of the net sales during the 2002 Third Quarter and
the 2003 Third Quarter were generated by the Company's card business
and consisted of pre-paid telephone cards except that approximately 17%
of net sales in the 2003 Third Quarter represented sales of packaging
materials to one customer. During both of such periods, approximately
50% of net sales were made to four customers, one of which represented
approximately 35% of net sales in the 2003 Third Quarter. The Company
anticipates that net sales of products other than pre-paid telephone
cards and the Company's dependence on a limited number of customers
will decrease over time. However, there can be no assurance that such
greater product diversification or lessened customer dependence will
occur.
Cost of goods sold increased from $92,626 for the 2002 Third Quarter to
$567,839 for the 2003 Third Quarter, a 513% increase. This increase is
primarily attributable to the corresponding increase in net sales
during the 2003 Third Quarter.
For the 2002 Third Quarter, the Company generated a gross profit of
$47,962, representing a gross profit margin of 34%. For the 2003 Third
Quarter, the Company generated a gross profit of $297,405, representing
a gross profit margin also of 34%. Gross profit margins may fluctuate
in the future depending on changes in mix of products sold, the mix of
sales distribution channels and other factors.
Net sales for the nine-month period ended September 30, 2002 (the "2002
Period") of $140,588 increased to $2,541,439 for the nine-month period
ended September 30, 2003 (the "2003 Period"), a 1,708% increase. Such
increase is primarily attributable to the 2002 Period consisting of
only four full months of business of AIS as it was formed in June 2002.
Substantially all of the net sales during the two periods were
generated by the Company's card business and approximately 50% of net
sales during such periods were made to four customers. The Company
anticipates that net sales of products other than pre-paid telephone
cards and the Company's dependence on a limited number of customers
will decrease over time. However, there can be no assurance that such
greater product diversification or lessened customer dependence will
occur.
Cost of goods sold increased from $113,938 for the 2002 Period to
$1,650,040 for the 2003 Period, a 1,348% increase. This increase is
primarily attributable to the corresponding increase in net sales
during the 2003 Period.
For the 2002 Period, the Company generated a gross profit of $$26,650,
representing a gross profit margin of 19%. For the 2003 Period, the
Company generated a gross profit of $891,399, representing a gross
-15-
profit margin also of 35%. This increase in gross profit margin is
primarily attributable to the increase in net sales during the 2003
Period. Gross profit margins may fluctuate in the future depending on
changes in mix of products sold, the mix of sales distribution channels
and other factors.
The Company is not presently aware of any known trends, events or
uncertainties that may have a material impact on its net sales from
existing operations.
General and Administrative Expenses
Total general and administrative expenses increased 403% from $63,510
in the 2002 Third Quarter to $319,528 in the 2003 Third Quarter. The
increase is primarily attributable to expenses related to the increase
in sales during such periods as well as approximately $60,000 of
professional fees and other expenses incurred in connection with the
exchange transaction among the Company, AIS and the members of AIS.
Depreciation and amortization increased 34% from $8,000 in the 2002
Third Quarter to $10,720 in the 2003 Third Quarter.
Total general and administrative expenses increased 833% from $94,161
in the 2002 Period to $878,326 in the 2003 Period The increase is
primarily attributable to expenses related to the increase in sales
during such periods as well as approximately $$110,000 of professional
fees and other expenses incurred during the 2003 Period in connection
with the exchange transaction among the Company, AIS and the members of
AIS. Depreciation and amortization increased 222% from $10,000 in the
2002 Period to $$32,161 in the 2003 Third Quarter.
Net loss was $16, 870 for the 2003 Third Quarter as compared to $15,548
for the 2002 Third Quarter. The Company does not believe that the
increase in net loss between the periods is meaningful.
Net income was $10,676 for the 2003 Period as compared to a net loss of
$67,511 for the 2002 Period. Such change is primarily attributable to
the increase in net sales between the periods which, in turn, is
primarily attributable to the commencement of sales by AIS in July
2002.
Liquidity and Capital Resources
As of September 30, 2003, the Company's principal sources of liquidity
consisted of cash and cash equivalents of $39,020 and trade accounts
receivable of $386,568.
The Company has historically financed its operations through loans from
shareholders and through the sale by AIS of notes that are
exchangeable, at the option of the holder, into shares of the Company's
common stock on the basis of $.50 per share. The notes bear interest at
the rate of 6% per annum and are due on various dates through September
2005. As of September 30, 2003, AIS had sold an aggregate of $295,000
of the notes.
The Company believes that its cash and cash equivalents on hand,
together with cash flow from operations will be sufficient to finance
the Company's current level of operations for the foreseeable future.
-16-
In order to expand the Company's operations and further diversify its
product lines by purchasing additional equipment, the Company will need
to obtain additional debt and/or equity capital. The Company is in
negotiations with various parties but no assurance can be given that
the Company will be able to secure additional capital on terms
acceptable to the Company or at all. If the Company is unable to raise
additional capital, it will be unable to expand its operations as
quickly as desired and will have to rely on internally generated funds
for any expansion.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
------------------------------------------------
Within the 90 days prior to the date of this report, International
Imaging Systems, Inc. (" the Company") carried out an evaluation, under
the supervision and with the participation of the Company's management,
including the Company's Chief Executive and Chief Financial Officer, of
the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based upon that evaluation, the Chief Executive and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting him to material information
required to be included in the Company's periodic SEC filings relating
to the Company (including its consolidated subsidiaries).
(b) Changes in Internal Controls.
----------------------------
There were no significant changes in the Company's internal controls or
in other factors that could significantly affect these internal
controls subsequent to the date of our most recent evaluation.
FORWARD LOOKING STATEMENTS
--------------------------
This Form 10-QSB and other reports filed by the Company from time to
time with the Securities and Exchange Commission (collectively the
"Filings") contain or may contain forward looking statements and
information that are based upon beliefs of and information currently
available to the Company's management as well as estimates and
assumptions made by the Company's management.
When used in the filings the words "anticipate", "believe", "estimate",
"expect", "future", "intend", "plan" and similar expressions as they
relate to the Company or the Company's management identify forward
looking statements. Such statements reflect the current view of the
Company with respect to future events and are subject to risks,
uncertainties and assumptions relating to the Company's operations and
results of operations and any businesses that may be acquired by the
Company. Should one or more of these risks or uncertainties
materialize, or should the underlying assumptions prove incorrect,
actual results may differ significantly from those anticipated,
believed, estimated, intended or planned.
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INTERNATIONAL IMAGING SYSTEMS, INC.
PART II
OTHER INFORMATION
Item 1 Legal Proceedings
None
Item 2 Changes in Securities
During the period covered by this Report, no securities were sold by
the Registrant that were not registered under the Securities Act of
1933, as amended (the "Act"), except as follows:
1. On July 31, 2003, Registrant issued 300,000 shares of its common
stock, par value $.001, to each of Laura Palisa Mujica, Lara Nicole
Sarafianos, Sarah Cinnante and Michael D'Angelo ( the "Members"),
pursuant to an Agreement and Plan of Exchange, dated as of July 28,
2003, among the Registrant, the Members and Advanced Imaging Systems,
LLC., a Delaware limited liability company ("AIS"), in exchange for the
Members' limited liability company interests in AIS. All of the Members
were accredited or sophisticated investors. The exchange ratio was
arbitrarily determined by negotiations among the parties and no value
was assigned to the shares issued. The shares were issued in reliance
upon the exemption provided by Section 4(2) of the Act.
2. At various times during the period covered by this Report, AIS, the
Registrant's wholly-owned subsidiary, sold an aggregate of $295,000 of
notes to five accredited investors. Each of the notes are exchangeable,
at the option of the holder, into shares of Registrant's common stock
on the basis of $.50 per share. The notes bear interest at 6% per annum
and are due at various dates through September 2005. The notes were
issued in reliance upon the exemption provided by Section 4(2) of the
Act.
With respect to issuances of securities referred to above, investors
were furnished with information regarding the Registrant and AIS and
the offering and issuance, and each had the opportunity to verify
information supplied. Additionally, Registrant or AIS, as the case may
be, obtained a representation from each investor of such investor's
intent to acquire the securities for the purpose of investment only,
and not with a view toward the subsequent distribution thereof. The
securities bear appropriate restrictive legends, and Registrant has
issued stop transfer instructions to its transfer agent.
Item 3 Defaults Upon Senior Securities
None
-18-
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification of Chief Executive and Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
On August 15, 2003, Registrant filed a Current Report on Form 8-K
reporting a change in control and the acquisition of all of the
issued and outstanding limited liability company interests of
Advanced Imaging Systems, LLC, a Delaware limited liability company
("AIS"). Such report included the financial statements of AIS for
the periods specified in Rule 3-05(b) of Regulation S-X and the pro
forma financial information required pursuant to Article 11 of
Regulation S-X.
SIGNATURES
In accordance with 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.
INTERNATIONAL IMAGING SYSTEMS, INC.
(Registrant)
Date: November 13, 2003 By: /s/ C. LEO SMITH
-------------------------
C. Leo Smith
President
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CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying Quarterly Report on Form 10-QSB of
International Imaging Systems, Inc. for the three month period ended September
30, 2003, I, C. Leo Smith, President, Chief Executive Officer, and Chief
Financial Officer, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my
knowledge and belief, that:
1. Such Quarterly Report on Form 10-QSB for the three months ended September
30, 2003, fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2. The information contained in such Quarterly Report on Form 10-QSB for the
three months ended September 30, 2003, fairly presents, in all material
respects, the financial condition and results of operations of
International Imaging Systems, Inc.
INTERNATIONAL IMAGING SYSTEMS, INC.
Date: November 13, 2003 By: /s/ C. LEO SMITH
-------------------------------
C. Leo Smith, President
Chief Executive Officer and
Chief Financial Officer
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